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Russell Investment Funds

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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:     811-05371    

Russell Investment Funds

(Exact name of registrant as specified in charter)

909 A Street, Tacoma Washington 98402

(Address of principal executive offices) (Zip code)

Gregory J. Lyons, Secretary and Chief Legal Officer

Russell Investment Funds

909 A Street

Tacoma, Washington 98402

253-439-2406

(Name and address of agent for service)

Registrant’s telephone number, including area code:     253-572-9500    

Date of fiscal year end:     December 31    

Date of reporting period:     January 1, 2009 to December 31, 2009    

 

 

 


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Item 1.Reports to Stockholders


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LOGO

 

2009 ANNUAL REPORT

 

 

Russell Investment Funds

 

 

DECEMBER 31, 2009

FUND

Multi-Style Equity Fund

Aggressive Equity Fund

Non-U.S. Fund

Core Bond Fund

Real Estate Securities Fund

 

LOGO


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Russell Investment Funds

Russell Investment Funds is a series investment company with nine different investment portfolios referred to as Funds. These financial statements report on five of these Funds.


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Russell Investment Funds

Annual Report

December 31, 2009

Table of Contents

 

   Page
To Our Shareholders  3
Market Summary  4
Multi-Style Equity Fund  10
Aggressive Equity Fund  20
Non-U.S. Fund  32
Core Bond Fund  44
Real Estate Securities Fund  71
Notes to Schedules of Investments  78
Statements of Assets and Liabilities  79
Statements of Operations  81
Statements of Changes in Net Assets  82
Financial Highlights  84
Notes to Financial Highlights  86
Notes to Financial Statements  88
Report of Independent Registered Public Accounting Firm  110
Tax Information  111
Basis for Approval of Investment Advisory Contracts  112
Shareholder Requests for Additional Information  116
Disclosure of Information about Fund Trustees and Officers  117
Adviser, Money Managers and Service Providers  122


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Russell Investment Funds

Copyright © Russell Investments 2010. All rights reserved.

Russell Investments is a Washington, USA corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company.

Fund objectives, risks, charges and expenses should be carefully considered before investing. A prospectus containing this and other important information must precede or accompany this material. Please read the prospectus carefully before investing.

Securities products and services offered through Russell Financial Services, Inc., member FINRA, part of Russell Investments.

Indices and benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Index return information is provided by vendors and although deemed reliable, is not guaranteed by Russell Investments or its affiliates.

Russell Investments is the owner of the trademarks, service marks, and copyrights related to its respective indexes.

Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted.


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To Our Shareholders

We are pleased to provide you with Russell Investment Funds’ 2009 Annual Report. It includes portfolio management discussions and fund-specific details that will give you an in-depth understanding of fund performance for the fiscal year ending December 31, 2009.

Every day, we strive to improve financial security for people and earn the continued support of our investors. Despite another year of economic uncertainty, the markets have rebounded sharply from the spring. We are sensitive to ongoing investor concerns and recognize the need for investment solutions that help provide the opportunities investors seek.

We continue to believe that investors are well served by remaining focused on long-term disciplined investing in well-diversified, asset allocated portfolios and that they should continue to talk with their financial advisors to ensure their portfolios remain aligned with long term goals.

The Russell Investments team has years of experience in managing people’s money through various market cycles, trends and turnarounds. As always, we are continuously monitoring our investment managers and our funds to ensure adherence to their long-term strategies.

We appreciate your continued support.

Best regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

 

To Our Shareholders 3


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Russell Investment Funds

Market Summary as of December 31, 2009 (Unaudited)

U.S. Equity Markets

The U.S. equity market began the year with elevated volatility and weakness before rebounding sharply and ultimately delivering a strong positive return for 2009. The broad market Russell 3000® Index rose 28.3% over the year ended December 31, 2009 as the global economy began to emerge from the worst recession and financial crisis in almost a century. The fear and panic which had pervaded the market in 2008 and early 2009 began to dissipate in March 2009 as investors increased their risk appetites.

Even with coordinated actions by central banks across the globe and a variety of highly stimulative governmental policies in place, liquidity remained an issue for many banks, consumers and small businesses at the start of 2009, leading them to cut spending and lay-off employees. With unemployment continuing to rise, expectations of a strong recovery were tempered. Meanwhile, consumer credit was slow to unfreeze and the housing market remained weak. Against this backdrop, anxiety about the health of banks and other financial services companies persisted. These and other factors led the broad U.S equity market to decline during the first two months of the year and to set a new low on March 6, 2009.

Following the March 6, 2009 low, the U.S. equity market, as measured by the Russell 3000® Index, experienced a rally led by the three largest U.S. banks announcing that they would likely earn a profit for the first quarter of 2009. The market continued to rise after the Federal Reserve Board stated that it would purchase “distressed assets” in order to remove them from the balance sheets of banks. The rebound was further extended by the early May announcement of positive results from the stress tests that the U.S. government conducted on 19 U.S. banks. While capital ratios were found not to be sufficient at all the banks at the time, there were no banks which the market deemed to be on the verge of insolvency. Reports that several banks were planning to pay back TARP funds as soon as possible also helped alleviate fears about the health of the financial sector. In addition to positive bank-related news, declining inventories across many sectors led to the expectation that restocking, and the related uptick in demand for manufactured goods, would soon follow. Around the same time, a series of reports showed consumer confidence improving more than expected, further adding to investors’ optimism. The Federal Reserve Board’s decision to keep the Fed Funds rate at an historical low near zero percent was also an important contributor in providing businesses with low cost financing to encourage growth.

Stocks that had been priced for an elevated probability of bankruptcy by investors during the downturn led the rally as the bankruptcy scenario appeared increasingly unlikely. Small capitalization stocks outperformed large capitalization stocks as investors’ risk appetites increased. After significantly underperforming during the downturn, cyclical companies (those more tied to the economic cycle) and large capitalization financial stocks were among the top performers at the outset of the rally. Small capitalization financial stocks continued to underperform as investors remained concerned about the health of smaller regional banks and the rising delinquencies in their commercial real estate loan portfolios. Higher beta (beta is a measure of the volatility of a given security compared to the volatility of the market as a whole) stocks and companies with low price-to-book ratios were among the top performers, as were stocks with higher earnings variability and higher debt-to-capital ratios. These factors were out of favor during the market decline of 2008 and early 2009. Consistent with the market’s sharp reversal, stocks with the lowest price momentum were among the best performers during the rally. Higher quality companies (typically those with more stable earnings growth, less leverage and attractive balance sheets) faced headwinds as investors took on more risk and increased the cyclicality of their portfolios. Defensive sectors, including the health care sector which faced significant uncertainty surrounding the Obama administration’s plan to overhaul healthcare, and factors such as higher yield and lower earning per share variability lagged during this period.

Mid-October 2009 marked a moderation of these trends, with lower risk and higher quality factors performing better as investors took profits in many of the names which had led the rally. The market shifted its focus away from deep cyclical areas and toward companies with more stable and sustainable earnings and business growth which investors believed had become undervalued. November was a more muted factor environment (no strong trends) which marginally extended the shift away from lower quality cyclical stocks. The market finished the year by rewarding earnings growth in

 

4 Market Summary


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Russell Investment Funds

 

December and adding to growth stocks’ outperformance relative to value stocks. In the fourth quarter, the trend toward lower quality being rewarded moderated and there was a slight shift toward higher quality factors such as higher profitability (measured by return on assets), stronger balance sheets (including lower debt leverage) and less cyclicality.

For 2009, both gross domestic product and corporate profits rose from their 2008 lows. In addition, reports from the housing sector showed signs of stabilization. Most economic indicators turned from strongly negative, to less negative, to improving over the course of the year. Although the domestic economy began to recover during the year, companies with exports to faster-growing, developing, non-U.S. economies posted stronger performance as they benefited from the weakening of the U.S. dollar for most of the period. During the second half of 2009 in particular, exposure to U.S. companies which generated a portion of their revenues overseas was rewarded.

Despite strong performance off of the market’s early March low, the financial services sector posted the second lowest return of any sector for the year due to its extreme weakness in the first two months of the year. Only the defensive utilities sector finished behind the financials sector. The energy sector experienced a reversal similar to that of the financials sector during the year. The energy sector rebounded only after significant weakness early in the period amid concerns about the magnitude of the global economic slowdown earlier in the year and the related drop in demand. Other sectors which lagged the overall market included the more defensive consumer staples and health care sectors. Producer durables also lagged as it was hit by concerns about a slowdown in government defense spending.

The top-performing sectors in the Russell 3000® Index were the more cyclical ones. The technology sector led on expectations that businesses will increase IT expenditures as part of the equipment and software upgrade cycle after putting spending on hold amid the weak economic environment. Finishing behind technology, but still outperforming, were the materials and processing and consumer discretionary sectors. Materials stocks benefited from higher demand due to increased optimism about the economic recovery, especially as developing countries continue to build out their infrastructure. Improving consumer confidence contributed to the rebound of consumer discretionary stocks.

The recovery in stock prices occurred across investment styles as well as the market capitalization spectrum. While value stocks rebounded more strongly off the March lows, growth stocks led over the entire year. This was true for both the large capitalization and small capitalization market segments. For the year, the Russell 1000® Growth Index returned 37.2% and the Russell 1000® Value Index returned 19.7%, while the Russell 2000® Growth Index returned 34.5% and the Russell 2000® Value Index returned 20.6%. Small capitalization stocks outperformed large capitalization stocks off of the March lows, but lagged slightly over the year due to weakness early in the period. The Russell 2000® Index returned 27.2% and the Russell 1000® Index returned 28.4% for the year. Midcap stocks performed the best over the period, while microcap stocks lagged despite strong performance during the rally. The Russell Midcap® Index returned 40.5% and the Russell Microcap® Index returned 27.5% for the fiscal year.

The challenging active management environment of early 2009 improved during the year as there was more differentiation between stocks (lower correlation) and a substantial reduction in the indiscriminate selling of all riskier assets as the year progressed. Small capitalization managers across the style spectrum outperformed their benchmarks more consistently than their large capitalization counterparts, with small capitalization value managers in particular posting strong relative performance. Growth managers generally had a more difficult time relative to their benchmark as momentum was not in favor during a year which featured multiple sharp reversals in market direction. In addition, growth managers with less valuation sensitivity faced headwinds as stocks with low price to book and price to earnings ratios were rewarded. The Lipper® Small Cap Value Funds Average outperformed the Russell 2000® Value Index by 11.7%, the Lipper® Small Cap Core Funds Average outperformed the Russell 2000® Index by 4.9% and the Lipper® Small Cap Growth Funds Average outperformed the Russell 2000® Growth Index by 1.4%. The Lipper® Large Cap Growth Funds Average underperformed the Russell 1000® Growth Index by 1.9%, the Lipper® Large Cap Core Funds Average underperformed the Russell 1000® Index by 1.2%, and the Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 3.4%.

Real Estate Securities Market

For the fiscal year ending December 31, 2009, U.S. real estate investment trusts (“REITs”) generated a 27.99% return as measured by the FTSE NAREIT Equity REIT Index (the “Index”). During this period, U.S. REITs performed in line with the broader U.S. equity market and underperformed the international real estate securities market. Elevated volatility persisted, as evidenced by the double-digit value declines early in the year, while April marked the best month of performance since the inception of the Index in 1972. REIT share prices declined by 42% between the start of the fiscal year and early-March 2009 before sharply reversing course and gaining over 120% during the remainder of the year.

 

Market Summary 5


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Early in the fiscal year, REIT share prices declined steeply, as the sector exhibited a high correlation to the broader financial services sector. Investor sentiment toward the sector remained negative on concerns over labor market softness, weak consumer spending, lack of available debt capital and a stagnant housing market. At the property level, the deepening recession continued to undercut demand for commercial space, which lowered both occupancy and asking rents. REIT earnings suffered as a result. This period of rapid decline was characterized by a flight to quality. The market favored REITs with the lowest amounts of leverage, limited near-term refinancing needs and limited development pipelines. Neither dividend yield nor market capitalization appeared to be contributing factors to differences in individual company performance.

Beginning in March, numerous REITs raised capital in the equity market to address financing needs. Despite being generally dilutive to earnings, these equity offerings enabled struggling REITs to pay down debt and improve balance sheets, causing concerns over near-term solvency to subside. Meanwhile, relatively well-capitalized REITs took the opportunity to expand their cash reserves in anticipation of acquisition opportunities that could arise as maturing debt forces sellers to the market. Ongoing equity raising activity reduced leverage and restored confidence in REITs, attracting some non-dedicated REIT investors to the sector. This sparked a recovery in share prices and a relaxation of investors’ aversion to risk in the sector. As the REIT market rebounded from March lows, the most highly leveraged names, which had sustained the largest declines during the downturn, experienced the most extreme rebounds in share price.

A stream of positive economic news further extended this rally. July employment figures beat expectations, credit markets showed signs of recovery, the Federal Reserve Board announced the extension of the Term Asset-Backed Securities Loan Facility (TALF) program through June 2010 and housing sales experienced a modest uptick. Investors also took comfort in the fact that the equity market remained open and the unsecured debt market showed improvement. A total of $20.4 billion of equity and $8 billion of unsecured debt was raised during the fiscal year by REITs. The REIT market rally moderated somewhat in September 2009, first on concerns over the accelerated run-up in share prices over the previous several months, and later in response to news that existing and new home sales came in below expectations. Following the release of additional unfavorable economic data, including employment numbers below expectations, REITs were sold off in October. However, these declines were short-lived, as expectations of an economic recovery drove positive REIT performance from early November through year-end.

The historic levels of volatility in the REIT market during the period were driven by two factors: the high correlation to the financial services sector and a rise in short selling of REIT shares. The elevated correlation between REITs and the financial services sector, which began in 2008 with the heightening of the credit crisis, continued during the fiscal year. Short selling in the REIT sector also began to increase from 2008 due to negative investor sentiment and continued to rise into 2009 amid weakening fundamentals and unfavorable market conditions. In March 2009, concurrent with the REIT market’s lows, short selling reached its peak at nearly 12% of shares outstanding (compared with 3-4% prior to the downturn). As REITs began to issue equity and share prices rallied in the following months, the level of short selling decreased by over 4%. REIT volatility consequently moderated from peak levels, but remained elevated in comparison to historical levels.

During the fiscal year, returns were widely dispersed across the property sectors. Among the poorest performing sectors were shopping centers, self storage, and industrial. Sentiment toward the shopping centers sector was particularly negative due to deteriorating occupancy and income metrics driven by weak consumer spending. Self storage was the only property sector to post a positive return in 2008, sparking investors to take profits and rotate out of this sector during this fiscal year. While struggling industrial REITs addressed concerns over bankruptcy risk through equity issuance, significant development pipelines amid weak leasing market conditions put pressure on earnings forecasts. The two best performing property sectors were lodging/resorts and regional malls. The lodging/resorts sector was among the poorest performing sectors during the period prior to March 2009 and subsequently staged a rally as investors displayed a greater appetite for risk. Numerous lodging/resorts stocks that had been sold off excessively during the downturn multiplied in value as investor sentiment recovered. After performing poorly early in the fiscal year, the regional malls sector rebounded led strongly by sector leader Simon Property Group, which helped to spur the trend of equity issuance with its notable capital raising efforts in March.

The U.S. REIT market underperformed relative to the international real estate securities market by a fairly wide margin during the fiscal year, as measured by the FTSE EPRA/NAREIT Developed Real Estate Index. After experiencing price corrections in the prior year, the REIT markets in both Asia and Continental Europe had large positive returns during the fiscal year. Real estate securities in the UK and Australia also posted meaningful gains during the fiscal year,

 

6 Market Summary


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outperforming relative to U.S. REITs. Hong Kong property stocks recorded particularly strong gains for the fiscal year, while Japan was among the worst performing REIT markets globally, underperforming significantly relative to U.S. REITs.

Non-U.S. Developed Equity Markets

Non-U.S. equity markets rose more than 30% for the year ended December 31, 2009. The MSCI EAFE (Europe, Australasia, and Far East) Index gained 31.78% for the period. The gain reflects the strong rebound for global equity markets starting in March 2009, with a low to high return of more than 78% as measured by the MSCI EAFE.

For the period, investors in non-U.S. markets benefited from gains in foreign currencies relative to the U.S. dollar. EAFE’s gain, when measured in local currencies, was a more modest 21.00%. The more commodity-intensive economies such as Australia and Canada had very strong gains in their currencies. The Australian dollar gained nearly 28% and the Canadian dollar nearly 16% relative to the US dollar.

Value-driven investment strategies led the market recovery as economic conditions appeared to improve slowly, but steadily, beginning in March 2009. U.S. government-led stimulus helped restore confidence in the viability of global commerce, though not as much in the ability of global businesses to grow as rapidly. The MSCI EAFE Value Index rose 34.23% for the period, while the EAFE Growth Index rose 29.36%.

Regionally, the Pacific ex Japan region had the strongest gains. The region gained 72.81% for the period as measured by MSCI Pacific ex Japan Index led by the 76.43% gain in the Australian market as measured by MSCI Australia Index. European stocks rose 35.83% as measured by MSCI Europe Index. Japan was the notable laggard gaining 6.25% as measured by MSCI Japan Index for the period. While developed markets had strong returns, emerging markets had even stronger gains. The MSCI Emerging Markets Index gained 83.53% led by Brazil’s 128.06% gain as measured by the MSCI Brazil Index.

The strength of emerging markets reflected in large part the strong market for more economically-leveraged areas of the global stock market. Industrial metals producers and the other industrial cyclical companies posted very strong gains as investors grew more optimistic towards global economic recovery. The MSCI EAFE materials sector gained 69.3% for the year, led by the 95.16% gain of the metals and mining sector. The information technology, energy and financial sectors also posted strong gains. Financial stocks recovered as unprecedented economic stimulus and government-led relief programs convinced investors that these companies could survive and eventually possibly thrive.

In contrast to sectors highly levered to the global economy, more staid and predictable sectors lagged. The MSCI utilities sector gained 4.18%. The MSCI telecommunications and health care sectors also lagged with respective gains of 15.67% and 17.52%.

Emerging Markets

During 2009, the MSCI Emerging Markets Index (“Index”) increased 78.5%. The Index had four consecutive quarters of positive performance with the second and third quarter outperforming significantly. The Index gained 34.7% in the second quarter, its best quarterly return since inception of the Index in 1988. Emerging markets outperformed developed markets which gained 30.0% as measured by the MSCI World Index. Emerging markets returns were largely predicated on the belief that these markets would recover soonest given better capitalized, less leveraged financial systems and policymakers (particularly in Asia) that are experienced at navigating periods of economic turbulence. The positive performance in the fourth quarter of 2009 was largely driven by the improving economic situation, particularly in Latin America and a further rebound in commodity prices. The US dollar’s continued weakness helped increase the appeal of hard assets including gold and copper. The price of gold rose above the $1,000 an ounce ceiling and reached an all-time high of $1,227.5 an ounce in December, while copper gained nearly 140% in 2009. Crude oil, Russia’s major export, neared $80 a barrel on the improving economic situation in the US and concerns over unrest in Iran.

Inflows into the emerging markets asset class reached record levels in 2009 as the economic outlook improved for emerging countries’ exporters as stimulus measures from China to Brazil gained traction and US economic data improved. The best-performing markets over the year included Turkey, 97.5% as measured by MSCI Turkey Index, Brazil 128.1% as measured by MSCI Brazil Index and Russia 104.2% as measured by MSCI Russia Index. These markets typically perform strongly when risk appetite is robust. Indonesia, often regarded as the riskiest of emerging markets, gained 126.2% as measured by MSCI Indonesia Index. Resource rich Latin American markets strengthened as investors rotated assets away from developed economies and into countries that supply China with raw materials, such as Chile which gained 85.6% as measured by MSCI Chile Index and Peru which gained 71.9% as measured by MSCI Peru Index. Chinese equities increased 62.3% as measured by MSCI China Index on speculation that its economic strength will lead the world out of recession.

 

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Several emerging market currencies, notably those closely linked to commodities, significantly outperformed the US dollar over the period. The leader among them was the Brazilian real, which was up over 45% relative to the U.S. dollar. The currency gained the most since its 1993 creation as the country emerged from recession in the second quarter and had its credit rating raised to the lowest investment-grade level in September. The South African rand also rose in 2009, up 38.4% relative to the U.S. dollar as record-low interest rates in developed nations encouraged purchases of high-yield assets and commodity prices rose on signs of a global economic recovery. The Chilean peso 26.6% had a strong start in 2009 as its central bank, the most aggressive monetary policy institution in Latin America, lowered interest rates by 6% between January and March in an effort to stimulate growth. Chile is the world’s biggest copper producer and it obtained the first credit ratings increase among investment-grade nations in 2009.

U.S. Fixed Income Markets

As much as 2008 was characterized by the credit crisis, investor anxiety and a flight to the relative safety of U.S. Treasuries, 2009 was a period of significant government intervention. Government action was crucial to restoring liquidity to the credit markets and investor confidence and served as a driver of the fixed income market rally during the second half of the year.

Following the bankruptcy of Lehman Brothers Holdings Inc. in September 2008, a massive reshuffling of banking institutions ensued. Some banks were compelled into competitor mergers/acquisitions while others sought bank holding status, all causing further unrest in the fixed income market and decreasing liquidity. This disruption was largely the impetus for the Emergency Economic Stabilization Act of 2008, which initially was designed to address weakness in the banking industry by allocating $700 billion for the purchase of distressed assets from banks. The U.S. Treasury used Troubled Asset Relief Program (TARP) funds for direct capital injections into financial institutions while the Federal Deposit Insurance Corporation (FDIC) temporarily increased retail bank deposit insurance to $250,000 per retail bank account.

In mid-November 2008, in a bid to restore liquidity in the asset-backed securities (ABS) market, the Federal Reserve Board announced the creation of the Term Asset-Backed Securities Lending Facility (TALF) under which the Federal Reserve Bank of New York planned to loan up to $200 billion on a non-recourse basis to purchasers of newly issued AAA-rated ABS collateralized primarily by consumer loans (credit card receivables and automobile loans). This program was well received and did much to increase liquidity in the fixed income markets. It was subsequently expanded to include other assets, such as commercial mortgage-backed securities (CMBS).

Numerous other programs were created by various U.S. government agencies and instrumentalities to address issues in the credit markets and broader economy and in doing so, the U.S. government has spent, lent or committed $12.8 trillion to these programs

In December 2008, the Federal Reserve decreased the rate to the historically low range of 0.00% - 0.25%, where it remained at the end of December 2009.

Despite the massive government intervention, the housing market, a key factor underlying the credit and economic crises, remained largely under pressure throughout the period. However, there were positive signs. The U.S. government reached its goal of modifying the mortgage loans of 500,000 troubled homeowners ahead of schedule and the S&P/Case-Shiller 20-City Home Price Index increased every month from April through September when it plateaued. However, a record 2.8 million U.S. properties received foreclosure notices in 2009, up 21% from 2008 and up 120% from 2007, according to the RealtyTrac 2009 Year-End U.S. Foreclosure Market Report.

The increase in foreclosures was exacerbated by unemployment and the recession. While gross domestic product for the third quarter of 2009 grew at an annualized rate of 2.2% (largely due to government stimulus), it remained depressed at - -2.6% for the 12 months ending September 2009. From December 2008 to December 2009, unemployment increased from 7% to 10%, its highest level in recent history. Total writedowns at banks from the start of the credit crisis (summer 2007) through end of 2009 have totaled $1.74 trillion.

In April 2009, the U.S. government announced the results of bank stress tests. The capital markets positively received these results, interpreting them to mean that the prospect of financial disaster had become more remote. Against a backdrop of extremely low interest rates and explicit government support, this news started the fixed income rally which lasted throughout the second half of the year. The Barclays Capital U.S. Aggregate Index (BarCap Agg), a broad measure of U.S. investment grade fixed income securities, returned 5.93% (outperforming equivalent-duration Treasuries by 7.46%) for the period, up significantly from its calendar 2008 return of 5.24% (when it underperformed Treasuries by 7.10%).

 

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In sharp contrast to 2008, all major investment grade and non-investment grade sectors outperformed Treasuries in 2009, as investor anxiety decreased, the credit crisis abated and liquidity returned to the markets. Corporate credit was the most notable outperforming sector during the period, as investors saw confirmation of their beliefs that the high default rates implied by corporate bond prices were unrealistic. The investment grade corporate sector of the BarCap Agg returned 18.68% (outperforming Treasuries by 22.76%) and the Barclays Capital High Yield (corporate) Index returned 58.21% (outperforming Treasuries by 59.55%) for the year.

During most of the period, non-agency mortgage-backed securities continued to decline in price. However, the implementation of the Public-Private Investment Program reversed this trend, causing prime and Alt-A mortgage-backed securities to rally in the second half of the year.

 

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Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

LOGO

 

Multi-Style Equity Fund 
   Total
Return
 

1 Year

  32.72

5 Years

  0.83%§ 

10 Years

  -1.58%§ 
Russell 1000® Index ** 
   Total
Return
 

1 Year

  28.43

5 Years

  0.79%§ 

10 Years

  -0.49%§ 

 

* Assumes initial investment on January 1, 2000.

 

** 

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments from income dividends and capital gain distributions reinvested as of the ex-dividend dates.

 

§ Annualized.

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results.

 

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Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

The Multi-Style Equity Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has eight money managers.

What is the Fund’s investment objective?

The Fund seeks to provide long term capital growth.

How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2009?

For the fiscal year ended December 31, 2009, the Multi-Style Equity Fund gained 32.72%. This compared to the Russell 1000® Index, which gained 28.43% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

For the year ended December 31, 2009, the Lipper® Large-Cap Core Funds (VIP) Average gained 29.32%. This result serves as a peer comparison and is expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

The U.S. equity market began the year with elevated volatility and weakness before rebounding sharply and ultimately delivering a strong positive return for 2009. The period between January and early March 2009 saw extreme volatility and market weakness. Fear and panic pervaded the market and the U.S. government stepped in with numerous stimulus packages to assist banks, auto companies and consumers. There was a pervasive fear that the economy was headed in the direction of a very deep recession, and possibly even depression. This led to a fear driven “flight to quality” in the markets during the first part of the fiscal year where risk was avoided and investments which were deemed to be the safest outperformed those which were considered more economically sensitive or of lesser quality. From March through October, a valuation driven rally buoyed the market, led primarily by the most economically sensitive companies and those stocks that had been priced for a high probability of bankruptcy during the market downturn in 2008. Higher beta (beta is a measure of the volatility of a given security compared to the volatility of the market as a whole) stocks, those with highly variable earnings and those with the highest debt-to-capital ratios, were the best performers during

this period. In November and December, there was a moderation in these trends as investors took profits in the stocks that had led for much of the year. The market shifted toward those companies with more stable business growth and sustainable earnings.

This was a mixed environment for the Fund. The Fund outperformed the Russell 1000 Index by 4.29% for the fiscal year. The risk averse period in the first few months of the year was difficult for the Fund as investors took a very short-term perspective, avoiding risk of any kind and preferring higher dividend stocks and stocks with very stable and moderate earnings growth. In anticipation of an economic recovery, the Fund’s money managers purchased stocks of companies they believed to be undervalued with more earnings variability and above-average forward looking growth prospects. For the majority of the fiscal year, the Fund’s exposure to higher beta stocks and positioning for economic recovery contributed positively to performance. While the Fund’s money managers in general favored companies with higher quality balance sheets that were showing signs of fundamental earnings improvement, other of the Fund’s money managers, particularly within the value segment, were effective at finding companies that were deeply undervalued and, in some cases, priced for potential bankruptcy. These money managers benefited from investor fear and short-term risk aversion by finding deeply valued companies with longer-term fundamental prospects that were stronger than the market believed. These holdings tended to be the stocks that helped the Fund participate more fully in the rally off the market bottom of March 2009.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Over the fiscal year, the Fund’s money managers in aggregate maintained a tilt toward higher growth, higher beta and lower dividend-yield stocks. Though the Fund had a neutral growth/value split in terms of the allocation of its assets to money managers for most of the period, the market environment created an “organic” growth tilt where many value managers, using their valuation focused approaches saw growth stocks as attractive as their valuations fell to very low levels. As such, there was more growth exposure in the Fund over the period, much of it coming from the value segment. This positioning was beneficial for the year, as growth outpaced value for the year despite the fact that value rebounded more sharply off of the March market lows.

The Fund benefited from an overweight to the technology sector, the top performing sector in the Russell 1000 Index over the fiscal year, and from an underweight to the utilities sector, which lagged during the period. A market weight to the health care sector detracted from returns somewhat as those stocks were affected by the uncertainty surrounding the Obama health care proposal. An overweight to the financial services sector was a negative contributor, as that sector experienced extreme weakness in the first few months of the fiscal year.


 

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Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

Stock selection in the energy sector contributed to the Fund’s outperformance. The Fund benefited from an underweight to large multi-national integrated oil companies which performed poorly over the period. Health care stock selection also added to returns. In this sector, money managers focused on stocks in the drugs and pharmaceutical industry, especially those where the companies had long patent periods and those where no generic drug substitutes were available.

Stock selection in the consumer discretionary sector detracted from returns for the period. In particular, exposure to broadcasters and advertising agencies detracted from performance. Despite strong performance off the market’s early March low, extreme weakness in bank stocks for the first three months of the year led to negative stock selection in the financial services sector.

For the fiscal period, five of the eight money managers outperformed their respective benchmarks and three money managers underperformed their benchmarks. One of the current managers was not in the Fund for the full period. Generally over the fiscal period, managers who were more aggressively positioned performed better than those who were more defensively positioned. Deep value managers performed so well in the post March market recovery that this made up for their weakness in the first and last few months of the fiscal year. Growth managers faced the toughest active management environment over the period as those focusing on earnings momentum were not rewarded by the market during the period.

Growth manager Columbus Circle Investors (CCI) underperformed its Russell 1000 Growth® Index for the fiscal year. This underperformance was expected given the market environment and CCI’s focus on higher earnings momentum and higher growth rate companies. The majority of its underperformance was during the highly defensive market period at the beginning of the fiscal year. CCI’s stock selection, particularly in the health care and producer durables sectors, was the main detractor from returns for the full fiscal period. In the health care sector, CCI’s overweight to medical instrument companies and its underweight to biotech stocks contributed to its underperformance. Overweight positions in airline stocks in the producer durables sector also detracted from returns for the one year period.

The performance of First Eagle Investment Management, LLC (formerly Arnhold and S. Bleichroeder Advisers, LLC), a market-oriented manager, was negatively impacted by stock selection decisions and it underperformed its Russell 1000 Index benchmark. First Eagle’s performance benefited from positive sector allocation over the fiscal period. It was overweight in the top-performing technology sector and significantly underweight to the poorly performing consumer staples and utilities sectors. However, the positive contribution to performance from allocation was outweighed by the negative impact of more defensive holdings and stock selection. In the consumer discretionary sector, First Eagle focused on down

market retailers who struggled over the period. In the materials & processing sector, First Eagle had significant exposure to gold stocks and in the energy sector it was overweight to domestic integrated oil companies. These positions contributed to underperformance. Much of First Eagle’s underperformance came during the period following the March rally when its defensive positioning in gold stocks was not rewarded by a market that favored risk.

Suffolk Capital Management, LLC, a market-oriented manager, outperformed its Russell 1000 Index benchmark for the period on the strength of its stock selection decisions. Suffolk performed particularly well in the early part of the fiscal year when exposure to insurance stocks and health care stocks were both rewarded. Over the fiscal period, Suffolk benefited from an overweight to the top-performing technology sector, but stock selection was the main driver of their returns. Stock selection in the financial services sector added to returns as a result of Suffolk’s exposure to large financial services companies that were gaining market share, as well as insurance companies and credit card companies that performed well over the period. Suffolk’s exposure to chemical, copper and fertilizer companies drove strong results in the materials and processing sector for the year, as those stocks benefited from expanding global growth, particularly in China. Stock selection in the health care sector, particularly in pharmaceutical stocks, also added to returns.

Value manager DePrince, Race & Zollo, Inc. outperformed its Russell 1000 Value® Index benchmark for the fiscal year. It underperformed in the first few months of the fiscal year which was expected given a market environment where investors sought safety. DePrince had strong performance in the second part of the fiscal year as its deeper-value positioning, with investments in out-of-favor companies, outperformed. DePrince’s sector allocation decisions and stock selection were both additive. DePrince benefited from overweights to the materials & processing, technology and consumer discretionary sectors, which were the three best performing sectors in the Russell 1000 Value Index for the year. DePrince had strong performance from stock selection in the consumer discretionary sector through holdings of retailers. Exposure to semiconductor stocks in the technology sector was also a major contributor to returns. DePrince benefited from its positioning in the post March rally, as both an overweight to high beta stocks and a focus on smaller capitalization stocks were rewarded for most of the year.

RIMCo currently employs a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings in the Fund segments assigned to money managers to identify particular stocks that have been selected and are held in overweight positions by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. RIMCo performs this


 

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Multi-Style Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

analysis and ranking, and purchases or sells stocks based on this analysis and ranking, on a regular, periodic basis. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. The select holdings strategy outperformed the Russell 1000 Index benchmark over the fiscal year period, and was additive to the fund’s performance. During this period, the strategy benefited from overweights in the outperforming financial services and technology sectors. Stock selection in health care was also beneficial as managers’ overweights in two acquisition targets in the pharmaceutical industry led to those stocks being held in the select holdings portfolio.

Describe any changes to the Fund’s structure or the money manager line-up.

In August 2009, growth manager, Turner Investment Partners, Inc. was terminated and BlackRock Financial Management was hired with a growth mandate. Manager weights were adjusted throughout the structure.

 

Money Managers as of

December 31, 2009

 Styles
BlackRock Capital Management, Inc. Growth
Columbus Circle Investors Growth
DePrince, Race & Zollo, Inc. Value
First Eagle Investment Management, LLC Market-Oriented
Institutional Capital LLC Value
Jacobs Levy Equity Management, Inc. Value
Montag & Caldwell, Inc. Growth
Suffolk Capital Management, LLC Market-Oriented

The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of RIMCo, or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.


 

Multi-Style Equity Fund 13


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Shareholder Expense Example — December 31, 2009 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding each Fund’s Expense Example, which appears on each Fund’s individual page in this Annual Report. Please refer to this information when reviewing the Expense Example for a Fund.

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2009 to December 31, 2009.

Actual Expenses

The information in the table under the heading “Actual Performance” provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you 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 result by the number in the first column in the row entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information in the table under the heading “Hypothetical Performance (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate

of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading “Hypothetical Performance (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The fee and expenses shown in this section do not reflect any Insurance Company Separate Account or Policy Charges.

 

   Actual
Performance
  Hypothetical
Performance
(5% return
before expenses)
    

Beginning Account Value

    

July 1, 2009

  $1,000.00  $1,000.00

Ending Account Value

    

December 31, 2009

  $1,236.90  $1,020.92

Expenses Paid During Period*

  $4.79  $4.33

 

*Expenses are equal to the Fund’s annualized expense ratio of 0.85% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed. Without the waiver and/or reimbursement, expenses would have been higher.

 

14 Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Common Stocks - 94.8%      
Consumer Discretionary - 13.1%

Amazon.com, Inc. (Æ)

  26,072    3,507

Apollo Group, Inc. Class A (Æ)

  7,258    440

Avon Products, Inc.

  12,700    400

Bed Bath & Beyond, Inc. (Æ)

  35,260    1,362

Best Buy Co., Inc.

  21,289    840

BJ’s Wholesale Club, Inc. (Æ)

  1,100    36

Bob Evans Farms, Inc.

  2,500    72

CarMax, Inc. (Æ)

  11,600    281

CBS Corp. Class B

  104,810    1,473

Comcast Corp. Class A

  103,232    1,741

Costco Wholesale Corp.

  23,000    1,361

Darden Restaurants, Inc.

  9,200    323

eBay, Inc. (Æ)

  36,200    852

Estee Lauder Cos., Inc. (The) Class A

  15,662    757

Foot Locker, Inc.

  60,600    675

Ford Motor Co. (Æ)

  229,843    2,299

Fortune Brands, Inc.

  7,600    328

Gap, Inc. (The)

  23,200    486

H&R Block, Inc.

  23,100    523

Harman International Industries, Inc.

  4,900    173

Home Depot, Inc.

  41,341    1,196

Hyatt Hotels Corp. (Æ)

  600    18

International Game Technology

  27,400    514

Jarden Corp.

  5,600    173

JC Penney Co., Inc.

  14,100    375

Johnson Controls, Inc.

  50,250    1,369

Kohl’s Corp. (Æ)

  34,544    1,863

Las Vegas Sands Corp. (Æ)(Ñ)

  44,000    657

Lowe’s Cos., Inc.

  228,765    5,351

McDonald’s Corp.

  25,900    1,617

Nike, Inc. Class B

  13,300    879

Phillips-Van Heusen Corp.

  6,000  �� 244

priceline.com, Inc. (Æ)

  4,866    1,063

Regal Entertainment Group Class A

  32,300    466

Rent-A-Center, Inc. Class A (Æ)

  10,700    190

Royal Caribbean Cruises, Ltd. (Æ)

  29,200    738

Snap-On, Inc.

  12,100    511

Stanley Works (The)

  13,913    717

Starbucks Corp. (Æ)

  47,225    1,089

Starwood Hotels & Resorts Worldwide, Inc. (ö)

  9,400    344

Target Corp.

  19,800    958

Tech Data Corp. (Æ)

  2,900    135

TJX Cos., Inc.

  48,561    1,775

United Stationers, Inc. (Æ)

  1,400    80

Valassis Communications, Inc. (Æ)

  6,700    122

VF Corp.

  13,400    981

Viacom, Inc. Class B (Æ)

  69,800    2,075

Wal-Mart Stores, Inc.

  97,053    5,188

Walt Disney Co. (The)

  21,000    677

Washington Post Co. (The) Class B

  300    132
       
      49,426
       
   Principal
Amount ($)
or Shares
    Market
Value
$
Consumer Staples - 7.3%      

Archer-Daniels-Midland Co.

  10,600    332

Casey’s General Stores, Inc.

  2,500    80

Coca-Cola Co. (The)

  80,012    4,561

Colgate-Palmolive Co.

  14,700    1,208

ConAgra Foods, Inc.

  22,600    521

Corn Products International, Inc.

  17,500    511

CVS Caremark Corp.

  33,521    1,080

Dr Pepper Snapple Group, Inc.

  15,200    430

General Mills, Inc.

  25,100    1,777

Hansen Natural Corp. (Æ)

  13,842    532

JM Smucker Co. (The)

  424    26

Kraft Foods, Inc. Class A

  32,100    872

Kroger Co. (The)

  12,700    261

Lorillard, Inc.

  6,600    529

PepsiCo, Inc.

  116,543    7,086

Philip Morris International, Inc.

  10,000    482

Procter & Gamble Co. (The)

  75,000    4,547

Ralcorp Holdings, Inc. (Æ)

  7,600    454

Safeway, Inc.

  62,400    1,328

Tyson Foods, Inc. Class A

  19,300    237

Whole Foods Market, Inc. (Æ)

  18,661    512
       
      27,366
       
Energy - 9.6%      

Anadarko Petroleum Corp.

  23,600    1,473

Apache Corp.

  5,800    598

Arch Coal, Inc.

  17,700    394

Cameron International Corp. (Æ)

  27,700    1,158

Chesapeake Energy Corp.

  26,456    685

Chevron Corp.

  73,400    5,651

ConocoPhillips

  32,000    1,634

ENSCO International PLC - ADR

  7,100    284

EOG Resources, Inc.

  3,500    341

Exxon Mobil Corp.

  47,100    3,212

Halliburton Co.

  115,013    3,461

Helmerich & Payne, Inc.

  3,700    148

Hess Corp.

  17,100    1,034

Marathon Oil Corp.

  113,045    3,529

Murphy Oil Corp.

  6,400    347

Occidental Petroleum Corp.

  81,195    6,605

Petrohawk Energy Corp. (Æ)

  22,400    537

Rowan Cos., Inc. (Æ)

  9,400    213

Schlumberger, Ltd.

  26,800    1,744

Sunoco, Inc. (Ñ)

  21,400    558

Tesoro Corp. (Ñ)

  14,600    198

Transocean, Ltd. (Æ)

  12,000    994

Valero Energy Corp.

  20,900    350

Williams Cos., Inc. (The)

  45,700    963
       
      36,111
       
Financial Services - 16.6%      

Allied World Assurance Co. Holdings, Ltd.

  3,900    180

Allstate Corp. (The)

  41,300    1,241

American Express Co.

  49,911    2,022

American Financial Group, Inc.

  11,400    284

AON Corp.

  33,400    1,281

 

Multi-Style Equity Fund 15


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Apollo Investment Corp.

  12,200    116

Arch Capital Group, Ltd. (Æ)

  2,200    157

Aspen Insurance Holdings, Ltd.

  10,600    270

Assurant, Inc.

  10,400    307

Axis Capital Holdings, Ltd.

  10,400    295

Bank of America Corp.

  153,759    2,316

Bank of New York Mellon Corp. (The)

  30,700    859

BB&T Corp.

  72,750    1,846

BioMed Realty Trust, Inc. (ö)

  8,700    137

Camden Property Trust (ö)

  7,800    330

Capital One Financial Corp.

  73,526    2,819

Charles Schwab Corp. (The)

  71,900    1,353

CME Group, Inc. Class A

  800    269

Comerica, Inc.

  10,400    307

Cullen/Frost Bankers, Inc.

  5,300    265

DCT Industrial Trust, Inc. (ö)(Ñ)

  14,100    71

DiamondRock Hospitality Co. (ö)

  5,600    47

Discover Financial Services

  22,400    329

EastGroup Properties, Inc. (ö)

  2,300    88

Endurance Specialty Holdings, Ltd.

  7,000    261

Equity Residential (ö)

  9,500    321

Federated Investors, Inc. Class B

  18,100    498

Fifth Third Bancorp

  32,300    315

Goldman Sachs Group, Inc. (The)

  26,637    4,497

HRPT Properties Trust (ö)

  34,600    224

Hudson City Bancorp, Inc.

  17,700    243

JPMorgan Chase & Co.

  149,508    6,230

KeyCorp

  85,400    474

Liberty Property Trust (ö)

  10,700    342

Mack-Cali Realty Corp. (ö)

  7,600    263

Marsh & McLennan Cos., Inc.

  39,200    866

Mastercard, Inc. Class A

  6,085    1,558

Mercury General Corp.

  18,700    734

MetLife, Inc.

  21,800    771

Morgan Stanley

  154,976    4,587

Nasdaq OMX Group, Inc. (The) (Æ)

  11,300    224

New York Community Bancorp, Inc.

  55,400    804

Northern Trust Corp.

  16,900    886

NYSE Euronext

  7,400    187

PartnerRe, Ltd. - ADR

  4,100    306

People’s United Financial, Inc.

  31,000    518

Plum Creek Timber Co., Inc. (ö)(Ñ)

  18,800    710

PNC Financial Services Group, Inc.

  15,300    808

Protective Life Corp.

  6,400    106

Prudential Financial, Inc.

  27,400    1,363

State Street Corp.

  19,600    853

SunTrust Banks, Inc.

  45,900    931

Travelers Cos., Inc. (The)

  10,300    514

Unitrin, Inc.

  2,400    53

US Bancorp

  123,350    2,777

Valley National Bancorp (Ñ)

  44,300    626

Verisk Analytics, Inc. (Æ)

  322    10

Visa, Inc.

  43,544    3,808

Wells Fargo & Co.

  264,829    7,148

Wilmington Trust Corp. (Ñ)

  24,500    302

XL Capital, Ltd. Class A

  7,500    137
       
      62,444
       
   Principal
Amount ($)
or Shares
    Market
Value
$
Health Care - 10.6%      

Abbott Laboratories

  76,795    4,146

Aetna, Inc.

  12,200    387

Allergan, Inc.

  20,200    1,273

AmerisourceBergen Corp. Class A

  3,400    89

Amgen, Inc. (Æ)

  25,875    1,464

Boston Scientific Corp. (Æ)

  38,600    347

Cardinal Health, Inc.

  3,800    123

Centene Corp. (Æ)

  4,500    95

Cerner Corp. (Æ)

  4,600    379

Covance, Inc. (Æ)

  4,300    235

Coventry Health Care, Inc. (Æ)

  12,100    294

Covidien PLC

  38,650    1,851

Eli Lilly & Co.

  11,600    414

Express Scripts, Inc. Class A (Æ)

  7,700    666

Forest Laboratories, Inc. (Æ)

  13,400    430

Gilead Sciences, Inc. (Æ)

  30,000    1,298

Hospira, Inc. (Æ)

  20,300    1,035

Humana, Inc. (Æ)

  8,600    377

Intuitive Surgical, Inc. (Æ)

  3,957    1,200

Laboratory Corp. of America Holdings (Æ)

  5,900    442

Life Technologies Corp. (Æ)

  16,400    857

McKesson Corp.

  21,600    1,350

Medco Health Solutions, Inc. (Æ)

  8,700    556

Medtronic, Inc.

  31,916    1,404

Merck & Co., Inc.

  136,250    4,979

Mylan, Inc. (Æ)(Ñ)

  50,504    931

Par Pharmaceutical Cos., Inc. (Æ)

  5,700    154

Pfizer, Inc.

  311,462    5,666

Sanofi-Aventis SA - ADR

  59,850    2,350

Stryker Corp.

  12,500    630

Teleflex, Inc.

  13,200    711

Teva Pharmaceutical Industries, Ltd. - ADR

  6,600    371

Thermo Fisher Scientific, Inc. (Æ)

  28,603    1,364

UnitedHealth Group, Inc.

  25,700    783

Universal Health Services, Inc. Class B

  4,000    122

WellPoint, Inc. (Æ)

  11,600    676

Zimmer Holdings, Inc. (Æ)

  10,700    632
       
      40,081
       
Materials and Processing - 4.8%

Agnico-Eagle Mines, Ltd.

  2,500    135

Air Products & Chemicals, Inc.

  6,000    486

Allegheny Technologies, Inc.

  14,200    636

Ashland, Inc.

  6,700    265

Ball Corp.

  15,900    822

Cabot Corp.

  20,500    538

Cytec Industries, Inc.

  4,000    146

Dow Chemical Co. (The)

  57,000    1,575

Ecolab, Inc.

  6,100    272

EI du Pont de Nemours & Co.

  56,450    1,901

Freeport-McMoRan Copper & Gold, Inc. Class B

  52,070    4,181

International Flavors & Fragrances, Inc.

  3,500    144

Kaiser Aluminum Corp.

  1,200    50

Lubrizol Corp.

  3,900    284

 

16 Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Masco Corp.

  28,600    395

Monsanto Co.

  4,500    368

Newmont Mining Corp.

  51,868    2,454

Potash Corp. of Saskatchewan, Inc.

  4,100    445

Reliance Steel & Aluminum Co.

  7,400    320

Rock-Tenn Co. Class A

  1,800    91

Silgan Holdings, Inc.

  2,500    145

Sonoco Products Co.

  1,600    47

Teck Resources, Ltd. Class B (Æ)

  27,200    951

United States Steel Corp.

  5,200    286

Vulcan Materials Co. (Ñ)

  20,100    1,058
       
      17,995
       
Producer Durables - 12.1%      

3M Co.

  45,700    3,778

Accenture PLC Class A

  23,300    967

AGCO Corp. (Æ)

  5,300    171

AO Smith Corp.

  2,500    108

Arkansas Best Corp.

  3,200    94

Automatic Data Processing, Inc.

  19,500    835

Boeing Co. (The)

  12,900    698

Burlington Northern Santa Fe Corp.

  6,200    611

Caterpillar, Inc.

  72,077    4,108

CH Robinson Worldwide, Inc.

  6,300    370

Convergys Corp. (Æ)

  11,400    123

CSX Corp.

  47,200    2,289

Cummins, Inc.

  39,100    1,793

Danaher Corp.

  12,000    902

Delta Air Lines, Inc. (Æ)

  57,300    652

Deluxe Corp.

  5,300    78

Electronics for Imaging, Inc. (Æ)

  647    8

EMCOR Group, Inc. (Æ)

  3,500    94

Emerson Electric Co.

  22,100    941

FedEx Corp.

  10,100    843

Fluor Corp.

  18,600    838

General Dynamics Corp.

  20,077    1,369

General Electric Co.

  156,600    2,369

Goodrich Corp.

  16,900    1,086

Honeywell International, Inc.

  118,398    4,641

Illinois Tool Works, Inc.

  13,800    662

KBR, Inc.

  12,400    236

L-3 Communications Holdings, Inc.

  4,600    400

Lexmark International, Inc. Class A (Æ)

  14,500    377

Lockheed Martin Corp.

  10,800    814

Manpower, Inc.

  11,600    633

Norfolk Southern Corp.

  18,700    980

Northrop Grumman Corp.

  24,500    1,368

PACCAR, Inc.

  13,300    482

Parker Hannifin Corp.

  7,500    404

Pitney Bowes, Inc.

  33,800    769

Quanta Services, Inc. (Æ)

  22,800    475

Regal-Beloit Corp.

  1,900    99

Rockwell Automation, Inc.

  10,100    475

Ryder System, Inc.

  8,200    338

SPX Corp.

  11,400    624

Sunpower Corp. (Æ)

  3,100    65

Textron, Inc.

  23,550    443
   Principal
Amount ($)
or Shares
    Market
Value
$

Tidewater, Inc.

  12,900    619

Tyco International, Ltd.

  24,400    871

Unifirst Corp.

  800    39

Union Pacific Corp.

  2,200    141

United Parcel Service, Inc. Class B

  27,100    1,555

United Technologies Corp.

  15,700    1,090

Waste Management, Inc.

  27,000    913

Watson Wyatt Worldwide, Inc. Class A

  1,100    52

Watts Water Technologies, Inc. Class A

  2,100    65

Werner Enterprises, Inc.

  8,700    172

Xerox Corp.

  89,300    755
       
      45,682
       
Technology - 17.4%      

Amphenol Corp. Class A

  38,994    1,801

Apple, Inc. (Æ)

  34,892    7,357

Applied Materials, Inc.

  81,300    1,133

Avnet, Inc. (Æ)

  11,300    341

Baidu, Inc. - ADR (Æ)

  900    370

Broadcom Corp. Class A (Æ)

  56,459    1,776

Check Point Software Technologies (Æ)

  15,400    522

Cisco Systems, Inc. (Æ)

  155,866    3,731

Cognizant Technology Solutions Corp. Class A (Æ)

  9,800    444

Computer Sciences Corp. (Æ)

  6,000    345

Corning, Inc.

  60,600    1,170

Cree, Inc. (Æ)

  1,900    107

CSG Systems International, Inc. (Æ)

  2,800    53

Dell, Inc. (Æ)

  67,300    966

Diebold, Inc.

  14,800    421

EMC Corp. (Æ)

  59,389    1,038

Equinix, Inc. (Æ)

  1,799    191

Google, Inc. Class A (Æ)

  11,530    7,148

Harris Corp.

  10,900    518

Hewlett-Packard Co.

  146,797    7,562

Intel Corp.

  149,700    3,054

International Business Machines Corp.

  17,996    2,356

Jabil Circuit, Inc.

  7,300    127

Juniper Networks, Inc. (Æ)

  32,900    877

Lam Research Corp. (Æ)

  10,800    423

Marvell Technology Group, Ltd. (Æ)

  64,032    1,329

Maxim Integrated Products, Inc.

  52,100    1,058

Mentor Graphics Corp. (Æ)

  9,300    82

Micron Technology, Inc. (Æ)

  36,000    380

Microsoft Corp.

  52,500    1,601

Molex, Inc.

  14,800    319

Motorola, Inc. (Æ)

  51,200    397

National Semiconductor Corp.

  65,100    1,000

NetApp, Inc. (Æ)

  11,000    378

Nokia OYJ - ADR

  43,000    553

Novell, Inc. (Æ)

  45,200    188

NVIDIA Corp. (Æ)

  61,124    1,142

Palm, Inc. (Æ)(Ñ)

  29,500    296

Plexus Corp. (Æ)

  2,700    77

PMC - Sierra, Inc. (Æ)

  26,300    228

QUALCOMM, Inc.

  100,062    4,629

Research In Motion, Ltd. (Æ)

  19,200    1,297

 

Multi-Style Equity Fund 17


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

SAIC, Inc. (Æ)

  12,700    241

Salesforce.com, Inc. (Æ)

  8,600    634

Seagate Technology

  36,300    660

Synopsys, Inc. (Æ)

  13,200    294

Tellabs, Inc. (Æ)

  51,100    290

Texas Instruments, Inc.

  181,898    4,740
       
      65,644
       
Utilities - 3.3%      

Alliant Energy Corp.

  18,400    557

American Electric Power Co., Inc.

  27,800    967

American Water Works Co., Inc.

  32,000    717

AT&T, Inc.

  50,300    1,410

Atmos Energy Corp.

  5,700    168

BCE, Inc.

  44,900    1,240

Edison International

  6,400    223

Exelon Corp.

  9,300    454

Frontier Communications Corp.

  65,500    511

Great Plains Energy, Inc.

  26,400    512

MDU Resources Group, Inc.

  18,700    441

Mirant Corp. (Æ)

  8,400    128

NiSource, Inc.

  23,500    361

NV Energy, Inc.

  11,400    141

Pepco Holdings, Inc.

  31,200    526

PNM Resources, Inc.

  7,400    94

PPL Corp.

  9,300    300

Progress Energy, Inc. - CVO (ß)(Æ)

  1,300    

Veolia Environnement - ADR

  15,200    500

Verizon Communications, Inc.

  30,000    994

Vodafone Group PLC - ADR

  93,500    2,159
       
      12,403
       
Total Common Stocks
(cost $309,262)
      357,152
       
   Principal
Amount ($)
or Shares
    Market
Value
$
 
Short-Term Investments - 4.7%  

Russell U.S. Cash Management Fund (£)

  17,758,627    17,759  
        
Total Short-Term Investments
(cost $17,759)
    17,759  
        
Other Securities - 1.0%      

State Street Securities Lending Quality Trust (×)

  3,614,159    3,596  
        
Total Other Securities
(cost $3,614)
      3,596  
        
Total Investments - 100.5%
(identified cost $330,635)
      378,507  
Other Assets and Liabilities,
Net - (0.5%)
      (1,756
        
Net Assets - 100.0%      376,751  
        

 

See accompanying notes which are an integral part of the financial statements.

 

18 Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except contracts)

 

Futures Contracts  Number of
Contracts
  Notional
Amount
  Expiration
Date
  Unrealized
Appreciation
(Depreciation)
$
          
          
Long Positions          

Russell 1000 Mini Index

  38  USD  2,317  03/10  49

S&P 500 E-Mini Index (CME)

  180  USD  9,996  03/10  159

S&P 500 Index (CME)

  20  USD  5,554  03/10  96

S&P Midcap 400 E-Mini Index (CME)

  19  USD  1,377  03/10  59
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

          363
           

 

 

 

Presentation of Portfolio Holdings — December 31, 2009

 

   Market Value  

% of Net

Assets

 
Portfolio Summary  Level 1  Level 2  Level 3  Total  
          
          
          

Common Stock

          

Consumer Discretionary

  $49,426  $  $  $49,426  13.1  

Consumer Staples

   27,366         27,366  7.3  

Energy

   36,111         36,111  9.6  

Financial Services

   62,444         62,444  16.6  

Health Care

   40,081         40,081  10.6  

Materials and Processing

   17,995         17,995  4.8  

Producer Durables

   45,682         45,682  12.1  

Technology

   65,644         65,644  17.4  

Utilities

   12,403         12,403  3.3  

Short-Term Investments

      17,759      17,759  4.7  

Other Securities

      3,596      3,596  1.0  
                    

Total Investments

   357,152   21,355      378,507  100.5  
                  

Other Assets and Liabilities, Net

          (0.5
            
          100.0  
            

Other Financial Instruments

          

Futures Contracts

   363         363  0.1  
                  

Total Other Financial Instruments*

   363         363  
                  

 

*Other financial instruments not reflected in the Schedule of Investments, such as futures, forwards, and swap contracts which are valued at the unrealized appreciation/depreciation on the instruments.

For a description of the levels see note 2 in the Notes to Financial Statements.

 

See accompanying notes which are an integral part of the financial statements.

 

Multi-Style Equity Fund 19


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

LOGO

 

Aggressive Equity Fund 
   Total
Return
 

1 Year

  34.32

5 Years

  -1.08%§ 

10 Years

  2.19%§ 
Russell 2500 Index ** 
   Total
Return
 

1 Year

  34.39

5 Years

  1.58%§ 

10 Years

  4.91%§ 

 

* Assumes initial investment on January 1, 2000.

 

** 

Russell 2500 Index is composed of the bottom 500 stocks the Russell 1000® Index and all the stocks in the Russell 2000® Index. The Russell 2500 Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

§ Annualized.

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results.

 

20 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

The Aggressive Equity Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has six money managers.

What is the Fund’s investment objective?

The Fund seeks to provide long term capital growth.

How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2009?

For the fiscal year ended December 31, 2009, the Aggressive Equity Fund gained 34.32%. This compared to the Russell 2500™ Index, which gained 34.39% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

For the year ended December 31, 2009, the Lipper® Small-Cap Core Funds (VIP) Average gained 30.57%. This result serves as a peer comparison and is expressed net of operating expenses.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

The U.S. equity market began the year with elevated volatility and weakness before rebounding sharply and ultimately delivering a strong positive return for 2009. The period between January and early March 2009 saw extreme volatility and a precipitous decline. Fear and panic pervaded the market and the U.S. government stepped in with numerous stimulus packages to assist banks, auto companies and consumers. There was a pervasive fear that the economy was headed toward a very deep recession, and possibly even depression. This led to a fear driven “flight to quality” in the markets during the first part of the fiscal year where risk was avoided and investments which were deemed to be the safest outperformed those which were considered more economically sensitive or of lesser quality. From March through late October, a valuation driven rally buoyed the market, led primarily by the most economically sensitive companies and those stocks that had been priced for a high probability of bankruptcy during the market downturn in 2008. Higher beta (beta is a measure of the volatility of a given security compared to the volatility of the market as a whole) stocks, those with highly variable earnings and those with the highest debt-to-capital ratios, were the best performers during this period. This low quality market leadership persisted longer than the historical average in an economic rebound. In late October, concerns over the sustainability of the economic recovery caused a short term reversal and a flight to quality. While risk appetites increased again in November and December, the magnitude was more subdued than had been the

case prior to October. Consequently this resulted in a more favorable stock selection environment for the Fund.

The strength of the post March 9th rally dominated 2009 with smaller, lower price-to-book, lower quality stocks that had declined significantly since 2008, rallying the most. This created a headwind for the Fund, as the Fund’s bias to quality resulted in it being underweight in stocks with these characteristics. The Fund, while positioned for an economic recovery reflected by the positive contribution to performance from sector allocations, struggled with stock selection because of the quality focus of the managers’ stock selection. Stock selection was therefore the primary cause of the Fund’s underperformance. Stock selection in the most economically sensitive sectors detract the most from performance as this was where the disparity of returns was greatest between lower and higher quality stocks.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The fund employs six managers: two growth, three value and one market-oriented. During the year, three managers outperformed and three underperformed. However, only the value managers outperformed their benchmarks. This disparity in performance was mainly attributed to the large financial sector weight in the Russell 2500 Value Index. The financial sector underperformed because of the issues that regional banks faced from the growing number of loan losses on their retail and commercial loan books. The duration and magnitude of these losses were uncertain, but were expected to be materially large through the year. The Fund’s value managers had an underweight exposure to regional banks. This was a key driver of outperformance for value managers.

Clarivest Asset Management, LLC a market-oriented, quantitative manager underperformed the most in the Fund. Like most other quantitative managers, 2009 was a difficult year for Clarivest. Quantitative processes struggle when factor relationships, such as price-to-book or momentum deviate from historic trends. This typically occurs at market turning points, such as March 2009. As a result, in the subsequent low quality rally Clarivest was not rewarded for its factor exposures, which caused negative stock selection across the majority of sectors. This was the primary cause of Clarivest’s underperformance.

Ranger Investment Management, L.P is a growth manager that focuses on higher quality stocks with sustainable earnings growth. During 2009 the manager was unrewarded for this investment approach, as investors sought out higher risk, more speculative stock in response to an improving economic environment. These unfavorable conditions were reflected in the manager’s negative stock selection, which was the primary cause of the manager’s underperformance.

Tygh Capital Management, Inc. a growth manager struggled in the market environment where smaller, riskier stocks were


 

Aggressive Equity Fund 21


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

rewarded. Tygh had an overweight exposure to larger market cap stocks relative to their Russell 2500 Growth benchmark and to quality i.e. stocks with low levels of debt and a high Return on Equity, as these factors were heavily penalized during the year. The magnitude of these headwinds caused significant difficulties for Tygh’s stock selection process. Negative stock selection accounted for the majority of the manager’s underperformance.

Jacobs Levy Equity Management, Inc. outperformed during 2009. JLEM’s macro model resulted in investments in smaller cap (relative to the Russell 2500 Value Index) and lower price-to-book stocks that had declined significantly since the credit crisis began in 2008. As a result, when these same stocks rebounded in 2009, JLEM benefited.

DePrince, Race & Zollo, Inc. outperformed significantly during the year. While higher dividend yielding stocks, which its process focuses on were out of favor, DePrince generated strong returns from positive stock selection. Positive stock selection was greatest within the financial sector, where the manager was underweight in regional banks. In addition, DePrince’s overweight exposure to cyclical consumer related stocks was rewarded as the economic outlook improved.

Signia Capital Management, LLC had the largest outperformance in the Fund. Signia exposure to lower price-to-book, smaller market cap stocks (relative to the Russell 2500 Value Index) contributed positively to the performance during the year. In addition, Signia was underweight in regional banks . This was additive to the Signia’s performance.

 

Describe any changes to the Fund’s structure or the money manager line-up.

Gould Investments Partners LLC and PanAgora Asset Management Company LLC were terminated in June 2009.

 

Money Managers as of

December 31, 2009

 Styles
ClariVest Asset Management LLC Market Oriented
DePrince, Race, & Zollo, Inc. Value
Jacobs Levy Equity Management, Inc. Value
Ranger Investment Management, L.P. Growth
Signia Capital Management, LLC Value
Tygh Capital Management, Inc. Growth

The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of RIMCo, or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.


 

22 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Shareholder Expense Example — December 31, 2009 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding each Fund’s Expense Example, which appears on each Fund’s individual page in this Annual Report. Please refer to this information when reviewing the Expense Example for a Fund.

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2009 to December 31, 2009.

Actual Expenses

The information in the table under the heading “Actual Performance” provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you 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 result by the number in the first column in the row entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information in the table under the heading “Hypothetical Performance (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses

based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading “Hypothetical Performance (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The fee and expenses shown in this section do not reflect any Insurance Company Separate Account or Policy Charges.

 

   Actual
Performance
  Hypothetical
Performance
(5% return
before expenses)
    

Beginning Account Value

    

July 1, 2009

  $1,000.00  $1,000.00

Ending Account Value

    

December 31, 2009

  $1,258.50  $1,020.11

Expenses Paid During Period*

  $5.75  $5.14

 

*Expenses are equal to the Fund’s annualized expense ratio of 1.01% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed. Without the waiver and/or reimbursement, expenses would have been higher.

 

Aggressive Equity Fund 23


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Common Stocks - 94.7%      
Consumer Discretionary - 14.4%

99 Cents Only Stores (Æ)

  22,800    298

Abercrombie & Fitch Co. Class A

  5,010    175

Aeropostale, Inc. (Æ)

  3,100    106

America’s Car-Mart, Inc. (Æ)

  9,610    253

American Greetings Corp. Class A (Ñ)

  21,300    464

Arctic Cat, Inc. (Æ)

  1,800    16

Asbury Automotive Group, Inc. (Æ)

  24,431    282

Bally Technologies, Inc. (Æ)

  5,074    209

Bebe Stores, Inc.

  39,100    245

BJ’s Restaurants, Inc. (Æ)(Ñ)

  4,878    92

Blyth, Inc.

  1,500    51

Bob Evans Farms, Inc.

  4,900    142

Brinker International, Inc.

  12,100    181

Brown Shoe Co., Inc.

  4,700    46

Brunswick Corp.

  9,700    123

Build-A-Bear Workshop, Inc. Class A (Æ)

  3,900    19

Cabela’s, Inc. (Æ)(Ñ)

  12,600    180

Carter’s, Inc. (Æ)

  13,187    346

Central European Distribution Corp. (Æ)

  8,582    244

Chico’s FAS, Inc. (Æ)

  40,460    568

Chipotle Mexican Grill, Inc. Class A (Æ)

  1,231    108

Christopher & Banks Corp.

  35,272    269

Churchill Downs, Inc.

  4,795    179

Cinemark Holdings, Inc.

  5,900    85

CKE Restaurants, Inc.

  22,200    188

Columbia Sportswear Co.

  8,118    317

Core-Mark Holding Co., Inc. (Æ)

  3,600    119

Corinthian Colleges, Inc. (Æ)(Ñ)

  7,600    105

Cracker Barrel Old Country Store, Inc.

  1,400    53

CSS Industries, Inc.

  300    6

Deckers Outdoor Corp. (Æ)(Ñ)

  2,320    236

Dick’s Sporting Goods, Inc. (Æ)

  16,100    400

Dillard’s, Inc. Class A (Ñ)

  48,000    886

Dollar Tree, Inc. (Æ)

  16,660    805

Domino’s Pizza, Inc. (Æ)

  4,700    39

Exide Technologies (Æ)

  6,000    43

Fastenal Co. (Ñ)

  8,917    371

Finish Line, Inc. (The) Class A (Ñ)

  49,915    626

Foot Locker, Inc.

  34,300    382

Fossil, Inc. (Æ)

  8,900    299

Fred’s, Inc. Class A

  20,100    205

GameStop Corp. Class A (Æ)

  12,061    265

Group 1 Automotive, Inc. (Æ)(Ñ)

  10,900    309

Guess?, Inc.

  7,526    318

Gymboree Corp. (Æ)

  5,060    220

Harman International Industries, Inc.

  3,800    134

Haverty Furniture Cos., Inc. (Ñ)

  1,300    18

Hillenbrand, Inc.

  10,900    205

HSN, Inc. (Æ)

  4,700    95

IAC/InterActiveCorp (Æ)

  9,024    185

Insight Enterprises, Inc. (Æ)

  4,600    53

Inter Parfums, Inc.

  1,200    15

Jarden Corp.

  5,300    164

Jo-Ann Stores, Inc. (Æ)

  4,900    178

Jones Apparel Group, Inc.

  34,600    556

KB Home

  16,100    220
   Principal
Amount ($)
or Shares
    Market
Value
$

Kenneth Cole Productions, Inc. Class A (Æ)

  22,186    214

Leapfrog Enterprises, Inc. Class A (Æ)

  2,500    10

Lithia Motors, Inc. Class A (Æ)

  38,000    312

Liz Claiborne, Inc. (Æ)(Ñ)

  47,650    268

LKQ Corp. (Æ)

  17,865    350

Meredith Corp. (Ñ)

  10,700    330

MSC Industrial Direct Co. Class A

  4,816    226

New York & Co., Inc. (Æ)

  4,700    20

Nu Skin Enterprises, Inc. Class A

  14,500    390

O’Charleys, Inc. (Æ)

  4,100    27

Oxford Industries, Inc.

  1,200    25

Pacific Sunwear of California, Inc. (Æ)

  65,610    261

Papa John’s International, Inc. (Æ)

  3,400    79

PC Connection, Inc. (Æ)

  2,000    13

PEP Boys-Manny Moe & Jack

  5,000    42

Perry Ellis International, Inc. (Æ)

  7,800    117

PF Chang’s China Bistro, Inc. (Æ)(Ñ)

  5,840    221

Phillips-Van Heusen Corp.

  7,200    293

Pricesmart, Inc.

  6,100    125

RadioShack Corp.

  10,400    203

RC2 Corp. (Æ)

  2,600    38

Regal Entertainment Group Class A

  20,700    299

Regis Corp. (Ñ)

  6,600    103

Rent-A-Center, Inc. Class A (Æ)

  22,800    404

Revlon, Inc. (Æ)(Ñ)

  4,200    71

Ross Stores, Inc.

  3,400    145

Service Corp. International

  20,900    171

Shoe Carnival, Inc. (Æ)

  1,400    29

Sinclair Broadcast Group, Inc. Class A (Æ)

  21,800    88

Skechers U.S.A., Inc. Class A (Æ)

  7,200    212

Sotheby’s Class A (Ñ)

  18,714    421

Stage Stores, Inc.

  30,700    379

Standard Motor Products, Inc. (Æ)

  2,900    25

Steven Madden, Ltd. (Æ)

  19,546    806

Stewart Enterprises, Inc. Class A (Ñ)

  65,100    335

Superior Industries International, Inc. (Ñ)

  13,940    213

Tech Data Corp. (Æ)

  10,400    485

Thor Industries, Inc.

  7,940    249

Ticketmaster Entertainment, Inc. (Æ)

  33,400    408

Timberland Co. Class A (Æ)

  8,200    147

United Stationers, Inc. (Æ)

  4,500    256

Urban Outfitters, Inc. (Æ)

  6,450    226

Valassis Communications, Inc. (Æ)

  6,200    113

Warnaco Group, Inc. (The) (Æ)

  6,442    272

Washington Post Co. (The) Class B

  400    176

Wendy’s/Arby’s Group, Inc.

  83,500    392

WESCO International, Inc. (Æ)(Ñ)

  4,400    119

Williams-Sonoma, Inc.

  3,901    81
       
      22,885
       
Consumer Staples - 2.5%      

Alliance One International, Inc. (Æ)(Ñ)

  33,767    165

Andersons, Inc. (The)

  14,368    371

Casey’s General Stores, Inc.

  4,400    140

Chiquita Brands International, Inc. (Æ)

  11,300    204

Corn Products International, Inc.

  3,900    114

 

24 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Del Monte Foods Co.

  61,900    702

Fresh Del Monte Produce, Inc. (Æ)

  7,900    175

Herbalife, Ltd.

  8,500    345

Lancaster Colony Corp. (Ñ)

  6,300    313

Nash Finch Co.

  3,300    122

Pantry, Inc. (The) (Æ)

  4,400    60

Ralcorp Holdings, Inc. (Æ)

  5,114    305

Sanderson Farms, Inc.

  7,900    333

Spartan Stores, Inc. (Ñ)

  4,600    66

SUPERVALU, Inc.

  5,000    63

TreeHouse Foods, Inc. (Æ)(Ñ)

  11,450    445
       
      3,923
       
Energy - 4.3%      

Alon USA Energy, Inc. (Ñ)

  2,800    19

Alpha Natural Resources, Inc. (Æ)

  10,812    469

Basic Energy Services, Inc. (Æ)

  4,500    40

Berry Petroleum Co. Class A

  1,300    38

BJ Services Co.

  12,867    239

Cal Dive International, Inc. (Æ)

  1,200    9

Cie Generale de Geophysique-Veritas - ADR (Æ)(Ñ)

  8,439    179

Continental Resources, Inc. (Æ)

  6,380    274

Core Laboratories NV (Ñ)

  2,628    310

Dawson Geophysical Co. (Æ)(Ñ)

  1,300    30

Delek US Holdings, Inc.

  4,400    30

EXCO Resources, Inc.

  10,490    223

Exterran Holdings, Inc. (Æ)(Ñ)

  9,261    199

Frontier Oil Corp.

  34,900    420

Geokinetics, Inc. (Æ)

  1,200    12

Gulf Island Fabrication, Inc.

  2,200    46

Matrix Service Co. (Æ)

  3,800    40

Noble Corp.

  7,160    291

Oceaneering International, Inc. (Æ)

  3,600    211

Oil States International, Inc. (Æ)

  7,100    279

Patterson-UTI Energy, Inc. (Ñ)

  16,329    251

Petroleum Development Corp. (Æ)

  3,500    64

Petroquest Energy, Inc. (Æ)

  33,245    204

Pioneer Drilling Co. (Æ)

  1,600    13

Precision Drilling Trust

  27,968    203

Rosetta Resources, Inc. (Æ)

  26,617    530

Rowan Cos., Inc. (Æ)

  14,745    334

RPC, Inc. (Ñ)

  26,900    280

St. Mary Land & Exploration Co.

  6,300    216

Sunoco, Inc.

  6,927    181

Superior Energy Services, Inc. (Æ)

  19,389    471

Tesoro Corp. (Ñ)

  14,500    196

Union Drilling, Inc. (Æ)

  1,300    8

Unit Corp. (Æ)(Ñ)

  6,403    272

W&T Offshore, Inc.

  13,200    154

Western Refining, Inc. (Æ)(Ñ)

  9,700    46
       
      6,781
       
Financial Services - 18.0%      

Advance America Cash Advance Centers, Inc.

  42,600    237

Affiliated Managers Group, Inc. (Æ)(Ñ)

  18,182    1,225
   Principal
Amount ($)
or Shares
    Market
Value
$

Agree Realty Corp. (ö)

  600    14

Alliance Data Systems Corp. (Æ)(Ñ)

  3,852    249

Allied World Assurance Co. Holdings, Ltd.

  6,000    276

American Capital Agency Corp. (ö)

  7,400    196

American Equity Investment Life Holding Co.

  37,000    275

American Financial Group, Inc.

  11,400    284

Ameriprise Financial, Inc.

  8,064    313

Annaly Capital Management, Inc. (ö)

  20,667    359

Anworth Mortgage Asset Corp. (ö)

  68,500    479

Arch Capital Group, Ltd. (Æ)

  3,900    279

Ares Capital Corp.

  57,501    716

Argo Group International Holdings, Ltd. (Æ)

  3,800    111

Artio Global Investors, Inc. (Æ)

  11,239    286

Aspen Insurance Holdings, Ltd.

  11,100    282

Assurant, Inc.

  2,200    65

Axis Capital Holdings, Ltd.

  6,200    176

Bancfirst Corp.

  1,000    37

Banco Latinoamericano de Comercio Exterior SA Class E

  4,800    67

Bank of the Ozarks, Inc. (Ñ)

  1,400    41

Berkshire Hills Bancorp, Inc.

  900    19

BioMed Realty Trust, Inc. (ö)

  2,100    33

BOK Financial Corp. (Ñ)

  13,625    647

Boston Private Financial Holdings, Inc.

  45,709    264

Brandywine Realty Trust (ö)

  21,600    246

Brookline Bancorp, Inc. (Ñ)

  14,200    141

Calamos Asset Management, Inc. Class A

  18,800    217

CapLease, Inc. (ö)(Ñ)

  1,100    5

Capstead Mortgage Corp. (ö)

  45,800    625

Cardinal Financial Corp.

  1,900    17

Cedar Shopping Centers, Inc. (ö)

  3,900    26

Chimera Investment Corp. (ö)

  31,300    121

Citizens Republic Bancorp, Inc. (Æ)

  59,200    41

City Holding Co.

  1,400    45

Colonial Properties Trust (ö)

  13,900    163

Community Trust Bancorp, Inc. (Ñ)

  1,000    24

CVB Financial Corp. (Ñ)

  12,700    110

Cybersource Corp. (Æ)

  24,554    494

Delphi Financial Group, Inc. Class A

  9,952    223

DiamondRock Hospitality Co. (ö)(Ñ)

  56,798    481

Dime Community Bancshares (Ñ)

  9,900    116

Duff & Phelps Corp. Class A

  25,100    458

DuPont Fabros Technology, Inc. (ö)

  24,133    434

Education Realty Trust, Inc. (ö)

  8,900    43

Endurance Specialty Holdings, Ltd.

  6,600    246

Euronet Worldwide, Inc. (Æ)

  8,747    192

Evercore Partners, Inc. Class A (Ñ)

  1,700    52

FBL Financial Group, Inc. Class A (Ñ)

  1,800    33

Fidelity National Financial, Inc. Class A

  14,100    190

Fidelity National Information Services, Inc.

  15,000    352

First Cash Financial Services, Inc. (Æ)

  9,000    200

First Community Bancshares, Inc.

  2,300    28

First Financial Bancorp

  11,700    170

First Financial Holdings, Inc.

  1,100    14

First Industrial Realty Trust, Inc. (Æ)(ö)

  1,900    10

First Mercury Financial Corp.

  2,000    27

 

Aggressive Equity Fund 25


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

First Niagara Financial Group, Inc.

  36,300    505

First Potomac Realty Trust (ö)

  4,400    55

Flushing Financial Corp.

  2,500    28

FPIC Insurance Group, Inc. (Æ)

  600    23

Franklin Street Properties Corp. (ö)

  25,214    368

Glimcher Realty Trust (ö)

  2,100    6

Global Payments, Inc.

  5,543    299

Hancock Holding Co. (Ñ)

  8,100    355

Hercules Technology Growth Capital, Inc.

  3,900    40

Hersha Hospitality Trust (ö)(Ñ)

  4,400    14

Home Bancshares, Inc.

  2,500    60

Horace Mann Educators Corp.

  20,300    254

Hospitality Properties Trust (ö)

  21,800    517

HRPT Properties Trust (ö)

  29,600    191

IBERIABANK Corp.

  14,550    783

Independent Bank Corp. (Ñ)

  6,100    127

Infinity Property & Casualty Corp.

  1,100    45

Investment Technology Group, Inc. (Æ)

  1,900    37

JER Investors Trust, Inc. (Æ)(Þ)

  1,771    

Kite Realty Group Trust (ö)

  6,700    27

Knight Capital Group, Inc. Class A (Æ)

  18,931    292

Lakeland Financial Corp.

  1,000    17

LaSalle Hotel Properties (ö)

  14,525    308

Lazard, Ltd. Class A

  15,870    603

Lexington Realty Trust (ö)(Ñ)

  2,555    16

Mack-Cali Realty Corp. (ö)

  7,300    252

MarketAxess Holdings, Inc.

  18,608    259

Marshall & Ilsley Corp.

  1,900    10

MCG Capital Corp. (Æ)

  43,200    187

Meadowbrook Insurance Group, Inc.

  5,485    41

MFA Financial, Inc. (ö)

  50,900    374

Montpelier Re Holdings, Ltd.

  7,200    125

MSCI, Inc. Class A (Æ)

  9,092    289

MVC Capital, Inc.

  1,000    12

Nara Bancorp, Inc. (Æ)

  2,000    23

Nelnet, Inc. Class A

  19,900    343

NewAlliance Bancshares, Inc. (Ñ)

  24,800    298

OceanFirst Financial Corp.

  1,700    19

Old National Bancorp (Ñ)

  36,200    450

Old Republic International Corp.

  23,700    238

OneBeacon Insurance Group, Ltd. Class A

  2,800    39

Oriental Financial Group, Inc.

  35,563    384

Park National Corp. (Ñ)

  1,000    59

Parkway Properties, Inc. (ö)

  3,400    71

PartnerRe, Ltd. - ADR

  4,400    328

PennantPark Investment Corp.

  40,881    365

Pennsylvania Real Estate Investment Trust (ö)(Ñ)

  3,900    33

Phoenix Cos., Inc. (The) (Æ)

  14,300    40

Pinnacle Financial Partners, Inc. (Æ)(Ñ)

  18,880    268

Piper Jaffray Cos. (Æ)

  6,256    317

Platinum Underwriters Holdings, Ltd.

  6,300    241

PMA Capital Corp. Class A (Æ)

  1,700    11

Prosperity Bancshares, Inc. (Ñ)

  8,000    324

Protective Life Corp.

  11,400    189

Provident Financial Services, Inc.

  12,900    137

Provident New York Bancorp

  1,800    15

Ramco-Gershenson Properties Trust (ö)

  28,100    268
   Principal
Amount ($)
or Shares
    Market
Value
$

Raymond James Financial, Inc.

  12,997    309

Renasant Corp. (Ñ)

  1,500    20

Resource Capital Corp. (ö)

  4,200    21

Sandy Spring Bancorp, Inc. (Ñ)

  1,700    15

SCBT Financial Corp.

  400    11

SeaBright Insurance Holdings, Inc. (Æ)

  300    3

Selective Insurance Group

  12,200    201

Senior Housing Properties Trust (ö)

  9,136    200

Signature Bank NY (Æ)

  8,990    287

Simmons First National Corp. Class A

  700    19

Southside Bancshares, Inc.

  700    14

Southwest Bancorp, Inc.

  900    6

Sovran Self Storage, Inc. (ö)

  1,500    54

StanCorp Financial Group, Inc.

  5,700    228

StellarOne Corp. (Ñ)

  25,087    250

Sterling Bancorp

  3,100    22

Sterling Bancshares, Inc.

  55,400    284

Sun Bancorp, Inc. (Æ)

  1,653    6

SVB Financial Group (Æ)(Ñ)

  5,270    220

SWS Group, Inc.

  4,700    57

Texas Capital Bancshares, Inc. (Æ)

  13,712    191

TICC Capital Corp.

  1,700    10

Tower Group, Inc.

  14,523    340

Transatlantic Holdings, Inc.

  2,300    120

Trustmark Corp.

  14,000    316

U-Store-It Trust (ö)

  8,600    63

Union Bankshares Corp.

  1,400    17

United America Indemnity, Ltd. Class A (Æ)

  3,802    30

United Community Banks, Inc. (Æ)(Ñ)

  5,200    18

United Financial Bancorp, Inc.

  1,500    20

United Fire & Casualty Co.

  12,000    219

Valley National Bancorp (Ñ)

  22,800    322

Waddell & Reed Financial, Inc. Class A

  7,257    222

Washington Federal, Inc.

  13,100    253

Webster Financial Corp.

  7,600    90

WesBanco, Inc.

  2,200    27

Whitney Holding Corp.

  22,242    203

Wilshire Bancorp, Inc. (Ñ)

  1,700    14

Wintrust Financial Corp. (Ñ)

  3,000    92

WSFS Financial Corp.

  500    13

Zenith National Insurance Corp. (Ñ)

  9,750    290
       
      28,550
       
Health Care - 10.3%      

Affymetrix, Inc. (Æ)

  4,200    25

Albany Molecular Research, Inc. (Æ)

  20,810    189

Amedisys, Inc. (Æ)(Ñ)

  20,045    973

Analogic Corp. (Ñ)

  12,732    490

athenahealth, Inc. (Æ)(Ñ)

  6,990    316

Brookdale Senior Living, Inc. (Æ)

  9,786    178

Centene Corp. (Æ)

  9,900    210

Cerner Corp. (Æ)

  4,150    342

Cigna Corp.

  5,801    205

Coventry Health Care, Inc. (Æ)

  3,400    83

Cutera, Inc. (Æ)

  900    8

Cynosure, Inc. Class A (Æ)

  19,720    227

Dentsply International, Inc. (Ñ)

  10,208    359

 

26 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Edwards Lifesciences Corp. (Æ)

  3,442    299

Emergency Medical Services Corp. Class A (Æ)

  3,200    173

Endo Pharmaceuticals Holdings, Inc. (Æ)

  7,000    144

Gentiva Health Services, Inc. (Æ)

  8,182    221

Harvard Bioscience, Inc. (Æ)

  49,156    175

Health Net, Inc. (Æ)

  13,900    324

Healthsouth Corp. (Æ)

  10,328    194

Healthspring, Inc. (Æ)

  41,420    729

Henry Schein, Inc. (Æ)

  3,894    205

HMS Holdings Corp. (Æ)(Ñ)

  13,840    674

Humana, Inc. (Æ)

  5,600    246

Icon PLC - ADR (Æ)

  21,046    457

IDEXX Laboratories, Inc. (Æ)(Ñ)

  5,438    291

Illumina, Inc. (Æ)(Ñ)

  7,125    218

Invacare Corp. (Ñ)

  3,800    95

Inverness Medical Innovations, Inc. (Æ)

  6,840    284

Kindred Healthcare, Inc. (Æ)

  18,858    348

Kinetic Concepts, Inc. (Æ)

  2,700    102

King Pharmaceuticals, Inc. (Æ)(Ñ)

  40,625    498

Life Technologies Corp. (Æ)

  6,237    326

Magellan Health Services, Inc. (Æ)

  6,300    257

MedAssets, Inc. (Æ)(Ñ)

  10,410    221

Medicines Co. (The) (Æ)

  3,400    28

Mednax, Inc. (Æ)

  6,618    398

Meridian Bioscience, Inc.

  1,600    34

Molina Healthcare, Inc. (Æ)(Ñ)

  5,200    119

Mylan, Inc. (Æ)(Ñ)

  20,597    380

NuVasive, Inc. (Æ)(Ñ)

  6,250    200

Odyssey HealthCare, Inc. (Æ)

  6,000    93

Omnicare, Inc.

  13,800    334

OSI Systems, Inc. (Æ)(Ñ)

  15,356    419

Owens & Minor, Inc.

  700    30

Palomar Medical Technologies, Inc. (Æ)

  3,000    30

Par Pharmaceutical Cos., Inc. (Æ)

  39,612    1,072

Patterson Cos., Inc. (Æ)

  8,305    232

PerkinElmer, Inc.

  11,098    228

Prestige Brands Holdings, Inc. (Æ)

  400    3

Res-Care, Inc. (Æ)

  2,200    25

Skilled Healthcare Group, Inc. Class A (Æ)

  1,000    7

STERIS Corp. (Ñ)

  10,203    285

Sun Healthcare Group, Inc.
Class W (Æ)

  7,600    70

SXC Health Solutions Corp. (Æ)

  12,756    688

Symmetry Medical, Inc. (Æ)

  4,200    34

Techne Corp.

  4,228    290

Teleflex, Inc.

  3,440    185

Universal American Corp. (Æ)

  7,500    88

Universal Health Services, Inc. Class B

  20,060    612

Watson Pharmaceuticals, Inc.
Class B (Æ)

  11,700    463
       
      16,433
       
Materials and Processing - 8.5%

A Schulman, Inc.

  11,600    234

Aceto Corp.

  1,400    7

AEP Industries, Inc. (Æ)

  500    19

Airgas, Inc.

  9,737    464

AK Steel Holding Corp.

  18,690    399
   Principal
Amount ($)
or Shares
    Market
Value
$

Albemarle Corp.

  17,275    628

Allegheny Technologies, Inc. (Ñ)

  6,867    307

Apogee Enterprises, Inc. (Ñ)

  3,000    42

Ashland, Inc.

  7,600    301

Bway Holding Co. (Æ)

  10,199    196

Cabot Corp.

  10,638    279

Carpenter Technology Corp.

  5,600    151

Clarcor, Inc.

  12,400    402

Clearwater Paper Corp. (Æ)

  2,900    159

Comfort Systems USA, Inc.

  9,800    121

Commercial Metals Co.

  10,700    167

Crown Holdings, Inc. (Æ)

  2,900    74

Cytec Industries, Inc.

  12,026    438

Encore Wire Corp. (Ñ)

  2,300    49

Ferro Corp.

  5,900    49

FMC Corp.

  5,143    287

Gammon Gold, Inc. (Æ)

  21,511    237

General Cable Corp. (Æ)(Ñ)

  4,400    129

Gibraltar Industries, Inc. (Æ)

  6,000    94

Griffon Corp. (Æ)

  5,000    61

HB Fuller Co.

  6,600    150

Huntsman Corp.

  7,000    79

Innophos Holdings, Inc.

  2,700    62

International Flavors & Fragrances, Inc.

  2,500    103

Intrepid Potash, Inc. (Æ)

  7,859    229

Kaydon Corp. (Ñ)

  9,000    322

Koppers Holdings, Inc.

  900    27

LB Foster Co. Class A (Æ)

  1,100    33

Lubrizol Corp.

  6,344    463

Mueller Water Products, Inc. Class A

  30,800    160

Myers Industries, Inc.

  2,800    26

Olin Corp.

  16,600    291

OM Group, Inc. (Æ)

  14,391    452

Owens-Illinois, Inc. (Æ)

  8,100    266

Pactiv Corp. (Æ)

  5,800    140

PolyOne Corp. (Æ)

  12,800    96

Quaker Chemical Corp.

  1,900    39

Quanex Building Products Corp.

  19,200    326

Reliance Steel & Aluminum Co.

  21,400    925

Rock-Tenn Co. Class A

  10,400    524

RPM International, Inc.

  13,720    279

Schnitzer Steel Industries, Inc. Class A

  800    38

Schweitzer-Mauduit International, Inc.

  12,680    892

Silgan Holdings, Inc.

  4,100    237

Simpson Manufacturing Co., Inc. (Ñ)

  3,300    89

Sims Metal Management, Ltd. - ADR

  11,257    220

Sonoco Products Co.

  7,700    225

Spartech Corp.

  4,300    44

Steel Dynamics, Inc.

  12,761    226

Stillwater Mining Co. (Æ)

  26,965    256

Symyx Technologies, Inc. (Æ)

  2,500    14

Thompson Creek Metals Co., Inc. (Æ)

  17,452    205

Timken Co.

  9,400    223

Titanium Metals Corp. (Æ)

  16,464    206

Universal Forest Products, Inc.

  2,500    92

Worthington Industries, Inc.

  6,000    78

Zoltek Cos., Inc. (Æ)(Ñ)

  15,337    146
       
      13,477
       

 

Aggressive Equity Fund 27


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Producer Durables - 15.4%

Actuant Corp. Class A

  12,573    233

Administaff, Inc.

  13,700    323

AGCO Corp. (Æ)(Ñ)

  25,356    820

Aircastle, Ltd.

  6,000    59

Alaska Air Group, Inc. (Æ)

  2,800    97

Alexander & Baldwin, Inc. (Ñ)

  6,565    225

American Railcar Industries, Inc.

  1,900    21

AO Smith Corp.

  5,600    243

Applied Industrial Technologies, Inc.

  10,100    223

Arkansas Best Corp.

  13,800    406

Astec Industries, Inc. (Æ)

  8,293    223

Baldor Electric Co. (Ñ)

  4,500    126

Barnes Group, Inc.

  17,900    302

BE Aerospace, Inc. (Æ)(Ñ)

  22,381    526

Brink’s Co. (The)

  10,500    256

Bristow Group, Inc. (Æ)

  7,113    273

Bucyrus International, Inc. Class A

  15,460    871

CDI Corp.

  2,000    26

Celadon Group, Inc. (Æ)

  1,200    13

Ceradyne, Inc. (Æ)

  16,119    310

CIRCOR International, Inc.

  1,900    48

Columbus McKinnon Corp. (Æ)

  2,600    35

Con-way, Inc.

  5,100    178

Consolidated Graphics, Inc. (Æ)

  1,300    46

Convergys Corp. (Æ)

  15,800    170

Copart, Inc. (Æ)

  7,110    260

Corporate Executive Board Co. (The)

  17,400    397

CRA International, Inc. (Æ)

  900    24

Crane Co.

  7,800    239

Cross Country Healthcare, Inc. (Æ)

  2,800    28

Cubic Corp.

  6,900    257

Curtiss-Wright Corp.

  11,700    366

Deluxe Corp.

  1,700    25

DryShips, Inc. (Æ)(Ñ)

  31,049    181

Ducommun, Inc.

  1,900    36

DXP Enterprises, Inc. (Æ)(Ñ)

  2,100    27

Dycom Industries, Inc. (Æ)

  6,300    51

DynCorp International, Inc. Class A (Æ)

  1,900    27

Electro Rent Corp.

  28,719    331

Electronics for Imaging, Inc. (Æ)

  852    11

EMCOR Group, Inc. (Æ)

  5,300    143

EnerSys (Æ)

  19,306    422

Ennis, Inc.

  1,600    27

EnPro Industries, Inc. (Æ)(Ñ)

  3,000    79

Federal Signal Corp.

  2,800    17

Flowserve Corp.

  2,600    246

Foster Wheeler AG (Æ)

  14,429    425

Franklin Electric Co., Inc.

  5,700    166

FreightCar America, Inc.

  1,800    36

FTI Consulting, Inc. (Æ)

  4,998    236

G&K Services, Inc. Class A

  12,300    309

Gardner Denver, Inc.

  2,600    111

General Maritime Corp.

  13,600    95

Genesee & Wyoming, Inc. Class A (Æ)

  6,559    214

Geo Group, Inc. (The) (Æ)

  24,444    535

Global Sources, Ltd. (Æ)

  1,300    8
   Principal
Amount ($)
or Shares
    Market
Value
$

Granite Construction, Inc. (Ñ)

  11,500    387

Greenbrier Cos., Inc.

  1,000    10

H&E Equipment Services, Inc. (Æ)

  3,200    34

Hewitt Associates, Inc. Class A (Æ)

  14,200    600

Horizon Lines, Inc. Class A

  2,900    16

Hubbell, Inc. Class B

  5,700    270

IDEX Corp.

  14,660    457

Insituform Technologies, Inc. Class A (Æ)(Ñ)

  13,016    296

Joy Global, Inc.

  5,538    286

Kadant, Inc. (Æ)

  1,000    16

Kaman Corp. Class A

  12,800    296

KBR, Inc.

  29,500    560

Kelly Services, Inc. Class A (Æ)

  1,700    20

Kennametal, Inc.

  10,516    273

Kforce, Inc. (Æ)

  3,300    41

Knight Transportation, Inc. (Ñ)

  14,111    272

Knightsbridge Tankers, Ltd.

  1,800    24

Layne Christensen Co. (Æ)

  9,191    264

Lexmark International, Inc. Class A (Æ)

  13,400    348

M&F Worldwide Corp. (Æ)

  1,800    71

McDermott International, Inc. (Æ)

  19,093    458

Modine Manufacturing Co. (Æ)

  15,200    180

Moog, Inc. Class A (Æ)

  400    12

NACCO Industries, Inc. Class A

  3,446    172

Nalco Holding Co.

  10,864    277

Navistar International Corp. (Æ)

  2,593    100

Oshkosh Corp.

  13,500    500

PHI, Inc. (Æ)

  11,398    236

Quanta Services, Inc. (Æ)

  4,934    103

Robbins & Myers, Inc.

  9,767    230

Robert Half International, Inc.

  10,867    290

Roper Industries, Inc.

  11,446    599

RR Donnelley & Sons Co.

  25,300    563

Ryder System, Inc.

  5,300    218

Saia, Inc. (Æ)

  2,400    36

Shaw Group, Inc. (The) (Æ)

  6,600    190

Skywest, Inc.

  8,200    139

Southwest Airlines Co.

  24,338    278

Spherion Corp. (Æ)

  3,900    22

SPX Corp.

  5,300    290

Standard Register Co. (The)

  500    3

Steelcase, Inc. Class A (Ñ)

  9,100    58

Sterling Construction Co., Inc. (Æ)

  1,900    36

Thomas & Betts Corp. (Æ)

  2,200    79

Tidewater, Inc.

  6,300    302

Trinity Industries, Inc. (Ñ)

  14,600    255

Triumph Group, Inc.

  2,200    106

TrueBlue, Inc. (Æ)

  6,800    101

Tutor Perini Corp. (Æ)

  8,600    155

Twin Disc, Inc.

  900    9

URS Corp. (Æ)

  22,802    1,015

Wabtec Corp. (Ñ)

  13,243    541

Waste Connections, Inc. (Æ)

  9,246    308

Werner Enterprises, Inc.

  4,500    89

Woodward Governor Co. (Ñ)

  20,646    532
       
      24,405
       

 

28 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Technology - 18.1%      

Acxiom Corp. (Æ)

  5,122    69

Adaptec, Inc. (Æ)

  66,564    223

ADTRAN, Inc.

  11,012    248

Advanced Analogic Technologies, Inc. (Æ)

  31,900    126

Amkor Technology, Inc. (Æ)(Ñ)

  21,300    153

Amphenol Corp. Class A

  18,212    841

Ansys, Inc. (Æ)(Ñ)

  13,517    587

Ariba, Inc. (Æ)(Ñ)

  46,132    578

Arris Group, Inc. (Æ)

  7,000    80

Arrow Electronics, Inc. (Æ)

  9,200    272

Art Technology Group, Inc. (Æ)

  53,408    241

Aruba Networks, Inc. (Æ)

  24,796    264

Atheros Communications, Inc. (Æ)

  11,100    380

Avid Technology, Inc. (Æ)

  3,900    50

Avnet, Inc. (Æ)

  27,800    838

AVX Corp.

  17,500    222

Benchmark Electronics, Inc. (Æ)

  17,851    338

Black Box Corp.

  3,000    85

Bottomline Technologies, Inc. (Æ)

  11,300    199

Brooks Automation, Inc. (Æ)

  1,700    15

Cadence Design Systems, Inc. (Æ)

  29,029    174

Ciber, Inc. (Æ)

  30,300    105

Cirrus Logic, Inc. (Æ)

  42,500    290

Cogent, Inc. (Æ)

  17,437    181

Cognex Corp.

  22,000    390

Cogo Group, Inc. (Æ)

  12,000    88

Cohu, Inc.

  19,550    273

Compuware Corp. (Æ)

  34,700    251

Comverse Technology, Inc. (Æ)

  32,762    310

Concur Technologies, Inc. (Æ)

  5,376    230

Cree, Inc. (Æ)

  4,127    233

CSG Systems International, Inc. (Æ)

  4,000    76

CTS Corp.

  4,700    45

DivX, Inc. (Æ)

  1,000    6

DSP Group, Inc. (Æ)

  1,700    10

Earthlink, Inc. (Ñ)

  53,600    445

Electro Scientific Industries, Inc. (Æ)

  34,578    374

Emulex Corp. (Æ)

  16,381    179

Epicor Software Corp. (Æ)

  4,900    37

Equinix, Inc. (Æ)(Ñ)

  5,737    609

Extreme Networks (Æ)

  2,400    7

F5 Networks, Inc. (Æ)

  6,021    319

Flextronics International, Ltd. (Æ)(Ñ)

  22,870    167

Harris Stratex Networks, Inc. Class A (Æ)

  10,800    75

Hittite Microwave Corp. (Æ)

  7,175    292

Imation Corp. (Æ)

  4,000    35

Informatica Corp. (Æ)(Ñ)

  13,760    356

Infospace, Inc. (Æ)

  3,700    32

Ingram Micro, Inc. Class A (Æ)

  35,600    621

Internap Network Services Corp. (Æ)

  4,300    20

International Rectifier Corp. (Æ)

  26,272    581

Intersil Corp. Class A

  72,876    1,118

Jabil Circuit, Inc.

  11,600    202

Lam Research Corp. (Æ)(Ñ)

  10,027    393

Lattice Semiconductor Corp. (Æ)

  20,000    54

Marvell Technology Group, Ltd. (Æ)

  16,310    338
   Principal
Amount ($)
or Shares
    Market
Value
$

McAfee, Inc. (Æ)

  7,148    290

Mentor Graphics Corp. (Æ)

  11,300    100

Mercury Computer Systems, Inc. (Æ)

  900    10

Methode Electronics, Inc.

  1,700    15

Micrel, Inc.

  46,490    381

MICROS Systems, Inc. (Æ)

  14,013    435

Molex, Inc.

  14,300    308

Ness Technologies, Inc. (Æ)

  4,100    20

Netlogic Microsystems, Inc. (Æ)

  7,467    345

Newport Corp. (Æ)

  2,300    21

NICE Systems, Ltd. - ADR (Æ)

  18,173    564

Novell, Inc. (Æ)

  42,200    175

Novellus Systems, Inc. (Æ)

  12,700    296

Omnivision Technologies, Inc. (Æ)

  16,200    235

Openwave Systems, Inc. (Æ)

  18,200    42

Oplink Communications, Inc. (Æ)

  15,400    252

Perceptron, Inc. (Æ)(Å)

  37,376    120

Photronics, Inc. (Æ)

  5,000    22

Plexus Corp. (Æ)

  2,400    68

PMC - Sierra, Inc. (Æ)

  25,430    220

Powerwave Technologies, Inc. (Æ)(Ñ)

  14,600    18

QLogic Corp. (Æ)

  40,702    768

RealNetworks, Inc. (Æ)

  12,700    47

Red Hat, Inc. (Æ)

  3,300    102

RF Micro Devices, Inc. (Æ)

  6,900    33

Riverbed Technology, Inc. (Æ)

  10,287    236

Rovi Corp. (Æ)(Ñ)

  24,780    790

SAIC, Inc. (Æ)

  22,817    432

Salesforce.com, Inc. (Æ)(Ñ)

  6,700    494

SBA Communications Corp. Class A (Æ)(Ñ)

  13,186    450

Silicon Image, Inc. (Æ)

  12,200    32

Sina Corp./China (Æ)

  6,609    299

Skyworks Solutions, Inc. (Æ)

  26,170    371

SMART Modular Technologies WWH, Inc. (Æ)

  4,100    26

Smith Micro Software, Inc. (Æ)

  20,668    189

SolarWinds, Inc. (Æ)

  10,389    239

SonicWALL, Inc. (Æ)

  18,000    137

Sonus Networks, Inc. (Æ)

  31,600    67

Standard Microsystems Corp. (Æ)

  1,000    21

Symmetricom, Inc. (Æ)

  3,000    16

SYNNEX Corp. (Æ)(Ñ)

  13,600    417

Taleo Corp. Class A (Æ)

  15,849    373

Tellabs, Inc. (Æ)

  142,220    808

THQ, Inc. (Æ)

  7,200    36

Tier Technologies, Inc. Class B (Æ)

  30,141    241

Trident Microsystems, Inc. (Æ)

  4,000    7

Unisys Corp. (Æ)

  4,100    158

United Online, Inc.

  66,057    475

Varian Semiconductor Equipment Associates, Inc. (Æ)

  10,655    382

Veeco Instruments, Inc. (Æ)

  586    19

VeriFone Holdings, Inc. (Æ)

  35,940    589

Verint Systems, Inc. (Æ)

  5,209    100

Vishay Intertechnology, Inc. (Æ)(Ñ)

  44,727    373

Volterra Semiconductor Corp. (Æ)

  16,500    316

 

Aggressive Equity Fund 29


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
 
      

Web.com Group, Inc. (Æ)

  1,700    11  

Western Digital Corp. (Æ)

  9,200    406  

White Electronic Designs Corp. (Æ)

  55,907    261  

Zoran Corp. (Æ)

  29,013    321  
        
      28,704  
        
Utilities - 3.2%      

AGL Resources, Inc.

  400    15  

Allete, Inc.

  10,500    343  

Alliant Energy Corp.

  5,700    173  

Atmos Energy Corp.

  17,800    523  

Black Hills Corp. (Ñ)

  7,300    194  

Chesapeake Utilities Corp. (Ñ)

  500    16  

Energen Corp.

  5,100    239  

Hawaiian Electric Industries, Inc.

  13,600    284  

Integrys Energy Group, Inc. (Ñ)

  3,700    155  

Laclede Group, Inc. (The)

  3,400    115  

Millicom International Cellular SA

  3,869    285  

Mirant Corp. (Æ)

  18,400    281  

New Jersey Resources Corp.

  5,050    189  

Northwest Natural Gas Co.

  2,800    126  

NorthWestern Corp.

  4,300    112  

Piedmont Natural Gas Co., Inc.

  12,800    342  

Pinnacle West Capital Corp.

  500    18  

RRI Energy, Inc. (Æ)

  4,000    23  

Southern Union Co.

  7,400    168  

Southwest Gas Corp. (Ñ)

  16,227    463  

UGI Corp.

  25,700    622  

US Cellular Corp. (Æ)

  2,300    98  

Vectren Corp.

  9,600    237  
        
      5,021  
        
Total Common Stocks
(cost $129,324)
      150,179  
        
Short-Term Investments - 5.5%  

Russell U.S. Cash Management Fund (£)

  8,768,960    8,769  
        
Total Short-Term Investments
(cost $8,769)
      8,769  
        
Other Securities - 9.2%      

State Street Securities Lending Quality Trust (×)

  14,721,539    14,646  
        
Total Other Securities
(cost $14,722)
      14,646  
        
Total Investments - 109.4%
(identified cost $152,815)
      173,594  
Other Assets and Liabilities,
Net - (9.4%)
      (14,923
        
Net Assets - 100.0%      158,671  
        

A portion of the portfolio has been fair valued as of period end.

 

See accompanying notes which are an integral part of the financial statements.

 

30 Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except contracts)

 

Futures Contracts  Number of
Contracts
  Notional
Amount
  Expiration
Date
  Unrealized
Appreciation
(Depreciation)
$
          
          
Long Positions          

Russell 2000 Mini Index (CME)

  142  USD  8,859  03/10  377
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

          377
           

 

 

 

Presentation of Portfolio Holdings — December 31, 2009

 

   Market Value  

% of Net
Assets

 
Portfolio Summary  Level 1  Level 2  Level 3  Total  
          
          

Common Stock

          

Consumer Discretionary

  $22,885  $  $  $22,885  14.4  

Consumer Staples

   3,923         3,923  2.5  

Energy

   6,781         6,781  4.3  

Financial Services

   28,550         28,550  18.0  

Health Care

   16,433         16,433  10.3  

Materials and Processing

   13,477         13,477  8.5  

Producer Durables

   24,405         24,405  15.4  

Technology

   28,704         28,704  18.1  

Utilities

   5,021         5,021  3.2  

Short-Term Investments

      8,769      8,769  5.5  

Other Securities

      14,646      14,646  9.2  
                    

Total Investments

   150,179   23,415      173,594  109.4  
                  

Other Assets and Liabilities, Net

          (9.4
            
          100.0  
            

Other Financial Instruments

          

Futures Contracts

   377         377  0.2  
                  

Total Other Financial Instruments*

   377         377  
                  

 

*Other financial instruments not reflected in the Schedule of Investments, such as futures, forwards, and swap contracts which are valued at the unrealized appreciation/depreciation on the instruments.

For a description of the levels see note 2 in the Notes to Financial Statements.

 

See accompanying notes which are an integral part of the financial statements.

 

Aggressive Equity Fund 31


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2009 (Unaudited)

 

 

LOGO

 

Non-U.S. Fund 
   Total
Return
 

1 Year

  27.33

5 Years

  2.43%§ 

10 Years

  0.47%§ 
MSCI EAFE® Index Net (USD)** 
   Total
Return
 

1 Year

  31.78

5 Years

  3.54%§ 

10 Years

  1.17%§ 

 

* Assumes initial investment on January 1, 2000.

 

** 

Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE®) Index Net (USD) is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which included reinvestment of gross dividends before deduction of withholding taxes.

 

§ Annualized.

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results.

 

32 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2009 (Unaudited)

 

 

 

The Russell Investment Funds Non-U.S. Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

What is the Fund’s investment objective?

The Fund seeks to provide long-term capital growth.

How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2009?

For the fiscal year ended December 31, 2009, the Russell Investment Funds Non-U.S. Fund gained 27.33%. This compared to the MSCI EAFE® Index Net (USD), which gained 31.78% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

In accordance with the Fund’s fair value procedures, on December 31, 2008, the day prior to the start of the fiscal year and on December 31, 2009 the last trading day of the fiscal year, a portion of the Fund’s portfolio securities were fair valued as a result of a material decrease of the U.S. securities market. The Fund’s benchmark does not fair value its constituent securities following such an event. As a result, fair valuation had a negative impact on Fund performance relative to its benchmark.

For the year ending December 31, 2009, the Lipper® International Core Funds (VIP) Average gained 30.27%. This result serves as a peer comparison and is expressed net of operating expenses.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

The fiscal year ended December 31, 2009 was a very good year for global equity markets in terms of performance. However, the Fund’s money managers found the volatile market environment challenging. Investors entered the year facing considerable uncertainty and a mostly negative outlook for markets given a deep, global economic recession and ill-functioning credit markets. Opportunities to outperform or even keep pace with the market required focused exposure to a rather narrow segment of the market, including exposure to stocks trading at low price-to-book valuations, smaller capitalization stocks, the materials sector (particularly stocks in the metals & mining industry) and stocks outside the index in Canada and the emerging markets.

The sharp sell off of stocks over 2008 and well into the first quarter of 2009 was followed by a strong rebound. These large shifts in market trends impacted Fund performance negatively

as the money managers struggled to reposition portfolios in response to rapidly changing market conditions. The Fund did not participate effectively in the recovery of deep value (e.g., very low price to book valuation), low quality stocks which recovered as unprecedented government stimulus and its follow-on effects provided assistance to companies previously facing financial crises.

The Fund’s money managers were cautiously positioned entering 2009 to protect against illiquidity in the credit markets. As cyclical sectors and emerging markets recovered in March, the managers questioned the sustainability of the rebound as the underlying economic drivers appeared quite unstable. Managers were particularly concerned about earnings prospects given more subdued forward-looking growth outlook juxtaposed with investors’ high expectations of earnings from prior levels. The money managers preferred companies with strong balance sheets and adequate capital access given tight credit markets.

As the global financial and economic crises showed signs of abating in late March 2009, the Fund underperformed due to this more conservative positioning. Based on concerns for the overall health of the drivers of global economic growth, and particularly the impairment of credit markets in supporting growth, the Fund’s money managers lowered exposure to more financially and economically sensitive stocks and sectors. They put greater emphasis on stocks and sectors they believed capable of sustaining modest levels of growth with lower risk of credit problems against a backdrop of slower growth for the world’s economies. This negatively impacted Fund performance as markets rallied in response to efforts by governments globally to mitigate the financial and economic crises.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund’s money managers were overweighted to the health care and consumer staples sectors and underweight to the financials and materials sectors. This positioning detracted materially from performance as the materials and financials sectors led the market recovery. More positively, the money managers were overweight to technology stocks believing that they would benefit from stronger, restructured balance sheets and improving economic conditions as corporations globally increased spending on technology after deferring such expenditures for the past several years. The Fund’s technology holdings were materially additive to performance, mainly due to effective security selection. However, this was not sufficient to offset the impact of the financials and materials sector underweightings or the managers’ ineffective stock selection in the financials sector.

The Fund was ineffective in benefiting from return opportunities in what was a very narrowly led market. Smaller capitalization stocks and stocks with low price to book value ratios provided the strongest gains for the year. Exposure to


 

Non-U.S. Fund 33


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2009 (Unaudited)

 

 

 

these stocks was critical to success in the year. For most of the year, the Fund did not have a manager that pursued a low price-to-book value strategy. Pzena Investment Management, LLC which was hired in July with an investment mandate to provide this role.

Wellington Management Company, LLP emphasis on stocks of companies priced for high growth and momentum-driven growth strategies proved ineffective in the period and detracted from performance.

Altrinsic Global Advisors, LLC quality value orientation prevented it from participating in the recovery of many cyclical and financial companies, particularly those which it perceived to have fragile balance sheets and consequently they underperformed for the year.

As the market recovered, deep value strategies emphasizing stocks trading at low price-to-book values and strategies inclined to accepting significant balance sheet risk, i.e., highly leveraged companies, outperformed. The Fund was underweight to these stocks. The Fund did benefit later in the year as higher quality growth stocks outperformed. MFS Institutional Advisors, Inc. and Marsico Capital Management, LLC performed well in this period. Marsico was added to replace Wellington in May. MFS was the best performer as it effectively identified companies capable of producing sustainable growth against the headwinds of weaker economic growth.

The strategies of the Fund’s other money managers were generally ineffective in the period. The managers were focused on either high growth or defensive value opportunities. These managers lagged in the period as the market remained skeptical of strong earnings growth and less interested in the defensive attributes of companies with higher quality balance sheets.

Changes were made to the manager line-up to better balance the Fund’s exposure to key value and growth drivers of performance.

 

Describe any changes to the Fund’s structure or the money manager line-up.

Three changes were made to the money manager line up during the period. Wellington was replaced by Marsico in May. At the same time, AQR Capital Management, LLC was replaced by Barrow Hanley Mewhinney and Strauss, Inc. In July, Altrinsic was replaced by Pzena Investment Management, LLC.

 

Money Managers as of
December 31, 2009
  Styles
Barrow Hanley Mewhinney & Strauss, Inc.  Value
Marsico Capital Management, LLC  Growth
MFS Institutional Advisors, Inc.  Growth
Pzena Investment Management, LLC  Value

The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.


 

34 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Shareholder Expense Example — December 31, 2009 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding each Fund’s Expense Example, which appears on each Fund’s individual page in this Annual Report. Please refer to this information when reviewing the Expense Example for a Fund.

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2009 to December 31, 2009.

Actual Expenses

The information in the table under the heading “Actual Performance” provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you 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 result by the number in the first column in the row entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information in the table under the heading “Hypothetical Performance (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses

based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading “Hypothetical Performance (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The fee and expenses shown in this section do not reflect any Insurance Company Separate Account or Policy Charges.

 

   Actual
Performance
  Hypothetical
Performance
(5% return
before expenses)
    

Beginning Account Value

    

July 1, 2009

  $1,000.00  $1,000.00

Ending Account Value

    

December 31, 2009

  $1,206.00  $1,020.11

Expenses Paid During Period*

  $5.62  $5.14

 

*Expenses are equal to the Fund’s annualized expense ratio of 1.01% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed. Without the waiver and/or reimbursement, expenses would have been higher.

 

Non-U.S. Fund 35


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Common Stocks - 91.3%      
Australia - 0.8%      

ABC Learning Centres, Ltd. (Æ)

  5,058    3

Billabong International, Ltd.

  133,100    1,294

CSL, Ltd.

  39,504    1,149
       
      2,446
       
Austria - 0.1%      

Erste Group Bank AG

  11,708    434
       
Belgium - 0.9%      

Anheuser-Busch InBev NV

  39,485    2,040

KBC Groep NV (Æ)

  17,798    771
       
      2,811
       
Bermuda - 1.6%      

Esprit Holdings, Ltd.

  114,833    756

Jardine Matheson Holdings, Ltd.

  67,700    2,036

Li & Fung, Ltd.

  150,000    617

Noble Group, Ltd. (Ñ)

  161,000    369

RenaissanceRe Holdings, Ltd.

  24,600    1,307
       
      5,085
       
Brazil - 2.7%      

Cyrela Brazil Realty SA

  76,500    1,077

Gafisa SA

  58,400    947

Itau Unibanco Holding SA - ADR (Ñ)

  33,070    755

JBS SA

  75,900    406

OGX Petroleo e Gas Participacoes SA

  130,000    1,277

PDG Realty SA Empreendimentose Participacoes

  70,200    700

Petroleo Brasileiro SA - ADR (Ñ)

  54,597    2,603

Vale SA Class B (Ñ)

  37,000    1,074
       
      8,839
       
Canada - 1.2%      

Canadian National Railway Co.

  43,437    2,361

Gildan Activewear, Inc. Class A (Æ)

  18,200    444

Magna International, Inc. Class A

  15,800    799

Research In Motion, Ltd. (Æ)

  5,292    358
       
      3,962
       
Cayman Islands - 0.2%      

Ctrip.com International, Ltd. - ADR (Æ)

  9,400    676
       
China - 0.5%      

Baidu, Inc. - ADR (Æ)

  1,651    679

Longtop Financial Technologies, Ltd. - ADR (Æ)

  12,600    466

Tencent Holdings, Ltd.

  21,300    459
       
      1,604
       
Czech Republic - 0.2%      

Komercni Banka AS

  2,649    565
       
   Principal
Amount ($)
or Shares
    Market
Value
$
Denmark - 1.1%      

Danske Bank A/S (Æ)

  26,851    611

Novo Nordisk A/S Series B

  23,671    1,515

Novozymes A/S Class B (Ñ)

  3,967    411

Vestas Wind Systems A/S (Æ)

  15,459    946
       
      3,483
       
Finland - 1.1%      

Fortum OYJ

  26,700    724

Nokia OYJ (Ñ)

  108,760    1,396

Pohjola Bank PLC Class A (Ñ)

  139,625    1,511
       
      3,631
       
France - 11.8%      

Accor SA

  7,636    415

Air France-KLM (Æ)

  47,506    741

Air Liquide SA

  12,568    1,484

Alcatel-Lucent (Æ)

  290,936    974

Alstom SA (Ñ)

  17,810    1,237

AXA SA

  68,148    1,612

BNP Paribas

  8,719    688

Capital Gemini SA

  29,600    1,341

CNP Assurances

  10,516    1,018

Credit Agricole SA

  52,610    917

Danone

  19,678    1,198

GDF Suez

  39,859    1,729

Lagardere SCA

  31,681    1,278

Legrand SA

  25,989    725

LVMH Moet Hennessy Louis Vuitton SA

  28,692    3,222

Natixis (Æ)

  111,558    555

Pernod-Ricard SA

  16,313    1,400

Publicis Groupe SA

  34,253    1,390

Rallye SA

  40,285    1,403

Safran SA

  37,311    726

Sanofi-Aventis SA

  26,282    2,060

Schneider Electric SA

  36,541    4,233

SCOR SE

  38,280    956

Societe Generale

  3,200    222

Total SA (Ñ)

  19,994    1,281

UBISOFT Entertainment (Æ)

  85,845    1,213

Vivendi SA

  134,024    3,957
       
      37,975
       
Germany - 8.3%      

BASF SE

  39,643    2,459

Bayer AG

  26,664    2,131

Beiersdorf AG

  14,410    947

Commerzbank AG (Æ)

  34,308    288

Daimler AG

  65,482    3,498

Deutsche Boerse AG

  15,260    1,269

Deutsche Telekom AG

  87,087    1,286

E.ON AG (Ñ)

  53,534    2,235

Henkel AG & Co. KGaA

  21,812    974

Infineon Technologies AG (Æ)(Ñ)

  214,886    1,186

Linde AG

  23,210    2,794

MAN SE

  15,175    1,182

 

36 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Merck KGaA

  13,040    1,219

Metro AG

  17,266    1,052

MTU Aero Engines Holding AG

  38,371    2,106

Muenchener Rueckversicherungs AG

  4,499    701

SAP AG

  13,460    635

ThyssenKrupp AG (Ñ)

  20,943    789
       
      26,751
       
Guernsey - 0.5%      

Amdocs, Ltd. (Æ)

  54,400    1,552
       
Hong Kong - 1.5%      

Chaoda Modern Agriculture Holdings, Ltd.

  14,000    15

Cheung Kong Holdings, Ltd.

  112,000    1,436

China Resources Enterprise, Ltd. (Ñ)

  34,000    123

CNOOC, Ltd.

  775,000    1,207

Hang Lung Properties, Ltd. - ADR

  93,000    363

Industrial & Commercial Bank of China Asia, Ltd.

  803,000    1,738
       
      4,882
       
India - 1.2%      

ICICI Bank, Ltd. - ADR

  37,477    1,413

Infosys Technologies, Ltd. - ADR (Ñ)

  23,220    1,283

Reliance Industries, Ltd. - GDR (Þ)

  23,450    1,091
       
      3,787
       
Indonesia - 0.0%      

Telekomunikasi Indonesia Tbk PT - ADR

  1,750    70
       
Ireland - 0.4%      

Accenture PLC Class A

  2,900    121

Cooper Industries PLC

  9,575    408

Covidien PLC

  15,700    752
       
      1,281
       
Israel - 0.3%      

Teva Pharmaceutical Industries, Ltd. - ADR

  16,028    900
       
Italy - 4.3%      

Banca Popolare di Milano Scarl

  92,535    656

ENI SpA

  59,007    1,502

Fiat SpA (Æ)

  74,694    1,087

Finmeccanica SpA

  176,447    2,814

Intesa Sanpaolo SpA (Æ)(Ñ)

  131,800    591

Parmalat SpA

  714,070    2,001

Snam Rete Gas SpA

  292,525    1,455

Telecom Italia SpA (Ñ)

  458,276    711

UniCredit SpA (Æ)

  606,641    2,018

Unione di Banche Italiane SCPA

  76,620    1,097
       
      13,932
       
Japan - 10.1%      

Aeon Credit Service Co., Ltd.

  35,900    345

Amada Co., Ltd.

  146,700    910
   Principal
Amount ($)
or Shares
    Market
Value
$

Canon, Inc. (Ñ)

  100,900    4,266

Daikin Industries, Ltd.

  17,700    691

Daiwa Securities Group, Inc.

  142,000    712

FamilyMart Co., Ltd.

  22,400    660

Fanuc, Ltd.

  10,600    986

Hirose Electric Co., Ltd.

  4,100    427

Honda Motor Co., Ltd.

  20,700    700

Hoya Corp.

  62,300    1,652

Inpex Corp.

  197    1,479

Kao Corp.

  13,200    308

Konica Minolta Holdings, Inc.

  42,000    431

Lawson, Inc.

  18,700    824

Mabuchi Motor Co., Ltd. (Ñ)

  13,500    664

Marubeni Corp.

  282,000    1,535

Mitsubishi Chemical Holdings Corp.

  221,000    931

Mitsubishi UFJ Financial Group, Inc.

  442,800    2,168

Mizuho Financial Group, Inc. (Ñ)

  422,700    756

Mori Seiki Co., Ltd.

  72,600    648

NGK Spark Plug Co., Ltd. (Ñ)

  6,600    74

Nintendo Co., Ltd.

  4,800    1,138

Nippon Telegraph & Telephone Corp.

  25,500    1,003

Omron Corp.

  76,600    1,366

Ricoh Co., Ltd.

  26,600    375

Shin-Etsu Chemical Co., Ltd. (Ñ)

  19,000    1,071

Sumco Corp. (Ñ)

  20,600    362

Takeda Pharmaceutical Co., Ltd.

  42,100    1,728

THK Co., Ltd.

  56,600    1,000

Tokyo Electron, Ltd.

  18,900    1,209

Toshiba TEC Corp.

  304,379    1,150

Toyota Motor Corp.

  24,100    1,013
       
      32,582
       
Luxembourg - 0.4%      

ArcelorMittal

  31,273    1,418
       
Mexico - 0.5%      

America Movil SAB de CV Series L

  12,450    585

Cemex SAB de CV-ADR (Æ)(Ñ)

  92,578    1,094
       
      1,679
       
Netherlands - 5.6%      

Aegon NV (Æ)

  141,682    903

Akzo Nobel NV (Ñ)

  34,606    2,281

ASML Holding NV

  25,663    873

Brit Insurance Holdings NV

  244,236    775

European Aeronautic Defence and Space Co. NV (Ñ)

  50,090    1,001

Fugro NV

  5,750    328

Heineken NV

  50,620    2,399

ING Groep NV (Æ)

  239,851    2,319

Koninklijke Philips Electronics NV

  76,680    2,270

Nutreco Holding NV

  25,848    1,449

TNT NV

  44,872    1,373

Unilever NV

  24,650    803

Wolters Kluwer NV

  61,490    1,348
       
      18,122
       

 

Non-U.S. Fund 37


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Norway - 2.4%      

Cermaq ASA (Æ)

  125,900    1,213

DnB NOR ASA (Æ)

  204,000    2,215

Statoil ASA (Ñ)

  120,400    3,003

Telenor ASA (Æ)

  97,100    1,362
       
      7,793
       
Puerto Rico - 0.1%      

Popular, Inc.

  155,500    351
       
Russia - 0.5%      

Gazprom OAO - ADR

  66,670    1,662
       
Singapore - 2.0%      

CapitaLand, Ltd.

  483,000    1,431

Jardine Cycle & Carriage, Ltd.

  132,200    2,523

Singapore Telecommunications, Ltd.

  440,000    969

United Overseas Bank, Ltd.

  109,400    1,522
       
      6,445
       
South Africa - 0.2%      

MTN Group, Ltd.

  32,450    516
       
South Korea - 0.6%      

Korea Electric Power Corp.

  25,320    739

Samsung Electronics Co., Ltd.

  1,558    1,064
       
      1,803
       
Spain - 2.1%      

Banco Bilbao Vizcaya Argentaria SA

  39,182    710

Banco Santander SA

  177,875    2,922

Inditex SA

  10,971    680

Telefonica SA (Ñ)

  88,499    2,467
       
      6,779
       
Sweden - 0.7%      

Skandinaviska Enskilda Banken AB Class A (Æ)

  52,051    320

Telefonaktiebolaget LM Ericsson Class B

  204,946    1,885
       
      2,205
       
Switzerland - 10.0%      

ABB, Ltd. (Æ)

  40,812    781

ACE, Ltd.

  6,300    318

Actelion, Ltd. (Æ)

  14,250    761

Compagnie Financiere Richemont SA

  29,059    972

Credit Suisse Group AG (Ñ)

  58,686    2,890

GAM Holding, Ltd.

  19,401    236

Georg Fischer AG (Æ)

  5,303    1,335

Givaudan SA (Ñ)

  1,986    1,581

Helvetia Holding AG

  4,515    1,394

Julius Baer Group, Ltd.

  50,592    1,767

Lonza Group AG

  12,054    845

Nestle SA (Ñ)

  99,859    4,851

Novartis AG

  32,553    1,774

Roche Holding AG

  20,652    3,513
   Principal
Amount ($)
or Shares
    Market
Value
$

Sonova Holding AG

  3,348    405

Swiss Reinsurance Co., Ltd.

  7,369    353

Syngenta AG (Ñ)

  2,573    721

Transocean, Ltd. (Æ)(Ñ)

  26,214    2,171

Tyco Electronics, Ltd.

  73,700    1,809

UBS AG (Æ)(Ñ)

  163,154    2,506

Zurich Financial Services AG

  4,953    1,077
       
      32,060
       
Taiwan - 0.7%      

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

  188,481    2,156
       
United Kingdom - 15.5%      

Aegis Group PLC

  553,302    1,058

Anglo American PLC (Æ)

  43,074    1,864

Autonomy Corp. PLC (Æ)(Ñ)

  30,862    752

Aviva PLC

  196,371    1,244

BAE Systems PLC

  129,300    745

Barclays PLC

  215,468    950

BHP Billiton PLC

  16,623    531

BP PLC

  226,847    2,194

Bunzl PLC

  62,900    682

Burberry Group PLC

  75,880    728

Compass Group PLC

  94,887    678

Dairy Crest Group PLC

  160,609    940

Diageo PLC

  105,991    1,848

GlaxoSmithKline PLC

  26,862    569

Hays PLC

  230,230    384

Home Retail Group PLC

  131,403    599

HSBC Holdings PLC

  763,953    8,718

Imperial Tobacco Group PLC

  70,947    2,236

International Power PLC

  310,787    1,538

Ladbrokes PLC

  115,425    254

Lloyds Banking Group PLC (Æ)(Ñ)

  340,512    273

Reckitt Benckiser Group PLC

  68,664    3,720

Royal Dutch Shell PLC Class A

  108,400    3,276

Sage Group PLC (The)

  463,767    1,647

Smith & Nephew PLC

  86,960    893

Smiths Group PLC

  51,457    842

Spectris PLC (Ñ)

  102,113    1,203

Standard Chartered PLC

  83,001    2,079

Tesco PLC (Ñ)

  189,372    1,301

Travis Perkins PLC (Æ)

  55,200    753

Vodafone Group PLC

  1,163,794    2,695

William Hill PLC

  161,497    481

Wolseley PLC (Æ)

  29,416    588

WPP PLC

  170,920    1,669
       
      49,932
       
United States - 1.2%      

Philip Morris International, Inc. (Ñ)

  44,000    2,120

Synthes, Inc. (Æ)

  13,446    1,761
       
      3,881
       
Total Common Stocks
(cost $271,916)
      294,050
       

 

38 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
 
      
Preferred Stocks - 0.3%      
Brazil - 0.2%      

Usinas Siderurgicas de Minas Gerais SA

  24,000    681  
Germany - 0.1%      

Henkel AG & Co. KGaA

  4,023    209  
        
Total Preferred Stocks
(cost $726)
      890  
        
Warrants & Rights - 0.0%      
Belgium - 0.0%      

Fortis (Æ)
2014 Rights

  10,340      
Brazil - 0.0%      

JBS SA (Æ)
2010 Rights

  108      
        
Total Warrants & Rights
(cost $—)
        
        
Short-Term Investments - 7.9%    
United States - 7.9%      

Russell U.S. Cash Management Fund (£)

  25,445,450    25,445  
        
Total Short-Term Investments
(cost $25,445)
      25,445  
        
Other Securities - 6.4%      

State Street Securities Lending Quality Trust (×)

  20,910,745    20,804  
        
Total Other Securities
(cost $20,911)
      20,804  
        
Total Investments - 105.9%
(identified cost $318,998)
      341,189  
Other Assets and Liabilities,
Net - (5.9%)
      (19,044
        
Net Assets - 100.0%      322,145  
        

A portion of the portfolio has been fair valued as of period end.

 

See accompanying notes which are an integral part of the financial statements.

 

Non-U.S. Fund 39


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Industry Diversification
(Unaudited)
  % of Net
Assets
     Market
Value
$
 
      
      

Consumer Discretionary

  12.3      39,687  

Consumer Staples

  10.2      32,853  

Energy

  7.1      22,746  

Financial Services

  20.9      67,266  

Health Care

  5.5      17,850  

Materials and Processing

  10.1      32,541  

Other Energy

  0.1      328  

Producer Durables

  11.7      37,528  

Technology

  7.5      24,057  

Utilities

  6.2      20,084  

Warrants & Rights

          

Short-Term Investments

  7.9      25,445  

Other Securities

  6.4      20,804  
          

Total Investments

  105.9      341,189  

Other Assets and Liabilities, Net

  (5.9    (19,044
          
Net Assets  100.0      322,145  
          
Geographic Diversification
(Unaudited)
  % of
Net
Assets
     Market
Value
$
 
      

Africa

  0.2      516  

Asia

  7.2      23,193  

Europe

  50.0      161,111  

Guernsey

  0.5      1,552  

Japan

  10.1      32,582  

Latin America

  5.3      16,960  

Middle East

  0.3      900  

Other Regions

  10.4      33,639  

United Kingdom

  15.5      49,932  

Other Securities

  6.4      20,804  
          

Total Investments

  105.9      341,189  

Other Assets and Liabilities, Net

  (5.9    (19,044
          
Net Assets  100.0      322,145  
          

 

See accompanying notes which are an integral part of the financial statements.

 

40 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except contracts)

 

Futures Contracts  Number of
Contracts
  Notional
Amount
  Expiration
Date
  Unrealized
Appreciation
(Depreciation)
$

 

          
Long Positions          

CAC-40 Index (France)

  62  EUR  2,444  01/10  65

DAX Index (Germany)

  12  EUR  1,788  03/10  35

EUR STOXX 50 Index (EMU)

  152  EUR  4,517  03/10  179

FTSE-100 Index (UK)

  68  GBP  3,646  03/10  111

TOPIX Index (Japan)

  90  JPY  814,050  03/10  165
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

          555
           

 

Foreign Currency Exchange Contracts 

Counterparty

  Amount
Sold
  Amount
Bought
  Settlement
Date
  Unrealized
Appreciation
(Depreciation)
$
 
           

Barclays Bank PLC

  USD 2,090  EUR  1,420  03/17/10  (54

Brown Brothers Harriman Co.

  USD 26  CHF  27  01/04/10    

Brown Brothers Harriman Co.

  USD 10  CHF  10  01/06/10    

Brown Brothers Harriman Co.

  USD 427  EUR  300  03/17/10  3  

Brown Brothers Harriman Co.

  USD 160  GBP  100  03/17/10  2  

Brown Brothers Harriman Co.

  USD 3  JPY  314  01/06/10    

Brown Brothers Harriman Co.

  EUR 151  USD  217  01/04/10    

Brown Brothers Harriman Co.

  EUR 8  USD  11  01/05/10    

Brown Brothers Harriman Co.

  EUR 314  USD  449  01/05/10    

Brown Brothers Harriman Co.

  JPY 17,812  USD  193  01/06/10  1  

Credit Suisse First Boston

  USD 40  AUD  45  01/06/10    

Credit Suisse First Boston

  USD 956  GBP  591  03/17/10  (3

Credit Suisse First Boston

  USD 1,520  JPY  133,333  03/17/10  (87

Deutsche Bank

  USD 2,087  EUR  1,420  03/17/10  (52

Deutsche Bank

  USD 956  GBP  591  03/17/10  (2

Deutsche Bank

  USD 1,520  JPY  133,333  03/17/10  (88

HSBC

  USD 2,089  EUR  1,420  03/17/10  (54

HSBC

  USD 956  GBP  591  03/17/10  (2

HSBC

  USD 1,519  JPY  133,333  03/17/10  (86

HSBC

  JPY 10,000  USD  114  03/17/10  6  

JP Morgan

  USD 235  EUR  164  01/04/10    

JP Morgan

  USD 165  EUR  115  01/05/10    

JP Morgan

  USD 2,090  EUR  1,420  03/17/10  (54

JP Morgan

  USD 956  GBP  591  03/17/10  (2

JP Morgan

  USD 1,519  JPY  133,333  03/17/10  (87

Mellon Bank

  USD 2,090  EUR  1,420  03/17/10  (54

Mellon Bank

  USD 956  GBP  591  03/17/10  (2

Mellon Bank

  USD 1,519  JPY  133,333  03/17/10  (87

Royal Bank of Scotland

  USD 18  AUD  21  01/04/10    

Royal Bank of Scotland

  USD 30  AUD  34  01/05/10    

Royal Bank of Scotland

  USD 30  JPY  2,764  01/06/10    

Royal Bank of Scotland

  EUR 100  USD  147  03/17/10  4  

Royal Bank of Scotland

  JPY 20,000  USD  227  03/17/10  12  

State Street Bank and Trust Company

  USD 14  EUR  10  01/06/10    

State Street Bank and Trust Company

  DKK 195  USD  38  01/04/10    

State Street Bank and Trust Company

  EUR 8  USD  11  01/04/10    

State Street Bank and Trust Company

  EUR 400  USD  574  03/17/10    

UBS

  USD 41  CHF  42  01/04/10    

UBS

  USD 9  DKK  48  01/05/10    

 

See accompanying notes which are an integral part of the financial statements.

 

Non-U.S. Fund 41


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Foreign Currency Exchange Contracts 

Counterparty

  Amount
Sold
  Amount
Bought
  Settlement
Date
  Unrealized
Appreciation
(Depreciation)
$
 
           

UBS

  USD 151  EUR  105  01/04/10    

UBS

  USD 36  EUR  25  01/05/10    

UBS

  USD 32  GBP  20  01/04/10    

Westpac Banking Corporation

  USD 2,088  EUR  1,420  03/17/10  (53

Westpac Banking Corporation

  USD 957  GBP  591  03/17/10  (3

Westpac Banking Corporation

  USD 1,519  JPY  133,333  03/17/10  (87
             

Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Contracts

  (829
             

 

See accompanying notes which are an integral part of the financial statements.

 

42 Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Presentation of Portfolio Holdings — December 31, 2009

Amounts in thousands

 

   Market Value  % of Net
Assets
 
Portfolio Summary  Level 1  Level 2  Level 3  Total  
        

Common Stocks

        

Australia

  $  $2,443   $3  $2,446   0.8  

Austria

      434       434   0.1  

Belgium

      2,811       2,811   0.9  

Bermuda

   1,307   3,778       5,085   1.6  

Brazil

   8,839          8,839   2.7  

Canada

   3,962          3,962   1.2  

Cayman Islands

   676          676   0.2  

China

   1,145   459       1,604   0.5  

Czech Republic

      565       565   0.2  

Denmark

      3,483       3,483   1.1  

Finland

      3,631       3,631   1.1  

France

      37,975       37,975   11.8  

Germany

      26,751       26,751   8.3  

Guernsey

   1,552          1,552   0.5  

Hong Kong

      4,882       4,882   1.5  

India

   3,787          3,787   1.2  

Indonesia

   70          70   

Ireland

   1,281          1,281   0.4  

Israel

   900          900   0.3  

Italy

      13,932       13,932   4.3  

Japan

      32,582       32,582   10.1  

Luxembourg

      1,418       1,418   0.4  

Mexico

   1,679          1,679   0.5  

Netherlands

      18,122       18,122   5.6  

Norway

      7,793       7,793   2.4  

Puerto Rico

   351          351   0.1  

Russia

      1,662       1,662   0.5  

Singapore

      6,445       6,445   2.0  

South Africa

      516       516   0.2  

South Korea

      1,803       1,803   0.6  

Spain

      6,779       6,779   2.1  

Sweden

      2,205       2,205   0.7  

Switzerland

   4,298   27,762       32,060   10.0  

Taiwan

   2,156          2,156   0.7  

United Kingdom

   3,276   46,656       49,932   15.5  

United States

   2,120   1,761       3,881   1.2  

Preferred Stocks

   681   209       890   0.3  

Warrants & Rights

                

Short-Term Investments

      25,445       25,445   7.9  

Other Securities

      20,804       20,804   6.4  
                    

Total Investments

   38,080   303,106    3   341,189   105.9  
                  

Other Assets and Liabilities, Net

        (5.9
          
        100.0  
          

Other Financial Instruments

        

Futures Contracts

   555          555   0.2  

Foreign Currency Exchange Contracts

   2   (831     (829 (0.3
                  

Total Other Financial Instruments**

   557   (831     (274 
                  

 

* Less than .05% of net assets.

 

** Other financial instruments not reflected in the Schedule of Investments, such as futures, forwards, and swap contracts which are valued at the unrealized appreciation/depreciation on the instruments.

For a description of the levels see note 2 in the Notes to Financial Statements.

Investments in which significant unobservable inputs (Level 3) used in determining a value for the period ended December 31, 2009 were less than 1% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

 

Non-U.S. Fund 43


Table of Contents

Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

LOGO

 

Core Bond Fund 
   Total
Return
 

1 Year

  16.18

5 Years

  4.85%§ 

10 Years

  6.11%§ 
Barclays Capital U.S. Aggregate Bond Index** 
   Total
Return
 

1 Year

  5.93

5 Years

  4.97%§ 

10 Years

  6.33%§ 

 

* Assumes initial investment on January 1, 2000.

 

** The Barclays Capital U.S. Aggregate Bond Index is an index, with income reinvested, generally representative of intermediate-term government bonds, investment-grade corporate debt securities and mortgage-backed securities.

 

§ Annualized.

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results.

 

44 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

The Core Bond Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has three money managers.

What is the Fund’s investment objective?

The Fund seeks to provide current income, and as a secondary objective, capital appreciation.

How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2009?

For the fiscal year ended December 31, 2009, the Core Bond Fund gained 16.18%. This compared to its benchmark the Barclays Capital U.S. Aggregate Bond Index, which gained 5.93% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

For the year ended December 31, 2009, the Lipper® BBB Rated Corp Debt Funds (VIP) Average gained 13.33%. This result serves as a peer comparison and is expressed net of operating expenses.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

As investors returned to investments with more risk than the relative safety of U.S. Treasuries, virtually all major benchmark sectors outperformed relatively less risky equivalent-duration U.S. Treasuries. The Fund’s money managers are typically underweight in the Treasury sector and invest in sectors that are not in the benchmark (e.g. high yield bonds). As a result, the Fund outperformed its benchmark.

As a result of the significant U.S. government intervention that carried over from 2008 and new interventions announced throughout 2009, certain types of fixed income securities were in higher demand and subsequently provided higher returns relative to other types of fixed income securities. This disparity in relative returns provided opportunities for money managers to generate excess returns relative to the benchmark through sector allocation decisions and security selection. For example, as a result of the Term Asset-Backed Securities Lending Facility (TALF), certain automobile and credit card asset-backed securities were in higher demand and thus generated a relatively higher rate of return. Later, when the TALF program was expanded to include commercial mortgage-backed securities, demand and returns increased for those securities as well. The implementation of the Public-Private Investment Program (PPIP), that was announced in March 2009, helped stimulate demand for non-agency mortgage and commercial mortgage-backed securities thus increasing their market price.

Therefore, money managers who were able to identify and purchase securities which would benefit from such increased demand, outperformed relative to the benchmark contributing to the excess returns for the Fund.

Interest rates started to increase throughout 2009. The Fund’s money managers have different outlooks on interest rates. As a result, some managers will increase sensitivity to interest rates (also called increased duration) if they believe interest rates will fall. On the other hand, some managers will decrease duration expecting that interest rates will rise. In general, as interest rates decline, bond prices increase and vice versa. While the duration strategies of each manager can sometimes offset each other, the Fund’s level of interest rate sensitivity was generally higher than the benchmark (also called long duration) for the first three quarters of the year and generally lower than the benchmark (also called short duration) during the last quarter of the year. The Fund benefited from its short duration positioning when interest rates increased during the last quarter of the year. However, its long duration positioning for the earlier periods detracted from performance as interests rates increased during that time. Therefore, the Fund’s duration positioning for the year detracted from performance.

As the Federal Reserve Board lowered the federal funds target rate and maintained it at 0 to 0.25%, short-term yields stayed low while yields at the intermediate portion and long end of the yield curve increased throughout 2009. Consequently, a relative shift in yields, otherwise known as yield curve “steepening,” occurred. This yield curve steepening benefited the Fund as several of the Fund’s money managers anticipated the change and varied the maturity of their holdings accordingly.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund’s money managers tend to invest in non-Treasury sectors and in types of securities that are not in the benchmark (e.g. high yield credit, non-agency mortgage backed securities and emerging market debt). As a result of this strategy, when risk appetite returned to the market during 2009, the Fund’s underweight to U.S. Treasuries and overweight to non-Treasury securities resulted in the Fund generating returns in excess of the benchmark. While sector positions varied throughout the fiscal year, allocations to some of the best performing sectors of the fixed income markets were beneficial to Fund performance. Overweight exposure to investment grade financials, commercial mortgage-backed securities and the rotation from overweight to underweight agency mortgages over the course of the year contributed positively to performance. Exposure to non-agency mortgage-backed securities was a net contributor to performance after strong performance in the last quarter of the year.

The Fund’s money managers rotate in and out of various sectors in order to place more emphasis on sectors or securities that they believe could provide the highest relative value versus


 

Core Bond Fund 45


Table of Contents

Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

other areas of the market. For example, Pacific Investment Management Company LLC (“PIMCO”) put significant emphasis on agency mortgage-backed securities in an attempt to benefit from the Federal Reserve’s Agency Mortgage-Backed Securities Purchase Program. After price appreciation peaked for these securities, PIMCO rotated out of this sector in order to lock in the gains and put emphasis on other areas of the market that it believed were more attractive. Metropolitan West Asset Management, LLC (“MetWest”) maintained an emphasis to commercial mortgage-backed securities throughout the year and benefited from the increased demand for these securities as a result of the government intervention programs. Similarly, Goldman Sachs Asset Management, L.P. (“Goldman”) maintained an emphasis to non-agency mortgages throughout the year and experienced strong performance when demand for these securities increased. Although different money managers place emphasis on different areas of the market at different times, the Fund’s performance over the year generally benefitted from sector rotation by the money managers.

Describe any changes to the Fund’s structure or the money manager line-up.

There were no changes to the Fund’s money manager line-up during the year. Manager weights were adjusted throughout the structure.

 

Money Managers as of
December 31, 2009
 Styles
Goldman Sachs Asset Management, L.P. Fully Discretionary
Metropolitan West Asset Management, LLC Sector Rotation
Pacific Investment Management Company LLC Fully Discretionary

The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of RIMCo, or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.


 

46 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Shareholder Expense Example — December 31, 2009 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding each Fund’s Expense Example, which appears on each Fund’s individual page in this Annual Report. Please refer to this information when reviewing the Expense Example for a Fund.

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2009 to December 31, 2009.

Actual Expenses

The information in the table under the heading “Actual Performance” provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you 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 result by the number in the first column in the row entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information in the table under the heading “Hypothetical Performance (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate

of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading “Hypothetical Performance (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The fee and expenses shown in this section do not reflect any Insurance Company Separate Account or Policy Charges.

 

   Actual
Performance
  Hypothetical
Performance
(5% return
before expenses)
    

Beginning Account Value

    

July 1, 2009

  $1,000.00  $1,000.00

Ending Account Value

    

December 31, 2009

  $1,092.90  $1,021.93

Expenses Paid During Period*

  $3.43  $3.31

 

*Expenses are equal to the Fund’s annualized expense ratio of 0.65% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed. Without the waiver and/or reimbursement, expenses would have been higher.

 

Core Bond Fund 47


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Long-Term Investments - 84.7%
Asset-Backed Securities - 5.5%

Access Group, Inc. (Ê)
Series 2008-1 Class A
1.582% due 10/27/25

  854    876

Accredited Mortgage Loan Trust (Ê)
Series 2004-2 Class A2
0.531% due 07/25/34

  31    15

ACE Securities Corp. (Ê)
Series 2003-OP1 Class M2
1.731% due 12/25/33

  22    17

Series 2005-SD3 Class A
0.631% due 08/25/45

  123    102

Aegis Asset Backed Securities Trust (Ê)
Series 2003-3 Class M2
2.706% due 01/25/34

  104    50

Ally Auto Receivables Trust (Þ)
Series 2009-A Class A2
1.320% due 03/15/12

  200    200

Ameriquest Mortgage Securities, Inc. (Ê)
Series 2002-D Class M1
3.981% due 02/25/33

  90    30

Series 2004-R10 Class A5
0.621% due 11/25/34

      

ARES CLO Funds (Ê)(Å)
Series 2005-10A Class A3
0.494% due 09/18/17

  730    658

Armstrong Loan Funding, Ltd. (Ê)(Å)
Series 2008-1A Class A
0.831% due 08/01/16

  685    654

Bank of America Credit Card Trust (Ê)
Series 2008-A1 Class A1
0.813% due 04/15/13

  200    200

Bayview Financial Acquisition Trust
Series 2006-A Class 1A3
5.865% due 02/28/41

  190    121

Centex Home Equity (Ê)
Series 2006-A Class AV4
0.481% due 06/25/36

  700    340

CIT Mortgage Loan Trust (Ê)(Å)
Series 2007-1 Class 2A1
1.236% due 10/25/37

  187    167

Series 2007-1 Class 2A2
2.645% due 10/25/37

  130    59

Series 2007-1 Class 2A3
1.921% due 10/25/37

  180    67

Citigroup Mortgage Loan Trust, Inc. (Ê)
Series 2003-HE4 Class A (Å)
0.641% due 12/25/33

  687    582

Series 2006-WFH Class A2
0.331% due 10/25/36

  350    333

Series 2007-AMC Class A2A
0.291% due 05/25/37

  283    249

Series 2007-WFH Class A3
0.381% due 01/25/37

  1,045    605

Series 2007-WFH Class A4
0.431% due 01/25/37

  840    312
   Principal
Amount ($)
or Shares
    Market
Value
$

Conseco Financial Corp.
Series 1999-2 Class A5
6.680% due 12/01/30

  1,089    1,068

Continental Airlines, Inc.
Series 991A
6.545% due 08/02/20

  239    235

Countrywide Asset-Backed Certificates
Series 2004-AB2 Class M3 (Ê)
0.831% due 05/25/36

  95    12

Series 2004-BC1 Class M1 (Ê)
0.731% due 02/25/34

  91    76

Series 2006-11 Class 1AF4
6.300% due 09/25/46

  169    63

Countrywide Home Equity Loan Trust (Ê)
Series 2006-HW Class 2A1B
0.383% due 11/15/36

  421    255

Ellington Loan Acquisition Trust (Ê)(Å)
Series 2007-2 Class A2A
1.131% due 05/25/37

  579    502

First Franklin Mortgage Loan Asset Backed Certificates (Ê)
Series 2006-FF1 Class A3
0.281% due 11/25/36

  52    51

Series 2007-FF1 Class A2B
0.321% due 01/25/38

  1,000    490

GMAC Mortgage Corp. Loan Trust
Series 2007-HE3 Class 1A1
7.000% due 09/25/37

  58    30

Series 2007-HE3 Class 2A1
7.000% due 09/25/37

  67    30

GSAA Trust (Ê)
Series 2006-2 Class 2A3
0.501% due 12/25/35

  320    222

Series 2006-4 Class 1A2
5.887% due 03/25/36

  198    25

Series 2006-4 Class 3A1
6.097% due 03/25/36

  1,365    813

GSAMP Trust (Ê)
Series 2003-HE2 Class M1
1.206% due 08/25/33

  61    37

HFC Home Equity Loan Asset Backed Certificates (Ê)
Series 2005-1 Class A
0.523% due 01/20/34

  182    154

Series 2006-4 Class A3V
0.383% due 03/20/36

  800    713

Series 2007-1 Class AS
0.433% due 03/20/36

  697    599

Series 2007-3 Class APT
1.433% due 11/20/36

  307    261

HSI Asset Securitization Corp. Trust (Ê)
Series 2006-HE2 Class 2A1
0.281% due 12/25/36

  17    13

Indymac Residential Asset Backed Trust (Ê)
Series 2006-H2 Class A
0.381% due 06/28/36

  252    106

 

48 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

IXIS Real Estate Capital Trust (Ê)
Series 2005-HE1 Class M2
0.966% due 06/25/35

  629    578

JP Morgan Mortgage Acquisition Corp. (Ê)
Series 2007-CH4 Class A4
0.391% due 05/25/37

  1,000    384

Lehman XS Trust (Ê)
Series 2005-1 Class 2A2
1.731% due 07/25/35

  59    36

Series 2005-5N Class 3A1A
0.531% due 11/25/35

  372    212

Series 2005-7N Class 1A1A
0.501% due 12/25/35

  401    246

Series 2006-2N Class 1A2
0.571% due 02/25/46

  182    38

Series 2006-16N Class A1A
0.311% due 11/25/46

  45    44

Series 2006-16N Class A4A
0.421% due 11/25/46

  655    314

Long Beach Mortgage Loan Trust (Ê)
Series 2004-4 Class 1A1
0.511% due 10/25/34

  5    4

Master Asset Backed Securities Trust (Ê)
Series 2003-WMC Class M2
2.706% due 08/25/33

  57    28

Series 2005-WMC Class M1
0.651% due 03/25/35

  624    602

Morgan Stanley ABS Capital I (Ê)
Series 2003-NC8 Class M3
3.381% due 09/25/33

  28    7

Series 2006-HE1 Class A4
0.521% due 01/25/36

  1,950    733

Series 2006-HE7 Class A2A
0.281% due 09/25/36

  46    45

Series 2007-HE2 Class A2B
0.321% due 01/25/37

  1,043    422

New Century Home Equity Loan Trust (Ê)
Series 2004-4 Class M2
0.761% due 02/25/35

  215    140

Option One Mortgage Loan Trust (Ê)
Series 2003-2 Class M2
2.781% due 04/25/33

  36    9

Series 2003-3 Class M3
3.231% due 06/25/33

  27    5

Series 2003-4 Class M2
2.706% due 07/25/33

  24    6

Park Place Securities, Inc. (Ê)
Series 2005-WCW Class M1
0.681% due 09/25/35

  210    103

Popular ABS Mortgage Pass-Through Trust
Series 2005-6 Class A3
5.680% due 01/25/36

  160    148

Renaissance Home Equity Loan Trust
Series 2005-1 Class M1
5.357% due 05/25/35

  61    22

Series 2005-2 Class AF4
4.934% due 08/25/35

  85    68
   Principal
Amount ($)
or Shares
    Market
Value
$

Series 2006-1 Class AF6
5.746% due 05/25/36

  170    129

Residential Asset Mortgage Products, Inc.
Series 2003-RS1 Class AI6A
5.980% due 12/25/33

  130    107

Series 2003-RS9 Class AI6A
6.110% due 10/25/33

  422    325

Residential Asset Securities Corp.
Series 2003-KS2 Class MI1
4.800% due 04/25/33

  134    51

Series 2003-KS2 Class MI3
6.100% due 04/25/33

  54    7

Series 2003-KS4 Class AIIB (Ê)
0.811% due 06/25/33

  36    18

Series 2007-KS2 Class AI1 (Ê)
0.301% due 02/25/37

  101    96

SBI Heloc Trust (Ê)(Þ)
Series 2006-1A Class 1A2A
0.401% due 08/25/36

  24    22

SG Mortgage Securities Trust (Ê)
Series 2006-OPT Class A3C
0.381% due 10/25/36

  1,500    596

SLM Student Loan Trust (Ê)
Series 2007-3 Class A1
0.272% due 10/27/14

  139    139

Series 2008-2 Class A1
0.582% due 01/25/15

  65    65

Series 2008-7 Class A2
0.782% due 10/25/17

  2,800    2,787

Small Business Administration
Participation Certificates
Series 2005-20G Class 1
4.750% due 07/01/25

  712    744

Soundview Home Equity Loan Trust (Ê)
Series 2005-OPT Class A4
0.531% due 11/25/35

  727    605

Structured Asset Securities Corp. (Ê)
Series 2006-BC3 Class A2
0.281% due 10/25/36

  39    37

Series 2007-BC3 Class 2A2
0.371% due 05/25/47

  1,220    658
       
      21,972
       
Corporate Bonds and Notes - 21.7%

Ace Capital Trust II
9.700% due 04/01/30

  175    197

AES Corp. (The)(Å)
8.750% due 05/15/13

  635    651

Agilent Technologies, Inc.
5.500% due 09/14/15

  300    314

Allied Waste North America, Inc. (Ñ)
Series B
7.125% due 05/15/16

  90    96

Allstate Life Global Funding Trusts
5.375% due 04/30/13

  200    213

American Airlines Pass Through Trust 2009-1A (Ñ)
10.375% due 07/02/19

  500    552

 

Core Bond Fund 49


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

American Express Bank FSB
Series BKNT
5.500% due 04/16/13

  300    320

6.000% due 09/13/17

  400    415

American Express Centurion Bank
Series BKN1
6.000% due 09/13/17

  400    415

American Express Co.
7.000% due 03/19/18

  200    220

American Express Travel Related
Services Co., Inc. (Ê)
0.435% due 06/01/11

  100    98

American General Finance Corp.
6.900% due 12/15/17

  400    278

American International Group, Inc.
5.850% due 01/16/18

  900    738

Americo Life, Inc. (Å)
7.875% due 05/01/13

  75    66

Amgen, Inc.(Ñ)
6.900% due 06/01/38

  1,000    1,163

Anglo American Capital PLC (Ñ)(Å)
9.375% due 04/08/14

  100    120

Anheuser-Busch InBev Worldwide, Inc. (Þ)
7.200% due 01/15/14

  125    142

4.125% due 01/15/15

  325    330

7.750% due 01/15/19

  350    410

ANZ Capital Trust (ƒ)(Þ)
4.484% due 12/31/49

  225    225

Appalachian Power Co.
Series O
5.650% due 08/15/12

  65    70

Arizona Public Service Co.
5.800% due 06/30/14

  100    107

6.250% due 08/01/16

  150    159

AT&T, Inc.
4.950% due 01/15/13

  200    213

5.500% due 02/01/18 (Ñ)

  200    209

6.300% due 01/15/38

  900    914

6.400% due 05/15/38

  175    180

BAC Capital Trust XV (Ê)
1.056% due 06/01/56

  375    240

Bank of America Corp.
5.625% due 10/14/16 (Ñ)

  115    117

6.000% due 09/01/17

  335    348

5.750% due 12/01/17

  290    297

7.625% due 06/01/19 (Ñ)

  375    434

Bank of America NA (Ê)
Series BKNT
0.534% due 06/15/16

  200    178

BankAmerica Capital III (Ê)
Series*
0.854% due 01/15/27

  350    243

Bear Stearns Cos. LLC (The)
6.950% due 08/10/12

  600    670

7.250% due 02/01/18

  645    740

BellSouth Telecommunications, Inc.
7.000% due 12/01/95

  245    240
   Principal
Amount ($)
or Shares
    Market
Value
$

BNP Paribas Capital Trust (ƒ)(Å)
9.003% due 12/29/49

  450    441

Boardwalk Pipelines, LP
5.875% due 11/15/16

  225    230

Boston Scientific Corp.
4.500% due 01/15/15

  125    125

6.000% due 01/15/20

  100    102

7.000% due 11/15/35

  63    62

Burlington Northern Santa Fe Corp.
6.875% due 12/01/27

  25    27

6.750% due 03/15/29

  10    11

Capital One Financial Corp.
7.375% due 05/23/14

  448    507

CareFusion Corp. (Þ)
6.375% due 08/01/19

  300    321

Caterpillar Financial Services Corp.
4.850% due 12/07/12

  100    108

Catlin Insurance Co., Ltd. (ƒ)(Þ)
7.249% due 12/31/49

  100    73

Cellco Partnership / Verizon Wireless Capital LLC
2.869% due 05/20/11 (Ê)

  400    414

5.250% due 02/01/12

  700    742

8.500% due 11/15/18

  175    217

CenterPoint Energy Houston Electric LLC (Ñ)
Series J2
5.700% due 03/15/13

  110    117

CenterPoint Energy Resources Corp.
6.125% due 11/01/17

  50    52

Series B
7.875% due 04/01/13

  295    332

Chase Capital III (Ê)
Series C
0.806% due 03/01/27

  295    210

Chesapeake Energy Corp.
7.000% due 08/15/14

  350    354

6.875% due 01/15/16

  180    180

Chubb Corp.
6.375% due 03/29/67

  175    163

Series 1
6.500% due 05/15/38

  50    55

CIT Group, Inc.
7.000% due 05/01/13 (Ñ)

  56    53

7.000% due 05/01/14 (Ñ)

  85    79

7.000% due 05/01/15

  285    255

7.000% due 05/01/16

  141    124

7.000% due 05/01/17 (Ñ)

  198    171

Citibank NA
1.875% due 05/07/12

  100    101

Citigroup Capital XXI
8.300% due 12/21/77

  650    626

Citigroup Funding, Inc.
1.875% due 10/22/12

  3,500    3,487

2.250% due 12/10/12 (Ñ)

  200    202

Citigroup, Inc.
2.125% due 04/30/12

  800    809

5.500% due 08/27/12

  200    209

 

50 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

5.625% due 08/27/12

  200    206

5.500% due 04/11/13

  700    726

5.850% due 07/02/13 (Ñ)

  100    104

6.375% due 08/12/14

  250    262

5.000% due 09/15/14

  400    386

4.700% due 05/29/15

  50    49

5.850% due 08/02/16

  55    54

6.000% due 08/15/17

  400    400

6.125% due 11/21/17

  405    408

6.125% due 08/25/36 (Ñ)

  300    257

5.875% due 05/29/37

  150    132

6.875% due 03/05/38 (Ñ)

  75    75

8.125% due 07/15/39

  1,215    1,371

CNA Financial Corp. (Ñ)
6.500% due 08/15/16

  125    123

Columbus Southern Power Co.
Series C
5.500% due 03/01/13

  10    11

Comcast Cable Communications Holdings, Inc.
9.455% due 11/15/22

  100    129

Comcast Cable Holdings LLC
9.800% due 02/01/12

  180    204

Comcast Corp.
5.500% due 03/15/11

  100    105

Comcast Holdings Corp.
10.625% due 07/15/12

  125    147

Commonwealth Edison Co.
6.950% due 07/15/18

  50    54

Series 105
5.400% due 12/15/11

  125    134

Community Health Systems, Inc.
Series WI
8.875% due 07/15/15

  235    243

Continental Airlines, Inc.
9.000% due 07/08/16 (Ñ)

  250    265

Series 071A
5.983% due 04/19/22

  150    145

Countrywide Financial Corp.
Series MTN
5.800% due 06/07/12

  100    106

Countrywide Home Loans, Inc. (Ñ)
Series MTNL
4.000% due 03/22/11

  290    296

COX Communications, Inc. (Þ)
5.875% due 12/01/16

  75    79

8.375% due 03/01/39

  125    156

Credit Suisse USA, Inc. (Ñ)
5.500% due 08/15/13

  45    49

4.875% due 01/15/15

  55    58

CSC Holdings LLC
Series WI
6.750% due 04/15/12

  12    12

DCP Midstream LLC
6.875% due 02/01/11

  20    21

Dell, Inc. (Ñ)
4.700% due 04/15/13

  400    422

Delta Air Lines, Inc.
9.500% due 09/15/14 (Þ)

  480    499
   Principal
Amount ($)
or Shares
    Market
Value
$

Series 00A2 (Ñ)

      

7.570% due 05/18/12

  205    208

Series 01A2
7.111% due 03/18/13

  400    403

DirecTV Holdings LLC/Financing Co., Inc. (Ñ)(Þ)
5.875% due 10/01/19

  125    127

Discover Bank
Series BKNT
8.700% due 11/18/19

  250    268

DISH DBS Corp.
7.125% due 02/01/16

  125    128

Dolphin Energy, Ltd. (Þ)
5.888% due 06/15/19

  129    130

Dow Chemical Co. (The)
7.600% due 05/15/14

  300    341

5.900% due 02/15/15

  100    107

DPL, Inc.
6.875% due 09/01/11

  193    206

Dynegy Roseton/Danskammer Pass Through Trust
Series B
7.670% due 11/08/16

  550    531

Edison Mission Energy (Ñ)
7.000% due 05/15/17

  675    533

El Paso Corp. (Ñ)
Series GMTN
8.050% due 10/15/30

  200    189

El Paso Natural Gas Co.
7.500% due 11/15/26

  100    110

Energy Transfer Partners, LP (Ñ)
5.950% due 02/01/15

  325    344

Enterprise Products Operating LLC
6.650% due 04/15/18

  250    271

Series A
8.375% due 08/01/66

  100    98

Federal Express Corp.
7.600% due 07/01/97

  75    71

Fifth Third Bancorp
8.250% due 03/01/38

  1,100    1,046

FirstEnergy Corp.
Series B
6.450% due 11/15/11

  12    13

Series C
7.375% due 11/15/31

  175    190

FPL Energy Wind Funding LLC (Þ)
6.876% due 06/27/17

  286    277

General Electric Capital Corp.
1.167% due 05/22/13 (Ê)

  75    74

5.900% due 05/13/14 (Ñ)

  350    378

5.625% due 05/01/18

  230    236

5.875% due 01/14/38

  300    278

6.375% due 11/15/67

  1,900    1,648

Series EMTN (Ê)
0.399% due 03/20/14

  400    372

Series GMTN
5.500% due 04/28/11 (Ñ)

  220    232

 

Core Bond Fund 51


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

2.000% due 09/28/12

  400    401

2.625% due 12/28/12

  1,000    1,018

Series MTNA (Ê)
0.514% due 09/15/14

  300    283

General Electric Co.
5.250% due 12/06/17

  150    153

GMAC, Inc.
7.250% due 03/02/11 (Þ)

  525    520

6.875% due 09/15/11 (Ñ)

  525    519

1.750% due 10/30/12

  1,700    1,689

7.500% due 12/31/13 (Þ)

  1,400    1,351

Goldman Sachs Group, Inc. (The)
1.031% due 12/05/11 (Ê)

  1,020    1,037

4.750% due 07/15/13

  350    366

6.000% due 05/01/14 (Ñ)

  150    164

6.250% due 09/01/17

  600    643

6.150% due 04/01/18

  150    161

7.500% due 02/15/19 (Ñ)

  550    641

6.750% due 10/01/37 (Ñ)

  800    822

Series MTNB (Ê)
0.683% due 07/22/15

  100    89

HCA, Inc. (Þ)
8.500% due 04/15/19

  300    323

7.875% due 02/15/20 (Ñ)

  125    130

HCP, Inc.(Ñ)
5.950% due 09/15/11

  585    604

Healthcare Realty Trust, Inc.
6.500% due 01/17/17

  700    693

Historic TW, Inc.
8.050% due 01/15/16

  195    216

Indiantown Cogeneration, LP
Series A-10
9.770% due 12/15/20

  275    270

International Lease Finance Corp.
4.950% due 02/01/11

  100    93

International Paper Co. (Ñ)
7.950% due 06/15/18

  75    87

Jersey Central Power & Light Co.
5.625% due 05/01/16

  90    93

JPMorgan Chase Capital XIII (Ê)
Series M
1.201% due 09/30/34

  480    338

JPMorgan Chase & Co.
5.375% due 01/15/14 (Ñ)

  170    182

6.000% due 01/15/18

  200    215

6.300% due 04/23/19

  250    275

6.400% due 05/15/38

  323    356

Series 1 (ƒ)
7.900% due 04/29/49

  840    866

JPMorgan Chase Bank NA
Series AI (Þ)
5.875% due 06/13/16

  70    73

Series BKNT
6.000% due 10/01/17

  400    428

JPMorgan Chase Capital XXI (Ê)
Series U
1.231% due 01/15/87

  335    229
   Principal
Amount ($)
or Shares
    Market
Value
$

KCP&L Greater Missouri Operations Co.
11.875% due 07/01/12

  640    741

Kinder Morgan Energy Partners, LP (Ñ)
5.950% due 02/15/18

  700    741

Kraft Foods, Inc.
6.125% due 02/01/18

  200    210

L-3 Communications Corp.
Series B
6.375% due 10/15/15

  125    125

Lehman Brothers Holdings, Inc. (Ø)
5.625% due 01/24/13

  200    41

6.200% due 09/26/14

  200    39

1.000% due 01/23/49

  600    117

1.000% due 04/03/49

  400    78

Manufacturers & Traders Trust Co.
5.585% due 12/28/20

  84    73

Massey Energy Co.
3.250% due 08/01/15

  640    559

MBNA Capital B (Ê)
Series B
1.081% due 02/01/27

  985    672

MBNA Corp. (Ñ)
6.125% due 03/01/13

  200    212

Merrill Lynch & Co., Inc.
6.050% due 08/15/12

  100    107

5.450% due 02/05/13 (Ñ)

  200    210

6.050% due 05/16/16

  300    303

6.400% due 08/28/17

  325    342

6.875% due 04/25/18

  625    673

MetLife, Inc.
6.125% due 12/01/11 (Ñ)

  205    220

6.400% due 12/15/66

  100    88

Series A (Ñ)
6.817% due 08/15/18

  200    223

Metropolitan Life Global Funding I (Å)
5.125% due 06/10/14

  200    212

Mirant Mid Atlantic Pass Through Trust A
Series A
8.625% due 06/30/12

  243    248

Morgan Stanley
3.250% due 12/01/11

  200    207

5.375% due 10/15/15

  500    517

0.734% due 10/18/16 (Ê)

  435    403

5.450% due 01/09/17

  225    227

6.250% due 08/28/17

  100    104

5.950% due 12/28/17

  125    129

6.625% due 04/01/18

  450    487

7.300% due 05/13/19

  100    112

5.625% due 09/23/19

  100    101

Series GMTN
5.750% due 08/31/12 (Ñ)

  125    134

0.584% due 01/09/14 (Ê)

  425    406

National City Bank (Ê)
Series BKNT
0.625% due 06/07/17

  700    621

Nevada Power Co.
7.125% due 03/15/19

  100    112

 

52 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Series L
5.875% due 01/15/15

  100    107

New Cingular Wireless Services, Inc. (Ñ)
7.875% due 03/01/11

  150    161

News America Holdings, Inc.
7.900% due 12/01/95

  90    97

8.250% due 10/17/96

  20    20

NGPL Pipeco LLC (Þ)
6.514% due 12/15/12

  200    217

Nisource Finance Corp.
10.750% due 03/15/16

  100    123

6.400% due 03/15/18

  145    151

6.125% due 03/01/22

  335    342

Ohio Power Co. (Ñ)
Series F
5.500% due 02/15/13

  20    21

Oncor Electric Delivery Co. (Ñ)
6.800% due 09/01/18

  550    611

Panhandle Eastern Pipeline Co., LP
8.125% due 06/01/19

  450    520

Philip Morris International, Inc.
6.375% due 05/16/38

  100    108

Phoenix Life Insurance Co. (Å)
7.150% due 12/15/34

  150    74

PNC Bank NA
Series BKNT
6.875% due 04/01/18

  250    265

Progress Energy, Inc.
7.100% due 03/01/11

  77    81

5.625% due 01/15/16

  40    42

7.050% due 03/15/19

  200    224

ProLogis
1.875% due 11/15/37

  150    133

Prudential Holdings LLC (Å)
8.695% due 12/18/23

  550    589

Public Service Co. of New Mexico
7.950% due 05/15/18

  260    272

Puget Sound Energy, Inc.
Series A
6.974% due 06/01/67

  125    110

Pulte Homes, Inc.
5.250% due 01/15/14

  1,000    982

Qwest Capital Funding, Inc. (Ñ)
7.250% due 02/15/11

  150    152

Qwest Communications International, Inc.
Series*
7.250% due 02/15/11

  384    386

Qwest Corp.

      

7.875% due 09/01/11

  120    126

7.625% due 06/15/15

  100    103

Reckson Operating Partnership, LP
5.150% due 01/15/11

  92    92

Reinsurance Group of America, Inc.
6.750% due 12/15/65

  75    63

Reliant Energy Mid-Atlantic Power Holdings LLC
Series B
9.237% due 07/02/17

  318    332
   Principal
Amount ($)
or Shares
    Market
Value
$

Sabine Pass LNG, LP (Ñ)
7.250% due 11/30/13

  730    662

Simon Property Group, LP

      

5.600% due 09/01/11

  200    209

5.300% due 05/30/13 (Ñ)

  395    408

6.100% due 05/01/16

  130    133

SLM Corp.

      

5.400% due 10/25/11

  100    100

5.125% due 08/27/12

  75    70

8.450% due 06/15/18

  50    49

Southern Union Co.
7.200% due 11/01/66

  740    633

Sprint Capital Corp.
8.375% due 03/15/12

  125    129

State Street Capital Trust III
8.250% due 03/15/42

  200    205

Symetra Financial Corp. (Å)
6.125% due 04/01/16

  150    134

Target Corp. (Ñ)
5.125% due 01/15/13

  400    434

Tennessee Gas Pipeline Co.

      

8.000% due 02/01/16

  200    229

7.000% due 10/15/28

  50    53

8.375% due 06/15/32

  100    119

Time Warner, Inc. (Ñ)
5.875% due 11/15/16

  400    432

Transatlantic Holdings, Inc.
8.000% due 11/30/39

  150    153

Union Electric Co.
6.400% due 06/15/17

  205    221

Union Pacific Corp. (Ñ)
5.700% due 08/15/18

  400    419

United Air Lines, Inc.
10.400% due 11/01/16

  100    105

UnitedHealth Group, Inc.

      

5.250% due 03/15/11

  95    98

4.875% due 02/15/13

  200    209

6.000% due 06/15/17

  35    37

Series WI

      

6.500% due 06/15/37

  45    44

US Bank National Associtaion
4.375% due 02/28/17

  100    138

US Central Federal Credit Union

      

1.250% due 10/19/11

  400    400

1.900% due 10/19/12

  300    300

Valero Energy Corp.(Ñ)
9.375% due 03/15/19

  450    535

Wachovia Corp.

      

5.500% due 05/01/13

  450    478

5.625% due 10/15/16 (Ñ)

  100    102

5.750% due 06/15/17 (Ñ)

  155    161

5.750% due 02/01/18

  500    522

Series* (Ê)

      

0.621% due 10/28/15

  200    177

WEA Finance LLC / WT Finance Aust Pty, Ltd.

      

7.500% due 06/02/14 (Å)

  205    231

6.750% due 09/02/19

  95    102

 

Core Bond Fund 53


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Wells Fargo & Co.

      

0.909% due 03/23/16

  400    528

5.625% due 12/11/17 (Ñ)

  300    312

Series K (ƒ)

      

7.980% due 03/29/49

  3,585    3,594

Westpac Banking Corp. (Å)
1.900% due 12/14/12

  800    794

Whirlpool Corp.

      

8.000% due 05/01/12 (Ñ)

  25    27

8.600% due 05/01/14

  75    85

Williams Cos., Inc. (Ñ)
7.625% due 07/15/19

  400    448

Williams Cos., Inc. (The)

      

7.875% due 09/01/21

  405    465

Series WI

      

8.750% due 01/15/20

  150    179

Windstream Corp. Series WI
8.625% due 08/01/16

  125    127

XTO Energy, Inc.
6.500% due 12/15/18

  175    200

ZFS Finance USA Trust I (Þ)
6.150% due 12/15/65

  500    455
       
      87,049
       
International Debt - 8.8%

Achmea Hypotheekbank NV (Þ)
3.200% due 11/03/14

  900    898

African Development Bank Series GDIF
1.750% due 10/01/12

  1,100    1,093

Altria Group, Inc.
9.700% due 11/10/18

  150    185

Anglo American Capital PLC (Þ)
9.375% due 04/08/19

  100    127

ANZ National International, Ltd. (Þ)
6.200% due 07/19/13

  600    646

ArcelorMittal
6.125% due 06/01/18

  175    181

Argentina Bonos
7.000% due 10/03/15

  230    197

AstraZeneca PLC (Ñ)
5.900% due 09/15/17

  100    111

AXA SA (ƒ)(Þ)
6.463% due 12/14/18

  100    78

Barclays Bank PLC

      

5.450% due 09/12/12

  1,300    1,406

6.050% due 12/04/17 (Þ)

  200    204

Barrick Gold Corp.
6.950% due 04/01/19

  135    152

Barrick Gold Financeco LLC
6.125% due 09/15/13

  270    297

BAT International Finance PLC (Þ)
9.500% due 11/15/18

  150    190

Black Diamond CLO, Ltd. (Ê)(Å)
Series 2007-1A Class AD
0.531% due 04/29/19

  1,000    868

BNP Paribas (ƒ)(Þ)
5.186% due 06/29/49

  300    247
   Principal
Amount ($)
or Shares
    Market
Value
$

Canadian Natural Resources, Ltd.

      

5.150% due 02/01/13

  100    106

6.500% due 02/15/37

  100    106

Chatham Light CLO, Ltd. (Ê)(Å)
Series 2005-2A Class A1
0.531% due 08/03/19

  495    446

CODELCO, Inc. (Þ)
7.500% due 01/15/19

  200    234

Credit Agricole SA (ƒ)(Þ)
8.375% due 10/29/49

  150    159

Credit Suisse NY

      

5.000% due 05/15/13

  330    352

6.000% due 02/15/18

  770    806

Danske Bank A/S (Þ)
2.500% due 05/10/12

  200    203

Deutsche Bank AG (Ñ)
6.000% due 09/01/17

  600    654

Electricite De France (Þ)

      

5.500% due 01/26/14

  200    217

6.500% due 01/26/19

  200    225

6.950% due 01/26/39

  200    237

Endurance Specialty Holdings, Ltd.
6.150% due 10/15/15

  100    104

Enel Finance International SA (Þ)
6.250% due 09/15/17

  600    660

Enel Finance International SA (Þ)
5.125% due 10/07/19

  275    277

Export-Import Bank of Korea
5.875% due 01/14/15

  700    751

HBOS PLC (Þ)
6.750% due 05/21/18

  825    766

HSBC Holdings PLC (Ñ)

      

6.500% due 05/02/36

  100    105

6.500% due 09/15/37

  100    104

Israel Government AID Bond
5.500% due 09/18/33

  400    395

Jackson National Life Fund LLC
0.553% due 08/06/11

  2,800    2,579

Korea Electric Power Corp. (Þ)
5.125% due 04/23/34

  60    64

Landwirtschaftliche Rentenbank

      

5.250% due 07/02/12

  700    756

1.875% due 09/24/12

  1,700    1,695

4.875% due 01/10/14

  1,000    1,077

LeasePlan Corp. NV (Þ)
3.000% due 05/07/12

  400    410

Macquarie Bank, Ltd. (Þ)
3.300% due 07/17/14

  1,000    1,002

Morgan Stanley

      

1.048% due 03/01/13 (Ê)

  600    817

MUFG Capital Finance 1, Ltd. (ƒ)(Ñ)
6.346% due 07/29/49

  200    182

National Australia Bank, Ltd. (Þ)
5.350% due 06/12/13

  800    861

Peruvian Government International Bond
7.125% due 03/30/19

  180    207

Petro-Canada
6.050% due 05/15/18

  100    107

 

54 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Petrobras International Finance Co. (Ñ)
7.875% due 03/15/19

  800    922

Petroleos Mexicanos (Ñ)
8.000% due 05/03/19

  320    370

Province of Ontario Canada
4.100% due 06/16/14

  400    417

Qatar Govt International Bond (Ñ)(Þ)
5.250% due 01/20/20

  520    524

Ras Laffan Liquefied Natural Gas Co., Ltd. III (Þ)
5.838% due 09/30/27

  250    249

Resona Bank, Ltd. (ƒ)(Þ)
5.850% due 09/29/49

  100    87

Resona Preferred Global Securities Cayman, Ltd. (ƒ)(Þ)
7.191% due 12/29/49

  325    266

Royal Bank of Scotland Group PLC
1.500% due 03/30/12 (Ñ)(Å)

  1,200    1,188

6.990% due 10/29/49 (ƒ)(Þ)

  300    167

Series 1 (ƒ)(Ñ)

      

9.118% due 03/31/49

  300    274

Royal Bank of Scotland PLC (The) (Þ)

      

0.673% due 04/08/11 (Ê)

  800    802

3.000% due 12/09/11

  200    205

4.875% due 08/25/14 (Ñ)

  100    101

Santander Perpetual SA Unipersonal (ƒ)(Þ)
6.671% due 10/29/49

  300    270

SMFG Preferred Capital USD 1, Ltd. (ƒ)(Þ)
6.078% due 01/29/49

  100    86

Societe Financement de l’Economie Francaise (Þ)
3.375% due 05/05/14

  700    714

2.875% due 09/22/14

  1,200    1,191

State of Qatar
5.150% due 04/09/14

  100    105

Sumitomo Mitsui Banking Corp. (ƒ)(Þ)
5.625% due 07/29/49

  300    286

Suncor Energy, Inc.
6.100% due 06/01/18

  100    107

Svensk Exportkredit AB (Ñ)
3.250% due 09/16/14

  200    200

Swiss Re Capital I, LP (ƒ)(Þ)
6.854% due 05/29/49

  225    182

Systems 2001 AT LLC (Þ)
7.156% due 12/15/11

  54    56

Telecom Italia Capital SA
6.200% due 07/18/11

  255    270

7.200% due 07/18/36

  225    245

Thomson Reuters Corp.
6.500% due 07/15/18

  225    254

TransCanada PipeLines, Ltd.
6.350% due 05/15/67

  225    211

TransCapitalInvest, Ltd. for OJSC AK Transneft (Þ)
8.700% due 08/07/18

  100    115

UBS AG
Series DPNT
5.875% due 12/20/17

  400    411
   Principal
Amount ($)
or Shares
    Market
Value
$

5.750% due 04/25/18

  100    102

UBS Luxembourg SA for OJSC Vimpel Communications
Series REGS
8.250% due 05/23/16

  100    103

Vale Overseas, Ltd. (Ñ)
5.625% due 09/15/19

  400    404

WCI Finance LLC / WEA Finance LLC (Þ)
5.400% due 10/01/12

  125    133

Westpac Banking Corp.
4.875% due 11/19/19

  650    642

WT Finance Aust Pty, Ltd./Westfield
Capital/WEA Finance LLC (Þ)
5.125% due 11/15/14

  125    129

Xstrata Canada Corp.
7.250% due 07/15/12

  50    54

6.000% due 10/15/15

  45    48
       
      35,434
       
Loan Agreements - 0.4%

Adam Aircraft Industries, Term Loan
15.290% due 05/01/12 (Ø)(Å)

  54    1

HCA, Inc., Term Loan A (Ê)
1.750% due 11/18/12

  598    572

Kelson Holdings, Inc., 1st Lien Term Loan
3.500% due 03/08/13

  1,000    976
       
      1,549
       
Mortgage-Backed Securities - 38.3%

ABN Amro Mortgage Corp.
Series 2003-13 Class A3
5.500% due 01/25/34

  1,807    1,521

Adjustable Rate Mortgage Trust
Series 2004-5 Class 2A1
3.394% due 04/25/35

  63    52

Series 2005-3 Class 8A2 (Ê)

      

0.471% due 07/25/35

  92    77

American Home Mortgage Assets (Ê)
Series 2007-4 Class A2
0.421% due 08/25/37

  1,060    542

American Home Mortgage Investment Trust (Ê)
Series 2004-4 Class 4A
2.231% due 02/25/45

  84    63

Banc of America Alternative Loan Trust
Series 2003-2 Class CB2 (Ê)
0.731% due 04/25/33

  54    47

Series 2003-10 Class 2A2 (Ê)
0.681% due 12/25/33

  146    130

Series 2006-5 Class CB17
6.000% due 06/25/46

  177    145

Banc of America Commercial Mortgage, Inc.
Series 2002-PB2 Class A4
6.186% due 06/11/35

  560    587

Series 2005-2 Class A4
4.783% due 07/10/43

  333    337

 

Core Bond Fund 55


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Series 2005-3 Class A2
4.501% due 07/10/43

  128    129

Series 2005-5 Class A4
5.115% due 10/10/45

  500    490

Series 2006-1 Class A4
5.372% due 09/10/45

  280    271

Series 2006-2 Class A4 (Ê)
5.738% due 05/10/45

  200    197

Series 2006-4 Class A4
5.634% due 07/10/46

  500    468

Banc of America Funding Corp.
Series 2005-D Class A1 (Ê)
3.267% due 05/25/35

  101    95

Series 2006-3 Class 5A8
5.500% due 03/25/36

  475    351

Series 2006-A Class 3A2 (Ê)
5.794% due 02/20/36

  147    84

Series 2006-A Class 4A1 (Ê)
5.533% due 02/20/36

  397    271

Banc of America Mortgage Securities, Inc.
Series 2003-9 Class 1A12 (Ê)
0.681% due 12/25/33

  124    119

Series 2004-1 Class 5A1
6.500% due 09/25/33

  8    8

Series 2004-2 Class 1A9 (Ê)
0.681% due 03/25/34

  86    79

Series 2004-11 Class 2A1
5.750% due 01/25/35

  282    279

Series 2005-H Class 2A5 (Ê)
4.787% due 09/25/35

  220    173

Series 2005-L Class 3A1 (Ê)
5.390% due 01/25/36

  183    151

Series 2006-2 Class A15
6.000% due 07/25/46

  152    137

Series 2006-B Class 1A1 (Ê)
4.213% due 10/20/46

  94    61

Bear Stearns Adjustable Rate Mortgage Trust (Ê)
Series 2003-1 Class 6A1
4.991% due 04/25/33

  32    28

Series 2003-8 Class 4A1
3.770% due 01/25/34

  79    70

Series 2004-1 Class 21A1
3.634% due 04/25/34

  55    48

Series 2004-9 Class 22A1
4.150% due 11/25/34

  58    55

Series 2005-2 Class A1
2.940% due 03/25/35

  961    841

Series 2005-3 Class 2A1
5.080% due 06/25/35

  239    182

Bear Stearns Alt-A Trust (Ê)
Series 2005-4 Class 23A1
5.310% due 05/25/35

  183    127

Series 2005-7 Class 22A1
5.378% due 09/25/35

  88    59

Series 2006-4 Class 13A1
0.391% due 08/25/36

  642    292
   Principal
Amount ($)
or Shares
    Market
Value
$

Bear Stearns Alt-A Trust II (Ê)
Series 2007-1 Class 1A1
5.985% due 09/25/47

  768    426

Bear Stearns Commercial Mortgage Securities
Series 2007-PW1 Class AM
6.084% due 06/11/50

  90    65

Bear Stearns Mortgage Funding Trust (Ê)
Series 2006-AR2 Class 2A1
0.461% due 09/25/46

  602    294

Chase Mortgage Finance Corp.
Series 2003-S8 Class A1
4.500% due 09/25/18

  97    97

Series 2006-S4 Class A3
6.000% due 12/25/36

  167    140

Series 2006-S4 Class A4
6.000% due 12/25/36

  70    65

Series 2007-A1 Class 1A3 (Ê)
3.899% due 02/25/37

  419    387

Citigroup Mortgage Loan Trust, Inc.
Series 2005-11 Class A2A
4.700% due 12/25/35

  60    53

Series 2007-AR8 Class 2A1A (Ê)
5.877% due 07/25/37

  942    688

Citigroup/Deutsche Bank Commercial Mortgage Trust
Series 2005-CD1 Class A4 (Ê)
5.224% due 07/15/44

  1,340    1,338

Series 2006-CD3 Class A5
5.617% due 10/15/48

  190    181

Citimortgage Alternative Loan Trust
Series 2006-A3 Class 1A5
6.000% due 07/25/36

  108    79

Commercial Mortgage Loan Trust
Series 2008-LS1 Class A4B (Ê)
6.019% due 12/10/49

  1,195    1,044

Series 2008-LS1 Class AJ
6.019% due 10/10/17

  120    54

Commercial Mortgage Pass Through Certificates
Series 2006-C8 Class A4
5.306% due 12/10/46

  200    171

Series 2007-C9 Class A4 (Ê)
5.816% due 12/10/49

  360    326

Countrywide Alternative Loan Trust
Series 2005-1CB Class 2A1
6.000% due 03/25/35

  516    381

Series 2005-32T Class A7 (Ê)
0.481% due 08/25/35

  80    67

Series 2005-J8 Class 1A3
5.500% due 07/25/35

  169    137

Series 2005-J13 Class 2A3
5.500% due 11/25/35

  109    84

Series 2006-9T1 Class A7
6.000% due 05/25/36

  80    58

Series 2006-J2 Class A3
6.000% due 04/25/36

  123    102

 

56 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Series 2006-OA1 Class 2A1 (Ê)
0.443% due 03/20/46

  534    261

Series 2006-OA1 Class 4A1 (Ê)
0.421% due 08/25/46

  580    289

Series 2006-OA1 Class A1 (Ê)
0.413% due 02/20/47

  719    335

Series 2006-OA1 Class A2 (Ê)

      

0.421% due 10/25/46

  1,752    932

Series 2007-15C Class A5

      

5.750% due 07/25/37

  755    475

Series 2007-J2 Class 2A1

      

6.000% due 07/25/37

  219    144

Series 2007-OA1 Class A1A (Ê)

      

1.924% due 11/25/47

  933    373

Countrywide Home Loan Mortgage Pass Through Trust

      

Series 2003-8 Class A2 (Ê)

      

0.731% due 05/25/18

  100    84

Series 2003-52 Class A1 (Ê)

      

3.436% due 02/19/34

  136    119

Series 2004-16 Class 1A1 (Ê)

      

0.631% due 09/25/34

  133    76

Series 2004-22 Class A3 (Ê)

      

3.510% due 11/25/34

  173    140

Series 2004-HYB Class 1A1 (Ê)

      

3.701% due 02/20/35

  294    241

Series 2005-1 Class 2A1 (Ê)

      

0.521% due 03/25/35

  1,689    883

Series 2005-3 Class 1A2 (Ê)

      

0.521% due 04/25/35

  25    14

Series 2005-HYB Class 3A2A (Ê)

      

5.250% due 02/20/36

  57    38

Series 2006-OA5 Class 2A1 (Ê)

      

0.431% due 04/25/46

  664    322

Series 2007-18 Class 2A1

      

6.500% due 11/25/37

  188    154

Series 2007-HY1 Class 1A2 (Ê)

      

5.658% due 04/25/37

  76    15

Credit Suisse First Boston Mortgage Securities Corp.
Series 2005-9 Class 2A1
5.500% due 10/25/35

  378    320

Credit Suisse Mortgage Capital Certificates

      

Series 2006-8 Class 4A1 (Å)

      

6.500% due 10/25/21

  581    414

Series 2006-C2 Class A3

      

5.658% due 03/15/39

  100    86

Series 2006-C4 Class A3

      

5.467% due 09/15/39

  1,550    1,328

Deutsche ALT-A Securities, Inc. Alternate Loan Trust (Ê)

      

Series 2005-AR1 Class 2A3

      

4.936% due 08/25/35

  465    219

Series 2007-OA1 Class A1

      

0.381% due 02/25/47

  2,526    1,217

Series 2007-OA2 Class A1

      

1.001% due 04/25/47

  1,392    754
   Principal
Amount ($)
or Shares
    Market
Value
$

DLJ Commercial Mortgage Corp. (Ê)
Series 1999-CG1 Class S
Interest Only STRIP
1.390% due 03/10/32

  257    8

Fannie Mae

      

5.190% due 2012

  202    215

6.000% due 2016

  8    9

2.666% due 2017 (Ê)

  30    31

6.000% due 2017

  43    46

4.000% due 2018

  557    571

4.500% due 2018

  611    636

5.000% due 2018

  128    135

6.000% due 2019

  298    319

4.500% due 2020

  122    127

5.500% due 2020

  161    171

6.000% due 2020

  371    398

5.500% due 2021

  242    257

5.500% due 2022

  328    348

5.000% due 2023

  4,226    4,444

5.500% due 2023

  311    331

6.000% due 2026

  671    718

6.000% due 2027

  349    372

6.000% due 2028

  23    25

5.500% due 2029

  56    60

6.000% due 2032

  335    359

7.000% due 2032

  122    134

2.858% due 2033 (Ê)

  137    141

2.942% due 2033 (Ê)

  60    61

5.000% due 2033

  429    442

5.500% due 2033

  2,096    2,203

6.000% due 2033

  133    142

5.000% due 2034

  1,169    1,203

5.500% due 2034

  1,255    1,320

5.000% due 2035

  123    126

5.500% due 2035

  1,725    1,812

6.000% due 2035

  128    137

3.731% due 2036 (Ê)

  321    332

5.500% due 2036

  3,140    3,296

6.000% due 2036

  1,495    1,585

6.500% due 2036

  88    95

7.000% due 2036

  18    20

5.500% due 2037

  481    503

5.512% due 2037 (Ê)

  212    225

6.000% due 2037

  2,522    2,678

6.500% due 2037

  1,098    1,172

5.500% due 2038

  2,181    2,283

6.000% due 2038

  1,043    1,109

4.500% due 2039

  495    495

5.000% due 2039

  2,360    2,421

5.500% due 2039

  4    4

6.000% due 2039

  1,953    2,071

Series 2003-343 Class 6

      

Interest Only STRIP

      

5.000% due 10/01/33

  192    40

Series 2003-345 Class 18

      

Interest Only STRIP

      

4.500% due 12/01/18

  494    63

Series 2003-345 Class 19

      

Interest Only STRIP

      

4.500% due 01/01/19

  549    70

Series 2005-365 Class 12

      

Interest Only STRIP

      

5.500% due 12/01/35

  799    150

 

Core Bond Fund 57


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Series 2006-369 Class 8

      

Interest Only STRIP

      

5.500% due 04/01/36

  153    28

15 Year TBA (Ï)

      

4.000%

  1,000    1,006

30 Year TBA (Ï)

      

4.500%

  5,515    5,477

6.500%

  1,000    1,318

Fannie Mae REMICS

      

Series 1999-56 Class Z

      

7.000% due 12/18/29

  77    84

Series 2003-32 Class FH (Ê)

      

0.631% due 11/25/22

  189    187

Series 2003-35 Class FY (Ê)

      

0.631% due 05/25/18

  264    262

Series 2003-78 Class FI (Ê)

      

0.631% due 01/25/33

  184    182

Series 2004-21 Class FL (Ê)

      

0.581% due 11/25/32

  106    106

Series 2005-79 Class FC (Ê)

      

0.531% due 02/25/22

  60    60

Series 2006-48 Class LG

      

Principal Only STRIP

      

Zero coupon due 06/25/36

  45    37

Series 2007-4 Class DF (Ê)

      

0.676% due 02/25/37

  747    732

Series 2008-22 Class FD (Ê)

      

1.071% due 04/25/48

  766    764

Series 2008-56 Class FD (Ê)

      

1.171% due 07/25/48

  815    815

Fannie Mae Whole Loan
Series 2003-W1 Class 1A1
6.500% due 12/25/42

  32    34

Federal Home Loan Mortgage Corp. Structured Pass Through Securities (Ê)
Series 2005-63 Class 1A1
1.832% due 02/25/45

  26    24

First Horizon Alternative Mortgage Securities

      

Series 2004-AA3 Class A1 (Ê)

      

3.085% due 09/25/34

  37    29

Series 2006-AA5 Class A2 (Ê)

      

6.471% due 09/25/36

  84    2

Series 2006-FA3 Class A6

      

6.000% due 07/25/36

  138    112

First Horizon Asset Securities, Inc. (Ê)

      

Series 2004-AR6 Class 2A1

      

3.007% due 12/25/34

  29    25

Series 2005-AR5 Class 3A1

      

5.558% due 10/25/35

  71    61

Freddie Mac

      

6.000% due 2016

  15    16

5.000% due 2018

  292    308

5.000% due 2019

  473    498

5.000% due 2020

  861    906

5.500% due 2020

  495    528

3.389% due 2030 (Ê)

  1    1

5.000% due 2033

  134    138

2.885% due 2034 (Ê)

  59    61
   Principal
Amount ($)
or Shares
    Market
Value
$

5.000% due 2035

  1,535    1,577

5.857% due 2036 (Ê)

  87    91

5.899% due 2036 (Ê)

  137    144

5.966% due 2036 (Ê)

  111    118

5.464% due 2037 (Ê)

  111    118

5.500% due 2037

  1,633    1,708

5.528% due 2037 (Ê)

  349    369

5.685% due 2037 (Ê)

  464    492

5.697% due 2037 (Ê)

  71    75

5.710% due 2037 (Ê)

  171    181

5.748% due 2037 (Ê)

  137    145

5.799% due 2037 (Ê)

  51    55

5.808% due 2037 (Ê)

  158    168

5.884% due 2037 (Ê)

  70    74

6.000% due 2037

  1,229    1,307

5.000% due 2038

  84    87

5.500% due 2038

  7,227    7,577

6.000% due 2038

  4,543    4,945

4.500% due 2039

  3,654    3,648

5.000% due 2039

  5,288    5,425

5.500% due 2039

  2    3

6.000% due 2039

  113    121

30 Year TBA (Ï)

      

4.500%

  1,000    998

Freddie Mac REMICS

      

Series 2000-226 Class F (Ê)

      

0.683% due 11/15/30

  12    12

Series 2003-256 Class FJ (Ê)

      

0.633% due 02/15/33

  96    96

Series 2003-262 Class AB

      

2.900% due 11/15/14

  10    10

Series 2004-281 Class DF (Ê)

      

0.683% due 06/15/23

  75    74

Series 2005-294 Class FA (Ê)

      

0.403% due 03/15/20

  142    139

Series 2005-299 Class KF (Ê)

      

0.633% due 06/15/35

  29    29

Series 2005-301 Class IM

      

Interest Only STRIP

      

5.500% due 01/15/31

  89    6

Series 2006-313 Class FP (Ê)(Å)

      

Principal Only STRIP

      

Zero coupon due 04/15/36

  58    53

Series 2007-330 Class GL (Ê)(Å)

      

19.714% due 04/15/37

  28    34

Series 2007-333 Class BF (Ê)

      

0.383% due 07/15/19

  212    209

Series 2007-333 Class FT (Ê)

      

0.383% due 08/15/19

  428    422

Ginnie Mae I

      

6.000% due 2029

  9    10

6.000% due 2038

  258    273

4.500% due 2039

  1,925    1,927

5.000% due 2039

  787    813

5.500% due 2039

  849    891

30 Year TBA (Ï)

      

5.000%

  3,180    3,270

5.500%

  2,410    2,524

 

58 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

6.000%

  1,000    1,057

6.500%

  5,000    5,316

Ginnie Mae II (Ê)
4.375% due 2026

  131    135

3.625% due 2027

  9    9

3.750% due 2032

  53    54

GMAC Mortgage Corp. Loan Trust (Ê)
Series 2004-JR1 Class A6
0.681% due 12/25/33

  51    41

Government National Mortgage Association (Ê)
Series 1999-40 Class FE
0.783% due 11/16/29

  75    75

Series 2000-29 Class F
0.733% due 09/20/30

  15    15

Greenwich Capital Commercial Funding Corp.
Series 2003-C2 Class A2
4.022% due 01/05/36

  46    46

Series 2004-GG1 Class A7
5.317% due 06/10/36

  465    472

Series 2006-GG7 Class A4 (Ê)
5.918% due 07/10/38

  1,105    1,007

Series 2007-GG9 Class A4
5.444% due 03/10/39

  315    278

GS Mortgage Securities Corp. II
Series 2006-GG6 Class A4
5.553% due 04/10/38

  320    292

Series 2006-GG8 Class AAB
5.535% due 11/10/39

  200    197

GSR Mortgage Loan Trust
Series 2005-AR7 Class 6A1 (Ê)
5.234% due 11/25/35

  209    173

Series 2006-3F Class 2A3
5.750% due 03/25/36

  517    437

Harborview Mortgage Loan Trust
Series 2005-3 Class 2A1A (Ê)
0.473% due 06/19/35

  1,504    867

Series 2005-4 Class 3A1
5.099% due 07/19/35

  136    94

Series 2005-14 Class 3A1A
5.316% due 12/19/35

  65    49

Indymac Index Mortgage Loan Trust (Ê)
Series 2005-AR1 Class A1
5.263% due 09/25/35

  569    420

Series 2006-AR2 Class A2
0.311% due 11/25/36

  46    23

Series 2006-AR3 Class 2A1A
0.401% due 01/25/37

  629    303

Series 2006-AR9 Class 1A1
5.615% due 06/25/36

  698    447

Series 2007-AR5 Class 1A1
5.591% due 05/25/37

  741    366

JPMorgan Chase Commercial Mortgage Securities Corp.
Series 2001-CIB Class A2
6.244% due 04/15/35

  22    22
   Principal
Amount ($)
or Shares
    Market
Value
$

Series 2004-LN2 Class A1
4.475% due 07/15/41

  264    266

Series 2005-LDP Class A3A1
4.871% due 10/15/42

  210    211

Series 2005-LDP Class A4
4.918% due 10/15/42

  325    312

5.179% due 12/15/44

  390    386

Series 2006-CB1 Class A4
5.552% due 05/12/45

  220    209

Series 2006-LDP Class A3B
5.447% due 05/15/45

  250    252

Series 2006-LDP Class A4
5.875% due 04/15/45

  650    626

5.399% due 05/15/45

  290    269

Series 2007-CB1 Class A4
5.440% due 06/12/47

  1,200    1,045

5.746% due 02/12/49

  340    298

Series 2007-LD1 Class A4
5.882% due 02/15/51

  380    329

Series 2007-LD1 Class AM
6.062% due 02/15/51

  100    67

Series 2007-LDP Class A3
5.420% due 01/15/49

  1,525    1,286

JPMorgan Mortgage Trust
Series 2005-A1 Class 6T1 (Ê)
5.022% due 02/25/35

  86    79

Series 2005-A5 Class TA1 (Ê)
5.433% due 08/25/35

  800    731

Series 2005-S3 Class 1A2
5.750% due 01/25/36

  118    98

Series 2007-A1 Class 2A2 (Ê)
3.632% due 07/25/35

  524    474

LB-UBS Commercial Mortgage Trust
Series 2006-C1 Class A4
5.156% due 02/15/31

  1,000    968

Series 2006-C3 Class A4
5.661% due 03/15/39

  210    195

Series 2006-C4 Class A4 (Ê)
5.882% due 06/15/38

  105    99

Series 2006-C7 Class A3
5.347% due 11/15/38

  500    458

Series 2007-C2 Class AM
5.493% due 02/15/40

  110    74

Series 2007-C6 Class A4
5.858% due 07/15/40

  270    228

Lehman Mortgage Trust
Series 2005-3 Class 1A3
5.500% due 01/25/36

  426    382

Series 2006-8 Class 2A1 (Ê)
0.651% due 12/25/36

  736    364

Series 2007-8 Class 3A1
7.250% due 09/25/37

  857    581

Lehman XS Trust (Ê)
Series 2007-7N Class 1A2
0.471% due 06/25/47

  868    300

MASTR Alternative Loans Trust
Series 2003-4 Class B1 (Ê)
5.707% due 06/25/33

  165    106

 

Core Bond Fund 59


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Series 2004-10 Class 5A6
5.750% due 09/25/34

  168    161

MASTR Asset Securitization Trust (Ê)
Series 2003-7 Class 4A35
0.631% due 09/25/33

  95    89

Series 2004-4 Class 2A2
0.681% due 04/25/34

  39    36

Mellon Residential Funding Corp. (Ê)
Series 2000-TBC Class A1
0.719% due 06/15/30

  141    119

Merrill Lynch Floating Trust (Ê)(Þ)
Series 2006-1 Class A1
0.303% due 06/15/22

  554    500

Merrill Lynch Mortgage Investors, Inc. (Ê)
Series 2005-A10 Class A
0.441% due 02/25/36

  86    59

Merrill Lynch/Countrywide Commercial Mortgage Trust
Series 2007-6 Class A4
5.485% due 03/12/51

  100    81

Series 2007-7 Class A4
5.749% due 06/12/50

  1,160    972

Series 2007-9 Class AM
5.856% due 09/12/49

  215    154

MLCC Mortgage Investors, Inc. (Ê)
Series 2004-HB1 Class A2
1.326% due 04/25/29

  29    21

Series 2005-3 Class 5A
0.481% due 11/25/35

  53    32

Morgan Stanley Capital I
Series 2005-HQ6 Class A4A
4.989% due 08/13/42

  740    716

Series 2005-IQ1 Class AAB
5.178% due 09/15/42

  415    423

Series 2006-HQ1 Class A4
5.328% due 11/12/41

  130    122

Series 2006-HQ1 Class AM
5.360% due 11/12/41

  215    177

Series 2006-HQ9 Class A4
5.731% due 07/12/44

  295    289

Series 2007-IQ1 Class A4
5.809% due 12/12/49

  320    273

Prime Mortgage Trust (Ê)
Series 2004-CL1 Class 1A2
0.631% due 02/25/34

  24    22

Residential Accredit Loans, Inc.
Series 2004-QS5 Class A6 (Ê)
0.831% due 04/25/34

  43    32

Series 2004-QS8 Class A4 (Ê)
0.631% due 06/25/34

  181    155

Series 2005-QA8 Class NB3 (Ê)
5.474% due 07/25/35

  192    145

Series 2005-QO5 Class A1 (Ê)
1.544% due 01/25/46

  1,944    1,040

Series 2005-QS1 Class 2A3
5.750% due 09/25/35

  517    397

Series 2006-QS6 Class 1A13
6.000% due 06/25/36

  199    153
  Principal
Amount ($)
or Shares
    Market
Value
$

Series 2007-QH9 Class A1 (Ê)
6.506% due 11/25/37

 907    422

Series 2007-QO4 Class A1 (Ê)
0.431% due 05/25/47

 1,577    821

Residential Asset Securitization Trust
Series 2003-A15 Class 1A2 (Ê)
0.681% due 02/25/34

 220    195

Series 2005-A10 Class A3
5.500% due 09/25/35

 425    346

Series 2007-A5 Class 2A3
6.000% due 05/25/37

 100    74

Residential Funding Mortgage Securities I (Ê)
Series 2003-S5 Class 1A2
0.681% due 11/25/18

 108    107

Series 2003-S14 Class A5
0.631% due 07/25/18

 120    97

Series 2003-S20 Class 1A7
0.731% due 12/25/33

 7    7

Series 2005-SA4 Class 2A1
5.210% due 09/25/35

 526    426

Series 2006-SA4 Class 2A1
6.087% due 11/25/36

 340    247

Sequoia Mortgage Trust (Ê)
Series 2001-5 Class A
0.583% due 10/19/26

 52    39

Structured Adjustable Rate Mortgage Loan Trust (Ê)

Series 2004-5 Class 3A1
2.963% due 05/25/34

 115    100

Series 2004-12 Class 3A2
3.249% due 09/25/34

 52    43

Series 2004-16 Class 3A1
3.049% due 11/25/34

 201    163

Series 2005-21 Class 7A1
6.005% due 11/25/35

 1,048    734

Series 2006-12 Class 2A1
5.817% due 01/25/37

 706    442

Structured Asset Mortgage Investments, Inc. (Ê)
Series 2005-AR5 Class A3
0.483% due 07/19/35

 146    120

Series 2006-AR2 Class A1
0.461% due 02/25/36

 499    280

Series 2006-AR8 Class A1A
0.431% due 10/25/36

 686    360

Structured Asset Securities Corp.
Series 2004-21X Class 1A3
4.440% due 12/25/34

 39    39

Thornburg Mortgage Securities Trust (Ê)
Series 2003-2 Class A1
0.911% due 04/25/43

 58    50

Series 2006-5 Class A1
0.351% due 10/25/46

 695    681

Series 2006-6 Class A1
0.341% due 11/25/46

 95    92

Wachovia Bank Commercial Mortgage Trust (Ê)
Series 2005-C21 Class A4
5.209% due 10/15/44

 1,000    995

 

60 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Washington Mutual Alternative Mortgage Pass-Through Certificates
Series 2005-4 Class CB11
5.500% due 06/25/35

  90    67

Series 2007-OA1 Class 2A (Ê)
0.951% due 12/25/46

  657    277

Washington Mutual Mortgage Pass Through Certificates (Ê)
Series 2003-S9 Class A2
0.781% due 10/25/33

  169    166

Series 2004-AR3 Class A2
3.136% due 06/25/34

  112    103

Series 2005-AR1 Class 1A1
4.826% due 10/25/35

  165    156

Series 2005-AR1 Class A1A1
0.521% due 10/25/45

  31    22

0.491% due 11/25/45

  779    558

0.501% due 12/25/45

  377    255

Series 2005-AR6 Class B3 (Å)
0.891% due 04/25/45

  194    8

Series 2006-AR1 Class 3A1A
1.464% due 09/25/46

  674    354

Series 2006-AR2 Class 1A1
5.283% due 03/25/37

  603    473

Series 2007-HY3 Class 4B1
5.314% due 03/25/37

  124    11

Series 2007-HY4 Class 1A1
5.458% due 04/25/37

  128    88

Wells Fargo Mortgage Backed Securities Trust
Series 2006-2 Class 2A3
5.500% due 03/25/36

  319    277

Series 2006-AR2 Class 2A1
4.950% due 03/25/36

  243    201

Series 2007-8 Class 1A16
6.000% due 07/25/37

  282    228

Series 2007-10 Class 2A5
6.250% due 07/25/37

  125    106
       
      153,254
       
Municipal Bonds - 1.0%      

Chicago Transit Authority Revenue Bonds
6.899% due 12/01/40

  400    424

Illinois Municipal Electric Agency Revenue Bonds
6.832% due 02/01/35

  100    102

Los Angeles Unified School District General Obligation Unlimited (µ)
4.500% due 07/01/22

  400    406

New York City Municipal Water Finance Authority Revenue Bonds
4.750% due 06/15/37

  400    400

North Carolina Turnkpike Authority Revenue Bonds
6.700% due 01/01/39

  100    103

Public Power Generation Agency Revenue Bonds
7.242% due 01/01/41

  100    97
   Principal
Amount ($)
or Shares
    Market
Value
$

State of California General Obligation Unlimited
7.500% due 04/01/34

   425    413

5.650% due 04/01/39 (Ê)

   100    102

7.550% due 04/01/39

   975    945

State of Louisiana Revenue Bonds (Ê)
3.000% due 05/01/43

   400    397

University of California Revenue Bonds
6.270% due 05/15/31

   400    400
       
      3,789
       
Non-US Bonds - 0.5%      

Federative Republic of Brazil
12.500% due 01/05/22

  BRL300    195

10.250% due 01/10/28

  BRL1,400    804

Fortis Bank Nederland Holding NV
3.000% due 04/17/12

  EUR200    293

Hellas Telecommunications Luxembourg V (Ê)
Series REGS
6.715% due 10/15/12

  EUR125    147

Impress Holdings BV (Ê)
Series REGS
3.867% due 09/15/13

  EUR125    169

Mexico Government International Bond
6.050% due 01/11/40

  MXN260    250

Societe Financement de l’Economie Francaise
2.125% due 05/20/12

  EUR100    144

UBS AG (Ê)(Å)
5.850% due 12/31/17

  EUR270    71
       
      2,073
       
United States Government Agencies - 1.6%

Federal Home Loan Banks
0.500% due 05/10/11

   980    981

4.500% due 09/13/19 (Ñ)

   1,100    1,121

Federal Home Loan Mortgage Corp.
5.300% due 12/01/15

   600    663

Freddie Mac
4.500% due 04/02/14

   800    860

5.000% due 11/13/14

   2,200    2,406

Tennessee Valley Authority
5.500% due 07/18/17

   200    218
       
      6,249
       
United States Government Treasuries - 6.9%

United States Treasury Inflation Indexed Bonds
1.625% due 01/15/15 (Ñ)

   679    706

2.000% due 01/15/16

   1,267    1,338

2.500% due 07/15/16 (Ñ)

   428    466

2.000% due 01/15/26 (Ñ)

   109    109

1.750% due 01/15/28 (Ñ)

   3,181    3,051

United States Treasury Principal
Principal Only STRIP
Zero coupon due 05/15/20 (Ñ)

   600    387

 

Core Bond Fund 61


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Zero coupon due 08/15/20

  1,400    891

Zero coupon due 05/15/21

  100    61

Zero coupon due 11/15/21 (Ñ)

  1,938    1,141

Zero coupon due 11/15/26

  1,100    487

Zero coupon due 11/15/27

  1,130    475

United States Treasury Notes
0.700% due 08/31/11 (Ñ)

  6,700    6,703

2.625% due 06/30/14 (Ñ)

  4,010    4,039

2.375% due 12/31/14

  800    798

2.750% due 11/30/16

  900    867

3.750% due 11/15/18

  1,290    1,290

8.000% due 11/15/21

  90    123

5.375% due 02/15/31 (Ñ)

  1,000    1,105

4.375% due 02/15/38 (Ñ)

  500    480

3.500% due 02/15/39 (Ñ)

  400    328

4.250% due 05/15/39 (Ñ)

  400    375

4.375% due 11/15/39 (Ñ)

  2,700    2,584
       
      27,804
       
Total Long-Term Investments
(cost $345,624)
      339,173
       
Common Stocks - 0.0%      
Financial Services - 0.0%      

CIT Group, Inc. (Æ)

  2,410    66
       
Total Common Stocks
(cost $26)
      66
       
Preferred Stocks - 0.2%      
Consumer Discretionary - 0.1%    

Motors Liquidation Co.

  80,000    456
       
Financial Services - 0.1%      

DG Funding Trust (Å)(Æ)

  49    434
       
Total Preferred Stocks
(cost $767)
      890
       
Short-Term Investments - 13.7%    

American Electric Power Co., Inc.
Series C
5.375% due 03/15/10

  35    35

COX Communications, Inc.
4.625% due 01/15/10

  350    350

Enterprise Products Operating LLC
Series K
4.950% due 06/01/10

  125    127

Federal Home Loan Bank Discount Notes
0.119% due 01/04/10 (ç)(ž)

  1,000    1,000

0.078% due 01/08/10 (ç)(ž)

  2,000    2,000

0.085% due 01/15/10 (ç)(ž)

  1,000    1,000

Principal Only STRIP
Zero coupon due 02/05/10 (ç)(ž)

  850    850

0.050% due 02/10/10 (ç)(ž)

  1,455    1,455

0.050% due 02/12/10 (ç)(ž)

  3,545    3,545

0.320% due 02/17/10 (ç)(ž)

  2,000    2,000

0.073% due 02/24/10

  100    100
   Principal
Amount ($)
or Shares
    Market
Value
$

Federal National Mortgage Association Discount Notes (ç)(ž)
0.105% due 01/13/10

  1,000    1,000

0.100% due 02/04/10

  1,000    1,000

Ford Motor Credit Co. LLC
7.875% due 06/15/10

  200    203

Freddie Mac Discount Notes (ç)(ž)
0.065% due 02/19/10

  500    500

0.630% due 02/23/10

  370    370

Goldman Sachs Group, Inc. (The)
4.500% due 06/15/10

  125    127

HSBC Finance Corp. (Ê)
0.524% due 05/10/10

  100    100

KeyBank NA (Ê)
Series BKNT
2.507% due 06/02/10

  300    302

Korea Development Bank (Ê)
0.391% due 04/06/10

  900    895

Lehman Brothers Holdings, Inc. (Ø)
2.951% due 05/25/10

  200    39

Metropolitan Life Global Funding I (Ê)(Þ)
0.313% due 05/17/10

  400    400

Morgan Stanley
2.373% due 05/14/10 (Ê)

  400    403

Series MTN (Ê)
0.374% due 01/15/10

  300    300

Nationwide Life Global Funding I (Ê)(Þ)
0.470% due 05/19/10

  1,300    1,294

Nisource Finance Corp.
7.875% due 11/15/10

  125    131

Rabobank USA Financial Corp.
Zero coupon due 02/04/10

  2,305    2,305

Russell U.S. Cash Management Fund (£)

  20,977,661    20,978

SLM Corp. (Ê)
0.442% due 07/26/10

  50    49

Small Business Administration
Series 2000-P10 Class 1
7.449% due 08/10/10

  4    4

Sprint Nextel Corp. (Ê)(Ñ)
0.651% due 06/28/10

  350    344

Sun Life Financial Global Funding, LP (Ê)(Þ)
0.501% due 07/06/10

  700    697

UBS AG (Ê)
1.198% due 05/05/10

  700    701

United States Treasury Bills (ç)(ž)
0.005% due 01/07/10 (Ñ)

  2,000    2,000

0.020% due 02/11/10 (§)(Ñ)

  5,000    5,000

0.048% due 02/18/10 (§)

  115    115

0.183% due 04/01/10 (§)

  8    8

0.110% due 05/13/10 (§)

  110    110

United States Treasury Inflation Indexed Bonds (Ñ)
4.250% due 01/15/10

  1,927    1,930

0.875% due 04/15/10

  1,141    1,145
       
Total Short-Term Investments
(cost $55,030)
      54,912
       

 

62 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
 
      
Repurchase Agreements - 5.2%  

Agreement with Citigroup Global Markets and State Street Bank & Co. (Tri-Party) of $13,600 dated December 31, 2009, at 0.01% to be repurchased at $13,602 on January 4, 2010 collateralized by: $15,097 par various United States Mortgage Obligations, valued at $15,210

  13,600    13,600  

Agreement with Credit Suisse First Boston and State Street Bank & Co. (Tri-Party) of $4,600 dated December 31, 2009, at 0.00% to be repurchased at $4,600 on January 4, 2010 collateralized by: $4,711 par various United States Treasury Obligations, valued at $4,707

  4,600    4,600  

Agreement with Deutsche Bank Securities, Inc. and State Street Bank (Tri-Party) of $1,500 dated December 21, 2009, at 0.08% to be repurchased at $1,501 on January 5, 2010 collateralized by:
$1,521 par various United States Treasury Obligations, valued at $1,514

  1,500    1,500  

Agreement with Goldman Sachs & Co. and State Street Bank (Tri-party) of $1,000 dated December 3, 2009, at 0.11% to be repurchased at $1,000 on January 5, 2010 collateralized by:
$1,187 par various United States Mortgage Obligations, valued at $1,219

  1,000    1,000  
        
Total Repurchase Agreements
(cost $20,700)
    20,700  
        
Other Securities - 7.3%      

State Street Securities Lending Quality Trust (×)

  29,452,478    29,302  
        
Total Other Securities
(cost $29,452)
      29,302  
        
Total Investments - 111.1%
(identified cost $451,599)
    445,043  
Other Assets and Liabilities,
Net - (11.1%)
    (44,474
        
Net Assets - 100.0%      400,569  
        

 

 

See accompanying notes which are an integral part of the financial statements.

 

Core Bond Fund 63


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except contracts)

 

Futures Contracts  Number of
Contracts
 Notional
Amount
  Expiration
Date
  Unrealized
Appreciation
(Depreciation)
$
 
         
         
Long Positions         

Euribor Futures (Germany)

  6 EUR  1,489  03/10  3  

Euro-Bobl Futures (Germany)

  52 EUR  6,236  03/10  (119

Eurodollar Futures (CME)

  39 USD  9,724  01/10  4  

Eurodollar Futures (CME)

  91 USD  22,669  03/10  187  

Eurodollar Futures (CME)

  99 USD  24,582  06/10  56  

Eurodollar Futures (CME)

  4 USD  989  09/10  12  

Eurodollar Futures (CME)

  18 USD  4,431  12/10  25  

Three Month Short Sterling Interest Rate Futures (UK)

  2 GBP  248  03/10  1  

Three Month Short Sterling Interest Rate Futures (UK)

  4 GBP  495  06/10  3  

Three Month Short Sterling Interest Rate Futures (UK)

  4 GBP  493  09/10  3  

United States Treasury 2 Year Notes

  126 USD  27,250  03/10  (138

United States Treasury 5 Year Notes

  109 USD  12,468  03/10  (230

United States Treasury 10 Year Notes

  242 USD  27,940  03/10  (768

United States Treasury 30 Year Bond

  22 USD  2,538  03/10  (56
Short Positions         

Euro-Bund Futures (Germany)

  2 EUR  1  02/10    

Euro-Bobl Futures (Germany)

  2 EUR  231  03/10    

Long Gilt Bond (UK)

  31 GBP  3,548  03/10  91  

United States Treasury 5 Year Notes

  11 USD  1,258  03/10  12  
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

         (914
           

 

See accompanying notes which are an integral part of the financial statements.

 

64 Core Bond Fund


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Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

 

Options Written
(Number of Contracts)
  Notional
Amount
    Market
Value
$
 
          
Swaptions          
(Fund Receives/Fund Pays)
USD Three Month LIBOR/USD
2.800%
Feb 2010 0.00 Call (1)
      1,100      
USD Three Month LIBOR/USD
3.250%
Feb 2010 0.00 Call (3)
      2,500    (1
USD Three Month LIBOR/USD
2.750%
April 2010 0.00 Call (1)
      100      
USD Three Month LIBOR/USD
3.250%
April 2010 0.00 Call (4)
      2,000    (4
USD 4.000%/USD
Three Month LIBOR
Feb 2010 0.00 Put (3)
      1,500    (25
USD 4.250%/USD
Three Month LIBOR
Apr 2010 0.00 Put (5)
      4,400    (83
USD 5.000%/USD
Three Month LIBOR
Apr 2010 0.00 Put (1)
      1,000    (5
USD 5.000%/USD
Three Month LIBOR
Jul 2010 0.00 Put (2)
      4,000    (7
USD 5.500%/USD
Three Month LIBOR
Aug 2010 0.00 Put (3)
      17,000    (44
USD 6.000%/USD
Three Month LIBOR
Aug 2010 0.00 Put (1)
      2,000    (11
USD 10.000%/USD
Three Month LIBOR
Jul 2012 0.00 Put (2)
      10,200    (56
United States Treasury Notes          

10 Year Futures
Jan 2010 119.00 Call (11)

  USD    11      

Feb 2010 120.00 Call (12)

  USD    12    (1

Feb 2010 121.00 Call (4)

  USD    4      

Jan 2010 116.00 Put (35)

  USD    35    (39
            

Total Liability for Options Written
(premiums received $484)

          (276
            

 

See accompanying notes which are an integral part of the financial statements.

 

Core Bond Fund 65


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Foreign Currency Exchange Contracts 

Counterparty

  Amount
Sold
  Amount
Bought
  Settlement
Date
  Unrealized
Appreciation
(Depreciation)
$
 
            

Barclays Bank PLC

  USD  2  AUD  2  01/11/10    

Barclays Bank PLC

  USD  404  JPY  36,144  03/17/10  (16

Barclays Bank PLC

  USD  52  MYR  180  02/12/10    

Barclays Bank PLC

  USD  637  NOK  3,671  03/17/10  (5

Barclays Bank PLC

  CAD  620  EUR  403  03/17/10  (15

Barclays Bank PLC

  EUR  119  NZD  241  03/17/10  3  

BNP Paribas

  JPY  11  USD    01/25/10    

Citibank

  USD  237  AUD  256  01/11/10  (7

Citibank

  USD  206  CNY  1,400  01/12/10  (1

Citibank

  USD  82  EUR  57  01/26/10    

Citibank

  USD  371  EUR  252  03/17/10  (10

Citibank

  USD  42  GBP  26  01/13/10    

Citibank

  USD  334  KRW  393,678  02/11/10  4  

Citibank

  EUR  294  CAD  455  03/17/10  14  

Citibank

  EUR  20  USD  29  01/26/10    

Citibank

  EUR  42  USD  60  01/26/10    

Citibank

  EUR  806  USD  1,153  03/17/10  (2

Citibank

  GBP  126  USD  210  01/13/10  6  

Citibank

  JPY  27,340  CAD  317  03/17/10  9  

Citibank

  JPY  21,906  USD  239  03/17/10  4  

Citibank

  JPY  25,922  USD  289  03/17/10  11  

Credit Suisse First Boston

  USD  1,075  CAD  1,130  03/17/10  5  

Credit Suisse First Boston

  EUR  79  AUD  128  03/17/10  1  

Credit Suisse First Boston

  EUR  521  USD  767  03/17/10  20  

Credit Suisse First Boston

  EUR  393  USD  577  03/17/10  13  

Credit Suisse First Boston

  JPY  17,849  CHF  208  03/17/10  9  

Deutsche Bank

  USD  36  EUR  25  01/26/10    

Deutsche Bank

  USD  433  EUR  297  03/17/10  (7

Deutsche Bank

  USD  420  JPY  37,725  03/17/10  (15

Deutsche Bank

  USD  103  KRW  122,616  02/11/10  2  

Deutsche Bank

  USD  53  TWD  1,701  01/13/10    

Deutsche Bank

  EUR  192  USD  287  01/13/10  12  

Goldman Sachs

  USD  48  GBP  30  01/13/10    

Goldman Sachs

  USD  59  GBP  37  01/13/10  1  

HSBC

  USD  33  BRL  57  02/02/10    

HSBC

  GBP  170  USD  282  01/20/10  6  

JP Morgan

  USD  151  CAD  161  01/21/10  3  

JP Morgan

  USD  54  EUR  38  01/26/10    

JP Morgan

  USD    JPY    01/04/10    

JP Morgan

  USD    JPY  11  01/25/10    

JP Morgan

  USD  83  SGD  115  02/11/10  (1

JP Morgan

  BRL  238  USD  133  02/02/10  (3

Morgan Stanley

  NZD  319  EUR  157  03/17/10  (5

Royal Bank of Canada

  USD  119  AUD  134  03/17/10    

Royal Bank of Canada

  USD  33  BRL  57  02/02/10    

Royal Bank of Canada

  CAD  457  EUR  293  03/17/10  (17

Royal Bank of Canada

  EUR  83  USD  119  03/17/10    

Royal Bank of Scotland

  AUD  3  USD  3  01/11/10    

Royal Bank of Scotland

  EUR  493  USD  732  02/18/10  25  

Royal Bank of Scotland

  EUR  197  NZD  401  03/17/10  7  

Royal Bank of Scotland

  GBP  439  EUR  484  03/17/10  (15

State Street Bank and Trust Company

  USD  1,022  NZD  1,416  03/17/10  1  

State Street Bank and Trust Company

  EUR  119  CAD  183  03/17/10  5  

 

See accompanying notes which are an integral part of the financial statements.

 

66 Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Foreign Currency Exchange Contracts 

Counterparty

  Amount
Sold
    Amount
Bought
  Settlement
Date
  Unrealized
Appreciation
(Depreciation)
$
 
             

State Street Bank and Trust Company

  EUR 199    SEK  2,075  03/17/10  5  

State Street Bank and Trust Company

  NZD 426    EUR  209  03/17/10  (8

UBS

  USD 56    MXN  754  02/16/10  1  

UBS

  AUD 328    EUR  201  03/17/10  (5

UBS

  BRL 82    USD  44  01/19/10  (3

UBS

  CHF 313    EUR  209  03/17/10  (3

UBS

  EUR 197    CAD  304  03/17/10  8  

UBS

  EUR 861    USD  1,250  01/26/10  15  

UBS

  EUR 168    USD  240  03/17/10  (1

UBS

  EUR 396    USD  578  03/17/10  11  

UBS

  GBP 150    USD  239  03/17/10  (3

UBS

  JPY 8,171    EUR  63  03/17/10  2  

UBS

  NZD 280    EUR  137  03/17/10  (5

UBS

  NZD 280    EUR  137  03/17/10    

Westpac Banking Corporation

  USD 1,006    AUD  1,107  03/17/10  (19

Westpac Banking Corporation

  EUR 395    USD  575  03/17/10  9  

Westpac Banking Corporation

  EUR 602    USD  864  03/17/10  2  

Westpac Banking Corporation

  JPY 38,196    USD  433  03/17/10  24  
               

Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts

  72  
               

 

Credit Default Swap Contracts                       
Corporate Issues       

Reference
Entity

 

Counterparty

 Implied
Credit
Spread
 

Notional
Amount

 Fund (Pays)/
Receives
Fixed Rate
  Termination
Date
 Market
Value
$
 

Arrow Electronics, Inc.

 Citigroupglobal Markets, Inc. 0.700% USD 135 (0.820% 03/20/14 (1

Centex Corporation

 JP Morgan 0.920% USD 325 (4.400% 12/20/13 (43

Darden Restaurants, Inc.

 Deutsche Bank 0.870% USD 400 (2.250% 03/20/14 (22

DR Horton, Inc.

 Citibank 2.380% USD 100 (1.000% 09/20/16 8  

DR Horton, Inc.

 Deutsche Bank 2.380% USD 80 (1.000% 09/20/16 6  

DR Horton, Inc.

 Goldman Sachs 2.380% USD 80 (1.000% 09/20/16 6  

Ford Motor Credit Co.

 Barclays Bank PLC 3.687% USD 1,000 6.150%   09/20/12 66  

Ford Motor Credit Co.

 Goldman Sachs 3.687% USD 600 5.850%   09/20/12 35  

Gaz Capital for Gazprom

 Barclays Bank PLC 2.258% USD 300 1.600%   12/20/12 (6

Gaz Capital for Gazprom

 Morgan Stanley 2.290% USD 100 2.180%   02/20/13   

Gaz Capital for Gazprom

 Morgan Stanley 2.290% USD 1,000 2.480%   02/20/13 14  

GE Capital Corp.

 Citibank 1.590% USD 200 4.000%   12/20/13 18  

GE Capital Corp.

 Deutsche Bank 1.590% USD 100 4.900%   12/20/13 12  

Hewlett-Packard Co.

 Citigroupglobal Markets, Inc. 0.270% USD 135 (0.720% 03/20/14 (2

K B Home, Inc.

 Citibank 3.300% USD 100 (1.000% 09/20/16 12  

Kohl’s, Inc.

 Deutsche Bank 0.720% USD 125 (1.000% 12/20/14 (2

Kohl’s, Inc.

 JP Morgan 0.720% USD 125 (1.000% 12/20/14 (2

Lowe’s Companies, Inc.

 Citigroupglobal Markets, Inc. 0.500% USD 340 (1.450% 03/20/14 (15

Mexico Government International Bond

 Morgan Stanley 0.851% USD 100 0.750%   01/20/12   

Nordstrom, Inc.

 Deutsche Bank 0.790% USD 215 (2.100% 03/20/14 (12

Pulte Homes, Inc.

 Goldman Sachs 1.950% USD 725 (1.000% 09/20/16 40  

Pulte Homes, Inc.

 JP Morgan 1.714% USD 1,000 (3.870% 03/20/14 (86

SLM Corp.

 Citibank 4.675% USD 200 4.850%   03/20/13 (1

Target Corp.

 Credit Suisse First Boston 0.520% USD 125 (1.000% 12/20/14 (2

Target Corp.

 Deutsche Bank 0.520% USD 125 (1.000% 12/20/14 (2

 

See accompanying notes which are an integral part of the financial statements.

 

Core Bond Fund 67


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Credit Default Swap Contracts                       
Corporate Issues       

Reference
Entity

 

Counterparty

 Implied
Credit
Spread
 

Notional
Amount

 Fund (Pays)/
Receives
Fixed Rate
  Termination
Date
 Market
Value $
 
       

The Home Depot, Inc.

 Citigroupglobal Markets, Inc. 0.500% USD 340 (3.250% 03/20/14 (40

Toll Brothers, Inc.

 Credit Suisse First Boston 1.590% USD 255 (1.000% 09/20/16 9  

United Kingdom Gilt

 Deutsche Bank 0.765% USD 300 1.000%   12/20/14 2  

United Kingdom Gilt

 Morgan Stanley 0.765% USD 100 1.000%   12/20/14 1  
         

Total Market Value of Open Corporate Issue Credit Default Swap Contracts Premiums Paid (Received) - $46

    (7
         

 

Credit Indices 

Reference
Entity

 

Counterparty

 Notional
Amount
 Fund (Pays)/
Receives
Fixed Rate
  Termination
Date
 Market
Value
$
 
      

ABX - HE Index for Sub-Prime Home Equity Sector

 Barclays Bank PLC USD 1,300 0.760%   01/25/38 (809

ABX - HE Index for Sub-Prime Home Equity Sector

 Citibank USD 611 0.170%   05/25/46 (544

ABX - HE Index for Sub-Prime Home Equity Sector

 JP Morgan USD 1,300 0.090%   08/25/37 (849

CMBX AJ Index

 Bank of America USD 100 (0.840% 10/12/52 24  

CMBX AJ Index

 Barclays Bank PLC USD 340 (0.840% 10/12/52 81  

CMBX AJ Index

 Barclays Bank PLC USD 360 (0.840% 10/12/52 87  

CMBX AJ Index

 Credit Suisse First Boston USD 2,050 (0.840% 10/12/52 497  

Dow Jones CDX Index

 Bank of America USD 1,200 (1.000% 12/20/14 (8

Dow Jones CDX Index

 Deutsche Bank USD 772 0.708%   12/20/12 13  

Dow Jones CDX Index

 Deutsche Bank USD 94 (5.000% 06/20/14   

Dow Jones CDX Index

 Deutsche Bank USD 1,400 (1.000% 12/20/14 (10

Dow Jones CDX Index

 Deutsche Bank USD 1,000 (1.000% 12/20/14 (7

Dow Jones CDX Index

 Deutsche Bank USD 1,000 (1.000% 12/20/14 (7

Dow Jones CDX Index

 Deutsche Bank USD 1,400 (1.000% 12/20/14 (8

Dow Jones CDX Index

 Deutsche Bank USD 1,000 (1.000% 12/20/14 (5

Dow Jones CDX Index

 Goldman Sachs USD 193 0.548%   12/20/17 3  

Dow Jones CDX Index

 JP Morgan USD 386 0.553%   12/20/17 7  
        

Total Market Value of Open Credit Index Credit Default Swap Contracts Premiums Paid (Received) - ($707)

   (1,535
        

Total Market Value of Open Credit Default Swap Contracts Premiums Paid (Received) - ($661)

   (1,542
        

 

Interest Rate Swaps Contracts                     

Counterparty

  Notional
Amount
  

Fund Receives

  

Fund Pays

  Termination
Date
  Market
Value
$
 
           

Bank of America

  USD 1,200  3.000%  Three Month LIBOR  12/16/10  29  

Barclays Bank PLC

  BRL 100  11.360%  Brazil Interbank Deposit Rate  01/04/10    

Barclays Bank PLC

  USD 144  Three Month LIBOR  4.524%  11/15/21  (6

Barclays Bank PLC

  USD 146  Three Month LIBOR  4.420%  11/15/21  (2

Barclays Bank PLC

  USD 266  Three Month LIBOR  4.540%  11/15/21  (10

Barclays Bank PLC

  USD 530  Three Month LIBOR  4.633%  11/15/21  (28

BNP Paribas

  EUR 500  2.090%  Consumer Price Index (France)  10/15/10  25  

BNP Paribas

  EUR 300  4.500%  Six Month EURIBOR  03/18/14  43  

Citibank

  USD 7,400  Three Month LIBOR  3.250%  06/16/17  275  

Credit Suisse First Boston

  EUR 3,200  3.000%  Six Month EURIBOR  06/16/15  (20

Credit Suisse First Boston

  USD 1,570  Three Month LIBOR  4.250%  06/16/40  100  

 

See accompanying notes which are an integral part of the financial statements.

 

68 Core Bond Fund


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Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Interest Rate Swaps Contracts                     

Counterparty

  Notional
Amount
  

Fund Receives

  

Fund Pays

  Termination
Date
  Market
Value
$
 
           

Deutsche Bank

  KRW 416,000  2.820%  Korean Interbank Offer Rate  01/28/11  (3

Deutsche Bank

  KRW 200,000  3.870%  Korean Interbank Offer Rate  06/12/11    

Deutsche Bank

  AUD 200  4.500%  Three Month BBSW  06/15/11  (1

Deutsche Bank

  KRW 1,120,000  3.690%  Korean Interbank Offer Rate  06/26/11  (4

Deutsche Bank

  KRW 467,700  3.620%  Korean Interbank Offer Rate  07/06/11  (1

Deutsche Bank

  KRW 781,412  3.630%  Three Month LIBOR  07/07/11  (2

Deutsche Bank

  BRL 2,700  11.740%  Brazil Interbank Deposit Rate  01/02/12  1  

Deutsche Bank

  BRL 1,400  11.760%  Brazil Interbank Deposit Rate  01/02/12  1  

Deutsche Bank

  BRL 1,100  11.760%  Brazil Interbank Deposit Rate  01/02/12    

Deutsche Bank

  BRL 2,000  11.800%  Brazil Interbank Deposit Rate  01/02/12  1  

Deutsche Bank

  EUR 1,400  3.000%  Six Month EURIBOR  06/16/15  (9

Deutsche Bank

  USD 8,500  Three Month LIBOR  3.250%  06/16/17  316  

Deutsche Bank

  USD 5,500  3.250%  Three Month LIBOR  06/16/17  (205

Deutsche Bank

  USD 4,800  4.570%  Three Month LIBOR  09/04/17  (38

Deutsche Bank

  USD 2,800  Three Month LIBOR  4.710%  09/04/22  70  

Deutsche Bank

  EUR 1,350  4.000%  Six Month EURIBOR  06/16/40  (4

Goldman Sachs

  BRL 400  10.840%  Brazil Interbank Deposit Rate  01/02/12  (4

Goldman Sachs

  USD 1,010  Six Month LIBOR  Six Month LIBOR  05/25/10  5  

Goldman Sachs

  EUR 2,900  3.000%  Six Month EURIBOR  06/16/15  (18

JP Morgan

  KRW 405,000  2.830%  Korean Interbank Offer Rate  01/28/11  (3

JP Morgan

  KRW 350,000  3.900%  Korean Interbank Offer Rate  06/15/11    

JP Morgan

  KRW 1,100,000  3.720%  Korean Interbank Offer Rate  06/22/11  (3

JP Morgan

  KRW 371,651  3.660%  Korean Interbank Offer Rate  07/08/11  (1

Merrill Lynch

  BRL 100  14.765%  Brazil Interbank Deposit Rate  01/02/12  4  

Merrill Lynch

  BRL 200  0.12948  Brazil Interbank Deposit Rate  01/04/10  5  

Merrill Lynch

  BRL 700  11.980%  Brazil Interbank Deposit Rate  01/02/12  6  

Merrill Lynch

  BRL 800  0.1254  Brazil Interbank Deposit Rate  01/02/12  7  

Morgan Stanley

  BRL 400  12.670%  Brazil Interbank Deposit Rate  01/04/10    

Morgan Stanley

  USD 5,400  3.000%  Three Month LIBOR  12/16/10  129  

Royal Bank of Scotland

  USD 700  4.000%  Three Month LIBOR  12/16/14  35  

Royal Bank of Scotland

  CAD 1,500  5.700%  Canadian Dealer Offer Rate  12/18/24  (12

UBS

  BRL 400  12.410%  Brazil Interbank Deposit Rate  01/04/10    

UBS

  AUD 1,900  4.500%  Three Month LIBOR  06/15/11  (11

UBS

  BRL 800  10.575%  Brazil Interbank Deposit Rate  01/02/12  (13

UBS

  AUD 1,600  6.000%  Six Month LIBOR  09/15/12  11  
             

Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - $156

  665  
             

 

See accompanying notes which are an integral part of the financial statements.

 

Core Bond Fund 69


Table of Contents

Russell Investment Funds

Core Bond Fund

Presentation of Portfolio Holdings — December 31, 2009

Amounts in thousands

 

   Market Value    
Portfolio Summary  Level 1  Level 2  Level 3  Total  % of Net
Assets
 
       

Long-Term Investments

       

Asset-Backed Securities

  $   $21,679   $293  $21,972   5.5  

Corporate Bonds and Notes

       87,049       87,049   21.7  

International Debt

       35,434       35,434   8.8  

Loan Agreements

       1,548    1   1,549   0.4  

Mortgage-Backed Securities

       153,254       153,254   38.3  

Municipal Bonds

       3,789       3,789   1.0  

Non-US Bonds

       2,002    71   2,073   0.5  

United States Government Agencies

       6,249       6,249   1.6  

United States Government Treasuries

       27,804       27,804   6.9  

Common Stocks

   66           66   

Preferred Stocks

   456        434   890   0.2  

Short-Term Investments

       54,912       54,912   13.7  

Repurchase Agreements

       20,700       20,700   5.2  

Other Securities

       29,302       29,302   7.3  
                    

Total Investments

   522    443,722    799   445,043   111.1  
                  

Other Assets and Liabilities, Net

       (11.1
         
       100.0  
         

Other Financial Instruments

       

Futures Contracts

   (914         (914 (0.2

Options Written

   (40  (236     (276 (0.1

Foreign Currency Exchange Contracts

       72       72   

Interest Rate Swap Contracts

       504    5   509   0.1  

Credit Default Swaps

       (881     (881 (0.2
                  

Total Other Financial Instruments**

   (954  (541  5   (1,490 
                  

 

* Less than .05% of net assets.

 

** Other financial instruments not reflected in the Schedule of Investments, such as futures, forwards, and swap contracts which are valued at the unrealized appreciation/depreciation on the instruments.

For a description of the levels see note 2 in the Notes to Financial Statements.

Investments in which significant unobservable inputs (Level 3) used in determining a value for the period ended December 31, 2009 were less than 1% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

 

70 Core Bond Fund


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

LOGO

 

Real Estate Securities Fund 
   Total
Return
 

1 Year

  31.16

5 Years

  1.06%§ 

10 Years

  10.76%§ 
FTSE NAREIT Equity REITs Index** 
   Total
Return
 

1 Year

  27.99

5 Years

  0.36%§ 

10 Years

  10.63%§ 

 

* Assumes initial investment on January 1, 2000.

 

** FTSE National Association of Real Estate Investment Trusts (NAREIT) Equity REITs Index is an index composed of all the data based on the last closing price of the month for all tax-qualified REITs listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System. The data is market value-weighted. The total-return calculation is based upon whether it is 1-month, 3-months or 12-months. Only those REITs listed for the entire period are used in the total return calculation.

 

§ Annualized.

The performance shown in this section does not reflect any Insurance Company Separate Account or Policy Charges. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results.

 

Real Estate Securities Fund 71


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Russell Investment Funds

Real Estate Securities Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

The Real Estate Securities Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

What is the Fund’s investment objective?

The Fund seeks to provide current income and long term capital growth.

How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2009?

For the fiscal year ended December 31, 2009, the Real Estate Securities Fund gained 31.16%. This compared to the FTSE NAREIT Equity REIT Index, which gained 27.99% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

For the year ending December 31, 2009, the Lipper® Real Estate Funds (VIP) Average gained 32.06%. This result serves as a peer comparison and is expressed net of operating expenses.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

The money managers positioned the Fund somewhat defensively during the fiscal year, with a focus on higher-quality, larger-capitalization REITs with strong balance sheets and more stable earnings prospects. Over the course of the fiscal year, the managers increased the magnitude of their underweight positions in the health care sector based on unfavorable relative valuations and shifted from an overweight to an underweight in the shopping centers sector due to concerns over declining retail sales and tenants’ financial condition. The Fund maintained an overweight position in the regional malls sector as the managers were drawn to the long-term lease structures and limited new supply of high-quality malls. The Fund also maintained underweight positions in the freestanding retail and lodging/resorts sectors. The freestanding retail sector faced difficulty as a result of elevated consumer savings rates and persistently weak retail sales figures. The Fund’s lodging/resorts underweight reflected concerns about reductions in business and leisure travel leading to lower occupancy and room rate growth. The Fund’s underweight position in the lodging/resorts sector was a notable detractor from performance, while the overweight to regional malls and underweights to the shopping centers and health care sectors contributed positively to performance. The underweight position in the freestanding retail sector had a neutral effect on performance. Overall, property sector positioning had a neutral effect on the Fund’s performance during the fiscal year.

 

The Fund’s international real estate securities holdings contributed positively to performance as the U.S. REIT market underperformed relative to the rest of the globe (27.99% as measured by the FTSE NAREIT Equity REIT Index vs. 44.56% as measured by the international portion of the FTSE EPRA/NAREIT Developed Real Estate Index). Property stocks in Hong Kong and Singapore performed particularly well during this period.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

AEW Capital Management, L.P. pursues a value-oriented style that focuses on identifying companies that it believes are mispriced relative to underlying real estate net asset value. AEW outperformed the benchmark during the fiscal year due primarily to its security selection. The primary contributors to performance were strong stock selection in the specialty, mixed industrial/office and health care sectors. AEW’s sector allocation detracted from performance due to an underweight in the outperforming specialty sector.

INVESCO Advisers, Inc. maintains a broadly diversified portfolio with exposure to all major property sectors. Its investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. INVESCO outperformed the benchmark during the fiscal year as a result of effective stock selection. Stock selection was strongest in the specialty, office and mixed industrial/office sectors. Sector allocation had a neutral effect on performance over the fiscal year.

Heitman Real Estate Securities LLC manages a concentrated portfolio with a bottom-up approach to stock selection focusing on companies that it believes have attractive valuations relative to growth prospects. Heitman outperformed the benchmark during the fiscal year, primarily as a result of effective stock selection. Stock selection was strongest in the lodging/resorts and shopping centers sectors. Sector allocation detracted from performance, driven primarily by underweights to the outperforming lodging/resorts and office sectors.

Cohen & Steers Capital Management Inc. manages a broadly diversified portfolio of global property securities. Cohen & Steers uses a bottom-up approach to portfolio construction, emphasizing the relationship between price and net asset value as the principal valuation metric. Cohen & Steers also evaluates multiple-to-growth ratios as indicators of value. Cohen & Steers outperformed relative to the FTSE EPRA/NAREIT Developed Real Estate Index, and its global portfolio had a positive impact on Fund performance due to the outperformance of international property securities markets relative to the U.S. Investments in Asia, particularly in Hong Kong and Continental Europe, contributed the most to performance.

Cohen & Steers commenced management of a U.S. real estate securities portfolio in September. This portfolio performed in line with the benchmark during the period between its inception


 

72 Real Estate Securities Fund


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Portfolio Management Discussion — December 31, 2009 (Unaudited)

 

 

 

and the end of the fiscal year. The effect of strong stock selection in the office and regional malls sectors was neutralized by weak stock selection in the shopping centers and health care sectors. Sector allocation also had a neutral effect on performance during this period.

RREEF America L.L.C. emphasizes a top-down approach to property sector weights based on an assessment of property market fundamentals. RREEF performed in line with the benchmark through the fiscal year before being terminated in late-August. Sector allocation detracted from performance due primarily to underweight positions in the outperforming specialty and lodging/resorts sectors. Effective stock selection contributed positively to performance, particularly in the specialty, freestanding retail, and health care sectors.

Describe any changes to the Fund’s structure or the money manager line-up.

RREEF America L.L.C. was terminated in August 2009 and replaced with Cohen & Steers’ diversified U.S. real estate securities strategy.

 

Money Managers as of

December 31, 2009

 Styles
AEW Capital Management, L.P. Value
Cohen & Steers Capital Management, Inc. (Global) Global Market-Oriented
Cohen & Steers Capital Management, Inc. (U.S) Market-Oriented
Heitman Real Estate Securities LLC Growth

INVESCO Advisers, Inc. which acts as a money manager to the Fund through its INVESCO Real

Estate division

 Market-Oriented

The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of RIMCo or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.


 

Real Estate Securities Fund 73


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Shareholder Expense Example — December 31, 2009 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding each Fund’s Expense Example, which appears on each Fund’s individual page in this Annual Report. Please refer to this information when reviewing the Expense Example for a Fund.

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2009 to December 31, 2009.

Actual Expenses

The information in the table under the heading “Actual Performance” provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you 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 result by the number in the first column in the row entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The information in the table under the heading “Hypothetical Performance (5% return before expenses)” provides information about hypothetical account values and hypothetical expenses

based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading “Hypothetical Performance (5% return before expenses)” is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The fee and expenses shown in this section do not reflect any Insurance Company Separate Account or Policy Charges.

 

   Actual
Performance
  Hypothetical
Performance
(5% return
before expenses)
    

Beginning Account Value

    

July 1, 2009

  $1,000.00  $1,000.00

Ending Account Value

    

December 31, 2009

  $1,415.20  $1,020.47

Expenses Paid During Period*

  $5.72  $4.79

 

*Expenses are equal to the Fund’s annualized expense ratio of 0.94% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).

 

74 Real Estate Securities Fund


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Schedule of Investments — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      
Common Stocks - 96.4%      
Diversified - 9.6%      

Agile Property Holdings, Ltd.

  266,000    386

British Land Co. PLC (ö)

  36,556    280

CapitaLand, Ltd.

  299,500    887

Cousins Properties, Inc. (ö)

  137,772    1,051

Dexus Property Group (ö)

  637,224    481

FKP Property Group (ö)

  101,939    71

Forest City Enterprises, Inc. Class A (Æ)(Ñ)

  95,073    1,120

Glorious Property Holdings, Ltd. (Æ)

  802,666    360

Goldcrest Co., Ltd.

  12,657    352

GPT Group (ö)

  487,536    262

Great Eagle Holdings, Ltd.

  17,955    46

Hang Lung Properties, Ltd. - ADR

  101,000    395

Henderson Land Development Co., Ltd.

  110,336    822

Hysan Development Co., Ltd.

  115,460    327

IVG Immobilien AG (Æ)

  35,520    272

Keppel Land, Ltd.

  5    

KWG Property Holding, Ltd.

  351,172    268

Land Securities Group PLC (ö)

  75,498    827

Lexington Realty Trust (ö)(Ñ)

  61,690    375

London & Stamford Property, Ltd.

  41,589    80

Mirvac Group (ö)

  456,263    635

Mitsubishi Estate Co., Ltd.

  84,000    1,332

Mitsui Fudosan Co., Ltd.

  69,104    1,160

New World Development, Ltd.

  335,000    684

Norwegian Property ASA (Æ)

  97,202    225

Sponda OYJ (Æ)

  49,198    193

Stockland (ö)

  264,510    930

Sumitomo Realty & Development Co., Ltd.

  27,000    506

Sun Hung Kai Properties, Ltd.

  138,606    2,057

Tokyo Tatemono Co., Ltd.

  60,488    230

Unibail-Rodamco SE (ö)

  6,299    1,387

Vornado Realty Trust (ö)(Ñ)

  300,376    21,008

Washington Real Estate Investment Trust (ö)(Ñ)

  10,798    298

Wharf Holdings, Ltd.

  27,000    154
       
      39,461
       
Free Standing Retail - 0.6%      

National Retail Properties, Inc. (ö)(Ñ)

  62,200    1,320

Realty Income Corp. (ö)(Ñ)

  49,317    1,278
       
      2,598
       
Health Care - 11.6%      

Brookdale Senior Living, Inc. (Æ)(Ñ)

  129,663    2,358

HCP, Inc. (ö)(Ñ)

  454,813    13,890

Health Care REIT, Inc. (ö)

  187,877    8,327

Nationwide Health Properties, Inc. (ö)(Ñ)

  271,762    9,561

Omega Healthcare Investors, Inc. (ö)(Ñ)

  187,526    3,647

Senior Housing Properties Trust (ö)

  136,190    2,978

Ventas, Inc. (ö)(Ñ)

  155,029    6,781
       
      47,542
       
   Principal
Amount ($)
or Shares
    Market
Value
$
Industrial - 5.2%      

AMB Property Corp. (ö)(Ñ)

  168,348    4,301

DCT Industrial Trust, Inc. (ö)(Ñ)

  691,375    3,471

EastGroup Properties, Inc. (ö)(Ñ)

  43,887    1,680

First Potomac Realty Trust (ö)

  68,300    859

Goodman Group (ö)

  756,091    425

Prologis (ö)(Ñ)

  763,008    10,446

Segro PLC (ö)

  54,924    303
       
      21,485
       
Lodging/Resorts - 6.1%      

DiamondRock Hospitality Co. (ö)

  255,050    2,160

Gaylord Entertainment Co. (Æ)(Ñ)

  51,558    1,018

Hospitality Properties Trust (ö)

  120,519    2,857

Host Hotels & Resorts, Inc. (Æ)(ö)(Ñ)

  1,086,817    12,683

Hyatt Hotels Corp. (Æ)

  2,874    86

LaSalle Hotel Properties (ö)(Ñ)

  15,400    327

Orient-Express Hotels, Ltd. Class A (Æ)(Ñ)

  105,029    1,065

Pebblebrook Hotel Trust (Æ)(Ñ)

  74,400    1,638

Shangri-La Asia, Ltd.

  54,000    101

Starwood Hotels & Resorts Worldwide, Inc. (ö)(Ñ)

  65,152    2,383

Sunstone Hotel Investors, Inc. (Æ)(ö)(Ñ)

  83,206    739
       
      25,057
       
Mixed Industrial/Office - 2.3%      

Liberty Property Trust (ö)

  246,386    7,887

PS Business Parks, Inc. (ö)

  30,777    1,540
       
      9,427
       
Office - 12.2%      

Alexandria Real Estate Equities, Inc. (ö)(Ñ)

  43,100    2,771

BioMed Realty Trust, Inc. (ö)

  155,032    2,446

Boston Properties, Inc. (ö)(Ñ)

  211,105    14,159

Brandywine Realty Trust (ö)

  239,100    2,726

Brookfield Properties Corp. (Ñ)

  122,457    1,484

CapitaCommercial Trust (Æ)(ö)

  184,000    152

Commonwealth Property Office Fund (ö)

  315,383    273

Corporate Office Properties Trust SBI MD (ö)

  54,300    1,989

DA Office Investment Corp. Class A (ö)

  29    61

Derwent London PLC (ö)

  15,907    336

Douglas Emmett, Inc. (ö)(Ñ)

  30,640    437

Fabege AB

  31,599    200

Great Portland Estates PLC (ö)

  42,164    195

Highwoods Properties, Inc. (ö)(Ñ)

  64,500    2,151

Hongkong Land Holdings, Ltd.

  184,300    907

HRPT Properties Trust (ö)

  30,600    198

ICADE (ö)

  3,006    286

ING Office Fund

  580,600    330

Japan Prime Realty Investment Corp. Class A (ö)

  39    81

Japan Real Estate Investment Corp. Class A (ö)

  21    154

 

Real Estate Securities Fund 75


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
    Market
Value
$
      

Kenedix Realty Investment Corp. Class A (ö)

  40    109

Kilroy Realty Corp. (ö)(Ñ)

  203,204    6,232

Mack-Cali Realty Corp. (ö)(Ñ)

  123,889    4,283

SL Green Realty Corp. (ö)(Ñ)

  166,476    8,364
       
      50,324
       
Regional Malls - 18.3%      

Aeon Mall Co., Ltd.

  10,400    201

BR Malls Participacoes SA (Æ)

  14,283    176

CapitaMalls Asia, Ltd. (Æ)

  104,000    188

Macerich Co. (The) (ö)(Ñ)

  281,719    10,128

Public Storage (ö)

  258,565    21,060

Simon Property Group, Inc. (ö)

  479,037    38,227

Taubman Centers, Inc. (ö)(Ñ)

  99,100    3,559

Westfield Group (ö)

  136,745    1,525
       
      75,064
       
Residential - 14.1%      

American Campus Communities,
Inc. (ö)(Ñ)

  136,700    3,841

Apartment Investment & Management Co. Class A (ö)(Ñ)

  80,416    1,280

AvalonBay Communities, Inc. (ö)(Ñ)

  124,813    10,248

Boardwalk Real Estate Investment Trust (ö)

  8,120    288

Camden Property Trust (ö)(Ñ)

  208,165    8,820

China Overseas Land & Investment, Ltd.

  281,200    589

China Resources Land, Ltd.

  115,000    259

Colonial Properties Trust (ö)(Ñ)

  70,799    830

Deutsche Wohnen AG (Æ)

  16,388    157

Education Realty Trust, Inc. (ö)

  89,816    435

Equity Lifestyle Properties, Inc. (ö)(Ñ)

  37,461    1,891

Equity Residential (ö)(Ñ)

  547,148    18,483

Essex Property Trust, Inc. (ö)(Ñ)

  69,645    5,826

Home Properties, Inc. (ö)(Ñ)

  41,584    1,984

Mid-America Apartment Communities, Inc. (ö)

  15,119    730

Post Properties, Inc. (ö)(Ñ)

  53,355    1,046

Shimao Property Holdings, Ltd.

  194,000    364

UDR, Inc. (ö)(Ñ)

  32,719    538

Unite Group PLC (Æ)

  68,978    333
       
      57,942
       
Self Storage - 1.0%      

Big Yellow Group PLC (Æ)(ö)

  14,322    82

Extra Space Storage, Inc. (ö)(Ñ)

  209,500    2,420

Sovran Self Storage, Inc. (ö)

  24,324    869

U-Store-It Trust (ö)(Ñ)

  84,337    617
       
      3,988
       
Shopping Centers - 8.5%      

Acadia Realty Trust (ö)(Ñ)

  88,229    1,488

Alexander’s, Inc. (Æ)(ö)(Ñ)

  1,080    329
   Principal
Amount ($)
or Shares
    Market
Value
$
 

Atrium European Real Estate, Ltd.

  28,653    193  

Citycon OYJ

  24,909    105  

Corio NV (ö)

  2,941    201  

Developers Diversified Realty Corp. (ö)(Ñ)

  340,147    3,150  

Federal Realty Investment Trust (ö)(Ñ)

  122,264    8,280  

Hammerson PLC (ö)

  94,225    640  

Inland Real Estate Corp. (ö)(Ñ)

  80,165    653  

Kimco Realty Corp. (ö)

  449,221    6,078  

Kite Realty Group Trust (ö)

  208,000    846  

Link REIT (The) (ö)

  197,128    502  

Primaris Retail Real Estate Investment Trust (ö)

  14,173    219  

Regency Centers Corp. (ö)(Ñ)

  218,778    7,670  

Retail Opportunity Investments
Corp. (Æ)(Ñ)

  127,179    1,286  

Tanger Factory Outlet Centers (ö)(Ñ)

  47,200    1,840  

Weingarten Realty Investors (ö)(Ñ)

  69,627    1,378  
        
      34,858  
        
Specialty - 6.9%      

Digital Realty Trust, Inc. (ö)(Ñ)

  244,560    12,297  

DuPont Fabros Technology, Inc. (ö)

  95,000    1,709  

Entertainment Properties Trust (ö)

  86,400    3,047  

Plum Creek Timber Co., Inc. (ö)(Ñ)

  199,130    7,519  

Rayonier, Inc. (ö)(Ñ)

  75,464    3,182  

Weyerhaeuser Co. (Ñ)

  11,020    475  
        
      28,229  
        
Total Common Stocks
(cost $312,065)
      395,975  
        
Short-Term Investments - 3.2%    

Russell U.S. Cash Management Fund (£)

  13,068,747    13,069  
        
Total Short-Term Investments
(cost $13,069)
      13,069  
        
Other Securities - 33.1%      

State Street Securities Lending Quality Trust (×)

  136,855,428    136,155  
        
Total Other Securities
(cost $136,855)
      136,155  
        
Total Investments - 132.7%
(identified cost $461,989)
      545,199  
Other Assets and Liabilities,
Net - (32.7%)
      (134,491
        
Net Assets - 100.0%      410,708  
        

A portion of the portfolio has been fair valued as of period end.


 

See accompanying notes which are an integral part of the financial statements.

 

76 Real Estate Securities Fund


Table of Contents

Russell Investment Funds

Real Estate Securities Fund

Schedule of Investments, continued — December 31, 2009

Amounts in thousands

 

Foreign Currency Exchange Contracts    

Counter
Party

  Amount
Sold
  Amount
Bought
  Settlement
Date
  Unrealized
Appreciation
(Depreciation)
$
          

Royal Bank of Scotland

  USD 3  HKD 20  01/05/10  

Royal Bank of Scotland

  USD 11  HKD 87  01/05/10  

Royal Bank of Scotland

  USD 7  JPY 686  01/06/10  

Royal Bank of Scotland

  JPY 190  USD 2  01/06/10  

State Street Bank and Trust Company

  USD 2  AUD 2  01/04/10  

State Street Bank and Trust Company

  USD 2  AUD 3  01/06/10  

State Street Bank and Trust Company

  USD 3  HKD 20  01/04/10  

State Street Bank and Trust Company

  USD 11  HKD 82  01/04/10  

State Street Bank and Trust Company

  USD 17  HKD 131  01/04/10  

State Street Bank and Trust Company

  USD 23  HKD 178  01/04/10  

State Street Bank and Trust Company

  USD 11  HKD 88  01/05/10  

State Street Bank and Trust Company

  JPY 362  USD 4  01/04/10  

State Street Bank and Trust Company