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Russell Investment Funds

Filed: 24 Feb 13, 7:00pm
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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)

 

 

1301 2nd Avenue 18th Floor, Seattle Washington 98101

(Address of principal executive offices) (Zip code)

 

 

Mary Beth Rhoden, Secretary and Chief Legal Officer

Russell Investment Funds

1301 2nd Avenue

18th Floor

Seattle, Washington 98101

206-505-4846

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 206-505-7877

Date of fiscal year end: December 31

Date of reporting period: January 1, 2012 to December 31, 2012

 

 

 


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Item 1. Reports to Stockholders


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LOGO

 

2012 ANNUAL REPORT

 

 

Russell

Investment Funds

 

 

DECEMBER 31, 2012

FUND

Multi-Style Equity Fund

Aggressive Equity Fund

Non-U.S. Fund

Core Bond Fund

Global Real Estate Securities Fund

 

LOGO


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Russell Investment Funds

Russell Investment Funds is a series investment company with ten 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, 2012

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   Page 
To Our Shareholders   3  
Market Summary   4  
Multi-Style Equity Fund   12  
Aggressive Equity Fund   28  
Non-U.S. Fund   48  
Core Bond Fund   66  
Global Real Estate Securities Fund   102  
Notes to Schedule of Investments   118  
Notes to Financial Highlights   119  
Notes to Financial Statements   120  
Report of the Independent Registered Public Accounting Firm   139  
Tax Information   140  
Basis for Approval of Investment Advisory Contracts   141  
Shareholder Requests for Additional Information   146  
Disclosure of Information about Fund Trustees and Officers   147  
Adviser, Money Managers and Service Providers   152  


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Russell Investment Funds

Copyright © Russell Investments 2013. 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 distributed through Russell Financial Services, Inc., member FINRA and 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

Dear Shareholder,

If the last few years have taught us anything, it’s that being a patient, long-term investor isn’t always easy. It takes courage and commitment to stay invested when the moods of the markets swing from euphoria to panic, with very little provocation. A comment made by a European leader, a government official in the U.S. or simply a news media spokesperson can send the markets racing up or spiraling down. But this is the world in which we live and invest today and, consequently, it has never been more important to have a long-term financial plan, realistic goals and timelines, and regular check-ins with your financial advisor.

As a result of these gyrations, the journey this past year may have felt more negative than the actual performance of the broad markets. Despite 2012’s ups and downs, the markets performed well. The Russell 1000® Index returned 16.42% for the year 2012.

Whether you’re saving for retirement, already there or building a college fund or a charitable giving trust, Russell has a long, proud heritage of developing multi-asset solutions to help investors like you reach your financial goals. This year we’ve made a number of changes to our portfolios designed to deliver greater diversification and potentially lower volatility to many of the investments we manage. Combined with the guidance of your advisor, we believe these changes and additions to our funds and portfolios will help you achieve a more broadly diversified portfolio and a more consistent outcome.

On the following pages you can gain additional insights by reviewing our Russell Investment Funds 2012 Annual Report for the fiscal year ended December 31, 2012, including portfolio management discussions and fund performance information.

Thank you for the trust you have placed in our firm. All of us at Russell Investments appreciate the opportunity to help you achieve financial security.

Best regards,

 

LOGO

Sandra Cavanaugh

CEO, Americas Private Client Services

Russell Investment Management Company

 

To Our Shareholders��3


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Russell Investment Funds

Market Summary as of December 31, 2012

U.S. Equity Markets

The U.S. equity market performed well during the fiscal year ended December 31, 2012. The market “climbed a wall of worry” during the fiscal year, as the strong performance of U.S. equities was in spite of lingering fears of a potential U.S. recession, continued uncertainty in Europe and slowing economic growth in China. For the one year period, the Russell 1000® Index returned 16.42% and the Russell 2000® Index returned 16.35%. Similar to the last fiscal period, the strong performance of the U.S. equity market was partially enabled by the continued resolve of central banks, in particular the U.S. Federal Reserve and European Central Bank. Official policy measures were aimed at containing the European sovereign debt crisis and combating slow economic growth and high unemployment. In addition, rising dividends, share buybacks and robust U.S. corporate earnings also helped push U.S. equity markets higher.

The U.S. equity market produced strong returns in each of the first three months of 2012, with the Russell 1000® Index returning 12.90%. U.S. equity investors were encouraged by the strong performance of computer technology and consumer discretionary companies. Stocks with high dividend yields, which had been trading at relatively high valuations, began to lag. However, the period was not dominated by the highest risk stocks, as companies with highly leveraged balance sheets also underperformed. Headline economic data in the United States was generally positive in the first three months of 2012. Year over year U.S. gross domestic product growth was positive and above 3.5% for the months of December 2011, January 2012 and February 2012 according to the U.S. Bureau of Economic Analysis. Unemployment in the U.S. decreased modestly during the quarter, from 8.5% in December 2011 to 8.3% in February 2012 according to the U.S. Bureau of Economic Analysis.

After strong performance during January, February and March, the U.S. equity market sold off in the second quarter. May was the worst single month of performance for U.S. stocks since September of 2011, as the Russell 1000® Index fell by 6.15%. During May, concerns over flagging Chinese and U.S. economic growth continued but the European sovereign debt crisis dominated investor psychology. Greece in particular remained front and center as it held a series of national elections that were staged as a referendum on Greece’s continued inclusion in the Euro. After an initial vote in May that resulted in no government being formed, speculation mounted about Greece exiting the Euro and the potential implications of its exit. This uncertainty created significant instability in the U.S. equity market in May and early June, which were further aggravated by worries over Spain’s banking system as well as Spanish and Italian government bond yields. However, the pro-Euro parties came out victorious in the Greek elections and progress at the eurozone summit helped the quarter end with a slight decrease in concerns about “tail risk” from Europe.

Many of the typical tilts of active managers were penalized during the month of May. Stocks with rising earnings estimates underperformed, as did stocks with low debt to capital ratios. The cheapest stocks in the U.S. equity market, based on price-to-earnings ratios, price-to-book ratios, and price-to-cash flow ratios, underperformed. Large capitalization managers, which normally underweight mega capitalization securities (securities of the largest companies as measured by market capitalization), faced a headwind from the outperformance of the top 50 mega capitalization stocks in the Russell 1000® Index. This combination of factor payoffs contributed to an unusually difficult quarter for active managers but also provided an opportunity to exploit the dislocations for potential future alpha (risk adjusted return) generation. The Chicago Board Options Exchange Market Volatility Index, a measure of the implied volatility of S&P 500 index options, rose during the months of April and May before falling in June to finish at 17.08. Correlations among stocks rose throughout the months of April, May and June to their highest levels of the year, in a pattern reminiscent of 2011.

After weak second quarter performance, the U.S. equity market performed well during July, August and September of 2012, with the Russell 1000® Index rising 6.31% during that time. Each of the three months was positive for the Russell 1000® Index. The most impactful news during this time came in the form of announcements from central banks, especially the U.S. Federal Reserve (the “Fed”) and the European Central Bank (“ECB”). On September 13, the Fed announced the third round of quantitative easing in the United States and the Russell 1000® Index was up 1.56% for the day. Another large one-day move came on September 6, as market participants responded to news from the ECB of “unlimited, sterilized bond purchases.” Investors responded positively to the significant decrease in the potential for the

 

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“worst case scenario” to occur with regard to European sovereign debt and associated tail risks. As these fears decreased, investors began shifting their focus to company specific valuations and fundamental measures such as cash flow generation and growth rates. The average correlation between stocks within the U.S. equity market decreased.

The factor environment also shifted and became significantly better for active managers. After struggling for much of the year, medium capitalization stocks came to life after July and made up significant ground in August. During the month of August, the Russell Midcap Index returned 3.15% and the Russell 1000® Index returned 2.43%. Stocks with lower valuation ratios, including those with low price-to-earnings and low price-to-book ratios, did particularly well in September. The signs of increased breadth of market leadership were welcomed by active managers as the year progressed and there was more differentiation based on company-specific information. Consumer discretionary stocks continued to fare well as U.S. economic data continued its gradual ascent.

The market was led marginally lower for the month of October 2012. In particular, large technology stocks struggled during the month. Apple, Inc., which had come to represent more than 4.00% of the Russell 1000® Index and more than 25.00% of the technology sector as measured by the Russell 1000® Index, struggled to provide earnings guidance that met analysts’ overall expectations. As other large technology companies followed suit, either with lower earnings guidance or failure to meet earnings or revenue estimates, the entire industry struggled.

In November, growth stocks outperformed value stocks and the market produced positive returns. However, the market saw significant intra-month volatility. After being down almost 5% near the midpoint of the month, the Russell 3000® Index rallied during the latter part of November. On November 7, 2012, the day after the U.S. presidential election, the Russell 3000® Index dropped by 2.25% and experienced its worst day of the month. After the presidential election, investors refocused their attention to what has been referred to as the “fiscal cliff.” This looming combination of higher taxes and spending cuts, ultimately aimed at reducing the federal budget deficit, was at the forefront of many investors’ concerns during the fourth quarter.

For the month of December, the Russell 3000 financial services sector was up 3.9%. Large weights to the financial services sector in the Russell 3000® Dynamic and Russell 3000® Value Indexes helped to power their returns above the returns of the Russell 3000® Defensive and Russell 3000® Growth Indexes. The year ended on a positive note, with a market rally on optimism that an agreement to avoid the “fiscal cliff” could be achieved.

The overall style environment for the year favored value stocks, as the Russell 1000® Value Index outperformed the Russell 1000® Growth Index. These indexes returned 17.51% and 15.26%, respectively. Furthermore, the environment was more favorable for dynamic stocks, as the Russell 1000® Dynamic Index outperformed the Russell 1000® Defensive Index. These indexes returned 20.21% and 12.75%, respectively.

The Russell 2000® Index shared a number of similarities with the Russell 1000® Index, with the Russell 2000® Value Index outperforming the Russell 2000® Growth Index and the Russell 2000® Dynamic Index outperforming the Russell 2000® Defensive Index. At a factor level, leverage, earnings per share variability and, to a lesser degree, beta were all rewarded, as investors were encouraged by both monetary policy and greater political clarity. The fiscal year was, however, a highly tumultuous period that resulted in both volatile equity market returns and risk appetites, as well as high stock correlations. This made it a challenging environment for U.S. small capitalization active managers, with the majority underperforming their respective benchmarks

Non-U.S. Developed Equity Markets

For the fiscal year ended December 31, 2012, the non-U.S. equity market, as measured by the Russell Developed ex-U.S. Large Cap® Index (the “Index”), was up 16.73%. The ebb and flow of investor concern regarding global growth and sovereign debt led to a volatile but upward trending market environment over the 12 month period. For the most part, investors were able to see past large event risk and begin to focus on company fundamentals. In response to the multi-year debt crisis engulfing Europe, European central bank leaders implemented multiple policies to help alleviate the onerous borrowing costs in many peripheral nations. In late December 2011 and again in February 2012, the European Central Bank (“ECB”) implemented “Long-term Refinancing Operations,” in which it provided low cost loans to banks within the region. This program alleviated fear that Europe’s banks would stop extending credit to businesses and consumers, which triggered fairly substantial rallies in the global equity markets. In July, Mario Draghi, president of the ECB, asserted that ECB was ready to do whatever it takes to preserve the Euro. Investors viewed this announcement optimistically in hopes that downside risk had been substantially reduced. In September, the ECB announced a plan to purchase an unlimited amount of sovereign bonds with maturities between one and three years in further attempts to address the debt crisis.

 

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In the United States, similar easing was implemented in order to help boost economic growth and speed along the economic recovery. The first, Operation Twist, saw the U.S. Federal Reserve buy longer-term treasuries, while at the same time selling shorter-term treasuries. The intent of Operation Twist was to lower rates on the long end of the yield curve and encourage demand by making financing easier for consumers. Another policy action by the Federal Reserve was the announcement of “Quantitative Easing III,” in which the Federal Reserve plans to indefinitely purchase billions of dollars worth of agency mortgage-backed securities until the outlook for the labor market improves substantially. These quantitative easing policies generally had a positive influence on global equity markets, though with diminishing impact as subsequent rounds of easing were announced.

Corporate profits continued to surprise on the upside for the majority of the fiscal year. Much of this reflected significant de-leveraging efforts by companies following the financial crisis, which translated into improved and more sustainable profit margins. During the year, investors began to reward companies for their fundamental characteristics and not just reward companies that provide defensive positioning during volatile periods. As market sentiment improved, investors began to bid up companies more geared toward economic growth and that were trading at a discount to the market. During the fiscal year, Europe posted positive equity results as numerous easing policies and talks of a fiscal union calmed the market’s fear of a potential euro breakup. European stocks gained a remarkable 22% during the period as measured by the Index despite the abundance of negative news flow early in the year. In May, the eurozone’s duopolistic leadership of Angela Merkel and Nicolas Sarkozy was disrupted when Francois Hollande was elected President of France, bringing a pro-growth agenda to European negotiations that had previously been centered on austerity. Despite positive equity market performance in most member countries, economic data out of the region was poor for the period. Spain’s national unemployment rate hovered around 25%, while the unemployment rate for those under the age of 25 stayed above 50% for the period according to the Spanish National Statistics Institute. In Italy, gross domestic product contracted over 2% for the 12-month period ending September 30, 2012 according to the Italian National Institute of Statistics. Within European equity markets, the more stable growth companies such as pharmaceuticals and food retailers were the best performers as measured by the Index, although with the improved political support, the northern European financial sector also outperformed the Index.

United Kingdom (“U.K.”) stocks lagged the broad benchmark despite gaining 16.15% for the year as measured by the Index. With positive economic momentum following the Diamond Jubilee and the summer Olympics, the U.K. exited a recession that began in the first quarter of the year. Banks and industrials were some of the best performing sectors in the U.K. equity market, although the headwinds that faced energy and pharmaceutical companies contributed to the relative underperformance of the U.K.

Despite the positive global momentum that monetary stimuli provided, Japanese securities struggled to keep pace with their global peers. For the 12 month period ending December 31, 2012, the Japanese market returned 8.55% as measured by the Index, which made it the worst performing region during the period. For a majority of the year, the continued strength of the yen was a headwind for the country’s exporters, as multiple easing policies by the Bank of Japan had little lasting effect on weakening the country’s currency. Also, Japanese firms faced continued supply-chain disruptions as they struggled to rebuild domestic manufacturing facilities impacted by the earthquake/tsunami and offshore operations affected by massive floods in Thailand. In addition to natural disaster related issues, Japanese firms were negatively impacted by geopolitical strife. Chinese-Japanese relations soured during the summer as both countries laid claim to a group of uninhabited islands in the East China Sea. In response, Chinese consumers shunned Japanese products, damaging Japanese exports. Automakers in Japan subsequently lowered their sales and earnings forecasts.

Sector payoffs were largely a reversal of the prior year’s results. Many of the sectors that struggled in 2011 had strong results in 2012. Financials, consumer discretionary, health care, and industrials were the top performing sectors in 2012, while energy, telecommunications, utilities and materials all struggled. Commercial banks were large beneficiaries of the improved sentiment in the market, as most regions posted strong results, notably the northern European banks. The consumer discretionary sector also had a reversal of results compared with 2011. With strong sales and demand from emerging markets, especially in the luxury goods and auto sectors, consumer discretionary was the second best performing sector in the Index. The energy sector was the worst performing sector in the Index, as oil prices stagnated and global growth prospects were very modest. Worries of slower growth continued to weigh on the materials sector, while a realized slowdown in China depressed commodity prices.

Emerging Markets

The Russell Emerging Markets® Index (the “Index”) gained 18.78% over the fiscal year ended December 31, 2012. In what was another relatively volatile period, macroeconomic events and policy continued to impact emerging market

 

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equities against a backdrop that saw investor attention frequently occupied by the ongoing sovereign debt crisis in Europe. Inflationary pressures eased through the year, allowing central banks from Brazil to India to China to reduce interest rates and provide improving liquidity conditions for equity markets. With central banks in the developed world extending quantitative easing measures, amid record low interest rates, emerging markets benefited from investors’ appetite for returns. Measures to control currency appreciation were also adopted by several nations in an effort to maintain the competitiveness of their exports. An improving economic picture out of China in the final third of the year and a growing belief that the U.S. “fiscal cliff” would be resolved were catalysts for an end of year rally.

The monetary stimulus that sparked life into global equity markets at the end of 2011 enhanced returns in emerging markets through the first quarter of 2012, as the Index enjoyed its best first quarter in 20 years, registering a 14.65% first quarter gain. Confidence was augmented by an additional round of long term refinancing operations from the European Central Bank (“ECB”) at the end of February, aimed at ensuring another credit crunch did not stifle economic growth. A calming of events in the eurozone, after Greece made a tentative agreement with its creditors, spurred Eastern European markets, which are highly geared to the eurozone region. Fear over slowing economic growth was the basis for stimulus packages and central bank action across a number of emerging markets. Investor reaction was mixed across the different countries but all markets registered positive returns. During the second quarter of 2012, emerging markets gave back the majority of outperformance generated over the first quarter of 2012. Confirmation of a slowdown in China and growth concerns more broadly across emerging markets combined to weigh on investor risk appetite, which resulted in large capital outflows and weakening currencies. A 20% dive in the price of Brent crude amid softening commodity prices proved detrimental for a number of emerging markets. The Index declined 9.14% during the quarter.

After a slow start, the third quarter of 2012 saw emerging markets rebound with the Index climbing 7.99%. Once again, it was a combination of stimulus action from policymakers and central bank monetary easing across both developed and emerging markets which bolstered investor confidence. At the forefront of this was the ECB President Mario Draghi, who declared that the bank would do “whatever it takes” to protect the euro. The result was a sharp fall in investor risk aversion and emerging markets became the beneficiaries of increased investor liquidity. Positive equity returns were registered despite the release of some relatively weak macroeconomic data in a number of major emerging countries and continuing weakness in earnings expectations.

The fourth quarter of 2012 saw emerging markets record solid returns, with the Index returning 5.58%. Key events included a U.S. presidential election as well as a political transition in China, which is scheduled once every ten years. The uncertainty created by these two events was the basis for a mid quarter dip. However, neither event provided much surprise and investors shifted their focus to the impending “fiscal cliff” in the U.S. Although initial nervousness led markets lower, investor hopes for a resolution were reflected in a rally which began in the second half of November and continued through the year end. The positive sentiment was augmented by a debt agreement in Greece, the U.S. Federal Reserve’s decision to extend its quantitative easing program and continued improvement in forward looking indicators in China.

For the one year period ended December 31, 2012, Turkey was the best performing market, not only in the Eastern European region, but also the world, rising 63.15% over the period as measured by the Index. The country was aided by a sovereign debt upgrade, improving public finances and a growing domestic market that served to support corporate earnings and enable the central bank to implement interest rate cuts. Russia was one of the weakest regional markets over the fiscal year, returning just 12.35% as measured by the Index. The energy weighted market suffered as the price of crude oil declined 7.1% over the period. Issues with regard to corporate governance and corruption remained a focus for investors as valuations remained at a discount to other emerging markets. The Czech Republic also recorded a disappointing year, climbing 1.39% as measured by the Index. The financials weighted market suffered as investors sought to avoid exposure to the eurozone debt crisis.

In Latin America, Brazil was the weakest market during the fiscal year, adding just 4.66% as measured by the Index. Decelerating gross domestic product (“GDP”) growth led the central bank to cut rates to record lows over the period while the government announced a raft of stimulus measures. Supply side issues continued to constrain growth and many of the government’s measures focused on longer term infrastructure investment. However, investors focused on the potentially inflationary impact of these actions. An expected uptick in GDP growth in the third quarter did not materialize although a recovery in China gave the equity market some impetus in the last six weeks of the year. This was most notable in the resources sector, which had been hurt by the weaker outlook for global growth. Meanwhile, Mexico was the best performing market in Latin America, rising 33.49% as measured by the Index, and was helped by robust management of public finances, a presidential election and a recovery in its largest trading market, the United States.

 

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Speculation that new president, Enrique Peña Nieto, may seek to open the energy sector to private investment was also well received. The Colombian equity market was another strong performer, gaining 31.27% as measured by the Index, underpinned by strong fiscal management, attractive GDP growth and a $100bn infrastructure investment plan.

Asian markets recorded some of the largest gains in the Index, including a 44.32% rise in Thailand. Recovery and reconstruction in the wake of floods in 2011 provided major stimulus to the economy. The Philippines also performed well, gaining 45.91% as measured by the Index, as improving macroeconomic fundamentals and a reformist government boosted investor confidence. South Korean equities added 19.64% over the fiscal year as measured by the Index. South Korean GDP slowed to just 1.6% in the third quarter and a deterioration in key trade markets of Europe and China and a stronger local currency (Won) hurt exporters. However, the market rallied in the fourth quarter, boosted by Chinese macroeconomic data that suggested the country would avoid a hard landing and positive sentiment towards a “fiscal cliff” deal. China registered some robust return, gaining 20.08% as measured by the Index. Despite fears over a hard landing and a string of consecutively weak economic data releases that impacted the market during the middle of the year, the country strongly rebounded in the fourth quarter. A deceleration in GDP to 7.5%, the lowest reading since 2009, provided the backdrop to a period which saw the central bank cut rates twice as well as implement a number of other stimuli in an effort to ward off a sharp economic slowdown. Data released in the third quarter indicated that these efforts had been successful and provided impetus for a rally into year end.

In contrast, some North Asian markets were left trailing regional peers. Deteriorating fundamentals, including rising inflation and declining exports, left the Taiwanese market lagging with a 17.54% return as measured by the Index. Indian equities began the year well before a deterioration in GDP growth, inflationary pressures, plunging industrial production and corporate scandals negatively impacted the market mid-year. The impact saw the Indian rupee hit an all time low against the dollar, which was another headwind to the country’s economy. India is a net importer of oil and rising fuel costs saw refiners raise prices, further inflaming inflationary pressures. However, a flurry of investor-friendly reforms and a healthier third quarter GDP reading of 5.3% YoY (year over year) provided a strong boost to the market in the fourth quarter. India finished the fiscal year up by 25.70%, as measured by the Index.

At the sector level, health care was the best performing sector, climbing 34.67% during the fiscal year as measured by the Index. The sector benefited from a combination of strong fundamentals and merger and acquisition activity, particularly in Asia where medical supplies manufacturers and life providers alike did well. Pro-cyclical sectors technology and financials also performed well, adding 23.57% and 26.64% respectively, while consumer staples rose 27.17%. Within consumer staples, beverage producers did particularly well on the back of continued demand growth and a round of merger and acquisition activity in the sector. The weakest performance came from energy and materials and processing, which advanced 6.13% and 10.88%, respectively, as measured by the Index.

U.S. Global Fixed Income Markets

For the fiscal year ended December 31, 2012, fixed income markets continued to be driven by global macroeconomic factors. The market started the year following a positive trend as part of a relief rally that began in October 2011. This rally was supported by a series of positive announcements during a respite from negative announcements from the United States and Europe. However, negative developments started to resurface once again in April and May, which caused a temporary setback in the market’s rally. Central bankers from Europe and the United States responded by providing additional stimulus to ease investor concerns. With the support from central banks, the market continued its rally through the end of the year.

Markets outperformed in the first quarter as positive developments, and a decline in negative announcements, supported demand for non-treasury sectors. In February, the U.S. Federal Reserve (the “Fed”) announced the private sale of the remaining assets in its Maiden Lane II portfolio to Credit Suisse Group AG. This portfolio primarily consisted of non-agency mortgage assets that were acquired in 2008 from American International Group Inc. (AIG) to alleviate capital and liquidity pressures on the company. A portion of the Maiden Lane II portfolio was sold off in the open market in 2011, but sales were halted after the drawn out sales process started to materially depress sub-prime non-agency mortgage asset prices. This transaction was seen as a positive development as it removed looming concerns of potentially another round of disruptive open market sales. The Fed stated that the combined sales of the Maiden Lane II portfolio netted a $2.8 billion profit for U.S. taxpayers. In the same month, the European Central Bank provided 800 eurozone banks with an additional €529.5 billion in low interest loans as part of the second round of its Long Term Refinancing Operations (“LTRO”). The LTRO program was a low cost loan scheme for European banks that was announced by the European Central Bank towards the end of 2011 in a bid to help ease the eurozone crisis. Round one was carried out in December 2011, when banks took €489 billion from the European Central Bank. Separate but related, the European

 

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Central Bank and the International Monetary Fund also finally agreed to a €130 billion bailout for Greece to help it avoid default. The combination of these developments reduced the short-term risk of negative knock-on effects to emerging market countries. This respite was reflected positively in emerging market debt performance, with the Barclays Emerging Market (USD) Index outperforming equivalent duration U.S. treasuries by 3.55% in February. In March, the results of the Fed’s stress test of the 19 largest U.S. banks’ capital adequacy were released. With 15 of the 19 banks passing the stress test, markets continued to rally. For February and March 2012, all credit sectors in the Barclays US Aggregate Bond Index outperformed their respective equivalent duration U.S. treasuries. In particular, investment grade corporate bonds (particularly the financial sub-sector), commercial mortgage-backed securities and emerging market debt lead the way. The Barclays Investment Grade Corporate Index, Barclays Commercial Mortgage Backed Securities Index and the Barclays Emerging Market (USD) Index outperformed equivalent duration U.S. treasuries by 2.00%, 2.07% and 5.13%, respectively. Non-agency mortgage performance as represented by the total return of the MarkIt ABX Home Equity AAA 06-2 Index was 4.88% and -0.27% in February and March, respectively.

However, risk aversion returned to the marketplace in April and May as negative news out of the U.S. and Europe dominated markets once again. U.S. economic data releases were lackluster as labor markets remained weak with initial jobless claims at the start of April elevated at approximately 388,000 according to the U.S. Department of Labor. The first quarter 2012 advanced U.S. Gross Domestic Product (“GDP”) release came in below expectations at a sluggish 2.2% according to the U.S. Bureau of Economic Analysis. In Europe, concerns over the solvency of Spanish banks were front and center in addition to S&P’s downgrade of Spain’s debt rating from A to BBB+ in April. In May, concerns continued to mount as Spanish yields continued to increase, reflecting growing perceived risk in the Spanish banking sector. In addition, investors had to deal with the uncertainty surrounding which party would win in the upcoming Greek elections. Greek parties had differing views on austerity and the outcome of the election was seen to influence whether or not Greece would exit the Euro. Up until this point, U.S. 10-year treasury yields had been increasing from 1.87% at the beginning of January 2012 to 2.21% at the end of March. Due to the negative developments in these two months, U.S. 10-year treasury yields decreased by 0.65% to 1.56% at the end of May, reflecting a flight-to-safety by investors. Over this period, all credit risk sectors in the Barclays U.S. Aggregate Bond Index underperformed equivalent duration U.S. treasuries. The asset-backed securities sector underperformed the least, as investors continued to see these securities as high quality and liquid. However, the Barclays US Mortgage Backed Securities Index, Barclays Investment Grade Corporate Index, Barclays Commercial Mortgage Backed Securities Index, Barclays High Yield Index and Barclays Emerging Market (USD) Index underperformed equivalent duration U.S. treasuries by 0.92%, 2.11%, 0.94%, 2.34% and 5.56%, respectively. Non-agency mortgage performance as represented by the total return of the MarkIt ABX Home Equity AAA 06-2 Index was 1.67% and (0.23)% in April and May, respectively.

After these two tumultuous months, markets rallied as a series of central bank actions stimulated investors to resume risk taking. In June, Spain accepted a bailout package of up to €100 billion that focused on stabilizing the Spanish banking sector. Afterwards, the anxiety surrounding the Greek election subsided after the pro-bailout New Democracy party won the elections and gave hope to investors that Greece would stay in the Euro. The market’s positive momentum continued in July as Mario Draghi, president of the European Central Bank, publicly announced that the European Central Bank was ready to do whatever it takes to preserve the Euro. The Fed reaffirmed its commitment to keep rates low until end of 2014, but remained elusive about the possibility of releasing a third round of quantitative easing. Meanwhile, investors continued to bolster the markets on speculation that the Fed’s stimulus would be announced in the near future. In September, the Federal Reserve announced a third round of quantitative easing, as many had speculated, but surprised investors with the open ended nature of the stimulus program. The third round of quantitative easing (“Quantitative Easing III”) would be in the form of an additional $40 billion in agency mortgage backed securities purchases per month until labor markets substantially improved. While investors had already bid up agency mortgages in expectation of a stimulus program using agency mortgage purchases, the open ended nature of the announcement caused agency mortgages to further rally immediately after the announcement. The Fed also announced the continuation of Operation Twist (a program to sell short-term U.S. treasuries and buy longer-dated bonds) and revised its expectation of a rate rise to mid-2015. The culmination of the various developments over this period was highly supportive of risk assets. From June to October, the U.S. 10-year treasury yield increased from 1.56% at the end of May to 1.69% at the end of October. The Barclays US Mortgage Backed Securities Index, Barclays Investment Grade Corporate Index, Barclays Commercial Mortgage Backed Securities Index, Barclays High Yield Index and Barclays Emerging Market (USD) Index outperformed equivalent duration U.S. treasuries by 0.90%, 5.60%, 4.89%, 7.46% and 11.00%, respectively. Non-agency mortgage performance as represented by the total return of the MarkIt ABX Home Equity AAA 06-2 Index was very strong over this period, with the most outstanding month being September where the index returned 19.47%.

 

Market Summary 9


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Russell Investment Funds

 

Markets cooled off a bit in November following the U.S. Presidential election. The Barclays Investment Grade Corporate Index underperformed equivalent duration U.S. treasuries by 0.87% and the U.S. 10-year treasury yield decreased 0.08% as markets refocused their concerns on the “fiscal cliff” negotiations. The investment grade corporate sector was notably affected, as issuers pushed through issuances planned for early 2013 in order to get ahead of any tax and market uncertainties as a result of the fiscal cliff. Markets ended the year in December on a high note with all major fixed income sectors in the Barclays US Aggregate Bond Index outperforming their respective equivalent duration U.S. treasuries. For example, the investment grade corporate bond sector, as measured by the Barclays Investment Grade Corporate Index, outperformed equivalent duration U.S. treasuries by 0.60%. Furthermore, the 10-year U.S. treasury yield increased by 0.12%. December is traditionally a quiet month as markets slow down heading in to the holiday season. However, investors were kept on their toes this year as the Fed announced another round of quantitative easing on December 12th. The Fed announced their plans to let Operation Twist expire and replaced it with $45 billion of U.S. treasury purchases per month. In addition, the Fed provided a small surprise to the market by announcing a new guidance format for providing clarity on the path of interest rates. The Fed stated that they expect the federal funds rate will need to be low as long as the jobless rate is above 6.5%, shorter-term (between one to two years ahead) inflation is no more than 2.5%, and longer-term inflation is well-anchored. December was also eventful due to the ongoing fiscal cliff negotiations that were drawn out until just before the December 31st deadline. Despite the tense drama, markets had become increasingly optimistic of a non-catastrophic outcome throughout the month and this optimism drove December’s market rally.

 

 10   Market Summary


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Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

LOGO

 

Multi-Style Equity Fund 

 

  Total
Return
 

1 Year

   15.69

5 Years

   0.71%§ 

10 Years

   6.94%§ 
Russell 1000® Index** 

 

  Total
Return
 

1 Year

   16.42

5 Years

   1.92%§ 

10 Years

   7.52%§ 
 

 

 12   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (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 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. As of December 31, 2012, the Fund had seven 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, 2012?

For the fiscal year ended December 31, 2012, the Multi-Style Equity Fund gained 15.69%. This is compared to the Fund’s benchmark, the Russell 1000® Index, which gained 16.42% 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 fiscal year ended December 31, 2012, the Lipper® Large-Cap Core Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 14.94%. 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 that 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?

Though the average market environment over the year was conducive for the Fund’s investment strategies, there were marked periods of difficulty, including during the second quarter. On the whole, the year was conducive for a portfolio set to benefit from economic growth and the Fund benefited from its pro-economic growth positioning. Generally, the Fund benefited from an overweight to stocks with moderate to high earnings variability and an overweight to stocks with strong forecast growth.

The Fund outperformed the Russell 1000® Index for the first quarter of 2012. During this time, the Fund’s overweights to stocks with low price-to-earnings and low price-to-book ratios were beneficial to excess return. An overweight to stocks with higher betas was also beneficial as market participants became less risk averse and more constructive on the economy going forward. A tilt toward stocks with high forecast growth also provided a tailwind to performance during the first quarter. Sector exposure effects were positive for the Fund, as it

overweighted the outperforming consumer discretionary sector and underweighted the underperforming utilities sector. Within the first quarter, the Fund experienced the most positive stock selection effects from the financial services and technology sectors.

The Fund underperformed the Russell 1000® Index for the second quarter of 2012. During the second quarter, market participants grew more risk averse and began to indiscriminately sell stocks with more sensitivity to economic growth, a pattern similar to the lows of 2011. Overweight positioning in stocks with above-market growth rates, below-market debt-to-capital ratios and below-market valuations (price-to-earnings, price-to-book, and price-to-cash flow) detracted from performance during the quarter. An underweight to stocks with high dividend yields was also detrimental to Fund performance. In the second quarter, stock selection effects detracted most value in the consumer discretionary and technology sectors.

The Fund outperformed the Russell 1000® Index for the third quarter of 2012, when its positioning for a continued U.S. economic recovery was rewarded. The benchmark-relative overweights to stocks with high growth rates and rising earnings estimates were beneficial. Additionally, the overweights to stocks with low price-to-book and low price-to-cash flow ratios were rewarded. The Fund’s underweight to stocks with high debt-to-capital ratios also contributed to excess returns. Sector exposure effects were positive due to underweights to the consumer staples and utilities sectors. Stock selection effects were positive for the Fund and were best within the financial services and energy sectors.

The Fund also outperformed the Russell 1000® Index for the fourth quarter of 2012. The Fund was well positioned for the factor environment during the quarter, with overweights to stocks with lower valuation ratios. The Fund’s tilt toward medium capitalization stocks was also rewarded. Sector exposure effects were positive for the Fund, due in large part to underweights to the technology and utilities sectors. Stock selection effects were positive for the Fund and were best within the technology and consumer discretionary sectors.

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

During the course of the year, the Fund was positioned for a moderate economic recovery. The Fund had benchmark relative overweights to stocks with high forecast growth, low valuations and lower dividend yield. The Fund performed well during the first, third and fourth quarters of 2012, but lagged during the second. The spring of 2012 proved to be more difficult for the Fund as it encountered a poor market environment relative to its factor positioning. The large market selloff during the month of May was particularly troublesome for Fund performance. The focus of market participants during this time was on macroeconomic uncertainty and investors favored larger more defensive securities, to which the Fund was underweight.

 

 

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Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

The Fund performed well toward the end of the year, as investors focused more on individual stock specifics. Notwithstanding the difficulty faced during the second quarter, on average the Fund was well positioned from a sector perspective with benchmark relative overweights to consumer discretionary and health care stocks.

With respect to money managers’ benchmark relative performance over the fiscal year, three of the Fund’s seven managers outperformed, one finished in line with and three finished behind their respective benchmarks.

Columbus Circle Investors (“Columbus Circle”) outperformed the Russell 1000® Growth Index for the fiscal year. Columbus Circle benefited from an overweight to stocks with low price-to-book ratios and an overweight to stocks whose earnings had been revised upward. Tilts toward stocks with higher earnings variability and forecast growth also contributed to excess return. Columbus Circle also displayed positive sector exposure effects and stock selection effects.

Sustainable Growth Advisers, LP (“Sustainable”) outperformed the Russell 1000® Growth Index for the fiscal year. Sustainable benefited from a tilt toward stocks with higher forecast growth and lower dividend yield. The majority of Sustainable’s excess return for the year was generated through positive stock selection effects.

Suffolk Capital Management, LLC (“Suffolk”) underperformed the Russell 1000® Index for the fiscal year. Suffolk’s largest period of underperformance came during the second quarter of 2012, where macroeconomic headwinds led investors to sell stocks with characteristics paramount to Suffolk’s selection model. On average over the year, Suffolk generated negative stock selection effects.

Institutional Capital LLC (“ICAP”) modestly underperformed the Russell 1000® Value Index for the fiscal year. ICAP’s tilt toward larger capitalization stocks with more stable historical earnings was a headwind to excess return. Sector exposure effects were negative for ICAP over the year, due to a technology overweight and a financial services underweight.

Jacobs Levy Equity Management, Inc. (“Jacobs Levy”) underperformed the Russell 1000® Value Index for the fiscal year. The majority of Jacobs Levy’s negative excess return during the year was generated from negative stock selection effects. Sector exposure effects were also a headwind due to an energy overweight and a financial services underweight.

DePrince, Race & Zollo, Inc. (“DePrince”) outperformed the Russell 1000® Value Index for the fiscal year. DePrince benefited from an overweight to stocks with low price-to-cash flow ratios and a tilt toward stocks with strong forecast growth. Sector exposure effects and stock selection effects were also positive for DePrince over the year.

Mar Vista Investment Partners, LLC (“Mar Vista”) was hired at the end of September 2012 and slightly underperformed the Russell 1000® Index for the portion of the fiscal year in which it was a money manager in the Fund. During this period, Mar Vista’s larger market capitalization tilt and underweight to stocks with low price-to-cash flow ratios were headwinds to performance. An overweight to the technology sector and an underweight to the financial services sector also detracted from excess return.

BlackRock Capital Management, Inc. (“BlackRock”) was terminated in August 2012 and underperformed the Russell 1000® Growth Index during the portion of the fiscal year in which it was a money manager for the Fund. BlackRock’s higher growth, earnings momentum investment strategy was largely out of favor during the period. An overweight to stocks with higher forecast growth and an underweight to stocks with higher market capitalization both detracted from benchmark relative performance.

Until February 28, 2012, RIMCo employed a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determined not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzed the holdings in the Fund segments assigned to money managers to identify particular stocks that had been selected and were held in overweight positions by multiple money managers. RIMCo used a proprietary model to rank these stocks. Based on this ranking, RIMCo purchased additional shares of certain stocks for the Fund. RIMCo performed this analysis and ranking, and purchased or sold stocks based on this analysis and ranking, on a regular, periodic basis. The strategy was designed to increase the Fund’s exposure to stocks that were viewed as attractive by multiple money managers. The select holdings strategy performed behind expectations during the period. The strategy’s overweight to stocks with lower market capitalization and to stocks with lower price-to-book ratios were both detrimental to performance. The strategy’s stock selection effects were also negative and detracted most within the energy and technology sectors.

In June 2012, RIMCo began to manage a portion of the Fund’s assets directly as a means to manage the Fund’s factor exposures by providing exposure to lower beta “defensive” stocks that tend to be underweighted by active managers. The strategy is a passive index replication strategy that consists of the stocks in the Russell Top 200® Defensive Index. RIMCo’s strategy performed in line with expectations and provided the desired performance pattern during the time it was employed by the Fund.

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

In August 2012, RIMCo terminated BlackRock Capital Management, Inc. In September 2012, RIMCo hired Mar Vista Investment Partners, LLC.

 

 

 14   Multi-Style Equity Fund


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Russell Investment Funds

Multi-Style Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

In June 2012, RIMCo began to manage a portion of the Fund’s assets directly as a means to manage the Fund’s factor exposures by providing exposure to lower beta “defensive” stocks that tend to be underweighted by active managers. The strategy is a passive index replication strategy that consists of the stocks in the Russell Top 200® Defensive Index.

On March 1, 2012, RIMCo terminated the “select holdings” strategy in the Fund.

 

Money Managers as of December 31, 2012 Styles
Columbus Circle Investors Growth
DePrince, Race & Zollo, Inc. Value
Institutional Capital LLC Value
Jacobs Levy Equity Management, Inc. Value
Mar Vista Investment Partners, LLC Market-Oriented
Suffolk Capital Management LLC Market-Oriented
Sustainable Growth Advisers, LP 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 a Russell Investment Funds (“RIF”) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.

 

 

 

 

 

 

 

* Assumes initial investment on January 1, 2002.

 

** 

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

Shareholder Expense Example — December 31, 2012 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding the Fund’s Shareholder Expense Example (“Example”).

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative 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, 2012 to December 31, 2012.

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 fees 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, 2012

  $1,000.00    $1,000.00  

Ending Account Value

December 31, 2012

  $1,074.00    $1,020.66  

Expenses Paid During Period*

  $4.64    $4.52  

 

*Expenses are equal to the Fund’s annualized expense ratio of 0.89% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). May reflect amounts waived, reimbursed and/or other credits. Without any waivers, reimbursements and/or other credits, expenses would have been higher.
 

 

 16   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 
      
Common Stocks - 94.8%  

Consumer Discretionary - 12.6%

      

Amazon.com, Inc. (Æ)

   3,810      957 

AutoZone, Inc. (Æ)

   1,450      514 

Brown Shoe Co., Inc.

   4,900      90 

Cablevision Systems Corp. Class A

   28,000      418 

CBS Corp. Class B

   10,500      400 

Coach, Inc.

   235      13 

Comcast Corp. Class A

   20,129      752 

Costco Wholesale Corp.

   1,332      132 

DIRECTV (Æ)

   1,852      93 

eBay, Inc. (Æ)

   71,170      3,631 

Estee Lauder Cos., Inc. (The) Class A

   7,986      478 

Foot Locker, Inc.

   12,200      392 

Ford Motor Co. (Ñ)

   33,000      427 

GameStop Corp. Class A (Ñ)

   14,200      356 

General Motors Co. (Æ)

   36,500      1,052 

Guess?, Inc.

   30,500      748 

Hanesbrands, Inc. (Æ)

   17,900      641 

Hertz Global Holdings, Inc. (Æ)

   83,087      1,352 

Home Depot, Inc.

   40,166      2,485 

John Wiley & Sons, Inc. Class A (Æ)

   4,500      175 

Johnson Controls, Inc.

   99,700      3,061 

KAR Auction Services, Inc.

   3,800      77 

Kohl’s Corp.

   11,100      477 

Las Vegas Sands Corp.

   11,305      522 

Limited Brands, Inc.

   9,810      462 

Lowe’s Cos., Inc.

   15,245      542 

Lululemon Athletica, Inc. (Æ)

   3,500      267 

Macy’s, Inc.

   24,100      938 

Marriott Vacations Worldwide Corp. (Æ)

   3,400      142 

McDonald’s Corp.

   17,670      1,558 

Michael Kors Holdings, Ltd. (Æ)

   18,475      943 

Nike, Inc. Class B

   38,610      1,992 

O’Reilly Automotive, Inc. (Æ)

   12,376      1,107 

PVH Corp.

   4,100      455 

Sears Holdings Corp. (Æ)

   2,700      112 

Sirius XM Radio, Inc. (Ñ)

   156,000      451 

Snap-on, Inc.

   8,000      632 

Starbucks Corp.

   62,981      3,377 

Starwood Hotels & Resorts Worldwide, Inc. (ö)

   15,860      910 

Target Corp.

   25,161      1,489 

Time Warner, Inc.

   123,250      5,895 

TJX Cos., Inc.

   2,249      95 

Toll Brothers, Inc. (Æ)

   5,100      165 

Ulta Salon Cosmetics & Fragrance, Inc.

   4,300      423 

Urban Outfitters, Inc. (Æ)

   11,100      437 

Viacom, Inc. Class B

   51,200      2,700 

Wal-Mart Stores, Inc.

   5,184      354 

Walt Disney Co. (The)

   36,403      1,812 

Whirlpool Corp.

   4,407      448 

Wolverine World Wide, Inc.

   8,900      365 

Yum! Brands, Inc.

   31,238      2,074 
      

 

 

 
       49,388 
      

 

 

 
   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 

Consumer Staples - 7.0%

      

Altria Group, Inc.

   6,224      196 

Anheuser-Busch InBev NV - ADR

   9,547      835 

Archer-Daniels-Midland Co.

   15,500      425 

Cia de Bebidas das Americas - ADR

   32,260      1,355 

Clorox Co. (The)

   5,400      395 

Coca-Cola Co. (The)

   132,313      4,795 

Coca-Cola Enterprises, Inc.

   18,300      581 

Colgate-Palmolive Co.

   32,808      3,428 

Constellation Brands, Inc. Class A (Æ)

   18,800      665 

CVS Caremark Corp.

   3,920      190 

Dean Foods Co. (Æ)

   43,500      718 

General Mills, Inc.

   1,963      79 

Kellogg Co.

   12,336      689 

Kimberly-Clark Corp.

   1,190      100 

Kraft Foods Group, Inc. (Æ)

   21,497      978 

Molson Coors Brewing Co. Class B

   14,700      629 

Mondelez International, Inc. Class A

   89,328      2,276 

PepsiCo, Inc.

   22,258      1,523 

Philip Morris International, Inc.

   12,770      1,068 

Procter & Gamble Co. (The)

   60,301      4,094 

Reynolds American, Inc.

   1,003      42 

Safeway, Inc. (Ñ)

   23,700      429 

Sysco Corp.

   1,773      56 

Tyson Foods, Inc. Class A

   17,000      330 

Walgreen Co.

   21,618      800 

Whole Foods Market, Inc.

   7,839      716 
      

 

 

 
       27,392 
      

 

 

 

Energy - 10.2%

      

Alpha Natural Resources, Inc. (Æ)

   14,000      136 

Atwood Oceanics, Inc. (Æ)

   5,300      243 

Cabot Oil & Gas Corp.

   10,040      499 

Chevron Corp.

   31,377      3,393 

Cimarex Energy Co.

   2,900      167 

ConocoPhillips

   14,270      828 

Devon Energy Corp.

   14,600      760 

Exxon Mobil Corp.

   106,933      9,257 

Halliburton Co.

   47,500      1,648 

Hubbell, Inc. Class B (Æ)

   2,710      229 

Kinder Morgan, Inc.

   13,600      480 

Laredo Petroleum Holdings, Inc. (Æ)

   4,600      84 

Marathon Oil Corp.

   124,700      3,823 

Marathon Petroleum Corp.

   9,450      595 

Murphy Oil Corp.

   33,100      1,971 

National Oilwell Varco, Inc.

   32,047      2,191 

Newfield Exploration Co. (Æ)

   18,900      506 

Noble Energy, Inc.

   10,458      1,064 

Occidental Petroleum Corp.

   46,862      3,590 

Pioneer Natural Resources Co. (Ñ)

   4,100      437 

Schlumberger, Ltd.

   49,873      3,456 

Southwestern Energy Co. (Æ)

   38,950      1,301 

Spectra Energy Corp.

   1,976      54 

Statoil ASA - ADR

   29,400      736 

Superior Energy Services, Inc. (Æ)

   25,100      520 
 

 

Multi-Style Equity Fund 17


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 
      

Tesoro Corp.

   16,900      744 

Total SA - ADR

   8,300      432 

Whiting Petroleum Corp. (Æ)

   13,400      581 
      

 

 

 
       39,725 
      

 

 

 

Financial Services - 15.7%

      

ACE, Ltd.

   21,677      1,730 

Aflac, Inc.

   1,500      80 

Alleghany Corp. (Æ)

   1,300      436 

Allied World Assurance Co. Holdings AG

   2,100      165 

Allstate Corp. (The)

   19,000      763 

American Express Co.

   23,290      1,339 

American Tower Corp. Class A (ö)

   14,648      1,131 

Aspen Insurance Holdings, Ltd.

   15,600      500 

Assurant, Inc.

   7,100      246 

Axis Capital Holdings, Ltd.

   15,500      537 

Bank of New York Mellon Corp. (The)

   61,300      1,576 

BB&T Corp.

   62,250      1,812 

Berkshire Hathaway, Inc. Class B (Æ)

   25,740      2,309 

BlackRock, Inc. Class A

   7,717      1,596 

BOK Financial Corp.

   1,000      54 

Capital One Financial Corp.

   80,394      4,658 

Chubb Corp. (The)

   818      62 

Citigroup, Inc.

   100,300      3,969 

City National Corp.

   1,800      89 

CME Group, Inc. Class A

   13,700      695 

Comerica, Inc.

   21,300      646 

Cullen/Frost Bankers, Inc.

   16,400      890 

Discover Financial Services

   53,887      2,078 

Douglas Emmett, Inc. (ö)

   25,800      601 

Endurance Specialty Holdings, Ltd.

   6,500      258 

Extra Space Storage, Inc. (ö)

   11,500      418 

First Republic Bank

   20,200      662 

FirstMerit Corp.

   6,000      85 

Franklin Resources, Inc.

   271      34 

Goldman Sachs Group, Inc. (The)

   8,830      1,126 

Hanover Insurance Group, Inc. (The)

   3,100      120 

Hartford Financial Services Group, Inc.

   30,700      689 

Hospitality Properties Trust (ö)

   7,100      166 

JPMorgan Chase & Co.

   146,950      6,461 

KeyCorp

   45,800      386 

Lincoln National Corp.

   45,633      1,182 

Loews Corp.

   347      14 

LPL Financial Holdings, Inc.

   100      3 

Markel Corp. (Æ)

   1,860      806 

Marsh & McLennan Cos., Inc.

   1,520      52 

Mastercard, Inc. Class A

   2,968      1,458 

Mercury General Corp.

   7,700      306 

MetLife, Inc.

   62,800      2,068 

Morgan Stanley

   33,000      631 

Northern Trust Corp.

   14,000      702 

PartnerRe, Ltd. - ADR

   7,260      584 

People’s United Financial, Inc.

   24,300      294 

PNC Financial Services Group, Inc.

   19,000      1,107 

ProAssurance Corp.

   8,400      354 

Prudential Financial, Inc.

   41,800      2,229 

Public Storage (ö)

   390      57 
   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 

State Street Corp.

   48,520      2,281 

SunTrust Banks, Inc.

   21,500      610 

SVB Financial Group (Æ)

   1,400      78 

Symetra Financial Corp.

   2,300      30 

Thomson Reuters Corp.

   342      10 

Travelers Cos., Inc. (The)

   1,180      85 

Unum Group

   11,800      246 

Valley National Bancorp (Ñ)

   29,136      271 

Visa, Inc. Class A

   27,698      4,198 

Wells Fargo & Co.

   98,350      3,362 
      

 

 

 
       61,385 
      

 

 

 

Health Care - 12.7%

      

Abbott Laboratories

   10,730      702 

Alere, Inc. (Æ)

   1,000      19 

Alexion Pharmaceuticals, Inc. (Æ)

   5,311      498 

Allergan, Inc.

   921      84 

Allscripts Healthcare Solutions, Inc. (Æ)

   300      3 

Amarin Corp. PLC - ADR (Æ)(Ñ)

   47,600      385 

Amgen, Inc.

   2,379      205 

Ariad Pharmaceuticals, Inc. (Æ)

   18,600      357 

Baxter International, Inc.

   57,002      3,800 

Becton Dickinson and Co.

   618      48 

Biogen Idec, Inc. (Æ)

   6,037      885 

Boston Scientific Corp. (Æ)

   126,700      726 

Bristol-Myers Squibb Co.

   23,790      775 

Cardinal Health, Inc.

   1,054      43 

Celgene Corp. (Æ)

   1,337      105 

Cerner Corp. (Æ)

   19,740      1,533 

Community Health Systems, Inc.

   20,500      630 

Covidien PLC

   48,268      2,788 

Eli Lilly & Co.

   8,749      431 

Endo Health Solutions, Inc. (Æ)

   2,600      68 

Express Scripts Holding Co. (Æ)

   11,300      610 

Forest Laboratories, Inc. (Æ)

   20,800      735 

Gilead Sciences, Inc. (Æ)(Ñ)

   14,185      1,042 

Humana, Inc.

   7,540      517 

Intuitive Surgical, Inc. (Æ)

   2,590      1,270 

Johnson & Johnson

   100,721      7,063 

Magellan Health Services, Inc. (Æ)

   3,100      152 

McKesson Corp.

   16,761      1,625 

Medtronic, Inc.

   13,305      546 

Merck & Co., Inc.

   8,815      361 

Molina Healthcare, Inc. (Æ)

   3,800      103 

Mylan, Inc. (Æ)

   47,510      1,306 

Novartis AG - ADR

   34,050      2,156 

Novo Nordisk A/S - ADR

   7,880      1,286 

Perrigo Co.

   12,980      1,350 

Pfizer, Inc.

   311,703      7,818 

Regeneron Pharmaceuticals, Inc. (Æ)

   1,210      207 

St. Jude Medical, Inc.

   17,357      627 

Stryker Corp.

   944      52 

Teva Pharmaceutical Industries, Ltd. - ADR

   11,650      435 

Thermo Fisher Scientific, Inc.

   21,173      1,350 

UnitedHealth Group, Inc.

   43,274      2,346 

Valeant Pharmaceuticals International, Inc. (Æ)

   12,544      750 
 

 

 18   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 
      

Vertex Pharmaceuticals, Inc. (Æ)

   11,800      495 

Watson Pharmaceuticals, Inc. Class B (Æ)

   5,400      464 

WellPoint, Inc.

   13,000      792 
      

 

 

 
       49,543 
      

 

 

 

Materials and Processing - 6.0%

      

Air Products & Chemicals, Inc.

   13,709      1,152 

Alcoa, Inc.

   53,900      468 

Barrick Gold Corp.

   55,600      1,947 

Bemis Co., Inc.

   13,000      435 

Commercial Metals Co.

   18,200      270 

Dow Chemical Co. (The)

   24,800      802 

Ecolab, Inc.

   24,892      1,790 

EI du Pont de Nemours & Co.

   8,900      400 

Fastenal Co.

   16,940      791 

Freeport-McMoRan Copper & Gold, Inc.

   23,700      811 

Huntsman Corp.

   50,300      800 

LyondellBasell Industries NV Class A

   10,300      588 

Masco Corp. (Ñ)

   24,500      408 

Monsanto Co.

   62,760      5,940 

Mosaic Co. (The)

   10,900      617 

Mueller Industries, Inc.

   1,300      65 

Nucor Corp.

   15,000      648 

PPG Industries, Inc.

   1,600      217 

Praxair, Inc.

   21,549      2,358 

Precision Castparts Corp.

   440      83 

Rockwood Holdings, Inc.

   4,800      237 

Schweitzer-Mauduit International, Inc.

   5,700      222 

Sealed Air Corp.

   42,700      748 

Sherwin-Williams Co. (The)

   3,000      461 

Sonoco Products Co.

   12,400      369 

Steel Dynamics, Inc.

   43,459      597 
      

 

 

 
       23,224 
      

 

 

 

Producer Durables - 11.9%

      

3M Co.

   2,122      197 

Accenture PLC Class A

   15,070      1,002 

ADT Corp. (The)

   53      2 

AGCO Corp. (Æ)

   13,100      643 

Air Lease Corp. Class A (Æ)

   15,600      335 

Alliant Techsystems, Inc.

   6,000      372 

Automatic Data Processing, Inc.

   32,484      1,852 

Avery Dennison Corp.

   4,300      150 

Boeing Co. (The)

   10,200      769 

Canadian Pacific Railway, Ltd. (Ñ)

   18,470      1,877 

Caterpillar, Inc.

   13,944      1,249 

Con-way, Inc.

   21,000      584 

CSX Corp.

   128      3 

Cummins, Inc.

   18,641      2,020 

Danaher Corp.

   1,762      98 

Danone - ADR (Æ)

   67,260      901 

Deere & Co.

   17,693      1,529 

Delta Air Lines, Inc. (Æ)

   73,300      870 

Dover Corp.

   13,600      894 

Eaton Corp. PLC

   13,100      710 

Electronics for Imaging, Inc. (Æ)

   7,600      144 

EMCOR Group, Inc.

   11,500      398 
   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 

Emerson Electric Co.

   16,815      891 

FedEx Corp.

   14,425      1,322 

General Dynamics Corp.

   7,262      503 

General Electric Co.

   254,600      5,345 

GrafTech International, Ltd. (Æ)

   12,500      117 

Granite Construction, Inc.

   8,300      279 

Harsco Corp.

   49,700      1,168 

Honeywell International, Inc.

   74,621      4,737 

Huntington Ingalls Industries, Inc.

   10,200      442 

Illinois Tool Works, Inc.

   1,191      72 

Itron, Inc. (Æ)

   8,800      392 

Joy Global, Inc.

   7,700      491 

Lexmark International, Inc. Class A

   2,210      51 

Lockheed Martin Corp.

   790      73 

Norfolk Southern Corp.

   7,443      460 

Northrop Grumman Corp.

   12,979      877 

Parker Hannifin Corp. (Ñ)

   8,400      715 

Pentair, Ltd. (Æ)

   14,239      700 

Pitney Bowes, Inc. (Ñ)

   25,600      272 

Quanta Services, Inc. (Æ)

   13,000      355 

Raytheon Co.

   1,009      58 

Republic Services, Inc. Class A

   21,900      642 

Rockwell Automation, Inc.

   5,100      428 

RR Donnelley & Sons Co. (Ñ)

   44,000      396 

Ryder System, Inc.

   10,900      544 

Stanley Black & Decker, Inc.

   1,800      133 

Textron, Inc.

   27,800      689 

Tidewater, Inc.

   24,700      1,103 

Tyco International, Ltd.

   145      4 

Union Pacific Corp.

   13,849      1,741 

United Parcel Service, Inc. Class B

   11,826      872 

United Technologies Corp.

   24,194      1,985 

URS Corp.

   28,900      1,135 

Waste Management, Inc.

   1,410      48 

Xerox Corp.

   47,300      323 

Xylem, Inc.

   23,600      640 
      

 

 

 
       46,602 
      

 

 

 

Technology - 15.0%

      

Adobe Systems, Inc. (Æ)

   36,277      1,367 

Altera Corp.

   19,900      685 

Analog Devices, Inc.

   26,230      1,103 

Apple, Inc.

   16,291      8,684 

Applied Materials, Inc.

   59,600      682 

Arris Group, Inc. (Æ)

   21,900      327 

Avago Technologies, Ltd. Class A

   36,800      1,165 

Benchmark Electronics, Inc. (Æ)

   11,200      186 

Broadcom Corp. Class A (Æ)

   18,700      621 

Brocade Communications Systems, Inc. (Æ)

   96,600      515 

Ciena Corp. (Æ)

   2,600      41 

Cisco Systems, Inc.

   191,380      3,761 

Citrix Systems, Inc. (Æ)

   10,500      690 

Cognizant Technology Solutions Corp. Class A (Æ)

   612      45 

Computer Sciences Corp.

   4,800      192 

Electronic Arts, Inc. (Æ)

   8,500      124 

EMC Corp. (Æ)

   46,061      1,165 
 

 

Multi-Style Equity Fund 19


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 
      

Facebook, Inc. Class A (Æ)

   41,900      1,116 

Google, Inc. Class A (Æ)

   7,372      5,229 

Intel Corp.

   56,943      1,175 

International Business Machines Corp.

   3,341      640 

Jabil Circuit, Inc.

   8,900      172 

Koninklijke Philips Electronics NV

   27,600      733 

Linear Technology Corp.

   17,700      607 

LinkedIn Corp. Class A (Æ)

   4,000      459 

Mentor Graphics Corp. (Æ)

   14,000      238 

Microsoft Corp.

   145,527       3,889 

Molex, Inc.

   22,200       607 

NVIDIA Corp.

   52,600       646 

Oracle Corp.

   78,013       2,600 

QUALCOMM, Inc.

   77,352       4,798 

Red Hat, Inc. (Æ)

   32,650       1,729 

RF Micro Devices, Inc. (Æ)

   36,500       164 

Salesforce.com, Inc. (Æ)

   4,570       768 

SAP AG - ADR

   19,000       1,527 

Synopsys, Inc. (Æ)

   18,400       586 

Tellabs, Inc.

   169,900       387 

Teradata Corp. (Æ)

   7,600       470 

Texas Instruments, Inc.

   136,114       4,212 

TIBCO Software, Inc. (Æ)

   33,000       726 

Vodafone Group PLC - ADR

   114,800       2,892 

Xilinx, Inc.

   19,300       693 
      

 

 

 
       58,416 
      

 

 

 

Utilities—3.7%

      

AES Corp.

   54,700       585 

Alliant Energy Corp.

   6,000       263 

Ameren Corp.

   20,900       642 

American Electric Power Co., Inc.

   1,209       52 

AT&T, Inc.

   115,558       3,897 

Black Hills Corp.

   3,500       127 

CenterPoint Energy, Inc.

   14,900       287 

CenturyLink, Inc.

   1,883       74 

Consolidated Edison, Inc.

   11,115       617 

Dominion Resources, Inc.

   620       32 

Duke Energy Corp.

   1,667       106 

Edison International

   10,600       479 

Encana Corp.

   81,600       1,613 

Energen Corp.

   5,200       234 

Entergy Corp.

   7,700       491 

Exelon Corp.

   26,887       800 

FirstEnergy Corp.

   14,743       615 

Integrys Energy Group, Inc.

   2,000       104 

National Fuel Gas Co.

   8,800       446 

NextEra Energy, Inc.

   6,233       431 

NV Energy, Inc.

   37,500       680 

Penn West Petroleum, Ltd. - ADR (Ñ)

   30,200       328 

PG&E Corp.

   18,787       755 

Public Service Enterprise Group, Inc.

   1,541       47 

Southern Co.

   2,228       95 
   

Principal

Amount ($)

or Shares

     

Fair
Value

$

 

Telephone & Data Systems, Inc.

   21,800       483 

US Cellular Corp. (Æ)

   3,400       120 

Verizon Communications, Inc.

   5,191       225 
      

 

 

 
       14,628 
      

 

 

 
Total Common Stocks
(cost $323,156)
       370,303 
      

 

 

 
Short-Term Investments - 4.4%      

Russell U.S. Cash Management Fund

   17,043,809 (¥     17,044 
      

 

 

 
Total Short-Term Investments
(cost $17,044)
       17,044 
      

 

 

 
Other Securities - 1.0%      

Russell U.S. Cash Collateral Fund (×)

   3,966,484 (¥     3,966 
      

 

 

 
Total Other Securities
(cost $3,966)
       3,966 
      

 

 

 
Total Investments - 100.2%
(identified cost $344,166)
       391,313 
Other Assets and Liabilities,
Net - (0.2%)
       (764
      

 

 

 
Net Assets - 100.0%       390,549 
      

 

 

 
 

 

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

 

 20   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except contract amounts)

 

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

Long Positions

               

S&P 500 E-Mini Index Futures (CME)

   225      USD   15,976      03/13       38 

S&P E-Mini Consumer Staples Select Sector Index Futures (CME)

   54      USD   1,881      03/13       (43)  

S&P E-Mini Technology Select Sector Index Futures (CME)

   66      USD   1,907      03/13       16 
               

 

 

 

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å)

  

     11 
               

 

 

 

 

 

Presentation of Portfolio Holdings — December 31, 2012

Amounts in thousands

 

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

Common Stocks

                  

Consumer Discretionary

  $49,388     $ —     $ —      $49,388      12.6  

Consumer Staples

   27,392                  27,392      7.0  

Energy

   39,725                  39,725      10.2  

Financial Services

   61,385                  61,385      15.7  

Health Care

   49,543                  49,543      12.7  

Materials and Processing

   23,224                  23,224      6.0  

Producer Durables

   46,602                  46,602      11.9  

Technology

   58,416                  58,416      15.0  

Utilities

   14,628                  14,628      3.7  

Short-Term Investments

         17,044            17,044      4.4  

Other Securities

         3,966            3,966      1.0  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Investments

   370,303      21,010            391,313      100.2  
  

 

 

     

 

 

     

 

 

     

 

 

     

Other Assets and Liabilities, Net

                   (0.2
                  

 

 

 
                   100.0  
                  

 

 

 

Other Financial Instruments

                  

Futures Contracts

   11                  11      
  

 

 

     

 

 

     

 

 

     

 

 

     

Total Other Financial Instruments**

  $11     $ —     $ —     $11     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

* Less than .05% of net assets.
** Other financial instruments reflected in the Schedule of Investments, such as futures, forwards, interest rate swaps, and credit default swaps 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.

For disclosure on transfers between Levels 1, 2, and 3 during the period ended December 31, 2012, see note 2 in the Notes to the Financial Statements.

 

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

 

Multi-Style Equity Fund 21


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Fair Value of Derivative Instruments — December 31, 2012

Amounts in thousands

 

Derivatives not accounted for as hedging instruments  Equity
Contracts
 
  

Location: Statement of Assets and Liabilities - Assets

  

Daily variation margin on futures contracts*

  $54 
  

 

 

 

Location: Statement of Assets and Liabilities - Liabilities

  

Daily variation margin on futures contracts*

  $43 
  

 

 

 
Derivatives not accounted for as hedging instruments  Equity
Contracts
 

Location: Statement of Operations - Net realized gain (loss)

  

Futures contracts

  $2,517 
  

 

 

 

Location: Statement of Operations - Net change in unrealized appreciation (depreciation)

  

Futures contracts

  $(12
  

 

 

 

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

For further disclosure on derivatives see note 2 in Notes to Financial Statements.

 

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

 

 22   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Statement of Assets and Liabilities — December 31, 2012

 

Amounts in thousands    

Assets

 

Investments, at identified cost

 $344,166 

Investments, at fair value*,**

  391,313 

Cash (restricted)(a)

  1,220 

Receivables:

 

Dividends and interest

  397 

Dividends from affiliated Russell funds

  2 

Investments sold

  4,187 

Fund shares sold

  19 

Daily variation margin on futures contracts

  417 
 

 

 

 

Total assets

  397,555 
 

 

 

 

Liabilities

 

Payables:

 

Investments purchased

  2,555 

Fund shares redeemed

  148 

Accrued fees to affiliates

  262 

Other accrued expenses

  75 

Payable upon return of securities loaned

  3,966 
 

 

 

 

Total liabilities

  7,006 
 

 

 

 
 

Net Assets

 $    390,549 
 

 

 

 

Net Assets Consist of:

 

Undistributed (overdistributed) net investment income

 $1,709 

Accumulated net realized gain (loss)

  (26,204

Unrealized appreciation (depreciation) on:

 

Investments

  47,147 

Futures contracts

  11 

Shares of beneficial interest

  258 

Additional paid-in capital

  367,628 
 

 

 

 

Net Assets

 $390,549 
 

 

 

 

Net Asset Value, offering and redemption price per share:

 

Net asset value per share: (#)

 $15.15  

Net assets

 $    390,548,620 

Shares outstanding ($.01 par value)

  25,782,609 

Amounts in thousands

 
 

*           Securities on loan included in investments

 $6,668 

**         Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund

 $21,010 

(a) Cash Collateral for Futures

 $1,220 

 

(#)Net asset value per share equals net assets divided by shares of beneficial interest outstanding.

 

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

 

Multi-Style Equity Fund 23


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Statement of Operations — For the Period Ended December 31, 2012

 

Amounts in thousands    

Investment Income

 

Dividends

 $8,253 

Dividends from affiliated Russell funds

  25 

Securities lending income

  137 
 

 

 

 

Total investment income

  8,415 
 

 

 

 

Expenses

 

Advisory fees

  2,858 

Administrative fees

  196 

Custodian fees

  145 

Transfer agent fees

  17 

Professional fees

  80 

Trustees’ fees

  11 

Printing fees

  83 

Miscellaneous

  19 
 

 

 

 

Expenses before reductions

  3,409 

Expense reductions

  *
 

 

 

 

Net expenses

  3,409 
 

 

 

 

Net investment income (loss)

  5,006 
 

 

 

 

Net Realized and Unrealized Gain (Loss)

 

Net realized gain (loss) on:

 

Investments

  29,558 

Futures contracts

  2,517 
 

 

 

 

Net realized gain (loss)

  32,075 
 

 

 

 

Net change in unrealized appreciation (depreciation) on:

 

Investments

  19,589 

Futures contracts

  (12
 

 

 

 

Net change in unrealized appreciation (depreciation)

  19,577 
 

 

 

 

Net realized and unrealized gain (loss)

  51,652 
 

 

 

 

Net Increase (Decrease) in Net Assets from Operations

 $    56,658 
 

 

 

 

 

*Less than $500.

 

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

 

 24   Multi-Style Equity Fund


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Statements of Changes in Net Assets

 

  For the Periods Ended December 31, 
Amounts in thousands 2012   2011 

Increase (Decrease) in Net Assets

   

Operations

   

Net investment income (loss)

 $5,006   $4,071 

Net realized gain (loss)

  32,075    35,308 

Net change in unrealized appreciation (depreciation)

  19,577    (45,310
 

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

  56,658    (5,931
 

 

 

   

 

 

 

Distributions

   

From net investment income

  (4,388   (3,847
 

 

 

   

 

 

 

Net decrease in net assets from distributions

  (4,388   (3,847
 

 

 

   

 

 

 

Share Transactions*

   

Net increase (decrease) in net assets from share transactions

  (35,113   (17,504

Fund Reimbursements

      203 
 

 

 

   

 

 

 

Total Net Increase (Decrease) in Net Assets

  17,157    (27,079

Net Assets

   

Beginning of period

  373,392    400,471 
 

 

 

   

 

 

 

End of period

 $    390,549   $    373,392 
 

 

 

   

 

 

 

Undistributed (overdistributed) net investment income included in net assets

 $1,709   $1,098 

 

*Share transaction amounts (in thousands) for the periods ended December 31, 2012 and December 31, 2011 were as follows:

 

   2012  2011 
   Shares  Dollars  Shares  Dollars 
     

Proceeds from shares sold

   1,765  $25,748   2,272  $31,347 

Proceeds from reinvestment of distributions

   298   4,388   284   3,847 

Payments for shares redeemed

   (4,472  (65,249  (3,854  (52,698
  

 

 

  

 

 

  

 

 

  

 

 

 

Total increase (decrease)

   (2,409 $(35,113  (1,298 $(17,504
  

 

 

  

 

 

  

 

 

  

 

 

 

 

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

 

Multi-Style Equity Fund 25


Table of Contents

Russell Investment Funds

Multi-Style Equity Fund

Financial Highlights — For the Periods Ended

For a Share Outstanding Throughout Each Period.

 

        
$
Net Asset Value,
Beginning of
Period
   $
Net
Investment
Income  (Loss)
(a)(b)
   $
Net Realized
and Unrealized
Gain (Loss)
   $
Total from
Investment
Operations
   $
Distributions
from Net
Investment Income
   $
Distributions
from Net
Realized Gain
   $
Total
Distributions
 

December 31, 2012

   13.24     .19     1.88     2.07     (.16       (.16

December 31, 2011

   13.58     .14     (.35   (.21   (.13       (.13

December 31, 2010

   11.77     .11     1.81     1.92     (.11       (.11

December 31, 2009

   9.00     .10     2.80     2.90     (.13       (.13

December 31, 2008

   15.65     .19     (6.52   (6.33   (.19   (.13   (.32

 

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

 

 26   Multi-Style Equity Fund


Table of Contents
$
Net Asset
Value, End
of Period
  %
Total
Return
(d)
  $
Net Assets,
End of Period
(000)
  %
Ratio of
Expenses to
Average Net
Assets, Gross
  %
Ratio of Expenses
to Average Net
Assets, Net
(b)
  %
Ratio of Net
Investment Income
to Average
Net Assets
(b)
  %
Portfolio
Turnover Rate
 
 15.15    15.69    390,549   .87    .87    1.28    109 
 13.24    (1.55  373,392   .85    .85    1.03    133 
 13.58    16.46    400,471   .89    .89    .93    105 
 11.77    32.72    376,751   .86    .85    1.06    136 
 9.00    (41.15  298,211   .89    .87    1.50    135 

 

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

 

Multi-Style Equity Fund 27


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

LOGO

 

Aggressive Equity Fund 

 

  Total
Return
 

1 Year

   15.84

5 Years

   0.78%§ 

10 Years

   8.17%§ 

 

Russell 2000® Index** 

 

  Total
Return
 

1 Year

   16.35

5 Years

   3.56%§ 

10 Years

   9.72%§ 
Russell 2500 Index*** 

 

  Total
Return
 

1 Year

   17.88

5 Years

   4.34%§ 

10 Years

   10.49%§ 
 

 

 28   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (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 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. As of December 31, 2012, the Fund had 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, 2012?

For the fiscal year ended December 31, 2012, the Aggressive Equity Fund gained 15.84%. This is compared to the Fund’s benchmark, the Russell 2000® Index, which gained 16.35% during the same period and the Russell 2500™ Index, which gained 17.88% during the same period. From January 1, 2012 to April 30, 2012, the Fund’s benchmark was the Russell 2500™ Index. Effective May 1, 2012, the Fund’s benchmark changed to the Russell 2000® Index. The Fund’s performance includes operating expenses, whereas index returns are unmanaged and do not include expenses of any kind.

For the fiscal year ended December 31, 2012, the Lipper® Mid-Cap Core Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 15.67%, while the Lipper® Small-Cap Core Funds Average, another group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 14.69%. These results serve as peer comparisons and are 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 fiscal year ended December 31, 2012 proved to be a challenging environment for fundamental active investors. The dominance of exogenous macroeconomic events such as the ongoing European sovereign debt crisis and central bank monetary stimulus diminished the relevance of company fundamentals. This resulted in a year that, while favoring companies with economic exposure and higher debt burdens, saw significant volatility in factor payoffs, with risk on and risk off periods permeating the year.

This resulted in a difficult environment for the average U.S. small capitalization active manager.

The Fund was not immune to these difficulties, with the majority of managers in the Fund underperforming during the period. These challenges impaired the Fund’s stock selection, which was negative and detracted from performance. The Fund was also penalized for being positioned for a slow U.S. economic recovery. For much of the year, investors oscillated between an aversion to risk, driven by economic fears, and a risk attraction, driven by monetary stimulus. The Fund’s positioning between these two risk tails was not rewarded.

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

The Fund employs six money managers: two growth-oriented, one market-oriented and three value-oriented. Two of the four managers employed for the entire fiscal year outperformed their respective benchmarks. Both of the managers hired during the fiscal year outperformed their respective benchmarks during the period. In a difficult environment for U.S. small cap active management, managers across the style and strategy spectrum struggled. Value managers were challenged by the outperformance of areas deemed expensive, primarily higher yielding areas such as real estate investment trusts (“REITs”), while areas that were attractive on a valuation basis, such as energy, underperformed. In contrast, growth managers struggled with a diminishing opportunity set, which resulted in a collective overweight exposure to technology, primarily within the secular growth companies, which significantly underperformed.

DePrince, Race & Zollo, Inc. outperformed the Russell 2000® Value Index for the fiscal year. Performance was driven by a combination of positive stock selection and sector exposures. Stock selection was positive across all but two sectors with selection in the materials & processing sector the largest positive contributor. Sector exposures accounted for the majority of the manager’s outperformance, with a bias to pro-cyclical sectors, driven by an underweight exposure to utilities, beneficial to performance.

Jacobs Levy Equity Management, Inc. performed in line with a linked Russell 2500™ Value Index / Russell 2000® Value Index benchmark for the fiscal year. While the manager benefited from positive stock selection, with selection in energy the largest positive contributor, this positive performance was negated by negative sector exposures. The manager was penalized for an overweight exposure to technology and energy, which both underperformed significantly during the fiscal year. The linked benchmark represents the returns of the Russell 2500™ Value Index from January 1, 2012 through April 30, 2012 and the returns of the Russell 2000® Value Index thereafter.

Ranger Investment Management, L.P. underperformed a linked Russell 2500™ Growth Index / Russell 2000® Growth Index benchmark for the fiscal year. Underperformance was attributable entirely to stock selection, with stock selection in

 

 

Aggressive Equity Fund 29


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

technology being the largest detractor, primarily in software. The linked benchmark represents the returns of the Russell 2500™ Growth Index from January 1, 2012 through April 30, 2012 and the returns of the Russell 2000® Growth Index thereafter.

Signia Capital Management, LLC underperformed the Russell 2500™ Value Index for the fiscal year. Performance was driven primarily by stock selection, although sector exposures also detracted. Selection in the energy and financial services sectors were the largest detractors, while an overweight to energy was penalized.

Tygh Capital Management, Inc was terminated in March 2012 and outperformed the Russell 2500™ Growth Index for the portion of the fiscal year in which it was a money manager in the Fund. Performance was driven by a combination of positive stock selection and beneficial sector exposures, particularly within the technology sector.

Clarivest Asset Management LLC was terminated in September 2012 and underperformed a linked Russell 2500™ Index / Russell 2000® Index benchmark for the portion of the fiscal year in which it was a money manager in the Fund. The manager was penalized by negative stock selection, primarily in the in health care sector, and this accounted for all of the manager’s underperformance. The linked benchmark represents the returns of the Russell 2500™ Index from January 1, 2012 through April 30, 2012 and the returns of the Russell 2000® Index thereafter.

RBC Global Asset Management (U.S.) Inc. was hired in September 2012 and outperformed a blended 40% Russell 2000® Index / 60% Russell Microcap Index benchmark for the portion of the fiscal year in which it was a money manager in the Fund. Stock selection was positive, driven by selection within energy, and this accounted for the majority of the manager’s outperformance. Sector exposures were also beneficial to performance. The manager was rewarded for an underweight exposure to health care.

Conestoga Capital Advisors (“Conestoga”) was hired in March 2012 and outperformed a linked Russell 2500™ Growth Index / Russell 2000® Growth Index benchmark for the portion of the fiscal year in which it was a money manager in the Fund. The manager was penalized for negative stock selection, particularly within producer durables. This negative performance was outweighed by positive sector exposures, with an overweight exposure to producer durables the largest positive contributor. The linked benchmark represents the returns of the Russell 2500™ Growth Index from March 13, 2012 through April 30, 2012 and the returns of the Russell 2000® Growth Index thereafter.

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

Effective May 1, 2012, RIMCo changed the Fund’s investment strategy from investing principally in small and medium capitalization securities to investing principally in small capitalization securities. As a result, the Fund’s primary benchmark changed from the Russell 2500™ Index to the Russell 2000® Index.

In March 2012, RIMCo terminated Tygh Capital Management Inc and hired Conestoga Capital Advisors LLC.

In September 2012, RIMCo terminated ClariVest Asset Management LLC and hired RBC Global Asset Management (U.S.) Inc.

 

Money Managers as of December 31, 2012 Styles
Conestoga Capital Advisors, LLC Small Cap Growth
DePrince, Race & Zollo, Inc. Small Cap Value
Jacobs Levy Equity Management, Inc. Small Cap Value
Ranger Investment Management, L.P. Small Cap Growth
RBC Global Asset Management (U.S.) Inc. Microcap/Small Cap
Signia Capital Management, LLC Small Cap Value
 

 

 30   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

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 a Russell Investment Funds (“RIF”) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.

 

 

 

 

* Assumes initial investment on January 1, 2002.

 

** 

Effective May 1, 2012, RIMCo changed the Fund’s investment strategy from investing principally in small and medium capitalization securities to investing principally in small capitalization securities. As a result, the Fund’s primary benchmark changed from the Russell 2500™ Index to the Russell 2000® Index. The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set.

 

*** 

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.

 

Aggressive Equity Fund 31


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Russell Investment Funds

Aggressive Equity Fund

Shareholder Expense Example — December 31, 2012 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding the Fund’s Shareholder Expense Example (“Example”).

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative 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, 2012 to December 31, 2012.

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 fees 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, 2012

  $1,000.00    $1,000.00  

Ending Account Value

    

December 31, 2012

  $1,062.90    $1,019.76  

Expenses Paid During Period*

  $5.55    $5.43  

 

*Expenses are equal to the Fund’s annualized expense ratio of 1.07% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). May reflect amounts waived, reimbursed and/or other credits. Without any waivers, reimbursements and/or other credits, expenses would have been higher.
 

 

 32   Aggressive Equity Fund


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Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      
Common Stocks - 97.8%  

Consumer Discretionary - 13.3%

      

1-800-Flowers.com, Inc. Class A (Æ)

   11,600      43 

American Woodmark Corp. (Æ)

   2,700      75 

ARC Document Solutions, Inc. (Æ)

   3,700      9 

Asbury Automotive Group, Inc. (Æ)

   14,850      476 

Ascena Retail Group, Inc. (Æ)

   6,002      111 

bebe stores inc

   21,900      87 

Big 5 Sporting Goods Corp.

   11,600      152 

Bridgepoint Education, Inc. (Æ)

   5,510      57 

Brown Shoe Co., Inc.

   15,000      276 

Buffalo Wild Wings, Inc. (Æ)

   6,080      443 

Callaway Golf Co.

   83,991      546 

Capella Education Co. (Æ)

   7,400      209 

Casual Male Retail Group, Inc. (Æ)

   126,775      533 

Central Garden and Pet Co. Class A (Æ)

   8,400      88 

Cherokee, Inc.

   400      5 

Citi Trends, Inc. (Æ)

   5,400      74 

Coinstar, Inc. (Æ)(Ñ)

   10,660      554 

Columbia Sportswear Co. (Ñ)

   7,060      377 

Conn’s, Inc. (Æ)(Ñ)

   1,300      40 

Courier Corp.

   1,900      21 

CSS Industries, Inc.

   1,900      42 

Dana Holding Corp.

   31,760      496 

Deckers Outdoor Corp. (Æ)(Ñ)

   4,846      195 

Delta Apparel, Inc. (Æ)

   9,600      134 

Destination Maternity Corp.

   1,900      41 

Dolan Co. (The) (Æ)

   13,700      53 

Drew Industries, Inc.

   3,676      119 

Ethan Allen Interiors, Inc.

   3,980      102 

EW Scripps Co. Class A (Æ)

   15,700      170 

Federal-Mogul Corp. (Æ)

   2,200      18 

Finish Line, Inc. (The) Class A

   28,720      544 

Fisher Communications, Inc.

   3,300      89 

Francesca’s Holdings Corp. (Æ)(Ñ)

   14,336      372 

Fred’s, Inc. Class A

   21,175      282 

Fuel Systems Solutions, Inc. (Æ)

   32,387      476 

Gordmans Stores, Inc. (Æ)

   3,017      45 

Grand Canyon Education, Inc. (Æ)

   30,104      706 

Gray Television, Inc. (Æ)(Ñ)

   6,800      15 

Group 1 Automotive, Inc.

   8,230      510 

Guess?, Inc.

   23,680      581 

Harte-Hanks, Inc.

   22,903      135 

HealthStream, Inc. (Æ)

   26,450      643 

Helen of Troy, Ltd. (Æ)

   2,100      70 

hhgregg, Inc. (Æ)

   3,500      25 

Hibbett Sports, Inc. (Æ)

   14,675      774 

Hillenbrand, Inc.

   18,290      414 

Inter Parfums, Inc.

   12,910      251 

Isle of Capri Casinos, Inc. (Æ)

   6,400      36 

Jack in the Box, Inc. (Æ)

   8,100      232 

Johnson Outdoors, Inc. Class A (Æ)

   1,314      26 

Jones Group, Inc. (The)

   26,560      294 

Journal Communications, Inc. Class A (Æ)

   6,500      35 

Kirkland’s, Inc. (Æ)

   3,900      41 

K-Swiss, Inc. Class A (Æ)

   7,800      26 

Libbey, Inc. (Æ)

   7,436      144 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

LIN TV Corp. Class A (Æ)

   7,600      57 

Maidenform Brands, Inc. (Æ)

   2,636      51 

Marchex, Inc. Class A

   2,000      8 

Marriott Vacations Worldwide Corp. (Æ)

   5,200      217 

Martha Stewart Living Omnimedia Class A (Æ)

   5,500      13 

Men’s Wearhouse, Inc. (The)

   34,790      1,084 

Meritage Homes Corp. (Æ)

   6,750      252 

New York & Co., Inc. (Æ)

   13,100      50 

Nexstar Broadcasting Group, Inc. Class A (Æ)

   3,500      37 

Perry Ellis International, Inc.

   5,200      103 

Pier 1 Imports, Inc.

   51,410      1,029 

Proto Labs, Inc. (Æ)

   22,650      894 

Red Robin Gourmet Burgers, Inc. (Æ)

   10,432      368 

Regis Corp.

   18,510      313 

Revlon, Inc. Class A (Æ)

   2,900      42 

RG Barry Corp.

   31,711      449 

Ritchie Bros Auctioneers, Inc. (Ñ)

   47,700      996 

Rosetta Stone, Inc. (Æ)

   2,600      32 

Ruby Tuesday, Inc. (Æ)

   67,539      531 

Sally Beauty Holdings, Inc. (Æ)

   4,585      108 

Shoe Carnival, Inc.

   9,105      187 

Skechers U.S.A., Inc. Class A (Æ)

   23,757      439 

Smith & Wesson Holding Corp. (Æ)(Ñ)

   19,349      163 

Sonic Corp. (Æ)

   38,260      398 

Sotheby’s Class A

   25,150      846 

Stage Stores, Inc.

   15,200      377 

Stamps.com, Inc. (Æ)

   24,675      622 

Standard Motor Products, Inc.

   6,500      144 

Stein Mart, Inc.

   6,100      46 

Steinway Musical Instruments, Inc. (Æ)

   20,103      425 

Steven Madden, Ltd. (Æ)

   17,604      744 

Stoneridge, Inc. (Æ)

   6,700      34 

Summer Infant, Inc. (Æ)

   1,000      2 

True Religion Apparel, Inc.

   8,975      228 

Universal Electronics, Inc. (Æ)

   28,790      557 

Washington Post Co. (The) Class B

   180      66 

West Marine, Inc. (Æ)

   1,500      16 

Wet Seal, Inc. (The) Class A (Æ)

   65,300      180 

World Wrestling Entertainment, Inc. Class A (Ñ)

   2,900      23 

Zagg, Inc. (Æ)(Ñ)

   31,021      228 
      

 

 

 
       24,671 
      

 

 

 

Consumer Staples - 2.7%

      

Andersons, Inc. (The)

   30,240      1,296 

Annie’s, Inc. (Æ)

   7,200      241 

Central European Distribution Corp. (Æ)(Ñ)

   47,700      104 

Core-Mark Holding Co., Inc.

   4,800      227 

Diamond Foods, Inc.

   12,400      170 

Farmer Bros Co. (Æ)

   3,500      51 

Fresh Del Monte Produce, Inc.

   28,995      764 

Ingles Markets, Inc. Class A

   1,600      28 

Medifast, Inc. (Æ)

   9,825      259 

Nash Finch Co.

   10,271      218 

Nature’s Sunshine Products, Inc.

   2,200      32 
 

 

Aggressive Equity Fund 33


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      

Omega Protein Corp. (Æ)

   7,000      43 

Pantry, Inc. (The) (Æ)

   12,300      149 

Rite Aid Corp. (Æ)

   150,900      205 

SodaStream International, Ltd. (Æ)(Ñ)

   7,212      324 

Spartan Stores, Inc.

   3,500      54 

TreeHouse Foods, Inc. (Æ)

   4,850      253 

Universal Corp.

   11,242      561 
      

 

 

 
       4,979 
      

 

 

 

Energy - 6.9%

      

Alon USA Energy, Inc.

   17,000      308 

Approach Resources, Inc. (Æ)

   21,090      527 

C&J Energy Services, Inc. (Æ)

   792      17 

Cal Dive International, Inc. (Æ)(Ñ)

   229,063      396 

Callon Petroleum Co. (Æ)

   56,520      266 

CARBO Ceramics, Inc.

   16,562      1,297 

Clayton Williams Energy, Inc. (Æ)

   3,500      140 

Contango Oil & Gas Co.

   11,000      466 

Core Laboratories NV

   2,750      301 

Crimson Exploration, Inc. (Æ)

   2,100      6 

Dawson Geophysical Co. (Æ)

   3,400      90 

Delek US Holdings, Inc.

   16,100      408 

EPL Oil & Gas, Inc. (Æ)

   4,100      92 

EXCO Resources, Inc. (Ñ)

   103,530      701 

Geospace Technologies Corp. (Æ)

   10,211      907 

Gulfport Energy Corp. (Æ)

   24,474      935 

Helix Energy Solutions Group, Inc. (Æ)

   17,600      363 

Hornbeck Offshore Services, Inc. (Æ)

   6,100      209 

Nabors Industries, Ltd. (Æ)

   29,061      420 

Natural Gas Services Group, Inc. (Æ)

   7,100      117 

Pacific Drilling SA (Æ)

   47,620      450 

Patterson-UTI Energy, Inc. (Ñ)

   23,210      432 

Penn Virginia Corp.

   31,900      141 

REX American Resources Corp. (Æ)

   4,400      85 

Rowan Companies PLC (Æ)

   14,650      458 

SM Energy Co.

   1,600      84 

SunPower Corp. Class A (Æ)

   44,900      252 

Superior Energy Services, Inc. (Æ)

   17,148      355 

Tesoro Corp.

   4,500      198 

TETRA Technologies, Inc. (Æ)

   81,738      621 

Unit Corp. (Æ)

   10,680      481 

USEC, Inc. (Æ)

   13,800      7 

Vantage Drilling Co. (Æ)(Ñ)

   99,300      182 

W&T Offshore, Inc.

   50,070      803 

Western Refining, Inc. (Ñ)

   6,900      195 

Westmoreland Coal Co. (Æ)

   1,200      11 

World Fuel Services Corp.

   2,410      99 
      

 

 

 
       12,820 
      

 

 

 

Financial Services - 19.1%

      

1st United Bancorp, Inc.

   2,100      13 

Advent Software, Inc. (Æ)

   24,900      532 

AG Mortgage Investment Trust, Inc. (ö)

   15,000      352 

Agree Realty Corp. (ö)

   5,100      137 

Alexander & Baldwin, Inc. (Æ)

   12,215      359 

Alexandria Real Estate Equities, Inc. (ö)

   1,700      118 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

American Capital Mortgage Investment Corp. (ö)

   12,920      305 

American Safety Insurance Holdings, Ltd. (Æ)

   3,200      61 

Ameriprise Financial, Inc.

   5,705      357 

Amerisafe, Inc. (Æ)

   12,449      340 

Anworth Mortgage Asset Corp. (ö)

   58,790      340 

Apollo Residential Mortgage, Inc. (ö)

   13,200      267 

Argo Group International Holdings, Ltd.

   8,700      292 

Arlington Asset Investment Corp. Class A

   5,700      118 

Artio Global Investors, Inc. Class A

   13,000      25 

Assurant, Inc.

   5,000      174 

Asta Funding, Inc.

   11,538      110 

Bancfirst Corp.

   1,600      68 

Bank Mutual Corp.

   8,100      35 

Bank of Marin Bancorp

   700      26 

Bank of the Ozarks, Inc.

   11,122      372 

Banner Corp.

   2,200      68 

BBCN Bancorp, Inc.

   5,400      62 

BioMed Realty Trust, Inc. (ö)

   29,513      571 

Boston Private Financial Holdings, Inc.

   42,769      386 

Bridge Capital Holdings (Æ)

   200      3 

Brookline Bancorp, Inc.

   58,080      494 

Calamos Asset Management, Inc. Class A

   1,100      12 

Capitol Federal Financial, Inc.

   42,851      501 

CapLease, Inc. (ö)

   22,747      127 

Cardinal Financial Corp.

   7,600      124 

Cedar Realty Trust, Inc. (ö)

   20,886      110 

Center Bancorp, Inc.

   2,300      27 

Centerstate Banks, Inc.

   500      4 

Chemical Financial Corp.

   6,900      164 

Citizens & Northern Corp.

   1,800      34 

CNB Financial Corp.

   700      11 

CoBiz Financial, Inc.

   19,681      147 

Cohen & Steers, Inc. (Ñ)

   3,860      118 

Columbia Banking System, Inc.

   21,500      386 

Comerica, Inc.

   17,880      542 

CommonWealth REIT (ö)

   8,800      139 

Community Bank System, Inc.

   3,391      93 

Community Trust Bancorp, Inc.

   1,000      33 

Crawford & Co. Class B

   202      2 

CVB Financial Corp.

   14,480      151 

DiamondRock Hospitality Co. (ö)

   53,774      484 

Duff & Phelps Corp. Class A

   20,462      320 

Duke Realty Corp. (ö)

   2,200      31 

Eagle Bancorp, Inc. (Æ)

   2,900      58 

eHealth, Inc. (Æ)

   7,785      214 

Enterprise Financial Services Corp.

   1,200      16 

EPR Properties (ö)

   8,600      397 

Evercore Partners, Inc. Class A

   22,980      693 

Extra Space Storage, Inc. (ö)

   10,100      368 

FactSet Research Systems, Inc.

   4,375      385 

FBR & Co. (Æ)

   900      3 

First American Financial Corp.

   15,700      378 

First Community Bancshares, Inc.

   100      2 

First Connecticut Bancorp, Inc.

   1,600      22 

First Defiance Financial Corp.

   1,200      23 
 

 

 34   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      

First Financial Bancorp

   31,620      462 

First Financial Holdings, Inc.

   4,300      56 

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

   30,900      435 

First Interstate Bancsystem, Inc. Class A

   3,400      52 

First Merchants Corp.

   11,900      177 

First of Long Island Corp. (The)

   1,100      31 

First Republic Bank

   7,300      239 

FirstMerit Corp.

   14,600      207 

Forestar Group, Inc. (Æ)

   16,067      278 

Franklin Street Properties Corp. (ö)

   41,517      511 

German American Bancorp, Inc.

   1,800      39 

Global Indemnity PLC Class A (Æ)

   1,500      33 

Great Southern Bancorp, Inc.

   3,000      76 

Greenhill & Co., Inc.

   9,856      512 

Hanmi Financial Corp. Class A (Æ)

   1,300      18 

Hanover Insurance Group, Inc. (The)

   16,265      630 

Hercules Technology Growth Capital, Inc.

   53,520      596 

Heritage Financial Corp.

   1,700      25 

Hilltop Holdings, Inc. (Æ)

   25,603      347 

Home BancShares, Inc.

   11,627      384 

Home Loan Servicing Solutions, Ltd.

   18,200      344 

Homeowners Choice, Inc. (Ñ)

   13,280      276 

HomeStreet, Inc. (Æ)

   10,300      263 

Horace Mann Educators Corp.

   20,500      409 

Hospitality Properties Trust (ö)

   26,094      611 

Hudson Valley Holding Corp.

   2,500      39 

Iberiabank Corp.

   18,010      884 

Infinity Property & Casualty Corp.

   9,670      563 

Investment Technology Group, Inc. (Æ)

   26,600      239 

Investors Bancorp, Inc.

   2,600      46 

JER Investors Trust, Inc. (Æ)(ß)

   1,771       

KBW, Inc.

   20,162      308 

KeyCorp

   62,981      530 

Kite Realty Group Trust (ö)

   10,100      56 

KKR Financial Holdings LLC

   10,102      107 

Lakeland Financial Corp.

   4,431      114 

LaSalle Hotel Properties (ö)

   10,506      267 

Maiden Holdings, Ltd.

   20,200      186 

MainSource Financial Group, Inc.

   5,000      63 

Manning & Napier, Inc. Class A

   34,230      431 

MarketAxess Holdings, Inc.

   9,500      335 

MB Financial, Inc.

   18,300      361 

Mercantile Bank Corp.

   3,729      62 

Merchants Bancshares, Inc.

   519      14 

Metro Bancorp, Inc. (Æ)

   507      7 

MetroCorp Bancshares, Inc. (Æ)

   5,372      59 

Mission West Properties, Inc. (ö)

   4,400      40 

Montpelier Re Holdings, Ltd.

   6,900      158 

Morningstar, Inc.

   8,400      528 

National Interstate Corp.

   5,156      149 

Navigators Group, Inc. (The) (Æ)

   3,100      158 

Nelnet, Inc. Class A

   7,800      232 

Netspend Holdings, Inc. (Æ)

   6,655      79 

Northrim BanCorp, Inc.

   6,945      157 

OceanFirst Financial Corp.

   5,800      80 

Old Republic International Corp.

   1,500      16 

One Liberty Properties, Inc. (ö)

   3,600      73 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

Pacific Continental Corp.

   4,000      39 

PacWest Bancorp

   14,800      367 

Peoples Bancorp, Inc.

   2,500      51 

Piedmont Office Realty Trust, Inc. Class A (ö)

   2,700      49 

Pinnacle Financial Partners, Inc. (Æ)

   10,500      198 

Piper Jaffray Cos. (Æ)

   16,973      545 

Potlatch Corp. (ö)

   10,640      417 

PrivateBancorp, Inc. Class A

   39,720      609 

ProAssurance Corp.

   11,222      473 

Protective Life Corp.

   5,700      163 

Provident Financial Services, Inc.

   3,420      51 

Raymond James Financial, Inc.

   7,093      273 

Renasant Corp.

   6,300      121 

RLJ Lodging Trust (ö)

   17,500      339 

Sabra Health Care REIT, Inc. (ö)

   9,700      211 

Safeguard Scientifics, Inc. (Æ)

   4,781      71 

Safety Insurance Group, Inc.

   3,000      139 

SCBT Financial Corp.

   200      8 

Selective Insurance Group, Inc.

   7,700      148 

Signature Bank (Æ)

   6,230      444 

Southwest Bancorp, Inc. (Æ)

   1,600      18 

Sovran Self Storage, Inc. (ö)

   6,100      379 

State Bank Financial Corp.

   3,700      59 

StellarOne Corp.

   26,143      370 

Sterling Bancorp Class N

   40,620      370 

Stewart Information Services Corp. (Ñ)

   5,500      143 

SVB Financial Group (Æ)

   12,470      698 

SY Bancorp, Inc.

   2,500      56 

Terreno Realty Corp. (ö)

   400      6 

Texas Capital Bancshares, Inc. (Æ)

   13,635      611 

Trico Bancshares

   2,900      49 

TrustCo Bank Corp. NY

   22,400      118 

Union First Market Bankshares Corp.

   2,300      36 

United Fire Group, Inc.

   6,500      142 

ViewPoint Financial Group, Inc.

   16,290      341 

Washington Banking Co.

   9,337      127 

Washington Federal, Inc.

   17,915      302 

Webster Financial Corp.

   20,800      427 

Weingarten Realty Investors (ö)

   1,100      29 

Westwood Holdings Group, Inc.

   17,175      701 

Wilshire Bancorp, Inc. (Æ)

   41,300      242 

Winthrop Realty Trust (ö)

   12,128      134 

WSFS Financial Corp.

   2,300      97 
      

 

 

 
       35,627 
      

 

 

 

Health Care - 9.4%

      

Abaxis, Inc.

   22,550      838 

Accelrys, Inc. (Æ)

   58,225      527 

Affymetrix, Inc. (Æ)(Ñ)

   55,400      176 

Air Methods Corp. (Ñ)

   26,850      991 

Akorn, Inc. (Æ)

   49,540      662 

Align Technology, Inc. (Æ)

   26,450      734 

Alphatec Holdings, Inc. (Æ)

   4,200      7 

Astex Pharmaceuticals (Æ)

   52,881      154 

athenahealth, Inc. (Æ)(Ñ)

   4,870      358 

BioScrip, Inc. (Æ)

   41,108      443 
 

 

Aggressive Equity Fund 35


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      

Cambrex Corp. (Æ)

   7,335      83 

Centene Corp. (Æ)

   11,450      469 

Codexis, Inc. (Æ)

   2,000      4 

Computer Programs & Systems, Inc.

   7,520      379 

CONMED Corp.

   34,127      954 

Cross Country Healthcare, Inc. (Æ)

   1,300      6 

CryoLife, Inc.

   4,800      30 

Cumberland Pharmaceuticals, Inc. (Æ)

   5,100      21 

Cynosure, Inc. Class A (Æ)

   4,800      116 

Cytokinetics, Inc. (Æ)

   37,600      25 

Emergent Biosolutions, Inc. (Æ)

   17,900      287 

Epocrates, Inc. (Æ)

   6,800      60 

Exactech, Inc. (Æ)

   11,700      198 

Five Star Quality Care, Inc. (Æ)

   32,500      163 

Geron Corp. (Æ)

   96,800      136 

Greatbatch, Inc. (Æ)

   12,900      300 

Health Net, Inc. (Æ)

   1,600      39 

Healthways, Inc. (Æ)

   5,700      61 

Hill-Rom Holdings, Inc.

   14,460      412 

HMS Holdings Corp. (Æ)

   24,768      642 

Impax Laboratories, Inc. (Æ)

   29,303      600 

Invacare Corp.

   2,600      42 

Kindred Healthcare, Inc. (Æ)

   1,600      17 

Magellan Health Services, Inc. (Æ)

   7,000      343 

Masimo Corp.

   4,852      102 

Medidata Solutions, Inc. (Æ)

   18,055      707 

Meridian Bioscience, Inc.

   68,337      1,384 

Molina Healthcare, Inc. (Æ)

   12,600      341 

National Research Corp.

   11,225      608 

Neogen Corp. (Æ)

   16,625      753 

Palomar Medical Technologies, Inc. (Æ)

   2,800      26 

PAREXEL International Corp. (Æ)

   7,680      227 

PDL BioPharma, Inc. (Ñ)

   18,600      131 

Prestige Brands Holdings, Inc. (Æ)

   12,080      242 

Quality Systems, Inc.

   18,080      314 

RTI Biologics, Inc. (Æ)

   23,200      99 

Solta Medical, Inc. (Æ)

   15,700      42 

STERIS Corp.

   22,030      765 

Targacept, Inc. (Æ)

   17,900      78 

Techne Corp.

   4,750      325 

Triple-S Management Corp. Class B (Æ)

   3,300      61 

Universal American Corp.

   12,500      107 

US Physical Therapy, Inc.

   12,343      340 

Vanguard Health Systems, Inc. (Æ)

   2,000      25 

WellCare Health Plans, Inc. (Æ)

   5,000      243 

West Pharmaceutical Services, Inc.

   2,971      163 

XenoPort, Inc. (Æ)

   7,700      60 
      

 

 

 
       17,420 
      

 

 

 

Materials and Processing - 7.4%

      

AMCOL International Corp.

   16,825      516 

Balchem Corp.

   20,000      728 

Beacon Roofing Supply, Inc. (Æ)

   7,449      248 

Cabot Corp.

   12,914      514 

Comfort Systems USA, Inc.

   3,800      46 

Culp, Inc.

   1,900      29 

Cytec Industries, Inc.

   700      48 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

Globe Specialty Metals, Inc.

   47,120      648 

Griffon Corp.

   3,600      41 

Haynes International, Inc.

   12,470      647 

Hecla Mining Co.

   65,520      382 

IAMGOLD Corp.

   36,541      419 

Insteel Industries, Inc.

   5,771      72 

Kaiser Aluminum Corp.

   4,166      257 

Kaydon Corp.

   32,110      768 

Koppers Holdings, Inc.

   10,981      419 

Kraton Performance Polymers, Inc. (Æ)

   21,790      524 

Kronos Worldwide, Inc. (Ñ)

   31,740      619 

Landec Corp. (Æ)

   16,967      161 

LB Foster Co. Class A

   3,700      161 

LSB Industries, Inc. (Æ)

   3,000      106 

LSI Industries, Inc.

   1,400      10 

Materion Corp.

   7,500      193 

Mueller Industries, Inc.

   4,400      220 

NCI Building Systems, Inc. (Æ)

   4,400      61 

NN, Inc. (Æ)

   10,528      96 

Noranda Aluminum Holding Corp.

   110,890      678 

OM Group, Inc. (Æ)

   22,884      508 

Omnova Solutions, Inc. (Æ)

   47,300      332 

PGT, Inc. (Æ)

   40,100      180 

PH Glatfelter Co.

   4,100      72 

Rockwood Holdings, Inc.

   600      30 

RTI International Metals, Inc. (Æ)

   14,224      392 

Schnitzer Steel Industries, Inc. Class A

   24,840      753 

School Specialty, Inc. (Æ)(Ñ)

   3,200      3 

Schweitzer-Mauduit International, Inc.

   8,600      336 

Sensient Technologies Corp.

   11,400      405 

Simpson Manufacturing Co., Inc.

   29,150      956 

TMS International Corp. Class A (Æ)

   5,800      73 

United States Steel Corp.

   1,500      36 

Universal Forest Products, Inc.

   9,765      371 

Universal Stainless & Alloy (Æ)

   17,919      659 
      

 

 

 
       13,717 
      

 

 

 

Producer Durables - 19.4%

      

ABM Industries, Inc.

   45,500      908 

ACCO Brands Corp. (Æ)

   47,363      348 

Actuant Corp. Class A

   9,700      271 

Advisory Board Co. (The) (Æ)

   27,688      1,295 

Aerovironment, Inc. (Æ)

   10,225      222 

Air Transport Services Group, Inc. (Æ)

   33,541      134 

Aircastle, Ltd.

   31,100      390 

Alamo Group, Inc.

   1,800      59 

Albany International Corp. Class A

   5,600      127 

American Railcar Industries, Inc.

   7,000      222 

American Superconductor Corp. (Æ)(Ñ)

   30,100      79 

AO Smith Corp.

   7,100      448 

Argan, Inc.

   13,700      247 

Astec Industries, Inc.

   14,149      471 

Astronics Corp. (Æ)

   4,639      106 

Astronics Corp. Class B (Æ)

   560      12 

Atlas Air Worldwide Holdings, Inc. (Æ)

   2,131      94 

Avery Dennison Corp.

   3,000      105 

AZZ, Inc.

   17,483      672 
 

 

 36   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      

Barnes Group, Inc.

   10,320      232 

Brady Corp. Class A

   18,640      623 

Briggs & Stratton Corp.

   13,840      292 

Bristow Group, Inc.

   7,360      395 

CDI Corp.

   3,700      63 

Chart Industries, Inc. (Æ)

   9,661      644 

CIRCOR International, Inc.

   14,989      594 

Columbus McKinnon Corp. (Æ)

   32,257      533 

Compass Diversified Holdings

   33,000      485 

Consolidated Graphics, Inc. (Æ)

   2,500      87 

Con-way, Inc.

   32,490      904 

CoStar Group, Inc. (Æ)

   13,550      1,210 

Crane Co.

   3,000      139 

Curtiss-Wright Corp.

   24,680      810 

Ducommun, Inc. (Æ)

   12,121      196 

Electro Rent Corp.

   3,000      46 

Electronics for Imaging, Inc. (Æ)

   20,352      386 

EMCOR Group, Inc.

   12,400      429 

EnergySolutions, Inc. (Æ)

   86,000      268 

EnerSys, Inc. (Æ)

   12,275      462 

Ennis, Inc.

   7,795      121 

Faro Technologies, Inc. (Æ)

   13,100      467 

Flow International Corp. (Æ)

   19,900      70 

Forrester Research, Inc.

   17,400      466 

FreightCar America, Inc.

   4,088      92 

Gardner Denver, Inc.

   2,403      165 

GP Strategies Corp. (Æ)

   2,900      60 

GrafTech International, Ltd. (Æ)

   39,841      374 

Granite Construction, Inc.

   23,714      798 

Greenbrier Cos., Inc. (Æ)

   14,863      240 

Gulfmark Offshore, Inc. Class A

   8,800      303 

H&E Equipment Services, Inc.

   8,000      121 

Harsco Corp.

   45,880      1,078 

Hawaiian Holdings, Inc. (Æ)

   47,300      311 

Healthcare Services Group, Inc.

   27,900      648 

Heidrick & Struggles International, Inc.

   7,800      119 

Hub Group, Inc. Class A (Æ)

   9,100      306 

Huntington Ingalls Industries, Inc.

   8,000      347 

Hurco Cos., Inc. (Æ)

   1,500      35 

InnerWorkings, Inc. (Æ)(Ñ)

   40,000      551 

KBR, Inc.

   1,800      54 

Kelly Services, Inc. Class A (Æ)

   8,100      127 

Kennametal, Inc.

   8,667      347 

Kimball International, Inc. Class B

   14,200      165 

Knight Transportation, Inc.

   68,050      995 

Knoll, Inc.

   28,200      433 

Lawson Products, Inc.

   521      5 

Layne Christensen Co. (Æ)

   16,914      411 

Lexmark International, Inc. Class A

   4,700      109 

Liquidity Services, Inc. (Æ)

   1,300      53 

Mac-Gray Corp.

   6,200      78 

Marlin Business Services Corp.

   1,800      36 

Marten Transport, Ltd.

   8,778      161 

MAXIMUS, Inc.

   7,080      448 

Measurement Specialties, Inc. (Æ)

   3,727      128 

Metalico, Inc. (Æ)

   12,500      25 

Modine Manufacturing Co. (Æ)

   1,100      9 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

MYR Group, Inc. (Æ)

   2,500      56 

Old Dominion Freight Line, Inc. (Æ)

   4,156      142 

Orbital Sciences Corp. (Æ)

   20,900      288 

Orion Marine Group, Inc. (Æ)

   5,032      37 

Pacer International, Inc. (Æ)

   11,800      46 

Power-One, Inc. (Æ)(Ñ)

   1,200      5 

Primoris Services Corp.

   32,980      496 

Quanta Services, Inc. (Æ)

   16,501      450 

Raven Industries, Inc.

   37,575      990 

Republic Airways Holdings, Inc. (Æ)

   1,000      6 

Resources Connection, Inc.

   66,080      789 

Roadrunner Transportation Systems, Inc. (Æ)

   2,000      36 

Rollins, Inc.

   28,525      629 

RPX Corp. Class A (Æ)

   17,700      160 

RR Donnelley & Sons Co.

   3,900      35 

Ryder System, Inc.

   7,540      376 

Saia, Inc. (Æ)

   13,700      317 

SkyWest, Inc.

   14,000      174 

Southwest Airlines Co.

   49,933      511 

Spartan Motors, Inc.

   1,517      7 

SPX Corp.

   900      63 

Sterling Construction Co., Inc. (Æ)

   300      3 

Sun Hydraulics Corp.

   48,006      1,252 

Tetra Tech, Inc. (Æ)

   20,400      540 

Tidewater, Inc.

   15,610      698 

Triumph Group, Inc.

   9,270      605 

Tsakos Energy Navigation, Ltd.

   53,180      199 

Tutor Perini Corp. (Æ)

   13,800      189 

United Stationers, Inc.

   13,620      422 

URS Corp.

   3,000      118 

Valuevision Media, Inc. Class A (Æ)

   9,000      16 

VSE Corp.

   1,000      25 

Wabtec Corp.

   12,803      1,121 
      

 

 

 
       36,065 
      

 

 

 

Technology - 18.1%

      

Acacia Research Corp. (Æ)

   37,244      955 

ACI Worldwide, Inc. (Æ)

   22,200      970 

ADTRAN, Inc. (Ñ)

   33,660      658 

Akamai Technologies, Inc. (Æ)

   7,180      294 

ANADIGICS, Inc. (Æ)

   13,000      33 

Applied Micro Circuits Corp. (Æ)

   54,202      455 

Arris Group, Inc. (Æ)

   5,400      81 

Aspen Technology, Inc. (Æ)

   9,122      252 

AVG Technologies NV (Æ)

   23,790      377 

Aviat Networks, Inc. (Æ)

   22,900      75 

Avid Technology, Inc. (Æ)

   19,400      147 

Axcelis Technologies, Inc. (Æ)

   1,714      2 

Bel Fuse, Inc. Class B

   2,700      53 

Black Box Corp.

   1,800      44 

Blackbaud, Inc.

   23,900      546 

Bottomline Technologies, Inc. (Æ)

   38,625      1,020 

Brocade Communications Systems, Inc. (Æ)

   27,300      146 

Brooks Automation, Inc.

   81,530      656 

CIBER, Inc. (Æ)

   11,300      38 

Cohu, Inc. (Å)

   41,460      449 
 

 

Aggressive Equity Fund 37


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 
      

Commtouch Software, Ltd. (Æ)

   9,500      29 

Computer Task Group, Inc. (Æ)

   21,951      400 

comScore, Inc. (Æ)

   9,699      134 

Comtech Telecommunications Corp.

   11,100      282 

Cree, Inc. (Æ)(Ñ)

   14,637      497 

CSG Systems International, Inc. (Æ)

   12,700      231 

CTS Corp.

   900      10 

Digi International, Inc. (Æ)

   5,400      51 

DSP Group, Inc. (Æ)

   9,500      55 

Echelon Corp. (Æ)

   6,300      15 

Electro Scientific Industries, Inc.

   41,493      413 

Emcore Corp. (Æ)

   4,700      20 

Emulex Corp. (Æ)

   35,600      260 

FormFactor, Inc. (Æ)

   29,100      133 

Glu Mobile, Inc. (Æ)(Ñ)

   37,199      85 

Harmonic, Inc. (Æ)

   1,600      8 

Hittite Microwave Corp. (Æ)

   12,225      759 

II-VI, Inc. (Æ)

   2,521      46 

Imation Corp. (Æ)

   1,800      8 

Inphi Corp. (Æ)

   20,738      199 

Insight Enterprises, Inc. (Æ)

   6,200      108 

Integrated Device Technology, Inc. (Æ)

   50,600      369 

Integrated Financial Systems, Inc. Class A

   20,053      322 

Integrated Silicon Solution, Inc. (Æ)

   10,200      92 

Interactive Intelligence Group, Inc. (Æ)

   13,433      451 

InterDigital, Inc. (Ñ)

   3,948      162 

International Rectifier Corp. (Æ)

   29,583      525 

Intersil Corp. Class A

   99,520      825 

Intevac, Inc. (Æ)

   2,100      10 

InvenSense, Inc. Class A (Æ)(Ñ)

   22,634      251 

IXYS Corp.

��  3,000      27 

KEYW Holding Corp. (The) (Æ)

   9,964       126 

Kulicke & Soffa Industries, Inc. (Æ)

   33,216       398 

LivePerson, Inc. (Æ)

   34,460       453 

LTX-Credence Corp. (Æ)

   19,300       127 

Marvell Technology Group, Ltd.

   73,813       536 

Mercury Systems, Inc. (Æ)

   53,214       489 

Methode Electronics, Inc.

   55,630       558 

Micrel, Inc.

   92,050       874 

Mindspeed Technologies, Inc. (Æ)

   30,800       144 

MKS Instruments, Inc.

   41,650       1,074 

Molex, Inc.

   3,400       93 

MoSys, Inc. (Æ)

   200       1 

NIC, Inc.

   74,430       1,216 

Novatel Wireless, Inc. (Æ)

   2,900       4 

NVE Corp. (Æ)

   9,625       534 

NVIDIA Corp.

   28,829       354 

Oplink Communications, Inc. (Æ)

   6,500       101 

PC Connection, Inc.

   2,400       28 

Pericom Semiconductor Corp. (Æ)

   6,700       54 

Plantronics, Inc.

   1,000       37 

Plexus Corp. (Æ)

   2,100       54 

Polycom, Inc. (Æ)

   42,226       442 

Pros Holdings, Inc. (Æ)

   40,025       732 

QLIK Technologies, Inc. (Æ)

   17,077       371 

Quantum Corp. (Æ)

   79,800       99 

RealNetworks, Inc. (Æ)

   5,602       42 
   

Principal
Amount ($)

or Shares

     

Fair
Value

$

 

Richardson Electronics, Ltd.

   1,000       11 

Rubicon Technology, Inc. (Æ)(Ñ)

   7,258       44 

Rudolph Technologies, Inc. (Æ)

   8,600       116 

Sapient Corp. (Æ)

   7,462       79 

SciQuest, Inc. (Æ)

   29,225       464 

Seachange International, Inc. (Æ)

   18,600       180 

ShoreTel, Inc. (Æ)

   9,000       38 

Sigma Designs, Inc. (Æ)

   16,200       83 

Silicon Graphics International Corp. (Æ)(Ñ)

   23,800       243 

Silicon Image, Inc. (Æ)

   68,000       337 

Skyworks Solutions, Inc. (Æ)

   4,353       88 

Smith Micro Software, Inc. (Æ)

   2,900       4 

Sonus Networks, Inc. (Æ)

   133,500       227 

Sourcefire, Inc. (Æ)

   23,110       1,091 

Spansion, Inc. Class A (Æ)

   22,400       312 

SPS Commerce, Inc. (Æ)

   10,432       389 

STEC, Inc. (Æ)

   10,972       54 

Stratasys, Ltd. (Æ)

   9,825       787 

Sycamore Networks, Inc.

   21,600       48 

Symmetricom, Inc. (Æ)

   6,400       37 

Synchronoss Technologies, Inc. (Æ)

   26,603       561 

Take-Two Interactive Software, Inc. (Æ)

   9,508       105 

Tangoe, Inc. (Æ)

   24,913       296 

TeleCommunication Systems, Inc. Class A (Æ)

   29,500       73 

TeleNav, Inc. (Æ)

   7,717       62 

Tellabs, Inc.

   122,200       279 

Tessco Technologies, Inc.

   18,172       402 

Tessera Technologies, Inc.

   37,690       619 

TNS, Inc. (Æ)

   5,482       114 

TTM Technologies, Inc. (Æ)

   18,300       168 

Tyler Technologies, Inc. (Æ)

   31,595       1,531 

United Online, Inc.

   57,900       324 

Unwired Planet, Inc. (Æ)

   18,400       22 

Vishay Intertechnology, Inc. (Æ)

   77,242       821 

Vocera Communications, Inc. (Æ)

   19,000       477 

Xyratex, Ltd. (Ñ)

   33,060       278 
      

 

 

 
       33,733 
      

 

 

 

Utilities - 1.5%

      

Allete, Inc.

   8,030       329 

Black Hills Corp.

   19,760       719 

Cbeyond, Inc. (Æ)

   11,100       100 

Chesapeake Utilities Corp.

   1,900       86 

Cleco Corp.

   3,000       120 

El Paso Electric Co.

   9,600       306 

Energen Corp.

   2,900       131 

PNM Resources, Inc.

   16,100       330 

Portland General Electric Co.

   7,100       194 

Telephone & Data Systems, Inc.

   3,200       71 

Towerstream Corp. (Æ)(Ñ)

   28,622       93 

Unitil Corp.

   4,318       112 

UNS Energy Corp.

   1,407       60 

Vonage Holdings Corp. (Æ)

   92,000       218 
      

 

 

 
       2,869 
      

 

 

 
Total Common Stocks
(cost $171,625)
       181,901 
      

 

 

 
 

 

 38   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

   

Fair
Value

$

 
    
Short-Term Investments - 2.4%    

Russell U.S. Cash Management Fund

   4,408,451 (¥   4,408 
    

 

 

 
Total Short-Term Investments
(cost $4,408)
     4,408 
    

 

 

 
Other Securities - 3.9%    

Russell U.S. Cash Collateral Fund (×)

   7,219,801 (¥   7,220 
    

 

 

 
Total Other Securities
(cost $7,220)
     7,220 
    

 

 

 

Total Investments - 104.1%

(identified cost $183,253)

     193,529 
Other Assets and Liabilities,
Net - (4.1%)
     (7,627
    

 

 

 
Net Assets - 100.0%     185,902 
    

 

 

 

 

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

 

Aggressive Equity Fund 39


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share and cost per unit amounts)

 

Restricted Securities

 

% of Net Assets
Securities
  Acquisition
Date
   Principal
Amount ($)
or Shares
   Cost per
Unit
$
   Cost
(000)
$
   Fair Value
(000)
$
 
          

0.2%

          

Cohu, Inc.

   03/05/07     41,460    11.51     477    449 
          

 

 

 
           449 
          

 

 

 

For a description of restricted securities see note 8 in the Notes to Financial Statements.

Amounts in thousands (except contract amounts)

 

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

Long Positions

               

Russell 2000 Mini Index Futures (CME)

   48      USD   4,064      03/13       113 
               

 

 

 

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å)

  

     113 
               

 

 

 

 

 

Presentation of Portfolio Holdings — December 31, 2012

Amounts in thousands

 

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

Common Stocks

                  

Consumer Discretionary

  $24,671     $ —     $ —      $24,671      13.3  

Consumer Staples

   4,979                  4,979      2.7  

Energy

   12,820                  12,820      6.9  

Financial Services

   35,627                  35,627      19.1  

Health Care

   17,420                  17,420      9.4  

Materials and Processing

   13,717                  13,717      7.4  

Producer Durables

   36,065                  36,065      19.4  

Technology

   33,733                  33,733      18.1  

Utilities

   2,869                  2,869      1.5  

Short-Term Investments

         4,408            4,408      2.4  

Other Securities

         7,220            7,220      3.9  
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total Investments

   181,901      11,628            193,529      104.1  
  

 

 

     

 

 

     

 

 

     

 

 

     

Other Assets and Liabilities, Net

                   (4.1
                  

 

 

 
                   100.0  
                  

 

 

 

Other Financial Instruments

                  

Futures Contracts

   113                  113      0.1  
  

 

 

     

 

 

     

 

 

     

 

 

     

Total Other Financial Instruments*

  $113     $ —     $ —      $113     
  

 

 

     

 

 

     

 

 

     

 

 

     

 

* Other financial instruments reflected in the Schedule of Investments, such as futures, forwards, interest rate swaps, and credit default swaps 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.

For disclosure on transfers between Levels 1, 2 and 3 during the period ended December 31, 2012, see note 2 in the Notes to Financial Statements.

 

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

 

 40   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Fair Value of Derivative Instruments — December 31, 2012

Amounts in thousands

 

Derivatives not accounted for as hedging instruments  Equity
Contracts
 
  

Location: Statement of Assets and Liabilities - Assets

  

Daily variation margin on futures contracts*

  $113 
  

 

 

 
Derivatives not accounted for as hedging instruments  Equity
Contracts
 

Location: Statement of Operations - Net realized gain (loss)

  

Futures contracts

  $892 
  

 

 

 

Location: Statement of Operations - Net change in unrealized appreciation (depreciation)

  

Futures contracts

  $89 
  

 

 

 

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.

For further disclosure on derivatives see note 2 in Notes to Financial Statements.

 

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

 

Aggressive Equity Fund 41


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Statement of Assets and Liabilities — December 31, 2012

 

Amounts in thousands    

Assets

 

Investments, at identified cost

 $183,253 

Investments, at fair value*, **

  193,529 

Cash (restricted)(a)

  360 

Receivables:

 

Dividends and interest

  176 

Dividends from affiliated Russell funds

  1 

Investments sold

  1,660 

Fund shares sold

  13 

Daily variation margin on futures contracts

  127 
 

 

 

 

Total assets

  195,866 
 

 

 

 

Liabilities

 

Payables:

 

Investments purchased

  2,451 

Fund shares redeemed

  102 

Accrued fees to affiliates

  142 

Other accrued expenses

  49 

Payable upon return of securities loaned

  7,220 
 

 

 

 

Total liabilities

  9,964 
 

 

 

 
 

Net Assets

 $    185,902 
 

 

 

 

Net Assets Consist of:

 

Undistributed (overdistributed) net investment income

 $(30

Accumulated net realized gain (loss)

  (8,637

Unrealized appreciation (depreciation) on:

 

Investments

  10,276 

Futures contracts

  113 

Shares of beneficial interest

  143 

Additional paid-in capital

  184,037  
 

 

 

 

Net Assets

 $185,902 
 

 

 

 

Net Asset Value, offering and redemption price per share:

 

Net asset value per share: (#)

 $13.02  

Net assets

 $    185,902,128 

Shares outstanding ($.01 par value)

  14,276,294 

Amounts in thousands

 

*           Securities on loan included in investments

 $7,049 

**         Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund

 $11,628 

(a) Cash Collateral for Futures

 $360 

 

(#)Net asset value per share equals net assets divided by shares of beneficial interest outstanding.

 

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

 

 42   Aggressive Equity Fund


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Statement of Operations — For the Period Ended December 31, 2012

 

Amounts in thousands    

Investment Income

 

Dividends

 $3,676 

Dividends from affiliated Russell funds

  8 

Securities lending income

  235 
 

 

 

 

Total investment income

  3,919 
 

 

 

 

Expenses

 

Advisory fees

  1,665 

Administrative fees

  92 

Custodian fees

  148 

Transfer agent fees

  8 

Professional fees

  63 

Trustees’ fees

  5 

Printing fees

  22 

Miscellaneous

  22 
 

 

 

 

Expenses before reductions

  2,025 

Expense reductions

  (99
 

 

 

 

Net expenses

  1,926 
 

 

 

 

Net investment income (loss)

  1,993 
 

 

 

 

Net Realized and Unrealized Gain (Loss)

 

Net realized gain (loss) on:

 

Investments

  26,975 

Futures contracts

  892 
 

 

 

 

Net realized gain (loss)

  27,867 
 

 

 

 

Net change in unrealized appreciation (depreciation) on:

 

Investments

  (2,709

Futures contracts

  89 
 

 

 

 

Net change in unrealized appreciation (depreciation)

  (2,620
 

 

 

 

Net realized and unrealized gain (loss)

  25,247 
 

 

 

 

Net Increase (Decrease) in Net Assets from Operations

 $    27,240 
 

 

 

 

 

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

 

Aggressive Equity Fund 43


Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Statements of Changes in Net Assets

 

  For the Periods Ended December 31, 
Amounts in thousands 2012   2011 

Increase (Decrease) in Net Assets

   

Operations

   

Net investment income (loss)

 $1,993   $704 

Net realized gain (loss)

  27,867    14,846 

Net change in unrealized appreciation (depreciation)

  (2,620   (22,975
 

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

  27,240    (7,425
 

 

 

   

 

 

 

Distributions

   

From net investment income

  (1,994   (943
 

 

 

   

 

 

 

Net decrease in net assets from distributions

  (1,994   (943
 

 

 

   

 

 

 

Share Transactions*

   

Net increase (decrease) in net assets from share transactions

  (16,379   (6,475

Fund Reimbursements

      115 
 

 

 

   

 

 

 

Total Net Increase (Decrease) in Net Assets

  8,867    (14,728

Net Assets

   

Beginning of period

  177,035    191,763 
 

 

 

   

 

 

 

End of period

 $    185,902   $    177,035 
 

 

 

   

 

 

 

Undistributed (overdistributed) net investment income included in net assets

 $(30  $ 

 

*Share transaction amounts (in thousands) for the periods ended December 31, 2012 and December 31, 2011 were as follows:

 

   2012  2011 
   Shares  Dollars  Shares  Dollars 
     

Proceeds from shares sold

   646  $8,034   1,277  $15,071 

Proceeds from reinvestment of distributions

   154   1,994   82   942 

Payments for shares redeemed

   (2,105  (26,407  (1,872  (22,488
  

 

 

  

 

 

  

 

 

  

 

 

 

Total increase (decrease)

   (1,305 $(16,379  (513 $(6,475
  

 

 

  

 

 

  

 

 

  

 

 

 

 

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

 

 44   Aggressive Equity Fund


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Table of Contents

Russell Investment Funds

Aggressive Equity Fund

Financial Highlights — For the Periods Ended

For a Share Outstanding Throughout Each Period.

 

        
$
Net Asset Value,
Beginning of
Period
   $
Net
Investment
Income  (Loss)
(a)(b)
   $
Net Realized
and Unrealized
Gain (Loss)
   $
Total from
Investment
Operations
   $
Distributions
from Net
Investment Income
   $
Distributions
from Net
Realized Gain
  $
Total
Distributions
 

December 31, 2012

   11.36     .13     1.67     1.80     (.14      (.14

December 31, 2011

   11.92     .04     (.54   (.50   (.06      (.06

December 31, 2010

   9.59     .04     2.34     2.38     (.05      (.05

December 31, 2009

   7.18     .05     2.40     2.45     (.04      (.04

December 31, 2008

   12.99     .09     (5.81   (5.72   (.09   (c)   (.09

 

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

 

 46   Aggressive Equity Fund


Table of Contents
$
Net Asset
Value, End
of Period
  %
Total
Return
(d)
  $
Net Assets,
End of Period
(000)
  %
Ratio of
Expenses to
Average Net
Assets, Gross
  %
Ratio of Expenses
to Average Net
Assets, Net
(b)
  %
Ratio of Net
Investment Income
to Average
Net Assets
(b)
  %
Portfolio
Turnover Rate
 
 13.02    15.84    185,902   1.09    1.04    1.08    150 
 11.36    (4.20  177,035   1.08    1.02    .37    105 
 11.92    24.88    191,763   1.11    1.05    .44    107 
 9.59    34.32    158,671   1.13    1.02    .65    161 
 7.18    (44.16  123,088   1.18    1.05    .84    161 

 

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

 

Aggressive Equity Fund 47


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

LOGO

 

Non-U.S. Fund 

 

  Total
Return
 

1 Year

   19.81

5 Years

   (3.26)%§ 

10 Years

   7.97%§ 
Russell Developed ex-U.S. Large Cap® Index Net** 

 

  Total
Return
 

1 Year

   16.73

5 Years

   (3.23)%§ 

10 Years

   8.85%§ 
 

 

 48   Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

The 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 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. As of December 31, 2012, the Fund had 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, 2012?

For the fiscal year ended December 31, 2012, the Non-U.S. Fund gained 19.81%. This is compared to the Fund’s benchmark, the Russell Developed ex-U.S. Large Cap® Index Net, which gained 16.73% 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 fiscal year ended December 31, 2012, the Lipper® International Large-Cap Core Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 17.69%. 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, 2012 was a beneficial time frame for the Fund. As central banks around the globe implemented policies targeted at spurring growth, investors took a more bullish outlook on equity markets and began to reward companies that exhibited potential for above-average earnings and revenue growth. In the prior year, macro concerns and investor sentiment drove equity returns mainly downwards, whereas the current year saw a slight shift towards company fundamentals affecting equity prices. This shift, coupled with the tailwind of global monetary easing, led to an increase in risk-taking among market participants, which was ultimately positive for the Fund.

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

The Fund’s strategic emphasis was favorable given the market climate during the fiscal year. The Fund was positioned towards companies that exhibited slightly higher growth characteristics than the market, such as forecasted and historical growth. This allocation was beneficial as investors became less skeptical of growth forecasts and more willing to invest in companies geared towards positive economic growth. The Fund’s exposure to momentum (the tendency for stock prices and/or earnings to continue to go up or go down) was positive, especially within information technology companies in emerging markets.

Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow”) underperformed the Fund’s benchmark for the fiscal year. Barrow’s ineffectual stock selection in the consumer discretionary sector was the main driver of underperformance, while the manager’s underweight to the sector acted as a headwind to performance. Also detracting value was an underweight to the financial sector, as well as poor stock selection among Japanese information technology companies. Barrow was able to add value in industrials, where a large active bet to the sector, coupled with positive stock selection results, made industrials the best performing sector for the manager.

MFS Institutional Advisors Inc. (“MFS”) outperformed the Fund’s benchmark for the fiscal year. MFS benefited from a focus on companies that exhibit stable earnings growth and tend to have modest forecasts for future growth. Most of the gains came in the traditional defensive sectors of consumer staples and health care, although good stock selection within European information technology names also contributed to outperformance.

Pzena Investment Management LLC (“Pzena”) outperformed the Fund’s benchmark for the fiscal year. Pzena had success with good stock selection in consumer sectors as well as the economically-sensitive industrials sector. Pzena’s focus on companies with depressed fundamentals trading at low valuations, e.g., price-to-book and price-to-earnings, was rewarded during the period, notably in Europe as European Central Bank policies were beneficial to many of the continents’ firms.

William Blair & Company, LLC (“William Blair”) was hired in May 2012 and underperformed the Fund’s benchmark during the portion of the fiscal year in which it was a money manager for the Fund. William Blair’s focus on companies that tend to exhibit higher quality characteristics than the market was not rewarded during the period, as market participants were more willing to take on risk. An underweight to the financial sector was detractive, although positive stock selection mitigated some of the losses. The telecommunication sector was the largest detractor of value for the manager, as poor stock selection in the U.K. and Japan was the main driver of the underperformance. Positive stock selection in the economically-sensitive areas of industrials and materials was contributive to performance, as was good selection in the health care and consumer discretionary sectors.

Marsico Capital Management, LLC (“Marsico”) was terminated in May 2012 and outperformed the Fund’s benchmark during the portion of the fiscal year in which it was a money manager for the Fund. Marsico generated excess returns from strong stock selection in continental Europe (particularly Germany and Spain) as well as Canada. Across sectors, Marsico benefited from additive stock picks in technology and industrials.

 

 

Non-U.S. Fund 49


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

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

In May 2012, RIMCo terminated Marsico Capital Management, LLC and hired William Blair & Company, LLC.

 

Money Managers as of December 31, 2012 Styles
Barrow, Hanley, Mewhinney & Strauss, LLC Value
MFS Institutional Advisors Inc. Growth
Pzena Investment Management LLC Value
William Blair & Company, LLC 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 a Russell Investment Funds (“RIF”) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.

 

 

 

 

* Assumes initial investment on January 1, 2002.

 

** 

Russell Developed ex-U.S. Large Cap® Index Net is an index which offers investors access to the large-cap segment of the global equity market, excluding companies assigned to the United States. It is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to accurately reflect the changes in the market over time.

 

§ 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.

 

 50   Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Shareholder Expense Example — December 31, 2012 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding the Fund’s Shareholder Expense Example (“Example”).

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative 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, 2012 to December 31, 2012.

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 fees 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, 2012

  $1,000.00    $1,000.00  

Ending Account Value

    

December 31, 2012

  $1,153.50    $1,019.96  

Expenses Paid During Period*

  $5.58    $5.23  

 

*Expenses are equal to the Fund’s annualized expense ratio of 1.03% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). May reflect amounts waived, reimbursed and/or other credits. Without any waivers, reimbursements and/or other credits, expenses would have been higher.
 

 

Non-U.S. Fund 51


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     Fair
Value
$
 
      
Common Stocks - 94.5%  

Australia - 0.4%

      

QBE Insurance Group, Ltd.

   93,862      1,074 

Westpac Banking Corp.

   15,038      411 
      

 

 

 
       1,485 
      

 

 

 

Austria - 0.6%

      

Erste Group Bank AG (Æ)

   66,800      2,136 
      

 

 

 

Belgium - 0.3%

      

Anheuser-Busch InBev NV

   7,025      614 

KBC Groep NV

   17,798      619 
      

 

 

 
       1,233 
      

 

 

 

Bermuda - 1.9%

      

Credicorp, Ltd.

   9,097      1,333 

Li & Fung, Ltd. (Ñ)

   800,000      1,437 

PartnerRe, Ltd. - ADR

   10,075      811 

RenaissanceRe Holdings, Ltd.

   10,425      847 

Seadrill, Ltd.

   33,000      1,214 

Seadrill, Ltd.

   2,700      100 

Yue Yuen Industrial Holdings, Ltd.

   349,500      1,180 
      

 

 

 
       6,922 
      

 

 

 

Brazil - 1.3%

      

BM&FBovespa SA

   80,000      558 

BR Malls Participacoes SA

   54,400      721 

Brookfield Incorporacoes SA

   455,300      779 

Embraer SA - ADR (Æ)

   58,700      1,673 

Itau Unibanco Holding SA - ADR

   44,203      728 

Tim Participacoes SA - ADR

   10,881      216 
      

 

 

 
       4,675 
      

 

 

 

Canada - 1.6%

      

Brookfield Asset Management, Inc. Class A

   40,332      1,478 

Canadian National Railway Co. (Æ)(Þ)

   23,574      2,146 

Toronto-Dominion Bank (The)

   18,489      1,557 

Valeant Pharmaceuticals International, Inc. (Æ)

   6,230      372 
      

 

 

 
       5,553 
      

 

 

 

Cayman Islands - 0.6%

      

ASM Pacific Technology, Ltd. (Ñ)

   88,300      1,084 

Baidu, Inc. - ADR (Æ)

   9,993      1,002 

Dongyue Group

   270,600      181 
      

 

 

 
       2,267 
      

 

 

 

Czech Republic - 0.2%

      

Komercni Banka AS

   3,265      691 
      

 

 

 

Denmark - 1.2%

      

Coloplast A/S Class B

   20,495      1,004 

Danske Bank A/S (Æ)

   88,876      1,511 

Novo Nordisk A/S Class B

   10,884      1,778 
      

 

 

 
       4,293 
      

 

 

 
   

Principal
Amount ($)

or Shares

     Fair
Value
$
 

France - 9.2%

      

Air Liquide SA Class A

   15,147      1,898 

Arkema SA

   11,516      1,211 

BNP Paribas SA

   39,259      2,213 

Capital Gemini SA

   49,875      2,174 

Casino Guichard Perrachon SA (Æ)

   4,400      423 

Credit Agricole SA (Æ)

   80,585      654 

Danone SA

   28,346      1,873 

Dassault Systemes SA

   16,345      1,829 

GDF Suez

   34,400      709 

Lagardere SCA

   28,031      952 

Legrand SA - ADR

   25,698      1,085 

LVMH Moet Hennessy Louis Vuitton SA - ADR

   10,780      2,009 

Natixis

   112,358      389 

Pernod-Ricard SA

   15,935      1,874 

Rallye SA

   43,885      1,474 

Sanofi - ADR

   59,711      5,662 

Schneider Electric SA

   26,383      1,968 

Technip SA

   11,442      1,317 

Total SA

   42,275      2,188 

UBISOFT Entertainment (Æ)

   81,400      871 
      

 

 

 
       32,773 
      

 

 

 

Germany - 7.5%

      

Bayer AG

   32,016      3,041 

Bayerische Motoren Werke AG

   17,917      1,728 

Beiersdorf AG (Æ)

   22,235      1,817 

Brenntag AG

   6,136      806 

Deutsche Boerse AG

   56,437      3,445 

E.ON SE

   34,175      636 

Fresenius SE & Co. KGaA

   13,274      1,528 

Henkel AG & Co. KGaA

   6,362      436 

Linde AG

   14,389      2,509 

Merck KGaA

   9,953      1,313 

MTU Aero Engines Holding AG

   29,071      2,642 

SAP AG - ADR

   41,562      3,329 

Siemens AG

   15,925      1,731 

Volkswagen AG

   8,166      1,754 
      

 

 

 
       26,715 
      

 

 

 

Hong Kong - 1.5%

      

AIA Group, Ltd.

   758,000      3,021 

China Mobile, Ltd.

   112,000      1,312 

China Unicom Hong Kong, Ltd.

   502,000      814 

CNOOC, Ltd.

   162,000      356 
      

 

 

 
       5,503 
      

 

 

 

India - 0.4%

      

ICICI Bank, Ltd. - ADR

   30,803      1,343 
      

 

 

 

Indonesia - 0.3%

      

Bank Rakyat Indonesia Persero Tbk PT

   1,241,500      904 
      

 

 

 

Ireland - 0.2%

      

DCC PLC

   27,300      871 
      

 

 

 
 

 

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Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     Fair
Value
$
 
      

Israel - 0.8%

      

Check Point Software Technologies, Ltd. (Æ)(Ñ)

   36,998      1,763 

Teva Pharmaceutical Industries, Ltd. - ADR

   25,800      963 
      

 

 

 
       2,726 
      

 

 

 

Italy - 2.2%

      

Enel SpA

   270,325      1,125 

ENI SpA - ADR

   136,207      3,360 

Finmeccanica SpA (Æ)

   90,846      526 

Snam Rete Gas SpA

   341,525      1,588 

Telecom Italia SpA

   1,338,100      1,210 
      

 

 

 
       7,809 
      

 

 

 

Japan - 13.5%

      

Amada Co., Ltd.

   289,700      1,885 

Canon, Inc. (Ñ)

   109,000      4,275 

Dai-ichi Life Insurance Co., Ltd. (The)

   575      809 

Daito Trust Construction Co., Ltd.

   5,800      546 

Denso Corp.

   54,600      1,900 

FANUC Corp.

   15,700      2,919 

Fuji Heavy Industries, Ltd.

   60,000      755 

Honda Motor Co., Ltd.

   54,600      2,012 

Hoya Corp.

   52,100      1,026 

Inpex Corp.

   257      1,372 

ITOCHU Corp.

   239,400      2,527 

Japan Tobacco, Inc.

   24,400      688 

KDDI Corp.

   23,400      1,653 

Lawson, Inc.

   18,500      1,258 

Mabuchi Motor Co., Ltd.

   33,500      1,428 

Makita Corp.

   24,900      1,158 

Mitsubishi UFJ Financial Group, Inc.

   186,700      1,005 

MS&AD Insurance Group Holdings

   67,100      1,341 

Nintendo Co., Ltd.

   3,300      352 

NTT DOCOMO, Inc.

   955      1,372 

ORIX Corp.

   17,590      1,985 

Shin-Etsu Chemical Co., Ltd.

   68,600      4,191 

Sumitomo Corp.

   145,400      1,864 

Sumitomo Mitsui Financial Group, Inc.

   74,300      2,699 

THK Co., Ltd.

   69,700      1,252 

Toshiba TEC Corp. (Ñ)

   97,479      493 

Toyota Motor Corp.

   35,100      1,638 

Toyota Tsusho Corp.

   45,300      1,118 

Yokogawa Electric Corp.

   246,000      2,676 
      

 

 

 
       48,197 
      

 

 

 

Jersey - 2.9%

      

Delphi Automotive PLC (Æ)

   70,968      2,714 

Experian PLC

   54,437      880 

Glencore International PLC (Ñ)

   243,478      1,419 

Wolseley PLC - ADR

   29,693      1,411 

WPP PLC

   263,363      3,829 
      

 

 

 
       10,253 
      

 

 

 
   

Principal
Amount ($)

or Shares

     Fair
Value
$
 

Luxembourg - 0.2%

      

ArcelorMittal

   35,973      623 

Oriflame Cosmetics SA (Ñ)

   5,600      179 
      

 

 

 
       802 
      

 

 

 

Mexico - 0.4%

      

Fomento Economico Mexicano SAB de CV - ADR

   10,615      1,069 

Grupo Fin Santander ADR B - ADR (Æ)

   19,912      322 
      

 

 

 
       1,391 
      

 

 

 

Netherlands - 6.1%

      

Aegon NV

   221,959      1,415 

Akzo Nobel NV

   61,217      4,040 

Delta Lloyd NV

   61,800      1,029 

European Aeronautic Defence and Space Co. NV

   25,265      990 

Heineken NV

   36,624      2,442 

ING Groep NV (Æ)

   515,977      4,934 

Koninklijke Philips Electronics NV

   79,604      2,136 

Randstad Holding NV (Æ)

   44,110      1,628 

Reed Elsevier NV (Æ)

   87,350      1,294 

Unilever NV

   45,313      1,710 
      

 

 

 
       21,618 
      

 

 

 

Norway - 1.9%

      

DNB ASA

   157,500      2,008 

Marine Harvest ASA (Æ)

   2,258,600      2,093 

Orkla ASA

   180,500      1,580 

Statoil ASA Class N

   49,144      1,233 
      

 

 

 
       6,914 
      

 

 

 

Russia - 0.8%

      

Gazprom OAO - ADR (Æ)

   184,790      1,772 

Rosneft Oil Co. - GDR

   136,000      1,228 
      

 

 

 
       3,000 
      

 

 

 

Singapore - 2.0%

      

DBS Group Holdings, Ltd.

   94,000      1,151 

Jardine Cycle & Carriage, Ltd.

   92,500      3,680 

Singapore Telecommunications, Ltd.

   143,000      389 

United Overseas Bank, Ltd.

   128,100      2,098 
      

 

 

 
       7,318 
      

 

 

 

South Africa - 0.8%

      

Aspen Pharmacare Holdings, Ltd. (Æ)

   29,605      592 

Discovery Holdings, Ltd.

   139,526      1,027 

FirstRand, Ltd.

   293,506      1,085 

MTN Group, Ltd.

   9,925      209 
      

 

 

 
       2,913 
      

 

 

 

South Korea - 1.3%

      

Hana Financial Group, Inc.

   8,390      274 
 

 

Non-U.S. Fund 53


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

     Fair
Value
$
 
      

Samsung Electronics Co., Ltd.

   1,897      2,716 

Shinhan Financial Group Co., Ltd. (Æ)

   43,471      1,581 
      

 

 

 
       4,571 
      

 

 

 

Spain - 1.9%

      

Amadeus IT Holding SA Class A

   52,705      1,323 

Banco Santander SA - ADR

   317,452      2,560 

Inditex SA

   12,120      1,697 

Indra Sistemas SA (Ñ)

   56,450      758 

Red Electrica Corp. SA (Ñ)

   8,110      401 
      

 

 

 
       6,739 
      

 

 

 

Sweden - 0.7%

      

Atlas Copco AB Class A

   55,098      1,526 

Hennes & Mauritz AB Class B

   25,968      902 
      

 

 

 
       2,428 
      

 

 

 

Switzerland - 8.6%

      

ABB, Ltd. (Æ)

   62,900      1,306 

ABB, Ltd. - ADR (Æ)

   28,700      597 

ACE, Ltd.

   9,950      794 

Credit Suisse Group AG (Æ)

   45,012      1,129 

GAM Holding AG (Æ)

   60,701      834 

Geberit AG (Æ)

   4,574      1,013 

Givaudan SA (Æ)

   188      199 

Helvetia Holding AG

   1,000      380 

Julius Baer Group, Ltd. (Æ)

   35,698      1,284 

Kuehne & Nagel International AG

   3,847      468 

Lindt & Spruengli AG (Æ)

   14      528 

Nestle SA

   60,223      3,925 

Novartis AG

   75,175      4,760 

Partners Group Holding AG

   5,023      1,160 

Roche Holding AG

   14,030      2,858 

Sonova Holding AG (Æ)

   4,992      553 

Swiss Re AG (Æ)

   11,069      808 

Syngenta AG

   4,373      1,764 

TE Connectivity, Ltd.

   45,400      1,685 

UBS AG (Æ)

   193,299       3,040 

Zurich Insurance Group AG (Æ)

   5,653       1,512 
      

 

 

 
       30,597 
      

 

 

 

Taiwan - 1.4%

      

Hon Hai Precision Industry Co., Ltd.

   731,386       2,254 

Hon Hai Precision Industry Co., Ltd. - GDR

   27,462       166 

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

   79,323       1,361 

Teco Electric and Machinery Co., Ltd.

   1,426,000       1,096 
      

 

 

 
       4,877 
      

 

 

 

United Kingdom - 20.8%

      

Anglo American PLC

   50,174       1,602 

ARM Holdings PLC

   109,573       1,401 

Aviva PLC

   145,971       881 

Babcock International Group PLC

   56,288       874 

BAE Systems PLC

   399,900       2,197 
   

Principal
Amount ($)

or Shares

     Fair
Value
$
 

Barclays PLC

   925,015       3,994 

Berkeley Group Holdings PLC

   33,404       976 

BG Group PLC

   40,827       685 

BP PLC

   579,344       4,014 

BP PLC - ADR

   7,200       300 

Carillion PLC

   158,375       831 

Compass Group PLC

   284,449       3,364 

Dairy Crest Group PLC

   187,209       1,165 

Diageo PLC

   103,964       3,027 

DS Smith PLC Class F (Æ)

   357,650       1,195 

GlaxoSmithKline PLC - ADR

   70,800       1,537 

Hays PLC

   280,830       377 

HSBC Holdings PLC

   585,874       6,203 

Imperial Tobacco Group PLC

   114,647       4,426 

InterContinental Hotels Group PLC - ADR

   42,489       1,195 

Intertek Group PLC

   21,333       1,077 

Invensys PLC

   451,700       2,454 

John Wood Group PLC

   65,789       777 

Johnson Matthey PLC

   29,759       1,143 

National Grid PLC

   202,200       2,316 

Reckitt Benckiser Group PLC

   25,658       1,607 

Rio Tinto PLC (Æ)

   31,762       1,851 

Rolls-Royce Holdings PLC (Æ)

   50,267       724 

Royal Bank of Scotland Group PLC (Æ)

   140,762       758 

Royal Dutch Shell PLC Class A

   191,896       6,643 

Royal Dutch Shell PLC Class B

   41,885       1,482 

Sage Group PLC (The)

   213,221       1,021 

Smith & Nephew PLC

   116,585       1,290 

Smiths Group PLC

   53,579       1,055 

Standard Chartered PLC

   91,738       2,325 

Travis Perkins PLC

   123,275       2,189 

Vodafone Group PLC - ADR (Æ)

   1,706,592       4,292 

Weir Group PLC (The)

   33,045       1,026 
      

 

 

 
       74,274 
      

 

 

 

United States - 1.0%

      

MercadoLibre, Inc. (Ñ)

   10,000       786 

Philip Morris International, Inc.

   33,600       2,810 
      

 

 

 
       3,596 
      

 

 

 
Total Common Stocks
(cost $291,030)
       337,387 
      

 

 

 
Preferred Stocks - 0.4%      

Brazil - 0.3%

      

Usinas Siderurgicas de Minas Gerais SA (Æ)

   134,175       875 
      

 

 

 

Germany - 0.1%

      

Porsche Automobil Holding SE

   5,550       452 
      

 

 

 
Total Preferred Stocks
(cost $786)
       1,327 
      

 

 

 
 

 

 54   Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   

Principal
Amount ($)

or Shares

   Fair
Value
$
 
    
Short-Term Investments - 4.9%    

United States - 4.9%

    

Russell U.S. Cash Management Fund

   17,412,944 (¥   17,413 
    

 

 

 
Total Short-Term Investments
(cost $17,413)
     17,413 
    

 

 

 
Other Securities - 2.3%    

Russell U.S. Cash Collateral Fund (×)

   8,219,339 (¥   8,219 
    

 

 

 
Total Other Securities
(cost $8,219)
     8,219 
    

 

 

 
Total Investments - 102.1%
(identified cost $317,448)
     364,346 
Other Assets and Liabilities,
Net - (2.1%)
     (7,490
    

 

 

 
Net Assets - 100.0%     356,856 
    

 

 

 

 

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

 

Non-U.S. Fund 55


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except contract amounts)

 

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

Long Positions

               

ASX SPI 200 Index Futures (Australia)

   12      AUD    1,385      03/13       11 

CAC 40 Index Futures (France)

   50      EUR    1,821      01/13       4 

DAX Index Futures (Germany)

   8      EUR    1,524      03/13       5 

EURO STOXX 50 Index Futures (EMU)

   121      EUR    3,164      03/13       (16)  

FTSE 100 Index Futures (UK)

   37      GBP    2,164      03/13       (31)  

Hang Seng Index Futures (Hong Kong)

   5      HKD    5,669      01/13       3 

S&P TSE 60 Index Futures (Canada)

   8      CAD    1,138      03/13       17 

TOPIX Index Futures (Japan)

   33      JPY    284,295      03/13       271 
               

 

 

 

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å)

  

     264 
               

 

 

 

Amounts in thousands

 

Foreign Currency Exchange Contracts 

Counterparty

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

Citibank

  AUD  160     USD 165   03/20/13      

Citibank

  CAD  230     USD 232   03/20/13     1 

Citibank

  EUR  700     USD 923   03/20/13     (1

Citibank

  GBP  150     USD 242   03/20/13     (2

Citibank

  HKD  700     USD 90   03/20/13      

Citibank

  JPY  30,000     USD 354   03/21/13     7 

Commonwealth Bank of Australia

  USD  475     AUD 453   03/20/13     (7

Commonwealth Bank of Australia

  USD  617     CAD 609   03/20/13     (6

Commonwealth Bank of Australia

  USD  2,500     EUR 1,916   03/20/13     30 

Commonwealth Bank of Australia

  USD  1,077     GBP 667   03/20/13     7 

Commonwealth Bank of Australia

  USD  201     HKD 1,556   03/20/13      

Commonwealth Bank of Australia

  USD  978     JPY 80,972   03/21/13     (43

Deutsche Bank AG

  USD  475     AUD 453   03/20/13     (7

Deutsche Bank AG

  USD  616     CAD 609   03/20/13     (5

Deutsche Bank AG

  USD  2,500     EUR 1,916   03/20/13     30 

Deutsche Bank AG

  USD  1,077     GBP 667   03/20/13     7 

Deutsche Bank AG

  USD  201     HKD 1,556   03/20/13      

Deutsche Bank AG

  USD  978     JPY 80,972   03/21/13     (43

JPMorgan Chase Bank

  USD  475     AUD 453   03/20/13     (7

JPMorgan Chase Bank

  USD  617     CAD 609   03/20/13     (5

JPMorgan Chase Bank

  USD  2,501     EUR 1,916   03/20/13     30 

JPMorgan Chase Bank

  USD  1,077     GBP 667   03/20/13     7 

JPMorgan Chase Bank

  USD  201     HKD 1,556   03/20/13      

JPMorgan Chase Bank

  USD  978     JPY 80,972   03/21/13     (43

JPMorgan Chase Bank

  AUD  100     USD 105   03/20/13     2 

JPMorgan Chase Bank

  CAD  200     USD 203   03/20/13     2 

JPMorgan Chase Bank

  EUR  200     USD 262   03/20/13     (3

JPMorgan Chase Bank

  GBP  100     USD 161   03/20/13     (1

State Street Bank & Trust Co.

  USD  101     CAD 100   03/20/13     (1

State Street Bank & Trust Co.

  USD  43     EUR 33   01/02/13      

State Street Bank & Trust Co.

  USD  53     EUR 40   01/03/13      

State Street Bank & Trust Co.

  USD  10     EUR 7   01/04/13      

State Street Bank & Trust Co.

  USD  265     EUR 200   03/20/13     (1

State Street Bank & Trust Co.

  USD  16     HKD 123   01/02/13      

State Street Bank & Trust Co.

  USD  11     HKD 81   01/03/13      

 

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

 

 56   Non-U.S. Fund


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands

 

Foreign Currency Exchange Contracts 

Counterparty

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

State Street Bank & Trust Co.

  USD  22     HKD 167   01/03/13      

State Street Bank & Trust Co.

  USD  19     JPY 1,657   01/04/13      

State Street Bank & Trust Co.

  USD  37     JPY 3,195   01/07/13      

State Street Bank & Trust Co.

  USD  50     JPY 4,344   01/07/13      

State Street Bank & Trust Co.

  USD  35     JPY 3,044   01/08/13      

State Street Bank & Trust Co.

  USD  37     JPY 3,178   01/08/13      

State Street Bank & Trust Co.

  USD  33     KRW 35,056   01/02/13      

State Street Bank & Trust Co.

  AUD  50     USD 52   03/20/13      

State Street Bank & Trust Co.

  AUD  100     USD 103   03/20/13      

State Street Bank & Trust Co.

  CAD  50     USD 50   03/20/13      

State Street Bank & Trust Co.

  CAD  120     USD 121   03/20/13      

State Street Bank & Trust Co.

  CHF  3     USD 3   01/03/13      

State Street Bank & Trust Co.

  CHF       USD    01/04/13      

State Street Bank & Trust Co.

  EUR  6     USD 7   01/03/13      

State Street Bank & Trust Co.

  EUR  1     USD 1   01/04/13      

State Street Bank & Trust Co.

  EUR  100     USD 132   03/20/13      

State Street Bank & Trust Co.

  EUR  100     USD 132   03/20/13      

State Street Bank & Trust Co.

  EUR  170     USD 225   03/20/13     1 

State Street Bank & Trust Co.

  EUR  200     USD 264   03/20/13      

State Street Bank & Trust Co.

  EUR  450     USD 593   03/20/13     (1

State Street Bank & Trust Co.

  GBP  100     USD 162   03/20/13     (1

State Street Bank & Trust Co.

  GBP  100     USD 162   03/20/13      

State Street Bank & Trust Co.

  GBP  170     USD 275   03/20/13     (1

State Street Bank & Trust Co.

  HKD  700     USD 90   03/20/13      

State Street Bank & Trust Co.

  JPY  9,815     USD 115   01/04/13     2 

State Street Bank & Trust Co.

  JPY  2,066     USD 24   01/07/13      

State Street Bank & Trust Co.

  JPY  10,000     USD 119   03/21/13     3 

State Street Bank & Trust Co.

  JPY  20,000     USD 238   03/21/13     7 

State Street Bank & Trust Co.

  JPY  20,000     USD 231   03/21/13      

Westpac Banking Corp.

  USD  475     AUD 453   03/20/13     (7

Westpac Banking Corp.

  USD  617     CAD 609   03/20/13     (5

Westpac Banking Corp.

  USD  2,500     EUR 1,916   03/20/13     30 

Westpac Banking Corp.

  USD  1,077     GBP 667   03/20/13     7 

Westpac Banking Corp.

  USD  201     HKD 1,556   03/20/13      

Westpac Banking Corp.

  USD  978     JPY 80,972   03/21/13     (44
            

 

 

 

Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts

  

   (61
            

 

 

 

 

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

 

Non-U.S. Fund 57


Table of Contents

Russell Investment Funds

Non-U.S. Fund

Presentation of Portfolio Holdings — December 31, 2012

Amounts in thousands

 

 

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

Common Stocks

              

Australia

  $ —     $1,485   $ —      $1,485    0.4  

Austria

         2,136          2,136    0.6  

Belgium

         1,233          1,233    0.3  

Bermuda

   4,205      2,717          6,922    1.9  

Brazil

   2,617      2,058          4,675    1.3  

Canada

   5,553                5,553    1.6  

Cayman Islands

   1,002      1,265          2,267    0.6  

Czech Republic

         691          691    0.2  

Denmark

         4,293          4,293    1.2  

France

         32,773          32,773    9.2  

Germany

         26,715          26,715    7.5  

Hong Kong

         5,503          5,503    1.5  

India

   1,343                1,343    0.4  

Indonesia

         904          904    0.3  

Ireland

         871          871    0.2  

Israel

   2,726                2,726    0.8  

Italy

         7,809          7,809    2.2  

Japan

         48,197          48,197    13.5  

Jersey

   2,714      7,539          10,253    2.9  

Luxembourg

         802          802    0.2  

Mexico

   1,391                1,391    0.4  

Netherlands

         21,618          21,618    6.1  

Norway

         6,914          6,914    1.9  

Russia

         3,000          3,000    0.8  

Singapore

         7,318          7,318    2.0  

South Africa

         2,913          2,913    0.8  

South Korea

         4,571          4,571    1.3  

Spain

         6,739          6,739    1.9  

Sweden

         2,428          2,428    0.7  

Switzerland

   3,076      27,521          30,597    8.6  

Taiwan

   1,361      3,516          4,877    1.4  

United Kingdom

   300      73,974          74,274    20.8  

United States

   3,596                3,596    1.0  

Preferred Stocks

         1,327          1,327    0.4  

Short-Term Investments

         17,413          17,413    4.9  

Other Securities

         8,219          8,219    2.3  
  

 

 

     

 

 

   

 

 

     

 

 

   

 

 

 

Total Investments

   29,884      334,462          364,346    102.1  
  

 

 

     

 

 

   

 

 

     

 

 

   

Other Assets and Liabilities, Net

               (2.1
              

 

 

 
               100.0  
              

 

 

 

Other Financial Instruments

              

Futures Contracts

   264                264    0.1  

Foreign Currency Exchange Contracts

          (61         (61   (—)* 
  

 

 

     

 

 

   

 

 

     

 

 

   

Total Other Financial Instruments**

  $264     $(61  $ —      $203   
  

 

 

     

 

 

   

 

 

     

 

 

   

 

* Less than .05% of net assets.
** Other financial instruments reflected in the Schedule of Investments, such as futures, forwards, interest rate swaps, and credit default swaps 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.

For disclosure on transfers between Levels 1, 2 and 3 during the period ended December 31, 2012, see note 2 in the Notes to Financial Statements.

 

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

 

 58   Non-U.S. Fund


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Russell Investment Funds

Non-U.S. Fund

Fair Value of Derivative Instruments — December 31, 2012

Amounts in thousands

 

Derivatives not accounted for as hedging instruments  Equity
Contracts
   Foreign
Currency
Contracts
 
    

Location: Statement of Assets and Liabilities - Assets

    

Unrealized appreciation on foreign currency exchange contracts

  $ —   $173 

Daily variation margin on futures contracts*

   311     
  

 

 

   

 

 

 

Total

  $311   $173 
  

 

 

   

 

 

 

Location: Statement of Assets and Liabilities - Liabilities

    

Unrealized depreciation on foreign currency exchange contracts

  $ —   $234  

Daily variation margin on futures contracts*

   47     
  

 

 

   

 

 

 

Total

  $47   $234  
  

 

 

   

 

 

 
Derivatives not accounted for as hedging instruments  Equity
Contracts
   Foreign
Currency
Contracts
 

Location: Statement of Operations - Net realized gain (loss)

    

Futures contracts

  $3,139   $ — 

Foreign currency-related transactions**

       (214)
  

 

 

   

 

 

 

Total

  $3,139   $(214)
  

 

 

   

 

 

 

Location: Statement of Operations - Net change in unrealized appreciation (depreciation)

    

Futures contracts

  $171   $ — 

Foreign currency-related transactions***

       333  
  

 

 

   

 

 

 

Total

  $171   $333  
  

 

 

   

 

 

 

 

* Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
** Only includes net realized gain (loss) on forward and spot contracts. May differ from the net realized gain (loss) on foreign currency-related transactions reported within the Statement of Operations.
*** Only includes change in unrealized gain (loss) on forward and spot contracts. May differ from the net change in unrealized gain (loss) on foreign currency-related transactions reported within the Statement of Operations.

For further disclosure on derivatives see note 2 in Notes to Financial Statements.

 

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

 

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Russell Investment Funds

Non-U.S. Fund

Statement of Assets and Liabilities — December 31, 2012

 

Amounts in thousands    

Assets

 

Investments, at identified cost

 $317,448 

Investments, at fair value**, ***

  364,346 

Cash (restricted)(a)

  1,300 

Foreign currency holdings*

  119 

Unrealized appreciation on foreign currency exchange contracts

  173 

Receivables:

 

Dividends and interest

  340 

Dividends from affiliated Russell funds

  2 

Investments sold

  170 

Fund shares sold

  9 

Foreign taxes recoverable

  225 

Daily variation margin on futures contracts

  48 

Other receivable

  4 
 

 

 

 

Total assets

  366,736 
 

 

 

 

Liabilities

 

Payables:

 

Investments purchased

  1,003 

Fund shares redeemed

  29 

Accrued fees to affiliates

  273 

Other accrued expenses

  85 

Daily variation margin on futures contracts

  37 

Unrealized depreciation on foreign currency exchange contracts

  234 

Payable upon return of securities loaned

  8,219 
 

 

 

 

Total liabilities

  9,880 
 

 

 

 
 

Net Assets

 $356,856 
 

 

 

 

Net Assets Consist of:

 

Undistributed (overdistributed) net investment income

 $3,951 

Accumulated net realized gain (loss)

  (94,958

Unrealized appreciation (depreciation) on:

 

Investments (net of deferred tax liability for foreign capital gains taxes)

  46,898 

Futures contracts

  264 

Foreign currency-related transactions

  (61

Other investments

  4 

Shares of beneficial interest

  346 

Additional paid-in capital

  400,412 
 

 

 

 

Net Assets

 $356,856 
 

 

 

 

Net Asset Value, offering and redemption price per share:

 

Net asset value per share: (#)

 $10.31  

Net assets

 $    356,855,765 

Shares outstanding ($.01 par value)

  34,596,340 

Amounts in thousands

 

*           Foreign currency holdings - cost

 $119 

**         Securities on loan included in investments

 $9,556 

***      Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund

 $25,632 

(a) Cash Collateral for Futures

 $1,300 

 

(#)Net asset value per share equals net assets divided by shares of beneficial interest outstanding.

 

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

 

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Russell Investment Funds

Non-U.S. Fund

Statement of Operations — For the Period Ended December 31, 2012

 

Amounts in thousands    

Investment Income

 

Dividends

 $10,585 

Dividends from affiliated Russell funds

  26 

Securities lending income

  319 

Less foreign taxes withheld

  (845
 

 

 

 

Total investment income

  10,085 
 

 

 

 

Expenses

 

Advisory fees

  3,070 

Administrative fees

  170 

Custodian fees

  246 

Transfer agent fees

  15 

Professional fees

  82 

Trustees’ fees

  9 

Printing fees

  30 

Miscellaneous

  20 
 

 

 

 

Expenses before reductions

  3,642 

Expense reductions

  (182
 

 

 

 

Net expenses

  3,460 
 

 

 

 

Net investment income (loss)

  6,625 
 

 

 

 

Net Realized and Unrealized Gain (Loss)

 

Net realized gain (loss) on:

 

Investments (net of deferred tax liability for foreign capital gains taxes)

  (813

Futures contracts

  3,139 

Foreign currency-related transactions

  (594
 

 

 

 

Net realized gain (loss)

  1,732 
 

 

 

 

Net change in unrealized appreciation (depreciation) on:

 

Investments (net of deferred tax liability for foreign capital gains taxes)

  53,496 

Futures contracts

  171 

Foreign currency-related transactions

  346 

Other investments

  (3
 

 

 

 

Net change in unrealized appreciation (depreciation)

  54,010 
 

 

 

 

Net realized and unrealized gain (loss)

  55,742 
 

 

 

 

Net Increase (Decrease) in Net Assets from Operations

 $    62,367 
 

 

 

 

 

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

 

Non-U.S. Fund 61


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Russell Investment Funds

Non-U.S. Fund

Statements of Changes in Net Assets

 

  For the Periods Ended December 31, 
Amounts in thousands 2012   2011 

Increase (Decrease) in Net Assets

   

Operations

   

Net investment income (loss)

 $6,625   $6,345 

Net realized gain (loss)

  1,732    4,733 

Net change in unrealized appreciation (depreciation)

  54,010    (58,506
 

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

  62,367    (47,428
 

 

 

   

 

 

 

Distributions

   

From net investment income

  (6,051   (6,022
 

 

 

   

 

 

 

Net decrease in net assets from distributions

  (6,051   (6,022
 

 

 

   

 

 

 

Share Transactions*

   

Net increase (decrease) in net assets from share transactions

  (29,038   16,122 

Fund Reimbursements

      36 
 

 

 

   

 

 

 

Total Net Increase (Decrease) in Net Assets

  27,278    (37,292

Net Assets

   

Beginning of period

  329,578    366,870 
 

 

 

   

 

 

 

End of period

 $    356,856   $    329,578 
 

 

 

   

 

 

 

Undistributed (overdistributed) net investment income included in net assets

 $3,951   $4,090 

 

*Share transaction amounts (in thousands) for the periods ended December 31, 2012 and December 31, 2011 were as follows:

 

   2012  2011 
   Shares  Dollars  Shares  Dollars 
     

Proceeds from shares sold

   2,308  $21,577   4,119  $39,765 

Proceeds from reinvestment of distributions

   606   6,051   603   6,023 

Payments for shares redeemed

   (5,992  (56,666  (2,983  (29,666
  

 

 

  

 

 

  

 

 

  

 

 

 

Total increase (decrease)

   (3,078 $(29,038  1,739  $16,122 
  

 

 

  

 

 

  

 

 

  

 

 

 

 

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

 

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Table of Contents

Russell Investment Funds

Non-U.S. Fund

Financial Highlights — For the Periods Ended

For a Share Outstanding Throughout Each Period.

 

        
$
Net Asset Value,
Beginning of
Period
   $
Net Investment
Income (Loss)
(a)(b)
   $
Net Realized
and Unrealized
Gain (Loss)
   $
Total from
Investment
Operations
   $
Distributions
from Net
Investment Income
   

$
Distributions

from Net

Realized Gain

   $
Total
Distributions
 

December 31, 2012

   8.75     .18     1.55     1.73     (.17       (.17

December 31, 2011

   10.21     .17     (1.46   (1.29   (.17       (.17

December 31, 2010

   9.25     .12     .92     1.04     (.08       (.08

December 31, 2009

   7.48     .12     1.88     2.00     (.23       (.23

December 31, 2008

   13.20     .21     (5.83   (5.62       (.10   (.10

 

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

 

 64   Non-U.S. Fund


Table of Contents
$
Net Asset
Value, End
of Period
  %
Total
Return
(d)
  $
Net Assets,
End of Period
(000)
  %
Ratio of
Expenses to
Average Net
Assets, Gross
  %
Ratio of Expenses
to Average Net
Assets, Net
(b)
  

%
Ratio of Net
Investment Income
to Average

Net  Assets(b)

  %
Portfolio
Turnover Rate
 
 10.31    19.81    356,856   1.07    1.01    1.94    47 
 8.75    (12.88  329,578   1.10    1.04    1.74    49 
 10.21    11.42    366,870   1.12    1.06    1.30    49 
 9.25    27.33    322,145   1.12    1.04    1.56    133 
 7.48    (42.79  255,750   1.21    1.15    2.01    123 

 

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

 

Non-U.S. Fund 65


Table of Contents

Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

LOGO

 

Core Bond Fund 

 

  Total
Return
 

1 Year

   8.38

5 Years

   6.87%§ 

10 Years

   5.80%§ 
Barclays U.S. Aggregate Bond Index** 

 

  Total
Return
 

1 Year

   4.21

5 Years

   5.95%§ 

10 Years

   5.18%§ 
 

 

 66   Core Bond Fund


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Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (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 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. As of December 31, 2012, the Fund had five 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, 2012?

For the fiscal year ended December 31, 2012, the Core Bond Fund gained 8.38%. This is compared to the Fund’s benchmark, the Barclays U.S. Aggregate Bond Index, which gained 4.21% 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 fiscal year ended December 31, 2012, the Lipper® BBB Rated Corporate Debt Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 9.98%. For the same period, the Lipper® Intermediate Investment Grade Debt Funds Average, another group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 6.82%. These returns serve as peer comparisons and are expressed net of operating expenses.

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

The positive macroeconomic developments throughout the year contributed to a risk-on environment that was beneficial for credit risk assets (i.e., assets that are sensitive to movements in the credit markets). The actions of the European Central Bank, U.S. Federal Reserve (the “Fed”) and other central banks across the globe helped reduce perceived systemic risk related to the European debt crisis and the general health of the global financial system. With a perceived reduction of market risk, investors were more comfortable allocating more of their capital towards risk assets which supported a risk-on environment for most of the fiscal year. This environment had a positive effect on Fund performance.

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

During the fiscal year, the Fund’s money managers tended to invest in non-Treasury sectors and non-benchmark securities, such as high yield corporate, non-agency mortgage-backed securities and emerging market debt. These securities outperformed supported by the overall “risk-on” market

environment over the fiscal year. Derivatives used to gain credit exposure were not a material contributor to Fund performance.

The Fund’s money managers also tended to seek positive real yields in the longer term after adjusting for the effects of inflation. This led the Fund’s managers to underweight duration when U.S. Treasury yields fell towards historically low levels, which were also below inflation levels, implying negative real yields. Given the Fed’s action to lower the cost of borrowing through depressing yields, this strategy underperformed modestly. However, it was offset by yield curve strategies, which contributed positively. The combination of interest rate derivatives and physical bonds contributed neutrally to Fund performance.

Macro Currency Group — an investment group within Principal Global Investors LLC (“Macro”) was added to the Fund in June 2012 and underperformed the Fund’s benchmark for the portion of the fiscal year in which it was a money manager for the Fund. This was primarily due to a short on the Euro. This underperformance is within expectations given the credit rally, as Macro tends to have exposures negatively correlated to credit assets.

Logan Circle Partners, L.P. outperformed the Fund’s benchmark for the fiscal year due primarily to its overweights to the investment-grade corporate credit sector, as well as overweights to corporate high yield, commercial mortgage backed securities, non-agency residential mortgage and asset backed securities sectors.

Metropolitan West Asset Management, LLC outperformed the Fund’s benchmark for the fiscal year primarily due to an overweight position to the non-agency mortgage-backed security sector. Further gains were made through overweights to the corporate high yield, investment grade corporate and commercial mortgage backed securities sectors.

Pacific Investment Management Company LLC (“PIMCO”) outperformed the Fund’s benchmark for the fiscal year. PIMCo put significant emphasis on non-agency mortgage securities and emerging market debt. These contributed positively to its relative performance. PIMCO also added value through its yield curve strategies.

Goldman Sachs Asset Management, L.P. (“Goldman”) was terminated in May 2012 and outperformed the Fund’s benchmark for the portion of the fiscal year in which it was a money manager for the Fund. Goldman’s positive performance was supported by overweights to corporate high yield, non-agency residential mortgage backed securities and emerging market debt.

Colchester Global Investors Limited (“Colchester”) was added to the Fund in June 2012 and outperformed the Fund’s benchmark for the portion of the fiscal year in which it was a money manager for the Fund. This was due to positions held in both foreign exchange and global government bonds. On the

 

 

Core Bond Fund 67


Table of Contents

Russell Investment Funds

Core Bond Fund

Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)

 

 

 

foreign exchange side, Long Mexican Peso and Swedish Krona positions were positive while short positions in the Australian Dollar detracted. Positions in Irish and Italian bonds were positive contributors. In addition, Colchester exposed cash held in connection with its investment strategy to the performance of the Fund’s index through the use of interest rate futures, interest rate swaps and credit default swaps. This basket of derivatives was underweight to credit relative to benchmark, which detracted from performance.

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

In May 2012, RIMCo terminated Goldman Sachs Asset Management, L.P. In June, 2012, RIMCo hired Macro Currency Group — an investment group within Principal Global Investors LLC, and Colchester Global Investors Limited.

 

Money Managers as of December 31, 2012 Styles
Colchester Global Investors Limited Fully discretionary
Logan Circle Partners, L.P. Fully discretionary
Macro Currency Group — an investment group within Principal Global Investors LLC* Sector Specialist
Metropolitan West Asset Management, LLC Fully discretionary
Pacific Investment Management Company LLC Fully discretionary

* Principal Global Investors LLC is the asset management arm of the Principal Financial Group® (The Principal®), which includes various member companies including Principal Global Investors LLC, Principal Global Investors (Europe) Limited, and others. The Macro Currency Group is the specialist currency investment group within Principal Global Investors. Where used herein, Macro Currency Group means Principal Global Investors LLC.

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 a Russell Investment Funds (“RIF”) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund.

 

 

 

 

 

* Assumes initial investment on January 1, 2002.

 

** The Barclays 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.

 

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Russell Investment Funds

Core Bond Fund

Shareholder Expense Example — December 31, 2012 (Unaudited)

 

 

 

Fund Expenses

The following disclosure provides important information regarding the Fund’s Shareholder Expense Example (“Example”).

Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative 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, 2012 to December 31, 2012.

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 fees 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, 2012

  $1,000.00    $1,000.00  

Ending Account Value

    

December 31, 2012

  $1,038.30    $1,021.72  

Expenses Paid During Period*

  $3.48    $3.46  

 

*Expenses are equal to the Fund’s annualized expense ratio of 0.68% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period). May reflect amounts waived, reimbursed and/or other credits. Without any waivers, reimbursements and/or other credits, expenses would have been higher.
 

 

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Russell Investment Funds

Core Bond Fund

Schedule of Investments — December 31, 2012

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
     Fair
Value
$
 
      
Long-Term Investments - 77.5%  

Asset-Backed Securities - 5.4%

      

Access Group, Inc.

      

Series 2008-1 Class A

      

1.615% due 10/27/25 (Ê)

   552      560 

ACE Securities Corp.

      

Series 2005-SD3 Class A

      

0.610% due 08/25/45 (Ê)

   35       34 

Ally Auto Receivables Trust 2010-1

      

Series 2010-1 Class A4

      

2.300% due 12/15/14

   380      384 

Ally Master Owner Trust

      

Series 2011-3 Class A2

      

1.810% due 05/15/16

   600      609 

Series 2012-1 Class A2

      

1.440% due 02/15/17

   445      451 

AmeriCredit Automobile Receivables Trust

      

Series 2010-1 Class B

      

3.720% due 11/17/14

   222      223 

Series 2010-4 Class B

      

1.990% due 10/08/15

   220      222 

Series 2011-2 Class A3

      

1.610% due 10/08/15

   240      241 

Series 2011-3 Class B

      

2.280% due 06/08/16

   450      460 

AmeriCredit Automobile Receivables Trust 2011-1

      

Series 2011-1 Class A3

      

1.390% due 09/08/15

   547      550 

Asset Backed Securities Corp. Home Equity

      

Series 2005-HE5 Class M3

      

0.690% due 06/25/35 (Ê)

   1,050      862 

Series 2006-HE5 Class A5

      

0.450% due 07/25/36 (Ê)

   1,200      497 

Bank of America Auto Trust

      

Series 2010-1A Class A4

      

2.180% due 02/15/17 (Þ)

   334      336 

Bayview Financial Acquisition Trust

      

Series 2006-A Class 1A3

      

5.865% due 02/28/41

   190      202 

Brazos Higher Education Authority

      

Series 2010-1 Class A2

      

1.512% due 02/25/35 (Ê)

   500      498 

Series 2011-2 Class A3

      

1.315% due 10/27/36 (Ê)

   410      407 

Chase Issuance Trust

      

Series 2012-A8 Class A8

      

0.540% due 10/16/17

   710      709 

Chesapeake Funding LLC

      

Series 2012-1A Class A

      

0.963% due 11/07/23 (Ê)(Þ)

   925      927 

CIT Education Loan Trust

      

Series 2007-1 Class A

      

0.400% due 03/25/42 (Ê)(Þ)

   471      438 

Citigroup Mortgage Loan Trust, Inc.

      

Series 2007-WFH1 Class A3

      

0.360% due 01/25/37 (Ê)

   1,272      1,182 
   Principal
Amount ($)
or Shares
     Fair
Value
$
 

Series 2007-WFH1 Class A4

      

0.410% due 01/25/37 (Ê)

   934      727 

Series 2007-WFH4 Class A2B

      

1.260% due 07/25/37 (Ê)

   1,290      1,090 

Conseco Financial Corp.

      

Series 1996-10 Class M1

      

7.240% due 11/15/28

   700      764 

Series 1999-2 Class A5

      

6.680% due 12/01/30

   394      396 

Countrywide Asset-Backed Certificates

      

Series 2006-3 Class 2A2

      

0.390% due 06/25/36 (Ê)

   136      131 

Series 2006-11 Class 1AF3

      

5.477% due 09/25/46

   115      91 

Series 2006-13 Class 1AF3

      

5.944% due 01/25/37

   238      210 

Series 2007-4 Class A2

      

5.530% due 04/25/47

   245      226 

Educational Funding of the South, Inc.

      

Series 2011-1 Class A2

      

0.965% due 04/25/35 (Ê)

   450      453 

EFS Volunteer LLC

      

Series 2010-1 Class A2

      

1.165% due 10/25/35 (Ê)(Þ)

   500      476 

Fannie Mae Grantor Trust

      

Series 2003-T4 Class 2A5

      

5.407% due 09/26/33

   48      51 

Federal Home Loan Mortgage Corp. Structured Pass Through Securities

      

Series 2000-30 Class A5

      

8.091% due 12/25/30

   33      36 

Ford Credit Floorplan Master Owner Trust

      

Series 2012-4 Class A1

      

0.740% due 09/15/16

   605      605 

Freddie Mac Reference REMIC

      

Series 2006-R006 Class ZA

      

6.000% due 04/15/36

   328      375 

Honda Auto Receivables Owner Trust

      

Series 2011-3 Class A3

      

0.880% due 09/21/15

   1,200      1,207 

HSBC Home Equity Loan Trust

      

Series 2005-1 Class A

      

0.501% due 01/20/34 (Ê)

   125      122 

IXIS Real Estate Capital Trust

      

Series 2005-HE1 Class M2

      

0.945% due 06/25/35 (Ê)

   54      54 

JPMorgan Mortgage Acquisition Corp.

      

Series 2007-HE1 Class AF6

      

4.959% due 03/25/47

   1,877      1,235 

Lehman XS Trust

      

Series 2006-9 Class A1B

      

0.370% due 05/25/46 (Ê)

   182      142 

Series 2006-13 Class 1A2

      

0.380% due 09/25/36 (Ê)

   173      136 

Series 2006-19 Class A2

      

0.380% due 12/25/36 (Ê)

   184      137 
 

 

 70   Core Bond Fund


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
     Fair
Value
$
 
      

Long Beach Mortgage Loan Trust

      

Series 2004-4 Class 1A1

      

0.770% due 10/25/34 (Ê)

   5      4 

Series 2004-4 Class M1

      

1.110% due 10/25/34 (Ê)

   1,200      1,060 

Merrill Lynch First Franklin Mortgage Loan Trust

      

Series 2007-1 Class A2B

      

0.380% due 04/25/37 (Ê)

   129      69 

Series 2007-4 Class 2A2

      

0.330% due 07/25/37 (Ê)

   908      544 

Montana Higher Education Student Assistance Corp.

      

Series 2012-1 Class A3

      

1.261% due 07/20/43 (Ê)

   650      605 

Morgan Stanley ABS Capital I

      

Series 2006-HE1 Class A4

      

0.500% due 01/25/36 (Ê)

   1,950      1,119 

Series 2007-HE5 Class A2C

      

0.460% due 03/25/37 (Ê)

   792      376 

Series 2007-HE5 Class A2D

      

0.550% due 03/25/37 (Ê)

   792      382 

Northstar Education Finance, Inc.

      

Series 2007-1 Class A1

      

0.413% due 04/28/30 (Ê)

   475      448 

Pacifica CDO V Corp.

      

Series 2006-5A Class A1

      

0.574% due 01/26/20 (Ê)(Þ)

   436      430 

Popular ABS Mortgage Pass-Through Trust

      

Series 2005-6 Class A3

      

5.027% due 01/25/36

   97      87 

Series 2006-C Class A4

      

0.460% due 07/25/36 (Ê)

   1,480      1,045 

Series 2006-D Class A3

      

0.470% due 11/25/46 (Ê)

   1,500      1,031 

RAMP Trust

      

Series 2003-RS9 Class AI6A

      

6.110% due 10/25/33

   369      360 

Series 2003-RS11 Class AI6A

      

5.980% due 12/25/33

   116      114 

RASC Trust

      

Series 2003-KS4 Class AIIB

      

0.790% due 06/25/33 (Ê)

   28      21 

RBSSP Resecuritization Trust

      

2.855% due 06/26/35

   480      485 

Red River CLO Ltd.

      

Series 2006-1A Class A

      

0.583% due 07/27/18 (Ê)

   475      454 

Renaissance Home Equity Loan Trust

      

Series 2005-2 Class AF4

      

4.934% due 08/25/35

   85      83 

Series 2006-1 Class AF6

      

5.746% due 05/25/36

   164      107 

Series 2007-1 Class AF2

      

5.512% due 04/25/37

   417      217 

Series 2007-2 Class AF2

      

5.675% due 06/25/37

   125      63 
   Principal
Amount ($)
or Shares
     Fair
Value
$
 

Santander Drive Auto Receivables Trust

      

Series 2010-2 Class A3

      

1.240% due 02/17/14

   62      62 

Series 2010-3 Class A3

      

1.200% due 06/16/14

   14      14 

Series 2011-1 Class A2

      

0.940% due 02/18/14

   24      24 

Series 2011-2 Class B

      

2.660% due 01/15/16

   180      184 

Series 2011-3 Class B

      

2.500% due 12/15/15

   530      539 

Series 2012-1 Class B

      

2.720% due 05/16/16

   340      349 

Series 2012-2 Class B

      

2.090% due 08/15/16

   430      436 

SLM Student Loan Trust

      

Series 2003-11 Class A6

      

0.598% due 12/15/25 (Ê)(Þ)

   350      342 

Series 2005-5 Class A2

      

0.395% due 10/25/21 (Ê)

   260      260 

Series 2008-7 Class A2

      

0.815% due 10/25/17 (Ê)

   1,855      1,864 

Series 2010-A Class 2A

      

3.459% due 05/16/44 (Ê)(Þ)

   778      820 

Series 2011-B Class A2

      

3.740% due 02/15/29 (Þ)

   145      157 

Series 2012-7 Class A3

      

0.859% due 05/26/26 (Ê)

   475      478 

Series 2012-A Class A2

      

3.830% due 01/17/45 (Þ)

   100      108 

Series 2012-B Class A2

      

3.480% due 10/15/30 (Þ)

   280      299 

Series 2012-E Class A2A

      

2.090% due 06/15/45 (Þ)

   135      136 

Small Business Administration Participation Certificates

      

Series 2005-20G Class 1

      

4.750% due 07/01/25

   470      523 

SMART Trust

      

Series 2011-2USA Class A4A

      

2.310% due 04/14/17 (Þ)

   465      476 

Series 2012-1USA Class A4A

      

2.010% due 12/14/17 (Þ)

   310      317 

Soundview Home Equity Loan Trust

      

Series 2005-1 Class M2

      

0.960% due 04/25/35 (Ê)

   949      922 

Series 2005-OPT3 Class A4

      

0.510% due 11/25/35 (Ê)

   339      329 

Toyota Auto Receivables Owner Trust

      

Series 2011-A Class A3

      

0.980% due 10/15/14

   164      165 

Washington Mutual Asset-Backed Certificates

      

Series 2006-HE2 Class A3

      

0.360% due 05/25/36 (Ê)

   519      284 
      

 

 

 
       36,648 
      

 

 

 
 

 

Core Bond Fund 71


Table of Contents

Russell Investment Funds

Core Bond Fund

Schedule of Investments, continued — December 31, 2012

Amounts in thousands (except share amounts)

 

   Principal
Amount ($)
or Shares
     Fair
Value
$
 
          

Corporate Bonds and Notes - 12.7%

  

    

ABB Finance USA, Inc.

      

2.875% due 05/08/22

   175      179 

AbbVie, Inc.

      

1.072% due 11/06/15 (Å)(Ê)

   400      405 

1.750% due 11/06/17 (Þ)

   935      945 

2.900% due 11/06/22 (Þ)

   405      412 

Ally Financial, Inc.

      

4.625% due 06/26/15

   400      417 

7.500% due 09/15/20

   100      121 

Alta Wind Holdings LLC

      

7.000% due 06/30/35 (Þ)

   112      121 

Alterra USA Holdings, Ltd.

      

7.200% due 04/14/17 (Þ)

   155      163 

Altria Group, Inc.

      

9.700% due 11/10/18

   436      610 

10.200% due 02/06/39

   160      268 

Amazon.com, Inc.

      

1.200% due 11/29/17

   295      293 

2.500% due 11/29/22

   195      192 

American International Group, Inc.

      

4.875% due 09/15/16

   440      492 

5.600% due 10/18/16

   700      799 

5.450% due 05/18/17

   1,000      1,149 

Ameriprise Financial, Inc.

      

7.518% due 06/01/66

   210      230 

AmerisourceBergen Corp.

      

5.875% due 09/15/15

   155      176 

Anadarko Petroleum Corp.

      

6.450% due 09/15/36

   285      357 

Anheuser-Busch Cos., Inc.

      

5.500% due 01/15/18

   215      258 

Apache Corp.

      

2.625% due 01/15/23

   800      798 

Arch Coal, Inc.

      

8.750% due 08/01/16

   70      73 

7.000% due 06/15/19

   350      326 

AT&T Corp.

      

8.000% due 11/15/31

   175      265 

AT&T, Inc.

      

1.400% due 12/01/17

   250      250 

2.625% due 12/01/22

   275      275 

4.300% due 12/15/42 (Þ)

   1      1 

Bank of America Corp.

      

7.375% due 05/15/14

   305      330 

4.750% due 08/01/15

   320      345 

5.625% due 10/14/16

   200      226 

6.000% due 09/01/17

   135      158 

5.750% due 12/01/17

   140      163 

Bank of America NA

      

Series BKNT

      

0.588% due 06/15/16 (Ê)

   600      573 

6.100% due 06/15/17

   775      893 

Bear Stearns Cos. LLC (The)

      

5.550% due 01/22/17

   180      203 

7.250% due 02/01/18

   195      244 
   Principal
Amount ($)
or Shares
     Fair
Value
$
 

Boston Scientific Corp.

      

4.500% due 01/15/15

   295      314 

Braskem America Finance Co.

      

7.125% due 07/22/41 (Þ)

   260      274 

Burlington Northern Santa Fe LLC

      

6.875% due 12/01/27

   25      32 

6.750% due 03/15/29

   10      12 

Cablevision Systems Corp.

      

5.875% due 09/15/22

   175      175 

CC Holdings GS V LLC

      

2.381% due 12/15/17 (Þ)

   230      231 

3.849% due 04/15/23 (Þ)

   340      346 

CCO Holdings LLC / CCO Holdings Capital Corp.

      

7.000% due 01/15/19

   460      496 

CenterPoint Energy Resources Corp.

      

6.125% due 11/01/17

   50      60 

CF Industries, Inc.

      

6.875% due 05/01/18

   180      220 

Chase Capital III

      

Series C

      

0.861% due 03/01/27 (Ê)

   295      242 

CHS/Community Health Systems, Inc.

      

8.000% due 11/15/19

   180      195 

CIT Group, Inc.

      

6.625% due 04/01/18 (Þ)

   390      441 

Citigroup, Inc.

      

5.500% due 10/15/14

   405      435 

4.700% due 05/29/15

   50      54 

2.250% due 08/07/15

   295      302 

5.850% due 08/02/16

   220      251 

6.000% due 08/15/17

   450      530 

6.125% due 11/21/17

   405      482 

5.375% due 08/09/20

   250      295