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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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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
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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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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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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,
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%.
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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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Russell Investment Funds
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
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 |
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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.
Multi-Style Equity Fund | 13 |
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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.
Multi-Style Equity Fund | 15 |
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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 |
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Russell Investment Funds
Multi-Style Equity Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Principal Amount ($) or Shares | Fair $ | |||||||
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 $ | |||||||
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 |
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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 $ | |||||||
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 $ | |||||||
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 $ | |||||||
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 $ | |||||||
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 $ | |||||||
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 $ | |||||||
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
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
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 |
Table of Contents
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 |
Table of Contents
Russell Investment Funds
Aggressive Equity Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Principal or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 or Shares | Fair $ | |||||||
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 |
Table of Contents
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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
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
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 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 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 | ||||||
|
|
52 | 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 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 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 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 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 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 |
Table of Contents
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.
Non-U.S. Fund | 59 |
Table of Contents
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.
60 | Non-U.S. Fund |
Table of Contents
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 |
Table of Contents
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.
62 | Non-U.S. Fund |
Table of Contents
(This page intentionally left blank)
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 | $ 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) | % 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
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
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 |
Table of Contents
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.
68 | Core Bond Fund |
Table of Contents
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. |
Core Bond Fund | 69 |
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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 | ||||||
CNH Capital LLC | ||||||||
3.875% due 11/01/15 (Þ) | 330 | 340 | ||||||
Commonwealth Edison Co. | ||||||||
5.800% due 03/15/18 | 290 | 351 | ||||||
ConAgra Foods, Inc. | ||||||||
2.100% due 03/15/18 | 120 | 120 | ||||||
ConocoPhillips Company | ||||||||
2.400% due 12/15/22 | 350 | 349 | ||||||
Continental Airlines 1999-1 Class A Pass Through Trust | ||||||||
Series 991A | ||||||||
6.545% due 02/02/19 | 327 | 357 | ||||||
Continental Airlines 2007-1 Class A Pass Through Trust | ||||||||
Series 071A | ||||||||
5.983% due 04/19/22 | 134 | 149 | ||||||
Continental Airlines 2009-1 Pass Through Trust | ||||||||
Series 09-1 | ||||||||
9.000% due 07/08/16 | 214 | 248 | ||||||
Crown Castle Towers LLC | ||||||||
3.214% due 08/15/15 (Þ) | 130 | 136 |
72 | 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 $ | |||||||
CVS Caremark Corp. | ||||||||
3.250% due 05/18/15 | 295 | 313 | ||||||
DCP Midstream Operating, LP | ||||||||
3.250% due 10/01/15 | 275 | 283 | ||||||
Delta Air Lines 2002-1 Class G-1 Pass Through Trust | ||||||||
Series 02G1 | ||||||||
6.718% due 01/02/23 | 113 | 124 | ||||||
Devon Energy Corp. | ||||||||
1.875% due 05/15/17 | 205 | 209 | ||||||
DIRECTV Holdings LLC / DIRECTV Financing Co., Inc. | ||||||||
3.500% due 03/01/16 | 275 | 291 | ||||||
5.875% due 10/01/19 | 370 | 437 | ||||||
Discover Financial Services | ||||||||
5.200% due 04/27/22 | 260 | 296 | ||||||
Dynegy Roseton LLC / Dynegy Danskammer LLC Pass Through | ||||||||
Series B | ||||||||
7.670% due 11/08/16 | 700 | 30 | ||||||
Ecolab, Inc. | ||||||||
4.350% due 12/08/21 | 255 | 285 | ||||||
Edison Mission Energy | ||||||||
7.000% due 05/15/17 | 675 | 358 | ||||||
El Paso Natural Gas Co. LLC | ||||||||
7.500% due 11/15/26 | 100 | 133 | ||||||
Enterprise Products Operating LLC | ||||||||
5.250% due 01/31/20 | 420 | 499 | ||||||
Series B | ||||||||
7.034% due 01/15/68 | 290 | 332 | ||||||
Express Scripts Holding Co. | ||||||||
3.500% due 11/15/16 (Þ) | 410 | 438 | ||||||
7.250% due 06/15/19 | 680 | 871 | ||||||
Farmers Exchange Capital | ||||||||
7.050% due 07/15/28 (Þ) | 845 | 1,038 | ||||||
7.200% due 07/15/48 (Þ) | 300 | 364 | ||||||
Ford Motor Credit Co. LLC | ||||||||
3.984% due 06/15/16 | 600 | 637 | ||||||
FPL Energy Wind Funding LLC | ||||||||
6.876% due 06/27/17 (Þ) | 131 | 114 | ||||||
General Electric Capital Corp. | ||||||||
5.900% due 05/13/14 | 350 | 375 | ||||||
5.625% due 05/01/18 | 230 | 273 | ||||||
5.550% due 05/04/20 | 295 | 351 | ||||||
4.375% due 09/16/20 | 300 | 335 | ||||||
5.875% due 01/14/38 | 225 | 271 | ||||||
Series EMTN | ||||||||
0.442% due 03/20/14 (Ê) | 400 | 398 | ||||||
6.375% due 11/15/67 | 1,900 | 2,004 | ||||||
Series GMTN | ||||||||
6.875% due 01/10/39 | 350 | 476 | ||||||
Series MTNA | ||||||||
0.568% due 09/15/14 (Ê) | 420 | 419 | ||||||
6.750% due 03/15/32 | 425 | 552 | ||||||
General Electric Co. | ||||||||
5.250% due 12/06/17 | 340 | 401 | ||||||
2.700% due 10/09/22 | 470 | 479 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Genworth Financial, Inc. | ||||||||
6.150% due 11/15/66 | 365 | 271 | ||||||
Georgia-Pacific LLC | ||||||||
8.875% due 05/15/31 | 340 | 510 | ||||||
Goldman Sachs Group, Inc. (The) | ||||||||
6.000% due 05/01/14 | 150 | 160 | ||||||
6.250% due 09/01/17 | 335 | 395 | ||||||
6.150% due 04/01/18 | 400 | 470 | ||||||
7.500% due 02/15/19 | 300 | 377 | ||||||
6.000% due 06/15/20 | 150 | 178 | ||||||
6.750% due 10/01/37 | 1,295 | 1,468 | ||||||
Great Plains Energy, Inc. | ||||||||
5.292% due 06/15/22 | 170 | 191 | ||||||
HCA, Inc. | ||||||||
7.875% due 02/15/20 | 204 | 227 | ||||||
7.250% due 09/15/20 | 496 | 549 | ||||||
4.750% due 05/01/23 | 205 | 209 | ||||||
HCP, Inc. | ||||||||
2.625% due 02/01/20 | 425 | 423 | ||||||
Health Care REIT, Inc. | ||||||||
4.700% due 09/15/17 | 400 | 446 | ||||||
4.950% due 01/15/21 | 365 | 399 | ||||||
5.250% due 01/15/22 | 200 | 223 | ||||||
6.500% due 03/15/41 | 140 | 163 | ||||||
Healthcare Realty Trust, Inc. | ||||||||
6.500% due 01/17/17 | 700 | 800 | ||||||
Hewlett-Packard Co. | ||||||||
2.600% due 09/15/17 | 275 | 268 | ||||||
4.650% due 12/09/21 | 195 | 196 | ||||||
Historic TW, Inc. | ||||||||
8.050% due 01/15/16 | 195 | 228 | ||||||
HRPT Properties Trust | ||||||||
5.750% due 02/15/14 | 165 | 170 | ||||||
HSBC USA, Inc. | ||||||||
2.375% due 02/13/15 | 235 | 242 | ||||||
Humana, Inc. | ||||||||
6.450% due 06/01/16 | 160 | 182 | ||||||
7.200% due 06/15/18 | 140 | 173 | ||||||
8.150% due 06/15/38 | 285 | 403 | ||||||
Indiantown Cogeneration, LP | ||||||||
Series A-10 | ||||||||
9.770% due 12/15/20 | 214 | 227 | ||||||
ING Capital Funding Trust III | ||||||||
Series 9 | ||||||||
3.910% due 12/29/49 (Ê)(ƒ) | 185 | 176 | ||||||
Intel Corporation | ||||||||
2.700% due 12/15/22 | 1,015 | 1,014 | ||||||
4.250% due 12/15/42 | 185 | 185 | ||||||
International Lease Finance Corp. | ||||||||
6.500% due 09/01/14 (Þ) | 1,170 | 1,249 | ||||||
4.875% due 04/01/15 | 350 | 362 | ||||||
6.750% due 09/01/16 (Þ) | 100 | 112 | ||||||
International Paper Co. | ||||||||
4.750% due 02/15/22 | 150 | 170 | ||||||
JetBlue Airways 2004-2 G-2 Pass Through Trust | ||||||||
Series 04-2 | ||||||||
0.760% due 11/15/16 (Ê) | 750 | 654 |
Core Bond Fund | 73 |
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 $ | |||||||
JPMorgan Chase & Co. | ||||||||
5.375% due 01/15/14 | 170 | 178 | ||||||
4.250% due 10/15/20 | 300 | 334 | ||||||
Series 1 | ||||||||
7.900% due 04/29/49 (ƒ) | 220 | 249 | ||||||
JPMorgan Chase Bank NA | ||||||||
Series BKNT | ||||||||
5.875% due 06/13/16 | 70 | 80 | ||||||
6.000% due 10/01/17 | 945 | 1,119 | ||||||
JPMorgan Chase Capital XIII | ||||||||
Series M | ||||||||
1.260% due 09/30/34 (Ê) | 480 | 394 | ||||||
JPMorgan Chase Capital XXI | ||||||||
Series U | ||||||||
1.263% due 02/02/37 (Ê) | 335 | 258 | ||||||
JPMorgan Chase Capital XXIII | ||||||||
1.310% due 05/15/47 (Ê) | 545 | 414 | ||||||
Kraft Foods Group, Inc. | ||||||||
6.125% due 08/23/18 (Å) | 147 | 180 | ||||||
Land O’ Lakes, Inc. | ||||||||
6.000% due 11/15/22 (Þ) | 110 | 119 | ||||||
Liberty Mutual Group, Inc. | ||||||||
4.950% due 05/01/22 (Þ) | 250 | 272 | ||||||
6.500% due 05/01/42 (Þ) | 205 | 231 | ||||||
Lorillard Tobacco Co. | ||||||||
6.875% due 05/01/20 | 580 | 707 | ||||||
M&T Bank Corp. | ||||||||
6.875% due 12/31/49 (ƒ)(Þ) | 335 | 349 | ||||||
Manufacturers & Traders Trust Co. | ||||||||
5.585% due 12/28/20 | 84 | 84 | ||||||
MassMutual Global Funding II | ||||||||
2.000% due 04/05/17 (Þ) | 305 | 314 | ||||||
2.500% due 10/17/22 (Þ) | 385 | 379 | ||||||
Merrill Lynch & Co., Inc. | ||||||||
6.400% due 08/28/17 | 720 | 846 | ||||||
6.875% due 04/25/18 | 500 | 603 | ||||||
MetLife, Inc. | ||||||||
6.400% due 12/15/36 | 100 | 107 | ||||||
10.750% due 08/01/39 | 275 | 415 | ||||||
Metropolitan Life Global Funding I | ||||||||
5.125% due 06/10/14 (Þ) | 200 | 213 | ||||||
Mirant Mid Atlantic Pass Through Trust B | ||||||||
Series B | ||||||||
9.125% due 06/30/17 | 340 | 371 | ||||||
Mondelez International, Inc. | ||||||||
4.125% due 02/09/16 | 245 | 267 | ||||||
6.125% due 02/01/18 | 53 | 64 | ||||||
6.500% due 02/09/40 | 305 | 410 | ||||||
Morgan Stanley | ||||||||
0.820% due 10/15/15 (Ê) | 655 | 635 | ||||||
3.800% due 04/29/16 | 120 | 126 | ||||||
0.775% due 10/18/16 (Ê) | 235 | 223 | ||||||
5.550% due 04/27/17 | 425 | 471 | ||||||
6.250% due 08/28/17 | 600 | 686 | ||||||
5.625% due 09/23/19 | 275 | 311 | ||||||
Series GMTN | ||||||||
5.450% due 01/09/17 | 225 | 249 | ||||||
6.625% due 04/01/18 | 250 | 295 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Mylan, Inc. | ||||||||
7.875% due 07/15/20 (Þ) | 340 | 402 | ||||||
National City Bank | ||||||||
Series BKNT | ||||||||
0.681% due 06/07/17 (Ê) | 700 | 684 | ||||||
National Rural Utilities Cooperative Finance Corp. | ||||||||
1.900% due 11/01/15 | 145 | 150 | ||||||
Nationwide Mutual Insurance Company | ||||||||
6.600% due 04/15/34 (Þ) | 265 | 267 | ||||||
Newmont Mining Corp. | ||||||||
4.875% due 03/15/42 | 245 | 252 | ||||||
News America, Inc. | ||||||||
3.000% due 09/15/22 (Þ) | 230 | 231 | ||||||
8.250% due 10/17/96 | 20 | 25 | ||||||
NII Capital Corp. | ||||||||
7.625% due 04/01/21 | 225 | 170 | ||||||
Nisource Finance Corp. | ||||||||
6.400% due 03/15/18 | 145 | 175 | ||||||
Oncor Electric Delivery Co. LLC | ||||||||
6.800% due 09/01/18 | 550 | 682 | ||||||
Oracle Corp. | ||||||||
2.500% due 10/15/22 | 345 | 348 | ||||||
O’Reilly Automotive, Inc. | ||||||||
3.800% due 09/01/22 | 420 | 437 | ||||||
Pacific Bell Telephone Co. | ||||||||
7.375% due 07/15/43 | 250 | 261 | ||||||
Panhandle Eastern Pipe Line Co., LP | ||||||||
8.125% due 06/01/19 | 450 | 563 | ||||||
PC Financial Partnership | ||||||||
5.000% due 11/15/14 | 220 | 237 | ||||||
Petrohawk Energy Corp. | ||||||||
7.250% due 08/15/18 | 230 | 260 | ||||||
PNC Bank NA | ||||||||
2.700% due 11/01/22 | 625 | 625 | ||||||
Precision Castparts Corp. | ||||||||
1.250% due 01/15/18 | 290 | 290 | ||||||
Progress Energy, Inc. | ||||||||
5.625% due 01/15/16 | 40 | 45 | ||||||
Prudential Holdings LLC | ||||||||
8.695% due 12/18/23 (Þ) | 550 | 720 | ||||||
Public Service Co. of New Mexico | ||||||||
7.950% due 05/15/18 | 260 | 316 | ||||||
QVC, Inc. | ||||||||
7.500% due 10/01/19 (Þ) | 260 | 287 | ||||||
Rock-Tenn Co. | ||||||||
4.450% due 03/01/19 (Þ) | 185 | 200 | ||||||
4.000% due 03/01/23 (Þ) | 310 | 315 | ||||||
Sabine Pass LNG, LP | ||||||||
Series 144a | ||||||||
7.500% due 11/30/16 (Þ) | 380 | 400 | ||||||
Samsung Electronics America, Inc. | ||||||||
1.750% due 04/10/17 (Þ) | 415 | 420 | ||||||
Sempra Energy | ||||||||
2.000% due 03/15/14 | 255 | 259 | ||||||
Simon Property Group, LP | ||||||||
10.350% due 04/01/19 | 160 | 229 |
74 | 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 $ | |||||||
SLM Corp. | ||||||||
6.250% due 01/25/16 | 1,800 | 1,957 | ||||||
South Carolina Electric & Gas Co. | ||||||||
6.500% due 11/01/18 | 150 | 191 | ||||||
Southern Natural Gas Co. LLC / Southern Natural Issuing Corp. | ||||||||
4.400% due 06/15/21 | 385 | 427 | ||||||
Southern Union Co. | ||||||||
3.330% due 11/01/66 (Ê) | 1,380 | 1,182 | ||||||
Springleaf Finance Corp. | ||||||||
6.900% due 12/15/17 | 300 | 269 | ||||||
Symantec Corp. | ||||||||
4.200% due 09/15/20 | 430 | 452 | ||||||
TD Ameritrade Holding Corp. | ||||||||
4.150% due 12/01/14 | 225 | 240 | ||||||
Tenet Healthcare Corp. | ||||||||
10.000% due 05/01/18 | 330 | 375 | ||||||
Tennessee Gas Pipeline Co. LLC | ||||||||
8.000% due 02/01/16 | 200 | 238 | ||||||
8.375% due 06/15/32 | 260 | 374 | ||||||
Teva Pharmaceutical Finance IV LLC | ||||||||
2.250% due 03/18/20 | 285 | 288 | ||||||
Thermo Fisher Scientific, Inc. | ||||||||
2.250% due 08/15/16 | 400 | 414 | ||||||
3.600% due 08/15/21 | 340 | 362 | ||||||
Time Warner Cable, Inc. | ||||||||
8.250% due 04/01/19 | 325 | 432 | ||||||
Time Warner, Inc. | ||||||||
5.875% due 11/15/16 | 400 | 468 | ||||||
Timken Co. | ||||||||
6.000% due 09/15/14 | 150 | 160 | ||||||
UAL 2009-1 Pass Through Trust | ||||||||
Series 09-1 | ||||||||
10.400% due 11/01/16 | 64 | 73 | ||||||
Union Pacific Corp. | ||||||||
4.163% due 07/15/22 | 100 | 113 | ||||||
UnitedHealth Group, Inc. | ||||||||
6.000% due 06/15/17 | 3 | 4 | ||||||
1.400% due 10/15/17 | 240 | 240 | ||||||
Verizon Communications, Inc. | ||||||||
3.000% due 04/01/16 | 145 | 154 | ||||||
Viacom, Inc. | ||||||||
4.375% due 03/15/43 (Þ) | 355 | 349 | ||||||
Wachovia Capital Trust III | ||||||||
5.570% due 03/29/49 (Ê)(ƒ) | 285 | 284 | ||||||
Walgreen Co. | ||||||||
1.800% due 09/15/17 | 240 | 241 | ||||||
3.100% due 09/15/22 | 250 | 252 | ||||||
Watson Pharmaceuticals, Inc. | ||||||||
5.000% due 08/15/14 | 275 | 293 | ||||||
6.125% due 08/15/19 | 320 | 390 | ||||||
WEA Finance LLC / WT Finance Aust Pty, Ltd. | ||||||||
7.500% due 06/02/14 (Þ) | 205 | 223 | ||||||
6.750% due 09/02/19 (Þ) | 95 | 118 | ||||||
WellPoint, Inc. | ||||||||
5.250% due 01/15/16 | 270 | 301 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
3.125% due 05/15/22 | 625 | 632 | ||||||
3.300% due 01/15/23 | 290 | 298 | ||||||
4.650% due 01/15/43 | 120 | 125 | ||||||
Wells Fargo & Co. | ||||||||
Series K | ||||||||
7.980% due 03/29/49 (ƒ) | 3,300 | 3,786 | ||||||
Weyerhaeuser Co. | ||||||||
7.375% due 10/01/19 | 125 | 154 | ||||||
Williams Cos., Inc. (The) | ||||||||
7.875% due 09/01/21 | 161 | 207 | ||||||
3.700% due 01/15/23 | 210 | 212 | ||||||
8.750% due 03/15/32 | 108 | 150 | ||||||
Williams Partners, LP / Williams Partners Finance Corp. | ||||||||
7.250% due 02/01/17 | 235 | 285 | ||||||
ZFS Finance USA Trust II | ||||||||
6.450% due 12/15/65 (Þ) | 730 | 781 | ||||||
|
| |||||||
85,700 | ||||||||
|
| |||||||
International Debt - 5.1% | ||||||||
Abbey National Treasury Services PLC | ||||||||
3.875% due 11/10/14 (Þ) | 870 | 903 | ||||||
AK Transneft OJSC Via TransCapitalInvest, Ltd. | ||||||||
8.700% due 08/07/18 (Þ) | 100 | 130 | ||||||
Alm Loan Funding | ||||||||
Series 2012-7A Class A1 | ||||||||
1.701% due 10/19/24 (Ê)(Þ) | 450 | 450 | ||||||
Anglo American Capital PLC | ||||||||
2.625% due 04/03/17 (Þ) | 330 | 336 | ||||||
AWAS Aviation Capital, Ltd. | ||||||||
7.000% due 10/17/16 (Þ) | 295 | 311 | ||||||
Banco Santander Brazil SA | ||||||||
2.408% due 03/18/14 (Ê)(Þ) | 200 | 199 | ||||||
Bank of Montreal | ||||||||
2.850% due 06/09/15 (Þ) | 100 | 106 | ||||||
BBVA Bancomer SA | ||||||||
6.500% due 03/10/21 (Þ) | 200 | 222 | ||||||
6.750% due 09/30/22 (Þ) | 300 | 338 | ||||||
BBVA US Senior SAU | ||||||||
4.664% due 10/09/15 | 450 | 461 | ||||||
BM&FBovespa SA | ||||||||
5.500% due 07/16/20 (Þ) | 100 | 113 | ||||||
BNP Paribas SA | ||||||||
5.186% due 06/29/49 (Å)(ƒ) | 300 | 290 | ||||||
BP Capital Markets PLC | ||||||||
2.500% due 11/06/22 | 210 | 208 | ||||||
Braskem Finance, Ltd. | ||||||||
5.750% due 04/15/21 (Þ) | 300 | 316 | ||||||
Caisse Centrale Desjardins du Quebec | ||||||||
2.650% due 09/16/15 (Þ) | 410 | 429 | ||||||
CDP Financial, Inc. | ||||||||
5.600% due 11/25/39 (Þ) | 265 | 330 | ||||||
Cooperatieve Centrale Raiffeisen-Boerenleenbank BA/Netherlands | ||||||||
3.950% due 11/09/22 | 785 | 804 | ||||||
Corp. Nacional del Cobre de Chile | ||||||||
7.500% due 01/15/19 (Þ) | 200 | 258 |
Core Bond Fund | 75 |
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 $ | |||||||
Credit Suisse | ||||||||
6.000% due 02/15/18 | 770 | 885 | ||||||
CSN Islands XI Corp. | ||||||||
6.875% due 09/21/19 (Þ) | 200 | 224 | ||||||
Dexia Credit Local SA | ||||||||
0.793% due 04/29/14 (Ê)(Þ) | 500 | 493 | ||||||
DP World, Ltd. | ||||||||
6.850% due 07/02/37 (Þ) | 330 | 387 | ||||||
Eksportfinans ASA | ||||||||
2.375% due 05/25/16 | 225 | 215 | ||||||
Electricite de France SA | ||||||||
5.500% due 01/26/14 (Å) | 200 | 210 | ||||||
Enel Finance International NV | ||||||||
6.250% due 09/15/17 (Å) | 300 | 334 | ||||||
6.000% due 10/07/39 (Þ) | 175 | 169 | ||||||
Export-Import Bank of Korea | ||||||||
5.875% due 01/14/15 | 700 | 765 | ||||||
Gazprom OAO Via Gazprom International SA | ||||||||
Series REGS | ||||||||
7.201% due 02/01/20 | 32 | 36 | ||||||
Gazprom OAO Via White Nights Finance BV | ||||||||
Series REGS | ||||||||
10.500% due 03/08/14 | 200 | 219 | ||||||
10.500% due 03/25/14 | 200 | 219 | ||||||
Government of the Cayman Islands | ||||||||
5.950% due 11/24/19 (Þ) | 230 | 272 | ||||||
HBOS PLC | ||||||||
Series GMTN | ||||||||
6.750% due 05/21/18 (Þ) | 825 | 888 | ||||||
HSBC Bank PLC | ||||||||
3.100% due 05/24/16 (Þ) | 800 | 846 | ||||||
Hutchison Whampoa International 11, Ltd. | ||||||||
4.625% due 01/13/22 (Þ) | 375 | 418 | ||||||
Indian Oil Corp., Ltd. | ||||||||
4.750% due 01/22/15 | 400 | 418 | ||||||
ING Bank NV | ||||||||
1.711% due 06/09/14 (Å)(Ê) | 300 | 303 | ||||||
Intelsat Jackson Holdings SA | ||||||||
8.500% due 11/01/19 | 400 | 448 | ||||||
Intesa Sanpaolo SpA | ||||||||
2.712% due 02/24/14 (Å)(Ê) | 200 | 200 | ||||||
IPIC GMTN, Ltd. | ||||||||
5.500% due 03/01/22 (Þ) | 125 | 147 | ||||||
Itau Unibanco Holding SA | ||||||||
Series 144a | ||||||||
5.500% due 08/06/22 (Þ) | 700 | 733 | ||||||
JPMorgan Chase & Co. | ||||||||
Series MPLE | ||||||||
2.920% due 09/19/17 (Þ) | 605 | 612 | ||||||
Korea East-West Power Co., Ltd. | ||||||||
2.500% due 07/16/17 (Þ) | 200 | 203 | ||||||
Korea Electric Power Corp. | ||||||||
5.125% due 04/23/34 (Þ) | 60 | 63 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Lafayette CLO, Ltd. | ||||||||
Series 2012-1A Class A | ||||||||
1.751% due 09/06/22 (Ê)(Þ) | 466 | 465 | ||||||
Lloyds Banking Group PLC | ||||||||
5.920% due 12/31/49 (ƒ)(Þ) | 300 | 228 | ||||||
6.657% due 12/31/49 (ƒ)(Þ) | 265 | 235 | ||||||
Lukoil International Finance BV | ||||||||
7.250% due 11/05/19 (Þ) | 140 | 171 | ||||||
Majapahit Holding BV | ||||||||
Series REGS | ||||||||
7.750% due 10/17/16 | 100 | 118 | ||||||
Morgan Stanley | ||||||||
Series GMTN | ||||||||
0.630% due 01/16/17 (Ê) | 200 | 248 | ||||||
Motor PLC | ||||||||
Series 2012-12A Class A1C | ||||||||
1.286% due 02/25/20 (Þ) | 315 | 316 | ||||||
Neptune Finance CCS, Ltd. | ||||||||
Series 2008-1A Class A | ||||||||
0.934% due 04/20/20 (Ê)(Þ) | 450 | 444 | ||||||
Nexen, Inc. | ||||||||
7.500% due 07/30/39 | 285 | 412 | ||||||
Noble Group, Ltd. | ||||||||
6.750% due 01/29/20 (Þ) | 100 | 105 | ||||||
Nokia OYJ | ||||||||
5.375% due 05/15/19 | 155 | 148 | ||||||
Oak Hill Credit Partners | ||||||||
Series 2012-7A Class A | ||||||||
1.760% due 11/20/23 (Ê)(Þ) | 450 | 450 | ||||||
Petrobras International Finance Co.—Pifco | ||||||||
3.875% due 01/27/16 | 400 | 422 | ||||||
7.875% due 03/15/19 | 800 | 999 | ||||||
Province of Quebec Canada | ||||||||
3.500% due 07/29/20 | 200 | 222 | ||||||
Rabobank Nederland NV | ||||||||
11.000% due 06/29/49 (ƒ)(Þ) | 565 | 764 | ||||||
Ras Laffan Liquefied Natural Gas Co., Ltd. III | ||||||||
5.838% due 09/30/27 (Þ) | 250 | 308 | ||||||
Series REGS | ||||||||
6.750% due 09/30/19 | 300 | 376 | ||||||
Rio Tinto Finance USA PLC | ||||||||
1.625% due 08/21/17 | 310 | 314 | ||||||
2.875% due 08/21/22 | 355 | 357 | ||||||
Royal Bank of Scotland Group PLC | ||||||||
6.400% due 10/21/19 | 205 | 242 | ||||||
6.990% due 10/29/49 (Å)(ƒ) | 300 | 284 | ||||||
Series 1 | ||||||||
9.118% due 03/31/49 (ƒ) | 300 | 300 | ||||||
Royal Bank of Scotland PLC (The) | ||||||||
4.875% due 08/25/14 (Þ) | 900 | 949 | ||||||
Russian Foreign Bond - Eurobond | ||||||||
4.500% due 04/04/22 (Þ) | 345 | 395 | ||||||
RZD Capital, Ltd. | ||||||||
5.739% due 04/03/17 | 500 | 560 | ||||||
Sirius International Group, Ltd. | ||||||||
7.506% due 05/29/49 (ƒ)(Þ) | 365 | 377 |
76 | 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 $ | |||||||
Statoil ASA | ||||||||
2.450% due 01/17/23 | 355 | 354 | ||||||
Suncor Energy, Inc. | ||||||||
5.950% due 12/01/34 | 160 | 194 | ||||||
Sydney Airport Finance Co. Pty, Ltd. | ||||||||
3.900% due 03/22/23 (Þ) | 640 | 654 | ||||||
Telefonos de Mexico SAB de CV | ||||||||
5.500% due 01/27/15 | 360 | 391 | ||||||
Teva Pharmaceutical Finance Co. BV | ||||||||
2.950% due 12/18/22 | 430 | 435 | ||||||
Total Capital SA | ||||||||
4.450% due 06/24/20 | 260 | 301 | ||||||
Transocean, Inc. | ||||||||
2.500% due 10/15/17 | 345 | 349 | ||||||
6.375% due 12/15/21 | 225 | 273 | ||||||
7.350% due 12/15/41 | 260 | 345 | ||||||
Turkiye Garanti Bankasi AS | ||||||||
2.819% due 04/20/16 (Ê)(Þ) | 200 | 199 | ||||||
Tyco Electronics Group SA | ||||||||
6.550% due 10/01/17 | 240 | 288 | ||||||
UBS AG | ||||||||
Series BKNT | ||||||||
5.875% due 12/20/17 | 400 | 476 | ||||||
Vale Overseas, Ltd. | ||||||||
5.625% due 09/15/19 | 400 | 455 | ||||||
Vale SA | ||||||||
5.625% due 09/11/42 | 480 | 521 | ||||||
Veritas CLO I, Ltd. | ||||||||
Series 2004-1A Class B | ||||||||
1.111% due 09/05/16 (Ê)(Þ) | 475 | 473 | ||||||
Vivendi SA | ||||||||
2.400% due 04/10/15 (Å) | 200 | 204 | ||||||
Volkswagen International Finance NV | ||||||||
0.970% due 04/01/14 (Ê)(Þ) | 400 | 401 | ||||||
Volvo Treasury AB | ||||||||
5.950% due 04/01/15 (Þ) | 385 | 420 | ||||||
Weatherford International, Ltd. | ||||||||
5.125% due 09/15/20 | 160 | 176 | ||||||
Westpac Banking Corp. | ||||||||
3.585% due 08/14/14 (Å) | 700 | 734 | ||||||
Willis Group Holdings PLC | ||||||||
4.125% due 03/15/16 | 210 | 224 | ||||||
Wind Acquisition Finance SA | ||||||||
7.250% due 02/15/18 (Þ) | 200 | 203 | ||||||
Xstrata Finance Canada, Ltd. | ||||||||
4.000% due 10/25/22 (Þ) | 210 | 212 | ||||||
|
| |||||||
34,402 | ||||||||
|
| |||||||
Loan Agreements - 0.4% | ||||||||
Caesars Entertainment Operating Co., Inc. Extended Term Loan B | ||||||||
5.460% due 01/28/18 (Ê) | 800 | 713 | ||||||
Chrysler Group LLC Term Loan B | ||||||||
6.000% due 05/24/17 (Ê) | 989 | 1,009 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
CHS/Community Health Systems, Inc. Non Extended Term Loan | ||||||||
2.462% due 07/25/14 | 573 | 576 | ||||||
HCA, Inc. Extended Term Loan B | ||||||||
3.462% due 05/01/18 (Ê) | 507 | 508 | ||||||
|
| |||||||
2,806 | ||||||||
|
| |||||||
Mortgage-Backed Securities - 30.7% |
| |||||||
Adjustable Rate Mortgage Trust | ||||||||
Series 2007-1 Class 1A1 | ||||||||
3.169% due 03/25/37 (Ê) | 889 | 626 | ||||||
American Home Mortgage Assets LLC | ||||||||
Series 2007-4 Class A2 | ||||||||
0.400% due 08/25/37 (Ê) | 419 | 345 | ||||||
American Home Mortgage Investment Trust | ||||||||
Series 2004-4 Class 4A | ||||||||
2.540% due 02/25/45 (Ê) | 58 | 56 | ||||||
Series 2007-1 Class GA1C | ||||||||
0.400% due 05/25/47 (Ê) | 801 | 499 | ||||||
Banc of America Funding Corp. | ||||||||
Series 2006-3 Class 5A8 | ||||||||
5.500% due 03/25/36 | 380 | 378 | ||||||
Series 2006-A Class 4A1 | ||||||||
3.595% due 02/20/36 (Ê) | 275 | 226 | ||||||
Series 2006-G Class 2A3 | ||||||||
0.381% due 07/20/36 (Ê) | 526 | 519 | ||||||
Series 2006-I Class 5A1 | ||||||||
5.870% due 10/20/46 (Ê) | 943 | 829 | ||||||
Series 2007-4 Class 3A1 | ||||||||
0.580% due 06/25/37 (Ê) | 1,035 | 754 | ||||||
Banc of America Large Loan, Inc. | ||||||||
Series 2010-HLTN Class HLTN | ||||||||
2.509% due 11/15/15 (Ê)(Þ) | 92 | 91 | ||||||
Banc of America Merrill Lynch Commercial Mortgage, Inc. | ||||||||
Series 2003-1 Class SBB | ||||||||
5.860% due 03/11/32 (Þ) | 199 | 201 | ||||||
Series 2003-1 Class SBC | ||||||||
5.790% due 03/11/32 (Þ) | 100 | 100 | ||||||
Series 2005-1 Class A3 | �� | |||||||
4.877% due 11/10/42 | 35 | 35 | ||||||
Series 2005-1 Class A4 | ||||||||
5.077% due 11/10/42 | 170 | 173 | ||||||
Series 2005-2 Class A5 | ||||||||
4.857% due 07/10/43 | 745 | 808 | ||||||
Series 2006-2 Class A4 | ||||||||
5.727% due 05/10/45 | 200 | 229 | ||||||
Series 2008-1 Class A4 | ||||||||
6.205% due 02/10/51 | 405 | 491 | ||||||
Banc of America Mortgage Securities, Inc. | ||||||||
Series 2004-1 Class 5A1 | ||||||||
6.500% due 09/25/33 | 4 | 4 | ||||||
Series 2004-11 Class 2A1 | ||||||||
5.750% due 01/25/35 | 123 | 126 | ||||||
Series 2005-H Class 2A5 | ||||||||
3.129% due 09/25/35 (Ê) | 211 | 193 |
Core Bond Fund | 77 |
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 $ | |||||||
Bayview Commercial Asset Trust | ||||||||
Series 2005-3A Class A1 | ||||||||
0.530% due 11/25/35 (Ê)(Þ) | 457 | 358 | ||||||
BCAP LLC Trust | ||||||||
Series 2011-RR4 Class 7A2 | ||||||||
11.726% due 04/26/37 (Þ) | 452 | 121 | ||||||
Bear Stearns Adjustable Rate Mortgage Trust | ||||||||
Series 2003-1 Class 6A1 | ||||||||
2.643% due 04/25/33 (Ê) | 18 | 18 | ||||||
Series 2003-8 Class 4A1 | ||||||||
3.103% due 01/25/34 (Ê) | 63 | 63 | ||||||
Series 2004-9 Class 22A1 | ||||||||
3.477% due 11/25/34 (Ê) | 34 | 34 | ||||||
Series 2005-2 Class A1 | ||||||||
2.570% due 03/25/35 (Ê) | 531 | 535 | ||||||
Series 2007-3 Class 1A1 | ||||||||
3.108% due 05/25/47 (Ê) | 205 | 161 | ||||||
Bear Stearns Alt-A Trust | ||||||||
Series 2005-4 Class 23A1 | ||||||||
2.894% due 05/25/35 (Ê) | 145 | 132 | ||||||
Series 2005-7 Class 22A1 | ||||||||
3.006% due 09/25/35 (Ê) | 342 | 269 | ||||||
Series 2005-10 Class 24A1 | ||||||||
2.692% due 01/25/36 (Ê) | 304 | 190 | ||||||
Series 2006-1 Class 21A2 | ||||||||
2.835% due 02/25/36 (Ê) | 389 | 217 | ||||||
Bear Stearns Commercial Mortgage Securities | ||||||||
Series 2001-TOP2 Class D | ||||||||
6.940% due 02/15/35 (Þ) | 125 | 125 | ||||||
Series 2004-PWR3 Class A4 | ||||||||
4.715% due 02/11/41 | 1,000 | 1,031 | ||||||
Series 2005-T20 Class A4A | ||||||||
5.149% due 10/12/42 | 700 | 777 | ||||||
Series 2006-T22 Class A4 | ||||||||
5.573% due 04/12/38 | 505 | 573 | ||||||
BNPP Mortgage Securities LLC | ||||||||
Series 2009-1 Class A1 | ||||||||
6.000% due 08/27/37 (Þ) | 321 | 337 | ||||||
Citicorp Mortgage Securities, Inc. | ||||||||
Series 2006-3 Class 1A9 | ||||||||
5.750% due 06/25/36 | 210 | 213 | ||||||
Citigroup Commercial Mortgage Trust | ||||||||
Series 2004-C2 Class A4 | ||||||||
4.623% due 10/15/41 | 255 | 256 | ||||||
Series 2006-C5 Class A4 | ||||||||
5.431% due 10/15/49 | 135 | 155 | ||||||
Citigroup Mortgage Loan Trust, Inc. | ||||||||
Series 2005-11 Class A2A | ||||||||
2.570% due 10/25/35 (Ê) | 37 | 35 | ||||||
Series 2006-AR7 Class 1A4A | ||||||||
4.825% due 11/25/36 (Ê) | 458 | 350 | ||||||
Series 2007-10 Class 2A3A | ||||||||
5.940% due 09/25/37 (Ê) | 414 | 324 | ||||||
Series 2007-10 Class 2A4A | ||||||||
6.151% due 09/25/37 (Ê) | 252 | 212 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Series 2007-AR8 Class 2A1A | ||||||||
2.934% due 07/25/37 (Ê) | 545 | 428 | ||||||
Citigroup/Deutsche Bank Commercial Mortgage Trust | ||||||||
Series 2005-CD1 Class A4 | ||||||||
5.219% due 07/15/44 | 340 | 377 | ||||||
Commercial Mortgage Asset Trust | ||||||||
Series 1999-C1 Class D | ||||||||
7.350% due 01/17/32 | 115 | 120 | ||||||
Commercial Mortgage Pass Through Certificates | ||||||||
Series 2003-LB1A Class A2 | ||||||||
4.084% due 06/10/38 | 152 | 153 | ||||||
Series 2007-FL14 Class AJ | ||||||||
0.389% due 06/15/22 (Ê)(Þ) | 1,616 | 1,589 | ||||||
Series 2011-THL Class A | ||||||||
3.376% due 06/09/28 (Þ) | 309 | 313 | ||||||
Countrywide Alternative Loan Trust | ||||||||
Series 2005-48T1 Class A6 | ||||||||
5.500% due 11/25/35 | 867 | 705 | ||||||
Series 2005-81 Class A1 | ||||||||
0.490% due 02/25/37 (Ê) | 271 | 174 | ||||||
Series 2006-36T2 Class 1A9 | ||||||||
1.110% due 12/25/36 (Ê) | 210 | 128 | ||||||
Series 2006-45T1 Class 2A2 | ||||||||
6.000% due 02/25/37 | 834 | 654 | ||||||
Countrywide Home Loan Mortgage Pass Through Trust | ||||||||
Series 2004-22 Class A3 | ||||||||
2.935% due 11/25/34 (Ê) | 116 | 106 | ||||||
Series 2004-HYB9 Class 1A1 | ||||||||
2.803% due 02/20/35 (Ê) | 192 | 179 | ||||||
Series 2005-3 Class 1A2 | ||||||||
0.500% due 04/25/35 (Ê) | 19 | 15 | ||||||
Series 2005-HYB9 Class 3A2A | ||||||||
2.783% due 02/20/36 (Ê) | 38 | 33 | ||||||
Series 2007-2 Class A2 | ||||||||
6.000% due 03/25/37 | 1,785 | 1,641 | ||||||
Series 2007-4 Class 1A10 | ||||||||
6.000% due 05/25/37 | 1,614 | 1,464 | ||||||
Series 2007-HY5 Class 1A1 | ||||||||
3.145% due 09/25/47 (Ê) | 1,290 | 988 | ||||||
Credit Suisse First Boston Mortgage Securities Corp. | ||||||||
Series 2002-CKN2 Class C1 | ||||||||
6.376% due 04/15/37 | 75 | 75 | ||||||
Series 2003-C5 Class D | ||||||||
5.116% due 12/15/36 | 215 | 219 | ||||||
Series 2004-C5 Class B | ||||||||
4.929% due 11/15/37 | 350 | 365 | ||||||
Series 2005-9 Class 2A1 | ||||||||
5.500% due 10/25/35 | 257 | 244 | ||||||
Series 2005-C2 Class A3 | ||||||||
4.691% due 04/15/37 | 188 | 195 | ||||||
Credit Suisse Mortgage Capital Certificates | ||||||||
Series 2006-C2 Class A3 | ||||||||
5.676% due 03/15/39 | 100 | 113 |
78 | 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 $ | |||||||
Series 2007-2 Class 3A4 | ||||||||
5.500% due 03/25/37 | 938 | 903 | ||||||
Series 2007-C1 Class A3 | ||||||||
5.383% due 02/15/40 | 100 | 111 | ||||||
DBRR Trust | ||||||||
1.393% due 09/25/45 | 210 | 210 | ||||||
Series 2011-LC2 Class A4A | ||||||||
4.537% due 07/12/44 (Þ) | 340 | 395 | ||||||
Series 2012-EZ1 Class A | ||||||||
0.946% due 09/25/45 (Þ) | 699 | 699 | ||||||
DBUBS Mortgage Trust | ||||||||
Series 2011-LC2A Class A2 | ||||||||
3.386% due 07/10/44 (Þ) | 900 | 970 | ||||||
Deutsche ALT-A Securities, Inc. Alternate Loan Trust | ||||||||
Series 2005-AR1 Class 2A3 | ||||||||
2.062% due 08/25/35 (Ê) | 439 | 304 | ||||||
Series 2007-OA1 Class A1 | ||||||||
0.360% due 02/25/47 (Ê) | 1,835 | 1,082 | ||||||
Fannie Mae | ||||||||
2.639% due 2017 (Ê) | 14 | 14 | ||||||
6.000% due 2017 | 13 | 14 | ||||||
3.584% due 2020 (Ê) | 585 | 651 | ||||||
3.665% due 2020 (Ê) | 799 | 896 | ||||||
3.763% due 2020 (Ê) | 776 | 881 | ||||||
4.251% due 2020 (Ê) | 770 | 885 | ||||||
5.500% due 2020 | 60 | 65 | ||||||
3.890% due 2021 (Ê) | 200 | 227 | ||||||
5.500% due 2021 | 104 | 113 | ||||||
2.500% due 2022 | 1,755 | 1,842 | ||||||
3.016% due 2022 (Ê) | 298 | 320 | ||||||
5.500% due 2022 | 148 | 160 | ||||||
4.000% due 2025 | 969 | 1,041 | ||||||
4.500% due 2025 | 1,652 | 1,800 | ||||||
3.500% due 2026 | 3,420 | 3,712 | ||||||
6.000% due 2026 | 210 | 230 | ||||||
2.870% due 2027 (Ê) | 100 | 99 | ||||||
3.000% due 2027 | 2,855 | 3,051 | ||||||
6.000% due 2027 | 133 | 146 | ||||||
6.000% due 2028 | 10 | 11 | ||||||
6.000% due 2032 | 148 | 165 | ||||||
6.150% due 2032 (Ê) | 109 | 116 | ||||||
5.000% due 2033 | 39 | 42 | ||||||
5.500% due 2033 | 9 | 10 | ||||||
6.000% due 2033 | 7 | 8 | ||||||
6.150% due 2033 (Ê) | 82 | 88 | ||||||
5.000% due 2034 | 496 | 541 | ||||||
5.500% due 2034 | 373 | 413 | ||||||
4.500% due 2035 | 35 | 38 | ||||||
3.496% due 2036 (Ê) | 195 | 201 | ||||||
5.500% due 2037 | 581 | 626 | ||||||
6.000% due 2037 | 11 | 12 | ||||||
5.500% due 2038 | 1,299 | 1,463 | ||||||
4.500% due 2039 | 1,718 | 1,857 | ||||||
4.000% due 2040 | 749 | 835 | ||||||
4.500% due 2040 | 721 | 782 | ||||||
5.500% due 2040 | 266 | 291 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
6.000% due 2040 | 1,216 | 1,332 | ||||||
4.000% due 2041 | 2,229 | 2,432 | ||||||
4.500% due 2041 | 1,207 | 1,310 | ||||||
15 Year TBA (Ï) | ||||||||
2.500% | 1,700 | 1,778 | ||||||
3.000% | 3,350 | 3,535 | ||||||
3.500% | 875 | 928 | ||||||
30 Year TBA (Ï) | ||||||||
3.000% | 5,435 | 5,695 | ||||||
3.500% | 11,770 | 12,548 | ||||||
4.000% | 28,830 | 31,000 | ||||||
5.500% | 3,785 | 4,113 | ||||||
6.000% | 1,700 | 1,857 | ||||||
Series 2003-343 Class 6 | ||||||||
Interest Only STRIP | ||||||||
5.000% due 10/01/33 | 87 | 12 | ||||||
Series 2003-345 Class 18 | ||||||||
Interest Only STRIP | ||||||||
4.500% due 12/01/18 | 156 | 11 | ||||||
Series 2003-345 Class 19 | ||||||||
Interest Only STRIP | ||||||||
4.500% due 01/01/19 | 171 | 12 | ||||||
Series 2005-365 Class 12 | ||||||||
Interest Only STRIP | ||||||||
5.500% due 12/01/35 | 328 | 46 | ||||||
Series 2006-369 Class 8 | ||||||||
Interest Only STRIP | ||||||||
5.500% due 04/01/36 | 55 | 7 | ||||||
Fannie Mae Grantor Trust | ||||||||
Series 2001-T4 Class A1 | ||||||||
7.500% due 07/25/41 | 358 | 428 | ||||||
Fannie Mae REMICS | ||||||||
Series 1999-56 Class Z | ||||||||
7.000% due 12/18/29 | 42 | 49 | ||||||
Series 2003-32 Class FH | ||||||||
0.610% due 11/25/22 (Ê) | 38 | 38 | ||||||
Series 2003-35 Class FY | ||||||||
0.610% due 05/25/18 (Ê) | 96 | 97 | ||||||
Series 2005-110 Class MB | ||||||||
5.500% due 09/25/35 | 113 | 124 | ||||||
Series 2006-27 Class SH | ||||||||
Interest Only STRIP | ||||||||
6.490% due 04/25/36 (Ê) | 1,932 | 298 | ||||||
Series 2007-30 Class AF | ||||||||
0.520% due 04/25/37 (Ê) | 69 | 69 | ||||||
Series 2009-39 Class LB | ||||||||
4.500% due 06/25/29 | 405 | 444 | ||||||
Series 2009-96 Class DB | ||||||||
4.000% due 11/25/29 | 575 | 623 | ||||||
Series 2010-85 Class NJ | ||||||||
4.500% due 08/25/40 | 673 | 724 | ||||||
Series 2010-95 Class S | ||||||||
Interest Only STRIP | ||||||||
6.390% due 09/25/40 (Ê) | 1,968 | 355 | ||||||
Series 2010-112 Class PI | ||||||||
Interest Only STRIP | ||||||||
6.000% due 10/25/40 | 2,147 | 260 |
Core Bond Fund | 79 |
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 $ | |||||||
Series 2012-55 Class PC | ||||||||
3.500% due 05/25/42 | 700 | 744 | ||||||
Fannie Mae Whole Loan | ||||||||
Series 2003-W1 Class 1A1 | ||||||||
6.176% due 12/25/42 | 24 | 29 | ||||||
Series 2004-W2 Class 2A2 | ||||||||
7.000% due 02/25/44 | 318 | 375 | ||||||
Fannie Mae-Aces | ||||||||
Series 2006-M2 Class A2F | ||||||||
5.259% due 05/25/20 | 129 | 147 | ||||||
Series 2012-M12 Class 1A | ||||||||
2.840% due 08/25/22 | 1,240 | 1,343 | ||||||
Series 2012-M14 Class A2 | ||||||||
2.301% due 09/25/22 | 230 | 232 | ||||||
Series 2012-M15 Class A | ||||||||
2.657% due 10/25/22 | 963 | 1,010 | ||||||
FDIC Structured Sale Guaranteed Notes | ||||||||
Series 2010-L2A Class A | ||||||||
3.000% due 09/30/19 (Þ) | 603 | 618 | ||||||
FDIC Trust | ||||||||
Series 2010-R1 Class A | ||||||||
2.184% due 05/25/50 (Þ) | 446 | 454 | ||||||
Series 2011-R1 Class A | ||||||||
2.672% due 07/25/26 (Þ) | 628 | 647 | ||||||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass Through Certificates | ||||||||
Series 2011-K014 Class X1 | ||||||||
Interest Only STRIP | ||||||||
1.271% due 04/25/21 | 1,278 | 107 | ||||||
Series 2011-K702 Class X1 | ||||||||
Interest Only STRIP | ||||||||
1.557% due 02/25/18 | 4,762 | 325 | ||||||
Series 2012-K019 Class A2 | ||||||||
2.272% due 03/25/22 | 425 | 429 | ||||||
Series 2012-K020 Class A2 | ||||||||
2.373% due 05/25/22 | 925 | 939 | ||||||
Series 2012-K020 Class X1 | ||||||||
Interest Only STRIP | ||||||||
1.479% due 05/25/22 | 2,395 | 255 | ||||||
Series 2012-K021 Class A1 | ||||||||
1.603% due 01/25/22 | 224 | 229 | ||||||
Series 2012-K022 Class A2 | ||||||||
2.355% due 07/25/22 | 605 | 611 | ||||||
Series 2012-K501 Class X1A | ||||||||
Interest Only STRIP | ||||||||
1.755% due 08/25/16 | 4,953 | 232 | ||||||
Federal Home Loan Mortgage Corp. Structured Pass Through Securities | ||||||||
Series 2005-63 Class 1A1 | ||||||||
1.353% due 02/25/45 (Ê) | 18 | 18 | ||||||
First Horizon Asset Securities, Inc. | ||||||||
Series 2005-AR4 Class 2A1 | ||||||||
2.598% due 10/25/35 (Ê) | 853 | 752 | ||||||
Freddie Mac | ||||||||
6.000% due 2016 | 5 | 6 | ||||||
3.500% due 2025 | 1,134 | 1,211 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
2.533% due 2030 (Ê) | 1 | 1 | ||||||
5.000% due 2035 | 465 | 502 | ||||||
2.855% due 2037 (Ê) | 125 | 133 | ||||||
5.500% due 2037 | 558 | 599 | ||||||
5.500% due 2038 | 2,351 | 2,634 | ||||||
6.000% due 2038 | 522 | 574 | ||||||
4.500% due 2039 | 2,087 | 2,343 | ||||||
4.000% due 2041 | 5,604 | 6,233 | ||||||
4.500% due 2041 | 5,752 | 6,456 | ||||||
3.000% due 2042 | 240 | 251 | ||||||
Freddie Mac Mortgage Trust | ||||||||
Series 2010-K7 Class B | ||||||||
5.435% due 04/25/20 (Þ) | 510 | 577 | ||||||
Freddie Mac REMICS | ||||||||
Series 2000-2266 Class F | ||||||||
0.659% due 11/15/30 (Ê) | 7 | 7 | ||||||
Series 2003-2624 Class QH | ||||||||
5.000% due 06/15/33 | 320 | 352 | ||||||
Series 2007-3335 Class BF | ||||||||
0.359% due 07/15/19 (Ê) | 67 | 67 | ||||||
Series 2007-3335 Class FT | ||||||||
0.359% due 08/15/19 (Ê) | 153 | 153 | ||||||
Series 2009-3569 Class NY | ||||||||
5.000% due 08/15/39 | 1,400 | 1,625 | ||||||
Series 2010-3640 Class JA | ||||||||
1.500% due 03/15/15 | 405 | 407 | ||||||
Series 2010-3653 Class B | ||||||||
4.500% due 04/15/30 | 490 | 546 | ||||||
Series 2010-3704 Class DC | ||||||||
4.000% due 11/15/36 | 475 | 528 | ||||||
Series 2011-3901 Class LA | ||||||||
4.000% due 06/15/38 | 650 | 661 | ||||||
GE Business Loan Trust | ||||||||
Series 2003-2A Class A | ||||||||
0.579% due 11/15/31 (Ê)(Þ) | 524 | 490 | ||||||
GE Capital Commercial Mortgage Corp. | ||||||||
Series 2003-C2 Class F | ||||||||
5.419% due 07/10/37 (Þ) | 45 | 46 | ||||||
Ginne Mae II | ||||||||
4.000% due 2040 (Ê) | 289 | 310 | ||||||
Ginnie Mae I | ||||||||
3.000% due 2027 | 629 | 672 | ||||||
4.500% due 2039 | 1,521 | 1,717 | ||||||
4.564% due 2062 | 1,184 | 1,374 | ||||||
Ginnie Mae II | ||||||||
1.750% due 2026 (Ê) | 87 | 91 | ||||||
1.750% due 2027 (Ê) | 7 | 7 | ||||||
1.625% due 2032 (Ê) | 33 | 35 | ||||||
3.500% due 2040 (Ê) | 1,382 | 1,477 | ||||||
4.000% due 2040 (Ê) | 236 | 254 | ||||||
4.502% due 2061 | 396 | 455 | ||||||
4.700% due 2061 | 325 | 378 | ||||||
5.245% due 2061 | 692 | 808 | ||||||
30 Year TBA (Ï) | ||||||||
3.000% | 1,895 | 2,015 |
80 | 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 $ | |||||||
GMAC Commercial Mortgage Securities, Inc. | ||||||||
Series 2004-C3 Class A4 | ||||||||
4.547% due 12/10/41 | 99 | 99 | ||||||
GMAC Mortgage Corp. Loan Trust | ||||||||
Series 2005-AR2 Class 4A | ||||||||
5.097% due 05/25/35 (Ê) | 337 | 333 | ||||||
Government National Mortgage Association | ||||||||
1.750% due 07/16/47 | 400 | 408 | ||||||
Series 2000-29 Class F | ||||||||
0.711% due 09/20/30 (Ê) | 10 | 10 | ||||||
Series 2007-12 Class C | ||||||||
5.278% due 04/16/41 | 340 | 390 | ||||||
Series 2007-26 Class SD | ||||||||
Interest Only STRIP | ||||||||
6.591% due 05/16/37 (Ê) | 1,888 | 326 | ||||||
Series 2010-74 Class IO | ||||||||
Interest Only STRIP | ||||||||
1.304% due 03/16/50 | 4,741 | 259 | ||||||
Series 2010-116 Class MP | ||||||||
3.500% due 09/16/40 | 1,649 | 1,788 | ||||||
Series 2010-124 Class C | ||||||||
3.392% due 03/16/45 | 75 | 81 | ||||||
Series 2010-H12 Class PT | ||||||||
5.470% due 11/20/59 | 736 | 812 | ||||||
Series 2011-67 Class B | ||||||||
3.863% due 10/16/47 | 230 | 254 | ||||||
Series 2011-127 Class IO | ||||||||
Interest Only STRIP | ||||||||
1.543% due 03/16/47 | 2,363 | 175 | ||||||
Series 2012-99 Class CI | ||||||||
Interest Only STRIP | ||||||||
1.041% due 10/16/49 | 1,923 | 154 | ||||||
Series 2012-115 Class A | ||||||||
2.131% due 04/16/45 | 224 | 233 | ||||||
Series 2012-115 Class IO | ||||||||
Interest Only STRIP | ||||||||
0.433% due 04/16/54 | 797 | 41 | ||||||
Greenwich Capital Commercial Funding Corp. | ||||||||
Series 2004-GG1 Class A7 | ||||||||
5.317% due 06/10/36 | 736 | 767 | ||||||
Series 2005-GG3 Class A4 | ||||||||
4.799% due 08/10/42 | 100 | 107 | ||||||
Series 2007-GG9 Class A4 | ||||||||
5.444% due 03/10/39 | 100 | 115 | ||||||
GS Mortgage Securities Corp. II | ||||||||
Series 2004-GG2 Class A6 | ||||||||
5.396% due 08/10/38 | 500 | 528 | ||||||
Series 2007-EOP Class A3 | ||||||||
1.456% due 03/06/20 (Ê)(Þ) | 1,800 | 1,803 | ||||||
Series 2011-GC5 Class A4 | ||||||||
3.707% due 08/10/44 | 735 | 816 | ||||||
Series 2012-ALOH Class A | ||||||||
3.551% due 04/10/34 (Þ) | 125 | 135 | ||||||
Series 2012-GCJ9 Class A3 | ||||||||
2.773% due 11/10/45 | 290 | 297 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
GSMPS Mortgage Loan Trust | ||||||||
Series 2006-RP1 Class 1A2 | ||||||||
7.500% due 01/25/36 (Þ) | 437 | 439 | ||||||
GSR Mortgage Loan Trust | ||||||||
Series 2005-AR7 Class 6A1 | ||||||||
5.133% due 11/25/35 (Ê) | 99 | 98 | ||||||
Series 2006-2F Class 3A3 | ||||||||
6.000% due 02/25/36 | 915 | 805 | ||||||
Series 2006-3F Class 2A3 | ||||||||
5.750% due 03/25/36 | 212 | 196 | ||||||
Series 2006-8F Class 4A17 | ||||||||
6.000% due 09/25/36 | 369 | 318 | ||||||
Series 2007-AR2 Class 2A1 | ||||||||
2.792% due 05/25/47 (Ê) | 735 | 617 | ||||||
Harborview Mortgage Loan Trust | ||||||||
Series 2005-4 Class 3A1 | ||||||||
3.075% due 07/19/35 (Ê) | 101 | 82 | ||||||
Indymac Index Mortgage Loan Trust | ||||||||
Series 2005-AR31 Class 1A1 | ||||||||
2.520% due 01/25/36 (Ê) | 498 | 365 | ||||||
Series 2006-AR41 Class A3 | ||||||||
0.390% due 02/25/37 (Ê) | 1,053 | 664 | ||||||
JPMorgan Alternative Loan Trust | ||||||||
Series 2006-A2 Class 3A1 | ||||||||
2.857% due 05/25/36 (Ê) | 1,189 | 831 | ||||||
JPMorgan Chase Commercial Mortgage Securities Corp. | ||||||||
Series 2003-C1 Class D | ||||||||
5.192% due 01/12/37 | 210 | 211 | ||||||
Series 2003-PM1A Class B | ||||||||
5.405% due 08/12/40 | 210 | 214 | ||||||
Series 2005-LDP5 Class A4 | ||||||||
5.200% due 12/15/44 | 555 | 619 | ||||||
Series 2006-LDP8 Class A3B | ||||||||
5.447% due 05/15/45 | 250 | 260 | ||||||
Series 2006-LDP8 Class A4 | ||||||||
5.399% due 05/15/45 | 770 | 884 | ||||||
Series 2007-CB18 Class A4 | ||||||||
5.440% due 06/12/47 | 1,200 | 1,381 | ||||||
Series 2007-CB20 Class AJ | ||||||||
6.077% due 02/12/51 | 125 | 120 | ||||||
Series 2007-CB20 Class ASB | ||||||||
5.688% due 02/12/51 | 79 | 87 | ||||||
Series 2007-LDPX Class A3 | ||||||||
5.420% due 01/15/49 | 700 | 810 | ||||||
Series 2010-CNTR Class A2 | ||||||||
4.311% due 08/05/32 (Þ) | 400 | 443 | ||||||
JPMorgan Mortgage Trust | ||||||||
Series 2005-A1 Class 6T1 | ||||||||
4.968% due 02/25/35 (Ê) | 25 | 25 | ||||||
Series 2005-A5 Class 3A2 | ||||||||
2.752% due 08/25/35 (Ê) | 121 | 122 | ||||||
Series 2005-A5 Class TA1 | ||||||||
5.349% due 08/25/35 (Ê) | 252 | 256 | ||||||
Series 2005-A8 Class 1A1 | ||||||||
5.248% due 11/25/35 (Ê) | 211 | 207 |
Core Bond Fund | 81 |
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 $ | |||||||
Series 2005-S3 Class 1A2 | ||||||||
5.750% due 01/25/36 | 53 | 51 | ||||||
Series 2006-A6 Class 1A2 | ||||||||
3.018% due 10/25/36 (Ê) | 159 | 124 | ||||||
Series 2006-A7 Class 2A4R | ||||||||
2.905% due 01/25/37 (Ê) | 1,161 | 894 | ||||||
Series 2007-S3 Class 1A8 | ||||||||
6.000% due 08/25/37 | 954 | 816 | ||||||
LB-UBS Commercial Mortgage Trust | ||||||||
Series 2003-C1 Class B | ||||||||
4.479% due 12/15/36 | 45 | 45 | ||||||
Series 2003-C5 Class C | ||||||||
4.762% due 04/15/37 | 130 | 132 | ||||||
Series 2004-C7 Class A1A | ||||||||
4.475% due 10/15/29 | 60 | 63 | ||||||
Series 2006-C1 Class A3 | ||||||||
5.207% due 02/15/31 | 250 | 262 | ||||||
Mastr Adjustable Rate Mortgages Trust 2006-2 | ||||||||
Series 2006-2 Class 4A1 | ||||||||
3.410% due 02/25/36 (Ê) | 120 | 112 | ||||||
Mastr Adjustable Rate Mortgages Trust 2007-HF2 | ||||||||
Series 2007-HF2 Class A1 | ||||||||
0.520% due 09/25/37 (Ê) | 668 | 531 | ||||||
Mastr Alternative Loans Trust | ||||||||
Series 2003-4 Class B1 | ||||||||
5.825% due 06/25/33 | 105 | 92 | ||||||
Series 2004-10 Class 5A6 | ||||||||
5.750% due 09/25/34 | 113 | 115 | ||||||
Mellon Residential Funding Corp. | ||||||||
Series 2000-TBC2 Class A1 | ||||||||
0.689% due 06/15/30 (Ê) | 74 | 73 | ||||||
Merrill Lynch Mortgage Investors, Inc. | ||||||||
Series 2005-A10 Class A | ||||||||
0.420% due 02/25/36 (Ê) | 70 | 61 | ||||||
Merrill Lynch Mortgage Trust | ||||||||
Series 2002-MW1 Class J | ||||||||
5.695% due 07/12/34 (Þ) | 55 | 46 | ||||||
Series 2005-CIP1 Class AM | ||||||||
5.107% due 07/12/38 | 295 | 322 | ||||||
Series 2008-C1 Class A4 | ||||||||
5.690% due 02/12/51 | 530 | 627 | ||||||
Merrill Lynch/Countrywide Commercial Mortgage Trust | ||||||||
Series 2007-6 Class A4 | ||||||||
5.485% due 03/12/51 | 100 | 115 | ||||||
MLCC Mortgage Investors, Inc. | ||||||||
Series 2005-3 Class 5A | ||||||||
0.460% due 11/25/35 (Ê) | 47 | 43 | ||||||
Morgan Stanley Capital I, Inc. | ||||||||
Series 1998-HF2 Class G | ||||||||
6.010% due 11/15/30 (Þ) | 70 | 70 | ||||||
Series 2005-T19 Class A4A | ||||||||
4.890% due 06/12/47 | 750 | 820 | ||||||
Series 2006-HQ9 Class A4 | ||||||||
5.731% due 07/12/44 | 515 | 591 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Series 2006-T23 Class A4 | ||||||||
5.818% due 08/12/41 | 780 | 903 | ||||||
Series 2007-T27 Class A4 | ||||||||
5.651% due 06/11/42 | 720 | 853 | ||||||
Series 2011-C3 Class A2 | ||||||||
3.224% due 07/15/49 | 195 | 210 | ||||||
Series 2011-C3 Class A4 | ||||||||
4.118% due 07/15/49 | 115 | 131 | ||||||
Morgan Stanley Dean Witter Capital I | ||||||||
Series 2001-TOP3 Class C | ||||||||
6.790% due 07/15/33 | 50 | 52 | ||||||
Motel 6 Trust | ||||||||
Series 2012-MTL6 Class A1 | ||||||||
1.500% due 10/05/25 (Þ) | 340 | 339 | ||||||
Series 2012-MTL6 Class A2 | ||||||||
1.948% due 10/05/25 (Þ) | 220 | 222 | ||||||
Series 2012-MTL6 Class XA1 | ||||||||
3.005% due 10/05/25 (Þ) | 2,130 | 123 | ||||||
NorthStar 2012-1 Mortgage Trust | ||||||||
Series 2012-1 Class A | ||||||||
1.410% due 08/25/29 (Ê)(Þ) | 174 | 174 | ||||||
OBP Depositor LLC Trust | ||||||||
Series 2010-OBP Class A | ||||||||
4.646% due 07/15/45 (Þ) | 285 | 334 | ||||||
ORES NPL LLC | ||||||||
Series 2012-LV1 Class A | ||||||||
4.000% due 09/25/44 (Þ) | 148 | 149 | ||||||
Prime Mortgage Trust | ||||||||
Series 2004-CL1 Class 1A2 | ||||||||
0.610% due 02/25/34 (Ê) | 12 | 11 | ||||||
Prudential Commercial Mortgage Trust | ||||||||
Series 2003-PWR1 Class C | ||||||||
4.706% due 02/11/36 | 50 | 50 | ||||||
RALI Trust | ||||||||
Series 2005-QS14 Class 2A1 | ||||||||
6.000% due 09/25/35 | 295 | 221 | ||||||
Residential Asset Securitization Trust | ||||||||
Series 2003-A15 Class 1A2 | ||||||||
0.660% due 02/25/34 (Ê) | 76 | 72 | ||||||
Series 2005-A10 Class A3 | ||||||||
5.500% due 09/25/35 | 177 | 157 | ||||||
Series 2006-A9CB Class A6 | ||||||||
6.000% due 09/25/36 | 209 | 133 | ||||||
RFMSI Trust | ||||||||
Series 2006-SA4 Class 2A1 | ||||||||
3.839% due 11/25/36 (Ê) | 210 | 177 | ||||||
RREF 2012 LT1 LLC | ||||||||
Series 2012-LT1A Class A | ||||||||
4.750% due 02/15/25 (Þ) | 3 | 3 | ||||||
Sequoia Mortgage Trust | ||||||||
Series 2001-5 Class A | ||||||||
0.910% due 10/19/26 (Ê) | 25 | 25 | ||||||
SMA Issuer I LLC | ||||||||
Series 2012-LV1 Class A | ||||||||
3.500% due 08/20/25 (Þ) | 235 | 236 |
82 | 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 $ | |||||||
Structured Adjustable Rate Mortgage Loan Trust | ||||||||
Series 2005-23 Class 1A3 | ||||||||
2.752% due 01/25/36 (Ê) | 199 | 181 | ||||||
Structured Asset Mortgage Investments, Inc. | ||||||||
Series 2005-AR5 Class A3 | ||||||||
0.460% due 07/19/35 (Ê) | 115 | 113 | ||||||
Series 2007-AR6 Class A1 | ||||||||
1.660% due 08/25/47 (Ê) | 1,049 | 765 | ||||||
Structured Asset Securities Corp. | ||||||||
Series 2003-34A Class 5A4 | ||||||||
2.776% due 11/25/33 (Ê) | 629 | 637 | ||||||
Temporary Deal SA-RM55 | ||||||||
4.510% due 01/01/63 | 1,080 | 1,241 | ||||||
Wachovia Bank Commercial Mortgage Trust | ||||||||
Series 2003-C4 Class D | ||||||||
5.040% due 04/15/35 | 65 | 65 | ||||||
Series 2004-C15 Class A4 | ||||||||
4.803% due 10/15/41 | 100 | 107 | ||||||
Series 2005-C16 Class A4 | ||||||||
4.847% due 10/15/41 | 725 | 776 | ||||||
Series 2005-C17 Class A4 | ||||||||
5.083% due 03/15/42 | 100 | 108 | ||||||
Series 2005-C20 Class A7 | ||||||||
5.118% due 07/15/42 | 800 | 878 | ||||||
Series 2006-WL7A Class A2 | ||||||||
0.329% due 09/15/21 (Ê)(Þ) | 194 | �� | 191 | |||||
Washington Mutual Alternative Mortgage Pass-Through Certificates | ||||||||
Series 2006-AR7 Class A1A | ||||||||
1.073% due 09/25/46 (Ê) | 985 | 500 | ||||||
Series 2006-AR9 Class 2A | ||||||||
0.993% due 11/25/46 (Ê) | 1,259 | 622 | ||||||
Series 2007-HY2 Class 2A3 | ||||||||
4.225% due 04/25/37 (Ê) | 840 | 557 | ||||||
Washington Mutual Mortgage Pass Through Certificates | ||||||||
Series 2005-AR6 Class B3 | ||||||||
0.870% due 04/25/45 (Å)(Ê) | 71 | — | ||||||
Series 2005-AR13 Class A1A1 | ||||||||
0.500% due 10/25/45 (Ê) | 23 | 21 | ||||||
Series 2007-HY3 Class 4A1 | ||||||||
2.759% due 03/25/37 (Ê) | 307 | 271 | ||||||
Wells Fargo Mortgage Backed Securities Trust | ||||||||
Series 2006-2 Class 2A3 | ||||||||
5.500% due 03/25/36 | 125 | 121 | ||||||
Series 2006-AR2 Class 2A1 | ||||||||
2.627% due 03/25/36 | 158 | 155 | ||||||
Series 2006-AR2 Class 2A3 | ||||||||
2.627% due 03/25/36 (Ê) | 237 | 230 | ||||||
Series 2006-AR4 Class 1A1 | ||||||||
5.761% due 04/25/36 (Ê) | 418 | 377 | ||||||
Series 2006-AR10 Class 4A1 | ||||||||
2.614% due 07/25/36 (Ê) | 43 | 38 | ||||||
Series 2006-AR17 Class A1 | ||||||||
2.629% due 10/25/36 (Ê) | 743 | 657 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Series 2007-8 Class 1A16 | ||||||||
6.000% due 07/25/37 | 149 | 145 | ||||||
Series 2007-AR8 Class A1 | ||||||||
5.990% due 11/25/37 (Ê) | 245 | 218 | ||||||
WF-RBS Commercial Mortgage Trust | ||||||||
Series 2011-C5 Class A4 | ||||||||
3.667% due 11/15/44 | 545 | 602 | ||||||
|
| |||||||
207,524 | ||||||||
|
| |||||||
Municipal Bonds - 2.3% | ||||||||
Alabama Public School & College Authority Revenue Bonds | ||||||||
5.150% due 09/01/27 | 100 | 119 | ||||||
Charlotte-Mecklenburg Hospital Authority Revenue Bonds | ||||||||
5.000% due 01/15/30 | 900 | 1,041 | ||||||
Chicago Transit Authority Revenue Bonds | ||||||||
6.899% due 12/01/40 | 400 | 486 | ||||||
City of Houston Texas General Obligation Limited | ||||||||
6.290% due 03/01/32 | 475 | 590 | ||||||
City of New York New York General Obligation Unlimited | ||||||||
6.246% due 06/01/35 | 1,100 | 1,310 | ||||||
County of Clark Nevada Airport System Revenue Bonds | ||||||||
6.820% due 07/01/45 | 100 | 143 | ||||||
Illinois Municipal Electric Agency Revenue Bonds | ||||||||
6.832% due 02/01/35 | 100 | 120 | ||||||
Irvine Ranch Water District Special Assessment | ||||||||
6.622% due 05/01/40 | 1,000 | 1,326 | ||||||
Los Angeles Unified School District General Obligation Unlimited | ||||||||
4.500% due 07/01/22 (µ) | 400 | 455 | ||||||
Metropolitan Government of Nashville & Davidson County Convention Center Authority Revenue Bonds | ||||||||
6.731% due 07/01/43 | 100 | 121 | ||||||
Municipal Electric Authority of Georgia Revenue Bonds | ||||||||
6.637% due 04/01/57 | 370 | 442 | ||||||
7.055% due 04/01/57 | 345 | 390 | ||||||
New Jersey State Turnpike Authority Revenue Bonds | ||||||||
7.102% due 01/01/41 | 240 | 346 | ||||||
New York City Municipal Water Finance Authority Revenue Bonds | ||||||||
5.375% due 06/15/43 | 525 | 619 | ||||||
New York State Dormitory Authority Revenue Bonds | ||||||||
5.000% due 03/15/23 | 200 | 248 | ||||||
5.000% due 12/15/25 | 200 | 248 | ||||||
5.000% due 12/15/27 | 200 | 245 | ||||||
5.000% due 03/15/29 | 200 | 240 | ||||||
5.000% due 03/15/41 | 200 | 228 |
Core Bond Fund | 83 |
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 $ | |||||||
North Carolina Turnpike Authority Revenue Bonds | ||||||||
6.700% due 01/01/39 | 100 | 116 | ||||||
Public Power Generation Agency Revenue Bonds | ||||||||
7.242% due 01/01/41 | 100 | 119 | ||||||
San Diego County Regional Airport Authority Revenue Bonds | ||||||||
6.628% due 07/01/40 | 100 | 113 | ||||||
State of California General Obligation Unlimited | ||||||||
6.650% due 03/01/22 | 625 | 783 | ||||||
7.500% due 04/01/34 | 100 | 139 | ||||||
5.650% due 04/01/39 (Ê) | 100 | 101 | ||||||
7.550% due 04/01/39 | 355 | 512 | ||||||
7.600% due 11/01/40 | 115 | 168 | ||||||
State of Illinois General Obligation Unlimited | ||||||||
5.665% due 03/01/18 | 375 | 427 | ||||||
5.100% due 06/01/33 | 440 | 435 | ||||||
7.350% due 07/01/35 | 350 | 423 | ||||||
State of Louisiana Gasoline & Fuels Tax Revenue Bonds | ||||||||
3.000% due 05/01/43 (Ê) | 400 | 401 | ||||||
State of Wisconsin Revenue Bonds | ||||||||
5.050% due 05/01/18 (µ) | 100 | 116 | ||||||
Triborough Bridge & Tunnel Authority Revenue Bonds | ||||||||
5.000% due 11/15/25 | 900 | 1,118 | ||||||
University of California Revenue Bonds | ||||||||
5.000% due 05/15/28 | 300 | 363 | ||||||
6.270% due 05/15/31 | 400 | 466 | ||||||
Virginia Commonwealth Transportation Board Revenue Bonds | ||||||||
5.000% due 05/15/31 | 700 | 844 | ||||||
|
| |||||||
15,361 | ||||||||
|
| |||||||
Non-US Bonds - 7.4% | ||||||||
Asset-Backed European Securitisation Transaction Srl | ||||||||
Series 2011-6 Class A1 | ||||||||
1.594% due 03/15/18 (Ê) | GBP 178 | 289 | ||||||
Australia Government Bond | ||||||||
Series 120 | ||||||||
6.000% due 02/15/17 | AUD 6,590 | 7,716 | ||||||
Canadian Government Bond | ||||||||
2.750% due 06/01/22 | CAD 600 | 653 | ||||||
Colombia Government International Bond | ||||||||
10.750% due 06/15/16 | COP 1,443,000 | 1,252 | ||||||
7.750% due 04/14/21 | COP 1,799,000 | 1,274 | ||||||
Granite Master Issuer PLC | ||||||||
Series 2005-1 Class A5 | ||||||||
0.290% due 12/20/54 (Ê) | EUR 309 | 402 | ||||||
Series 2005-4 Class A5 | ||||||||
0.310% due 12/20/54 (Ê) | EUR 132 | 172 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Series 2006-4 Class A7 | ||||||||
0.330% due 12/20/54 (Ê) | EUR 330 | 430 | ||||||
Ireland Government Bond | ||||||||
5.000% due 10/18/20 | EUR 1,410 | 1,908 | ||||||
5.400% due 03/13/25 | EUR 1,590 | 2,133 | ||||||
Italy Buoni Poliennali Del Tesoro | ||||||||
6.000% due 11/15/14 | EUR 200 | 283 | ||||||
2.500% due 03/01/15 | EUR 300 | 399 | ||||||
4.500% due 07/15/15 | EUR 100 | 139 | ||||||
3.750% due 08/01/15 | EUR 100 | 136 | ||||||
3.750% due 04/15/16 | EUR 200 | 274 | ||||||
4.750% due 09/15/16 | EUR 200 | 282 | ||||||
4.750% due 05/01/17 | EUR 100 | 141 | ||||||
4.500% due 08/01/18 | EUR 100 | 139 | ||||||
4.000% due 09/01/20 | EUR 620 | 823 | ||||||
Mexican Bonos | ||||||||
Series M | ||||||||
8.000% due 06/11/20 | MXN 16,350 | 1,484 | ||||||
Series M 20 | ||||||||
7.500% due 06/03/27 | MXN 15,100 | 1,359 | ||||||
Series M 30 | ||||||||
10.000% due 11/20/36 | MXN 12,369 | 1,383 | ||||||
New Zealand Government Bond | ||||||||
Series 1217 | ||||||||
6.000% due 12/15/17 | NZD 4,110 | 3,875 | ||||||
Series 521 | ||||||||
6.000% due 05/15/21 | NZD 1,030 | 1,012 | ||||||
Norway Government Bond | ||||||||
Series 472 | ||||||||
4.250% due 05/19/17 | NOK 12,770 | 2,559 | ||||||
Peru Government Bond | ||||||||
7.840% due 08/12/20 | PEN 1,020 | 504 | ||||||
Series REGS | ||||||||
8.600% due 08/12/17 | PEN 475 | 230 | ||||||
6.950% due 08/12/31 | PEN 285 | 140 | ||||||
Poland Government Bond | ||||||||
Series 0417 | ||||||||
4.750% due 04/25/17 | PLN 8,570 | 2,941 | ||||||
Series 1019 | ||||||||
5.500% due 10/25/19 | PLN 7,120 | 2,602 | ||||||
Province of Ontario Canada | ||||||||
4.200% due 06/02/20 | CAD 200 | 225 | ||||||
4.000% due 06/02/21 | CAD 300 | 334 | ||||||
3.150% due 06/02/22 | CAD 2,000 | 2,080 | ||||||
4.700% due 06/02/37 | CAD 400 | 485 | ||||||
4.600% due 06/02/39 | CAD 100 | 121 | ||||||
Province of Quebec Canada | ||||||||
4.250% due 12/01/21 | CAD 300 | 337 | ||||||
3.500% due 12/01/22 | CAD 1,600 | 1,693 | ||||||
Red & Black Auto Germany | ||||||||
Series 2012-1 Class A | ||||||||
1.080% due 12/15/20 (Ê) | EUR 65 | 86 | ||||||
Russian Agricultural Bank OJSC Via RSHB Capital SA | ||||||||
8.625% due 02/17/17 (Þ) | RUB 8,900 | 296 |
84 | 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 $ | |||||||
SC Germany Auto | ||||||||
Series 2011-2 Class A | ||||||||
1.060% due 11/13/21 (Ê) | EUR 1,264 | 1,683 | ||||||
Spain Government Bond | ||||||||
4.400% due 01/31/15 | EUR 200 | 272 | ||||||
3.750% due 10/31/15 | EUR 700 | 920 | ||||||
3.150% due 01/31/16 | EUR 900 | 1,177 | ||||||
3.250% due 04/30/16 | EUR 700 | 914 | ||||||
4.250% due 10/31/16 | EUR 1,700 | 2,276 | ||||||
Wood Street CLO BV | ||||||||
Series 2005-I Class A | ||||||||
0.602% due 11/22/21 (Ê) | EUR 157 | 201 | ||||||
|
| |||||||
50,034 | ||||||||
|
| |||||||
United States Government Agencies - 0.9% |
| |||||||
Federal Home Loan Mortgage Corp. | ||||||||
1.375% due 02/25/14 | 265 | 269 | ||||||
2.000% due 08/25/16 | 675 | 710 | ||||||
1.000% due 06/29/17 | 200 | 202 | ||||||
1.000% due 09/29/17 | 200 | 202 | ||||||
3.750% due 03/27/19 | 300 | 347 | ||||||
1.250% due 08/01/19 | 100 | 100 | ||||||
1.250% due 10/02/19 | 200 | 199 | ||||||
2.375% due 01/13/22 | 100 | 104 | ||||||
Series 1 | ||||||||
1.000% due 07/28/17 | 400 | 404 | ||||||
0.750% due 01/12/18 | 800 | 795 | ||||||
Federal National Mortgage Association | ||||||||
1.250% due 01/30/17 | 300 | 308 | ||||||
0.875% due 08/28/17 | 100 | 100 | ||||||
0.875% due 10/26/17 | 1,600 | 1,607 | ||||||
0.875% due 12/20/17 | 100 | 100 | ||||||
Zero coupon due 10/09/19 | 675 | 591 | ||||||
Freddie Mac | ||||||||
5.500% due 08/23/17 | 100 | 122 | ||||||
|
| |||||||
6,160 | ||||||||
|
| |||||||
United States Government Treasuries - 12.6% |
| |||||||
United States Treasury Inflation Indexed Bonds | ||||||||
0.125% due 04/15/17 | 2,953 | 3,163 | ||||||
1.250% due 07/15/20 | 636 | 755 | ||||||
0.125% due 01/15/22 | 409 | 444 | ||||||
0.125% due 07/15/22 | 402 | 437 | ||||||
2.375% due 01/15/25 | 3,068 | 4,139 | ||||||
2.375% due 01/15/27 (§) | 2,065 | 2,847 | ||||||
1.750% due 01/15/28 | 1,104 | 1,429 | ||||||
2.125% due 02/15/41 | 1,072 | 1,583 | ||||||
0.750% due 02/15/42 | 614 | 673 | ||||||
United States Treasury Notes | ||||||||
0.250% due 11/30/14 | 2,235 | 2,235 | ||||||
0.250% due 10/15/15 | 205 | 205 | ||||||
0.375% due 11/15/15 | 2,415 | 2,417 | ||||||
0.875% due 01/31/17 | 820 | 831 | ||||||
0.750% due 06/30/17 | 7,605 | 7,649 | ||||||
0.750% due 10/31/17 | 5,960 | 5,980 | ||||||
0.625% due 11/30/17 | 1,935 | 1,929 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
0.750% due 12/31/17 | 330 | 331 | ||||||
3.500% due 02/15/18 | 1,480 | 1,685 | ||||||
1.125% due 05/31/19 (§) | 8,100 | 8,150 | ||||||
0.875% due 07/31/19 | 1,700 | 1,679 | ||||||
1.000% due 08/31/19 | 9,100 | 9,046 | ||||||
1.000% due 09/30/19 | 4,000 | 3,973 | ||||||
1.250% due 10/31/19 | 300 | 302 | ||||||
3.375% due 11/15/19 | 200 | 230 | ||||||
1.625% due 11/15/22 | 10,065 | 9,956 | ||||||
6.250% due 08/15/23 | 380 | 545 | ||||||
Zero coupon due 11/15/27 | 1,350 | 926 | ||||||
3.000% due 05/15/42 | 185 | 188 | ||||||
2.750% due 08/15/42 | 11,995 | 11,582 | ||||||
|
| |||||||
85,309 | ||||||||
|
| |||||||
Total Long-Term Investments (cost $501,782) | 523,944 | |||||||
|
| |||||||
Common Stocks - 0.0% | ||||||||
Utilities - 0.0% | ||||||||
Dynegy, Inc. (Æ) | 16,210 | 310 | ||||||
|
| |||||||
Total Common Stocks (cost $324) | 310 | |||||||
|
| |||||||
Preferred Stocks - 0.1% | ||||||||
Financial Services - 0.1% | ||||||||
DG Funding Trust (Å)(Æ) | 49 | 360 | ||||||
|
| |||||||
Total Preferred Stocks (cost $516) | 360 | |||||||
|
| |||||||
Notional | ||||||||
Options Purchased - 0.0% | ||||||||
(Number of Contracts) | ||||||||
United States Treasury 10 Year Note Futures | ||||||||
Jan 2013 133.50 Call (11) | USD 11 | 3 | ||||||
|
| |||||||
Total Options Purchased (cost $7) | 3 | |||||||
|
| |||||||
Principal | ||||||||
Short-Term Investments - 28.4% | ||||||||
Abbey National Treasury Services PLC | ||||||||
1.553% due 04/25/13 (ž) | 300 | 300 | ||||||
1.602% due 06/10/13 (ž) | 2,000 | 2,002 | ||||||
Adam Aircraft Industries - Term Loan | ||||||||
15.130% due 05/23/13 (Å) | 49 | — | ||||||
Allstate Life Global Funding Trusts | ||||||||
5.375% due 04/30/13 | 200 | 203 |
Core Bond Fund | 85 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except share amounts)
Principal Amount ($) or Shares | Fair Value $ | |||||||
Ally Auto Receivables Trust | ||||||||
Series 2012-4 Class A1 | ||||||||
0.302% due 09/06/13 | 277 | 277 | ||||||
Ally Financial, Inc. | ||||||||
7.500% due 12/31/13 | 1,900 | 2,007 | ||||||
American Express Bank FSB | ||||||||
Series BKNT | ||||||||
5.500% due 04/16/13 | 300 | 304 | ||||||
AmeriCredit Automobile Receivables Trust | ||||||||
Series 2012-3 Class A1 | ||||||||
0.361% due 07/08/13 | 254 | 254 | ||||||
Series 2012-4 Class A1 | ||||||||
0.300% due 09/09/13 | 749 | 750 | ||||||
Series 2012-5 Class A1 | ||||||||
0.270% due 12/09/13 | 444 | 444 | ||||||
ANZ National International, Ltd. | ||||||||
6.200% due 07/19/13 (Þ) | 600 | 615 | ||||||
Australia & New Zealand Banking Group, Ltd. | ||||||||
1.162% due 05/08/13 (Å)(Ê) | 300 | 300 | ||||||
Banco Santander Brasil SA | ||||||||
3.100% due 10/01/13 (ž) | 500 | 493 | ||||||
BNP Paribas SA | ||||||||
Series MTN | ||||||||
0.751% due 04/08/13 (Ê) | 680 | 680 | ||||||
Cellco Partnership / Verizon Wireless Capital LLC | ||||||||
7.375% due 11/15/13 | 235 | 248 | ||||||
Citigroup Funding, Inc. | ||||||||
1.562% due 11/08/13 (Ê) | 900 | 904 | ||||||
Citigroup, Inc. | ||||||||
5.500% due 04/11/13 | 700 | 707 | ||||||
5.850% due 07/02/13 | 100 | 103 | ||||||
2.310% due 08/13/13 (Ê) | 100 | 101 | ||||||
Continental Airlines 2006-1 Class G Pass Through Trust | ||||||||
Series 061G | ||||||||
0.661% due 06/02/13 (Ê) | 180 | 177 | ||||||
Credit Suisse USA, Inc. | ||||||||
5.500% due 08/15/13 | 45 | 46 | ||||||
Daimler Finance NA LLC | ||||||||
1.677% due 07/11/13 (Ê)(Þ) | 700 | 704 | ||||||
1.510% due 09/13/13 (Ê)(Þ) | 200 | 201 | ||||||
DCP Midstream LLC | ||||||||
0.470% due 01/18/13 (ç)(ž) | 1,800 | 1,800 | ||||||
Dell, Inc. | ||||||||
4.700% due 04/15/13 | 400 | 405 | ||||||
Dexia Credit Local SA | ||||||||
Series BMTN | ||||||||
1.084% due 09/18/13 (Ê)(ž) | 400 | 528 | ||||||
FCE Bank PLC | ||||||||
7.125% due 01/15/13 | 600 | 793 | ||||||
Federal National Mortgage Association Discount Notes | ||||||||
Zero coupon due 01/23/13 (ç)(ž) | 4,040 | 4,040 | ||||||
Freddie Mac Discount Notes | ||||||||
Zero coupon due 02/11/13 (ç)(ž) | 1,485 | 1,485 |
Principal Amount ($) or Shares | Fair Value $ | |||||||
Gazprom OAO Via RBS AG | ||||||||
Series REGS | ||||||||
9.625% due 03/01/13 | 900 | 912 | ||||||
GE Equipment Transportation LLC | ||||||||
Series 2012-2 Class A1 | ||||||||
0.260% due 10/24/13 | 473 | 473 | ||||||
General Electric Capital Corp. | ||||||||
1.212% due 05/22/13 (Ê) | 75 | 75 | ||||||
Harley-Davidson Motorcycle Trust | ||||||||
Series 2012-1 Class A1 | ||||||||
0.235% due 08/15/13 | 30 | 30 | ||||||
Hewlett-Packard Co. | ||||||||
0.592% due 05/24/13 (Ê) | 700 | 698 | ||||||
HSBC Finance Corp. | ||||||||
0.468% due 04/05/13 (Ê) | 300 | 396 | ||||||
Hyundai Auto Lease Securitization Trust 2012-A | ||||||||
Series 2012-A Class A1 | ||||||||
0.384% due 06/17/13 (Þ) | 387 | 387 | ||||||
Hyundai Auto Receivables Trust | ||||||||
Series 2012-B Class A1 | ||||||||
0.293% due 07/15/13 | 274 | 274 | ||||||
Series 2012-C Class A1 | ||||||||
0.230% due 10/15/13 | 930 | 930 | ||||||
ING Bank NV | ||||||||
1.358% due 03/15/13 (Å) (Ê) | 600 | 601 | ||||||
iPCS, Inc. | ||||||||
2.438% due 05/01/13 (Ê) | 440 | 439 | ||||||
Italy Certificati di Credito del Tesoro | ||||||||
Zero coupon due 09/30/13 | 100 | 131 | ||||||
Japan Treasury Discount Bill | ||||||||
Series 327 | ||||||||
Zero coupon due 03/04/13 | JPY 140,000 | 1,616 | ||||||
John Deere Owner Trust | ||||||||
Series 2012-B Class A1 | ||||||||
0.267% due 09/16/13 | 753 | 754 | ||||||
MBNA Corp. | ||||||||
6.125% due 03/01/13 | 200 | 202 | ||||||
Morgan Stanley | ||||||||
Series GMTN | ||||||||
2.810% due 05/14/13 (Ê) | 200 | 201 | ||||||
National Australia Bank, Ltd. | ||||||||
5.350% due 06/12/13 (Þ) | 800 | 818 | ||||||
Nissan Auto Receivables Owner Trust | ||||||||
Series 2012-B Class A1 | ||||||||
0.263% due 08/15/13 | 621 | 621 | ||||||
Ohio Power Co. | ||||||||
Series C | ||||||||
5.500% due 03/01/13 | 10 | 10 | ||||||
Ralph Lauren Corp. | ||||||||
4.500% due 10/04/13 | 125 | 169 | ||||||
RBS Holdings USA, Inc. | ||||||||
Zero coupon due 03/19/2013 (ž) | 1,760 | 1,759 | ||||||
Residential Capital, LLC DIP Term Loan A | ||||||||
5.000% due 11/18/13 (Ê) | 1,800 | 1,803 | ||||||
Russell U.S. Cash Management Fund | 134,139,443 | (¥) | 134,139 |
86 | 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 $ | |||||||
Santander Drive Auto Receivables Trust | ||||||||
Series 2012-4 Class A1 | ||||||||
0.432% due 07/15/13 | 172 | 172 | ||||||
Series 2012-5 Class A1 | ||||||||
0.336% due 08/15/13 | 161 | 161 | ||||||
Series 2012-6 Class A1 | ||||||||
0.300% due 10/15/13 | 782 | 782 | ||||||
Santander US Debt SA Unipersonal | ||||||||
2.991% due 10/07/13 (Å) | 400 | 401 | ||||||
SLM Corp. | ||||||||
0.513% due 06/17/13 (Ê) | 150 | 195 | ||||||
SMART Trust | ||||||||
Series 2012-4US Class A1 | ||||||||
0.290% due 10/14/13 | 79 | 79 | ||||||
Springleaf Finance Corp. | ||||||||
3.250% due 01/16/13 | 600 | 792 | ||||||
Tidewater Auto Receivables Trust | ||||||||
Series 2012-AA Class A1 | ||||||||
0.640% due 11/15/13 (Þ) | 427 | 427 | ||||||
United States Treasury Bills | ||||||||
0.068% due 02/07/13 (ç)(ž) | 16,510 | 16,509 | ||||||
0.037% due 04/04/13 (ž)(§) | 10 | 10 | ||||||
0.092% due 05/23/13 (§) | 10 | 10 | ||||||
United States Treasury Inflation Indexed Bonds | ||||||||
0.625% due 04/15/13 | 460 | 459 | ||||||
UnitedHealth Group, Inc. | ||||||||
4.875% due 02/15/13 | 200 | 201 | ||||||
Volvo Group Treasury U.S. Inc | ||||||||
0.600% due 03/07/13 (ž) | 1,800 | 1,798 | ||||||
Wachovia Corp. | ||||||||
5.500% due 05/01/13 | 490 | 498 | ||||||
Westlake Automobile Receivables Trust | ||||||||
Series 2012-1A Class A1 | ||||||||
0.426% due 09/16/13 (Þ) | 929 | 929 | ||||||
|
| |||||||
Total Short-Term Investments (cost $191,560) | 191,732 | |||||||
|
|
Principal Amount ($) or Shares | Fair Value $ | |||||||
Repurchase Agreements - 2.8% | ||||||||
Agreement with Morgan Stanley Co., Inc. and State Street Bank (Tri-Party) of $19,200 dated December 31, 2012 at 0.250% to be repurchased at $19,200 on January 2, 2013 collateralized by: $16,039 par various United States Treasury Obligations, valued at $19,219. | 19,200 | 19,200 | ||||||
|
| |||||||
Total Repurchase Agreements (cost $19,200) | 19,200 | |||||||
|
| |||||||
Total Investments - 108.8% (identified cost $713,389) | 735,549 | |||||||
Other Assets and Liabilities, Net - (8.8%) | (59,531 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 676,018 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 87 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except share and cost per unit amounts)
Restricted Securities
% of Net Assets Securities | Acquisition Date | Principal Amount ($) or Shares | Cost per Unit $ | Cost (000) $ | Fair Value (000) $ | |||||||||||||||
0.7% | ||||||||||||||||||||
AbbVie, Inc. | 11/16/12 | 400,000 | 100.69 | 403 | 405 | |||||||||||||||
Adam Aircraft Industries - Term Loan | 05/22/07 | 48,786 | 114.22 | 56 | — | |||||||||||||||
Australia & New Zealand Banking Group, Ltd. | 06/15/11 | 300,000 | 99.96 | 300 | 300 | |||||||||||||||
BNP Paribas SA | 06/17/05 | 300,000 | 100.00 | 300 | 290 | |||||||||||||||
DG Funding Trust | 11/04/03 | 49 | 10,537.11 | 516 | 360 | |||||||||||||||
Electricite de France SA | 01/21/09 | 200,000 | 99.91 | 200 | 210 | |||||||||||||||
Enel Finance International NV | 09/13/07 | 300,000 | 99.90 | 300 | 334 | |||||||||||||||
ING Bank NV | 06/01/11 | 300,000 | 100.00 | 300 | 303 | |||||||||||||||
ING Bank NV | 06/13/11 | 600,000 | 100.02 | 600 | 601 | |||||||||||||||
Intesa Sanpaolo SpA | 02/14/11 | 200,000 | 100.00 | 200 | 200 | |||||||||||||||
Kraft Foods Group, Inc. | 07/16/12 | 147,000 | 121.94 | 179 | 180 | |||||||||||||||
Royal Bank of Scotland Group PLC | 11/05/07 | 300,000 | 99.53 | 299 | 284 | |||||||||||||||
Santander US Debt SA Unipersonal | 09/27/10 | 400,000 | 100.00 | 400 | 401 | |||||||||||||||
Vivendi SA | 04/03/12 | 200,000 | 100.00 | 200 | 204 | |||||||||||||||
Washington Mutual Mortgage Pass Through Certificates | 04/01/05 | 70,898 | 167.62 | 119 | — | |||||||||||||||
Westpac Banking Corp. | 08/12/10 | 700,000 | 102.92 | 720 | 734 | |||||||||||||||
|
| |||||||||||||||||||
4,806 | ||||||||||||||||||||
|
|
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 | ||||||||||||||||||||
Euribor Futures (Germany) | 3 | EUR | 747 | 12/14 | (1) | |||||||||||||||
Euribor Futures (Germany) | 1 | EUR | 249 | 03/15 | — | |||||||||||||||
Eurodollar Futures (CME) | 51 | USD | 12,712 | 03/13 | (1) | |||||||||||||||
Eurodollar Futures (CME) | 93 | USD | 23,090 | 06/15 | (22) | |||||||||||||||
Eurodollar Futures (CME) | 16 | USD | 3,969 | 09/15 | (4) | |||||||||||||||
Eurodollar Futures (CME) | 64 | USD | 15,858 | 12/15 | (9) | |||||||||||||||
Eurodollar Futures (CME) | 17 | USD | 4,207 | 03/16 | (3) | |||||||||||||||
Eurodollar Futures (CME) | 1 | USD | 247 | 06/16 | — | |||||||||||||||
Eurodollar Futures (CME) | 1 | USD | 247 | 09/16 | — | |||||||||||||||
United States Treasury 2 Year Note Futures | 177 | USD | 39,022 | 03/13 | 13 | |||||||||||||||
United States Treasury 5 Year Note Futures | 169 | USD | 21,026 | 03/13 | (5) | |||||||||||||||
United States Treasury 10 Year Note Futures | 59 | USD | 7,834 | 03/13 | (19) | |||||||||||||||
United States Treasury 30 Year Bond Futures | 106 | USD | 15,635 | 03/13 | (199) | |||||||||||||||
United States Treasury Ultra Long-Term Bond Futures | 2 | USD | 325 | 03/13 | (6) | |||||||||||||||
Short Positions | ||||||||||||||||||||
Canada Government 10 Year Bond Futures (Canada) | 19 | CAD | 2,575 | 03/13 | 6 | |||||||||||||||
Euro-Bobl Futures (Germany) | 23 | EUR | 2,940 | 03/13 | (19) | |||||||||||||||
Euro-Bund Futures (Germany) | 1 | EUR | 146 | 03/13 | (2) | |||||||||||||||
Euro-OAT Futures (Germany) | 15 | EUR | 2,042 | 03/13 | (18) | |||||||||||||||
United Kingdom Long Gilt Bond Futures (United Kingdom) | 32 | GBP | 3,805 | 03/13 | (10) | |||||||||||||||
United States Treasury 5 Year Note Futures | 28 | USD | 3,484 | 03/13 | (1) | |||||||||||||||
United States Treasury 10 Year Note Futures | 82 | USD | 10,888 | 03/13 | 34 | |||||||||||||||
United States Treasury 30 Year Bond Futures | 16 | USD | 2,360 | 03/13 | 19 | |||||||||||||||
|
| |||||||||||||||||||
Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) |
| (247) | ||||||||||||||||||
|
|
See accompanying notes which are an integral part of the financial statements.
88 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except contract amounts)
Options Written | Call/Put | Number of Contracts | Strike Price | Notional Amount | Expiration Date | Fair Value $ | ||||||||||||||||||||||
Inflationary Floor Options | Call | 1 | 0.00 | USD | 810 | 11/23/20 | (2 | ) | ||||||||||||||||||||
Inflationary Floor Options | Put | 1 | 0.00 | USD | 1,400 | 03/10/20 | (3 | ) | ||||||||||||||||||||
Inflationary Floor Options | Put | 1 | 0.00 | USD | 1,000 | 03/12/20 | (2 | ) | ||||||||||||||||||||
Inflationary Floor Options | Put | 1 | 0.00 | USD | 5,500 | 04/07/20 | (11 | ) | ||||||||||||||||||||
Inflationary Floor Options | Put | 1 | 0.00 | USD | 300 | 09/29/20 | — | |||||||||||||||||||||
Swaptions | ||||||||||||||||||||||||||||
(Fund Receives/Fund Pays) | ||||||||||||||||||||||||||||
USD Three Month LIBOR/USD 0.700% | Call | 1 | 0.00 | 5,600 | 02/19/13 | (2 | ) | |||||||||||||||||||||
USD 1.100%/USD Three Month LIBOR | Put | 2 | 0.00 | 300 | 01/21/13 | — | ||||||||||||||||||||||
USD 1.200%/USD Three Month LIBOR | Put | 2 | 0.00 | 7,700 | 03/18/13 | (7 | ) | |||||||||||||||||||||
USD 1.200%/USD Three Month LIBOR | Put | 1 | 0.00 | 1,400 | 03/18/13 | (1 | ) | |||||||||||||||||||||
USD 1.200%/USD Three Month LIBOR | Put | 2 | 0.00 | 18,400 | 02/19/13 | (6 | ) | |||||||||||||||||||||
USD 1.200%/USD Three Month LIBOR | Put | 1 | 0.00 | 1,800 | 07/11/13 | — | ||||||||||||||||||||||
USD 1.400%/USD Three Month LIBOR | Put | 2 | 0.00 | 700 | 03/18/13 | — | ||||||||||||||||||||||
USD 1.650%/USD Three Month LIBOR | Put | 1 | 0.00 | 500 | 03/18/13 | (1 | ) | |||||||||||||||||||||
USD 2.000%/USD Three Month LIBOR | Put | 1 | 0.00 | 1,000 | 03/18/13 | — | ||||||||||||||||||||||
USD 2.250%/USD Three Month LIBOR | Put | 1 | 0.00 | 2,700 | 05/28/13 | — | ||||||||||||||||||||||
United States Treasury 10 Year Note Futures | Call | 11 | 135.00 | USD | 11 | 01/25/13 | (1 | ) | ||||||||||||||||||||
United States Treasury 10 Year Note Futures | Call | 61 | 134.00 | USD | 61 | 02/22/13 | (21 | ) | ||||||||||||||||||||
United States Treasury 10 Year Note Futures | Put | 11 | 131.50 | USD | 11 | 01/25/13 | (2 | ) | ||||||||||||||||||||
United States Treasury 10 Year Note Futures | Put | 61 | 131.50 | USD | 61 | 02/22/13 | (27 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Liability for Options Written (premiums received $296) |
| (86 | ) | |||||||||||||||||||||||||
|
|
Transactions in options written contracts for the period ended December 31, 2012 were as follows:
| Number of Contracts | Premiums Received | ||||||
Outstanding December 31, 2011 | 49 | $ | 752 | |||||
Opened | 744 | 768 | ||||||
Closed | (570 | ) | (1,151 | ) | ||||
Expired | (60 | ) | (73 | ) | ||||
|
|
|
| |||||
Outstanding December 31, 2012 | 163 | $ | 296 | |||||
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 89 |
Table of Contents
Russell Investment Funds
Core Bond 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) $ | ||||||||||||||
Bank of America | GBP | 272 | USD | 438 | 03/12/13 | (4 | ) | |||||||||||
Barclays Bank PLC | USD | 88 | GBP | 55 | 03/12/13 | 1 | ||||||||||||
Barclays Bank PLC | USD | 3,315 | JPY | 278,394 | 01/17/13 | (101 | ) | |||||||||||
Barclays Bank PLC | CAD | 148 | USD | 150 | 03/21/13 | 1 | ||||||||||||
Barclays Bank PLC | EUR | 3,410 | USD | 4,445 | 01/17/13 | (57 | ) | |||||||||||
Barclays Bank PLC | EUR | 12 | USD | 16 | 03/18/13 | — | ||||||||||||
Barclays Bank PLC | JPY | 230,000 | USD | 2,795 | 03/04/13 | 139 | ||||||||||||
Citibank | EUR | 5,095 | USD | 6,627 | 03/18/13 | (102 | ) | |||||||||||
Credit Suisse International | EUR | 3,410 | USD | 4,443 | 01/17/13 | (58 | ) | |||||||||||
Deutsche Bank AG | EUR | 281 | JPY | 31,922 | 01/17/13 | (2 | ) | |||||||||||
Deutsche Bank AG | JPY | 63,747 | USD | 777 | 01/17/13 | 41 | ||||||||||||
Goldman Sachs | USD | 1,640 | JPY | 137,152 | 01/17/13 | (57 | ) | |||||||||||
Goldman Sachs | USD | 1,691 | JPY | 141,788 | 01/17/13 | (54 | ) | |||||||||||
Goldman Sachs | USD | 6,780 | JPY | 568,746 | 01/17/13 | (216 | ) | |||||||||||
Goldman Sachs | EUR | 4,143 | USD | 5,399 | 01/17/13 | (70 | ) | |||||||||||
HSBC Bank PLC | USD | 100 | BRL | 206 | 02/04/13 | — | ||||||||||||
HSBC Bank PLC | USD | 627 | BRL | 1,295 | 02/04/13 | 3 | ||||||||||||
JPMorgan Chase Bank | USD | 3,622 | CHF | 3,373 | 02/01/13 | 68 | ||||||||||||
JPMorgan Chase Bank | USD | 1,380 | COP | 2,538,154 | 02/01/13 | 54 | ||||||||||||
JPMorgan Chase Bank | USD | 4,808 | GBP | 2,998 | 02/01/13 | 62 | ||||||||||||
JPMorgan Chase Bank | USD | 1,261 | KRW | 1,398,959 | 02/01/13 | 43 | ||||||||||||
JPMorgan Chase Bank | USD | 2,569 | KRW | 2,832,190 | 02/01/13 | 71 | ||||||||||||
JPMorgan Chase Bank | USD | 19 | MXN | 246 | 02/01/13 | — | ||||||||||||
JPMorgan Chase Bank | USD | 1,009 | MXN | 13,208 | 02/01/13 | 10 | ||||||||||||
JPMorgan Chase Bank | USD | 1,324 | MYR | 4,070 | 02/04/13 | 4 | ||||||||||||
JPMorgan Chase Bank | USD | 2,484 | MYR | 7,639 | 02/04/13 | 8 | ||||||||||||
JPMorgan Chase Bank | USD | 2,493 | NOK | 14,345 | 02/01/13 | 85 | ||||||||||||
JPMorgan Chase Bank | USD | 2,521 | NOK | 14,591 | 02/01/13 | 101 | ||||||||||||
JPMorgan Chase Bank | USD | 2,461 | SEK | 16,468 | 02/01/13 | 69 | ||||||||||||
JPMorgan Chase Bank | USD | 2,560 | SEK | 17,131 | 02/01/13 | 73 | ||||||||||||
JPMorgan Chase Bank | USD | 84 | ZAR | 750 | 02/01/13 | 4 | ||||||||||||
JPMorgan Chase Bank | USD | 2,222 | ZAR | 19,580 | 02/01/13 | 78 | ||||||||||||
JPMorgan Chase Bank | AUD | 1,740 | USD | 1,785 | 02/01/13 | (18 | ) | |||||||||||
JPMorgan Chase Bank | AUD | 13,259 | USD | 13,615 | 02/01/13 | (125 | ) | |||||||||||
JPMorgan Chase Bank | BRL | 1,264 | USD | 614 | 02/01/13 | — | ||||||||||||
JPMorgan Chase Bank | BRL | 2,882 | USD | 1,403 | 02/01/13 | 1 | ||||||||||||
JPMorgan Chase Bank | CAD | 2,538 | USD | 2,555 | 02/01/13 | 5 | ||||||||||||
JPMorgan Chase Bank | CLP | 734,037 | USD | 1,510 | 02/01/13 | (18 | ) | |||||||||||
JPMorgan Chase Bank | COP | 4,434,486 | USD | 2,404 | 02/01/13 | (101 | ) | |||||||||||
JPMorgan Chase Bank | CZK | 38,617 | USD | 1,992 | 02/01/13 | (40 | ) | |||||||||||
JPMorgan Chase Bank | EUR | 39 | USD | 51 | 02/01/13 | (1 | ) | |||||||||||
JPMorgan Chase Bank | EUR | 4,984 | USD | 6,439 | 02/01/13 | (142 | ) | |||||||||||
JPMorgan Chase Bank | IDR | 32,742,358 | USD | 3,356 | 02/01/13 | (30 | ) | |||||||||||
JPMorgan Chase Bank | JPY | 6,493 | USD | 81 | 02/01/13 | 6 | ||||||||||||
JPMorgan Chase Bank | JPY | 164,208 | USD | 2,062 | 02/01/13 | 165 | ||||||||||||
JPMorgan Chase Bank | MXN | 19,658 | USD | 1,502 | 02/01/13 | (15 | ) | |||||||||||
JPMorgan Chase Bank | NOK | 14,539 | USD | 2,516 | 02/01/13 | (97 | ) | |||||||||||
JPMorgan Chase Bank | NZD | 1,262 | USD | 1,033 | 02/01/13 | (8 | ) | |||||||||||
JPMorgan Chase Bank | NZD | 1,988 | USD | 1,610 | 02/01/13 | (30 | ) | |||||||||||
JPMorgan Chase Bank | NZD | 9,080 | USD | 7,393 | 02/01/13 | (97 | ) | |||||||||||
JPMorgan Chase Bank | PEN | 1,285 | USD | 495 | 02/01/13 | (8 | ) | |||||||||||
JPMorgan Chase Bank | PEN | 3,956 | USD | 1,520 | 02/01/13 | (27 | ) | |||||||||||
JPMorgan Chase Bank | PLN | 7,676 | USD | 2,377 | 02/01/13 | (95 | ) |
See accompanying notes which are an integral part of the financial statements.
90 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond 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) $ | ||||||||||||||
JPMorgan Chase Bank | PLN | 9,018 | USD | 2,776 | 02/01/13 | (128 | ) | |||||||||||
JPMorgan Chase Bank | RUB | 44,429 | USD | 1,394 | 02/01/13 | (53 | ) | |||||||||||
JPMorgan Chase Bank | SGD | 3,120 | USD | 2,549 | 02/01/13 | (5 | ) | |||||||||||
JPMorgan Chase Bank | TRY | 2,648 | USD | 1,450 | 02/01/13 | (29 | ) | |||||||||||
Morgan Stanley & Co., Inc. | USD | 990 | MXN | 13,065 | 03/26/13 | 13 | ||||||||||||
Royal Bank of Canada | CAD | 5,097 | USD | 5,162 | 03/21/13 | 46 | ||||||||||||
Royal Bank of Scotland PLC | EUR | 999 | JPY | 113,490 | 01/17/13 | (9 | ) | |||||||||||
Royal Bank of Scotland PLC | EUR | 15 | USD | 20 | 03/18/13 | — | ||||||||||||
UBS AG | USD | 100 | BRL | 206 | 02/04/13 | — | ||||||||||||
UBS AG | USD | 100 | BRL | 205 | 02/04/13 | — | ||||||||||||
UBS AG | USD | 5,039 | CAD | 4,976 | 01/17/13 | (38 | ) | |||||||||||
UBS AG | USD | 47 | JPY | 3,947 | 01/17/13 | (1 | ) | |||||||||||
UBS AG | USD | 100 | MXN | 1,298 | 04/03/13 | — | ||||||||||||
UBS AG | CAD | 4,973 | USD | 5,035 | 01/17/13 | 37 | ||||||||||||
UBS AG | EUR | 84 | USD | 111 | 03/18/13 | — | ||||||||||||
UBS AG | GBP | 3,105 | SEK | 32,888 | 01/17/13 | 12 | ||||||||||||
UBS AG | JPY | 560,698 | USD | 6,784 | 01/17/13 | 311 | ||||||||||||
Westpac Banking Corp. | EUR | 5,095 | USD | 6,599 | 03/18/13 | (130 | ) | |||||||||||
|
| |||||||||||||||||
Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts |
| (455 | ) | |||||||||||||||
|
|
Index Swap Contracts | ||||||||||||||||||
Fund Receives | Counterparty | Notional Amount | Terms | Termination Date | Fair Value $ | |||||||||||||
Barclays Capital U.S. Aggregate Bond Index | Bank of America | USD | 5,145 | 1 Month LIBOR plus 0.100% | 02/28/13 | (8 | ) | |||||||||||
Barclays Capital U.S. Aggregate Bond Index | Barclays Bank PLC | USD | 15,292 | 1 Month LIBOR | 07/01/13 | (24 | ) | |||||||||||
Barclays Capital U.S. Aggregate Bond Index | Barclays Bank PLC | USD | 15,074 | 1 Month LIBOR plus 0.200% | 09/01/13 | (26 | ) | |||||||||||
Barclays Capital U.S. Aggregate Bond Index | Barclays Bank PLC | USD | 5,025 | 1 Month LIBOR plus 0.166% | 09/01/13 | (8 | ) | |||||||||||
Barclays Capital U.S. Aggregate Bond Index | Barclays Bank PLC | USD | 10,049 | 1 Month LIBOR plus 0.140% | 09/01/13 | (17 | ) | |||||||||||
Barclays Capital U.S. Aggregate Bond Index | Barclays Bank PLC | USD | 15,053 | 1 Month LIBOR plus 0.140% | 10/01/13 | (25 | ) | |||||||||||
|
| |||||||||||||||||
Total Fair Value of Open Index Swap Contracts Premiums Paid (Received) - $— (å) |
| (108 | ) | |||||||||||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 91 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands
Interest Rate Swap Contracts | ||||||||||||||||||||
Counterparty | Notional Amount | Fund Receives | Fund Pays | Termination Date | Fair Value $ | |||||||||||||||
Bank of America | MXN | 1,000 | 5.500% | Mexico Interbank 28 Day Deposit Rate | 09/13/17 | 1 | ||||||||||||||
Barclays Bank | MXN | 700 | 5.600% | Mexico Interbank 28 Day Deposit Rate | 09/06/16 | 1 | ||||||||||||||
Barclays Bank | MXN | 5,000 | 5.500% | Mexico Interbank 28 Day Deposit Rate | 09/13/17 | 4 | ||||||||||||||
Barclays Bank | USD | 425 | Three Month LIBOR | 2.481% | 11/15/27 | (4 | ) | |||||||||||||
Barclays Bank | USD | 425 | Three Month LIBOR | 2.417% | 11/15/27 | — | ||||||||||||||
Citibank | USD | 850 | Three Month LIBOR | 2.714% | 08/15/42 | 2 | ||||||||||||||
HSBC | MXN | 1,300 | 5.600% | Mexico Interbank 28 Day Deposit Rate | 09/06/16 | 1 | ||||||||||||||
HSBC | MXN | 1,000 | 5.500% | Mexico Interbank 28 Day Deposit Rate | 09/13/17 | 1 | ||||||||||||||
JPMorgan | USD | 5,000 | 1.311% | Three Month LIBOR | 10/24/19 | 35 | ||||||||||||||
JPMorgan | HKD | 19,850 | Three Month LIBOR | 1.311% | 10/25/19 | (21 | ) | |||||||||||||
JPMorgan | SGD | 3,150 | Singapore Swap Offer Rate | 1.501% | 10/30/19 | (17 | ) | |||||||||||||
JPMorgan | USD | 5,000 | 1.501% | Three Month LIBOR | 10/26/20 | 37 | ||||||||||||||
Morgan Stanley | USD | 15,500 | 1.500% | Three Month LIBOR | 03/18/16 | 118 | ||||||||||||||
Morgan Stanley | USD | 3,400 | 1.000% | Federal Fund Effective Rate - 1 Year | 10/15/17 | — | ||||||||||||||
Morgan Stanley | MXN | 38,000 | 5.500% | Mexico Interbank 28 Day Deposit Rate | 09/13/17 | 28 | ||||||||||||||
Morgan Stanley | USD | 1,800 | 1.000% | Twelve Month LIBOR | 10/15/17 | — | ||||||||||||||
Morgan Stanley | MXN | 500 | 6.350% | Mexico Interbank 28 Day Deposit Rate | 06/02/21 | 2 | ||||||||||||||
|
| |||||||||||||||||||
Total Fair Value on Open Interest Rate Swap Contracts Premiums Paid (Received) - $95 (å) |
| 188 | ||||||||||||||||||
|
|
Credit Default Swap Contracts | ||||||||||||||||||||||||
Corporate Issues | ||||||||||||||||||||||||
Reference | Counterparty | Implied Credit Spread | Notional | Fund (Pays)/ Receives Fixed Rate | Termination Date | Fair Value $ | ||||||||||||||||||
Bank of America Corp. | Deutsche Bank | 0.465% | USD | 400 | 1.000% | 09/20/14 | 4 | |||||||||||||||||
Berkshire Hathaway Inc. | JPMorgan | 1.168% | USD | 1,400 | 1.000% | 12/20/17 | (10 | ) | ||||||||||||||||
GE Capital Corp. | Citibank | 0.220% | USD | 200 | 4.000% | 12/20/13 | 7 | |||||||||||||||||
GE Capital Corp. | Deutsche Bank | 0.220% | USD | 100 | 4.900% | 12/20/13 | 5 | |||||||||||||||||
MetLife, Inc. | Barclays Bank | 1.556% | USD | 1,200 | 1.000% | 12/20/17 | (32 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total Fair Value on Open Corporate Issues Premiums Paid (Received) - ($74) | (26 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Credit Indices | ||||||||||||||||||||||||
Reference | Counterparty | Notional | Fund (Pays)/ Receives Fixed Rate | Termination Date | Fair Value $ | |||||||||||||||||||
CMBX AJ Index | Bank of America | USD | 1,200 | 0.080% | 12/13/49 | (51 | ) | |||||||||||||||||
CMBX AJ Index | Deutsche Bank | USD | 200 | 0.080% | 12/13/49 | (8 | ) | |||||||||||||||||
CMBX AJ Index | JPMorgan | USD | 400 | 0.080% | 12/13/49 | (17 | ) | |||||||||||||||||
Dow Jones CDX Index | Barclays Bank | USD | 800 | 5.000% | 06/20/15 | 63 | ||||||||||||||||||
Dow Jones CDX Index | Credit Suisse | USD | 9,800 | (1.000% | ) | 06/20/17 | (69 | ) | ||||||||||||||||
Dow Jones CDX Index | Deutsche Bank | USD | 900 | 5.000% | 06/20/15 | 70 | ||||||||||||||||||
Dow Jones CDX Index | JPMorgan | USD | 3,000 | 1.000% | 12/20/17 | 9 | ||||||||||||||||||
Dow Jones CDX Index | JPMorgan | USD | 386 | 0.553% | 12/20/17 | 7 | ||||||||||||||||||
Dow Jones CDX Index | JPMorgan | USD | 4,200 | 1.000% | 12/20/17 | 12 | ||||||||||||||||||
Dow Jones CDX Index | Morgan Stanley | USD | 13,200 | (1.000% | ) | 12/20/17 | (33 | ) | ||||||||||||||||
Dow Jones CDX Index | Morgan Stanley | USD | 800 | 5.000% | 06/20/15 | 63 | ||||||||||||||||||
Dow Jones CDX Index | Pershing | USD | 193 | 0.548% | 12/20/17 | 3 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total Fair Value on Open Credit Indices Premiums Paid (Received) - ($34) | 49 | |||||||||||||||||||||||
|
|
See accompanying notes which are an integral part of the financial statements.
92 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands
Sovereign Issues | ||||||||||||||||||||||||
Reference | Counterparty | Implied Credit Spread | Notional | Fund (Pays)/ Receives Fixed Rate | Termination Date | Fair Value $ | ||||||||||||||||||
Australia Commonwealth Government Bond | Bank of America | 0.370% | USD | 500 | 1.000% | 06/20/17 | 14 | |||||||||||||||||
Australia Commonwealth Government Bond | UBS | 0.370% | USD | 100 | 1.000% | 06/20/17 | 3 | |||||||||||||||||
Brazil Government International Bond | Barclays Bank | 0.604% | USD | 500 | 1.000% | 06/20/15 | 5 | |||||||||||||||||
Brazil Government International Bond | Deutsche Bank | 0.604% | USD | 1,000 | 1.000% | 06/20/15 | 10 | |||||||||||||||||
Brazil Government International Bond | Goldman Sachs | 0.604% | USD | 500 | 1.000% | 06/20/15 | 5 | |||||||||||||||||
Brazil Government International Bond | HSBC | 0.648% | USD | 100 | 1.000% | 09/20/15 | 1 | |||||||||||||||||
Brazil Government International Bond | JPMorgan | 0.648% | USD | 100 | 1.000% | 09/20/15 | 1 | |||||||||||||||||
Brazil Government International Bond | Barclays Bank | 0.684% | USD | 700 | 1.000% | 12/20/15 | 7 | |||||||||||||||||
Brazil Government International Bond | Bank of America | 0.715% | USD | 500 | 1.000% | 03/20/16 | 5 | |||||||||||||||||
Brazil Government International Bond | Credit Suisse | 0.771% | USD | 200 | 1.000% | 06/20/16 | 2 | |||||||||||||||||
China Government International Bond | Barclays Bank | 0.376% | USD | 600 | 1.000% | 06/20/16 | 13 | |||||||||||||||||
Germany Government International Bond | Bank of America | 0.347% | USD | 1,100 | 0.250% | 06/20/17 | (5 | ) | ||||||||||||||||
Japan Government International Bond | Bank of America | 0.458% | USD | 100 | 1.000% | 03/20/16 | 2 | |||||||||||||||||
Japan Government International Bond | Bank of America | 0.458% | USD | 200 | 1.000% | 03/20/16 | 4 | |||||||||||||||||
Japan Government International Bond | JPMorgan | 0.458% | USD | 700 | 1.000% | 03/20/16 | 13 | |||||||||||||||||
Japan Government International Bond | Goldman Sachs | 0.507% | USD | 200 | 1.000% | 06/20/16 | 4 | |||||||||||||||||
Mexico Government International Bond | HSBC | 0.619% | USD | 500 | 1.000% | 03/20/16 | 7 | |||||||||||||||||
Mexico Government International Bond | Goldman Sachs | 0.840% | USD | 100 | 1.000% | 06/20/17 | 1 | |||||||||||||||||
Mexico Government International Bond | HSBC | 1.274% | USD | 500 | 1.000% | 03/20/21 | (8 | ) | ||||||||||||||||
Russia Government International Bond | Citibank | 0.839% | USD | 700 | 1.000% | 03/20/16 | 3 | |||||||||||||||||
United Kingdom Gilt | JPMorgan | 0.188% | USD | 200 | 1.000% | 03/20/15 | 4 | |||||||||||||||||
United Kingdom Gilt | Deutsche Bank | 0.230% | USD | 200 | 1.000% | 03/20/16 | 5 | |||||||||||||||||
United Kingdom Gilt | Bank of America | 0.253% | USD | 200 | 1.000% | 06/20/16 | 5 | |||||||||||||||||
United Kingdom Gilt | Citibank | 0.253% | USD | 200 | 1.000% | 06/20/16 | 5 | |||||||||||||||||
United Kingdom Gilt | Morgan Stanley | 0.253% | USD | 400 | 1.000% | 06/20/16 | 11 | |||||||||||||||||
United Kingdom Gilt | UBS | 0.253% | USD | 400 | 1.000% | 06/20/16 | 11 | |||||||||||||||||
United Kingdom Gilt | Citibank | 0.291% | USD | 900 | 1.000% | 12/20/16 | 26 | |||||||||||||||||
|
| |||||||||||||||||||||||
Total Fair Value on Open Sovereign Issues Premiums Paid (Received) - ($40) |
| 154 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Fair Value on Open Credit Default Swap Contracts Premiums Paid (Received) - ($148) (å) |
| 177 | ||||||||||||||||||||||
|
|
Presentation of Portfolio Holdings — December 31, 2012
Amounts in thousands
Fair Value | % of Net Assets | |||||||||||||||||||
Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Long-Term Investments | ||||||||||||||||||||
Asset-Backed Securities | $ | — | $ | 36,331 | $ | 317 | $ | 36,648 | 5.4 | |||||||||||
Corporate Bonds and Notes | — | 83,724 | 1,976 | 85,700 | 12.7 | |||||||||||||||
International Debt | — | 33,937 | 465 | 34,402 | 5.1 | |||||||||||||||
Loan Agreements | — | 2,806 | — | 2,806 | 0.4 | |||||||||||||||
Mortgage-Backed Securities | — | 204,324 | 3,200 | 207,524 | 30.7 | |||||||||||||||
Municipal Bonds | — | 15,361 | — | 15,361 | 2.3 | |||||||||||||||
Non-US Bonds | — | 49,745 | 289 | 50,034 | 7.4 | |||||||||||||||
United States Government Agencies | — | 6,160 | — | 6,160 | 0.9 | |||||||||||||||
United States Government Treasuries | — | 85,309 | — | 85,309 | 12.6 | |||||||||||||||
Common Stocks | 310 | — | — | 310 | — | * | ||||||||||||||
Preferred Stocks | — | — | 360 | 360 | 0.1 | |||||||||||||||
Options Purchased | 3 | — | — | 3 | — | * |
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 93 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Presentation of Portfolio Holdings, continued — December 31, 2012
Amounts in thousands
Fair Value | % of Net Assets | |||||||||||||||||||
Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||
Short-Term Investments | $ | — | $ | 191,555 | $ | 177 | $ | 191,732 | 28.4 | |||||||||||
Repurchase Agreements | — | 19,200 | — | 19,200 | 2.8 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total Investments | 313 | 728,452 | 6,784 | 735,549 | 108.8 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Assets and Liabilities, Net | (8.8 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
100.0 | ||||||||||||||||||||
|
| |||||||||||||||||||
Other Financial Instruments | ||||||||||||||||||||
Futures Contracts | (247 | ) | — | — | (247 | ) | (— | ) * | ||||||||||||
Options Written | (50 | ) | (18 | ) | (18 | ) | (86 | ) | (— | ) * | ||||||||||
Foreign Currency Exchange Contracts | — | (455 | ) | — | (455 | ) | (0.1 | ) | ||||||||||||
Index Swap Contracts | — | (108 | ) | — | (108 | ) | (— | ) * | ||||||||||||
Interest Rate Swap Contracts | — | 93 | — | 93 | — | * | ||||||||||||||
Credit Default Swap Contracts | — | 325 | — | 325 | — | * | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Other Financial Instruments** | $ | (297 | ) | $ | (163 | ) | $ | (18 | ) | $ | (478 | ) | ||||||||
|
|
|
|
|
|
|
|
* | 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.
A reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining a value for the period ended December 31, 2012 were as follows:
Category and Subcategory | Beginning Balance 12/31/2011 | Gross Purchases | Gross Sales | Accrued Discounts/ (Premiums) | Realized Gain (Loss) | Net Transfers into Level 3 | Net Transfers out of Level 3 | Net change in Unrealized Appreciation/ (Depreciation) | Ending Balance at 12/31/2012 | Net change in Unrealized Appreciation/ (Depreciation) on Investments held as of 12/31/2012 | ||||||||||||||||||||||||||||||
Long-Term Investments | ||||||||||||||||||||||||||||||||||||||||
Asset Backed Securities | $ | — | $ | 310 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 7 | $ | 317 | $ | 7 | ||||||||||||||||||||
Corporate Bonds and Notes | 2,995 | 1,045 | 2,077 | 14 | 73 | — | 30 | (44 | ) | 1,976 | 59 | |||||||||||||||||||||||||||||
International Debt | 750 | 500 | 820 | (2 | ) | 105 | — | — | (68 | ) | 465 | (1 | ) | |||||||||||||||||||||||||||
Mortgage-Backed Securities | 4,431 | 3,176 | 4,389 | — | 6 | — | — | (24 | ) | 3,200 | (23 | ) | ||||||||||||||||||||||||||||
Non-US | — | 661 | 389 | — | 8 | — | — | 9 | 289 | 9 | ||||||||||||||||||||||||||||||
Preferred Stocks | 368 | — | — | — | — | — | — | (8 | ) | 360 | (8 | ) | ||||||||||||||||||||||||||||
Short-Term Investments | 61 | 230 | 115 | 1 | — | — | — | 0 | 177 | 1 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments | 8,605 | 5,922 | 7,790 | 13 | 192 | — | 30 | (128 | ) | 6,784 | 44 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Other Financial Instruments | ||||||||||||||||||||||||||||||||||||||||
Options Written | (37 | ) | — | — | — | — | — | — | 19 | (18 | ) | 19 | ||||||||||||||||||||||||||||
Interest Rate Swap Contracts | 26 | — | — | — | — | — | — | (26 | ) | — | — | |||||||||||||||||||||||||||||
Credit Default Swap Contracts | (378 | ) | — | — | — | — | — | — | 378 | — | — | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Other Financial Instruments | (389 | ) | — | — | — | — | — | — | 371 | (18 | ) | 19 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
94 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond Fund
Fair Value of Derivative Instruments — December 31, 2012
Amounts in thousands
Derivatives not accounted for as hedging instruments | Credit Contracts | Foreign Currency Contracts | Interest Rate Contracts | |||||||||
Location: Statement of Assets and Liabilities - Assets | ||||||||||||
Investments, at fair value* | $ | — | $ | — | $ | 3 | ||||||
Unrealized appreciation on foreign currency exchange contracts | — | 1,511 | — | |||||||||
Daily variation margin on futures contracts** | — | — | 72 | |||||||||
Interest rate swap contracts, at fair value | — | — | 230 | |||||||||
Credit default swap contracts, at fair value | 410 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 410 | $ | 1,511 | $ | 305 | ||||||
|
|
|
|
|
| |||||||
Location: Statement of Assets and Liabilities - Liabilities | ||||||||||||
Daily variation margin on futures contracts** | $ | — | $ | — | $ | 319 | ||||||
Unrealized depreciation on foreign currency exchange contracts | — | 1,966 | — | |||||||||
Options written, at fair value | — | — | 86 | |||||||||
Index swap contracts, at fair value | — | — | 108 | |||||||||
Interest rate swap contracts, at fair value | — | — | 42 | |||||||||
Credit default swap contracts, at fair value | 233 | — | — | |||||||||
|
|
|
|
|
| |||||||
Total | $ | 233 | $ | 1,966 | $ | 555 | ||||||
|
|
|
|
|
| |||||||
Derivatives not accounted for as hedging instruments | Credit Contracts | Foreign Currency Contracts | Interest Rate Contracts | |||||||||
Location: Statement of Operations - Net realized gain (loss) | ||||||||||||
Investments*** | $ | — | $ | — | $ | 2 | ||||||
Futures contracts | — | — | 2,307 | |||||||||
Options written | — | — | 1,005 | |||||||||
Index swap contracts | — | — | 442 | |||||||||
Interest rate swap contracts | — | — | (19 | ) | ||||||||
Credit default swap contracts | (1,857 | ) | — | — | ||||||||
Foreign currency-related transactions**** | — | (1,275 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Total | $ | (1,857 | ) | $ | (1,275 | ) | $ | 3,737 | ||||
|
|
|
|
|
| |||||||
Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | ||||||||||||
Investments***** | $ | — | $ | — | $ | (8 | ) | |||||
Futures contracts | — | — | (971 | ) | ||||||||
Options written | — | — | (337 | ) | ||||||||
Index swap contracts | — | — | (108 | ) | ||||||||
Interest rate swap contracts | — | — | (17 | ) | ||||||||
Credit default swap contracts | 1,344 | — | — | |||||||||
Foreign currency-related transactions****** | — | (725 | ) | — | ||||||||
|
|
|
|
|
| |||||||
Total | $ | 1,344 | $ | (725 | ) | $ | (1,441 | ) | ||||
|
|
|
|
|
|
* | Market value of purchased options. |
** | Includes cumulative appreciation/depreciation of futures contracts as reported in Schedule of Investments. |
Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
*** | Includes net realized gain (loss) on purchased options as reported in the Statement of Operations. |
**** | 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. |
***** | Includes net change in unrealized appreciation/depreciation on purchased options as reported in Schedule of Investments. |
****** | 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.
Core Bond Fund | 95 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 713,389 | ||
Investments, at fair value****** | 735,549 | |||
Cash | 406 | |||
Cash (restricted)(a)(b) | 927 | |||
Foreign currency holdings* | 285 | |||
Unrealized appreciation on foreign currency exchange contracts | 1,511 | |||
Receivables: | ||||
Dividends and interest | 3,522 | |||
Dividends from affiliated Russell funds | 14 | |||
Investments sold | 6,307 | |||
Fund shares sold | 459 | |||
Daily variation margin on futures contracts | 1,026 | |||
Other receivable | 1 | |||
Interest rate swap contracts, at fair value**** | 230 | |||
Credit default swap contracts, at fair value*** | 410 | |||
|
| |||
Total assets | 750,647 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Due to broker(c) | 518 | |||
Investments purchased | 70,955 | |||
Fund shares redeemed | 45 | |||
Accrued fees to affiliates | 317 | |||
Other accrued expenses | 197 | |||
Daily variation margin on futures contracts | 162 | |||
Unrealized depreciation on foreign currency exchange contracts | 1,966 | |||
Options written, at fair value** | 86 | |||
Index swap contracts, at fair value | 108 | |||
Interest rate swap contracts, at fair value**** | 42 | |||
Credit default swap contracts, at fair value*** | 233 | |||
|
| |||
Total liabilities | 74,629 | |||
|
| |||
Net Assets | $ | 676,018 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
96 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond Fund
Statement of Assets and Liabilities, continued — December 31, 2012
Amounts in thousands | ||||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | 122 | ||
Accumulated net realized gain (loss) | 2,082 | |||
Unrealized appreciation (depreciation) on: | ||||
Investments | 22,160 | |||
Futures contracts | (247 | ) | ||
Options written | 210 | |||
Index swap contracts | (108 | ) | ||
Interest rate swap contracts | 93 | |||
Credit default swap contracts | 325 | |||
Foreign currency-related transactions | (438 | ) | ||
Other investments | 1 | |||
Shares of beneficial interest | 626 | |||
Additional paid-in capital | 651,192 | |||
|
| |||
Net Assets | $ | 676,018 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share: (#) | $ | 10.81 | ||
Net assets | $ | 676,018,041 | ||
Shares outstanding ($.01 par value) | 62,551,938 | |||
Amounts in thousands | ||||
* Foreign currency holdings — cost | $ | 288 | ||
** Premiums received on options written | $ | 296 | ||
*** Credit default swap contracts — premiums paid (received) | $ | (148 | ) | |
**** Interest rate swap contracts — premiums paid (received) | $ | 95 | ||
****** Investments in affiliates, Russell U.S. Cash Management Fund | $ | 134,139 | ||
(a) Cash Collateral for Futures | $ | 440 | ||
(b) Cash Collateral for Swaps | $ | 487 | ||
(c) Due to Broker for Swaps | $ | 518 |
(#) | 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.
Core Bond Fund | 97 |
Table of Contents
Russell Investment Funds
Core Bond Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Dividends | $ | 14 | ||
Dividends from affiliated Russell funds | 136 | |||
Interest | 18,130 | |||
Securities lending income | 9 | |||
|
| |||
Total investment income | 18,289 | |||
|
| |||
Expenses | ||||
Advisory fees | 3,379 | |||
Administrative fees | 307 | |||
Custodian fees | 346 | |||
Transfer agent fees | 27 | |||
Professional fees | 175 | |||
Trustees’ fees | 16 | |||
Printing fees | 125 | |||
Miscellaneous | 35 | |||
|
| |||
Expenses before reductions | 4,410 | |||
Expense reductions | (346 | ) | ||
|
| |||
Net expenses | 4,064 | |||
|
| |||
Net investment income (loss) | 14,225 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | 14,494 | |||
Futures contracts | 2,307 | |||
Options written | 1,005 | |||
Index swap contracts | 442 | |||
Interest rate swap contracts | (19 | ) | ||
Credit default swap contracts | (1,857 | ) | ||
Foreign currency-related transactions | (1,096 | ) | ||
|
| |||
Net realized gain (loss) | 15,276 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 18,682 | |||
Futures contracts | (971 | ) | ||
Options written | (337 | ) | ||
Index swap contracts | (108 | ) | ||
Interest rate swap contracts | (17 | ) | ||
Credit default swap contracts | 1,344 | |||
Investment matured | 894 | |||
Foreign currency-related transactions | (696 | ) | ||
Other investments | (1 | ) | ||
|
| |||
Net change in unrealized appreciation (depreciation) | 18,790 | |||
|
| |||
Net realized and unrealized gain (loss) | 34,066 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 48,291 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
98 | Core Bond Fund |
Table of Contents
Russell Investment Funds
Core Bond 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) | $ | 14,225 | $ | 16,784 | ||||
Net realized gain (loss) | 15,276 | 9,487 | ||||||
Net change in unrealized appreciation (depreciation) | 18,790 | (2,899 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 48,291 | 23,372 | ||||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (14,526 | ) | (16,396 | ) | ||||
From net realized gain | (16,006 | ) | (9,204 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from distributions | (30,532 | ) | (25,600 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 112,651 | 75,878 | ||||||
Fund Reimbursements | — | 60 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 130,410 | 73,710 | ||||||
Net Assets | ||||||||
Beginning of period | 545,608 | 471,898 | ||||||
|
|
|
| |||||
End of period | $ | 676,018 | $ | 545,608 | ||||
|
|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | 122 | $ | 1,403 |
* | Share transaction amounts (in thousands) for the periods ended December 31, 2012 and December 31, 2012 were as follows: |
2012 | 2011 | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Proceeds from shares sold | 11,229 | $ | 121,112 | 9,039 | $ | 95,798 | ||||||||||
Proceeds from reinvestment of distributions | 2,840 | 30,526 | 2,442 | 25,606 | ||||||||||||
Payments for shares redeemed | (3,608 | ) | (38,987 | ) | (4,286 | ) | (45,526 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 10,461 | $ | 112,651 | 7,195 | $ | 75,878 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 99 |
Table of Contents
Russell Investment Funds
Core Bond 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 | 10.47 | .25 | .61 | .86 | (.25 | ) | (.27 | ) | (.52 | ) | ||||||||||||||||||
December 31, 2011 | 10.51 | .35 | .14 | .49 | (.34 | ) | (.19 | ) | (.53 | ) | ||||||||||||||||||
December 31, 2010 | 10.20 | .37 | .63 | 1.00 | (.40 | ) | (.29 | ) | (.69 | ) | ||||||||||||||||||
December 31, 2009 | 9.33 | .44 | 1.02 | 1.46 | (.46 | ) | (.13 | ) | (.59 | ) | ||||||||||||||||||
December 31, 2008 | 10.32 | .47 | (.86 | ) | (.39 | ) | (.39 | ) | (.21 | ) | (.60 | ) |
See accompanying notes which are an integral part of the financial statements.
100 | Core Bond 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 | ||||||||||||||||||||
10.81 | 8.38 | 676,018 | .72 | .66 | 2.32 | 192 | ||||||||||||||||||||
10.47 | 4.68 | 545,608 | .72 | .65 | 3.29 | 203 | ||||||||||||||||||||
10.51 | 10.02 | 471,898 | .75 | .68 | 3.48 | 195 | ||||||||||||||||||||
10.20 | 16.18 | 400,569 | .73 | .66 | 4.49 | 151 | ||||||||||||||||||||
9.33 | (3.87 | ) | 319,109 | .77 | .70 | 4.70 | 164 |
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund | 101 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Global Real Estate Securities Fund | ||||
| Total Return | |||
1 Year | 27.56 | % | ||
5 Years | 3.54 | %§ | ||
10 Years | 11.01 | %§ |
FTSE EPRA/NAREIT Developed Real Estate Index (net)** | ||||
| Total Return | |||
1 Year | 27.73 | % | ||
5 Years | 0.32 | %§ | ||
10 Years | N/A |
102 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Global Real Estate Securities Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (“SEC”) permits RIMCo to engage or terminate a money manager at any time, subject to 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 three money managers.
What is the Fund’s investment objective?
The Fund seeks to provide current income and long term capital growth.
How did the Fund perform relative to its benchmark for the fiscal year ended December 31, 2012?
For the fiscal year ended December 31, 2012, the Global Real Estate Securities Fund gained 27.56%. This is compared to the Fund’s benchmark, the FTSE EPRA/NAREIT Developed Real Estate Index (Net), which gained 27.73% 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® Global Real Estate Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 28.17%. 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?
Macro-economic news remained the dominant driver of the sector’s performance, generally overwhelming the impact of company and property level fundamentals. The fiscal year was characterized by shifting investor sentiment, as market conditions alternated between an environment of risk aversion and an atmosphere favoring higher risk companies.
Early 2012 was host to an improvement in investor sentiment, as European debt concerns were partially mitigated by the European Central Bank’s long-term refinancing operation, while fears over an economic slowdown in Asia were alleviated by solid economic data and monetary easing. The market environment shifted to favor economically sensitive, cyclical stocks, while the more defensive segment of the market underperformed. In this environment, Fund performance trailed relative to the benchmark, as the money managers’ quality bias was not rewarded. Performance was challenged in Asia, particularly within the sentiment-driven Hong Kong developer sector, where the most volatile, highest risk companies rallied strongly in the early months of 2012.
The middle portion of the fiscal year saw a cooling of market sentiment through May and June, before expectations of
widespread central bank support restored investor confidence in July. Although the Fund benefited from its regional allocations, with an overweight to Asia and an underweight to North America, stock selection was once again challenged by the decoupling of performance from company and property fundamentals. Fund performance was modestly under benchmark during the second and third quarters of 2012.
Global property securities then continued on a positive trajectory through the final months of the fiscal year, as the Asian and European property sectors continued to outperform relative to the North American market. The Fund outperformed its benchmark during this period, driven by strong stock selection in Asia. As the Japanese property sector rallied toward the end of the fiscal year, supported by expectations of inflation targeting, the Fund’s overweight positions in several blue chip Japanese stocks were beneficial. Out-of-index exposure to several Chinese property companies was also a positive contributor to performance late in the year.
How did the investment strategies and techniques employed by the Fund and its money managers affect its benchmark relative performance?
At the composite Fund level, stock selection was neutral, as effective stock picking within Europe and Canada was offset by weaker selection in Hong Kong and the U.S. Regional allocation had a slightly positive effect on performance, due to out-of-index exposure to the strongly performing Chinese market. With respect to property type, overweight exposure to the U.S. residential sector detracted from performance, while stock selection in the office sector was beneficial.
AEW Capital Management, L.P. (“AEW”) outperformed the Fund’s benchmark for the fiscal year. AEW utilizes a value-oriented strategy that integrates quantitative analysis with property and capital markets expertise. Security selection drove outperformance, with particularly strong selection in Canada and Europe that was partially offset by ineffective selection in Australia. An underweight to North America, in addition to out-of-index exposure to China and Brazil, benefited performance. Sector allocation had a marginally negative impact on performance, as the positive contribution of an underweight to the health care sector was offset by the negative effect of an overweight to self storage.
Cohen & Steers Capital Management, Inc. (“Cohen”) underperformed the Fund’s benchmark for the fiscal year. Cohen invests in a portfolio of companies that it believes are mispriced relative to net asset value and cash flow estimates. Cohen seeks to generate excess returns through a combination of bottom-up stock selection and top-down regional allocation decisions. Ineffective stock selection in Asia and North America detracted from performance during the fiscal year. A substantial portion of Cohen’s underperformance can be tied to several large active positions in Hong Kong-listed property development companies. With respect to sector allocation, overweight positions in residential and lodging detracted from performance.
Global Real Estate Securities Fund | 103 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
INVESCO Advisers, Inc. (“Invesco”) outperformed the Fund’s benchmark for the fiscal year. Invesco manages a broadly diversified portfolio with a focus on companies that it believes are operating in the most attractive markets with quality assets, strong management teams and sound balance sheets. Invesco’s investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. Security selection was the key driver of outperformance, with positive contributions from selection within Continental Europe, the United Kingdom and Japan. Sector allocation had a marginally negative effect on performance due to an overweight to the U.S. residential sector.
Describe any changes to the Fund’s structure or the money manager line-up.
There were no changes to the Fund’s structure or money manager lineup during the fiscal year.
Money Managers as of December 31, 2012 | Styles | |
AEW Capital Management, L.P. | Value | |
Cohen & Steers Capital Management, Inc. | Market-Oriented | |
INVESCO Advisers, Inc. which acts as a money manager to the Fund through its INVESCO Real Estate division | Market-Oriented |
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of RIMCo or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for 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. |
** | FTSE EPRA/NAREIT Developed Real Estate Index (net) is an index composed of all the data based on the last closing price of the month for all tax-qualified REITs listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System. The data is market value-weighted. The total-return calculation is based upon whether it is 1-month, 3-months or 12-months. Only those REITs listed for the entire period are used in the total return calculation. FTSE EPRA/NAREIT Developed Real Estate Index (net) is designed to represent general trends in eligible listed real estate stocks worldwide. Relevant real estate activities are defined as the ownership, trading and development of income-producing real estate. The index also includes a range of regional and country indices, Dividend+ indices, Global Sectors, Investment Focus, and a REITs and Non-REITs series. |
§ | 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.
104 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities 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 | $ | 1,117.80 | $ | 1,020.31 | ||||
Expenses Paid During Period* | $ | 5.11 | $ | 4.88 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.96% (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. |
Global Real Estate Securities Fund | 105 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Principal Amount ($) or Shares | Fair Value $ | |||||||
Common Stocks - 94.5% | ||||||||
Australia - 8.2% | ||||||||
BGP Holdings PLC (Å)(Æ) | 926,311 | — | ||||||
Centro Retail Australia (ö) | 1,643,994 | 3,892 | ||||||
CFS Retail Property Trust Group (ö) | 1,889,596 | 3,786 | ||||||
Charter Hall Retail REIT (ö) | 215,582 | 845 | ||||||
Dexus Property Group (ö) | 4,431,747 | 4,699 | ||||||
FKP Property Group (Ñ) | 128,628 | 153 | ||||||
Goodman Group (ö) | 692,770 | 3,152 | ||||||
GPT Group (ö) | 1,709,627 | 6,606 | ||||||
Mirvac Group Class REIT (ö) | 2,271,695 | 3,540 | ||||||
Stockland (ö) | 1,639,040 | 6,043 | ||||||
Westfield Group (ö) | 1,449,102 | 15,991 | ||||||
Westfield Retail Trust (ö) | 329,227 | 1,036 | ||||||
|
| |||||||
49,743 | ||||||||
|
| |||||||
Austria - 0.1% | ||||||||
Conwert Immobilien Invest SE (Æ) | 48,070 | 622 | ||||||
|
| |||||||
Brazil - 0.2% | ||||||||
Multiplan Empreendimentos Imobiliarios SA | 34,800 | 1,027 | ||||||
|
| |||||||
Canada - 3.6% | ||||||||
Allied Properties Real Estate Investment Trust (ö) | 40,800 | 1,354 | ||||||
Boardwalk Real Estate Investment Trust (ö) | 58,112 | 3,770 | ||||||
Brookfield Office Properties, Inc. (Ñ) | 301,827 | 5,136 | ||||||
Canadian Apartment Properties REIT (ö) | 60,200 | 1,507 | ||||||
Chartwell Seniors Housing Real Estate Investment Trust (ö) | 172,364 | 1,884 | ||||||
Dundee Real Estate Investment Trust (ö) | 39,100 | 1,471 | ||||||
First Capital Realty, Inc. Class A | 28,000 | 530 | ||||||
Primaris Retail Real Estate Investment Trust (ö) | 74,462 | 2,014 | ||||||
RioCan Real Estate Investment Trust (ö) | 155,912 | 4,319 | ||||||
|
| |||||||
21,985 | ||||||||
|
| |||||||
China - 0.3% | ||||||||
China Resources Land, Ltd. | 142,000 | 390 | ||||||
Guangzhou R&F Properties Co., Ltd. (Ñ) | 548,848 | 927 | ||||||
Sino-Ocean Land Holdings, Ltd. | 467,000 | 357 | ||||||
|
| |||||||
1,674 | ||||||||
|
| |||||||
Finland - 0.2% | ||||||||
Citycon OYJ | 117,900 | 401 | ||||||
Sponda OYJ | 211,000 | 1,006 | ||||||
|
| |||||||
1,407 | ||||||||
|
| |||||||
France - 3.6% | ||||||||
Gecina SA (ö) | 12,609 | 1,407 | ||||||
Klepierre - GDR (ö) | 103,847 | 4,186 | ||||||
Mercialys SA (ö) | 24,173 | 549 | ||||||
Societe Immobiliere de Location pour l’Industrie et le Commerce (ö) | 8,845 | 971 | ||||||
Unibail-Rodamco SE (ö) | 59,308 | 14,520 | ||||||
|
| |||||||
21,633 | ||||||||
|
|
Principal Amount ($) or Shares | Fair Value $ | |||||||
Germany - 0.9% | ||||||||
Deutsche Euroshop AG | 11,100 | 464 | ||||||
Deutsche Wohnen AG | 169,267 | 3,126 | ||||||
GSW Immobilien AG | 51,585 | 2,180 | ||||||
|
| |||||||
5,770 | ||||||||
|
| |||||||
Hong Kong - 12.4% | ||||||||
Agile Property Holdings, Ltd. (Ñ) | 1,290,000 | 1,847 | ||||||
Cheung Kong Holdings, Ltd. | 55,000 | 851 | ||||||
Country Garden Holdings Co., Ltd. (Æ) | 3,279,146 | 1,755 | ||||||
Hang Lung Properties, Ltd. - ADR | 927,705 | 3,720 | ||||||
Henderson Land Development Co., Ltd. | 682,109 | 4,859 | ||||||
Hongkong Land Holdings, Ltd. | 1,478,608 | 10,398 | ||||||
Hysan Development Co., Ltd. | 979,449 | 4,737 | ||||||
Kerry Properties, Ltd. | 683,112 | 3,568 | ||||||
Link REIT (The) (ö) | 1,052,017 | 5,262 | ||||||
New World Development Co., Ltd. | 1,496,677 | 2,349 | ||||||
Shangri-La Asia, Ltd. | 368,014 | 742 | ||||||
Shimao Property Holdings, Ltd. (Ñ) | 1,148,197 | 2,208 | ||||||
Sino Land Co., Ltd. | 1,937,000 | 3,508 | ||||||
Soho China, Ltd. | 405,300 | 328 | ||||||
Sun Hung Kai Properties, Ltd. | 1,166,391 | 17,603 | ||||||
Swire Properties, Ltd. | 651,800 | 2,192 | ||||||
Wharf Holdings, Ltd. | 1,196,951 | 9,471 | ||||||
|
| |||||||
75,398 | ||||||||
|
| |||||||
Italy - 0.0% | ||||||||
Beni Stabili SpA (ö) | 487,600 | 288 | ||||||
|
| |||||||
Japan - 9.9% | ||||||||
Activia Properties, Inc. (ö) | 253 | 1,584 | ||||||
Advance Residence Investment Corp. Class A (ö) | 350 | 716 | ||||||
Frontier Real Estate Investment Corp. (Ñ)(ö) | 68 | 593 | ||||||
GLP J (ö) | 2,428 | 1,855 | ||||||
Industrial & Infrastructure Fund Investment Corp. Class A (Ñ)(ö) | 43 | 321 | ||||||
Japan Logistics Fund, Inc. Class A (ö) | 39 | 339 | ||||||
Japan Prime Realty Investment Corp. Class A (ö) | 287 | 828 | ||||||
Japan Real Estate Investment Corp. Class A (ö) | 362 | 3,550 | ||||||
Japan Retail Fund Investment Corp. (ö) | 724 | 1,328 | ||||||
Kenedix Realty Investment Corp. Class A (ö) | 366 | 1,273 | ||||||
Mitsubishi Estate Co., Ltd. | 668,480 | 15,980 | ||||||
Mitsui Fudosan Co., Ltd. | 608,496 | 14,866 | ||||||
Nippon Building Fund, Inc. Class A (ö) | 346 | 3,567 | ||||||
Nomura Real Estate Holdings, Inc. | 31,127 | 594 | ||||||
NTT Urban Development Corp. | 1,720 | 1,662 | ||||||
Premier Investment Corp. Class A (ö) | 84 | 310 | ||||||
Sumitomo Realty & Development Co., Ltd. | 255,600 | 8,493 | ||||||
Tokyo Tatemono Co., Ltd. (Æ) | 204,706 | 1,051 | ||||||
Tokyu Land Corp. | 185,000 | 1,352 | ||||||
|
| |||||||
60,262 | ||||||||
|
|
106 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except share amounts)
Principal Amount ($) or Shares | Fair Value $ | |||||||
Netherlands - 0.9% | ||||||||
Corio NV (ö) | 81,663 | 3,715 | ||||||
Eurocommercial Properties NV (ö) | 25,395 | 1,013 | ||||||
Vastned Retail NV (ö) | 6,200 | 269 | ||||||
Wereldhave NV (ö) | 4,400 | 284 | ||||||
|
| |||||||
5,281 | ||||||||
|
| |||||||
Norway - 0.3% | ||||||||
Norwegian Property ASA | 1,307,255 | 2,014 | ||||||
|
| |||||||
Philippines - 0.3% | ||||||||
SM Prime Holdings, Inc. | 4,260,551 | 1,716 | ||||||
|
| |||||||
Singapore - 5.3% | ||||||||
Ascendas Real Estate Investment Trust (ö) | 525,121 | 1,029 | ||||||
CapitaCommercial Trust (Æ)(Ñ)(ö) | 1,094,000 | 1,512 | ||||||
CapitaLand, Ltd. | 2,166,143 | 6,647 | ||||||
CapitaMall Trust Class A (ö) | 2,406,000 | 4,215 | ||||||
CapitaMalls Asia, Ltd. | 2,522,969 | 4,058 | ||||||
CapitaRetail China Trust (ö) | 346,700 | 469 | ||||||
City Developments, Ltd. | 334,073 | 3,563 | ||||||
Global Logistic Properties, Ltd. | 1,931,399 | 4,440 | ||||||
Keppel Land, Ltd. | 624,697 | 2,088 | ||||||
Keppel REIT (Æ)(ö) | 425,956 | 453 | ||||||
Perennial China Retail Trust (Æ)(Ñ) | 2,148,000 | 998 | ||||||
Suntec Real Estate Investment Trust (Æ)(ö) | 2,221,500 | 3,062 | ||||||
|
| |||||||
32,534 | ||||||||
|
| |||||||
Sweden - 1.0% | ||||||||
Castellum AB | 141,512 | 2,012 | ||||||
Fabege AB | 194,429 | 1,968 | ||||||
Hufvudstaden AB Class A | 71,800 | 911 | ||||||
Wihlborgs Fastigheter AB | 59,074 | 928 | ||||||
|
| |||||||
5,819 | ||||||||
|
| |||||||
Switzerland - 0.5% | ||||||||
PSP Swiss Property AG (Æ) | 31,138 | 2,955 | ||||||
|
| |||||||
United Kingdom - 5.1% | ||||||||
Big Yellow Group PLC (ö) | 130,133 | 748 | ||||||
British Land Co. PLC (ö) | 457,555 | 4,254 | ||||||
Capital & Counties Properties PLC | 147,200 | 580 | ||||||
Capital Shopping Centres Group PLC Class H (ö) | 48,399 | 272 | ||||||
Derwent London PLC (ö) | 134,061 | 4,609 | ||||||
Great Portland Estates PLC (ö) | 470,404 | 3,757 | ||||||
Hammerson PLC (ö) | 691,798 | 5,574 | ||||||
Land Securities Group PLC (ö) | 593,889 | 8,030 | ||||||
Metric Property Investments PLC (ö) | 10,317 | 17 | ||||||
Segro PLC (ö) | 79,800 | 327 | ||||||
Shaftesbury PLC (ö) | 172,678 | 1,608 | ||||||
Unite Group PLC | 235,539 | 1,059 | ||||||
|
| |||||||
30,835 | ||||||||
|
|
Principal Amount ($) or Shares | Fair Value $ | |||||||
United States - 41.7% | ||||||||
Acadia Realty Trust (ö) | 50,488 | 1,266 | ||||||
Alexandria Real Estate Equities, Inc. (ö) | 55,905 | 3,876 | ||||||
American Assets Trust, Inc. (ö) | 73,734 | 2,060 | ||||||
American Campus Communities, Inc. (ö) | 17,800 | 821 | ||||||
American Tower Corp. Class A (ö) | 30,602 | 2,365 | ||||||
Apartment Investment & Management Co. Class A (ö) | 92,713 | 2,509 | ||||||
AvalonBay Communities, Inc. (ö) | 79,164 | 10,733 | ||||||
BioMed Realty Trust, Inc. (ö) | 71,900 | 1,390 | ||||||
Boston Properties, Inc. (ö) | 62,135 | 6,575 | ||||||
BRE Properties, Inc. Class A (ö) | 34,362 | 1,747 | ||||||
Camden Property Trust (ö) | 28,500 | 1,944 | ||||||
CBL & Associates Properties, Inc. (ö) | 45,700 | 969 | ||||||
Colonial Properties Trust (ö) | 57,349 | 1,226 | ||||||
CommonWealth REIT (ö) | 70,918 | 1,123 | ||||||
Corporate Office Properties Trust (ö) | 74,941 | 1,872 | ||||||
CubeSmart Class A (ö) | 234,702 | 3,420 | ||||||
DCT Industrial Trust, Inc. (ö) | 564,914 | 3,666 | ||||||
DDR Corp. (ö) | 548,660 | 8,592 | ||||||
DiamondRock Hospitality Co. (ö) | 106,160 | 955 | ||||||
Digital Realty Trust, Inc. (ö) | 45,428 | 3,084 | ||||||
Douglas Emmett, Inc. (ö) | 58,000 | 1,351 | ||||||
Duke Realty Corp. (ö) | 158,298 | 2,196 | ||||||
DuPont Fabros Technology, Inc. (ö) | 112,087 | 2,708 | ||||||
Education Realty Trust, Inc. Class A (ö) | 80,353 | 855 | ||||||
EPR Properties (ö) | 33,700 | 1,554 | ||||||
Equity Lifestyle Properties, Inc. Class A (ö) | 32,774 | 2,205 | ||||||
Equity Residential (ö) | 215,753 | 12,226 | ||||||
Essex Property Trust, Inc. (ö) | 29,712 | 4,357 | ||||||
Extra Space Storage, Inc. (ö) | 102,811 | 3,741 | ||||||
Federal Realty Investment Trust (ö) | 22,300 | 2,320 | ||||||
First Potomac Realty Trust (ö) | 89,598 | 1,108 | ||||||
Forest City Enterprises, Inc. Class A (Æ) | 152,802 | 2,468 | ||||||
General Growth Properties, Inc. (ö) | 213,029 | 4,229 | ||||||
HCP, Inc. (ö) | 145,239 | 6,562 | ||||||
Health Care REIT, Inc. (ö) | 92,684 | 5,680 | ||||||
Healthcare Realty Trust, Inc. (ö) | 43,334 | 1,040 | ||||||
Hersha Hospitality Trust Class A (ö) | 185,971 | 930 | ||||||
Highwoods Properties, Inc. (ö) | 55,722 | 1,864 | ||||||
Home Properties, Inc. (ö) | 24,690 | 1,514 | ||||||
Host Hotels & Resorts, Inc. (ö) | 449,094 | 7,037 | ||||||
Hudson Pacific Properties, Inc. (ö) | 29,300 | 617 | ||||||
Hyatt Hotels Corp. Class A (Æ) | 43,712 | 1,686 | ||||||
Icad, Inc. (ö) | 2,289 | 205 | ||||||
Kilroy Realty Corp. (ö) | 102,355 | 4,849 | ||||||
Kimco Realty Corp. (ö) | 110,117 | 2,127 | ||||||
Liberty Property Trust (ö) | 82,095 | 2,937 | ||||||
Macerich Co. (The) (ö) | 121,313 | 7,073 | ||||||
Mack-Cali Realty Corp. (ö) | 51,278 | 1,339 | ||||||
Mid-America Apartment Communities, Inc. (ö) | 22,524 | 1,458 | ||||||
National Retail Properties, Inc. (ö) | 28,700 | 895 | ||||||
Omega Healthcare Investors, Inc. (ö) | 59,800 | 1,426 | ||||||
Orient-Express Hotels, Ltd. Class A (Æ) | 115,159 | 1,346 | ||||||
Pebblebrook Hotel Trust (ö) | 58,405 | 1,349 |
Global Real Estate Securities Fund | 107 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except share amounts)
Principal Amount ($) or Shares | Fair Value $ | |||||||
Piedmont Office Realty Trust, Inc. Class A (ö) | 78,400 | 1,416 | ||||||
Post Properties, Inc. (ö) | 26,700 | 1,334 | ||||||
Prologis, Inc. (ö) | 350,904 | 12,805 | ||||||
Public Storage (ö) | 62,670 | 9,085 | ||||||
Regency Centers Corp. (ö) | 59,720 | 2,814 | ||||||
Retail Opportunity Investments Corp. (Ñ)(ö) | 138,297 | 1,779 | ||||||
Retail Properties of America, Inc. Class A (ö) | 46,500 | 557 | ||||||
RLJ Lodging Trust (ö) | 49,400 | 957 | ||||||
Select Income REIT (ö) | 12,200 | 302 | ||||||
Senior Housing Properties Trust (ö) | 43,397 | 1,026 | ||||||
Simon Property Group, Inc. (ö) | 194,137 | 30,688 | ||||||
SL Green Realty Corp. (ö) | 50,650 | 3,882 | ||||||
Starwood Hotels & Resorts Worldwide, Inc. (ö) | 30,196 | 1,732 | ||||||
Strategic Hotels & Resorts, Inc. (Æ)(ö) | 132,274 | 847 | ||||||
Tanger Factory Outlet Centers (ö) | 9,945 | 340 | ||||||
UDR, Inc. (ö) | 255,942 | 6,086 | ||||||
Ventas, Inc. (ö) | 202,584 | 13,111 | ||||||
Vornado Realty Trust (ö) | 127,843 | 10,238 | ||||||
Washington Real Estate Investment Trust (ö) | 60,634 | 1,587 | ||||||
|
| |||||||
254,031 | ||||||||
|
| |||||||
Total Common Stocks (cost $446,324) | 574,994 | |||||||
|
| |||||||
Short-Term Investments - 4.5% | ||||||||
United States - 4.5% | ||||||||
Russell U.S. Cash Management Fund | 27,331,927 | (¥) | 27,332 | |||||
|
| |||||||
Total Short-Term Investments (cost $27,332) | 27,332 | |||||||
|
| |||||||
Other Securities - 1.4% | ||||||||
Russell U.S. Cash Collateral Fund (×) | 8,408,318 | (¥) | 8,408 | |||||
|
| |||||||
Total Other Securities (cost $8,408) | 8,408 | |||||||
|
| |||||||
Total Investments - 100.4% (identified cost $482,064) | 610,734 | |||||||
Other Assets and Liabilities, Net - (0.4%) | (2,374 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 608,360 | |||||||
|
|
.
See accompanying notes which are an integral part of the financial statements.
108 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Schedule of Investments, continued — December 31, 2012
Amounts in thousands (except share and cost per unit amounts)
Restricted Securities
% of Net Assets Securities | Acquisition Date | Principal Amount ($) or Shares | Cost per Unit $ | Cost (000) $ | Fair Value (000) $ | |||||||||||||||
0.0% | ||||||||||||||||||||
BGP Holdings PLC | 08/06/09 | 926,311 | — | — | — |
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 | ||||||||||||||||||||
ASX SPI 200 Index Futures (Australia) | 16 | AUD | 1,847 | 03/13 | 12 | |||||||||||||||
Dow Jones US Real Estate Index Futures | 85 | USD | 2,125 | 03/13 | 32 | |||||||||||||||
FTSE EPRA Europe Index Futures (France) | 396 | EUR | 5,920 | 03/13 | 66 | |||||||||||||||
Hang Seng Index Futures (Hong Kong) | 19 | HKD | 21,540 | 01/13 | 10 | |||||||||||||||
S&P TSE 60 Index Futures (Canada) | 8 | CAD | 1,138 | 03/13 | 16 | |||||||||||||||
S&P Midcap 400 E-Mini Index Futures (Canada) | 89 | USD | 9,061 | 03/13 | 106 | |||||||||||||||
SGX MSCI Singapore Index Futures | 20 | SGD | 1,440 | 01/13 | (3) | |||||||||||||||
TOPIX Index Futures (Japan) | 23 | JPY | 198,146 | 03/13 | 174 | |||||||||||||||
|
| |||||||||||||||||||
Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) |
| 413 | ||||||||||||||||||
|
|
Amounts in thousands
Foreign Currency Exchange Contracts | ||||||||||||||||||
Counterparty | Amount Sold | Amount Bought | Settlement Date | Unrealized Appreciation (Depreciation) $ | ||||||||||||||
Citibank | USD | 309 | AUD | 300 | 03/20/13 | 1 | ||||||||||||
Citibank | USD | 1,187 | EUR | 900 | 03/20/13 | 2 | ||||||||||||
Citibank | USD | 387 | HKD | 3,000 | 03/20/13 | — | ||||||||||||
Commonwealth Bank of Australia | USD | 372 | AUD | 355 | 03/20/13 | (5 | ) | |||||||||||
Commonwealth Bank of Australia | USD | 238 | CAD | 235 | 03/20/13 | (2 | ) | |||||||||||
Commonwealth Bank of Australia | USD | 1,726 | EUR | 1,322 | 03/20/13 | 20 | ||||||||||||
Commonwealth Bank of Australia | USD | 525 | HKD | 4,067 | 03/20/13 | — | ||||||||||||
Commonwealth Bank of Australia | USD | 412 | JPY | 34,127 | 03/21/13 | (19 | ) | |||||||||||
Commonwealth Bank of Australia | USD | 225 | SGD | 275 | 03/20/13 | — | ||||||||||||
Deutsche Bank AG | USD | 372 | AUD | 355 | 03/20/13 | (5 | ) | |||||||||||
Deutsche Bank AG | USD | 238 | CAD | 235 | 03/20/13 | (2 | ) | |||||||||||
Deutsche Bank AG | USD | 1,726 | EUR | 1,322 | 03/20/13 | 20 | ||||||||||||
Deutsche Bank AG | USD | 525 | HKD | 4,067 | 03/20/13 | — | ||||||||||||
Deutsche Bank AG | USD | 412 | JPY | 34,127 | 03/21/13 | (19 | ) | |||||||||||
Deutsche Bank AG | USD | 225 | SGD | 275 | 03/20/13 | — | ||||||||||||
JPMorgan Chase Bank | USD | 372 | AUD | 355 | 03/20/13 | (5 | ) | |||||||||||
JPMorgan Chase Bank | USD | 238 | CAD | 235 | 03/20/13 | (2 | ) | |||||||||||
JPMorgan Chase Bank | USD | 265 | EUR | 200 | 03/20/13 | (1 | ) | |||||||||||
JPMorgan Chase Bank | USD | 523 | EUR | 400 | 03/20/13 | 5 | ||||||||||||
JPMorgan Chase Bank | USD | 1,726 | EUR | 1,322 | 03/20/13 | 20 | ||||||||||||
JPMorgan Chase Bank | USD | 525 | HKD | 4,067 | 03/20/13 | — | ||||||||||||
JPMorgan Chase Bank | USD | 412 | JPY | 34,127 | 03/21/13 | (18 | ) | |||||||||||
JPMorgan Chase Bank | USD | 225 | SGD | 275 | 03/20/13 | — | ||||||||||||
Royal Bank of Scotland PLC | JPY | 19,857 | USD | 231 | 01/08/13 | 2 |
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund | 109 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities 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 | 104 | AUD | 100 | 03/20/13 | (1 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 105 | AUD | 100 | 03/20/13 | (1 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 101 | CAD | 100 | 03/20/13 | (1 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 101 | CAD | 100 | 03/20/13 | (1 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 397 | EUR | 300 | 03/20/13 | (1 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 31 | HKD | 240 | 01/03/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | USD | 129 | HKD | 1,000 | 03/20/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | USD | 129 | HKD | 1,000 | 03/20/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | USD | 129 | HKD | 1,000 | 03/20/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | USD | 119 | JPY | 10,000 | 03/21/13 | (3 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 119 | JPY | 10,000 | 03/21/13 | (4 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 121 | JPY | 10,000 | 03/21/13 | (6 | ) | |||||||||||||||
State Street Bank & Trust Co. | USD | 82 | SGD | 100 | 03/20/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | USD | 82 | SGD | 100 | 03/20/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | AUD | 17 | HKD | 137 | 01/03/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | AUD | 39 | JPY | 3,469 | 01/07/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | AUD | 57 | JPY | 5,038 | 01/08/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | EUR | 5 | USD | 7 | 01/02/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | EUR | 5 | USD | 7 | 01/03/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | HKD | 1,606 | AUD | 200 | 01/02/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | HKD | 588 | USD | 76 | 01/02/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | HKD | 246 | USD | 32 | 01/03/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | HKD | 666 | USD | 86 | 01/03/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | JPY | 2,279 | USD | 26 | 01/07/13 | �� | — | |||||||||||||||
State Street Bank & Trust Co. | JPY | 4,737 | USD | 55 | 01/07/13 | — | ||||||||||||||||
State Street Bank & Trust Co. | JPY | 15,336 | USD | 178 | 01/07/13 | 1 | ||||||||||||||||
State Street Bank & Trust Co. | JPY | 9,091 | USD | 106 | 01/08/13 | 1 | ||||||||||||||||
State Street Bank & Trust Co. | JPY | 14,926 | USD | 174 | 01/08/13 | 1 | ||||||||||||||||
Westpac Banking Corp. | USD | 372 | AUD | 355 | 03/20/13 | (5 | ) | |||||||||||||||
Westpac Banking Corp. | USD | 238 | CAD | 235 | 03/20/13 | (2 | ) | |||||||||||||||
Westpac Banking Corp. | USD | 1,726 | EUR | 1,322 | 03/20/13 | 20 | ||||||||||||||||
Westpac Banking Corp. | USD | 525 | HKD | 4,067 | 03/20/13 | — | ||||||||||||||||
Westpac Banking Corp. | USD | 412 | JPY | 34,127 | 03/21/13 | (18 | ) | |||||||||||||||
Westpac Banking Corp. | USD | 225 | SGD | 275 | 03/20/13 | — | ||||||||||||||||
|
| |||||||||||||||||||||
Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts |
| (28 | ) | |||||||||||||||||||
|
|
See accompanying notes which are an integral part of the financial statements.
110 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
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 | ||||||||||||||||||||
Australia | $ | — | $ | 49,743 | $ | — | $ | 49,743 | 8.2 | |||||||||||
Austria | — | 622 | — | 622 | 0.1 | |||||||||||||||
Brazil | — | 1,027 | — | 1,027 | 0.2 | |||||||||||||||
Canada | 21,985 | — | — | 21,985 | 3.6 | |||||||||||||||
China | — | 1,674 | — | 1,674 | 0.3 | |||||||||||||||
Finland | — | 1,407 | — | 1,407 | 0.2 | |||||||||||||||
France | — | 21,633 | — | 21,633 | 3.6 | |||||||||||||||
Germany | — | 5,770 | — | 5,770 | 0.9 | |||||||||||||||
Hong Kong | — | 75,398 | — | 75,398 | 12.4 | |||||||||||||||
Italy | — | 288 | — | 288 | — | * | ||||||||||||||
Japan | 1,855 | 58,407 | — | 60,262 | 9.9 | |||||||||||||||
Netherlands | — | 5,281 | — | 5,281 | 0.9 | |||||||||||||||
Norway | — | 2,014 | — | 2,014 | 0.3 | |||||||||||||||
Philippines | — | 1,716 | — | 1,716 | 0.3 | |||||||||||||||
Singapore | — | 32,534 | — | 32,534 | 5.3 | |||||||||||||||
Sweden | — | 5,819 | — | 5,819 | 1.0 | |||||||||||||||
Switzerland | — | 2,955 | — | 2,955 | 0.5 | |||||||||||||||
United Kingdom | — | 30,835 | — | 30,835 | 5.1 | |||||||||||||||
United States | 253,826 | 205 | — | 254,031 | 41.7 | |||||||||||||||
Short-Term Investments | — | 27,332 | — | 27,332 | 4.5 | |||||||||||||||
Other Securities | — | 8,408 | — | 8,408 | 1.4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total Investments | 277,666 | 333,068 | — | 610,734 | 100.4 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Other Assets and Liabilities, Net | (0.4 | ) | ||||||||||||||||||
|
| |||||||||||||||||||
100.0 | ||||||||||||||||||||
|
| |||||||||||||||||||
Other Financial Instruments | ||||||||||||||||||||
Futures Contracts | 413 | — | — | 413 | 0.1 | |||||||||||||||
Foreign Currency Exchange Contracts | — | (28 | ) | — | (28 | ) | (— | )* | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Other Financial Instruments** | $ | 413 | $ | (28 | ) | $ | — | $ | 385 | |||||||||||
|
|
|
|
|
|
|
|
* | 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.
Global Real Estate Securities Fund | 111 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities 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 | $ | — | $ | 93 | ||||
Daily variation margin on futures contracts* | 416 | — | ||||||
|
|
|
| |||||
Total | $ | 416 | $ | 93 | ||||
|
|
|
| |||||
Location: Statement of Assets and Liabilities - Liabilities | ||||||||
Unrealized depreciation on foreign currency exchange contracts | $ | — | $ | 121 | ||||
Daily variation margin on futures contracts* | 3 | — | ||||||
|
|
|
| |||||
Total | $ | 3 | $ | 121 | ||||
|
|
|
| |||||
Derivatives not accounted for as hedging instruments | Equity Contracts | Foreign Currency Contracts | ||||||
Location: Statement of Operations - Net realized gain (loss) | ||||||||
Futures contracts | $ | 3,619 | $ | — | ||||
Foreign currency-related transactions** | — | 19 | ||||||
|
|
|
| |||||
Total | $ | 3,619 | $ | 19 | ||||
|
|
|
| |||||
Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | ||||||||
Futures contracts | $ | 80 | $ | — | ||||
Foreign currency-related transactions*** | — | 146 | ||||||
|
|
|
| |||||
Total | $ | 80 | $ | 146 | ||||
|
|
|
|
* | Includes cumulative appreciation/depreciation of futures contracts as reported in 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.
112 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 482,064 | ||
Investments, at fair value**, *** | 610,734 | |||
Cash (restricted)(a) | 1,570 | |||
Foreign currency holdings* | 2,014 | |||
Unrealized appreciation on foreign currency exchange contracts | 93 | |||
Receivables: | ||||
Dividends and interest | 1,831 | |||
Dividends from affiliated Russell funds | 3 | |||
Investments sold | 1,438 | |||
Fund shares sold | 303 | |||
Foreign taxes recoverable | 24 | |||
Daily variation margin on futures contracts | 245 | |||
|
| |||
Total assets | 618,255 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 809 | |||
Fund shares redeemed | 8 | |||
Accrued fees to affiliates | 431 | |||
Other accrued expenses | 101 | |||
Daily variation margin on futures contracts | 17 | |||
Unrealized depreciation on foreign currency exchange contracts | 121 | |||
Payable upon return of securities loaned | 8,408 | |||
|
| |||
Total liabilities | 9,895 | |||
|
| |||
Net Assets | $ | 608,360 | ||
|
| |||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | (10,059 | ) | |
Accumulated net realized gain (loss) | (17,985 | ) | ||
Unrealized appreciation (depreciation) on: | ||||
Investments | 128,670 | |||
Futures contracts | 413 | |||
Foreign currency-related transactions | (40 | ) | ||
Shares of beneficial interest | 396 | |||
Additional paid-in capital | 506,965 | |||
|
| |||
Net Assets | $ | 608,360 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share:(#) | $ | 15.37 | ||
Net assets | $ | 608,360,298 | ||
Shares outstanding ($.01 par value) | 39,591,298 | |||
Amounts in thousands | ||||
* Foreign currency holdings — cost | $ | 2,013 | ||
** Securities on loan included in investments | $ | 7,939 | ||
*** Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund | $ | 35,740 | ||
(a) Cash Collateral for Futures | $ | 1,570 |
(#) | 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.
Global Real Estate Securities Fund | 113 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Dividends | $ | 17,016 | ||
Dividends from affiliated Russell funds | 29 | |||
Interest | 4 | |||
Securities lending income | 245 | |||
Less foreign taxes withheld | (886 | ) | ||
|
| |||
Total investment income | 16,408 | |||
|
| |||
Expenses | ||||
Advisory fees | 4,338 | |||
Administrative fees | 271 | |||
Custodian fees | 316 | |||
Transfer agent fees | 24 | |||
Professional fees | 94 | |||
Trustees’ fees | 14 | |||
Printing fees | 74 | |||
Miscellaneous | 20 | |||
|
| |||
Expenses before reductions | 5,151 | |||
Expense reductions | — | * | ||
|
| |||
Net expenses | 5,151 | |||
|
| |||
Net investment income (loss) | 11,257 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments (net of deferred tax liability for foreign capital gains taxes) | 20,293 | |||
Futures contracts | 3,619 | |||
Foreign currency-related transactions | 59 | |||
|
| |||
Net realized gain (loss) | 23,971 | |||
|
| |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | 95,057 | |||
Futures contracts | 80 | |||
Foreign currency-related transactions | 137 | |||
|
| |||
Net change in unrealized appreciation (depreciation) | 95,274 | |||
|
| |||
Net realized and unrealized gain (loss) | 119,245 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 130,502 | ||
|
|
* | Less than $500. |
See accompanying notes which are an integral part of the financial statements.
114 | Global Real Estate Securities Fund |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Statement 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) | $ | 11,257 | $ | 10,455 | ||||
Net realized gain (loss) | 23,971 | (737 | ) | |||||
Net change in unrealized appreciation (depreciation) | 95,274 | (45,106 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 130,502 | (35,388 | ) | |||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (27,834 | ) | (11,195 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from distributions | (27,834 | ) | (11,195 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 34,728 | 23,302 | ||||||
Fund Reimbursements | — | 349 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 137,396 | (22,932 | ) | |||||
Net Assets | ||||||||
Beginning of period | 470,964 | 493,896 | ||||||
|
|
|
| |||||
End of period | $ | 608,360 | $ | 470,964 | ||||
|
|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | (10,059 | ) | $ | 1,839 |
* | 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 | 2,073 | $ | 29,853 | 2,665 | $ | 35,655 | ||||||||||
Proceeds from reinvestment of distributions | 1,873 | 27,834 | 818 | 11,195 | ||||||||||||
Payments for shares redeemed | (1,596 | ) | (22,959 | ) | (1,717 | ) | (23,548 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 2,350 | $ | 34,728 | 1,766 | $ | 23,302 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund | 115 |
Table of Contents
Russell Investment Funds
Global Real Estate Securities Fund
Financial Highlights — For the Periods Ended
For a Share Outstanding Throughout Each Period.
$ | $ Net Investment Income (Loss)(a)(b) | $ Net Realized and Unrealized Gain (Loss) | $ Total from Investment Operations | $ Distributions from Net Investment Income | $ Total Distributions | |||||||||||||||||||
December 31, 2012 | 12.65 | .30 | 3.15 | 3.45 | (.73 | ) | (.73 | ) | ||||||||||||||||
December 31, 2011 | 13.92 | .29 | (1.25 | ) | (.96 | ) | (.31 | ) | (.31 | ) | ||||||||||||||
December 31, 2010 | 11.58 | .33 | 2.29 | 2.62 | (.28 | ) | (.28 | ) | ||||||||||||||||
December 31, 2009 | 9.30 | .30 | 2.41 | 2.71 | (.43 | ) | (.43 | ) | ||||||||||||||||
December 31, 2008 | 15.22 | .38 | (6.03 | ) | (5.65 | ) | (.27 | ) | (.27 | ) |
See accompanying notes which are an integral part of the financial statements.
116 | Global Real Estate Securities Fund |
Table of Contents
$ Net Asset Value, End of Period | % Return(d) | $ End of Period | % 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 | ||||||||||||||||||||
15.37 | 27.56 | 608,360 | .95 | .95 | 2.08 | 59 | ||||||||||||||||||||
12.65 | (7.05 | ) | 470,964 | .95 | .95 | 2.11 | 57 | |||||||||||||||||||
13.92 | 22.92 | 493,896 | .99 | .99 | 2.62 | 150 | ||||||||||||||||||||
11.58 | 31.16 | 410,708 | .97 | .97 | 3.36 | 110 | ||||||||||||||||||||
9.30 | (37.76 | ) | 303,416 | .96 | .96 | 2.72 | 71 |
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund | 117 |
Table of Contents
Russell Investment Funds
Notes to Schedules of Investments — December 31, 2012
Footnotes:
(Æ) | Nonincome-producing security. |
(ö) | Real Estate Investment Trust (REIT). |
(§) | All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. |
() | Rate noted is yield-to-maturity from date of acquisition. |
(ç) | At amortized cost, which approximates market. |
(Ê) | Adjustable or floating rate security. Rate shown reflects rate in effect at period end. |
(Ï) | Forward commitment. |
(ƒ) | Perpetual floating rate security. Rate shown reflects rate in effect at period end. |
(µ) | Bond is insured by a guarantor. |
(æ) | Pre-refunded: These bonds are collateralized by U.S. Treasury securities, which are held in escrow by a trustee and used to pay principal and interest in the tax-exempt issue and to retire the bonds in full at the earliest refunding date. |
(Ø) | In default. |
(ß) | Illiquid security. |
(x) | The security is purchased with the cash collateral from the securities loaned. |
(Ñ) | All or a portion of the shares of this security are on loan. |
(Þ) | Restricted security. Security may have contractual restrictions on resale, may have been offered in a private placement transaction, and may not be registered under the Securities Act of 1933. |
(Å) | Illiquid and restricted security. |
(å) | Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2. |
(¥) | Unrounded units |
Abbreviations:
144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933.
ADR - American Depositary Receipt
ADS - American Depositary Share
BBSW - Bank Bill Swap Reference Rate
CIBOR - Copenhagen Interbank Offered Rate
CME - Chicago Mercantile Exchange
CMO - Collateralized Mortgage Obligation
CVO - Contingent Value Obligation
EMU - European Economic and Monetary Union
EURIBOR - Euro Interbank Offered Rate
FDIC - Federal Deposit Insurance Company
GDR - Global Depositary Receipt
GDS - Global Depositary Share
LIBOR - London Interbank Offered Rate
NIBOR - Norwegian Interbank Offered Rate
PIK - Payment in Kind
REMIC - Real Estate Mortgage Investment Conduit
STRIP - Separate Trading of Registered Interest and Principal of Securities
TBA - To Be Announced Security
UK - United Kingdom
Foreign Currency Abbreviations:
ARS - Argentine peso | HUF - Hungarian forint | PKR - Pakistani rupee | ||
AUD - Australian dollar | IDR - Indonesian rupiah | PLN - Polish zloty | ||
BRL - Brazilian real | ILS - Israeli shekel | RUB - Russian ruble | ||
CAD - Canadian dollar | INR - Indian rupee | SEK - Swedish krona | ||
CHF - Swiss franc | ISK - Iceland krona | SGD - Singapore dollar | ||
CLP - Chilean peso | ITL - Italian lira | SKK - Slovakian koruna | ||
CNY - Chinese renminbi yuan | JPY - Japanese yen | THB - Thai baht | ||
COP - Colombian peso | KES - Kenyan schilling | TRY - Turkish lira | ||
CRC - Costa Rica colon | KRW - South Korean won | TWD - Taiwanese dollar | ||
CZK - Czech koruna | MXN - Mexican peso | USD - United States dollar | ||
DKK - Danish krone | MYR - Malaysian ringgit | VEB - Venezuelan bolivar | ||
EGP - Egyptian pound | NOK - Norwegion krone | VND - Vietnam dong | ||
EUR - Euro | NZD - New Zealand dollar | ZAR - South African rand | ||
GBP - British pound sterling | PEN - Peruvian nouveau sol | |||
HKD - Hong Kong dollar | PHP - Philippine peso |
118 | Notes to Schedules of Investments |
Table of Contents
Russell Investment Funds
Notes to Financial Highlights — December 31, 2012
(a) | Average daily shares outstanding were used for this calculation. |
(b) | May reflect amounts waived and/or reimbursed by Russell Investment Management Company (“RIMCo”) and for certain funds, custody credit arrangements. |
(c) | Less than $.01 per share. |
(d) | The total return does not reflect any Insurance Company Separate Account or Policy Charges. |
See accompanying notes which are an integral part of the financial statements.
Notes to Financial Highlights | 119 |
Table of Contents
Russell Investment Funds
Notes to Financial Statements — December 31, 2012
1. | Organization |
Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with 10 different investment portfolios referred to as Funds. These financial statements report on five of these Funds (each a “Fund” and collectively the “Funds”). The Investment Company provides the investment base for one or more variable insurance products issued by one or more insurance companies. These Funds are offered at net asset value (“NAV”) to qualified insurance company separate accounts offering variable insurance products. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operated as a Massachusetts business trust under an Amended and Restated Master Trust Agreement dated October 1, 2008, as amended (“Master Trust Agreement”). The Investment Company’s Master Trust Agreement permits the Board of Trustees (the “Board”) to issue an unlimited number of shares of beneficial interest.
2. | Significant Accounting Policies |
The Funds’ financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements.
In December 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) to enhance disclosures about financial instruments and derivative instruments that are subject to offsetting (“netting”) on the Statement of Assets and Liabilities. This information will enable users of the entity’s financial statements to evaluate the effect or potential effect of netting arrangements on the entity’s financial position. The ASU is effective prospectively during interim or annual periods beginning on or after January 1, 2013. At this time, management is evaluating the implications of these changes on the financial statements.
Security Valuation
The Funds value portfolio securities according to Board-approved securities valuation procedures which include market and fair value procedures. Debt obligation securities maturing within 60 days at the time of purchase are priced using the amortized cost method of valuation, unless the Board determines that amortized cost does not represent the fair value such of short-term debt obligations. The Board has delegated the responsibility for administration of the securities valuation procedures to Russell Fund Services Company (“RFSC”).
U.S. GAAP defines fair market value as the price that a Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. It establishes a fair value hierarchy that prioritizes inputs to valuation methods and requires a separate disclosure of the fair value hierarchy, separately for each major category of assets and liabilities, that segregates fair value measurements into levels (Level 1, 2, and 3). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Levels 1, 2 and 3 of the fair value hierarchy are defined as follows:
• | Level 1 — Quoted prices (unadjusted) in active markets or exchanges for identical assets and liabilities. |
• | Level 2 — Inputs other than quoted prices included within Level 1 that are observable, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active (such as interest rates, yield curves, implied volatilities, credit spreads) or other market corroborated inputs. |
• | Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair market value of investments. |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
120 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2012
The valuation techniques and significant inputs used in determining the fair market values of financial instruments classified as Level 1 and Level 2 of the fair value hierarchy are as follows:
Equity securities, including common and preferred stock, that are traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. Certain foreign equity securities may be fair valued using a pricing service that considers the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments such as American Depositary Receipts, financial futures, exchange traded funds, and the movement of certain indexes of securities, based on the statistical analysis of historical relationship. Preferred stock and other equities traded on inactive markets or valued by reference to similar instruments are categorized as Level 2 of the fair value hierarchy.
Fixed income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, sovereign issues, bank loans, bank notes and non-U.S. bonds are normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The service providers’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads and default rates. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Fixed income securities purchased on a delayed-delivery basis and marked-to-market daily until settlement at the forward settlement date are categorized as Level 2 of the fair value hierarchy.
Mortgage and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, estimated cash flows of each tranche, market-based yield spreads for each tranche, current market data and incorporate deal collateral performance, as available. Mortgage and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Investments in privately held investment funds will be valued based upon the NAV of such investments and are categorized as Level 2 of the fair value hierarchy if the privately-held investment funds’ redemption terms require 90 days notice or less. If the redemption terms require greater than 90 days notice for redemptions, then the investment will be categorized as Level 3. The Funds have adopted the authoritative guidance under U.S. GAAP for estimating the fair value of investments in funds that have calculated NAV per share in accordance with the specialized accounting guidance for investment companies. Accordingly, the Funds estimate the fair value of an investment in a fund using the NAV per share without further adjustment as a practical expedient, if the NAV per share of the investment is determined in accordance with the specialized accounting guidance for investment companies as of the reporting entity’s measurement date.
Short-term investments having a maturity of 60 days or less are generally valued at amortized cost, which approximates fair market value. These investments are categorized as Level 2 of the fair value hierarchy.
Financial over-the-counter derivative instruments are instruments such as foreign currency contracts, futures contracts, options contracts, or swap agreements that derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. These contracts are normally valued on the basis of broker-dealer quotations or pricing service providers. Depending on the product and the terms of the transaction, the value of the derivative contracts can be estimated by a pricing service provider using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as issuer details, indices, spreads, interest rates, curves, dividends and exchange rates. Derivatives that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Events or circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they trade and the time the NAV of Fund shares is determined may be reflected in the calculation of NAV for each applicable Fund when the Fund deems that the particular event or circumstance would materially affect such Fund’s NAV. Funds that invest primarily in frequently traded exchange-listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. Funds that invest in foreign securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. Although there are observable inputs assigned on a security level, prices are derived from factors using proprietary models or matrix pricing. For this reason, significant events will cause movement between Levels 1 and 2. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement of the U.S. securities market (defined in the fair value procedures as the movement by a single major U.S. index greater than a certain
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percentage) or other significant event; foreign market holidays if, on a daily basis, a Fund’s foreign exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural disaster; or an armed conflict.
The NAV of a Fund’s portfolio that includes foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares, since foreign securities can trade on non-business days.
The Multi-Style Equity and Aggressive Equity Funds had no transfers between Levels 1, 2, and 3 for the period ended December 31, 2012.
The Non-U.S. and Global Real Estate Securities Funds had transfers out of Level 1 into Level 2 representing financial instruments for which restrictions exist and adjustments were made to the otherwise observable price to reflect their fair value at December 31, 2012.
The Core Bond Fund had transfers out of Level 3 into Level 2 representing financial instruments that had been determined using unobservable inputs that became observable.
Level 3 Fair Value Investments
The valuation techniques and significant inputs used in determining the fair values of financial instruments classified as Level 3 of the fair value hierarchy are as follows:
Securities and other assets for which market quotes are not readily available are valued at fair value as determined in good faith by the Board and are categorized as Level 3 of the fair value hierarchy. Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes). When RFSC applies fair valuation methods that use significant unobservable inputs to determine a Fund’s NAV, securities will not be priced on the basis of quotes from the primary market in which they are traded, but instead may be priced by another method that the Board or persons acting at their direction believe accurately reflects fair value and are categorized as Level 3 of the fair value hierarchy. Fair value pricing may require subjective determinations about the value of a security. While the securities valuation procedures are intended to result in a calculation of a Fund’s NAV that fairly reflects security values as of the time of pricing, the process cannot guarantee that fair values determined by the Board or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.
Russell Investment Management Company (“RIMCo”), the Funds’ adviser, employs third party pricing vendors to provide fair value measurements. RIMCo oversees third-party pricing service providers in order to support the valuation process throughout the year.
If third party evaluated vendor pricing is neither available or deemed to be indicative of fair value, RIMCo may elect to obtain indicative market quotations (“broker quotes”) directly from the broker or passed through from a third party vendor. In the event that the source of fair value is from a single source broker quote, these securities are classified as Level 3 per the fair value hierarchy. Indicative market quotations are typically received from established market participants. Although independently received, RIMCo does not have the transparency to view the underlying inputs which support the market quotation. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security. There is a third-party pricing exception to the quantitative disclosure requirement when prices are not determined by the reporting entity. RIMCo is exercising this exception and has made a reasonable attempt to obtain quantitative information from the third party pricing vendors regarding the unobservable inputs used.
For fair valuations using significant unobservable inputs, U.S. GAAP requires a reconciliation of the beginning to ending balances for reported market values that presents changes attributable to total realized and unrealized gains or losses, purchases and sales, and transfers in/out of the Level 3 category during the period. Additionally, U.S. GAAP requires quantitative information regarding the significant unobservable inputs used in the determination of fair value of assets categorized as Level 3 in the fair value hierarchy. In accordance with the requirements of U.S. GAAP, a fair value hierarchy, Level 3 reconciliation and additional disclosure about fair value measurements, if any, have been included in the Notes to the Schedule of Investments for each respective Fund.
Investment Transactions
Investment transactions are reflected as of the trade date for financial reporting purposes. This may cause the NAV stated in the financial statements to be different from the NAV at which shareholders may transact. Realized gains and losses from securities transactions, if applicable, are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund.
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Investment Income
Dividend income is recorded net of applicable withholding taxes on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon thereafter as the Funds are informed subsequent to the ex-dividend date. Interest income is recorded daily on the accrual basis. The Core Bond Fund classifies gains and losses realized on prepayments received on mortgage-backed securities as an adjustment to interest income. All premiums and discounts, including original issue discounts, are amortized/accreted using the effective interest method.
Federal Income Taxes
Since the Investment Company is a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund’s shareholders without regard to the income and capital gains (or losses) of the other Funds.
For each year, each Fund intends to qualify as a regulated investment company under sub-chapter M of the Internal Revenue Code (the “Code”) and intends to distribute all of its taxable income and capital gains. Therefore, no federal income tax provision is required for the Funds.
The Funds comply with the authoritative guidance for uncertainty in income taxes which requires management to determine whether a tax position of the Funds is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. Management determined that no accruals need to be made in the financial statements due to uncertain tax positions. Management continually reviews and adjusts its liability for income taxes based on analyses of tax laws and regulations, as well as their interpretations, and other relevant factors.
Each Fund files a U.S. tax return. At December 31, 2012, the Funds had recorded no liabilities for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for the fiscal years ending December 31, 2009 through December 31, 2011, if applicable, no examinations are in progress or anticipated at this time. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
Dividends and Distributions to Shareholders
For all Funds, income and capital gain distributions, if any, are recorded on the ex-dividend date. Income distributions are generally declared and paid quarterly, except for the Non-U.S. Fund, which generally declares and pays income distributions annually. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Funds to avoid imposition of federal income and excise tax on any remaining undistributed capital gains and net investment income.
The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from U.S. GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and U.S. GAAP primarily relate to investments in options, futures, forward contracts, swap contracts, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities sold at a loss and capital loss carryforwards. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without impacting their net asset values.
Expenses
The Funds pay their own expenses other than those expressly assumed by RIMCo or RFSC. Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed to a specific Fund are allocated among all Funds principally based on their relative net assets.
Foreign Currency Translations
The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts and transactions of the Funds are translated into U.S. dollars on the following basis:
(a) | Fair value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. |
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(b) | Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. |
Net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds’ books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, as a result of changes in the exchange rates.
The Funds do not isolate that portion of the results of operations of the Funds that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included within the net realized and unrealized gain or loss from investments. However, for federal income tax purposes, the Funds do isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations.
Capital Gains Taxes
The Non-U.S. and Global Real Estate Securities Funds may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which they invest. The Non-U.S. and Global Real Estate Securities Funds may record a deferred capital gains tax liability with respect to the unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at December 31, 2012. The accrual for capital gains and repatriation taxes is included in net unrealized appreciation (depreciation) on investments in the Statements of Assets and Liabilities. The amounts related to capital gains and repatriation taxes are included in net realized gain (loss) on investments in the Statements of Operations. The Non-U.S. and Global Real Estate Securities Fund did not have any deferred capital gains tax liabilities as of December 31, 2012. The Non-U.S. Fund had a $36,097 realized loss on investments for capital gains taxes for the period ended December 31, 2012.
Derivatives
To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds’ Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps and forwards. These instruments offer unique characteristics and risks that facilitate the Funds’ investment strategies.
The Funds typically use derivatives in three ways: exposing cash reserves to markets, hedging and return enhancement. In addition, the Non-U.S. and Global Real Estate Securities Funds may enter into foreign exchange contracts for trade settlement purposes. The Funds may pursue their strategy of being fully invested by exposing cash reserves to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as though cash reserves were actually invested in those markets. Hedging may also be used by certain Funds to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in a Fund, including using derivatives as a substitute for holding physical bonds, and using them to express various macro views (e.g., interest rate movements, currency movements, and macro credit strategies). By purchasing certain instruments, the Funds may more effectively achieve the desired portfolio characteristics that assist them in meeting their investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks include, but are not limited to, market risk, liquidity risk, counterparty risk, basis risk, reinvestment risk, political risk, prepayment risk, extension risk and credit risk.
The effects of derivative instruments, categorized by risk exposure, on the Statements of Assets and Liabilities and the Statements of Operations, for the period ended December 31, 2012, if applicable, are disclosed in the Fair Value of Derivative Instruments presentation following each applicable Fund’s Schedule of Investments.
Foreign Currency Exchange Contracts
In connection with investment transactions consistent with the Funds’ investment objectives and strategies, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts (“FX contracts”). From time to time, certain Funds may enter into FX contracts to hedge certain foreign currency-denominated assets. FX contracts are recorded at fair value. Certain risks may arise upon entering into these FX contracts from the potential inability of counterparties to meet the terms of their FX contracts and are generally limited to the amount of unrealized gain on the FX contracts, if any, that are disclosed in the Statements of Assets and Liabilities.
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For the period ended December 31, 2012, the following Funds entered into foreign currency exchange contracts primarily for the strategies listed below:
Funds | Strategies | |||
Non-U.S. Fund | Exposing cash reserves to markets and trade settlement | |||
Core Bond Fund | Return enhancement and hedging | |||
Global Real Estate Securities Fund | Exposing cash reserves to markets and trade settlement |
The Funds’ foreign currency contract notional dollar values outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following tables illustrate the quarterly volume of foreign currency contracts. For the purpose of this disclosure, volume is measured by the amounts bought and sold in USD.
Outstanding Contract Amounts Bought | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Non-U.S. Fund | $ | 24,392,974 | $ | 43,590,284 | $ | 19,770,940 | $ | 29,971,029 | ||||||||
Core Bond Fund | 67,540,357 | 88,455,863 | 154,084,545 | 171,783,544 | ||||||||||||
Global Real Estate Securities Fund | 19,215,721 | 26,083,804 | 20,481,972 | 19,726,469 |
Outstanding Contract Amounts Sold | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Non-U.S. Fund | $ | 24,176,468 | $ | 43,403,883 | $ | 19,721,927 | $ | 30,029,383 | ||||||||
Core Bond Fund | 67,750,457 | 88,318,290 | 154,384,186 | 172,304,670 | ||||||||||||
Global Real Estate Securities Fund | 19,084,129 | 25,996,473 | 20,448,627 | 19,749,436 |
Options
The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. The Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to expose cash reserves to markets.
When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund’s Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security.
Whether an option which the Fund has written expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. When a put option which a Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which a Fund purchases upon exercise of the option.
The Funds’ use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statements of Assets and Liabilities. The face or contract amounts of these instruments reflect the extent of the Funds’ exposure to market risk. The risks may be caused by an imperfect correlation between movements in the price of the instrument and the price of the underlying securities and interest rates.
A Fund may enter into a swaption (swap option). In a swaption, the buyer gains the right but not the obligation to enter into a specified swap agreement with the issuer on a specified future date. The writer of the contract receives the premium and bears the risk of unfavorable changes in the preset rate on the underlying interest rate swap.
For the period ended December 31, 2012, the Core Bond Fund purchased/sold options primarily for return enhancement, hedging and exposing cash reserves to markets.
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The Core Bond Fund’s options contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the quarterly volume of options contracts. For purpose of this disclosure, volume is measured by contracts outstanding at period end.
Number of Option Contracts Outstanding | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Core Bond Fund | 45 | 36 | 170 | 174 |
Futures Contracts
The Funds may invest in futures contracts (i.e., interest rate, foreign currency and index futures contracts). The face or contract amounts of these instruments reflect the extent of the Funds’ exposure to off balance-sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in fair value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount, termed the initial margin, which typically represents 5% to 10% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are typically required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized.
For the period ended December 31, 2012, the following Funds entered into future contracts primarily for the strategies listed below:
Funds | Strategies | |||
Multi-Style Equity Fund | Exposing cash reserves to markets | |||
Aggressive Equity Fund | Exposing cash reserves to markets | |||
Non-U.S. Fund | Exposing cash reserves to markets | |||
Core Bond Fund | Return enhancement, hedging and exposing cash reserves to markets | |||
Real Estate Securities Fund | Exposing cash reserves to markets |
The Funds’ futures contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the quarterly volume of futures contracts. For purpose of this disclosure, volume is measured by contracts outstanding at period end.
Number of Futures Contracts Outstanding | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Multi-Style Equity Fund | 252 | 206 | 296 | 345 | ||||||||||||
Aggressive Equity Fund | 28 | 1 | 105 | 48 | ||||||||||||
Non-U.S. Fund | 275 | 369 | 221 | 274 | ||||||||||||
Core Bond Fund | 847 | 890 | 539 | 976 | ||||||||||||
Global Real Estate Securities Fund | 509 | 371 | 573 | 656 |
Swap Agreements
The Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether they are hedging their assets or their liabilities, and will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments. When a Fund engages in a swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments).
Certain Funds may enter into several different types of swap agreements including credit default, interest rate, index (total return) and currency swaps. Credit default swaps are a counterparty agreement which allows the transfer of third party credit risk (the possibility that an issuer will default on their obligation by failing to pay principal or interest in a timely manner) from one party to another. The lender faces the credit risk from a third party and the counterparty in the swap agrees to insure this risk in exchange for regular periodic payments. Interest rate swaps are a counterparty agreement, can be customized to meet each party’s needs, and involve the exchange of a fixed payment per period for a payment that is not fixed. The Funds may enter into index swap agreements to expose cash reserves to markets or to effect investment transactions consistent with those Funds’ investment objectives and strategies. Currency swaps are an agreement where two parties exchange specified amounts of different currencies which are followed by each paying the other a series of interest payments that are based on the principal cash flow. At maturity the principal amounts are returned.
The Funds expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of their portfolios or to protect against any increase in the price of securities they anticipate purchasing at a later date or for return
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enhancement. The net amount of the excess, if any, of the Funds’ obligations over their entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid assets having an aggregate NAV at least equal to the accrued excess will be segregated. To the extent that the Funds enter into swaps on other than a net basis, the amount earmarked on the Funds’ records will be the full amount of the Funds’ obligations, if any, with respect to such swaps, accrued on a daily basis. If there is a default by the other party to such a transaction, the Funds will have contractual remedies pursuant to the agreement related to the transaction.
A Fund may not receive the expected amount under a swap agreement if the other party to the agreement defaults or becomes bankrupt. The market for swap agreements is largely unregulated. The Funds may enter into swap agreements with counterparties that meet RIMCo’s credit quality limitations. The Funds will not enter into any swap unless the counterparty has a minimum senior unsecured credit rating or long-term counterparty credit rating, including reassignments, of BBB- or better as defined by Standard & Poor’s or an equivalent rating from any nationally recognized statistical rating organization (using highest of split ratings) at the time of entering into such transaction.
Credit Default Swaps
The Core Bond Fund may enter into credit default swaps. A credit default swap can refer to corporate issues, asset-backed securities or an index of assets, each known as the reference entity or underlying asset. The Fund may act as either the buyer or the seller of a credit default swap involving one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a default or other credit event. Depending upon the terms of the contract, the credit default swap may be closed via physical settlement. However, due to the possible or potential instability in the market, there is a risk that the Fund may be unable to deliver the underlying debt security to the other party to the agreement. Additionally, the Fund may not receive the expected amount under the swap agreement if the other party to the agreement defaults or becomes bankrupt. In an unhedged credit default swap, the Fund enters into a credit default swap without owning the underlying asset or debt issued by the reference entity. Credit default swaps allow the Fund to acquire or reduce credit exposure to a particular issuer, asset or basket of assets.
As the seller of protection in a credit default swap, the Fund would be required to pay the par or other agreed-upon value (or otherwise perform according to the swap contract) of a reference debt obligation to the counterparty in the event of a default (or other specified credit event); the counterparty would be required to surrender the reference debt obligation. In return, the Fund would receive from the counterparty a periodic stream of payments over the term of the contract provided that no credit event has occurred. If no credit event occurs, the Fund would keep the stream of payments and would have no payment obligations. As a seller of protection, the Fund would effectively add leverage to its portfolio because, in addition to its total net assets, that Fund would be subject to investment exposure on the notional amount of the swap.
The Fund may also purchase protection via credit default swap contracts in order to offset the risk of default of debt securities held in its portfolio, in which case the Fund would function as the counterparty referenced in the preceding paragraph.
If a credit event occurs on a corporate issue and cash settlement is not elected, a variety of other deliverable obligations may be delivered in lieu of the specific referenced obligation. The ability to deliver other obligations may result in a cheapest-to-deliver option (the buyer of protection’s right to choose the deliverable obligation with the lowest value following a credit event). The Fund may use credit default swaps on corporate issues to provide a measure of protection against defaults of the issuers (i.e., to reduce risk where the Fund owns or has exposure to the referenced obligation) or to take an active long or short position with respect to the likelihood (as measured by the credit default swap’s spread) of a particular issuer’s default.
Unlike credit default swaps on corporate issues, deliverable obligations for credit default swaps on asset-backed securities in most instances are limited to the specific referenced obligation as performance for asset-backed securities can vary across deals. Prepayments, principal paydowns, and other write-down or loss events on the underlying mortgage loans will reduce the outstanding principal balance of the referenced obligation. These reductions may be temporary or permanent as defined under the terms of the swap agreement and the notional amount for the swap agreement generally will be adjusted by corresponding amounts. The Fund may use credit default swaps on asset-backed securities to provide a measure of protection against defaults (or other defined credit events) of the referenced obligation or to take an active long or short position with respect to the likelihood of a particular referenced obligation’s default (or other defined credit events).
Credit default swap agreements on credit indices involve one party making a stream of payments to another party in exchange for the right to receive a specified return in the event of a write down, principal shortfall, interest shortfall or default of all or part of the referenced entities comprising the credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole. These indices are made up of reference credits that are judged by a poll of dealers to be the most liquid entities in the credit default swap market based on the sector of the index. Components of the indices may include, but are not limited to, investment grade securities, high yield securities, asset backed securities, emerging markets, and/or various credit ratings within each sector. Credit indices are traded using credit default swaps with standardized
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terms including a fixed spread and standard maturity dates. An index credit default swap references all the names in the index, and if there is a default, the credit event is settled based on that name’s weight in the index. The composition of the indices changes periodically, usually every six months, and for most indices, each name has an equal weight in the index. Traders may use credit default swaps on indices to speculate on changes in credit quality.
Implied credit spreads, represented in absolute terms, utilized in determining the fair value of credit default swap agreements on corporate issues as of period end are disclosed in the Schedules of Investments and generally serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default (or other defined credit event) for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of entering into a credit default swap and may include upfront payments required to be made to enter into the agreement. For credit default swap agreements on asset-backed securities and credit indices, the quoted market prices and resulting values serve as the indicator of the current status of the payment/performance risk. Wider credit spreads and increasing fair values, in absolute terms when compared to the notional amount of the swap, generally represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. The maximum potential amount of future payments (undiscounted) that the Fund as a seller of protection could be required to make under a credit default swap agreement would be an amount equal to the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of December 31, 2012, for which the Fund is the seller of protection are disclosed in the Schedules of Investments. These potential amounts would be partially offset by any recovery values of the respective referenced obligations, upfront payments received upon entering into the agreement, or net amounts received from the settlement of buy protection credit default swap agreements entered into by the Fund for the same referenced entity or entities.
Credit default swaps could result in losses if the Fund does not correctly evaluate the creditworthiness of the company or companies on which the credit default swap is based. Credit default swap agreements may involve greater risks than if the Fund had invested in the reference obligation directly since, in addition to risks relating to the reference obligation, credit default swaps are subject to illiquidity and counterparty risk. The Fund will generally incur a greater degree of risk when it sells a credit default swap than when it purchases a credit default swap. As a buyer of a credit default swap, the Fund may lose its investment and recover nothing should a credit event fail to occur and the swap is held to its termination date. As seller of a credit default swap, if a credit event were to occur, the value of any deliverable obligation received by the Fund, coupled with the upfront or periodic payments previously received, may be less than what it pays to the buyer, resulting in a loss of value to the Fund.
If the creditworthiness of the Fund’s swap counterparty declines, the risk that the counterparty may not perform could increase, potentially resulting in a loss to the Fund. To limit the counterparty risk involved in swap agreements, the Fund will only enter into swap agreements with counterparties that meet certain standards of creditworthiness. Although there can be no assurance that the Fund will be able to do so, the Fund may be able to reduce or eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into an offsetting swap agreement with the same party or another party. The Fund may have limited ability to eliminate its exposure under a credit default swap if the credit of the reference entity or underlying asset has declined.
For the period ended December 31, 2012, the Core Bond Fund entered into credit default swaps primarily for return enhancement, hedging and exposing cash reserves to markets.
The Core Bond Fund’s credit default swap contract notional amounts outstanding fluctuate throughout the operating year as required to meet the strategic requirements. The following table illustrates the quarterly volume of credit default swap contracts. For the purpose of this disclosure, the volume is measured by the notional amounts outstanding at each quarter end.
Credit Default Swap Notional Amounts Outstanding | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Core Bond Fund | $ | 91,505,298 | $ | 75,540,298 | $ | 55,480,298 | $ | 49,778,699 |
Interest Rate Swaps
The use of interest rate swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If RIMCo or a money manager using this technique is incorrect in its forecast of fair values, interest rates and other applicable factors, the investment performance of a Fund might diminish compared to what it would have been if this investment technique were not used.
Interest rate swaps do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate swaps is limited to the net amount of interest payments that the Funds are contractually obligated to make. If the other party to an interest rate swap defaults, the Funds’ risk of loss consists of the net amount of interest payments that the Funds are contractually entitled to receive. Since interest rate swaps are individually negotiated, the Funds expect to
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achieve an acceptable degree of correlation between their rights to receive interest on their portfolio securities and their rights and obligations to receive and pay interest pursuant to interest rate swaps.
For the period ended December 31, 2012, the Core Bond Fund entered into interest rate swaps primarily for return enhancement, hedging and exposing cash reserves to markets.
The Core Bond Fund’s interest rate swap contract notional amounts outstanding fluctuate throughout the operating year as required to meet the strategic requirements. The following table illustrates the quarterly volume of interest rate swap contracts. For the purpose of this disclosure, the volume is measured by the notional amounts outstanding at each quarter end.
Interest Rate Swap Notional Amounts Outstanding | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Core Bond Fund | $ | 65,665,000 | $ | 53,300,000 | $ | 55,000,000 | $ | 102,900,000 |
Index Swaps
Certain Funds may enter into index swap agreements to expose cash reserves to markets or to effect investment transactions consistent with these Funds’ investment objectives and strategies. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular investments or instruments. The returns to be exchanged between the parties are calculated with respect to a “notional amount” (i.e. a specified dollar amount that is hypothetically invested in a “basket” of securities representing a particular index).
For the period ended December 31, 2012, the Core Bond Fund entered into index swaps primarily for the strategy of exposing cash reserves to markets.
The Core Bond Fund’s index swap contract notional amounts outstanding fluctuate throughout the operating year as required to meet the strategic requirements. The following table illustrates the quarterly volume of interest rate swap contracts. For the purpose of this disclosure, the volume is measured by the notional amounts outstanding at each quarter end.
Index Swap Notional Amounts Outstanding | ||||||||||||||||
Quarter Ended | March 31, 2012 | June 30, 2012 | September 30, 2012 | December 31, 2012 | ||||||||||||
Core Bond Fund | $ | — | $ | — | $ | 60,219,746 | $ | 65,638,361 |
Currency Swaps
Certain Funds may enter into currency swap agreements to enhance returns or for hedging purposes. Currency swap agreements are agreements where two parties exchange specified amounts of different currencies which are followed by paying the other a series of interest payments that are based on the principal cash flow. At maturity, the principal amounts are exchanged.
For the period ended December 31, 2012, none of the Funds entered into currency swaps.
ISDA Master Agreements
The Funds are parties to International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreements”) with counterparties that govern transactions in over-the-counter derivative and foreign exchange contracts entered into by the Funds and those counterparties. The ISDA Master Agreements contain provisions for general obligations, representations, agreements, collateral and events of default or termination. Events of termination include conditions that may entitle counterparties to elect to terminate early and cause settlement of all outstanding transactions under the applicable ISDA Master Agreement. Any election to terminate early could be material to the financial statements.
Loan Agreements
The Core Bond Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. The Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the “agent”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the agent selling the loan agreement and only upon receipt by the agent of payments from the borrower. The Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, the Fund
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may be subject to the credit risk of both the borrower and the agent that is selling the loan agreement. When the Fund purchases assignments from agents it acquires direct rights against the borrower on the loan. As of December 31, 2012, the Core Bond Fund had no unfunded loan commitments.
Certificates of Participation
Certain Funds may purchase certificates of participation, also known as participation notes or participation interest notes. Certificates of participation are issued by banks or broker-dealers and are designed to replicate the performance of foreign companies or foreign securities markets and can be used by the Fund as an alternative means to access the securities market of a frontier emerging market country. The performance results of certificates of participation will not replicate exactly the performance of the foreign companies or foreign securities markets that they seek to replicate due to transaction and other expenses. Investments in certificates of participation involve certain risks in addition to those associated with a direct investment in the underlying foreign companies or foreign securities markets whose return they seek to replicate. There can be no assurance that there will be a trading market or that the trading price of certificates of participation will equal the underlying value of the foreign company or foreign securities market that it seeks to replicate. The Funds rely on the creditworthiness of the counterparty issuing the certificates of participation and have no rights against the issuer of the underlying security. The Funds minimize this risk by entering into agreements only with counterparties that RIMCo deems creditworthy. Due to liquidity and transfer restrictions, the secondary markets on which the certificates of participation are traded may be less liquid than the markets for other securities, or may be completely illiquid.
Emerging Markets Securities
The Funds may invest in emerging markets securities. Investing in emerging markets securities can pose some risks different from and greater than, risks of investing in U.S. or developed markets securities. These risks include: a risk of loss due to political instability; exposure to economic structures that are generally less diverse and mature, and to political systems which may have less stability, than those of more developed countries; smaller market capitalization of securities markets, which may suffer periods of relative illiquidity; significant price volatility; restrictions on foreign investment; and possible repatriation of investment income and capital. In addition, foreign investors may be required to register the proceeds of sales and future economic or political crises could lead to price controls, forced mergers, expropriation or confiscatory taxation, seizure, nationalization, or creation of government monopolies. The currencies of emerging market countries may experience significant declines against the U.S. dollar, and devaluation may occur subsequent to investments in these currencies by the Funds. Emerging market securities may be subject to currency transfer restrictions and may experience delays and disruptions in securities settlement procedures for a Fund’s portfolio securities. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries.
Emerging Markets Debt
The Core Bond Fund may invest in emerging markets debt. The Fund’s emerging markets debt securities may include obligations of governments and corporations. As with any fixed income securities, emerging markets debt securities are subject to the risk of being downgraded in credit rating and to the risk of default. In the event of a default on any investments in foreign debt obligations, it may be more difficult for the Fund to obtain or to enforce a judgment against the issuers of such securities. With respect to debt issued by emerging market governments, such issuers may be unwilling to pay interest and repay principal when due, either due to an inability to pay or submission to political pressure not to pay, and as a result may default, declare temporary suspensions of interest payments or require that the conditions for payment be renegotiated.
Repurchase Agreements
The Core Bond Fund may enter into repurchase agreements. A repurchase agreement is an agreement under which the Fund acquires a fixed income security from a commercial bank, broker or dealer and simultaneously agrees to resell such security to the seller at an agreed upon price and date (normally within a few days or weeks). The resale price reflects an agreed upon interest rate effective for the period the security is held by the Fund and is unrelated to the interest rate on the security. The securities acquired by the Fund constitute collateral for the repurchase obligation. In these transactions, the securities acquired by the Fund (including accrued interest earned thereon) must have a total value in excess of the value of the repurchase agreement and must be held by the custodian bank until repurchased. The Fund will not invest more than 15% of its net assets (taken at current fair value) in repurchase agreements maturing in more than seven days.
Mortgage-Related and Other Asset-Backed Securities
The Core Bond Fund may invest in mortgage or other asset-backed securities (“ABS”). These securities may include mortgage instruments issued by U.S. government agencies (“agency mortgages”) or those issued by private entities (“non-agency
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mortgages”). Specific types of instruments may include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of the Fund’s mortgage-backed securities (“MBS”) may be affected by, among other things, changes or perceived changes in interest rates, factors concerning the interests in and structure of the issuer or the originator of the mortgage, or the quality of the underlying assets. The mortgages underlying the securities may default or decline in quality or value. Through its investments in MBS, a Fund has exposure to subprime loans, Alt-A loans and non-conforming loans as well as to the mortgage and credit markets generally. Underlying collateral related to subprime, Alt-A and non-conforming mortgage loans has become increasingly susceptible to defaults and declines in quality or value, especially in a declining residential real estate market. In addition, regulatory or tax changes may adversely affect the mortgage securities markets as a whole.
Mortgage-Backed Securities
MBS often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages underlying the securities. In practice however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities’ effective maturity shorter than this, and the prevailing interest rates may be higher or lower than the current yield of the Fund’s portfolio at the time resulting in reinvestment risk.
Rising or high interest rates may result in slower than expected principal payments which may tend to extend the duration of MBS, making them more volatile and more sensitive to changes in interest rates. This is known as extension risk.
MBS may have less potential for capital appreciation than comparable fixed income securities due to the likelihood of increased prepayments of mortgages resulting from foreclosures or declining interest rates. These foreclosed or refinanced mortgages are paid off at face value (par) or less, causing a loss, particularly for any investor who may have purchased the security at a premium or a price above par. In such an environment, this risk limits the potential price appreciation of these securities.
Agency Mortgage-Backed Securities
Certain MBS may be issued or guaranteed by the U.S. government or a government sponsored entity, such as Fannie Mae (the Federal National Mortgage Association) or Freddie Mac (the Federal Home Loan Mortgage Corporation). Although these instruments may be guaranteed by the U.S. government or a government sponsored entity, many such MBS are not backed by the full faith and credit of the United States and are still exposed to the risk of non-payment.
Privately Issued Mortgage-Backed Securities
MBS held by a Fund may be issued by private issuers including commercial banks, savings associations, mortgage companies, investment banking firms, finance companies and special purpose finance entities (called special purpose vehicles or SPVs) and other entities that acquire and package mortgage loans for resale as MBS. These privately issued non-agency MBS may offer higher yields than those issued by government agencies, but also may be subject to greater price changes than governmental issues. Subprime loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their loans. Alt-A loans refer to loans extended to borrowers who have incomplete documentation of income, assets, or other variables that are important to the credit underwriting processes. Non-conforming mortgages are loans that do not meet the standards that allow purchase by government-sponsored enterprises. MBS with exposure to subprime loans, Alt-A loans or non-conforming loans have had in many cases higher default rates than those loans that meet government underwriting requirements. The risk of non-payment is greater for MBS that are backed by mortgage pools that contain subprime, Alt-A and non-conforming loans, but a level of risk exists for all loans.
Unlike agency MBS issued or guaranteed by the U.S. government or a government-sponsored entity (e.g., Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation)), MBS issued by private issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancements provided by external entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the issuance of securities by an SPV in multiple classes or “tranches,” with one or more classes being senior to other subordinated classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first by the holders of the subordinated class); creation of “reserve funds” (in which case cash or investments, sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and “overcollateralization” (in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceeds that required to make payment on the securities and pay any servicing or other fees). However, there can be no guarantee that credit enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans. In addition,
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MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label MBS pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans.
Privately issued MBS are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, MBS held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
Asset-Backed Securities
ABS may include MBS, loans, receivables or other assets. The value of the Fund’s ABS may be affected by, among other things, actual or perceived changes in interest rates, factors concerning the interests in and structure of the issuer or the originator of the receivables, the market’s assessment of the quality of underlying assets or actual or perceived changes in the credit worthiness of the individual borrowers, the originator, the servicing agent or the financial institution providing the credit support.
Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities. Rising or high interest rates tend to extend the duration of ABS, making them more volatile and more sensitive to changes in interest rates. The underlying assets are sometimes subject to prepayments which can shorten the security’s weighted average life and may lower its return. Defaults on loans underlying ABS have become an increasing risk for ABS that are secured by home equity loans related to sub-prime, Alt-A or non-conforming mortgage loans, especially in a declining residential real estate market.
ABS (other than MBS) present certain risks that are not presented by MBS. Primarily, these securities may not have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. ABS are often backed by a pool of assets representing the obligations of a number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection, and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantees, policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security. The availability of ABS may be affected by legislative or regulatory developments. It is possible that such developments may require the Fund to dispose of any then existing holdings of such securities.
Forward Commitments
The Core Bond Fund may contract to purchase securities for a fixed price at a future date beyond customary settlement time consistent with the Fund’s investment strategies. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Funds may dispose of a forward commitment transaction prior to settlement if it is appropriate to do so and may realize short-term gains (or losses) upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Funds in a dollar amount sufficient to make payment for the portfolio securities to be purchased will be earmarked on the Fund’s records at the trade date and until the transaction is settled. A forward commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction.
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A to be announced (“TBA”) security is a forward mortgage-backed securities trade which the Core Bond Fund may invest in. The securities are purchased and sold on a forward commitment basis with an approximate principal amount and maturity date. The actual principal amount and maturity date will be determined upon settlement when the specific mortgage pools are assigned.
Inflation-Indexed Bonds
The Core Bond Fund may invest in inflation-indexed securities, which are typically bonds or notes designed to provide a return higher than the rate of inflation (based on a designated index) if held to maturity. A common type of inflation-indexed security is a U.S. Treasury Inflation-Protected Security (“TIPS”). The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, the adjusted principal or original principal is paid, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so like the principal, interest payments rise with inflation and fall with deflation.
Guarantees
In the normal course of business, the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote.
Market, Credit and Counterparty Risk
In the normal course of business, the Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to a transaction to perform (credit risk). Similar to credit risk, the Funds may be exposed to counterparty risk or risk that an institution or other entity with which the Funds have unsettled or open transactions will default. The potential loss could exceed the value of the relevant assets recorded in the financial statements (the “Assets”). The Assets, which potentially expose the Funds to credit risk, consist principally of cash due from counterparties and investments. The extent of the Funds’ exposure to credit and counterparty risks with respect to the Assets approximates their carrying value as recorded in the Funds’ Statements of Assets and Liabilities.
Global economies and financial markets are becoming increasingly interconnected and political and economic conditions (including recent instability and volatility) and events (including natural disasters) in one country, region or financial market may adversely impact issuers in a different country, region or financial market. As a result, issuers of securities held by a Fund may experience significant declines in the value of their assets and even cease operations. Such conditions and/or events may not have the same impact on all types of securities and may expose a Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by a Fund. This could cause a Fund to underperform other types of investments.
3. | Investment Transactions |
Securities
During the period ended December 31, 2012, purchases and sales of investment securities (excluding U.S. Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
Purchases | Sales | |||||||
Multi-Style Equity Fund | $ | 405,024,370 | $ | 445,811,198 | ||||
Aggressive Equity Fund | 268,050,111 | 281,170,191 | ||||||
Non-U.S. Fund | 150,057,863 | 168,624,661 | ||||||
Core Bond Fund | 301,573,007 | 253,153,939 | ||||||
Global Real Estate Securities Fund | 319,396,440 | 306,650,130 |
Purchases and sales of U.S. Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
Purchases | Sales | |||||||
Core Bond Fund | $ | 749,736,001 | $ | 768,117,359 |
Securities Lending
The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of each Fund’s total assets. The Fund receives cash (U.S. currency), U.S. Government or U.S. Government Agency obligations as collateral against the loaned securities. As of December 31, 2012 to the extent that a loan was collateralized by cash, such
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collateral was invested by the securities lending agent, State Street Bank and Trust Company (“State Street”), in short-term instruments, pooled collateral vehicles that invest in short term instruments, money market mutual funds and other short-term investments that meet certain quality and diversification requirements. The collateral received is recorded on a lending Fund’s Statement of Assets and Liabilities along with the related obligation to return the collateral.
Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and the securities lending agent and is recorded as income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders’ fees, which are divided between the Fund and the securities lending agent and are recorded as securities lending income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of U.S. securities) or 105% (for loans of non-U.S. securities) of the fair value of the loaned securities at the inception of each loan. The fair value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund the next day. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be creditworthy by State Street.
Each Fund that participates in the securities lending program has cash collateral invested in the Russell U.S. Cash Collateral Fund, an unregistered fund advised by RIMCo. Prior to August 2012, the Funds that participated in securities lending had a portion of their cash collateral invested in the RIC Liquidating Trust, an unregistered fund managed by State Street. In August, 2012, the Funds redeemed out of the RIC Liquidating Trust and the proceeds of the redemption were invested in the Russell U.S. Cash Collateral Fund.
As of December 31, 2012, the non-cash collateral pledged for the securities on loan in the following funds was as follows:
Non-Cash Collateral Value | Non-Cash Collateral Holding | |||||||
Multi-Style Equity Fund | $ | 2,758,079 | Pool of U.S. Government Securities | |||||
Non-U.S. Fund | 1,758,631 | Pool of U.S. Government Securities |
Custodian
The Funds have entered into arrangements with their custodian whereby custody credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ expenses. During the period ended December 31, 2012, the Funds’ custodian fees were reduced by the following amounts under these arrangements which are included in expense reductions on the Statements of Operations:
Amount Paid | ||||
Multi-Style Equity Fund | $ | 12 | ||
Aggressive Equity Fund | 11 | |||
Non-U.S. Fund | 16 | |||
Core Bond Fund | 992 | |||
Global Real Estate Securities Fund | 10 |
Brokerage Commissions
The Funds effect certain transactions through Recapture Services, a division of BNY ConvergeEX Execution Solutions LLC (“BNY”) and its global network of correspondent brokers. BNY is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through BNY and its correspondents are used (i) to obtain brokerage and research services for RIMCo to assist RIMCo in its investment decision-making process in its capacity as advisor to the Funds or (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain brokerage and research services for RIMCo or to generate commission rebates to the Funds, the Funds’ money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through BNY and its correspondents or other brokers only to the extent that the money managers or RIMCo believe that the Funds will receive best execution. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through BNY based upon asset class, investment style and other factors. Brokerage and research services provided to RIMCo by BNY or other brokers include, but are not limited to (1) advice either directly or indirectly through publications or writings as to the advisability of investing in, purchasing or selling securities and the availability of securities or of purchasers or sellers of securities; (2) analysis and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts; and/or (3) services that are required in connection therewith. Research services will generally be obtained from unaffiliated third parties at market rates, which may be included in commission costs. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within RIF and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients.
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BNY may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through BNY and their correspondents in the form of commission recapture. Commission recapture is paid solely to those Funds generating the applicable trades. Commission recapture is generated on the instructions of the Soft Money Commission once RIMCo’s research budget has been met, as determined annually in the Soft Money Commission budgeting process.
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the adviser.
4. | Related Party Transactions, Fees and Expenses |
Adviser and Administrator
RIMCo is the Funds’ adviser and RFSC, a wholly-owned subsidiary of RIMCo, is the Funds’ administrator and transfer agent. RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides ongoing money manager research and trade placement services to RIF and RIMCo.
The Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses) in the Russell U.S. Cash Management Fund, an unregistered Fund advised by RIMCo. As of December 31, 2012, the Funds had invested $200,336,574 in the Russell U.S. Cash Management Fund. In addition, a portion of the collateral received from the Investment Company’s securities lending program in the amount of $27,813,942 is invested in the Russell U.S. Cash Collateral Fund, an unregistered fund advised by RIMCo.
The advisory and administrative fees specified in the table below are based upon the average daily net assets of each Fund and are payable monthly.
Annual Rate | ||||||||
Funds | Adviser | Administrator | ||||||
Multi-Style Equity Fund | 0.73 | % | up to 0.05 | % | ||||
Aggressive Equity Fund | 0.90 | up to 0.05 | ||||||
Non-U.S. Fund | 0.90 | up to 0.05 | ||||||
Core Bond Fund | 0.55 | up to 0.05 | ||||||
Global Real Estate Securities Fund | 0.80 | up to 0.05 |
The following shows the respective totals for advisory and administrative fees for the period ended December 31, 2012:
Advisory | Administrative | |||||||
Multi-Style Equity Fund | $ | 2,857,624 | $ | 195,518 | ||||
Aggressive Equity Fund | 1,665,114 | 92,409 | ||||||
Non-U.S. Fund | 3,070,044 | 170,380 | ||||||
Core Bond Fund | 3,379,395 | 306,881 | ||||||
Global Real Estate Securities Fund | 4,338,362 | 270,849 |
RIMCo has agreed to certain waivers of its advisory fees as follows:
For the Aggressive Equity Fund, RIMCo has contractually agreed, until April 30, 2013, to waive 0.05% of its 0.90% advisory fee. The waiver may not be terminated during the relevant period except with Board approval. The total amount of the waiver for the period ended December 31, 2012 was $98,835. There were no reimbursements during the period.
For the Non-U.S. Fund, RIMCo has contractually agreed, until April 30, 2013, to waive 0.05% of its 0.90% advisory fee. The waiver may not be terminated during the relevant period except with Board approval. The total amount of the waiver for the period ended December 31, 2012 was $182,318. There were no reimbursements during the period.
For the Core Bond Fund, RIMCo has contractually agreed, until April 30, 2013, to waive 0.05% of its 0.55% advisory fee. The waiver may not be terminated during the relevant period except with Board approval. The total amount of the waiver for the period ended December 31, 2012 was $344,735. There were no reimbursements during the period.
Transfer and Dividend Disbursing Agent
RFSC serves as transfer agent and provides dividend disbursing services to the Funds. For this service, RFSC is paid a fee based upon the average daily net assets of the Funds for transfer agency and dividend disbursing services. RFSC retains a
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portion of this fee for services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Transfer agency fees paid by the Funds presented herein for the period ended December 31, 2012 were as follows:
Amount | ||||
Multi-Style Equity Fund | $ | 17,224 | ||
Aggressive Equity Fund | 8,141 | |||
Non-U.S. Fund | 15,009 | |||
Core Bond Fund | 27,035 | |||
Global Real Estate Securities Fund | 23,861 |
Contributions from Adviser
Fund reimbursements presented in the Statements of Changes in Net Assets include payments by RIMCo to certain Funds made during the period ended December 31, 2011 to compensate for fund share transactions relating to the valuation of a portfolio holding, the SLQT, in which the Funds invested cash collateral received in securities lending transactions.
Distributor
Russell Financial Services, Inc. (the “Distributor”), a wholly-owned subsidiary of RIMCo, serves as distributor for RIF, pursuant to the distribution agreement with RIF. The Distributor receives no compensation from the Investment Company for its services.
Accrued Fees Payable to Affiliates
Accrued fees payable to affiliates for the period ended December 31, 2012 were as follows:
Multi-Style Equity Fund | Aggressive Equity Fund | Non-U.S. Fund | Core Bond Fund | Global Real Estate Securities Fund | ||||||||||||||||
Advisory fees | $ | 241,944 | $ | 132,089 | $ | 254,319 | $ | 283,291 | $ | 401,374 | ||||||||||
Administration fees | 16,362 | 7,673 | 14,780 | 27,993 | 24,788 | |||||||||||||||
Transfer agent fees | 1,456 | 683 | 1,308 | 2,463 | 2,175 | |||||||||||||||
Trustee fees | 2,517 | 1,184 | 2,243 | 3,610 | 3,138 | |||||||||||||||
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Affiliated Brokerage Commissions
The Funds effect certain transactions through Russell Implementation Services Inc. (“RIS”) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions or (ii) to execute portfolio securities transactions for each Fund’s assets that RIMCo determines not to allocate to money managers and for each Fund’s cash reserves.
Amounts retained by RIS for the period ended December 31, 2012 (unaudited) were as follows:
Fund Name | Amount | |||
Multi-Style Equity Fund | $ | 37,709 | ||
Aggressive Equity Fund | 69,751 | |||
Non-U.S. Fund | 74,473 | |||
Core Bond Fund | 40,535 |
The Funds are permitted to purchase or sell securities from or to certain related affiliated funds under specified conditions outlined in procedures adopted by the Board. The procedures have been designed to ensure that any purchase or sale of securities by the Funds from or to another fund or portfolio that are, or could be, considered an affiliate by virtue of having a common investment adviser (or affiliated investment advisers), common Trustees and/or common officers complies with Rule 17a-7 of the Act.
During the period ended December 31, 2012, the Funds have engaged in purchases and sales of securities pursuant to Rule 17a-7 of the Act. As defined by the procedures, each transaction is effected at the current market price.
136 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2012
Board of Trustees
The Russell Fund Complex consists of RIC, which has 40 Funds, RIF, which has 10 Funds and Russell Exchange Traded Funds Trust (“RET”) which has 1 Fund. Each of the Trustees is a Trustee of RIC, RIF and RET. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $75,000 per year, each of its interested Trustees a retainer of $65,000 per year and each Trustee $7,000 for each regularly scheduled meeting attended in person and $3,500 for each special meeting and the Annual 38a-1 meeting attended in person, and for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $1,000 fee for attending the regularly scheduled and special meetings by phone instead of receiving the full fee had the member attended in person (except for telephonic meetings called pursuant to the Funds’ valuation and pricing procedures) and a $500 fee for attending committee meeting by phone instead of receiving the full fee had the member attended in person. Trustees’ out-of-pocket expenses are also paid by the Russell Fund Complex. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $15,000 per year and the Nominating and Governance Committee Chair is paid a fee of $6,000 per year. The chairman of the Board receives additional annual compensation of $75,000 per year. Ms. Cavanaugh and the Trustee Emeritus are not compensated by the Russell Fund Complex for service as a Trustee.
5. | Federal Income Taxes |
At December 31, 2012, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryforwards and expiration dates are as follows:
Funds | 12/31/2016 | 12/31/2017 | No Expiration Short-Term | Totals | ||||||||||||
Multi-Style Equity Fund | $ | — | $ | 21,899,000 | $ | — | $ | 21,899,000 | ||||||||
Aggressive Equity Fund | — | 7,456,521 | — | 7,456,521 | ||||||||||||
Non-U.S. Fund | 40,148,152 | 51,040,031 | 626,708 | 91,814,891 | ||||||||||||
Global Real Estate Securities Fund | — | 10,749,012 | — | 10,749,012 |
Under the Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At December 31, 2012, the cost of investments and net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:
| Multi-Style Equity Fund | Aggressive Equity Fund | Non-U.S. Fund | Core Bond Fund | Global Real Estate Securities Fund | |||||||||||||||
Cost of Investments | $ | 348,476,809 | $ | 184,361,961 | $ | 320,183,875 | $ | 713,470,060 | $ | 507,834,330 | ||||||||||
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Unrealized Appreciation | $ | 48,217,026 | $ | 15,755,054 | $ | 56,938,032 | $ | 24,883,810 | $ | 106,529,938 | ||||||||||
Unrealized Depreciation | (5,380,603 | ) | (6,587,993 | ) | (12,776,284 | ) | (2,804,923 | ) | (3,630,419 | ) | ||||||||||
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Net Unrealized Appreciation (Depreciation) | $ | 42,836,423 | $ | 9,167,061 | $ | 44,161,748 | $ | 22,078,887 | $ | 102,899,519 | ||||||||||
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Undistributed Ordinary Income | $ | 1,725,542 | $ | 15,167 | $ | 4,453,843 | $ | 272,805 | $ | 9,080,257 | ||||||||||
Undistributed Long-Term Capital Gains (Capital Loss Carryforward) | $ | (21,899,000 | ) | $ | (7,456,521 | ) | $ | (91,814,891 | ) | $ | 1,731,495 | $ | (10,749,012 | ) | ||||||
Tax Composition of Distributions | ||||||||||||||||||||
Ordinary Income | $ | 4,388,392 | $ | 1,994,067 | $ | 6,050,634 | $ | 24,267,815 | $ | 27,834,134 | ||||||||||
Long-Term Capital Gains | $ | — | $ | — | $ | — | $ | 6,264,250 | $ | — |
Notes to Financial Statements | 137 |
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Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2012
As permitted by tax regulations, the Funds intend to defer a net realized capital loss incurred from November 1, 2012 to December 31, 2012, and treat it as arising in the fiscal year 2013. As of December 31, 2012, the Fund had realized a capital loss as follows:
Non-U.S. Fund | $ | 1,003,701 |
6. Interfund Lending Program
The Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Funds may borrow money from each other for temporary purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. A Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves and the portfolio manager determines it is in the best interest of the Fund. The Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating Fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the lending fund could result in reduced returns or additional borrowing costs. For the period ended December 31, 2012, the Funds presented herein did not borrow or loan through the interfund lending program.
7. Record Ownership
As of December 31, 2012, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund. The Northwestern Mutual Life Insurance Company accounts were the largest shareholder in each Fund.
# of Shareholders | % | |||||||
Multi-Style Equity Fund | 2 | 79.0 | ||||||
Aggressive Equity Fund | 2 | 78.9 | ||||||
Non-U.S. Fund | 2 | 74.7 | ||||||
Core Bond Fund | 3 | 84.6 | ||||||
Global Real Estate Securities Fund | 2 | 91.4 |
8. Restricted Securities
Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are not registered under the Securities Act of 1933, as amended (the “Act”). The most common types of restricted securities are those sold under Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act.
A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. This limitation is applied at the time of purchase. Illiquid securities are securities that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid.
See each Fund’s Schedule of Investments for a list of restricted securities held by a Fund that are illiquid.
9. Subsequent Events
Management has evaluated the events and/or transactions that have occurred through the date the financial statements were available to be issued and noted no items requiring adjustments of the financial statements or additional disclosures except the following:
In January 2013, the Funds’ securities lending agent changed from State Street to Brown Brothers Harriman & Co.
138 | Notes to Financial Statements |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of Russell Investment Funds
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Core Bond Fund, and Global Real Estate Securities Fund (five of the portfolios constituting Russell Investment Funds, hereafter collectively referred to as the “Funds”) at December 31, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the custodian, brokers and transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Seattle, WA
February 14, 2013
Report of Independent Registered Public Accounting Firm | 139 |
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Russell Investment Funds
Tax Information — December 31, 2012 (Unaudited)
For the tax year ended December 31, 2012, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2013 will show the tax status of all distributions paid to your account in calendar year 2012.
The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:
Multi-Style Equity | 100 | % | ||
Aggressive Equity | 100 | % | ||
Non-U.S. | 0 | % | ||
Global Real Estate Securities | 0 | % | ||
Core Bond | 0 | % |
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following amounts as long-term capital gain dividends for their taxable year ended December 31, 2012:
Core Bond | $ | 6,264,250 |
The Funds listed below paid foreign taxes and recognized foreign source income during the taxable year ended December 31, 2012. Pursuant to Section 853 of the Internal Revenue Code, the Funds designate the following per share amounts of foreign taxes paid and income earned from foreign sources:
Fund Name | Foreign Taxes Paid | Foreign Taxes Paid Per Share | Foreign Source Income | Foreign Source Income Per Share | ||||||||||||
Non-US | $ | 880,819 | $ | 0.0255 | $ | 9,838,954 | $ | 0.2844 | ||||||||
Global Real Estate Securities | 885,609 | 0.0224 | 10,563,974 | 0.2668 |
Please consult a tax adviser for any questions about federal or state income tax laws.
140 | Tax Information |
Table of Contents
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts — (Unaudited)
Approval of Investment Advisory Agreement
The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) at a meeting held in person on April 24, 2012 (the “Agreement Evaluation Meeting”). During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds’ shares, management of the Funds by RIMCo and compliance with applicable regulatory requirements. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds; and (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and their respective operating expenses over various periods of time with other peer funds not managed by RIMCo, believed by the provider to be generally comparable in investment objectives to the Funds. In the case of each Fund, its other peer funds are collectively hereinafter referred to as the Fund’s “Comparable Funds,” and, with the Fund, such Comparable Funds are collectively hereinafter referred to as the Fund’s “Performance Universe” in the case of performance comparisons and the Fund’s “Expense Universe” in the case of operating expense comparisons. In the case of certain Funds, the Third-Party Information reflected changes in the Comparable Funds requested by RIMCo, which changes were noted in the Third-Party Information. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Evaluation Information.” The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Funds and other funds in the same complex with respect to services provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a memorandum from counsel to the Funds discussing the legal standards for their consideration of the continuations of the RIMCo Agreement and the portfolio management contracts, and the Independent Trustees separately received a memorandum regarding their responsibilities from their independent counsel.
On April 16, 2012, the Independent Trustees in preparation for the Agreement Evaluation Meeting met by conference telephone call to review the Agreement Evaluation Information received to that date in a private session with their independent counsel at which no representatives of RIMCo or the Funds’ management were present and, on the basis of that review, requested additional Agreement Evaluation Information. The Independent Trustees also met in person on April 23, 2012, in executive session with their independent counsel, to review additional Agreement Evaluation Information received to that date. At the Agreement Evaluation Meeting, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management, counsel to the Funds and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board at the Agreement Evaluation Meeting as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Prior to voting at the Agreement Evaluation Meeting, the Independent Trustees again met in executive session with their independent counsel to consider additional Agreement Evaluation Information received from RIMCo and management at the Agreement Evaluation Meeting. The discussion below reflects all of these reviews.
In evaluating the portfolio management contracts, the Board considered RIMCo’s advice that the Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which, in turn, employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser’s style and investment philosophy. RIMCo has engaged multiple unaffiliated Money Managers for all Funds.
The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo managed directly a portion of one Fund’s assets employing a “select holdings strategy,” as described below, during 2011 and a portion of 2012, and generally directly manages the investment of each Fund’s cash. RIMCo also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of a Fund during transitions between Money Managers. RIMCo may also manage a Fund’s assets to manage risk in the Fund’s investment portfolio. In all cases, assets are managed directly by RIMCo pursuant to authority provided by the RIMCo Agreement.
RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations and reallocations of assets among the Money Managers. The Board has been advised that RIMCo’s goal is to construct and manage diversified portfolios in a risk-aware manner. Each Money Manager for a Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Fund assigned to it by RIMCo (each, a “segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in a Fund. RIMCo is responsible for
Basis for Approval of Investment Advisory Contracts | 141 |
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Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Fund’s investment objective and policies; authorizing Money Managers to engage in certain investment strategies for a Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, RIMCo is responsible for recommending to the Board additions of new Money Managers or replacements of existing Money Managers at any time when, based on RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may impose specific investment constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for the Fund in a complementary manner. Therefore, RIMCo’s selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Fund. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Fund’s investment program, structuring the Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment that is complementary to the styles of the Money Managers of other Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Fund.
The Board considered that the prospectuses for the Funds and other public disclosures emphasize to investors RIMCo’s role as the principal investment manager for each Fund, rather than the investment advisory or security selection role of the Funds’ Money Managers, and describe the manner in which the Funds operate so that investors may take that information into account when deciding to purchase shares of any such Fund. The Board further considered that Fund investors in pursuing their investment goals and objectives likely purchased their shares on the basis of this information and RIMCo’s reputation for and performance record in managing the Funds’ manager-of-managers structure.
The Board also considered the demands and complexity of managing the Funds pursuant to the manager-of-managers structure, the special expertise of RIMCo with respect to the manager-of-managers structure of the Funds and the likelihood that, at the current expense ratio of each Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of such Fund selected by shareholders in purchasing their shares.
In addition to these general factors relating to the manager-of-managers structure of the Funds, the Trustees considered, with respect to each Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including the following:
1. | The nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Fund by RIMCo; |
2. | The advisory fee paid by the Fund to RIMCo (the “Advisory Fee”) and the fact that it encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund; |
3. | Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund, including any administrative, transfer agent or cash management fees and any fees received for management of securities lending cash collateral, soft dollar arrangements and commissions in connection with portfolio securities transactions; |
4. | Information provided by RIMCo as to expenses incurred by the Fund; and |
5. | Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund. |
In evaluating the nature, scope and overall quality of the investment management and other services provided, and which are expected to be provided, to the Funds, including Fund portfolio management services, the Board discussed with senior representatives of RIMCo the impact on the Funds’ operations of significant changes in RIMCo’s senior management and other personnel providing investment advisory and other services to the Funds since 2011 to the date of the Agreement Evaluation Meeting. At the Agreement Evaluation Meeting, RIMCo assured the Board that such changes have not resulted and are not expected to result in any diminution in the nature, scope or quality of the investment advisory or other services provided to the Funds. The Board also discussed the impact of organizational changes on the compliance programs of the Funds and RIMCo with the Funds’ Chief Compliance Officer (the “CCO”) and received assurances from the CCO that such changes have not resulted in any diminution in the scope and quality of the Funds’ compliance programs.
As noted above, RIMCo, pursuant to the terms of the RIMCo Agreement, directly managed a portion — up to 10% — of the assets of the RIF Multi-Style Equity Fund (the “Participating Fund”) utilizing a select holdings strategy (the “select holdings strategy”) during 2011 and a portion of 2012, the actual allocation being determined by the Participating Fund’s RIMCo portfolio manager. The Board considered that the select holdings strategy utilized by RIMCo in managing such assets for the Participating Fund was designed to increase the Participating Fund’s exposure to stocks that were viewed as attractive by multiple Money Managers of the Participating Fund. The select holdings strategy was discontinued during 2012 with respect to the Participating Fund. The Board also considered
142 | Basis for Approval of Investment Advisory Contracts |
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Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
the impact of the select holdings strategy upon the investment results of the Participating Fund. The Board considered that during the periods that the select holdings strategy was utilized, RIMCo was not required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy was employed and that the profits derived by RIMCo generally, and from the Participating Fund consequently, may have increased incrementally. The Board, however, also considered RIMCo’s advice that it paid certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and incurred additional costs in carrying out the select holdings strategy; the limited amount of assets that were managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment Advisory Fees paid by the Participating Fund were not increased as a result of the select holdings strategy.
In evaluating the reasonableness of the Funds’ Advisory Fees in light of Fund performance, the Board considered that, in the Agreement Evaluation Information and at past meetings, RIMCo noted differences between the investment strategies of certain Funds and their respective Comparable Funds in pursuing their investment objectives, including fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than their Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Funds during the periods covered by the Third-Party Information did result, in lower performance than that of some of their Comparable Funds. According to RIMCo, the strategies pursued by the Funds, among other things, are intended to result in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time.
With respect to the Funds’ Advisory Fees, the Third-Party Information showed that, on a contractual basis, the Advisory Fee for each of the RIF Aggressive Equity Fund, RIF Global Real Estate Securities Fund and RIF Core Bond Fund was ranked in the fourth quintile of its Expense Universe and the Advisory Fee for each of the RIF Multi-Style Equity Fund and RIF Non-U.S. Fund was ranked in the fifth quintile of its Expense Universe. On an actual basis (i.e., giving effect to any voluntary fee waivers implemented by RIMCo and the advisers to such Fund’s Comparable Funds), the Advisory Fee for the RIF Core Bond Fund was ranked in the third quintile of its Expense Universe but the actual Advisory Fee for each of the other Funds was ranked in the fourth quintile of its Expense Universe. In these rankings, the first quintile represents funds with the lowest investment advisory fees among funds in the Expense Universe and the fifth quintile represents funds with the highest investment advisory fees among the Expense Universe funds. The comparison was based upon the latest fiscal years for the Expense Universe funds. In assessing the Funds’ Advisory Fees, the Board focused on actual rather than contractual Advisory Fees. The Board considered RIMCo’s explanation of the reasons for these Funds’ actual Advisory Fee rankings and its belief that the Funds’ Advisory Fees are fair and reasonable notwithstanding such comparisons. The Board determined that it would continue to monitor those fees against the Funds’ Comparable Funds’ advisory fees.
In discussing the Funds’ Advisory Fees generally, RIMCo noted, among other things, that its Advisory Fees for the Funds encompass services that may not be provided by investment advisers to the Funds’ Comparable Funds, such as cash equitization and management of portfolio transition costs when Money Managers are added, terminated or replaced. RIMCo also observed that its “margins” in providing investment advisory services to the Funds tend to be lower than competitors’ margins because of the demands and complexities of managing the Funds’ manager-of-managers structure, including RIMCo’s payment of a significant portion of the Funds’ Advisory Fees to their Money Managers. RIMCo expressed the view that Advisory Fees should be considered in the context of a Fund’s total expense ratio to obtain a complete picture. The Board, however, considered each Fund’s Advisory Fee on both a standalone basis and in the context of the Fund’s total expense ratio.
The Board considered for each Fund whether economies of scale have been realized and whether the Advisory Fee for such Fund appropriately reflects or should be revised to reflect any such economies. The Board determined that, after giving effect to any applicable fee or expense caps, waivers or reimbursements, the Advisory Fee for each Fund appropriately reflected any economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Funds.
The Board considered, as a general matter, that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and other RIF funds under the Board’s supervision are lower, and, in some cases, may be substantially lower, than the rates paid by RIF funds supervised by the Board, including the Funds. The Trustees considered the differences in the nature and scope of services RIMCo provides to institutional clients and the Funds. RIMCo also noted that since the Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. In addition, RIMCo noted that the Funds are subject to heightened regulatory requirements relative to institutional clients. The Board noted that RIMCo provides office space and facilities to the Funds and all of the Funds’ officers. Accordingly, the Trustees concluded that the services provided to the Funds are sufficiently different from the services provided to the other clients that comparisons are not probative and should not be given significant weight.
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Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
In evaluating the Funds’ Advisory Fees, the Board noted that the total expenses for each of the RIF Aggressive Equity Fund, RIF Non-US Fund and RIF Global Real Estate Securities Fund were ranked in the second quintile of the Fund’s Expense Universe and that the total expenses for the RIF Multi-Style Equity Fund were ranked in the third quintile of its Expense Universe. In these rankings, the first quintile represents the funds with the lowest total expenses among funds in the Expense Universe and the fifth quintile represents funds with the highest total expenses among the Expense Universe funds.
On the basis of the Agreement Evaluation Information, and other information previously received by the Board from RIMCo during the course of the current year or prior years, or presented at or in connection with the Agreement Evaluation Meeting by RIMCo, the Board, in respect of each Fund, found, after giving effect to any applicable waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds (1) the Advisory Fee charged by RIMCo was reasonable in light of the nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Funds; (2) the relative expense ratio of the Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; (4) other benefits and fees received by RIMCo or its affiliates from the Funds were not excessive; and (5) RIMCo’s profitability with respect to the Fund was not excessive in light of the nature, scope and overall quality of the investment management and other services provided by RIMCo.
The Board concluded that, under the circumstances, the performance of each of the Funds was consistent with continuation of the RIMCo Agreement. The Board, in assessing the Funds’ performance, focused upon each Fund’s performance for the 3-year period ended December 31, 2011 as most relevant but also considered the Funds’ performance for the 1- and 5-year periods ended such date.
In evaluating the performance of the Funds generally relative to their Comparable Funds, the Board, in addition to the factors described above, also considered RIMCo’s advice that many of the Funds’ Comparable Funds do not “equitize” their cash (i.e., cash awaiting investment or disbursement to satisfy redemptions or other fund obligations) and may hold large cash positions uninvested in their investment portfolios. By contrast, the Funds generally follow a strategy of equitizing their cash and fully investing their assets in pursuit of their investment objectives (the Funds’ strategy of equitizing cash and fully investing their assets is hereinafter referred to as their “full investment strategy”). In support of the Funds’ full investment strategy, RIMCo in the past has noted that investors manage their own cash positions based upon their personal investment goals, strategies and risk tolerances and generally expect Fund assets to be fully invested. RIMCo noted that the Funds’ full investment strategy generally will detract from relative performance in a declining market but may enhance the Funds’ relative performance in a rising market.
With respect to the RIF Global Real Estate Securities Fund, the Third-Party Information showed that the Fund’s performance was ranked in the fifth quintile of its Performance Universe for the 1-year period ended December 31, 2011 and that its performance was ranked in the fourth quintile of its Performance Universe for each of the 3- and 5-year periods ended such date. In these rankings, the first quintile represents funds with the best performance among funds in the Performance Universe and the fifth quintile represents funds with the poorest performance among the Performance Universe funds. RIMCo noted that the Fund changed its investment strategy from a U.S. focused strategy to a global strategy on October 1, 2010 and that the Fund’s underperformance relative to its Comparable Funds largely occurred after that change. RIMCo noted further that the Fund’s Comparable Funds primarily included U.S. real estate-focused funds while the Fund now pursues a global strategy. U.S. real estate securities significantly outperformed international property stocks in 2011. Moreover, 2010 and 2011 saw historically large dispersions in the performance of individual regions within the global real estate securities universe.
In evaluating performance, the Board considered each Fund’s absolute performance and performance relative to appropriate benchmarks and indices in addition to such Fund’s performance relative to its Comparable Funds. In assessing the Funds’ performance relative to their Comparable Funds or benchmarks or in absolute terms, the Board also considered RIMCo’s stated investment strategy of managing the Funds in a risk-aware manner and the periodically volatile capital market conditions since 2008 that continue to impact the Funds’ relative performance for the 3- and, where applicable, 5-year periods ended December 31, 2011. The Board also considered that a number of Money Manager changes were made in 2010 and 2011 and that the performance of Money Managers continues to impact Fund performance for periods prior and subsequent to their termination.
After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of each Fund and its respective shareholders and voted to approve the continuation of the RIMCo Agreement.
At the Agreement Evaluation Meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from RIMCo reporting, among other things, for each Money Manager, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Funds’ underwriter; and
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Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
RIMCo’s recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. The Board received reports during the course of the year from the Funds’ CCO regarding each Money Manager’s compliance program. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the Advisory Fee paid by each Fund and the fact that each Money Manager’s fee is paid by RIMCo.
Based substantially upon RIMCo’s recommendations, together with the Agreement Evaluation Information and other information received from RIMCo in support of its recommendations at the Agreement Evaluation Meeting, the Board concluded that the fees paid to the Money Managers of each Fund are reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management contract with each Money Manager of each Fund would be in the best interests of the Fund and its shareholders.
In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s recommendation, the portfolio management contract with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund.
Prior to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received a proposal from RIMCo at a meeting held on February 28, 2012, to effect a money manager change for the Aggressive Equity Fund. In the case of the proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 19, 2011 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
Subsequent to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2012, to effect a money manager change for the Non-U.S. Fund and the Core Bond Fund; (2) at a meeting held on August 28, 2012, to effect a money manager change for the Aggressive Equity Fund and Multi-Style Equity Fund; and (3) at a meeting held on December 4, 2012, to effect a money manager change for the Core Bond Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2012 Agreement Evaluation Meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
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Russell Investment Funds
Shareholder Requests for Additional Information — December 31, 2012 (Unaudited)
A complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters each year. These reports are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) on the Securities and Exchange Commission’s website at www.sec.gov, and (iii) at the Securities and Exchange Commission’s public reference room.
The Board has delegated to RIMCo, as RIF’s investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. RIMCo has established a proxy voting committee and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Trustees are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI and information regarding how the Funds voted proxies relating to portfolio securities during the most recent 12 month period ended June 30, 2012 are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, and (ii) on the Securities and Exchange Commission’s website at www.sec.gov.
If possible, depending on contract owner registration and address information, and unless you have otherwise opted out, only one copy of the RIF prospectus and each annual and semi-annual report will be sent to contract owners at the same address. If you would like to receive a separate copy of these documents, please contact your Insurance Company. If you currently receive multiple copies of the prospectus, annual report and semi-annual report and would like to request to receive a single copy of these documents in the future, please call your insurance company.
Some insurance companies may offer electronic delivery of the Funds’ prospectus and annual and semi-annual reports. Please contact your insurance company for further details.
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Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers — December 31, 2012 (Unaudited)
The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex consists of Russell Investment Company (“RIC”), which has 40 funds, Russell Investment Funds (“RIF”), which has 10 funds and Russell Exchange Traded Funds Trust (“RET”), which has 1 fund. Each of the trustees is a trustee of RIC, RIF and RET. The first table provides information for the interested trustees. The second table provides information for the independent trustees. The third table provides information for the trustee emeritus. The fourth table provides information for the officers. Furthermore, each Trustee possesses the following specific attributes: Mr. Alston has business, financial and investment experience as a senior executive of an international real estate firm and is trained as a lawyer; Ms. Blake has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Ms. Burgermeister has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Mr. Connealy has had experience with other investment companies and their investment advisers first as a partner in the investment management practice of PricewaterhouseCoopers LLP and, subsequently, as the senior financial executive of two other investment organizations sponsoring and managing investment companies; Mr. Fine has had financial, business and investment experience as a senior executive of a non-profit organization and previously, as a senior executive of a large regional financial services organization with management responsibility for such activities as investments, asset management and securities brokerage; Mr. Tennison has had business, financial and investment experience as a senior executive of a corporation with international activities and was trained as an accountant; Mr. Thompson has had experience in business, governance, investment and financial reporting matters as a senior executive of an organization sponsoring and managing other investment companies, and, subsequently, has served as a board member of other investment companies, and has been determined by the Board to be an audit committee financial expert; and Ms. Weston has had experience as a tax and corporate lawyer, has served as general counsel of several corporations and has served as a director of another investment company. Ms. Cavanaugh has had experience with other financial services companies, including companies engaged in the sponsorship, management and distribution of investment companies. As a senior officer of the Funds, the Adviser and various affiliates of the Adviser providing services to the Funds, Ms. Cavanaugh is in a position to provide the Board with such parties’ perspectives on the management, operations and distribution of the Funds.
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES | ||||||||||||
# Sandra Cavanaugh, Born May 10, 1954
1301 Second Avenue, 18th Floor Seattle, WA 98101 | President and Chief Executive Officer since 2010
Trustee since 2010 | Until successor is chosen and qualified by Trustees
Appointed until successor is duly elected and qualified | •President and CEO RIC, RIF and RET •Chairman of the Board, President and CEO, Russell Financial Services, Inc. •Chairman of the Board, President and CEO, Russell Fund Services Company (“RFSC”) •Director, RIMCo •Chairman of the Board and President, Russell Insurance Agency, Inc. (“RIA”) (insurance agency) •May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank •2007 to January 2009, Senior Vice President, National Sales — Retail Distribution, JPMorgan Chase/ Washington Mutual, Inc. (investment company) •1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services (investment company) | 51 | None |
# | Ms. Cavanaugh is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee. |
* | Each Trustee is subject to mandatory retirement at age 72. |
Disclosure of Information about Fund Trustees and Officers | 147 |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES (continued) | ||||||||||||
##Daniel P.Connealy, Born June 6, 1946
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2003 | Appointed until successor is duly elected and qualified | • June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc. (investment company) • Chairman of the Audit Committee, RIF and RIF from 2005 to 2011. | 51 | None | |||||||
###Jonathan Fine,
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2004 | Appointed until successor is duly elected and qualified | • President and Chief Executive Officer, United Way of King County, WA (charitable organization) | 51 | None | |||||||
INDEPENDENT TRUSTEES | ||||||||||||
Thaddas L. Alston, Born April 7, 1945
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2006 Chairman of the Investment Committee since 2010 | Appointed until successor is duly elected and qualified
Appointed until successor is duly elected and qualified | • Senior Vice President, Larco Investments, Ltd. (real estate firm) | 51 | None | |||||||
Kristianne Blake, Born January 22, 1954
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2000
Chairman since 2005 | Appointed until successor is duly elected and qualified
Annual | • Director and Chairman of the Audit Committee, Avista Corp. (electric utilities) • Trustee and Chairman of the Operations Committee, Principal Investors Funds and Principal Variable Contracts Funds (investment company) • Regent, University of Washington • President, Kristianne Gates Blake, P.S. (accounting services) | 51 | • Director, Avista Corp (electric utilities); • Trustee, Principal Investors Funds (investment company); • Trustee, Principal Variable Contracts Funds (investment company) |
## | Mr. Connealy is an officer of a broker-dealer that distributes shares of the Funds and is therefore an interested Trustee. |
### | Mr. Fine is classified as an Interested Trustee due to Ms. Cavanaugh’s service on the Board of Directors of the United Way of King County, WA (“UWKC”) and in light of charitable contributions made by Russell Investments to UWKC. |
* | Each Trustee is subject to mandatory retirement at age 72. |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INDEPENDENT TRUSTEES (continued) | ||||||||||||
Cheryl Burgermeister Born June 26, 1951
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2012 | Appointed until successor is duly elected and qualified. | •Retired •Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) •Trustee and Finance Committee Member/Chairman, Portland Community College (charitable organization) | 51 | •Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) | |||||||
Raymond P. Tennison, Jr., Born December 21, 1955
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2000
Chairman of the Nominating and Governance Committee since 2007 | Appointed until successor is duly elected and qualified.
Appointed until successor is duly elected and qualified | •Vice Chairman of the Board, Simpson Investment Company (paper and forest products) •Until November 2010, President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company | 51 | None | |||||||
Jack R. Thompson, Born March 21, 1949
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2005 Chairman of the Audit Committee, since 2012 | Appointed until successor is duly elected and qualified.
Appointed until successor is duly elected and qualified | •September 2003 to September 2009, Independent Board Chair and Chairman of the Audit Committee, Sparx Asia Funds (investment company) •September 2007 to September 2010 Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation (health products company) | 51 | •Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation until September 2010 (health products company) •Director, Sparx Asia Funds until 2009 (investment company) | |||||||
Julie W. Weston, Born October 2, 1943
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2002 | Appointed until successor is duly elected and qualified | •Retired •Chairperson of the Investment Committee until December 2009 | 51 | None |
* | Each Trustee is subject to mandatory retirement at age 72. |
Disclosure of Information about Fund Trustees and Officers | 149 |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
TRUSTEE EMERITUS | ||||||||||||
**George F. Russell, Jr., Born July 3, 1932
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee Emeritus and Chairman Emeritus since 1999 | Until resignation or removal | • Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo • Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”)) • Chairman, Sunshine Management Services, LLC (investment adviser) | 51 | None |
** | Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. |
150 | Disclosure of Information about Fund Trustees and Officers |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | |||
OFFICERS | ||||||
Cheryl Wichers, Born December 16, 1966
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Chief Compliance Officer since 2005 | Until removed by Independent Trustees | • Chief Compliance Officer, RIC, RIF and RET • Chief Compliance Officer, RFSC • 2005-2011 Chief Compliance Officer, RIMCo | |||
Sandra Cavanaugh, Born May 10, 1954
1301 Second Avenue, 18th Floor Seattle, WA 98101 | President and Chief Executive Officer since 2010 | Until successor is chosen and qualified by Trustees | • CEO, U.S. Private Client Services, Russell Investments • President and CEO, RIC, RIF and RET • Chairman of the Board, Co-President and CEO, RFS • Chairman of the Board, President and CEO, RFSC • Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”)) • May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank • 2007 to January 2009, Senior Vice President, National Sales — Retail Distribution, JPMorgan Chase/Washington Mutual, Inc. • 1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services | |||
Mark E. Swanson, Born November 26, 1963
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Treasurer and Chief Accounting Officer since 1998 | Until successor is chosen and qualified by Trustees | • Treasurer, Chief Accounting Officer and CFO, RIC, RIF and RET • Director, Funds Administration, RIMCo, RFSC, Russell Trust Company (“RTC”) and RFS | |||
Peter Gunning, Born February 22, 1967
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Chief Investment Officer since 2008 | Until removed by Trustees | • Global Chief Investment Officer, Russell Investments • Chief Investment Officer, RIC and RIF • Director, FRC • Chairman of the Board, President and CEO, RIMCo • 1996 to 2008 Chief Investment Officer, Russell, Asia Pacific | |||
Mary Beth Rhoden, Born April 25, 1969
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Secretary since 2010 | Until successor is chosen and qualified by Trustees | • Associate General Counsel, FRC • Secretary, RIMCo, RFSC and RFS • Secretary and Chief Legal Officer, RIC, RIF and RET • 1999 to 2010 Assistant Secretary, RIC and RIF |
Disclosure of Information about Fund Trustees and Officers | 151 |
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Russell Investment Funds
1301 Second Avenue, Seattle, Washington 98101
(800) 787-7354
Interested Trustees
Sandra Cavanaugh
Daniel P. Connealy
Jonathan Fine
Independent Trustees
Thaddas L. Alston
Kristianne Blake
Cheryl Burgermeister
Raymond P. Tennison, Jr.
Jack R. Thompson
Julie W. Weston
Trustee Emeritus
George F. Russell, Jr.
Officers
Sandra Cavanaugh, President and Chief Executive Officer
Cheryl Wichers, Chief Compliance Officer
Peter Gunning, Chief Investment Officer
Mark E. Swanson, Treasurer and Chief Accounting Officer
Mary Beth Rhoden, Secretary
Adviser
Russell Investment Management Company
1301 Second Avenue
Seattle, WA 98101
Administrator and Transfer and Dividend Disbursing Agent
Russell Fund Services Company
1301 Second Avenue
Seattle, WA 98101
Custodian
State Street Bank and Trust Company
1200 Crown Colony Drive
Crown Colony Office Park
Quincy, MA 02169
Office of Shareholder Inquiries
1301 Second Avenue
Seattle, WA 98101
(800) 787-7354
Legal Counsel
Dechert LLP
200 Clarendon Street, 27th Floor
Boston, MA 02116-5021
Distributor
Russell Financial Services, Inc.
1301 Second Avenue
Seattle, WA 98101
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLC
1420 5th Avenue, Suite 1900
Seattle, WA 98101
Money Managers as of December 31, 2012
Multi-Style Equity Fund
Columbus Circle Investors, Stamford, CT
DePrince, Race & Zollo, Inc., Winter Park, FL
Institutional Capital LLC, Chicago, IL
Jacobs Levy Equity Management Inc, Florham Park, NJ
Mar Vista Investment Partners, LLC, Los Angeles, CA
Suffolk Capital Management LLC, New York, NY
Sustainable Growth Advisers, LP, Stamford, CT
Aggressive Equity Fund
Conestoga Capital Advisors, LLC, Radnor, PA
DePrince, Race & Zollo, Inc., Winter Park, FL
Jacobs Levy Equity Management Inc, Florham Park, NJ
Ranger Investment Management, L.P., Dallas, TX
RBC Global Asset Management (U.S.) Inc., Minneapolis, MN
Signia Capital Management LLC, Spokane, WA
Non-U.S. Fund
Barrow, Hanley, Mewhinney & Strauss, LLC, Dallas, TX
MFS Institutional Advisors Inc., Boston, MA
Pzena Investment Management LLC, New York, NY
William Blair & Company L.L.C., Chicago, IL
Core Bond Fund
Colchester Global Investors Ltd, London, England
Logan Circle Partners, L.P., Philadelphia, PA
Macro Currency Group — an investment group within Principal Global Investors, LLC, Des Moines, IA*
Metropolitan West Asset Management LLC, Los Angeles, CA
Pacific Investment Management Company LLC, Newport Beach, CA
Global Real Estate Securities Fund
AEW Capital Management LP, Boston, MA
Cohen & Steers Capital Management, Inc., New York, NY
INVESCO Advisers, Inc. which acts as a money manager to the Fund through its INVESCO Real Estate Division, Dallas, TX
* | 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. |
This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Russell Investment Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information.
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Russell Investment Funds | 1301 Second Avenue | 800-787-7354 | ||
Seattle, Washington 98101 | Fax: 206-505-3495 | |||
www.russell.com |
36-08-023
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2012 ANNUAL REPORT
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
DECEMBER 31, 2012
FUND
Moderate Strategy Fund
Balanced Strategy Fund
Growth Strategy Fund
Equity Growth Strategy Fund
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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 four of these Funds.
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Russell Investment Funds
LifePoints® Funds
Variable Target Portfolio Series
Annual Report
December 31, 2012
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Russell Investment Funds - LifePoints® Funds Variable Target Portfolio Series.
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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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,
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 (Unaudited)
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%.
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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.
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Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Moderate Strategy Fund | ||||||
Total Return | ||||||
1 Year | 11.07 | % | ||||
5 Years | 4.18 | %§ | ||||
Inception* | 4.31 | %§ |
Barclays U.S. Aggregate Bond Index ** | ||||||
Total Return | ||||||
1 Year | 4.21 | % | ||||
5 Years | 5.95 | %§ | ||||
Inception* | 6.10 | %§ |
Russell 1000® Index *** | ||||||
Total Return | ||||||
1 Year | 16.42 | % | ||||
5 Years | 1.92 | %§ | ||||
Inception* | 1.74 | %§ |
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Moderate Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Moderate Strategy Fund (the “Fund”) is a fund of funds that invests in other Russell Investment Funds and Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets to multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ 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 in an Underlying Fund at any time, subject to approval by the Underlying Fund’s Board, without a shareholder vote.
What is the Fund’s investment objective?
The Fund seeks to provide high current income and moderate long term 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 Moderate Strategy Fund gained 11.07%. This is compared to the Fund’s primary 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® Mixed Asset Target Allocation Moderate Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 11.49%. This result serves as a peer comparison and is expressed net of operating expenses.
The Fund’s outperformance relative to the Barclays U.S. Aggregate Bond Index was due to the Fund’s out-of-benchmark allocation to equities, global real estate securities and opportunistic credit, which outperformed fixed income securities over the period.
How did the market conditions described in the Market Summary report affect the Fund’s performance?
The overall positive market environment for U.S. equities through the fiscal year ended December 31, 2012 provided a tailwind for the Fund’s out of benchmark allocation to U.S. large cap equities, which contributed to positive returns over the fiscal year.
In the U.S., the equity market was dominated by macroeconomic drivers. In the first quarter of 2012, the Russell 1000® Index returned 12.90% primarily driven by positive U.S. gross domestic product growth and an encouraging drop in the headline unemployment rate. Following a strong first quarter, U.S. equities pulled back on gains, again driven by the macro environment in the second quarter. Heightened concerns over Greece’s potential exit from the Eurozone and growing concerns over the Spanish banking system spilled into U.S. market sentiment, pushing the Russell 1000® Index down 6.15%.
Continuing the macro driven themes, U.S. markets rallied in the third quarter off the European Central Bank’s (“ECB”) commitment to purchasing sovereign debt followed by the Federal Reserve’s (the “Fed”) announcement of unlimited purchases of mortgage-backed securities (often described as the third round of “quantitative easing”). These moves alleviated stresses from financial marks and reduced the likelihood of highly negative returns or “tail risk” in global equity markets. During the fourth quarter, despite immediate volatility in the U.S. equity markets following the presidential election in November, investors shifted their focus to the “fiscal cliff” combination of increased taxes and federal spending cuts looming on January 1, 2013. Despite the uncertainty, equity markets continued positive trends in anticipation of a deal to avoid the fiscal cliff. U.S equities (represented by the Russell 1000® Index) went on to finish the fiscal year ending December 31, 2012 up 16.42%, positively impacting the Fund’s allocation to dedicated U.S. large cap equity funds.
The combination of quantitative easing in the U.S., supporting actions by the ECB to support its member countries through unlimited asset purchases, resulted in a positive environment for global equities. In addition, improving economic conditions in China late in the year coupled with the stimulatory environment in developed markets drove emerging markets higher for the fiscal year. The Russell Developed ex-U.S. Index ended the year up 16.73% while the Russell Emerging Markets Index finished up 18.78% for the year. Thus, the Fund’s exposure to non-U.S. equity markets through its allocation to dedicated non-U.S. equity funds positively impacted performance against its pure fixed income benchmark.
Macro driven sentiment was also evident in the real estate space. Global REITs (represented by the FTSE/EPRA NAREIT Developed Index) finished the fiscal year up a strong 27.73% and outperformed fixed income markets, which benefited the Fund’s allocation to the RIF Real Estate Securities Fund.
In contrast, an allocation to the RIC Russell Commodity Strategies Fund negatively impacted Fund performance. A volatile environment for commodities created a tough year for this Underlying Fund, as commodities returned -1.06% for the fiscal year (as represented by the Dow Jones UBS Commodity Index Total Return) and largely underperformed broader equity and fixed income markets.
In fixed income, a “risk-on” theme drove performance in the market, as investors holding corporate bonds and non-agency mortgage backed securities generally fared well through the year relative to U.S. Treasuries. Overall, the Fund’s primary benchmark, the Barclays U.S. Aggregate Bond Index, gained 4.21% for the year but lagged riskier assets such as U.S. equities.
Moderate Strategy Fund | 13 |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
How did the investment strategies and techniques employed by the Fund and the money managers of the Underlying Funds affect the Fund’s performance?
The Fund is a fund of funds and its performance is based on RIMCo’s strategic asset allocations and the performance of the Underlying Funds in which the Fund invests.
The Fund’s strategic allocation to fixed income Underlying Funds was beneficial, as the fixed income Underlying Funds outperformed the Fund’s benchmark primarily due to their out of benchmark fixed income exposures. In particular, the RIF Core Bond Fund’s outperformance was driven by exposure to 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.
The Fund’s strategic allocation to the RIF Non-U.S. Fund, RIC Russell Emerging Markets Fund, and RIC Russell Global Equity Funds benefited the Fund’s benchmark relative performance, as each outperformed the Fund’s benchmark. From an active management standpoint, performance of these Underlying Funds was mixed. The RIF Non-U.S. Fund outperformed the broad non-U.S. equity market as represented by the Russell Developed ex-U.S. Large Cap™ Index Net, while the RIC Russell Global Equity Fund underperformed the broad global equity market as represented by the Russell Developed Large Cap Net Index. For the RIF Non-U.S. Fund, positioning in companies that exhibited slightly higher growth characteristics than the market 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 was positive, especially within information technology companies in emerging markets. For the RIC Russell Global Equity Fund stock selection among U.S. mining stocks and emerging market securities, and an underweight to the strong performing financials sector detracted from performance. The RIC Russell Emerging Markets Fund slightly outperformed emerging markets as represented by the Russell Emerging Markets® Net Index, driven by positive stock selection in Asian countries such as South Korea, China, and Thailand. An underweight to India also added value.
The Fund’s strategic allocation to U.S. equity Underlying Funds benefited the Fund’s benchmark relative performance, as U.S. equities performed particularly well against core fixed income for the period. However, each of the U.S. equity Underlying Funds underperformed its respective U.S. equity market segment as represented by its primary benchmark. In particular, the RIF Multi-Style Equity Fund underperformed the Russell 1000® Index for the year, driven by a difficult second quarter as the fund was positioned for economic growth in a market environment that became risk averse. Positions in stocks with above-market growth rates and underweights in stocks with high dividend yield detracted from performance.
The RIC Russell U.S. Defensive Equity Fund’s underperformance was driven by an underweight to the health care sector and overweight to the energy sector. Overweight positions in stocks with low price to earnings and price to cash flow ratios were also negative.
The Fund’s strategic allocation to alternative Underlying Funds had mixed effects on performance. The Fund’s allocations to the RIF Real Estate Securities Fund and RIC Russell Global Infrastructure Fund were positive, as these Underlying Funds strongly outperformed the Barclays U.S. Aggregate Bond Index. The Fund’s strategic allocation to the RIC Russell Commodity Strategies Fund detracted, as the commodities asset class underperformed the Barclays U.S. Aggregate Bond Index.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund. Performance of the Fund’s short-term asset allocation modifications fluctuated throughout the fiscal year, but ended the fiscal year modestly negative. This was driven by a negative impact from an overweight to fixed income and underweight to non-U.S. equity markets in the second half of the year during a period of rising equity markets. However, the tilt toward fixed income taken in mid-May successfully helped reduce volatility during a period of notable uncertainty.
Describe any changes to the Fund’s structure or allocation to the Underlying Funds.
On August 15, 2012, the Fund added the RIC Russell U.S. Dynamic Equity Fund and the RIC Russell Multi-Strategy Alternative Fund as Underlying Funds. The RIC Russell U.S. Dynamic Equity Fund was added as a diversifier to the overall portfolio and to the return patterns of the RIC Russell U.S Defensive Equity Fund. The RIC Russell Multi-Strategy Alternative Fund was added as a diversifier to equity returns and was funded by decreasing the Fund’s allocation to equity funds.
Effective August 15, 2012, RIMCo changed the RIC Russell U.S. Quantitative Equity Fund’s investment strategy from a quantitative investment approach to investing in defensive stocks and discontinued its limited long-short strategy. As a result, the Fund’s primary benchmark changed from the Russell 1000® Index to the Russell 1000® Defensive Index™ and the Fund changed its name to the RIC Russell U.S. Defensive Equity Fund.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund.
14 | Moderate Strategy Fund |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
On February 5, 2012 the Fund increased its allocation to each of the RIF Multi-Style Equity Fund and RIC Russell Global Equity Fund by 0.25% above the target strategic allocation and to the RIC Russell Global Opportunistic Credit Fund by 0.20% above the target strategic allocation. The Fund also decreased its allocation to the RIC Russell Investment Grade Bond Fund by 0.70% below the target strategic allocation in response to the improving U.S. and global economic outlook.
On April 19, 2012, the Fund decreased its allocation to the RIC Russell Global Equity Fund back to the target strategic allocation and increased its weight to the RIF Multi-Style Equity Fund to 0.50% above the target strategic allocation in recognition of growing concerns in global equity markets but maintained confidence in the U.S. equity markets.
On May 14, 2012, the Fund shifted to a defensive position in light of increasing policy risk in the European Union and downside risk in global equity markets, decreasing its weight to the RIF Non-U.S. Fund to 2.25% below the target strategic allocation and increasing its weight to each of the RIC Russell Investment Grade Bond Fund and RIF Multi-Style Equity Fund by 1.50% and 0.75%, respectively, above the target strategic allocation.
On October 22, 2012, the Fund shifted back to the target strategic allocation to the RIC Russell Investment Grade Bond Fund, decreased its underweight to the RIF Non-U.S. Fund to 1.75% below the target strategic allocation and maintained a 1.75% overweight to the RIF Multi-Style Equity Fund given mitigation of large tail risk by positive ECB and Fed policy announcements, but continued economic concerns over Europe.
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.
* | The Fund first issued shares on April 30, 2007. |
** | 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. |
*** | 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.
Moderate Strategy Fund | 15 |
Table of Contents
Russell Investment Funds
Moderate Strategy 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 | $ | 1,059.20 | $ | 1,024.63 | ||||
Expenses Paid During Period* | $ | 0.52 | $ | 0.51 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.10% (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 | Moderate Strategy Fund |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Shares | Fair Value $ | |||||||
Investments - 100.0% | ||||||||
Russell Investment Company (“RIC”) and other Russell Investment Funds (“RIF”) Series Mutual Funds | ||||||||
Alternative Funds - 12.0% | ||||||||
RIC Russell Commodity Strategies Fund Class Y | 300,111 | 2,797 | ||||||
RIC Russell Global Infrastructure Fund Class Y | 258,454 | 2,835 | ||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 278,393 | 2,828 | ||||||
RIF Global Real Estate Securities Fund | 186,192 | 2,862 | ||||||
|
| |||||||
11,322 | ||||||||
|
| |||||||
Domestic Equities - 13.8% | ||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 114,718 | 3,736 | ||||||
RIC Russell U.S. Dynamic Equity Fund Class Y | 189,484 | 1,893 | ||||||
RIF Aggressive Equity Fund | 147,123 | 1,916 | ||||||
RIF Multi-Style Equity Fund | 357,344 | 5,414 | ||||||
|
| |||||||
12,959 | ||||||||
|
| |||||||
Fixed Income - 57.8% | ||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 179,376 | 1,882 | ||||||
RIC Russell Investment Grade Bond Fund Class Y | 838,668 | 18,778 | ||||||
RIF Core Bond Fund | 3,127,299 | 33,806 | ||||||
|
| |||||||
54,466 | ||||||||
|
| |||||||
International Equities - 16.4% | ||||||||
RIC Russell Emerging Markets Fund Class Y | 126,327 | 2,395 | ||||||
RIC Russell Global Equity Fund Class Y | 780,237 | 7,139 | ||||||
RIF Non-U.S. Fund | 578,148 | 5,961 | ||||||
|
| |||||||
15,495 | ||||||||
|
| |||||||
Total Investments - 100.0% (identified cost $85,596) | 94,242 | |||||||
Other Assets and Liabilities, Net - (0.0%) | (21 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 94,221 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Moderate Strategy Fund | 17 |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Presentation of Portfolio Holdings — December 31, 2012
Categories | % of Net Assets | |||
Alternative Funds | 12.0 | |||
Domestic Equities | 13.8 | |||
Fixed Income | 57.8 | |||
International Equities | 16.4 | |||
|
| |||
Total Investments | 100.0 | |||
Other Assets and Liabilities, Net | (— | )* | ||
|
| |||
100.0 | ||||
|
|
* | Less than .05% of net assets. |
See accompanying notes which are an integral part of the financial statements.
18 | Moderate Strategy Fund |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 85,596 | ||
Investments, at fair value | 94,242 | |||
Receivables: | ||||
Fund shares sold | 141 | |||
From affiliates | 5 | |||
|
| |||
Total assets | 94,388 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 102 | |||
Fund shares redeemed | 39 | |||
Accrued fees to affiliates | 5 | |||
Other accrued expenses | 21 | |||
|
| |||
Total liabilities | 167 | |||
|
| |||
Net Assets | $ | 94,221 | ||
|
| |||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | 87 | ||
Accumulated net realized gain (loss) | (2,710 | ) | ||
Unrealized appreciation (depreciation) on investments | 8,646 | |||
Shares of beneficial interest | 93 | |||
Additional paid-in capital | 88,105 | |||
|
| |||
Net Assets | $ | 94,221 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share:(#) | $ | 10.10 | ||
Net assets | $ | 94,220,867 | ||
Shares outstanding ($.01 par value) | 9,331,457 |
(#) | 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.
Moderate Strategy Fund | 19 |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Income distribution from Underlying Funds | $ | 2,676 | ||
|
| |||
Expenses | ||||
Advisory fees | 172 | |||
Administrative fees | 43 | |||
Custodian fees | 22 | |||
Transfer agent fees | 4 | |||
Professional fees | 35 | |||
Trustees’ fees | 2 | |||
Printing fees | 22 | |||
Miscellaneous | 10 | |||
|
| |||
Expenses before reductions | 310 | |||
Expense reductions | (224 | ) | ||
|
| |||
Net expenses | 86 | |||
|
| |||
Net investment income (loss) | 2,590 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | 4 | |||
Capital gain distributions from Underlying Funds | 554 | |||
|
| |||
Net realized gain (loss) | 558 | |||
Net change in unrealized appreciation (depreciation) on investments | 5,568 | |||
|
| |||
Net realized and unrealized gain (loss) | 6,126 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 8,716 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
20 | Moderate Strategy Fund |
Table of Contents
Russell Investment Funds
Moderate Strategy 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) | $ | 2,590 | $ | 1,844 | ||||
Net realized gain (loss) | 558 | 196 | ||||||
Net change in unrealized appreciation (depreciation) | 5,568 | (2,125 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 8,716 | (85 | ) | |||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (2,603 | ) | (1,745 | ) | ||||
From net realized gain | (420 | ) | — | |||||
|
|
|
| |||||
Net decrease in net assets from distributions | (3,023 | ) | (1,745 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 13,472 | 22,313 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 19,165 | 20,483 | ||||||
Net Assets | ||||||||
Beginning of period | 75,056 | 54,573 | ||||||
|
|
|
| |||||
End of period | $ | 94,221 | $ | 75,056 | ||||
|
|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | 87 | $ | 100 |
* | 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 | 1,944 | $ | 19,209 | 2,646 | $ | 25,578 | ||||||||||
Proceeds from reinvestment of distributions | 304 | 3,023 | 183 | 1,744 | ||||||||||||
Payments for shares redeemed | (890 | ) | (8,760 | ) | (518 | ) | (5,009 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 1,358 | $ | 13,472 | 2,311 | $ | 22,313 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Moderate Strategy Fund | 21 |
Table of Contents
Russell Investment Funds
Moderate Strategy Fund
Financial Highlights — For the Periods Ended
For a Share Outstanding Throughout Each Period.
$ | $ Net Investment Income (Loss)(a)(b)(d) | $ Net Realized and Unrealized Gain (Loss) | $ Total from Investment Operations | $ Distributions from Net Investment Income | $ Distributions from Net Realized Gain | $ Return of Capital | ||||||||||||||||||||||
December 31, 2012 | 9.41 | .30 | .73 | 1.03 | (.29 | ) | (.05 | ) | — | |||||||||||||||||||
December 31, 2011 | 9.64 | .27 | (.26 | ) | .01 | (.24 | ) | — | — | |||||||||||||||||||
December 31, 2010 | 8.95 | .42 | .69 | 1.11 | (.41 | ) | — | (.01 | ) | |||||||||||||||||||
December 31, 2009 | 7.67 | .36 | 1.34 | 1.70 | (.37 | ) | (.05 | ) | — | |||||||||||||||||||
December 31, 2008 | 9.99 | .33 | (2.32 | ) | (1.99 | ) | (.23 | ) | (.10 | ) | — |
See accompanying notes which are an integral part of the financial statements.
22 | Moderate Strategy Fund |
Table of Contents
$ Total Distributions | $ Net Asset Value, End of Period | % Total Return(e) | $ Net Assets, End of Period (000) | % Ratio of Expenses to Average Net Assets, Gross(c) | % Ratio of Expenses to Average Net Assets, Net(c)(d) | % Ratio of Net Investment Income to Average Net Assets(b)(d) | % Portfolio Turnover Rate | |||||||||||||||||||||||
(.34 | ) | 10.10 | 11.07 | 94,221 | .36 | .10 | 3.01 | 20 | ||||||||||||||||||||||
(.24 | ) | 9.41 | .12 | 75,056 | .38 | .10 | 2.80 | 10 | ||||||||||||||||||||||
(.42 | ) | 9.64 | 12.62 | 54,573 | .44 | .10 | 4.56 | 45 | ||||||||||||||||||||||
(.42 | ) | 8.95 | 23.09 | 35,671 | .48 | .10 | 4.40 | 21 | ||||||||||||||||||||||
(.33 | ) | 7.67 | (20.39 | ) | 19,308 | .53 | .11 | 3.77 | 39 |
See accompanying notes which are an integral part of the financial statements.
Moderate Strategy Fund | 23 |
Table of Contents
Russell Investment Funds
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Balanced Strategy Fund | ||||
Total Return | ||||
1 Year | 12.95 | % | ||
5 Years | 2.79 | %§ | ||
Inception* | 2.95 | %§ |
Barclays U.S. Aggregate Bond Index ** | ||||
Total Return | ||||
1 Year | 4.21 | % | ||
5 Years | 5.95 | %§ | ||
Inception* | 6.10 | %§ |
Russell 1000® Index *** | ||||
Total Return | ||||
1 Year | 16.42 | % | ||
5 Years | 1.92 | %§ | ||
Inception* | 1.74 | %§ |
Russell Developed ex-U.S. Large Cap® Index Net **** | ||||
Total Return | ||||
1 Year | 16.73 | % | ||
5 Years | (3.23 | )%§ | ||
Inception* | (2.22 | )%§ |
24 | Balanced Strategy Fund |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Balanced Strategy Fund (the “Fund”) is a fund of funds that invests in other Russell Investment Funds and Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets to multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ 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 in an Underlying Fund at any time, subject to approval by the Underlying Fund’s Board, without a shareholder vote.
What is the Fund’s investment objective?
The Fund seeks to provide above average capital appreciation and a moderate level of current income.
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 Balanced Strategy Fund gained 12.95%. This is compared to the Fund’s primary 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® Mixed Asset Target Allocation Moderate Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 11.49%. This result serves as a peer comparison and is expressed net of operating expenses.
The Fund’s outperformance relative to the Barclays U.S. Aggregate Bond Index was due to the Fund’s out-of-benchmark allocation to equities, global real estate securities and opportunistic credit, which outperformed fixed income securities over the period.
How did the market conditions described in the Market Summary report affect the Fund’s performance?
The overall positive market environment for U.S. equities through the fiscal year ended December 31, 2012 provided a tailwind for the Fund’s out of benchmark allocation to U.S. large cap equities, which contributed to positive returns over the fiscal year.
In the U.S., the equity market was dominated by macroeconomic drivers. In the first quarter of 2012, the Russell 1000® Index returned 12.90% primarily driven by positive U.S. gross domestic product growth and an encouraging drop in the headline unemployment rate. Following a strong first quarter, U.S. equities pulled back on gains, again driven by the macro environment in the second quarter. Heightened concerns over Greece’s potential exit from the Eurozone and growing concerns
over the Spanish banking system spilled into U.S. market
sentiment, pushing the Russell 1000® Index down 6.15%. Continuing the macro driven themes, U.S. markets rallied in the third quarter off the European Central Bank’s (“ECB”) commitment to purchasing sovereign debt followed by the Federal Reserve’s (the “Fed”) announcement of unlimited purchases of mortgage-backed securities (often described as the third round of “quantitative easing”). These moves alleviated stresses from financial marks and reduced the likelihood of highly negative returns or “tail risk” in global equity markets. During the fourth quarter, despite immediate volatility in the U.S. equity markets following the presidential election in November, investors shifted their focus to the “fiscal cliff” combination of increased taxes and federal spending cuts looming on January 1, 2013. Despite the uncertainty, equity markets continued positive trends in anticipation of a deal to avoid the fiscal cliff. U.S equities (represented by the Russell 1000® Index) went on to finish the fiscal year ending December 31, 2012 up 16.42%, positively impacting the Fund’s allocation to dedicated U.S. large cap equity funds.
The combination of quantitative easing in the U.S., supporting actions by the ECB to support its member countries through unlimited asset purchases, resulted in a positive environment for global equities. In addition, improving economic conditions in China late in the year coupled with the stimulatory environment in developed markets drove emerging markets higher for the fiscal year. The Russell Developed ex-U.S. Index ended the year up 16.73% while the Russell Emerging Markets Index finished up 18.78% for the year. Thus, the Fund’s exposure to non-U.S. equity markets through its allocation to dedicated non-U.S. equity funds positively impacted performance against its pure fixed income benchmark.
Macro driven sentiment was also evident in the real estate space. Global REITs (represented by the FTSE/EPRA NAREIT Developed Index) finished the fiscal year up a strong 27.73% and outperformed fixed income markets, which benefited the Fund’s allocation to the RIF Real Estate Securities Fund.
In contrast, an allocation to the RIC Russell Commodity Strategies Fund negatively impacted Fund performance. A volatile environment for commodities created a tough year for this Underlying Fund, as commodities returned -1.06% for the fiscal year (as represented by the Dow Jones UBS Commodity Index Total Return) and largely underperformed broader equity and fixed income markets.
In fixed income, a “risk-on” theme drove performance in the market, as investors holding corporate bonds and non-agency mortgage backed securities generally fared well through the year relative to U.S. Treasuries. Overall, the Fund’s primary benchmark, the Barclays U.S. Aggregate Bond Index, gained 4.21% for the year but lagged riskier assets such as U.S. equities.
Balanced Strategy Fund | 25 |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
How did the investment strategies and techniques employed by the Fund and the money managers of the Underlying Funds affect the Fund’s performance?
The Fund is a fund of funds and its performance is based on RIMCo’s strategic asset allocations and the performance of the Underlying Funds in which the Fund invests.
The Fund’s strategic allocation to fixed income Underlying Funds was beneficial, as the fixed income Underlying Funds outperformed the Fund’s benchmark primarily due to their out of benchmark fixed income exposures. In particular, the RIF Core Bond Fund’s outperformance was driven by exposure to 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.
The Fund’s strategic allocation to the RIF Non-U.S. Fund, RIC Russell Emerging Markets Fund, and RIC Russell Global Equity Funds benefited the Fund’s benchmark relative performance, as each outperformed the Fund’s benchmark. From an active management standpoint, performance of these Underlying Funds was mixed. The RIF Non-U.S. Fund outperformed the broad non-U.S. equity market as represented by the Russell Developed ex-U.S. Large Cap™ Index Net, while the RIC Russell Global Equity Fund underperformed the broad global equity market as represented by the Russell Developed Large Cap Net Index. For the RIF Non-U.S. Fund, positioning in companies that exhibited slightly higher growth characteristics than the market 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 was positive, especially within information technology companies in emerging markets. For the RIC Russell Global Equity Fund, stock selection among U.S. mining stocks and emerging market securities, and an underweight to the strong performing financials sector detracted from performance. The RIC Russell Emerging Markets Fund slightly outperformed emerging markets as represented by the Russell Emerging Markets® Net Index, driven by positive stock selection in Asian countries such as South Korea, China, and Thailand. An underweight to India also added value.
The Fund’s strategic allocation to U.S. equity Underlying Funds benefited the Fund’s benchmark relative performance, as U.S. equities performed particularly well against core fixed income for the period. However, each of the U.S. equity Underlying Funds underperformed its respective U.S. equity market segment as represented by its primary benchmark. In particular, the RIF Multi-Style Equity Fund underperformed the Russell 1000® Index for the year, driven by a difficult second quarter as the fund was positioned for economic growth in a market environment that became risk averse. Positions in stocks with above-market growth rates and underweights in stocks with high dividend yield detracted from performance.
The RIC Russell U.S. Defensive Equity Fund’s underperformance was driven by an underweight to the health care sector and overweight to the energy sector. Overweight positions in stocks with low price to earnings and price to cash flow ratios were also negative.
The Fund’s strategic allocation to alternative Underlying Funds had mixed effects on performance. The Fund’s allocations to the RIF Real Estate Securities Fund and RIC Russell Global Infrastructure Fund were positive, as these Underlying Funds strongly outperformed the Barclays U.S. Aggregate Bond Index. The Fund’s strategic allocation to the RIC Russell Commodity Strategies Fund detracted, as the commodities asset class underperformed the Barclays U.S. Aggregate Bond Index.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund. Performance of the Fund’s short-term asset allocation modifications fluctuated throughout the fiscal year, but ended the fiscal year modestly negative. This was driven by a negative impact from an overweight to fixed income and underweight to non-U.S. equity markets in the second half of the year during a period of rising equity markets. However, the tilt toward fixed income taken in mid-May successfully helped reduce volatility during a period of notable uncertainty.
Describe any changes to the Fund’s structure or allocation to the Underlying Funds.
On August 15, 2012, the Fund added the RIC Russell U.S. Dynamic Equity Fund and the RIC Russell Multi-Strategy Alternative Fund as Underlying Funds. The RIC Russell U.S. Dynamic Equity Fund was added as a diversifier to the overall portfolio and to the return patterns of the RIC Russell U.S Defensive Equity Fund. The RIC Russell Multi-Strategy Alternative Fund was added as a diversifier to equity returns and was funded by decreasing the Fund’s allocation to equity funds.
Effective August 15, 2012, RIMCo changed the RIC Russell U.S. Quantitative Equity Fund’s investment strategy from a quantitative investment approach to investing in defensive stocks and discontinued its limited long-short strategy. As a result, the Fund’s primary benchmark changed from the Russell 1000® Index to the Russell 1000® Defensive Index™ and the Fund changed its name to the RIC Russell U.S. Defensive Equity Fund.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund.
26 | Balanced Strategy Fund |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
On February 5, 2012, the Fund increased its allocation to each of the RIF Multi-Style U.S. Equity Fund, RIC Russell Global Equity Fund and RIC Russell Global Opportunistic Credit Fund by 0.50%, 0.30% and 0.20%, respectively, above the target strategic allocation. The Fund also decreased its allocation to the RIF Core Bond Fund by 1.00% below the target strategic allocation in response to the improving U.S. and global economic outlook.
On April 19, 2012, the Fund decreased its allocation to the RIC Russell Global Equity Fund back to the target strategic allocation and increased its weight to the RIF Multi-Style Equity Fund to 0.80% above the target strategic allocation in recognition of growing concerns in global equity markets but maintained confidence in the U.S. equity markets.
On May 14, 2012, the Fund shifted to a defensive position in light of increasing policy risk in the European Union and downside risk in global equity markets, decreasing its weight to the RIF Non-U.S. Fund to 3.00% below the target strategic allocation and increasing its weight to each of the RIF Core Bond Fund and RIF Multi-Style Equity Fund by 2.00% and 1.00%, respectively, above the target strategic allocation.
On October 22, 2012, the Fund shifted back to the target strategic allocation to the Russell Strategic Bond Fund, decreased its underweight to the RIF Non-U.S. Fund to 2.00% below the target strategic allocation and maintained a 2.00% overweight to the RIF Multi-Style Equity Fund given mitigation of large tail risk by positive ECB and Fed policy announcements, but continued economic concerns over Europe.
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.
* | The Fund first issued shares on April 30, 2007. |
** | 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. |
*** | 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. |
**** | Russell Developed ex-U.S. Large Cap® Index (net of tax on dividends from foreign holdings) 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.
Balanced Strategy Fund | 27 |
Table of Contents
Russell Investment Funds
Balanced Strategy 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 | $ | 1,073.30 | $ | 1,024.63 | ||||
Expenses Paid During Period* | $ | 0.52 | $ | 0.51 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.10% (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. |
28 | Balanced Strategy Fund |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Shares | Fair Value $ | |||||||
Investments - 100.0% | ||||||||
Russell Investment Company (“RIC”) and other Russell Investment Funds (“RIF”) Series Mutual Funds | ||||||||
Alternative Funds - 13.0% | ||||||||
RIC Russell Commodity Strategies Fund Class Y | 1,080,467 | 10,070 | ||||||
RIC Russell Global Infrastructure Fund Class Y | 692,396 | 7,596 | ||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 746,176 | 7,581 | ||||||
RIF Global Real Estate Securities Fund | 495,060 | 7,609 | ||||||
|
| |||||||
32,856 | ||||||||
�� |
|
| ||||||
Domestic Equities - 24.1% | ||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 388,124 | 12,641 | ||||||
RIC Russell U.S. Dynamic Equity Fund Class Y | 1,400,927 | 13,995 | ||||||
RIF Aggressive Equity Fund | 784,956 | 10,220 | ||||||
RIF Multi-Style Equity Fund | 1,590,267 | 24,093 | ||||||
|
| |||||||
60,949 | ||||||||
|
| |||||||
Fixed Income - 37.8% | ||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 722,098 | 7,575 | ||||||
RIF Core Bond Fund | 8,165,491 | 88,269 | ||||||
|
| |||||||
95,844 | ||||||||
|
| |||||||
International Equities - 25.1% | ||||||||
RIC Russell Emerging Markets Fund Class Y | 471,936 | 8,948 | ||||||
RIC Russell Global Equity Fund Class Y | 2,634,105 | 24,102 | ||||||
RIF Non-U.S. Fund | 2,950,081 | 30,415 | ||||||
|
| |||||||
63,465 | ||||||||
|
| |||||||
Total Investments - 100.0% (identified cost $226,881) | 253,114 | |||||||
Other Assets and Liabilities, Net - (0.0%) | (34 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 253,080 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Balanced Strategy Fund | 29 |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Presentation of Portfolio Holdings — December 31, 2012
Categories | % of Net Assets | |||
Alternative Funds | 13.0 | |||
Domestic Equities | 24.1 | |||
Fixed Income | 37.8 | |||
International Equities | 25.1 | |||
|
| |||
Total Investments | 100.0 | |||
Other Assets and Liabilities, Net | (— | )* | ||
|
| |||
100.0 | ||||
|
|
* | Less than .05% of net assets. |
See accompanying notes which are an integral part of the financial statements.
30 | Balanced Strategy Fund |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 226,881 | ||
Investments, at fair value | 253,114 | |||
Receivables: | ||||
Fund shares sold | 203 | |||
From affiliates | 12 | |||
|
| |||
Total assets | 253,329 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 203 | |||
Accrued fees to affiliates | 13 | |||
Other accrued expenses | 33 | |||
|
| |||
Total liabilities | 249 | |||
|
| |||
Net Assets | $ | 253,080 | ||
|
| |||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | 161 | ||
Accumulated net realized gain (loss) | (8,490 | ) | ||
Unrealized appreciation (depreciation) on investments | 26,233 | |||
Shares of beneficial interest | 265 | |||
Additional paid-in capital | 234,911 | |||
|
| |||
Net Assets | $ | 253,080 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share:(#) | $ | 9.55 | ||
Net assets | $ | 253,079,667 | ||
Shares outstanding ($.01 par value) | 26,503,811 |
(#) | 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.
Balanced Strategy Fund | 31 |
Table of Contents
Russell Investment Funds
Balanced Strategy Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Income distribution from Underlying Funds | $ | 5,930 | ||
|
| |||
Expenses | ||||
Advisory fees | 458 | |||
Administrative fees | 114 | |||
Custodian fees | 21 | |||
Transfer agent fees | 10 | |||
Professional fees | 51 | |||
Trustees’ fees | 6 | |||
Printing fees | 53 | |||
Miscellaneous | 12 | |||
|
| |||
Expenses before reductions | 725 | |||
Expense reductions | (496 | ) | ||
|
| |||
Net expenses | 229 | |||
|
| |||
Net investment income (loss) | 5,701 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | (1,624 | ) | ||
Capital gain distributions from Underlying Funds | 918 | |||
|
| |||
Net realized gain (loss) | (706 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | 22,155 | |||
|
| |||
Net realized and unrealized gain (loss) | 21,449 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 27,150 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
32 | Balanced Strategy Fund |
Table of Contents
Russell Investment Funds
Balanced Strategy 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) | $ | 5,701 | $ | 4,410 | ||||
Net realized gain (loss) | (706 | ) | 861 | |||||
Net change in unrealized appreciation (depreciation) | 22,155 | (10,967 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 27,150 | (5,696 | ) | |||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (5,712 | ) | (4,238 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from distributions | (5,712 | ) | (4,238 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 30,573 | 53,881 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 52,011 | 43,947 | ||||||
Net Assets | ||||||||
Beginning of period | 201,069 | 157,122 | ||||||
|
|
|
| |||||
End of period | $ | 253,080 | $ | 201,069 | ||||
|
|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | 161 | $ | 172 |
* | 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 | 4,174 | $ | 38,630 | 6,359 | $ | 58,019 | ||||||||||
Proceeds from reinvestment of distributions | 609 | 5,712 | 477 | 4,238 | ||||||||||||
Payments for shares redeemed | (1,496 | ) | (13,769 | ) | (941 | ) | (8,376 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 3,287 | $ | 30,573 | 5,895 | $ | 53,881 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Balanced Strategy Fund | 33 |
Table of Contents
Russell Investment Funds
Balanced Strategy 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)(d) | $ Net Realized and Unrealized Gain (Loss) | $ Total from Investment Operations | $ Distributions from Net Investment Income | $ Distributions from Net Realized Gain | $ Return of Capital | ||||||||||||||||||||||
December 31, 2012 | 8.66 | .23 | .89 | 1.12 | (.23 | ) | — | — | ||||||||||||||||||||
December 31, 2011 | 9.07 | .21 | (.42 | ) | (.21 | ) | (.20 | ) | — | — | ||||||||||||||||||
December 31, 2010 | 8.25 | .31 | .84 | 1.15 | (.31 | ) | — | (.02 | ) | |||||||||||||||||||
December 31, 2009 | 6.80 | .26 | 1.47 | 1.73 | (.24 | ) | (.04 | ) | — | |||||||||||||||||||
December 31, 2008 | 9.93 | .23 | (2.88 | ) | (2.65 | ) | (.21 | ) | (.27 | ) | — |
See accompanying notes which are an integral part of the financial statements.
34 | Balanced Strategy Fund |
Table of Contents
$ Total Distributions | $ Net Asset Value, End of Period | % Total Return(e) | $ Net Assets, End of Period (000) | % Ratio of Expenses to Average Net Assets, Gross(c) | % Ratio of Expenses to Average Net Assets, Net(c)(d) | % Ratio of Net Investment Income to Average Net Assets(b)(d) | % Portfolio Turnover Rate | |||||||||||||||||||||||
(.23 | ) | 9.55 | 12.95 | 253,080 | .32 | .10 | 2.49 | 21 | ||||||||||||||||||||||
(.20 | ) | 8.66 | (2.40 | ) | 201,069 | .31 | .10 | 2.36 | 8 | |||||||||||||||||||||
(.33 | ) | 9.07 | 14.06 | 157,122 | .36 | .10 | 3.67 | 23 | ||||||||||||||||||||||
(.28 | ) | 8.25 | 26.23 | 105,185 | .35 | .09 | 3.62 | 8 | ||||||||||||||||||||||
(.48 | ) | 6.80 | (27.70 | ) | 60,158 | .35 | .08 | 2.75 | 16 |
See accompanying notes which are an integral part of the financial statements.
Balanced Strategy Fund | 35 |
Table of Contents
Russell Investment Funds
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Growth Strategy Fund | ||||
Total Return | ||||
1 Year | 14.22 | % | ||
5 Years | 1.13 | %§ | ||
Inception* | 1.37 | %§ |
Russell 1000® Index ** | ||||
Total Return | ||||
1 Year | 16.42 | % | ||
5 Years | 1.92 | %§ | ||
Inception* | 1.74 | %§ |
Barclays U.S. Aggregate Bond Index *** | ||||
Total Return | ||||
1 Year | 4.21 | % | ||
5 Years | 5.95 | %§ | ||
Inception* | 6.10 | %§ |
Russell Developed ex-U.S. Large Cap® Index Net **** | ||||
Total Return | ||||
1 Year | 16.73 | % | ||
5 Years | (3.23 | )%§ | ||
Inception* | (2.22 | )%§ |
36 | Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Growth Strategy Fund (the “Fund”) is a fund of funds that invests in other Russell Investment Funds and Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ 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 in an Underlying Fund at any time, subject to approval by the Underlying Fund’s Board, without a shareholder vote.
What is the Fund’s investment objective?
The Fund seeks to provide high long term capital appreciation with low current income.
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 Growth Strategy Fund gained 14.22%. This is compared to the Fund’s primary 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® Mixed Asset Target Allocation Growth Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 12.69%. This result serves as a peer comparison and is expressed net of operating expenses.
The Fund’s underperformance relative to the Russell 1000® Index was due to the Fund’s out-of-benchmark allocations U.S. small cap equities, commodity-linked securities, listed infrastructure and fixed income securities, which generally underperformed the U.S. large cap equity market as represented by the Russell 1000® Index.
How did the market conditions described in the Market Summary report affect the Fund’s performance?
The underperformance of U.S. small cap equities, commodity-linked securities, listed infrastructure and fixed income securities relative to U.S. large cap equities, as represented by the Fund’s Russell 1000® Index benchmark, was a headwind for the Fund’s benchmark relative performance.
In the U.S., the equity market was dominated by macroeconomic drivers. In the first quarter of 2012, the Russell 1000® Index returned 12.90% primarily driven by positive U.S. gross domestic product growth and an encouraging drop in the headline unemployment rate. Following a strong first quarter, U.S. equities pulled back on gains, again driven by the macro environment in the second quarter. Heightened concerns over Greece’s potential exit from the Eurozone and growing concerns over the Spanish banking system spilled into U.S. market sentiment, pushing the Russell 1000® Index down 6.15%.
Continuing the macro driven themes, U.S. markets rallied in the third quarter off the European Central Bank’s (“ECB”) commitment to purchasing sovereign debt followed by the Federal Reserve’s (the “Fed”) announcement of unlimited purchases of mortgage-backed securities (often described as the third round of “quantitative easing”). These moves alleviated stresses from financial marks and reduced the likelihood of highly negative returns or “tail risk” in global equity markets. During the fourth quarter, despite immediate volatility in the U.S. equity markets following the presidential election in November, investors shifted their focus to the “fiscal cliff” combination of increased taxes and federal spending cuts looming on January 1, 2013. Despite the uncertainty, equity markets continued positive trends in anticipation of a deal to avoid the fiscal cliff. U.S equities (represented by the Russell 1000® Index) went on to finish the fiscal year ending December 31, 2012 up 16.42%, positively impacting the Fund’s allocation to dedicated U.S. large cap equity funds.
The combination of quantitative easing in the U.S., supporting actions by the ECB to support its member countries through unlimited asset purchases, resulted in a positive environment for global equities. In addition, improving economic conditions in China late in the year coupled with the stimulatory environment in developed markets drove emerging markets higher for the fiscal year. The Russell Developed ex-U.S. Index ended the year up 16.73% while the Russell Emerging Markets Index finished up 18.78% for the year. Thus, the Fund’s exposure to non-U.S. equity markets through its allocation to dedicated non-U.S. equity funds positively impacted performance against its U.S equity benchmark.
Macro driven sentiment was also evident in the real estate space. Global REITs (represented by the FTSE/EPRA NAREIT Developed Index) finished the fiscal year up a strong 27.73% and outperformed U.S. equities, which benefited the Fund’s allocation to the RIF Real Estate Securities Fund.
In contrast, an allocation to the RIC Russell Commodity Strategies Fund negatively impacted Fund performance. A volatile environment for commodities created a tough year for this Underlying Fund, as commodities returned -1.06% for the fiscal year (as represented by the Dow Jones UBS Commodity Index Total Return) and largely underperformed broader equity and fixed income markets.
In fixed income, a “risk-on” theme drove performance in the market, as investors holding corporate bonds and non-agency mortgage backed securities generally fared well through the year relative to U.S. Treasuries. Overall, the Barclays U.S. Aggregate Bond Index gained 4.21% for the year but lagged riskier assets such as U.S. equities.
Growth Strategy Fund | 37 |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
How did the investment strategies and techniques employed by the Fund and the money managers of the Underlying Funds affect the Fund’s performance?
The Fund is a fund of funds and its performance is based on RIMCo’s strategic asset allocations and the performance of the Underlying Funds in which the Fund invests.
The Fund’s strategic allocation to the RIF Non-U.S. Fund, RIC Russell Emerging Markets Fund, and RIC Russell Global Equity Funds provided mixed results in terms of the Fund’s benchmark relative performance; The RIF Non-U.S. Fund and RIC Russell Emerging Markets Fund outperformed the Russell 1000® Index while the RIC Russell Global Equity Fund underperformed the Russell 1000® Index. From an active management standpoint, performance of these Underlying Funds was mixed. The RIF Non-U.S. Fund outperformed the broad non-U.S. equity market as represented by the Russell Developed ex-U.S. Large Cap™ Index Net, while the RIC Russell Global Equity Fund underperformed the broad global equity market as represented by the Russell Developed Large Cap Net Index. For the RIF Non-U.S. Fund, positioning in companies that exhibited slightly higher growth characteristics than the market 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 was positive, especially within information technology companies in emerging markets. For the RIC Russell Global Equity Fund, stock selection among U.S. mining stocks and emerging market securities, and an underweight to the strong performing financials sector detracted from performance. The RIC Russell Emerging Markets Fund slightly outperformed emerging markets represented by the Russell Emerging Markets® Net Index, driven by positive stock selection in Asian countries such as South Korea, China, and Thailand. An underweight to India also added value.
The Fund’s strategic allocation to U.S. equity Underlying Funds detracted from performance. Each of the U.S. equity Underlying Funds underperformed its respective U.S. equity market segment as represented by its primary benchmark. In particular, the RIF Multi-Style Equity Fund underperformed the Russell 1000® Index for the year, driven by a difficult second quarter as the fund was positioned for economic growth in a market environment that became risk averse. Positions in stocks with above-market growth rates and underweights in stocks with high dividend yield detracted from performance.
The Fund’s strategic allocation to fixed income Underlying Funds detracted, as the fixed income Underlying Funds underperformed the Fund’s benchmark. Underlying active management was positive, as the fixed income Underlying Funds outperformed their benchmarks for the year. In particular, the RIF Core Bond Fund’s outperformance was driven by exposure to 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.
The Fund’s strategic allocation to alternative Underlying Funds had mixed effects on performance. The Fund’s allocation to the RIF Real Estate Securities Fund was positive, as the fund outperformed the Russell 1000® Index. The Fund’s strategic allocation to the RIC Russell Commodity Strategies Fund and RIC Russell Global Infrastructure Fund detracted, as the commodities and infrastructure asset classes underperformed the Russell 1000® Index.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund. Performance of the Fund’s short-term asset allocation modifications fluctuated throughout the fiscal year, but ended the fiscal year modestly negative. This was driven by a negative impact from an overweight to fixed income and underweight to non-U.S. equity markets in the second half of the year during a period of rising equity markets. However, the tilt toward fixed income taken in mid-May successfully helped reduce volatility during a period of notable uncertainty.
Describe any changes to the Fund’s structure or allocation to the Underlying Funds.
On August 15, 2012, the Fund added the RIC Russell U.S. Dynamic Equity Fund and the RIC Russell Multi-Strategy Alternative Fund as Underlying Funds. The RIC Russell U.S. Dynamic Equity Fund was added as a diversifier to the overall portfolio and to the return patterns of the RIC Russell U.S Defensive Equity Fund. The RIC Russell Multi-Strategy Alternative Fund was added as a diversifier to equity returns and was funded by decreasing the Fund’s allocation to equity funds.
Effective August 15, 2012, RIMCo changed the RIC Russell U.S. Quantitative Equity Fund’s investment strategy from a quantitative investment approach to investing in defensive stocks and discontinued its limited long-short strategy. As a result, the Fund’s primary benchmark changed from the Russell 1000® Index to the Russell 1000® Defensive Index™ and the Fund changed its name to the RIC Russell U.S. Defensive Equity Fund.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund.
On February 5, 2012, the Fund increased its allocation to each of the RIF Multi-Style U.S. Equity Fund, Russell Global Equity Fund and RIC Russell Global Opportunistic Credit Fund by 0.55%, 0.50% and 0.25%, respectively, above the target strategic allocation. The Fund also decreased its allocation to the RIF Core Bond Fund by 1.30% below the target strategic allocation in response to the improving U.S. and global economic outlook.
38 | Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
On April 19, 2012, the Fund decreased its allocation to the RIC Russell Global Equity Fund back to the target strategic allocation and increased its weight to the RIF Multi-Style Equity Fund to 1.05% above the target strategic allocation in recognition of growing concerns in global equity markets but maintained confidence in the U.S. equity markets.
On May 14, 2012, the Fund shifted to a defensive position in light of increasing policy risk in the European Union and downside risk in global equity markets, decreasing its weight to the RIF Non-U.S. Fund to 3.00% below the target strategic allocation and increasing its weight to each of the RIF Core Bond Fund and RIF Multi-Style Equity Fund by 2.50% and 0.50%, respectively, above the target strategic allocation.
On October 22, 2012, the Fund shifted back to the target strategic allocation to the RIF Core Bond Fund, decreased its underweight to the RIF Non-U.S. Fund to 2.25% below the target strategic allocation and maintained a 2.25% overweight to the RIF Multi-Style Equity Fund given mitigation of large tail risk by positive ECB and Fed policy announcements, but continued economic concerns over Europe.
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.
* | The Fund first issued shares on April 30, 2007. |
** | 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. |
*** | 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. |
**** | Russell Developed ex-U.S. Large Cap® Index (net of tax on dividends from foreign holdings) 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.
Growth Strategy Fund | 39 |
Table of Contents
Russell Investment Funds
Growth Strategy 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 | $ | 1,084.80 | $ | 1,024.63 | ||||
Expenses Paid During Period* | $ | 0.52 | $ | 0.51 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.10% (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. |
40 | Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Shares | Fair Value $ | |||||||
Investments - 100.0% | ||||||||
Russell Investment Company (“RIC”) and other Russell Investment Funds (“RIF”) Series Mutual Funds | ||||||||
Alternative Funds - 17.9% | ||||||||
RIC Russell Commodity Strategies Fund Class Y | 922,153 | 8,595 | ||||||
RIC Russell Global Infrastructure Fund Class Y | 528,820 | 5,801 | ||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 570,995 | 5,801 | ||||||
RIF Global Real Estate Securities Fund | 381,210 | 5,859 | ||||||
|
| |||||||
26,056 | ||||||||
|
| |||||||
Domestic Equities - 29.7% | ||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 241,923 | 7,879 | ||||||
RIC Russell U.S. Dynamic Equity Fund Class Y | 943,879 | 9,429 | ||||||
RIF Aggressive Equity Fund | 619,352 | 8,064 | ||||||
RIF Multi-Style Equity Fund | 1,168,680 | 17,706 | ||||||
|
| |||||||
43,078 | ||||||||
|
| |||||||
Fixed Income - 18.9% | ||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 551,645 | 5,787 | ||||||
RIF Core Bond Fund | 2,003,984 | 21,663 | ||||||
|
| |||||||
27,450 | ||||||||
|
| |||||||
International Equities - 33.5% | ||||||||
RIC Russell Emerging Markets Fund Class Y | 349,598 | 6,629 | ||||||
RIC Russell Global Equity Fund Class Y | 2,072,493 | 18,963 | ||||||
RIF Non-U.S. Fund | 2,231,499 | 23,007 | ||||||
|
| |||||||
48,599 | ||||||||
|
| |||||||
Total Investments - 100.0% (identified cost $129,825) | 145,183 | |||||||
Other Assets and Liabilities, Net - (0.0%) | (28 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 145,155 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Growth Strategy Fund | 41 |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Presentation of Portfolio Holdings — December 31, 2012
Categories | % of Net Assets | |||
Alternative Funds | 17.9 | |||
Domestic Equities | 29.7 | |||
Fixed Income | 18.9 | |||
International Equities | 33.5 | |||
|
| |||
Total Investments | 100.0 | |||
Other Assets and Liabilities, Net | (— | )* | ||
|
| |||
100.0 | ||||
|
|
* | Less than .05% of net assets. |
See accompanying notes which are an integral part of the financial statements.
42 | Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 129,825 | ||
Investments, at fair value | 145,183 | |||
Receivables: | ||||
Fund shares sold | 62 | |||
From affiliates | 6 | |||
|
| |||
Total assets | 145,251 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 62 | |||
Accrued fees to affiliates | 7 | |||
Other accrued expenses | 27 | |||
|
| |||
Total liabilities | 96 | |||
|
| |||
Net Assets | $ | 145,155 | ||
|
| |||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | 70 | ||
Accumulated net realized gain (loss) | (7,046 | ) | ||
Unrealized appreciation (depreciation) on investments | 15,358 | |||
Shares of beneficial interest | 162 | |||
Additional paid-in capital | 136,611 | |||
|
| |||
Net Assets | $ | 145,155 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share:(#) | $ | 8.97 | ||
Net assets | $ | 145,155,204 | ||
Shares outstanding ($.01 par value) | 16,183,347 |
(#) | 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.
Growth Strategy Fund | 43 |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Income distribution from Underlying Funds | $ | 2,824 | ||
|
| |||
Expenses | ||||
Advisory fees | 260 | |||
Administrative fees | 65 | |||
Custodian fees | 22 | |||
Transfer agent fees | 6 | |||
Professional fees | 41 | |||
Trustees’ fees | 4 | |||
Printing fees | 29 | |||
Miscellaneous | 10 | |||
|
| |||
Expenses before reductions | 437 | |||
Expense reductions | (307 | ) | ||
|
| |||
Net expenses | 130 | |||
|
| |||
Net investment income (loss) | 2,694 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | (1,063 | ) | ||
Capital gain distributions from Underlying Funds | 278 | |||
|
| |||
Net realized gain (loss) | (785 | ) | ||
Net change in unrealized appreciation (depreciation) on investments | 14,971 | |||
|
| |||
Net realized and unrealized gain (loss) | 14,186 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 16,880 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
44 | Growth Strategy Fund |
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Russell Investment Funds
Growth Strategy 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) | $ | 2,694 | $ | 2,114 | ||||
Net realized gain (loss) | (785 | ) | 38 | |||||
Net change in unrealized appreciation (depreciation) | 14,971 | (7,848 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 16,880 | (5,696 | ) | |||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (2,688 | ) | (2,051 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from distributions | (2,688 | ) | (2,051 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 19,484 | 28,634 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 33,676 | 20,887 | ||||||
Net Assets | ||||||||
Beginning of period | 111,479 | 90,592 | ||||||
|
|
|
| |||||
End of period | $ | 145,155 | $ | 111,479 | ||||
|
|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | 70 | $ | 64 |
* | 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 | 3,017 | $ | 25,939 | 3,807 | $ | 32,607 | ||||||||||
Proceeds from reinvestment of distributions | 306 | 2,689 | 249 | 2,050 | ||||||||||||
Payments for shares redeemed | (1,059 | ) | (9,144 | ) | (702 | ) | (6,023 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 2,264 | $ | 19,484 | 3,354 | $ | 28,634 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Growth Strategy Fund | 45 |
Table of Contents
Russell Investment Funds
Growth Strategy Fund
Financial Highlights — For the Periods Ended
For a Share Outstanding Throughout Each Period.
$ | $ Net Investment Income (Loss)(a)(b)(d) | $ Net Realized and Unrealized Gain (Loss) | $ Total from Investment Operations | $ Distributions from Net Investment Income | $ Distributions from Net Realized Gain | $ Return of Capital | ||||||||||||||||||||||
December 31, 2012 | 8.01 | .18 | .95 | 1.13 | (.17 | ) | — | — | ||||||||||||||||||||
December 31, 2011 | 8.57 | .17 | (.57 | ) | (.40 | ) | (.16 | ) | — | — | ||||||||||||||||||
December 31, 2010 | 7.66 | .23 | .91 | 1.14 | (.22 | ) | — | (.01 | ) | |||||||||||||||||||
December 31, 2009 | 6.11 | .19 | 1.56 | 1.75 | (.17 | ) | (.03 | ) | — | |||||||||||||||||||
December 31, 2008 | 9.90 | .15 | (3.46 | ) | (3.31 | ) | (.14 | ) | (.34 | ) | — |
See accompanying notes which are an integral part of the financial statements.
46 | Growth Strategy Fund |
Table of Contents
$ Total Distributions | $ Net Asset Value, End of Period | % Total Return(e) | $ Net Assets, End of Period (000) | % Ratio of Expenses to Average Net Assets, Gross(c) | % Ratio of Expenses to Average Net Assets, Net(c)(d) | % Ratio of Net Investment Income to Average Net Assets(b)(d) | % Portfolio Turnover Rate | |||||||||||||||||||||||
(.17 | ) | 8.97 | 14.22 | 145,155 | .34 | .10 | 2.07 | 25 | ||||||||||||||||||||||
(.16 | ) | 8.01 | (4.73 | ) | 111,479 | .34 | .10 | 2.02 | 10 | |||||||||||||||||||||
(.23 | ) | 8.57 | 15.06 | 90,592 | .39 | .10 | 2.88 | 29 | ||||||||||||||||||||||
(.20 | ) | 7.66 | 29.43 | 61,506 | .40 | .09 | 2.80 | 6 | ||||||||||||||||||||||
(.48 | ) | 6.11 | (34.73 | ) | 34,742 | .40 | .04 | 1.85 | 10 |
See accompanying notes which are an integral part of the financial statements.
Growth Strategy Fund | 47 |
Table of Contents
Russell Investment Funds
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Equity Growth Strategy Fund | ||||
Total Return | ||||
1 Year | 15.68 | % | ||
5 Years | (0.65 | )%§ | ||
Inception* | (0.36 | )%§ |
Russell 1000® Index ** | ||||
Total Return | ||||
1 Year | 16.42 | % | ||
5 years | 1.92 | %§ | ||
Inception* | 1.74 | %§ |
Russell Developed ex-U.S. Large Cap® Index Net *** | ||||
Total Return | ||||
1 Year | 16.73 | % | ||
5 Years | (3.23 | )%§ | ||
Inception* | (2.22 | )%§ |
48 | Equity Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Equity Growth Strategy Fund (the “Fund”) is a fund of funds that invests in other Russell Investment Funds and Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets to multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ 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 in an Underlying Fund at any time, subject to approval by the Underlying Fund’s Board, without a shareholder vote.
What is the Fund’s investment objective?
The Fund seeks to provide high long term 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 Equity Growth Strategy Fund gained 15.68%. This is compared to the Fund’s primary 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® Global Multi-Cap Core Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 13.97%. This result serves as a peer comparison and is expressed net of operating expenses.
The Fund’s underperformance relative to the Russell 1000® Index was due to the Fund’s out-of-benchmark allocations to U.S. small cap equities, fixed income securities and commodity-linked securities, which generally underperformed the U.S. large cap equity market as represented by the Russell 1000® Index.
How did the market conditions described in the Market Summary report affect the Fund’s performance?
The underperformance of U.S. small cap equities, commodity-linked securities, listed infrastructure and fixed income securities relative to U.S. large cap equities, as represented by the Fund’s Russell 1000® Index benchmark, was a headwind for the Fund’s benchmark relative performance.
In the U.S., the equity market was dominated by macroeconomic drivers. In the first quarter of 2012, the Russell 1000® Index returned 12.90% primarily driven by positive U.S. gross domestic product growth and an encouraging drop in the headline unemployment rate. Following a strong first quarter, U.S. equities pulled back on gains, again driven by the macro environment in the second quarter. Heightened concerns over Greece’s potential exit from the Eurozone and growing concerns over the Spanish banking system spilled into U.S. market sentiment, pushing the Russell 1000® Index down 6.15%. Continuing the macro driven themes, U.S. markets rallied in the
third quarter off the European Central Bank’s (“ECB”) commitment to purchasing sovereign debt followed by the Federal Reserve’s (the “Fed”) announcement of unlimited purchases of mortgage-backed securities (often described as the third round of “quantitative easing”). These moves alleviated stresses from financial marks and reduced the likelihood of highly negative returns or “tail risk” in global equity markets. During the fourth quarter, despite immediate volatility in the U.S. equity markets following the presidential election in November, investors shifted their focus to the “fiscal cliff” combination of increased taxes and federal spending cuts looming on January 1, 2013. Despite the uncertainty, equity markets continued positive trends in anticipation of a deal to avoid the fiscal cliff. U.S equities (represented by the Russell 1000® Index) went on to finish the fiscal year ending December 31, 2012 up 16.42%, positively impacting the Fund’s allocation to dedicated U.S. large cap equity funds.
The combination of quantitative easing in the U.S., supporting actions by the ECB to support its member countries through unlimited asset purchases, resulted in a positive environment for global equities. In addition, improving economic conditions in China late in the year coupled with the stimulatory environment in developed markets drove emerging markets higher for the fiscal year. The Russell Developed ex-U.S. Index ended the year up 16.73% while the Russell Emerging Markets Index finished up 18.78% for the year. Thus, the Fund’s exposure to non-U.S. equity markets through its allocation to dedicated non-U.S. equity funds positively impacted performance against its U.S equity benchmark.
Macro driven sentiment was also evident in the real estate space. Global REITs (represented by the FTSE/EPRA NAREIT Developed Index) finished the fiscal year up a strong 27.73% and outperformed U.S. equities, which benefited the Fund’s allocation to the RIF Real Estate Securities Fund.
In contrast, an allocation to the RIC Russell Commodity Strategies Fund negatively impacted Fund performance. A volatile environment for commodities created a tough year for this Underlying Fund, as commodities returned -1.06% for the fiscal year (as represented by the Dow Jones UBS Commodity Index Total Return) and largely underperformed broader equity and fixed income markets.
In fixed income, a “risk-on” theme drove performance in the market, as investors holding corporate bonds and non-agency mortgage backed securities generally fared well through the year relative to U.S. Treasuries. Overall, the Barclays U.S. Aggregate Bond Index gained 4.21% for the year but lagged riskier assets such as U.S. equities.
How did the investment strategies and techniques employed by the Fund and the money managers of the Underlying Funds affect the Fund’s performance?
The Fund is a fund of funds and its performance is based on RIMCo’s strategic asset allocations and the performance of the Underlying Funds in which the Fund invests.
Equity Growth Strategy Fund | 49 |
Table of Contents
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Fund’s strategic allocation to the RIF Non-U.S. Fund, RIC Russell Emerging Markets Fund, and RIC Russell Global Equity Funds provided mixed results in terms of the Fund’s benchmark relative performance; The RIF Non-U.S. Fund and RIC Russell Emerging Markets Fund outperformed the Russell 1000® Index while the RIC Russell Global Equity Fund underperformed the Russell 1000® Index. From an active management standpoint, performance of these Underlying Funds was mixed. The RIF Non-U.S. Fund outperformed the broad non-U.S. equity market as represented by the Russell Developed ex-U.S. Large Cap™ Index Net, while the RIC Russell Global Equity Fund underperformed the broad global equity market as represented by the Russell Developed Large Cap Net Index. For the RIF Non-U.S. Fund, positioning in companies that exhibited slightly higher growth characteristics than the market 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 was positive, especially within information technology companies in emerging markets. For the RIC Russell Global Equity Fund, stock selection among U.S. mining stocks and emerging market securities, and an underweight to the strong performing financials sector detracted from performance. The RIC Russell Emerging Markets Fund slightly outperformed emerging Markets as represented by the Russell Emerging Markets® Net Index, driven by positive stock selection in Asian countries such as South Korea, China, and Thailand. An underweight to India also added value.
The Fund’s strategic allocation to U.S. equity Underlying Funds detracted from performance. Each of the U.S. equity Underlying Funds underperformed its respective U.S. equity market segment as represented by its primary benchmark. In particular, the RIF Multi-Style Equity Fund underperformed the Russell 1000® Index for the year, driven by a difficult second quarter as the fund was positioned for economic growth in a market environment that became risk averse. Positions in stocks with above-market growth rates and underweights in stocks with high dividend yield detracted from performance.
The Fund’s strategic allocation to alternative Underlying Funds had mixed effects on performance. The Fund’s allocation to the RIF Real Estate Securities Fund was positive, as the fund outperformed the Russell 1000® Index. The Fund’s strategic allocation to the RIC Russell Commodity Strategies Fund and RIC Russell Global Infrastructure Fund detracted, as the commodities and infrastructure asset classes underperformed the Russell 1000® Index.
The Fund’s strategic allocation to the RIC Russell Global Opportunistic Credit Fund was positive, as it outperformed the Russell 1000® Index. This was primarily due to the strong environment for spread fixed income products (such as corporate high yield and emerging market debt). However, from an active management standpoint, the RIC Russell Global Opportunistic Credit Fund underperformed its global high yield fixed income benchmark, the BofA Merrill Lynch Global High Yield Index (U.S. dollar hedged).
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund. Performance of the Fund’s short-term asset allocation modifications fluctuated throughout the fiscal year, but ended the fiscal year modestly negative. This was driven by a negative impact from an overweight to U.S. equities and underweight to non-U.S. equities in the second half of the year during a period when non-U.S. equity markets outpaced the U.S. equity market.
Describe any changes to the Fund’s structure or allocation to the Underlying Funds.
On August 15, 2012, the Fund added the RIC Russell U.S. Dynamic Equity Fund and the RIC Russell Multi-Strategy Alternative Fund as Underlying Funds. The RIC Russell U.S. Dynamic Equity Fund was added as a diversifier to the overall portfolio and to the return patterns of the RIC Russell U.S Defensive Equity Fund. The RIC Russell Multi-Strategy Alternative Fund was added as a diversifier to equity returns and was funded by decreasing the Fund’s allocation to equity funds.
Effective August 15, 2012, RIMCo changed the RIC Russell U.S. Quantitative Equity Fund’s investment strategy from a quantitative investment approach to investing in defensive stocks and discontinued its limited long-short strategy. As a result, the Fund’s primary benchmark changed from the Russell 1000® Index to the Russell 1000® Defensive Index™ and the Fund changed its name to the RIC Russell U.S. Defensive Equity Fund.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund.
On May 14, 2012, the Fund shifted to a defensive position in light of increasing policy risk in the European Union and downside risk in global equity markets, decreasing its weight to the RIF Non-U.S. Fund to 2.00% below the target strategic allocation and increasing its weight to the RIF Multi-Style Equity Fund by 2.00% above the target strategic allocation.
On June 6, 2012, in recognition of further concerns over stability in the Eurozone and ECB policy uncertainty, the Fund further decreased its weight to the RIF Non-U.S. Fund to 3.00% below the target strategic allocation and increased its weight to the RIC Russell Global Opportunistic Credit Fund to 1.00% above the target strategic allocation.
On October 22, 2012, the Fund shifted back to the target strategic allocation to the RIC Russell Global Opportunistic Credit Fund, decreased its underweight to the RIF Non-U.S. Fund to 2.50% below the target strategic allocation and
50 | Equity Growth Strategy Fund |
Table of Contents
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
maintained a 2.50% overweight to the RIF Multi-Style Equity Fund given mitigation of large tail risk by positive ECB and Fed policy announcements, but continued economic concerns over Europe.
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.
* | The Fund first issued shares on April 30, 2007. |
** | 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. |
*** | Russell Developed ex-U.S. Large Cap® Index (net of tax on dividends from foreign holdings) 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.
Equity Growth Strategy Fund | 51 |
Table of Contents
Russell Investment Funds
Equity Growth Strategy 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 administration 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 | $ | 1,095.00 | $ | 1,024.63 | ||||
Expenses Paid During Period* | $ | 0.53 | $ | 0.51 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.10% (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. |
52 | Equity Growth Strategy Fund |
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Russell Investment Funds
Equity Growth Strategy Fund
Schedule of Investments — December 31, 2012
Amounts in thousands (except share amounts)
Shares | Fair Value $ | |||||||
Investments - 100.0% | ||||||||
Russell Investment Company (“RIC”) and other Russell Investment Funds (“RIF”) Series Mutual Funds | ||||||||
Alternative Funds - 20.0% | ||||||||
RIC Russell Commodity Strategies Fund Class Y | 251,018 | 2,340 | ||||||
RIC Russell Global Infrastructure Fund Class Y | 142,599 | 1,564 | ||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 192,207 | 1,953 | ||||||
RIF Global Real Estate Securities Fund | 127,528 | 1,960 | ||||||
|
| |||||||
7,817 | ||||||||
|
| |||||||
Domestic Equities - 36.0% | ||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 65,996 | 2,150 | ||||||
RIC Russell U.S. Dynamic Fund Class Y | 373,313 | 3,729 | ||||||
RIF Aggressive Equity Fund | 196,717 | 2,561 | ||||||
RIF Multi-Style Equity Fund | 374,550 | 5,674 | ||||||
|
| |||||||
14,114 | ||||||||
|
| |||||||
Fixed Income - 5.0% | ||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 185,996 | 1,951 | ||||||
|
| |||||||
International Equities - 39.0% | ||||||||
RIC Russell Emerging Markets Fund Class Y | 135,225 | 2,564 | ||||||
RIC Russell Global Equity Fund Class Y | 555,931 | 5,087 | ||||||
RIF Non-U.S. Fund | 739,587 | 7,625 | ||||||
|
| |||||||
15,276 | ||||||||
|
| |||||||
Total Investments - 100.0% (identified cost $33,046) | 39,158 | |||||||
Other Assets and Liabilities, Net - (0.0%) | (18 | ) | ||||||
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| |||||||
Net Assets - 100.0% | 39,140 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Equity Growth Strategy Fund | 53 |
Table of Contents
Russell Investment Funds
Equity Growth Strategy Fund
Presentation of Portfolio Holdings — December 31, 2012
Categories | % of Net Assets | |||
Alternative Funds | 20.0 | |||
Domestic Equities | 36.0 | |||
Fixed Income | 5.0 | |||
International Equities | 39.0 | |||
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| |||
Total Investments | 100.0 | |||
Other Assets and Liabilities, Net | (— | )* | ||
|
| |||
100.0 | ||||
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|
* | Less than .05% of net assets. |
See accompanying notes which are an integral part of the financial statements.
54 | Equity Growth Strategy Fund |
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Russell Investment Funds
Equity Growth Strategy Fund
Statement of Assets and Liabilities — December 31, 2012
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 33,046 | ||
Investments, at fair value | 39,158 | |||
Receivables: | ||||
Fund shares sold | 34 | |||
From affiliates | 1 | |||
|
| |||
Total assets | 39,193 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Investments purchased | 34 | |||
Accrued fees to affiliates | 2 | |||
Other accrued expenses | 17 | |||
|
| |||
Total liabilities | 53 | |||
|
| |||
Net Assets | $ | 39,140 | ||
|
| |||
Net Assets Consist of: | ||||
Undistributed (overdistributed) net investment income | $ | 50 | ||
Accumulated net realized gain (loss) | (5,488 | ) | ||
Unrealized appreciation (depreciation) on investments | 6,112 | |||
Shares of beneficial interest | 48 | |||
Additional paid-in capital | 38,418 | |||
|
| |||
Net Assets | $ | 39,140 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share:(#) | $ | 8.21 | ||
Net assets | $ | 39,139,502 | ||
Shares outstanding ($.01 par value) | 4,768,964 |
(#) | 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.
Equity Growth Strategy Fund | 55 |
Table of Contents
Russell Investment Funds
Equity Growth Strategy Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Income distribution from Underlying Funds | $ | 698 | ||
|
| |||
Expenses | ||||
Advisory fees | 74 | |||
Administrative fees | 18 | |||
Custodian fees | 19 | |||
Transfer agent fees | 2 | |||
Professional fees | 31 | |||
Trustees’ fees | 1 | |||
Printing fees | 9 | |||
Miscellaneous | 8 | |||
|
| |||
Expenses before reductions | 162 | |||
Expense reductions | (125 | ) | ||
|
| |||
Net expenses | 37 | |||
|
| |||
Net investment income (loss) | 661 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | 4 | |||
Capital gain distributions from Underlying Funds | 23 | |||
|
| |||
Net realized gain (loss) | 27 | |||
Net change in unrealized appreciation (depreciation) on investments | 4,502 | |||
|
| |||
Net realized and unrealized gain (loss) | 4,529 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 5,190 | ||
|
|
See accompanying notes which are an integral part of the financial statements.
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Russell Investment Funds
Equity Growth Strategy 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) | $ | 661 | $ | 514 | ||||
Net realized gain (loss) | 27 | (91 | ) | |||||
Net change in unrealized appreciation (depreciation) | 4,502 | (2,499 | ) | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | 5,190 | (2,076 | ) | |||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (652 | ) | (473 | ) | ||||
|
|
|
| |||||
Net decrease in net assets from distributions | (652 | ) | (473 | ) | ||||
|
|
|
| |||||
Share Transactions* | ||||||||
Net increase (decrease) in net assets from share transactions | 3,757 | 6,578 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 8,295 | 4,029 | ||||||
Net Assets | ||||||||
Beginning of period | 30,845 | 26,816 | ||||||
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|
|
| |||||
End of period | $ | 39,140 | $ | 30,845 | ||||
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|
|
| |||||
Undistributed (overdistributed) net investment income included in net assets | $ | 50 | $ | 41 |
* | 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 | 1,330 | $ | 10,387 | 1,436 | $ | 11,225 | ||||||||||
Proceeds from reinvestment of distributions | 81 | 652 | 64 | 473 | ||||||||||||
Payments for shares redeemed | (915 | ) | (7,282 | ) | (655 | ) | (5,120 | ) | ||||||||
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|
|
|
|
|
|
| |||||||||
Total increase (decrease) | 496 | $ | 3,757 | 845 | $ | 6,578 | ||||||||||
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|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Equity Growth Strategy Fund | 57 |
Table of Contents
Russell Investment Funds
Equity Growth Strategy 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)(d) | $ Net Realized and Unrealized Gain (Loss) | $ Total from Investment Operations | $ Distributions from Net Investment Income | $ Distributions from Net Realized Gain | $ Return of Capital | ||||||||||||||||||||||
December 31, 2012 | 7.22 | .15 | .98 | 1.13 | (.14 | ) | — | — | ||||||||||||||||||||
December 31, 2011 | 7.82 | .13 | (.61 | ) | (.48 | ) | (.12 | ) | — | — | ||||||||||||||||||
December 31, 2010 | 6.98 | .14 | .91 | 1.05 | (.15 | ) | — | (.06 | ) | |||||||||||||||||||
December 31, 2009 | 5.42 | .12 | 1.56 | 1.68 | (.09 | ) | (.03 | ) | — | |||||||||||||||||||
December 31, 2008 | 9.83 | .07 | (3.92 | ) | (3.85 | ) | (.05 | ) | (.51 | ) | — |
See accompanying notes which are an integral part of the financial statements.
58 | Equity Growth Strategy Fund |
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$ Total Distributions | $ Net Asset Value, End of Period | % Return(e) | $ Net Assets, End of Period (000) | % Ratio of Expenses to Average Net Assets, Gross(c) | % Ratio of Expenses to Average Net Assets, Net(c)(d) | % Ratio of Net Investment Income to Average Net Assets(b)(d) | % Portfolio Turnover Rate | |||||||||||||||||||||||
(.14 | ) | 8.21 | 15.68 | 39,140 | .44 | .10 | 1.79 | 37 | ||||||||||||||||||||||
(.12 | ) | 7.22 | (6.22 | ) | 30,845 | .49 | .10 | 1.72 | 15 | |||||||||||||||||||||
(.21 | ) | 7.82 | 15.09 | 26,816 | .53 | .10 | 1.89 | 42 | ||||||||||||||||||||||
(.12 | ) | 6.98 | 31.79 | 20,057 | .59 | .08 | 2.02 | 21 | ||||||||||||||||||||||
(.56 | ) | 5.42 | (41.18 | ) | 12,613 | .58 | .04 | .87 | 24 |
See accompanying notes which are an integral part of the financial statements.
Equity Growth Strategy Fund | 59 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Highlights — December 31, 2012
(a) | Average daily shares outstanding were used for this calculation. |
(b) | Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the Underlying Funds in which the Fund invests. |
(c) | The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Funds in which the Fund invests. |
(d) | May reflect amounts waived and reimbursed by Russell Investment Management Company (“RIMCo”). |
(e) | The total return does not reflect any Insurance Company Separate Account or Policy Charges. |
See accompanying notes which are an integral part of the financial statements.
60 | Notes to Financial Highlights |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements — December 31, 2012
1. | Organization |
Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with 10 different investment portfolios referred to as Funds. These financial statements report on four of these Funds (each a “Fund” and collectively the “Funds”). The Investment Company provides the investment base for one or more variable insurance products issued by one or more insurance companies. These Funds are offered at net asset value to qualified insurance company separate accounts offering variable insurance products. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operated as a Massachusetts business trust under an Amended and Restated Master Trust Agreement dated October 1, 2008, as amended (“Master Trust Agreement”). The Investment Company’s Master Trust Agreement permits the Board of Trustees (the “Board”) to issue an unlimited number of shares of beneficial interest.
Each of the Funds is a “fund of funds” which seeks to achieve its objective by investing in a combination of Russell Investment Company (“RIC”) funds and other of the Investment Company’s Funds (together, the “Underlying Funds”) as set forth in the table below. Russell Investment Management Company (“RIMCo”), the Funds’ investment adviser, may modify the target asset allocation for any Fund and/or the Underlying Funds in which the Funds invest from time to time based on capital markets research or on factors such as RIMCo’s outlook for the economy, financial markets generally and/or relative market valuation of the asset classes represented by each Underlying Fund. Modifications in the allocations to the Underlying Funds are typically based on strategic, long-term allocation decisions. A Fund’s actual allocation may vary from the target strategic asset allocation at any point in time (1) due to market movements, (2) by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund, (3) due to the implementation over a period of time of a change to the target strategic asset allocation including the addition of a new Underlying Fund. There may be no changes in the asset allocation or to the Underlying Funds in a given year or such changes may be made one or more times in a year. In the future, the Funds may also invest in other Underlying Funds that pursue investment strategies not pursued by the current Underlying Funds or represent asset classes which are not currently represented by the Underlying Funds.
Asset Allocation Targets as of August 15, 2012* | ||||||||||||||||
Underlying Funds | Moderate Strategy Fund | Balanced Strategy Fund | Growth Strategy Fund | Equity Growth Strategy Fund | ||||||||||||
Alternative Funds** | ||||||||||||||||
RIC Russell Commodity Strategies Fund | 0-8 | % | 0-9 | % | 1-11 | % | 1-11 | % | ||||||||
RIC Russell Global Infrastructure Fund | 0-8 | 0-8 | 0-9 | 0-9 | ||||||||||||
RIC Russell Multi-Strategy Alternative Fund | 0-8 | 0-8 | 0-9 | 0-10 | ||||||||||||
RIF Global Real Estate Securities Fund | 0-8 | 0-8 | 0-9 | 0-10 | ||||||||||||
Domestic Equity Funds | ||||||||||||||||
RIC Russell U.S. Defensive Equity Fund*** | 0-9 | 0-10 | 0-10 | 1-11 | ||||||||||||
RIC Russell U.S. Dynamic Equity Fund**** | 0-7 | 1-11 | 1-11 | 4-14 | ||||||||||||
RIF Aggressive Equity Fund | 0-7 | 0-9 | 1-11 | 2-12 | ||||||||||||
RIF Multi-Style Equity Fund | 0-9 | 2-12 | 5-15 | 7-17 | ||||||||||||
Fixed Income Funds | ||||||||||||||||
RIC Russell Global Opportunistic Credit Fund | 0-8 | 0-8 | 0-9 | 0-10 | ||||||||||||
RIC Russell Investment Grade Bond Fund | 15-25 | 0 | 0 | 0 | ||||||||||||
RIF Core Bond Fund | 31-41 | 30-40 | 10-20 | 0 | ||||||||||||
International Equity Funds | ||||||||||||||||
RIC Russell Emerging Markets Fund | 0-8 | 0-9 | 0-10 | �� | 1-11 | |||||||||||
RIC Russell Global Equity Fund | 2-12 | 4-14 | 8-18 | 8-18 | ||||||||||||
RIF Non-U.S. Fund | 3-13 | 9-19 | 13-23 | 17-27 |
* | Prospectus dated May 1, 2012, as supplemented through August 15, 2012. |
** | Alternative Funds consist of registered investment companies that seek low correlation to equity and/or fixed income investments. |
*** | Formerly, RIC Russell U.S. Quantitative Equity Fund. |
**** | Formerly, RIC Russell U.S. Growth Fund. |
2. | Significant Accounting Policies |
The Funds’ financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements.
Notes to Financial Statements | 61 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
Security Valuation
The Funds value their portfolio securities, the shares of the Underlying Funds, at the current net asset value per share of each Underlying Fund.
Fair value of securities is defined as the price that the Funds would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. To increase consistency and comparability in fair value measurement, the fair value hierarchy was established to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, (e.g., the risk inherent in a particular valuation technique, such as a pricing model or the risks inherent in the inputs to a particular valuation technique). Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy of inputs is summarized in the three broad levels listed below.
• | Level 1 — Quoted prices (unadjusted) in active markets or exchanges for identical assets and liabilities. |
• | Level 2 — Inputs other than quoted prices included within Level 1 that are observable, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active (such as interest rates, yield curves, implied volatilities, credit spreads) or other market corroborated inputs. |
• | Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments. |
The levels associated with valuing the Funds’ investments for the period ended December 31, 2012 were Level 1 for all Funds.
Investment Transactions
Investment transactions are reflected as of the trade date for financial reporting purposes. This may cause the net asset value stated in the financial statements to be different from the net asset value at which shareholders may transact. Realized gains and losses from securities transactions, if applicable, are recorded on the basis of specific identified cost.
Investment Income
Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date.
Federal Income Taxes
Since the Investment Company is a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund’s shareholders without regard to the income and capital gains (or losses) of the other Funds.
For each year, each Fund intends to qualify as a regulated investment company under sub-chapter M of the Internal Revenue Code (the “Code”) and intends to distribute all of its taxable income and capital gains. Therefore, no federal income tax provision is required for the Funds.
Each Fund files a U. S. tax return. At December 31, 2012, the Funds had recorded no liabilities for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns. While the statute of limitations remains open to examine the Funds’ U.S. tax returns filed for the fiscal years ended December 31, 2009 through December 31, 2011, no examinations are in progress or anticipated at this time. The Funds are not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
The Funds comply with the authoritative guidance for uncertainty in income taxes which requires management to determine whether a tax position of the Funds is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50%
62 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
likelihood of being realized upon ultimate settlement with the relevant taxing authority. Management determined that no accruals need to be made in the financial statements due to uncertain tax positions. Management continually reviews and adjusts the Funds’ liability for income taxes based on analyses of tax laws and regulations, as well as their interpretations, and other relevant factors.
Dividends and Distributions to Shareholders
Income dividends, capital gain distributions and return of capital, if any, are recorded on the ex-dividend date. Income dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Funds to avoid imposition of federal income and excise tax on any remaining undistributed capital gains and net investment income.
The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from U.S. GAAP. As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and U.S. GAAP relate primarily to investments in the Underlying Funds sold at a loss, wash sale deferrals and capital loss carryforwards. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without impacting their net asset values.
Expenses
Expenses included in the accompanying financial statements reflect the expenses of each Fund and do not include those expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of the Underlying Funds’ fees and expenses incurred indirectly by the Funds will vary.
Guarantees
In the normal course of business, the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds’ maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote.
Market, Credit and Counterparty Risk
In the normal course of business, the Underlying Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to a transaction to perform (credit risk). Similar to credit risk, the Underlying Funds may also be exposed to counterparty risk or the risk that an institution or other entity with which the Underlying Funds have unsettled or open transactions will default. The potential loss could exceed the value of the relevant assets recorded in the Underlying Funds’ financial statements (the “Assets”). The Assets, which potentially expose the Underlying Funds to credit risk, consist principally of cash due from counterparties and investments. The extent of the Underlying Funds’ exposure to credit and counterparty risks with respect to the Assets approximates their carrying value as recorded in the Underlying Funds’ Statements of Assets and Liabilities.
3. | Investment Transactions |
Securities
During the period ended December 31, 2012, purchases and sales of the Underlying Funds (excluding short-term investments) were as follows:
Purchases | Sales | |||||||
Moderate Strategy Fund | $ | 30,993,330 | $ | 17,393,665 | ||||
Balanced Strategy Fund | 79,156,572 | 47,680,941 | ||||||
Growth Strategy Fund | 52,101,375 | 32,330,456 | ||||||
Equity Growth Strategy Fund | 17,409,780 | 13,613,127 |
4. | Related Party Transactions, Fees and Expenses |
Adviser and Administrator
RIMCo advises the Funds and Russell Fund Services Company (“RFSC”) is the Funds’ administrator. RFSC is a wholly-owned subsidiary of RIMCo. RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides ongoing money manager research and trade placement services to RIF and RIMCo.
Notes to Financial Statements | 63 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
The advisory fee of 0.20% and administrative fee of up to 0.05% are based upon the average daily net assets of the Funds and are payable monthly. The following shows the total amount of each of these fees paid by the Funds for the period ended December 31, 2012.
Advisory | Administrative | |||||||
Moderate Strategy Fund | $ | 172,068 | $ | 42,970 | ||||
Balanced Strategy Fund | 457,713 | 114,304 | ||||||
Growth Strategy Fund | 260,404 | 65,030 | ||||||
Equity Growth Strategy Fund | 73,941 | 18,464 |
RIMCo has contractually agreed, until April 30, 2013, to waive up to the full amount of its 0.20% advisory fee and then reimburse each Fund for other Fund level direct expenses to the extent that direct Fund level expenses exceed 0.10% of the average daily net assets of the Fund on an annual basis. Direct Fund level expenses do not include extraordinary expenses or the expenses of other investment companies in which the Funds invest, including the Underlying Funds, which are borne indirectly by the Funds. These waivers and reimbursements may not be terminated during the relevant period except with Board approval.
For the period ended December 31, 2012, RIMCo waived/reimbursed the following expenses:
Waiver | Reimbursement | Total | ||||||||||
Moderate Strategy Fund | $ | 172,068 | $ | 52,307 | $ | 224,375 | ||||||
Balanced Strategy Fund | 457,713 | 38,627 | 496,340 | |||||||||
Growth Strategy Fund | 260,404 | 46,134 | 306,538 | |||||||||
Equity Growth Strategy Fund | 73,941 | 51,287 | 125,228 |
RIMCo does not have the ability to recover amounts waived or reimbursed from previous periods.
Transfer and Dividend Disbursing Agent
RFSC serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RFSC is paid a fee based upon the average daily net assets of the Funds for transfer agency and dividend disbursing services. RFSC retains a portion of this fee for its services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Total fees paid by the Funds presented herein for the period ended December 31, 2012 were as follows:
Amount | ||||
Moderate Strategy Fund | $ | 3,786 | ||
Balanced Strategy Fund | 10,070 | |||
Growth Strategy Fund | 5,729 | |||
Equity Growth Strategy Fund | 1,627 |
Distributor
Russell Financial Services, Inc. (the “Distributor”), a wholly-owned subsidiary of RIMCo, is the distributor for the Investment Company pursuant to a distribution agreement with the Investment Company. The Distributor receives no compensation from the Investment Company for its services.
Accrued Fees Payable to Affiliates
Accrued fees payable to affiliates for the period ended December 31, 2012 were as follows:
Moderate Strategy Fund | Balanced Strategy Fund | Growth Strategy Fund | Equity Growth Strategy Fund | |||||||||||||
Administration fees | $ | 3,903 | $ | 10,419 | $ | 6,008 | $ | 1,649 | ||||||||
Transfer agent fees | 347 | 929 | 536 | 148 | ||||||||||||
Trustee fees | 498 | 1,329 | 735 | 206 | ||||||||||||
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$ | 4,748 | $ | 12,677 | $ | 7,279 | $ | 2,003 | |||||||||
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64 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
Board of Trustees
The Russell Fund Complex consists of RIC, which has 40 funds, RIF, which has 10 funds and Russell Exchange Traded Funds Trust (“RET”) which has 1 fund. Each of the Trustees is a Trustee of RIC, RIF and RET. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $75,000 per year; each of its interested Trustees a retainer of $65,000 per year; and each Trustee $7,000 for each regularly scheduled meeting attended in person and $3,500 for each special meeting and the Annual 38a-1 meeting attended in person, and for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $1,000 fee for attending regularly scheduled and special meetings by phone instead of receiving the full fee had the member attended in person (except for telephonic meetings called pursuant to the Funds’ valuation and pricing procedures) and a $500 fee for attending the committee meeting by phone instead of receiving the full fee had the member attended in person. Trustees’ out-of-pocket expenses are also paid by the Russell Fund Complex. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $15,000 per year and the Nominating and Governance Committee Chair is paid a fee of $6,000 per year. The chairman of the Board receives additional annual compensation of $75,000. Ms. Cavanaugh and the Trustee Emeritus are not compensated by the Russell Fund Complex for service as a Trustee.
Transactions with Affiliated Companies (amounts in thousands)
An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities or which the Fund controls, is controlled by or is under common control with. Transactions during the period ended December 31, 2012 with Underlying Funds which are, or were, an affiliated company are as follows:
Fair Value | Purchases Cost | Sales Cost | Realized Gain (Loss) | Income Distributions | Capital Gains Distributions | |||||||||||||||||||
Moderate Strategy Fund | ||||||||||||||||||||||||
RIC Russell Commodity Strategies Fund | $ | 2,797 | $ | 942 | $ | 347 | $ | (36 | ) | $ | — | $ | — | |||||||||||
RIC Russell Global Infrastructure Fund | 2,835 | 592 | 249 | (3 | ) | 101 | 38 | |||||||||||||||||
RIC Russell Multi-Strategy Alternative Fund | 2,828 | 2,839 | 50 | — | — | — | ||||||||||||||||||
RIF Global Real Estate Securities Fund | 2,862 | 567 | 467 | 1 | 133 | — | ||||||||||||||||||
RIC Russell U.S. Defensive Equity Fund | 3,736 | 1,005 | 2,007 | 264 | 69 | — | ||||||||||||||||||
RIC Russell U.S. Dynamic Equity Fund | 1,893 | 1,884 | 71 | 1 | 8 | — | ||||||||||||||||||
RIF Aggressive Equity Fund | 1,916 | 469 | 292 | 2 | 20 | — | ||||||||||||||||||
RIF Multi-Style Equity Fund | 5,414 | 2,542 | 1,461 | 16 | 50 | — | ||||||||||||||||||
RIC Russell Global Opportunistic Credit Fund | 1,882 | 563 | 315 | 2 | 130 | 1 | ||||||||||||||||||
RIC Russell Investment Grade Bond Fund | 18,778 | 6,606 | 2,993 | 19 | 707 | 197 | ||||||||||||||||||
RIF Core Bond Fund | 33,806 | 8,512 | 2,580 | 1 | 1,230 | 318 | ||||||||||||||||||
RIC Russell Emerging Markets Fund | 2,395 | 667 | 973 | (77 | ) | 27 | — | |||||||||||||||||
RIC Russell Global Equity Fund | 7,139 | 1,879 | 1,703 | (41 | ) | 87 | — | |||||||||||||||||
RIF Non-U.S. Fund | 5,961 | 1,926 | 3,882 | (145 | ) | 114 | — | |||||||||||||||||
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$ | 94,242 | $ | 30,993 | $ | 17,390 | $ | 4 | $ | 2,676 | $ | 554 | |||||||||||||
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Balanced Strategy Fund | ||||||||||||||||||||||||
RIC Russell Commodity Strategies Fund | $ | 10,070 | $ | 2,918 | $ | 625 | $ | (58 | ) | $ | — | $ | — | |||||||||||
RIC Russell Global Infrastructure Fund | 7,596 | 1,217 | 263 | (5 | ) | 268 | 101 | |||||||||||||||||
RIC Russell Multi-Strategy Alternative Fund | 7,581 | 7,535 | 59 | — | — | — | ||||||||||||||||||
RIF Global Real Estate Securities Fund | 7,609 | 1,055 | 814 | (8 | ) | 353 | — | |||||||||||||||||
RIC Russell U.S. Defensive Equity Fund | 12,641 | 2,587 | 9,011 | 952 | 246 | — | ||||||||||||||||||
RIC Russell U.S. Dynamic Equity Fund | 13,995 | 13,481 | 74 | 2 | 58 | — | ||||||||||||||||||
RIF Aggressive Equity Fund | 10,220 | 1,682 | 778 | (18 | ) | 103 | — | |||||||||||||||||
RIF Multi-Style Equity Fund | 24,093 | 8,072 | 7,286 | 111 | 255 | — | ||||||||||||||||||
RIC Russell Global Opportunistic Credit Fund | 7,575 | 1,749 | 747 | 4 | 520 | 4 | ||||||||||||||||||
RIF Core Bond Fund | 88,269 | 25,863 | 10,405 | 85 | 3,197 | 813 | ||||||||||||||||||
RIC Russell Emerging Markets Fund | 8,948 | 1,841 | 2,480 | (245 | ) | 102 | — | |||||||||||||||||
RIC Russell Global Equity Fund | 24,102 | 4,396 | 3,459 | (189 | ) | 294 | — | |||||||||||||||||
RIF Non-U.S. Fund | 30,415 | 6,761 | 13,304 | (2,255 | ) | 534 | — | |||||||||||||||||
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$ | 253,114 | $ | 79,157 | $ | 49,305 | $ | (1,624 | ) | $ | 5,930 | $ | 918 | ||||||||||||
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Notes to Financial Statements | 65 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
Fair Value | Purchases Cost | Sales Cost | Realized Gain (Loss) | Income Distributions | Capital Gains Distributions | |||||||||||||||||||
Growth Strategy Fund | ||||||||||||||||||||||||
RIC Russell Commodity Strategies Fund | $ | 8,595 | $ | 2,832 | $ | 801 | $ | (69 | ) | $ | — | $ | — | |||||||||||
RIC Russell Global Infrastructure Fund | 5,801 | 1,140 | 244 | (4 | ) | 205 | 78 | |||||||||||||||||
RIC Russell Multi-Strategy Alternative Fund | 5,801 | 5,853 | 133 | — | — | — | ||||||||||||||||||
RIF Global Real Estate Securities Fund | 5,859 | 982 | 570 | (2 | ) | 269 | — | |||||||||||||||||
RIC Russell U.S. Defensive Equity Fund | 7,879 | 2,029 | 7,031 | 646 | 163 | — | ||||||||||||||||||
RIC Russell U.S. Dynamic Equity Fund | 9,429 | 9,147 | 115 | 3 | 40 | — | ||||||||||||||||||
RIF Aggressive Equity Fund | 8,064 | 1,589 | 1,274 | (79 | ) | 84 | — | |||||||||||||||||
RIF Multi-Style Equity Fund | 17,706 | 6,169 | 3,768 | 30 | 172 | — | ||||||||||||||||||
RIC Russell Global Opportunistic Credit Fund | 5,787 | 1,681 | 761 | 3 | 396 | 3 | ||||||||||||||||||
RIF Core Bond Fund | 21,663 | 10,512 | 6,104 | 115 | 797 | 197 | ||||||||||||||||||
RIC Russell Emerging Markets Fund | 6,629 | 1,388 | 1,476 | (141 | ) | 75 | — | |||||||||||||||||
RIC Russell Global Equity Fund | 18,963 | 3,830 | 2,954 | (146 | ) | 232 | — | |||||||||||||||||
RIF Non-U.S. Fund | 23,007 | 4,949 | 8,162 | (1,419 | ) | 391 | — | |||||||||||||||||
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$ | 145,183 | $ | 52,101 | $ | 33,393 | $ | (1,063 | ) | $ | 2,824 | $ | 278 | ||||||||||||
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Equity Growth Strategy Fund | ||||||||||||||||||||||||
RIC Russell Commodity Strategies Fund | $ | 2,340 | $ | 1,011 | $ | 491 | $ | (35 | ) | $ | — | $ | — | |||||||||||
RIC Russell Global Infrastructure Fund | 1,564 | 466 | 266 | (1 | ) | 58 | 22 | |||||||||||||||||
RIC Russell Multi-Strategy Alternative Fund | 1,953 | 2,201 | 276 | — | — | — | ||||||||||||||||||
RIF Global Real Estate Securities Fund | 1,960 | 507 | 439 | (1 | ) | 94 | — | |||||||||||||||||
RIC Russell U.S. Defensive Equity Fund | 2,150 | 1,173 | 3,273 | 544 | 52 | — | ||||||||||||||||||
RIC Russell U.S. Dynamic Equity Fund | 3,729 | 3,897 | 328 | 8 | 16 | — | ||||||||||||||||||
RIF Aggressive Equity Fund | 2,561 | 734 | 657 | 3 | 28 | — | ||||||||||||||||||
RIF Multi-Style Equity Fund | 5,674 | 2,266 | 1,920 | 18 | 63 | — | ||||||||||||||||||
RIC Russell Global Opportunistic Credit Fund | 1,951 | 1,195 | 924 | 15 | 159 | 1 | ||||||||||||||||||
RIC Russell Emerging Markets Fund | 2,564 | 700 | 735 | (58 | ) | 30 | — | |||||||||||||||||
RIC Russell Global Equity Fund | 5,087 | 1,209 | 1,152 | (61 | ) | 64 | — | |||||||||||||||||
RIF Non-U.S. Fund | 7,625 | 2,051 | 3,148 | (428 | ) | 134 | — | |||||||||||||||||
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$ | 39,158 | $ | 17,410 | $ | 13,609 | $ | 4 | $ | 698 | $ | 23 | |||||||||||||
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5. | Federal Income Taxes |
At December 31, 2012, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryfowards and expiration dates are as follows:
No Expiration | ||||||||||||||||||||
Funds | 12/31/2017 | 12/31/2018 | Short-Term | Long-Term | Totals | |||||||||||||||
Balanced Strategy | $ | –– | $ | 293,385 | $ | — | $ | — | $ | 293,385 | ||||||||||
Growth Strategy | –– | 1,435,649 | 260,313 | 50,547 | 1,746,509 | |||||||||||||||
Equity Growth Strategy | 215,835 | 720,380 | — | 145,785 | 1,082,000 |
Under the Regulated Investment Company Modernization Act of 2010, the Funds will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
66 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
At December 31, 2012, the cost of investments and net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:
| Moderate Strategy Fund | Balanced Strategy Fund | Growth Strategy Fund | Equity Growth Strategy Fund | ||||||||||||
Cost of Investments | $ | 88,771,590 | $ | 235,077,821 | $ | 135,124,780 | $ | 37,297,075 | ||||||||
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Unrealized Appreciation | $ | 5,592,704 | $ | 18,563,557 | $ | 10,466,244 | $ | 1,902,154 | ||||||||
Unrealized Depreciation | (122,612 | ) | (527,421 | ) | (408,378 | ) | (41,058 | ) | ||||||||
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Net Unrealized Appreciation (Depreciation) | $ | 5,470,092 | $ | 18,036,136 | $ | 10,057,866 | $ | 1,861,096 | ||||||||
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Undistributed Ordinary Income | $ | 85,970 | $ | 160,644 | $ | 70,014 | $ | 49,952 | ||||||||
Undistributed Long-Term Capital Gains | $ | 465,688 | $ | (293,385 | ) | $ | (1,746,509 | ) | $ | (1,082,000 | ) | |||||
Tax Composition of Distributions | ||||||||||||||||
Ordinary Income | $ | 2,603,473 | $ | 5,712,193 | $ | 2,687,634 | $ | 651,799 | ||||||||
Long-Term Capital Gains | $ | 420,481 | $ | — | $ | — | $ | — |
As permitted by tax regulations, the Funds intend to defer a net realized capital loss incurred from November 1, 2012 to December 31 2012, and treat it as arising in the fiscal year 2013. As of December 31, 2012, the Fund had realized a capital losses as follows:
Equity Growth Strategy Fund | $ | 154,679 |
6. | Interfund Lending Program |
The Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Funds may borrow money from each other for temporary purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. A lending fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves and the portfolio manager determines it is in the best interest of the lending fund. The Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating Fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the lending fund could result in reduced returns or additional borrowing costs. For the period ended December 31, 2012, the Funds did not borrow or loan through the interfund lending program.
7. | Record Ownership |
As of December 31, 2012, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund.
# of Shareholders | % | |||||||
Moderate Strategy Fund | 1 | 95.3 | ||||||
Balanced Strategy Fund | 1 | 93.7 | ||||||
Growth Strategy Fund | 1 | 90.4 | ||||||
Equity Growth Strategy Fund | 2 | 97.5 |
8. | Subsequent Events |
Management has evaluated the events and /or transactions that have occurred through the date the financial statements were available to be issued and noted no items requiring adjustments of the financial statements or additional disclosures.
Notes to Financial Statements | 67 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of Russell Investment Funds
In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Moderate Strategy Fund, Balanced Strategy Fund, Growth Strategy Fund, and Equity Growth Strategy Fund (four of the portfolios constituting Russell Investment Funds, hereafter collectively referred to as the “Funds”) at December 31, 2012, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Seattle, WA
February 14, 2013
68 | Report of Independent Registered Public Accounting Firm |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Tax Information — December 31, 2012 (Unaudited)
For the tax year ended December 31, 2012, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2013 will show the tax status of all distributions paid to your account in calendar year 2012.
The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:
Moderate Strategy | 8.5 | % | ||
Balanced Strategy | 15.7 | % | ||
Growth Strategy | 23.8 | % | ||
Equity Growth Strategy | 7.2 | % |
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following amounts as long-term capital gain dividends for their taxable year ended December 31, 2012:
Moderate Strategy | $ | 420,481 |
The Funds listed below paid foreign taxes and recognized foreign source income during the taxable year ended December 31, 2012. Pursuant to Section 853 of the Internal Revenue Code, the Funds designate the following per share amounts of foreign taxes paid and income earned from foreign sources:
Fund Name | Foreign Taxes Paid | Foreign Taxes Paid Per Share | Foreign Source Income | Foreign Source Income Per Share | ||||||||||||
Moderate Strategy | $ | 34,297 | $ | 0.0037 | $ | 358,333 | $ | 0.0384 | ||||||||
Balanced Strategy | 134,587 | 0.0051 | 1,233,966 | 0.0466 | ||||||||||||
Growth Strategy | 100,498 | 0.0062 | 929,121 | 0.0574 | ||||||||||||
Equity Growth Strategy | 34,197 | 0.0018 | 2,354 | 0.0227 |
Please consult a tax adviser for any questions about federal or state income tax laws.
Tax Information | 69 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts — (Unaudited)
The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) in which the Funds invest (the “Underlying Funds”) at a meeting held in person on April 19, 2011 (the “Agreement Evaluation Meeting”). During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds’ and Underlying Funds’ shares, management of the Funds and the Underlying Funds by RIMCo and compliance with applicable regulatory requirements. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds and the Underlying Funds; and (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and the Underlying Funds and their respective operating expenses over various periods of time with other peer funds not managed by RIMCo, believed by the provider to be generally comparable in investment objectives to the Funds and the Underlying Funds. In the case of each Fund, its other peer funds are collectively hereinafter referred to as the Fund’s “Comparable Funds,” and, with the Fund, such Comparable Funds are collectively hereinafter referred to as the Fund’s “Performance Universe” in the case of performance comparisons and the Fund’s “Expense Universe” in the case of operating expense comparisons. In the case of certain Funds, the Third-Party Information reflected changes in the Comparable Funds requested by RIMCo, which changes were noted in the Third-Party Information. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Evaluation Information.” The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Funds and other funds in the same complex with respect to services provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a memorandum from counsel to the Funds and Underlying Funds discussing the legal standards for their consideration of the continuations of the RIMCo Agreement and the portfolio management contracts, and the Independent Trustees separately received a memorandum regarding their responsibilities from their independent counsel.
On April 11, 2011, the Independent Trustees in preparation for the Agreement Evaluation Meeting met by conference telephone call to review Agreement Evaluation Information received to that date in a private session with their independent counsel at which no representatives of RIMCo or the Funds’ management were present and, on the basis of that review, requested additional Agreement Evaluation Information. At the Agreement Evaluation Meeting, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management, counsel to the Funds and Underlying Funds and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in executive session with their independent counsel to consider additional Agreement Evaluation Information received from RIMCo and management at the Agreement Evaluation Meeting. The discussion below reflects all of these reviews.
In evaluating the portfolio management contracts, the Board considered RIMCo’s advice that the Underlying Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which, in turn, employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser’s style and investment philosophy. RIMCo has engaged multiple unaffiliated Money Managers for all Underlying Funds.
The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for allocating assets of each Fund among its Underlying Funds and for determining, implementing and maintaining the investment program for each Underlying Fund. The assets of each Fund are invested in different combinations of the Underlying Funds pursuant to target asset allocations set by RIMCo. RIMCo may modify the target asset allocation for any Fund and/or the Underlying Funds in which the Funds invest. Assets of each Underlying Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Underlying Fund. RIMCo manages directly a portion of one Underlying Fund’s assets employing a “select holdings strategy,” as described below. RIMCo also may manage directly any portion of each Underlying Fund’s assets that RIMCo determine not to allocate to the Money Managers and portions of an Underlying Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo pursuant to authority provided by the RIMCo Agreement.
RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Underlying Fund and for actively managing allocations and reallocations of its assets among the Money Managers. The Board has been advised that RIMCo’s goal is to construct and manage diversified portfolios in a risk-aware manner. Each Money Manager for an Underlying Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Underlying Fund assigned to it by RIMCo (each, a “segment”) in accordance with the Underlying Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in an Underlying Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund’s investment objective and policies; authorizing Money Managers to
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LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
engage in certain investment strategies for an Underlying Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, RIMCo is responsible for recommending to the Board additions of new Money Managers or replacements of existing Money Managers at any time when, based on RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may impose specific investment constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for an Underlying Fund in a complementary manner. Therefore, the performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by RIMCo in the Underlying Fund’s investment activities and any constraints placed by RIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Underlying Fund’s investment program, structuring an Underlying Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment that is complementary to the styles of the Money Managers of other Underlying Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Underlying Fund.
The Board considered that the prospectuses for the Funds and the Underlying Funds and other public disclosures emphasize to investors RIMCo’s role as the principal investment manager for each Underlying Fund, rather than the investment selection role of the Underlying Funds’ Money Managers, and describe the manner in which the Funds or Underlying Funds operate so that investors may take that information into account when deciding to purchase shares of any such Fund. The Board further considered that Fund investors in pursuing their investment goals and objectives likely purchased their shares on the basis of this information and RIMCo’s reputation for and performance record in managing the Underlying Funds’ manager-of-managers structure.
The Board also considered the demands and complexity of managing the Underlying Funds pursuant to the manager-of-managers structure, the special expertise of RIMCo with respect to the manager-of-managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of each Underlying Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of such Underlying Fund selected by shareholders in purchasing their shares of a Fund or Underlying Fund.
In addition to these general factors relating to the manager-of-managers structure of the Underlying Funds, the Trustees considered, with respect to each Fund and Underlying Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including the following:
1. | The nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Fund or the Underlying Fund by RIMCo; |
2. | The advisory fee paid by the Fund or the Underlying Fund to RIMCo (the “Advisory Fee”) and the fact that it encompasses all investment advisory fees paid by the Fund or Underlying Fund, including the fees for any Money Managers of such Underlying Fund; |
3. | Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund or Underlying Fund, including any administrative, transfer agent or cash management fees and fees received for management of securities lending cash collateral, soft dollar arrangements and commissions in connection with portfolio securities transactions; |
4. | Information provided by RIMCo as to expenses incurred by the Fund or the Underlying Fund; and |
5. | Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund or Underlying Fund. |
In evaluating the nature, scope and overall quality of the investment management and other services provided and which are expected to be provided to the Funds, including Fund portfolio management services, the Board inquired as to the continuing impact on the Funds’ operations of significant changes in RIMCo’s senior management and other personnel providing services to the Funds during 2009 and 2010 and to the date of the Agreement Evaluation Meeting and the relocation of the Russell organization’s headquarters. At the Agreement Evaluation Meeting, senior representatives of RIMCo discussed these changes with the Board and assured the Board that such changes have not resulted in any diminution in the nature, scope or quality of the services provided to the Funds or the Underlying Funds. The Board also discussed the impact of such changes on the compliance programs of the Funds, the Underlying Funds and RIMCo with the Funds’ Chief Compliance Officer (the “CCO”) and received assurances from the CCO that such changes have not resulted in any diminution in the scope and quality of the compliance programs of the Funds or the Underlying Funds.
As noted above, RIMCo, pursuant to the terms of the RIMCo Agreement, directly manages a portion — up to 10% — of the assets of the RIF Multi-Style Equity Fund (the “Participating Underlying Fund”) utilizing a select holdings strategy, the actual allocation
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LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
being determined by the Participating Underlying Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets for the Participating Underlying Fund is designed to increase the Participating Underlying Fund’s exposure to stocks that are viewed as attractive by multiple Money Managers of the Participating Underlying Fund. The Board considered that the select holdings strategy initially was utilized for two other mutual funds under the management of RIMCo but did not achieve the objectives anticipated by RIMCo in respect of such funds and therefore was discontinued. Against this background, the Board reviewed the results of the select holdings strategy in respect of the Participating Underlying Fund during the past year. The Trustees considered that RIMCo is not required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is utilized and that the profits derived by RIMCo generally and from the Participating Underlying Fund consequently may increase incrementally. The Board, however, also considered RIMCo’s advice that it pays certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and incurs additional costs in carrying out the select holdings strategy, the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings strategy, and the fact that the aggregate investment advisory fees paid by the Participating Underlying Fund are not increased as a result of the select holdings strategy.
In evaluating the reasonableness of the Funds’ and Underlying Funds’ Advisory Fees in light of Fund and Underlying Fund performance, the Board considered that, in the Agreement Evaluation Information and at past meetings, RIMCo noted differences between the investment strategies of certain Underlying Funds and their respective Comparable Funds in pursuing their investment objectives, including fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than their Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Underlying Funds during the periods covered by the Third-Party Information did result, in lower performance of the Underlying Funds than that of some of their Comparable Funds. According to RIMCo, the strategies pursued by the Underlying Funds, among other things, are intended to result in less volatile, more moderate returns relative to each Underlying Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time, although Fund results in 2008 and early 2009 generally did not reflect uniform success in achieving lesser volatility.
In discussing the Advisory Fees for the Underlying Funds generally, RIMCo noted, among other things, that its Advisory Fees for Underlying Funds encompass services that may not be provided by investment advisers to the Underlying Funds’ Comparable Funds, such as cash equitization and management of portfolio transition costs when Money Managers are added, terminated or replaced. RIMCo also observed that its “margins” in providing investment advisory services to the Underlying Funds tend to be lower than competitors’ margins because of the demands and complexities of managing the Underlying Funds’ manager-of-managers structure, including RIMCo’s payment of a significant portion of the Underlying Funds’ Advisory Fees to their Money Managers. RIMCo expressed the view that Advisory Fees should be considered each Fund’s or Underlying Fund’s total expense ratio to obtain a complete picture. The Board, however, considered each Fund’s and Underlying Fund’s Advisory Fee on both a standalone basis and in the context of the Fund’s or Underlying Fund’s total expense ratio
The Board considered, as a general matter, that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and other funds under the Board’s supervision, including the Underlying Funds, are lower, and, in some cases, may be substantially lower, than the rates paid by the funds supervised by the Board, including the Funds. The Trustees considered the differences in the nature and scope of services RIMCo provides to institutional clients and the funds under its supervision, including the Underlying Funds. RIMCo explained, among other things, that institutional clients have fewer administrative needs than the Funds. RIMCo also noted that since the Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. In addition, RIMCo noted that the Funds are subject to heightened regulatory requirements relative to institutional clients. The Board noted that RIMCo provides office space and facilities to the Funds and Underlying Funds and all of the Funds’ and Underlying Funds’ officers. Accordingly, the Trustees concluded that the services provided to the Funds and Underlying Funds are sufficiently different from the services provided to the other clients that comparisons are not probative and should not be given significant weight.
With respect to the Funds’ Advisory Fees, the Third-Party Information showed that the Advisory fee for each Fund, on a contractual basis, was ranked in the fourth quintile of its Expense Universe but was ranked in the first quintile of its Expense Universe an actual basis (i.e., giving effect to any voluntary fee waivers implemented by RIMCo and the advisers to such Fund’s Comparable Funds). The comparisons were based upon the latest fiscal years for the Expense Universe funds. In assessing the Funds’ Advisory Fees, the Board focused on actual Advisory Fees.
With respect to the Funds’ total expenses, the Third-Party Information showed that, with the exception of the Equity Growth Strategy Fund, each of the Funds had total expenses which were ranked at least in the third quintile of its Expense Universe. In these rankings, the first quintile represents funds with the lowest total expenses among the Expense Universe Funds and the fifth quintile
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LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
represents funds with the highest total expenses among the Expense Universe Funds. The Board considered RIMCo’ advice with respect to the Equity Growth Strategy Fund that its total expenses were within 5 basis points of the third quintile of its Expense Universe.
On the basis of the Agreement Evaluation Information, and other information previously received by the Board from RIMCo during the course of the current year or prior years, or presented at or in connection with the Agreement Evaluation Meeting by RIMCo, the Board, in respect of each Fund and Underlying Fund, found, after giving effect to any applicable waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds (1) the Advisory Fee charged by RIMCo was reasonable in light of the nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Funds or Underlying Funds; (2) the relative expense ratio of each Fund and Underlying Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; (4) other benefits and fees received by RIMCo or its affiliates from the Funds or Underlying Funds were not excessive; and (5) RIMCo’s profitability with respect to the Funds and each Underlying Fund was not excessive in light of the nature, scope and overall quality of the investment management and other services provided by RIMCo.
In evaluating the performance of the Funds and Underlying Funds generally relative to their Comparable Funds, the Board, in addition to factors discussed above, also considered RIMCo’s advice that many of the Underlying Funds’ Comparable Funds do not “equitize” their cash (i.e., cash awaiting investment or disbursement to satisfy redemptions or other fund obligations) and may hold large cash positions uninvested in their investment portfolios. By contrast, the Underlying Funds generally follow a strategy of equitizing their cash and fully investing their assets in pursuit of their investment objectives (the Underlying Funds’ strategy of equitizing cash and fully investing their assets is hereinafter referred to as their “full investment strategy”). RIMCo noted that the Underlying Funds’ full investment strategy generally will detract from their relative performance, and therefore the relative performance of the Funds.
The Board concluded that, under the circumstances, the performance of each of the Funds was consistent with continuation of the RIMCo Agreement. In evaluating performance, the Board considered each Fund’s and Underlying Fund’s absolute performance and performance relative to appropriate benchmarks and indices in addition to such Fund’s performance relative to its Comparable Funds. In assessing the Funds’ performance relative to their Comparable Funds or benchmarks or in absolute terms, the Board also considered RIMCo’s stated investment strategy of managing the Underlying Funds in a risk-aware manner and the extraordinary capital market conditions during 2008.
After considering the foregoing and other relevant factors and, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of each Fund and its respective shareholders and voted to approve the continuation of the RIMCo Agreement.
At the Agreement Evaluation Meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers for the Underlying Funds, the Board received and considered information from RIMCo reporting, among other things, for each Money Manager, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Funds’ and Underlying Funds’ underwriter; and RIMCo’s recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. The Board received reports during the course of the year from the CCO regarding each Money Manager’s compliance program. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the Advisory Fee paid by each Fund and Underlying Fund and the fact that each Money Manager’s fee is paid by RIMCo.
Based substantially upon RIMCo’s recommendations, together with the Agreement Evaluation Information and other information received from RIMCo in support of its recommendations at the Agreement Evaluation Meeting, the Board concluded that the fees paid to the Money Managers of each Underlying Fund are reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management contract with each Money Manager of each Underlying Fund would be in the best interests of such Underlying Fund and its shareholders.
In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s recommendation, the portfolio management contract with any Money Manager for an Underlying Fund that was all-important or
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controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund and Underlying Fund.
Prior to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received a proposal from RIMCo at a meeting held on February 28, 2012, to effect a money manager change for the Aggressive Equity Fund. In the case of the proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 19, 2011 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
Subsequent to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2012, to effect a money manager change for the RIC Russell U.S. Quantitative Equity Fund, RIC Russell Emerging Markets Fund, RIF Non-U.S. Fund, RIC Russell Global Opportunistic Credit Fund, RIC Russell Investment Grade Bond Fund and the RIF Core Bond Fund; (2) at a meeting held on August 28, 2012, to effect a money manager change for the RIC Russell Multi-Strategy Alternative Fund, RIF Multi-Style Equity Fund and RIF Aggressive Equity Fund; and (3) at a meeting held on December 4, 2012, to effect a money manager change for the RIC Russell Global Equity Fund, RIC Russell Emerging Markets Fund, RIC Russell Multi-Strategy Alternative Fund and RIC Russell Global Infrastructure Fund; at that same meeting, to effect a money manager change for the RIC Russell U.S. Dynamic Equity Fund, RIC Russell Investment Grade Bond Fund and RIF Core Bond Fund resulting from a change of control of one of each Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2012 Agreement Evaluation Meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Shareholder Requests for Additional Information — December 31, 2012 (Unaudited)
A complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each year. These reports are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) on the Securities and Exchange Commission’s website at www.sec.gov, and (iii) at the Securities and Exchange Commission’s public reference room.
The Board has delegated to RIMCo, as RIF’s investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Underlying Funds may be invested. RIMCo has established a proxy voting committee and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Trustees are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI and information regarding how the Underlying Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2012 are available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, and (ii) on the Securities and Exchange Commission’s website at www.sec.gov.
If possible, depending on contract owner registration and address information, and unless you have otherwise opted out, only one copy of the RIF prospectus and each annual and semi-annual report will be sent to contract owners at the same address. If you would like to receive a separate copy of these documents, please contact your Insurance Company. If you currently receive multiple copies of the prospectus, annual report and semi-annual report and would like to request to receive a single copy of these documents in the future, please call your Insurance Company.
Some Insurance Companies may offer electronic delivery of the Funds’ prospectuses and annual and semi-annual reports. Please contact your Insurance Company for further details.
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers — December 31, 2012 (Unaudited)
The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex consists of Russell Investment Company (“RIC”), which has 40 funds, Russell Investment Funds (“RIF”), which has 10 funds and Russell Exchange Traded Funds Trust (“RET”), which has 1 fund. Each of the trustees is a trustee of RIC, RIF and RET. The first table provides information for the interested trustees. The second table provides information for the independent trustees. The third table provides information for the trustee emeritus. The fourth table provides information for the officers. Furthermore, each Trustee possesses the following specific attributes: Mr. Alston has business, financial and investment experience as a senior executive of an international real estate firm and is trained as a lawyer; Ms. Blake has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Ms. Burgermeister has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Mr. Connealy has had experience with other investment companies and their investment advisers first as a partner in the investment management practice of PricewaterhouseCoopers LLP and, subsequently, as the senior financial executive of two other investment organizations sponsoring and managing investment companies; Mr. Fine has had financial, business and investment experience as a senior executive of a non-profit organization and previously, as a senior executive of a large regional financial services organization with management responsibility for such activities as investments, asset management and securities brokerage; Mr. Tennison has had business, financial and investment experience as a senior executive of a corporation with international activities and was trained as an accountant; Mr. Thompson has had experience in business, governance, investment and financial reporting matters as a senior executive of an organization sponsoring and managing other investment companies, and, subsequently, has served as a board member of other investment companies, and has been determined by the Board to be an audit committee financial expert; and Ms. Weston has had experience as a tax and corporate lawyer, has served as general counsel of several corporations and has served as a director of another investment company. Ms. Cavanaugh has had experience with other financial services companies, including companies engaged in the sponsorship, management and distribution of investment companies. As a senior officer of the Funds, the Adviser and various affiliates of the Adviser providing services to the Funds, Ms. Cavanaugh is in a position to provide the Board with such parties’ perspectives on the management, operations and distribution of the Funds.
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES | ||||||||||||
# Sandra Cavanaugh,
1301 Second Avenue, | President and Chief Executive Officer since 2010
Trustee since 2010 | Until successor is chosen and qualified by Trustees
Appointed until successor is duly elected and qualified | • President and CEO RIC, RIF and RET • Chairman of the Board, President and CEO, Russell Financial Services, Inc. • Chairman of the Board, President and CEO, Russell Fund Services Company (“RFSC”) • Director, RIMCo • Chairman of the Board and President, Russell Insurance Agency, Inc. (“RIA”) (insurance agency) • May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank • 2007 to January 2009, Senior Vice President, National Sales — Retail Distribution, JPMorgan Chase/ Washington Mutual, Inc. (investment company) • 1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services (investment company) | 51 | None |
# | Ms. Cavanaugh is also an officer and/or director of one or more affiliates of RIC, RIF and RET and is therefore an Interested Trustee. |
* | Each Trustee is subject to mandatory retirement at age 72. |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES (continued) | ||||||||||||
## Daniel P. Connealy,
1301 Second Avenue, 18th Floor | Trustee since 2003 | Appointed until successor is duly elected and qualified | • June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc. (investment company) • Chairman of the Audit Committee, RIF and RIF from 2005 to 2011. | 51 | None | |||||||
### Jonathan Fine,
1301 Second Avenue, | Trustee since 2004 | Appointed until successor is duly elected and qualified | • President and Chief Executive Officer, United Way of King County, WA (charitable organization) | 51 | None | |||||||
INDEPENDENT TRUSTEES | ||||||||||||
Thaddas L. Alston,
1301 Second Avenue, | Trustee since 2006
Chairman of the Investment Committee since 2010 | Appointed until successor is duly elected and qualified
Appointed until successor is duly elected and qualified | • Senior Vice President, Larco Investments, Ltd. (real estate firm) | 51 | None | |||||||
Kristianne Blake,
1301 Second Avenue, | Trustee since 2000
Chairman since 2005 | Appointed until successor is duly elected and qualified
Annual | • Director and Chairman of the Audit Committee, Avista Corp. (electric utilites) • Trustee and Chairman of the Operations Committee, Principal Investors Funds and Principal Variable Contracts Funds (investment company) • Regent, University of Washington • President, Kristianne Gates Blake, P.S. (accounting services) | 51 | • Director, Avista Corp (electric utilities); • Trustee, Principal Investors Funds (investment company); • Trustee, Principal Variable Contracts Funds (investment company) |
## | Mr. Connealy is an officer of a broker-dealer that distributes shares of the Funds and is therefore an Interested Trustee. |
### | Mr. Fine is classified as an Interested Trustee due to Ms. Cavanaugh’s service on the Board of Directors of the United Way of King County, WA (“UWKC”) and in light of charitable contributions made by Russell Investments to UWKC. |
* | Each Trustee is subject to mandatory retirement at age 72. |
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Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INDEPENDENT TRUSTEES (continued) | ||||||||||||
Cheryl Burgermeister
1301 Second Avenue, | Trustee since 2012 | Appointed until successor is duly elected and qualified. | • Retired • Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) • Trustee and Finance Committee Member/Chairman, Portland Community College (charitable organization) | 51 | • Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) | |||||||
Raymond P. Tennison, Jr.,
1301 Second Avenue, | Trustee since 2000
Chairman of the Nominating and Governance Committee since 2007 | Appointed until successor is duly elected and qualified.
Appointed until successor is duly elected and qualified | • Vice Chairman of the Board, Simpson Investment Company (paper and forest products) • Until November 2010, President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company | 51 | None | |||||||
Jack R. Thompson,
1301 Second Avenue, | Trustee since 2005
Chairman of the Audit Committee, since 2012 | Appointed until successor is duly elected and qualified.
Appointed until successor is duly elected and qualified | • September 2003 to September 2009, Independent Board Chair and Chairman of the Audit Committee, Sparx Asia Funds (investment company) • September 2007 to September 2010 Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation (health products company) | 51 | • Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation until September 2010 (health products company) • Director, Sparx Asia Funds until 2009 (investment company) | |||||||
Julie W. Weston,
1301 Second Avenue, | Trustee since 2002 | Appointed until successor is duly elected and qualified | • Retired • Chairperson of the Investment Committee until December 2009 | 51 | None |
* | Each Trustee is subject to mandatory retirement at age 72. |
78 | Disclosure of Information about Fund Trustees and Officers |
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LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
TRUSTEES EMERITUS | ||||||||||||
** George F. Russell, Jr.,
1301 Second Avenue, | Trustee Emeritus and Chairman Emeritus since 1999 | Until resignation or removal | • Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo • Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”)) • Chairman, Sunshine Management Services, LLC (investment adviser) | 51 | None |
** | Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. |
Disclosure of Information about Fund Trustees and Officers | 79 |
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LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | |||
OFFICERS | ||||||
Cheryl Wichers,
1301 Second Avenue, | Chief Compliance Officer since 2005 | Until removed by Independent Trustees | • Chief Compliance Officer, RIC, RIF and RET • Chief Compliance Officer, RFSC • 2005-2011 Chief Compliance Officer, RIMCo | |||
Sandra Cavanaugh,
1301 Second Avenue, | President and Chief Executive Officer since 2010 | Until successor is chosen and qualified by Trustees | • CEO, U.S. Private Client Services, Russell Investments • President and CEO, RIC, RIF and RET • Chairman of the Board, Co-President and CEO, RFS • Chairman of the Board, President and CEO, RFSC • Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”)) • May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank • 2007 to January 2009, Senior Vice President, National Sales — Retail Distribution, JPMorgan Chase/Washington Mutual, Inc. • 1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services | |||
Mark E. Swanson,
1301 Second Avenue, | Treasurer and Chief Accounting Officer since 1998 | Until successor is chosen and qualified by Trustees | • Treasurer, Chief Accounting Officer and CFO, RIC, RIF and RET • Director, Funds Administration, RIMCo, RFSC, Russell Trust Company (“RTC”) and RFS | |||
Peter Gunning,
1301 Second Avenue, | Chief Investment Officer since 2008 | Until removed by Trustees | • Global Chief Investment Officer, Russell Investments • Chief Investment Officer, RIC and RIF • Director, FRC • Chairman of the Board, President and CEO, RIMCo • 1996 to 2008 Chief Investment Officer, Russell, Asia Pacific | |||
Mary Beth Rhoden,
1301 Second Avenue, | Secretary since 2010 | Until successor is chosen and qualified by Trustees | • Associate General Counsel, FRC • Secretary, RIMCo, RFSC and RFS • Secretary and Chief Legal Officer, RIC, RIF and RET • 1999 to 2010 Assistant Secretary, RIC and RIF |
80 | Disclosure of Information about Fund Trustees and Officers |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
1301 Second Avenue, Seattle, Washington 98101
(800) 787-7354
Interested Trustees
Sandra Cavanaugh
Daniel P. Connealy
Jonathan Fine
Independent Trustees
Thaddas L. Alston
Kristianne Blake
Cheryl Burgermeister
Raymond P. Tennison, Jr.
Jack R. Thompson
Julie W. Weston
Trustee Emeritus
George F. Russell, Jr.
Officers
Sandra Cavanaugh, President and Chief Executive Officer
Cheryl Wichers, Chief Compliance Officer
Peter Gunning, Chief Investment Officer
Mark E. Swanson, Treasurer and Chief Accounting Officer
Mary Beth Rhoden, Secretary
Adviser
Russell Investment Management Company
1301 Second Avenue
Seattle, WA 98101
Administrator and Transfer and Dividend Disbursing Agent
Russell Fund Services Company
1301 Second Avenue
Seattle, WA 98101
Custodian
State Street Bank and Trust Company
1200 Crown Colony Drive
Crown Colony Office Park
Quincy, MA 02169
Office of Shareholder Inquiries
1301 Second Avenue
Seattle, WA 98101
(800) 787-7354
Legal Counsel
Dechert LLP
200 Clarendon Street, 27th Floor
Boston, MA 02116-5021
Distributor
Russell Financial Services, Inc.
1301 Second Avenue
Seattle, WA 98101
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
1420 5th Avenue, Suite 1900
Seattle, WA 98101
Money Managers of Underlying Funds as of December 31, 2012
RIC Russell Commodity Strategies Fund
CoreCommodity Management, LLC, Stamford, CT
Credit Suisse Asset Management, LLC, New York, NY
Goldman Sachs Asset Management, L.P., New York, NY
RIC Russell Global Infrastructure Fund
Cohen & Steers Capital Management, Inc., New York, NY
Colonial First Asset Management (Australia) Limited, Sydney, Australia
Nuveen Asset Management, LLC, Chicago, IL
RIC Russell Multi-Strategy Alternative Fund
2100 XENON Group LLC, Chicago, IL
Acorn Derivatives Management Corporation, White Plains, NY
Amundi Investments USA, LLC, New York, NY
AQR Capital Management, LLC, Greenwich, CT
Brigade Capital Management LLC, New York, NY
Eaton Vance Management, Boston, MA
First Eagle Investment Management, LLC, New York, NY
Galtere Ltd., New York, NY
Galtera N.A. Inc., New York, NY
Lazard Asset Management LLC, New York, NY
Levin Capital Strategies, L.P., New York, NY
Omega Advisors, Inc., New York, NY
RIF Global Real Estate Securities Fund
AEW Capital Management, LP, Boston, MA
Cohen & Steers Capital Management, Inc., New York, NY
INVESCO Advisers, Inc. which acts as a money manager to the Fund through its INVESCO Real Estate Division, Dallas, TX
RIC Russell U.S. Defensive Equity Fund
INTECH Investment Management LLC, West Palm Beach, FL
Jacobs Levy Equity Management, Inc., Florham Park, NJ
J.P. Morgan Investment Management, Inc., New York, NY
PanAgora Asset Management, Inc. Boston, MA
RIC Russell U.S. Dynamic Equity Fund
AJO, LP, Philadelphia, PA
Cornerstone Capital Management, Inc., Minneapolis, MN
Schneider Capital Management Corporation, Wayne, PA
Suffolk Capital Management, LLC, New York, NY
RIF Aggressive Equity Fund
Conestoga Capital Advisors, LLC, Radnor, PA
DePrince, Race & Zollo, Inc., Winter Park, FL
Jacobs Levy Equity Management, Inc., Florham Park, NJ
Ranger Investment Management, L.P., Dallas, TX
RBC Global Asset Management (U.S.), Inc, Minneapolis, MN
Signia Capital Management, LLC, Spokane, WA
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LifePoints® Funds Variable Target Portfolio Series
1301 Second Avenue, Seattle, Washington 98101
(800) 787-7354
RIF Multi-Style Equity Fund
Columbus Circle Investors, Stamford, CT
DePrince, Race & Zollo, Inc., Winter Park, FL
Institutional Capital LLC, Chicago, IL
Jacobs Levy Equity Management, Inc., Florham Park, NJ
Mar Vista Investment Partners, LLC, Los Angeles, CA
Suffolk Capital Management, LLC, New York, NY
Sustainable Growth Advisers, LP, Stamford, CT
RIC Russell Global Opportunistic Credit Fund
DDJ Capital Management, LLC, Waltham, MA
Lazard Asset Management LLC, New York, NY
Oaktree Capital Management, L.P., Los Angeles, CA
Stone Harbor Investment Partners LP, New York, NY
RIC Russell Investment Grade Bond Fund
Logan Circle Partners, L.P., Philadelphia, PA
Macro Currency Group an investment group within Principal Global Investors, LLC, Des Moines, IA*
Metropolitan West Asset Management, LLC, Los Angeles, CA
Neuberger Berman Fixed Income LLC, Chicago, IL
Pacific Investment Management Company LLC, Newport Beach, CA
RIF Core Bond Fund
Colchester Global Investors Ltd, London, England
Logan Circle Partners, L.P., Philadelphia, PA
Macro Currency Group an investment group within Principal Global Investors, LLC, Des Moines, IA*
Metropolitan West Asset Management, LLC, Los Angeles, CA
Pacific Investment Management Company LLC, Newport Beach, CA
* 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.
RIC Russell Emerging Markets Fund
AllianceBernstein L.P., New York, NY
Arrowstreet Capital, Limited Partnership, Boston, MA
Delaware Management Company, a Series of Delaware Management Business Trust, Philadelphia, PA
Genesis Asset Managers, LLP, Guernsey, Channel Islands
Harding Loevner LP, Bridgewater, NJ
UBS Global Asset Management (Americas) Inc., Chicago, IL
Victoria 1522 Investments, LP, San Francisco, CA
RIC Russell Global Equity Fund
GLG Inc., New York, NY
Harris Associates, L.P., Chicago, IL
MFS Institutional Advisors Inc., Boston, MA
Polaris Capital Management, LLC, Boston, MA
Sanders Capital, LLC, New York, NY
T. Rowe Price Associates, Inc., Baltimore, MD
RIF Non-U.S. Fund
Barrow, Hanley, Mewhinney & Strauss, LLC, Dallas, TX
MFS Institutional Advisors, Inc., Boston, MA
Pzena Investment Management, LLC, New York, NY
William Blair & Company L.L.C., Chicago, IL
This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Russell Investment Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information.
Adviser, Money Managers and Service Providers | 82 |
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Russell Investment Funds | 1301 Second Avenue | 800-787-7354 | ||
Seattle, Washington 98101 | Fax: 206-505-3495 | |||
www.russell.com |
36-08-195
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2012 ANNUAL REPORT
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
DECEMBER 31, 2012
FUND
Conservative Strategy Fund
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Russell Investment Funds is a series investment company with ten different investment portfolios referred to as Funds. These financial statements report on one of these Funds.
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Russell Investment Funds
LifePoints® Funds
Variable Target Portfolio Series
Annual Report
December 31, 2012
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Russell Investment Funds - LifePoints® Funds Variable Target Portfolio Series.
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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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,
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 (Unaudited)
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
4 | Market Summary |
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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. Speculation that new president, Enrique Peña Nieto, may seek to open the energy sector to private investment was also
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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 Central Bank and the International Monetary Fund also finally agreed to a €130 billion bailout for Greece to help it avoid
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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%.
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
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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.
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Russell Investment Funds
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
Conservative Strategy Fund | ||||
| Total Return | |||
1 Year | 8.85 | % | ||
Inception* | 3.98 | %§ |
Barclays U.S. Aggregate Bond Index** | ||||
| Total Return | |||
1 Year | 4.21 | % | ||
Inception* | 6.15 | %§ |
BofA Merrill Lynch 1-3 Yr US Treasuries Index*** | ||||
| Total Return | |||
1 Year | 0.43 | % | ||
Inception* | 0.90 | %§ |
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Conservative Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
The Conservative Strategy Fund (the “Fund”) is a fund of funds that invests in other Russell Investment Funds and Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets to multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ 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 in an Underlying Fund at any time, subject to approval by the Underlying Fund’s Board, without a shareholder vote.
What is the Fund’s investment objective?
The Fund seeks to provide high current income and low long term 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 Conservative Strategy Fund gained 8.85%. This is compared to the Fund’s primary 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® Mixed Asset Target Allocation Conservative Funds Average, a group of funds that Lipper considers to have investment strategies similar to those of the Fund, gained 9.19%. This result serves as a peer comparison and is expressed net of operating expenses.
The Fund’s outperformance relative to the Barclays U.S. Aggregate Bond Index was due to the Fund’s out-of-benchmark allocation to equities, global real estate securities and opportunistic credit, which outperformed fixed income securities over the period.
How did the market conditions described in the Market Summary report affect the Fund’s performance?
The overall positive market environment for U.S. equities through the fiscal year ended December 31, 2012 provided a tailwind for the Fund’s out of benchmark allocation to U.S. large cap equities, which contributed to positive returns over the fiscal year.
In the U.S., the equity market was dominated by macroeconomic drivers. In the first quarter of 2012, the Russell 1000® Index returned 12.90% primarily driven by positive U.S. gross domestic product growth and an encouraging drop in the headline unemployment rate. Following a strong first quarter, U.S. equities pulled back on gains, again driven by the macro environment in the second quarter. Heightened concerns over Greece’s potential exit from the Eurozone and growing concerns over the Spanish banking system spilled into U.S. market sentiment, pushing the Russell 1000® Index down 6.15%.
Continuing the macro driven themes, U.S. markets rallied in the third quarter off the European Central Bank’s (“ECB”) commitment to purchasing sovereign debt followed by the Federal Reserve’s (the “Fed”) announcement of unlimited purchases of mortgage-backed securities (often described as the third round of “quantitative easing”). These moves alleviated stresses from financial marks and reduced the likelihood of highly negative returns or “tail risk” in global equity markets. During the fourth quarter, despite immediate volatility in the U.S. equity markets following the presidential election in November, investors shifted their focus to the “fiscal cliff” combination of increased taxes and federal spending cuts looming on January 1, 2013. Despite the uncertainty, equity markets continued positive trends in anticipation of a deal to avoid the fiscal cliff. U.S equities (represented by the Russell 1000® Index) went on to finish the fiscal year ending December 31, 2012 up 16.42%, positively impacting the Fund’s allocation to dedicated U.S. large cap equity funds.
The combination of quantitative easing in the U.S., supporting actions by the ECB to support its member countries through unlimited asset purchases, resulted in a positive environment for global equities. In addition, improving economic conditions in China late in the year coupled with the stimulatory environment in developed markets drove emerging markets higher for the fiscal year. The Russell Developed ex-U.S. Index ended the year up 16.73% while the Russell Emerging Markets Index finished up 18.78% for the year. Thus, the Fund’s exposure to non-U.S. equity markets through its allocation to dedicated non-U.S. equity funds positively impacted performance against its pure fixed income benchmark.
Macro driven sentiment was also evident in the real estate space. Global REITs (represented by the FTSE/EPRA NAREIT Developed Index) finished the fiscal year up a strong 27.73% and outperformed fixed income markets, which benefited the Fund’s allocation to the RIF Real Estate Securities Fund.
In contrast, an allocation to the RIC Russell Commodity Strategies Fund negatively impacted Fund performance. A volatile environment for commodities created a tough year for this Underlying Fund, as commodities returned -1.06% for the fiscal year (as represented by the Dow Jones UBS Commodity Index Total Return) and largely underperformed broader equity and fixed income markets.
In fixed income, a “risk-on” theme drove performance in the market, as investors holding corporate bonds and non-agency mortgage backed securities generally fared well through the year relative to U.S. Treasuries. Overall, the Fund’s primary benchmark, the Barclays U.S. Aggregate Bond Index, gained 4.21% for the year but lagged riskier assets such as U.S. equities.
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Conservative Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
How did the investment strategies and techniques employed by the Fund and the money managers of the Underlying Funds affect the Fund’s performance?
The Fund is a fund of funds and its performance is based on RIMCo’s strategic asset allocations and the performance of the Underlying Funds in which the Fund invests.
The Fund’s strategic allocation to fixed income Underlying Funds was beneficial, as the fixed income Underlying Funds outperformed the Fund’s benchmark primarily due to their out of benchmark fixed income exposures. In particular, the RIF Core Bond Fund’s outperformance was driven by exposure to 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.
The Fund’s strategic allocation to the RIF Non-U.S. Fund and RIC Russell Global Equity Fund benefited the Fund’s benchmark relative performance, as each outperformed the Fund’s benchmark. From an active management standpoint, performance of these Underlying Funds was mixed. The RIF Non-U.S. Fund outperformed the broad non-U.S. equity market as represented by the Russell Developed ex-U.S. Large Cap™ Index Net, while the RIC Russell Global Equity Fund underperformed the broad global equity market as represented by the Russell Developed Large Cap Net Index. For the RIF Non-U.S. Fund, positioning in companies that exhibited slightly higher growth characteristics than the market 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 was positive, especially within information technology companies in emerging markets. For the RIC Russell Global Equity Fund, stock selection among U.S. mining stocks and emerging market securities, and an underweight to the strong performing financials sector detracted from performance.
The Fund’s strategic allocation to U.S. equity Underlying Funds benefited the Fund’s benchmark relative performance, as U.S. equities performed particularly well against core fixed income for the period. However, each of the U.S. equity Underlying Funds underperformed its respective U.S. equity market segment as represented by its primary benchmark. In particular, the RIF Multi-Style Equity Fund underperformed the Russell 1000® Index for the year, driven by a difficult second quarter as the fund was positioned for economic growth in a market environment that became risk averse. Positions in stocks with above-market growth rates and underweights in stocks with high dividend yield detracted from performance. The RIC Russell U.S. Defensive Equity Fund’s underperformance was driven by an underweight to the health care sector and overweight to the energy sector. Overweight positions in stocks with low price to earnings and price to cash flow ratios were also negative.
The Fund’s strategic allocation to alternative Underlying Funds had mixed effects on performance. The Fund’s allocations to the RIF Real Estate Securities Fund and RIC Russell Global Infrastructure Fund were positive, as these Underlying Funds strongly outperformed the Barclays U.S. Aggregate Bond Index. The Fund’s strategic allocation to the RIC Russell Commodity Strategies Fund detracted, as the commodities asset class underperformed the Barclays U.S. Aggregate Bond Index.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund. Performance of the Fund’s short-term asset allocation modifications fluctuated throughout the fiscal year, but ended the fiscal year modestly negative. This was driven by a negative impact from an overweight to fixed income and underweight to non-U.S. equity markets in the second half of the year during a period of rising equity markets. However, the tilt toward fixed income taken in mid-May successfully helped reduce volatility during a period of notable uncertainty.
Describe any changes to the Fund’s structure or allocation to the Underlying Funds.
On August 15, 2012, the Fund added the RIC Russell U.S. Dynamic Equity Fund and the RIC Russell Multi-Strategy Alternative Fund as Underlying Funds. The RIC Russell U.S. Dynamic Equity Fund was added as a diversifier to the overall portfolio and to the return patterns of the RIC Russell U.S Defensive Equity Fund. The RIC Russell Multi-Strategy Alternative Fund was added as a diversifier to equity returns and was funded by decreasing the Fund’s allocation to equity funds.
Effective August 15, 2012, RIMCo changed the RIC Russell U.S. Quantitative Equity Fund’s investment strategy from a quantitative investment approach to investing in defensive stocks and discontinued its limited long-short strategy. As a result, the Fund’s primary benchmark changed from the Russell 1000® Index to the Russell 1000® Defensive Index™ and the Fund changed its name to the RIC Russell U.S. Defensive Equity Fund.
RIMCo has the discretion to modify the target strategic asset allocation of the Fund by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund.
On February 5, 2012, the Fund increased its allocation to each of the RIC Russell Global Equity Fund and RIC Russell Global Opportunistic Credit Fund by 0.25% above the target strategic allocation and decreased its allocation to the RIC Russell Investment Grade Bond Fund by 0.50% below the target strategic allocation in response to the improving U.S. and global economic outlook.
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Conservative Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2012 (Unaudited)
On April 19, 2012, the Fund decreased its allocation to the RIC Russell Global Equity Fund back to the target strategic allocation and increased its weight to the RIF Multi-Style Equity Fund to 0.25% above the target strategic allocation in recognition of growing concerns in global equity markets but maintained confidence in the U.S. equity markets.
On May 14, 2012, the Fund shifted to a defensive position in light of increasing policy risk in the European Union and downside risk in global equity markets, decreasing its weight to the RIF Non-U.S. Fund to 1.50% below the target strategic allocation and increasing its weight to each of the RIC Russell Investment Grade Bond Fund and RIF Multi-Style Equity Fund by 1.00% and 0.50%, respectively, above the target strategic allocation.
On October 22, 2012, the Fund shifted back to the target strategic allocation to the RIC Russell Investment Grade Bond Fund, decreased its underweight to the RIF Non-U.S. Fund to
1.00% below the target strategic allocation and maintained a 1.00% overweight to the RIF Multi-Style Equity Fund given mitigation of large tail risk by positive ECB and Fed policy announcements, but continued economic concerns over Europe.
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.
* | The Fund first issued shares on May 2, 2011. |
** | 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. |
*** | BofA Merrill Lynch 1-3 Yr U.S. Treasuries Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. |
§ | 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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Conservative Strategy 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 | $ | 1,000.00 | $ | 1,000.00 | ||||
Ending Account Value | $ | 1,044.70 | $ | 1,024.63 | ||||
Expenses Paid During Period* | $ | 0.51 | $ | 0.51 |
* | Expenses are equal to the Fund’s annualized expense ratio of 0.10% (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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Conservative Strategy Fund
Schedule of Investments — December 31, 2012 (Unaudited)
Amounts in thousands (except share amounts)
Shares | Fair Value $ | |||||||
Investments - 100.7% | ||||||||
Russell Investment Company (“RIC”) and other Russell Investment Funds (“RIF”) Series Mutual Funds | ||||||||
Alternative Funds - 8.1% | ||||||||
RIC Russell Commodity Strategies Fund Class Y | 2,193 | 20 | ||||||
RIC Russell Global Infrastructure Fund Class Y | 1,924 | 21 | ||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 2,063 | 21 | ||||||
RIF Global Real Estate Securities Fund | 1,378 | 22 | ||||||
|
| |||||||
84 | ||||||||
|
| |||||||
Domestic Equities - 6.6% | ||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 797 | 26 | ||||||
RIC Russell U.S. Dynamic Equity Fund Class Y | 1,060 | 11 | ||||||
RIF Multi-Style Equity Fund | 2,085 | 31 | ||||||
|
| |||||||
68 | ||||||||
|
| |||||||
Fixed Income - 78.4% | ||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 1,994 | 21 | ||||||
RIC Russell Investment Grade Bond Fund Class Y | 9,311 | 208 | ||||||
RIC Russell Short Duration Bond Fund Class Y | 9,620 | 188 | ||||||
RIF Core Bond Fund | 36,649 | 397 | ||||||
|
| |||||||
814 | ||||||||
|
| |||||||
International Equities - 7.6% | ||||||||
RIC Russell Global Equity Fund Class Y | 5,215 | 47 | ||||||
RIF Non-U.S. Fund | 3,082 | 32 | ||||||
|
| |||||||
79 | ||||||||
|
| |||||||
Total Investments - 100.7% (identified cost $1,010) | 1,045 | |||||||
Other Assets and Liabilities, Net - (0.7%) | (7 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 1,038 | |||||||
|
|
See accompanying notes which are an integral part of the financial statements.
Conservative Strategy Fund | 17 |
Table of Contents
Russell Investment Funds
Conservative Strategy Fund
Presentation of Portfolio Holdings — December 31, 2012 (Unaudited)
Categories | % of Net Assets | |||
Alternative Funds | 8.1 | |||
Domestic Equities | 6.6 | |||
Fixed Income | 78.4 | |||
International Equities | 7.6 | |||
|
| |||
Total Investments | 100.7 | |||
Other Assets and Liabilities, Net | (0.7 | ) | ||
|
| |||
100.0 | ||||
|
|
See accompanying notes which are an integral part of the financial statements.
18 | Conservative Strategy Fund |
Table of Contents
Russell Investment Funds
Conservative Strategy Fund
Statement of Assets and Liabilities — December 31, 2012 (Unaudited)
Amounts in thousands | ||||
Assets | ||||
Investments, at identified cost | $ | 1,010 | ||
Investments, at fair value | 1,045 | |||
Receivables: | ||||
Investments sold | — | * | ||
From affiliates | 11 | |||
|
| |||
Total assets | 1,056 | |||
|
| |||
Liabilities | ||||
Payables: | ||||
Fund shares redeemed | — | * | ||
Accrued fees to affiliates | — | * | ||
Other accrued expenses | 18 | |||
|
| |||
Total liabilities | 18 | |||
|
| |||
Net Assets | $ | 1,038 | ||
|
| |||
Net Assets Consist of: | ||||
Accumulated net realized gain (loss) | $ | 4 | ||
Unrealized appreciation (depreciation) on investments | 35 | |||
Shares of beneficial interest | 1 | |||
Additional paid-in capital | 998 | |||
|
| |||
Net Assets | $ | 1,038 | ||
|
| |||
Net Asset Value, offering and redemption price per share: | ||||
Net asset value per share: (#) | $ | 10 .00 | ||
Net assets | $ | 1,037,689 | ||
Shares outstanding ($.01 par value) | 103,819 |
(#) | Net asset value per share equals net assets divided by shares of beneficial interest outstanding. |
* | Less than $500. |
See accompanying notes which are an integral part of the financial statements.
Conservative Strategy Fund | 19 |
Table of Contents
Russell Investment Funds
Conservative Strategy Fund
Statement of Operations — For the Period Ended December 31, 2012
Amounts in thousands | ||||
Investment Income | ||||
Income distribution from Underlying Funds | $ | 33 | ||
|
| |||
Expenses | ||||
Advisory fees | 2 | |||
Administrative fees | 1 | |||
Custodian fees | 16 | |||
Transfer agent fees | — | * | ||
Professional fees | 27 | |||
Trustees’ fees | — | * | ||
Printing fees | 1 | |||
Miscellaneous | 2 | |||
|
| |||
Expenses before reductions | 49 | |||
Expense reductions | (48 | ) | ||
|
| |||
Net expenses | 1 | |||
|
| |||
Net investment income (loss) | 32 | |||
|
| |||
Net Realized and Unrealized Gain (Loss) | ||||
Net realized gain (loss) on: | ||||
Investments | 3 | |||
Capital gain distributions from Underlying Funds | 7 | |||
|
| |||
Net realized gain (loss) | 10 | |||
Net change in unrealized appreciation (depreciation) on investments | 49 | |||
|
| |||
Net realized and unrealized gain (loss) | 59 | |||
|
| |||
Net Increase (Decrease) in Net Assets from Operations | $ | 91 | ||
|
|
* | Less than $500. |
See accompanying notes which are an integral part of the financial statements.
20 | Conservative Strategy Fund |
Table of Contents
Russell Investment Funds
Conservative Strategy Fund
Statements of Changes in Net Assets
For the Periods Ended December 31, | ||||||||
Amounts in thousands | 2012 | 2011(1) | ||||||
Increase (Decrease) in Net Assets | ||||||||
Operations | ||||||||
Net investment income (loss) | $ | 32 | $ | 11 | ||||
Net realized gain (loss) | 10 | 5 | ||||||
Net change in unrealized appreciation (depreciation) | 49 | (14 | ) | |||||
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|
|
| |||||
Net increase (decrease) in net assets from operations | 91 | 2 | ||||||
|
|
|
| |||||
Distributions | ||||||||
From net investment income | (32 | ) | (11 | ) | ||||
From net realized gain | (11 | ) | — | * | ||||
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|
| |||||
Net decrease in net assets from distributions | (43 | ) | (11 | ) | ||||
|
|
|
| |||||
Share Transactions** | ||||||||
Net increase (decrease) in net assets from share transactions | 16 | 983 | ||||||
|
|
|
| |||||
Total Net Increase (Decrease) in Net Assets | 64 | 974 | ||||||
Net Assets | ||||||||
Beginning of period | 974 | — | ||||||
|
|
|
| |||||
End of period | $ | 1,038 | $ | 974 | ||||
|
|
|
|
(1) | For the period May 3, 2011 (commencement of operations) to December 31, 2011. |
* | Less than $500. |
** | Share transaction amounts (in thousands) for the periods ended December 31, 2012 and December 31, 2011 were as follows: |
2012 | 2011(1) | |||||||||||||||
Shares | Dollars | Shares | Dollars | |||||||||||||
Proceeds from shares sold | 63 | $ | 621 | 101 | $ | 973 | ||||||||||
Proceeds from reinvestment of distributions | 4 | 43 | 1 | 10 | ||||||||||||
Payments for shares redeemed | (65 | ) | (648 | ) | — | — | ||||||||||
|
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| |||||||||
Total increase (decrease) | 2 | $ | 16 | 102 | $ | 983 | ||||||||||
|
|
|
|
|
|
|
|
See accompanying notes which are an integral part of the financial statements.
Conservative Strategy Fund | 21 |
Table of Contents
Russell Investment Funds
Conservative Strategy 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)(f) | $ 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 | 9.59 | .31 | .53 | .84 | (.32 | ) | (.11 | ) | (.43 | ) | ||||||||||||||||||
December 31, 2011(1) | 10.00 | .29 | (.49 | ) | (.20 | ) | (.21 | ) | — | (g) | (.21 | ) |
See accompanying notes which are an integral part of the financial statements.
22 | Conservative Strategy Fund |
Table of Contents
$ Net Asset Value, End of Period | % Total Return(c)(h) | $ Net Assets, End of Period (000) | % Ratio of Expenses to Average Net Assets, Gross(d)(e) | % Ratio of Expenses to Average Net Assets, Net(d)(e)(f) | % Ratio of Net Investment Income to Average Net Assets(b)(c)(f) | % Portfolio Turnover Rate(c) | ||||||||||||||||||||
10.00 | 8.85 | 1,038 | 4.80 | .10 | 3.14 | 73 | ||||||||||||||||||||
9.59 | (1.96 | ) | 974 | 18.39 | .10 | 3.10 | 5 |
See accompanying notes which are an integral part of the financial statements.
Conservative Strategy Fund | 23 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Highlights — December 31, 2012
(1) | For the period May 3, 2011 (commencement of operations) to December 31, 2011. |
(a) | Average daily shares outstanding were used for this calculation. |
(b) | Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the Underlying Funds in which the Fund invests. |
(c) | Periods less than one year are not annualized. |
(d) | The ratios for periods less than one year are annualized. |
(e) | The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Funds in which the Fund invests. |
(f) | May reflect amounts waived and reimbursed by Russell Investment Management Company (“RIMCo”). |
(g) | Less than $.01 per share. |
(h) | The total return does not reflect any Insurance Company Separate Account or Policy Charges. |
See accompanying notes which are an integral part of the financial statements.
24 | Notes to Financial Highlights |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements — December 31, 2012
1. | Organization |
Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with 10 different investment portfolios referred to as Funds. These financial statements report on the Conservative Strategy Fund (the “Fund”). The Investment Company provides the investment base for one or more variable insurance products issued by one or more insurance companies. The Fund is offered at net asset value to qualified insurance company separate accounts offering variable insurance products. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operated as a Massachusetts business trust under an Amended and Restated Master Trust Agreement dated October 1, 2008, as amended (“Master Trust Agreement”). The Investment Company’s Master Trust Agreement permits the Board of Trustees (the “Board”) to issue an unlimited number of shares of beneficial interest.
The Fund is a “fund of funds” and seeks to achieve its objective by investing in a combination of Russell Investment Company (“RIC”) funds and other of the Investment Company’s Funds (together, the “Underlying Funds”) as set forth in the table below. Russell Investment Management Company (“RIMCo”), the Fund’s investment adviser, may modify the target asset allocation for the Fund and/or the Underlying Funds in which the Fund invests from time to time based on capital markets research or on factors such as RIMCo’s outlook for the economy, financial markets generally and/or relative market valuation of the asset classes represented by each Underlying Fund. Modifications in the allocations to the Underlying Funds are typically based on strategic, long-term allocation decisions. The Fund’s actual allocation may vary from the target strategic asset allocation at any point in time (1) due to market movements, (2) by up to +/- 3% at the equities, fixed income or alternative category level based on RIMCo’s assessment of relative market valuation of the asset classes represented by each Underlying Fund, (3) due to the implementation over a period of time of a change to the target strategic asset allocation including the addition of a new Underlying Fund. There may be no changes in the asset allocation or to the Underlying Funds in a given year or such changes may be made one or more times in a year. In the future, the Fund may also invest in other Underlying Funds that pursue investment strategies not pursued by the current Underlying Funds or represent asset classes which are not currently represented by the Underlying Funds.
Asset Allocation Targets as of August 15, 2012*
Underlying Funds | Conservative Strategy Fund | |||
Alternative Funds** | ||||
RIC Russell Commodity Strategies Fund | 0-7 | % | ||
RIC Russell Global Infrastructure Fund | 0-7 | |||
RIC Russell Multi-Strategy Alternative Fund | 0-7 | |||
RIF Global Real Estate Securities Fund | 0-7 | |||
Domestic Equity Funds | ||||
RIC Russell U.S. Defensive Equity Fund*** | 0-8 | |||
RIC Russell U.S. Dynamic Equity Fund**** | 0-6 | |||
RIF Multi-Style Equity Fund | 0-7 | |||
Fixed Income Funds | ||||
RIC Russell Global Opportunistic Credit Fund | 0-7 | |||
RIC Russell Investment Grade Bond Fund | 15-25 | |||
RIC Russell Short Duration Bond Fund | 13-23 | |||
RIF Core Bond Fund | 33-43 | |||
International Equity Funds | ||||
RIC Russell Global Equity Fund | 0-9 | |||
RIF Non-U.S. Fund | 0-9 |
* | Prospectus dated May 1, 2012, as supplemented through August 15, 2012. |
** | Alternative Funds consist of registered investment companies that seek low correlation to equity and/or fixed income investments. |
*** | Formerly, RIC Russell U.S. Quantitative Equity Fund. |
**** | Formerly, RIC Russell U.S. Growth Fund. |
2. | Significant Accounting Policies |
The Fund’s financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Notes to Financial Statements | 25 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
Security Valuation
The Fund values its portfolio securities, the shares of the Underlying Funds, at the current net asset value per share of each Underlying Fund.
Fair value of securities is defined as the price that the Fund would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. To increase consistency and comparability in fair value measurement, the fair value hierarchy was established to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (e.g., the risk inherent in a particular valuation technique, such as a pricing model or the risks inherent in the inputs to a particular valuation technique). Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy of inputs is summarized in the three broad levels listed below.
• | Level 1 — Quoted prices (unadjusted) in active markets or exchanges for identical assets and liabilities. |
• | Level 2 — Inputs other than quoted prices included within Level 1 that are observable, which may include, but are not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active (such as interest rates, yield curves, implied volatilities, credit spreads) or other market corroborated inputs. |
• | Level 3 — Significant unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available, which may include assumptions made by the Board or persons acting at their direction that are used in determining the fair value of investments. |
The levels associated with valuing the Fund’s investments for the period ended December 31, 2012 were Level 1.
Investment Transactions
Investment transactions are reflected as of the trade date for financial reporting purposes. This may cause the net asset value stated in the financial statements to be different from the net asset value at which shareholders may transact. Realized gains and losses from securities transactions, if applicable, are recorded on the basis of specific identified cost.
Investment Income
Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date.
Federal Income Taxes
Since the Investment Company is a Massachusetts business trust, the Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to the Fund’s shareholders without regard to the income and capital gains (or losses) of the other Funds.
For each year, the Fund intends to qualify as a regulated investment company under sub-chapter M of the Internal Revenue Code (the “Code”) and intends to distribute all of its taxable income and capital gains. Therefore, no federal income tax provision is required for the Fund.
The Fund files a U.S. tax return. At December 31, 2012, the Fund had recorded no liabilities for net unrecognized tax benefits relating to uncertain income tax positions they have taken or expect to take in future tax returns. While the statute of limitations remains open to examine the Fund’s U.S. tax returns filed for the fiscal years ending December 31, 2009 through December 31, 2011, no examinations are in progress or anticipated at this time. The Fund is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months.
The Fund complies with the authoritative guidance for uncertainty in income taxes which requires management to determine whether a tax position of the Fund is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the tax amount recognized in the financial statements is reduced by the largest benefit that has a greater than 50%
26 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
likelihood of being realized upon ultimate settlement with the relevant taxing authority. Management determined that no accruals need to be made in the financial statements due to uncertain tax positions. Management continually reviews and adjusts the Fund’s liability for income taxes based on analyses of tax laws and regulations, as well as their interpretations, and other relevant factors.
Dividends and Distributions to Shareholders
Income dividends, capital gain distributions and return of capital, if any, are recorded on the ex-dividend date. Income dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income and excise tax on any remaining undistributed capital gains and net investment income.
The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from U.S. GAAP. As a result, net investment income and net realized gain (or loss) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and U.S. GAAP relate primarily to investments in the Underlying Funds sold at a loss, wash sale deferrals and capital loss carryforwards. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset values.
Expenses
Expenses included in the accompanying financial statements reflect the expenses of the Fund and do not include those expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Fund may own different proportions of the Underlying Funds at different times, the amount of the Underlying Funds’ fees and expenses incurred indirectly by the Fund will vary.
Guarantees
In the normal course of business, the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote.
Market, Credit and Counterparty Risk
In the normal course of business, the Underlying Funds trade financial instruments and enter into financial transactions where risk of potential loss exists due to changes in the market (market risk) or failure of the other party to a transaction to perform (credit risk). Similar to credit risk, the Underlying Funds may also be exposed to counterparty risk or the risk that an institution or other entity with which the Underlying Funds have unsettled or open transactions will default. The potential loss could exceed the value of the relevant assets recorded in the Underlying Funds’ financial statements (the “Assets”). The Assets, which potentially expose the Underlying Funds to credit risk, consist principally of cash due from counterparties and investments. The extent of the Underlying Funds’ exposure to credit and counterparty risks with respect to the Assets approximates their carrying value as recorded in the Underlying Funds’ Statements of Assets and Liabilities.
3. | Investment Transactions |
Securities
During the period ended December 31, 2012, purchases and sales of the Underlying Funds (excluding short-term investments) were as follows:
Purchases | Sales | |||||||
Conservative Strategy Fund | $ | 761,117 | $ | 765,347 |
4. | Related Party Transactions, Fees and Expenses |
Adviser and Administrator
RIMCo advises the Fund and Russell Fund Services Company (“RFSC”) is the Fund’s administrator. RFSC is a wholly-owned subsidiary of RIMCo. RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides ongoing money manager research and trade placement services to RIF and RIMCo.
Notes to Financial Statements | 27 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
The advisory fee of 0.20% and administrative fee of up to 0.05% are based upon the average daily net assets of the Fund and are payable monthly. The following shows the total amount of each of these fees paid by the Fund for the period ended December 31, 2012.
Advisory | Administrative | |||||||
Conservative Strategy Fund | $ | 2,026 | $ | 506 |
RIMCo has contractually agreed, until April 30, 2013, to waive up to the full amount of its 0.20% advisory fee and then reimburse the Fund for other direct Fund level expenses to the extent that direct Fund level expenses exceed 0.10% of the average daily net assets of the Fund on an annual basis. Direct Fund level expenses do not include extraordinary expenses or the expenses of other investment companies in which the Fund invests, including the Underlying Funds, which are borne indirectly by the Fund. These waivers and reimbursements may not be terminated during the relevant period except with Board approval.
For the period ended December 31, 2012, RIMCo waived/reimbursed the following expenses:
Waiver | Reimbursement | Total | ||||||||||
Conservative Strategy Fund | $ | 2,026 | $ | 45,556 | $ | 47,582 |
RIMCo does not have the ability to recover amounts waived or reimbursed from previous periods.
Transfer and Dividend Disbursing Agent
RFSC serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RFSC is paid a fee based upon the average daily net assets of the Fund for transfer agency and dividend disbursing services. RFSC retains a portion of this fee for its services provided to the Fund and pays the balance to unaffiliated agents who assist in providing these services. Total fees paid by the Fund for the period ended December 31, 2012 were as follows:
Amount | ||||
Conservative Strategy Fund | $ | 44 |
Distributor
Russell Financial Services, Inc. (the “Distributor”), a wholly-owned subsidiary of RIMCo, is the distributor for the Investment Company pursuant to a distribution agreement with the Investment Company. The Distributor receives no compensation from the Investment Company for its services.
Accrued Fees Payable to Affiliates
Accrued fees payable to affiliates for the period ended December 31, 2012 were as follows:
Conservative Strategy Fund | ||||
Administration fees | $ | 44 | ||
Transfer agent fees | 3 | |||
Trustee fees | 55 | |||
|
| |||
$ | 102 | |||
|
|
Board of Trustees
The Russell Fund Complex consists of RIC, which has 40 funds, RIF, which has 10 funds and Russell Exchange Traded Funds Trust (“RET”) which has 1 fund. Each of the Trustees is a Trustee of RIC, RIF and RET. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $75,000 per year; each of its interested Trustees a retainer of $65,000 per year; and each Trustee $7,000 for each regularly scheduled meeting attended in person and $3,500 for each special meeting and the Annual 38a-1 meeting attended in person, and for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $1,000 fee for attending regularly scheduled and special meetings by phone instead of receiving the full fee had the member attended in person (except for telephonic meetings called pursuant to the Fund’s valuation and pricing procedures) and a $500 fee for attending the committee meeting by phone instead of receiving the full fee had the member attended in person. Trustees’ out-of-pocket expenses are also paid by the Russell Fund Complex. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $15,000 per year and the Nominating and Governance Committee Chair is paid a fee of $6,000 per year. The chairman of the Board receives additional annual compensation of $75,000. Ms. Cavanaugh and the Trustee Emeritus are not compensated by the Russell Fund Complex for service as a Trustee.
28 | Notes to Financial Statements |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
Transactions with Affiliated Companies (amounts in thousands)
An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities or which the Fund controls, is controlled by or is under common control with. Transactions during the period ended December 31, 2012 with Underlying Funds which are, or were, an affiliated company are as follows:
Fair Value | Purchases Cost | Sales Cost | Realized Gain (Loss) | Income Distributions | Capital Gains Distributions | |||||||||||||||||||
Conservative Strategy Fund | ||||||||||||||||||||||||
RIC Russell Commodity Strategies Fund Class Y | $ | 20 | $ | 16 | $ | 16 | $ | (1 | ) | $ | — | $ | — | |||||||||||
RIC Russell Global Infrastructure Fund Class Y | 21 | 14 | 15 | — | 1 | — | ||||||||||||||||||
RIC Russell Multi-Strategy Alternative Fund Class Y | 21 | 21 | — | — | — | — | ||||||||||||||||||
RIF Global Real Estate Securities Fund | 22 | 14 | 17 | — | 1 | — | ||||||||||||||||||
RIC Russell U.S. Defensive Equity Fund Class Y | 26 | 22 | 28 | 1 | — | — | ||||||||||||||||||
RIC Russell U.S. Dynamic Equity Fund Class Y | 11 | 11 | — | — | — | — | ||||||||||||||||||
RIF Multi-Style Equity Fund | 31 | 34 | 36 | 2 | — | — | ||||||||||||||||||
RIC Russell Global Opportunistic Credit Fund Class Y | 21 | 17 | 18 | — | 2 | — | ||||||||||||||||||
RIC Russell Investment Grade Bond Fund Class Y | 208 | 152 | 146 | — | 8 | 2 | ||||||||||||||||||
RIC Russell Short Duration Bond Fund Class Y | 188 | 123 | 119 | — | 4 | 1 | ||||||||||||||||||
RIF Core Bond Fund | 397 | 260 | 257 | — | 15 | 4 | ||||||||||||||||||
RIC Russell Global Equity Fund Class Y | 47 | 38 | 47 | 1 | 1 | — | ||||||||||||||||||
RIF Non-U.S. Fund | 32 | 39 | 63 | — | 1 | — | ||||||||||||||||||
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|
|
|
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|
|
|
|
| |||||||||||||
$ | 1,045 | $ | 761 | $ | 762 | $ | 3 | $ | 33 | $ | 7 | |||||||||||||
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5. | Federal Income Taxes |
At December 31, 2012, the Fund did not have any capital loss carryforwards. Should the Fund have capital loss carryforwards, they may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first.
Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses for an unlimited period. Additionally, capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At December 31, 2012, the cost of investments and net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:
Conservative Strategy Fund | ||||
Cost of Investments | $ | 1,011,964 | ||
|
| |||
Unrealized Appreciation | $ | 33,526 | ||
Unrealized Depreciation | (739 | ) | ||
|
| |||
Net Unrealized Appreciation (Depreciation) | $ | 32,787 | ||
|
| |||
Undistributed Ordinary Income | $ | 86 | ||
Undistributed Long-Term Capital Gains (Capital Loss Carryforward) | $ | 5,939 | ||
Tax Composition of Distributions | ||||
Ordinary Income | $ | 37,550 | ||
Long-Term Capital Gains | $ | 5,403 |
6. | Interfund Lending Program |
The Fund has been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). The Fund may borrow money from another fund for temporary purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. A lending fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves and the portfolio manager determines it is in the best interest of the lending fund. The Fund will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating Fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the lending fund could result in reduced returns or additional borrowing costs. For the period ended December 31, 2012, the Fund did not borrow or loan through the interfund lending program.
Notes to Financial Statements | 29 |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2012
7. | Record Ownership |
As of December 31, 2012, the following table includes shareholders of record with greater than 10% of the total outstanding shares of the Fund.
# of Shareholders | % | |||||||
Conservative Strategy Fund | 1 | 100.0 |
8. | Subsequent Events |
Management has evaluated the events and/or transactions that have occurred through the date the financial statements were available to be issued and noted no items requiring adjustments of the financial statements or additional disclosures.
30 | Notes to Financial Statements |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders
of Russell Investment Funds
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Conservative Strategy Fund (one portfolio constituting Russell Investment Funds, hereafter referred to as the “Fund”) at December 21, 2012, the results of its operations for the period then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2012 by correspondence with the transfer agent and the application of alternative auditing procedures where securities purchased had not been received, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Seattle, WA
February 14, 2013
Report of Independent Registered Public Accounting Firm | 31 |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Tax Information — December 31, 2012 (Unaudited)
For the tax year ended December 31, 2012, the Fund hereby designates 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2013 will show the tax status of all distributions paid to your account in calendar year 2012.
The Fund designates 7.2% dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders.
Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $5,403 as long-term capital gain dividends for their taxable year ended December 31, 2012.
The Fund listed below paid foreign taxes and recognized foreign source income during the taxable year ended December 31, 2012. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates the following per share amounts of foreign taxes paid and income earned from foreign sources:
Fund Name | Foreign Taxes Paid | Foreign Taxes Paid Per Share | Foreign Source Income | Foreign Source Income Per Share | ||||||||||||
Conservative Strategy | $ | 190 | $ | 0.0018 | $ | 2,354 | $ | 0.0227 |
Please consult a tax adviser for any questions about federal or state income tax laws.
32 | Tax Information |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts — (Unaudited)
Approval of Investment Advisory Agreement
The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the funds (collectively, the “portfolio management contracts”) in which the Fund invests (the “Underlying Funds”) at a meeting held in person on April 24, 2012 (the “Agreement Evaluation Meeting”). During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Fund, sales and redemptions of the Fund’s and Underlying Funds’ shares, management of the Fund and the Underlying Funds by RIMCo and compliance with applicable regulatory requirements. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Fund and the Underlying Funds; and (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of the Fund and the Underlying Funds and their respective operating expenses over various periods of time with other peer funds not managed by RIMCo, believed by the provider to be generally comparable in investment objectives to the Fund and the Underlying Funds. In the case of the Fund, its other peer funds are collectively hereinafter referred to as the Fund’s “Comparable Funds,” and, with the Fund, such Comparable Funds are collectively hereinafter referred to as the Fund’s “Performance Universe” in the case of performance comparisons and the Fund’s “Expense Universe” in the case of operating expense comparisons. The Third-Party Information may reflect changes in the Comparable Funds requested by RIMCo, which changes were noted in the Third-Party Information. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Evaluation Information.” The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Fund and other funds in the same complex with respect to services provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a memorandum from counsel to the Fund and Underlying Funds discussing the legal standards for their consideration of the continuations of the RIMCo Agreement and the portfolio management contracts, and the Independent Trustees separately received a memorandum regarding their responsibilities from their independent counsel.
On April 16, 2012, the Independent Trustees in preparation for the Agreement Evaluation Meeting met by conference telephone call to review the Agreement Evaluation Information received to that date in a private session with their independent counsel at which no representatives of RIMCo or the Fund’s management were present and, on the basis of that review, requested additional Agreement Evaluation Information. The Independent Trustees also met in person on April 23, 2012, in executive session with their independent counsel, to review additional Agreement Evaluation Information received to that date. At the Agreement Evaluation Meeting, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management, counsel to the Fund and Underlying Funds and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board at the Agreement Evaluation Meeting as part of this review encompassed the Fund and all other RIMCo-managed funds for which the Board has supervisory responsibility. Prior to voting at the Agreement Evaluation Meeting, the Independent Trustees again met in executive session with their independent counsel to consider additional Agreement Evaluation Information received from RIMCo and management at the Agreement Evaluation Meeting. The discussion below reflects all of these reviews.
In evaluating the portfolio management contracts, the Board considered RIMCo’s advice that the Underlying Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which, in turn, employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser’s style and investment philosophy. RIMCo has engaged multiple unaffiliated Money Managers for all Underlying Funds.
The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for allocating assets of the Fund among its Underlying Funds and for determining, implementing and maintaining the investment program for each Underlying Fund. The assets of the Fund are invested in different combinations of the Underlying Funds pursuant to target asset allocations set by RIMCo. RIMCo may modify the target asset allocation for the Fund and/or the Underlying Funds in which the Fund invests. Assets of each Underlying Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Underlying Fund. RIMCo managed directly a portion of one Underlying Fund’s assets employing a “select holdings strategy,” as described below, during 2011 and a portion of 2012, and generally directly manages the investment of each Underlying Fund’s cash. RIMCo also may manage directly any portion of each Underlying Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of an Underlying Fund during transitions between Money Managers. RIMCo may also manage the Fund’s assets to manage risk in the Fund’s investment portfolio. In all cases, assets are managed directly by RIMCo pursuant to authority provided by the RIMCo Agreement.
RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Underlying Fund and for actively managing allocations and reallocations of its assets among the Money Managers. The Board has been advised that RIMCo’s goal is to construct
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
and manage diversified portfolios in a risk-aware manner. Each Money Manager for an Underlying Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Underlying Fund assigned to it by RIMCo (each, a “segment”) in accordance with the Underlying Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in an Underlying Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund’s investment objective and policies; authorizing Money Managers to engage in certain investment strategies for an Underlying Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, RIMCo is responsible for recommending to the Board additions of new Money Managers or replacements of existing Money Managers at any time when, based on RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may impose specific investment constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for an Underlying Fund in a complementary manner. Therefore, the performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by RIMCo in the Underlying Fund’s investment activities and any constraints placed by RIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Underlying Fund’s investment program, structuring an Underlying Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment that is complementary to the styles of the Money Managers of other Underlying Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Underlying Fund.
The Board considered that the prospectuses for the Fund and the Underlying Funds and other public disclosures emphasize to investors RIMCo’s role as the principal investment manager for each Underlying Fund, rather than the investment advisory or security selection role of the Underlying Funds’ Money Managers, and describe the manner in which the Fund or Underlying Funds operate so that investors may take that information into account when deciding to purchase shares of the Fund. The Board further considered that Fund investors in pursuing their investment goals and objectives likely purchased their shares on the basis of this information and RIMCo’s reputation for and performance record in managing the Underlying Funds’ manager-of-managers structure.
The Board also considered the demands and complexity of managing the Underlying Funds pursuant to the manager-of-managers structure, the special expertise of RIMCo with respect to the manager-of-managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of each Underlying Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of such Underlying Fund selected by shareholders in purchasing their shares of a Fund or Underlying Fund.
In addition to these general factors relating to the manager-of-managers structure of the Underlying Funds, the Trustees considered, with respect to each Fund and Underlying Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including the following:
1. | The nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Fund or the Underlying Fund by RIMCo; |
2. | The advisory fee paid by the Fund or the Underlying Fund to RIMCo (the “Advisory Fee”) and the fact that it encompasses all investment advisory fees paid by the Fund or Underlying Fund, including the fees for any Money Managers of such Underlying Fund; |
3. | Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund or Underlying Fund, including any administrative, transfer agent or cash management fees and fees received for management of securities lending cash collateral, soft dollar arrangements and commissions in connection with portfolio securities transactions; |
4. | Information provided by RIMCo as to expenses incurred by the Fund or the Underlying Fund; and |
5. | Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund or Underlying Fund. |
In evaluating the nature, scope and overall quality of the investment management and other services provided and which are expected to be provided to the Funds, including Fund portfolio management services, the Board inquired as to the continuing impact on the Funds’ operations of significant changes in RIMCo’s senior management and other personnel providing services to the Funds during 2009 and 2010 and to the date of the Agreement Evaluation Meeting and the relocation of the Russell organization’s headquarters. At the Agreement Evaluation Meeting, senior representatives of RIMCo discussed these changes with the Board and assured the Board that such changes have not resulted in any diminution in the nature, scope or quality of the services provided to the Funds or the Underlying Funds. The Board also discussed the impact of such changes on the compliance programs of the Funds,
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
the Underlying Funds and RIMCo with the Funds’ Chief Compliance Officer (the “CCO”) and received assurances from the CCO that such changes have not resulted in any diminution in the scope and quality of the compliance programs of the Funds or the Underlying Funds.
As noted above, RIMCo, pursuant to the terms of the RIMCo Agreement, directly managed a portion — up to 10% — of the assets of the RIF Multi-Style Equity Fund (the “Participating Underlying Fund”) utilizing a select holdings strategy (the “select holdings strategy”) during 2011 and a portion of 2012, the actual allocation being determined by the Participating Underlying Fund’s RIMCo portfolio manager. The Board considered that the select holdings strategy utilized by RIMCo in managing such assets for the Participating Underlying Fund was designed to increase the Participating Underlying Fund’s exposure to stocks that were viewed as attractive by multiple Money Managers of the Participating Underlying Fund. The select holdings strategy was discontinued during 2012 with respect to the Participating Underlying Fund. The Board considered the impact of the select holdings strategy upon the investment results of the Participating Underlying Fund. The Board also considered that during the periods that the select holdings strategy was utilized for the Participating Underlying Fund, RIMCo was not required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy was employed and that the profits derived by RIMCo generally, and from the Participating Underlying Fund consequently, may have increased incrementally. The Board, however, further considered RIMCo’s advice that it paid certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and incurred additional costs in carrying out the select holdings strategy; the limited amount of assets that were managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment Advisory Fees paid by the Participating Underlying Fund were not increased as a result of the select holdings strategy.
In evaluating the reasonableness of the Fund’s and Underlying Funds’ Advisory Fees in light of Fund and Underlying Fund performance, the Board considered that, in the Agreement Evaluation Information and at past meetings, RIMCo noted differences between the investment strategies of certain Underlying Funds and their respective Comparable Funds in pursuing their investment objectives, including fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than their Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Underlying Funds during the periods covered by the Third-Party Information did result, in lower performance of the Underlying Funds than that of some of their Comparable Funds. According to RIMCo, the strategies pursued by the Underlying Funds, among other things, are intended to result in less volatile, more moderate returns relative to each Underlying Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time.
In discussing the Advisory Fees for the Underlying Funds generally, RIMCo noted, among other things, that its Advisory Fees for the Underlying Funds encompass services that may not be provided by investment advisers to the Underlying Funds’ Comparable Funds, such as cash equitization and management of portfolio transition costs when Money Managers are added, terminated or replaced. RIMCo also observed that its “margins” in providing investment advisory services to the Underlying Funds tend to be lower than competitors’ margins because of the demands and complexities of managing the Underlying Funds’ manager-of-managers structure, including RIMCo’s payment of a significant portion of the Underlying Funds’ Advisory Fees to their Money Managers. RIMCo expressed the view that Advisory Fees should be considered in the context of the Fund’s or Underlying Fund’s total expense ratio to obtain a complete picture. The Board, however, considered the Fund’s and Underlying Fund’s Advisory Fee on both a standalone basis and in the context of the Fund’s or Underlying Fund’s total expense ratio.
The Board considered for the Fund and Underlying Fund whether economies of scale have been realized and whether the Advisory Fee for the Fund or Underlying Fund appropriately reflects or should be revised to reflect any such economies. The Board determined that, after giving effect to any applicable fee or expense caps, waivers or reimbursements, the Advisory Fee for the Fund or Underlying Fund appropriately reflected any economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Underlying Funds.
The Board considered, as a general matter, that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Fund, the Underlying Funds and other RIF funds under the Board’s supervision, including the Underlying Funds, are lower, and, in some cases, may be substantially lower, than the rates paid by the RIF funds supervised by the Board, including the Fund. The Trustees considered the differences in the nature and scope of services RIMCo provides to institutional clients and the funds under its supervision, including the Underlying Funds. RIMCo explained, among other things, that institutional clients have fewer administrative needs than the Funds. RIMCo also noted that since the Fund must constantly issue and redeem its shares, it is more difficult to manage than institutional accounts, where assets are relatively stable. In addition, RIMCo noted that the Fund is subject to heightened regulatory requirements relative to institutional clients. The Board noted that RIMCo provides office space and facilities to the Fund and Underlying Funds and all of the Fund’s and Underlying Funds’ officers. Accordingly, the Trustees concluded that the services provided to the Fund and Underlying Funds are sufficiently different from the services provided to the other clients that comparisons are not probative and should not be given significant weight.
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
With respect to the Fund’s Advisory Fees, the Third-Party Information showed that the Advisory Fee for the Fund, on a contractual basis, was ranked in the fourth quintile of its Expense Universe but was ranked in the first quintile of its Expense Universe on an actual basis (i.e., giving effect to any voluntary fee waivers implemented by RIMCo and the advisers to the Fund’s Comparable Funds). In these rankings, the first quintile represents funds with the lowest investment advisory fees among funds in the Expenses Universe and the fifth quintile represents funds with the highest investment advisory fees among the Expense Universe funds. The comparisons were based upon the latest fiscal years for the Expense Universe funds. In assessing the Fund’s Advisory Fees, the Board focused on actual Advisory Fees.
With respect to the Fund’s total expenses, the Third-Party Information showed that the total expenses for the Fund were ranked in the second quintile of its Expense Universe. In these rankings, the first quintile represents funds with the lowest total expenses among the Expense Universe Funds and the fifth quintile represents funds with the highest total expenses among the Expense Universe Funds. On the basis of the Agreement Evaluation Information, and other information previously received by the Board from RIMCo during the course of the current year or prior years, or presented at or in connection with the Agreement Evaluation Meeting by RIMCo, the Board, in respect of the Fund and each Underlying Fund, found, after giving effect to any applicable waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds (1) the Advisory Fee charged by RIMCo was reasonable in light of the nature, scope and overall quality of the investment management and other services provided, and expected to be provided, to the Fund or Underlying Funds; (2) the relative expense ratio of the Fund and each Underlying Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; (4) other benefits and fees received by RIMCo or its affiliates from the Fund or Underlying Funds were not excessive; and (5) RIMCo’s profitability with respect to the Fund and each Underlying Fund was not excessive in light of the nature, scope and overall quality of the investment management and other services provided by RIMCo.
In evaluating the performance of the Fund and Underlying Funds generally relative to their Comparable Funds, the Board, in addition to the factors described above, also considered RIMCo’s advice that many of the Underlying Funds’ Comparable Funds do not “equitize” their cash (i.e., cash awaiting investment or disbursement to satisfy redemptions or other fund obligations) and may hold large cash positions uninvested in their investment portfolios. By contrast, the Underlying Funds generally follow a strategy of equitizing their cash and fully investing their assets in pursuit of their investment objectives (the Underlying Funds’ strategy of equitizing cash and fully investing their assets is hereinafter referred to as their “full investment strategy”). RIMCo noted that the Underlying Funds’ full investment strategy generally will detract from their relative performance, and therefore the relative performance of the Fund, in a declining market, but may enhance the Underlying Funds’ relative performance in a rising market.
The Board concluded that, under the circumstances, the performance of the Fund was consistent with continuation of the RIMCo Agreement. In evaluating performance, the Board considered the Fund’s and each Underlying Fund’s absolute performance and performance relative to appropriate benchmarks and indices in addition to the Fund’s performance relative to its Comparable Funds. In assessing the Fund’s performance relative to its Comparable Funds or benchmark or in absolute terms, the Board also considered RIMCo’s stated investment strategy of managing the Underlying Funds in a risk-aware manner and the periodically volatile capital market conditions since 2008.
After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be consistent with the interests of the Fund and its respective shareholders and voted to approve the continuation of the RIMCo Agreement.
At the Agreement Evaluation Meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers for the Underlying Funds, the Board received and considered information from RIMCo reporting, among other things, for each Money Manager, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s and Underlying Funds’ underwriter; and RIMCo’s recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. The Board received reports during the course of the year from the Fund’s CCO regarding each Money Manager’s compliance program. RIMCo recommended that each Money Manager be retained at its current fee rate, although RIMCo noted its intentions to recommend terminations of some Money Managers at the Board’s May 2012 meeting in connection with planned changes to the investment programs of certain Underlying Funds. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the Advisory Fee paid by the Fund and each Underlying Fund and the fact that each Money Manager’s fee is paid by RIMCo.
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Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
Based substantially upon RIMCo’s recommendations, together with the Agreement Evaluation Information and other information received from RIMCo in support of its recommendations at the Agreement Evaluation Meeting, the Board concluded that the fees paid to the Money Managers of each Underlying Fund are reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management contract with each Money Manager of each Underlying Fund would be in the best interests of such Underlying Fund and its shareholders.
In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s recommendation, the portfolio management contract with any Money Manager for an Underlying Fund that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of the Fund and each Underlying Fund.
Prior to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received a proposal from RIMCo at a meeting held on February 28, 2012, to effect a money manager change for the Aggressive Equity Fund. In the case of the proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 19, 2011 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
Subsequent to the April 24, 2012 Agreement Evaluation Meeting, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2012, to effect a money manager change for the RIC Russell U.S. Quantitative Equity Fund, RIF Non-U.S. Fund, RIC Russell Global Opportunistic Credit Fund, RIC Russell Investment Grade Bond Fund, RIF Core Bond Fund and RIC Russell Short Duration Bond Fund; (2) at a meeting held on August 28, 2012, to effect a money manager change for the RIC Russell Multi-Strategy Alternative Fund and RIF Multi-Style Equity Fund; and (3) at a meeting held on December 4, 2012, to effect a money manager change for the RIC Russell Global Equity Fund, RIC Russell Multi-Strategy Alternative Fund and RIC Russell Global Infrastructure Fund; at that same meeting, to effect a money manager change for the RIC Russell U.S. Dynamic Equity Fund, RIC Russell Investment Grade Bond Fund and RIF Core Bond Fund resulting from a change of control of one of each Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2012 Agreement Evaluation Meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Shareholder Requests for Additional Information — December 31, 2012 (Unaudited)
A complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) on the Securities and Exchange Commission’s website at www.sec.gov, and (iii) at the Securities and Exchange Commission’s public reference room.
The Board has delegated to RIMCo, as RIF’s investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Underlying Funds may be invested. RIMCo has established a proxy voting committee and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Fund maintains a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by the Fund. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Trustees are contained in the Fund’s Statement of Additional Information (“SAI”). The SAI and information regarding how the Underlying Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2012 are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, and (ii) on the Securities and Exchange Commission’s website at www.sec.gov.
If possible, depending on contract owner registration and address information, and unless you have otherwise opted out, only one copy of the RIF prospectus and each annual and semi-annual report will be sent to contract owners at the same address. If you would like to receive a separate copy of these documents, please contact your Insurance Company. If you currently receive multiple copies of the prospectus, annual report and semi-annual report and would like to request to receive a single copy of these documents in the future, please call your Insurance Company.
Some Insurance Companies may offer electronic delivery of the Fund’s prospectus and annual and semi-annual reports. Please contact your Insurance Company for further details.
38 | Shareholder Requests for Additional Information |
Table of Contents
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers — December 31, 2012 (Unaudited)
The following tables provide information for each officer and trustee of the Russell Fund Complex. The Russell Fund Complex consists of Russell Investment Company (“RIC”), which has 40 funds, Russell Investment Funds (“RIF”), which has 10 funds and Russell Exchange Traded Funds Trust (“RET”) which has 1 fund. Each of the trustees is a trustee of RIC, RIF and RET. The first table provides information for the interested trustees. The second table provides information for the independent trustees. The third table provides information for the trustee emeritus. The fourth table provides information for the officers. Furthermore, each Trustee possesses the following specific attributes: Mr. Alston has business, financial and investment experience as a senior executive of an international real estate firm and is trained as a lawyer; Ms. Blake has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Ms. Burgermeister has had experience as a certified public accountant and has had experience as a member of boards of directors/trustees of other investment companies; Mr. Connealy has had experience with other investment companies and their investment advisers first as a partner in the investment management practice of PricewaterhouseCoopers LLP and, subsequently, as the senior financial executive of two other investment organizations sponsoring and managing investment companies; Mr. Fine has had financial, business and investment experience as a senior executive of a non-profit organization and previously, as a senior executive of a large regional financial services organization with management responsibility for such activities as investments, asset management and securities brokerage; Mr. Tennison has had business, financial and investment experience as a senior executive of a corporation with international activities and was trained as an accountant; Mr. Thompson has had experience in business, governance, investment and financial reporting matters as a senior executive of an organization sponsoring and managing other investment companies, and, subsequently, has served as a board member of other investment companies, and has been determined by the Board to be an audit committee financial expert; and Ms. Weston has had experience as a tax and corporate lawyer, has served as general counsel of several corporations and has served as a director of another investment company. Ms. Cavanaugh has had experience with other financial services companies, including companies engaged in the sponsorship, management and distribution of investment companies. As a senior officer of the Funds, the Adviser and various affiliates of the Adviser providing services to the Funds, Ms. Cavanaugh is in a position to provide the Board with such parties’ perspectives on the management, operations and distribution of the Funds.
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES | ||||||||||||
# Sandra Cavanaugh, Born May 10, 1954
1301 Second Avenue, 18th Floor Seattle, | President and Chief Executive Officer since 2010
Trustee since 2010 | Until successor is chosen and qualified by Trustees
Appointed until successor is duly elected and qualified | • President and CEO RIC, RIF and RET • Chairman of the Board, President and CEO, Russell Financial Services, Inc. • Chairman of the Board, President and CEO, Russell Fund Services Company (“RFSC”) • Director, RIMCo • Chairman of the Board and President, Russell Insurance Agency, Inc. (“RIA”) (insurance agency) • May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank • 2007 to January 2009, Senior Vice President, National Sales — Retail Distribution, JPMorgan Chase/ Washington Mutual, Inc. (investment company) • 1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services (investment company) | 51 | None |
# | Ms Cavanaugh is also an officer and/or director of one or more affiliates of RIC, RIF and RET is therefore an Interested Trustee. |
* | Each Trustee is subject to mandatory retirement at age 72. |
Disclosure of Information about Fund Trustees and Officers | 39 |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INTERESTED TRUSTEES (continued) | ||||||||||||
## Daniel P. Connealy, Born June 6, 1946
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2003 | Appointed until successor is duly elected and qualified | • June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc. (investment company) • Chairman of the Audit Committee, RIC and RIF from 2005 to 2011. | 51 | None | |||||||
### Jonathan Fine, Born July 8, 1954
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2004 | Appointed until successor is duly elected and qualified | • President and Chief Executive Officer, United Way of King County, WA (charitable organization) | 51 | None | |||||||
INDEPENDENT TRUSTEES | ||||||||||||
Thaddas L. Alston,
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2006
Chairman of the Investment Committee since 2010 | Appointed until successor is duly elected and qualified
Appointed until successor is duly elected and qualified | • Senior Vice President, Larco Investments, Ltd. (real estate firm) | 51 | None | |||||||
Kristianne Blake,
1301 Second Avenue, 18th Floor Seattle, WA 98101 | Trustee since 2000
Chairman since 2005 | Appointed until successor is duly elected and qualified
Annual | • Director and Chairman of the Audit Committee, Avista Corp. (electric utilities) • Trustee and Chairman of the Operations Committee, Principal Investors Funds and Principal Variable Contracts Funds (investment company) • Regent, University of Washington • President, Kristianne Gates Blake, P.S. (accounting services) | 51 | • Director, Avista Corp (electric utilities); • Trustee, Principal Investors Funds (investment company); • Trustee, Principal Variable Contracts Funds (investment company) • Trustee, WM Group of Funds until 2006 (investment company) |
## | Mr. Connealy is an officer of a broker-dealer that distributes shares of the Funds and is therefore an Interested Trustee. |
### | Mr. Fine is classified as an Interested Trustee due to Ms. Cavanaugh’s service on the Board of Directors of the United Way of King County, WA (“UWKC”) and in light of charitable contributions made by Russell Investments to UWKC. |
* | Each Trustee is subject to mandatory retirement at age 72. |
40 | Disclosure of Information about Fund Trustees and Officers |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
INDEPENDENT TRUSTEES (continued) | ||||||||||||
Cheryl Burgermeister, Born June 26, 1951
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2012 | Appointed until successor is duly elected and qualified. | • Retired • Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) • Trustee and Finance Committee Member/Chairman, Portland Community College (charitable organization) | 51 | Trustee and Chairperson of Audit Committee, Select Sector SPDR Funds (investment company) | |||||||
Raymond P. Tennison, Jr., Born December 21, 1955
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2000
Chairman of the Nominating and Governance Committee since 2007 | Appointed until successor is duly elected and qualified.
Appointed until successor is duly elected and qualified | • Vice Chairman of the Board, Simpson Investment Company • Until November 2010, President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company | 51 | None | |||||||
Jack R. Thompson,
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2005
Chairman of the Audit Committee, since 2012 | Appointed until successor is duly elected and qualified | • September 2003 to September 2009, Independent Board Chair and Chairman of the Audit Committee, Sparx Asia Funds (investment company) • September 2007 to September 2010 Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation (health products company) | 51 | • Director, Board Chairman and Chairman of the Audit Committee, LifeVantage Corporation until September 2010 (health products company) • Director, Sparx Asia Funds until 2009 (investment company) | |||||||
Julie W. Weston,
1301 Second Avenue, 18th Floor Seattle, | Trustee since 2002 | Appointed until successor is duly elected and qualified | • Retired • Chairperson of the Investment Committee until December 2009 | 51 | None |
* | Each Trustee is subject to mandatory retirement at age 72. |
Disclosure of Information about Fund Trustees and Officers | 41 |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | No. of Portfolios in Russell Fund Complex Overseen by Trustee | Other Directorships Held by Trustee During the Past 5 Years | |||||||
TRUSTEE EMERITUS | ||||||||||||
** George F. Russell, Jr., Born July 3, 1932
1301 Second Avenue, 18th Floor Seattle, | Trustee Emeritus and Chairman Emeritus since 1999 | Until resignation or removal | • Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo • Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”)) • Chairman, Sunshine Management Services, LLC (investment adviser) | 51 | None |
** | Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. |
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office | Principal Occupation(s) During the Past 5 Years | |||
OFFICERS | ||||||
Cheryl Wichers, Born December 16, 1966
1301 Second Avenue, 18th Floor Seattle, | Chief Compliance Officer since 2005 | Until removed by Independent Trustees | • Chief Compliance Officer, RIC, RIF and RET • Chief Compliance Officer, RFSC • 2005-2011 Chief Compliance Officer, RIMCo | |||
Sandra Cavanaugh, Born May 10, 1954
1301 Second Avenue, 18th Floor Seattle, | President and Chief Executive Officer since 2010 | Until successor is chosen and qualified by Trustees | • CEO, U.S. Private Client Services, Russell Investments • President and CEO, RIC, RIF and RET • Chairman of the Board, Co-President and CEO, RFS • Chairman of the Board, President and CEO, RFSC • Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”)) • May 2009 to December 2009, Executive Vice President, Retail Channel, SunTrust Bank • 2007 to January 2009, Senior Vice President, National Sales —Retail Distribution, JPMorgan Chase/Washington Mutual, Inc. • 1997 to 2007, President — WM Funds Distributor & Shareholder Services/WM Financial Services | |||
Mark E. Swanson, Born November 26, 1963
1301 Second Avenue, 18th Floor Seattle, | Treasurer and Chief Accounting Officer since 1998 | Until successor is chosen and qualified by Trustees | • Treasurer, Chief Accounting Officer and CFO, RIC, RIF and RET • Director, Funds Administration, RIMCo, RFSC, Russell Trust Company (“RTC”) and RFS |
42 | Disclosure of Information about Fund Trustees and Officers |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued — December 31, 2012 (Unaudited)
Name, Age, Address | Position(s) Held with Fund and Length of Time Served | Term of Office* | Principal Occupation(s) During the Past 5 Years | |||
OFFICERS (continued) | ||||||
Peter Gunning, Born February 22, 1967
1301 Second Avenue, 18th Floor Seattle, | Chief Investment Officer since 2008 | Until removed by Trustees | • Global Chief Investment Officer, Russell Investments • Chief Investment Officer, RIC and RIF • Director, FRC • Chairman of the Board, President and CEO, RIMCo • 1996 to 2008 Chief Investment Officer, Russell, Asia Pacific | |||
Mary Beth Rhoden, Born April 25, 1969
1301 Second Avenue, 18th Floor Seattle, | Secretary since 2010 | Until successor is chosen and qualified by Trustees | • Associate General Counsel, FRC • Secretary, RIMCo, RFSC and RFS • Secretary and Chief Legal Officer, RIC, RIF and RET • 1999 to 2010 Assistant Secretary, RIC and RIF |
Disclosure of Information about Fund Trustees and Officers | 43 |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
1301 Second Avenue, Seattle, Washington 98101
(800) 787-7354
Interested Trustees
Sandra Cavanaugh
Daniel P. Connealy
Jonathan Fine
Independent Trustees
Thaddas L. Alston
Kristianne Blake
Cheryl Burgermeister
Raymond P. Tennison, Jr.
Jack R. Thompson
Julie W. Weston
Trustee Emeritus
George F. Russell, Jr.
Officers
Sandra Cavanaugh, President and Chief Executive Officer
Cheryl Wichers, Chief Compliance Officer
Peter Gunning, Chief Investment Officer
Mark E. Swanson, Treasurer and Chief Accounting Officer
Mary Beth Rhoden, Secretary
Adviser
Russell Investment Management Company
1301 Second Avenue
Seattle, WA 98101
Administrator and Transfer and Dividend Disbursing Agent
Russell Fund Services Company
1301 Second Avenue
Seattle, WA 98101
Custodian
State Street Bank and Trust Company
1200 Crown Colony Drive
Crown Colony Office Park
Quincy, MA 02169
Office of Shareholder Inquiries
1301 Second Avenue
Seattle, WA 98101
(800) 787-7354
Legal Counsel
Dechert LLP
200 Clarendon Street, 27th Floor
Boston, MA 02116-5021
Distributor
Russell Financial Services, Inc.
1301 Second Avenue
Seattle, WA 98101
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
1420 5th Avenue, Suite 1900
Seattle, WA 98101
Money Managers of Underlying Funds as of December 31, 2012
RIC Russell Commodity Strategies Fund
CoreCommodity Management, LLC, Stamford, CT
Credit Suisse Asset Management, LLC, New York, NY
Goldman Sachs Asset Management, L.P., New York, NY
RIC Russell Global Infrastructure Fund
Cohen & Steers Capital Management, Inc., New York, NY
Colonial First State Asset Management (Australia) Limited, Sydney, Australia
Nuveen Asset Management, LLC, Chicago, IL
RIC Russell Multi-Strategy Alternative Fund
2100 XENON Group LLC, Chicago, IL
Acorn Derivatives Management Corporation, White Plains, NY
Amundi Investments USA, LLC, New York, NY
AQR Capital Management, LLC, Greenwich, CT
Brigade Capital Management LLC, New York, NY
Eaton Vance Management, Boston, MA
First Eagle Investment Management, LLC, New York, NY
Galtera N.A. Inc., New York, NY
Galtere Ltd., New York, NY
Lazard Asset Management LLC, New York, NY
Levin Capital Strategies, L.P., New York, NY
Omega Advisors, Inc., New York, NY
RIF Global Real Estate Securities Fund
AEW Capital Management LP, Boston, MA
Cohen & Steers Capital Management, Inc., New York, NY
INVESCO Advisers, Inc. which acts as a money manager to the Fund through its INVESCO Real Estate Division, Dallas, TX
RIC Russell U.S. Defensive Equity Fund
INTECH Investment Management LLC, West Palm Beach, FL
Jacobs Levy Equity Management, Inc., Florham Park, NJ
J.P. Morgan Investment Management, Inc., New York, NY
PanAgora Asset Management Inc, Boston, MA
RIC Russell U.S. Dynamic Equity Fund
AJO, LP, Philadelphia, PA
Cornerstone Capital Management, Inc., Minneapolis, MN
Schneider Capital Management Corporation, Wayne, PA
Suffolk Capital Management, LLC, New York, NY
RIF Multi-Style Equity Fund
Columbus Circle Investors, Stamford, CT
DePrince, Race & Zollo, Inc., Winter Park, FL
Institutional Capital LLC, Chicago, IL
Jacobs Levy Equity Management, Inc., Florham Park, NJ
Mar Vista Investment Partners, LLC, Los Angeles, CA
Suffolk Capital Management, LLC, New York, NY
Sustainable Growth Advisers, LP, Stamford, CT
RIC Russell Global Opportunistic Credit Fund
DDJ Capital Management, LLC, Waltham, MA
Lazard Asset Management LLC, New York, NY
Oaktree Capital Management, L.P., Los Angeles, CA
Stone Harbor Investment Partners LP, New York, NY
44 | Adviser, Money Managers and Service Providers |
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Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
1301 Second Avenue, Seattle, Washington 98101
(800) 787-7354
RIC Russell Investment Grade Bond Fund
Logan Circle Partners, L.P., Philadelphia, PA
Macro Currency Group an investment group within Principal Global Investors, LLC, Des Moines, IA*
Metropolitan West Asset Management, LLC, Los Angeles, CA
Neuberger Berman Fixed Income LLC, Chicago, IL
Pacific Investment Management Company LLC, Newport Beach, CA
RIC Russell Short Duration Bond Fund
Logan Circle Partners, L.P., Philadelphia, PA
Pacific Investment Management Company LLC, Newport
Beach, CA
Wellington Management Company, LLP, Boston, MA
RIF Core Bond Fund
Colchester Global Investors Ltd, London, England
Logan Circle Partners, L.P., Philadelphia, PA
Macro Currency Group an investment group within Principal Global Investors, LLC, Des Moines, IA*
Metropolitan West Asset Management, LLC, Los Angeles, CA
Pacific Investment Management Company LLC, Newport Beach, CA
* 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.
RIC Russell Global Equity Fund
GLG Inc., New York, NY
Harris Associates L.P., Chicago, IL
MFS Institutional Advisors Inc., Boston, MA
Polaris Capital Management, LLC, Boston, MA
Sanders Capital, LLC, New York, NY
T. Rowe Price Associates, Inc., Baltimore, MD
RIF Non-U.S. Fund
Barrow, Hanley, Mewhinney & Strauss, LLC, Dallas, TX
MFS Institutional Advisors, Inc., Boston, MA
Pzena Investment Management, LLC, New York, NY
William Blair & Company L.L.C., Chicago, IL
This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Russell Investment Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information.
Adviser, Money Managers and Service Providers | 45 |
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Russell Investment Funds | 1301 Second Avenue | 800-787-7354 | ||
Seattle, Washington 98101 | Fax: 206-505-3495 | |||
www.russell.com |
36-08-433
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Item 2. Code of Ethics. [Annual Report Only]
(a) | As of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and principal financial officer (“Code”). |
(b) | That Code comprises written standards that are reasonably designed to deter wrongdoing and to promote: |
1) | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
2) | full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by each Mutual Fund; |
3) | compliance with applicable governmental laws, rules and regulations; |
4) | the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and |
5) | accountability for adherence to the Code. |
(c) | The Code was restated as of December 2006; the restatement did not involve any material change. |
(d) | As of the end of the period covered by the report, there have been no waivers granted from a provision of the Code that applies to the registrant’s principal executive officer and principal financial officer. |
(e) | Not applicable. |
(f) | The registrant has filed with the SEC, pursuant to Item 12(a)(1), a copy of the Code that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as an exhibit to its annual report on this Form N-CSR. |
Item 3. Audit Committee Financial Expert. [Annual Report Only]
Registrant’s board of trustees has determined that the Registrant has at least one audit committee financial expert serving on its audit committee. Jack R. Thompson has been determined to be the Audit Committee Financial Expert and is also determined to be “independent” for purposes of Item 3, paragraph (a)(2)(i) and (ii) of Form N-CSR
Item 4. Principal Accountant Fees and Services. [Annual Report Only]
Audit Fees
(a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows:
2011 | $ | 195,910 | ||
2012 | $ | 240,000 |
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Audit-Related Fees
(b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of this Item and the nature of the services comprising those fees were as follows:
Fees | Nature of Services | |||||
2011 | $ | 72,760 | Tax auditing services | |||
2012 | $ | 86,500 | Tax auditing services |
Tax Fees
(c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning and the nature of the services comprising the fees were as follows:
Fees | Nature of Services | |||||
2011 | $ | 76,530 | Tax filing services | |||
2012 | $ | 73,500 | Tax filing services |
All Other Fees
(d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item and the nature of the services comprising those fees were as follows:
Fees | Nature of Services | |||||
2011 | $ | 2,500 | Tax Service Fees rendered to Private Limited on International Funds | |||
2012 | $ | 0 |
(e) (1) Registrant’s audit committee has adopted the following pre-approval policies and procedures for certain services provided by Registrant’s accountants:
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Russell Investment Company (“RIC”)
Russell Investment Funds (“RIF”)
Audit and Non-Audit Services Pre-Approval Policy
Effective Date: August 30, 2011
I. | Statement of Purpose. |
This Policy has been adopted by the joint Audit Committee (the “Audit Committee”) of Russell Investment Company (“RIC”) and Russell Investment Funds (“RIF”) to apply to any and all engagements of the independent auditor to RIC and RIF, respectively, for audit, non-audit, tax or other services. The term “Fund” shall collectively refer to RIC and RIF. The term “Investment Adviser” shall refer to the Funds’ advisor, Russell Investment Management Company (“RIMCo”). This Policy does not delegate to management the responsibilities set forth herein for the pre-approval of services performed by the Funds’ independent auditor.
II. | Statement of Principles. |
Under the Sarbanes-Oxley Act of 2002 (the “Act”), the Audit Committee of a Fund’s Board of Trustees (the “Audit Committee”) is charged with responsibility for the appointment, compensation and oversight of the work of the independent auditor for the fund. As part of these responsibilities, the Audit Committee is required to pre-approve the audit services and permissible non-audit services (“non-audit services”) performed by the independent auditor for the fund to assure that the independence of the auditor is not in any way compromised or impaired. In determining whether an auditor is independent, there are three guiding principles under the Act that must be considered. In general, the independence of the auditor to the fund would be deemed impaired if the auditor provides a service whereby it:
• | Functions in the role of management of the Fund, the adviser of the Fund or any other affiliate* of the Fund; |
• | Is in the position of auditing its own work; or |
• | Serves in an advocacy role for the fund, the adviser of the fund or any other affiliate of the fund. |
Accordingly, it is the Funds’ policy that the independent auditor for the Funds must not be engaged to perform any service that contravenes any of the three guidelines set forth above, or which in any way could be deemed to impair or compromise the independence of the auditor for the Funds. This Policy is designed to accomplish those requirements and will henceforth be applied to all engagements by the Funds of its independent auditor, whether for audit, audit-related, tax, or other non-audit services.
* | For purposes of this Policy, an affiliate of the Funds is defined as the Funds’ investment adviser (but not a sub-adviser whose role is primarily portfolio management and whose activities are overseen by the principal investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Fund. |
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Rules adopted by the United States Securities and Exchange Commission (the “SEC”) establish two distinct approaches to the pre-approval of services by the Audit Committee. The proposed services either may receive general pre-approval through adoption by the Audit Committee of a list of authorized services for the fund, together with a budget of expected costs for those services (“general pre-approval”), or specific pre-approval by the Audit Committee of all services provided to the fund on a case-by-case basis (“specific pre-approval”).
The Funds’ Audit Committee believes that the combination of these two approaches reflected in this Policy will result in an effective and efficient procedure for the pre-approval of permissible services performed by the Funds’ independent audit. The Funds’ Audit and Non-Audit Pre-Approved Services Schedule lists the audit, audit-related, tax and other services that have the general pre-approval of the Audit Committee. As set forth in this Policy, unless a particular service has received general pre-approval, those services will require specific pre-approval by the Audit Committee before any such services can be provided by the independent auditor. Any proposed service to the Funds that exceeds the pre-approved budget for those services will also require specific pre-approval by the appropriate Audit Committee.
In assessing whether a particular audit or non-audit service should be approved, the Audit Committee will take into account the ratio between the total amounts paid for audit, audit-related, tax and other services, based on historical patterns, with a view toward assuring that the level of fees paid for non-audit services as they relate to the fees paid for audit services does not compromise or impair the independence of the auditor. The Audit Committee will review the list of general pre-approved services, including the pre-approved budget for those services, at least annually and more frequently if deemed appropriate by the Audit Committee, and may implement changes thereto from time to time.
III. | Delegation. |
As provided in the Act and in the SEC’s rules, the Audit Committee from time to time may delegate either general or specific pre-approval authority to one or more of its members. Any member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
IV. | Audit Services. |
The annual audit services engagement terms and fees for the independent auditor for the Funds require specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the independent auditor in order to be able to form an opinion on the financial statements for the Funds for that year. These other procedures include reviews of information systems, procedural reviews and testing performed in order to understand and rely on the Funds’ systems of internal control, and consultations relating to the audit. Audit services also include the attestation engagement for the independent auditor’s report on the report from management on financial reporting internal controls. The Audit Committee will review the audit services engagement as necessary or appropriate in the sole judgment of the Audit Committee.
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In addition to the pre-approval by the Audit Committee of the annual engagement of the independent auditor to perform audit services, the Audit Committee may grant general pre-approval to other audit services, which are those services that only the independent auditor reasonably can provide. These may include statutory audits and services associated with the Funds’ SEC registration statement on Form N-1A, periodic reports and documents filed with the SEC or other documents issued in connection with the Funds’ securities offerings.
The Audit Committee has pre-approved the audit services set forth in Schedule A of the Audit and Non-Audit Pre-Approved Services Schedule. All other audit services not listed in Schedule A of the Audit and Non-Audit Pre-Approved Services Schedule must be specifically pre-approved by the Audit Committee.
V. | Audit-Related Services. |
Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the financial statements for the Funds, or the separate financial statements for a series of the Funds that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of audit-related services does not compromise or impair the independence of the auditor and is consistent with the SEC’s rules on auditor independence, the Audit Committee may grant pre-approval to audit related services. “Audit related services” include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit services;” assistance with understanding and implementing new accounting and financial report or disclosure matters not classified as “audit services;” assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal reporting requirements under Form N-SAR and Form N-CSR.
The Audit Committee has pre-approved the audit-related services set forth in Schedule B of the Audit and Non-Audit Pre-Approved Services Schedule. All other audit-related services not listed in Schedule B of the Audit and Non-Audit Pre-Approved Services Schedule must be specifically pre-approved by the Audit Committee.
VI. | Tax Services. |
The Audit Committee believes that the independent auditor can provide tax services to the Funds, such as tax compliance, tax planning and tax advice, without impairing the auditor’s independence and the SEC has stated that the independent auditor may provide such services. Consequently, the Audit Committee believes that it may grant general pre-approval to those tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC’s rules on auditor independence. However, the Audit Committee will not permit the retention of the independent auditor to provide tax advice in connection with any transaction recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported by the United States Internal
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Revenue Code and related regulations or the applicable tax statutes and regulations that apply to the Funds’ investments outside the United States. The Audit Committees will consult with the Treasurer of the Funds or outside counsel to determine that the Funds’ tax planning and reporting positions are consistent with this policy.
The Audit Committee has pre-approved the tax services set forth in Schedule C of the Audit and Non-Audit Pre-Approved Services Schedule. All other tax services not listed in Schedule C of the Audit and Non-Audit Pre-Approved Services Schedule must be specifically pre-approved by the Audit Committee.
VII. | All Other Services. |
The Audit Committee believes, based on the SEC’s rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes that it may grant general pre-approval to those permissible non-audit services classified as “all other” services that the Audit Committee believes are routine and recurring services, would not impair or compromise the independence of the auditor and are consistent with the SEC’s rules on auditor independence.
The Audit Committee has pre-approved the permissible “all other services” set forth in Schedule D of the Audit and Non-Audit Pre-Approved Services Schedule. Permissible “all other services” not listed in Schedule D of the Audit and Non-Audit Pre-Approved Services Schedule must be specifically pre-approved by the Audit Committee.
A list of the SEC’s prohibited non-audit services are as follows:
• | Bookkeeping or other services relating to the accounting records or financial statements of the Funds |
• | Financial information system design and implementation |
• | Appraisal or valuation services, fairness opinions or contribution-in-kind reports |
• | Actuarial services |
• | Internal audit outsourcing services |
• | Management functions |
• | Human resources services |
• | Broker-dealer, investment adviser or investment banking services |
• | Legal services |
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• | Expert services unrelated to the audit |
The SEC’s rules and relevant official interpretations and guidance should be consulted to determine the scope of these prohibited services and the applicability of any exceptions to certain of the prohibitions. Under no circumstance may an executive, manager or associate of the Funds, or the Investment Advisor, authorize the independent auditor for the Funds to provide prohibited non-audit services.
VIII. | Pre-Approval Fee Levels or Budgeted Amounts. |
Pre-Approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee and shall be subject to periodic subsequent review during the year if deemed appropriate by the Audit Committee (separate amounts may be specified for the Fund and for other affiliates in the investment company complex subject to pre-approval). Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee will be mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriateness of the ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Funds (including any Audit-related or Tax services fees for affiliates subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as “all other services” for the Funds (including any such services for affiliates subject to pre-approval by the Audit Committee).
IX. | Procedures. |
All requests or applications for services to be provided by the independent auditor that do not require specific pre-approval by the Audit Committee will be submitted to the “RIC/RIF Clearance Committee” (the “Clearance Committee”) (which shall be comprised of not less than three members, including the Treasurer of the Funds who shall serve as its Chairperson) and must include a detailed description of the services to be rendered and the estimated costs of those services. The Clearance Committee will determine whether such services are included within the list of services that have received general pre-approval by the Audit Committee. The Audit Committee will be informed not less frequently than quarterly by the Chairperson of the Clearance Committee of any such services rendered by the independent auditor for the Funds and the fees paid to the independent auditors for such services.
Requests or applications to provide services that require specific pre-approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Clearance Committee and must include a joint certification by the engagement partner of the independent auditor and the Chairperson of the Clearing Committee that, in their view, the request or application is consistent with the SEC’s rules governing auditor independence.
The Internal Audit Department of Frank Russell Company, the parent company of RIMCo, and the officers of RIC and RIF will report to the Chairman of the Audit Committee any breach of
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this Policy that comes to the attention of the Internal Audit Department of Frank Russell Company or an officer of RIC or RIF.
X. | Additional Requirements. |
The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work performed by the independent auditor and to assure the independent auditor’s continuing independence from the Funds and its affiliates, including Frank Russell Company. Such efforts will include, but not be limited to, reviewing a written annual statement from the independent auditor delineating all relationships between the independent auditor and RIC, RIF and Frank Russell Company and its subsidiaries and affiliates, consistent with Independence Standards Board Standard No. 1, and discussing with the independent auditor its methods and procedures for ensuring its independence.
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(e) (2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is as follows:
Audit Fees | 0 | % | ||
Audit-Related Fees | 0 | % | ||
Tax Fees | 0 | % | ||
All Other Fees | 0 | % |
(f) For services, 50 percent or more of which were pre-approved, the percentage of hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees was 0%.
(g) The aggregate non-audit fees billed by registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows:
2011 | $ | 0 | ||
2012 | $ | 0 |
(h) The registrant’s audit committee of the board of trustees has considered whether the provision of nonaudit services that were rendered to the registrant’s investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5. Audit Committee of Listed Registrants. [Not Applicable]
Item 6. [Schedules of Investments are included as part of the Report to Shareholders filed under Item 1 of this form]
Items 7-9. [Not Applicable]
Item 10. Submission of Matters to a Vote of Security Holders
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
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Item 11. Controls and Procedures
(a) Registrant’s principal executive officer and principal financial officer have concluded that Registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940 (the “Act”)) are effective, based on their evaluation of these controls and procedures as of a date within 90 days of the date this report is filed with the Securities and Exchange Commission.
(b) There were no significant changes in Registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected or is likely to materially affect Registrant’s internal control over financial reporting.
Item 12. Exhibit List
(a) Registrant’s code of ethics described in Item 2.
(b) Certification for principal executive officer of Registrant as required by Rule 30a-2(a) under the Act and certification for principal financial officer of Registrant as required by Rule 30a-2(a) under the Act.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Russell Investment Funds
By: | /s/ Sandra Cavanaugh | |
Sandra Cavanaugh | ||
Principal Executive Officer and Chief Executive Officer |
Date: February 25, 2013
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: | /s/ Sandra Cavanaugh | |
Sandra Cavanaugh | ||
Principal Executive Officer and Chief Executive Officer |
Date: February 25, 2013
By: | /s/ Mark E. Swanson | |
Mark E. Swanson | ||
Principal Financial Officer, Principal Accounting Officer and Treasurer |
Date: February 25, 2013