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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 R. Albaneze, 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: 800-787-7354 | |
| Date of fiscal year end: | December 31 |
| Date of reporting period: | January 1, 2014 to December 31, 2014 |
Item 1. Reports to Stockholders
2014 ANNUAL REPORT
Russell Investment Funds
DECEMBER 31, 2014
FUND
Multi-Style Equity Fund
Aggressive Equity Fund
Non-U.S. Fund
Core Bond Fund
Global Real Estate Securities Fund
Russell Investment Funds
Russell Investment Funds is a series investment company with nine different investment portfolios referred to as Funds. These financial statements report on five of these Funds.
Russell Investment Funds
Annual Report
December 31, 2014
Table of Contents
| To Our Shareholders ........................................................................................... 3 |
| Market Summary ................................................................................................. 4 |
| Multi-Style Equity Fund ...................................................................................... 14 |
| Aggressive Equity Fund ...................................................................................... 32 |
| Non-U.S. Fund .................................................................................................. 52 |
| Core Bond Fund ................................................................................................ 72 |
| Global Real Estate Securities Fund .................................................................... 106 |
| Notes to Schedules of Investments .................................................................... 124 |
| Notes to Financial Highlights ............................................................................. 126 |
| Notes to Financial Statements ........................................................................... 127 |
| Report of Independent Registered Public Accounting Firm ................................ 147 |
| Tax Information ................................................................................................ 148 |
| Affiliated Brokerage Transactions ..................................................................... 149 |
| Basis for Approval of Investment Advisory Contracts ....................................... 150 |
| Shareholder Requests for Additional Information .............................................. 161 |
| Disclosure of Information about Fund Trustees and Officers .............................. 162 |
| Adviser, Money Managers and Service Providers ............................................. 167 |
Russell Investment Funds
Copyright © Russell Investments 2015. All rights reserved.
Russell Investments is a Washington, USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange Group.
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.
To Our Shareholders
Dear Shareholder,
After strong performance in 2013, equity markets in the U.S. continued to move higher through the end of December 2014.
The broad-based Russell 3000® Index returned 12.56% for the year ending December 31, 2014.
A number of factors contributed to this strong performance. After a somewhat slow start, the U.S economy has shown its resilience as corporate profits remain robust. Unemployment dropped below 6% in October for the first time since July 2008. And inflation remained tame, standing at just 1.3% through November 30, 2014.
At the same time, global markets contended with their fair share of concerns: instability in the Middle East, an Ebola outbreak in western Africa that spread fears across the globe, and unrest in the Ukraine. Add to that doubts about Europe’s economic recovery and a burst of volatility in the U.S. equity and Treasury markets in the fourth quarter and you might wonder how U.S. markets had such a strong year.
What all of this shows us is that the markets can – and often do – react to short-term events. But what matters most is to have a thoughtful financial plan, a long-term investment horizon, and a diversified, multi-asset portfolio that can weather periods of market volatility. We believe your financial advisor can also play a critical role in helping you stay on track and focus on your financial goals.
On the following pages you can gain additional insights on the markets and your investments by reviewing our Russell Investment Funds’ 2014 Annual Report for the fiscal year ending December 31, 2014, 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.
CEO, U.S. Private Client Services
Russell Investment Management Company
To Our Shareholders 3
Russell Investment Funds
Market Summary as of December 31, 2014 (Unaudited)
U.S. Equity Markets
The U.S. equity market performed well during the fiscal year ended December 31, 2014 despite various geopolitical concerns and the end of U.S. quantitative easing. Broadly measured by the Russell 3000® Index, U.S. stocks returned 12.56% over the year, which is the sixth straight calendar year that the Russell 3000® Index has finished with a positive absolute return. The Russell 3000® Index finished flat or higher in nine of the year’s twelve months, with exceptions in January, July, and September.
During the year, larger capitalization stocks were rewarded as the Russell 1000® Index outpaced the Russell 2000® Index by 8.35%, with the indexes returning 13.24% and 4.89% respectively. The year was led by defensive stocks, as the Russell 1000® Defensive™ Index returned 13.80% while the Russell 1000® Dynamic™ Index returned 12.64%. The Russell 1000® Value Index returned 13.45% compared to 13.05% for the Russell 1000® Growth Index. Although value stocks slightly edged out growth stocks, the cheapest stocks (those with the lowest price-to-book ratios and lowest price-to-earnings ratios) lagged the market. Interest rate sensitive areas of the market, specifically electric utilities and real estate investment trusts (“REITs”), outpaced the broader market returning 28.86% and 28.17%, respectively as measured by the Russell 1000® Index. Within the Russell 1000® Index, stocks that were rewarded during the year included stocks with rising earnings estimates, low earnings variability, and positive earnings surprises. On the other hand, stocks that underperformed included high beta stocks (stocks with high price sensitivity to market movements) and stocks with high financial quality (lowest debt-to-capital ratios).
U.S. equities rebounded from a challenging start to 2014 to record positive returns for the first quarter, with the Russell 3000® Index returning 1.97%. The Russell 1000 Index returned 2.05% and the Russell 1000® Value Index surged near the end of the quarter to end with a 3.02% quarterly return, surpassing the Russell 1000® Growth Index return of 1.12%. The small cap Russell 2000® Index lagged the Russell 1000® Index with a return of 1.12%. There was almost no differentiation between defensive and dynamic stocks with the Russell 1000® Defensive Index returning 2.00% and the Russell 1000® Dynamic™ Index returning 2.09% for the first quarter.
During the first quarter, investors shrugged off disappointing U.S. non-farm payroll numbers for December and January, which were generally blamed on unusually cold weather. Markets jumped considerably in February on “dovish” comments from Federal Reserve (the “Fed”) Chair Janet Yellen in her first Congressional testimony. In March, high dividend yield stocks briefly underperformed after comments from Yellen suggesting that U.S. short term interest rates may rise sooner than some were expecting, but the market’s focus quickly shifted to profit taking among momentum stocks during the final seven trading days of the quarter. The final U.S. gross domestic product (“GDP”) growth rate for the fourth quarter came in at 2.6%, slightly behind forecasts. Elsewhere, consumer confidence continued to improve and durable goods orders picked up in February. However, data suggested the U.S. housing market continued to slow. A series of concerns about Ukraine, Crimea, and Russia also kept a lid on market appreciation for the quarter.
The Russell 3000® Index gained 4.87% in the second quarter, ending the quarter at a new record high. The equity market was led by high dividend yield stocks early in the quarter, as investors bid up interest rate sensitive stocks in pursuit of more yield from equity oriented investments as long term interest rates fell. For the quarter, “bond substitutes” within the Russell 1000® Index (REITs and utilities) outperformed. The Russell 1000® Growth Index slightly edged out the Russell 1000® Value Index for the quarter, returning 5.13% compared to 5.10%, respectively. However within small cap space, the Russell 2000 Value Index beat the Russell 2000® Growth Index. Elsewhere, dynamic stocks outperformed defensive stocks across various market capitalization levels. The payoff to market capitalization was mixed as the Russell Top 200 Index returned 5.18%, beating the broader Russell 1000® Index which climbed 5.12%, although the Russell Top 50 Mega Cap Index returned only 4.51%. The Russell 2000® Index lagged the Russell 2500 Index, returning 2.05% compared with 3.56% for the second quarter.
Economic data released during the second quarter generally provided indications of a continued economic expansion. The standout anomaly was the third revision to U.S. first-quarter real GDP (an inflation adjusted GDP measure), which
4 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
was sharply revised downward to -2.9% largely driven by a decrease in personal consumption expenditures. The Fed downwardly revised its 2014 GDP forecasts from 2.9% to 2.2%. Elsewhere, non-farm payrolls remained healthy, with June being the fifth straight month of growth above 200,000 jobs, which is the first time this has happened in 14 years. Meanwhile, the Fed cut its monthly asset purchases by $10 billion at each monthly meeting, reducing the amount to $35 billion at June’s meeting. Additionally, Fed Chair Yellen continued to reiterate the committee’s “dovish” tone, which helped enable the outperformance of interest rate sensitive stocks.
The Russell 3000® Index finished third quarter 2014 virtually unchanged from where it started the quarter. However, U.S. equities suffered negative returns in July and September. Geopolitical risks and negative investor reaction to the Fed’s monthly statement (which was perceived as being more hawkish) dragged down equities in July, while the sell-off in the final days of September was driven in part by fears of a potentially larger than anticipated rise in interest rates. The Russell 1000® Index gained 0.65% in the third quarter. The largest market gains came higher up the capitalization spectrum, as the Russell Top 50 Mega Cap Index returned 3.04% and the Russell Top 200 Index returned 1.71%. In contrast, the Russell Mid Cap Index, Russell 2000® Index and Russell Microcap Index posted negative returns (-1.67%, -7.36% and -8.21%, respectively). Defensive stocks outperformed dynamic stocks, in a reversal of the second quarter leadership. Growth stocks beat value stocks across all capitalization tiers except microcap for the third quarter.
Economic data released during the third quarter demonstrated positive economic growth with an ongoing improvement in employment. GDP grew at a revised annual rate of 4.6% in the second quarter, up from a previous estimate of 4.2%. Non-farm payrolls missed estimates in August at 180,000 jobs, the second weakest number during the year, although this followed six months of 200,000+ job additions. Unemployment fell to 6.1% in August, partially due to a marginal tick down in the participation rate. Meanwhile, the Fed continued its monthly reductions in quantitative easing as it prepared to fully halt the program in October. The U.S. dollar experienced its strongest quarter against other G10 currencies since 2008 after enjoying an eleven week run of successive gains.
The Russell 3000® Index advanced 5.24% in the fourth quarter of 2014, extending another strong year of returns for U.S. equities. Small cap stocks bounced back strongly for the quarter but still did not catch up with large cap for the year. The Russell 2000® Index returned 9.73% compared with the Russell 1000® Index and the Russell Top 50 Index, which returned 4.88% and 3.18%, respectively. At all market capitalization levels, defensive stocks outperformed dynamic stocks. Value stocks finished in a virtual tie with growth stocks in large and mid-capitalization stocks, but further down the capitalization scale, growth outperformed value. Within the Russell 1000® Index, the payoff to the value factor was mixed as both the cheapest stocks (lowest price-to-book ratios) and most expensive stocks (highest price-to-book ratios) underperformed for the quarter.
The fourth quarter got off to a rocky start with a market pullback in early October as investors considered the potential worst case scenario related to Ebola. However, market volatility receded and the market regained its previous highs as encouraging domestic economic releases outweighed global growth concerns. Labor market data remained healthy, with the unemployment rate hitting a six-year low of 5.8% in October. Initial jobless claims fell to pre-recession levels and U.S. non-farm payrolls in November came in significantly above estimates at the highest monthly reading in over two years. U.S. real GDP growth was sharply revised upward for the 3rd quarter from 3.9% to 5.0% annualized. However, jitters about declining oil prices threatened the rally at various points during the quarter. As broadly expected, the Fed ended its quantitative easing program in October. In December’s policy statement, the central bank revealed that it would be “patient” in judging when to start raising interest rates, rather than keeping them low for a “considerable time” as had been previously repeated. Investors interpreted this change of language as a sign of central bank confidence in the strength of the U.S. economy, but it also was clear that multiple months without rate increases were still ahead.
Non-U.S. Developed Equity Markets
Market Summary 5
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
For the fiscal year ended December 31, 2014, the non-U.S. equity market, as measured by the Russell Developed ex-U.S. Large Cap® Index (the “Index”), was down 4.00%. U.S. Dollar strength was a significant headwind during the period as other major currencies fell against the U.S. dollar - the Euro (-12.09%), Yen (-12.32%), Canadian dollar (-7.71%), Swiss Franc (-10.48%), and British Pound (-5.68%). Concerns heightened in the latter part of the period over the impact of falling oil prices on oil dependent economies.
Geo-politics and policymaker rhetoric dominated headlines in what was a relatively volatile first quarter of 2014. The Index registered positive returns of 1.2%, after recovering strongly from a sharp decline at the end of January. The quarter began with concerns over the outlook for growth in emerging markets, amid ongoing speculation regarding the U.S. Federal Reserve’s (“Fed”) plans for the reversal of quantitative easing (“QE”). Political upheaval in a number of emerging market countries also caused concern, most notably in Ukraine and Venezuela, as the currencies of a series of emerging market countries sold-off. However, comments from Fed Chair Yellen soothed investor concerns as she stated that “a highly accommodative policy will remain appropriate for considerable time after asset purchases end.” European Central Bank (“ECB”) Chairman Draghi added to the positive mood as he re-iterated the ECB was “ready and willing” to act. However, an uptick in political risk weighed on markets at the beginning of March as fallout from Crimea’s independence referendum and its resulting decision to join with Russia stoked wider international tensions. Despite sanctions between Russia and its Western critics, a feared escalation of tensions did not materialize and markets rebounded. Although macro data out of China worsened towards the second half of March, comments from the country’s Premier Li served to boost equity markets and spark a reversal in sentiment as he reassured investors that the government would support the economy.
A challenging start to the second quarter of 2014 saw equity markets track lower as policymaker inaction and an intensification of geopolitical events in Ukraine and the Middle East led to heightened investor risk aversion. However, non-U.S. equities maintained a largely positive trajectory through the quarter, as the Index advanced 4.4%.
The ECB’s announcement of renewed stimulus efforts in early June, as well as moderation of tensions between Russia and the West, contributed to an improvement in market sentiment toward the end of the second quarter. Consistently dovish comments from Fed Chair Janet Yellen, in particular her assertion that “a high degree of monetary accommodation remains warranted,” were also well received. Emerging markets also enjoyed a strong quarter, boosted by a series of welcome election results, most notably in India, and less dire concern toward the Chinese government’s restraint in policy support in the face of a decelerating economy.
Equity markets tracked lower over the third quarter of 2014, as the strengthening recovery in the U.S. wasn’t enough to offset a resurgence of geopolitical tension in the Middle East and sluggishness in Europe. Once again, monetary policy was key to equity performance across the world. Markets seemed unperturbed by the imminent end of QE in the U.S., preferring to focus on the country’s strong economic fundamentals, but concerns over interest rate hikes prompted Fed Chair Yellen to insist that interest rates would remain low for a “considerable time.” Low inflation and high unemployment in the Eurozone pushed the ECB to cut deposit and interest rates to record lows and pledge to start buying covered bonds. By quarter-end, however, poor economic data highlighted that further stimulatory action would likely be necessary. Emerging markets had a patchy quarter, with underwhelming data from China doing little to quell concerns that the country may yet face a hard economic landing.
Overall, the non-U.S. market fell 5.9% in the third quarter of 2014, as measured by the Index. Japan shed 2.57% as the after-effects of the consumer-tax hike continued to weigh on inflation and consumer sentiment. European markets were the biggest laggards, dropping 7.5% on the back of persistently bad economic news from the region’s key economies: Italy fell into recession in the second quarter, France stagnated and Germany saw business confidence slump to its lowest level in 17 months. Emerging market equities declined 3.3% in U.S. dollar terms during the quarter, largely driven by a September sell-off. Over the period, strength in the U.S. economy and a likelihood of further monetary easing in Europe and Japan wasn’t enough to overcome broader fears over the health of the global economy. Though emerging markets fell overall, they contained several bright spots, especially in East Asia.
6 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
Global markets followed increasingly divergent paths over the fourth quarter of 2014, reflecting the widening gap between a strong U.S. economy and the weaker economies of other developed markets. With the U.S. recovery continuing to gather steam, the Fed wound up its QE program in October. On the other hand, markets in Europe, Japan and China gained on poor economic news, as investors took it as a sign that central banks would be forced to loosen their purse strings still further. Japan duly obliged with a massive increase in its monetary stimulus, from 60 trillion yen to 80 trillion yen, at the end of October.
Also dominating global economic news was the rapid decline in oil prices, which by the end of the year had dropped roughly 50% from their June 2014 peak. Causes for the rapid decline in prices were the booming shale-oil industry in the U.S., higher-than-expected production from trouble spots such as Libya, a slowing economy in China, and in late November, the decision by OPEC countries not to cut production.
Non-U.S. equities, as measured by the Index, fell by 3.5% in the fourth quarter of 2014. In commodities, oil continued its slide and base metals also had a challenging quarter on worries over the Chinese economy. Emerging market countries had a tough time overall. However, China defied its mediocre economic indicators to rise by 7.2% as measured by the MSCI China Index, helped by a cut in interest rates and better-than-expected export figures in September. A more common story was that seen in Russia (-32.9%), where the slumping oil price, along with Western sanctions, sent stocks and the currency plunging. Colombia (-22.9%), Mexico (-12.3%) and Malaysia (-10.5%) also felt the ill effects of a lower oil price.
In 2014, mid to large cap companies outperformed smaller cap companies, while growth companies outperformed value companies, as measured by various Russell Global Developed Indexes. Stocks that exhibited higher quality and strong balance sheets tended to outperform lower quality companies, as evidenced by defensive stocks outperforming their dynamic peers.
This defensiveness was reflected in sector performance, as health care and utility stocks far outpaced more cyclically oriented sectors such as energy and materials, which were the worst performing sectors over the period. The technology sector performed well during the period led primarily by semiconductor and hardware companies, while software and services lagged within the sector.
Regionally, Asia ex-Japan had the most positive performance over the year, led by countries like Hong Kong and Singapore. Continental Europe struggled over the period as the larger economies such as France and Germany weighed on the region. Some of the peripheral countries such as Portugal and Greece sold off meaningfully, while Norway struggled due to dependence on oil. Emerging markets generally outperformed non-U.S. developed markets, as countries such as India, Indonesia, Philippines, Thailand and Turkey were able to outpace very poor performance in Russia, Hungary and Brazil.
Emerging Markets
The Russell Emerging Markets Index (the “Index”) was down 1.73% for the fiscal year ending December 31, 2014. The Index rallied for a strong second quarter driven by positive geopolitical developments but gave back returns in the latter half of the year due to the strong U.S. dollar and a significant drop in the price of oil. The largest contributor to negative returns was the Index’s exposure to the Russian equity market, which lost nearly half its value in U.S. dollar terms. This was driven by the combination of a strong dollar, U.S. sanctions driven by the Ukraine conflict and the plummeting price of oil. Offsetting this loss, the election of strong pro-market candidates in Indonesia and India led for sizeable gains in Indonesian and Indian markets.
The Index slipped 0.2% in the first quarter of 2014. The asset class got off to a tough start amid uncertainty surrounding the U.S. Federal Reserve’s (“Fed”) plans for quantitative easing (“QE”) reduction and increasing concerns over the Chinese economy. Uncertainty linked to Fed tapering began to evaporate in February and emerging markets rebounded, bolstered by comments from new Fed chair Janet Yellen.
Market Summary 7
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
However, a rise in political risk spurred bouts of renewed volatility, primarily due to Crimea’s independence referendum and its resulting decision to join with Russia. Meanwhile, Chinese macro data continued to deteriorate. In conjunction with comments from Premier Li, this sparked a reversal in sentiment amid expectations that the government may take action to support the economy. Despite tit-for-tat sanctions between Russia and its Western critics, a feared escalation of tensions did not materialize and combined with a drop in risk aversion in China, emerging markets rebounded. In this environment, there was a high dispersion in country returns while emerging market currencies also registered some sizeable movements. China (-5.6%) underperformed as Purchasing Managers Indices (“PMI”) manufacturing data continued to worsen and the central bank moved to tighten liquidity conditions.
Indonesia (+21.7%) bounced back as markets reacted positively to news that popular Jakarta governor, Joko Widodo, would run for president. Data showing that its current account deficit had narrowed also helped to restore investor confidence and spurred a gain in the rupiah. The Philippines (+8.9%) and Thailand (+8.7%) also outperformed while Korea (-2.1%) lagged. India (+8.9%) recorded solid gains, boosted by central bank action, which contributed to a 3.2% gain in the rupee, and by polls which indicated the opposition BJP may win upcoming elections.
In Latin America, Colombia (+4.2%) and Brazil (+1.8%) were the only countries to outperform. In Brazil, expectations that the central bank’s interest rate hiking cycle was coming to an end, and polls which indicated lower approval ratings for president Rousseff, sparked resurgence in the local market. Russia (-14.4%) was the worst performing country in the Index, as events in Crimea were the catalyst for a significant sell-off which also saw the ruble fall 6.5%.
Emerging Europe was mixed with Greece (+15.8%) benefiting from increased stability in the eurozone. In contrast, Hungary (-8.8%) lagged, as the central bank cut interest rates more than anticipated. Turkey (+3.2%) epitomized the high levels of volatility, with its perceived fragility to Fed tapering resulting in sizeable capital outflows and a sell-off in the lira early in the quarter. However, the central bank’s decision to hike interest rates 300bps served to stabilize the currency, and as wider concerns over emerging markets eased, the local market more than recouped losses.
South Africa (+4.4%) finished in positive territory while Egypt (+14.7%) registered strong gains ahead of Presidential elections. From an investment style perspective, growth was strongly outperforming value coming into the first quarter of 2014, particularly stocks with the highest price-to-book valuations and high return-on-equity. However, mid-March saw a sharp reversal with value stocks, in particular deep value stocks outperforming significantly. On a market capitalization basis small capitalization equities outperformed large capitalization equities, as measured by the Russell Emerging Markets Small Cap Index (+2.6% over the quarter).
In the second quarter, the Index returned 7.1% in U.S. dollar terms. Diminished concerns over a nearer term rise in global interest rates provided a tailwind to market returns. However, the main catalyst for gains was a series of favorable election results, most notably in India (+17%) where Narendra Modi’s BJP party became the first to attain a majority in the lower house for more than 30 years. Elections in South Africa (+2.1%), Egypt (-2.0%) and frontier market Ukraine also completed relatively smoothly, with no major surprises.
The Chinese market (+5.0%) witnessed some large swings through the period. Concerns over PMI data early in the quarter dissipated as renewed fears over a hard landing were allayed by upside data surprises and as investors appeared more at ease with the government’s restraint in implementing large scale policy intervention through the current period of transition. Elsewhere in Asia, the Philippines (+9.6%) outperformed, despite the publication of a weak first quarter gross domestic product (“GDP”) report which was hit by the effects of typhoon Yolanda. However, the market gained on expectations that higher private consumption and reconstruction spending may boost full year GDP growth as the World Bank increased its Philippine outlook. After initial fears, a military coup in Thailand (+8.4%) was interpreted as a stabilizing factor, generating more optimistic sentiment in financial markets. Indonesia (-1.3%) was the regional laggard, hampered by uncertainty over July’s Presidential election. India was the standout country in the Index, buoyed by high expectations that the new administration would succeed in delivering economic reforms to restore growth and battle high inflation.
8 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
In Latin America, Brazil (+7.0%) outperformed as polls showed support for President Rousseff was declining ahead of October’s Presidential election. However, fundamentals for the country’s economy remained weak with the Brazilian Central Bank raising its already above target inflation outlook for 2014 and the World Bank cutting its GDP growth forecast to 1.5%. Peru (+8.5%) outperformed, while Chile (+2.0%) lagged as the economy continued to slow.
An easing in tensions between Russia (+11.7%) and the West, and a cooling of events in Ukraine, was beneficial for various emerging European markets. Turkey (+15.0%) enjoyed a strong quarter, as its current account deficit continued to recede. Greece (-9.8%) was the worst performing country in the Index as data for the eurozone remained weak and some Greek bank equities declined sharply on concerns over the banks’ exposure to Ukraine and Bulgaria. South Africa (+5.1%) capped a solid quarter, as the ruling ANC party held control of the national assembly, albeit with a reduced majority. The United Arab Emirates (-6.1%) underperformed, particularly in June.
In the third quarter, the Index declined 3.2% in U.S. dollar terms, largely driven by a September sell-off. Emerging markets sold off on the back of speculation around rising interest rates and U.S. dollar strength: the 5 year U.S. Treasury rate rose by 16 basis points over the quarter and the dollar strengthened relative to most currencies. China ended the quarter in mildly positive territory (+1.6%) despite enduring some poor economic data towards the end of the period. While the government had been making positive statements about reform, investors remained concerned – given falling industrial production and a surprise drop in lending – that it won’t be sufficient for the country to hit its growth targets for the year.
Meanwhile, geopolitics played a large role in the performance of emerging markets over the period. Brazil fell 9.2% amid a resurgence in support for the incumbent presidential candidate, Dilma Rousseff. The Russian markets slumped 15.8% as geopolitical tensions in Ukraine rumbled on, and sanctions imposed by Europe and the U.S. began to bite. A significant portion of returns for both Russia and Brazil were driven by currency weakness relative to the U.S. dollar. Over the quarter, the Brazilian and Russian currencies declined by more than 10% against the greenback. Emerging markets in Europe had a poor quarter overall, with Hungary falling 12.1% and Turkey by 11.5%. Turkey is considered particularly vulnerable to interest rate hikes due to its high current account deficit. Thailand rose sharply (+8.0%) after the appointment of a new prime minister appeared to assure a period of greater stability. Indonesia climbed (+2.9%) following the election of Joko Widodo.
Elsewhere, India continued to do well (+1.7%) as recently elected Prime Minister Narendra Modi pressed forward with a reformist agenda. Notably, GDP growth of 5.7% year over year recorded in the second-quarter was the fastest rate since the first quarter of 2012. In the Middle East, the United Arab Emirates enjoyed a strong quarter, with its market rising by 18.4% to add to its leading year-to-date returns. Mexico (+0.6%) also gained despite the sell-off in September and the Philippines (+2.8%) posted strong GDP growth which helped drive gains.
Additional laggards included Greece, which ended down 19.9%, and South Korea, which was also among the biggest detractors as markets fell by 5.8%. With China being one of its biggest export markets, South Korea is especially vulnerable to the economic travails of its giant northern neighbor. Taiwan also declined (-4.3%), as the recent strong run of its technology companies led to profit taking. Elsewhere, Malaysia (-2.4%), Peru (-3.8%) and Chile (-5.1%) all slipped lower.
The Index shed 4.8% in U.S. dollar terms in a highly volatile fourth quarter. The strong U.S. dollar was a key contributor to the emerging markets selloff. The local markets were actually neutral for the quarter, meaning that the negative moves were expressed through currency rather than local equity markets. The rallying dollar was driven by a U.S. economy poised to outperform non-U.S. developed markets. Despite a positive return in October, the Index was additionally dragged down by the effects of a tumbling oil price on key oil exporting nations.
Russia was the worst-performing market over the fourth quarter (-34.1%), driven by the weakness of the ruble. During the quarter, the Russian central bank notably hiked its key interest rate to 17% in an attempt to control inflation and stem capital outflows. Meanwhile, the joint effects of the plunge in oil prices coupled with Western sanctions hammered the country’s economic prospects. Colombia (-20.8%), as the fourth-largest oil producer in South America, saw the peso and
Market Summary 9
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
government revenues slump over the quarter, casting a pall over the country’s markets. Meanwhile, Malaysia, the second largest oil and natural gas producer in Southeast Asia, slipped 11.1%. While declining oil prices proved very damaging to countries that depend heavily on oil revenues, they provided a boost to consumers and oil-importing nations. Turkey climbed 10.9%, as the oil importer benefited from falling energy prices and an uptick in private demand.
In Europe, Greece was the biggest laggard as it dropped 27.5%. Having recently shown signs of revival, Greek markets were thrown back into turmoil after the failure of the governing New Democracy party to elect a new president in December. This failure triggered a full Parliamentary general election scheduled for the end of January, with the jump in financial market uncertainty stemming from the popularity of the far-left, anti-austerity Syriza party. Elsewhere in Europe, Hungary performed poorly (-12.7%) primarily due to its heavy export exposure to Russia. Polish equities declined 12.5% amid worries about debt levels among the country’s real-estate developers and a fall in the zloty.
Elsewhere, the depreciating value of the real saw Brazil fall sharply (-14.4%). During the quarter, investors spurned the reelection of President Dilma Rousseff. President Rousseff sought to mitigate the economic downfall by announcing a broad package of tax increases and budget cuts in a bid to restore faith in her government, with investors taking hope from the appointment of new finance minister Joaquim Levy. In addition, the ongoing corruption scandal at Petrobras, a key state owned oil producer, led the company to lose nearly half its value. Mexican equities had a poor quarter, dropping 11.6% amid the falling peso, political unrest and a series of soft economic data. Korea extended its losses over the second half of the year with a further 8.2% decline in the fourth quarter, largely driven by the government’s continued devaluation of the won.
More positively, Chinese markets had a strong fourth quarter, gaining 4.3% as Chinese financial stocks surged. Although the country’s economic data was mixed, its stock market rose strongly in the latter half of 2014, as investors become increasingly convinced that the Chinese government would implement more aggressive stimulus measures. South Africa gained 2.8%, spurred by dovish sentiment from the Fed in mid-December. India climbed a steady 1.1%.
Energy was the worst performing sector globally and within emerging markets in the fourth quarter, retreating over 23%. The materials & processing sector was also impacted by the commodities slide, down 11%. Technology and financial services were the only two sectors to advance, adding to their 2014 positive returns.
U.S./Global Fixed Income Markets
The fiscal year ended December 31, 2014 was a positive period for global fixed income markets overall, although not without a few surprises along the way. Sovereign yields ended the period lower than they began across virtually all regions, buoying the returns of various fixed income sectors. Globally, credit sectors largely outperformed similar-duration government bonds as spreads generally held or narrowed slightly over the period. Corporate credit underperformed securitized assets due to commodity price weakness and heightened illiquidity concerns, particularly toward the end of the year.
While 2013 ended with a burst of optimism and positive data flow out of the U.S. in particular, 2014 began with a brief stumble as disappointing U.S. non-farm payrolls data was released and concern grew over the global economic outlook for China as the potential for accelerating credit defaults became more apparent. However, this was more than offset by a fourth quarter 2013 U.S. GDP growth reading coming in ahead of expectations, as well as the smooth leadership transition at the U.S. Federal Reserve (the “Fed”). Chairwoman Janet Yellen’s first testimony to the U.S. Congress was positively received by global financial markets, during which she stressed continuity, if not a slightly more dovish stance than her predecessor. The result was a modestly positive end to the first quarter of 2014 for global fixed income markets, particularly for credit sectors.
The moderate rally in global fixed income markets extended through the second quarter of 2014 amid economic data that supported a progressive economic recovery in the U.S. and bottoming-out in Europe. Given gradual tapering in the Fed’s asset purchasing program and positive U.S. growth outlook, the mid-year rally in U.S. Treasuries caught many market
10 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
participants by surprise. The rally was driven by a lull in new issuance squeezing supply (and yields) of longer-term bonds as well as demand from price-insensitive buyers (de-risking pension funds, the Fed and China). Increasingly, accommodative monetary policy out of Japan and Europe put significant downward pressure on yields globally, including in the U.S. While the impact of a particularly harsh winter became more evident in the second quarter, accentuated by a meaningful downwards revision in first quarter GDP growth, fixed income markets proved resilient. Improving unemployment, job gains and consumer confidence re-affirmed the market’s optimism, as did Chairwoman Yellen’s commitment to maintain an accommodative stance even as unemployment and inflation approached target levels.
Market calm turned to concern in the latter half of the year amid heightened uncertainty surrounding geopolitical events and the robustness of global growth, despite generally positive economic data out of the U.S. Israeli-Palestinian tension in the Gaza Strip escalated dramatically in July, putting investors a little more on edge, although the immediate market impact was relatively muted. More impactful was news of a Malaysia Airlines passenger jet being shot down over Ukraine later in the month, raising the stakes in the conflict between Kiev and pro-Moscow rebels in which Russia and the West backed opposing sides. The Ukraine conflict continued to escalate throughout July and August, but was halted by a tense cease-fire in September. As a result, the third quarter of 2014 was challenging for global fixed income markets, particularly credit sectors. Safe-haven U.S. and core European government bonds posted modestly positive returns.
On the other hand, the U.S. economy continued to show strength, with employment gains, consumer confidence and second quarter GDP growth coming in largely ahead of expectations. However, weak economic data out of core Europe and China scared credit markets, tempering the outlook for growth globally. Moves by the European Central Bank to loosen monetary policy, including its own form of asset purchasing program, put further downward pressure on government bond yields, most notably in Europe, but with sympathy downward moves in North America and Asia-Pacific. Volatility spiked in October amid weak data releases out of Europe (namely Germany) and China, sending yields and risk assets plummeting globally, only to nearly revert to prior levels days later. Growing fears over the spread of Ebola from Africa also contributed to investors being more on edge as the first cases were reported in the U.S. and Europe.
By year-end, global government bond yields remained lower for the year, while credit spreads, which had contracted during the first half of the period, ended flat overall. A key indicator of global fixed income performance, the Barclays Global Aggregate Index, returned 7.6% for the year, in USD hedged terms, buoyed by lower government bond yields and broadly flat credit spreads.
Over the year, European bonds outperformed those of other regions (returning 11.1% as measured by the Barclays European Aggregate Index) on the back of strong sovereign bond returns, most notably among lower-rated “peripheral” countries such as Ireland, Spain, Italy and Slovenia as both “core” (e.g., German) yields and spreads between peripheral and core countries fell materially. U.S. bonds posted solid gains (returning 6.0% as measured by the Barclays U.S. Aggregate Index) as U.S. Treasury yields ended the year modestly lower and credit spreads held. Asia-Pacific bonds also posted solid gains (returning 6.3% as measured by the Barclays Asian Pacific Aggregate Index) despite a slowing Chinese growth outlook weighing on the region, likely at least partially offset by the Bank of Japan’s commitment to and later ramp-up of its aggressive monetary policy support.
Strong new issuance volumes characterized most credit sectors, particularly in the U.S., over the year, in both corporate and securitized markets. Sectors generally performed in-line with spreads, with corporate credit outperforming securitized credit across regions (returning 3.1% vs. 3.3% on a global basis, respectively, as measured by Barclays Global Aggregate Index - Corporates and Barclays Global Aggregate Index - Securitized). Overall, lower-quality investment grade corporates outperformed higher-quality investment grade corporates, and utilities and industrials outperformed financials. U.S. agency mortgage-backed securities (“MBS”) performed well (returning 6.1% as measured by Barclays U.S. Aggregate Index – Agency MBS) despite concerns of reduced demand from tapering Fed purchases.
Market Summary 11
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
Similar to 2013, non-Agency MBS outperformed most other sectors, aided by favorable supply and demand forces and solid housing fundamentals. High yield corporate credit marginally underperformed investment grade corporate credit on an equivalent-duration basis, largely as a result commodity price weakness late in the year disproportionately impacting high yield issuers. The lowest-quality segments of the sector underperformed significantly. Emerging market (“EM”) debt slightly lagged developed fixed income markets on mounting growth concerns and commodity price weakness, despite a bounce-back from weakness earlier in the year. Local currency bonds (those denominated in the currency of the issuing EM country) significantly underperformed hard currency bonds (those issued by EM issuers but denominated in “hard currencies” such as the U.S. dollar or Euro), largely as a result of EM currency weakness amid global and market-specific growth, commodity price declines and geopolitical concerns.
12 Market Summary
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Russell Investment Funds Multi-Style Equity Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
14 Multi-Style Equity Fund
Russell Investment Funds
Multi-Style Equity Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Multi-Style Equity Fund (the “Fund”) employs a multi- | to be “non-cyclical” and/or interest rate sensitive. However, |
| manager approach whereby portions of the Fund are allocated to | certain industries that tend to be viewed as “bond substitutes,” |
| different money managers. Fund assets not allocated to money | such as electric utilities and real estate investment trusts (REITs), |
| managers are managed by Russell Investment Management | outperformed given the decline in interest rates and this detracted |
| Company (“RIMCo”), the Fund’s advisor. RIMCo may change | from the Fund’s benchmark-relative performance. |
| the allocation of the Fund’s assets among money managers at | |
| any time. An exemptive order from the Securities and Exchange | How did the investment strategies and techniques employed |
| Commission (“SEC”) permits RIMCo to engage or terminate a | by the Fund and its money managers affect its benchmark- |
| money manager at any time, subject to approval by the Fund’s | relative performance? |
| Board, without a shareholder vote. Pursuant to the terms of the | Stock selection effects within the technology sector (an |
| exemptive order, the Fund is required to notify its shareholders | underweight to Apple Inc. and Microsoft Corporation) and |
| within 90 days of when a money manager begins providing | within the energy sector (an overweight to Occidental Petroleum |
| services. As of December 31, 2014, the Fund had six money | Corporation) detracted from the Fund’s benchmark-relative |
| managers. | returns for the fiscal year. With respect to sector allocation |
| decisions, overweights to health care and financial services were | |
| What is the Fund’s investment objective? | rewarded. A tilt toward stocks with the lowest valuations (lowest |
| The Fund seeks to provide long term capital growth. | price-to-book and price-to-cash flow ratios) detracted, however an |
| How did the Fund perform relative to its benchmark for the | overweight to stocks with rising earnings estimates was beneficial |
| fiscal year ended December 31, 2014? | to benchmark-relative returns. |
| For the fiscal year ended December 31, 2014, the Fund gained | Columbus Circle Investors (“Columbus Circle”) underperformed |
| 11.70%. This is compared to the Fund’s benchmark, the Russell | the Russell 1000® Growth Index for the fiscal year. Tilts toward |
| 1000® Index, which gained 13.24% during the same period. The | stocks with high beta (stocks with high sensitivity to market |
| Fund’s performance includes operating expenses, whereas index | movements) and high financial quality (lowest debt-to-capital |
| returns are unmanaged and do not include expenses of any kind. | ratios) were not rewarded. An overweight to the health care |
| sector and to the financial services sector were beneficial. Stock | |
| For the fiscal year ended December 31, 2014, the Morningstar® | selection within the energy sector (overweights to Pioneer Natural |
| Large Insurance Blend, a group of funds that Morningstar | Resources Company and Halliburton Company) detracted from |
| considers to have investment strategies similar to those of the | benchmark-relative performance. |
| Fund, gained 10.73%. This result serves as a peer comparison | |
| and is expressed net of operating expenses. | Sustainable Growth Advisers, LP (“Sustainable”) underperformed |
| the Russell 1000® Growth Index for the fiscal year. Stock | |
| RIMCo may assign a money manager a specific style or | selection within the technology sector (an underweight to Apple, |
| capitalization benchmark other than the Fund’s index. However, | Inc., and an overweight to SAP SE) and within the health care |
| the Fund’s primary index remains the benchmark for the Fund | sector (an overweight to Sanofi) detracted from benchmark- |
| and is representative of the aggregate of each money manager’s | relative performance. An overweight to the health care sector |
| benchmark index. | and to the financial services sector were beneficial. |
| How did the market conditions described in the Market | Suffolk Capital Management, LLC (“Suffolk”) outperformed the |
| Summary report affect the Fund’s performance? | Russell 1000® Index for the fiscal year. A tilt toward stocks with |
| During the fiscal year, the U.S. large capitalization equity market | rising earnings estimates contributed positively to benchmark- |
| produced positive returns. Relevant Fund exposures included | relative returns. An underweight to the energy sector and an |
| tilts toward stocks with the lowest valuation metrics (lowest price- | overweight to the health care sector were beneficial. Stock |
| to-book and price-to-cash flow ratios), rising earnings estimates, | selection within the technology sector (an overweight to Avago |
| the highest financial quality (lowest debt-to-capital ratios), and | Technologies Limited and an overweight to Hewlett-Packard |
| the health care sector. Overweights to stocks with the lowest | Company) was additive to benchmark-relative performance. |
| valuation metrics and the highest financial quality detracted from | Institutional Capital LLC (“ICAP”) underperformed the Russell |
| the Fund’s benchmark-relative performance, while overweights to | 1000® Value Index for the fiscal year. Sector allocation decisions |
| stocks with rising earnings estimates and the health care sector | were beneficial, specifically an underweight to the energy sector |
| were beneficial to the Fund’s benchmark-relative returns. | and an overweight to the health care sector. However, stock |
| With the continuation of the economic recovery, the Fund was | selection within the consumer discretionary sector (an overweight |
| underweight in most of the sectors that are traditionally considered | to Viacom Inc. and an overweight to Johnson Controls, Inc.) and |
Multi-Style Equity Fund 15
Russell Investment Funds
Multi-Style Equity Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| within the producer durables sector (an overweight to General | intended to help control the Fund’s beta (beta is a measure of | |
| Electric Company and an overweight to Boeing Company) | a portfolio’s volatility and its sensitivity to the direction of the | |
| detracted from benchmark-relative performance. | market). This strategy performed in-line with expectations, as it | |
| Jacobs Levy Equity Management, Inc. (“Jacobs Levy”) slightly | reduced the Fund’s beta and smoothed the Fund’s return pattern. | |
| underperformed the Russell 1000® Value Index for the fiscal | During the market environment of this fiscal year, low beta stocks | |
| year. Factor exposures were mixed as a tilt toward stocks with | (stocks with low sensitivity to market movements) produced | |
| high earnings variability detracted while a tilt toward stocks with | higher returns than high beta stocks, and this was reflected in the | |
| positive earnings surprises was beneficial. Overweights to the | investment returns of this strategy. | |
| technology and health care sectors were additive to benchmark- | During the period, RIMCo used index futures contracts to equitize | |
| relative returns. Stock selection within the financial services | the Fund’s cash. The decision to equitize the Fund’s cash was | |
| sector (an underweight to Berkshire Hathaway, Inc.) and within | beneficial to Fund performance for the fiscal year. | |
| the energy sector (an overweight to Patterson-UTI Energy, Inc. and | ||
| an overweight to Nabors Industries LTD.) held back benchmark- | Describe any changes to the Fund’s structure or the money | |
| relative performance. | manager line-up. | |
| DePrince, Race & Zollo, Inc. (“DePrince”) was terminated from | ||
| the Fund in May 2014 and underperformed the Russell 1000® | In May, 2014, DePrince was terminated and its assets were | |
| Value Index for the portion of the fiscal year that it was a manager | reallocated to Jacobs Levy, ICAP and Mar Vista. Due to changes | |
| in the Fund. Sector exposures were not rewarded, specifically | in the roles of certain investment professionals at DePrince, | |
| an underweight to health care and an overweight to consumer | RIMCo believed that the termination of DePrince and reallocation | |
| discretionary. Stock selection within the consumer discretionary | of assets to the other money managers was an appropriate step to | |
| sector (an overweight to American Eagle Outfitters, Inc. and an | improve future return potential of the Fund. | |
| overweight to Coach, Inc.) detracted from benchmark-relative | Money Managers as of December 31, | |
| performance. | 2014 | Styles |
| Mar Vista Investment Partners, LLC (“Mar Vista”) outperformed | Columbus Circle Investors | Growth |
| the Russell 1000® Index for the fiscal year. Many of Mar Vista’s | Suffolk Capital Management LLC | Market-Oriented |
| portfolio exposures were rewarded, specifically tilts away from | Institutional Capital LLC | Value |
| Mar Vista Investment Partners, LLC | Market-Oriented | |
| stocks with high beta and the highest earnings variability. Stock | Sustainable Growth Advisers, LP | Growth |
| selection within the health care sector (an overweight to Allergan, | Jacobs Levy Equity Management, Inc. | Value |
| Inc. and an overweight to Covidien) and within the consumer | The views expressed in this report reflect those of the portfolio | |
| discretionary sector (overweight O’Reilly Automotive, Inc. and | managers only through the end of the period covered by | |
| TJX Companies, Inc.) contributed to positive benchmark-relative | the report. These views do not necessarily represent the | |
| performance. | views of RIMCo, or any other person in RIMCo or any other | |
| RIMCo manages the portion of the Fund’s assets that RIMCo | affiliated organization. These views are subject to change | |
| determines not to allocate to the money managers. Assets not | at any time based upon market conditions or other events, | |
| allocated to managers include the Fund’s liquidity reserves and | and RIMCo disclaims any responsibility to update the views | |
| assets which may be managed directly by RIMCo to modify the | contained herein. These views should not be relied on | |
| Fund’s overall portfolio characteristics to seek to achieve the | as investment advice and, because investment decisions | |
| desired risk/return profile for the Fund. | for a Russell Investment Funds (“RIF”) Fund are based on | |
| numerous factors, should not be relied on as an indication | ||
| RIMCo pursues an investment strategy for the Fund that is a | of investment decisions of any RIF Fund. | |
| replication of the Russell Top 200® Defensive™ Index and is | ||
16 Multi-Style Equity Fund
Russell Investment Funds
Multi-Style Equity Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| * | Assumes initial investment on January 1, 2005. |
| ** | The 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 17
Russell Investment Funds Multi-Style Equity Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 1,048.00 | $ | 1,020.82 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 4.49 | $ | 4.43 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.87% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | |||||||
| = 8.6), then multiply the result by the number in the first column | |||||||
| in the row entitled “Expenses Paid During Period” to estimate | |||||||
| the expenses you paid on your account during this period. | |||||||
| Hypothetical Example for Comparison Purposes | |||||||
| The information in the table under the heading “Hypothetical | |||||||
| Performance (5% return before expenses)” provides information | |||||||
| about hypothetical account values and hypothetical expenses | |||||||
| based on the Fund’s actual expense ratio and an assumed rate of | |||||||
| return of 5% per year before expenses, which is not the Fund’s | |||||||
| actual return. The hypothetical account values and expenses | |||||||
| may not be used to estimate the actual ending account balance or | |||||||
| expenses you paid for the period. You may use this information | |||||||
| to compare the ongoing costs of investing in the Fund and other | |||||||
| funds. To do so, compare this 5% hypothetical example with the | |||||||
| 5% hypothetical examples that appear in the shareholder reports | |||||||
| of other funds. | |||||||
18 Multi-Style Equity Fund
| Russell Investment Funds | ||||||||
| Multi-Style Equity Fund | ||||||||
| Schedule of Investments — December 31, 2014 | ||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||
| Principal | Fair | Principal | Fair | |||||
| Amount ($) or | Value | Amount ($) or | Value | |||||
| Shares | $ | Shares | $ | |||||
| Common Stocks - 95.7% | Molson Coors Brewing Co. Class B | 7,047 | 525 | |||||
| Consumer Discretionary - 14.3% | Mondelez International, Inc. Class A | 93,796 | 3,407 | |||||
| Amazon.com, Inc.(Æ) | 8,707 | 2,703 | PepsiCo, Inc. | 16,650 | 1,575 | |||
| Carnival Corp. | 31,400 | 1,423 | Philip Morris International, Inc. | 10,558 | 860 | |||
| CBS Corp. Class B | 7,903 | 437 | Procter & Gamble Co. (The) | 37,212 | 3,390 | |||
| Chipotle Mexican Grill, Inc. Class A(Æ) | 1,094 | 749 | Reynolds American, Inc. | 682 | 44 | |||
| Choice Hotels International, Inc. | 7,100 | 398 | Sysco Corp. | 1,347 | 53 | |||
| Comcast Corp. Class A(Æ) | 105,836 | 6,139 | Walgreens Boots Alliance, Inc. | 596 | 45 | |||
| Costco Wholesale Corp. | 9,488 | 1,344 | Whole Foods Market, Inc. | 40,420 | 2,038 | |||
| DIRECTV(Æ) | 488 | 42 | 20,477 | |||||
| Estee Lauder Cos., Inc. (The) Class A | 7,664 | 584 | ||||||
| Ford Motor Co. | 225,750 | 3,499 | Energy - 6.7% | |||||
| Garmin, Ltd. | 7,900 | 417 | Anadarko Petroleum Corp. | 4,521 | 373 | |||
| GateHouse Media, Inc.(Æ) | 40,947 | 1,978 | Atwood Oceanics, Inc. | 6,300 | 179 | |||
| General Motors Co. | 53,100 | 1,854 | California Resources Corp.(Æ) | 708 | 4 | |||
| Home Depot, Inc. | 3,101 | 326 | Cameron International Corp.(Æ) | 30,800 | 1,538 | |||
| Hyatt Hotels Corp. Class A(Æ) | 12,600 | 759 | Chevron Corp. | 37,674 | 4,226 | |||
| Jarden Corp.(Æ) | 17,896 | 857 | ConocoPhillips | 2,782 | 192 | |||
| Johnson Controls, Inc. | 65,750 | 3,178 | Core Laboratories NV | 10,198 | 1,227 | |||
| Kohl's Corp. | 9,200 | 562 | Devon Energy Corp. | 30,634 | 1,876 | |||
| L Brands, Inc. | 8,170 | 707 | EOG Resources, Inc. | 5,600 | 516 | |||
| Las Vegas Sands Corp. | 23,200 | 1,349 | EP Energy Corp. Class A(Æ) | 14,000 | 146 | |||
| Liberty Media Corp.(Æ) | 37,150 | 1,301 | Exxon Mobil Corp. | 90,589 | 8,373 | |||
| Lowe's Cos., Inc. | 43,790 | 3,013 | Halliburton Co. | 160 | 6 | |||
| lululemon athletica, Inc.(Æ)(Ñ) | 4,000 | 223 | Hess Corp. | 15,969 | 1,179 | |||
| McDonald's Corp. | 2,240 | 210 | Marathon Oil Corp. | 1,302 | 37 | |||
| News Corp. Class A(Æ) | 62,200 | 976 | Nabors Industries, Ltd. | 53,800 | 698 | |||
| Nike, Inc. Class B | 19,429 | 1,868 | National Oilwell Varco, Inc. | 897 | 59 | |||
| Omnicom Group, Inc. | 41,300 | 3,200 | Newfield Exploration Co.(Æ) | 13,400 | 363 | |||
| O'Reilly Automotive, Inc.(Æ) | 11,605 | 2,235 | Occidental Petroleum Corp. | 49,019 | 3,952 | |||
| Priceline Group, Inc. (The)(Æ) | 1,520 | 1,733 | Patterson-UTI Energy, Inc. | 38,600 | 640 | |||
| PVH Corp. | 6,568 | 842 | PBF Energy, Inc. Class A | 12,400 | 330 | |||
| Royal Caribbean Cruises, Ltd. | 28,196 | 2,325 | Phillips 66(Æ) | 292 | 21 | |||
| Starbucks Corp. | 53,225 | 4,367 | Pioneer Natural Resources Co. | 3,740 | 557 | |||
| Target Corp. | 8,539 | 648 | Schlumberger, Ltd. | 48,935 | 4,180 | |||
| Tiffany & Co. | 4,372 | 467 | Spectra Energy Corp. | 1,094 | 40 | |||
| Time Warner, Inc. | 35,702 | 3,050 | Tesoro Corp. | 9,800 | 729 | |||
| TJX Cos., Inc. | 32,165 | 2,206 | Valero Energy Corp. | 26,300 | 1,302 | |||
| Ulta Salon Cosmetics & Fragrance, Inc.(Æ) | 6,962 | 890 | 32,743 | |||||
| Under Armour, Inc. Class A(Æ) | 7,846 | 533 | ||||||
| Viacom, Inc. Class B | 46,824 | 3,523 | Financial Services - 19.5% | |||||
| Wal-Mart Stores, Inc. | 24,313 | 2,088 | ACE, Ltd. | 769 | 88 | |||
| Walt Disney Co. (The) | 43,180 | 4,067 | Aflac, Inc. | 23,278 | 1,423 | |||
| Whirlpool Corp. | 4,360 | 845 | Allstate Corp. (The) | 984 | 69 | |||
| Yum! Brands, Inc. | 890 | 65 | Ally Financial, Inc.(Æ) | 37,400 | 883 | |||
| 69,980 | American Express Co. | 24,370 | 2,267 | |||||
| American International Group, Inc. | 19,400 | 1,087 | ||||||
| Consumer Staples - 4.2% | American Tower Corp. Class A(ö) | 41,275 | 4,080 | |||||
| Altria Group, Inc. | 4,502 | 222 | Aon PLC | 27,700 | 2,626 | |||
| Anheuser-Busch InBev - ADR | 15,966 | 1,793 | Arch Capital Group, Ltd.(Æ) | 20,000 | 1,182 | |||
| Archer-Daniels-Midland Co. | 28,173 | 1,465 | Aspen Insurance Holdings, Ltd. | 8,000 | 350 | |||
| Coca-Cola Co. (The) | 8,998 | 380 | Axis Capital Holdings, Ltd. | 19,500 | 996 | |||
| Colgate-Palmolive Co. | 30,543 | 2,114 | Bank of America Corp. | 280,288 | 5,014 | |||
| Constellation Brands, Inc. Class A(Æ) | 5,761 | 566 | Bank of New York Mellon Corp. (The) | 12,600 | 511 | |||
| CVS Health Corp. | 2,650 | 255 | BB&T Corp. | 326 | 13 | |||
| General Mills, Inc. | 1,393 | 74 | Berkshire Hathaway, Inc. Class B(Æ) | 34,676 | 5,207 | |||
| Hershey Co. (The) | 14,360 | 1,492 | BlackRock, Inc. Class A | 3,931 | 1,406 | |||
| Kellogg Co. | 589 | 39 | BOK Financial Corp. | 700 | 42 | |||
| Kimberly-Clark Corp. | 858 | 99 | Capital One Financial Corp. | 37,496 | 3,095 | |||
| Kraft Foods Group, Inc.(Æ) | 657 | 41 | ||||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||
| Multi -Style Equity Fund 19 | ||||||||
| Russell Investment Funds | |||||||
| Multi-Style Equity Fund | |||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| CDK Global, Inc.(Æ) | 358 | 15 | Bristol-Myers Squibb Co. | 75,555 | 4,460 | ||
| Charles Schwab Corp. (The) | 47,400 | 1,431 | Brookdale Senior Living, Inc. Class A(Æ) | 6,600 | 242 | ||
| Chubb Corp. (The) | 541 | 56 | Cardinal Health, Inc. | 17,100 | 1,380 | ||
| Citigroup, Inc. | 63,577 | 3,441 | Celgene Corp.(Æ) | 11,465 | 1,283 | ||
| CME Group, Inc. Class A | 39 | 3 | Cerner Corp.(Æ) | 30,060 | 1,944 | ||
| Comerica, Inc. | 23,800 | 1,115 | Clovis Oncology, Inc.(Æ)(Ñ) | 18,432 | 1,032 | ||
| Cullen/Frost Bankers, Inc. | 14,610 | 1,032 | Community Health Systems, Inc.(Æ) | 11,500 | 620 | ||
| Discover Financial Services | 37,787 | 2,475 | Covidien PLC | 35,829 | 3,664 | ||
| Equity Residential(ö) | 49 | 4 | Edwards Lifesciences Corp.(Æ) | 2,500 | 318 | ||
| Everest Re Group, Ltd. | 5,670 | 966 | Eli Lilly & Co. | 31,730 | 2,189 | ||
| FleetCor Technologies, Inc.(Æ) | 4,671 | 695 | Express Scripts Holding Co.(Æ) | 39,566 | 3,350 | ||
| Franklin Resources, Inc. | 7,475 | 414 | Gilead Sciences, Inc.(Æ) | 19,513 | 1,839 | ||
| Goldman Sachs Group, Inc. (The) | 17,750 | 3,440 | Halyard Health, Inc.(Æ) | 107 | 5 | ||
| Hartford Financial Services Group, Inc. | 19,729 | 823 | HCA Holdings, Inc.(Æ) | 22,863 | 1,678 | ||
| Intercontinental Exchange, Inc. | 8,650 | 1,897 | Health Net, Inc.(Æ) | 10,500 | 562 | ||
| Invesco, Ltd. | 30,000 | 1,186 | Humana, Inc. | 11,924 | 1,713 | ||
| JPMorgan Chase & Co. | 20,454 | 1,280 | Illumina, Inc.(Æ) | 2,529 | 467 | ||
| KeyCorp | 67,800 | 942 | Intercept Pharmaceuticals, Inc.(Æ)(Ñ) | 4,324 | 675 | ||
| Kimco Realty Corp.(ö) | 45,100 | 1,134 | Intuitive Surgical, Inc.(Æ) | 841 | 445 | ||
| Lincoln National Corp. | 14,850 | 856 | Johnson & Johnson | 56,997 | 5,960 | ||
| M&T Bank Corp.(Ñ) | 6,520 | 819 | McKesson Corp. | 6,263 | 1,300 | ||
| Markel Corp.(Æ) | 3,397 | 2,320 | Medtronic, Inc. | 13,644 | 985 | ||
| Marsh & McLennan Cos., Inc. | 1,246 | 71 | Merck & Co., Inc. | 55,431 | 3,148 | ||
| MasterCard, Inc. Class A | 17,319 | 1,492 | Mylan, Inc.(Æ) | 16,055 | 905 | ||
| McGraw Hill Financial, Inc. | 4,758 | 423 | Perrigo Co. PLC | 7,440 | 1,244 | ||
| MetLife, Inc. | 15,065 | 815 | Pfizer, Inc. | 306,268 | 9,539 | ||
| Morgan Stanley | 30,800 | 1,195 | Pharmacyclics, Inc.(Æ) | 5,801 | 709 | ||
| Northern Trust Corp. | 66,199 | 4,461 | Regeneron Pharmaceuticals, Inc.(Æ) | 2,558 | 1,049 | ||
| PartnerRe, Ltd. | 4,020 | 459 | Sanofi - ADR | 37,947 | 1,731 | ||
| PNC Financial Services Group, Inc. (The) | 61,912 | 5,648 | St. Jude Medical, Inc. | 35,121 | 2,284 | ||
| Principal Financial Group, Inc. | 15,400 | 800 | Stryker Corp. | 768 | 72 | ||
| Progressive Corp. (The) | 45,300 | 1,223 | Thermo Fisher Scientific, Inc. | 7,150 | 896 | ||
| Prologis, Inc.(ö) | 24,200 | 1,041 | UnitedHealth Group, Inc. | 40,621 | 4,107 | ||
| Prudential Financial, Inc. | 27,385 | 2,477 | Valeant Pharmaceuticals International, Inc. | ||||
| Public Storage(ö) | 318 | 59 | (Æ) | 23,501 | 3,364 | ||
| Regions Financial Corp. | 120,000 | 1,267 | 82,987 | ||||
| Simon Property Group, Inc.(ö) | 488 | 89 | |||||
| State Street Corp. | 27,120 | 2,129 | Materials and Processing - 5.1% | ||||
| TCF Financial Corp. | 29,500 | 469 | Air Products & Chemicals, Inc. | 180 | 26 | ||
| Thomson Reuters Corp. | 667 | 27 | Alcoa, Inc. | 107,205 | 1,693 | ||
| Travelers Cos., Inc. (The) | 11,287 | 1,194 | Dow Chemical Co. (The) | 34,700 | 1,583 | ||
| US Bancorp | 3,890 | 175 | Ecolab, Inc. | 37,539 | 3,924 | ||
| Visa, Inc. Class A | 25,576 | 6,706 | EI du Pont de Nemours & Co. | 6,343 | 469 | ||
| Voya Financial, Inc. | 27,300 | 1,157 | Fastenal Co.(Ñ) | 37,850 | 1,800 | ||
| Wells Fargo & Co. | 92,620 | 5,077 | Huntsman Corp. | 30,974 | 706 | ||
| 95,137 | LyondellBasell Industries Class A | 8,337 | 662 | ||||
| Monsanto Co. | 55,423 | 6,620 | |||||
| Health Care - 17.0% | Mosaic Co. (The) | 31,600 | 1,443 | ||||
| Abbott Laboratories | 45,448 | 2,046 | Nucor Corp. | 7,500 | 368 | ||
| Actavis PLC(Æ) | 7,597 | 1,956 | PPG Industries, Inc. | 7,574 | 1,751 | ||
| Aetna, Inc. | 12,953 | 1,151 | Praxair, Inc. | 12,004 | 1,555 | ||
| Alexion Pharmaceuticals, Inc.(Æ) | 1,357 | 251 | Precision Castparts Corp. | 5,845 | 1,408 | ||
| Allergan, Inc. | 13,055 | 2,775 | Steel Dynamics, Inc. | 36,900 | 728 | ||
| Amgen, Inc. | 30,984 | 4,936 | United States Steel Corp.(Ñ) | 12,200 | 326 | ||
| Anthem, Inc. | 11,730 | 1,474 | 25,062 | ||||
| Baxter International, Inc. | 1,236 | 91 | |||||
| Becton Dickinson and Co. | 438 | 61 | Producer Durables - 10.3% | ||||
| Biogen Idec, Inc.(Æ) | 5,405 | 1,834 | 3M Co. | 1,483 | 244 | ||
| Boston Scientific Corp.(Æ) | 94,600 | 1,253 | Accenture PLC Class A | 1,436 | 128 | ||
| See accompanying notes which are an integral part of the financial statements. | |||||||
| 20 Multi-Style Equity Fund | |||||||
Russell Investment Funds Multi-Style Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) or | Value | Amount ($) or | Value | ||||||
| Shares | $ | Shares | $ | ||||||
| American Airlines Group, Inc. | 16,368 | 878 | Intuit, Inc. | 19,264 | 1,776 | ||||
| Automatic Data Processing, Inc. | 26,803 | 2,234 | Juniper Networks, Inc. | 38,500 | 859 | ||||
| B/E Aerospace, Inc.(Æ) | 32,525 | 1,887 | Lam Research Corp. | 9,756 | 774 | ||||
| Babcock & Wilcox Co. (The) | 20,028 | 607 | LinkedIn Corp. Class A(Æ) | 4,760 | 1,093 | ||||
| Boeing Co. (The) | 34,350 | 4,465 | Marvell Technology Group, Ltd. | 75,600 | 1,096 | ||||
| Canadian Pacific Railway, Ltd. | 4,707 | 907 | Microsoft Corp. | 57,136 | 2,654 | ||||
| Caterpillar, Inc. | 17,050 | 1,561 | Motorola Solutions, Inc. | 18,000 | 1,207 | ||||
| CSX Corp. | 1,939 | 70 | NetApp, Inc. | 70,600 | 2,926 | ||||
| Cummins, Inc. | 126 | 18 | Nuance Communications, Inc.(Æ) | 19,500 | 278 | ||||
| Danaher Corp. | 1,382 | 118 | NXP Semiconductors(Æ) | 9,400 | 718 | ||||
| Deere & Co. | 135 | 12 | Oracle Corp. | 156,180 | 7,025 | ||||
| Delta Air Lines, Inc. | 24,120 | 1,186 | Plexus Corp.(Æ) | 3,300 | 136 | ||||
| Emerson Electric Co. | 1,516 | 94 | Polycom, Inc.(Æ) | 16,400 | 221 | ||||
| FedEx Corp. | 4,944 | 859 | QUALCOMM, Inc. | 84,847 | 6,306 | ||||
| General Dynamics Corp. | 11,937 | 1,643 | Red Hat, Inc.(Æ) | 20,760 | 1,435 | ||||
| General Electric Co. | 263,166 | 6,650 | Salesforce.com, Inc.(Æ) | 31,111 | 1,845 | ||||
| Honeywell International, Inc. | 62,103 | 6,205 | SAP AG - ADR(Ñ) | 25,580 | 1,782 | ||||
| Huntington Ingalls Industries, Inc. | 540 | 61 | ServiceNow, Inc.(Æ) | 8,007 | 543 | ||||
| Illinois Tool Works, Inc. | 733 | 69 | Splunk, Inc.(Æ) | 7,657 | 451 | ||||
| Itron, Inc.(Æ) | 11,300 | 478 | Symantec Corp. | 50,100 | 1,285 | ||||
| KLX, Inc.(Æ) | 16,263 | 671 | Synopsys, Inc.(Æ) | 26,300 | 1,143 | ||||
| L-3 Communications Holdings, Inc. Class 3 | 9,200 | 1,161 | Tableau Software, Inc. Class A(Æ) | 4,100 | 348 | ||||
| Lexmark International, Inc. Class A | 19,910 | 822 | Texas Instruments, Inc. | 2,450 | 131 | ||||
| Lockheed Martin Corp. | 615 | 118 | VeriFone Systems, Inc.(Æ) | 372 | 14 | ||||
| Mettler-Toledo International, Inc.(Æ) | 9,360 | 2,831 | VMware, Inc. Class A(Æ) | 21 | 2 | ||||
| Norfolk Southern Corp. | 6,781 | 744 | Vodafone Group PLC - ADR | 87,331 | 2,984 | ||||
| Northrop Grumman Corp. | 456 | 67 | Western Digital Corp. | 15,734 | 1,742 | ||||
| Paychex, Inc. | 22,000 | 1,016 | Workday, Inc. Class A(Æ) | 6,235 | 509 | ||||
| Pentair PLC | 6,500 | 432 | Yahoo!, Inc.(Æ) | 19,336 | 977 | ||||
| Raytheon Co. | 22,322 | 2,414 | Zynga, Inc. Class A(Æ) | 138,400 | 368 | ||||
| Rockwell Collins, Inc. | 12,100 | 1,022 | 79,478 | ||||||
| Sensata Technologies Holding(Æ) | 34,489 | 1,808 | |||||||
| TransDigm Group, Inc. | 12,024 | 2,361 | Utilities - 2.3% | ||||||
| Union Pacific Corp. | 16,342 | 1,947 | American Electric Power Co., Inc. | 894 | 54 | ||||
| United Continental Holdings, Inc.(Æ) | 17,265 | 1,155 | AT&T, Inc. | 108,063 | 3,629 | ||||
| United Parcel Service, Inc. Class B | 1,603 | 178 | Dominion Resources, Inc. | 395 | 30 | ||||
| United Technologies Corp. | 9,210 | 1,059 | Duke Energy Corp. | 6,011 | 502 | ||||
| Waste Management, Inc. | 593 | 30 | Edison International | 21,900 | 1,434 | ||||
| 50,210 | Encana Corp. | 66,100 | 917 | ||||||
| Exelon Corp. | 62,484 | 2,317 | |||||||
| Technology - 16.3% | NextEra Energy, Inc. | 845 | 90 | ||||||
| Adobe Systems, Inc.(Æ) | 40,726 | 2,961 | PG&E Corp. | 27,594 | 1,470 | ||||
| Altera Corp. | 24,048 | 888 | Southern Co. | 5,921 | 291 | ||||
| Analog Devices, Inc. | 34,109 | 1,894 | Verizon Communications, Inc. | 9,385 | 439 | ||||
| Apple, Inc. | 60,050 | 6,628 | 11,173 | ||||||
| ASML Holding Class G | 16,600 | 1,790 | |||||||
| Broadcom Corp. Class A | 31,000 | 1,343 | Total Common Stocks | ||||||
| Cisco Systems, Inc. | 37,064 | 1,031 | (cost $377,959) | 467,247 | |||||
| Cognizant Technology Solutions Corp. Class | |||||||||
| A(Æ) | 1,116 | 59 | Short-Term Investments - 4.3% | ||||||
| Electronic Arts, Inc.(Æ) | 27,900 | 1,312 | Russell U.S. Cash Management Fund | 21,030,569 | (∞) | 21,031 | |||
| EMC Corp. | 104,535 | 3,109 | Total Short-Term Investments | ||||||
| Equinix, Inc. | 9,644 | 2,187 | (cost $21,031) | 21,031 | |||||
| Facebook, Inc. Class A(Æ) | 28,946 | 2,259 | |||||||
| Google, Inc. Class C(Æ) | 12,313 | 6,500 | Other Securities - 1.0% | ||||||
| Russell U.S. Cash Collateral Fund(×) | 5,112,250 | (∞) | 5,112 | ||||||
| Hewlett-Packard Co. | 67,165 | 2,695 | Total Other Securities | ||||||
| Ingram Micro, Inc. Class A(Æ) | 15,730 | 435 | (cost $5,112) | 5,112 | |||||
| Intel Corp. | 39,025 | 1,416 | |||||||
| International Business Machines Corp. | 2,135 | 343 | Total Investments 101.0% | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Multi -Style Equity Fund 21 | |||||||||
Russell Investment Funds Multi-Style Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | ||||
| Principal | Fair | |||
| Amount ($) or | Value | |||
| Shares | $ | |||
| (identified cost $404,102) | 493,390 | |||
| Other Assets and Liabilities, Net | ||||
| - | (1.0%) | (4,859 | ) | |
| Net Assets - 100.0% | 488,531 | |||
See accompanying notes which are an integral part of the financial statements.
22 Multi-Style Equity Fund
| Russell Investment Funds | ||||||||||||
| Multi-Style Equity Fund | ||||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||||
| Futures Contracts | ||||||||||||
| Amounts in thousands (except contract amounts) | ||||||||||||
| Unrealized | ||||||||||||
| Appreciation | ||||||||||||
| Number of | Notional | Expiration | (Depreciation) | |||||||||
| Contracts | Amount | Date | $ | |||||||||
| Long Positions | ||||||||||||
| Russell 1000 Mini Index Futures | 55 | USD | 6,280 | 03/15 | 85 | |||||||
| S&P 500 E-mini Index Futures | 106 | USD | 10,878 | 03/15 | 147 | |||||||
| S&P E-Mini Consumer Staples Select Sector Index Futures | 42 | USD | 2,041 | 03/15 | 6 | |||||||
| S&P E-Mini Energy Select Sector Index Futures | 26 | USD | 2,059 | 03/15 | 96 | |||||||
| Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) | 334 | |||||||||||
| Presentation of Portfolio Holdings | ||||||||||||
| Amounts in thousands | ||||||||||||
| Fair Value | ||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | |||||||
| Common Stocks | ||||||||||||
| Consumer Discretionary | $ | 69,980 | $ | — | $ | — | $ | 69,980 | 14.3 | |||
| Consumer Staples | 20,477 | — | — | 20,477 | 4.2 | |||||||
| Energy | 32,743 | — | — | 32,743 | 6.7 | |||||||
| Financial Services | 95,137 | — | — | 95,137 | 19.5 | |||||||
| Health Care | 82,987 | — | — | 82,987 | 17.0 | |||||||
| Materials and Processing | 25,062 | — | — | 25,062 | 5.1 | |||||||
| Producer Durables | 50,210 | — | — | 50,210 | 10.3 | |||||||
| Technology | 79,478 | — | — | 79,478 | 16.3 | |||||||
| Utilities | 11,173 | — | — | 11,173 | 2.3 | |||||||
| Short-Term Investments | — | 21,031 | — | 21,031 | 4.3 | |||||||
| Other Securities | — | 5,112 | — | 5,112 | 1.0 | |||||||
| Total Investments | 467,247 | 26,143 | — | 493,390 | 101.0 | |||||||
| Other Assets and Liabilities, Net | (1.0 | ) | ||||||||||
| 100.0 | ||||||||||||
| Other Financial Instruments | ||||||||||||
| Futures Contracts | 334 | — | — | 334 | 0.1 | |||||||
| Total Other Financial Instruments* | $ | 334 | $ | — | $ | — | $ | 334 | ||||
* Futures and foreign currency exchange contract values reflect the unrealized appreciation (depreciation) on the investments.
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, 2014, see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
Multi-Style Equity Fund 23
|
Russell Investment Funds Multi-Style Equity Fund |
|
| Fair Value of Derivative Instruments — December 31, 2014 | |
| Amounts in thousands | |
| Equity | |
| Derivatives not accounted for as hedging instruments | Contracts |
| Location: Statement of Assets and Liabilities - Assets | |
| Variation margin on futures contracts* | $ 334 |
| Equity | |
| Derivatives not accounted for as hedging instruments | Contracts |
| Location: Statement of Operations - Net realized gain (loss) | |
| Futures contracts | $ 3,133 |
| Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | |||
| Futures contracts | $ | (337 | ) |
| * Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only variation margin is reported within the | |||
| Statement of Assets and Liabilities. | |||
| For further disclosure on derivatives see note 2 in the Notes to Financial Statements. | |||
See accompanying notes which are an integral part of the financial statements.
24 Multi-Style Equity Fund
Russell Investment Funds
Multi-Style Equity Fund
Balance Sheet Offsetting of Financial and Derivative Instruments —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Assets and Derivative Assets | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Assets | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized | Assets and | of Assets and | ||||||
| Description | Location: Statement of Assets and Liabilities - Assets | Assets | Liabilities | Liabilities | ||||
| Securities on Loan* | Investments, at fair value | $ | 4,979 | $ | — $ | 4,979 | ||
| Total | $ | 4,979 | $ | — $ | 4,979 | |||
| Financial Assets, Derivative Assets, and Collateral Held by Counterparty | ||||||||
| Gross Amounts Not Offset in | ||||||||
| the Statement of Assets and | ||||||||
| Liabilities | ||||||||
| Amounts | ||||||||
| of Assets | ||||||||
| Presented in | ||||||||
| the Statement | Financial and | |||||||
| of Assets and | Derivative | Collateral | ||||||
| Counterparty | Liabilities | Instruments | Received^ | Net Amount | ||||
| Barclays | $ | 530 | $ | — $ | 530 | $ | — |
| Citigroup | 1,705 | — | 1,705 | — | |||
| Fidelity | 1,882 | — | 1,882 | — | |||
| JPMorgan Chase | 791 | — | 791 | — | |||
| Morgan Stanley | 71 | — | 71 | — | |||
| Total | $ | 4,979 | $ | — $ | 4,979 | $ | — |
See accompanying notes which are an integral part of the financial statements.
Multi-Style Equity Fund 25
Russell Investment Funds
Multi-Style Equity Fund
Balance Sheet Offsetting of Financial and Derivative Instruments, continued —December 31, 2014
| Amounts in thousands | |||||||||||
| Offsetting of Financial Liabilities and Derivative Liabilities | |||||||||||
| Gross | Net Amounts | ||||||||||
| Amounts | of Liabilities | ||||||||||
| Gross | Offset in the | Presented in | |||||||||
| Amounts of | Statement of | the Statement | |||||||||
| Recognized | Assets and | of Assets and | |||||||||
| Description | Location: Statement of Assets and Liabilities - Liabilities | Liabilities | Liabilities | Liabilities | |||||||
| Futures Contracts | Variation margin on futures contracts | $ | 238 | $ | — $ | 238 | |||||
| Total | $ | 238 | $ | — $ | 238 | ||||||
| Financial Liabilities, Derivative Liabilities, and Collateral Pledged by Counterparty | |||||||||||
| Gross Amounts Not Offset in | |||||||||||
| the Statement of Assets and | |||||||||||
| Liabilities | |||||||||||
| Amounts of | |||||||||||
| Liabilities | |||||||||||
| Presented in | |||||||||||
| the Statement | Financial and | ||||||||||
| of Assets and | Derivative | Collateral | |||||||||
| Counterparty | Liabilities | Instruments | Pledged^ | Net Amount | |||||||
| Merrill Lynch | $ | 238 | $ | — $ | 238 | $ | — | ||||
| Total | $ | 238 | $ | — $ | 238 | $ | — | ||||
* Fair value of securities on loan as reported in the footnotes to the Statement of Assets and Liabilities.
^ Collateral received or pledged amounts may not reconcile to those disclosed in the Statement of Assets and Liabilities due to the inclusion of off-Balance Sheet collateral and adjustments made to exclude overcollateralization.
For further disclosure on derivatives and counterparty risk see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
26 Multi-Style Equity Fund
| Russell Investment Funds | ||
| Multi-Style Equity Fund | ||
| Statement of Assets and Liabilities — December 31, 2014 | ||
| Amounts in thousands | ||
| Assets | ||
| Investments, at identified cost | $ | 404,102 |
| Investments, at fair value(*)(>) | 493,390 | |
| Cash (restricted)(a) | 1,220 | |
| Receivables: | ||
| Dividends and interest | 617 | |
| Dividends from affiliated Russell funds | 2 | |
| Investments sold | 694 | |
| Total assets | 495,923 | |
| Liabilities | ||
| Payables: | ||
| Investments purchased | 1,424 | |
| Fund shares redeemed | 203 | |
| Accrued fees to affiliates | 326 | |
| Other accrued expenses | 89 | |
| Variation margin on futures contracts | 238 | |
| Payable upon return of securities loaned | 5,112 | |
| Total liabilities | 7,392 | |
| Net Assets | $ | 488,531 |
| Net Assets Consist of: | ||
| Undistributed (overdistributed) net investment income | $ | 912 |
| Accumulated net realized gain (loss) | 8,233 | |
| Unrealized appreciation (depreciation) on: | ||
| Investments | 89,288 | |
| Futures contracts | 334 | |
| Shares of beneficial interest | 270 | |
| Additional paid-in capital | 389,494 | |
| Net Assets | $ | 488,531 |
| Net Asset Value, offering and redemption price per share: | ||
| Net asset value per share: (#) | $ | 18.11 |
| Net assets | $ | 488,530,865 |
| Shares outstanding ($.01 par value) | 26,974,733 | |
| Amounts in thousands | ||
| (*) Securities on loan included in investments | $ | 4,979 |
| (>) Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund | $ | 26,143 |
| (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 27
| Russell Investment Funds | |||
| Multi-Style Equity Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Dividends | $ | 9,437 | |
| Dividends from affiliated Russell funds | 19 | ||
| Securities lending income | 17 | ||
| Total investment income | 9,473 | ||
| Expenses | |||
| Advisory fees | 3,460 | ||
| Administrative fees | 237 | ||
| Custodian fees | 124 | ||
| Transfer agent fees | 21 | ||
| Professional fees | 62 | ||
| Trustees’ fees | 11 | ||
| Printing fees | 78 | ||
| Miscellaneous | 74 | ||
| Total expenses | 4,067 | ||
| Net investment income (loss) | 5,406 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 64,056 | ||
| Futures contracts | 3,133 | ||
| Foreign currency-related transactions | (1 | ) | |
| Net realized gain (loss) | 67,188 | ||
| Net change in unrealized appreciation (depreciation) on: | |||
| Investments | (19,584 | ) | |
| Futures contracts | (337 | ) | |
| Net change in unrealized appreciation (depreciation) | (19,921 | ) | |
| Net realized and unrealized gain (loss) | 47,267 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 52,673 | |
See accompanying notes which are an integral part of the financial statements.
28 Multi-Style Equity Fund
| Russell Investment Funds | ||||||
| Multi-Style Equity Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 5,406 | $ | 4,654 | ||
| Net realized gain (loss) | 67,188 | 56,214 | ||||
| Net change in unrealized appreciation (depreciation) | (19,921 | ) | 62,385 | |||
| Net increase (decrease) in net assets from operations | 52,673 | 123,253 | ||||
| Distributions | ||||||
| From net investment income | (5,536 | ) | (5,303 | ) | ||
| From net realized gain | (64,480 | ) | (24,512 | ) | ||
| Net decrease in net assets from distributions | (70,016 | ) | (29,815 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 30,774 | (8,887 | ) | |||
| Total Net Increase (Decrease) in Net Assets | 13,431 | 84,551 | ||||
| Net Assets | ||||||
| Beginning of period | 475,100 | 390,549 | ||||
| End of period | $ | 488,531 | $ | 475,100 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | 912 | $ | 1,062 | ||
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 646 | $ | 12,251 | 838 | $ | 14,637 | ||||||
| Proceeds from reinvestment of distributions | 3,818 | 70,016 | 1,630 | 29,815 | ||||||||
| Payments for shares redeemed | (2,691 | ) | (51,493 | ) | (3,049 | ) | (53,339 | ) | ||||
| Total increase (decrease) | 1,773 | $ | 30,774 | (581 | ) | $ | (8,887 | ) | ||||
See accompanying notes which are an integral part of the financial statements.
Multi-Style Equity Fund 29
| Russell Investment Funds | ||||||||||||||||
| Multi-Style Equity Fund | ||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||
| Net Asset Value, | Net | Net Realized | Total from | Distributions | Distributions | |||||||||||
| Beginning of | Investment | and Unrealized | Investment | from Net | from Net | |||||||||||
| Period | Income (Loss)(a)(b) | Gain (Loss) | Operations | Investment Income | Realized Gain | |||||||||||
| December 31, 2014 | 18.85 | .22 | 1.94 | 2.16 | (.22 | ) | (2.68 | ) | ||||||||
| December 31, 2013 | 15.15 | .19 | 4.75 | 4.94 | (.22 | ) | (1.02 | ) | ||||||||
| December 31, 2012 | 13.24 | .19 | 1.88 | 2.07 | (.16 | ) | — | |||||||||
| December 31, 2011 | 13.58 | .14 | (.35 | ) | (.21 | ) | (.13 | ) | — | |||||||
| December 31, 2010 | 11.77 | .11 | 1.81 | 1.92 | (.11 | ) | — | |||||||||
See accompanying notes which are an integral part of the financial statements.
30 Multi-Style Equity Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(d) | (000 | ) | Gross | Net(b) | Net Assets(b) | Turnover Rate | |||||||||
| (2.90 | ) | 18.11 | 11.70 | 488,531 | .86 | .86 | 1.13 | 101 | |||||||||
| (1.24 | ) | 18.85 | 32.92 | 475,100 | .84 | .84 | 1.07 | 86 | |||||||||
| (.16 | ) | 15.15 | 15.69 | 390,549 | .87 | .87 | 1.28 | 109 | |||||||||
| (.13 | ) | 13.24 | (1.55 | ) | 373,392 | .85 | .85 | 1.03 | 133 | ||||||||
| (.11 | ) | 13.58 | 16.46 | 400,471 | .89 | .89 | .93 | 105 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Multi-Style Equity Fund 31
Russell Investment Funds Aggressive Equity Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
32 Aggressive Equity Fund
Russell Investment Funds
Aggressive Equity Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Aggressive Equity Fund (the “Fund”) employs a multi- | With the continuation of the economic recovery in mind, the |
| manager approach whereby portions of the Fund are allocated to | Fund was underweight in most of the sectors that are traditionally |
| different money managers. Fund assets not allocated to money | considered to be “non-cyclical” and interest rate sensitive. |
| managers are managed by Russell Investment Management | However, certain segments that tend to be viewed as “bond |
| Company (“RIMCo”), the Fund’s advisor. RIMCo may change | substitutes,” due to their income producing qualities, such as |
| the allocation of the Fund’s assets among money managers at | utilities and real estate investment trusts (REITs), outperformed |
| any time. An exemptive order from the Securities and Exchange | given the decline in interest rates and this detracted from the |
| Commission (“SEC”) permits RIMCo to engage or terminate a | Fund’s benchmark-relative performance. |
| money manager at any time, subject to approval by the Fund’s | |
| Board, without a shareholder vote. Pursuant to the terms of the | How did the investment strategies and techniques employed |
| exemptive order, the Fund is required to notify its shareholders | by the Fund and its money managers affect its benchmark- |
| within 90 days of when a money manager begins providing | relative performance? |
| services. As of December 31, 2014, the Fund had six money | The Fund’s underweight to health care, especially within the |
| managers. | highly volatile biotechnology industry, detracted. The Fund was |
| underweight to biotech based upon the sector’s elevated valuations | |
| What is the Fund’s investment objective? | and poor quality characteristics. Elsewhere, stock selection |
| The Fund seeks to provide long term capital growth. | within the information technology and materials and processing |
| How did the Fund perform relative to its benchmark for the | sectors hurt benchmark-relative returns. Stock selection within |
| fiscal year ended December 31, 2014? | the consumer discretionary (notably among consumer products |
| and media stocks) and energy (specifically, non-renewable | |
| For the fiscal year ended December 31, 2014, the Fund gained | energy companies) sectors contributed positively to the Fund’s |
| 1.56%. This is compared to the Fund’s benchmark, the Russell | benchmark-relative return for the fiscal year. |
| 2000® Index, which gained 4.89% during the same period. The | |
| Fund’s performance includes operating expenses, whereas index | |
| returns are unmanaged and do not include expenses of any kind. | DePrince, Race & Zollo, Inc. outperformed the Russell 2000® |
| For the fiscal year ended December 31, 2014, the Morningstar® | Value Index for the fiscal year. DRZ’s dividend focus was a |
| Insurance Small Blend, a group of funds that Morningstar | tailwind, while stock selection within technology and energy |
| considers to have investment strategies similar to those of the | aided benchmark-relative returns. An underweight to interest |
| Fund, gained 4.75%. This result serves as a peer comparison and | rate sensitive REITs and utilities held back further gains. |
| is expressed net of operating expenses. | Jacobs Levy Equity Management, Inc. outperformed its blended |
| RIMCo may assign a money manager a specific style or | 50% Russell 2000® Value / 50% Russell 2000® Defensive™ |
| capitalization benchmark other than the Fund’s index. However, | benchmark for the fiscal year. Jacob’s holdings within the producer |
| the Fund’s primary index remains the benchmark for the Fund | durables and consumer discretionary sectors outperformed. |
| and is representative of the aggregate of each money manager’s | Exposure to stocks with lower beta than the benchmark added |
| benchmark index. | value. |
| Ranger Investment Management, L.P. (“Ranger”) underperformed | |
| How did the market conditions described in the Market | the Russell 2000® Growth Index for the fiscal year. Ranger’s stock |
| Summary report affect the Fund’s performance? | selection within technology was penalized, while its earnings |
| The fiscal year ended December 31, 2014 saw the Fund | focus led to an underweight to the biotech sector, which detracted |
| underperform the Russell 2000® Index. After a strong 2013, the | |
| from performance as this sector outperformed significantly. | |
| U.S. small cap market continued to produce modestly positive | |
| returns in the 2014 fiscal year, albeit with higher price volatility. | Signia Capital Management, LLC (“Signia”) underperformed the |
| At the beginning of 2014, the Fund decreased its beta and | Russell 2000™ Value Index for the fiscal year. Signia’s holdings |
| growth exposures (beta is a measure of a portfolio’s volatility and | within producer durables and overweight to the poor performing |
| its sensitivity to the direction of the market) while continuing | energy sector detracted. Exposure to stocks with lower valuations |
| to emphasize higher quality measures (lower leverage and | than the benchmark was penalized. |
| higher returns-on-equity) within cyclical sectors. Growth stocks | RBC Global Asset Management (U.S.) Inc. (“RBC”) |
| outperformed value stocks and defensive stocks beat dynamic | underperformed a blended 40% Russell 2000® Index / 60% |
| stocks for the fiscal year, negatively impacting the Fund’s value | Russell Microcap Index for the fiscal year. RBC’s underweight to |
| tilt and aiding the Fund’s exposure toward stocks with lower betas. | |
Aggressive Equity Fund 33
Russell Investment Funds
Aggressive Equity Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| pharmaceuticals and biotechnology and overweight to and stock | leveraged biotechnology and pharmaceuticals industry was | ||
| selection within computer software stocks detracted. | penalized. An overweight to holdings with higher quality metrics, | ||
| Conestoga Capital Advisors (“Conestoga”) underperformed the | those with lower long-term debt-to-capital and higher returns- | ||
| Russell 2000® Growth Index for the fiscal year. Conestoga’s | on-equity, added value. RIMCo equitized the Fund’s cash using | ||
| overweight to and stock selection within computer software was | index futures contracts to ensure that the Fund had full market | ||
| penalized. Elsewhere, stock selection within the energy sector, | exposure. This had a positive impact on the Fund’s performance. | ||
| namely within oil well and equipment services industry, detracted. | Describe any changes to the Fund’s structure or the money | ||
| RIMCo manages the portion of the Fund’s assets that RIMCo | manager line-up. | ||
| determines not to allocate to the money managers. Assets not | In December 2014, RBC’s mandate was changed from a 60/40 | ||
| allocated to managers include the Fund’s liquidity reserves and | blend of the firm’s microcap and small cap strategies to a 100% | ||
| assets which may be managed directly by RIMCo to modify the | microcap strategy. | ||
| Fund’s overall portfolio characteristics to seek to achieve the | There were no other changes to the Fund’s structure or the money | ||
| desired risk/return profile for the Fund. | manger line-up during the fiscal year. | ||
| In June 2014, RIMCo implemented an allocation to a positioning | |||
| strategy which aims to control Fund-level exposures and/or | Money Managers as of December 31, | ||
| risks with an optimized portfolio. The optimization attempts to | 2014 | Styles | |
| preserve active management in the Fund by seeking to align the | Conestoga Capital Advisors, LLC | Small Cap Growth | |
| overall Fund composite with the money managers’ positioning | DePrince, Race & Zollo, Inc. | Small Cap Value | |
| Jacobs Levy Equity Management, Inc. | Small Cap Value | ||
| while meeting RIMCo’s exposure and risk constraints. Optimized | Ranger Investment Management, L.P. | Small Cap Growth | |
| index sampling strategies do not attempt to purchase every | RBC Global Asset Management (U.S.) Inc. | Microcap/Small Cap | |
| security in the reference index, but instead purchase a sampling | Signia Capital Management, LLC | Small Cap Value | |
| of securities using optimization and risk models. This process | The views expressed in this report reflect those of the portfolio | ||
| involves the analysis of tradeoffs between various factors as well | managers only through the end of the period covered by | ||
| as turnover and transaction costs in order to estimate optimal | the report. These views do not necessarily represent the | ||
| portfolio holdings based upon the reference index in order to | views of RIMCo, or any other person in RIMCo or any other | ||
| achieve desired Fund exposures. This strategy is designed to | affiliated organization. These views are subject to change | ||
| tilt the Fund toward lower volatility and lower valuations and, | at any time based upon market conditions or other events, | ||
| based on RIMCo’s expectations for rising interest rates, increase | and RIMCo disclaims any responsibility to update the views | ||
| the Fund’s REIT underweight while preserving the direction | contained herein. These views should not be relied on | ||
| and impact of the money managers’ active stock selection. The | as investment advice and, because investment decisions | ||
| strategy underperformed the Russell 2000® Index for the portion | for a Russell Investment Funds (“RIF”) Fund are based on | ||
| of the fiscal year it was a part of the Fund. During the period, | numerous factors, should not be relied on as an indication | ||
| the strategy’s underweight to interest rate sensitive sectors, such | of investment decisions of any RIF Fund. | ||
| as REITs and utilities, detracted. An underweight to the highly | |||
| * | Assumes initial investment on January 1, 2005. | ||
| ** | Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000 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 opportunity | |||
| barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity | |||
| set. | |||
| *** | The Aggressive Equity Linked Benchmark provides a means to compare the Fund’s average annual returns to a secondary benchmark that takes into account | ||
| historical changes in the Fund’s primary benchmark. The Aggressive Equity Linked Benchmark represents the returns of the Russell 2500TM Index through | |||
| April 30, 2012 and the returns of the Russell 2000® Index thereafter. | |||
| § | 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. | |||
| 34 Aggressive Equity Fund | |||
Russell Investment Funds Aggressive Equity Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 1,006.30 | $ | 1,020.11 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 5.11 | $ | 5.14 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 1.01% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 8.6), then multiply the result by the number in the first column | |||||||
| in the row entitled “Expenses Paid During Period” to estimate | |||||||
| the expenses you paid on your account during this period. | |||||||
| Hypothetical Example for Comparison Purposes | |||||||
| The information in the table under the heading “Hypothetical | |||||||
| Performance (5% return before expenses)” provides information | |||||||
| about hypothetical account values and hypothetical expenses | |||||||
| based on the Fund’s actual expense ratio and an assumed rate of | |||||||
| return of 5% per year before expenses, which is not the Fund’s | |||||||
| actual return. The hypothetical account values and expenses | |||||||
| may not be used to estimate the actual ending account balance or | |||||||
| expenses you paid for the period. You may use this information | |||||||
| to compare the ongoing costs of investing in the Fund and other | |||||||
| funds. To do so, compare this 5% hypothetical example with the | |||||||
| 5% hypothetical examples that appear in the shareholder reports | |||||||
| of other funds. | |||||||
Aggressive Equity Fund 35
| Russell Investment Funds | |||||||
| Aggressive Equity Fund | |||||||
| Schedule of Investments — December 31, 2014 | |||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| Common Stocks - 93.7% | ReachLocal, Inc.(Æ) | 2,000 | 7 | ||||
| Consumer Discretionary - 14.7% | Red Robin Gourmet Burgers, Inc.(Æ) | 4,050 | 312 | ||||
| Abercrombie & Fitch Co. Class A | 21,608 | 619 | Rocky Brands, Inc. | 35,761 | 474 | ||
| AMC Entertainment Holdings, Inc. Class A | 8,178 | 214 | Ruby Tuesday, Inc.(Æ) | 102,644 | 702 | ||
| American Eagle Outfitters, Inc.(Ñ) | 37,777 | 524 | Smith & Wesson Holding Corp.(Æ)(Ñ) | 35,849 | 339 | ||
| Aramark | 1,863 | 58 | Sonic Corp. | 63,566 | 1,732 | ||
| Asbury Automotive Group, Inc.(Æ) | 8,196 | 622 | Sotheby's Class A | 23,668 | 1,022 | ||
| bebe stores inc | 14,800 | 32 | Stage Stores, Inc. | 21,401 | 443 | ||
| Bridgepoint Education, Inc.(Æ) | 19,327 | 219 | Stamps.com, Inc.(Æ) | 17,879 | 858 | ||
| Brown Shoe Co., Inc. | 6,001 | 193 | Steven Madden, Ltd.(Æ) | 29,631 | 943 | ||
| Buffalo Wild Wings, Inc.(Æ) | 1,803 | 325 | Tandy Leather Factory, Inc. | 42,683 | 385 | ||
| Capella Education Co. | 13,967 | 1,074 | Tilly's, Inc. Class A(Æ) | 32,925 | 319 | ||
| Carmike Cinemas, Inc.(Æ) | 5,300 | 139 | Time, Inc.(Æ) | 7,900 | 194 | ||
| Central Garden and Pet Co. Class A(Æ) | 1,900 | 18 | TiVo, Inc.(Æ) | 11,054 | 131 | ||
| Cheesecake Factory, Inc. (The) | 600 | 30 | Tuesday Morning Corp.(Æ)(Ñ) | 42,550 | 923 | ||
| Chico's FAS, Inc. | 71,973 | 1,166 | Universal Electronics, Inc.(Æ) | 25,624 | 1,667 | ||
| Children's Place, Inc. (The) | 3,392 | 193 | Universal Technical Institute, Inc. | 2,600 | 26 | ||
| Citi Trends, Inc.(Æ) | 33,225 | 838 | Vera Bradley, Inc.(Æ) | 6,660 | 136 | ||
| Columbia Sportswear Co. | 9,942 | 442 | West Marine, Inc.(Æ) | 57,066 | 737 | ||
| Cracker Barrel Old Country Store, Inc. | 2,103 | 297 | ZAGG, Inc.(Æ) | 56,721 | 385 | ||
| CST Brands, Inc. | 2,900 | 126 | 37,196 | ||||
| Deckers Outdoor Corp.(Æ) | 11,663 | 1,062 | |||||
| Delta Apparel, Inc.(Æ) | 8,700 | 89 | Consumer Staples - 3.6% | ||||
| Destination Maternity Corp. | 12,900 | 206 | Andersons, Inc. (The) | 7,852 | 418 | ||
| Destination XL Group, Inc.(Æ) | 80,075 | 437 | Calavo Growers, Inc. | 6,125 | 290 | ||
| Dorman Products, Inc.(Æ)(Ñ) | 33,346 | 1,610 | Cal-Maine Foods, Inc.(Ñ) | 8,730 | 340 | ||
| Drew Industries, Inc.(Æ) | 4,037 | 207 | Casey's General Stores, Inc. | 3,572 | 323 | ||
| Ethan Allen Interiors, Inc. | 16,920 | 524 | Dean Foods Co. | 54,411 | 1,054 | ||
| Flexsteel Industries, Inc. | 1,200 | 39 | Ingles Markets, Inc. Class A | 656 | 24 | ||
| Fox Factory Holding Corp.(Æ) | 9,539 | 155 | J&J Snack Foods Corp. | 9,748 | 1,060 | ||
| Fuel Systems Solutions, Inc.(Æ) | 56,963 | 623 | John B Sanfilippo & Son, Inc. | 10,943 | 498 | ||
| Genesco, Inc.(Æ) | 500 | 38 | Nutraceutical International Corp.(Æ) | 1,500 | 32 | ||
| G-III Apparel Group, Ltd.(Æ) | 13,570 | 1,371 | Sanderson Farms, Inc.(Ñ) | 1,897 | 159 | ||
| Grand Canyon Education, Inc.(Æ) | 32,228 | 1,504 | Snyders-Lance, Inc. | 27,773 | 848 | ||
| HealthStream, Inc.(Æ) | 38,271 | 1,128 | SodaStream International, Ltd.(Æ)(Ñ) | 4,912 | 99 | ||
| Helen of Troy, Ltd.(Æ) | 3,524 | 230 | SpartanNash Co. | 1,730 | 45 | ||
| Hibbett Sports, Inc.(Æ) | 10,250 | 496 | TravelCenters of America LLC(Æ) | 97,603 | 1,233 | ||
| Isle of Capri Casinos, Inc.(Æ) | 2,800 | 23 | TreeHouse Foods, Inc.(Æ) | 21,660 | 1,853 | ||
| Jack in the Box, Inc. | 3,747 | 300 | Universal Corp. | 20,369 | 896 | ||
| Johnson Outdoors, Inc. Class A | 2,100 | 66 | 9,172 | ||||
| Kona Grill, Inc.(Æ) | 15,058 | 347 | |||||
| Krispy Kreme Doughnuts, Inc.(Æ) | 39,745 | 784 | Energy - 3.4% | ||||
| La Quinta Holdings, Inc.(Æ) | 1,000 | 22 | Ameresco, Inc. Class A(Æ) | 2,200 | 15 | ||
| Libbey, Inc.(Æ) | 22,815 | 717 | Atwood Oceanics, Inc. | 800 | 23 | ||
| Lincoln Educational Services Corp. | 128,359 | 362 | C&J Energy Services, Inc.(Æ) | 9,000 | 119 | ||
| Malibu Boats, Inc. Class A(Æ) | 9,400 | 181 | Callon Petroleum Co.(Æ) | 12,200 | 66 | ||
| Marriott Vacations Worldwide Corp. | 985 | 74 | CARBO Ceramics, Inc.(Ñ) | 20,591 | 825 | ||
| MDC Holdings, Inc. | 10,074 | 267 | Comstock Resources, Inc.(Ñ) | 72,580 | 494 | ||
| Men's Wearhouse, Inc. (The) | 6,528 | 288 | Contango Oil & Gas Co.(Æ) | 10,325 | 302 | ||
| Meredith Corp. | 16,482 | 896 | Delek US Holdings, Inc. | 9,096 | 248 | ||
| Meritor, Inc.(Æ) | 32,896 | 498 | Emerald Oil, Inc.(Æ)(Ñ) | 17,700 | 21 | ||
| Monro Muffler Brake, Inc.(Ñ) | 17,203 | 995 | EP Energy Corp. Class A(Æ) | 3,700 | 39 | ||
| New York & Co., Inc.(Æ) | 7,900 | 21 | Forum Energy Technologies, Inc.(Æ) | 11,300 | 234 | ||
| Office Depot, Inc.(Æ) | 30,200 | 259 | Geospace Technologies Corp.(Æ) | 3,986 | 106 | ||
| Papa John's International, Inc. | 4,093 | 229 | Gulfport Energy Corp.(Æ) | 9,489 | 396 | ||
| Penn National Gaming, Inc.(Æ) | 10,900 | 150 | Helix Energy Solutions Group, Inc.(Æ) | 6,290 | 136 | ||
| Pep Boys-Manny Moe & Jack (The)(Æ) | 91,253 | 896 | Matador Resources Co.(Æ) | 56,701 | 1,147 | ||
| Performance Sports Group, Ltd.(Æ) | 9,040 | 163 | Patterson-UTI Energy, Inc. | 21,769 | 361 | ||
| Perry Ellis International, Inc.(Æ) | 41,452 | 1,075 | PBF Energy, Inc. Class A | 41,470 | 1,105 | ||
| See accompanying notes which are an integral part of the financial statements. | |||||||
| 36 Aggressive Equity Fund | |||||||
Russell Investment Funds Aggressive Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| PDC Energy, Inc.(Æ) | 7,504 | 310 | Equity One, Inc.(ö) | 16,900 | 429 | ||
| Profire Energy, Inc.(Æ)(Ñ) | 38,000 | 87 | Evercore Partners, Inc. Class A | 4,385 | 229 | ||
| Ring Energy, Inc.(Æ) | 31,700 | 333 | FelCor Lodging Trust, Inc.(ö) | 14,900 | 161 | ||
| Rowan Companies PLC(Æ) | 25,498 | 595 | Fidelity & Guaranty Life | 300 | 7 | ||
| RSP Permian, Inc.(Æ) | 4,900 | 123 | First Busey Corp. | 16,536 | 108 | ||
| Stone Energy Corp.(Æ) | 4,900 | 83 | First Business Financial Services, Inc. | 1,184 | 57 | ||
| Superior Energy Services, Inc. | 17,275 | 348 | First Defiance Financial Corp. | 1,051 | 36 | ||
| Synergy Resources Corp.(Æ) | 15,500 | 194 | First Financial Bancorp | 49,163 | 914 | ||
| Unit Corp.(Æ) | 11,533 | 393 | First Financial Corp. | 2,521 | 89 | ||
| W&T Offshore, Inc. | 73,039 | 536 | First Merchants Corp. | 22,290 | 507 | ||
| 8,639 | First Midwest Bancorp, Inc. | 34,802 | 595 | ||||
| FirstMerit Corp. | 3,800 | 72 | |||||
| Financial Services - 21.3% | FNB Corp. | 121,987 | 1,624 | ||||
| Advent Software, Inc. | 27,525 | 843 | Franklin Street Properties Corp.(ö) | 81,848 | 1,004 | ||
| AG Mortgage Investment Trust, Inc.(ö) | 9,500 | 176 | Fulton Financial Corp. | 8,094 | 100 | ||
| Alexander & Baldwin, Inc. | 11,582 | 455 | FXCM, Inc. Class A(Ñ) | 11,290 | 187 | ||
| Amerisafe, Inc. | 18,867 | 800 | Gain Capital Holdings, Inc. | 151,384 | 1,366 | ||
| AmTrust Financial Services, Inc.(Ñ) | 8,681 | 489 | German American Bancorp, Inc. | 299 | 9 | ||
| Arbor Realty Trust, Inc.(ö) | 3,700 | 25 | Getty Realty Corp.(ö) | 1,283 | 23 | ||
| Argo Group International Holdings, Ltd. | 4,689 | 260 | GFI Group, Inc. | 80,793 | 440 | ||
| Arlington Asset Investment Corp. Class A(Ñ) | 10,204 | 271 | Gladstone Commercial Corp.(ö) | 1,000 | 17 | ||
| Armada Hoffler Properties, Inc.(ö) | 5,200 | 49 | Global Cash Access Holdings, Inc.(Æ) | 11,400 | 82 | ||
| Ashford Hospitality Prime, Inc.(ö) | 1,800 | 31 | Gramercy Property Trust, Inc.(Ñ)(ö) | 36,900 | 255 | ||
| Assurant, Inc. | 2,812 | 192 | Great Southern Bancorp, Inc. | 1,572 | 63 | ||
| Asta Funding, Inc.(Æ) | 9,191 | 81 | Green Dot Corp. Class A(Æ) | 9,766 | 200 | ||
| Astoria Financial Corp. | 49,919 | 667 | Hallmark Financial Services, Inc.(Æ) | 3,500 | 42 | ||
| Atlas Financial Holdings, Inc.(Æ) | 11,000 | 180 | Hancock Holding Co. | 48,171 | 1,479 | ||
| BancFirst Corp. | 3,765 | 239 | Hanmi Financial Corp. | 15,650 | 341 | ||
| Bancorp, Inc. (The)(Æ) | 77,513 | 844 | Hanover Insurance Group, Inc. (The) | 2,273 | 162 | ||
| BancorpSouth, Inc. | 51,651 | 1,163 | Heartland Financial USA, Inc. | 1,500 | 41 | ||
| Bank of the Ozarks, Inc. | 24,538 | 930 | Heritage Financial Corp. | 6,678 | 118 | ||
| BioMed Realty Trust, Inc.(ö) | 20,141 | 434 | HFF, Inc. Class A | 2,300 | 83 | ||
| BNC Bancorp(Ñ) | 1,700 | 29 | Home BancShares, Inc. | 2,807 | 90 | ||
| BOK Financial Corp. | 1,900 | 114 | HomeTrust Bancshares, Inc.(Æ) | 2,488 | 41 | ||
| Boston Private Financial Holdings, Inc. | 39,187 | 528 | Horizon Bancorp | 1,200 | 31 | ||
| Bridge Capital Holdings(Æ) | 200 | 4 | Huntington Bancshares, Inc. | 2,000 | 21 | ||
| Brookline Bancorp, Inc. | 88,443 | 887 | Iberiabank Corp. | 30,991 | 2,009 | ||
| Bryn Mawr Bank Corp. | 2,036 | 64 | Independent Bank Corp. | 140 | 6 | ||
| Capital City Bank Group, Inc. | 500 | 8 | Infinity Property & Casualty Corp. | 12,561 | 970 | ||
| Capitol Federal Financial, Inc. | 58,004 | 741 | Inland Real Estate Corp.(ö) | 2,800 | 31 | ||
| Cedar Realty Trust, Inc.(ö) | 10,700 | 79 | Investment Technology Group, Inc.(Æ) | 19,712 | 410 | ||
| Chemical Financial Corp. | 37,723 | 1,156 | JER Investment Trust, Inc.(Å)(Æ) | 1,771 | — | ||
| City Holding Co. | 640 | 30 | Kite Realty Group Trust(ö) | 3,425 | 98 | ||
| City National Corp. | 63 | 5 | Lakeland Financial Corp. | 2,087 | 90 | ||
| CoBiz Financial, Inc. | 16,805 | 221 | LaSalle Hotel Properties(ö) | 24,606 | 996 | ||
| Columbia Banking System, Inc. | 29,742 | 821 | LTC Properties, Inc.(ö) | 6,400 | 276 | ||
| Columbia Property Trust, Inc.(ö) | 5,100 | 129 | Mack-Cali Realty Corp.(ö) | 3,700 | 71 | ||
| Community Bank System, Inc. | 3,852 | 147 | Maiden Holdings, Ltd. | 32,499 | 416 | ||
| Community Trust Bancorp, Inc. | 2,643 | 97 | MainSource Financial Group, Inc. | 2,157 | 45 | ||
| Consumer Portfolio Services, Inc.(Æ) | 300 | 2 | Marcus & Millichap, Inc.(Æ) | 1,600 | 53 | ||
| Crawford & Co. Class B | 976 | 10 | MarketAxess Holdings, Inc. | 15,584 | 1,117 | ||
| CubeSmart Class A(ö) | 9,400 | 207 | MB Financial, Inc. | 22,388 | 736 | ||
| Cullen/Frost Bankers, Inc. | 4,649 | 329 | Mercantile Bank Corp. | 4,001 | 84 | ||
| CVB Financial Corp. | 27,459 | 440 | Moelis & Co. Class A | 4,600 | 161 | ||
| DiamondRock Hospitality Co.(ö) | 17,501 | 260 | Morningstar, Inc. | 4,591 | 297 | ||
| Dun & Bradstreet Corp. (The) | 1,070 | 129 | National Bank Holdings Corp. Class A | 65,896 | 1,279 | ||
| East West Bancorp, Inc. | 1,708 | 66 | National Interstate Corp. | 272 | 8 | ||
| Enstar Group, Ltd.(Æ) | 230 | 36 | National Penn Bancshares, Inc. | 78,706 | 829 | ||
| EPR Properties(ö) | 6,992 | 403 | Navigators Group, Inc. (The)(Æ) | 4,597 | 337 | ||
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 37
Russell Investment Funds Aggressive Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| NBT Bancorp, Inc. | 834 | 22 | WSFS Financial Corp. | 2,554 | 197 | ||
| New Residential Investment Corp.(ö) | 55,894 | 714 | 54,085 | ||||
| Northfield Bancorp, Inc. | 20,017 | 297 | |||||
| Northrim BanCorp, Inc. | 13,991 | 367 | Health Care - 9.9% | ||||
| Northwest Bancshares, Inc. | 50,452 | 632 | Abaxis, Inc. | 7,020 | 399 | ||
| OceanFirst Financial Corp. | 4,688 | 81 | Affymetrix, Inc.(Æ)(Ñ) | 17,133 | 169 | ||
| Old National Bancorp | 75,869 | 1,130 | Air Methods Corp.(Æ)(Ñ) | 20,940 | 922 | ||
| Oppenheimer Holdings, Inc. Class A(Æ) | 900 | 21 | Akorn, Inc.(Æ) | 34,203 | 1,239 | ||
| Pacific Continental Corp. | 22,810 | 323 | Align Technology, Inc.(Æ) | 13,880 | 776 | ||
| PennantPark Investment Corp. | 36,866 | 351 | Almost Family, Inc.(Æ) | 2,200 | 64 | ||
| PennyMac Financial Services, Inc. Class | Alphatec Holdings, Inc.(Æ) | 15,400 | 22 | ||||
| A(Æ) | 1,700 | 29 | Analogic Corp. | 105 | 9 | ||
| Pinnacle Financial Partners, Inc. | 12,013 | 475 | Anika Therapeutics, Inc.(Æ) | 10,530 | 429 | ||
| Piper Jaffray Cos.(Æ) | 11,590 | 674 | ArQule, Inc.(Æ) | 19,800 | 24 | ||
| Potlatch Corp.(ö) | 4,700 | 197 | Bio-Reference Laboratories, Inc.(Æ) | 5,107 | 164 | ||
| Preferred Bank | 881 | 25 | BioScrip, Inc.(Æ) | 53,408 | 373 | ||
| PrivateBancorp, Inc. Class A | 62,224 | 2,078 | Bio-Techne Corp. | 16,386 | 1,514 | ||
| ProAssurance Corp. | 19,901 | 898 | Cambrex Corp.(Æ) | 37,052 | 801 | ||
| Prosperity Bancshares, Inc. | 10,068 | 557 | Cantel Medical Corp. | 41,594 | 1,799 | ||
| Provident Financial Services, Inc. | 27,078 | 489 | Centene Corp.(Æ) | 10,797 | 1,121 | ||
| Raymond James Financial, Inc. | 2,900 | 166 | ChemoCentryx, Inc.(Æ)(Ñ) | 3,900 | 27 | ||
| RE/MAX Holdings, Inc. Class A | 800 | 27 | Community Health Systems, Inc.(Æ) | 500 | 27 | ||
| Reinsurance Group of America, Inc. Class A | 551 | 48 | Cutera, Inc.(Æ) | 2,300 | 25 | ||
| Renasant Corp. | 8,493 | 246 | Cytokinetics, Inc.(Æ) | 11,000 | 88 | ||
| RLJ Lodging Trust(ö) | 5,500 | 184 | Emergent Biosolutions, Inc.(Æ) | 7,523 | 205 | ||
| S&T Bancorp, Inc. | 374 | 11 | Exactech, Inc.(Æ) | 15,907 | 375 | ||
| Safeguard Scientifics, Inc.(Æ) | 12,459 | 247 | Greatbatch, Inc.(Æ) | 8,059 | 397 | ||
| Safety Insurance Group, Inc. | 2,498 | 160 | Hanger, Inc.(Æ) | 2,700 | 59 | ||
| Sandy Spring Bancorp, Inc. | 1,489 | 39 | Health Net, Inc.(Æ) | 5,850 | 313 | ||
| Select Income REIT(ö) | 3,100 | 76 | ICON PLC(Æ) | 31,594 | 1,612 | ||
| Selective Insurance Group, Inc. | 13,424 | 365 | ICU Medical, Inc.(Æ) | 700 | 57 | ||
| Silver Bay Realty Trust Corp.(ö) | 8,400 | 139 | Kindred Healthcare, Inc. | 9,550 | 174 | ||
| Simmons First National Corp. Class A | 3,034 | 124 | Lannett Co., Inc.(Æ) | 14,052 | 602 | ||
| Sovran Self Storage, Inc.(ö) | 3,100 | 270 | LHC Group, Inc.(Æ) | 2,800 | 87 | ||
| Springleaf Holdings, Inc. Class A(Æ) | 3,700 | 134 | Ligand Pharmaceuticals, Inc. Class B(Æ) | 7,000 | 372 | ||
| State Bank Financial Corp. | 16,103 | 322 | Luminex Corp.(Æ) | 2,300 | 43 | ||
| Sterling Bancorp | 6,325 | 91 | Magellan Health, Inc.(Æ) | 8,056 | 483 | ||
| Stewart Information Services Corp. | 800 | 30 | Masimo Corp.(Æ) | 4,309 | 114 | ||
| Stock Yards Bancorp, Inc. | 2,341 | 78 | Medidata Solutions, Inc.(Æ) | 32,225 | 1,538 | ||
| Stonegate Bank | 1,500 | 44 | National Research Corp. Class A | 17,885 | 250 | ||
| Susquehanna Bancshares, Inc. | 17,862 | 240 | National Research Corp. Class B(Ñ) | 8,297 | 297 | ||
| SVB Financial Group(Æ) | 227 | 26 | Nektar Therapeutics(Æ) | 11,500 | 178 | ||
| Symetra Financial Corp. | 12,560 | 289 | Neogen Corp.(Æ) | 36,715 | 1,822 | ||
| Talmer Bancorp, Inc. Class A | 8,800 | 124 | Omnicell, Inc.(Æ) | 34,753 | 1,151 | ||
| TCF Financial Corp. | 6,354 | 101 | OncoGenex Pharmaceuticals, Inc.(Æ) | 6,700 | 15 | ||
| Territorial Bancorp, Inc. | 1,794 | 38 | OraSure Technologies, Inc.(Æ) | 20,307 | 206 | ||
| Texas Capital Bancshares, Inc.(Æ) | 3,700 | 201 | Orthofix International NV(Æ) | 4,300 | 129 | ||
| Trico Bancshares | 3,400 | 84 | PharMerica Corp.(Æ) | 6,673 | 138 | ||
| Trustmark Corp. | 19,259 | 473 | POZEN, Inc.(Æ) | 1,600 | 13 | ||
| Walker & Dunlop, Inc.(Æ) | 30,792 | 540 | Prestige Brands Holdings, Inc.(Æ) | 35,444 | 1,231 | ||
| Washington Federal, Inc. | 33,598 | 743 | Quintiles Transnational Holdings, Inc.(Æ) | 1,800 | 106 | ||
| Webster Financial Corp. | 702 | 23 | Repligen Corp.(Æ) | 23,800 | 471 | ||
| WesBanco, Inc. | 2,789 | 97 | Rigel Pharmaceuticals, Inc.(Æ) | 18,801 | 43 | ||
| Westamerica Bancorporation(Ñ) | 21,038 | 1,031 | RTI Surgical, Inc.(Æ) | 173,756 | 904 | ||
| Western Alliance Bancorp(Æ) | 6,403 | 178 | Sagent Pharmaceuticals, Inc.(Æ) | 21,404 | 538 | ||
| Western Asset Mortgage Capital Corp.(Ñ)(ö) | 12,100 | 178 | Streamline Health Solutions, Inc.(Æ) | 23,400 | 101 | ||
| Westwood Holdings Group, Inc. | 12,522 | 774 | SurModics, Inc.(Æ) | 8,052 | 178 | ||
| Wilshire Bancorp, Inc. | 17,212 | 174 | US Physical Therapy, Inc. | 12,627 | 530 | ||
| Vascular Solutions, Inc.(Æ) | 15,000 | 407 | |||||
See accompanying notes which are an integral part of the financial statements.
38 Aggressive Equity Fund
Russell Investment Funds Aggressive Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| Vical, Inc.(Æ) | 14,300 | 15 | Ascent Capital Group, Inc. Class A(Æ) | 2,800 | 148 | ||
| 25,146 | Astec Industries, Inc. | 31,960 | 1,256 | ||||
| AZZ, Inc. | 18,054 | 848 | |||||
| Materials and Processing - 6.2% | Babcock & Wilcox Co. (The) | 6,400 | 194 | ||||
| A Schulman, Inc. | 8,366 | 339 | Blount International, Inc.(Æ) | 12,128 | 213 | ||
| AAON, Inc. | 49,285 | 1,104 | Brady Corp. Class A | 4,456 | 122 | ||
| Aceto Corp. | 35,696 | 775 | Briggs & Stratton Corp. | 43,729 | 893 | ||
| Balchem Corp. | 13,898 | 926 | CAI International, Inc.(Æ) | 2,270 | 53 | ||
| Boise Cascade Co.(Æ) | 162 | 6 | Celadon Group, Inc. | 19,890 | 451 | ||
| Cabot Corp. | 8,641 | 380 | Clarcor, Inc. | 15,729 | 1,048 | ||
| Commercial Metals Co. | 21,613 | 352 | Columbus McKinnon Corp. | 31,039 | 871 | ||
| Compass Minerals International, Inc. | 3,114 | 270 | Compass Diversified Holdings | 46,602 | 757 | ||
| Cytec Industries, Inc. | 1,400 | 65 | CoStar Group, Inc.(Æ) | 4,767 | 876 | ||
| Domtar Corp. | 23,017 | 925 | Crane Co. | 5,432 | 319 | ||
| FutureFuel Corp. | 13,300 | 173 | CTPartners Executive Search, Inc.(Æ) | 7,200 | 109 | ||
| Globe Specialty Metals, Inc. | 500 | 9 | Curtiss-Wright Corp. | 1,200 | 85 | ||
| Graphic Packaging Holding Co.(Æ) | 15,126 | 206 | Deluxe Corp. | 5,247 | 327 | ||
| Greif, Inc. Class A | 16,838 | 795 | Dice Holdings, Inc.(Æ) | 30,595 | 306 | ||
| Haynes International, Inc. | 10,969 | 532 | Ducommun, Inc.(Æ) | 12,921 | 327 | ||
| Insteel Industries, Inc. | 7,133 | 168 | Echo Global Logistics, Inc.(Æ) | 4,732 | 138 | ||
| Interface, Inc. Class A | 17,753 | 292 | EMCOR Group, Inc. | 10,890 | 484 | ||
| Koppers Holdings, Inc. | 9,681 | 252 | EnerSys | 13,485 | 832 | ||
| Kronos Worldwide, Inc. | 52,414 | 682 | Engility Holdings, Inc.(Æ) | 22,021 | 942 | ||
| Landec Corp.(Æ) | 16,657 | 230 | Ennis, Inc. | 30,676 | 413 | ||
| LSI Industries, Inc. | 1,455 | 10 | Faro Technologies, Inc.(Æ) | 11,975 | 751 | ||
| Minerals Technologies, Inc. | 6,736 | 467 | Forward Air Corp. | 9,817 | 495 | ||
| MRC Global, Inc.(Æ) | 1,900 | 29 | Global Power Equipment Group, Inc. | 2,800 | 39 | ||
| Neenah Paper, Inc. | 784 | 47 | GP Strategies Corp.(Æ) | 15,774 | 535 | ||
| NN, Inc. | 19,162 | 394 | GrafTech International, Ltd.(Æ) | 69,470 | 352 | ||
| Noranda Aluminum Holding Corp. | 18,800 | 66 | Graham Corp. | 3,644 | 105 | ||
| Olympic Steel, Inc. | 2,800 | 50 | Granite Construction, Inc. | 58,199 | 2,213 | ||
| OM Group, Inc. | 19,126 | 570 | Greenbrier Cos., Inc.(Ñ) | 17,543 | 942 | ||
| Omnova Solutions, Inc.(Æ) | 45,700 | 372 | Gulfmark Offshore, Inc. Class A | 17,963 | 439 | ||
| Patrick Industries, Inc.(Æ) | 14,687 | 646 | Harsco Corp. | 42,613 | 805 | ||
| PGT, Inc.(Æ) | 27,900 | 269 | Healthcare Services Group, Inc. | 13,364 | 413 | ||
| PH Glatfelter Co. | 932 | 24 | Herman Miller, Inc. | 34,306 | 1,010 | ||
| Quaker Chemical Corp. | 2,417 | 222 | Hudson Technologies, Inc.(Æ) | 48,400 | 182 | ||
| Resolute Forest Products, Inc.(Æ) | 39,988 | 704 | Icad, Inc.(Æ) | 17,900 | 164 | ||
| RTI International Metals, Inc.(Æ) | 16,945 | 428 | InnerWorkings, Inc.(Æ) | 9,000 | 70 | ||
| Schnitzer Steel Industries, Inc. Class A | 14,775 | 333 | Itron, Inc.(Æ) | 7,900 | 334 | ||
| Simpson Manufacturing Co., Inc. | 33,190 | 1,148 | Jason Industries, Inc.(Æ) | 9,200 | 91 | ||
| Stepan Co. | 1,840 | 74 | Kadant, Inc. | 2,166 | 93 | ||
| Universal Forest Products, Inc. | 6,950 | 370 | Kimball International, Inc. Class B | 13,300 | 121 | ||
| Universal Stainless & Alloy Products, Inc.(Æ) | 17,319 | 436 | Knight Transportation, Inc. | 15,500 | 522 | ||
| Watsco, Inc. | 5,053 | 541 | Knoll, Inc. | 24,850 | 527 | ||
| Worthington Industries, Inc. | 1,500 | 45 | Layne Christensen Co.(Æ) | 2,300 | 22 | ||
| 15,726 | Lexmark International, Inc. Class A | 9,048 | 373 | ||||
| ManpowerGroup, Inc. | 2,900 | 198 | |||||
| Producer Durables - 18.2% | Marten Transport, Ltd. | 10,071 | 220 | ||||
| ABM Industries, Inc. | 38,642 | 1,107 | MAXIMUS, Inc. | 29,588 | 1,623 | ||
| ACCO Brands Corp.(Æ) | 57,081 | 514 | McGrath RentCorp | 13,979 | 501 | ||
| Advisory Board Co. (The)(Æ) | 15,200 | 744 | Mesa Laboratories, Inc. | 10,067 | 778 | ||
| AGCO Corp. | 700 | 32 | Mistras Group, Inc.(Æ) | 7,521 | 138 | ||
| Air Transport Services Group, Inc.(Æ) | 14,077 | 120 | Modine Manufacturing Co.(Æ) | 1,475 | 20 | ||
| Alamo Group, Inc. | 900 | 44 | Moog, Inc. Class A(Æ) | 3,559 | 263 | ||
| American Superconductor Corp.(Æ) | 24,100 | 18 | MYR Group, Inc.(Æ) | 6,424 | 176 | ||
| Applied Industrial Technologies, Inc. | 4,454 | 203 | Old Dominion Freight Line, Inc.(Æ) | 7,021 | 545 | ||
| ArcBest Corp. | 920 | 43 | Orion Marine Group, Inc.(Æ) | 7,575 | 84 | ||
| Ardmore Shipping Corp. | 88,544 | 1,059 | Performant Financial Corp.(Æ) | 10,100 | 67 | ||
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 39
Russell Investment Funds Aggressive Equity Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | Principal | Fair | ||||
| Amount ($) or | Value | Amount ($) or | Value | ||||
| Shares | $ | Shares | $ | ||||
| Powell Industries, Inc. | 7,416 | 364 | Envestnet, Inc.(Æ) | 23,720 | 1,165 | ||
| Primoris Services Corp. | 7,372 | 171 | Exa Corp.(Æ) | 23,650 | 279 | ||
| Proto Labs, Inc.(Æ)(Ñ) | 34,432 | 2,313 | FleetMatics Group PLC(Æ)(Ñ) | 24,771 | 879 | ||
| Quad/Graphics, Inc. | 9,375 | 215 | FormFactor, Inc.(Æ) | 110,160 | 947 | ||
| Quality Distribution, Inc.(Æ) | 4,200 | 45 | Glu Mobile, Inc.(Æ)(Ñ) | 54,299 | 212 | ||
| Raven Industries, Inc. | 33,730 | 843 | GSI Group, Inc.(Æ) | 17,261 | 255 | ||
| Regal-Beloit Corp. | 16,100 | 1,211 | Harmonic, Inc.(Æ) | 22,696 | 159 | ||
| Resources Connection, Inc. | 46,817 | 770 | Infinera Corp.(Æ)(Ñ) | 7,421 | 110 | ||
| Rollins, Inc. | 16,454 | 545 | Ingram Micro, Inc. Class A(Æ) | 873 | 24 | ||
| RPX Corp. Class A(Æ) | 12,300 | 169 | Insight Enterprises, Inc.(Æ) | 11,971 | 310 | ||
| Saia, Inc.(Æ) | 25,442 | 1,408 | Interactive Intelligence Group, Inc.(Æ)(Ñ) | 12,120 | 581 | ||
| SkyWest, Inc. | 58,529 | 777 | InvenSense, Inc. Class A(Æ)(Ñ) | 56,350 | 917 | ||
| Spartan Motors, Inc. | 3,000 | 16 | Jive Software, Inc.(Æ) | 2,900 | 17 | ||
| Sun Hydraulics Corp. | 35,682 | 1,405 | Kemet Corp.(Æ) | 8,900 | 37 | ||
| Teledyne Technologies, Inc.(Æ) | 5,679 | 583 | KEYW Holding Corp. (The)(Æ)(Ñ) | 35,322 | 367 | ||
| TeleTech Holdings, Inc.(Æ) | 5,674 | 134 | Kulicke & Soffa Industries, Inc.(Æ) | 69,110 | 999 | ||
| Tennant Co. | 195 | 14 | Leidos Holdings, Inc. | 1,400 | 61 | ||
| Tidewater, Inc.(Ñ) | 19,552 | 634 | Limelight Networks, Inc.(Æ) | 6,534 | 18 | ||
| Toro Co. (The) | 2,321 | 148 | ManTech International Corp. Class A | 6,706 | 203 | ||
| Tsakos Energy Navigation, Ltd. | 33,601 | 235 | MaxLinear, Inc. Class A(Æ) | 1,200 | 9 | ||
| Tutor Perini Corp.(Æ) | 7,627 | 184 | Mentor Graphics Corp. | 10,450 | 229 | ||
| Vishay Precision Group, Inc.(Æ) | 19,650 | 337 | Mercury Systems, Inc.(Æ) | 25,127 | 350 | ||
| Wabash National Corp.(Æ) | 65,646 | 811 | Meru Networks, Inc.(Æ) | 1,000 | 4 | ||
| WageWorks, Inc.(Æ) | 16,760 | 1,082 | Micrel, Inc. | 81,150 | 1,177 | ||
| Watts Water Technologies, Inc. Class A | 1,297 | 82 | Multi-Fineline Electronix, Inc.(Æ) | 300 | 3 | ||
| Werner Enterprises, Inc. | 11,800 | 368 | NeoPhotonics Corp.(Æ) | 4,600 | 16 | ||
| Woodward, Inc. | 4,042 | 199 | NIC, Inc. | 48,800 | 878 | ||
| 46,170 | Novatel Wireless, Inc.(Æ) | 7,700 | 25 | ||||
| NVE Corp.(Æ) | 6,556 | 464 | |||||
| Technology - 15.2% | Oclaro, Inc.(Æ) | 14,900 | 27 | ||||
| Acacia Research Corp.(Ñ) | 68,970 | 1,168 | PC Connection, Inc. | 6,529 | 160 | ||
| ACI Worldwide, Inc.(Æ) | 42,930 | 866 | Photronics, Inc.(Æ) | 97,598 | 811 | ||
| ADTRAN, Inc. | 37,595 | 819 | Plexus Corp.(Æ) | 5,465 | 225 | ||
| Alpha & Omega Semiconductor, Ltd.(Æ) | 7,800 | 69 | PMC-Sierra, Inc.(Æ) | 41,100 | 376 | ||
| ANADIGICS, Inc.(Æ) | 11,500 | 9 | Polycom, Inc.(Æ) | 36,004 | 486 | ||
| Anixter International, Inc.(Æ) | 4,334 | 384 | Progress Software Corp.(Æ) | 15,782 | 426 | ||
| Aruba Networks, Inc.(Æ) | 39,060 | 710 | Pros Holdings, Inc.(Æ) | 25,160 | 691 | ||
| Aspen Technology, Inc.(Æ) | 9,351 | 327 | QLogic Corp.(Æ) | 29,248 | 390 | ||
| Aviat Networks, Inc.(Æ) | 22,800 | 34 | Quantum Corp.(Æ)(Ñ) | 63,100 | 111 | ||
| AXT, Inc.(Æ) | 4,800 | 13 | Rightside Group, Ltd.(Æ) | 900 | 6 | ||
| Benchmark Electronics, Inc.(Æ) | 16,567 | 422 | Rofin-Sinar Technologies, Inc.(Æ) | 1,000 | 29 | ||
| Blackbaud, Inc. | 26,936 | 1,166 | Ruckus Wireless, Inc.(Æ) | 59,967 | 721 | ||
| Bottomline Technologies de, Inc.(Æ) | 30,280 | 765 | Rudolph Technologies, Inc.(Æ) | 11,200 | 115 | ||
| Calix, Inc.(Æ) | 18,000 | 180 | Sanmina Corp.(Æ) | 19,896 | 469 | ||
| CEVA, Inc.(Æ) | 31,578 | 573 | Sapiens International Corp. NV(Æ) | 14,985 | 111 | ||
| Cohu, Inc. | 45,764 | 545 | SciQuest, Inc.(Æ) | 28,475 | 411 | ||
| Computer Task Group, Inc. | 8,788 | 84 | Sigma Designs, Inc.(Æ) | 14,400 | 107 | ||
| comScore, Inc.(Æ) | 4,199 | 195 | Silicon Laboratories, Inc.(Æ) | 32,240 | 1,534 | ||
| Comtech Telecommunications Corp. | 7,916 | 250 | Skyworks Solutions, Inc. | 3,753 | 273 | ||
| CSG Systems International, Inc. | 10,848 | 272 | Sparton Corp.(Æ) | 14,755 | 418 | ||
| CYREN, Ltd.(Æ) | 33,600 | 58 | SPS Commerce, Inc.(Æ) | 24,869 | 1,408 | ||
| Daktronics, Inc. | 1,192 | 15 | Stratasys, Ltd.(Æ)(Ñ) | 5,228 | 435 | ||
| Demand Media, Inc.(Æ) | 11,694 | 72 | Support.com, Inc.(Æ) | 17,005 | 36 | ||
| Diebold, Inc. | 29,468 | 1,020 | Synaptics, Inc.(Æ) | 4,700 | 324 | ||
| DTS, Inc.(Æ) | 1,400 | 43 | Synchronoss Technologies, Inc.(Æ) | 13,845 | 580 | ||
| Electro Scientific Industries, Inc. | 73,538 | 570 | Synopsys, Inc.(Æ) | 507 | 22 | ||
| Ellie Mae, Inc.(Æ) | 35,378 | 1,425 | Syntel, Inc.(Æ) | 5,308 | 238 | ||
| Emulex Corp.(Æ) | 31,800 | 180 | Take-Two Interactive Software, Inc.(Æ) | 15,323 | 429 | ||
| Entropic Communications, Inc.(Æ) | 28,500 | 72 | TeleNav, Inc.(Æ) | 14,217 | 95 | ||
See accompanying notes which are an integral part of the financial statements.
40 Aggressive Equity Fund
Russell Investment Funds Aggressive Equity Fund
Schedule of Investments, continued — December 31, 2014
Amounts in thousands (except share amounts)
| Principal | Fair | ||||||
| Amount ($) or | Value | ||||||
| Shares | $ | ||||||
| Tessco Technologies, Inc. | 16,072 | 466 | |||||
| Towerstream Corp.(Æ)(Ñ) | 48,922 | 91 | |||||
| Tyler Technologies, Inc.(Æ) | 18,470 | 2,021 | |||||
| Ultimate Software Group, Inc.(Æ) | 2,170 | 319 | |||||
| United Online, Inc.(Æ) | 3,500 | 51 | |||||
| Vishay Intertechnology, Inc. | 32,956 | 466 | |||||
| Xcerra Corp.(Æ) | 76,013 | 696 | |||||
| Zhone Technologies, Inc.(Æ) | 4,600 | 8 | |||||
| Zynga, Inc. Class A(Æ) | 22,500 | 60 | |||||
| 38,643 | |||||||
| Utilities - 1.2% | |||||||
| Advantage Oil & Gas, Ltd.(Æ) | 114,204 | 548 | |||||
| Alaska Communications Systems Group, Inc. | |||||||
| (Æ) | 8,300 | 15 | |||||
| Allete, Inc. | 257 | 14 | |||||
| American States Water Co. | 2,308 | 87 | |||||
| Artesian Resources Corp. Class A | 668 | 15 | |||||
| California Water Service Group | 7,406 | 182 | |||||
| IDT Corp. Class B | 3,083 | 63 | |||||
| Intelsat SA(Æ) | 3,800 | 66 | |||||
| Laclede Group, Inc. (The) | 6,848 | 365 | |||||
| New Jersey Resources Corp. | 2,947 | 180 | |||||
| NTELOS Holdings Corp.(Æ) | 5,600 | 23 | |||||
| PNM Resources, Inc. | 9,128 | 271 | |||||
| Portland General Electric Co. | 3,000 | 113 | |||||
| Southwest Gas Corp. | 9,013 | 557 | |||||
| UIL Holdings Corp. | 4,219 | 184 | |||||
| Unitil Corp. | 6,785 | 248 | |||||
| West Corp. | 3,300 | 109 | |||||
| 3,040 | |||||||
| Total Common Stocks | |||||||
| (cost $204,715) | 237,817 | ||||||
| Short -Term Investments - 6.2% | |||||||
| Russell U.S. Cash Management Fund | 15,823,294 | (∞) | 15,823 | ||||
| Total Short-Term Investments | |||||||
| (cost $15,823) | 15,823 | ||||||
| Other Securities - 6.0% | |||||||
| Russell U.S. Cash Collateral Fund(×) | 15,278,575 | (∞) | 15,279 | ||||
| Total Other Securities | |||||||
| (cost $15,279) | 15,279 | ||||||
| Total Investments 105.9% | |||||||
| (identified cost $235,817) | 268,919 | ||||||
| Other Assets and Liabilities, Net | |||||||
| - | (5.9%) | (15,116 | ) | ||||
| Net Assets - 100.0% | 253,803 | ||||||
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 41
| Russell Investment Funds | |||||||||||||
| Aggressive Equity Fund | |||||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||||
| Restricted Securities | |||||||||||||
| Amounts in thousands (except share and cost per unit amounts) | |||||||||||||
| Principal Amount ($) or shares |
Cost per | Cost | Fair Value | ||||||||||
| % of Net Assets | Acquisition | Unit | (000 | ) | (000 | ) | |||||||
| Securities | Date | $ | $ | $ | |||||||||
| 0.0% | |||||||||||||
| JER Investment Trust, Inc. | 05/27/04 | 1,771 | 82.03 | 145 | — | ||||||||
| — | |||||||||||||
| For a description of restricted securities see note 8 in the Notes to Financial Statements. | |||||||||||||
| Futures Contracts | |||||||||||||
| Amounts in thousands (except contract amounts) | |||||||||||||
| Unrealized | |||||||||||||
| Appreciation | |||||||||||||
| Number of | Notional | Expiration | (Depreciation) | ||||||||||
| Contracts | Amount | Date | $ | ||||||||||
| Long Positions | |||||||||||||
| Russell 2000 Mini Index Futures | 133 | USD | 15,969 | 03/15 | 407 | ||||||||
| Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) | 407 | ||||||||||||
Presentation of Portfolio Holdings
Amounts in thousands
| Fair Value | ||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | |||||||
| Common Stocks | ||||||||||||
| Consumer Discretionary | $ | 37,196 | $ | — | $ | — | $ | 37,196 | 14.7 | |||
| Consumer Staples | 9,172 | — | — | 9,172 | 3.6 | |||||||
| Energy | 8,639 | — | — | 8,639 | 3.4 | |||||||
| Financial Services | 54,085 | — | — | 54,085 | 21.3 | |||||||
| Health Care | 25,146 | — | — | 25,146 | 9.9 | |||||||
| Materials and Processing | 15,726 | — | — | 15,726 | 6.2 | |||||||
| Producer Durables | 46,170 | — | — | 46,170 | 18.2 | |||||||
| Technology | 38,643 | — | — | 38,643 | 15.2 | |||||||
| Utilities | 3,040 | — | — | 3,040 | 1.2 | |||||||
| Short-Term Investments | — | 15,823 | — | 15,823 | 6.2 | |||||||
| Other Securities | — | 15,279 | — | 15,279 | 6.0 | |||||||
| Total Investments | 237,817 | 31,102 | — | 268,919 | 105.9 | |||||||
| Other Assets and Liabilities, Net | (5.9 | ) | ||||||||||
| 100.0 | ||||||||||||
| Other Financial Instruments | ||||||||||||
| Futures Contracts | 407 | — | — | 407 | 0.2 | |||||||
| Total Other Financial Instruments* | $ | 407 | $ | — | $ | — | $ | 407 | ||||
* Futures and foreign currency exchange contract values reflect 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, 2014, see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
42 Aggressive Equity Fund
| Russell Investment Funds | |||
| Aggressive Equity Fund | |||
| Fair Value of Derivative Instruments — December 31, 2014 | |||
| Amounts in thousands | |||
| Equity | |||
| Derivatives not accounted for as hedging instruments | Contracts | ||
| Location: Statement of Assets and Liabilities - Assets | |||
| Variation margin on futures contracts* | $ | 407 | |
| Equity | |||
| Derivatives not accounted for as hedging instruments | Contracts | ||
| Location: Statement of Operations - Net realized gain (loss) | |||
| Futures contracts | $ | 704 | |
| Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | |||
| Futures contracts | $ | (175 | ) |
| * | Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only variation margin is reported within the Statement of Assets and Liabilities. |
For further disclosure on derivatives see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 43
Russell Investment Funds
Aggressive Equity Fund
Balance Sheet Offsetting of Financial and Derivative Instruments —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Assets and Derivative Assets | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Assets | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized | Assets and | of Assets and | ||||||
| Description | Location: Statement of Assets and Liabilities - Assets | Assets | Liabilities | Liabilities | ||||
| Securities on Loan* | Investments, at fair value | $ | 14,849 | $ | — $ | 14,849 | ||
| Total | $ | 14,849 | $ | — $ | 14,849 | |||
| Financial Assets, Derivative Assets, and Collateral Held by Counterparty | ||||||||
| Gross Amounts Not Offset in | ||||||||
| the Statement of Assets and | ||||||||
| Liabilities | ||||||||
| Amounts | ||||||||
| of Assets | ||||||||
| Presented in | ||||||||
| the Statement | Financial and | |||||||
| of Assets and | Derivative | Collateral | ||||||
| Counterparty | Liabilities | Instruments | Received^ | Net Amount | ||||
| Barclays | $ | 3,037 | $ | — $ | 3,037 | $ | — |
| Citigroup | 1,044 | — | 1,044 | — | |||
| Credit Suisse | 90 | — | 90 | — | |||
| Deutsche Bank | 1,468 | — | 1,468 | — | |||
| Fidelity | 4,305 | — | 4,305 | — | |||
| Goldman Sachs | 1,127 | — | 1,127 | — | |||
| JPMorgan Chase | 1,868 | — | 1,868 | — | |||
| Morgan Stanley | 1,565 | — | 1,565 | — | |||
| UBS | 345 | — | 345 | — | |||
| Total | $ | 14,849 | $ | — $ | 14,849 | $ | — |
See accompanying notes which are an integral part of the financial statements.
44 Aggressive Equity Fund
Russell Investment Funds
Aggressive Equity Fund
Balance Sheet Offsetting of Financial and Derivative Instruments, continued —December 31, 2014
| Amounts in thousands | |||||||||||
| Offsetting of Financial Liabilities and Derivative Liabilities | |||||||||||
| Gross | Net Amounts | ||||||||||
| Amounts | of Liabilities | ||||||||||
| Gross | Offset in the | Presented in | |||||||||
| Amounts of | Statement of | the Statement | |||||||||
| Recognized | Assets and | of Assets and | |||||||||
| Description | Location: Statement of Assets and Liabilities - Liabilities | Liabilities | Liabilities | Liabilities | |||||||
| Futures Contracts | Variation margin on futures contracts | $ | 129 | $ | — $ | 129 | |||||
| Total | $ | 129 | $ | — $ | 129 | ||||||
| Financial Liabilities, Derivative Liabilities, and Collateral Pledged by Counterparty | |||||||||||
| Gross Amounts Not Offset in | |||||||||||
| the Statement of Assets and | |||||||||||
| Liabilities | |||||||||||
| Amounts of | |||||||||||
| Liabilities | |||||||||||
| Presented in | |||||||||||
| the Statement | Financial and | ||||||||||
| of Assets and | Derivative | Collateral | |||||||||
| Counterparty | Liabilities | Instruments | Pledged^ | Net Amount | |||||||
| Merrill Lynch | $ | 129 | $ | — $ | 129 | $ | — | ||||
| Total | $ | 129 | $ | — $ | 129 | $ | — | ||||
| * Fair value of securities on loan as reported in the footnotes to the Statement of Assets and Liabilities. |
| ^ Collateral received or pledged amounts may not reconcile to those disclosed in the Statement of Assets and Liabilities due to the inclusion of off-Balance |
| Sheet collateral and adjustments made to exclude overcollateralization. |
| For further disclosure on derivatives and counterparty risk see note 2 in the Notes to Financial Statements. |
| See accompanying notes which are an integral part of the financial statements. |
| Aggressive Equity Fund 45 |
| Russell Investment Funds | ||
| Aggressive Equity Fund | ||
| Statement of Assets and Liabilities — December 31, 2014 | ||
| Amounts in thousands | ||
| Assets | ||
| Investments, at identified cost | $ | 235,817 |
| Investments, at fair value(*)(>) | 268,919 | |
| Cash (restricted)(a) | 1,045 | |
| Receivables: | ||
| Dividends and interest | 272 | |
| Dividends from affiliated Russell funds | 1 | |
| Investments sold | 494 | |
| Total assets | 270,731 | |
| Liabilities | ||
| Payables: | ||
| Investments purchased | 1,168 | |
| Fund shares redeemed | 99 | |
| Accrued fees to affiliates | 192 | |
| Other accrued expenses | 61 | |
| Variation margin on futures contracts | 129 | |
| Payable upon return of securities loaned | 15,279 | |
| Total liabilities | 16,928 | |
| Net Assets | $ | 253,803 |
| Net Assets Consist of: | ||
| Undistributed (overdistributed) net investment income | $ | 328 |
| Accumulated net realized gain (loss) | 1,397 | |
| Unrealized appreciation (depreciation) on: | ||
| Investments | 33,102 | |
| Futures contracts | 407 | |
| Shares of beneficial interest | 164 | |
| Additional paid-in capital | 218,405 | |
| Net Assets | $ | 253,803 |
| Net Asset Value, offering and redemption price per share: | ||
| Net asset value per share: (#) | $ | 15.51 |
| Net assets | $ | 253,802,591 |
| Shares outstanding ($.01 par value) | 16,360,697 | |
| Amounts in thousands | ||
| (*) Securities on loan included in investments | $ | 14,849 |
| (>) Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund | $ | 31,102 |
| (a) Cash Collateral for Futures | $ | 1,045 |
| (#) 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.
46 Aggressive Equity Fund
| Russell Investment Funds | |||
| Aggressive Equity Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Dividends | $ | 3,193 | |
| Dividends from affiliated Russell funds | 14 | ||
| Securities lending income | 138 | ||
| Total investment income | 3,345 | ||
| Expenses | |||
| Advisory fees | 2,215 | ||
| Administrative fees | 123 | ||
| Custodian fees | 117 | ||
| Transfer agent fees | 11 | ||
| Professional fees | 53 | ||
| Trustees’ fees | 6 | ||
| Printing fees | 41 | ||
| Miscellaneous | 46 | ||
| Expenses before reductions | 2,612 | ||
| Expense reductions | (123 | ) | |
| Net expenses | 2,489 | ||
| Net investment income (loss) | 856 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 17,290 | ||
| Futures contracts | 704 | ||
| Net realized gain (loss) | 17,994 | ||
| Net change in unrealized appreciation (depreciation) on: | |||
| Investments | (14,385 | ) | |
| Futures contracts | (175 | ) | |
| Net change in unrealized appreciation (depreciation) | (14,560 | ) | |
| Net realized and unrealized gain (loss) | 3,434 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 4,290 | |
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 47
| Russell Investment Funds | ||||||
| Aggressive Equity Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 856 | $ | 1,057 | ||
| Net realized gain (loss) | 17,994 | 32,228 | ||||
| Net change in unrealized appreciation (depreciation) | (14,560 | ) | 37,680 | |||
| Net increase (decrease) in net assets from operations | 4,290 | 70,965 | ||||
| Distributions | ||||||
| From net investment income | (618 | ) | (929 | ) | ||
| From net realized gain | (23,723 | ) | (16,473 | ) | ||
| Net decrease in net assets from distributions | (24,341 | ) | (17,402 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 36,026 | (1,637 | ) | |||
| Total Net Increase (Decrease) in Net Assets | 15,975 | 51,926 | ||||
| Net Assets | ||||||
| Beginning of period | 237,828 | 185,902 | ||||
| End of period | $ | 253,803 | $ | 237,828 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | 328 | $ | 90 | ||
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 2,528 | $ | 40,528 | 705 | $ | 11,092 | ||||||
| Proceeds from reinvestment of distributions | 1,557 | 24,341 | 1,041 | 17,401 | ||||||||
| Payments for shares redeemed | (1,813 | ) | (28,843 | ) | (1,934 | ) | (30,130 | ) | ||||
| Total increase (decrease) | 2,272 | $ | 36,026 | (188 | ) | $ | (1,637 | ) | ||||
See accompanying notes which are an integral part of the financial statements.
48 Aggressive Equity Fund
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| Russell Investment Funds | ||||||||||||||||
| Aggressive Equity Fund | ||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||
| Net Asset Value, | Net | Net Realized | Total from | Distributions | Distributions | |||||||||||
| Beginning of | Investment | and Unrealized | Investment | from Net | from Net | |||||||||||
| Period | Income (Loss)(a)(b) | Gain (Loss) | Operations | Investment Income | Realized Gain | |||||||||||
| December 31, 2014 | 16.88 | .06 | .18 | .24 | (.04 | ) | (1.57 | ) | ||||||||
| December 31, 2013 | 13.02 | .08 | 5.11 | 5.19 | (.07 | ) | (1.26 | ) | ||||||||
| December 31, 2012 | 11.36 | .13 | 1.67 | 1.80 | (.14 | ) | — | |||||||||
| December 31, 2011 | 11.92 | .04 | (.54 | ) | (.50 | ) | (.06 | ) | — | |||||||
| December 31, 2010 | 9.59 | .04 | 2.34 | 2.38 | (.05 | ) | — | |||||||||
See accompanying notes which are an integral part of the financial statements.
50 Aggressive Equity Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(d) | (000) | Gross | Net(b) | Net Assets(b) | Turnover Rate | ||||||||||
| (1.61 | ) | 15.51 | 1.56 | 253,803 | 1.06 | 1.01 | .35 | 80 | |||||||||
| (1.33 | ) | 16.88 | 40.00 | 237,828 | 1.05 | 1.00 | .50 | 77 | |||||||||
| (.14 | ) | 13.02 | 15.84 | 185,902 | 1.09 | 1.04 | 1.08 | 150 | |||||||||
| (.06 | ) | 11.36 | (4.20 | ) | 177,035 | 1.08 | 1.02 | .37 | 105 | ||||||||
| (.05 | ) | 11.92 | 24.88 | 191,763 | 1.11 | 1.05 | .44 | 107 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Aggressive Equity Fund 51
Russell Investment Funds Non-U.S. Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
52 Non-U.S. Fund
Russell Investment Funds
Non-U.S. Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Non-U.S. Fund (the “Fund”) employs a multi-manager | Regionally, Asia ex-Japan had the most positive performance |
| approach whereby portions of the Fund are allocated to different | over the year, led by countries like Hong Kong and Singapore. |
| money managers. Fund assets not allocated to money managers | Continental Europe struggled over the period as the larger |
| are managed by Russell Investment Management Company | economies such as France and Germany weighed on the region. |
| (“RIMCo”), the Fund’s advisor. RIMCo may change the allocation | Some of the peripheral countries such as Portugal and Greece |
| of the Fund’s assets among money managers at any time. An | sold off meaningfully, while Norway struggled due to dependence |
| exemptive order from the Securities and Exchange Commission | on oil. Emerging markets generally outperformed non-U.S. |
| (“SEC”) permits RIMCo to engage or terminate a money manager | developed markets, as countries such as India, Indonesia, |
| at any time, subject to approval by the Fund’s Board, without a | Philippines, Thailand and Turkey were able to outpace very poor |
| shareholder vote. Pursuant to the terms of the exemptive order, the | performance in Russia, Hungary and Brazil. The Fund benefited |
| Fund is required to notify its shareholders within 90 days of when | from strong stock selection in emerging markets and in Canada |
| a money manager begins providing services. As of December 31, | and Asia ex-Japan. However, ineffective stock selection in the |
| 2014, the Fund had four money managers. | U.K. and underweights to Asia ex-Japan and Canada detracted |
| What is the Fund’s investment objective? | from performance. |
| The Fund seeks to provide long term capital growth. | How did the investment strategies and techniques employed |
| by the Fund and its money managers affect its benchmark- | |
| How did the Fund perform relative to its benchmark for the | relative performance? |
| fiscal year ended December 31, 2014? | Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow”) |
| For the fiscal year ended December 31, 2014, the Non-U.S. | outperformed the Fund’s benchmark for the fiscal year. Strong |
| Fund lost 4.45%. This is compared to the Fund’s benchmark, the | stock selection across most regions was the main driver of |
| Russell Developed ex-U.S. Large Cap™ Index (Net), which lost | outperformance. Additionally, effective stock selection within |
| 4.01 % during the same period. The Fund’s performance includes | consumer discretionary and an underweight to energy added to |
| operating expenses, whereas index returns are unmanaged and do | performance. Ineffective stock selection in financials detracted |
| not include expenses of any kind. | from performance. |
| For the fiscal year ended December 31, 2014, the Morningstar® | |
| MFS Institutional Advisors Inc. (“MFS”) outperformed the Fund’s | |
| Insurance Foreign Large Blend, a group of funds that Morningstar | benchmark for the fiscal year. Strong stock selection in emerging |
| considers to have investment strategies similar to those of the | markets and Canada were the biggest contributors to the |
| Fund, lost 4.81%. This result serves as a peer comparison and is | performance, supported by effective stock selection within and an |
| expressed net of operating expenses. | overweight to information technology stocks and an underweight |
| How did the market conditions described in the Market | to the energy sector. However poor stock selection in the U.K. |
| Summary report affect the Fund’s performance? | and consumer discretionary and health care stocks offset some |
| For the fiscal year ended December 31, 2014, growth companies | of the gains. |
| generally outperformed value companies and stocks that exhibited | Pzena Investment Management LLC (“Pzena”) underperformed |
| higher quality and strong balance sheets tended to outperform | the Fund’s benchmark for the fiscal year. Poor stock selection |
| stocks of lower quality companies, as evidenced by defensive | within industrials and consumer discretionary combined with |
| stocks outperforming their dynamic peers. | an overweight position in energy detracted meaningfully from |
| This defensiveness was reflected in sector performance, as health | performance. Additionally, ineffective stock selection in emerging |
| care and utility stocks far outpaced more cyclically oriented sectors | markets added to the poor performance. Effective stock selection |
| such as energy and materials, which were the worst performing | in the U.K., Asia ex-Japan, telecoms, technology, and consumer |
| sectors over the period. The technology sector performed well | staples mitigated some of the losses. |
| during the period led primarily by semiconductor and hardware | William Blair & Company, LLC (“William Blair”) outperformed |
| companies, while software and services lagged within the sector. | the Fund’s benchmark for the fiscal year. Selection within U.K. |
| The Fund benefited from an overweight to the technology sector | securities was a challenge for William Blair, offsetting strong |
| as well as from effective stock selection within the sector. Strong | stock selection in emerging markets, Canada, and EMEA ex-U.K. |
| stock selection in consumer staples and an underweight to energy | Effective selection in financials, consumer staples and industrials |
| were both positive while poor stock selection in energy, consumer | overcame poor selection within the energy and materials sector. |
| discretionary and industrials stocks detracted. | RIMCo manages the portion of the Fund’s assets that RIMCo |
| determines not to allocate to the money managers. Assets not | |
Non-U.S. Fund 53
Russell Investment Funds
Non-U.S. Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| allocated to managers include the Fund’s liquidity reserves and | selection in each of the three global regions. Morgan Stanley | |
| assets which may be managed directly by RIMCo to modify the | tends to make relatively significant region and country allocation | |
| Fund’s overall portfolio characteristics to seek to achieve the | tilts, which RIMCo believes provides the Fund an additional | |
| desired risk/return profile for the Fund. | source of potential excess return. | |
| During the period, RIMCo managed a positioning strategy that | There were no changes to the Fund’s structure or the money | |
| invested in the top 200 largest stocks by market capitalization | manager line-up during the fiscal year. | |
| in the Russell Developed Large Cap Defensive Index. This | ||
| strategy positively contributed to the Fund’s benchmark-relative | Money Managers as of December 31, | |
| performance in 2014, mainly due to the positive performance of | 2014 | Styles |
| certain financials and energy stocks as well stocks in EMEA ex- | Barrow, Hanley, Mewhinney & Strauss, LLC Value | |
| UK. The strategy’s overweight to the health care sector also added | MFS Institutional Advisors Inc. | Growth |
| William Blair & Company, LLC | Growth | |
| value, though its overweight to the energy sector detracted from | Pzena Investment Management LLC | Value |
| performance. | The views expressed in this report reflect those of the | |
| During the period, RIMCo also used futures contracts to manage | portfolio managers only through the end of the period | |
| country exposure, by going long on Japan and short on emerging | covered by the report. These views do not necessarily | |
| markets versus the Fund’s benchmark. This strategy had a | represent the views of RIMCo or any other person in RIMCo | |
| mostly negative impact on performance, as Japan generally | or any other affiliated organization. These views are | |
| underperformed emerging markets. | subject to change at any time based upon market conditions | |
| or other events, and RIMCo disclaims any responsibility to | ||
| Describe any changes to the Fund’s structure or the money | update the views contained herein. | These views should not |
| manager line-up. | be relied on as investment advice and, because investment | |
| In June 2014, RIMCo terminated AEW Capital Management | decisions for a Russell Investment Funds (“RIF”) Fund are | |
| as a money manager for the Fund and hired Morgan Stanley as | based on numerous factors, should not be relied on as an | |
| a money manager for the Fund. Morgan Stanley’s investment | indication of investment decisions of any RIF Fund. | |
| approach is value-driven, with an emphasis on bottom-up stock | ||
| * | Assumes initial investment on January 1, 2005. |
| ** | The 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. |
| *** | The International Developed Markets Linked Benchmark provides a means to compare the Fund’s average annual returns to a secondary benchmark that takes into account historical changes in the Fund’s primary benchmark. The International Developed Markets Linked Benchmark represents the returns of the MSCI |
| EAFE Index (net of tax on dividends from foreign holdings) through December 31, 2010 and the returns of the Russell Developed ex-U.S. Large Cap® Index (net of tax on dividends from foreign holdings) thereafter. | |
| § | 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.
54 Non-U.S. Fund
Russell Investment Funds Non-U.S. Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 918.00 | $ | 1,019.86 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 5.12 | $ | 5.40 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 1.06% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 8.6), then multiply the result by the number in the first column | |||||||
| in the row entitled “Expenses Paid During Period” to estimate | |||||||
| the expenses you paid on your account during this period. | |||||||
| Hypothetical Example for Comparison Purposes | |||||||
| The information in the table under the heading “Hypothetical | |||||||
| Performance (5% return before expenses)” provides information | |||||||
| about hypothetical account values and hypothetical expenses | |||||||
| based on the Fund’s actual expense ratio and an assumed rate of | |||||||
| return of 5% per year before expenses, which is not the Fund’s | |||||||
| actual return. The hypothetical account values and expenses | |||||||
| may not be used to estimate the actual ending account balance or | |||||||
| expenses you paid for the period. You may use this information | |||||||
| to compare the ongoing costs of investing in the Fund and other | |||||||
| funds. To do so, compare this 5% hypothetical example with the | |||||||
| 5% hypothetical examples that appear in the shareholder reports | |||||||
| of other funds. | |||||||
Non-U.S. Fund 55
| Russell Investment Funds | ||||||||||
| Non-U.S. Fund | ||||||||||
| Schedule of Investments — December 31, 2014 | ||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||
| Principal | Fair | Principal | Fair | |||||||
| Amount ($) | Value | Amount ($) | Value | |||||||
| or Shares | $ | or Shares | $ | |||||||
| Common Stocks - 93.8% | Crescent Point Energy Corp. | 1,275 | 30 | |||||||
| Australia - 0.6% | Enbridge, Inc. | 1,690 | 87 | |||||||
| Amcor, Ltd. Class A | 3,666 | 40 | Husky Energy, Inc. | 900 | 21 | |||||
| Australia & New Zealand Banking | Imperial Oil, Ltd. | 749 | 32 | |||||||
| Group, Ltd. - ADR | 7,619 | 198 | Loblaw Cos., Ltd. | 20,565 | 1,101 | |||||
| BHP Billiton, Ltd. - ADR | 9,597 | 228 | Magna International, Inc. Class A | 516 | 56 | |||||
| Brambles, Ltd. | 4,724 | 41 | National Bank of Canada | 929 | 40 | |||||
| Commonwealth Bank of Australia - ADR | 4,829 | 336 | Pembina Pipeline Corp. | 969 | 35 | |||||
| CSL, Ltd. | 1,448 | 102 | Power Corp. of Canada | 1,080 | 30 | |||||
| Insurance Australia Group, Ltd. | 6,812 | 35 | Rogers Communications, Inc. Class B | 1,103 | 43 | |||||
| National Australia Bank, Ltd. - ADR | 6,292 | 171 | Royal Bank of Canada - GDR | 3,545 | 245 | |||||
| Orica, Ltd. | 25,917 | 398 | Shaw Communications, Inc. Class B | 1,091 | 29 | |||||
| Origin Energy, Ltd. | 2,247 | 21 | Suncor Energy, Inc. | 43,873 | 1,394 | |||||
| Santos, Ltd. | 2,837 | 19 | Toronto Dominion Bank | 5,508 | 263 | |||||
| Scentre Group(Æ)(ö) | 15,532 | 44 | TransCanada Corp. | 2,123 | 104 | |||||
| Suncorp Group, Ltd. | 3,547 | 40 | Valeant Pharmaceuticals International, | |||||||
| Telstra Corp., Ltd. | 12,751 | 62 | Inc.(Æ) | 9,222 | 1,320 | |||||
| Wesfarmers, Ltd. | 3,376 | 114 | 12,798 | |||||||
| Westfield Corp.(Æ)(ö) | 6,053 | 44 | ||||||||
| Westpac Banking Corp. | 8,512 | 229 | Cayman Islands - 1.0% | |||||||
| Woodside Petroleum, Ltd. | 1,874 | 58 | Alibaba Group Holding, Ltd. - ADR(Æ) | 9,248 | 961 | |||||
| Woolworths, Ltd. | 3,781 | 94 | Baidu, Inc. - ADR(Æ) | 5,057 | 1,153 | |||||
| 2,274 | MGM China Holdings, Ltd. | 340,400 | 858 | |||||||
| NetEase, Inc. - ADR | 8,118 | 805 | ||||||||
| Austria - 0.4% | 3,777 | |||||||||
| Erste Group Bank AG | 60,200 | 1,380 | ||||||||
| Czech Republic - 0.2% | ||||||||||
| Belgium - 0.5% | CEZ AS | 31,100 | 799 | |||||||
| Anheuser-Busch InBev NV | 11,219 | 1,262 | ||||||||
| KBC Groep NV(Æ) | 11,398 | 633 | Denmark - 2.2% | |||||||
| 1,895 | AP Moeller - Maersk A/S Class A | 11 | 21 | |||||||
| AP Moeller - Maersk A/S Class B | 20 | 40 | ||||||||
| Bermuda - 0.4% | Carlsberg A/S Class B | 7,607 | 591 | |||||||
| Li & Fung, Ltd. | 906,000 | 847 | Coloplast A/S Class B | 16,844 | 1,418 | |||||
| PartnerRe, Ltd. | 5,589 | 638 | Danske Bank A/S | 116,901 | 3,146 | |||||
| 1,485 | Novo Nordisk A/S Class B | 37,732 | 1,596 | |||||||
| Novozymes A/S Class B | 706 | 30 | ||||||||
| Brazil - 0.9% | TDC A/S | 209,600 | 1,597 | |||||||
| Embraer SA - ADR(Ñ) | 52,000 | 1,916 | 8,439 | |||||||
| Itau Unibanco Holding SA - ADR | 58,958 | 767 | ||||||||
| Kroton Educacional SA | 107,200 | 618 | Finland - 0.4% | |||||||
| 3,301 | Fortum OYJ | 1,231 | 27 | |||||||
| Kone OYJ Class B | 1,009 | 46 | ||||||||
| Canada - 3.4% | Sampo Oyj Class A | 31,471 | 1,475 | |||||||
| Alimentation Couche-Tard, Inc. Class B | 43,806 | 1,835 | 1,548 | |||||||
| ARC Resources, Ltd. | 911 | 20 | ||||||||
| Bank of Montreal | 1,931 | 137 | France - 9.1% | |||||||
| Bank of Nova Scotia (The) | 3,615 | 206 | Air Liquide SA Class A | 16,776 | 2,070 | |||||
| BCE, Inc. | 1,208 | 55 | Bouygues SA - ADR | 34,425 | 1,242 | |||||
| Brookfield Asset Management, Inc. Class | Bureau Veritas SA | 18,299 | 404 | |||||||
| A(Æ) | 38,200 | 1,914 | Capital Gemini SA | 40,803 | 2,906 | |||||
| Brookfield Asset Management, Inc. | Casino Guichard Perrachon SA(Æ) | 3,900 | 359 | |||||||
| Class A | 1,455 | 73 | Christian Dior SA | 139 | 24 | |||||
| Canadian Imperial Bank of Commerce(Þ) | 822 | 71 | Credit Agricole SA | 72,043 | 926 | |||||
| Canadian National Railway Co.(Æ)(Þ) | 35,052 | 2,414 | Danone SA | 30,667 | 2,017 | |||||
| Canadian National Railway Co. | 2,196 | 151 | Dassault Systemes SA | 7,561 | 460 | |||||
| Canadian Natural Resources, Ltd. | 3,284 | 102 | Essilor International SA | 628 | 70 | |||||
| Canadian Oil Sands, Ltd. | 1,404 | 13 | Faurecia | 32,155 | 1,196 | |||||
| Canadian Pacific Railway, Ltd. | 409 | 79 | GDF Suez | 52,932 | 1,236 | |||||
| Cenovus Energy, Inc. | 1,140 | 24 | Hermes International | 563 | 201 | |||||
| CI Financial Corp. | 31,445 | 874 | Legrand SA - ADR | 19,222 | 1,007 | |||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||
| 56 Non-U.S. Fund | ||||||||||
| Russell Investment Funds | |||||||||||
| Non-U.S. Fund | |||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Principal | Fair | Principal | Fair | ||||||||
| Amount ($) | Value | Amount ($) | Value | ||||||||
| or Shares | $ | or Shares | $ | ||||||||
| L'Oreal SA | 638 | 107 | Tencent Holdings, Ltd.(Æ) | 76,200 | 1,093 | ||||||
| LVMH Moet Hennessy Louis Vuitton | 9,581 | ||||||||||
| SA - ADR(Ñ) | 12,393 | 1,960 | |||||||||
| Natixis SA | 66,883 | 440 | Hungary - 0.2% | ||||||||
| Pernod Ricard SA | 17,857 | 1,980 | OTP Bank PLC | 46,650 | 674 | ||||||
| Publicis Groupe SA - ADR | 15,728 | 1,127 | |||||||||
| Rallye SA | 38,785 | 1,359 | India - 1.4% | ||||||||
| HDFC Bank, Ltd. - ADR(Ñ) | 42,544 | 2,160 | |||||||||
| Safran SA | 665 | 41 | Housing Development Finance Corp., | ||||||||
| Sanofi - ADR | 41,535 | 3,786 | Ltd. | 69,108 | 1,236 | ||||||
| Schneider Electric SE(Æ) | 49,275 | 3,580 | Reliance Industries, Ltd. | 34,648 | 487 | ||||||
| Sodexo SA | 278 | 27 | Tata Motors, Ltd. - ADR | 34,146 | 1,444 | ||||||
| Total SA | 66,002 | 3,403 | 5,327 | ||||||||
| Unibail-Rodamco SE(ö) | 133 | 34 | |||||||||
| Valeo SA | 6,860 | 854 | Indonesia - 0.5% | ||||||||
| Vallourec SA | 52,544 | 1,435 | Bank Rakyat Indonesia Persero Tbk PT | 1,606,000 | 1,495 | ||||||
| Vinci SA | 1,672 | 91 | Telekomunikasi Indonesia Persero Tbk | ||||||||
| Vivendi SA - ADR(Æ) | 1,803 | 45 | PT | 1,533,200 | 352 | ||||||
| 34,387 | 1,847 | ||||||||||
| Germany - 7.3% | Ireland - 1.1% | ||||||||||
| Adidas AG | 629 | 44 | CRH PLC | 80,500 | 1,913 | ||||||
| Allianz SE | 630 | 105 | Kerry Group PLC Class A | 384 | 26 | ||||||
| BASF SE | 2,374 | 201 | Ryanair Holdings PLC - ADR(Æ) | 20,052 | 1,429 | ||||||
| Bayer AG | 32,997 | 4,512 | XL Group PLC Class A | 25,200 | 866 | ||||||
| Bayerische Motoren Werke AG | 11,930 | 1,296 | 4,234 | ||||||||
| Beiersdorf AG(Æ) | 18,071 | 1,473 | |||||||||
| Bidvest Group, Ltd.(Æ) | 38,364 | 1,003 | Israel - 1.5% | ||||||||
| Continental AG | 10,668 | 2,265 | Check Point Software Technologies, Ltd. | ||||||||
| Daimler AG | 33,100 | 2,763 | (Æ) | 20,589 | 1,617 | ||||||
| Deutsche Boerse AG | 46,458 | 3,329 | Teva Pharmaceutical Industries, Ltd. | ||||||||
| Deutsche Post AG | 2,627 | 86 | - ADR | 69,377 | 3,991 | ||||||
| Fresenius Medical Care AG & Co. KGaA | 626 | 47 | Teva Pharmaceutical Industries, Ltd. | 1,380 | 79 | ||||||
| Fresenius SE & Co. KGaA | 1,091 | 57 | 5,687 | ||||||||
| Henkel AG & Co. KGaA | 309 | 30 | |||||||||
| Linde AG | 10,232 | 1,909 | Italy - 1.6% | ||||||||
| Merck KGaA | 16,671 | 1,581 | Enel SpA | 196,150 | 877 | ||||||
| MTU Aero Engines AG | 4,195 | 366 | ENI SpA - ADR | 154,144 | 2,692 | ||||||
| Muenchener Rueckversicherungs- | Intesa Sanpaolo SpA | 564,717 | 1,633 | ||||||||
| Gesellschaft AG in Muenchen | 504 | 101 | Snam Rete Gas SpA | 6,035 | 30 | ||||||
| ProSiebenSat.1 Media AG | 26,387 | 1,112 | Telecom Italia SpA(Æ) | 879,650 | 933 | ||||||
| Rational AG | 1,744 | 548 | 6,165 | ||||||||
| SAP SE - ADR | 25,325 | 1,790 | Japan - 12.8% | ||||||||
| Siemens AG | 14,980 | 1,698 | Amada Co., Ltd. | 93,900 | 805 | ||||||
| Volkswagen AG | 6,866 | 1,496 | Asahi Group Holdings, Ltd. | 1,100 | 34 | ||||||
| 27,812 | Astellas Pharma, Inc. | 115,600 | 1,609 | ||||||||
| Hong Kong - 2.5% | Canon, Inc. | 61,500 | 1,953 | ||||||||
| AIA Group, Ltd. | 590,400 | 3,250 | Dai-ichi Life Insurance Co., Ltd. (The) | 47,150 | 715 | ||||||
| Cheung Kong Holdings, Ltd. | 3,000 | 50 | Daikin Industries, Ltd. | 24,500 | 1,580 | ||||||
| China Mobile, Ltd. | 152,000 | 1,786 | Daito Trust Construction Co., Ltd. | 6,700 | 759 | ||||||
| China Overseas Land & Investment, Ltd. | 280,000 | 826 | Denso Corp. | 44,800 | 2,089 | ||||||
| CLP Holdings, Ltd. | 5,500 | 48 | Eisai Co., Ltd. | 700 | 27 | ||||||
| Global Brands Group Holdings, Ltd.(Æ) | 2,396,000 | 468 | FANUC Corp. | 14,300 | 2,360 | ||||||
| Guangdong Investment, Ltd. | 541,700 | 705 | Fuji Electric Co., Ltd. | 13,000 | 52 | ||||||
| Hang Seng Bank, Ltd. | 2,200 | 37 | Fuji Heavy Industries, Ltd. | 43,900 | 1,546 | ||||||
| Hong Kong & China Gas Co., Ltd. | 18,360 | 42 | Hitachi, Ltd. | 271,000 | 1,983 | ||||||
| Lenovo Group, Ltd. | 892,000 | 1,163 | Honda Motor Co., Ltd. | 128,700 | 3,743 | ||||||
| Link REIT (The)(ö) | 7,000 | 44 | Hoya Corp. | 89,200 | 2,987 | ||||||
| Power Assets Holdings, Ltd. | 4,000 | 39 | Inpex Corp. | 83,600 | 928 | ||||||
| Sun Hung Kai Properties, Ltd. | 2,000 | 30 | Isuzu Motors, Ltd. | 40,500 | 494 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||
| Non -U.S. Fund 57 | |||||||||||
| Russell Investment Funds | |||||||||||
| Non-U.S. Fund | |||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Principal | Fair | Principal | Fair | ||||||||
| Amount ($) | Value | Amount ($) | Value | ||||||||
| or Shares | $ | or Shares | $ | ||||||||
| ITOCHU Corp. | 101,100 | 1,081 | Orkla ASA | 160,300 | 1,092 | ||||||
| Japan Tobacco, Inc. | 32,300 | 887 | Statoil ASA Class N | 3,152 | 55 | ||||||
| Kao Corp. | 35,000 | 1,381 | TE Connectivity, Ltd. | 45,710 | 922 | ||||||
| KDDI Corp. | 17,200 | 1,076 | 2,976 | ||||||||
| Keyence Corp. | 2,700 | 1,196 | |||||||||
| Kyocera Corp. | 20,100 | 921 | Russia - 0.3% | ||||||||
| Mabuchi Motor Co., Ltd. | 42,000 | 1,655 | Gazprom OAO - ADR(Æ) | 243,440 | 1,126 | ||||||
| Mitsubishi Corp. | 2,500 | 46 | Sberbank of Russia - ADR | 48,856 | 196 | ||||||
| Mitsubishi UFJ Financial Group, Inc. | 156,700 | 859 | Sberbank of Russia - ADR(Æ) | 488 | 2 | ||||||
| MS&AD Insurance Group Holdings, Inc. | 17,700 | 420 | 1,324 | ||||||||
| Murata Manufacturing Co., Ltd. | 9,200 | 1,005 | Singapore - 1.8% | ||||||||
| Nippon Telegraph & Telephone Corp. | 1,100 | 57 | DBS Group Holdings, Ltd. | 125,000 | 1,930 | ||||||
| Nitori Holdings Co., Ltd. | 13,900 | 747 | Jardine Cycle & Carriage, Ltd. | 71,500 | 2,296 | ||||||
| NTT DOCOMO, Inc. | 58,400 | 855 | Keppel Corp., Ltd. - ADR | 4,000 | 27 | ||||||
| ORIX Corp. | 103,700 | 1,296 | Oversea-Chinese Banking Corp., Ltd. | 7,875 | 62 | ||||||
| Recruit Holdings Co., Ltd. | 8,100 | 229 | Singapore Telecommunications, Ltd. | 169,000 | 496 | ||||||
| Secom Co., Ltd. | 18,300 | 1,051 | United Overseas Bank, Ltd. | 118,100 | 2,183 | ||||||
| Seven & i Holdings Co., Ltd. | 1,400 | 50 | 6,994 | ||||||||
| Shin-Etsu Chemical Co., Ltd. | 42,000 | 2,733 | |||||||||
| SMC Corp. | 4,100 | 1,068 | South Africa - 0.3% | ||||||||
| Sompo Japan Nipponkoa Holdings, Inc. | 25,600 | 643 | Discovery Holdings, Ltd. | 132,149 | 1,262 | ||||||
| Sumitomo Corp. | 132,000 | 1,356 | |||||||||
| Sumitomo Mitsui Financial Group, Inc. | 71,700 | 2,591 | South Korea - 1.0% | ||||||||
| Takeda Pharmaceutical Co., Ltd. | 2,100 | 87 | Hana Financial Group, Inc. | 25,755 | 744 | ||||||
| Terumo Corp. | 36,000 | 820 | Hankook Tire Co., Ltd.(Æ) | 21,500 | 1,023 | ||||||
| Tokyo Gas Co., Ltd. | 6,000 | 32 | Samsung Electronics Co., Ltd. | 801 | 963 | ||||||
| Toyota Motor Corp. | 14,500 | 904 | Shinhan Financial Group Co., Ltd.(Æ) | 27,071 | 1,086 | ||||||
| 48,710 | 3,816 | ||||||||||
| Jersey - 1.5% | Spain - 1.4% | ||||||||||
| Delphi Automotive PLC | 11,744 | 854 | Amadeus IT Holding SA Class A | 57,627 | 2,290 | ||||||
| Experian PLC | 2,901 | 49 | Banco Santander SA - ADR | 267,675 | 2,238 | ||||||
| Wolseley PLC - ADR | 1,378 | 78 | Iberdrola SA | 8,470 | 57 | ||||||
| WPP PLC | 224,917 | 4,667 | Inditex SA(Æ) | 3,750 | 107 | ||||||
| 5,648 | Indra Sistemas SA | 40,975 | 397 | ||||||||
| Telefonica SA - ADR(Æ) | 2,503 | 36 | |||||||||
| Luxembourg - 0.0% | 5,125 | ||||||||||
| SES SA | 885 | 32 | |||||||||
| Tenaris SA | 1,276 | 19 | Sweden - 1.4% | ||||||||
| 51 | Assa Abloy AB Class B | 1,058 | 56 | ||||||||
| Atlas Copco AB Class A | 49,656 | 1,383 | |||||||||
| Netherlands - 6.5% | Atlas Copco AB Class B | 1,129 | 29 | ||||||||
| Aegon NV | 265,800 | 1,994 | Electrolux AB | 17,495 | 513 | ||||||
| Akzo Nobel NV | 34,418 | 2,387 | Hennes & Mauritz AB Class B | 29,162 | 1,210 | ||||||
| Delta Lloyd NV | 99,500 | 2,187 | Hexagon AB Class B | 11,672 | 361 | ||||||
| Heineken NV | 11,324 | 804 | Nordea Bank AB | 4,647 | 54 | ||||||
| ING Groep NV(Æ) | 455,699 | 5,901 | Sandvik AB | 144,800 | 1,409 | ||||||
| Koninklijke Ahold NV(Æ) | 2,010 | 36 | Svenska Cellulosa AB SCA Class B | 1,801 | 39 | ||||||
| Koninklijke KPN NV | 415,700 | 1,311 | Svenska Handelsbanken AB Class A | 1,445 | 67 | ||||||
| Koninklijke Philips NV | 120,722 | 3,505 | Telefonaktiebolaget LM Ericsson Class B | 7,416 | 90 | ||||||
| NN Group NV(Æ) | 38,535 | 1,148 | TeliaSonera AB | 6,712 | 43 | ||||||
| NXP Semiconductors NV(Æ) | 11,833 | 904 | 5,254 | ||||||||
| Randstad Holding NV(Æ) | 34,604 | 1,664 | |||||||||
| Reed Elsevier NV(Æ) | 20,765 | 496 | Switzerland - 10.0% | ||||||||
| STMicroelectronics NV | 164,450 | 1,226 | ABB, Ltd.(Æ) | 100,307 | 2,122 | ||||||
| Unilever NV | 25,612 | 1,006 | ABB, Ltd. - ADR(Æ) | 25,500 | 539 | ||||||
| 24,569 | ACE, Ltd. | 8,750 | 1,005 | ||||||||
| Actelion, Ltd.(Æ) | 10,606 | 1,220 | |||||||||
| Norway - 0.8% | Adecco SA(Æ) | 9,869 | 676 | ||||||||
| DNB ASA | 61,500 | 907 | Cie Financiere Richemont SA | 1,503 | 133 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||
| 58 Non-U.S. Fund | |||||||||||
| Russell Investment Funds | ||||||||||
| Non-U.S. Fund | ||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||
| Principal | Fair | Principal | Fair | |||||||
| Amount ($) | Value | Amount ($) | Value | |||||||
| or Shares | $ | or Shares | $ | |||||||
| Credit Suisse Group AG(Æ) | 124,562 | 3,122 | Diageo PLC | 55,501 | 1,592 | |||||
| GAM Holding AG(Æ) | 25,726 | 463 | DS Smith PLC Class F | 488,450 | 2,434 | |||||
| Geberit AG | 4,449 | 1,512 | Ensco PLC Class A | 537 | 16 | |||||
| Givaudan SA(Æ) | 27 | 48 | GlaxoSmithKline PLC - ADR | 165,039 | 3,531 | |||||
| Helvetia Holding AG | 800 | 379 | Hays PLC | 154,877 | 347 | |||||
| Julius Baer Group, Ltd.(Æ) | 21,776 | 994 | HSBC Holdings PLC | 728,751 | 6,887 | |||||
| Kuehne & Nagel International AG | 4,042 | 549 | HSBC Holdings PLC - ADR(Æ)(Ñ) | 1,400 | 66 | |||||
| Lonza Group AG(Æ) | 10,100 | 1,138 | Imperial Tobacco Group PLC | 109,700 | 4,803 | |||||
| Nestle SA | 67,766 | 4,968 | Intercontinental Hotels Group PLC(Æ) | 29,994 | 1,202 | |||||
| Novartis AG | 56,215 | 5,171 | Johnson Matthey PLC | 501 | 26 | |||||
| OC Oerlikon Corp. AG(Æ) | 90,800 | 1,136 | Kingfisher PLC | 84,206 | 443 | |||||
| Partners Group Holding AG | 4,757 | 1,380 | Land Securities Group PLC(ö) | 2,069 | 37 | |||||
| Roche Holding AG | 13,584 | 3,682 | National Grid PLC | 143,594 | 2,047 | |||||
| SGS SA | 16 | 33 | Next PLC | 453 | 48 | |||||
| Sika AG | 45 | 132 | Prudential PLC | 29,796 | 686 | |||||
| Sonova Holding AG | 5,479 | 803 | Reckitt Benckiser Group PLC | 29,242 | 2,360 | |||||
| Swatch Group AG (The) Class B | 89 | 40 | Reed Elsevier PLC | 100,050 | 1,702 | |||||
| Swiss Life Holding AG(Æ) | 6,700 | 1,583 | Rio Tinto PLC(Æ) | 24,890 | 1,147 | |||||
| Swisscom AG | 68 | 36 | Rolls-Royce Holdings PLC(Æ) | 64,751 | 872 | |||||
| Syngenta AG | 274 | 88 | Royal Bank of Scotland Group PLC(Æ) | 195,545 | 1,187 | |||||
| TE Connectivity, Ltd. | 977 | 62 | Royal Dutch Shell PLC Class A | 172,228 | 5,761 | |||||
| UBS Group AG(Æ) | 180,691 | 3,106 | Royal Dutch Shell PLC Class B | 7,282 | 250 | |||||
| Zurich Insurance Group AG(Æ) | 6,398 | 2,003 | RSA Insurance Group PLC(Æ) | 108,606 | 731 | |||||
| 38,123 | SABMiller PLC - ADR | 2,845 | 147 | |||||||
| Scottish & Southern Energy PLC | 1,077 | 27 | ||||||||
| Taiwan - 1.5% | Shire PLC - ADR(Æ) | 1,764 | 125 | |||||||
| Hon Hai Precision Industry Co., Ltd. | 573,594 | 1,581 | Sky PLC | 82,773 | 1,152 | |||||
| MediaTek, Inc. | 57,000 | 830 | Smith & Nephew PLC | 2,723 | 50 | |||||
| Taiwan Semiconductor Manufacturing | Smiths Group PLC | 54,468 | 922 | |||||||
| Co., Ltd. - ADR | 91,945 | 2,058 | St. James's Place PLC | 94,756 | 1,191 | |||||
| Teco Electric and Machinery Co., Ltd. | 1,196,900 | 1,129 | Standard Chartered PLC | 62,191 | 933 | |||||
| 5,598 | Tesco PLC | 21,220 | 62 | |||||||
| Thailand - 0.5% | Travis Perkins PLC | 82,850 | 2,385 | |||||||
| Charoen Pokphand Foods PCL | 1,969,200 | 1,630 | Unilever PLC | 3,921 | 159 | |||||
| Kasikornbank PCL Class R | 44,800 | 311 | United Utilities Group PLC | 1,806 | 26 | |||||
| 1,941 | Vodafone Group PLC | 691,086 | 2,368 | |||||||
| Whitbread PLC | 500 | 37 | ||||||||
| United Kingdom - 17.3% | 65,494 | |||||||||
| Amec Foster Wheeler PLC - GDR | 29,900 | 391 | ||||||||
| ARM Holdings PLC | 25,424 | 391 | United States - 1.5% | |||||||
| Associated British Foods PLC | 1,094 | 53 | Autoliv, Inc. | 246 | 26 | |||||
| AstraZeneca PLC - ADR(Æ) | 16,771 | 1,180 | Individual, Inc.(Æ) | 23,781 | 55 | |||||
| Aviva PLC | 135,361 | 1,014 | Joy Global, Inc. | 27,800 | 1,293 | |||||
| Babcock International Group PLC | 1,451 | 24 | NCR Corp.(Æ) | 10,396 | 303 | |||||
| BAE Systems PLC | 4,995 | 36 | News Corp. Class A(Æ) | 76,275 | 1,197 | |||||
| Barclays PLC | 860,846 | 3,237 | News Corp. Class B(Æ) | 35,235 | 531 | |||||
| BG Group PLC | 133,161 | 1,773 | Philip Morris International, Inc. | 9,600 | 782 | |||||
| BHP Billiton PLC | 1,901 | 41 | Yum! Brands, Inc. | 22,389 | 1,632 | |||||
| BP PLC | 345,629 | 2,195 | 5,819 | |||||||
| British American Tobacco PLC | 5,581 | 303 | Total Common Stocks | |||||||
| British Land Co. PLC (The)(ö) | 2,635 | 32 | (cost $306,321) | 356,114 | ||||||
| BT Group PLC | 23,715 | 147 | ||||||||
| Bunzl PLC | 965 | 26 | Preferred Stocks - 0.1% | |||||||
| Burberry Group PLC | 1,029 | 26 | Brazil - 0.1% | |||||||
| Capita PLC | 1,986 | 33 | Usinas Siderurgicas de Minas Gerais | |||||||
| Carillion PLC | 76,100 | 394 | SA(Æ) | 238,675 | 453 | |||||
| Centrica PLC | 15,062 | 65 | ||||||||
| Compass Group PLC(Æ) | 299,080 | 5,099 | ||||||||
| Dairy Crest Group PLC | 165,109 | 1,275 | ||||||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||
| Non -U.S. Fund 59 | ||||||||||
Russell Investment Funds
Non-U.S. Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | |||||
| Amount ($) | Value | |||||
| or Shares | $ | |||||
| Germany - 0.0% | ||||||
| Henkel AG & Co. KGaA | 519 | 56 | ||||
| United Kingdom - 0.0% | ||||||
| Rolls-Royce Holdings PLC(Æ) | 412,920 | 1 | ||||
| Total Preferred Stocks | ||||||
| (cost $1,007) | 510 | |||||
| Short-Term Investments - 5.3% | ||||||
| United States - 5.3% | ||||||
| Russell U.S. Cash Management Fund | 20,164,491 | (8) | 20,164 | |||
| Total Short-Term Investments | ||||||
| (cost $20,164) | 20,164 | |||||
| Other Securities - 0.7% | ||||||
| Russell U.S. Cash Collateral Fund(×) | 2,425,664 | (8) | 2,426 | |||
| Total Other Securities | ||||||
| (cost $2,426) | 2,426 | |||||
| Total Investments 99.9% | ||||||
| (identified cost $329,918) | 379,214 | |||||
| Other Assets and Liabilities, Net | ||||||
| - 0.1% | 461 | |||||
| Net Assets - 100.0% | 379,675 | |||||
See accompanying notes which are an integral part of the financial statements.
60 Non-U.S. Fund
| Russell Investment Funds | |||||||
| Non-U.S. Fund | |||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||
| Futures Contracts | |||||||
| Amounts in thousands (except contract amounts) | |||||||
| Unrealized | |||||||
| Appreciation | |||||||
| Number of | Notional | Expiration | (Depreciation) | ||||
| Contracts | Amount | Date | $ | ||||
| Long Positions | |||||||
| CAC 40 Index Futures | 47 | EUR | 2,010 | 01/15 | 141 | ||
| DAX Index Futures | 8 | EUR | 1,969 | 03/15 | 107 | ||
| EURO STOXX 50 Index Futures | 132 | EUR | 4,136 | 03/15 | 131 | ||
| FTSE 100 Index Futures | 40 | GBP | 2,609 | 03/15 | 161 | ||
| Hang Seng Index Futures | 5 | HKD | 5,912 | 01/15 | 9 | ||
| NIKKEI Index Futures | 151 | JPY | 1,306,905 | 03/15 | (259 | ) | |
| S&P/TSX 60 Index Futures | 15 | CAD | 2,555 | 03/15 | 117 | ||
| SPI 200 Index Futures | 13 | AUD | 1,749 | 03/15 | 69 | ||
| TOPIX Index Futures | 35 | JPY | 492,625 | 03/15 | 7 | ||
| Short Positions | |||||||
| MSCI Emerging Markets Mini Index Futures | 239 | USD | 11,445 | 03/15 | (219 | ) | |
| Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) | 264 | ||||||
Foreign Currency Exchange Contracts
Amounts in thousands
| Unrealized | ||||||||||
| Appreciation | ||||||||||
| Amount | Amount | (Depreciation) | ||||||||
| Counterparty | Sold | Bought | Settlement Date | $ | ||||||
| Bank of America | USD | 52 | GBP | 34 | 01/05/15 | — | ||||
| Bank of America | USD | 285 | HKD | 2,210 | 03/18/15 | — | ||||
| Bank of New York | USD | 1,467 | CAD | 1,675 | 03/18/15 | (27 | ) | |||
| Bank of New York | USD | 1,907 | JPY | 228,890 | 03/18/15 | 5 | ||||
| Bank of New York | CAD | 32 | USD | 27 | 01/06/15 | — | ||||
| Bank of New York | NOK | 764 | USD | 102 | 01/02/15 | — | ||||
| BNP Paribas | USD | 82 | AUD | 100 | 03/18/15 | — | ||||
| BNP Paribas | USD | 86 | CAD | 100 | 03/18/15 | — | ||||
| BNP Paribas | USD | 375 | EUR | 300 | 03/18/15 | (12 | ) | |||
| BNP Paribas | USD | 94 | GBP | 60 | 03/18/15 | (1 | ) | |||
| BNP Paribas | USD | 85 | JPY | 10,000 | 03/18/15 | (2 | ) | |||
| Citibank | USD | 81 | AUD | 100 | 03/18/15 | — | ||||
| Citibank | USD | 82 | AUD | 100 | 03/18/15 | — | ||||
| Citibank | USD | 86 | CAD | 100 | 03/18/15 | — | ||||
| Citibank | USD | 128 | CAD | 150 | 03/18/15 | — | ||||
| Citibank | USD | 871 | EUR | 700 | 03/18/15 | (24 | ) | |||
| Citibank | USD | 155 | GBP | 100 | 03/18/15 | 1 | ||||
| Citibank | USD | 313 | GBP | 200 | 03/18/15 | (1 | ) | |||
| Citibank | USD | 129 | HKD | 1,000 | 03/18/15 | — | ||||
| Citibank | USD | 249 | JPY | 30,000 | 03/18/15 | 2 | ||||
| Citibank | USD | 340 | JPY | 40,000 | 03/18/15 | (6 | ) | |||
| Goldman Sachs | USD | 64 | GBP | 41 | 01/02/15 | — | ||||
| Goldman Sachs | USD | 186 | GBP | 120 | 01/02/15 | — | ||||
| Goldman Sachs | USD | 292 | GBP | 188 | 01/02/15 | 1 | ||||
| Goldman Sachs | CHF | 213 | USD | 215 | 01/05/15 | 1 | ||||
| Goldman Sachs | HKD | 14 | USD | 2 | 01/02/15 | — | ||||
| JPMorgan Chase | USD | 1,091 | AUD | 1,313 | 03/18/15 | (24 | ) | |||
| JPMorgan Chase | USD | 3,215 | GBP | 2,055 | 03/18/15 | (14 | ) | |||
| Royal Bank of Canada | USD | 7,085 | EUR | 5,719 | 03/18/15 | (161 | ) | |||
| Standard Chartered | USD | 285 | HKD | 2,210 | 03/18/15 | — | ||||
| State Street | USD | 81 | AUD | 100 | 03/18/15 | — | ||||
| State Street | USD | 82 | AUD | 100 | 03/18/15 | (1 | ) | |||
| State Street | USD | 86 | CAD | 100 | 03/18/15 | — | ||||
| State Street | USD | 122 | EUR | 100 | 03/18/15 | (1 | ) | |||
| State Street | USD | 125 | EUR | 100 | 03/18/15 | (3 | ) | |||
| State Street | USD | 245 | EUR | 200 | 03/18/15 | (2 | ) | |||
| State Street | USD | 305 | EUR | 250 | 03/18/15 | (1 | ) | |||
| State Street | USD | 141 | GBP | 90 | 01/02/15 | — | ||||
| State Street | USD | 155 | GBP | 100 | 03/18/15 | — | ||||
| State Street | USD | 53 | JPY | 6,330 | 01/07/15 | — | ||||
| State Street | USD | 83 | JPY | 10,000 | 03/18/15 | — | ||||
| State Street | USD | 84 | JPY | 10,000 | 03/18/15 | (1 | ) | |||
| State Street | AUD | 100 | USD | 81 | 03/18/15 | — | ||||
| State Street | BRL | 40 | USD | 15 | 01/06/15 | — | ||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||
| Non -U.S. Fund 61 | ||||||||||
| Russell Investment Funds | |||||||||||||
| Non-U.S. Fund | |||||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||||
| Foreign Currency Exchange Contracts | |||||||||||||
| Amounts in thousands | |||||||||||||
| Unrealized | |||||||||||||
| Appreciation | |||||||||||||
| Amount | Amount Bought |
(Depreciation) | |||||||||||
| Counterparty | Sold | Settlement Date | $ | ||||||||||
| State Street | CAD | 8 | USD | 7 | 01/02/15 | — | |||||||
| State Street | CAD | 16 | USD | 14 | 01/02/15 | — | |||||||
| State Street | CHF | 27 | USD | 27 | 01/05/15 | — | |||||||
| State Street | EUR | 100 | USD | 123 | 03/18/15 | 2 | |||||||
| State Street | HKD | 14 | USD | 2 | 01/05/15 | — | |||||||
| State Street | JPY | 8,675 | USD | 72 | 01/06/15 | — | |||||||
| State Street | JPY | 11,340 | USD | 94 | 01/06/15 | (1 | ) | ||||||
| State Street | JPY | 19,643 | USD | 164 | 01/07/15 | — | |||||||
| State Street | JPY | 10,000 | USD | 84 | 03/18/15 | 1 | |||||||
| Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts | (269 | ) | |||||||||||
| Presentation of Portfolio Holdings | |||||||||||||
| Amounts in thousands | |||||||||||||
| Fair Value | |||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | ||||||||
| Common Stocks | |||||||||||||
| Australia | $ | — | $ | 2,274 | $ | — | $ | 2,274 | 0.6 | ||||
| Austria | — | 1,380 | — | 1,380 | 0.4 | ||||||||
| Belgium | — | 1,895 | — | 1,895 | 0.5 | ||||||||
| Bermuda | 638 | 847 | — | 1,485 | 0.4 | ||||||||
| Brazil | 2,683 | 618 | — | 3,301 | 0.9 | ||||||||
| Canada | 12,798 | — | — | 12,798 | 3.4 | ||||||||
| Cayman Islands | 2,919 | 858 | — | 3,777 | 1.0 | ||||||||
| Czech Republic | — | 799 | — | 799 | 0.2 | ||||||||
| Denmark | — | 8,439 | — | 8,439 | 2.2 | ||||||||
| Finland | — | 1,548 | — | 1,548 | 0.4 | ||||||||
| France | 34 | 34,353 | — | 34,387 | 9.1 | ||||||||
| Germany | — | 27,812 | — | 27,812 | 7.3 | ||||||||
| Hong Kong | — | 9,581 | — | 9,581 | 2.5 | ||||||||
| Hungary | — | 674 | — | 674 | 0.2 | ||||||||
| India | 3,604 | 1,723 | — | 5,327 | 1.4 | ||||||||
| Indonesia | — | 1,847 | — | 1,847 | 0.5 | ||||||||
| Ireland | 2,295 | 1,939 | — | 4,234 | 1.1 | ||||||||
| Israel | 5,608 | 79 | — | 5,687 | 1.5 | ||||||||
| Italy | — | 6,165 | — | 6,165 | 1.6 | ||||||||
| Japan | — | 48,710 | — | 48,710 | 12.8 | ||||||||
| Jersey | 854 | 4,794 | — | 5,648 | 1.5 | ||||||||
| Luxembourg | — | 51 | — | 51 | —* | ||||||||
| Netherlands | 904 | 23,665 | — | 24,569 | 6.5 | ||||||||
| Norway | — | 2,976 | — | 2,976 | 0.8 | ||||||||
| Russia | 2 | 1,322 | — | 1,324 | 0.3 | ||||||||
| Singapore | — | 6,994 | — | 6,994 | 1.8 | ||||||||
| South Africa | — | 1,262 | — | 1,262 | 0.3 | ||||||||
| South Korea | — | 3,816 | — | 3,816 | 1.0 | ||||||||
| Spain | — | 5,125 | — | 5,125 | 1.4 | ||||||||
| Sweden | — | 5,254 | — | 5,254 | 1.4 | ||||||||
| Switzerland | 4,712 | 33,411 | — | 38,123 | 10.0 | ||||||||
| Taiwan | 2,058 | 3,540 | — | 5,598 | 1.5 | ||||||||
| Thailand | — | 1,941 | — | 1,941 | 0.5 | ||||||||
| United Kingdom | 82 | 65,412 | — | 65,494 | 17.3 | ||||||||
| United States | 5,819 | — | — | 5,819 | 1.5 | ||||||||
| Preferred Stocks | — | 509 | 1 | 510 | 0.1 | ||||||||
| Short-Term Investments | — | 20,164 | — | 20,164 | 5.3 | ||||||||
| Other Securities | — | 2,426 | — | 2,426 | 0.7 | ||||||||
| Total Investments | 45,010 | 334,203 | 1 | 379,214 | 99.9 | ||||||||
| Other Assets and Liabilities, Net | 0.1 | ||||||||||||
| 100.0 | |||||||||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||||
| 62 Non-U.S. Fund | |||||||||||||
| Russell Investment Funds | ||||||||||||||
| Non-U.S. Fund | ||||||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||||||
| Presentation of Portfolio Holdings | ||||||||||||||
| Amounts in thousands | ||||||||||||||
| Fair Value | ||||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | |||||||||
| Other Financial Instruments | ||||||||||||||
| Futures Contracts | 264 | — | — | 264 | 0.1 | |||||||||
| Foreign Currency Exchange Contracts | (5 | ) | (264 | ) | — | (269 | ) | (0.1 | ) | |||||
| Total Other Financial Instruments** | $ | 259 | $ | (264 | ) | $ | — | $ | (5 | ) | ||||
| * Less than .05% of net assets. | ||||||||||||||
| ** Futures and foreign currency exchange contract values reflect 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, 2014, see note 2 in the Notes to | ||||||||||||||
| Financial Statements. | ||||||||||||||
| Investments in which significant unobservable inputs (Level 3) were used in determining a fair value for the period ended December | ||||||||||||||
| 31, 2014 were less than 1% of net assets. | ||||||||||||||
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 63
| Russell Investment Funds | |||||||
| Non-U.S. Fund | |||||||
| Fair Value of Derivative Instruments — December 31, 2014 | |||||||
| Amounts in thousands | |||||||
| Foreign | |||||||
| Equity | Currency | ||||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | |||||
| Location: Statement of Assets and Liabilities - Assets | |||||||
| Unrealized appreciation on foreign currency exchange contracts | $ | — | $ | 13 | |||
| Variation margin on futures contracts* | 742 | — | |||||
| Total | $ | 742 | $ | 13 | |||
| Location: Statement of Assets and Liabilities - Liabilities | |||||||
| Variation margin on futures contracts* | $ | 478 | $ | — | |||
| Unrealized depreciation on foreign currency exchange contracts | — | 282 | |||||
| Total | $ | 478 | $ | 282 | |||
| Foreign | |||||||
| Equity | Currency | ||||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | |||||
| Location: Statement of Operations - Net realized gain (loss) | |||||||
| Futures contracts | $ | 2,657 | $ | — | |||
| Foreign currency-related transactions** | — | (1,574 | ) | ||||
| Total | $ | 2,657 | $ | (1,574 | ) | ||
| Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | |||||||
| Futures contracts | $ | (1,027 | ) | $ | — | ||
| Foreign currency-related transactions*** | — | (172 | ) | ||||
| Total | $ | (1,027 | ) | $ | (172 | ) | |
| * | Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only 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 the Notes to Financial Statements. | |||||||
See accompanying notes which are an integral part of the financial statements.
64 Non-U.S. Fund
| Russell Investment Funds |
| Non-U.S. Fund |
| Balance Sheet Offsetting of Financial and Derivative Instruments — |
| December 31, 2014 |
| Amounts in thousands | |||||||||||
| Offsetting of Financial Assets and Derivative Assets | |||||||||||
| Gross | Net Amounts | ||||||||||
| Amounts | of Assets | ||||||||||
| Gross | Offset in the | Presented in | |||||||||
| Amounts of | Statement of | the Statement | |||||||||
| Recognized Assets and | of Assets and | ||||||||||
| Description | Location: Statement of Assets and Liabilities - Assets | Assets | Liabilities | Liabilities | |||||||
| Securities on Loan* | Investments, at fair value | $ | 2,354 | $— | $ | 2,354 | |||||
| Foreign Currency Exchange Contracts | Unrealized appreciation on foreign currency exchange contracts | 13 | 13 | ||||||||
| Futures Contracts | Variation margin on futures contracts | 42 | 42 | ||||||||
| Total | $ | 2,409 | $— | $ | 2,409 | ||||||
| Financial Assets, Derivative Assets, and Collateral Held by Counterparty | |||||||||||
| Gross Amounts Not Offset in | |||||||||||
| the Statement of Assets and | |||||||||||
| Liabilities | |||||||||||
| Amounts | |||||||||||
| of Assets | |||||||||||
| Presented in | |||||||||||
| the Statement | Financial and | ||||||||||
| of Assets and | Derivative | Collateral | |||||||||
| Counterparty | Liabilities | Instruments Received^ | Net Amount | ||||||||
| Bank of New York | $ | 5 | $ | 5 | $ | — | $ | — | |||
| Barclays | 1,842 | — | 1,842 | — | |||||||
| Citigroup | 3 | 3 | — | — | |||||||
| Credit Suisse | 39 | — | 39 | — | |||||||
| Deutsche Bank | 411 | — | 411 | — | |||||||
| Goldman Sachs | 2 | — | — | 2 | |||||||
| JPMorgan Chase | 61 | — | 61 | — | |||||||
| Morgan Stanley | 42 | — | — | 42 | |||||||
| State Street | 4 | 4 | — | — | |||||||
| Total | $ | 2,409 | $ | 12 | $ | 2,353 | $ | 44 | |||
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 65
Russell Investment Funds
Non-U.S. Fund
Balance Sheet Offsetting of Financial and Derivative Instruments, continued —December 31, 2014
| Amounts in thousands | ||||||||||
| Offsetting of Financial Liabilities and Derivative Liabilities | ||||||||||
| Gross | Net Amounts | |||||||||
| Amounts | of Liabilities | |||||||||
| Gross | Offset in the | Presented in | ||||||||
| Amounts of | Statement of | the Statement | ||||||||
| Recognized Assets and | of Assets and | |||||||||
| Description | Location: Statement of Assets and Liabilities - Liabilities | Liabilities | Liabilities | Liabilities | ||||||
| Futures Contracts | Variation margin on futures contracts | $ | 39 | $ | — | $ | 39 | |||
| Foreign Currency Exchange Contracts | Unrealized depreciation on foreign currency exchange contracts | 282 | — | 282 | ||||||
| Total | $ | 321 | $ | — | $ | 321 | ||||
| Financial Liabilities, Derivative Liabilities, and Collateral Pledged by Counterparty | ||||||||||
| Gross Amounts Not Offset in | ||||||||||
| the Statement of Assets and | ||||||||||
| Liabilities | ||||||||||
| Amounts of | ||||||||||
| Liabilities | ||||||||||
| Presented in | ||||||||||
| the Statement | Financial and | |||||||||
| of Assets and | Derivative | Collateral | ||||||||
| Counterparty | Liabilities | Instruments Pledged^ | Net Amount | |||||||
| Bank of New York | $ | 28 $ 5 | $ | — | $ | 23 | ||||
| BNP Paribas | 15 — | — | 15 | |||||||
| Citigroup | 31 3 | — | 28 | |||||||
| JPMorgan Chase | 38 — | — | 38 | |||||||
| Morgan Stanley | 38 — | 38 | — | |||||||
| Royal Bank of Canada | 159 — | — | 159 | |||||||
| State Street | 12 4 | — | 8 | |||||||
| Total | $ | 321 $ 12 | $ | 38 | $ | 271 | ||||
* Fair value of securities on loan as reported in the footnotes to the Statement of Assets and Liabilities.
^ Collateral received or pledged amounts may not reconcile to those disclosed in the Statement of Assets and Liabilities due to the inclusion of off-Balance Sheet collateral and adjustments made to exclude overcollateralization.
For further disclosure on derivatives and counterparty risk see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
66 Non-U.S. Fund
| Russell Investment Funds | |||
| Non-U.S. Fund | |||
| Statement of Assets and Liabilities — December 31, 2014 | |||
| Amounts in thousands | |||
| Assets | |||
| Investments, at identified cost | $ | 329,918 | |
| Investments, at fair value(*)(>) | 379,214 | ||
| Cash (restricted)(a) | 2,900 | ||
| Foreign currency holdings(^) | 89 | ||
| Unrealized appreciation on foreign currency exchange contracts | 13 | ||
| Receivables: | |||
| Dividends and interest | 452 | ||
| Dividends from affiliated Russell funds | 1 | ||
| Investments sold | 743 | ||
| Fund shares sold | 42 | ||
| Foreign capital gains taxes recoverable | 294 | ||
| Variation margin on futures contracts | 42 | ||
| Total assets | 383,790 | ||
| Liabilities | |||
| Payables: | |||
| Due to custodian | 1 | ||
| Investments purchased | 789 | ||
| Fund shares redeemed | 134 | ||
| Accrued fees to affiliates | 298 | ||
| Other accrued expenses | 129 | ||
| Variation margin on futures contracts | 39 | ||
| Deferred capital gains tax liability | 17 | ||
| Unrealized depreciation on foreign currency exchange contracts | 282 | ||
| Payable upon return of securities loaned | 2,426 | ||
| Total liabilities | 4,115 | ||
| Net Assets | $ | 379,675 | |
| Net Assets Consist of: | |||
| Undistributed (overdistributed) net investment income | $ | 2,394 | |
| Accumulated net realized gain (loss) | (51,037 | ) | |
| Unrealized appreciation (depreciation) on: | |||
| Investments (net of deferred tax liability for foreign capital gains taxes) | 49,279 | ||
| Futures contracts | 264 | ||
| Foreign currency-related transactions | (310 | ) | |
| Shares of beneficial interest | 329 | ||
| Additional paid-in capital | 378,756 | ||
| Net Assets | $ | 379,675 | |
| Net Asset Value, offering and redemption price per share: | |||
| Net asset value per share: (#) | $ | 11.54 | |
| Net assets | $ | 379,674,838 | |
| Shares outstanding ($.01 par value) | 32,909,770 | ||
| Amounts in thousands | |||
| (^) Foreign currency holdings - cost | $ | 100 | |
| (*) Securities on loan included in investments | $ | 2,354 | |
| (>) Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund | $ | 22,590 | |
| (a) Cash Collateral for Futures | $ | 2,900 | |
| (#) 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.
Non-U.S. Fund 67
| Russell Investment Funds | |||
| Non-U.S. Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Dividends | $ | 13,498 | |
| Dividends from affiliated Russell funds | 16 | ||
| Securities lending income | 289 | ||
| Less foreign taxes withheld | (1,094 | ) | |
| Total investment income | 12,709 | ||
| Expenses | |||
| Advisory fees | 3,625 | ||
| Administrative fees | 201 | ||
| Custodian fees | 268 | ||
| Transfer agent fees | 18 | ||
| Professional fees | 84 | ||
| Trustees’ fees | 10 | ||
| Printing fees | 71 | ||
| Miscellaneous | 62 | ||
| Expenses before reductions | 4,339 | ||
| Expense reductions | (201 | ) | |
| Net expenses | 4,138 | ||
| Net investment income (loss) | 8,571 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments (net of deferred tax liability for foreign capital gains taxes) | 17,439 | ||
| Futures contracts | 2,657 | ||
| Foreign currency-related transactions | (1,804 | ) | |
| Net realized gain (loss) | 18,292 | ||
| Net change in unrealized appreciation (depreciation) on: | |||
| Investments (net of deferred tax liability for foreign capital gains taxes) | (43,046 | ) | |
| Futures contracts | (1,027 | ) | |
| Foreign currency-related transactions | (230 | ) | |
| Other investments | (3 | ) | |
| Net change in unrealized appreciation (depreciation) | (44,306 | ) | |
| Net realized and unrealized gain (loss) | (26,014 | ) | |
| Net Increase (Decrease) in Net Assets from Operations | $ | (17,443 | ) |
See accompanying notes which are an integral part of the financial statements.
68 Non-U.S. Fund
| Russell Investment Funds | ||||||
| Non-U.S. Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 8,571 | $ | 6,733 | ||
| Net realized gain (loss) | 18,292 | 24,302 | ||||
| Net change in unrealized appreciation (depreciation) | (44,306 | ) | 46,434 | |||
| Net increase (decrease) in net assets from operations | (17,443 | ) | 77,469 | |||
| Distributions | ||||||
| From net investment income | (7,880 | ) | (7,653 | ) | ||
| Net decrease in net assets from distributions | (7,880 | ) | (7,653 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | (23,519 | ) | 1,845 | |||
| Total Net Increase (Decrease) in Net Assets | (48,842 | ) | 71,661 | |||
| Net Assets | ||||||
| Beginning of period | 428,517 | 356,856 | ||||
| End of period | $ | 379,675 | $ | 428,517 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | 2,394 | $ | 3,050 | ||
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 1,560 | $ | 18,824 | 2,484 | $ | 27,097 | ||||||
| Proceeds from reinvestment of distributions | 660 | 7,880 | 691 | 7,653 | ||||||||
| Payments for shares redeemed | (4,102 | ) | (50,223 | ) | (2,980 | ) | (32,905 | ) | ||||
| Total increase (decrease) | (1,882 | ) | $ | (23,519 | ) | 195 | $ | 1,845 | ||||
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 69
| Russell Investment Funds | ||||||||||||||||
| Non-U.S. Fund | ||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||
| Net Asset Value, | Net | Net Realized | Total from | Distributions | ||||||||||||
| Beginning of | Investment | and Unrealized | Investment | from Net | $ | |||||||||||
| Period | Income (Loss)(a)(b) | Gain (Loss) | Operations | Investment Income | Total Distributions | |||||||||||
| December 31, 2014 | 12.32 | .26 | (.80 | ) | (.54 | ) | (.24 | ) | (.24 | ) | ||||||
| December 31, 2013 | 10.31 | .18 | 2.05 | 2.23 | (.22 | ) | (.22 | ) | ||||||||
| 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 | ) | ||||||||
See accompanying notes which are an integral part of the financial statements.
70 Non-U.S. Fund
| % | % | % | ||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | ||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | ||||||||
| End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||
| Period | Return(d) | (000 | ) | Gross | Net(b) | Net Assets(b) | Turnover Rate | |||||||
| 11.54 | (4.45 | ) | 379,675 | 1.08 | 1.03 | 2.13 | 32 | |||||||
| 12.32 | 21.91 | 428,517 | 1.04 | .99 | 1.76 | 36 | ||||||||
| 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 | ||||||||
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 71
Russell Investment Funds Core Bond Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
72 Core Bond Fund
Russell Investment Funds
Core Bond Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Core Bond Fund (the “Fund”) employs a multi-manager | of-benchmark exposure to, and security selection within, non- | ||||
| approach whereby portions of the Fund are allocated to different | agency mortgages was another key positive contributor, as the | ||||
| money managers. Fund assets not allocated to money managers | sector proved resilient to the volatility that shook other high- | ||||
| are managed by Russell Investment Management Company | yielding asset classes. | ||||
| (“RIMCo”), the Fund’s advisor. RIMCo may change the allocation | Yield curve positioning was mixed during the year, as an | ||||
| of the Fund’s assets among money managers at any time. An | underweight position to longer-maturity duration in the first half | ||||
| exemptive order from the Securities and Exchange Commission | of the year detracted while the yield curve flattened, only to be | ||||
| (“SEC”) permits RIMCo to engage or terminate a money manager | offset by gains as positioning was later reversed. | ||||
| at any time, subject to approval by the Fund’s Board, without a | |||||
| shareholder vote. Pursuant to the terms of the exemptive order, the | How did the investment strategies and techniques employed | ||||
| Fund is required to notify its shareholders within 90 days of when | by the Fund and its money managers affect its benchmark- | ||||
| a money manager begins providing services. As of December 31, | relative performance? | ||||
| 2014, the Fund had five money managers. | Macro Currency Group (“Macro”) outperformed the Fund’s | ||||
| What is the Fund’s investment objective? | benchmark for the fiscal year. The largest driver of outperformance | ||||
| The Fund seeks to provide current income, and as a secondary | was Macro’s sustained long position to the USD during the year, | ||||
| objective, capital appreciation. | particularly during the second half, and offsetting short positions | ||||
| to the Japanese yen (“JPY”), Australian dollar (“AUD”) and euro | |||||
| How did the Fund perform relative to its benchmark for the | (“EUR”). | ||||
| fiscal year ended December 31, 2014? | Metropolitan West Asset Management, LLC (“MetWest”) | ||||
| For the fiscal year ended December 31, 2014, the Fund gained | outperformed the Fund’s benchmark for the fiscal year. A large | ||||
| 5.55%. This is compared to the Fund’s benchmark, the Barclays | overweight to, and security selection within, the non-agency | ||||
| U.S. Aggregate Bond Index, which gained 5.97% during the same | mortgage sector was | the key driver of outperformance. An | |||
| period. The Fund’s performance includes operating expenses, | offsetting underweight to corporate credit risk further buoyed | ||||
| whereas index returns are unmanaged and do not include | benchmark-relative returns. A key detractor during the year was | ||||
| expenses of any kind. | MetWest’s persistent short USD duration position. | ||||
| For the fiscal year ended December 31, 2014, Morningstar® | Logan Circle Partners, L.P. (“Logan Circle”) outperformed the | ||||
| Insurance Intermediate-Term Bond, a group of funds that | Fund’s benchmark for the fiscal year. Security selection generally | ||||
| Morningstar considers to have investment strategies similar to | drove outperformance, particularly within corporate as well | ||||
| those of the Fund, gained 5.48%. This return serves as a peer | as commercial and residential mortgage sectors. Yield curve | ||||
| comparison and is expressed net of operating expenses. | positioning was also moderately positive. From a sector allocation | ||||
| perspective, an overweight to corporate credit overall, particularly | |||||
| How did the market conditions described in the Market | among lower-quality, high yield securities, was negative. | ||||
| Summary report affect the Fund’s performance? | |||||
| Sector allocation generally had a negative benchmark-relative | Pacific Investment Management Company (“PIMCO”) was | ||||
| impact for the Fund, as two key exposures weighed on returns. | terminated in October 2014 and underperformed the Fund’s | ||||
| First, an out-of-benchmark allocation to high yield corporate | benchmark for the portion of the fiscal year in which it was a | ||||
| credit detracted as corporate credit in general underperformed | money manager in the Fund. Adverse yield curve and duration | ||||
| other sectors, and particularly lower-quality corporate bonds | positioning was a key driver of underperformance, namely a | ||||
| due to commodity price weakness and heightened illiquidity | significant short position to longer-maturity duration. Security | ||||
| concerns especially toward the end of the year. In addition, a | selection also detracted modestly, particularly among corporate | ||||
| modest overweight to emerging markets also detracted as global | securities. Currency positioning was positive over the period. | ||||
| growth concerns, geopolitics (Russia and Ukraine being the most | Colchester | Global | Investors | Limited | (“Colchester”) |
| notable), and, later in the year, commodity prices took a toll on | underperformed the | Fund’s benchmark for the fiscal year. | |||
| performance. | Underperformance was driven by currency positioning. While no | ||||
| The Fund’s long U.S. dollar (“USD”) position, held through most | single trade drove performance, a long USD position early in the | ||||
| of the year, was a significant positive contributor, particularly in | year against Australasian currencies was notably negative. The | ||||
| the latter half of the year as other currencies depreciated amid | fourth quarter also saw significant underperformance, from long | ||||
| a weaker international economic outlook and more supportive | positions in the Norwegian krone, Mexican peso, and Swedish | ||||
| monetary policy, most notably in Europe and Japan. An out- | krona against shorts to the U.K. pound, Hong Kong dollar and | ||||
| EUR. | |||||
Core Bond Fund 73
Russell Investment Funds
Core Bond Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| RIMCo manages the portion of the Fund’s assets that RIMCo | These tilts detracted modestly during the period due to RIMCo’s | ||
| determines not to allocate to the money managers. Assets not | U.S. Treasury futures selections. | ||
| allocated to managers include the Fund’s liquidity reserves and | |||
| assets which may be managed directly by RIMCo to modify the | Describe any changes to the Fund’s structure or the money | ||
| Fund’s overall portfolio characteristics to seek to achieve the | manager line-up. | ||
| desired risk/return profile for the Fund. | RIMCo implemented the currency positioning strategy described | ||
| above in March 2014 and in connection with this, reduced the | |||
| During the period, RIMCo utilized futures and swaps to seek to | Fund’s allocations to PIMCO and MetWest. | ||
| achieve the Fund benchmark’s duration exposures with respect to | |||
| the portion of the Fund allocated to cash reserves. While this was | In October 2014, RIMCo terminated PIMCO as a money manager | ||
| a positive in terms of absolute return contribution, it detracted | for the Fund and hired Scout Investments, Inc. as a money | ||
| relative to the benchmark. | manager for the Fund. There were some minor re-weightings | ||
| among managers and strategies within the Fund as a result of | |||
| In March 2014, RIMCo implemented a three-pronged strategy | these changes. | ||
| to seek to generate active returns through currency positioning | |||
| by supplementing the Fund’s existing active currency mandate | Money Managers as of December 31, | ||
| with a more mechanistic strategy and to seek to further reduce | 2014 | Styles | |
| the Fund’s reliance on traditional fixed income market risks. This | Colchester Global Investors Limited | Fully discretionary | |
| approach incorporates a currency overlay, an index replication | Logan Circle Partners, L.P. | Fully discretionary | |
| and an enhanced cash strategy. The currency overlay utilizes | Macro Currency Group – an investment | ||
| currency forward contracts to take long and short positions in | group within Principal Global Investors | ||
| global foreign exchange markets. Because the currency overlay | LLC* | Sector Specialist | |
| Metropolitan West Asset Management, LLC | Fully discretionary | ||
| is an out-of-benchmark position, RIMCo implemented an index | Scout Investments, Inc. | Fully discretionary | |
| replication strategy in connection with the currency overlay to | |||
| provide benchmark-like exposure to its overall strategy. The | |||
| enhanced cash strategy is designed to provide for modest returns | * Principal Global Investors LLC is the asset management arm of the Principal | ||
| on the cash held in connection with the currency overlay and | Financial Group® (The Principal®), which includes various member companies | ||
| including Principal Global Investors LLC, Principal Global Investors (Europe) | |||
| index replication strategies, by investing the cash in fixed income | Limited, and others. The Macro Currency Group is the specialist currency | ||
| securities with an average portfolio duration of one year, including | investment group within Principal Global Investors. Where used herein, Macro | ||
| U.S. and non-U.S. corporate debt securities, asset-backed | Currency Group means Principal Global Investors LLC. | ||
| securities and money market securities. For the portion of the | The views expressed in this report reflect those of the portfolio | ||
| fiscal year in which it was employed in the Fund, the currency | managers only through the end of the period covered by | ||
| overlay strategy was positive for Fund performance, most notably | the report. These views do not necessarily represent the | ||
| during the fourth quarter. Overall, the strategy’s long USD and | views of RIMCo, or any other person in RIMCo or any other | ||
| short Swiss franc, AUD and EUR positions drove outperformance, | affiliated organization. These views are subject to change | ||
| while a long position in JPY detracted. The underlying index | at any time based upon market conditions or other events, | ||
| replication strategy was also positive, due to its slightly greater | and RIMCo disclaims any responsibility to update the views | ||
| interest rate sensitivity as yields fell. | contained herein. These views should not be relied on | ||
| Throughout the period, RIMCo also implemented tactical ‘tilts’ | as investment advice and, because investment decisions | ||
| based on its judgments regarding shorter-term opportunities to | for a Russell Investment Funds (“RIF”) Fund are based on | ||
| seek to generate returns and/or mitigate risk by purchasing and | numerous factors, should not be relied on as an indication | ||
| shorting U.S. Treasury futures and currency forward contracts. | of investment decisions of any RIF Fund. | ||
| * | Assumes initial investment on January 1, 2005. | ||
| ** | 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. | |||
| 74 Core Bond Fund | |||
Russell Investment Funds Core Bond Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 1,018.40 | $ | 1,021.93 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 3.31 | $ | 3.31 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.65% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 8.6), then multiply the result by the number in the first column | |||||||
| in the row entitled “Expenses Paid During Period” to estimate | |||||||
| the expenses you paid on your account during this period. | |||||||
| Hypothetical Example for Comparison Purposes | |||||||
| The information in the table under the heading “Hypothetical | |||||||
| Performance (5% return before expenses)” provides information | |||||||
| about hypothetical account values and hypothetical expenses | |||||||
| based on the Fund’s actual expense ratio and an assumed rate of | |||||||
| return of 5% per year before expenses, which is not the Fund’s | |||||||
| actual return. The hypothetical account values and expenses | |||||||
| may not be used to estimate the actual ending account balance or | |||||||
| expenses you paid for the period. You may use this information | |||||||
| to compare the ongoing costs of investing in the Fund and other | |||||||
| funds. To do so, compare this 5% hypothetical example with the | |||||||
| 5% hypothetical examples that appear in the shareholder reports | |||||||
| of other funds. | |||||||
Core Bond Fund 75
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Long-Term Investments - 78.4% | Series 2006-HE5 Class A5 | ||||||||
| 0.395% due 07/25/36 (Ê) | 1,200 | 998 | |||||||
| Asset-Backed Securities - 10.1% | Babson CLO, Ltd. | ||||||||
| Access Group, Inc. | |||||||||
| Series 2003-A Class A2 | 1.713% due 07/12/25 | 470 | 468 | ||||||
| 1.220% due 07/01/38 (Ê) | 370 | 364 | Bank of America Auto Trust | ||||||
| Series 2012-1 Class A3 | |||||||||
| Ally Auto Receivables Trust | 0.780% due 06/15/16 | 272 | 272 | ||||||
| Series 2011-1 Class A4 | |||||||||
| 2.230% due 03/15/16 (µ) | 60 | 60 | Bank of The West Auto Trust | ||||||
| Series 2014-1 Class A3 | |||||||||
| Series 2012-1 Class A4 | 1.090% due 03/15/19 (Þ) | 1,130 | 1,130 | ||||||
| 1.210% due 07/15/16 (µ) | 575 | 576 | |||||||
| Series 2012-3 Class A3 | Bayview Series Financial 2006-A Class Acquisition 1A3 Trust | ||||||||
| 0.850% due 08/15/16 (µ) | 1,377 | 1,378 | 5.865% due 02/28/41 | 190 | 196 | ||||
| Series 2012-4 Class A3 | BMW Vehicle Owner Trust | ||||||||
| 0.590% due 01/17/17 (µ) | 1,613 | 1,613 | Series 2011-A Class A4 | ||||||
| Series 2013-1 Class A3 | 1.030% due 02/26/18 | 513 | 513 | ||||||
| 0.630% due 05/15/17 (µ) | 664 | 664 | Brazos Higher Education Authority | ||||||
| Series 2014-1 Class A2 | Series 2010-1 Class A2 | ||||||||
| 0.480% due 02/15/17 (µ) | 1,600 | 1,598 | 1.433% due 02/25/35 (Ê) | 500 | 518 | ||||
| Series 2014-2 Class A2 | Series 2011-2 Class A3 | ||||||||
| 0.680% due 07/17/17 (µ) | 800 | 799 | 1.234% due 10/27/36 (Ê) | 410 | 415 | ||||
| Ally Master Owner Trust | CarFinance Capital Auto Trust | ||||||||
| Series 2010-2 Class A | Series 2014-1A Class A | ||||||||
| 4.250% due 04/15/17 (Þ) | 495 | 500 | 1.460% due 12/17/18 (Þ) | 825 | 826 | ||||
| Series 2012-3 Class A1 | CarMax Auto Owner Trust | ||||||||
| 0.861% due 06/15/17 (Ê) | 265 | 265 | Series 2013-1 Class A3 | ||||||
| Series 2013-1 Class A2 | 0.600% due 10/16/17 | 1,242 | 1,242 | ||||||
| 1.000% due 02/15/18 | 835 | 836 | CCG Receivables Trust | ||||||
| Alm Loan Funding | Series 2013-1 Class A2 | ||||||||
| Series 2012-7A Class A1 | 1.050% due 08/14/20 (Þ) | 614 | 615 | ||||||
| 1.651% due 10/19/24 (Ê)(Þ) | 450 | 449 | Series 2014-1 Class A2 | ||||||
| American Express Credit Account | 1.060% due 11/15/21 (Þ) | 440 | 439 | ||||||
| Master Trust | CFC LLC | ||||||||
| Series 2012-2 Class A | Series 2013-1A Class A | ||||||||
| 0.680% due 03/15/18 | 350 | 350 | 1.650% due 07/17/17 (Þ) | 73 | 73 | ||||
| Series 2012-3 Class A | Chase Issuance Trust | ||||||||
| 0.311% due 03/15/18 (Ê) | 225 | 225 | Series 2012-A3 Class A3 | ||||||
| American Homes 4 Rent Trust | 0.790% due 06/15/17 | 1,345 | 1,347 | ||||||
| Series 2014-SFR2 Class A | Series 2012-A5 Class A5 | ||||||||
| 3.786% due 10/17/36 (Þ) | 583 | 595 | 0.590% due 08/15/17 | 650 | 650 | ||||
| American Money Management Corp. | Chesapeake Funding LLC | ||||||||
| Series 2014-14A Class A1L | Series 2012-1A Class A | ||||||||
| 1.680% due 07/27/26 (µ)(ƒ)(Þ) | 500 | 495 | 0.907% due 11/07/23 (Ê)(Þ) | 662 | 664 | ||||
| AmeriCredit Automobile Receivables | Series 2014-1A Class C | ||||||||
| Trust | 1.357% due 03/07/26 (Ê)(Þ) | 200 | 200 | ||||||
| Series 2012-4 Class A3 | CIT Education Loan Trust | ||||||||
| 0.670% due 06/08/17 | 841 | 841 | Series 2007-1 Class A | ||||||
| Series 2012-5 Class A3 | 0.345% due 03/25/42 (Ê)(Þ) | 381 | 362 | ||||||
| 0.620% due 06/08/17 | 424 | 424 | Citibank Credit Card Issuance Trust | ||||||
| Series 2013-1 Class B | Series 2006-A7 Class A7 | ||||||||
| 1.070% due 03/08/18 | 1,000 | 1,001 | 0.301% due 12/17/18 (Ê) | 1,295 | 1,291 | ||||
| Series 2013-2 Class A2 | Citigroup Mortgage Loan Trust, Inc. | ||||||||
| 0.530% due 11/08/16 | 146 | 146 | Series 2007-WFH1 Class A3 | ||||||
| Series 2013-3 Class A2 | 0.320% due 01/25/37 (Ê) | 705 | 692 | ||||||
| 0.680% due 10/11/16 | 164 | 164 | Series 2007-WFH1 Class A4 | ||||||
| Series 2014-1 Class A2 | 0.370% due 01/25/37 (Ê) | 934 | 867 | ||||||
| 0.570% due 07/10/17 | 376 | 376 | Countrywide Asset-Backed Certificates | ||||||
| Series 2014-2 Class A2B | Series 2007-4 Class A2 | ||||||||
| 0.437% due 10/10/17 (Ê) | 1,265 | 1,265 | 5.530% due 04/25/47 | 162 | 159 | ||||
| Ameriquest Mortgage Securities, Inc. | Discover Card Execution Note Trust | ||||||||
| 0.580% due 07/25/35 | 889 | 888 | Series 2012-A1 Class A1 | ||||||
| Asset Backed Securities Corp. Home | 0.810% due 08/15/17 | 1,270 | 1,271 | ||||||
| Equity | DT Auto Owner Trust | ||||||||
| Series 2005-HE5 Class M3 | Series 2013-2A Class A | ||||||||
| 0.890% due 06/25/35 (Ê) | 1,050 | 977 | 0.810% due 09/15/16 (Þ) | 103 | 103 | ||||
See accompanying notes which are an integral part of the financial statements.
76 Core Bond Fund
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Education Loan Asset-Backed Trust I | ING Investment Management CLO | ||||||||
| Series 2013-1 Class B1 | 1.379% due 04/25/25 | 500 | 491 | ||||||
| 1.155% due 11/25/33 (Ê)(Þ) | 1,043 | 972 | JGWPT XXX LLC | ||||||
| Educational Funding of the South, Inc. | Series 2013-3A Class A | ||||||||
| Series 2011-1 Class A2 | 4.080% due 01/17/73 (Þ) | 298 | 318 | ||||||
| 0.884% due 04/25/35 (Ê) | 445 | 444 | JGWPT XXXII LLC | ||||||
| EFS Volunteer LLC | Series 2014-2A Class A | ||||||||
| Series 2010-1 Class A2 | 3.610% due 01/17/73 (Þ) | 394 | 404 | ||||||
| 1.084% due 10/25/35 (Ê)(Þ) | 500 | 506 | JPMorgan Mortgage Acquisition Corp. | ||||||
| Exeter Automobile Receivables Trust | Series 2007-HE1 Class AF6 | ||||||||
| Series 2013-1A Class A | 4.148% due 03/25/47 | 1,557 | 1,217 | ||||||
| 1.290% due 10/16/17 (Þ) | 83 | 83 | Lehman XS Trust | ||||||
| Fannie Mae Grantor Trust | Series 2006-9 Class A1B | ||||||||
| Series 2003-T4 Class 2A5 | 0.330% due 05/25/46 (Ê) | 119 | 98 | ||||||
| 5.407% due 09/26/33 | 48 | 52 | Series 2006-13 Class 1A2 | ||||||
| Federal Home Loan Mortgage Corp. | 0.340% due 09/25/36 (Ê) | 116 | 102 | ||||||
| Structured Pass Through Securities | Series 2006-19 Class A2 | ||||||||
| Series 2000-30 Class A5 | 0.340% due 12/25/36 (Ê) | 119 | 97 | ||||||
| 7.602% due 12/25/30 | 32 | 34 | Long Beach Mortgage Loan Trust | ||||||
| Ford Credit Auto Lease Trust | Series 2004-4 Class M1 | ||||||||
| Series 2013-A Class A3 | 1.070% due 10/25/34 (Ê) | 1,200 | 1,136 | ||||||
| 0.600% due 03/15/16 | 1,781 | 1,781 | Merrill Lynch First Franklin Mortgage | ||||||
| Ford Credit Auto Owner Trust | Loan Trust | ||||||||
| Series 2011-B Class A4 | Series 2007-1 Class A2B | ||||||||
| 1.350% due 12/15/16 | 167 | 167 | 0.340% due 04/25/37 (Ê) | 108 | 63 | ||||
| Series 2012-A Class A3 | Series 2007-4 Class 2A2 | ||||||||
| 0.840% due 08/15/16 | 65 | 65 | 0.290% due 07/25/37 (Ê) | 763 | 478 | ||||
| Series 2012-D Class A3 | Montana Higher Education Student | ||||||||
| 0.510% due 04/15/17 | 345 | 345 | Assistance Corp. | ||||||
| Series 2013-A Class A3 | Series 2012-1 Class A3 | ||||||||
| 0.550% due 07/15/17 | 412 | 411 | 1.216% due 07/20/43 (Ê) | 650 | 657 | ||||
| Series 2014-A Class A2 | Navient Private Education Loan Trust | ||||||||
| 0.480% due 11/15/16 | 813 | 813 | Series 2014-AA Class A2A | ||||||
| Ford Credit Floorplan Master Owner | 2.740% due 02/15/29 (Þ) | 795 | 796 | ||||||
| Trust A | Navient Student Loan Trust | ||||||||
| Series 2013-3 Class A2 | Series 2014-2 Class A | ||||||||
| 0.461% due 06/15/17 (Ê) | 225 | 225 | 0.795% due 03/25/43 (Ê) | 972 | 963 | ||||
| Freddie Mac Reference REMIC | Series 2014-3 Class A | ||||||||
| Series 2006-R007 Class ZA | 0.775% due 03/25/43 (Ê) | 972 | 962 | ||||||
| 6.000% due 05/15/36 | 369 | 419 | Series 2014-4 Class A | ||||||
| Green Tree | 0.775% due 03/25/43 (Ê) | 834 | 825 | ||||||
| Series 2008-MH1 Class A2 | Nelnet Student Loan Trust | ||||||||
| 8.970% due 04/25/38 (Þ) | 448 | 471 | Series 2014-4A Class A2 | ||||||
| Hertz Vehicle Financing LLC | 1.105% due 11/25/43 (Ê)(Þ) | 470 | 472 | ||||||
| Series 2009-2A Class A2 | Nissan Auto Lease Trust | ||||||||
| 5.290% due 03/25/16 (Þ) | 780 | 784 | Series 2012-B Class A4 | ||||||
| Higher Education Funding I | 0.740% due 09/17/18 | 570 | 570 | ||||||
| Series 2014-1 Class A | Nissan Auto Receivables Owner Trust | ||||||||
| 1.283% due 05/25/34 (Ê)(Þ) | 454 | 453 | Series 2011-B Class A3 | ||||||
| Honda Auto Receivables Owner Trust | 0.950% due 02/16/16 | 44 | 44 | ||||||
| Series 2012-1 Class A4 | Series 2011-B Class A4 | ||||||||
| 0.970% due 04/16/18 | 565 | 566 | 1.240% due 01/16/18 | 1,415 | 1,420 | ||||
| Series 2012-2 Class A3 | Northstar Education Finance, Inc. | ||||||||
| 0.700% due 02/16/16 | 309 | 309 | Series 2007-1 Class A1 | ||||||
| Series 2013-2 Class A3 | 0.333% due 04/28/30 (Ê) | 475 | 464 | ||||||
| 0.530% due 02/16/17 | 1,355 | 1,355 | OHA Credit Partners VII, Ltd. | ||||||
| Hyundai Auto Receivables Trust | Series 2012-7A Class A | ||||||||
| Series 2011-B Class A4 | 1.652% due 11/20/23 (Ê)(Þ) | 450 | 447 | ||||||
| 1.650% due 02/15/17 | 40 | 40 | Popular ABS Mortgage Pass-Through | ||||||
| Series 2011-C Class A4 | Trust | ||||||||
| 1.300% due 02/15/18 | 939 | 943 | Series 2005-6 Class A3 | ||||||
| Series 2013-A Class A3 | 4.337% due 01/25/36 | 70 | 65 | ||||||
| 0.560% due 07/17/17 | 1,914 | 1,916 | Series 2006-C Class A4 | ||||||
| Series 2013-B Class A3 | 0.420% due 07/25/36 (Ê) | 1,380 | 1,296 | ||||||
| 0.710% due 09/15/17 | 1,400 | 1,401 | |||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Core Bond Fund 77 | |||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Series 2006-D Class A3 | Series 2008-2 Class B | ||||||||
| 0.430% due 11/25/46 (Ê) | 1,500 | 1,302 | 1.434% due 01/25/29 (Ê) | 205 | 190 | ||||
| Prestige Auto Receivables Trust | Series 2008-3 Class B | ||||||||
| Series 2013-1A Class A2 | 1.434% due 04/25/29 (Ê) | 205 | 191 | ||||||
| 1.090% due 02/15/18 (Þ) | 106 | 106 | Series 2008-4 Class A4 | ||||||
| Series 2014-1A Class A3 | 1.884% due 07/25/22 (Ê) | 1,400 | 1,471 | ||||||
| 1.520% due 04/15/20 (Þ) | 403 | 402 | Series 2008-4 Class B | ||||||
| RAMP Trust | 2.084% due 04/25/29 (Ê) | 205 | 207 | ||||||
| Series 2003-RS9 Class AI6A | Series 2008-5 Class B | ||||||||
| 5.982% due 10/25/33 | 288 | 302 | 2.084% due 07/25/29 (Ê) | 205 | 210 | ||||
| Series 2003-RS11 Class AI6A | Series 2008-6 Class B | ||||||||
| 5.980% due 12/25/33 | 101 | 109 | 2.084% due 07/25/29 (Ê) | 205 | 206 | ||||
| RASC Trust | Series 2008-7 Class A2 | ||||||||
| Series 2003-KS4 Class AIIB | 0.734% due 10/25/17 (Ê) | 718 | 719 | ||||||
| 0.750% due 06/25/33 (Ê) | 24 | 21 | Series 2008-7 Class B | ||||||
| Red River CLO, Ltd. | 2.084% due 07/25/29 (Ê) | 205 | 206 | ||||||
| Series 2006-1A Class A | Series 2008-8 Class B | ||||||||
| 0.502% due 07/27/18 (Ê)(Þ) | 168 | 167 | 2.484% due 10/25/29 (Ê) | 205 | 216 | ||||
| Renaissance Home Equity Loan Trust | Series 2008-9 Class B | ||||||||
| Series 2005-2 Class AF4 | |||||||||
| 4.934% due 08/25/35 | 85 | 83 | 2.484% due 10/25/29 (Ê) | 205 | 216 | ||||
| Series 2006-1 Class AF3 | Series 2012-7 Class A3 | ||||||||
| 5.608% due 05/25/36 | 11 | 8 | 0.820% due 05/26/26 (Ê) | 475 | 474 | ||||
| Series 2006-1 Class AF6 | Series 2013-4 Class A | ||||||||
| 5.746% due 05/25/36 | 128 | 93 | 0.720% due 06/25/27 (Ê) | 394 | 395 | ||||
| SMART Trust | |||||||||
| Series 2007-1 Class AF2 | Series 2011-2USA Class A4A | ||||||||
| 5.512% due 04/25/37 | 510 | 268 | 2.310% due 04/14/17 (Þ) | 906 | 910 | ||||
| Series 2007-2 Class AF2 | Series 2012-1USA Class A4A | ||||||||
| 5.675% due 06/25/37 | 123 | 64 | 2.010% due 12/14/17 (Þ) | 310 | 310 | ||||
| Santander Drive Auto Receivables Trust | SoFi Professional Loan Program LLC | ||||||||
| Series 2012-2 Class B | Series 2014-B Class A2 | ||||||||
| 2.090% due 08/15/16 | 52 | 52 | 2.550% due 08/27/29 (Þ) | 895 | 894 | ||||
| Series 2012-5 Class A3 | Soundview Home Equity Loan Trust | ||||||||
| 0.830% due 12/15/16 | 4 | 4 | Series 2005-1 Class M2 | ||||||
| Series 2013-1 Class A3 | 0.905% due 04/25/35 (Ê) | 232 | 231 | ||||||
| 0.620% due 06/15/17 | 440 | 440 | Series 2005-OPT3 Class A4 | ||||||
| Series 2013-1 Class B | 0.470% due 11/25/35 (Ê) | 128 | 127 | ||||||
| 1.160% due 01/15/19 | 1,690 | 1,695 | Toyota Auto Receivables Owner Trust | ||||||
| Series 2013-2 Class A3 | Series 2013-A Class A3 | ||||||||
| 0.700% due 09/15/17 | 2,179 | 2,180 | 0.550% due 01/17/17 | 443 | 444 | ||||
| Series 2013-3 Class A3 | Series 2013-B Class A2 | ||||||||
| 0.700% due 10/16/17 | 3,076 | 3,078 | 0.480% due 02/15/16 | 54 | 54 | ||||
| Series 2014-1 Class A2A | Volkswagen Auto Loan Enhanced Trust | ||||||||
| 0.660% due 06/15/17 | 518 | 519 | Series 2012-1 Class A3 | ||||||
| Series 2014-4 Class B | 0.850% due 08/22/16 | 347 | 348 | ||||||
| 1.820% due 05/15/19 | 420 | 420 | World Financial Network Credit Card | ||||||
| SLM Private Education Loan Trust | Master Trust | ||||||||
| Series 2010-A Class 2A | Series 2014-C Class A | ||||||||
| 3.411% due 05/16/44 (Ê)(Þ) | 1,258 | 1,331 | 1.540% due 08/16/21 | 825 | 823 | ||||
| Series 2012-B Class A2 | 84,878 | ||||||||
| 3.480% due 10/15/30 (Þ) | 580 | 603 | Corporate Bonds and Notes - 15.6% | ||||||
| SLM Student Loan Trust | 21st Century Fox America, Inc. | ||||||||
| Series 2003-11 Class A6 | 8.250% due 10/17/96 | 20 | 28 | ||||||
| 0.991% due 12/15/25 (Ê)(Þ) | 350 | 350 | Advanced Micro Devices, Inc. | ||||||
| Series 2004-8 Class B | 7.750% due 08/01/20 | 225 | 207 | ||||||
| 0.694% due 01/25/40 (Ê) | 131 | 120 | 7.500% due 08/15/22 | 775 | 698 | ||||
| Series 2005-4 Class A3 | AIG Global Funding | ||||||||
| 0.349% due 01/25/27 | 1,005 | 980 | 1.650% due 12/15/17 (Þ) | 355 | 355 | ||||
| Series 2006-2 Class A6 | Albemarle Corp. | ||||||||
| 0.404% due 01/25/41 (Ê) | 570 | 533 | 4.150% due 12/01/24 | 505 | 513 | ||||
| Series 2006-8 Class A6 | Series 30YR | ||||||||
| 0.394% due 01/25/41 (Ê) | 570 | 530 | 5.450% due 12/01/44 | 380 | 409 | ||||
| Series 2007-6 Class B | Ally Financial, Inc. | ||||||||
| 1.084% due 04/27/43 (Ê) | 191 | 176 | 5.500% due 02/15/17 | 520 | 546 | ||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 78 Core Bond Fund | |||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Alterra USA Holdings, Ltd. | 2.375% due 10/08/19 (Þ) | 425 | 427 | ||||||
| 7.200% due 04/14/17 (Þ) | 155 | 170 | Bear Stearns Cos. LLC (The) | ||||||
| Altria Group, Inc. | 5.550% due 01/22/17 | 525 | 566 | ||||||
| 9.950% due 11/10/38 | 50 | 86 | 7.250% due 02/01/18 | 195 | 225 | ||||
| 10.200% due 02/06/39 | 317 | 552 | Bellsouth Capital Funding Corp. | ||||||
| Amazon.com, Inc. | 7.875% due 02/15/30 | 380 | 510 | ||||||
| 1.200% due 11/29/17 | 295 | 292 | Berkshire Hathaway Energy Co. | ||||||
| 3.800% due 12/05/24 | 575 | 589 | 4.500% due 02/01/45 (Þ) | 320 | 335 | ||||
| American Airlines Pass Through Trust | Boardwalk Pipelines, LP | ||||||||
| 4.375% due 10/01/22 | 370 | 376 | 4.950% due 12/15/24 | 500 | 497 | ||||
| 4.950% due 01/15/23 | 448 | 480 | Boston Scientific Corp. | ||||||
| 4.000% due 01/15/27 | 427 | 434 | 6.000% due 01/15/20 | 830 | 935 | ||||
| Series 2011-1 Class A | Branch Banking & Trust Co. | ||||||||
| 5.250% due 01/31/21 | 276 | 298 | Series BKNT | ||||||
| American Express Co. | 1.350% due 10/01/17 | 630 | 627 | ||||||
| 3.625% due 12/05/24 | 410 | 413 | Burlington Northern Santa Fe LLC | ||||||
| American Honda Finance Corp. | 3.400% due 09/01/24 | 1,410 | 1,436 | ||||||
| 1.125% due 10/07/16 | 1,240 | 1,246 | 6.875% due 12/01/27 | 25 | 32 | ||||
| American International Group, Inc. | 6.750% due 03/15/29 | 10 | 13 | ||||||
| 6.400% due 12/15/20 | 920 | 1,097 | CareFusion Corp. | ||||||
| American Tower Trust I | 6.375% due 08/01/19 | 310 | 359 | ||||||
| 3.070% due 03/15/23 (Þ) | 495 | 492 | CCO Holdings LLC / CCO Holdings | ||||||
| Ameriprise Financial, Inc. | Capital Corp. | ||||||||
| 7.518% due 06/01/66 | 210 | 225 | 8.125% due 04/30/20 | 425 | 447 | ||||
| Anadarko Petroleum Corp. | CenterPoint Energy Resources Corp. | ||||||||
| 4.500% due 07/15/44 | 490 | 475 | 6.125% due 11/01/17 | 50 | 56 | ||||
| Anheuser-Busch InBev Worldwide, Inc. | Chase Capital III | ||||||||
| 2.875% due 02/15/16 | 240 | 245 | Series C | ||||||
| 5.375% due 01/15/20 | 325 | 368 | 0.784% due 03/01/27 (Ê) | 295 | 248 | ||||
| Apache Corp. | Chesapeake Energy Corp. | ||||||||
| 4.250% due 01/15/44 | 120 | 105 | 3.481% due 04/15/19 (Ê) | 400 | 392 | ||||
| Apollo Management Holdings, LP | 6.625% due 08/15/20 | 560 | 595 | ||||||
| 4.000% due 05/30/24 (Þ) | 570 | 580 | Chevron Corp. | ||||||
| Apple, Inc. | 3.191% due 06/24/23 | 325 | 331 | ||||||
| 0.482% due 05/03/18 (Ê) | 1,180 | 1,181 | CHS/Community Health Systems, Inc. | ||||||
| 2.850% due 05/06/21 | 285 | 292 | 8.000% due 11/15/19 | 180 | 192 | ||||
| AT&T, Inc. | CIT Group, Inc. | ||||||||
| 2.950% due 05/15/16 | 605 | 620 | 6.625% due 04/01/18 (Þ) | 390 | 423 | ||||
| 1.700% due 06/01/17 | 620 | 622 | Citigroup, Inc. | ||||||
| Series FRN | 5.850% due 08/02/16 | 220 | 235 | ||||||
| 0.618% due 02/12/16 (Ê) | 557 | 557 | 6.000% due 08/15/17 | 450 | 498 | ||||
| Avaya, Inc. | 6.125% due 11/21/17 | 405 | 452 | ||||||
| 9.000% due 04/01/19 (Þ) | 725 | 741 | 1.850% due 11/24/17 | 815 | 814 | ||||
| Axiall Corp. | 5.375% due 08/09/20 | 250 | 284 | ||||||
| 4.875% due 05/15/23 | 785 | 741 | Series N | ||||||
| Bank of America Corp. | 5.800% due 12/31/49 (ƒ) | 825 | 825 | ||||||
| 3.625% due 03/17/16 | 1,100 | 1,131 | Comcast Corp. | ||||||
| 1.067% due 03/22/16 (Ê) | 650 | 653 | 6.950% due 08/15/37 | 560 | 789 | ||||
| 5.625% due 10/14/16 | 200 | 214 | Commonwealth Edison Co. | ||||||
| 5.750% due 12/01/17 | 140 | 155 | 5.800% due 03/15/18 | 290 | 326 | ||||
| 4.200% due 08/26/24 | 520 | 530 | ConAgra Foods, Inc. | ||||||
| 4.950% due 08/15/20 | 580 | 637 | |||||||
| 4.250% due 10/22/26 | 490 | 489 | Continental Airlines Pass Through Trust | ||||||
| Series GMTN | Series 00A1 | ||||||||
| 6.400% due 08/28/17 | 200 | 223 | 8.048% due 11/01/20 | 282 | 320 | ||||
| Bank of America NA | Series 071A | ||||||||
| 0.703% due 11/14/16 (Ê) | 1,700 | 1,698 | 5.983% due 04/19/22 | 124 | 136 | ||||
| 0.643% due 05/08/17 | 300 | 300 | Series 09-1 | ||||||
| Series BKNT | 9.000% due 07/08/16 | 187 | 205 | ||||||
| 0.521% due 06/15/16 (Ê) | 600 | 596 | Series 991A Class A | ||||||
| 5.300% due 03/15/17 | 200 | 215 | 6.545% due 02/02/19 | 137 | 151 | ||||
| 6.100% due 06/15/17 | 775 | 852 | Continental Resources, Inc. | ||||||
| Bayer US Finance LLC | 4.900% due 06/01/44 | 125 | 108 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Core Bond Fund 79 | |||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Crown Castle Towers LLC | 6.875% due 01/10/39 | 350 | 495 | ||||||
| 4.174% due 08/15/17 (Þ) | 705 | 738 | General Electric Co. | ||||||
| DaVita HealthCare Partners, Inc. | 5.250% due 12/06/17 | 340 | 377 | ||||||
| 5.125% due 07/15/24 | 220 | 224 | 4.500% due 03/11/44 | 340 | 374 | ||||
| Delta Air Lines Pass Through Trust | General Mills, Inc. | ||||||||
| Series 2002-1 Class G-1 | 0.433% due 01/28/16 (Ê) | 435 | 435 | ||||||
| 6.718% due 01/02/23 | 101 | 116 | 1.400% due 10/20/17 | 535 | 533 | ||||
| Series 2007-1 Class A | Series FRN | ||||||||
| 6.821% due 08/10/22 | 470 | 545 | 0.533% due 01/29/16 (Ê) | 1,065 | 1,065 | ||||
| Devon Energy Corp. | General Motors Co. | ||||||||
| 4.750% due 05/15/42 | 610 | 614 | 4.875% due 10/02/23 | 940 | 1,006 | ||||
| DIRECTV Holdings LLC / DIRECTV | |||||||||
| Financing Co., Inc. | 5.000% due 04/01/35 | 475 | 495 | ||||||
| 4.450% due 04/01/24 | 725 | 759 | 5.200% due 04/01/45 | 425 | 448 | ||||
| Discover Financial Services | Georgia-Pacific LLC | ||||||||
| 3.950% due 11/06/24 | 460 | 462 | 3.600% due 03/01/25 (Þ) | 345 | 346 | ||||
| DISH DBS Corp. | 8.875% due 05/15/31 | 410 | 635 | ||||||
| 6.750% due 06/01/21 | 630 | 677 | Gilead Sciences, Inc. | ||||||
| Duke Energy Progress, Inc. | 3.500% due 02/01/25 | 270 | 277 | ||||||
| 4.100% due 03/15/43 | 310 | 329 | 4.800% due 04/01/44 | 245 | 272 | ||||
| eBay, Inc. | 4.500% due 02/01/45 | 305 | 326 | ||||||
| 0.433% due 07/28/17 (Ê) | 580 | 577 | Goldman Sachs Capital I | ||||||
| 0.712% due 08/01/19 (Ê) | 370 | 363 | 6.345% due 02/15/34 | 325 | 387 | ||||
| El Paso Natural Gas Co. LLC | Goldman Sachs Group, Inc. (The) | ||||||||
| 7.500% due 11/15/26 | 100 | 124 | 0.697% due 03/22/16 (Ê) | 900 | 898 | ||||
| Energy Transfer Partners, LP | 6.150% due 04/01/18 | 400 | 449 | ||||||
| 6.050% due 06/01/41 | 375 | 409 | 2.550% due 10/23/19 | 435 | 433 | ||||
| 3.250% due 11/01/66 (Ê) | 1,380 | 1,235 | 6.750% due 10/01/37 | 515 | 648 | ||||
| Enterprise Products Operating LLC | 4.800% due 07/08/44 | 370 | 396 | ||||||
| 5.250% due 01/31/20 | 620 | 685 | Series D | ||||||
| 3.750% due 02/15/25 | 215 | 216 | 6.000% due 06/15/20 | 150 | 173 | ||||
| Series B | Series GMTN | ||||||||
| 7.034% due 01/15/68 | 370 | 406 | 7.500% due 02/15/19 | 600 | 714 | ||||
| Farmers Exchange Capital | Great Plains Energy, Inc. | ||||||||
| 7.200% due 07/15/48 (Þ) | 300 | 390 | 5.292% due 06/15/22 | 620 | 711 | ||||
| Farmers Exchange Capital II | HCA, Inc. | ||||||||
| 6.151% due 11/01/53 (Þ) | 630 | 678 | 6.500% due 02/15/20 | 200 | 224 | ||||
| Farmers Exchange Capital III | HCP, Inc. | ||||||||
| 5.454% due 10/15/54 (Þ) | 380 | 391 | 5.375% due 02/01/21 | 400 | 447 | ||||
| Fifth Third Bank | 4.250% due 11/15/23 | 445 | 468 | ||||||
| Series BKNT | Health Care REIT, Inc. | ||||||||
| 2.875% due 10/01/21 | 500 | 500 | 4.950% due 01/15/21 | 365 | 401 | ||||
| FirstEnergy Transmission, LLC | 5.250% due 01/15/22 | 200 | 222 | ||||||
| 5.450% due 07/15/44 | 500 | 539 | |||||||
| Ford Motor Credit Co. LLC | 6.500% due 03/15/41 | 140 | 184 | ||||||
| 3.984% due 06/15/16 | 670 | 694 | Healthcare Realty Trust, Inc. | ||||||
| 6.500% due 01/17/17 | 700 | 764 | |||||||
| 4.250% due 02/03/17 | 660 | 693 | Hewlett-Packard Co. | ||||||
| Forest Laboratories, Inc. | 3.750% due 12/01/20 | 355 | 367 | ||||||
| 4.875% due 02/15/21 (Þ) | 1,260 | 1,351 | Historic TW, Inc. | ||||||
| FPL Energy Wind Funding LLC | 8.050% due 01/15/16 | 195 | 208 | ||||||
| 6.876% due 06/27/17 (Þ) | 49 | 49 | Hospira, Inc. | ||||||
| Freeport-McMoRan, Inc. | 5.200% due 08/12/20 | 870 | 933 | ||||||
| 4.550% due 11/14/24 | 345 | 335 | Humana, Inc. | ||||||
| 5.400% due 11/14/34 | 575 | 561 | 4.950% due 10/01/44 | 380 | 404 | ||||
| General Electric Capital Corp. | Indiantown Cogeneration, LP | ||||||||
| 1.000% due 01/08/16 | 1,550 | 1,556 | Series A-10 | ||||||
| 0.402% due 02/15/17 (Ê) | 560 | 558 | 9.770% due 12/15/20 | 136 | 155 | ||||
| 4.375% due 09/16/20 | 300 | 329 | Innovation Ventures LLC / Innovation | ||||||
| Series GMTN | Ventures Finance Corp. | ||||||||
| 0.880% due 07/12/16 (Ê) | 625 | 629 | 9.500% due 08/15/19 (Þ) | 300 | 299 | ||||
| 1.250% due 05/15/17 | 1,560 | 1,562 | International Business Machines Corp. | ||||||
| 5.625% due 05/01/18 | 230 | 259 | 0.302% due 02/05/16 (Ê) | 1,200 | 1,200 | ||||
| International Lease Finance Corp. | |||||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 80 Core Bond Fund | |||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| 6.750% due 09/01/16 (Þ) | 100 | 107 | 6.250% due 08/28/17 | 500 | 555 | ||||
| IPALCO Enterprises, Inc. | 5.625% due 09/23/19 | 275 | 310 | ||||||
| 7.250% due 04/01/16 (Þ) | 400 | 422 | 3.700% due 10/23/24 | 475 | 481 | ||||
| 5.000% due 05/01/18 | 500 | 528 | Series GMTN | ||||||
| Jersey Central Power & Light Co. | 5.450% due 01/09/17 | 225 | 242 | ||||||
| 6.150% due 06/01/37 | 200 | 238 | 4.350% due 09/08/26 | 575 | 578 | ||||
| JetBlue Airways Pass Through Trust | Mutual of Omaha Insurance Co. | ||||||||
| Series 04-2 Class G-2 | 4.297% due 07/15/54 (Þ) | 545 | 547 | ||||||
| 0.682% due 11/15/16 (Ê) | 750 | 728 | National City Bank | ||||||
| JPMorgan Chase & Co. | Series BKNT | ||||||||
| 4.250% due 10/15/20 | 300 | 323 | 0.605% due 06/07/17 (Ê) | 500 | 498 | ||||
| 3.875% due 09/10/24 | 440 | 440 | Nationwide Mutual Insurance Company | ||||||
| Series FRN | Series 144a | ||||||||
| 0.752% due 02/15/17 (Ê) | 1,200 | 1,197 | 2.531% due 12/15/24 (Ê)(Þ) | 500 | 500 | ||||
| Series GMTN | New York Life Global Funding | ||||||||
| 0.854% due 02/26/16 (Ê) | 1,400 | 1,403 | 1.450% due 12/15/17 (Þ) | 885 | 883 | ||||
| Series X | NiSource Finance Corp. | ||||||||
| 6.100% due 12/31/49 (ƒ) | 505 | 504 | 6.400% due 03/15/18 | 145 | 165 | ||||
| JPMorgan Chase Bank NA | Noble Energy, Inc. | ||||||||
| Series BKNT | 3.900% due 11/15/24 | 150 | 148 | ||||||
| 5.875% due 06/13/16 | 70 | 75 | NVR, Inc. | ||||||
| 6.000% due 10/01/17 | 945 | 1,049 | 3.950% due 09/15/22 | 520 | 533 | ||||
| JPMorgan Chase Capital XIII | Oncor Electric Delivery Co. LLC | ||||||||
| Series M | 6.800% due 09/01/18 | 550 | 641 | ||||||
| 1.207% due 09/30/34 (Ê) | 480 | 398 | Oracle Corp. | ||||||
| JPMorgan Chase Capital XXI | 2.250% due 10/08/19 | 475 | 478 | ||||||
| Series U | O'Reilly Automotive, Inc. | ||||||||
| 1.182% due 02/02/37 (Ê) | 335 | 275 | 3.800% due 09/01/22 | 225 | 232 | ||||
| JPMorgan Chase Capital XXIII | PACCAR Financial Corp. | ||||||||
| 1.232% due 05/15/47 (Ê) | 545 | 441 | 0.502% due 02/08/16 (Ê) | 125 | 125 | ||||
| Kinder Morgan, Inc. | 0.425% due 06/06/17 (Ê) | 625 | 625 | ||||||
| 4.300% due 06/01/25 | 555 | 555 | Panhandle Eastern Pipe Line Co., LP | ||||||
| KKR Group Finance Co. III LLC | 8.125% due 06/01/19 | 450 | 546 | ||||||
| 5.125% due 06/01/44 (Þ) | 455 | 491 | Pfizer, Inc. | ||||||
| Life Technologies Corp. | 0.382% due 05/15/17 (Ê) | 1,400 | 1,399 | ||||||
| 6.000% due 03/01/20 | 610 | 697 | 6.200% due 03/15/19 | 330 | 384 | ||||
| Lorillard Tobacco Co. | PNC Bank NA | ||||||||
| 6.875% due 05/01/20 | 380 | 448 | 3.300% due 10/30/24 | 495 | 504 | ||||
| Manufacturers & Traders Trust Co. | Procter & Gamble Co. (The) | ||||||||
| 5.585% due 12/28/20 | 84 | 87 | 0.312% due 11/04/16 (Ê) | 1,000 | 996 | ||||
| Series BKNT | Progress Energy, Inc. | ||||||||
| 1.400% due 07/25/17 | 780 | 779 | 5.625% due 01/15/16 | 40 | 42 | ||||
| Medco Health Solutions, Inc. | Public Service Co. of New Mexico | ||||||||
| 4.125% due 09/15/20 | 265 | 281 | 7.950% due 05/15/18 | 260 | 306 | ||||
| Medtronic, Inc. | QVC, Inc. | ||||||||
| 2.500% due 03/15/20 (Þ) | 630 | 632 | 4.375% due 03/15/23 | 930 | 933 | ||||
| 2.750% due 04/01/23 | 525 | 510 | 5.450% due 08/15/34 | 320 | 312 | ||||
| 3.500% due 03/15/25 (Þ) | 690 | 706 | Rayonier AM Products, Inc. | ||||||
| 4.625% due 03/15/45 (Þ) | 695 | 753 | 5.500% due 06/01/24 (Þ) | 560 | 460 | ||||
| Merck & Co., Inc. | Reynolds Group Issuer, Inc. / Reynolds | ||||||||
| 0.422% due 05/18/16 (Ê) | 350 | 350 | Group Issuer LLC / Reynolds Group | ||||||
| 0.592% due 05/18/18 (Ê) | 1,170 | 1,172 | Issuer Lu | ||||||
| MetLife, Inc. | 5.750% due 10/15/20 | 220 | 226 | ||||||
| 10.750% due 08/01/39 | 660 | 1,073 | Rockwood Specialties Group, Inc. | ||||||
| Metropolitan Life Global Funding I | 4.625% due 10/15/20 | 765 | 790 | ||||||
| 0.356% due 06/23/16 (Þ) | 900 | 898 | Sabine Pass LNG, LP | ||||||
| 1.875% due 06/22/18 (Þ) | 750 | 747 | 7.500% due 11/30/16 | 175 | 182 | ||||
| Monongahela Power Co. | Series 144a | ||||||||
| 4.100% due 04/15/24 (Þ) | 375 | 400 | 7.500% due 11/30/16 (Þ) | 380 | 395 | ||||
| 5.400% due 12/15/43 (Þ) | 255 | 306 | Samsung Electronics America, Inc. | ||||||
| Morgan Stanley | 1.750% due 04/10/17 (Þ) | 305 | 306 | ||||||
| 5.550% due 04/27/17 | 425 | 461 | SL Green Realty Corp. | ||||||
| 7.750% due 03/15/20 | 325 | 388 | |||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Core Bond Fund 81 | |||||||||
| Russell Investment Funds | ||||||||||
| Core Bond Fund | ||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||
| Principal | Fair | Principal | Fair | |||||||
| Amount ($) | Value | Amount ($) | Value | |||||||
| or Shares | $ | or Shares | $ | |||||||
| South Carolina Electric & Gas Co. | ArcelorMittal | |||||||||
| 6.500% due 11/01/18 | 150 | 175 | 7.250% due 03/01/41 | 590 | 596 | |||||
| Sprint Capital Corp. | Avago Technologies Cayman, Ltd. Term | |||||||||
| 8.750% due 03/15/32 | 1,255 | 1,214 | Loan B | |||||||
| Symantec Corp. | 3.750% due 05/06/21 | 498 | 495 | |||||||
| 2.750% due 06/15/17 | 210 | 213 | AWAS Aviation Capital, Ltd. | |||||||
| Tennessee Gas Pipeline Co. LLC | 7.000% due 10/17/16 (Þ) | 225 | 230 | |||||||
| 8.000% due 02/01/16 | 200 | 213 | Babson CLO, Ltd. | |||||||
| 8.375% due 06/15/32 | 460 | 605 | Series 2014-IIA Class A | |||||||
| Time Warner Cable, Inc. | 1.656% due 10/17/26 (Ê)(Þ) | 130 | 129 | |||||||
| 5.000% due 02/01/20 | 220 | 242 | Baidu, Inc. | |||||||
| 6.550% due 05/01/37 | 675 | 869 | 3.250% due 08/06/18 | 340 | 348 | |||||
| Toyota Motor Credit Corp. | Banco do Brasil SA/Cayman | |||||||||
| 0.522% due 05/17/16 (Ê) | 1,535 | 1,538 | 9.000% due 12/29/49 (ƒ)(Þ) | 450 | 419 | |||||
| UAL Pass Through Trust | Bank of Nova Scotia | |||||||||
| Series 09-1 | Series YCD | |||||||||
| 10.400% due 11/01/16 | 32 | 36 | 0.422% due 05/09/16 (Ê)(~) | 730 | 730 | |||||
| UnitedHealth Group, Inc. | Barclays Bank PLC | |||||||||
| 6.000% due 06/15/17 | 3 | 3 | 0.776% due 12/09/16 (Ê) | 975 | 974 | |||||
| 3.875% due 10/15/20 | 390 | 413 | 2.750% due 11/08/19 | 990 | 984 | |||||
| US Airways Pass Through Trust | Barrick Gold Corp. | |||||||||
| Series 2011-1 Class A | 4.100% due 05/01/23 | 320 | 311 | |||||||
| 7.125% due 10/22/23 | 386 | 449 | BP Capital Markets PLC | |||||||
| Series 2012-1 Class A | 3.245% due 05/06/22 | 345 | 339 | |||||||
| 5.900% due 10/01/24 | 420 | 469 | 3.535% due 11/04/24 | 425 | 423 | |||||
| US Bank NA | BPCE SA | |||||||||
| Series BKNT | 0.802% due 11/18/16 (Ê) | 300 | 300 | |||||||
| 0.439% due 09/11/17 (Ê) | 500 | 500 | Braskem Finance, Ltd. | |||||||
| 1.375% due 09/11/17 | 275 | 275 | 6.450% due 02/03/24 | 550 | 551 | |||||
| USF&G Capital III | CDP Financial, Inc. | |||||||||
| 8.312% due 07/01/46 (Þ) | 350 | 530 | 5.600% due 11/25/39 (Þ) | 265 | 346 | |||||
| Verizon Communications, Inc. | Cent CLO 19, Ltd. | |||||||||
| 2.500% due 09/15/16 | 891 | 911 | Series 2013-19A Class A1A | |||||||
| 1.991% due 09/14/18 (Ê) | 100 | 104 | 1.563% due 10/29/25 (Ê)(Þ) | 598 | 591 | |||||
| Cooperatieve Centrale Raiffeisen- | ||||||||||
| 3.000% due 11/01/21 | 700 | 690 | Boerenleenbank BA | |||||||
| 5.150% due 09/15/23 | 1,950 | 2,153 | 0.558% due 04/28/17 | 400 | 400 | |||||
| 4.400% due 11/01/34 | 340 | 338 | Credit Suisse | |||||||
| 6.550% due 09/15/43 | 500 | 641 | 0.717% due 05/26/17 (ƒ) | 300 | 300 | |||||
| Series FRN | 6.000% due 02/15/18 | 385 | 428 | |||||||
| 1.771% due 09/15/16 (Ê) | 420 | 428 | Deutsche Bank AG | |||||||
| Wachovia Capital Trust III | 7.500% due 12/29/49 (ƒ) | 475 | 456 | |||||||
| 5.570% due 03/29/49 (Ê)(ƒ) | 550 | 531 | Deutsche Telekom International Finance | |||||||
| Walgreens Boots Alliance, Inc. | BV | |||||||||
| 3.800% due 11/18/24 | 405 | 413 | 2.250% due 03/06/17 (Þ) | 920 | 935 | |||||
| 4.800% due 11/18/44 | 275 | 290 | Eaton Vance Ltd. | |||||||
| Wells Fargo & Co. | Series 2014-1A Class A | |||||||||
| 0.531% due 06/02/17 | 3,500 | 3,484 | 1.685% due 07/15/26 (Ê)(Þ) | 150 | 149 | |||||
| 4.100% due 06/03/26 | 545 | 557 | Ensco PLC | |||||||
| 4.650% due 11/04/44 | 460 | 475 | 5.750% due 10/01/44 | 465 | 467 | |||||
| Williams Cos., Inc. (The) | Global SC Finance SRL | |||||||||
| 7.875% due 09/01/21 | 161 | 186 | 3.090% due 07/17/29 | 556 | 548 | |||||
| Williams Partners, LP / Williams | Government of the Cayman Islands | |||||||||
| Partners Finance Corp. | 5.950% due 11/24/19 (Þ) | 20 | 23 | |||||||
| 7.250% due 02/01/17 | 235 | 259 | HBOS PLC | |||||||
| ZFS Finance USA Trust II | 6.750% due 05/21/18 (Þ) | 825 | 919 | |||||||
| 6.450% due 12/15/65 (Þ) | 550 | 580 | HSBC Bank PLC | |||||||
| ZFS Finance USA Trust V | 3.100% due 05/24/16 (Þ) | 800 | 826 | |||||||
| 6.500% due 05/09/37 (Þ) | 1,035 | 1,102 | HSBC Holdings PLC | |||||||
| 131,307 | 6.375% due 12/31/49 (ƒ) | 365 | 369 | |||||||
| International Debt - 4.2% | Intesa Sanpaolo SpA | |||||||||
| ABN AMRO Bank NV | 2.375% due 01/13/17 | 530 | 535 | |||||||
| 1.033% due 10/28/16 (Ê)(Þ) | 300 | 302 | 5.017% due 06/26/24 (Þ) | 685 | 665 | |||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||
| 82 Core Bond Fund | ||||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal Amount ($) or Shares |
Fair | ||||||
| Amount ($) | Value | Value | |||||||
| or Shares | $ | $ | |||||||
| JPMorgan Chase & Co. | 6.375% due 12/15/21 | 220 | 203 | ||||||
| Series MPLE | Tyco Electronics Group SA | ||||||||
| 2.920% due 09/19/17 (Þ) | CAD | 605 | 533 | 6.550% due 10/01/17 | 450 | 507 | |||
| Korea Electric Power Corp. | Vale Overseas, Ltd. | ||||||||
| 5.125% due 04/23/34 (Þ) | 60 | 68 | 8.250% due 01/17/34 | 160 | 191 | ||||
| Lloyds Banking Group PLC | Validus Holdings, Ltd. | ||||||||
| 7.500% due 06/27/24 (ƒ) | 685 | 697 | 8.875% due 01/26/40 | 315 | 440 | ||||
| Macquarie Bank, Ltd. | Voya CLO, Ltd. | ||||||||
| 0.864% due 10/27/17 (Ê)(Þ) | 650 | 651 | Series 2014-4A Class A1 | ||||||
| Marfrig Overseas, Ltd. | 1.733% due 10/14/26 (Ê)(Þ) | 310 | 308 | ||||||
| 9.500% due 05/04/20 (Þ) | 665 | 672 | Weatherford International, Ltd. | ||||||
| Nexen Energy ULC | 5.125% due 09/15/20 | 520 | 511 | ||||||
| 7.500% due 07/30/39 | 320 | 444 | Willis Group Holdings PLC | ||||||
| Nokia OYJ | 4.125% due 03/15/16 | 210 | 216 | ||||||
| 6.625% due 05/15/39 | 770 | 851 | 35,520 | ||||||
| Nomura Holdings Inc. | Loan Agreements - 0.4% | ||||||||
| 2.000% due 09/13/16 | 835 | 842 | Chrysler Group LLC Term Loan B | ||||||
| NOVA Chemicals Corp. | 3.500% due 05/24/17 (Ê) | 566 | 561 | ||||||
| 5.250% due 08/01/23 (Þ) | 835 | 843 | First Data Corp. Term Loan | ||||||
| OHA Credit Partners IX, Ltd. | 3.667% due 03/24/18 (Ê) | 575 | 563 | ||||||
| Series 2013-9A Class A1 | Hologic, Inc.Term Loan B | ||||||||
| 1.631% due 10/20/25 (Ê)(Þ) | 559 | 555 | 3.250% due 08/01/19 (Ê) | 347 | 343 | ||||
| Paragon Offshore PLC | MacDermid, Inc. 1st Lien Term Loan | ||||||||
| 7.250% due 08/15/24 (Þ) | 720 | 432 | 4.000% due 06/07/20 (Ê) | 611 | 599 | ||||
| Perrigo Finance PLC | Numericable U.S. LLC 1st Lien Term | ||||||||
| 3.900% due 12/15/24 | 175 | 178 | Loan B1 | ||||||
| Petroleos Mexicanos | 4.500% due 05/21/20 (Ê) | 295 | 293 | ||||||
| 6.375% due 01/23/45 | 245 | 277 | Numericable U.S. LLC 1st Lien Term | ||||||
| Rabobank Nederland | Loan B2 | ||||||||
| 11.000% due 06/29/49 (ƒ)(Þ) | 782 | 1,005 | 4.500% due 05/21/20 (Ê) | 255 | 253 | ||||
| Rio Tinto Finance USA PLC | Sungard Availability Services Capital, | ||||||||
| 1.375% due 06/17/16 | 365 | 367 | Inc. Term Loan B | ||||||
| Royal Bank of Scotland Group PLC | 6.000% due 03/31/19 (Ê) | 447 | 396 | ||||||
| 5.125% due 05/28/24 | 460 | 468 | TWCC Holding Corp. 2nd Lien Term | ||||||
| Saudi Electricity Global Sukuk Co. 2 | Loan | ||||||||
| 5.060% due 04/08/43 (Þ) | 800 | 813 | 7.000% due 06/26/20 (Ê) | 475 | 452 | ||||
| Seagate HDD Cayman | Valeant Pharmaceuticals International, | ||||||||
| 4.750% due 06/01/23 | 385 | 400 | Inc. 1st Lien Term Loan B | ||||||
| Shell International Finance BV | 3.500% due 08/05/20 (Ê) | 318 | 315 | ||||||
| 0.442% due 11/15/16 (Ê) | 1,455 | 1,455 | 3,775 | ||||||
| Sirius International Group, Ltd. | Mortgage-Backed Securities - 22.2% | ||||||||
| 7.506% due 05/29/49 (ƒ)(Þ) | 365 | 380 | Adjustable Rate Mortgage Trust | ||||||
| Sky PLC | Series 2007-1 Class 1A1 | ||||||||
| 6.100% due 02/15/18 (Þ) | 355 | 395 | 2.709% due 03/25/37 (Ê) | 700 | 578 | ||||
| Suncor Energy, Inc. | American Home Mortgage Investment | ||||||||
| 5.950% due 12/01/34 | 320 | 374 | Trust | ||||||
| Sydney Airport Finance Co. Pty, Ltd. | Series 2004-4 Class 4A | ||||||||
| 3.900% due 03/22/23 (Þ) | 640 | 658 | 2.332% due 02/25/45 (Ê) | 44 | 43 | ||||
| Tencent Holdings, Ltd. | Series 2007-1 Class GA1C | ||||||||
| 3.375% due 05/02/19 (Þ) | 330 | 335 | 0.360% due 05/25/47 (Ê) | 684 | 492 | ||||
| Teva Pharmaceutical Finance Co. BV | Series 2007-4 Class A2 | ||||||||
| 3.650% due 11/10/21 | 385 | 395 | 0.360% due 08/25/37 (Ê) | 98 | 96 | ||||
| Toronto-Dominion Bank (The) | Aventura Mall Trust | ||||||||
| 0.400% due 07/13/16 (Ê) | 1,250 | 1,248 | Series 2013-AVM Class A | ||||||
| Total Capital Canada, Ltd. | 3.743% due 12/05/32 (Þ) | 335 | 356 | ||||||
| 2.750% due 07/15/23 | 395 | 383 | Banc of America Commercial Mortgage | ||||||
| Total Capital International SA | Trust | ||||||||
| 1.000% due 08/12/16 | 1,180 | 1,182 | Series 2007-2 Class AM | ||||||
| Total Capital SA | 5.622% due 04/10/49 | 585 | 632 | ||||||
| 2.125% due 08/10/18 | 510 | 514 | Banc of America Funding Corp. | ||||||
| Series 2006-3 Class 5A8 | |||||||||
| Trade MAPS 1, Ltd. | 5.500% due 03/25/36 | 184 | 175 | ||||||
| Series 2013-1A Class A | |||||||||
| 0.862% due 12/10/18 (Ê)(Þ) | 640 | 641 | Series 2006-G Class 2A3 | ||||||
| Transocean, Inc. | 0.336% due 07/20/36 (Ê) | 63 | 63 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Core Bond Fund 83 | |||||||||
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Banc of America Funding Trust | Series 2005-C3 Class AJ | ||||||||
| Series 2006-3 Class 5A3 | 4.960% due 05/15/43 | 270 | 272 | ||||||
| 5.500% due 03/25/36 | 674 | 645 | Series 2009-RR1 Class MA4A | ||||||
| Banc of America Large Loan Trust | 5.485% due 03/17/51 (Þ) | 300 | 323 | ||||||
| Series 2010-UB5 Class A4A | Citigroup Mortgage Loan Trust, Inc. | ||||||||
| 5.649% due 02/17/51 (Þ) | 515 | 542 | Series 2005-11 Class A2A | ||||||
| Banc of America Merrill Lynch | 2.540% due 10/25/35 (Ê) | 25 | 25 | ||||||
| Commercial Mortgage, Inc. | Series 2007-AR8 Class 2A1A | ||||||||
| Series 2005-6 Class A4 | 2.685% due 07/25/37 (Ê) | 364 | 338 | ||||||
| 5.152% due 09/10/47 | 1,507 | 1,538 | Citigroup/Deutsche Bank Commercial | ||||||
| Series 2006-2 Class A4 | Mortgage Trust | ||||||||
| 5.728% due 05/10/45 | 200 | 208 | Series 2005-CD1 Class A4 | ||||||
| Series 2008-1 Class A4 | 5.226% due 07/15/44 | 814 | 827 | ||||||
| 6.245% due 02/10/51 | 483 | 533 | Series 2005-CD1 Class AJ | ||||||
| Banc of America Mortgage Securities, | 5.226% due 07/15/44 | 100 | 103 | ||||||
| Inc. | Series 2005-CD1 Class C | ||||||||
| Series 2004-1 Class 5A1 | 5.226% due 07/15/44 | 190 | 194 | ||||||
| 6.500% due 09/25/33 | 2 | 2 | Commercial Mortgage Asset Trust | ||||||
| Series 2004-11 Class 2A1 | Series 1999-C1 Class D | ||||||||
| 5.750% due 01/25/35 | 63 | 64 | 6.888% due 01/17/32 | 4 | 4 | ||||
| Series 2005-H Class 2A5 | Series 2001-J2A Class E | ||||||||
| 2.691% due 09/25/35 (Ê) | 142 | 130 | 6.922% due 07/16/34 (Þ) | 200 | 219 | ||||
| Bank of America Commercial Mortgage | Series 2005-C6 Class AJ | ||||||||
| Trust | 5.209% due 06/10/44 | 90 | 92 | ||||||
| 0.357% due 09/10/45 | 1,329 | 1,329 | Series 2014-CR20 Class AM | ||||||
| Bayview Commercial Asset Trust | 3.938% due 11/10/47 | 170 | 176 | ||||||
| Series 2005-3A Class A1 | Commercial Mortgage Trust | ||||||||
| 0.490% due 11/25/35 (Ê)(Þ) | 331 | 300 | Series 2014-UBS5 Class A4 | ||||||
| BCAP LLC Trust | 3.838% due 09/10/47 | 495 | 524 | ||||||
| Series 2011-R11 Class 15A1 | Countrywide Home Loan Mortgage Pass | ||||||||
| 2.592% due 10/26/33 (Ê)(Þ) | 343 | 349 | Through Trust | ||||||
| Series 2011-R11 Class 20A5 | Series 2005-3 Class 1A2 | ||||||||
| 2.601% due 03/26/35 (Ê)(Þ) | 211 | 214 | 0.460% due 04/25/35 (Ê) | 16 | 14 | ||||
| Bear Stearns Adjustable Rate Mortgage | Series 2007-HY5 Class 1A1 | ||||||||
| Trust | 2.646% due 09/25/47 (Ê) | 1,032 | 904 | ||||||
| Series 2003-8 Class 4A1 | Credit Suisse Commercial Mortgage | ||||||||
| 2.686% due 01/25/34 (Ê) | 112 | 112 | Trust | ||||||
| Series 2004-5 Class 2A | Series 2006-C5 Class A1A | ||||||||
| 2.957% due 07/25/34 (Ê) | 486 | 487 | 5.297% due 12/15/39 | 1,152 | 1,223 | ||||
| Series 2004-9 Class 22A1 | Series 2007-C1 Class A3 | ||||||||
| 3.013% due 11/25/34 (Ê) | 23 | 23 | 5.383% due 02/15/40 | 81 | 86 | ||||
| Series 2005-2 Class A1 | Credit Suisse First Boston Mortgage | ||||||||
| 2.580% due 03/25/35 (Ê) | 338 | 341 | Securities Corp. | ||||||
| Bear Stearns Commercial Mortgage | Series 2005-9 Class 2A1 | ||||||||
| Securities Trust | 5.500% due 10/25/35 | 179 | 173 | ||||||
| Series 2002-TOP6 Class G | Series 2005-C3 Class AJ | ||||||||
| 6.000% due 10/15/36 (Þ) | 235 | 242 | 4.771% due 07/15/37 | 100 | 101 | ||||
| Series 2005-PW10 Class A4 | Series 2005-C5 Class AJ | ||||||||
| 5.405% due 12/11/40 | 175 | 180 | 5.100% due 08/15/38 | 210 | 214 | ||||
| Series 2006-T22 Class A4 | Series 2005-C6 Class B | ||||||||
| 5.575% due 04/12/38 | 477 | 494 | 5.230% due 12/15/40 | 375 | 384 | ||||
| BHMS Mortgage Trust | Credit Suisse Mortgage Capital | ||||||||
| Series 2014-ATLS Class AFL | Certificates | ||||||||
| 1.657% due 07/05/33 (Ê)(Þ) | 180 | 179 | Series 2007-2 Class 3A4 | ||||||
| Series 2014-ATLS Class BFX | 5.500% due 03/25/37 | 623 | 593 | ||||||
| 4.241% due 07/05/33 (Þ) | 500 | 504 | CSMC | ||||||
| CHL Mortgage Pass-Through Trust | Series 2011-4R Class 5A1 | ||||||||
| Series 2004-22 Class A3 | 2.596% due 05/27/36 (Þ) | 238 | 235 | ||||||
| 2.418% due 11/25/34 (Ê) | 85 | 80 | CSMC Trust | ||||||
| Series 2004-HYB9 Class 1A1 | Series 2014-USA Class A2 | ||||||||
| 2.466% due 02/20/35 (Ê) | 130 | 127 | 3.953% due 09/15/37 (Þ) | 380 | 403 | ||||
| Citicorp Mortgage Securities Trust | DBCCRE Mortgage Trust | ||||||||
| Series 2006-3 Class 1A9 | Series 2014-ARCP Class C | ||||||||
| 5.750% due 06/25/36 | 159 | 164 | 4.935% due 01/10/34 (Þ) | 295 | 318 | ||||
| Citigroup Commercial Mortgage Trust | DBRR Trust | ||||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 84 Core Bond Fund | |||||||||
| Russell Investment Funds | ||||||||||
| Core Bond Fund | ||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||
| Principal | Fair | Principal | Fair | |||||||
| Amount ($) | Value | Amount ($) | Value | |||||||
| or Shares | $ | or Shares | $ | |||||||
| Series 2011-LC2 Class A4A | 5.500% | 1,705 | 1,907 | |||||||
| 4.537% due 07/12/44 (Þ) | 340 | 376 | 6.000% | 1,510 | 1,712 | |||||
| DBUBS Mortgage Trust | Series 2003-343 Class 6 | |||||||||
| Series 2011-LC1A Class A1 | Interest Only STRIP | |||||||||
| 3.742% due 11/10/46 (Þ) | 714 | 731 | 5.000% due 10/25/33 | 47 | 8 | |||||
| Series 2011-LC2A Class A2 | Series 2003-345 Class 18 | |||||||||
| 3.386% due 07/10/44 (Þ) | 727 | 748 | Interest Only STRIP | |||||||
| Deutsche Alt-A Securities Mortgage | 4.500% due 12/25/18 | 65 | 4 | |||||||
| Loan Trust | Series 2003-345 Class 19 | |||||||||
| Series 2005-AR1 Class 2A3 | Interest Only STRIP | |||||||||
| 1.835% due 08/25/35 (Ê) | 366 | 291 | 4.500% due 01/25/19 | 71 | 4 | |||||
| Dynegy Danskammer | Series 2004-W5 | |||||||||
| Class B | 6.000% due 02/25/47 | 301 | 338 | |||||||
| 7.670% due 11/08/16 (Å) | 700 | — | Series 2005-365 Class 12 | |||||||
| Extended Stay America Trust | Interest Only STRIP | |||||||||
| Series 2013-ESH7 Class A27 | 5.500% due 12/25/35 | 142 | 22 | |||||||
| 2.958% due 12/05/31 (Þ) | 325 | 329 | Series 2006-369 Class 8 | |||||||
| Fannie Mae | Interest Only STRIP | |||||||||
| 5.432% due 2016 | 946 | 973 | 5.500% due 04/25/36 | 23 | 3 | |||||
| 3.584% due 2020 | 558 | 598 | Fannie Mae Grantor Trust | |||||||
| 3.615% due 2020 | 704 | 760 | Series 2001-T4 Class A1 | |||||||
| 3.665% due 2020 | 773 | 835 | 7.500% due 07/25/41 | 289 | 344 | |||||
| 3.763% due 2020 | 1,615 | 1,742 | Fannie Mae REMICS | |||||||
| Series 1999-56 Class Z | ||||||||||
| 4.250% due 2020 | 747 | 822 | 7.000% due 12/18/29 | 25 | 28 | |||||
| 5.500% due 2020 | 17 | 19 | Series 2003-35 Class FY | |||||||
| 4.297% due 2021 | 736 | 816 | 0.570% due 05/25/18 (Ê) | 38 | 38 | |||||
| 5.500% due 2022 | 88 | 95 | Series 2004-W2 Class 2A2 | |||||||
| 2.500% due 2024 | 1,111 | 1,143 | 7.000% due 02/25/44 | 196 | 225 | |||||
| 4.000% due 2025 | 388 | 414 | Series 2005-110 Class MB | |||||||
| 4.500% due 2025 | 863 | 933 | 5.500% due 09/25/35 | 74 | 80 | |||||
| 3.240% due 2026 | 134 | 138 | Series 2009-39 Class LB | |||||||
| 4.000% due 2026 | 550 | 588 | 4.500% due 06/25/29 | 366 | 388 | |||||
| 6.000% due 2026 | 102 | 116 | Series 2009-96 Class DB | |||||||
| 4.000% due 11/25/29 | 429 | 459 | ||||||||
| 6.000% due 2027 | 60 | 68 | Series 2010-95 Class S | |||||||
| 3.500% due 2032 | 665 | 702 | Interest Only STRIP | |||||||
| 6.000% due 2032 | 67 | 76 | 6.431% due 09/25/40 (Ê) | 1,179 | 231 | |||||
| 6.150% due 2032(Ê) | 104 | 111 | Series 2012-55 Class PC | |||||||
| 3.000% due 2033 | 1,839 | 1,900 | 3.500% due 05/25/42 | 700 | 727 | |||||
| 3.500% due 2033 | 1,624 | 1,713 | Series 2013-111 Class PL | |||||||
| 5.000% due 2033 | 18 | 20 | 2.000% due 12/25/42 | 570 | 515 | |||||
| 6.150% due 2033(Ê) | 79 | 86 | Fannie Mae-Aces | |||||||
| Series 2011-M1 Class A3 | ||||||||||
| 3.500% due 2034 | 361 | 380 | 3.763% due 06/25/21 | 875 | 943 | |||||
| 5.000% due 2034 | 29 | 32 | Series 2012-M12 Class 1A | |||||||
| 5.500% due 2034 | 57 | 64 | 2.840% due 08/25/22 | 933 | 957 | |||||
| 5.500% due 2037 | 458 | 510 | Series 2014-M8 Class FA | |||||||
| 5.500% due 2038 | 953 | 1,077 | 0.407% due 05/25/18 (Ê) | 788 | 788 | |||||
| 4.000% due 2040 | 552 | 596 | Series 2014-M12 Class FA | |||||||
| 6.000% due 2040 | 432 | 491 | 0.457% due 10/25/21 (Ê) | 998 | 1,003 | |||||
| 4.000% due 2041 | 1,654 | 1,777 | Series 2014-M13 Class A2 | |||||||
| 6.000% due 2041 | 472 | 536 | 3.021% due 08/25/24 | 430 | 440 | |||||
| Series 2014-M13 Class AB2 | ||||||||||
| 3.500% due 2043 | 1,824 | 1,904 | 2.951% due 08/25/24 | 510 | 515 | |||||
| 4.000% due 2044 | 1,727 | 1,866 | Series 2014-M13 Class ASQ1 | |||||||
| 15 Year TBA(Ï) | 0.848% due 11/25/17 | 1,378 | 1,375 | |||||||
| 2.500% | 4,035 | 4,108 | Series 2014-M13 Class ASQ2 | |||||||
| 3.000% | 915 | 951 | 1.637% due 11/25/17 | 4,430 | 4,460 | |||||
| 3.500% | 2,650 | 2,799 | FDIC Trust | |||||||
| 30 Year TBA(Ï) | Series 2010-R1 Class A | |||||||||
| 3.000% | 10,005 | 10,122 | 2.184% due 05/25/50 (Þ) | 909 | 914 | |||||
| 3.500% | 14,680 | 15,304 | Series 2011-R1 Class A | |||||||
| 4.000% | 25,150 | 27,127 | 2.672% due 07/25/26 (Þ) | 378 | 386 | |||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||
| Core Bond Fund 85 | ||||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Federal Home Loan Mortgage Corp. | 4.000% due 2040(Ê) | 448 | 481 | ||||||
| Multifamily Structured Pass Through | 4.810% due 2061 | 1,108 | 1,191 | ||||||
| Certificates | 5.245% due 2061 | 662 | 727 | ||||||
| Series 2011-K702 Class X1 | |||||||||
| Interest Only STRIP | 4.652% due 2063 | 90 | 99 | ||||||
| 1.525% due 02/25/18 | 6,735 | 281 | 4.661% due 2063 | 37 | 40 | ||||
| Series 2012-K501 Class X1A | 4.732% due 2063 | 210 | 228 | ||||||
| Interest Only STRIP | 4.683% due 2064 | 732 | 787 | ||||||
| 1.685% due 08/25/16 | 3,895 | 74 | 4.793% due 2064 | 881 | 949 | ||||
| Series 2014-KF05 Class A | 30 Year TBA(Ï) | ||||||||
| 0.506% due 09/25/21 (Ê) | 1,340 | 1,340 | 3.000% | 495 | 506 | ||||
| Federal Home Loan Mortgage Corp. | 4.000% | 2,220 | 2,380 | ||||||
| Structured Pass Through Securities | 4.500% | 1,750 | 1,912 | ||||||
| Series 2003-56 Class A5 | |||||||||
| 5.231% due 05/25/43 | 322 | 356 | GMACM Mortgage Loan Trust | ||||||
| Series 2005-AR2 Class 4A | |||||||||
| First Horizon Asset Securities, Inc. | 4.566% due 05/25/35 (Ê) | 202 | 194 | ||||||
| Series 2005-AR4 Class 2A1 | Government National Mortgage | ||||||||
| 2.564% due 10/25/35 (Ê) | 730 | 639 | |||||||
| First Horizon Mortgage Pass-Through | Association | ||||||||
| Series 2007-26 Class SD | |||||||||
| Trust | Interest Only STRIP | ||||||||
| Series 2006-2 Class 1A3 | 6.639% due 05/16/37 (Ê) | 1,122 | 170 | ||||||
| 6.000% due 08/25/36 | 658 | 640 | Series 2010-74 Class IO | ||||||
| Freddie Mac | Interest Only STRIP | ||||||||
| 5.500% due 2037 | 254 | 280 | 0.399% due 03/16/50 | 1,984 | 44 | ||||
| 5.500% due 2038 | 1,363 | 1,552 | Series 2010-124 Class C | ||||||
| 6.000% due 2038 | 251 | 285 | 3.392% due 03/16/45 | 75 | 77 | ||||
| 4.000% due 2041 | 2,474 | 2,670 | Series 2010-H03 Class HI | ||||||
| 4.500% due 2041 | 619 | 679 | Interest Only STRIP | ||||||
| 3.000% due 2042 | 331 | 335 | 1.474% due 03/20/60 | 16,041 | 752 | ||||
| 3.500% due 2043 | 903 | 945 | Series 2010-H04 Class BI | ||||||
| Interest Only STRIP | |||||||||
| 4.000% due 2044 | 4,636 | 4,977 | 1.390% due 04/20/60 | 1,400 | 69 | ||||
| Freddie Mac Reference REMIC | Series 2010-H12 Class PT | ||||||||
| Series 2006-R006 Class ZA | |||||||||
| 6.000% due 04/15/36 | 577 | 647 | 5.470% due 11/20/59 | 523 | 552 | ||||
| Series 2010-H22 Class JI | |||||||||
| Freddie Mac REMICS | Interest Only STRIP | ||||||||
| Series 2003-2624 Class QH | |||||||||
| 5.000% due 06/15/33 | 209 | 228 | 2.499% due 11/20/60 | 2,346 | 227 | ||||
| Series 2007-3335 Class FT | Series 2011-38 Class C | ||||||||
| 0.311% due 08/15/19 (Ê) | 64 | 64 | 4.368% due 09/16/51 | 525 | 556 | ||||
| Series 2009-3569 Class NY | Series 2011-67 Class B | ||||||||
| 5.000% due 08/15/39 | 1,400 | 1,568 | 3.863% due 10/16/47 | 230 | 240 | ||||
| Series 2011-H02 Class BI | |||||||||
| Series 2010-3653 Class B | Interest Only STRIP | ||||||||
| 4.500% due 04/15/30 | 680 | 735 | 0.412% due 02/20/61 | 10,170 | 173 | ||||
| Series 2010-3704 Class DC | Series 2012-99 Class CI | ||||||||
| 4.000% due 11/15/36 | 377 | 400 | Interest Only STRIP | ||||||
| Series 2011-3901 Class LA | 1.054% due 10/16/49 | 1,822 | 131 | ||||||
| 4.000% due 06/15/38 | 130 | 131 | Series 2012-115 Class IO | ||||||
| Series 2012-4010 Class KM | Interest Only STRIP | ||||||||
| 3.000% due 01/15/42 | 360 | 369 | 0.431% due 04/16/54 | 769 | 34 | ||||
| FREMF Mortgage Trust | GS Mortgage Securities Corp. II | ||||||||
| Series 2010-K7 Class B | Series 2011-GC5 Class A4 | ||||||||
| 5.435% due 04/25/20 (Þ) | 510 | 568 | 3.707% due 08/10/44 | 735 | 778 | ||||
| Series 2012-K705 Class B | Series 2013-GC10 Class A1 | ||||||||
| 4.162% due 09/25/44 (Þ) | 217 | 227 | 0.696% due 02/10/46 | 103 | 103 | ||||
| GE Business Loan Trust | GS Mortgage Securities Trust | ||||||||
| Series 2003-2A Class A | Series 2013-GC12 Class A1 | ||||||||
| 0.531% due 11/15/31 (Ê)(Þ) | 257 | 247 | 0.742% due 06/10/46 | 216 | 215 | ||||
| GE Capital Commercial Mortgage Corp. | Series 2013-GC16 Class A1 | ||||||||
| Series 2005-C3 Class F | 1.264% due 11/10/46 | 230 | 231 | ||||||
| 5.157% due 07/10/45 (Þ) | 195 | 197 | Series 2014-GC26 Class C | ||||||
| Ginnie Mae I | 4.511% due 11/10/47 | 240 | 246 | ||||||
| 4.564% due 2062 | 1,249 | 1,363 | GSMPS Mortgage Loan Trust | ||||||
| Ginnie Mae II | Series 2006-RP1 Class 1A2 | ||||||||
| 3.500% due 2040(Ê) | 1,271 | 1,336 | 7.500% due 01/25/36 (Þ) | 367 | 371 | ||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 86 Core Bond Fund | |||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| GSR Mortgage Loan Trust | Mastr Alternative Loan Trust | ||||||||
| Series 2005-AR7 Class 6A1 | Series 2003-4 Class B1 | ||||||||
| 4.979% due 11/25/35 (Ê) | 53 | 51 | 5.941% due 06/25/33 | 72 | 72 | ||||
| HarborView Mortgage Loan Trust | Series 2004-10 Class 5A6 | ||||||||
| Series 2005-4 Class 3A1 | 5.750% due 09/25/34 | 60 | 62 | ||||||
| 2.603% due 07/19/35 (Ê) | 82 | 74 | Merrill Lynch Mortgage Trust | ||||||
| IndyMac Index Mortgage Loan Trust | Series 2005-A10 Class A | ||||||||
| Series 2006-AR41 Class A3 | 0.380% due 02/25/36 (Ê) | 58 | 53 | ||||||
| 0.350% due 02/25/37 (Ê) | 880 | 602 | Series 2005-CIP1 Class AM | ||||||
| JPMorgan Alternative Loan Trust | 5.107% due 07/12/38 | 900 | 915 | ||||||
| Series 2006-A2 Class 3A1 | Series 2005-LC1 Class A4 | ||||||||
| 2.585% due 05/25/36 (Ê) | 935 | 762 | 5.291% due 01/12/44 | 106 | 109 | ||||
| JPMorgan Chase Commercial Mortgage | Series 2006-C2 Class AM | ||||||||
| Securities Corp. | 5.782% due 08/12/43 | 500 | 530 | ||||||
| Series 2003-C1 Class D | Series 2008-C1 Class A4 | ||||||||
| 5.192% due 01/12/37 | 40 | 40 | 5.690% due 02/12/51 | 263 | 286 | ||||
| Series 2004-LN2 Class B | ML-CFC Commercial Mortgage Trust | ||||||||
| 5.201% due 07/15/41 | 150 | 153 | Series 2006-1 Class A4 | ||||||
| Series 2005-LDP5 Class A4 | 5.467% due 02/12/39 | 462 | 477 | ||||||
| 5.236% due 12/15/44 | 867 | 882 | Morgan Stanley Bank of America Merrill | ||||||
| Series 2007-CB18 Class A4 | Lynch Trust | ||||||||
| 5.440% due 06/12/47 | 1,156 | 1,229 | Series 2013-C7 Class A1 | ||||||
| Series 2007-LDPX Class A3 | 0.738% due 02/15/46 | 157 | 158 | ||||||
| 5.420% due 01/15/49 | 659 | 704 | Series 2014-C19 Class A2 | ||||||
| JPMorgan Chase Commercial Mortgage | 3.101% due 12/15/47 | 530 | 546 | ||||||
| Securities Trust | Morgan Stanley Capital I Trust | ||||||||
| 5.815% due 06/15/49 | 180 | 187 | Series 2005-HQ6 Class D | ||||||
| Series 2004-C1 Class H | 5.202% due 08/13/42 | 100 | 101 | ||||||
| 5.891% due 01/15/38 (Þ) | 700 | 717 | Series 2006-IQ12 Class AM | ||||||
| Series 2005-CB12 Class AJ | 5.370% due 12/15/43 | 180 | 192 | ||||||
| 4.987% due 09/12/37 | 220 | 223 | Series 2007-HQ12 Class A2 | ||||||
| Series 2007-LDPX Class AM | 5.592% due 04/12/49 | 79 | 79 | ||||||
| 5.464% due 01/15/49 | 600 | 622 | Morgan Stanley Capital I, Inc. | ||||||
| Series 2011-C3 Class A3 | Series 2005-HQ7 Class A4 | ||||||||
| 4.388% due 02/15/46 (Þ) | 900 | 969 | 5.206% due 11/14/42 | 217 | 221 | ||||
| Series 2014-FBLU Class C | Series 2011-C3 Class A2 | ||||||||
| 2.161% due 12/15/28 (Ê)(Þ) | 285 | 285 | 3.224% due 07/15/49 | 179 | 185 | ||||
| JPMorgan Mortgage Trust | Series 2011-C3 Class A4 | ||||||||
| Series 2004-A2 Class 3A1 | 4.118% due 07/15/49 | 115 | 124 | ||||||
| 2.470% due 05/25/34 (Ê) | 44 | 43 | Morgan Stanley Dean Witter Capital I | ||||||
| Series 2005-A1 Class 6T1 | Trust | ||||||||
| 2.636% due 02/25/35 (Ê) | 13 | 13 | Series 2001-TOP3 Class C | ||||||
| Series 2005-A5 Class TA1 | 6.790% due 07/15/33 | 10 | 10 | ||||||
| 5.172% due 08/25/35 (Ê) | 94 | 95 | Mortgage Pass Through Certificates | ||||||
| Series 2005-A8 Class 1A1 | Series 2001-CIB2 Class D | ||||||||
| 5.028% due 11/25/35 (Ê) | 139 | 132 | 6.802% due 04/15/35 | 130 | 130 | ||||
| Series 2005-S3 Class 1A2 | Mortgage-Linked Amortizing Notes | ||||||||
| 5.750% due 01/25/36 | 33 | 31 | Series 2012-1 Class A10 | ||||||
| Series 2006-A6 Class 1A2 | 2.060% due 01/15/22 | 368 | 375 | ||||||
| 2.537% due 10/25/36 (Ê) | 120 | 108 | Motel 6 Trust | ||||||
| Series 2006-A7 Class 2A4R | Series 2012-MTL6 Class A2 | ||||||||
| 2.695% due 01/25/37 (Ê) | 881 | 798 | 1.948% due 10/05/25 (Þ) | 320 | 319 | ||||
| LB-UBS Commercial Mortgage Trust | Series 2012-MTL6 Class XA1 | ||||||||
| Series 2005-C2 Class AJ | Interest Only STRIP | ||||||||
| 5.205% due 04/15/30 | 405 | 408 | Zero coupon due 10/05/25 (Þ) | 2,130 | — | ||||
| Series 2005-C3 Class AM | NorthStar Mortgage Trust | ||||||||
| Series 2012-1 Class A | |||||||||
| 4.794% due 07/15/40 | 570 | 576 | 1.355% due 08/25/29 (Ê)(Þ) | 16 | 16 | ||||
| Series 2005-C3 Class B | |||||||||
| 4.895% due 07/15/40 | 220 | 222 | Prime Series Mortgage 2004-CL1 Trust Class 1A2 | ||||||
| Mastr Adjustable Rate Mortgages Trust | 0.570% due 02/25/34 (Ê) | 7 | 7 | ||||||
| Series 2006-2 Class 4A1 | |||||||||
| 2.628% due 02/25/36 (Ê) | 69 | 68 | RBSCF Series Trust 2010-RR3 Class MSCA | ||||||
| Series 2007-HF2 Class A1 | 5.908% due 06/16/49 (Þ) | 95 | 103 | ||||||
| 0.480% due 09/25/37 (Ê) | 441 | 404 | |||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Core Bond Fund 87 | |||||||||
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Series 2010-RR4 Class CMLA | Series 2012-C9 Class A1 | ||||||||
| 6.040% due 12/16/49 (Þ) | 177 | 187 | 0.673% due 11/15/45 | 81 | 81 | ||||
| RBSSP Resecuritization Trust | Series 2013-C14 Class A1 | ||||||||
| Series 2010-3 Class 9A1 | 0.836% due 06/15/46 | 233 | 232 | ||||||
| 5.500% due 02/26/35 (Þ) | 465 | 483 | Series 2014-C19 Class A3 | ||||||
| Residential Asset Securitization Trust | 3.660% due 03/15/47 | 500 | 524 | ||||||
| Series 2003-A15 Class 1A2 | 185,652 | ||||||||
| 0.620% due 02/25/34 (Ê) | 50 | 46 | Municipal Bonds - 0.8% | ||||||
| RFMSI Trust | City of Houston Texas General | ||||||||
| Series 2006-SA4 Class 2A1 | Obligation Limited | ||||||||
| 3.494% due 11/25/36 (Ê) | 181 | 155 | 6.290% due 03/01/32 | 465 | 589 | ||||
| Rialto Capital Management LLC | City of New York New York General | ||||||||
| Series 2014-LT5 Class A | Obligation Unlimited | ||||||||
| 2.850% due 05/15/24 (Þ) | 56 | 56 | 5.047% due 10/01/24 | 375 | 426 | ||||
| RREF LLC | |||||||||
| Series 2014-LT6 Class A | 6.646% due 12/01/31 | 250 | 299 | ||||||
| 2.750% due 09/15/24 (Þ) | 158 | 158 | 6.246% due 06/01/35 | 1,100 | 1,271 | ||||
| Structured Adjustable Rate Mortgage | La Paz County Arizona Industrial | ||||||||
| Loan Trust | Development Authority Revenue | ||||||||
| Series 2004-12 Class 2A | Bonds | ||||||||
| 2.421% due 09/25/34 (Ê) | 832 | 831 | 7.000% due 03/01/34 | 255 | 256 | ||||
| Structured Asset Mortgage Investments | Municipal Electric Authority of Georgia | ||||||||
| II Trust | Revenue Bonds | ||||||||
| Series 2004-AR8 Class A1 | 6.637% due 04/01/57 | 370 | 491 | ||||||
| 0.844% due 05/19/35 (Ê) | 241 | 235 | 7.055% due 04/01/57 | 600 | 733 | ||||
| Series 2007-AR6 Class A1 | New York City New York Water & Sewer | ||||||||
| 1.613% due 08/25/47 (Ê) | 826 | 729 | System Revenue Bonds | ||||||
| Structured Asset Securities Corp. | 5.375% due 06/15/43 | 525 | 613 | ||||||
| Mortgage Pass-Through Certificates | State of California General Obligation | ||||||||
| Series 2003-34A Class 5A4 | Unlimited | ||||||||
| 2.455% due 11/25/33 (Ê) | 455 | 456 | 6.650% due 03/01/22 | 200 | 247 | ||||
| Wachovia Bank Commercial Mortgage | 7.500% due 04/01/34 | 100 | 149 | ||||||
| Trust | State of Illinois General Obligation | ||||||||
| Series 2005-C22 Class AM | Unlimited | ||||||||
| 5.319% due 12/15/44 | 175 | 180 | 5.877% due 03/01/19 | 375 | 414 | ||||
| Washington Mutual Mortgage Pass | 5.100% due 06/01/33 | 440 | 437 | ||||||
| Through Certificates | |||||||||
| Series 2003-AR7 Class A7 | 7.350% due 07/01/35 | 350 | 412 | ||||||
| 2.299% due 08/25/33 (Ê) | 188 | 188 | University of California Revenue Bonds | ||||||
| Series 2005-AR13 Class A1A1 | 6.270% due 05/15/31 | 400 | 452 | ||||||
| 0.460% due 10/25/45 (Ê) | 18 | 16 | 6,789 | ||||||
| Series 2006-AR7 Class A1A | Non-US Bonds - 3.1% | ||||||||
| 1.033% due 09/25/46 (Ê) | 746 | 507 | Australia Government Bond | ||||||
| Series 2007-HY2 Class 2A3 | 4.500% due 04/21/33 | AUD | 990 | 953 | |||||
| 1.755% due 04/25/37 (Ê) | 614 | 446 | Series 120 | ||||||
| Wells Fargo Mortgage Backed Securities | 6.000% due 02/15/17 | AUD | 874 | 770 | |||||
| Trust | Series 126 | ||||||||
| Series 2004-P Class 2A1 | 4.500% due 04/15/20 | AUD | 2,340 | 2,117 | |||||
| 2.613% due 09/25/34 (Ê) | 249 | 250 | Series 133 | ||||||
| Series 2006-2 Class 2A3 | 5.500% due 04/21/23 | AUD | 1,500 | 1,483 | |||||
| 5.500% due 03/25/36 | 82 | 79 | Brazil Notas do Tesouro Nacional | ||||||
| Series 2006-AR2 Class 2A1 | Series NTNB | ||||||||
| 2.612% due 03/25/36 | 111 | 111 | 6.000% due 05/15/45 | BRL | 704 | 655 | |||
| Series 2006-AR10 Class 4A1 | 6.000% due 08/15/50 | BRL | 625 | 590 | |||||
| 2.610% due 07/25/36 (Ê) | 30 | 28 | Series NTNF | ||||||
| Series 2006-AR17 Class A1 | 10.000% due 01/01/23 | BRL | 1,685 | 562 | |||||
| 2.611% due 10/25/36 (Ê) | 522 | 505 | 10.000% due 01/01/25 | BRL | 1,350 | 445 | |||
| Series 2007-8 Class 1A16 | Ireland Government Bond | ||||||||
| 6.000% due 07/25/37 | 86 | 85 | 5.400% due 03/13/25 | EUR | 950 | 1,584 | |||
| WF-RBS Commercial Mortgage Trust | Malaysia Government Bond | ||||||||
| Series 2011-C4 Class A3 | 3.394% due 03/15/17 | MYR | 520 | 148 | |||||
| 4.394% due 06/15/44 (Þ) | 810 | 875 | 4.181% due 07/15/24 | MYR | 1,560 | 448 | |||
| Series 2011-C5 Class A4 | Series 0113 | ||||||||
| 3.667% due 11/15/44 | 545 | 577 | 3.172% due 07/15/16 | MYR | 719 | 204 | |||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 88 Core Bond Fund | |||||||||
| Russell Investment Funds | ||||||||||
| Core Bond Fund | ||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||
| Principal | Fair | Principal | Fair | |||||||
| Amount ($) | Value | Amount ($) | Value | |||||||
| or Shares | $ | or Shares | $ | |||||||
| Series 1/06 | United States Treasury Notes | |||||||||
| 4.262% due 09/15/16 | MYR | 1,424 | 412 | 0.500% due 07/31/16 | 6,865 | 6,868 | ||||
| Mexican Bonos | 0.500% due 08/31/16 | 9,615 | 9,611 | |||||||
| Series M | 0.875% due 09/15/16 | 1,180 | 1,186 | |||||||
| 8.000% due 06/11/20 | MXN | 13,960 | 1,065 | 0.625% due 11/15/16 | 2,400 | 2,400 | ||||
| Series M 10 | ||||||||||
| 8.500% due 12/13/18 | MXN | 5,840 | 446 | 0.500% due 11/30/16 | 5,510 | 5,496 | ||||
| Series M 20 | 0.875% due 05/15/17 | 1,790 | 1,791 | |||||||
| 7.500% due 06/03/27 | MXN | 13,652 | 1,033 | 0.875% due 07/15/17 | 1,670 | 1,668 | ||||
| Series M 30 | 0.625% due 08/31/17 | 3,815 | 3,779 | |||||||
| 10.000% due 11/20/36 | MXN | 14,649 | 1,391 | 0.875% due 10/15/17 | 2,130 | 2,122 | ||||
| New Zealand Government Bond | 1.625% due 06/30/19 | 56,800 | 56,941 | |||||||
| 2.000% due 09/20/25 | NZD | 340 | 273 | 1.500% due 10/31/19 | 5,270 | 5,238 | ||||
| Series 423 | 1.500% due 11/30/19 | 6,495 | 6,454 | |||||||
| 5.500% due 04/15/23 | NZD | 1,500 | 1,322 | 2.125% due 01/31/21 | 2,640 | 2,680 | ||||
| Series 521 | 2.000% due 10/31/21 | 700 | 702 | |||||||
| 6.000% due 05/15/21 | NZD | 2,680 | 2,371 | |||||||
| Norway Government Bond | 1.875% due 11/30/21 | 780 | 775 | |||||||
| 3.000% due 03/14/24 | NOK | 2,650 | 400 | 2.375% due 08/15/24 | 3,590 | 3,656 | ||||
| Series 472 | 2.250% due 11/15/24 | 39,550 | 39,816 | |||||||
| 4.250% due 05/19/17 | NOK | 10,990 | 1,592 | 2.750% due 08/15/42 | 935 | 935 | ||||
| Peru Government Bond | 3.750% due 11/15/43 | 745 | 896 | |||||||
| 7.840% due 08/12/20 | PEN | 2,410 | 925 | 3.125% due 08/15/44 | 17,075 | 18,382 | ||||
| Poland Government Bond | 179,842 | |||||||||
| Series 0417 | Total Long-Term Investments | |||||||||
| 4.750% due 04/25/17 | PLN | 3,140 | 944 | |||||||
| Series 1019 | (cost $649,437) | 658,390 | ||||||||
| 5.500% due 10/25/19 | PLN | 3,210 | 1,044 | |||||||
| South Africa Government Bond | Common Stocks - 0.0% | |||||||||
| Series R203 | Financial Services - 0.0% | |||||||||
| 8.250% due 09/15/17 | ZAR | 4,960 | 442 | Escrow GM Corp.(Å) | 80,000 | — | ||||
| Series R214 | ||||||||||
| 6.500% due 02/28/41 | ZAR | 17,150 | 1,154 | Utilities - 0.0% | ||||||
| Titulos De Tesoreria B Bonds | Dynegy, Inc. Class A(Æ) | 809 | 25 | |||||||
| 10.000% due 07/24/24 | COP | 2,845,700 | 1,427 | |||||||
| 26,200 | Total Common Stocks | |||||||||
| United States Government Agencies - 0.5% | (cost $16) | 25 | ||||||||
| Federal Farm Credit Banks | ||||||||||
| 0.176% due 09/14/16 | 955 | 956 | ||||||||
| 0.225% due 02/27/17 (Ê) | 950 | 951 | Preferred Stocks - 0.2% | |||||||
| Federal Home Loan Mortgage Corp. | Financial Services - 0.1% | |||||||||
| 2.000% due 08/25/16 | 675 | 691 | XLIT, Ltd. | 600 | 499 | |||||
| 0.875% due 03/07/18 | 400 | 395 | ||||||||
| 3.750% due 03/27/19 | 300 | 327 | Technology - 0.1% | |||||||
| 1.250% due 08/01/19 | 100 | 98 | Verizon Communications, Inc. | 32,300 | 847 | |||||
| Federal National Mortgage Association | ||||||||||
| 1.250% due 01/30/17 | 300 | 303 | Total Preferred Stocks | |||||||
| 5.000% due 05/11/17 | 100 | 109 | (cost $1,313) | 1,346 | ||||||
| 0.875% due 12/20/17 | 100 | 99 | ||||||||
| 0.875% due 05/21/18 | 300 | 295 | ||||||||
| 1.875% due 09/18/18 | 200 | 203 | Options Purchased - 0.0% | |||||||
| 4,427 | (Number of Contracts) | |||||||||
| United States Government Treasuries - 21.5% | Swaptions | |||||||||
| (Fund Receives/Fund Pays) | ||||||||||
| United States Treasury Coupon | USD 4.500%/USD Three Month LIBOR | |||||||||
| Principal Only STRIP | Mar 2018 0.00 Put (2) | 2,670 | (ÿ) | 74 | ||||||
| Zero coupon due 11/15/27 | 1,360 | 981 | ||||||||
| United States Treasury Inflation Indexed | USD 4.500%/USD Three Month LIBOR | |||||||||
| Apr 2018 0.00 Put (1) | 1,680 | (ÿ) | 49 | |||||||
| Bonds | USD 5.000%/USD Three Month LIBOR | |||||||||
| 0.125% due 04/15/16 | 2,114 | 2,107 | Jan 2019 0.00 Put (1) | 1,095 | (ÿ) | 28 | ||||
| 0.125% due 04/15/17 | 930 | 931 | Total Options Purchased | |||||||
| 0.125% due 07/15/24 | 1,675 | 1,613 | (cost $371) | 151 | ||||||
| 1.375% due 02/15/44 | 2,486 | 2,814 | ||||||||
| See accompanying notes which are an integral part of the financial statements. Core Bond Fund 89 | ||||||||||
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||
| Principal | Fair | Principal | Fair | ||||||
| Amount ($) | Value | Amount ($) | Value | ||||||
| or Shares | $ | or Shares | $ | ||||||
| Short-Term Investments - 28.3% | Federal Home Loan Bank Discount | ||||||||
| Notes | |||||||||
| Adam Aircraft Industries - Term Loan | Zero coupon due 01/14/15 (ç) | 3,080 | 3,080 | ||||||
| 12.255% due 05/23/15 (Å) | 49 | — | Zero coupon due 01/23/15 (ç) | 1,750 | 1,750 | ||||
| Ally Financial, Inc. | |||||||||
| 4.625% due 06/26/15 | 400 | 403 | Zero coupon due 01/28/15 (ç) | 2,240 | 2,240 | ||||
| Alpine Securitization Corp. | Zero coupon due 02/06/15 (ç) | 1,810 | 1,810 | ||||||
| Zero coupon due 03/17/15 | 250 | 250 | Zero coupon due 03/25/15 | 3,365 | 3,365 | ||||
| AmeriCredit Automobile Receivables | Federal Home Loan Banks | ||||||||
| Series 2014-3 Class A1 | 0.750% due 05/26/15 | 1,020 | 1,020 | ||||||
| 0.230% due 08/10/15 | 545 | 545 | First Investors Auto Owner Trust | ||||||
| Anheuser-Busch InBev Worldwide, Inc. | Series 2014-3A Class A1 | ||||||||
| 3.625% due 04/15/15 | 195 | 197 | 0.350% due 11/16/15 (Þ) | 892 | 892 | ||||
| 0.800% due 07/15/15 | 980 | 982 | Ford Motor Credit Co. LLC | ||||||
| ARI Fleet Lease Trust | 3.875% due 01/15/15 | 1,700 | 1,701 | ||||||
| 0.250% due 04/15/15 (Þ) | 282 | 282 | 7.000% due 04/15/15 | 1,200 | 1,220 | ||||
| Autobahn Funding | 2.750% due 05/15/15 | 2,000 | 2,013 | ||||||
| 0.002% due 01/05/15 (ç)(~) | 1,500 | 1,500 | Freddie Mac Discount Notes | ||||||
| Bank of America Corp. | Zero coupon due 01/12/15 (ç) | 2,385 | 2,385 | ||||||
| 4.500% due 04/01/15 | 400 | 404 | Freddie Mac REMICS | ||||||
| 4.750% due 08/01/15 | 410 | 419 | Series 2010-3640 Class JA | ||||||
| 1.500% due 10/09/15 | 750 | 753 | 1.500% due 03/15/15 | 12 | 12 | ||||
| Barclays Bank PLC | Goldman Sachs Group, Inc. (The) | ||||||||
| Series GMTN | |||||||||
| 2.750% due 02/23/15 | 500 | 501 | 3.700% due 08/01/15 | 1,520 | 1,545 | ||||
| BBVA US Senior SAU | |||||||||
| 4.664% due 10/09/15 | 650 | 667 | Honda Series Auto 2013-2 Receivables Class A2 Owner Trust | ||||||
| British Telecommunications PLC | 0.370% due 10/16/15 | 1 | 1 | ||||||
| 2.000% due 06/22/15 | 460 | 463 | Series 2014-3 Class A1 | ||||||
| Caisse Centrale Desjardins | 0.190% due 08/17/15 | 952 | 952 | ||||||
| 2.650% due 09/16/15 (Þ) | 410 | 416 | HSBC USA, Inc. | ||||||
| 0.513% due 10/29/15 (Ê)(Þ) | 1,095 | 1,095 | 2.375% due 02/13/15 | 235 | 235 | ||||
| CCG Receivables Trust | JPMorgan Chase & Co. | ||||||||
| Series 2014-1 Class A1 | 3.700% due 01/20/15 | 1,120 | 1,122 | ||||||
| 0.270% due 05/14/15 (Þ) | 113 | 113 | 1.875% due 03/20/15 | 1,300 | 1,304 | ||||
| Citigroup, Inc. | |||||||||
| 6.010% due 01/15/15 | 2,600 | 2,604 | 3.400% due 06/24/15 | 800 | 810 | ||||
| Kellogg Co. | |||||||||
| 2.650% due 03/02/15 | 200 | 201 | 0.463% due 02/13/15 (Ê) | 765 | 765 | ||||
| 4.750% due 05/19/15 | 784 | 796 | 1.125% due 05/15/15 | 500 | 501 | ||||
| 4.700% due 05/29/15 | 50 | 51 | Kubota Credit Owner Trust | ||||||
| 2.250% due 08/07/15 | 1,000 | 1,009 | Series 2014-1A Class A1 | ||||||
| 4.587% due 12/15/15 | 700 | 723 | 0.220% due 05/15/15 (Þ) | 29 | 29 | ||||
| Constellation Energy Group, Inc. | Macquarie Bank, Ltd. | ||||||||
| 4.550% due 06/15/15 | 900 | 915 | 3.450% due 07/27/15 (Þ) | 400 | 406 | ||||
| Credit Suisse | MMAF Equipment Finance LLC | ||||||||
| 0.467% due 04/10/15 (~) | 750 | 750 | Series 2014-AA Class A1 | ||||||
| Series YCD | 0.200% due 07/02/15 (Þ) | 1,014 | 1,014 | ||||||
| 0.553% due 08/24/15 (Ê)(~) | 1,290 | 1,290 | Morgan Stanley | ||||||
| CVS Health Corp. | 6.000% due 04/28/15 | 200 | 203 | ||||||
| 3.250% due 05/18/15 | 295 | 298 | 0.711% due 10/15/15 (Ê) | 530 | 531 | ||||
| Daimler Finance NA LLC | PACCAR Financial Corp. | ||||||||
| 0.831% due 01/09/15 (Ê)(Þ) | 400 | 400 | 0.367% due 05/05/15 (Ê) | 500 | 500 | ||||
| 2.300% due 01/09/15 (Þ) | 400 | 400 | Petrobras International Finance Co. SA | ||||||
| 1.300% due 07/31/15 (Þ) | 1,300 | 1,305 | 2.875% due 02/06/15 | 400 | 398 | ||||
| Dell Equipment Finance Trust | Private Export Funding Corp. | ||||||||
| 0.260% due 08/14/15 (Þ) | 401 | 401 | Zero coupon due 05/12/15 | 750 | 749 | ||||
| Export-Import Bank of Korea | Province of Ontario Canada | ||||||||
| 5.875% due 01/14/15 | 700 | 701 | 0.950% due 05/26/15 | 1,240 | 1,243 | ||||
| Fairway Finance Co., LLC | Reckitt Benckiser Treasury Services PLC | ||||||||
| Zero coupon due 01/12/15 (ç) | 200 | 200 | Zero coupon due 04/02/15 | 1,365 | 1,364 | ||||
| Royal Bank of Canada | |||||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| 90 Core Bond Fund | |||||||||
Russell Investment Funds
Core Bond Fund
Schedule of Investments, continued — December 31, 2014
| Amounts in thousands (except share amounts) | ||||||
| Principal | Fair | |||||
| Amount ($) | Value | |||||
| or Shares | $ | |||||
| 0.800% due 10/30/15 | 745 | 747 | ||||
| Royal Bank of Scotland Group PLC | ||||||
| 2.550% due 09/18/15 | 800 | 808 | ||||
| Russell U.S. Cash Management Fund | 158,416,582 | (8) | 158,418 | |||
| Standard Chartered PLC | ||||||
| 3.850% due 04/27/15 (Þ) | 1,251 | 1,263 | ||||
| Susquehanna Auto Receivables Trust | ||||||
| Series 2014-1A Class A1 | ||||||
| 0.240% due 08/17/15 (Þ) | 667 | 667 | ||||
| Telefonos de Mexico SAB de CV | ||||||
| 5.500% due 01/27/15 | 360 | 361 | ||||
| United States Treasury Bills | ||||||
| Zero coupon due 01/15/15 | 10,820 | 10,820 | ||||
| Zero coupon due 03/19/15 | 26 | 26 | ||||
| Zero coupon due 04/02/15 | 4,550 | 4,550 | ||||
| United States Treasury Inflation Indexed | ||||||
| Bonds | ||||||
| 1.625% due 01/15/15 | 398 | 397 | ||||
| 0.500% due 04/15/15 | 586 | 579 | ||||
| Vodafone Group PLC | ||||||
| Zero coupon due 04/10/15 | 1,290 | 1,288 | ||||
| Volvo Treasury AB | ||||||
| 5.950% due 04/01/15 (Þ) | 385 | 389 | ||||
| Wells Fargo & Co. | ||||||
| 0.433% due 10/28/15 (Ê) | 615 | 615 | ||||
| Westlake Automobile Receivables Trust | ||||||
| Series 2014-1A Class A1 | ||||||
| 0.350% due 06/15/15 (Þ) | 47 | 47 | ||||
| Wheels SPV, LLC | ||||||
| Series 2014-1A Class A1 | ||||||
| 0.240% due 05/20/15 (Þ) | 220 | 220 | ||||
| Working Capital Management Co. L.P. | ||||||
| Zero coupon due 01/13/15 (ç) | 500 | 500 | ||||
| Total Short-Term Investments | ||||||
| (cost $237,938) | 237,889 | |||||
| Total Investments 106.9% | ||||||
| (identified cost $889,075) | 897,801 | |||||
| Other Assets and Liabilities, | ||||||
| Net - (6.9%) | (58,343 | ) | ||||
| Net Assets - 100.0% | 839,458 | |||||
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 91
Russell Investment Funds Core Bond Fund
Schedule of Investments, continued — December 31, 2014
| Restricted Securities | ||||||||||||
| Amounts in thousands (except share and cost per unit amounts) | ||||||||||||
| Principal | Cost per | Cost | Fair Value | |||||||||
| % of Net Assets | Acquisition | Amount ($) | Unit | (000 | ) | (000 | ) | |||||
| Securities | Date | or shares | $ | $ | $ | |||||||
| 0.0% | ||||||||||||
| Adam Aircraft Industries - Term Loan | 05/22/07 | 48,786 | 114.22 | 56 | — | |||||||
| Dynegy Danskammer | 10/03/12 | 700,000 | — | 323 | — | |||||||
| Escrow GM Corp. | 04/21/11 | 80,000 | — | — | — | |||||||
| — | ||||||||||||
| For a description of restricted securities see note 8 in the Notes to Financial Statements. | ||||||||||||
| Futures Contracts | ||||||||||||
| Amounts in thousands (except contract amounts) | ||||||||||||
| Unrealized | |||||||
| Appreciation | |||||||
| Number of | Notional | Expiration | (Depreciation) | ||||
| Contracts | Amount | Date | $ | ||||
| Long Positions | |||||||
| Eurodollar Futures (CME) | 10 | USD | 2,453 | 12/16 | 7 | ||
| United States 2 Year Treasury Note Futures | 206 | USD | 45,031 | 03/15 | (74 | ) | |
| United States 5 Year Treasury Note Futures | 603 | USD | 71,715 | 03/15 | (65 | ) | |
| United States 10 Year Treasury Note Futures | 386 | USD | 48,943 | 03/15 | 239 | ||
| United States Treasury Long Bond Futures | 234 | USD | 33,828 | 03/15 | 843 | ||
| United States Treasury Ultra Long-Term Bond Futures | 1 | USD | 165 | 03/15 | 7 | ||
| Short Positions | |||||||
| Canada 10 Year Bond Futures | 16 | CAD | 2,216 | 03/15 | (35 | ) | |
| Euro-Bobl Futures | 19 | EUR | 2,475 | 03/15 | (20 | ) | |
| Euro-BTP Futures | 19 | EUR | 2,576 | 03/15 | (38 | ) | |
| Eurodollar Futures | 10 | USD | 2,440 | 12/17 | (12 | ) | |
| Euro-OAT Futures | 17 | EUR | 2,503 | 03/15 | (49 | ) | |
| Japan Government 10 Year Bond Futures | 4 | JPY | 591,160 | 03/15 | (29 | ) | |
| Long Gilt Futures | 28 | GBP | 3,347 | 03/15 | (140 | ) | |
| United States 2 Year Treasury Note Futures | 181 | USD | 39,566 | 03/15 | 58 | ||
| United States 5 Year Treasury Note Futures | 19 | USD | 2,260 | 03/15 | 6 | ||
| Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) | 698 | ||||||
| Options Written | ||||||||
| Amounts in thousands (except contract amounts) | ||||||||
| Number of | Strike | Notional | Expiration | Fair Value | ||||
| Call/Put | Contracts | Price | Amount | Date | $ | |||
| Inflationary Floor – CPURNSA Index | Call | 1 | 0.00 | USD | 810 | 11/23/20 | — | |
| Swaptions | ||||||||
| (Fund Receives/Fund Pays) | ||||||||
| USD 5.000%/USD Three Month LIBOR | Put | 1 | 5.00 | USD | 4,135 | 01/14/19 | (45 | ) |
| Total Liability for Options Written (premiums received $116) | (45 | ) | ||||||
| Transactions in options written contracts for the period ended December 31, 2014 were as follows: | ||||||
| Number of | Premiums | |||||
| Contracts | Received | |||||
| Outstanding December 31, 2013 | 54 | $ | 364 | |||
| Opened | 81 | 639 | ||||
| Closed | (56 | ) | (366 | ) | ||
| Expired | (77 | ) | (521 | ) | ||
| Outstanding December 31, 2014 | 2 | $ | 116 | |||
See accompanying notes which are an integral part of the financial statements.
92 Core Bond Fund
| Russell Investment Funds | |||||||
| Core Bond Fund | |||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||
| Foreign Currency Exchange Contracts | |||||||
| Amounts in thousands | |||||||
| Unrealized | |||||||
| Appreciation | |||||||
| Amount | Amount | (Depreciation) | |||||
| Counterparty | Sold | Bought | Settlement Date | $ | |||
| Australia and New Zealand Banking Group | USD | 3,576 | AUD | 4,224 | 01/15/15 | (130 | ) |
| Australia and New Zealand Banking Group | USD | 1,786 | NZD | 2,347 | 01/15/15 | 43 | |
| Australia and New Zealand Banking Group | AUD | 2,152 | CAD | 2,043 | 01/15/15 | 2 | |
| Australia and New Zealand Banking Group | CAD | 990 | AUD | 1,049 | 01/15/15 | 4 | |
| Australia and New Zealand Banking Group | NZD | 1,970 | EUR | 1,232 | 01/15/15 | (44 | ) |
| Bank of America | EUR | 4,412 | GBP | 3,475 | 01/15/15 | 76 | |
| Bank of America | JPY | 217,126 | EUR | 1,478 | 01/15/15 | (24 | ) |
| Barclays | CAD | 4,118 | AUD | 4,329 | 01/15/15 | (12 | ) |
| Barclays | GBP | 3,482 | EUR | 4,438 | 01/15/15 | (56 | ) |
| Barclays | SEK | 5,027 | NOK | 4,850 | 01/15/15 | 6 | |
| Barclays | SEK | 40,937 | NOK | 38,838 | 01/15/15 | (42 | ) |
| Citibank | USD | 1,797 | NZD | 2,334 | 01/15/15 | 22 | |
| Citibank | CHF | 3,503 | EUR | 2,914 | 01/15/15 | 3 | |
| Citibank | EUR | 5,091 | GBP | 4,017 | 01/15/15 | 100 | |
| Citibank | NZD | 2,381 | USD | 1,837 | 01/15/15 | (19 | ) |
| Commonwealth Bank of Australia | USD | 2,394 | CHF | 2,370 | 01/08/15 | (10 | ) |
| Commonwealth Bank of Australia | USD | 7,980 | CHF | 7,900 | 01/08/15 | (34 | ) |
| Commonwealth Bank of Australia | USD | 2,395 | EUR | 1,971 | 01/08/15 | (10 | ) |
| Commonwealth Bank of Australia | USD | 8,063 | EUR | 6,466 | 01/08/15 | (238 | ) |
| Commonwealth Bank of Australia | USD | 7,986 | EUR | 6,571 | 02/05/15 | (33 | ) |
| Commonwealth Bank of Australia | USD | 5,510 | SEK | 42,530 | 01/08/15 | (54 | ) |
| Commonwealth Bank of Australia | CHF | 2,338 | USD | 2,427 | 01/08/15 | 76 | |
| Commonwealth Bank of Australia | CHF | 7,793 | USD | 8,092 | 01/08/15 | 253 | |
| Commonwealth Bank of Australia | CHF | 2,370 | USD | 2,395 | 02/05/15 | 10 | |
| Commonwealth Bank of Australia | CHF | 7,900 | USD | 7,983 | 02/05/15 | 33 | |
| Commonwealth Bank of Australia | EUR | 1,940 | USD | 2,419 | 01/08/15 | 71 | |
| Commonwealth Bank of Australia | EUR | 6,571 | USD | 7,984 | 01/08/15 | 33 | |
| Commonwealth Bank of Australia | EUR | 1,971 | USD | 2,396 | 02/05/15 | 10 | |
| Commonwealth Bank of Australia | NOK | 39,183 | USD | 5,586 | 01/08/15 | 330 | |
| Commonwealth Bank of Australia | SEK | 42,138 | USD | 5,663 | 01/08/15 | 257 | |
| Commonwealth Bank of Australia | SEK | 42,530 | USD | 5,510 | 02/05/15 | 54 | |
| Deutsche Bank | AUD | 3,899 | NZD | 4,077 | 01/15/15 | (4 | ) |
| Goldman Sachs | USD | 1,052 | EUR | 858 | 01/15/15 | (14 | ) |
| Goldman Sachs | USD | 2,143 | EUR | 1,749 | 01/15/15 | (26 | ) |
| Goldman Sachs | USD | 3,616 | EUR | 2,952 | 01/15/15 | (44 | ) |
| Goldman Sachs | AUD | 4,192 | CAD | 4,118 | 01/15/15 | 124 | |
| Goldman Sachs | AUD | 512 | NZD | 535 | 01/15/15 | — | |
| Goldman Sachs | EUR | 9,989 | JPY | 1,457,480 | 01/15/15 | 80 | |
| Goldman Sachs | GBP | 5,730 | USD | 8,975 | 01/15/15 | 46 | |
| Goldman Sachs | NOK | 36,488 | SEK | 39,956 | 01/15/15 | 231 | |
| Goldman Sachs | NZD | 2,300 | USD | 1,793 | 01/15/15 | — | |
| JPMorgan Chase | USD | 444 | AUD | 550 | 02/18/15 | 4 | |
| JPMorgan Chase | USD | 1,964 | CAD | 2,230 | 01/22/15 | (45 | ) |
| JPMorgan Chase | USD | 2,732 | JPY | 321,456 | 02/18/15 | (47 | ) |
| JPMorgan Chase | USD | 3,479 | KRW | 3,703,619 | 01/22/15 | (112 | ) |
| JPMorgan Chase | USD | 366 | MXN | 5,021 | 01/22/15 | (26 | ) |
| JPMorgan Chase | USD | 3,008 | MYR | 9,942 | 01/22/15 | (169 | ) |
| JPMorgan Chase | USD | 661 | NOK | 4,949 | 01/22/15 | 3 | |
| JPMorgan Chase | USD | 1,367 | NOK | 10,047 | 01/22/15 | (19 | ) |
| JPMorgan Chase | USD | 2,005 | NOK | 13,324 | 01/22/15 | (219 | ) |
| JPMorgan Chase | USD | 999 | PLN | 3,329 | 01/22/15 | (59 | ) |
| JPMorgan Chase | USD | 549 | RUB | 37,541 | 01/15/15 | 69 | |
| JPMorgan Chase | USD | 4,019 | SEK | 28,970 | 01/22/15 | (304 | ) |
| JPMorgan Chase | USD | 2,224 | TWD | 67,453 | 01/22/15 | (89 | ) |
| JPMorgan Chase | USD | 340 | ZAR | 3,860 | 01/22/15 | (7 | ) |
| JPMorgan Chase | AUD | 10,021 | USD | 8,205 | 02/18/15 | 50 | |
| JPMorgan Chase | BRL | 369 | USD | 148 | 01/22/15 | 10 | |
| JPMorgan Chase | BRL | 4,836 | USD | 1,910 | 01/22/15 | 99 | |
| JPMorgan Chase | CLP | 1,319,553 | USD | 2,212 | 01/22/15 | 42 | |
| JPMorgan Chase | COP | 320,459 | USD | 154 | 01/22/15 | 19 | |
| JPMorgan Chase | COP | 6,264,322 | USD | 2,987 | 01/22/15 | 351 | |
| JPMorgan Chase | CZK | 33,283 | USD | 1,542 | 01/22/15 | 88 | |
| JPMorgan Chase | EUR | 6,741 | USD | 8,380 | 02/18/15 | 218 | |
| JPMorgan Chase | GBP | 1,394 | USD | 2,184 | 02/18/15 | 12 | |
| JPMorgan Chase | IDR | 28,792,681 | USD | 2,303 | 01/22/15 | (14 | ) |
| JPMorgan Chase | MXN | 3,475 | USD | 254 | 01/22/15 | 19 | |
| See accompanying notes which are an integral part of the financial statements. | |||||||
| Core Bond Fund 93 | |||||||
| Russell Investment Funds | |||||||
| Core Bond Fund | |||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||
| Foreign Currency Exchange Contracts | |||||||
| Amounts in thousands | |||||||
| Unrealized | |||||||
| Appreciation | |||||||
| Amount | Amount | (Depreciation) | |||||
| Counterparty | Sold | Bought | Settlement Date | $ | |||
| JPMorgan Chase | MXN | 3,475 | USD | 254 | 01/22/15 | 19 | |
| JPMorgan Chase | MXN | 3,591 | USD | 263 | 01/22/15 | 20 | |
| JPMorgan Chase | MXN | 6,624 | USD | 451 | 01/22/15 | 3 | |
| JPMorgan Chase | NZD | 17,000 | USD | 13,086 | 02/18/15 | (119 | ) |
| JPMorgan Chase | PEN | 7,758 | USD | 2,634 | 01/22/15 | 41 | |
| JPMorgan Chase | PLN | 2,305 | USD | 662 | 01/22/15 | 12 | |
| JPMorgan Chase | RUB | 37,541 | USD | 689 | 01/15/15 | 72 | |
| JPMorgan Chase | SEK | 38,811 | NOK | 36,435 | 01/15/15 | (92 | ) |
| JPMorgan Chase | SEK | 5,085 | USD | 665 | 01/22/15 | 13 | |
| JPMorgan Chase | SGD | 5,852 | USD | 4,596 | 01/22/15 | 180 | |
| Royal Bank of Canada | USD | 5,633 | CAD | 6,429 | 01/08/15 | (100 | ) |
| Royal Bank of Canada | USD | 5,587 | CAD | 6,473 | 02/05/15 | (20 | ) |
| Royal Bank of Canada | USD | 5,713 | GBP | 3,649 | 01/08/15 | (26 | ) |
| Royal Bank of Canada | USD | 3,716 | GBP | 2,377 | 01/15/15 | (11 | ) |
| Royal Bank of Canada | USD | 5,688 | GBP | 3,649 | 02/05/15 | (2 | ) |
| Royal Bank of Canada | USD | 2,344 | NOK | 16,442 | 01/08/15 | (138 | ) |
| Royal Bank of Canada | USD | 5,296 | NOK | 39,183 | 01/08/15 | (40 | ) |
| Royal Bank of Canada | USD | 7,566 | NOK | 55,976 | 01/08/15 | (57 | ) |
| Royal Bank of Canada | USD | 2,268 | NOK | 16,793 | 02/05/15 | (17 | ) |
| Royal Bank of Canada | USD | 5,709 | NZD | 7,306 | 01/08/15 | (11 | ) |
| Royal Bank of Canada | USD | 456 | NZD | 598 | 01/15/15 | 10 | |
| Royal Bank of Canada | CAD | 6,473 | USD | 5,591 | 01/08/15 | 20 | |
| Royal Bank of Canada | EUR | 2,138 | GBP | 1,687 | 01/15/15 | 42 | |
| Royal Bank of Canada | GBP | 3,649 | USD | 5,689 | 01/08/15 | 2 | |
| Royal Bank of Canada | JPY | 197,798 | CAD | 1,890 | 01/15/15 | (50 | ) |
| Royal Bank of Canada | JPY | 710,610 | USD | 5,928 | 02/05/15 | (6 | ) |
| Royal Bank of Canada | NOK | 16,793 | USD | 2,270 | 01/08/15 | 17 | |
| Royal Bank of Canada | NOK | 54,808 | USD | 7,813 | 01/08/15 | 459 | |
| Royal Bank of Canada | NOK | 39,183 | USD | 5,292 | 02/05/15 | 39 | |
| Royal Bank of Canada | NOK | 55,976 | USD | 7,560 | 02/05/15 | 56 | |
| Skandinaviska Enskilda Bank | SEK | 8,409 | NOK | 8,113 | 01/15/15 | 10 | |
| Standard Chartered | USD | 2,374 | AUD | 2,789 | 01/08/15 | (97 | ) |
| Standard Chartered | USD | 7,896 | AUD | 9,641 | 01/08/15 | (27 | ) |
| Standard Chartered | USD | 2,364 | AUD | 2,892 | 02/05/15 | (8 | ) |
| Standard Chartered | USD | 2,428 | JPY | 290,313 | 01/08/15 | (4 | ) |
| Standard Chartered | USD | 7,630 | JPY | 904,992 | 01/08/15 | (75 | ) |
| Standard Chartered | USD | 8,095 | JPY | 967,709 | 02/05/15 | (14 | ) |
| Standard Chartered | USD | 2,429 | NZD | 3,106 | 01/08/15 | (7 | ) |
| Standard Chartered | USD | 2,442 | NZD | 3,131 | 02/05/15 | (7 | ) |
| Standard Chartered | AUD | 2,892 | USD | 2,369 | 01/08/15 | 8 | |
| Standard Chartered | AUD | 9,296 | USD | 7,913 | 01/08/15 | 327 | |
| Standard Chartered | AUD | 9,641 | USD | 7,880 | 02/05/15 | 27 | |
| Standard Chartered | CAD | 971 | USD | 834 | 01/30/15 | (1 | ) |
| Standard Chartered | JPY | 271,498 | USD | 2,289 | 01/08/15 | 22 | |
| Standard Chartered | JPY | 967,709 | USD | 8,093 | 01/08/15 | 13 | |
| Standard Chartered | JPY | 290,313 | USD | 2,428 | 02/05/15 | 4 | |
| Standard Chartered | NZD | 3,131 | USD | 2,449 | 01/08/15 | 7 | |
| Standard Chartered | NZD | 7,246 | USD | 5,668 | 01/08/15 | 16 | |
| State Street | USD | 88 | AUD | 104 | 01/08/15 | (4 | ) |
| State Street | USD | 170 | AUD | 208 | 02/05/15 | — | |
| State Street | USD | 39 | CAD | 44 | 01/08/15 | (1 | ) |
| State Street | USD | 325 | CAD | 377 | 02/05/15 | (1 | ) |
| State Street | USD | 130 | EUR | 104 | 01/08/15 | (4 | ) |
| State Street | USD | 413 | EUR | 342 | 02/05/15 | — | |
| State Street | USD | 228 | GBP | 146 | 02/05/15 | — | |
| State Street | USD | 529 | JPY | 62,717 | 01/08/15 | (5 | ) |
| State Street | USD | 396 | JPY | 47,448 | 02/05/15 | — | |
| State Street | USD | 50 | NOK | 350 | 01/08/15 | (3 | ) |
| State Street | USD | 269 | NOK | 2,019 | 02/05/15 | 2 | |
| State Street | USD | 20 | NZD | 25 | 01/08/15 | — | |
| State Street | USD | 1,341 | NZD | 1,759 | 01/15/15 | 31 | |
| State Street | USD | 87 | NZD | 111 | 02/05/15 | — | |
| State Street | AUD | 345 | USD | 294 | 01/08/15 | 12 | |
| State Street | AUD | 693 | USD | 565 | 02/05/15 | 1 | |
| State Street | CHF | 32 | USD | 33 | 01/08/15 | 1 | |
| State Street | CHF | 107 | USD | 111 | 01/08/15 | 3 | |
| See accompanying notes which are an integral part of the financial statements. | |||||||
| 94 Core Bond Fund | |||||||
| Russell Investment Funds | ||||||||
| Core Bond Fund | ||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||
| Foreign Currency Exchange Contracts | ||||||||
| Amounts in thousands | ||||||||
| Unrealized | ||||||||
| Appreciation | ||||||||
| Amount | Amount | (Depreciation) | ||||||
| Counterparty | Sold | Bought | Settlement Date | $ | ||||
| State Street | CHF | 125 | USD | 125 | 02/05/15 | — | ||
| State Street | CHF | 416 | USD | 418 | 02/05/15 | — | ||
| State Street | EUR | 31 | USD | 39 | 01/08/15 | 1 | ||
| State Street | EUR | 102 | USD | 124 | 02/05/15 | — | ||
| State Street | JPY | 18,815 | USD | 159 | 01/08/15 | 2 | ||
| State Street | JPY | 14,234 | USD | 119 | 02/05/15 | — | ||
| State Street | NOK | 1,168 | USD | 167 | 01/08/15 | 10 | ||
| State Street | NOK | 4,710 | USD | 628 | 02/05/15 | (4 | ) | |
| State Street | NOK | 6,729 | USD | 897 | 02/05/15 | (5 | ) | |
| State Street | NZD | 59 | USD | 46 | 01/08/15 | — | ||
| State Street | SEK | 392 | USD | 53 | 01/08/15 | 2 | ||
| State Street | SEK | 3,596 | USD | 459 | 02/05/15 | (2 | ) | |
| UBS | AUD | 7,719 | USD | 6,711 | 01/15/15 | 414 | ||
| UBS | CHF | 5,168 | EUR | 4,301 | 01/15/15 | 6 | ||
| UBS | EUR | 63 | USD | 79 | 01/15/15 | 3 | ||
| UBS | EUR | 2,863 | USD | 3,586 | 01/15/15 | 122 | ||
| UBS | NZD | 2,669 | EUR | 1,669 | 01/15/15 | (60 | ) | |
| UBS | NZD | 6,965 | USD | 5,391 | 01/15/15 | (37 | ) | |
| UBS | SEK | 82 | USD | 11 | 01/15/15 | 1 | ||
| UBS | SEK | 277 | USD | 38 | 01/15/15 | 2 | ||
| Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts | 1,941 | |||||||
| Index Swap Contracts (*) | ||||||||
| Amounts in thousands | ||||||||
| Fund Receives | Notional | Termination | Fair Value | |||||
| Underlying Security | Counterparty | Amount | Date | $ | ||||
| Barclays Capital U.S. Aggregate Bond Index | Barclays | USD | 12,370 | 04/30/15 | 8 | |||
| Barclays Capital U.S. Aggregate Bond Index | Barclays | USD | 12,178 | 08/31/15 | 13 | |||
| Barclays Capital U.S. Aggregate Bond Index | Barclays | USD | 9,013 | 10/30/15 | 6 | |||
| Barclays Capital U.S. Aggregate Bond Index | Barclays | USD | 4,000 | 11/30/15 | 3 | |||
| Barclays Capital U.S. Aggregate Bond Index | Barclays | USD | 8,000 | 11/30/15 | 5 | |||
| Total Fair Value of Open Index Swap Contracts Premiums Paid (Received) - $— (å) | 35 | |||||||
| (*) Total return swaps (which includes index swaps) are agreements between counterparties to exchange cash flows, one based on a market-linked | ||||||||||
| return of an individual asset or a basket of assets (i.e. an index), and the other on a fixed or floating rate. The floating rate fees were all based on | ||||||||||
| the 1 Month LIBOR rate plus a fee ranging from 0.10% to 0.16%. | ||||||||||
| Interest Rate Swap Contracts | ||||||||||
| Amounts in thousands | ||||||||||
| Termination | Fair Value | |||||||||
| Counterparty | Notional Amount | Fund Receives | Fund Pays | Date | $ | |||||
| Barclays | USD | 2,090 | 3.145 | % | Three Month LIBOR | 03/15/26 | 102 | |||
| Barclays | USD | 425 | Three Month LIBOR | 2.417 | % | 11/15/27 | (22 | ) | ||
| Barclays | USD | 425 | Three Month LIBOR | 2.481 | % | 11/15/27 | (27 | ) | ||
| Barclays | USD | 940 | Three Month LIBOR | 3.490 | % | 03/15/46 | (130 | ) | ||
| Citigroup | USD | 850 | Three Month LIBOR | 2.714 | % | 08/15/42 | (13 | ) | ||
| Citigroup | USD | 685 | Three Month LIBOR | 3.676 | % | 11/15/43 | (145 | ) | ||
| Goldman Sachs | USD | 2,270 | 2.804 | % | Three Month LIBOR | 04/09/26 | 38 | |||
| Goldman Sachs | USD | 1,020 | Three Month LIBOR | 3.125 | % | 04/09/46 | (62 | ) | ||
| JPMorgan Chase | HKD | 17,450 | Three Month HIBOR | 2.365 | % | 03/29/21 | (43 | ) | ||
| JPMorgan Chase | SGD | 2,850 | Six Month SIBOR | 2.270 | % | 03/31/21 | (32 | ) | ||
| Total Fair Value on Open Interest Rate Swap Contracts Premiums Paid (Received) - $— (å) | (334 | ) | ||||||||
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 95
Russell Investment Funds Core Bond Fund
Schedule of Investments, continued — December 31, 2014
| Credit Default Swap Contracts |
| Amounts in thousands |
| Credit Indices |
| Fund (Pays)/ | ||||||||
| Receives | Termination | Fair Value | ||||||
| Reference Entity | Counterparty | Notional Amount | Fixed Rate | Date | $ | |||
| CDX Investment Grade Index | Goldman Sachs | USD | 4,000 | 1.000 | % | 12/20/19 | 64 | |
| Total Fair Value on Open Credit Indices Premiums Paid (Received) - $71 | 64 | |||||||
| Presentation of Portfolio Holdings | |||||||||||||
| Amounts in thousands | |||||||||||||
| Fair Value | |||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | ||||||||
| Long-Term Investments | |||||||||||||
| Asset-Backed Securities | $ | — | $ | 84,568 | $ | 310 | $ | 84,878 | 10.1 | ||||
| Corporate Bonds and Notes | — | 126,940 | 4,367 | 131,307 | 15.6 | ||||||||
| International Debt | — | 35,520 | — | 35,520 | 4.2 | ||||||||
| Loan Agreements | — | 3,775 | — | 3,775 | 0.4 | ||||||||
| Mortgage-Backed Securities | — | 184,658 | 994 | 185,652 | 22.2 | ||||||||
| Municipal Bonds | — | 6,789 | — | 6,789 | 0.8 | ||||||||
| Non-US Bonds | — | 26,200 | — | 26,200 | 3.1 | ||||||||
| United States Government Agencies | — | 4,427 | — | 4,427 | 0.5 | ||||||||
| United States Government Treasuries | — | 179,842 | — | 179,842 | 21.5 | ||||||||
| Common Stocks | |||||||||||||
| Financial Services | — | — | — | — | — | ||||||||
| Utilities | 25 | — | — | 25 | —* | ||||||||
| Preferred Stocks | 1,346 | — | — | 1,346 | 0.2 | ||||||||
| Options Purchased | — | 151 | — | 151 | —* | ||||||||
| Short-Term Investments | — | 237,889 | — | 237,889 | 28.3 | ||||||||
| Total Investments | 1,371 | 890,759 | 5,671 | 897,801 | 106.9 | ||||||||
| Other Assets and Liabilities, Net | (6.9 | ) | |||||||||||
| 100.0 | |||||||||||||
| Other Financial Instruments | |||||||||||||
| Futures Contracts | 698 | — | — | 698 | 0.1 | ||||||||
| Options Written | — | (45 | ) | — | (45 | ) | (—*) | ||||||
| Foreign Currency Exchange Contracts | — | 1,941 | — | 1,941 | 0.2 | ||||||||
| Index Swap Contracts | — | 35 | — | 35 | — | ||||||||
| Interest Rate Swap Contracts | — | (334 | ) | — | (334 | ) | (—*) | ||||||
| Credit Default Swap Contracts | — | 64 | — | 64 | —* | ||||||||
| Total Other Financial Instruments** | $ | 698 | $ | 1,661 | $ | — | $ | 2,359 | |||||
| * | Less than .05% of net assets. |
| ** | Futures and foreign currency exchange contract values reflect 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, 2014, see note 2 in the Notes to Financial Statements.
Investments in which significant unobservable inputs (Level 3) were used in determining a fair value for the periods ended December 31, 2014 were less than 1% of net assets.
See accompanying notes which are an integral part of the financial statements.
96 Core Bond Fund
| Russell Investment Funds | |||||||||
| Core Bond Fund | |||||||||
| Fair Value of Derivative Instruments — December 31, 2014 | |||||||||
| Amounts in thousands | |||||||||
| Foreign | |||||||||
| Credit | Currency | Interest Rate | |||||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | Contracts | ||||||
| Location: Statement of Assets and Liabilities - Assets | |||||||||
| Investments, at fair value* | $ | — | $ | — | $ | 151 | |||
| Unrealized appreciation on foreign currency exchange contracts | — | 4,900 | — | ||||||
| Variation margin on futures contracts** | — | — | 1,160 | ||||||
| Index swap contracts, at fair value | — | — | 35 | ||||||
| Interest rate swap contracts, at fair value | — | — | 140 | ||||||
| Credit default swap contracts, at fair value | 64 | — | — | ||||||
| Total | $ | 64 | $ | 4,900 | $ | 1,486 | |||
| Location: Statement of Assets and Liabilities - Liabilities | |||||||||
| Variation margin on futures contracts** | $ | — | $ | — | $ | 462 | |||
| Unrealized depreciation on foreign currency exchange contracts | — | 2,959 | — | ||||||
| Options written, at fair value | — | — | 45 | ||||||
| Interest rate swap contracts, at fair value | — | — | 474 | ||||||
| Total | $ | — | $ | 2,959 | $ | 981 | |||
| Foreign | |||||||||
| Credit | Currency | Interest Rate | |||||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | Contracts | ||||||
| Location: Statement of Operations - Net realized gain (loss) | |||||||||
| Investments*** | $ | — | $ | — | $ | 62 | |||
| Futures contracts | — | — | 6,425 | ||||||
| Options written | — | — | 666 | ||||||
| Index swap contracts | — | — | 2,982 | ||||||
| Interest rate swap contracts | — | — | (979 | ) | |||||
| Credit default swap contracts | 644 | — | — | ||||||
| Foreign currency-related transactions**** | — | 5,066 | — | ||||||
| Total | $ | 644 | $ | 5,066 | $ | 9,156 | |||
| Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | |||||||||
| Investments***** | $ | — | $ | — | $ | (386 | ) | ||
| Futures contracts | — | — | 2,472 | ||||||
| Options written | — | — | (82 | ) | |||||
| Index swap contracts | — | — | 626 | ||||||
| Interest rate swap contracts | — | — | (970 | ) | |||||
| Credit default swap contracts | (59 | ) | — | — | |||||
| Foreign currency-related transactions****** | — | (228 | ) | — | |||||
| Total | $ | (59 | ) | $ | (228 | ) | $ | 1,660 | |
| * | Fair value of purchased options. |
| ** | Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only 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 unrealized gain (loss) on purchased options as reported in the 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 the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 97
Russell Investment Funds Core Bond Fund
Balance Sheet Offsetting of Financial and Derivative Instruments —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Assets and Derivative Assets | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Assets | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized Assets and | of Assets and | |||||||
| Description | Location: Statement of Assets and Liabilities - Assets | Assets | Liabilities | Liabilities | ||||
| Options Purchased Contracts | Investments, at fair value | $ | 151 | $ | — $ | 151 | ||
| Foreign Currency Exchange Contracts | Unrealized appreciation on foreign currency exchange contracts | 4,900 | — | 4,900 | ||||
| Futures Contracts | Variation margin on futures contracts | 1,547 | — | 1,547 | ||||
| Index Swap Contracts | Index swap contracts, at fair value | 35 | — | 35 | ||||
| Interest Rate Swap Contracts | Interest rate swap contracts, at fair value | 140 | — | 140 | ||||
| Credit Default Swap Contracts | Credit default swap contracts, at fair value | 64 | — | 64 | ||||
| Total | $ | 6,837 | $ | — $ | 6,837 | |||
| Financial Assets, Derivative Assets, and Collateral Held by Counterparty | |
| Gross Amounts Not Offset in | |
| the Statement of Assets and | |
| Liabilities |
| Amounts | |||||||||||
| of Assets | |||||||||||
| Presented in | |||||||||||
| the Statement | Financial and | ||||||||||
| of Assets and | Derivative | Collateral | |||||||||
| Counterparty | Liabilities | Instruments | Received^ | Net Amount | |||||||
| Australia and New Zealand Banking Group | $ | 49 | $ | 49 | $ | — | — | ||||
| Bank of America | 76 | 24 | — | 52 | |||||||
| Barclays | 1,579 | 213 | 307 | 1,059 | |||||||
| Citigroup | 162 | 19 | — | 143 | |||||||
| Commonwealth Bank of Australia | 1,126 | 379 | — | 747 | |||||||
| Deutsche Bank | 37 | — | — | 37 | |||||||
| Goldman Sachs | 767 | 122 | 65 | 580 | |||||||
| HSBC | 6 | — | — | 6 | |||||||
| JPMorgan Chase | 1,343 | 1,304 | — | 39 | |||||||
| Royal Bank of Canada | 646 | 469 | — | 177 | |||||||
| Skandinaviska Enskilda Bank | 10 | — | — | 10 | |||||||
| Standard Chartered | 424 | 239 | — | 185 | |||||||
| State Street | 65 | 29 | — | 36 | |||||||
| UBS | 547 | 97 | — | 450 | |||||||
| Total | $ | 6,837 | $ | 2,944 | $ | 372 | $ | 3,521 | |||
See accompanying notes which are an integral part of the financial statements.
98 Core Bond Fund
Russell Investment Funds Core Bond Fund
Balance Sheet Offsetting of Financial and Derivative Instruments, continued —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Liabilities and Derivative Liabilities | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Liabilities | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized Assets and | of Assets and | |||||||
| Description | Location: Statement of Assets and Liabilities - Liabilities | Liabilities | Liabilities | Liabilities | ||||
| Futures Contracts | Variation margin on futures contracts | $ | 255 | $ | — $ | 255 | ||
| Foreign Currency Exchange Contracts | Unrealized depreciation on foreign currency exchange contracts | 2,959 | — | 2,959 | ||||
| Options Written Contracts | Options written, at fair value | 45 | — | 45 | ||||
| Interest Rate Swap Contracts | Interest rate swap contracts, at fair value | 474 | — | 474 | ||||
| Total | $ | 3,733 | $ | — $ | 3,733 | |||
| Financial Liabilities, Derivative Liabilities, and Collateral Pledged by Counterparty | |
| Gross Amounts Not Offset in | |
| the Statement of Assets and | |
| Liabilities |
| Amounts of | |||||||||
| Liabilities | |||||||||
| Presented in | |||||||||
| the Statement | Financial and | ||||||||
| of Assets and | Derivative | Collateral | |||||||
| Counterparty | Liabilities | Instruments | Pledged^ Net Amount | ||||||
| Australia and New Zealand Banking Group | 174 | $ | 49 | $ | — | $ | 125 | ||
| Bank of America | 24 | 24 | — | — | |||||
| Barclays | 333 | 213 | 120 | — | |||||
| Citigroup | 177 | 19 | 158 | — | |||||
| Commonwealth Bank of Australia | 379 | 379 | — | — | |||||
| Deutsche Bank | 4 | — | — | 4 | |||||
| Goldman Sachs | 401 | 122 | 279 | — | |||||
| JPMorgan Chase | 1,396 | 1,304 | — | 92 | |||||
| Royal Bank of Canada | 479 | 469 | — | 10 | |||||
| Standard Chartered | 240 | 239 | — | 1 | |||||
| State Street | 29 | 29 | — | — | |||||
| UBS | 97 | 97 | — | — | |||||
| Total | 3,733 | $ | 2,944 | $ | 557 | $ | 232 | ||
^ Collateral received or pledged amounts may not reconcile to those disclosed in the Statement of Assets and Liabilities due to the inclusion of off-Balance Sheet collateral and adjustments made to exclude overcollateralization.
For further disclosure on derivatives and counterparty risk see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 99
| Russell Investment Funds | ||
| Core Bond Fund | ||
| Statement of Assets and Liabilities — December 31, 2014 | ||
| Amounts in thousands | ||
| Assets | ||
| Investments, at identified cost | $ | 889,075 |
| Investments, at fair value(>) | 897,801 | |
| Cash | 1,992 | |
| Cash (restricted)(a)(b) | 4,237 | |
| Foreign currency holdings(^) | 1,081 | |
| Unrealized appreciation on foreign currency exchange contracts | 4,900 | |
| Receivables: | ||
| Dividends and interest | 3,443 | |
| Dividends from affiliated Russell funds | 13 | |
| Investments sold | 9,426 | |
| Fund shares sold | 194 | |
| Variation margin on futures contracts | 1,547 | |
| Index swap contracts, at fair value(8) | 35 | |
| Interest rate swap contracts, at fair value(•) | 140 | |
| Credit default swap contracts, at fair value(+) | 64 | |
| Total assets | 924,873 | |
| Liabilities | ||
| Payables: | ||
| Due to broker (c)(d) | 372 | |
| Investments purchased | 80,722 | |
| Fund shares redeemed | 41 | |
| Accrued fees to affiliates | 396 | |
| Other accrued expenses | 151 | |
| Variation margin on futures contracts | 255 | |
| Unrealized depreciation on foreign currency exchange contracts | 2,959 | |
| Options written, at fair value(x) | 45 | |
| Interest rate swap contracts, at fair value(•) | 474 | |
| Total liabilities | 85,415 | |
| Net Assets | $ | 839,458 |
See accompanying notes which are an integral part of the financial statements.
100 Core Bond Fund
| Russell Investment Funds | |||
| Core Bond Fund | |||
| Statement of Assets and Liabilities, continued — December 31, 2014 | |||
| Amounts in thousands | |||
| Net Assets Consist of: | |||
| Undistributed (overdistributed) net investment income | $ | 1,983 | |
| Accumulated net realized gain (loss) | 2,290 | ||
| Unrealized appreciation (depreciation) on: | |||
| Investments | 8,726 | ||
| Futures contracts | 698 | ||
| Options written | 71 | ||
| Index swap contracts | 35 | ||
| Interest rate swap contracts | (334 | ) | |
| Credit default swap contracts | (7 | ) | |
| Foreign currency-related transactions | 1,868 | ||
| Shares of beneficial interest | 787 | ||
| Additional paid-in capital | 823,341 | ||
| Net Assets | $ | 839,458 | |
| Net Asset Value, offering and redemption price per share: | |||
| Net asset value per share: (#) | $ | 10.66 | |
| Net assets | $ | 839,457,725 | |
| Shares outstanding ($.01 par value) | 78,738,592 | ||
| Amounts in thousands | |||
| (^) Foreign currency holdings - cost | $ | 927 | |
| (x) Premiums received on options written | $ | 116 | |
| (+) Credit default swap contracts - premiums paid (received) | $ | 71 | |
| (>) Investments in affiliates, Russell U.S. Cash Management Fund | $ | 158,417 | |
| (•) Interest rate swap contracts - premiums paid (received) | $ | — | |
| (8) Index swap contracts - premiums paid (received) | $ | — | |
| (a) Cash Collateral for Futures | $ | 2,761 | |
| (b) Cash Collateral for Swaps | $ | 1,476 | |
| (c) Due to Broker for Futures | $ | 307 | |
| (d) Due to Broker for Swaps | $ | 65 | |
| (#) 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 101
| Russell Investment Funds | |||
| Core Bond Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Dividends | $ | 85 | |
| Dividends from affiliated Russell funds | 151 | ||
| Interest | 16,164 | ||
| Total investment income | 16,400 | ||
| Expenses | |||
| Advisory fees | 4,343 | ||
| Administrative fees | 395 | ||
| Custodian fees | 319 | ||
| Transfer agent fees | 35 | ||
| Professional fees | 109 | ||
| Trustees’ fees | 18 | ||
| Printing fees | 115 | ||
| Miscellaneous | 118 | ||
| Expenses before reductions | 5,452 | ||
| Expense reductions | (395 | ) | |
| Net expenses | 5,057 | ||
| Net investment income (loss) | 11,343 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 9,157 | ||
| Futures contracts | 6,425 | ||
| Options written | 666 | ||
| Index swap contracts | 2,982 | ||
| Interest rate swap contracts | (979 | ) | |
| Credit default swap contracts | 644 | ||
| Foreign currency-related transactions | 4,973 | ||
| Net realized gain (loss) | 23,868 | ||
| Net change in unrealized appreciation (depreciation) on: | |||
| Investments | 5,296 | ||
| Futures contracts | 2,472 | ||
| Options written | (82 | ) | |
| Index swap contracts | 626 | ||
| Interest rate swap contracts | (970 | ) | |
| Credit default swap contracts | (59 | ) | |
| Investment matured | 54 | ||
| Foreign currency-related transactions | (311 | ) | |
| Net change in unrealized appreciation (depreciation) | 7,026 | ||
| Net realized and unrealized gain (loss) | 30,894 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 42,237 | |
See accompanying notes which are an integral part of the financial statements.
102 Core Bond Fund
| Russell Investment Funds | ||||||
| Core Bond Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 11,343 | $ | 12,344 | ||
| Net realized gain (loss) | 23,868 | (4,976 | ) | |||
| Net change in unrealized appreciation (depreciation) | 7,026 | (17,965 | ) | |||
| Net increase (decrease) in net assets from operations | 42,237 | (10,597 | ) | |||
| Distributions | ||||||
| From net investment income | (12,125 | ) | (10,239 | ) | ||
| From net realized gain | (16,153 | ) | (2,007 | ) | ||
| Net decrease in net assets from distributions | (28,278 | ) | (12,246 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 61,598 | 110,726 | ||||
| Total Net Increase (Decrease) in Net Assets | 75,557 | 87,883 | ||||
| Net Assets | ||||||
| Beginning of period | 763,901 | 676,018 | ||||
| End of period | $ | 839,458 | $ | 763,901 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | 1,983 | $ | (886 | ) | |
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 9,002 | $ | 96,140 | 13,149 | $ | 139,458 | ||||||
| Proceeds from reinvestment of distributions | 2,658 | 28,278 | 1,157 | 12,244 | ||||||||
| Payments for shares redeemed | (5,920 | ) | (62,820 | ) | (3,859 | ) | (40,976 | ) | ||||
| Total increase (decrease) | 5,740 | $ | 61,598 | 10,447 | $ | 110,726 | ||||||
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 103
| Russell Investment Funds | ||||||||||||||||
| Core Bond Fund | ||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||
| Net Asset Value, | Net | Net Realized | Total from | Distributions | Distributions | |||||||||||
| Beginning of | Investment | and Unrealized | Investment | from Net | from Net | |||||||||||
| Period | Income (Loss)(a)(b) | Gain (Loss) | Operations | Investment Income | Realized Gain | |||||||||||
| December 31, 2014 | 10.46 | .15 | .43 | .58 | (.17 | ) | (.21 | ) | ||||||||
| December 31, 2013 | 10.81 | .18 | (.35 | ) | (.17 | ) | (.15 | ) | (.03 | ) | ||||||
| December 31, 2012 | 10.47 | .25 | .61 | .86 | (.25 | ) | (.27 | ) | ||||||||
| December 31, 2011 | 10.51 | .35 | .14 | .49 | (.34 | ) | (.19 | ) | ||||||||
| December 31, 2010 | 10.20 | .37 | .63 | 1.00 | (.40 | ) | (.29 | ) | ||||||||
See accompanying notes which are an integral part of the financial statements.
104 Core Bond Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(d) | (000 | ) | Gross | Net(b) | Net Assets(b) | Turnover Rate | |||||||||
| (.38 | ) | 10.66 | 5.55 | 839,458 | .69 | .64 | 1.44 | 173 | |||||||||
| (.18 | ) | 10.46 | (1.55 | ) | 763,901 | .67 | .62 | 1.73 | 133 | ||||||||
| (.52 | ) | 10.81 | 8.38 | 676,018 | .72 | .66 | 2.32 | 192 | |||||||||
| (.53 | ) | 10.47 | 4.68 | 545,608 | .72 | .65 | 3.29 | 203 | |||||||||
| (.69 | ) | 10.51 | 10.02 | 471,898 | .75 | .68 | 3.48 | 195 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 105
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
106 Global Real Estate Securities Fund
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Global Real Estate Securities Fund (the “Fund”) employs | an upward trajectory, posting positive performance as the 10- |
| a multi-manager approach whereby portions of the Fund | year U.S. Treasury yield declined and U.S. real estate investment |
| are allocated to different money managers. Fund assets not | trusts (“REITs”) rallied to close out the period. |
| allocated to money managers are managed by Russell Investment | Within the global property securities market, companies with |
| Management Company (“RIMCo”), the Fund’s advisor. RIMCo | stronger balance sheets tended to outperform more highly levered |
| may change the allocation of the Fund’s assets among money | stocks, while property developers lagged relative to REITs. In an |
| managers at any time. An exemptive order from the Securities | environment of diverging growth by geography, North America |
| and Exchange Commission (“SEC”) permits RIMCo to engage | significantly outperformed relative to the Asia-Pacific region and |
| or terminate a money manager at any time, subject to approval | Europe, representing a reversal of the trend seen in the prior fiscal |
| by the Fund’s Board, without a shareholder vote. Pursuant to the | year. With respect to property sectors, the shorter lease duration |
| terms of the exemptive order, the Fund is required to notify its | categories, including lodging and residential, generally delivered |
| shareholders within 90 days of when a money manager begins | the strongest performance, while the industrial and office sectors |
| providing services. As of December 31, 2014, the Fund had three | were among the weakest-performing property types. |
| money managers. | |
| What is the Fund’s investment objective? | How did the investment strategies and techniques employed |
| by the Fund and its money managers affect its benchmark- | |
| The Fund seeks to provide current income and long term capital | relative performance? |
| growth. | AEW Capital Management, L.P. (“AEW”) was terminated from the |
| How did the Fund perform relative to its benchmark for the | Fund in June 2014 and outperformed the Fund’s benchmark for |
| fiscal year ended December 31, 2014? | the portion of the fiscal year in which it was a money manager for |
| For the fiscal year ended December 31, 2014, the Global Real | the Fund. AEW utilized a value-oriented strategy that integrated |
| Estate Securities Fund gained 14.75%. This is compared to the | quantitative analysis with property and capital markets expertise. |
| Fund’s benchmark, the FTSE EPRA/NAREIT Developed Real | Stock selection within the U.S. residential, office, and retail |
| Estate Index (Net), which gained 15.02% during the same period. | sectors drove outperformance relative to the benchmark. Modest |
| The Fund’s performance includes operating expenses, whereas | out-of-benchmark exposure to the emerging markets detracted |
| index returns are unmanaged and do not include expenses of any | from performance. |
| kind. | Cohen & Steers Capital Management, Inc. (“Cohen”) marginally |
| For the fiscal year ended December 31, 2014, the Morningstar® | outperformed the Fund’s benchmark for the fiscal year. Cohen |
| Insurance Global Real Estate, a group of funds that Morningstar | seeks to generate excess returns through a combination of bottom- |
| considers to have investment strategies similar to those of the | up stock selection and top-down regional allocation decisions. |
| Fund, gained 14.14%. This result serves as a peer comparison | The key driver of performance was stock selection within the |
| and is expressed net of operating expenses. | U.S. diversified and retail sectors, in addition to a tilt toward the |
| larger property companies in the United Kingdom. Overweight | |
| How did the market conditions described in the Market | positioning in several Japanese property developers detracted |
| Summary report affect the Fund’s performance? | from performance. |
| For the fiscal year ended December 31, 2014, the global listed | INVESCO Advisers, Inc. (“Invesco”) outperformed the Fund’s |
| property market, as measured by the FTSE EPRA/NAREIT | benchmark for the fiscal year. Invesco manages a broadly |
| Developed Real Estate Index (Net), delivered a 15.02% return, | diversified portfolio with a focus on companies that operate in |
| outperforming most other equity sectors. Performance was | attractive markets, own top-tier assets, have strong management |
| supported by a combination of low interest rates, investor capital | teams, and maintain sound balance sheets. This focus on asset |
| inflows, and generally healthy underlying property fundamentals. | and balance sheet strength was beneficial during the fiscal year, |
| Real estate securities began the fiscal year with a recovery in | as overweight positioning in the highest-quality U.S. office REITs |
| momentum, as modest performance in 2013 eased investor | drove outperformance. An overweight to the lodging sector also |
| concerns over valuation levels, and inflows of yield-seeking | contributed to performance, while an underweight to U.S. data |
| capital resumed. The sector posted gains through the spring | center and diversified REITs detracted. |
| months, as strong earnings and flat to declining interest rates | |
| provided support to real estate companies. However, property | Morgan Stanley Investment Management, Inc., Morgan Stanley |
| stocks responded negatively in September to significant equity | Investment Management Limited and Morgan Stanley Investment |
| issuance and concerns over valuation levels in light of strong | Management Company (together, “Morgan Stanley”) were added |
| recent performance. The sector then finished the fiscal year on | to the Fund in June 2014 and outperformed the Fund’s benchmark |
| Global Real Estate Securities Fund 107 | |
Russell Investment Funds
Global Real Estate Securities Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| for the portion of the fiscal year in which they were a money | a money manager for the Fund. Morgan Stanley’s investment | ||
| manager for the Fund. As a result of Morgan Stanley’s value- | approach is value-driven, with an emphasis on bottom-up stock | ||
| oriented process, the portfolio was overweight U.S. residential | selection in each of the three global regions. Morgan Stanley | ||
| and | lodging REITs, which outpaced the overall benchmark. | tends to make relatively significant region and country allocation | |
| Also contributing to performance were stock selection within the | tilts, which RIMCo believes provides the Fund an additional | ||
| retail sector and an underweight position in Canada. Overweight | source of potential excess return. | ||
| positioning in Japan was a detractor from performance. | There were no other changes to the Fund’s structure or money | ||
| RIMCo manages the portion of the Fund’s assets that RIMCo | manager line up during the fiscal year. | ||
| determines not to allocate to the money managers. Assets not | |||
| allocated to managers include the Fund’s liquidity reserves and | Money Managers as of December 31, | ||
| assets which may be managed directly by RIMCo to modify the | 2014 | Styles | |
| Fund’s overall portfolio characteristics to seek to achieve the | Cohen & Steers Capital Management, Inc. | Market-Oriented | |
| desired risk/return profile for the Fund. | INVESCO Advisers, Inc. which acts as a | ||
| money manager to the Fund | |||
| During the period, RIMCo continued to utilize a strategy to | through its INVESCO Real Estate division | Market-Oriented | |
| implement regional tilting through the direct purchase of real | Morgan Stanley Investment Management | ||
| estate stocks. Using the output from a quantitative model, the | Inc., Morgan Stanley Investment | ||
| strategy seeks to position the portfolio to meet RIMCo’s overall | Management Limited and Morgan Stanley | ||
| preferred positioning with respect to regional exposures, while | Investment Management Company | Value | |
| optimizing the portfolio to minimize tracking error relative to the | The views expressed in this report reflect those of the | ||
| Fund’s money manager portfolios. The strategy outperformed | portfolio managers only through the end of the period | ||
| relative to the Fund’s benchmark as a result of an underweight to | covered by the report. These views do not necessarily | ||
| Japan, which was among the weakest markets globally. | represent the views of RIMCo or any other person in RIMCo | ||
| or any other affiliated organization. These views are | |||
| During the period, the Fund used index futures and swap | subject to change at any time based upon market conditions | ||
| contracts to equitize the Fund’s cash. The use of these derivatives | or other events, and RIMCo disclaims any responsibility to | ||
| had a modestly positive impact on performance, as equity markets | update the views contained herein. | These views should not | |
| delivered positive returns ahead of cash. | be relied on as investment advice and, because investment | ||
| Describe any changes to the Fund’s structure or the money | decisions for a Russell Investment Funds (“RIF”) Fund are | ||
| manager line-up. | based on numerous factors, should not be relied on as an | ||
| In June 2014, RIMCo terminated AEW Capital Management | indication of investment decisions of any RIF Fund. | ||
| as a money manager for the Fund and hired Morgan Stanley as | |||
| * | Assumes initial investment on January 1, 2005. | ||
| ** | FTSE EPRA/NAREIT Developed Real Estate Index (Net) (date of inception February 18, 2005) 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 as used in the total return calculation. | |||
| *** | The Russell Developed Index (Net) measures the performance of the investable securities in developed countries globally. | ||
| **** The Global Real Estate Linked Benchmark provides a means to compare the Fund’s average annual returns to a secondary benchmark that takes into account | |||
| historical changes in the Fund’s primary benchmark. The Global Real Estate Linked Benchmark represents the returns of the FSTE NAREIT Equity REIT Index | |||
| through September 30, 2010 and the returns of the FTSE EPRA/NAREIT Developed Real Estate Index (net) thereafter. | |||
| § | 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. | |||
| 108 Global Real Estate Securities Fund | |||
Russell Investment Funds
Global Real Estate Securities Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 1,027.70 | $ | 1,020.37 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 4.91 | $ | 4.89 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.96% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | |||||||
| = 8.6), then multiply the result by the number in the first column | |||||||
| in the row entitled “Expenses Paid During Period” to estimate | |||||||
| the expenses you paid on your account during this period. | |||||||
| Hypothetical Example for Comparison Purposes | |||||||
| The information in the table under the heading “Hypothetical | |||||||
| Performance (5% return before expenses)” provides information | |||||||
| about hypothetical account values and hypothetical expenses | |||||||
| based on the Fund’s actual expense ratio and an assumed rate of | |||||||
| return of 5% per year before expenses, which is not the Fund’s | |||||||
| actual return. The hypothetical account values and expenses | |||||||
| may not be used to estimate the actual ending account balance or | |||||||
| expenses you paid for the period. You may use this information | |||||||
| to compare the ongoing costs of investing in the Fund and other | |||||||
| funds. To do so, compare this 5% hypothetical example with the | |||||||
| 5% hypothetical examples that appear in the shareholder reports | |||||||
| of other funds. | |||||||
Global Real Estate Securities Fund 109
| Russell Investment Funds | |||||||||||
| Global Real Estate Securities Fund | |||||||||||
| Schedule of Investments — December 31, 2014 | |||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Principal | Fair | Principal | Fair | ||||||||
| Amount ($) | Value | Amount ($) | Value | ||||||||
| or Shares | $ | or Shares | $ | ||||||||
| Common Stocks - 97.0% | Sponda OYJ | 260,470 | 1,141 | ||||||||
| Australia - 5.0% | 1,555 | ||||||||||
| BGP Holdings PLC(Æ)(Å) | 926,311 | — | |||||||||
| Dexus Property Group(ö) | 368,219 | 2,083 | France - 3.5% | ||||||||
| Federation Centres(ö) | 953,967 | 2,220 | Altarea(Æ)(ö) | 400 | 64 | ||||||
| Goodman Group(ö) | 1,705,121 | 7,861 | Fonciere Des Regions(ö) | 6,690 | 619 | ||||||
| GPT Group (The)(ö) | 393,568 | 1,390 | Gecina SA(ö) | 43,037 | 5,386 | ||||||
| Investa Office Fund(ö) | 128,157 | 379 | Klepierre - GDR(ö) | 186,250 | 8,023 | ||||||
| Mirvac Group(ö) | 654,754 | 946 | Mercialys SA(ö) | 48,832 | 1,089 | ||||||
| Scentre Group(Æ)(ö) | 2,574,369 | 7,320 | Unibail-Rodamco SE(ö) | 46,263 | 11,884 | ||||||
| Stockland(ö) | 1,271,741 | 4,248 | 27,065 | ||||||||
| Westfield Corp.(Æ)(ö) | 1,731,588 | 12,659 | |||||||||
| 39,106 | Germany - 2.9% | ||||||||||
| Alstria Office AG(Æ)(ö) | 9,032 | 112 | |||||||||
| Austria - 0.1% | Deutsche Annington Immobilien SE | 103,644 | 3,526 | ||||||||
| Atrium European Real Estate, Ltd.(Æ) | 62,564 | 310 | Deutsche Euroshop AG | 12,180 | 533 | ||||||
| Buwog AG | 10,937 | 217 | Deutsche Wohnen AG | 417,005 | 9,908 | ||||||
| Conwert Immobilien Invest SE(Æ) | 50,276 | 593 | Gagfah SA(Æ) | 113,074 | 2,531 | ||||||
| 1,120 | LEG Immobilien AG | 75,620 | 5,673 | ||||||||
| Prime Office AG(Æ) | 52,081 | 183 | |||||||||
| Belgium - 0.0% | TAG Immobilien AG | 739 | 9 | ||||||||
| Cofinimmo SA(ö) | 1,648 | 191 | 22,475 | ||||||||
| Brazil - 0.3% | Hong Kong - 9.1% | ||||||||||
| BR Malls Participacoes SA | 256,518 | 1,568 | Champion REIT(Æ)(ö) | 639,593 | 297 | ||||||
| BR Properties SA | 80,400 | 307 | Hang Lung Properties, Ltd. - ADR | 352,000 | 981 | ||||||
| Iguatem Emp De Shopping Centers | Henderson Land Development Co., Ltd. | 421,100 | 2,924 | ||||||||
| SA(Æ) | 58,200 | 535 | Hongkong Land Holdings, Ltd. | 1,936,501 | 13,034 | ||||||
| 2,410 | Hysan Development Co., Ltd. | 706,000 | 3,136 | ||||||||
| Kerry Properties, Ltd. | 329,000 | 1,188 | |||||||||
| Canada - 1.9% | Link REIT (The)(ö) | 2,226,000 | 13,896 | ||||||||
| Allied Properties Real Estate Investment | New World Development Co., Ltd. | 6,203,748 | 7,095 | ||||||||
| Trust(ö) | 139,581 | 4,500 | Sino Land Co., Ltd. | 414,000 | 664 | ||||||
| Boardwalk Real Estate Investment | Sun Hung Kai Properties, Ltd. | 1,261,125 | 19,072 | ||||||||
| Trust(ö) | 33,100 | 1,753 | Swire Properties, Ltd. | 535,668 | 1,581 | ||||||
| Brookfield Canada Office Pro REIT(ö) | 21,370 | 496 | Wharf Holdings, Ltd. (The) | 977,789 | 7,021 | ||||||
| Calloway Real Estate Investment Trust(ö) | 7,934 | 186 | 70,889 | ||||||||
| Canadian Apartment Properties REIT(ö) | 4,400 | 95 | |||||||||
| Canadian Real Estate Investment | Ireland - 0.0% | ||||||||||
| Trust(ö) | 43,800 | 1,726 | Hibernia Reit Public Limited Co.(Æ) | 157,643 | 206 | ||||||
| Chartwell Retirement Residences | 83,664 | 858 | |||||||||
| Crombie Real Estate Investment | Italy - 0.0% | ||||||||||
| Trust(Æ)(ö) | 27,700 | 308 | Beni Stabili SpA SIIQ(Ñ)(ö) | 449,335 | 316 | ||||||
| First Capital Realty, Inc. Class A | 47,722 | 766 | |||||||||
| H&R Real Estate Investment Trust(ö) | 87,000 | 1,627 | Japan - 12.3% | ||||||||
| Pure Industrial Real Estate Trust(Æ) | 88,885 | 340 | Activia Properties, Inc.(Ñ)(ö) | 410 | 3,566 | ||||||
| RioCan Real Estate Investment Trust(ö) | 98,565 | 2,242 | Advance Residence Investment Corp.(ö) | 159 | 425 | ||||||
| 14,897 | Aeon Mall Co., Ltd. | 141,300 | 2,499 | ||||||||
| Daibiru Corp. | 7,800 | 73 | |||||||||
| China - 0.6% | Daiwa House Residential Investment | ||||||||||
| China Overseas Land & Investment, Ltd. | 874,000 | 2,579 | Corp.(ö) | 11 | 53 | ||||||
| China Resources Land, Ltd. | 70,000 | 184 | Frontier Real Estate Investment Corp.(ö) | 34 | 156 | ||||||
| China Vanke Co., Ltd.(Æ)(Ñ) | 649,200 | 1,441 | GLP J-REIT(ö) | 492 | 545 | ||||||
| Dalian Wanda Commercial Properties | Hulic Co., Ltd. | 413,300 | 4,108 | ||||||||
| Co., Ltd. Class H(Æ)(Þ) | 47,800 | 305 | Hulic Reit, Inc.(ö) | 1,778 | 2,689 | ||||||
| Guangzhou R&F Properties Co., Ltd. | 295,600 | 360 | Industrial & Infrastructure Fund | ||||||||
| 4,869 | Investment Corp.(ö) | 2 | 9 | ||||||||
| Japan Excellent, Inc.(ö) | 42 | 56 | |||||||||
| Finland - 0.2% | Japan Hotel REIT Investment Corp.(Æ) | 1,780 | 1,140 | ||||||||
| Citycon OYJ | 132,789 | 414 | Japan Logistics Fund, Inc.(ö) | 419 | 939 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||
| 110 Global Real Estate Securities Fund | |||||||||||
| Russell Investment Funds | |||||||||||
| Global Real Estate Securities Fund | |||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Principal | Fair | Principal | Fair | ||||||||
| Amount ($) | Value | Amount ($) | Value | ||||||||
| or Shares | $ | or Shares | $ | ||||||||
| Japan Prime Realty Investment Corp. | Suntec Real Estate Investment Trust(ö) | 1,148,697 | 1,698 | ||||||||
| Class A(ö) | 447 | 1,552 | UOL Group, Ltd. | 92,000 | 482 | ||||||
| Japan Real Estate Investment Corp.(ö) | 478 | 2,300 | 30,619 | ||||||||
| Japan Retail Fund Investment Corp.(ö) | 1,076 | 2,268 | |||||||||
| Kenedix Office Investment Corp. Class | Spain - 0.3% | ||||||||||
| A(ö) | 307 | 1,724 | Hispania Activos Inmobiliarios SAU(Æ) | 87,026 | 1,134 | ||||||
| Mitsubishi Estate Co., Ltd. | 705,867 | 14,938 | Lar Espana Real Estate Socimi SA(Æ)(ö) | 79,811 | 886 | ||||||
| Mitsui Fudosan Co., Ltd. | 750,129 | 20,174 | 2,020 | ||||||||
| Mori Hills REIT Investment Corp. Class | |||||||||||
| A(ö) | 1,318 | 1,886 | Sweden - 0.8% | ||||||||
| Mori Trust Sogo Reit, Inc.(ö) | 8 | 16 | Atrium Ljungberg AB(Æ) | 19,628 | 289 | ||||||
| Nippon Accommodations Fund, Inc. | Castellum AB | 101,481 | 1,583 | ||||||||
| Class A(ö) | 3 | 12 | Fabege AB | 58,723 | 754 | ||||||
| Nippon Building Fund, Inc.(ö) | 1,230 | 6,163 | Fastighets AB Balder Class B(Æ) | 776 | 11 | ||||||
| Nippon Healthcare Investment Corp.(Æ) | 6 | 14 | Hemfosa Fastigheter AB(Æ) | 98,959 | 2,080 | ||||||
| Nippon Prologis REIT, Inc.(ö) | 1,541 | 3,341 | Hufvudstaden AB Class A | 68,241 | 886 | ||||||
| Nomura Master Real Estate Fund, Inc. | Wihlborgs Fastigheter AB | 37,848 | 691 | ||||||||
| (Æ) | 2,158 | 2,792 | 6,294 | ||||||||
| Nomura Real Estate Office Fund, Inc. | Switzerland - 0.2% | ||||||||||
| Class A(ö) | 533 | 2,640 | Mobimo Holding AG(Æ) | 407 | 82 | ||||||
| NTT Urban Development Corp. | 12,500 | 125 | PSP Swiss Property AG(Æ) | 14,276 | 1,229 | ||||||
| Orix JREIT, Inc.(ö) | 539 | 755 | Swiss Prime Site AG Class A(Æ) | 2,790 | 204 | ||||||
| Premier Investment Corp.(ö) | 4 | 20 | 1,515 | ||||||||
| Sumitomo Realty & Development Co., | |||||||||||
| Ltd. | 390,000 | 13,285 | United Kingdom - 6.4% | ||||||||
| Tokyo Tatemono Co., Ltd. | 410,000 | 2,986 | Big Yellow Group PLC(ö) | 393,111 | 3,708 | ||||||
| Tokyu Fudosan Holdings Corp. | 94,000 | 648 | British Land Co. PLC (The)(ö) | 251,266 | 3,018 | ||||||
| Tokyu REIT, Inc.(ö) | 56 | 76 | Capital & Counties Properties PLC | 78,730 | 444 | ||||||
| United Urban Investment Corp.(ö) | 1,152 | 1,810 | Capital & Regional PLC | 571,066 | 467 | ||||||
| 95,783 | Derwent London PLC(ö) | 118,539 | 5,537 | ||||||||
| Grainger PLC | 221,895 | 649 | |||||||||
| Netherlands - 1.8% | Great Portland Estates PLC(ö) | 297,889 | 3,404 | ||||||||
| Corio NV(ö) | 73,325 | 3,578 | Green REIT PLC(Æ) | 55,298 | 86 | ||||||
| Eurocommercial Properties NV | 13,848 | 588 | Hammerson PLC(ö) | 1,055,116 | 9,862 | ||||||
| Nieuwe Steen Investments NV(ö) | 533,699 | 2,377 | Helical Bar PLC | 205 | 1 | ||||||
| Vastned Retail NV(ö) | 4,388 | 199 | Intu Properties PLC Class H(ö) | 138,633 | 717 | ||||||
| Wereldhave NV(ö) | 104,805 | 7,192 | Land Securities Group PLC(ö) | 831,743 | 14,885 | ||||||
| 13,934 | LXB Retail Properties(Æ) | 355,323 | 760 | ||||||||
| Norway - 0.1% | Quintain Estates & Development | ||||||||||
| Entra ASA(Æ)(Þ) | 28,820 | 294 | PLC(Æ) | 791,782 | 1,174 | ||||||
| Norwegian Property ASA(Æ) | 87,102 | 118 | Safestore Holdings PLC(ö) | 97,676 | 353 | ||||||
| 412 | Segro PLC(ö) | 351,044 | 2,012 | ||||||||
| Shaftesbury PLC(ö) | 16,693 | 202 | |||||||||
| Singapore – 4.0% | ST Modwen Properties PLC | 62,176 | 371 | ||||||||
| Ascendas Real Estate Investment | UNITE Group PLC (The) | 215,883 | 1,565 | ||||||||
| Trust(Æ)(ö) | 1,852,568 | 3,326 | Urban&Civic plc(Æ) | 125,091 | 483 | ||||||
| CapitaCommercial Trust(Æ)(ö) | 1,856,512 | 2,457 | Workspace Group PLC(ö) | 5,265 | 62 | ||||||
| CapitaLand, Ltd. | 2,834,000 | 7,042 | 49,760 | ||||||||
| CapitaMall Trust Class A(Æ)(ö) | 1,286,094 | 1,978 | |||||||||
| CDL Hospitality Trusts(Æ)(ö) | 41,051 | 54 | United States - 47.5% | ||||||||
| City Developments, Ltd. | 536,807 | 4,145 | Acadia Realty Trust(ö) | 20,915 | 670 | ||||||
| Global Logistic Properties, Ltd. | 3,553,000 | 6,645 | Alexandria Real Estate Equities, Inc.(ö) | 9,550 | 847 | ||||||
| Keppel DC REIT(Æ)(ö) | 146,300 | 108 | American Assets Trust, Inc.(ö) | 51,669 | 2,057 | ||||||
| Keppel Land, Ltd. | 315,697 | 811 | American Homes 4 Rent Class A(ö) | 173,635 | 2,957 | ||||||
| Keppel REIT(ö) | 1,382,801 | 1,273 | American Realty Capital Healthcare | ||||||||
| Mapletree Commercial Trust(Æ)(ö) | 87,686 | 93 | Trust, Inc.(ö) | 46,695 | 556 | ||||||
| Mapletree Industrial Trust(Æ)(ö) | 108,855 | 122 | American Realty Capital Properties, | ||||||||
| Mapletree Logistics Trust(Æ)(ö) | 167,381 | 150 | Inc.(ö) | 8,913 | 81 | ||||||
| SPH REIT(Æ)(ö) | 299,000 | 235 | Apartment Investment & Management | ||||||||
| Co. Class A(ö) | 107,788 | 4,004 | |||||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||
| Global Real Estate Securities Fund 111 | |||||||||||
| Russell Investment Funds | ||||||||||||||
| Global Real Estate Securities Fund | ||||||||||||||
| Schedule of Investments, continued — December 31, 2014 | ||||||||||||||
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | |||||||||||||
| Principal | Fair | Principal | Fair | |||||||||||
| Amount ($) | Value | Amount ($) | Value | |||||||||||
| or Shares | $ | or Shares | $ | |||||||||||
| AvalonBay Communities, Inc.(ö) | 113,655 | 18,568 | New York REIT, Inc.(ö) | 5,731 | 61 | |||||||||
| Aviv REIT, Inc.(ö) | 3,272 | 113 | Nuveen New York Select Quality | |||||||||||
| Belmond, Ltd. Class A(Æ) | 212,186 | 2,625 | Municipal Fund, Inc.(Æ) | 1,062,261 | 1,829 | |||||||||
| BioMed Realty Trust, Inc.(ö) | 33,990 | 732 | Omega Healthcare Investors, Inc.(Ñ)(ö) | 2,909 | 114 | |||||||||
| Boston Properties, Inc.(ö) | 89,022 | 11,456 | Paramount Group, Inc.(Æ)(ö) | 83,234 | 1,548 | |||||||||
| Brixmor Property Group, Inc.(ö) | 75,600 | 1,878 | Parkway Properties, Inc.(ö) | 102,733 | 1,889 | |||||||||
| Brookdale Senior Living, Inc. Class | Pebblebrook Hotel Trust(ö) | 2,711 | 124 | |||||||||||
| A(Æ) | 45,888 | 1,683 | Piedmont Office Realty Trust, Inc. Class | |||||||||||
| Camden Property Trust(ö) | 34,397 | 2,540 | A(Ñ)(ö) | 97,647 | 1,839 | |||||||||
| Chesapeake Lodging Trust(ö) | 31,302 | 1,164 | Prologis, Inc.(ö) | 370,947 | 15,962 | |||||||||
| Corporate Office Properties Trust(ö) | 14,442 | 410 | PS Business Parks, Inc.(ö) | 4,656 | 370 | |||||||||
| Cousins Properties, Inc.(ö) | 358,013 | 4,088 | Public Storage(ö) | 65,307 | 12,073 | |||||||||
| CubeSmart Class A(ö) | 123,296 | 2,721 | Ramco-Gershenson Properties Trust(ö) | 1,302 | 24 | |||||||||
| DCT Industrial Trust, Inc.(ö) | 2,195 | 78 | Realty Income Corp.(Ñ)(ö) | 72,941 | 3,480 | |||||||||
| DDR Corp.(ö) | 658,637 | 12,093 | Regency Centers Corp.(ö) | 120,448 | 7,683 | |||||||||
| DiamondRock Hospitality Co.(ö) | 5,935 | 88 | Retail Opportunity Investments Corp.(ö) | 121,102 | 2,033 | |||||||||
| Douglas Emmett, Inc.(ö) | 149,079 | 4,234 | Rexford Industrial Realty, Inc.(ö) | 24,604 | 387 | |||||||||
| Duke Realty Corp.(ö) | 45,125 | 911 | RLJ Lodging Trust(ö) | 113,786 | 3,815 | |||||||||
| DuPont Fabros Technology, Inc.(ö) | 234 | 8 | Ryman Hospitality Properties, Inc.(ö) | 1,499 | 79 | |||||||||
| EastGroup Properties, Inc.(ö) | 18,676 | 1,183 | Senior Housing Properties Trust(ö) | 128,790 | 2,848 | |||||||||
| Empire State Realty Trust, Inc. Class | Simon Property Group, Inc.(ö) | 163,807 | 29,829 | |||||||||||
| A(ö) | 218,498 | 3,842 | SL Green Realty Corp.(ö) | 94,971 | 11,303 | |||||||||
| Equity Commonwealth(Æ)(ö) | 135,485 | 3,478 | Sovran Self Storage, Inc.(ö) | 30,988 | 2,703 | |||||||||
| Equity LifeStyle Properties, Inc. Class | Starwood Hotels & Resorts Worldwide, | |||||||||||||
| A(ö) | 37,847 | 1,951 | Inc. | 50,489 | 4,093 | |||||||||
| Equity One, Inc.(ö) | 10,761 | 273 | Starwood Waypoint Residential Trust(Æ) | |||||||||||
| Equity Residential(ö) | 351,444 | 25,245 | (ö) | 86,372 | 2,278 | |||||||||
| Essex Property Trust, Inc.(ö) | 29,938 | 6,186 | STORE Capital Corp.(ö) | 20,711 | 448 | |||||||||
| Extended Stay America, Inc. | 141,094 | 2,724 | Strategic Hotels & Resorts, Inc.(Æ)(ö) | 16,523 | 219 | |||||||||
| Extra Space Storage, Inc.(ö) | 68,550 | 4,019 | Sun Communities, Inc.(ö) | 57,536 | 3,479 | |||||||||
| Federal Realty Investment Trust(ö) | 39,360 | 5,253 | Sunstone Hotel Investors, Inc.(ö) | 171,951 | 2,839 | |||||||||
| FelCor Lodging Trust, Inc.(ö) | 13,600 | 147 | Tanger Factory Outlet Centers, Inc.(ö) | 69,057 | 2,552 | |||||||||
| First Industrial Realty Trust, Inc.(ö) | 94,982 | 1,953 | UDR, Inc.(ö) | 164,566 | 5,072 | |||||||||
| Forest City Enterprises, Inc. Class A(Æ) | 27,120 | 578 | Ventas, Inc.(ö) | 59,564 | 4,271 | |||||||||
| General Growth Properties, Inc.(ö) | 613,481 | 17,258 | Vornado Realty Trust(ö) | 134,165 | 15,793 | |||||||||
| Glimcher Realty Trust(ö) | 1,200 | 16 | Washington Prime Group, Inc.(ö) | 42,384 | 730 | |||||||||
| Gramercy Property Trust, Inc.(ö) | 278,247 | 1,920 | WP Carey, Inc.(ö) | 7,409 | 519 | |||||||||
| HCP, Inc.(ö) | 30,090 | 1,325 | 368,960 | |||||||||||
| Health Care, Inc.(ö) | 66,911 | 5,063 | ||||||||||||
| Healthcare Realty Trust, Inc.(ö) | 134,439 | 3,673 | Total Common Stocks | |||||||||||
| Healthcare Trust of America, Inc. Class | (cost $624,997) | 754,396 | ||||||||||||
| A(ö) | 106,132 | 2,859 | ||||||||||||
| Hilton Worldwide Holdings, Inc.(Æ) | 217,410 | 5,672 | Short -Term Investments - 2.5% | |||||||||||
| Home Properties, Inc.(ö) | 67,877 | 4,453 | United States - 2.5% | |||||||||||
| Host Hotels & Resorts, Inc.(ö) | 517,863 | 12,310 | Russell U.S. Cash Management Fund | 19,257,165 | (∞) | 19,257 | ||||||||
| Hudson Pacific Properties, Inc.(ö) | 136,529 | 4,104 | Total Short-Term Investments | |||||||||||
| Icad, Inc.(ö) | 21,478 | 1,720 | (cost $19,257) | 19,257 | ||||||||||
| Kilroy Realty Corp.(ö) | 58,865 | 4,066 | ||||||||||||
| Kimco Realty Corp.(ö) | 48,733 | 1,225 | Other Securities - 0.8% | |||||||||||
| La Quinta Holdings, Inc.(Æ) | 14,344 | 316 | Russell U.S. Cash Collateral Fund(×) | 6,103,377 | (∞) | 6,103 | ||||||||
| LaSalle Hotel Properties(ö) | 96,493 | 3,905 | Total Other Securities | |||||||||||
| Liberty Property Trust(ö) | 108,994 | 4,101 | (cost $6,103) | 6,103 | ||||||||||
| Macerich Co. (The)(ö) | 74,680 | 6,229 | ||||||||||||
| Mack-Cali Realty Corp.(ö) | 70,445 | 1,343 | Total Investments 100.3% | |||||||||||
| Mid-America Apartment Communities, | (identified cost $650,357) | 779,756 | ||||||||||||
| Inc.(ö) | 70,367 | 5,255 | ||||||||||||
| Monogram Residential Trust, Inc.(ö) | 17,271 | 160 | Other Assets and Liabilities, Net | |||||||||||
| National Health Investors, Inc.(ö) | 24,600 | 1,721 | - | (0.3%) | (2,380 | ) | ||||||||
| National Retail Properties, Inc.(ö) | 116,464 | 4,586 | Net Assets - 100.0% | 777,376 | ||||||||||
| See accompanying notes which are an integral part of the financial statements. | ||||||||||||||
| 112 Global Real Estate Securities Fund | ||||||||||||||
Russell Investment Funds
Global Real Estate Securities Fund
Schedule of Investments, continued — December 31, 2014
| Restricted Securities | ||||||||||||
| Amounts in thousands (except share and cost per unit amounts) | ||||||||||||
| Principal | Cost per | Cost | Fair Value | |||||||||
| Acquisition | Amount ($) | Unit | (000 | ) | (000 | ) | ||||||
| % of Net Assets Securities | Date | or shares | $ | $ | $ | |||||||
| 0.0% | ||||||||||||
| BGP Holdings PLC | 08/06/09 | AUD | 926,311 | — | — | — | ||||||
| — | ||||||||||||
| For a description of restricted securities see note 9 in the Notes to Financial Statements. | ||||||||||||
| Futures Contracts | ||||||||||||
| Amounts in thousands (except contract amounts) | ||||||||||||
| Unrealized | ||||||||||||
| Appreciation | ||||||||||||
| Number of | Notional | Expiration | (Depreciation) | |||||||||
| Contracts | Amount | Date | $ | |||||||||
| Long Positions | ||||||||||||
| Dow Jones US Real Estate Index Futures | 205 | USD | 6,146 | 03/15 | 71 | |||||||
| FTSE/EPRA EUROPE Index Futures | 297 | EUR | 5,738 | 03/15 | 323 | |||||||
| Hang Seng Index Futures | 9 | HKD | 10,643 | 01/15 | 15 | |||||||
| MSCI SING IX ETS Futures | 10 | SGD | 763 | 01/15 | 3 | |||||||
| S&P Mid 400 E-mini Index Futures | 19 | USD | 2,752 | 03/15 | 72 | |||||||
| S&P/TSX 60 Index Futures | 4 | CAD | 681 | 03/15 | 33 | |||||||
| SPI 200 Index Futures | 10 | AUD | 1,346 | 03/15 | 46 | |||||||
| TOPIX Index Futures | 17 | JPY | 239,275 | 03/15 | (10 | ) | ||||||
| Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å) | 553 | |||||||||||
| Foreign Currency Exchange Contracts | ||||||||||||
| Amounts in thousands | ||||||||||||
| Unrealized | |||||||||
| Appreciation | |||||||||
| Amount | Amount | (Depreciation) | |||||||
| Counterparty | Sold | Bought | Settlement Date | $ | |||||
| Bank of America | USD | 39 | EUR | 32 | 01/05/15 | — | |||
| Bank of America | USD | 77 | EUR | 64 | 01/05/15 | — | |||
| Bank of America | USD | 531 | HKD | 4,114 | 03/18/15 | — | |||
| Bank of America | USD | 210 | SGD | 276 | 03/18/15 | (2 | ) | ||
| Bank of America | AUD | 100 | USD | 81 | 03/18/15 | (1 | ) | ||
| Bank of America | CAD | 100 | USD | 86 | 03/18/15 | — | |||
| Bank of America | HKD | 1,000 | USD | 129 | 03/18/15 | — | |||
| Bank of New York | EUR | 300 | USD | 366 | 03/18/15 | 2 | |||
| Bank of New York | JPY | 10,000 | USD | 83 | 03/18/15 | — | |||
| BNP Paribas | USD | 82 | AUD | 100 | 03/18/15 | — | |||
| BNP Paribas | USD | 250 | EUR | 200 | 03/18/15 | (8 | ) | ||
| BNP Paribas | USD | 129 | HKD | 1,000 | 03/18/15 | — | |||
| BNP Paribas | USD | 85 | JPY | 10,000 | 03/18/15 | (2 | ) | ||
| Citibank | USD | 11 | CAD | 13 | 01/06/15 | — | |||
| Citibank | CAD | 19 | USD | 16 | 01/06/15 | — | |||
| Standard Chartered | USD | 531 | HKD | 4,114 | 03/18/15 | — | |||
| State Street | USD | 81 | AUD | 100 | 03/18/15 | — | |||
| State Street | USD | 162 | AUD | 200 | 03/18/15 | — | |||
| State Street | USD | 937 | AUD | 1,125 | 03/18/15 | (22 | ) | ||
| State Street | USD | 190 | CAD | 221 | 01/02/15 | — | |||
| State Street | USD | 86 | CAD | 100 | 03/18/15 | — | |||
| State Street | USD | 86 | CAD | 100 | 03/18/15 | — | |||
| State Street | USD | 405 | CAD | 462 | 03/18/15 | (8 | ) | ||
| State Street | USD | 92 | EUR | 76 | 01/02/15 | — | |||
| State Street | USD | 124 | EUR | 102 | 01/02/15 | (1 | ) | ||
| State Street | USD | 608 | EUR | 500 | 03/18/15 | (3 | ) | ||
| State Street | USD | 615 | EUR | 500 | 03/18/15 | (9 | ) | ||
| State Street | USD | 618 | EUR | 500 | 03/18/15 | (12 | ) | ||
| State Street | USD | 4,559 | EUR | 3,672 | 03/18/15 | (114 | ) | ||
| State Street | USD | 126 | HKD | 979 | 01/02/15 | — | |||
| State Street | USD | 129 | HKD | 1,000 | 03/18/15 | — | |||
| State Street | USD | 129 | HKD | 1,000 | 03/18/15 | — | |||
| State Street | USD | 33 | JPY | 3,995 | 01/05/15 | — | |||
| State Street | USD | 190 | JPY | 22,848 | 01/05/15 | 1 | |||
| See accompanying notes which are an integral part of the financial statements. | |||||||||
| Global Real Estate Securities Fund 113 | |||||||||
| Russell Investment Funds | |||||||||||
| Global Real Estate Securities Fund | |||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||
| Foreign Currency Exchange Contracts | |||||||||||
| Amounts in thousands | |||||||||||
| Unrealized | |||||||||||
| Appreciation | |||||||||||
| Amount | Amount | (Depreciation) | |||||||||
| Counterparty | Sold | Bought | Settlement Date | $ | |||||||
| State Street | USD | 47 | JPY | 5,673 | 01/06/15 | — | |||||
| State Street | USD | 58 | JPY | 7,031 | 01/06/15 | — | |||||
| State Street | USD | 109 | JPY | 13,200 | 01/06/15 | 1 | |||||
| State Street | USD | 35 | JPY | 4,173 | 01/07/15 | — | |||||
| State Street | USD | 70 | JPY | 8,350 | 01/07/15 | — | |||||
| State Street | USD | 110 | JPY | 13,186 | 01/07/15 | — | |||||
| State Street | USD | 167 | JPY | 20,000 | 03/18/15 | — | |||||
| State Street | USD | 168 | JPY | 20,000 | 03/18/15 | (1 | ) | ||||
| State Street | USD | 169 | JPY | 20,000 | 03/18/15 | (2 | ) | ||||
| State Street | USD | 1,492 | JPY | 178,695 | 03/18/15 | 1 | |||||
| State Street | USD | 26 | SGD | 34 | 01/02/15 | — | |||||
| State Street | USD | 67 | SGD | 89 | 01/02/15 | — | |||||
| State Street | USD | 68 | SGD | 91 | 01/02/15 | — | |||||
| State Street | USD | 191 | SGD | 253 | 01/05/15 | (1 | ) | ||||
| State Street | USD | 114 | SGD | 150 | 03/18/15 | (1 | ) | ||||
| State Street | AUD | 200 | USD | 164 | 03/18/15 | 2 | |||||
| State Street | CAD | 200 | USD | 172 | 01/02/15 | — | |||||
| State Street | EUR | 600 | USD | 748 | 03/18/15 | 21 | |||||
| State Street | HKD | 1,384 | USD | 178 | 01/02/15 | — | |||||
| State Street | HKD | 1,500 | USD | 193 | 03/18/15 | — | |||||
| State Street | JPY | 2,854 | USD | 24 | 01/05/15 | — | |||||
| State Street | JPY | 3,916 | USD | 33 | 01/05/15 | — | |||||
| State Street | JPY | 19,846 | USD | 165 | 01/05/15 | (1 | ) | ||||
| State Street | JPY | 4,591 | USD | 38 | 01/06/15 | — | |||||
| State Street | JPY | 5,138 | USD | 43 | 01/06/15 | — | |||||
| State Street | JPY | 6,303 | USD | 52 | 01/06/15 | — | |||||
| State Street | JPY | 11,977 | USD | 99 | 01/06/15 | (1 | ) | ||||
| State Street | JPY | 13,120 | USD | 109 | 01/06/15 | (1 | ) | ||||
| State Street | JPY | 3,837 | USD | 32 | 01/07/15 | — | |||||
| State Street | JPY | 8,076 | USD | 68 | 01/07/15 | — | |||||
| State Street | JPY | 13,090 | USD | 110 | 01/07/15 | — | |||||
| State Street | JPY | 24,383 | USD | 204 | 01/07/15 | 1 | |||||
| State Street | JPY | 40,000 | USD | 337 | 03/18/15 | 3 | |||||
| UBS | USD | 210 | SGD | 276 | 03/18/15 | (2 | ) | ||||
| Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts | (160 | ) | |||||||||
| Presentation of Portfolio Holdings | |||||||||||
| Amounts in thousands | |||||||||||
| Fair Value | |||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | ||||||
| Common Stocks | |||||||||||
| Australia | $ | — | $ | 39,106 | $ | — | $ | 39,106 | 5.0 | ||
| Austria | — | 1,120 | — | 1,120 | 0.1 | ||||||
| Belgium | — | 191 | — | 191 | —* | ||||||
| Brazil | — | 2,410 | — | 2,410 | 0.3 | ||||||
| Canada | 14,897 | — | — | 14,897 | 1.9 | ||||||
| China | 305 | 4,564 | — | 4,869 | 0.6 | ||||||
| Finland | — | 1,555 | — | 1,555 | 0.2 | ||||||
| France | 7,816 | 19,249 | — | 27,065 | 3.5 | ||||||
| Germany | — | 22,475 | — | 22,475 | 2.9 | ||||||
| Hong Kong | — | 70,889 | — | 70,889 | 9.1 | ||||||
| Ireland | — | 206 | — | 206 | —* | ||||||
| Italy | — | 316 | — | 316 | —* | ||||||
| Japan | 14 | 95,769 | — | 95,783 | 12.3 | ||||||
| Netherlands | — | 13,934 | — | 13,934 | 1.8 | ||||||
| Norway | — | 412 | — | 412 | 0.1 | ||||||
| Singapore | 108 | 30,511 | — | 30,619 | 4.0 | ||||||
| Spain | — | 2,020 | — | 2,020 | 0.3 | ||||||
| Sweden | — | 6,294 | — | 6,294 | 0.8 | ||||||
| Switzerland | — | 1,515 | — | 1,515 | 0.2 | ||||||
| United Kingdom | — | 49,760 | — | 49,760 | 6.4 | ||||||
| United States | 365,411 | 3,549 | — | 368,960 | 47.5 | ||||||
| See accompanying notes which are an integral part of the financial statements. | |||||||||||
| 114 Global Real Estate Securities Fund | |||||||||||
| Russell Investment Funds | |||||||||||||||
| Global Real Estate Securities Fund | |||||||||||||||
| Schedule of Investments, continued — December 31, 2014 | |||||||||||||||
| Presentation of Portfolio Holdings | |||||||||||||||
| Amounts in thousands | |||||||||||||||
| Fair Value | |||||||||||||||
| Portfolio Summary | Level 1 | Level 2 | Level 3 | Total | % of Net Assets | ||||||||||
| Short-Term Investments | — | 19,257 | — | 19,257 | 2.5 | ||||||||||
| Other Securities | — | 6,103 | — | 6,103 | 0.8 | ||||||||||
| Total Investments | 388,551 | 391,205 | — | 779,756 | 100.3 | ||||||||||
| Other Assets and Liabilities, Net | (0.3 | ) | |||||||||||||
| 100.0 | |||||||||||||||
| Other Financial Instruments | |||||||||||||||
| Futures Contracts | 553 | — | — | 553 | 0.1 | ||||||||||
| Foreign Currency Exchange Contracts | (2 | ) | (158 | ) | — | (160 | ) | (—)* | |||||||
| Total Other Financial Instruments** | $ | 551 | $ | (158 | ) | $ | — | $ | 393 | ||||||
| * | Less than .05% of net assets. |
| ** | Futures and foreign currency exchange contract values reflect 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, 2014, 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 115
| Russell Investment Funds | ||||||
| Global Real Estate Securities Fund | ||||||
| Fair Value of Derivative Instruments — December 31, 2014 | ||||||
| Amounts in thousands | ||||||
| Foreign | ||||||
| Equity | Currency | |||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | ||||
| Location: Statement of Assets and Liabilities - Assets | ||||||
| Variation margin on futures contracts* | $ | 563 | $ | — | ||
| Unrealized depreciation on foreign currency exchange contracts | — | 32 | ||||
| Total | $ | 563 | $ | 32 | ||
| Location: Statement of Assets and Liabilities - Liabilities | ||||||
| Variation margin on futures contracts* | $ | 10 | $ | — | ||
| Unrealized depreciation on foreign currency exchange contracts | — | 192 | ||||
| Total | $ | 10 | $ | 192 | ||
| Foreign | ||||||
| Equity | Currency | |||||
| Derivatives not accounted for as hedging instruments | Contracts | Contracts | ||||
| Location: Statement of Operations - Net realized gain (loss) | ||||||
| Futures contracts | $ | 3,723 | $ | — | ||
| Foreign currency-related transactions** | — | (1,193 | ) | |||
| Total | $ | 3,723 | $ | (1,193 | ) | |
| Location: Statement of Operations - Net change in unrealized appreciation (depreciation) | ||||||
| Futures contracts | $ | (202) | $ | — | ||
| Foreign currency-related transactions*** | — | (18 | ) | |||
| Total | $ | (202) | $ | (18 | ) | |
| * | Includes cumulative appreciation/depreciation of futures contracts as reported in the Schedule of Investments. Only 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 the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
116 Global Real Estate Securities Fund
Russell Investment Funds
Global Real Estate Securities Fund
Balance Sheet Offsetting of Financial and Derivative Instruments —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Assets and Derivative Assets | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Assets | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized Assets and | of Assets and | |||||||
| Description | Location: Statement of Assets and Liabilities - Assets | Assets | Liabilities | Liabilities | ||||
| Securities on Loan* | Investments, at fair value | $ | 5,813 | $ | — $ | 5,813 | ||
| Foreign Currency Exchange Contracts | Unrealized appreciation on foreign currency exchange contracts | 32 | — | 32 | ||||
| Futures Contracts | Variation margin on futures contracts | 61 | — | 61 | ||||
| Total | $ | 5,906 | $ | — $ | 5,906 | |||
| Financial Assets, Derivative Assets, and Collateral Held by Counterparty | |||||||||||
| Gross Amounts Not Offset in | |||||||||||
| the Statement of Assets and | |||||||||||
| Liabilities | |||||||||||
| Amounts | |||||||||||
| of Assets | |||||||||||
| Presented in | |||||||||||
| the Statement | Financial and | ||||||||||
| of Assets and | Derivative | Collateral | |||||||||
| Counterparty | Liabilities | Instruments | Received^ | Net Amount | |||||||
| Bank of New York | $ | 2 | $ | — | $ | — | 2 | ||||
| Barclays | 3,220 | — | 3,220 | — | |||||||
| Goldman Sachs | 435 | — | 435 | — | |||||||
| JPMorgan Chase | 766 | — | 766 | — | |||||||
| Merrill Lynch | 708 | — | 708 | — | |||||||
| State Street | 31 | 27 | — | 4 | |||||||
| UBS | 744 | — | 684 | 60 | |||||||
| Total | $ | 5,906 | $ | 27 | $ | 5,813 | $ | 66 | |||
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund 117
Russell Investment Funds
Global Real Estate Securities Fund
Balance Sheet Offsetting of Financial and Derivative Instruments, continued —December 31, 2014
| Amounts in thousands | ||||||||
| Offsetting of Financial Liabilities and Derivative Liabilities | ||||||||
| Gross | Net Amounts | |||||||
| Amounts | of Liabilities | |||||||
| Gross | Offset in the | Presented in | ||||||
| Amounts of | Statement of | the Statement | ||||||
| Recognized Assets and | of Assets and | |||||||
| Description | Location: Statement of Assets and Liabilities - Liabilities | Liabilities | Liabilities | Liabilities | ||||
| Futures Contracts | Variation margin on futures contracts | $ | 129 | $ | — $ | 129 | ||
| Foreign Currency Exchange Contracts | Unrealized depreciation on foreign currency exchange contracts | 192 | — | 192 | ||||
| Total | $ | 321 | $ | — $ | 321 | |||
| Financial Liabilities, Derivative Liabilities, and Collateral Pledged by Counterparty | ||||||||||
| Gross Amounts Not Offset in | ||||||||||
| the Statement of Assets and | ||||||||||
| Liabilities | ||||||||||
| Amounts of | ||||||||||
| Liabilities | ||||||||||
| Presented in | ||||||||||
| the Statement | Financial and | |||||||||
| of Assets and | Derivative | Collateral | ||||||||
| Counterparty | Liabilities | Instruments | Pledged^ Net Amount | |||||||
| Bank of America | $ | 3 | $ | — | $ | — | $ | 3 | ||
| BNP Paribas | 10 | — | — | 10 | ||||||
| State Street | 177 | 27 | — | 150 | ||||||
| UBS | 131 | — | 131 | — | ||||||
| Total | $ | 321 | $ | 27 | $ | 131 | $ | 163 | ||
* Fair value of securities on loan as reported in the footnotes to the Statement of Assets and Liabilities.
^ Collateral received or pledged amounts may not reconcile to those disclosed in the Statement of Assets and Liabilities due to the inclusion of off-Balance Sheet collateral and adjustments made to exclude overcollateralization.
For further disclosure on derivatives and counterparty risk see note 2 in the Notes to Financial Statements.
See accompanying notes which are an integral part of the financial statements.
118 Global Real Estate Securities Fund
| Russell Investment Funds | |||
| Global Real Estate Securities Fund | |||
| Statement of Assets and Liabilities — December 31, 2014 | |||
| Amounts in thousands | |||
| Assets | |||
| Investments, at identified cost | $ | 650,357 | |
| Investments, at fair value(*)(>) | 779,756 | ||
| Cash (restricted)(a) | 1,570 | ||
| Foreign currency holdings(^) | 839 | ||
| Unrealized appreciation on foreign currency exchange contracts | 32 | ||
| Receivables: | |||
| Dividends and interest | 2,629 | ||
| Dividends from affiliated Russell funds | 1 | ||
| Investments sold | 1,741 | ||
| Fund shares sold | 112 | ||
| Foreign capital gains taxes recoverable | 107 | ||
| Variation margin on futures contracts | 61 | ||
| Total assets | 786,848 | ||
| Liabilities | |||
| Payables: | |||
| Investments purchased | 2,225 | ||
| Fund shares redeemed | 106 | ||
| Accrued fees to affiliates | 565 | ||
| Other accrued expenses | 152 | ||
| Variation margin on futures contracts | 129 | ||
| Unrealized depreciation on foreign currency exchange contracts | 192 | ||
| Payable upon return of securities loaned | 6,103 | ||
| Total liabilities | 9,472 | ||
| Net Assets | $ | 777,376 | |
| Net Assets Consist of: | |||
| Undistributed (overdistributed) net investment income | $ | (16,768 | ) |
| Accumulated net realized gain (loss) | 732 | ||
| Unrealized appreciation (depreciation) on: | |||
| Investments | 129,399 | ||
| Futures contracts | 553 | ||
| Foreign currency-related transactions | (187 | ) | |
| Shares of beneficial interest | 497 | ||
| Additional paid-in capital | 663,150 | ||
| Net Assets | $ | 777,376 | |
| Net Asset Value, offering and redemption price per share: | |||
| Net asset value per share:(#) | $ | 15.63 | |
| Net assets | $ | 777,375,696 | |
| Shares outstanding ($.01 par value) | 49,744,426 | ||
| Amounts in thousands | |||
| (^) Foreign currency holdings - cost | $ | 845 | |
| (*) Securities on loan included in investments | $ | 5,813 | |
| (>) Investments in affiliates, Russell U.S. Cash Management Fund and Russell U.S. Cash Collateral Fund | $ | 25,360 | |
| (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 119
| Russell Investment Funds | |||
| Global Real Estate Securities Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Dividends | $ | 20,476 | |
| Dividends from affiliated Russell funds | 20 | ||
| Securities lending income | 130 | ||
| Less foreign taxes withheld | (831 | ) | |
| Total investment income | 19,795 | ||
| Expenses | |||
| Advisory fees | 5,831 | ||
| Administrative fees | 364 | ||
| Custodian fees | 359 | ||
| Transfer agent fees | 32 | ||
| Professional fees | 77 | ||
| Trustees’ fees | 17 | ||
| Printing fees | 115 | ||
| Miscellaneous | 106 | ||
| Total expenses | 6,901 | ||
| Net investment income (loss) | 12,894 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 48,434 | ||
| Futures contracts | 3,723 | ||
| Foreign currency-related transactions | (1,281 | ) | |
| Net realized gain (loss) | 50,876 | ||
| Net change in unrealized appreciation (depreciation) on: | |||
| Investments | 35,742 | ||
| Futures contracts | (202 | ) | |
| Foreign currency-related transactions | (57 | ) | |
| Net change in unrealized appreciation (depreciation) | 35,483 | ||
| Net realized and unrealized gain (loss) | 86,359 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 99,253 | |
See accompanying notes which are an integral part of the financial statements.
120 Global Real Estate Securities Fund
| Russell Investment Funds | ||||||
| Global Real Estate Securities Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 12,894 | $ | 12,799 | ||
| Net realized gain (loss) | 50,876 | 44,040 | ||||
| Net change in unrealized appreciation (depreciation) | 35,483 | (34,761 | ) | |||
| Net increase (decrease) in net assets from operations | 99,253 | 22,078 | ||||
| Distributions | ||||||
| From net investment income | (24,165 | ) | (25,921 | ) | ||
| From net realized gain | (32,525 | ) | (25,990 | ) | ||
| Net decrease in net assets from distributions | (56,690 | ) | (51,911 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 76,400 | 79,886 | ||||
| Total Net Increase (Decrease) in Net Assets | 118,963 | 50,053 | ||||
| Net Assets | ||||||
| Beginning of period | 658,413 | 608,360 | ||||
| End of period | $ | 777,376 | $ | 658,413 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | (16,768 | ) | $ | (14,384 | ) |
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 2,734 | $ | 42,340 | 4,093 | $ | 63,978 | ||||||
| Proceeds from reinvestment of distributions | 3,585 | 56,689 | 3,486 | 51,911 | ||||||||
| Payments for shares redeemed | (1,437 | ) | (22,629 | ) | (2,308 | ) | (36,003 | ) | ||||
| Total increase (decrease) | 4,882 | $ | 76,400 | 5,271 | $ | 79,886 | ||||||
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund 121
| Russell Investment Funds | ||||||||||||||||
| Global Real Estate Securities Fund | ||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||
| Net Asset Value, | Net | Net Realized | Total from | Distributions | Distributions | |||||||||||
| Beginning of | Investment | and Unrealized | Investment | from Net | from Net | |||||||||||
| Period | Income (Loss)(a)(b) | Gain (Loss) | Operations | Investment Income | Realized Gain | |||||||||||
| December 31, 2014 | 14.68 | .28 | 1.89 | 2.17 | (.52 | ) | (.70 | ) | ||||||||
| December 31, 2013 | 15.37 | .31 | .24 | .55 | (.63 | ) | (.61 | ) | ||||||||
| December 31, 2012 | 12.65 | .30 | 3.15 | 3.45 | (.73 | ) | — | |||||||||
| December 31, 2011 | 13.92 | .29 | (1.25 | ) | (.96 | ) | (.31 | ) | — | |||||||
| December 31, 2010 | 11.58 | .33 | 2.29 | 2.62 | (.28 | ) | — | |||||||||
See accompanying notes which are an integral part of the financial statements.
122 Global Real Estate Securities Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(d) | (000 | ) | Gross | Net(b) | Net Assets(b) | Turnover Rate | |||||||||
| (1.22 | ) | 15.63 | 14.75 | 777,376 | .95 | .95 | 1.76 | 64 | |||||||||
| (1.24 | ) | 14.68 | 3.70 | 658,413 | .93 | .93 | 1.97 | 72 | |||||||||
| (.73 | ) | 15.37 | 27.56 | 608,360 | .95 | .95 | 2.08 | 59 | |||||||||
| (.31 | ) | 12.65 | (7.05 | ) | 470,964 | .95 | .95 | 2.11 | 57 | ||||||||
| (.28 | ) | 13.92 | 22.92 | 493,896 | .99 | .99 | 2.62 | 150 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Global Real Estate Securities Fund 123
Russell Investment Funds
Notes to Schedule of Investments — December 31, 2014
| 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. | |
| (8) | 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 Bank | |
| 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 | |
| SIBOR – Singapore Interbank Offered Rate | |
| STRIP - Separate Trading of Registered Interest and Principal of Securities | |
| TBA - To Be Announced Security | |
| UK - United Kingdom | |
124 Notes to Schedule of Investments
Russell Investment Funds
Notes to Schedule of Investments, continued — December 31, 2014
| 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 - Icelandic krona | SGD - Singapore dollar |
| CLP - Chilean peso | ITL - Italian lira | SKK - Slovakian koruna |
| CNY - Chinese yuan renminbi | JPY - Japanese yen | THB - Thai baht |
| COP - Colombian peso | KES - Kenyan schilling | TRY - Turkish lira |
| CRC - Costa Rican 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 - Norwegian krone | VND - Vietnam dong |
| EUR - Euro | NZD - New Zealand dollar | ZAR - South African rand |
| GBP - British pound sterling | PEN - Peruvian nuevo sol | |
| HKD – Hong Kong dollar | PHP – Philippine peso |
Notes to Schedule of Investments 125
Russell Investment Funds
Notes to Financial Highlights — December 31, 2014
| (a) | Average daily shares outstanding were used for this calculation. |
| (b) | May reflect amounts waived and/or reimbursed by Russell Investment Management Company (“RIMCo”). |
| (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.
126 Notes to Financial Highlights
Russell Investment Funds
Notes to Financial Statements — December 31, 2014
| 1. Organization | |
| Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with 9 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 (“Investment | |
| Company Act”), 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. | |
| Security Valuation | |
| The Funds value portfolio securities according to Board-approved securities valuation procedures which include market and fair | |
| value procedures. The Board has delegated the responsibility for administration of the securities valuation procedures to Russell | |
| Fund Services Company (“RFSC”). | |
| U.S. GAAP defines fair 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 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, inputs 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 RFSC, acting at the discretion of the Board, | |
| that are used in determining the fair 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 is determined based on the lowest level input that | |
| is significant to the fair value measurement in its entirety. | |
| The valuation techniques and significant inputs used in determining the fair market values of financial instruments categorized 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 | |
| Notes to Financial Statements 127 | |
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
relationships. 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, U.S. government agency, municipal bonds and notes, 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 pricing 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. Such fixed income 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, including estimated cash flows of each tranche, market-based yield spreads for each tranche, and current market data, as well as incorporate deal collateral performance, as available. Mortgage and asset-backed securities that use these and 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.
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. Derivatives may be classified into two groups depending upon the way that they are traded: privately traded over-the-counter (“OTC”) derivatives that do not go through an exchange or intermediary and exchange-traded derivatives that are traded through specialized derivatives exchanges or other regulated exchanges. OTC derivatives 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 instrument 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, yield curves, dividends and exchange rates. OTC derivatives that use these and similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy. Exchange-traded derivatives are valued based on the last reported sales price on the day of valuation and are categorized as Level 1 of the fair value hierarchy.
Centrally cleared swaps listed or traded on a multilateral or trade facility platform, such as a registered exchange, are valued at the daily settlement price determined by the respective exchange. For centrally cleared credit default swaps the clearing facility requires its members to provide actionable levels across complete term structures. These levels along with external third party prices are used to produce daily settlement prices. These securities are categorized as Level 2 of the fair value hierarchy. Centrally cleared interest rate swaps are valued using a pricing model that references the underlying rates including the overnight index swap rate and London Interbank Offered Rate (“LIBOR”) forward rate to produce the daily settlement price. These securities 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
128 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
proprietary models or matrix pricing. For this reason, significant events will cause movement between Levels 1 and 2, as was the case with the Non-U.S. Fund and the Global Real Estate Securities Fund. Examples of significant 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 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 emergency situation; 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, 2014. The Non-U.S. and Global Real Estate Securities Funds had no transfers between level 1, 2, and 3 other than as a result of application of fair value pricing for the period ended December 31, 2014.
At the beginning of the period, the Core Bond Fund had transfers out of Level 3 into Level 2 representing financial instruments for which approved vendor sources became available. As of December 31, 2014, the amount transferred from Level 3 to Level 2 was $868,295.
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, or are not reliable, are valued at fair value as determined in good faith by RFSC 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 RFSC believes accurately reflects fair value and will be 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 RFSC 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.
RFSC employs third party pricing vendors to provide fair value measurements. RFSC oversees third-party pricing service providers in order to support the valuation process throughout the year.
The significant unobservable input used in fair value measurement of certain of the Funds’ preferred equity securities is the redemption value calculated on a fully-diluted basis if converted to common stock. Significant increases (decreases) in the redemption value would have a direct and proportional impact to fair value.
The significant unobservable input used in the fair value measurement of certain of the Funds’ debt securities is the yield to worst ratio. Significant increases (decreases) in the yield to worst ratio would result in a lower (higher) fair value measurement.
These significant unobservable inputs are further disclosed in the Schedule of Investments for each respective fund as applicable.
If third party evaluated vendor pricing is neither available nor deemed to be indicative of fair value, RFSC 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. Broker quotes are typically received from established market participants. Although independently received on a daily basis, RFSC does not have the transparency to view the underlying inputs which support the broker quotes. 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. RFSC 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 fair values that present 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
Notes to Financial Statements 129
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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 Presentation of Portfolio Holdings 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 within a particular Fund.
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. Debt obligation securities may be placed in a non-accrual status and related interest income may be reduced by stopping current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful.
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 the Funds’ 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, 2014, 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, 2011 through December 31, 2013, 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, capital gain distributions and return of capital, if any, are recorded on the ex-dividend date. Income distributions are generally declared and paid according to the following schedule:
| Declared | Payable | Funds |
| Quarterly | April, July, October and mid-December | Multi-Style Equity, Aggressive Equity, Core Bond and Global |
| Real Estate Securities Funds | ||
| Annually | Mid-December | Non-U.S. Fund |
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
130 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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
The Funds pay their own expenses other than those expressly assumed by Russell Investment Management Company ("RIMCo"), the Funds’ adviser, 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. |
| (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 with 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, 2014. 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 paid are included in net realized gain (loss) on investments in the Statements of Operations. The Non-U.S. Fund had a deferred capital gains tax liability of $17,301 as of December 31, 2014. The Non-U.S. Fund had $1,424 included in net realized gain (loss) on investments in the Statements of Operations related to capital gains taxes for the period ended December 31, 2014.
Derivatives
To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds’ Prospectuses 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 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 to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as though cash were actually invested in those markets.
Hedging may 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 securities, 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, leveraging risk, counterparty risk, basis risk, reinvestment risk, political risk, prepayment risk, extension risk and credit risk.
Notes to Financial Statements 131
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
| Futures, certain options and cleared swaps are traded or cleared on an exchange or central exchange clearing house. Exchange- | ||||||||||
| traded or cleared transactions generally present less counterparty risk to a Fund. The exchange’s clearinghouse stands between | ||||||||||
| the Fund and the broker to the contract and therefore, credit risk is generally limited to the failure of the clearinghouse and the | ||||||||||
| clearing member. Cleared swap contracts are subject to clearing house rules, including initial and variation margin requirement, | ||||||||||
| daily settlement of obligations and the clearinghouse guarantee of payments to the broker. There is, however, still counterparty risk | ||||||||||
| due to the insolvency of the broker with respect to any margin held in the brokers’ customer accounts. While clearing members are | ||||||||||
| required to segregate customer assets from their own assets, in the event of insolvency, there may be a shortfall in the amount of | ||||||||||
| margin held by the broker for its clients. Collateral and margin requirements for exchange-traded or exchange-cleared derivatives | ||||||||||
| are established through regulation, as well as set by the broker or applicable clearinghouse. Margin for exchange-traded and | ||||||||||
| exchange cleared transactions are detailed in the Statements of Assets and Liabilities as cash held at the broker for futures | ||||||||||
| contracts and cash held at the broker for swap contracts, respectively. Securities pledged by a Fund for exchange-traded and | ||||||||||
| cleared transactions are noted as collateral or margin requirements in the Schedule of Investments. | ||||||||||
| 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, 2014, if applicable, are disclosed in the Fair Value of Derivative Instruments table | ||||||||||
| 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. | ||||||||||
| For the period ended December 31, 2014, the following Funds entered into foreign currency exchange contracts primarily for the | ||||||||||
| strategies listed below: | ||||||||||
| Funds | Strategies | |||||||||
| Non-U.S. Fund | Exposing cash to markets and trade settlement | |||||||||
| Core Bond Fund | Return enhancement and hedging | |||||||||
| Global Real Estate Securities Fund | Exposing cash to markets and trade settlement | |||||||||
| The Funds’ foreign currency contract notional dollar values outstanding fluctuate throughout the fiscal 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, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | |||||||
| Non-U.S. Fund | $28,806,014 | $ | 28,965,107 | $ | 25,459,817 | $ | 21,410,164 | |||
| Core Bond Fund | 396,473,164 | 589,155,304 | 538,460,522 | 456,168,080 | ||||||
| Global Real Estate Securities Fund | 20,516,342 | 18,255,936 | 13,891,292 | 17,566,081 | ||||||
| Outstanding Contract Amounts Sold | ||||||||||
| Quarter Ended | March 31, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | |||||||
| Non-U.S. Fund | $28,809,243 | $ | 28,677,541 | $ | 25,783,308 | $ | 21,795,475 | |||
| Core Bond Fund | 399,000,588 | 589,936,250 | 534,660,840 | 454,341,783 | ||||||
| Global Real Estate Securities Fund | 20,517,539 | 18,147,137 | 14,062,614 | 17,789,528 | ||||||
| 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 (write) call and put | ||||||||||
| options on foreign currencies. | ||||||||||
| 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 fair 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 the value of the underlying instrument 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 instrument. | ||||||||||
| 132 Notes to Financial Statements | ||||||||||
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
| 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, 2014, the Core Bond Fund purchased/sold options primarily for return enhancement and | ||||||||
| hedging. | ||||||||
| The Core Bond Fund’s options contracts outstanding fluctuate throughout the fiscal 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 Options Contracts Outstanding | ||||||||
| Quarter Ended | March 31, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | |||||
| Core Bond Fund | 48 | 23 | 40 | 6 | ||||
| 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 Funds 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, 2014, the following Funds entered into futures contracts primarily for the strategies listed | ||||||||
| below: | ||||||||
| Funds | Strategies | |||||||
| Multi-Style Equity Fund | Exposing cash to markets | |||||||
| Aggressive Equity Fund | Exposing cash to markets | |||||||
| Non-U.S. Fund | Hedging and exposing cash to markets | |||||||
| Core Bond Fund | Return enhancement, hedging and exposing cash to markets | |||||||
| Global Real Estate Securities Fund | Exposing cash to markets | |||||||
| The Funds’ futures contracts outstanding fluctuate throughout the fiscal 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, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | |||||
| Multi-Style Equity Fund | 255 | 210 | 240 | 229 | ||||
| Aggressive Equity Fund | 158 | 121 | 106 | 133 | ||||
| Non-U.S. Fund | 851 | 702 | 654 | 685 | ||||
| Core Bond Fund | 2,814 | 3,101 | 2,592 | 1,753 | ||||
| Global Real Estate Securities Fund | 692 | 526 | 474 | 571 | ||||
Notes to Financial Statements 133
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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 its 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 or variable payment per period for a payment that is not fixed. Index swap agreements are a counterparty agreement intended to expose cash 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 to protect against any increase in the price of securities they anticipate purchasing at a later date, or for return 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 the credit quality limitations of RIMCo. 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, sovereign 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, a 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 or to take a short position in a debt security, in which case the Fund would function as the counterparty referenced in the preceding paragraph.
134 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
If a credit event occurs and cash settlement is not elected, a variety of other 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 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.
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 writedown 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 Core Bond 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 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 equals the notional amount of the agreement. Notional amounts of all credit default swap agreements outstanding as of December 31, 2014, for which a 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
Notes to Financial Statements 135
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
| or other disposition, or by entering into an offsetting swap agreement with the same party or another creditworthy 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, 2014, the Core Bond Fund entered into credit default swaps primarily for return enhancement, | |||||||||
| hedging and exposing cash to markets. | |||||||||
| The Core Bond Fund’s credit default swap contract notional amounts outstanding fluctuate throughout the fiscal year as required to | |||||||||
| meet 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 local notional amounts outstanding at each quarter end. | |||||||||
| Credit Default Swap Notional Amounts Outstanding | |||||||||
| Quarter Ended | March 31, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | ||||||
| Core Bond Fund | 78,978,699 | 23,578,699 | 20,128,699 | 4,000,000 | |||||
| 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 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. Certain standardized swaps, including interest rate swaps, are subject to | |||||||||
| mandatory clearing, and more are expected to be in the future. The counterparty risk for cleared derivatives is generally lower than | |||||||||
| for uncleared derivatives. However, clearing may subject the Fund to increased costs or margin requirements. | |||||||||
| For the period ended December 31, 2014, the Core Bond Fund entered into interest rate swaps primarily for return enhancement, | |||||||||
| hedging and exposing cash to markets. | |||||||||
| The Core Bond Fund’s interest rate swap contract notional amounts outstanding fluctuate throughout the fiscal year as required to | |||||||||
| meet 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 local notional amounts outstanding at each quarter end. | |||||||||
| Interest Rate Swap Notional Amounts Outstanding | |||||||||
| Quarter Ended | March 31, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | ||||||
| Core Bond Fund | 130,955,000 | 155,854,000 | 166,855,000 | 29,005,000 | |||||
| Index Swaps | |||||||||
| Certain Funds may enter into index swap agreements to expose cash to markets or to effect investment transactions consistent | |||||||||
| with these Funds’ investment objectives and strategies. Index 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 index 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, 2014, the Core Bond Fund entered into index swaps primarily for the strategy of exposing cash | |||||||||
| to markets. | |||||||||
| The Core Bond Fund’s index swap contract notional amounts outstanding fluctuate throughout the fiscal year as required to meet | |||||||||
| strategic requirements. The following table illustrates the quarterly volume of index swap contracts. For the purpose of this | |||||||||
| disclosure, volume is measured by the local notional amounts outstanding at each quarter end. | |||||||||
| Index Swap Notional Amounts Outstanding | |||||||||
| Quarter Ended | March 31, 2014 | June 30, 2014 | September 30, 2014 December 31, 2014 | ||||||
| Core Bond Fund | 86,817,126 | 43,259,390 | 45,095,508 | 45,561,000 | |||||
136 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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, 2014, none of the Funds entered into currency swaps.
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. Since different types of forward and OTC financial derivative transactions have different mechanics and are sometimes traded out of different legal entities of a particular counterparty organization, each type of transaction may be covered by a different ISDA Master Agreement, resulting in the need for multiple agreements with a single counterparty. As the ISDA Master Agreements are specific to unique operations of different asset types, they allow a Fund to net its total exposure to a counterparty in the event of a default with respect to all the transactions governed under a single agreement with a counterparty.
Master Repurchase Agreements (“Master Repo Agreements”) govern transactions between a Fund and select counterparties. The Master Repo Agreements maintain provisions for, among other things, initiation, income payments, events of default, and maintenance of collateral for repurchase and reverse repurchase agreements.
Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as delayed delivery by and between a Fund and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral.
Disclosure about Offsetting Assets and Liabilities
Balance sheet disclosure is based on various netting agreements between brokers and counterparties, such as ISDA, Master Repo and Master Forward Agreements. Certain funds employ multiple counterparties.The quantitative disclosure begins with disaggregation of counterparties by legal entity and the roll up of the data to reflect a single counterparty in the table within the Funds’ financial statements. Net exposure represents the net receivable (payable) that would be due from/to the counterparty in the event of default. Exposure from OTC derivatives can only be netted across transactions governed under the same Master Agreement with the same legal entity.
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 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, 2014, 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
Notes to Financial Statements 137
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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 difficulties in the 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 settlement procedures. 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 a 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 a Fund and is unrelated to the interest rate on the security. The securities acquired by a Fund constitute collateral for the repurchase obligation. In these transactions, the securities acquired by a 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. A 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 mortgages”). Specific types of instruments may include mortgage pass-through securities, collateralized mortgage obligations (“CMO”), 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 a 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.
138 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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 a 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 nonconforming 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, 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 a Fund's portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
Notes to Financial Statements 139
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
Asset-Backed Securities
ABS may include MBS, loans, receivables or other assets. The value of the Funds’ 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 Funds 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 Fund 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 Fund 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.
A to be announced (“TBA”) security is a forward mortgage-backed securities trade in which the Core Bond Fund may invest. 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. These securities are within the parameters of industry “good delivery” standards.
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.
140 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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 also 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 Funds' financial statements (the “Assets”). The Assets consist principally of cash due from counterparties and investments. The extent of the Funds’ exposure to market, 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. This could cause a Fund to underperform other types of investments.
3. Investment Transactions
Securities
During the period ended December 31, 2014, 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 | $ | 457,980,237 | $ | 484,953,526 |
| Aggressive Equity Fund | 196,054,811 | 184,582,142 | ||
| Non-U.S. Fund | 121,892,297 | 141,456,879 | ||
| Core Bond Fund | 493,180,299 | 360,073,611 | ||
| Global Real Estate Securities Fund | 499,749,529 | 451,938,089 |
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 | $ | 846,802,541 | $ | 791,784,415 |
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, 2014, to the extent that a loan was collateralized by cash, such collateral was invested by the securities lending agent, Brown Brothers Harriman & Co. (“BBH”), in the Russell U.S. Cash Collateral Fund, an unregistered fund advised by RIMCo. 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 BBH 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 BBH 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 BBH and approved by RIMCo.
Notes to Financial Statements 141
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
| Brokerage Commissions | |
| The Funds effect certain transactions through Recapture Services, a division of BNY ConvergeEX Execution Solutions LLC | |
| (“BNY”) and its global network of unaffiliated correspondent brokers as well as State Street Global Markets, LLC (“SSGM”) and | |
| its global network of unaffiliated correspondent brokers. BNY and SSGM are registered brokers and are not affiliates of the Funds | |
| or RIMCo. Trades placed through Recapture Services and SSGM and their 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 Adviser 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 Recapture Services, SSGM and their | |
| correspondents or other brokers. In addition, RIMCo recommends targets for the amount of trading that money managers direct | |
| through Recapture Services and SSGM based upon several factors including asset class and investment style, among others. | |
| Research services provided to RIMCo by Recapture Services, SSGM or other brokers include performance measurement statistics, | |
| fund analytics systems and market monitoring systems. 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 RIC 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. | |
| Decisions concerning the acquisition of research services by RIMCo are approved and monitored by a Frank Russell Company | |
| ("FRC") Soft Commission Committee (“SCC”), which consists principally of employees in research and investment management | |
| roles. The SCC acts as an oversight body with respect to purchases of research services acquired by RIMCo using soft commissions | |
| generated by funds managed by FRC affiliates, including the Funds. | |
| Recapture Services, SSGM or other brokers may also rebate to the Funds a portion of commissions earned on certain trading by the | |
| Funds through Recapture Services, and SSGM and their correspondents in the form of commission recapture. Commission recapture | |
| is paid solely to those Funds generating the applicable commission. Commission recapture is generated on the instructions of the | |
| SCC once RIMCo’s research needs have been met, as determined annually in the Soft Money Commission budgeting process. | |
| Recapture Services and SSGM retain a portion of all commissions generated, regardless of whether the trades were used to | |
| provide research services to RIMCo or commission recapture to the Funds. Trades through Recapture Services, SSGM and their | |
| correspondents for transition services and manager funding (i.e. brokerage arrangements designed to reduce costs and optimize | |
| performance during the transition of Fund assets upon the hiring, termination or additional funding of a money manager) are | |
| at ordinary and customary commission rates and do not result in commission rebates or accrued credits for the procurement of | |
| research related services. | |
| Additionally, a money manager may independently effect transactions through Recapture Services, SSGM and their correspondents | |
| or a broker affiliated with the money manager or another broker to obtain research services for its own use. Research services | |
| provided to a money manager may benefit the Fund generating the trading activity but may also benefit other funds and clients | |
| managed or advised by the money manager. Similarly, the Funds may benefit from research services provided with respect to trading | |
| by those other funds and clients. | |
| Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to | |
| RIMCo. | |
| 4. Related Party Transactions, Fees and Expenses | |
| Adviser and Administrator | |
| RIMCo advises the Funds and RFSC is the Funds' administrator and transfer and disbursing agent. RFSC is a wholly-owned | |
| subsidiary of RIMCo. RIMCo is a wholly-owned subsidiary of FRC (which is an indirect subsidiary of London Stock Exchange | |
| Group plc ("LSEG")). FRC provides ongoing money manager research to RIC and RIMCo. | |
| A special meeting of the Funds’ shareholders was held on November 3, 2014 in order for shareholders to vote on two proposals: | |
| • | To approve a new investment advisory agreement between RIMCo and each Fund, as a result of a transaction involving the |
| sale of RIMCo’s parent company to the LSEG (the “Post-Transaction Agreement”). | |
| • | To approve a new investment advisory agreement between RIMCo and each Fund that reflects updated terms and, if approved |
| by shareholders, would go into effect in lieu of the Post-Transaction Agreement following the transaction or, if the transaction | |
| is not consummated, would replace the Funds’ existing investment advisory agreement (together with the “Post-Transaction | |
| 142 Notes to Financial Statements | |
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
Agreement,” the “New Advisory Agreements”). Specifically, this agreement would provide RIMCo with greater flexibility in managing the Funds and update the Funds’ existing agreement to reflect current industry practices.
On December 2, 2014, FRC and its subsidiaries, including RIMCo, became wholly-owned subsidiaries of LSEG. LSEG is a diversified international exchange group.
The New Advisory Agreements were approved by the shareholders of each Fund and went into effect upon consummation of the transaction on December 2, 2014.
The Funds are permitted to invest their cash (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, 2014, the Funds had invested $234,692,101 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 $28,919,866 is invested in the Russell U.S. Cash Collateral Fund, an unregistered fund advised by RIMCo.
The advisory fee is based upon the average daily net assets of each Fund and the administration fee of up to 0.05% is based on the combined average daily net assets of the Funds. Advisory and administration fees are paid monthly.
| Annual Rate % | ||||||
| Funds | Adviser | Administrator | ||||
| Multi-Style Equity Fund | 0.73 | 0.05 | ||||
| Aggressive Equity Fund | 0.90 | 0.05 | ||||
| Non-U.S. Fund | 0.90 | 0.05 | ||||
| Core Bond Fund | 0.55 | 0.05 | ||||
| Global Real Estate Securities Fund | 0.80 | 0.05 | ||||
The following table shows the total amount of each of these fees paid by the Funds for the period ended December 31, 2014:
| Advisory | Administrative | |||
| Multi-Style Equity Fund | $ | 3,459,806 | $ | 236,973 |
| Aggressive Equity Fund | 2,215,401 | 123,078 | ||
| Non-U.S. Fund | 3,625,169 | 201,399 | ||
| Core Bond Fund | 4,342,585 | 394,781 | ||
| Global Real Estate Securities Fund | 5,831,430 | 364,465 |
RIMCo has agreed to certain waivers of its advisory fees as follows:
For the Aggressive Equity Fund, RIMCo has contractually agreed, until April 30, 2015, 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, 2014 was $123,078. There were no reimbursements during the period.
For the Non-U.S. Fund, RIMCo has contractually agreed, until April 30, 2015, 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, 2014 was $201,398. There were no reimbursements during the period.
For the Core Bond Fund, RIMCo has contractually agreed, until April 30, 2015, 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, 2014 was $394,780. 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 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, 2014 were as follows:
| Amount | ||
| Multi-Style Equity Fund | $ | 20,854 |
| Aggressive Equity Fund | 10,831 | |
| Non-U.S. Fund | 17,723 | |
| Core Bond Fund | 34,741 | |
| Global Real Estate Securities Fund | 32,073 |
Notes to Financial Statements 143
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
Distributor
Russell Financial Services, Inc. (the “Distributor”), a wholly-owned subsidiary of RIMCo, is the distributor for the Investment Company, pursuant to the distribution agreement with the Investment Company. The Distributor receives no compensation from Investment Company for its services.
Accrued Fees Payable to Affiliates
Accrued fees payable to affiliates for the period ended December 31, 2014 were as follows:
| Multi-Style Equity Aggressive Equity | Global Real Estate | ||||||||||
| Fund | Fund | Non-U.S. Fund Core Bond Fund Securities Fund | |||||||||
| Advisory fees | $ | 301,694 | $ | 179,850 | $ | 278,050 | $ | 353,983 | $ | 526,273 | |
| Administration fees | 20,664 | 10,579 | 16,356 | 35,398 | 32,892 | ||||||
| Transfer agent fees | 1,819 | 931 | 1,439 | 3,115 | 2,895 | ||||||
| Trustee fees | 1,995 | 979 | 1,857 | 3,144 | 2,722 | ||||||
| $ | 326,172 | $ | 192,339 | $ | 297,702 | $ | 395,640 | $ | 564,782 | ||
Affiliated Brokerage Commissions
The Funds effect certain transactions through Russell Implementation Services Inc. (“RIS”). RIS is a registered broker and investment adviser and an affiliate of RIMCo. RIS uses a multi-venue trade management approach whereby RIS allocates trades among RIS’ network of independent brokers for execution, clearing and other services. Trades placed through RIS and its independent brokers are made (i) to manage trading associated with changes in money managers, rebalancing across existing money managers, cash flows and other portfolio transitions, (ii) to execute portfolio securities transactions for each Fund’s assets that RIMCo determines not to allocate to money managers including assets RIMCo may manage to manage risk in a Fund’s investment portfolio and for each Fund’s cash reserves or (iii) to execute a money manager’s portfolio securities transactions for the segment of a Fund’s portfolio assigned to the money manager. RIMCo has authorized RIS to effect certain futures, swaps, over-the-counter derivatives transactions, and cleared swaps, including foreign currency spot, forwards and options trading on behalf of the Funds.
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, 2014, 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.
Board of Trustees
The Russell Fund Complex consists of RIC, which has 39 funds, RIF, which has 9 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 $96,000 per year; each of its interested Trustees a retainer of $75,000 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 attended in person. Each Trustee receives $1,000 for attendance of telephonic meetings, except for telephonic meetings called pursuant to RIC, RIF and RET’s Security Valuation and Pricing Procedures and Audit Committee telephonic clearance call meetings regarding RIC, RIF and RET’s financial statements; and $500 for attendance of telephonic Committee meetings. As of January 1, 2015, each independent Trustee will be paid a retainer of $102,000 per year and $200 per hour for time spent for formal deposition preparation and in depositions related to the McClure litigation (see note 9). 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 $12,000 per year. The chairman of the Board receives additional annual compensation of $85,000. Ms. Cavanaugh and the Trustee Emeritus are not compensated by the Russell Fund Complex for service as a Trustee. Trustees’ out of pocket expenses are also paid by the Russell Fund Complex.
5. Federal Income Taxes
At December 31, 2014, 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:
144 Notes to Financial Statements
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
| Funds | 10/31/2017 | Totals | ||
| Non-U.S. Fund | $ | 49,969,110 | $ | 49,969,110 |
| 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. | ||||
| Multi-Style Equity Aggressive Equity | Global Real Estate | |||||||||||||||||||
| Fund | Fund | Non-U.S. Fund | Core Bond Fund | Securities Fund | ||||||||||||||||
| Cost of Investments | $ | 405,661,932 | $ | 237,685,230 | $ | 332,560,789 | $ | 889,494,540 | $ | 673,913,307 | ||||||||||
| Unrealized Appreciation | $ | 93,867,211 | $ | 38,951,583 | $ | 65,496,487 | $ | 14,465,592 | $ | 115,358,117 | ||||||||||
| Unrealized Depreciation | (6,138,702 | ) | (7,717,682 | ) | (18,843,244 | ) | (6,159,422 | ) | (9,515,147 | ) | ||||||||||
| Net Unrealized Appreciation (Depreciation) | $ | 87,728,509 | $ | 31,233,901 | $ | 46,653,243 | $ | 8,306,170 | $ | 105,842,970 | ||||||||||
| Undistributed Ordinary Income | $ | 3,456,063 | $ | 759,422 | $ | 3,550,450 | $ | 5,705,055 | $ | 828,202 | ||||||||||
| Undistributed Long-Term Capital Gains | ||||||||||||||||||||
| (Capital Loss Carryforward) | $ | 7,582,854 | $ | 3,241,907 | $ | (49,969,110) | $ | 1,244,790 | $ | 6,680,167 | ||||||||||
| Tax Composition of Distributions | ||||||||||||||||||||
| Ordinary Income | $ | 17,625,320 | $ | 3,812,658 | $ | 7,880,216 | $ | 23,296,901 | $ | 28,403,990 | ||||||||||
| Long-Term Capital Gains | $ | 52,391,139 | $ | 20,528,578 | $ | — | $ | 4,981,315 | $ | 28,285,269 | ||||||||||
| 6. Record Ownership | |||||
| As of December 31, 2014, the following table includes shareholders of record with greater than 10% of the total outstanding shares | |||||
| of each respective Fund. | |||||
| # of Shareholders | % | ||||
| Multi-Style Equity Fund | 2 | 79.8 | |||
| Aggressive Equity Fund | 2 | 71.8 | |||
| Non-U.S. Fund | 2 | 72.7 | |||
| Core Bond Fund | 3 | 84.5 | |||
| Global Real Estate Securities Fund | 2 | 92.1 | |||
| 7. Interfund Lending Program | |||||
| The Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and | |||||
| borrowing 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, 2014, the Funds presented herein did not borrow or lend through | |||||
| the interfund lending program. In December 2014, the interfund lending program was suspended. The program may be reinstated | |||||
| at such time that there is a demonstrated need for the program. | |||||
| 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 | |||||
| Notes to Financial Statements 145 | |||||
Russell Investment Funds
Notes to Financial Statements, continued — December 31, 2014
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, if any, that are illiquid.
9. Pending Legal Proceedings
On October 17, 2013, Fred McClure filed a derivative lawsuit against RIMCo on behalf of ten Russell Investment Company funds: the Russell Commodity Strategies Fund, Russell Emerging Markets Fund, Russell Global Equity Fund, Russell Global Infrastructure Fund, Russell Global Opportunistic Credit Fund, Russell International Developed Markets Fund, Russell Multi-Strategy Alternative Fund, Russell Strategic Bond Fund, Russell U.S. Small Cap Equity Fund and Russell Global Real Estate Securities Fund. The lawsuit, which was filed in the United States District Court for the District of Massachusetts, seeks recovery under Section 36(b) of the Investment Company Act, as amended, for the funds’ alleged payment of excessive investment management fees to RIMCo. On December 8, 2014, Fred McClure filed a second derivative lawsuit in the United States District Court for the District of Massachusetts. This second suit involves the same ten funds, and the allegations are similar, although the second suit adds a claim alleging that RFSC charged the funds excessive administrative fees under Section 36(b). The plaintiff seeks recovery of the amount of the allegedly excessive compensation or payments received from these ten funds and earnings that would have accrued to plaintiff had that compensation not been paid or, alternatively, rescission of the contracts and restitution of all excessive fees paid, for a period commencing one year prior to the filing of the lawsuit through the date of the trial. RIMCo intends to vigorously defend the actions.
10. Subsequent Events
Management has evaluated the events and/or transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustments of the financial statements or additional disclosures.
146 Notes to Financial Statements
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, 2014, 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 five years in the period then ended, 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, 2014 by correspondence with the custodian, brokers and transfer agent and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm 147
Russell Investment Funds
Tax Information — December 31, 2014 (Unaudited)
For the tax year ended December 31, 2014, 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 2015 will show the tax status of all distributions paid to your account in calendar year 2014.
The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:
| Multi-Style Equity | 36.1 | % |
| Aggressive Equity | 86.4 | % |
| Non-U.S. | 0.0 | % |
| Global Real Estate Securities | 0.0 | % |
| Core Bond | 0.0 | % |
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, 2014:
| Multi-Style Equity | $ | 52,391,139 |
| Aggressive Equity | $ | 20,528,578 |
| Global Real Estate Securities | $ | 28,285,269 |
| Core Bond | $ | 4,981,315 |
The Funds listed below paid foreign taxes and recognized foreign source income during the taxable year ended December 31, 2014. 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:
| Foreign | Foreign | |||||||
| Taxes | Source | |||||||
| Foreign | Paid | Foreign Source | Income Per | |||||
| Fund Name | Taxes Paid | Per Share | Income | Share | ||||
| Non-US | $ | 485,712 | $ | 0.0148 | $ | 12,817,416 | $ | 0.3895 |
Please consult a tax adviser for any questions about federal or state income tax laws.
148 Tax Information
Russell Investment Funds
Affiliated Brokerage Transactions — December 31, 2014 (Unaudited)
As mentioned in the Note 4 in the Notes to Financial Statements contained in this annual report, the Funds utilize RIS and its independent brokers. RIS is a registered broker dealer and investment adviser and an affiliate with RIMCo. Trades placed through RIS and its independent brokers are made (i) to manage trading associated with changes in money manager, rebalancing across existing money managers, cash flows and other portfolio transitions, (ii) to execute portfolio securities transactions for each Fund’s assets that RIMCo determines not to allocate to money managers including assets RIMCo may manage to manage risk in a Fund’s investment portfolio and for each Fund’s cash reserves or (iii) to execute a money manager’s portfolio securities transactions for the segment of a Fund’s portfolio assigned to the money manager. RIMCo has authorized RIS to effect certain futures, swaps, over-the-counter derivatives transactions, and cleared swaps, including foreign currency spot, forwards and options trading on behalf of the Funds.
Amounts retained by RIS for the period ended December 31, 2014 were as follows:
| Affiliated Broker | Fund Name | 2014 | |
| RIMCo | |||
| Multi-Style Equity Fund | $ | 25,855 | |
| Aggressive Equity Fund | 26,263 | ||
| Non-U.S. Fund | 3,242 | ||
| Core Bond Fund | 41,106 | ||
| Global Real Estate Securities Fund | 91,716 |
Affiliated Brokerage Transactions 149
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts — (Unaudited)
Approval of Existing Investment Advisory Agreements
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Trustees (the “Board”), including a majority of its members who are not considered to be “interested persons” under the 1940 Act (the “Independent Trustees”) voting separately, approve the continuation of the advisory agreements with RIMCo (the “Existing Agreements”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) on at least an annual basis and that the terms and conditions of each Existing Agreement and the terms and conditions of each portfolio management contract provide for its termination if continuation is not approved annually. The Board, including all of the Independent Trustees, considered and approved the continuation of the Existing Agreements and the portfolio management contracts at a meeting held in person on May 19-20, 2014 (the “Existing Agreement Evaluation Meeting”). During the course of a year, the Trustees receive a wide variety of materials regarding, among other things, the investment performance of the Funds, sales and redemptions of the Funds’ shares, management of the Funds and other services provided 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 (“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; (2) information and reports prepared by RIMCo relating to the profitability of each Fund to RIMCo; and (3) 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 its 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, but not all, 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 and other information received by the Board, including the Independent Trustees, in connection with its evaluations of the Existing Agreements and portfolio management contracts are collectively called the “Existing Agreement Evaluation Information.” The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Funds and the other RIMCo-managed funds for which the Board has supervisory responsibility (“Other Russell Funds”) with respect to services provided by RIMCo, RIMCo’s affiliates and each Money Manager. The Trustees received a memorandum from counsel to the Funds (“Fund Counsel”) discussing the legal standards for their consideration of the continuations of the Existing Agreements and the portfolio management contracts, and the Independent Trustees separately received a memorandum regarding their responsibilities from Independent Counsel.
At a meeting held in person on April 29, 2014 (the “Existing Agreement Information Review Meeting,” and together with the Existing Agreement Evaluation Meeting, the “Existing Agreement Evaluation Meetings”), the Independent Trustees in preparation for the Existing Agreement Evaluation Meeting met first with representatives of RIMCo and then in a private session with Independent Counsel at which no representatives of RIMCo or the Funds’ management were present to review the Existing Agreement Evaluation Information received to that date and, on the basis of that review, requested additional Existing Agreement Evaluation Information. At the Existing Agreement Evaluation Meeting, the Independent Trustees again met in person in a private session with Independent Counsel to review additional Existing Agreement Evaluation Information received to that date. At the Existing Agreement Evaluation Meeting, the Board, including the Independent Trustees, considered the proposed continuance of the Existing Agreements and the portfolio management contracts with RIMCo, Fund management, Independent Counsel and Fund Counsel. Presentations made by RIMCo at the Existing Agreement Evaluation Meetings as part of this review encompassed the Funds and all Other Russell Funds. Information received by the Board, including the Independent Trustees, at the Existing Agreement Evaluation Meetings is included in the Existing Agreement Evaluation Information. Prior to voting at the Existing Agreement Evaluation Meeting, the non-management members of the Board, including the Independent Trustees, met in executive session with Independent Counsel to consider additional Existing Agreement Evaluation Information received from RIMCo and management at the Existing Agreement Evaluation Meeting. The discussion below reflects all of these reviews.
In evaluating the portfolio management contracts, the Board considered that each of the Funds employs a manager-of-managers method of investment and 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 investment 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. A Money Manager may have (1) a discretionary asset management assignment pursuant to which it is allocated a portion of a Fund’s assets to manage directly in its discretion; (2) a non-discretionary assignment pursuant to which it
150 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
provides a model portfolio to RIMCo representing its investment recommendations, based upon which RIMCo purchases and sells securities for a Fund; or (3) both a discretionary and a non-discretionary assignment.
The Board considered that RIMCo (rather than any Money Manager) is responsible under the Existing Agreements for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the multiple discretionary Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo manages the investment of each Fund’s cash and also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the discretionary Money Managers and portions of a Fund during transitions between Money Managers. RIMCo also may manage portions of a Fund based upon model portfolios provided by non-discretionary Money Managers. In all cases, Fund assets are managed directly by RIMCo pursuant to authority provided by the Existing Agreements.
RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations and reallocations of its assets among the Money Managers or their strategies and RIMCo itself. The Board has been advised that RIMCo’s goal with respect to the Funds is to construct and manage diversified portfolios in a risk-aware manner. Each discretionary 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. For each Fund, RIMCo is responsible for, among other things, 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 or provide recommendations with respect to 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 or strategy 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 also on the basis of anticipated compatibility with other Money Managers in the same Fund. In light of the foregoing, the overall performance of each Fund over appropriate periods has reflected, 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 or their strategies 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 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 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 Existing Agreements, 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;
Basis for Approval of Investment Advisory Contracts 151
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
| 3. | Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund, including any |
| administrative or transfer agent fees and any fees received for management or administration 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; |
| 5. | Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the |
| Fund; and | |
| 6. | Information provided by RIMCo concerning economies of scale and whether any scale economies are adequately shared with |
| 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 changes in RIMCo’s senior management and other personnel providing investment management | |
| and other services to the Funds during the past year. The Board was not advised of any expected diminution in the nature, scope or | |
| quality of the investment advisory or other services provided to the Funds from such changes. 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. | |
| RIMCo is a wholly owned subsidiary of Frank Russell Company (“FRC”). At the time of the Existing Information Review Meeting, | |
| FRC, in turn, was an indirect majority-owned subsidiary of The Northwestern Mutual Life Insurance Company (“NM”). Prior to the | |
| Existing Agreement Information Review Meeting, NM publicly announced its intention to evaluate strategic alternatives for its majority | |
| interest in FRC. RIMCo advised the Board that this review could result in a transaction (“Transaction”) causing a change of control | |
| of RIMCo. At the Existing Agreement Information Review Meeting, the Board was advised by RIMCo that an unspecified number of | |
| parties had expressed an interest in a Transaction with NM but, to RIMCo’s knowledge, no formal proposals had been received to the | |
| date of the Existing Agreement Information Review Meeting. RIMCo, however, expected that proposals from one or more unidentified | |
| parties would be received shortly. RIMCo expressed its belief that any Transaction would not affect the activities of RIMCo in | |
| respect of the Funds or the structure of the Funds. However, the Board received no assurances in this regard directly from NM. Any | |
| Transaction would result, among other things, in an assignment and termination of the Existing Agreements, as required by the 1940 | |
| Act and by the terms and conditions of the Existing Agreements. In the event of a Transaction, the Board would be required to consider | |
| the approval of the terms and conditions of a replacement agreement (“Post-Transaction Agreement”) for the Existing Agreements and | |
| thereafter to submit the Post-Transaction Agreement to each Fund’s shareholders for approval, as required by the 1940 Act. At the | |
| Existing Agreement Evaluation Meeting, the Board was advised by RIMCo that NM had entered into exclusive discussions with London | |
| Stock Exchange Group plc (“LSEG”) regarding a possible Transaction. At both of the Existing Agreement Evaluation Meetings, the | |
| Board discussed with RIMCo the need to assure continuity of services required for the Funds’ operations. | |
| As noted above, RIMCo, in addition to managing the investment of each Fund’s cash, may directly manage a portion of certain Funds | |
| (the “Participating Funds”) pursuant to the Existing Agreements, the actual allocation being determined from time to time by the | |
| Participating Funds’ RIMCo portfolio manager. Beginning in 2012, RIMCo implemented a strategy of managing a portion of the assets | |
| of the Participating Funds to modify such Funds’ overall portfolio characteristics by investing in securities or other instruments that | |
| RIMCo believes will achieve the desired risk/return profiles for such Funds. RIMCo monitors and assesses Fund characteristics, | |
| including risk, using a variety of measurements, such as tracking error, and may seek to manage Fund characteristics consistent with | |
| the Funds’ investment objectives and strategies. For U.S. equity Funds, fund characteristics may be managed with the goal to increase | |
| or decrease exposures (such as volatility, momentum, value, growth, capitalization size, industry or sector). For non-U.S. equity, global | |
| infrastructure and global real estate Funds, fund characteristics may be managed with the goal to increase or decrease exposures (such | |
| as volatility, momentum, value, growth, capitalization size, industry, sector or region). For fixed-income and alternative Funds, fund | |
| characteristics may be managed with the goal to increase or decrease exposures (such as sector, industry, currency, credit or mortgage | |
| exposure or country risk, yield curve positioning, or interest rates). For all Funds, fund characteristics may be managed to offset | |
| undesired relative over or underweights in order to seek to achieve the desired risk/return profile for each Fund. RIMCo may use | |
| an index replication or sampling strategy by selecting an index which represents the desired exposure, or may utilize quantitative or | |
| qualitative analysis or quantitative models designed to assess Fund characteristics and identify a portfolio which provides the desired | |
| exposure. Based on this, for the portion of a Fund’s assets directly managed by RIMCo, RIMCo may invest in common stocks, exchange- | |
| 152 Basis for Approval of Investment Advisory Contracts | |
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Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
traded funds, exchange-traded notes, REITs, short-term investments and/or derivatives, including futures, forwards, options and/or swaps, in order to seek to achieve the desired risk/return profile for the Fund. Derivatives may be used to take long or short positions. In addition, RIMCo may choose to use the cash equitization process to manage Fund characteristics in order to seek to achieve the desired risk/return profile for the Fund. RIMCo also may manage Fund assets directly to effect a Fund’s investment strategies. RIMCo’s direct management of assets for these purposes is hereinafter referred to as the “Direct Management Services.” RIMCo also may reallocate Fund assets among Money Managers, increase Fund cash reserves or determine not to be fully invested. RIMCo’s Direct Management Services generally are not intended to be a primary driver of the Funds’ investment results, although the services may have a positive or negative impact on investment results, but rather are intended to enhance incrementally the ability of Funds to carry out their investment programs. At the Existing Agreement Evaluation Meetings, RIMCo advised the Board of a likely expansion of its Direct Management Services. In connection with this expansion, RIMCo stated that it may provide Direct Management Services to additional Funds and expected that a larger portion of certain Funds may be managed directly by RIMCo pursuant to the Direct Management Services. Additional Funds to be managed pursuant to the Direct Management Services may include some or all fixed income Funds. The Board considered that during the period, and to the extent that RIMCo employs its Direct Management Services other than via the cash equitization process in respect of Participating Funds, RIMCo is not required to pay investment advisory fees to a Money Manager with respect to assets that are directly managed and that the profits derived by RIMCo generally and from the Participating Funds consequently may be increased incrementally, although RIMCo may incur additional costs in providing Direct Management Services. The Board, however, also considered the potential benefits of the Direct Management Services to Participating Funds; the limited amount of assets that to the date of the Existing Agreement Evaluation Meetings were being managed directly by RIMCo pursuant to the Direct Management Services; and the fact that the aggregate Advisory Fees paid by the Participating Funds are not increased as a result of RIMCo’s direct management of Fund assets as part of the Direct Management Services or otherwise.
In evaluating the reasonableness of the Funds’ Advisory Fees in light of Fund performance, the Board considered that, in the Existing 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. The Board noted RIMCo’s further past advice that 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.
The Third-Party Information included, among other things, comparisons of the Funds’ Advisory Fees with the investment advisory fees of their Comparable Funds 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 Third-Party Information, among other things, showed that each Fund had an Advisory Fee which, compared with its Comparable Funds’ investment advisory fees on an actual basis, was ranked in the fourth quintile of its Expense Universe for that expense component. 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 comparisons were based upon the latest fiscal years for the Expense Universe funds. The Board considered that the actual Advisory Fee for each of the RIF Aggressive Equity Fund, RIF Non-U.S. Fund and RIF Core Bond Fund was less than 5 basis points from the third quintile of its Expense Universe. The Board further considered RIMCo’s explanation of the reasons for the Funds’ actual Advisory Fee rankings and its belief that the Funds’ Advisory Fees are fair and reasonable under the circumstances, notwithstanding such comparisons. Among other things, RIMCo noted that meaningful comparisons of investment advisory fees between funds affiliated with insurance companies issuing variable annuity and life policies and non-affiliated funds, such as the Funds, are difficult as insurance companies may allocate fees between the investment policies and their underlying funds. The Board determined that it would continue to monitor the Funds’ Advisory Fees against the Funds’ Comparable Funds’ investment 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.
Basis for Approval of Investment Advisory Contracts 153
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
With respect to the RIF Global Real Estate Securities Fund, RIMCo noted that the Third-Party Information, to assure that the Fund’s Expense Universe was large enough, included both global and U.S. real estate funds in the Expense Universe. According to RIMCo, U.S. real estate funds generally have lower investment advisory fees, which lower the Expense Universe advisory fee median.
Based upon information provided by RIMCo, 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 Funds are distributed exclusively through variable annuity and variable life insurance contracts issued by insurance companies. Currently, the Funds are made available to holders of such insurance policies (“Insurance Contract Holders”) by two insurance companies. At the Existing Agreement Evaluation Meetings, RIMCo advised the Board that it does not expect that additional insurance companies will make the Funds available to their variable annuity or variable life insurance policyholders in the near or long term because of a declining interest by the insurance companies generally in variable insurance trusts, such as the Funds, as investment vehicles supporting their products. Notwithstanding this expectation, RIMCo expressed its belief that the Funds will remain viable in light of their cash inflows from current participating insurance companies. The Board considered, among other things, the negative implications for significant future Fund asset growth of RIMCo’s expectation that no additional insurance companies will make the Funds available to their variable annuity and variable life insurance policyholders and other factors associated with the manager-of-managers structure employed by the Funds, including the variability of Money Manager investment advisory fees.
As noted above, the Board at the Existing Agreement Information Review Meeting was advised by RIMCo of NM’s intent to evaluate strategic alternatives for its majority interest in FRC, and at the Existing Agreement Evaluation Meeting was advised by RIMCo that NM had entered into exclusive discussions with LSEG regarding a possible Transaction. NM is one of the two insurance companies making the Funds available to their Insurance Contract Holders. At the Existing Agreement Information Review Meeting, RIMCo expressed its belief that NM would continue to make the Funds available to its Insurance Contract Holders in the event of a Transaction. However, the Board received no direct assurances in this regard directly from NM. If NM were to discontinue its participation in the Funds, the Board considered that it is unlikely that the Funds would remain viable.
The Board also considered, as a general matter, that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and Other Russell Funds are lower, and, in some cases, may be substantially lower, than the rates paid by the Funds and Other Russell Funds. The Trustees considered the differences in the nature and scope of services RIMCo provides to institutional clients and the Funds. RIMCo explained, among other things, that institutional clients have fewer compliance, administrative and other 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 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.
With respect to the Funds’ total expenses, the Third-Party Information showed that the total expenses for the RIF Multi-Style Equity Fund ranked in the third quintile of its Expense Universe. The total expenses for each of the other Funds ranked in the second 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 Existing 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 Existing Agreement Evaluation Meetings by RIMCo, the Board, in respect of each Fund, found, after giving effect to any applicable waivers and/or reimbursements and considering any differences in the composition and investment strategies of its 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; (2) the relative expense ratio of the Fund either was comparable to those of its Comparable Funds or RIMCo had provided an explanation satisfactory to the Board as to why the relative expense ratio was not 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 were not excessive; (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; and (6) the Advisory Fee charged by RIMCo appropriately reflects any economies of scale realized by such Fund in light of various factors, including the negative implications for significant future Fund asset growth of RIMCo’s expectation that no additional insurance companies will make the Funds available to their variable annuity and variable life insurance policyholders and other factors
154 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
associated with the manager-of-managers structure employed by the Fund, including the variability of Money Manager investment advisory fees as well as the possible discontinuation of NM’s participation in the Funds.
The Board concluded that, under the circumstances and based on RIMCo’s performance information and reviews for each Fund, the performance of each of the Funds would be consistent with continuation of its Existing Agreement. The Board, in assessing the Funds’ performance, focused upon each Fund’s performance for the 3-year period ended December 31, 2013 as most relevant but also considered Fund performance for the 1- and 5-year periods ended such date. In reviewing the Funds’ performance generally, the Board took into consideration various steps taken by RIMCo beginning in 2012 to enhance the performance of certain Funds, including changes in Money Managers, and, in the case of Participating Funds, RIMCo’s implementation of its Direct Management Services, which may not yet be fully reflected in Fund investment results.
With respect to the RIF Core Bond Fund, the Third-Party Information showed that the Fund’s performance was ranked in the fourth quintile of its Performance Universe for the 3-year period ended December 31, 2013 and was ranked in the third quintile for each of the 1- and 5-year periods ended such date. RIMCo noted that the Fund’s relative underperformance for the 3-year period was largely attributable to the Fund’s meaningfully lower exposure to lower credit quality securities, which rallied during the period. RIMCo noted that the Fund outperformed its benchmark for the same period.
With respect to the RIF Non-U.S. Fund, the Third-Party Information showed that the Fund’s performance for the 1- and 3-year periods ended December 31, 2013 was ranked in the second and third quintiles, respectively, of its Performance Universe and ranked in the fourth quintile of the Performance Universe for the 5-year period ended such date. RIMCo noted that the Fund outperformed its benchmark over the 3-year period.
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. The Board also considered the Money Manager changes that have been made since 2012 and that the performance of Money Managers continues to impact Fund performance for periods prior and subsequent to their termination, and that any incremental positive or negative impact of the Direct Management Services, which continue to evolve in nature and scope, was not yet fully reflected in the Fund’s investment results. Lastly, the Board considered potential new strategies discussed at the Existing Agreement Evaluation Meetings and prior Board meetings that may be employed by RIMCo in respect of certain Funds.
After considering the foregoing and other relevant factors, the Board concluded in respect of each Fund that continuation of its Existing Agreement would be in the best interests of such Fund and its shareholders and voted to approve the continuation of each Existing Agreement.
At the Existing Agreement Evaluation Meetings, 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 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 her assessments of Money Manager compliance programs and any compliance issues. RIMCo did not identify any benefits received by Money Managers or their affiliates as a result of their relationships with the Funds other than benefits from their soft dollar arrangements. The Existing Agreement Evaluation Information described, and at the Existing Agreement Evaluation Meetings the Funds’ CCO discussed, oversight of Money Manager soft dollar arrangements. The Existing Agreement Evaluation Information expressed RIMCo’s belief that, based upon certifications from Money Managers and pre-hire and ongoing reviews of Money Manager soft dollar arrangements, policies and procedures, the Money Managers’ soft dollar arrangements, policies and procedures are consistent with applicable legal standards and with disclosures made by Money Managers in their investment adviser registration statements filed with the Securities and Exchange Commission and by the Funds in their registration statements. The Board was advised that, in the case of Money Managers using soft dollar arrangements, the CCO monitors, among other things, the commissions paid by the Funds and percentage of Fund transactions effected pursuant to the soft dollar arrangements, as well as the products or services purchased by the Money Managers with soft dollars generated by Fund portfolio transactions. The CCO and RIMCo do not obtain, and the Existing Agreement Evaluation Information therefore did not include, information regarding the value of soft dollar benefits derived by Money Managers from Fund portfolio transactions. At the Existing Agreement Evaluation Meeting, RIMCo noted that it planned to recommend termination of certain Money
Basis for Approval of Investment Advisory Contracts 155
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
Managers to the Board at the May 2014 meeting. RIMCo recommended that each of the other Money Managers be retained at its current or a reduced fee rate. In doing so, RIMCo, as it has in the past, 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 standard fee rates 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 of the relevance of Money Manager profitability in light of RIMCo’s belief that such fees are reasonable; 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 Existing Agreement Evaluation Information, 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 Existing Agreements 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.
Subsequent to the Existing Agreement Evaluation Meeting, the Board received a proposal from RIMCo at a meeting held on May 20, 2014 to effect Money Manager changes for the Multi-Style Equity Fund and Global Real Estate Securities Fund, and at that same meeting to effect a Money Manager change for the Aggressive Equity Fund resulting from a Money Manager change of control for one of the Fund’s Money Managers. In the case of each proposed change, the Trustees approved the terms of the proposed portfolio management contract based upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; information as to reason for the proposed change; information as to the Money Manager’s role in the management of the Fund’s investment portfolio (including the amount of Fund assets to be allocated to the Money Manager) and RIMCo’s evaluation of the anticipated quality of the investment advisory services to be provided by the Money Manager; information as to any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Fund’s underwriter; the CCO’s evaluation of the Money Manager’s compliance program, policies and procedures, and certification that they were consistent with applicable legal standards; RIMCo’s explanation as to the lack of relevance of Money Manager 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 standard fee rates charged by the Money Manager to other clients; 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 increase or decrease in aggregate Money Manager fees to be paid by RIMCo from its Advisory Fee as a result of the engagement of the Money Manager; and the expected costs of transitioning Fund assets to the Money Manager. The Trustees also considered their findings at the Existing Agreement Evaluation Meeting as to the reasonableness of the aggregate Advisory Fees paid by the Funds, and the fact that the aggregate Advisory Fees paid by the Funds would not increase as a result of the implementation of the proposed Money Manager changes because the Money Managers’ investment advisory fees are paid by RIMCo.
Approval of the Post-Transaction Agreement
On May 20, 2014, LSEG announced that it had entered into exclusive discussions with NM for the potential acquisition of FRC although there was no certainty that any agreement for a transaction would be reached. On June 26, 2014, the Board was advised by FRC, and LSEG publicly announced, that LSEG had entered into a definitive agreement and plan of merger to acquire FRC, including both its index and investment management businesses. In its announcement (the “LSEG Announcement”), LSEG stated, among other things, that the investment management business would be the subject of “a comprehensive review to determine its positioning and fit with the Group” and that LSEG is “committed to maintaining a clear focus on client service, fund performance and management and employee stability, whilst ensuring appropriate standalone governance.” On June 27, 2014, the Board met by conference telephone call to discuss preliminarily the LSEG Announcement with representatives of FRC, RIMCo and LSEG.
In preparation for its evaluation of the Post-Transaction Agreement, the Independent Trustees, with the advice and assistance of Independent Counsel, requested information to evaluate the Post-Transaction Agreement. In their requests for such information, the Independent Trustees advised RIMCo of their intention to rely upon the Existing Agreement Evaluation Information in their evaluation of the Post-Transaction Agreement, if and to the extent the Existing Agreement Evaluation Information continued to be accurate and complete as of July 29, 2014. The Independent Trustees requested that RIMCo provide any updated and additional information
156 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
needed for the Board to consider whether the Post-Transaction Agreement should be approved. The foregoing information and other information provided by RIMCo and LSEG to the Board, including the Independent Trustees, in connection with its evaluation of the Post-Transaction Agreement hereinafter is referred to collectively as the “Post-Transaction Agreement Evaluation Information.”
At a meeting held in person on July 17, 2014 (the “Post-Transaction Agreement Information Review Meeting”), the Board in further preparation for its evaluation of the Post-Transaction Agreement reviewed Post-Transaction Agreement Evaluation Information received to the date of that Meeting, first with senior representatives of FRC, RIMCo, Fund management and LSEG, and then in a private session with Independent Counsel, at which no representatives of FRC, RIMCo, LSEG, or Fund management were present, and, on the basis of that review, requested additional information regarding the Transaction and its impact on RIMCo and the Funds.
The Board met in person on July 29, 2014 to consider approval of the Post-Transaction Agreement (the “Post-Transaction Agreement Evaluation Meeting”). At the Post-Transaction Agreement Evaluation Meeting, the Independent Trustees first met to review additional Post-Transaction Agreement Information received to that date with representatives of FRC, RIMCo, Fund management, and LSEG. Presentations made by FRC, RIMCo and LSEG at the Post-Transaction Agreement Information Review Meeting and the Post-Transaction Agreement Evaluation Meeting (together, the “Transaction Board Meetings”), as part of this review, encompassed all of the Funds and the Other Russell Funds. Information received by the Board, including the Independent Trustees, at the Transaction Board Meetings is included in the Post-Transaction Agreement Evaluation Information. Presentations made by FRC, RIMCo and LSEG at the Transaction Board Meetings are included in the Post-Transaction Agreement Evaluation Information. Prior to voting at the Post-Transaction Agreement Evaluation Meeting, the Independent Trustees met in executive session with Independent Counsel, at which no representatives of FRC, RIMCo, LSEG, or Fund management were present, to review additional Post-Transaction Agreement Evaluation Information received prior to and at the Meeting. The discussion below reflects all of these reviews.
The Board’s evaluation of the Post-Transaction Agreement reflected the Post-Transaction Agreement Evaluation Information and other information received by the Board during the course of the year or prior years (including the Existing Agreement Evaluation Information, as supplemented by RIMCo through the date of the Post-Transaction Agreement Evaluation Meeting) and the findings made by the Board in respect of the Existing Agreement at the Existing Agreement Evaluation Meeting. The Independent Trustees’ evaluations of the Post-Transaction Agreement also reflected the knowledge and familiarity gained as Board members of the Funds and Other Russell Funds with respect to services provided by RIMCo, RIMCo’s affiliates, and each Money Manager to the Funds under the Existing Agreement and services proposed to be provided to the Funds under the Post-Transaction Agreement. The Board noted the short period of time since the Existing Agreement Evaluation Meeting and that information provided by RIMCo to update and supplement the Existing Agreement Evaluation Information through the date of the Post-Transaction Agreement Evaluation Meeting did not affect the conclusions reached by the Board at the Existing Agreement Evaluation Meeting.
In approving the Post-Transaction Agreement, the Board considered all factors it believed relevant in exercising its business judgment, including the following:
(1) the reputation, financial strength and resources of LSEG;
(2) LSEG is a diversified international market infrastructure and capital markets business;
(3) LSEG’s advice that it has a strong track record of successful acquisitions and owning regulated businesses and that its regulatory and compliance history is strong;
(4) LSEG is not engaged in the mutual fund or investment management businesses, with the result that there will be no overlap of mutual fund products to address in the transfer of ownership of FRC’s investment management business from NM and other current shareholders to LSEG;
(5) LSEG’s advice that the outcome of the comprehensive review and its effect on FRC’s investment management business would not be prejudged and that one part of the review is to determine whether the FRC investment management business would be more valuable as part of the LSEG organization or as part of an organization with existing investment management activities;
(6) LSEG’s assurances that there were no circumstances that could be envisaged at the time of the Post-Transaction Agreement Evaluation Meeting under which the Funds may be left without an investment manager to conduct their investment programs and that, whatever the outcome of the comprehensive review and for as long as it owns the FRC investment management business, it is committed to maintaining the existing clear focus on client service and fund performance in FRC’s investment management business;
Basis for Approval of Investment Advisory Contracts 157
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
| (7) LSEG’s stated intention that the FRC investment management business will operate independently of the rest of LSEG and its | ||
| expectation that the impact of the Transaction on the Funds will be broadly neutral, with no material improvements or disadvantages, | ||
| although the Funds may benefit to some extent from the ownership of the FRC investment management business by a company with | ||
| world class technology, operational competencies, and financial strength; | ||
| (8) LSEG’s advice that, as part of the comprehensive review, it will provide continued strong support and investment for growth | ||
| and innovation, and pay particular attention to creating appropriate standalone governance and operations for FRC’s investment | ||
| management business while also focusing on maintaining strong management and employee continuity; | ||
| (9) the Post-Transaction Agreement Evaluation Information did not identify any conflicts of interest that would arise following completion | ||
| of the Transaction but LSEG did advise the Board that it is continuing to work with FRC to establish the scope of affiliated business | ||
| and to assess whether modifications to FRC’s compliance policies and procedures and/or other steps are appropriate. The Board was | ||
| advised that it would be apprised of any material issues that are subsequently identified. | ||
| (10) LSEG’s expectation that there will be no diminution in the nature, scope and overall quality of services provided to the Funds and | ||
| their shareholders, including administrative, regulatory and compliance services, as a result of the Transaction. In this regard, the | ||
| Post-Transaction Agreement Evaluation Information stated, among other things: | ||
| • | LSEG intends to maintain the existing nature and quality of services provided to the Funds by RIMCo. | |
| • | In connection with or as a result of the Transaction, LSEG anticipates that RIMCo will maintain the resources, | |
| operations, staffing and other functions required for the operation or administration of the Funds. | ||
| • | No changes are expected by LSEG in RIMCo’s investment strategies and practices in respect of the Funds as a result | |
| of the Transaction, including the manager-of-managers structure employed by the Funds that are not Funds of Funds (the “Manager-of- | ||
| Managers Funds”) and employed indirectly by the Funds of Funds through their investments in the Manager-of-Managers Funds. | ||
| (11) RIMCo’s understanding, based on discussions with NM, that NM intends to continue its participation in the Funds following the | ||
| Transaction, and RIMCo’s advice that if NM redeems all assets from the Funds, the Funds likely would need to be liquidated; | ||
| (12) advice from RIMCo and LSEG that there is no intention to propose any immediate changes to any of the Funds’ third-party service | ||
| providers, thereby assuring continuation of services needed for the Funds’ operations and minimizing complications in connection with | ||
| the transfer of ownership of FRC’s investment management business from NM and other current shareholders to LSEG; | ||
| (13) at the Existing Agreement Evaluation Meetings, the Board had performed a full annual review of the Existing Agreement, as | ||
| required by the 1940 Act, and had reapproved the Existing Agreement, concluding, among other things, that the Advisory Fee for each | ||
| Fund 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; | ||
| (14) the terms and conditions of the Post-Transaction Agreement are substantially the same as those of the Existing Agreement, which | ||
| will terminate automatically upon completion of the Transaction, and the Post-Transaction Agreement will not change any Fund’s | ||
| Advisory Fee (on a contractual or actual basis), expense ratio, profitability, economies of scale, or other fees or benefits received by | ||
| RIMCo and its affiliates as a result of their relationships with the Fund; | ||
| (15) FRC and/or its affiliates and LSEG, not the Funds, will bear all costs of meetings, preparation of proxy materials and solicitation | ||
| in connection with obtaining approvals of the Post-Transaction Agreement; | ||
| (16) there will be no changes to the Independent Trustees of the Board in connection with the Transaction, assuring continuity of the | ||
| Funds’ supervision and oversight; | ||
| (17) LSEG’s assurances that for a period of two years following the effective date of the Post-Transaction Agreement, it will use | ||
| reasonable best efforts not to engage in activities that would impose an “unfair burden” on the Funds within the meaning of Section | ||
| 15(f) of the 1940 Act; | ||
| (18) the Board’s belief that shareholders have purchased and retained their Fund shares based upon the reputation, investment | ||
| record, and investment philosophies and strategies employed by RIMCo in managing the Funds (including the manager-of-managers | ||
| 158 Basis for Approval of Investment Advisory Contracts | ||
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Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
structure employed by the Manager-of-Managers Funds and employed indirectly by the Funds of Funds through their investments in the Manager-of-Managers Funds); and
(19) the demands and complexity of managing the Manager-of-Managers Funds pursuant to the manager-of-managers structure, the special expertise of RIMCo with respect to the manager-of-managers structure of those Funds, and the Board’s belief that, at the current expense ratio of each Manager-of-Managers Fund, there would likely be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy selected by shareholders in purchasing their shares of Manager-of-Managers Funds which employ a manager-of-managers structure or Funds of Funds that indirectly employ a manager-of-managers strategy through their investments in the Underlying Funds.
In evaluating the Post-Transaction Agreement, the Board considered the possibility that, depending upon the results of the comprehensive review, the FRC investment management business would be conducted pursuant to the Post-Transaction Agreement as an independent part of the LSEG organization following completion of the Transaction, without any significant diminution expected in the nature, scope and overall quality of services provided to the Funds, and without any expected effect on the Funds’ Advisory Fees (contractual or actual), expenses, profitability, economies of scale, or other fees or benefits to FRC or RIMCo or their affiliates from their Fund relationships. However, the Independent Trustees were unable on the basis of the Post-Transaction Agreement Evaluation Information to determine the outcome of the comprehensive review or its effects, if any, on the FRC investment management business generally or on any of the investment advisory and other services that RIMCo and other FRC affiliates provide to the Funds under the Existing Agreement. Among other things, the Board could not determine whether or for how long FRC’s investment management business will continue as part of the LSEG organization following conclusion of the comprehensive review. In its deliberations, the Board considered the above and other relevant factors in light of the uncertain outcome and effects of the comprehensive review and, consequently, identified the principal factor in determining whether to approve the Post-Transaction Agreement as the need to provide for uninterrupted investment advisory and other services required for the operations of the Funds following the automatic termination of the Existing Agreement upon completion of the Transaction. No other single factor reviewed by the Board was identified by the Board as a principal factor in determining whether to approve the Post-Transaction Agreement and each Board member attributed different weights to the various factors. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made separately in respect of each Fund. After careful consideration of all factors, principally the need for continuation of investment advisory and other services required for the operation of the Funds following termination of the Existing Agreement, the Board believed that approval of the Post-Transaction Agreement would be in the best interests of each Fund and its shareholders for a period ending two years from the date of the Post-Transaction Agreement, but advised Fund management of its intention (subject to the outcome of the comprehensive review) to evaluate the continuance of the Post-Transaction Agreement within one year of its effectiveness, although not required to do so by the terms of the Post-Transaction Agreement or the 1940 Act. The Independent Trustees were advised by Independent Counsel throughout the process of evaluating the Post-Transaction Agreement. Prior to the Post-Transaction Agreement Information Review Meeting, the Board received a memorandum from Fund Counsel discussing its responsibilities in connection with its evaluation of the Post-Transaction Agreement and the Independent Trustees separately received a memorandum discussing such responsibilities from Independent Counsel.
Approval of the New Agreement
At the in-person Transaction Board Meetings, the Board considered approval of a new investment advisory agreement between each Fund and RIMCo that reflects updated terms and, if approved by shareholders, will go into effect in lieu of the Post-Transaction Agreement following the Transaction or, if the Transaction is not consummated, will replace the Fund’s Existing Agreement (the “New Agreement”). In preparation for its evaluation of the New Agreement, the Board reviewed information from RIMCo regarding the New Agreement (the “New Agreement Evaluation Information”) at the Post-Transaction Agreement Information Review Meeting. At the Post-Transaction Agreement Information Review Meeting, the Independent Trustees met first with representatives of RIMCo and Fund management and then in a private session with Independent Counsel, at which no representatives of RIMCo or Fund management were present, to review the New Agreement Evaluation Information.
The Independent Trustees considered approval of the New Agreement at the Post-Transaction Agreement Evaluation Meeting. The Board, including the Independent Trustees, first met with representatives of RIMCo and Fund management to discuss the New Agreement Evaluation Information. Prior to voting on approval of the New Agreement, the Independent Trustees met in a private session with Independent Counsel, at which no representatives of RIMCo or Fund management were present, to review additional New Agreement Evaluation Information received prior to and at the Post-Transaction Agreement Evaluation Meeting. The discussion reflects all of these reviews.
Basis for Approval of Investment Advisory Contracts 159
Russell Investment Funds
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
Presentations made by RIMCo at the Transaction Board Meetings regarding the New Agreement encompassed all of the Funds.
In evaluating the New Agreement, the Board considered all factors it believed relevant in exercising its business judgment, including the following:
(1) the Board had performed a full annual review of the Existing Agreement at the Existing Agreement Evaluation Meeting and had reapproved the Existing Agreement, concluding, among other things, that the Advisory Fee of each Fund 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 each Fund;
(2) the New Agreement reflects current industry practices and also expressly addresses RIMCo’s overall investment management responsibilities, including the delegation of such management to Money Managers with discretionary authority, the implementation of recommendations from Money Managers with non-discretionary authority, direct management of all of a Fund’s assets by RIMCo, or any combination thereof;
(3) RIMCo believes that the permission afforded by the New Agreement to use non-discretionary Money Managers with respect to a Fund’s entire portfolio will enhance RIMCo’s ability to determine how best to manage the Fund’s assets, and will allow RIMCo the flexibility to more efficiently and effectively manage Fund assets consistent with a Fund’s objective and to create a more customized investment program for each Fund, depending upon the particular characteristics and objectives of that Fund;
(4) in the case of certain Funds, RIMCo believes that a more extensive use of non-discretionary Money Managers may provide an opportunity to better manage transaction costs and the tax impact associated with trading portfolio securities;
(5) the New Agreement will not change any Fund’s investment objective nor will it change any Fund’s Advisory Fee rate or total expense ratio;
(6) the Advisory Fee paid by each Fund to RIMCo encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund. Fees paid by RIMCo from the Advisory Fee to non-discretionary Money Managers, who provide model portfolios to RIMCo representing their investment recommendations, based upon which RIMCo purchases and sells portfolio investments for a Fund, may be less than fees that would be paid to discretionary Money Managers, who make and implement their investment decisions to buy or sell portfolio investments for a Fund. While the Board did not receive any information concerning any additional benefits to RIMCo in connection with an expanded use of non-discretionary Money Managers, during the time, and to the extent, that RIMCo utilizes non-discretionary Money Managers rather than discretionary Money Managers in respect of the Funds, RIMCo may retain a larger portion of the Advisory Fee and the profits derived by RIMCo generally and from the Funds consequently may be increased; and
(7) if in the future RIMCo determines to change the “multi-manager” approach of any of the existing Funds, RIMCo will discuss such change in advance with the Board and seek any Board approval determined appropriate by RIMCo. In addition, if this were to occur, shareholders would be notified in advance of a change in their Fund’s multi-manager approach. This process will provide notice to shareholders of any material change in their Fund’s investment program and also may help to mitigate any potential conflict of interest inherent in RIMCo’s expanded use of non-discretionary Money Managers.
In their deliberations, the Trustees did not identify any particular information as to the New Agreement 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. After careful consideration of the above and all other factors considered to be relevant by the Board, the Board believed that approval of the New Agreement would be in the best interests of each Fund and its shareholders. The Independent Trustees were represented by Independent Counsel throughout the process of evaluating the New Agreement.
160 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
Shareholder Requests for Additional Information — December 31, 2014 (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 fiscal 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, 2014 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 contact 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.
Shareholder Requests for Additional Information 161
Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers — December 31, 2014 (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 39 funds, Russell Investment Funds (“RIF”), which has 9 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 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; Ms. Krysty has had business, financial and investment experience as the founder and senior executive of a registered investment adviser focusing on high net worth individuals as well as a certified public accountant and a member of the boards of other corporations and non-profit organizations; 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; and 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. 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 and/or director 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, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office* | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INTERESTED TRUSTEE | ||||||
| # Sandra Cavanaugh, | President and Chief | Until successor | • President and CEO RIC, RIF and | 49 | None | |
| Born May 10, 1954 | Executive Officer | is chosen and | RET | |||
| since 2010 | qualified by | • Chairman of the Board, Co-President | ||||
| 1301 Second Avenue, | Trustee since 2010 | Trustees | and CEO, Russell Financial Services, | |||
| 18th Floor, Seattle, WA | Appointed until | Inc. (“RFS”) | ||||
| 98101 | successor is | • Chairman of the Board, President | ||||
| duly elected and | and CEO, Russell Fund Services | |||||
| qualified | Company (“RFSC”) | |||||
| • Director, RIMCo | ||||||
| • Chairman of the Board, President and | ||||||
| CEO 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) | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| # | Ms. Cavanaugh is also an officer and/or director of one or more affiliates of RIC, RIF and RET and is therefore classified as an Interested Trustee. | |||||
162 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other |
| Age, | With Fund and | of | During the | Portfolios | Directorships |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee |
| Time Served | Fund | During the | |||
| Complex | Past 5 Years | ||||
| Overseen | |||||
| by Trustee | |||||
| INDEPENDENT TRUSTEES | |||||
| Thaddas L. Alston, | Trustee since 2006 | Appointed until | • Senior Vice President, Larco | 49 | None |
| Born April 7, 1945 | Chairman of | successor is | Investments, Ltd. (real estate firm) | ||
| the Investment | duly elected and | ||||
| 1301 Second Avenue, | Committee since | qualified | |||
| 18th Floor, Seattle, WA | 2010 | Appointed until | |||
| 98101 | successor is | ||||
| duly elected and | |||||
| qualified | |||||
| Kristianne Blake, | Trustee since 2000 | Appointed until | • Director and Chairman of the Audit | 49 | • Director, |
| Born January 22, 1954 | Chairman since 2005 | successor is | Committee, Avista Corp (electric | Avista Corp | |
| duly elected and | utilities) | (electric | |||
| 1301 Second Avenue, | qualified | • Regent, University of Washington | utilities) | ||
| 18th Floor, Seattle, WA | Annual | • President, Kristianne Gates Blake, | • Until June | ||
| 98101 | P.S. (accounting services) | 30, 2014, | |||
| • Until June 30, 2014, Director, Ecova | Director, | ||||
| (total energy and sustainability | Ecova (total | ||||
| management) | energy and | ||||
| • Until December 31, 2013, Trustee | sustainability | ||||
| and Chairman of the Operations | management) | ||||
| Committee, Principal Investors Funds | • Until | ||||
| and Principal Variable Contracts | December 31, | ||||
| Funds (investment company) | 2013, Trustee, | ||||
| • From April 2004 through December | Principal | ||||
| 2012, Director, Laird Norton Wealth | Investors | ||||
| Management and Laird Norton Tyee | Funds | ||||
| Trust (investment company) | (investment | ||||
| company) | |||||
| • Until | |||||
| December 31, | |||||
| 2013, Trustee | |||||
| Principal | |||||
| Variable | |||||
| Contracts | |||||
| Funds | |||||
| (investment | |||||
| company) | |||||
| • From April | |||||
| 2004 through | |||||
| December | |||||
| 2012, | |||||
| Director, Laird | |||||
| Norton Wealth | |||||
| Management | |||||
| and Laird | |||||
| Norton | |||||
| Tyee Trust | |||||
| (investment | |||||
| company) | |||||
Disclosure of Information about Fund Trustees and Officers 163
Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INDEPENDENT TRUSTEES (continued) | ||||||
| Cheryl Burgermeister, | Trustee since 2012 | Appointed until | • Retired | 49 | • Trustee and | |
| Born June 26, 1951 | successor is | • Trustee and Chairperson of Audit | Chairperson | |||
| duly elected and | Committee, Select Sector SPDR | of Audit | ||||
| 1301 Second Avenue, | qualified | Funds (investment company) | Committee, | |||
| 18th Floor, Seattle, WA | Select Sector | |||||
| 98101 | SPDR Funds | |||||
| (investment | ||||||
| company) | ||||||
| • Trustee, ALPS | ||||||
| Series Trust | ||||||
| (investment | ||||||
| company) | ||||||
| Daniel P. Connealy, | Trustee since 2003 | Appointed until | • Retired | 49 | None | |
| Born June 6, 1946 | successor is | • June 2004 to June 2014, Senior Vice | ||||
| duly elected and | President and Chief Financial Officer, | |||||
| 1301 Second Avenue, | qualified | Waddell & Reed Financial, Inc. | ||||
| 18th Floor, Seattle, WA | (investment company) | |||||
| 98101 | ||||||
| Katherine W. Krysty, | Trustee since 2014 | Appointed until | • Retired | 49 | None | |
| Born December 3, 1951 | successor is | • January 2011 through March 2013, | ||||
| duly elected and | President Emerita, Laird Norton | |||||
| 1301 Second Avenue | qualified | Wealth Management (investment | ||||
| 18th Floor, Seattle, WA | company) | |||||
| 98101 | • April 2003 through December | |||||
| 2010, Chief Executive Officer of | ||||||
| Laird Norton Wealth Management | ||||||
| (investment company) | ||||||
| Raymond P. Tennison, Jr., | Trustee since 2000 | Appointed until | • Retired | 49 | None | |
| Born December 21, 1955 | Chairman of | successor is | • From January 2008 to December | |||
| the Nominating | duly elected and | 2011, Vice Chairman of the Board, | ||||
| 1301 Second Avenue | and Governance | qualified | Simpson Investment Company (paper | |||
| 18th Floor, Seattle, WA | Committee since | Appointed until | and forest products) | |||
| 98101 | 2007 | successor is | • Until November 2010, President, | |||
| duly elected and | Simpson Investment Company | |||||
| qualified | and several additional subsidiary | |||||
| companies, including Simpson | ||||||
| Timber Company, Simpson Paper | ||||||
| Company and Simpson Tacoma Kraft | ||||||
| Company | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
164 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INDEPENDENT TRUSTEES (continued) | ||||||
| Jack R. Thompson, | Trustee since 2005 | Appointed until | • September 2007 to September | 49 | • Director, | |
| Born March 21, 1949 | Chairman of the | successor is | 2010, Director, Board Chairman and | Board | ||
| Audit Committee | duly elected and | Chairman of the Audit Committee, | Chairman and | |||
| 1301 Second Avenue, | since 2012 | qualified | LifeVantage Corporation (health | Chairman | ||
| 18th Floor, Seattle, WA | Appointed until | products company) | of the Audit | |||
| 98101 | successor is | • September 2003 to September | Committee, | |||
| duly elected and | 2009, Independent Board Chair and | LifeVantage | ||||
| qualified | Chairman of the Audit Committee, | Corporation | ||||
| Sparx Asia Funds (investment | until | |||||
| company) | September | |||||
| 2010 (health | ||||||
| products | ||||||
| company) | ||||||
| • Director, | ||||||
| Sparx Asia | ||||||
| Funds | ||||||
| until 2009 | ||||||
| (investment | ||||||
| company) | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| TRUSTEE EMERITUS | ||||||
| George F. Russell, Jr., | Trustee Emeritus and | Until resignation | • Director Emeritus, Frank Russell | 48 | None | |
| Born July 3, 1932 | Chairman Emeritus | or removal | Company (investment consultant to | |||
| since 1999 | institutional investors (“FRC”)) and | |||||
| 1301 Second Avenue, | RIMCo | |||||
| 18th Floor, Seattle, WA | • Chairman Emeritus, RIC and RIF; | |||||
| 98101 | 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) | ||||||
Disclosure of Information about Fund Trustees and Officers 165
Russell Investment Funds
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Positions(s) Held | Term | Principal Occupation(s) |
| Age, | With Fund and | of | During the |
| Address | Length of | Office | Past 5 Years |
| Time Served | |||
| OFFICERS | |||
| Cheryl Wichers, | Chief Compliance | Until removed | • Chief Compliance Officer, RIC, RIF and RET |
| Born December 16, 1966 | Officer since 2005 | by Independent | • Chief Compliance Officer, RFSC and U.S. One Inc. |
| Trustees | • 2005 to 2011 Chief Compliance Officer, RIMCo | ||
| 1301 Second Avenue | |||
| 18th Floor, Seattle, WA | |||
| 98101 | |||
| Sandra Cavanaugh, | President and Chief | Until successor | • CEO, U.S. Private Client Services, Russell Investments |
| Born May 10, 1954 | Executive Officer | is chosen and | • President and CEO, RIC, RIF and RET |
| since 2010 | qualified by | • Chairman of the Board, Co-President and CEO, RFS | |
| 1301 Second Avenue, | Trustees | • Chairman of the Board, President and CEO, RFSC | |
| 18th Floor, Seattle, WA | • Director, RIMCo | ||
| 98101 | • Chairman of the Board, President and CEO, 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. | |||
| Mark E. Swanson, | Treasurer and Chief | Until successor | • Treasurer, Chief Accounting Officer and CFO, RIC, RIF and RET |
| Born November 26, 1963 | Accounting Officer | is chosen and | • Director, RIMCo, RFSC, Russell Trust Company (“RTC”) and RFS |
| since 1998 | qualified by | • Global Head of Fund Services, Russell Investments | |
| 1301 Second Avenue | Trustees | • October 2011 to December 2013, Head of North America Operations | |
| 18th Floor, Seattle, WA | Russell Investments | ||
| 98101 | • May 2009 to October 2011, Global Head of Fund Operations, Russell | ||
| Investments | |||
| • 1999 to May 2009, Director, Fund Administration | |||
| Jeffrey T. Hussey, | Chief Investment | Until removed by | • Global Chief Investment Officer, Russell Investments |
| Born May 2, 1969 | Officer since 2013 | Trustees | • Chief Investment Officer, RIC, RIF and RET |
| • Chairman of the Board, President and CEO, RIMCo | |||
| 1301 Second Avenue, | • Director, RTC, RIS and Russell Investments Delaware, Inc. | ||
| 18th Floor, Seattle WA | • Board of Managers, Russell Institutional Funds Management, Inc. | ||
| 98101 | • 2003 to 2013 Chief Investment Officer, Fixed Income, Russell | ||
| Investments | |||
| Mary Beth R. Albaneze, | Secretary since 2010 | Until successor | • Associate General Counsel, Russell Investments |
| Born April 25, 1969 | is chosen and | • Secretary, RIMCo, RFSC and RFS | |
| qualified by | • Secretary and Chief Legal Officer, RIC, RIF and RET | ||
| 1301 Second Avenue, | Trustees | • Assistant Secretary, RFS, RIA and U.S. One Inc. | |
| 18th Floor, Seattle, WA | • 1999 to 2010 Assistant Secretary, RIC and RIF | ||
| 98101 | |||
166 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
Adviser, Money Managers and Service Providers — December 31, 2014
| Interested Trustee | Money Managers | |
| Sandra Cavanaugh | Multi-Style Equity Fund | |
| Independent Trustees | Columbus Circle Investors, Stamford, CT | |
| Thaddas L. Alston | Institutional Capital LLC, Chicago, IL | |
| Kristianne Blake | Jacobs Levy Equity Management, Inc., Florham Park, NJ | |
| Cheryl Burgermeister | Mar Vista Investment Partners, LLC, Los Angeles, CA | |
| Daniel P. Connealy | Suffolk Capital Management, LLC, New York, NY | |
| Katherine W. Krysty | Sustainable Growth Advisers, LP, Stamford, CT | |
| Raymond P. Tennison, Jr. | Aggressive Equity Fund | |
| Jack R. Thompson | Conestoga Capital Advisors, LLC, Wayne, PA | |
| Trustee Emeritus | DePrince, Race & Zollo, Inc., Winter Park, FL | |
| George F. Russell, Jr. | Jacobs Levy Equity Management, Inc., Florham Park, NJ | |
| Officers | Ranger Investment Management, L.P., Dallas, TX | |
| Sandra Cavanaugh, President and Chief Executive Officer | RBC Global Asset Management (U.S.) Inc., Minneapolis, MN | |
| Cheryl Wichers, Chief Compliance Officer | Signia Capital Management LLC, Spokane, WA | |
| Jeffrey T. Hussey, Chief Investment Officer | Non-U.S. Fund | |
| Mark E. Swanson, Treasurer and Chief Accounting Officer | Barrow, Hanley, Mewhinney & Strauss, LLC, Dallas, TX | |
| Mary Beth R. Albaneze, Secretary | MFS Institutional Advisors Inc., Boston, MA | |
| Adviser | Pzena Investment Management LLC, New York, NY | |
| Russell Investment Management Company | William Blair & Company L.L.C., Chicago, IL | |
| 1301 Second Avenue | Core Bond Fund | |
| Seattle, WA 98101 | Colchester Global Investors Ltd, London, England | |
| Administrator, Transfer and Dividend Disbursing | Logan Circle Partners, L.P., Philadelphia, PA | |
| Macro Currency Group — an investment group within | ||
| Agent | Principal Global Investors, LLC, Des Moines, IA* | |
| Russell Fund Services Company | Metropolitan West Asset Management LLC, Los Angeles, CA | |
| 1301 Second Avenue | Scout Investments, Inc., Kansas City, MO | |
| Seattle, WA 98101 | ||
| Custodian | Global Cohen Real & Steers Estate Capital Securities Management, Fund Inc., New York, NY | |
| State Street Bank and Trust Company | INVESCO Advisers, Inc. which acts as a money manager to | |
| 1 Iron Street | the Fund through its INVESCO Real Estate Division, | |
| Boston, MA 02210 | Dallas, TX | |
| Office of Shareholder Inquiries | Morgan Stanley Investment Management Inc., New York, NY | |
| 1301 Second Avenue | *Principal Global Investors LLC is the asset management arm of the Principal | |
| Seattle, WA 98101 | Financial Group® (The Principal®), which includes various member com- | |
| (800) 787-7354 | panies including Principal Global Investors, LLC, Principal Global Investors | |
| Legal Counsel | (Europe) Limited, and others. The Macro Currency Group is the specialist cur- | |
| Dechert LLP | rency investment group within Principal Global Investors. Where used herein, | |
| One International Place, 40th Floor | Macro Currency Group means Principal Global Investors, LLC. | |
| 100 Oliver Street | ||
| Boston, MA 02110 | This report is prepared from the books and records of the Funds | |
| Distributor | and is submitted for the general information of shareholders and | |
| Russell Financial Services, Inc. | is not authorized for distribution to prospective investors unless | |
| 1301 Second Avenue | accompanied or preceded by an effective Prospectus. Nothing | |
| Seattle, WA 98101 | ||
| Independent Registered Public Accounting Firm | herein contained is to be considered an offer of sale or a solicitation | |
| PricewaterhouseCoopers LLP | of an offer to buy shares of Russell Investment Funds. Such offering | |
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2014 ANNUAL REPORT
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
DECEMBER 31, 2014
FUND
Moderate Strategy Fund
Balanced Strategy Fund
Growth Strategy Fund
Equity Growth Strategy Fund
Russell Investment Funds
Russell Investment Funds is a series investment company with nine different investment portfolios referred to as Funds. These financial statements report on four of these Funds.
Russell Investment Funds LifePoints® Funds
Variable Target Portfolio Series
Annual Report
December 31, 2014
Table of Contents
| Page |
| To Our Shareholders ........................................................................................... 3 |
| Market Summary ................................................................................................. 4 |
| Moderate Strategy Fund .................................................................................... 14 |
| Balanced Strategy Fund ..................................................................................... 26 |
| Growth Strategy Fund ........................................................................................ 38 |
| Equity Growth Strategy Fund ............................................................................. 50 |
| Notes to Financial Highlights .............................................................................. 62 |
| Notes to Financial Statements ............................................................................ 63 |
| Report of Independent Registered Public Accounting Firm .................................. 71 |
| Tax Information ................................................................................................. 72 |
| Basis for Approval of Investment Advisory Contracts ......................................... 73 |
| Shareholder Requests for Additional Information ................................................ 85 |
| Disclosure of Information about Fund Trustees and Officers ............................... 86 |
| Adviser and Service Providers ........................................................................... 91 |
Russell Investment Funds - LifePoints® Funds Variable Target Portfolio Series
Copyright © Russell Investments 2015. All rights reserved.
Russell Investments is a Washington, USA corporation, which operates through subsidiaries worldwide and is part of London Stock Exchange Group.
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.
To Our Shareholders
Dear Shareholder,
After strong performance in 2013, equity markets in the U.S. continued to move higher through the end of December 2014. The broad-based Russell 3000® Index returned 12.56% for the year ending December 31, 2014.
A number of factors contributed to this strong performance. After a somewhat slow start, the U.S economy has shown its resilience as corporate profits remain robust. Unemployment dropped below 6% in October for the first time since July 2008. And inflation remained tame, standing at just 1.3% through November 30, 2014.
At the same time, global markets contended with their fair share of concerns: instability in the Middle East, an Ebola outbreak in western Africa that spread fears across the globe, and unrest in the Ukraine. Add to that doubts about Europe’s economic recovery and a burst of volatility in the U.S. equity and Treasury markets in the fourth quarter and you might wonder how U.S. markets had such a strong year.
What all of this shows us is that the markets can – and often do – react to short-term events. But what matters most is to have a thoughtful financial plan, a long-term investment horizon, and a diversified, multi-asset portfolio that can weather periods of market volatility. We believe your financial advisor can also play a critical role in helping you stay on track and focus on your financial goals.
On the following pages you can gain additional insights on the markets and your investments by reviewing our Russell Investment Funds’ 2014 Annual Report for the fiscal year ending December 31, 2014, 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.
CEO, U.S. Private Client Services
Russell Investment Management Company
To Our Shareholders 3
Russell Investment Funds
Market Summary as of December 31, 2014 (Unaudited)
U.S. Equity Markets
The U.S. equity market performed well during the fiscal year ended December 31, 2014 despite various geopolitical concerns and the end of U.S. quantitative easing. Broadly measured by the Russell 3000® Index, U.S. stocks returned 12.56% over the year, which is the sixth straight calendar year that the Russell 3000® Index has finished with a positive absolute return. The Russell 3000® Index finished flat or higher in nine of the year’s twelve months, with exceptions in January, July, and September.
During the year, larger capitalization stocks were rewarded as the Russell 1000® Index outpaced the Russell 2000® Index by 8.35%, with the indexes returning 13.24% and 4.89%, respectively. The year was led by defensive stocks, as the Russell 1000® Defensive™ Index returned 13.80% while the Russell 1000® Dynamic™ Index returned 12.64%. The Russell 1000® Value Index returned 13.45% compared to 13.05% for the Russell 1000® Growth Index. Although value stocks slightly edged out growth stocks, the cheapest stocks (those with the lowest price-to-book ratios and lowest price-to-earnings ratios) lagged the market. Interest rate sensitive areas of the market, specifically electric utilities and real estate investment trusts (“REITs”), outpaced the broader market returning 28.86% and 28.17%, respectively, as measured by the Russell 1000® Index. Within the Russell 1000® Index, stocks that were rewarded during the year included stocks with rising earnings estimates, low earnings variability, and positive earnings surprises. On the other hand, stocks that underperformed included high beta stocks (stocks with high price sensitivity to market movements) and stocks with high financial quality (lowest debt-to-capital ratios).
U.S. equities rebounded from a challenging start to 2014 to record positive returns for the first quarter, with the Russell 3000® Index returning 1.97%. The Russell 1000 Index returned 2.05% and the Russell 1000® Value Index surged near the end of the quarter to end with a 3.02% quarterly return, surpassing the Russell 1000® Growth Index return of 1.12%. The small cap Russell 2000® Index lagged the Russell 1000® Index with a return of 1.12%. There was almost no differentiation between defensive and dynamic stocks with the Russell 1000® Defensive Index returning 2.00% and the Russell 1000® Dynamic™ Index returning 2.09% for the first quarter.
During the first quarter, investors shrugged off disappointing U.S. non-farm payroll numbers for December and January, which were generally blamed on unusually cold weather. Markets jumped considerably in February on “dovish” comments from Federal Reserve (the “Fed”) Chair Janet Yellen in her first Congressional testimony. In March, high dividend yield stocks briefly underperformed after comments from Yellen suggesting that U.S. short term interest rates may rise sooner than some were expecting, but the market’s focus quickly shifted to profit taking among momentum stocks during the final seven trading days of the quarter. The final U.S. gross domestic product (“GDP”) growth rate for the fourth quarter came in at 2.6%, slightly behind forecasts. Elsewhere, consumer confidence continued to improve and durable goods orders picked up in February. However, data suggested the U.S. housing market continued to slow. A series of concerns about Ukraine, Crimea, and Russia also kept a lid on market appreciation for the quarter.
The Russell 3000® Index gained 4.87% in the second quarter, ending the quarter at a new record high. The equity market was led by high dividend yield stocks early in the quarter, as investors bid up interest rate sensitive stocks in pursuit of more yield from equity oriented investments as long term interest rates fell. For the quarter, “bond substitutes” within the Russell 1000® Index (REITs and utilities) outperformed. The Russell 1000® Growth Index slightly edged out the Russell 1000® Value Index for the quarter, returning 5.13% compared to 5.10%, respectively. However within small cap space, the Russell 2000 Value Index beat the Russell 2000® Growth Index. Elsewhere, dynamic stocks outperformed defensive stocks across various market capitalization levels. The payoff to market capitalization was mixed as the Russell Top 200 Index returned 5.18%, beating the broader Russell 1000® Index which climbed 5.12%, although the Russell Top 50 Mega Cap Index returned only 4.51%. The Russell 2000® Index lagged the Russell 2500 Index, returning 2.05% compared with 3.56% for the second quarter.
Economic data released during the second quarter generally provided indications of a continued economic expansion. The standout anomaly was the third revision to U.S. first-quarter real GDP (an inflation adjusted GDP measure), which
4 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
was sharply revised downward to -2.9% largely driven by a decrease in personal consumption expenditures. The Fed downwardly revised its 2014 GDP forecasts from 2.9% to 2.2%. Elsewhere, non-farm payrolls remained healthy, with June being the fifth straight month of growth above 200,000 jobs, which is the first time this has happened in 14 years. Meanwhile, the Fed cut its monthly asset purchases by $10 billion at each monthly meeting, reducing the amount to $35 billion at June’s meeting. Additionally, Fed Chair Yellen continued to reiterate the committee’s “dovish” tone, which helped enable the outperformance of interest rate sensitive stocks.
The Russell 3000® Index finished third quarter 2014 virtually unchanged from where it started the quarter. However, U.S. equities suffered negative returns in July and September. Geopolitical risks and negative investor reaction to the Fed’s monthly statement (which was perceived as being more hawkish) dragged down equities in July, while the sell-off in the final days of September was driven in part by fears of a potentially larger than anticipated rise in interest rates. The Russell 1000® Index gained 0.65% in the third quarter. The largest market gains came higher up the capitalization spectrum, as the Russell Top 50 Mega Cap Index returned 3.04% and the Russell Top 200 Index returned 1.71%. In contrast, the Russell Mid Cap Index, Russell 2000® Index and Russell Microcap Index posted negative returns (-1.67%, -7.36% and -8.21%, respectively). Defensive stocks outperformed dynamic stocks, in a reversal of the second quarter leadership. Growth stocks beat value stocks across all capitalization tiers except microcap for the third quarter.
Economic data released during the third quarter demonstrated positive economic growth with an ongoing improvement in employment. GDP grew at a revised annual rate of 4.6% in the second quarter, up from a previous estimate of 4.2%. Non-farm payrolls missed estimates in August at 180,000 jobs, the second weakest number during the year, although this followed six months of 200,000+ job additions. Unemployment fell to 6.1% in August, partially due to a marginal tick down in the participation rate. Meanwhile, the Fed continued its monthly reductions in quantitative easing as it prepared to fully halt the program in October. The U.S. dollar experienced its strongest quarter against other G10 currencies since 2008 after enjoying an eleven week run of successive gains.
The Russell 3000® Index advanced 5.24% in the fourth quarter of 2014, extending another strong year of returns for U.S. equities. Small cap stocks bounced back strongly for the quarter but still did not catch up with large cap for the year. The Russell 2000® Index returned 9.73% compared with the Russell 1000® Index and the Russell Top 50 Index, which returned 4.88% and 3.18%, respectively. At all market capitalization levels, defensive stocks outperformed dynamic stocks. Value stocks finished in a virtual tie with growth stocks in large and mid-capitalization stocks, but further down the capitalization scale, growth outperformed value. Within the Russell 1000® Index, the payoff to the value factor was mixed as both the cheapest stocks (lowest price-to-book ratios) and most expensive stocks (highest price-to-book ratios) underperformed for the quarter.
The fourth quarter got off to a rocky start with a market pullback in early October as investors considered the potential worst case scenario related to Ebola. However, market volatility receded and the market regained its previous highs as encouraging domestic economic releases outweighed global growth concerns. Labor market data remained healthy, with the unemployment rate hitting a six-year low of 5.8% in October. Initial jobless claims fell to pre-recession levels and U.S. non-farm payrolls in November came in significantly above estimates at the highest monthly reading in over two years. U.S. real GDP growth was sharply revised upward for the 3rd quarter from 3.9% to 5.0% annualized. However, jitters about declining oil prices threatened the rally at various points during the quarter. As broadly expected, the Fed ended its quantitative easing program in October. In December’s policy statement, the central bank revealed that it would be “patient” in judging when to start raising interest rates, rather than keeping them low for a “considerable time” as had been previously repeated. Investors interpreted this change of language as a sign of central bank confidence in the strength of the U.S. economy, but it also was clear that multiple months without rate increases were still ahead.
Non-U.S. Developed Equity Markets
Market Summary 5
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
For the fiscal year ended December 31, 2014, the non-U.S. equity market, as measured by the Russell Developed ex-U.S. Large Cap® Index (the “Index”), was down 4.00%. U.S. Dollar strength was a significant headwind during the period as other major currencies fell against the U.S. dollar - the Euro (-12.09%), Yen (-12.32%), Canadian dollar (-7.71%), Swiss Franc (-10.48%), and British Pound (-5.68%). Concerns heightened in the latter part of the period over the impact of falling oil prices on oil dependent economies.
Geo-politics and policymaker rhetoric dominated headlines in what was a relatively volatile first quarter of 2014. The Index registered positive returns of 1.2%, after recovering strongly from a sharp decline at the end of January. The quarter began with concerns over the outlook for growth in emerging markets, amid ongoing speculation regarding the U.S. Federal Reserve’s (“Fed”) plans for the reversal of quantitative easing (“QE”). Political upheaval in a number of emerging market countries also caused concern, most notably in Ukraine and Venezuela, as the currencies of a series of emerging market countries sold off. However, comments from Fed Chair Yellen soothed investor concerns as she stated that “a highly accommodative policy will remain appropriate for considerable time after asset purchases end.” European Central Bank (“ECB”) Chairman Draghi added to the positive mood as he re-iterated the ECB was “ready and willing” to act. However, an uptick in political risk weighed on markets at the beginning of March as fallout from Crimea’s independence referendum and its resulting decision to join with Russia stoked wider international tensions. Despite sanctions between Russia and its Western critics, a feared escalation of tensions did not materialize and markets rebounded. Although macro data out of China worsened towards the second half of March, comments from the country’s Premier Li served to boost equity markets and spark a reversal in sentiment as he reassured investors that the government would support the economy.
A challenging start to the second quarter of 2014 saw equity markets track lower as policymaker inaction and an intensification of geopolitical events in Ukraine and the Middle East led to heightened investor risk aversion. However, non-U.S. equities maintained a largely positive trajectory through the quarter, as the Index advanced 4.4%.
The ECB’s announcement of renewed stimulus efforts in early June, as well as moderation of tensions between Russia and the West, contributed to an improvement in market sentiment toward the end of the second quarter. Consistently dovish comments from Fed Chair Janet Yellen, in particular her assertion that “a high degree of monetary accommodation remains warranted,” were also well received. Emerging markets also enjoyed a strong quarter, boosted by a series of welcome election results, most notably in India, and less dire concern toward the Chinese government’s restraint in policy support in the face of a decelerating economy.
Equity markets tracked lower over the third quarter of 2014, as the strengthening recovery in the U.S. wasn’t enough to offset a resurgence of geopolitical tension in the Middle East and sluggishness in Europe. Once again, monetary policy was key to equity performance across the world. Markets seemed unperturbed by the imminent end of QE in the U.S., preferring to focus on the country’s strong economic fundamentals, but concerns over interest rate hikes prompted Fed Chair Yellen to insist that interest rates would remain low for a “considerable time.” Low inflation and high unemployment in the Eurozone pushed the ECB to cut deposit and interest rates to record lows and pledge to start buying covered bonds. By quarter-end, however, poor economic data highlighted that further stimulatory action would likely be necessary. Emerging markets had a patchy quarter, with underwhelming data from China doing little to quell concerns that the country may yet face a hard economic landing.
Overall, the non-U.S. market fell 5.9% in the third quarter of 2014, as measured by the Index. Japan shed 2.57% as the after-effects of the consumer-tax hike continued to weigh on inflation and consumer sentiment. European markets were the biggest laggards, dropping 7.5% on the back of persistently bad economic news from the region’s key economies: Italy fell into recession in the second quarter, France stagnated and Germany saw business confidence slump to its lowest level in 17 months. Emerging market equities declined 3.3% in U.S. dollar terms during the quarter, largely driven by a September sell-off. Over the period, strength in the U.S. economy and a likelihood of further monetary easing in Europe and Japan wasn’t enough to overcome broader fears over the health of the global economy. Though emerging markets fell overall, they contained several bright spots, especially in East Asia.
6 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
Global markets followed increasingly divergent paths over the fourth quarter of 2014, reflecting the widening gap between a strong U.S. economy and the weaker economies of other developed markets. With the U.S. recovery continuing to gather steam, the Fed wound up its QE program in October. On the other hand, markets in Europe, Japan and China gained on poor economic news, as investors took it as a sign that central banks would be forced to loosen their purse strings still further. Japan duly obliged with a massive increase in its monetary stimulus, from 60 trillion yen to 80 trillion yen, at the end of October.
Also dominating global economic news was the rapid decline in oil prices, which by the end of the year had dropped roughly 50% from their June 2014 peak. Causes for the rapid decline in prices were the booming shale-oil industry in the U.S., higher-than-expected production from trouble spots such as Libya, a slowing economy in China, and in late November, the decision by OPEC countries not to cut production.
Non-U.S. equities, as measured by the Index, fell by 3.5% in the fourth quarter of 2014. In commodities, oil continued its slide and base metals also had a challenging quarter on worries over the Chinese economy. Emerging market countries had a tough time overall. However, China defied its mediocre economic indicators to rise by 7.2% as measured by the MSCI China Index, helped by a cut in interest rates and better-than-expected export figures in September. A more common story was that seen in Russia (-32.9%), where the slumping oil price, along with Western sanctions, sent stocks and the currency plunging. Colombia (-22.9%), Mexico (-12.3%) and Malaysia (-10.5%) also felt the ill effects of a lower oil price.
In 2014, mid to large cap companies outperformed smaller cap companies, while growth companies outperformed value companies, as measured by various Russell Global Developed Indexes. Stocks that exhibited higher quality and strong balance sheets tended to outperform lower quality companies, as evidenced by defensive stocks outperforming their dynamic peers.
This defensiveness was reflected in sector performance, as health care and utility stocks far outpaced more cyclically oriented sectors such as energy and materials, which were the worst performing sectors over the period. The technology sector performed well during the period led primarily by semiconductor and hardware companies, while software and services lagged within the sector.
Regionally, Asia ex-Japan had the most positive performance over the year, led by countries like Hong Kong and Singapore. Continental Europe struggled over the period as the larger economies such as France and Germany weighed on the region. Some of the peripheral countries such as Portugal and Greece sold off meaningfully, while Norway struggled due to dependence on oil. Emerging markets generally outperformed non-U.S. developed markets, as countries such as India, Indonesia, Philippines, Thailand and Turkey were able to outpace very poor performance in Russia, Hungary and Brazil.
Emerging Markets
The Russell Emerging Markets Index (the “Index”) was down 1.73% for the fiscal year ending December 31, 2014. The Index rallied for a strong second quarter driven by positive geopolitical developments but gave back returns in the latter half of the year due to the strong U.S. dollar and a significant drop in the price of oil. The largest contributor to negative returns was the Index’s exposure to the Russian equity market, which lost nearly half its value in U.S. dollar terms. This was driven by the combination of a strong dollar, U.S. sanctions driven by the Ukraine conflict and the plummeting price of oil. Offsetting this loss, the election of strong pro-market candidates in Indonesia and India led for sizeable gains in Indonesian and Indian markets.
The Index slipped 0.2% in the first quarter of 2014. The asset class got off to a tough start amid uncertainty surrounding the U.S. Federal Reserve’s (“Fed”) plans for quantitative easing (“QE”) reduction and increasing concerns over the Chinese economy. Uncertainty linked to Fed tapering began to evaporate in February and emerging markets rebounded, bolstered by comments from new Fed chair Janet Yellen.
Market Summary 7
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
However, a rise in political risk spurred bouts of renewed volatility, primarily due to Crimea’s independence referendum and its resulting decision to join with Russia. Meanwhile, Chinese macro data continued to deteriorate. In conjunction with comments from Premier Li, this sparked a reversal in sentiment amid expectations that the government may take action to support the economy. Despite tit-for-tat sanctions between Russia and its Western critics, a feared escalation of tensions did not materialize and combined with a drop in risk aversion in China, emerging markets rebounded. In this environment, there was a high dispersion in country returns while emerging market currencies also registered some sizeable movements. China (-5.6%) underperformed as Purchasing Managers Indices (“PMI”) manufacturing data continued to worsen and the central bank moved to tighten liquidity conditions.
Indonesia (+21.7%) bounced back as markets reacted positively to news that popular Jakarta governor, Joko Widodo, would run for president. Data showing that its current account deficit had narrowed also helped to restore investor confidence and spurred a gain in the rupiah. The Philippines (+8.9%) and Thailand (+8.7%) also outperformed while Korea (-2.1%) lagged. India (+8.9%) recorded solid gains, boosted by central bank action, which contributed to a 3.2% gain in the rupee, and by polls which indicated the opposition BJP may win upcoming elections.
In Latin America, Colombia (+4.2%) and Brazil (+1.8%) were the only countries to outperform. In Brazil, expectations that the central bank’s interest rate hiking cycle was coming to an end, and polls which indicated lower approval ratings for president Rousseff, sparked resurgence in the local market. Russia (-14.4%) was the worst performing country in the Index, as events in Crimea were the catalyst for a significant sell-off which also saw the ruble fall 6.5%.
Emerging Europe was mixed with Greece (+15.8%) benefiting from increased stability in the eurozone. In contrast, Hungary (-8.8%) lagged, as the central bank cut interest rates more than anticipated. Turkey (+3.2%) epitomized the high levels of volatility, with its perceived fragility to Fed tapering resulting in sizeable capital outflows and a sell-off in the lira early in the quarter. However, the central bank’s decision to hike interest rates 300bps served to stabilize the currency, and as wider concerns over emerging markets eased, the local market more than recouped losses.
South Africa (+4.4%) finished in positive territory while Egypt (+14.7%) registered strong gains ahead of Presidential elections. From an investment style perspective, growth was strongly outperforming value coming into the first quarter of 2014, particularly stocks with the highest price-to-book valuations and high return-on-equity. However, mid-March saw a sharp reversal with value stocks, in particular deep value stocks, outperforming significantly. On a market capitalization basis small capitalization equities outperformed large capitalization equities, as measured by the Russell Emerging Markets Small Cap Index (+2.6% over the quarter).
In the second quarter, the Index returned 7.1% in U.S. dollar terms. Diminished concerns over a nearer term rise in global interest rates provided a tailwind to market returns. However, the main catalyst for gains was a series of favorable election results, most notably in India (+17%) where Narendra Modi’s BJP party became the first to attain a majority in the lower house for more than 30 years. Elections in South Africa (+2.1%), Egypt (-2.0%) and frontier market Ukraine also completed relatively smoothly, with no major surprises.
The Chinese market (+5.0%) witnessed some large swings through the period. Concerns over PMI data early in the quarter dissipated as renewed fears over a hard landing were allayed by upside data surprises and as investors appeared more at ease with the government’s restraint in implementing large scale policy intervention through the current period of transition. Elsewhere in Asia, the Philippines (+9.6%) outperformed, despite the publication of a weak first quarter gross domestic product (“GDP”) report which was hit by the effects of typhoon Yolanda. However, the market gained on expectations that higher private consumption and reconstruction spending may boost full year GDP growth as the World Bank increased its Philippine outlook. After initial fears, a military coup in Thailand (+8.4%) was interpreted as a stabilizing factor, generating more optimistic sentiment in financial markets. Indonesia (-1.3%) was the regional laggard, hampered by uncertainty over July’s Presidential election. India was the standout country in the Index, buoyed by high expectations that the new administration would succeed in delivering economic reforms to restore growth and battle high inflation.
8 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
In Latin America, Brazil (+7.0%) outperformed as polls showed support for President Rousseff was declining ahead of October’s Presidential election. However, fundamentals for the country’s economy remained weak with the Brazilian Central Bank raising its already above target inflation outlook for 2014 and the World Bank cutting its GDP growth forecast to 1.5%. Peru (+8.5%) outperformed, while Chile (+2.0%) lagged as the economy continued to slow.
An easing in tensions between Russia (+11.7%) and the West, and a cooling of events in Ukraine, was beneficial for various emerging European markets. Turkey (+15.0%) enjoyed a strong quarter, as its current account deficit continued to recede. Greece (-9.8%) was the worst performing country in the Index as data for the eurozone remained weak and some Greek bank equities declined sharply on concerns over the banks’ exposure to Ukraine and Bulgaria. South Africa (+5.1%) capped a solid quarter, as the ruling ANC party held control of the national assembly, albeit with a reduced majority. The United Arab Emirates (-6.1%) underperformed, particularly in June.
In the third quarter, the Index declined 3.2% in U.S. dollar terms, largely driven by a September sell-off. Emerging markets sold off on the back of speculation around rising interest rates and U.S. dollar strength: the 5 year U.S. Treasury rate rose by 16 basis points over the quarter and the dollar strengthened relative to most currencies. China ended the quarter in mildly positive territory (+1.6%) despite enduring some poor economic data towards the end of the period. While the government had been making positive statements about reform, investors remained concerned – given falling industrial production and a surprise drop in lending – that it won’t be sufficient for the country to hit its growth targets for the year.
Meanwhile, geopolitics played a large role in the performance of emerging markets over the period. Brazil fell 9.2% amid a resurgence in support for the incumbent presidential candidate, Dilma Rousseff. The Russian markets slumped 15.8% as geopolitical tensions in Ukraine rumbled on, and sanctions imposed by Europe and the U.S. began to bite. A significant portion of returns for both Russia and Brazil were driven by currency weakness relative to the U.S. dollar. Over the quarter, the Brazilian and Russian currencies declined by more than 10% against the greenback. Emerging markets in Europe had a poor quarter overall, with Hungary falling 12.1% and Turkey by 11.5%. Turkey is considered particularly vulnerable to interest rate hikes due to its high current account deficit. Thailand rose sharply (+8.0%) after the appointment of a new prime minister appeared to assure a period of greater stability. Indonesia climbed (+2.9%) following the election of Joko Widodo.
Elsewhere, India continued to do well (+1.7%) as recently elected Prime Minister Narendra Modi pressed forward with a reformist agenda. Notably, GDP growth of 5.7% year over year recorded in the second-quarter was the fastest rate since the first quarter of 2012. In the Middle East, the United Arab Emirates enjoyed a strong quarter, with its market rising by 18.4% to add to its leading year-to-date returns. Mexico (+0.6%) also gained despite the sell-off in September and the Philippines (+2.8%) posted strong GDP growth which helped drive gains.
Additional laggards included Greece, which ended down 19.9%, and South Korea, which was also among the biggest detractors as markets fell by 5.8%. With China being one of its biggest export markets, South Korea is especially vulnerable to the economic travails of its giant northern neighbor. Taiwan also declined (-4.3%), as the recent strong run of its technology companies led to profit taking. Elsewhere, Malaysia (-2.4%), Peru (-3.8%) and Chile (-5.1%) all slipped lower.
The Index shed 4.8% in U.S. dollar terms in a highly volatile fourth quarter. The strong U.S. dollar was a key contributor to the emerging markets selloff. The local markets were actually neutral for the quarter, meaning that the negative moves were expressed through currency rather than local equity markets. The rallying dollar was driven by a U.S. economy poised to outperform non-U.S. developed markets. Despite a positive return in October, the Index was additionally dragged down by the effects of a tumbling oil price on key oil exporting nations.
Russia was the worst-performing market over the fourth quarter (-34.1%), driven by the weakness of the ruble. During the quarter, the Russian central bank notably hiked its key interest rate to 17% in an attempt to control inflation and stem capital outflows. Meanwhile, the joint effects of the plunge in oil prices coupled with Western sanctions hammered the country’s economic prospects. Colombia (-20.8%), as the fourth-largest oil producer in South America, saw the peso and
Market Summary 9
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
government revenues slump over the quarter, casting a pall over the country’s markets. Meanwhile, Malaysia, the second largest oil and natural gas producer in Southeast Asia, slipped 11.1%. While declining oil prices proved very damaging to countries that depend heavily on oil revenues, they provided a boost to consumers and oil-importing nations. Turkey climbed 10.9%, as the oil importer benefited from falling energy prices and an uptick in private demand.
In Europe, Greece was the biggest laggard as it dropped 27.5%. Having recently shown signs of revival, Greek markets were thrown back into turmoil after the failure of the governing New Democracy party to elect a new president in December. This failure triggered a full Parliamentary general election scheduled for the end of January, with the jump in financial market uncertainty stemming from the popularity of the far-left, anti-austerity Syriza party. Elsewhere in Europe, Hungary performed poorly (-12.7%) primarily due to its heavy export exposure to Russia. Polish equities declined 12.5% amid worries about debt levels among the country’s real-estate developers and a fall in the zloty.
Elsewhere, the depreciating value of the real saw Brazil fall sharply (-14.4%). During the quarter, investors spurned the reelection of President Dilma Rousseff. President Rousseff sought to mitigate the economic downfall by announcing a broad package of tax increases and budget cuts in a bid to restore faith in her government, with investors taking hope from the appointment of new finance minister Joaquim Levy. In addition, the ongoing corruption scandal at Petrobras, a key state owned oil producer, led the company to lose nearly half its value. Mexican equities had a poor quarter, dropping 11.6% amid the falling peso, political unrest and a series of soft economic data. Korea extended its losses over the second half of the year with a further 8.2% decline in the fourth quarter, largely driven by the government’s continued devaluation of the won.
More positively, Chinese markets had a strong fourth quarter, gaining 4.3% as Chinese financial stocks surged. Although the country’s economic data was mixed, its stock market rose strongly in the latter half of 2014, as investors become increasingly convinced that the Chinese government would implement more aggressive stimulus measures. South Africa gained 2.8%, spurred by dovish sentiment from the Fed in mid-December. India climbed a steady 1.1%.
Energy was the worst performing sector globally and within emerging markets in the fourth quarter, retreating over 23%. The materials & processing sector was also impacted by the commodities slide, down 11%. Technology and financial services were the only two sectors to advance, adding to their 2014 positive returns.
U.S./Global Fixed Income Markets
The fiscal year ended December 31, 2014 was a positive period for global fixed income markets overall, although not without a few surprises along the way. Sovereign yields ended the period lower than they began across virtually all regions, buoying the returns of various fixed income sectors. Globally, credit sectors largely outperformed similar-duration government bonds as spreads generally held or narrowed slightly over the period. Corporate credit underperformed securitized assets due to commodity price weakness and heightened illiquidity concerns, particularly toward the end of the year.
While 2013 ended with a burst of optimism and positive data flow out of the U.S. in particular, 2014 began with a brief stumble as disappointing U.S. non-farm payroll data was released and concern grew over the global economic outlook for China as the potential for accelerating credit defaults became more apparent. However, this was more than offset by a fourth quarter 2013 U.S. GDP growth reading coming in ahead of expectations, as well as the smooth leadership transition at the U.S. Federal Reserve (the “Fed”). Chairwoman Janet Yellen’s first testimony to the U.S. Congress was positively received by global financial markets, during which she stressed continuity, if not a slightly more dovish stance than her predecessor. The result was a modestly positive end to the first quarter of 2014 for global fixed income markets, particularly for credit sectors.
The moderate rally in global fixed income markets extended through the second quarter of 2014 amid economic data that supported a progressive economic recovery in the U.S. and bottoming-out in Europe. Given gradual tapering in the Fed’s asset purchasing program and positive U.S. growth outlook, the mid-year rally in U.S. Treasuries caught many market
10 Market Summary
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
participants by surprise. The rally was driven by a lull in new issuance squeezing supply (and yields) of longer-term bonds as well as demand from price-insensitive buyers (de-risking pension funds, the Fed and China). Increasingly, accommodative monetary policy out of Japan and Europe put significant downward pressure on yields globally, including in the U.S. While the impact of a particularly harsh winter became more evident in the second quarter, accentuated by a meaningful downward revision in first quarter GDP growth, fixed income markets proved resilient. Improving unemployment, job gains and consumer confidence re-affirmed the market’s optimism, as did Chairwoman Yellen’s commitment to maintain an accommodative stance even as unemployment and inflation approached target levels.
Market calm turned to concern in the latter half of the year amid heightened uncertainty surrounding geopolitical events and the robustness of global growth, despite generally positive economic data out of the U.S. Israeli-Palestinian tension in the Gaza Strip escalated dramatically in July, putting investors a little more on edge, although the immediate market impact was relatively muted. More impactful was news of a Malaysia Airlines passenger jet being shot down over Ukraine later in the month, raising the stakes in the conflict between Kiev and pro-Moscow rebels in which Russia and the West backed opposing sides. The Ukraine conflict continued to escalate throughout July and August, but was halted by a tense cease-fire in September. As a result, the third quarter of 2014 was challenging for global fixed income markets, particularly credit sectors. Safe-haven U.S. and core European government bonds posted modestly positive returns.
On the other hand, the U.S. economy continued to show strength, with employment gains, consumer confidence and second quarter GDP growth coming in largely ahead of expectations. However, weak economic data out of core Europe and China scared credit markets, tempering the outlook for growth globally. Moves by the European Central Bank to loosen monetary policy, including its own form of asset purchasing program, put further downward pressure on government bond yields, most notably in Europe, but with sympathy downward moves in North America and Asia-Pacific. Volatility spiked in October amid weak data releases out of Europe (namely Germany) and China, sending yields and risk assets plummeting globally, only to nearly revert to prior levels days later. Growing fears over the spread of Ebola from Africa also contributed to investors being more on edge as the first cases were reported in the U.S. and Europe.
By year-end, global government bond yields remained lower for the year, while credit spreads, which had contracted during the first half of the period, ended flat overall. A key indicator of global fixed income performance, the Barclays Global Aggregate Index, returned 7.6% for the year, in USD hedged terms, buoyed by lower government bond yields and broadly flat credit spreads.
Over the year, European bonds outperformed those of other regions (returning 11.1% as measured by the Barclays European Aggregate Index) on the back of strong sovereign bond returns, most notably among lower-rated “peripheral” countries such as Ireland, Spain, Italy and Slovenia as both “core” (e.g., German) yields and spreads between peripheral and core countries fell materially. U.S. bonds posted solid gains (returning 6.0% as measured by the Barclays U.S. Aggregate Index) as U.S. Treasury yields ended the year modestly lower and credit spreads held. Asia-Pacific bonds also posted solid gains (returning 6.3% as measured by the Barclays Asian Pacific Aggregate Index) despite a slowing Chinese growth outlook weighing on the region, likely at least partially offset by the Bank of Japan’s commitment to and later ramp-up of its aggressive monetary policy support.
Strong new issuance volumes characterized most credit sectors, particularly in the U.S., over the year, in both corporate and securitized markets. Sectors generally performed in-line with spreads, with corporate credit outperforming securitized credit across regions (returning 3.1% vs. 3.3% on a global basis, respectively, as measured by Barclays Global Aggregate Index - Corporates and Barclays Global Aggregate Index - Securitized). Overall, lower-quality investment grade corporates outperformed higher-quality investment grade corporates, and utilities and industrials outperformed financials. U.S. agency mortgage-backed securities (“MBS”) performed well (returning 6.1% as measured by Barclays U.S. Aggregate Index – Agency MBS) despite concerns of reduced demand from tapering Fed purchases.
Market Summary 11
Russell Investment Funds
Market Summary as of December 31, 2014, continued — (Unaudited)
Similar to 2013, non-Agency MBS outperformed most other sectors, aided by favorable supply and demand forces and solid housing fundamentals. High yield corporate credit marginally underperformed investment grade corporate credit on an equivalent-duration basis, largely as a result of commodity price weakness late in the year disproportionately impacting high yield issuers. The lowest-quality segments of the sector underperformed significantly. Emerging market (“EM”) debt slightly lagged developed fixed income markets on mounting growth concerns and commodity price weakness, despite a bounce-back from weakness earlier in the year. Local currency bonds (those denominated in the currency of the issuing EM country) significantly underperformed hard currency bonds (those issued by EM issuers but denominated in “hard currencies” such as the U.S. dollar or Euro), largely as a result of EM currency weakness amid global and market-specific growth, commodity price declines and geopolitical concerns.
12 Market Summary
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Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
14 Moderate Strategy Fund
Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Moderate Strategy Fund (the “Fund”) is a fund of funds | Index). Non-U.S. markets performed negatively, with developed | ||||
| that invests in other Russell Investment Funds (“RIF”) and | markets down 4.01% (as measured by the Russell Developed ex- | ||||
| Russell Investment Company (“RIC”) mutual funds (the | U.S. Large Cap Index) and emerging markets down 1.73% (as | ||||
| “Underlying Funds”). The Underlying Funds employ a multi- | measured by the Russell Emerging Markets Index). The Fund’s | ||||
| manager approach whereby portions of the Underlying Funds | exposure to non-U.S. equities was a large driver of the Fund’s | ||||
| are allocated to different money managers. Underlying Fund | negative benchmark-relative returns against its Barclays U.S. | ||||
| assets not allocated to money managers are managed by Russell | Aggregate Bond Index, which gained 5.97% for the year. U.S. | ||||
| Investment Management Company (“RIMCo”), the Fund’s and | equity markets benefited from continued economic expansion, | ||||
| Underlying Funds’ advisor. RIMCo, as the Underlying Funds’ | strong consumption and positive real gross domestic product | ||||
| advisor, may change the allocation of the Underlying Funds’ | (“GDP”) growth (an inflation adjusted GDP measure). In non- | ||||
| assets among money managers at any time. An exemptive order | U.S. markets, Europe struggled with high unemployment and | ||||
| from the Securities and Exchange Commission (“SEC”) permits | uncertainty surrounding an anticipated quantitative easing | ||||
| RIMCo to engage or terminate a money manager in an Underlying | program, while Japan was negatively impacted by stagnant growth | ||||
| Fund at any time, subject to approval by the Underlying Fund’s | and deflationary pressures. Emerging markets were hurt by weak | ||||
| Board, without a shareholder vote. Pursuant to the terms of the | production and manufacturing figures, and falling real estate and | ||||
| exemptive order, an Underlying Fund is required to notify its | commodity prices. The U.S. dollar strengthened versus many | ||||
| shareholders within 90 days of when a money manager begins | major global currencies over the year, which further eroded non- | ||||
| providing services. | U.S. equity returns for U.S.-based investors. | ||||
| What is the Fund’s investment objective? | Certain alternative asset classes had strong performance over the | ||||
| Through July 31, 2014, the Fund sought to provide high current | year, as global real estate securities posted a 15.02% gain (as | ||||
| income and moderate long term capital appreciation. | measured by the FTSE EPRA/NAREIT Developed Real Estate | ||||
| Index (Net)) and global infrastructure finished the year up 12.12% | |||||
| Effective August 1, 2014, the Fund seeks to provide current | (as measured by the S&P Global Infrastructure Index (Net)). | ||||
| income and moderate long term capital appreciation. | Global real estate and global infrastructure outperformed both | ||||
| How did the Fund perform relative to its benchmark for the | global equities and fixed income, as these interest rate sensitive | ||||
| fiscal year ended December 31, 2014? | asset classes were in high demand as bond yields continued to fall. | ||||
| For the fiscal year ended December 31, 2014, the Fund gained | The outperformance of global infrastructure and global real estate | ||||
| 4.85%. This is compared to the Fund’s primary benchmark, the | relative to bonds benefited the Fund due to its out-of-benchmark | ||||
| Barclays U.S. Aggregate Bond Index, which gained 5.97% during | exposure to these two asset classes. Commodity markets, however, | ||||
| the same period. The Fund’s performance includes operating | didn’t fare as well, with the Dow Jones UBS Commodity Index | ||||
| expenses, whereas index returns are unmanaged and do not | closing the year down 17.01%, driven by excess global supply, | ||||
| include expenses of any kind. | particularly in the energy sector. The broad underperformance | ||||
| of commodities to bonds detracted from the Fund’s benchmark- | |||||
| For the fiscal year ended December 31, 2014, the Morningstar® | |||||
| relative performance. Alternative strategies also contributed | |||||
| Insurance Conservative Allocation, a group of funds that | negatively, with the RIC Russell Multi-Strategy Alternative Fund | ||||
| Morningstar considers to have investment strategies similar to | finishing below the Fund’s fixed income benchmark for the year. | ||||
| those of the Fund, gained 4.52%. This result serves as a peer | |||||
| comparison and is expressed net of operating expenses. | Fixed income markets ended the year in positive territory, largely | ||||
| impacted by low and declining interest rates. Interest rates | |||||
| The Fund’s underperformance relative to the Barclays U.S. | remained low ahead of anticipated quantitative easing tapering | ||||
| Aggregate Bond Index was primarily due to the Fund’s out-of- | by the Federal Reserve in the first half of 2015. Exposure to fixed | ||||
| benchmark allocation to Underlying Funds invested in non-U.S. | income Underlying Funds had a mixed impact on benchmark | ||||
| equities and commodities, which underperformed fixed income | relative returns. | ||||
| Underlying Funds over the period. | |||||
| How did the investment strategies and techniques employed | |||||
| How did the market conditions described in the Market | by the Fund and the Underlying Funds affect the Fund’s | ||||
| Summary report affect the Fund’s performance? | performance? | ||||
| Global equity markets generated modestly positive returns over | The Fund is a fund of funds and its performance is based on | ||||
| the fiscal year ended December 31, 2014, led by the U.S. where | RIMCo’s strategic asset allocations and the performance of the | ||||
| markets gained 12.56% (as measured by the Russell 3000® | |||||
| Underlying Funds in which the Fund invests. | |||||
| Moderate Strategy Fund 15 | |||||
Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Fund’s strategic allocation to fixed income Underlying Funds | Describe any changes to the Fund’s structure or allocation |
| had a positive impact on the Fund’s absolute performance, while | to the Underlying Funds. |
| contribution from active management had a mixed impact on | RIMCo has the discretion to vary the Fund’s actual allocation |
| benchmark-relative returns. Modest underperformance of the RIF | from the target strategic asset allocation by up to +/- 5% at |
| Core Bond Fund was driven by yield curve positioning during | the equity, fixed income or alternative category level based on |
| the first three quarters of the year, only to be partially offset as | RIMCo’s capital markets research. Performance of the Fund’s |
| positioning reversed later in the year. For the RIC Investment | short-term asset allocation modifications ended the fiscal year |
| Grade Bond Fund, a long position to the U.S. Dollar which rallied | modestly positive. This was driven by beneficial tilts away from |
| and value add from yield curve positioning drove outperformance | target strategic allocations. |
| versus the benchmark in 2014. For the RIC Russell Global | |
| Opportunistic Credit Fund, out-of-benchmark emerging market | Entering the fiscal year, the Fund was underweight the RIC |
| currency exposure (via an allocation to local currency debt) was | Russell Commodity Strategies Fund and RIF Global Real Estate |
| the key driver of underperformance during the year as the U.S. | Securities Fund by 0.75% each, underweight the RIF Aggressive |
| dollar broadly rallied against global currencies. | Equity Fund by 1.00%, overweight the RIC Russell Emerging |
| Markets Fund by 1.00%, and overweight the RIC Russell Global | |
| The Fund’s strategic allocation to U.S. equity Underlying Funds | Infrastructure Fund and RIF Multi-Style Equity Fund by 0.75% |
| benefited the Fund’s benchmark-relative performance, as broad | each, relative to the target strategic asset allocation weights. |
| U.S. equities outperformed core fixed income for the period. | Within alternatives, this positioning was driven by a cautious |
| Underlying active management detracted, as each of the U.S. | medium term outlook on commodities and a desire to mitigate |
| equity Underlying Funds underperformed its respective U.S. | the real estate exposure’s contribution to interest rate sensitivity |
| equity market segment as represented by its primary benchmark. | for the total portfolio. Within equities, the positioning was driven |
| Overweights to stocks with low valuation metrics and high | by recognition of stretched valuations in U.S. small cap and |
| financial quality detracted from the RIF Multi-Style Equity and | attractive valuations in emerging markets. |
| RIF Aggressive Equity Funds’ returns, as did underweights to | |
| electric utilities and real estate investment trusts (REITs). | On January 13, 2014, the Fund implemented a new target strategic |
| asset allocation that incorporated a higher exposure to equities | |
| The Fund’s strategic exposure to non-U.S. and global Underlying | and alternatives based on RIMCo’s capital markets research. |
| Funds contributed negatively to the Fund’s benchmark-relative | |
| performance, as non-U.S. and global equities underperformed | In connection with this reallocation, the Fund also shifted its |
| bonds for the year. Underlying active management detracted | tactical allocations relative to the new strategic asset allocation |
| from performance, with the RIC Russell Global Equity Fund, | weights as follows: |
| RIF Non-U.S. Fund and RIC Russell Emerging Markets Fund | - 0.75% overweight to the RIC Russell U.S. Defensive Equity |
| all underperforming their respective benchmarks. For the RIF | Fund and 0.75% underweight to the RIC Russell Commodity |
| Non-U.S. Fund, ineffective stock selection in the U.K. and | Strategies Fund due to limited commodity price appreciation |
| being underweight Asia ex-Japan and Canada detracted from | expectations over the medium term. |
| performance. For the RIC Russell Emerging Markets Fund, | - 0.75% overweight to the RIC Russell U.S. Defensive Equity |
| ineffective stock selection in China offset gains from strong stock | Fund and 0.75% underweight to the RIF Global Real Estate |
| selection in India, Taiwan, South Korea and Thailand. | Securities Fund due to caution over the interest rate sensitivity of |
| The Fund’s strategic allocation to alternative Underlying Funds | REITs in an environment of potential rising rates. This resulted |
| had mixed effects on benchmark-relative performance. Global | in a total of 1.50% overweight to the RIC Russell U.S. Defensive |
| infrastructure and global real estate outperformed fixed income, | Equity Fund. |
| while commodities and alternative strategies underperformed. | - 2.00% overweight to the RIF Non-U.S. Fund and 2.00% |
| Underlying active management was negative. For the RIF Global | underweight to the RIF Aggressive Equity Fund due to concerns |
| Real Estate Securities Fund, a bias toward higher quality and | of stretched valuations within U.S. small cap equities. |
| larger capitalization securities paid off within the retail, office | |
| and residential sectors, while exposure to Japanese developers | - 0.75% overweight to the RIC Russell Global Equity Fund |
| was a modest detractor. For the RIC Russell Global Infrastructure | and 0.75% underweight to the RIC Russell Emerging Markets |
| Fund, an underweight to European integrated utilities contributed | Fund due to concerns of strong negative momentum exhibited in |
| positively to performance while an underweight to North American | emerging markets. |
| energy pipelines detracted. | |
| 16 Moderate Strategy Fund | |
Russell Investment Funds
Moderate Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| - At the end of May 2014, half of the 2.00% underweight to the | overweight to the RIC Russell U.S. Defensive Equity Fund in |
| RIF Aggressive Equity Fund was removed in order to capture | order to maintain the existing overweight to the RIF Non-U.S. |
| partial gains from the position. | Fund. |
| On June 11, 2014, the Fund took an additional 0.25% underweight | At the end of the fiscal year, the Fund maintained a broad |
| to the RIF Global Real Estate Securities Fund given the recent | overweight to equity Underlying Funds relative to alternative |
| strong performance of the REITs asset class but continued | Underlying Funds. By the end of the fiscal year, the aggregate |
| concern over interest rate sensitivity. The Fund also took a 0.25% | positioning was modestly positive to performance. |
| underweight to the RIC Russell Global Infrastructure Fund, | |
| recognizing strong recent performance and stretched valuations. | The views expressed in this report reflect those of the portfolio |
| Both positions were offset by equal overweights to the RIC Russell | managers only through the end of the period covered by |
| U.S. Dynamic Equity Fund. | the report. These views do not necessarily represent the |
| views of RIMCo, or any other person in RIMCo or any other | |
| On July 9, 2014, the Fund removed its underweight to the RIC | affiliated organization. These views are subject to change |
| Russell Emerging Markets Fund relative to the RIC Russell | at any time based upon market conditions or other events, |
| Global Equity Fund, as recent positive momentum suggested | and RIMCo disclaims any responsibility to update the views |
| further strength in emerging markets relative to broad global | contained herein. These views should not be relied on as |
| equities. This position was closed at a loss. | investment advice and, because investment decisions for |
| On July 22, 2014, the Fund closed its underweight to the RIF | a RIF Fund are based on numerous factors, should not be |
| Aggressive Equity Fund primarily driven by the Underlying | relied on as an indication of investment decisions of any |
| Fund meeting performance expectations. The RIF Aggressive | RIF Fund. |
| Equity Fund was funded back to target weight by reducing the |
| * | Assumes initial investment 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. |
| *** | The 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 17
Russell Investment Funds Moderate Strategy Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 1,000.00 | $ | 1,024.70 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 0.50 | $ | 0.51 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.10% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 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. | |||||||
18 Moderate Strategy Fund
Russell Investment Funds Moderate Strategy Fund
Schedule of Investments — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Fair | Fair | ||||||||||
| Value | Value | ||||||||||
| Shares | $ | Shares | $ | ||||||||
| Investments 100.0% | RIF Multi-Style Equity Fund | 320,028 | 5,796 | ||||||||
| Russell Investment Company | 18,602 | ||||||||||
| ("RIC") and other Russell | Fixed Income - 55.0% | ||||||||||
| Investment Funds ("RIF") Series | RIC Russell Global Opportunistic Credit | ||||||||||
| Mutual Funds | Fund Class Y | 482,779 | 4,557 | ||||||||
| RIC Russell Investment Grade Bond Fund | |||||||||||
| Alternative - 11.9% | Class Y | 934,444 | 20,754 | ||||||||
| RIC Russell Commodity Strategies Fund | RIF Core Bond Fund | 3,562,005 | 37,971 | ||||||||
| Class Y | 351,523 | 2,408 | 63,282 | ||||||||
| RIC Russell Global Infrastructure Fund | International Equities - 16.9% | ||||||||||
| Class Y | 460,043 | 5,479 | RIC Russell Emerging Markets Fund | ||||||||
| RIC Russell Multi-Strategy Alternative | Class Y | 267,188 | 4,539 | ||||||||
| Fund Class Y | 352,059 | 3,447 | RIC Russell Global Equity Fund Class Y | 616,983 | 6,923 | ||||||
| RIF Global Real Estate Securities Fund | 147,620 | 2,307 | RIF Non-U.S. Fund | 690,431 | 7,968 | ||||||
| 13,641 | 19,430 | ||||||||||
| Domestic Equities - 16.2% | |||||||||||
| RIC Russell U.S. Defensive Equity Fund | Total Investments 100.0% | ||||||||||
| Class Y | 111,175 | 5,201 | (identified cost $104,431) | 114,955 | |||||||
| RIC Russell U.S. Dynamic Equity Fund | Other Assets and Liabilities, Net | ||||||||||
| Class Y | 260,162 | 2,906 | - | (0.0%) | (37) | ||||||
| RIF Aggressive Equity Fund | 302,961 | 4,699 | |||||||||
| Net Assets - 100.0% | 114,918 | ||||||||||
| Presentation of Portfolio Holdings | |||||||||||
| Categories | % of Net Assets | ||||||||||
| Alternative | 11.9 | ||||||||||
| Domestic Equities | 16.2 | ||||||||||
| Fixed Income | 55.0 | ||||||||||
| International Equities | 16.9 | ||||||||||
| 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.
Moderate Strategy Fund 19
| Russell Investment Funds | |||
| Moderate Strategy Fund | |||
| Statement of Assets and Liabilities — December 31, 2014 | |||
| Amounts in thousands | |||
| Assets | |||
| Investments, at identified cost | $ | 104,431 | |
| Investments, at fair value | 114,955 | ||
| Receivables: | |||
| Fund shares sold | 47 | ||
| From affiliates | 2 | ||
| Total assets | 115,004 | ||
| Liabilities | |||
| Payables: | |||
| Investments purchased | 48 | ||
| Accrued fees to affiliates | 5 | ||
| Other accrued expenses | 33 | ||
| Total liabilities | 86 | ||
| Net Assets | $ | 114,918 | |
| Net Assets Consist of: | |||
| Undistributed (overdistributed) net investment income | $ | 73 | |
| Accumulated net realized gain (loss) | (1,274 | ) | |
| Unrealized appreciation (depreciation) on investments | 10,524 | ||
| Shares of beneficial interest | 110 | ||
| Additional paid-in capital | 105,485 | ||
| Net Assets | $ | 114,918 | |
| Net Asset Value, offering and redemption price per share: | |||
| Net asset value per share: (#) | $ | 10.45 | |
| Net assets | $ | 114,918,265 | |
| Shares outstanding ($.01 par value) | 10,996,538 | ||
| (#) 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.
20 Moderate Strategy Fund
| Russell Investment Funds | |||
| Moderate Strategy Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Income distributions from Underlying Funds | $ | 3,306 | |
| Expenses | |||
| Advisory fees | 221 | ||
| Administrative fees | 50 | ||
| Custodian fees | 22 | ||
| Transfer agent fees | 5 | ||
| Professional fees | 31 | ||
| Trustees’ fees | 3 | ||
| Printing fees | 30 | ||
| Proxy fees | 12 | ||
| Miscellaneous | 7 | ||
| Expenses before reductions | 381 | ||
| Expense reductions | (271 | ) | |
| Net expenses | 110 | ||
| Net investment income (loss) | 3,196 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 535 | ||
| Capital gain distributions from Underlying Funds | 2,204 | ||
| Net realized gain (loss) | 2,739 | ||
| Net change in unrealized appreciation (depreciation) on investments | (706 | ) | |
| Net realized and unrealized gain (loss) | 2,033 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 5,229 | |
See accompanying notes which are an integral part of the financial statements.
Moderate Strategy Fund 21
| Russell Investment Funds | ||||||||||||||
| Moderate Strategy Fund | ||||||||||||||
| Statements of Changes in Net Assets | ||||||||||||||
| For the Periods Ended December 31, | ||||||||||||||
| Amounts in thousands | 2014 | 2013 | ||||||||||||
| Increase (Decrease) in Net Assets | ||||||||||||||
| Operations | ||||||||||||||
| Net investment income (loss) | $ | 3,196 | $ | 1,691 | ||||||||||
| Net realized gain (loss) | 2,739 | 2,209 | ||||||||||||
| Net change in unrealized appreciation (depreciation) | (706 | ) | 2,584 | |||||||||||
| Net increase (decrease) in net assets from operations | 5,229 | 6,484 | ||||||||||||
| Distributions | ||||||||||||||
| From net investment income | (3,195 | ) | (1,705 | ) | ||||||||||
| From net realized gain | (1,659 | ) | (1,854 | ) | ||||||||||
| Net decrease in net assets from distributions | (4,854 | ) | (3,559 | ) | ||||||||||
| Share Transactions* | ||||||||||||||
| Net increase (decrease) in net assets from share transactions | 11,450 | 5,947 | ||||||||||||
| Total Net Increase (Decrease) in Net Assets | 11,825 | 8,872 | ||||||||||||
| Net Assets | ||||||||||||||
| Beginning of period | 103,093 | 94,221 | ||||||||||||
| End of period | $ | 114,918 | $ | 103,093 | ||||||||||
| Undistributed (overdistributed) net investment income included in net assets | $ | 73 | $ | 73 | ||||||||||
| * Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows: | ||||||||||||||
| 2014 | 2013 | |||||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||||
| Proceeds from shares sold | 1,660 | $ | 17,496 | 1,656 | $ | 17,055 | ||||||||
| Proceeds from reinvestment of distributions | 463 | 4,854 | 346 | 3,559 | ||||||||||
| Payments for shares redeemed | (1,032) | (10,900) | (1,428 | ) | (14,667 | ) | ||||||||
| Total increase (decrease) | 1,091 | $ | 11,450 | 574 | $ | 5,947 | ||||||||
See accompanying notes which are an integral part of the financial statements.
22 Moderate Strategy Fund
(This page intentionally left blank)
| Russell Investment Funds | ||||||||||||||||||
| Moderate Strategy Fund | ||||||||||||||||||
| Financial Highlights — For the Periods Ended | ||||||||||||||||||
| For a Share Outstanding Throughout Each Period. | ||||||||||||||||||
| $ | ||||||||||||||||||
| $ | Net | $ | $ | $ | $ | |||||||||||||
| Net Asset Value, | Investment | Net Realized | Total from | Distributions | Distributions | $ | ||||||||||||
| Beginning of | Income (Loss) | and Unrealized | Investment | from Net | from Net | Return of | ||||||||||||
| Period | (a)(b)(d) | Gain (Loss) | Operations | Investment Income | Realized Gain | Capital | ||||||||||||
| December 31, 2014 | 10.41 | .31 | .19 | .50 | (.30 | ) | (.16 | ) | — | |||||||||
| December 31, 2013 | 10.10 | .18 | .50 | .68 | (.18 | ) | (.19 | ) | — | |||||||||
| 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 | ) | |||||||||
See accompanying notes which are an integral part of the financial statements.
24 Moderate Strategy Fund
| % | % | % | ||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | ||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | ||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | |||||||||
| Total Distributions | Period | Return(e) | (000 | ) | Gross(c) | Net(c)(d) | Net Assets(b)(d) | Turnover Rate | ||||||||
| (.46 | ) | 10.45 | 4.85 | 114,918 | .35 | .10 | 2.89 | 18 | ||||||||
| (.37 | ) | 10.41 | 6.79 | 103,093 | .35 | .10 | 1.69 | 18 | ||||||||
| (.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 | ||||||||
See accompanying notes which are an integral part of the financial statements.
Moderate Strategy Fund 25
Russell Investment Funds Balanced Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
26 Balanced Strategy Fund
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Balanced Strategy Fund (the “Fund”) is a fund of funds | markets gained 12.56% (as measured by the Russell 3000® | |
| that invests in other Russell Investment Funds (“RIF”) and | Index). Non-U.S. markets performed negatively, with developed | |
| Russell Investment Company (“RIC”) mutual funds (the | markets down 4.01% (as measured by the Russell Developed ex- | |
| “Underlying Funds”). The Underlying Funds employ a multi- | U.S. Large Cap Index) and emerging markets down 1.73% (as | |
| manager approach whereby portions of the Underlying Funds | measured by the Russell Emerging Markets Index). The Fund’s | |
| are allocated to different money managers. Underlying Fund | exposure to non-U.S. equities was a large driver of the Fund’s | |
| assets not allocated to money managers are managed by Russell | negative benchmark-relative returns against its Barclays U.S. | |
| Investment Management Company (“RIMCo”), the Fund’s and | Aggregate Bond Index, which gained 5.97% for the year. U.S. | |
| Underlying Funds’ advisor. RIMCo, as the Underlying Funds’ | equity markets benefited from continued economic expansion, | |
| advisor, may change the allocation of the Underlying Funds’ | strong consumption and positive real gross domestic product | |
| assets among money managers at any time. An exemptive order | (“GDP”) growth (an inflation adjusted GDP measure). In non- | |
| from the Securities and Exchange Commission (“SEC”) permits | U.S. markets, Europe struggled with high unemployment and | |
| RIMCo to engage or terminate a money manager in an Underlying | uncertainty surrounding an anticipated quantitative easing | |
| Fund at any time, subject to approval by the Underlying Fund’s | program, while Japan was negatively impacted by stagnant growth | |
| Board, without a shareholder vote. Pursuant to the terms of the | and deflationary pressures. Emerging markets were hurt by weak | |
| exemptive order, an Underlying Fund is required to notify its | production and manufacturing figures, and falling real estate and | |
| shareholders within 90 days of when a money manager begins | commodity prices. The U.S. dollar strengthened versus many | |
| providing services. | major global currencies over the year, which further eroded non- | |
| What is the Fund’s investment objective? | U.S. equity returns for U.S.-based investors. | |
| Through July 31, 2014, the Fund sought to provide above average | Certain alternative asset classes had strong performance over the | |
| capital appreciation and a moderate level of current income. | year, as global real estate securities posted a 15.02% gain (as | |
| measured by the FTSE EPRA/NAREIT Developed Real Estate | ||
| Effective August 1, 2014, the Fund seeks to provide above | Index (Net)) and global infrastructure finished the year up 12.12% | |
| average long term capital appreciation and a moderate level of | (as measured by the S&P Global Infrastructure Index (Net)). | |
| current income. | Global real estate and global infrastructure outperformed both | |
| How did the Fund perform relative to its benchmark for the | global equities and fixed income, as these interest rate sensitive | |
| fiscal year ended December 31, 2014? | asset classes were in high demand as bond yields continued to fall. | |
| For the fiscal year ended December 31, 2014, the Fund gained | The outperformance of global infrastructure and global real estate | |
| 4.61%. This is compared to the Fund’s primary benchmark, the | relative to bonds benefited the Fund due to its out-of-benchmark | |
| Barclays U.S. Aggregate Bond Index, which gained 5.97% during | exposure to these two asset classes. Commodity markets, however, | |
| the same period. | The Fund’s performance includes operating | didn’t fare as well, with the Dow Jones UBS Commodity Index |
| expenses, whereas | index returns are unmanaged and do not | closing the year down 17.01%, driven by excess global supply, |
| include expenses of any kind. | particularly in the energy sector. The broad underperformance | |
| of commodities to bonds detracted from the Fund’s benchmark- | ||
| For the fiscal year ended December 31, 2014, the Morningstar® | ||
| relative performance. Alternative strategies also contributed | ||
| Insurance Moderate Allocation, a group of funds that Morningstar | negatively, with the RIC Russell Multi-Strategy Alternative Fund | |
| considers to have investment strategies similar to those of the | finishing below the Fund’s fixed income benchmark for the year. | |
| Fund, gained 6.39%. This result serves as a peer comparison and | ||
| is expressed net of operating expenses. | Fixed income markets ended the year in positive territory, largely | |
| impacted by low and declining interest rates. Interest rates | ||
| The Fund’s underperformance relative to the Barclays U.S. | remained low ahead of anticipated quantitative easing tapering | |
| Aggregate Bond Index was primarily due to the Fund’s out-of- | by the Federal Reserve in the first half of 2015. . However, | |
| benchmark allocation to Underlying Funds invested in non-U.S. | exposure to fixed income Underlying Funds detracted from the | |
| equities and commodities, which underperformed fixed income | Fund’s benchmark-relative performance, as each fixed income | |
| Underlying Funds over the period. | Underlying Fund underperformed its respective fixed income | |
| How did the market conditions described in the Market | benchmark. | |
| Summary report affect the Fund’s performance? | How did the investment strategies and techniques employed | |
| Global equity markets generated modestly positive returns over | by the Fund and the Underlying Funds affect the Fund’s | |
| the fiscal year ended December 31, 2014, led by the U.S. where | performance? | |
| Balanced Strategy Fund 27 | ||
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Fund is a fund of funds and its performance is based on | Describe any changes to the Fund’s structure or allocation |
| RIMCo’s strategic asset allocations and the performance of the | to the Underlying Funds. |
| Underlying Funds in which the Fund invests. | RIMCo has the discretion to vary the Fund’s actual allocation |
| The Fund’s strategic allocation to U.S. equity Underlying Funds | from the target strategic asset allocation by up to +/- 5% at |
| benefited the Fund’s benchmark-relative performance, as broad | the equity, fixed income or alternative category level based on |
| U.S. equities outperformed core fixed income for the period. | RIMCo’s capital markets research. Performance of the Fund’s |
| Underlying active management detracted, as each of the U.S. | short-term asset allocation modifications ended the fiscal year |
| equity Underlying Funds underperformed its respective U.S. | modestly positive. This was driven by beneficial tilts away from |
| equity market segment as represented by its primary benchmark. | target strategic allocations. |
| Overweights to stocks with low valuation metrics and high | Entering the fiscal year, the Fund was underweight the RIC |
| financial quality detracted from the RIF Multi-Style Equity and | Russell Commodity Strategies Fund, RIF Global Real Estate |
| RIF Aggressive Equity Funds’ returns, as did underweights to | Securities Fund and RIF Aggressive Equity Fund by 1.00% |
| electric utilities and real estate investment trusts (REITs). | each, and overweight the RIC Russell Emerging Markets Fund, |
| The Fund’s strategic exposure to non-U.S. and global Underlying | RIC Russell Global Infrastructure Fund and RIF Multi-Style |
| Funds contributed negatively to the Fund’s benchmark-relative | Equity Fund by 1.00% each, relative to the target strategic |
| performance, as non-U.S. and global equities underperformed | asset allocation weights. Within alternatives, this positioning |
| bonds for the year. Underlying active management detracted | was driven by a cautious medium term outlook on commodities |
| from performance, with the RIC Russell Global Equity Fund, | and a desire to mitigate the real estate exposure’s contribution |
| RIF Non-U.S. Fund and RIC Russell Emerging Markets Fund | to interest rate sensitivity for the total portfolio. Within equities, |
| all underperforming their respective benchmarks. For the RIF | the positioning was driven by recognition of stretched valuations |
| Non-U.S. Fund, ineffective stock selection in the U.K. and | in U.S. small cap and attractive valuations in emerging markets. |
| being underweight Asia ex-Japan and Canada detracted from | On January 13, 2014, the Fund implemented a new target strategic |
| performance. For the RIC Russell Emerging Markets Fund, | asset allocation that incorporated a higher exposure to equities |
| ineffective stock selection in China offset gains from strong stock | and alternatives based on RIMCo’s capital markets research. |
| selection in India, Taiwan, South Korea and Thailand. | In connection with this reallocation, the Fund also shifted its |
| The Fund’s strategic allocation to fixed income Underlying Funds | tactical allocations relative to the new strategic asset allocation |
| had a positive impact on the Fund’s absolute performance, although | weights as follows: |
| each Underlying Fund underperformed its respective benchmark, | |
| detracting from the Fund’s benchmark-relative returns. Modest | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| underperformance of the RIF Core Bond Fund was driven by | Fund and 1.00% underweight to the RIC Russell Commodity |
| yield curve positioning during the first three quarters of the year, | Strategies Fund due to limited commodity price appreciation |
| only to be partially offset as positioning reversed later in the year. | expectations over the medium term. |
| For the RIC Russell Global Opportunistic Credit Fund, out-of- | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| benchmark emerging market currency exposure (via an allocation | Fund and 1.00% underweight to the RIF Global Real Estate |
| to local currency debt) was the key driver of underperformance | Securities Fund due to caution over the interest rate sensitivity of |
| during the year as the U.S. dollar broadly rallied against global | REITs in an environment of potential rising rates. This resulted |
| currencies. | in a total of 2.00% overweight to the RIC Russell U.S. Defensive |
| The Fund’s strategic allocation to alternative Underlying Funds | Equity Fund. |
| had mixed effects on benchmark-relative performance. Global | - 2.50% overweight to the RIF Non-U.S. Fund and 2.50% |
| infrastructure and global real estate outperformed fixed income, | underweight to the RIF Aggressive Equity Fund due to concerns |
| while commodities and alternative strategies underperformed. | of stretched valuations within U.S. small cap equities. |
| Underlying active management was negative. For the RIF Global | - 1.00% overweight to the RIC Russell Global Equity Fund |
| Real Estate Securities Fund, a bias toward higher quality and | and 1.00% underweight to the RIC Russell Emerging Markets |
| larger capitalization securities paid off within the retail, office | Fund due to concerns of strong negative momentum exhibited in |
| and residential sectors, while exposure to Japanese developers | emerging markets. |
| was a modest detractor. For the RIC Russell Global Infrastructure | |
| Fund, an underweight to European integrated utilities contributed | - At the end of May 2014, half of the 2.50% underweight to the |
| positively to performance while an underweight to North American | RIF Aggressive Equity Fund was removed in order to capture |
| energy pipelines detracted. | partial gains from the position. |
| 28 Balanced Strategy Fund | |
Russell Investment Funds
Balanced Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| On June 11, 2014, the Fund took an additional 0.50% underweight | order to maintain the existing overweight to the RIF Non-U.S. |
| to the RIF Global Real Estate Securities Fund given the recent | Fund. |
| strong performance of the REITs asset class but continued | At the end of the fiscal year, the Fund maintained a broad |
| concern over interest rate sensitivity. The Fund also took a 0.50% | overweight to equity Underlying Funds relative to alternative |
| underweight to the RIC Russell Global Infrastructure Fund, | Underlying Funds. By the end of the fiscal year, the aggregate |
| recognizing strong recent performance and stretched valuations. | positioning was modestly positive to performance. |
| Both positions were offset by equal overweights to the RIC Russell | |
| U.S. Dynamic Equity Fund. | The views expressed in this report reflect those of the portfolio |
| On July 9, 2014, the Fund removed its underweight to the RIC | managers only through the end of the period covered by |
| Russell Emerging Markets Fund relative to the RIC Russell | the report. These views do not necessarily represent the |
| Global Equity Fund, as recent positive momentum suggested | views of RIMCo, or any other person in RIMCo or any other |
| further strength in emerging markets relative to broad global | affiliated organization. These views are subject to change |
| equities. This position was closed at a loss. | at any time based upon market conditions or other events, |
| and RIMCo disclaims any responsibility to update the views | |
| On July 22, 2014, the Fund closed its underweight to the RIF | contained herein. These views should not be relied on as |
| Aggressive Equity Fund primarily driven by the Underlying | investment advice and, because investment decisions for |
| Fund meeting performance expectations. The RIF Aggressive | a RIF Fund are based on numerous factors, should not be |
| Equity Fund was funded back to target weight by reducing the | relied on as an indication of investment decisions of any |
| overweight to the RIC Russell U.S. Defensive Equity Fund in | RIF Fund. |
| * | Assumes initial investment 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. |
| *** | The 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 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 29
Russell Investment Funds Balanced Strategy Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 994.40 | $ | 1,024.70 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 0.50 | $ | 0.51 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.10% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 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. | |||||||
30 Balanced Strategy Fund
Russell Investment Funds Balanced Strategy Fund
Schedule of Investments — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Fair | Fair | ||||||||||
| Value | Value | ||||||||||
| Shares | $ | Shares | $ | ||||||||
| Investments 100.0% | RIF Aggressive Equity Fund | 1,463,755 | 22,703 | ||||||||
| Russell Investment Company | RIF Multi-Style Equity Fund | 1,417,359 | 25,668 | ||||||||
| ("RIC") and other Russell | 92,508 | ||||||||||
| Investment Funds ("RIF") Series | Fixed Income - 32.1% | ||||||||||
| Mutual Funds | RIC Russell Global Opportunistic Credit | ||||||||||
| Fund Class Y | 1,306,122 | 12,330 | |||||||||
| Alternative - 10.8% | RIF Core Bond Fund | 8,295,534 | 88,430 | ||||||||
| RIC Russell Commodity Strategies Fund | 100,760 | ||||||||||
| Class Y | 820,485 | 5,620 | International Equities - 27.7% | ||||||||
| RIC Russell Global Infrastructure Fund | RIC Russell Emerging Markets Fund | ||||||||||
| Class Y | 1,185,474 | 14,119 | Class Y | 1,225,174 | 20,816 | ||||||
| RIC Russell Multi-Strategy Alternative | RIC Russell Global Equity Fund Class Y | 2,830,943 | 31,763 | ||||||||
| Fund Class Y | 962,779 | 9,426 | RIF Non-U.S. Fund | 2,981,198 | 34,403 | ||||||
| RIF Global Real Estate Securities Fund | 305,968 | 4,782 | 86,982 | ||||||||
| 33,947 | |||||||||||
| Domestic Equities - 29.4% | Total Investments 100.0% | ||||||||||
| RIC Russell U.S. Defensive Equity Fund | (identified cost $273,020) | 314,197 | |||||||||
| Class Y | 462,413 | 21,632 | Other Assets and Liabilities, Net | ||||||||
| RIC Russell U.S. Dynamic Equity Fund | - | (0.0%) | (70) | ||||||||
| Class Y | 2,014,765 | 22,505 | |||||||||
| Net Assets - 100.0% | 314,127 | ||||||||||
| Presentation of Portfolio Holdings | |||||||||||
| Categories | % of Net Assets | ||||||||||
| Alternative | 10.8 | ||||||||||
| Domestic Equities | 29.4 | ||||||||||
| Fixed Income | 32.1 | ||||||||||
| International Equities | 27.7 | ||||||||||
| 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.
Balanced Strategy Fund 31
| Russell Investment Funds | ||
| Balanced Strategy Fund | ||
| Statement of Assets and Liabilities — December 31, 2014 | ||
| Amounts in thousands | ||
| Assets | ||
| Investments, at identified cost | $ | 273,020 |
| Investments, at fair value | 314,197 | |
| Receivables: | ||
| Investments sold | 184 | |
| Fund shares sold | 2 | |
| From affiliates | 1 | |
| Total assets | 314,384 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 186 | |
| Accrued fees to affiliates | 14 | |
| Other accrued expenses | 57 | |
| Total liabilities | 257 | |
| Net Assets | $ | 314,127 |
| Net Assets Consist of: | ||
| Accumulated net realized gain (loss) | $ | 218 |
| Unrealized appreciation (depreciation) on investments | 41,177 | |
| Shares of beneficial interest | 302 | |
| Additional paid-in capital | 272,430 | |
| Net Assets | $ | 314,127 |
| Net Asset Value, offering and redemption price per share: | ||
| Net asset value per share: (#) | $ | 10.40 |
| Net assets | $ | 314,126,995 |
| Shares outstanding ($.01 par value) | 30,199,216 | |
| (#) 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.
32 Balanced Strategy Fund
| Russell Investment Funds | |||
| Balanced Strategy Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Income distributions from Underlying Funds | $ | 9,387 | |
| Expenses | |||
| Advisory fees | 624 | ||
| Administrative fees | 142 | ||
| Custodian fees | 21 | ||
| Transfer agent fees | 14 | ||
| Professional fees | 40 | ||
| Trustees’ fees | 7 | ||
| Printing fees | 77 | ||
| Miscellaneous | 47 | ||
| Expenses before reductions | 972 | ||
| Expense reductions | (660 | ) | |
| Net expenses | 312 | ||
| Net investment income (loss) | 9,075 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 1,462 | ||
| Capital gain distributions from Underlying Funds | 9,064 | ||
| Net realized gain (loss) | 10,526 | ||
| Net change in unrealized appreciation (depreciation) on investments | (5,508 | ) | |
| Net realized and unrealized gain (loss) | 5,018 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 14,093 | |
See accompanying notes which are an integral part of the financial statements.
Balanced Strategy Fund 33
| Russell Investment Funds | ||||||
| Balanced Strategy Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 9,075 | $ | 5,858 | ||
| Net realized gain (loss) | 10,526 | 6,370 | ||||
| Net change in unrealized appreciation (depreciation) | (5,508 | ) | 20,452 | |||
| Net increase (decrease) in net assets from operations | 14,093 | 32,680 | ||||
| Distributions | ||||||
| From net investment income | (9,123 | ) | (6,020 | ) | ||
| From net realized gain | (6,011 | ) | (2,128 | ) | ||
| Net decrease in net assets from distributions | (15,134 | ) | (8,148 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 11,065 | 26,491 | ||||
| Total Net Increase (Decrease) in Net Assets | 10,024 | 51,023 | ||||
| Net Assets | ||||||
| Beginning of period | 304,103 | 253,080 | ||||
| End of period | $ | 314,127 | $ | 304,103 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | — | $ | (1 | ) | |
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 2,021 | $ | 21,298 | 3,613 | $ | 36,153 | ||||||
| Proceeds from reinvestment of distributions | 1,448 | 15,134 | 798 | 8,148 | ||||||||
| Payments for shares redeemed | (2,406 | ) | (25,367 | ) | (1,778 | ) | (17,810 | ) | ||||
| Total increase (decrease) | 1,063 | $ | 11,065 | 2,633 | $ | 26,491 | ||||||
See accompanying notes which are an integral part of the financial statements.
34 Balanced Strategy Fund
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| Russell Investment Funds | |||||||||||||||||||
| Balanced Strategy Fund | |||||||||||||||||||
| Financial Highlights — For the Periods Ended | |||||||||||||||||||
| For a Share Outstanding Throughout Each Period. | |||||||||||||||||||
| $ | |||||||||||||||||||
| $ | Net | $ | $ | $ | $ | ||||||||||||||
| Net Asset Value, | Investment | Net Realized | Total from | Distributions | Distributions | $ | |||||||||||||
| Beginning of | Income | and Unrealized | Investment | from Net | from Net | Return of | |||||||||||||
| Period | (Loss)(a)(b)(d) | Gain (Loss) | Operations | Investment Income | Realized Gain | Capital | |||||||||||||
| December 31, 2014 | 10.44 | .31 | .17 | .48 | (.31 | ) | (.21 | ) | — | ||||||||||
| December 31, 2013 | 9.55 | .21 | .96 | 1.17 | (.21 | ) | (.07 | ) | — | ||||||||||
| 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 | ) | ||||||||||
See accompanying notes which are an integral part of the financial statements.
36 Balanced Strategy Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(e) | (000 | ) | Gross(c) | Net(c)(d) | Net Assets(b)(d) | Turnover Rate | |||||||||
| (.52 | ) | 10.40 | 4.61 | 314,127 | .31 | .10 | 2.91 | 22 | |||||||||
| (.28 | ) | 10.44 | 12.43 | 304,103 | .31 | .10 | 2.09 | 11 | |||||||||
| (.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 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Balanced Strategy Fund 37
Russell Investment Funds Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
38 Growth Strategy Fund
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Growth Strategy Fund (the “Fund”) is a fund of funds that | where markets gained 12.56% (as measured by the Russell | ||
| invests in other Russell Investment Funds (“RIF”) and Russell | 3000® Index). Non-U.S. markets performed negatively, with | ||
| Investment Company (“RIC”) mutual funds (the “Underlying | developed markets down 4.01% (as measured by the Russell | ||
| Funds”). The Underlying Funds employ a multi-manager | Developed ex-U.S. Large Cap® Index) and emerging markets | ||
| approach whereby portions of the Underlying Funds are allocated | down 1.73% (as measured by the Russell Emerging Markets | ||
| to different money managers. Underlying Fund assets not | Index). The Fund’s exposure to non-U.S. equities was the major | ||
| allocated to money managers are managed by Russell Investment | driver of the Fund’s negative benchmark-relative return against | ||
| Management Company (“RIMCo”), the Fund’s and Underlying | its Russell 1000® Index, which gained 13.24% for the year. U.S. | ||
| Funds’ advisor. RIMCo, as the Underlying Funds’ advisor, may | equity markets benefited from continued economic expansion, | ||
| change the allocation of the Underlying Funds’ assets among | strong consumption and positive real gross domestic product | ||
| money managers at any time. An exemptive order from the | (“GDP”) growth (an inflation adjusted GDP measure). In non- | ||
| Securities and Exchange Commission (“SEC”) permits RIMCo to | U.S. markets, Europe struggled with high unemployment and | ||
| engage or terminate a money manager in an Underlying Fund at | uncertainty surrounding an anticipated quantitative easing | ||
| any time, subject to approval by the Underlying Fund’s Board, | program, while Japan was negatively impacted by stagnant growth | ||
| without a shareholder vote. Pursuant to the terms of the exemptive | and deflationary pressures. Emerging markets were hurt by weak | ||
| order, an Underlying Fund is required to notify its shareholders | production and manufacturing figures, and falling real estate and | ||
| within 90 days of when a money manager begins providing | commodity prices. The U.S. dollar strengthened versus many | ||
| services. | major global currencies over the year, which further eroded non- | ||
| What is the Fund’s investment objective? | U.S. equity returns for U.S.-based investors. | ||
| Through July 31, 2014, the Fund sought to provide high long term | Certain alternative asset classes had strong performance over the | ||
| capital appreciation with low current income. | year, as global real estate securities posted a 15.02% gain (as | ||
| measured by the FTSE EPRA/NAREIT Developed Real Estate | |||
| Effective August 1, 2014, the Fund seeks to provide high long | Index (Net)) and global infrastructure finished the year up 12.12% | ||
| term capital appreciation, and as a secondary objective, current | (as measured by the S&P Global Infrastructure Index (Net)). | ||
| income. | Global real estate and global infrastructure outperformed both | ||
| How did the Fund perform relative to its benchmark for the | global equities and fixed income, as these interest rate sensitive | ||
| fiscal year ended December 31, 2014? | asset classes were in high demand as bond yields continued to | ||
| For the fiscal year ended December 31, 2014, the Fund gained | fall. The outperformance of global real estate relative to U.S. | ||
| 3.76%. This is compared to the Fund’s primary benchmark, the | equities benefited the Fund, while the slight underperformance | ||
| Russell 1000® Index, which gained 13.24% during the same | of global infrastructure to U.S. equities marginally detracted | ||
| period. The Fund’s performance includes operating expenses, | from overall Fund performance. Commodity markets didn’t fare | ||
| whereas index returns are unmanaged and do not include | as well, with the Dow Jones UBS Commodity Index closing the | ||
| expenses of any kind. | year down 17.01%, driven by excess global supply, particularly | ||
| in the energy sector. The broad underperformance of commodities | |||
| For the fiscal year ended December 31, 2014, the Morningstar® | |||
| to U.S. equities detracted from the Fund’s benchmark-relative | |||
| Insurance Aggressive Allocation, a group of funds that Morningstar | performance. Alternative strategies also contributed negatively, | ||
| considers to have investment strategies similar to those of the | with the RIC Russell Multi-Strategy Alternative Fund finishing | ||
| Fund, gained 5.15%. This result serves as a peer comparison and | below the Fund’s U.S. equity benchmark for the year. | ||
| is expressed net of operating expenses. | |||
| Fixed income markets ended the year in positive territory, | |||
| The Fund’s underperformance relative to the Russell 1000® Index | |||
| largely impacted by low and declining interest rates. Interest | |||
| was primarily due to the Fund’s out-of-benchmark allocations to | rates remained low ahead of anticipated quantitative easing | ||
| Underlying Funds invested in non-U.S. equities, commodities | tapering by the Federal Reserve in the first half of 2015. Overall, | ||
| and fixed income, which generally underperformed the U.S. large | exposure to fixed income Underlying Funds detracted from | ||
| cap equity market as represented by the Russell 1000® Index. | |||
| the Fund’s benchmark-relative performance, as fixed income | |||
| How did the market conditions described in the Market | underperformed U.S. equities. | ||
| Summary report affect the Fund’s performance? | How did the investment strategies and techniques employed | ||
| Global equity markets generated modestly positive returns | by the Fund and the Underlying Funds affect the Fund’s | ||
| over the fiscal year ended December 31, 2014, led by the U.S. | performance? | ||
Growth Strategy Fund 39
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Fund is a fund of funds and its performance is based on | underperformance during the year as the U.S. dollar broadly |
| RIMCo’s strategic asset allocations and the performance of the | rallied against global currencies. |
| Underlying Funds in which the Fund invests. | |
| Describe any changes to the Fund’s structure or allocation | |
| While the Fund’s strategic allocation to U.S. equity Underlying | to the Underlying Funds. |
| Funds was beneficial to the Fund’s absolute performance for | RIMCo has the discretion to vary the Fund’s actual allocation |
| the fiscal year, underlying active management effects detracted | from the target strategic asset allocation by up to +/- 5% at |
| from the Fund’s benchmark-relative returns as each of the U.S. | the equity, fixed income or alternative category level based on |
| equity Underlying Funds underperformed its respective U.S. | RIMCo’s capital markets research. Performance of the Fund’s |
| equity market segment as represented by its primary benchmark. | short-term asset allocation modifications ended the fiscal year |
| Overweights to stocks with low valuation metrics and high | modestly positive. This was driven by beneficial tilts away from |
| financial quality detracted from the RIF Multi-Style Equity and | target strategic allocations. |
| RIF Aggressive Equity Funds’ returns, as did underweights to | |
| electric utilities and real estate investment trusts (REITs). | Entering the fiscal year, the Fund was underweight the RIC |
| Russell Commodity Strategies Fund, RIF Global Real Estate | |
| Strategic exposure to non-U.S. and global Underlying Funds | Securities Fund and RIF Aggressive Equity Fund by 1.25% |
| contributed negatively to the Fund’s benchmark-relative | each, and overweight the RIC Russell Emerging Markets Fund, |
| performance, as non-U.S. and global equities underperformed U.S. | RIC Russell Global Infrastructure Fund and RIF Multi-Style |
| equities for the year. Underlying active management detracted | Equity Fund by 1.25% each, relative to the target strategic |
| from performance as well, with the RIC Russell Global Equity | asset allocation weights. Within alternatives, this positioning |
| Fund, the RIF Non-U.S. Fund and the RIC Russell Emerging | was driven by a cautious medium term outlook on commodities |
| Markets Fund all underperforming their respective benchmarks. | and a desire to mitigate the real estate exposure’s contribution |
| For the RIF Non-U.S. Fund, ineffective stock selection in the | to interest rate sensitivity for the total portfolio. Within equities, |
| U.K. and being underweight Asia ex-Japan and Canada detracted | the positioning was driven by recognition of stretched valuations |
| from performance. For the RIC Russell Emerging Markets Fund, | in U.S. small cap and attractive valuations in emerging markets. |
| ineffective stock selection in China offset gains from strong stock | |
| selection in India, Taiwan, South Korea and Thailand. | On January 13, 2014, the Fund implemented a new target strategic |
| asset allocation that incorporated a higher exposure to equities | |
| The Fund’s strategic allocation to alternative Underlying Funds | and alternatives based on RIMCo’s capital markets research. |
| had mixed effects on benchmark-relative performance. Global | |
| real estate outperformed U.S. equities, while global infrastructure, | In connection with this reallocation, the Fund also shifted its |
| commodities and alternative strategies underperformed. | tactical allocations relative to the new strategic asset allocation |
| Underlying active management was negative. For the RIF Global | weights as follows: |
| Real Estate Securities Fund, a bias toward higher quality and | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| larger capitalization securities paid off within the retail, office | Fund and 1.00% underweight to the RIC Russell Commodity |
| and residential sectors, while exposure to Japanese developers | Strategies Fund due to limited commodity price appreciation |
| was a modest detractor. For the RIC Russell Global Infrastructure | expectations over the medium term. |
| Fund, an underweight to European integrated utilities contributed | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| positively to performance while an underweight to North American | Fund and 1.00% underweight to the RIF Global Real Estate |
| energy pipelines detracted. | Securities Fund due to caution over the interest rate sensitivity of |
| The Fund’s strategic allocation to fixed income Underlying Funds | REITs in an environment of potential rising rates. This resulted |
| had a negative impact on benchmark-relative performance, as fixed | in a total of 2.00% overweight to the RIC Russell U.S. Defensive |
| income underperformed U.S. equities for the year. Underlying | Equity Fund. |
| active management also detracted from performance, as each | - 2.50% overweight to the RIF Non-U.S. Fund and 2.50% |
| Underlying Fund underperformed its respective benchmark. | underweight to the RIF Aggressive Equity Fund due to concerns |
| Modest underperformance of the RIF Core Bond Fund was driven | of stretched valuations within U.S. small cap equities. |
| by yield curve positioning during the first three quarters of the | |
| year, only to be partially offset as positioning reversed later | - 1.50% overweight to the RIC Russell Global Equity Fund |
| in the year. For the RIC Russell Global Opportunistic Credit | and 1.00% underweight to the RIC Russell Emerging Markets |
| Fund, out-of-benchmark emerging market currency exposure | Fund due to concerns of strong negative momentum exhibited in |
| (via an allocation to local currency debt) was the key driver of | emerging markets. |
40 Growth Strategy Fund
Russell Investment Funds
Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| - At the end of May 2014, half of the 2.50% underweight to the | overweight to the RIC Russell U.S. Defensive Equity Fund in |
| RIF Aggressive Equity Fund was removed in order to capture | order to maintain the existing overweight to the RIF Non-U.S. |
| partial gains from the position. | Fund. |
| On June 11, 2014, the Fund took an additional 0.50% underweight | At the end of the fiscal year, the Fund maintained a broad |
| to the RIF Global Real Estate Securities Fund given the recent | overweight to equity Underlying Funds relative to alternative |
| strong performance of the REITs asset class but continued | Underlying Funds. By the end of the fiscal year, the aggregate |
| concern over interest rate sensitivity. The Fund also took a 0.50% | positioning was modestly positive to performance. |
| underweight to the RIC Russell Global Infrastructure Fund, | |
| recognizing strong recent performance and stretched valuations. | The views expressed in this report reflect those of the portfolio |
| Both positions were offset by equal overweights to the RIC Russell | managers only through the end of the period covered by |
| U.S. Dynamic Equity Fund. | the report. These views do not necessarily represent the |
| views of RIMCo, or any other person in RIMCo or any other | |
| On July 9, 2014, the Fund removed its underweight to the RIC | affiliated organization. These views are subject to change |
| Russell Emerging Markets Fund relative to the RIC Russell | at any time based upon market conditions or other events, |
| Global Equity Fund, as recent positive momentum suggested | and RIMCo disclaims any responsibility to update the views |
| further strength in emerging markets relative to broad global | contained herein. These views should not be relied on as |
| equities. This position was closed at a loss. | investment advice and, because investment decisions for |
| On July 22, 2014, the Fund closed its underweight to the RIF | a RIF Fund are based on numerous factors, should not be |
| Aggressive Equity Fund primarily driven by the Underlying | relied on as an indication of investment decisions of any |
| Fund meeting performance expectations. The RIF Aggressive | RIF Fund. |
| Equity Fund was funded back to target weight by reducing the |
| * | Assumes initial investment on April 30, 2007. |
| ** | The 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. |
| **** | The 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 41
Russell Investment Funds Growth Strategy Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 983.50 | $ | 1,024.70 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 0.50 | $ | 0.51 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.10% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 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. | |||||||
42 Growth Strategy Fund
Russell Investment Funds Growth Strategy Fund
Schedule of Investments — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Fair | Fair | ||||||||||
| Value | Value | ||||||||||
| Shares | $ | Shares | $ | ||||||||
| Investments 100.0% | RIF Aggressive Equity Fund | 1,259,267 | 19,531 | ||||||||
| Russell Investment Company | RIF Multi-Style Equity Fund | 1,066,479 | 19,314 | ||||||||
| ("RIC") and other Russell | 71,598 | ||||||||||
| Investment Funds ("RIF") Series | Fixed Income - 15.9% | ||||||||||
| Mutual Funds | RIC Russell Global Opportunistic Credit | ||||||||||
| Fund Class Y | 1,292,258 | 12,199 | |||||||||
| Alternative - 15.1% | RIF Core Bond Fund | 1,958,481 | 20,877 | ||||||||
| RIC Russell Commodity Strategies Fund | 33,076 | ||||||||||
| Class Y | 1,018,723 | 6,979 | International Equities - 34.6% | ||||||||
| RIC Russell Global Infrastructure Fund | RIC Russell Emerging Markets Fund | ||||||||||
| Class Y | 961,307 | 11,449 | Class Y | 1,046,719 | 17,784 | ||||||
| RIC Russell Multi-Strategy Alternative | RIC Russell Global Equity Fund Class Y | 2,454,074 | 27,535 | ||||||||
| Fund Class Y | 850,678 | 8,328 | RIF Non-U.S. Fund | 2,325,328 | 26,834 | ||||||
| RIF Global Real Estate Securities Fund | 306,284 | 4,787 | 72,153 | ||||||||
| 31,543 | |||||||||||
| Domestic Equities - 34.4% | Total Investments 100.0% | ||||||||||
| RIC Russell U.S. Defensive Equity Fund | (identified cost $182,235) | 208,370 | |||||||||
| Class Y | 332,530 | 15,556 | Other Assets and Liabilities, Net | ||||||||
| RIC Russell U.S. Dynamic Equity Fund | - | (0.0%) | (49 | ) | |||||||
| Class Y | 1,539,593 | 17,197 | |||||||||
| Net Assets - 100.0% | 208,321 | ||||||||||
| Presentation of Portfolio Holdings | |||||||||||
| Categories | % of Net Assets | ||||||||||
| Alternative | 15.1 | ||||||||||
| Domestic Equities | 34.4 | ||||||||||
| Fixed Income | 15.9 | ||||||||||
| International Equities | 34.6 | ||||||||||
| 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.
Growth Strategy Fund 43
| Russell Investment Funds | ||
| Growth Strategy Fund | ||
| Statement of Assets and Liabilities — December 31, 2014 | ||
| Amounts in thousands | ||
| Assets | ||
| Investments, at identified cost | $ | 182,235 |
| Investments, at fair value | 208,370 | |
| Receivables: | ||
| Investments sold | 25 | |
| Fund shares sold | 6 | |
| From affiliates | 1 | |
| Total assets | 208,402 | |
| Liabilities | ||
| Payables: | ||
| Fund shares redeemed | 31 | |
| Accrued fees to affiliates | 9 | |
| Other accrued expenses | 41 | |
| Total liabilities | 81 | |
| Net Assets | $ | 208,321 |
| Net Assets Consist of: | ||
| Accumulated net realized gain (loss) | $ | 935 |
| Unrealized appreciation (depreciation) on investments | 26,135 | |
| Shares of beneficial interest | 207 | |
| Additional paid-in capital | 181,044 | |
| Net Assets | $ | 208,321 |
| Net Asset Value, offering and redemption price per share: | ||
| Net asset value per share: (#) | $ | 10.07 |
| Net assets | $ | 208,321,352 |
| Shares outstanding ($.01 par value) | 20,681,882 | |
| (#) 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.
44 Growth Strategy Fund
| Russell Investment Funds | |||
| Growth Strategy Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Income distributions from Underlying Funds | $ | 6,187 | |
| Expenses | |||
| Advisory fees | 404 | ||
| Administrative fees | 92 | ||
| Custodian fees | 21 | ||
| Transfer agent fees . | 9 | ||
| Professional fees | 35 | ||
| Trustees’ fees | 5 | ||
| Printing fees | 49 | ||
| Miscellaneous | 32 | ||
| Expenses before reductions | 647 | ||
| Expense reductions | (445 | ) | |
| Net expenses | 202 | ||
| Net investment income (loss) | 5,985 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 1,497 | ||
| Capital gain distributions from Underlying Funds | 7,005 | ||
| Net realized gain (loss) | 8,502 | ||
| Net change in unrealized appreciation (depreciation) on investments | (7,129 | ) | |
| Net realized and unrealized gain (loss) | 1,373 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 7,358 | |
See accompanying notes which are an integral part of the financial statements.
Growth Strategy Fund 45
| Russell Investment Funds | ||||||
| Growth Strategy Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 5,985 | $ | 3,846 | ||
| Net realized gain (loss) | 8,502 | 4,062 | ||||
| Net change in unrealized appreciation (depreciation) | (7,129 | ) | 17,906 | |||
| Net increase (decrease) in net assets from operations | 7,358 | 25,814 | ||||
| Distributions | ||||||
| From net investment income | (6,081 | ) | (3,852 | ) | ||
| From net realized gain | (4,551 | ) | — | |||
| Net decrease in net assets from distributions | (10,632 | ) | (3,852 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 21,639 | 22,839 | ||||
| Total Net Increase (Decrease) in Net Assets | 18,365 | 44,801 | ||||
| Net Assets | ||||||
| Beginning of period | 189,956 | 145,155 | ||||
| End of period | $ | 208,321 | $ | 189,956 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | — | $ | 64 | ||
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 1,972 | $ | 20,275 | 2,991 | $ | 28,562 | ||||||
| Proceeds from reinvestment of distributions | 1,045 | 10,632 | 391 | 3,852 | ||||||||
| Payments for shares redeemed | (906 | ) | (9,268 | ) | (994 | ) | (9,575 | ) | ||||
| Total increase (decrease) | 2,111 | $ | 21,639 | 2,388 | $ | 22,839 | ||||||
See accompanying notes which are an integral part of the financial statements.
46 Growth Strategy Fund
(This page intentionally left blank)
| Russell Investment Funds | |||||||||||||||||||
| Growth Strategy Fund | |||||||||||||||||||
| Financial Highlights — For the Periods Ended | |||||||||||||||||||
| For a Share Outstanding Throughout Each Period. | |||||||||||||||||||
| $ | |||||||||||||||||||
| $ | Net | $ | $ | $ | $ | ||||||||||||||
| Net Asset Value, | Investment | Net Realized | Total from | Distributions | Distributions | $ | |||||||||||||
| Beginning of | Income (Loss)(a) | and Unrealized | Investment | from Net | from Net | Return of | |||||||||||||
| Period | (b)(d) | Gain (Loss) | Operations | Investment Income | Realized Gain | Capital | |||||||||||||
| December 31, 2014 | 10.23 | .31 | .07 | .38 | (.30 | ) | (.24 | ) | — | ||||||||||
| December 31, 2013 | 8.97 | .22 | 1.26 | 1.48 | (.22 | ) | — | — | |||||||||||
| 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 | ) | ||||||||||
See accompanying notes which are an integral part of the financial statements.
48 Growth Strategy Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(e) | (000 | ) | Gross(c) | Net(c)(d) | Net Assets(b)(d) | Turnover Rate | |||||||||
| (.54 | ) | 10.07 | 3.76 | 208,321 | .32 | .10 | 2.97 | 20 | |||||||||
| (.22 | ) | 10.23 | 16.56 | 189,956 | .32 | .10 | 2.29 | 12 | |||||||||
| (.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 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Growth Strategy Fund 49
Russell Investment Funds Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis — December 31, 2014 (Unaudited)
50 Equity Growth Strategy Fund
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| The Equity Growth Strategy Fund (the “Fund”) is a fund of | Developed ex-U.S. Large Cap® Index) and emerging markets | |
| funds that invests in other Russell Investment Funds (“RIF”) | down 1.73% (as measured by the Russell Emerging Markets | |
| and Russell Investment Company (“RIC”) mutual funds (the | Index). The Fund’s exposure to non-U.S. equities was the major | |
| “Underlying Funds”). The Underlying Funds employ a multi- | driver of the Fund’s negative benchmark-relative return against | |
| manager approach whereby portions of the Underlying Funds | its Russell 1000® Index, which gained 13.24% for the year. U.S. | |
| are allocated to different money managers. Underlying Fund | equity markets benefited from continued economic expansion, | |
| assets not allocated to money managers are managed by Russell | strong consumption and positive real gross domestic product | |
| Investment Management Company (“RIMCo”), the Fund’s and | (“GDP”) growth (an inflation adjusted GDP measure). In non- | |
| Underlying Funds’ advisor. RIMCo, as the Underlying Funds’ | U.S. markets, Europe struggled with high unemployment and | |
| advisor, may change the allocation of the Underlying Funds’ | uncertainty surrounding an anticipated quantitative easing | |
| assets among money managers at any time. An exemptive order | program, while Japan was negatively impacted by stagnant growth | |
| from the Securities and Exchange Commission (“SEC”) permits | and deflationary pressures. Emerging markets were hurt by weak | |
| RIMCo to engage or terminate a money manager in an Underlying | production and manufacturing figures, and falling real estate and | |
| Fund at any time, subject to approval by the Underlying Fund’s | commodity prices. The U.S. dollar strengthened versus many | |
| Board, without a shareholder vote. Pursuant to the terms of the | major global currencies over the year, which further eroded non- | |
| exemptive order, an Underlying Fund is required to notify its | U.S. equity returns for U.S.-based investors. | |
| shareholders within 90 days of when a money manager begins | Certain alternative asset classes had strong performance over the | |
| providing services. | year, as global real estate securities posted a 15.02% gain (as | |
| What is the Fund’s investment objective? | measured by the FTSE EPRA/NAREIT Developed Real Estate | |
| The Fund seeks to provide high long term capital appreciation. | Index (Net)) and global infrastructure finished the year up 12.12% | |
| (as measured by the S&P Global Infrastructure Index (Net)). | ||
| How did the Fund perform relative to its benchmark for the | Global real estate and global infrastructure outperformed both | |
| fiscal year ended December 31, 2014? | global equities and fixed income, as these interest rate sensitive | |
| For the fiscal year ended December 31, 2014, the Fund gained | asset classes were in high demand as bond yields continued to | |
| 3.48%. This is compared to the Fund’s primary benchmark, the | fall. The outperformance of global real estate relative to U.S. | |
| Russell 1000® Index, which gained 13.24% during the same | equities benefited the Fund, while the slight underperformance | |
| period. The Fund’s performance includes operating expenses, | of global infrastructure to U.S. equities marginally detracted | |
| whereas index returns are unmanaged and do not include | from overall Fund performance. Commodity markets didn’t fare | |
| expenses of any kind. | as well, with the Dow Jones UBS Commodity Index closing the | |
| year down 17.01%, driven by excess global supply, particularly | ||
| in the energy sector. The broad underperformance of commodities | ||
| For the fiscal year ended December 31, 2014, the Morningstar® | ||
| to U.S. equities detracted from the Fund’s benchmark-relative | ||
| Insurance World Stock Allocation, a group of funds that | performance. Alternative strategies also contributed negatively, | |
| Morningstar considers to have investment strategies similar to | with the RIC Russell Multi-Strategy Alternative Fund finishing | |
| those of the Fund, gained 3.11%. This result serves as a peer | below the Fund’s U.S. equity benchmark for the year. | |
| comparison and is expressed net of operating expenses. | ||
| Fixed income markets ended the year in positive territory, | ||
| The Fund’s underperformance relative to the Russell 1000® Index | ||
| largely impacted by low and declining interest rates. Interest | ||
| was primarily due to the Fund’s out-of-benchmark allocations to | rates remained low ahead of anticipated quantitative easing | |
| Underlying Funds invested in non-U.S. equities, commodities | tapering by the Federal Reserve in the first half of 2015. Overall, | |
| and fixed income, which generally underperformed the U.S. large | exposure to fixed income Underlying Funds detracted from | |
| cap equity market as represented by the Russell 1000® Index. | ||
| the Fund’s benchmark-relative performance, as fixed income | ||
| How did the market conditions described in the Market | underperformed U.S. equities. | |
| Summary report affect the Fund’s performance? | How did the investment strategies and techniques employed | |
| Global equity markets generated modestly positive returns | by the Fund and the Underlying Funds affect the Fund’s | |
| over the fiscal year ended December 31, 2014, led by the U.S. | performance? | |
| where markets gained 12.56% (as measured by the Russell | The Fund is a fund of funds and its performance is based on | |
| 3000® Index) . Non-U.S. markets performed negatively, with | ||
| RIMCo’s strategic asset allocations and the performance of the | ||
| developed markets down 4.01% (as measured by the Russell | Underlying Funds in which the Fund invests. | |
| Equity Growth Strategy Fund 51 | ||
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| While the Fund’s strategic allocation to U.S. equity Underlying | the equity, fixed income or alternative category level based on |
| Funds was beneficial to the Fund’s absolute performance for | RIMCo’s capital markets research. Performance of the Fund’s |
| the fiscal year, underlying active management effects detracted | short-term asset allocation modifications ended the fiscal year |
| from the Fund’s benchmark-relative returns as each of the U.S. | modestly positive. This was driven by beneficial tilts away from |
| equity Underlying Funds underperformed its respective U.S. | target strategic allocations. |
| equity market segment as represented by its primary benchmark. | Entering the fiscal year, the Fund was underweight the RIC |
| Overweights to stocks with low valuation metrics and high | Russell Commodity Strategies Fund, RIF Global Real Estate |
| financial quality detracted from the RIF Multi-Style Equity and | Securities Fund and RIF Aggressive Equity Fund by 1.25% |
| RIF Aggressive Equity Funds’ returns, as did underweights to | each, and overweight the RIC Russell Emerging Markets Fund, |
| electric utilities and real estate investment trusts (REITs). | RIC Russell Global Infrastructure Fund and RIF Multi-Style |
| Strategic exposure to non-U.S. and global Underlying Funds | Equity Fund by 1.25% each, relative to the target strategic |
| contributed negatively to the Fund’s benchmark-relative | asset allocation weights. Within alternatives, this positioning |
| performance, as non-U.S. and global equities underperformed U.S. | was driven by a cautious medium term outlook on commodities |
| equities for the year. Underlying active management detracted | and a desire to mitigate the real estate exposure’s contribution |
| from performance as well, with the RIC Russell Global Equity | to interest rate sensitivity for the total portfolio. Within equities, |
| Fund, the RIF Non-U.S. Fund and the RIC Russell Emerging | the positioning was driven by recognition of stretched valuations |
| Markets Fund all underperforming their respective benchmarks. | in U.S. small cap and attractive valuations in emerging markets. |
| For the RIF Non-U.S. Fund, ineffective stock selection in the | |
| U.K. and being underweight Asia ex-Japan and Canada detracted | |
| from performance. For the RIC Russell Emerging Markets Fund, | On January 13, 2014, the Fund implemented a new target strategic |
| ineffective stock selection in China offset gains from strong stock | asset allocation that incorporated a higher exposure to equities |
| selection in India, Taiwan, South Korea and Thailand. | and alternatives based on RIMCo’s capital markets research. |
| The Fund’s strategic allocation to alternative Underlying Funds | In connection with this reallocation, the Fund also shifted its |
| had mixed effects on benchmark-relative performance. Global | tactical allocations relative to the new strategic asset allocation |
| real estate outperformed U.S. equities, while global infrastructure, | weights as follows: |
| commodities and alternative strategies underperformed. | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| Underlying active management was negative. For the RIF Global | Fund and 1.00% underweight to the RIC Russell Commodity |
| Real Estate Securities Fund, a bias toward higher quality and | Strategies Fund due to limited commodity price appreciation |
| larger capitalization securities paid off within the retail, office | expectations over the medium term. |
| and residential sectors, while exposure to Japanese developers | - 1.00% overweight to the RIC Russell U.S. Defensive Equity |
| was a modest detractor. For the RIC Russell Global Infrastructure | Fund and 1.00% underweight to the RIF Global Real Estate |
| Fund, an underweight to European integrated utilities contributed | Securities Fund due to caution over the interest rate sensitivity of |
| positively to performance while an underweight to North American | REITs in an environment of potential rising rates. This resulted |
| energy pipelines detracted. | in a total of 2.00% overweight to the RIC Russell U.S. Defensive |
| The Fund’s strategic allocation to fixed income Underlying Funds | Equity Fund. |
| had a negative impact on benchmark-relative performance, as fixed | - 2.50% overweight to the RIF Non-U.S. Fund and 2.50% |
| income underperformed U.S. equities for the year. Underlying | underweight to the RIF Aggressive Equity Fund due to concerns |
| active management also detracted from performance, as each | of stretched valuations within U.S. small cap equities. |
| Underlying Fund underperformed its respective benchmark. | |
| For the RIC Russell Global Opportunistic Credit Fund, out-of- | - 1.00% overweight to the RIC Russell Global Equity Fund |
| benchmark emerging market currency exposure (via an allocation | and 1.00% underweight to the RIC Russell Emerging Markets |
| to local currency debt) was the key driver of underperformance | Fund due to concerns of strong negative momentum exhibited in |
| during the year as the U.S. dollar broadly rallied against global | emerging markets. |
| currencies. | - At the end of May 2014, half of the 2.50% underweight to the |
| RIF Aggressive Equity Fund was removed in order to capture | |
| Describe any changes to the Fund’s structure or allocation | partial gains from the position. |
| to the Underlying Funds. | |
| RIMCo has the discretion to vary the Fund’s actual allocation | On June 11, 2014, the Fund took an additional 0.50% underweight |
| from the target strategic asset allocation by up to +/- 5% at | to the RIF Global Real Estate Securities Fund given the recent |
| strong performance of the REITs asset class but continued | |
| 52 Equity Growth Strategy Fund | |
Russell Investment Funds
Equity Growth Strategy Fund
Portfolio Management Discussion and Analysis, continued — December 31, 2014 (Unaudited)
| concern over interest rate sensitivity. The Fund also took a 0.50% | At the end of the fiscal year, the Fund maintained a broad |
| underweight to the RIC Russell Global Infrastructure Fund, | overweight to equity Underlying Funds relative to alternative |
| recognizing strong recent performance and stretched valuations. | Underlying Funds. By the end of the fiscal year, the aggregate |
| Both positions were offset by equal overweights to the RIC Russell | positioning was modestly positive to performance. |
| U.S. Dynamic Equity Fund. | |
| The views expressed in this report reflect those of the portfolio | |
| On July 9, 2014, the Fund removed its underweight to the RIC | managers only through the end of the period covered by |
| Russell Emerging Markets Fund relative to the RIC Russell | the report. These views do not necessarily represent the |
| Global Equity Fund, as recent positive momentum suggested | views of RIMCo, or any other person in RIMCo or any other |
| further strength in emerging markets relative to broad global | affiliated organization. These views are subject to change |
| equities. This position was closed at a loss. | at any time based upon market conditions or other events, |
| On July 22, 2014, the Fund closed its underweight to the RIF | and RIMCo disclaims any responsibility to update the views |
| Aggressive Equity Fund primarily driven by the Underlying | contained herein. These views should not be relied on as |
| Fund meeting performance expectations. The RIF Aggressive | investment advice and, because investment decisions for |
| Equity Fund was funded back to target weight by reducing the | a RIF Fund are based on numerous factors, should not be |
| overweight to the RIC Russell U.S. Defensive Equity Fund in | relied on as an indication of investment decisions of any |
| order to maintain the existing overweight to the RIF Non-U.S. | RIF Fund. |
| Fund. |
| * | Assumes initial investment on April 30, 2007. |
| ** | The 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 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 53
Russell Investment Funds Equity Growth Strategy Fund
Shareholder Expense Example — December 31, 2014 (Unaudited)
| Fund Expenses | Please note that the expenses shown in the table are meant | ||||||
| The following disclosure provides important information | to highlight your ongoing costs only and do not reflect any | ||||||
| regarding the Fund’s Shareholder Expense Example | transactional costs. Therefore, the information under the heading | ||||||
| (“Example”). | “Hypothetical Performance (5% return before expenses)” is | ||||||
| useful in comparing ongoing costs only, and will not help you | |||||||
| Example | determine the relative total costs of owning different funds. In | ||||||
| As a shareholder of the Fund, you incur two types of costs: (1) | addition, if these transactional costs were included, your costs | ||||||
| transaction costs, and (2) ongoing costs, including advisory and | would have been higher. The fees and expenses shown in this | ||||||
| administrative fees and other Fund expenses. The Example is | section do not reflect any Insurance Company Separate Account | ||||||
| intended to help you understand your ongoing costs (in dollars) | Policy Charges. | ||||||
| of investing in the Fund and to compare these costs with the | Hypothetical | ||||||
| ongoing costs of investing in other mutual funds. The Example | Performance (5% | ||||||
| is based on an investment of $1,000 invested at the beginning of | Actual | return before | |||||
| the period and held for the entire period indicated, which for this | Performance | expenses) | |||||
| Beginning Account Value | |||||||
| Fund is from July 1, 2014 to December 31, 2014. | July 1, 2014 | $ | 1,000.00 | $ | 1,000.00 | ||
| Ending Account Value | |||||||
| Actual Expenses | December 31, 2014 | $ | 981.90 | $ | 1,024.70 | ||
| The information in the table under the heading “Actual | Expenses Paid During Period* | $ | 0.50 | $ | 0.51 | ||
| Performance” provides information about actual account values | |||||||
| and actual expenses. You may use the information in this column, | * Expenses are equal to the Fund's annualized expense ratio of 0.10% | ||||||
| (representing the six month period annualized), multiplied by the average | |||||||
| together with the amount you invested, to estimate the expenses | account value over the period, multiplied by 184/365 (to reflect the one-half | ||||||
| that you paid over the period. Simply divide your account value by | year period). May reflect amounts waived and/or reimbursed. Without any | ||||||
| $1,000 (for example, an $8,600 account value divided by $1,000 | waivers and/or reimbursements, expenses would have been higher. | ||||||
| = 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. | |||||||
54 Equity Growth Strategy Fund
Russell Investment Funds Equity Growth Strategy Fund
Schedule of Investments — December 31, 2014
| Amounts in thousands (except share amounts) | Amounts in thousands (except share amounts) | ||||||||||
| Fair | Fair | ||||||||||
| Value | Value | ||||||||||
| Shares | $ | Shares | $ | ||||||||
| Investments 100.0% | RIF Aggressive Equity Fund | 352,226 | 5,463 | ||||||||
| Russell Investment Company | RIF Multi-Style Equity Fund | 295,567 | 5,353 | ||||||||
| ("RIC") and other Russell | 19,794 | ||||||||||
| Investment Funds ("RIF") Series | Fixed Income - 7.8% | ||||||||||
| Mutual Funds | RIC Russell Global Opportunistic Credit | ||||||||||
| Fund Class Y | 434,491 | 4,101 | |||||||||
| Alternative - 14.8% | 4,101 | ||||||||||
| RIC Russell Commodity Strategies Fund | International Equities - 39.6% | ||||||||||
| Class Y | 173,984 | 1,192 | RIC Russell Emerging Markets Fund | ||||||||
| RIC Russell Global Infrastructure Fund | Class Y | 296,415 | 5,036 | ||||||||
| Class Y | 241,423 | 2,875 | RIC Russell Global Equity Fund Class Y | 661,962 | 7,427 | ||||||
| RIC Russell Multi-Strategy Alternative | RIF Non-U.S. Fund | 721,464 | 8,326 | ||||||||
| Fund Class Y | 265,995 | 2,604 | 20,789 | ||||||||
| RIF Global Real Estate Securities Fund | 68,561 | 1,072 | |||||||||
| 7,743 | Total Investments 100.0% | ||||||||||
| Domestic Equities - 37.8% | (identified cost $43,563) | 52,427 | |||||||||
| RIC Russell U.S. Defensive Equity Fund | Other Assets and Liabilities, Net | ||||||||||
| Class Y | 77,045 | 3,604 | - | (0.0%) | (24 | ) | |||||
| RIC Russell U.S. Dynamic Equity Fund | |||||||||||
| Class Y | 481,087 | 5,374 | Net Assets - 100.0% | 52,403 | |||||||
| Presentation of Portfolio Holdings | |||||||||||
| Categories | % of Net Assets | ||||||||||
| Alternative | 14.8 | ||||||||||
| Domestic Equities | 37.8 | ||||||||||
| Fixed Income | 7.8 | ||||||||||
| International Equities | 39.6 | ||||||||||
| 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.
Equity Growth Strategy Fund 55
| Russell Investment Funds | |||
| Equity Growth Strategy Fund | |||
| Statement of Assets and Liabilities — December 31, 2014 | |||
| Amounts in thousands | |||
| Assets | |||
| Investments, at identified cost | $ | 43,563 | |
| Investments, at fair value | 52,427 | ||
| Receivables: | |||
| Fund shares sold | 58 | ||
| From affiliates | 2 | ||
| Total assets | 52,487 | ||
| Liabilities | |||
| Payables: | |||
| Investments purchased | 58 | ||
| Accrued fees to affiliates | 2 | ||
| Other accrued expenses | 24 | ||
| Total liabilities | 84 | ||
| Net Assets | $ | 52,403 | |
| Net Assets Consist of: | |||
| Accumulated net realized gain (loss) | $ | (1,967 | ) |
| Unrealized appreciation (depreciation) on investments | 8,864 | ||
| Shares of beneficial interest | 55 | ||
| Additional paid-in capital | 45,451 | ||
| Net Assets | $ | 52,403 | |
| Net Asset Value, offering and redemption price per share: | |||
| Net asset value per share: (#) | $ | 9.46 | |
| Net assets | $ | 52,403,229 | |
| Shares outstanding ($.01 par value) | 5,539,266 | ||
| (#) 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.
56 Equity Growth Strategy Fund
| Russell Investment Funds | |||
| Equity Growth Strategy Fund | |||
| Statement of Operations — For the Period Ended December 31, 2014 | |||
| Amounts in thousands | |||
| Investment Income | |||
| Income distributions from Underlying Funds | $ | 1,625 | |
| Expenses | |||
| Advisory fees | 104 | ||
| Administrative fees | 24 | ||
| Custodian fees | 20 | ||
| Transfer agent fees | 2 | ||
| Professional fees | 29 | ||
| Trustees’ fees | 1 | ||
| Printing fees | 16 | ||
| Proxy fees | 6 | ||
| Miscellaneous | 6 | ||
| Expenses before reductions | 208 | ||
| Expense reductions | (156 | ) | |
| Net expenses | 52 | ||
| Net investment income (loss) | 1,573 | ||
| Net Realized and Unrealized Gain (Loss) | |||
| Net realized gain (loss) on: | |||
| Investments | 1,005 | ||
| Capital gain distributions from Underlying Funds | 1,949 | ||
| Net realized gain (loss) | 2,954 | ||
| Net change in unrealized appreciation (depreciation) on investments | (2,765 | ) | |
| Net realized and unrealized gain (loss) | 189 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ | 1,762 | |
See accompanying notes which are an integral part of the financial statements.
Equity Growth Strategy Fund 57
| Russell Investment Funds | ||||||
| Equity Growth Strategy Fund | ||||||
| Statements of Changes in Net Assets | ||||||
| For the Periods Ended December 31, | ||||||
| Amounts in thousands | 2014 | 2013 | ||||
| Increase (Decrease) in Net Assets | ||||||
| Operations | ||||||
| Net investment income (loss) | $ | 1,573 | $ | 1,147 | ||
| Net realized gain (loss) | 2,954 | 1,477 | ||||
| Net change in unrealized appreciation (depreciation) | (2,765 | ) | 5,517 | |||
| Net increase (decrease) in net assets from operations | 1,762 | 8,141 | ||||
| Distributions | ||||||
| From net investment income | (1,699 | ) | (1,148 | ) | ||
| From net realized gain | (833 | ) | — | |||
| Net decrease in net assets from distributions | (2,532 | ) | (1,148 | ) | ||
| Share Transactions* | ||||||
| Net increase (decrease) in net assets from share transactions | 2,919 | 4,121 | ||||
| Total Net Increase (Decrease) in Net Assets | 2,149 | 11,114 | ||||
| Net Assets | ||||||
| Beginning of period | 50,254 | 39,140 | ||||
| End of period | $ | 52,403 | $ | 50,254 | ||
| Undistributed (overdistributed) net investment income included in net assets | $ | — | $ | 49 | ||
* Share transaction amounts (in thousands) for the periods ended December 31, 2014 and December 31, 2013 were as follows:
| 2014 | 2013 | |||||||||||
| Shares | Dollars | Shares | Dollars | |||||||||
| Proceeds from shares sold | 470 | $ | 4,549 | 894 | $ | 7,903 | ||||||
| Proceeds from reinvestment of distributions | 264 | 2,532 | 125 | 1,148 | ||||||||
| Payments for shares redeemed | (428 | ) | (4,162 | ) | (554 | ) | (4,930 | ) | ||||
| Total increase (decrease) | 306 | $ | 2,919 | 465 | $ | 4,121 | ||||||
See accompanying notes which are an integral part of the financial statements.
58 Equity Growth Strategy Fund
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| Russell Investment Funds | |||||||||||||||||||
| Equity Growth Strategy Fund | |||||||||||||||||||
| Financial Highlights — For the Periods Ended | |||||||||||||||||||
| For a Share Outstanding Throughout Each Period. | |||||||||||||||||||
| $ | |||||||||||||||||||
| $ | Net | $ | $ | $ | $ | ||||||||||||||
| Net Asset Value, | Investment | Net Realized | Total from | Distributions | Distributions | $ | |||||||||||||
| Beginning of | Income (Loss) | and Unrealized | Investment | from Net | from Net | Return of | |||||||||||||
| Period | (a)(b)(d) | Gain (Loss) | Operations | Investment Income | Realized Gain | Capital | |||||||||||||
| December 31, 2014 | 9.60 | .30 | .04 | .34 | (.32 | ) | (.16 | ) | — | ||||||||||
| December 31, 2013 | 8.21 | .23 | 1.39 | 1.62 | (.23 | ) | — | — | |||||||||||
| 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 | ) | ||||||||||
See accompanying notes which are an integral part of the financial statements.
60 Equity Growth Strategy Fund
| % | % | % | |||||||||||||||
| $ | $ | Ratio of Expenses | Ratio of Expenses | Ratio of Net | |||||||||||||
| Net Asset Value, | % | Net Assets, | to Average | to Average | Investment Income | % | |||||||||||
| $ | End of | Total | End of Period | Net Assets, | Net Assets, | to Average | Portfolio | ||||||||||
| Total Distributions | Period | Return(e) | (000 | ) | Gross(c) | Net(c)(d) | Net Assets(b)(d) | Turnover Rate | |||||||||
| (.48 | ) | 9.46 | 3.48 | 52,403 | .40 | .10 | 3.04 | 25 | |||||||||
| (.23 | ) | 9.60 | 19.81 | 50,254 | .41 | .10 | 2.55 | 17 | |||||||||
| (.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 | |||||||||
See accompanying notes which are an integral part of the financial statements.
Equity Growth Strategy Fund 61
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Highlights — December 31, 2014
| (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. |
62 Notes to Financial Highlights
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements — December 31, 2014
| 1. Organization | |||||||||
| Russell Investment Funds (the “Investment Company” or “RIF”) is a series investment company with 9 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, | |||||||||
| ("Investment Company Act" ), as an open-end management investment company. It is organized and operates 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” and diversifies its assets by investing, at present, in Shares of several other Russell | |||||||||
| Investment Company (“RIC”) Funds and other of the Investment Company’s Funds (together, the “Underlying Funds”). Each Fund | |||||||||
| seeks to achieve its specific investment objective by investing in different combinations of the Underlying Funds. Each Fund | |||||||||
| currently intends to invest only in the Underlying Funds. Each Fund intends its strategy of investing in combinations of equity, | |||||||||
| fixed income and alternative Underlying Funds to result in investment diversification that an investor could otherwise achieve | |||||||||
| only by holding numerous individual investments. Russell Investment Management Company (“RIMCo”), the Funds’ investment | |||||||||
| adviser, may modify the target asset allocation for any Fund, including changes to the Underlying Funds in which a Fund invests | |||||||||
| from time to time. RIMCo’s allocation decisions are generally based on capital markets research, including 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. 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 +/- 5% at the equity, fixed income or alternative category level based on RIMCo’s capital markets | |||||||||
| research, and/or (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. | |||||||||
| The following table shows each Fund’s target strategic asset allocation effective May 1, 2014 to alternative Underlying Funds, | |||||||||
| equity Underlying Funds and fixed income Underlying Funds. The alternative Underlying Funds in which the Funds may invest | |||||||||
| include the RIC Russell Commodity Strategies, RIC Russell Global Infrastructure, RIC Russell Multi-Strategy Alternative Funds | |||||||||
| and RIF Global Real Estate Securities. The equity Underlying Funds in which the Funds may invest include the RIC Russell | |||||||||
| U.S. Defensive Equity, RIC Russell U.S. Dynamic Equity, RIF Aggressive Equity, RIF Multi-Style Equity, RIC Russell Emerging | |||||||||
| Markets, RIC Russell Global Equity, and RIF Non-U.S. Funds. The fixed income Underlying Funds in which the Funds may invest | |||||||||
| include the RIC Russell Global Opportunistic Credit, RIC Russell Investment Grade Bond, RIC Russell Short Duration Bond | |||||||||
| Funds, and RIF Core Bond. | |||||||||
| Asset Allocation Targets as of May 1, 2014* | |||||||||
| Moderate | Balanced | Growth | |||||||
| Strategy | Strategy | Strategy | Equity Growth | ||||||
| Underlying Funds | Fund | Fund | Fund | Strategy Fund | |||||
| Alternative Underlying Funds** | 14 | % | 14 | % | 19 | % | 19 | % | |
| Equity Underlying Funds | 31 | 54 | 65 | 73 | |||||
| Fixed Income Underlying Funds | 55 | 32 | 16 | 8 | |||||
| * | Prospectus dated May 1, 2014. | ||||||||
| ** | Alternative Underlying Funds pursue investment strategies that differ from those of traditional broad market equity or fixed income funds or seek returns | ||||||||
| with a low correlation to global equity markets. | |||||||||
| 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 63 | |||||||||
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
| 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 for 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 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 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, inputs 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 Russell Fund Services Company ("RFSC"), | |
| acting at the discretion of the Board, that are used in determining the fair value of investments. | |
| The levels associated with valuing the Funds’ investments for the period ended December 31, 2014 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 | |
| ("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 within a particular | |
| Fund. | |
| 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. | |
| 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 the Funds’ liability for income | |
| taxes based on analyses of tax laws and regulations, as well as their interpretations, and other relevant factors. | |
| 64 Notes to Financial Statements | |
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
Each Fund files a U.S. tax return. At December 31, 2014, 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, 2011 through December 31, 2013, 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
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 primarily relate 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 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 consist principally of cash due from counterparties and investments. The extent of the Underlying Funds’ exposure to market, credit and counterparty risks with respect to the Assets approximates their carrying value as recorded in the Underlying 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 an Underlying 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 an Underlying Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held. This could cause an Underlying Fund to underperform other types of investments.
3. Investment Transactions
Securities
During the period ended December 31, 2014, purchases and sales of the Underlying Funds were as follows:
Notes to Financial Statements 65
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
| Purchases | Sales | |||||||||
| Moderate Strategy Fund | $ | 32,215,082 | $ | 20,204,232 | ||||||
| Balanced Strategy Fund | 81,933,673 | 67,830,848 | ||||||||
| Growth Strategy Fund | 64,202,344 | 40,182,311 | ||||||||
| Equity Growth Strategy Fund | 16,660,593 | 12,744,759 | ||||||||
| 4 . Related Party Transactions, Fees and Expenses | ||||||||||
| Adviser, Administrator, Transfer and Dividend Disbursing Agent | ||||||||||
| RIMCo advises the Funds and RFSC is the Funds’ administrator and transfer and disbursing agent. RFSC is a wholly-owned | ||||||||||
| subsidiary of RIMCo. RIMCo is a wholly-owned subsidiary of Frank Russell Company ("FRC") (which is an indirect subsidiary | ||||||||||
| of London Stock Exchange Group plc ("LSEG")). Frank Russell Company provides ongoing money manager research to RIF and | ||||||||||
| RIMCo. | ||||||||||
| A special meeting of the Funds’ shareholders was held on November 3, 2014 in order for shareholders to vote on two proposals: | ||||||||||
| • | To approve a new investment advisory agreement between RIMCo and each Fund, as a result of a transaction involving the | |||||||||
| sale of RIMCo’s parent company to LSEG (the “Post-Transaction Agreement”). | ||||||||||
| • | To approve a new investment advisory agreement between RIMCo and each Fund that reflects updated terms and, if approved | |||||||||
| by shareholders, would go into effect in lieu of the Post-Transaction Agreement following the transaction or, if the transaction | ||||||||||
| is not consummated, would replace the Funds’ existing investment advisory agreement (together with the “Post-Transaction | ||||||||||
| Agreement,” the “New Advisory Agreements”). Specifically, this agreement would provide RIMCo with greater flexibility in | ||||||||||
| managing the Funds and update the Funds’ existing agreement to reflect current industry practices. | ||||||||||
| On December 2, 2014, FRC and its subsidiaries, including RIMCo, became wholly-owned subsidiaries of LSEG. LSEG is a | ||||||||||
| diversified international exchange group. | ||||||||||
| The New Advisory Agreements were approved by the shareholders of each Fund and went into effect upon consummation of the | ||||||||||
| transaction on December 2, 2014. | ||||||||||
| The advisory fee of 0.20% is based upon the average daily net assets of each Fund and the administrative fee of up to 0.0425% | ||||||||||
| is based on the combined average daily net assets of the Funds. Advisory and administration fees are paid monthly. The following | ||||||||||
| table shows the total amount of each of these fees paid by the Funds for the period ended December 31, 2014: | ||||||||||
| Advisory | Administrative | |||||||||
| Moderate Strategy Fund | $ | 221,007 | $ | 50,278 | ||||||
| Balanced Strategy Fund | 624,114 | 142,112 | ||||||||
| Growth Strategy Fund | 403,566 | 91,781 | ||||||||
| Equity Growth Strategy Fund | 103,535 | 23,573 | ||||||||
| RIMCo has contractually agreed, until April 30, 2015, 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, 2014, RIMCo waived/reimbursed the following expenses: | ||||||||||
| Waiver | Reimbursement | Total | ||||||||
| Moderate Strategy Fund | $ | 221,007 | $ | 50,341 | $ | 271,348 | ||||
| Balanced Strategy Fund | 624,114 | 36,035 | 660,149 | |||||||
| Growth Strategy Fund | 403,566 | 41,051 | 444,617 | |||||||
| Equity Growth Strategy Fund | 103,535 | 52,900 | 156,435 | |||||||
| RIMCo does not have the ability to recover amounts waived or reimbursed from previous periods. | ||||||||||
| 66 Notes to Financial Statements | ||||||||||
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
| 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. The following shows the total amount of this fee paid by the Funds for the period ended December 31, 2014: | ||
| Amount | ||
| Moderate Strategy Fund | $ | 4,862 |
| Balanced Strategy Fund | 13,731 | |
| Growth Strategy Fund | 8,878 | |
| Equity Growth Strategy Fund | 2,278 | |
| 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, 2014 were as follows: | ||
| Moderate Strategy Balanced Strategy Growth Strategy | Equity Growth | ||||||||
| Fund | Fund | Fund | Strategy Fund | ||||||
| Administration fees | $ | 4,139 | $ | 11,338 | $ | 7,516 | $ | 1,887 | |
| Transfer agent fees | 428 | 1,174 | 778 | 195 | |||||
| Trustee fees | 426 | 1,274 | 764 | 206 | |||||
| $ | 4,993 | $ | 13,786 | $ | 9,058 | $ | 2,288 | ||
Board of Trustees
The Russell Fund Complex consists of RIC, which has 39 funds, RIF which has 9 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 $96,000 per year; each of its interested Trustees a retainer of $75,000 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. As of January 1, 2015, each Trustee receives $200 per hour for time spent for formal deposition preparation and in depositions related to the McClure litigation (see note 8). 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 $12,000 per year. The chairman of the Board receives additional annual compensation of $85,000. 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, 2014 with Underlying Funds which are, or were, an affiliated company are as follows:
| Realized Gain | Income | Capital Gains | |||||||||||
| Fair Value | Purchases Cost | Sales Cost | (Loss) | Distributions | Distributions | ||||||||
| Moderate Strategy Fund | |||||||||||||
| RIC Russell Commodity Strategies Fund Class Y | $ | 2,408 | $ | 787 | $ | 187 | $ | (30 | ) | $ | — | $ | — |
| RIC Russell Global Infrastructure Fund Class Y | 5,479 | 2,582 | 1,042 | 55 | 278 | 220 | |||||||
| RIC Russell Multi-Strategy Alternative Fund | |||||||||||||
| Class Y | 3,447 | 588 | 59 | (1 | ) | 102 | — | ||||||
| RIF Global Real Estate Securities Fund | 2,307 | 484 | 641 | 30 | 86 | 84 | |||||||
| RIC Russell U.S. Defensive Equity Fund Class | |||||||||||||
| Y | 5,201 | 2,454 | 1,956 | 123 | 85 | — | |||||||
| RIC Russell U.S. Dynamic Equity Fund Class Y | 2,906 | 1,476 | 507 | 8 | 175 | 254 | |||||||
| Notes to Financial Statements 67 | |||||||||||||
| Russell Investment Funds | |||||||||||||
| LifePoints® Funds Variable Target Portfolio Series | |||||||||||||
| Notes to Financial Statements, continued — December 31, 2014 | |||||||||||||
| Realized Gain | Income | Capital Gains | |||||||||||
| Fair Value | Purchases Cost | Sales Cost | (Loss) | Distributions | Distributions | ||||||||
| RIF Aggressive Equity Fund | 4,699 | 4,653 | 849 | (23 | ) | 53 | 316 | ||||||
| RIF Multi-Style Equity Fund | 5,796 | 1,979 | 932 | 23 | 209 | 623 | |||||||
| RIC Russell Global Opportunistic Credit Fund | |||||||||||||
| Class Y | 4,557 | 2,919 | 180 | (5 | ) | 247 | 27 | ||||||
| RIC Russell Investment Grade Bond Fund Class | |||||||||||||
| Y | 20,754 | 2,886 | 3,181 | (50 | ) | 545 | 145 | ||||||
| RIF Core Bond Fund | 37,971 | 5,399 | 5,054 | (78 | ) | 1,070 | 226 | ||||||
| RIC Russell Emerging Markets Fund Class Y | 4,539 | 2,266 | 1,079 | (41 | ) | 90 | 56 | ||||||
| RIC Russell Global Equity Fund Class Y | 6,923 | 1,665 | 2,084 | 416 | 200 | 253 | |||||||
| RIF Non-U.S. Fund | 7,968 | 2,077 | 1,918 | 108 | 166 | — | |||||||
| $ | 114,955 | $ | 32,215 | $ | 19,669 | $ | 535 | $ | 3,306 | $ | 2,204 | ||
| Balanced Strategy Fund | |||||||||||||
| RIC Russell Commodity Strategies Fund Class Y | $ | 5,620 | $ | 1,238 | $ | 3,964 | $ | (664 | ) | $ | — | $ | — |
| RIC Russell Global Infrastructure Fund Class Y | 14,119 | 4,490 | 2,748 | 245 | 728 | 564 | |||||||
| RIC Russell Multi-Strategy Alternative Fund | |||||||||||||
| Class Y | 9,426 | 1,229 | 376 | (5 | ) | 279 | — | ||||||
| RIF Global Real Estate Securities Fund | 4,782 | 456 | 1,817 | 352 | 185 | 174 | |||||||
| RIC Russell U.S. Defensive Equity Fund Class | |||||||||||||
| Y | 21,632 | 9,982 | 5,987 | 454 | 354 | — | |||||||
| RIC Russell U.S. Dynamic Equity Fund Class Y | 22,505 | 8,344 | 1,743 | 41 | 1,354 | 1,951 | |||||||
| RIF Aggressive Equity Fund | 22,703 | 16,128 | 1,616 | (32 | ) | 279 | 1,609 | ||||||
| RIF Multi-Style Equity Fund | 25,668 | 4,373 | 3,706 | 312 | 929 | 2,754 | |||||||
| RIC Russell Global Opportunistic Credit Fund | |||||||||||||
| Class Y | 12,330 | 4,590 | 606 | (24 | ) | 689 | 73 | ||||||
| RIF Core Bond Fund | 88,430 | 9,905 | 27,812 | (307 | ) | 2,536 | 526 | ||||||
| RIC Russell Emerging Markets Fund Class Y | 20,816 | 10,399 | 2,057 | (66 | ) | 412 | 258 | ||||||
| RIC Russell Global Equity Fund Class Y | 31,763 | 7,776 | 4,860 | 211 | 917 | 1,155 | |||||||
| RIF Non-U.S. Fund | 34,403 | 3,024 | 9,077 | 945 | 725 | — | |||||||
| $ | 314,197 | $ | 81,934 | $ | 66,369 | $ | 1,462 | $ | 9,387 | $ | 9,064 | ||
| Growth Strategy Fund | |||||||||||||
| RIC Russell Commodity Strategies Fund Class Y | $ | 6,979 | $ | 1,852 | $ | 2,360 | $ | (175 | ) | $ | — | $ | — |
| RIC Russell Global Infrastructure Fund Class Y | 11,449 | 2,835 | 1,458 | 121 | 584 | 458 | |||||||
| RIC Russell Multi-Strategy Alternative Fund | |||||||||||||
| Class Y | 8,328 | 1,415 | 211 | (7 | ) | 247 | — | ||||||
| RIF Global Real Estate Securities Fund | 4,787 | 580 | 1,265 | 106 | 181 | 174 | |||||||
| RIC Russell U.S. Defensive Equity Fund Class | |||||||||||||
| Y | 15,556 | 6,667 | 3,199 | 238 | 247 | — | |||||||
| RIC Russell U.S. Dynamic Equity Fund Class Y | 17,197 | 6,296 | 612 | 10 | 1,035 | 1,493 | |||||||
| RIF Aggressive Equity Fund | 19,531 | 13,227 | 791 | (24 | ) | 246 | 1,407 | ||||||
| RIF Multi-Style Equity Fund | 19,314 | 3,510 | 4,259 | 610 | 691 | 2,054 | |||||||
| RIC Russell Global Opportunistic Credit Fund | |||||||||||||
| Class Y | 12,199 | 5,737 | 441 | (21 | ) | 673 | 72 | ||||||
| RIF Core Bond Fund | 20,877 | 3,009 | 10,877 | (70 | ) | 590 | 124 | ||||||
| RIC Russell Emerging Markets Fund Class Y | 17,784 | 8,893 | 974 | (67 | ) | 352 | 220 | ||||||
| RIC Russell Global Equity Fund Class Y | 27,535 | 6,496 | 3,272 | 139 | 796 | 1,003 | |||||||
| RIF Non-U.S. Fund | 26,834 | 3,685 | 8,966 | 637 | 545 | — | |||||||
| $ | 208,370 | $ | 64,202 | $ | 38,685 | $ | 1,497 | $ | 6,187 | $ | 7,005 | ||
| Equity Growth Strategy Fund | |||||||||||||
| RIC Russell Commodity Strategies Fund Class Y | $ | 1,192 | $ | 314 | $ | 1,336 | $ | (154 | ) | $ | — | $ | — |
| RIC Russell Global Infrastructure Fund Class Y | 2,875 | 738 | 518 | 39 | 148 | 115 | |||||||
| RIC Russell Multi-Strategy Alternative Fund | |||||||||||||
| Class Y | 2,604 | 429 | 170 | (2 | ) | 77 | — | ||||||
| RIF Global Real Estate Securities Fund | 1,072 | 144 | 839 | 193 | 41 | 39 | |||||||
| RIC Russell U.S. Defensive Equity Fund Class | |||||||||||||
| Y | 3,604 | 1,440 | 968 | 73 | 59 | — | |||||||
| RIC Russell U.S. Dynamic Equity Fund Class Y | 5,374 | 1,559 | 736 | 9 | 323 | 465 | |||||||
| RIF Aggressive Equity Fund | 5,463 | 3,455 | 359 | (17 | ) | 71 | 401 | ||||||
| 68 Notes to Financial Statements | |||||||||||||
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
| Realized Gain | Income | Capital Gains | |||||||||||
| Fair Value | Purchases Cost | Sales Cost | (Loss) | Distributions | Distributions | ||||||||
| RIF Multi-Style Equity Fund | 5,353 | 935 | 1,630 | 418 | 193 | 573 | |||||||
| RIC Russell Global Opportunistic Credit Fund | |||||||||||||
| Class Y | 4,101 | 2,190 | 340 | (4 | ) | 229 | 24 | ||||||
| RIC Russell Emerging Markets Fund Class Y | 5,036 | 2,065 | 557 | (16 | ) | 99 | 62 | ||||||
| RIC Russell Global Equity Fund Class Y | 7,427 | 2,383 | 1,385 | 60 | 214 | 270 | |||||||
| RIF Non-U.S. Fund | 8,326 | 1,009 | 2,902 | 406 | 171 | — | |||||||
| $ | 52,427 | $ | 16,661 | $ | 11,740 | $ | 1,005 | $ | 1,625 | $ | 1,949 | ||
5. Federal Income Taxes
At December 31, 2014, 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 Balanced Strategy | Equity Growth | |||||||||||||
| Fund | Fund | Growth Strategy Fund | Strategy Fund | |||||||||||
| Cost of Investments | $ | 107,511,976 | $ | 279,587,705 | $ | 186,072,121 | $ | 46,725,984 | ||||||
| Unrealized Appreciation | $ | 8,333,119 | $ | 37,793,198 | $ | 26,312,047 | $ | 6,268,399 | ||||||
| Unrealized Depreciation | (890,595 | ) | (3,183,766 | ) | (4,014,169 | ) | (567,316 | ) | ||||||
| Net Unrealized Appreciation (Depreciation) | $ | 7,442,524 | $ | 34,609,432 | $ | 22,297,878 | $ | 5,701,083 | ||||||
| Undistributed Ordinary Income | $ | 118,634 | $ | 43,174 | $ | — $ | — | |||||||
| Undistributed Long-Term Capital Gains | ||||||||||||||
| (Capital Loss Carryforward) | $ | 2,030,224 | $ | 8,327,406 | $ | 6,329,415 | $ | 1,697,310 | ||||||
| Tax Composition of Distributions | ||||||||||||||
| Ordinary Income | $ | 3,487,834 | $ | 10,120,345 | $ | 6,691,435 | $ | 1,840,461 | ||||||
| Long-Term Capital Gains | $ | 1,365,848 | $ | 5,013,208 | $ | 3,940,633 | $ | 691,947 | ||||||
| At December 31, 2014, none of the Funds had capital losses available for carryforwards. | ||||||||||||||
| 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. 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, 2014, the Funds presented herein did not borrow or lend through | |||||
| the interfund lending program. In December 2014, the interfund lending program was suspended. The program may be reinstated | |||||
| as such time that there is a demonstrated need for the program. | |||||
| 7. Record Ownership | |||||
| As of December 31, 2014, 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 | 92.8 | |||
| Balanced Strategy Fund | 1 | 92.3 | |||
| Growth Strategy Fund | 1 | 88.5 | |||
| Equity Growth Strategy Fund | 2 | 97.8 | |||
| 8. Pending Legal Proceedings | |||||
| On October 17, 2013, Fred McClure filed a derivative lawsuit against RIMCo on behalf of ten RIC funds, some of which are | |||||
| Underlying Funds in which the Funds invest: the Russell Commodity Strategies Fund, Russell Emerging Markets Fund, Russell | |||||
| Global Equity Fund, Russell Global Infrastructure Fund, Russell Global Opportunistic Credit Fund, Russell International | |||||
| Developed Markets Fund, Russell Multi-Strategy Alternative Fund, Russell Strategic Bond Fund, Russell U.S. Small Cap Equity | |||||
| Notes to Financial Statements 69 | |||||
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Notes to Financial Statements, continued — December 31, 2014
Fund and Russell Global Real Estate Securities Fund. The lawsuit, which was filed in the United States District Court for the District of Massachusetts, seeks recovery under Section 36(b) of the Investment Company Act, as amended, for the funds’ alleged payment of excessive investment management fees to RIMCo. On December 8, 2014, Fred McClure filed a second derivative lawsuit in the United States District Court for the District of Massachusetts. This second suit involves the same ten funds, and the allegations are similar, although the second suit adds a claim alleging that RFSC charged the funds excessive administrative fees under Section 36(b). The plaintiff seeks recovery of the amount of the allegedly excessive compensation or payments received from these ten funds and earnings that would have accrued to plaintiff had that compensation not been paid or, alternatively, rescission of the contracts and restitution of all excessive fees paid, for a period commencing one year prior to the filing of the lawsuit through the date of the trial. RIMCo intends to vigorously defend the actions.
9. Subsequent Events
Management has evaluated the events and /or transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustments of the financial statements or additional disclosures.
70 Notes to Financial Statements
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, 2014, 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 five years in the period then ended, 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, 2014 by correspondence with the transfer agent and the application of alternative auditing procedures where securities purchased confirmations had not been received, provide a reasonable basis for our opinion.
Report of Independent Registered Public Accounting Firm 71
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Tax Information — December 31, 2014 (Unaudited)
For the tax year ended December 31, 2014, 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 2015 will show the tax status of all distributions paid to your account in calendar year 2014.
The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:
| Moderate Strategy | 9.6 | % |
| Balanced Strategy | 15.3 | % |
| Growth Strategy | 18.3 | % |
| Equity Growth Strategy | 18.6 | % |
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, 2014:
| Moderate Strategy | $ | 1,365,848 |
| Balanced Strategy | $ | 5,013,208 |
| Growth Strategy | $ | 3,940,633 |
| Equity Growth Strategy | $ | 691,947 |
72 Tax Information
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts—(Unaudited)
Approval of Existing Investment Advisory Agreements
The Investment Company Act of 1940, as amended (the “1940 Act”), requires that the Board of Trustees (the “Board”), including a majority of its members who are not considered to be “interested persons” under the 1940 Act (the “Independent Trustees”) voting separately, approve the continuation of the advisory agreements with RIMCo (the “Existing Agreements”) 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”) on at least an annual basis and that the terms and conditions of each Existing Agreement and the terms and conditions of each portfolio management contract provide for its termination if continuation is not approved annually. The Board, including all of the Independent Trustees, considered and approved the continuation of the Existing Agreements and the portfolio management contracts at a meeting held in person on May 19-20, 2014 (the “Existing Agreement Evaluation Meeting”). During the course of a year, the Trustees receive a wide variety of materials regarding, among other things, the investment performance of the Funds, sales and redemptions of the Funds’ and Underlying Funds’ shares, management of the Funds and the Underlying Funds and other services provided 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 (“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; (2) information and reports prepared by RIMCo relating to the profitability of each Fund and Underlying Fund to RIMCo; (3) 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; and (4) information prepared by RIMCo (the “RIMCo Comparative Information”) comparing the performance of certain Underlying Funds and their respective operating expenses over various periods of time with other peer funds not managed by RIMCo, believed by RIMCo to be generally comparable in investment objectives to the Underlying Funds. In the case of each Fund, its other peer funds, whether identified as such in the Third-Party Information or the RIMCo Comparative Information, 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, but not all, 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 and other information received by the Board, including the Independent Trustees, in connection with its evaluations of the Existing Agreements and portfolio management contracts are collectively called the “Existing Agreement Evaluation Information.” The Trustees’ evaluations also reflected the knowledge and familiarity gained as Board members of the Funds and the other RIMCo-managed funds for which the Board has supervisory responsibility (“Other Russell Funds”) 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 the Underlying Funds (“Fund Counsel”) discussing the legal standards for their consideration of the continuations of the Existing Agreements and the portfolio management contracts, and the Independent Trustees separately received a memorandum regarding their responsibilities from Independent Counsel.
At a meeting held in person on April 29, 2014 (the “Existing Agreement Information Review Meeting,” and together with the Existing Agreement Evaluation Meeting, the “Existing Agreement Evaluation Meetings”), the Independent Trustees in preparation for the Existing Agreement Evaluation Meeting met first with representatives of RIMCo and then in a private session with Independent Counsel at which no representatives of RIMCo or the Funds’ management were present to review the Existing Agreement Evaluation Information received to that date and, on the basis of that review, requested additional Existing Agreement Evaluation Information. At the Existing Agreement Evaluation Meeting, the Independent Trustees again met in person in a private session with Independent Counsel to review additional Existing Agreement Evaluation Information received to that date. At the Existing Agreement Evaluation Meeting, the Board, including the Independent Trustees, considered the proposed continuance of the Existing Agreements and the portfolio management contracts with RIMCo, Fund management, Independent Counsel and Fund Counsel. Presentations made by RIMCo at the Existing Agreement Evaluation Meetings as part of this review encompassed the Funds and all Other Russell Funds. Information received by the Board, including the Independent Trustees, at the Existing Agreement Evaluation Meetings is included in the Existing Agreement Evaluation Information. Prior to voting at the Existing Agreement Evaluation Meeting, the non-management members of the Board, including the Independent Trustees, met in executive session with Independent Counsel to consider additional Existing Agreement Evaluation Information received from RIMCo and management at the Existing Agreement Evaluation Meeting. The discussion below reflects all of these reviews.
In evaluating the portfolio management contracts, the Board considered that each of the Underlying Funds employs a manager-of-managers method of investment and RIMCo’s advice that the Underlying Funds, in employing a manager-of-managers method of
Basis for Approval of Investment Advisory Contracts 73
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an investment 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. A Money Manager may have (1) a discretionary asset management assignment pursuant to which it is allocated a portion of an Underlying Fund’s assets to manage directly in its discretion; (2) a non-discretionary assignment pursuant to which it provides a model portfolio to RIMCo representing its investment recommendations, based upon which RIMCo purchases and sells securities for an Underlying Fund; or (3) both a discretionary and a non-discretionary assignment.
The Board considered that RIMCo (rather than any Money Manager) is responsible under the Existing Agreements 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 discretionary Money Managers selected by RIMCo, subject to Board approval, for that Underlying Fund. RIMCo manages the investment of each Underlying Fund’s cash and also may manage directly any portion of each Underlying Fund’s assets that RIMCo determines not to allocate to the discretionary Money Managers and portions of an Underlying Fund during transitions between Money Managers. RIMCo also may manage portions of an Underlying Fund based upon model portfolios provided by non-discretionary Money Managers. In all cases, Underlying Fund assets are managed directly by RIMCo pursuant to authority provided by the Existing Agreements.
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 or their strategies and RIMCo itself. The Board has been advised that RIMCo’s goal with respect to the Underlying Funds is to construct and manage diversified portfolios in a risk-aware manner. Each discretionary 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. For each Underlying Fund, RIMCo is responsible for, among other things, 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 or provide recommendations with respect to 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 or strategy 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, RIMCo’s selection of Money Managers is made not only on the basis of performance considerations but also on the basis of anticipated compatibility with other Money Managers in the same Underlying Fund. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods has reflected, 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 or their strategies 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
74 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
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 Existing Agreements, 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 or transfer agent fees and any fees received for management or administration 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;
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; and
6. Information provided by RIMCo concerning economies of scale and whether any scale economies are adequately shared with the Fund or the 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 discussed with senior representatives of RIMCo the impact on the Funds’ operations of changes in RIMCo’s senior management and other personnel providing investment management and other services to the Funds during the past year. The Board was not advised of any expected diminution in the nature, scope or quality of the investment advisory or other services provided to the Funds or the Underlying Funds from such changes. The Board also discussed the impact of organizational 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.
RIMCo is a wholly owned subsidiary of Frank Russell Company (“FRC”). At the time of the Existing Information Review Meeting, FRC, in turn, was an indirect majority-owned subsidiary of The Northwestern Mutual Life Insurance Company (“NM”). Prior to the Existing Agreement Information Review Meeting, NM publicly announced its intention to evaluate strategic alternatives for its majority interest in FRC. RIMCo advised the Board that this review could result in a transaction (“Transaction”) causing a change of control of RIMCo. At the Existing Agreement Information Review Meeting, the Board was advised by RIMCo that an unspecified number of parties had expressed an interest in a Transaction with NM but, to RIMCo’s knowledge, no formal proposals had been received to the date of the Existing Agreement Information Review Meeting. RIMCo, however, expected that proposals from one or more unidentified parties would be received shortly. RIMCo expressed its belief that any Transaction would not affect the activities of RIMCo in respect of the Funds or the structure of the Underlying Funds. However, the Board received no assurances in this regard directly from NM. Any Transaction would result, among other things, in an assignment and termination of the Existing Agreements, as required by the 1940 Act and by the terms and conditions of the Existing Agreements. In the event of a Transaction, the Board would be required to consider the approval of the terms and conditions of a replacement agreement (“Post-Transaction Agreement”) for the Existing Agreements and thereafter to submit the Post-Transaction Agreement to each Fund’s shareholders for approval, as required by the 1940 Act. At the Existing Agreement Evaluation Meeting, the Board was advised by RIMCo that NM had entered into exclusive discussions with London Stock Exchange Group plc (“LSEG”) regarding a possible Transaction. At both of the Existing Agreement Evaluation Meetings, the Board discussed with RIMCo the need to assure continuity of services required for the Funds’ operations.
As noted above, RIMCo, in addition to managing the investment of each Underlying Fund’s cash, may directly manage a portion of certain Underlying Funds (the “Participating Underlying Funds”) pursuant to the Existing Agreements, the actual allocation being determined from time to time by the Participating Underlying Funds’ RIMCo portfolio manager. Beginning in 2012, RIMCo implemented a strategy of managing a portion of the assets of the Participating Underlying Funds to modify such Funds’ overall portfolio characteristics by investing in securities or other instruments that RIMCo believes will achieve the desired risk/return profiles for such Participating
Basis for Approval of Investment Advisory Contracts 75
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
Underlying Funds. RIMCo monitors and assesses Participating Underlying Fund characteristics, including risk, using a variety of measurements, such as tracking error, and may seek to manage Participating Underlying Fund characteristics consistent with the Funds’ investment objectives and strategies. For U.S. equity Participating Underlying Funds, fund characteristics may be managed with the goal to increase or decrease exposures (such as volatility, momentum, value, growth, capitalization size, industry or sector). For non-U.S. equity, global infrastructure and global real estate Participating Underlying Funds, fund characteristics may be managed with the goal to increase or decrease exposures (such as volatility, momentum, value, growth, capitalization size, industry, sector or region). For fixed-income and alternative Participating Underlying Funds, fund characteristics may be managed with the goal to increase or decrease exposures (such as sector, industry, currency, credit or mortgage exposure or country risk, yield curve positioning, or interest rates). For all Funds, fund characteristics may be managed to offset undesired relative over or underweights in order to seek to achieve the desired risk/return profile for each Participating Underlying Fund. RIMCo may use an index replication or sampling strategy by selecting an index which represents the desired exposure, or may utilize quantitative or qualitative analysis or quantitative models designed to assess Participating Underlying Fund characteristics and identify a portfolio which provides the desired exposure. Based on this, for the portion of a Participating Underlying Fund’s assets directly managed by RIMCo, RIMCo may invest in common stocks, exchange-traded funds, exchange-traded notes, REITs, short-term investments and/or derivatives, including futures, forwards, options and/or swaps, in order to seek to achieve the desired risk/return profile for the Participating Underlying Fund. Derivatives may be used to take long or short positions. In addition, RIMCo may choose to use the cash equitization process to manage Participating Underlying Fund characteristics in order to seek to achieve the desired risk/return profile for the Participating Underlying Fund. RIMCo also may manage Participating Underlying Fund assets directly to effect a Participating Underlying Fund’s investment strategies. RIMCo’s direct management of assets for these purposes is hereinafter referred to as the “Direct Management Services.” RIMCo also may reallocate Underlying Fund assets among Money Managers, increase Underlying Fund cash reserves or determine not to be fully invested. RIMCo’s Direct Management Services generally are not intended to be a primary driver of Participating Underlying Funds’ investment results, although the services may have a positive or negative impact on investment results, but rather are intended to enhance incrementally the ability of Participating Underlying Funds to carry out their investment programs. At the Existing Agreement Evaluation Meetings, RIMCo advised the Board of a likely expansion of its Direct Management Services. In connection with this expansion, RIMCo stated that it may provide Direct Management Services to additional Underlying Funds and expected that a larger portion of certain Underlying Funds will be managed directly by RIMCo pursuant to the Direct Management Services. Additional Underlying Funds to be managed pursuant to the Direct Management Services may include some or all fixed income Underlying Funds. The Board considered that during the period, and to the extent that RIMCo employs its Direct Management Services other than via the cash equitization process in respect of Participating Underlying Funds, RIMCo is not required to pay investment advisory fees to a Money Manager with respect to Participating Underlying Fund assets that are directly managed and that the profits derived by RIMCo generally and from the Participating Underlying Funds consequently may be increased incrementally, although RIMCo may incur additional costs in providing Direct Management Services. The Board, however, also considered the potential benefits of the Direct Management Services to Participating Underlying Funds and the Funds; the limited amount of assets that to the date of the Existing Agreement Evaluation Meetings were being managed directly by RIMCo pursuant to the Direct Management Services; and the fact that the aggregate Advisory Fees paid by the Participating Underlying Funds are not increased as a result of RIMCo’s direct management of Participating Underlying Fund assets as part of the Direct Management Services or otherwise.
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 Existing 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. The Board noted RIMCo’s further past advice that 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.
The Third-Party Information included, among other things, comparisons of the Funds’ Advisory Fees with the investment advisory fees of their Comparable Funds 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 Third-Party Information, among other things, showed that each Fund had an Advisory Fee which, compared with its Comparable Funds’ investment advisory fees on an actual basis, was ranked in the first quintile of its Expense Universe for that expense component. 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 comparisons were based upon the latest fiscal years for the Expense Universe funds.
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,
76 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Basis for Approval of Investment Advisory Contracts, continued — (Unaudited)
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 a 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.
Based upon information provided by RIMCo, the Board considered for each Fund and Underlying Fund whether economies of scale have been realized and whether the Advisory Fee for such Fund or Underlying Fund appropriately reflects or should be revised to reflect any such economies. The Funds are distributed exclusively through variable annuity and variable life insurance contracts issued by insurance companies. Currently, the Funds are made available to holders of such insurance policies (“Insurance Contract Holders”) by two insurance companies. At the Existing Agreement Evaluation Meetings, RIMCo advised the Board that it does not expect that additional insurance companies will make the Funds available to their variable annuity or variable life insurance policyholders in the near or long term because of a declining interest by the insurance companies generally in variable insurance trusts, such as the Funds, as investment vehicles supporting their products. Notwithstanding this expectation, RIMCo expressed its belief that the Funds will remain viable in light of their cash inflows from current participating insurance companies. The Board considered, among other things, the negative implications for significant future Fund asset growth of RIMCo’s expectation that no additional insurance companies will make the Funds available to their variable annuity and variable life insurance policyholders and other factors associated with the manager-of-managers structure employed by the Underlying Funds, including the variability of Money Manager investment advisory fees.
As noted above, the Board at the Existing Agreement Information Review Meeting was advised by RIMCo of NM’s intent to evaluate strategic alternatives for its majority interest in FRC, and at the Existing Agreement Evaluation Meeting was advised by RIMCo that NM had entered into exclusive discussions with LSEG regarding a possible Transaction. NM is one of the two insurance companies making the Funds available to their Insurance Contract Holders. At the Existing Agreement Information Review Meeting, RIMCo expressed its belief that NM would continue to make the Funds available to its Insurance Contract Holders in the event of a Transaction. However, the Board received no direct assurances in this regard directly from NM. If NM were to discontinue its participation in the Funds, the Board considered that it is unlikely that the Funds would remain viable.
The Board also considered, as a general matter, that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds, the Underlying Funds and Other Russell Funds are lower, and, in some cases, may be substantially lower, than the rates paid by the Funds, the Underlying Funds and Other Russell Funds. The Trustees considered the differences in the nature and scope of services RIMCo provides to institutional clients and the Funds and the Underlying Funds. RIMCo explained, among other things, that institutional clients have fewer compliance, administrative and other needs than the Funds and the Underlying Funds. RIMCo also noted that since the Funds and the Underlying 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 and the Underlying 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 the 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’ total expenses, the Third-Party Information showed that the total expenses for the Growth Strategy Fund and Equity Growth Strategy Fund were ranked in the fourth quintile of its Expense Universe. The total expenses for the Moderate Strategy Fund ranked in the second quintile of its Expense Universe, and the total expenses for the Balanced Strategy Fund 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.
The Board considered RIMCo’s explanation of the rankings and its advice that the total expenses of the Growth Strategy Fund were less than 5 basis points from the third quintile of its Expense Universe. With respect to the Equity Growth Strategy Fund, the Board considered RIMCo’s explanation that the Fund has a larger allocation to non-U.S. equity securities and alternative investments than its Comparable Funds. Non-U.S. equity funds and alternative investments funds generally have higher expense ratios than U.S. equity and fixed income funds. The Equity Growth Strategy Fund’s higher allocations to non-U.S. equity and alternative investments, and the resulting higher indirect expenses of the Underlying Fund, made meaningful comparisons with its Comparable Funds difficult.
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On the basis of the Existing 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 Existing Agreement Evaluation Meetings 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 any 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 either was comparable to those of its Comparable Funds or RIMCo had provided an explanation satisfactory to the Board as to why the relative expense ratio was not 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; (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; and (6) the Advisory Fee charged by RIMCo appropriately reflects any economies of scale realized by such Fund or Underlying Fund in light of various factors, including the negative implications for significant future Fund asset growth of RIMCo’s expectation that no additional insurance companies will make the Funds available to their variable annuity and variable life insurance policyholders and other factors associated with the manager-of-managers structure employed by the Underlying Funds, including the variability of Money Manager investment advisory fees as well as the possible discontinuation of NM’s participation in the Funds.
The Board concluded that, under the circumstances and based on RIMCo’s performance information and reviews for each Fund and Underlying Fund, the performance of each of the Funds would be consistent with continuation of its Existing Agreement. The Board, in assessing the performance of Funds and Underlying Funds with at least three years of performance history, focused upon performance for the 3-year period ended December 31, 2013 as most relevant but also considered the Funds’ and Underlying Funds’ performance for the 1- year and, where applicable, 5-year periods ended such date. In reviewing the performance of the Funds and the Underlying Funds generally, the Board took into consideration the various steps taken by RIMCo beginning in 2012 to enhance the performance of certain Underlying Funds, including changes in Money Managers, and, in the case of Participating Underlying Funds, RIMCo’s implementation of its Direct Management Services, which may not yet be fully reflected in Participating Underlying Fund and Fund investment results.
With respect to the Moderate Strategy Fund and the Equity Growth Strategy Fund, the Third-Party Information showed that each Fund’s performance was ranked in the fifth quintile of its Performance Universe for the 1-, 3- and 5-year periods ended December 31, 2013.
With respect to the Balanced Strategy Fund, the Third-Party Information showed that the Fund’s performance was ranked in the third quintile of its Performance Universe for the 5-year period ended December 31, 2013, but was ranked in the fourth quintile of its Performance Universe for each of the 1- and 3-year periods ended such date.
With respect to the Growth Strategy Fund, the Third-Party Information showed that the Fund’s performance was ranked in the fourth quintile of its Performance Universe for each of the 1- and 5-year periods ended December 31, 2013, and ranked in the fifth quintile of its Performance Universe for the 3-year period ended such date.
The Board considered RIMCo’s explanation that the underperformance of the Funds relative to their respective peer groups was mainly due to asset allocation differences. RIMCo noted, among other things, that the Equity Growth Strategy Fund tends to have a higher allocation to fixed income and a lower allocation to equities than its Comparable Funds, and that equities have largely outperformed fixed income over the 3-year period. RIMCo also explained that each of the Funds tends to hold more diversified growth-oriented assets beyond traditional equities (such as global real estate, infrastructure, commodities, global high yield debt, emerging market debt, and hedge fund strategies), which have lagged in the strong equity markets. This exposure, according to RIMCo, is intended to provide diversification benefits and dampen volatility.
The Board also considered that in January 2014, the Funds implemented a change in strategic asset allocations, which decreased positions in core fixed income, international developed equity and commodities, and increased positions in small cap, emerging markets and infrastructure. According to RIMCo, these changes brought the Funds’ allocations directionally closer towards the average equity and fixed income allocations of the Comparable Funds, although the Funds continue to maintain more diversified growth asset exposure and a larger globally diversified equity allocation than their Comparable Funds.
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
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investment strategy of managing the Underlying Funds in a risk-aware manner. The Board also considered the Underlying Fund Money Manager changes that have been made since 2012 and that the performance of Money Managers continues to impact Fund and Underlying Fund performance for periods prior and subsequent to their termination, and that any incremental positive or negative impact of the Direct Management Services to Participating Underlying Funds, which continue to evolve in nature and scope, was not yet fully reflected in the investment results of the Participating Underlying Funds or the Funds. Lastly, the Board considered potential new strategies discussed at the Existing Agreement Evaluation Meetings and prior Board meetings that may be employed by RIMCo in respect of certain Underlying Funds.
After considering the foregoing and other relevant factors, the Board concluded in respect of each Fund and Underlying Fund that continuation of its Existing Agreement would be in the best interests of such Fund and its shareholders and voted to approve the continuation of each Existing Agreement.
At the Existing Agreement Evaluation Meetings, 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 Funds’ CCO regarding her assessments of Money Manager compliance programs and any compliance issues. RIMCo did not identify any benefits received by Money Managers or their affiliates as a result of their relationships with the Underlying Funds other than benefits from their soft dollar arrangements. The Existing Agreement Evaluation Information described, and at the Existing Agreement Evaluation Meetings the Funds’ CCO discussed, oversight of Money Manager soft dollar arrangements. The Existing Agreement Evaluation Information expressed RIMCo’s belief that, based upon certifications from Money Managers and pre-hire and ongoing reviews of Money Manager soft dollar arrangements, policies and procedures, the Money Managers’ soft dollar arrangements, policies and procedures are consistent with applicable legal standards and with disclosures made by Money Managers in their investment adviser registration statements filed with the Securities and Exchange Commission and by the Underlying Funds in their registration statements. The Board was advised that, in the case of Money Managers using soft dollar arrangements, the CCO monitors, among other things, the commissions paid by the Underlying Funds and percentage of Underlying Fund transactions effected pursuant to the soft dollar arrangements, as well as the products or services purchased by the Money Managers with soft dollars generated by Underlying Fund portfolio transactions. The CCO and RIMCo do not obtain, and the Existing Agreement Evaluation Information therefore did not include, information regarding the value of soft dollar benefits derived by Money Managers from Underlying Fund portfolio transactions. At the Existing Agreement Evaluation Meeting, RIMCo noted that it planned to recommend termination of certain Money Managers to the Board at the May 2014 meeting. RIMCo recommended that each of the other Money Managers be retained at its current or a reduced fee rate. In doing so, RIMCo, as it has in the past, 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 standard fee rates 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 of the relevance of Money Manager profitability in light of RIMCo’s belief that such fees are reasonable; 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 Existing Agreement Evaluation Information, 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 Existing Agreements 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 each Fund and Underlying Fund.
Subsequent to the Existing Agreement Evaluation Meeting, the Board received a proposal from RIMCo at a meeting held on May 20, 2014 to effect Money Manager changes for the Russell Investment Company Russell Investment Grade Bond Fund, Russell Short Duration Bond Fund, Russell U.S. Dynamic Equity Fund and Russell Global Opportunistic Credit Fund and the Russell Investment
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Funds Global Real Estate Securities Fund and Multi-Style Equity Fund, and at that same meeting to effect a Money Manager change for the Aggressive Equity Fund resulting from a Money Manager change of control for one of the Underlying Fund’s Money Managers. In the case of each proposed change, the Trustees approved the terms of the proposed portfolio management contract based upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; information as to reason for the proposed change; information as to the Money Manager’s role in the management of the Underlying Fund’s investment portfolio (including the amount of Underlying Fund assets to be allocated to the Money Manager) and RIMCo’s evaluation of the anticipated quality of the investment advisory services to be provided by the Money Manager; information as to any significant business relationships between the Money Manager and RIMCo or Russell Financial Services, Inc., the Underlying Fund’s underwriter; the CCO’s evaluation of the Money Manager’s compliance program, policies and procedures, and certification that they were consistent with applicable legal standards; RIMCo’s explanation as to the lack of relevance of Money Manager 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 standard fee rates charged by the Money Manager to other clients; 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 increase or decrease in aggregate Money Manager fees to be paid by RIMCo from its Advisory Fee as a result of the engagement of the Money Manager; and the expected costs of transitioning Underlying Fund assets to the Money Manager. The Trustees also considered their findings at the Existing Agreement Evaluation Meeting as to the reasonableness of the aggregate Advisory Fees paid by the Underlying Funds, and the fact that the aggregate Advisory Fees paid by the Underlying Funds would not increase as a result of the implementation of the proposed Money Manager changes because the Money Managers’ investment advisory fees are paid by RIMCo.
Approval of the Post-Transaction Agreement
On May 20, 2014, LSEG announced that it had entered into exclusive discussions with NM for the potential acquisition of FRC although there was no certainty that any agreement for a transaction would be reached. On June 26, 2014, the Board was advised by FRC, and LSEG publicly announced, that LSEG had entered into a definitive agreement and plan of merger to acquire FRC, including both its index and investment management businesses. In its announcement (the “LSEG Announcement”), LSEG stated, among other things, that the investment management business would be the subject of “a comprehensive review to determine its positioning and fit with the Group” and that LSEG is “committed to maintaining a clear focus on client service, fund performance and management and employee stability, whilst ensuring appropriate standalone governance.” On June 27, 2014, the Board met by conference telephone call to discuss preliminarily the LSEG Announcement with representatives of FRC, RIMCo and LSEG.
In preparation for its evaluation of the Post-Transaction Agreement, the Independent Trustees, with the advice and assistance of Independent Counsel, requested information to evaluate the Post-Transaction Agreement. In their requests for such information, the Independent Trustees advised RIMCo of their intention to rely upon the Existing Agreement Evaluation Information in their evaluation of the Post-Transaction Agreement, if and to the extent the Existing Agreement Evaluation Information continued to be accurate and complete as of July 29, 2014. The Independent Trustees requested that RIMCo provide any updated and additional information needed for the Board to consider whether the Post-Transaction Agreement should be approved. The foregoing information and other information provided by RIMCo and LSEG to the Board, including the Independent Trustees, in connection with its evaluation of the Post-Transaction Agreement hereinafter is referred to collectively as the “Post-Transaction Agreement Evaluation Information.”
At a meeting held in person on July 17, 2014 (the “Post-Transaction Agreement Information Review Meeting”), the Board in further preparation for its evaluation of the Post-Transaction Agreement reviewed Post-Transaction Agreement Evaluation Information received to the date of that Meeting, first with senior representatives of FRC, RIMCo, Fund management and LSEG, and then in a private session with Independent Counsel, at which no representatives of FRC, RIMCo, LSEG, or Fund management were present, and, on the basis of that review, requested additional information regarding the Transaction and its impact on RIMCo and the Funds.
The Board met in person on July 29, 2014 to consider approval of the Post-Transaction Agreement (the “Post-Transaction Agreement Evaluation Meeting”). At the Post-Transaction Agreement Evaluation Meeting, the Independent Trustees first met to review additional Post-Transaction Agreement Information received to that date with representatives of FRC, RIMCo, Fund management, and LSEG. Presentations made by FRC, RIMCo and LSEG at the Post-Transaction Agreement Information Review Meeting and the Post-Transaction Agreement Evaluation Meeting (together, the “Transaction Board Meetings”), as part of this review, encompassed all of the Funds and the Other Russell Funds. Information received by the Board, including the Independent Trustees, at the Transaction Board Meetings is included in the Post-Transaction Agreement Evaluation Information. Presentations made by FRC, RIMCo and LSEG at the Transaction Board Meetings are included in the Post-Transaction Agreement Evaluation Information. Prior to voting at the Post-Transaction Agreement Evaluation Meeting, the Independent Trustees met in executive session with Independent Counsel, at
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which no representatives of FRC, RIMCo, LSEG, or Fund management were present, to review additional Post-Transaction Agreement Evaluation Information received prior to and at the Meeting. The discussion below reflects all of these reviews.
The Board’s evaluation of the Post-Transaction Agreement reflected the Post-Transaction Agreement Evaluation Information and other information received by the Board during the course of the year or prior years (including the Existing Agreement Evaluation Information, as supplemented by RIMCo through the date of the Post-Transaction Agreement Evaluation Meeting) and the findings made by the Board in respect of the Existing Agreement at the Existing Agreement Evaluation Meeting. The Independent Trustees’ evaluations of the Post-Transaction Agreement also reflected the knowledge and familiarity gained as Board members of the Funds and Other Russell Funds with respect to services provided by RIMCo, RIMCo’s affiliates, and each Money Manager to the Funds under the Existing Agreement and services proposed to be provided to the Funds under the Post-Transaction Agreement. The Board noted the short period of time since the Existing Agreement Evaluation Meeting and that information provided by RIMCo to update and supplement the Existing Agreement Evaluation Information through the date of the Post-Transaction Agreement Evaluation Meeting did not affect the conclusions reached by the Board at the Existing Agreement Evaluation Meeting.
In approving the Post-Transaction Agreement, the Board considered all factors it believed relevant in exercising its business judgment, including the following:
(1) the reputation, financial strength and resources of LSEG;
(2) LSEG is a diversified international market infrastructure and capital markets business;
(3) LSEG’s advice that it has a strong track record of successful acquisitions and owning regulated businesses and that its regulatory and compliance history is strong;
(4) LSEG is not engaged in the mutual fund or investment management businesses, with the result that there will be no overlap of mutual fund products to address in the transfer of ownership of FRC’s investment management business from NM and other current shareholders to LSEG;
(5) LSEG’s advice that the outcome of the comprehensive review and its effect on FRC’s investment management business would not be prejudged and that one part of the review is to determine whether the FRC investment management business would be more valuable as part of the LSEG organization or as part of an organization with existing investment management activities;
(6) LSEG’s assurances that there were no circumstances that could be envisaged at the time of the Post-Transaction Agreement Evaluation Meeting under which the Funds may be left without an investment manager to conduct their investment programs and that, whatever the outcome of the comprehensive review and for as long as it owns the FRC investment management business, it is committed to maintaining the existing clear focus on client service and fund performance in FRC’s investment management business;
(7) LSEG’s stated intention that the FRC investment management business will operate independently of the rest of LSEG and its expectation that the impact of the Transaction on the Funds will be broadly neutral, with no material improvements or disadvantages, although the Funds may benefit to some extent from the ownership of the FRC investment management business by a company with world class technology, operational competencies, and financial strength;
(8) LSEG’s advice that, as part of the comprehensive review, it will provide continued strong support and investment for growth and innovation, and pay particular attention to creating appropriate standalone governance and operations for FRC’s investment management business while also focusing on maintaining strong management and employee continuity;
(9) the Post-Transaction Agreement Evaluation Information did not identify any conflicts of interest that would arise following completion of the Transaction but LSEG did advise the Board that it is continuing to work with FRC to establish the scope of affiliated business and to assess whether modifications to FRC’s compliance policies and procedures and/or other steps are appropriate. The Board was advised that it would be apprised of any material issues that are subsequently identified.
(10) LSEG’s expectation that there will be no diminution in the nature, scope and overall quality of services provided to the Funds and their shareholders, including administrative, regulatory and compliance services, as a result of the Transaction. In this regard, the Post-Transaction Agreement Evaluation Information stated, among other things:
• LSEG intends to maintain the existing nature and quality of services provided to the Funds by RIMCo.
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• In connection with or as a result of the Transaction, LSEG anticipates that RIMCo will maintain the resources, operations, staffing and other functions required for the operation or administration of the Funds.
• No changes are expected by LSEG in RIMCo’s investment strategies and practices in respect of the Funds as a result of the Transaction, including the manager-of-managers structure employed by the Funds that are not Funds of Funds (the “Manager-of-Managers Funds”) and employed indirectly by the Funds of Funds through their investments in the Manager-of-Managers Funds.
(11) RIMCo’s understanding, based on discussions with NM, that NM intends to continue its participation in the Funds following the Transaction, and RIMCo’s advice that if NM redeems all assets from the Funds, the Funds likely would need to be liquidated;
(12) advice from RIMCo and LSEG that there is no intention to propose any immediate changes to any of the Funds’ third-party service providers, thereby assuring continuation of services needed for the Funds’ operations and minimizing complications in connection with the transfer of ownership of FRC’s investment management business from NM and other current shareholders to LSEG;
(13) at the Existing Agreement Evaluation Meetings, the Board had performed a full annual review of the Existing Agreement, as required by the 1940 Act, and had reapproved the Existing Agreement, concluding, among other things, that the Advisory Fee for each Fund 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;
(14) the terms and conditions of the Post-Transaction Agreement are substantially the same as those of the Existing Agreement, which will terminate automatically upon completion of the Transaction, and the Post-Transaction Agreement will not change any Fund’s Advisory Fee (on a contractual or actual basis), expense ratio, profitability, economies of scale, or other fees or benefits received by RIMCo and its affiliates as a result of their relationships with the Fund;
(15) FRC and/or its affiliates and LSEG, not the Funds, will bear all costs of meetings, preparation of proxy materials and solicitation in connection with obtaining approvals of the Post-Transaction Agreement;
(16) there will be no changes to the Independent Trustees of the Board in connection with the Transaction, assuring continuity of the Funds’ supervision and oversight;
(17) LSEG’s assurances that for a period of two years following the effective date of the Post-Transaction Agreement, it will use reasonable best efforts not to engage in activities that would impose an “unfair burden” on the Funds within the meaning of Section 15(f) of the 1940 Act;
(18) the Board’s belief that shareholders have purchased and retained their Fund shares based upon the reputation, investment record, and investment philosophies and strategies employed by RIMCo in managing the Funds (including the manager-of-managers structure employed by the Manager-of-Managers Funds and employed indirectly by the Funds of Funds through their investments in the Manager-of-Managers Funds); and
(19) the demands and complexity of managing the Manager-of-Managers Funds pursuant to the manager-of-managers structure, the special expertise of RIMCo with respect to the manager-of-managers structure of those Funds, and the Board’s belief that, at the current expense ratio of each Manager-of-Managers Fund, there would likely be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy selected by shareholders in purchasing their shares of Manager-of-Managers Funds which employ a manager-of-managers structure or Funds of Funds that indirectly employ a manager-of-managers strategy through their investments in the Underlying Funds.
In evaluating the Post-Transaction Agreement, the Board considered the possibility that, depending upon the results of the comprehensive review, the FRC investment management business would be conducted pursuant to the Post-Transaction Agreement as an independent part of the LSEG organization following completion of the Transaction, without any significant diminution expected in the nature, scope and overall quality of services provided to the Funds, and without any expected effect on the Funds’ Advisory Fees (contractual or actual), expenses, profitability, economies of scale, or other fees or benefits to FRC or RIMCo or their affiliates from their Fund relationships. However, the Independent Trustees were unable on the basis of the Post-Transaction Agreement Evaluation Information to determine the outcome of the comprehensive review or its effects, if any, on the FRC investment management business generally or on any of the investment advisory and other services that RIMCo and other FRC affiliates provide to the Funds under the Existing Agreement. Among other things, the Board could not determine whether or for how long FRC’s investment management business will continue as part of the LSEG organization following conclusion of the comprehensive review. In its deliberations, the Board considered the above
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and other relevant factors in light of the uncertain outcome and effects of the comprehensive review and, consequently, identified the principal factor in determining whether to approve the Post-Transaction Agreement as the need to provide for uninterrupted investment advisory and other services required for the operations of the Funds following the automatic termination of the Existing Agreement upon completion of the Transaction. No other single factor reviewed by the Board was identified by the Board as a principal factor in determining whether to approve the Post-Transaction Agreement and each Board member attributed different weights to the various factors. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made separately in respect of each Fund. After careful consideration of all factors, principally the need for continuation of investment advisory and other services required for the operation of the Funds following termination of the Existing Agreement, the Board believed that approval of the Post-Transaction Agreement would be in the best interests of each Fund and its shareholders for a period ending two years from the date of the Post-Transaction Agreement, but advised Fund management of its intention (subject to the outcome of the comprehensive review) to evaluate the continuance of the Post-Transaction Agreement within one year of its effectiveness, although not required to do so by the terms of the Post-Transaction Agreement or the 1940 Act. The Independent Trustees were advised by Independent Counsel throughout the process of evaluating the Post-Transaction Agreement. Prior to the Post-Transaction Agreement Information Review Meeting, the Board received a memorandum from Fund Counsel discussing its responsibilities in connection with its evaluation of the Post-Transaction Agreement and the Independent Trustees separately received a memorandum discussing such responsibilities from Independent Counsel.
Approval of the New Agreement
At the in-person Transaction Board Meetings, the Board considered approval of a new investment advisory agreement between each Fund and RIMCo that reflects updated terms and, if approved by shareholders, will go into effect in lieu of the Post-Transaction Agreement following the Transaction or, if the Transaction is not consummated, will replace the Fund’s Existing Agreement (the “New Agreement”). In preparation for its evaluation of the New Agreement, the Board reviewed information from RIMCo regarding the New Agreement (the “New Agreement Evaluation Information”) at the Post-Transaction Agreement Information Review Meeting. At the Post-Transaction Agreement Information Review Meeting, the Independent Trustees met first with representatives of RIMCo and Fund management and then in a private session with Independent Counsel, at which no representatives of RIMCo or Fund management were present, to review the New Agreement Evaluation Information.
The Independent Trustees considered approval of the New Agreement at the Post-Transaction Agreement Evaluation Meeting. The Board, including the Independent Trustees, first met with representatives of RIMCo and Fund management to discuss the New Agreement Evaluation Information. Prior to voting on approval of the New Agreement, the Independent Trustees met in a private session with Independent Counsel, at which no representatives of RIMCo or Fund management were present, to review additional New Agreement Evaluation Information received prior to and at the Post-Transaction Agreement Evaluation Meeting. The discussion reflects all of these reviews.
Presentations made by RIMCo at the Transaction Board Meetings regarding the New Agreement encompassed all of the Funds.
In evaluating the New Agreement, the Board considered all factors it believed relevant in exercising its business judgment, including the following:
(1) the Board had performed a full annual review of the Existing Agreement at the Existing Agreement Evaluation Meeting and had reapproved the Existing Agreement, concluding, among other things, that the Advisory Fee of each Fund 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 each Fund;
(2) the New Agreement reflects current industry practices and also expressly addresses RIMCo’s overall investment management responsibilities, including the delegation of such management to Money Managers with discretionary authority, the implementation of recommendations from Money Managers with non-discretionary authority, direct management of all of a Fund’s assets by RIMCo, or any combination thereof;
(3) RIMCo believes that the permission afforded by the New Agreement to use non-discretionary Money Managers with respect to a Fund’s entire portfolio will enhance RIMCo’s ability to determine how best to manage the Fund’s assets, and will allow RIMCo the flexibility to more efficiently and effectively manage Fund assets consistent with a Fund’s objective and to create a more customized investment program for each Fund, depending upon the particular characteristics and objectives of that Fund;
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(4) in the case of certain Funds, RIMCo believes that a more extensive use of non-discretionary Money Managers may provide an opportunity to better manage transaction costs and the tax impact associated with trading portfolio securities;
(5) the New Agreement will not change any Fund’s investment objective nor will it change any Fund’s Advisory Fee rate or total expense ratio;
(6) the Advisory Fee paid by each Fund to RIMCo encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund. Fees paid by RIMCo from the Advisory Fee to non-discretionary Money Managers, who provide model portfolios to RIMCo representing their investment recommendations, based upon which RIMCo purchases and sells portfolio investments for a Fund, may be less than fees that would be paid to discretionary Money Managers, who make and implement their investment decisions to buy or sell portfolio investments for a Fund. While the Board did not receive any information concerning any additional benefits to RIMCo in connection with an expanded use of non-discretionary Money Managers, during the time, and to the extent, that RIMCo utilizes non-discretionary Money Managers rather than discretionary Money Managers in respect of the Funds, RIMCo may retain a larger portion of the Advisory Fee and the profits derived by RIMCo generally and from the Funds consequently may be increased; and
(7) if in the future RIMCo determines to change the “multi-manager” approach of any of the existing Funds, RIMCo will discuss such change in advance with the Board and seek any Board approval determined appropriate by RIMCo. In addition, if this were to occur, shareholders would be notified in advance of a change in their Fund’s multi-manager approach. This process will provide notice to shareholders of any material change in their Fund’s investment program and also may help to mitigate any potential conflict of interest inherent in RIMCo’s expanded use of non-discretionary Money Managers.
In their deliberations, the Trustees did not identify any particular information as to the New Agreement 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. After careful consideration of the above and all other factors considered to be relevant by the Board, the Board believed that approval of the New Agreement would be in the best interests of each Fund and its shareholders. The Independent Trustees were represented by Independent Counsel throughout the process of evaluating the New Agreement.
84 Basis for Approval of Investment Advisory Contracts
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Shareholder Requests for Additional Information — December 31, 2014 (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 fiscal 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 and 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 Funds and Underlying Funds voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, 2014 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 contact 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.
Financial statements of the Underlying Funds can be obtained at no charge by calling the Funds at (800)787-7354.
Shareholder Requests for Additional Information 85
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers — December 31, 2014 (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 39 funds, Russell Investment Funds (“RIF”), which has 9 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 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; Ms. Krysty has had business, financial and investment experience as the founder and senior executive of a registered investment adviser focusing on high net worth individuals as well as a certified public accountant and a member of the boards of other corporations and non-profit organizations; 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; and 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. 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 and/or director 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, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office* | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INTERESTED TRUSTEE | ||||||
| # Sandra Cavanaugh, | President and Chief | Until successor | • President and CEO RIC, RIF and | 49 | None | |
| Born May 10, 1954 | Executive Officer | is chosen and | RET | |||
| since 2010 | qualified by | • Chairman of the Board, Co-President | ||||
| 1301 Second Avenue, | Trustee since 2010 | Trustees | and CEO, Russell Financial Services, | |||
| 18th Floor, Seattle, WA | Appointed until | Inc. (“RFS”) | ||||
| 98101 | successor is | • Chairman of the Board, President | ||||
| duly elected and | and CEO, Russell Fund Services | |||||
| qualified | Company (“RFSC”) | |||||
| • Director, RIMCo | ||||||
| • Chairman of the Board, President and | ||||||
| CEO 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) | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| # | Ms. Cavanaugh is also an officer and/or director of one or more affiliates of RIC, RIF and RET and is therefore classified as an Interested Trustee. | |||||
86 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other |
| Age, | With Fund and | of | During the | Portfolios | Directorships |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee |
| Time Served | Fund | During the | |||
| Complex | Past 5 Years | ||||
| Overseen | |||||
| by Trustee | |||||
| INDEPENDENT TRUSTEES | |||||
| Thaddas L. Alston, | Trustee since 2006 | Appointed until | • Senior Vice President, Larco | 49 | None |
| Born April 7, 1945 | Chairman of | successor is | Investments, Ltd. (real estate firm) | ||
| the Investment | duly elected and | ||||
| 1301 Second Avenue, | Committee since | qualified | |||
| 18th Floor, Seattle, WA | 2010 | Appointed until | |||
| 98101 | successor is | ||||
| duly elected and | |||||
| qualified | |||||
| Kristianne Blake, | Trustee since 2000 | Appointed until | • Director and Chairman of the Audit | 49 | • Director, |
| Born January 22, 1954 | Chairman since 2005 | successor is | Committee, Avista Corp (electric | Avista Corp | |
| duly elected and | utilities) | (electric | |||
| 1301 Second Avenue, | qualified | • Regent, University of Washington | utilities) | ||
| 18th Floor, Seattle, WA | Annual | • President, Kristianne Gates Blake, | • Until June | ||
| 98101 | P.S. (accounting services) | 30, 2014, | |||
| • Until June 30, 2014, Director, Ecova | Director, | ||||
| (total energy and sustainability | Ecova (total | ||||
| management) | energy and | ||||
| • Until December 31, 2013, Trustee | sustainability | ||||
| and Chairman of the Operations | management) | ||||
| Committee, Principal Investors Funds | • Until | ||||
| and Principal Variable Contracts | December 31, | ||||
| Funds (investment company) | 2013, Trustee, | ||||
| • From April 2004 through December | Principal | ||||
| 2012, Director, Laird Norton Wealth | Investors | ||||
| Management and Laird Norton Tyee | Funds | ||||
| Trust (investment company) | (investment | ||||
| company) | |||||
| • Until | |||||
| December 31, | |||||
| 2013, Trustee | |||||
| Principal | |||||
| Variable | |||||
| Contracts | |||||
| Funds | |||||
| (investment | |||||
| company) | |||||
| • From April | |||||
| 2004 through | |||||
| December | |||||
| 2012, | |||||
| Director, Laird | |||||
| Norton Wealth | |||||
| Management | |||||
| and Laird | |||||
| Norton | |||||
| Tyee Trust | |||||
| (investment | |||||
| company) | |||||
Disclosure of Information about Fund Trustees and Officers 87
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INDEPENDENT TRUSTEES (continued) | ||||||
| Cheryl Burgermeister, | Trustee since 2012 | Appointed until | • Retired | 49 | • Trustee and | |
| Born June 26, 1951 | successor is | • Trustee and Chairperson of Audit | Chairperson | |||
| duly elected and | Committee, Select Sector SPDR | of Audit | ||||
| 1301 Second Avenue, | qualified | Funds (investment company) | Committee, | |||
| 18th Floor, Seattle, WA | Select Sector | |||||
| 98101 | SPDR Funds | |||||
| (investment | ||||||
| company) | ||||||
| • Trustee, ALPS | ||||||
| Series Trust | ||||||
| (investment | ||||||
| company) | ||||||
| Daniel P. Connealy, | Trustee since 2003 | Appointed until | • Retired | 49 | None | |
| Born June 6, 1946 | successor is | • June 2004 to June 2014, Senior Vice | ||||
| duly elected and | President and Chief Financial Officer, | |||||
| 1301 Second Avenue, | qualified | Waddell & Reed Financial, Inc. | ||||
| 18th Floor, Seattle, WA | (investment company) | |||||
| 98101 | ||||||
| Katherine W. Krysty, | Trustee since 2014 | Appointed until | • Retired | 49 | None | |
| Born December 3, 1951 | successor is | • January 2011 through March 2013, | ||||
| duly elected and | President Emerita, Laird Norton | |||||
| 1301 Second Avenue | qualified | Wealth Management (investment | ||||
| 18th Floor, Seattle, WA | company) | |||||
| 98101 | • April 2003 through December | |||||
| 2010, Chief Executive Officer of | ||||||
| Laird Norton Wealth Management | ||||||
| (investment company) | ||||||
| Raymond P. Tennison, Jr., | Trustee since 2000 | Appointed until | • Retired | 49 | None | |
| Born December 21, 1955 | Chairman of | successor is | • From January 2008 to December | |||
| the Nominating | duly elected and | 2011, Vice Chairman of the Board, | ||||
| 1301 Second Avenue | and Governance | qualified | Simpson Investment Company (paper | |||
| 18th Floor, Seattle, WA | Committee since | Appointed until | and forest products) | |||
| 98101 | 2007 | successor is | • Until November 2010, President, | |||
| duly elected and | Simpson Investment Company | |||||
| qualified | and several additional subsidiary | |||||
| companies, including Simpson | ||||||
| Timber Company, Simpson Paper | ||||||
| Company and Simpson Tacoma Kraft | ||||||
| Company | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
88 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| INDEPENDENT TRUSTEES (continued) | ||||||
| Jack R. Thompson, | Trustee since 2005 | Appointed until | • September 2007 to September | 49 | • Director, | |
| Born March 21, 1949 | Chairman of the | successor is | 2010, Director, Board Chairman and | Board | ||
| Audit Committee | duly elected and | Chairman of the Audit Committee, | Chairman and | |||
| 1301 Second Avenue, | since 2012 | qualified | LifeVantage Corporation (health | Chairman | ||
| 18th Floor, Seattle, WA | Appointed until | products company) | of the Audit | |||
| 98101 | successor is | • September 2003 to September | Committee, | |||
| duly elected and | 2009, Independent Board Chair and | LifeVantage | ||||
| qualified | Chairman of the Audit Committee, | Corporation | ||||
| Sparx Asia Funds (investment | until | |||||
| company) | September | |||||
| 2010 (health | ||||||
| products | ||||||
| company) | ||||||
| • Director, | ||||||
| Sparx Asia | ||||||
| Funds | ||||||
| until 2009 | ||||||
| (investment | ||||||
| company) | ||||||
| * | Each Trustee is subject to mandatory retirement at age 72. | |||||
| Name, | Position(s) Held | Term | Principal Occupation(s) | No. of | Other | |
| Age, | With Fund and | of | During the | Portfolios | Directorships | |
| Address | Length of | Office * | Past 5 Years | in Russell | Held by Trustee | |
| Time Served | Fund | During the | ||||
| Complex | Past 5 Years | |||||
| Overseen | ||||||
| by Trustee | ||||||
| TRUSTEE EMERITUS | ||||||
| George F. Russell, Jr., | Trustee Emeritus and | Until resignation | • Director Emeritus, Frank Russell | 48 | None | |
| Born July 3, 1932 | Chairman Emeritus | or removal | Company (investment consultant to | |||
| since 1999 | institutional investors (“FRC”)) and | |||||
| 1301 Second Avenue, | RIMCo | |||||
| 18th Floor, Seattle, WA | • Chairman Emeritus, RIC and RIF; | |||||
| 98101 | 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) | ||||||
Disclosure of Information about Fund Trustees and Officers 89
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Disclosure of Information about Fund Trustees and Officers, continued —December 31, 2014 (Unaudited)
| Name, | Positions(s) Held | Term | Principal Occupation(s) |
| Age, | With Fund and | of | During the |
| Address | Length of | Office | Past 5 Years |
| Time Served | |||
| OFFICERS | |||
| Cheryl Wichers, | Chief Compliance | Until removed | • Chief Compliance Officer, RIC, RIF and RET |
| Born December 16, 1966 | Officer since 2005 | by Independent | • Chief Compliance Officer, RFSC and U.S. One Inc. |
| Trustees | • 2005 to 2011 Chief Compliance Officer, RIMCo | ||
| 1301 Second Avenue | |||
| 18th Floor, Seattle, WA | |||
| 98101 | |||
| Sandra Cavanaugh, | President and Chief | Until successor | • CEO, U.S. Private Client Services, Russell Investments |
| Born May 10, 1954 | Executive Officer | is chosen and | • President and CEO, RIC, RIF and RET |
| since 2010 | qualified by | • Chairman of the Board, Co-President and CEO, RFS | |
| 1301 Second Avenue, | Trustees | • Chairman of the Board, President and CEO, RFSC | |
| 18th Floor, Seattle, WA | • Director, RIMCo | ||
| 98101 | • Chairman of the Board, President and CEO, 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. | |||
| Mark E. Swanson, | Treasurer and Chief | Until successor | • Treasurer, Chief Accounting Officer and CFO, RIC, RIF and RET |
| Born November 26, 1963 | Accounting Officer | is chosen and | • Director, RIMCo, RFSC, Russell Trust Company (“RTC”) and RFS |
| since 1998 | qualified by | • Global Head of Fund Services, Russell Investments | |
| 1301 Second Avenue | Trustees | • October 2011 to December 2013, Head of North America Operations | |
| 18th Floor, Seattle, WA | Russell Investments | ||
| 98101 | • May 2009 to October 2011, Global Head of Fund Operations, Russell | ||
| Investments | |||
| • 1999 to May 2009, Director, Fund Administration | |||
| Jeffrey T. Hussey, | Chief Investment | Until removed by | • Global Chief Investment Officer, Russell Investments |
| Born May 2, 1969 | Officer since 2013 | Trustees | • Chief Investment Officer, RIC, RIF and RET |
| • Chairman of the Board, President and CEO, RIMCo | |||
| 1301 Second Avenue, | • Director, RTC, RIS and Russell Investments Delaware, Inc. | ||
| 18th Floor, Seattle WA | • Board of Managers, Russell Institutional Funds Management, Inc. | ||
| 98101 | • 2003 to 2013 Chief Investment Officer, Fixed Income, Russell | ||
| Investments | |||
| Mary Beth R. Albaneze, | Secretary since 2010 | Until successor | • Associate General Counsel, Russell Investments |
| Born April 25, 1969 | is chosen and | • Secretary, RIMCo, RFSC and RFS | |
| qualified by | • Secretary and Chief Legal Officer, RIC, RIF and RET | ||
| 1301 Second Avenue, | Trustees | • Assistant Secretary, RFS, RIA and U.S. One Inc. | |
| 18th Floor, Seattle, WA | • 1999 to 2010 Assistant Secretary, RIC and RIF | ||
| 98101 | |||
90 Disclosure of Information about Fund Trustees and Officers
Russell Investment Funds
LifePoints® Funds Variable Target Portfolio Series
Adviser and Service Providers — December 31, 2014
| Interested Trustee | Administrator, Transfer and Dividend Disbursing |
| Sandra Cavanaugh | Agent |
| Independent Trustees | Russell Fund Services Company |
| Thaddas L. Alston | 1301 Second Avenue |
| Kristianne Blake | Seattle, WA 98101 |
| Cheryl Burgermeister | Custodian |
| Daniel P. Connealy | State Street Bank and Trust Company |
| Katherine W. Krysty | 1 Iron Street |
| Raymond P. Tennison, Jr. | Boston, MA 02210 |
| Jack R. Thompson | Office of Shareholder Inquiries |
| Trustee Emeritus | 1301 Second Avenue |
| George F. Russell, Jr. | Seattle, WA 98101 |
| Officers | (800) 787-7354 |
| Sandra Cavanaugh, President and Chief Executive Officer | Legal Counsel |
| Cheryl Wichers, Chief Compliance Officer | Dechert LLP |
| Jeffrey T. Hussey, Chief Investment Officer | One International Place, 40th Floor |
| Mark E. Swanson, Treasurer and Chief Accounting Officer | 100 Oliver Street |
| Mary Beth R. Albaneze, Secretary | Boston, MA 02110 |
| Adviser | Distributor |
| Russell Investment Management Company | Russell Financial Services, Inc. |
| 1301 Second Avenue | 1301 Second Avenue |
| Seattle, WA 98101 | Seattle, WA 98101 |
| Independent Registered Public Accounting Firm | |
| PricewaterhouseCoopers LLP | |
| 1420 5th Avenue, Suite 2800 | |
| Seattle, WA 98101 |
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 and Service Providers 91
| Russell Investment Funds | 1301 Second Avenue | 800-787-7354 | |
| Seattle, Washington 98101 | Fax: | 206-505-3495 | |
| www.russell.com |
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 August 2013; 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:
| 2013 | $ | 226,456 |
| 2014 | $ | 226,456 |
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 | ||
| 2013 | $ | 80,000 | Tax auditing services |
| 2014 | $ | 80,000 | 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 | ||
| 2013 | $ | 56,650 | Tax filing services |
| 2014 | $ | 67,400 | 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 | ||
| 2013 | $ | 0 | |
| 2014 | $ | 0 | |
(e) (1) Registrant’s audit committee has adopted the following pre-approval policies and procedures for certain services provided by Registrant’s accountants:
Russell Investment Funds
Russell Exchange Traded Funds Trust
Audit and Non-Audit Services Pre-Approval Policy
Effective Date: August 30, 2013
I. Statement of Purpose.
This Policy has been adopted by the joint Audit Committee (the “Audit Committee”) of Russell Investment Company (“RIC”), Russell Investment Funds (“RIF”) and Russell Exchange Traded Funds Trust (“RET”) to apply to any and all engagements of the independent auditor to RIC, RIF and RET, respectively, for audit, non-audit, tax or other services. The term “Fund” shall collectively refer to RIC, RIF and RET. 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.
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.
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
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
- 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/RET 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, RIF and RET will report to the Chairman of the Audit Committee any breach of this Policy that comes to the attention of the Internal Audit Department of Frank Russell Company or an officer of RIC, RIF or RET.
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, RET 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.
(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: 2013 $ 0 2014 $ 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.
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.
| 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 |
| President and CEO, Russell Investment Company; Chairman of the Board, President and |
| CEO, Russell Fund Services Company |
| Date: February 20, 2015 |
| 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 |
| President and CEO, Russell Investment Company; Chairman of the Board, President and |
| CEO, Russell Fund Services Company |
| Date: February 20, 2015 |
| By: /s/ Mark E. Swanson |
| Mark E. Swanson |
| Treasurer and Chief Accounting Officer and CFO, Russell Investment Company; |
| Global Head of Fund Services, Russell Investment Management Company and |
| Russell Financial Services Company |
| Date: February 20, 2015 |