Filed Pursuant to Rule 485(b)
Registration No. 002‑71299
811‑03153
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
| THE SECURITIES ACT OF 1933 | ☒ | |||
| Pre‑Effective Amendment No. | ☐ | |||
| Post-Effective Amendment No. 276 | ☒ |
and
REGISTRATION STATEMENT
UNDER
| THE INVESTMENT COMPANY ACT OF 1940 | ☒ | |||
| Amendment No. 282 | ☒ |
RUSSELL INVESTMENT COMPANY
(Exact Name of Registrant as Specified in Charter)
| 401 Union Street, 18th Floor, Seattle, Washington | 98101 | |
| (Address of Principal Executive Office) | (ZIP Code) |
Registrant’s Telephone Number, including area code: 206/505‑7877
| Mary Beth Albaneze, Esq. Associate General Counsel Russell Investment Company 401 Union Street, 18th Floor Seattle, Washington 98101 206‑505‑4846 |
Stephanie Capistron, Esq. Dechert LLP One International Place, 40th Floor Boston, Massachusetts 02110 617‑728‑7100 |
(Name and Address of Agent for Service)
Approximate date of commencement of proposed public offering: As soon as practical after the effective date of the Registration Statement.
It is proposed that this filing will become effective (check appropriate box)
| ☐ | immediately upon filing pursuant to paragraph (b) |
| ☒ | on October 20, 2026 pursuant to paragraph (b) |
| ☐ | 60 days after filing pursuant to paragraph (a)(1) |
| ☐ | on __________________, pursuant to paragraph (a)(1) |
| ☐ | 75 days after filing pursuant to paragraph (a)(2) |
| ☐ | on (date) pursuant to paragraph (a)(2) of rule 485. |
If appropriate, check the following box:
| ☐ | this post-effective amendment designates a new effective date for a previously filed post-effective amendment. |
Prospectus
Russell Investment Company
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Ticker Symbol by Class | |
| Fund |
A |
S |
| Russell Investments Alternatives Diversifier Fund |
RADAX |
RADSX |
The Securities and Exchange Commission and the Commodity Futures Trading Commission have not approved or disapproved of these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
800-787-7354
Risk/Return Summary
Investment Objective (Non-Fundamental)
The Fund seeks long term capital appreciation with low correlation to traditional core equity and bond markets.
Fees and Expenses of the Fund
The following tables describe the fees and expenses that you may pay if you buy, hold, and sell Shares of the Fund. In addition to the fees and expenses described below, you may also be required to pay brokerage commissions on purchases and sales of Class S Shares of the Fund. You may qualify for sales charge discounts if you and your family invest, or agree to invest in the future, at least $50,000 in Russell Investment Company Funds. In addition, Financial Intermediaries (as defined below in the Additional Information section) may impose different sales loads and waivers. More information about these and other discounts is available from your Financial Intermediary and in the Front-End Sales Charges and More About Deferred Sales Charges sections beginning on pages 40, and 42, respectively, of the Prospectus, and in the Purchase, Exchange and Redemption of Fund Shares section, beginning on page 16, of the Fund’s Statement of Additional Information. Please see the Expense Notes section of the Fund’s Prospectus for further information regarding expenses of the Fund.
Shareholder Fees (fees paid directly from your investment)
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Class A |
Class S |
| Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) |
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| Maximum Deferred Sales Charge (Load)* |
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| Maximum Sales Charge (Load) Imposed on Reinvested Dividends |
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*
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)#
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Share Classes | |
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A |
S |
| Advisory Fee |
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| Distribution (12b-1) Fees |
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| Other Expenses |
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| Total Annual Fund Operating Expenses |
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Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the Fund for the time periods indicated and then redeem all of your Shares at the end of those periods. The example also assumes your investment has a 5% return each year and that operating expenses remain the same.
Although your actual costs may be higher or lower, under these assumptions your costs would be:
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Share Classes | |
| |
A |
S |
| 1 Year |
$ |
$ |
| 3 Years |
$ |
$ |
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund Shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. Because the Fund has not yet commenced operations as of the date of the Prospectus, no portfolio turnover rate is available for the Fund.
Investments, Risks and Performance
Principal Investment Strategies of the Fund
The Fund seeks to achieve its investment objective by employing a “multi-strategy and multi-manager” approach whereby Russell Investment Management, LLC (“RIM”) allocates the Fund’s assets to a diverse range of alternative investment strategies and utilizes multiple money managers to pursue those strategies. Pursuant to the Fund’s alternative investment strategies, the Fund may invest in a broad range of instruments, markets and asset classes economically tied to U.S., foreign and emerging markets. While the Fund will primarily use derivatives to implement its investment strategies, investments may also include equity securities and fixed income securities. The Fund may take both long and short positions. A long position is one with the expectation that the underlying asset will rise in value. A short position is one with the expectation that the underlying asset will decline in value.
RIM provides or oversees the provision of all investment advisory and portfolio management services for the Fund. The Fund is advised by RIM and multiple money managers unaffiliated with RIM pursuant to a multi-manager approach. RIM may change the Fund’s asset allocation at any time. With the exception of Efficient Capital Management, LLC (“Efficient”), the Fund’s money managers select the individual portfolio instruments for the assets assigned to them. Efficient recommends certain Fund money managers to RIM, directs those money managers with respect to target volatility levels and advises RIM with respect to the Fund’s allocations among those money managers. RIM manages the Fund’s cash balances.
The Fund uses Active Long-Volatility Biased and Tactical Trading alternative investment strategies. Each strategy includes multiple sub-strategies.
Active Long-Volatility Biased Strategy: Seeks gains from changes in market volatility, volatility dislocations (meaning periods when investments tied to market volatility appear unusually expensive or inexpensive or are priced differently across related instruments or markets) and other market conditions associated with increased uncertainty or market stress. The strategy generally maintains a long-volatility bias (meaning it generally holds positions that are expected to benefit when markets become more volatile, including during sharp market declines or other large market movements) and may seek to provide positive convexity (meaning gains may increase at an accelerating rate as market volatility rises or markets decline sharply). The strategy may also employ active trading, relative value positions or other techniques intended to mitigate negative carry (meaning the ongoing cost of maintaining positions that may lose value or generate losses over time in stable or rising markets). Active Long-Volatility Biased sub-strategies include:
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Relative Value Volatility Sub-Strategy: Seeks gains from perceived mispricing among related volatility instruments, securities or markets. These long or short opportunities may arise in equity, interest rate or foreign exchange
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volatility, as well as in convertible or hybrid instruments, corridor or variance structures (types of derivatives whose returns are based on how much and how often an asset’s price moves within a specified range), or other derivatives that a money manager believes are trading at a premium or discount to fair value.
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Dispersion Sub-Strategy: Seeks gains from differences in volatility between an index and its underlying constituents. This sub-strategy typically involves positions that are long individual security volatility and short index volatility, and may include other forms of dispersion trading (an approach that seeks to profit when the price movements or implied volatilities of individual securities diverge from those of a broader index or from each other).
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Cross-Asset Long Volatility Sub-Strategy: Seeks gains from outright or actively managed long-volatility exposures across equity, interest rate and foreign exchange markets. The sub-strategy may maintain long volatility exposure across a range of underlying markets and adjust the level, mix or location of that exposure over time based on market conditions, volatility levels or a money manager’s assessment of relative opportunities. It may seek to benefit from volatility spikes, rapid repricing events or other market dislocations.
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Carry Mitigation and Funding Sub-Strategy: Seeks to offset some of the cost of maintaining long-volatility exposure by investing in positions that a money manager believes may generate positive returns in more benign market environments, while seeking to limit the extent to which such positions reduce the portfolio’s convexity in stressed conditions.
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Convexity Overlay and Tail Risk Hedging Sub-Strategy: Seeks gains from positions intended to increase the portfolio’s responsiveness to severe market selloffs, sharp volatility spikes or other extreme market events. The sub-strategy may include downside hedges, long gamma positions (positions that are designed to become more sensitive to market movements as prices change, so that gains may increase as markets move sharply), options structures or other convexity-oriented positions, used alone or in combination with other sub-strategies.
Tactical Trading Strategy: Seeks gains across global markets from price trends, relative value relationships, macroeconomic developments and other market conditions affecting equities, interest rates, commodities, government securities, currencies and futures. The strategy may take long or short positions and seek to benefit from sustained directional price movements, changing relationships among related assets, or shifts in economic, monetary, fiscal, geopolitical or other systemic conditions.
Tactical Trading sub-strategies include:
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Trend-Following Sub-Strategy: Seeks gains from upward or downward price movements across global markets, including equity, interest rate, currency and commodity markets. The sub-strategy generally uses systematic models to identify and respond to persistent price trends, momentum patterns or related market signals.
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Relative Value and Cross-Market Sub-Strategy: Seeks gains from perceived mispricing or changing relationships among related markets, instruments or asset classes. Opportunities may arise across countries, regions, yield curves, currencies, commodity curves, equity indices, cash securities and related derivatives, or other instruments that a money manager believes are trading at a premium or discount to fair value. The sub-strategy is generally designed to limit unwanted market exposure and may be implemented through diversified positions intended to enhance the portfolio’s overall risk/return profile.
The Fund may invest in derivative instruments and may use derivatives to take both long and short positions. The Fund may invest in currency futures and options on futures, forward currency contracts and currency options for speculative purposes or to seek to protect a portion of its investments against adverse currency exchange rate changes.
The Fund may invest in equity securities of issuers of any market capitalization which are economically tied to U.S. and non-U.S. countries, including emerging markets countries. These securities may include common stocks, preferred stocks, rights, warrants, convertible securities and depositary receipts. The Fund’s investments in convertible securities may include contingent convertible securities, which provide for mandatory conversion into common stock of the issuer under certain circumstances. Based on index provider classifications, the Fund considers emerging market countries to include every country in the world except Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States.
The Fund may also invest in fixed income securities of any credit quality and maturity, including fixed income securities that are rated below investment grade (commonly referred to as “high yield” or “junk bonds”) and in debt
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securities that are the subject of bankruptcy proceedings, in default as to the payment of principal or interest or rated in the lowest rating category (“distressed securities”). The Fund may invest in U.S. and non-U.S. corporate fixed income securities, Yankee Bonds (dollar-denominated obligations issued in the U.S. by non-U.S. banks and corporations) and fixed income securities issued or guaranteed by the U.S. government (including Treasury Inflation Protected Securities and zero coupon securities) or by non-U.S. governments, or by their respective agencies and instrumentalities, as well as in emerging markets debt securities. The Fund may also invest in variable and floating rate securities. The Fund may enter into repurchase agreements and reverse repurchase agreements.
The Fund may invest up to 25% of its total assets in a wholly-owned subsidiary of the Fund (the “Subsidiary”) organized as a company under the laws of the Cayman Islands. The Fund may invest directly or indirectly through the Subsidiary in commodity-linked derivative instruments (including futures and options contracts with respect to indexes or individual commodities, options on futures contracts, swap agreements and swaptions), exchange-traded funds, exchange-traded notes and commodity-linked securities that together are intended to provide exposure to the performance of the commodity futures market. The Fund’s commodity exposure will be to traditional commodities such as energy products, precious and industrial metals, grains, soft commodities and livestock. The portion of the Fund’s or the Subsidiary’s assets exposed to any particular commodity or commodity sector will vary based on market conditions, but from time to time the portion could be substantial.
The Fund’s or the Subsidiary’s use of derivatives may cause the Fund’s or Subsidiary’s investment returns to be impacted by the performance of securities the Fund or the Subsidiary does not own and result in the Fund’s or the Subsidiary’s total investment exposure exceeding the value of its portfolio.
The Fund may invest in pooled investment vehicles, including other investment companies such as exchange-traded funds.
A portion of the Fund’s net assets may be “illiquid” investments.
The Fund may invest in synthetic foreign equity securities, which may be referred to as international warrants, local access products, participation notes or low exercise price warrants. International warrants are a form of derivative security issued by foreign banks that either give holders the right to buy or sell an underlying security or securities for a particular price or give holders the right to receive cash payment relating to the value of the underlying security or securities. Local access products are similar to options in that they are exercisable by the holder for an underlying security or the value of that security, but are generally exercisable over a longer term than typical options.
The Fund may engage in active and frequent trading of portfolio securities to achieve its principal investment strategies.
The Fund is classified as a “non-diversified fund” under the Investment Company Act of 1940, as amended, which means that a relatively high percentage of the Fund’s assets may be invested in a limited number of issuers.
Please refer to the “Investment Objective and Investment Strategies” section in the Fund’s Prospectus for further information.
Principal Risks of Investing in the Fund
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Alternative Investment Strategies Risk. The Fund may use alternative investment strategies that involve investment techniques and risks different from those of more traditional mutual funds. These strategies may involve, among other things, complex combinations of systematic trend signals, managed futures strategies, multi-asset trading, derivatives-based exposures, volatility-related strategies, relative value trades, carry mitigation techniques, dynamic position adjustments and tail risk hedging. These strategies may be more difficult to implement successfully than traditional long-only strategies and may perform differently than expected in rising, falling, range-bound, volatile or illiquid markets. Strategy complexity may increase the risk of implementation errors, unintended exposures, ineffective hedging, inaccurate risk measurement, liquidity constraints, higher transaction costs and operational failures. The Fund’s performance may be driven by multiple interacting factors, and losses may occur for reasons that are difficult to identify or anticipate. There can be no assurance that the Fund’s alternative investment strategies will achieve their intended results, reduce volatility, provide diversification, offset losses from other investments or generate positive returns. The Fund may allocate assets among strategies because they are expected
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to behave differently across market environments. Correlations among strategies, markets and instruments are not stable and may change quickly, particularly during periods of market stress, deleveraging, rapid reversals or reduced liquidity. Strategies expected to diversify one another may experience losses at the same time, and positions intended to offset or hedge one another may fail to do so. The Fund may emphasize strategies that underperform, reduce exposure to strategies that later perform well, or reallocate at unfavorable times.
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Hedge Ineffectiveness Risk. The Fund may use hedges or offsetting positions intended to reduce risk or improve the risk profile of a strategy. Hedges may not perform as expected because of incorrect sizing, timing or market relationships, and may reduce gains, increase costs or cause losses. There can be no assurance that any hedge or offsetting position will protect the Fund from loss.
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Long and Short Positions Risk. The Fund may take both long and short positions across multiple asset classes and markets. Long positions may decline in value and short positions may increase in value, causing losses. Short positions may involve substantial or theoretically unlimited losses. Long and short positions may also increase portfolio turnover, transaction costs, margin requirements and the complexity of the Fund’s risk profile.
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Multi-Asset Tactical Trading Risk. The Fund’s tactical trading strategy may involve positions across equities, interest rates, commodities, currencies, futures and other markets. These markets may respond differently to economic, political, monetary, liquidity or other market developments, and a money manager may incorrectly assess the direction, timing or magnitude of market movements. Losses may occur across multiple asset classes at the same time, particularly during periods of market stress or when historical market relationships break down.
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Trend-Following Strategies Risk. Trend-following strategies seek to identify and profit from sustained upward or downward price movements, but such trends may not develop, may be short-lived or may reverse suddenly. These strategies may perform poorly in range-bound, choppy, low-volatility or whipsaw markets (where price movements trigger trading signals and then quickly reverse) and may result in increased trading, transaction costs and losses. Managed futures strategies may perform poorly during periods when futures markets are trendless, volatile in a non-directional manner, subject to rapid reversals or affected by government, central bank or regulatory intervention. Managed futures exposure may also create substantial variation in the Fund’s returns over short periods.
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Convexity and Tail Risk Hedging Strategies Risk. The Fund may use downside hedges, long gamma positions, options structures or other convexity-oriented positions intended to increase the Fund’s responsiveness to severe market selloffs, sharp volatility spikes or other extreme events. These positions may not perform as expected and may expire worthless, decline in value or fail to offset losses in other parts of the Fund.
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Volatility Strategies Risk. The Fund may use strategies that seek to generate returns from changes in realized or implied volatility, volatility relationships, or other volatility-related market characteristics. These strategies may perform poorly when volatility behaves differently than expected and may be highly sensitive to changes in market prices, time to expiration, interest rates, dividends, liquidity, market positioning and market stress. Volatility strategies may involve long-volatility, short-volatility, relative value, dispersion, correlation, cross-asset or dynamic positioning strategies and may experience substantial losses if volatility relationships or market conditions change unexpectedly. Long-volatility positions may involve ongoing costs and negative carry that reduce returns over time, while short-volatility exposure may result in large or rapidly increasing losses during periods of market stress or rising volatility. Volatility instruments and related structures may be complex, less liquid than anticipated and subject to sudden repricing.
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Carry Mitigation and Funding Strategy Risk. The Fund may use carry-generating, relative value or other funding trades intended to offset some of the cost of maintaining long-volatility exposure. These trades may not generate sufficient returns to offset negative carry and may create losses, particularly during periods of market stress or rising volatility. Carry mitigation and funding positions may also reduce the Fund’s intended convexity or defensive characteristics during stressed markets and may increase losses rather than offset the cost of maintaining long-volatility exposure.
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Derivatives. Investments in derivative instruments can pose additional, and often greater, risks than investing directly in conventional securities, currencies or other instruments. The Fund may lose more than the amount initially invested. Compared to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices and thus the Fund’s losses may be greater if it invests in derivatives than if it invests only in conventional securities. Derivatives are generally subject to a number of risks including leveraging risk, liquidity risk, market risk, credit risk, default risk, counterparty risk (the risk that the
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other party in an agreement will fail to perform its obligations), management risk, operational risk and legal risk. Certain of these risks do not apply to derivative instruments entered into for hedging or cash equitization, certain cleared derivative instruments, and written options contracts. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative instrument may not correlate exactly with the change in the value of the underlying asset, rate or index.
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Commodity Risk. Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, particularly if the investments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or sectors affecting a particular industry or commodity and international economic, political and regulatory developments. The use of leveraged commodity-linked derivatives creates an opportunity for increased return, but also creates the possibility for a greater loss.
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Equity Securities. The value of equity securities will rise and fall in response to the activities of the company that issued them, general market conditions and/or economic conditions. Investments in small and medium capitalization companies may involve greater risks because these companies generally have narrower markets, more limited managerial and financial resources and a less diversified product offering than larger, more established companies. Small and some medium capitalization stocks may also be thinly traded, and thus, difficult to buy and sell in the market. Investments in preferred stocks are subject to the risks of common stocks, as well as the risk that interest rates will rise and make the fixed dividend feature, if any, less appealing to investors resulting in a decline in price.
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Non-U.S. and Emerging Markets Securities. Non-U.S. securities have risks relating to political, economic, social and regulatory conditions in foreign countries. Non-U.S. securities may also be subject to risk of loss because of more or less foreign government regulation, less public information and less stringent investor protections and disclosure standards. The risks associated with non-U.S. securities may be amplified for emerging markets securities.
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Fixed Income Securities. Prices of fixed income securities generally rise and fall in response to, among other things, interest rate changes. Volatility in interest rates and in fixed income markets may increase the risk that the Fund’s investments in fixed income securities could lose money. In addition, the Fund could lose money if the issuer or guarantor of a fixed income security or other issuer of credit support is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Fixed income securities may be downgraded in credit rating or go into default.
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U.S. and Non-U.S.Corporate Debt Securities Risk. Investments in U.S. and non-U.S. corporate debt securities are subject to interest rate risk and market risk and are affected by perceptions of the creditworthiness and business prospects of individual issuers. Non-U.S. corporate debt securities may expose the Fund to greater risk than investments in U.S. corporate debt securities.
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Government Issued or Guaranteed Securities, U.S. Government Securities. Bonds issued or guaranteed by a government are subject to inflation risk, price depreciation risk and default risk.
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Non-Investment Grade Debt Securities (“High Yield” or “Junk Bonds”). Non-investment grade debt securities involve higher volatility and higher risk of default than investment grade bonds.
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Non-U.S. and Emerging Markets Debt. The value of an investment in non-U.S. and emerging markets debt may be affected by political, economic or social conditions or foreign currency exchange rates. Prices of emerging markets debt can be severely affected not only by rising interest rates and adverse currency fluctuations, but also by the deterioration of credit quality or default by the issuer. Non-U.S. and emerging markets debt may also be subject to risk of loss because of more or less foreign government regulation, less public information and less stringent investor protections and disclosure standards.
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Currency Risk. Non-U.S. securities that trade in, and receive revenues in, non-U.S. currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. As a result, investments in non-U.S. dollar-denominated securities and currencies may reduce the returns of the Fund.
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Non-Diversification Risk. Investing a relatively high percentage of assets in the securities of a single issuer or group of issuers, may cause performance to be more vulnerable to changes in the market value of the single issuer or group of issuers, and more susceptible to risks associated with a single economic, political or regulatory occurrence.
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Liquidity Risk. The market for certain investments may become illiquid or less liquid (i.e., there may be a significant reduction in trading activity, including in the number of market participants or transactions, in such investments) under adverse or volatile market or economic conditions, making those investments difficult to sell. The market price of certain investments may fall dramatically if there is no liquid trading market. For derivatives, this also includes the risk involving liquidity demands that derivatives can create to make payments of margin or settlement payments to counterparties. Such events and conditions may adversely affect the value of the Fund’s investments, result in greater market or liquidity risk or cause difficulty valuing the Fund’s portfolio instruments or achieving the Fund’s objective.
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Illiquid Investments. An illiquid or less liquid investment may be difficult to sell quickly and at a fair price, which could cause the Fund to realize a loss on the investment if it was sold at a lower price than that at which it had been valued.
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Global Financial Markets Risk. Global financial markets are increasingly interconnected and conditions (including volatility and instability) and events (including wars and armed conflicts, tariffs, natural disasters, pandemics and epidemics) in one country, region or financial market may adversely impact issuers in a different country, region or financial market. In addition, governmental and quasi-governmental organizations have taken a number of unprecedented actions designed to support the markets. Such events and conditions may adversely affect the value of the Fund’s securities, result in greater market or liquidity risk or cause difficulty valuing the Fund’s portfolio instruments or achieving the Fund’s objective.
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Active Management. Despite strategies designed to achieve the Fund’s investment objective, the value of investments will change with market conditions, and so will the value of any investment in the Fund and you could lose money. The securities selected for the portfolio may not perform as RIM or the Fund's money managers expect. Additionally, securities selected may cause the Fund to underperform relative to other funds with similar investment objectives and strategies.
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Multi-Manager Approach. While the investment strategies employed by the money managers are intended to be complementary, they may not in fact be complementary. A multi-manager approach could result in more exposure to certain types of securities and higher portfolio turnover.
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Fundamental Investing Risk. A fundamental investment approach uses research and analysis of a variety of factors to create a forecast of company results, which is used to select securities. The process may result in an evaluation of a security’s value that may be incorrect or, if correct, may not be reflected by the market. Security or instrument selection using a fundamental investment approach may also cause the Fund to underperform other funds with similar investment objectives and investment strategies even in a rising market.
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Quantitative Investing and Models. Quantitative inputs and models use historical company, economic and/or industry data to evaluate prospective investments or to generate forecasts which could result in incorrect assessments of the specific portfolio characteristics or ineffective adjustments to the Fund’s exposures. Securities selected using quantitative analysis may perform differently than analysis of their historical trends would suggest. Inputs or models may be flawed or not work as anticipated and may cause the Fund to underperform other funds with similar investment objectives and strategies.
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Distressed Securities. Investments in distressed securities inherently have more credit risk than investments in non-distressed issuers. In the event that an issuer of distressed securities defaults or initiates insolvency proceedings, the Fund may lose all of its investment in the distressed securities.
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Rights and Warrants. Changes in the value of a right or a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a right or a warrant may be more volatile than the price of its underlying security, and a right or a warrant may offer greater potential for capital loss.
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Convertible Securities. Convertible securities are subject to both the credit and interest rate risks associated with fixed income securities and to the market risk associated with common stocks. Contingent convertible securities generally provide for mandatory conversion into common stock of the issuer under certain circumstances, and therefore are subject to the risk that the Fund could experience a reduced income rate and a worsened standing in the case of an issuer’s insolvency.
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Money Market Securities (Including Commercial Paper). Prices of money market securities generally rise and fall in response to interest rate changes.
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Repurchase Agreements. Repurchase agreements are subject to the risk that the sellers may not be able to pay the agreed-upon repurchase price on the repurchase date.
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Reverse Repurchase Agreements. Reverse repurchase agreements are subject to the risk that the other party may fail to return the security in a timely manner or at all. The Fund may lose money if the market value of the security transferred by the Fund declines below the repurchase price.
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Yankee Bonds and Yankee CDs. Issuers of Yankee Bonds and Yankee CDs are not necessarily subject to the same regulatory requirements that apply to U.S. corporations and banks.
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Synthetic Foreign Equity/Fixed Income Securities. Investments in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or its value. These instruments may also be subject to liquidity risk, currency risk and the risks associated with investments in non-U.S. securities. In addition, the exercise or settlement date may be affected by certain market disruption events which could cause the local access products to become worthless if the events continue for a period of time.
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Variable and Floating Rate Securities Risk. Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general.
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Securities of Other Investment Companies. Investments in other investment companies expose shareholders to the expenses and risks associated with the investments of the Fund as well as to the expenses and risks of the underlying investment companies.
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Depositary Receipts. Depositary receipts (including American Depositary Receipts and Global Depositary Receipts) are securities traded on a local stock exchange that represent securities issued by a foreign publicly-listed company. Depositary receipts are generally subject to the same risks of investing in the foreign securities they evidence or into which they may be converted.
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Currency Trading Risk. Currency trading strategies may involve instruments that have volatile prices, are illiquid or less liquid or create economic leverage. Forward currency contracts are subject to the risk that, should forward prices increase, a loss will be incurred to the extent that the price of the currency agreed to be purchased exceeds the price of the currency agreed to be sold.
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Counterparty Risk. Counterparty risk is the risk that the other party or parties to an agreement or a participant to a transaction, such as a broker, might default on a contract or fail to perform by failing to pay amounts due or failing to fulfill the obligations of the contract or transaction.
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Tax Risk. The tax treatment of the Fund’s investments may be adversely affected by future legislation, Treasury Regulations and/or guidance issued by the Internal Revenue Service (“IRS”) that could affect whether income derived from such investments is “qualifying income” under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), or otherwise alter the character, timing and/or amount of the Fund’s taxable income or any gains and distributions made by the Fund. Because the Subsidiary is a controlled foreign corporation, any gains received from its investments will be passed through to the Fund as ordinary income, which may be taxed at less favorable rates than capital gains.
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Subsidiary Risk. By investing in the Subsidiary, the Fund will be indirectly exposed to the risks associated with the Subsidiary’s investments, which are generally similar to those that are permitted to be held by the Fund. The Subsidiary is not registered under the Investment Company Act of 1940, as amended (the “1940 Act”), and is generally not subject to all of the investor protections of the 1940 Act. Furthermore, changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as described in this Prospectus and could adversely affect the Fund. The cost of investing in the Fund will be higher because the Fund bears the expenses of the Subsidiary.
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High Portfolio Turnover Risk. The Fund may engage in active and frequent trading, which may result in higher portfolio turnover rates, higher transaction costs and realization of short-term capital gains that will generally be taxable to shareholders as ordinary income.
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New Fund Risk. The Fund is a new Fund. There can be no assurance that the Fund will grow to an economically viable size, in which case the Fund may cease operations. Investors may be required to liquidate or transfer their investments at an inopportune time.
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Impact of Large Redemptions (Including Possible Fund Liquidation). The Fund may be used as an investment in asset allocation programs and may have a large percentage of its Shares held in such programs. Large redemption
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activity could result in the Fund incurring additional costs and being forced to sell portfolio securities at a loss to meet redemptions. Large redemptions may also result in increased expense ratios, higher levels of realized capital gains or losses with respect to the Fund’s portfolio securities, higher Fund cash levels, higher brokerage commissions and other transaction costs, among other negative consequences such as reduced liquidity in the Fund’s portfolio. As a result, large redemption activity could adversely affect the Fund’s ability to conduct its investment program which, in turn, could adversely impact the Fund’s performance or may result in the Fund no longer remaining at an economically viable size, in which case the Fund may cease operations.
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Cyber Security and Other Operational Risks. An investment in the Fund, like any fund, can involve operational risks. In addition, other disruptive events may adversely affect the Fund’s ability to conduct business. While the Fund seeks to minimize such risks and events through controls and oversight, including business continuity plans and risk management systems, there may still be events or failures that could cause losses to the Fund. In addition, the Fund may be susceptible to operational risks through breaches in cyber security. A cyber security breach may cause sensitive information (including relating to personally identifiable information of investors) to be lost, improperly accessed, used or disclosed. The Fund and its shareholders could be negatively impacted by such disruptive events or cyber security incidents.
Please refer to the “Risks” section in the Fund’s Prospectus for further information.
An investment in the Fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Performance
Management
Investment Adviser
The Fund's investment adviser is RIM. The Fund's money managers are:
| ●AlphaSimplex Group, LLC |
●One River Asset Management, LLC |
| ●Aspect Capital Limited |
●Portman Square Capital LLP |
| ●Crabel Capital Management, LLC |
●Welton Investment Partners LLC |
| ●Efficient Capital Management, LLC |
|
Portfolio Managers
Mark Raskopf, Portfolio Manager, Hedge Funds, Grace Uniacke, Director, Alternative Solutions, and Nikki Zhou, Portfolio Manager, Alternatives, have primary responsibility for the management of the Fund. Mr. Raskopf, Ms. Uniacke and Ms. Zhou have managed the Fund since October 2026.
Additional Information
For important information about:
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Purchase of Fund Shares, please see How to Purchase Shares on page 10.
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Redemption of Fund Shares, please see How to Redeem Shares on page 10.
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Taxes, please see Taxes on page 10.
●
Financial Intermediary Compensation, please see Payments to Financial Intermediaries on page 10.
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Additional Information
How to Purchase Shares
Shares are only available through investment adviser representatives and broker-dealer registered representatives of LPL Financial LLC or its affiliates (collectively, “Financial Intermediaries”), unless you are eligible to participate in a Russell Investments employee investment program. Certain Classes of Shares may only be purchased by specified categories of investors and are only offered by certain Financial Intermediaries. There is currently no required minimum initial investment for Class A or Class S Shares. The Fund reserves the right to close any account whose balance falls below $500 and to change the categories of investors eligible to purchase its Shares.
For more information about how to purchase Shares, please see Additional Information about How to Purchase Shares in the Fund’s Prospectus.
How to Redeem Shares
Shares may be redeemed through your Financial Intermediary on any business day of the Fund (defined as a day on which the New York Stock Exchange (“NYSE”) is open for regular trading). Redemption requests are processed at the next net asset value per share calculated after the Fund receives an order in proper form as determined by your Financial Intermediary. Redemption requests must normally be received by the Fund or a Fund agent prior to the close of regular trading on the NYSE (normally 4:00 p.m., Eastern Time) on a business day of the Fund, in order to be processed at the net asset value calculated on that day. Because Financial Intermediaries and Fund agents may have earlier redemption order cut off times to allow them to deliver redemption orders to the Fund prior to the Fund’s order transmission cut off time, please ask your Financial Intermediary what the cut off time is. Please contact your Financial Intermediary for instructions on how to place redemption requests.
For more information about how to redeem Shares, please see Additional Information about How to Redeem Shares in the Fund’s Prospectus.
Taxes
Unless you are investing through an IRA, 401(k) or other tax-advantaged retirement account, distributions from the Fund are generally taxable to you as either ordinary income or capital gains.
For more information about these and other tax matters relating to the Fund and its shareholders, please see Additional Information about Taxes in the Fund’s Prospectus.
Payments to Financial Intermediaries
The Fund and its related companies may pay a Financial Intermediary for the sale of Fund Shares and related services. These payments may create a conflict of interest by influencing the Financial Intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your Financial Intermediary’s website for more information.
For more information about payments to Financial Intermediaries, please see Distribution and Shareholder Services Arrangements and Payments to Financial Intermediaries in the Fund’s Prospectus.
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MANAGEMENT OF THE Fund
The Fund's investment adviser is RIM, 401 Union Street, 18th Floor, Seattle, Washington 98101. RIM was established in 1982 and pioneered the “multi-style, multi-manager” investment method in mutual funds. RIM is an indirect, wholly-owned subsidiary of Russell Investments Group, Ltd., through which the limited partners of certain private equity funds affiliated with TA Associates Management, L.P. (“TA Associates”) indirectly hold a majority ownership interest and the limited partners of certain private equity funds affiliated with Reverence Capital Partners, L.P. (“Reverence Capital”) indirectly hold a significant minority ownership interest in RIM and its affiliates (“Russell Investments”). Certain of Russell Investments’ employees, which may include an officer of Russell Investment Company (the “Trust” or “RIC”), and Hamilton Lane Advisors, LLC also hold minority, non-controlling positions in Russell Investments Group, Ltd. TA Associates is one of the oldest and most experienced global growth private equity firms. Reverence Capital is a private investment firm, focused on investing in leading financial services companies.
RIM has advised the Fund that, on July 9, 2026, Russell Investments announced that an investor consortium led by B Capital, a global multi-stage investment firm, and including California Public Employees’ Retirement System, has agreed to acquire Russell Investments, including RIM, from TA Associates and Reverence Capital (the “Transaction”). RIM expects the Transaction to close in the first quarter of 2027, subject to the receipt of regulatory approvals and other customary closing conditions. The Transaction is not expected to result in any material change in the day-to-day management of the Fund. As required by the Investment Company Act of 1940, as amended, the consummation of the Transaction would result in the automatic termination of the advisory agreement between RIM and the Trust, on behalf of the Fund. At a meeting held on August 25, 2026, the Fund’s Board of Trustees (the “Board”) unanimously approved a new investment advisory agreement (the “New Advisory Agreement”) between the Trust and RIM, on behalf of the Fund. RIM (in its capacity as initial shareholder of the Fund) intends to conditionally approve the New Advisory Agreement, subject to the closing of the Transaction. Accordingly, shareholders of the Fund will not be asked to approve the New Advisory Agreement as a result of the Transaction. Under the New Advisory Agreement, RIM would provide investment advisory services to the Fund on the same terms as the current agreement (except effective and termination dates) for fees that do not exceed those that are currently in effect with respect to the Fund.
The Fund is designed to be used within multi-asset portfolios to gain exposure to a globally diverse mix of asset classes and styles and to combine traditional securities, such as equities and bonds, with non-traditional approaches, such as alternative investments. RIM's multi-asset approach combines diversification, research and selection of unaffiliated money managers and dynamic portfolio management. RIM uses its core capabilities (capital markets insights, manager research and asset allocation) to manage the Fund by combining various money managers and strategies into a single Fund.
The Fund's assets are invested using a “multi-style, multi-manager diversification” technique. Unlike most investment companies that have a single organization that acts as investment adviser, the Fund divides responsibility for investment advice between RIM and a number of money managers unaffiliated with RIM. RIM’s money manager research services include evaluating and recommending professional investment advisory and management organizations (“money managers”) to make specific portfolio investments or recommendations for each asset class, according to designated investment objectives, styles and strategies.
RIM provides or oversees the provision of all investment advisory and portfolio management services for the Fund. Subject to the approval of the Fund's Board of Trustees, RIM selects, oversees and evaluates the performance results of the Fund's money managers and allocates Fund assets among multiple money manager investment strategies. RIM may change the Fund’s asset allocation at any time, including not allocating Fund assets to one or more money manager strategies. With the exception of Efficient Capital Management, LLC, each money manager has a discretionary asset management assignment pursuant to which it is allocated a portion of Fund assets to manage directly and selects the individual portfolio instruments for the assets assigned to it. RIM does not evaluate the investment merits of a money manager’s individual security selections or recommendations. RIM manages the Fund’s cash balances. RIM may also manage portions of the Fund during transitions between money managers.
The Fund's administrator and transfer agent is Russell Investments Fund Services, LLC (“RIFUS”), a wholly-owned subsidiary of RIM. RIFUS, in its capacity as the Fund's administrator, provides or oversees the provision of all administrative services for the Fund. The Fund's custodian, State Street Bank and Trust Company (“State Street”), maintains custody of the Fund's assets and establishes and monitors subcustodial relationships with banks and certain other financial institutions in the foreign countries in which the Fund invests. RIFUS, in its capacity as the Fund's
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transfer agent, is responsible for maintaining the Fund's shareholder records and carrying out shareholder transactions. As described above, the Fund conducts its business through a number of service providers who act on its behalf. When the Fund acts in one of these areas, it does so through the service provider responsible for that area.
RIM’s employees who manage the Fund, oversee the money managers of the Fund and have primary responsibility for the management of the Fund (the “RIM Managers”) are:
●
Mark Raskopf, Portfolio Manager, Hedge Funds since September 2020. Mr. Raskopf shares primary responsibility for the management of the Fund with Ms. Uniacke and Ms. Zhou.
●
Grace Uniacke, Director, Alternative Solutions since April 2025. Prior to joining Russell Investments, Ms. Uniacke was a Credit Product Specialist at ArrowMark Partners and previously Vice President, Venture Capital Product Specialist at StepStone Group. Ms. Uniacke shares primary responsibility for the management of the Fund with Mr. Raskopf and Ms. Zhou.
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Nikki Zhou, Portfolio Manager, Alternatives since August 2025. Ms. Zhou was Portfolio Manager, Multi-Asset Solutions from March 2025 to August 2025. From March 2024 to February 2025, Ms. Zhou was Associate Portfolio Manager, Multi-Asset Solutions. From March 2022 to February 2024, Ms. Zhou was Senior Portfolio Analyst. From March 2020 to February 2022, Ms. Zhou was Portfolio Analyst. Ms. Zhou shares primary responsibility for the management of the Fund with Mr. Raskopf and Ms. Uniacke.
Please see the Fund's Statement of Additional Information (“SAI”) for additional information about the RIM Managers' compensation, other accounts managed by the RIM Managers and the RIM Managers' ownership of securities in the Fund.
The Fund’s annual advisory fee as a percentage of average daily net assets is 2.00%.
The Fund invests its cash in an unregistered cash management fund advised by RIM. RIM has waived its 0.05% advisory fee for the unregistered fund. RIFUS charges a 0.05% administrative fee to the unregistered fund.
A discussion regarding the basis for approval by the Board of Trustees (the “Board” or the “Trustees”) of the investment advisory contract between RIM and the Fund will be available in the Fund's semiannual financial statements and other information in Form N-CSR covering the period ended April 30, 2027.
The Trustees are responsible for generally overseeing management and operations of the business and affairs of the Fund and do not manage operations on a day-to-day basis. The Trustees and officers of the Trust may amend the Prospectus, any summary prospectus, the SAI and any contracts to which the Trust or the Fund is a party and interpret the investment objective(s), policies, restrictions and contractual provisions applicable to the Fund without shareholder input or approval, except in circumstances in which shareholder approval is specifically required by law (such as changes to fundamental investment policies) or where a shareholder approval requirement is specifically disclosed in the Prospectus or SAI. Neither the Prospectus, any summary prospectus, the SAI, any contracts filed as exhibits to the Trust’s registration statement, nor any other communications or disclosure documents from or on behalf of the Trust creates a contract between a shareholder of the Fund and: (i) the Trust; (ii) the Fund; (iii) a service provider to the Trust or the Fund; and/or (iv) the Trustees or officers of the Trust.
The Trustees, on behalf of the Trust, enter into service agreements with RIM, RIFUS and other service providers in order to provide, and in some cases authorize service providers to procure through other parties, necessary or desirable services on behalf of the Trust and the Fund. Shareholders are not third-party beneficiaries of such agreements.
THE MONEY MANAGERS
RIM allocates the Fund's assets among multiple money manager investment strategies. RIM, as the Fund's adviser, may change the Fund's asset allocation at any time, including not allocating Fund assets to one or more money manager strategies. Money managers are unaffiliated with RIM and are listed under “Money Manager Information” at the end of this Prospectus.
With the exception of Efficient Capital Management, LLC, each money manager has a discretionary asset management assignment pursuant to which it is allocated a portion of Fund assets to manage directly. Assets not allocated to discretionary money managers are managed by RIM.
Each discretionary money manager has discretion to select, purchase and sell portfolio securities for its segment of the Fund's assets. RIM provides each money manager with specific investment guidelines based on the Fund's investment
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program and RIM’s assessment of the money manager’s expertise and investment style whereby RIM attempts to capitalize on the strengths of each money manager and to combine their investment activities in a complementary fashion. Although, under the Fund's multi-manager structure, RIM is responsible for oversight of the services provided by the Fund's money managers and for providing reports to the Board regarding the money managers’ activities, the Board, the officers, RIM and Russell Investments do not evaluate the investment merits of a money manager’s individual security selections.
The Fund received an exemptive order and relies on additional exemptive relief from the U.S. Securities and Exchange Commission (“SEC”) that permits RIM to engage or terminate an unaffiliated money manger, a partially-owned affiliated money manager, or a wholly-owned affiliated money manager at any time, subject to approval by the Fund's Board, without a shareholder vote. The Fund operates pursuant to the exemptive order and relief. The Fund is required to notify its shareholders within 90 days after a money manager begins providing services. The Fund selects money managers based upon the research and recommendations of RIM. RIM evaluates quantitatively and qualitatively the money managers’ investment style and process, performance record and portfolio characteristics in managing assets for specific asset classes, investment styles and strategies. Short-term investment performance, by itself, is not a controlling factor in the selection or termination of any money manager.
The Fund also relies on a separate exemptive order that the Fund has obtained from the SEC, stating that the Fund's Board may approve a new money manager contract or a material amendment to an existing money manager contract at a meeting that is not in person, provided that the Fund's Trustees are able to participate in the meeting using a means of communication that allows them to hear each other simultaneously during the meeting.
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INVESTMENT OBJECTIVE AND INVESTMENT STRATEGIES
The Fund has a non-fundamental investment objective as noted below. A non-fundamental investment objective may be changed by the Board of the Fund without shareholder approval. If the Fund’s investment objective is changed, the Prospectus will be supplemented to reflect the new investment objective. To the extent that there is a material change in the Fund’s investment objective, shareholders will be provided with reasonable notice.
The Board may, if it deems appropriate to do so, authorize the liquidation or merger of the Fund without shareholder approval in circumstances where shareholder approval is not otherwise required by the Investment Company Act of 1940, as amended (“1940 Act”). Unless Fund Shares are held in a tax-deferred account, liquidation or merger may result in a taxable event for shareholders of the liquidated Fund. In addition, RIM may make material changes to the Fund's principal investment strategies without shareholder approval.
RIM or the money managers may or may not use all of the securities and investment strategies listed below. This Prospectus does not describe all of the various types of securities and investment strategies that may be used by the Fund. The Fund may invest in other types of securities and use other investment strategies that are not described in this Prospectus. Such securities and investment strategies may subject the Fund to additional risks. Please see the Statement of Additional Information for additional information about the securities and investment strategies described in this Prospectus and about additional securities and non-principal investment strategies that may be used by the Fund.
Unless otherwise stated, all percentage and credit quality limitations on Fund investments listed in this Prospectus apply at the time of investment. There would be no violation of any of these limitations unless the Fund fails to comply with any such limitation immediately after and as a result of an investment. A later change in circumstances will not require the sale of an investment if it was proper at the time it was made.
The Fund may sell securities for a variety of reasons including to realize gains, limit losses, to make funds available for other investment opportunities or to meet redemption requests. The Fund may also sell a security if there is a significant change to the security’s characteristics or if the security is no longer consistent with the Fund’s investment strategies.
On rare occasions, the Fund may take a temporary defensive position that may be inconsistent with its long-term principal investment strategies in an attempt to respond to adverse market, economic, political or other conditions. If this occurs, the Fund may not achieve its investment objective during such times. The Fund may take a defensive position by raising cash levels and/or reducing or eliminating the strategy to expose its cash to the performance of certain markets.
Russell Investments Alternatives Diversifier Fund
Investment Objective (Non-Fundamental)
The Fund seeks long term capital appreciation with low correlation to traditional core equity and bond markets.
Principal Investment Strategies
The Fund seeks to achieve its investment objective by employing a “multi-strategy and multi-manager” approach whereby Russell Investment Management, LLC (“RIM”) allocates the Fund’s assets to a diverse range of alternative investment strategies and utilizes multiple money managers to pursue those strategies. Pursuant to the Fund’s alternative investment strategies, the Fund may invest in a broad range of instruments, markets and asset classes economically tied to U.S., foreign and emerging markets. While the Fund will primarily use derivatives to implement its investment strategies, investments may also include equity securities and fixed income securities. The Fund may take both long and short positions. A long position is one with the expectation that the underlying asset will rise in value. A short position is one with the expectation that the underlying asset will decline in value.
RIM provides or oversees the provision of all investment advisory and portfolio management services for the Fund. The Fund is advised by RIM and multiple money managers unaffiliated with RIM pursuant to a “multi-manager” approach. Subject to the approval of the Fund’s Board of Trustees, RIM selects, oversees and evaluates the Fund’s money managers and allocates Fund assets among multiple money manager investment strategies. RIM may change the Fund's asset allocation at any time. With the exception of Efficient Capital Management, LLC (“Efficient”), the Fund’s money managers select the individual portfolio instruments for the assets assigned to them. Efficient recommends certain Fund
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money managers to RIM, directs those money managers with respect to target volatility levels and advises RIM with respect to the Fund’s allocations among those money managers. RIM manages the Fund's cash balances and may manage portions of the Fund during transitions between money managers.
In selecting money managers, RIM seeks to identify money managers that, based on their investment strategies and historical performance have, among other things, the potential, in the opinion of RIM, to perform independently of each other and achieve low correlation to traditional core equity and bond markets. When determining how to allocate the Fund’s assets among money managers, RIM considers a variety of factors that impact the Fund’s return potential and portfolio risks. These factors include overall portfolio characteristics, a money manager’s investment strategy, investment approach, investment sub-strategy and expected return potential, as well as various characteristics of the money manager’s typical investment portfolio. RIM also considers the manner in which money managers’ historical and expected investment returns correlate with one another. In addition, RIM may adjust allocations based on the Fund’s overall exposures and forecasted portfolio risk and in order to respond to changes in market risks and opportunities.
Alternative Investment Strategies
The Fund uses Active Long-Volatility Biased and Tactical Trading alternative investment strategies. Each strategy includes multiple sub-strategies and may be implemented in a systematic, discretionary or mixed manner. The Fund may allocate to one or more sub-strategies at any time and the relative weight of each sub-strategy may change as market conditions, volatility levels, liquidity conditions, portfolio construction considerations and the availability of suitable investment opportunities change. Money managers may employ a fundamental investment approach, a quantitative investment approach or a combination of both. A quantitative money manager selects securities using a variety of quantitative investment models (mathematical formulas based on statistical analyses) and mathematical techniques to rank the relative attractiveness of securities versus their benchmarks and uses quantitative techniques to construct its portfolio. A money manager using a fundamental investment approach selects securities based upon its research and analysis of a variety of factors and may also incorporate quantitative investment models in its process.
Active Long-Volatility Biased Strategy: Seeks gains from changes in market volatility, volatility dislocations (meaning periods when investments tied to market volatility appear unusually expensive or inexpensive or are priced differently across related instruments or markets) and other market conditions associated with increased uncertainty or market stress. The strategy generally maintains a long-volatility bias (meaning it generally holds positions that are expected to benefit when markets become more volatile, including during sharp market declines or other large market movements) and may seek to provide positive convexity (meaning gains may increase at an accelerating rate as market volatility rises or markets decline sharply). The strategy may also employ active trading, relative value positions or other techniques intended to mitigate negative carry (meaning the ongoing cost of maintaining positions that may lose value or generate losses over time in stable or rising markets).
Active Long-Volatility Biased sub-strategies include:
●
Relative Value Volatility Sub-Strategy: Seeks gains from perceived mispricing among related volatility instruments, securities or markets. These long or short opportunities may arise in equity, interest rate or foreign exchange volatility, as well as in convertible or hybrid instruments, corridor or variance structures (types of derivatives whose returns are based on how much and how often an asset’s price moves within a specified range), or other derivatives that a money manager believes are trading at a premium or discount to fair value. The sub-strategy is generally designed to limit directional market exposure and may be implemented through diversified positions intended to enhance the portfolio’s overall risk/return profile.
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Dispersion Sub-Strategy: Seeks gains from differences in volatility between an index and its underlying constituents. This sub-strategy typically involves positions that are long individual security volatility and short index volatility, and may include other forms of dispersion trading (an approach that seeks to profit when the price movements or implied volatilities of individual securities diverge from those of a broader index or from each other). Such opportunities may arise in normal market conditions but may become more pronounced during prolonged periods of market stress or changing correlations.
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Cross-Asset Long Volatility Sub-Strategy: Seeks gains from outright or actively managed long-volatility exposures across equity, interest rate and foreign exchange markets. The sub-strategy may maintain long volatility exposure across a range of underlying markets and adjust the level, mix or location of that exposure over time based on market conditions, volatility levels or a money manager’s assessment of relative opportunities. It may seek to benefit from volatility spikes, rapid repricing events or other market dislocations.
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Carry Mitigation and Funding Sub-Strategy: Seeks to offset some of the cost of maintaining long-volatility exposure by investing in positions that a money manager believes may generate positive returns in more benign market environments, while seeking to limit the extent to which such positions reduce the portfolio’s convexity in stressed conditions. These positions may include interest rate relative value strategies, selected short-volatility or funding trades with defined downside characteristics, carry-oriented relative value positions or other structures intended to help preserve value while maintaining the strategy’s broader defensive role.
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Convexity Overlay and Tail Risk Hedging Sub-Strategy: Seeks gains from positions intended to increase the portfolio’s responsiveness to severe market selloffs, sharp volatility spikes or other extreme market events. The sub-strategy may include downside hedges, long gamma positions (positions that are designed to become more sensitive to market movements as prices change, so that gains may increase as markets move sharply), options structures or other convexity-oriented positions, used alone or in combination with other sub-strategies.
Tactical Trading Strategy: Seeks gains across global markets from price trends, relative value relationships, macroeconomic developments and other market conditions affecting equities, interest rates, commodities, government securities, currencies and futures. The strategy may take long or short positions and seek to benefit from sustained directional price movements, changing relationships among related assets, or shifts in economic, monetary, fiscal, geopolitical or other systemic conditions. It may be implemented over a range of time horizons using short-, medium- or longer-term positions.
Tactical Trading sub-strategies include:
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Trend-Following Sub-Strategy: Seeks gains from upward or downward price movements across global markets, including equity, interest rate, currency and commodity markets. The sub-strategy generally uses systematic models to identify and respond to persistent price trends, momentum patterns or related market signals. It may establish long or short positions and adjust them over time based on price behavior, volatility, liquidity or other market characteristics. Opportunities may arise in both developed and emerging markets and across a range of time horizons.
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Relative Value and Cross-Market Sub-Strategy: Seeks gains from perceived mispricing or changing relationships among related markets, instruments or asset classes. Opportunities may arise across countries, regions, yield curves, currencies, commodity curves, equity indices, cash securities and related derivatives, or other instruments that a money manager believes are trading at a premium or discount to fair value. The sub-strategy is generally designed to limit unwanted market exposure and may be implemented through diversified positions intended to enhance the portfolio’s overall risk/return profile.
Instruments
The Fund may invest in derivative instruments and may use derivatives to take both long and short positions. The Fund may purchase and sell forward and futures contracts and enter into options, swaps and swaptions. The Fund may invest in derivatives (1) as a substitute for holding securities directly, (2) to facilitate the implementation of its investment strategy, (3) for hedging purposes, (4) to take a net short position with respect to certain issuers, sectors or markets, (5) to adjust the interest rate sensitivity and duration of the Fund’s portfolio, or (6) to manage the Fund’s asset class, country and currency exposures. The Fund may invest in STRIPS (Separate Trading of Registered Interest and Principal of Securities). STRIPS are created by separating the interest and the principal components of an outstanding U.S. Treasury or agency note or bond and selling them as individual securities. The Fund may purchase and sell foreign currency forward contracts for hedging purposes or to manage the Fund’s currency exposures.
The Fund may purchase and sell currency futures and options on currency futures, forward currency contracts, currency swaps and currency spot and options contracts for speculative purposes based on judgments regarding the direction of the market for a particular foreign currency or currencies. The Fund will enter into spot and forward currency contracts to facilitate settlement of securities transactions and may enter into these contracts in order to “lock in” the U.S. dollar price of a security that it plans to buy or sell. The Fund may at times seek to protect a portion of its investments against adverse currency exchange rate changes by purchasing forward currency contracts.
The Fund may invest in equity securities of issuers of any market capitalization economically tied to U.S. and non-U.S. countries, including emerging markets countries. Equity securities in which the Fund invests include common stocks, preferred stocks, partnership interests, depositary receipts and equity-related securities or instruments whose value is based on common stocks, such as synthetic foreign equity securities, convertible securities, rights, warrants or options (stock or stock index), futures contracts (stock or stock index) and index swaps. Convertible securities can be bonds,
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notes, debentures, preferred stock or other securities that entitle the holder to acquire the issuer’s common stock by exchange or purchase for a predetermined rate. The Fund may invest in contingent convertible securities, which provide for mandatory conversion into common stock of the issuer under certain circumstances.
The Fund may also invest in fixed income securities of any credit quality and maturity. The Fund may invest in U.S. and non-U.S. corporate fixed income securities, Yankee Bonds (dollar-denominated obligations issued in the U.S. by non-U.S. banks and corporations) and fixed income securities issued or guaranteed by the U.S. government (including Treasury Inflation Protected Securities and zero coupon securities) or by non-U.S. governments, or by their respective agencies and instrumentalities, as well as in emerging markets debt securities. Zero coupon securities are notes, bonds and debentures that (1) do not pay current interest and are issued at a substantial discount from par value, (2) have been stripped of their unmatured interest coupons and receipts or (3) pay no interest until a stated date one or more years into the future. The Fund may invest, without limitation, in fixed income securities or instruments that are rated below investment grade (commonly referred to as “high-yield” or “junk bonds”), in unrated securities judged to be of comparable quality, and in the lowest-rated fixed income securities. The Fund’s investments may include debt securities that are the subject of bankruptcy proceedings, that are in default as to the payment of principal or interest, or that are rated in the lowest rating category by a nationally recognized statistical rating organization (“distressed securities”). The Fund’s investments may include variable and floating rate securities. A floating rate security is one whose terms provide for the automatic adjustment of an interest rate whenever the specified interest rate changes. A variable rate security is one whose terms provide for the automatic establishment of a new interest rate on set dates.
The Fund may invest directly, or indirectly through a wholly-owned subsidiary of the Fund (the “Subsidiary”) organized as a company under the laws of the Cayman Islands, in commodity-linked derivative instruments (including futures and options contracts with respect to indexes or individual commodities, options on futures contracts, swap agreements and swaptions), exchange-traded funds, exchange-traded notes and commodity-linked securities that together are intended to provide exposure to the performance of the commodity futures market. The Fund’s commodity exposure will be to traditional commodities such as energy products, precious and industrial metals, grains, soft commodities and livestock. The portion of the Fund’s or the Subsidiary’s assets exposed to any particular commodity or commodity sector will vary based on market conditions, but from time to time this portion could be substantial. The Fund may invest up to 25% of its total assets in the Subsidiary. Shares of the Subsidiary are not offered to any investors other than the Fund. Investing in the Subsidiary allows the Fund to achieve greater exposure to the commodities markets than would otherwise be possible because of U.S. tax law requirements. The Subsidiary is advised by RIM and has certain of the same money managers as the Fund. Employees of RIM and its affiliates serve as directors of the Subsidiary. The Subsidiary may invest without limitation in commodity-linked securities and derivative instruments that provide exposure to the performance of the commodities markets. The Subsidiary may also invest in fixed income instruments. Although the Subsidiary is otherwise subject to the same fundamental, non-fundamental and certain other investment restrictions as the Fund, the investment programs of the Fund and the Subsidiary are not identical.
The Fund’s or the Subsidiary’s use of derivatives may cause the Fund’s or the Subsidiary’s investment returns to be impacted by the performance of securities the Fund or the Subsidiary does not own and result in the Fund’s or the Subsidiary’s total investment exposure exceeding the value of its portfolio.
The Fund may invest in pooled investment vehicles, including other investment companies such as exchange-traded funds.
The Fund, like any mutual fund, maintains cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses). RIM may increase or decrease the Fund’s cash reserves to seek to achieve the desired exposures for the Fund, or in anticipation of a transition to a new money manager or large redemptions resulting from rebalancing by funds of funds or asset allocation programs. The Fund and the Subsidiary may hold additional cash in connection with its investment strategy. RIM generally invests the Fund’s cash reserves in short-term investments, including the U.S. Cash Management Fund, an unregistered fund advised by RIM whose investment objective is to seek to preserve principal and provide liquidity and current income.
A portion of the Fund’s net assets may be “illiquid” investments (i.e., investments that are not reasonably expected to be sold or disposed of in current market conditions in seven calendar days or less without significantly changing the market value of the investment).
Some emerging market countries do not permit foreigners to participate directly in their securities markets or otherwise present difficulties for efficient foreign investment. Therefore, the Fund may invest in synthetic foreign fixed
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income and/or equity securities, which may be referred to as international warrants, local access products, participation notes or low exercise price warrants. International warrants are a form of derivative security issued by foreign banks that either give holders the right to buy or sell an underlying security or securities for a particular price or give holders the right to receive cash payment relating to the value of the underlying security or securities. Local access products are similar to options in that they are exercisable by the holder for an underlying security or the value of that security, but are generally exercisable over a longer term than typical options.
The Fund may enter into repurchase agreements and reverse repurchase agreements. A repurchase agreement is an agreement under which the Fund acquires a fixed income security from a commercial bank, broker or dealer and simultaneously agrees to resell such security to the seller at an agreed upon price and date (normally the next business day). A reverse repurchase agreement is a transaction whereby the Fund transfers possession of a portfolio security to a commercial bank, broker or dealer and simultaneously agrees to repurchase such security at an agreed upon price and date.
Based on index provider classifications, the Fund considers emerging market countries to include every country in the world except Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom and the United States. Emerging market countries also include frontier market countries, which are less developed than traditional emerging market countries.
The Fund may engage in active and frequent trading of portfolio securities to achieve its principal investment strategies.
The Fund is classified as a “non-diversified fund” under the 1940 Act which means that a relatively high percentage of the Fund’s assets may be invested in a limited number of issuers. The non-diversified status provides the Fund with greater investment flexibility to take larger positions in one or more issuers.
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RISKS
An investment in the Fund, like any investment, has risks. The value of the Fund fluctuates and you could lose money. The following table lists the Fund and the types of principal risks the Fund is subject to. Please refer to the discussion following the chart and the Fund's Statement of Additional Information for a discussion of risks associated with types of securities held by the Fund and the investment practices employed by the Fund.
| Fund |
Principal Risks | |
| Russell Investments Alternatives Diversifier Fund |
●Multi-Manager Approach ●Active Management Risk ●Security Selection ●Fundamental Investing ●Quantitative Investing and Models ●Alternative Investment Strategies Risk ●Hedge Ineffectiveness Risk ●Long and Short Positions Risk ●Multi-Asset Tactical Trading Risk ●Trend-Following Strategies Risk ●Managed Futures Strategies Risk ●Convexity and Tail Risk Hedging Strategies Risk ●Volatility Strategies Risk ●Long Volatility and Negative Carry Risk ●Short Volatility Exposure Risk ●Volatility Relative Value, Dispersion and Correlation Risk ●Cross-Asset and Positioning Risk ●Volatility Instruments and Structural Risk ●Carry Mitigation and Funding Strategy Risk ●Equity Securities Risk ●Common Stocks ●Securities of Medium Capitalization Companies ●Securities of Small Capitalization Companies ●Preferred Stocks ●Rights, Warrants and Convertible Securities ●Fixed Income Securities Risk ●Non-Investment Grade Debt Securities (“High-Yield” or “Junk Bonds”) ●U.S. and Non-U.S. Corporate Debt Securities Risk ●Government Issued or Guaranteed Securities, U.S. Government Securities ●Distressed Securities ●Money Market Securities (Including Commercial Paper) ●Variable and Floating Rate Securities ●Repurchase Agreements ●Reverse Repurchase Agreements |
●Non-U.S. Securities ●Non-U.S. Equity Securities ●Non-U.S. Fixed Income Securities ●Emerging Markets Securities ●Emerging Markets Debt ●Yankee Bonds and Yankee CDs ●Currency Risk ●Synthetic Foreign Equity/Fixed Income Securities ●Derivatives (Futures Contracts, Options, Forwards and Swaps) ●Currency Trading Risk ●Counterparty Risk ●Commodity Risk ●Subsidiary Risk ●Tax Risk ●Securities of Other Investment Companies ●Depositary Receipts ●Illiquid Investments ●Liquidity Risk ●High Portfolio Turnover Risk ●Non-Diversification Risk ●Impact of Large Redemptions (Including Possible Fund Liquidation) ●New Fund Risk ●Global Financial Markets Risk ●Cyber Security and Other Operational Risks |
Multi-Manager Approach
While the investment strategies employed by the Fund's money managers are intended to be complementary, they may not in fact be complementary. The interplay of the various strategies employed by the Fund's multiple money managers may result in the Fund holding a significant amount of certain types of securities. This may be beneficial or detrimental to the Fund's performance depending upon the performance of those securities and the overall economic environment. The money managers selected for the Fund may underperform the market generally or other money managers that could have been selected for the Fund. The multi-manager approach could increase the Fund's portfolio turnover rates which may result in higher levels of realized capital gains or losses with respect to the Fund's portfolio
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securities, higher brokerage commissions and other transaction costs. The success of the Fund's investment strategy depends on, among other things, both RIM’s skill in selecting money managers and allocating assets to those money managers and on a money manager’s skill in executing the relevant investment strategy and selecting investments for the Fund.
Active Management Risk
Actively managed investment portfolios are subject to active management risk. Despite strategies designed to achieve the Fund's investment objective, the values of investments will change with market conditions, and so will the value of any investment in the Fund and you could lose money. Investments in the Fund could be lost or the Fund could underperform other investments.
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Security Selection
The securities or instruments chosen by a money manager to be in the Fund's portfolio may not perform as the Fund's money managers expect. Security or instrument selection risk may cause the Fund to underperform other funds with similar investment objectives and investment strategies even in a rising market. There are two types of methods to select securities, fundamental analysis and quantitative analysis. For more information about these methods, see Fundamental Investing and Quantitative Investing and Models risks in this Prospectus.
Fundamental Investing
A fundamental investment approach uses research and analysis of a variety of factors to create a forecast of company results, which is used to select securities. The process may result in an evaluation of a security’s value that may be incorrect or, if correct, may not be reflected by the market. Security or instrument selection made on the basis of a fundamental investment approach is subject to significant losses when the actual market prices of securities are materially different than the prices predicted by the forecast resulting from the fundamental analysis. Fundamental analysis is inherently subject to the risk of not having identified all the relevant factors. In addition, the macro-economic factors considered by a money manager may be difficult to evaluate or implement. Fundamental investing is also inherently subject to the unpredictable duration of periods during which market prices and actual value as determined by such analysis will change. Security or instrument selection using a fundamental investment approach may cause the Fund to underperform other funds with similar investment objectives and investment strategies even in a rising market.
Quantitative Investing and Models
Quantitative inputs and models use historical company, economic and/or industry data to evaluate prospective investments or to generate forecasts. This could result in incorrect assessments of the specific portfolio characteristics or ineffective adjustments to the Fund's exposures. Securities selected using quantitative analysis may perform differently than analysis of their historical trends would suggest as a result of the factors used in the analysis, the weight placed on each factor, and changes in underlying market conditions. As market dynamics shift over time, a previously successful input or model may become outdated and result in losses. Inputs or models may be flawed or not work as anticipated and cause the Fund to underperform other funds with similar objectives and strategies. Certain inputs and models may utilize third-party data and models that a money manager believes to be reliable. However, the money managers do not guarantee the accuracy of third-party data or models.
Alternative Investment Strategies Risk
The Fund may use alternative investment strategies that involve investment techniques and risks different from those of more traditional mutual funds. These strategies may involve, among other things, complex combinations of systematic trend signals, managed futures strategies, multi-asset trading, derivatives-based exposures, variance or corridor structures, long and short volatility exposures, relative value and dispersion trades, carry mitigation techniques, dynamic position adjustments and tail risk hedging. These strategies may be more difficult to implement successfully than traditional long-only strategies and may perform differently than expected in rising, falling, range-bound, volatile or illiquid markets. Strategy complexity may increase the risk of implementation errors, unintended exposures, ineffective hedging, inaccurate risk measurement, liquidity constraints, higher transaction costs and operational failures. The Fund’s performance may be driven by multiple interacting factors, and losses may occur for reasons that are difficult to identify or anticipate. There can be no assurance that the Fund’s alternative investment strategies will achieve their intended results, reduce volatility, provide diversification, offset losses from other investments or generate positive returns.
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The Fund may allocate assets among strategies because they are expected to behave differently across market environments. Correlations among strategies, markets and instruments are not stable and may change quickly, particularly during periods of market stress, deleveraging, rapid reversals or reduced liquidity. Strategies expected to diversify one another may experience losses at the same time, and positions intended to offset or hedge one another may fail to do so. The Fund may emphasize strategies that underperform, reduce exposure to strategies that later perform well, or reallocate at unfavorable times.
Hedge Ineffectiveness Risk
The Fund may use hedges or offsetting positions intended to reduce risk or improve the risk profile of a strategy. These positions may not perform as expected. A hedge may be too small, too large, mistimed or based on an exposure that does not correlate closely with the risk being hedged. Market relationships that supported a hedge may change, particularly during periods of stress. A hedge may also create new risks, increase costs, reduce gains from favorable market movements or cause losses if the hedged exposure and the hedge move in unexpected ways. There can be no assurance that any hedge or offsetting position will protect the Fund from loss.
Long and Short Positions Risk
The Fund may take both long and short positions across futures, currencies, commodities, interest rates, equity indices, volatility instruments, cash equities and bonds, and related markets. Long positions may decline in value, and short positions may increase in value, each of which may cause losses. Because the price of an instrument may rise without limit, losses on certain short positions may be substantial or, in some cases, theoretically unlimited. A long/short strategy may lose money if the long positions underperform the short positions, if both sides of a trade move adversely, or if the relationship between long and short positions changes unexpectedly. Long and short positions may also increase portfolio turnover, transaction costs, margin requirements and the complexity of the Fund’s risk profile.
Multi-Asset Tactical Trading Risk
The Fund’s tactical trading strategy may involve positions across equities, interest rates, commodities, currencies, futures and other markets. These markets may respond differently to economic, political, monetary, liquidity or other market developments, and a money manager may incorrectly assess the direction, timing or magnitude of market movements. Losses may occur across multiple asset classes at the same time, particularly during periods of market stress or when historical market relationships break down.
Trend-Following Strategies Risk
Trend-following strategies seek to identify and profit from sustained upward or downward price movements, but such trends may not develop, may be short-lived or may reverse suddenly. These strategies may perform poorly in range-bound, choppy, low-volatility or whipsaw markets. A whipsaw occurs when prices move in one direction long enough to trigger a trading signal and then quickly reverse, causing the strategy to enter or exit positions at unfavorable times. False or delayed signals may cause the Fund to enter or exit positions at unfavorable times, including after trends have matured or reversed. Repeated entry and exit decisions may produce losses, increase transaction costs and reduce the effectiveness of the Fund’s trend-following strategy. Trend-following strategies may also experience losses across multiple markets at the same time if trends reverse, correlations change or market conditions become unfavorable to momentum-based trading.
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Managed Futures Strategies Risk
The Fund’s trend-following strategy may be implemented through managed futures trading across global futures, forwards and related derivatives markets. Managed futures strategies may be affected by margin requirements, contract rolling, exchange rules, market access, liquidity, position limits, trading halts, execution quality and the availability of suitable contracts. These strategies may perform poorly during periods when futures markets are trendless, volatile in a non-directional manner, subject to rapid reversals or affected by government, central bank or regulatory intervention. Managed futures exposure may also create substantial variation in the Fund’s returns over short periods.
Convexity and Tail Risk Hedging Strategies Risk
The Fund may use downside hedges, long gamma positions, options structures or other convexity-oriented positions intended to increase the Fund’s responsiveness to severe market selloffs, sharp volatility spikes or other extreme events.
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These positions may not perform as expected. Tail hedges may expire worthless, decline in value, be monetized too early or too late, or fail to offset losses in other parts of the Fund. The Fund may experience losses if the market stress event differs from the scenario for which the hedge was designed, if the wrong instrument or maturity is used, or if liquidity is unavailable when the Fund seeks to adjust or exit the position.
Volatility Strategies Risk
The Fund may use strategies that seek to generate returns from changes in realized or implied volatility, volatility relationships, or other volatility-related market characteristics. These strategies may be difficult to implement successfully and may perform poorly when volatility behaves differently than expected. The Fund may lose money when realized volatility differs from implied volatility, when volatility risk premiums change, when correlations shift, when liquidity declines or when market prices move sharply without producing the expected volatility response. Volatility strategies may also be highly sensitive to changes in market prices, time to expiration, interest rates, dividends, liquidity, market positioning and market stress.
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Long Volatility and Negative Carry Risk
The Fund may maintain positions intended to benefit from increases in volatility or sharp market movements. These positions may involve ongoing costs, including option premiums, time decay, financing costs or other forms of negative carry. The Fund may incur losses during stable, rising, gradually trending or low-volatility markets, or when expected stress events do not occur. A volatility increase or market decline may not be sufficient in magnitude, may occur in a different market, or may occur at a time that does not offset prior costs or losses. Long-volatility positions may therefore reduce returns over extended periods.
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Short Volatility Exposure Risk
Certain strategies may involve explicit or embedded short volatility exposure. Such exposure may result in large or rapidly increasing losses when volatility rises, prices gap, correlations change or liquidity declines. Losses may occur quickly and may offset or exceed gains from other positions, including long-volatility exposures. Short volatility exposure may also reduce or eliminate the intended benefits of long-volatility positions if adverse market moves occur before the Fund can adjust or close the position.
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Volatility Relative Value, Dispersion and Correlation Risk
The Fund may seek to profit from perceived mispricing or changing relationships among volatility instruments, securities, indices or markets, including differences between implied and realized volatility, index volatility and the volatility of underlying securities (dispersion), or correlations among securities, sectors, asset classes or markets. These relationships may not behave as expected, may widen rather than converge, or may change rapidly during periods of market stress, reduced liquidity, market concentration or changing investor positioning. The Fund may lose money even if a money manager’s investment thesis is ultimately correct, particularly if convergence occurs later than expected or positions must be reduced or closed at unfavorable times. Index-level hedges or related positions may also fail to offset exposures in underlying securities or markets.
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Cross-Asset and Positioning Risk
The Fund may establish or adjust volatility exposures across asset classes, markets, maturities, strikes or instruments, and may adjust exposures based on volatility, liquidity, trends or model signals. The Fund may reduce exposure before favorable market movements, increase exposure before losses, or maintain exposure during periods of rising risk. Volatility-based position sizing may also cause the Fund to sell positions after volatility increases or add exposure after volatility declines, which may be disadvantageous if market conditions reverse. Cross-asset volatility relationships may change rapidly, and volatility may increase in markets where the Fund has limited exposure or fail to increase where the Fund is positioned.
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Volatility Instruments and Structural Risk
The Fund may use options, variance structures and other volatility instruments, including customized or complex structures. These instruments may be highly sensitive to changes in multiple factors, including the price and volatility of underlying assets, time to expiration, interest rates, dividends and correlations. Certain positions may be path-dependent, meaning that the timing and sequence of market movements affect returns. The Fund’s positions may also be negatively affected by changes in the volatility surface (i.e., the relationship
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between implied volatility levels across different strike prices, maturities and markets). Instruments may be less liquid than anticipated or subject to sudden repricing.
Carry Mitigation and Funding Strategy Risk
The Fund may use carry-generating, relative value or other funding trades intended to offset some of the cost of maintaining long-volatility exposure. These trades may not generate sufficient returns to offset negative carry and may create losses, particularly during periods of market stress, rising volatility or reduced liquidity. Carry mitigation and funding positions may also reduce the Fund’s intended convexity or defensive characteristics during stressed markets and may increase losses rather than offset the cost of maintaining long-volatility exposure.
Equity Securities Risk
The value of equity securities fluctuates in response to general market and economic conditions (market risk) and in response to the performance of individual companies (company risk). Therefore, the value of an investment in the Fund may decrease. The market as a whole can decline for many reasons, including adverse political or economic developments in the U.S. or abroad, changes in investor psychology, or heavy institutional selling. Also, certain unanticipated events, such as natural disasters, pandemics, epidemics, terrorist attacks, war, economic sanctions and other geopolitical events, can have a dramatic adverse effect on stock markets. Changes in the financial condition of a company or other issuer, changes in specific market, economic, political, and regulatory conditions that affect a particular type of investment or issuer, and changes in general market, economic, political, and regulatory conditions can adversely affect the price of equity securities. U.S. and foreign stock markets, and equity securities of individual issuers, have experienced periods of substantial price volatility in the past and it is possible that they will do so again in the future. These developments and changes can affect a single issuer, issuers within a broad market sector, industry or geographic region, or the market in general.
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Common Stocks
The value of common stocks will rise and fall in response to the activities of the company that issued the stock, general market conditions and/or economic conditions. If an issuer is liquidated or declares bankruptcy, the claims of owners of the issuer’s debt instruments will take precedence over the claims of owners of common stocks.
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Value Stocks
Investments in value stocks are subject to the risks of common stocks, as well as the risks that (i) their intrinsic values may never be realized by the market or (ii) such stock may turn out not to have been undervalued.
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Growth Stocks
Investments in growth stocks are subject to the risks of common stocks. Growth company stocks generally provide minimal dividends which could otherwise offset the impact of a market decline. The value of growth company stocks may rise and fall significantly based, in part, on investors’ perceptions of the company, rather than on fundamental analysis of the stocks.
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Defensive Stocks
Investments in defensive stocks are subject to the risks of common stocks. In rising markets, defensive stocks are likely to underperform growth, value and dynamic stocks. Defensive stocks may also underperform the broad market in declining markets and over various market periods. The relative performance of stocks selected pursuant to a defensive style may fluctuate over time. Defensive stocks may not consistently exhibit the defensive characteristics for which they were selected and may not have lower than average stock price volatility or provide less volatile returns than the broad equity market.
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Dynamic Stocks
Investments in dynamic stocks are subject to the risks of common stocks. In declining markets, dynamic stocks are likely to underperform growth, value and defensive stocks. Dynamic stocks have higher than average stock price volatility and may experience sharp declines in value. Generally, securities with higher price volatility are considered riskier investments than securities with lower price volatility. Dynamic companies may be subject to a heightened risk of bankruptcy. There is no guarantee that a company’s
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potential for stock price appreciation will be effectively assessed and it is possible that such judgments may prove incorrect. Dynamic investing tends to result in an overweight to medium capitalization stocks.
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Momentum Stocks
Momentum stocks are stocks of companies that exhibit positive price trends. Investments in momentum stocks are subject to the risks of common stocks. Momentum stocks are likely to underperform the broad market in declining markets and over various market periods. The relative performance of momentum stocks may fluctuate over time.
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Securities of Medium Capitalization Companies
Investments in securities of medium capitalization companies are subject to the risks of common stocks. However, investments in medium capitalization companies may involve greater risks than those associated with larger, more established companies. Securities of such issuers may be thinly traded, and thus, difficult to buy and sell in the market. These companies often have narrower markets, more limited operating or business history, more limited product lines, and more limited managerial or financial resources than larger, more established companies. As a result, their performance can be more volatile and they face greater risk of business failure and bankruptcy, which could increase the volatility of the Fund's portfolio.
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Securities of Small Capitalization Companies
Investments in securities of small capitalization companies are subject to the risks of common stocks, including the risks of investing in securities of medium capitalization companies. However, investments in small capitalization companies may involve greater risks, as, generally, the smaller the company size, the greater these risks.
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Preferred Stocks
Investments in preferred stocks are subject to the risks of common stocks, as well as the risk that interest rates will rise and make the fixed dividend feature, if any, less appealing to investors resulting in a decline in price. Preferred stock does not usually have voting rights. The absence of voting rights may result in approval by the holders of the common stock of a corporate action to restructure a company for the benefit of the holders of the common stock to the detriment of the holders of the preferred stocks.
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Rights, Warrants and Convertible Securities
Rights and warrants are instruments which entitle the holder to buy an equity security at a specific price for a specific period of time. Rights are similar to warrants but rights typically have shorter durations and are offered to current stockholders of the issuer. Changes in the value of a right or a warrant do not necessarily correspond to changes in the value of its underlying security. The price of a right or a warrant may be more volatile than the price of its underlying security, and a right or a warrant may offer greater potential for capital loss.
Convertible securities can be bonds, notes, debentures, preferred stocks or other securities which are convertible into common stock. Convertible securities are subject to both the credit and interest rate risks associated with fixed income securities and to the market risk associated with common stocks. Unlike traditional convertible securities, contingent convertible securities generally provide for mandatory conversion into common stock of the issuer under certain circumstances. The mandatory conversion might be automatically triggered, for instance, if a company fails to meet the minimum amount of capital described in the security, the company's regulator makes a determination that the security should convert or the company receives specified levels of extraordinary public support. Since the common stock of the issuer may not pay a dividend, the Fund could experience a reduced income rate, potentially to zero. Conversion would deepen the subordination of the Fund, hence worsening the Fund’s standing in the case of an issuer’s insolvency. In addition, some contingent convertible securities have a set stock conversion rate that would cause a reduction in value of the security if the price of the stock is below the conversion price on the conversion date.
Fixed Income Securities Risk
Fixed income securities generally are subject to the following risks: (i) Interest rate risk which is the risk that prices of fixed income securities generally rise and fall in response to interest rate changes. Generally, when interest rates rise, prices of fixed income securities fall and when interest rates fall, prices of fixed income securities rise. Expectations of higher inflation generally cause interest rates to rise. The longer the duration of the security, the more sensitive the
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security is to this risk. A 1% increase in interest rates would be expected to reduce the value of a $100 note by approximately one dollar if it had a one-year duration. The effect of changing interest rates on financial markets, including negative interest rates, cannot be known with certainty but may expose fixed-income and related markets to heightened volatility and illiquidity. Very low or negative interest rates may magnify interest rate risks. To the extent the Fund holds an investment with a negative interest rate to maturity, the Fund would generate a negative return on that investment. If negative interest rates become more prevalent in the market and/or if negative interest rates persist for a sustained period of time, investors may seek to reallocate assets to higher-yielding assets which, among other potential consequences, could result in increases in the yield and decreases in the prices of fixed-income investments over time; (ii) Market risk which is the risk that the value of fixed income securities fluctuates in response to general market and economic conditions. Fixed income markets have experienced volatility, which may result in increased shareholder redemptions; (iii) Company risk which is the risk that the value of fixed income securities fluctuates in response to the performance of individual companies; (iv) Credit and default risk which is the risk that the Fund could lose money if the issuer or guarantor of a fixed income security or other issuer of credit support is unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. Securities are subject to varying degrees of credit risk which are often reflected in credit ratings. Fixed income securities may be downgraded in credit rating or go into default. While all fixed income securities are subject to credit risk, lower-rated bonds and bonds with longer final maturities generally have higher credit risks and higher risk of default; and (v) Inflation risk which is the risk that the present value of a security will be less in the future if inflation decreases the value of money.
Specific types of fixed income securities are also subject to additional risks which are described below.
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Non-Investment Grade Debt Securities (“High-Yield” or “Junk Bonds”)
Although lower rated debt securities generally offer a higher yield than higher rated debt securities, they involve higher risks, higher volatility and higher risk of default than investment grade bonds. They are especially subject to:
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Adverse changes in general economic conditions and in the industries in which their issuers are engaged;
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Changes in the financial condition of their issuers;
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Price fluctuations in response to changes in interest rates; and
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Reduced liquidity compared to higher rated securities.
As a result, issuers of lower rated debt securities are more likely than other issuers to miss principal and interest payments or to default, which could result in a loss to the Fund. In the event of an issuer’s bankruptcy, the claims of other creditors may have priority over the claims of lower rated debt holders, leaving insufficient assets to repay the holders of lower rated debt securities.
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U.S. and Non-U.S. Corporate Debt Securities Risk
U.S. and non-U.S. corporate debt securities are subject to the same risks as other fixed income securities, including interest rate risk and market risk. U.S. and non-U.S. corporate debt securities are also affected by perceptions of the creditworthiness and business prospects of individual issuers. The underlying company may be unable to pay interest or repay principal upon maturity, which could adversely affect the security’s market value. In addition, due to less publicly available financial and other information, less stringent securities regulation, war, economic sanctions and other adverse governmental actions, investments in non-U.S. corporate debt securities may expose the Fund to greater risk than investments in U.S. corporate debt securities.
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Government Issued or Guaranteed Securities, U.S. Government Securities
Bonds guaranteed by a government are subject to the same risks as other fixed income securities, including inflation risk, price depreciation risk and default risk. No assurance can be given that the U.S. government will provide financial support to certain U.S. government agencies or instrumentalities since it is not obligated to do so by law. Accordingly, bonds issued by U.S. government agencies or instrumentalities may involve risk of loss of principal and interest.
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Distressed Securities
Distressed securities are securities of issuers that are experiencing significant financial or business difficulties. Investments in distressed securities may be considered speculative and may involve substantial risks not normally associated with investments in healthier companies, including the increased possibility that adverse
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business, financial or economic conditions will cause the issuer to default or initiate insolvency proceedings. Investments in distressed securities inherently have more credit risk than investments in non-distressed issuers, and the degree of risk associated with particular distressed securities may be difficult or impossible to determine. Distressed securities may also be illiquid, difficult to value and experience extreme price volatility. In the event that an issuer of distressed securities defaults or initiates insolvency proceedings, the Fund may lose all of its investment in the distressed security, or it may be required to accept cash or securities with a value less than the Fund's original investment.
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Money Market Securities (Including Commercial Paper)
Prices of money market securities rise and fall in response to interest rate changes. Generally, when interest rates rise, prices of money market securities fall. Money market securities are also subject to reinvestment risk. As interest rates decline, a money market fund’s dividends (income) may decline because the fund must then invest in lower-yielding instruments. The Fund’s ability to redeem shares of a money market fund may be impacted by recent regulatory changes relating to money market funds which require the imposition of liquidity fees unless certain exceptions apply. There is also a risk that money market securities will be downgraded in credit rating or go into default. Lower-rated securities, and securities with longer final maturities, generally have higher credit risks.
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Variable and Floating Rate Securities
A variable rate security is one whose terms provide for the automatic establishment of a new interest rate on set dates. A floating rate security is one whose terms provide for the automatic adjustment of an interest rate whenever the specified interest rate changes. The interest rate on floating rate securities is ordinarily tied to, and is a specified margin above or below, the prime rate of a specified bank or some similar objective standard, such as the yield on the 90–day U.S. Treasury Bill rate, and may change as often as daily. Variable and floating rate securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline. Inverse floating rate securities may decrease in value if the interest rates increase. Inverse floating rate securities, which are securities whose interest rate bears an inverse relationship to the interest rate on another security, may also exhibit greater price volatility than a fixed rate obligation with similar credit quality.
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Repurchase Agreements
Repurchase agreements may be considered a form of borrowing for some purposes and their use involves certain risks. One risk is the seller’s ability to pay the agreed-upon repurchase price on the repurchase date. If the seller defaults, the Fund may incur costs in disposing of the collateral, which would reduce the amount realized thereon. If the seller seeks relief under bankruptcy laws, the disposition of the collateral may be delayed or limited. For example, if the other party to the agreement becomes insolvent and subject to liquidation or reorganization under bankruptcy or other laws, a court may determine that the underlying securities that are collateral for a loan by the Fund are not within its control and therefore the realization by the Fund on such collateral may be automatically stayed. Finally, it is possible that the Fund may not be able to substantiate its interest in the underlying securities and may be deemed an unsecured creditor of the other party to the agreement.
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Reverse Repurchase Agreements
A reverse repurchase agreement is a transaction whereby the Fund transfers possession of a portfolio security to a bank or broker-dealer in return for a percentage of the portfolio security’s market value. The Fund retains record ownership of the security involved including the right to receive interest and principal payments. At an agreed upon future date, the Fund repurchases the security by paying an agreed upon purchase price plus interest. Reverse repurchase agreements are generally subject to a number of risks such as leverage risk, liquidity risk, operational risk and legal risk (i.e., the risk of insufficient documentation, insufficient capacity or authority of the counterparty, or legality or enforceability of a contract). Reverse repurchase agreements are also subject to the risk that the other party may fail to return the security in a timely manner or at all. The Fund may lose money if the market value of the security transferred by the Fund declines below the repurchase price. Reverse repurchase agreements may be considered a form of borrowing for some purposes.
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Non-U.S. Securities
The Fund’s return and net asset value may be significantly affected by political or economic conditions and regulatory requirements in a particular country. Non-U.S. markets, economies and political systems may be less stable than U.S. markets, and changes in exchange rates of foreign currencies can affect the value of the Fund's foreign assets. Non-U.S. laws and accounting standards in some cases may not be as comprehensive as they are in the U.S. and there may be less public information available about foreign companies. Non-U.S. securities markets may be less liquid and have fewer transactions than U.S. securities markets and taxes and transaction costs may be higher. Additionally, international markets may experience delays and disruptions in securities custody and settlement procedures for the Fund's portfolio securities. Investments in foreign countries could be affected by potential difficulties in enforcing contractual obligations and could be subject to extended settlement periods or restrictions affecting the prompt return of capital to the U.S. If the Fund cannot settle or is delayed in settling a purchase of securities, it may miss attractive investment opportunities and experience other adverse consequences. In some non-U.S. markets, custody arrangements for securities provide significantly less protection than custody arrangements in U.S. markets, and prevailing custody and trade settlement practices (e.g., the requirement to pay for securities prior to receipt) expose the Fund to credit and other risks it does not have in the United States. In addition, in certain markets the Fund may not receive timely payment for securities or other instruments it has delivered or receive delivery of securities paid for and may be subject to increased risk that the counterparty will fail to make payments or delivery when due or default completely.
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Non-U.S. Equity Securities
Non-U.S. equity securities are subject to all of the risks of equity securities generally, but can involve additional risks relating to political, economic or regulatory conditions in foreign countries. Less information may be available about foreign companies than about domestic companies, and foreign companies generally may not be subject to the same uniform accounting, auditing and financial reporting standards or to other regulatory practices and requirements comparable to those applicable to domestic companies.
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Non-U.S. Fixed Income Securities
The Fund’s non-U.S. fixed income securities are typically obligations of sovereign governments and corporations. They may also be issued by non-U.S. government agencies or instrumentalities. No assurance can be given that a non-U.S. government will provide financial support to government agencies or instrumentalities and therefore bonds issued by non-U.S. government agencies or instrumentalities may involve risk of loss of principal and interest. As with any fixed income securities, non-U.S. fixed income securities are subject to the risk of being downgraded in credit rating and to the risk of default. To the extent that the Fund invests a significant portion of its assets in a concentrated geographic area like Eastern Europe or Asia, the Fund will generally have more exposure to regional economic risks associated with these foreign investments.
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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 Fund. Emerging market securities may be subject to currency transfer restrictions and may experience delays and disruptions in securities settlement procedures for the Fund's portfolio securities. Inflation and rapid fluctuations in inflation rates have had, and may continue to have, negative effects on the economies and securities markets of certain emerging market countries. Emerging market countries typically have less established legal, accounting and financial reporting systems than those in more developed markets, which may reduce the scope or quality of financial information available to investors. Moreover, it can be more difficult for investors to bring litigation or enforce judgments against issuers in emerging markets or for U.S. regulators to bring enforcement actions against such issuers. Emerging market countries may also be more
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likely to experience the imposition of economic sanctions by foreign governments. For more information about sanctions, see the Global Financial Markets Risk in this Prospectus.
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Investments in Frontier Markets
Investments in frontier markets are generally subject to all of the risks of investments in non-U.S. and emerging markets securities, but to a heightened degree. Because frontier markets are among the smallest, least developed, least liquid, and most volatile of the emerging markets, investments in frontier markets are generally subject to a greater risk of loss than investments in developed or traditional emerging markets. Many frontier market countries operate with relatively new and unsettled securities laws and are heavily dependent on commodities, foreign trade and/or foreign aid. Compared to developed and traditional emerging market countries, frontier market countries typically have less political and economic stability, face greater risk of a market shutdown, and impose greater governmental restrictions on foreign investments.
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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.
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Yankee Bonds and Yankee CDs
Non-U.S. corporations and banks issuing dollar denominated instruments in the U.S. (Yankee Bonds or Yankee CDs) are not necessarily subject to the same regulatory requirements that apply to U.S. corporations and banks, such as accounting, auditing and recordkeeping standards, the public availability of information and, for banks, reserve requirements, loan limitations and examinations. This complicates efforts to analyze these securities and may increase the possibility that a non-U.S. corporation or bank may become insolvent or otherwise unable to fulfill its obligations on these instruments.
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Currency Risk
Foreign (non-U.S.) securities that trade in, and receive revenues in, foreign (non-U.S.) currencies are subject to the risk that those currencies will decline in value relative to the U.S. dollar or, in the case of hedging positions, that the U.S. dollar will decline in value relative to the currency being hedged. Currency rates in foreign countries may fluctuate significantly over short periods of time due to market events, actions of governments or their central banks or political developments in the U.S. or abroad. As a result, investments in non-U.S. dollar-denominated securities and currencies may reduce the returns of the Fund. Securities held by the Fund which are denominated in U.S. dollars are still subject to currency risk.
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Synthetic Foreign Equity/Fixed Income Securities (also referred to as International Warrants, Local Access Products, Participation Notes or Low Exercise Price Warrants)
Investments in these instruments involve the risk that the issuer of the instrument may default on its obligation to deliver the underlying security or its value. These instruments may also be subject to liquidity risk, currency risk and the risks associated with investments in non-U.S. securities. In the case of any exercise of these instruments, there may be a time delay between the time a holder gives instructions to exercise and the time the price of the security or the settlement date is determined, during which time the price of the underlying security could change significantly. In addition, the exercise and/or settlement date may be affected by certain market disruption events which could cause the local access products to become worthless if the events continue for a period of time.
Derivatives (Futures Contracts, Options, Forwards and Swaps)
Derivatives and other similar instruments are financial contracts whose value depends on, or is derived from, the value of an underlying instrument. Various derivative instruments are described in more detail under “Other Financial Instruments Including Derivatives” in the Statement of Additional Information. Derivatives may be used as a substitute for
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taking a position in the underlying instrument and/or as part of a strategy designed to reduce exposure to other risks, such as currency risk. Derivatives may also be used for leverage, to facilitate the implementation of an investment strategy or to take a net short position with respect to certain issuers, sectors or markets. The Fund may also use derivatives to seek to manage portfolio risk.
Investments in derivative instruments can pose additional, and often greater, risks than investing directly in conventional securities, currencies or other instruments. The Fund may lose more than the amount initially invested, and certain derivatives have the potential for unlimited loss. Compared to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations in market prices, and thus the Fund's losses may be greater if it invests in derivatives than if it invests only in conventional securities. The Fund’s or the Subsidiary’s use of derivatives may cause the Fund’s or Subsidiary’s investment returns to be impacted by the performance of securities the Fund or the Subsidiary does not own and result in the Fund’s or the Subsidiary’s total investment exposure exceeding the value of its portfolio. Investments in derivatives can cause the Fund's performance to be more volatile. Leverage tends to exaggerate the effect of any increase or decrease in the value of a security, which exposes the Fund to a heightened risk of loss.
Derivatives are generally subject to a number of risks including leverage risk, liquidity risk, market risk, credit risk, default risk, counterparty risk, management risk, operational risk and legal risk. Certain of these risks do not apply to derivative instruments entered into for hedging or cash equitization, certain cleared derivative instruments, and written options contracts. Derivatives also involve the risk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlate exactly with the change in the value of the underlying asset, rate or index.
Participation in the options or futures markets, as well as the use of various swap instruments and forward contracts, involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the Fund's predictions of the direction of movements of the prices of the underlying instruments are inaccurate, the adverse consequences to the Fund may leave the Fund in a worse position than if such strategies were not used. Risks inherent in the use of options, futures contracts, options on futures contracts, forwards and swaps include: (i) dependence on the ability to predict correctly the direction of movements of the prices of the underlying instruments; (ii) imperfect correlation between the price of the derivative instrument and the underlying instrument and the risk of mispricing or improper valuation; (iii) the fact that skills needed to use these strategies are different from those needed for traditional portfolio management; (iv) the absence of a liquid secondary market for any particular instrument at any time, which risk is heightened for highly customized derivatives, including swaps; (v) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences; (vi) for over-the-counter (“OTC”) derivative products and structured notes, additional credit risk, the risk of counterparty default and the risk of failing to correctly evaluate the creditworthiness of the company on which the derivative is based; (vii) the possible inability of the Fund to purchase or sell a portfolio holding at a time that otherwise would be favorable for it to do so, or the possible need to sell the holding at a disadvantageous time, due to the requirement that the Fund post certain types of securities or cash as margin or collateral in connection with use of certain derivatives; and (viii) for options, the change in volatility of the underlying instrument due to general market and economic conditions or other factors, which may negatively affect the value of such option.
There is no assurance that a liquid secondary market will exist for certain derivatives in which the Fund may invest. Participation in the options or futures markets, as well as the use of various forward contracts, involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. In many cases, a relatively small price movement in a futures or option contract may result in immediate and substantial loss or gain to the holder relative to the size of a required margin deposit or premium received. There is also the risk of loss by the Fund of margin deposits in the event of bankruptcy of a broker with whom the Fund has an open position in an option, forward, swap or futures contract.
Although the Fund will not borrow money in order to increase its trading activities, leveraged swap transactions may experience substantial gains or losses in value as a result of relatively small changes in the value or level of an underlying or related market factor. A swap transaction may be modified or terminated only by mutual consent of the original parties, subject to agreement on individually negotiated terms. Therefore, it may not be possible for the Fund to modify, terminate or offset the Fund’s obligations or the Fund's exposure to the risks associated with a transaction prior to its scheduled termination date.
Certain derivatives, including swaps, may be subject to fees and expenses, and by investing in such derivatives indirectly through the Fund, a shareholder will bear the expenses of such derivatives in addition to expenses of the Fund.
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If a put or call option purchased by the Fund is not sold when it has remaining value, and if, on the option expiration date, the market price of the underlying security or index, in the case of a purchased put, remains equal to or greater than the exercise price or, in the case of a purchased call, remains less than or equal to the exercise price, the Fund will lose its entire investment (i.e., the premium paid) on the option. When the Fund sells (i.e., writes) an option on a security or index, movements in the price of the underlying security or value of the index may result in a loss to the Fund, which may be unlimited for uncovered call positions.
The Fund may be unable to close out its derivatives positions when desired.
Because the markets for certain derivative instruments (including markets located in foreign countries) are relatively new and still developing, appropriate derivatives transactions may not be available in all circumstances for risk management or other purposes. Upon the expiration of a particular contract, RIM or the money manager may wish to retain the Fund's position in the derivative instrument by entering into a similar contract, but may be unable to do so if the counterparty to the original contract is unable or unwilling to enter into the new contract and no other appropriate counterparty can be found. There is no assurance that the Fund will engage in derivatives transactions at any time or from time to time. The ability to use derivatives may also be limited by certain regulatory and tax considerations.
The Commodity Futures Trading Commission (the “CFTC”) and the various exchanges have established limits referred to as “speculative position limits” on the maximum net long or net short positions that any person may hold or control in a particular futures contract, option on futures contract, and in some cases, OTC transaction that is economically equivalent to certain futures or options contracts on physical commodities. Trading limits are imposed on the number of contracts that any person may trade on a particular trading day. An exchange or the CFTC may order the liquidation of positions found to be in violation of these limits and may impose sanctions or restrictions.
The Fund’s use of derivatives is subject to Rule 18f-4 under the 1940 Act, which governs the use of derivatives, reverse repurchase agreements and certain other transactions by registered investment companies. Rule 18f-4 requires funds that make use of derivatives, subject to certain exceptions, to comply with an outer limit on fund leverage risk based on value-at-risk, to adopt and implement a written derivatives risk management program, and to comply with certain related program administration, reporting and recordkeeping requirements.
Currency Trading Risk
The Fund may engage in foreign currency transactions to hedge against uncertainty in the level of future exchange rates and/or to effect investment transactions to generate returns consistent with the Fund's investment objectives and strategies (i.e., speculative currency trading strategies). Foreign currency exchange transactions will be conducted on either a spot (i.e., cash) basis at the rate prevailing in the currency exchange market, or through entering into forward currency exchange contracts to purchase or sell currency at a future date. The Fund may also enter into options on foreign currencies. Currency spot, forward and option prices are highly volatile, and may be illiquid. Such prices are influenced by, among other things: (i) changing supply and demand relationships; (ii) government trade, fiscal, monetary and exchange control programs and policies; (iii) national and international political and economic events; and (iv) changes in interest rates. From time to time, governments intervene directly in these markets with the specific intention of influencing such prices. Currency trading may also involve economic leverage (i.e., the Fund may have the right to a return on its investment that exceeds the return that the Fund would expect to receive based on the amount contributed to the investment), which can increase the gain or the loss associated with changes in the value of the underlying instrument. Forward currency contracts are subject to the risk that should forward prices increase, a loss will be incurred to the extent that the price of the currency agreed to be purchased exceeds the price of the currency agreed to be sold and also can be subject to other risks described under “Derivatives” above. Due to the tax treatment of gains and losses on certain currency forward and options contracts, the use of such instruments may cause fluctuations in the Fund's income distributions, including the inability of the Fund to distribute investment income for any given period. Many foreign currency forward contracts will eventually be exchange-traded and cleared. Although these changes are expected to decrease the credit risk associated with bi-laterally negotiated contracts, exchange-trading and clearing would not make the contracts risk-free.
Counterparty Risk
Counterparty risk is the risk that the other party(s) in an agreement or a participant to a transaction, such as a broker or swap counterparty, might default on a contract or fail to perform by failing to pay amounts due or failing to fulfill the delivery conditions of the contract or transaction and the related risk of having concentrated exposure to a counterparty.
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Counterparty risk is inherent in many transactions, including, but not limited to, transactions involving over-the-counter derivatives, repurchase agreements, securities lending, short sales, credit and liquidity enhancements and equity or commodity-linked notes.
Commodity Risk
Exposure to the commodities markets may subject the Fund to greater volatility than investments in traditional securities, particularly if the investments involve leverage. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or sectors affecting a particular industry or commodity (such as drought, floods, weather, livestock disease, embargoes or tariffs) and international economic, political and regulatory developments. Use of leveraged commodity-linked derivatives creates an opportunity for increased return but, at the same time, creates the possibility for greater loss (including the likelihood of greater volatility of the Fund’s net asset value), and there can be no assurance that the Fund’s use of leverage will be successful. Different sectors of commodities, including precious metals, base metals, energy and agricultural commodities, may have very different risk characteristics and different levels of volatility. Even within a given sector of a commodity (e.g., energy commodities), there can be significant differences in volatility and correlation between different commodity contracts (e.g., crude oil vs. natural gas), and similarly there can be significant differences in volatility and correlation between contracts expiring at different dates. In addition, the purchase of derivative instruments linked to one type of commodity and the sale of another (i.e., “basis spreads” or “product spreads”), or the purchase of contracts expiring at one date and the sale of contracts expiring at another (i.e., “calendar spreads”) may expose the Fund to additional risk, which could cause the Fund to underperform other funds with similar investment objectives and investment strategies even in a rising market.
Subsidiary Risk
By investing in the Subsidiary, the Fund will be indirectly exposed to the risks associated with the Subsidiary’s investments, although the investment program followed by the Fund and the Subsidiary are not identical. The derivatives and other investments that will be held by the Subsidiary are generally similar to those that are permitted to be held by the Fund and will be subject to the same risks that apply to similar investments if held directly by the Fund. There can be no assurance that the investment objective of the Subsidiary will be achieved. The Subsidiary is not registered under the 1940 Act, although the Subsidiary will be maintained in accordance with the custody requirements of Section 17(f) of the 1940 Act. The Subsidiary is subject to the same fundamental, non-fundamental and certain other investment restrictions as the Fund; however, the Subsidiary is not subject to all the investor protection of the 1940 Act. Furthermore, changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Fund and/or the Subsidiary to operate as described in this Prospectus and could adversely affect the Fund. The cost of investing in the Fund will be higher because the Fund bears the expenses of the Subsidiary.
Tax Risk
The Fund intends to gain exposure indirectly to commodities markets by investing in the Subsidiary, which may invest in commodity index-linked swaps and other commodity-linked derivative instruments and securities. For the Fund to qualify as a regulated investment company under the Code, the Fund must derive at least 90 percent of its gross income each taxable year from certain qualifying sources of income. There is a risk that the Internal Revenue Service (“IRS”) could assert that the income derived from the Fund’s investment in the Subsidiary will not be considered qualifying income for purposes of the Fund remaining qualified as a regulated investment company for U.S. federal income tax purposes. In 2006, the IRS published a ruling that income realized from swaps with respect to a commodities index would not be qualifying income. In a number of private letter rulings issued from 2006 through 2011, the IRS ruled that the income of such a foreign subsidiary would be qualified income each year even if it is not actually distributed to the regulated investment company each year, but in 2011 the IRS suspended the issuance of such rulings. In addition, during 2006 through 2011, the IRS had also issued private letter rulings to regulated investment companies concluding that income derived from their investment in certain commodity-linked structured notes would constitute qualifying income to the fund. In 2011, the IRS indicated that the granting of these types of private letter rulings was suspended, pending further internal review of the subject. In 2016, the IRS announced that it would not issue any such rulings in the future, and it revoked the previously issued rulings. The U.S. Department of Treasury and the IRS issued final regulations that provide that amounts included in a regulated investment company’s gross income pursuant to the subpart F income rules (income earned from certain foreign corporate subsidiaries) are treated as dividends and therefore qualifying income only to the extent there is a current distribution out of the earnings and profits of the subsidiary that are attributable to
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such subpart F income inclusion. In addition, these regulations provide that subpart F income that is included in the Fund’s gross income by virtue of its investment in the Subsidiary is qualifying income to the extent derived with respect to the Fund’s business of investing stock, securities or currencies. The ability of the Fund to qualify for favorable regulated investment company status under the Code could be jeopardized if the Fund was unable to treat income from the Subsidiary as qualifying income. Furthermore, the tax treatment of commodity-linked derivatives and the Fund’s investment in the Subsidiary may otherwise be adversely affected by future legislation, Treasury Regulations and/or guidance issued by the IRS that could affect the character, timing and/or amount of the Fund’s taxable income or any gains and distributions made by the Fund, which legislation, Treasury Regulations, and/or guidance may have retroactive effect.
The Subsidiary is classified as a controlled foreign corporation for U.S. tax purposes. Typically, any gains/losses from trading in 1256 futures contracts, such as exchange-traded commodity futures contracts, are taxed 60% as long-term capital gains/losses and 40% short-term capital gains/losses. However, because the Subsidiary is a controlled foreign corporation, any income received by the Fund from the Subsidiary’s investments will be passed through to the Fund as ordinary income and reflected on shareholders’ tax Forms 1099 as such.
Securities of Other Investment Companies
If the Fund invests in other investment companies, including exchange-traded funds (“ETFs”), shareholders will bear not only their proportionate share of the Fund’s expenses (including operating expenses and the fees of the adviser), but also, indirectly, the similar expenses of the underlying investment companies. Shareholders would also be exposed to the risks associated not only to the investments of the Fund but also to the portfolio investments of the underlying investment companies. Unlike shares of typical mutual funds or unit investment trusts, shares of ETFs are bought and sold based on market values throughout each trading day, and not at net asset value. For this reason, shares can trade at either a premium or discount to net asset value. If an ETF held by the Fund trades at a discount to net asset value, the Fund could lose money even if the securities in which the ETF invests go up in value. In addition, ETFs are subject to other risks including: (i) during periods of market volatility, the share prices of ETFs may deviate significantly from their NAVs; (ii) an active trading market for an ETF’s shares may not develop or be maintained; (iii) ETF shares may be subject to trading halts or delisting; or (iv) a limited number of institutions may act as authorized participants to create or redeem block‑sized units of ETF shares. In the event substantial market or other disruptions affecting ETFs should occur in the future, the liquidity and value of the Fund’s ETF shares could also be substantially and adversely affected.
Depositary Receipts
Depositary receipts are securities traded on a local stock exchange that represent interests in securities issued by a foreign publicly-listed company. Depositary receipts have the same currency and economic risks as the underlying shares they represent. They are affected by the risks associated with the underlying non-U.S. securities, such as changes in political or economic conditions of other countries and changes in the exchange rates of foreign currencies. The value of depositary receipts will rise and fall in response to the activities of the company that issued the securities represented by the depositary receipts, general market conditions and/or economic conditions. Also, if there is a rise in demand for the underlying security and it becomes less available to the market, the price of the depositary receipt may rise, causing the Fund to pay a premium in order to obtain the desired depositary receipt. Conversely, changes in foreign market conditions or access to the underlying securities could result in a decline in the value of the depositary receipt. The Fund may invest in both sponsored and unsponsored depositary receipts, which are purchased through “sponsored” and “unsponsored” facilities, respectively. A sponsored facility is established jointly by the issuer of the underlying security and a depositary, whereas a depositary may establish an unsponsored facility without the participation of the issuer of the underlying security. Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts.
Illiquid Investments
An illiquid investment is one that is not reasonably expected to be sold or disposed of in current market conditions in seven calendar days or less without significantly changing the market value of the investment. The Fund may not be able to sell an illiquid or less liquid investment quickly and at a fair price, which could cause the Fund to realize losses on the investment if the investment is sold at a price lower than that at which it had been valued. An illiquid investment may also have large price volatility.
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Liquidity Risk
Liquidity risk exists when particular investments are difficult to purchase or sell. The market for certain investments may become illiquid or less liquid (i.e., there may be a significant reduction in trading activity, including in the number of market participants or transactions, in such investments) under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer or a security’s underlying collateral. In such cases, due to limitations on investments in illiquid investments and the difficulty in purchasing and selling such investments or instruments, the Fund may be unable to achieve its desired level of exposure to a certain sector. In addition, to the extent the Fund trades in illiquid or less liquid markets, it may be unable to dispose of or purchase investments at favorable prices in order to satisfy redemptions or subscriptions. Also, the market price of certain investments may fall dramatically if there is no liquid trading market. For derivatives, this also includes the risk involving liquidity demands that derivatives can create to make payments of margin or settlement payments to counterparties. Such events and conditions may adversely affect the value of the Fund's investments, result in greater market or liquidity risk or cause difficulty valuing the Fund's portfolio instruments or achieving the Fund's objective. To the extent that the Fund's principal investment strategies involve foreign (non-U.S.) securities, derivatives or securities with substantial market and/or credit risk, the Fund will tend to have the greatest exposure to liquidity risk. Additionally, fixed income securities can become difficult to sell, or less liquid, for a variety of reasons, such as a lack of a liquid trading market.
High Portfolio Turnover Risk
The Fund may engage in active and frequent trading, which may result in higher portfolio turnover rates and higher transaction costs than that of a typical mutual fund and realization of short-term capital gains that will generally be taxable to shareholders as ordinary income. These effects of higher than normal portfolio turnover may adversely affect Fund performance. Higher portfolio turnover rates may also increase the Fund's operational risk.
Non-Diversification Risk
A non-diversified fund is subject to additional risk. To the extent the Fund invests a relatively high percentage of its assets in the securities of a single issuer or group of issuers, the Fund’s performance will be more vulnerable to changes in the market value of the single issuer or group of issuers, and more susceptible to risks associated with a single economic, political or regulatory occurrence, than it would be if the Fund were a diversified fund.
New Fund Risk
The Fund is a new fund which may result in additional risk. There can be no assurance that a new Fund will grow to an economically viable size, in which case the Fund may cease operations. In such an event, investors may be required to liquidate or transfer their investment in the Fund at an inopportune time. You should consider your own investment goals, time horizon and risk tolerance before investing in the Fund.
Impact of Large Redemptions (Including Possible Fund Liquidation)
Large redemption activity could result in the Fund being forced to sell portfolio securities at a loss or before the money managers would otherwise decide to do so. Periods of market illiquidity may exacerbate this risk. To the extent the Fund is invested in a money market fund, regulations applicable to money market funds subject the Fund’s redemption from such money market fund to liquidity fees unless certain exceptions apply. Large redemptions in the Fund may also result in increased expense ratios (including as a result of the Fund’s expenses being allocated over a smaller asset base), higher and/or accelerated levels of realized capital gains or losses with respect to the Fund's portfolio securities which may cause non-redeeming shareholders in the Fund to receive larger capital gain distributions than they otherwise would have received during or with respect to the year in which such large redemptions occur, higher Fund cash levels in anticipation of the redemptions (which may persist for an extended period of time), higher brokerage commissions and other transaction costs. Large redemptions can also affect the liquidity of the Fund’s portfolio because the Fund may be unable to sell illiquid investments at its desired time or price or the price at which the securities have been valued for purposes of the Fund’s net asset value. As a result, the large redemption activity could adversely affect the Fund’s ability to conduct its investment program which, in turn, could adversely impact the Fund’s performance.
The Fund may be used as an investment in asset allocation programs sponsored by certain Financial Intermediaries. Under these circumstances, the Fund may have a large percentage of its Shares owned through such asset allocation programs. Should such Financial Intermediary change investment strategies or investment allocations such that fewer assets are invested in the Fund or the Fund is no longer used as an investment, the Fund could experience large
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redemptions of its Shares up to, and including, the entire investment held by the asset allocation program(s). Large redemptions may result in the Fund no longer remaining at an economically viable size, in which case, the Fund may cease operations. In such an event, investors may be required to liquidate or transfer their investments in the Fund at an inopportune time.
Global Financial Markets Risk
Global financial markets are increasingly interconnected and political and economic conditions (including instability and volatility due to international trade disputes) and events (including wars and armed conflicts, tariffs, natural disasters, pandemics, epidemics, social unrest and government shutdowns) 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 the Fund may experience significant declines in the value of their assets and even cease operations. This could occur whether or not the Fund invests in securities of issuers located in or with significant exposure to the countries directly affected. Such conditions and/or events may not have the same impact on all types of securities and may expose the Fund to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Fund. This could cause the Fund to underperform other types of investments.
The severity or duration of such conditions and/or events may be affected by policy changes made by governments or quasi-governmental organizations. During the recent global financial crisis, instability in the financial markets led governments across the globe to take a number of unprecedented actions designed to support the financial markets. More recently, instability in financial markets caused governments across the globe to again take certain actions designed to support financial markets as well as financial and other institutions in light of extreme financial market volatility. There is no guarantee that these actions will have their intended effect on financial markets. Future government regulation and/or intervention could also change the way in which the Fund is regulated, affect the expenses incurred directly by the Fund and the value of its investments, and limit and/or preclude the Fund's ability to achieve its investment objective. In addition, governments or their agencies may acquire distressed assets from financial institutions and acquire ownership interests in those institutions, which may affect the Fund's investments in ways that are unforeseeable.
Furthermore, a country’s economic conditions, political events, military action and/or other conditions may lead to foreign government intervention and the imposition of economic sanctions. Such sanctions may include (i) the prohibition, limitation or restriction of investment, the movement of currency, securities or other assets; (ii) the imposition of exchange controls or confiscations; and (iii) barriers to registration, settlement or custody. Sanctions may impact the ability of the Fund to buy, sell, transfer, receive, deliver or otherwise obtain exposure to, foreign securities or currency, which may negatively impact the value and/or liquidity of such investments.
In certain countries, including the U.S., total public debt as a percentage of gross domestic product has grown rapidly since the beginning of the global financial crisis. High levels of national debt may raise concerns that a government will be unable to pay investors at maturity, may cause declines in currency valuations or prevent such government from implementing effective fiscal policy. Rating services have, in the past, lowered their long-term sovereign credit rating on the U.S. Because the Fund invests in securities supported by the full faith and credit of the U.S. government, the market prices and yields of such securities may be adversely affected by any actual or potential downgrade in the rating of U.S. long-term sovereign debt.
From time to time, outbreaks of infectious illness, public health emergencies and other similar issues (“public health events”) may occur in one or more countries around the globe. Such public health events have had significant impacts on both the country in which the event is first identified as well as other countries in the global economy. Public health events have reduced consumer demand and economic output in one or more countries subject to the public health event, resulted in restrictions on trading and market closures (including for extended periods of time), increased substantially the volatility of financial markets, and, more generally, have had a significant negative impact on the economy of the country or countries subject to the public health event. Public health events have also adversely affected the global economy, global supply chains and the securities in which the Fund invests across a number of industries, sectors and asset classes. The extent of the impact depends on, among other factors, the scale and duration of any such public health event. Public health events have resulted in the governments of affected countries taking potentially significant measures to seek to mitigate the transmission of the infectious illness or other public health issue including, among other measures, imposing travel restrictions and/or quarantines and limiting the operations of non-essential businesses. Any of these events could adversely affect the Fund's investments and performance, including by exacerbating other pre-existing political, social and economic risks. Governmental authorities and other entities may respond to such events with fiscal and/or monetary
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policy changes. It is not guaranteed that these policy changes will have their intended effect and it is possible that the implementation of or subsequent reversal of such policy changes could increase volatility in financial markets, which could adversely affect the Fund's investments and performance.
RIM will monitor developments in financial markets and seek to manage the Fund in a manner consistent with achieving the Fund's investment objective, but there can be no assurance that it will be successful in doing so. In addition, RIC has established procedures to value instruments for which market prices may not be readily available.
Cyber Security and Other Operational Risks
An investment in the Fund, like any fund, can involve operational risks arising from factors such as processing errors, human errors, inadequate or failed internal or external processes, failure in systems and technology, changes in personnel and errors caused by third-party service providers. Other disruptive events may include, but are not limited to, natural disasters, public health events, labor shortages, supply chain interruptions and overall economic and financial market instability that adversely affect the Fund’s ability to conduct business by, among other things, inhibiting the ability of employees of affiliates of the Fund or third-party service providers from performing their responsibilities. While the Fund seeks to minimize such events through controls and oversight, there may still be events or failures that could cause losses to the Fund. In addition, as the use of technology increases, the Fund may be more susceptible to operational risks through breaches in cyber security. A breach in cyber security refers to both intentional and unintentional events that may cause the Fund to lose proprietary information or operational capacity or suffer data corruption. As a result, the Fund may incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures, and/or financial loss. Cyber security breaches of the Fund's third-party service providers or issuers in which the Fund invests may also subject the Fund to many of the same risks associated with direct cyber security breaches. The Fund and the Fund's third-party service providers may also maintain sensitive information (including relating to personally identifiable information of investors) and a cyber security breach may cause such information to be lost, improperly accessed, used or disclosed. Geopolitical tensions may, from time to time, increase the scale and sophistication of cyber incidents and other disruptions. Technological developments such as the use of cloud-based service providers and/or services and the integration of artificial intelligence in systems and operations create new risks that are difficult to assess.
The Fund has established business continuity plans and risk management systems designed to reduce the risks associated with cyber security breaches and disruptive events. However, there are inherent limitations in these plans and systems, including that certain risks may not have been identified, primarily because unknown threats and events may emerge in the future. There is no guarantee that such business continuity plans will be effective in reducing the risks associated with disruptive events or prevent cyber security breaches, especially because the Fund does not directly control the systems or operations of issuers in which the Fund may invest, trading counterparties or third-party service providers. There is also a risk that cyber security breaches may not be detected. The Fund and its shareholders could be negatively impacted by such disruptive events or cyber security incidents.
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PORTFOLIO HOLDINGS
A description of the Fund's policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund's Statement of Additional Information.
DIVIDENDS AND DISTRIBUTIONS
The Fund distributes substantially all of its net investment income and net capital gains to shareholders each year.
Income Dividends
The amount and frequency of distributions are not guaranteed; all distributions are at the Board’s discretion. Currently, the Board intends to declare dividends from net investment income annually, payable in mid-December.
An additional distribution of net investment income may be declared and paid by the Fund if required to avoid the imposition of a federal tax on the Fund.
Capital Gains Distributions
The Board will declare capital gains distributions (both short-term and long-term) once a year in mid-December to reflect any net short-term and net long-term capital gains, if any, realized by the Fund in the prior fiscal year. An additional distribution may be declared and paid by the Fund if required to avoid the imposition of a federal tax on the Fund. Distributions that are declared in October, November or December to shareholders of record in such months, and paid in January of the following year, will be treated for tax purposes as if received on December 31 of the year in which they were declared.
Buying a Dividend
If you purchase Shares before a distribution, you will pay the full price for the Shares and receive a portion of the purchase price back as a taxable distribution. This is called “buying a dividend.” Unless your account is a tax-deferred account, dividends paid to you would be included in your gross income for tax purposes even though you may not have participated in the increase of the net asset value of the Fund, regardless of whether you reinvested the dividends. Distributions are taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid for your Fund shares). Check the Fund’s distribution dates before you invest.
Automatic Reinvestment
Your dividends and other distributions will be automatically reinvested at the closing net asset value on the record date, in additional Fund Shares, unless you elect to have the dividends or distributions paid in cash or invested in another Russell Investment Company fund (“RIC Fund”). You may change your election by delivering written notice no later than ten days prior to the record date to your Financial Intermediary.
additional information about TAXES
Unless you are investing through an IRA, 401(k) or other tax-advantaged retirement account, distributions from the Fund are generally taxable to you as either ordinary income or capital gains. This is true whether you reinvest your distributions in additional Shares or receive them in cash. Any long-term capital gains distributed by the Fund are taxable to you as long-term capital gains no matter how long you have owned your Shares. Early each year, you will receive a statement that shows the tax status of distributions you received for the previous year.
Foreign exchange gain or loss arising from the Fund’s foreign-currency-denominated investments may increase or reduce the amount of ordinary income distributions made to investors.
If you are an individual investor, a portion of the dividends you receive from the Fund may be treated as “qualified dividend income” which is taxable to individuals at the same rates that are applicable to long-term capital gains. A Fund distribution is treated as qualified dividend income to the extent that the Fund receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding period and other requirements are met. Fund distributions generally will not qualify as qualified dividend income to the extent attributable
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to interest, capital gains, real estate investment trust (“REIT”) distributions and, in some cases, distributions from non-U.S. corporations. There can be no assurance that any portion of the dividends you receive from the Fund will qualify as qualified dividend income.
When you sell or exchange Shares, you may have capital gains or losses. Any losses you incur if you sell or exchange Shares that you have held for six months or less will be treated as long-term capital losses, but only to the extent that the Fund has paid you long-term capital gains dividends with respect to those Shares during that period. The tax rate on any gains from the sale or exchange of your Shares depends on how long you have held your Shares.
No Fund makes any representation as to the amount or variability of its capital gains distributions which may vary as a function of several factors including, but not limited to, gains and losses related to the sale of securities, money manager changes, investment strategy changes, prevailing dividend yield levels, general market conditions and shareholders’ redemption patterns.
Fund distributions and gains from the sale or exchange of your Shares will generally be subject to federal and state and local income taxes. Non-U.S. investors may be subject to U.S. withholding and estate taxes. A portion of Fund distributions received by a non-U.S. investor may be exempt from U.S. withholding tax to the extent attributable to U.S. source interest income and short-term capital gains earned by the Fund if properly reported by the Fund. The Fund will be required to withhold U.S. tax (at a 30% rate) on payments of taxable dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to the Fund to enable the Fund to determine whether withholding is required. You should consult your tax professional about federal, state, local or foreign tax consequences of holding Shares.
When the Fund invests in securities of certain foreign issuers, the Fund may have taxes withheld on the income received from these securities. If more than 50% of the total fair market value of the Fund’s assets at the close of its taxable year is made up of foreign securities, the Fund may elect to pass through such taxes to shareholders who may then (subject to limitations) claim a foreign tax credit or deduction.
The Fund’s investments in certain debt instruments could cause the Fund to recognize taxable income in excess of the cash generated by such investments (which may require the Fund to liquidate other investments in order to make required distributions). The Fund's transactions in foreign currencies, foreign-currency-denominated debt obligations, derivatives, short sales, or similar or related transactions could affect the amount, timing and character of distributions from the Fund, and could increase the amount and accelerate the timing of payment of taxes payable by shareholders.
If you are a corporate investor, a portion of the dividends from net investment income paid by the Fund will generally qualify, in part, for the corporate dividends-received deduction. However, the portion of the dividends so qualified depends on the aggregate qualifying dividend income received by the Fund from domestic (U.S.) sources. Certain holding period and debt financing restrictions may apply to corporate investors seeking to claim the deduction. There can be no assurance that any portion of the dividends paid by the Fund will qualify for the corporate dividends-received deduction. You should consult your tax professional with respect to the applicability of these rules.
By law, the Fund must withhold the legally required amount of your distributions and proceeds if you do not provide your correct taxpayer identification number, or certify that such number is correct, or if the IRS instructs the Fund to do so.
The tax discussion set forth above is included for general information only. You should consult your own tax adviser concerning the federal, state, local or foreign tax consequences of an investment in the Fund.
Additional information on these and other tax matters relating to the Fund and its shareholders is included in the section entitled “Taxes” in the Fund's Statement of Additional Information.
Cost Basis Reporting
If you acquire and hold shares directly with the Fund and not through a Financial Intermediary, RIFUS will use a default average cost basis methodology for tracking and reporting your cost basis, unless you request, in writing, another cost basis reporting methodology.
If you acquire and hold shares through a Financial Intermediary, please contact your Financial Intermediary for information related to cost basis defaults, cost basis selection, and cost basis reporting.
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You should consult your own tax advisor(s) when selecting your cost basis tracking and relief methodology.
HOW NET ASSET VALUE IS DETERMINED
Net Asset Value Per Share
The net asset value per share is calculated for Shares of each Class of the Fund on each business day on which Shares are offered or redemption orders are tendered. For the Fund, a business day is one on which the New York Stock Exchange (“NYSE”) is open for regular trading. The Fund will normally determine net asset value as of the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time). If the NYSE has an unscheduled early closing on a day it has opened for business, the Fund reserves the right to treat such day as a business day of the Fund and calculate the Fund’s net asset value as of the normally-scheduled close of regular trading on the NYSE for that day, so long as the Fund's management believes there remains an adequate market to meet purchase and redemption orders for that day. Market volatility regulations provide for circuit breakers which represent the thresholds at which trading is halted market-wide for single-day declines in the S&P 500® Index. Circuit breakers halt trading on the nation's stock markets during dramatic drops and are set at 7%, 13% and 20% of the closing price for the previous day. For a Level 3 halt (20% decline), trading will halt for the remainder of the trading day and the Fund will determine net asset value as of the early close of trading on the NYSE.
The Fund reserves the right to close, and therefore not calculate the Fund’s net asset value for that day, if the primary trading markets of the Fund’s portfolio instruments are closed (such as holidays on which such markets are closed) and the Fund’s management believes that there is not an adequate market to meet purchase or redemption requests on such day.
The price of Fund Shares is based on the Fund’s net asset value and is computed by dividing the current value of the Fund’s assets (less liabilities) by the number of Shares of the Fund outstanding and rounding to the nearest cent. Share value for purchase, redemption or exchange will be based on the net asset value next calculated after your order is received in good form (i.e., when all required documents and your check or wired funds are received) by the Fund or a Fund agent. Investments in other open-end management investment companies registered under the 1940 Act (if any), are valued based upon the net asset value of those open-end management investment companies. The prospectuses for these companies explain the circumstances under which fair value pricing will be used and the effects of using fair value pricing. Investments in ETFs will generally be valued at the last sale price or official closing price on the exchange on which they are principally traded. See “Additional Information About How to Purchase Shares,” “Additional Information About How to Redeem Shares” and “Exchange and Conversion Privilege” for more information. Information regarding the Fund’s current net asset value per Share is available at https://russellinvestments.com.
Valuation of Portfolio Securities
The Fund values portfolio instruments according to securities valuation procedures, which include market value procedures, fair value procedures, other key valuation procedures and a description of the pricing sources and services used by the Fund. With respect to the Fund's investments that do not have readily available market quotations, the Board has designated RIM as the valuation designee to perform fair valuations pursuant to Rule 2a-5 under the 1940 Act. However, the Board retains oversight over the valuation process.
Ordinarily, the Fund values each portfolio instrument based on prices provided by pricing sources and services or brokers (when permitted by the market value procedures). Equity securities (including exchange-traded funds) are generally valued at the last quoted sale price or the official closing price as of the close of the exchange’s or other market’s regular trading hours on the day the valuation is made. Listed options are valued on the basis of the closing mean price and exchange listed futures contracts are valued on the basis of settlement price. Swaps may be valued at the closing price, clean market price or clean exchange funded price provided by a pricing service or broker or based on the valuation of the underlying security depending on the type of swap being valued. Listed fixed income securities that have greater than 60 days remaining until maturity at the time of purchase are generally valued at the last quoted sale price as of the close of the exchange’s or other market’s regular trading hours on the day the valuation is made. Non-listed fixed income securities that have greater than 60 days remaining until maturity at the time of purchase are generally valued using the price supplied by a pricing service or broker, which may be an evaluated bid (a form of fair value pricing). Evaluated bids are derived from a matrix, formula or other objective method that takes into consideration actual trading activity and volume, market indexes, credit quality, maturity, yield curves or other specific adjustments. Fixed income
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securities that have 60 days or less remaining until maturity at the time of purchase are valued using the amortized cost method of valuation, unless it is determined that the amortized cost method would result in a price that would be deemed to be not reliable. Issuer-specific conditions (e.g., creditworthiness of the issuer and the likelihood of full repayment at maturity) and conditions in the relevant market (e.g., credit, liquidity and interest rate conditions) are among the factors considered in this determination. While amortized cost provides certainty in valuation, it may result in periods when the value of an instrument is higher or lower than the price the Fund would receive if it sold the instrument.
If market quotations or pricing service prices are not readily available for an instrument or are considered not reliable because of market and/or issuer-specific information, the instrument will be valued at fair value, as determined in accordance with the fair value procedures. The fair value procedures may involve subjective judgments as to the fair value of securities. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that RIM believes reflects fair value. The use of fair value pricing by the Fund may cause the net asset value of its Shares to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Fund Shares and the daily movement of the benchmark index if the index is valued using another pricing method.
This policy is intended to assure that the Fund's net asset values fairly reflect portfolio instrument values as of the time of pricing. Events or circumstances affecting the values of portfolio instruments that occur between the closing of the principal markets on which they trade and the time the net asset value of Fund Shares is determined may be reflected in the calculation of the net asset values for each applicable Fund when the Fund deems that the particular event or circumstance would materially affect the Fund’s net asset value. 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 will use fair value pricing more often (typically daily) 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. Examples of significant events that generally trigger fair value pricing of one or more securities are: any market movement of the U.S. securities market (defined in the fair value procedures as the movement of a single major U.S. index); a company development such as a material business development; a natural disaster, a public health emergency affecting one or more countries in the global economy (including an emergency which results in the closure of financial markets) or other emergency situation; or an armed conflict.
Because foreign securities can trade on non-business days, the net asset value of the Fund’s portfolio that includes foreign securities may change on days when shareholders will not be able to purchase or redeem Fund Shares.
CHOOSING A CLASS OF SHARES TO BUY
The Fund offers more than one Class of Shares. Each Class of Shares has different sales charges and expenses, allowing you to choose the Class that best meets your needs. A Financial Intermediary may choose to offer a particular Class of Shares based on, among other factors, its assessment of the appropriateness of a Class’ attributes in light of its customer base. Your Financial Intermediary may not offer all of the Classes of Shares offered in this Prospectus and, therefore, you may not benefit from certain Fund policies, including those regarding sales charge waivers and reduction of sales charges through reinstatement, rights of accumulation, letters of intent and share class conversions. You may need to invest through another Financial Intermediary in order to take advantage of these Fund policies. Please contact your Financial Intermediary to determine which Classes of Shares your Financial Intermediary offers. For more information about the Financial Intermediaries that currently offer Shares of the Fund, please call 800-787-7354 for assistance in contacting an investment professional near you.
Comparing the Fund's Classes
Your Financial Intermediary can help you decide which Class of Shares meets your goals. Your Financial Intermediary may receive different compensation depending upon which Class of Shares you choose.
Each Class of Shares has its own sales charge and expense structure, which enables you to choose the Class of Shares (and pricing) that best meets your specific needs and circumstances. In making your decision regarding which Class of Shares may be best for you to invest in, please keep in mind that your Financial Intermediary may receive different compensation depending on the Class of Shares that you invest in and you may receive different services in connection with investments in different Classes of Shares. You should consult with your Financial Intermediary about the
39
comparative pricing and features of each Class, the services available for shareholders in each Class, the compensation that will be received by the Financial Intermediary in connection with each Class, and other factors that may be relevant to your decision as to which Class of Shares to buy.
| Share Class |
Front-End Sales Charge |
Deferred Sales Charge |
Annual 12b-1 Fees |
Annual Shareholder Service Fees |
| Class A |
Up to 3.75%; reduced, waived or deferred for large purchases and certain investors |
1.00% on redemptions of Class A Shares made within one year of a purchase on which no front-end sales charge was paid and your Financial Intermediary was paid a commission by the Fund’s Distributor |
0.25% of average daily assets |
None |
| Class S |
None |
None |
None |
None |
FRONT-END SALES CHARGES
Class S Shares
Class S Shares of the Fund are sold without a front-end sales charge.
Class A Shares
Class A Shares are sold at the offering price, which is the net asset value plus a front-end sales charge. The Distributor receives the full applicable sales charge from which it pays the Financial Intermediary commission shown in the tables below. With respect to Class A Shares, you pay a lower front-end sales charge as the size of your investment increases to certain levels. With respect to Class A Shares, you do not pay a front-end sales charge on the Fund's distributions of dividends or capital gains you reinvest in additional Class A Shares of the same Fund or another RIC Fund.
The tables below show the rate of front-end sales charge that you pay, depending on the amount of your investment or transaction. The tables below also show the amount of compensation that is paid to your Financial Intermediary out of the front-end sales charge. This compensation includes commissions to Financial Intermediaries that sell Class A Shares. Financial Intermediaries may also receive the distribution fee payable on Class A Shares at an annual rate of up to 0.25% of the average daily net assets represented by the Class A Shares serviced by them.
A sales charge may be reduced or eliminated for larger purchases of Class A Shares, as described below.
| Front-End Sales Charges for Class A Shares |
Front-end sales charge as a % of |
Financial Intermediary commission as a % of offering price | |
| Amount of Investment |
Offering Price |
Net amount Invested | |
| Less than $50,000 |
3.75 % |
3.90 % |
3.00 % |
| $50,000 but less than $100,000 |
3.50 % |
3.63 % |
2.75 % |
| $100,000 but less than $250,000 |
2.50 % |
2.56 % |
2.00 % |
| $250,000 but less than $500,000 |
2.00 % |
2.04 % |
1.60 % |
| $500,000 but less than $1,000,000 |
1.50 % |
1.52 % |
1.20 % |
| $1,000,000 or more |
-0- |
-0- |
up to 1.00% |
Investments of $1,000,000 or more (Class A Shares). With respect to Class A Shares, you do not pay a front-end sales charge when you buy $1,000,000 or more of Shares of the RIC Funds. However, if your Financial Intermediary was paid a commission by the Fund's Distributor on those Class A Shares and you redeem those Class A Shares within one year of purchase, you will pay a deferred sales charge of 1.00%. Commissions are paid to Financial Intermediaries on Class A Share purchases of $1 million or more by a single shareholder which are not subject to a front-end sales charge, at the following rates: 1.00% on purchases of $1 million or more but less than $4 million, plus 0.50% on the next $6 million, plus 0.25% on purchases of $10 million or more. Commissions are paid based on cumulative purchases by a shareholder over time, not on purchases made during a calendar year.
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Reducing Your Front-End Sales Charge (Class A Shares). To receive a reduced front-end sales charge on purchases of Class A Shares as described below, you must notify your Financial Intermediary of your ability to qualify for a reduced front-end sales charge at the time your order for Class A Shares is placed. Your Financial Intermediary may require certain records, such as account statements, to verify that the purchase qualifies for a reduced front-end sales charge. Additionally, you should retain any records necessary to substantiate historical costs of your Class A Share purchases because the Fund, RIFUS and your Financial Intermediary may not maintain this information.
Front-end Sales Charge Waivers (Class A Shares). Purchases of Class A Shares may be made at net asset value without a front-end or deferred sales charge in the following circumstances. There is no commission paid to Financial Intermediaries for Class A Shares purchased under the following circumstances:
1.
Sales to RIC trustees and employees of Russell Investments (including retired trustees and employees), to the immediate families (as defined below) of such persons, or to a pension, profit-sharing or other benefit plan for such persons
2.
Sales to current/retired registered representatives of a Financial Intermediary having sales agreements with the Fund's Distributor to sell Class A Shares of the Fund and sales to a current spouse or the equivalent thereof, child, step-child (with respect to current union only), parent, step-parent or parent-in-law of such registered representative or to a family trust in the name of such registered representative
3.
Accounts managed by a member of Russell Investments
Moving Between Accounts (Class A Shares). Under certain circumstances, if supported by your Financial Intermediary, you may transfer Class A Shares of the Fund from an account with one registration to an account with another registration within 90 days without incurring a front-end sales charge. For example, you may transfer Shares without paying a front-end sales load in the following cases:
●
From a non-retirement account to an IRA or other individual retirement account
●
From an IRA or other individual retirement account, such as a required minimum distribution, to a non-retirement account
In some cases, due to operational limitations or reporting requirements, your Financial Intermediary must redeem Shares from one account and purchase Shares in another account to achieve this type of transfer.
If you want to learn more about front-end sales charge waivers, contact your Financial Intermediary.
Aggregated Investments (Class A Shares). The following types of accounts may be combined to qualify for reduced front-end sales charge including purchases made pursuant to rights of accumulation or letter of intent as described below:
The following accounts owned by you and/or a member of your immediate family (as defined below):
a.
Accounts held individually or jointly
b.
Those established under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act
c.
IRA accounts, certain single participant retirement plan accounts, and SEP IRA, SIMPLE IRA or similar accounts held in individual registration
d.
Solely controlled business accounts
e.
Trust accounts benefiting you or a member of your immediate family
For purposes of aggregated investments, your immediate family includes your spouse, or the equivalent thereof, and your children and step-children under the age of 21.
Purchases made in nominee or street name accounts may NOT be aggregated with those made for other accounts and may NOT be aggregated with other nominee or street name accounts unless otherwise qualified as described above.
You may only combine accounts held with your Financial Intermediary for purposes of aggregated investments.
Rights of Accumulation (“ROA”) (Class A Shares). Subject to the limitations described in the aggregation policy, you may combine current purchases of any RIC Fund with your existing holdings of all RIC Funds to determine your current front-end sales charge for Class A Shares. Subject to your Financial Intermediary’s capabilities, your accumulated holdings will be calculated as the higher of (a) the current value of your existing holdings or (b) the amount you invested
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(including reinvested dividends and capital gains, but excluding capital appreciation) less any withdrawals (the “cost value”). You must notify your Financial Intermediary at the time an order is placed for a purchase or purchases which would qualify for the reduced front-end sales charge due to existing investments or other purchases. The reduced front-end sales charge may not be applied if such notification is not furnished at the time of the order.
The value of all of your holdings in accounts established in calendar year 2007 or earlier will be assigned an initial cost value equal to the market value of those holdings as of the last business day of 2007. Thereafter, the cost value of such accounts will increase or decrease according to actual investments or withdrawals.
For purchases to be aggregated for the purpose of qualifying for the ROA, they must be made on the same day through your Financial Intermediary. The right of accumulation is subject to modification or discontinuance at any time with respect to all Shares purchased thereafter. Additional information is available from your Financial Intermediary.
Letter of Intent (“LOI”) (Class A Shares). A non-binding LOI allows you to combine purchases of Shares of any RIC Funds you intend to make over a 13-month period with the market value of your current RIC Fund holdings to determine the applicable front-end sales charge. Any appreciation of your current RIC Fund holdings and any Shares issued from reinvestment of dividends or capital gains will not be considered purchases made during the 13-month period. A portion of your account (up to 5%) will be held in escrow to cover additional Class A front-end sales charges that may be due. If you purchase less than the amount specified in the LOI and the LOI period expires or a full-balance redemption is requested during the LOI period, Shares in your account will be automatically redeemed to pay additional front-end sales charges that may be due. Class A Shares of the Fund held in plan or omnibus accounts are not eligible for an LOI unless the plan or omnibus account can maintain the LOI on their record keeping system. If the shareholder dies within the 13-month period, no additional front-end sales charges are required to be paid.
Exchange Privilege (Class A Shares). Generally, exchanges between Class A Shares of the RIC Funds are not subject to a front-end sales charge. Exchanges may have the same tax consequences as ordinary sales and purchases. Please contact your Financial Intermediary and/or tax adviser for more detailed information.
Reinstatement Privilege (Class A Shares). You may reinvest proceeds from a redemption or distribution of Class A Shares into Class A Shares of any RIC Fund without paying a front-end sales charge if such reinvestment is made within 90 days after the redemption or distribution date and the proceeds are invested in any related account eligible to be aggregated for Rights of Accumulation purposes. Proceeds will be reinvested at the net asset value next determined after receipt of your purchase order in proper form. For purposes of this Reinstatement Privilege, automatic transactions (including, for example, automatic purchases, withdrawals and payroll deductions) and ongoing individual retirement plan contributions are not eligible for reinstatement without a sales charge. The privilege may not be exercised if proceeds are subject to a purchase restriction as described in the section entitled “Frequent Trading Policies and Limitations on Trading Activity” and certain other restrictions may apply. Contingent deferred sales charges will be credited to your account at current net asset value following notification to the Fund by your Financial Intermediary.
Information about sales charges and sales charge waivers is available free of charge, on the Fund's website at https://russellinvestments.com.
MORE ABOUT DEFERRED SALES CHARGES
You do not pay a front-end sales charge when you buy $1,000,000 or more of Class A Shares of the RIC Funds. However, if your Financial Intermediary was paid a commission by the Fund's Distributor on Class A Shares and you redeem those Class A Shares within one year of purchase, you will pay a deferred sales charge of 1.00%. The deferred sales charge is charged on the lesser of the purchase price of the Shares being redeemed or the net asset value of those Shares at the time of redemption. Shares not subject to a deferred sales charge (those issued upon reinvestment of dividends or capital gains) are redeemed first followed by the Shares you have held the longest. Exchanges between Class A Shares you own in one Fund for the same Class of any other Fund are not subject to a deferred sales charge; however, you will pay a deferred sales charge of 1.00% upon redemption if you redeem Class A Shares within one year of your original purchase.
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The deferred sales charge may be waived on:
●
shares sold within 12 months following the death or disability of a shareholder
●
redemptions of Class A Shares only, made in connection with the minimum required distribution from retirement plans or IRAs pursuant to the Internal Revenue Code
●
a systematic withdrawal plan for Class A Shares only, equaling no more than 1% of the account value per any monthly redemption
●
involuntary redemptions
●
redemptions of Class A Shares to effect a combination of the Fund with any investment company by merger, acquisition of assets or otherwise
All waivers of deferred sales charges are subject to confirmation of your status or holdings.
The availability of deferred sales charge waivers may depend on the particular Financial Intermediary or type of account through which you purchase Class A Shares.
If you want to learn more about deferred sales charges, contact your Financial Intermediary.
DISTRIBUTION AND SHAREHOLDER SERVICES ARRANGEMENTS AND PAYMENTS TO FINANCIAL INTERMEDIARIES
The Fund offers Class A and Class S Shares. Class A Shares are discussed in the sections entitled “Choosing a Class of Shares to Buy,” “Front-End Sales Charges,” and “More About Deferred Sales Charges.”
Class A Shares participate in the Fund's Rule 12b-1 distribution plan. Under the distribution plan, the Fund's Class A Shares pay distribution fees of 0.25% annually for the sale and distribution of Class A Shares. The distribution fees are paid out of the Fund's Class A Shares assets on an ongoing basis, and over time these fees will increase the cost of your investment in the Fund, and the distribution fee may cost an investor more than paying other types of sales charges.
Class S Shares do not participate in the Fund's distribution plan.
Pursuant to the Fund's Rule 12b-1 distribution plan, Financial Intermediaries may receive distribution compensation from the Fund's Distributor with respect to Class A Shares of the Fund. These payments are reflected in the fees and expenses listed in the annual fund operating expenses table earlier in the Prospectus.
In addition to the foregoing payments, the Fund's Distributor may make cash payments, from its own resources, to key Financial Intermediaries (including those who may offer Fund Shares through specialized programs such as tax deferred retirement programs) in connection with distribution, which may include providing services intended to result in the sale of Fund Shares, or to pay for services such as marketing support, education and/or administrative services support. These compensation arrangements may vary by Financial Intermediary and may increase as the dollar value of Fund Shares held through a particular Financial Intermediary increases. Because these payments are not made by the Fund, these payments are not reflected in the fees and expenses listed in the annual fund operating expenses table. Some of these payments are commonly referred to as “revenue sharing.” At times, such payments may create an incentive for a Financial Intermediary to recommend or make Shares of the Fund available to its customers and may allow the Fund greater access to the customers of the Financial Intermediary.
RIFUS may also make cash payments, from its own resources, to Financial Intermediaries and their service providers (including those who may offer Fund Shares through specialized programs such as tax deferred retirement programs) to pay for services such as account consolidation, transaction processing and/or administrative services support. These compensation arrangements may vary by Financial Intermediary and may fluctuate based on the dollar value of Fund Shares held through a particular Financial Intermediary. Because these payments are not made by the Fund, these payments are not reflected in the fees and expenses listed in the annual fund operating expenses table. At times, such payments may create an incentive for a Financial Intermediary to recommend or make Shares of the Fund available to its customers and may allow the Fund greater access to the customers of the Financial Intermediary.
The Fund's Distributor may pay or allow other promotional incentive payments to Financial Intermediaries to the extent permitted by the rules adopted by the SEC and the Financial Industry Regulatory Authority relating to the sale of mutual fund shares.
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To enable Financial Intermediaries to provide a higher level of service and information to prospective and current Fund shareholders, the Fund's Distributor also offers them a range of complimentary software tools and educational services. The Fund's Distributor provides such tools and services from its own resources.
Ask your Financial Intermediary for additional information as to what compensation, if any, it receives from the Fund, the Fund's Distributor or RIM.
additional information about HOW TO PURCHASE SHARES
Shares are only available through investment adviser representatives and broker-dealer registered representatives of LPL Financial LLC or its affiliates (collectively, “Financial Intermediaries”), unless you are eligible to participate in a Russell Investments employee investment program. If you are not currently working with one of these Financial Intermediaries, please call 800-787-7354 for assistance in contacting an investment professional near you.
Class S Shares
Class S Shares may only be purchased by:
(1)
clients of Financial Intermediaries who charge an advisory fee, management fee, consulting fee, or other similar fee for their services for the shareholder account in which the Class S Shares are held or clients of Financial Intermediaries where the Financial Intermediary would typically charge such a brokerage commission or other similar fee but has determined to waive its fee in a particular instance as the result of a potential conflict of interest;
(2)
clients of Financial Intermediaries in employee benefit and other plans, such as 401(k) plans, 457 plans, employer sponsored 403(b) plans, HSAs (Health Savings Accounts), profit sharing plans, money purchase plans, defined benefit plans and non-qualified deferred compensation plans, that consolidate and hold all Fund Shares in plan level or omnibus accounts on behalf of participants. SEP IRA, SIMPLE IRA and individual 403(b) Plans are not considered plans for purposes of this paragraph;
(3)
clients of Financial Intermediaries who are members of Russell Investments;
(4)
individuals pursuant to employee investment programs of Russell Investments or its affiliates; or
(5)
current/retired registered representatives of a Financial Intermediary having sales agreements with the Fund's Distributor to sell Class S Shares of the Fund and current spouses or the equivalent thereof, children, step-children (with respect to current union only), parents, step-parents or parents-in-law of such registered representative or to a family trust in the name of such registered representative.
Class S Shares may also be available on brokerage platforms of Financial Intermediaries that have agreements with the Fund's Distributor to offer such Shares when acting as an agent for the investor for the purchase or sale of such Shares. If you transact in Class S Shares through one of these brokerage programs, you may be required to pay a commission and/or other forms of compensation to the broker, which are not reflected in the tables under the Choosing A Class of Shares To Buy or Front-End Sales Charges sections above. The Fund's Distributor does not receive any portion of the commission or compensation.
The Fund generally does not have the ability to enforce these limitations on access to Share Classes with eligibility requirements. It is the sole responsibility of each Financial Intermediary to ensure that it only makes Share Classes with eligibility requirements available to those categories of investors listed above that qualify for access to such Share Classes. However, the Fund will not knowingly sell Share Classes with eligibility requirements to any investor not meeting one of the foregoing criteria.
Minimum Initial Investment
For Class A and S Shares, there is currently no required minimum initial investment.
The Fund reserves the right to close any account whose balance falls below $500 and to change the categories of investors eligible to purchase its Shares or the required minimum investment amounts. Prior to closing an account, the Fund will provide reasonable notice and in certain cases, the Fund may offer an opportunity to increase the account balance.
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Other Information
If you purchase, redeem, exchange, convert or hold Shares through a Financial Intermediary, your Financial Intermediary may charge you transaction-based fees, activity based fees and other fees for its services based upon its own policies and procedures. Those fees are retained entirely by your Financial Intermediary and no part of those fees are paid to RIM, the Fund's Distributor or the Fund. Please contact your Financial Intermediary for more information about these fees as they may apply to your investments and your accounts.
Customer Identification Program: To help the government fight the funding of terrorism and money laundering activities, federal law requires financial institutions to obtain, verify, and record information that identifies each person who opens an account and to determine whether such person’s name appears on government lists of known or suspected terrorists and terrorist organizations. When you open a new account to buy Shares of the Fund, the Fund or your Financial Intermediary will ask your name, address, date of birth, taxpayer identification or other government identification number and other information that will allow the Fund to identify you. If the Fund or your Financial Intermediary are unable to adequately identify you within the time frames set forth in the law, your Shares may be automatically redeemed. If the net asset value per share has decreased since your purchase, you will lose money as a result of this redemption.
Foreign Investors: A Financial Intermediary may offer and sell the Fund to non-resident aliens and non-U.S. entities, if (1) the Financial Intermediary can fulfill the due diligence and other requirements of the USA PATRIOT ACT and applicable Treasury or SEC rules, regulation and guidance applicable to foreign investors, and (2) the offer and sale occur in a jurisdiction where the Fund is authorized to be offered and sold, currently the 50 states of the United States and certain U.S. territories.
Without the prior approval of the Fund’s Chief Compliance Officer, non-resident aliens and entities not formed under U.S. law may not purchase Shares of the Fund where the Fund is responsible for the due diligence and other requirements of the USA PATRIOT ACT and applicable Treasury or SEC rules, regulation and guidance applicable to foreign investors. If you invest directly through the Fund and a foreign address is added onto your account, the Fund will not be able to accept additional purchases and will discontinue any automated purchases into the account.
Offering Dates and Times
Purchases can be made on any day when Shares are offered. You may purchase Shares through a Financial Intermediary on any business day of the Fund (defined as a day on which the NYSE is open for regular trading). Purchase orders are processed at the next net asset value per share calculated after the Fund receives your order in proper form (as determined by your Financial Intermediary). Certain authorized Fund agents have entered into agreements with the Fund's Distributor or its affiliates to receive and accept orders for the purchase and redemption of Shares of the Fund on behalf of Financial Intermediaries. Some, but not all, Financial Intermediaries are Fund agents, and some, but not all, Fund agents are Financial Intermediaries.
Purchase orders must normally be received by the Fund or a Fund agent prior to the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time) in order to be processed at the net asset value calculated on that day. Any purchase order received after the purchase order cut-off time will be processed on the following business day at the next calculated net asset value per share. Because Financial Intermediaries and Fund agents may have earlier purchase order cut off times to allow them to deliver purchase orders to the Fund prior to the Fund's order transmission cut off time, please ask your Financial Intermediary what the cut off time is.
If the NYSE has an unscheduled early closing on a day it has opened for business, the Fund reserves the right to treat such day as a business day of the Fund and accept purchase orders until the normally-scheduled close of regular trading on the NYSE for that day, so long as the Fund's management believes there remains an adequate market to meet purchase and redemption orders for that day. Market volatility regulations provide for circuit breakers which represent the thresholds at which trading is halted market-wide for single-day declines in the S&P 500® Index. Circuit breakers halt trading on the nation's stock markets during dramatic drops and are set at 7%, 13% and 20% of the closing price for the previous day. For a Level 3 halt (20% decline), trading will halt for the remainder of the trading day. If this were to occur, the Fund's management believes there will not be an adequate market to meet purchase orders for that day and the Fund will close when trading is halted. Any purchase orders received before the Fund closes due to a Level 3 halt will be processed at that day’s calculated net asset value per share. Any purchase orders received after the Fund closes due to a Level 3 halt will be processed on the following business day at the next calculated net asset value per share.
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The Fund reserves the right to close, and therefore not accept purchase orders for that day, if the primary trading markets of the Fund’s portfolio instruments are closed (such as holidays on which such markets are closed) and the Fund’s management believes that there is not an adequate market to meet purchase or redemption requests on such day.
Order and Payment Procedures
Generally, you must place purchase orders for Fund Shares through a Financial Intermediary, in U.S. dollars. You may pay for your purchase by mail or funds transfer. Please contact your Financial Intermediary for instructions on how to place orders and make payment to the Fund. Specific payment arrangements should be made with your Financial Intermediary. However, exceptions may be made by prior special arrangement.
For certain investment programs where your account is held directly with the Fund's Transfer Agent, you must consult with the investment program to determine the requirements for investing. If your account is held directly with the Fund through certain investment programs, you may purchase, redeem or exchange Fund Shares by mail, internet or telephone. In order for your instructions by mail to be considered in proper form, the instructions must be received at one of the following addresses:
Regular Mail: Russell Investments, PO Box 219430, Kansas City, MO 64121-9430
Overnight Mail: Russell Investments, 801 Pennsylvania Ave, Suite 219430, Kansas City, MO 64105-1307
For such investment programs, cash, checks drawn on credit card accounts, cashiers checks, money orders, travelers checks and other cash equivalents will not be accepted by the Fund's Transfer Agent. Certain investors whose accounts are held directly with the Fund may be prohibited from purchasing additional Shares of the Fund.
Automated Investment Program
Your Financial Intermediary may offer an automated investment program whereby you may choose to make regular investments in an established account. The Fund does not require minimum investment amounts or specific dates for automated purchases; however, your Financial Intermediary may set certain restrictions for this option. If you would like to establish an automated investment program or for further information, please contact your Financial Intermediary.
You may discontinue the automated investment program, or change the amount and timing of your investments by contacting your Financial Intermediary.
EXCHANGE and conversion PRIVILEGE
How to Exchange or Convert Shares
Exchanges Between Funds. Depending on the Share Class you are invested in and your Financial Intermediary’s policies, you may exchange Shares you own in the Fund for Shares of any other Fund offered by RIC if you meet any applicable initial minimum investment and investor eligibility requirements stated in the Prospectus for that Fund. For additional information, including Prospectuses for other RIC Funds, contact your Financial Intermediary.
An exchange between RIC Funds involves the redemption of Shares, which is treated as a sale for income tax purposes. Thus, capital gains or losses may be realized. Please consult your tax adviser for more information.
Share Class Conversions. Depending on the Share Class you are invested in and your Financial Intermediary’s policies, you may convert certain Classes of Shares you own of the Fund for Shares of a different Class of Shares of that Fund. You must meet any applicable initial minimum investment requirement and investor eligibility requirements stated in the Prospectus or required by your Financial Intermediary.
Please contact your Financial Intermediary for information related to their conversion policies.
RIFUS believes that a conversion between Classes of the same Fund is not a taxable event; however, you must check with your Financial Intermediary to determine if they will process the conversion as non-taxable. Please consult with your Financial Intermediary and your tax adviser for more information.
Contact your Financial Intermediary for assistance in exchanging or converting Shares and, because Financial Intermediaries’ processing times may vary, to find out when your account will be credited or debited. To request an exchange or conversion in writing, please contact your Financial Intermediary.
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For all Classes of Shares, exchanges and conversions must be made through your Financial Intermediary.
If your account is held directly with the Fund through certain investment programs, you may request an exchange of Fund Shares by mail, internet or telephone. In order for your instructions by mail to be considered in proper form, the instructions must be received at one of the following addresses:
Regular Mail: Russell Investments, PO Box 219430, Kansas City, MO 64121-9430
Overnight Mail: Russell Investments, 801 Pennsylvania Ave, Suite 219430, Kansas City, MO 64105-1307
Systematic Exchange Program
Your Financial Intermediary may offer a systematic exchange program which allows you to redeem Shares from the Fund and purchase Shares of certain other RIC Funds in an established account. The Fund does not require minimum exchange amounts or specific dates for systematic exchanges; however, your Financial Intermediary may set certain restrictions for this option. If you would like to establish a systematic exchange program or for further information, please contact your Financial Intermediary.
A systematic exchange involves the redemption of Shares, which is treated as a sale for income tax purposes. Thus, capital gains or losses may be realized. Please consult your tax adviser for more information.
You may discontinue a systematic exchange program, or change the amount and timing of exchanges, by contacting your Financial Intermediary.
RIGHT TO REJECT OR RESTRICT PURCHASE AND EXCHANGE ORDERS
The Board has adopted frequent trading policies and procedures which are described below. The Fund will apply these policies uniformly. The Fund discourages frequent purchases and redemptions of Fund Shares by Fund shareholders. The Fund does not accommodate frequent purchases and redemptions of Fund Shares by Fund shareholders. Each action specified below may be taken by the Fund and/or one of its agents (i.e., RIM or RIFUS).
The Fund reserves the right to restrict or reject, without prior notice, any purchase or exchange order for any reason. The Fund may, in its discretion, restrict or reject a purchase or exchange order even if the transaction is not subject to the specific limitations on frequent trading described below if the Fund determines that accepting the order could interfere with the efficient management of the Fund’s portfolio or otherwise not be in the Fund’s best interests.
In the event that the Fund rejects an exchange request, the Fund will seek additional instructions from the Financial Intermediary regarding whether or not to proceed with the redemption side of the exchange.
Frequent Trading Policies and Limitations on Trading Activity
Frequent trading of Fund Shares, often in response to short-term fluctuations in the market, also known as “market timing,” is not knowingly permitted by the Fund. Frequent traders and market-timers should not invest in the Fund. The Fund is intended for long-term investors. The Fund, subject to the limitations described below, takes steps reasonably designed to curtail frequent trading practices by investors or Financial Intermediaries.
The Fund monitors for “substantive” round trip trades over a certain dollar threshold that the Fund determines, in its discretion, could adversely affect the management of the Fund. A single substantive round trip is a purchase and redemption or redemption and purchase of Shares of the Fund within a rolling 60 day period. The Fund permits two substantive round trip trades within a 60 day period.
While the Fund monitors for substantive trades over a certain dollar threshold, the Fund may deem any round trip trade to be substantive depending on the potential impact to the Fund.
If after two “substantive” round trips, an additional purchase or redemption transaction is executed within that rolling 60 day period, future purchase transactions may be rejected or restricted for 60 days. If after expiration of such 60 day period, there are two “substantive” round trips followed by an additional purchase or redemption transaction within that rolling 60 day period, that shareholder’s right to purchase Shares of any Fund advised by RIM may be permanently revoked.
If the Fund does not have direct access to the shareholder's account to implement the purchase revocation, the Fund will require the shareholder's Financial Intermediary to impose similar revocation of purchase privileges on the
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shareholder. In the event that the shareholder's Financial Intermediary cannot, due to regulatory or legal obligations, impose a revocation of purchase privileges, the Fund may accept an alternate trading restriction reasonably designed to protect the Fund from improper trading practices.
Any exception to the revocation of a shareholder’s purchase privileges, or an alternative trading restriction designed to protect the Fund from improper trading practices, must be approved by the Fund's Chief Compliance Officer (“CCO”).
The Fund will use its best efforts to exercise the Fund's right to restrict or reject purchase and exchange orders as described above.
In certain circumstances, with prior agreement between a Financial Intermediary and the Fund, the Fund may rely on a Financial Intermediary's frequent trading policies if it is determined that the Financial Intermediary’s policies are sufficient to detect and deter improper frequent trading. Any reliance by the Fund on a Financial Intermediary's frequent trading policies must be approved by the CCO after a determination that such policies are sufficient to detect and deter improper frequent trading. Therefore, with respect to frequent trading, shareholders who invest through a Financial Intermediary should be aware that they may be subject to the policies and procedures of their Financial Intermediary which may be more or less restrictive than the Fund's policies and procedures.
This policy will not apply to:
●
Money Market Funds. The Board of Trustees believes that it is unnecessary for any money market fund to have frequent trading policies because these funds may be used as short term investments.
●
Transactions in the Fund by certain other funds (i.e., funds of funds), including any Russell Investment Company and Russell Investment Funds funds of funds, and any other approved unaffiliated fund of funds. RIM and the Board of Trustees believe these transactions do not offer the opportunity for price arbitrage.
●
Institutional accounts, including but not limited to, foundations, endowments or defined benefit plans, where the transactions are a result of the characteristics of the account (e.g., donor directed activity or funding or disbursements of defined benefit plan payments) rather than a result of implementation of an investment strategy, so long as such transactions do not interfere with the efficient management of the Fund’s portfolio or are otherwise not in the Fund’s best interests.
●
Trading associated with asset allocated programs where the asset allocation has been developed by RIM or an affiliate of RIM and RIM has transparency into the amount of trading and the ability to monitor and assess the impact to the Fund or scheduled rebalancing of asset allocated programs based on set trading schedules within specified limits.
●
Systematic purchase or redemption programs, and transactions not directed by the shareholder or participant, such as payroll contributions and distribution reinvestments.
●
Transactions in the Fund by certain counterparties approved by RIM to facilitate non pro-rata redemptions in-kind.
In applying the policy on limitations on trading activity, the Fund considers the information available at the time and reserves the right to consider trading history in the Fund including trading history in other accounts under common ownership or control in determining whether to suspend or terminate trading privileges.
This policy will not affect any shareholder’s redemption rights.
Risks of Frequent Trading
Short-term or excessive trading into and out of the Fund may harm the Fund’s performance by disrupting portfolio management strategies and by increasing expenses. These expenses are borne by all Fund shareholders, including long-term investors who do not generate such costs. Frequent trading may interfere with the efficient management of the Fund’s portfolio, and may result in the Fund engaging in certain activities to a greater extent than it otherwise would, such as maintaining higher cash balances, using interfund lending or a line of credit (each, if available), and engaging in portfolio transactions. Increased portfolio transactions and use of interfund lending/line of credit would correspondingly increase the Fund’s operating expenses and decrease the Fund’s performance. For Funds that use hedging strategies to ensure that each Fund is fully invested, maintenance of a higher level of cash balances would not decrease the Fund’s exposure to market moves but would decrease the proportion of the Fund that is actively managed.
Additionally, to the extent that the Fund invests significantly in foreign securities traded on markets which may close prior to when the Fund determines its net asset value (referred to as the valuation time), frequent trading by certain
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shareholders may cause dilution in the value of Fund Shares held by other shareholders. Because events may occur after the close of these foreign markets and before the valuation time of the Fund that influence the value of these foreign securities, investors may seek to trade Fund Shares in an effort to benefit from their understanding of the value of these foreign securities as of the Fund’s valuation time (referred to as price arbitrage). The Fund has procedures designed to adjust closing market prices of foreign securities under certain circumstances to better reflect what they believe to be the fair value of the foreign securities as of the valuation time. To the extent that the Fund does not accurately value foreign securities as of its valuation time, investors engaging in price arbitrage may cause dilution in the value of Fund Shares held by other shareholders.
Because certain securities may be traded infrequently, to the extent that the Fund invests significantly in such securities, investors may seek to trade Fund Shares in an effort to benefit from their understanding of the value of these securities (referred to as price arbitrage). Any such frequent trading strategies may interfere with efficient management of the Fund’s portfolio to a greater degree than Funds which invest in highly liquid securities, in part because the Fund may have difficulty selling securities that are traded infrequently at advantageous times or prices to satisfy large and/or frequent redemption requests. Any successful price arbitrage may also cause dilution in the value of Fund Shares held by other shareholders.
Limitations on the Ability to Detect and Curtail Frequent Trading
The Fund will use reasonable efforts to detect frequent trading activity but may not be able to detect such activity in certain circumstances. While the Fund has the authority to request and analyze data on shareholders in omnibus accounts and will use its best efforts to enforce the policy described above, there may be limitations on the ability of the Fund to detect and curtail frequent trading practices and the Fund may not be able to completely eliminate the possibility of improper trading under all circumstances. Shareholders seeking to engage in frequent trading activities may use a variety of strategies to avoid detection and, despite the efforts of the Fund to prevent frequent trading, there is no guarantee that the Fund will be able to identify each such shareholder in an omnibus account or curtail their trading practices.
Any exceptions to this policy may only be made by the CCO, after a determination that the transaction does not constitute improper trading or other trading activity that may be harmful to the Fund.
additional information about HOW TO REDEEM SHARES
Shares may be redeemed through your Financial Intermediary on any business day of the Fund (defined as a day on which the NYSE is open for regular trading). Redemption requests are processed at the next net asset value per share calculated after the Fund receives an order in proper form as determined by your Financial Intermediary. Redemption orders must normally be received by the Fund or a Fund agent prior to the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time) in order to be processed at the net asset value calculated on that day. Any redemption requests received after the redemption order cut-off time will be processed on the following business day at the next calculated net asset value per share.
If the NYSE has an unscheduled early closing on a day it has opened for business, the Fund reserves the right to treat such day as a business day of the Fund and accept redemption orders until the normally-scheduled close of regular trading on the NYSE for that day, so long as the Fund's management believes there remains an adequate market to meet purchase and redemption orders for that day. Market volatility regulations provide for circuit breakers which represent the thresholds at which trading is halted market-wide for single-day declines in the S&P 500® Index. Circuit breakers halt trading on the nation's stock markets during dramatic drops and are set at 7%, 13% and 20% of the closing price for the previous day. For a Level 3 halt (20% decline), trading will halt for the remainder of the trading day. If this were to occur, the Fund's management believes there will not be an adequate market to meet redemption orders for that day and the Fund will close when trading is halted. Any redemption orders received before the Fund closes due to a Level 3 halt will be processed at that day’s calculated net asset value per share. Any redemption orders received after the Fund closes due to a Level 3 halt will be processed on the following business day at the next calculated net asset value per share.
The Fund reserves the right to close, and therefore not accept redemption orders for that day, if the primary trading markets of the Fund’s portfolio instruments are closed (such as holidays on which such markets are closed) and the Fund’s management believes that there is not an adequate market to meet purchase or redemption requests on such day.
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Shares recently purchased by check or Automated Clearing House (“ACH”) directly to the Fund may not be available for redemption for 7 days following the purchase or until the check or ACH clears, whichever occurs first, to assure that the Fund has received payment for your purchase.
Redemption Dates and Times
Redemption requests must normally be received by the Fund or a Fund agent prior to the close of regular trading on the NYSE (normally 4:00 p.m. Eastern Time) in order to be processed at the net asset value calculated on that day. Please contact your Financial Intermediary for instructions on how to place redemption requests. Because Financial Intermediaries and Fund agents may have earlier redemption order cut off times to allow them to deliver redemption orders to the Fund prior to the Fund's order transmission cut off time, please ask your Financial Intermediary what the cut off time is.
If your account is held directly with the Fund through certain investment programs, you may redeem Fund Shares by mail, internet or telephone subject to certain limitations. In order for your instructions by mail to be considered in proper form, the instructions must be received at one of the following addresses:
Regular Mail: Russell Investments, PO Box 219430, Kansas City, MO 64121-9430
Overnight Mail: Russell Investments, 801 Pennsylvania Ave, Suite 219430, Kansas City, MO 64105-1307
Systematic Withdrawal Program
Your Financial Intermediary may offer a systematic withdrawal program whereby you may choose to redeem your Shares and receive regular payments from your account. The Fund does not require specific redemption amounts or specific dates for systematic withdrawals; however, your Financial Intermediary may set certain restrictions for this option. Please contact your Financial Intermediary for further information.
When you redeem your Shares under a systematic withdrawal program, it may be a taxable transaction.
For Class A Shares, if your Financial Intermediary was paid a commission by the Fund's Distributor on your Class A Shares and you redeem those Class A Shares within one year of purchase, you may pay a deferred sales charge of up to 1%.
You may discontinue the systematic withdrawal program, or change the amount and timing of withdrawal payments by contacting your Financial Intermediary.
PAYMENT OF REDEMPTION PROCEEDS
Payment will ordinarily be made within seven days of receipt of your request in proper form. The Fund reserves the right to suspend redemptions or postpone the date of payment for more than seven days if an emergency condition (as determined by the SEC) exists.
When you redeem your Shares, the Fund will ordinarily pay your redemption proceeds to your Financial Intermediary for your benefit on the next business day after the Fund receives the redemption request in proper form or as otherwise requested by your Financial Intermediary. Your Financial Intermediary is then responsible for settling the redemption with you as agreed between you and your Financial Intermediary. For certain investment programs where your account is held directly with the Fund's Transfer Agent, the length of time that the Fund typically pays redemption proceeds from redemption requests varies based on the method by which you elect to receive the proceeds. Your redemption proceeds will be paid in one of the following manners: (1) a check for the redemption proceeds may be sent to the shareholder(s) of record at the address of record on the next business day after the Fund receives a redemption request in proper form; or (2) if you have established the electronic redemption option, your redemption proceeds can be (a) wired to your predesignated bank account on the next business day after the Fund receives your redemption request in proper form or (b) sent by Electronic Funds Transfer (“EFT”) to your predesignated bank account on the second business day after the Fund receives your redemption request in proper form. On Federal Reserve holidays, funds will settle on the next day the Federal Reserve is open. The Fund may charge a fee to cover the cost of sending a wire transfer for redemptions, and your bank may charge an additional fee to receive the wire. The Fund will always charge a fee when sending an international wire transfer. The Fund reserves the right to charge a fee when sending a domestic wire transfer for redemptions. The Fund does not charge for EFT though your bank may charge a fee to receive the EFT. Wire transfers and EFTs can be sent to U.S. financial institutions that are members of the Federal Reserve System. Payment of
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redemption proceeds may take longer than the time the Fund typically expects and may take up to seven days, as permitted by law. The Fund reserves the right to temporarily hold redemption proceeds from a natural person age 65 or older or age 18 and older who the Transfer Agent reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own financial interests from actual or attempted exploitation. The Transfer Agent is not required to hold redemption proceeds in these circumstances and does not assume any obligation to do so.
Under normal market conditions, the Fund expects to meet redemption orders by using holdings of cash/cash equivalents and/or proceeds from the sale of portfolio holdings. The Fund maintains cash reserves and RIM may increase or decrease the Fund’s cash reserves in anticipation of redemption activity. Under stressed market conditions, the Fund may be forced to sell securities in order to meet redemption requests, which may result in the Fund selling such securities at an inopportune time and/or for a price below the price the Fund would expect to receive under normal market conditions. While the Fund does not routinely use redemptions in-kind, the Fund reserves the right to use redemptions in-kind under certain circumstances. See “OTHER INFORMATION ABOUT SHARE TRANSACTIONS – Redemption In-Kind” below for additional information on the Fund’s use of redemptions in-kind.
OTHER INFORMATION ABOUT SHARE TRANSACTIONS
Written Instructions
Written instructions must be in proper form as determined by your Financial Intermediary. For certain investment programs where your account is held directly with the Fund's Transfer Agent, the Fund requires that written instructions be in proper form and reserves the right to reject any written instructions that are not in proper form. Your Financial Intermediary will assist you in preparing and submitting transaction instructions to the Fund to ensure proper form. Generally, your instructions must include:
●
The Fund name and account number
●
Details related to the transaction including type and amount
●
Signatures of all owners exactly as registered on the account
●
Any supporting legal documentation that may be required
If your account is held directly with the Fund, in order for your instructions by mail to be considered in proper form, the instructions must be received at one of the following addresses:
Regular Mail: Russell Investments, PO Box 219430, Kansas City, MO 64121-9430
Overnight Mail: Russell Investments, 801 Pennsylvania Ave, Suite 219430, Kansas City, MO 64105-1307
Telephone or Internet Instructions
Contact your Financial Intermediary to determine their policy and requirements regarding telephone or internet transactions.
If your account is held directly with the Fund, through certain investment programs, you may purchase, exchange or redeem shares by telephone or internet. Generally, through certain investment programs, you are automatically eligible to redeem or exchange shares by telephone or the internet, unless you notify us in writing that you do not want any or all of these services. You may reinstate these services at any time.
RIC and RIFUS are not liable for any loss, cost, expense or other liability resulting from complying with telephone or internet instructions that are deemed to be genuine. RIC and RIFUS will employ reasonable procedures to confirm that telephone or internet instructions received from any person with appropriate account information are genuine. If reasonable procedures are not employed, RIC and/or RIFUS may be liable for losses due to unauthorized or fraudulent instructions.
Telephone conversations you have with the Fund may be monitored or recorded for quality assurance, verification, and recordkeeping purposes. By speaking to the Fund on the telephone, you consent to such monitoring and recording.
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Responsibility for Fraud
Please take precautions to protect yourself from fraud. Keep your account information private and immediately review any account confirmations or statements that the Fund or your Financial Intermediary send you. Contact your Financial Intermediary immediately about any transactions that you believe to be unauthorized.
Signature Guarantee
The Fund reserves the right to require a signature guarantee for any request related to your account including, but not limited to, requests for transactions or account changes. A signature guarantee verifies the authenticity of your signature and helps protect your account against fraud or unauthorized transactions. You should be able to obtain a signature guarantee from a bank, broker, credit union, savings association, clearing agency, or securities exchange or association with which you have a banking or investment relationship. A notary public cannot provide a signature guarantee. Contact your Financial Intermediary for assistance in obtaining a signature guarantee.
If you hold shares directly with the Fund and you do not have a relationship with any eligible guarantor, and are unable to obtain a signature guarantee, the Fund may accept alternate identification documentation in lieu of a signature guarantee, at the sole discretion of the Transfer Agent.
In-Kind Exchange of Securities
The Fund may, at its discretion, permit you to acquire Shares in exchange for securities you currently own. Any securities exchanged must meet the investment objective, policies, and limitations of the appropriate Fund; have a readily ascertainable market value; be liquid; and not be subject to restrictions on resale.
Shares purchased in exchange for securities generally may not be redeemed or exchanged for 15 days following the purchase by exchange or until the transfer has settled, whichever comes first. If you are a taxable investor, you will generally realize gains or losses on the exchange for federal income tax purposes. If you are contemplating an in-kind exchange you should consult your tax adviser.
The price at which the exchange will take place will depend upon the relative net asset value of the Shares purchased and securities exchanged. Securities accepted by the Fund will be valued in the same way the Fund values its assets. Any interest earned on the securities following their delivery to the Fund and prior to the exchange will be considered in valuing the securities. All interest, dividends, subscription or other rights attached to the securities becomes the property of the Fund, along with the securities. Please contact your Financial Intermediary for further information.
Redemption In-Kind
The Fund has elected to be governed by Rule 18f-1 under the 1940 Act. Under that rule, redemptions by a shareholder of up to the lesser of $250,000 or 1% of the Fund’s net assets during any 90-day period must be redeemed solely in cash unless otherwise agreed to by the redeeming shareholder. If operationally possible (typically only when the Fund is notified in advance of a large redemption), the Fund may, at its discretion, pay for any portion of a redemption exceeding such amount by a distribution of in-kind securities from the Fund’s portfolio, instead of in cash. There are also operational limitations on the ability of the Fund to make an in-kind distribution of most non-U.S. securities. An in-kind distribution of portfolio securities could include illiquid or less liquid securities. Illiquid or less liquid securities may not be able to be sold quickly or at a price that reflects full value, or there may not be a market for such securities, which could cause you to realize losses on the security if the security is sold at a price lower than that at which it had been valued. If you receive an in-kind distribution of portfolio securities, and choose to sell them, you will incur brokerage charges and continue to be subject to tax consequences and market risk pending any sale.
Escheatment and Inactivity
For any accounts held directly at the Fund, the Fund will comply with all federal search and notification requirements, as defined in section 17AD-17 of the Securities Exchange Act of 1934, as amended. Should the assets be determined to be abandoned, then the Fund is legally obligated to escheat said abandoned property to the appropriate state’s unclaimed property administrator, as determined by the owner’s last known address of record.
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Furthermore, the Fund will comply with any and all state regulations regarding “inactivity.” Broadly described, state inactivity rules define time periods during which, and specific means by which, shareholders must “contact” their assets, i.e. the Fund, the Fund's agent and/or their Financial Intermediary. The Fund is legally obligated to escheat inactive assets to the state of jurisdiction as identified by the owner’s address of record.
In order to prevent escheatment of your account, consider keeping your contact information updated and actively engaging with your account to avoid it being deemed inactive per the regulations in your state of residence.
It is the intention of the Fund to comply with the appropriate regulative body for each given instance. For additional information, questions, or concerns regarding these regulations, please contact the Abandoned/Unclaimed Property division of your state of residence, or please contact your Financial Intermediary.
Texas state residents may designate a representative for purposes of escheatment notification. Please contact your Financial Intermediary for additional information.
Uncashed Checks
Please make sure you promptly cash checks issued to you by the Fund. If you do not cash a dividend, distribution, or redemption check, the Fund will act to protect itself and you. This may include restricting certain activities in your account until the Fund is sure that it has a valid address for you. After 180 days, the Fund will no longer honor the issued check and, after attempts to locate you, the Fund will follow governing escheatment regulations in disposition of check proceeds. No interest will accrue on amounts represented by uncashed checks.
If you have elected to receive dividends and/or distributions in cash, and the postal or other delivery service is unable to deliver checks to your address of record, or you do not respond to mailings from the Fund with regards to uncashed checks, the Fund may convert your distribution option to have all dividends and/or other distributions reinvested in additional Shares.
Registration of Fund Accounts
Many brokers, employee benefit plans and bank trusts combine their clients’ holdings in a single omnibus account with the Fund held in the brokers’, plans’, or bank trusts’ own name or “street name.” Therefore, if you hold Shares through a brokerage account, employee benefit plan or bank trust fund, the Fund may have records only of that Financial Intermediary’s omnibus account. In this case, your broker, employee benefit plan or bank is responsible for keeping track of your account information. This means that you may not be able to request transactions in your Shares directly through the Fund, but can do so only through your broker, plan administrator or bank. Ask your Financial Intermediary for information on whether your Shares are held in an omnibus account.
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FINANCIAL HIGHLIGHTS
No financial information is provided for the Fund because it had not yet commenced operations as of the date of this Prospectus. Financial information will be provided in the first Form N-CSR filed after commencement of operations.
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MONEY MANAGER INFORMATION
The money managers are not affiliates of the Fund, RIM, RIFUS or the Distributor other than as a result of their management of Fund assets. Each money manager may be engaged in managing institutional investment accounts and/or may serve as manager or adviser to other investment companies unaffiliated with RIC, other RIC Funds, or to other clients of RIM or its affiliates, including Russell Investments Trust Company. Investments in the Fund are not deposits with or other liabilities of any of the money managers and are subject to investment risk, including loss of income and principal invested and possible delays in payment of redemption proceeds. The money managers do not guarantee the performance of the Fund or any particular rate of return.
The Fund may engage or terminate a money manager at any time, subject to the approval of the Fund's Board, without a shareholder vote. RIM may change the Fund’s asset allocation at any time, including not allocating Fund assets to one or more money manager strategies. Although all of the Fund's money managers are listed below, RIM may not have allocated assets to the strategies employed by one or more of these money managers. A complete list of current money managers for the Fund can also be found at https://russellinvestments.com. Assets not allocated to money managers are managed by RIM.
Russell Investments Alternatives Diversifier Fund
AlphaSimplex Group, LLC, 200 State Street, Boston, MA 02109.
Aspect Capital Limited, 10 Portman Square, London W1H 6AZ.
Crabel Capital Management, LLC, 1999 Avenue of the Stars, Suite 2060, Los Angeles, CA 90067.
Efficient Capital Management, LLC, 4335 Weaver Parkway, Suite 200, Warrenville, IL 60555-4060.
One River Asset Management, LLC, 2200 Atlantic Street, Suite 310, Stamford, CT 06902.
Portman Square Capital LLP, 10 Portman Square, London, W1H 6AZ.
Welton Investment Partners LLC, Eastwood Building San Carlos Between 5th and 6th, Carmel, CA 93921-6147.
When considering an investment in the Fund, do not rely on any information unless it is contained in this Prospectus or in the Fund's Statement of Additional Information. The Fund has not authorized anyone to add any information or to make any additional statements about the Fund. The Fund may not be available in some jurisdictions or to some persons. The fact that you have received this Prospectus should not, in itself, be treated as an offer to sell Shares to you. Changes in the affairs of the Fund may occur after the date on the cover page of this Prospectus. This Prospectus will be amended or supplemented to reflect any material changes to the information it contains.
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EXPENSE NOTES
The following notes supplement the Annual Fund Operating Expenses tables in the Risk/Return Summary and provide additional information necessary to understand the expenses provided in those tables:
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You may pay additional fees to your Financial Intermediary for services provided by the intermediary. You should contact your Financial Intermediary for information concerning what additional fees, if any, will be charged.
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Pursuant to the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on Class A Shares of the Fund may not exceed 7.25% of total gross sales, subject to certain exclusions. These limitations are imposed at the class level on each Class of Shares of the Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Class A Shares may pay more than the economic equivalent of the maximum sales charges permitted by FINRA.
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“Acquired Fund Fees and Expenses” are indirect expenses borne by the Fund as a result of its investment in another fund or funds. The fees payable by the Fund with respect to the investment in other funds are included in “Acquired Fund Fees and Expenses” if they are at least 0.01% of the Fund’s average net assets. If such fees are less than 0.01% of the Fund’s average net assets, they are included in “Other Expenses.”
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“Other Expenses” includes an administrative fee of up to 0.05% of average daily net assets for all Classes of Shares.
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In addition to the advisory and administrative fees payable by the Fund to RIM and RIFUS, because the Fund invests its cash reserves in the U.S. Cash Management Fund, an unregistered fund advised by RIM, it will bear indirectly a proportionate share of that fund’s operating expenses, which include the administrative fees that the U.S. Cash Management Fund pays to RIFUS. The annual rate of administrative fees payable to RIFUS on the cash reserves invested in the U.S. Cash Management Fund is 0.05%.
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For more information about the Fund, the following documents are available without charge:
ANNUAL/SEMIANNUAL REPORTS: Additional information about the Fund’s investments is or will be available in the Fund's annual and semiannual reports to shareholders and in Form N-CSR. In the Fund’s annual report, when available, you will find a discussion of the market conditions and investment strategies that significantly affected the Fund’s performance during its last fiscal year. In Form N-CSR, when available, you will find the Fund’s annual and semi-annual financial statements.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Fund.
The annual and semiannual reports for the Fund (when available) and the SAI are incorporated into this Prospectus by reference. You may obtain free copies of the annual report (when available), semiannual report (when available), the Fund's SAI, and other information such as the Fund's financial statements, and may request other information or make other inquiries, by contacting your Financial Intermediary or the Fund at:
Russell Investments
PO Box 219430
Kansas City, MO 64121-9430
Telephone: 1-800-787-7354
PO Box 219430
Kansas City, MO 64121-9430
Telephone: 1-800-787-7354
The Fund's SAI, annual and semiannual reports to shareholders (when available) and other information such as the Fund’s financial statements (when available) are available, free of charge, on the Fund's website at https://russellinvestments.com.
Each year you are automatically sent an updated Prospectus and annual and semiannual reports for the Fund. You may also occasionally receive notifications of Prospectus changes and proxy statements for the Fund. In order to reduce the volume of mail you receive, when possible, only one copy or one mailing of these documents will be sent to shareholders who are part of the same family, sharing the same name and the same household address. If you would like to opt out of the household-based mailings, please call your Financial Intermediary.
Some Financial Intermediaries may offer electronic delivery of the Fund's Prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.
You can review reports and other information about the Fund on the EDGAR Database on the Securities and Exchange Commission’s website at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the “FTSE RUSSELL” brand.
Distributor: Russell Investments Financial Services, LLC. Russell Investment Company’s SEC File No. 811-03153
