-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IzNEb5pow2C3cCwn+zo+BPWQj9zQLtRsUrJ5o45tTc5U8oPLFcvRIJqV6/BSscrC afX3kj1f3ZahWA1+dLkREQ== 0000950134-07-004260.txt : 20070227 0000950134-07-004260.hdr.sgml : 20070227 20070227171105 ACCESSION NUMBER: 0000950134-07-004260 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20061231 FILED AS OF DATE: 20070227 DATE AS OF CHANGE: 20070227 EFFECTIVENESS DATE: 20070227 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSELL INVESTMENT FUNDS CENTRAL INDEX KEY: 0000824036 IRS NUMBER: 911717303 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05371 FILM NUMBER: 07654162 BUSINESS ADDRESS: STREET 1: 909 A STREET STREET 2: 11TH FLOOR CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 800-787-7354 MAIL ADDRESS: STREET 1: 909 A STREET STREET 2: 11TH FLOOR CITY: TACOMA STATE: WA ZIP: 98402 FORMER COMPANY: FORMER CONFORMED NAME: RUSSELL INSURANCE FUNDS DATE OF NAME CHANGE: 19960918 0000824036 S000006863 Multi-Style Equity Fund C000018545 Multi-Style Equity Fund 0000824036 S000006864 Aggressive Equity Fund C000018546 Aggressive Equity Fund 0000824036 S000006865 Non-U.S.Fund C000018547 Non-U.S.Fund 0000824036 S000006866 Real Estate Securities Fund C000018548 Real Estate Securities Fund 0000824036 S000006867 Core Bond Fund C000018549 Core Bond Fund 0000824036 S000017036 Conservative Strategy Fund C000047303 Conservative Strategy Fund 0000824036 S000017037 Moderate Strategy Fund C000047304 Moderate Strategy Fund 0000824036 S000017038 Balanced Strategy Fund C000047305 Balanced Strategy Fund 0000824036 S000017039 Growth Strategy Fund C000047306 Growth Strategy Fund 0000824036 S000017040 Equity Growth Strategy Fund C000047307 Equity Growth Strategy Fund N-CSR 1 f46928nvcsr.txt FORM N-CSR ================== OMB APPROVAL ================== OMB Number: 3235-0570 Expires: September 30, 2007 Estimated average burden hours per response: 19.4 ================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-05371 RUSSELL INVESTMENT FUNDS (Exact name of registrant as specified in charter) 909 A STREET, TACOMA WASHINGTON 98402 (Address of principal executive offices) (Zip code) GREGORY J. LYONS, ASSISTANT SECRETARY RUSSELL INVESTMENT FUNDS 909 A STREET TACOMA, WASHINGTON 98402 253-439-2406 -------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 253-572-9500 Date of fiscal year end: DECEMBER 31 Date of reporting period: January 1, 2006 to December 31, 2006 ITEM 1. REPORTS TO STOCKHOLDERS INVESTMENT FUNDS RUSSELL INVESTMENT FUNDS 2006 ANNUAL REPORT MULTI-STYLE EQUITY FUND AGGRESSIVE EQUITY FUND NON-U.S. FUND REAL ESTATE SECURITIES FUND CORE BOND FUND DECEMBER 31, 2006 (RUSSELL LOGO) Russell Investment Funds Russell Investment Funds is a series investment company with five different investment portfolios referred to as Funds. These financial statements report on all five of the Funds. Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Russell Investment Funds Annual Report December 31, 2006 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Multi-Style Equity Fund.............................................. 8 Aggressive Equity Fund............................................... 18 Non-U.S. Fund........................................................ 34 Real Estate Securities Fund.......................................... 52 Core Bond Fund....................................................... 60 Notes to Schedules of Investments.................................... 86 Statement of Assets and Liabilities.................................. 87 Statement of Operations.............................................. 89 Statement of Changes in Net Assets................................... 90 Financial Highlights................................................. 92 Notes to Financial Statements........................................ 94 Report of Independent Registered Public Accounting Firm.............. 107 Tax Information...................................................... 108 Basis for Approval of Investment Advisory Contracts.................. 109 Shareholder Requests for Additional Information...................... 113 Disclosure of Information about Fund Directors....................... 114 Manager, Money Managers and Service Providers........................ 119
Russell Investment Funds Copyright (c) Frank Russell Company 2006. All rights reserved. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide and is a subsidiary of The Northwestern Mutual Life Insurance Company. SECURITIES DISTRIBUTED THROUGH RUSSELL FUND DISTRIBUTORS, INC. MEMBER NASD, PART OF RUSSELL INVESTMENT GROUP. Russell Investment Group and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. TO OUR CLIENTS As you read Russell Investment Funds' 2006 Annual Report, we would like to take this opportunity to review our investment approach, which is designed to help long-term investors build financial security and save for retirement. Our process is complex, but our goal is simple. We evaluate and select money managers in each asset class and within each investment style. Then we build diversified mutual funds aimed at providing long-term, consistent results. Russell guides investments for some of the world's largest investors--and we provide that same manager research to our mutual funds, which are available to individual investors. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 RUSSELL INVESTMENT FUNDS MARKET SUMMARY AS OF DECEMBER 31, 2006 (UNAUDITED) U.S. EQUITY MARKETS For the fiscal year ending December 31, 2006, investors were focused on The Federal Reserve Board's actions and commentary, as well as the potential impact of a slowdown in the housing market. Through April, when both economic growth and inflation were running above the Fed's comfort levels, the U.S. stock market was led by highly cyclical stocks, especially those tied to the strong performing commodities market. The stock market rewarded companies that were generating strong earnings growth in an economy that was growing at unsustainable levels. However, the cumulative effects of rising energy prices and interest rates, and a notable slowdown in housing activity eventually resulted in the moderation in economic activity that the Fed had been seeking. By late spring and early summer 2006, investors were now concerned that the Fed had engineered a hard landing for the economy and whether a housing-led recession was unavoidable. This marked change in investor sentiment was reflected in a significant leadership reversal with lower risk, recession resistant stocks gaining favor. The market began strongly favoring stocks with the highest dividend yields while companies with above-average earnings growth prospects lost favor. During the fourth quarter, the market advanced strongly as investors became more confident in the durability of economic growth. For the year, the overall market indexes registered impressive gains during the fiscal year as the market responded to both positive corporate earnings and evidence that the Fed's tightening cycle had ended. For the fiscal year ending December 31, 2006, the Russell 3000(R) Index (an index of large, medium and small capitalization companies) returned 15.72%. Despite the backdrop of strong corporate earnings (that have grown at double digit rates for the last three years), overall market leadership in this period was highly defensive. Stocks with high dividend yields substantially outperformed lower yielding stocks. Companies with well above-average growth rates lagged in favor of slower growing firms. This investor preference for yield over growth was reflected in style leadership for the fiscal year as the Russell 1000 Value(R) Index (+22.25%) outperformed the Russell 1000 Growth(R) Index (+9.07%). This extended the multi-year outperformance of value stocks and resulted in a further compression of valuations among companies (i.e., narrower dispersion of P/E multiples within the stock market). Some of the value leadership is attributable to the market's preference for yield and interest rate sensitivity as investors factored in the Fed's interest rate pause. Among the best sector performers within the Russell 1000(R) Index were integrated oils (34.70%), utilities (+30.60%), and financial services (+19.37%). Meanwhile, REITs within the Russell 1000(R) Index returned an extraordinary 36.40%. In contrast, traditional growth sector returns within the Russell 1000(R) Index such as technology (+10.62%), health care (+6.34%), and consumer discretionary (+11.94%), while delivering positive absolute returns, lagged the Russell 1000(R) Index. Market leadership continued to favor smaller and medium sized companies, although the spread narrowed as investors grew more defensive. The Russell 1000(R) Index (an index of large and medium capitalization 4 Market Summary RUSSELL INVESTMENT FUNDS companies) returned 15.46% versus 18.37% for the Russell 2000(R) Index (an index of small capitalization companies). The fiscal year was extremely challenging for active money managers across the style spectrum. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.61%, the Lipper Large Cap Value Funds Average lagged the Russell 1000(R) Value Index by 4.42%, the Lipper Large Cap Growth Funds Average underperformed the Russell 1000(R) Growth Index by 3.52%, and the Lipper Small-Cap Core Funds Average trailed the Russell 2000(R) Index by 3.47.%. Even though the Lipper returns are net of fees, actively managed mutual funds still trailed the indexes by a large margin. The main contributors to the difficult active management environment were the significant out-performance of higher yielding stocks that many value managers considered overvalued and the poor returns of the faster growing companies within the growth arena. With the narrow valuation spreads among companies of differing growth rates, active money managers were positioned toward "growthier" companies within their benchmarks. The market did not reward this positioning during this period. U.S. REAL ESTATE MARKETS During the year ending December 31, 2006, the public real estate investment trust (REIT) market again exhibited strong performance. REITs, as measured by the FTSE-NAREIT US Equity REIT Index (NAREIT Equity Index), posted a 35.06% total return for the year. Several factors helped boost REIT performance including robust demand for real estate by private institutional investors, a wave of REIT privatizations and an overall equity market that continued to reward higher yielding stocks. Apartment, office and health care were among the best performing sectors for the year; all generating total returns of 40% or better. The specialty sector, which includes several timber companies, and the manufactured home sub-sector, were the poorest performers. During the calendar year 2006, there were 23 REIT mergers/privatizations transactions with a total value including debt of over $91 billion (the equity value alone was $49.2 billion). These transactions, in which the acquirers, mainly private buyers, purchase all of the outstanding publicly traded shares of a REIT, have helped increase REIT share prices to higher levels. The level of transaction activity in 2006 increased significantly over the 2005 calendar year, which saw approximately $37 billion in transactions. Putting this transaction volume in perspective, with the equity market capitalization of the NAREIT Equity Index at approximately $398 billion on December 31, 2006, about 12% of the REIT industry was sold to a combination of public and private buyers during the year. When compared to REIT share prices prior to the announcements, the major 2006 transactions averaged an overall 10% premium. At the end of 2006, while REITs were trading near their historic private market valuation level, they were also trading at the top of historic ranges versus stocks and bonds. NON-U.S. EQUITY MARKETS Non-U.S. stocks gained 26.86% as measured by the MSCI EAFE Index (gross) for the fiscal year ending December 31, 2006. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE Index rose a more modest 16.94% over the 12-month period. Non-U.S. stocks benefited from continued global growth and strong corporate earnings. Continued belief in the integration of the world's economies lent significant support to market trends. China again stood out as a major theme in global economic drivers; however, the U.S. economy and markets continued to play the Market Summary 5 RUSSELL INVESTMENT FUNDS dominant role in the prospects for global growth. There was evidence of this as the U.S. interest rate cycle and direction of the Federal Reserve affected global markets throughout the year. Growth in emerging economies like India and China had an increasing impact on the developed markets through their demand, both real and prospective, for goods and infrastructure development. After strong gains in 2005, the MSCI Japan Index lagged other major non-U.S. markets in the year, returning only 6.33%. Investor sentiment waned towards Japanese stocks on fears of a deceleration in the economy. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 33.15% due to strong gains in companies in Australia and Singapore. Europe, as represented by the MSCI Europe Index was the strongest region in the EAFE Index, returning 34.36% over the fiscal year. In Europe, the best performing sector was utilities, which gained nearly 60%. The materials and industrials sectors both rose over 40%. The technology and healthcare sectors were the only notable laggards though these sectors were still up 18.03% and 16.04%, respectively. Helped by merger and acquisition activity in the materials and utilities sectors, continental Europe's largest markets of Germany and France delivered returns above the index. From the sector perspective, utilities performed best across the non-U.S. developed markets. This sector returned 50.05%, as measured by the utilities sector of the MSCI EAFE Index. Returns were largely due to a mid-year shift in market sentiment whereby defensive-oriented, high dividend yielding stocks gained favor and the merger and acquisition activity involving Europe's largest utilities. Demand from China continued to support gains in the materials sector, led by metals and mining stocks. The sector rose 32.51% as measured by the MSCI EAFE Index materials sector. Technology, healthcare, and energy stocks were the laggards for the year. The constant possibility of a likely slackening of economic growth weighed on technology shares. Energy stocks weakened as oil prices in the latter half of the year fell from nearly $80 per barrel to less than $60, effectively the same level at which they started in 2006. With the value segment of MSCI EAFE more weighted towards utilities and industrial cyclicals (materials and industrials), the market environment was more favorable for value-oriented investors. The MSCI EAFE Value Index rose 31.05%, compared with 22.69% for the MSCI EAFE Growth Index. Investors continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex US Index (an index of smaller capitalization companies) up 29.42% in the period versus the S&P/Citigroup PMI World ex US (an index of larger capitalization companies) up 24.74%. Markets not represented in the MSCI EAFE Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed counterparts, as the MSCI Emerging Markets Index rose 32.59%. Emerging markets countries benefited from the strong performance of industrial commodities, particularly metals and mining stocks. In contrast, Canadian stocks lagged their EAFE counterparts with a gain of 18.35%. Weaker trends in energy, a large component of the Canadian market, and the currency weakness of the Canadian dollar relative to the U.S. dollar accounted for the more modest gains. U.S. FIXED INCOME MARKETS The Federal Reserve Board's interest rate decisions were one of the primary factors affecting the fixed income markets. The Fed raised the target fed funds rate (the interest rate at which depository institutions lend money at the Fed to other depository institutions overnight) four times throughout 2006, from 4.25% at the end of December 2005 to 5.25% one year later. The Fed's interest rate hikes reflected a continued attempt to move toward a neutral monetary policy to counter rising inflationary pressures. Despite inflation measures 6 Market Summary RUSSELL INVESTMENT FUNDS that remained elevated and above the Fed's comfort level, the Fed's highly anticipated pause, after 17 consecutive rate hikes since June 2004, came in August. The Fed cited moderating economic growth and the cumulative effects of previous interest rate hikes as impetuses for the pause. The Treasury yield curve moved markedly from month to month as investors tried to reconcile conflicting economic signals (e.g., a slowing housing market, rising (and falling) commodity prices, wage inflation, and productivity concerns). Cumulative moves over the year, however, resulted in shorter-term rates that followed Fed policy (rising nearly 1.00%), while longer-term rates increased more modestly. This resulted in a nearly normal (i.e., upward-sloping) yield curve becoming inverted (when short term interest rates exceed long rates) by year end. The Lehman Brothers US Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 4.33% for the year ending December 31, 2006. Among sectors, the riskier sectors posted strong performance. As in recent years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from record low corporate default levels, as well as strong technical demand for increased yield. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 11.85% over the year compared to 3.08% for the Lehman Brothers US Treasury Index. Emerging market debt performed well due in part to commodity price increases, credit ratings upgrades and relatively non-turbulent election cycles. Emerging market bonds, as represented by the Lehman Brothers Emerging Markets (US Dollar) Index, returned 9.96%. Investment grade corporate bonds benefited from the same factors that drove the high yield market. The Lehman Brothers US Credit Index returned 4.26% for the year. Despite another year of increased regulatory scrutiny of the mortgage market, mortgage securities continued to do well. The Lehman Brothers MBS Fixed Rate Index returned 5.22%. As the year ended, yield spreads between corporate bonds and mortgages relative to Treasuries continued to be at historical lows. This reflected a search for yield even in the face of a bondholder-unfriendly market environment with loosening underwriting standards, share repurchases, and escalating leveraged buyout activity. Market Summary 7 RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
MULTI-STYLE EQUITY FUND RUSSELL 1000 INDEX** ----------------------- -------------------- Inception* 10000 10000 1997 12853 13378 1998 16543 16993 1999 19383 20546 2000 17006 18946 2001 14590 16587 2002 11207 12996 2003 14441 16880 2004 15858 18805 2005 17011 19984 2006 19179 23073
Multi-Style Equity Fund - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 12.75% 5 Years 5.62%S Inception* 6.73%S
Russell 1000()(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 15.46% 5 Years 6.82%S Inception* 8.73%S
8 Multi-Style Equity Fund RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The Multi-Style Equity Fund (the "Fund") allocates most of its assets among multiple money managers. Russell Investment Management Company ("RIMCo"), as the Fund's manager, may change the allocation of the Fund's assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits the Fund to engage or terminate a money manager at any time, subject to approval by the Fund's Board of Trustees (the "Board") without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006? For the fiscal year ended December 31, 2006, the Multi-Style Equity Fund gained 12.75%. This compared to the Russell 1000(R) Index, which gained 15.46% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended December 31, 2006, the Lipper(R) Large-Cap Core Funds Average returned 12.85%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Given the Fund's focus on undervalued companies with above-average growth rates, the market's preference during the year for stocks with high dividend yields and its relative disfavor of companies with above-average growth rates and strong earnings trends represented a difficult environment for the Fund. After many years of value stocks outperforming growth stocks, growth stocks still had unusually low valuation premiums. However, the Fund's performance was in line with its peers during this difficult environment for active money managers. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? During the past year, the Fund's money managers maintained their preference for companies with above-average growth rates that were selling at attractive valuations. Additionally, Fund money managers emphasized companies showing strong current earnings trends. With an anticipated slowdown in the economy and corporate earnings growth rates, the Fund's money managers believed that the market would reward growth companies that could sustain their growth rates. However, with the market's preference for yield rather than growth and continued strong corporate earnings, the relative advantage of undervalued growth companies was not rewarded by the market. The main driver of the Fund's underperformance relative to the benchmark was its underweight to high dividend yield groups such as utilities and REITs and its overweight to growth companies. Industry selection also detracted from relative performance with the Fund being overweight to underperforming industry groups such as communications technology, biotechnology, health services, and oil service. Finally, the market did not reward companies that generated positive earnings surprises or raised their earnings forecasts. The Fund's money managers focused on such companies, which detracted from relative performance. At the manager level, Suffolk Capital Management, LLC and Institutional Capital LLC outperformed their respective style benchmarks, due to favorable stock selection. In contrast, the market environment was challenging for the Fund's growth managers such as Ark Asset Management Co., Inc., Turner Investment Partners, Inc., and Montag & Caldwell, Inc. and they underperformed their respective style benchmarks. RIMCo employs a "select holdings" strategy for a portion of the Fund's assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings of the Fund's money managers in their Fund segments to identify particular stocks that have been selected by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund's exposure to stocks that are viewed as attractive by multiple money managers. As the Fund underperformed for the period, the select holdings strategy also underperformed the benchmark. The strategy's overweight to under-valued growth companies was not rewarded during the period. At the stock selection level, the Fund benefited from overweight positions in strong performers such as Goldman Sachs, Apple, Kohls, McDonald's, Marathon Oil, Research in Motion, and Hewlett Packard, as well as from underweight positions in underperformers such as Intel and Dell. However, overweights in underperformers such as Genentech, Maxim, Sandisk, Halliburton, Qualcomm, and JDS Uniphase, as well as underweights in strong performers such as AT&T, ExxonMobil, and Microsoft, detracted from performance. WHAT WERE THE OTHER PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Sector positioning also impacted Fund performance. Underweightings in interest sensitive groups such as financial services and utilities, as well as an overweighting in the underperforming health care sector, had an adverse impact on relative performance. Multi-Style Equity Fund 9 RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes to the Fund's structure or money manager lineup during the fiscal year. Money Managers as of Styles December 31, 2006 Ark Asset Management Co., Inc. Growth DePrince, Race & Zollo, Inc. Value Institutional Capital LLC Value Jacobs Levy Equity Management, Inc. Value Montag & Caldwell, Inc. Growth Suffolk Capital Management, LLC Market-Oriented Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund. -------------------- * The Fund commenced operations on January 2, 1997. ** Russell 1000(R) Index includes the 1,000 largest companies in the Russell 3000(R) Index. The Russell 1000(R) Index represents the universe of stocks from which most active money managers typically select. The Russell 1000(R) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. S Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 10 Multi-Style Equity Fund RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2006 to December 31, 2006. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN PERFORMANCE BEFORE EXPENSES) -------------- ---------------- Beginning Account Value July 1, 2006 $ 1,000.00 $ 1,000.00 Ending Account Value December 31, 2006 $ 1,100.90 $ 1,020.87 Expenses Paid During Period* $ 4.55 $ 4.38
* Expenses are equal to the Fund's annualized expense ratio of 0.86% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Multi-Style Equity Fund 11 RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 95.1% Auto and Transportation - 1.8% ArvinMeritor, Inc. (N) 1,600 29 Autoliv, Inc. 2,600 157 CH Robinson Worldwide, Inc. 19,400 793 CSX Corp. 51,450 1,772 FedEx Corp. 3,500 380 General Motors Corp. (N) 13,800 424 Polaris Industries, Inc. (N) 12,600 590 TRW Automotive Holdings Corp. (AE) 4,500 117 Union Pacific Corp. 5,500 506 United Parcel Service, Inc. Class B 16,700 1,252 US Airways Group, Inc. (AE)(N) 23,700 1,276 ------------ 7,296 ------------ Consumer Discretionary - 13.8% Abercrombie & Fitch Co. Class A 3,300 230 Advance Auto Parts, Inc. 9,600 341 AnnTaylor Stores Corp. (AE) 6,400 210 Autonation, Inc. (AE) 4,500 96 CBRL Group, Inc. 2,400 107 CBS Corp. Class B 8,800 274 CEC Entertainment, Inc. (AE) 1,900 77 Chipotle Mexican Grill, Inc. Class B (AE)(N) 1,244 65 Coach, Inc. (AE) 33,250 1,428 Convergys Corp. (AE) 5,100 121 Costco Wholesale Corp. (N) 35,500 1,877 Dollar General Corp. (N) 20,100 323 Dollar Tree Stores, Inc. (AE) 5,200 157 DreamWorks Animation SKG, Inc. Class A (AE) 3,200 94 eBay, Inc. (AE) 13,300 400 Electronic Arts, Inc. (AE) 55,400 2,790 Focus Media Holding, Ltd. - ADR (AE) 7,430 493 Foot Locker, Inc. 51,000 1,118 Gannett Co., Inc. 7,900 478 Gap, Inc. (The) 67,300 1,312 Google, Inc. Class A (AE) 15,789 7,271 Group 1 Automotive, Inc. (N) 1,400 72 Harman International Industries, Inc. 3,700 370 Hasbro, Inc. 45,400 1,237 Hewitt Associates, Inc. Class A (AE)(N) 37,100 955 Home Depot, Inc. 21,200 851 Intercontinental Hotels Group PLC - ADR 71,400 1,803 International Flavors & Fragrances, Inc. (N) 3,500 172 International Game Technology 20,410 943 Jack in the Box, Inc. (AE) 1,700 104 JC Penney Co., Inc. (N) 11,000 851 Jones Apparel Group, Inc. 5,800 194
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Kimberly-Clark Corp. 14,200 965 Kohl's Corp. (AE)(N) 10,900 746 Las Vegas Sands Corp. (AE) 19,140 1,713 Limited Brands, Inc. 13,200 382 Liz Claiborne, Inc. (N) 20,100 874 Lowe's Cos., Inc. 9,900 308 McClatchy Co. Class A (N) 3,400 147 McDonald's Corp. 136,148 6,035 McGraw-Hill Cos., Inc. (The) 13,800 939 Monster Worldwide, Inc. (AE) 12,100 564 News Corp. Class A 31,290 672 Nutri System, Inc. (AE)(N) 9,350 593 Phillips-Van Heusen Corp. 1,300 65 Polo Ralph Lauren Corp. Class A 6,100 474 Quiksilver, Inc. (AE)(N) 53,100 836 Rent-A-Center, Inc. Class A (AE) 3,600 106 RR Donnelley & Sons Co. (N) 35,100 1,247 Sears Holdings Corp. (AE)(N) 3,000 504 ServiceMaster Co. (The) (N) 34,700 455 Staples, Inc. 73,700 1,968 Starbucks Corp. (AE) 69,110 2,448 Starwood Hotels & Resorts Worldwide, Inc. (o) 15,800 988 Target Corp. 17,900 1,021 Time Warner, Inc. 30,600 667 Under Armour, Inc. Class A (AE)(N) 7,200 363 Urban Outfitters, Inc. (AE)(N) 37,200 857 Viacom, Inc. Class A (AE) 13,400 550 Wal-Mart Stores, Inc. 71,550 3,304 Yahoo!, Inc. (AE) 32,000 817 ------------ 57,422 ------------ Consumer Staples - 7.9% Altria Group, Inc. 48,550 4,167 Clorox Co. 4,200 269 Coca-Cola Co. (The) 74,600 3,600 Colgate-Palmolive Co. 36,500 2,381 ConAgra Foods, Inc. 17,800 481 Constellation Brands, Inc. Class A (AE)(N) 36,800 1,068 CVS Corp. 27,100 838 Del Monte Foods Co. 9,500 105 Hershey Co. (The) (N) 18,600 926 Hormel Foods Corp. 2,500 93 McCormick & Co., Inc. (N) 5,600 216 Molson Coors Brewing Co. Class B (N) 37,300 2,851 PepsiCo, Inc. 103,330 6,463 Procter & Gamble Co. 114,400 7,353
12 Multi-Style Equity Fund RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ruddick Corp. 1,600 44 Walgreen Co. 50,300 2,308 ------------ 33,163 ------------ Financial Services - 20.0% AG Edwards, Inc. 8,500 538 AMBAC Financial Group, Inc. 2,100 187 American Express Co. 62,400 3,786 American Home Mortgage Investment Corp. (o) 1,200 42 American International Group, Inc. (N) 99,300 7,116 Ameriprise Financial, Inc. 4,800 262 Annaly Capital Management, Inc. (o) 52,600 732 Argonaut Group, Inc. (AE) 800 28 Arthur J Gallagher & Co. (N) 1,000 30 Astoria Financial Corp. (N) 15,700 473 Bank of America Corp. 119,141 6,361 BB&T Corp. 8,600 378 Capital One Financial Corp. 6,000 461 CapitalSource, Inc. (o) 9,600 262 Cash America International, Inc. 700 33 CB Richard Ellis Group, Inc. Class A (AE) 19,090 634 Charles Schwab Corp. (The) 52,930 1,024 Chicago Mercantile Exchange Holdings, Inc. 1,710 872 CIT Group, Inc. 9,000 502 Citigroup, Inc. 125,000 6,962 CNA Financial Corp. (AE) 2,500 101 Colonial BancGroup, Inc. (The) 6,700 172 Colonial Properties Trust (o) 2,100 98 Commerce Bancorp, Inc. (N) 13,400 473 Commerce Group, Inc. 1,900 56 Countrywide Financial Corp. (N) 17,000 722 Cullen/Frost Bankers, Inc. 9,800 547 DiamondRock Hospitality Co. (o) 1,100 20 Dow Jones & Co., Inc. (N) 16,000 608 Extra Space Storage, Inc. (o) 1,400 26 Fannie Mae 2,700 160 Federated Investors, Inc. Class B 23,600 797 FelCor Lodging Trust, Inc. (o) 3,900 85 First Data Corp. 12,800 327 First Horizon National Corp. (N) 12,200 510 FirstFed Financial Corp. (AE)(N) 1,600 107 Franklin Resources, Inc. 3,300 364 Franklin Street Properties Corp. (o)(N) 1,300 27 Fulton Financial Corp. (N) 1,890 32 Global Payments, Inc. 13,860 642 Goldman Sachs Group, Inc. 10,630 2,119 H&R Block, Inc. 23,000 530 Hartford Financial Services Group, Inc. 12,300 1,148
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hospitality Properties Trust (o) 2,500 119 HRPT Properties Trust (o)(N) 9,400 116 Huntington Bancshares, Inc. (N) 39,500 938 IntercontinentalExchange, Inc. (AE) 4,440 479 JPMorgan Chase & Co. (N) 130,750 6,315 Knight Capital Group, Inc. Class A (AE)(N) 2,000 38 Lehman Brothers Holdings, Inc. 8,900 695 Lincoln National Corp. 7,900 525 MBIA, Inc. (N) 13,600 994 Mercury General Corp. 8,600 453 Merrill Lynch & Co., Inc. 41,700 3,882 Metlife, Inc. (N) 10,400 614 MGIC Investment Corp. (N) 16,600 1,038 Morgan Stanley (N) 41,000 3,339 National Retail Properties, Inc. (o) 1,200 27 Nationwide Financial Services, Inc. 2,000 108 Nelnet, Inc. Class A (AE)(N) 1,100 30 New Century Financial Corp. (o)(N) 1,600 51 New York Community Bancorp, Inc. (N) 45,900 739 Newcastle Investment Corp. (o)(N) 1,200 38 Northern Trust Corp. (N) 17,700 1,074 Paychex, Inc. 60,400 2,388 Pennsylvania Real Estate Investment Trust (o) 900 35 Philadelphia Consolidated Holding Co. (AE) 200 9 PMI Group, Inc. (The) (N) 7,400 349 PNC Financial Services Group, Inc. 6,600 489 Principal Financial Group, Inc. 5,100 299 Progressive Corp. (The) 1,700 41 Protective Life Corp. 100 5 Radian Group, Inc. 6,400 345 Raymond James Financial, Inc. 5,000 152 Redwood Trust, Inc. (o) 600 35 Regions Financial Corp. 16,400 613 Ryder System, Inc. 2,800 143 Senior Housing Properties Trust (o) 3,000 73 South Financial Group, Inc. (The) (N) 21,100 561 St. Paul Travelers Cos., Inc. (The) 36,161 1,941 Stancorp Financial Group, Inc. 2,300 104 State Street Corp. 2,800 189 SunTrust Banks, Inc. 10,800 912 TCF Financial Corp. (N) 6,500 178 Thornburg Mortgage, Inc. (o)(N) 6,200 156 UBS AG 11,800 712 UnionBanCal Corp. 2,200 135 US Bancorp 23,600 854
Multi-Style Equity Fund 13 RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ventas, Inc. (o) 4,900 207 Wachovia Corp. 67,750 3,858 Washington Mutual, Inc. 21,600 983 Wells Fargo & Co. 110,100 3,915 Western Union Co. (The) 21,900 491 Whitney Holding Corp. (N) 1,600 52 Wilmington Trust Corp. (N) 18,300 772 WR Berkley Corp. 8,300 286 Zenith National Insurance Corp. (N) 2,500 117 ------------ 83,365 ------------ Health Care - 11.5% Abbott Laboratories 96,750 4,713 Allergan, Inc. 12,990 1,555 AMERIGROUP Corp. (AE)(N) 1,100 40 Amgen, Inc. (AE) 20,300 1,387 Baxter International, Inc. 55,600 2,579 Biogen Idec, Inc. (AE) 17,000 836 Bristol-Myers Squibb Co. 40,200 1,058 Caremark Rx, Inc. (N) 15,000 857 Celgene Corp. (AE)(N) 19,600 1,128 Community Health Systems, Inc. (AE) 25,300 924 Cooper Cos., Inc. (The) (N) 2,000 89 Covance, Inc. (AE) 12,980 765 Eli Lilly & Co. 49,987 2,604 Genentech, Inc. (AE) 32,700 2,653 Gilead Sciences, Inc. (AE) 32,220 2,092 Human Genome Sciences, Inc. (AE)(N) 73,900 919 ImClone Systems, Inc. (AE)(N) 8,200 219 Intuitive Surgical, Inc. (AE)(N) 5,720 549 Invitrogen Corp. (AE)(N) 13,700 775 Johnson & Johnson 50,600 3,341 King Pharmaceuticals, Inc. (AE) 7,500 119 LifePoint Hospitals, Inc. (AE) 3,100 105 McKesson Corp. 4,000 203 Medco Health Solutions, Inc. (AE) 20,000 1,069 Medtronic, Inc. 12,900 690 Merck & Co., Inc. 26,500 1,155 New River Pharmaceuticals, Inc. (AE)(N) 5,300 290 Novartis AG - ADR 51,430 2,954 PDL BioPharma, Inc. (AE)(N) 38,700 779 Pfizer, Inc. 131,400 3,403 Schering-Plough Corp. 11,600 274 Sepracor, Inc. (AE)(N) 4,300 265 St. Jude Medical, Inc. (AE) 31,900 1,166 Stryker Corp. (N) 35,200 1,940 Universal Health Services, Inc. Class B 2,400 133 WellPoint, Inc. (AE) 13,100 1,031 Wyeth 69,100 3,519 ------------ 48,178 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Integrated Oils - 4.8% Chevron Corp. 32,000 2,353 ConocoPhillips 31,700 2,281 Exxon Mobil Corp. 69,450 5,322 Hess Corp. 64,200 3,182 Marathon Oil Corp. 13,700 1,267 Murphy Oil Corp. 23,000 1,170 Occidental Petroleum Corp. 51,200 2,500 Total SA - ADR 27,050 1,945 ------------ 20,020 ------------ Materials and Processing - 4.9% Air Products & Chemicals, Inc. 5,900 415 Airgas, Inc. 1,100 45 Albemarle Corp. (N) 1,000 72 Alcoa, Inc. 10,700 321 Archer-Daniels-Midland Co. 46,240 1,478 Avery Dennison Corp. 7,700 523 Bowater, Inc. (N) 20,800 468 Bunge, Ltd. 5,250 381 Cameco Corp. 43,900 1,776 Carpenter Technology Corp. 8,700 892 Celanese Corp. Class A (N) 33,100 857 Chemtura Corp. (N) 36,600 352 Cytec Industries, Inc. (N) 800 45 Dow Chemical Co. (The) 30,500 1,218 Eastman Chemical Co. (N) 4,800 285 EI Du Pont de Nemours & Co. 6,500 317 FMC Corp. 1,800 138 Freeport-McMoRan Copper & Gold, Inc. Class B 4,100 228 Greif, Inc. Class A 600 71 Hercules, Inc. (AE) 3,900 75 Imperial Chemical Industries PLC - ADR 26,450 937 International Paper Co. 28,600 975 Lubrizol Corp. 13,100 657 Lyondell Chemical Co. (N) 21,100 539 MeadWestvaco Corp. 21,400 643 Monsanto Co. 19,080 1,002 Mueller Industries, Inc. 2,600 82 Olin Corp. 4,600 76 OM Group, Inc. (AE) 3,300 149 Packaging Corp. of America 19,100 422 PPG Industries, Inc. (N) 5,600 360 Quanex Corp. 1,200 41
14 Multi-Style Equity Fund RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Rio Tinto PLC - ADR (N) 4,600 977 Rohm & Haas Co. 9,100 465 RPM International, Inc. 23,600 493 Temple-Inland, Inc. 30,650 1,411 Texas Industries, Inc. (N) 1,600 103 Timken Co. 16,200 473 United States Steel Corp. 2,800 205 URS Corp. (AE) 2,000 86 Valspar Corp. 14,400 398 Westlake Chemical Corp. (N) 1,900 60 ------------ 20,511 ------------ Miscellaneous - 5.1% 3M Co. 39,300 3,063 Brunswick Corp. (N) 14,700 469 General Electric Co. 344,720 12,827 Hillenbrand Industries, Inc. (N) 2,200 125 Honeywell International, Inc. 44,400 2,009 ITT Corp. 3,300 187 Textron, Inc. 27,500 2,579 ------------ 21,259 ------------ Other Energy - 3.9% Anadarko Petroleum Corp. 13,100 570 Apache Corp. 16,800 1,117 Baker Hughes, Inc. 30,900 2,307 Cameron International Corp. (AE) 16,530 877 Chesapeake Energy Corp. (N) 10,700 311 Devon Energy Corp. 8,100 543 Frontier Oil Corp. 2,300 66 Halliburton Co. 148,599 4,614 National-Oilwell Varco, Inc. (AE) 8,940 547 Newfield Exploration Co. (AE) 4,000 184 Noble Energy, Inc. 5,200 255 Oil States International, Inc. (AE)(N) 1,200 39 Schlumberger, Ltd. 43,100 2,722 Smith International, Inc. 6,200 255 Sunoco, Inc. 7,400 462 Swift Energy Co. (AE) 700 31 Tesoro Corp. 1,600 105 Valero Energy Corp. 12,300 629 Whiting Petroleum Corp. (AE) 2,100 98 XTO Energy, Inc. 15,400 725 ------------ 16,457 ------------ Producer Durables - 4.1% Agilent Technologies, Inc. (AE) 29,500 1,028 Alcatel-Lucent - ADR 63,500 903 Andrew Corp. (AE) 2,600 27 Boeing Co. 6,500 577 Brooks Automation, Inc. (AE) 800 12 Caterpillar, Inc. 8,300 509 Crane Co. 2,600 95
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Crown Castle International Corp. (AE) 19,720 637 Danaher Corp. 9,640 698 Deere & Co. 7,550 718 Emerson Electric Co. 29,000 1,279 Goodrich Corp. 29,200 1,330 KB Home (N) 800 41 KLA-Tencor Corp. (N) 19,230 957 Lennar Corp. Class A (N) 3,400 178 Meritage Homes Corp. (AE) 800 38 Nokia OYJ - ADR 78,100 1,587 Northrop Grumman Corp. 14,000 948 Parker Hannifin Corp. 3,600 277 Pentair, Inc. (N) 18,600 584 Rofin-Sinar Technologies, Inc. (AE) 500 30 Roper Industries, Inc. (N) 12,800 643 Standard-Pacific Corp. (N) 4,000 107 Steelcase, Inc. Class A (N) 2,400 44 Technitrol, Inc. 2,300 55 Thermo Fisher Scientific, Inc. (AE) 48,710 2,206 Toll Brothers, Inc. (AE)(N) 3,300 106 United Technologies Corp. 20,700 1,294 ------------ 16,908 ------------ Technology - 12.7% 3Com Corp. (AE)(N) 6,100 25 Adobe Systems, Inc. (AE)(N) 18,300 753 Akamai Technologies, Inc. (AE) 13,550 720 Analog Devices, Inc. 14,800 486 Anixter International, Inc. (AE) 3,500 190 Apple Computer, Inc. (AE) 61,800 5,243 Applera Corp. - Applied Biosystems Group 12,500 459 Arrow Electronics, Inc. (AE) 4,700 148 Atmel Corp. (AE) 11,300 68 Avnet, Inc. (AE)(N) 3,000 77 AVX Corp. (N) 2,400 36 Benchmark Electronics, Inc. (AE) 100 2 Blackbaud, Inc. 2,500 65 Broadcom Corp. Class A (AE) 49,770 1,608 Brocade Communications Systems, Inc. (AE)(N) 6,000 49 Cadence Design Systems, Inc. (AE) 5,800 104 Ciena Corp. (AE)(N) 1,200 33 Cisco Systems, Inc. (AE) 162,300 4,436 Computer Sciences Corp. (AE) 4,500 240 Corning, Inc. (AE) 54,500 1,020 Cypress Semiconductor Corp. (AE)(N) 1,000 17 Dell, Inc. (AE) 61,800 1,551
Multi-Style Equity Fund 15 RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- EMC Corp. (AE)(N) 45,100 595 F5 Networks, Inc. (AE)(N) 6,910 513 Hewlett-Packard Co. 177,600 7,315 Ingram Micro, Inc. Class A (AE) 5,600 114 Integrated Device Technology, Inc. (AE) 8,900 138 Intel Corp. 37,700 763 International Business Machines Corp. 12,100 1,176 Intersil Corp. Class A 1,900 45 JDS Uniphase Corp. (AE)(N) 87,373 1,456 Komag, Inc. (AE) 900 34 L-3 Communications Holdings, Inc. 12,800 1,047 Linear Technology Corp. 14,600 443 Maxim Integrated Products, Inc. 8,300 254 McAfee, Inc. (AE) 1,100 31 Microsoft Corp. 152,000 4,539 Motorola, Inc. 60,550 1,245 National Semiconductor Corp. 38,600 876 Nvidia Corp. (AE) 23,060 853 PerkinElmer, Inc. 40,000 889 Qualcomm, Inc. 134,800 5,094 RealNetworks, Inc. (AE)(N) 2,100 23 Research In Motion, Ltd. (AE) 17,390 2,222 RF Micro Devices, Inc. (AE)(N) 2,200 15 Salesforce.com, Inc. (AE)(N) 20,400 744 SanDisk Corp. (AE)(N) 33,400 1,437 Sanmina-SCI Corp. (AE) 13,100 45 Seagate Technology, Inc. (AE) 2,300 -- Skyworks Solutions, Inc. (AE)(N) 3,900 28 Sun Microsystems, Inc. (AE) 151,920 823 Symantec Corp. (AE) 4,500 94 Synopsys, Inc. (AE) 10,200 273 Tellabs, Inc. (AE) 11,700 120 Texas Instruments, Inc. 71,300 2,053 Unisys Corp. (AE)(N) 19,900 156 Utstarcom, Inc. (AE)(N) 4,100 36 Vishay Intertechnology, Inc. (AE) 5,800 79 ------------ 52,898 ------------ Utilities - 4.6% Alltel Corp. 6,400 387 American Electric Power Co., Inc. 9,900 421 Aqua America, Inc. (N) 23,600 538 AT&T, Inc. 69,900 2,499 Atmos Energy Corp. 3,100 99 BellSouth Corp. 48,650 2,292 Citizens Communications Co. (N) 42,300 608 Comcast Corp. Class A (AE) 17,150 726 Consolidated Edison, Inc. (N) 4,700 226 Constellation Energy Group, Inc. 6,800 468 Dominion Resources, Inc. 41,250 3,458
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Edison International 8,600 391 Embarq Corp. 2,500 131 Entergy Corp. 9,750 900 Idacorp, Inc. 3,000 116 Level 3 Communications, Inc. (AE)(N) 54,600 306 NII Holdings, Inc. (AE)(N) 11,300 728 NiSource, Inc. 18,500 446 Progress Energy, Inc. - CVO 1,300 -- SCANA Corp. 5,100 207 Southwest Gas Corp. 700 27 Sprint Nextel Corp. 44,557 842 TECO Energy, Inc. 24,900 429 Verizon Communications, Inc. 62,100 2,313 Windstream Corp. (AE) 58,900 838 ------------ 19,396 ------------ TOTAL COMMON STOCKS (cost $346,782) 396,873 ------------ SHORT-TERM INVESTMENTS - 5.2% Russell Investment Company Money Market Fund 20,451,000 20,451 United States Treasury Bills (z)(sec.) 4.968% due 03/15/07 1,200 1,184 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $21,639) 21,635 ------------ OTHER SECURITIES - 10.1% State Street Securities Lending Quality Trust (X) 42,271,246 42,271 ------------ TOTAL OTHER SECURITIES (cost $42,271) 42,271 ------------ TOTAL INVESTMENTS - 110.4% (identified cost $410,692) 460,779 OTHER ASSETS AND LIABILITIES, NET - (10.4%) (43,272) ------------ NET ASSETS - 100.0% 417,507 ============
See accompanying notes which are an integral part of the financial statements. 16 Multi-Style Equity Fund RUSSELL INVESTMENT FUNDS MULTI-STYLE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 03/07 (7) 2,715 (8) S&P Midcap 400 E-Mini Index (CME) expiration date 03/07 (119) 9,654 (147) S&P 500 Index (CME) expiration date 03/07 (14) 4,999 (2) S&P 500 E-Mini Index (CME) expiration date 03/07 (53) 3,785 4 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (153) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- DECEMBER 31, 2006 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 1.8 Consumer Discretionary 13.8 Consumer Staples 7.9 Financial Services 20.0 Health Care 11.5 Integrated Oils 4.8 Materials and Processing 4.9 Miscellaneous 5.1 Other Energy 3.9 Producer Durables 4.1 Technology 12.7 Utilities 4.6 Short-Term Investments 5.2 Other Securities 10.1 --------------- Total Investments 110.4 Other Assets and Liabilities, Net (10.4) --------------- 100.0 =============== Futures Contracts (--)*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Multi-Style Equity Fund 17 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
AGGRESSIVE EQUITY FUND RUSSELL 2500(TM) INDEX** ---------------------- ------------------------ Inception* 10000 10000 1997 13507 12582 1998 13644 12631 1999 14474 15680 2000 14378 16350 2001 14038 16549 2002 11363 13604 2003 16544 19795 2004 18981 23417 2005 20188 25315 2006 23174 29407
Aggressive Equity Fund - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 14.79% 5 Years 10.55%sec. Inception* 8.77%sec.
Russell 2500(TM) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 16.17% 5 Years 12.19%sec. Inception* 11.40%sec.
18 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The Aggressive Equity Fund (the "Fund") allocates most of its assets among multiple money managers. Russell Investment Management Company ("RIMCo"), as the Fund's manager, may change the allocation of the Fund's assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits the Fund to engage or terminate a money manager at any time, subject to approval by the Fund's Board of Trustees (the "Board") without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006? For the fiscal year ended December 31, 2006, the Aggressive Equity Fund gained 14.79%. This compared to the Russell 2500(TM) Index, which gained 16.17% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended December 31, 2006, the Lipper(R) Small-Cap Core Funds Average returned 14.90 %. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund was challenged in 2006 as a number of market forces combined to create a difficult environment for outperformance. The continuation of a multi-year value market was notable during the year after a first quarter in which growth stocks were favored by the market. The year presented a significant challenge for the Fund's money managers and active managers in general as Lipper data shows that only 20% of active small capitalization managers beat the Russell 2000(R) Index. From a factor perspective, yield continued to be rewarded while earnings surprise, estimate revision and earnings variability, which were emphasized in the Fund, were not rewarded. In addition, higher dividend yielding stocks, such as real estate investment trusts (REIT's) and utilities, in which the Fund was underweight, continued to outperform. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Sector selection was the primary cause of the Fund's relative underperformance for the year. The Fund was overweight to technology and energy and underweight to utilities, which returned 25% for the year, well in excess of the Index return. The results from these sector weights were somewhat balanced by positive security selection. Most notably, stock selection was positive in the consumer discretionary, materials and other energy sectors. WHAT WERE THE OTHER PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's underperforming money managers were Goldman Sachs Asset Management, L.P. (market oriented style), Gould Investment Partners, LLC (growth style) and Geewax, Terker & Company (growth style). Gould underperformed due to its very aggressive approach to growth investing, a style which performed poorly after the first quarter. While Gould's results were disappointing, when taking into account market conditions, its performance was consistent with its aggressive style. Goldman Sachs' chief detractor was poor stock selection in what was probably the most disappointing performance within the Fund. Geewax's performance was negatively impacted by poor stock selection within the technology and materials sectors. Five of the Fund's money managers outperformed the Fund's benchmark. The outperformers included the following managers: CapitalWorks Investment Partners, LLC, Tygh Capital Management, Inc., David J. Greene and Company, LLC, Jacobs Levy Equity Management, Inc. and Nicholas-Applegate Capital Management LLC. CapitalWorks benefited from positive stock selection in a difficult market for its aggressive growth style. Tygh Capital also benefited from stock selection and its focus on more consistent, predictable sources of earnings growth as well as strong stock selection within the energy and materials sectors. Nicholas Applegate, a value manager, also derived positive performance through strong stock selection within the energy and materials sectors. David J. Greene benefited from a robust mergers and acquisitions environment and its somewhat contrarian value style which focuses not on yield or low price, but on catalyst driven improvements and on valuing companies from a takeout framework. Jacobs Levy also outperformed modestly through positive stock selection despite negative sector selection. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In the fourth quarter, Goldman Sachs was terminated and ClariVest Asset Management, LLC and PanAgora Asset Management, Inc. were hired as money managers for the Fund. Aggressive Equity Fund 19 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles December 31, 2006 CapitalWorks Investment Partners, LLC Growth ClariVest Asset Management, LLC Market-Oriented David J. Greene and Company, LLC Value Geewax, Terker & Company Growth Gould Investment Partners, LLC Growth Jacobs Levy Equity Management, Inc. Value Nicholas-Applegate Capital Management LLC Value PanAgora Asset Management, Inc. Market-Oriented Tygh Capital Management, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund. -------------------- * The Fund commenced operations on January 2, 1997. ** Russell 2500(TM) Index is composed of the smallest 500 stocks in the Russell 1000(R) Index and all the stocks in the Russell 2000(R) Index. The Russell 2500(TM) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. sec. Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 20 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2006 to December 31, 2006. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN PERFORMANCE BEFORE EXPENSES) -------------- ---------------- Beginning Account Value July 1, 2006 $ 1,000.00 $ 1,000.00 Ending Account Value December 31, 2006 $ 1,068.30 $ 1,019.96 Expenses Paid During Period* $ 5.42 $ 5.30
* Expenses are equal to the Fund's annualized expense ratio of 1.04% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Aggressive Equity Fund 21 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 96.2% Auto and Transportation - 3.4% AAR Corp. (AE)(N) 14,700 429 ABX Air, Inc. (AE) 50,200 348 Aftermarket Technology Corp. (AE) 12,100 258 American Commercial Lines, Inc. (AE)(N) 6,600 432 AMR Corp. (AE) 1,600 48 Arctic Cat, Inc. (N) 2,500 44 ArvinMeritor, Inc. (N) 13,500 246 Autoliv, Inc. 9,800 591 Celadon Group, Inc. (AE)(N) 9,900 166 Commercial Vehicle Group, Inc. (AE) 2,700 59 Continental Airlines, Inc. Class A (AE) 7,800 322 Dana Corp. (N) 39,700 55 Danaos Corp. (AE) 3,100 74 ExpressJet Holdings, Inc. Class A (AE) 30,300 245 Grupo Aeroportuario del Centro Norte Sab de CV - ADR (AE) 6,900 154 Grupo Aeroportuario del Sureste SAB de CV - ADR (N) 3,300 140 Gulfmark Offshore, Inc. (AE) 3,100 116 Horizon Lines, Inc. Class A 17,400 469 HUB Group, Inc. Class A (AE)(N) 5,200 143 Kansas City Southern (AE)(N) 5,800 168 Kirby Corp. (AE)(N) 3,500 119 Navistar International Corp. (AE)(N) 11,300 378 Noble International, Ltd. (N) 3,100 62 Oshkosh Truck Corp. 7,000 339 PAM Transportation Services (AE)(N) 2,100 46 Quintana Maritime, Ltd. (N) 20,950 231 Republic Airways Holdings, Inc. (AE)(N) 6,200 104 Saia, Inc. (AE)(N) 11,700 272 Sauer-Danfoss, Inc. 3,500 113 Standard Motor Products, Inc. 8,500 127 Tidewater, Inc. (N) 1,800 87 TRW Automotive Holdings Corp. (AE) 11,200 290 US Xpress Enterprises, Inc. Class A (AE)(N) 6,100 101 UTI Worldwide, Inc. 18,761 561 Visteon Corp. (AE)(N) 14,700 125 Wabtec Corp. 7,800 237 ------------ 7,699 ------------ Consumer Discretionary - 18.8% 24/7 Real Media, Inc. (AE)(N) 21,200 192 Abercrombie & Fitch Co. Class A 2,854 199 Activision, Inc. (AE)(N) 52,430 904 Adesa, Inc. 8,700 241 Advance Auto Parts, Inc. 11,400 405 Advisory Board Co. (The) (AE) 6,934 371 AFC Enterprises (AE)(N) 5,000 88
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- American Eagle Outfitters, Inc. 22,800 712 American Greetings Corp. Class A 1,800 43 American Woodmark Corp. 6,100 255 AMN Healthcare Services, Inc. (AE) 28,500 785 AnnTaylor Stores Corp. (AE) 5,100 167 aQuantive, Inc. (AE) 11,637 287 Asbury Automotive Group, Inc. 7,700 181 Autonation, Inc. (AE) 3,000 64 Baidu.com - ADR (AE)(N) 6,954 784 Barnes & Noble, Inc. 3,000 119 Bebe Stores, Inc. 10,338 205 Big Lots, Inc. (AE) 25,100 575 Blockbuster, Inc. Class A (AE) 14,100 75 Bon-Ton Stores, Inc. (The) (N) 4,000 139 Books-A-Million, Inc. Class A 3,600 82 Bowne & Co., Inc. 4,400 70 Bright Horizons Family Solutions, Inc. (AE)(N) 5,000 193 Brinker International, Inc. 15,450 466 Brown Shoe Co., Inc. 2,600 124 Buckle, Inc. (The) 1,000 51 Carmax, Inc. (AE)(N) 10,300 552 CBRL Group, Inc. 6,600 295 CEC Entertainment, Inc. (AE) 13,700 551 Central Parking Corp. (N) 9,500 171 Century Casinos, Inc. (AE)(N) 15,600 174 Cenveo, Inc. (AE)(N) 11,350 241 Charlotte Russe Holding, Inc. (AE) 4,200 129 Charming Shoppes, Inc. (AE)(N) 20,800 281 Chemed Corp. (N) 2,400 89 Chipotle Mexican Grill, Inc. Class A (AE)(N) 1,000 57 Churchill Downs, Inc. (N) 900 38 Coach, Inc. (AE) 7,439 320 Coldwater Creek, Inc. (AE)(N) 3,000 74 Convergys Corp. (AE) 22,400 533 Corinthian Colleges, Inc. (AE)(N) 12,700 173 Corporate Executive Board Co. 3,181 279 Corrections Corp. of America (AE) 17,450 789 CRA International, Inc. (AE)(N) 2,070 108 CROCS, Inc. (AE)(N) 17,700 765 CSK Auto Corp. (AE) 5,800 99 CSS Industries, Inc. 900 32 DeVry, Inc. 12,200 342 Dick's Sporting Goods, Inc. (AE)(N) 1,500 73 Dillard's, Inc. Class A 13,100 458 Directed Electronics, Inc. (AE)(N) 5,800 66 Dolby Laboratories, Inc. Class A (AE) 17,900 555
22 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Dollar Tree Stores, Inc. (AE) 25,700 774 DreamWorks Animation SKG, Inc. Class A (AE) 8,700 257 DSW, Inc. Class A (AE) 1,000 39 Earthlink, Inc. (AE)(N) 25,500 181 Elizabeth Arden, Inc. (AE)(N) 15,100 288 Entercom Communications Corp. Class A (N) 5,500 155 Entravision Communications Corp. Class A (AE) 16,900 139 Focus Media Holding, Ltd. - ADR New (AE) 5,700 378 Foot Locker, Inc. 19,900 436 Forrester Research, Inc. (AE)(N) 13,900 377 FTD Group, Inc. (AE) 9,400 168 GameStop Corp. Class A (AE) 5,875 324 Gemstar-TV Guide International, Inc. (AE) 71,000 285 Global Imaging Systems, Inc. (AE) 6,800 149 Gmarket, Inc. - ADR (AE)(N) 10,200 244 Great Wolf Resorts, Inc. (AE) 6,100 85 Greenfield Online, Inc. (AE) 7,700 110 Group 1 Automotive, Inc. (N) 5,000 259 Guess?, Inc. (AE)(N) 10,600 672 Gymboree Corp. (AE) 2,000 76 Harris Interactive, Inc. (AE) 26,900 136 Hasbro, Inc. (N) 27,500 749 Haverty Furniture Cos., Inc. 8,500 126 Helen of Troy, Ltd. (AE) 9,100 221 Houston Wire & Cable Co. (AE)(N) 2,000 42 Iconix Brand Group, Inc. (AE)(N) 39,470 765 IKON Office Solutions, Inc. 11,200 183 infoUSA, Inc. 7,300 87 Insight Enterprises, Inc. (AE) 8,700 164 ITT Educational Services, Inc. (AE) 4,600 305 J Crew Group, Inc. (AE) 10,700 412 Jack in the Box, Inc. (AE) 6,000 366 Jakks Pacific, Inc. (AE)(N) 7,500 164 Jo-Ann Stores, Inc. (AE)(N) 4,800 118 Jones Apparel Group, Inc. 7,200 241 Journal Register Co. 10,600 77 K-Swiss, Inc. Class A (N) 6,400 197 K2, Inc. (AE) 19,900 262 Kellwood Co. 7,200 234 Kenneth Cole Productions, Inc. Class A (N) 1,000 24 Knology, Inc. (AE) 6,400 68 Knot, Inc. (The) (AE)(N) 5,000 131 Korn/Ferry International (AE)(N) 24,081 553 Leapfrog Enterprises, Inc. Class A (AE)(N) 12,000 114 LECG Corp. (AE)(N) 3,900 72 Lee Enterprises, Inc. (N) 4,900 152 Libbey, Inc. (N) 2,900 36
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Life Time Fitness, Inc. (AE)(N) 16,700 810 Lightbridge, Inc. (AE)(N) 3,000 41 Liz Claiborne, Inc. 5,600 243 LKQ Corp. (AE)(N) 6,300 145 Lodgenet Entertainment Corp. (AE) 7,400 185 Manpower, Inc. 3,114 233 McClatchy Co. Class A (N) 5,600 242 McCormick & Schmick's Seafood Restaurants, Inc. (AE) 2,300 55 Men's Wearhouse, Inc. (The) 9,400 360 Morton's Restaurant Group, Inc. (AE) 2,000 33 Mothers Work, Inc. (AE) 400 16 Movado Group, Inc. (N) 3,800 110 MPS Group, Inc. (AE) 13,826 196 MSC Industrial Direct Co., Inc. Class A (N) 2,300 90 Navarre Corp. (AE)(N) 6,500 26 Nutri System, Inc. (AE)(N) 5,533 351 O'Charleys, Inc. (AE) 3,300 70 O'Reilly Automotive, Inc. (AE) 9,018 289 OfficeMax, Inc. 10,000 496 On Assignment, Inc. (AE)(N) 12,500 147 Orient-Express Hotels, Ltd. Class A 7,175 340 Pantry, Inc. (The) (AE)(N) 5,500 258 Payless Shoesource, Inc. (AE) 9,700 318 Penn National Gaming, Inc. (AE) 6,886 287 Perficient, Inc. (AE)(N) 9,900 162 Perry Ellis International, Inc. (AE) 10,300 422 PHH Corp. (AE) 8,800 254 Phillips-Van Heusen Corp. 15,700 788 Pier 1 Imports, Inc. (N) 22,000 131 Prestige Brands Holdings, Inc. (AE)(N) 23,700 309 Priceline.com, Inc. (AE)(N) 7,700 336 ProQuest Co. (AE)(N) 9,100 95 Quiksilver, Inc. (AE)(N) 16,000 252 Radio One, Inc. Class D (AE) 13,700 92 RadioShack Corp. (N) 9,700 163 Rare Hospitality International, Inc. (AE) 1,600 53 RC2 Corp. (AE) 6,200 273 Rent-A-Center, Inc. Class A (AE) 14,800 437 Republic Services, Inc. Class A 7,563 308 Revlon, Inc. Class A (AE) 37,400 48 Ruby Tuesday, Inc. 1,500 41 Rush Enterprises, Inc. Class A (AE) 2,300 39 Rush Enterprises, Inc. Class B (AE) 1,700 27 Sabre Holdings Corp. Class A 7,200 230
Aggressive Equity Fund 23 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Scholastic Corp. (AE) 11,500 412 Shoe Carnival, Inc. (AE) 2,900 92 Sirva, Inc. (AE)(N) 9,700 34 Skechers USA, Inc. Class A (AE) 1,500 50 Snap-On, Inc. 5,100 243 Sonic Automotive, Inc. Class A 5,800 168 Speedway Motorsports, Inc. (N) 1,400 54 Standard Parking Corp. (AE) 1,100 42 Steak N Shake Co. (The) (AE)(N) 3,700 65 Take-Two Interactive Software, Inc. (AE)(N) 8,700 155 Talbots, Inc. (N) 15,900 383 Taser International, Inc. (AE)(N) 4,000 30 Tech Data Corp. (AE) 500 19 TeleTech Holdings, Inc. (AE)(N) 27,000 645 Topps Co., Inc. (The) 8,200 73 Tractor Supply Co. (AE) 6,274 281 Triarc Cos., Inc. Class A 11,500 230 Tuesday Morning Corp. (N) 13,700 213 Tween Brands, Inc. (AE)(N) 13,770 550 Under Armour, Inc. Class A (AE)(N) 6,400 323 Unifirst Corp. 1,500 58 United Online, Inc. (N) 14,800 197 Urban Outfitters, Inc. (AE)(N) 9,500 219 Valueclick, Inc. (AE) 1,900 45 Viad Corp. 4,300 175 Volcom, Inc. (AE) 900 27 Volt Information Sciences, Inc. (AE) 5,100 256 Warnaco Group, Inc. (The) (AE) 18,500 470 Waste Connections, Inc. (AE) 4,940 205 WESCO International, Inc. (AE)(N) 1,800 106 ------------ 42,037 ------------ Consumer Staples - 2.3% Alliance One International, Inc. (AE) 43,000 303 Boston Beer Co., Inc. Class A (AE)(N) 1,500 54 Dean Foods Co. (AE) 5,600 237 Del Monte Foods Co. 16,500 182 Hansen Natural Corp. (AE)(N) 10,400 350 Herbalife, Ltd. (AE)(N) 10,500 422 Imperial Sugar Co. (N) 4,700 114 Loews Corp. - Carolina Group 10,800 699 McCormick & Co., Inc. (N) 9,100 351 Molson Coors Brewing Co. Class B (N) 6,000 459 Nash Finch Co. 1,500 41 NBTY, Inc. (AE) 19,600 815 Pathmark Stores, Inc. (AE)(N) 9,700 108 PepsiAmericas, Inc. (N) 5,100 107 Performance Food Group Co. (AE)(N) 3,300 91 Ralcorp Holdings, Inc. (AE)(N) 4,800 244 Reddy Ice Holdings, Inc. 5,400 139 Schweitzer-Mauduit International, Inc. 2,500 65
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Spartan Stores, Inc. 4,600 96 Universal Corp. (N) 5,300 260 ------------ 5,137 ------------ Financial Services - 16.5% Advent Software, Inc. (AE)(N) 17,100 603 Affiliated Managers Group, Inc. (AE) 6,765 711 Affirmative Insurance Holdings, Inc. (N) 1,500 24 Affordable Residential Communities, LP (AE)(N) 5,500 64 AG Edwards, Inc. 4,500 285 Alliance Data Systems Corp. (AE) 17,663 1,103 AMB Property Corp. (o) 6,500 381 Amcore Financial, Inc. (N) 7,400 242 American Financial Group, Inc. 9,150 329 American Home Mortgage Investment Corp. (o)(N) 8,300 292 Annaly Capital Management, Inc. (o) 22,800 317 Anthracite Capital, Inc. (o) 5,700 73 Anworth Mortgage Asset Corp. (o) 17,500 166 Arbor Realty Trust, Inc. (o) 1,600 48 Ashford Hospitality Trust, Inc. (o)(N) 14,000 174 Associated Banc-Corp. (N) 7,899 276 Assurant, Inc. 8,111 448 Asta Funding, Inc. (N) 4,000 122 Bancfirst Corp. (N) 1,000 54 Bank of Hawaii Corp. 3,300 178 Bankunited Financial Corp. Class A (N) 18,900 528 Banner Corp. 1,000 44 BOK Financial Corp. 930 51 Brookline Bancorp, Inc. (N) 16,700 220 Capital Trust, Inc. Class A (o) 8,500 424 CapitalSource, Inc. (o)(N) 23,300 636 Cash America International, Inc. 5,600 263 CB Richard Ellis Group, Inc. Class A (AE) 2,900 96 CBL & Associates Properties, Inc. (o) 1,900 82 CIT Group, Inc. 4,000 223 City Bank (N) 1,200 43 City National Corp. 5,700 406 Colonial BancGroup, Inc. (The) 13,800 355 Colonial Properties Trust (o) 5,400 253 Commerce Bancshares, Inc. (N) 2,310 112 Commerce Group, Inc. 10,000 298 Community Bancorp (AE) 3,400 103 Corus Bankshares, Inc. (N) 21,600 498 Cousins Properties, Inc. (o)(N) 5,000 176 Covanta Holding Corp. (AE) 14,500 320
24 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Deerfield Triarc Capital Corp. (o)(N) 14,900 252 Deluxe Corp. (N) 8,900 224 DiamondRock Hospitality Co. (o)(p) 14,300 258 DiamondRock Hospitality Co. (o) 7,200 130 Downey Financial Corp. 3,200 232 Entertainment Properties Trust (o) 1,700 99 Equity One, Inc. (o)(N) 4,100 109 Euronet Worldwide, Inc. (AE) 15,035 446 Fair Isaac Corp. 1,100 45 FelCor Lodging Trust, Inc. (o) 15,800 345 Fidelity Bankshares, Inc. 4,100 163 First American Corp. (N) 6,900 281 First Cash Financial Services, Inc. (AE) 3,700 96 First Community Bancorp, Inc. (N) 1,800 94 First Indiana Corp. (AE) 9,100 231 First Marblehead Corp. (The) 1,500 82 FirstFed Financial Corp. (AE) 3,900 261 GFI Group, Inc. (AE)(N) 4,700 293 Global Payments, Inc. 10,457 484 Greenhill & Co., Inc. 1,000 74 H&E Equipment Services, Inc. (AE)(N) 5,000 124 Hanmi Financial Corp. (N) 5,700 128 HCC Insurance Holdings, Inc. 14,500 465 Health Care REIT, Inc. (o) 1,000 43 HealthExtras, Inc. (AE)(N) 10,900 263 Heartland Payment Systems, Inc. New (N) 4,300 121 Hersha Hospitality Trust (o)(N) 3,400 39 Hospitality Properties Trust (o) 5,300 252 HRPT Properties Trust (o)(N) 27,400 338 IBERIABANK Corp. (N) 900 53 IMPAC Mortgage Holdings, Inc. (o)(N) 26,900 237 IndyMac Bancorp, Inc. 5,600 253 International Securities Exchange Holdings, Inc. Class A (N) 13,400 627 Intersections, Inc. (AE)(N) 1,100 12 Intervest Bancshares Corp. Class A (AE)(N) 7,700 265 Investment Technology Group, Inc. (AE) 7,107 305 Investors Real Estate Trust (o) 2,600 27 iShares Russell 2000 Growth Index Fund (N) 5,000 393 iStar Financial, Inc. (o) 13,300 636 ITLA Capital Corp. (N) 1,400 81 Jefferies Group, Inc. 1,200 32 JER Investors Trust, Inc. (AE)(p) 9,200 190 JER Investors Trust, Inc. (o)(N) 15,900 329 Jones Lang LaSalle, Inc. 1,200 111 KKR Financial Corp. (o)(N) 14,350 384 Knight Capital Group, Inc. Class A (AE)(N) 64,400 1,235 Kronos, Inc. (AE) 8,100 298
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Luminent Mortgage Capital, Inc. (o) 21,600 210 Macatawa Bank Corp. (N) 11,404 242 Mack-Cali Realty Corp. (o) 8,200 418 MAF Bancorp, Inc. 2,300 103 Marshall & Ilsley Corp. 4,040 194 MCG Capital Corp. 24,000 488 Meadowbrook Insurance Group, Inc. (AE)(N) 4,800 47 Mercantile Bank Corp. 5,635 212 MFA Mortgage Investments, Inc. (o) 12,300 95 MGIC Investment Corp. 3,400 213 Mid-America Apartment Communities, Inc. (o) 4,200 240 Municipal Mortgage & Equity LLC (N) 1,600 52 National Retail Properties, Inc. (o) 7,200 165 Nationwide Financial Services, Inc. (N) 5,900 320 Navigators Group, Inc. (AE) 7,600 366 Nelnet, Inc. Class A (AE)(N) 5,600 153 New Century Financial Corp. (o)(N) 10,100 319 Newcastle Investment Corp. (o)(N) 20,100 630 NorthStar Realty Finance Corp. (o) 25,100 416 Oak Hill Financial, Inc. (N) 7,200 202 OceanFirst Financial Corp. 1,503 34 Ocwen Financial Corp. (AE) 9,300 148 Odyssey Re Holdings Corp. (N) 5,100 190 Ohio Casualty Corp. 7,400 221 optionsXpress Holdings, Inc. (N) 5,000 113 Pacific Capital Bancorp 12,600 423 Pennsylvania Real Estate Investment Trust (o) 5,100 201 Peoples Bancorp, Inc. 400 12 Philadelphia Consolidated Holding Co. (AE) 2,100 94 Pico Holdings, Inc. (AE) 2,200 77 PMI Group, Inc. (The) (N) 8,500 401 Portfolio Recovery Associates, Inc. (AE)(N) 5,100 238 Preferred Bank 700 42 ProAssurance Corp. (AE) 473 24 Protective Life Corp. 2,900 138 Provident Bankshares Corp. (N) 7,500 267 Provident Financial Services, Inc. (N) 5,300 96 PS Business Parks, Inc. (o) 1,600 113 R&G Financial Corp. Class B 8,400 64 Raymond James Financial, Inc. 13,000 394 Rayonier, Inc. (o) 1,100 45 Realty Income Corp. (o)(N) 9,800 271
Aggressive Equity Fund 25 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ryder System, Inc. 10,700 546 S1 Corp. (AE) 3,462 19 Safety Insurance Group, Inc. 6,200 314 Scottish Re Group, Ltd. (N) 18,900 101 SeaBright Insurance Holdings, Inc. (AE) 2,900 52 SEI Investments Co. (N) 5,900 351 Senior Housing Properties Trust (o) 2,300 56 Sotheby's Holdings Class A (N) 3,000 93 Southwest Bancorp, Inc. 1,100 31 Spirit Finance Corp. (o)(N) 14,800 185 Stancorp Financial Group, Inc. 8,800 396 Sterling Bancorp Class N 1,260 25 Sterling Bancshares, Inc. (N) 11,400 148 Sterling Financial Corp. (N) 1,000 24 SVB Financial Group (AE) 1,000 47 SWS Group, Inc. 1,300 46 Taylor Capital Group, Inc. 2,600 95 TCF Financial Corp. (N) 4,800 132 Thornburg Mortgage, Inc. (o) 8,900 224 TierOne Corp. 1,400 44 TNS, Inc. (AE) 15,100 291 Total System Services, Inc. 400 11 Tower Group, Inc. 12,800 398 Triad Guaranty, Inc. (AE) 3,800 209 United America Indemnity, Ltd. Class A (AE) 2,100 53 United PanAm Financial Corp. (AE)(N) 16,800 231 Unitrin, Inc. 5,100 256 Ventas, Inc. (o)(N) 7,175 304 Washington Real Estate Investment Trust (o)(N) 4,000 160 Washington Trust Bancorp, Inc. 900 25 Weingarten Realty Investors (o)(N) 1,200 55 Whitney Holding Corp. (N) 3,700 121 Williams Scotsman International, Inc. (AE)(N) 1,400 27 Wilmington Trust Corp. 5,700 240 Winston Hotels, Inc. (o)(N) 3,700 49 Zenith National Insurance Corp. 7,300 342 ------------ 36,853 ------------ Health Care - 10.6% Abraxis BioScience, Inc. (AE)(N) 7,300 200 Accelrys, Inc. (AE)(N) 19,200 115 Adams Respiratory Therapeutics, Inc. (AE) 7,042 287 Air Methods Corp. (AE)(N) 2,900 81 Albany Molecular Research, Inc. (AE) 10,800 114 Alliance Imaging, Inc. (AE)(N) 23,400 156 Allscripts Healthcare Solutions, Inc. (AE) 12,216 330 Amedisys, Inc. (AE)(N) 12,533 412
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- American Dental Partners, Inc. (AE) 1,200 23 American Medical Systems Holdings, Inc. (AE) 26,240 486 American Oriental Bioengineering, Inc. (AE) 12,000 140 AMERIGROUP Corp. (AE) 8,500 305 Applera Corp. - Celera Group (AE) 32,700 457 Arthrocare Corp. (AE) 8,054 322 Beckman Coulter, Inc. 1,800 108 Bentley Pharmaceuticals, Inc. (AE)(N) 2,200 22 Centene Corp. (AE)(N) 6,600 162 Cerner Corp. (AE)(N) 13,900 632 Charles River Laboratories International, Inc. (AE) 6,300 272 Community Health Systems, Inc. (AE)(N) 14,441 527 Cooper Cos., Inc. (The) (N) 15,200 676 Corvel Corp. (AE) 9,600 457 Covance, Inc. (AE) 3,500 206 Cutera, Inc. (AE)(N) 5,800 157 Cytyc Corp. (AE)(N) 6,600 187 DaVita, Inc. (AE) 19,921 1,133 Depomed, Inc. (AE)(N) 4,000 14 Discovery Laboratories, Inc. (AE)(N) 11,900 28 Enzon Pharmaceuticals, Inc. (AE) 9,600 82 Five Star Quality Care, Inc. (AE) 6,000 67 Foxhollow Technologies, Inc. (AE)(N) 3,900 84 Gentiva Health Services, Inc. (AE)(N) 6,600 126 Greatbatch, Inc. (AE)(N) 5,000 135 Haemonetics Corp. (AE) 4,596 207 Health Net, Inc. (AE) 2,700 131 Healthcare Services Group (N) 15,300 443 Healthspring, Inc. (AE) 31,600 643 HealthTronics, Inc. (AE)(N) 15,800 105 Healthways, Inc. (AE)(N) 8,926 426 Henry Schein, Inc. (AE) 13,082 641 Hologic, Inc. (AE) 14,718 696 ICU Medical, Inc. (AE) 3,100 126 Illumina, Inc. (AE)(N) 5,600 220 ImClone Systems, Inc. (AE) 7,400 198 Immucor, Inc. (AE) 6,400 187 Intralase Corp. (AE)(N) 12,700 284 Intuitive Surgical, Inc. (AE)(N) 2,000 192 Inverness Medical Innovations, Inc. (AE)(N) 8,000 310 King Pharmaceuticals, Inc. (AE) 29,200 465 LifePoint Hospitals, Inc. (AE) 15,300 516 Medcath Corp. (AE) 4,000 109
26 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Medicines Co. (AE) 4,525 144 Mentor Corp. 5,735 280 MGI Pharma, Inc. (AE)(N) 9,200 169 Molina Healthcare, Inc. (AE)(N) 5,000 163 Myriad Genetics, Inc. (AE)(N) 7,400 232 Nabi Biopharmaceuticals (AE) 3,800 26 Neurocrine Biosciences, Inc. (AE)(N) 5,000 52 Nighthawk Radiology Holdings, Inc. (AE)(N) 5,100 130 Noven Pharmaceuticals, Inc. (AE) 5,700 145 NuVasive, Inc. (AE)(N) 9,100 210 Palomar Medical Technologies, Inc. (AE)(N) 9,600 486 Patterson Cos., Inc. (AE) 10,572 375 Perrigo Co. 7,800 135 Pharmaceutical Product Development, Inc. 12,108 390 Pharmacopeia Drug Discovery, Inc. (AE)(N) 10,250 44 Pharmacyclics, Inc. (AE)(N) 1,600 8 PharmaNet Development Group, Inc. (AE) 3,700 82 Phase Forward, Inc. (AE) 13,200 198 PolyMedica Corp. 3,800 154 PSS World Medical, Inc. (AE) 9,070 177 Psychiatric Solutions, Inc. (AE) 12,086 453 Quality Systems, Inc. 6,958 259 Quidel Corp. (AE)(N) 8,000 109 Radiation Therapy Services, Inc. (AE)(N) 5,100 161 RehabCare Group, Inc. (AE) 9,700 144 ResMed, Inc. (AE) 2,800 138 Savient Pharmaceuticals, Inc. (AE) 11,200 126 Sciclone Pharmaceuticals, Inc. (AE)(N) 4,600 15 Sciele Pharma, Inc. (AE)(N) 2,470 59 Sierra Health Services, Inc. (AE) 5,800 209 Stericycle, Inc. (AE)(N) 5,600 423 STERIS Corp. 10,100 254 Sun Healthcare Group, Inc. Class W (AE) 2,000 25 Techne Corp. (AE) 7,130 395 United Therapeutics Corp. (AE) 1,900 103 Universal Health Services, Inc. Class B 7,300 405 Ventana Medical Systems, Inc. (AE)(N) 4,800 207 VistaCare, Inc. Class A (AE)(N) 16,200 164 Watson Pharmaceuticals, Inc. (AE) 8,500 221 WellCare Health Plans, Inc. (AE)(N) 14,600 1,006 West Pharmaceutical Services, Inc. 5,500 282 Wyeth 2,100 107 Zoll Medical Corp. (AE) 6,100 355 Zymogenetics, Inc. (AE)(N) 8,600 134 ------------ 23,756 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Materials and Processing - 10.0% Acuity Brands, Inc. (N) 6,400 333 Airgas, Inc. 14,310 580 AK Steel Holding Corp. (AE)(N) 5,000 84 Albemarle Corp. (N) 9,600 689 Andersons, Inc. (The) (N) 4,000 170 Apogee Enterprises, Inc. (N) 2,000 39 Arch Chemicals, Inc. 4,500 150 Barnes Group, Inc. (N) 1,000 22 Bluegreen Corp. (AE)(N) 3,300 42 Buckeye Technologies, Inc. (AE) 11,700 140 Building Materials Holding Corp. (N) 14,200 351 Cambrex Corp. (N) 11,400 259 Celanese Corp. Class A 21,800 564 Century Aluminum Co. (AE)(N) 7,600 339 Ceradyne, Inc. (AE)(N) 6,400 362 CF Industries Holdings, Inc. 10,900 279 Chaparral Steel Co. 4,100 181 Chesapeake Corp. (N) 3,100 53 Chicago Bridge & Iron Co. NV 11,345 310 China BAK Battery, Inc. (AE)(N) 3,000 20 Comfort Systems USA, Inc. 13,400 169 Commercial Metals Co. 15,300 395 Constar International, Inc. (AE)(N) 9,800 69 Crown Holdings, Inc. (AE) 6,100 128 Cytec Industries, Inc. (N) 6,900 390 Dycom Industries, Inc. (AE)(N) 10,900 230 Eastman Chemical Co. (N) 14,600 866 EMCOR Group, Inc. (AE) 9,900 563 Energy Conversion Devices, Inc. (AE) 6,473 220 Ennis, Inc. 4,300 105 FMC Corp. 5,300 406 Granite Construction, Inc. 4,000 201 Greif, Inc. Class A 1,200 142 Griffon Corp. (AE)(N) 9,700 247 Harsco Corp. 6,200 472 HB Fuller Co. 16,500 426 Hercules, Inc. (AE) 57,100 1,103 Huntsman Corp. (AE) 8,800 167 Infrasource Services, Inc. (AE) 8,200 179 Innospec, Inc. 6,100 284 Insituform Technologies, Inc. Class A (AE)(N) 10,800 279 Jacobs Engineering Group, Inc. (AE) 6,000 489 Kaydon Corp. 1,600 64 Louisiana-Pacific Corp. 15,800 340 Lubrizol Corp. 7,500 376
Aggressive Equity Fund 27 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mercer International, Inc. (AE)(N) 1,000 12 Metal Management, Inc. 9,400 356 Mueller Industries, Inc. 8,900 282 Mueller Water Products, Inc. Class A 5,013 75 Mueller Water Products, Inc. Class A (N) 26,519 395 Myers Industries, Inc. (N) 12,400 194 NCI Building Systems, Inc. (AE)(N) 4,000 207 Olin Corp. 14,500 240 Olympic Steel, Inc. (N) 2,500 56 OM Group, Inc. (AE) 8,100 367 Omrix Biopharmaceuticals, Inc. (AE) 3,900 118 Packaging Corp. of America 10,200 225 Perini Corp. (AE) 5,500 169 PolyOne Corp. (AE) 16,500 124 Quanex Corp. (N) 12,900 446 Quanta Services, Inc. (AE) 12,834 252 RBC Bearings, Inc. (AE) 1,600 46 Resource Capital Corp. (N) 2,500 42 Rock-Tenn Co. Class A 23,900 648 Rockwood Holdings, Inc. (AE) 6,800 172 Rogers Corp. (AE)(N) 11,700 692 RTI International Metals, Inc. (AE)(N) 4,000 313 Ryerson, Inc. (N) 1,000 25 SAIC, Inc. (AE) 14,500 258 Schnitzer Steel Industries, Inc. Class A (N) 3,900 155 Schulman A, Inc. 1,000 22 Sonoco Products Co. 10,700 407 Spartech Corp. 14,600 383 Standard Register Co. (The) 4,100 49 Superior Essex, Inc. (AE) 4,700 156 Temple-Inland, Inc. 5,700 262 Timken Co. 3,100 90 URS Corp. (AE) 13,800 591 USEC, Inc. 3,600 46 Valmont Industries, Inc. (N) 4,000 222 Washington Group International, Inc. (AE) 10,098 604 Westlake Chemical Corp. (N) 5,900 185 Xerium Technologies, Inc. (N) 16,900 165 ------------ 22,328 ------------ Miscellaneous - 1.5% Castlepoint Holdings, Ltd. (p) 30,900 340 Foster Wheeler, Ltd. (AE) 13,787 760 Hillenbrand Industries, Inc. 6,600 376 McDermott International, Inc. (AE) 17,839 907 Raven Industries, Inc. (N) 4,100 110 Teleflex, Inc. 2,400 155 Trinity Industries, Inc. (N) 6,700 236 Walter Industries, Inc. 16,049 434 ------------ 3,318 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Other Energy - 3.9% Allis-Chalmers Energy, Inc. (AE)(N) 2,500 58 Alon USA Energy, Inc. (N) 1,800 47 Basic Energy Services, Inc. (AE) 6,800 168 Cameron International Corp. (AE) 4,651 247 Cimarex Energy Co. (N) 7,900 288 Core Laboratories NV (AE) 8,932 723 Dresser-Rand Group, Inc. (AE)(N) 5,900 144 Dril-Quip, Inc. (AE) 9,697 380 ENSCO International, Inc. 5,400 270 Forest Oil Corp. (AE)(N) 5,600 183 Foundation Coal Holdings, Inc. (N) 7,100 225 Frontier Oil Corp. 7,600 218 GeoMet, Inc. (AE)(N) 925 10 Global Industries, Ltd. (AE) 22,870 298 Helmerich & Payne, Inc. 8,660 212 Hercules Offshore, Inc. (AE)(N) 14,200 410 Horizon Offshore, Inc. (AE) 15,200 248 Hornbeck Offshore Services, Inc. (AE)(N) 11,672 417 Input/Output, Inc. (AE)(N) 19,700 269 Lufkin Industries, Inc. 3,400 197 Meridian Resource Corp. (AE) 15,500 48 NATCO Group, Inc. Class A (AE) 5,700 182 National-Oilwell Varco, Inc. (AE) 4,928 301 Oceaneering International, Inc. (AE)(N) 2,000 79 Ormat Technologies, Inc. (N) 3,200 118 Parker Drilling Co. (AE) 8,800 72 Rosetta Resources, Inc. (AE)(N) 5,500 103 Superior Energy Services, Inc. (AE) 10,000 327 Tesoro Corp. 4,000 263 Tetra Technologies, Inc. (AE)(N) 25,942 664 Trico Marine Services, Inc. (AE)(N) 11,800 452 Union Drilling, Inc. (AE)(N) 2,900 41 Veritas DGC, Inc. (AE) 4,331 371 W-H Energy Services, Inc. Class H (AE)(N) 11,800 575 Western Refining, Inc. (N) 4,000 102 ------------ 8,710 ------------ Producer Durables - 8.6% Advanced Energy Industries, Inc. (AE) 9,300 175 AGCO Corp. (AE) 9,200 285 Agilent Technologies, Inc. (AE) 3,100 108 Ametek, Inc. 3,000 96 AO Smith Corp. 1,200 45
28 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Applied Industrial Technologies, Inc. (N) 10,900 287 Arris Group, Inc. (AE)(N) 37,800 473 ASML Holding NV Class G (AE) 18,640 459 Asyst Technologies, Inc. (AE) 2,000 15 Axcelis Technologies, Inc. (AE) 19,000 111 Baldor Electric Co. 6,300 211 BE Aerospace, Inc. (AE) 14,488 372 Beazer Homes USA, Inc. (N) 4,400 207 C&D Technologies, Inc. (N) 5,400 26 C-COR, Inc. (AE) 7,600 85 Champion Enterprises, Inc. (AE)(N) 32,600 305 Crane Co. 1,800 66 Credence Systems Corp. (AE) 49,600 258 Crown Castle International Corp. (AE)(N) 8,600 278 CTS Corp. 4,300 67 Cummins, Inc. 1,800 213 Desarrolladora Homex SAB de CV - ADR (AE)(N) 7,409 438 Diebold, Inc. 6,800 317 DXP Enterprises, Inc. (AE)(N) 6,000 210 EFJ, Inc. (AE)(N) 22,000 148 Entegris, Inc. (AE)(N) 26,931 291 ESCO Technologies, Inc. (AE)(N) 13,164 598 Flow International Corp. (AE)(N) 13,100 144 Flowserve Corp. (AE) 3,400 172 Gardner Denver, Inc. (AE)(N) 18,500 690 General Cable Corp. (AE) 1,500 66 Headwaters, Inc. (AE)(N) 6,400 153 Herman Miller, Inc. 12,800 465 Hubbell, Inc. Class B (N) 10,300 466 IDEX Corp. 7,300 346 Intevac, Inc. (AE) 15,400 400 Itron, Inc. (AE)(N) 3,520 182 K&F Industries Holdings, Inc. (AE) 4,600 104 Kadant, Inc. (AE) 2,300 56 Kennametal, Inc. 7,703 453 Kimball International, Inc. Class B 3,300 80 Knoll, Inc. 7,700 169 L-1 Identity Solutions, Inc. Class 1 (AE)(N) 13,600 206 Ladish Co., Inc. (AE)(N) 9,200 341 Lam Research Corp. (AE) 7,290 369 Lexmark International, Inc. Class A (AE) 3,600 263 Lincoln Electric Holdings, Inc. (N) 1,600 97 Mattson Technology, Inc. (AE) 17,500 163 Mettler Toledo International, Inc. (AE) 10,539 831 Milacron, Inc. (AE)(N) 31,245 25 Mine Safety Appliances Co. (N) 3,800 139 MKS Instruments, Inc. (AE) 7,500 169 MTS Systems Corp. 1,300 50 Novellus Systems, Inc. (AE) 4,500 155
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Pall Corp. (N) 10,300 356 Photronics, Inc. (AE)(N) 5,100 83 Polycom, Inc. (AE)(N) 26,200 810 Power-One, Inc. (AE)(N) 29,400 214 Regal-Beloit Corp. 5,000 263 Robbins & Myers, Inc. (N) 14,200 652 Rofin-Sinar Technologies, Inc. (AE) 3,600 218 SBA Communications Corp. Class A (AE)(N) 15,900 437 Semitool, Inc. (AE)(N) 3,800 51 Spectralink Corp. (AE)(N) 3,100 27 Steelcase, Inc. Class A (N) 19,500 354 Technical Olympic USA, Inc. (AE)(N) 21,600 220 Technitrol, Inc. 7,300 174 Tecumseh Products Co. Class A (AE)(N) 10,500 177 Teledyne Technologies, Inc. (AE)(N) 8,900 357 Tennant Co. 2,600 75 Teradyne, Inc. (AE) 3,900 58 Thomas & Betts Corp. (AE) 1,200 57 Ultratech, Inc. (AE)(N) 10,700 134 Varian Semiconductor Equipment Associates, Inc. (AE)(N) 30,906 1,407 Verigy, Ltd. (AE) 5,178 92 ------------ 19,114 ------------ Technology - 16.0% 3Com Corp. (AE)(N) 125,400 515 Acme Packet, Inc. (AE)(N) 12,800 264 Actel Corp. (AE) 7,100 129 Acxiom Corp. 500 13 Adaptec, Inc. (AE) 40,800 190 Adtran, Inc. (N) 9,700 220 Aeroflex, Inc. (AE) 17,300 203 Akamai Technologies, Inc. (AE)(N) 12,200 648 Alliance Semiconductor Corp. (AE)(N) 14,000 61 Amdocs, Ltd. (AE) 11,100 430 American Reprographics Co. (AE) 8,749 291 Amkor Technology, Inc. (AE) 12,400 116 Amphenol Corp. Class A 12,184 756 Anaren, Inc. (AE) 4,700 84 Anixter International, Inc. (AE)(N) 12,400 673 Ansys, Inc. (AE) 13,205 574 Applera Corp. - Applied Biosystems Group 10,500 385 Applied Micro Circuits Corp. (AE)(N) 93,100 331 Ariba, Inc. (AE)(N) 17,300 134 ARM Holdings PLC - ADR 4,100 30
Aggressive Equity Fund 29 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Arrow Electronics, Inc. (AE)(N) 10,000 316 Aspen Technology, Inc. (AE)(N) 13,200 145 Atmel Corp. (AE) 17,500 106 Avanex Corp. (AE)(N) 32,400 61 Avici Systems, Inc. (AE)(N) 1,000 8 Avnet, Inc. (AE) 6,000 153 Avocent Corp. (AE) 9,700 328 AVX Corp. 12,000 178 BearingPoint, Inc. (AE)(N) 12,200 96 Benchmark Electronics, Inc. (AE) 39,895 972 Blackbaud, Inc. 3,500 91 Brocade Communications Systems, Inc. (AE)(N) 81,200 667 Captaris, Inc. (AE) 8,400 65 Carrier Access Corp. (AE) 11,900 78 Cbeyond, Inc. (AE)(N) 9,800 300 ChipMOS TECHNOLOGIES Bermuda, Ltd. (AE)(N) 31,500 214 Ciena Corp. (AE)(N) 16,526 458 Citrix Systems, Inc. (AE)(N) 7,100 192 Cogent Communications Group, Inc. (AE) 3,600 58 Cognizant Technology Solutions Corp. Class A (AE) 6,600 509 Comtech Telecommunications Corp. (AE)(N) 7,950 303 Comverse Technology, Inc. (AE)(N) 5,200 110 CSG Systems International, Inc. (AE) 7,900 211 Cubic Corp. (N) 6,200 135 Cypress Semiconductor Corp. (AE) 3,500 59 Daktronics, Inc. (N) 8,500 313 DealerTrack Holdings, Inc. (AE) 8,600 253 Dendrite International, Inc. (AE) 4,800 51 Digital River, Inc. (AE)(N) 8,800 491 Eagle Test Systems, Inc. (AE)(N) 8,500 124 Echelon Corp. (AE)(N) 3,200 26 Electronics for Imaging, Inc. (AE) 8,000 213 Emulex Corp. (AE) 11,500 224 Epicor Software Corp. (AE)(N) 8,300 112 Equinix, Inc. (AE)(N) 14,123 1,068 Excel Technology, Inc. (AE) 1,700 44 Extreme Networks (AE) 8,600 36 Flir Systems, Inc. (AE)(N) 4,400 140 Foundry Networks, Inc. (AE) 27,200 407 Gartner, Inc. (AE)(N) 41,600 823 Gerber Scientific, Inc. (AE) 1,000 13 IHS, Inc. Class A (AE) 1,200 47 II-VI, Inc. (AE)(N) 7,900 221 Ikanos Communications, Inc. (AE)(N) 12,100 105 Ingram Micro, Inc. Class A (AE) 18,100 369 Integrated Device Technology, Inc. (AE)(N) 28,400 440 Integrated Silicon Solutions, Inc. (AE) 3,500 20 Internap Network Services Corp. (AE) 5,900 117
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Interwoven, Inc. (AE)(N) 53,700 788 IXYS Corp. (AE)(N) 17,900 159 JDS Uniphase Corp. (AE)(N) 15,062 251 Kemet Corp. (AE)(N) 15,300 112 Keynote Systems, Inc. (AE)(N) 12,300 130 Lattice Semiconductor Corp. (AE)(N) 15,400 100 Lawson Software, Inc. (AE)(N) 49,500 366 Leadis Technology, Inc. (AE)(N) 1,000 5 Lions Gate Entertainment Corp. (AE) 24,500 263 LoopNet, Inc. (AE)(N) 1,000 15 LSI Logic Corp. (AE)(N) 22,100 199 McAfee, Inc. (AE) 14,700 417 McData Corp. Class A (AE) 35,500 197 Mentor Graphics Corp. (AE)(N) 53,829 971 Mercury Computer Systems, Inc. (AE)(N) 3,400 45 Merge Technologies, Inc. (AE) 14,000 92 Methode Electronics, Inc. (N) 27,900 302 Micros Systems, Inc. (AE) 6,821 359 MicroStrategy, Inc. Class A (AE) 100 11 Ness Technologies, Inc. (AE) 3,800 54 Nextest Systems Corp. (AE) 10,237 115 Nuance Communications, Inc. (AE)(N) 40,800 468 Oplink Communications, Inc. (AE)(N) 6,000 123 Opsware, Inc. (AE)(N) 26,700 236 Orckit Communications, Ltd. (AE)(N) 10,100 98 Parametric Technology Corp. (AE) 23,688 427 Park Electrochemical Corp. 3,100 80 PerkinElmer, Inc. 8,200 182 Planar Systems, Inc. (AE)(N) 1,000 10 PMC - Sierra, Inc. (AE)(N) 44,000 295 PowerDsine, Ltd. (AE)(N) 10,900 120 QLogic Corp. (AE) 14,100 309 Quantum Corp. (AE)(N) 77,900 181 Rackable Systems, Inc. (AE)(N) 14,500 449 RADVision, Ltd. (AE) 2,400 48 RADWARE, Ltd. (AE) 4,600 73 RealNetworks, Inc. (AE)(N) 28,800 315 Riverbed Technology, Inc. (AE)(N) 4,100 126 Rockwell Automation, Inc. 3,639 222 Sanmina-SCI Corp. (AE) 43,800 151 Scansource, Inc. (AE)(N) 3,000 91 Seachange International, Inc. (AE)(N) 17,200 176 Seagate Technology (N) 10,897 289 Semtech Corp. (AE) 10,900 142 Sigma Designs, Inc. (AE)(N) 9,500 242 Sigmatel, Inc. (AE)(N) 18,100 79
30 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Silicon Image, Inc. (AE)(N) 5,000 64 Silicon Storage Technology, Inc. (AE)(N) 69,900 315 Skyworks Solutions, Inc. (AE)(N) 74,900 530 Solectron Corp. (AE) 62,500 201 SonicWALL, Inc. (AE) 16,300 137 Spansion, Inc. Class A (AE)(N) 8,000 119 Standard Microsystems Corp. (AE)(N) 4,700 132 Stratex Networks, Inc. (AE)(N) 11,300 55 SupportSoft, Inc. (AE) 7,600 42 Sybase, Inc. (AE) 5,100 126 Sycamore Networks, Inc. (AE) 36,800 138 SYNNEX Corp. (AE) 14,500 318 Syntax-Brillian Corp. (AE) 15,200 131 Tekelec (AE)(N) 29,800 442 Tessera Technologies, Inc. (AE) 19,433 784 TIBCO Software, Inc. (AE) 37,800 357 Transaction Systems Architects, Inc. (AE) 24,304 792 Triquint Semiconductor, Inc. (AE)(N) 36,200 163 Trizetto Group, Inc. (The) (AE)(N) 15,200 279 Tyler Technologies, Inc. (AE) 6,700 94 Ultimate Software Group, Inc. (AE) 20,100 468 Unisys Corp. (AE)(N) 85,600 671 Utstarcom, Inc. (AE)(N) 19,000 166 Varian, Inc. (AE) 3,600 161 VeriFone Holdings, Inc. (AE)(N) 15,700 556 Verint Systems, Inc. (AE) 3,300 113 Vignette Corp. (AE) 7,100 121 Vocus, Inc. (AE)(N) 22,400 376 Wavecom Sa - ADR (AE)(N) 7,200 105 webMethods, Inc. (AE) 26,700 197 Westell Technologies, Inc. Class A (AE)(N) 13,000 33 Witness Systems, Inc. (AE)(N) 7,100 124 Zoran Corp. (AE) 10,900 159 ------------ 35,869 ------------ Utilities - 4.6% AGL Resources, Inc. 16,100 626 Allete, Inc. (N) 3,100 144 Alliant Energy Corp. (N) 11,300 427 Aqua America, Inc. (N) 5,500 125 Atlantic Tele-Network, Inc. (N) 400 12 Centerpoint Energy, Inc. (N) 16,200 269 CenturyTel, Inc. 6,100 266 Citizens Communications Co. 900 13 CMS Energy Corp. (AE)(N) 33,600 561 CT Communications, Inc. 9,800 225 El Paso Electric Co. (AE) 11,800 288 Energen Corp. 10,500 493 First Solar, Inc. (AE) 609 18 Laclede Group, Inc. (The) (N) 2,200 77
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Leap Wireless International, Inc. Class W (AE)(N) 7,700 458 MDU Resources Group, Inc. 23,400 600 NeuStar, Inc. Class A (AE) 10,456 339 New Jersey Resources Corp. (N) 3,700 180 NII Holdings, Inc. (AE) 5,036 324 Northeast Utilities 8,900 251 Northwest Natural Gas Co. 1,100 47 OGE Energy Corp. 18,500 740 Pepco Holdings, Inc. 23,000 598 Pinnacle West Capital Corp. 11,300 573 PNM Resources, Inc. 5,100 159 Puget Energy, Inc. 9,900 251 RCN Corp. (AE) 4,700 142 Sierra Pacific Resources (AE) 22,300 375 Southern Union Co. (N) 9,700 271 Southwest Gas Corp. 1,900 73 Telephone & Data Systems, Inc. 400 22 UGI Corp. 30,400 829 Unisource Energy Corp. 1,800 66 VeraSun Energy Corp. (AE) 14,147 279 Westar Energy, Inc. 9,300 241 ------------ 10,362 ------------ TOTAL COMMON STOCKS (cost $192,804) 215,183 ------------ WARRANTS & RIGHTS - 0.0% Materials and Processing - 0.0% Affordable Residential Communities Rights (AE) 5,500 5 Auto and Transportation - 0.0% Quintana Maritime, Ltd. 5/11 Warrants (AE) 11,600 36 Financial Services - 0.0% Washington Mutual, Inc. 2050 Warrants (AE) 35,400 5 ------------ TOTAL WARRANTS & RIGHTS (cost $8) 46 ------------ SHORT-TERM INVESTMENTS - 4.1% Russell Investment Company Money Market Fund 8,205,000 8,205 United States Treasury Bills (z)(sec.) 4.968% due 03/15/07 1,000 987 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $9,195) 9,192 ------------
Aggressive Equity Fund 31 RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 30.4% State Street Securities Lending Quality Trust (X) 67,970,599 67,971 ------------ TOTAL OTHER SECURITIES (cost $67,971) 67,971 ------------ TOTAL INVESTMENTS - 130.7% (identified cost $269,978) 292,392 OTHER ASSETS AND LIABILITIES, NET - (30.7%) (68,746) ------------ NET ASSETS - 100.0% 223,646 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 2000 Mini Index (CME) expiration date 03/07 (113) 8,982 (67) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (67) ===============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. 32 Aggressive Equity Fund RUSSELL INVESTMENT FUNDS AGGRESSIVE EQUITY FUND PRESENTATION OF PORTFOLIO HOLDINGS, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 3.4 Consumer Discretionary 18.8 Consumer Staples 2.3 Financial Services 16.5 Health Care 10.6 Materials and Processing 10.0 Miscellaneous 1.5 Other Energy 3.9 Producer Durables 8.6 Technology 16.0 Utilities 4.6 Warrants & Rights --* Short-Term Investments 4.1 Other Securities 30.4 --------------- Total Investments 130.7 Other Assets and Liabilities, Net (30.7) --------------- 100.0 =============== Futures Contracts (--)*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Aggressive Equity Fund 33 RUSSELL INVESTMENT FUNDS NON-U.S. FUND PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
NON-U.S. FUND MSCI EAFE INDEX (NET)** ------------- ----------------------- Inception* 10000 10000 1997 10030 10178 1998 11330 12213 1999 15109 15506 2000 12928 13309 2001 10080 10455 2002 8553 8789 2003 11871 12180 2004 14043 14646 2005 15966 16629 2006 19740 21009
Non-U.S. Fund - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 23.64% 5 Years 14.39%sec. Inception* 7.04%sec.
MSCI EAFE() Index (Net)** - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 26.34% 5 Years 14.98%sec. Inception* 7.71%sec.
34 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The Non-U.S. Fund (the "Fund") allocates most of its assets among multiple money managers. Russell Investment Management Company ("RIMCo"), as the Fund's manager, may change the allocation of the Fund's assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits the Fund to engage or terminate a money manager at any time, subject to approval by the Fund's Board of Trustees (the "Board") without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006? For the fiscal year ended December 31, 2006, the Non-U.S. Fund gained 23.64%. This compared to its benchmark the MSCI EAFE(R) Index (net), which gained 26.34%. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended December 31, 2006, the Lipper(R) International Core Funds Average returned 22.45%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? In 2006, value stocks and small capitalization stocks again outperformed growth stocks and large/medium capitalization stocks respectively. The Fund's strategy of attempting to moderate the influence of style and capitalization on performance helped mitigate the impact of these trends on Fund results. However, regional positioning and sector positioning detracted from relative performance over the course of 2006. From a regional perspective, a challenging stock selection environment in Japan resulted in poor returns from the Fund's Japanese stock holdings. Attractive valuations and some signs of nascent momentum in the Japanese market at the end of 2005 failed to translate to strong market gains for Japanese stocks in 2006. The Fund was positioned for an improvement in the Japanese economy which did not occur despite continued evidence of incremental improvement in the investment environment in Japan. The Fund's overweight to value stocks contributed to relative underperformance. The Fund had a slight tilt towards growth as even the Fund's value money managers found compelling relative values in stocks with higher forecasts for earnings growth. For all of 2006, the Fund had a small valuation premium to the market with above-market forecasted growth rates. The Fund was also underweight to stocks offering the highest dividend yields relative to the benchmark. High dividend yielding stocks were rewarded in 2006. Finally, variable trends over the course of the year also proved challenging with the market anticipating a slowing of economic growth and a normalization of market risk premium. The shift in market trends, from cyclical and higher risk sector leadership to defensive leadership in the period from May to mid-July and then back again, proved difficult for most active managers as is evidenced by the underperformance of the average fund in the Lipper peer group to the benchmark. While the Fund had some exposure to both sectors, it was underweight relative to the Index in stocks with high dividend yields. While the Fund still managed to produce better than average results with respect to its peer group, this detracted meaningfully from benchmark-relative performance. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The market conditions discussed above had a negative impact on results relative to the benchmark. Given the strong performance of value stocks relative to growth stocks, exposure to value stocks was critical to success in 2006. However, not all approaches to value investing were rewarded. The focus of the Fund's value money manager on "normalized earnings power" (the long-term expectation for a company's earnings) resulted in underexposure to some of the trends most rewarded by the market. In particular, this resulted in an underweight to key sectors, such as metals and mining stocks, where share prices reflected the market's belief in the sustainability of peak (well above normal) earnings. This detracted materially from performance. At the country level, the Fund's underweight position to the U.K. proved favorable given that market's lagging performance over the course of the year. In addition, the Fund's money managers were effective in selecting stocks that performed well relative to the market. In contrast, the Fund's slight underweight to Japan contributed positively to performance, but ineffective stock selection resulted in the biggest negative impact to performance from a country/region perspective. Although not part of the Fund's benchmark, emerging markets provided an important source of opportunity for international investors in 2006. The impact of the Fund's exposure to emerging markets on Fund performance was slightly negative. The Fund's sector positioning in these markets favored technology shares which underperformed. The Fund was underweighted in industrial commodities stocks which were among the market's strongest performers. At the money manager-level, the Fund's value manager, The Boston Company Asset Management, LLC, had the most Non-U.S. Fund 35 RUSSELL INVESTMENT FUNDS NON-U.S. FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- disappointing year. As previously mentioned, Boston Company's emphasis on normalized earnings led it to underweight many of the more cyclical earnings companies that outperformed through much of the year. Its performance was also hurt by an overweight to Japan, and specifically, domestically-oriented Japanese stocks. Wellington Management Company, LLP, the Fund's aggressive growth money manager, performed well relative to the MSCI EAFE Growth Index, but lagged the MSCI EAFE Index. The market environment was challenging to Wellington's style through much of the year, though Wellington outperformed the MSCI EAFE Index in both the third and fourth quarters. The holdings of the Fund's other two money managers, Fidelity Management & Research Company and AQR Capital Management, LLC, reflected some of the more pronounced style influences of their strategies. Fidelity's performance lagged through much of the year. Its growth orientation and slight overweight of the Japanese market were the dominant influences on its underperformance. AQR outperformed the benchmark for the year with its valuation emphasis more than offsetting less effective country and currency decisions. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In November, Fidelity Management & Research Company was replaced with MFS Institutional Advisors, Inc., another moderate growth money manager. Money Managers as of Styles December 31, 2006 AQR Capital Management, LLC Market-Oriented MFS Institutional Advisors, Inc. Growth The Boston Company Asset Management, LLC Value Wellington Management Company, LLP Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any RIF Fund. -------------------- * The Fund commenced operations on January 2, 1997. Index comparison began December 31, 1996. ** Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index (net of tax on dividends from foreign holdings) is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. sec. Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. Investments in securities of non-US issuers and foreign currencies involve investment risks different from those of US issuers. The Prospectus contains further information and details regarding these risks. 36 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SHAREHOLDER EXPENSE EXAMPLE -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2006 to December 31, 2006. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN PERFORMANCE BEFORE EXPENSES) -------------- ---------------- Beginning Account Value July 1, 2006 $ 1,000.00 $ 1,000.00 Ending Account Value December 31, 2006 $ 1,137.30 $ 1,019.46 Expenses Paid During Period* $ 6.14 $ 5.80
* Expenses are equal to the Fund's annualized expense ratio of 1.14% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Non-U.S. Fund 37 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 91.5% Australia - 2.7% AGL Energy, Ltd. (AE)(N) 3,882 50 Alinta, Ltd. (N) 1,301 12 Amcor, Ltd. 114,552 656 AMP, Ltd. 12,222 97 Ansell, Ltd. 4,319 38 Aristocrat Leisure, Ltd. (N) 29,547 371 Australia & New Zealand Banking Group, Ltd. 16,945 377 Australian Wealth Management, Ltd. 6,927 14 AXA Asia Pacific Holdings, Ltd. 13,300 77 BHP Billiton, Ltd. (N) 25,251 504 BlueScope Steel, Ltd. (N) 12,941 88 Brambles, Ltd. (AE) 36,934 374 Caltex Australia, Ltd. 2,881 52 Centro Properties Group (N) 7,593 55 Coca-Cola Amatil, Ltd. 63,309 388 Coles Group, Ltd. 17,205 190 Commonwealth Bank of Australia (N) 9,434 368 CSL, Ltd. 1,084 56 CSR, Ltd. 15,040 45 David Jones, Ltd. (N) 15,500 51 DB RREEF Trust (N) 11,747 16 Downer EDI, Ltd. 6,242 34 Foster's Group, Ltd. 18,830 103 Goodman Fielder, Ltd. New 15,862 28 GPT Group 13,500 60 Harvey Norman Holdings, Ltd. 11,443 34 Insurance Australia Group, Ltd. (N) 82,972 416 Investa Property Group (N) 6,524 13 Leighton Holdings, Ltd. 2,984 48 Lend Lease Corp., Ltd. 2,300 33 Macquarie Bank, Ltd. (N) 563 35 Macquarie Goodman Group (N) 12,431 75 Macquarie Infrastructure Group 11,174 30 Minara Resources, Ltd. (N) 2,735 13 Mirvac Group (N) 6,629 29 National Australia Bank, Ltd. 37,223 1,187 Newcrest Mining, Ltd. 1,987 41 OneSteel, Ltd. 24,106 89 Oxiana, Ltd. 5,088 13 Pacific Brands, Ltd. 40,307 83 Qantas Airways, Ltd. 25,912 107 QBE Insurance Group, Ltd. 48,748 1,110 Rinker Group, Ltd. 4,842 69 Rio Tinto, Ltd. (N) 906 53 Sims Group, Ltd. (N) 5,163 82 Smorgon Steel Group, Ltd. 14,342 21 Sons of Gwalia, Ltd. (AE)(N)(B) 8,400 -- Stockland (N) 8,200 54 Suncorp-Metway, Ltd. (N) 7,620 122 TABCORP Holdings, Ltd. 49,545 659 Telstra Corp., Ltd. (N) 153,900 503 Telstra Corp., Ltd. (AE) 6,606 14
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Toll Holdings, Ltd. (N) 26,106 376 Westfield Group 10,543 175 Westpac Banking Corp. (N) 14,100 270 Woodside Petroleum, Ltd. 166 5 Woolworths, Ltd. 8,100 153 Zinifex, Ltd. 8,158 121 ------------ 10,137 ------------ Austria - 0.6% Erste Bank der Oesterreichischen Sparkassen AG 28,154 2,159 ------------ Belgium - 0.8% Belgacom SA (N) 13,548 597 Delhaize Group 3,325 277 Dexia 2,543 70 Fortis 24,558 1,047 KBC Groep NV (N) 5,134 630 UCB SA 5,192 356 ------------ 2,977 ------------ Bermuda - 0.7% CNPC Hong Kong, Ltd. 90,000 50 Cofco International, Ltd. 38,000 38 Esprit Holdings, Ltd. 64,500 720 Great Eagle Holdings, Ltd. 13,000 38 Guoco Group, Ltd. 3,000 37 Jardine Matheson Holdings, Ltd. 2,000 43 Li & Fung, Ltd. 354,000 1,101 Orient Overseas International, Ltd. 9,800 62 People's Food Holdings, Ltd. 21,000 17 Vostok Nafta Investment, Ltd. (AE) 4,575 318 ------------ 2,424 ------------ Brazil - 0.3% Cia Vale do Rio Doce - ADR 25,900 770 Petroleo Brasileiro SA - ADR 4,320 445 ------------ 1,215 ------------ Canada - 1.5% Cameco Corp. 10,000 404 Canadian National Railway Co. 19,120 823 Potash Corp. of Saskatchewan 4,600 660 Research In Motion, Ltd. (AE) 17,100 2,185
38 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Rogers Communications, Inc. Class B (N) 30,600 911 SNC-Lavalin Group, Inc. 25,300 683 ------------ 5,666 ------------ Cayman Islands - 0.2% Baidu.com - ADR New (AE)(N) 2,200 248 Foxconn International Holdings, Ltd. (AE) 8,000 26 Hutchison Telecommunications International, Ltd. (AE) 204,000 514 ------------ 788 ------------ Denmark - 0.3% Carlsberg A/S Class B 2,050 203 FLSmidth & Co. A/S 4,700 299 Genmab A/S (AE) 2,150 145 Novo-Nordisk A/S Series B 2,650 221 Vestas Wind Systems A/S (AE) 8,200 346 ------------ 1,214 ------------ Finland - 0.9% Cargotec Corp. Class B (N) 1,660 92 M-real OYJ Class B 37,270 236 Nokia OYJ 48,203 985 Nokia OYJ - ADR 43,538 885 Oriola-KD OYJ (AE)(N) 3,400 14 Orion OYJ Class B (AE)(N) 10,261 223 Outokumpu OYJ 1,184 46 Rautaruukki OYJ 9,609 382 UPM-Kymmene OYJ 18,899 477 ------------ 3,340 ------------ France - 13.1% Air France-KLM 10,378 437 Air Liquide SA (N) 15,617 3,709 Alstom RGPT (AE)(N) 8,084 1,096 AXA SA (N) 74,908 3,033 BNP Paribas (N) 15,674 1,710 Capital Gemini SA 3,423 215 Carrefour SA (N) 13,840 839 Casino Guichard Perrachon SA 2,400 223 Christian Dior SA 2,375 253 Cie Generale d'Optique Essilor International SA (N) 3,174 341 CNP Assurances 1,367 153 Credit Agricole SA 88,313 3,714 Eiffage SA (N) 3,308 315 France Telecom SA (N) 43,560 1,205 Gaz de France SA New (N) 20,489 943 Iliad SA (N) 6,406 556 L'Oreal SA 5,511 552 Lafarge SA (N) 452 67
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Lagardere SCA (N) 6,520 525 Legrand SA New 32,229 944 LVMH Moet Hennessy Louis Vuitton SA 25,372 2,678 Natixis 8,970 252 Nexans SA 2,825 362 NicOx SA (AE) 5,996 181 Pernod-Ricard SA (N) 8,412 1,932 Peugeot SA (N) 6,050 401 Rhodia SA (AE) 29,238 102 Safran SA 111 3 Sanofi-Aventis (N) 41,240 3,808 Schneider Electric SA (N) 27,270 3,027 Societe BIC SA 1,645 114 Societe Generale (N) 5,302 900 Sodexho Alliance SA (N) 4,748 298 Suez SA (AE)(N) 6,233 323 Suez SA (AE) 1,228 -- Thomson (AE)(N) 30,740 601 Total SA - ADR 10,632 765 Total SA (N) 59,832 4,316 Unibail (N) 5,130 1,253 Valeo SA (N) 14,196 591 Vallourec SA 7,649 2,224 Veolia Environnement (N) 27,020 2,083 Vivendi Universal SA 35,439 1,385 ------------ 48,429 ------------ Germany - 6.4% Allianz SE 8,260 1,687 BASF AG 1,196 117 Bayer AG 40,016 2,148 Bayerische Motoren Werke AG 13,790 792 Continental AG 4,824 561 DaimlerChrysler AG 6,542 404 Deutsche Bank AG 3,814 510 Deutsche Boerse AG 8,984 1,653 Deutsche Post AG 40,210 1,212 Deutsche Telekom AG 59,659 1,090 E.ON AG 31,354 4,256 GEA Group AG 3,226 73 Hannover Rueckversicherung AG 15,980 740 Hochtief AG 5,114 373 Infineon Technologies AG (AE) 59,279 836 KarstadtQuelle AG (AE)(N) 7,903 229 Lanxess AG (AE) 7,131 400 MAN AG 1,688 152 Medion AG (N) 5,900 63
Non-U.S. Fund 39 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Metro AG 10,830 691 MTU Aero Engines Holding AG 3,277 153 Praktiker Bau- und Heimwerkermaerkte AG New 2,090 75 RWE AG 2,804 309 Salzgitter AG 12,044 1,575 Siemens AG 14,989 1,487 Suedzucker AG (N) 10,135 245 Symrise AG New (AE) 12,275 316 ThyssenKrupp AG 897 42 Volkswagen AG (N) 4,987 565 Wacker Chemie AG New (AE) 5,128 667 Wincor Nixdorf AG 1,900 296 ------------ 23,717 ------------ Greece - 0.2% Public Power Corp. 30,930 784 ------------ Hong Kong - 1.1% Bank of East Asia, Ltd. 20,800 118 BOC Hong Kong Holdings, Ltd. (N) 206,000 559 Cheung Kong Holdings, Ltd. 4,000 49 China Netcom Group Corp. Hong Kong, Ltd. 14,500 39 China Resources Power Holdings Co. 22,000 34 Citic Pacific, Ltd. (N) 72,800 251 CNOOC, Ltd. 745,000 708 Guangdong Investment, Ltd. 66,000 30 Guangzhou Investment Co., Ltd. 274,000 77 Hang Lung Group, Ltd. 27,000 82 Henderson Land Development Co., Ltd. 13,000 73 Hong Kong Exchanges and Clearing, Ltd. 6,500 71 HongKong Electric Holdings 24,500 120 Hopewell Holdings 12,000 42 Hutchison Whampoa, Ltd. 60,700 617 Link REIT (The) New (o) 9,000 19 New World Development, Ltd. 25,000 50 Shenzhen Investment, Ltd. 56,000 23 Shun Tak Holdings, Ltd. (N) 648,000 991 Sun Hung Kai Properties, Ltd. 2,000 23 Swire Pacific, Ltd. 7,500 81 Wheelock & Co., Ltd. 16,000 30 ------------ 4,087 ------------ Indonesia - 0.2% Bank Central Asia Tbk PT 1,081,000 625 Telekomunikasi Indonesia Tbk PT - ADR 1,750 80 ------------ 705 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ireland - 0.6% Bank of Ireland 2,600 60 Bank of Ireland PLC 13,628 315 Elan Corp. PLC - ADR (AE)(N) 48,100 709 Ryanair Holdings PLC - ADR (AE)(N) 13,605 1,109 ------------ 2,193 ------------ Israel - 0.1% Teva Pharmaceutical Industries, Ltd. - ADR 17,270 537 ------------ Italy - 3.1% Assicurazioni Generali SpA 26,097 1,146 Banca Intesa SpA 127,612 985 Benetton Group SpA 5,900 113 Capitalia SpA 37,730 357 Enel SpA (N) 37,950 391 ENI SpA 56,628 1,905 ERG SpA (N) 8,129 187 Esprinet SpA 5,834 110 Fondiaria-Sai SpA (N) 9,454 452 Italcementi SpA (N) 15,628 441 Mediaset SpA 76,070 903 Milano Assicurazioni SpA (N) 51,100 417 Parmalat Finanziaria SpA (N)(B) 12,500 -- SanPaolo IMI SpA 7,413 172 Saras SpA New (AE)(N) 90,570 484 Telecom Italia SpA 39,617 101 Toro Assicurazioni SpA 3,125 87 UniCredito Italiano SpA (N) 301,650 2,644 Unipol SpA (N) 162,080 584 ------------ 11,479 ------------ Japan - 19.5% 77 Bank, Ltd. (The) (N) 69,300 440 Aderans Co., Ltd. 900 22 Aeon Co., Ltd. 44,400 961 Aeon Credit Service Co., Ltd. 32,700 620 Aiful Corp. (N) 11,394 321 Alfresa Holdings Corp. (N) 400 24 Amada Co., Ltd. 10,000 106 Asahi Breweries, Ltd. (N) 11,400 182 Asahi Glass Co., Ltd. (N) 111,000 1,334 Asahi Kasei Corp. (N) 26,000 170
40 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Astellas Pharma, Inc. 15,900 723 Bank of Nagoya, Ltd. (The) 7,000 43 Bank of Yokohama, Ltd. (The) 5,000 39 Bridgestone Corp. (N) 55,300 1,234 Brother Industries, Ltd. (N) 10,000 135 Calsonic Kansei Corp. 14,000 82 Canon Marketing Japan, Inc. (N) 2,800 64 Canon, Inc. (N) 55,503 3,125 Chiba Bank, Ltd. (The) 8,000 68 Dai Nippon Printing Co., Ltd. (N) 7,000 108 Daiichi Sankyo Co., Ltd. 17,300 541 Daiwa House Industry Co., Ltd. 4,000 70 Daiwa Securities Group, Inc. 23,000 258 Denki Kagaku Kogyo Kabushiki Kaisha 14,000 58 Denso Corp. 3,800 151 Dentsu, Inc. (N) 343 1,006 East Japan Railway Co. 23 154 Eisai Co., Ltd. (N) 21,200 1,165 Elpida Memory, Inc. (AE)(N) 19,900 1,094 Fanuc, Ltd. 12,400 1,221 Fuji Electric Holdings Co., Ltd. 8,000 43 Fuji Fire & Marine Insurance Co., Ltd. (The) 15,000 56 Fuji Heavy Industries, Ltd. (N) 21,000 108 FUJIFILM Holdings Corp. (N) 23,200 953 Fujikura, Ltd. 4,000 35 Fujitsu, Ltd. (N) 33,000 259 Funai Electric Co., Ltd. (N) 5,700 461 Hino Motors, Ltd. (N) 133,900 689 Hitachi, Ltd. 1,000 6 Honda Motor Co., Ltd. (N) 11,700 462 Hyakugo Bank, Ltd. (The) 2,000 13 Hyakujushi Bank, Ltd. (The) 3,000 18 Inpex Holdings, Inc. 2 16 Itochu Corp. 29,000 238 Izumi Co., Ltd. (N) 2,200 78 Japan Tobacco, Inc. 354 1,710 JFE Holdings, Inc. (N) 27,500 1,417 JGC Corp. 3,000 52 JS Group Corp. 28,400 598 Kagoshima Bank, Ltd. (The) 3,000 22 Kansai Electric Power Co., Inc. (The) 11,100 299 Kao Corp. 108,100 2,916 Kawasaki Kisen Kaisha, Ltd. (N) 18,000 141 KDDI Corp. 5 34 Keio Corp. 9,000 58 Keiyo Bank, Ltd. (The) 5,000 28 Kobe Steel, Ltd. 41,000 141 Komatsu, Ltd. 25,400 515 Komori Corp. 3,000 56 Konica Minolta Holdings, Inc. (N) 2,500 35 Kubota Corp. 22,000 204 Kuraray Co., Ltd. 31,200 368
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Kyocera Corp. 2,500 236 Lawson, Inc. 12,500 447 Leopalace21 Corp. 700 22 Lintec Corp. 500 10 Mabuchi Motor Co., Ltd. (N) 3,500 208 Makita Corp. 4,600 141 Matsumotokiyoshi Co., Ltd. (N) 16,800 373 Matsushita Electric Industrial Co., Ltd. 17,000 339 Matsushita Electric Works, Ltd. 14,000 162 Mazda Motor Corp. 31,000 212 Meiji Dairies Corp. 5,000 39 Millea Holdings, Inc. 6,100 215 Mitsubishi Chemical Holdings Corp. 27,500 173 Mitsubishi Corp. 45,800 862 Mitsubishi Electric Corp. 28,000 256 Mitsubishi Estate Co., Ltd. 10,000 259 Mitsubishi Heavy Industries, Ltd. 12,000 55 Mitsubishi UFJ Financial Group, Inc. 188 2,322 Mitsui & Co., Ltd. 13,000 194 Mitsui Chemicals, Inc. 4,000 31 Mitsui Engineering & Shipbuilding Co., Ltd. (N) 11,000 36 Mitsui Fudosan Co., Ltd. 8,000 195 Mitsui OSK Lines, Ltd. 16,000 158 Mitsui Sumitomo Insurance Co., Ltd. 7,000 77 Mitsui Trust Holdings, Inc. 38,900 447 Mizuho Financial Group, Inc. 65 464 Mochida Pharmaceutical Co., Ltd. 2,000 17 Mori Seiki Co., Ltd. (N) 3,300 74 Nabtesco Corp. 2,000 25 Nichirei Corp. 35,000 196 Nihon Unisys, Ltd. 3,000 49 Nikon Corp. (N) 3,000 66 Nintendo Co., Ltd. (N) 10,900 2,830 Nippon Express Co., Ltd. (N) 234,400 1,282 Nippon Oil Corp. 17,000 114 Nippon Paint Co., Ltd. 6,000 31 Nippon Paper Group, Inc. 143 540 Nippon Steel Corp. (N) 66,000 379 Nippon Telegraph & Telephone Corp. 82 404 Nippon Yusen KK 32,000 234 Nissan Motor Co., Ltd. (N) 87,600 1,055 Nisshin Seifun Group, Inc. 8,000 83 Nitto Denko Corp. 10,200 511 NOK Corp. (N) 6,500 128 Nomura Holdings, Inc. (N) 137,800 2,600 Nomura Research Institute, Ltd. 400 58
Non-U.S. Fund 41 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- NTN Corp. (N) 7,000 63 NTT Data Corp. 8 40 NTT DoCoMo, Inc. (N) 88 139 Okasan Holdings, Inc. 1,000 6 Omron Corp. 33,000 937 ORIX Corp. (N) 3,210 929 Pacific Metals Co., Ltd. 3,000 29 Rakuten, Inc. (N) 1,887 880 Resona Holdings, Inc. (N) 52 142 Ricoh Co., Ltd. 131,000 2,675 Rinnai Corp. (N) 3,800 114 Rohm Co., Ltd. (N) 13,100 1,304 Sankyo Co., Ltd. (N) 2,100 116 Sapporo Hokuyo Holdings, Inc. 13 126 Secom Co., Ltd. 200 10 Seino Holdings Corp. 5,000 47 Sekisui Chemical Co., Ltd. 76,300 608 Sekisui House, Ltd. (N) 58,900 858 Seven & I Holdings Co., Ltd. 800 25 SFCG Co., Ltd. 1,475 229 Sharp Corp. (N) 26,000 448 Shiga Bank, Ltd. (The) 3,000 19 Shimano, Inc. (N) 1,400 41 Shin-Etsu Chemical Co., Ltd. 2,600 174 Shinsei Bank, Ltd. 303,500 1,785 Showa Shell Sekiyu KK 800 9 Sohgo Security Services Co., Ltd. 5,000 101 Sompo Japan Insurance, Inc. 13,000 159 Sony Corp. (N) 5,300 227 Sumitomo Chemical Co., Ltd. 19,000 147 Sumitomo Corp. 3,500 52 Sumitomo Heavy Industries, Ltd. 6,000 63 Sumitomo Metal Industries, Ltd. 49,000 213 Sumitomo Mitsui Financial Group, Inc. (N) 206 2,112 Sumitomo Realty & Development Co., Ltd. (N) 35,000 1,123 Sumitomo Trust & Banking Co., Ltd. (The) 23,000 241 Suzuken Co., Ltd. 1,800 68 Suzuki Motor Corp. 35,000 988 Taiyo Nippon Sanso Corp. 4,000 36 Takeda Pharmaceutical Co., Ltd. 7,600 522 Takefuji Corp. (N) 16,780 664 TDK Corp. (N) 6,600 525 Tobu Railway Co., Ltd. 17,000 82 Tokai Rubber Industries, Inc. 2,600 44 Tokyo Electric Power Co., Inc. (The) 14,400 466 Tokyo Electron, Ltd. (N) 1,100 87 Tokyo Gas Co., Ltd. 139,000 739 Tokyo Style Co., Ltd. 1,000 11 Tokyu Corp. (N) 19,000 122 Tokyu Land Corp. 1,000 9 Toppan Printing Co., Ltd. 1,000 11
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Toshiba Corp. 23,000 150 Toyo Seikan Kaisha, Ltd. 1,000 17 Toyobo Co., Ltd. (N) 32,000 97 Toyoda Gosei Co., Ltd. 10,000 231 Toyota Motor Corp. 70,900 4,742 West Japan Railway Co. 21 90 Yamaha Corp. 1,800 38 Yamato Kogyo Co., Ltd. 600 15 ------------ 72,102 ------------ Mexico - 0.8% America Movil SA de CV Series L 32,700 1,479 Coca-Cola Femsa SA de CV - ADR 10,790 410 Fomento Economico Mexicano SA de CV - ADR (N) 6,600 764 Telefonos de Mexico SA de CV Series L 11,330 320 ------------ 2,973 ------------ Netherlands - 2.6% ABN AMRO Holding NV 27,453 882 Aegon NV 33,874 646 ASML Holding NV (AE) 40,570 1,009 CSM 2,991 115 Euronext NV 900 106 Hagemeyer NV (AE) 50,903 258 Heineken Holding NV 2,816 114 Hunter Douglas NV 1,774 143 ING Groep NV 20,571 912 Koninklijke Ahold NV (AE) 26,305 280 Koninklijke Philips Electronics NV 69,394 2,616 Mittal Steel Co. NV 2,208 93 Rodamco Europe NV 989 132 Royal KPN NV 17,750 252 Royal Numico NV 20,380 1,096 TNT NV 7,780 335 Unilever NV 16,645 455 Univar NV 1,082 61 ------------ 9,505 ------------ Norway - 0.1% Telenor ASA 26,500 498 ------------ Russia - 0.2% OAO Gazprom - ADR 15,750 725 ------------
42 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Singapore - 1.1% CapitaLand, Ltd. (N) 12,000 49 DBS Group Holdings, Ltd. 72,710 1,071 Fraser and Neave, Ltd. 31,000 91 Jardine Cycle & Carriage, Ltd. 8,000 77 Keppel Corp., Ltd. 3,000 34 NatSteel, Ltd. 10,000 10 Pacific Century Regional Developments, Ltd. (AE) 102,000 23 SembCorp Industries, Ltd. 15,880 40 Singapore Airlines, Ltd. 8,000 91 Singapore Petroleum Co., Ltd. 12,000 34 Singapore Telecommunications, Ltd. 639,000 1,367 United Overseas Bank, Ltd. 77,200 977 United Overseas Land, Ltd. 21,000 59 Want Want Holdings, Ltd. 7,000 11 Wing Tai Holdings, Ltd. 12,000 18 ------------ 3,952 ------------ South Africa - 0.1% Nedbank Group, Ltd. 25,400 484 ------------ South Korea - 1.3% Korea Electric Power Corp. - ADR 17,460 397 KT Corp. - ADR (N) 12,820 325 Samsung Electronics Co., Ltd. 5,330 3,513 SK Telecom Co., Ltd. - ADR (N) 14,760 391 ------------ 4,626 ------------ Spain - 1.7% Abengoa SA 8,044 295 Banco Bilbao Vizcaya Argentaria SA (N) 65,669 1,581 Banco Santander Central Hispano SA 68,685 1,282 Corporacion Mapfre SA (N) 105,165 475 Endesa SA (N) 4,796 227 Gestevision Telecinco SA (N) 17,914 510 Iberia Lineas Aereas de Espana 61,406 224 Obrascon Huarte Lain SA 700 22 Repsol YPF SA (N) 18,165 628 Repsol YPF SA - ADR (N) 6,779 234 Telefonica SA 31,817 677 Union Fenosa SA (N) 3,837 190 ------------ 6,345 ------------ Sweden - 1.3% D Carnegie & Co. AB 3,800 82 Electrolux AB 4,100 82 JM AB 9,800 238 Kungsleden AB 5,300 81 Lindex AB (N) 15,000 192 Scania AB Class B (AE) 600 42
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Skandinaviska Enskilda Banken AB Class A 7,000 223 SKF AB Class B 18,400 340 Ssab Svenskt Staal AB Series A 17,100 406 Ssab Svenskt Staal AB Series B 3,400 77 Svenska Cellulosa AB Series B 9,180 479 Svenska Handelsbanken AB Series A 6,700 203 Swedish Match AB 56,600 1,058 Telefonaktiebolaget LM Ericsson Series B 245,180 990 TeliaSonera AB 29,500 242 Volvo AB Class B 2,200 152 ------------ 4,887 ------------ Switzerland - 9.2% ABB, Ltd. 71,335 1,279 Actelion, Ltd. (AE) 3,228 710 Ciba Specialty Chemicals AG 16,598 1,104 Clariant AG 27,150 407 Credit Suisse Group 21,564 1,509 Geberit AG 186 287 Georg Fischer AG 202 131 Givaudan SA 460 426 Julius Baer Holding AG 15,557 1,713 Kudelski SA 2,852 107 Logitech International SA (AE) 70,322 2,029 Nestle SA 18,962 6,738 Nobel Biocare Holding AG 3,300 976 Novartis AG 27,090 1,562 Phonak Holding AG 2,182 174 Roche Holding AG 27,449 4,922 Sulzer AG 218 248 Swatch Group AG 17,531 784 Swiss Reinsurance 34,350 2,920 Swisscom AG 1,235 467 Syngenta AG (AE) 1,962 365 UBS AG 84,212 5,118 Zurich Financial Services AG 611 164 ------------ 34,140 ------------ Taiwan - 0.5% HON HAI Precision Industry Co., Ltd. 184,400 1,316 United Microelectronics Corp. - ADR (N) 142,914 499 ------------ 1,815 ------------
Non-U.S. Fund 43 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Thailand - 0.2% Bangkok Bank PCL 168,900 548 ------------ United Kingdom - 19.9% 3i Group PLC 969 19 Admiral Group PLC 11,019 237 Alliance Boots PLC 107,429 1,762 Amvescap PLC 3,339 39 Anglo American PLC 16,576 808 ARM Holdings PLC 306,655 755 AstraZeneca PLC 5,142 276 Aviva PLC 41,264 664 Barclays PLC 22,493 321 Berkeley Group Holdings PLC (AE) 4,051 136 BG Group PLC 66,944 908 BHP Billiton PLC 96,219 1,761 BP PLC 250,320 2,781 Bradford & Bingley PLC 224 2 British Airways PLC (AE) 37,286 385 British American Tobacco PLC 8,538 239 British Energy Group PLC (AE) 24,924 265 British Land Co. PLC 26,501 889 Brixton PLC 936 11 BT Group PLC 120,732 713 Cadbury Schweppes PLC 67,658 724 Carnival PLC 6,235 316 Carphone Warehouse Group PLC (N) 171,271 1,053 Centrica PLC 114,806 797 Charter PLC (AE) 17,929 318 Compass Group PLC 6,023 34 Corus Group PLC 1,075 11 Davis Service Group PLC 9,300 92 De La Rue PLC 11,562 146 Debenhams PLC New 328,005 1,219 Diageo PLC 111,269 2,184 easyJet PLC (AE) 1,402 17 EMI Group PLC 229,968 1,193 Firstgroup PLC 36,041 406 Friends Provident PLC 96,700 411 Galiform PLC 4,040 11 Gallaher Group PLC 2,152 48 GlaxoSmithKline PLC 185,415 4,879 Great Portland Estates PLC 902 12 Hammerson PLC 342 11 HBOS PLC 72,302 1,603 HMV Group PLC 24,917 70 Home Retail Group 49,427 397 HSBC Holdings PLC 132,756 2,420 HSBC Holdings PLC (N) 2,400 44 Inchcape PLC 39,272 389 Invensys PLC (AE) 19,963 108 Investec PLC 167 2 ITV PLC 3,341 7 J Sainsbury PLC 54,290 435
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Kazakhmys PLC New 460 10 Kesa Electricals PLC 216,122 1,436 Ladbrokes PLC 155,206 1,271 Land Securities Group PLC 4,351 198 Legal & General Group PLC 128,157 395 Liberty International PLC 78 2 Lloyds TSB Group PLC 73,979 828 Man Group PLC 128,952 1,320 Next PLC 40,789 1,438 Old Mutual PLC 118,560 404 Pearson PLC 31,491 476 Premier Farnell PLC 17,297 67 Reckitt Benckiser PLC 97,826 4,471 Reed Elsevier PLC 77,100 846 Rentokil Initial PLC 295,490 959 Resolution PLC 815 10 RHM PLC New 263 2 Rio Tinto PLC 11,583 616 Rolls-Royce Group PLC 17,353 152 Royal & Sun Alliance Insurance Group PLC 144,112 430 Royal Bank of Scotland Group PLC 53,311 2,080 Royal Dutch Shell PLC Royal Dutch Shell PLC Class A 113 3,957 Royal Dutch Shell PLC Class B 17,174 602 SABMiller PLC 41,251 949 Scottish & Southern Energy PLC 4,184 127 Scottish Power PLC 6,492 95 Smiths Group PLC 103,232 2,004 Standard Chartered PLC 8,724 255 Standard Life PLC New (AE) 6,347 37 Tesco PLC 676,636 5,359 Trinity Mirror PLC 93,690 861 Unilever PLC 63,036 1,762 Vodafone Group PLC 878,782 2,435 William Hill PLC 186,757 2,311 Wilson Bowden PLC 46 2 WPP Group PLC 140,501 1,900 Xstrata PLC 22,388 1,118 ------------ 73,513 ------------ United States - 0.2% Synthes, Inc. 4,846 578 ------------ TOTAL COMMON STOCKS (cost $275,656) 338,542 ------------
44 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- PREFERRED STOCKS - 0.2% Germany - 0.2% Volkswagen AG 7,199 537 ------------ Italy - 0.0% Unipol SpA 43,298 140 ------------ TOTAL PREFERRED STOCKS (cost $654) 677 ------------
NOTIONAL AMOUNT $ ------------ OPTIONS PURCHASED - 0.1% Belgium - 0.1% Bel 20 Index Futures Jan 2007 4,306.38 (EUR) Call (31) 1,762 241 ------------ Hong Kong - 0.0% Hang Seng Index Futures Jan 2007 19,406.28 (HKD) Call (19) 2,370 137 ------------ Switzerland - 0.0% Swiss Market Index Futures Mar 2007 8,667.21 (CHF) Put (10) 711 41 ------------ TOTAL OPTIONS PURCHASED (cost $306) 419 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 7.5% United States - 7.5% Russell Investment Company Money Market Fund 25,707,000 25,707 United States Treasury Bills (z)(sec.) 4.928% due 03/15/07 700 692 4.973% due 03/15/07 1,500 1,480 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $27,885) 27,879 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 17.0% State Street Securities Lending Quality Trust (X) 62,768,818 62,769 ------------ TOTAL OTHER SECURITIES (cost $62,769) 62,769 ------------ TOTAL INVESTMENTS - 116.3% (identified cost $367,270) 430,286 OTHER ASSETS AND LIABILITIES, NET - (16.3%) (60,402) ------------ NET ASSETS - 100.0% 369,884 ============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. Non-U.S. Fund 45 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions AEX Index (Netherlands) expiration date 01/07 (52) 6,811 146 CAC-40 Index (France) expiration date 01/07 (38) 2,782 7 DAX Index (Germany) expiration date 03/07 (24) 5,263 41 EUR STOXX 50 Index (EMU) expiration date 03/07 (90) 4,933 4 FTSE-100 Index (UK) expiration date 03/07 (40) 4,866 (37) IBEX Plus Indes (Spain) expiration date 01/07 (1) 186 (1) TOPIX Index (Japan) expiration date 03/07 (98) 13,838 449 Short Positions CAC-40 Index (France) expiration date 01/07 (12) 879 (16) FTSE-100 Index (UK) expiration date 03/07 (49) 5,961 (26) MIB-30 (Italy) expiration date 03/07 (12) 3,304 (42) OMX S30 Index (Sweden) expiration date 01/07 (162) 2,731 (33) SPI 200 Index (Australia) expiration date 03/07 (38) 4,228 (41) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (a) 451 ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Belgium Bel 20 Index Futures Jan 2007 4,306.38 (EUR) Put (31) 1,762 (205) Hong Kong Hang Seng Index Futures Jan 2007 19,406.28 (HKD) Put (19) 2,370 (61) Switzerland Swiss Market Index Futures Mar 2007 8,667.21 (CHF) Call (10) 711 (51) --------------- Total Liability for Options Written (premiums received $306) (317) ===============
See accompanying notes which are an integral part of the financial statements. 46 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 146 AUD 187 03/21/07 1 USD 466 AUD 597 03/21/07 4 USD 579 AUD 742 03/21/07 6 USD 883 AUD 1,131 03/21/07 8 USD 2,139 AUD 2,742 03/21/07 20 USD 67 CHF 81 03/21/07 -- USD 282 CHF 340 03/21/07 (1) USD 1,200 CHF 1,446 03/21/07 (5) USD 2,921 CHF 3,519 03/21/07 (12) USD 5,670 CHF 6,824 03/21/07 (28) USD 6,395 CHF 7,702 03/21/07 (27) USD 46 DKK 263 03/21/07 -- USD 79 DKK 444 03/21/07 -- USD 135 EUR 103 01/02/07 -- USD 3 EUR 2 01/04/07 -- USD 267 EUR 200 03/20/07 (2) USD 402 EUR 300 03/20/07 (4) USD 659 EUR 500 03/20/07 3 USD 664 EUR 500 03/20/07 (1) USD 668 EUR 500 03/20/07 (6) USD 1,335 EUR 1,000 03/20/07 (10) USD 2,736 EUR 2,050 03/20/07 (20) USD 7,224 EUR 5,500 03/20/07 63 USD 7,342 EUR 5,500 03/20/07 (55) USD 10,942 EUR 8,200 03/20/07 (78) USD 2,182 EUR 1,652 03/21/07 6 USD 4,018 EUR 3,043 03/21/07 14 USD 6,040 EUR 4,574 03/21/07 20 USD 200 GBP 102 01/02/07 -- USD 392 GBP 200 03/20/07 -- USD 393 GBP 200 03/20/07 (1) USD 491 GBP 250 03/20/07 (1) USD 588 GBP 300 03/20/07 (1) USD 789 GBP 400 03/20/07 (5) USD 1,572 GBP 800 03/20/07 (5) USD 3,904 GBP 2,000 03/20/07 13 USD 5,305 GBP 2,700 03/20/07 (17) USD 7,268 GBP 3,700 03/20/07 (21) USD 1,138 GBP 580 03/21/07 (2) USD 2,842 GBP 1,449 03/21/07 (4) USD 2,849 GBP 1,452 03/21/07 (5) USD 3,299 GBP 1,682 03/21/07 (4) USD 5,937 GBP 3,026 03/21/07 (10)
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 13 HKD 103 03/21/07 -- USD 48 HKD 368 03/21/07 -- USD 79 HKD 613 03/21/07 -- USD 105 HKD 816 03/21/07 -- USD 424 JPY 50,000 03/20/07 1 USD 432 JPY 50,000 03/20/07 (8) USD 641 JPY 75,000 03/20/07 (4) USD 1,318 JPY 150,000 03/20/07 (44) USD 1,759 JPY 200,000 03/20/07 (61) USD 2,460 JPY 280,000 03/20/07 (82) USD 4,285 JPY 500,000 03/20/07 (39) USD 7,381 JPY 840,000 03/20/07 (246) USD 111 JPY 12,896 03/22/07 (1) USD 68 SEK 462 03/21/07 -- USD 2,665 SEK 18,237 03/21/07 13 USD 2,835 SEK 19,429 03/21/07 17 USD 4,619 SEK 31,643 03/21/07 27 USD 5,170 SEK 35,389 03/21/07 25 USD 33 SGD 51 03/21/07 -- USD 35 SGD 54 03/21/07 -- USD 802 SGD 1,231 03/21/07 4 USD 1,084 SGD 1,663 03/21/07 4 USD 1,428 SGD 2,191 03/21/07 6 USD 4,129 SGD 6,336 03/21/07 19 AUD 54 USD 42 03/21/07 -- AUD 328 USD 257 03/21/07 (1) AUD 813 USD 635 03/21/07 (5) AUD 826 USD 645 03/21/07 (6) AUD 1,094 USD 854 03/21/07 (8) AUD 4,244 USD 3,315 03/21/07 (28) CAD 3 USD 3 01/02/07 -- CHF 2,386 USD 1,980 03/21/07 8 CHF 11,469 USD 9,523 03/21/07 40 DKK 41 USD 7 03/21/07 -- DKK 59 USD 10 03/21/07 -- DKK 258 USD 46 03/21/07 -- DKK 799 USD 141 03/21/07 -- EUR 150 USD 197 01/02/07 (1) EUR 13 USD 18 01/02/07 -- EUR 16 USD 21 01/03/07 -- EUR 139 USD 183 01/03/07 (1) EUR 13 USD 18 01/03/07 -- EUR 300 USD 398 03/20/07 1
See accompanying notes which are an integral part of the financial statements. Non-U.S. Fund 47 RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- EUR 500 USD 668 03/20/07 5 EUR 900 USD 1,202 03/20/07 9 EUR 7,200 USD 9,611 03/20/07 72 EUR 8,700 USD 11,520 03/20/07 (7) EUR 53 USD 70 03/21/07 -- EUR 239 USD 315 03/21/07 (1) EUR 846 USD 1,117 03/21/07 (4) EUR 5,315 USD 7,019 03/21/07 (23) EUR 5,699 USD 7,528 03/21/07 (22) GBP 40 USD 78 01/02/07 -- GBP 21 USD 42 01/02/07 -- GBP 52 USD 103 01/03/07 -- GBP 5 USD 9 01/03/07 -- GBP 41 USD 81 01/04/07 -- GBP 270 USD 530 03/20/07 1 GBP 600 USD 1,178 03/20/07 3 GBP 3,300 USD 6,497 03/20/07 34 GBP 3,600 USD 7,073 03/20/07 22 GBP 129 USD 253 03/21/07 -- GBP 286 USD 562 03/21/07 2 GBP 1,132 USD 2,220 03/21/07 4 GBP 4,984 USD 9,777 03/21/07 16 HKD 218 USD 28 01/02/07 -- HKD 179 USD 23 01/02/07 -- HKD 376 USD 49 03/21/07 -- HKD 776 USD 100 03/21/07 -- JPY 30,000 USD 263 03/20/07 9
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- JPY 45,000 USD 395 03/20/07 13 JPY 150,000 USD 1,320 03/20/07 46 JPY 250,000 USD 2,197 03/20/07 73 JPY 870,000 USD 7,450 03/20/07 62 JPY 9,458 USD 81 03/22/07 1 JPY 13,588 USD 117 03/22/07 1 JPY 58,431 USD 502 03/22/07 6 JPY 68,279 USD 583 03/22/07 3 JPY 74,537 USD 640 03/22/07 7 JPY 114,241 USD 981 03/22/07 10 JPY 262,233 USD 2,253 03/22/07 25 JPY 321,403 USD 2,762 03/22/07 32 JPY 620,586 USD 5,330 03/22/07 59 SEK 1,388 USD 203 03/21/07 (1) SEK 2,585 USD 377 03/21/07 (2) SEK 9,725 USD 1,420 03/21/07 (7) SEK 16,385 USD 2,391 03/21/07 (14) SGD 95 USD 62 03/21/07 -- SGD 120 USD 78 03/21/07 -- SGD 1,736 USD 1,132 03/21/07 (5) SGD 1,887 USD 1,230 03/21/07 (6) SGD 2,052 USD 1,338 03/21/07 (6) -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (120) ==============
INDEX SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED APPRECIATION FUND RECEIVES COUNTER NOTIONAL FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY AMOUNT FLOATING RATE DATE $ - ------------------------------ ---------------- --------- ----------------------- -------------- ---------------- MSCI Belgium Local Net 1 Month EUR LIBOR Total Return Index Merrill Lynch EUR 949 plus 0.15% 06/20/07 -- MSCI Belgium Local Net 1 Month EUR LIBOR Total Return Index Merrill Lynch EUR 288 plus 0.15% 09/19/07 -- ---------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts -- ================
See accompanying notes which are an integral part of the financial statements. 48 Non-U.S. Fund RUSSELL INVESTMENT FUNDS NON-U.S. FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
% OF MARKET INDUSTRY DIVERSIFICATION NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Auto and Transportation 6.0 22,338 Consumer Discretionary 10.8 39,910 Consumer Staples 10.0 37,036 Financial Services 21.7 80,232 Health Care 6.4 23,547 Integrated Oils 4.6 17,025 Materials and Processing 10.8 40,211 Miscellaneous 1.1 3,884 Other Energy 0.5 1,900 Producer Durables 6.7 24,846 Technology 5.6 20,563 Utilities 7.5 27,727 Options Purchased 0.1 419 Short-Term Investments 7.5 27,879 Other Securities 17.0 62,769 ------------ ------------ Total Investments 116.3 430,286 Other Assets and Liabilities, Net (16.3) (60,402) ------------ ------------ Net Assets 100.0 369,884 ============ ============ GEOGRAPHIC DIVERSIFICATION % OF MARKET (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Africa 0.1 484 Asia 7.0 26,007 Europe 41.5 153,351 Japan 19.5 72,102 Latin America 2.0 7,400 Middle East 0.1 537 Other Regions 9.2 34,123 United Kingdom 19.9 73,513 Other Securities 17.0 62,769 ------------ ------------ Total Investments 116.3 430,286 Other Assets and Liabilities, Net (16.3) (60,402) ------------ ------------ Net Assets 100.0 369,884 ============ ============
See accompanying notes which are an integral part of the financial statements. Non-U.S. Fund 49 RUSSELL INVESTMENT FUNDS NON-U.S. FUND PRESENTATION OF PORTFOLIO HOLDINGS -- DECEMBER 31, 2006 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Australia 2.7 Austria 0.6 Belgium 0.8 Bermuda 0.7 Brazil 0.3 Canada 1.5 Cayman Island 0.2 Denmark 0.3 Finland 0.9 France 13.1 Germany 6.4 Greece 0.2 Hong Kong 1.1 Indonesia 0.2 Ireland 0.6 Israel 0.1 Italy 3.1 Japan 19.5 Mexico 0.8 Netherlands 2.6 Norway 0.1 Russia 0.2 Singapore 1.1 South Africa 0.1 South Korea 1.3 Spain 1.7 Sweden 1.3 Switzerland 9.2 Taiwan 0.5 Thailand 0.2 United Kingdom 19.9 United States 0.2 Preferred Stocks 0.2 Options Purchased 0.1 Short-Term Investments 7.5 Other Securities 17.0 --------------- Total Investments 116.3 Other Assets and Liabilities Net (16.3) --------------- 100.0 =============== Futures Contracts 0.1 Options Written (0.1) Foreign Currency Exchange Contracts (--)* Index Swap Contracts --*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 50 Non-U.S. Fund (This page intentionally left blank) RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
FTSE NAREIT EQUITY REITS REAL ESTATE SECURITIES FUND INDEX** --------------------------- ------------------------ Inception* 10000 10000 1999 9274 9153 2000 11800 11566 2001 12725 13177 2002 13209 13681 2003 18124 18761 2004 24445 24685 2005 27612 27687 2006 37507 37394
Real Estate Securities Fund - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 35.84% 5 Years 24.13%sec. Inception* 18.81%sec.
FTSE NAREIT Equity REITs** - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 35.06% 5 Years 23.20%sec. Inception* 18.76%sec.
52 Real Estate Securities Fund RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The Real Estate Securities Fund (the "Fund") allocates most of its assets among multiple money managers. Russell Investment Management Company ("RIMCo"), as the Fund's manager, may change the allocation of the Fund's assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits the Fund to engage or terminate a money manager at any time, subject to approval by the Fund's Board of Trustees (the "Board") without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006? For the fiscal year ended December 31, 2006, the Real Estate Securities Fund gained 35.84%. This compared to the FTSE NAREIT Equity REITs Index, which gained 35.06% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended December 31, 2006, the Lipper(R) Real Estate Funds Average returned 34.30%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? During 2006, the money managers positioned the Fund to capitalize on improving real estate market fundamentals. The largest overweight positions were in sectors with strong earnings growth: lodging/resorts, regional malls, apartments, office and industrial. As more fully described below, sector positioning was a positive contributor to the Fund's performance during the fiscal year. The Fund maintained a primary focus on the larger capitalization and more liquid REITs during the fiscal year. As this segment of the market outperformed the broader REIT market, the Fund benefited from this positioning. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? AEW Management and Advisors, L.P. pursues a value-oriented style that focuses on identifying companies that they believe are mispriced relative to underlying real estate net asset value. AEW's portfolio tends to track relatively closely to the benchmark sector weights. AEW outperformed the benchmark during the fiscal year due to strong stock selection and sector selection. Stock selection was strongest in the regional malls and diversified sectors. This was partially offset by weak stock selection in the specialty sector. Sector selection was also positive as an overweight position in the apartments sector and underweight positions in the specialty, manufactured homes and freestanding retail sectors boosted performance. This was partially offset by an overweight position in the underperforming mixed industrial/office sector and an underweight position in the outperforming health care sector. INVESCO Institutional (N.A.), Inc. maintains a broadly diversified portfolio with exposure to all major property sectors. Their investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. INVESCO outperformed the benchmark during the fiscal year due to contributions from stock selection and, to a lesser extent, sector selection. Stock selection was strongest in the office, specialty, regional malls and diversified sectors. Positive sector selection was driven by an overweight position in the office sector and an underweight position in the specialty sector. An overweight position in the regional malls sector partially offset these positive effects. RREEF America, L.L.C.'s style emphasizes a top-down approach to property sector weights based on an assessment of property market fundamentals. RREEF outperformed the benchmark during the fiscal year due to contributions from both stock selection and sector selection. Stock selection was strongest in the office, regional malls, apartments and diversified sectors. This was partially offset by weaker stock selection in the shopping centers and health care sectors. Sector selection was positive, driven by underweight positions in the specialty and mixed industrial/office sectors. Heitman Real Estate Securities, LLC manages a concentrated portfolio with a bottom-up approach to stock selection focusing on companies that they believe have attractive valuations relative to growth prospects. Heitman underperformed the benchmark during the fiscal year. Overall, Heitman's stock selection was a negative contributor to performance, particularly in the office, apartments and self storage sectors. Favorable stock selection in the regional malls sector partially offset these adverse effects. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Heitman's target weight was increased. Real Estate Securities Fund 53 RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles December 31, 2006 AEW Management and Advisors, L.P. Value Heitman Real Estate Securities, LLC Growth INVESCO Institutional (N.A.), Inc., through its INVESCO Real Estate Division Market-Oriented RREEF America, L.L.C. Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any (RIF) Fund. ------------------------------ * The Fund commenced operations on April 30, 1999. ** FTSE NAREIT Equity REITS Index is an index composed of all the data based on the last closing price of the month for all tax-qualified REITs listed on the New York Stock Exchange, American Stock Exchange, and the NASDAQ National Market System. The data is market value-weighted. The total-return calculation is based upon whether it is a 1-month, 3-months or 12-months. Only those REITs listed for the entire period are used in the total return calculation. sec. Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 54 Real Estate Securities Fund RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND SHAREHOLDER EXPENSE EXAMPLE -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2006 to December 31, 2006. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN PERFORMANCE BEFORE EXPENSES) -------------- ---------------- Beginning Account Value July 1, 2006 $ 1,000.00 $ 1,000.00 Ending Account Value December 31, 2006 $ 1,191.90 $ 1,020.67 Expenses Paid During Period* $ 4.97 $ 4.58
* Expenses are equal to the Fund's annualized expense ratio of 0.90% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Real Estate Securities Fund 55 RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 96.4% Apartments - 18.6% American Campus Communities, Inc. (o) 16,500 470 Apartment Investment & Management Co. Class A (o) 111,825 6,264 Archstone-Smith Trust (o)(N) 514,122 29,927 AvalonBay Communities, Inc. (o) 202,850 26,381 BRE Properties, Inc. Class A (o)(N) 50,700 3,297 Camden Property Trust (o) 108,000 7,976 Equity Residential (o)(N) 395,000 20,046 Essex Property Trust, Inc. (o)(N) 71,700 9,267 GMH Communities Trust (o)(N) 235,600 2,391 Home Properties, Inc. (o) 19,800 1,174 Mid-America Apartment Communities, Inc. (o) 34,900 1,998 United Dominion Realty Trust, Inc. (o)(N) 219,200 6,968 ------------ 116,159 ------------ Diversified - 6.2% Colonial Properties Trust (o) 44,100 2,067 iStar Financial, Inc. (o) 35,500 1,698 Spirit Finance Corp. (o) 78,000 973 Vornado Realty Trust (o) 282,564 34,331 ------------ 39,069 ------------ Free Standing Retail - 0.2% Realty Income Corp. (o)(N) 37,500 1,039 ------------ Health Care - 4.5% Health Care Property Investors, Inc. (o)(N) 166,800 6,142 Health Care REIT, Inc. (o)(N) 72,750 3,129 Healthcare Realty Trust, Inc. (o)(N) 53,800 2,127 LTC Properties, Inc. (o)(N) 63,650 1,738 Nationwide Health Properties, Inc. (o) 219,750 6,640 Omega Healthcare Investors, Inc. (o) 80,800 1,432 Ventas, Inc. (o) 159,300 6,742 ------------ 27,950 ------------ Industrial - 7.0% AMB Property Corp. (o) 169,300 9,923 DCT Industrial Trust, Inc. (o) 111,200 1,312 EastGroup Properties, Inc. (o) 42,700 2,287 First Potomac Realty Trust (o) 40,600 1,182 ProLogis (o) 479,500 29,139 ------------ 43,843 ------------ Lodging/Resorts - 8.4% Ashford Hospitality Trust, Inc. (o) 57,000 710 DiamondRock Hospitality Co. (o) 136,050 2,450 FelCor Lodging Trust, Inc. (o)(N) 59,800 1,306
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hilton Hotels Corp. 240,850 8,406 Hospitality Properties Trust (o) 18,100 860 Host Hotels & Resorts, Inc. (o)(N) 1,043,663 25,622 LaSalle Hotel Properties (o)(N) 73,350 3,363 Starwood Hotels & Resorts Worldwide, Inc. (o) 153,130 9,571 ------------ 52,288 ------------ Manufactured Homes - 0.4% Equity Lifestyle Properties, Inc. (o)(N) 51,350 2,795 ------------ Mixed Industrial/Office - 1.7% Duke Realty Corp. (o) 23,200 949 Liberty Property Trust (o)(N) 159,200 7,823 PS Business Parks, Inc. (o) 27,500 1,944 ------------ 10,716 ------------ Office - 17.4% Alexandria Real Estate Equities, Inc. (o)(N) 66,900 6,717 American Financial Realty Trust (o)(N) 100,200 1,146 BioMed Realty Trust, Inc. (o) 82,400 2,357 Boston Properties, Inc. (o) 260,000 29,089 Brandywine Realty Trust (o)(N) 186,986 6,217 Brookfield Properties Corp. 155,700 6,124 Corporate Office Properties Trust (o)(N) 38,500 1,943 Douglas Emmett, Inc. (o)(N) 39,500 1,050 Equity Office Properties Trust (o) 422,850 20,369 Highwoods Properties, Inc. (o) 79,000 3,220 HRPT Properties Trust (o) 164,000 2,025 Kilroy Realty Corp. (o) 72,200 5,632 Mack-Cali Realty Corp. (o)(N) 47,300 2,412 Maguire Properties, Inc. (o) 21,600 864 Parkway Properties, Inc. (o)(N) 11,700 597 SL Green Realty Corp. (o) 144,850 19,233 ------------ 108,995 ------------ Regional Malls - 14.4% CBL & Associates Properties, Inc. (o) 31,900 1,383 General Growth Properties, Inc. (o) 212,700 11,109 Macerich Co. (The) (o) 203,000 17,574 Simon Property Group, Inc. (o) 493,050 49,941 Taubman Centers, Inc. (o) 195,950 9,966 ------------ 89,973 ------------
56 Real Estate Securities Fund RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Self Storage - 5.1% Extra Space Storage, Inc. (o) 159,200 2,907 Public Storage, Inc. (o) 266,749 26,008 Sovran Self Storage, Inc. (o) 25,400 1,455 U-Store-It Trust (o) 69,600 1,430 ------------ 31,800 ------------ Shopping Centers - 10.6% Cedar Shopping Centers, Inc. (o) 32,400 515 Developers Diversified Realty Corp. (o)(N) 231,300 14,560 Federal Realty Investors Trust (o)(N) 194,500 16,533 Kimco Realty Corp. (o)(N) 185,900 8,356 Kite Realty Group Trust (o) 40,900 762 Regency Centers Corp. (o)(N) 282,600 22,091 Tanger Factory Outlet Centrs (o) 46,550 1,819 Weingarten Realty Investors (o)(N) 39,100 1,803 ------------ 66,439 ------------ Specialty - 1.9% Digital Realty Trust, Inc. (o) 278,500 9,533 Plum Creek Timber Co., Inc. (o) 55,000 2,192 ------------ 11,725 ------------ TOTAL COMMON STOCKS (cost $375,046) 602,791 ------------ SHORT-TERM INVESTMENTS - 3.2% Russell Investment Company Money Market Fund 19,676,000 19,676 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $19,676) 19,676 ------------ OTHER SECURITIES - 12.6% State Street Securities Lending Quality Trust (X) 79,066,361 79,066 ------------ TOTAL OTHER SECURITIES (cost $79,066) 79,066 ------------ TOTAL INVESTMENTS - 112.2% (identified cost $473,788) 701,533 OTHER ASSETS AND LIABILITIES, NET - (12.2%) (76,056) ------------ NET ASSETS - 100.0% 625,477 ============
See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 57 RUSSELL INVESTMENT FUNDS REAL ESTATE SECURITIES FUND PRESENTATION OF PORTFOLIO HOLDINGS -- DECEMBER 31, 2006 (UNAUDITED)
% OF NET CATEGORIES ASSETS - -------------------------------------------------------------- Apartments 18.6 Diversified 6.2 Free Standing Retail 0.2 Health Care 4.5 Industrial 7.0 Lodging/Resorts 8.4 Manufactured Homes 0.4 Mixed Industrial/Office 1.7 Office 17.4 Regional Malls 14.4 Self Storage 5.1 Shopping Centers 10.6 Specialty 1.9 Short-Term Investments 3.2 Other Securities 12.6 ------------ Total Investments 112.2 Other Assets and Liabilities, Net (12.2) ------------ 100.0 ============
See accompanying notes which are an integral part of the financial statements. 58 Real Estate Securities Fund (This page intentionally left blank) RUSSELL INVESTMENT FUNDS CORE BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LEHMAN BROTHERS AGGREGATE BOND CORE BOND FUND INDEX** -------------- ------------------------------ Inception* 10000 10000 1997 10973 11012 1998 11784 11969 1999 11712 11871 2000 12883 13251 2001 13837 14369 2002 15060 15843 2003 15986 16493 2004 16732 17209 2005 17068 17627 2006 17703 18391
Core Bond Fund - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 3.72% 5 Years 5.05%sec. Inception* 5.88%sec.
Lehman Brothers Aggregate Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 12/31/06 RETURN - --------------------------- --------------------------- 1 Year 4.33% 5 Years 5.06%sec. Inception* 6.29%sec.
60 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The Core Bond Fund (the "Fund") allocates most of its assets among multiple money managers. Russell Investment Management Company ("RIMCo"), as the Fund's manager, may change the allocation of the Fund's assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits the Fund to engage or terminate a money manager at any time, subject to approval by the Fund's Board of Trustees (the "Board") without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and the preservation of capital. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006? For the fiscal year ended December 31, 2006, the Core Bond Fund gained 3.72%. This compared to its benchmark the Lehman Brothers Aggregate Bond Index, which gained 4.33%. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended December 31, 2006, the Lipper(R) BBB Rated Corp Debt Funds Average returned 3.74%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Federal Reserve's target interest rate decisions were among the most notable market movers of 2006. Ever adapting responses of the Treasury yield curve to newly-released economic data created a challenging active management environment. In order to add value through duration and/or yield curve strategies in 2006, managers had to time their positioning precisely. The year was characterized by tight spreads coupled with a market reach for yield. Spread sectors (such as corporate and mortgage sectors) benefited from this trend with additional returns accruing to higher risk portions of the market. The Fund's exposure to emerging market debt and high yield debt contributed positively to performance as these sectors benefited from general market trends, as well as strong commodity pricing and credit rating upgrades. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Duration and yield curve management detracted slightly from the Fund's performance. Both Bear Stearns Asset Management, Inc. and Pacific Investment Management Co., LLC (PIMCO) began the year long duration, which detracted from performance during the first two quarters as the yield curve shifted up. The addition of Goldman Sachs Asset Management, L.P. as a money manager in the Fund added a short duration perspective to the Fund's multi-manager lineup. The third quarter gains by Bear Stearns and PIMCO were offset by Goldman Sachs' diverging view on duration. Bear Stearns moved to a shorter duration position by the end of the year, which proved beneficial as the yield curve shifted up in the final quarter. Overall, the managers' duration positioning detracted slightly from performance in this difficult active management environment. The Fund performed best in the mortgage sector. From a sector perspective, mortgages outperformed equivalent-duration Treasuries for the year. Even during periods when the sector underperformed, however, the Fund's money managers added value through strong security selection. The Fund continued to be defensively positioned with respect to extended sectors (such as emerging markets and high yield sectors) in the face of historically low spreads. That being said, the money managers' modest exposure overweight to high yield and emerging market debt contributed positively to performance as well. Investment in Treasury Inflation-Protected Securities (TIPS) detracted from performance for the government sector over the year. Economic data showed that inflation continued to be contained--while stretching the Fed's comfort level - which was detrimental to TIPS' performance. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Goldman Sachs was added as a money manager of the Fund on June 1, 2006 and the allocations to Bear Stearns and PIMCO were decreased. Core Bond Fund 61 RUSSELL INVESTMENT FUNDS CORE BOND FUND PORTFOLIO MANAGEMENT DISCUSSION, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles December 31, 2006 Bear Stearns Asset Management, Inc. Broad Market-Sector Rotation Goldman Sachs Asset Management, L.P. Market-Oriented Pacific Investment Management Company, LLC Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for Russell Investment Funds (RIF) are based on numerous factors, should not be relied on as an indication of investment decisions of any (RIF) Fund. ------------------------------ * The Fund commenced operations on January 2, 1997. ** Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization. sec. Annualized. Performance is historical and assumes reinvestment of all dividends and capital gains. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than when purchased. Past performance is not indicative of future results. 62 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from July 1, 2006 to December 31, 2006. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN PERFORMANCE BEFORE EXPENSES) -------------- ---------------- Beginning Account Value July 1, 2006 $ 1,000.00 $ 1,000.00 Ending Account Value December 31, 2006 $ 1,045.30 $ 1,021.73 Expenses Paid During Period* $ 3.56 $ 3.52
* Expenses are equal to the Fund's annualized expense ratio of 0.69% (representing the one-half year period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Core Bond Fund 63 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 94.6% Asset-Backed Securities - 4.7% Accredited Mortgage Loan Trust (E) Series 2004-2 Class A2 5.620% due 07/25/34 60 60 ACE Securities Corp. (E) Series 2005-SD3 Class A 5.720% due 08/25/45 364 364 Aegis Asset Backed Securities Trust (E) Series 2003-3 Class M2 6.970% due 01/25/34 110 111 Ameriquest Mortgage Securities, Inc. (E) Series 2002-D Class M1 6.745% due 02/25/33 90 90 Series 2004-R10 Class A5 5.710% due 11/25/34 46 46 Series 2004-R8 Class A5 5.690% due 09/25/34 138 138 Argent Securities, Inc. (E) Series 2005-W4 Class A2A 5.460% due 02/25/36 81 81 Bayview Financial Acquisition Trust Series 2006-A Class 1A3 5.865% due 02/28/41 190 190 Citifinancial Mortgage Securities, Inc. Series 2003-4 Class AF3 3.221% due 10/25/33 3 3 Countrywide Asset-Backed Certificates Series 2004-13 Class AF3 3.989% due 02/25/31 57 57 Series 2004-BC1 Class M1 (E) 5.820% due 02/25/34 105 105 Series 2006-11 Class 1AF4 6.300% due 09/25/46 170 173 Countrywide Home Equity Loan Trust (E) Series 2006-H Class 2A1B 5.489% due 11/15/36 928 928 Credit-Based Asset Servicing and Securitization LLC Series 2005-CB1 Class AF2 4.088% due 12/25/35 47 46 First Franklin Mortgage Loan Asset Backed Certificates (E) Series 2006-FF1 Class A3 5.370% due 11/25/36 291 292 Fremont Home Loan Trust (E) Series 2006-A Class 2A1 5.370% due 05/25/36 142 142
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GSAA Home Equity Trust Series 2006-4 Class 1A2 5.977% due 03/25/36 273 273 GSAA Trust (E) Series 2006-2 Class 2A3 5.590% due 12/25/35 320 321 GSAMP Trust (E) Series 2003-HE2 Class M1 5.970% due 08/25/33 175 175 Series 2004-SEA Class A2A 5.610% due 03/25/34 107 107 Heritage Property Investment Trust (o) 5.125% due 04/15/14 150 146 Home Equity Asset Trust (E) Series 2003-5 Class M1 6.020% due 12/25/33 265 265 Series 2005-2 Class 2A2 5.520% due 07/25/35 134 135 HSI Asset Securitization Corp. Trust (E) Series 2006-HE2 Class 2A1 5.383% due 12/25/36 99 99 Indymac Residential Asset Backed Trust (E) Series 2006-H2 Class A 5.470% due 06/28/36 579 579 Lehman XS Trust (E) Series 2005-1 Class 2A2 4.660% due 07/25/35 157 157 Series 2006-16N Class A1A 5.400% due 11/25/46 285 285 Long Beach Mortgage Loan Trust (E) Series 2004-4 Class 1A1 5.600% due 10/25/34 47 47 Series 2006-9 Class 2A1 5.380% due 10/25/36 938 938 Mastr Asset Backed Securities Trust (E) Series 2003-WMC Class M2 6.970% due 08/25/33 57 57 Morgan Stanley ABS Capital I (E) Series 2003-NC8 Class M3 7.420% due 09/25/33 52 53 Series 2006-HE7 Class A2A 5.370% due 09/25/36 934 934 Morgan Stanley Mortgage Loan Trust Series 2006-12X Class A6A 5.726% due 10/25/36 145 145
64 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- New Century Home Equity Loan Trust (E) Series 2004-4 Class M2 5.850% due 02/25/35 215 216 NWA Trust (o) Series 1995-2 Class A 9.250% due 06/21/14 132 139 Option One Mortgage Loan Trust (E) Series 2003-2 Class M2 7.020% due 04/25/33 63 63 Series 2003-3 Class M3 7.320% due 06/25/33 45 46 Series 2003-4 Class M2 6.970% due 07/25/33 77 78 Park Place Securities, Inc. (E) Series 2005-WCW Class M1 5.770% due 09/25/35 210 211 Parker Hannifin Employee Stock Ownership Trust (A) 6.340% due 07/15/08 111 111 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF2 3.914% due 05/25/35 26 26 Series 2005-6 Class A3 5.680% due 01/25/36 230 229 Renaissance Home Equity Loan Trust Series 2005-1 Class M1 5.357% due 05/25/35 80 79 Series 2005-2 Class AF4 4.934% due 08/25/35 85 84 Series 2006-1 Class AF6 5.746% due 05/25/36 175 177 Residential Asset Mortgage Products, Inc. Series 2003-RS1 Class AI6A 5.980% due 12/25/33 205 207 Residential Asset Securities Corp. Series 2003-KS1 Class M2 (E) 7.070% due 01/25/33 44 44 Series 2003-KS2 Class MI1 4.800% due 04/25/33 450 440 Series 2003-KS2 Class MI3 6.100% due 04/25/33 250 248 Series 2006-KS9 Class AI1 (E) 5.390% due 11/25/36 288 288 SBI Heloc Trust (E)(p) Series 2006-1A Class 1A2A 5.490% due 08/25/36 183 183 SLM Student Loan Trust (E) Series 2006-9 Class A1 5.345% due 10/25/12 700 700
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Small Business Administration Series 2000-P10 Class 1 7.449% due 08/01/10 10 10 Soundview Home Equity Loan Trust Series 2006-WF1 Class A2 5.645% due 10/25/36 290 290 Structured Asset Investment Loan Trust (E) Series 2005-3 Class M2 5.760% due 04/25/35 120 120 Structured Asset Securities Corp. Series 2004-19X Class A2 4.370% due 10/25/34 365 361 Series 2006-BC3 Class A2 (E) 5.370% due 10/25/36 278 278 Tenaska Alabama II Partners, LP (p) 6.125% due 03/30/23 -- -- Wells Fargo Home Equity Trust (E)(p) Series 2005-4 Class AI1 5.440% due 12/25/35 240 240 ------------ 12,410 ------------ Certificates of Deposit - 0.3% BNP Paribas (z) 5.263% due 05/28/08 200 200 Fortis Bank (z) 5.265% due 04/28/08 400 400 Nordea Bank Finland PLC (z) 5.308% due 05/28/08 200 200 ------------ 800 ------------ Corporate Bonds and Notes - 14.0% Abbey National Treasury Services PLC (E) Series YCD 5.276% due 07/02/08 500 500 Abbott Laboratories 5.600% due 05/15/11 165 167 5.875% due 05/15/16 80 82 Ace Capital Trust II (N) 9.700% due 04/01/30 175 240 Alamosa Delaware, Inc. 8.500% due 01/31/12 100 106 Allied Waste North America, Inc. Series B 7.125% due 05/15/16 90 89
Core Bond Fund 65 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Altria Group, Inc. (N) 7.750% due 01/15/27 25 30 American Casino & Entertainment Properties LLC 7.850% due 02/01/12 175 179 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 35 35 American Express Bank (E) Series BKNT 5.350% due 10/16/08 300 300 American General Finance Corp. 4.875% due 05/15/10 225 222 American International Group, Inc. 4.700% due 10/01/10 130 128 5.375% due 10/18/11 170 171 5.050% due 10/01/15 (N) 130 126 American RE Corp. (N) Series B 7.450% due 12/15/26 250 285 Americo Life, Inc. (p) 7.875% due 05/01/13 75 75 AmerUs Group Co. 5.950% due 08/15/15 150 156 Anadarko Petroleum Corp. 5.950% due 09/15/16 205 205 ANZ Capital Trust (f)(p) 4.484% due 12/31/49 225 219 Arizona Public Service Co. 5.800% due 06/30/14 100 100 6.250% due 08/01/16 125 128 AT&T, Inc. 5.100% due 09/15/14 45 44 4.214% due 06/05/21 (p) 300 298 Aztar Corp. 7.875% due 06/15/14 165 179 BAE Systems Holdings, Inc. (p) 6.400% due 12/15/11 330 341 Ball Corp. 6.625% due 03/15/18 185 184 Bank of America Corp. 5.875% due 02/15/09 80 81 5.400% due 06/19/09 (E) 900 900 5.378% due 11/06/09 (E)(N) 100 100 Bank of New York Co., Inc. (The) 5.125% due 11/01/11 190 189 BellSouth Corp. 6.550% due 06/15/34 35 36 BNP Paribas Capital Trust (f)(A) 9.003% due 12/29/49 450 503 Boardwalk Pipelines, LP (N) 5.875% due 11/15/16 125 124 Boeing Capital Corp., Ltd. (N) 6.100% due 03/01/11 50 52
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Boston Scientific Corp. 6.400% due 06/15/16 230 233 Burlington Northern Santa Fe Corp. 6.875% due 12/01/27 25 28 6.750% due 03/15/29 10 11 California Steel Industries, Inc. 6.125% due 03/15/14 140 133 CenterPoint Energy Houston Electric LLC Series J2 5.700% due 03/15/13 110 111 CenterPoint Energy Resources Corp. Series B 7.875% due 04/01/13 120 133 Cingular Wireless Services, Inc. 7.875% due 03/01/11 150 164 8.750% due 03/01/31 45 58 CIT Group, Inc. 6.875% due 11/01/09 45 47 Citigroup Funding, Inc. 5.343% due 12/08/08 (E) 100 100 Citigroup Global Markets Holdings, Inc. Series MTNA (E) 5.460% due 03/17/09 200 200 Series MTNM (E) 5.390% due 03/07/08 400 400 Citigroup, Inc. 3.500% due 02/01/08 560 550 5.416% due 01/30/09 (E) 200 200 5.395% due 12/28/09 (E) 100 100 6.500% due 01/18/11 150 157 4.700% due 05/29/15 50 48 6.125% due 08/25/36 300 312 Clorox Co. 4.200% due 01/15/10 100 97 CNA Financial Corp. (N) 6.500% due 08/15/16 125 130 Columbus Southern Power Co. Series C 5.500% due 03/01/13 10 10 Comcast Cable Communications Holdings, Inc. 9.455% due 11/15/22 125 162
66 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Comcast Cable Holdings LLC 9.800% due 02/01/12 140 165 7.875% due 08/01/13 305 339 Comcast Corp. 5.900% due 03/15/16 20 20 Commonwealth Edison Co. 6.950% due 07/15/18 50 52 Series 105 5.400% due 12/15/11 125 124 Consolidated Natural Gas Co. 6.850% due 04/15/11 150 158 COX Communications, Inc. 4.625% due 01/15/10 (N) 350 343 5.875% due 12/01/16 (A) 75 74 Credit Suisse First Boston USA, Inc. 4.875% due 08/15/10 65 64 6.500% due 01/15/12 25 26 5.500% due 08/15/13 45 46 Credit Suisse USA, Inc. (N) 5.250% due 03/02/11 55 55 CVS Corp. 5.750% due 08/15/11 90 91 Detroit Edison Co. 6.350% due 10/15/32 50 52 Dex Media East Finance Co. 12.125% due 11/15/12 50 55 Dominion Resources, Inc. Series A 5.200% due 01/15/16 195 188 Series B 6.250% due 06/30/12 30 31 DPL, Inc. 6.875% due 09/01/11 148 155 Dresdner Funding Trust I (p) 8.151% due 06/30/31 130 157 Drummond Co., Inc. (p) 7.375% due 02/15/16 60 59 Duke Energy Field Services LLC 6.875% due 02/01/11 20 21 El Paso Corp. 8.050% due 10/15/30 (N) 400 444 Series * 6.700% due 02/15/27 100 100 Eli Lilly & Co. (N) 6.770% due 01/01/36 185 212 Embarq Corp. 7.995% due 06/01/36 25 26 Energy Transfer Partners, LP 5.950% due 02/01/15 200 201 Enterprise Products Operating, LP 4.950% due 06/01/10 125 123 8.375% due 08/01/66 100 108 FedEx Corp. 7.600% due 07/01/97 75 87
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Financing Corp. Principal Only STRIP Series 10P Zero coupon due 11/30/17 510 294 Series 15P Zero coupon due 03/07/19 70 38 Series 2P Zero coupon due 11/30/17 60 35 Series 6P Zero coupon due 08/03/18 300 166 FirstEnergy Corp. Series B 6.450% due 11/15/11 415 433 Series C 7.375% due 11/15/31 150 171 Ford Motor Credit Co. 7.875% due 06/15/10 200 202 FTI Consulting, Inc. (p) 7.750% due 10/01/16 160 166 General Electric Capital Corp. 5.500% due 04/28/11 220 223 Series MTN (E) 5.410% due 10/26/09 500 500 Series MTNA 5.476% due 07/28/08 (E) 700 701 5.450% due 01/15/13 (N) 260 262 General Electric Co. (E) 5.393% due 12/09/08 200 200 Genworth Financial, Inc. 6.150% due 11/15/66 75 75 Glencore Funding LLC (p) 6.000% due 04/15/14 135 132 Goldman Sachs Group, Inc. 5.405% due 12/23/08 (E) 600 600 6.875% due 01/15/11 425 450 5.350% due 01/15/16 (N) 320 316 Series MTNB (E) 5.477% due 12/22/08 300 300 Greater Bay Bancorp Series B 5.250% due 03/31/08 150 150 Harrah's Operating Co., Inc. 5.500% due 07/01/10 125 123 HCA, Inc. (A) 9.125% due 11/15/14 125 134 9.250% due 11/15/16 190 204
Core Bond Fund 67 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Health Care Property Investors, Inc. (N) 5.950% due 09/15/11 300 303 Hess Corp. 6.650% due 08/15/11 (N) 45 47 7.300% due 08/15/31 80 89 Historic TW, Inc. 8.050% due 01/15/16 170 193 Host Marriott, LP (o) Series Q 6.750% due 06/01/16 215 215 HSBC Finance Corp. 5.435% due 10/21/09 (E) 100 100 6.375% due 11/27/12 175 184 5.000% due 06/30/15 110 107 Idearc, Inc. (A) 8.000% due 11/15/16 315 320 Innophos Investments Holdings, Inc. (E) 13.374% due 02/15/15 110 115 Innophos, Inc. 8.875% due 08/15/14 10 10 International Business Machines Corp. 7.125% due 12/01/96 165 190 International Lease Finance Corp. 5.750% due 06/15/11 (N) 80 81 5.625% due 09/20/13 80 81 International Steel Group, Inc. 6.500% due 04/15/14 65 67 iStar Financial, Inc. (N) Series B 5.125% due 04/01/11 200 196 ITT Corp. 7.400% due 11/15/25 100 116 Joy Global, Inc. (A) 6.625% due 11/15/36 40 40 JP Morgan Chase Bank Series EMTN 6.000% due 05/22/45 1,819 1,155 JPMorgan Chase & Co. 5.600% due 06/01/11 (N) 65 66 5.150% due 10/01/15 150 147 Kellogg Co. Series B 6.600% due 04/01/11 320 336 Kerr-McGee Corp. 6.950% due 07/01/24 125 133 KeySpan Corp. 7.625% due 11/15/10 150 161 Kraft Foods, Inc. 5.625% due 11/01/11 425 430 Kroger Co. (The) 8.000% due 09/15/29 15 17 7.500% due 04/01/31 (N) 10 11
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Lehman Brothers Holdings, Inc. 5.464% due 01/23/09 (E) 600 601 5.460% due 04/03/09 (E) 400 400 5.000% due 01/14/11 175 173 5.500% due 04/04/16 85 85 Level 3 Financing, Inc. 12.250% due 03/15/13 85 96 Mandalay Resort Group (N) 6.500% due 07/31/09 90 91 Manufacturers & Traders Trust Co. 5.585% due 12/28/20 84 83 Merrill Lynch & Co., Inc. 5.450% due 12/04/09 (E) 200 200 Series MTNC 4.250% due 02/08/10 450 437 Metlife, Inc. 6.400% due 12/15/36 100 100 Midamerican Energy Holdings Co. 6.125% due 04/01/36 175 176 Miller Brewing Co. (p) 5.500% due 08/15/13 110 109 Monumental Global Funding II (p) 4.625% due 03/15/10 95 93 Morgan Stanley 5.375% due 10/15/15 100 99 Series GMTN (E) 5.485% due 02/09/09 500 501 Natexis Ambs Co. LLC (f)(p) 8.440% due 12/29/49 120 125 National Rural Utilities Cooperative Finance Corp. 5.750% due 08/28/09 45 46 Nelnet, Inc. 7.400% due 09/29/36 125 129 News America Holdings, Inc. 7.900% due 12/01/95 90 101 8.250% due 10/17/96 20 23 Nisource Finance Corp. 7.875% due 11/15/10 100 108 Norfolk Southern Corp. 7.700% due 05/15/17 20 23 7.050% due 05/01/37 40 46 7.900% due 05/15/97 315 390 6.000% due 03/15/05 125 118 Occidental Petroleum Corp. (N) 9.250% due 08/01/19 95 125
68 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ohio Power Co. (N) Series F 5.500% due 02/15/13 20 20 Pacific Gas & Electric Co. 4.200% due 03/01/11 60 57 6.050% due 03/01/34 65 66 PartnerRe Finance II 6.440% due 12/01/66 50 50 Peabody Energy Corp. (N) 7.875% due 11/01/26 100 107 Pemex Project Funding Master Trust (N) 5.750% due 12/15/15 100 99 PetroHawk Energy Corp. 9.125% due 07/15/13 40 42 Phoenix Life Insurance Co. (p) 7.150% due 12/15/34 150 159 Pinnacle Entertainment, Inc. 8.250% due 03/15/12 255 258 Popular North America, Inc. (N) Series MTNE 3.875% due 10/01/08 275 268 Progress Energy, Inc. 7.100% due 03/01/11 47 50 7.000% due 10/30/31 80 89 Qwest Corp. 7.625% due 06/15/15 200 214 RBS Capital Trust III (f) 5.512% due 09/29/49 200 198 Reckson Operating Partnership, LP 7.750% due 03/15/09 25 26 5.150% due 01/15/11 92 90 Reinsurance Group of America, Inc. 6.750% due 12/15/65 75 75 Rental Services Corp. (A) 9.500% due 12/01/14 70 72 Residential Capital LLC 6.375% due 06/30/10 225 228 6.000% due 02/22/11 (N) 60 60 RH Donnelley, Inc. 10.875% due 12/15/12 205 223 Rural Cellular Corp. 8.250% due 03/15/12 40 42 Safeway, Inc. (N) 7.250% due 02/01/31 20 22 SB Treasury Co. LLC (f)(p) (Step Up, 10.295%, 06/30/08) 9.400% due 12/29/49 350 368 SBC Communications, Inc. 6.150% due 09/15/34 75 74 Simon Property Group, LP (N) 5.600% due 09/01/11 200 202 Southern Copper Corp. 7.500% due 07/27/35 100 108
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Sprint Capital Corp. 7.625% due 01/30/11 350 375 8.750% due 03/15/32 70 84 Sprint Nextel Corp. 6.000% due 12/01/16 110 107 Symetra Financial Corp. (p) 6.125% due 04/01/16 150 152 Time Warner, Inc. (N) 5.875% due 11/15/16 475 474 6.500% due 11/15/36 75 75 Travelport, Ltd. (N)(A) 11.875% due 09/01/16 150 154 Trump Entertainment Resorts, Inc. (N) 8.500% due 06/01/15 195 194 Tyson Foods, Inc. 6.850% due 04/01/16 40 41 Unicredito Italiano NY (E) Series YCD 5.370% due 05/29/08 200 200 Union Pacific Corp. 6.125% due 01/15/12 120 124 Union Planters Corp. 7.750% due 03/01/11 50 54 UnitedHealth Group, Inc. 5.250% due 03/15/11 75 75 VeraSun Energy Corp. 9.875% due 12/15/12 90 95 Verizon Global Funding Corp. 7.250% due 12/01/10 150 160 5.850% due 09/15/35 165 158 Wachovia Capital Trust III (f) 5.800% due 03/15/42 125 126 Wachovia Corp. (N) 5.625% due 10/15/16 100 101 WellPoint, Inc. 5.850% due 01/15/36 40 39 Wells Fargo & Co. 4.950% due 10/16/13 65 63 Wells Fargo Bank NA (N) 5.750% due 05/16/16 80 82 West Corp. (A) 9.500% due 10/15/14 185 185 Windstream Corp. (p) 8.625% due 08/01/16 125 137 Wisconsin Central Transport 6.625% due 04/15/08 325 330
Core Bond Fund 69 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- World Savings Bank FSB (E) Series BKNT 5.415% due 05/08/09 1,000 1,000 Wyeth 6.950% due 03/15/11 390 414 Zurich Capital Trust I (p) 8.376% due 06/01/37 245 257 ------------ 37,320 ------------ International Debt - 5.8% Abbey National PLC (f) (Step Up, 7.570%, 06/15/08) 6.700% due 06/29/49 150 152 America Movil SA de CV 5.500% due 03/01/14 100 98 Aspen Insurance Holdings, Ltd. 6.000% due 08/15/14 50 49 AXA SA 8.600% due 12/15/30 35 45 6.379% due 12/14/49 (f)(A) 100 99 6.463% due 12/31/49 (f)(A) 100 99 BNP Paribas (f)(p) 5.186% due 06/29/49 300 288 Brazilian Government International Bond 7.875% due 03/07/15 100 111 8.875% due 04/15/24 305 380 British Telecommunications PLC 8.875% due 12/15/30 150 205 Canadian Natural Resources, Ltd. 6.500% due 02/15/37 75 75 CIT Group Funding Co. of Canada (N) 5.600% due 11/02/11 80 81 Conoco Funding Co. 6.350% due 10/15/11 310 324 Deutsche Telekom International Finance BV 5.569% due 03/23/09 (E)(N) 300 300 5.375% due 03/23/11 (N) 75 75 8.250% due 06/15/30 155 191 DNB Nor Bank ASA (E)(p) 5.443% due 10/13/09 1,000 1,000 Egypt Government AID Bonds 4.450% due 09/15/15 390 377 Endurance Specialty Holdings, Ltd. 6.150% due 10/15/15 100 100 Export-Import Bank of China (p) 4.875% due 07/21/15 110 106 Export-Import Bank of Korea 4.125% due 02/10/09 120 117 5.125% due 02/14/11 100 99
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Falconbridge, Ltd. 7.250% due 07/15/12 50 54 6.000% due 10/15/15 175 178 Gaz Capital SA (p) 6.212% due 11/22/16 (A) 115 116 8.625% due 04/28/34 80 103 HBOS Treasury Services PLC (E)(p) Series MTN 5.414% due 07/17/09 300 300 HSBC Holdings PLC 6.500% due 05/02/36 145 156 Inco, Ltd. (N) 5.700% due 10/15/15 175 171 Intelsat Bermuda, Ltd. (p) 11.250% due 06/15/16 170 187 Intelsat Subsidiary Holding Co., Ltd. (E) 10.484% due 01/15/12 140 141 Ispat Inland ULC 9.750% due 04/01/14 209 234 Korea Electric Power Corp. (p) 5.125% due 04/23/34 60 60 Majapahit Holding BV (A) 7.250% due 10/17/11 55 57 Mexico Government International Bond (N) 8.300% due 08/15/31 180 230 Mizuho Financial Group Cayman, Ltd. (p) 5.790% due 04/15/14 100 101 Navios Maritime Holdings, Inc. (A) 9.500% due 12/15/14 95 94 Panama Government International Bond 9.375% due 07/23/12 100 117 Peru Enhanced Pass-Through Finance, Ltd. (A) Zero coupon due 05/31/18 535 357 Zero coupon due 05/31/25 320 121 Poland Government International Bond Series RSTA (Step Up, 5.000%, 10/27/14) 4.750% due 10/27/24 200 188 Province of Quebec Canada (N) Series PJ 6.125% due 01/22/11 375 387 Ras Laffan Liquefied Natural Gas Co., Ltd. II (p) 5.298% due 09/30/20 75 72
70 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ras Laffan Liquefied Natural Gas Co., Ltd. III (p) 5.838% due 09/30/27 250 240 Resona Bank, Ltd. (f)(p) 5.850% due 09/29/49 255 249 Royal Bank of Scotland Group PLC (f) Series 1 9.118% due 03/31/49 700 775 Royal Bank of Scotland PLC (E) 5.770% due 07/06/12 600 601 Russia Government International Bond (p) 5.000% due 03/31/30 315 356 Santander Financial Issuances 6.375% due 02/15/11 110 114 Santander US Debt SA Unipersonal (E)(p) 5.376% due 11/20/08 500 500 Sanwa Finance Aruba AEC 8.350% due 07/15/09 135 144 Shimao Property Holdings, Ltd. (A) 8.000% due 12/01/16 200 199 SMFG Preferred Capital (f)(p) Series 144A 6.078% due 01/29/49 100 99 Sumitomo Mitsui Banking Corp. (f)(p) 5.625% due 07/29/49 400 391 Systems 2001 Asset Trust LLC (p) 7.156% due 12/15/11 106 110 Telecom Italia Capital SA 4.875% due 10/01/10 150 146 5.250% due 10/01/15 155 145 Telefonica Emisiones SAU (E) 5.690% due 06/19/09 300 300 Telefonica Europe BV 7.750% due 09/15/10 270 290 TELUS Corp. 8.000% due 06/01/11 250 273 Transocean, Inc. (E) 5.591% due 09/05/08 200 200 Tyco International Group SA (N) 6.750% due 02/15/11 410 432 UFJ Finance Aruba AEC 6.750% due 07/15/13 35 37 Unicredit Luxembourg Finance SA (E)(p) 5.426% due 10/24/08 1,000 1,000 Vale Overseas, Ltd. 6.250% due 01/11/16 35 35 6.250% due 01/23/17 115 116 Vedanta Resources PLC (p) 6.625% due 02/22/10 160 158 VTB Capital SA (E)(A) 5.970% due 08/01/08 230 230
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Westfield Capital Corp., Ltd. (A) 5.125% due 11/15/14 125 121 Westfield Group (A) 5.400% due 10/01/12 125 125 Xstrata Finance Canada, Ltd. (A) 5.500% due 11/16/11 (N) 195 195 5.800% due 11/15/16 45 45 ------------ 15,421 ------------ Loan Agreements - 0.6% Starbound Reinsurance, Ltd. 7.400% due 03/31/08 1,500 1,500 ------------ Mortgage-Backed Securities - 48.4% ABN Amro Mortgage Corp. Series 2003-13 Class A3 5.500% due 01/25/34 1,519 1,474 Adjustable Rate Mortgage Trust (E) Series 2005-3 Class 8A2 5.560% due 07/25/35 292 293 American Home Mortgage Investment Trust (E) Series 2004-4 Class 4A 4.390% due 02/25/45 165 162 Series 2005-2 Class 5A2 5.470% due 09/25/35 80 80 Banc of America Commercial Mortgage, Inc. Series 2004-3 Class A3 4.875% due 06/10/39 465 460 Series 2004-4 Class A3 4.128% due 07/10/42 300 292 Series 2005-2 Class A4 4.783% due 07/10/43 333 326 Series 2005-3 Class A2 4.501% due 07/10/43 150 146 Series 2005-5 Class A4 5.115% due 10/10/45 500 492 Series 2006-4 Class A4 5.634% due 07/10/46 1,000 1,021 Banc of America Funding Corp. Series 2005-D Class A1 (E) 4.114% due 05/25/35 159 155 Series 2006-3 Class 5A8 5.500% due 03/25/36 475 471 Series 2006-A Class 3A2 5.917% due 02/20/36 217 218
Core Bond Fund 71 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2006-A Class 4A1 (E) 5.567% due 02/20/36 514 513 Banc of America Mortgage Securities, Inc. Series 2003-9 Class 1A12 (E) 5.770% due 12/25/33 510 512 Series 2004-1 Class 5A1 6.500% due 09/25/33 19 19 Series 2004-11 Class 2A1 5.750% due 01/25/35 438 433 Series 2005-L Class 3A1 (E) 5.453% due 01/25/36 255 254 Series 2006-2 Class A15 6.000% due 07/25/36 325 327 Bank of America Alternative Loan Trust Series 2003-10 Class 2A2 (E) 5.770% due 12/25/33 255 257 Series 2003-2 Class CB2 (E) 5.820% due 04/25/33 111 112 Series 2006-5 Class CB17 6.000% due 06/25/36 242 243 Bear Stearns Adjustable Rate Mortgage Trust Series 2003-1 Class 6A1 5.056% due 04/25/33 80 80 Series 2003-8 Class 4A1 4.640% due 01/25/34 157 157 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.392% due 05/25/35 306 307 Bear Stearns Mortgage Funding Trust (E) Series 2006-AR2 Class 1A1 5.520% due 09/25/36 991 990 Series 2006-AR2 Class 2A1 5.550% due 10/25/36 984 984 Chase Mortgage Finance Corp. Series 2003-S8 Class A1 4.500% due 09/25/18 179 171 Series 2006-S4 Class A3 6.000% due 12/25/36 270 272 Series 2006-S4 Class A4 6.000% due 12/25/36 145 146 Citigroup Mortgage Loan Trust, Inc. Series 2005-11 Class A2A (E) 4.700% due 12/25/35 90 89 Series 2006-WF1 Class A2F 5.657% due 03/01/36 325 321 Series 2006-WFH Class A2 (E) 5.420% due 11/25/36 1,000 1,000
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Citigroup/Deutsche Bank Commercial Mortgage Trust Series 2005-CD1 Class A4 5.400% due 07/15/44 1,000 998 Series 2006-CD2 Class A4 5.362% due 01/15/46 500 503 Series 2006-CD3 Class A5 5.617% due 10/15/48 190 194 Citimortgage Alternative Loan Trust Series 2006-A3 Class 1A5 6.000% due 07/25/36 181 181 Countrywide Alternative Loan Trust Series 2005-J13 Class 2A3 5.500% due 11/25/35 155 155 Series 2005-J8 Class 1A3 5.500% due 07/25/35 227 226 Series 2006-43C Class 1A7 6.000% due 02/25/37 395 398 Series 2006-9T1 Class A7 6.000% due 05/25/36 131 131 Series 2006-J2 Class A3 6.000% due 04/25/36 197 198 Series 2006-OA1 Class 4A1 (E) 5.520% due 08/25/46 959 959 Series 2006-OA1 Class A1 (E) 5.500% due 02/20/47 999 999 Countrywide Home Loan Mortgage Pass Through Trust (E) Series 2004-16 Class 1A1 5.720% due 09/25/34 366 368 Series 2005-3 Class 1A2 5.610% due 04/25/35 48 48 Series 2005-HYB Class 3A2A 5.250% due 02/20/36 85 84 Series 2006-OA5 Class 2A1 5.520% due 04/25/46 909 908 Credit Suisse First Boston Mortgage Securities Corp. Series 1998-C1 Class A1B 6.480% due 05/17/40 56 57 Series 1998-C2 Class A2 6.300% due 11/15/30 99 100 Deutsche ALT-A Securities, Inc. Alternate Loan Trust Series 2005-AR1 Class 2A3 5.023% due 08/25/35 465 472 DLJ Commercial Mortgage Corp. Series 1998-CF1 Class A1B 6.410% due 02/18/31 293 295
72 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 1999-CG1 Class S Interest Only STRIP 0.822% due 03/10/32 3,498 64 Fannie Mae 5.190% due 2012 (E) 213 213 6.000% due 2016 21 21 5.000% due 2017 628 620 5.427% due 2017 (E) 61 61 6.000% due 2017 109 111 4.000% due 2018 931 879 4.500% due 2018 2,605 2,521 5.000% due 2018 278 274 4.500% due 2019 388 375 5.000% due 2019 1,410 1,387 4.500% due 2020 564 546 5.000% due 2020 1,938 1,904 5.000% due 2021 1,593 1,565 6.500% due 2024 594 608 6.000% due 2028 40 40 5.500% due 2029 97 96 6.000% due 2032 630 636 7.000% due 2032 259 266 3.905% due 2033 (E) 345 341 4.642% due 2033 (E) 203 204 5.000% due 2033 644 623 5.500% due 2033 3,077 3,044 6.000% due 2033 233 235 5.000% due 2034 742 717 5.500% due 2034 4,777 4,727 5.000% due 2035 492 475 5.500% due 2035 22,667 22,414 6.000% due 2035 206 207 5.000% due 2036 49 47 5.500% due 2036 985 973 5.555% due 2036 (E) 538 542 6.000% due 2036 900 906 6.500% due 2036 122 123 7.000% due 2036 30 31 7.500% due 2036 1,629 1,690 Series 1992-10 Class ZD 8.000% due 11/25/21 214 216 Series 1999-56 Class Z 7.000% due 12/18/29 124 129 Series 2003-32 Class FH (E) 5.720% due 11/25/22 383 385 Series 2003-337 Class 1 Principal Only STRIP Zero coupon due 07/01/33 307 226 Series 2003-343 Class 6 Interest Only STRIP 5.000% due 10/01/33 301 65 Series 2003-78 Class FI (E) 5.720% due 01/25/33 372 373
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-21 Class FL (E) 5.670% due 11/25/32 194 195 15 Year TBA (I) 4.500% 125 121 5.000% 445 437 30 Year TBA (I) 4.500% 530 497 5.000% 1,790 1,728 5.500% 1,880 1,858 6.000% 8,735 8,792 6.500% 1,365 1,391 Fannie Mae REMIC Series 1993-41 Class ZQ 7.000% due 12/25/23 465 484 Series 1993-42 Class ZQ 6.750% due 04/25/23 527 539 Series 2005-36 Class AI Interest Only STRIP 5.500% due 10/25/26 375 30 Fannie Mae Whole Loan Series 2003-W1 Class 1A1 6.500% due 12/25/42 50 51 Federal Home Loan Mortgage Corp. Structured Pass Through Securities (E) Series 2005-63 Class 1A1 5.864% due 02/25/45 58 58 First Horizon Alternative Mortgage Securities Series 2006-AA5 Class A2 (E) 6.609% due 09/25/36 187 191 Series 2006-FA3 Class A6 6.000% due 07/25/36 265 267 First Horizon Asset Securities, Inc. (E) Series 2005-AR5 Class 3A1 5.527% due 10/25/35 123 123 Freddie Mac 5.000% due 2018 458 452 4.000% due 2019 1,874 1,764 5.000% due 2019 869 855 4.684% due 2034 (E) 225 227 5.971% due 2036 (E) 145 147 Series 2000-226 Class F (E) 5.770% due 11/15/30 19 19 Series 2003-262 Class AB 2.900% due 11/15/14 354 344
Core Bond Fund 73 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-263 Class YH 3.500% due 08/15/22 -- -- Series 2004-276 Class IP Interest Only STRIP 5.500% due 07/15/23 312 14 Series 2004-281 Class DF (E) 5.770% due 06/15/23 145 145 Series 2005-292 Class IG Interest Only STRIP 5.000% due 04/15/23 199 31 Series 2005-294 Class FA (E) 5.520% due 03/15/20 282 282 Series 2006-313 Class FP (E) Zero coupon due 04/15/36 227 231 30 Year TBA (I) 5.000% 1,460 1,408 5.500% 1,520 1,503 6.000% 1,270 1,279 Freddie Mac Gold 6.000% due 2016 34 34 5.000% due 2018 297 293 5.500% due 2020 953 954 7.188% due 2030 (E) 2 2 5.000% due 2033 232 225 Freddie Mac REMIC Series 2003-256 Class FJ (E) 5.720% due 02/15/33 170 172 Series 2004-277 Class KE 3.500% due 12/15/17 34 34 Series 2005-299 Class KF (E) 5.750% due 06/15/35 100 100 Series 2006-323 Class PA 6.000% due 03/15/26 290 293 Ginnie Mae I 6.000% due 2029 16 16 30 Year TBA (I) 5.500% 1,650 1,642 Ginnie Mae II (E) 5.375% due 2026 250 252 5.750% due 2027 17 17 4.750% due 2032 152 152 Government National Mortgage Association (E) Series 1999-40 Class FE 5.900% due 11/16/29 148 150 Series 2000-29 Class F 5.820% due 09/20/30 29 29 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A7 5.317% due 06/10/36 465 465 Series 2006-RR1 Class A1 (A) 5.781% due 03/18/49 205 211
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GS Mortgage Securities Corp. II Series 2006-FL8 Class A1 (E)(p) 5.450% due 01/06/08 140 140 Series 2006-GG6 Class A4 5.553% due 04/10/38 115 117 Series 2006-GG8 Class AAB 5.535% due 11/10/39 200 202 Harborview Mortgage Loan Trust Series 2005-14 Class 3A1A 5.319% due 12/19/35 126 126 Series 2005-16 Class 3A1A (E) 5.570% due 01/19/36 791 793 Series 2006-12 Class 2A2A (E) 5.510% due 12/19/37 999 1,000 Indymac Index Mortgage Loan Trust (E) Series 2006-AR2 Class A2 5.073% due 11/25/36 168 168 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2001-CIB Class A2 6.244% due 04/15/35 181 183 Series 2004-LN2 Class A1 4.475% due 07/15/41 362 352 Series 2005-LDP Class A3A1 4.871% due 10/15/42 210 206 Series 2005-LDP Class A4 4.918% due 10/15/42 325 316 Series 2006-CB1 Class A4 5.552% due 05/12/45 220 223 Series 2006-LDP Class A4 5.876% due 04/15/45 270 282 5.399% due 05/15/45 290 291 LB-UBS Commercial Mortgage Trust Series 2006-C1 Class A4 5.156% due 02/15/31 1,000 988 Series 2006-C4 Class A4 5.899% due 06/15/38 105 110 Lehman Mortgage Trust Series 2005-3 Class 1A3 5.500% due 01/25/36 685 686 Lehman XS Trust (E) Series 2005-5N Class 3A1A 5.620% due 11/25/35 714 714 Series 2006-16N Class A4A 5.510% due 11/25/46 980 980
74 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mastr Adjustable Rate Mortgages Trust (E) Series 2006-OA2 Class 4A1A 5.514% due 12/25/46 993 993 Mastr Alternative Loans Trust Series 2003-4 Class B1 5.662% due 06/25/33 204 204 Series 2004-10 Class 5A6 5.750% due 09/25/34 170 168 Mastr Asset Securitization Trust (E) Series 2003-7 Class 4A35 5.720% due 09/25/33 276 276 Series 2004-4 Class 2A2 5.770% due 04/25/34 107 107 Mellon Residential Funding Corp. (E) Series 2000-TBC Class A1 5.800% due 06/15/30 240 240 Merrill Lynch Floating Trust (E)(p) Series 2006-1 Class A1 5.390% due 06/15/22 908 908 MLCC Mortgage Investors, Inc. (E) Series 2004-HB1 Class A2 5.930% due 04/25/29 77 78 Morgan Stanley Capital I Series 2005-IQ1 Class AAB 5.178% due 09/15/42 415 413 Series 2006-HQ8 Class A4 5.561% due 03/12/44 160 162 Series 2006-HQ9 Class A4 5.731% due 07/20/44 200 206 Morgan Stanley Mortgage Loan Trust Series 2006-11 Class 1A6 6.231% due 08/25/36 220 225 MortgageIT Trust (E) Series 2005-AR1 Class 1A1 5.570% due 11/25/35 683 685 Prime Mortgage Trust (E) Series 2004-CL1 Class 1A2 5.720% due 02/25/34 50 50 Residential Accredit Loans, Inc. Series 2004-QS5 Class A6 (E) 5.950% due 04/25/34 72 73 Series 2004-QS8 Class A4 (E) 5.750% due 06/25/34 374 376 Series 2005-QA8 Class NB3 5.500% due 07/25/35 272 273 Series 2006-QS6 Class 1A13 6.000% due 06/25/36 445 447 Residential Asset Securities Corp. (E) Series 2003-KS4 Class AIIB 5.610% due 06/25/33 91 91
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Residential Asset Securitization Trust (E) Series 2003-A15 Class 1A2 5.770% due 02/25/34 426 428 Residential Funding Mortgage Securities I (E) Series 2003-S14 Class A5 5.720% due 07/25/18 230 231 Series 2003-S20 Class 1A7 5.820% due 12/25/33 90 90 Series 2003-S5 Class 1A2 5.770% due 11/25/18 217 218 Sequoia Mortgage Trust (E) Series 2001-5 Class A 5.670% due 10/19/26 101 101 Small Business Administration Participation Certificates Series 2005-20G Class 1 4.750% due 07/01/25 949 922 Structured Asset Mortgage Investments, Inc. (E) Series 2006-AR2 Class A1 5.550% due 02/25/36 844 845 Series 2006-AR8 Class A1A 5.520% due 10/25/36 990 990 Structured Asset Securities Corp. Series 2004-21X Class 1A3 4.440% due 12/25/34 650 642 Thornburg Mortgage Securities Trust (E) Series 2003-2 Class A1 5.660% due 04/25/43 167 167 Series 2006-5 Class A1 5.440% due 08/25/36 949 948 Series 2006-6 Class A1 5.430% due 12/25/36 198 198 Wachovia Bank Commercial Mortgage Trust Series 2005-C21 Class A4 5.371% due 10/15/44 1,000 995 Washington Mutual Alternative Mortgage Pass-Through Certificates Series 2005-4 Class CB11 5.500% due 06/25/35 90 88 Series 2006-AR7 Class A1A (E) 5.483% due 09/25/46 877 880 Series 2006-AR8 Class 2A (E) 5.510% due 09/25/46 960 961 Series 2006-AR9 Class 2A (E) 5.667% due 11/25/46 992 993
Core Bond Fund 75 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Washington Mutual, Inc. Series 2003-S9 Class A2 (E) 5.870% due 10/25/33 399 401 Series 2005-AR1 Class 1A1 4.838% due 10/25/35 342 338 Series 2005-AR1 Class A1A1 (E) 5.610% due 10/25/45 64 64 5.590% due 12/25/45 721 723 Series 2005-AR6 Class B3 (E) 6.010% due 04/25/45 254 254 Series 2006-AR1 Class 3A1A (E) 5.678% due 09/25/46 972 974 Wells Fargo Mortgage Backed Securities Trust Series 2006-2 Class 2A3 5.500% due 03/25/36 500 499 Series 2006-AR2 Class 2A1 4.950% due 03/25/36 364 360 ------------ 128,597 ------------ Municipal Bonds - 0.2% Golden State Tobacco Securitization Corp. Revenue Bonds, weekly demand 6.750% due 06/01/39 400 458 Tobacco Settlement Financing Corp. Revenue Bonds, weekly demand 6.250% due 06/01/43 200 223 ------------ 681 ------------ Non-US Bonds - 0.4% Bombardier, Inc. (A) 7.250% due 11/15/16 EUR 125 167 Province of Quebec Canada 5.000% due 12/01/38 CAD 200 180 Quebec Residual Zero coupon due 12/01/36 CAD 370 80 United Kingdom Gilt 5.750% due 12/07/09 GBP 400 796 ------------ 1,223 ------------ United States Government Agencies - 6.9% Fannie Mae 4.200% due 03/24/08 (N) 2,000 1,975 4.150% due 09/10/09 (N) 2,200 2,155 3.875% due 02/15/10 (N) 710 688 4.750% due 04/20/10 1,400 1,392 4.125% due 05/12/10 1,500 1,463 5.050% due 02/07/11 (N) 1,200 1,205 Federal Home Loan Bank 4.800% due 05/02/08 3,100 3,087 Series 577 (N) 4.500% due 09/26/08 900 892
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Federal Home Loan Bank System 5.375% due 08/19/11 (N) 295 300 5.310% due 12/28/12 1,000 1,018 Series IY08 3.400% due 03/18/08 1,000 980 Financing Corp. Principal Only STRIP Series 1 Zero coupon due 05/11/16 80 50 Series 12P Zero coupon due 12/06/18 245 133 Series 13 Zero coupon due 12/27/16 275 166 Series 13P Zero coupon due 12/27/18 670 363 Series 16P Zero coupon due 04/05/19 380 203 Series 19 Zero coupon due 06/06/16 230 143 Series 1P Zero coupon due 05/11/18 95 53 Series 3P Zero coupon due 11/30/17 170 98 Series 5P Zero coupon due 02/08/18 65 37 Series 8P Zero coupon due 08/03/18 605 335 Series 9P Zero coupon due 10/06/17 310 180 Freddie Mac 3.450% due 03/12/08 1,000 980 2.750% due 03/15/08 (N) 210 204 5.500% due 06/12/08 200 200 ------------ 18,300 ------------ United States Government Treasuries - 13.3% United States Treasury Inflation Indexed Bonds 3.375% due 01/15/12 (N) 1,063 1,110 1.875% due 07/15/13 (N) 220 212 2.000% due 01/15/14 -- -- 2.000% due 07/15/14 (N) 1,756 1,704 1.875% due 07/15/15 (N) 934 895 2.000% due 01/15/16 -- -- 2.500% due 07/15/16 -- -- 2.375% due 01/15/25 (N) 428 426 2.000% due 01/15/26 (N) 1,119 1,052
76 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United States Treasury Notes 4.875% due 10/31/08 (N) 3,000 3,001 2.000% due 12/31/08 14,000 13,984 4.375% due 12/15/10 (N) 955 944 4.500% due 09/30/11 (N) 1,500 1,487 4.500% due 12/31/11 4,400 4,385 4.250% due 08/15/15 415 402 Zero coupon due 11/15/21 (N) 2,545 1,225 6.000% due 02/15/26 (N) 2,960 3,357 4.500% due 02/15/36 (N) 1,150 1,094 ------------ 35,278 ------------ TOTAL LONG-TERM INVESTMENTS (cost $250,438) 251,530 ------------ PREFERRED STOCKS - 0.2% Financial Services - 0.2% DG Funding Trust (E)(A) 49 513 ------------ TOTAL PREFERRED STOCKS (cost $515) 513 ------------ WARRANTS & RIGHTS - 0.0% Miscellaneous - 0.0% Mexico Government International Bond Value Recovery Rights (AE) Series E 1,900,000 25 ------------ TOTAL WARRANTS & RIGHTS (cost $1) 25 ------------
NOTIONAL AMOUNT $ ------------ OPTIONS PURCHASED - 0.1% (Number of Contracts) Eurodollar Futures Mar 2007 92.00 Put (9) 2,070 -- Mar 2007 92.25 Put (49) 11,301 -- Mar 2007 92.50 Put (5) 1,156 -- Jun 2007 91.00 Put (59) 13,423 -- Jun 2007 91.25 Put (71) 16,197 1 Sep 2007 90.75 Put (37) 8,394 -- Sep 2007 91.25 Put (46) 10,494 -- Dec 2007 91.25 Put (38) 8,669 -- Mar 2008 91.75 Put (241) 55,279 2 Swaptions (Fund Pays/Fund Receives) EUR Six Month LIBOR/ EUR 3.960% Jul 2007 0.00 Call (2) 5,280 7
NOTIONAL MARKET AMOUNT VALUE $ $ - ----------------------------------------------------------------------------- EUR Six Month LIBOR/ EUR 4.100% Jul 2007 0.00 Call (1) 2,640 3 GBP Six Month LIBOR/ GBP 5.080% Jun 2007 0.00 Call (2) 1,370 -- USD Three Month LIBOR/ USD 5.170% Feb 2007 0.00 Call (1) 2,300 4 USD Three Month LIBOR/ USD 5.000% Mar 2007 0.00 Call (2) 4,000 6 USD Three Month LIBOR/ USD 5.080% Apr 2007 0.00 Call (1) 2,300 7 USD Three Month LIBOR/ USD 5.200% May 2007 0.00 Call (2) 10,000 48 USD Three Month LIBOR/ USD 5.250% Jun 2007 0.00 Call (1) 5,000 29 USD Three Month LIBOR/ USD 5.500% Jun 2007 0.00 Call (1) 4,000 39 USD Three Month LIBOR/ USD 4.750% Jul 2007 0.00 Call (1) 5,000 23 USD Three Month LIBOR/ USD 4.900% Jul 2007 0.00 Call (1) 6,000 35 USD Three Month LIBOR/ USD 5.250% Jul 2007 0.00 Call (1) 11,000 76 USD Three Month LIBOR/ USD 5.370% Jul 2007 0.00 Call (1) 3,300 26 USD Three Month LIBOR/ USD 4.800% Aug 2007 0.00 Call (1) 2,000 15 USD Three Month LIBOR/ USD 4.900% Oct 2007 0.00 Call (1) 3,000 19 ------------ TOTAL OPTIONS PURCHASED (cost $283) 340 ------------
Core Bond Fund 77 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 19.1% American General Finance Corp. (E) Series MTNG 5.429% due 03/23/07 100 100 AT&T Wireless Services, Inc. 7.500% due 05/01/07 475 478 Bank of America Corp. (z) 5.250% due 03/15/07 1,200 1,184 Barclays Bank PLC (c)(z) 5.343% due 01/29/07 1,100 1,100 Bundesobligation Series 139 4.000% due 02/16/07 EUR 6,100 8,055 Caesars Entertainment, Inc. 9.375% due 02/15/07 140 140 Citigroup Funding, Inc. Zero Coupon due 11/15/07 520 523 Ford Motor Credit Co. (E) 6.340% due 03/21/07 500 500 France Treasury Bill BTF Zero Coupon due 01/11/07 EUR 1,000 1,319 Harrah's Operating Co., Inc. 7.125% due 06/01/07 150 151 Hilton Hotels Corp. 7.950% due 04/15/07 45 45 HSBC Bank USA NA (E) Series BKNT 5.460% due 09/21/07 500 500 Mandalay Resort Group Series B 10.250% due 08/01/07 410 420 MGM Mirage 9.750% due 06/01/07 170 172 Mirage Resorts, Inc. (z) 6.750% due 08/01/07 85 85 Russell Investment Company Money Market Fund 24,793,000 24,793 Societe Generale NA (c)(z) 5.245% due 01/08/07 2,200 2,198 TELUS Corp. 7.500% due 06/01/07 270 272 Total Fina ELF Capital (z) 5.300% due 01/02/07 2,800 2,800 UBS Financial Del LLC (z) 5.270% due 01/02/07 2,100 2,100 5.160% due 06/12/07 1,000 974 United States Treasury Bills (sec.)(z) 5.020% due 02/15/07 (c) 65 65 5.134% due 02/15/07 (c) 50 50
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 5.036% due 03/01/07 185 183 4.933% due 03/15/07 180 178 4.936% due 03/15/07 225 223 3.051% due 05/15/07 25 25 United States Treasury Inflation Indexed Bonds (sec.) 3.375% due 01/15/07 127 127 United States Treasury Notes (N) 4.375% due 12/31/07 1,870 1,859 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $50,318) 50,619 ------------ OTHER SECURITIES - 12.2% State Street Securities Lending Quality Trust (X) 32,516,759 32,517 ------------ TOTAL OTHER SECURITIES (cost $32,517) 32,517 ------------ TOTAL INVESTMENTS - 126.2% (identified cost $334,072) 335,544 OTHER ASSETS AND LIABILITIES, NET - (26.2%) (69,761) ------------ NET ASSETS - 100.0% 265,783 ============
See accompanying notes which are an integral part of the financial statements. 78 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Australian 3 Year Treasury Bond (Australia) expiration date 03/07 (19) 3,814 (7) Australian 10 Year Treasury Bond (Australia) expiration date 03/07 (10) 5,647 (15) Euribor Futures expiration date 06/07 (7) 2,217 (4) expiration date 09/07 (13) 4,114 (12) expiration date 12/07 (7) 2,215 (7) expiration date 03/08 (2) 633 (1) expiration date 06/08 (1) 317 (1) Euro-Bund Futures (Germany) expiration date 03/07 (8) 1,224 (28) Euro-Schatz Bond Futures (Germany) expiration date 03/07 (10) 1,364 (8) Eurodollar Futures (CME) expiration date 01/07 (20) 4,732 -- expiration date 03/07 (71) 16,806 (58) expiration date 06/07 (132) 31,274 (79) expiration date 09/07 (286) 67,864 (129) expiration date 12/07 (279) 66,297 (69) expiration date 03/08 (62) 14,742 (33) LIBOR Futures expiration date 06/07 (4) 925 (2) expiration date 09/07 (6) 1,388 (3) expiration date 12/07 (2) 463 (1) expiration date 03/08 (2) 463 (1) expiration date 06/08 (2) 463 (2) expiration date 09/08 (2) 463 (2) Long Gilt Futures (UK) expiration date 03/07 (5) 1,058 (17) Three Month Short Sterling Interest Rate Futures (UK) expiration date 03/07 (19) 4,395 (9) United States Treasury 2 Year Notes expiration date 03/07 (25) 5,101 (20) United States Treasury 5 Year Notes expiration date 03/07 (108) 11,347 (86) United States Treasury 10 Year Notes expiration date 03/07 (28) 3,009 (26)
- ------------------------------------------------------------------------------------
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ United States Treasury Bonds expiration date 03/07 (23) 2,563 (44) Short Positions Bankers Acceptance Futures (Canada) expiration date 03/07 (19) 3,906 3 Euro-Bobl Futures (Germany) expiration date 03/07 (53) 7,605 101 Japanese 10 Year Bond (Japan) expiration date 03/07 (6) 6,750 1 United States Treasury 2 Year Notes expiration date 03/07 (4) 816 2 United States Treasury 5 Year Notes expiration date 03/07 (123) 12,923 73 United States Treasury 10 Year Notes expiration date 03/07 (126) 13,541 144 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (340) ===============
See accompanying notes which are an integral part of the financial statements. Core Bond Fund 79 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Mar 2007 94.75 Put (4) 948 (1) Mar 2007 95.25 Put (4) 953 (6) Swaptions (Fund Receives/Fund Pays) EUR Six Month LIBOR/ EUR 4.100% Jul 2007 0.00 Call (2) 2,640 (9) EUR Six Month LIBOR/ EUR 4.230% Jul 2007 0.00 Call (1) 1,320 (6) GBP Six Month LIBOR/GBP 4.850% Jun 2007 0.00 Call (2) 392 (1) USD Three Month LIBOR/ USD 5.240% Feb 2007 0.00 Call (1) 1,000 (8) USD Three Month LIBOR/ USD 5.040% Mar 2007 0.00 Call (2) 2,000 (10) USD Three Month LIBOR/ USD 5.220% Apr 2007 0.00 Call (1) 1,000 (11) USD Three Month LIBOR/ USD 5.300% May 2007 0.00 Call (1) 2,000 (29) USD Three Month LIBOR/ USD 5.315% May 2007 0.00 Call (1) 2,000 (32) USD Three Month LIBOR/ USD 5.340% Jun 2007 0.00 Call (1) 2,000 (32) USD Three Month LIBOR/ USD 5.600% Jun 2007 0.00 Call (1) 2,000 (50) USD Three Month LIBOR/ USD 4.750% Jul 2007 0.00 Call (1) 1,000 (4) USD Three Month LIBOR/ USD 5.000% Jul 2007 0.00 Call (1) 3,000 (24) USD Three Month LIBOR/ USD 5.370% Jul 2007 0.00 Call (1) 5,000 (87) USD Three Month LIBOR/ USD 5.500% Jul 2007 0.00 Call (1) 1,100 (30)
- ------------------------------------------------------------------------------------
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ USD Three Month LIBOR/ USD 4.900% Aug 2007 0.00 Call (1) 1,000 (7) USD Three Month LIBOR/ USD 5.010% Oct 2007 0.00 Call (1) 1,000 (11) United States Treasury Bonds Feb 2007 116.00 Call (8) 928 (1) Feb 2007 110.00 Put (8) 880 (4) United States Treasury Notes 2 Year Futures Feb 2007 102.00 Call (168) 34,272 (73) 5 Year Futures Feb 2007 106.50 Call (42) 4,473 (3) --------------- Total Liability for Options Written (premiums received $330) (439) ===============
See accompanying notes which are an integral part of the financial statements. 80 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 1,138 AUD 1,457 03/22/07 10 USD 1,142 AUD 1,457 03/22/07 5 USD 144 BRL 318 02/05/07 4 USD 132 CAD 149 01/11/07 (4) USD 96 CAD 110 03/22/07 (1) USD 496 CHF 592 03/22/07 (7) USD 111 CNY 859 03/19/07 -- USD 36 EUR 27 01/30/07 -- USD 179 EUR 140 03/23/07 7 USD 193 EUR 150 03/23/07 6 USD 474 GBP 243 03/22/07 2 USD 1,394 GBP 712 03/22/07 1 USD 144 JPY 17,177 01/04/07 -- USD 1,951 JPY 227,520 02/15/07 (27) USD 775 JPY 90,270 03/20/07 (9) USD 474 NOK 2,906 03/22/07 (6) USD 496 NOK 3,036 03/22/07 (7) USD 759 NOK 4,640 03/22/07 (12) USD 557 NZD 811 03/22/07 12 USD 145 PHP 7,071 03/30/07 (1) USD 474 SEK 3,235 03/22/07 1 USD 495 SEK 3,409 03/22/07 5 USD 1,883 SEK 12,767 03/22/07 (9) USD 42 SGD 65 01/29/07 1 USD 40 TWD 1,302 02/22/07 -- BRL 2,105 USD 956 02/02/07 (23) CAD 131 USD 115 01/11/07 3 CAD 212 USD 184 01/11/07 2 CHF 567 USD 474 03/22/07 5 CHF 602 USD 495 03/22/07 (3) CHF 1,883 USD 1,579 03/22/07 22 EUR 997 USD 1,330 01/23/07 13 EUR 6,867 USD 9,177 01/23/07 98 EUR 125 USD 164 01/30/07 (1) EUR 358 USD 474 03/22/07 -- EUR 373 USD 496 03/22/07 1 EUR 2,075 USD 2,760 03/22/07 10 GBP 6 USD 12 01/11/07 -- GBP 254 USD 495 03/22/07 (3) JPY 17,177 USD 145 01/04/07 -- JPY 17,177 USD 145 01/25/07 -- JPY 18,027 USD 155 01/25/07 3 JPY 71,049 USD 608 01/25/07 9 JPY 5,678 USD 50 01/31/07 2 JPY 17,234 USD 147 02/15/07 2
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- JPY 23,561 USD 204 03/22/07 4 JPY 54,767 USD 474 03/22/07 9 JPY 57,342 USD 496 03/22/07 9 JPY 57,819 USD 495 03/22/07 4 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts 137 ==============
See accompanying notes which are an integral part of the financial statements. Core Bond Fund 81 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
INDEX SWAP CONTRACTS - -------------------------------------------------------------------------------------------------------------------------------- UNREALIZED NOTIONAL APPRECIATION FUND RECEIVES COUNTER AMOUNT FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY $ FLOATING RATE DATE $ - ------------------------------ ---------------- --------- ---------------------------- -------------- ---------------- CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 2,000 05/31/07 3 CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 1,000 minus 0.075% 06/15/07 -- CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 700 minus 0.050% 06/29/07 1 CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 1,000 minus 0.025% 07/16/07 1 CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 1,000 minus 0.050% 07/31/07 1 CMBS AAA CMBS AAA 10 Year Index 10 Year Index Bank of America 1,250 minus 0.025% 09/28/07 3 CMBS AAA CMBS AAA 10 Year Index 10 Year Index JP Morgan 1,000 minus 0.075% 03/31/07 1 CMBS AAA CMBS AAA 10 Year Index 10 Year Index JP Morgan 800 minus 0.025% 05/31/07 1 Turkish Government Turkish Overnight Index Bond Citibank 2,768 Tuibon plus 0.750% 07/17/08 9 ---------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts 20 ================
See accompanying notes which are an integral part of the financial statements. 82 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
INTEREST RATE SWAPS CONTRACTS - ------------------------------------------------------------------------------------------------------------------- MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ------------------------- -------------- -------------------- -------------------- ------------ --------- Bank of America USD 7,000 5.000% Three Month LIBOR 06/21/10 (7) Bank of America USD 6,500 5.470% Three Month LIBOR 06/14/11 95 Bank of America USD 1,800 5.550% Three Month LIBOR 06/14/16 51 Bank of America USD 1,500 5.630% Three Month LIBOR 06/16/36 71 Barclays Bank PLC EUR 3,020 3.900% Six Month LIBOR 03/20/09 (19) Barclays Bank PLC EUR 3,800 4.250% Six Month LIBOR 07/20/16 49 Barclays Bank PLC EUR 280 Six Month LIBOR 4.000% 03/20/37 17 Barclays Bank PLC GBP 250 5.100% Six Month LIBOR 03/20/12 (6) Barclays Bank PLC SEK 35,000 Three Month LIBOR 4.323% 07/20/16 (424) Barclays Bank PLC USD 1,500 5.000% Three Month LIBOR 06/20/09 (1) BNP Paribas EUR 500 2.090% Consumer Price Index (France) 10/15/10 8 BNP Paribas EUR 260 Six Month LIBOR 4.000% 03/20/37 16 Citibank EUR 1,690 Six Month LIBOR 3.900% 03/20/12 23 Citibank JPY 485,000 1.500% Six Month LIBOR 03/20/12 12 Citibank JPY 448,000 Six Month LIBOR 1.500% 03/20/12 (6) Citibank JPY 192,000 1.900% Six Month LIBOR 03/20/17 5 Credit Suisse First Boston EUR 10,670 Six Month LIBOR 3.970% 02/23/09 46 Credit Suisse First Boston EUR 11,830 3.950% Six Month LIBOR 02/22/12 (126) Credit Suisse First Boston EUR 510 4.000% Six Month LIBOR 03/20/17 (11) Credit Suisse First Boston EUR 12,340 Three Month LIBOR 4.000% 03/20/17 43 Credit Suisse First Boston EUR 3,680 Six Month LIBOR 4.080% 02/22/22 98 Credit Suisse First Boston EUR 20 Six Month LIBOR 4.000% 03/20/37 1 Credit Suisse First Boston GBP 250 Six Month LIBOR 5.100% 03/20/12 -- Credit Suisse First Boston GBP 500 Six Month LIBOR 4.900% 03/20/17 15 Credit Suisse First Boston USD 640 5.820% Three Month LIBOR 09/22/36 57 Credit Suisse First Boston USD 660 Three Month LIBOR 5.250% 03/20/37 6 Deutsche Bank AUD 1,380 6.200% Six Month LIBOR 03/20/12 3 Deutsche Bank USD 790 Three Month LIBOR 5.000% 03/20/12 3 Deutsche Bank USD 8,000 5.000% Three Month LIBOR 06/20/12 (24) Deutsche Bank USD 12,100 5.100% Three Month LIBOR 06/20/14 (8) HSBC GBP 1,700 4.500% Six Month LIBOR 12/20/07 (31) JP Morgan GBP 100 Six Month LIBOR 4.000% 12/15/36 16 JP Morgan USD 2,600 5.000% Three Month LIBOR 06/20/09 (2) JP Morgan USD 1,100 5.000% Three Month LIBOR 06/20/37 (49) Lehman Brothers GBP 60 Six Month LIBOR 4.300% 03/20/37 4 Merrill Lynch BRL 200 12.948% BRCDDEFT Index 01/04/10 1 Merrill Lynch GBP 100 4.000% Six Month LIBOR 12/15/35 -- Morgan Stanley EUR 500 6.000% Six Month LIBOR 06/18/34 105 Salomon Smith Barney MXN 33,000 8.100% Mexico Interbank 28 Day Deposit Rate 07/04/08 35 UBS Securities USD 900 5.000% Three Month LIBOR 06/20/09 (1) --------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - $373 65 =========
See accompanying notes which are an integral part of the financial statements. Core Bond Fund 83 RUSSELL INVESTMENT FUNDS CORE BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2006 Amounts in thousands
CREDIT DEFAULT SWAP CONTRACTS - ---------------------------------------------------------------------------------------------------------------------- NOTIONAL FUND MARKET REFERENCE COUNTER AMOUNT (PAYS)/RECEIVES TERMINATION VALUE ENTITY PARTY $ FIXED RATE DATE $ - ------------------------------ ---------------- --------- ---------------- ---------------- ---------------- Anadarko Petroleum Corp. Goldman Sachs 100 0.150% 03/20/08 -- Brazilian Government Salomon Smith International Bond Barney 800 (1.500%) 08/22/11 14 Core Investment Grade Bond Bank of America 3,000 (0.650%) 12/20/16 22 Dow Jones CDX NA High Yield Index Lehman Brothers 750 (3.250%) 12/20/11 16 Ford Motor Company Merrill Lynch 800 1.700% 06/20/07 6 GAP, Inc. (The) Lehman Brothers 160 (1.240%) 12/20/11 1 Gaz Capital SA Morgan Stanley 200 0.570% 07/20/07 1 Republic of Indonesia Lehman Brothers 100 0.400% 12/20/08 -- Russian Federation Deutsche Bank 1,000 0.260% 12/20/07 -- Russian Federation Morgan Stanley 100 0.460% 06/20/10 -- SoftBank Corp. Deutsche Bank 7,000 2.300% 09/20/07 1 ---------------- Total Market Value of Open Credit Default Contracts Premiums Paid (Received) - ($29) 61 ================
See accompanying notes which are an integral part of the financial statements. 84 Core Bond Fund RUSSELL INVESTMENT FUNDS CORE BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- DECEMBER 31, 2006 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ------------------------------------------------------------- Asset-Backed Securities 4.7 Certificates of Deposit 0.3 Corporate Bonds and Notes 14.0 International Debt 5.8 Loan Agreements 0.6 Mortgage-Backed Securities 48.4 Municipal Bonds 0.2 Non-US Bonds 0.4 United States Government Agencies 6.9 United States Government Treasuries 13.3 Preferred Stocks 0.2 Warrants & Rights --* Options Purchased 0.1 Short-Term Investments 19.1 Other Securities 12.2 --------------- Total Investments 126.2 Other Assets and Liabilities, Net (26.2) --------------- 100.0 =============== Futures Contracts (0.1) Options Written (0.2) Foreign Currency Exchange Contracts 0.1 Index Swap Contracts --* Interest Rate Swaps Contracts --* Credit Default Swaps --*
* Less than .05% of net assets See accompanying notes which are an integral part of the financial statements. Core Bond Fund 85 RUSSELL INVESTMENT FUNDS NOTES TO SCHEDULES OF INVESTMENTS -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- FOOTNOTES: (AE) Nonincome-producing security. (o) Real Estate Investment Trust (REIT). (sec.)All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. (z) Rate noted is yield-to-maturity from date of acquisition. (c) At amortized cost, which approximates market. (E) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. (I) Forward commitment. (f) Perpetual floating rate security. Rate shown reflects rate in effect at period end. (u) Bond is insured by a guarantor. (ae) Pre-refunded: These bonds are collateralized by US Treasury securities, which are held in escrow by a trustee and used to pay principal and interest in the tax-exempt issue and to retire the bonds in full at the earliest refunding date. The rate noted is for descriptive purposes; effective yield may vary. (ffl) In default. (B) Illiquid security. (X) The security is purchased with the cash collateral from the securities loaned. (N) All or a portion of the shares of this security are on loan. (p) Restricted security. Security may have contractual restrictions on resale, may have been offered in a private placement transaction, and may not be registered under the Securities Act of 1933. (A) Illiquid and restricted security. (a) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2. ABBREVIATIONS: 144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933. ADR - American Depositary Receipt ADS - American Depositary Share CIBOR - Copenhagen Interbank Offered Rate CME - Chicago Mercantile Exchange CMO - Collateralized Mortgage Obligation CVO - Contingent Value Obligation FDIC - Federal Deposit Insurance Company GDR - Global Depositary Receipt GDS - Global Depositary Share LIBOR - London Interbank Offered Rate NIBOR - Norwegian Interbank Offered Rate PIK - Payment in Kind REMIC - Real Estate Mortgage Investment Conduit STRIP - Separate Trading of Registered Interest and Principal of Securities TBA - To Be Announced Security FOREIGN CURRENCY ABBREVIATIONS: ARS - Argentine peso GBP - British pound sterling PHP - Philippine peso AUD - Australian dollar HKD - Hong Kong dollar PLN - Polish zloty BRL - Brazilian real HUF - Hungarian forint RUB - Russian ruble CAD - Canadian dollar IDR - Indonesian rupiah SEK - Swedish krona CHF - Swiss franc ILS - Israeli shekel SGD - Singapore dollar CLP - Chilean peso INR - Indian rupee SKK - Slovakian koruna CNY - Chinese renminbi yuan JPY - Japanese yen THB - Thai baht COP - Colombian peso KES - Kenyan schilling TRY - Turkish lira CRC - Costa Rica colon KRW - South Korean won TWD - Taiwanese dollar CZK - Czech koruna MXN - Mexican peso USD - United States dollar DKK - Danish krone MYR - Malaysian ringgit VEB - Venezuelan bolivar EGP - Egyptian pound NOK - Norweigian krone VND - Vietnamese dong EUR - Euro NZD - New Zealand dollar ZAR - South African rand PEN - Peruvian nouveau sol
86 Notes to Schedules of Investments RUSSELL INVESTMENT FUNDS STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 2006
MULTI-STYLE AGGRESSIVE NON-U.S. REAL ESTATE CORE BOND AMOUNTS IN THOUSANDS EQUITY FUND EQUITY FUND FUND SECURITIES FUND FUND - ----------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at identified cost $ 410,692 $ 269,978 $ 367,270 $ 473,788 $ 334,072 - ----------------------------------------------------------------------------------------------------------------------- Investments, at market*** 460,779 292,392 430,286 701,533 335,544 Cash -- -- 86 -- -- Cash (restricted) -- -- 1,521 -- -- Foreign currency holdings* -- -- 1,084 -- 1,218 Unrealized appreciation on foreign currency exchange contracts -- -- 838 -- 250 Receivables: Dividends and interest 488 220 250 3,691 1,498 Dividends from affiliated money market funds 84 64 130 89 108 Investments sold 1,854 1,206 1,360 2,069 13,881 Fund shares sold 47 4 320 682 534 Foreign taxes recoverable -- -- 29 -- -- From Manager 2 14 2 2 14 Variation margin on futures contracts -- -- -- -- 524 Prepaid expenses 2 1 19 2 -- Unrealized appreciation on index swap contracts -- -- -- -- 20 Interest rate swap contracts, at market value**** -- -- -- -- 780 Credit default swap contracts, at market value***** -- -- -- -- 61 ------------ ------------ ------------ ------------ -------------- Total assets 463,256 293,901 435,925 708,068 354,432 ------------ ------------ ------------ ------------ -------------- LIABILITIES Payables: Due to Custodian -- -- -- -- 25 Investments purchased 2,927 1,799 1,446 2,343 54,596 Fund shares redeemed 73 146 20 660 11 Accrued fees to affiliates 279 192 309 456 137 Other accrued expenses 84 78 173 66 62 Variation margin on futures contracts 115 69 49 -- 34 Unrealized depreciation on foreign currency exchange contracts -- -- 958 -- 113 Options written, at market value** -- -- 317 -- 439 Payable upon return of securities loaned 42,271 67,971 62,769 79,066 32,517 Interest rate swap contracts, at market value**** -- -- -- -- 715 ------------ ------------ ------------ ------------ -------------- Total liabilities 45,749 70,255 66,041 82,591 88,649 ------------ ------------ ------------ ------------ -------------- NET ASSETS $ 417,507 $ 223,646 $ 369,884 $ 625,477 $ 265,783 ============ ============ ============ ============ ==============
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 87 RUSSELL INVESTMENT FUNDS STATEMENT OF ASSETS AND LIABILITIES, CONTINUED -- DECEMBER 31, 2006
MULTI-STYLE AGGRESSIVE NON-U.S. REAL ESTATE CORE BOND AMOUNTS IN THOUSANDS EQUITY FUND EQUITY FUND FUND SECURITIES FUND FUND - ------------------------------------------------------------------------------------------------------------------------------- Net Assets Consist of: Undistributed (overdistributed) net investment income $ 1,142 $ -- $ (687) $ -- $ 54 Accumulated net realized gain (loss) (23,297) 8,371 33,063 8,325 (3,238) Unrealized appreciation (depreciation) on: Investments 50,087 22,414 63,016 227,745 1,472 Futures contracts (153) (67) 451 -- (340) Options written -- -- (11) -- (109) Credit default swap contracts -- -- -- -- 90 Index swap contracts -- -- -- -- 20 Interest rate swap contracts -- -- -- -- (308) Foreign currency-related transactions -- -- (107) -- 103 Shares of beneficial interest 280 155 246 293 262 Additional paid-in capital 389,448 192,773 273,913 389,114 267,777 -------------- -------------- -------------- -------------- ---------------- NET ASSETS $ 417,507 $ 223,646 $ 369,884 $ 625,477 $ 265,783 ============== ============== ============== ============== ================ NET ASSET VALUE, offering and redemption price per share: Net asset value per share****** $ 14.93 $ 14.45 $ 15.01 $ 21.34 $ 10.14 Net assets $ 417,507,065 $ 223,645,757 $ 369,883,547 $ 625,477,130 $ 265,782,527 Shares outstanding ($.01 par value) 27,968,198 15,482,422 24,639,479 29,308,364 26,223,612 - ------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings - cost $ -- $ -- $ 1,074 $ -- $ 1,229 ** Premiums received on options written $ -- $ -- $ 306 $ -- $ 330 *** Securities on loan included in investments $ 41,070 $ 65,667 $ 60,540 $ 77,419 $ 31,820 **** Interest rate swap contracts - premiums paid (received) $ -- $ -- $ -- $ -- $ 373 ***** Credit default swap contracts - premiums paid (received) $ -- $ -- $ -- $ -- $ (29) ****** Net asset value per share equals net assets divided by shares of beneficial interest outstanding
See accompanying notes which are an integral part of the financial statements. 88 Statement of Assets and Liabilities RUSSELL INVESTMENT FUNDS STATEMENT OF OPERATIONS -- FOR THE YEAR ENDED DECEMBER 31, 2006
AGGRESSIVE MULTI-STYLE EQUITY NON-U.S. REAL ESTATE CORE BOND AMOUNTS IN THOUSANDS EQUITY FUND FUND FUND SECURITIES FUND FUND - ----------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 6,132 $ 1,868 $ 8,327 $ 13,697 $ 105 Dividends from affiliated money market funds 955 581 1,307 867 1,323 Interest 50 30 122 -- 10,717 Securities lending income 45 211 382 63 12 Less foreign taxes withheld -- -- (607) -- -- ------------ ------------ ------------ ------------ -------------- Total investment income 7,182 2,690 9,531 14,627 12,157 ------------ ------------ ------------ ------------ -------------- EXPENSES Management fees 2,956 2,121 3,250 4,497 1,431 Custodian fees 235 290 768 167 229 Transfer agent fees 17 10 15 23 10 Professional fees 73 57 85 69 46 Trustees' fees 10 6 9 13 6 Printing fees 7 3 6 8 4 Miscellaneous 15 8 18 20 9 ------------ ------------ ------------ ------------ -------------- Expenses before reductions 3,313 2,495 4,151 4,797 1,735 Expense reductions (27) (157) (231) (11) (77) ------------ ------------ ------------ ------------ -------------- Net expenses 3,286 2,338 3,920 4,786 1,658 ------------ ------------ ------------ ------------ -------------- Net investment income (loss) 3,896 352 5,611 9,841 10,499 ------------ ------------ ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments 26,919 35,391 63,853 48,221 (465) Futures contracts 1,318 793 512 -- (587) Options written -- -- (258) -- 309 Credit default swap contracts -- -- -- -- (54) Index swap contracts -- -- 469 -- (1) Interest rate swap contracts -- -- -- -- (552) Foreign currency-related transactions -- -- 1,393 -- (666) ------------ ------------ ------------ ------------ -------------- Net realized gain (loss) 28,237 36,184 65,969 48,221 (2,016) ------------ ------------ ------------ ------------ -------------- Net change in unrealized appreciation (depreciation) on: Investments 13,777 (6,896) (655) 101,743 1,145 Futures contracts 24 94 130 -- (414) Options written -- -- (12) -- (150) Credit default swap contracts -- -- -- -- 90 Index swap contracts -- -- (45) -- 20 Interest rate swap contracts -- -- -- -- (344) Foreign currency-related transactions -- -- 59 -- 92 ------------ ------------ ------------ ------------ -------------- Net change in unrealized appreciation (depreciation) 13,801 (6,802) (523) 101,743 439 ------------ ------------ ------------ ------------ -------------- Net realized and unrealized gain (loss) 42,038 29,382 65,446 149,964 (1,577) ------------ ------------ ------------ ------------ -------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 45,934 $ 29,734 $ 71,057 $ 159,805 $ 8,922 ============ ============ ============ ============ ==============
See accompanying notes which are an integral part of the financial statements. Statement of Operations 89 RUSSELL INVESTMENT FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- FOR THE YEARS ENDED DECEMBER 31,
MULTI-STYLE EQUITY FUND ------------------------------ AMOUNTS IN THOUSANDS 2006 2005 - ---------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 3,896 $ 3,158 Net realized gain (loss) 28,237 29,276 Net change in unrealized appreciation (depreciation) 13,801 (8,211) ------------ -------------- Net increase (decrease) in net assets from operations 45,934 24,223 ------------ -------------- DISTRIBUTIONS From net investment income (3,606) (3,627) From net realized gain -- -- ------------ -------------- Net decrease in net assets from distributions (3,606) (3,627) ------------ -------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 25,520 (3,696) ------------ -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 67,848 16,900 NET ASSETS Beginning of period 349,659 332,759 ------------ -------------- End of period $ 417,507 $ 349,659 ============ ============== Undistributed (overdistributed) net investment income included in net assets $ 1,142 $ 852
See accompanying notes which are an integral part of the financial statements. 90 Statements of Changes in Net Assets
AGGRESSIVE EQUITY NON-U.S. REAL ESTATE FUND FUND SECURITIES FUND ------------------------------------------------ -------------------------------- -------------------------------- 2006 2005 2006 2005 2006 2005 - ---------------------------------------------------------------------------------------------------------------------------- $ 352 $ 404 $ 5,611 $ 3,842 $ 9,841 $ 7,632 36,184 16,846 65,969 23,903 48,221 38,341 (6,802) (4,751) (523) 9,254 101,743 7,220 ------------------------------ -------------- -------------- -------------- -------------- -------------- 29,734 12,499 71,057 36,999 159,805 53,193 ------------------------------ -------------- -------------- -------------- -------------- -------------- (423) (355) (8,763) (4,388) (10,448) (8,794) (30,314) (18,690) (7,690) -- (44,446) (38,314) ------------------------------ -------------- -------------- -------------- -------------- -------------- (30,737) (19,045) (16,453) (4,388) (54,894) (47,108) ------------------------------ -------------- -------------- -------------- -------------- -------------- 20,357 15,255 13,019 10,884 77,474 57,274 ------------------------------ -------------- -------------- -------------- -------------- -------------- 19,354 8,709 67,623 43,495 182,385 63,359 204,292 195,583 302,261 258,766 443,092 379,733 ------------------------------ -------------- -------------- -------------- -------------- -------------- $ 223,646 $ 204,292 $ 369,884 $ 302,261 $ 625,477 $ 443,092 ============================== ============== ============== ============== ============== ============== $ -- $ -- $ (687) $ (1,442) $ -- $ -- CORE BOND FUND -------------------------------- 2006 2005 - ------------------------------------- $ 10,499 $ 7,313 (2,016) (1,000) 439 (2,319) -------------- -------------- 8,922 3,994 -------------- -------------- (10,963) (7,205) -- (1,809) -------------- -------------- (10,963) (9,014) -------------- -------------- 51,050 45,943 -------------- -------------- 49,009 40,923 216,774 175,851 -------------- -------------- $ 265,783 $ 216,774 ============== ============== $ 54 $ 299
See accompanying notes which are an integral part of the financial statements. Statements of Changes in Net Assets 91 RUSSELL INVESTMENT COMPANY FINANCIAL HIGHLIGHTS -- FOR THE YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL INCOME BEGINNING OF INVESTMENT AND UNREALIZED (LOSS) FROM PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------------- MULTI-STYLE EQUITY FUND December 31, 2006 13.37 .14 1.55 1.69 December 31, 2005 12.60 .12 .79 .91 December 31, 2004 11.56 .11 1.02 1.13 December 31, 2003 9.04 .08 2.51 2.59 December 31, 2002 11.84 .06 (2.80) (2.74) - -------------------------------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY FUND December 31, 2006 14.40 .03 2.10 2.13 December 31, 2005 14.90 .03 .90 .93 December 31, 2004 13.47 .02 1.95 1.97 December 31, 2003 9.26 .01 4.21 4.22 December 31, 2002 11.44 (.02) (2.16) (2.18) - -------------------------------------------------------------------------------------------------------------------- NON-U.S. FUND December 31, 2006 12.68 .23 2.75 2.98 December 31, 2005 11.33 .16 1.38 1.54 December 31, 2004 9.76 .11 1.66 1.77 December 31, 2003 7.20 .09 2.69 2.78 December 31, 2002 8.64 .06 (1.37) (1.31) - -------------------------------------------------------------------------------------------------------------------- REAL ESTATE SECURITIES FUND December 31, 2006 17.28 .37 5.72 6.09 December 31, 2005 17.09 .32 1.82 2.14 December 31, 2004 13.71 .36 4.33 4.69 December 31, 2003 10.51 .55 3.28 3.83 December 31, 2002 10.75 .54 (.13) .41 - -------------------------------------------------------------------------------------------------------------------- CORE BOND FUND December 31, 2006 10.23 .45 (.08) .37 December 31, 2005 10.50 .38 (.17) .21 December 31, 2004 10.47 .24 .24 .48 December 31, 2003 10.43 .31 .31 .62 December 31, 2002 10.13 .36 .52 .88 - -------------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - -------------------------------------------------------------------------------------------- MULTI-STYLE EQUITY FUND December 31, 2006 (.13) -- -- December 31, 2005 (.14) -- -- December 31, 2004 (.09) -- -- December 31, 2003 (.07) -- -- December 31, 2002 (.06) -- -- - -------------------------------------------------------------------------------------------- AGGRESSIVE EQUITY FUND December 31, 2006 (.03) (2.05) -- December 31, 2005 (.03) (1.40) -- December 31, 2004 (.02) (.52) -- December 31, 2003 (.01) -- -- December 31, 2002 -- -- -- - -------------------------------------------------------------------------------------------- NON-U.S. FUND December 31, 2006 (.35) (.30) -- December 31, 2005 (.19) -- -- December 31, 2004 (.20) -- -- December 31, 2003 (.22) -- -- December 31, 2002 (.13) -- -- - -------------------------------------------------------------------------------------------- REAL ESTATE SECURITIES FUND December 31, 2006 (.39) (1.64) -- December 31, 2005 (.37) (1.58) -- December 31, 2004 (.36) (.95) -- December 31, 2003 (.61) -- (.02) December 31, 2002 (.57) (.08) -- - -------------------------------------------------------------------------------------------- CORE BOND FUND December 31, 2006 (.46) -- -- December 31, 2005 (.37) (.11) -- December 31, 2004 (.26) (.19) -- December 31, 2003 (.38) (.20) -- December 31, 2002 (.30) (.28) -- - --------------------------------------------------------------------------------------------
(a) Average month-end shares were used for this calculation. (b) May reflect amounts waived and/or reimbursed by RIMCo as the manager and transfer agent, and custody credit arrangements. See accompanying notes which are an integral part of the financial statements. 92 Financial Highlights
% % $ RATIO OF EXPENSES RATIO OF EXPENSES $ $ % NET ASSETS, END TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL OF PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN (000) NET(B) GROSS - --------------------------------------------------------------------------------------------------------------------- (.13) 14.93 12.75 417,507 .87 .87 (.14) 13.37 7.27 349,659 .83 .87 (.09) 12.60 9.81 332,759 .87 .88 (.07) 11.56 28.86 296,767 .87 .95 (.06) 9.04 (23.19) 206,794 .92 .99 - --------------------------------------------------------------------------------------------------------------------- (2.08) 14.45 14.79 223,646 1.05 1.12 (1.43) 14.40 6.36 204,292 .99 1.13 (.54) 14.90 14.73 195,583 1.05 1.17 (.01) 13.47 45.60 166,385 1.06 1.26 -- 9.26 (19.06) 97,794 1.25 1.36 - --------------------------------------------------------------------------------------------------------------------- (.65) 15.01 23.64 369,884 1.15 1.21 (.19) 12.68 13.69 302,261 1.12 1.26 (.20) 11.33 18.30 258,766 1.15 1.28 (.22) 9.76 38.78 206,619 1.16 1.41 (.13) 7.20 (15.15) 137,840 1.30 1.48 - --------------------------------------------------------------------------------------------------------------------- (2.03) 21.34 35.84 625,477 .90 .91 (1.95) 17.28 12.96 443,092 .91 .91 (1.31) 17.09 34.88 379,733 .92 .92 (.63) 13.71 37.21 254,691 .95 .95 (.65) 10.51 3.80 160,176 .99 .99 - --------------------------------------------------------------------------------------------------------------------- (.46) 10.14 3.72 265,783 .70 .73 (.48) 10.23 2.01 216,774 .70 .72 (.45) 10.50 4.66 175,851 .70 .73 (.58) 10.47 6.15 147,202 .71 .78 (.58) 10.43 8.84 140,280 .80 .80 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(B) TURNOVER RATE - --------------------------------------- 1.03 128.33 .94 130.00 .96 123.29 .82 107.67 .61 145.90 - --------------------------------------- .16 183.55 .21 130.09 .17 150.26 .10 138.95 (.17) 139.24 - --------------------------------------- 1.64 110.77 1.41 87.98 1.11 73.45 1.14 50.29 .77 60.98 - --------------------------------------- 1.86 52.63 1.86 64.24 2.43 47.21 4.66 38.84 5.01 55.43 - --------------------------------------- 4.40 452.50 3.70 192.66 2.41 216.23 2.86 232.64 3.52 207.60 - ---------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 93 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- 1. ORGANIZATION Russell Investment Funds (the "Investment Company") is a series investment company with five different investment portfolios referred to as Funds. These financial statements report on all five of the Funds. The Investment Company provides the investment base for one or more variable insurance products issued by one or more insurance companies. These Funds are offered at net asset value to qualified insurance company separate accounts offering variable insurance products. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under a master trust agreement dated July 11, 1996. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. Security Valuation The Funds value portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Debt obligation securities maturing within 60 days of the time of purchase are priced using the amortized cost method of valuation, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has delegated the responsibility for administration of the Securities Valuation Procedures to Russell Investment Management Company ("RIMCo" or "Manager"). On July 1, 2006, Frank Russell Investment Management Company changed its name to RIMCo. Ordinarily, the Funds value each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale price; - US over-the-counter equities: Official closing price; last bid price if no closing price; - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the New York Stock Exchange, whichever is earlier. - The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. - Equity securities traded on a national securities foreign exchange or an over-the-counter market (foreign or domestic) are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Funds will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange on which the security is traded. 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 the Funds' Board of Trustees believes reflects fair value. The use of fair value pricing by a Fund may cause the net asset value of its shares to differ significantly from the net asset value that would 94 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- be calculated using normal pricing methods. 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 Funds' net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they trade and the time the net asset value of Fund shares is determined may be reflected in the calculation of net asset values for each applicable Fund when the Funds deem that the particular event or circumstance would materially affect such 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 are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. Funds that invest in low rated debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural disaster; or an armed conflict. Because foreign securities can trade on non-business days, the net asset value of a Fund's portfolio that includes foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares. In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds' financial statement disclosure. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. Investment Income Dividend income is recorded net of applicable withholding taxes on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon thereafter as the Funds are informed of the ex-dividend date. Interest income is recorded daily on the accrual basis. The Core Bond Fund classifies gains and losses realized on prepayments received on mortgage-backed securities as part of interest income. All premiums and discounts, including original issue discounts, are amortized/accreted using the interest method. Federal Income Taxes Since the Investment Company is a Massachusetts business trust, each Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to each Fund's shareholders without regard to the income and capital gains (or losses) of the other Funds. It is each Fund's intention to qualify as a regulated investment company and distribute all of its taxable income and capital gains. Therefore, no federal income tax provision was required for the Funds. In July 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes -- an interpretation of FASB Statement 109 (FIN 48) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Fund's net assets and results of operations. Dividends and Distributions to Shareholders For all Funds, income and capital gain distributions, if any, are recorded on the ex-dividend date. Income distributions are generally declared and paid quarterly, except for the Non-U.S. Fund, which generally declares and pays income distributions annually. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Notes to Financial Statements 95 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- Funds to avoid imposition of federal income and excise tax on any remaining undistributed capital gains and net investment income. The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in options, futures, forward contracts, swap contracts, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities sold at a loss and capital loss carryforwards. Expenses The Funds will pay their own expenses other than those expressly assumed by RIMCo. Most expenses can be directly attributed to the individual Funds. Expenses which cannot be directly attributed to a specific Fund are allocated among all Funds principally based on their relative net assets. Foreign Currency Translations The books and records of the Funds are maintained in US dollars. Foreign currency amounts and transactions of the Funds are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Non-U.S. Fund's books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at year-end, as a result of changes in the exchange rates. The Funds do not isolate that portion of the results of operations of the Funds that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Funds do isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Capital Gains Taxes The Non-U.S. Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which it invests. The Non-U.S. Fund may record a deferred tax liability in respect of unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at December 31, 2006. The accrual for capital gains and repatriation taxes is included in net unrealized appreciation (depreciation) on investments in the Statement of Assets and Liabilities for the Non-U.S. Fund, if applicable. The amounts related to capital gains taxes are included in net realized gain (loss) on investments in the Statement of Operations for the Fund. The Non-U.S. Fund had no deferred tax liability or capital gains taxes for the period ended December 31, 2006. Derivatives To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds' Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, swaptions, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting their investment strategies. The Funds typically use derivatives in two ways: hedging and return enhancement. The Funds may use a hedging strategy for their cash reserves to achieve a strategy of being fully invested by exposing those reserves to the performance of appropriate markets by purchasing equity or fixed income securities, as appropriate, and/or derivatives. Hedging is also used by some 96 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- Funds to limit or control risks, such as adverse movements in exchange rates and interest rates. Return enhancement can be accomplished through the use of derivatives in a Fund. By purchasing certain instruments, Funds may more effectively achieve the desired portfolio characteristics that assist them in meeting their investment objectives. Depending on how the derivatives are structured and utilized, the risks associated with them may vary widely. These risks are generally categorized as market risk, liquidity risk and counterparty or credit risk. Foreign Currency Exchange Contracts In connection with portfolio purchases and sales of securities denominated in a foreign currency, the Non-U.S. and Core Bond Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). The Non-U.S. and Core Bond Funds may enter into foreign currency forward overlays on liquidity reserve balances. Additionally, from time to time the Non-U.S. and Core Bond Funds may enter into contracts to hedge certain foreign currency-denominated assets. Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open contracts at December 31, 2006 are presented on the Schedule of Investments for the Non-U.S. and Core Bond Funds. Forward Commitments The Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time consistent with a Fund's ability to manage its investment portfolio and meet redemption requests. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. The Funds may dispose of a forward commitment transaction prior to settlement if it is appropriate to do so and realize short-term gains (or losses) upon such sale. When effecting such transactions, cash or liquid high-grade debt obligations of the Fund in a dollar amount sufficient to make payment for the portfolio securities to be purchased will be segregated on the Fund's records at the trade date and maintained until the transaction is settled. A forward commitment transaction involves a risk of loss if the value of the security to be purchased declines prior to the settlement date or the other party to the transaction fails to complete the transaction. Loan Agreements The Core Bond Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. A Fund's investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the "lender") that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. For the period ended December 31, 2006, there were no unfunded loan commitments in the Core Bond Fund. Options The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. The Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to equitize liquidity reserve balances. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. Whether an option which the Fund has written either expires on its stipulated expiration date or the Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was sold) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a call option which the Fund has written is exercised, the Fund realizes a capital gain Notes to Financial Statements 97 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- or loss from the sale of the underlying security, and the proceeds from such sale are increased by the premium originally received. When a put option which a Fund has written is exercised, the amount of the premium originally received will reduce the cost of the security which a Fund purchases upon exercise of the option. Realized gains (losses) on purchased options are included in net realized gain (loss) from investments. The Funds' use of written options involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to market risk. The risks may be caused by an imperfect correlation between movements in the price of the instrument and the price of the underlying securities and interest rates. Futures Contracts The Funds may invest in futures contracts (i.e., interest rate, foreign currency and index futures contracts) to a limited extent. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount, termed the initial margin, which typically represents 5% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are made as the price of the futures contract fluctuates. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. As of December 31, 2006, included in the Statement of Assets and Liabilities, the Non-U.S. Fund had cash collateral balances of $1,520,911 in connection with futures contracts purchased (sold). Swap Agreements The Funds may enter into several different types of agreements including interest rate, index, credit default and currency swaps. The Funds may enter into index swap agreements as an additional hedging strategy for cash reserves held by those Funds or to effect investment transactions consistent with these Funds' investment objectives and strategies. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular investments or instruments. The returns to be exchanged between the parties are calculated with respect to a "notional amount" (i.e. a specified dollar amount that is hypothetically invested in a "basket" of securities representing a particular index). Amounts paid to and received from the swap counterparties representing capital appreciation and depreciation on the underlying securities and accrued interest expense and interest income are recorded as net realized gain (loss). The Funds are exposed to credit risk in the event of non-performance by the swap counterparties; however, the Funds do not anticipate non-performance by the counterparties. The Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether it is hedging its assets or its liabilities, and will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments. When the Fund engages in a swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments). Interest rate swaps are a counterparty agreement and can be customized to meet each party's needs and involves the exchange of a fixed payment per period for a payment that is not fixed. Currency swaps are an agreement where two parties exchange specified amounts of different currencies which are followed by a series of interest payments that are exchanged based on the principal cash flow. At maturity the principal amounts are exchanged back. Credit default swaps are a counterparty agreement which allows the transfer of third party credit risk (the possibility that an issuer will default on their obligation by failing to pay principal or interest in a timely manner) from one party to another. The lender faces the credit risk from a third party and the counterparty in the swap agrees to insure this risk in exchange for regular periodic payments. The Funds expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. The net amount of the excess, if any, of the Funds' obligations over its entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid high-grade debt securities having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by the Funds' custodian. To the extent that the Funds enters into swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Funds' 98 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- obligations, if any, with respect to such interest rate swaps, accrued on a daily basis. If there is a default by the other party to such a transaction, the Funds will have contractual remedies pursuant to the agreement related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Investments in Emerging Markets Investing in emerging markets may involve special risks and considerations not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices may be more volatile than those of comparable securities in the United States. Mortgage-Related and Other Asset-Backed Securities The Core Bond Fund may invest in mortgage or other asset-backed securities. Theses securities include mortgage pass-through securities, collateralized mortgage obligations ("CMOs"), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage backed securities ("SMBSs") and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of some mortgage or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market's perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations. One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or "IO" class), while the other class will receive all of the principal (the principal-only, or "PO" class). Payments received for the IOs are included in interest income on the Statement of Operations. Because principal will not be received at the maturity of an IO, adjustments are made to the book value of the security on a daily basis until maturity. These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities. Inflation-Indexed Bonds The Core Bond Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity. Guarantees In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. 3. INVESTMENT TRANSACTIONS Securities During the period ended December 31, 2006, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
FUNDS PURCHASES SALES -------------------------------------------------------------------------------- Multi-Style Equity $ 486,866,474 $ 459,995,990 Aggressive Equity 384,684,905 393,988,508 Non-U.S. 347,086,993 350,494,257 Real Estate Securities 298,237,259 270,627,617 Core Bond 745,080,018 642,421,139
Notes to Financial Statements 99 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
FUND PURCHASES SALES -------------------------------------------------------------------------------- Core Bond $ 251,083,741 $ 273,936,652
Written Options Contracts Transactions in written options contracts for the period ended December 31, 2006 were as follows:
NON-U.S. FUND CORE BOND FUND ------------------------------------------ ------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------------------ Outstanding December 31, 2005 11 $ 42,642 183 $ 184,555 Opened 519 2,592,472 856 497,825 Closed (465) (2,298,266) (554) (218,211) Expired (5) (30,794) (232) (134,373) ------------------- ------------------- ------------------- ------------------- Outstanding December 31, 2006 60 $ 306,054 253 $ 329,796 =================== =================== =================== ===================
Securities Lending The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets. The Fund receives cash (US currency), US Government or US Government agency obligations as collateral against the loaned securities. To the extent that a loan is collateralized by cash, such collateral is invested by the securities lending agent, State Street Corporation ("State Street") in short-term instruments, money market mutual funds and other short-term investments that meet certain quality and diversification requirements. Cash collateral invested in money market funds is included in the Schedule of Investments. The collateral received is recorded on a lending Fund's statement of assets and liabilities along with the related obligation to return the collateral. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street and is recorded as income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street and are recorded as securities lending income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for Non-U.S. securities) of the market value of the loaned securities at the inception of each loan. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Fund the next day. Should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of December 31, 2006, the non-cash collateral received for the securities on loan in the Non-U.S. Fund was $464,428. The non-cash collateral consists of a pool of US Government securities. 4. RELATED PARTY TRANSACTIONS, FEES AND EXPENSES Manager RIMCo manages all of the Funds which comprise the Investment Company. RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to RIMCo. The Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses), and also may invest a portion of the collateral received from the Investment Company's securities lending program in the Russell Investment Company ("RIC") Money Market Fund. RIC is a registered investment company that employs the same investment adviser as the Investment Company. On July 1, 2006, Frank Russell Investment Company changed its name to Russell Investment Company ("RIC"). As of December 31, 2006, $98,832,000 of the Money Market Fund's net assets represents investments by the Funds. The management fees are based upon the average daily net assets of each Fund and the rates specified in the table below are payable monthly and total $14,254,592 for the period ended December 31, 2006. 100 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - --------------------------------------------------------------------------------
FUNDS ANNUAL RATE ----------------------------------------------------- Multi-Style Equity 0.78% Aggressive Equity 0.95 Non-U.S. 0.95 Real Estate Securities 0.85 Core Bond 0.60
RIMCo has contractually agreed to waive, at least until April 30, 2007, a portion of its management fee for each Fund, up to the full amount of its fee, equal to the amount by which the Fund's total operating expenses exceed a specified percentage of a Fund's average net assets on an annual basis and to reimburse each Fund for all remaining expenses, after fee waivers, that exceed such percentages. There were no contractual reimbursements for the period ended December 31, 2006. The expense caps and management fees waived for the period ended December 31, 2006 were as follows:
MANAGEMENT FUNDS EXPENSE CAP FEES WAIVED ---------------------------------------------------------------------- Multi-Style Equity 0.87% $ 17,280 Aggressive Equity 1.05 150,505 Non-U.S. 1.15 217,375 Real Estate Securities 1.10 -- Core Bond 0.70 50,844
RIMCo does not have the ability to recover amounts waived or reimbursed from previous periods. Effective August 1, 2006, the Manager has voluntarily agreed to temporarily waive a portion of the Fund's advisory fee equal to the advisory fee paid by the Fund to the Money Market Fund. For the period ended December 31, 2006, the advisory fees waived are as follows:
FUNDS AMOUNT ------------------------------------------------------- Multi-Style Equity $ 8,701 Aggressive Equity 5,140 Non-U.S. 12,146 Real Estate Securities 7,952 Core Bond 10,881
Custodian The Funds have entered into arrangements with their Custodian whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Funds' expenses. For the period ended December 31, 2006, the Funds' custodian fees were reduced by the following amounts under these arrangements:
CUSTODY CREDIT FUNDS AMOUNT ------------------------------------------------------- Multi-Style Equity $ 1,488 Aggressive Equity 1,725 Non-U.S. 1,728 Real Estate Securities 3,041 Core Bond 15,311
Transfer Agent RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Funds. RIMCo retains a portion of this fee for its services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Funds for the period ended December 31, 2006 were $75,322. Distributor Russell Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of RIMCo, is the principal underwriter for Investment Company shares. The Distributor receives no compensation from the Investment Company for its services. Notes to Financial Statements 101 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- Brokerage Commissions The Funds will effect certain transactions through Russell Implementation Services Inc. ("RIS") (On July 1, 2006 Frank Russell Securities, Inc. ("FRS") changed its name to Russell Implementation Services) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are used (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions, (ii) to execute portfolio securities transactions selected by money managers or (iii) beginning in early 2006, to execute portfolio securities transactions for each Fund's assets that RIMCo determines not to allocate to money managers, including assets allocated to the "select holdings" strategy, and for each Fund's cash reserves. Effective January 1, 2006, the Funds began transitioning trades used to obtain research services and to generate commission rebates from RIS and LJR (as defined and described more fully below). During the transition, some of these trades may continue to be executed through RIS. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds' money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through RIS and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. Research services provided to RIMCo by RIS or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will generally be obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients. In some cases, research may also be provided by non-affiliated brokers. The Funds effect transactions though Lynch, Jones & Ryan, Inc. ("LJR") and its global network of correspondent brokers. LJR is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through LJR and its correspondents are used (i) to obtain research services for RIMCo to assist it in its capacity as a manager of managers and (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds' money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through LJR and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through LJR based upon asset class, investment style and other factors. Research services provided to RIMCo by LJR or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will generally be obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients. LJR also may rebate to the Funds a portion of commissions earned on certain trading by the Funds through RIS, LJR and their correspondents in the form of commission recapture. Commission recapture is paid solely to those Funds generating the applicable trades. Commission recapture is generated on the instructions of the Soft Dollar Committee once RIMCo's research budget has been met, as determined annually in the Soft Dollar Committee budgeting process. Amounts retained by RIS for the period ended December 31, 2006 were as follows:
FUNDS AMOUNT ------------------------------------------------------- Multi-Style Equity $ 118 Aggressive Equity 426 Real Estate Securities 42
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to RIMCo. Accrued fees payable to affiliates as of December 31, 2006 were as follows:
REAL ESTATE MULTI-STYLE EQUITY AGGRESSIVE EQUITY NON-U.S. SECURITIES CORE BOND ------------------------------------------------------------------------------------------------------------------------------ Management fees $ 275,650 $ 189,488 $ 305,433 $ 450,658 $ 134,687 Transfer agent fees 1,540 869 1,389 2,284 966 Trustee fees 2,112 1,238 1,866 2,898 1,331 ---------------- ---------------- ---------------- ---------------- ---------------- $ 279,302 $ 191,595 $ 308,688 $ 455,840 $ 136,984 ================ ================ ================ ================ ================
102 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- Board of Trustees The Russell Fund Complex consists of Russell Investment Company ("RIC"), which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee of both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 ($5,000 prior to January 1, 2006) for each regular quarterly meeting attended in person, $2,000 for each special meeting attended in person, and $2,000 for each Audit Committee meeting, Nominating and Governance Committee meeting, Investment Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair and Investment Committee chair were each paid a fee of $6,000 per year. The chair person of the Board receives additional annual compensation of $52,000. 5. FEDERAL INCOME TAXES At December 31, 2006, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryforwards and expiration dates are as follows:
FUNDS 12/31/10 12/31/11 12/31/12 12/31/13 12/31/14 ------------------------------------------------------------------------------------------------------------------------- Multi-Style Equity $ 17,458,223 $ 3,302,725 $ -- $ -- Core Bond -- -- -- 305,131 3,005,117 FUNDS TOTALS ----------------------------------------------------- Multi-Style Equity $ 20,760,948 Core Bond 3,310,248
At December 31, 2006, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
REAL ESTATE MULTI-STYLE EQUITY AGGRESSIVE EQUITY NON-U.S. SECURITIES CORE BOND ------------------------------------------------------------------------------------------------------------------------------ Cost of Investments $ 413,380,891 $ 271,664,069 $ 370,960,839 $ 474,561,313 $ 334,174,455 ================ ================ ================ ================ ================ Unrealized Appreciation 51,850,425 25,227,599 61,607,464 228,322,546 5,682,075 Unrealized Depreciation (4,452,278) (4,499,573) (2,282,368) (1,351,252) (4,312,768) ---------------- ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 47,398,147 $ 20,728,026 $ 59,325,096 $ 226,971,294 $ 1,369,307 ================ ================ ================ ================ ================ Undistributed Ordinary Income $ 1,142,085 $ 4,914,720 $ 1,126,062 $ 1,403,817 $ 5,986 Undistributed Long-Term Capital Gains (Capital Loss Carryforward) $ (20,760,948) $ 5,075,450 $ 34,804,823 $ 7,694,800 $ (3,310,248) Tax Composition of Distributions Ordinary Income $ 3,605,269 $ 6,356,407 $ 8,763,076 $ 20,003,671 $ 10,962,338 Long-Term Capital Gains $ -- $ 24,380,742 $ 7,689,262 $ 34,889,975 $ --
As permitted by tax regulations, the Core Bond Fund intends to defer a net realized capital loss of $191,798 incurred from November 1, 2006 to December 31, 2006. Notes to Financial Statements 103 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended December 31, 2006 and December 31, 2005 were as follows:
SHARES DOLLARS ------------------------------------- ------------------------------------- 2006 2005 2006 2005 ----------------- ----------------- ----------------- ----------------- Multi-Style Equity Fund Proceeds from shares sold 3,072 3,229 $ 43,060 $ 41,168 Proceeds from reinvestment of distributions 259 288 3,605 3,627 Payments for shares redeemed (1,514) (3,769) (21,145) (48,491) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 1,817 (252) $ 25,520 $ (3,696) ================= ================= ================= ================= Aggressive Equity Fund Proceeds from shares sold 2,111 1,195 $ 32,794 $ 17,241 Proceeds from reinvestment of distributions 2,097 1,312 30,737 19,045 Payments for shares redeemed (2,910) (1,447) (43,174) (21,031) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 1,298 1,060 $ 20,357 $ 15,255 ================= ================= ================= ================= Non-U.S. Fund Proceeds from shares sold 4,156 3,350 $ 58,314 $ 38,487 Proceeds from reinvestment of distributions 1,115 372 16,452 4,388 Payments for shares redeemed (4,464) (2,719) (61,747) (31,991) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 807 1,003 $ 13,019 $ 10,884 ================= ================= ================= ================= Real Estate Securities Fund Proceeds from shares sold 3,955 4,011 $ 78,527 $ 68,272 Proceeds from reinvestment of distributions 2,646 2,759 54,893 47,108 Payments for shares redeemed (2,929) (3,350) (55,946) (58,106) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 3,672 3,420 $ 77,474 $ 57,274 ================= ================= ================= ================= Core Bond Fund Proceeds from shares sold 5,342 4,891 $ 54,242 $ 50,716 Proceeds from reinvestment of distributions 1,088 875 10,962 9,014 Payments for shares redeemed (1,397) (1,326) (14,154) (13,787) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 5,033 4,440 $ 51,050 $ 45,943 ================= ================= ================= =================
7. INTERFUND LENDING PROGRAM The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the "Credit Facility"). Portfolios of the Funds may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to a participating Fund's fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day's notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity or additional borrowing costs. 104 Notes to Financial Statements RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- 8. RECORD OWNERSHIP As of December 31, 2006, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund. Northwestern Mutual Life Insurance Company separate accounts were the largest shareholder in each Fund.
FUNDS # OF SHAREHOLDERS % -------------------------------------------------------------------------------- Multi-Style Equity 2 84.6 Aggressive Equity 3 87.7 Non-U.S. 3 91.8 Real Estate Securities 2 82.6 Core Bond 2 87.6
9. RESTRICTED SECURITIES Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are not registered under the Securities Act of 1933 (the "Act"). The most common types of restricted securities are those sold under Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act. A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. Illiquid securities are securities that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid. Notes to Financial Statements 105 RUSSELL INVESTMENT FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2006 - -------------------------------------------------------------------------------- The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities deemed liquid by RIMCo or a money manager pursuant to Board approved policies and procedures or (2) illiquid securities that are not restricted securities as designated on the Fund's Schedule of Investments.
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ----------------------------------------------------------------------------------------------------------------------------- Core Bond Fund -- 1.7% AXA SA 12/07/06 100,000 100.00 100 99 AXA SA 12/07/06 100,000 100.00 100 99 BNP Paribas Capital Trust 06/01/06 450,000 112.21 505 503 Bombardier, Inc. 11/10/06 125,000 128.47 161 167 COX Communications, Inc. 11/28/06 75,000 99.96 75 74 DG Funding Trust 11/04/03 49 10,537.12 516 513 Gaz Capital SA 11/17/06 115,000 100.00 115 116 Greenwich Capital Commercial Funding Corp. 11/02/06 205,000 103.20 212 211 HCA, Inc. 11/09/06 125,000 100.00 125 134 HCA, Inc. 11/09/06 190,000 100.00 190 204 Idearc, Inc. 11/01/06 315,000 100.80 318 320 Joy Global, Inc. 11/07/06 40,000 99.77 40 40 Majapahit Holding BV 10/11/06 55,000 99.40 55 57 Navios Maritime Holdings, Inc. 12/13/06 95,000 99.32 94 94 Parker Hannifin Employee Stock Ownership Trust 03/09/99 111,012 100.00 111 111 Peru Enhanced Pass-Through Finance, Ltd. 12/14/06 535,000 64.10 343 357 Peru Enhanced Pass-Through Finance, Ltd. 12/14/06 320,000 35.20 113 121 Rental Services Corp. 11/17/06 70,000 100.00 70 72 Shimao Property Holdings, Ltd. 11/21/06 200,000 101.00 202 199 Travelport, Ltd. 09/21/06 150,000 97.65 146 154 VTB Capital SA 10/27/06 230,000 100.00 230 230 Westfield Group 11/15/06 125,000 99.76 125 125 West Corp. 10/26/06 185,000 99.91 185 185 Westfield Capital Corp., Ltd./WT Finance Aust Pty Ltd/WEA Finance LLC 11/10/06 125,000 97.53 122 121 Xstrata Finance Canada, Ltd. 11/08/06 195,000 99.99 195 195 Xstrata Finance Canada, Ltd. 11/08/06 45,000 99.76 45 45 -------------- 4,546 ==============
Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees. 106 Notes to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of the Russell Investment Funds: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Multi-Style Equity Fund, Aggressive Equity Fund, Non-U.S. Fund, Real Estate Securities Fund, and Core Bond Fund (constituting the Russell Investment Funds, hereafter referred to as the 'Funds') at December 31, 2006, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by correspondence with the custodian, brokers, and transfer agent provide a reasonable basis for our opinion. (-s- PricewaterhouseCoopers LLP) Seattle, Washington February 15, 2007 Report of Independent Registered Public Accounting Firm 107 RUSSELL INVESTMENT FUNDS TAX INFORMATION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- For the tax year ended December 31, 2006, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Form 1099 you receive in January 2007 will show the tax status of all distributions paid to your account in calendar year 2006. The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows: Multi-Style Equity 100.0% Aggressive Equity 18.7% Non-U.S 3.4% Real Estate Securities 1.7% Core Bond 1.0%
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following amounts as long-term capital gain dividends for their taxable year ended December 31, 2006:
LONG-TERM CAPITAL GAINS ------------------- Aggressive Equity 24,380,742 Non-U.S 7,689,262 Real Estate Securities 34,889,975
Please consult a tax adviser for any questions about federal or state income tax laws. The Non-U.S Fund paid foreign taxes of $607,869 and recognized $7,839,372 of foreign source income during the taxable year ended December 31, 2006. Pursuant to Section 853 of the Internal Revenue Code, the Fund designates $.0247 per share of foreign taxes paid and $.3182 of gross income per share earned from foreign sources in the taxable year ended December 31, 2006. 108 Tax Information RUSSELL INVESTMENT FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the management agreement with RIMCo (the "RIMCo Agreement") and the portfolio management contract with each Money Manager of the Funds (collectively, the "portfolio management contracts") at a meeting held on April 18, 2006. During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds' shares, and the management of the Funds by RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds, including information requested by the Independent Trustees; (2) information (the "Third-Party Information") received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and their respective operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds; and (3) an analysis of the Third-Party Information prepared by RIMCo (the "RIMCo Analysis" and, with the other information requested by the Independent Trustees or provided by RIMCo in connection with the Board's consideration of the portfolio management contracts, the "Agreement Renewal Information") addressing, among other things, performance and expense differentials between certain Funds and their respective Comparable Funds. The Independent Trustees also received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. On April 17, 2006, the Independent Trustees met in person to review the Agreement Renewal Information in a private session with independent counsel at which no representatives of RIMCo or management were present. At the April 18 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analysis received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews. In evaluating the portfolio management contracts, the Board considered that the Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. RIMCo has engaged multiple Money Managers for all Funds. The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo manages directly a portion of certain Fund's assets as described below and otherwise exercises investment discretion over the portion of each Fund's assets that RIMCo determines not to allocate to the money managers and for each Fund's cash reserves by selecting the individual portfolio securities for those portions of assets. RIMCo may also directly manage portions of a Fund during transitions between money managers. RIMCo is responsible for selecting Money Managers for each Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for a Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Fund assigned to it by RIMCo in accordance with the Fund's applicable investment objective, policies and restrictions (each, a "segment"). RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Fund's investment objective and policies; authorizing Money Managers to engage in certain investment strategies for a Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, RIMCo is responsible for recommending to the Board the restructuring of Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on RIMCo's research and analysis, such actions are appropriate. RIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for a Fund in a complementary manner. Therefore, RIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Fund. The performance of individual Money Managers for a Fund may reflect the roles assigned to them by RIMCo in the Fund's investment activities and any constraints placed by RIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects in great part the performance of RIMCo in designing the Fund's investment program, structuring Fund segments, selecting an effective Money Manager for each segment with Basis for Approval of Investment Advisory Contracts 109 RUSSELL INVESTMENT FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- a style that is complementary to the styles of the Money Managers of other Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Fund. The Board also considered that the prospectus for the Funds and other public disclosures emphasize to investors RIMCo's role as the principal investment manager for each Fund, rather than the investment selection role of the Funds' Money Managers, and describe the manner in which the Funds operate so that investors may take the information into account when deciding to purchase shares of any such Fund. The Board also considered the special expertise of RIMCo with respect to the manager-of-managers structure of the Funds and the likelihood that, at the current expense ratio of each such Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to conduct the manager-of-managers strategy of each such Fund selected by shareholders in purchasing their shares. In addition to these general factors relating to the manager-of-managers structure of the Funds, the Trustees considered, with respect to each Fund, various specific factors in evaluating renewal of the RIMCo Agreement, including the following: 1. The nature, scope and quality of the services provided to the Fund by RIMCo; 2. The management fee paid by the Fund to RIMCo and the fact that it encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund; 3. Information provided by RIMCo as to other fees and benefits received by RIMCo or its affiliates from the Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by RIMCo as to expenses incurred by the Fund; and 5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from each Fund. At the April 18 Board meeting, RIMCo and management reviewed the reasonableness of the Funds' management fees. In discussing whether the Funds' performance supported these fees, RIMCo noted differences between the investment strategies of certain Funds and their respective Comparable Funds in pursuing their investment objectives, including strategies which seek to achieve a lower tracking error (i.e. the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Funds during the periods covered by the Third-Party Information did result, in lower relative performance than that of some of their respective Comparable Funds. RIMCo stated that the strategies pursued by the Funds are intended to result in less volatile, more moderate returns relative to each Fund's performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time. On the basis of the Agreement Renewal Information, including the RIMCo Analysis, and other information previously received by the Board from RIMCo during the course of the year or presented at the Board meeting by RIMCo, at the April 18 Board meeting, the Board, in respect of each Fund, found the management fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Funds, after giving effect to waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds. The Board also determined that the relative expense ratio of each Fund was comparable to those of its Comparable Funds; RIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and RIMCo's profitability with respect to each Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. At the April 18 Board meeting, the Board concluded that the performance of the Funds supported continuation of the RIMCo Agreement, again based upon the Agreement Renewal Information, including the RIMCo Analysis, and other information previously received by the Board from RIMCo during the course of the year or presented at the Board meeting by RIMCo. In evaluating performance, the Board considered each Fund's absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. In evaluating the Funds' performance, the Board also considered RIMCo's investment strategy of managing the Funds in a risk aware manner. At the April 18 Board meeting, the Board considered for each Fund whether economies of scale have been realized and whether the fees for such Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on February 28, 2006 that the management fees for each Fund appropriately reflect any economies of scale realized by that Fund. Its findings at the earlier meeting were based upon information and analyses prepared by 110 Basis for Approval of Investment Advisory Contracts RUSSELL INVESTMENT FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- RIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds are lower, and may, in some cases, be substantially lower, than the rates paid by the Funds. RIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and the Funds. For example, institutional clients have fewer administrative needs than the Funds. It was further noted that since the Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. At the April 18 Board meeting, in voting to approve the continuation of the RIMCo Agreement on its current terms and conditions for each Fund, the Board, after considering the foregoing and other relevant factors, determined that continuation of the RIMCo Agreement was in the best interests of the Funds and their respective shareholders. At the April 18 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager's performance over various periods; RIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., the Funds' underwriter; and RIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo's explanation in light of the Board's findings as to the aggregate management fees paid by each Fund and the fact that each Money Manager's fee is paid by RIMCo. Based substantially upon RIMCo's recommendations together with the information received from RIMCo in support of its recommendations, at the April 18 meeting the Board concluded that the fees paid to the Money Managers of each Fund were reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of each Fund was in the best interests of the Fund and its shareholders. During 2005 and 2006, the Trustees received proposals from RIMCo to manage directly approximately up to 10% of the assets of the Multi-Style Equity Fund (a "Participating Fund") utilizing a "select holdings strategy" pursuant to the terms of the RIMCo Agreement, the actual allocation to be determined by the Participating Fund's RIMCo portfolio manager. Under this strategy, RIMCo analyzes the holdings of the Participating Fund's Money Managers in their Fund segments to identify particular stocks that have been selected by multiple Money Managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo will purchase additional shares of certain stocks for the Participating Fund. The strategy is designed to increase the Participating Fund's exposure to stocks that are viewed as attractive by multiple Money Managers of the Participating Fund. Implementation of this strategy includes periodic rebalancing of the Participating Fund's holdings. In connection with RIMCo's proposals, the Trustees received and considered information from RIMCo regarding the potential enhancements to the Participating Fund's performance based upon RIMCo's experience in employing the same strategy for other types of investment accounts under its management. The Trustees also considered that RIMCo would not be required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is utilized and that the profits derived by RIMCo generally and from the Participating Fund consequently may increase incrementally. The Board, however, considered RIMCo's advice that it will pay certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and expects to incur additional costs in implementing and carrying out the select holdings strategy; the limited amount of assets that would be managed directly by RIMCo pursuant to the select holdings strategy; the fact that the aggregate management fees paid by the Participating Fund would not increase as a result of the implementation of the select holdings strategy. At the April 18, 2006 meeting, RIMCo advised the Board that the select holdings strategy has been implemented for the Multi-Style Equity Fund, although a reasonable period of time is needed to evaluate fairly its impact on the Participating Fund's performance. Based upon the information received from RIMCo during 2005 and 2006 in connection with its select holdings strategy proposals, the Agreement Renewal Information and additional discussion at the April 18 meeting concerning the select holdings strategy, the Board in the case of the Participating Fund concluded that the management fees paid to RIMCo by each such Fund under the RIMCo Agreement in connection with the select holdings strategy continue to be reasonable in light of the nature and anticipated quality of the management services to be rendered by RIMCo. In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Basis for Approval of Investment Advisory Contracts 111 RUSSELL INVESTMENT FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund. At a meeting held on May 23, 2006, the Board of Trustees received a proposal from RIMCo to effect a money manager change for the Core Bond Fund. At that same meeting, the Board of Trustees received a proposal from RIMCo to effect a money manager change for the Multi-Style Equity Fund resulting from a change of control of one of this Fund's Money Managers. At a meeting held on October 27, 2006, the Board of Trustees received a proposal from RIMCo to effect a money manager change for the Non-U.S. Fund and the Aggressive Equity Fund. In the case of each such Fund, the Trustees approved the terms of the proposed portfolio management contract with the successor Money Manager based substantially upon RIMCo's recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., the Fund's underwriter; RIMCo's explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with RIMCo; RIMCo's awareness of the fees charged by the Money Manager to other clients; and RIMCo's belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 18, 2006 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed money manager change because the money managers' investment advisory fee is paid by RIMCo. 112 Basis for Approval of Investment Advisory Contracts RUSSELL INVESTMENT FUNDS SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) at the Securities and Exchange Commission's public reference room. The Board has delegated to RIMCo, as RIF's investment manager, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. RIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, and (ii) on the Securities and Exchange Commission's website at www.sec.gov. To reduce expenses, we may mail only one copy of the RIF prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please call us at (800) 787-7354 or contact your financial institution and we will begin sending you individual copies thirty days after receiving your request. If you wish to receive the RIF prospectus and each annual and semi-annual report electronically, please call us at (800) 787-7354 or contact your financial institution. Shareholder Requests for Additional Information 113 RUSSELL INVESTMENT FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- DECEMBER 31, 2006 (UNAUDITED) - -------------------------------------------------------------------------------- The following tables provide information for each officer and trustee of the Russell Fund complex. The Russell Fund Complex consists of Russell Investment Company ("RIC"), which has 34 funds, and Russell Investment Funds ("RIF"), which has five funds. Each of the trustees is a trustee of both RIC and RIF. The first table provides information for trustees who are interested trustees. The second table provides information for the independent trustees. The third table provides information for the trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. **Trustee Since Appointed until - Chairman of the Board, FRC 39 None Phillips, 2002 successor is - 1990 - 2003, President, FRC Born January 20, duly elected - 1993 - 2003, CEO, FRC 1948 and qualified. - Trustee, RIC and RIF - Director, RTC; Russell 909 A Street Investments (Suisse) S.A. Tacoma, Washington (global investment 98402-1616 services); Russell Investments Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Russell Investments Delaware Inc. (general partner in various limited partnerships (" RIDI")) - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Thaddas L. Alston Trustee since Appointed until - Senior Vice President, Larco 39 None Born April 7, 1945 2006 successor is Investments, Ltd. 909 A Street duly elected and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, # Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments # Chairman of and qualified consulting) 909 A Street the Nominating - February 2002 to June 2005, Tacoma, Washington and Governance Appointed until Lead Trustee, RIC and RIF 98402-1616 Committee since successor is 2006 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Phillips is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an interested trustee. ** Effective December 31, 2006 Mr. Phillips retired from the Board of Trustees. # Effective December 31, 2006 Mr. Anderson retired from the Board of Trustees. Effective January 1, 2007 Mr. Anderson was elected a Trustee Emeritus. 114 Disclosure of Information about Fund Directors RUSSELL INVESTMENT FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the - Director, Operations and Distribution Advantage IQ Committee, WM Group of Funds - Director, Laird - February 2002 to June 2005, Norton Tyee Chairman of the Audit Trust Committee, RIC and RIF - Director, Laird - Regent, University of Norton Wealth Washington Management - Trustee, Principal Investors Fund - Trustee, Principal Variable Contracts Fund - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy Trustee since Appointed until - June 2004 to present, Senior 39 None Born June 6, 1946 2003 successor is Vice President and Chief duly elected Financial Officer, Waddell & 909 A Street Chairman of and qualified Reed Financial, Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001 - 2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979 - 2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 115 RUSSELL INVESTMENT FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr. 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 *Chairman of the and qualified. subsidiary companies, Nominating and including Simpson Timber 909 A Street Governance Company, Simpson Paper Tacoma, Washington Committee since Company and Simpson Tacoma 98402-1616 2007 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- Jack R. Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - May 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - Presently Director of the Thompson Academic Fund (non-profit) - Presently President and Director of the Kepner Educational Excellence Program (non-profit) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 - 1987 to 39 None Born October 2, 2002 successor is 2002, Director, Smith Barney 1943 duly elected Fundamental Value Fund Chairperson of and qualified 909 A Street the Investment Tacoma, Washington Committee since Appointed until 98402-1616 2006 successor is duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
* Effective January 1, 2007, Mr. Tennison was elected Chairman of the Nominating and Governance Committee. 116 Disclosure of Information about Fund Directors RUSSELL INVESTMENT FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street RIMCo Tacoma, Washington - Chairman Emeritus, RIC and 98402-1616 RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser ("RIS")); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non- depository trust company ("RTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of RIC and RIF Until 1919 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of RIC and RIF Until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee Emeritus Five year term - Retired since 1995 39 None Born October 6, since 2006 - Trustee of RIC and RIF Until 1930 2005 - Chairman of the Nominating 909 A Street and Governance Committee Tacoma, Washington 2001-2005 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of RIC and RIF Until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF. Disclosure of Information about Fund Directors 117 RUSSELL INVESTMENT FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2006 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers Chief Compliance Until removed - Chief Compliance Officer, RIC Born December 16, 1966 Officer since by Independent - Chief Compliance Officer, RIF 2005 Trustees - Chief Compliance Officer, RIMCo 909 A Street - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington Policy 98402-1616 - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, RIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, RIMCo Officer since qualified by - Chairman of the Board, President and CEO, RFD 909 A Street 2004 Trustees - Chairman of the Board and President, Russell Tacoma, Washington Insurance Agency, Inc. (insurance agency ("RIA")) 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, RIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer, Chief Accounting Officer and CFO, RIC and Born November 26, 1963 Chief Accounting is chosen and RIF Officer since qualified by - Director, Funds Administration, RIMCo, RTC and RFD 909 A Street 1998 Trustees - Treasurer and Principal Accounting Officer, SSgA Tacoma, Washington Funds 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, RIC, RIF, FRC, RTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, RIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, RIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary since Until successor - General Counsel and Managing Director of Law and Born October 8, 1941 1994 is chosen and Government Affairs, Secretary, FRC qualified by 909 A Street Trustees Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
118 Disclosure of Information about Fund Directors RUSSELL INVESTMENT FUNDS 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Thaddas L. Alston Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, Ph.D. William E. Baxter Lee C. Gingrich Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary MANAGER AND TRANSFER AND DIVIDEND DISBURSING AGENT Russell Investment Management Company 909 A Street Tacoma, WA 98402 CUSTODIAN State Street Bank and Trust Company Josiah Quincy Building 200 Newport Avenue North Quincy, MA 02171 OFFICE OF SHAREHOLDER INQUIRIES 909 A Street Tacoma, WA 98402 (800) 787-7354 LEGAL COUNSEL Dechert LLP 200 Clarendon Street, 27th Floor Boston, MA 02116-5021 DISTRIBUTOR Russell Fund Distributors, Inc. 909 A Street Tacoma, WA 98402 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS AS OF DECEMBER 31, 2006 Multi-Style Equity Fund Ark Asset Management Co., Inc., New York, NY DePrince, Race & Zollo, Inc., Orlando, FL Institutional Capital LLC, Chicago, IL Jacobs Levy Equity Management, Inc., Florham Park, NJ Montag & Caldwell, Inc., Atlanta, GA Suffolk Capital Management, LLC, New York, NY Turner Investment Partners, Inc., Berwyn, PA Aggressive Equity Fund CapitalWorks Investment Partners, LLC, San Diego, CA ClariVest Asset Management, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Geewax, Terker & Company, Chadds Ford, PA Gould Investment Partners, LLC, Berwyn, PA Jacobs Levy Equity Management, Inc., Florham Park, NJ Nicholas-Applegate Capital Management LLC, San Diego, CA PanAgora Asset Management, Inc., Boston, MA Tygh Capital Management, Inc., Portland, OR Non-U.S. Fund AQR Capital Management, LLC, Greenwich, CT MFS Institutional Advisors, Inc., Boston, MA The Boston Company Asset Management, LLC, Boston, MA Wellington Management Company, LLP, Boston, MA Real Estate Securities Fund AEW Management and Advisors, L.P., Boston, MA Heitman Real Estate Securities, LLC, Chicago, IL INVESCO Institutional (N.A.), Inc., through its INVESCO Real Estate Division, Dallas, TX RREEF America, L.L.C., Chicago, IL Core Bond Fund Bear Stearns Asset Management Inc., New York, NY Goldman Sachs Asset Management, L.P., New York, NY Pacific Investment Management Company, LLC, Newport Beach, CA This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of Russell Investment Funds. Such offering is made only by Prospectus, which includes details as to offering price and other material information. Manager, Money Managers and Service Providers 119 (RUSSELL LOGO) RUSSELL INVESTMENT FUNDS 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 36-08-023 (12/06) ITEM 2. CODE OF ETHICS. [ANNUAL REPORT ONLY] (a) As of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer ("Code"). (b) That Code comprises written standards that are reasonably designed to deter wrongdoing and to promote: 1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2) full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by each Mutual Fund; 3) compliance with applicable laws and governmental rules and regulations; 4) the prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and 5) accountability for adherence to the Code. (c) The Code was restated as of December 6, 2004; the restatement did not involve any material change. (d) As of the end of the period covered by the report, there have been no waivers granted from a provision of the Code that applies to the registrant's principal executive officer and principal financial officer. (e) Not applicable. (f) The registrant has filed with the SEC, pursuant to Item 11(a)(1), a copy of the Code that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as an exhibit to its annual report on this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. [ANNUAL REPORT ONLY] Registrant's board of trustees has determined at a meeting held on February 23, 2005, that the Registrant has at least one audit committee financial expert serving on its audit committee. Daniel P. Connealy was determined to be the Audit Committee Financial Expert and is also determined to be "independent" for purposes of Item 3, paragraph (a)(2)(i) and (ii) of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. [ANNUAL REPORT ONLY] AUDIT FEES (a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows: 2005 $143,759 2006 $154,500 AUDIT-RELATED FEES (b) The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this Item and the nature of the services comprising those fees were as follows:
Fees Nature of Services ---- ------------------ 2005 $1,990 Performance of agreed-upon procedures with respect to 06/30/05 semi-annual reports 2006 $1,600 Performance of agreed-upon procedures with respect to 06/30/06 semi-annual reports
TAX FEES (c) The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning and the nature of the services comprising the fees were as follows:
Fees Nature of Services ---- ------------------ 2005 $48,086 Tax services 2006 $40,500 Tax services
ALL OTHER FEES (d) The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item and the nature of the services comprising those fees were as follows:
Fees Nature of Services ---- ------------------ 2005 $1,796 Review excise reconciliations 2006 $1,157 Transfer agent fee analysis
(e) (1) Registrant's audit committee has adopted the following pre-approval policies and procedures for certain services provided by Registrant's accountants: FRANK RUSSELL INVESTMENT COMPANY RUSSELL INVESTMENT FUNDS AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY EFFECTIVE DATE: MAY 19, 2003 AS AMENDED THROUGH NOVEMBER 14, 2005 I. STATEMENT OF PURPOSE. This Policy has been adopted by the Audit Committee (the "FRIC Audit Committee") of the Board of Trustees of Frank Russell Investment Company ("FRIC") and the Audit Committee (the "RIF Audit Committee") of the Russell Investment Funds ("RIF") to apply to any and all engagements of the independent auditor to FRIC and RIF, respectively, for audit, non-audit, tax or other services. In the case of FRIC, the term "Audit Committee" as used in this policy shall refer to the FRIC Audit Committee and the term "Fund" shall refer to FRIC. In the case of RIF, the term "Audit Committee" as used in this Policy shall refer to the RIF Audit Committee and the term "Fund" shall refer to RIF. The term "Investment Adviser" shall refer to Frank Russell Investment Management Company. This Policy does not delegate to management the responsibilities set forth herein for the pre-approval of services performed by the Funds' independent auditor. II. STATEMENT OF PRINCIPLES. Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the Fund's Board of Trustees (the "Audit Committee") is charged with responsibility for the appointment, compensation and oversight of the work of the independent auditor for the Fund. As part of these responsibilities, the Audit Committee is required to pre-approve the audit services and permissible non-audit services ("non-audit services") performed by the independent auditor for the Fund to assure that the independence of the auditor is not in any way compromised or impaired. In determining whether an auditor is independent, there are three guiding principles under the Act that must be considered. In general, the independence of the auditor to the Fund would be deemed impaired if the auditor provides a service whereby it: - Functions in the role of management of the Fund, the adviser of the Fund or any other affiliate* of the Fund; - Is in the position of auditing its own work; or - Serves in an advocacy role for the Fund, the adviser of the Fund or any other affiliate of the Fund. Accordingly, it is the policy of the Fund that the independent auditor for the Fund must not be engaged to perform any service that contravenes any of the three guidelines set forth above, or - ---------- * For purposes of this Policy, an affiliate of the Funds is defined as the Funds' investment adviser (but not a sub-adviser whose role is primarily portfolio management and whose activities are overseen by the principal investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Fund. which in any way could be deemed to impair or compromise the independence of the auditor for the Fund. This Policy is designed to accomplish those requirements and will henceforth be applied to all engagements by the Fund of its independent auditor, whether for audit, audit-related, tax, or other non-audit services. Rules adopted by the United States Securities and Exchange Commission (the "SEC") establish two distinct approaches to the pre-approval of services by the Audit Committee. The proposed services either may receive general pre-approval through adoption by the Audit Committee of a list of authorized services for the Fund, together with a budget of expected costs for those services ("general pre-approval"), or specific pre-approval by the Audit Committee of all services provided to the Fund on a case-by-case basis ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches reflected in this Policy will result in an effective and efficient procedure for the pre-approval of permissible services performed by the Fund's independent audit. The appendices to this Policy list the audit, audit-related, tax and other services that have the general pre-approval of the Audit Committee. As set forth in this Policy, unless a particular service has received general pre-approval, those services will require specific pre-approval by the Audit Committee before any such services can be provided by the independent auditor. Any proposed service to the Fund that exceeds the pre-approved budget for those services will also require specific pre-approval by the appropriate Audit Committee. In assessing whether a particular audit or non-audit service should be approved, the Audit Committee will take into account the ratio between the total amounts paid for audit, audit-related, tax and other services, based on historical patterns at the Fund, with a view toward assuring that the level of fees paid for non-audit services as they relate to the fees paid for audit services does not compromise or impair the independence of the auditor. The Audit Committee will review the list of general pre-approved services, including the pre-approved budget for those services, at least annually and more frequently if deemed appropriate by the Audit Committee, and may implement changes thereto from time to time. III. DELEGATION. As provided in the Act and in the SEC's rules, the Audit Committee from time to time may delegate either general or specific pre-approval authority to one or more of its members. Any member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. IV. AUDIT SERVICES. The annual audit services engagement terms and fees for the independent auditor for the Fund require specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the independent auditor in order to be able to form an opinion on the financial statements for the Fund for that year. These other procedures include reviews of information systems, procedural reviews and testing performed in order to understand and rely on the Fund's systems of internal control, and consultations relating to the audit. Audit services also include the attestation engagement for the independent auditor's report on the report from management on financial reporting internal controls. The Audit Committee will review the audit services engagement as necessary or appropriate in the sole judgment of the Audit Committee. In addition to the pre-approval by the Audit Committee of the annual engagement of the independent auditor to perform audit services, the Audit Committee may grant general pre-approval to other audit services, which are those services that only the independent auditor reasonably can provide. These may include statutory audits and services associated with the Fund's SEC registration statement on Form N-1A, periodic reports and documents filed with the SEC or other documents issued in connection with the Fund's securities offerings. The Audit Committee has pre-approved the audit services set forth in Schedule A of the Audit and Non-Audit Pre-Approved Services. All other audit services not listed in Schedule A of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. V. AUDIT-RELATED SERVICES. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the financial statements for the Fund, or the separate financial statements for a series of the Fund that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of audit-related services does not compromise or impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant pre-approval to audit related services. "Audit related services" include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "audit services;" assistance with understanding and implementing new accounting and financial report or disclosure matters not classified as "audit services;" assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal reporting requirements under Form N-SAR and Form N-CSR. The Audit Committee has pre-approved the audit-related services set forth in Schedule B of the Audit and Non-Audit Pre-Approved Services. All other audit-related services not listed in Schedule B of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. VI. TAX SERVICES. The Audit Committee believes that the independent auditor can provide tax services to the Fund, such as tax compliance, tax planning and tax advice, without impairing the auditor's independence and the SEC has stated that the independent auditor may provide such services. Consequently, the Audit Committee believes that it may grant general pre-approval to those tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC's rules on auditor independence. However, the Audit Committee will not permit the retention of the independent auditor to provide tax advice in connection with any transaction recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported by the United States Internal Revenue Code and related regulations or the applicable tax statutes and regulations that apply to the Funds investments outside the United States. The Audit Committees will consult with the Treasurer of the Fund or outside counsel to determine that the Fund's tax planning and reporting positions are consistent with this policy. The Audit Committee has pre-approved the tax services set forth in Schedule C of the Audit and Non-Audit Pre-Approved Services. All other tax services not listed in Schedule C of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. VII. ALL OTHER SERVICES. The Audit Committee believes, based on the SEC's rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes that it may grant general pre-approval to those permissible non-audit services classified as "all other" services that the Audit Committee believes are routine and recurring services, would not impair or compromise the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the permissible "all other services" set forth in Schedule D of the Audit and Non-Audit Pre-Approved Services. Permissible "all other services" not listed in Schedule D of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. A list of the SEC's prohibited non-audit services is attached to this Policy as Schedule E of the Audit and Non-Audit Pre-Approved Services. The SEC's rules and relevant official interpretations and guidance should be consulted to determine the scope of these prohibited services and the applicability of any exceptions to certain of the prohibitions. Under no circumstance may an executive, manager or associate of the Fund, or the Investment Adviser, authorize the independent auditor for the Fund to provide prohibited non-audit services. VIII. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS. Pre-Approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee and shall be subject to periodic subsequent review during the year if deemed appropriate by the Audit Committee. (Separate amounts may be specified for the Fund and for other affiliates in the investment company complex subject to pre-approval). Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee will be mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriateness of the ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for affiliates subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as "all other services" for the Fund (including any such services for affiliates subject to pre-approval by the Audit Committee). IX. PROCEDURES. All requests or applications for services to be provided by the independent auditor that do not require specific pre-approval by the Audit Committee will be submitted to the "FRIC/RIF Clearance Committee" (the "Clearance Committee") (which shall be comprised of not less than three members, including the Treasurer of the Fund who shall serve as its Chairperson) and must include a detailed description of the services to be rendered and the estimated costs of those services. The Clearance Committee will determine whether such services are included within the list of services that have received general pre-approval by the Audit Committee. The Audit Committee will be informed not less frequently than quarterly by the Chairperson of the Clearance Committee of any such services rendered by the independent auditor for the Fund and the fees paid to the independent auditors for such services. Requests or applications to provide services that require specific pre-approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Clearance Committee and must include a joint certification by the engagement partner of the independent auditor and the Chairperson of the Clearing Committee that, in their view, the request or application is consistent with the SEC's rules governing auditor independence. The Internal Audit Department of Frank Russell Company, the parent company of FRIMCo, and the officers of FRIC and RIF will report to the Chairman of the Audit Committee any breach of this Policy that comes to the attention of the Internal Audit Department of Frank Russell Company or an officer of FRIC or RIF. X. ADDITIONAL REQUIREMENTS. The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work performed by the independent auditor and to assure the internal auditor's continuing independence from the Fund and its affiliates, including Frank Russell Company. Such efforts will include, but not be limited to, reviewing a written annual statement from the independent auditor delineating all relationships between the independent auditor and FRIC, RIF, and Russell and its subsidiaries and affiliates, consistent with Independence Standards Board Standard No. 1, and discussing with the independent auditor its methods and procedures for ensuring its independence. (e) (2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is as follows: AUDIT FEES 100% AUDIT-RELATED FEES 100% TAX FEES 100% ALL OTHER FEES 100% (f) For services, 50 percent or more of which were pre-approved, the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%. (g) The aggregate non-audit fees billed by registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows: 2005 $127,413 2006 $149,250 (h) The registrant's audit committee of the board of trustees has considered whether the provision of nonaudit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. [NOT APPLICABLE] ITEM 6. [SCHEDULES OF INVESTMENTS ARE INCLUDED AS PART OF THE REPORT TO SHAREHOLDERS FILED UNDER ITEM 1 OF THIS FORM] ITEMS 7-9. [NOT APPLICABLE] ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. CONTROLS AND PROCEDURES (a) Registrant's principal executive officer and principal financial officer have concluded that Registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of these controls and procedures as of a date within 90 days of the date this report is filed with the Securities and Exchange Commission. (b) There were no significant changes in Registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected or is likely to materially affect Registrant's internal control over financial reporting. ITEM 12. EXHIBIT LIST (a) Registrant's code of ethics described in Item 2. (b) Certification for principal executive officer of Registrant as required by Rule 30a-2(a) under the Act and certification for principal financial officer of Registrant as required by Rule 30a-2(a) under the Act. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RUSSELL INVESTMENT FUNDS By: /s/ Greg J. Stark ---------------------------------------------------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer Date: February 15, 2007 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Greg J. Stark --------------------------------------------------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer Date: February 15, 2007 By: /s/ Mark E. Swanson ---------------------------------------------------------------------------- Mark E. Swanson Principal Financial Officer, Principal Accounting Officer and Treasurer Date: February 15, 2007 EX-99.CODEETH 2 f46928exv99wcodeeth.txt EXHIBIT 99.CODEETH EXHIBIT (a) RUSSELL INVESTMENT COMPANY - -------------------------------------------------------------------------------- RUSSELL INVESTMENT FUNDS CODE OF ETHICS FOR SENIOR MUTUAL FUND OFFICERS - -------------------------------------------------------------------------------- This Code of Ethics applies to the Chief Executive Officer and Chief Financial Officer (each, a "Senior Mutual Fund Officer") of Frank Russell Investment Company and Russell Investment Funds (each, a "Mutual Fund") and, pursuant to the Sarbanes-Oxley Act of 2002 is designated to promote: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities Exchange Commission ("SEC") and in other public communications made by each Mutual Fund; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting to an appropriate person or persons identified in this section of the Code of violations of this section of the Code; and - accountability for adherence to this section of the Code. I. SENIOR MUTUAL FUND OFFICERS SHOULD ACT HONESTLY AND CANDIDLY Each Senior Mutual Fund Officer owes a duty to the Mutual Fund to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Senior Mutual Fund Officer must: - act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Mutual Fund's policies; - observe both the form and spirit of laws and governmental rules and regulations, accounting standards and Mutual Fund policies; - adhere to a high standard of business ethics; and - place the interests of the Mutual Fund before the Senior Mutual Fund Officer's own personal interests. - All activities of Senior Mutual Fund Officers should be guided by and adhere to these fiduciary standards. II. SENIOR MUTUAL FUND OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST GUIDING PRINCIPLES. A "conflict of interest" occurs when a Mutual Fund Officer's private interest interferes with the interests of his or her service to the Mutual Fund. A conflict of interest can arise when a Senior Mutual Fund Officer takes actions or has interests that may make it difficult to perform his or her Mutual Fund work objectively and effectively. For example, a conflict of interest would arise if a Senior Mutual Fund Officer, or a member or his family, receives improper personal benefits as a result of his or her position in the Mutual Fund. In addition, Senior Mutual Fund Officers should be sensitive to situations that create apparent, not actual, conflicts of interest. Service to the Mutual Fund should never be subordinated to personal gain and advantage. Certain conflicts of interest arise out of the relationships between Senior Mutual Fund Officers and the Mutual Fund that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act. For example, Senior Mutual Fund Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Mutual Fund because of their status as "affiliated persons" of the Mutual Fund. Therefore, the existing statutory and regulatory prohibitions on individual behavior will be deemed to be incorporated into this section of the Code and therefore any such violation will also be deemed a violation of this section of the Code. Senior Mutual Fund Officers must in all cases comply with applicable statutes and regulations. As to conflicts arising from, or as a result of the contractual relationship between each Mutual Fund and its investment adviser of which the Senior Mutual Fund Officers are also officers or employees, it is recognized by the Board that, subject to the adviser's fiduciary duties to the Mutual Fund, the Senior Mutual Fund Officers will in the normal course of their duties (whether formally for the Mutual Fund or for the adviser, or for both) be involved in establishing policies and implementing decisions which will have different effects on the adviser and the Mutual Fund. The Board recognizes that the participation of the Senior Mutual Fund Officers in such activities is inherent in the contractual relationship between the Mutual Fund and the adviser and is consistent with the expectation of the Board of the performance by the Senior Mutual Fund Officers of their duties as officers of the Mutual Fund. In addition, it is recognized by the Board that the Senior Mutual Fund Officers may also be officers or employees of other investment companies advised by the same adviser and the codes of those investment companies will apply to the Senior Mutual Fund Officers acting in those distinct capacities. Each Senior Mutual Fund Officer must: - avoid conflicts of interest wherever possible; - handle any actual or apparent conflict of interest ethically; - not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by the Mutual Fund whereby the Senior Mutual Fund Officer would benefit personally to the detriment of the Mutual Fund; - not cause the Mutual Fund to take action, or fail to take action, for the personal benefit of the Senior Mutual Fund Officer rather than the benefit of the Mutual Fund; - not use material non-public knowledge of portfolio transactions made or contemplated for the Mutual Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; - as described in more detail below, discuss any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest with the Mutual Fund's Chief Legal Counsel; and - report at least annually any affiliations or other relationships related to conflicts of interest as requested from time to time in the Mutual Fund's directors & officers questionnaire. The Senior Mutual Fund Officers should follow the precepts and requirements of the Code as adopted by the Mutual Fund from time to time, including its policies regarding personal securities accounts, outside business affiliations, gifts and entertainment and conflicts of interests. III. DISCLOSURE Each Senior Mutual Fund Officer is required to be familiar with, and comply with the Mutual Fund's disclosure controls and procedures so that the Mutual Fund's reports and documents filed with the SEC and other public communications comply in all material respects with the applicable federal securities laws and SEC rules. In addition, each Senior Mutual Fund Officer having direct or supervisory authority regarding these SEC filings or the Mutual Fund's other public communications should, to the extent appropriate within his area of responsibility, consult with other Mutual Fund officers and employees and the adviser and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure. Each Senior Mutual Fund Officer must: - familiarize himself with the disclosure requirements generally applicable to the Mutual Fund; and - not knowingly misrepresent, or cause others to misrepresent, facts about the Mutual Fund to others, whether within or outside the Mutual Fund, including to the Mutual Fund's auditors, independent directors, independent auditors, and to governmental regulators and self-regulatory organizations. IV. COMPLIANCE It is the Mutual Fund's policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Senior Mutual Fund Officer to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to affiliated transactions, accounting and auditing matters. V. REPORTING AND ACCOUNTABILITY Each Senior Mutual Fund Officer must: - upon receipt of this Code, and annually thereafter acknowledge that he or she has read the Code, understood its provisions and agrees to abide by its requirements as set forth elsewhere in this Code; - not retaliate against any officer or employee of the Mutual Fund or their affiliated persons for reports of potential violations that are made in good faith; and - notify the Mutual Fund's Chief Legal Counsel promptly if he or she becomes aware of any existing or potential violation of this section of the Code. Failure to do so is itself a violation of this section of the Code. Except as described otherwise below, the Investment Company's Chief Compliance Officer is responsible for applying this section of the Code to specific situations in which questions are presented to him or her and has the authority to interpret this section of the Code in any particular situation. The Investment Company's Chief Compliance Officer shall take all action he or she considers appropriate to investigate any actual or potential violations reported to him or her. The Mutual Fund's Chief Compliance Officer is authorized to consult, as appropriate, with the Mutual Fund's Chief Legal Counsel, legal counsel to the Mutual Fund's independent trustees, or the chair of the Audit Committee (the "Committee"), and is encouraged to do so. The Committee is responsible for granting waivers and determining sanctions, as appropriate1. In addition, approvals, interpretations, or waivers sought by the Chief Executive Officer will be considered by the Committee. The Funds will follow these procedures in investigating and enforcing this section of the Code: - the Chief Legal Counsel will take all appropriate action to investigate any potential violations reported to him; - if, after such investigation, the Chief Legal Counsel believes that no violation has occurred, the Chief Legal Counsel is not required to take any further action; - any matter that the Chief Legal Counsel believes is a violation will be reported to the Committee; - if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; - ---------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. notification to appropriate personnel of the adviser or its board; or a recommendation to dismiss the Mutual Fund Officer; - the Committee will be responsible for granting waivers, as appropriate; and - any changes to or waivers of this section of the Code will, to the extent required, be disclosed as provided by SEC rules. VI. OTHER POLICIES AND PROCEDURES The rest of this Code, including the Mutual Fund's adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act and the more detailed policies and procedures set forth therein are separate requirements applying to Senior Mutual Fund Officers and others, and are not part of this Section of the Code. VII. AMENDMENTS This section of the Code may not be amended except in a written document that is specifically approved by a majority vote of the Mutual Fund's Board of Trustees, including a majority of independent trustees. VIII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this section of the Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this section of the Code, such matters shall not be disclosed to anyone other than the Mutual Fund's Chief Compliance Officer, Chief Legal Counsel, the members of the Board of Trustees and their counsels, the Mutual Fund and its adviser and principal underwriter and their legal counsel. IX. INTERNAL USE This section of the Code is intended solely for the internal use by each Mutual Fund and does not constitute an admission, by or on behalf of any Mutual Fund, as to any fact, circumstance, or legal conclusion. EX-99.CERT 3 f46928exv99wcert.txt EXHIBIT 99.CERT EXHIBIT (b) EX-99.CERT CERTIFICATION I, Greg J. Stark, certify that: 1. I have reviewed this report on Form N-CSR of Russell Investment Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: February 15, 2007 /s/ Greg J. Stark ---------------------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer EX-99.CERT CERTIFICATION I, Mark E. Swanson, certify that: 1. I have reviewed this report on Form N-CSR of Russell Investment Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the fourth fiscal quarter of period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: February 15, 2007 /s/ Mark E. Swanson --------------------------------------------- Mark E. Swanson Principal Financial Officer, Principal Accounting Officer and Treasurer EX-99.906CERT 4 f46928exv99w906cert.txt EXHIBIT 99.906CERT EX-99.906CERT SECTION 906 CERTIFICATIONS Greg J. Stark, Principal Executive Officer and Chief Executive Officer; and Mark E. Swanson, Principal Financial Officer, Principal Accounting Officer and Treasurer of Russell Investment Funds, a Massachusetts Business Trust (the "Registrant"), each certify that: 1. The Registrant's periodic report on Form N-CSR for the period ended December 31, 2006 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, as applicable; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. A signed original of this written statement required by Section 906 has been provided to Russell Investment Funds and will be retained by Russell Investment Funds and furnished to the Securities and Exchange Commission or its staff upon request. Principal Executive Officer and Principal Financial Officer, Chief Executive Officer Principal Accounting Russell Investment Funds Officer and Treasurer Russell Investment Funds /s/ Greg J. Stark /s/ Mark E. Swanson - ------------------------------------ -------------------------------- Greg J. Stark Mark E. Swanson Date: February 15, 2007 Date: February 15, 2007 -----END PRIVACY-ENHANCED MESSAGE-----