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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-3153
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
253-596-2406
--------------------------------------------------------------------
(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, 2003 to December 31, 2003
ITEM 1. REPORTS TO STOCKHOLDERS
RUSSELL INVESTMENT FUNDS*
INVESTMENT FUNDS
2003 Annual Report
MULTI-STYLE EQUITY FUND
AGGRESSIVE EQUITY FUND
NON-U.S. FUND
CORE BOND FUND
REAL ESTATE SECURITIES FUND
DECEMBER 31, 2003
*FORMERLY RUSSELL INSURANCE FUNDS
[RUSSELL LOGO]
Russell Investment Funds*
Russell Investment Funds is a "series mutual fund" with five different
investment portfolios. These financial statements report on the Funds, each of
which has distinct investment objectives and strategies.
Frank Russell Investment Management Company
Responsible for overall management and administration of the Funds.
Frank Russell Company
Consultant to Frank Russell Investment Management Company.
* Formerly Russell Insurance Funds
[Blank Page]
Russell Investment Funds
Annual Report
December 31, 2003
Table of Contents
<Table>
<Caption>
Page
Letter to Our Clients................................................ 3
Multi-Style Equity Fund.............................................. 4
Aggressive Equity Fund............................................... 16
Non-U.S. Fund........................................................ 32
Core Bond Fund....................................................... 46
Real Estate Securities Fund.......................................... 60
Statement of Assets and Liabilities.................................. 66
Statement of Operations.............................................. 68
Statement of Changes in Net Assets................................... 70
Financial Highlights................................................. 72
Notes to Financial Highlights........................................ 74
Notes to Schedule of Investments..................................... 75
Notes to Financial Statements........................................ 76
Report of Independent Auditors....................................... 85
Tax Information...................................................... 86
Disclosure of Information about Fund Directors....................... 87
Matter Submitted to a Vote of Shareholders........................... 91
Manager, Money Managers and Service Providers........................ 92
</Table>
Russell Investment Funds
Copyright (c) Frank Russell Company 2003. All rights reserved. This material is
proprietary and may not be reproduced, transferred, or distributed in any form
without prior written permission from Frank Russell Company. It is delivered on
an "as is" basis without warranty. The Russell logo is a trademark and service
mark of Frank Russell Company. Frank Russell Company is the owner of the
trademarks, service marks, and copyrights related to their respective indexes.
This material must be accompanied or preceded by a current Russell Investment
Funds' Prospectus containing complete information concerning the investment
objectives and operations of the Funds, charges and expenses, and the applicable
variable insurance policy Prospectus. The Prospectus should be read carefully
before an investment is made. The performance quoted represents past performance
and 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.
International markets entail different risks than those typically associated
with domestic markets, including currency fluctuations, political and economic
instability, accounting changes and foreign taxation. Securities may be less
liquid and more volatile. Please see the Prospectus for further detail. Russell
Fund Distributors, Inc., is the distributor of Russell Investment Funds.
[Blank Page]
TO OUR CLIENTS
We're pleased you have chosen Russell Investment Funds for your investment
needs. As we present our Russell Investment Funds 2003 Annual Report, we renew
our commitment to you--providing strategically diversified investments managed
by world class independent investment management firms.
After three years of a bear market, 2003 offered new opportunities and the
financial markets were generally favorable. This represented a dramatic--and
welcome--change for the financial markets. As always, our investment process
remained constant. We maintained our long-term focus, strategic diversification,
active management, and goal-oriented planning. We believe our diversified
approach and long-term commitment to investing helps provide consistency for
you--our investors.
As we reflect on the challenges and opportunities in 2003, we want you to know
that we appreciate your continued confidence in Russell and in our MULTI ASSET,
MULTI STYLE, MULTI MANAGER(TM) investment strategy.
We thank you for choosing Russell, global leaders in multi-manager investing. We
look forward to continuing to serve you and building our relationship in 2004.
Warm Regards,
(/s/ LEN BRENNAN)
Len Brennan
President and Chief Executive Officer
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
(Performance Chart)'
Multi-Style Equity Fund
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 12,886 28.86%
5 Years $ 8,730 (2.68)%sec.
Inception $ 14,441 5.39%sec.
</Table>
Russell 1000(R) Index
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 12,989 29.89%
5 Years $ 9,934 (0.13)%sec.
Inception $ 16,763 7.66%sec.
</Table>
4 Multi-Style Equity Fund
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PLEASE STATE THE FUND'S OBJECTIVE.
The Fund seeks to provide income and capital growth by investing principally in
equity securities.
On October 3, 2003, shareholders voted to change the investment objective of the
Fund to: The Fund seeks to provide long-term capital growth. This change will be
effective on March 1, 2004.
DESCRIBE THE FUND'S PERFORMANCE FOR THE 12 MONTHS ENDED DECEMBER 31ST AND HOW IT
PERFORMED RELATIVE TO ITS BENCHMARK.
For the fiscal year ended December 31, 2003, the Multi-Style Equity Fund gained
28.86%. This compared to the Russell 1000(R) Index, which gained 29.89% during
the same period. The Fund's performance is net of operating expenses of 0.87%.
Index returns do not reflect deduction of fees, expenses, or taxes.
DESCRIBE THE FUND'S MAIN PERFORMANCE DRIVERS OVER THE PAST 12 MONTHS INCLUDING A
DISCUSSION OF INVESTMENT STYLES AND MONEY MANAGERS.
Main drivers of Fund performance included the fact that it was fully invested,
ensuring full participation in the market recovery, and favorable stock
selection. Meanwhile, the Fund's sector weightings, including an underweight in
the strong performing technology sector, as well as in medium capitalization
stocks, resulted in lower Fund performance relative to the benchmark. Fund money
managers that were positioned more aggressively such as Turner and Brandywine
outperformed their benchmarks while the more defensively positioned money
managers, such as Montag & Caldwell and Westpeak (while they were a money
manager for the Fund), trailed their benchmarks.
PLEASE DESCRIBE HOW THE FUND AND ITS MONEY MANAGERS REACTED TO THE MARKET
ENVIRONMENT DURING THE PERIOD AND HOW THE FUND IS POSITIONED TO MEET ITS
LONG-TERM OBJECTIVES.
During the past twelve months, the Fund's money managers responded to the market
environment by investing in companies that they expected would benefit from
improving economic and capital market conditions. The money managers increased
their sector exposure to technology and multi-sector firms, while reducing
exposure to the consumer staples and energy sectors. The Fund's money managers
also increased their exposure to larger capitalization stocks in response to
improving valuations and the falling dollar.
At fiscal year end, the Fund remained diversified across economic sectors, yet
the money managers generally favored reasonably valued stocks they believed had
the potential for improved earnings. As of December 31, 2003, the Fund was most
overweighted in the consumer discretionary and the health care sectors and most
underweighted in the financial services and utilities sectors.
WHAT CHANGES WERE MADE TO THE FUND'S STRUCTURE OR TO THE MONEY MANAGER LINE-UP?
In November, 2003, Strong Capital Management was replaced by Ark Asset
Management in the growth segment of the Fund. Westpeak Global Advisors was
terminated and their assets were redeployed to other Fund money managers.
In July, 2003, the Fund's target style weights were rebalanced to align with the
annual reconstitution of its benchmark, the Russell 1000(R) Index.
PLEASE EXPLAIN WHAT CONTRIBUTED MOST AND LEAST TO THE FUND'S PERFORMANCE DURING
THE LAST 12 MONTHS.
Positive contributors to performance relative to the benchmark included the
Fund's fully invested stance and favorable stock selection in most sectors,
especially health care (an emphasis on biotech over pharmaceuticals), consumer
discretionary (overweights in internet commerce such as Ebay and Yahoo),
utilities (strong recovery in Williams), and financials (overweight in brokers
such as Goldman Sachs). Turner and Brandywine each had strong relative
performance during the period. The Fund's overweights in Electronic Arts,
Corning, and Boston Scientific also contributed to returns during the period.
Finally, the Fund benefited as a result of six of the Fund's eight money
managers outperforming their benchmarks.
The Fund's underweighted holdings in medium capitalization companies and the
technology sector, and the defensively positioned Montag & Caldwell, and
Westpeak portfolios detracted from performance relative to the benchmark.
Overweightings in Kohls and Colgate Palmolive, as well as an underweight in
General Electric, negatively impacted performance relative to the benchmark.
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR STOCK SELECTION? HOW DID THE FUND
FARE IN THIS ENVIRONMENT?
During the past twelve months, the equity market recovered strongly, led by the
same low quality, high risk stocks that were hardest hit during the preceding
bear market. The strongest performing sectors were those most sensitive to the
economy (technology, producer durables, and materials), whereas the weaker
sectors were less economically sensitive (consumer staples, health care, and
utilities). Smaller and medium capitalization stocks significantly outperformed
large capitalization stocks, while value stocks marginally outpaced growth
stocks.
The market environment was challenging for most fundamentally driven, active
money managers during the fiscal year. As a result, most active money managers
underperformed their benchmarks. Since the market recovery was led by companies
with low financial quality, highly uncertain business prospects, negative
profitability and extreme volatility, most active money managers that focused on
financially strong companies found it difficult to outperform their benchmarks.
In this period, many highly profitable companies with improving
Multi-Style Equity Fund 5
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
earnings significantly underperformed as the market was more focused on
companies with higher risk profiles.
Money Managers Styles
<Table>
Alliance Capital Management, LP -
Bernstein Investment Research &
Management Unit Value
Ark Asset Management Growth
Barclays Global Fund Advisors Value
Brandywine Asset Management, LLC Value
Jacobs Levy Equity Management, Inc. Market-Oriented
Montag & Caldwell, Inc. Growth
Turner Investment Partners, Inc. Growth
</Table>
--------------------
* The Fund commenced operations on January 2, 1997. Index comparison began
January 1, 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.
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.
6 Multi-Style Equity Fund
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
COMMON STOCKS - 92.8%
Auto and Transportation - 2.9%
American Axle & Manufacturing Holdings, Inc.(AE) 3,893 157
Autoliv, Inc. 1,000 38
BorgWarner, Inc. 1,300 111
Burlington Northern Santa Fe Corp. 10,173 329
CSX Corp. 23,700 852
Dana Corp. 3,000 55
Delphi Corp. 51,783 529
Delta Air Lines, Inc. 9,600 113
FedEx Corp. 1,376 93
Ford Motor Co. 38,364 614
General Motors Corp. 8,800 470
Lear Corp. 363 22
Norfolk Southern Corp. 33,600 795
Northwest Airlines Corp. (AE) 9,900 125
Oshkosh Truck Corp. 1,800 92
Skywest, Inc. 6,989 127
Southwest Airlines Co. 39,467 637
Swift Transportation Co., Inc. (AE) 795 17
Tidewater, Inc. 11,950 357
Toyota Motor Corp. - ADR 5,850 402
Union Pacific Corp. 2,639 183
United Parcel Service, Inc. Class B 33,800 2,520
Werner Enterprises, Inc. 751 15
------------
8,653
------------
Consumer Discretionary - 14.0%
Abercrombie & Fitch Co. Class A (AE) 2,313 57
Activision, Inc. (AE) 1,700 31
Amazon.Com, Inc. (AE) 7,960 419
Apollo Group, Inc. Class A (AE) 2,100 143
Autonation, Inc. (AE) 6,700 123
Barnes & Noble, Inc. (AE) 1,298 43
BearingPoint, Inc. (AE) 18,300 185
Bed Bath & Beyond, Inc. (AE) 20,400 884
Belo Corp. Class A 2,053 58
Best Buy Co., Inc. 12,050 629
Big Lots, Inc. 2,874 41
BJ's Wholesale Club, Inc. (AE) 7,300 168
Black & Decker Corp. 304 15
Blyth, Inc. 919 30
Borders Group, Inc. 2,240 49
Brinker International, Inc. (AE) 1,894 63
Callaway Golf Co. 4,000 67
Career Education Corp. (AE) 5,800 232
Carnival Corp. 17,760 706
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Cendant Corp. 29,070 647
Circuit City Stores, Inc. 5,800 59
Claire's Stores, Inc. 5,994 113
Coach, Inc. (AE) 13,000 491
Convergys Corp. (AE) 4,636 81
Darden Restaurants, Inc. 3,054 64
DeVry, Inc. (AE) 7,500 188
Dillard's, Inc. Class 3,900 64
Dollar General Corp. 11,265 236
Earthlink, Inc. (AE) 2,500 25
Eastman Kodak Co. 14,000 359
eBay, Inc. (AE) 25,060 1,619
Education Management Corp. (AE) 1,800 56
Electronic Arts, Inc. (AE) 20,974 1,002
Estee Lauder Cos., Inc. (The) Class A 9,000 353
Extended Stay America, Inc. 2,300 33
Federated Department Stores 12,038 567
Fox Entertainment Group, Inc. Class A (AE) 23,575 687
Fred's, Inc. 1,900 59
Gannett Co., Inc. 17,800 1,587
Gap, Inc. (The) 14,600 339
Gemstar-TV Guide International, Inc. (AE) 840 4
Gillette Co. (The) 51,438 1,889
GTECH Holdings Corp. 3,380 167
Harman International Industries, Inc. 173 13
Harrah's Entertainment, Inc. 2,053 102
Hearst-Argyle Television, Inc. 3,121 86
Home Depot, Inc. 62,100 2,204
InterActiveCorp (AE) 35,230 1,195
International Game Technology 21,840 780
Interpublic Group of Cos., Inc. 20,000 312
ITT Educational Services, Inc. 539 25
Jones Apparel Group, Inc. 6,164 217
Kimberly-Clark Corp. 16,208 958
Kohl's Corp. (AE) 27,500 1,236
Leggett & Platt, Inc. 1,700 37
Liberty Media Corp. Class A (AE) 67,297 800
Liz Claiborne, Inc. 207 7
Lowe's Cos., Inc. 23,510 1,302
Marriott International, Inc. Class A 24,900 1,150
Mattel, Inc. 19,902 384
May Department Stores Co. (The) 12,604 366
Maytag Corp. 2,220 62
McDonald's Corp. 55,307 1,373
McGraw-Hill Cos., Inc. (The) 3,406 238
Media General, Inc. Class A 939 61
Meredith Corp. 2,733 133
</Table>
Multi-Style Equity Fund 7
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Metro-Goldwyn-Mayer, Inc. (AE) 5,459 93
MGM Mirage 648 24
Michaels Stores, Inc. 107 5
Mohawk Industries, Inc. (AE) 2,000 141
Office Depot, Inc. (AE) 7,400 124
Omnicom Group 10,200 891
Pacific Sunwear Of California (AE) 6,525 138
Park Place Entertainment Corp. (AE) 18,179 197
Petco Animal Supplies, Inc. (AE) 1,600 49
RadioShack Corp. 8,909 273
Republic Services, Inc. 2,761 71
Ross Stores, Inc. 806 21
RR Donnelley & Sons Co. 9,751 294
Sears Roebuck and Co. 4,300 196
ServiceMaster Co. (The) 4,000 47
Snap-On, Inc. 1,549 50
Stanley Works (The) 1,740 66
Staples, Inc. (AE) 166 5
Starwood Hotels & Resorts Worldwide, Inc. 2,200 79
Strayer Education, Inc. 500 54
Talbots, Inc. 644 20
Target Corp. 8,000 307
Tech Data Corp. (AE) 900 36
Time Warner, Inc. 136,602 2,457
TJX Cos., Inc. 9,800 216
Tribune Co. 7,700 397
Tupperware Corp. 7,006 121
Univision Communications, Inc. Class A (AE) 9,500 377
VF Corp. 4,300 186
Viacom, Inc. Class B 25,077 1,113
Viad Corp. 1,300 33
Wal-Mart Stores, Inc. 48,000 2,546
Walt Disney Co. 75,277 1,756
Washington Post Class B 34 27
Waste Management, Inc. 14,742 436
Whirlpool Corp. 2,870 209
WMS Industries, Inc. 1,900 50
Yahoo!, Inc. (AE) 15,820 715
------------
41,493
------------
Consumer Staples - 6.6%
Adolph Coors Co. Class B 1,560 88
Albertson's, Inc. 11,100 251
Altria Group, Inc. 43,190 2,350
Anheuser-Busch Cos., Inc. 7,918 417
Campbell Soup Co. 6,700 180
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Coca-Cola Co. (The) 52,740 2,677
Coca-Cola Enterprises, Inc. 6,908 151
Colgate-Palmolive Co. 18,200 911
CVS Corp. 13,923 503
Dean Foods Co. (AE) 805 26
Del Monte Foods Co. (AE) 30,100 313
Dial Corp. (The) 319 9
General Mills, Inc. 6,200 281
HJ Heinz Co. 7,421 270
Hormel Foods Corp. 385 10
Interstate Bakeries 3,249 46
Kraft Foods, Inc. Class A 670 22
Kroger Co. 34,314 635
Pepsi Bottling Group, Inc. 4,314 104
PepsiAmericas, Inc. 6,034 103
PepsiCo, Inc. 64,010 2,984
Procter & Gamble Co. 45,142 4,509
Rite Aid Corp. 10,300 62
Safeway, Inc. (AE) 7,900 173
Sara Lee Corp. 46,917 1,019
Supervalu, Inc. 11,449 327
Systemco Corp. 10,090 376
Tyson Foods, Inc. Class A 4,606 61
UST, Inc. 12,893 460
Winn-Dixie Stores, Inc. 10,000 100
------------
19,418
------------
Financial Services - 20.4%
ACE, Ltd. 5,794 240
AG Edwards, Inc. 217 8
Alliance Data Systems Corp. (AE) 2,400 66
Allstate Corp. (The) 25,557 1,099
American Express Co. 25,830 1,246
American International Group, Inc. 78,479 5,202
Ameritrade Holding Corp. (AE) 14,400 203
AmSouth Bancorp 11,388 279
AON Corp. 3,100 74
Apartment Investment & Management Co. Class A
(o) 1,150 40
Archstone-Smith Trust (o) 6,900 193
Arden Realty, Inc. (o) 4,893 148
Astoria Financial Corp. 7,147 266
Automatic Data Processing, Inc. 900 36
Axis Capital Holdings, Ltd. 6,000 176
Bank of America Corp. 35,516 2,857
Bank of New York Co., Inc. (The) 11,082 367
Bank One Corp. 31,445 1,434
BB&T Corp. 9,012 348
</Table>
8 Multi-Style Equity Fund
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Bear Stearns Cos., Inc. (The) 1,000 80
Brandywine Realty Trust (o) 900 24
Capital One Financial Corp. 10,600 650
CarrAmerica Realty Corp. (o) 4,715 140
Charles Schwab Corp. (The) 51,450 609
Charter One Financial, Inc. 11,300 390
Chubb Corp. 2,973 202
Cigna Corp. 20,245 1,164
CIT Group, Inc. 2,035 73
Citigroup, Inc. 173,039 8,400
CNA Financial Corp. (AE) 2,100 51
Comerica, Inc. 2,300 129
Conseco, Inc. (AE) 10,600 231
Crescent Real Estate Equities Co. (o) 6,447 110
D&B Corp. (AE) 230 12
Deluxe Corp. 2,700 112
Doral Financial Corp. 3,154 102
DST Systems, Inc. (AE) 991 41
E*Trade Financial Corp. (AE) 28,864 365
Endurance Specialty Holdings, Ltd. 4,700 158
Equity Office Properties Trust (o) 20,839 597
Equity Residential (o) 11,300 333
Fannie Mae 21,435 1,609
Fidelity National Financial, Inc. 6,326 245
First Data Corp. 20,570 845
First Midwest Bancorp, Inc. 273 9
Fiserv, Inc. (AE) 8,000 316
FleetBoston Financial Corp. 37,939 1,656
Franklin Resources, Inc. 7,700 401
Freddie Mac 20,176 1,177
Friedman Billings Ramsey Group, Inc. Class A 2,238 52
General Growth Properties, Inc. (o) 8,337 231
Global Payments, Inc. 1,200 57
Golden West Financial Corp. 1,656 171
Goldman Sachs Group, Inc. 22,031 2,175
Greenpoint Financial Corp. 5,064 179
Hartford Financial Services Group, Inc. 2,140 126
Health Care REIT, Inc. (o) 1,600 58
Hibernia Corp. Class A 7,573 178
Hospitality Properties Trust (o) 307 13
HRPT Properties Trust (o) 2,600 26
Hudson United Bancorp 713 26
Huntington Bancshares, Inc. 4,400 99
IMPAC Mortgage Holdings, Inc. (o) 2,600 47
Jack Henry & Associates, Inc. 635 13
Jefferson-Pilot Corp. 1,600 81
John Hancock Financial Services, Inc. 8,036 301
JP Morgan Chase & Co. 71,864 2,640
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Keycorp 26,446 775
Kimco Realty Corp. (o) 1,900 85
La Quinta Corp. 3,900 25
Landamerica Financial Group, Inc. 1,100 57
Lehman Brothers Holdings, Inc. 9,942 768
Liberty Property Trust (o) 988 38
Lincoln National Corp. 6,451 260
Loews Corp. 300 15
Macerich Co. (The) (o) 5,296 236
Marsh & McLennan Cos., Inc. 32,087 1,537
MBIA, Inc. 1,700 101
MBNA Corp. 23,094 574
Merrill Lynch & Co., Inc. 30,187 1,770
Metlife, Inc. 7,375 248
MGIC Investment Corp. 2,150 122
Morgan Stanley 29,819 1,726
National City Corp. 21,700 736
National Commerce Financial Corp. 1,856 51
Nationwide Financial Services 3,627 120
Nuveen Investments, Inc. Class A 700 19
Old Republic International Corp. 4,331 110
Paychex, Inc. 30,800 1,146
Platinum Underwriters Holdings, Ltd. 14,000 420
PNC Financial Services Group, Inc. 9,241 506
Prentiss Properties Trust (o) 1,200 40
Prudential Financial, Inc. 7,177 300
Radian Group, Inc. 7,300 356
Redwood Trust, Inc. (o) 700 36
Regions Financial Corp. 2,500 93
RenaissanceRe Holdings, Ltd. 1,600 78
Ryder System, Inc. 3,599 123
Safeco Corp. 1,400 55
Shurgard Storage Centers, Inc. Class A (o) 683 26
SouthTrust Corp. 4,779 156
St. Paul Cos 3,300 131
Sungard Data Systems, Inc. (AE) 1,344 37
SunTrust Banks, Inc. 2,300 164
Thornburg Mortgage, Inc. (o) 1,758 48
Torchmark Corp. 2,400 109
Travelers Property Casualty Corp. Class A 9,512 160
Travelers Property Casualty Corp. Class B 31,013 526
Union Planters Corp. 1,500 47
UnionBanCal Corp. 2,308 133
United Bankshares, Inc. 196 6
UnumProvident Corp. 308 5
US Bancorp 29,324 873
Vornado Realty Trust (o) 1,926 105
</Table>
Multi-Style Equity Fund 9
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Wachovia Corp. 45,935 2,140
Washington Mutual, Inc. 17,251 692
Webster Financial Corp. 429 20
Wells Fargo & Co. 24,524 1,444
WR Berkley Corp. 5,077 177
XL Capital, Ltd. Class A 1,672 130
Zions BanCorp 288 18
------------
60,659
------------
Health Care - 13.0%
Abbott Laboratories 45,540 2,122
AdvancePCS (AE) 1,200 63
Aetna, Inc. 2,585 175
Affymetrix, Inc. (AE) 2,225 55
AmerisourceBergen Corp. 9,380 527
Amgen, Inc. 70,110 4,333
Andrx Corp. (AE) 681 16
Applera Corp. - Celera Genomics Group (AE) 1,700 24
Beckman Coulter, Inc. 378 19
Becton Dickinson & Co. 1,200 49
Boston Scientific Corp. (AE) 19,950 733
Bristol-Myers Squibb Co. 29,562 845
Caremark Rx, Inc. (AE) 13,200 334
Celgene Corp. (AE) 1,300 59
Chiron Corp. (AE) 6,010 343
Community Health Systems, Inc. (AE) 2,200 58
Coventry Health Care, Inc. (AE) 1,826 118
Dade Behring Holdings, Inc. (AE) 1,100 39
DaVita, Inc. (AE) 2,416 94
Eli Lilly & Co. 30,900 2,173
Endo Pharmaceuticals Holdings, Inc. (AE) 1,600 31
Forest Laboratories, Inc. (AE) 4,100 253
Genentech, Inc. (AE) 19,689 1,842
Genzyme Corp. (AE) 6,000 296
Gilead Sciences, Inc. (AE) 18,090 1,052
Guidant Corp. 13,676 823
HCA, Inc. 6,500 279
Human Genome Sciences, Inc. (AE) 2,800 37
Humana, Inc. 4,303 98
IMS Health, Inc. 9,787 243
Invitrogen Corp. (AE) 3,300 231
IVAX Corp. 7,800 186
Johnson & Johnson 43,860 2,266
King Pharmaceuticals, Inc. (AE) 1,093 17
Kyphon, Inc. (AE) 1,200 30
McKesson Corp. 3,100 100
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Medco Health Solutions, Inc. (AE) 9,000 306
Medtronic, Inc. 59,130 2,874
Merck & Co., Inc. 21,427 990
Millennium Pharmaceuticals, Inc. (AE) 285 5
Mylan Laboratories 8,100 205
Nektar Therapeutics (AE) 3,200 44
Oxford Health Plans 1,500 65
Pfizer, Inc. 206,642 7,302
Respironics, Inc. (AE) 391 18
Schering-Plough Corp. 28,400 494
Select Medical Corp. 1,000 16
St. Jude Medical, Inc. 12,690 779
Tenet Healthcare Corp. 31,400 504
Teva Pharmaceutical Industries - ADR 13,900 788
Triad Hospitals, Inc. (AE) 2,600 87
UnitedHealth Group, Inc. 24,948 1,451
Universal Health Services, Inc. Class B 927 50
Valeant Pharmaceuticals International 583 15
Varian Medical Systems, Inc. 706 49
Watson Pharmaceuticals, Inc. (AE) 10,900 501
WellPoint Health Networks 2,600 252
Wyeth 22,876 971
Zimmer Holdings, Inc. (AE) 10,570 744
------------
38,473
------------
Integrated Oils - 3.6%
Amerada Hess Corp. 7,828 416
BP PLC - ADR 15,500 765
ChevronTexaco Corp. 26,241 2,267
ConocoPhillips 19,590 1,285
Exxon Mobil Corp. 117,254 4,807
Marathon Oil Corp. 11,914 394
Occidental Petroleum Corp. 17,332 732
------------
10,666
------------
Materials and Processing - 3.4%
Alcoa, Inc. 33,761 1,283
Archer-Daniels-Midland Co. 22,327 340
Ashland, Inc. 2,800 123
Ball Corp. 1,000 60
Bemis Co. 1,300 65
Cabot Corp. 1,960 62
Carpenter Technology 822 24
Crown Holdings, Inc. 21,900 198
Dow Chemical Co. (The) 26,961 1,121
Eastman Chemical Co. 3,000 119
Ecolab, Inc. 10,100 276
EI Du Pont de Nemours & Co. 10,655 489
</Table>
10 Multi-Style Equity Fund
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Florida Rock Industries, Inc. 273 15
Forest City Enterprises, Inc. Class A 818 39
Georgia-Pacific Corp. 9,770 300
Glatfelter 8,249 103
Harsco Corp. 1,554 68
Hecla Mining Co. 4,700 39
Hercules, Inc. 6,800 83
International Paper Co. 12,400 535
Lafarge North America, Inc. 2,144 87
Louisiana-Pacific Corp. 2,343 42
Lubrizol Corp. 1,400 46
Lyondell Chemical Co. 7,300 124
Martin Marietta Materials, Inc. 3,143 148
Masco Corp. 44,700 1,225
MeadWestvaco Corp. 3,500 104
Monsanto Co. 24,833 715
Newmont Mining Corp. 6,103 297
Pactiv Corp. (AE) 2,964 71
Potlatch Corp. 1,438 50
PPG Industries, Inc. 5,390 345
Rohm & Haas Co. 360 15
RPM International, Inc. 18,763 309
Sherwin-Williams Co. (The) 8,399 292
Sigma-Aldrich Corp. Class H 2,720 156
Smurfit-Stone Container Corp. (AE) 10,600 197
Sonoco Products Co. 1,500 37
Southern Peru Copper Corp. 420 20
Temple-Inland, Inc. 1,100 69
Vulcan Materials Co. 5,238 249
Weyerhaeuser Co. 2,051 131
Worthington Industries 5,500 99
York International Corp. 941 35
------------
10,205
------------
Miscellaneous - 4.4%
3M Co. 29,233 2,486
Eaton Corp. 1,865 201
FMC Corp. 3,000 102
Fortune Brands, Inc. 6,867 491
General Electric Co. 230,240 7,133
Honeywell International, Inc. 27,700 926
ITT Industries, Inc. 4,416 328
Johnson Controls, Inc. 3,441 400
Textron, Inc. 3,400 194
Tyco International, Ltd. 34,840 923
------------
13,184
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Other Energy - 1.8%
Anadarko Petroleum Corp. 14,700 750
Baker Hughes, Inc. 1,060 34
Calpine Corp. (AE) 42,200 203
Cooper Cameron Corp. (AE) 500 23
Dynegy, Inc. Class 40,200 172
El Paso Corp. 32,700 268
EOG Resources, Inc. 8,600 397
Halliburton Co. 10,570 275
Kerr-McGee Corp. 5,097 237
National-Oilwell, Inc. Class C (AE) 90 2
Reliant Resources, Inc. (AE) 4,500 33
Schlumberger, Ltd. 38,797 2,123
Sunoco, Inc. 1,122 57
Tesoro Petroleum Corp. 3,300 48
Texas Genco Holdings, Inc. 1,551 50
Valero Energy Corp. 1,867 87
Varco International, Inc. (AE) 2,634 54
Williams Cos., Inc. 61,300 602
------------
5,415
------------
Producer Durables - 3.2%
Agilent Technologies, Inc. (AE) 15,728 460
Applied Materials, Inc. (AE) 62,820 1,410
Boeing Co. (The) 18,200 767
Briggs & Stratton Corp. 1,300 88
Caterpillar, Inc. 12,138 1,008
Centex Corp. 1,724 186
Cognex Corp. 1,500 42
Cooper Industries, Ltd. Class A 2,100 122
Crane Co. 1,400 43
Credence Systems Corp. (AE) 2,300 30
Crown Castle International Corp. (AE) 5,000 55
Cummins, Inc. 1,000 49
Deere & Co. 3,528 229
Diebold, Inc. 1,849 100
DR Horton, Inc. 5,400 234
Emerson Electric Co. 6,500 421
Engineered Support Systems, Inc. 1,050 58
Flowserve Corp. 3,164 66
Goodrich Corp. 8,289 246
Hubbell, Inc. Class B 1,939 86
KB Home 2,100 152
Kennametal, Inc. 785 31
Kla-Tencor Corp. (AE) 3,600 211
Lennar Corp. Class A 2,100 202
Lexmark International, Inc. (AE) 2,091 164
Lockheed Martin Corp. 4,957 255
</Table>
Multi-Style Equity Fund 11
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Northrop Grumman Corp. 8,827 844
NVR, Inc. 98 46
Parker Hannifin Corp. 884 53
Pentair, Inc. 2,570 117
Pitney Bowes, Inc. 1,300 53
Polycom, Inc. (AE) 4,578 89
Pulte Homes, Inc. 600 56
Rockwell Collins, Inc. 7,205 216
Standard-Pacific Corp. 2,500 121
Steelcase, Inc. Class A 800 11
Tektronix, Inc. 837 26
Teradyne, Inc. (AE) 9,880 251
United Defense Industries, Inc. (AE) 2,102 67
United Technologies Corp. 7,023 666
Xerox Corp. 4,500 62
------------
9,393
------------
Technology - 13.3%
3Com Corp. (AE) 9,322 76
Acxiom Corp. (AE) 707 13
ADC Telecommunications, Inc. (AE) 44,000 131
Adobe Systems, Inc. 711 28
Advanced Micro Devices, Inc. 3,000 45
Agere Systems, Inc. Class A (AE) 114,550 349
Altera Corp. (AE) 3,600 82
Amdocs, Ltd. (AE) 11,400 256
Analog Devices, Inc. 10,630 485
Anteon International Corp. (AE) 2,000 72
Applied Micro Circuits Corp. (AE) 386 2
Atmel Corp. (AE) 6,000 36
Avaya, Inc. (AE) 31,300 405
Avnet, Inc. 2,500 54
BMC Software, Inc. (AE) 2,427 45
Ciena Corp. (AE) 6,600 44
Cisco Systems, Inc. (AE) 209,370 5,086
Computer Associates International, Inc. 15,363 420
Computer Sciences Corp. 8,017 355
Compuware Corp. (AE) 7,801 47
Comverse Technology, Inc. (AE) 18,910 333
Corning, Inc. 70,960 740
CSG Systems International (AE) 3,188 40
Cypress Semiconductor Corp. (AE) 2,400 51
Dell, Inc. (AE) 32,800 1,114
Electronic Data Systems Corp. 4,100 101
EMC Corp. 159,187 2,057
Flextronics International, Ltd. (AE) 3,300 49
Gateway, Inc. (AE) 5,876 27
General Dynamics Corp. 2,539 230
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Harris Corp. 5,529 210
Hewlett-Packard Co. 60,846 1,398
Imation Corp. 2,500 88
Ingram Micro, Inc. Class A (AE) 4,100 65
Intel Corp. 198,644 6,396
International Business Machines Corp. 13,363 1,238
Intuit, Inc. (AE) 146 8
LSI Logic Corp. (AE) 11,600 103
Lucent Technologies, Inc. 50,000 142
Maxim Integrated Products 573 29
MCI Inc. (d) 4,600 108
Microsoft Corp. 188,470 5,190
Motorola, Inc. 67,495 950
National Semiconductor Corp. (AE) 3,400 134
Nortel Networks Corp. 19,100 81
Oracle Corp. (AE) 200,100 2,641
PanAmSat Corp. (AE) 581 13
Peoplesoft, Inc. (AE) 8,100 185
PerkinElmer, Inc. 855 15
Plexus Corp. (AE) 1,900 33
QLogic Corp. (AE) 7,800 402
Qualcomm, Inc. 38,600 2,082
Raytheon Co. 3,370 101
Red Hat, Inc. (AE) 2,400 45
Retek, Inc. (AE) 2,225 21
Rockwell Automation, Inc. 7,229 257
Sabre Holdings Corp. 5,700 123
Sanmina-SCI Corp. (AE) 20,593 260
SAP AG - ADR 8,550 355
Scientific-Atlanta, Inc. 2,265 62
Solectron Corp. (AE) 33,000 195
Sony Corp. - ADR 5,220 181
Storage Technology Corp. (AE) 1,433 37
Sun MicroSystems, Inc. (AE) 75,477 339
Symantec Corp. (AE) 18,560 643
SynopSystem, Inc. (AE) 5,404 182
Tekelec (AE) 1,400 22
Tellabs, Inc. (AE) 9,835 83
Texas Instruments, Inc. 39,000 1,146
Trimble Navigation, Ltd. (AE) 1,200 45
Triquint Semiconductor, Inc. (AE) 3,900 28
UniSystem Corp. 3,100 46
UNOVA, Inc. (AE) 2,900 67
Varian, Inc. (AE) 1,283 54
Veritas Software Corp. (AE) 7,500 279
Vishay Intertechnology, Inc. (AE) 1,400 32
Xilinx, Inc. (AE) 10,770 417
------------
39,304
------------
</Table>
12 Multi-Style Equity Fund
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Utilities - 6.2%
Allegheny Energy, Inc. 38,700 494
Alliant Energy Corp. 5,100 127
Alltel Corp. 10,721 499
Ameren Corp. 878 40
American Electric Power Co., Inc. 19,200 586
Aquila, Inc. 1,272 4
AT&T Corp. 18,248 370
AT&T Wireless Services, Inc. (AE) 11,964 96
BellSouth Corp. 32,994 934
Centerpoint Energy, Inc. 23,491 228
Cincinnati Bell, Inc. 6,600 33
Citizens Communications Co. 3,000 37
CMS Energy Corp. 2,200 19
Comcast Corp. Class A 56,260 1,849
Comcast Corp. Special Class A 6,300 197
Constellation Energy Group, Inc. 6,745 264
COX Communications, Inc. Class A (AE) 3,638 125
DPL, Inc. 4,546 95
DTE Energy Co. 7,900 311
Duke Energy Corp. 12,700 260
Edison International 2,733 60
Entergy Corp. 9,998 571
Exelon Corp. 17,076 1,133
FirstEnergy Corp. 13,700 482
FPL Group, Inc. 1,500 98
Great Plains Energy, Inc. 2,423 77
Hughes Electronics Corp. (AE) 21,623 358
Level 3 Communications, Inc. (AE) 38,200 218
MDU Resources Group, Inc. 1,900 45
Nextel Communications, Inc. Class A (AE) 28,800 808
Nicor, Inc. 375 13
NII Holdings, Inc. Class B (AE) 1,500 112
NiSource, Inc. 12,228 268
Northeast Utilities 5,821 117
NSTAR 1,093 53
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Oneok, Inc. 2,104 46
Pepco Holdings, Inc. 8,000 156
PG&E Corp. 27,019 750
Pinnacle West Capital Corp. 1,225 49
Progress Energy, Inc. - CVO (AE)(Y) 1,300 0
Puget Energy, Inc. 2,100 50
Qwest Communications International 26,859 116
SBC Communications, Inc. 80,170 2,090
Sempra Energy 5,449 164
Sierra Pacific Resources 22,000 161
Southern Co. (The) 8,056 244
Sprint Corp.-FON Group 29,062 477
TXU Corp. 7,800 185
UnitedGlobalCom, Inc. Class A (AE) 51,000 432
Verizon Communications, Inc. 58,842 2,064
Wisconsin Energy Corp. 5,200 174
Xcel Energy, Inc. 18,258 310
------------
18,449
------------
TOTAL COMMON STOCKS
(cost $237,599) 275,312
------------
SHORT-TERM INVESTMENTS - 7.1%
Frank Russell Investment Company
Money Market Fund 19,620,000 19,620
United States Treasury Bill (y)(s)
0.880% due 03/11/04 1,400 1,397
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $21,017) 21,017
------------
TOTAL INVESTMENTS - 99.9%
(identified cost $258,616) 296,329
OTHER ASSETS AND LIABILITIES
NET - 0.1% 438
------------
NET ASSETS - 100.0% 296,767
============
</Table>
See accompanying notes which are an integral part of the financial statements.
Multi-Style Equity Fund 13
RUSSELL INVESTMENT FUNDS
MULTI-STYLE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
UNREALIZED
NOTIONAL APPRECIATION
FUTURES CONTRACTS AMOUNT (DEPRECIATION)
(NUMBER OF CONTRACTS) $ $
Long Positions
Russell 1000 Index
expiration date 03/04 (5) 1,485 57
S&P 500 E-Mini Index
expiration date 03/04 (70) 3,887 153
S&P 500 Index
expiration date 03/04 (28) 7,774 259
S&P Midcap 400 Index
expiration date 03/04 (25) 7,201 249
---------------
Total Unrealized Appreciation (Depreciation) on
Open Futures Contracts 718
===============
</Table>
See accompanying notes which are an integral part of the financial statements.
14 Multi-Style Equity Fund
(This page intentionally left blank)
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
[PERFORMANCE LINE GRAPH]
Aggressive Equity Fund
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 14,560 45.60%
5 Years $ 12,126 3.93%sec.
Inception $ 16,544 7.46%sec.
</Table>
Russell 2500(TM) Index
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 14,551 45.51%
5 Years $ 15,673 9.40%sec.
Inception $ 19,565 10.06%sec.
</Table>
16 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PLEASE STATE THE FUND'S OBJECTIVE.
The Fund seeks to provide capital appreciation by assuming a higher level of
volatility than is ordinarily expected from the Multi-Style Equity Fund by
investing in equity securities.
On October 3, 2003, shareholders voted to change the investment objective of the
Fund to: The Fund seeks to provide long-term capital growth. This change will be
effective on March 1, 2004.
DESCRIBE THE FUND'S PERFORMANCE FOR THE 12 MONTHS ENDED DECEMBER 31ST AND HOW IT
PERFORMED RELATIVE TO ITS BENCHMARK.
For the fiscal year ended December 31, 2003, the Aggressive Equity Fund gained
45.60%. This compared to the Russell 2500(TM) Index, which gained 45.51% during
the same period. The Fund's performance is net of operating expenses of 1.06%.
Index returns do not include deduction of fees, expenses or taxes.
DESCRIBE THE FUND'S MAIN PERFORMANCE DRIVERS OVER THE PAST 12 MONTHS INCLUDING A
DISCUSSION OF INVESTMENT STYLES AND MONEY MANAGERS.
The Fund's return relative to its benchmark was driven by sector allocation and
stock selection. The Fund's overweight in the technology sector and underweight
in the financial services sector versus the benchmark contributed to the Fund's
positive performance relative to the benchmark. Security selection generated
positive results within nine of the 12 economic sectors represented in the
Fund's benchmark. Stock selection was poor in the technology sector, primarily
due to a strong rally in low quality technology companies.
Four of the Fund's eight money managers outperformed and four underperformed
their respective benchmarks. The greatest outperformer was David J. Greene, a
value money manager whose contrarian approach to stock selection led it to hold
overweight positions in technology and other cyclically sensitive stocks. Greene
outperformed the Russell 2500 Value Index by over 20%. CapitalWorks, a growth
money manager, outperformed its benchmark by over 6%. This was a result of its
emphasis on early identification of accelerating earnings growth and operating
fundamentals. The Fund's two quantitative money managers, Goldman Sachs and
Jacobs Levy, both outperformed their respective benchmarks by several hundred
basis points.
Among the Fund's money managers, the largest underperformance came from Geewax,
whose focus on high quality stocks led to an approximate shortfall of 10%.
TimesSquare, underperformed its benchmark by approximately 7% for the same
reasons. Suffolk underperformed its benchmark by about 4%. This was
disappointing given Suffolk's emphasis on companies with accelerating earnings
fundamentals. Systematic underperformed its benchmark by a small margin.
PLEASE DESCRIBE HOW THE FUND AND ITS MONEY MANAGERS REACTED TO THE MARKET
ENVIRONMENT DURING THE PERIOD AND HOW THE FUND IS POSITIONED TO MEET ITS
LONG-TERM OBJECTIVES.
The past year was a challenging market environment for active money managers. In
particular, 2003 was punctuated by the market's move to favoring stocks with
poor recent returns, low stock price, no current earnings, and high price
volatility. Returning sentiment to such stocks is considered a "rally off the
bottom", in which price reversal is the dominant factor and prospective
improvement in company fundamentals, like earnings growth, are less of a
consideration. The Fund's money managers' emphasis on a combination of current
price and prospective fundamental operating improvements was not rewarded in
this environment. Additionally, the factors discussed above resulted in micro
capitalization stocks experiencing large gains.
Neither the Fund nor its money managers changed investment approaches in
response to the market environment. However, the Fund's money managers did
consider the market environment in their respective security selection. By
design, some of the Fund's money managers tended to be more sensitive to the
"price only" perspective, providing strong relative performance strength. Some
of the Fund's money managers were not as sensitive to the "price-only"
perspective.
WHAT CHANGES WERE MADE TO THE FUND'S STRUCTURE OR TO THE MONEY MANAGER LINE-UP?
No changes were made to the Fund's structure or its money manager line-up during
the year.
PLEASE EXPLAIN WHAT CONTRIBUTED MOST AND LEAST TO THE FUND'S PERFORMANCE DURING
THE LAST 12 MONTHS.
The fund's more cyclically oriented money managers (whether growth or value)
tended to post the best performance relative to the benchmark over the past
year. For money managers such as David J. Greene (value) and CapitalWorks
(growth), both experienced such results. Greene outperformed the benchmark by
over 20% in the past year, while CapitalWorks outperformed by approximately 7%.
The Fund's money managers, such as Geewax and TimesSquare, suffered over the
past year. These managers tended to emphasize companies with consistent or
visible earnings and less economic sensitivity (whether growth or value).
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR STOCK SELECTION? HOW DID THE FUND
FARE IN THIS ENVIRONMENT?
Stock selection was challenging over the past year. In some cases, the money
managers' emphasis on stocks with low valuations relative to their expected
growth and on companies with earnings that were expected to have a greater-than-
average tendency to announce either higher than expected earnings or to revise
earnings up contributed to the Fund's performance. Stock selection was positive
within nine of the
Aggressive Equity Fund 17
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
12 economic sectors represented in the Fund's benchmark. Stock selection in the
health care, financial services, and materials & processing sectors
significantly contributed to the Fund's positive performance relative to the
benchmark. However, stock selection in the technology sector was very poor.
Given this challenging environment, the Fund's money managers made positive
contributions to returns relative to the benchmark from stock selection.
Money Managers Styles
<Table>
CapitalWorks Investment Partners, LLC Growth
David J. Greene & Co., LLC Value
Geewax, Terker & Co. Growth
Goldman Sachs Asset Management Market-Oriented
Jacobs Levy Equity Management, Inc. Value
Suffolk Capital Management, Inc. Growth
Systematic Financial Management, LP Value
TimesSquare Capital Management, Inc. Growth
</Table>
--------------------
* The Fund commenced operations on January 2, 1997. Index comparison began
January 1, 1997.
** Russell 2500(TM) Index is composed of the bottom 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.
18 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
COMMON STOCKS - 94.4%
Auto and Transportation - 2.5%
Airtran Holdings, Inc. (AE) 22,600 269
Alaska Air Group, Inc. 3,000 82
America West Holdings Corp. Class B (AE) 21,200 263
Arctic Cat, Inc. 909 22
Autoliv, Inc. 11,100 418
Aviall, Inc. 3,500 54
CH Robinson Worldwide, Inc. 1,900 72
Collins & Aikman Corp. 11,800 51
Covenant Transport, Inc. Class A (AE) 2,000 38
Dura Automotive Systems, Inc. Class A (AE) 2,300 29
ExpressJet Holdings, Inc. (AE) 1,500 23
Frontier Airlines, Inc. (AE) 6,500 93
Gentex Corp. 5,200 230
Goodyear Tire & Rubber Co. (The) 10,000 79
Grupo TMM SA - ADR 3,500 15
Heartland Express, Inc. 439 11
JB Hunt Transport Services, Inc. 4,300 116
JetBlue Airways Corp. (AE) 3,650 97
Kansas City Southern 1,100 16
Lear Corp. 1,500 92
Navistar International Corp. 6,800 326
Northwest Airlines Corp. (AE) 21,000 265
Oshkosh Truck Corp. 5,700 291
Pacer International, Inc. (AE) 24,400 493
SCS Transportation, Inc. (AE) 1,500 26
Superior Industries International 600 26
TBC Corp. (AE) 1,500 39
Thor Industries, Inc. 1,200 67
Visteon Corp. 8,500 88
Wabash National Corp. 5,460 160
Wabtec Corp. 12,700 216
------------
4,067
------------
Consumer Discretionary - 19.9%
4Kids Entertainment, Inc. (AE) 2,700 70
Aaron Rents, Inc. 9,750 196
Abercrombie & Fitch Co. Class A (AE) 3,200 79
Activision, Inc. (AE) 16,200 295
Advance Auto Parts (AE) 4,700 383
Advo, Inc. 5,850 186
Aeropostale, Inc. (AE) 16,200 444
Alliance Gaming Corp. (AE) 13,844 341
Allied Waste Industries, Inc. (AE) 4,300 60
AMC Entertainment, Inc. 5,600 85
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Ameristar Casinos, Inc. (AE) 5,400 132
Angelica Corp. 2,200 48
AnnTaylor Stores Corp. (AE) 10,950 427
Applebees International, Inc. 3,300 130
Applica, Inc. 3,400 26
aQuantive, Inc. (AE) 17,000 174
Arbitron, Inc. 11,700 488
Asbury Automotive Group, Inc. (AE) 6,700 120
Atari, Inc. (AE) 4,900 21
Aztar Corp. (AE) 4,200 95
Barnes & Noble, Inc. (AE) 1,100 36
BearingPoint, Inc. (AE) 22,300 225
Big 5 Sporting Goods Corp. (AE) 4,400 92
Big Lots, Inc. 8,900 126
BJ's Wholesale Club, Inc. (AE) 13,200 303
Black & Decker Corp. 4,500 222
Blockbuster, Inc. Class A 6,500 117
Bob Evans Farms, Inc. 3,100 101
Bright Horizons Family Solutions, Inc. (AE) 1,200 50
Brink's Co. (The) 11,900 269
Brookstone, Inc. (AE) 6,000 128
Brown Shoe Co., Inc. 800 30
Callaway Golf Co. 16,600 280
Career Education Corp. (AE) 3,000 120
Carmax, Inc. (AE) 1,800 56
CBRL Group, Inc. 3,800 145
CDI Corp. 1,000 33
CDW Corp. 2,400 139
Central European Distribution Corp. (AE) 1,600 51
Central Garden and Pet Co. (AE) 9,600 269
Charming Shoppes 12,900 70
Chico's FAS, Inc. (AE) 2,600 96
Childrens Place (AE) 5,949 159
Choice Hotels International, Inc. 9,938 350
ChoicePoint, Inc. (AE) 4,333 165
Claire's Stores, Inc. 7,742 146
CNET Networks, Inc. (AE) 22,620 154
Columbia Sportswear Co. (AE) 900 49
Consolidated Graphics, Inc. (AE) 3,600 114
Convergys Corp. (AE) 10,700 187
Corinthian Colleges, Inc. (AE) 3,000 167
Corporate Executive Board Co. (AE) 7,900 369
Cox Radio, Inc. Class A (AE) 8,400 212
Department 56 (AE) 200 3
Dick's Sporting Goods, Inc. (AE) 3,314 161
Dillard's, Inc. Class A 13,100 216
Dollar Thrifty Automotive Group (AE) 7,100 184
</Table>
Aggressive Equity Fund 19
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
DoubleClick, Inc. (AE) 14,500 148
Drew Industries, Inc. New (AE) 2,300 64
Earthlink, Inc. (AE) 11,600 116
Education Management Corp. (AE) 18,600 577
Emerson Radio (AE) 4,900 18
Entercom Communications Corp. (AE) 5,500 291
Finish Line Class (AE) 10,700 321
Footstar, Inc. (AE) 3,300 13
Fossil, Inc. (AE) 7,900 221
Fred's, Inc. 2,300 71
GameStop Corp. Class A (AE) 1,500 23
Gemstar-TV Guide International, Inc. (AE) 18,859 95
Getty Images, Inc. (AE) 23,572 1,181
Goody's Family Clothing, Inc. 2,800 26
GTECH Holdings Corp. 13,900 688
Guess ?, Inc. (AE) 2,100 25
Guitar Center, Inc. (AE) 1,200 39
Handleman Co. 11,600 238
Harman International Industries, Inc. 3,000 222
Harris Interactive, Inc. (AE) 20,736 172
Harte-Hanks, Inc. 5,100 111
Hasbro, Inc. 14,800 315
Haverty Furniture Cos., Inc. 2,400 48
Hearst-Argyle Television, Inc. 39,700 1,093
Hewitt Associates, Inc. Class A (AE) 6,200 185
Hibbett Sporting Goods, Inc. (AE) 1,100 33
Hollinger International, Inc. 6,400 100
IKON Office Solutions, Inc. 20,800 247
Infospace, Inc. (AE) 6,570 151
Insight Communications Co., Inc. (AE) 11,500 119
Insight Enterprises, Inc. (AE) 4,200 79
International Speedway Corp. Class A 6,400 286
ITT Educational Services, Inc. 10,500 493
Jarden Corp. (AE) 1,500 41
JOS A Bank Clothiers, Inc. (AE) 800 28
Journal Register Co. (AE) 4,000 83
Korn/Ferry International (AE) 2,900 39
Krispy Kreme Doughnuts, Inc. (AE) 1,000 37
Kroll, Inc. (AE) 6,500 169
K-Swiss, Inc. Class A 1,000 24
Labor Ready, Inc. (AE) 23,000 301
Lamar Advertising Co. (AE) 5,100 190
La-Z-Boy, Inc. 4,200 88
Liberty Corp. 700 32
Lithia Motors, Inc. Class A 3,800 96
Liz Claiborne, Inc. 4,200 149
Magna Entertainment Corp. Class A (AE) 3,100 16
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Mandalay Resort Group 1,200 54
Manpower, Inc. 900 42
Marcus Corp. 7,800 128
Marvel Enterprises, Inc. (AE) 7,400 215
Maxwell Shoe Co. Class A (AE) 1,000 17
Media General, Inc. Class A 2,800 182
Memberworks, Inc. (AE) 4,000 109
Men's Wearhouse, Inc. (AE) 10,900 273
Meredith Corp. 200 10
Metro One Telecommunications (AE) 7,800 20
Modem Media, Inc. (AE) 15,710 128
Movado Group, Inc. 5,200 147
Movie Gallery, Inc. 1,100 21
MPS Group, Inc. (AE) 30,300 283
MSC Industrial Direct Co. 1,100 30
Navigant Consulting, Inc. (AE) 4,600 87
Navigant International, Inc. (AE) 2,800 39
NetFlix, Inc. (AE) 1,800 98
Nu Skin Enterprises, Inc. Class A 11,800 202
On Assignment, Inc. (AE) 12,100 63
O'Reilly Automotive, Inc. (AE) 1,500 58
Oxford Industries, Inc. 2,200 75
Pacific Sunwear of California (AE) 4,200 89
Papa John's International, Inc. (AE) 4,100 137
Park Place Entertainment Corp. (AE) 31,700 343
PDI, Inc. (AE) 1,800 48
Penn National Gaming, Inc. (AE) 6,500 150
Petco Animal Supplies, Inc. (AE) 16,636 507
Petsmart, Inc. 4,100 98
PF Chang's China Bistro, Inc. (AE) 1,200 61
Pier 1 Imports, Inc. 2,400 52
Playboy Enterprises, Inc. Class B (AE) 1,400 23
Playtex Products, Inc. (AE) 13,800 107
Polo Ralph Lauren Corp. 13,600 392
Pre-Paid Legal Services, Inc. (AE) 4,900 128
Pulitzer, Inc. 6,700 362
Radio One, Inc. Class D (AE) 8,700 168
Rare Hospitality International, Inc. (AE) 8,500 208
Red Robin Gourmet Burgers, Inc. (AE) 1,200 37
Reebok International, Ltd. 4,000 157
Regal Entertainment Group Class A 12,100 248
Regis Corp. 8,811 348
Rent-A-Center, Inc. (AE) 15,000 448
RH Donnelley Corp. 4,200 167
RR Donnelley & Sons Co. 2,100 63
Ruby Tuesday, Inc. 5,500 157
Russell Corp. 2,300 40
Saks, Inc. (AE) 34,800 523
Scholastic Corp. (AE) 7,600 259
</Table>
20 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Scientific Games Corp. Class A (AE) 34,900 594
SCP Pool Corp. (AE) 14,400 471
Select Comfort Corp. (AE) 8,200 203
Service Corp. International 21,900 118
ShopKo Stores, Inc. 16,800 256
Sinclair Broadcast Group, Inc. Class A (AE) 12,300 184
Six Flags, Inc. 11,200 84
SkillSoft Corp. ADR 23,400 202
Sohu.com, Inc. (AE) 1,100 33
Sonic Corp. (AE) 1,350 41
Sourcecorp (AE) 3,400 87
Speedway Motorsports, Inc. 13,300 385
Spherion Corp. (AE) 25,000 245
Stage Stores, Inc. (AE) 8,800 246
Stamps.com, Inc. (AE) 3,300 20
Station Casinos, Inc. 1,900 58
Steak N Shake Co. (The) 3,900 70
Stein Mart, Inc. (AE) 1,900 16
Strayer Education, Inc. 800 87
Stride Rite Corp. 2,300 26
Sylvan Learning Systems, Inc. (AE) 1,200 35
Tele2 AB Class A - ADR (AE) 9,000 275
TeleTech Holdings, Inc. (AE) 7,100 80
Tetra Tech, Inc. (AE) 8,925 222
Thomas Nelson, Inc. 4,200 81
Tiffany & Co. 2,500 113
Timberland Co. Class A 800 42
Toro Co. 6,100 283
Tractor Supply Co. (AE) 1,400 54
Tuesday Morning Corp. (AE) 1,800 54
Unifirst Corp. 600 14
United Online, Inc. (AE) 33,649 565
United Stationers, Inc. 12,100 495
Vail Resorts, Inc. (AE) 2,400 41
Valassis Communications, Inc. 3,800 112
Vans, Inc. (AE) 4,500 51
VeriSign, Inc. (AE) 17,500 285
Wackenhut Corrections Corp. (AE) 1,000 23
Watson Wyatt & Co. Holdings (AE) 3,200 77
Weight Watchers International, Inc. (AE) 3,600 138
West Corp. (AE) 8,900 207
Wireless Facilities, Inc. (AE) 12,010 178
WMS Industries, Inc. 4,800 126
Wolverine World Wide, Inc. 600 12
Yankee Candle Co., Inc. (AE) 1,600 44
Zale Corp. (AE) 800 43
------------
33,173
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Consumer Staples - 2.7%
7-Eleven, Inc. (AE) 5,800 93
Adolph Coors Co. Class B 1,800 101
American Italian Pasta Co. Class A (AE) 4,200 176
Chiquita Brands International, Inc. (AE) 9,000 203
Church & Dwight, Inc. 4,300 170
Constellation Brands, Inc. Class A (AE) 14,420 475
Dial Corp. (The) 1,800 51
DIMON, Inc. 2,500 17
Duane Reade, Inc. (AE) 6,900 117
Flowers Foods, Inc. 1,650 43
J&J Snack Foods Corp. (AE) 300 11
John B. Sanfilippo & Son (AE) 900 46
Lance, Inc. 2,500 38
Longs Drug Stores Corp. 23,300 576
M & F Worldwide Corp. (AE) 3,100 41
Nash Finch Co. 4,100 92
NBTY, Inc. (AE) 7,700 207
Pathmark Stores, Inc. (AE) 22,827 173
PepsiAmericas, Inc. 10,600 181
Pilgrim's Pride Corp. 4,200 69
Ralcorp Holdings, Inc. (AE) 1,000 31
RJ Reynolds Tobacco Holdings, Inc. 10,200 593
Robert Mondavi Class A (AE) 2,700 105
Sanderson Farms, Inc. 2,200 89
Smithfield Foods, Inc. (AE) 1,300 27
Standard Commercial Corp. 1,200 24
Supervalu, Inc. 7,000 200
Tootsie Roll Industries, Inc. 2,287 82
Tyson Foods, Inc. Class A 13,200 175
Universal Corp. 3,500 155
Winn-Dixie Stores, Inc. 18,700 186
------------
4,547
------------
Financial Services - 18.3%
Accredited Home Lenders (AE) 5,304 162
Advent Software, Inc. (AE) 2,700 47
AG Edwards, Inc. 10,100 366
Alabama National Bancorp 500 26
Alliance Data Systems Corp. (AE) 25,718 712
AMB Property Corp. (o) 8,400 276
American Financial Group, Inc. 3,500 93
American Physicians Capital, Inc. (AE) 1,900 35
AmeriCredit Corp. (AE) 27,272 434
AMLI Residential Properties Trust (o) 1,600 43
Anthracite Capital, Inc. (o) 6,700 74
Anworth Mortgage Asset Corp. 11,700 163
</Table>
Aggressive Equity Fund 21
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Arden Realty, Inc. (o) 4,000 121
Arthur J Gallagher & Co. 1,500 49
Associated Banc-Corp 5,011 214
Astoria Financial Corp. 15,100 562
AvalonBay Communities, Inc. (o) 5,200 249
Bancorpsouth, Inc. 4,700 111
Bank of Hawaii Corp. 20,000 843
Bank of the Ozarks, Inc. 1,600 36
BankAtlantic Bancorp, Inc. Class A 7,700 146
Banknorth Group, Inc. 4,800 156
Bankunited Financial Corp. Class A 8,000 206
Bedford Property Investors (o) 2,700 77
BISystem Group, Inc. (The) (AE) 14,000 208
Blackrock, Inc. 800 42
BOK Financial Corp. (AE) 1,818 70
Boykin Lodging Co. (o) 2,200 20
Brandywine Realty Trust (o) 4,400 118
Capital Automotive REIT (o) 7,200 230
CapitalSource, Inc. (AE) 8,400 182
CarrAmerica Realty Corp. (o) 1,800 54
Cash America International, Inc. 1,500 32
CBL & Associates Properties, Inc. (o) 6,800 384
CCC Information Services Group (AE) 3,600 61
Central Pacific Financial Corp. 700 21
Certegy, Inc. 3,900 128
Charter Municipal Mortgage Acceptance Co. 4,800 101
Checkfree Corp. (AE) 1,100 30
Chelsea Property Group, Inc. (o) 700 38
Chemical Financial Corp. 700 25
CIT Group, Inc. 5,000 180
City Holding Co. 600 21
City National Corp. 2,800 174
Colonial BancGroup, Inc. (The) 9,700 168
Commerce Bancorp, Inc. 1,000 53
Commerce Bancshares, Inc. 2,506 123
Commercial Federal Corp. 5,000 134
Commercial Net Lease Realty (o) 5,000 89
CompuCredit Corp. (AE) 10,400 221
Cornerstone Realty Income Trust, Inc. (o) 700 6
Correctional Properties Trust (o) 800 23
Corus Bankshares, Inc. 1,000 32
Crescent Real Estate Equities Co. (o) 4,500 77
Cullen/Frost Bankers, Inc. 3,700 150
CVB Financial Corp. 1,100 21
Deluxe Corp. 5,900 244
Dime Community Bancshares 7,225 222
Doral Financial Corp. 20,850 673
Downey Financial Corp. 3,700 182
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
E*Trade Financial Corp. (AE) 13,867 175
Eastgroup Properties (o) 2,000 65
Eaton Vance Corp. 1,000 37
eFunds Corp. (AE) 7,000 121
Entertainment Properties Trust (o) 2,100 73
Equity Inns, Inc. (o) 3,800 34
Equity One, Inc. (o) 4,700 79
eSpeed, Inc. Class A (AE) 10,503 246
Factset Research Systems, Inc. 2,800 107
Fair Isaac Corp. 3,325 163
FelCor Lodging Trust, Inc. (o) 3,200 35
First American Corp. 16,200 482
First Bancorp Puerto Rico 1,400 55
First Commonwealth Financial Corp. 1,600 23
First Community Bancshares, Inc. 330 11
First Midwest Bancorp, Inc. 1,900 62
First Niagara Financial Group, Inc. 8,700 130
FirstFed Financial Corp. 3,600 157
Flagstar Bancorp, Inc. 6,400 137
Flushing Financial Corp. 1,200 22
FNB Corp. 1,700 60
Fremont General Corp. 1,900 32
Friedman Billings Ramsey Group, Inc. Class A 19,400 448
Fulton Financial Corp. 1,601 35
Gabelli Asset Management, Inc. Class A 6,800 271
Gables Residential Trust (o) 5,000 174
Getty Realty Corp. (o) 1,900 50
Glacier Bancorp, Inc. 1,700 55
Glenborough Realty Trust, Inc. (o) 2,100 42
Global Payments, Inc. 14,500 683
Great Lakes REIT (o) 2,000 31
Greater Bay Bancorp 4,600 131
Hancock Holding Co. 400 22
Harbor Florida Bancshares, Inc. 453 13
Hawthorne Financial Corp. 700 20
HCC Insurance Holdings, Inc. 1,100 35
Health Care REIT, Inc. (o) 7,700 277
Healthcare Realty Trust, Inc. (o) 1,200 43
Heritage Property Investment Trust (o) 4,000 114
Hospitality Properties Trust (o) 1,300 54
HRPT Properties Trust (o) 64,400 650
Hudson United Bancorp 3,100 115
Iberiabank Corp. 500 30
IMPAC Mortgage Holdings, Inc. (o) 9,500 173
Independence Community Bank Corp. 3,100 112
Independent Bank Corp. 1,980 56
IndyMac Bancorp, Inc. 8,011 239
</Table>
22 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Innkeepers USA Trust (o) 22,100 185
Instinet Group, Inc. 17,000 88
International Bancshares Corp. 500 24
Investment Technology Group, Inc. 13,200 213
Investors Financial Services Corp. 11,000 423
iShares Russell 2000 Growth Index Fund 2,300 136
iShares S&P MidCap 400/BARRA Growth Index Fund 1,500 178
Jack Henry & Associates, Inc. 15,100 311
Jefferies Group, Inc. 13,900 459
Keystone Property Trust (o) 1,600 35
Kilroy Realty Corp. (o) 500 16
Koger Equity, Inc. (o) 5,200 109
Kronos, Inc. (AE) 1,050 42
La Quinta Corp. 35,400 227
Landamerica Financial Group, Inc. 15,200 794
LaSalle Hotel Properties (o) 1,800 33
Legg Mason, Inc. 1,800 139
Liberty Property Trust (o) 2,500 97
Local Financial Corp. (AE) 1,100 23
LTC Properties, Inc. (o) 1,200 18
Mack-Cali Realty Corp. (o) 4,600 191
MAF Bancorp, Inc. 400 17
Maguire Properties, Inc. (o) 11,200 272
Markel Corp. (AE) 1,850 469
MB Financial Corp. 1,650 60
Mercantile Bank Corp. 72 3
Mercury General Corp. 1,800 84
Mid-America Apartment Communities, Inc. (o) 1,400 47
Moody's Corp. 2,600 157
Nara Bancorp, Inc. 2,400 66
National Health Investors, Inc. (o) 4,600 114
National Penn Bancshares, Inc. 630 20
Nationwide Health Properties, Inc. (o) 1,700 33
NDCHealth Corp. 6,200 159
New Century Financial Corp. 5,000 198
Nuveen Investments, Inc. Class A 8,700 232
OceanFirst Financial Corp. 3,703 101
Ohio Casualty Corp. 6,800 118
Pacific Capital Bancorp 1,100 41
Pan Pacific Retail Properties, Inc. (o) 1,200 57
Pennsylvania Real Estate Investment Trust (o) 1,200 44
PFF Bancorp, Inc. 3,720 135
Popular, Inc. 1,200 54
Post Properties, Inc. (o) 6,600 184
Prentiss Properties Trust (o) 2,200 73
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
PrivateBancorp, Inc. 1,100 50
ProAssurance Corp. (AE) 2,200 71
Protective Life Corp. 7,300 247
Provident Bankshares Corp. 1,500 44
Providian Financial Corp. 39,234 457
PS Business Parks, Inc. (o) 4,600 190
R&G Financial Corp. Class B 4,700 187
Radian Group, Inc. 3,600 176
Raymond James Financial, Inc. 11,015 415
Reckson Associates Realty Corp. (o) 7,600 185
Redwood Trust, Inc. (o) 7,000 356
Regency Centers Corp. (o) 1,400 56
RenaissanceRe Holdings, Ltd. 5,300 260
Republic Bancorp, Inc. 26,359 356
Ryder System, Inc. 9,200 314
S1 Corp. (AE) 15,300 123
Sandy Spring Bancorp, Inc. 5,800 217
Seacoast Financial Services Corp. 1,600 44
SEI Investments Co. 1,200 37
Selective Insurance Group 600 19
Senior Housing Properties Trust (o) 4,800 83
Silicon Valley Bancshares 15,700 566
Sovereign Bancorp, Inc. 17,700 420
Sovran Self Storage, Inc. (o) 1,100 41
Stancorp Financial Group, Inc. 2,800 176
Sterling Bancorp 2,390 68
Stewart Information Services Corp. 13,300 539
Student Loan Corp. 100 15
Summit Properties, Inc. (o) 2,400 58
Susquehanna Bancshares, Inc. 1,200 30
Taubman Centers, Inc. (o) 1,200 25
TCF Financial Corp. 3,600 185
Texas Regional Bancshares, Inc. Class A 825 31
TradeStation Group, Inc. (AE) 10,000 89
Triad Guaranty, Inc. (AE) 5,200 262
Trustmark Corp. 1,700 50
UCBH Holdings, Inc. 2,500 97
UICI (AE) 2,400 32
UMB Financial Corp. 1,200 57
United Bankshares, Inc. 2,000 62
United PanAm Financial Corp. (AE) 1,200 20
Universal Health Realty, Income (o) 900 27
Virginia Commerce Bancorp (AE) 1,800 58
Waddell & Reed Financial, Inc. Class A 2,000 47
Washington Mutual, Inc. 2005 Warrants (AE) 44,300 8
Waypoint Financial Corp. 2,415 52
</Table>
Aggressive Equity Fund 23
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Webster Financial Corp. 3,000 138
WeLLChoice, Inc. (AE) 4,900 169
WesBanco, Inc. 600 17
Westamerica BanCorp. 300 15
WFS Financial, Inc. (AE) 1,600 68
Whitney Holding Corp. 5,800 238
Wintrust Financial Corp. 400 18
World Acceptance Corp. (AE) 9,800 195
WR Berkley Corp. 1,500 52
WSFS Financial Corp. 3,300 148
------------
30,356
------------
Health Care - 12.0%
Advanced Medical Optics, Inc. (AE) 1,700 33
Advanced Neuromodulation Systems, Inc. 3,148 145
AdvancePCS (AE) 2,400 126
Affymetrix, Inc. (AE) 5,800 143
AkSystem, Ltd. (AE) 1,400 12
Alaris Medical Systems, Inc. (AE) 12,300 187
Allos Therapeutics (AE) 7,800 28
Alpharma, Inc. Class A 8,200 165
American Medical Security Group, Inc. 1,300 29
American Pharmaceutical Partners, Inc. (AE) 6,800 228
Andrx Corp. (AE) 9,600 231
Applera Corp. - Celera Genomics Group (AE) 26,600 370
Atrix Labs, Inc. (AE) 2,800 67
Bausch & Lomb, Inc. 3,500 182
Beckman Coulter, Inc. 2,400 122
Beverly Enterprises, Inc. (AE) 4,800 41
Celgene Corp. (AE) 1,300 59
Cell GeneSystem, Inc. (AE) 7,800 101
Chronimed, Inc. (AE) 3,800 32
Collagenex Pharmaceuticals, Inc. (AE) 11,300 127
Community Health Systems, Inc. (AE) 9,200 245
Connetics Corp. (AE) 1,500 27
Cooper Cos., Inc. 5,356 252
Covance, Inc. (AE) 4,800 129
Coventry Health Care, Inc. (AE) 1,600 103
CR Bard, Inc. 3,900 317
Cyberonics (AE) 1,700 54
Cytyc Corp. (AE) 4,900 67
D&K Healthcare Resources, Inc. 6,000 81
Dade Behring Holdings, Inc. (AE) 7,300 261
DaVita, Inc. (AE) 21,481 837
Decode Genetics, Inc. (AE) 25,100 206
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Dentsply International, Inc. 2,600 117
Edinburgh, Income and Value Trust PLC Class O 9,200 16
Edwards Lifesciences Corp. (AE) 3,000 90
Endo Pharmaceuticals Holdings, Inc. (AE) 9,000 173
Enzon Pharmaceuticals, Inc. (AE) 12,800 154
eResearch Technology, Inc. (AE) 9,600 244
First Health Group Corp. (AE) 2,600 51
First Horizon Pharmaceutical Corp. (AE) 7,200 81
Genencor International, Inc. (AE) 8,600 135
Gen-Probe, Inc. (AE) 6,788 248
Haemonetics Corp. (AE) 2,800 67
Hanger Orthopedic Group, Inc. (AE) 3,700 58
Health Net, Inc. (AE) 9,300 304
Healthsouth Corp. (AE) 27,600 127
Henry Schein, Inc. (AE) 1,300 88
Human Genome Sciences, Inc. (AE) 9,800 130
Humana, Inc. 39,100 892
ICOS Corp. (AE) 800 33
ICU Medical, Inc. (AE) 4,900 168
Idexx Laboratories, Inc. (AE) 4,000 185
Ilex Oncology, Inc. (AE) 12,700 270
Immucor, Inc. (AE) 450 9
Inamed Corp. (AE) 2,250 108
Integra LifeSciences Holdings Corp. (AE) 700 20
Invitrogen Corp. (AE) 3,300 231
Kensey Nash Corp. (AE) 800 19
Kindred Healthcare, Inc. (AE) 3,100 161
King Pharmaceuticals, Inc. (AE) 12,800 195
Kos Pharmaceuticals, Inc. (AE) 9,100 392
LabOne, Inc. 6,100 198
LCA-Vision, Inc. (AE) 9,010 191
Ligand Pharmaceuticals, Inc. Class B (AE) 23,600 347
Lincare Holdings, Inc. (AE) 9,800 294
Manor Care, Inc. 8,900 308
Martek Biosciences Corp. (AE) 1,400 91
Maxygen (AE) 6,600 70
Medicis Pharmaceutical Class A 6,900 492
MGI Pharma, Inc. (AE) 900 37
Mid Atlantic Medical Services (AE) 2,100 136
Millennium Pharmaceuticals, Inc. (AE) 16,900 316
Millipore Corp. 7,700 331
Myriad Genetics, Inc. (AE) 4,100 53
Nabi Biopharmaceuticals (AE) 2,600 33
NeighborCare, Inc. (AE) 6,200 122
</Table>
24 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Neurocrine Biosciences, Inc. (AE) 9,700 529
NPS Pharmaceuticals, Inc. (AE) 7,400 227
Odyssey HealthCare, Inc. (AE) 4,424 129
Omnicare, Inc. 12,000 485
Omnicell, Inc. (AE) 6,500 105
Orthofix International NV (AE) 1,500 73
Owens & Minor, Inc. 1,500 33
Oxford Health Plans 1,500 65
Pacificare Health Systems (AE) 9,300 629
Parexel International Corp. (AE) 7,100 115
Patterson Dental Co. (AE) 1,000 64
Pediatrix Medical Group, Inc. (AE) 3,800 209
Perrigo Co. 2,100 33
Pharmaceutical Resources, Inc. 4,900 319
Pharmacopeia, Inc. (AE) 18,600 264
Protein Design Labs, Inc. (AE) 8,000 143
Province Healthcare Co. (AE) 8,800 141
Quality Systems, Inc. (AE) 1,100 49
Renal Care Group, Inc. (AE) 2,500 103
Respironics, Inc. (AE) 6,500 293
Select Medical Corp. 16,716 272
Serologicals Corp. (AE) 9,311 173
SICOR, Inc. (AE) 3,200 87
Sierra Health Services (AE) 900 25
Sola International, Inc. (AE) 1,800 34
Stericycle, Inc. (AE) 5,600 262
Steris Corp. (AE) 8,800 199
Sybron Dental Specialties, Inc. (AE) 9,466 266
Thoratec Corp. (AE) 1,500 20
Triad Hospitals, Inc. (AE) 8,400 279
United Surgical Partners International, Inc.
(AE) 4,909 164
United Therapeutics Corp. (AE) 1,800 41
US Oncology, Inc. (AE) 18,300 197
Valeant Pharmaceuticals International 1,400 35
VCA Antech, Inc. (AE) 15,759 488
ViaSystem Healthcare, Inc. (AE) 400 8
Vicuron Pharmaceuticals, Inc. (AE) 10,800 201
Visx, Inc. (AE) 7,550 175
Watson Pharmaceuticals, Inc. (AE) 6,000 276
West Pharmaceutical Services, Inc. 500 17
------------
20,019
------------
Integrated Oils - 0.0%
KCS Energy, Inc. (AE) 3,600 38
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Materials and Processing - 6.1%
Aceto Corp. 4,000 102
Albany International Corp. Class A 11,200 380
Alumina, Ltd. - ADR 7,000 140
Ameron International Corp. 1,700 59
Aptargroup, Inc. 2,700 105
Arch Chemicals, Inc. 1,800 46
Armor Holdings, Inc. (AE) 1,000 26
Ashland, Inc. 1,000 44
Ball Corp. 6,200 369
Boise Cascade Corp. 13,300 437
Building Material Holding Corp. 1,300 20
Cabot Corp. 9,700 309
Calgon Carbon Corp. 29,800 185
Carpenter Technology 6,300 186
Centex Construction Products, Inc. 1,400 84
Century Aluminum Co. 3,360 64
Ceradyne, Inc. (AE) 3,860 131
Chesapeake Corp. 1,800 48
Clarcor, Inc. 2,300 101
Commercial Metals Co. 3,700 112
Constar International, Inc. (AE) 8,100 44
Corn Products International, Inc. 2,400 83
Crown Holdings, Inc. 19,600 178
Cytec Industries, Inc. (AE) 6,600 253
Delta & Pine Land Co. 700 18
Dycom Industries, Inc. (AE) 12,400 333
Energizer Holdings, Inc. (AE) 2,800 105
Fluor Corp. 400 16
Glatfelter 3,700 46
Golden Star Resources, Ltd. (AE) 21,400 149
GrafTech International, Ltd. (AE) 25,160 340
Greif, Inc. Class 100 4
HB Fuller Co. 1,800 54
Hercules, Inc. 3,400 41
Hughes Supply, Inc. 700 35
ID Biomedical Corp. (AE) 5,300 63
IMC Global, Inc. 5,700 57
International Steel Group, Inc. (AE) 5,100 199
Jacobs Engineering Group, Inc. 3,000 144
Jones Lang LaSalle, Inc. (AE) 1,400 29
Lafarge North America, Inc. 3,700 150
Lennox International, Inc. 10,400 174
LNR Property Corp. 7,600 376
Lubrizol Corp. 5,700 185
MacDermid, Inc. 1,200 41
Martin Marietta Materials, Inc. 3,100 146
Maverick Tube Corp. (AE) 7,019 135
Moore Wallace, Inc. 8,500 159
</Table>
Aggressive Equity Fund 25
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Mueller Industries, Inc. (AE) 4,000 137
Myers Industries, Inc. 1,875 23
NCI Building Systems, Inc. (AE) 1,600 38
Nokia OYJ 2007 Warrants (AE) 8,200 179
Owens-Illinois, Inc. (AE) 16,600 197
Pactiv Corp. (AE) 7,900 189
Quanta Services, Inc. (AE) 22,000 161
Rayonier, Inc. (o) 631 26
Reliance Steel & Aluminum Co. 5,600 186
Rogers Corp. (AE) 1,400 62
Royal Gold, Inc. 1,600 33
RTI International Metals, Inc. 2,400 40
Ryerson Tull, Inc. 1,800 21
Schnitzer Steel Industries, Inc. Class A 1,900 115
Schulman A, Inc. 13,100 279
Scotts Co. (The) Class A (AE) 300 18
Sealed Air Corp. (AE) 2,900 157
Silgan Holdings, Inc. (AE) 7,200 307
Smurfit-Stone Container Corp. (AE) 9,600 178
Steel Dynamics, Inc. (AE) 3,840 90
Texas Industries, Inc. 2,800 104
Trammell Crow Co. (AE) 200 3
Tredegar Corp. 1,600 25
Trex Co., Inc. (AE) 200 8
Ultralife Batteries, Inc. (AE) 11,644 144
Unifi, Inc. 11,500 74
Universal Forest Products, Inc. 1,900 61
URS Corp. 8,300 208
USEC, Inc. 11,400 96
USG Corp. 8,000 133
Washington Group International, Inc. (AE) 3,400 115
Watsco, Inc. 5,800 132
WD-40 Co. 500 18
York International Corp. 900 33
------------
10,095
------------
Miscellaneous - 0.8%
Brunswick Corp. 9,000 286
Carlisle Cos., Inc. 3,600 219
Dow Jones EURO STOXX 50 Return Index 2003
Warrants (AE) 5,600 44
Kaman Corp. Class A 1,333 17
Lancaster Colony Corp. 400 18
OpticNet, Inc. (AE)(Y) 1,400 0
San-In Godo Bank, Ltd. (The) (AE) 39,700 281
SPX Corp. 3,600 212
Textron, Inc. 1,800 103
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Walter Industries, Inc. 4,900 65
------------
1,245
------------
Other Energy - 4.1%
Atwood Oceanics, Inc. (AE) 2,300 73
Calpine Corp. (AE) 64,900 312
CARBO Ceramics, Inc. 300 15
Chesapeake Energy Corp. 7,400 100
Comstock Resources, Inc. (AE) 4,660 90
Consol Energy, Inc. 2,500 65
Cooper Cameron Corp. (AE) 2,800 130
Encore Acquisition Co. (AE) 800 20
ENSCO International, Inc. 10,800 293
Equitable Resources, Inc. 900 39
Evergreen Resources, Inc. (AE) 7,800 254
Forest Oil Corp. 9,600 274
Holly Corp. 1,400 39
Houston Exploration Co. (AE) 1,300 47
Hydril (AE) 4,100 98
Key Energy Services, Inc. (AE) 11,919 123
Massey Energy Co. 7,100 148
Matrix Service Co. (AE) 10,600 192
National-Oilwell, Inc. (AE) 19,200 429
Newfield Exploration Co. (AE) 1,000 45
Oil States International, Inc. (AE) 2,400 33
Parker Drilling Co. 9,700 25
Patina Oil & Gas Corp. 10,074 494
Patterson-UTI Energy, Inc. (AE) 23,667 779
Pogo Producing Co. 600 29
Pride International, Inc. (AE) 1,700 32
Reliant Resources, Inc. (AE) 25,100 185
Smith International, Inc. 4,200 174
Sunoco, Inc. 11,800 604
Tesoro Petroleum Corp. 22,900 334
Tetra Technologies, Inc. (AE) 7,200 175
Unit Corp. 8,200 193
Universal Compression Holdings, Inc. (AE) 5,600 146
Valero Energy Corp. 3,900 181
Varco International, Inc. (AE) 13,900 287
Veritas DGC, Inc. (AE) 16,200 170
Westport Resources Corp. (AE) 4,200 125
XTO Energy, Inc. 666 19
------------
6,771
------------
Producer Durables - 6.2%
Advanced Energy Industries, Inc. (AE) 7,700 201
American Tower Corp. Class A 11,000 119
</Table>
26 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
AMIS Holdings, Inc. (AE) 5,600 102
Andrew Corp. (AE) 18,337 211
Applied Industrial Technologies, Inc. 3,900 93
Arris Group, Inc. (AE) 19,500 141
Artesyn Technologies, Inc. (AE) 22,000 187
Asyst Technologies, Inc. (AE) 9,639 167
Audiovox Corp. Class A (AE) 9,800 126
August Technology Corp. (AE) 9,172 170
Axcelis Technologies, Inc. (AE) 15,763 161
Briggs & Stratton Corp. 5,400 364
Cascade Corp. 900 20
C-COR.net Corp. (AE) 5,600 62
Centex Corp. 600 65
CNH Global NV 10,740 178
Crown Castle International Corp. (AE) 9,100 100
CTS Corp. 3,400 39
Cummins, Inc. 5,100 250
Curtiss-Wright Corp. 3,800 171
Cymer, Inc. (AE) 3,600 166
Diebold, Inc. 1,500 81
Dionex Corp. (AE) 1,800 83
Dominion Homes, Inc. (AE) 700 21
Donaldson Co., Inc. 2,000 118
Engineered Support Systems, Inc. 1,275 70
EnPro Industries, Inc. (AE) 2,600 36
Esterline Technologies Corp. 1,300 35
General Cable Corp. 5,300 43
Genlyte Group, Inc. (AE) 800 47
Graco, Inc. 2,700 108
HON Industries, Inc. 1,300 56
Hovnanian Enterprises, Inc. Class A (AE) 800 70
Imagistics International, Inc. (AE) 3,600 135
Kadant, Inc. (AE) 800 17
KB Home 600 44
Littelfuse, Inc. (AE) 2,000 58
LTX Corp. (AE) 6,300 95
Magnetek, Inc. (AE) 3,600 24
Manitowoc Co. 2,300 72
Mastec, Inc. (AE) 3,500 52
Mattson Technology, Inc. (AE) 2,600 32
MDC Holdings, Inc. 3,200 206
Mettler Toledo International, Inc. (AE) 7,900 333
MKS Instruments, Inc. (AE) 5,900 171
MTS Systems Corp. 1,900 37
Mykrolis Corp. (AE) 2,573 41
NACCO Industries, Inc. Class A 3,600 322
NVR, Inc. 300 140
Orbital Sciences Corp. (AE) 27,200 327
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Pall Corp. 15,700 421
Photronics, Inc. (AE) 18,700 373
Plantronics, Inc. (AE) 6,100 199
Polycom, Inc. (AE) 17,138 335
Pulte Homes, Inc. 700 66
Rofin-Sinar Technologies, Inc. (AE) 5,300 183
Roper Industries, Inc. 2,900 143
Ryland Group, Inc. 2,800 248
Semitool, Inc. (AE) 1,900 20
Standard-Pacific Corp. 6,800 330
Steelcase, Inc. Class A 5,800 83
Stewart & Stevenson Services 5,700 80
Tecumseh Products Co. Class A 4,300 208
Tektronix, Inc. 7,900 250
Teledyne Technologies, Inc. (AE) 11,300 213
Teradyne, Inc. (AE) 13,500 344
Terex Corp. 5,420 154
Thomas Industries, Inc. 900 31
Toll Brothers, Inc. (AE) 8,100 322
Ultratech, Inc. (AE) 1,200 35
United Defense Industries, Inc. (AE) 6,800 217
United Industrial Corp. 5,000 90
WESCO International, Inc. (AE) 5,600 50
------------
10,362
------------
Technology - 17.7%
3Com Corp. (AE) 71,600 585
ADC Telecommunications, Inc. (AE) 67,600 201
Adtran, Inc. 6,778 210
Advanced Digital Information Corp. (AE) 26,100 365
Advanced Fibre Communications, Inc. (AE) 14,600 294
Aeroflex, Inc. (AE) 38,440 449
Agere Systems, Inc. Class A (AE) 126,900 387
Agile Software Corp. (AE) 11,000 109
Alliance Semiconductor Corp. (AE) 1,000 7
Altiris, Inc. (AE) 7,300 266
Amdocs, Ltd. (AE) 10,900 245
Amkor Technology, Inc. (AE) 8,384 153
Amphenol Corp. Class A (AE) 1,000 64
Anadigics, Inc. (AE) 3,000 18
Analogic Corp. 1,900 78
Anixter International, Inc. (AE) 10,600 274
Anteon International Corp. (AE) 10,900 393
Applied Micro Circuits Corp. (AE) 27,120 162
Arrow Electronics, Inc. 4,100 95
Ascential Software Corp. (AE) 15,061 391
</Table>
Aggressive Equity Fund 27
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
AsiaInfo Holdings, Inc. (AE) 2,500 17
Aspect Communications Corp. (AE) 23,800 375
Aspen Technology, Inc. (AE) 3,700 38
ATI Technologies, Inc. (AE) 6,500 98
Autodesk, Inc. 1,400 34
Avaya, Inc. (AE) 87,800 1,135
Avnet, Inc. 17,700 383
Avocent Corp. (AE) 900 33
Benchmark Electronics, Inc. (AE) 1,650 57
BMC Software, Inc. (AE) 12,400 231
Brooktrout, Inc. (AE) 2,100 26
California Micro Devices CP (AE) 20,640 188
Captaris, Inc. (AE) 3,600 20
Ceridian Corp. (AE) 11,600 243
CEVA, Inc. (AE) 3,500 36
Checkpoint Systems, Inc. 1,900 36
ChipPAC, Inc. Class A (AE) 30,000 228
Ciena Corp. (AE) 28,300 188
Cognos, Inc. (AE) 7,300 224
Coherent, Inc. (AE) 1,900 45
CommScope, Inc. (AE) 11,800 193
Compucom Systems, Inc. (AE) 5,500 29
Computer Network Technology Corp. (AE) 4,800 46
Compuware Corp. (AE) 27,900 169
Comtech Telecommunications (AE) 5,019 145
Comverse Technology, Inc. (AE) 26,300 463
Conexant Systems, Inc. (AE) 13,000 65
Covad Communications Group, Inc. (AE) 31,951 115
Cree, Inc. (AE) 3,600 64
CSG Systems International (AE) 10,500 131
Cypress Semiconductor Corp. (AE) 28,700 613
Daktronics, Inc. (AE) 1,600 40
Ditech Communications Corp. (AE) 9,220 176
DRS Technologies, Inc. (AE) 5,600 156
eCollege.com, Inc. (AE) 1,700 31
EDO Corp. 17,500 431
EMC Corp. 2,700 35
Emulex Corp. (AE) 6,700 179
EnteraSystem Networks, Inc. (AE) 6,900 26
Epicor Software Corp. (AE) 7,300 93
Epiphany, Inc. (AE) 10,200 74
ESS Technology (AE) 5,100 87
F5 Networks, Inc. (AE) 11,600 291
Fairchild Semiconductor International, Inc. (AE) 16,110 402
Filenet Corp. (AE) 8,700 236
Flir Systems, Inc. (AE) 4,400 161
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Foundry Networks, Inc. (AE) 6,317 173
Gateway, Inc. (AE) 10,000 46
Group 1 Software, Inc. (AE) 5,000 88
Harris Corp. 16,500 626
Hifn, Inc. (AE) 14,378 171
Imation Corp. 7,200 253
Inet Technologies, Inc. (AE) 1,800 22
InFocus Corp. (AE) 6,400 62
Informatica Corp. (AE) 26,700 275
Integrated Circuit Systems, Inc. (AE) 6,200 177
Integrated Device Technology, Inc. (AE) 17,200 295
Interland, Inc. (AE) 3,600 24
International Rectifier Corp. (AE) 5,900 292
Internet Security Systems (AE) 9,300 175
Intersil Corp. Class A 7,400 184
InterVoice, Inc. (AE) 9,900 118
Interwoven, Inc. (AE) 15,375 194
Keane, Inc. (AE) 4,400 64
Keynote Systems, Inc. (AE) 9,200 109
KVH Industries, Inc. (AE) 4,850 133
L-3 Communications Holdings, Inc. (AE) 6,200 318
Lawson Software, Inc. (AE) 18,100 149
Lionbridge Technologies (AE) 3,700 36
LSI Logic Corp. (AE) 97,000 859
Macromedia, Inc. (AE) 7,500 134
Macrovision Corp. (AE) 8,300 187
Magma Design Automation, Inc. (AE) 5,400 126
MAPICS, Inc. (AE) 2,400 31
Maxtor Corp. (AE) 41,500 461
Mercury Interactive Corp. (AE) 4,200 204
Merix Corp. (AE) 13,000 319
Micromuse, Inc. (AE) 20,065 138
Micros Systems, Inc. (AE) 900 39
MicroStrategy, Inc. Class A (AE) 2,907 153
National Instruments Corp. 4,900 223
National Semiconductor Corp. (AE) 4,300 169
NCR Corp. (AE) 2,000 78
Net2Phone, Inc. (AE) 3,500 24
Netopia, Inc. (AE) 12,230 178
NetScreen Technologies, Inc. (AE) 7,500 186
Norske Skogindustrier ASA 5,200 17
Novell, Inc. (AE) 31,100 327
O2Micro International, Ltd. (AE) 12,800 287
Overland Storage, Inc. (AE) 400 8
PanAmSat Corp. (AE) 11,500 248
Park Electrochemical Corp. 2,100 56
PerkinElmer, Inc. 5,900 101
Planar Systems, Inc. (AE) 1,600 39
</Table>
28 Aggressive Equity Fund
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Plexus Corp. (AE) 3,700 64
PMC - Sierra, Inc. (AE) 5,500 111
Pomeroy IT Solutions, Inc. 1,600 24
QAD, Inc. (AE) 6,100 75
Quantum Corp. (AE) 53,100 166
Quest Software, Inc. (AE) 22,700 322
RadiSystem Corp. (AE) 4,200 71
Remec, Inc. (AE) 11,900 100
Reynolds & Reynolds Co. (The) Class A 5,400 157
RSA Security, Inc. (AE) 6,700 95
SAFLINK Corp. (AE) 4,423 12
Sandisk Corp. (AE) 10,054 615
Sanmina-SCI Corp. (AE) 63,800 804
Scientific-Atlanta, Inc. 8,000 218
Seachange International, Inc. (AE) 5,100 79
Semtech Corp. (AE) 15,553 354
Serena Software, Inc. (AE) 10,600 195
Sigma Designs, Inc. (AE) 3,300 25
Silicon Laboratories, Inc. (AE) 5,400 233
Silicon Storage Technology, Inc. (AE) 47,980 528
Skyworks Solutions, Inc. 14,600 127
SonicWALL, Inc. (AE) 17,180 134
Spectrasite, Inc. (AE) 2,100 73
SRA International, Inc. Class A (AE) 200 9
SRS Labs, Inc. (AE) 16,750 156
Storage Technology Corp. (AE) 2,300 59
Sybase, Inc. (AE) 4,500 93
SYKES Enterprises, Inc. (AE) 2,200 19
Symbol Technologies, Inc. 15,200 257
Tellabs, Inc. (AE) 28,000 236
TIBCO Software, Inc. (AE) 26,700 181
Trident MicroSystems, Inc. (AE) 9,172 160
Triquint Semiconductor, Inc. (AE) 10,400 74
TTM Technologies, Inc. (AE) 25,287 427
Ulticom, Inc. (AE) 7,667 74
UniSystem Corp. 16,300 242
UNOVA, Inc. (AE) 19,800 454
Utstarcom, Inc. (AE) 5,700 211
Valueclick, Inc. (AE) 18,630 169
Verso Technologies, Inc. (AE) 36,983 118
Viasat, Inc. (AE) 1,100 21
Vitesse Semiconductor Corp. (AE) 23,624 139
Wavecom Sa - ADR (AE) 8,200 112
Western Digital Corp. (AE) 10,800 127
Zoran Corp. (AE) 5,900 103
------------
29,431
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Utilities - 4.1%
AES Corp. (The) 36,100 341
AGL Resources, Inc. 8,200 239
Allegheny Energy, Inc. 3,000 38
Allete, Inc. 6,400 196
Avista Corp. 9,900 179
Cascade Natural Gas Corp. 10,600 224
CenturyTel, Inc. 4,600 150
Cincinnati Bell, Inc. 30,900 156
CMS Energy Corp. 10,900 93
Dobson Communications Corp. Class A (AE) 19,500 128
Empire District Electric Co. (The) 1,600 35
Energen Corp. 11,000 451
General Communication Class A (AE) 2,700 23
IDT Corp. (AE) 12,400 275
KeySpan Corp. 8,800 324
Laclede Group, Inc. (The) 1,000 29
New Jersey Resources Corp. 2,100 81
Nextel Partners, Inc. Class A (AE) 22,400 301
Northeast Utilities 35,700 720
Northwest Natural Gas Co. 1,700 52
NSTAR 4,700 228
OGE Energy Corp. 8,700 210
Oneok, Inc. 1,500 33
Pinnacle West Capital Corp. 2,800 112
Primus Telecommunications GP (AE) 18,400 187
PTEK Holdings, Inc. (AE) 41,087 362
Questar Corp. 7,100 250
SEMCO Energy, Inc. 3,400 17
South Jersey Industries, Inc. 1,100 45
Southwest Gas Corp. 3,100 70
Southwestern Energy Co. 1,000 24
Talk America Holdings, Inc. (AE) 4,600 53
Telephone & Data Systems, Inc. 7,100 444
Time Warner Telecom, Inc. Class A (AE) 11,700 119
UGI Corp. 6,500 220
US Cellular Corp. (AE) 9,200 327
Western Wireless Corp. Class A (AE) 3,600 66
WGL Holdings, Inc. 2,800 78
WPS Resources Corp. 100 5
------------
6,885
------------
TOTAL COMMON STOCKS
(cost $129,544) 156,989
------------
</Table>
Aggressive Equity Fund 29
RUSSELL INVESTMENT FUNDS
AGGRESSIVE EQUITY FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 6.2%
Frank Russell Investment Company Money Market
Fund 9,683,000 9,683
United States Treasury Bill (y)(s)
0.880% due 03/11/04 700 699
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $10,382) 10,382
------------
TOTAL INVESTMENTS - 100.6%
(identified cost $139,926) 167,371
OTHER ASSETS AND LIABILITIES,
NET - (0.6%) (986)
------------
NET ASSETS - 100.0% 166,385
============
<Caption>
UNREALIZED
NOTIONAL APPRECIATION
FUTURES CONTRACTS AMOUNT (DEPRECIATION)
(NUMBER OF CONTRACTS) $ $
- -------------------------------------------------------------------------------
Long Positions
Russell 2000 E-Mini Index
expiration date 03/04 (56) 3,120 128
Russell 2000 Index
expiration date 03/04 (15) 4,179 132
S&P 500 E-Mini Index
expiration date 03/04 (16) 888 28
S&P 500 Index
expiration date 03/04 (7) 1,944 45
------------
Total Unrealized Appreciation (Depreciation) on
Open Futures Contracts 333
============
</Table>
See accompanying notes which are an integral part of the financial statements.
30 Aggressive Equity Fund
(This page intentionally left blank)
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
(Performance Line Graph)
Non-U.S. Fund
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 13,878 38.78%
5 Years $ 10,478 0.94%sec.
Inception $ 11,871 2.48%sec.
</Table>
MSCI EAFE
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 13,917 39.17%
5 Years $ 10,130 0.26%sec.
Inception $ 12,441 3.17%sec.
</Table>
32 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PLEASE STATE THE FUND'S OBJECTIVE.
The Fund seeks to provide favorable total return and additional diversification
for US investors by investing primarily in equity and fixed-income securities of
non-US companies and securities issued by non-US governments.
On October 3, 2003, shareholders voted to change the investment objective of the
Fund to: The Fund seeks to provide long-term capital growth. This change will be
effective on March 1, 2004.
DESCRIBE THE FUND'S PERFORMANCE FOR THE 12 MONTHS ENDING DECEMBER 31ST AND HOW
IT PERFORMED RELATIVE TO ITS BENCHMARK.
For the fiscal year ended December 31, 2003, the Non-U.S. Fund gained 38.78%.
This compared to its benchmark the MSCI EAFE Index, which gained 39.17%. The
Fund's performance is net of operating expenses of 1.16%. Index returns do not
reflect deduction of fees, expenses, or taxes.
DESCRIBE THE FUND'S MAIN PERFORMANCE DRIVERS OVER THE PAST 12 MONTHS INCLUDING A
DISCUSSION OF INVESTMENT STYLES AND MONEY MANAGERS.
The Fund's results were largely driven by the strong market recovery that began
in March 2003. The Fund's value managers, The Boston Company and AQR were most
effective in capturing the recovery in stock valuations as market trends started
to reflect an inflection point in investors' sentiment from extreme pessimism to
moderate optimism.
In contrast, the Fund's growth-oriented managers' results generally lagged the
MSCI EAFE benchmark. Their efforts to find growth were frustrated by a lack of
sustained positive earnings trends. There was scarcity of sustained trends in
earnings and/or price appreciation during much of the period.
AQR performed very well during the period. AQR was helped by the valuation bias
in its process that helped it participate in the strong performance of value
sectors.
PLEASE DESCRIBE HOW THE FUND AND ITS MONEY MANAGERS REACTED TO THE MARKET
ENVIRONMENT DURING THE PERIOD AND HOW THE FUND IS POSITIONED TO MEET ITS
LONG-TERM OBJECTIVES.
Generally speaking, the Fund's managers' portfolios were positioned in
anticipation of economic recovery. While the managers all incrementally added to
stocks and sectors likely to benefit from economic recovery, both cyclical and
growth cyclical, they varied by their emphases on value, growth, or momentum.
For most of the period, value-driven approaches fared much better than their
growth counterparts. The Fund's value managers outperformed by exploiting many
oversold opportunities as investors were extremely punitive of stocks falling
short of earnings expectations. They also benefited from their avoidance of
high-priced stocks with strong earnings forecasts, which were aggressively sold
off based on disappointing news. Their focus on valuation also had the
beneficial byproduct of generally leading them to small and medium
capitalization stocks which materially outperformed larger capitalization
stocks.
In contrast, the Fund's growth managers generally attempted to increase exposure
in areas of the market perceived as improving. This proved mostly ineffective
given an absence of sustained momentum in the market. Much of the strongest
earnings results during the year were attributable to one-time gains from
restructuring.
WHAT CHANGES WERE MADE TO THE FUND'S STRUCTURE OR TO THE MONEY MANAGER LINE-UP?
No changes were made to the Fund's structure or its money manager line-up during
the year.
PLEASE EXPLAIN WHAT CONTRIBUTED MOST AND LEAST TO THE FUND'S PERFORMANCE DURING
THE LAST 12 MONTHS.
The Fund's value managers were the most effective over the 12 months ended
December 31. Value disciplines were effective at avoiding the market's downward
spiral through March 2003, but also proved effective at tapping into
opportunities in oversold areas of the market that later benefited from both
economic recovery and improving investor sentiment.
Effective security selection was a positive contributor to the Fund's
performance. The Fund's benchmark-relative overweight positions in many strong
performers, including NOK Corporation, Deutsche Post, and Sun Hung Kai
Properties provided solid gains to the Fund. The Fund's benchmark-relative
underweight positions in Sony, BP, Royal Dutch, and Nokia were also significant
contributors.
The Fund's money managers' investments in Japan during the period were
particularly effective in capturing a strong recovery in Japanese share prices
beginning in late April, but gave back late in the year on profit taking. An
underweight to the United Kingdom also contributed. While limited by specified
guidelines, the Fund's exposure to emerging markets was another source of
positive performance from country allocation decisions. Emerging markets
performed very well over this period with the MSCI Emerging Markets Free Index
up 56.28%.
Sector positioning had a slight negative impact on the Fund's results. The Fund
was, on average, underweight financials, which had a strong year end rally.
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR STOCK SELECTION? HOW DID THE FUND
FARE IN THIS ENVIRONMENT?
It was a very challenging market environment from a stock selection perspective.
Leadership changed significantly during the period. A three-year bear market
reached its lowest point in March 2003. The ensuing period was marked by a
strong market rally.
Non-U.S. Fund 33
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Value based selection disciplines generally yielded favorable results. However,
growth-oriented approaches struggled with the absence of sustained momentum and
the dearth of strong growth in corporate operating income. Rotation in sector
leadership during the period proved challenging for the Fund's growth money
managers. Strong currencies also complicated assessments of future earnings
growth. The strong Euro, in particular, was a clear threat to future earnings
growth of European companies.
Given the difficult investment environment for active management, the Fund's
strategy of combining a diversified mix of investment processes fared reasonably
well. Fund results were ahead of peer group results. Few trends in stock prices
proved persistent.
The Fund benefited from a number of structural factors. Its modest emphasis
towards medium capitalization stocks proved critical given performance trends
favoring smaller companies. Diversification by investment style also helped
moderate the impact of growth-driven strategies on performance early in the
period while facilitating participation in a growth-led rally during the year.
Money Managers Styles
<Table>
AQR Capital Management, LLC Value
Fidelity Management & Research Co. Growth
Oechsle International Advisors, LLC Growth
The Boston Company Asset Management, LLC Value
</Table>
--------------------
* The Fund commenced operations on January 2, 1997. Index comparison began
January 1, 1997.
** Morgan Stanley Capital International Europe, Australia, Far East (MSCI
EAFE) Index 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.
The index is calculated on a total-return basis, which includes
reinvestment of gross dividends before deduction of withholding taxes.
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.
34 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
COMMON STOCKS - 89.5%
Australia - 3.2%
Alumina, Ltd. 1,000 5
Amcor, Ltd. 14,885 93
AMP, Ltd. (AE) 118,805 448
Ansell, Ltd. 300 1
Australia & New Zealand Banking Group, Ltd. 36,963 492
Australian Gas Light Co., Ltd. 1,200 10
Australian Stock Exchange, Ltd. 6,800 88
BHP Billiton, Ltd. 155,438 1,428
Billabong International, Ltd. 5,700 31
BlueScope Steel, Ltd. 11,000 46
Boral, Ltd. 8,500 33
Brambles Industries, Ltd. (AE) 6,500 26
CFS Gandel Retail Trust 26,100 26
Coca-Cola Amatil, Ltd. 2,600 12
Cochlear, Ltd. (AE) 3,000 49
Coles Myer, Ltd. 3,200 18
Commonwealth Bank of Australia 6,200 138
Commonwealth Property Office Fund 20,300 18
CSL, Ltd. (AE) 7,800 105
CSR, Ltd. 21,600 30
David Jones, Ltd. 12,000 13
Deutsche Office Trust 13,900 12
Foster's Group, Ltd. 8,400 28
Futuris Corp., Ltd. 2,900 3
General Property Trust 14,100 32
Iluka Resources, Ltd. 2,000 7
Insurance Australia Group, Ltd. 5,900 19
James Hardie Industries NV 300 2
Leighton Holdings, Ltd. 300 3
Lend Lease Corp., Ltd. 13,500 102
Macquarie Bank, Ltd. 5,500 147
Macquarie Infrastructure Group 7,500 19
National Australia Bank, Ltd. 38,627 872
News Corp., Ltd. 42,304 382
OneSteel, Ltd. 19,400 30
Orica, Ltd. 3,100 33
Origin Energy, Ltd. 6,200 22
PaperlinX, Ltd. 5,100 19
Promina Group, Ltd. 15,412 38
Publishing & Broadcasting, Ltd. 8,103 76
Qantas Airways, Ltd. 31,133 77
QBE Insurance Group, Ltd. 29,181 233
Rinker Group, Ltd. 35,437 175
Rio Tinto, Ltd. 2,674 75
Santos, Ltd. 88,800 460
Sons of Gwalia, Ltd. (AE) 300 1
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Stockland Trust Group 7,600 30
Suncorp-Metway, Ltd. 1,400 13
Tabcorp Holdings, Ltd. 600 5
Telstra Corp., Ltd. 26,200 95
Wesfarmers, Ltd. 1,300 26
Westfield Holdings, Ltd. 3,800 40
Westfield Trust 10,200 27
Westpac Banking Corp. 23,962 289
WMC Resources, Ltd. (AE) 4,700 20
Woolworths, Ltd. 10,900 97
------------
6,619
------------
Belgium - 1.3%
AGFA-Gevaert NV 6,890 196
Colruyt SA 1,700 164
Delhaize Group 900 46
Dexia 41,910 722
Electrabel 91 29
Fortis 69,196 1,393
KBC Bancassurance Holding 1,000 47
Solvay SA 600 52
------------
2,649
------------
Brazil - 0.1%
Petroleo Brasileiro SA - ADR 8,320 243
------------
Denmark - 0.6%
AP Moller - Maersk A/S (AE) 15 103
Coloplast A/S Class B 100 9
D/S Svendborg Class B (AE) 1 7
Danisco A/S 200 9
Danske Bank A/S 23,990 563
DSV DE Sammenslut Vogn A/S (AE) 100 4
FLS Industries A/S Class B (AE) 1,000 12
GN Store Nord (AE) 3,000 19
ISS A/S 8,200 404
Novo-Nordisk A/S Class B 3,684 150
TDC A/S 500 18
------------
1,298
------------
Finland - 1.1%
Elisa Oyj Class S (AE) 1,700 23
Fortum Oyj 24,500 253
Nokia OYJ 31,620 547
Nokia OYJ - ADR 21,708 369
Sampo Oyj Class A 67,209 695
Stora Enso Oyj 2,900 39
UPM-Kymmene Oyj 19,900 380
------------
2,306
------------
</Table>
Non-U.S. Fund 35
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
France - 9.1%
Accor 12,248 555
Air France 2,800 43
Air Liquide 82 14
Alcatel SA (AE) 25,800 332
Altran Technologies SA (AE) 2,900 37
Aventis SA 33,806 2,235
AXA 49,629 1,062
BNP Paribas 20,384 1,284
Caisse Nationale du Credit Agricole (AE) 13,963 333
Cap Gemini SA (AE) 4,370 194
Carrefour SA 14,842 815
Casino Guichard Perrachon SA 600 58
Christian Dior SA 3,700 224
Cie de Saint-Gobain 5,200 255
CNP Assurances 4,110 214
France Telecom (AE) 29,713 849
Groupe Danone 806 132
Klepierre (AE) 100 6
Lafarge SA 11,823 1,053
Lagardere S.C.A. 500 29
L'Oreal SA 4,873 400
Michelin (C.G.D.E.) Class B 9,773 448
Orange SA 8,161 446
Pernod-Ricard 1,200 133
Peugeot SA 4,000 204
Pinault-Printemps-Redoute 3,668 355
Renault SA 100 7
Rhodia SA (AE) 20,414 91
Sanofi-Synthelabo SA 300 23
Schneider Electric SA 4,690 307
Societe Assurances Generales de France 5,874 319
Societe BIC SA (AE) 300 14
Societe Generale 1,100 97
Suez SA 22,826 459
Thomson 31,000 660
Total SA 16,240 3,020
Total SA - ADR 10,016 927
Unibail (AE) 400 38
Valeo SA 6,977 279
Vivendi Universal SA 32,400 788
------------
18,739
------------
Germany - 6.8%
Adidas-Salomon AG 6,710 764
Allianz AG 13,565 1,712
Altana AG 2,200 132
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
BASF AG 2,900 163
Bayer AG 2,200 64
Bayerische Hypo-und Vereinsbank AG (AE) 22,658 524
Bayerische Motoren Werke AG (AE) 17,554 814
Celesio AG 1,500 73
Continental AG 2,600 99
DaimlerChrysler AG 3,300 154
Deutsche Bank AG 19,336 1,602
Deutsche Genossenschafts-Hypothekenbank (AE) 3,800 213
Deutsche Lufthansa AG 22,023 368
Deutsche Post AG 41,090 847
Deutsche Telekom AG (AE) 42,700 782
E.ON AG 14,069 918
Infineon Technologies AG (AE) 4,600 64
KarstadtQuelle AG 14,600 361
Linde AG 900 48
MAN AG (AE) 4,600 140
Merck KGaA 3,300 137
Metro AG 9,246 408
Muenchener Rueckversicherungs AG 4,084 495
Puma AG Rudolf Dassler Sport (AE) 533 94
SAP AG (AE) 143 24
Schering AG 9,463 479
Siemens AG 13,639 1,092
Volkswagen AG 26,826 1,494
------------
14,065
------------
Greece - 0.5%
EFG Eurobank Ergasias SA (AE) 8,600 167
Hellenic Telecommunications Organization SA 43,952 582
OPAP SA (AE) 11,000 159
------------
908
------------
Hong Kong - 1.7%
Bank of East Asia 58,211 178
BOC Hong Kong Holdings, Ltd. 11,500 22
Cathay Pacific Airways, Ltd. 6,000 11
Cheung Kong Holdings, Ltd. 43,000 341
Cheung Kong Infrastructure Holdings, Ltd. 5,000 11
China Mobile Hong Kong, Ltd. 101,000 310
CLP Holdings, Ltd. 12,000 57
Esprit Holdings, Ltd. 23,000 76
Hang Lung Properties, Ltd. 6,000 8
Hang Seng Bank, Ltd. 3,700 49
Henderson Land Development 2,000 9
</Table>
36 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Hong Kong & China Gas 23,000 35
Hong Kong Exchanges and Clearing, Ltd. (AE) 14,000 30
HongKong Electric Holdings 9,000 36
Hopewell Holdings 10,000 15
Hutchison Whampoa, Ltd. 71,000 521
Hysan Development Co., Ltd. 1,000 2
Li & Fung, Ltd. 80,000 137
MTR Corp. 167,695 221
New World Development, Ltd. 6,000 5
PCCW, Ltd. (AE) 2,000 1
Shangri-La Asia, Ltd. 6,000 6
Sun Hung Kai Properties, Ltd. 95,800 790
Swire Pacific, Ltd. Class A 76,300 470
Techtronic Industries Co. (AE) 10,000 28
Wharf Holdings, Ltd. 48,000 133
Yue Yuen Industrial Holdings (AE) 5,000 14
------------
3,516
------------
Ireland - 0.6%
Bank of Ireland 61,688 840
CRH PLC 16,100 330
------------
1,170
------------
Italy - 4.2%
Arnoldo Mondadori Editore SpA 5,800 52
Autostrade SpA (AE) 24,900 437
Banca Intesa SpA 391,388 1,530
Banca Popolare di Milano SCRL 8,500 56
Banche Popolari Unite Scrl (AE) 10,303 187
Banco Popolare di Verona e Novara Scrl 27,270 462
Benetton Group SpA 3,300 38
Enel SpA 17,000 116
ENI-Ente Nazionale Idrocarburi SpA 95,334 1,799
Fiat SPA (AE) 58,477 448
Finmeccanica SpA 676,340 530
Gruppo Editoriale L'Espresso SpA 10,200 64
Italcementi SpA 9,700 121
Mediaset SpA 93,094 1,106
Parmalat Finanziaria SpA (Y) 12,500 2
Riunione Adriatica di Sicurta SpA 22,562 384
Sanpaolo IMI SpA 7,505 98
Telecom Italia (AE) 56,600 168
Telecom Italia SpA (AE) 246,549 502
Tiscali SpA (AE) 2,100 15
UniCredito Italiano SpA 98,800 533
------------
8,648
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Japan - 20.5%
77 Bank, Ltd. (The) 69,000 389
Acom Co., Ltd. 430 20
Aeon Co., Ltd. 2,100 70
Aiful Corp. 8,300 607
Ajinomoto Co., Inc. 9,000 104
Alps Electric Co., Ltd. 5,000 73
Amano Corp. 2,000 15
Aoyama Trading Co., Ltd. 300 6
Asahi Glass Co., Ltd. 8,000 66
Autobacs Seven Co., Ltd. 700 16
Bank of Yokohama, Ltd. (The) 1,000 5
Benesse Corp. 900 22
Bridgestone Corp. 41,000 551
Brother Industries, Ltd. 3,000 28
Canon, Inc. 31,000 1,443
Central Glass Co., Ltd. 4,000 25
Central Japan Railway Co. 7 60
Chubu Electric Power Co., Inc. 3,800 79
Citizen Watch Co., Ltd. 22,000 202
Credit Saison Co., Ltd. 41,900 946
Dai Nippon Printing Co., Ltd. 4,000 56
Daicel Chemical Industries, Ltd. 16,000 66
Daikin Industries, Ltd. 5,000 115
Daimaru, Inc. 7,000 39
Dainippon Ink and Chemicals, Inc. 2,000 4
Dainippon Screen Manufacturing Co., Ltd. (AE) 10,000 68
Daito Trust Construction Co., Ltd. 5,200 154
Daiwa House Industriesustry Co., Ltd. (AE) 1,000 11
Daiwa Securities Group, Inc. 8,000 54
Denki Kagaku Kogyo K K 23,000 74
Denso Corp. 19,000 374
Dentsu, Inc. 61 307
Dowa Mining Co., Ltd. 23,000 124
East Japan Railway Co. 41 193
Eisai Co., Ltd. 21,700 585
FamilyMart Co., Ltd. 1,100 25
Fast Retailing Co., Ltd. 5,600 340
Fuji Electric Holdings Co., Ltd. 18,000 39
Fuji Heavy Industries, Ltd. 64,900 315
Fuji Machine Manufacturing Co., Ltd. 8,300 105
Fuji Photo Film Co., Ltd. 25,000 807
Fuji Soft ABC, Inc. 200 6
Fujikura, Ltd. 7,000 41
Fujitsu Support and Service, Inc. 1,200 20
Fujitsu, Ltd. (AE) 1,000 6
Funai Electric Co., Ltd. 2,400 329
</Table>
Non-U.S. Fund 37
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Gunze, Ltd. 2,000 9
Hankyu Department Stores 3,000 20
Hitachi Cable, Ltd. 10,000 38
Hitachi Chemical Co., Ltd. 8,000 134
Hitachi Construction Machinery Co., Ltd. 2,000 30
Hitachi Zosen Corp. (AE) 3,500 7
Hitachi, Ltd. 9,000 54
Hokkaido Electric Power Co., Inc. 1,400 23
Hokuriku Electric Power Co. 1,400 23
Honda Motor Co., Ltd. 35,000 1,555
Hoya Corp. 2,000 184
Ibiden Co., Ltd. 2,100 26
Isetan Co., Ltd. 7,100 78
Isuzu Motors, Ltd. (AE) 14,000 28
Itochu Corp. 14,000 46
Itochu Techno-Science Corp. 800 25
Ito-Yokado Co., Ltd. 13,000 409
Jafco Co., Ltd. 700 55
Japan Radio Co., Ltd. (AE) 10,000 49
Japan Retail Fund Investment Corp. (o) 6 39
Japan Tobacco, Inc. 9 66
JFE Holdings, Inc. 6,300 172
JGC Corp. 1,000 10
JSR Corp. 5,000 112
Kaken Pharmaceutical Co., Ltd. 2,000 10
Kamigumi Co., Ltd. (AE) 9,000 64
Kaneka Corp. 7,000 52
Kansai Electric Power Co., Inc. (The) 7,200 126
Kao Corp. 32,000 651
Kawasaki Heavy Industries, Ltd. 16,000 20
Kawasaki Kisen Kaisha, Ltd. 21,000 104
KDDI Corp. 61 349
Keyence Corp. 500 105
Kobayashi Pharmaceutical Co., Ltd. 200 5
Kokuyo Co., Ltd. 2,400 26
Konami Corp. 300 9
Konica Minolta Holdings, Inc. 27,000 363
Koyo Seiko Co., Ltd. 8,000 82
Kubota Corp. 2,000 8
Kyocera Corp. 2,700 180
Kyushu Electric Power Co., Inc. 4,400 76
Lawson, Inc. 15,100 516
Mabuchi Motor Co., Ltd. 7,200 554
Makita Corp. 5,000 50
Marubeni Corp. 22,000 42
Matsumotokiyoshi Co., Ltd. 10,300 231
Matsumotokiyoshi Co., Ltd. 10,300 231
Matsushita Electric Industrial Co., Ltd. 76,000 1,051
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Meiji Dairies Corp. 2,000 9
Meitec Corp. 2,100 81
Millea Holdings, Inc. 17 222
Minebea Co., Ltd. 83,000 421
Mitsubishi Electric Corp. 9,000 37
Mitsubishi Estate Co., Ltd. 32,000 303
Mitsubishi Gas Chemical Co., Inc. 5,000 17
Mitsubishi Heavy Industries, Ltd. 24,000 67
Mitsubishi Securities Co., Ltd. 15,000 163
Mitsubishi Tokyo Financial Group, Inc. 104 811
Mitsui & Co., Ltd. 55,000 443
Mitsui Chemicals, Inc. 9,000 52
Mitsui Engineering & Shipbuilding Co., Ltd. 18,000 30
Mitsui Fudosan Co., Ltd. 9,000 81
Mitsui OSK Lines, Ltd. 35,000 171
Mitsui Sumitomo Insurance Co., Ltd. 10,000 82
Mitsui Trust Holdings, Inc. 6,000 34
Mitsumi Electric Co., Ltd. 1,300 14
Mizuho Financial Group, Inc. (AE) 73 221
Murata Manufacturing Co., Ltd. 13,300 719
Namco, Ltd. 2,200 61
NEC Corp. 5,000 37
Nichicon Corp. 6,700 68
Nichii Gakkan Co. (AE) 550 31
Nichirei Corp. 1,000 3
Nidec Corp. 900 86
Nikko Cordial Corp. 35,000 195
Nintendo Co., Ltd. 500 47
Nippon Electric Glass Co., Ltd. (AE) 3,000 58
Nippon Express Co., Ltd. 135,000 637
Nippon Light Metal Co. (AE) 27,000 64
Nippon Oil Corp. 9,000 46
Nippon Sanso Corp. 8,000 34
Nippon Shokubai Co., Ltd. 4,000 30
Nippon Steel Corp. 65,000 139
Nippon Telegraph & Telephone Corp. 137 661
Nippon Yusen Kabushiki Kaisha 7,000 32
Nishimatsu Construction Co., Ltd. 4,000 13
Nishimatsuya Chain Co., Ltd. 2,100 54
Nissan Motor Co., Ltd. 96,600 1,103
Nisshin Steel Co., Ltd. 29,000 54
Nitto Denko Corp. 5,400 287
NOK Corp. 6,000 218
Nomura Holdings, Inc. 60,000 1,022
Nomura Research Institute, Ltd. (AE) 100 10
NTN Corp. 24,000 114
NTT DoCoMo, Inc. 191 433
OJI Paper Co., Ltd. 16,000 103
</Table>
38 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Olympus Corp. 4,000 87
Ono Pharmaceutical Co., Ltd. (AE) 500 19
ORIX Corp. 7,600 628
Pacific Metals Co., Ltd. (AE) 12,000 72
Pioneer Corp. 200 6
Promise Co., Ltd. 100 4
Resona Holdings, Inc. (AE) 16,000 20
Ricoh Co., Ltd. 37,000 730
Rinnai Corp. 18,500 439
Rohm Co., Ltd. 3,300 387
Sammy Corp. 1,950 48
Sanken Electric Co., Ltd. 9,000 126
Sankyo Co., Ltd. 5,600 143
Sankyo Seiki MFG Co., Ltd. (AE) 4,000 28
Sanyo Shokai, Ltd. 6,000 39
Seino Transportation Co., Ltd. 8,000 66
Sekisui House, Ltd. 28,800 297
SFCG Co., Ltd. 4,140 531
Sharp Corp. 2,000 32
Shimachu Co., Ltd. 8,400 167
Shin-Etsu Chemical Co., Ltd. 30,700 1,255
Shinko Electric Industries 300 7
Shiseido Co., Ltd. 31,000 377
Showa Shell Sekiyu KK 4,800 39
Skylark Co., Ltd. 26,800 443
SMC Corp. 1,200 149
Snow Brand Milk Products Co., Ltd. (AE) 1,500 4
Softbank Corp. 100 3
Sompo Japan Insurance, Inc. 6,000 49
Sony Corp. 3,700 128
Stanley Electric Co., Ltd. 15,200 294
Sumisho Lease Co., Ltd. 4,400 140
Sumitomo Bakelite Co., Ltd. 43,000 280
Sumitomo Chemical Co., Ltd. 90,100 372
Sumitomo Corp. 34,000 253
Sumitomo Electric Industries, Ltd. 12,000 107
Sumitomo Heavy Industries, Ltd. (AE) 30,000 68
Sumitomo Mitsui Financial Group, Inc. 103 549
Sumitomo Osaka Cement Co., Ltd. 12,000 24
Sumitomo Trust & Banking Co., Ltd. (The) 6,000 35
Suzuken Co., Ltd. 1,400 45
Takeda Chemical Industries, Ltd. 27,100 1,075
Takefuji Corp. 440 21
TDK Corp. 9,900 713
Terumo Corp. 8,500 161
THK Co., Ltd. 6,200 126
TIS, Inc. 1,600 54
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Tohoku Electric Power Co., Inc. 2,700 45
Tokyo Electric Power Co., Inc. (The) 15,000 329
Tokyo Electron, Ltd. 8,200 623
Tokyo Gas Co., Ltd. 2,000 7
Tokyo Seimitsu Co., Ltd. (AE) 200 6
Tokyo Steel Manufacturing Co., Ltd. 3,300 28
Toppan Printing Co., Ltd. 7,000 73
Toray Industries, Inc. (AE) 22,000 92
Toshiba Corp. 20,000 76
Tostem Inax Holding Corp. 1,000 19
Toyo Seikan Kaisha, Ltd. 3,000 42
Toyoda Gosei Co., Ltd. 2,400 69
Toyota Motor Corp. 44,600 1,507
Ube Industries, Ltd. (AE) 10,000 20
UFJ Holdings, Inc. 209 1,004
Uni-Charm Corp. 2,000 98
Uniden Corp. 3,000 55
UNY Co., Ltd. 8,000 82
Victor Co. of Japan, Ltd. (AE) 4,000 33
Vodafone Holdings KK 7 19
West Japan Railway Co. 8 31
World Co., Ltd. 700 22
Yamaha Corp. 1,300 26
Yamaha Motor Co., Ltd. 54,000 589
Yamanouchi Pharmaceutical Co., Ltd. 1,800 56
------------
42,290
------------
Luxembourg - 0.1%
Arcelor 15,872 277
------------
Mexico - 0.3%
Coca-Cola Femsa SA de CV - ADR (AE) 14,600 310
Telefonos de Mexico SA de CV - ADR 10,150 335
------------
645
------------
Netherlands - 4.9%
ABN AMRO Holding NV 28,449 666
Aegon NV 31,277 463
Akzo Nobel NV 17,503 676
Buhrmann NV 17,072 149
DSM NV 3,300 162
Euronext NV 14,330 363
European Aeronautic Defense and Space Co. 10,600 252
Heineken NV 15,594 594
Hunter Douglas NV 7,112 333
ING Groep NV 42,620 994
KLM-Koninklijke Luchtvaart Mij NV 2,400 39
Koninklijke Ahold NV (AE) 6,500 50
</Table>
Non-U.S. Fund 39
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Koninklijke Philips Electronics NV 54,226 1,582
Numico NV (AE) 26,500 732
OCE NV 1,800 28
Royal Dutch Petroleum Co. 22,563 1,190
Royal KPN NV (AE) 39,125 302
TPG NV 700 16
Unilever NV 6,082 398
Vedior NV 8,662 135
VNU NV 15,959 504
Wolters Kluwer NV 36,536 571
------------
10,199
------------
New Zealand - 0.3%
Carter Holt Harvey, Ltd. (AE) 144,600 178
Telecom Corp. of New Zealand, Ltd. 120,846 426
------------
604
------------
Norway - 0.7%
DNB NOR ASA 46,592 311
Norsk Hydro ASA 6,900 426
Statoil ASA 44,440 499
Telenor ASA (AE) 43,000 281
------------
1,517
------------
Portugal - 0.7%
Electricidade de Portugal SA 172,180 454
Portugal Telecom SGPS SA 87,413 880
------------
1,334
------------
Singapore - 1.5%
CapitaLand, Ltd. 5,000 5
City Developments, Ltd. (AE) 84,000 299
ComfortDelgro Corp., Ltd. (AE) 8,000 4
DBS Group Holdings, Ltd. 130,800 1,132
Fraser and Neave, Ltd. (AE) 5,000 37
Jardine Cycle & Carriage, Ltd. 4,000 14
Keppel Corp., Ltd. 8,000 29
MobileOne, Ltd. 279,000 246
NatSteel, Ltd. 12,000 16
Neptune Orient Lines, Ltd. (AE) 21,000 27
Oversea-Chinese Banking Corp. 38,000 271
Overseas Union Enterprise, Ltd. 1,000 4
SembCorp Marine, Ltd. 4,000 2
Singapore Airlines, Ltd. 2,000 13
Singapore Exchange, Ltd. 72,000 72
Singapore Land, Ltd. 2,000 5
Singapore Press Holdings, Ltd. 31,000 345
Singapore Technologies Engineering, Ltd. (AE) 120,300 145
Singapore Telecommunications, Ltd. 20,000 23
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
United Overseas Bank, Ltd. 61,000 474
United Overseas Land, Ltd. 7,000 8
------------
3,171
------------
South Africa - 0.1%
Nedcor, Ltd. 27,000 251
------------
South Korea - 0.7%
Korea Electric Power Corp. - ADR 28,700 298
Nextel, Inc. (AE) 11,870 478
POSCO - ADR 7,850 267
Samsung Electronics Co., Ltd. - GDR 1,974 371
------------
1,414
------------
Spain - 4.1%
Acerinox SA 3,574 169
ACS Actividades Cons y Serv 9,671 472
Altadis SA 37,600 1,067
Antena 3 Television SA (AE) 539 24
Banco Bilbao Vizcaya Argentaria SA 54,555 754
Banco Popular Espanol SA 5,200 310
Banco Santander Central Hispano SA 77,000 912
Corp Mapfre SA 24,130 342
Endesa SA 46,302 891
Fomento de Construcciones Y Contratas SA 8,200 302
Iberia Lineas Aereas de Espana 33,500 96
Industriesra Sistemas SA (AE) 6,500 83
NH Hoteles SA (AE) 900 10
Repsol YPF SA 16,700 326
Repsol YPF SA - ADR 27,739 542
Sogecable SA (AE) 6,700 234
Telefonica SA (AE) 129,416 1,900
------------
8,434
------------
Sweden - 2.3%
Atlas Copco AB Class 2,500 86
Autoliv, Inc. 6,101 231
Electrolux AB Series B 2,500 55
Hennes & Mauritz AB Class B 36,219 861
Investor AB Class B 42,820 414
Modern Times Group AB Class B (AE) 1,600 34
Nordea AB 15,500 116
OMHEX AB (AE) 2,600 32
Sandvik AB 2,000 69
Securitas AB Class B 22,100 298
Skandia Forsakrings AB (AE) 106,585 388
Skandinaviska Enskilda Banken AB Class A 2,400 35
Skanska AB Class B 2,000 18
</Table>
40 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Svenska Cellulosa AB Class B 1,500 61
Svenska Handelsbanken Class A 21,393 437
Swedish Match AB 500 5
Telefonaktiebolaget LM Ericsson Class B (AE) 470,556 844
TeliaSonera AB 46,611 244
Volvo AB Series A 1,700 50
Volvo AB Series B 16,721 511
WM-data AB Class B (AE) 12,000 26
------------
4,815
------------
Switzerland - 5.9%
ABB, Ltd. (AE) 1,600 8
Adecco SA 17,296 1,112
Barry Callebaut AG 283 56
Ciba Specialty Chemicals AG (AE) 300 23
Clariant AG (AE) 26,337 389
Compagnie Financiere Richemont AG Class A 26,191 629
Credit Suisse Group 51,051 1,868
Georg Fischer AG (AE) 41 8
Givaudan 217 113
Nestle SA 6,133 1,532
Novartis AG Class G 51,916 2,358
PubliGroupe SA (AE) 25 7
Roche Holding AG 13,001 1,311
Sulzer AG 408 110
Swatch Group AG Class B (AE) 300 36
Swiss Life Holding (AE) 1,750 321
Swiss Reinsurance 2,200 149
Synthes-Stratec, Inc. 274 271
UBS AG 17,960 1,230
Valora Holding AG 118 29
Zurich Financial Services AG (AE) 4,171 600
------------
12,160
------------
Taiwan - 0.2%
United Microelectronics Corp. - ADR (AE) 59,576 295
------------
United Kingdom - 18.0%
3i Group PLC 70,880 784
Abbey National PLC 8,500 81
Alliance & Leicester PLC 4,400 70
Allied Domecq PLC 122,650 946
Amvescap PLC 1,700 12
Anglo American PLC 20,500 443
ARM Holdings PLC (AE) 2,700 6
Associated British Foods PLC 8,900 93
AstraZeneca PLC 10,100 492
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
AstraZeneca PLC 5,700 273
Avis Europe PLC 91,691 156
Aviva PLC 15,900 140
AWG PLC (AE) 1,917,600 134
BAA PLC 38,700 344
BAE Systems PLC 268,030 807
Barclays PLC 158,508 1,414
Barratt Developments PLC 12,800 124
BG Group PLC 100,800 517
BHP Billiton PLC 29,600 259
BOC Group PLC 39,681 606
Boots Group PLC 37,800 468
BP PLC 241,000 1,955
Bradford & Bingley PLC 20,800 114
Brambles Industries PLC 31,000 113
British Airways PLC (AE) 13,900 58
British American Tobacco PLC 7,800 108
British Land Co. PLC 15,600 163
British Sky Broadcasting PLC (AE) 23,450 295
BT Group PLC 195,000 657
Bunzl PLC 67,035 512
Cadbury Schweppes PLC 105,887 778
Canary Wharf Group PLC (AE) 300 1
Centrica PLC 120,700 456
Colt Telecom Group PLC (AE) 2,900 5
Compass Group PLC 8,100 55
Corus Group PLC (AE) 78,908 42
Davis Service Group PLC 3,900 26
De La Rue PLC 1,300 6
Diageo PLC 30,412 400
Dixons Group PLC 3,300 8
EMI Group PLC 24,000 68
Firstgroup PLC 4,100 20
Galen Holdings PLC 2,800 36
GKN PLC 138,950 664
GlaxoSmithKline PLC (AE) 112,078 2,569
Granada PLC 1,500 3
HBOS PLC 14,200 184
HHG PLC (AE) 75,883 55
HSBC Holdings PLC 171,405 2,696
Imperial Chemical Industries PLC 10,700 38
Inchcape PLC (AE) 2,000 47
InterContinental Hotels Group PLC 52,306 495
International Power PLC (AE) 47,500 105
InvenSystem PLC (AE) 45,200 15
J Sainsbury PLC 100,524 563
Johnston Press PLC 700 6
Kelda Group PLC 18,200 153
Kesa Electricals PLC 61,332 282
</Table>
Non-U.S. Fund 41
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
Kingfisher PLC 143,618 716
Land Securities Group PLC 1,100 20
Lloyds TSB Group PLC 63,200 507
LogicaCMG PLC (AE) 11,600 53
Man Group PLC 15,160 396
Marks & Spencer Group PLC 161,125 834
Mitchells & Butlers PLC 5,858 24
mmO2 PLC (AE) 92,000 127
MyTravel Group PLC (AE) 85,300 17
Northern Foods PLC 29,500 76
Old Mutual PLC 83,900 138
Pearson PLC 600 7
Pennon Group PLC 6,100 74
Prudential PLC 52,500 444
Reckitt Benckiser PLC (AE) 100 2
Reed Elsevier PLC 22,980 192
Reuters Group PLC 19,700 83
Rexam PLC 44,791 343
Rio Tinto PLC 23,924 661
Rolls-Royce Group PLC 32,100 102
Royal & Sun Alliance Insurance Group 66,400 105
Royal Bank of Scotland Group PLC 39,100 1,152
SABMiller PLC 1,800 19
Safeway PLC 16,900 86
Scottish & Southern Energy PLC 56,305 678
Scottish Power PLC 21,300 142
Severn Trent PLC 3,300 44
Shell Transport & Trading Co. PLC 381,870 2,841
SSL International PLC (AE) 1,000 6
Stagecoach Group PLC 61,800 87
Standard Chartered PLC 30,000 495
Tate & Lyle PLC 22,600 126
Taylor Woodrow PLC 15,300 73
Tesco PLC 1,700 8
Trinity Mirror PLC 12,000 121
Unilever PLC 36,900 344
United Business Media PLC 41,261 362
United Utilities PLC 14,300 127
Vodafone Group PLC 1,427,557 3,540
Whitbread PLC 4,800 62
Wimpey George PLC 14,700 98
Yell Group PLC (AE) 4,000 22
------------
37,274
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
United States - 0.0%
Berkeley Group PLC 700 11
------------
TOTAL COMMON STOCKS
(cost $150,644) 184,852
------------
<Caption>
NOTIONAL
AMOUNT
$
------------
- -----------------------------------------------------------------------------
OPTIONS PURCHASED - 0.5%
(Number of Contracts)
Belgium - 0.4%
Bel20 Index Futures
Jan 2004 2,170.42 (EUR) Call (53) 2,902 767
------------
Switzerland - 0.1%
Swiss Market Index Futures
Mar 2003 5,383.02 (EUR) Call (48) 2,089 228
------------
TOTAL OPTIONS PURCHASED
(cost $848) 995
------------
<Caption>
PRINCIPAL
AMOUNT ($)
OR SHARES
------------
- -----------------------------------------------------------------------------
PREFERRED STOCKS - 0.6%
Australia - 0.0%
News Corp., Ltd. 12,100 91
------------
Brazil - 0.1%
Telecomunicacoes Brasileiras SA - ADR 5,500 186
------------
Germany - 0.5%
Fresenius AG (AE) 3,200 224
Fresenius Medical Care AG (AE) 2,000 101
Hugo Boss AG 3,850 77
ProSieben SAT.1 Media AG 14,400 241
Wella AG 4,380 388
------------
1,031
------------
TOTAL PREFERRED STOCKS
(cost $888) 1,308
------------
</Table>
42 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- -----------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 8.9%
United States - 8.9%
Frank Russell Investment Company
Money Market Fund 15,037,000 15,037
United States Treasury Bill (y)(s)
0.930% due 02/26/04 (c) 1,300 1,298
0.900% due 03/04/04 500 499
0.890% due 03/11/04 1,500 1,497
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $18,331) 18,331
------------
TOTAL INVESTMENTS - 99.5%
(identified cost $170,711) 205,486
OTHER ASSETS AND LIABILITIES
NET - 0.5% 1,133
------------
NET ASSETS - 100.0% 206,619
============
</Table>
<Table>
<Caption>
UNREALIZED
NOTIONAL APPRECIATION
FUTURES CONTRACTS AMOUNT (DEPRECIATION)
(NUMBER OF CONTRACTS) $ $
- ------------------------------------------------------------------------------------
Long Positions
AEX Index (Germany)
expiration date 01/04 (12) 1,022 17
CAC-40 Index (France)
expiration date 01/04 (10) 449 3
expiration date 03/04 (32) 1,442 45
DAX Index (Germany)
expiration date 03/04 (10) 1,260 27
DJ STOXX 50 Index (EMU)
expiration date 03/04 (92) 3,202 161
FTSE-100 Index (UK)
expiration date 03/04 (47) 3,758 77
Hang Seng Index (Hong Kong)
expiration date 01/04 (35) 2,848 32
IBEX Plus Index (Spain)
expiration date 01/04 (3) 291 4
MIB-30 (Italy)
expiration date 03/04 (6) 1,014 (23)
TOPIX Index (Japan)
expiration date 12/03 (77) 7,516 8
Short Positions
CAC-40 Index (France)
expiration date 01/04 (51) 2,289 (20)
FTSE-100 Index (UK)
expiration date 03/04 (13) 1,035 (37)
SPI 200 Index (Australia)
expiration date 03/04 (22) 1,366 (27)
---------------
Total Unrealized Appreciation (Depreciation) on
Open Futures Contracts 267
===============
</Table>
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 43
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
NOTIONAL MARKET
OPTIONS WRITTEN AMOUNT VALUE
(NUMBER OF CONTRACTS) $ $
- ------------------------------------------------------------------------------------
Luxembourg
Bel20 Index Futures
Jan 2004 2,170.42 (EUR) Put (53) 2,902 (668)
Switzerland
Swiss Market Index Futures
Mar 2003 5,383.02 (EUR) Put (48) 2,089 (194)
---------------
Total Liability for Options Written
(premiums received $846) (862)
===============
<Caption>
INDUSTRY DIVERSIFICATION % OF MARKET
(UNAUDITED) ASSETS $
- ------------------------------------------------------------------------------------
Auto and Transportation 7.3 15,156
Consumer Discretionary 11.8 24,383
Consumer Staples 5.4 11,134
Financial Services 23.0 47,604
Health Care 5.8 11,939
Integrated Oils 4.5 9,216
Materials and Processing 8.8 18,178
Miscellaneous 1.6 3,260
Options 0.5 995
Other Energy 3.5 7,323
Preferred Stocks 0.1 224
Producer Durables 5.2 10,757
Technology 3.3 6,808
Telecommunication Services 0.0 1
Utilities 9.8 20,177
Short-Term Investments 8.9 18,331
--------------- ---------------
Total Investments 99.5 205,486
Other Assets and Liabilities, Net 0.5 1,133
--------------- ---------------
NET ASSETS 100.0 206,619
=============== ===============
<Caption>
GEOGRAPHIC DIVERSIFICATION % OF MARKET
(UNAUDITED) ASSETS $
- ------------------------------------------------------------------------------------
Africa 0.1 251
Asia 7.6 15,706
Europe 43.3 89,583
Japan 20.5 42,299
Latin America 0.6 1,075
United Kingdom 18.0 37,235
Options 0.5 995
Other 0.0 11
Short-Term Investments 8.9 18,331
--------------- ---------------
Total Investments 99.5 205,486
Other Assets and Liabilities, Net 0.5 1,133
--------------- ---------------
NET ASSETS 100.0 206,619
=============== ===============
</Table>
See accompanying notes which are an integral part of the financial statements.
44 Non-U.S. Fund
RUSSELL INVESTMENT FUNDS
NON-U.S. FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
AMOUNT AMOUNT SETTLEMENT (DEPRECIATION)
SOLD BOUGHT DATE $
- ------------------- -------------------- ----------- --------------
USD 12 AUD 16 01/02/04 --
USD 146 AUD 200 03/17/04 3
USD 661 AUD 900 03/17/04 11
USD 80 CHF 100 03/17/04 1
USD 33 DKK 200 03/17/04 1
USD 156 EUR 124 01/05/04 1
USD 125 EUR 99 01/06/04 --
USD 372 EUR 300 03/17/04 5
USD 1,716 EUR 1,400 03/17/04 44
USD 6,132 EUR 5,000 03/17/04 154
USD 229 GBP 129 01/05/04 1
USD 45 GBP 25 01/06/04 --
USD 263 GBP 150 03/17/04 3
USD 347 GBP 200 03/17/04 8
USD 2,772 GBP 1,600 03/17/04 67
USD 26 HKD 200 03/17/04 --
USD 17 JPY 1,806 01/05/04 --
USD 303 JPY 32,434 01/07/04 --
USD 187 JPY 20,000 03/17/04 --
USD 2,608 JPY 280,000 03/17/04 12
USD 3,916 JPY 420,000 03/17/04 14
CHF 173 USD 140 01/05/04 --
CHF 1,900 USD 1,509 03/17/04 (30)
DKK 72 USD 12 01/02/04 --
EUR 302 USD 379 01/05/04 (2)
EUR 134 USD 169 01/06/04 --
EUR 500 USD 613 03/17/04 (16)
JPY 205 USD 2 01/05/04 --
JPY 3,174 USD 30 01/05/04 --
JPY 205 USD 2 01/06/04 --
JPY 207 USD 2 01/07/04 --
JPY 20,000 USD 187 03/17/04 --
NOK 134 USD 20 01/02/04 --
NOK 320 USD 47 01/05/04 (1)
SEK 431 USD 60 01/07/04 --
SEK 2,100 USD 287 03/17/04 (4)
SGD 200 USD 117 03/17/04 (1)
--------------
271
==============
</Table>
See accompanying notes which are an integral part of the financial statements.
Non-U.S. Fund 45
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
(PERFORMANCE LINE GRAPH)
Core Bond Fund
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 10,615 6.15%
5 Years $ 13,566 6.29%sec.
Inception $ 15,986 6.93%sec.
</Table>
Lehman Brothers Aggregate Bond Index
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 10,410 4.10%
5 Years $ 13,780 6.62%sec.
Inception $ 16,423 7.34%sec.
</Table>
46 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PLEASE STATE THE FUND'S OBJECTIVE.
The Fund seeks to maximize total return through capital appreciation and income
by assuming a level of volatility consistent with the broad fixed-income market
by investing in fixed-income securities.
On October 3, 2003, shareholders voted to change the investment objective of the
Fund to: The Fund seeks to provide current income and the preservation of
capital. This change will be effective on March 1, 2004.
DESCRIBE THE FUND'S PERFORMANCE FOR THE 12 MONTHS ENDED DECEMBER 31ST AND HOW IT
PERFORMED RELATIVE TO ITS BENCHMARK.
For the fiscal year ended December 31, 2003, the Core Bond Fund gained 6.15%.
This compared to its benchmark the Lehman Brothers Aggregate Bond Index, which
gained 4.10%. The Fund's performance is net of operating expenses of 0.71%.
Index returns do not reflect deduction of fees, expenses, or taxes.
DESCRIBE THE FUND'S MAIN PERFORMANCE DRIVERS OVER THE PAST 12 MONTHS INCLUDING A
DISCUSSION OF INVESTMENT STYLES AND MONEY MANAGERS.
The biggest contributor to Fund performance was its exposure to riskier fixed
income sectors including investment grade corporate, high yield, and emerging
market debt. Over the past twelve months, the investment grade corporate bond
market, represented by the Lehman US Credit Index, generated a 7.7% return,
almost twice the return generated on the overall Lehman Brothers Aggregate Bond
Index. The Lehman High Yield Index posted a 29% return for the same period. A
slight overweight in the Fund to corporate bonds and a 6% average exposure to
high yield securities helped performance relative to the benchmark, as these
sectors rebounded from the underperformance in the first three quarters of 2002.
The Fund's money managers also did well in managing risk given the volatility of
interest rates and opportunities in the mortgage-backed securities market. The
Fund's money managers added value by overweighting mortgage-backed securities
early in the year and underweighting them as interest rates rose in the summer
of 2003. The swift rise in interest rates hurt mortgage-backed securities in
July.
PLEASE DESCRIBE HOW THE FUND AND ITS MONEY MANAGERS REACTED TO THE MARKET
ENVIRONMENT DURING THE PERIOD AND HOW THE FUND IS POSITIONED TO MEET ITS
LONG-TERM OBJECTIVES.
With increased fiscal and monetary stimulus created by tax cuts and Federal
Reserve lending rates, and a better environment for businesses in general, the
Fund's money managers positioned their portfolios to overweight corporate and
high yield securities, which benefit from lower financing rates. Yield spreads
between corporate bonds and Treasuries were wide as the fiscal year started, due
to concerns over corporate governance and the high number of defaults by
corporate issuers. This led the money managers to overweight corporate and high
yield bonds while underweighting Treasury securities.
Over the year, investors' tolerance for risk increased as evidenced by strong
cash flows into equity mutual funds. This helped corporate bonds, and as yields
fell relative to Treasuries, the Fund's money managers took profits and reduced
positions in corporate bonds. At the same time, as interest rates rose in July
2003, the Fund's money managers found more value in mortgage-backed securities
and went from an underweight to a slight overweight position.
The Fund's money managers seek diversification across issuers, sectors, and
interest rate strategies. At the end of the year, the Fund was underweight to
mortgage-backed securities and investment-grade corporate bonds. Whereas the
Fund did have nearly an 7% allocation to high yield securities in the summer of
2003, these positions were reduced as profits were realized, leaving the
allocation at fiscal year-end at slightly below 6%.
WHAT CHANGES WERE MADE TO THE FUND'S STRUCTURE OR TO THE MONEY MANAGER LINE-UP?
No changes were made to the Fund's structure or its manager line-up during the
year.
PLEASE EXPLAIN WHAT CONTRIBUTED MOST AND LEAST TO THE FUND'S PERFORMANCE DURING
THE LAST 12 MONTHS.
PIMCO did well over the fiscal year. PIMCO's performance benefited from its
holding of corporate bonds in the utility and telecom sectors. Additionally,
PIMCO held 3-5% of its portfolio in emerging market debt securities which
performed well over the year.
TimesSquare outperformed the Fund's benchmark, primarily due to its overweight
to corporate bonds, its low exposure to high yield and emerging market debt, and
security selection that was rewarded within the corporate, high yield, and
emerging market debt sectors. TimesSquare also benefited from an underweight to
mortgage-backed securities in July when the sector underperformed dramatically
due to the sharp rise in interest rates.
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR BOND SELECTION? HOW DID THE FUND
FARE IN THIS ENVIRONMENT?
The past fiscal year was favorable to active managers given the wide yield
spreads within the corporate and high yield markets and divergent performance
among issuer specific bonds. The Fund benefited from a market that rewarded
investors who took credit risk at a very "distressed" time as the fiscal year
started. Additionally, the Fund's money managers were rewarded for identifying
issuer-specific credits that were trading at low dollar prices and whose
revenues were sufficient to pay down debt.
Core Bond Fund 47
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
Money Managers Styles
<Table>
Pacific Investment Management Co., LLC Sector Rotation
TimesSquare Capital Management, Inc. Sector Rotation
</Table>
--------------------
* The Fund commenced operations on January 2, 1997. Index comparison began
January 1, 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.
48 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
LONG-TERM INVESTMENTS - 64.3%
Asset-Backed Securities - 1.4%
American Airlines, Inc.
7.379% due 05/23/16 249 177
Citibank Credit Card Issuance Trust
Series 2001-A6 Class A6
5.650% due 06/16/08 475 510
Continental Airlines, Inc.
6.900% due 01/02/17 338 283
Fleet Credit Card Master Trust II Series 2001-C
Class A
3.860% due 03/15/07 375 381
Niagara Mohawk Power Corp. 7.625% due 10/01/05 132 144
Parker Hannifin Employee Stock Ownership Trust
6.340% due 07/15/08 269 293
Small Business Administration 7.449% due
08/01/10 69 75
Systems 2001 AT LLC
7.156% due 12/15/11 149 162
---------
2,025
---------
Corporate Bonds and Notes - 14.7%
Amerada Hess Corp.
7.300% due 08/15/31 155 160
American Electric Power Co., Inc. Series C
5.375% due 03/15/10 35 37
American RE Corp.
Series B
7.450% due 12/15/26 240 267
Arrow Electronics, Inc.
6.875% due 07/01/13 45 48
AT&T Corp.
8.050% due 11/15/11 20 23
8.750% due 11/15/31 40 47
AT&T Wireless Services, Inc.
8.125% due 05/01/12 125 147
Avnet, Inc.
9.750% due 02/15/08 40 47
BAE Systems Holdings, Inc. 6.400% due 12/15/11 380 408
Bank of America Corp.
7.800% due 02/15/10 15 18
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
BankBoston Corp.
Series B
8.250% due 12/15/26 80 92
BCI US Funding Trust Step Up Bond
8.010% due 12/29/49 250 287
Boeing Capital Corp.
6.100% due 03/01/11 65 70
Bunge, Ltd. Finance Corp.
4.375% due 12/15/08 150 151
Burlington Northern Santa Fe Corp.
6.875% due 12/01/27 25 27
Campbell Soup Co.
5.875% due 10/01/08 70 77
CenterPoint Energy Houston Electric LLC
5.700% due 03/15/13 100 105
CenterPoint Energy Resources Corp.
7.875% due 04/01/13 150 170
CIT Group, Inc.
6.500% due 02/07/06 120 130
6.875% due 11/01/09 45 51
Citigroup, Inc.
3.500% due 02/01/08 515 517
7.250% due 10/01/10 195 227
Columbus Southern Power Co. Series C
5.500% due 03/01/13 35 36
Comcast Cable Communications 8.375% due 05/01/07 195 226
Comcast Corp.
5.850% due 01/15/10 60 64
Countrywide Home Loans, Inc. Series MTNK
5.500% due 02/01/07 50 54
Credit Suisse First Boston USA, Inc.
4.625% due 01/15/08 65 68
5.500% due 08/15/13 55 57
Detroit Edison Co.
6.350% due 10/15/32 90 95
Devon Financing Corp. ULC 6.875% due 09/30/11 95 108
Dominion Resources, Inc.
Series B
6.250% due 06/30/12 40 43
</Table>
Core Bond Fund 49
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
DPL, Inc.
8.250% due 03/01/07 115 125
Dresdner Funding Trust I
8.151% due 06/30/31 300 342
Duke Capital Corp.
6.250% due 02/15/13 35 37
Duke Energy Field Services LLC
5.750% due 11/15/06 30 32
6.875% due 02/01/11 20 22
El Paso Corp.
8.050% due 10/15/30 900 783
Eli Lilly & Co.
6.770% due 01/01/36 250 285
FedEx Corp. (p)
7.600% due 07/01/97 75 84
Fifth Third Bank Michigan
7.750% due 08/15/10 155 167
First Union Capital I
Series A
7.935% due 01/15/27 55 63
FirstEnergy Corp.
Series A
5.500% due 11/15/06 40 41
Series B
6.450% due 11/15/11 215 223
Series C
7.375% due 11/15/31 115 118
Ford Motor Co.
6.375% due 02/01/29 70 62
Ford Motor Credit Co.
6.875% due 02/01/06 305 326
7.375% due 02/01/11 380 414
General Electric Co.
5.000% due 02/01/13 325 329
General Motors Acceptance Corp.
7.250% due 03/02/11 55 60
6.875% due 09/15/11 415 447
7.000% due 02/01/12 70 75
Golden West Financial Corp.
4.125% due 08/15/07 110 114
Goldman Sachs Group, Inc.
6.875% due 01/15/11 245 278
HCA, Inc.
5.250% due 11/06/08 70 71
7.500% due 11/06/33 40 42
HJ Heinz Co.
6.375% due 07/15/28 20 21
HJ Heinz Finance Co.
6.750% due 03/15/32 65 73
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
Household Finance Corp.
4.125% due 12/15/08 260 261
6.375% due 11/27/12 125 137
HVB Funding Trust I
8.741% due 06/30/31 200 236
HVB Funding Trust III
9.000% due 10/22/31 95 115
International Lease Finance Corp.
6.375% due 03/15/09 125 138
International Paper Co.
5.500% due 01/15/14 140 141
ITT Industries, Inc.
7.400% due 11/15/25 110 126
JP Morgan & Co., Inc.
Series MTNA
6.000% due 01/15/09 120 131
Kellogg Co.
Series B
6.600% due 04/01/11 360 403
KeySpan Corp.
7.250% due 11/15/05 50 54
7.625% due 11/15/10 150 179
Kraft Foods, Inc.
5.250% due 06/01/07 60 64
5.625% due 11/01/11 160 169
5.250% due 10/01/13 205 207
Kroger Co.
8.000% due 09/15/29 15 18
7.500% due 04/01/31 15 17
Lehman Brothers Holdings, Inc.
6.625% due 01/18/12 145 164
Liberty Media Corp.
3.500% due 09/25/06 500 502
5.700% due 05/15/13 30 30
Lockheed Martin Corp.
8.200% due 12/01/09 500 607
8.500% due 12/01/29 125 164
Manufacturers & Traders Trust Co.
8.000% due 10/01/10 75 90
Michaels Stores, Inc.
9.250% due 07/01/09 180 199
Midland Funding II
Series B
13.250% due 07/23/06 45 53
Miller Brewing Co.
5.500% due 08/15/13 130 133
Mizuho Preferred Capital Co. LLC
8.790% due 12/29/49 665 725
</Table>
50 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
Monumental Global Funding II
3.850% due 03/03/08 155 156
Morgan Stanley
6.750% due 04/15/11 180 204
Natexis Ambs Co. LLC
8.440% due 12/29/49 120 141
National Rural Utilities Cooperative Finance
5.750% due 08/28/09 70 76
NB Capital Trust IV
8.250% due 04/15/27 90 104
News America Holdings
7.750% due 12/01/45 95 112
7.900% due 12/01/95 90 103
8.250% due 10/17/96 35 41
News America, Inc.
6.750% due 01/09/38 20 22
Nisource Finance Corp.
7.875% due 11/15/10 195 232
Norfolk Southern Corp.
7.700% due 05/15/17 20 24
7.900% due 05/15/97 (p) 200 236
Occidental Petroleum Corp. 9.250% due 08/01/19 95 131
Ohio Power Co.
Series F
5.500% due 02/15/13 20 21
Oncor Electric Delivery Co. 7.250% due 01/15/33 95 108
Progress Energy, Inc.
7.100% due 03/01/11 45 51
7.000% due 10/30/31 120 128
Prudential Funding LLC
6.600% due 05/15/08 80 89
Qwest Capital Funding, Inc. 7.000% due 08/03/09 25 25
RBS Capital Trust I (p)
4.709% due 12/29/49 245 234
Safeway, Inc.
7.250% due 02/01/31 25 27
Schuler Homes, Inc.
9.375% due 07/15/09 210 236
Sovereign Bancorp, Inc.
10.500% due 11/15/06 460 544
Sprint Capital Corp.
6.125% due 11/15/08 50 53
7.625% due 01/30/11 600 673
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
8.375% due 03/15/12 60 70
6.875% due 11/15/28 200 195
8.750% due 03/15/32 105 124
Tele-Communications-TCI Group
9.800% due 02/01/12 140 183
7.875% due 08/01/13 280 331
Tenaska Alabama II Partners, LP
6.130% due 03/30/23 119 123
Tenet Healthcare Corp.
7.375% due 02/01/13 55 55
Time Warner Cos., Inc.
9.125% due 01/15/13 85 108
8.050% due 01/15/16 480 570
Time Warner, Inc.
6.750% due 04/15/11 100 112
Toll Corp.
8.250% due 12/01/11 85 94
Travelers Property Casualty Corp.
5.000% due 03/15/13 80 80
Union Pacific Corp.
5.750% due 10/15/07 270 291
6.125% due 01/15/12 140 152
Union Planters Corp.
7.750% due 03/01/11 50 59
Univision Communications, Inc.
7.850% due 07/15/11 240 285
Verizon Florida, Inc.
Series F
6.125% due 01/15/13 85 91
Wachovia Corp.
7.550% due 08/18/05 50 55
Wells Fargo & Co.
4.950% due 10/16/13 100 100
Wells Fargo Bank NA
7.550% due 06/21/10 50 59
Weyerhaeuser Co.
5.250% due 12/15/09 70 73
Williams Cos., Inc.
8.750% due 03/15/32 100 113
Wisconsin Central Transport
6.625% due 04/15/08 325 362
Wyeth
5.500% due 03/15/13 35 36
5.500% due 02/01/14 155 157
Zurich Capital Trust I
8.376% due 06/01/37 340 390
---------
21,593
---------
</Table>
Core Bond Fund 51
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
Emerging Markets Debt - 1.8%
Argentina Government International Bond
11.375% due 01/30/17 275 77
Brazilian Government International Bond
2.000% due 04/15/06 80 79
9.250% due 10/22/10 60 65
11.000% due 01/11/12 540 629
8.000% due 04/15/14 62 60
11.000% due 08/17/40 350 385
Brazilian Government International Bond (E)
2.063% due 04/15/09 19 18
2.063% due 04/15/12 40 36
Bulgaria Government International Bond (E)
1.938% due 07/28/24 160 158
Kyivstar GSM
12.750% due 11/21/05 140 154
Panama Government International Bond
9.375% due 07/23/12 100 114
Peru Government International Bond
9.125% due 02/21/12 200 223
9.875% due 02/06/15 200 232
Russia Government International Bond
5.000% due 03/31/30 370 356
---------
2,586
---------
International Debt - 6.5%
Abbey National PLC Step Up Bond (p)
6.700% due 06/29/49 150 166
AXA
8.600% due 12/15/30 85 107
British Sky Broadcasting PLC
8.200% due 07/15/09 230 274
British Telecommunications PLC
8.375% due 12/15/10 90 110
8.875% due 12/15/30 40 52
Conoco Funding Co.
6.350% due 10/15/11 385 432
DBS Capital Funding Corp.
7.660% due 03/15/49 270 311
Deutsche Telekom International Finance BV
8.500% due 06/15/10 150 181
8.750% due 06/15/30 170 217
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
France Telecom
8.450% due 03/01/06 440 491
9.000% due 03/01/11 820 985
9.750% due 03/01/31 60 80
Inco, Ltd.
5.700% due 10/15/15 90 91
Korea Development Bank
4.250% due 11/13/07 50 51
5.500% due 11/13/12 5 5
Mexico Government International Bond
8.375% due 01/14/11 100 119
6.375% due 01/16/13 130 135
8.000% due 09/24/22 700 766
8.300% due 08/15/31 145 163
Noranda, Inc.
6.000% due 10/15/15 75 76
Petroleos Mexicanos
9.500% due 09/15/27 110 130
Poland Government International Bond
4.500% due 10/27/24 200 185
Province of Quebec
7.500% due 07/15/23 390 478
PTC International Finance II SA
11.250% due 12/01/09 265 292
Royal Bank of Scotland Group PLC (p)
Series 1
9.118% due 03/31/49 650 812
Royal KPN NV
8.000% due 10/01/10 300 359
Santander Central Hispano Issuances, Ltd.
7.625% due 09/14/10 20 24
Santander Financial Issuances
6.800% due 07/15/05 45 48
6.375% due 02/15/11 110 122
Sanwa Finance Aruba AEC
8.350% due 07/15/09 135 159
Shaw Communications, Inc. 8.250% due 04/11/10 145 165
7.200% due 12/15/11 50 54
Standard Chartered Bank
8.000% due 05/30/31 90 109
Stora Enso Oyj
7.375% due 05/15/11 85 98
Takefuji Corp.
9.200% due 04/15/11 55 61
</Table>
52 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
Telecom Italia Capital
5.250% due 11/15/13 230 230
6.380% due 11/15/33 125 126
TELUS Corp.
7.500% due 06/01/07 185 205
8.000% due 06/01/11 460 538
TPSA Finance BV
7.750% due 12/10/08 255 271
TXU Australia Holdings Partnership, LP
6.150% due 11/15/13 100 102
UFJ Finance Aruba AEC
6.750% due 07/15/13 250 267
---------
9,647
---------
Mortgage-Backed Securities - 29.9%
Bear Stearns Adjustable Rate Mortgage Trust (E)
Series 2002-8 Class 3A 6.164% due 08/25/32 22 22
Series 2003-1 Class 6A1 5.199% due 04/25/33 267 270
Series 2003-8 Class 4A1 4.834% due 01/25/34 496 499
Chase Mortgage Finance Corp. (E) Series 2002-A1
Class 1A1 6.231% due 12/25/29 20 20
Citicorp Mortgage Securities, Inc. Series
2001-12 Class M 6.394% due 08/25/31 94 94
CS First Boston Mortgage Securities Corp. Series
2001-AR24 Class 3A 6.176% due 12/25/31 158 161
Series 2002-10 Class 2A1 7.500% due 05/25/32 122 131
Series 2002-18 Class 1AIO 7.500% due 06/25/32 400 24
Series 2002-22 Class 1AIO 8.000% due 07/25/32 550 34
Federal Home Loan Mortgage Corp.
15 Year Gold TBA
4.50% (d) 1,145 1,145
5.00% (d) 1,980 2,017
6.50% (d) 495 522
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
30 Year Gold TBA
4.50% (d) 370 351
5.00% (d) 1,675 1,653
5.50% (d) 2,520 2,549
6.00% (d) 165 170
6.50% (d) 145 152
6.000% due 2016 112 117
5.000% due 2018 299 305
5.000% due 2018 155 158
7.820% due 2030 8 8
6.500% due 2032 144 151
7.500% due 2032 174 187
6.000% due 2033 1,089 1,126
Series 2000-2266 Class F 1.570% due 11/15/30 120 120
Series 2002-2504 Class L 5.500% due 03/15/15 21 22
Federal Home Loan Mortgage Corp. Structured Pass
Through Securities
Series 2003-54 Class 2AIO 0.249% due 02/25/43 10,167 87
Series 2003-54 Class 3AIO 0.797% due 02/25/43 4,149 109
Federal National Mortgage Association
15 Year TBA
4.00% (d) 295 287
4.50% (d) 1,230 1,231
5.00% (d) 310 316
5.50% (d) 925 956
30 Year TBA
5.00% (d) 1,455 1,439
5.50% (d) 1,335 1,352
6.00% (d) 710 731
6.50% (d) 275 287
6.000% due 2016 44 46
3.168% due 2017 136 137
5.000% due 2017 1,191 1,217
5.500% due 2017 1,544 1,602
6.000% due 2017 2,885 3,028
5.000% due 2018 2,619 2,673
5.000% due 2018 100 102
5.500% due 2018 938 973
6.000% due 2018 423 445
6.000% due 2029 397 413
6.500% due 2031 527 553
6.000% due 2032 180 186
6.500% due 2032 827 869
</Table>
Core Bond Fund 53
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
7.000% due 2032 1,513 1,612
5.500% due 2033 650 659
6.000% due 2033 2,833 2,929
6.500% due 2033 662 692
4.023% due 2036 1,063 1,081
Series 1992-10 Class ZD 8.000% due 11/25/21 1,293 1,357
Series 2001-62 Class DA
6.000% due 02/25/29 19 19
Federal National Mortgage Association Whole Loan
Series 2002-W1 Class 2AIO 0.595% due 04/25/42 3,839 98
Series 2002-W6 Class 2AIO 0.356% due 06/25/42 3,721 43
Series 2003-W1 Class 1A1 6.500% due 12/25/42 158 167
First Nationwide Trust (E) Series 2001-4 Class
3A5 1.720% due 09/25/31 62 62
Government National Mortgage Association (E)
Series 2000-29 Class F
1.620% due 09/20/30 136 136
Government National Mortgage Association I
30 Year TBA
5.50% (d) 535 544
6.00% (d) 735 764
6.000% due 2029 44 46
6.500% due 2032 47 49
6.500% due 2032 467 493
5.500% due 2033 154 156
Government National Mortgage Association II (E)
4.375% due 2026 660 675
4.750% due 2027 50 51
3.500% due 2032 541 537
MASTR Alternative Loans Trust Series 2003-2
Class 7A1 7.000% due 12/25/32 137 140
Residential Asset Mortgage Products, Inc.
Series 2002-RZ4 Class AIO
5.750% due 04/25/05 749 35
Sequoia Mortgage Trust (E) Series 2001-5 Class A
1.500% due 10/19/26 371 380
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
Vendee Mortgage Trust
Series 2002-1 Class 2IO 0.246% due 08/15/31 8,868 78
Wells Fargo Mortgage Backed Securities Trust (E)
Series 2001-34 Class 3A 6.048% due 01/25/32 94 95
Series 2002-9 Class B1
6.250% due 06/25/32 113 114
---------
44,059
---------
Municipal Bonds - 2.5%
Brazos Higher Education Authority Revenue Bonds,
monthly demand (E)
1.230% due 12/01/39 100 100
County of Clark Nevada General Obligation
Limited, weekly demand (u)
5.000% due 06/01/32 600 611
Energy Northwest Revenue Bonds 5.500% due
07/01/13 100 114
Florida State Board Education General Obligation
Unlimited, weekly demand
5.000% due 06/01/33 300 308
Golden State Tobacco Securitization Corp.
Revenue Bonds, weekly demand
6.750% due 06/01/39 400 394
Los Angeles Unified School District General
Obligation
Unlimited, weekly demand
5.000% due 01/01/28 200 206
Lower Colorado River Authority Revenue Bonds,
weekly demand (u)
5.000% due 05/15/31 300 306
Mississippi Higher Education Assistance
Corporation Revenue Bonds, monthly demand (E)
1.180% due 09/01/33 500 500
New York City Transitional Finance Authority
Revenue Bonds, weekly demand
5.000% due 02/01/33 300 306
</Table>
54 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
South Carolina Transportation Infrastructure
Bank Revenue Bonds, weekly demand
5.000% due 10/01/33 600 617
Tobacco Settlement Financing Corp. Revenue
Bonds,
weekly demand
4.375% due 06/01/19 100 96
University of Texas Revenue Bonds,
weekly demand
5.000% due 08/15/33 100 102
---------
3,660
---------
United States Government Agencies - 0.9%
Federal Home Loan Bank System
4.125% due 01/14/05 185 190
Federal Home Loan Mortgage Corp.
2.750% due 03/15/08 235 231
Federal National Mortgage Association
4.375% due 03/15/13 345 339
Financing Corp. Principal Only STRIP
0.000% due 05/11/18 95 43
0.000% due 04/05/19 420 179
0.000% due 09/26/19 290 120
Series 15P
0.000% due 03/07/19 70 30
Residual Funding Principal Only STRIP
0.000% due 10/15/20 600 236
---------
1,368
---------
United States Government Treasuries - 6.6%
United States Treasury Inflation Indexed Bonds
3.375% due 01/15/07 (s) 234 253
3.625% due 01/15/08 229 253
3.875% due 01/15/09 1,015 1,146
3.500% due 01/15/11 266 299
3.375% due 01/15/12 313 350
3.000% due 07/15/12 2,073 2,260
3.625% due 04/15/28 343 425
3.875% due 04/15/29 1,238 1,604
United States Treasury Note
4.625% due 05/15/06 1,085 1,150
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
7.000% due 07/15/06 85 95
5.000% due 02/15/11 70 75
8.750% due 05/15/17 945 1,324
6.000% due 02/15/26 420 466
---------
9,700
---------
TOTAL LONG-TERM INVESTMENTS
(cost $91,074) 94,638
---------
PREFERRED STOCKS - 0.5%
Financial Services - 0.5%
Centaur Funding Corp. 190,000 234
DG Funding Trust 49 519
---------
TOTAL PREFERRED STOCKS
(cost $719) 753
---------
SHORT-TERM INVESTMENTS - 46.2%
ABN AMRO North America Discount Note (c)(y)
1.070% due 01/14/04 1,000 1,000
Bank of America Corp. (E) Series MTNI
1.450% due 10/22/04 250 251
CBA Del Finance, Inc. Years 3 & 4 Commercial
Paper (y)
1.080% due 03/09/04 500 499
CIT Group, Inc.
5.625% due 05/17/04 700 711
Danske Corp. Commercial Paper (y)
1.085% due 03/08/04 2,000 1,995
European Investment Bank (c)(y)
1.060% due 02/10/04 1,200 1,199
Federal Home Loan Mortgage Corp. Discount Note
(c)(y)
1.075% due 02/05/04 400 400
Federal Home Loan Mortgage Discount Notes (c)(y)
1.065% due 01/15/04 2,000 1,999
Federal National Mortgage Association Discount
(c)(y)
1.085% due 01/22/04 3,900 3,898
1.070% due 01/29/04 3,800 3,797
Federal National Mortgage Association Discount
Note (y)
1.080% due 03/17/04 1,800 1,790
Frank Russell Investment Company Money Market
Fund 33,253,000 33,253
</Table>
Core Bond Fund 55
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
General Electric Capital Corp. Commercial Paper
(c)(y)
1.090% due 02/24/04 1,900 1,897
General Motors Acceptance Corp. (y)
1.880% due 01/20/04 (c) 100 100
1.590% due 07/20/04 700 700
1.569% due 07/30/04 400 400
HBOS Treasury Services PLC Commercial Paper (y)
1.750% due 03/29/04 600 598
Lloyds Bank PLC (c)(y)
1.060% due 01/22/04 200 200
Pinnacle Partners
8.830% due 08/15/04 100 104
Shell Finance (y)
1.100% due 03/16/04 1,500 1,492
State of California Notes
2.000% due 06/16/04 200 200
United States Treasury Bill (y)
0.910% due 03/04/04 (s) 670 668
0.895% due 03/11/04 (s) 80 80
0.880% due 03/18/04 (s) 140 140
0.970% due 04/01/04 (s) 125 124
1.020% due 04/29/04 100 100
1.024% due 05/06/04 900 896
1.040% due 05/13/04 1,800 1,791
1.010% due 05/20/04 1,600 1,592
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES $
- ------------------------------------------------------------------------------------
1.010% due 05/27/04 200 199
1.030% due 06/03/04 3,400 3,382
United States Treasury Note
7.875% due 11/15/04 1,385 1,464
US Bancorp/First Bank Series MTNJ
6.875% due 12/01/04 275 288
Waste Management, Inc.
6.500% due 05/15/04 700 712
---------
TOTAL SHORT-TERM INVESTMENTS
(cost $67,893) 67,919
---------
WARRANTS - 0.0%
Mexico Government International Bond Value
Recovery
Rights
Series B 2,500,000 25
Series D 4,400,000 9
Series E 1,900,000 2
---------
TOTAL WARRANTS
(cost $41) 36
---------
TOTAL INVESTMENTS - 111.0%
(identified cost $159,727) 163,346
OTHER ASSETS AND LIABILITIES
NET - (11.0%) (16,144)
---------
NET ASSETS - 100.0% 147,202
=========
</Table>
See accompanying notes which are an integral part of the financial statements.
56 Core Bond Fund
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
UNREALIZED
NOTIONAL APPRECIATION
FUTURES CONTRACTS AMOUNT (DEPRECIATION)
(NUMBER OF CONTRACTS) $ $
- ------------------------------------------------------------------------------------
Long Positions
Euribor Futures
expiration date 12/04 (14) 4,296 16
expiration date 03/05 (7) 2,142 6
expiration date 06/05 (1) 304 --
expiration date 09/05 (1) 305 --
expiration date 12/05 (1) 304 --
Eurodollar Futures
expiration date 09/04 (7) 1,719 12
expiration date 12/04 (11) 2,691 5
expiration date 03/05 (5) 1,218 3
expiration date 06/05 (5) 1,213 2
expiration date 09/05 (1) 242 --
expiration date 12/05 (1) 241 --
expiration date 03/08 (1) 236 (1)
expiration date 06/08 (1) 236 (1)
expiration date 09/08 (1) 236 --
expiration date 12/08 (1) 236 --
Germany, Federal Republic
5 Year Bonds
expiration date 03/04 (9) 1,255 1
United States Treasury Bonds
expiration date 03/04 (10) 1,093 (4)
United States Treasury 2 Year Notes
expiration date 03/04 (17) 3,639 9
United States Treasury 5 Year Notes
expiration date 03/04 (22) 2,456 26
United States Treasury 10 Year Notes
expiration date 03/04 (79) 8,869 155
Short Positions
United States Treasury Bonds
expiration date 03/04 (4) 437 (5)
United States Treasury 5 Year Notes
expiration date 03/04 (72) 8,037 (15)
United States Treasury 10 Year Notes
expiration date 03/04 (26) 2,919 7
---------------
Total Unrealized Appreciation (Depreciation) on
Open Futures Contracts 216
===============
</Table>
<Table>
<Caption>
NOTIONAL MARKET
OPTIONS WRITTEN AMOUNT VALUE
(NUMBER OF CONTRACTS) $ $
- ------------------------------------------------------------------------------------
Euribor Futures
Dec 2004 97.00 Put (3) 2 1
Eurodollar Futures
Mar 2004 98.50 Call (2) (493) (1)
Mar 2004 97.25 Put (1) (243) --
Mar 2004 97.75 Put (3) (733) --
Jun 2004 98.00 Put (20) (4,900) (2)
Three Month LIBOR Swap
Mar 2004 3.25 Call (1) (5,850) (3)
Mar 2004 4.00 Call (3) (4,100) (2)
United States Treasury Notes
10 Year Futures
Mar 2004 113.00 Call (9) (1,017) (12)
Mar 2004 108.00 Put (5) (540) (2)
---------------
Total Liability for Options Written
(premiums received $89) (21)
===============
</Table>
<Table>
<Caption>
SECURITIES SOLD SHORT
PRINCIPAL MARKET
AMOUNT($) VALUE($) PROCEEDS($)
--------- --------- -----------
Federal National
Mortgage Association
15 Year TBA 6.00% 1,000 1,048 1,048
</Table>
<Table>
<Caption>
FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED
APPRECIATION
AMOUNT AMOUNT SETTLEMENT (DEPRECIATION)
SOLD BOUGHT DATE $
- ------------------- -------------------- ----------- --------------
USD 1,065 EUR 890 03/12/04 54
USD 1,091 EUR 930 03/12/04 79
USD 1,126 EUR 970 03/12/04 93
EUR 94 USD 113 01/07/04 (5)
EUR 930 USD 1,024 03/12/04 (145)
EUR 1,860 USD 2,049 03/12/04 (291)
--------------
(215)
==============
</Table>
See accompanying notes which are an integral part of the financial statements.
Core Bond Fund 57
RUSSELL INVESTMENT FUNDS
CORE BOND FUND
SCHEDULE OF INVESTMENTS, CONTINUED -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
INDEX SWAPS
- ---------------------------------------------------------------------------------------------------------------------------
UNREALIZED
NOTIONAL APPRECIATION
FUND RECEIVES COUNTER AMOUNT FUND PAYS TERMINATION (DEPRECIATION)
UNDERLYING SECURITY PARTY $ FLOATING RATE DATE $
- ------------------------------ ---------------- --------- ----------------------- -------------- ----------------
Bear Stearns 3 Month USD LIBOR-
High Yield Index Bear Stearns 1,230 BBA minus 0.000% 03/31/04 28
Bear Stearns 3 Month USD LIBOR-
High Yield Index Bear Stearns 230 BBA plus 0.100% 05/31/04 5
Lehman Brothers CMBS 1 Month USD LIBOR-
ERISA Eligible Index Lehman Brothers 730 BBA minus 0.500% 03/31/04 7
Lehman Brothers CMBS 1 Month USD LIBOR-
ERISA Eligible Index Lehman Brothers 1,200 BBA minus 0.500% 04/30/04 11
Lehman Brothers CMBS 1 Month USD LIBOR-
ERISA Eligible Index Lehman Brothers 680 BBA minus 0.520% 05/31/04 6
Lehman Brothers CMBS 1 Month USD LIBOR-
ERISA Eligible Index Lehman Brothers 520 BBA minus 0.420% 12/31/04 5
Lehman Brothers CMBS 1 Month USD LIBOR-
ERISA Eligible Index Lehman Brothers 520 BBA minus 0.450% 12/31/04 5
----------------
67
================
</Table>
<Table>
<Caption>
INTEREST RATE SWAPS
- -------------------------------------------------------------------------------------------------------------------------------
NOTIONAL MARKET
AMOUNT TERMINATION VALUE
COUNTER PARTY $ FUND RECEIVES FUND PAYS DATE $
- --------------------- -------------------- ------------------- -------------------- ---------------- ----------------
Goldman Sachs USD 1,000 Three Month LIBOR 4.000% 06/06/19 (4)
JP Morgan EUR 1,400 Six Month LIBOR 4.000% 12/21/07 (6)
Merrill Lynch EUR 900 Six Month LIBOR 4.000% 03/15/07 6
Goldman Sachs USD 6,900 Three Month LIBOR 4.000% 06/16/09 (9)
----------------
Total Market Value of Interest Rate Swaps premiums paid
(received) - ($54) (13)
================
</Table>
See accompanying notes which are an integral part of the financial statements.
58 Core Bond Fund
(This page intentionally left blank)
RUSSELL INVESTMENT FUNDS
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
(Performance Line Graph)
Real Estate Securities Fund
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 13,721 37.21%
Inception $ 18,124 13.53%sec.
</Table>
NAREIT Equity REIT Index
- ----------------------------------------------------------
<Table>
<Caption>
PERIODS ENDED GROWTH OF TOTAL
12/31/03 $10,000 RETURN
- --------------------- ---------------- ----------------
1 Year $ 13,714 37.14%
Inception $ 18,759 14.43%sec.
</Table>
60 Real Estate Securities Fund
RUSSELL INVESTMENT FUNDS
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
PLEASE STATE THE FUND'S OBJECTIVE.
The Fund seeks to generate a high level of total return through above average
current income while maintaining the potential for capital appreciation.
On October 3, 2003, shareholders voted to change the investment objective of the
Fund to: The Fund seeks to provide current income and long-term capital growth.
This change will be effective on March 1, 2004.
DESCRIBE THE FUND'S PERFORMANCE FOR THE 12 MONTHS ENDED DECEMBER 31ST AND HOW IT
PERFORMED RELATIVE TO ITS BENCHMARK.
For the fiscal year ended December 31, 2003, the Real Estate Securities Fund
gained 37.21%. This compared to the NAREIT Equity REIT Index, which gained
37.14% during the same period. The Fund's performance is net of operating
expenses of 0.95%. Index returns do not include deduction of fees, expenses or
taxes.
DESCRIBE THE FUND'S MAIN PERFORMANCE DRIVERS OVER THE PAST 12 MONTHS INCLUDING A
DISCUSSION OF INVESTMENT STYLES AND MONEY MANAGERS.
The biggest contributor to the Fund's performance was an overweight position in
the regional malls sector, which was the best performing major property type
during the past year. An overweight position in the shopping centers sector also
boosted performance. Regional malls and shopping centers benefited from strong
consumer spending and company earnings growth as operating fundamentals remained
much stronger than for other property types.
Positions that detracted from Fund performance at the property sector level
included overweight positions in the industrial and apartments sectors and an
underweight position in the health care sector. The industrial and apartments
sectors were adversely affected by slower than expected economic activity and
employment growth, particularly in the first half of the year.
RREEF had the largest allocation of assets of the Fund's three money managers
and contributed the best performance during the year. RREEF's style emphasizes a
top-down approach to property sector weights, based on an assessment of property
market fundamentals. RREEF's performance benefited from effective sector
positioning and positive stock selection within sectors.
PLEASE DESCRIBE HOW THE FUND AND ITS MONEY MANAGERS REACTED TO THE MARKET
ENVIRONMENT DURING THE PERIOD AND HOW THE FUND IS POSITIONED TO MEET ITS
LONG-TERM OBJECTIVES.
The Real Estate Investment Trust (REIT) market advanced very strongly during the
year. The market was driven by strong capital flows from mutual fund and
institutional investors. Investors' search for yield in a low interest rate
environment and desire for increased diversification contributed to the
significant inflows to the REIT market.
The Fund's money managers focused on the mid-capitalization and
large-capitalization REITs and avoided the less liquid small-capitalization
REITs that tend to pay the highest dividends. In 2001 and much of 2002, the
small-cap REITs outperformed the market as a whole as the market was seeking
yield above all other considerations. Investors were more discriminating in 2003
and focused on earnings quality and dividend coverage. This market environment
was more aligned with the Fund money managers' approach to stock selection.
WHAT CHANGES WERE MADE TO THE FUND'S STRUCTURE OR TO THE MONEY MANAGER LINE-UP?
In February, 2003, INVESCO Realty Advisors was added to the Fund's manager
line-up, replacing Security Capital. INVESCO strives to achieve higher than
benchmark returns with approximately average benchmark risk. INVESCO maintained
a broadly diversified portfolio (typically 30-40 securities) with exposure to
all benchmark sectors. INVESCO provided the Fund with increased exposure to the
health care sector, a key component of the NAREIT Equity REIT Index that had
historically been under-represented in the Fund.
Concurrent with this manager change, the following target weights were
established for the Fund's money managers: RREEF: 40%, INVESCO: 30% and AEW:
30%.
PLEASE EXPLAIN WHAT CONTRIBUTED MOST AND LEAST TO THE FUND'S PERFORMANCE DURING
THE LAST 12 MONTHS.
RREEF was the primary contributor to the Fund's outperformance relative to the
benchmark during the last twelve months. Stock and sector selection contributed
to RREEF's performance. RREEF's largest overweight positions were in regional
malls, industrial and apartments and its largest underweight positions were in
the health care and specialty sectors.
AEW outperformed the benchmark to a lesser extent than RREEF. AEW's portfolio
tended to track relatively closely to the benchmark sector weights. Therefore,
stock selection was the primary contributor to its performance during the twelve
months. AEW has a more value-oriented style than either RREEF or INVESCO.
INVESCO outperformed the benchmark for the ten months they were in the Fund.
Property sector selection was a positive contributor to performance, driven
primarily by an overweight position in regional malls. Its individual stock
selection, however, was a negative contributor to performance, particularly in
the apartments sector.
At the overall Fund level, property sector selection was positive during the
last twelve months. Overweight positions in the regional malls and shopping
centers sectors benefited
Real Estate Securities Fund 61
RUSSELL INVESTMENT FUNDS
REAL ESTATE SECURITIES FUND
PORTFOLIO MANAGEMENT DISCUSSION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
performance, but these were partially offset by overweight positions in the
industrial and apartments sectors, which lagged the benchmark.
WHAT WAS THE INVESTMENT ENVIRONMENT LIKE FOR STOCK SELECTION? HOW DID THE FUND
FARE IN THIS ENVIRONMENT?
During most of the past year, REITs have traded at a premium to their underlying
private real estate net asset value. Because net asset value has been uncoupled
from REIT values to some extent, the combination of dividend sustainability and
earnings growth have proven to be more important variables in driving individual
company performance.
The Fund fared relatively well in this environment as the Fund's money managers
focused primarily on earnings quality and stability rather than deep value
investing. Overall stock selection was a positive contributor to the Fund's
performance during the year.
Money Managers Styles
<Table>
AEW Management and Advisors, LP Value
INVESCO Realty Advisors Market-Oriented
RREEF America, LLC Market-Oriented
</Table>
--------------------
* Real Estate Securities Fund assumes initial investment on April 30, 1999,
NAREIT Index comparison for the initial investment began May 1, 1999.
** National Association of Real Estate Investment Trusts (NAREIT) Equity REIT
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 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.
62 Real Estate Securities Fund
RUSSELL INVESTMENT FUNDS
REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES ($)
- -----------------------------------------------------------------------------
COMMON STOCKS - 97.2%
Residential - 18.1%
Apartment Investment & Management Co. Class A
(o) 48,000 1,656
Archstone-Smith Trust (o) 345,517 9,668
AvalonBay Communities, Inc. (o) 139,000 6,644
Boardwalk Equities, Inc. 33,800 467
BRE Properties Class A (o) 69,400 2,318
Camden Property Trust (o) 38,500 1,706
Equity Residential (o) 389,700 11,500
Essex Property Trust, Inc. (o) 42,000 2,697
Home Properties, Inc. (o) 83,300 3,364
Summit Properties, Inc. (o) 63,900 1,535
Sun Communities, Inc. (o) 21,000 813
United Dominion Realty Trust, Inc. (o) 189,200 3,633
------------
46,001
------------
Health Care - 2.0%
Health Care Property Investors, Inc. (o) 21,900 1,113
Health Care REIT, Inc. (o) 28,700 1,033
Healthcare Realty Trust, Inc. (o) 33,300 1,190
Senior Housing Properties Trust (o) 27,000 465
Ventas, Inc. (o) 63,600 1,399
------------
5,200
------------
Hotels/Leisure - 6.9%
Extended Stay America, Inc. 11,900 172
Fairmont Hotels & Resorts, Inc. 27,900 757
Hilton Hotels Corp. 285,600 4,892
Hospitality Properties Trust (o) 14,000 578
Host Marriott Corp. (o) 492,300 6,065
LaSalle Hotel Properties (o) 20,400 378
Starwood Hotels & Resorts Worldwide, Inc. 130,432 4,692
------------
17,534
------------
Other - 1.3%
American Financial Realty Trust (o) 20,700 353
iStar Financial, Inc. (o) 28,500 1,109
Plum Creek Timber Co., Inc. (REIT) (o) 60,700 1,848
------------
3,310
------------
</Table>
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES ($)
- -----------------------------------------------------------------------------
Office/Industrial - 34.7%
Alexandria Real Estate Equities, Inc. (o) 21,800 1,262
AMB Property Corp. (o) 64,000 2,104
Arden Realty, Inc. (o) 97,400 2,955
Boston Properties, Inc. (o) 203,000 9,783
Brookfield Properties Co. 178,600 5,126
CarrAmerica Realty Corp. (o) 104,100 3,100
Catellus Development Corp. 328,866 7,932
Centerpoint Properties Trust (o) 53,400 4,000
Corporate Office Properties Trust (o) 16,500 347
Cousins Properties, Inc. (o) 14,400 441
Duke Realty Corp. (o) 31,500 977
Equity Office Properties Trust (o) 181,400 5,197
Glenborough Realty Trust, Inc. (o) 24,600 491
Highwoods Properties, Inc. (o) 92,200 2,342
Kilroy Realty Corp. (o) 73,100 2,394
Liberty Property Trust (o) 144,500 5,621
Mack-Cali Realty Corp. (o) 147,600 6,143
Prentiss Properties Trust (o) 57,600 1,900
Prologis (o) 470,200 15,089
PS Business Parks, Inc. (o) 30,000 1,238
Reckson Associates Realty Corp. (o) 30,500 741
SL Green Realty Corp. (o) 87,500 3,592
Vornado Realty Trust (o) 100,400 5,497
------------
88,272
------------
Outlet Centers - 3.6%
Chelsea Property Group, Inc. (o) 167,600 9,186
------------
Regional Malls - 18.5%
CBL & Associates Properties, Inc. (o) 37,100 2,096
General Growth Properties, Inc. (o) 480,300 13,328
Macerich Co. (The) (o) 101,400 4,512
Mills Corp. (The) (o) 18,500 814
Pennsylvania Real Estate Investment Trust (o) 55,947 2,031
Rouse Co. (The) (o) 135,700 6,378
Simon Property Group, Inc. (o) 345,900 16,028
Taubman Centers, Inc. (o) 89,800 1,850
------------
47,037
------------
</Table>
See accompanying notes which are an integral part of the financial statements.
Real Estate Securities Fund 63
RUSSELL INVESTMENT FUNDS
REAL ESTATE SECURITIES FUND
SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
Amounts in thousands (except share amounts)
<Table>
<Caption>
PRINCIPAL MARKET
AMOUNT ($) VALUE
OR SHARES ($)
- -----------------------------------------------------------------------------
Self Storage - 2.4%
Public Storage, Inc. (o) 105,900 4,595
Shurgard Storage Centers, Inc. Class A (o) 43,700 1,645
------------
6,240
------------
Shopping Center - 9.7%
Developers Diversified Realty Corp. (o) 195,100 6,550
Federal Realty Invs Trust (o) 85,900 3,298
Kimco Realty Corp. (o) 43,000 1,924
Pan Pacific Retail Properties, Inc. (o) 145,200 6,919
Regency Centers Corp. (o) 141,500 5,639
Urstadt Biddle Properties, Inc. Class A (o) 20,500 290
------------
24,620
------------
TOTAL COMMON STOCKS
(cost $186,960) 247,400
------------
SHORT-TERM INVESTMENTS - 2.9%
Frank Russell Investment Company Money Market
Fund 7,433,000 7,433
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $7,433) 7,433
------------
TOTAL INVESTMENTS - 100.1%
(identified cost $194,393) 254,833
OTHER ASSETS AND LIABILITIES
NET - (0.1%) (142)
------------
NET ASSETS - 100.0% 254,691
============
</Table>
See accompanying notes which are an integral part of the financial statements.
64 Real Estate Securities Fund
(This page intentionally left blank)
RUSSELL INVESTMENT FUNDS
STATEMENT OF ASSETS AND LIABILITIES -- DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
MULTI-STYLE
EQUITY FUND
- ----------------------------------------------------------------------------------------------
ASSETS
Investments, at identified cost $ 258,616
- ----------------------------------------------------------------------------------------------
Investments, at market*** 296,329
Cash --
Foreign currency holdings* --
Unrealized appreciation on foreign currency exchange contracts --
Receivables:
Dividends and interest 358
Investments sold 983
Fund shares sold 29
Foreign taxes recoverable --
Daily variation margin on futures contracts --
Investment of securities lending collateral in money market funds, at
cost and market value 6,949
Unrealized appreciation on index swap contracts --
Interest rate swap contracts, at market value**** --
--------------------
Total assets 304,648
--------------------
LIABILITIES
Payables:
Investments purchased 570
Fund shares redeemed 106
Accrued fees to affiliates 201
Other accrued expenses 50
Daily variation margin on futures contracts 5
Unrealized depreciation on foreign currency exchange contracts --
Options written, at market value** --
Securities sold short, at fair value --
Dividends --
Payable upon return of securities loaned 6,949
Interest rate swap contracts, at market value**** --
--------------------
Total liabilities 7,881
--------------------
NET ASSETS $ 296,767
====================
Net Assets Consist of:
Undistributed (overdistributed) net investment income $ 649
Accumulated net realized gain (loss) (102,197)
Unrealized appreciation (depreciation) on:
Investments 37,713
Futures contracts 718
Options written --
Securities sold short --
Index swap contracts --
Interest rate swap contracts --
Foreign currency-related transactions --
Shares of beneficial interest 257
Additional paid-in capital 359,627
--------------------
NET ASSETS $ 296,767
====================
NET ASSET VALUE, offering and redemption price per share:
Net asset value per share***** $ 11.56
Net assets $ 296,766,634
Shares outstanding ($.01 par value) 25,671,007
- ----------------------------------------------------------------------------------------------
Amounts in thousands
* Foreign currency holdings-cost $ --
** Premiums received on options written $ --
*** Securities on loan included in investments $ 7,117
**** Interest rate swap contracts-premiums paid (received) $ --
***** Net asset value per share equals net assets divided for shares
of beneficial interest outstanding.
</Table>
See accompanying notes which are an integral part of the financial statements.
66 Statement of Assets and Liabilities
<Table>
<Caption>
AGGRESSIVE EQUITY NON-U.S. CORE BOND REAL ESTATE
FUND FUND FUND SECURITIES FUND
- ----------------------------------------------------------------------------
$ 139,926 $ 170,711 $ 159,727 $ 194,393
- ----------------------------------------------------------------------------
167,371 205,486 163,346 254,833
-- -- 29 --
-- 1,434 523 --
-- 325 226 --
126 225 986 1,206
1,550 1,013 2,764 726
11 45 22 268
-- 87 -- --
-- 32 18 --
33,997 -- -- --
-- -- 67 --
-- -- 6 --
-------------- -------------- -------------- --------------
203,055 208,647 167,987 257,033
-------------- -------------- -------------- --------------
1,841 889 19,042 2,076
558 21 93 46
138 110 66 183
54 92 42 37
82 -- 13 --
-- 54 441 --
-- 862 21 --
-- -- 1,048 --
-- -- -- --
33,997 -- -- --
-- -- 19 --
-------------- -------------- -------------- --------------
36,670 2,028 20,785 2,342
-------------- -------------- -------------- --------------
$ 166,385 $ 206,619 $ 147,202 $ 254,691
============== ============== ============== ==============
$ -- $ (690) $ 434 $ (1,162)
(7,580) (61,796) 267 (2,941)
27,445 34,775 3,619 60,440
333 267 216 --
-- (16) 68 --
-- -- -- --
-- -- 67 --
-- -- 41 --
-- 332 (211) --
123 212 141 186
146,064 233,535 142,560 198,168
-------------- -------------- -------------- --------------
$ 166,385 $ 206,619 $ 147,202 $ 254,691
============== ============== ============== ==============
$ 13.47 $ 9.76 $ 10.47 $ 13.71
$ 166,385,163 $ 206,619,057 $ 147,201,536 $ 254,691,350
12,349,166 21,177,475 14,059,739 18,577,855
- ----------------------------------------------------------------------------
$ -- $ 1,398 $ 483 $ --
$ -- $ 846 $ 89 $ --
$ 33,200 $ -- $ -- $ --
$ -- $ -- $ (54) $ --
</Table>
See accompanying notes which are an integral part of the financial statements.
Statement of Assets and Liabilities 67
RUSSELL INVESTMENT FUNDS
STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
Amounts in thousands
<Table>
<Caption>
MULTI-STYLE
EQUITY FUND
- ------------------------------------------------------
INVESTMENT INCOME
Dividends $ 3,835
Dividends from Money Market Fund 219
Interest 12
Securities lending income 16
Less foreign taxes withheld --
------------
Total investment income 4,082
------------
EXPENSES
Management fees 1,879
Custodian fees 271
Transfer agent fees 12
Professional fees 43
Trustees' fees 12
Printing fees 21
Miscellaneous 43
------------
Expenses before reductions 2,281
Expense reductions (176)
------------
Net expenses 2,105
------------
Net investment income (loss) 1,977
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments 10,108
Futures contracts 3,594
Options written --
Index swap contracts --
Interest rate swap contracts --
Foreign currency-related transactions --
------------
Net realized gain (loss) 13,702
------------
Net change in unrealized appreciation
(depreciation) on:
Investments 46,423
Futures contracts 1,001
Options written --
Index swap contracts --
Interest rate swap contracts --
Foreign currency-related transactions --
------------
Net change in unrealized appreciation
(depreciation) 47,424
------------
Net realized and unrealized gain (loss) 61,126
------------
NET INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS $ 63,103
============
</Table>
See accompanying notes which are an integral part of the financial statements.
68 Statement of Operations
<Table>
<Caption>
AGGRESSIVE EQUITY NON-U.S. CORE BOND REAL ESTATE
FUND FUND FUND SECURITIES FUND
- ---------------------------------------------------------------------------
$ 1,299 $ 3,908 $ 43 $ 10,887
87 122 371 88
7 22 4,834 --
32 -- -- --
-- (417) -- --
------------- -------------- ---------------- ------------
1,425 3,635 5,248 10,975
------------- -------------- ---------------- ------------
1,168 1,501 882 1,662
279 609 194 100
10 10 9 8
40 63 38 42
9 10 9 11
9 13 12 18
40 27 7 23
------------- -------------- ---------------- ------------
1,555 2,233 1,151 1,864
(247) (399) (111) --
------------- -------------- ---------------- ------------
1,308 1,834 1,040 1,864
------------- -------------- ---------------- ------------
117 1,801 4,208 9,111
------------- -------------- ---------------- ------------
14,175 (3,665) 3,994 (511)
2,213 2,671 64 --
-- (766) 165 --
-- -- 1,187 --
-- -- (165) --
-- 2,339 (1,047) --
------------- -------------- ---------------- ------------
16,388 579 4,198 (511)
------------- -------------- ---------------- ------------
30,675 52,625 (71) 55,264
495 681 (31) --
-- 2 103 --
-- -- (11) --
-- -- 103 --
-- 54 150 --
------------- -------------- ---------------- ------------
31,170 53,362 243 55,264
------------- -------------- ---------------- ------------
47,558 53,941 4,441 54,753
------------- -------------- ---------------- ------------
$ 47,675 $ 55,742 $ 8,649 $ 63,864
============= ============== ================ ============
</Table>
See accompanying notes which are an integral part of the financial statements.
Statement of Operations 69
RUSSELL INVESTMENT FUNDS
STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED DECEMBER 31,
Amounts in thousands
<Table>
<Caption>
MULTI-STYLE
EQUITY FUND
2003 2002
- ------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 1,977 $ 1,387
Net realized gain (loss) 13,702 (39,568)
Net change in unrealized appreciation (depreciation) 47,424 (22,826)
------------ ------------
Net increase (decrease) in net assets from operations 63,103 (61,007)
------------ ------------
DISTRIBUTIONS
From net investment income (1,743) (1,354)
From net realized gain -- --
Tax return of capital -- --
------------ ------------
Net decrease in net assets from distributions (1,743) (1,354)
------------ ------------
SHARE TRANSACTIONS
Net increase (decrease) in net assets from share
transactions 28,613 17,425
------------ ------------
TOTAL NET INCREASE (DECREASE) IN NET ASSETS 89,973 (44,936)
NET ASSETS
Beginning of period 206,794 251,730
------------ ------------
End of period $ 296,767 $ 206,794
============ ============
Undistributed (overdistributed) net investment income
included in net assets $ 649 $ 415
</Table>
See accompanying notes which are an integral part of the financial statements.
70 Statement of Changes in Net Assets
<Table>
<Caption>
AGGRESSIVE EQUITY NON-U.S. CORE BOND REAL ESTATE SECURITIES
FUND FUND FUND FUND
2003 2002 2003 2002 2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
$ 117 $ (185) $ 1,801 $ 1,151 $ 4,208 $ 4,270 $ 9,111 $ 7,079
16,388 (7,933) 579 (18,887) 4,198 4,095 (511) 1,709
31,170 (14,522) 53,362 (5,356) 243 2,247 55,264 (5,630)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
47,675 (22,640) 55,742 (23,092) 8,649 10,612 63,864 3,158
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(138) -- (4,573) (2,455) (5,257) (3,487) (10,273) (7,692)
-- -- -- -- (2,755) (3,690) -- (871)
-- -- -- -- -- -- (341) --
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
(138) -- (4,573) (2,455) (8,012) (7,177) (10,614) (8,563)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
21,054 8,741 17,610 8,893 6,285 26,874 41,265 53,599
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
68,591 (13,899) 68,779 (16,654) 6,922 30,309 94,515 48,194
97,794 111,693 137,840 154,494 140,280 109,971 160,176 111,982
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
$ 166,385 $ 97,794 $ 206,619 $ 137,840 $ 147,202 $ 140,280 $ 254,691 $ 160,176
============= ============= ============= ============= ============= ============= ============= =============
$ -- $ -- $ (690) $ (300) $ 434 $ (173) $ (1,162) $ (66)
</Table>
See accompanying notes which are an integral part of the financial statements.
Statement of Changes in Net Assets 71
RUSSELL INVESTMENT FUNDS
FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED
For a Share Outstanding Throughout Each Period.
<Table>
<Caption>
$ $ $ $
NET ASSET VALUE, NET NET REALIZED TOTAL INCOME
BEGINNING OF INVESTMENT AND UNREALIZED FROM
PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
MULTI-STYLE EQUITY FUND
December 31, 2003 9.04 .08 2.51 2.59
December 31, 2002 11.84 .06 (2.80) (2.74)
December 31, 2001 14.13 .07 (2.06) (1.99)
December 31, 2000 16.79 .08 (2.10) (2.02)
December 31, 1999 16.02 .12 2.41 2.53
- -----------------------------------------------------------------------------------------------------------------
AGGRESSIVE EQUITY FUND
December 31, 2003 9.26 .01 4.21 4.22
December 31, 2002 11.44 (.02) (2.16) (2.18)
December 31, 2001 11.73 --(d) (.28) (.28)
December 31, 2000 13.36 .04 (.16) (.12)
December 31, 1999 12.70 .05 .71 .76
- -----------------------------------------------------------------------------------------------------------------
NON-U.S. FUND
December 31, 2003 7.20 .09 2.69 2.78
December 31, 2002 8.64 .06 (1.37) (1.31)
December 31, 2001 11.15 .06 (2.52) (2.46)
December 31, 2000 14.19 .10 (2.11) (2.01)
December 31, 1999 11.09 .10 3.53 3.63
- -----------------------------------------------------------------------------------------------------------------
CORE BOND FUND
December 31, 2003 10.43 .31 .31 .62
December 31, 2002 10.13 .36 .52 .88
December 31, 2001 10.07 .54 .18 .72
December 31, 2000 9.64 .61 .33 .94
December 31, 1999 10.68 .59 (.65) (.06)
- -----------------------------------------------------------------------------------------------------------------
REAL ESTATE SECURITIES FUND
December 31, 2003 10.51 .55 3.28 3.83
December 31, 2002 10.75 .54 (.13) .41
December 31, 2001 10.67 .57 .24 .81
December 31, 2000 8.81 .54 1.81 2.35
December 31, 1999 (1) 10.00 .35 (1.08) (.73)
<Caption>
$ $
DISTRIBUTIONS DISTRIBUTIONS $
FROM NET FROM NET RETURN OF
INVESTMENT INCOME REALIZED GAIN CAPITAL
- ----------------------------------------
MULTI-STYLE EQUITY FUND
December 31, 2003 (.07) -- --
December 31, 2002 (.06) -- --
December 31, 2001 (.06) (.24) --
December 31, 2000 (.08) (.56) --
December 31, 1999 (.12) (1.64) --
- ----------------------------------------
AGGRESSIVE EQUITY FUND
December 31, 2003 (.01) -- --
December 31, 2002 -- -- --
December 31, 2001 --(d) -- (.01)
December 31, 2000 (.05) (1.46) --
December 31, 1999 (.04) (.06) --
- ----------------------------------------
NON-U.S. FUND
December 31, 2003 (.22) -- --
December 31, 2002 (.13) -- --
December 31, 2001 (.04) -- (.01)
December 31, 2000 -- (1.00) (.03)
December 31, 1999 (.23) (.30) --
- ----------------------------------------
CORE BOND FUND
December 31, 2003 (.38) (.20) --
December 31, 2002 (.30) (.28) --
December 31, 2001 (.60) (.06) --
December 31, 2000 (.51) -- --
December 31, 1999 (.61) (.16) (.21)
- ----------------------------------------
REAL ESTATE SECURITIES FUND
December 31, 2003 (.61) -- (.02)
December 31, 2002 (.57) (.08) --
December 31, 2001 (.55) (.18) --
December 31, 2000 (.49) -- --
December 31, 1999 (1) (.34) -- (.12)
</Table>
See accompanying notes which are an integral part of the financial statements.
72 Financial Highlights
<Table>
<Caption>
$ $
$ NET ASSET VALUE, % NET ASSETS,
TOTAL END OF TOTAL END OF PERIOD
DISTRIBUTIONS PERIOD RETURN(B) (000)
- -----------------------------------------------------------------------------
(.07) 11.56 28.86 296,767
(.06) 9.04 (23.19) 206,794
(.30) 11.84 (14.21) 251,730
(.64) 14.13 (12.26) 262,664
(1.76) 16.79 17.17 285,877
- -----------------------------------------------------------------------------
(.01) 13.47 45.60 166,385
-- 9.26 (19.06) 97,794
(.01) 11.44 (2.36) 111,693
(1.51) 11.73 (.66) 106,665
(.10) 13.36 6.08 99,150
- -----------------------------------------------------------------------------
(.22) 9.76 38.78 206,619
(.13) 7.20 (15.15) 137,840
(.05) 8.64 (22.03) 154,494
(1.03) 11.15 (14.43) 185,644
(.53) 14.19 33.36 195,519
- -----------------------------------------------------------------------------
(.58) 10.47 6.15 147,202
(.58) 10.43 8.84 140,280
(.66) 10.13 7.41 109,971
(.51) 10.07 10.00 88,514
(.98) 9.64 (.61) 83,620
- -----------------------------------------------------------------------------
(.63) 13.71 37.21 254,691
(.65) 10.51 3.80 160,176
(.73) 10.75 7.84 111,982
(.49) 10.67 27.24 88,713
(.46) 8.81 (7.26) 55,318
<Caption>
% % %
RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET
TO AVERAGE TO AVERAGE INVESTMENT INCOME %
NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO
NET(C) GROSS(C) NET ASSETS(C) TURNOVER RATE
- ---
.87 .95 .82 107.67
.92 .99 .61 145.90
.92 .99 .57 131.67
.92 .93 .51 161.09
.92 .96 .74 67.67
- ---
1.06 1.26 .10 138.95
1.25 1.36 (.17) 139.24
1.25 1.38 .01 180.38
1.25 1.28 .27 203.48
1.25 1.34 .37 111.46
- ---
1.16 1.41 1.14 50.29
1.30 1.48 .77 60.98
1.30 1.43 .64 79.79
1.30 1.37 .78 86.06
1.30 1.50 .80 83.45
- ---
.71 .78 2.86 232.64
.80 .80 3.52 207.60
.80 .88 5.25 205.62
.80 .84 6.20 171.48
.80 .86 5.77 139.06
- ---
.95 .95 4.66 38.84
.99 .99 5.01 55.43
1.06 1.06 5.35 55.13
1.08 1.08 5.58 45.79
1.15 1.15 5.84 23.98
</Table>
See accompanying notes which are an integral part of the financial statements.
Financial Highlights 73
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL HIGHLIGHTS -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
(1) For the period April 30, 1999 (commencement of operations) to December 31,
1999.
(a) Average month-end shares outstanding were used for this calculation.
(b) Periods less than one year are not annualized.
(c) The ratios for periods less than one year are annualized.
(d) Less than $.01 per share.
See accompanying notes which are an integral part of the financial statements.
74 Notes to Financial Highlights
RUSSELL INVESTMENT FUNDS
NOTES TO SCHEDULE OF INVESTMENTS -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
FOOTNOTES:
(AE) Nonincome-producing security.
(o) Real Estate Investment Trust (REIT).
(s) Held as collateral in connection with futures contracts purchased (sold),
options written, or swaps entered into by the Fund.
(y) 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.
(d) Forward commitment.
(p) Perpetual floating rate security. Rate shown reflects rate in effect at
period end.
(u) Bond is insured by a guarantor.
(Y) This security has been valued by the Security Valuation Committee. It is
possible that the estimated value may differ significantly from the amount
that might ultimately be realized.
(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.
ABBREVIATIONS:
ADR - American Depositary Receipt
GDR - Global Depositary Receipt
ADS - American Depositary Share
CMO - Collateralized Mortgage Obligation
CVO - Contingent Value Obligation
144A - Represents private placement security for qualified buyers according to
rule 144A of the Securities Act of 1933.
GDS - Global Depositary Share
LIBOR - London Interbank Offered Rate
PIK - Payment in Kind
FDIC - Federal Deposit Insurance Company
REMIC - Real Estate Mortgage Investment Conduit
STRIP - Separate Trading of Registered Interest and Principal of Securities
TBA - To Be Announced Security
FOREIGN CURRENCY ABBREVIATIONS:
<Table>
ARS - Argentine peso GBP - British pound sterling PEN - Peruvian nouveau sol
AUD - Australian dollar HKD - Hong Kong dollar PHP - Philippine peso
BRL - Brazilian real HUF - Hungarian forint PLN - Polish zloty
CAD - Canadian dollar IDR - Indonesian rupiah RUB - Russian ruble
CHF - Swiss franc ILS - Israeli shekel SEK - Swedish krona
CLP - Chilean peso INR - Indian rupee SGD - Singapore dollar
CNY - Chinese renminbi yuan ITL - Italian lira SKK - Slovakian koruna
COP - Colombian peso JPY - Japanese yen THB - Thai baht
CRC - Costa Rica colon KES - Kenyan schilling TRL - Turkish lira
CZK - Czech koruna KRW - South Korean won USD - United States dollar
DKK - Danish krone MXN - Mexican peso VEB - Venezuelan bolivar
EGP - Egyptian pound MYR - Malaysian ringgit VND - Vietnamese dong
EUR - Euro NZD - New Zealand dollar ZAR - South African rand
</Table>
Notes to Schedule of Investments 75
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION
Russell Investment Funds (the "Investment Company") is a series mutual fund
with five investment portfolios, referred to as "Funds." These financial
statements report on the Funds, each of which has distinct investment
objectives and strategies. 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 a diversified, 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 to issue an unlimited number of
full and fractional shares of beneficial interest at a $.01 par value.
As of April 30, 2003, the Russell Insurance Funds changed its name to the
Russell Investment Funds.
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. The following is a summary of the
significant accounting policies consistently followed by the Funds in the
preparation of these financial statements.
Security valuation
United States equity securities listed and traded principally on any national
securities exchange are valued on the basis of the last sale price or, if
there were no sales on that day, at the last reported price, on the primary
exchange on which the security is traded. Equity securities traded on NASDAQ
or in a U.S. OTC market will be valued at the official closing price (NOCP)
as of the close of the market's regular trading hours.
Fixed-income securities listed and traded principally on any national
securities exchange are valued at the evaluated bid price or, if there were
no sales on that day, at the last reported bid price, on the primary exchange
on which the security is traded. Over-the-counter fixed-income securities and
options are valued on the basis of the last sale price. Many fixed-income
securities do not trade each day, and thus last sale or bid prices are
frequently not available. Accordingly, fixed-income securities may be valued
using prices provided by a pricing service approved by the Board of Trustees
when such prices are believed to reflect the market value of such securities.
Exchange listed futures contracts are valued on a basis of the last quoted
daily settlement prices established by the exchange on which they trade. If
there were no sales, futures are valued at the last reported bid price.
Investments in other mutual funds are valued at their net asset value per
share, calculated at the close of business.
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.
International equity securities traded on a foreign national securities
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 on the primary exchange on which the security
is traded.
Short-term investments purchased by the Funds and maturing within 60 days at
the time of purchase are valued at "amortized cost" unless the Board of
Trustees determines that amortized cost does not represent fair value.
The Funds may value certain securities for which market quotations are not
readily available at "fair value," as determined in good faith pursuant to
procedures established by the Board of Trustees. Generally, trading in
non-U.S. securities is substantially completed each day at various times
prior to the close of trading on the U.S. markets. The values of such
securities used in computing the net asset value of a portfolio's shares are
generally determined as of such times. Occasionally, events that affect the
values of such securities may occur between the times at which they are
generally determined and the close of the U.S. markets and would therefore
not be reflected in the computation of a portfolio's net asset value. In such
event, these securities will then be valued at their fair value as determined
in good faith under consistently applied procedures established by and under
the general supervision of the Board of Trustees.
Investment transactions
Securities transactions are recorded on a trade date basis. Realized gains
and losses from securities transactions are recorded on the basis of specific
identified cost incurred by each money manager within a particular Fund.
76 Notes to Financial Statements
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
Investment income
Dividend income is recorded on the ex-dividend date and interest income is
recorded 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.
Dividends and distributions to shareholders
For all Funds, income dividends and capital gain distributions, if any, are
recorded on the ex-dividend date. Dividends are generally declared and paid
quarterly, except for the Non-U.S. Fund, which generally declares and pays
dividends annually. Capital gain distributions are generally declared and
paid annually. An additional distribution may be paid by the funds to avoid
imposition of federal income and excise tax on any remaining undistributed
capital gains and net investment income.
The timing and characterization of certain income and capital gain
distributions are determined in accordance with federal tax regulations which
may differ from 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, swaps, passive foreign
investment companies, foreign-denominated investments, mortgage-backed
securities, certain securities sold at a loss and by recording gains and
losses from securities transactions on the basis of specific identified cost
incurred by each money manager for financial reporting purposes and on the
basis of specific identified cost incurred by each Fund for tax purposes.
Permanent differences between book and tax accounting are reclassified to
paid in capital. Accordingly, the Funds may periodically make
reclassifications among certain of its capital accounts without impacting its
net asset value.
Expenses
The Funds will pay their own expenses other than those expressly assumed by
Frank Russell Investment Management Company ("FRIMCo" or "Advisor"). 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 4 pm London closing rate of exchange on the valuation date.
(b) Purchases and sales of investment securities and income at the 4 pm
London 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
Fund 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
Notes to Financial Statements 77
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
effects of changes in foreign exchange rates from the fluctuations arising
from changes in market prices for realized gain (or loss) on debt
obligations.
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, 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 three ways: cash equitization,
hedging, and return enhancement. Cash equitization is a technique that may be
used by certain Funds through the use of options and futures to earn
"market-like" returns with their excess and liquidity reserve cash balances.
Hedging is used by some 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. Fund may enter into foreign currency
exchange spot contracts and forward foreign currency exchange contracts
("contracts"). 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 is 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, 2003
are presented on the Schedule of Investments for the Non-U.S. Fund.
Forward commitments
The Funds may contract to purchase securities for a fixed price at a future
date beyond customary settlement time (not to exceed 120 days) (i.e., a
"forward commitment," "delayed settlement" or "when issued" transaction,
e.g., to be announced ("TBA")) 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.
Short Sales
Each Fund may enter into short sale transactions. A short sale is a
transaction in which a Fund sells securities it does not own in anticipation
of a decline in the market price of the securities. The Fund is obligated to
deliver securities at the market price at the time the short position is
closed. Possible losses from short sales may be unlimited.
Options
The Funds will not enter into any such transactions unless it owns (1) an
offsetting ("covered") position in securities, currencies or other options,
futures contracts or forward contracts or (2) cash or liquid assets with a
value, marked to market daily, sufficient to cover their obligations to the
extent not covered as provided in (1) above. The Funds will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines
so require, designate the prescribed amount of cash or liquid assets as
segregated.
78 Notes to Financial Statements
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
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. These 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.
If 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 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 utilize futures to equitize liquidity reserve balances. 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 required to be made on a daily basis as the
price of the futures contract fluctuates. Changes in the initial settlement
values of futures contracts are accounted for as unrealized appreciation
(depreciation) until the contracts are terminated, at which time realized
gains and losses are recognized.
Investment in international markets
Investing in international 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 more volatile than those of comparable
securities in the United States.
Swap agreements
The Funds may enter into swap agreements as an additional equitization
vehicle for uninvested cash balances held by the Funds or to effect
investment transactions consistent with the 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 Fund is exposed
to credit risk in the event of non-performance by the swap counterparties;
however, the Fund does not anticipate non-performance by the counterparties.
Notes to Financial Statements 79
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
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
For the period ended December 31, 2003, purchases and sales of investment
securities (excluding US Government and Agency obligations, short-term
investments, options, futures and repurchase agreements) were as follows:
<Table>
<Caption>
FUNDS PURCHASES SALES
- ----------------------------------------------------------------
Multi-Style Equity $ 265,073,268 $ 239,304,104
Aggressive Equity 181,714,034 159,845,696
Non-U.S. 83,777,915 71,336,240
</Table>
<Table>
- ----------------------------------------------------------------
<Caption>
FUNDS PURCHASES SALES
Core Bond $ 125,372,865 $ 113,623,607
Real Estate
Securities 114,308,081 72,698,244
</Table>
Purchases and sales of US Government and Agency obligations (excluding
short-term investments, options, futures and repurchase agreements) were as
follows:
US Government Securities
<Table>
<Caption>
FUND PURCHASES SALES
- ----------------------------------------------------------------
Core Bond $ 141,589,717 $ 136,201,317
</Table>
Written Options Contracts
Fund transactions in written options for the period ended December 31, 2003
were as follows:
<Table>
<Caption>
NON-U.S. CORE BOND
NUMBER OF PREMIUMS NUMBER OF PREMIUMS
CONTRACTS RECEIVED CONTRACTS RECEIVED
------------------------------------------------------------------------------------------------------------------------------
Outstanding December 31, 2002 30 $ 583 48 $ 80
Opened 843 11,092 279 222
Closed (772) (10,829) (52) (42)
Expired -- -- (228) (171)
------------------- ------------------- ------------------- -------------------
Outstanding December 31, 2003 101 $ 846 47 $ 89
=================== =================== =================== ===================
</Table>
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 to certain
brokers. 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 shall be invested by
State Street Bank and Trust Company ("State Street") in money market mutual
funds and such other short-term investments, provided the investments meet
certain quality and diversification requirements. The collateral received is
recorded on the 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-US securities) of the market value of the
loaned securities at the inception of each loan. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of
80 Notes to Financial Statements
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
rights in the collateral. Consequently, loans are made only to borrowers
which are deemed to be of good financial standing. As of December 31, 2003,
the value of outstanding securities on loan and the value of collateral
amounted to as follows:
<Table>
<Caption>
VALUE OF VALUE OF
FUNDS SECURITIES ON LOAN CASH COLLATERAL
- ----------------------------------------------------------------
Multi-Style Equity $ 7,117,397 $ 6,949,292
Aggressive Equity $ 33,200,037 $ 33,997,195
</Table>
As of December 31, 2003, the cash collateral received for the securities on
loan are invested as follows:
<Table>
<Caption>
STATE STREET
SECURITIES LENDING
FUNDS QUALITY TRUST
- -----------------------------------------------------------
Multi-Style Equity $ 6,949,292
Aggressive Equity 33,997,195
</Table>
As of December 31, 2003, the non-cash collateral received for the securities
on loan in the following funds was:
<Table>
<Caption>
NON-CASH NON-CASH
FUNDS COLLATERAL VALUE COLLATERAL HOLDING
- ------------------------------------------------------------------
Irrevocable letter of
Multi-Style Equity $ 333,548 credit
Irrevocable letter of
Aggressive Equity $ 105,572 credit
</Table>
4. RELATED PARTY TRANSACTIONS, FEES AND EXPENSES
Manager
FRIMCo advises and administers all of the Funds which comprise the Investment
Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company, a
wholly-owned subsidiary of The Northwestern Mutual Life Insurance Company.
Frank Russell Company researches and recommends to FRIMCo, and to the
Investment Company, one or more investment management organizations to manage
the portfolio of each Fund.
The Funds are permitted to invest their cash reserves (i.e., monies awaiting
investment in portfolio securities suitable for the Funds' objectives), and a
portion of the collateral received from the Investment Company's securities
lending program in the Frank Russell Investment Company Money Market Fund. As
of December 31, 2003, $85,026,000 of the Money Market Fund's net assets
represents investments by the Funds.
For the period ended December 31, 2003, the management fee paid to FRIMCo,
for the Funds listed below, in accordance with the Investment Company's
Management Agreement with that firm, amounted to $7,091,534 before waivers
and/or reimbursements. Such fee is payable monthly and is equal to the annual
rate, by Fund, shown in the following table, of the average daily net assets
of the applicable Fund.
<Table>
<Caption>
FUNDS ANNUAL RATE
-------------------------------------------------------------
Multi-Style Equity 0.78%
Aggressive Equity 0.95
Non-U.S. 0.95
Core Bond 0.60
Real Estate Securities 0.85
</Table>
FRIMCo has contractually agreed to waive a portion of its management fee for
each Fund, up to the full amount of its fee, to the extent the Fund's
operating expenses exceed specified limits imposed by FRIMCo on an annual
basis. Additionally, FRIMCo has contractually agreed to reimburse each Fund
for all remaining expenses, after fee waivers, that still exceed their
respective expense caps. There were no reimbursements for the period ended
December 31, 2003.
Notes to Financial Statements 81
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
The expense caps and waivers were as follows:
<Table>
<Caption>
EXPENSE CAP EXPENSE CAP MANAGER FEES WAIVED
THROUGH JANUARY 30, JANUARY 31, FOR THE PERIOD ENDED
FUNDS 2003 2003 DECEMBER 31, 2003
-----------------------------------------------------------------------------------------------------------------------------
Multi-Style Equity 0.92% 0.87% $ 175,964
Aggressive Equity 1.25 1.05 246,667
Non-U.S. 1.30 1.15 399,145
Core Bond 0.80 0.70 109,619
Real Estate Securities 1.15 1.10 --
</Table>
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, 2003, the
Funds' custodian fees were reduced by the following amounts under these
arrangements:
<Table>
<Caption>
CUSTODY CREDIT
FUNDS AMOUNT
-------------------------------------------------------
Multi-Style Equity $ 270
Aggressive Equity 243
Non-U.S. 255
Core Bond 1,598
Real Estate Securities 202
</Table>
Analytic services
Fees for analytic services provided to the Funds are paid or accrued to
Russell/Mellon Analytical Services, an affiliate of the Investment Company.
Russell/Mellon Analytical Services provides TruVP System to the Funds,
pursuant to a written Service Agreement. The TruVP System provides analytics
used by the investment department. Total fees for the Funds reported herein
for the period ended December 31, 2003 were $83,115.
Transfer agent
The Investment Company has a contract with FRIMCo to provide transfer agent
services to the Funds. Total fees for the period ended December 31, 2003 were
$48,565.
Distributor
Russell Fund Distributors, Inc. (the "Distributor"), a wholly-owned
subsidiary of FRIMCo, is the principal Distributor for Investment Company
shares. The Distributor receives no compensation from the Investment Company
for its services.
Brokerage commissions
The Funds may effect portfolio transactions through Frank Russell Securities,
Inc., an affiliate of the Manager, when a money manager determines that the
Fund will receive competitive execution, price and commissions. Amounts
retained by Frank Russell Securities, Inc. for the period ended December 31,
2003 were as follows:
<Table>
<Caption>
FUNDS AMOUNT
- ------------------------------------------------
Multi-Style Equity $ 15,609
Aggressive Equity 17,007
Non-U.S. 8,713
Real Estate Securities 2,333
</Table>
Additionally, the Funds paid brokerage commissions to non-affiliated brokers
who provided brokerage and research services to the Manager.
82 Notes to Financial Statements
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
Board of Trustees
The Russell Fund Complex consists of Frank Russell Investment Company
("FRIC"), which has 30 funds, and Russell Investment Funds ("RIF"), which has
five funds. Each of the trustees is a trustee of both FRIC and RIF. The
Russell Fund Complex pays each of its Trustees not affiliated with FRIMCo a
retainer of $52,000 per year, $5,000 for each regular quarterly meeting
attended in person, $2,000 for each special meeting attended in person, and
$2,000 for each Joint Audit Committee meeting or Nominating and Governance
Committee meeting attended in person. The Trustee will receive a $500 fee for
attending the meetings by phone instead of receiving the full fee had the
member attended in person. Out of pocket expenses are also paid by the
Russell Fund Complex. The Lead Trustee is paid a fee of $10,000 per year, and
each Committee Chair is paid a fee of $6,000 per year.
5. FEDERAL INCOME TAXES
At December 31, 2003, 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:
Capital loss carryforward
<Table>
<Caption>
12/31/09 12/31/10 12/31/11 TOTALS
----------------------------------------------------------------------------------------------------------------
Multi-Style Equity $ 45,480,975 $ 42,288,325 $ 3,419,554 $ 91,188,854
Aggressive Equity -- 7,535,681 -- $ 7,535,681
Non-U.S. 26,643,305 25,579,757 5,516,762 $ 57,739,824
Real Estate Securities -- -- 3,692,826 $ 3,692,826
</Table>
As of December 31, 2003, the cost of investments and net unrealized
appreciation (depreciation) for income tax purposes were as follows:
Cost & unrealized for tax purposes
<Table>
<Caption>
REAL ESTATE
MULTI-STYLE EQUITY AGGRESSIVE EQUITY NON-U.S. CORE BOND SECURITIES
------------------------------------------------------------------------------------------------------------------------------
Cost of Investments $ 268,906,421 $ 139,636,545 $ 175,996,050 $ 159,682,661 $ 193,641,364
============== ============== ============== ============== ==============
Unrealized Appreciation 30,201,779 29,304,054 33,749,391 4,198,239 61,536,573
Unrealized Depreciation (2,778,925) (1,570,346) (4,259,388) (534,880) (344,456)
-------------- -------------- -------------- -------------- --------------
Net Unrealized Appreciation
(Depreciation) $ 27,422,854 $ 27,733,708 $ 29,490,003 $ 3,663,359 $ 61,192,117
============== ============== ============== ============== ==============
Undistributed Ordinary Income $ 648,776 $ -- $ 811,104 $ 746,594 $ --
Undistributed Long-Term Capital
Gains (Capital Loss
Carryforwards) (91,188,854) (7,535,681) (57,739,824) 40,803 (3,692,826)
Tax Composition of Distribution:
Ordinary Income $ 1,743,960 $ 137,501 $ 4,571,995 $ 6,804,697 $ 10,273,011
Long-Term Capital Gains $ -- $ -- $ -- 1,206,242 $ --
Tax Return of Capital $ -- $ -- $ -- $ -- 341,396
</Table>
Notes to Financial Statements 83
RUSSELL INVESTMENT FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED -- DECEMBER 31, 2003
- --------------------------------------------------------------------------------
6. FUND SHARE TRANSACTIONS (Amounts in thousands)
Share transactions for the periods ended December 31, were as follows:
<Table>
<Caption>
SHARES DOLLARS
2003 2002 2003 2002
Multi-Style Equity
Proceeds from shares sold 3,987 3,249 $ 40,534 $ 33,496
Proceeds from reinvestment of
distributions 181 133 1,744 1,354
Payments for shares redeemed (1,381) (1,757) (13,665) (17,425)
----------------- ----------------- ----------------- -----------------
Total net increase (decrease) 2,787 1,625 $ 28,613 $ 17,425
================= ================= ================= =================
Aggressive Equity
Proceeds from shares sold 3,825 1,859 $ 43,296 $ 19,608
Proceeds from reinvestment of
distributions 11 -- 138 --
Payments for shares redeemed (2,043) (1,071) (22,380) (10,867)
----------------- ----------------- ----------------- -----------------
Total net increase (decrease) 1,793 788 $ 21,054 $ 8,741
================= ================= ================= =================
Non-U.S.
Proceeds from shares sold 2,604 10,287 $ 21,233 $ 80,040
Proceeds from reinvestment of
distributions 489 341 4,572 2,455
Payments for shares redeemed (1,048) (9,377) (8,195) (73,602)
----------------- ----------------- ----------------- -----------------
Total net increase (decrease) 2,045 1,251 $ 17,610 $ 8,893
================= ================= ================= =================
Core Bond
Proceeds from shares sold 2,229 3,385 $ 23,733 $ 34,958
Proceeds from reinvestment of
distributions 760 699 8,011 7,176
Payments for shares redeemed (2,383) (1,481) (25,459) (15,260)
----------------- ----------------- ----------------- -----------------
Total net increase (decrease) 606 2,603 $ 6,285 $ 26,874
================= ================= ================= =================
Real Estate Securities
Proceeds from shares sold 3,284 5,032 $ 39,761 $ 55,527
Proceeds from reinvestment of
distributions 856 795 10,614 8,563
Payments for shares redeemed (806) (998) (9,110) (10,491)
----------------- ----------------- ----------------- -----------------
Total net increase (decrease) 3,334 4,829 $ 41,265 $ 53,599
================= ================= ================= =================
</Table>
7. BENEFICIAL INTEREST
As of December 31, 2003, the following table includes shareholders with
shares of beneficial interest greater than 10% of the total outstanding
shares of each respective Fund. Northwestern Mutual Life Insurance Company
was the largest client in each Fund.
<Table>
<Caption>
FUNDS # OF SHAREHOLDERS %
--------------------------------------------------------------------------------
Multi-Style Equity 4 89.8
Aggressive Equity 3 82.0
Non-U.S. 3 85.3
Core Bond 3 90.6
Real Estate Securities 3 90.5
</Table>
84 Notes to Financial Statements
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders
of Russell Investment Funds:
In our opinion, the accompanying statements of assets and liabilities, including
the schedules of investments, and the related statements of operations and
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the series of Russell
Investment Funds (comprised of Multi-Style Equity, Aggressive Equity, Non-U.S.,
Core Bond, and Real Estate Securities (the "Funds")) at December 31, 2003, 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 the periods presented, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Funds' management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at December 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
- -s- PricewaterhouseCoopers LLP
Seattle, Washington
February 5, 2004
Report of Independent Auditors 85
RUSSELL INVESTMENT FUNDS
TAX INFORMATION -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
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, 2003:
<Table>
<Caption>
TOTAL LONG-TERM
CAPITAL GAINS
----------------
Core Bond $ 1,206,242
</Table>
The Non-U.S. Fund paid foreign taxes of $416,920 and recognized $3,616,486 of
foreign source income during the taxable year ended December 31, 2003. Pursuant
to Section 853 of the Internal Revenue Code, the Fund designates $0.0197 per
share of foreign taxes paid and $0.1708 of gross income earned from foreign
sources in the taxable year ended December 31, 2003.
86 Tax Information
RUSSELL INVESTMENT FUNDS
DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
The following tables provide information for each officer and trustee of the
Russell Fund Complex. The Russell Fund Complex consists of Frank Russell
Investment Company ("FRIC"), which has 30 funds, and Russell Investment Funds
("RIF"), which has 5 funds. Each of the trustees is a trustee of both FRIC 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 officers.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
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 AND INTERESTED TRUSTEE EMERITUS
- ----------------------------------------------------------------------------------------------------------------------------
*George F. Russell, Trustee Emeritus Appointed until - Director Emeritus, FRC 35 None
Jr., and Chairman successor is - Chairman Emeritus, FRIC and
Born July 3, 1932 Emeritus since duly elected RIF
1999 and qualified - Chairman Emeritus, Frank
909 A Street Russell Securities, Inc.,
Tacoma, Washington Russell 20/20 Association,
98402-1616 Frank Russell Trust
- Director Emeritus FRIMCo
- From 1984 to December 1998,
Chairman of the Board of
FRIC
and RIF
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
*Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 35 - Trustee, The
Born April 22, 1987 successor is - Chairman of the Board, SSgA Funds
1939 duly elected Trustee, FRIC and RIF (investment
Chairman of the and qualified - CEO and Chairman of the company)
909 A Street Board since 1999 Board, Russell Fund
Tacoma, Washington Until successor Distributors, Inc. and
98402-1616 is chosen and FRIMCo
qualified by - Trustee, President and
trustees Chairman of the Board, SSgA
Funds (investment company)
- Director and Chairman of the
Board, Frank Russell Trust
Company
- Director, Frank Russell
Investments (Ireland)
Limited and Frank Russell
Investments (Cayman) Ltd.
- Until October, 2002,
President and CEO, FRIC and
RIF
- ----------------------------------------------------------------------------------------------------------------------------
*Michael J.A. Trustee since Appointed until - Chairman of the Board and 35 None
Phillips, 2002 successor is Director, FRC
Born January 20, duly elected - Trustee, FRIC and RIF
1948 and qualified. - Director, FRTC and Frank
Russell Capital Inc.
909 A Street - Director/Chairman, Frank
Tacoma, Washington Russell Investments
98402-1616 (Delaware), Inc.
- Director, Chairman of The
Board and President, Russell
20/20 Association
- Director, Frank Russell
Company Pty. Limited, Frank
Russell Japan Co., Ltd.,
Frank Russell Investments
(Suisse), S.A., and Frank
Russell Company Limited
- 1990-2003, President, FRC
- 1993-2003, CEO, FRC
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
* Each of Messrs. Russell, Anderson and Phillips is also an officer of an
affiliate of FRIC and RIF and is therefore an interested trustee.
Disclosure of Information about Fund Directors 87
RUSSELL INVESTMENT FUNDS
DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2003
(UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
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 AND INDEPENDENT TRUSTEE EMERITUS
- ----------------------------------------------------------------------------------------------------------------------------
Paul E. Anderson, Trustee since Appointed until - 1996 to present, President, 35 None
Born October 15, 1984 successor is Anderson Management Group
1931 duly elected LLC (private investments
and qualified consulting)
909 A Street
Tacoma, Washington
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Paul Anton, Ph.D., Trustee Emeritus Appointed until - Retired since 1997 35 None
Born December 1, since 2003 successor is - Trustee of FRIC and RIF
1919 duly elected Until 2002
and qualified
909 A Street
Tacoma, Washington
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
William E. Baxter, Trustee since Appointed until - Retired since 1986 35 None
Born June 8, 1925 1984 successor is
duly elected
909 A Street and qualified
Tacoma, Washington
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 35 - Trustee WM Group
Born January 22, 2000 successor is Blake, P.S. (accounting of Funds
1954 duly elected services) (investment
and qualified company);
909 A Street - Director, Avista
Tacoma, Washington Corp.
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
Daniel P. Connealy, Trustee since Appointed until - 2001-2003, Vice President 35 - Director, Gold
Born June 6, 1946 2003 successor is and Chief Financial Officer, Bank
duly elected Janus Capital Group, Inc. Corporation,
909 A Street and qualified - 1979-2001, Audit and Inc.
Tacoma, Washington Accounting Partner,
98402-1616 PricewaterhouseCoopers LLP
- Retired since 2003
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 35 None
Born October 6, 1984 successor is
1930 duly elected
and qualified
909 A Street
Tacoma, Washington
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
88 Disclosure of Information about Fund Directors
RUSSELL INVESTMENT FUNDS
DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2003
(UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
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 AND INDEPENDENT TRUSTEE EMERITUS (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------
Eleanor W. Palmer, Trustee since Appointed until - Retired since 1981 35 None
Born May 5, 1926 1984 successor is
duly elected
909 A Street and qualified
Tacoma, Washington
98402-1616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Raymond P. Trustee since Appointed until - Currently, President, 35 None
Tennison, Jr. 2000 successor is Simpson Investment Company
Born December 21, duly elected and several additional
1955 and qualified subsidiary companies,
including Simpson Timber
909 A Street Company, Simpson Paper
Tacoma, Washington Company and Simpson Tacoma
98402-1616 Kraft Company
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Julie W. Weston Trustee since Appointed until - Retired since 2000 35 None
Born October 2, 2002 successor is - 1987 to 2000, Arbitrator,
1943 duly elected The American Arbitration
and qualified Association Commercial Panel
909 A Street - 1995 to 1999, Hearing
Tacoma, Washington Officer, University of
98402-1616 Washington
- 1987 to 2002, Director,
Smith Barney Fundamental
Value Fund
- ----------------------------------------------------------------------------------------------------------------------------
</Table>
Disclosure of Information about Fund Directors 89
RUSSELL INVESTMENT FUNDS
DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- DECEMBER 31, 2003
(UNAUDITED)
- --------------------------------------------------------------------------------
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
Leonard P. Brennan, President and Until successor - President and CEO, FRIC
Born October 11, 1959 Chief Executive is chosen and - President and CEO, RIF
Officer since qualified by - Director, Russell Fund Distributors, Inc., Frank
909 A Street 2002 Trustees Russell Company, S.A., Frank Russell Investments
Tacoma, Washington (Singapore) Private Limited and Frank Russell
98402-1616 Investments (UK) Limited
- Director, President and CEO, FRIMCo
- Director and COO, Frank Russell Company Limited and
Russell Systems Limited
- President, Russell Insurance Agency, Inc.
- 1999 to present, Managing Director of Individual
Investor Services of FRC
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF
Born November 26, 1963 Chief Accounting is chosen and 1998 to present,
Officer since qualified by - Director, Funds Administration, FRIMCo and Frank
909 A Street 1998 Trustees Russell Trust Company
Tacoma, Washington - Treasurer, SSgA Funds (investment company);
98402-1616 - Manager, Funds Accounting and Taxes, Russell Fund
Distributors, Inc.
- April 1996 to August 1998, Assistant Treasurer, FRIC
and RIF;
November 1995 to July 1998, Assistant Secretary, SSgA
Funds;
February 1997 to July 1998, Manager, Funds Accounting
and Taxes, FRIMCo
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Randall P. Lert, Director of Until removed - Director of Investments, FRIC and RIF
Born October 3, 1953 Investments by Trustees - Chief Portfolio Strategist, FRIMCo
since 1991 - Chief Investment Officer, Frank Russell Trust Company
909 A Street - Director, FRIMCo and Frank Russell Fund Distributors,
Tacoma, Washington Inc.
98402-1616
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Karl J. Ege, Secretary and Until removed - Secretary and General Counsel, FRIC, RIF, FRIMCo,
Born October 8, 1941 General Counsel by Trustees Frank Russell Trust Company and Russell Fund
since 1994 Distributors, Inc.
909 A Street - Director, Secretary and General Counsel, Frank
Tacoma, Washington Russell Capital Inc.
98402-1616 - Director and Secretary, Russell 20-20 Association
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Mark D. Amberson, Director of Until removed - Director of Short-Term Investment Funds, FRIC, RIF,
Born July 20, 1960 Short-Term by Trustees FRIMCo and Frank Russell Trust Company
Investment Funds - From 1991 to 2001, Portfolio Manager, FRIC, RIF,
909 A Street since 2001 FRIMCo and Frank Russell Trust Company
Tacoma, Washington
98402-1616
- --------------------------------------------------------------------------------------------------------------------------
</Table>
90 Disclosure of Information about Fund Directors
RUSSELL INVESTMENT FUNDS
MATTER SUBMITTED TO A VOTE OF SHAREHOLDERS -- DECEMBER 31, 2003 (UNAUDITED)
- --------------------------------------------------------------------------------
There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the
Russell Investment Funds ("the Investment Company") held at 909 A Street,
Tacoma, Washington on October 3, 2003.
THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING
The result of each vote accompany the description of each matter
1. Election of Trustees.
Vote:
-----
<Table>
<Caption>
FOR WITHHELD
-------------------- --------------------
Michael J.A. Phillips 79,759,415.080 2,967,650.647
Daniel P. Connealy 79,737,804.729 2,989,260.998
Julie W. Weston 79,630,184.756 3,096,880.971
</Table>
2. To approve a change in the Funds' fundamental investment objective.
Vote:
-----
<Table>
<Caption>
FOR AGAINST ABSTAIN
-------------------- -------------------- --------------------
Multi-Style Equity Fund 21,083,534.108 1,455,309.307 565,683.693
Aggressive Equity Fund 9,391,749.804 695,801.196 244,674.439
Non-U.S. Fund 17,453,865.110 1,332,495.105 564,872.913
Core Bond Fund 12,374,537.599 764,093.015 454,481.612
Real Estate Securities Fund 14,987,976.460 1,117,465.681 312,525.685
</Table>
3. To reclassify the Funds' investment objective from fundamental to
non-fundamental.
Vote:
-----
<Table>
<Caption>
FOR AGAINST ABSTAIN
-------------------- -------------------- --------------------
Multi-Style Equity Fund 20,364,767.024 2,075,682.151 664,077.933
Aggressive Equity Fund 8,836,621.180 1,192,379.505 303,224.754
Non-U.S. Fund 16,907,981.142 1,842,465.142 600,786.844
Core Bond Fund 12,177,508.357 983,412.759 432,191.110
Real Estate Securities Fund 14,595,675.330 1,462,184.080 360,108.416
</Table>
Matter Submitted to a Vote of Shareholders 91
RUSSELL INVESTMENT FUNDS
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 627-7001
- --------------------------------------------------------------------------------
TRUSTEES
Lynn L. Anderson, Chairman
Paul E. Anderson
William E. Baxter
Kristianne Blake
Daniel P. Connealy
Lee C. Gingrich
Eleanor W. Palmer
Michael J.A. Phillips
Raymond P. Tennison, Jr.
Julie W. Weston
TRUSTEES EMERITUS
George F. Russell, Jr.
Paul Anton, PhD
OFFICERS
Lynn L. Anderson, Chairman of the Board
Leonard P. Brennan, President and Chief Executive Officer
Karl J. Ege, Secretary and General Counsel
Mark E. Swanson, Treasurer and Chief Accounting Officer
Mark D. Amberson, Director of Short Term Investment Funds
Randall P. Lert, Director of Investments
Noel Lamb, Director of Investment Management and Research -- North America
Sharon L. Hammel, Director of Portfolio Implementation
Traci A. Jones, Manager of Portfolio Implementation
Gregory J. Lyons, Assistant Secretary and Associate
General Counsel
Mary Beth Rhoden, Assistant Secretary
Margaret A. Foster, Assistant Secretary
Greg S. Korte, Assistant Treasurer
David J. Craig, Assistant Treasurer
Bruce S. C. Dunn, Assistant Treasurer
MANAGER, TRANSFER AND DIVIDEND PAYING AGENT
Frank Russell Investment Management Company
909 A Street
Tacoma, WA 98402
CONSULTANT
Frank Russell Company
909 A Street
Tacoma, WA 98402
CUSTODIAN
State Street Bank and Trust Company
Allan Forbes Building
150 Newport Avenue AFB35
North Quincy, MA 02171
OFFICE OF SHAREHOLDER INQUIRIES
909 A Street
Tacoma, WA 98402
(800) 787-7354
LEGAL COUNSEL
Stradley, Ronon, Stevens & Young, LLP
2600 One Commerce Square
Philadelphia, PA 19103-7098
DISTRIBUTOR
Russell Fund Distributors, Inc.
909 A Street
Tacoma, WA 98402
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
1420 5th Avenue
Suite 1900
Seattle, WA 98101
MONEY MANAGERS
Multi-Style Equity Fund
Alliance Capital Management L.P., through its Bernstein Investment Research and
Management Unit, New York, NY
Ark Asset Management Co., Inc., New York, NY
Barclays Global Fund Advisors, San Francisco, CA
Brandywine Asset Management, LLC, Wilmington, DE
Jacobs Levy Equity Management, Inc., Florham Park, NJ
Montag & Caldwell, Inc., Atlanta, GA
Turner Investment Partners, Inc., Berwyn, PA
Aggressive Equity Fund
CapitalWorks Investment Partners, LLC, San Diego, CA
David J. Greene and Company, LLC, New York, NY
Geewax, Terker & Company, Chadds Ford, PA
Goldman Sachs Asset Management, L.P., New York, NY
Jacobs Levy Equity Management, Inc., Florham Park, NJ
Suffolk Capital Management, LLC, New York, NY
Systematic Financial Management, L.P., Teaneck, NJ
TimesSquare Capital Management, Inc., New York, NY
92 Manager, Money Managers and Service Providers
RUSSELL INVESTMENT FUNDS
909 A Street, Tacoma, Washington 98402
(800) 832-6688
In Washington (253) 627-7001
- --------------------------------------------------------------------------------
Non-U.S. Fund
AQR Capital Management, LLC, New York, NY
Fidelity Management & Research Company, Boston, MA
Oechsle International Advisors, LLC, Boston, MA
The Boston Company Asset Management, LLC, Boston, MA
Core Bond Fund
Pacific Investment Management Company LLC, Newport Beach, CA
TimesSquare Capital Management, Inc., New York, NY
Real Estate Securities Fund
AEW Management and Advisors, L.P., Boston, MA
INVESCO Realty Advisors, a division of INVESCO Institutional (N.A.), Inc.,
Dallas, TX
RREEF America L.L.C., Chicago, IL
This report is prepared from the books and records of the Funds and is submitted
for the general information of shareholders and is not authorized for
distribution to prospective investors unless accompanied or preceded by an
effective Prospectus. Nothing herein contained is to be considered an offer of
sale or a solicitation of an offer to buy shares of Frank Russell Investment
Company. Such offering is made only by Prospectus, which includes details as to
offering price and other material information.
Manager, Money Managers and Service Providers 93
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[RUSSELL LOGO]
Russell Investment Funds
909 A Street
Tacoma, Washington 98402
253-627-7001
800-787-7354
Fax: 253-591-3495
www.russell.com 36-08-023 (12/03)
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, as defined in Item 2(b) of Form N-CSR,
that applies to the registrant's principal executive officer and
principal financial officer ("Senior Mutual Fund Officer Code of
Ethics").
During the period covered by this report:
- There were no amendments to the Senior Mutual Fund Officer
Code of Ethics; and
- There were no waivers granted from any provision of the
Senior Mutual Fund Officer Code of Ethics.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. [ANNUAL REPORT ONLY]
- - Registrant's board of trustees has determined at a meeting held on May 19,
2003 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:
2002 $ 96,201
2003 $111,365
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
---- ------------------
2002 $ 0
2003 $16,257 Performance of agreed-upon procedures with respect to 06/30/03
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
---- ------------------
2002 $30,065 Tax services
2003 $32,470 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
---- ------------------
2002 $7,000 Analysis of certain fund transactions related to security
corporate action
2003 $ 0
(e) (1) Registrant's audit committee has adopted the following pre-approval
policies and procedures for certain services provided by Registrant's
accountants:
RUSSELL INVESTMENT FUNDS
AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY
EFFECTIVE DATE: MAY 19, 2003
I. STATEMENT OF PURPOSE.
This Policy has been adopted by the Audit Committee (the "RIF Audit Committee")
of the Board of Trustees of Russell Investment Funds ("RIF") to apply to any and
all engagements of the independent auditor to RIF for audit, non-audit, tax or
other services. 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 advisor of
the Fund or any other affiliate(1) of the Fund;
- Is in the position of auditing its own work; or
- Serves in an advocacy role for the Fund, the advisor 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 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 may either 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 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 of 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
- --------------------
(1) For purposes of this Policy, an affiliate of the Funds is defined as the
Funds' investment adviser (but not a sub-advisor whose role is primarily
portfolio management and whose activities are overseen by the principal
investment advisor), and any entity controlling, controlled by, or under common
control with the principal investment advisor that provides regular and ongoing
services to the Funds.
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 will require 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 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.
All other audit services not listed in Schedule A 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. All other audit-related services not listed in Schedule B 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 Committee
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.
All other tax services not listed in Schedule C 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. Permissible "all other services" not listed in Schedule D
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. 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 "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 Clearance Committee that, in their view, the request or
application is consistent with the SEC's rules governing auditor independence.
The Audit Committee has designated the Internal Audit Department of Frank
Russell Company, the parent company of FRIMCo (the "Internal Auditor"), to
monitor the performance of all services to be provided by the independent
auditor and to determine whether such services are in compliance with this
Policy. The Internal Auditor will
report to the Audit Committee on the results of its monitoring activities as
frequently as may be determined by the Audit Committee. The Internal Auditor and
Fund Management will report immediately to the Chairman of the Audit Committee
any breach of this Policy that comes to the attention of the Internal Auditor or
any member of management.
The Audit Committee will also review the Internal Auditor's annual audit plan to
confirm that the plan provides for the monitoring of the independent auditor's
services.
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 formal written statement from
the independent auditor delineating all relationships between the independent
auditor and RIF, 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.
SCHEDULES A - E
(not provided)
(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
2002 2003
---- ----
Audit Fees 100% 100%
Audit-Related Fees 100% 100%
Tax Fees 100% 100%
All Other Fees 100% 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 as follows:
2002 $0
2003 $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 was as follows:
2002 $97,318
2003 $85,353
(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. The registrant's audit committee of the board of trustees has
determined the principal accountants have maintained their independence
throughout the period ended December 31, 2003.
ITEMS 5-6. [RESERVED]
ITEMS 7-8. [NOT APPLICABLE]
ITEM 9. 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 controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
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 under the Act and certification for principal
financial officer of Registrant as required by Rule 30a-2 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/ Leonard P. Brennan
-------------------------------------------------------
Leonard P. Brennan
Principal Executive Officer and Chief Executive Officer
Date: February 12, 2004
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/Leonard P. Brennan
-------------------------------------------------------
Leonard P. Brennan
Principal Executive Officer and Chief Executive Officer
Date: February 12, 2004
By: /s/ Mark E. Swanson
-------------------------------------------------------
Mark E. Swanson
Principal Financial Officer, Principal Accounting Officer and Treasurer
Date: February 12, 2004