Russell Set to Restock its Indexes With 237 Firms (Russell.com)

Russell Set to Restock its Indexes With 237 Firms
Annual Process Keeps Russell Benchmarks Tuned to Market Reality

Tacoma, WA — June 16, 2006 — Russell Investment Group announced today its preliminary lists of companies that will join or leave the broad-market Russell 3000® Index when it reconstitutes its market-leading family of U.S. equity indexes on June 30. These lists—and lists of additions and deletions for the Russell Microcap™ Index—are posted on www.russell.com.

The Russell 3000 will continue to hold 98% of the U.S. equity universe as a result of the annual index reconstitution process and the total market capitalization will rise from $14.3 trillion at this point last year to $15.3 trillion.

"Reflecting a performance gain of 10.1% for the year ending May 31, the Russell 3000 was bound to show a similarly strong jump in total market capitalization," said Brian Tipple, managing director of U.S Equity at Russell. "The reconstitution process also captures the disparity in returns between market segments and sectors during the year, such as growth in the consumer discretionary sector and a slight decline for integrated oils and financial services."

Today's "additions" list for the Russell 3000 indicates 237 companies will move into the broad-market index—more than last year's 208 additions but far less than the 10-year average of 437. More than half of this year's additions are in three sectors: health care (43), consumer discretionary (39) and technology (36).

Among the 12 sectors that comprise the Russell 3000, slight changes are expected in terms of weighting within the index. The consumer discretionary and services sector likely will increase from 13.7% to 14.9%, while the integrated oils sector likely will decline from 5.2% to 4.8%. The financial services sector will maintain it's position as the largest segment, though it will likely dip from 23.2% to 22%.

"Turnover in terms of weighting is always low in the broad-market Russell 3000, and it is expected to be similar to prior years at around 2.5% this year," said Lori Richards, director of client service for Russell indexes. "Turnover in more specific capitalization segments such as the small-cap Russell 2000® Index is expected to be lower than last year at around 16%. This is due in large part to our rules-based methodology that adds IPOs on a quarterly basis."

Over the course of the year 122 IPOs joined the Russell 3000, including 21 stocks that will be added for the second quarter as part of the reconstitution process. The number of IPOs added annually had increased the previous three years from 28 in 2003 to 95 in 2004 and 159 in 2005 before declining this year.

Russell's index reconstitution process is followed closely by many investors because its U.S. indexes currently have $3.8 trillion in assets benchmarked against them and account for an industry-leading 52% of institutional products.

"Reconstitution is a key feature of truly representative benchmarks," said Richards. "Russell's unique process completely recalibrates Russell's U.S. indexes to today's market realities, ensuring that stocks are moved into the right 'buckets' to truly represent small-cap, midcap, large-cap and microcap stocks. It also serves as a clear measure of the shifts in relative valuations of value and growth stocks over the past year."

Stocks ranking smaller than the largest 3,000 U.S.-based firms will settle mostly into the Russell Microcap Index, which was introduced to the market at this time last year. Only eight companies will move completely out of Russell's index universe. Of the 356 companies that will flow into the Russell Microcap, 172 are dropping into the index from the Russell 3000.

Today's preliminary lists of additions and deletions represent the first public step in Russell's annual reconstitution process. Any updates to these lists will be posted June 23. The final membership lists for the Russell 3000, Russell 2000, Russell 1000 and Russell Microcap will be posted July 3.

Annual reconstitution of the Russell indexes captures the 3,000 largest U.S. stocks as of the end of May, ranking them by total market capitalization to create the Russell 3000. The largest 1,000 companies in the ranking comprise the large-cap Russell 1000® Index while the remaining 2,000 companies become the small-cap Russell 2000® Index.

For the third year, Russell offers "provisional" index returns on www.russell.com in order to give passive fund managers more flexibility in determining when to make their portfolio transitions, spanning a two-month window of opportunity. Performance figures for the emerging reconstituted indexes are available each weekday in addition to performance data for the existing indexes. Similarly, Russell will post "legacy" index returns, beginning July 3, in order to show the performance returns for the aged indexes as well as the reconstituted indexes each weekday through the month of July.

Beginning this year, companies deleted from today's preliminary lists due to corporate actions or delisting will not be replaced prior to reconstitution. This change, which was based on recommendations from Russell's Client Advisory Board, comprised of plan sponsors, active and passive managers as well as brokers, is intended to reduce possible trading risks related to uncontrollable corporate activity during June. Similarly, two years ago Russell moved reconstitution's effective date each year to the last Friday in June, instead of the last day in June. This change has given the industry additional time over the weekend to manage any increase in stock trading volumes that occurs as funds and managers adjust for the new membership of the respective indexes.

Membership in Russell's U.S. equity indexes—widely used as benchmarks for both passive and active investment strategies—is determined by objective rules, such as market capitalization rankings. Accurate benchmarks are an integral part of Russell's ongoing process to monitor more than 6,600 investment manager products worldwide for Russell's $167 billion active investment management business. Interest in Russell's index reconstitution process begins early in the spring when some large brokerage and investment firms preview it and attempt to predict subsequent changes to the indexes. Their reports once again proved to be generally accurate.

About Russell
Russell Investment Group, a global leader in multi-manager investment services, provides investment products and services in 44 countries. Russell manages more than $167 billion in assets and advises clients worldwide representing more than $2.4 trillion. Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Singapore, Sydney, Auckland and Tokyo.

Contact:
Steve Claiborne, 253-439-1858

Russell Investment Group is a registered trade name of Frank Russell Company, a Washington, USA corporation, which operates through subsidiaries worldwide. Frank Russell Company is a subsidiary of The Northwestern Mutual Life Insurance Company.

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