Russell Set to Restock Indexes With 208 Firms (Russell.com)

Russell Set to Restock Indexes With 208 Firms
Annual Process Keeps Benchmarks Tuned to Market Reality

June 10, 2005 — Russell Investment Group has posted its preliminary lists of companies that will join or leave the broad-market Russell 3000® Index when Russell's family of U.S. equity indexes is reconstituted June 24. Russell also posted a preliminary membership list for the new Russell Microcap™ Index.

Today's "additions" list for the Russell 3000 indicates 208 companies will move into the index — fewer than last year's 323 companies and far less than the 10-year average of 455.

"We see fewer additions in 2005 in large part because Russell enhanced the ability of our indexes to reflect the market by adding eligible IPOs each quarter since September," said Lori Richards, senior product manager for Russell indexes.

Over the course of the year the Russell 3000 made room for a total of 159 IPOs, including 28 as part of the reconstitution process this quarter. The number of IPOs added to the index this year increased notably from last year when 95 IPOs were added and dramatically from 2003 when only 28 IPOs flowed into the index.

Russell's index reconstitution process is followed closely by many investors because the Russell indexes currently have $2.5 trillion in assets benchmarked to them.

Among the 12 sectors that comprise the broad-market Russell 3000, the weighting of each will remain relatively consistent after the index is reconstituted. The weighting of financial services-related stocks, for example, is expected to increase from 22% to 22.1%.

The total market value of the Russell 3000 will likely increase to $14.3 trillion in total capitalization, indicating the broad market rose by $1 trillion from this point last year.

"The reconstitution process reflects what we saw in the U.S. market this year," said Richards. "Throughout the year the markets gave us a low spread in terms of index returns and sector performance, making this year's reconstitution somewhat uneventful compared to years when we see dramatic shifts in values or prices."

Among the "additions" slated for inclusion this year are 42 firms in the Financial Services sector, 37 in the Health Care sector, 34 in the Consumer Discretionary & Services sector and 31 in the Technology sector.

The "deletions" list is dominated by firms in two sectors: Health Care (56) and Technology (48).

Stocks ranking smaller than the largest 3,000 U.S.-based firms will settle into the new Russell Microcap Index. Only 24 companies will move completely out of Russell's index universe.

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 17 and June 24. Updates are made primarily due to recent corporate actions that affect the stock and availability of its shares. Otherwise the preliminary list remains largely unchanged. The final membership lists for the Russell 3000, Russell 2000® Index and Russell 1000® Index will be posted July 1.

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. As a broad market index, the Russell 3000 represents approximately 98 percent of the U.S. stock market and the vast majority of traded securities. The largest 1,000 companies in the ranking comprise the large-cap Russell 1000 while the remaining 2,000 companies become the small-cap Russell 2000.

This year, Russell offers "provisional" index returns 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 June 24, in order to show the performance returns for the aged indexes as well as the reconstituted indexes each weekday through the month of July.

Membership in Russell's U.S. equity indexes — widely used as benchmarks for both passive and active investment strategies — is determined primarily by market capitalization rankings and style attributes. 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.

"Russell uses a transparent reconstitution process to develop its indexes," Richards said. "Anyone with financial market data can calculate its likely impact on membership and weights, which allows investors to adjust their portfolios over time and thus reduces the possibility of dramatic price swings caused by a lack of liquidity."

About Russell
Russell Investment Group, a global leader in multi-manager investment services, provides investment products and services in more than 35 countries. Russell manages more than $135 billion in assets and advises clients worldwide representing more than $2.3 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 253.594.1858

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.

Frank Russell Company is the owner of the trademarks, service marks and copyrights related to its indexes.

Indexes are unmanaged and cannot be invested in directly.

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