Russell to post 'provisional indexes' to better serve fund managers during annual index reconstitution (Russell.com)

Russell to Post "Provisional Indexes" to Better Serve Fund Managers During Annual Index Reconstitution
Decision is One of Several to Spread Out Timing of Portfolio Rebalancing

TACOMA, Wash. — May 27, 2004 — When Russell works through its annual process in June to reconstitute its family of 21 U.S. equity indexes, the firm will post "provisional" index returns on www.russsell.com in order to give passive fund managers more flexibility in determining when to make their portfolio transitions. Beginning June 14, performance figures for the emerging reconstituted indexes will be available each weekday in addition to performance data for the existing indexes. As a result, index fund managers can shift their portfolio during a two-week window, instead of waiting until the close of markets June 25 when the newly adjusted indexes take effect.

"Growing usage of Russell indexes, including more than $360 billion in passive assets alone, means that we have to recognize that the reconstitution process has become a significant industry event," said Lori Richards, senior product manager, Russell indexes. "We're taking several new steps this year to alleviate trading pressure and help the industry absorb the effects of reconstitution, including the use of provisional returns."

The introduction of provisional returns originated via a request from Russell's Index Client Advisory Board, which is comprised of senior decision-makers at leading plan sponsors, investment managers and prime brokers.

Listening to other recommendations from the industry, Russell earlier announced it will shift the effective date of its index reconstitution process to the last Friday in June, which is June 25 this year, instead of the last day in June. The timing change will give the industry additional time over the ensuing weekend to handle the volume of work required to adjust for the changes, and hence reduce operational risk.

Russell also announced in mid-May that it will use the NASDAQ Closing Cross to price NASDAQ-listed securities for reconstitution. This brings together the buy and sell interest in these stocks and executes all shares for each stock at a single price reflecting the true supply and demand for the security.

"All of these changes are designed to relieve unnecessary pressure on the industry and enable investment managers to better serve their clients," said Richards. "We believe investors will benefit from the industry's ability to more effectively manage the additional operational requirements required as a result of our reconstitution process."

She added that Russell's U.S. indexes are designed to objectively reflect the market and the annual reconstitution process systematically captures market changes in a timely fashion.

Russell examines on occasion whether to increase the frequency of its index reconstitution process. "The research continues to show us that more frequent changes would involve substantial increases in transactional costs, but not much difference in market or segment representation," Richards said. "Annual reconstitution offers the best balance between market reflection and transaction costs."

Additional details of Russell's annual index reconstitution process are available in the "U.S. indexes" area on www.russell.com.

About Russell
Russell Investment Group, global leader in multi-manager investing, provides investment products and services in more than 35 countries. Russell manages more than $107 billion in assets and advises clients worldwide representing more than $1.6 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, Auckland and Tokyo.

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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