-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UI9oAaTuKp9fzz5Kyr+1fydoCuQtU8V5je1N5+EXlcYkiPP7D63cvlhK/3GBfYZH G6AXYx4rnMOzVCDls7HIJg== 0000950134-06-000152.txt : 20060105 0000950134-06-000152.hdr.sgml : 20060105 20060105172508 ACCESSION NUMBER: 0000950134-06-000152 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051031 FILED AS OF DATE: 20060105 DATE AS OF CHANGE: 20060105 EFFECTIVENESS DATE: 20060105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RUSSELL FRANK INVESTMENT CO CENTRAL INDEX KEY: 0000351601 IRS NUMBER: 911151059 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-03153 FILM NUMBER: 06513915 BUSINESS ADDRESS: STREET 1: 909 A ST STREET 2: 11TH FLOOR CITY: TACOMA STATE: WA ZIP: 98402 BUSINESS PHONE: 800-787-7354 MAIL ADDRESS: STREET 1: 909 A ST STREET 2: 11TH FLOOR CITY: TACOMA STATE: WA ZIP: 98402 N-CSR 1 f42506nvcsr.txt FORM N-CSR OMB APPROVAL ------------------ OMB Number: 3235-0570 Expires: September 30, 2007 Estimated average burden hours per response: 19.4 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-03153 FRANK RUSSELL INVESTMENT COMPANY (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 FRANK RUSSELL INVESTMENT COMPANY 909 A STREET TACOMA, WASHINGTON 98402 253-439-2406 (Name and address of agent for service) Registrant's telephone number, including area code: 253-572-9500 Date of fiscal year end: OCTOBER 31 Date of reporting period: November 1, 2004 to October 31, 2005 ITEM 1. REPORTS TO STOCKHOLDERS MONEY MARKET FUNDS 2005 Annual Report CLASS A AND S SHARES: MONEY MARKET FUND CLASS S SHARES: US GOVERNMENT MONEY MARKET FUND TAX FREE MONEY MARKET FUND OCTOBER 31, 2005 (RUSSELL LOGO) Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on three of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company Money Market Funds Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Money Market Fund.................................................... 4 US Government Money Market Fund...................................... 9 Tax Free Money Market Fund........................................... 11 Notes to Schedules of Investments.................................... 19 Statement of Assets and Liabilities.................................. 20 Statement of Operations.............................................. 21 Statement of Changes in Net Assets................................... 22 Financial Highlights................................................. 24 Notes to Financial Statements........................................ 26 Report of Independent Registered Public Accounting Firm.............. 31 Tax Information...................................................... 32 Shareholder Requests for Additional Information...................... 33 Disclosure of Information about Fund Directors....................... 34 Manager, Money Managers and Service Providers........................ 39
Frank Russell Investment Company - Money Market Funds Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,016.40 $ 1,023.95 Expenses Paid During Period* $ 1.27 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,016.70 $ 1,024.45 Expenses Paid During Period* $ 0.76 $ 0.77
* Expenses are equal to the Fund's annualized expense ratio of 0.15% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 4 Money Market Fund FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- CORPORATE BONDS AND NOTES - 32.0% Allstate Financial Global Funding 17,900 6.150 02/01/06 17,996 Allstate Financial Global Funding (E) 10,000 4.015 12/20/05 10,002 Bank of the West (E) 50,000 3.737 08/08/06 50,010 Bank One NA Illinois (E) 14,500 4.260 01/13/06 14,504 Citigroup Global Markets (E) 10,750 4.416 01/27/06 10,756 Citigroup Global Markets (E) 50,000 3.884 03/16/06 50,010 Deutsche Bank AG (NY) (E) 13,000 4.204 04/24/06 13,003 Goldman Sachs Group, Inc. (E) 50,000 4.120 03/21/06 50,043 Goldman Sachs Group, LP (E) 15,000 4.070 12/15/05 14,999 HSBC Finance Corp. 28,110 6.500 01/24/06 28,288 HSBC Finance Corp. 6,460 3.375 02/21/06 6,452 HSBC Finance Corp. 6,812 7.200 07/15/06 6,952 HSBC Finance Corp. (E) 70,000 3.974 06/22/06 70,037 HSBC Finance Corp. (E) 10,200 4.266 10/27/06 10,206 Merrill Lynch & Co., Inc. 1,425 6.150 01/26/06 1,433 Merrill Lynch & Co., Inc. (E) 15,000 4.439 04/18/06 15,022 Merrill Lynch & Co., Inc. (E) 12,027 4.220 05/22/06 12,055 Merrill Lynch & Co., Inc. (E) 21,500 4.101 05/26/06 21,538 Metropolitan Life Global Funding (E) 10,000 3.930 05/22/06 10,006 Metropolitan Life Insurance Co. (E) 75,000 4.220 10/13/06 75,000 Morgan Stanley 3,971 6.300 01/15/06 3,992 Morgan Stanley 7,000 6.100 04/15/06 7,068 Morgan Stanley (E) 49,225 4.250 03/27/06 49,286 Morgan Stanley (E) 60,000 4.000 04/03/06 60,000 Morgan Stanley (E) 20,000 4.000 05/03/06 20,000 New York Life Insurance Co. (E)(A) 50,000 3.890 11/18/05 50,000 New York Life Insurance Co. (E)(A) 35,000 3.862 05/17/06 35,000 Presbyterian Homes & Services Series B2, weekly demand (E) 17,024 4.050 12/01/28 17,024 Principal Life Global Funding I (E) 50,000 4.020 02/24/06 50,034 Principal Life Income Funding (E) 50,000 3.740 05/10/06 50,002 Protective Life Insurance Co. (E)(A) 50,000 3.973 08/23/06 50,000 Protective Life US Funding 40,720 5.875 08/15/06 41,245 Tango Finance Corp. (E) 15,000 4.140 01/17/06 15,000 The Travelers Insurance Co. (E)(A) 75,000 4.144 11/10/05 75,000 ------------ TOTAL CORPORATE BONDS AND NOTES (amortized cost $1,011,963) 1,011,963 ------------ MUNICIPAL BONDS - 0.9% Illinois Health Facilities Authority Revenue, weekly demand (E)(n) 27,300 4.080 01/01/28 27,300 ------------ TOTAL MUNICIPAL BONDS (amortized cost $27,300) 27,300 ------------ REGISTERED INVESTMENT COMPANY FUNDS - 0.0% Merrill Lynch Premier Institutional Fund 361,495 361 ------------ TOTAL REGISTERED INVESTMENT COMPANY FUNDS (cost $361) 361 ------------ LEGAL NOTES - 2.9% Bear Stearns Master Note, daily demand (E) 90,000 90,000 ------------ TOTAL LEGAL NOTES (cost $90,000) 90,000 ------------
Money Market Fund 5 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- DOMESTIC CERTIFICATES OF DEPOSIT - 2.6% Bank of the West 50,000 3.890 11/14/05 50,000 Wilmington Trust Co. 31,000 3.600 11/01/05 31,000 ------------ TOTAL DOMESTIC CERTIFICATES OF DEPOSIT (amortized cost $81,000) 81,000 ------------ DOMESTIC COMMERCIAL PAPER - 51.4% Barclays US Funding Corp. 19,000 3.800 11/01/05 19,000 BTM Capital Corp. 20,000 3.760 11/01/05 20,000 BTM Capital Corp. 25,000 3.930 12/01/05 24,918 BTM Capital Corp. 50,000 3.970 12/06/05 49,807 BTM Capital Corp. 50,000 4.090 01/06/06 49,625 BTM Capital Corp. 10,000 4.130 01/13/06 9,916 Central American Bank for Economic Integration 6,145 3.450 11/14/05 6,137 Co-Op Association of Tractor Dealers - Series B 67,100 4.090 11/01/05 67,100 Co-Op Association of Tractor Dealers - Series B 15,300 3.390 11/04/05 15,296 Co-Op Association of Tractor Dealers - Series B 10,100 3.870 11/07/05 10,093 Co-Op Association of Tractor Dealers - Series B 6,100 3.550 11/29/05 6,083 Co-Op Association of Tractor Dealers - Series B 5,700 3.600 12/16/05 5,674 Co-Op Association of Tractor Dealers - Series B 5,100 3.910 01/20/06 5,056 Co-Op Association of Tractor Dealers - Series B 23,400 3.850 01/27/06 23,182 Co-Op Association of Tractor Dealers - Series B 11,100 4.150 03/29/06 10,911 Cullinan Finance Corp. 25,963 4.050 12/01/05 25,875 Dealers Capital Access Trust 10,100 3.720 11/02/05 10,099 Dealers Capital Access Trust 13,600 3.720 11/04/05 13,596 Dealers Capital Access Trust 11,000 3.830 12/02/05 10,964 Dealers Capital Access Trust 5,100 3.720 12/19/05 5,075 Dealers Capital Access Trust 16,300 3.650 12/22/05 16,216 Dealers Capital Access Trust 7,500 4.040 01/13/06 7,439 Dealers Capital Access Trust 5,600 4.040 01/20/06 5,550 Fairway Finance 25,263 3.880 11/07/05 25,247 Giro Balanced Funding Corp. 50,000 3.900 11/08/05 49,962 Giro Balanced Funding Corp. 35,000 3.930 11/14/05 34,950 Giro Balanced Funding Corp. 50,000 4.050 11/28/05 49,848 Gotham Funding Corp. 63,000 3.660 11/01/05 63,000 Gotham Funding Corp. 30,923 4.040 11/22/05 30,850 Gotham Funding Corp. 7,591 4.060 11/28/05 7,568 Gotham Funding Corp. 35,000 4.140 01/17/06 34,690 Ivory Funding Corp. 12,233 3.510 11/21/05 12,209 Ivory Funding Corp. 30,309 4.060 01/09/06 30,073 Ivory Funding Corp. 22,932 4.160 01/17/06 22,728 Ivory Funding Corp. 26,038 4.190 01/31/06 25,762 Liquid Funding, Ltd. 50,000 4.070 11/01/05 50,000 Liquid Funding, Ltd. 75,000 4.020 11/21/05 74,833 Lockhart Funding LLC 20,000 4.000 11/16/05 19,967 Lockhart Funding LLC 50,000 4.125 01/05/06 49,628 Lockhart Funding LLC 10,000 4.140 01/05/06 9,925 Lockhart Funding LLC 50,000 4.070 01/09/06 49,610 Lockhart Funding LLC 30,000 4.080 01/11/06 29,759 Long Lane Master Trust IV 75,519 3.860 11/07/05 75,470 Long Lane Master Trust IV 16,025 4.000 11/21/05 15,989 Long Lane Master Trust IV 30,000 3.750 01/12/06 29,775
6 Money Market Fund FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- Louis Dreyfus Corp. 9,000 3.890 11/14/05 8,987 Louis Dreyfus Corp. 35,000 4.030 11/29/05 34,890 Moat Funding LLC 50,000 3.900 11/09/05 49,957 North America Timber Co. California LLC 75,000 4.130 01/12/06 74,381 Park Avenue Receivables Corp. 10,000 3.950 11/07/05 9,993 Park Avenue Receivables Corp. 30,000 4.070 11/07/05 29,980 Rabobank USA Financial Corp. 5,400 3.750 11/08/05 5,396 Societe Generale N.A. 33,100 3.800 11/01/05 33,100 Tango Finance Corp. 23,645 4.050 11/10/05 23,621 Tango Finance Corp. 10,051 3.870 11/14/05 10,037 Tango Finance Corp. 9,250 4.020 01/19/06 9,168 Tango Finance Corp. 50,000 4.150 01/24/06 49,516 Three Pillars Funding Corp. 37,031 4.050 11/28/05 36,919 Three Pillars Funding Corp. 10,023 3.950 12/12/05 9,978 Three Pillars Funding Corp. 9,733 4.100 12/22/05 9,676 Three Pillars Funding Corp. 1,517 4.060 01/17/06 1,504 Three Rivers Funding Corp. 18,069 4.030 11/22/05 18,026 ------------ TOTAL DOMESTIC COMMERCIAL PAPER (amortized cost $1,624,584) 1,624,584 ------------ EURODOLLAR CERTIFICATES OF DEPOSIT - 1.0% Societe Generale (Cayman) 32,392 4.063 11/01/05 32,391 ------------ TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT (amortized cost $32,391) 32,391 ------------ UNITED STATES GOVERNMENT AGENCIES - 0.2% AID to INH Portugal Guaranteed Note, weekly demand (LIBOR Floater) (E)(B) 7,813 4.591 12/01/17 7,897 ------------ TOTAL UNITED STATES GOVERNMENT AGENCIES (amortized cost $7,897) 7,897 ------------ YANKEE CERTIFICATES OF DEPOSIT - 9.2% Credit Suisse First Boston NY Branch 100,000 2.750 11/14/05 99,960 Credit Suisse First Boston NY Branch 50,000 3.890 11/14/05 50,000 Deutsche Bank AG (NY) 60,000 4.400 09/29/06 60,000 Deutsche Bank AG (NY) 60,000 4.540 10/16/06 60,000 Wilmington Trust Co. 20,000 3.780 11/18/05 20,000 ------------ TOTAL YANKEE CERTIFICATES OF DEPOSIT (amortized cost $289,960) 289,960 ------------ TOTAL INVESTMENTS - 100.2% (cost $3,165,456) (+) 3,165,456 OTHER ASSETS AND LIABILITIES, NET - (0.2%) (5,454) ------------ NET ASSETS - 100.0% 3,160,002 ============
See accompanying notes which are an integral part of the financial statements. Money Market Fund 7 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Corporate Bonds & Notes 32.0 Municipal Bonds 0.9 Registered Investment Company Funds --* Legal Notes 2.9 Domestic Certificates of Deposit 2.6 Domestic Commercial Paper 51.4 Eurodollar Certificates of Deposit 1.0 United States Government Agencies 0.2 Yankee Certificates of Deposit 9.2 --------------- Total Investments 100.2 Other Assets and Liabilities, Net (0.2) --------------- 100.0 ===============
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 8 Money Market Fund FRANK RUSSELL INVESTMENT COMPANY US GOVERNMENT MONEY MARKET FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,014.00 $ 1,022.03 Expenses Paid During Period* $ 3.20 $ 3.21
* Expenses are equal to the Fund's annualized expense ratio of 0.63% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). US Government Money Market Fund 9 FRANK RUSSELL INVESTMENT COMPANY US GOVERNMENT MONEY MARKET FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- UNITED STATES GOVERNMENT AGENCIES - 20.5% Federal Farm Credit Bank Note (E) 1,350 3.930 06/20/06 1,350 Federal Home Loan Bank (E) 600 3.750 06/02/06 600 Federal Home Loan Mortgage Corp. 100 3.702 11/07/05 100 Federal National Mortgage Association 5,000 2.900 02/24/06 4,987 ------------ TOTAL INVESTMENTS - 20.5% (amortized cost $7,037) 7,037 ------------ REPURCHASE AGREEMENTS - 79.7% Agreement with Barclays and The Bank of New York (Tri-party) of $27,352 dated October 31, 2005 at 3.970% to be repurchased at $27,355 on November 1, 2005, collateralized by: $28,385 par US Government Agency Note, valued at $27,900 27,352 ------------ TOTAL REPURCHASE AGREEMENTS (identified cost $27,352) 27,352 ------------ TOTAL INVESTMENTS AND REPURCHASE AGREEMENTS - 100.2% (cost $34,389) (+) 34,389 OTHER ASSETS AND LIABILITIES, NET - (0.2%) (82) ------------ NET ASSETS - 100.0% 34,307 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- United States Government Agencies 20.5 Repurchase Agreements 79.7 --------------- Total Investments and Repurchase Agreements 100.2 Other Assets and Liabilities, Net (0.2) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 10 US Government Money Market Fund FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,010.50 $ 1,022.63 Expenses Paid During Period* $ 2.58 $ 2.60
* Expenses are equal to the Fund's annualized expense ratio of 0.51% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Tax Free Money Market Fund 11 FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- SHORT-TERM TAX-EXEMPT OBLIGATIONS - 99.7% Alabama - 2.5% Lauderdale County Public Park Recreation Board Revenue Bonds, weekly demand (E)(u) 600 2.700 12/01/20 600 Spring Hill College Educational Building Authority Revenue Bonds, weekly demand (E)(u) 1,000 2.700 09/01/24 1,000 ------------ 1,600 ------------ Arizona - 0.5% Maricopa County Industrial Development Authority Revenue Bonds, weekly demand (E) 305 2.700 04/15/30 305 ------------ California - 1.5% GAF Tax Exempt Bond Grantor Trust, monthly demand (E)(u) 1,000 3.000 10/01/12 1,000 ------------ Colorado - 3.1% Colorado Health Facilities Authority Revenue Bonds, weekly demand (E)(u) 500 2.850 10/01/30 500 Colorado Housing & Finance Authority Revenue Bonds, weekly demand (E) 500 2.710 02/15/28 500 Superior Metropolitan District No. 1 Revenue Bonds, annual demand (E)(u) 1,000 2.300 12/01/20 1,000 ------------ 2,000 ------------ Delaware - 3.2% Delaware State Economic Development Authority Revenue Bonds, weekly demand (E)(u) 300 2.720 05/01/15 300 Delaware State Economic Development Authority Revenue Bonds, weekly demand (E)(u) 815 2.680 12/01/15 815 Delaware State Economic Development Authority Revenue Bonds, weekly demand (E)(u) 450 2.850 12/01/15 450 New Castle County Delaware Revenue Bonds, weekly demand (E)(u) 500 2.730 08/01/31 500 ------------ 2,065 ------------ District of Columbia - 0.9% District of Columbia Revenue Bonds, weekly demand (E)(u) 600 2.800 12/01/23 600 ------------ Florida - 1.4% Florida Housing Finance Agency Revenue Bonds, weekly demand (E) 600 2.710 12/01/29 600 Fort Pierce Florida Revenue Bonds, weekly demand (E)(u) 300 2.700 10/01/17 300 ------------ 900 ------------ Georgia - 0.6% Gwinnett County Development Authority Revenue Bond, weekly demand (E)(u) 65 2.700 03/01/17 65 Gwinnett County Development Authority Revenue Bond, weekly demand (E)(u) 200 2.700 03/01/21 200 Gwinnett County Hospital Authority Revenue Bonds, weekly demand (E)(u) 100 2.700 07/01/32 100 ------------ 365 ------------
12 Tax Free Money Market Fund FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- Illinois - 9.1% Belleville Illinois Revenue Bonds, weekly demand (E)(u) 500 2.720 12/01/08 500 Illinois Educational Facilities Authority Revenue Bonds, weekly demand (E)(u) 100 2.750 11/01/25 100 Illinois Educational Facilities Authority Revenue Bonds, weekly demand (E)(u) 1,000 2.750 11/01/32 1,000 Illinois Finance Authority Revenue Bonds, weekly demand (E)(u) 845 2.700 02/01/19 845 Illinois Finance Authority Revenue Bonds, weekly demand (E)(u) 800 2.830 04/01/21 800 Illinois Finance Authority Revenue Bonds, weekly demand (E)(u) 600 2.830 08/01/26 600 Oakbrook Terrace Illinois Revenue Bonds, weekly demand (E)(u) 2,100 2.850 12/01/25 2,100 ------------ 5,945 ------------ Indiana - 3.8% Indiana Development Finance Authority Revenue Bonds, weekly demand (E)(u) 5 2.780 09/01/26 5 Indiana Health Facility Financing Authority Revenue Bonds, weekly demand (E)(u) 1,455 2.780 10/01/32 1,455 Northwest Allen County Schools General Obligation Unlimited (E) 1,000 3.500 12/30/05 1,001 ------------ 2,461 ------------ Iowa - 3.0% Iowa Finance Authority Revenue Bonds, weekly demand (E)(u) 100 2.780 07/01/26 100 Iowa Finance Authority Revenue Bonds, weekly demand (E)(u) 550 2.780 06/01/28 550 Iowa Finance Authority Revenue Bonds, weekly demand (E)(u) 230 2.780 11/01/32 230 Iowa Finance Authority Revenue Bonds, weekly demand (E)(u) 250 2.780 06/01/33 250 Iowa Higher Education Loan Authority Revenue Bonds, weekly demand (E) 200 2.780 03/01/30 200 Iowa Higher Education Loan Authority Revenue Bonds, weekly demand (E) 600 2.780 10/01/33 600 ------------ 1,930 ------------ Kansas - 2.7% City of Salina Kansas Revenue Bonds, weekly demand (E)(u) 1,350 2.900 12/01/14 1,350 Kansas Development Finance Authority Revenue Bonds, weekly demand (E)(u) 150 2.780 05/15/26 150 Prairie Village Kansas Revenue Bonds, weekly demand (E) 250 2.710 11/01/30 250 ------------ 1,750 ------------ Kentucky - 3.2% County of Jefferson Kentucky Revenue Bonds, weekly demand (E)(u) 1,700 2.720 10/01/19 1,700 Lexington-Fayette Urban County Government Revenue Bonds, annual demand (E)(u) 380 2.750 04/01/15 380 ------------ 2,080 ------------ Maryland - 1.0% County of Montgomery Maryland, monthly demand (E) 641 2.800 04/01/14 641 ------------ Michigan - 7.2% Eaton Intermediate School District Notes (E) 1,950 3.500 04/03/06 1,953 Lansing Economic Development Corp. Revenue Bonds, semi-annual demand (E)(u) 1,450 3.150 05/01/15 1,450 Leelanau County Economic Development Corp., semi-annual demand (E) 140 3.000 06/15/06 140
Tax Free Money Market Fund 13 FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- Northville Township Economic Development Corp. Revenue Bonds, weekly demand (E)(u) 500 2.610 05/01/14 500 Oakland County Economic Development Corp. Revenue Bonds, semi-annual demand (E)(u) 685 3.250 08/01/15 685 ------------ 4,728 ------------ Minnesota - 3.8% Arden Hills Minnesota Revenue Bonds, weekly demand (E)(u) 428 2.780 09/01/29 428 City of Minneapolis Minnesota Revenue Bonds, weekly demand (E)(u) 500 2.830 05/01/26 500 Mankato Minnesota Revenue Bonds, weekly demand (E)(u) 200 2.780 11/01/15 200 St. Paul Housing & Redevelopment Authority Revenue Bonds, weekly demand (E)(u) 200 2.780 05/01/22 200 St. Paul Housing & Redevelopment Authority Revenue Bonds, weekly demand (E)(u) 1,155 2.850 08/01/25 1,155 ------------ 2,483 ------------ Missouri - 3.8% Clayton Industrial Development Authority Revenue Bonds, weekly demand (E)(u) 1,000 2.850 01/01/09 1,000 Missouri Public Utilities Commission Revenue Notes (E) 1,000 4.000 09/15/06 1,008 Missouri State Health & Educational Facilities Authority Revenue Bonds, weekly demand (E) 195 2.780 10/01/24 195 Missouri State Health & Educational Facilities Authority Revenue Bonds, weekly demand (E)(u) 100 2.780 08/15/28 100 Missouri State Health & Educational Facilities Authority Revenue Bonds, weekly demand (E)(u) 200 2.780 10/01/31 200 ------------ 2,503 ------------ Montana - 1.1% Montana Health Facilities Authority Revenue Bonds, weekly demand (E)(u) 700 2.700 12/01/15 700 ------------ Multi-State and Other - 0.8% Greystone Revenue Bond Certificate Trust Series 1998-1 Class SR, weekly demand (E)(e) 500 2.830 05/01/28 500 ------------ New Jersey - 4.4% Dumont New Jersey Notes (E) 2,075 3.625 04/06/06 2,080 New Jersey Economic Development Authority Revenue Bonds, weekly demand (E)(u) 800 2.830 08/01/14 800 ------------ 2,880 ------------ New York - 4.8% Albany Industrial Development Agency Revenue Bonds, weekly demand (E) 380 2.800 07/01/32 380 Herkimer County Industrial Development Agency Revenue Bonds, weekly demand (E)(u) 1,240 2.770 12/01/14 1,240 Marlboro Central School District General Obligation Unlimited Notes (E) 1,200 3.750 04/13/06 1,204 New York City Municipal Water Finance Authority Revenue Bonds, weekly demand (E) 300 2.720 06/15/36 300 ------------ 3,124 ------------
14 Tax Free Money Market Fund FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- North Carolina - 0.1% North Carolina Medical Care Commission Revenue Bonds, weekly demand (E)(u) 50 2.750 11/15/09 50 ------------ Ohio - 9.3% American Municipal Power-Ohio, Inc. Revenue Notes (E) 580 2.850 03/31/06 580 American Municipal Power-Ohio, Inc. General Obligation, Ltd. Notes (E) 1,100 3.200 10/05/06 1,100 Clermont County Ohio Revenue Bonds, semi-annual demand (E)(u) 1,400 2.900 05/01/12 1,400 Stark County Ohio Revenue Bonds, semi-annual demand (E)(u) 1,370 3.050 09/01/15 1,370 Stark County Ohio Revenue Bonds, weekly demand (E)(u) 1,595 3.050 09/15/16 1,595 ------------ 6,045 ------------ Oklahoma - 1.5% Tulsa County Industrial Authority Revenue Bonds, annual demand (E) 1,000 2.950 05/15/17 1,000 ------------ Pennsylvania - 0.9% City of Philadelphia Pennsylvania Revenue Bonds, weekly demand (E)(u) 100 2.690 06/15/23 100 Pennsylvania Higher Educational Facilities Authority Revenue Bonds, annual demand (E)(u) 500 1.950 11/01/31 500 ------------ 600 ------------ Rhode Island - 1.6% Rhode Island Economic Development Corp. Revenue Bonds, weekly demand (E)(u) 1,065 2.740 07/01/23 1,065 ------------ South Carolina - 1.5% Three Rivers Solid Waste Authority Revenue Notes, weekly demand (E) 1,000 3.875 06/01/06 1,005 ------------ Tennessee - 6.7% Franklin County Health & Educational Facilities Board Revenue Bonds, semi-annual demand (E) 1,175 2.650 09/01/10 1,175 Knox County Health Educational & Housing Facilities Board Revenue Bonds, weekly demand (E)(u) 320 2.700 03/01/19 320 Knox County Industrial Development Board Revenue Bonds, weekly demand (E)(u) 1,800 3.500 12/01/14 1,800 Wilson County Industrial Development Board, weekly demand 1,100 2.720 07/01/26 1,100 ------------ 4,395 ------------ Texas - 0.7% Gulf Coast Waste Disposal Authority Revenue Bonds, weekly demand (E)(u) 490 2.720 12/01/08 490 ------------ Vermont - 2.7% Vermont Educational & Health Buildings Financing Agency Revenue Bonds, weekly demand (E)(u) 1,340 2.830 06/01/22 1,340 Vermont Educational & Health Buildings Financing Agency Revenue Bonds, weekly demand (E)(u) 390 2.830 06/01/27 390 ------------ 1,730 ------------
Tax Free Money Market Fund 15 FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY# $ - -------------------------------------------------------------------------------------------------------------------------- Virginia - 1.8% Harrisonburg Redevelopment & Housing Authority Revenue Bonds, weekly demand (E) 700 2.730 02/01/07 700 Virginia Public Building Authority Revenue Bonds, weekly demand (E)(u) 500 2.730 08/01/19 500 ------------ 1,200 ------------ Washington - 5.7% ABN AMRO Munitops Certificate Trust Revenue Bonds, weekly demand (E)(u) 2,000 2.760 03/01/13 2,000 Washington Economic Development Finance Authority Revenue Bonds, weekly demand (E)(u) 400 2.730 09/01/18 400 Washington State Housing Finance Commission Revenue Bonds, weekly demand (u) 100 2.800 08/01/19 100 Washington State Housing Finance Commission Revenue Bonds, weekly demand (u) 1,230 2.750 08/01/24 1,230 ------------ 3,730 ------------ West Virginia - 1.5% Marshall County West Virginia Revenue Bonds, weekly demand (E) 1,000 2.850 03/01/26 1,000 ------------ Wisconsin - 3.3% Milwaukee Redevelopment Authority Revenue Bonds, weekly demand (E)(u) 500 2.830 07/01/21 500 Wisconsin State Health & Educational Facilities Authority Revenue Bonds, weekly demand (u) 200 2.730 11/01/17 200 Wisconsin State Health & Educational Facilities Authority Revenue Bonds, weekly demand (u) 1,235 2.730 08/15/30 1,235 Wisconsin State Health & Educational Facilities Authority Revenue Bonds, weekly demand (u) 200 2.780 12/01/32 200 ------------ 2,135 ------------ TOTAL SHORT-TERM TAX-EXEMPT OBLIGATIONS (cost $65,005) 65,005 ------------ TOTAL INVESTMENTS - 99.7% (identified cost $65,005) (+) 65,005 OTHER ASSETS AND LIABILITIES, NET - 0.3% 215 ------------ NET ASSETS - 100% 65,220 ============
See accompanying notes which are an integral part of the financial statements. 16 Tax Free Money Market Fund FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005
- ---------------------------------------------------------------------------- QUALITY RATINGS AS A % OF VALUE (Unaudited) P-1/A-1; MIG1/SP-1/F1 or equivalent 100% === ECONOMIC SECTOR EMPHASIS AS A % OF VALUE (Unaudited) Industrial Revenue Bond 21% Non-Profit 21 Nursing Home 10 Cashflow Note 9 Education (colleges and universities) 7 Hospital 6 Bond Anticipation Note 5 Miscellaneous Revenue 5 Multi-Family Housing Bond 5 Airport Revenue 2 Asset Backed 2 School District 2 Water and Sewer 2 Annual Appropriation 1 Local General Obligation 1 Single-Family Housing Bond 1 --- 100% ===
See accompanying notes which are an integral part of the financial statements. Tax Free Money Market Fund 17 FRANK RUSSELL INVESTMENT COMPANY TAX FREE MONEY MARKET FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Alabama 2.5 Arizona 0.5 California 1.5 Colorado 3.1 Delaware 3.2 District of Columbia 0.9 Florida 1.4 Georgia 0.6 Illinois 9.1 Indiana 3.8 Iowa 3.0 Kansas 2.7 Kentucky 3.2 Maryland 1.0 Michigan 7.2 Minnesota 3.8 Missouri 3.8 Montana 1.1 Multi-State and Other 0.8 New Jersey 4.4 New York 4.8 North Carolina 0.1 Ohio 9.3 Oklahoma 1.5 Pennsylvania 0.9 Rhode Island 1.6 South Carolina 1.5 Tennessee 6.7 Texas 0.7 Vermont 2.7 Virginia 1.8 Washington 5.7 West Virginia 1.5 Wisconsin 3.3 --------------- Total Investments 99.7 Other Assets and Liabilities, Net 0.3 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 18 Tax Free Money Market Fund FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO SCHEDULES OF INVESTMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- FOOTNOTES: (E) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. (u) Bond is insured by a guarantor. (B) Illiquid security. (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. (+) The identified cost for Federal income tax purpose is the same as shown above. (n) Taxable security. (e) Multi-State bond issue including Arkansas, Florida, Georgia, Kansas, Kentucky, Tennessee, and Virginia. # All securities with a maturity date greater than thirteen months have a demand feature or an optional or mandatory put, or are pre-refunded, resulting in an effective maturity of thirteen months or less. Additionally, all daily and weekly demand securities are backed by direct payment of letters of credit. (A) Illiquid and restricted security. ABBREVIATIONS: LIBOR - London Interbank Offered Rate A-1 - A short-term obligation rated A-1 is rated in the highest category by Standard & Poor's for commercial paper obligations. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus (+) sign. This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong. F-1 - Highest credit quality. Indicates the strongest capacity for timely payment of financial commitments; (may have an added "+" to denote any exceptionally strong credit feature.) MIG1 - This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the markets for refinancing. P-1 - The highest tax-exempt rating given by Moody's Investor Services to commercial paper with a "superior capacity for repayment." SP-1 - The highest short-term municipal note credit rating given by Standard & Poor's Corporation to notes with a "very strong or strong capacity to pay principal and interest." Notes to Schedules of Investments 19 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005
MONEY MARKET US GOVERNMENT TAX FREE AMOUNTS IN THOUSANDS FUND MONEY MARKET FUND MONEY MARKET FUND - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments at amortized cost which approximates value $ 3,165,456 $ 7,037 $ 65,005 Repurchase agreements at cost which approximates value -- 27,352 -- Receivables: Interest 10,198 35 379 Fund shares sold 727 4 -- Prepaid expenses 19 -- -- ------------------- ------------------- -------------------- Total assets 3,176,400 34,428 65,384 ------------------- ------------------- -------------------- LIABILITIES Payables: Investments purchased 6,015 -- -- Accrued fees to affiliates 286 10 21 Other accrued expenses 142 23 14 Dividends 9,955 88 129 ------------------- ------------------- -------------------- Total liabilities 16,398 121 164 ------------------- ------------------- -------------------- NET ASSETS $ 3,160,002 $ 34,307 $ 65,220 =================== =================== ==================== Net Assets Consist of: Undistributed (overdistributed) net investment income $ 25 $ 13 $ -- Accumulated net realized gain (loss) (172) (74) (132) Shares of beneficial interest 31,601 344 653 Additional paid-in capital 3,128,548 34,024 64,699 ------------------- ------------------- -------------------- NET ASSETS $ 3,160,002 $ 34,307 $ 65,220 =================== =================== ==================== NET ASSET VALUE, per share: Net asset value per share: Class A* $ 1.00 $ -- $ -- Class A - Net assets $ 14,409,567 $ -- $ -- Class A - Shares outstanding ($.01 par value) 14,409,567 -- -- Net asset value per share: Class S* $ 1.00 $ 1.00 $ 1.00 Class S - Net assets $ 3,145,592,005 $ 34,306,575 $ 65,220,173 Class S - Shares outstanding ($.01 par value) 3,145,731,364 34,377,638 65,346,672 - ---------------------------------------------------------------------------------------------------------------------------------
* Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding. See accompanying notes which are an integral part of the financial statements. 20 Statement of Assets and Liabilities FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
MONEY MARKET US GOVERNMENT TAX FREE AMOUNTS IN THOUSANDS FUND MONEY MARKET FUND MONEY MARKET FUND - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 25 $ -- $ -- Interest 88,185 1,193 2,355 ------------------- ------------------- -------------------- Total investment income 88,210 1,193 2,355 ------------------- ------------------- -------------------- Expenses Advisory fees 5,920 86 218 Administrative fees 1,480 22 55 Custodian fees 592 35 57 Distribution fees - Class A 10 -- -- Transfer agent fees 241 48 47 Professional fees 134 20 25 Registration fees 156 20 43 Trustees' fees 69 1 3 Printing fees 124 6 6 Miscellaneous 42 2 3 ------------------- ------------------- -------------------- Expenses before reductions 8,768 240 457 Expense reductions (4,446) (2) (5) ------------------- ------------------- -------------------- Net expenses 4,322 238 452 ------------------- ------------------- -------------------- Net investment income (loss) 83,888 955 1,903 ------------------- ------------------- -------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investments (3) (23) -- ------------------- ------------------- -------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 83,885 $ 932 $ 1,903 =================== =================== ====================
See accompanying notes which are an integral part of the financial statements. Statement of Operations 21 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
MONEY MARKET FUND ------------------------------------------- AMOUNTS IN THOUSANDS 2005 2004 - --------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 83,888 $ 32,881 Net realized gain (loss) (3) 33 ------------------- -------------------- Net increase (decrease) in net assets from operations 83,885 32,914 ------------------- -------------------- DISTRIBUTIONS From net investment income Class A (292) (26) Class S (83,253) (33,031) ------------------- -------------------- Net decrease in net assets from distributions (83,545) (33,057) ------------------- -------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 196,981 598,520 ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 197,321 598,377 NET ASSETS Beginning of period 2,962,681 2,364,304 ------------------- -------------------- End of period $ 3,160,002 $ 2,962,681 =================== ==================== Undistributed (overdistributed) net investment income included in net assets $ 25 $ (343)
See accompanying notes which are an integral part of the financial statements. 22 Statement of Changes in Net Assets
US GOVERNMENT TAX FREE MONEY MARKET FUND MONEY MARKET FUND ------------------------------ ------------------------------------------ 2005 2004 2005 2004 - -------------------------------------------------------------------------------- $ 955 $ 465 $ 1,903 $ 1,147 (23) (5) -- (4) ------- ------------------- ------------------- ------------------- 932 460 1,903 1,143 ------- ------------------- ------------------- ------------------- -- -- -- -- (955) (465) (1,889) (1,161) ------- ------------------- ------------------- ------------------- (955) (465) (1,889) (1,161) ------- ------------------- ------------------- ------------------- (20,293) (7,591) (75,566) 3,112 ------- ------------------- ------------------- ------------------- (20,316) (7,596) (75,552) 3,094 54,623 62,219 140,772 137,678 ------- ------------------- ------------------- ------------------- $34,307 $ 54,623 $ 65,220 $ 140,772 ======= =================== =================== =================== $ 13 $ -- $ -- $ (14)
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 23 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS FINANCIAL HIGHLIGHTS -- FOR THE PERIODS ENDED For the Share Outstanding Throughout Each Period
$ $ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM DISTRIBUTIONS BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT FROM NET PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS INVESTMENT INCOME - --------------------------------------------------------------------------------------------------------------------------------- MONEY MARKET FUND Class A October 31, 2005 1.0000 .0271 -- .0271 (.0271) October 31, 2004 1.0000 .0108 -- .0108 (.0108) October 31, 2003 (1) 1.0000 .0051 -- .0051 (.0051) - --------------------------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 1.0000 .0280 -- .0280 (.0280) October 31, 2004 1.0000 .0117 -- .0117 (.0117) October 31, 2003 1.0000 .0121 -- .0121 (.0121) October 31, 2002 1.0000 .0185 -- .0185 (.0185) October 31, 2001 1.0000 .0483 -- .0483 (.0483) - --------------------------------------------------------------------------------------------------------------------------------- US GOVERNMENT MONEY MARKET FUND Class S October 31, 2005 1.0000 .0234 (.0005) .0229 (.0229) October 31, 2004 1.0000 .0081 -- .0081 (.0081) October 31, 2003 1.0000 .0085 -- .0085 (.0085) October 31, 2002 1.0000 .0173 -- .0173 (.0173) October 31, 2001 1.0000 .0446 -- .0446 (.0446) - --------------------------------------------------------------------------------------------------------------------------------- TAX FREE MONEY MARKET FUND Class S October 31, 2005 1.0000 .0179 -- .0179 (.0179) October 31, 2004 1.0000 .0085 -- .0085 (.0085) October 31, 2003 1.0000 .0094 -- .0094 (.0094) October 31, 2002 1.0000 .0152 -- .0152 (.0152) October 31, 2001 1.0000 .0317 -- .0317 (.0317) - ---------------------------------------------------------------------------------------------------------------------------------
(1) For the period April 21, 2003 (commencement of operations) to October 31, 2003. (a) Average month-end shares 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) May reflect amounts waived and/or reimbursed by Frank Russell Investment Management Company as the investment adviser and transfer agent. See accompanying notes which are an integral part of the financial statements. 24 Financial Highlights
% $ $ RATIO OF EXPENSES $ NET ASSET VALUE, % NET ASSETS, TO AVERAGE TOTAL END OF TOTAL END OF PERIOD NET ASSETS, DISTRIBUTIONS PERIOD RETURN(B) (000) NET(C)(D) - ------------------------------------------------------------------------------------------------- (.0271) 1.0000 2.74 14,410 .25 (.0108) 1.0000 1.08 3,989 .25 (.0051) 1.0000 .59 682 .26 - ------------------------------------------------------------------------------------------------- (.0280) 1.0000 2.82 3,145,592 .15 (.0117) 1.0000 1.17 2,958,692 .15 (.0121) 1.0000 1.28 2,363,623 .16 (.0185) 1.0000 1.87 1,904,819 .14 (.0483) 1.0000 4.94 1,886,741 .14 - ------------------------------------------------------------------------------------------------- (.0229) 1.0000 2.31 34,307 .55 (.0081) 1.0000 .82 54,623 .47 (.0085) 1.0000 .86 62,219 .41 (.0173) 1.0000 1.74 93,182 .25 (.0446) 1.0000 4.55 108,884 .37 - ------------------------------------------------------------------------------------------------- (.0179) 1.0000 1.80 65,220 .41 (.0085) 1.0000 .85 140,772 .36 (.0094) 1.0000 .94 137,678 .32 (.0152) 1.0000 1.53 174,623 .25 (.0317) 1.0000 3.22 180,699 .30 - ------------------------------------------------------------------------------------------------- % % RATIO OF EXPENSES RATIO OF NET TO AVERAGE INVESTMENT INCOME NET ASSETS, TO AVERAGE GROSS(C) NET ASSETS(C)(D) - ------------------------------------------ .40 2.91 .40 1.18 5.24 .96 - ------------------------------------------- .30 2.83 .30 1.16 .31 1.21 .29 1.84 .29 4.78 - ------------------------------------------- .56 2.22 .47 .81 .48 .87 .45 1.73 .63 4.43 - ------------------------------------------- .42 1.74 .37 .84 .36 .95 .35 1.52 .40 3.17 - -------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 25 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on three of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. Security Valuation The Funds' portfolio investments are valued using the amortized cost method. Under this method, a portfolio instrument is initially valued at cost and thereafter a constant accretion/amortization to maturity of any discount or premium is assumed. While amortized cost provides certainty in valuation, it may result in periods when the value of an instrument is higher or lower than the price a Fund would receive if it sold the instrument. Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. Investment Transactions Securities transactions are recorded on a trade date basis, which in most instances is the same as the settlement date. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost. Investment Income Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. 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 provision was required for the Funds. Dividends and Distributions to Shareholders The Money Market, US Government Money Market and Tax Free Money Market Funds declare and record dividends daily and pay them monthly. 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 for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in certain securities sold at a loss and capital loss carryforwards. Accordingly, a Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. 26 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Expenses The Funds will pay their own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Adviser"). 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. Class Allocation The Money Market Fund offers the following classes of shares: Class A and Class S. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Repurchase Agreements The Funds may engage in repurchase agreements with several financial institutions whereby a Fund, through its custodian, receives delivery of underlying securities as collateral. Each Fund's money manager will monitor repurchase agreements daily to determine that the market value (including accrued interest) of the underlying securities at Fed wire closing time remains at least equal to 102% of the repurchase price. The money manager will notify the seller to immediately increase the collateral on the repurchase agreement to 102% of the repurchase price if collateral value falls below 102%. If the seller defaults and the fair value of the collateral declines, realization of the collateral by the Fund may be delayed or limited. 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. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation to FRIMCo. The Investment Company Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses) in the Investment Company's Money Market Fund, US Government Money Market Fund, and Tax Free Money Market Fund. As of October 31, 2005, $1,776,206,111, $3,801,000, and $8,987,848, respectively, represents investment by other Investment Company Funds not presented herein and investment by the Russell Investment Funds. The Russell Investment Funds employs the same investment adviser as FRIC. In addition, a portion of the collateral received from the Investment Company's securities lending program in the amount of $800,000 is invested in the Money Market Fund. The advisory and administrative fees are based upon the average daily net assets of the Funds and the rates specified in the table below, are payable monthly and total $6,224,230 and $1,556,057 respectively, for the period ended October 31, 2005.
ANNUAL RATE ------------------------------- ADVISER ADMINISTRATOR ---------------------------------------------------------------------- Money Market 0.20% 0.05% US Government Money Market 0.20 0.05 Tax Free Money Market 0.20 0.05
The Adviser has contractually agreed to waive 0.15% of its 0.25% combined advisory and administrative fees, at least until February 28, 2006, for the Money Market Fund. The amount of such waiver for the period ended October 31, 2005 was $4,439,826. The adviser does not have the ability to recover amounts waived for the period ended October 31, 2005 or previous periods. Notes to Financial Statements 27 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- For the period ended October 31, 2005, the Adviser paid the following amounts to certain Funds with respect to referral fees received: Money Market $ 3,884 US Government Money Market 1,787 Tax Free Money Market 1,165
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. During the period ended October 31, 2005, the Funds' custodian fees were reduced by the following amounts under these arrangements: Money Market $ 1,911 US Government Money Market 175 Tax Free Money Market 3,373
Transfer Agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Funds. FRIMCo retains a portion of this fee for its services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Funds reported herein for the period ended October 31, 2005 were $336,059. Distributor The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to Russell Fund Distributors, Inc. (the "Distributor") a wholly-owned subsidiary of FRIMCo, or any Selling Agents, as defined in the Plan, for sales support services provided, and related expenses incurred which are primarily intended to result in the sale of the Class A shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.15% of the average daily net assets of a Fund's Class A shares on an annual basis. Accrued Fees to Affiliates Accrued fees payable to affiliates as of October 31, 2005 were as follows:
US GOVERNMENT TAX FREE MONEY MARKET MONEY MARKET MONEY MARKET ------------------------------------------------------------------------------------------------------ Advisory fees $ 132,960 $ 5,777 $ 11,880 Administration fees 133,177 1,444 2,967 Distribution fees 1,219 -- -- Transfer agent fees 13,838 2,418 5,748 Trustee fees 4,893 107 297 ------------------- ------------------- ------------------- $ 286,087 $ 9,746 $ 20,892 =================== =================== ===================
Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company, which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received 28 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and a new chairperson of the Board was elected with additional annual compensation of $52,000. 4. FEDERAL INCOME TAXES At October 31, 2005, certain Funds had net tax basis capital loss carryforwards which may be applied against any realized net 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:
10/31/06 10/31/07 10/31/08 ------------------------------------------------------------------------------ Money Market $ -- $ -- $ 90,626 US Government Money Market 762 1,782 8,484 Tax Free Money Market -- -- 68,310
10/31/09 10/31/10 10/31/11 10/31/12 10/31/13 TOTALS ------------------------------------------------------------------------------------------------------------------------ Money Market $ 35,378 $ -- $ 43,223 $ -- $ 3,147 $ 172,374 US Government Money Market 15,034 2,688 17,267 4,791 22,845 $ 73,653 Tax Free Money Market 59,628 19 -- 4,408 -- $ 132,365
5. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
CLASS A CLASS S ON A CONSTANT DOLLAR BASIS ON A CONSTANT DOLLAR BASIS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 ----------------- ----------------- ----------------- ----------------- Money Market Proceeds from shares sold $ 26,116 $ 8,470 $ 20,243,631 $ 16,907,677 Proceeds from reinvestment of distributions 230 20 9,854 4,172 Payments for shares redeemed (15,925) (5,186) (20,066,925) (16,316,633) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) $ 10,421 $ 3,304 $ 186,560 $ 595,216 ================= ================= ================= ================= US Government Money Market Proceeds from shares sold $ -- $ -- $ 89,516 $ 92,918 Proceeds from reinvestment of distributions -- -- 761 340 Payments for shares redeemed -- -- (110,570) (100,849) ----------------- ----------------- ----------------- ----------------- -- Total net increase (decrease) $ -- $ -- $ (20,293) $ (7,591) ================= ================= ================= ================= Tax Free Money Market Proceeds from shares sold $ -- $ -- $ 336,138 $ 327,582 Proceeds from reinvestment of distributions -- -- 1,190 827 Payments for shares redeemed -- -- (412,894) (325,297) ----------------- ----------------- ----------------- ----------------- -- Total net increase (decrease) $ -- $ -- $ (75,566) $ 3,112 ================= ================= ================= =================
6. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Funds may borrow up to a maximum of 33.33% of the value of their net assets under the agreement. The agreement will Notes to Financial Statements 29 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- expire December 21, 2005 and is expected to be renewed at that time. The Funds did not have any drawdowns for the period ended October 31, 2005. 7. RECORD OWNERSHIP As of October 31, 2005, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund:
FUNDS # OF SHAREHOLDERS % -------------------------------------------------------------------------------- Money Market 1 25.3 US Government Money Market 2 46.2 Tax Free Money Market 3 53.1
8. RESTRICTED SECURITIES Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are not registered under the Securities Act of 1933 (the "Act"). The most common types of restricted securities are those sold under Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act. A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. Illiquid securities are securities that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid. The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities deemed liquid by FRIMCo or a money manager pursuant to Board approved policies and procedures or (2) illiquid securities that are not restricted securities as designated on the Fund's Schedule of Investments.
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ --------------------------------------------------------------------------------------------------------------------------- Money Market Fund - 6.6% New York Life Insurance Co. 11/19/04 35,000,000 100.00 35,000 35,000 New York Life Insurance Co. 05/19/04 50,000,000 100.00 50,000 50,000 Protective Life Insurance Co. 12/06/04 50,000,000 100.00 50,000 50,000 The Travelers Insurance Co. 11/22/04 75,000,000 100.00 75,000 75,000 -------------- 210,000 ==============
Illiquid securities may be priced by the Funds using fair value procedures approved by the Board of Trustees. 30 Notes to Financial Statements REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Money Market Fund, US Government Money Market Fund, and Tax Free Money Market Fund (three of the portfolios constituting Frank Russell Investment Company, hereafter collectively referred to as the "Funds") at October 31, 2005, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. LOGO Seattle, Washington December 20, 2005 Report of Independent Registered Public Accounting Firm 31 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Of the dividend paid by the Tax Free Money Market Fund from the net investment income for the taxable year ended October 31, 2005, 100% were exempt interest dividends which are tax exempt for purposes of regular federal income tax, and for purposes of the federal alternative minimum tax. Please consult a tax adviser for any questions about federal or state income tax laws. 32 Tax Information FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Shareholder Requests for Additional Information 33 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 - None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified. - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. 34 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 35 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
36 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. Disclosure of Information about Fund Directors 37 FRANK RUSSELL INVESTMENT COMPANY MONEY MARKET FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
38 Disclosure of Information about Fund Directors MONEY MARKET FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS AS OF OCTOBER 31, 2005 Money Market Fund Frank Russell Investment Management Company, Tacoma, WA US Government Money Market Fund Frank Russell Investment Management Company, Tacoma, WA Tax Free Money Market Fund Neuberger Berman Management, Inc., New York, NY 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 39 (This page intentionally left blank) (RUSSELL LOGO) Frank Russell Investment Company 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-083 (1 10/05) RUSSELL FUNDS 2005 Annual Report CLASS C, E, AND S SHARES DIVERSIFIED EQUITY FUND SPECIAL GROWTH FUND QUANTITATIVE EQUITY FUND INTERNATIONAL SECURITIES FUND EMERGING MARKETS FUND REAL ESTATE SECURITIES FUND SHORT DURATION BOND FUND (formerly Short Term Bond Fund) DIVERSIFIED BOND FUND MULITSTRATEGY BOND FUND TAX EXEMPT BOND FUND TAX-MANAGED LARGE CAP FUND TAX-MANAGED MID & SMALL CAP FUND CLASS C, E, I, AND S SHARES: SELECT GROWTH FUND SELECT VALUE FUND OCTOBER 31, 2005 (RUSSELL LOGO) Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on fourteen of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company Russell Funds Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Diversified Equity Fund.............................................. 10 Special Growth Fund.................................................. 20 Quantitative Equity Fund............................................. 36 International Securities Fund........................................ 46 Emerging Markets Fund................................................ 66 Real Estate Securities Fund.......................................... 80 Short Duration Bond Fund............................................. 88 Diversified Bond Fund................................................ 108 Multistrategy Bond Fund.............................................. 134 Tax Exempt Bond Fund................................................. 166 Tax-Managed Large Cap Fund........................................... 182 Tax-Managed Mid & Small Cap Fund..................................... 192 Select Growth Fund................................................... 204 Select Value Fund.................................................... 214 Notes to Schedules of Investments.................................... 223 Statement of Assets and Liabilities.................................. 224 Statement of Operations.............................................. 232 Statement of Changes in Net Assets................................... 236 Financial Highlights................................................. 240 Notes to Financial Highlights........................................ 254 Notes to Financial Statements........................................ 255 Report of Independent Registered Public Accounting Firm.............. 284 Tax Information...................................................... 285 Basis for Approval of Investment Advisory Contracts.................. 286 Shareholder Requests for Additional Information...................... 289 Disclosure of Information about Fund Directors....................... 290 Manager, Money Managers and Service Providers........................ 295
Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, /s/ GREG STARK Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MARKET SUMMARY AS OF OCTOBER 31, 2005 (UNAUDITED) U.S. EQUITY MARKETS Though the 2004 presidential election provided a boost to the markets at the start of the fiscal year, stocks made little headway in the first half of the fiscal year as concerns of high oil prices and rising interest rates offset generally strong economic and corporate earnings data. But despite even higher energy costs, rising inflationary pressures, further interest rate hikes by the Federal Reserve, the economic disruptions of hurricanes Rita and Katrina and a sharp fall-off in consumer confidence, stocks were surprisingly resilient in the second half of the fiscal year. For the fiscal year ending October 31, 2005, the Russell 3000(R) Index gained 10.55%. Sector leadership in the first half of the fiscal year was dominated by energy and utilities. As in the previous year, energy stocks dominated the market due to strong global demand for energy. Towards the end of the fiscal year, hurricanes Katrina and Rita provided another boost to energy sectors as damage to the natural gas and petroleum refining and distribution infrastructure caused further spikes in energy prices. Despite a subsequent decline in oil prices and a sharp sell-off in energy stocks in October, the integrated oil and other energy sectors strongly led the U.S. equity market in the fiscal year. Other sectors also performed well in the second half, including technology and healthcare. As a result, the market environment for active management improved in the second half of the fiscal year as the rally in equities broadened beyond the energy and utilities sectors. While lagging far behind energy stocks, consumer staples stocks also outperformed in the fiscal year due to their defensive, stable growth qualities. Biotechnology and non-pharmaceutical healthcare stocks also fared well. In contrast, materials and consumer discretionary stocks lost favor with investors. Though the housing market remained strong, providing support for consumer spending, real estate prices appeared to ease towards the end of the fiscal year as higher energy and mortgage financing costs weakened consumer confidence. Retail and housing-related stocks fell to end the fiscal year among the worst performers. Despite rebounding in the second half of the year, technology stocks also lagged in the fiscal year as rising competitive pressures and generally lackluster earnings outlooks held back large capitalization technology stocks. Small capitalization companies outperformed large capitalization companies, as measured by the 12.08% return of the Russell 2000(R) Index versus 10.47% for the Russell 1000(R) Index for the fiscal year ended October 31, 2005. Though their lead narrowed over the 12 months, small capitalization companies have outperformed large capitalization companies for the last seven years. Small capitalization companies continued to benefit from narrow credit spreads (which allow companies to borrow money at more favorable rates). They also benefited from strong performance of stocks in the energy, healthcare and utilities sectors and the improving performance of technology-related companies. Companies of higher financial quality continued to underperform the broader market as represented by the Russell 3000(R) Index, while higher beta and lower dividend yield companies on the whole outperformed the broader market. Style continued to play an important role in equity returns. Value stocks outperformed growth stocks, though 4 Market Summary FRANK RUSSELL INVESTMENT COMPANY the margin of outperformance was smaller than in recent years. The Russell 1000(R) Value Index returned 11.86% for the fiscal year, compared with 8.81% for the Russell 1000(R) Growth Index. Investors' continued preference for energy-related and utility stocks over technology stocks, strongly favored value stocks in the first half of the fiscal year. But growth stocks performed better in the second half of the fiscal year due to rebounds by technology and biotechnology and health care service-related stocks. The fiscal year ending October 31, 2005 was relatively difficult for active managers given the outstanding performance of the energy sectors, which many active managers were underweight. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.14% while the Lipper Large Cap Value Funds Average underperformed the Russell 1000(R) Value Index by 2.18%. Active management fared better in the growth segment where the Lipper Large Cap Growth Funds Average beat the Russell 1000(R) Growth Index by 1.28%. The environment for active small capitalization investing was also more favorable: the Lipper Small-Cap Core Funds Average beat the Russell 2000(R) Index by 1.16%. Note: Lipper returns are net of fees while the index returns are gross of fees. U.S. REAL ESTATE MARKETS The public real estate investment trust (REIT) market continued to deliver strong performance as the NAREIT Equity REIT Index returned 17.92% in the fiscal year ending October 31, 2005. Though interest rates rose during the fiscal year, they remained low relative to historical levels. The REIT market was further supported by improving property market supply and demand fundamentals and an active mergers and acquisitions environment. Elevated volatility continued to dominate the REIT market. Because yield-oriented investors are a major constituent in the REIT market, the market was highly sensitive to changes in long-term interest rates and shifts in sentiment regarding the direction of rates. During the fiscal year, the spread of average REIT dividend yields to 10-year Treasury yields was compressed, making REITs vulnerable to pricing adjustments based on changes in the outlook for interest rates. Improvements in real estate fundamentals resulted in higher average occupancy rates and rents which contributed to solid growth in REIT earnings and positive performance for most sectors. The strongest performing sectors were self storage and apartments. The self storage sector was attractive due to relative valuations and earnings growth. Apartments benefited from expectations that higher mortgage interest rates would dampen purchases of entry-level single-family homes and boost demand for apartments. Other sectors that outperformed the benchmark included office, regional malls and diversified. The weakest performing sectors included manufactured homes, health care, shopping centers, industrial and mixed industrial/office. Investors favored larger capitalization REITs during the fiscal year. The NAREIT Real Estate 50, a benchmark of larger and more frequently traded REITs, returned 19.79%. These companies benefited from their better liquidity, more favorable balance sheets and stronger earnings growth prospects. NON-U.S. EQUITY MARKETS Non-U.S. stocks gained 18.59% as measured by the MSCI EAFE Index for the fiscal year ended October 31, 2005. The performance of non-U.S. stocks was even more impressive given that the strong U.S. dollar muted returns for U.S. investors. The MSCI EAFE Index rose 25.64% as measured in local currencies over the 12-month period. Non-U.S. stocks benefited from steady global growth and improved corporate earnings; however, regional returns showed considerable variation. While the U.S. economy continued to set the tempo for global markets, Market Summary 5 FRANK RUSSELL INVESTMENT COMPANY China's economic growth also had a strong influence, particularly in the Pacific Basin. Japan achieved the strongest returns of the major countries, with the MSCI Japan Index up 22.29% in the fiscal year. Japan's improving economy, increased corporate and consumer spending and demand from China boosted stocks. In addition, investors believed that Prime Minister Koizumi's landslide victory in the September 2005 election increased the likelihood of structural reform intended to accelerate economic growth. The Japanese market was led by strong gains in the financial sector. Japanese banks were expected to further benefit from the improving domestic economy. Japanese materials and energy sectors also performed well in the period. Europe lagged Asia, though the MSCI Europe Index achieved a still impressive 16.84% return over the fiscal year. Smaller markets, such as Norway and Austria, fared best, helped by very strong gains from their energy stocks. Despite good results from energy, materials and financials stocks, the Euro zone's (European Union countries that have adopted the Euro as common currency) larger markets of Germany and France delivered below average returns, held back by poorly performing technology and telecommunications stocks. Elsewhere, the U.K. also lagged the European region with a gain of 14.22% (MSCI UK). The U.K. underperformed due to weakness among its financials and telecommunication stocks. While the Euro zone showed small signs of economic improvement over the fiscal year, the U.K. economy slowed down, causing the Bank of England to cut interest rates towards the end of the period. Markets not represented in the MSCI EAFE Index, but commonly included in non-US stock portfolios, offered significant opportunities for gains during the period. Canadian stocks rose 24.13% (MSCI Canada). Developing markets provided additional opportunity as the MSCI Emerging Markets Index rose 34.34%. These markets benefited from heavy weightings in energy and materials stocks. With market participants focused on rising energy costs and China's strong economic growth, the performance of economic sectors was aligned with these themes. Across the non-U.S. markets, industrial cyclicals were the top performers. The materials sector, led by metals and mining stocks, was the strongest sector, up 29.12% (MSCI EAFE Materials). The energy sector followed with a 25.46% (MSCI EAFE Energy) gain and the industrial sector also fared well, up 25.09% (MSCI EAFE Industrials). In contrast, technology and telecommunications were the worst performing sectors over the period, with gains of only 3.45% (MSCI EAFE Information Technology) and 5.48% (MSCI EAFE Telecommunications Services), respectively. The diverse pressures on these underperforming sectors included increased competition, falling prices, restructuring charges and rising inventories. Sharply higher energy costs also cut into profit margins as the fiscal year progressed. With the value segment of the MSCI EAFE index more weighted towards industrial cyclicals and financials, the environment was slightly more favorable for value-oriented investors; however, the margin of outperformance was relatively small. The MSCI EAFE Value Index rose 19.16%, compared with 18.03% for the MSCI EAFE Growth Index. Investors continued to favor smaller capitalization stocks over their larger capitalization peers with the MSCI EAFE Small Cap Index up 37.29% in the period. Despite their traditional bias towards smaller capitalization stocks, as well as the tendency to hold emerging markets and Canadian stocks, actively-managed international funds found the past fiscal year a challenging period. The average fund, as measured by the Lipper International Funds Average, lagged the MSCI EAFE Index over the period by 0.81%. EMERGING MARKETS Emerging Markets was the best-performing asset class in the fiscal year with the MSCI Emerging Markets Index up a strong 34.34%. The devastating tsunami that affected much of South Asia in late December 2004 6 Market Summary FRANK RUSSELL INVESTMENT COMPANY had little impact on the markets of the region, with the exception of Sri Lanka, whose market lost 10% of its value in the last week of December. China's move to revalue its currency (allowing it to rise 2.11% against the US dollar), also had a limited effect on the currencies and markets in the region. Widespread declines in stock prices in March and October across the emerging markets, caused by rising U.S. interest rates and a slowdown in Chinese growth, also proved to be short-lived. Overall, these markets benefited from strong demand for energy and other raw materials, healthier local economies, corporate earnings gains, improving governance and attractive valuations relative to other asset classes. Given the substantial gains relative to the U.S. and non-U.S. developed markets in the fiscal year, the valuation discount of emerging markets narrowed. Regionally, Latin America was the top performer, returning 61.55% (MSCI EM Latin America). EMEA (Europe, Middle East and Africa) also outperformed, returning 39.27% (MSCI EM Europe, Middle East & Africa). In contrast, Asia lagged, returning 23.63% (MSCI EM Asia). Top country performers were some of the smaller markets such as Egypt, Jordan, Columbia and Pakistan which generated gains between 73% (MSCI EM Pakistan) and 159% (MSCI EM Egypt). Despite allegations of government corruption in the second quarter that caused a decline in the market, Brazil was the best performing large country; however, its 76% (MSCI EM Brazil) gain was aided by a 27% rise in its currency. Venezuela was the only country to lose ground in the fiscal year, falling by 34.08% (MSCI EM Venezuela). In terms of sectors, energy, up 53.99% (MSCI EM Energy), was the best performer driven by the strong oil prices over the period. In contrast, technology was the worst performing sector. All other sectors performed more in line with the benchmark. On balance, country selection was the key to outperformance in the fiscal year. U.S. FIXED INCOME MARKETS Interest rates, particularly in shorter-term maturities, took their cue from Federal Reserve policy. The Federal Reserve raised its target for the fed funds rate (the interest rate at which depository institutions lend money at the Federal Reserve to other depository institutions overnight) from 1.75% in the fall of 2004 to 3.75% by the end of October 2005. The Fed's eight interest rate hikes in the fiscal year represented an attempt to move back to a more neutral monetary policy to counter rising inflationary pressures as the fiscal year progressed. Although shorter maturity interest rates tended to move up in a straight line, intermediate and long term rates were volatile as investors grappled with slowing economic growth, moderate employment growth, rising commodity prices and natural disasters. Worries about inflation caused bond markets to gyrate up and down, with the ten-year note moving from a high of over 4.6% in March to a low of under 3.9% in June. For the fiscal year, ten-year rates rose, starting at 4.0% and moving up to end the period at 4.55%. With interest rates rising, investment grade bonds were little changed. For example, the Lehman Brothers US Aggregate Bond Index, a broad measure of US investment grade fixed income securities, returned just 1.13% for the fiscal year ending October 31, 2005. Among sectors, the riskier areas continued to post strong performance. As in the two prior years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from low default levels, healthy economic growth and low interest rates. Emerging market debt performed well due to commodity price increases and better fiscal and monetary governance among a number of developing countries. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 4.08% over the year compared to 0.88% for the Lehman US Treasury Index. Investment grade corporate bonds also benefited from the same factors that drove the high yield market. For the fiscal year, the Lehman US Credit Index returned 0.65%. Despite increased regulatory scrutiny of the mortgage market, mortgage securities also continued to do well, slightly outperforming equivalent duration Treasuries. Market Summary 7 FRANK RUSSELL INVESTMENT COMPANY The Lehman MBS Fixed Rate Index returned 1.75%. As the fiscal year ended, the yield spreads between corporates and mortgages relative to Treasuries continued to be narrow, reflecting a healthy economy where corporations remained conservative in their use of debt. The narrow spread also reflected a large market demand for yield, as coupons across the globe remained very low. 8 Market Summary (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
DIVERSIFIED EQUITY - CLASS S RUSSELL 1000(R) ** ---------------------------- ------------------ * 10000.00 10000.00 1996 12282.00 12292.00 1997 16372.00 16206.00 1998 18978.00 19401.00 1999 23380.00 24364.00 2000 24200.00 26571.00 2001 17568.00 19652.00 2002 15104.00 16783.00 2003 18139.00 20528.00 2004 19521.00 22443.00 2005 22001.00 24793.00
Diversified Equity Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.71% 5 Years (1.89)%sec. 10 Years 8.20%sec.
Diversified Equity Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.46% 5 Years (2.13)%sec. 10 Years 7.93%sec.
Diversified Equity Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.60% 5 Years (2.86)%sec. 10 Years 7.39%sec.
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. 10 Years 9.50%sec.
10 Diversified Equity Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Diversified Equity Fund Class S, Class E and Class C Shares gained 12.71%, 12.46% and 11.60%, respectively. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Core Funds Average returned 8.33%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? During the past 12 months, the Fund benefited from the rising stock market due to its fully invested stance, favorable stock selection and its allocation to the energy sector. Since energy stocks have dominated market returns, exposure to this group was an important contributor to the Fund's performance. In addition, the market favored companies with above-average forecasted growth and lower dividend yields, and the Fund was positioned to benefit from these trends. The Fund also overcame a challenging active management environment to post favorable peer-relative returns. A key contributor to the Fund's outperformance relative to peers included full participation in the energy stock rally, as many of the Fund's peers were underweight this sector. Strong stock selection across almost every other sector contributed to the Fund's favorable performance versus its peers. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? There were a number of contributing factors to the Fund's outperformance relative to its benchmark and peers. First, the Fund was fully invested in equities in a positive stock market. Second, stock selection was favorable across most economic sectors. Third, several overweighted positions had significant returns including Google, Genentech, ConocoPhillips, Altria and Boeing. Fourth, the Fund benefited from holding stocks that export to developing countries (e.g., Proctor & Gamble, Caterpillar, and PepsiCo). Fifth, the Fund was modestly overweighted in the energy sector. Finally, most of the Fund's money managers such as Institutional Capital Corporation, Suffolk Capital Management, LLC, Marsico Capital Management, LLC and Turner Investment Partners, Inc. substantially outperformed their respective benchmarks. Detractors to performance in the fiscal year were the Fund's overweight in consumer discretionary stocks and its modestly above-market beta. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The market environment for the 12 months was favorable for strategies emphasized by the Fund. The Fund's growth money managers that focused on companies with above-average growth rates posted strong returns, as the market favored dynamic industries such as biotechnology over slower growing industries such as pharmaceuticals. Outperforming money managers within this group of money managers included Turner and Marsico. Turner's stock selection was positive across most sectors but was particularly strong in the health care, consumer staples and financial services sectors. Marsico also delivered good results in the health care and financial services sectors, but added additional value through its positioning in the technology sector. Marsico's large overweight to Google was one of the strongest contributors to performance. The Fund's value money managers, on average, fully participated in the energy stock rally and emphasized companies with stable earnings in a decelerating profit growth environment. In this group of money managers, Institutional Capital had strong energy and consumer staples stock selection. The market-oriented money managers benefited from owning companies with positive earnings surprises and rising earnings estimates. Suffolk's health care stock selection was strong, but this manager also added value through good stock selection in the materials and processing and consumer discretionary sectors, two of the fiscal year's worst-performing sectors. Overall, the Fund's performance was helped by the market's preference for companies with above-average forecasted growth. After five years of underperformance in the U.S. market, growth companies are selling at historically low valuation premiums. The Fund's money managers responded by emphasizing growth companies to a greater degree and this strategy was rewarded in the period. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In July 2005, Jacobs Levy Equity Management, Inc. was terminated. At the same time, a "select holdings" strategy was implemented. Pursuant to this strategy, FRIMCo analyzes the stocks purchased for the Fund by each of the Fund's money managers to identify particular stocks that are concurrently overweighted by the money managers. Based on rankings from a proprietary model, FRIMCo purchases additional shares of certain stocks for the Fund. The Fund continues to pursue a strategy of increasing stock specific risk and these changes were consistent with this strategy. Diversified Equity Fund 11 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management L.P., through its Bernstein Investment Research & Management Unit Value Ark Asset Management Co., Inc. Growth Institutional Capital Corporation Value Marsico Capital Management, LLC Growth MFS Institutional Advisors, Inc. Value Montag & Caldwell, Inc. Growth Schneider Capital Management Corporation Value Suffolk Capital Management, LLC Market-Oriented Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Diversified Equity Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Diversified Equity Fund Class S performance has been linked with Class E to provide historical perspective. For the period May 27, 1997 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Diversified Equity Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 12 Diversified Equity Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,070.10 $ 1,015.17 Expenses Paid During Period* $ 10.38 $ 10.11
* Expenses are equal to the Fund's annualized expense ratio of 1.99% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,074.10 $ 1,018.95 Expenses Paid During Period* $ 6.48 $ 6.31
* Expenses are equal to the Fund's annualized expense ratio of 1.24% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,075.20 $ 1,020.21 Expenses Paid During Period* $ 5.18 $ 5.04
* Expenses are equal to the Fund's annualized expense ratio of 0.99% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Diversified Equity Fund 13 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 92.8% Auto and Transportation - 3.4% American Axle & Manufacturing Holdings, Inc. (N) 25,700 560 Autoliv, Inc. 17,700 760 BorgWarner, Inc. 16,100 934 Burlington Northern Santa Fe Corp. 230,606 14,311 CH Robinson Worldwide, Inc. (N) 82,840 2,921 Cooper Tire & Rubber Co. (N) 26,000 355 CSX Corp. 508,500 23,294 Dana Corp. (N) 67,800 509 FedEx Corp. 127,906 11,758 General Motors Corp. (N) 51,400 1,408 Honda Motor Co., Ltd. - ADR 169,075 4,702 Lear Corp. (N) 27,100 826 Magna International, Inc. Class A 5,600 391 Navistar International Corp. (AE) 190,600 5,245 Norfolk Southern Corp. 287,600 11,562 Southwest Airlines Co. 102,200 1,636 Swift Transportation Co., Inc. (AE) 59,050 1,078 Union Pacific Corp. 28,962 2,004 United Parcel Service, Inc. Class B 93,500 6,820 Visteon Corp. 316,450 2,636 ------------ 93,710 ------------ Consumer Discretionary - 14.6% Accenture, Ltd. Class A 309,220 8,136 AnnTaylor Stores Corp. (AE)(N) 142,500 3,458 Apollo Group, Inc. Class A (AE) 62,300 3,926 aQuantive, Inc. (AE)(N) 59,900 1,297 Bed Bath & Beyond, Inc. (AE) 132,400 5,365 Best Buy Co., Inc. 137,070 6,067 Carnival Corp. 254,450 12,639 Cendant Corp. 544,650 9,488 Chico's FAS, Inc. (AE) 72,670 2,873 Circuit City Stores, Inc. 34,950 622 Coach, Inc. (AE) 101,070 3,252 Convergys Corp. (AE) 19,400 315 Costco Wholesale Corp. 58,800 2,844 Eastman Kodak Co. (N) 45,900 1,005 eBay, Inc. (AE) 369,500 14,632 Electronic Arts, Inc. (AE) 154,910 8,811 Estee Lauder Cos., Inc. (The) Class A 116,700 3,871 Fisher Scientific International, Inc. (AE) 70,000 3,955 Foot Locker, Inc. 42,000 816 Four Seasons Hotels, Inc. (N) 55,788 2,992 GameStop Corp. Class A (AE) 6,550 232 Gannett Co., Inc. 8,700 545 Gap, Inc. (The) 278,050 4,805 Google, Inc. Class A (AE) 110,537 41,135 GTECH Holdings Corp. 28,300 901 Harman International Industries, Inc. 4,168 416
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Harrah's Entertainment, Inc. 81,000 4,899 Hewitt Associates, Inc. Class A (AE)(N) 194,300 5,186 Hilton Hotels Corp. 48,050 935 Home Depot, Inc. 209,183 8,585 Interpublic Group of Cos., Inc. (AE) 67,000 692 JC Penney Co., Inc. 226,200 11,581 Jones Apparel Group, Inc. 35,100 958 Kimberly-Clark Corp. 104,930 5,964 Kohl's Corp. (AE) 374,000 18,001 Liberty Global, Inc. Series A (AE) 109,747 2,718 Liberty Global, Inc. Series C (AE) 116,547 2,764 Liberty Media Corp. Series A (AE) 674,250 5,374 Limited Brands, Inc. 45,400 908 Liz Claiborne, Inc. 5,500 194 Lowe's Cos., Inc. 226,305 13,753 Mattel, Inc. 26,000 384 McDonald's Corp. 974,200 30,785 MGM Mirage (AE)(N) 210,337 7,860 Newell Rubbermaid, Inc. 114,350 2,629 Nike, Inc. Class B 65,800 5,530 Nordstrom, Inc. 113,140 3,920 Office Depot, Inc. (AE) 133,600 3,678 Omnicom Group 73,200 6,073 Royal Caribbean Cruises, Ltd. (N) 145,100 6,013 RR Donnelley & Sons Co. (N) 238,650 8,358 Scientific Games Corp. Class A (AE)(N) 84,490 2,531 Sears Holdings Corp. (AE)(N) 51,200 6,157 Sirius Satellite Radio, Inc. (AE)(N) 476,900 2,976 Starbucks Corp. (AE) 242,784 6,866 Starwood Hotels & Resorts Worldwide, Inc. (o) 162,850 9,515 Target Corp. 217,304 12,098 Tech Data Corp. (AE)(N) 16,800 582 Tiffany & Co. 51,000 2,009 Time Warner, Inc. 653,150 11,646 VF Corp. 17,200 899 Viacom, Inc. Class B 242,000 7,495 Wal-Mart Stores, Inc. 301,600 14,269 Walt Disney Co. 41,540 1,012 Wynn Resorts, Ltd. (AE)(N) 54,973 2,566 XM Satellite Radio Holdings, Inc. Class A (AE)(N) 40,500 1,168 Yahoo!, Inc. (AE) 285,510 10,555 Yum! Brands, Inc. 111,226 5,658 ------------ 400,142 ------------
14 Diversified Equity Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Consumer Staples - 7.7% Altria Group, Inc. 649,260 48,727 Cadbury Schweppes PLC - ADR 134,600 5,342 Coca-Cola Co. (The) 207,220 8,865 Colgate-Palmolive Co. 167,800 8,887 CVS Corp. 439,511 10,728 Dean Foods Co. (AE) 39,150 1,415 Diageo PLC - ADR (N) 55,360 3,290 Kellogg Co. 179,830 7,943 Kroger Co. (The) (AE) 83,600 1,664 Molson Coors Brewing Co. Class B 14,700 907 PepsiCo, Inc. 639,000 37,752 Procter & Gamble Co. 1,028,428 57,582 Reynolds American, Inc. (N) 18,200 1,547 Safeway, Inc. 24,600 572 Sara Lee Corp. 52,550 938 Unilever NV 6,300 443 UST, Inc. 24,700 1,022 Walgreen Co. 108,564 4,932 Whole Foods Market, Inc. 37,630 5,424 WM Wrigley Jr Co. 36,960 2,569 ------------ 210,549 ------------ Financial Services - 17.6% ACE, Ltd. 8,000 417 Allstate Corp. (The) 161,770 8,540 American Express Co. 370,920 18,461 American International Group, Inc. 277,185 17,962 Annaly Mortgage Management, Inc. (o) 98,000 1,125 AON Corp. (N) 383,100 12,968 Astoria Financial Corp. 28,350 792 Automatic Data Processing, Inc. 59,600 2,781 Bank of America Corp. 1,183,530 51,768 Bank of New York Co., Inc. (The) 431,800 13,511 BB&T Corp. 18,500 783 Capital One Financial Corp. 36,400 2,779 Chicago Mercantile Exchange (N) 27,030 9,870 Chubb Corp. 83,200 7,735 Citigroup, Inc. 926,343 42,408 Comerica, Inc. 23,100 1,335 Commerce Bancorp, Inc. (N) 64,000 1,950 Countrywide Financial Corp. 207,834 6,603 Deluxe Corp. (N) 22,000 733 Equity Residential (o) 13,300 522 Fannie Mae (N) 386,280 18,356 Franklin Resources, Inc. 24,800 2,191 Freddie Mac 56,250 3,451 Genworth Financial, Inc. Class A 164,450 5,211 Global Payments, Inc. (N) 65,200 2,794 Goldman Sachs Group, Inc. 228,620 28,891 Hartford Financial Services Group, Inc. 248,720 19,835 Host Marriott Corp. (o) 42,950 721
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hudson City Bancorp, Inc. 76,050 900 Huntington Bancshares, Inc. 44,600 1,037 Investors Financial Services Corp. (N) 37,200 1,420 iShares Russell 1000 Value Index Fund 32,950 2,202 JPMorgan Chase & Co. 1,077,573 39,461 KeyCorp 48,100 1,551 Lehman Brothers Holdings, Inc. 134,077 16,045 Lincoln National Corp. 209,680 10,612 Loews Corp. 32,400 3,012 MBIA, Inc. 9,800 571 MBNA Corp. 32,100 821 Merrill Lynch & Co., Inc. 75,500 4,888 Metlife, Inc. 260,080 12,850 MGIC Investment Corp. 14,400 853 Morgan Stanley 132,640 7,217 National City Corp. 59,740 1,925 North Fork Bancorporation, Inc. 231,550 5,867 PartnerRe, Ltd. 8,300 529 Paychex, Inc. 159,700 6,190 PMI Group, Inc. (The) 11,450 457 PNC Financial Services Group, Inc. 128,870 7,824 Progressive Corp. (The) 26,135 3,027 Prudential Financial, Inc. 25,300 1,842 RenaissanceRe Holdings, Ltd. 51,275 1,941 SLM Corp. 155,498 8,635 Sovereign Bancorp, Inc. 21,650 467 St. Paul Travelers Cos., Inc. (The) 402,270 18,114 SunTrust Banks, Inc. 126,610 9,177 T Rowe Price Group, Inc. 55,530 3,638 Trizec Properties, Inc. (o) 135,050 3,005 UBS AG 51,839 4,441 UCBH Holdings, Inc. (N) 54,694 952 UnumProvident Corp. (N) 69,200 1,404 US Bancorp 12,756 377 Wachovia Corp. 81,400 4,112 Waddell & Reed Financial, Inc. Class A (N) 23,450 450 Washington Mutual, Inc. 95,080 3,765 Wells Fargo & Co. 74,950 4,512 XL Capital, Ltd. Class A 8,300 532 ------------ 481,116 ------------ Health Care - 14.1% Abbott Laboratories 515,730 22,202 AmerisourceBergen Corp. 59,150 4,511 Amgen, Inc. (AE) 520,666 39,446 Amylin Pharmaceuticals, Inc. (AE)(N) 44,244 1,487
Diversified Equity Fund 15 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cardinal Health, Inc. 88,200 5,513 Caremark Rx, Inc. (AE) 261,040 13,678 DaVita, Inc. (AE) 46,600 2,292 Eli Lilly & Co. 391,400 19,488 Genentech, Inc. (AE) 509,641 46,173 Genzyme Corp. (AE) 33,483 2,421 Gilead Sciences, Inc. (AE) 139,310 6,582 HCA, Inc. 13,300 641 Human Genome Sciences, Inc. (AE)(N) 470,900 3,932 Johnson & Johnson 864,948 54,163 Kinetic Concepts, Inc. (AE) 44,800 1,608 McKesson Corp. 68,300 3,103 Medco Health Solutions, Inc. (AE) 21,300 1,203 Medimmune, Inc. (AE) 50,600 1,770 Medtronic, Inc. 504,673 28,595 Merck & Co., Inc. 305,360 8,617 Novartis AG - ADR (N) 164,700 8,864 Omnicare, Inc. (N) 42,000 2,272 Panacos Pharmaceuticals, Inc. (AE)(N) 125,000 988 Pfizer, Inc. 520,600 11,318 Protein Design Labs, Inc. (AE)(N) 118,500 3,320 Quest Diagnostics, Inc. 64,682 3,021 Sanofi-Aventis - ADR 210,358 8,440 Sepracor, Inc. (AE)(N) 46,020 2,589 St. Jude Medical, Inc. (AE) 179,570 8,632 Stryker Corp. 207,400 8,518 Triad Hospitals, Inc. (AE) 88,950 3,659 UnitedHealth Group, Inc. 550,341 31,859 Valeant Pharmaceuticals International (N) 54,700 939 WellPoint, Inc. (AE) 115,300 8,611 Wyeth 196,010 8,734 Zimmer Holdings, Inc. (AE) 106,159 6,770 ------------ 385,959 ------------ Integrated Oils - 5.2% Amerada Hess Corp. 43,020 5,382 BP PLC - ADR 86,120 5,718 Chevron Corp. 240,577 13,730 ConocoPhillips 521,832 34,118 Exxon Mobil Corp. 586,230 32,911 Marathon Oil Corp. 262,919 15,817 Occidental Petroleum Corp. 294,900 23,262 Suncor Energy, Inc. 108,600 5,824 Total SA - ADR (N) 45,090 5,682 ------------ 142,444 ------------ Materials and Processing - 2.8% Air Products & Chemicals, Inc. 85,960 4,920 Archer-Daniels-Midland Co. 128,335 3,128 Ashland, Inc. 11,200 599 Bayer AG - ADR 54,670 1,902 Bemis Co. 11,000 291
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bowater, Inc. 3,850 102 Bunge, Ltd. (N) 12,800 665 Cemex SA de CV - ADR 57,010 2,968 Ceradyne, Inc. (AE)(N) 32,500 1,274 Cia Vale do Rio Doce - ADR 56,700 2,343 Corn Products International, Inc. 196,850 4,687 Cytec Industries, Inc. 1,650 68 Dow Chemical Co. (The) 137,390 6,301 EI Du Pont de Nemours & Co. 17,985 750 Hercules, Inc. (AE) 26,800 299 Hughes Supply, Inc. 77,800 2,602 International Paper Co. (N) 263,730 7,696 Lubrizol Corp. 22,100 919 Lyondell Chemical Co. 38,700 1,037 Martin Marietta Materials, Inc. 5,300 418 Masco Corp. 141,820 4,042 Monsanto Co. 30,900 1,947 Mosaic Co. (The) (AE) 349,450 4,613 Nucor Corp. 44,190 2,645 Pactiv Corp. (AE) 78,200 1,541 PPG Industries, Inc. (N) 96,740 5,801 Praxair, Inc. 33,580 1,659 Smurfit-Stone Container Corp. (AE) 87,200 921 Sonoco Products Co. (N) 25,900 733 St. Joe Co. (The) 42,376 2,795 Syngenta AG - ADR 248,440 5,339 United States Steel Corp. 24,500 895 ------------ 75,900 ------------ Miscellaneous - 3.2% 3M Co. 75,600 5,744 ABB, Ltd. - ADR (AE) 104,450 814 Eaton Corp. 19,700 1,159 General Electric Co. 1,730,301 58,674 Honeywell International, Inc. 164,900 5,640 ITT Industries, Inc. 25,840 2,625 SPX Corp. (N) 15,500 667 Textron, Inc. 62,200 4,481 Tyco International, Ltd. 264,650 6,984 ------------ 86,788 ------------ Other Energy - 3.2% Anadarko Petroleum Corp. 4,200 381 Apache Corp. 87,400 5,579 Baker Hughes, Inc. 78,600 4,320 Burlington Resources, Inc. 6,900 498 Devon Energy Corp. 81,840 4,941
16 Diversified Equity Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Diamond Offshore Drilling, Inc. (N) 16,850 951 El Paso Corp. 107,200 1,271 ENSCO International, Inc. 24,200 1,103 EOG Resources, Inc. 40,800 2,765 GlobalSantaFe Corp. 15,500 691 Halliburton Co. 476,698 28,173 National-Oilwell Varco, Inc. (AE) 40,990 2,561 Newfield Exploration Co. (AE)(N) 79,100 3,586 Noble Corp. 10,300 663 NRG Energy, Inc. (AE) 35,650 1,533 Peabody Energy Corp. 45,330 3,543 Pride International, Inc. (AE) 16,200 455 Reliant Energy, Inc. (AE) 736,500 9,354 Schlumberger, Ltd. 157,800 14,323 Williams Cos., Inc. 126,350 2,818 ------------ 89,509 ------------ Producer Durables - 5.2% Agilent Technologies, Inc. (AE) 94,800 3,035 Applied Materials, Inc. 578,340 9,473 Boeing Co. 342,300 22,126 Caterpillar, Inc. 304,543 16,016 Cooper Industries, Ltd. Class A 76,900 5,452 Crown Castle International Corp. (AE) 34,300 841 Deere & Co. 178,500 10,831 Goodrich Corp. 65,420 2,360 Herman Miller, Inc. 57,100 1,565 Hubbell, Inc. Class B 11,000 530 Illinois Tool Works, Inc. (N) 116,130 9,843 Ingersoll-Rand Co. Class A 16,000 605 Joy Global, Inc. 68,350 3,135 KB Home (N) 42,758 2,794 Lennar Corp. Class A (N) 72,069 4,006 Lockheed Martin Corp. 225,520 13,658 MDC Holdings, Inc. (N) 35,373 2,427 Northrop Grumman Corp. 189,940 10,190 Pitney Bowes, Inc. 12,000 505 Pulte Homes, Inc. 8,400 317 Teradyne, Inc. (AE)(N) 268,630 3,637 Thermo Electron Corp. (AE) 189,900 5,733 Toll Brothers, Inc. (AE)(N) 35,148 1,297 United Technologies Corp. 173,600 8,902 WW Grainger, Inc. 47,550 3,185 ------------ 142,463 ------------ Technology - 11.6% ADC Telecommunications, Inc. (AE)(N) 44,457 776 Advanced Micro Devices, Inc. (AE)(N) 113,380 2,633 Agere Systems, Inc. (AE) 39,200 408 Apple Computer, Inc. (AE) 195,002 11,230 Arrow Electronics, Inc. (AE) 12,500 369 ATI Technologies, Inc. (AE)(N) 127,600 1,844 AU Optronics Corp. - ADR 296,933 3,786
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Avnet, Inc. (AE) 192,800 4,444 BearingPoint, Inc. (AE) 416,150 2,921 Broadcom Corp. Class A (AE) 134,910 5,728 Celestica, Inc. (AE) 145,850 1,394 Cisco Systems, Inc. (AE) 212,000 3,699 Computer Associates International, Inc. 622 17 Comverse Technology, Inc. (AE) 96,500 2,422 Corning, Inc. (AE) 227,380 4,568 Electronic Data Systems Corp. 40,500 944 EMC Corp. (AE) 330,610 4,615 Flextronics International, Ltd. (AE) 45,600 424 General Dynamics Corp. 45,421 5,283 Hewlett-Packard Co. 701,130 19,660 Ingram Micro, Inc. Class A (AE) 16,200 293 Intel Corp. 22,300 524 International Business Machines Corp. 264,700 21,674 International Rectifier Corp. (AE) 56,450 1,670 JDS Uniphase Corp. (AE) 928,430 1,950 Juniper Networks, Inc. (AE) 756,300 17,645 L-3 Communications Holdings, Inc. 31,000 2,412 Lucent Technologies, Inc. (AE)(N) 1,055,760 3,009 M-Systems Flash Disk Pioneers Ltd. (AE)(N) 42,900 1,360 Marvell Technology Group, Ltd. (AE) 95,110 4,414 Maxim Integrated Products, Inc. (N) 409,600 14,205 Microsoft Corp. 2,135,538 54,883 Motorola, Inc. 1,050,118 23,271 National Semiconductor Corp. 192,600 4,359 Network Appliance, Inc. (AE) 84,500 2,312 Nvidia Corp. (AE) 99,200 3,328 Oracle Corp. (AE) 1,082,160 13,722 Palm, Inc. (AE)(N) 48,400 1,243 Qualcomm, Inc. 815,854 32,438 Rockwell Automation, Inc. 105,500 5,607 SanDisk Corp. (AE) 131,010 7,715 Sanmina-SCI Corp. (AE) 784,650 2,864 Seagate Technology, Inc. (AE) 9,200 -- Silicon Image, Inc. (AE)(N) 182,900 1,679 Solectron Corp. (AE) 119,500 422 Sony Corp. - ADR 55,800 1,830 Sun Microsystems, Inc. (AE) 628,000 2,512 Tellabs, Inc. (AE) 49,500 473 Texas Instruments, Inc. 390,780 11,157 Unisys Corp. (AE) 40,700 208 Vishay Intertechnology, Inc. (AE) 102,600 1,164 ------------ 317,508 ------------
Diversified Equity Fund 17 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Utilities - 4.2% Alltel Corp. 4,800 297 America Movil SA de CV Series L 82,230 2,159 American Electric Power Co., Inc. 12,500 475 BellSouth Corp. 483,450 12,579 Comcast Corp. Class A (AE) 286,573 7,975 Constellation Energy Group, Inc. 18,800 1,030 Dominion Resources, Inc. 176,530 13,430 DTE Energy Co. 14,700 635 Entergy Corp. 126,900 8,974 Exelon Corp. 24,000 1,249 Kinder Morgan, Inc. 27,810 2,528 Northeast Utilities 44,100 802 Pepco Holdings, Inc. 9,800 211 Progress Energy, Inc. 5,500 -- Progress Energy, Inc. (N) 22,000 959 Puget Energy, Inc. (N) 7,000 150 SBC Communications, Inc. 97,047 2,315 Sprint Nextel Corp. 1,628,760 37,966 Telephone & Data Systems, Inc. 16,500 624 Telephone & Data Systems, Inc. Special Shares 53,550 1,936 TXU Corp. 81,950 8,256 Verizon Communications, Inc. 316,110 9,961 Wisconsin Energy Corp. 10,200 386 ------------ 114,897 ------------ TOTAL COMMON STOCKS (cost $2,252,931) 2,540,985 ------------ LONG-TERM INVESTMENTS - 0.0% Corporate Bonds and Notes - 0.0% AMR Corp. 4.250% due 09/23/23 823 744 ------------ TOTAL LONG-TERM INVESTMENTS (cost $695) 744 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 7.1% Frank Russell Investment Company Money Market Fund 182,418,926 182,419 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 11,000 10,962 3.398% due 12/08/05 1,000 997 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $194,378) 194,378 ------------ OTHER SECURITIES - 4.5% Frank Russell Investment Company Money Market Fund (X) 40,111,676 40,112 State Street Securities Lending Quality Trust (X) 82,185,034 82,185 ------------ TOTAL OTHER SECURITIES (cost $122,297) 122,297 ------------ TOTAL INVESTMENTS - 104.4% (identified cost $2,570,301) 2,858,404 OTHER ASSETS AND LIABILITIES, NET - (4.4%) (121,385) ------------ NET ASSETS - 100.0% 2,737,019 ============
See accompanying notes which are an integral part of the financial statements. 18 Diversified Equity Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 12/05 (43) 14,144 (338) Russell 1000 Mini Index (CME) expiration date 12/05 (110) 7,235 29 S&P 500 E-Mini Index (CME) expiration date 12/05 (868) 52,505 (1,313) S&P 500 Index (CME) expiration date 12/05 (256) 77,427 (578) S&P Midcap 400 Index (CME) expiration date 12/05 (111) 39,017 (1,039) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (3,239) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 3.4 Consumer Discretionary 14.6 Consumer Staples 7.7 Financial Services 17.6 Health Care 14.1 Integrated Oils 5.2 Materials and Processing 2.8 Miscellaneous 3.2 Other Energy 3.2 Producer Durables 5.2 Technology 11.6 Utilities 4.2 Long-Term Investments --* Short-Term Investments 7.1 Other Securities 4.5 --------------- Total Investments 104.4 Other Assets and Liabilities, Net (4.4) --------------- 100.0 =============== Futures Contracts (0.1)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Diversified Equity Fund 19 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
SPECIAL GROWTH - CLASS S RUSSELL 2500(TM) ** ------------------------ ------------------- * 10000.00 10000.00 1996 12092.00 11879.00 1997 15891.00 15338.00 1998 14488.00 14157.00 1999 17121.00 16705.00 2000 21640.00 20593.00 2001 18384.00 18088.00 2002 16627.00 16435.00 2003 23545.00 23287.00 2004 25579.00 26161.00 2005 28635.00 30059.00
Special Growth Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.95% 5 Years 5.76%S 10 Years 11.09%S
Special Growth Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.65% 5 Years 5.49%S 10 Years 10.78%S
Special Growth Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.82% 5 Years 4.71%S 10 Years 10.22%S
Russell 2500(TM) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.90% 5 Years 7.86%S 10 Years 11.63%S
20 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Special Growth Fund Class S, Class E and Class C Shares gained 11.95%, 11.65% and 10.82%, respectively. This compared to the Russell 2500(TM) Index, which gained 14.90% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Mid-Cap Core Funds Average returned 14.82%, while the Lipper(R) Small-Cap Core Funds Average rose 13.24%. These results serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? For the most part, market conditions did not materially affect the Fund's performance over the fiscal year. The Fund's underperformance was driven by poor stock selection from most of the Fund's money managers; in particular, Gould Investment Partners, LLC underperformed by a substantial margin over the 12 months. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Poor stock selection in four sectors--technology, consumer discretionary, producer durables and healthcare--was the predominant driver of the Fund's underperformance results. In terms of money managers, Gould significantly underperformed the benchmark and was the largest detractor to the Fund's performance in the period. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund has nine money managers: four growth, two market-oriented and three value. Three of the four growth money managers underperformed the benchmark. As noted, Gould underperformed by a substantial margin while CapitalWorks Investment Partners, LLC and Roxbury Capital Management, Inc., had relatively modest shortfalls. Gould's performance was disappointing, but not beyond what might be reasonably expected given the aggressive nature of this money manager's investment approach. In contrast, TimesSquare Capital Management, Inc., the money manager with the largest allocation within the growth segment, solidly outperformed the benchmark. Moreover, the continued preference for value stocks over growth for much of the period led to a difficult environment for an aggressive growth manager. In the value segment, all three money managers underperformed, with David J. Greene & Company, LLC, and Delphi Management, Inc., the largest detractors from performance: Jacobs Levy Equity Management, Inc., with the largest allocation in the value segment, had a relatively modest shortfall from the benchmark. David J. Greene's substantial overweight in technology detracted from performance. Delphi underperformed due to weak stock selection in the financial services and consumer discretionary sectors. In particular, Delphi was negatively impacted by holding some Bermuda-based reinsurers in the aftermath of Hurricane Katrina. In the market-oriented segment, Goldman Sachs Asset Management, L.P., underperformed modestly, while Nicholas-Applegate Capital Management, LLC, strongly outperformed the benchmark. Goldman Sachs' stock selection was weak in the technology, other energy and autos and transportation sectors. In contrast, Nicholas-Applegate, also a quantitative manager, outperformed due in part to its energy overweight. Strong stock selection in eight of the 12 economic sectors also boosted its results. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. FRIMCo introduced a modest growth tilt in December 2004 by reallocating approximately 4% of the Fund's assets from value to growth managers. The net impact of this decision has been negligible to date, as the combined growth manager results have been similar to the combined value manager returns in the period. Nicholas-Applegate was hired in December 2004 and funded through reducing the Fund's allocation to Goldman Sachs. This change added value, as Nicholas-Applegate substantially outperformed Goldman Sachs in the period from December 2004 through the fiscal year-end. Roxbury Capital Management, Inc. was removed from the Fund in May 2005 and replaced by Tygh Capital Management, Inc. Special Growth Fund 21 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 CapitalWorks Investment Partners, LLC Growth David J. Greene & Company, LLC Value Delphi Management, Inc. Value Goldman Sachs Asset Management, L.P. Market-Oriented Gould Investment Partners, LLC Growth Jacobs Levy Equity Management, Inc. Value Nicholas-Applegate Capital Management, LLC Market-Oriented TimesSquare Capital Management, Inc. Growth Tygh Capital Management, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Special Growth Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Special Growth Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Special Growth Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 22 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,102.00 $ 1,013.66 Expenses Paid During Period* $ 12.13 $ 11.62
* Expenses are equal to the Fund's annualized expense ratio of 2.29% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,106.10 $ 1,017.39 Expenses Paid During Period* $ 8.23 $ 7.88
* Expenses are equal to the Fund's annualized expense ratio of 1.55% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,107.50 $ 1,018.70 Expenses Paid During Period* $ 6.85 $ 6.56
* Expenses are equal to the Fund's annualized expense ratio of 1.29% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Special Growth Fund 23 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 95.1% Auto and Transportation - 3.6% Airtran Holdings, Inc. (AE) 46,473 695 Alaska Air Group, Inc. (AE) 3,800 120 Alexander & Baldwin, Inc. 2,900 142 American Commercial Lines, Inc. (AE) 2,801 79 AMR Corp. (AE) 34,300 463 Arkansas Best Corp. (N) 28,500 1,105 ArvinMeritor, Inc. 101,700 1,630 Autoliv, Inc. 81,510 3,502 CNF, Inc. 10,700 602 DryShips, Inc. (N) 58,400 879 Expeditors International Washington, Inc. 14,663 889 Frontier Airlines, Inc. (AE)(N) 18,600 176 General Maritime Corp. (N) 28,200 1,050 Gol Linhas Aereas Inteligentes SA - ADR (N) 29,300 1,015 Grupo TMM SA Series A (AE) 75,900 285 IMPCO Technologies, Inc. (AE)(N) 21,700 113 Kansas City Southern (AE)(N) 35,000 775 Laidlaw International, Inc. 106,250 2,416 Landstar System, Inc. 21,979 847 Marten Transport, Ltd. (AE) 7,400 196 Mesa Air Group, Inc. (AE)(N) 53,000 598 Navistar International Corp. (AE) 31,200 859 Noble International, Ltd. (N) 2,000 47 Offshore Logistics, Inc. (AE) 29,500 1,003 OMI Corp. (N) 64,000 1,157 Pacer International, Inc. (N) 41,500 1,073 Polaris Industries, Inc. (N) 9,220 416 Republic Airways Holdings, Inc. (AE) 29,800 465 SCS Transportation, Inc. (AE) 8,600 172 Skywest, Inc. (N) 31,100 911 Stolt-Nielsen SA - ADR 10,400 373 Teekay Shipping Corp. (N) 26,300 1,037 Tenneco Automotive, Inc. (AE) 41,201 681 TRW Automotive Holdings Corp. (AE) 82,800 2,240 US Xpress Enterprises, Inc. Class A (AE)(N) 19,800 241 UTI Worldwide, Inc. (N) 32,987 2,822 Visteon Corp. (N) 93,800 781 Wabtec Corp. 48,208 1,311 World Air Holdings, Inc. (AE) 34,100 358 ------------ 33,524 ------------ Consumer Discretionary - 19.0% ABM Industries, Inc. 15,200 301 Activision, Inc. (AE) 172,267 2,717 Adesa, Inc. 60,800 1,301 Administaff, Inc. (N) 29,250 1,238 Advance Auto Parts, Inc. (AE) 49,500 1,856 Advisory Board Co. (The) (AE) 38,276 1,847
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- AFC Enterprises (N) 26,400 306 Alberto-Culver Co. 32,500 1,411 Alderwoods Group, Inc. (AE) 17,600 277 Alliance Gaming Corp. (AE)(N) 69,400 750 American Greetings Corp. Class A 55,970 1,413 AMN Healthcare Services, Inc. (AE)(N) 116,200 1,917 Arbitron, Inc. 32,680 1,223 Asbury Automotive Group, Inc. (AE)(N) 19,400 328 Banta Corp. 21,500 1,082 BJ's Restaurants, Inc. (AE)(N) 30,000 651 Borders Group, Inc. 15,200 298 Brightpoint, Inc. (AE)(N) 87,150 1,882 Brink's Co. (The) 35,500 1,394 Brown Shoe Co., Inc. 2,800 91 Burlington Coat Factory Warehouse Corp. 13,600 524 Catalina Marketing Corp. (N) 7,900 206 Cato Corp. (The) Class A 19,050 381 Central European Distribution Corp. (AE)(N) 67,900 2,703 Central Garden and Pet Co. (AE)(N) 30,500 1,308 Charlotte Russe Holding, Inc. (AE) 6,500 115 Charming Shoppes, Inc. (AE) 97,100 1,087 Cheesecake Factory, Inc. (The) (AE) 22,223 763 Chemed Corp. 53,628 2,578 Children's Place Retail Stores, Inc. (The) (AE)(N) 26,129 1,122 Choice Hotels International, Inc. 42,380 1,402 ChoicePoint, Inc. (AE) 34,733 1,468 Circuit City Stores, Inc. 193,742 3,447 Claire's Stores, Inc. 65,000 1,693 CNET Networks, Inc. (AE) 96,600 1,313 CNS, Inc. 54,300 1,416 Cogent, Inc. (AE)(N) 41,300 1,096 Coldwater Creek, Inc. (AE) 4,950 134 Convergys Corp. (AE) 72,400 1,176 Corinthian Colleges, Inc. (AE)(N) 21,900 272 Corporate Executive Board Co. 44,600 3,686 Cosi, Inc. (AE)(N) 113,900 997 CoStar Group, Inc. (AE)(N) 22,100 1,060 Courier Corp. (N) 2,000 65 Cross Country Healthcare, Inc. (AE)(N) 73,300 1,332 CSS Industries, Inc. (N) 400 14 Dillard's, Inc. Class A 54,350 1,126 Dolby Laboratories, Inc. Class A (AE) 47,000 757 Dollar Thrifty Automotive Group (AE)(N) 6,950 262 Domino's Pizza, Inc. (N) 52,900 1,265
24 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- DreamWorks Animation SKG, Inc. Class A (AE) 32,780 840 Dress Barn, Inc. (AE)(N) 9,600 255 EarthLink, Inc. (AE)(N) 63,500 699 Eastern Co. (The) 40,025 861 Education Management Corp. (AE) 144,474 4,456 Emdeon Corp. (AE) 67,700 623 Entercom Communications Corp. (AE) 51,100 1,475 Ethan Allen Interiors, Inc. (N) 33,500 1,133 Ezcorp, Inc. Class A (AE) 16,000 235 Famous Dave's of America, Inc. (AE) 49,200 589 Federated Department Stores, Inc. 14,600 896 Forrester Research, Inc. (AE) 8,700 168 FTI (AE) 20,800 569 Furniture Brands International, Inc. (N) 66,700 1,211 Genesco, Inc. (AE)(N) 6,500 239 Getty Images, Inc. (AE)(N) 41,790 3,469 Gevity HR, Inc. (N) 45,400 1,169 Gildan Activewear, Inc. (AE) 26,000 907 Guess?, Inc. (AE)(N) 61,700 1,673 Gymboree Corp. (AE)(N) 107,200 1,897 Handleman Co. (N) 27,280 325 Hasbro, Inc. 84,800 1,598 Hearst-Argyle Television, Inc. (N) 99,440 2,383 Heidrick & Struggles International, Inc. (AE)(N) 20,700 668 Helen of Troy, Ltd. (AE)(N) 51,630 927 Hewitt Associates, Inc. Class A (AE)(N) 24,131 644 Hot Topic, Inc. (AE) 43,035 641 Hudson Highland Group, Inc. (AE)(N) 42,600 1,019 Insight Enterprises, Inc. (AE) 40,322 827 International Speedway Corp. Class A 11,200 579 ITT Educational Services, Inc. (AE) 7,500 415 Jack in the Box, Inc. (AE) 62,000 1,841 Jarden Corp. (AE)(N) 10,600 358 Jo-Ann Stores, Inc. (AE) 34,700 507 John Wiley & Sons, Inc. Class A 4,550 178 Jones Apparel Group, Inc. 29,700 810 Korn/Ferry International (AE) 18,446 318 La-Z-Boy, Inc. (N) 93,400 1,106 Labor Ready, Inc. (AE)(N) 32,550 760 Lamar Advertising Co. Class A (AE) 68,300 3,048 Leapfrog Enterprises, Inc. (AE)(N) 44,100 661 Lee Enterprises, Inc. 29,000 1,137 LIFE TIME Fitness, Inc. (AE)(N) 85,400 3,172 Lifeline Systems, Inc. (AE) 38,500 1,270 Lifetime Brands, Inc. (N) 4,400 103 Lightbridge, Inc. (AE) 66,100 535 Lin TV Corp. Class A (AE)(N) 58,310 748 Linens 'N Things, Inc. (AE)(N) 31,600 794 Lithia Motors, Inc. Class A (N) 21,670 590 Liz Claiborne, Inc. 52,900 1,862 Lone Star Steakhouse & Saloon, Inc. 5,100 132
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Luby's, Inc. (AE)(N) 19,200 242 MarineMax, Inc. (AE)(N) 17,700 437 Marvel Entertainment, Inc. (AE)(N) 48,100 847 MAXIMUS, Inc. (N) 11,200 406 McClatchy Co. Class A 17,875 1,120 Men's Wearhouse, Inc. (The) (AE) 62,500 1,544 Meredith Corp. 39,600 1,976 Mohawk Industries, Inc. (AE) 16,500 1,288 Monster Worldwide, Inc. (AE) 49,600 1,627 Movado Group, Inc. (N) 5,400 95 MPS Group, Inc. (AE) 168,469 2,097 Netease.com, Inc. - ADR (AE)(N) 9,700 740 Netratings, Inc. (AE)(N) 9,500 141 Oakley, Inc. (N) 44,900 665 Orient-Express Hotels, Ltd. Class A 66,512 1,876 Pacific Sunwear of California, Inc. (AE) 71,500 1,789 Pantry, Inc. (The) (AE) 3,250 126 Papa John's International, Inc. (AE)(N) 24,600 1,277 Payless Shoesource, Inc. (AE) 70,400 1,293 Pegasus Solutions, Inc. (AE) 52,700 447 PF Chang's China Bistro, Inc. (AE) 16,968 776 PHH Corp. (AE) 52,800 1,485 Phillips-Van Heusen Corp. 28,200 802 Pier 1 Imports, Inc. (N) 69,500 717 Pixar (AE) 13,332 676 Playtex Products, Inc. (AE) 61,300 821 Polo Ralph Lauren Corp. 38,700 1,904 Pre-Paid Legal Services, Inc. (N) 21,860 936 Providence Service Corp. (AE)(N) 61,700 1,905 Radio One, Inc. Class D (AE)(N) 42,000 496 RadioShack Corp. 32,500 718 Reebok International, Ltd. 23,000 1,312 Rent-Way, Inc. (AE)(N) 14,100 87 Resources Connection, Inc. (AE)(N) 83,645 2,388 Rocky Shoes & Boots, Inc. (AE)(N) 4,100 101 RR Donnelley & Sons Co. 32,091 1,124 Ryan's Restaurant Group, Inc. (AE)(N) 129,108 1,376 Saks, Inc. (AE) 28,300 514 Scholastic Corp. (AE) 14,400 469 Scientific Games Corp. Class A (AE) 59,200 1,774 SCP Pool Corp. 112,000 4,029 Select Comfort Corp. (AE) 33,000 723 Service Corp. International (N) 118,800 994 ServiceMaster Co. (The) 54,800 689 Shuffle Master, Inc. (AE)(N) 5,200 132 Sirva, Inc. (AE)(N) 11,900 84 Skechers USA, Inc. Class A (AE)(N) 11,600 147 Sonic Automotive, Inc. 38,200 845 Sourcecorp, Inc. (AE) 4,849 110
Special Growth Fund 25 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Stage Stores, Inc. 53,821 1,492 Stanley Furniture Co., Inc. (N) 8,900 190 Stanley Works (The) 29,400 1,409 Steven Madden, Ltd. (AE) 41,600 1,067 Stewart Enterprises, Inc. Class A (AE)(N) 5,300 27 Strayer Education, Inc. 11,613 1,039 Stride Rite Corp. (The) 19,100 249 Tech Data Corp. (AE) 28,500 987 TeleTech Holdings, Inc. (AE)(N) 29,350 306 Tempur-Pedic International, Inc. (AE)(N) 28,000 310 Texas Roadhouse, Inc. Class A (AE)(N) 49,700 782 Trans World Entertainment, Corp. (AE) 16,600 106 True Religion Apparel, Inc. (AE) 41,200 515 Tupperware Corp. 19,500 447 United Auto Group, Inc. (N) 3,300 111 Urban Outfitters, Inc. (AE) 35,200 997 USANA Health Sciences, Inc. (AE)(N) 49,340 2,172 Valassis Communications, Inc. (AE) 15,300 478 Volcom, Inc. 13,700 419 Washington Post, Inc. (The) Class B 1,230 916 WD-40 Co. (N) 6,600 182 WebSideStory, Inc. (AE)(N) 67,700 1,177 WESCO International, Inc. (AE) 28,800 1,145 West Corp. (AE) 57,200 2,257 Wet Seal, Inc. (The) Class A (AE)(N) 59,600 308 Wilsons The Leather Experts, Inc. (AE)(N) 10,000 50 Wolverine World Wide, Inc. 30,700 643 ------------ 178,319 ------------ Consumer Staples - 1.1% Boston Beer Co., Inc. Class A (AE)(N) 5,800 148 Chiquita Brands International, Inc. 11,250 311 Coca-Cola Bottling Co. Consolidated 20,077 916 Constellation Brands, Inc. Class A (AE) 50,600 1,191 Flowers Foods, Inc. 7,100 208 Longs Drug Stores Corp. (N) 31,760 1,325 Molson Coors Brewing Co. Class B (N) 45,700 2,820 Pathmark Stores, Inc. (AE) 46,200 450 Pilgrim's Pride Corp. 24,000 756 Seaboard Corp. (N) 400 568 Spartan Stores, Inc. (AE)(N) 13,500 134 Tootsie Roll Industries, Inc. 8,003 242 Weis Markets, Inc. (N) 34,100 1,301 ------------ 10,370 ------------ Financial Services - 18.1% 21st Century Insurance Group 1,600 25 ACE Cash Express, Inc. (AE)(N) 9,700 199 Advent Software, Inc. (AE) 82,600 2,537 Affiliated Managers Group, Inc. (AE) 20,525 1,575
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Alfa Corp. (N) 6,200 104 Alliance Data Systems Corp. (AE) 147,645 5,250 Allmerica Financial Corp. 38,810 1,479 AMB Property Corp. (o) 35,000 1,546 American Home Mortgage Investment Corp. (o) 37,350 1,010 AmeriCredit Corp. (AE) 66,110 1,478 AmerUs Group Co. (N) 13,970 826 Annaly Mortgage Management, Inc. (o) 42,500 488 Anthracite Capital, Inc. (o)(N) 24,052 252 Apartment Investment & Management Co. Class A (o) 5,000 192 Apollo Investment Corp. 27,100 506 Arden Realty, Inc. (o) 23,200 1,047 Aspen Insurance Holdings, Ltd. 78,500 1,899 Associated Banc-Corp 42,531 1,327 Axis Capital Holdings, Ltd. 30,900 801 Bank of Hawaii Corp. 38,030 1,954 Bear Stearns Cos., Inc. (The) 8,600 910 Bimini Mortgage Management, Inc. Class A (o)(N) 5,800 57 BISYS Group, Inc. (The) (AE) 149,200 1,892 BOK Financial Corp. 6,379 281 Camden Property Trust (o) 35,100 1,978 CapitalSource, Inc. (AE)(N) 134,800 2,966 CarrAmerica Realty Corp. (o) 16,900 556 Cathay General Bancorp (N) 11,000 429 CB Richard Ellis Group, Inc. Class A (AE) 47,800 2,335 CBL & Associates Properties, Inc. (o) 40,330 1,506 Central Pacific Financial Corp. (N) 4,420 160 Checkfree Corp. (AE) 78,750 3,347 CIT Group, Inc. 20,000 915 City National Corp. 27,000 1,981 CNA Surety Corp. (AE)(N) 59,700 838 Colonial BancGroup, Inc. (The) 116,500 2,837 Commerce Group, Inc. 7,900 449 Commercial Net Lease Realty (o)(N) 50,760 984 Community Bank System, Inc. (N) 40,200 955 CompuCredit Corp. (AE)(N) 13,300 583 Conseco, Inc. (AE)(N) 33,000 670 Correctional Properties Trust (o) 3,100 87 Corus Bankshares, Inc. (N) 5,600 307 Cousins Properties, Inc. (o) 23,400 691 Crescent Real Estate Equities Co. (o)(N) 10,100 201 CVB Financial Corp. 10,400 205 Cybersource Corp. (AE)(N) 97,800 655 Downey Financial Corp. (N) 11,750 716
26 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Duke Realty Corp. (o) 78,300 2,670 eFunds Corp. (AE) 23,039 475 Entertainment Properties Trust (o) 10,500 421 Equifax, Inc. 26,900 927 Equity One, Inc. (o) 17,300 406 Fair Isaac Corp. (N) 24,300 1,015 Federal Realty Investors Trust (o) 24,700 1,498 FelCor Lodging Trust, Inc. (AE)(o)(N) 23,400 349 Fidelity Bankshares, Inc. 8,000 226 Fidelity National Financial, Inc. 25,600 959 First American Corp. 47,200 2,068 First Financial Bankshares, Inc. (N) 2,600 94 First Niagara Financial Group, Inc. (N) 55,400 816 FirstFed Financial Corp. (AE)(N) 14,930 799 FPIC Insurance Group, Inc. (AE) 13,500 508 Fremont General Corp. (N) 42,060 912 Fulton Financial Corp. (N) 24,200 407 GATX Corp. (N) 67,100 2,508 GFI Group, Inc. (AE)(N) 34,900 1,569 Glacier Bancorp, Inc. (N) 3,900 115 Global Payments, Inc. 117,718 5,044 Greater Bay Bancorp 9,800 246 Hanmi Financial Corp. (N) 26,500 485 Harleysville Group, Inc. (N) 1,400 34 HCC Insurance Holdings, Inc. 37,100 1,113 Health Care Property Investors, Inc. (o) 38,740 986 Health Care REIT, Inc. (o)(N) 31,500 1,110 HealthExtras, Inc. (AE)(N) 108,700 2,288 Heritage Property Investment Trust (o)(N) 16,800 548 Highland Hospitality Corp. (o) 10,800 113 Highwoods Properties, Inc. (o) 34,700 979 Horace Mann Educators Corp. 10,000 194 Hospitality Properties Trust (o) 19,900 790 HRPT Properties Trust (o) 215,600 2,352 Infinity Property & Casualty Corp. 18,200 677 Innkeepers USA Trust (o) 30,700 479 Investment Technology Group, Inc. (AE) 101,100 3,287 Investors Financial Services Corp. (N) 61,100 2,333 IPC Holdings, Ltd. (N) 25,200 663 iStar Financial, Inc. (o) 23,400 863 Jack Henry & Associates, Inc. 89,800 1,615 Jefferies Group, Inc. 34,300 1,456 John H Harland Co. (N) 11,900 495 Jones Lang LaSalle, Inc. 23,300 1,172 Knight Capital Group, Inc. Class A (AE)(N) 146,500 1,402 La Quinta Corp. (AE)(o) 184,103 1,537 LandAmerica Financial Group, Inc. (N) 48,565 3,067 Lexington Corporate Properties Trust (o)(N) 30,100 656
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LTC Properties, Inc. (o) 7,300 150 Macerich Co. (The) (o) 14,200 913 Mack-Cali Realty Corp. (o) 36,800 1,569 Markel Corp. (AE) 7,000 2,226 MeriStar Hospitality Corp. (AE)(o)(N) 69,900 606 Mid-America Apartment Communities, Inc. (o) 9,300 434 MoneyGram International, Inc. 36,700 892 Montpelier Re Holdings, Ltd. (N) 34,500 693 Nasdaq Stock Market, Inc. (AE) 23,300 720 National Penn Bancshares, Inc. (N) 6,006 118 Nationwide Financial Services, Inc. Class A 27,300 1,103 New Century Financial Corp. (o)(N) 18,000 556 North Fork Bancorporation, Inc. 37,000 938 OceanFirst Financial Corp. (N) 4,200 95 Ohio Casualty Corp. 21,400 584 Old Republic International Corp. 48,200 1,249 Omega Healthcare Investors, Inc. (o)(N) 27,000 332 Pan Pacific Retail Properties, Inc. (o) 1,500 95 PFF Bancorp, Inc. (N) 10,790 324 Phoenix Cos., Inc. (The) 58,900 763 Piper Jaffray Cos., Inc. (AE) 15,800 543 Portfolio Recovery Associates, Inc. (AE)(N) 48,530 1,888 Post Properties, Inc. (o) 15,300 624 Primus Guaranty, Ltd. (AE)(N) 62,000 546 ProAssurance Corp. (AE) 26,741 1,251 Protective Life Corp. 33,700 1,477 Provident Bankshares Corp. (N) 7,276 254 Provident Financial Holdings (AE) 33,531 887 Provident Financial Services, Inc. (N) 24,600 433 PS Business Parks, Inc. (o) 6,900 321 R&G Financial Corp. Class B (N) 35,200 345 Radian Group, Inc. 22,700 1,183 Raymond James Financial, Inc. 34,200 1,164 Redwood Trust, Inc. (o)(N) 19,000 884 RenaissanceRe Holdings, Ltd. (N) 22,800 863 Republic Bancorp, Inc. Class A (N) 49,346 1,012 Rewards Network, Inc. (AE)(N) 5,900 32 RLI Corp. 9,900 532 Ryder System, Inc. 77,900 3,090 Safety Insurance Group, Inc. (N) 8,900 335 Senior Housing Properties Trust (o) 57,670 1,021 Southwest Bancorp, Inc. 45,529 1,066 Sovereign Bancorp, Inc. (N) 43,000 927 Sovran Self Storage, Inc. (o)(N) 25,000 1,163
Special Growth Fund 27 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Stancorp Financial Group, Inc. 31,610 2,911 State Auto Financial Corp. 8,000 263 Sterling Bancshares, Inc. 16,900 250 Sterling Financial Corp. (N) 1,400 29 Stewart Information Services Corp. (N) 32,450 1,653 Strategic Hotel Capital, Inc. (o) 17,000 289 Sunstone Hotel Investors, Inc. (o) 72,000 1,613 SVB Financial Group (AE) 26,100 1,297 TCF Financial Corp. (N) 22,100 599 TD Banknorth, Inc. (N) 33,248 957 Thornburg Mortgage, Inc. (o)(N) 36,000 913 TierOne Corp. 16,600 469 Trizec Properties, Inc. (o) 60,300 1,342 UCBH Holdings, Inc. (N) 40,700 708 UICI 16,700 603 UMB Financial Corp. (N) 1,450 97 United Bankshares, Inc. (N) 9,900 361 United Fire & Casualty Co. 4,100 185 United Rentals, Inc. (AE)(N) 49,400 967 Universal Health Realty Income Trust (o)(N) 4,200 137 W Holding Co., Inc. (N) 76,860 593 Webster Financial Corp. 21,300 983 Whitney Holding Corp. 17,000 459 WR Berkley Corp. 69,935 3,056 Wright Express Corp. (AE)(N) 61,800 1,334 Zenith National Insurance Corp. (N) 44,220 1,991 Zions Bancorporation 13,000 955 ------------ 169,927 ------------ Health Care - 12.6% Accelrys, Inc. (AE)(N) 84,878 555 Albany Molecular Research, Inc. (AE) 43,100 578 Alexion Pharmaceuticals, Inc. (AE)(N) 17,000 466 Alkermes, Inc. (AE)(N) 70,900 1,155 Allied Healthcare International, Inc. (AE) 65,700 400 Allion Healthcare, Inc. (AE)(N) 30,500 487 Allscripts Healthcare Solutions, Inc. (AE) 47,475 760 Alpharma, Inc. Class A 26,900 670 American Dental Partners, Inc. (AE) 20,400 432 Anadys Pharmaceuticals, Inc. (AE) 60,800 602 Applera Corp. - Celera Genomics Group (AE) 149,100 1,771 Arena Pharmaceuticals, Inc. (AE)(N) 45,000 468 Arqule, Inc. (AE)(N) 10,300 74 Arthrocare Corp. (AE)(N) 63,912 2,347 Barr Pharmaceuticals, Inc. (AE) 17,900 1,028 Bausch & Lomb, Inc. 21,100 1,565 Bio-Rad Laboratories, Inc. Class A (AE) 36,800 2,153 BioMarin Pharmaceuticals, Inc. (AE)(N) 20,300 170 Cephalon, Inc. (AE)(N) 28,800 1,313
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Community Health Systems, Inc. (AE) 96,996 3,599 Cooper Cos., Inc. 11,708 806 Critical Therapeutics, Inc. (AE)(N) 30,300 208 Cytyc Corp. (AE) 123,500 3,131 Dade Behring Holdings, Inc. 30,700 1,105 DaVita, Inc. (AE) 148,686 7,312 Digene Corp. (AE)(N) 34,000 1,027 Edwards Lifesciences Corp. (AE) 55,850 2,311 Flamel Technologies SA - ADR (AE)(N) 22,800 406 Foxhollow Technologies, Inc. (AE)(N) 73,000 3,308 Gene Logic, Inc. (AE)(N) 14,600 55 Genesis HealthCare Corp. (AE) 38,450 1,560 Gentiva Health Services, Inc. (AE) 9,800 144 Greatbatch, Inc. (AE)(N) 4,750 124 Haemonetics Corp. (AE) 23,000 1,114 Health Net, Inc. (AE) 52,400 2,454 HealthTronics, Inc. (AE) 45,900 417 Henry Schein, Inc. (AE) 26,118 1,035 Hologic, Inc. (AE) 58,200 3,228 ICU Medical, Inc. (AE) 12,400 433 Illumina, Inc. (AE)(N) 59,400 925 Immucor, Inc. (AE) 42,390 1,099 Invitrogen Corp. (AE) 21,400 1,361 IRIS International, Inc. (AE) 56,700 1,330 Kendle International, Inc. (AE) 29,500 710 Kindred Healthcare, Inc. (AE)(N) 21,950 615 Kinetic Concepts, Inc. (AE) 7,050 253 Kos Pharmaceuticals, Inc. (AE) 20,351 1,221 Kyphon, Inc. (AE)(N) 18,300 734 LCA-Vision, Inc. (N) 6,800 286 LifePoint Hospitals, Inc. (AE) 9,300 364 Lincare Holdings, Inc. (AE) 114,295 4,669 Magellan Health Services, Inc. (AE) 111,200 3,306 Matria Healthcare, Inc. (AE)(N) 60,150 2,017 Maxygen, Inc. (AE)(N) 7,600 67 Medcath Corp. (AE)(N) 9,700 178 Medicis Pharmaceutical Corp. Class A 31,586 932 Medimmune, Inc. (AE) 71,700 2,508 Mentor Corp. (N) 30,440 1,370 Merit Medical Systems, Inc. (AE)(N) 41,200 491 Myogen, Inc. (AE)(N) 56,800 1,139 Myriad Genetics, Inc. (AE)(N) 32,700 634 Nabi Biopharmaceuticals (AE)(N) 69,343 891 Natus Medical, Inc. (AE) 57,100 936 Neurocrine Biosciences, Inc. (AE)(N) 47,431 2,505 Nuvelo, Inc. (AE)(N) 18,800 158 Odyssey HealthCare, Inc. (AE) 26,500 458 OraSure Technologies, Inc. (AE) 74,200 817 Orthofix International NV (AE) 10,300 388
28 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Panacos Pharmaceuticals, Inc. (AE) 48,800 385 Parexel International Corp. (AE)(N) 26,800 586 Pediatrix Medical Group, Inc. (AE) 25,400 1,957 Pharmaceutical Product Development, Inc. (AE) 12,000 690 Pharmacopeia Drug Discovery, Inc. (AE) 46,950 176 Phase Forward, Inc. (AE) 71,700 783 PolyMedica Corp. (N) 39,025 1,288 PRA International (AE)(N) 2,300 61 Radiation Therapy Services, Inc. (AE) 15,500 466 Res-Care, Inc. (AE)(N) 11,200 181 Resmed, Inc. (AE)(N) 57,254 2,183 Respironics, Inc. (AE) 79,430 2,849 SFBC International, Inc. (AE) 25,683 1,095 Sierra Health Services, Inc. (AE) 7,000 525 SonoSite, Inc. (AE)(N) 26,400 776 Stericycle, Inc. (AE) 69,900 4,023 Steris Corp. 12,700 290 Sunrise Senior Living, Inc. (AE)(N) 11,600 375 Sybron Dental Specialties, Inc. (AE) 31,766 1,363 Symbion, Inc. (AE)(N) 1,200 27 Symmetry Medical, Inc. (AE) 59,073 1,308 Syneron Medical, Ltd. (AE)(N) 39,500 1,420 Techne Corp. (AE) 17,900 971 Theravance, Inc. (AE) 47,900 1,038 Thoratec Corp. (AE) 42,000 831 United Surgical Partners International, Inc. (AE) 48,541 1,740 United Therapeutics Corp. (AE)(N) 9,810 725 Varian Medical Systems, Inc. (AE) 41,356 1,884 VCA Antech, Inc. (AE) 74,300 1,917 Ventana Medical Systems, Inc. (AE)(N) 5,130 197 ViaCell, Inc. (AE)(N) 5,000 25 Viasys Healthcare, Inc. (AE) 19,700 471 ViroPharma, Inc. (AE) 23,300 446 Watson Pharmaceuticals, Inc. (AE) 59,800 2,067 ------------ 118,252 ------------ Integrated Oils - 0.1% Giant Industries, Inc. (AE) 8,400 480 ------------ Materials and Processing - 6.7% Agrium, Inc. 62,700 1,330 Airgas, Inc. 44,494 1,258 Albany International Corp. Class A 10,500 406 AM Castle & Co. (AE) 79,600 1,586 Apogee Enterprises, Inc. 7,900 129 Aptargroup, Inc. 15,400 788 Ashland, Inc. 8,200 439 Ball Corp. 32,500 1,280 Bluegreen Corp. (AE) 7,600 115 Builders FirstSource, Inc. (AE)(N) 29,100 569 Building Materials Holding Corp. (N) 13,200 1,122
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Calgon Carbon Corp. (N) 14,420 79 Cambrex Corp. 36,800 702 Cameco Corp. (AE) 12,106 579 Celanese Corp. (N) 55,700 983 CF Industries Holdings, Inc. (N) 16,600 229 Chaparral Steel Co. (AE)(N) 18,070 451 Chemtura Corp. 73,700 789 Chicago Bridge & Iron Co. NV 23,560 525 Comfort Systems USA, Inc. (AE)(N) 25,610 218 Commercial Metals Co. 44,900 1,427 Constar International, Inc. (AE)(N) 48,500 97 Crown Holdings, Inc. (AE) 95,300 1,546 Cytec Industries, Inc. 60,400 2,495 Eagle Materials, Inc. (N) 6,600 703 ElkCorp 27,351 865 EMCOR Group, Inc. (AE) 27,000 1,647 Energizer Holdings, Inc. (AE) 21,130 1,067 Engelhard Corp. 55,400 1,507 Exide Technologies (AE)(N) 67,400 286 Florida Rock Industries, Inc. 4,900 279 FMC Corp. (AE) 13,000 708 Gold Kist, Inc. (AE)(N) 22,700 390 Granite Construction, Inc. 10,000 341 Harsco Corp. 25,800 1,658 HB Fuller Co. 5,900 177 Hercules, Inc. (AE) 130,600 1,455 Insituform Technologies, Inc. Class A (AE)(N) 38,700 695 Jacuzzi Brands, Inc. (AE)(N) 100,800 744 Lafarge North America, Inc. 49,400 2,989 Lennox International, Inc. 10,600 296 Louisiana-Pacific Corp. 16,450 410 Martin Marietta Materials, Inc. 44,900 3,543 Mosaic Co. (The) (AE)(N) 37,500 495 Mueller Industries, Inc. 19,600 540 NewMarket Corp. (AE)(N) 4,500 84 Nova Chemicals Corp. (N) 24,000 859 NS Group, Inc. (AE) 25,350 877 Octel Corp. (N) 4,500 67 Olympic Steel, Inc. (AE)(N) 49,915 888 OM Group, Inc. (AE) 32,000 511 Oregon Steel Mills, Inc. (AE) 53,538 1,359 Pactiv Corp. (AE) 45,200 890 PolyOne Corp. (AE)(N) 48,100 278 Precision Castparts Corp. 18,200 862 Quanex Corp. (N) 48,050 2,783 Quanta Services, Inc. (AE)(N) 181,200 2,082 Regeneron Pharmaceuticals, Inc. (AE) 20,200 253 Reliance Steel & Aluminum Co. (N) 17,700 1,009
Special Growth Fund 29 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Schnitzer Steel Industries, Inc. Class A (N) 38,500 1,228 Silgan Holdings, Inc. 18,900 608 Steel Dynamics, Inc. (N) 26,400 818 Stillwater Mining Co. (AE)(N) 11,100 112 Terra Industries, Inc. (AE)(N) 101,450 620 Texas Industries, Inc. 17,850 885 Trammell Crow Co. (AE) 8,400 215 UAP Holding Corp. 39,400 753 Unifi, Inc. (AE) 44,500 130 Universal Forest Products, Inc. (N) 2,900 160 URS Corp. (AE) 22,114 894 USEC, Inc. (N) 73,620 736 USG Corp. (AE)(N) 8,990 531 Vertex Pharmaceuticals, Inc. (AE)(N) 54,800 1,247 Washington Group International, Inc. (AE) 19,818 985 Wheeling-Pittsburgh Corp. (AE)(N) 13,600 175 ------------ 62,836 ------------ Miscellaneous - 1.2% Brunswick Corp. 32,000 1,220 Hillenbrand Industries, Inc. 16,000 737 Johnson Controls, Inc. 16,500 1,123 McDermott International, Inc. (AE) 31,477 1,144 SPX Corp. 12,900 555 Teleflex, Inc. 19,100 1,264 Trinity Industries, Inc. (N) 51,600 1,963 Walter Industries, Inc. 28,887 1,319 Wesco Financial Corp. 4,203 1,458 ------------ 10,783 ------------ Other Energy - 8.4% Alliance Resource Partners, LP 14,600 617 Alpha Natural Resources, Inc. (AE) 27,300 648 Arch Coal, Inc. 19,857 1,530 Atlas Pipeline Partners, LP (N) 18,500 869 Atwood Oceanics, Inc. (AE) 6,378 449 Berry Petroleum Co. Class A (N) 1,800 108 Cabot Oil & Gas Corp. 17,900 820 Cal Dive International, Inc. (AE)(N) 50,500 3,108 Callon Petroleum Co. (AE) 35,400 648 Consol Energy, Inc. 20,700 1,261 Cooper Cameron Corp. (AE) 18,700 1,379 Core Laboratories NV (AE) 43,530 1,402 Dawson Geophysical Co. (AE)(N) 35,311 954 Denbury Resources, Inc. (AE) 70,000 3,054 Diamond Offshore Drilling, Inc. 20,076 1,134 Dril-Quip, Inc. (AE)(N) 4,700 192 Dynegy, Inc. Class A (AE) 91,600 407 Enbridge Energy Partners, LP (N) 22,000 1,111 ENSCO International, Inc. 36,200 1,650 Foundation Coal Holdings, Inc. 23,700 889 Frontier Oil Corp. 41,900 1,545
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Global Industries, Ltd. (AE) 25,500 324 Grant Prideco, Inc. (AE) 95,993 3,733 Helmerich & Payne, Inc. 33,400 1,850 Holly Corp. 17,300 996 Hornbeck Offshore Services, Inc. (AE)(N) 11,200 361 Houston Exploration Co. (AE) 31,400 1,619 Input/Output, Inc. (AE)(N) 59,800 459 Lufkin Industries, Inc. (N) 100 5 Nabors Industries, Ltd. (AE) 12,743 875 National-Oilwell Varco, Inc. (AE) 49,663 3,102 NRG Energy, Inc. (AE) 35,970 1,547 Ormat Technologies, Inc. (N) 15,200 310 Patterson-UTI Energy, Inc. 46,300 1,580 Pogo Producing Co. 16,400 828 Precision Drilling Corp. (AE) 27,889 1,283 Pride International, Inc. (AE) 55,400 1,555 Quicksilver Resources, Inc. (AE)(N) 32,800 1,270 Range Resources Corp. 76,268 2,722 Smith International, Inc. 34,000 1,102 Swift Energy Co. (AE) 42,100 1,838 Talisman Energy, Inc. 28,655 1,269 TEPPCO Partners, LP (N) 31,000 1,212 Tesoro Corp. 19,300 1,180 Tetra Technologies, Inc. (AE) 37,438 1,047 Todco Class A 208,779 9,343 Unit Corp. (AE) 59,532 3,119 Universal Compression Holdings, Inc. (AE) 48,730 1,737 Valero, LP 16,300 953 Veritas DGC, Inc. (AE)(N) 41,847 1,348 Vintage Petroleum, Inc. 54,516 2,829 W-H Energy Services, Inc. (AE) 38,800 1,176 Whiting Petroleum Corp. (AE)(N) 21,700 880 XTO Energy, Inc. 43,409 1,887 ------------ 79,114 ------------ Producer Durables - 6.3% American Tower Corp. Class A (AE) 183,230 4,370 Ametek, Inc. 29,500 1,202 AO Smith Corp. (N) 4,550 147 Applied Industrial Technologies, Inc. 2,650 87 Arris Group, Inc. (AE) 171,500 1,418 Asyst Technologies, Inc. (AE) 38,400 166 ATMI, Inc. (AE)(N) 39,900 1,090 Audiovox Corp. Class A (AE)(N) 8,300 118 Axcelis Technologies, Inc. (AE) 215,000 935 BE Aerospace, Inc. (AE) 26,600 482 Briggs & Stratton Corp. 26,000 832
30 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bucyrus International, Inc. Class A 24,514 1,019 C&D Technologies, Inc. 2,200 20 Cascade Corp. (N) 33,600 1,636 CNH Global NV 35,900 670 Cognex Corp. 41,300 1,180 Columbus McKinnon Corp. (AE) 18,700 427 Credence Systems Corp. (AE) 89,008 685 Crown Castle International Corp. (AE) 68,500 1,680 Cymer, Inc. (AE) 47,100 1,641 Dionex Corp. (AE)(N) 18,000 872 Dominion Homes, Inc. (AE)(N) 3,700 45 DR Horton, Inc. 31,366 963 Ducommun, Inc. (AE)(N) 56,900 1,135 Encore Wire Corp. (AE) 5,100 110 Entegris, Inc. (AE) 148,127 1,446 ESCO Technologies, Inc. (AE) 5,000 216 Esterline Technologies Corp. (AE) 2,650 100 Flowserve Corp. (AE) 15,800 553 Gehl Co. (AE)(N) 10,900 250 Genlyte Group, Inc. (AE) 19,400 989 Graco, Inc. 27,500 942 HNI Corp. 4,600 225 IDEX Corp. 15,694 628 Itron, Inc. (AE) 21,000 913 JLG Industries, Inc. (N) 44,650 1,713 Joy Global, Inc. 38,948 1,787 KB Home 11,000 719 Kennametal, Inc. 22,603 1,155 Kimball International, Inc. Class B (N) 6,380 70 Lennar Corp. Class A 19,350 1,076 Levitt Corp. Class A (N) 15,200 299 LTX Corp. (AE)(N) 19,000 65 Manitowoc Co. 11,400 607 MDC Holdings, Inc. 18,355 1,259 Meritage Homes Corp. (AE) 29,315 1,825 Middleby Corp. (AE)(N) 17,900 1,298 Milacron, Inc. (AE)(N) 127,629 163 Orbital Sciences Corp. (AE)(N) 39,700 462 Orleans Homebuilders, Inc. (N) 5,700 114 Pall Corp. 66,600 1,742 Roper Industries, Inc. 57,958 2,185 Standard-Pacific Corp. 35,800 1,381 Steelcase, Inc. Class A (N) 21,700 311 Technical Olympic USA, Inc. (AE)(N) 47,750 1,009 Tecumseh Products Co. Class A (N) 35,100 707 Teledyne Technologies, Inc. (AE) 29,700 1,047 Tennant Co. 5,610 244 Teradyne, Inc. (AE) 83,300 1,128 Thermo Electron Corp. (AE) 69,700 2,104 Thomas & Betts Corp. (AE) 13,700 533 Toll Brothers, Inc. (AE) 22,700 838 Ultratech, Inc. (AE)(N) 9,400 130 Varian Semiconductor Equipment Associates, Inc. (AE) 56,100 2,122
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- WCI Communities, Inc. (AE)(N) 46,700 1,168 William Lyon Homes, Inc. (AE)(N) 4,900 582 ------------ 59,035 ------------ Technology - 14.5% ADTRAN, Inc. 26,642 806 Agile Software Corp. (AE)(N) 268,100 1,904 Akamai Technologies, Inc. (AE) 108,200 1,876 Alliance Semiconductor Corp. (AE)(N) 61,300 161 American Reprographics Co. (AE)(N) 45,700 770 Amkor Technology, Inc. (AE) 41,100 217 Amphenol Corp. Class A 34,595 1,383 Anixter International, Inc. 10,410 386 Ansoft Corp. (AE) 7,500 240 Ansys, Inc. (AE) 2,800 104 Anteon International Corp. (AE) 26,200 1,184 Applera Corp. - Applied Biosystems Group 45,800 1,112 ASE Test, Ltd. (AE) 67,800 374 AsiaInfo Holdings, Inc. (AE)(N) 22,800 88 Atmel Corp. (AE) 83,500 205 Autodesk, Inc. 28,400 1,282 Avid Technology, Inc. (AE) 37,100 1,826 Avnet, Inc. (AE) 72,300 1,667 AVX Corp. (N) 76,000 941 BearingPoint, Inc. (AE)(N) 152,800 1,073 Bottomline Technologies, Inc. (AE) 44,200 559 Cadence Design Systems, Inc. (AE) 149,300 2,386 Carrier Access Corp. (AE) 15,500 67 Ciena Corp. (AE) 579,308 1,373 Cirrus Logic, Inc. (AE)(N) 28,100 184 Coherent, Inc. (AE) 14,320 424 Compuware Corp. (AE) 111,800 904 Comtech Telecommunications Corp. (AE)(N) 9,600 368 Comverse Technology, Inc. (AE) 53,800 1,350 Conexant Systems, Inc. (AE) 43,800 85 Digitas, Inc. (AE) 84,000 907 Electronics for Imaging, Inc. (AE) 152,726 3,835 EMS Technologies, Inc. (AE) 800 13 Emulex Corp. (AE) 77,300 1,431 Equinix, Inc. (AE)(N) 28,400 1,048 ESS Technology, Inc. (AE)(N) 15,200 44 F5 Networks, Inc. (AE) 22,211 1,156 Fairchild Semiconductor International, Inc. (AE) 128,200 1,974 Filenet Corp. (AE)(N) 18,400 518 Flir Systems, Inc. (AE) 23,712 497 Formfactor, Inc. (AE) 18,335 451
Special Growth Fund 31 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Foundry Networks, Inc. (AE)(N) 45,800 546 Genesis Microchip, Inc. (AE)(N) 42,600 820 GTSI Corp. (AE)(N) 70,000 570 Harris Corp. 57,100 2,347 Ikanos Communications, Inc. (AE) 30,100 474 InFocus Corp. (AE)(N) 72,300 231 Informatica Corp. (AE) 272,100 3,238 Ingram Micro, Inc. Class A (AE) 102,850 1,862 Integrated Device Technology, Inc. (AE) 60,700 600 Integrated Silicon Solutions, Inc. (AE)(N) 168,800 1,303 Intergraph Corp. (AE)(N) 14,680 710 Intermagnetics General Corp. (AE) 44,332 1,270 Intersil Corp. Class A 114,333 2,602 Interwoven, Inc. (AE) 19,400 182 j2 Global Communications, Inc. (AE)(N) 103,550 4,578 JDA Software Group, Inc. (AE) 21,500 348 Keane, Inc. (AE)(N) 29,700 336 Kemet Corp. (AE)(N) 26,400 183 Keynote Systems, Inc. (AE) 51,700 674 Komag, Inc. (AE)(N) 5,200 139 Kopin Corp. (AE) 52,249 295 Lattice Semiconductor Corp. (AE) 7,300 32 Lawson Software, Inc. (AE)(N) 200,800 1,538 Leadis Technology, Inc. (AE)(N) 2,900 15 LSI Logic Corp. (AE) 410,900 3,332 M-Systems Flash Disk Pioneers Ltd. (AE)(N) 92,800 2,941 Macromedia, Inc. (AE) 11,700 514 Matrixone, Inc. (AE) 264,400 1,333 Maxtor Corp. (AE)(N) 651,500 2,280 McAfee, Inc. (AE) 28,500 856 MEMC Electronic Materials, Inc. (AE) 74,500 1,337 Merix Corp. (AE)(N) 8,000 43 Methode Electronics, Inc. 6,090 62 Microchip Technology, Inc. 18,800 567 Micros Systems, Inc. (AE) 26,200 1,203 Microsemi Corp. (AE) 119,600 2,771 Nam Tai Electronics, Inc. 19,300 437 NAVTEQ Corp. (AE) 18,100 708 Ness Technologies, Inc. (AE)(N) 15,700 143 NETGEAR, Inc. (AE)(N) 14,400 282 Netlogic Microsystems, Inc. (AE)(N) 105,100 2,056 Network Engines, Inc. (AE) 33,835 44 Novell, Inc. (AE)(N) 58,800 448 Nuance Communications, Inc. (AE)(N) 138,100 710 Nvidia Corp. (AE) 53,300 1,788 O2Micro International, Ltd. (AE) 57,676 756 Openwave Systems, Inc. (AE)(N) 94,500 1,689 Parametric Technology Corp. (AE) 168,105 1,094 PerkinElmer, Inc. 53,500 1,181 Perot Systems Corp. Class A (AE) 5,600 78 PMC - Sierra, Inc. (AE) 181,300 1,287
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Quantum Corp. (AE)(N) 305,300 922 Quest Software, Inc. (AE) 65,500 911 Rackable Systems, Inc. (AE) 105,000 1,460 RADWARE, Ltd. (AE) 16,500 304 Redback Networks, Inc. (AE)(N) 183,140 1,925 Reynolds & Reynolds Co. (The) Class A 24,900 661 RF Micro Devices, Inc. (AE)(N) 103,700 543 Rockwell Automation, Inc. 15,896 845 RSA Security, Inc. (AE) 68,400 780 Safeguard Scientifics, Inc. (AE)(N) 39,900 60 SafeNet, Inc. (AE)(N) 17,100 567 Salesforce.com, Inc. (AE) 15,300 382 Sapient Corp. (AE)(N) 52,300 271 Satyam Computer Services, Ltd. - ADR 40,100 1,371 Seachange International, Inc. (AE)(N) 42,800 268 Semtech Corp. (AE) 56,800 857 Serena Software, Inc. (AE)(N) 40,300 882 Silicon Storage Technology, Inc. (AE) 52,500 265 SiRF Technology Holdings, Inc. (AE) 15,100 389 Solectron Corp. (AE) 329,100 1,162 SonicWALL, Inc. (AE)(N) 61,700 429 SPSS, Inc. (AE) 5,900 135 Standard Microsystems Corp. (AE) 1,942 55 SYKES Enterprises, Inc. (AE)(N) 58,500 845 Symbol Technologies, Inc. 99 1 Tekelec (AE)(N) 48,100 660 Tellabs, Inc. (AE) 155,730 1,489 Tessera Technologies, Inc. (AE) 44,964 1,254 TIBCO Software, Inc. (AE) 233,400 1,772 Transaction Systems Architects, Inc. Class A (AE) 49,775 1,344 Trident Microsystems, Inc. (AE)(N) 68,700 2,079 Triquint Semiconductor, Inc. (AE) 92,700 389 Trizetto Group, Inc. (The) (AE) 45,500 645 TTM Technologies, Inc. (AE) 1,000 8 Ulticom, Inc. (AE)(N) 2,800 29 Ultimate Software Group, Inc. (AE)(N) 74,700 1,269 Unisys Corp. (AE) 156,400 799 UNOVA, Inc. (AE) 48,325 1,498 Utstarcom, Inc. (AE)(N) 36,800 203 Vasco Data Security International (AE)(N) 22,500 240 VeriFone Holdings, Inc. (AE) 85,000 1,972 Verint Systems, Inc. (AE)(N) 23,000 881 Verity, Inc. (AE) 67,600 673 Viasat, Inc. (AE) 53,200 1,319 WatchGuard Technologies, Inc. (AE) 40,000 139
32 Special Growth Fund FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wavecom SA - ADR (AE) 27,000 384 Websense, Inc. (AE)(N) 23,010 1,359 Western Digital Corp. (AE)(N) 239,400 2,897 Wind River Systems, Inc. (AE)(N) 153,469 2,010 Witness Systems, Inc. (AE) 60,900 1,194 Zoran Corp. (AE)(N) 104,900 1,540 ------------ 136,342 ------------ Utilities - 3.5% AGL Resources, Inc. 6,400 225 Alamosa Holdings, Inc. (AE)(N) 150,000 2,220 Allete, Inc. 32,200 1,417 Alliant Energy Corp. 51,800 1,370 Avista Corp. 34,090 597 Cablevision Systems Corp. Class A (AE) 46,600 1,156 Cascade Natural Gas Corp. 25,900 534 Centerpoint Energy, Inc. (N) 48,800 646 CenturyTel, Inc. 20,650 676 CMS Energy Corp. (AE) 67,700 1,009 Commonwealth Telephone Enterprises, Inc. 33,030 1,185 Energen Corp. 38,400 1,444 IDACORP., Inc. 20,000 577 IDT Corp. Class B (AE)(N) 1,000 12 Laclede Group, Inc. (The) (N) 4,400 132 Leap Wireless International, Inc. (AE) 26,543 876 MDU Resources Group, Inc. 42,200 1,391 National Fuel Gas Co. 28,500 859 NeuStar, Inc. Class A (AE) 19,200 588 NII Holdings, Inc. (AE) 8,505 705 Northeast Utilities 129,610 2,358 Northwest Natural Gas Co. (N) 4,500 156 NorthWestern Corp. (N) 7,350 219 NSTAR 43,700 1,189 OGE Energy Corp. 35,500 914 Oneok, Inc. 15,200 437 Pepco Holdings, Inc. 66,500 1,429 Pinnacle West Capital Corp. 37,200 1,553 PNM Resources, Inc. 24,100 611 RCN Corp. (AE)(N) 15,000 305 Sierra Pacific Resources (AE)(N) 79,120 1,025 South Jersey Industries, Inc. 7,600 212 Talk America Holdings, Inc. (AE)(N) 27,200 262 UbiquiTel, Inc. (AE) 172,300 1,489 UGI Corp. 55,550 1,311 US Cellular Corp. (AE) 13,570 692
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Westar Energy, Inc. 34,400 760 WPS Resources Corp. 8,500 464 ------------ 33,005 ------------ TOTAL COMMON STOCKS (cost $759,849) 891,987 ------------ WARRANTS & RIGHTS - 0.0% Washington Mutual, Inc. (AE) 2050 Warrants 211 27 ------------ TOTAL WARRANTS & RIGHTS (cost $45) 27 ------------ SHORT-TERM INVESTMENTS - 4.6% Frank Russell Investment Company Money Market Fund 39,871,445 39,871 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 3,500 3,488 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $43,359) 43,359 ------------ OTHER SECURITIES - 19.3% Frank Russell Investment Company Money Market Fund (X) 59,426,864 59,427 State Street Securities Lending Quality Trust (X) 121,760,030 121,760 ------------ TOTAL OTHER SECURITIES (cost $181,187) 181,187 ------------ TOTAL INVESTMENTS - 119.0% (identified cost $984,440) 1,116,560 OTHER ASSETS AND LIABILITIES, NET - (19.0%) (178,560) ------------ NET ASSETS - 100.0% 938,000 ============
See accompanying notes which are an integral part of the financial statements. Special Growth Fund 33 FRANK RUSSELL INVESTMENT COMPANY SPECIAL GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 2000 Index (CME) expiration date 12/05 (78) 25,319 (1,192) Russell 2000 Mini Index (CME) expiration date 12/05 (240) 15,581 (316) S&P 500 E-Mini Index (CME) expiration date 12/05 (15) 907 8 S&P 500 Index (CME) expiration date 12/05 (2) 605 14 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (1,486) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 3.6 Consumer Discretionary 19.0 Consumer Staples 1.1 Financial Services 18.1 Health Care 12.6 Integrated Oils 0.1 Materials and Processing 6.7 Miscellaneous 1.2 Other Energy 8.4 Producer Durables 6.3 Technology 14.5 Utilities 3.5 Warrants & Rights --* Short-Term Investments 4.6 Other Securities 19.3 --------------- Total Investments 119.0 Other Assets and Liabilities, Net (19.0) --------------- 100.0 =============== Futures Contracts (0.2)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 34 Special Growth Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
QUANTITATIVE EQUITY - CLASS S RUSSELL 1000(R) ** ----------------------------- ------------------ * 10000.00 10000.00 1996 12275.00 12292.00 1997 16275.00 16206.00 1998 19047.00 19401.00 1999 24077.00 24364.00 2000 26260.00 26571.00 2001 19929.00 19652.00 2002 16752.00 16783.00 2003 20367.00 20528.00 2004 22062.00 22443.00 2005 24266.00 24793.00
Quantitative Equity Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 9.99% 5 Years (1.57)%S 10 Years 9.27%S
Quantitative Equity Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 9.72% 5 Years (1.81)%S 10 Years 8.93%S
Quantitative Equity Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.92% 5 Years (2.55)%S 10 Years 8.43%S
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%S 10 Years 9.50%S
36 Quantitative Equity Fund FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Quantitative Equity Fund Class S, Class E and Class C Shares gained 9.99%, 9.72% and 8.92%, respectively. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Core Funds Average returned 8.33%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The primary performance drivers were the Fund's fully invested position and exposure to companies with factor exposures, or characteristics, that the Fund's money managers believed to be predictive of positive long-term excess returns. The key factors that were positively rewarded by the market were positive price momentum and positive earnings surprises and revisions. These are two of the primary long term factors on which the Fund's money managers selected stocks. The third primary stock selection factor is lower valuation, which was rewarded to a lesser extent during the twelve months. Energy stocks significantly outperformed during the fiscal year. The Fund had a greater-than-benchmark weight in the integrated oil sector but was slightly underweight in the extremely strong other energy sector, particularly the oil well equipment and service sub-sector. Although the Fund did well in most sectors, an underweight in consumer staples and overweight in technology detracted from performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? A key detractor to performance was an underweight in consumer staples and weak stock selection within that sector, particularly in tobacco stocks. An underweight in Altria was one of the key detractors from performance. In addition, a modest overweight in technology also offset some of the Fund's money managers' positive achievements in the fiscal year. Exposure to stocks with positive price momentum and positive earnings surprise and revisions were significant positive contributors to the Fund's performance. The Fund also was characterized by a lower dividend yield stance, another positive contributor. Dividend yield was not rewarded during the period due to steadily rising interest rates. The Fund was also rewarded for its modest value bias. Security selection was the primary positive contributor to the Fund's performance, with selection positive in eight out of 11 economic sectors. The largest positive contributors to performance came from overweighting the integrated oil sector coupled with strong stock selection in that sector and underweighting the weak materials and processing sector together with strong stock selection within that sector. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's money managers emphasized those factors they believed would be rewarded with long-term positive excess returns. These included positive price momentum and positive earnings surprises and revisions. A slightly lower valuation stance than the benchmark as well as a lower dividend yield were modest positive contributors to the Fund's performance. The broadly diversified nature of the Fund and money manager assignments resulted in a slightly greater than benchmark exposure to energy stocks, though the stronger other energy sector was underweight. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Barclays Global Investors was terminated in December 2004 and replaced with Goldman Sachs Asset Management, L.P. In August 2005, a "select holdings" strategy was implemented. Pursuant to this strategy, FRIMCo analyzes the stocks purchased for the Fund by each of the Fund's money managers to identify particular stocks that are concurrently overweighted by the money managers. Based on rankings from a proprietary model, FRIMCo purchases additional shares of certain stocks for the Fund. The Fund continues to pursue a strategy of increasing stock specific risk and these changes were consistent with this strategy. All other managers were equally weighted in the Fund. Quantitative Equity Fund 37 FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Aronson + Johnson + Ortiz, L.P. Market-Oriented Franklin Portfolio Associates, LLC Market-Oriented Goldman Sachs Asset Management, L.P. Market-Oriented Jacobs Levy Equity Management, Inc. Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Quantitative Equity Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Quantitative Equity Fund Class S performance has been linked with Class E to provide historical perspective. For the period, November 4, 1996 (commencement of sale) through May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Quantitative Equity Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 38 Quantitative Equity Fund FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,060.40 $ 1,015.17 Expenses Paid During Period* $ 10.33 $ 10.11
* Expenses are equal to the Fund's annualized expense ratio of 1.99% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,064.50 $ 1,018.95 Expenses Paid During Period* $ 6.45 $ 6.31
* Expenses are equal to the Fund's annualized expense ratio of 1.24% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,065.60 $ 1,020.21 Expenses Paid During Period* $ 5.15 $ 5.04
* Expenses are equal to the Fund's annualized expense ratio of 0.99% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Quantitative Equity Fund 39 FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 94.8% Auto and Transportation - 2.9% Burlington Northern Santa Fe Corp. 177,400 11,009 CNF, Inc. 41,100 2,313 Continental Airlines, Inc. Class B (AE)(N) 32,000 414 CSX Corp. 443,400 20,312 FedEx Corp. 96,800 8,899 Ford Motor Co. (N) 988,300 8,223 Goodyear Tire & Rubber Co. (The) (AE)(N) 196,100 3,067 Harley-Davidson, Inc. 33,800 1,674 JB Hunt Transport Services, Inc. (N) 162,400 3,152 Landstar System, Inc. (N) 33,900 1,306 Navistar International Corp. (AE)(N) 37,400 1,029 Norfolk Southern Corp. 136,100 5,471 Oshkosh Truck Corp. 20,100 876 Paccar, Inc. 114,114 7,990 Polaris Industries, Inc. 15,100 681 Southwest Airlines Co. 240,200 3,846 Swift Transportation Co., Inc. (AE) 32,900 600 United Parcel Service, Inc. Class B 9,800 715 US Airways Group, Inc. (AE) 10,500 259 ------------ 81,836 ------------ Consumer Discretionary - 11.9% Abercrombie & Fitch Co. Class A 20,400 1,061 Activision, Inc. (AE) 74,666 1,178 American Eagle Outfitters, Inc. 182,100 4,288 American Greetings Corp. Class A 93,900 2,371 Arbitron, Inc. (N) 13,600 509 Autonation, Inc. (AE) 123,400 2,453 Autozone, Inc. (AE) 8,000 647 Black & Decker Corp. 71,600 5,881 Bright Horizons Family Solutions, Inc. (AE)(N) 10,500 420 Brinker International, Inc. 49,900 1,902 Career Education Corp. (AE)(N) 59,900 2,132 Cendant Corp. 965,900 16,826 Circuit City Stores, Inc. 359,440 6,394 Coach, Inc. (AE) 747,000 24,038 Convergys Corp. (AE) 42,100 684 Costco Wholesale Corp. 74,200 3,588 Darden Restaurants, Inc. 120,400 3,903 Dillard's, Inc. Class A 252,300 5,225 EarthLink, Inc. (AE)(N) 11,800 130 EchoStar Communications Corp. (N) 83,300 2,238 Emdeon Corp. (AE) 183,000 1,684 Federated Department Stores, Inc. 5,000 307 Gannett Co., Inc. 29,600 1,855 Gemstar-TV Guide International, Inc. (AE) 84,700 220 Google, Inc. Class A (AE) 27,100 10,085
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Harman International Industries, Inc. 14,300 1,428 Hilton Hotels Corp. 4,900 95 Home Depot, Inc. 645,871 26,507 InterActiveCorp (AE) 48,100 1,231 JC Penney Co., Inc. 37,300 1,910 Kimberly-Clark Corp. (N) 198,200 11,266 Liberty Media Corp. Class A (AE) 1,744,500 13,904 Marriott International, Inc. Class A 244,700 14,589 McGraw-Hill Cos., Inc. (The) 271,300 13,277 Men's Wearhouse, Inc. (The) (AE) 32,300 798 MGM Mirage (AE) 45,200 1,689 News Corp. Class A 865,400 12,332 Nike, Inc. Class B 122,700 10,313 Nordstrom, Inc. 463,600 16,064 O'Reilly Automotive, Inc. (AE)(N) 29,500 832 Office Depot, Inc. (AE) 58,500 1,611 Omnicom Group 30,200 2,505 PHH Corp. (AE)(N) 3,400 96 Phillips-Van Heusen Corp. (N) 9,500 270 Quiksilver, Inc. (AE)(N) 73,400 846 Republic Services, Inc. 33,900 1,198 Robert Half International, Inc. 31,800 1,173 RR Donnelley & Sons Co. 84,100 2,945 SCP Pool Corp. (N) 14,600 525 ServiceMaster Co. (The) (N) 25,000 315 Staples, Inc. 515,500 11,717 Starbucks Corp. (AE) 104,000 2,941 Target Corp. 281,200 15,660 Time Warner, Inc. 1,110,600 19,802 Toro Co. (N) 26,300 960 Viacom, Inc. Class B 462,722 14,331 Wal-Mart Stores, Inc. 55,616 2,631 Walt Disney Co. 662,500 16,145 Yahoo!, Inc. (AE) 111,300 4,115 Yum! Brands, Inc. 206,800 10,520 ------------ 336,560 ------------ Consumer Staples - 5.7% Altria Group, Inc. 357,391 26,822 Clorox Co. 63,100 3,415 Coca-Cola Co. (The) 375,600 16,068 Coca-Cola Enterprises, Inc. 82,800 1,565 Colgate-Palmolive Co. 151,900 8,045 CVS Corp. 156,200 3,813 General Mills, Inc. (N) 172,500 8,325 Hershey Foods Corp. 23,100 1,313 Kellogg Co. 16,600 733 Kraft Foods, Inc. Class A 45,200 1,279
40 Quantitative Equity Fund FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Kroger Co. (The) (AE) 479,349 9,539 Pepsi Bottling Group, Inc. 117,400 3,338 PepsiCo, Inc. 622,100 36,754 Pilgrim's Pride Corp. 111,400 3,507 Procter & Gamble Co. 224,303 12,559 Reynolds American, Inc. 79,900 6,791 Safeway, Inc. 88,100 2,049 Supervalu, Inc. 58,800 1,848 Tyson Foods, Inc. Class A 331,300 5,897 UST, Inc. 26,800 1,109 Walgreen Co. 166,000 7,541 ------------ 162,310 ------------ Financial Services - 21.7% Allmerica Financial Corp. (N) 18,600 709 Allstate Corp. (The) 103,400 5,458 American Express Co. 469,400 23,362 American Financial Group, Inc. 67,000 2,290 American International Group, Inc. 138,830 8,996 AmeriCredit Corp. (AE) 99,300 2,219 Ameriprise Financial, Inc. 65,220 2,427 Ameritrade Holding Corp. (AE)(N) 114,100 2,400 AmerUs Group Co. 37,200 2,199 Annaly Mortgage Management, Inc. (o) 86,400 992 AON Corp. 52,000 1,760 Automatic Data Processing, Inc. 129,600 6,047 Bank of America Corp. 1,371,845 60,004 Bank of Hawaii Corp. 67,300 3,458 BB&T Corp. 202,900 8,591 Bear Stearns Cos., Inc. (The) 57,400 6,073 CB Richard Ellis Group, Inc. Class A (AE) 13,600 664 CBL & Associates Properties, Inc. (o) 36,300 1,356 Charles Schwab Corp. (The) 327,500 4,978 Checkfree Corp. (AE) 64,000 2,720 Chubb Corp. 56,200 5,225 Cigna Corp. 131,400 15,225 Cincinnati Financial Corp. 67,387 2,867 CIT Group, Inc. 92,100 4,212 Citigroup, Inc. 618,500 28,315 CNA Financial Corp. (AE)(N) 20,900 643 Comerica, Inc. 82,593 4,772 Countrywide Financial Corp. 107,800 3,425 Developers Diversified Realty Corp. (o) 24,900 1,088 Dun & Bradstreet Corp. (AE) 22,900 1,450 East-West Bancorp, Inc. 1,300 50 Eaton Vance Corp. 17,300 431 Equity Office Properties Trust (o) 269,200 8,291 Equity Residential (o) 42,300 1,660 Fannie Mae 91,900 4,367 Fidelity National Financial, Inc. 31,762 1,190
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Fidelity National Title Group, Inc. Class A 5,558 121 First American Corp. (N) 119,100 5,219 Fiserv, Inc. (AE) 289,500 12,645 Franklin Resources, Inc. 110,200 9,738 Genworth Financial, Inc. Class A 160,100 5,074 Golden West Financial Corp. 42,800 2,514 Goldman Sachs Group, Inc. 85,600 10,817 H&R Block, Inc. 85,700 2,130 Hartford Financial Services Group, Inc. 8,500 678 Host Marriott Corp. (o) 11,200 188 Hudson City Bancorp, Inc. (N) 307,200 3,637 IndyMac Bancorp, Inc. (N) 16,000 597 iStar Financial, Inc. (o) 13,300 490 JPMorgan Chase & Co. 743,796 27,238 KeyCorp 156,400 5,042 Kimco Realty Corp. (o) 35,200 1,043 La Quinta Corp. (AE)(o) 2,700 23 Lehman Brothers Holdings, Inc. 190,100 22,749 Lincoln National Corp. 79,300 4,013 Loews Corp. 77,500 7,206 Mack-Cali Realty Corp. (o) 21,900 934 MBIA, Inc. 118,100 6,878 MBNA Corp. 96,362 2,464 Merrill Lynch & Co., Inc. 493,600 31,956 Metlife, Inc. 511,300 25,263 Moody's Corp. 163,800 8,724 Morgan Stanley 224,100 12,193 National City Corp. 573,700 18,490 Nationwide Financial Services, Inc. Class A 12,100 489 New Century Financial Corp. (o) 35,300 1,090 North Fork Bancorporation, Inc. 63,300 1,604 Old Republic International Corp. 80,700 2,091 Paychex, Inc. 170,800 6,620 People's Bank (N) 8,900 287 Plum Creek Timber Co., Inc. (o) 15,800 615 Principal Financial Group, Inc. 207,600 10,303 Progressive Corp. (The) 57,200 6,624 ProLogis (o) 95,900 4,124 Protective Life Corp. 19,200 842 Prudential Financial, Inc. 21,500 1,565 Radian Group, Inc. 26,700 1,391 Regions Financial Corp. 28,313 922 Safeco Corp. 62,400 3,476 SLM Corp. 22,000 1,222 St. Paul Travelers Cos., Inc. (The) 106,800 4,809 Stancorp Financial Group, Inc. 9,500 875 SunTrust Banks, Inc. 99,312 7,198
Quantitative Equity Fund 41 FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- UnionBanCal Corp. 146,900 10,060 United Rentals, Inc. (AE) 38,300 750 US Bancorp 325,318 9,623 Vornado Realty Trust (o) 20,600 1,669 Wachovia Corp. 461,100 23,295 Washington Mutual, Inc. 839,400 33,240 Wells Fargo & Co. 338,000 20,348 WR Berkley Corp. 15,150 662 ------------ 613,772 ------------ Health Care - 13.7% Abbott Laboratories 290,382 12,501 Abgenix, Inc. (AE) 5,500 57 Aetna, Inc. 246,334 21,815 Allergan, Inc. 139,200 12,431 American Medical Systems Holdings, Inc. (AE) 22,851 374 AmerisourceBergen Corp. 166,600 12,707 Amgen, Inc. (AE) 570,700 43,236 Barr Pharmaceuticals, Inc. (AE) 28,000 1,609 Baxter International, Inc. 80,700 3,085 Becton Dickinson & Co. 209,900 10,652 Bio-Rad Laboratories, Inc. Class A (AE)(N) 6,100 357 Bristol-Myers Squibb Co. 285,600 6,046 Cardinal Health, Inc. 195,900 12,246 Caremark Rx, Inc. (AE) 181,100 9,490 Community Health Systems, Inc. (AE) 25,700 954 Coventry Health Care, Inc. (AE) 85,725 4,628 CR Bard, Inc. 90,600 5,652 Dade Behring Holdings, Inc. 51,300 1,847 Edwards Lifesciences Corp. (AE) 82,900 3,430 Express Scripts, Inc. (AE) 37,700 2,843 Genentech, Inc. (AE) 69,500 6,297 Genzyme Corp. (AE) 47,200 3,413 Gilead Sciences, Inc. (AE) 249,500 11,789 Guidant Corp. 18,000 1,134 HCA, Inc. 61,300 2,954 Health Net, Inc. (AE) 42,000 1,967 Humana, Inc. (AE) 126,800 5,629 Johnson & Johnson 1,074,200 67,266 Lincare Holdings, Inc. (AE) 4,700 192 McKesson Corp. 121,020 5,498 Medarex, Inc. (AE)(N) 32,500 284 Medco Health Solutions, Inc. (AE) 49,700 2,808 Medtronic, Inc. 146,500 8,301 Merck & Co., Inc. 634,200 17,897 Pfizer, Inc. 2,159,887 46,956 Respironics, Inc. (AE) 15,600 560 St. Jude Medical, Inc. (AE) 157,000 7,547 UnitedHealth Group, Inc. 178,600 10,339 Universal Health Services, Inc. Class B (N) 83,400 3,931
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Varian Medical Systems, Inc. (AE) 74,000 3,371 WellPoint, Inc. (AE) 85,800 6,407 Wyeth 175,900 7,838 Zimmer Holdings, Inc. (AE) 1,000 64 ------------ 388,402 ------------ Integrated Oils - 5.9% Chevron Corp. 705,300 40,252 ConocoPhillips 711,448 46,514 Exxon Mobil Corp. 1,339,708 75,211 Marathon Oil Corp. 39,600 2,382 Occidental Petroleum Corp. 48,500 3,826 ------------ 168,185 ------------ Materials and Processing - 3.0% AK Steel Holding Corp. (AE) 8,400 59 Allegheny Technologies, Inc. (N) 22,100 635 Archer-Daniels-Midland Co. 341,851 8,331 Ashland, Inc. 72,700 3,890 Avery Dennison Corp. 19,600 1,110 Celanese Corp. (N) 8,000 141 Dow Chemical Co. (The) 146,000 6,696 Energizer Holdings, Inc. (AE) 81,300 4,105 Florida Rock Industries, Inc. (N) 32,600 1,855 Freeport-McMoRan Copper & Gold, Inc. Class B (N) 211,500 10,452 Georgia-Pacific Corp. 140,500 4,570 Gold Kist, Inc. (AE)(N) 1,032 18 Granite Construction, Inc. 20,300 692 Lafarge North America, Inc. 11,400 690 Lennox International, Inc. 3,700 103 Monsanto Co. 119,900 7,555 Newmont Mining Corp. 13,400 571 Nucor Corp. (N) 329,275 19,707 Phelps Dodge Corp. 65,800 7,927 Rohm & Haas Co. 71,000 3,091 Southern Copper Corp. (N) 15,200 838 USG Corp. (AE) 16,600 981 ------------ 84,017 ------------ Miscellaneous - 1.9% 3M Co. 33,900 2,576 General Electric Co. 1,483,400 50,302 ITT Industries, Inc. 23,700 2,408 ------------ 55,286 ------------
42 Quantitative Equity Fund FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Other Energy - 3.3% Anadarko Petroleum Corp. 140,400 12,736 Apache Corp. 146,300 9,338 BJ Services Co. 58,400 2,029 Burlington Resources, Inc. 131,600 9,504 Devon Energy Corp. 255,800 15,445 Diamond Offshore Drilling, Inc. (N) 29,700 1,677 EOG Resources, Inc. 80,300 5,443 Houston Exploration Co. (AE)(N) 20,200 1,041 Newfield Exploration Co. (AE) 52,100 2,362 Smith International, Inc. 46,800 1,516 Sunoco, Inc. 257,200 19,161 Todco Class A 31,900 1,428 Valero Energy Corp. 110,200 11,598 ------------ 93,278 ------------ Producer Durables - 5.7% Agilent Technologies, Inc. (AE) 143,200 4,584 Ametek, Inc. 30,700 1,250 Boeing Co. 274,300 17,731 Caterpillar, Inc. 151,600 7,973 Danaher Corp. 86,400 4,502 DR Horton, Inc. 666,651 20,460 Emerson Electric Co. 13,000 904 Herman Miller, Inc. 17,400 477 Illinois Tool Works, Inc. 18,300 1,551 Joy Global, Inc. 28,000 1,284 KB Home 57,000 3,725 KLA-Tencor Corp. 191,800 8,878 Lennar Corp. Class A (N) 128,800 7,159 Lockheed Martin Corp. 422,900 25,611 MDC Holdings, Inc. 15,700 1,077 Meritage Homes Corp. (AE)(N) 6,800 423 Northrop Grumman Corp. 490,096 26,294 NVR, Inc. (AE) 900 617 Pulte Homes, Inc. 99,800 3,772 Standard-Pacific Corp. (N) 45,600 1,759 Technical Olympic USA, Inc. (AE)(N) 12,200 258 Teradyne, Inc. (AE)(N) 96,700 1,309 Thermo Electron Corp. (AE) 38,600 1,165 Toll Brothers, Inc. (AE)(N) 179,500 6,625 United Technologies Corp. 238,500 12,230 WCI Communities, Inc. (AE)(N) 8,300 208 ------------ 161,826 ------------ Technology - 13.6% 3Com Corp. (AE) 9,300 36 Acxiom Corp. 32,500 694 Adobe Systems, Inc. 49,500 1,596 Advanced Micro Devices, Inc. (AE)(N) 84,200 1,955 Akamai Technologies, Inc. (AE)(N) 57,400 995 Amphenol Corp. Class A 37,200 1,487 Apple Computer, Inc. (AE) 512,700 29,526
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Applera Corp. - Applied Biosystems Group 19,500 473 Applied Micro Circuits Corp. (AE) 134,900 329 Arrow Electronics, Inc. (AE) 21,200 626 Atmel Corp. (AE) 135,900 334 Autodesk, Inc. 267,500 12,072 BEA Systems, Inc. (AE)(N) 28,000 247 BMC Software, Inc. (AE) 36,000 705 Cadence Design Systems, Inc. (AE) 85,600 1,368 Ciena Corp. (AE) 166,100 394 Cisco Systems, Inc. (AE) 684,900 11,951 Citrix Systems, Inc. (AE) 29,400 811 Computer Associates International, Inc. 2,041 57 Computer Sciences Corp. (AE) 278,800 14,288 Comverse Technology, Inc. (AE) 73,800 1,852 Corning, Inc. (AE) 273,700 5,499 Dell, Inc. (AE) 19,500 622 Electronic Data Systems Corp. 112,900 2,632 Electronics for Imaging, Inc. (AE)(N) 10,900 274 EMC Corp. (AE) 1,170,600 16,342 F5 Networks, Inc. (AE)(N) 7,500 390 General Dynamics Corp. 83,800 9,746 Harris Corp. 165,300 6,794 Hewlett-Packard Co. 1,289,800 36,166 Ingram Micro, Inc. Class A (AE) 236,700 4,284 Intel Corp. 2,639,800 62,035 International Business Machines Corp. 232,200 19,013 Jabil Circuit, Inc. (AE) 127,700 3,812 LSI Logic Corp. (AE)(N) 50,300 408 McAfee, Inc. (AE) 142,200 4,270 Micron Technology, Inc. (AE) 334,100 4,340 Microsoft Corp. 1,335,502 34,322 Motorola, Inc. 641,600 14,218 National Semiconductor Corp. 7,600 172 NCR Corp. (AE) 129,300 3,907 Oracle Corp. (AE) 1,529,300 19,391 Parametric Technology Corp. (AE) 92,000 599 PMC - Sierra, Inc. (AE)(N) 47,900 340 Qualcomm, Inc. 158,200 6,290 Raytheon Co. 132,100 4,881 Rockwell Automation, Inc. 48,800 2,594 Sanmina-SCI Corp. (AE) 196,100 716 Scientific-Atlanta, Inc. 23,000 815 Seagate Technology, Inc. (AE) 67,668 -- Solectron Corp. (AE) 202,200 714 Sun Microsystems, Inc. (AE) 536,400 2,146 Symantec Corp. (AE) 59,500 1,419
Quantitative Equity Fund 43 FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Tellabs, Inc. (AE) 166,700 1,594 Texas Instruments, Inc. 865,600 24,713 TIBCO Software, Inc. (AE) 43,600 331 Western Digital Corp. (AE)(N) 526,000 6,365 ------------ 383,950 ------------ Utilities - 5.5% Ameren Corp. 69,900 3,677 American Electric Power Co., Inc. 20,100 763 AT&T Corp. 113,600 2,247 BellSouth Corp. 321,200 8,358 CenturyTel, Inc. 216,800 7,096 Citizens Communications Co. (N) 68,300 836 CMS Energy Corp. (AE) 146,700 2,187 Comcast Corp. Class A (AE) 412,700 11,485 Comcast Corp. Special Class A (AE) 80,600 2,209 Consolidated Edison, Inc. (N) 50,200 2,284 Constellation Energy Group, Inc. 92,000 5,042 DTE Energy Co. 45,700 1,974 Duke Energy Corp. 194,500 5,150 Edison International 577,441 25,269 Entergy Corp. 11,200 792 FirstEnergy Corp. 28,100 1,335 Nextel Partners, Inc. Class A (AE)(N) 241,600 6,076 PG&E Corp. 221,300 8,051 SBC Communications, Inc. 404,200 9,640 Sempra Energy 103,100 4,567 Sierra Pacific Resources (AE) 158,600 2,054 Sprint Nextel Corp. 148,600 3,464 Telephone & Data Systems, Inc. (N) 28,200 1,067 TXU Corp. 230,100 23,183 Verizon Communications, Inc. 532,376 16,774 ------------ 155,580 ------------ TOTAL COMMON STOCKS (cost $2,380,382) 2,685,002 ------------ SHORT-TERM INVESTMENTS - 5.0% Frank Russell Investment Company Money Market Fund 133,933,000 133,933 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 8,000 7,973 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $141,906) 141,906 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 2.6% Frank Russell Investment Company Money Market Fund (X) 24,431,167 24,431 State Street Securities Lending Quality Trust (X) 50,057,152 50,057 ------------ TOTAL OTHER SECURITIES (cost $74,488) 74,488 ------------ TOTAL INVESTMENTS - 102.4% (identified cost $2,596,776) 2,901,396 OTHER ASSETS AND LIABILITIES, NET - (2.4%) (68,716) ------------ NET ASSETS - 100.0% 2,832,680 ============
See accompanying notes which are an integral part of the financial statements. 44 Quantitative Equity Fund FRANK RUSSELL INVESTMENT COMPANY QUANTITATIVE EQUITY FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 12/05 (37) 12,170 (291) Russell 1000 Mini Index (CME) expiration date 12/05 (10) 658 (21) S&P 500 E-Mini Index (CME) expiration date 12/05 (176) 10,646 (266) S&P 500 Index (CME) expiration date 12/05 (248) 75,008 (512) S&P Midcap 400 E-Mini Index (CME) expiration date 12/05 (240) 16,872 (2) S&P Midcap 400 Index (CME) expiration date 12/05 (70) 24,605 (655) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (1,747) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 2.9 Consumer Discretionary 11.9 Consumer Staples 5.7 Financial Services 21.7 Health Care 13.7 Integrated Oils 5.9 Materials and Processing 3.0 Miscellaneous 1.9 Other Energy 3.3 Producer Durables 5.7 Technology 13.6 Utilities 5.5 Short-Term Investments 5.0 Other Securities 2.6 --------------- Total Investments 102.4 Other Assets and Liabilities, Net (2.4) --------------- 100.0 =============== Futures Contracts (0.1)
See accompanying notes which are an integral part of the financial statements. Quantitative Equity Fund 45 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (Graph)
INTERNATIONAL SECURITIES - CLASS S MSCI EAFE ** ---------------------------------- ------------ * 10000.00 10000.00 1996 11049.00 11080.00 1997 11566.00 11625.00 1998 11981.00 12782.00 1999 14558.00 15769.00 2000 14760.00 15349.00 2001 11142.00 11561.00 2002 9731.00 10066.00 2003 12436.00 12841.00 2004 14300.00 15316.00 2005 16713.00 18163.00
International Securities Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 16.88% 5 Years 2.52%S 10 Years 5.27%S
International Securities Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 16.56% 5 Years 2.26%S 10 Years 4.98%S
International Securities Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 15.72% 5 Years 1.49%S 10 Years 4.44%S
MSCI EAFE Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%S 10 Years 6.15%S
46 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the International Securities Fund Class S, Class E and Class C Shares gained 16.88%, 16.56% and 15.72%, respectively. This compared to the MSCI EAFE(R) Index, which gained 18.59% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) International Funds Average returned 17.78%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Given some of the uncertainties in the market during the period, the Fund was positioned relatively conservatively with a slight tilt towards growth sectors. The Fund had a modest overweight to the consumer discretionary and information technology sectors and underweight to industrials. Due to the stronger performance of the cyclical sectors, the Fund's underweight in industrials, combined with an underweight and some weak stock selection in materials, detracted from the performance. An overweight in the lagging information technology sector also contributed negatively to the Fund's performance. In terms of country positions, the Fund was penalized for an underweight to Australia and an overweight to Taiwanese technology companies. Overall, however, exposure to Canadian and emerging markets stocks proved to be beneficial, given their generally strong gains over the period. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund lagged the MSCI EAFE(R) Index over the 12 months. Much of the shortfall was attributable to the first six months of the fiscal year, when the Fund's performance suffered from overweights to price and earnings momentum strategies and an overweight to stocks with high long-term earnings forecasts. From a sector perspective, the Fund's underweight in the industrials sector and overweights in information technology and consumer discretionary stocks were significant detractors from performance. From a country perspective, an underweight to Australia had the biggest negative impact to Fund performance. In the aggregate, the Fund's money managers viewed Australia's market valuation as less attractive given its strong performance in recent periods. Stock selection overall was effective in most areas, but was more than offset by these negative contributors to Fund performance. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The market slightly favored value-oriented money managers in the period. However, the Fund's best performing money manager was Axiom International Investors LLC, an aggressive growth manager. Axiom outperformed the benchmark by a substantial margin on strong stock selection and exposure to smaller capitalization stocks. Alliance Capital Management, L.P., through its Bernstein Investment Research & Management Unit, was the strongest performer among the value money managers and delivered a solid excess return for the period. AllianceBernstein did well through strong stock selection, particularly in Japan, with holdings such as Sumitomo Heavy Industries, Sumitomo Metal Industries and Kobe Steel. AllianceBernstein's stock selection in Germany was also strong, helped by positions in Heidelberg Cement and Continental. Oechsle International Advisors, LLC, a momentum-driven growth manager, struggled over the first half of the fiscal year in the very reactive, rotational market and detracted significantly from the Fund's performance. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. To improve the structure of the Fund's growth segment, Oechsle and Capital International, Inc., were terminated in April 2005. Wellington Management Company, LLP and MFS Institutional Advisors, Inc., were hired to provide consistent growth strategies intended to complement the processes of the remaining growth managers. These changes moderated the Fund's momentum exposure and increased exposure to high quality defensive growth stocks. International Securities Fund 47 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management, L.P., through its Bernstein Investment Research and Management Unit Value AQR Capital Management, LLC Market-Oriented Axiom International Investors, LLC Growth Fidelity Management & Research Company Market-Oriented Marvin & Palmer Associates, Inc. Growth MFS Institutional Advisors, Inc. Growth Mondrian Investment Partners Limited Value The Boston Company Asset Management, LLC Value Wellington Management Company, LLP Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * International Securities Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ International Securities Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ International Securities Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 48 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,085.50 $ 1,013.86 Expenses Paid During Period* $ 11.83 $ 11.42
* Expenses are equal to the Fund's annualized expense ratio of 2.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,089.50 $ 1,017.64 Expenses Paid During Period* $ 7.90 $ 7.63
* Expenses are equal to the Fund's annualized expense ratio of 1.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,091.00 $ 1,018.90 Expenses Paid During Period* $ 6.59 $ 6.36
* Expenses are equal to the Fund's annualized expense ratio of 1.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). International Securities Fund 49 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 90.9% Australia - 3.7% ABC Learning Centres, Ltd. (N) 92,243 450 Amcor, Ltd. 1,213,456 6,088 AMP Ltd. 252,400 1,380 Australia & New Zealand Banking Group, Ltd. 145,787 2,574 Australian Gas Light Co., Ltd. 34,500 391 AXA Asia Pacific Holdings, Ltd. 60,300 215 BHP Billiton, Ltd. 529,687 8,220 BlueScope Steel, Ltd. 216,300 1,374 Boral, Ltd. 29,100 165 Bradken, Ltd. 74,031 208 Brambles Industries, Ltd. (N) 29,700 188 Caltex Australia, Ltd. 28,600 436 CFS Gandel Retail Trust 155,100 217 Challenger Financial Services Group, Ltd. 21,500 59 Coles Myer, Ltd. 579,686 4,355 Commonwealth Bank of Australia 42,000 1,223 Commonwealth Property Office Fund 84,700 77 Computershare, Ltd. 232,700 1,143 ConnectEast Group 304,061 165 CSR, Ltd. 142,500 312 David Jones, Ltd. (N) 117,000 199 DB RREEF Trust (o) 176,042 176 DCA Group, Ltd. (N) 82,200 238 Downer EDI, Ltd. 108,413 494 Foster's Group, Ltd. 1,943,049 8,441 GPT Group 127,200 366 Gunns, Ltd. (N) 149,200 311 Iluka Resources, Ltd. 27,900 162 Insurance Australia Group, Ltd. 86,800 337 Lend Lease Corp., Ltd. 16,300 167 Lion Nathan, Ltd. (N) 27,700 164 Macquarie Airports 702,700 1,583 Macquarie Bank, Ltd. (N) 153,420 7,454 Macquarie Goodman Group 13,530 41 Macquarie Infrastructure Group 363,800 936 Mayne Group, Ltd. (N) 29,700 116 National Australia Bank, Ltd. (N) 579,264 14,331 Oil Search, Ltd. (N) 218,500 539 OneSteel, Ltd. (N) 114,100 302 Origin Energy, Ltd. 55,000 276 PaperlinX, Ltd. (N) 95,700 221 Publishing & Broadcasting, Ltd. (N) 34,940 423 Qantas Airways, Ltd. 67,400 173 QBE Insurance Group, Ltd. (N) 436,317 5,828 Ramsay Health Care, Ltd. 35,500 235 Rinker Group, Ltd. 275,320 3,123 Rio Tinto, Ltd. (N) 15,700 663 Santos, Ltd. 40,100 329 Seek, Ltd. (N) 46,900 100 Sons of Gwalia, Ltd. (AE)(N)(B) 34,800 --
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Stockland (N) 45,700 209 Suncorp-Metway, Ltd. 44,300 640 TABCORP Holdings, Ltd. 15,800 189 Telstra Corp., Ltd. (N) 1,971,366 6,201 Transurban Group 154,300 740 United Group, Ltd. 46,100 364 Wesfarmers, Ltd. (N) 17,182 460 Westfield Group (N) 116,176 1,446 Westpac Banking Corp. 52,000 809 Woodside Petroleum, Ltd. 79,700 1,883 Woolworths, Ltd. (N) 120,662 1,475 ------------ 91,384 ------------ Austria - 0.4% Erste Bank der Oesterreichischen Sparkassen AG 158,348 8,233 OMV AG 35,900 1,937 Raiffeisen International Bank Holding AG (AE)(N) 7,300 460 ------------ 10,630 ------------ Belgium - 0.9% Belgacom SA 22,600 758 Delhaize Group (N) 56,700 3,289 Dexia 19,700 425 Electrabel (N) 10,087 4,991 Fortis (N) 327,875 9,336 Groupe Bruxelles Lambert SA 5,400 493 KBC Groep NV (N) 24,500 1,996 Mobistar SA (N) 3,300 267 Solvay SA Class A 2,000 233 Umicore 3,600 360 ------------ 22,148 ------------ Brazil - 0.3% Cia Vale do Rio Doce - ADR 95,650 3,953 Petroleo Brasileiro SA - ADR 32,160 2,055 Telecomunicacoes Brasileiras SA - ADR (N) 49,800 1,660 ------------ 7,668 ------------ Canada - 1.8% Bank of Montreal 3 -- Bank of Nova Scotia 31,137 1,133 Cameco Corp. (N) 26,900 1,286 Canadian National Railway Co. 66,360 4,810 Canadian Natural Resources, Ltd. 109,800 4,489 Canadian Pacific Railway, Ltd. 61,600 2,532 EnCana Corp. 144,080 6,587
50 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Inco, Ltd. (AE) 30,500 1,227 Manulife Financial Corp. 22,300 1,160 Nexen, Inc. 26,000 1,070 Petro-Canada 143,800 5,011 Research In Motion, Ltd. (AE) 61,600 3,788 Rogers Communications, Inc. Class B 36,700 1,448 SNC-Lavalin Group, Inc. 40,500 2,555 Talisman Energy, Inc. 86,300 3,822 Teck Cominco, Ltd. Class B (N) 51,200 2,157 Toronto-Dominion Bank 30,400 1,434 ------------ 44,509 ------------ China - 0.0% China Construction Bank Class H (AE) 671,000 205 China Telecom Corp., Ltd. Class H 1,168,000 381 Foxconn International Holdings, Ltd. (AE)(N) 255,000 274 ------------ 860 ------------ Denmark - 0.3% AP Moller - Maersk A/S Class B 269 2,433 D/S Torm A/S (N) 2,400 127 Danske Bank A/S 90,131 2,826 East Asiatic Co., Ltd. A/S (N) 4,275 323 GN Store Nord A/S 66,300 798 Novo-Nordisk A/S Series B 4,350 224 Novozymes A/S 3,500 183 TDC A/S 7,700 431 ------------ 7,345 ------------ Finland - 1.0% Fortum OYJ 188,257 3,333 Kesko OYJ Class B 10,700 294 M-real OYJ Class S (N) 373,900 1,779 Neste Oil OYJ (AE) 72,488 2,248 Nokia OYJ 420,750 7,060 Nokia OYJ - ADR 50,090 843 Nokian Renkaat OYJ 9,450 147 Pohjola Group OYJ Class D (N) 16,800 270 Rautaruukki OYJ 13,600 278 Sampo OYJ 149,800 2,297 UPM-Kymmene OYJ 303,249 5,856 Wartsila OYJ Class S 28,500 791 YIT-Yhtyma OYJ 3,300 127 ------------ 25,323 ------------ France - 9.8% Air Liquide SA (N) 40,545 7,373 Altran Technologies SA (AE) 180,729 2,113 Areva SA 100 45 Assurances Generales de France (N) 39,500 3,761 Axa SA (N) 449,063 13,005 BNP Paribas (N) 185,243 14,044
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Business Objects SA (AE) 41,683 1,428 Cap Gemini SA (AE) 33,800 1,242 Carrefour SA (N) 105,870 4,705 Christian Dior SA 22,100 1,773 Cie de Saint-Gobain (N) 129,817 7,111 Cie Generale d'Optique Essilor International SA (N) 62,553 5,148 CNP Assurances (N) 18,100 1,259 Credit Agricole SA (N) 355,396 10,416 Dassault Systemes SA (AE)(N) 104,328 5,380 France Telecom SA (N) 176,160 4,579 Gaz de France 1,800 55 Groupe Danone (N) 41,259 4,190 Lafarge SA (N) 11,771 968 Lagardere SCA (N) 13,200 907 LVMH Moet Hennessy Louis Vuitton SA (N) 142,446 11,534 Natexis Banques Populaires 900 135 Pernod-Ricard (N) 8,280 1,447 Peugeot SA (N) 50,072 3,040 Pinault-Printemps-Redoute 12,519 1,315 Publicis Groupe (N) 136,260 4,508 Renault SA (N) 52,300 4,526 Sanofi-Aventis (N) 173,531 13,895 Sanofi-Aventis 3,305 264 Schneider Electric SA (N) 96,269 7,905 Societe BIC SA (N) 7,900 449 Societe Generale (N) 132,089 15,081 Societe Television Francaise 1 (N) 40,584 1,041 Sodexho Alliance SA (N) 33,000 1,284 Suez SA (N) 78,600 2,128 Technip SA (N) 64,700 3,523 Thomson (N) 173,940 3,279 Total SA (N) 152,197 38,325 Total SA - ADR (N) 27,636 3,483 Unibail (N) 23,208 3,065 Valeo SA (N) 78,752 2,950 Vallourec SA (N) 1,600 719 Veolia Environnement (N) 297,289 12,395 Vinci SA (N) 57,900 4,522 Vivendi Universal SA (N) 337,379 10,601 ------------ 240,916 ------------ Germany - 5.7% Adidas-Salomon AG 24,550 4,117 Allianz AG 69,366 9,797 AMB Generali Holding AG 6,000 541 Bayer AG (N) 170,116 5,907 Bayerische Hypo- und Vereinsbank AG (AE) 339,308 9,455
International Securities Fund 51 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bilfinger Berger AG (N) 23,900 1,034 Celesio AG 17,100 1,478 Continental AG 84,500 6,459 DaimlerChrysler AG 13,600 681 Deutsche Bank AG 39,481 3,698 Deutsche Boerse AG (N) 53,661 5,049 Deutsche Lufthansa AG (N) 164,684 2,202 Deutsche Post AG 188,331 4,198 Deutsche Telekom AG (N) 319,160 5,642 E.ON AG 215,144 19,496 Fresenius Medical Care AG (N) 10,500 945 Hannover Rueckversicherung AG (N) 57,900 2,095 Heidelberger Druckmaschinen 40,097 1,273 Hochtief AG 22,800 921 Hypo Real Estate Holding AG 4,000 193 Infineon Technologies AG (AE)(N) 207,000 1,935 KarstadtQuelle AG (N) 6,756 80 Lanxess AG (AE) 8,630 250 MAN AG 87,400 4,058 Medion AG (N) 29,900 415 Merck KGaA 125,753 10,404 Metro AG (N) 11,100 505 MLP AG (N) 2,400 46 Muenchener Rueckversicherungs-Gesellschaft AG 76,099 8,939 RWE AG 147,022 9,390 Salzgitter AG 31,400 1,374 SAP AG 26,300 4,496 Schering AG 69,813 4,313 Siemens AG 47,467 3,530 Suedzucker AG (N) 3,100 65 ThyssenKrupp AG (N) 24,300 493 TUI AG (N) 63,200 1,228 Volkswagen AG (N) 63,457 3,457 ------------ 140,159 ------------ Greece - 0.3% EFG Eurobank Ergasias SA 85,200 2,560 National Bank of Greece SA 34,900 1,364 OPAP SA 76,380 2,205 Public Power Corp. 28,580 607 ------------ 6,736 ------------ Hong Kong - 1.9% AAC Acoustic Technology Holdings, Inc. (AE) 56,000 29 Bank of East Asia, Ltd. 956,238 2,792 BOC Hong Kong Holdings, Ltd. (N) 177,000 330 Cheung Kong Holdings, Ltd. 546,800 5,708 China Mobile Hong Kong, Ltd. 401,500 1,797 Citic Pacific, Ltd. 306,600 796 CLP Holdings, Ltd. 75,000 430 CNOOC, Ltd. 7,142,000 4,638 Esprit Holdings, Ltd. 552,500 3,923
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hang Seng Bank, Ltd. (N) 10,300 134 HongKong Electric Holdings (N) 874,000 4,132 Hopewell Holdings 122,000 298 Hutchison Telecommunications International, Ltd. (AE) 3,077,000 3,859 Hutchison Whampoa, Ltd. (N) 313,000 2,971 Jardine Matheson Holdings, Ltd. 161,300 2,553 Kerry Properties, Ltd. (N) 94,500 236 Kingboard Chemical Holdings, Ltd. 49,500 105 Li & Fung, Ltd. 310,000 663 Melco International Development, Inc. 947,000 912 New World Development, Ltd. 196,000 244 Noble Group, Ltd. (N) 142,000 129 Orient Overseas International, Ltd. (N) 69,000 221 Shangri-La Asia, Ltd. (N) 220,000 309 Sino Land Co. (N) 1,368,000 1,521 Sun Hung Kai Properties, Ltd. 25,000 237 Swire Pacific, Ltd. 138,300 1,241 Techtronic Industries Co. (N) 144,500 357 Television Broadcasts, Ltd. 95,000 528 Wharf Holdings, Ltd. (N) 1,391,862 4,751 Wing Hang Bank, Ltd. 71,000 509 78,000 531 ------------ 46,884 ------------ Hungary - 0.3% Mol Magyar Olaj- es Gazipari Rt. 9,000 839 OTP Bank Rt - GDR 42,365 3,049 OTP Bank Rt. 85,600 3,092 ------------ 6,980 ------------ Indonesia - 0.1% Bank Central Asia Tbk PT 4,246,000 1,355 Telekomunikasi Indonesia Tbk PT 1,834,500 919 Telekomunikasi Indonesia Tbk PT - ADR(N) 6,742 137 ------------ 2,411 ------------ Ireland - 0.6% Allied Irish Banks PLC 67,300 1,409 Anglo Irish Bank Corp. PLC 62,100 845 Bank of Ireland PLC 285,558 4,348 CRH PLC 102,840 2,572 Depfa Bank PLC 303,347 4,726 Ryanair Holdings PLC - ADR (AE)(N) 40,906 2,028 ------------ 15,928 ------------
52 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Israel - 0.3% Check Point Software Technologies (AE) 125,910 2,815 Teva Pharmaceutical Industries, Ltd. - ADR (N) 104,200 3,972 ------------ 6,787 ------------ Italy - 2.7% Autostrade SpA (N) 105,552 2,414 Banca Intesa SpA (N) 2,417,490 11,289 Banca Popolare di Milano SCRL 14,900 142 Banco Popolare di Verona e Novara SCRL (N) 161,776 2,985 Benetton Group SpA (N) 116,611 1,233 Capitalia SpA (N) 142,900 746 CIR-Compagnie Industriali Riunite SpA 82,800 234 Enel SpA 118,200 954 Eni SpA (N) 818,946 21,904 ERG SpA 30,500 769 Fastweb (AE)(N) 37,769 1,719 Finmeccanica SpA (AE)(N) 50,700 922 Fondiaria-Sai SpA 60,900 1,684 Hera SpA (N) 84,800 217 Italcementi SpA (N) 64,000 1,049 Lottomatica SpA (N) 32,500 1,180 Mediaset SpA (N) 62,000 681 Milano Assicurazioni SpA 123,400 772 Parmalat Finanziaria SpA (AE)(N) 42,200 -- Recordati SpA 91,300 668 Saipem SpA (N) 181,200 2,598 Seat Pagine Gialle SpA (AE) 2,851,500 1,324 Snam Rete Gas SpA (N) 170,800 938 Telecom Italia SpA (N) 464,900 1,345 Telecom Italia SpA 594,092 1,436 UniCredito Italiano SpA (N) 1,484,210 8,288 ------------ 67,491 ------------ Japan - 21.9% 77 Bank, Ltd. (The) 324,400 2,593 Access Co., Ltd. (AE) 15 293 Acom Co., Ltd. 1,760 115 Aeon Co., Ltd. 235,800 4,913 Aida Engineering, Ltd. (N) 52,000 359 Aiful Corp. 16,350 1,222 Aioi Insurance Co., Ltd. 72,000 510 Aisin Seiki Co., Ltd. 43,500 1,312 All Nippon Airways Co., Ltd. 27,000 88 Alps Electric Co., Ltd. (N) 81,300 1,291 Arrk Corp. 15,400 850 Aruze Corp. 18,000 325 Asahi Glass Co., Ltd. (N) 687,000 7,449 Asahi Kasei Corp. 85,000 456 Astellas Pharma, Inc. 100,800 3,604
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Autobacs Seven Co., Ltd. (N) 2,700 110 Bandai Visual Co., Ltd. 131 437 Bank of Kyoto, Ltd. (The) (N) 12,000 132 Bank of Yokohama, Ltd. (The) 25,000 203 Benesse Corp. 3,800 134 Bridgestone Corp. 220,000 4,503 BSL Corp. (N) 123,000 261 Canon Sales Co., Inc. 10,000 218 Canon, Inc. 478,900 25,343 Chiba Bank, Ltd. (The) 36,000 322 Chiyoda Corp. (N) 113,000 1,946 Chubu Electric Power Co., Inc. (N) 32,800 814 Chugai Pharmaceutical Co., Ltd. 293,000 6,437 Circle K Sunkus Co., Ltd. 30,100 689 Citizen Watch Co., Ltd. 35,500 270 COMSYS Holdings Corp. 21,000 238 Cosmo Oil Co., Ltd. (N) 39,000 189 Credit Saison Co., Ltd. (N) 26,500 1,204 Cyber Communications, Inc. (AE) 149 378 Dai Nippon Printing Co., Ltd. 46,000 751 Daihatsu Motor Co., Ltd. (N) 20,000 191 Daiichi Sankyo Co., Ltd. (AE) 27,121 492 Daikin Industries, Ltd. 30,700 799 Daimaru, Inc. 27,000 331 Dainippon Screen Manufacturing Co., Ltd. (N) 67,000 413 Daiwa House Industry Co., Ltd. 24,000 322 Daiwa Securities Group, Inc. 193,000 1,594 Denki Kagaku Kogyo Kabushiki Kaisha 41,000 150 Denso Corp. 9,700 277 Dentsu, Inc. (N) 673 1,826 Don Quijote Co., Ltd. (N) 11,600 838 East Japan Railway Co. 813 4,846 Eisai Co., Ltd. (N) 163,200 6,408 Exedy Corp. 26,800 626 Fanuc, Ltd. 86,100 6,805 Frontier Real Estate Investment Corp. (o) 60 374 Fuji Heavy Industries, Ltd. (N) 408,800 2,048 Fuji Photo Film Co., Ltd. 100,900 3,222 Fujitsu, Ltd. 252,000 1,670 Funai Electric Co., Ltd. 25,900 2,115 Glory, Ltd. 11,500 225 Hirose Electric Co., Ltd. (N) 3,500 401 Hitachi Chemical Co., Ltd. (N) 18,600 401 Hitachi Koki Co., Ltd. 58,000 788 Hitachi Kokusai Electric, Inc. 47,000 464 Hitachi, Ltd. 885,000 5,442
International Securities Fund 53 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hokkaido Electric Power Co., Inc. 7,100 147 Hokuhoku Financial Group, Inc. (N) 287,000 1,195 Honda Motor Co., Ltd. 144,200 8,009 Hoya Corp. (N) 16,700 587 Hoya Corp. (AE) 75,000 2,596 Ibiden Co., Ltd. (N) 134,900 5,492 Isuzu Motors, Ltd. (N) 43,000 169 Itochu Corp. 673,000 4,625 Itochu-Shokuhin Co., Ltd. (N) 7,200 244 Japan Asia Investment Co., Ltd. 80,000 449 Japan Logistics Fund, Inc. (AE)(o) 83 515 Japan Tobacco, Inc. 1,082 17,127 JFE Holdings, Inc. (N) 171,000 5,290 JGC Corp. (N) 30,000 493 Joyo Bank, Ltd. (The) 27,000 181 JS Group Corp. (N) 108,600 1,843 JSR Corp. (N) 148,600 3,499 Kadokawa Holdings, Inc. (N) 22,300 802 Kaken Pharmaceutical Co., Ltd. (N) 21,000 149 Kamigumi Co., Ltd. 66,000 545 Kaneka Corp. 187,000 2,311 Kansai Electric Power Co., Inc. (The) 39,200 862 Kansai Paint Co., Ltd. 73,000 438 Kao Corp. 103,700 2,476 Kawasaki Heavy Industries, Ltd. (N) 114,000 299 Kawasaki Kisen Kaisha, Ltd. (N) 36,000 226 KDDI Corp. 1,872 10,685 Keihin Corp. (N) 7,000 157 Keyence Corp. 18,300 4,232 Kirin Beverage Corp. (N) 10,600 222 Kirin Brewery Co., Ltd. 24,000 266 Kobe Steel, Ltd. (N) 757,000 2,230 Koei Co., Ltd. (N) 20,100 606 Koito Manufacturing Co., Ltd. 30,000 402 Komatsu, Ltd. 830,000 11,175 Kose Corp. (N) 14,100 509 Koyo Seiko Co., Ltd. (N) 103,000 1,659 Kubota Corp. 113,000 822 Kuraray Co., Ltd. (N) 197,200 1,872 Kyocera Corp. 19,100 1,238 Kyowa Hakko Kogyo Co., Ltd. 79,000 611 Kyushu Electric Power Co., Inc. 18,600 399 Kyushu-Shinwa Holdings, Inc. (AE) 200,000 550 Leopalace21 Corp. (N) 22,500 582 Livedoor Co., Ltd. (AE)(N) 189,420 694 Mabuchi Motor Co., Ltd. (N) 55,400 2,696 Makita Corp. (N) 29,000 673 Mars Engineering Corp. 9,200 282 Marubeni Corp. 652,000 3,050 Matsumotokiyoshi Co., Ltd. (N) 16,100 487 Matsushita Electric Industrial Co., Ltd. 622,000 11,417 Matsushita Electric Works, Ltd. (N) 38,000 356 Mazda Motor Corp. 78,000 370 Meiji Dairies Corp. (N) 27,000 145
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Meitec Corp. 6,800 220 Millea Holdings, Inc. 247 4,492 Minebea Co., Ltd. (N) 428,000 1,671 Mitsubishi Chemical Holdings Corp. (AE) 77,500 482 Mitsubishi Corp. 103,900 2,035 Mitsubishi Electric Corp. (N) 146,000 878 Mitsubishi Estate Co., Ltd. (N) 38,000 565 Mitsubishi Gas Chemical Co., Inc. 48,000 326 Mitsubishi Rayon Co., Ltd. (N) 196,000 910 Mitsubishi Tokyo Financial Group, Inc. 1,203 15,169 Mitsui & Co., Ltd. (N) 186,000 2,280 Mitsui Chemicals, Inc. (N) 230,000 1,376 Mitsui Fudosan Co., Ltd. (N) 403,000 6,645 Mitsui OSK Lines, Ltd. (N) 252,000 1,780 Mitsui Sumitomo Insurance Co., Ltd. 267,000 3,447 Mitsui Trust Holdings, Inc. (N) 33,000 399 Mizuho Financial Group, Inc. 1,078 7,241 Mori Seiki Co., Ltd. 31,400 415 Murata Manufacturing Co., Ltd. 20,200 1,014 Netprice, Ltd. (AE) 86 317 Nidec Copal Corp. (N) 9,500 103 Nidec Corp. (N) 5,400 316 Nidec Corp. (AE) 5,400 299 Nikko Cordial Corp. 117,500 1,437 Nintendo Co., Ltd. 31,600 3,547 Nippon Electric Glass Co., Ltd. (N) 445,000 8,515 Nippon Express Co., Ltd. 845,400 4,642 Nippon Light Metal Co., Ltd. (N) 85,000 225 Nippon Meat Packers, Inc. 74,000 820 Nippon Mining Holdings, Inc. 313,500 2,307 Nippon Oil Corp. 231,000 1,961 Nippon Paper Group, Inc. 310 1,059 Nippon Shokubai Co., Ltd. 29,000 315 Nippon Steel Corp. (N) 450,000 1,604 Nippon Telegraph & Telephone Corp. 435 2,073 Nippon Yusen KK (N) 277,000 1,677 Nishi-Nippon City Bank, Ltd. (The) (N) 181,000 1,064 Nissan Motor Co., Ltd. (N) 565,500 5,910 Nissha Printing Co., Ltd. (N) 17,000 341 Nisshin Seifun Group, Inc. 4,400 45 Nisshin Steel Co., Ltd. (N) 120,000 380 Nitto Denko Corp. 86,400 5,231 NOK Corp. (N) 22,900 692 Nomura Holdings, Inc. 65,400 1,007 NSK, Ltd. 38,000 222 NTT DoCoMo, Inc. 1,502 2,600
54 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- NTT Urban Development Corp. (N) 102 600 Obayashi Corp. 33,000 242 Obic Co., Ltd. 4,600 751 OJI Paper Co., Ltd. 118,000 600 OMC Card, Inc. (N) 21,000 355 Omron Corp. 48,200 1,137 ORIX Corp. (N) 102,500 19,215 Osaka Gas Co., Ltd. 81,000 296 Parco Co., Ltd. 48,000 465 Promise Co., Ltd. 550 35 Rakuten, Inc. (N) 627 407 Renown D'urban Holdings, Inc. (AE) 8,900 92 Resona Holdings, Inc. (AE) 211 615 Ricoh Co., Ltd. 337,200 5,342 Rinnai Corp. (N) 90,500 2,156 Rohm Co., Ltd. 44,100 3,575 Sanken Electric Co., Ltd. (N) 38,000 440 Sankyo Co., Ltd. 6,600 350 Sanyo Shinpan Finance Co., Ltd. 21,800 1,582 Sapporo Hokuyo Holdings, Inc. 12 125 SBI Holdings, Inc. (N) 1,383 692 Sega Sammy Holdings, Inc. (N) 142,500 5,138 Sekisui Chemical Co., Ltd. (N) 157,000 991 Sekisui House, Ltd. (N) 220,700 2,746 Seven & I Holdings Co., Ltd. (AE) 116,900 3,816 SFCG Co., Ltd. (N) 1,190 286 Shimadzu Corp. 20,000 142 Shin-Etsu Chemical Co., Ltd. 98,900 4,760 Shinsei Bank, Ltd. 587,000 3,422 Shionogi & Co., Ltd. 68,000 827 Shizuoka Bank, Ltd. (The) (N) 100,000 1,056 Showa Shell Sekiyu KK (N) 19,900 247 Skylark Co., Ltd. (N) 132,800 2,193 SMBC Friend Securities Co., Ltd. 26,000 157 SMC Corp. 4,000 534 Softbank Corp. (N) 63,800 3,628 Sohgo Security Services Co., Ltd. (N) 51,190 843 Sompo Japan Insurance, Inc. 147,000 2,211 Sony Corp. (N) 23,200 757 Stanley Electric Co., Ltd. (N) 48,600 750 Sumisho Lease Co., Ltd. 25,300 1,205 Sumitomo Bakelite Co., Ltd. (N) 190,700 1,264 Sumitomo Chemical Co., Ltd. (N) 299,700 1,769 Sumitomo Corp. 12,000 135 Sumitomo Electric Industries, Ltd. 84,000 1,108 Sumitomo Forestry Co., Ltd. 69,000 639 Sumitomo Heavy Industries, Ltd. 559,000 3,904 Sumitomo Metal Industries, Ltd. 891,000 3,091 Sumitomo Mitsui Financial Group, Inc. (N) 2,455 22,862 Sumitomo Osaka Cement Co., Ltd. 45,000 127 Sumitomo Rubber Industries, Inc. 50,000 617 Sumitomo Trust & Banking Co., Ltd. (The) 68,000 578 Sumitomo Warehouse Co., Ltd. (The) 40,000 309
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- T&D Holdings, Inc. 30,800 1,952 Taiheiyo Cement Corp. (N) 98,000 355 Take And Give Needs Co., Ltd. (AE)(N) 725 1,015 Takeda Pharmaceutical Co., Ltd. 259,500 14,269 Takefuji Corp. 59,300 4,167 Tanabe Seiyaku Co., Ltd. 42,000 405 TDK Corp. (N) 14,600 989 Teijin, Ltd. 72,000 431 Telewave, Inc. 101 591 Terumo Corp. (N) 48,000 1,456 Toagosei Co., Ltd. (N) 48,000 245 Tobu Railway Co., Ltd. (N) 48,000 206 Toda Corp. 49,000 285 Tohoku Electric Power Co., Inc. (N) 32,300 659 Tokai Rika Co., Ltd. 2,700 62 Tokuyama Corp. (N) 78,000 772 Tokyo Electric Power Co., Inc. (The) 125,400 3,117 Tokyo Gas Co., Ltd. (N) 1,206,000 4,751 Toppan Printing Co., Ltd. (N) 31,000 300 Toray Industries, Inc. 547,000 3,035 Toshiba Corp. (N) 164,000 763 Toyo Seikan Kaisha, Ltd. 17,000 240 Toyobo Co., Ltd. 45,000 114 Toyoda Gosei Co., Ltd. (N) 97,300 1,823 Toyota Motor Corp. 772,200 35,850 Toyota Tsusho Corp. 13,000 289 USS Co., Ltd. 6,740 462 Valor Co., Ltd. 9,600 290 West Japan Railway Co. 632 2,247 Xebio Co., Ltd. (N) 10,000 430 Yahoo! Japan Corp. (N) 606 642 Yahoo! Japan Corp. (AE) 536 576 Yamada Denki Co., Ltd. (N) 66,100 5,844 Yamaha Motor Co., Ltd. 27,500 592 Yamato Transport Co., Ltd. 399,000 6,585 Yokogawa Electric Corp. (N) 34,600 509 ------------ 539,539 ------------ Luxembourg - 0.5% Arcelor (N) 125,340 2,976 Arcelor 60,000 1,416 SES Global 377,988 5,973 Tenaris SA - ADR (N) 14,100 1,549 ------------ 11,914 ------------
International Securities Fund 55 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mexico - 0.8% America Movil SA de CV Series L 98,500 2,586 Cemex SA de CV 195,000 1,014 Coca-Cola Femsa SA de CV - ADR (N) 72,000 1,851 Fomento Economico Mexicano SA de CV - ADR 20,400 1,387 Grupo Televisa SA - ADR (N) 149,250 10,910 Telefonos de Mexico SA de CV Series L (N) 106,300 2,145 ------------ 19,893 ------------ Netherlands - 3.4% ABN AMRO Holding NV (N) 215,790 5,101 Aegon NV (N) 269,646 4,058 Buhrmann NV (N) 118,700 1,312 CSM NV Class A 9,200 235 Euronext NV 33,100 1,406 European Aeronautic Defense and Space Co. (N) 192,393 6,661 Heineken Holding NV (N) 2,035 60 Heineken NV 111,060 3,517 Hunter Douglas NV 1,300 62 ING Groep NV 598,861 17,271 Koninklijke Ahold NV (AE) 97,600 681 Koninklijke DSM NV 31,500 1,131 Koninklijke Philips Electronics NV 436,202 11,405 OCE NV 11,200 160 Reed Elsevier NV 531,062 7,153 Rodamco Europe NV 16,700 1,329 Royal Dutch Shell PLC Class A (N) 147,700 4,578 Royal KPN NV 168,700 1,600 Royal Numico NV (AE) 181,030 7,328 TomTom NV (AE) 31,597 1,217 Unilever NV 14,700 1,035 VNU NV (N) 131,980 4,196 Wolters Kluwer NV 145,420 2,697 ------------ 84,193 ------------ New Zealand - 0.2% Telecom Corp. of New Zealand, Ltd. (N) 1,263,834 5,171 ------------ Norway - 0.7% Aker Kvaerner ASA (AE)(N) 38,600 1,986 DNB NOR ASA 411,563 4,209 Norsk Hydro ASA (N) 17,400 1,726 Petroleum Geo-Services ASA (AE)(N) 46,500 1,176 Statoil ASA 286,900 6,370 Stolt Offshore SA (AE)(N) 105,900 1,097 Yara International ASA (N) 57,000 938 ------------ 17,502 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Poland - 0.0% Powszechna Kasa Oszczednosci Bank Polski SA 127,398 1,070 ------------ Portugal - 0.1% Energias de Portugal SA 808,060 2,286 ------------ Singapore - 1.0% CapitaCommercial Trust (N)(o) 207,000 193 CapitaLand, Ltd. (N) 342,000 644 DBS Group Holdings, Ltd. 398,340 3,605 Flextronics International, Ltd. (AE) 130,600 1,213 Fraser and Neave, Ltd. 19,000 189 Jardine Cycle & Carriage, Ltd. 40,000 249 Keppel Corp., Ltd. (N) 502,000 3,447 MobileOne, Ltd. 56,000 66 NatSteel, Ltd. 50,000 63 Neptune Orient Lines, Ltd. 139,000 250 Oversea-Chinese Banking Corp. 792,800 2,954 Parkway Holdings, Ltd. 286,000 335 SembCorp Industries, Ltd. 149,120 238 SembCorp Marine, Ltd. 27,000 44 Singapore Airlines, Ltd. 24,000 159 Singapore Petroleum Co., Ltd. (N) 46,000 131 Singapore Technologies Engineering, Ltd. 188,000 283 Singapore Telecommunications, Ltd. 5,114,430 7,050 United Overseas Bank, Ltd. 276,900 2,262 United Overseas Land, Ltd. (N) 85,300 118 Venture Corp., Ltd. 52,000 385 ------------ 23,878 ------------ South Africa - 0.2% Nedbank Group, Ltd. 135,854 1,731 Sasol, Ltd. 76,300 2,435 ------------ 4,166 ------------ South Korea - 0.9% Daewoo Securities Co., Ltd. (AE)(N) 102,170 1,113 Hana Bank 34,480 1,253 Hynix Semiconductor, Inc. (AE)(N) 79,300 1,473 Hynix Semiconductor, Inc. - GDR (AE) 19,600 361 Korea Electric Power Corp. - ADR (N) 94,740 1,547 KT Corp. - ADR (N) 80,900 1,744
56 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Samsung Electronics Co., Ltd. 22,866 12,191 SK Telecom Co., Ltd. - ADR 99,790 2,017 ------------ 21,699 ------------ Spain - 3.5% Acerinox SA (N) 31,000 406 Actividades de Construccion y Servicios SA 87,893 2,512 Altadis SA 190,504 8,083 Antena 3 de Television SA (N) 33,700 655 Banco Bilbao Vizcaya Argentaria SA (N) 558,328 9,838 Banco de Sabadell SA (N) 154,660 4,084 Banco Popular Espanol SA (N) 93,700 1,138 Banco Santander Central Hispano SA (N) 522,301 6,661 Cia de Distribucion Integral Logista SA (N) 2,400 127 Corp Mapfre SA (N) 105,810 1,853 Ebro Puleva SA (N) 62,400 1,040 Endesa SA (N) 254,505 6,330 Fomento de Construcciones y Contratas SA 5,600 307 Gestevision Telecinco SA 52,200 1,158 Iberdrola SA 350,099 9,370 Iberia Lineas Aereas de Espana (N) 137,100 343 Indra Sistemas SA 82,600 1,693 Repsol YPF SA (N) 171,800 5,121 Repsol YPF SA - ADR (N) 102,316 3,050 Sociedad General de Aguas de Barcelona SA Class A 2,400 55 Telefonica SA 1,263,356 20,154 Union Fenosa SA (N) 84,200 2,788 ------------ 86,766 ------------ Sweden - 2.2% Atlas Copco AB Class A (N) 281,130 5,134 Billerud AB (N) 13,900 159 Electrolux AB (N) 8,300 193 Elekta AB Class B 18,900 288 Fabege AB 3,600 61 Hennes & Mauritz AB Series B (N) 193,921 6,294 Lundin Petroleum AB (AE)(N) 21,800 221 Nordea Bank AB 119,000 1,166 OMX AB (AE) 6,400 78 Sandvik AB 204,510 9,833 Securitas AB Series B (N) 27,200 413 Skandia Forsakrings AB (N) 503,970 2,512 Skandinaviska Enskilda Banken AB Class A (N) 37,200 694 Skanska AB Class B (N) 29,500 413 Ssab Svenskt Stal AB 5,600 167 Svenska Cellulosa AB Series B 94,210 3,176 Svenska Handelsbanken Series A (N) 100,949 2,301
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Swedish Match AB (N) 9,800 112 Tele2 AB Class B (N) 16,800 159 Telefonaktiebolaget LM Ericsson Series B 5,925,322 19,440 TeliaSonera AB (N) 78,500 383 Volvo AB Series A 6,000 238 Volvo AB Series B 4,400 181 ------------ 53,616 ------------ Switzerland - 6.5% ABB, Ltd. (AE) 523,806 4,043 Ciba Specialty Chemicals AG 67,951 3,903 Clariant AG 109,040 1,455 Compagnie Financiere Richemont AG Class A 95,266 3,625 Credit Suisse Group (N) 425,308 18,814 Georg Fischer AG (AE) 1,251 387 Givaudan 1,560 1,006 Julius Baer Holding AG Class B 21,647 1,678 Kuehne & Nagel International AG 10,122 2,369 Lonza Group AG (N) 15,053 867 Micronas Semiconductor Holding AG (AE) 25,200 854 Nestle SA (N) 90,670 26,988 Nobel Biocare Holding AG 3,700 853 Novartis AG 292,811 15,751 PubliGroupe SA 241 69 Roche Holding AG 238,764 35,671 Sulzer AG (AE) 1,994 959 Swatch Group AG Class B (N) 300 42 Swatch Group AG (AE) 61,926 1,760 Swiss Reinsurance 54,710 3,694 Swisscom AG 3,615 1,190 Syngenta AG (AE) 14,460 1,550 Synthes, Inc. 34,862 3,690 UBS AG (N) 276,374 23,460 Xstrata PLC (N) 189,346 4,334 Zurich Financial Services AG 2,829 483 ------------ 159,495 ------------ Taiwan - 0.1% Taiwan Semiconductor Manufacturing Co., Ltd. - ADR 168,200 1,359 United Microelectronics Corp. - ADR (N) 580,458 1,695 ------------ 3,054 ------------
International Securities Fund 57 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Thailand - 0.1% Bangkok Bank PCL 619,000 1,566 ------------ Turkey - 0.0% Turkiye Garanti Bankasi AS (AE) 130,300 388 ------------ United Kingdom - 18.5% 3i Group PLC 315,555 4,234 Alliance & Leicester PLC 18,300 270 Alliance Unichem PLC 66,000 901 Anglo American PLC 260,275 7,689 Arriva PLC 7,500 77 Associated British Foods PLC 115,400 1,616 AstraZeneca PLC 287,049 12,882 Aviva PLC 722,651 8,533 AWG PLC 4,000 68 BAA PLC 233,425 2,535 BAE Systems PLC 1,780,066 10,408 Barclays PLC 1,188,198 11,772 Barratt Developments PLC 48,800 653 BG Group PLC 1,897,599 16,651 BHP Billiton PLC 346,900 5,111 BOC Group PLC 204,433 4,028 Boots Group PLC 818,623 8,919 BP PLC 3,075,734 34,041 BPB PLC (AE) 21,000 272 Bradford & Bingley PLC 69,200 426 Brambles Industries PLC 827,796 4,781 British Airways PLC (AE) 187,100 1,000 British American Tobacco PLC 232,000 5,106 British Land Co. PLC 223,900 3,528 BT Group PLC 1,836,971 6,934 Burren Energy PLC 98,600 1,396 Cable & Wireless PLC 402,500 822 Capita Group PLC 142,300 982 Carnival PLC 45,442 2,305 Carphone Warehouse Group PLC 1,073,423 3,725 Centrica PLC 771,110 3,257 Compass Group PLC 46,200 155 Corus Group PLC 1,195,466 1,011 Diageo PLC 527,844 7,802 easyJet PLC (AE) 73,500 387 EMI Group PLC 1,278,099 4,837 Friends Provident PLC 713,080 2,225 George Wimpey PLC 293,800 2,126 GKN PLC 1,201,109 5,916 GlaxoSmithKline PLC 1,235,763 32,149 Hanson PLC 43,500 441 HBOS PLC 965,279 14,251 Hilton Group PLC 1,102,061 6,614 HMV Group PLC 106,700 355 HSBC Holdings PLC 778,829 12,256 HSBC Holdings PLC (N) 8,277 130 Imperial Chemical Industries PLC 237,000 1,206
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Imperial Tobacco Group PLC 111,000 3,183 Inchcape PLC 29,500 1,075 Intercontinental Hotels Group PLC 179,436 2,241 International Power PLC 184,400 757 ITV PLC 60,000 110 J Sainsbury PLC 1,143,592 5,648 Kesa Electricals PLC 28,328 120 Land Securities Group PLC 13,800 339 Legal & General Group PLC 117,100 222 Lloyds TSB Group PLC 1,270,237 10,414 Man Group PLC 3,100 84 Marks & Spencer Group PLC 419,479 3,099 Meggitt PLC 88,000 471 Mitchells & Butlers PLC 369,864 2,375 Next PLC 138,830 3,276 Northern Foods PLC 66,700 178 Old Mutual PLC 778,300 1,815 Persimmon PLC 107,000 1,633 Pilkington PLC 157,000 426 Prudential PLC 231,622 1,944 Punch Taverns PLC 159,540 2,063 Reckitt Benckiser PLC 552,346 16,691 Reed Elsevier PLC 25,300 231 Reuters Group PLC 546,300 3,472 Rexam PLC (N) 142,241 1,212 Rio Tinto PLC 418,223 15,975 Rolls-Royce Group PLC 4,589,200 870 Royal & Sun Alliance Insurance Group PLC 1,166,414 1,988 Royal Bank of Scotland Group PLC 485,470 13,441 Royal Dutch Shell PLC Class B 311,252 10,154 Royal Dutch Shell PLC Class A (N) 460,841 14,211 SABMiller PLC 82,400 1,554 Scottish & Southern Energy PLC 203,800 3,536 Scottish Power PLC 34,700 340 Shire Pharmaceuticals PLC 54,300 642 Smith & Nephew PLC 362,258 3,065 Smiths Group PLC 127,600 2,060 Somerfield PLC 175,000 603 Sportingbet PLC (N) 153,300 799 Standard Chartered PLC 493,848 10,369 Tate & Lyle PLC (N) 332,500 2,727 Taylor Woodrow PLC 247,397 1,371 Tesco PLC 1,503,900 8,006 Trinity Mirror PLC 86,300 908 Unilever PLC 952,219 9,654 United Utilities PLC 56,400 622 Vodafone Group PLC 9,890,422 25,957 Whitbread PLC 81,334 1,352 William Hill PLC 551,334 5,213
58 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- WPP Group PLC 51,500 507 Yell Group PLC 269,288 2,108 ------------ 457,894 ------------ United States - 0.2% Transocean, Inc. (AE) 47,900 2,754 Weatherford International, Ltd. (AE) 21,800 1,364 ------------ 4,118 ------------ TOTAL COMMON STOCKS (cost $1,873,360) 2,242,367 ------------ PREFERRED STOCKS - 0.2% Brazil - 0.1% Banco Itau Holding Financeira SA (AE) 78,000 1,868 ------------ Germany - 0.1% Fresenius AG (N) 27,900 3,919 ------------ Italy - 0.0% Unipol SpA (N) 193,900 404 ------------ TOTAL PREFERRED STOCKS (cost $4,179) 6,191 ------------ NOTIONAL AMOUNT $ ------------ OPTIONS PURCHASED - 0.0% (Number of Contracts) Belgium - 0.0% Bel 20 Index Nov 2005 3,033.10 (EUR) Call (9) 356 54 ------------ Switzerland - 0.0% Swiss Market Index Dec 2005 6,913.06 (CHF) Put (31) 1,662 120 ------------ TOTAL OPTIONS PURCHASED (cost $174) 174 ------------ PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- WARRANTS & RIGHTS - 0.1% Luxembourg - 0.1% Bharti Televentures (AE) 2009 Warrants 142 1,108 Satyam Computer Services, Ltd. (AE) 2007 Warrants 106 1,406 ------------ TOTAL WARRANTS & RIGHTS (cost $1,647) 2,514 ------------ SHORT-TERM INVESTMENTS - 8.3% United States - 8.3% Frank Russell Investment Company Money Market Fund 186,783,000 186,783 United States Treasury Bills (z)(sec.) 3.373% due 12/08/05 (c) 10,000 9,966 3.520% due 01/05/06 7,000 6,939 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $203,705) 203,688 ------------ OTHER SECURITIES - 22.0% Frank Russell Investment Company Money Market Fund (X) 177,753,314 177,753 State Street Securities Lending Quality Trust (X) 364,199,745 364,200 ------------ TOTAL OTHER SECURITIES (cost $541,953) 541,953 ------------ TOTAL INVESTMENTS - 121.5% (identified cost $2,625,018) 2,996,887 OTHER ASSETS AND LIABILITIES, NET - (21.5%) (529,330) ------------ NET ASSETS - 100.0% 2,467,557 ============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. International Securities Fund 59 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions AEX Index (Netherlands) expiration date 11/05 (210) 19,808 115 CAC-40 Index (France) expiration date 11/05 (296) 15,740 38 expiration date 12/05 (227) 12,065 (129) DAX Index (Germany) expiration date 12/05 (176) 25,966 (150) EUR STOXX 50 Index (EMU) expiration date 12/05 (1,005) 39,904 (505) FTSE-100 Index (UK) expiration date 12/05 (473) 44,567 (489) Hang Seng Index (Hong Kong) expiration date 11/05 (41) 3,804 (9) OMX Stockholm 30 Index (Sweden) expiration date 11/05 (942) 10,448 109 SPI 200 Index (Australia) expiration date 12/05 (120) 9,992 (85) TOPIX Index (Japan) expiration date 12/05 (453) 56,428 4,721 Short Positions FTSE-100 Index (UK) expiration date 12/05 (217) 20,446 198 Hang Seng Index (Hong Kong) expiration date 11/05 (33) 3,061 8 IBEX Plus Index (Spain) expiration date 11/05 (64) 8,027 58 MIB-30 (Italy) expiration date 12/05 (38) 7,457 339 SPI 200 Index (Australia) expiration date 12/05 (176) 14,655 152 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 4,371 ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Switzerland Swiss Market Index Dec 2005 6,913.06 (CHF) Call (31) 1,662 (152) Belgium Bel 20 Index Futures Nov 2005 3,303.10 (EUR) Put (9) 356 (58) --------------- Total Liability for Options Written (premiums received $174) (210) ===============
See accompanying notes which are an integral part of the financial statements. 60 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 95 AUD 126 11/01/05 (1) USD 372 AUD 500 12/21/05 1 USD 374 AUD 500 12/21/05 (1) USD 382 AUD 500 12/21/05 (9) USD 524 AUD 700 12/21/05 (1) USD 1,948 AUD 2,549 12/21/05 (46) USD 1,949 AUD 2,549 12/21/05 (46) USD 5,843 AUD 7,648 12/21/05 (135) USD 6,813 AUD 8,923 12/21/05 (154) USD 6,815 AUD 8,923 12/21/05 (156) USD 8,760 AUD 11,472 12/21/05 (199) USD 8,905 AUD 11,600 12/21/05 (249) USD 10,663 AUD 13,958 12/21/05 (246) USD 141 CHF 180 11/01/05 (2) USD 1,057 CHF 1,355 11/02/05 (6) USD 975 CHF 1,257 11/03/05 -- USD 97 CHF 123 12/21/05 (2) USD 294 CHF 374 12/21/05 (2) USD 2,055 CHF 2,604 12/21/05 (25) USD 23 DKK 140 12/02/05 -- USD 276 DKK 1,690 12/02/05 (4) USD 15 DKK 89 12/21/05 -- USD 70 DKK 432 12/21/05 (1) USD 577 DKK 3,524 12/21/05 (9) USD 68 EUR 57 11/01/05 -- USD 810 EUR 668 11/01/05 (10) USD 14 EUR 12 11/02/05 -- USD 968 EUR 803 11/02/05 (6) USD 222 EUR 185 11/03/05 -- USD 401 EUR 330 12/02/05 (5) USD 3,917 EUR 3,220 12/02/05 (52) USD 603 EUR 500 12/21/05 (2) USD 1,216 EUR 1,000 12/21/05 (14) USD 1,830 EUR 1,500 12/21/05 (28) USD 2,394 EUR 2,000 12/21/05 10 USD 4,210 EUR 3,500 12/21/05 (3) USD 4,810 EUR 4,000 12/21/05 (3) USD 6,042 EUR 5,000 12/21/05 (33) USD 69,686 EUR 56,500 12/21/05 (1,784) USD 1,090 GBP 611 11/01/05 (8) USD 1,146 GBP 642 11/01/05 (9) USD 138 GBP 78 11/02/05 (1) USD 904 GBP 510 11/02/05 (2) USD 161 GBP 90 12/02/05 (1) USD 1,196 GBP 670 12/02/05 (10)
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 541 GBP 300 12/21/05 (10) USD 879 GBP 500 12/21/05 5 USD 1,747 GBP 1,000 12/21/05 23 USD 1,759 GBP 1,000 12/21/05 10 USD 1,759 GBP 1,000 12/21/05 10 USD 2,677 GBP 1,500 12/21/05 (23) USD 27,419 GBP 15,214 12/21/05 (503) USD 41,150 GBP 22,600 12/21/05 (1,167) USD 8 HKD 61 11/01/05 -- USD 60 HKD 469 12/21/05 -- USD 944 HKD 7,328 12/21/05 1 USD 3 JPY 373 11/01/05 -- USD 4 JPY 440 11/01/05 -- USD 14 JPY 1,661 11/01/05 -- USD 14 JPY 1,663 11/01/05 -- USD 77 JPY 8,830 11/01/05 (1) USD 89 JPY 10,198 11/01/05 (1) USD 98 JPY 11,266 11/01/05 (1) USD 564 JPY 65,048 11/01/05 (5) USD 4 JPY 431 11/02/05 -- USD 33 JPY 3,782 11/02/05 -- USD 68 JPY 7,785 11/02/05 (1) USD 83 JPY 9,565 11/02/05 (1) USD 122 JPY 14,077 11/02/05 (1) USD 232 JPY 26,924 11/02/05 -- USD 4 JPY 430 11/04/05 -- USD 7 JPY 766 11/04/05 -- USD 42 JPY 4,862 11/04/05 -- USD 176 JPY 20,420 11/04/05 -- USD 405 JPY 47,071 11/04/05 -- USD 838 JPY 97,384 11/04/05 (2) USD 442 JPY 50,000 12/21/05 (10) USD 442 JPY 50,000 12/21/05 (10) USD 711 JPY 78,343 12/21/05 (34) USD 870 JPY 100,000 12/21/05 (6) USD 873 JPY 100,000 12/21/05 (8) USD 892 JPY 100,000 12/21/05 (28) USD 1,781 JPY 200,000 12/21/05 (53) USD 2,262 JPY 255,704 12/21/05 (52) USD 2,629 JPY 300,000 12/21/05 (36) USD 5,241 JPY 600,000 12/21/05 (56) USD 8,375 JPY 945,878 12/21/05 (201) USD 37,049 JPY 4,050,000 12/21/05 (2,046) USD 64 NOK 410 12/02/05 (1) USD 533 NOK 3,420 12/02/05 (7)
See accompanying notes which are an integral part of the financial statements. International Securities Fund 61 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 29,754 NOK 190,056 12/21/05 (473) USD 6,913 NZD 9,928 12/21/05 3 USD 68 SGD 113 12/21/05 (1) USD 758 SGD 1,276 12/21/05 (3) USD 821 SGD 1,382 12/21/05 (3) USD 1,303 SGD 2,194 12/21/05 (5) USD 2,273 SGD 3,828 12/21/05 (8) USD 2,273 SGD 3,828 12/21/05 (8) USD 2,815 SGD 4,719 12/21/05 (23) USD 2,815 SGD 4,719 12/21/05 (23) USD 2,816 SGD 4,719 12/21/05 (24) USD 2,830 SGD 4,745 12/21/05 (23) AUD 576 USD 430 11/04/05 -- AUD 417 USD 314 12/21/05 2 AUD 500 USD 384 12/21/05 11 AUD 1,000 USD 750 12/21/05 4 AUD 1,273 USD 963 12/21/05 13 AUD 1,273 USD 963 12/21/05 13 AUD 1,527 USD 1,155 12/21/05 15 AUD 18,891 USD 14,432 12/21/05 333 CAD 267 USD 227 11/01/05 2 CAD 1,070 USD 914 11/01/05 8 CAD 141 USD 119 11/03/05 -- CHF 410 USD 322 11/01/05 4 CHF 990 USD 770 12/02/05 -- CHF 1,180 USD 910 12/02/05 (8) CHF 1,773 USD 1,388 12/21/05 7 DKK 1,620 USD 259 12/02/05 (1) DKK 1,690 USD 273 12/02/05 2 DKK 8 USD 1 12/21/05 -- EUR 639 USD 775 11/01/05 9 EUR 668 USD 810 11/01/05 10 EUR 106 USD 128 11/02/05 1 EUR 275 USD 330 11/02/05 1 EUR 2,820 USD 3,368 12/02/05 (18) EUR 3,220 USD 3,888 12/02/05 22 EUR 944 USD 1,157 12/21/05 22 EUR 1,361 USD 1,648 12/21/05 13 EUR 1,500 USD 1,842 12/21/05 39 EUR 2,538 USD 3,071 12/21/05 21 EUR 9,000 USD 10,825 12/21/05 9 EUR 31,981 USD 39,023 12/21/05 588 GBP 39 USD 69 11/03/05 -- GBP 121 USD 215 11/03/05 -- GBP 717 USD 1,269 11/03/05 --
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- GBP 670 USD 1,186 12/02/05 -- GBP 790 USD 1,385 12/02/05 (13) GBP 500 USD 905 12/21/05 20 GBP 1,804 USD 3,197 12/21/05 6 GBP 2,039 USD 3,611 12/21/05 3 GBP 2,486 USD 4,403 12/21/05 4 GBP 3,819 USD 6,890 12/21/05 133 GBP 3,823 USD 6,772 12/21/05 8 GBP 3,840 USD 6,926 12/21/05 131 GBP 4,000 USD 6,975 12/21/05 (101) GBP 6,620 USD 11,948 12/21/05 237 GBP 7,129 USD 12,869 12/21/05 257 GBP 10,005 USD 17,764 01/31/06 66 HKD 453 USD 58 11/01/05 -- HKD 791 USD 102 11/01/05 -- HKD 231 USD 30 11/02/05 -- HKD 897 USD 116 11/02/05 -- HKD 89 USD 11 12/21/05 -- HKD 1,055 USD 136 12/21/05 -- HUF 50,614 USD 243 11/04/05 1 IDR 870,787 USD 85 11/10/05 (1) JPY 2,238 USD 19 11/01/05 -- JPY 2,995 USD 26 11/01/05 -- JPY 5,921 USD 51 11/01/05 1 JPY 19,450 USD 169 11/01/05 2 JPY 2,619 USD 23 11/02/05 -- JPY 7,743 USD 67 11/02/05 1 JPY 43,648 USD 377 11/02/05 3 JPY 731 USD 6 11/04/05 -- JPY 2,782 USD 24 11/04/05 -- JPY 2,995 USD 26 11/04/05 -- JPY 3,816 USD 33 11/04/05 -- JPY 419,740 USD 3,697 12/02/05 79 JPY 100,000 USD 908 12/21/05 44 JPY 246,230 USD 2,138 12/21/05 10 JPY 508,832 USD 4,588 12/21/05 190 JPY 800,000 USD 7,033 12/21/05 119 JPY 1,017,663 USD 9,175 12/21/05 378 JPY 1,474,409 USD 13,300 12/21/05 558 NOK 3,083 USD 476 11/02/05 2 NOK 3,410 USD 517 12/02/05 (8) NOK 3,420 USD 527 12/02/05 1 NOK 12,733 USD 2,000 12/21/05 38 NOK 19,687 USD 3,092 12/21/05 59 NOK 21,132 USD 3,241 12/21/05 (15)
See accompanying notes which are an integral part of the financial statements. 62 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- NOK 21,646 USD 3,399 12/21/05 64 NOK 35,704 USD 5,476 12/21/05 (25) NZD 3,070 USD 2,118 12/21/05 (21) NZD 6,858 USD 4,739 12/21/05 (38) SEK 3,714 USD 473 11/01/05 6 SEK 1,316 USD 167 11/02/05 1 SEK 715 USD 90 11/03/05 -- SEK 3,967 USD 498 11/03/05 -- SEK 1,570 USD 203 12/02/05 5 SEK 2,920 USD 375 12/02/05 7 SEK 198 USD 25 12/21/05 -- SEK 884 USD 116 12/21/05 5 SEK 2,026 USD 264 12/21/05 9 SEK 53,618 USD 7,015 12/21/05 257 SGD 100 USD 59 12/21/05 -- TRY 120 USD 88 11/02/05 -- -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (4,455) ==============
See accompanying notes which are an integral part of the financial statements. International Securities Fund 63 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDEX SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED APPRECIATION FUND RECEIVES COUNTER NOTIONAL FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY AMOUNT FLOATING RATE DATE $ - ------------------------------ ---------------- --------- ----------------------- -------------- ---------------- MSCI Austria 1 Month EUR LIBOR Local Net Total Return Index Merrill Lynch EUR 990 plus 0.40% 01/23/06 14 MSCI Austria 1 Month EUR LIBOR Local Net Total Return Index Merrill Lynch EUR 933 plus 0.40% 01/26/06 13 MSCI Belgium 1 Month EUR LIBOR Local Net Total Return Index Merrill Lynch EUR 956 minus 0.40% 01/18/06 (13) MSCI Denmark 1 Month DKK CIBOR Local Net Total Return Index Merrill Lynch DKK 8,014 plus 0.40% 01/23/06 24 MSCI Norway 1 Month NOK NIBOR Local Net Total Return Index Merrill Lynch NOK 64,729 plus 0.40% 01/23/06 460 ---------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts (a) 498 ================
INDUSTRY DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- Auto and Transportation 5.7 141,981 Consumer Discretionary 8.0 205,736 Consumer Staples 6.9 169,887 Financial Services 23.4 556,608 Health Care 7.4 187,066 Integrated Oils 7.2 171,891 Materials and Processing 9.2 237,428 Miscellaneous 1.0 22,143 Other Energy 1.8 46,543 Producer Durables 6.1 155,875 Technology 4.7 108,881 Utilities 9.5 238,328 Preferred Stock 0.2 6,191 Options Purchased -- 174 Warrants & Rights 0.1 2,514 Short-Term Investments 8.3 203,688 Other Securities 22.0 541,953 ------------ ------------ Total Investments 121.5 2,996,887 Other Assets and Liabilities, Net (21.5) (529,330) ------------ ------------ Net Assets 100.0 2,467,557 ============ ============
GEOGRAPHIC DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Africa 0.2 4,166 Asia 8.1 196,907 Europe 39.1 967,897 Japan 21.9 539,539 Latin America 1.2 29,429 Middle East 0.3 6,787 Other Regions 10.2 252,315 United Kingdom 18.5 457,894 Other Securities 22.0 541,953 ------------ ------------ Total Investments 121.5 2,996,887 Other Assets and Liabilities, Net (21.5) (529,330) ------------ ------------ Net Assets 100.0 2,467,557 ============ ============
See accompanying notes which are an integral part of the financial statements. 64 International Securities Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL SECURITIES FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS Australia 3.7 Austria 0.4 Belgium 0.9 Brazil 0.3 Canada 1.8 China --* Denmark 0.3 Finland 1.0 France 9.8 Germany 5.7 Greece 0.3 Hong Kong 1.9 Hungary 0.3 Indonesia 0.1 Ireland 0.6 Israel 0.3 Italy 2.7 Japan 21.9 Luxembourg 0.5 Mexico 0.8 Netherlands 3.4 New Zealand 0.2 Norway 0.7 Poland --* Portugal 0.1 Singapore 1.0 South Africa 0.2 South Korea 0.9 Spain 3.5 Sweden 2.2 Switzerland 6.5 Taiwan 0.1 Thailand 0.1 Turkey --* United Kingdom 18.5 United States 0.2 Preferred Stocks 0.2 Options Purchased --* Warrants & Rights 0.1 Short-Term Investments 8.3 Other Securities 22.0 --------------- Total Investments 121.5 Other Assets and Liabilities, Net (21.5) --------------- 100.0 =============== Futures Contracts 0.2 Options Written (--*) Foreign Currency Exchange Contracts (0.2) Index Swap Contracts --*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. International Securities Fund 65 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
EMERGING MARKETS - CLASS S MSCI EMF ** -------------------------- ----------- * 10000 10000 1996 11081 10648 1997 11045 9745 1998 7761 6725 1999 9339 9727 2000 8743 8870 2001 6654 6789 2002 7048 7362 2003 10449 10951 2004 12667 13076 2005 17144 17566
Emerging Markets Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 35.27% 5 Years 14.42%S 10 Years 5.54%S
Emerging Markets Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 34.94% 5 Years 14.20%S 10 Years 5.39%S
Emerging Markets Fund - Class C ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 33.98% 5 Years 13.40%S 10 Years 4.88%S
MSCI Emerging Markets Free Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 34.34% 5 Years 14.64%S 10 Years 5.80%S
66 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Emerging Markets Fund Class S, Class E and Class C Shares gained 35.27%, 34.94% and 33.98%, respectively. This compared to the MSCI Emerging Markets Index(SM), which gained 34.34% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Emerging Markets Funds Average returned 32.17%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The strength of energy stocks over the period did not have a significant effect on Fund performance given the Fund's neutral position relative to the benchmark; however; stock selection within the energy sector was positive. Exposure to other cyclical stocks also benefited the Fund, as did an underweight in information technology stocks. An overweight position to Egypt was also a positive contributor to the Fund's performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's outperformance relative to the benchmark was a result of both strong country allocation and stock selection. All but one of the Fund's money managers were underweight Taiwan. This weighting, together with strong stock selection in Mexico, were the two biggest positive contributors to the Fund's performance in the period. Wells Capital Management Incorporated and Genesis Asset Managers, LLP had strong stock selection in Mexico. Egypt, a beneficiary of improving fundamentals and good economic data, was another source of excess returns. T. Rowe Price International, Inc. and Genesis added value to the Fund by being overweight to Egypt. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's money managers tended to outperform in months of strong gains for the emerging markets and generally kept pace with the index in weaker periods. These results were aided by strong sell disciplines and portfolio repositioning by the Fund's money managers, which allowed money managers to lock in gains. Over the first few months of the fiscal year, value stocks outperformed, providing a favorable environment for value manager Alliance Capital Management, L.P. Alliance's strong performance in the early part of the fiscal year was largely due to stock selection in Korea, Mexico, India and South Africa. Country allocation decisions also added to Alliance's performance, particularly through underweighting Taiwan. As the year progressed, growth and quality-oriented strategies gained favor in the market. In this environment, growth manager T. Rowe Price delivered good results. Its overweight position in Egypt, the top-performing country in the index, was the largest positive contributor to performance. T. Rowe Price also added value through strong stock selection in India and Turkey. Market-oriented manager Arrowstreet Capital, L.P. also outperformed, helped by the momentum factors in its model. Focus on improving momentum led Arrowstreet to overweight Pakistan and Brazil and underweight Taiwan, and these actions contributed positively to the Fund's performance in the fiscal year. The Fund's policy of being fully invested helped it keep pace with a strong performing market. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes to the Fund's structure or money manager line-up during the year. Emerging Markets Fund 67 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management, L.P., through its Bernstein Investment Research & Management Unit Value Arrowstreet Capital, L.P. Market-Oriented Genesis Asset Managers, LLP Market-Oriented T. Rowe Price International, Inc. Growth Wells Capital Management Incorporated Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Emerging Markets Fund Class S assumes initial investment on November 1, 1995. ** The Morgan Stanley Capital International Emerging Markets Free Index is a market capitalization-weighted Index of over 850 stocks traded in 22 world markets. ++++ Emerging Markets Fund Class S performance has been linked with Class E to provide historical perspective. For the period September 22, 1998 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Emerging Markets Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 68 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,176.10 $ 1,011.34 Expenses Paid During Period* $ 15.08 $ 13.94
* Expenses are equal to the Fund's annualized expense ratio of 2.75% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,180.20 $ 1,015.07 Expenses Paid During Period* $ 11.05 $ 10.21
* Expenses are equal to the Fund's annualized expense ratio of 2.01% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,181.60 $ 1,016.38 Expenses Paid During Period* $ 9.62 $ 8.89
* Expenses are equal to the Fund's annualized expense ratio of 1.75% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Emerging Markets Fund 69 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 87.5% Argentina - 0.1% Acindar Industria Argentina de Aceros SA (AE) 155,000 261 Central Costanera SA Class T (AE) 233,100 325 IRSA Inversiones y Representaciones SA (AE) 6 -- IRSA Inversiones y Representaciones SA - GDR (AE)(N) 15,500 179 ------------ 765 ------------ Bermuda - 0.1% Credicorp, Ltd. (N) 21,200 558 ------------ Brazil - 7.1% Banco do Brasil SA 36,400 669 Brasil Telecom Participacoes SA - ADR (N) 61,000 2,538 Braskem SA - ADR (AE) 42,079 715 Cia Brasileira de Distribuicao Grupo Pao de Acucar - ADR (N) 39,800 1,097 Cia de Bebidas das Americas - ADR (N) 30,000 1,065 Cia de Bebidas das Americas - ADR 4,820 135 Cia de Saneamento Basico do Estado de Sao Paulo 27,260,000 1,742 Cia Siderurgica Nacional SA 180,333 3,464 Cia Vale do Rio Doce 43,700 1,808 Cia Vale do Rio Doce - ADR 244,400 9,264 EDP - Energias do Brasil SA (AE) 62,000 617 Empresa Brasileira de Aeronautica SA - ADR 22,000 854 Gerdau SA - ADR (N) 277,100 3,760 Gol Linhas Aereas Inteligentes SA - ADR (N) 13,300 461 Natura Cosmeticos SA 119,563 4,732 Petroleo Brasileiro SA 280,156 4,435 Petroleo Brasileiro SA - ADR 220,900 13,509 Tele Centro Oeste Celular Participacoes SA 1,064 9 Tele Centro Oeste Celular Participacoes SA - ADR (N) 58,600 530 Tele Norte Leste Participacoes SA 51,606 1,235 Tele Norte Leste Participacoes SA - ADR (N) 178,400 3,158 Unibanco - Uniao de Bancos Brasileiros SA - GDR 77,000 4,027 ------------ 59,824 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chile - 0.2% Banco de Credito e Inversiones 11,200 282 Coca-Cola Embonor SA - ADR (AE)(A) 107,000 845 Embotelladora Andina SA Class B 58,700 819 ------------ 1,946 ------------ China - 4.3% Bank of Communications Co., Ltd. Class H (AE) 9,129,534 3,748 China Petroleum & Chemical Corp. Class H 14,665,254 5,891 China Shenhua Energy Co., Ltd. Class H (AE) 4,925,700 5,411 China Telecom Corp., Ltd. Class H 1,648,000 537 Datang International Power Generation Co., Ltd. Class H 804,000 571 Huadian Power International Co. Class H 226,000 57 Jiangsu Express Class H 1,579,400 835 Maanshan Iron & Steel Class H 910,000 274 PetroChina Co., Ltd. Class H 15,331,176 11,732 PetroChina Co., Ltd. - ADR (N) 20,040 1,538 Ping An Insurance Group Co. of China, Ltd. Class H 1,044,500 1,674 Semiconductor Manufacturing International Corp. (AE) 2,698,400 360 Sinopec Shanghai Petrochemical Co., Ltd. Class H 3,189,000 970 Sinopec Yizheng Chemical Fibre Co., Ltd. Class H 628,000 95 Travelsky Technology, Ltd. Class H 200,000 173 Yanzhou Coal Mining Co., Ltd. Class H 2,704,000 1,737 Zijin Mining Group Co., Ltd. Class H 580,000 183 ZTE Corp. Class H 190,600 564 ------------ 36,350 ------------ Colombia - 0.4% BanColombia SA 145,000 790 BanColombia SA - ADR (N) 87,600 2,076 Inversiones Nacionales de Chocolates SA 54,121 220 ------------ 3,086 ------------ Croatia - 0.1% Pliva DD - GDR 94,900 1,257 ------------
70 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ecuador - 0.3% Holcim Ecuador SA - GDR (A) 72,000 2,419 Holcim Ecuador SA - ADR (A) 10,500 347 ------------ 2,766 ------------ Egypt - 2.3% Commercial International Bank 192,393 1,850 Commercial International Bank - GDR 15,600 147 Egyptian Co. for Mobile Services 151,932 5,017 Orascom Construction Industries 246,364 8,342 Orascom Telecom Holding SAE 16,570 1,649 Orascom Telecom Holding SAE - GDR (N) 2,062 101 Vodafone Egypt Telecommunications SAE 131,295 2,077 ------------ 19,183 ------------ Hong Kong - 2.4% Beijing Enterprises Holdings, Ltd. 150,000 230 Brilliance China Automotive Holdings, Ltd. 770,000 102 China Insurance International Holdings Co., Ltd. 1,350,000 488 China Mobile Hong Kong, Ltd. 1,459,500 6,531 China Mobile Hong Kong, Ltd. - ADR (N) 31,400 705 China Netcom Group Corp. Hong Kong, Ltd. 969,000 1,532 China Overseas Land & Investment, Ltd. 8,846,800 2,717 China Resources Power Holdings Co. 2,636,000 1,585 China Unicom, Ltd. 724,000 556 Citic Pacific, Ltd. 145,000 377 CNOOC, Ltd. 931,500 605 Kingboard Chemical Holdings, Ltd. 126,000 268 Luen Thai Holdings, Ltd. 924,000 245 Silver Grant International 48,000 12 Solomon Systemtech International, Ltd. 2,231,000 822 Techtronic Industries Co. 1,243,800 3,069 Tom Group, Ltd. (AE) 1,326,000 239 ------------ 20,083 ------------ Hungary - 2.3% Magyar Telekom Rt. 534,545 2,538 Mol Magyar Olaj- es Gazipari Rt. 71,971 6,712
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mol Magyar Olaj- es Gazipari Rt. - GDR 28,400 2,620 OTP Bank Rt. 216,662 7,826 ------------ 19,696 ------------ India - 4.2% Allahabad Bank 243,535 427 Andhra Bank 429,000 828 Arvind Mills, Ltd. 250,100 588 Ballarpur Industries, Ltd. 115,100 264 Bank of Baroda 220,000 1,071 Bank of India 44,300 105 Bharti Televentures (AE) 193,000 1,383 Chennai Petroleum Corp., Ltd. 151,660 805 GAIL India, Ltd. - GDR (N) 59,000 1,829 Genesis Indian Investment Co. (AE) 670,419 16,807 I-Flex Solutions, Ltd. 41,900 829 Indian Overseas Bank 165,900 335 Infosys Technologies, Ltd. 27,000 1,514 National Thermal Power Corp., Ltd. 592,100 1,278 Oriental Bank of Commerce 111,000 594 Petronet LNG, Ltd. (AE) 804,000 1,036 PTC India, Ltd. 276,519 284 State Bank of India, Ltd. - GDR 72,210 3,116 Suzlon Energy, Ltd. (AE) 40,065 639 Union Bank Of India 118,000 297 Videsh Sanchar Nigam, Ltd. 258,600 1,669 ------------ 35,698 ------------ Indonesia - 3.1% Aneka Tambang Tbk PT 4,667,646 1,190 Astra Agro Lestari Tbk PT 244,789 130 Astra International Tbk PT 4,153,777 3,821 Bank Central Asia Tbk PT 5,909,181 1,885 Bank Danamon Indonesia Tbk PT 1,754,700 681 Bank Mandiri Persero Tbk PT 31,287,503 4,088 Bank Rakyat Indonesia 28,587,272 6,932 Bumi Resources Tbk PT 11,399,809 878 Indonesian Satellite Corp. Tbk PT 1,273,500 613 Ramayana Lestari Sentosa Tbk PT 6,547,500 466 Telekomunikasi Indonesia Tbk PT 11,316,700 5,668 ------------ 26,352 ------------ Israel - 1.7% Bank Hapoalim, Ltd. 974,800 3,732 Bank Leumi Le-Israel BM 1,280,902 4,181 Check Point Software Technologies (AE) 94,600 2,115 Discount Investment Corp. 19,366 430 IDB Development Corp., Ltd. 11,903 337
Emerging Markets Fund 71 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Israel Chemicals, Ltd. 98,129 372 Lipman Electronic Engineering, Ltd. 30,000 667 Orbotech, Ltd. (AE) 30,200 656 Teva Pharmaceutical Industries, Ltd. - ADR (N) 52,800 2,013 ------------ 14,503 ------------ Luxembourg - 0.8% Quilmes Industrial SA - ADR (N)(A) 5,027 157 Tenaris SA 1 -- Tenaris SA - ADR 59,668 6,554 ------------ 6,711 ------------ Malaysia - 1.2% AirAsia BHD (AE) 425,900 180 Astro All Asia Networks PLC 890,700 1,298 CIMB BHD 665,666 1,085 Hong Leong Bank BHD 177,700 247 IJM Corp. BHD 357,200 454 IOI Corp. BHD 457,200 1,585 Magnum Corp. BHD 2,334,500 1,218 Malakoff BHD 500,600 1,041 Malaysia International Shipping Corp. BHD 293,400 738 MK Land Holdings BHD 1,015,200 199 OYL Industries BHD 1,317,800 1,062 PLUS Expressways BHD 765,000 620 Proton Holdings BHD 24,000 49 TAN Chong Motor Holdings BHD 908,000 378 Tenaga Nasional BHD 39,100 104 ------------ 10,258 ------------ Mexico - 6.7% Alfa SA de CV Class A 427,900 2,484 America Movil SA de CV Series L 379,400 9,959 Cemex SA de CV (AE) 2,471,054 12,844 Cemex SA de CV - ADR 57,000 2,968 Fomento Economico Mexicano SA de CV - ADR (AE) 85,824 5,835 Grupo Aeroportuario del Sureste SA de CV - ADR 14,900 484 Grupo Financiero Banorte SA de CV Class O 435,300 3,711 Grupo Mexico SA de CV Series B 690,686 1,332 Grupo Modelo SA 1,046,700 3,213 Grupo Televisa SA - ADR 58,873 4,304 Organizacion Soriana SA de CV Class B (AE) 174,100 681 Telefonos de Mexico SA de CV Series L 238,700 4,817
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Urbi Desarrollos Urbanos SA de CV (AE) 176,300 1,112 Wal-Mart de Mexico SA de CV Series V 649,959 3,164 ------------ 56,908 ------------ Pakistan - 1.1% Engro Chemical Pakistan, Ltd. 1,047,300 2,733 Fauji Fertilizer Co., Ltd. 1,423,020 3,224 ICI Pakistan, Ltd. 265,200 507 Pakistan Petroleum, Ltd. 72,500 241 Pakistan Telecommunication Co., Ltd. 2,781,923 2,664 ------------ 9,369 ------------ Philippines - 0.4% Globe Telecom, Inc. 47,200 605 Philippine Long Distance Telephone 86,000 2,613 ------------ 3,218 ------------ Russia - 4.7% LUKOIL - ADR (N) 451,602 24,838 Mobile Telesystems - ADR 144,000 5,327 NovaTek OAO - GDR (AE)(A) 105,700 2,326 OAO Gazprom - ADR 47,400 2,801 Promstroibank State Petersburg (AE) 696,000 773 Pyaterochka Holding NV - GDR (AE)(N) 86,600 1,697 RBC Information Systems (AE) 111,100 603 Sberbank RF 1,350 1,200 Tatneft - ADR (N) 4,300 273 ------------ 39,838 ------------ South Africa - 10.2% ABSA Group, Ltd. 273,675 3,629 Aeci, Ltd. 98,900 724 African Bank Investments, Ltd. 288,600 861 Alexander Forbes, Ltd. 323,600 684 AngloGold Ashanti, Ltd. 15,500 609 AngloGold Ashanti, Ltd. - ADR (N) 32,434 1,268 Aveng, Ltd. 424,706 1,067 Barloworld, Ltd. 228,960 3,585 Bidvest Group, Ltd. 62,437 837 City Lodge Hotels, Ltd. 10,927 60 Consol, Ltd. 460,900 745 Edgars Consolidated Stores, Ltd. 717,880 3,191 FirstRand, Ltd. 1,224,306 2,881 Foschini, Ltd. 119,945 764 Impala Platinum Holdings, Ltd. 45,544 4,971 Imperial Holdings, Ltd. (AE) 184,276 3,431 Investec, Ltd. 30,000 1,078
72 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- JD Group, Ltd. 222,741 2,382 Kumba Resources, Ltd. 128,400 1,898 Massmart Holdings, Ltd. 91,300 705 Medi-Clinic Corp., Ltd. 175,000 509 MTN Group, Ltd. 850,800 6,337 Murray & Roberts Holdings, Ltd. 305,000 877 Nampak, Ltd. 128,696 298 Naspers, Ltd. Class N 364,308 5,256 Network Healthcare Holdings, Ltd. (AE) 1,165,000 1,120 Pick'n Pay Stores, Ltd. 187,300 765 Reunert, Ltd. 35,300 243 Sanlam, Ltd. 2,404,140 4,426 Sasol, Ltd. 386,454 12,335 Standard Bank Group, Ltd. 1,058,408 10,911 Sun International, Ltd. 72,337 819 Telkom SA, Ltd. 89,579 1,692 Tiger Brands, Ltd. 103,718 2,072 Truworths International, Ltd. 702,900 1,990 VenFin, Ltd. 249,100 1,356 ------------ 86,376 ------------ South Korea - 16.5% Amorepacific Corp. 6,670 1,988 Cheil Communications, Inc. 3,320 612 Daelim Industrial Co. 45,680 2,669 Daewoo Engineering & Construction Co., Ltd. 4,190 42 Dongkuk Steel Mill Co., Ltd. 19,810 359 GS Engineering & Construction Corp. 16,880 724 Hankook Tire Co., Ltd. 205,597 2,470 Hanwha Chemical Corp. 186,210 1,986 Honam Petrochemical Corp. 26,400 1,286 Hyosung Corp. 23,210 271 Hyundai Development Co. 40,520 1,480 Hyundai Heavy Industries 8,920 583 Hyundai Mobis 70,300 5,612 Hyundai Motor Co. 107,710 7,945 Industrial Bank of Korea (N) 202,000 2,414 INI Steel Co. 28,720 640 KCC Corp. 9,814 1,891 Kookmin Bank 193,306 11,091 Kookmin Bank - ADR 4,200 245 Korea Electric Power Corp. 217,510 7,095 Korea Electric Power Corp. - ADR (N) 90,360 1,476 Korean Air Lines Co., Ltd. 21,720 407 KT Corp. 58,300 2,345 KT&G Corp. 63,600 2,604 KT&G Corp. - GDR (A) 53,100 1,099 LG Chem, Ltd. 18,780 829 LG Electronics, Inc. 40,620 2,656
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LG Petrochemical Co., Ltd. (AE) 7,520 198 LG.Philips LCD Co., Ltd. (AE) 7,580 284 LG.Philips LCD Co., Ltd. - ADR (AE)(N) 26,200 498 Lotte Chilsung Beverage Co., Ltd. 1,050 931 NCSoft Corp. (AE) 9,054 849 Poongsan Corp. 56,600 652 POSCO 58,975 12,022 POSCO - ADR 13,600 698 S-Oil Corp. 46,780 3,497 S1 Corp. 16,230 705 Samsung Corp. 37,080 611 Samsung Electronics - GDR 4,560 1,218 Samsung Electronics Co., Ltd. 48,619 25,922 Samsung Electronics Co., Ltd. - GDR (N)(A) 10,059 2,055 Samsung Fine Chemicals Co., Ltd. 13,910 340 Samsung Fire & Marine Insurance Co., Ltd. 31,450 2,999 Samsung Heavy Industries Co., Ltd. (AE) 18,560 237 Samsung Securities Co., Ltd. 97,560 3,733 Shinhan Financial Group Co., Ltd. 339,060 11,368 Shinsegae Co., Ltd. 4,300 1,544 SK Corp. 33,710 1,733 SK Telecom Co., Ltd. 12,820 2,310 SK Telecom Co., Ltd. - ADR (AE)(N) 14,700 297 Tae Young Corp. (A) 11,339 435 Woori Finance Holdings Co., Ltd. 130,740 2,024 ------------ 139,979 ------------ Taiwan - 8.4% Acer, Inc. 1,412,500 2,878 Advantech Co., Ltd. 672,921 1,485 Asustek Computer, Inc. 1,277,000 3,361 AU Optronics Corp. 1,493,000 1,898 AU Optronics Corp. - ADR 27,800 354 Basso Industry Corp. 255,816 595 Cathay Financial Holding Co., Ltd. 2,303,200 4,056 China Steel Corp. 1,945,807 1,538 China Steel Corp. - GDR 62,591 1,005 Chunghwa Telecom Co., Ltd. 1,065,000 1,805 Chunghwa Telecom Co., Ltd. - ADR 147,700 2,558 CMC Magnetics Corp. (AE) 5,893,000 1,859 Compal Electronics, Inc. 4,275,923 3,811 Compal Electronics, Inc. - GDR (N) 216,133 973 Delta Electronics, Inc. 492,000 831 E.Sun Financial Holding Co., Ltd. 1,542,990 928 Elitegroup Computer Systems (AE) 525,000 324 Evergreen Marine Corp. 418,000 259 Far Eastern Textile Co., Ltd. 1,136,637 664
Emerging Markets Fund 73 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Far EasTone Telecommunications Co., Ltd. 1,324,000 1,542 Far EasTone Telecommunications Co., Ltd. - GDR (A) 11,000 192 Faraday Technology Corp. 297,185 447 Gigabyte Technology Co., Ltd. 1,088,718 905 HON HAI Precision Industry 1,722,423 7,473 Lite-On Technology Corp. 39,900 44 MediaTek, Inc. 38,200 331 Phoenixtec Power Co., Ltd. 565,629 505 Quanta Computer, Inc. 1,120,250 1,554 Realtek Semiconductor Corp. 12,550 13 Ritek Corp. (AE) 5,371,161 1,612 Taiwan Mobile Co., Ltd. 3,098,520 2,589 Taiwan Semiconductor Manufacturing Co., Ltd. 10,441,749 16,332 Taiwan Semiconductor Manufacturing Co., Ltd. - ADR 347,464 2,808 U-Ming Marine Transport Corp. 911,000 901 Vanguard International Semiconductor Corp. 1,726,518 1,135 Via Technologies, Inc. (AE) 570,693 299 Wintek Corp. 423,000 585 Zyxel Communications Corp. 469,680 845 ------------ 71,294 ------------ Thailand - 2.4% Advanced Info Service PCL 76,400 187 Airports of Thailand PCL 1,156,600 1,432 Bank of Ayudhya PCL 6,588,900 2,003 Charoen Pokphand Foods PCL 444,400 57 CP Seven Eleven PCL 5,188,300 763 Glow Energy PCL 942,500 502 Kasikornbank PCL 671,400 996 Kiatnakin Finance PCL 309,500 213 Land and Houses PCL (N) 2,842,700 554 National Petrochemical PCL 517,000 1,585 PTT Exploration & Production PCL 751,700 7,742 PTT PCL 453,100 2,444 Ratchaburi Electricity Generating Holding PCL 522,100 493 Regional Container Lines PCL 500,000 402 Siam City Bank PCL 1,778,400 1,033 Siam City Cement PCL 37,100 264 ------------ 20,670 ------------ Turkey - 3.8% Akbank TAS 659,787 4,104 Akcansa Cimento AS 65,996 310
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Anadolu Efes Biracilik Ve Malt Sanayii AS 135,230 3,303 Arcelik 87,000 519 Cimsa Cimento Sanayi VE Tica 263,875 1,533 Denizbank AS (AE) 354,206 1,983 Eregli Demir ve Celik Fabrikalari TAS 583,121 3,156 Finansbank (AE) 331,533 1,008 Ford Otomotiv Sanayi AS 320,400 2,290 Hurriyet Gazetecilik AS 420,200 1,182 Migros Turk TAS 219,555 1,919 Trakya Cam Sanayi AS 241,747 855 Tupras Turkiye Petrol Rafine 227,407 3,889 Turkcell Iletisim Hizmet AS 226,187 1,189 Turkcell Iletisim Hizmet AS - ADR 8,900 117 Turkiye Garanti Bankasi AS (AE) 617,600 1,837 Turkiye Is Bankasi 373,580 2,590 ------------ 31,784 ------------ United Kingdom - 2.3% Anglo American PLC 261,953 7,643 Genesis Smaller Companies (AE) 254,984 10,607 Old Mutual PLC 2,300 5 SABMiller PLC 76,800 1,443 ------------ 19,698 ------------ United States - 0.1% Investcom LLC - GDR (AE) 68,400 924 ------------ Venezuela - 0.2% Cia Anonima Nacional Telefonos de Venezuela - CANTV - ADR 126,182 1,628 Siderurgica Venezolana Sivensa SACA (AE) 1,306,495 19 ------------ 1,647 ------------ Zimbabwe - 0.1% Delta Corp., Ltd. (A) 1,134,586 389 OK Zimbabwe (A) 6,402,949 41 ------------ 430 ------------ TOTAL COMMON STOCKS (cost $542,767) 741,171 ------------ PREFERRED STOCKS - 6.8% Brazil - 5.8% Banco Bradesco SA 93,283 4,801 Banco Itau Holding Financeira SA (AE) 123,110 2,947 Brasil Telecom Participacoes SA 56,200,000 458 Braskem SA 258,400 2,226
74 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Caemi Mineracao e Metalurgica SA 706,000 1,122 Centrais Eletricas Brasileiras SA 65,823,500 1,137 Cia de Tecidos do Norte de Minas - Coteminas 5,276,440 539 Cia Siderurgica de Tubarao 56,800,000 3,481 Cia Vale do Rio Doce 165,600 6,096 Empresa Brasileira de Aeronautica SA 39,700 383 Gerdau SA 11,200 152 Klabin SA 441,000 842 Perdigao SA 21,700 588 Petroleo Brasileiro SA 943,372 13,494 Sadia SA 28,000 69 Suzano Bahia Sul Papel e Celulose SA 230,000 1,328 Tele Centro Oeste Celular Participacoes SA 56,932 506 Usinas Siderurgicas de Minas Gerais SA 305,200 6,166 Votorantim Celulose e Papel SA 177,327 2,126 Weg SA 136,900 446 ------------ 48,907 ------------ Colombia - 0.0% BanColombia SA 7,200 41 ------------ South Korea - 1.0% Hyundai Motor Co. 41,560 2,112 Samsung Electronics Co., Ltd. 15,079 6,186 ------------ 8,298 ------------ TOTAL PREFERRED STOCKS (cost $34,464) 57,246 ------------ WARRANTS & RIGHTS - 0.0% Malaysia - 0.0% IJM Corp. (AE) 2010 Warrants 71 8 ------------ TOTAL WARRANTS & RIGHTS (cost $1) 8 ------------ NOTIONAL MARKET AMOUNT VALUE $ $ - ----------------------------------------------------------------------------- OPTIONS PURCHASED - 0.3% (Number of Contracts) Brazil - 0.0% Bovespa Index Futures Dec 2005 31,365.00 (BRL) Call (150) 6,268 60 ------------ South Korea - 0.3% Kospi 200 Index Dec 2005 124.82 (KRW) Call (136) 8,130 2,194 ------------ TOTAL OPTIONS PURCHASED (cost $2,185) 2,254 ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 4.2% United States - 4.2% Frank Russell Investment Company Money Market Fund 31,505,000 31,505 United States Treasury Bills (c)(z)(sec.) 3.363% due 12/08/05 4,500 4,485 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $35,990) 35,990 ------------ OTHER SECURITIES - 1.8% Frank Russell Investment Company Money Market Fund (X) 4,959,363 4,960 State Street Securities Lending Quality Trust (X) 10,161,266 10,161 ------------ TOTAL OTHER SECURITIES (cost $15,121) 15,121 ------------ TOTAL INVESTMENTS - 100.6% (identified cost $630,528) 851,790 OTHER ASSETS AND LIABILITIES, NET - (0.6%) (4,888) ------------ NET ASSETS - 100.0% 846,902 ============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 75 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Hang Seng Index (Hong Kong) expiration date 11/05 (56) 5,195 (8) JSE-40 Index (South Africa) expiration date 12/05 (320) 7,162 222 MSCI Singapore Index expiration date 11/05 (380) 9,147 87 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 301 ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Brazil Bovespa Index Futures Dec 2005 31,365.00 (BRL) Put (150) 6,268 (210) South Korea Kospi 200 Index Futures Dec 2005 124.82 (KRW) Put (136) 8,130 (652) --------------- Total Liability for Options Written (premiums received $724) (862) ===============
See accompanying notes which are an integral part of the financial statements. 76 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 39 BRL 88 11/01/05 -- USD 49 BRL 111 11/01/05 -- USD 63 BRL 144 11/01/05 1 USD 13 BRL 30 11/03/05 -- USD 66 BRL 148 11/03/05 -- USD 417 BRL 1,000 12/21/05 19 USD 995 BRL 2,400 12/21/05 51 USD 2,528 BRL 6,100 12/21/05 133 USD 3,523 BRL 8,500 12/21/05 184 USD 18 HKD 140 11/01/05 -- USD 142 HKD 1,102 11/01/05 -- USD 86 HKD 669 11/02/05 -- USD 107 HKD 827 11/02/05 -- USD 54 HKD 417 11/03/05 -- USD 107 HUF 22,391 11/02/05 -- USD 18 IDR 177,246 11/09/05 -- USD 4,683 KRW 4,800,000 12/21/05 (83) USD 8,198 KRW 8,400,000 12/21/05 (148) USD 12 MYR 45 11/02/05 -- USD 4 MYR 16 11/07/05 -- USD 5 THB 219 11/01/05 -- USD 3 THB 143 11/02/05 -- USD 20 ZAR 135 11/01/05 -- USD 97 ZAR 652 11/02/05 -- USD 10 ZAR 68 11/03/05 -- USD 24 ZAR 160 11/04/05 -- USD 302 ZAR 2,000 12/21/05 (5) USD 8,411 ZAR 54,000 12/21/05 (397) BRL 1,000 USD 421 12/21/05 (15) BRL 2,000 USD 826 12/21/05 (46) HKD 276 USD 36 11/01/05 -- HKD 6,292 USD 811 11/01/05 -- IDR 100,519 USD 10 11/01/05 -- IDR 133,661 USD 13 11/09/05 -- ILS 814 USD 175 11/01/05 -- KRW 1,000,000 USD 975 12/21/05 17 KRW 1,000,000 USD 977 12/21/05 18 KRW 1,200,000 USD 1,169 12/21/05 19 MXN 595 USD 55 11/01/05 -- MYR 1 USD -- 11/02/05 -- MYR 104 USD 27 11/02/05 -- MYR 157 USD 42 11/02/05 -- MYR 75 USD 20 11/07/05 -- MYR 215 USD 57 11/07/05 -- THB 1,410 USD 35 11/01/05 --
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- THB 751 USD 18 11/02/05 -- THB 3,303 USD 81 11/02/05 -- ZAR 2,391 USD 357 11/01/05 -- ZAR 3,565 USD 532 11/01/05 -- ZAR 7,765 USD 1,171 11/01/05 13 ZAR 409 USD 61 11/02/05 -- ZAR 2,065 USD 307 11/02/05 (1) ZAR 6,063 USD 901 11/02/05 (3) ZAR 1,148 USD 171 11/03/05 (1) ZAR 2,316 USD 344 11/03/05 (1) ZAR 466 USD 69 11/04/05 -- ZAR 955 USD 142 11/04/05 -- ZAR 12,260 USD 1,818 11/04/05 (9) ZAR 198 USD 29 11/07/05 -- ZAR 445 USD 66 11/07/05 -- ZAR 2,000 USD 303 12/21/05 6 ZAR 2,000 USD 312 12/21/05 15 ZAR 4,000 USD 620 12/21/05 26 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (207) ==============
See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 77 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDUSTRY DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Auto and Transportation 3.4 27,042 Consumer Discretionary 4.4 36,620 Consumer Staples 4.1 35,436 Financial Services 20.2 174,493 Health Care 0.5 4,899 Integrated Oils 11.8 100,062 Materials and Processing 17.4 150,758 Miscellaneous 1.5 12,689 Other Energy 3.7 31,424 Producer Durables 1.7 13,111 Technology 11.3 95,061 Utilities 14.3 116,822 Options Purchased 0.3 2,254 Warrants and Rights -- 8 Short-Term Investments 4.2 35,990 Other Securities 1.8 15,121 ------------ ------------ Total Investments 100.6 851,790 Other Assets and Liabilities, Net (0.6) (4,888) ------------ ------------ Net Assets 100.0 846,902 ============ ============
GEOGRAPHIC DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Africa 10.3 86,806 Asia 45.3 383,771 Europe 11.7 99,286 Latin America 20.9 176,508 Middle East 4.0 33,686 Other Regions 4.3 36,914 United Kingdom 2.3 19,698 Other Securities 1.8 15,121 ------------ ------------ Total Investments 100.6 851,790 Other Assets and Liabilities, Net (0.6) (4,888) ------------ ------------ Net Assets 100.0 846,902 ============ ============
See accompanying notes which are an integral part of the financial statements. 78 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Argentina 0.1 Bermuda 0.1 Brazil 7.1 Chile 0.2 China 4.3 Columbia 0.4 Croatia 0.1 Ecuador 0.3 Egypt 2.3 Hong Kong 2.4 Hungary 2.3 India 4.2 Indonesia 3.1 Israel 1.7 Luxembourg 0.8 Malaysia 1.2 Mexico 6.7 Pakistan 1.1 Philippines 0.4 Russia 4.7 South Africa 10.2 South Korea 16.5 Taiwan 8.4 Thailand 2.4 Turkey 3.8 United Kingdom 2.3 United States 0.1 Venezuela 0.2 Zimbabwe 0.1 Preferred Stock 6.8 Warrants & Rights --* Options Purchased 0.3 Short-Term Investments 4.2 Other Securities 1.8 --------------- Total Investments 100.6 Other Assets and Liabilities Net (0.6) --------------- 100.0 =============== Futures Contracts --* Options Written (0.1) Foreign Currency Exchange Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 79 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
REAL ESTATE SECURITIES - CLASS S NAREIT EQUITY REIT ** -------------------------------- --------------------- * 10000.00 10000.00 1996 12515.00 12471.00 1997 16478.00 16554.00 1998 14547.00 14438.00 1999 13907.00 13422.00 2000 17384.00 15877.00 2001 19032.00 18148.00 2002 19897.00 19302.00 2003 26778.00 25851.00 2004 35427.00 33592.00 2005 41928.00 39620.00
Real Estate Securities Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.35% 5 Years 19.25%S 10 Years 15.41%S
Real Estate Securities Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.09% 5 Years 18.96%S 10 Years 15.08%S
Real Estate Securities Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.22% 5 Years 18.09%S 10 Years 14.51%S
NAREIT Equity REIT Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.92% 5 Years 20.07%S 10 Years 14.76%S
80 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Real Estate Securities Fund Class S, Class E and Class C Shares gained 18.35%, 18.09% and 17.22%, respectively. This compared to the NAREIT Equity REIT Index, which gained 17.92% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Real Estate Funds Average returned 17.49%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The money managers positioned the Fund to capitalize on the strengthening economy and improving real estate market fundamentals. The largest overweight positions were in the lodging and regional malls sectors, which posted strong earnings growth during the fiscal year. The money managers maintained smaller overweights in the industrial, apartments and office sectors in view of the slower expected growth in these sectors. Sector positioning was a positive contributor to the Fund's performance during the fiscal year. The Fund maintained a primary focus on larger capitalization and more liquid real estate investment trusts (REITs) during the fiscal year. As this segment of the market outperformed the broader REIT market, the Fund benefited from this trend. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Both stock and property sector selection contributed positively to performance. Stock selection had the largest impact on performance and was strongest in the office, shopping centers, apartments, diversified and health care sectors. The Fund benefited from overweight positions in the apartments, regional malls and office sectors. Underweight positions in the free standing retail, health care and mixed industrial/office sectors contributed positively to performance. The Fund's overweight position in the industrial sector and underweight positions in the self storage and specialty sectors detracted from performance. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? AEW Management and Advisors, L.P. pursues a value-oriented style that focuses on identifying companies that it believes are mispriced relative to underlying real estate net asset values. AEW's portfolio tends to track relatively closely to the benchmark sector weights. AEW outperformed the benchmark during the fiscal year, primarily due to stock selection in the office, apartments and shopping centers sectors. Sector selection was also positive, as overweight positions in the apartments and regional malls sectors and underweight positions in the free standing retail, health care and office sectors boosted performance. These positive contributors to performance were partially offset by an overweight position in the mixed industrial/office sector which detracted from performance. INVESCO Institutional (N.A.), Inc., maintains a broadly diversified portfolio with exposure to all major property sectors. Its investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. INVESCO outperformed the benchmark during the fiscal year due to positive stock and sector selection. Stock selection was strongest in the office, regional malls, shopping centers and diversified sectors. Sector selection added value through an overweight in the regional malls sector and underweight positions in the health care, free standing retail and mixed industrial/office sectors. These gains were partially offset by underweight positions in the specialty and self storage sectors. RREEF America, LLC.'s style emphasizes a top-down approach to property sector weights, based on an assessment of property market fundamentals. RREEF outperformed the benchmark primarily due to positive stock selection in the shopping centers, office, diversified and health care sectors. Sector selection was mixed and provided a small positive contribution to performance. An overweight position in the apartments sector and underweight positions in the free standing retail and mixed industrial/office sectors boosted returns, but this was partially offset by underweight positions in the self storage and specialty sectors. Heitman Real Estate Securities, LLC follows a bottom-up investment approach, selecting a smaller number of stocks than the Fund's other money managers. Heitman focuses on companies that it believes have attractive valuations relative to growth prospects. Heitman outperformed the benchmark for the portion of the fiscal year it was in the Fund due to strong stock selection in the office sector. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Heitman was added to the Fund's money manager line-up in January 2005. Heitman is expected to be complementary to the other money managers in the Fund due to its growth-oriented style and more concentrated portfolio. Real Estate Securities Fund 81 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 AEW Management and Advisors, L.P. Value Heitman Real Estate Securities, LLC Growth INVESCO Institutional (N.A.), Inc., through INVESCO Real Estate Division Market-Oriented RREEF America, LLC Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Real Estate Securities Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Real Estate Securities Fund Class S performance has been linked with Class E to provide historical perspective. For the period, November 4, 1996 (commencement of sale) through May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Real Estate Securities Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 82 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,091.20 $ 1,014.62 Expenses Paid During Period* $ 11.07 $ 10.66
* Expenses are equal to the Fund's annualized expense ratio of 2.10% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,095.20 $ 1,018.40 Expenses Paid During Period* $ 7.13 $ 6.87
* Expenses are equal to the Fund's annualized expense ratio of 1.35% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,096.60 $ 1,019.66 Expenses Paid During Period* $ 5.81 $ 5.60
* Expenses are equal to the Fund's annualized expense ratio of 1.10% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Real Estate Securities Fund 83 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 96.6% Apartments - 17.5% Apartment Investment & Management Co. Class A (o)(N) 585,775 22,494 Archstone-Smith Trust (o) 1,247,505 50,611 AvalonBay Communities, Inc. (o) 811,600 70,001 BRE Properties Class A (o)(N) 85,800 3,785 Camden Property Trust (o)(N) 620,999 34,993 Equity Residential (o) 1,403,500 55,087 Essex Property Trust, Inc. (o)(N) 240,000 21,571 GMH Communities Trust (o) 524,600 7,853 Post Properties, Inc. (o) 32,800 1,338 United Dominion Realty Trust, Inc. (o) 220,000 4,869 ------------ 272,602 ------------ Diversified - 5.5% Colonial Properties Trust (o)(N) 114,600 5,009 iStar Financial, Inc. (o) 111,000 4,093 Spirit Finance Corp. (o)(N) 793,200 8,900 Vornado Realty Trust (o) 834,172 67,568 ------------ 85,570 ------------ Free Standing Retail - 0.1% Realty Income Corp. (o)(N) 96,500 2,149 ------------ Health Care - 3.4% Healthcare Realty Trust, Inc. (o)(N) 178,000 6,736 LTC Properties, Inc. (o)(N) 56,500 1,158 National Health Investors, Inc. (o)(N) 117,250 3,148 Omega Healthcare Investors, Inc. (o)(N) 270,000 3,318 Ventas, Inc. (o) 1,269,250 38,877 ------------ 53,237 ------------ Industrial - 7.4% AMB Property Corp. (o)(N) 330,100 14,584 Centerpoint Properties Trust (o)(N) 331,100 15,085 First Potomac Realty Trust (o)(N) 211,100 5,349 ProLogis (o) 1,878,972 80,796 ------------ 115,814 ------------ Lodging/Resorts - 9.0% Hilton Hotels Corp. 1,089,900 21,198 Hospitality Properties Trust (o)(N) 67,000 2,660 Host Marriott Corp. (o) 2,548,700 42,793 Innkeepers USA Trust (o) 109,300 1,705 La Quinta Corp. (AE)(o)(N) 64,900 542 LaSalle Hotel Properties (o)(N) 342,320 12,115 Starwood Hotels & Resorts Worldwide, Inc. (o) 980,383 57,284 Strategic Hotel Capital, Inc. (o) 68,000 1,155 ------------ 139,452 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Manufactured Homes - 0.8% Equity Lifestyle Properties, Inc. (o)(N) 261,900 11,086 Sun Communities, Inc. (o) 38,000 1,159 ------------ 12,245 ------------ Mixed Industrial/Office - 3.1% Digital Realty Trust, Inc. (o) 282,100 5,411 Duke Realty Corp. (o) 528,700 18,029 Liberty Property Trust (o) 502,600 20,953 PS Business Parks, Inc. (o)(N) 90,000 4,188 ------------ 48,581 ------------ Office - 18.5% Alexandria Real Estate Equities, Inc. (o)(N) 162,700 13,154 American Financial Realty Trust (o)(N) 230,700 2,840 Arden Realty, Inc. (o)(N) 468,900 21,166 BioMed Realty Trust, Inc. (o)(N) 472,750 11,824 Boston Properties, Inc. (o) 1,026,100 71,027 Brandywine Realty Trust (o)(N) 569,500 15,604 Brookfield Properties Co. 962,300 28,195 CarrAmerica Realty Corp. (o)(N) 241,100 7,940 Corporate Office Properties Trust (o)(N) 337,800 11,742 Equity Office Properties Trust (o) 252,100 7,765 Highwoods Properties, Inc. (o)(N) 240,000 6,770 Kilroy Realty Corp. (o)(N) 158,700 8,911 Mack-Cali Realty Corp. (o) 211,100 9,003 Maguire Properties, Inc. (o)(N) 110,600 3,318 Prentiss Properties Trust (o)(N) 309,000 12,193 Reckson Associates Realty Corp. (o) 513,700 18,031 SL Green Realty Corp. (o) 211,200 14,368 Trizec Properties, Inc. (o)(N) 1,062,200 23,634 ------------ 287,485 ------------ Regional Malls - 16.6% CBL & Associates Properties, Inc. (o)(N) 174,600 6,521 General Growth Properties, Inc. (o)(N) 1,477,900 62,781 Macerich Co. (The) (o)(N) 612,200 39,346 Mills Corp. (The) (o)(N) 409,388 21,902 Pennsylvania Real Estate Investment Trust (o) 90,671 3,491
84 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Simon Property Group, Inc. (o) 1,593,800 114,148 Taubman Centers, Inc. (o) 313,000 10,320 ------------ 258,509 ------------ Self Storage - 4.1% Extra Space Storage, Inc. (o)(N) 82,300 1,202 Public Storage, Inc. (o)(N) 638,800 42,289 Shurgard Storage Centers, Inc. Class A (o) 80,000 4,514 U-Store-It Trust (o)(N) 721,500 15,050 ------------ 63,055 ------------ Shopping Centers - 10.0% Acadia Realty Trust (o) 62,500 1,188 Developers Diversified Realty Corp. (o)(N) 771,600 33,704 Equity One, Inc. (o)(N) 224,700 5,269 Federal Realty Investors Trust (o) 474,400 28,772 Inland Real Estate Corp. (o)(N) 351,500 5,009 Kimco Realty Corp. (o) 315,000 9,330 Kite Realty Group Trust (o)(N) 197,800 2,923 New Plan Excel Realty Trust (o)(N) 88,800 2,042 Pan Pacific Retail Properties, Inc. (o) 419,213 26,620 Ramco-Gershenson Properties Trust (o)(N) 86,800 2,408 Regency Centers Corp. (o) 610,300 33,975 Weingarten Realty Investors (o) 112,600 4,004 ------------ 155,244 ------------ Specialty - 0.6% Capital Automotive REIT (o)(N) 59,400 2,294 Plum Creek Timber Co., Inc. (o)(N) 200,000 7,780 ------------ 10,074 ------------ TOTAL COMMON STOCKS (cost $1,065,848) 1,504,017 ------------ SHORT-TERM INVESTMENTS - 2.9% Frank Russell Investment Company Money Market Fund 45,777,000 45,777 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $45,777) 45,777 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 7.9% Frank Russell Investment Company Money Market Fund (X) 40,143,053 40,143 State Street Securities Lending Quality Trust (X) 82,249,322 82,249 ------------ TOTAL OTHER SECURITIES (cost $122,392) 122,392 ------------ TOTAL INVESTMENTS - 107.4% (identified cost $1,234,017) 1,672,186 OTHER ASSETS AND LIABILITIES, NET - (7.4%) (115,905) ------------ NET ASSETS - 100.0% 1,556,281 ============
See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 85 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Apartments 17.5 Diversified 5.5 Free Standing Retail 0.1 Health Care 3.4 Industrial 7.4 Lodging/Resorts 9.0 Manufactured Homes 0.8 Mixed Industrial/Office 3.1 Office 18.5 Regional Malls 16.6 Self Storage 4.1 Shopping Center 10.0 Specialty 0.6 Short-Term Investments 2.9 Other Securities 7.9 --------------- Total Investments 107.4 Other Assets and Liabilities, Net (7.4) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 86 Real Estate Securities Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
MERRILL LYNCH 1-2.99 YEARS SHORT DURATION BOND - CLASS S TREASURY** ----------------------------- -------------------------- * 10000 10000 1996 10561 10591 1997 11204 11278 1998 11941 12146 1999 12282 12510 2000 13028 13270 2001 14430 14707 2002 15124 15427 2003 15569 15737 2004 15878 16009 2005 15959 16116
Short Duration Bond Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.51% 5 Years 4.14%S 10 Years 4.79%S
Short Duration Bond Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.25% 5 Years 3.89%S 10 Years 4.61%S
Short Duration Bond Fund - Class C ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (0.50)% 5 Years 3.13%S 10 Years 4.09%S
Merrill Lynch 1-2.99 Years Treasury Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.67% 5 Years 3.96%S 10 Years 4.89%S
88 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and preservation of capital with a focus on short duration securities. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Short Duration Bond Fund Class S, Class E and Class C Shares returned 0.51%, 0.25% and (0.50)% respectively. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 0.67% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Short Investment Grade Debt Funds Average returned 0.96%. This return serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Short-term interest rates increased over the 12 months ending October 31, 2005. Therefore, the Fund's money managers who favored shorter-than-index duration positions should have performed better. However, given spikes in interest rate volatility throughout the year, money managers that responded more tactically by changing their duration stance relatively quickly performed better. Duration is a measure of a bond price's sensitivity to a change in interest rates. Fund performance was helped by tactical duration decisions and yield curve positioning. Despite the increase in short-term interest rates, shorter maturity non-Treasury sectors achieved strong benchmark relative performance. The Fund benefited from having an overweight position in non-Treasury sectors, such as corporate and mortgage-backed securities, as well as high yield corporate bonds and emerging market debt securities. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund derived much of its performance by maintaining overweighted positions in the riskier sectors of the fixed income markets relative to the all-Treasury benchmark. These sectors included investment grade corporate, mortgage- and asset-backed securities, high yield and emerging market debt. The allocation to these non-Treasury sectors benefited the Fund by providing a larger-than-benchmark yield and higher-than-benchmark total return. In addition, the Fund's money managers added value through positive security selection and sector allocation decisions. Finally, duration and yield curve positioning also benefited the Fund. In contrast, investments in government securities such as Treasury Inflation Protected Securities (TIPS) detracted from performance during the fiscal year. The Fund's performance shortfall relative to benchmark was due to the impact of Fund operating expenses. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund entered the fiscal year positioned to take advantage of the anticipated continued strong performance in the non-Treasury sectors such as investment grade and emerging market debt; however, the Fund was also positioned to reflect a more cautious view on the direction of interest rates. As the fiscal year progressed, shorter duration non-Treasury sectors continued to perform well, leading to less attractive valuations in those sectors. In response, the Fund's money managers reduced risk by reducing exposure to non-investment grade sectors and focusing on higher quality securities. While the Fund's money managers took profits in the non-Treasury sectors, the Fund maintained a near benchmark duration stance throughout most of the fiscal year although duration positioning did vary as the Fund's money managers made tactical investment decisions. The key investment strategies of sector rotation, issue selection, and duration and yield curve management all helped performance. Sector rotation strategies drove the Fund's money managers to overweight non-benchmark sectors, which tended to outperform the all-Treasury security benchmark. The money managers also added value through security selection. Finally, in order to take advantage of interest rates changes, some money managers took either longer or shorter duration positions at various times resulting in positive performance. Short Duration Bond Fund 89 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes to Fund's structure or the money manager line-up in the fiscal year. Money Managers as of Styles October 31, 2005 Merganser Capital Management, L.P. Sector Rotation Pacific Investment Management Company, LLC Sector Rotation STW Fixed Income Management Ltd. Sector Rotation
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Short Duration Bond Fund Class S assumes initial investment on November 1, 1995. ** Merrill Lynch 1-2.99 Years Treasury Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year, and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. ++++ Short Duration Bond Fund Class S performance has been linked with Class E to provide historical perspective. From February 18, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Short Duration Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From March 3, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 90 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.20 $ 1,016.84 Expenses Paid During Period* $ 8.37 $ 8.44
* Expenses are equal to the Fund's annualized expense ratio of 1.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,004.00 $ 1,020.62 Expenses Paid During Period* $ 4.60 $ 4.63
* Expenses are equal to the Fund's annualized expense ratio of 0.91% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,005.20 $ 1,021.88 Expenses Paid During Period* $ 3.34 $ 3.36
* Expenses are equal to the Fund's annualized expense ratio of 0.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Short Duration Bond Fund 91 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 78.6% Asset-Backed Securities - 24.4% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 1,306 1,305 Aegis Asset Backed Securities Trust (E) Series 2005-1 Class 1A1 4.158% due 03/25/35 253 253 Alter Moneta Receivables LLC (A) Series 2003-1 Class NOTE 2.563% due 03/15/11 718 713 AmeriCredit Automobile Receivables Trust Series 2005-AX Class A3 3.630% due 01/06/10 2,000 1,970 Asset Backed Securities Corp. Home Equity (E) Series 2002-HE1 Class M1 5.070% due 03/15/32 1,400 1,434 Banc of America Securities Auto Trust Series 2005-WF1 Class A4 4.080% due 04/18/10 3,000 2,945 Bank One Issuance Trust Series 2004-A1 Class A1 3.450% due 10/17/11 8,185 7,849 Series 2004-B2 Class B2 4.370% due 04/15/12 1,500 1,467 Bay View Auto Trust Series 2003-LJ1 Class A3 2.430% due 07/25/08 83 83 Bear Stearns Asset Backed Securities, Inc. (E) Series 2004-BO1 Class 1A1 4.238% due 09/25/34 472 472 BMW Vehicle Owner Trust Series 2004-A Class A4 3.320% due 02/25/09 4,200 4,112 California Infrastructure PG&E-1 Series 1997-1 Class A7 6.420% due 09/25/08 940 949 Series 1997-1 Class A8 6.480% due 12/26/09 3,000 3,085 California Infrastructure SCE-1 Series 1997-1 Class A7 6.420% due 12/26/09 7,450 7,653 California Infrastructure SDG&E-1 Series 1997-1 Class A6 6.310% due 09/25/08 273 275 Capital Auto Receivables Asset Trust Series 2004-1 Class A3 2.000% due 11/15/07 777 767
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-2 Class A2 3.350% due 02/15/08 3,000 2,954 Capital One Auto Finance Trust Series 2001-B Class A4 4.880% due 09/15/08 759 759 Series 2005-BSS Class A3 4.080% due 11/15/09 2,000 1,973 Capital One Master Trust Series 2002-4A Class A 4.900% due 03/15/10 1,000 1,002 Capital One Prime Auto Receivables Trust Series 2004-3 Class A4 3.690% due 06/15/10 1,000 974 Series 2004-3 Class B 3.860% due 08/15/11 1,500 1,462 Carmax Auto Owner Trust Series 2004-2 Class A4 3.460% due 09/15/11 2,500 2,423 Series 2005-2 Class A4 4.340% due 09/15/10 2,000 1,966 Carrington Mortgage Loan Trust (E) Series 2005-NC3 Class A1A 4.118% due 06/25/35 335 335 Series 2005-OPT Class A1A 4.128% due 05/25/35 613 613 Centex Home Equity Series 2003-C Class AF4 4.960% due 04/25/32 1,750 1,742 Chase Credit Card Master Trust (E) Series 2001-1 Class A 4.110% due 06/16/08 1,800 1,801 Series 2004-2 Class A 4.010% due 09/15/09 2,500 2,501 Chase Issuance Trust Series 2004-A9 Class A9 3.220% due 06/15/10 3,000 2,915 Chase Manhattan Auto Owner Trust Series 2002-B Class A4 4.210% due 01/15/09 4,411 4,409 Series 2004-A Class A4 2.830% due 09/15/10 1,800 1,740 Series 2005-A Class A4 3.980% due 04/15/11 1,000 976 Series 2005-A Class CTFS 4.040% due 04/15/11 1,000 984
92 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chemical Master Credit Card Trust 1 Series 1996-2 Class A 5.980% due 09/15/08 6,000 6,018 CIT Equipment Collateral Series 2003-VT1 Class A3B 1.630% due 04/20/07 138 136 Series 2004-VT1 Class A3 2.200% due 03/20/08 1,123 1,106 Series 2005-VT1 Class A3 4.120% due 08/20/08 1,150 1,139 CIT Marine Trust Series 1999-A Class A4 6.250% due 11/15/19 843 848 CIT RV Trust Series 1998-A Class A5 6.120% due 11/15/13 699 704 Citibank Credit Card Issuance Trust Series 2003-A3 Class A3 3.100% due 03/10/10 1,000 962 Series 2003-A5 Class A5 2.500% due 04/07/08 1,700 1,685 Series 2004-A1 Class A1 2.550% due 01/20/09 6,975 6,788 Series 2004-A4 Class A4 3.200% due 08/24/09 3,425 3,331 Citigroup Mortgage Loan Trust, Inc. (E) Series 2005-HE3 Class A2A 4.148% due 09/25/35 1,345 1,345 CNH Equipment Trust Series 2003-A Class A3B 1.890% due 07/16/07 240 239 CNH Wholesale Master Note Trust (E) Series 2005-1 Class A 4.080% due 06/15/11 1,500 1,500 Community Program Loan Trust Series 1987-A Class A4 4.500% due 10/01/18 2,419 2,380 Connecticut RRB Special Purpose Trust CL&P Series 2001-1 Class A5 6.210% due 12/30/11 1,000 1,049 Countrywide Asset-Backed Certificates Series 2001-BC3 Class A (E) 4.278% due 12/25/31 273 273 Series 2004-7 Class AF2 3.324% due 12/25/23 1,000 997 Series 2005-4 Class 3AV1 (E) 4.118% due 10/25/35 2,184 2,184 Series 2005-5 Class 2A1 (E) 4.118% due 10/25/35 668 668 Series 2005-9 Class 2A1 (E) 3.938% due 08/25/35 1,074 1,074
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Daimler Chrysler Auto Trust Series 2005-A Class A3 3.490% due 12/08/08 2,330 2,297 Series 2005-A Class A4 3.740% due 02/08/10 8,100 7,925 Dillard Credit Card Master Trust Series 2002-2 Class A 3.800% due 09/15/10 3,650 3,623 Discover Card Master Trust I Series 1996-3 Class A 6.050% due 08/18/08 2,225 2,235 Series 2002-2 Class B 5.450% due 10/15/09 1,000 1,009 E-Trade RV and Marine Trust Series 2004-1 Class A3 3.620% due 10/08/18 1,300 1,245 Equifirst Mortgage Loan Trust (E) Series 2005-1 Class A1 4.098% due 04/25/35 1,929 1,929 Federal Farm Credit Bank 12.250% due 02/01/07 2,446 2,544 Fifth Third Auto Trust Series 2004-A Class A3 3.190% due 02/20/08 2,000 1,978 Finance America Mortgage Loan Trust (E) Series 2004-1 Class 2A1 4.208% due 06/25/34 367 367 First National Master Note Trust (E) Series 2003-1 Class A 4.070% due 08/15/08 1,000 1,000 First NLC Trust (E) Series 2005-2 Class AV1 4.148% due 09/25/35 757 757 Fleet Credit Card Master Trust II Series 2001-B Class A 5.600% due 12/15/08 3,000 3,017 Series 2001-B Class B 5.900% due 12/15/08 1,100 1,108 Ford Credit Auto Owner Trust Series 2005-A Class A3 3.480% due 11/15/08 8,225 8,114 Series 2005-B Class A4 4.380% due 01/15/10 500 495 Series 2005-B Class B 4.640% due 04/15/10 1,250 1,236 Series 2005-C Class B 4.520% due 09/15/10 1,000 982
Short Duration Bond Fund 93 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Franklin Auto Trust Series 2003-1 Class A4 2.270% due 05/20/11 1,027 1,003 Fremont Home Loan Trust (E) Series 2004-4 Class 2A1 4.198% due 03/25/35 282 282 GE Commercial Equipment Financing LLC (E) Series 2004-1 Class B 4.200% due 12/20/15 606 606 GE Corporate Aircraft Financing LLC (E)(A) Series 2004-1A Class B 4.888% due 01/25/18 702 702 GE Dealer Floorplan Master Note Trust (E) Series 2004-2 Class B 4.290% due 07/20/09 1,000 1,002 GMAC Mortgage Corp. Loan Trust Series 2004-GH1 Class A2 4.390% due 12/25/25 1,500 1,487 GS Auto Loan Trust Series 2004-1 Class A3 2.130% due 11/15/07 1,573 1,557 Series 2005-1 Class A4 4.560% due 11/15/13 1,300 1,286 GSAMP Trust (E) Series 2004-NC2 Class A2A 4.218% due 10/01/34 154 154 Series 2004-SEA Class A2A 4.328% due 03/25/34 941 941 Honda Auto Receivables Owner Trust Series 2003-2 Class A4 2.160% due 10/21/08 5,505 5,369 Series 2003-3 Class A4 2.770% due 11/21/08 2,000 1,954 Series 2003-4 Class A4 2.790% due 03/16/09 1,000 976 Series 2003-5 Class A3 2.300% due 10/18/07 726 718 Series 2003-5 Class A4 2.960% due 04/20/09 2,135 2,079 Series 2004-3 Class A4 3.280% due 02/18/10 2,000 1,925 Household Automotive Trust Series 2005-3 Class A2 4.700% due 01/17/09 2,600 2,600 Household Mortgage Loan Trust (E) Series 2003-HC1 Class A 4.350% due 02/20/33 520 521 Household Private Label Credit Card Master Note Trust I (E) Series 2002-2 Class A 4.140% due 01/18/11 1,000 1,001
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hyundai Auto Receivables Trust Series 2002-A Class A3 (A) 2.800% due 02/15/07 99 99 Series 2004-A Class A3 2.970% due 05/15/09 1,000 980 Series-A Class A3 3.980% due 11/16/09 1,500 1,478 Illinois Power Special Purpose Trust Series 1998-1 Class A6 5.540% due 06/25/09 3,829 3,857 IXIS Real Estate Capital Trust (E) Series 2005-HE2 Class A1 4.118% due 09/25/35 764 764 Long Beach Auto Receivables Trust Series 2005-B Class A3 4.406% due 05/15/10 1,500 1,486 Marlin Leasing Receivables LLC (A) Series 2005-1A Class A3 4.630% due 11/17/08 1,650 1,640 MBNA Credit Card Master Note Trust Series 2001-A1 Class A1 5.750% due 10/15/08 1,000 1,006 Series 2003-A6 Class A6 2.750% due 10/15/10 1,430 1,361 Series 2004-A4 Class A4 2.700% due 09/15/09 11,005 10,690 Series 2005-A7 Class A7 4.300% due 02/15/11 1,500 1,480 Merrill Auto Trust Securitization Series 2005-1 Class A3 4.100% due 08/25/09 3,000 2,965 Morgan Stanley Dean Witter Capital I (E) Series 2002-HE1 Class A2 4.368% due 07/25/32 3 3 National City Auto Receivables Trust Series 2002-A Class A4 4.830% due 08/15/09 865 866 Series 2004-A Class A3 2.110% due 07/15/08 1,334 1,318 National City Bank 2.700% due 08/24/09 1,818 1,726 Navistar Financial Corp. Owner Trust Series 2002-A Class A4 4.760% due 04/15/09 524 524
94 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Nelnet Education Loan Funding, Inc. Series 2001-A Class A1 5.760% due 07/01/12 2,267 2,306 Nelnet Student Loan Trust (E) Series 2002-2 Class A3 4.061% due 09/25/13 366 366 Nissan Auto Lease Trust Series 2005-A Class A3 4.700% due 10/15/08 3,000 2,996 Nissan Auto Receivables Owner Trust Series 2005-A Class A3 3.540% due 10/15/08 1,650 1,625 Series 2005-B Class A3 3.990% due 07/15/09 1,600 1,581 Nordstrom Private Label Credit Card Master Note Trust (A) Series 2001-1A Class A 4.820% due 04/15/10 3,500 3,503 Onyx Acceptance Grantor Trust Series 2005-A Class A4 3.910% due 09/15/11 2,000 1,955 Option One Mortgage Loan Trust (E) Series 2005-1 Class A2 4.168% due 02/25/35 735 735 PBG Equipment Trust (A) Series 1998-1A Class A 6.270% due 01/20/12 790 790 Peco Energy Transition Trust Series 1999-A Class A6 6.050% due 03/01/09 1,996 2,018 PG&E Energy Recovery Funding LLC Series 2005-1 Class A2 3.870% due 06/25/11 2,905 2,855 PNC Student Loan Trust I Series 1997-2 Class A7 6.728% due 01/25/07 682 688 Popular ABS Mortgage Pass-Through Trust Series 2004-5 Class AF2 3.735% due 12/25/34 965 951 Series 2005-3 Class AF3 4.437% due 07/25/35 2,000 1,969 Provident Auto Lease ABS Trust (A) Series 1999-1 Class A2 7.025% due 01/14/12 21 21 Providian Gateway Master Trust (A) Series 2004-FA Class A 3.650% due 11/15/11 1,200 1,172 PSE&G Transition Funding LLC Series 2001-1 Class A3 5.980% due 06/15/08 1,831 1,841
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Public Service New Hampshire Funding LLC Series 2001-1 Class A2 5.730% due 11/01/10 1,263 1,276 Railcar Leasing LLC (A) Series 1997-1 Class A2 7.125% due 01/15/13 1,000 1,060 Regions Auto Receivables Trust Series 2003-2 Class A3 2.310% due 01/15/08 875 869 Residential Asset Mortgage Products, Inc. (E) Series 2004-RS1 Class AII1 4.168% due 06/25/27 1,576 1,577 Series 2004-RS2 Class AIIB 4.288% due 02/25/34 1,542 1,544 Series 2004-RS8 Class AII1 4.178% due 05/25/26 809 809 Sears Credit Account Master Trust Series 1999-3 Class A 6.450% due 11/17/09 121 121 Series 2002-5 Class A (E) 4.350% due 11/17/09 3,500 3,500 SLM Student Loan Trust (A) Series 2003-4 Class A5B 3.390% due 03/15/33 3,000 2,898 Specialty Underwriting & Residential Finance (E) Series 2004-BC4 Class A2A 4.188% due 10/25/35 1,094 1,094 Susquehanna Auto Lease Trust (A) Series 2003-1 Class A3 2.460% due 01/14/07 519 514 Series 2005-1 Class A3 4.430% due 06/16/08 4,000 3,978 Series 2005-1 Class B 4.710% due 07/14/08 1,700 1,688 Toyota Auto Receivables Owner Trust Series 2003-B Class A4 2.790% due 01/15/10 4,670 4,581 Toyota Motor Credit Corp. 2.750% due 08/06/09 2,909 2,788 Triad Auto Receivables Owner Trust Series 2002-A Class A4 3.240% due 08/12/09 1,504 1,490 Series 2003-B Class A3 2.480% due 03/12/08 595 592 Series 2004-A Class A3 1.900% due 07/14/08 1,000 990
Short Duration Bond Fund 95 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- USAA Auto Owner Trust Series 2004-2 Class A3 3.030% due 06/16/08 4,425 4,376 Series 2004-2 Class A4 3.580% due 02/15/11 1,700 1,665 Series 2005-2 Class A4 4.170% due 02/15/11 4,000 3,922 Wachovia Auto Owner Trust Series 2004-A Class A3 3.190% due 06/20/08 2,000 1,980 Series 2004-A Class A4 3.660% due 07/20/10 10,500 10,280 Series 2004-B Class A3 2.910% due 04/20/09 5,000 4,916 Wells Fargo Financial Auto Owner Trust Series 2004-A Class A4 2.670% due 08/16/10 2,000 1,946 Wells Fargo Home Equity Trust (E) Series 2004-2 Class A31 4.198% due 06/25/19 4 4 West Penn Funding LLC Transition Bonds Series 1999-A Class A3 6.810% due 09/25/08 780 786 WFS Financial Owner Trust Series 2002-3 Class A4 3.500% due 02/20/10 1,407 1,397 Series 2004-1 Class A3 2.190% due 06/20/08 1,500 1,490 Whole Auto Loan Trust Series 2003-1 Class A3B 1.990% due 05/15/07 1,001 995 Series 2003-1 Class B 2.240% due 03/15/10 433 426 World Omni Auto Receivables Trust (E) Series 2005-B Class A4 4.020% due 09/20/12 2,000 2,000 ------------ 296,478 ------------ Corporate Bonds and Notes - 17.4% ABN Amro Bank NV 7.125% due 06/18/07 1,700 1,760 Allstate Financial Global Funding (A) 2.500% due 06/20/08 4,080 3,838 Altria Group, Inc. 7.650% due 07/01/08 1,500 1,595 American Express Centurion Bank Series BKNT 4.375% due 07/30/09 3,440 3,370
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- American General Finance Corp. (E) Series MTNG 4.000% due 03/23/07 200 200 Associates Corp. of North America 6.250% due 11/01/08 1,900 1,973 8.550% due 07/15/09 750 840 Bank of America Corp. 6.375% due 02/15/08 3,000 3,095 Bank of Montreal 7.800% due 04/01/07 3,000 3,119 Bank One Corp. 2.625% due 06/30/08 3,050 2,881 BankAmerica Corp. 6.250% due 04/01/08 2,000 2,059 7.125% due 03/01/09 1,500 1,597 BB&T Corp. (E) Series BKNT 3.831% due 06/04/07 3,500 3,502 BellSouth Corp. 4.200% due 09/15/09 6,980 6,770 Boeing Co. 8.100% due 11/15/06 2,375 2,453 British Aerospace Finance, Inc. (p) 7.000% due 07/01/07 900 925 CIT Group, Inc. 7.375% due 04/02/07 6,800 7,032 4.120% due 09/20/07 (N)(E) 3,800 3,811 Citigroup Global Markets Holdings, Inc. (E) Series MTNM 3.816% due 03/07/08 1,600 1,599 Citigroup, Inc. (E) 3.821% due 06/04/07 1,000 1,000 Consolidated Edison Co. of New York Series B 7.150% due 12/01/09 1,000 1,080 CSX Corp. 6.250% due 10/15/08 2,000 2,066 Deutsche Bank Financial, Inc. 7.500% due 04/25/09 2,000 2,159 Dominion Resources, Inc. Series G 3.660% due 11/15/06 1,800 1,778 Entergy Mississippi, Inc. 4.350% due 04/01/08 500 490 Fifth Third Bancorp Series BKNT 3.375% due 08/15/08 2,000 1,923 Fifth Third Bank Series BKNT 4.200% due 02/23/10 2,000 1,945
96 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- FleetBoston Financial Corp. 6.375% due 05/15/08 4,185 4,324 Ford Motor Credit Co. 6.500% due 01/25/07 1,500 1,482 4.870% due 03/21/07 (E) 2,800 2,726 7.260% due 11/02/07 (E) 200 199 GATX Rail Corp. 6.750% due 05/01/09 2,500 2,594 General Electric Capital Corp. 4.281% due 10/21/10 (E) 2,000 1,999 Series MTNA 4.625% due 09/15/09 6,460 6,388 General Mills, Inc. 5.125% due 02/15/07 3,000 3,004 General Motors Acceptance Corp. (E) 5.050% due 01/16/07 200 197 Goldman Sachs Group, Inc. 4.202% due 10/05/07 (E) 2,000 2,004 4.500% due 10/07/11 (E) 3,000 3,013 Series MTNB (E) 4.524% due 07/23/09 2,000 2,011 Harrah's Operating Co., Inc. 7.500% due 01/15/09 1,500 1,595 Household Finance Corp. (E) 3.900% due 02/28/07 3,200 3,201 HSBC Finance Corp. 6.500% due 11/15/08 10,130 10,554 International Lease Finance Corp. 5.625% due 06/01/07 (N) 1,600 1,616 4.750% due 07/01/09 2,250 2,210 Series MTNP 3.125% due 05/03/07 2,200 2,143 John Hancock Global Funding II 6.000% due 12/28/06 2,450 2,479 Lehman Brothers Holdings, Inc. 7.875% due 08/15/10 1,000 1,114 Lehman Brothers, Inc. 6.625% due 02/15/08 1,500 1,556 Medco Health Solutions, Inc. 7.250% due 08/15/13 1,750 1,895 Merrill Lynch & Co., Inc. 4.831% due 10/27/08 3,925 3,909 Metropolitan Life Global Funding I (A) 4.250% due 07/30/09 4,000 3,909 MGM Mirage 9.750% due 06/01/07 1,200 1,260 Morgan Stanley 4.341% due 07/27/07 (E) 3,000 3,005 3.875% due 01/15/09 2,000 1,930 National City Bank Series BKNT 4.250% due 01/29/10 1,375 1,338
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- National Rural Utilities Cooperative Finance Corp. Series MTNC 6.500% due 03/01/07 2,200 2,248 New York Life Global Funding (E)(A) 3.901% due 02/26/07 2,500 2,501 Nisource Finance Corp. 3.200% due 11/01/06 2,795 2,749 3.628% due 11/01/06 1,300 1,283 Northern States Power-Minnesota 6.875% due 08/01/09 3,000 3,179 Pepco Holdings, Inc. 5.500% due 08/15/07 400 403 Principal Life Global Funding I (A) 5.125% due 06/28/07 2,000 2,002 2.800% due 06/26/08 5,600 5,321 Principal Life Income Funding Trusts 3.200% due 04/01/09 1,500 1,426 Prudential Financial, Inc. 4.104% due 11/15/06 500 495 Residential Capital Corp. (A) 6.375% due 06/30/10 2,000 2,031 SBC Communications Capital Corp. Series MTND 6.680% due 11/28/07 1,075 1,105 SLM Corp. 3.625% due 03/17/08 7,200 7,009 Texas Eastern Transmission, LP 5.250% due 07/15/07 2,900 2,913 Textron, Inc. 6.375% due 11/15/08 2,500 2,601 TIAA Global Markets (A) 5.000% due 03/01/07 3,625 3,632 Unilever Capital Corp. 7.125% due 11/01/10 1,000 1,094 US Bancorp Series MTNN 5.100% due 07/15/07 1,650 1,658 US Bank NA Series BKNT 4.125% due 03/17/08 1,600 1,577 US Central Credit Union 2.750% due 05/30/08 1,880 1,788 USAA Capital Corp. (A) Series MTNB 4.640% due 12/15/09 595 587
Short Duration Bond Fund 97 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Virginia Electric and Power Co. Series A 5.375% due 02/01/07 675 679 Wachovia Bank NA Series BKNT 4.375% due 08/15/08 2,250 2,224 Wachovia Corp. 5.625% due 12/15/08 (N) 8,200 8,393 Series* (E) 4.121% due 07/20/07 3,500 3,504 Wells Fargo (N) 4.125% due 03/10/08 820 809 Wells Fargo & Co. 6.250% due 04/15/08 8,337 8,608 ------------ 210,334 ------------ International Debt - 2.1% Brazilian Government International Bond 9.760% due 06/29/09 (E) 1,150 1,340 8.000% due 01/15/18 2,000 2,066 British Telecommunications PLC 7.000% due 05/23/07 1,700 1,748 Eli Lilly Services, Inc. (E)(p) 3.907% due 09/12/08 4,000 3,999 HBOS Treasury Services PLC (A) 4.203% due 01/12/07 (E) 900 901 3.500% due 11/30/07 2,000 1,949 3.750% due 09/30/08 1,000 971 HSBC Bank PLC 6.950% due 03/15/11 1,000 1,108 Inter-American Development Bank 12.250% due 12/15/08 1,250 1,517 Interstar Millennium Trust (E) Series 2004-2G Class A 4.057% due 03/14/36 1,900 1,900 Mexico Government International Bond 4.625% due 10/08/08 3,250 3,211 National Westminster Bank PLC 7.375% due 10/01/09 1,000 1,086 Panama Government International Bond 8.250% due 04/22/08 1,200 1,274 Peru Government International Bond 9.125% due 01/15/08 900 972 Province of Ontario 5.500% due 10/01/08 1,500 1,536 ------------ 25,578 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mortgage-Backed Securities - 20.7% American Home Mortgage Investment Trust (E) Series 2004-3 Class 5A 4.290% due 10/25/34 2,599 2,544 Series 2004-4 Class 4A 4.390% due 02/25/45 904 885 Banc of America Commercial Mortgage, Inc. Series 2004-2 Class A1 2.764% due 11/10/38 2,346 2,255 Banc of America Funding Corp. (E) Series 2005-D Class A1 4.117% due 05/25/35 10,426 10,269 Banc of America Mortgage Securities Series 2004-2 Class 2A1 5.250% due 03/25/34 1,385 1,382 Bank of America Mortgage Securities Series 2002-K Class 2A1 (E) 5.487% due 10/20/32 55 55 Series 2004-2 Class 5A1 6.500% due 10/25/31 399 406 Bear Stearns Adjustable Rate Mortgage Trust Series 2002-9 Class 2A 5.279% due 10/25/32 18 18 Series 2003-1 Class 5A1 5.448% due 04/25/33 547 533 Series 2003-8 Class 2A1 (E) 4.830% due 01/25/34 583 578 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 1,663 1,670 Bear Stearns Asset Backed Securities, Inc. Series 2003-AC3 Class A1 4.000% due 07/25/33 617 607 Bear Stearns Commercial Mortgage Securities Series 1998-C1 Class A1 6.340% due 06/16/30 415 420 Series 1999-C1 Class A2 6.020% due 02/14/31 2,000 2,054 Series 2001-TOP Class A1 5.060% due 11/15/16 781 782 Series 2003-PWR Class A1 3.432% due 05/11/39 758 732 Series 2003-T10 Class A1 4.000% due 03/13/40 1,490 1,434 Series 2003-T12 Class A1 2.960% due 08/13/39 1,480 1,421
98 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Commercial Mortgage Pass Through Certificates Series 2004-LB2 Class A2 3.600% due 03/10/39 1,000 958 Countrywide Alternative Loan Trust Series 2003-6T2 Class A1 6.500% due 06/25/33 295 296 Series 2003-J2 Class A1 6.000% due 10/25/33 691 691 Credit Suisse First Boston Mortgage (E)(p) Series 2002-P3 Class A 1.691% due 08/25/33 332 333 Credit Suisse First Boston Mortgage Securities Corp. Series 2002-AR2 Class 2A2 5.641% due 10/25/32 41 41 Series 2003-C4 Class A2 3.908% due 08/15/36 1,000 974 Series 2003-CK2 Class A1 3.006% due 03/15/36 906 878 Series 2004-C1 Class A1 2.254% due 01/15/37 1,878 1,821 Series 2005-C5 Class A1 5.046% due 08/15/38 3,750 3,759 Fannie Mae 30 year TBA (I) 4.660% 4,000 4,007 6.000% due 2008 103 104 5.500% due 2009 2,315 2,333 6.000% due 2010 217 222 6.500% due 2010 172 178 6.000% due 2011 224 229 6.500% due 2011 145 150 4.500% due 2013 2,998 2,929 5.000% due 2013 3,048 3,026 5.500% due 2013 405 408 6.000% due 2013 480 491 6.000% due 2014 2,354 2,410 5.500% due 2016 1,415 1,424 5.000% due 2017 106 105 5.500% due 2017 2,059 2,074 6.000% due 2017 217 224 4.500% due 2018 143 139 5.000% due 2018 4,775 4,712 4.500% due 2019 347 336 5.000% due 2019 554 547 4.500% due 2020 462 447 5.000% due 2020 388 383 5.500% due 2022 1,435 1,427 5.500% due 2033 92 91 6.000% due 2033 35 36 5.500% due 2034 16,932 16,725 4.690% due 2035 (E) 667 659
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 4.900% due 2035 (E) 35,038 34,784 5.500% due 2035 22,952 22,651 4.115% due 2041 (E) 1,249 1,264 4.065% due 2042 (E) 1,187 1,197 Series 1994-1 Class K 6.500% due 06/25/13 99 99 Series 2003-129 Class PQ 4.500% due 07/25/33 566 564 Series 2003-24 Class PU 3.500% due 11/25/15 331 321 Series 2003-27 Class TJ 4.000% due 10/25/16 557 555 Series 2003-46 Class PQ 3.000% due 06/25/19 3,500 3,442 Series 2003-62 Class OD 3.500% due 04/25/26 1,250 1,192 Series 2003-63 Class GU 4.000% due 07/25/33 2,673 2,624 Series 2003-67 Class TA 3.000% due 08/25/17 4,005 3,750 Series 2003-75 Class NB 3.250% due 08/25/18 714 684 Series 2003-92 Class BR 5.000% due 04/25/14 709 708 Series 2004-17 Class HA 3.000% due 01/25/19 2,294 2,119 Series 2004-21 Class QA 4.000% due 11/25/17 2,887 2,863 Fannie Mae Grantor Trust (E) Series 2002-T10 Class A1 4.158% due 06/25/32 5,732 5,726 Series 2005-T2 Class 1A1 3.712% due 11/28/35 314 313 Series 2005-T4 Class A1A 4.088% due 09/25/35 2,067 2,067 Fannie Mae-Aces Series 1998-M1 Class A2 6.250% due 01/25/08 1,497 1,525 Federal Home Loan Bank System Series 2004-900 Class 1 3.920% due 09/25/09 1,738 1,684 Series 2005-058 Class H 4.750% due 10/25/10 4,133 4,109 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2003-H00 Class A2 1.876% due 03/15/08 216 214
Short Duration Bond Fund 99 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Freddie Mac 5.500% due 2008 127 128 6.500% due 2008 123 128 6.000% due 2009 101 103 6.500% due 2009 419 430 8.000% due 2010 48 49 6.000% due 2013 151 154 5.500% due 2014 624 629 6.000% due 2014 156 160 6.000% due 2016 677 692 5.500% due 2017 1,029 1,036 5.000% due 2018 634 626 6.000% due 2028 140 142 5.500% due 2029 967 957 6.000% due 2029 286 290 6.000% due 2031 391 395 Series 1993-164 Class PD 4.500% due 09/15/08 148 147 Series 2003-255 Class PB 5.500% due 08/15/30 102 101 Series 2003-258 Class NS 3.250% due 09/15/15 1,572 1,517 Series 2003-258 Class QK 4.000% due 04/15/22 527 526 Series 2003-261 Class JA 3.760% due 03/15/29 1,403 1,349 Series 2003-262 Class KP 2.870% due 12/15/16 3,324 3,126 Series 2003-263 Class NK 4.000% due 02/15/15 804 801 Series 2003-263 Class YH 3.500% due 08/15/22 1,250 1,240 Series 2003-268 Class MX 4.000% due 07/15/16 2,495 2,422 Series 2003-271 Class OJ 3.500% due 03/15/11 1,810 1,800 Series 2004-276 Class EA 4.500% due 04/15/13 1,660 1,652 Series 2004-278 Class HE 4.000% due 09/15/17 3,868 3,729 Series 2004-285 Class BA 4.500% due 02/15/20 1,654 1,627 Series 2005-305 Class AP 5.500% due 01/15/27 3,000 3,026 Freddie Mac Gold 4.000% due 2007 1,044 1,025 4.000% due 2008 883 864 4.500% due 2008 982 978 5.500% due 2009 294 297 6.000% due 2009 85 87 6.000% due 2010 171 174 6.000% due 2011 578 590 6.000% due 2032 503 509 6.000% due 2033 855 865
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp. Series 2001-3 Class A1 5.560% due 06/10/38 1,602 1,621 Series 2004-C3 Class A1 3.752% due 07/10/39 2,945 2,873 Series 2005-C1 Class A1 4.012% due 06/10/48 1,767 1,736 Ginnie Mae I 7.000% due 2007 4 4 6.000% due 2008 98 100 9.500% due 2017 1 1 Ginnie Mae II (E) 3.750% due 2027 154 157 4.000% due 2032 311 311 Government National Mortgage Association Series 2004-78 Class A 3.590% due 11/16/17 2,802 2,718 GSR Mortgage Loan Trust Series 2004-7 Class 1A1 3.412% due 06/25/34 2,137 2,091 Impac CMB Trust (E) Series 2004-2 Class A2 4.288% due 04/25/34 562 561 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2002-C2 Class A1 4.326% due 12/12/34 788 770 Series 2005-LDP Class A1 4.655% due 08/15/42 1,856 1,844 4.613% due 10/15/42 2,721 2,698 Series 2005-LDP Class A2 4.790% due 10/15/42 2,150 2,116 LB-UBS Commercial Mortgage Trust Series 2003-C1 Class A1 2.720% due 03/15/27 1,366 1,321 Series 2003-C3 Class A1 2.599% due 05/15/27 1,895 1,820 Lehman Large Loan Series 1997-LLI Class A2 6.840% due 10/12/34 70 71 Mellon Residential Funding Corp. (E) Series 2000-TBC Class A1 4.210% due 06/15/30 1,543 1,539 Morgan Stanley Capital I Series 2003-T11 Class A1 3.260% due 06/13/41 1,523 1,478
100 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-T13 Class A1 2.850% due 09/13/45 776 747 Series 2005-HQ6 Class A1 4.646% due 08/13/42 2,055 2,039 Morgan Stanley Dean Witter Capital I Series 2001-TOP Class A1 5.020% due 10/15/35 274 274 Series 2002-HQ Class A2 6.090% due 04/15/34 354 361 Prime Mortgage Trust (E) Series 2004-CL1 Class 1A2 4.438% due 02/25/34 278 278 Series 2004-CL1 Class 2A2 4.438% due 02/25/19 70 70 SACO I, Inc. (E)(p) Series 2004-2 Class A2 4.228% due 07/25/19 469 469 Salomon Brothers Mortgage Securities VII Series 2003-UP2 Class A1 4.000% due 12/25/18 1,255 1,204 Structured Asset Mortgage Investments, Inc. (E) Series 2002-AR3 Class A1 4.327% due 09/19/32 125 125 Structured Asset Securities Corp. (E) Series 2001-21A Class 1A1 6.250% due 01/25/32 130 132 Vendee Mortgage Trust Series 2001-3 Class J 6.500% due 05/15/08 437 444 Wachovia Bank Commercial Mortgage Trust Series 2002-C2 Class A2 4.043% due 11/15/34 2,020 1,961 Series 2003-C4 Class A1 3.003% due 04/15/35 1,562 1,514 Washington Mutual Series 2002-AR1 Class A6 4.816% due 10/25/32 729 725 Series 2002-AR9 Class 1A (E) 4.265% due 08/25/42 1,474 1,469 Washington Mutual MSC Mortgage Pass-Through CTFS (E) Series 2002-AR2 Class 2A1 6.060% due 07/25/32 18 18 Washington Mutual, Inc. (E) Series 2002-AR6 Class A 4.419% due 06/25/42 669 673 Series 2005-AR1 Class A1A1 4.328% due 10/25/45 500 500 ------------ 251,271 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Non-US Bonds - 0.1% Landwirtschaftliche Rentenbank 0.650% due 09/30/08 JPY 60,000 519 ------------ United States Government Agencies - 0.3% Federal Home Loan Bank System 5.925% due 04/09/08 1,600 1,645 Zero coupon due 04/27/10 749 671 Freddie Mac 5.810% due 04/04/08 1,000 1,026 ------------ 3,342 ------------ United States Government Treasuries - 13.6% United States Treasury Notes 3.125% due 05/15/07 48,040 47,145 3.625% due 06/30/07 96,635 95,438 2.750% due 08/15/07 8,000 7,776 3.375% due 12/15/08 15,500 15,025 ------------ 165,384 ------------ TOTAL LONG-TERM INVESTMENTS (cost $966,737) 952,906 ------------ PREFERRED STOCKS - 0.2% Financial Services - 0.2% DG Funding Trust (A) 219 2,346 ------------ TOTAL PREFERRED STOCKS (cost $2,306) 2,346 ------------
Short Duration Bond Fund 101 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
NOTIONAL MARKET AMOUNT VALUE $ $ - ----------------------------------------------------------------------------- OPTIONS PURCHASED - 0.0% (Number of Contracts) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Apr 2006 0.00 Call (1) 5,000 6 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.250% (Fund Receives) Oct 2006 0.00 Call (3) 13,000 19 Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.500% (Fund Receives) Oct 2006 0.00 Call (3) 29,600 76 ------------ TOTAL OPTIONS PURCHASED (cost $198) 101 ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 24.4% American Electric Power Co., Inc. Series A 6.125% due 05/15/06 5,790 5,827 Associates Corp. of North America Series MTNH 7.250% due 05/08/06 2,000 2,027 7.240% due 05/17/06 1,000 1,014 BankAmerica Corp. 6.200% due 02/15/06 750 754 Barclays US Funding, LLC (z) 3.655% due 11/28/05 (c) 10,700 10,671 4.190% due 02/27/06 1,400 1,380 BNP Paribas (z) 4.155% due 02/27/06 7,000 6,899 Brazilian Government International Bond (E) 5.188% due 04/15/06 416 416 British Sky Broadcasting PLC 7.300% due 10/15/06 2,000 2,044 Burlington Northern Santa Fe Corp. 6.375% due 12/15/05 1,535 1,538 Capital Auto Receivables Asset Trust Series 2002-3 Class A3 3.580% due 10/16/06 1,705 1,703
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- CBA (Delaware) Finance Discount Notes (z) 4.120% due 01/25/06 12,100 10,788 4.140% due 01/30/06 12,100 1,187 Citigroup, Inc. 6.750% due 12/01/05 (N) 6,500 6,512 5.750% due 05/10/06 1,370 1,378 ConAgra Foods, Inc. 6.000% due 09/15/06 1,300 1,312 Continental Cablevision, Inc. 8.300% due 05/15/06 400 407 COX Communications, Inc. 7.750% due 08/15/06 2,900 2,961 DaimlerChrysler NA Holding Corp. 6.400% due 05/15/06 1,200 1,210 4.430% due 05/24/06 (E) 2,800 2,807 Danske Corp. Discount Notes (c)(z) 3.605% due 11/04/05 1,700 1,699 3.625% due 11/07/05 4,000 3,998 3.680% due 11/14/05 6,200 6,192 Devon Energy Corp. 2.750% due 08/01/06 4,954 4,872 DNB Nor Bank ASA (c)(z) 3.590% due 11/21/05 10,700 10,679 3.595% due 11/21/05 1,200 1,198 Fannie Mae (E) 3.799% due 09/22/06 1,600 1,599 France Telecom SA 7.200% due 03/01/06 1,200 1,210 Frank Russell Investment Company Money Market Fund 59,953,334 59,953 Freddie Mac Discount Notes (c)(z) 3.359% due 11/29/05 500 498 General Electric Capital Corp. (z) 4.120% due 01/24/06 11,000 10,887 4.130% due 01/25/06 1,100 1,089 General Motors Acceptance Corp. 5.070% due 04/13/06 (E) 2,300 2,290 4.677% due 05/18/06 (E) 400 398 6.125% due 09/15/06 300 299 Government Trust Certificate 8.500% due 04/01/06 228 233 GTE Corp. 6.360% due 04/15/06 5,000 5,035 HBOS Treasury Service PLC (z) 4.190% due 02/27/06 3,500 3,450 Heller Financial, Inc. 6.375% due 03/15/06 1,000 1,007 Historic TW, Inc. 8.110% due 08/15/06 2,000 2,048
102 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- HSBC Bank PLC 7.625% due 06/15/06 4,500 4,578 Hydro Quebec Series MTNB 6.520% due 02/23/06 1,000 1,007 KFW International Finance Series DTC 5.250% due 06/28/06 2,000 2,007 Kroger Co. (The) 8.150% due 07/15/06 3,885 3,967 Nordea Bank Finland PLC 6.500% due 01/15/06 3,000 3,014 Nordea North America, Inc. (c)(z) 3.680% due 11/14/05 10,900 10,886 Northrop Grumman Corp. 7.000% due 03/01/06 2,000 2,017 Pepco Holdings, Inc. 3.750% due 02/15/06 3,654 3,644 Progress Energy, Inc. 6.750% due 03/01/06 4,000 4,025 Rabobank USA Financial Corp. (c)(z) 3.620% due 11/28/05 700 698 3.860% due 12/23/05 11,000 10,939 Safeway, Inc. 6.150% due 03/01/06 4,000 4,010 Societe Generale NA 3.960% due 01/27/06 (z) 1,000 987 4.145% due 02/01/06 1,100 1,088 SouthTrust Bank (E) Series BKNT 3.807% due 12/14/05 3,000 2,999 Sprint Capital Corp. 7.125% due 01/30/06 1,000 1,006 4.780% due 08/17/06 3,000 2,999 Svenska Handelsbanken (z) 4.065% due 01/20/06 11,000 10,884 Swedbank Forenings (c)(z) 3.910% due 12/22/05 6,100 6,066 Swiss Bank Corp. 7.250% due 09/01/06 1,500 1,527 TCI Communications, Inc. 6.875% due 02/15/06 2,109 2,120 Time Warner, Inc. 6.125% due 04/15/06 1,900 1,911 Tyco International Group SA 6.375% due 02/15/06 4,000 4,020
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- UBS Financial Del, LLC (z) 3.690% due 12/07/05 (c) 1,800 1,793 3.945% due 01/26/06 9,900 9,768 4.155% due 02/28/06 400 394 Union Bank Switzerland 7.250% due 07/15/06 1,000 1,016 United States Treasury Bills (c)(z)(sec.) 3.363% due 12/08/05 150 149 3.430% due 12/15/05 1,070 1,066 3.452% due 12/15/05 500 498 3.495% due 12/15/05 60 60 US Bank NA (E) Series BKNT 3.761% due 12/05/05 1,500 1,500 USX Corp. 6.650% due 02/01/06 600 603 Virginia Electric and Power Co. Series A 5.750% due 03/31/06 3,785 3,801 Washington Mutual Financial Corp. 7.250% due 06/15/06 3,005 3,053 Wells Fargo & Co. 3.960% due 09/15/06 (E) 3,000 3,003 Series MTNH 6.750% due 10/01/06 1,930 1,962 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $297,028) 296,534 ------------ OTHER SECURITIES - 0.3% Frank Russell Investment Company Money Market Fund (X) 1,368,117 1,368 State Street Securities Lending Quality Trust (X) 2,803,143 2,803 ------------ TOTAL OTHER SECURITIES (cost $4,171) 4,171 ------------ TOTAL INVESTMENTS - 103.5% (identified cost $1,270,440) 1,256,058 OTHER ASSETS AND LIABILITIES, NET - (3.5%) (42,478) ------------ NET ASSETS - 100.0% 1,213,580 ============
See accompanying notes which are an integral part of the financial statements. Short Duration Bond Fund 103 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Eurodollar Futures expiration date 03/06 (100) 23,816 (206) expiration date 06/06 (431) 102,551 (449) expiration date 09/06 (49) 11,656 (68) expiration date 12/06 (186) 44,249 (22) expiration date 03/07 (350) 83,287 (82) expiration date 06/07 (173) 41,163 (59) expiration date 09/07 (26) 6,185 (12) United States Treasury 2 Year Notes expiration date 12/05 (133) 27,292 (167) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (1,065) ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Dec 2006 95.00 Put (12) 2,850 (8) Dec 2006 95.25 Put (140) 33,338 (130) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.300% (Fund Receives) Oct 2006 0.00 Call (1) 3,000 (12) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.310% (Fund Receives) Oct 2006 0.00 Call (2) 3,000 (12) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.540% (Fund Receives) Apr 2006 0.00 Call (1) 2,000 (6) Oct 2006 0.00 Call (2) 7,700 (51) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.560% (Fund Receives) Oct 2006 0.00 Call (1) 6,000 (43) Swaption GBP Six Month LIBOR (Fund Pays)/ USD 4.500% (Fund Receives) Dec 2006 0.00 Put (1) 3,009 (3) --------------- Total Liability for Options Written (premiums received $322) (265) ===============
See accompanying notes which are an integral part of the financial statements. 104 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 986 EUR 827 11/08/05 5 EUR 18 USD 22 11/08/05 -- EUR 809 USD 974 11/08/05 4 JPY 61,632 USD 542 12/01/05 11 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts 20 ==============
INTEREST RATE SWAP CONTRACTS - ------------------------------------------------------------------------------------------------------------------------ MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ----------------------- -------------- ---------------- -------------------- ---------------- ---------------- Barclays GBP 2,800 5.000% Six Month LIBOR 06/15/07 17 Consumer Price Index BNP Paribas EUR 1,200 2.090% (France) 10/15/10 -- Lehman Brothers GBP 1,500 4.500% Six Month LIBOR 09/20/09 (11) Merrill Lynch GBP 1,600 4.500% Six Month LIBOR 09/20/09 (11) UBS USD 36,800 4.000% Three Month LIBOR 12/15/07 (576) ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($125) (581) ================
See accompanying notes which are an integral part of the financial statements. Short Duration Bond Fund 105 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 24.4 Corporate Bonds and Notes 17.4 International Debt 2.1 Mortgage-Backed Securities 20.7 Non-US Bonds 0.1 United States Government Agencies 0.3 United States Government Treasuries 13.6 Preferred Stock 0.2 Options Purchased --* Short-Term Investments 24.4 Other Securities 0.3 --------------- Total Investments 103.5 Other Assets and Liabilities, Net (3.5) --------------- 100.0 =============== Futures Contracts (0.1) Options Written (--*) Foreign Currency Exchange Contracts --* Interest Rate Swap Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 106 Short Duration Bond Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
DIVERSIFIED BOND - CLASS S LEHMAN BROTHERS AGGREGATE ** -------------------------- ---------------------------- * 10000.00 10000.00 1996 10557.00 10585.00 1997 11450.00 11526.00 1998 12433.00 12602.00 1999 12433.00 12669.00 2000 13303.00 13594.00 2001 15180.00 15573.00 2002 15966.00 16490.00 2003 16706.00 17299.00 2004 17577.00 18256.00 2005 17672.00 18463.00
Diversified Bond Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.54% 5 Years 5.84%S 10 Years 5.86%S
Diversified Bond Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.32% 5 Years 5.59%S 10 Years 5.56%S
Diversified Bond Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (0.39)% 5 Years 4.80%S 10 Years 5.02%S
Lehman Brothers Aggregate Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%S 10 Years 6.32%S
108 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and the preservation of capital. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Diversified Bond Fund Class S, Class E and Class C Shares returned 0.54%, 0.32% and (0.39)% respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.13% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Intermediate Investment Grade Debt Funds Average returned 0.81%. This return serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Rising interest rates hurt nominal returns over the fiscal year with the broad bond market benchmark, the Lehman Brothers Aggregate Bond Index, posting just a 1.13% return. While the Fund's money managers started out the period believing that interest rates would rise, higher energy prices and the potential for an economic slowdown led the Fund's money managers to forecast that rates would fall near the end of the fiscal year. However, interest rates rose near the end of the period and the money managers' forecasting detracted from performance. The credit downgrade in the bond rating of auto manufacturers in the spring and early summer had a very modest impact, as the Fund's money managers held diversified positions within the auto sector. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Interest rate forecasting by the Fund's money managers late in the fiscal year detracted from performance. The Fund's money managers were not rewarded for their forecasts of slower growth, as the Federal Reserve surprised many market participants by continuing to raise interest rates after Hurricanes Katrina and Rita. Offsetting the negative impact of the incorrect interest rate forecasting by the Fund's money managers, positive contributions to Fund performance came from overweights in the investment grade corporate sector early in the fiscal year and profit taking, as prices of investment grade corporate bonds rose relative to Treasury securities. The Fund's money managers also added value through security selection in the mortgage sector. Finally, non-dollar bonds also contributed positively to performance, particularly in early 2005, when rates fell further in Europe than in the U.S. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Pacific Investment Management Company, LLC (PIMCO) did well over the year, capitalizing on its forecast that European interest rates would fall further than U.S. rates in the spring. PIMCO also added value by underweighting investment grade corporate bonds (corporates) and through security selection in the mortgage sector. Bear Stearns Asset Management, Inc. did well early in the fiscal year by overweighting corporates and strong security selection within that sector. As corporate bond prices rose, Bear Stearns took profits and brought its allocation to corporates down to a more benchmark-neutral weight. Interest rate forecasting also led to suboptimal yield curve strategies for most of the money managers in the period. Western Asset Management Company's yield curve positioning had the largest negative impact to performance. This negative was partially offset by Western's overweight to, and security selection in, the corporate sector. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In January, Western was added as a money manager for the Fund. The weighting to Lehman Brothers Asset Management, LLC was decreased to allow for the addition of Western to the Fund's line-up. This action resulted in a slightly higher allocation to investment grade corporate bonds and generally wider deviations from the benchmark with respect to interest rate strategies, as Lehman manages portfolios in a fairly risk managed manner. Diversified Bond Fund 109 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Bear Stearns Asset Management, Inc. Sector Rotation Lehman Brothers Asset Management, LLC Enhanced Core Pacific Investment Management Company, LLC Fully Discretionary Western Asset Management Company Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Diversified Bond Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Diversified Bond Fund Class S performance has been linked with Class E to provide historical perspective. For the period November 4, 1996 (commencement of sale) to May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Diversified Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 110 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 994.00 $ 1,016.84 Expenses Paid During Period* $ 8.34 $ 8.44
* Expenses are equal to the Fund's annualized expense ratio of 1.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 997.80 $ 1,020.62 Expenses Paid During Period* $ 4.58 $ 4.63
* Expenses are equal to the Fund's annualized expense ratio of 0.91% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 998.50 $ 1,021.88 Expenses Paid During Period* $ 3.32 $ 3.36
* Expenses are equal to the Fund's annualized expense ratio of 0.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Diversified Bond Fund 111 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 96.3% Asset-Backed Securities - 6.5% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 1,368 1,368 Aames Mortgage Investment Trust (E) Series 2005-2 Class 1A1 4.118% due 07/25/35 53 53 ABSC NIMs Trust (A) Series 2004-HE5 Class A1 5.000% due 08/27/34 60 60 Series 2005-HE6 Class A1 5.050% due 08/27/35 498 497 ACE Securities Corp. (E) Series 2004-OP1 Class M2 5.088% due 04/25/34 650 659 Ameriquest Mortgage Securities, Inc. (E) Series 2002-D Class M1 6.538% due 02/25/33 205 207 Argent Securities, Inc. (E) Series 2004-W3 Class A2 4.258% due 02/25/34 146 146 Asset Backed Funding Corp. NIM Trust (A) Series 2005-WF1 Class N1 4.750% due 03/26/35 440 440 Bayview Financial Acquisition Trust (E) Series 2004-C Class A1 4.490% due 05/28/44 1,274 1,276 Burlington Northern Santa Fe Corp. 4.967% due 04/01/23 320 314 Carrington Mortgage Loan Trust (E) Series 2005-NC3 Class A1A 4.118% due 06/25/35 251 251 Chase Funding Mortgage Loan Asset-Backed Certificates (E) Series 2002-2 Class 2A1 4.288% due 05/25/32 241 241 Chase Issuance Trust (E) Series 2005-A3 Class A 3.990% due 10/17/11 4,035 4,036 Countrywide Asset-Backed Certificates Series 2001-BC3 Class A 4.278% due 12/25/31 146 146 Series 2003-BC2 Class 2A1 (E) 4.338% due 06/25/33 45 45 Series 2003-BC4 Class 2A2 (E) 4.358% due 09/25/33 108 109 Series 2004-13 Class AF2 3.683% due 08/25/24 1,085 1,068 Series 2004-14N Class N (A) 5.000% due 06/25/36 186 185
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-7 Class AF2 3.324% due 12/25/23 620 618 Series 2004-BC1 Class M1 (E) 4.538% due 02/25/34 235 235 Series 2004-S1 Class A1 4.258% due 12/25/18 1,636 1,636 Series 2005-11 Class AF1 (E) 4.218% due 02/25/36 2,266 2,266 Series 2005-2N Class N (A) 4.500% due 08/25/36 382 378 Series 2005-5N Class N (A) 5.000% due 07/25/36 361 358 Series 2005-SD2 Class A1A (A)(E) 4.198% due 08/25/35 1,786 1,786 Countrywide Home Equity Loan Trust (E) Series 2005-G Class 2A 4.123% due 12/15/35 2,400 2,400 Credit-Based Asset Servicing and Securitization Series 2004-CB6 Class AF1 4.228% due 07/25/35 290 290 Daimler Chrysler Auto Trust Series 2005-A Class A3 3.490% due 12/08/08 1,460 1,439 Discover Card Master Trust I Series 2005-1 Class A 3.980% due 09/16/10 3,870 3,861 Distribution Financial Services Floorplan Master Trust Series 2003-2 Class A 4.070% due 04/15/08 1,790 1,791 Equifirst Mortgage Loan Trust Series 2004-1 Class 2A1 4.138% due 01/25/34 315 315 Series 2005-1 Class A1 (E) 4.098% due 04/25/35 900 900 Equifirst Mortgage Loan Trust NIMs Notes (A) Series 2005-1 Class N1 4.458% due 04/25/35 1,263 1,261 Fannie Mae Grantor Trust Series 2002-T13 Class A1 4.138% due 08/25/32 38 38 Series 2002-T5 Class A1 4.158% due 05/25/32 273 274 Series 2002-T7 Class A1 4.148% due 07/25/32 109 109 Series 2003-T3 Class 1A 4.158% due 06/25/33 192 192
112 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-T4 Class 1A 4.148% due 09/26/33 720 720 Series 2005-T3 Class A1A (E) 4.078% due 07/25/35 5,687 5,688 Fannie Mae Whole Loan Series 2002-W2 Class AV1 4.298% due 06/25/32 251 251 Series 2003-W16 Class AV1 4.188% due 11/25/33 302 302 Series 2003-W5 Class A 4.148% due 04/25/33 584 586 Series 2003-W9 Class A 4.158% due 06/25/33 881 881 First Franklin Mortgage Loan Asset Backed Certificates (E) Series 2004-FF1 Class A2 4.438% due 12/25/32 2,400 2,407 Series 2004-FFH Class 2A1 4.418% due 10/25/34 1,323 1,328 First Franklin NIMs Trust (A) Series 2004-FFH Class N2 7.385% due 03/25/34 150 150 Series 2005-FF1 Class N1 4.213% due 01/25/35 845 841 Ford Credit Auto Owner Trust Series 2005-A Class A3 3.480% due 11/15/08 630 622 Ford Credit Floorplan Master Owner Trust Series 2001-2 Class A 4.110% due 07/15/08 1,400 1,401 Series 2004-1 Class A 4.010% due 07/15/09 2,275 2,276 Fremont Home Loan Trust (E) Series 2005-A Class 2A1 4.148% due 01/25/35 51 51 Fremont NIMs Trust (A) Series 2005-A Class NOTE 3.750% due 01/25/35 657 653 Series 2004-B Class NOTE 4.703% due 05/25/34 2 2 Series 2005-C Class NOTE 5.584% due 07/25/35 219 218 GE Dealer Floorplan Master Note Trust (E) Series 2004-2 Class A 4.080% due 07/20/09 1,240 1,241 Series 2005-1 Class A 4.040% due 04/20/10 1,800 1,801 GMAC Mortgage Corp. Loan Trust Series 1999-1 Class A 4.270% due 06/18/27 383 384 Series 2004-HE5 Class A1 (E) 4.178% due 09/25/34 678 678
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-HE5 Class A3 3.970% due 09/25/34 725 713 Government National Mortgage Association Series 1998-23 Class ZA 6.500% due 09/20/28 3,515 3,553 Greenpoint Mortgage Funding Trust (E) Series 2005-HE4 Class 2A1C 4.148% due 07/25/30 1,875 1,875 GSAMP Trust Series 2003-AHL Class A2A 4.238% due 10/25/33 138 138 Series 2004-NC1 Class A3 (E) 4.428% due 03/25/34 425 426 Series 2004-NC2 Class A2A 4.218% due 10/01/34 97 97 Home Equity Asset Trust (E) Series 2004-3 Class M3 5.488% due 08/25/34 455 462 Household Mortgage Loan Trust Series 2002-HC1 Class A 4.300% due 05/20/32 52 52 IndyMac Residential Asset Backed Trust (E) Series 2005-A Class AII1 4.148% due 03/25/35 848 848 JP Morgan Mortgage Acquisition Corp. (E) Series 2005-FLD Class A1 4.158% due 08/25/27 1,875 1,875 Lehman XS Trust (E) Series 2005-1 Class 2A2 4.660% due 05/25/08 589 597 Long Beach Asset Holdings Corp. (A) Series 2005-1 Class N1 4.115% due 02/25/35 543 540 Long Beach Mortgage Loan Trust (E) Series 2003-2 Class M2 5.938% due 06/25/33 670 678 Series 2005-WL1 Class 2A1 4.148% due 06/25/35 1,477 1,477 Mastr Asset Backed Securities Trust Series 2004-OPT Class A3 4.298% due 02/25/34 287 288 Merrill Auto Trust Securitization (E) Series 2005-1 Class A2B 4.048% due 04/25/08 1,845 1,845
Diversified Bond Fund 113 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Merrill Lynch Mortgage Investors, Inc. Series 2004-WMC Class A2 4.338% due 10/25/34 175 175 Morgan Stanley ABS Capital I Series 2003-NC5 Class A2 4.318% due 04/25/33 26 26 Morgan Stanley Dean Witter Capital I Series 2003-NC4 Class A2 4.408% due 04/25/33 32 32 MSDWCC Heloc Trust Series 2005-1 Class A 4.228% due 07/25/17 242 242 Navistar Financial Corp. Owner Trust Series 2003-B Class A3 4.170% due 04/15/08 680 680 Nissan Master Owner Trust Receivables (E) Series 2005-A Class A 4.000% due 07/15/10 1,700 1,700 Novastar Home Equity Loan Series 2004-4 Class A2A 4.228% due 03/25/35 304 304 Series 2005-1 Class A2A (E) 4.158% due 06/25/35 1,335 1,335 Novastar NIMs Trust (A) Series 2004-N2 Class NOTE 4.458% due 06/26/34 106 105 Option One Mortgage Loan Trust Series 2001-4 Class A 4.638% due 01/25/32 180 180 Series 2002-2 Class A 4.308% due 06/25/32 137 137 Series 2003-1 Class A2 4.458% due 02/25/33 221 221 Series 2003-2 Class A2 4.338% due 04/25/33 102 102 Series 2003-2 Class M2 (E) 5.738% due 04/25/33 540 546 Series 2003-3 Class M3 (E) 6.038% due 06/25/33 345 350 Series 2003-4 Class M2 (E) 5.688% due 07/25/33 295 299 Option One Mortgage Securities Corp. NIMs Trust (A) Series 2003-6A Class NOTE 4.271% due 10/26/10 26 26 Park Place Securities NIMs Trust (A) Series 2004-MCW Class A 4.458% due 09/25/34 94 93 Series 2005-WCW Class A 5.500% due 07/25/35 614 610 Park Place Securities, Inc. Series 2005-WCH Class A3A 4.158% due 01/25/36 212 212
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF2 3.914% due 05/25/35 200 197 Ramp NIMs Trust (A) Series 2005-NM2 Class NOTE 5.193% due 04/25/35 376 375 Renaissance Home Equity Loan Trust (E) Series 2005-3 Class AF1 4.188% due 11/25/35 2,235 2,235 Renaissance NIMs Trust (A) Series 2004-B Class NOTE 5.193% due 08/26/34 78 78 Series 2004-D Class NOTE 4.459% due 02/25/35 301 301 Residential Asset Mortgage Products, Inc. Series 2002-RS5 Class AII 4.408% due 09/25/32 203 203 Series 2003-RS1 Class AII 4.428% due 02/25/33 284 285 Series 2003-RS2 Class AII 4.378% due 03/25/33 260 261 Series 2003-RS3 Class AII 4.398% due 04/25/33 165 165 Series 2004-RS6 Class AI1 4.188% due 08/25/22 16 16 Series 2004-RS8 Class AI1 4.218% due 12/25/23 289 289 Series 2004-RS8 Class AI2 3.810% due 01/25/26 375 373 Series 2004-RS8 Class AII1 4.178% due 05/25/26 404 404 Residential Asset Securities Corp. Series 2001-KS1 Class AII 4.273% due 03/25/32 140 140 Series 2001-KS3 Class AII (E) 4.268% due 09/25/31 185 185 Series 2002-KS3 Class A1B 4.288% due 05/25/32 239 239 Series 2003-KS1 Class M2 (E) 5.788% due 01/25/33 455 458 Series 2004-KS8 Class AI2 3.340% due 10/25/24 915 904 Residential Funding Mortgage Securities II (E) Series 2005-HI2 Class A1 4.178% due 05/25/35 2,845 2,846
114 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Residential Funding Mortgage Securities II, Inc. (E) Series 2005-HS1 Class AI1 4.158% due 09/25/35 2,231 2,229 Saxon Asset Securities Trust Series 2003-1 Class AV1 4.348% due 06/25/33 26 26 Series 2004-1 Class A 4.308% due 03/25/35 579 579 Sears Credit Account Master Trust Series 2002-5 Class A 4.350% due 11/17/09 1,700 1,700 Securitized Asset Backed Receivables LLC Trust Series 2004-OP1 Class A2 4.288% due 02/25/34 308 308 Series 2005-FR4 Class A3 (E) 4.238% due 01/25/36 1,165 1,164 Sharps SP I LLC Net Interest Margin Trust (A) Series 2004-FM1 Class N 6.160% due 09/25/33 15 15 Small Business Administration Series 2000-P10 Class 1 7.449% due 08/01/10 74 79 Soundview Assets 4.703% due 06/25/35 802 802 Specialty Underwriting & Residential Finance Series 2003-BC1 Class A 4.378% due 01/25/34 68 68 Series 2004-BC2 Class A2 4.308% due 05/25/35 507 507 Structured Asset Investment Loan Trust (E) Series 2003-BC8 Class M3 6.138% due 08/25/33 520 528 Series 2004-7 Class A1 4.293% due 08/25/34 2,013 2,018 Structured Asset Securities Corp. Series 2002-HF1 Class A 4.328% due 01/25/33 13 13 Series 2003-BC1 Class A 4.538% due 05/25/32 166 166 Series 2004-19X Class A2 4.370% due 10/25/34 900 892 Series 2005-5N Class A1 (E) 1.000% due 11/25/35 2,300 2,300 Tenaska Alabama II Partners, LP (A) 6.125% due 03/30/23 259 260 Textron Financial Floorplan Master Note Trust (A)(E) Series 2005-1A Class A 4.061% due 05/13/10 2,140 2,141
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Toyota Auto Receivables Owner Trust Series 2002-C Class A4 4.020% due 05/15/09 839 839 Volkswagen Credit Auto Master Trust (E) Series 2005-1 Class A 4.020% due 07/20/10 1,870 1,870 Wachovia Asset Securitization, Inc. Series 2003-HE3 Class A 4.288% due 11/25/33 347 347 Wachovia Mortgage Loan Trust LLC (E) Series 2005-WMC Class A1 4.148% due 10/25/35 2,248 2,248 Wells Fargo Home Equity Trust Series 2004-2 Class A31 4.198% due 06/25/19 2 2 Whole Auto Loan Trust Series 2004-1 Class A4 3.260% due 03/15/11 1,370 1,332 ------------ 108,955 ------------ Corporate Bonds and Notes - 14.6% Allstate Life Global Funding Trusts 3.850% due 01/25/08 1,645 1,609 Altria Group, Inc. 7.000% due 11/04/13 730 791 Amerada Hess Corp. 7.300% due 08/15/31 955 1,078 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 85 86 American General Finance Corp. Series MTNG (E) 4.000% due 03/23/07 100 100 Series MTNI 4.100% due 06/27/08 (E) 1,600 1,601 4.875% due 07/15/12 1,305 1,270 American International Group, Inc. (A) 4.700% due 10/01/10 (N) 500 491 5.050% due 10/01/15 600 586 American RE Corp. Series B 7.450% due 12/15/26 540 588 Anheuser-Busch Cos., Inc. 4.950% due 01/15/14 675 672
Diversified Bond Fund 115 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- ASIF Global Financing (p) 4.900% due 01/17/13 120 118 BAE Systems Holdings, Inc. (A) 6.400% due 12/15/11 1,270 1,336 Bank of America Corp. 7.800% due 02/15/10 120 132 4.500% due 08/01/10 530 518 4.375% due 12/01/10 2,035 1,975 Banque Paribas 6.875% due 03/01/09 440 465 Bear Stearns Cos., Inc. (The) 2.875% due 07/02/08 1,105 1,049 5.300% due 10/30/15 1,065 1,050 BellSouth Corp. 4.200% due 09/15/09 140 136 6.550% due 06/15/34 (N) 55 57 Berkshire Hathaway Finance Corp. 4.125% due 01/15/10 1,910 1,854 Boeing Capital Corp. (N) 6.100% due 03/01/11 165 173 Burlington Northern Santa Fe Corp. 6.875% due 12/01/27 55 62 Campbell Soup Co. 5.875% due 10/01/08 160 164 Carolina Power & Light Co. 6.500% due 07/15/12 15 16 5.150% due 04/01/15 765 751 Caterpillar Financial Services Corp. 4.875% due 06/15/07 445 446 CenterPoint Energy Houston Electric LLC Series J2 5.700% due 03/15/13 210 215 CenterPoint Energy Resources Corp. Series B 7.875% due 04/01/13 575 649 Cingular Wireless Services, Inc. 7.875% due 03/01/11 1,270 1,422 8.750% due 03/01/31 2,170 2,830 CIT Group, Inc. 3.990% due 02/15/07 (E) 2,000 2,004 5.750% due 09/25/07 155 157 4.750% due 08/15/08 1,040 1,035 6.875% due 11/01/09 100 107 Citicorp 7.250% due 10/15/11 370 412 Citigroup Global Markets Holdings, Inc. (E) Series MTNM 3.816% due 03/07/08 1,300 1,299 Citigroup, Inc. 3.500% due 02/01/08 1,900 1,847 4.125% due 02/22/10 970 937 4.625% due 08/03/10 390 383 5.000% due 09/15/14 8,190 8,020
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Clear Channel Communications, Inc. 4.250% due 05/15/09 150 143 5.750% due 01/15/13 (N) 125 121 Clorox Co. 4.200% due 01/15/10 250 243 5.000% due 01/15/15 155 152 Columbus Southern Power Co. Series A 5.500% due 03/01/13 100 101 Comcast Cable Communications 6.750% due 01/30/11 1,750 1,848 Comcast Cable Communications Holdings, Inc. 8.375% due 03/15/13 2,950 3,398 Comcast Corp. 6.500% due 01/15/15 985 1,032 ConocoPhillips Holding Co. 6.950% due 04/15/29 920 1,090 Consolidated Natural Gas Co. 6.850% due 04/15/11 510 549 Constellation Energy Group, Inc. 6.125% due 09/01/09 235 242 Countrywide Home Loans, Inc. Series MTNK 5.500% due 02/01/07 110 111 COX Communications, Inc. 3.875% due 10/01/08 300 289 6.750% due 03/15/11 4,735 4,970 Credit Suisse First Boston USA, Inc. 4.625% due 01/15/08 130 129 3.875% due 01/15/09 575 556 6.500% due 01/15/12 55 59 5.500% due 08/15/13 115 117 5.125% due 08/15/15 2,415 2,353 DaimlerChrysler NA Holding Corp. 4.750% due 01/15/08 300 297 4.050% due 06/04/08 890 864 Detroit Edison Co. 6.125% due 10/01/10 220 229 6.350% due 10/15/32 95 99 Devon Energy Corp. 7.950% due 04/15/32 540 674 Devon Financing Corp. ULC 6.875% due 09/30/11 200 217 Dominion Resources, Inc. 4.750% due 12/15/10 110 107 5.700% due 09/17/12 405 412
116 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series B 6.250% due 06/30/12 80 84 Series C 5.150% due 07/15/15 1,040 997 Dresdner Funding Trust I (A) 8.151% due 06/30/31 510 605 Duke Energy Corp. 6.250% due 01/15/12 170 178 5.625% due 11/30/12 390 397 Duke Energy Field Services LLC 5.750% due 11/15/06 60 61 6.875% due 02/01/11 40 43 Eastman Kodak Co. 7.250% due 11/15/13 40 37 Eli Lilly & Co. 6.770% due 01/01/36 565 664 EOP Operating, LP 4.650% due 10/01/10 1,655 1,610 Exelon Corp. 4.900% due 06/15/15 1,080 1,014 5.625% due 06/15/35 310 281 FedEx Corp. 7.600% due 07/01/97 155 181 Financing Corp. Principal Only STRIP Series 10P Zero coupon due 11/30/17 1,165 637 Series 15P Zero coupon due 03/07/19 165 84 FirstEnergy Corp. Series B 6.450% due 11/15/11 2,170 2,283 Series C 7.375% due 11/15/31 2,010 2,289 FleetBoston Financial Corp. 4.875% due 12/01/06 645 645 Ford Motor Co. 7.450% due 07/16/31 360 265 Ford Motor Credit Co. 4.740% due 11/16/06 900 888 4.870% due 03/21/07 (E) 1,800 1,752 4.950% due 01/15/08 410 385 7.375% due 10/28/09 3,210 3,063 7.875% due 06/15/10 635 611 7.375% due 02/01/11 315 296 General Electric Capital Corp. 3.888% due 03/09/07 2,200 2,202 4.125% due 03/04/08 870 856 3.250% due 06/15/09 1,155 1,090 4.875% due 10/21/10 1,540 1,530 4.250% due 06/15/12 1,125 1,068 4.875% due 03/04/15 1,040 1,018
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series MTNA 4.250% due 01/15/08 740 731 6.000% due 06/15/12 915 962 5.450% due 01/15/13 1,715 1,746 General Electric Co. 5.000% due 02/01/13 375 372 General Motors Acceptance Corp. 6.125% due 02/01/07 250 248 6.150% due 04/05/07 170 168 6.125% due 08/28/07 970 955 5.625% due 05/15/09 1,765 1,669 7.750% due 01/19/10 300 302 General Motors Corp. 8.375% due 07/15/33 120 89 Glencore Funding LLC (A) 6.000% due 04/15/14 610 562 Golden West Financial Corp. (N) 4.125% due 08/15/07 220 218 Goldman Sachs Group, Inc. 6.875% due 01/15/11 770 827 4.750% due 07/15/13 1,245 1,194 5.125% due 01/15/15 195 190 6.345% due 02/15/34 1,395 1,399 Series MTNB (E) 4.120% due 03/30/07 2,000 2,001 Goldman Sachs Group, LP 4.500% due 06/15/10 1,365 1,329 Harrah's Operating Co., Inc. (A) 5.625% due 06/01/15 3,695 3,546 Historic TW, Inc. 9.125% due 01/15/13 510 609 8.050% due 01/15/16 485 558 6.950% due 01/15/28 1,210 1,268 HJ Heinz Co. 6.375% due 07/15/28 50 53 HJ Heinz Finance Co. 6.000% due 03/15/12 40 42 6.750% due 03/15/32 115 127 Household Finance Corp. 3.900% due 02/09/07 (E)(N) 2,000 2,004 4.750% due 05/15/09 6,340 6,270 4.125% due 11/16/09 3,200 3,091 6.750% due 05/15/11 1,520 1,634 7.000% due 05/15/12 1,985 2,167 6.375% due 11/27/12 475 503 International Lease Finance Corp. 6.375% due 03/15/09 1,580 1,641 3.500% due 04/01/09 610 578 4.750% due 07/01/09 1,370 1,346 Series MTNQ 4.625% due 06/02/08 1,210 1,196
Diversified Bond Fund 117 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- International Paper Co. 5.500% due 01/15/14 510 494 ITT Industries, Inc. 7.400% due 11/15/25 240 280 John Deere Capital Corp. Series MTND 4.400% due 07/15/09 2,035 2,001 JP Morgan & Co., Inc. Series MTNA 6.000% due 01/15/09 310 319 JP Morgan Chase Capital XV 5.875% due 03/15/35 3,350 3,175 JPMorgan Chase & Co. 5.125% due 09/15/14 735 719 5.150% due 10/01/15 785 765 Kellogg Co. Series B 6.600% due 04/01/11 1,090 1,168 Kraft Foods, Inc. 4.000% due 10/01/08 1,575 1,535 5.625% due 11/01/11 1,570 1,605 Kroger Co. (The) 7.500% due 04/01/31 70 74 Lehman Brothers Holdings, Inc. 4.000% due 01/22/08 490 481 6.625% due 01/18/12 495 532 Lennar Corp. (A) 5.600% due 05/31/15 1,805 1,729 Lockheed Martin Corp. 8.500% due 12/01/29 410 552 M&I Marshall & Ilsley Bank Series BKNT 4.400% due 03/15/10 1,370 1,339 Manufacturers & Traders Trust Co. 8.000% due 10/01/10 145 164 May Department Stores Co. (The) 4.800% due 07/15/09 90 89 5.750% due 07/15/14 240 240 Merrill Lynch & Co., Inc. Series MTNB 3.125% due 07/15/08 1,490 1,423 Series MTNC (E) 3.970% due 03/12/07 340 339 Metlife, Inc. 5.700% due 06/15/35 1,565 1,511 Metropolitan Life Global Funding I (p)(E) 3.944% due 03/16/07 2,000 2,001 Miller Brewing Co. (A) 5.500% due 08/15/13 330 333 Monumental Global Funding, Ltd. (A) 4.625% due 03/15/10 190 188 Morgan Stanley 4.263% due 01/12/07 (E) 2,000 2,002 3.625% due 04/01/08 795 772
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 3.875% due 01/15/09 730 705 6.750% due 04/15/11 515 552 4.750% due 04/01/14 280 264 Series MTNF 4.284% due 01/18/08 1,400 1,401 Natexis Ambs Co. LLC (A) 8.440% due 12/29/49 270 292 National City Bank 4.500% due 03/15/10 2,240 2,195 National Rural Utilities Cooperative Finance Corp. 5.750% due 08/28/09 2,270 2,326 News America Holdings 7.750% due 12/01/45 45 51 7.900% due 12/01/95 230 259 8.250% due 10/17/96 75 88 News America, Inc. 6.750% due 01/09/38 45 47 Series WI 6.200% due 12/15/34 4,260 4,105 Nisource Finance Corp. 7.875% due 11/15/10 355 395 Norfolk Southern Corp. 6.200% due 04/15/09 845 878 7.050% due 05/01/37 420 490 7.900% due 05/15/97 190 235 Northern States Power Co. Series B 8.000% due 08/28/12 860 999 Occidental Petroleum Corp. 9.250% due 08/01/19 185 248 Ohio Power Co. Series F 5.500% due 02/15/13 35 35 Pacific Gas & Electric Co. 3.600% due 03/01/09 125 120 4.200% due 03/01/11 310 295 6.050% due 03/01/34 650 653 Pacificorp 4.300% due 09/15/08 615 604 Pemex Project Funding Master Trust 7.375% due 12/15/14 1,600 1,749 Progress Energy, Inc. 5.850% due 10/30/08 850 865 7.100% due 03/01/11 355 380 7.750% due 03/01/31 170 195 7.000% due 10/30/31 90 95 Prologis (A) 5.625% due 11/15/15 1,725 1,720
118 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Rabobank Capital Funding II (A) (f) 5.260% due 12/31/49 30 30 Rabobank Capital Funding Trust (A)(f) 5.254% due 12/29/49 60 58 Raytheon Co. 6.750% due 08/15/07 439 452 RBS Capital Trust I(f) 5.512% due 09/29/49 690 678 Regions Financial Corp. 4.500% due 08/08/08 1,625 1,605 Residential Capital Corp. (A) 6.375% due 06/30/10 685 696 Safeway, Inc. 7.250% due 02/01/31 45 46 SBC Communications, Inc. 4.125% due 09/15/09 2,230 2,147 5.100% due 09/15/14 280 270 6.450% due 06/15/34 10 10 Simon Property Group, LP 4.600% due 06/15/10 1,800 1,758 4.875% due 08/15/10 1,100 1,084 5.100% due 06/15/15 990 952 SLM Corp. Series MTNA 4.000% due 01/15/09 2,670 2,591 Sovereign Bank 5.125% due 03/15/13 445 436 Sprint Capital Corp. 6.000% due 01/15/07 1,225 1,241 6.125% due 11/15/08 1,395 1,437 7.625% due 01/30/11 3,145 3,461 8.375% due 03/15/12 615 710 6.875% due 11/15/28 425 453 8.750% due 03/15/32 2,435 3,150 Suntrust Bank 5.000% due 09/01/15 3,180 3,104 Tele-Communications-TCI Group 9.800% due 02/01/12 330 399 7.875% due 08/01/13 1,145 1,290 Time Warner Entertainment Co., LP Series* 8.375% due 03/15/23 540 635 8.375% due 07/15/33 1,350 1,630 Time Warner, Inc. 6.750% due 04/15/11 1,200 1,268 6.875% due 05/01/12 610 653 7.700% due 05/01/32 535 609 Travelers Property Casualty Corp. 5.000% due 03/15/13 160 155 TXU Corp. Series R 6.550% due 11/15/34 610 542 TXU Electric Delivery Co. 6.375% due 05/01/12 1,090 1,143 6.375% due 01/15/15 180 189
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- TXU Energy Co. LLC 7.000% due 03/15/13 545 568 Unilever Capital Corp. 5.900% due 11/15/32 325 335 United Technologies Corp. 5.400% due 05/01/35 80 78 Univision Communications, Inc. 3.500% due 10/15/07 780 755 US Bancorp Series MTNN 3.125% due 03/15/08 1,380 1,328 US Bank NA 5.700% due 12/15/08 70 72 Valero Energy Corp. 7.500% due 04/15/32 770 908 Verizon Global Funding Corp. 7.250% due 12/01/10 1,850 2,006 7.375% due 09/01/12 670 743 5.850% due 09/15/35 3,285 3,072 Verizon Maryland, Inc. Series A 6.125% due 03/01/12 1,335 1,358 Verizon Wireless Capital LLC 5.375% due 12/15/06 555 558 Viacom, Inc. 6.625% due 05/15/11 905 942 Virginia Electric and Power Co. Series A 5.375% due 02/01/07 1,725 1,735 Wachovia Bank NA Series BKNT 5.800% due 12/01/08 340 349 Wachovia Corp. 5.250% due 08/01/14 4,200 4,188 6.550% due 10/15/35 275 302 Wal-Mart Stores, Inc. 4.750% due 08/15/10 1,435 1,421 4.500% due 07/01/15 1,905 1,811 Waste Management, Inc. 6.375% due 11/15/12 445 471 Wells Fargo & Co. 4.200% due 01/15/10 455 442 4.625% due 08/09/10 545 537 4.950% due 10/16/13 240 237 4.750% due 02/09/15 3,230 3,117 Weyerhaeuser Co. 6.125% due 03/15/07 249 253 6.750% due 03/15/12 960 1,017
Diversified Bond Fund 119 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wyeth 6.950% due 03/15/11 1,595 1,719 5.500% due 03/15/13 85 86 5.500% due 02/01/14 85 86 XTO Energy, Inc. 6.250% due 04/15/13 450 472 Yum! Brands, Inc. 8.875% due 04/15/11 165 192 Zurich Capital Trust I (A) 8.376% due 06/01/37 1,250 1,352 ------------ 245,065 ------------ International Debt - 2.8% Abbey National PLC (f) (Step Up, 7.570%, 06/15/08) 6.700% due 06/29/49 550 571 Aiful Corp. (A) 5.000% due 08/10/10 300 295 Alcan, Inc. 5.750% due 06/01/35 990 931 Anadarko Finance Co. Series B 7.500% due 05/01/31 400 481 Apache Finance Canada Corp. 4.375% due 05/15/15 615 587 AXA SA 8.600% due 12/15/30 1,555 2,023 British Telecommunications PLC 8.875% due 12/15/30 335 438 ChevronTexaco Capital Co. 3.500% due 09/17/07 590 578 Chile Government International Bond 5.625% due 07/23/07 675 683 China Development Bank 5.000% due 10/15/15 100 97 Conoco Funding Co. 6.350% due 10/15/11 1,030 1,102 Credit-Based Asset Servicing and Securitization CBO, Ltd. (A)(E) Series 2004-9A Class A1 4.470% due 04/08/39 2,235 2,235 Crest, Ltd. (A) Series 2003-2A Class C2 5.709% due 12/28/38 1,655 1,639 Deutsche Telekom International Finance BV 8.500% due 06/15/10 465 519 5.250% due 07/22/13 190 188 8.750% due 06/15/30 180 223 Diageo Finance BV 3.000% due 12/15/06 705 691 EnCana Corp. 6.500% due 08/15/34 95 104
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Equifirst Mortgage Loan Trust NIMs Notes (A) Series 2004-2 Class N1 3.967% due 10/25/34 384 384 Export-Import Bank of China (p)(N) 4.875% due 07/21/15 580 554 Export-Import Bank of Korea(A) 4.125% due 02/10/09 290 281 First Franklin NIMs Trust (A) Series 2004-FF5 Class N1 4.212% due 04/25/34 7 7 France Telecom SA 7.750% due 03/01/11 325 362 G-Force CDO, Ltd. (A) Series 2003-1A Class CFX 5.700% due 12/25/38 750 741 HBOS PLC (p)(f) 5.920% due 09/29/49 100 98 Intelsat, Ltd. 6.500% due 11/01/13 375 276 Korea Development Bank 4.250% due 11/13/07 820 809 Korea Electric Power Corp. (A) 5.125% due 04/23/34 145 142 Mexico Government International Bond 8.375% due 01/14/11 725 825 6.375% due 01/16/13 600 628 8.300% due 08/15/31 635 778 7.500% due 04/08/33 2,356 2,670 Mizuho Financial Group Cayman, Ltd. (A) 5.790% due 04/15/14 445 456 Newcastle CDO I, Ltd. (A) Series 2004-4A Class 3FX 5.110% due 03/24/39 870 826 Petroleum Export, Ltd. (p) 5.265% due 06/15/11 100 99 Province of Quebec 5.000% due 07/17/09 40 40 Province of Quebec Canada 6.125% due 01/22/11 1,390 1,469 Ras Laffan Liquefied Natural Gas Co., Ltd. II (A) 5.298% due 09/30/20 165 161 Ras Laffan LNG III (p) 5.838% due 09/30/27 300 294 Resona Bank, Ltd. (p)(f) 5.850% due 09/29/49 575 555
120 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Resona Preferred Global Securities Cayman, Ltd. (A)(E)(f) 7.191% due 12/29/49 375 382 Russia Government International Bond 5.000% due 03/31/30 2,950 3,279 5.000% due 03/31/30 (A) 440 488 Santander Financial Issuances 6.375% due 02/15/11 120 127 Sanwa Finance Aruba AEC 8.350% due 07/15/09 285 315 Scottish Power PLC 5.375% due 03/15/15 935 919 Systems 2001 AT LLC (A) 7.156% due 12/15/11 220 230 Teck Cominco, Ltd. 6.125% due 10/01/35 965 906 Telecom Italia Capital SA 4.000% due 01/15/10 1,885 1,792 4.950% due 09/30/14 745 707 5.250% due 10/01/15 7,095 6,830 Telefonica Europe BV 7.750% due 09/15/10 1,035 1,141 Telefonos de Mexico SA de CV 4.500% due 11/19/08 495 484 TELUS Corp. 8.000% due 06/01/11 1,080 1,214 Tengizchevroil Finance Co. (A) 6.124% due 11/15/14 325 326 Tyco International Group SA 6.375% due 10/15/11 445 467 6.000% due 11/15/13 905 939 UFJ Finance Aruba AEC 6.750% due 07/15/13 60 65 Vodafone Group PLC 7.750% due 02/15/10 350 385 Wells Fargo Home Equity Trust (A) Series 2004-2N Class N1 4.450% due 10/26/34 106 106 ------------ 46,942 ------------ Mortgage-Backed Securities - 46.4% American Home Mortgage Investment Trust (E) Series 2004-4 Class 4A 4.390% due 02/25/45 739 724 Series 2005-2 Class 5A2 4.188% due 09/25/35 1,845 1,844 Series 2005-3 Class 3A2 4.218% due 09/25/35 2,222 2,222 Series 2005-4 Class 1A1 4.328% due 11/25/45 2,399 2,399 Arcap Reit, Inc. (A) Series 2004-RR3 Class B 5.040% due 09/21/45 460 441
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Banc of America Commercial Mortgage, Inc. Series 2004-3 Class A3 4.875% due 06/10/39 1,000 991 Series 2004-4 Class A3 4.128% due 07/10/42 685 664 Series 2005-3 Class A4 4.668% due 07/10/43 1,600 1,526 Banc of America Funding Corp. (E) Series 2005-D Class A1 4.117% due 05/25/35 652 642 Bank of America Alternative Loan Trust (E) Series 2003-10 Class 2A2 4.488% due 12/25/33 759 760 Bank of America Mortgage Securities Series 2004-1 Class 5A1 6.500% due 09/25/33 53 54 Bear Stearns Adjustable Rate Mortgage Trust Series 2002-11 Class 1A1 5.628% due 02/25/33 46 46 Series 2002-11 Class 1A2 5.352% due 02/25/33 83 83 Series 2003-1 Class 6A1 5.070% due 04/25/33 176 172 Series 2004-3 Class 4A 4.913% due 07/25/34 1,525 1,480 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 1,226 1,231 Bear Stearns Commercial Mortgage Securities Series 2005-PWR Class A1 4.386% due 02/11/41 1,063 1,052 Chaseflex Trust Series 2005-2 Class 4A2 5.500% due 05/25/20 1,518 1,520 Commercial Mortgage Acceptance Corp. Series 1998-C2 Class A3 6.040% due 09/15/30 4,770 4,891 Countrywide Alternative Loan Trust (E) Series 2005-56 Class 3A1 4.365% due 11/25/35 1,977 1,977 Series 2005-56 Class 4A1 4.348% due 11/25/35 2,393 2,393
Diversified Bond Fund 121 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-59 Class 1A1 4.330% due 10/25/35 2,698 2,702 Series 2005-J12 Class 2A1 4.330% due 08/25/35 2,440 2,440 Countrywide Asset-Backed Certificates (E) Series 2005-IM1 Class A1 4.168% due 07/25/35 1,862 1,861 Countrywide Home Loan Mortgage Pass Through Trust (E) Series 2003-42 Class 2A1 3.960% due 10/25/33 39 39 Series 2005-3 Class 1A2 4.328% due 04/25/35 255 255 Series 2005-9 Class M6 5.188% due 05/25/35 309 303 Series 2005-R3 Class AF (A) 4.438% due 09/25/35 2,351 2,351 Credit Suisse First Boston Mortgage Securities Corp. Series 2003-C5 Class A1 3.093% due 12/15/36 2,255 2,181 Series 2004-C1 Class A3 4.321% due 01/15/37 845 811 Series 2005-C4 Class A3 5.120% due 08/15/38 1,210 1,202 Series 2005-C5 Class A3 5.100% due 08/15/38 1,610 1,591 DLJ Commercial Mortgage Corp. Series 1998-CF1 Class A1B 6.410% due 02/18/31 799 819 Downey Savings & Loan Association Mortgage Loan Trust (E) Series 2004-AR3 Class 1A1B 5.206% due 07/19/44 609 617 Fannie Mae 15 Year TBA (I) 4.000% 6,285 5,955 4.500% 11,875 11,482 5.000% 10,950 10,799 5.500% 1,255 1,263 30 Year TBA (I) 4.500% 2,495 2,330 5.000% 40,005 38,492 5.500% 58,585 57,779 6.000% 16,015 16,150 6.500% 11,340 11,638 7.000% due 2007 6 6 7.200% due 2007 681 697 7.000% due 2008 19 19 7.000% due 2009 35 36 8.000% due 2010 3 3 7.000% due 2011 15 16 8.000% due 2011 4 4 7.000% due 2012 4 4
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 6.500% due 2013 38 39 5.500% due 2014 39 40 6.500% due 2015 28 28 7.000% due 2015 16 17 5.500% due 2016 8 8 6.000% due 2016 843 863 6.500% due 2016 161 167 9.000% due 2016 3 3 5.000% due 2017 2,044 2,018 5.500% due 2017 1,262 1,272 6.000% due 2017 2,505 2,563 6.500% due 2017 611 631 8.000% due 2017 55 59 8.500% due 2017 7 7 4.500% due 2018 12,630 12,239 5.000% due 2018 11,668 11,518 5.500% due 2018 908 915 6.000% due 2018 282 288 6.500% due 2018 423 438 4.500% due 2019 719 696 5.000% due 2019 7,378 7,282 6.500% due 2019 183 189 4.500% due 2020 224 217 5.000% due 2020 5,092 5,025 6.500% due 2020 68 70 8.000% due 2020 6 7 6.500% due 2022 106 110 8.000% due 2024 127 135 7.000% due 2025 8 8 8.500% due 2025 4 5 7.000% due 2026 6 6 6.500% due 2028 535 550 7.000% due 2028 465 487 6.500% due 2029 1,703 1,757 6.500% due 2030 201 207 8.000% due 2030 243 259 6.500% due 2031 1,004 1,033 6.000% due 2032 1,724 1,741 6.500% due 2032 1,520 1,561 7.000% due 2032 1,161 1,213 4.500% due 2033 1,747 1,637 5.000% due 2033 10,991 10,613 5.500% due 2033 31,948 31,570 6.000% due 2033 2,281 2,305 6.500% due 2033 301 309 7.000% due 2033 508 532 4.500% due 2034 1,082 1,012 5.000% due 2034 13,802 13,326 5.500% due 2034 38,825 38,344
122 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 6.000% due 2034 14,119 14,247 6.500% due 2034 3,245 3,332 0.410% due 2035 (E) 500 516 0.424% due 2035 (E) 500 516 0.802% due 2035 (E) 400 413 1.146% due 2035 (E) 400 413 4.500% due 2035 4,528 4,233 5.000% due 2035 39,835 38,351 5.500% due 2035 94,342 93,115 6.000% due 2035 9,461 9,544 6.500% due 2035 3,441 3,533 Series 1992-10 Class ZD 8.000% due 11/25/21 887 911 Series 1993-134 Class H 6.500% due 08/25/08 1,045 1,064 Series 1993-208 Class SA Interest Only STRIP 0.450% due 02/25/23 335 1 Series 1997-81 Class PC 5.000% due 04/18/27 9 9 Series 2004-27 Class JC 5.000% due 05/25/34 43 43 Fannie Mae Grantor Trust Series 2001-T6 Class B 6.088% due 05/25/11 1,150 1,212 Series 2005-T2 Class 1A1 (E) 3.712% due 11/28/35 251 251 Fannie Mae Whole Loan Series 2003-W1 Class 1A1 6.500% due 12/25/42 110 112 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2004-H01 Class A1 2.614% due 07/15/11 849 842 Freddie Mac 15 Year TBA (I) 5.000% 5,100 5,030 30 Year TBA (I) 5.000% 30,640 29,472 5.500% 25,525 25,190 6.000% 5,530 5,584 7.000% due 2008 26 27 8.000% due 2008 3 3 8.500% due 2008 2 2 8.000% due 2010 1 2 6.000% due 2011 170 175 8.000% due 2011 21 22 8.000% due 2012 12 13 7.000% due 2014 69 72 12.000% due 2014 15 16 6.000% due 2016 12 12 9.000% due 2016 55 58 6.000% due 2017 443 452 8.000% due 2017 28 29 4.500% due 2018 2,053 1,989
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 5.000% due 2018 589 581 4.500% due 2019 768 744 5.500% due 2019 2,042 2,056 5.500% due 2020 324 326 9.000% due 2024 5 6 6.500% due 2025 9 9 8.500% due 2025 33 36 9.000% due 2025 9 10 9.000% due 2026 1 2 6.500% due 2029 230 237 5.638% due 2030 7 7 6.500% due 2031 2,251 2,314 6.000% due 2032 271 274 7.000% due 2032 454 472 5.000% due 2033 709 684 5.500% due 2033 386 382 6.000% due 2033 178 180 6.500% due 2033 805 826 4.500% due 2034 209 196 6.000% due 2034 3,687 3,725 6.500% due 2034 14 14 Series 1991-105 Class G 7.000% due 03/15/21 63 63 Series 2003-263 Class YH 3.500% due 08/15/22 1,500 1,488 Series 2005-292 Class IG Interest Only STRIP 5.000% due 04/15/23 553 96 Freddie Mac Gold 7.000% due 2008 2 2 8.000% due 2009 10 10 7.000% due 2010 12 13 6.000% due 2011 245 249 7.000% due 2011 5 5 6.000% due 2012 7 8 4.500% due 2020 857 829 5.000% due 2020 786 776 5.500% due 2020 2,416 2,433 8.500% due 2027 136 147 5.500% due 2033 7,205 7,124 6.000% due 2033 217 219 5.000% due 2034 3,786 3,656 5.500% due 2034 4,180 4,130 6.000% due 2034 554 560 6.500% due 2034 297 305 5.000% due 2035 998 960 6.000% due 2035 388 391 G-Force LLC (A) 4.830% due 09/22/13 2,105 2,050
Diversified Bond Fund 123 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp. Series 2005-C1 Class A1 4.012% due 06/10/48 875 860 Series 2005-C1 Class A5 4.772% due 06/10/48 500 482 Ginnie Mae I 30 Year TBA (I) 5.000% 9,860 9,617 5.500% 1,500 1,498 6.000% 12,300 12,519 8.000% due 2007 -- -- 6.500% due 2008 13 13 6.500% due 2009 186 192 7.000% due 2011 2 2 8.000% due 2016 1 1 9.500% due 2016 12 13 8.000% due 2017 5 6 10.500% due 2020 13 14 8.000% due 2022 33 36 8.500% due 2022 18 20 8.000% due 2025 54 57 9.000% due 2025 293 320 7.000% due 2029 9 9 8.000% due 2030 675 723 8.500% due 2030 8 8 7.000% due 2031 557 587 8.000% due 2031 6 6 6.000% due 2032 398 405 7.000% due 2032 36 37 8.000% due 2032 17 18 5.000% due 2033 1,445 1,412 6.000% due 2034 1,650 1,680 Ginnie Mae II 4.125% due 2023 380 383 4.375% due 2023 316 317 4.375% due 2024 225 225 4.500% due 2035 1,085 1,021 GMAC Commercial Mortgage Securities, Inc. Series 2005-C1 Class A2 4.471% due 05/10/43 605 590 Government National Mortgage Association Series 2002-61 Class BA 4.648% due 03/16/26 679 672 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A7 5.317% due 06/10/36 785 786 Series 2005-GG3 Class A1 3.919% due 08/10/42 1,131 1,111 Series 2005-GG5 Class A41 5.243% due 04/10/37 525 528
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GS Mortgage Securities Corp. II Series 1998-C1 Class A2 6.620% due 10/18/30 1,575 1,629 Series 2005-GG4 Class AABA 4.680% due 07/10/39 800 775 GSAMP Mortgage Loan Trust (A)(E) Series 2004-4 Class 1AF 4.438% due 06/25/34 2,119 2,126 Harborview Mortgage Loan Trust (E) Series 2004-4 Class 3A 2.975% due 06/19/34 3,886 3,806 Impac CMB Trust (E) Series 2004-3 Class 1A 4.288% due 06/25/34 389 389 Impac Secured Assets CMN Owner Trust (E) Series 2004-3 Class 1A1 4.238% due 11/25/34 123 123 IndyMac Index Mortgage Loan Trust Series 2005-AR2 Class 4A1 5.509% due 11/25/35 2,247 2,251 IndyMac Loan Trust Series 2003-L1 Class A1 (A) 4.418% due 11/25/08 102 102 Series 2004-L1 Class A1 (A) 4.318% due 07/25/09 669 669 Series 2005-L1 Class A (E) 4.238% due 06/25/10 2,163 2,166 Series 2005-L2 Class A1 (E) 4.258% due 01/25/11 4,507 4,512 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2003-CB7 Class A3 4.449% due 01/12/38 1,250 1,210 Series 2004-C3 Class A4 4.657% due 01/15/42 1,410 1,365 Series 2004-LN2 Class A1 4.475% due 07/15/41 890 864 Series 2005-CB1 Class A1 4.520% due 08/12/37 1,622 1,607 Series 2005-CB1 Class A4 4.895% due 09/12/37 80 78 Series 2005-FL1 Class A1 (A)(E) 4.080% due 02/15/19 2,685 2,673 Series 2005-LDP Class A1 4.116% due 03/15/46 816 803 Series 2005-LDP Class A3 4.959% due 08/15/42 915 899 Series 2005-LDP Class A4 4.918% due 10/15/42 2,945 2,859
124 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- JP Morgan Mortgage Trust Series 2005-A2 Class 3A1 4.920% due 04/25/35 1,966 1,952 Series 2005-A3 Class 6A1 4.926% due 06/25/35 3,015 2,986 Series 2005-A4 Class 1A1 5.415% due 07/25/35 1,092 1,083 Series 2005-A4 Class 3A1 5.190% due 07/25/35 1,673 1,658 Series 2005-A6 Class 2A2 4.987% due 08/25/35 1,951 1,939 Series 2005-ALT Class 3A1 5.500% due 10/25/35 2,083 2,079 Series 2005-S2 Class 2A15 6.000% due 09/25/35 2,765 2,767 LB-UBS Commercial Mortgage Trust Series 2001-C3 Class A1 6.058% due 06/15/20 409 418 Series 2003-C3 Class A1 2.599% due 05/15/27 822 790 Series 2004-C2 Class A1 2.946% due 03/15/29 1,958 1,863 Series 2004-C4 Class A3 4.985% due 06/15/29 1,455 1,457 Series 2005-C3 Class A5 4.739% due 07/15/30 480 461 Series 2005-C3 Class AAB 4.664% due 07/15/30 600 580 Mach One Trust Commercial Mortgage-Backed (A) Series 2004-1A Class A3 5.220% due 05/28/40 1,480 1,462 Mastr Reperforming Loan Trust (A) Series 2005-1 Class 1A1 6.000% due 08/25/34 1,046 1,053 Merrill Lynch Mortgage Investors, Inc. Series 2005-A7 Class 2A1 5.406% due 09/25/35 2,029 2,012 Merrill Lynch Mortgage Trust Series 2004-MKB Class A2 4.353% due 02/12/42 880 860 Series 2005-MKB Class A1 4.446% due 09/12/42 1,438 1,421 Series 2005-MKB Class A4 5.204% due 09/12/42 725 720 Morgan Stanley Capital I Series 2004-HQ3 Class A1 3.100% due 01/13/41 1,422 1,371 Series 2004-RR2 Class A2 (A) 5.450% due 10/28/33 1,475 1,476 Series 2005-HQ5 Class A4 5.168% due 01/14/42 1,150 1,140 Series 2005-HQ6 Class A4A 4.989% due 08/13/42 1,120 1,094
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-IQ9 Class A1 3.990% due 07/15/56 892 876 Series 2005-T17 Class A5 4.780% due 12/13/41 285 275 Morgan Stanley Dean Witter Capital I Series 2001-TOP Class A3 6.200% due 07/15/33 790 812 Mortgage Capital Funding, Inc. Series 1998-MC2 Class A2 6.423% due 06/18/30 1,481 1,523 Nationslink Funding Corp. Series 1999-SL Class A4 6.654% due 11/10/30 244 245 Nomura Asset Securities Corp. Series 1998-D6 Class A1B 6.590% due 03/15/30 980 1,016 Novastar NIMs Trust (A) Series 2005-N1 Class NOTE 4.777% due 10/26/35 383 382 Prime Mortgage Trust Series 2004-CL1 Class 1A2 4.438% due 02/25/34 139 139 Series 2004-CL1 Class 2A2 4.438% due 02/25/19 35 35 Residential Accredit Loans, Inc. Series 2005-QA8 Class NB3 5.527% due 07/25/35 854 852 Series 2005-QO3 Class A1 (E) 4.470% due 10/25/45 2,400 2,404 Residential Asset Securitization Trust (E) Series 2003-A15 Class 1A2 4.488% due 02/25/34 1,357 1,360 Residential Funding Mortgage Sec I (E) Series 2003-S5 Class 1A2 4.488% due 11/25/18 659 662 SACO I, Inc. (p) Series 2004-2 Class A2 4.228% due 07/25/19 234 234 Small Business Administration Series 1999-P10 Class 1 7.540% due 08/10/09 691 733 Series 2000-10B Class 1 7.452% due 09/01/10 1,917 2,038 Small Business Administration Participation Certificates Series 2005-20G Class 1 4.750% due 07/01/25 3,000 2,929
Diversified Bond Fund 125 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Structured Adjustable Rate Mortgage Loan Trust (E) Series 2005-19X Class 1A1 4.358% due 10/25/35 2,243 2,245 Structured Asset Securities Corp. Series 2004-21X Class 1A3 4.440% due 12/25/34 1,515 1,484 Thornburg Mortgage Securities Trust (E) Series 2005-3 Class 3A1 4.298% due 10/25/35 2,388 2,334 Wachovia Bank Commercial Mortgage Trust Series 2003-C9 Class A1 3.291% due 12/15/35 1,838 1,778 Series 2005-C16 Class A2 4.380% due 10/15/41 1,510 1,471 Series 2005-C17 Class A1 4.430% due 03/15/42 3,713 3,675 Washington Mutual, Inc. Series 2004-AR1 Class A1B1 4.165% due 11/25/34 913 913 Series 2005-AR1 Class 1A1 4.845% due 10/25/35 907 900 Series 2005-AR1 Class 2A1 (E) 5.073% due 09/25/35 1,713 1,693 Series 2005-AR1 Class A1A1 (E) 4.328% due 10/25/45 2,800 2,800 Series 2005-AR1 Class A1A2 (E) 4.446% due 11/25/45 2,400 2,400 Series 2005-AR6 Class B3 (E) 4.698% due 04/25/45 590 589 Wells Fargo Mortgage Backed Securities Trust (E) Series 2005-AR1 Class 7A1 5.264% due 10/25/35 1,632 1,607 ------------ 775,797 ------------ Municipal Bonds - 0.4% Badger TOB Asset Securitization Corp. Revenue Bonds, semi-annual demand 6.375% due 06/01/32 700 744 City of New York New York General Obligation Unlimited, semi-annual demand 5.000% due 03/01/30 200 203 Golden State Tobacco Securitization Corp. Revenue Bonds, semi-annual demand 5.000% due 06/01/21 620 628 Liberty Development Corp. Revenue Bonds, semi-annual demand 5.250% due 10/01/35 280 306
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- New York City Municipal Water Finance Authority Revenue Bonds, semi-annual demand 5.000% due 06/15/34 100 102 State of Texas General Obligation Unlimited, semi-annual demand 4.750% due 04/01/35 400 401 Tobacco Settlement Financing Corp. Revenue Bonds, semi-annual demand 5.500% due 06/01/26 1,500 1,542 University of Illinois Revenue Bonds, semi-annual demand (u) 5.000% due 04/01/29 2,800 2,885 University of Texas Revenue Bonds, semi-annual demand 5.000% due 08/15/33 100 103 ------------ 6,914 ------------ Non-US Bonds - 0.3% Canadian Government Bond 3.000% due 12/01/36 CAD 104 115 France Government Bond OAT 3.000% due 07/25/09 EUR 2,261 2,931 General Motors Corp. 8.375% due 07/05/33 EUR 90 79 Poland Government Bond 6.000% due 05/24/09 PLN 2,840 883 Queensland Treasury Corp. 6.000% due 06/14/11 AUD 1,370 1,047 ------------ 5,055 ------------ United States Government Agencies - 5.7% Fannie Mae 3.550% due 01/12/07 5,625 5,557 3.375% due 05/15/07 4,375 4,295 6.625% due 10/15/07 2,430 2,518 2.500% due 06/15/08 6,075 5,748 4.500% due 10/15/08 7,160 7,119 3.250% due 02/15/09 780 747 4.250% due 05/15/09 6,135 6,050 3.875% due 02/15/10 1,630 1,577 4.750% due 04/19/10 3,845 3,799 4.125% due 05/15/10 10 10 4.375% due 03/15/13 1,125 1,090 Zero coupon due 07/05/14 2,570 1,676 5.250% due 03/24/15 730 720 5.000% due 04/26/17 1,755 1,685
126 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 6.625% due 11/15/30 2,450 2,947 6.210% due 08/06/38 240 278 Federal Home Loan Bank System 4.875% due 05/15/07 2,680 2,690 4.125% due 10/19/07 5,465 5,411 3.250% due 12/17/07 5,975 5,805 5.250% due 06/18/14 345 353 5.125% due 08/15/19 420 417 Financing Corp. Principal Only STRIP Zero coupon due 05/11/16 185 109 Zero coupon due 06/06/16 545 319 Zero coupon due 12/27/16 645 366 Zero coupon due 10/06/17 1,055 581 Zero coupon due 11/30/17 1,155 631 Zero coupon due 05/11/18 90 48 Zero coupon due 08/03/18 1,080 569 Zero coupon due 11/02/18 1,105 574 Zero coupon due 12/06/18 155 80 Zero coupon due 04/05/19 875 444 Zero coupon due 09/26/19 950 469 Freddie Mac 3.750% due 11/15/06 2,845 2,821 4.375% due 11/16/07 2,275 2,265 4.250% due 07/15/09 4,900 5,004 6.625% due 09/15/09 4,595 4,894 4.000% due 12/15/09 1,645 1,600 4.500% due 11/15/11 1,095 1,070 5.750% due 01/15/12 5,095 5,331 5.125% due 07/15/12 2,610 2,649 4.875% due 11/15/13 310 309 5.050% due 01/26/15 1,485 1,468 4.750% due 11/17/15 2,180 2,144 6.750% due 09/15/29 1,035 1,256 ------------ 95,493 ------------ United States Government Treasuries - 19.6% United States Treasury Inflation Indexed Bonds 0.875% due 04/15/10 3,680 3,536 2.000% due 07/15/14 8,506 8,528 1.625% due 01/15/15 154 150 1.875% due 07/15/15 4,260 4,217 2.375% due 01/15/25 5,469 5,691 3.625% due 04/15/28 (N) 121 154 3.875% due 04/15/29 334 445 United States Treasury Notes 2.875% due 11/30/06 16,210 15,954 3.000% due 12/31/06 5,760 5,669 3.750% due 03/31/07 600 595 3.125% due 05/15/07 20,285 19,907 4.375% due 05/15/07 4,930 4,929 6.625% due 05/15/07 7,995 8,266 3.625% due 06/30/07 (N) 13,555 13,387
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 6.125% due 08/15/07 250 257 3.000% due 02/15/08 6,530 6,332 3.375% due 02/15/08 300 293 3.750% due 05/15/08 12,180 11,987 3.125% due 09/15/08 11,215 10,827 3.375% due 12/15/08 15,450 14,976 3.250% due 01/15/09 1,560 1,505 4.000% due 06/15/09 385 379 3.625% due 07/15/09 4,985 4,846 3.375% due 09/15/09 4,880 4,696 3.500% due 12/15/09 2,370 2,285 3.625% due 01/15/10 4,950 4,791 4.000% due 03/15/10 3,535 3,470 4.000% due 04/15/10 4,650 4,561 3.875% due 05/15/10 (N) 14,870 14,506 3.625% due 06/15/10 1,210 1,168 3.875% due 09/15/10 4,675 4,553 4.250% due 10/15/10 1,570 1,556 5.000% due 02/15/11 1,550 1,588 5.000% due 08/15/11 7,365 7,556 4.875% due 02/15/12 6,690 6,823 3.875% due 02/15/13 4,270 4,099 4.250% due 08/15/13 1,375 1,348 12.000% due 08/15/13 420 503 4.250% due 11/15/13 2,505 2,453 4.750% due 05/15/14 13,919 14,093 13.250% due 05/15/14 680 874 12.500% due 08/15/14 1,235 1,578 4.250% due 11/15/14 485 473 4.250% due 08/15/15 1,500 1,464 9.250% due 02/15/16 2,715 3,728 7.250% due 05/15/16 2,740 3,325 7.500% due 11/15/16 1,000 1,241 8.750% due 05/15/17 2,560 3,476 8.875% due 08/15/17 1,475 2,027 8.125% due 08/15/19 3,655 4,881 7.875% due 02/15/21 (N) 700 931 8.125% due 08/15/21 8,360 11,393 7.125% due 02/15/23 13,160 16,673 6.250% due 08/15/23 (N) 600 700 6.875% due 08/15/25 1,365 1,716 6.000% due 02/15/26 11,910 13,692 6.125% due 11/15/27 2,960 3,478 6.125% due 08/15/29 9,830 11,652 6.250% due 05/15/30 4,420 5,341 5.375% due 02/15/31 12,860 14,026
Diversified Bond Fund 127 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United States Treasury Principal Only STRIP Zero coupon due 11/15/21 3,640 1,669 ------------ 327,217 ------------ TOTAL LONG-TERM INVESTMENTS (cost $1,630,501) 1,611,438 ------------ PREFERRED STOCKS - 0.1% Auto and Transportation - 0.0% General Motors Corp. 23,425 387 ------------ Financial Services - 0.1% DG Funding Trust (A) 103 1,104 Fannie Mae 7,800 427 ------------ 1,531 ------------ TOTAL PREFERRED STOCKS (cost $1,902) 1,918 ------------ NOTIONAL AMOUNT ($) ------------ OPTIONS PURCHASED - 0.0% (Number of Contracts) Euribor Futures Dec 2005 93.25 (EUR) Put (15) 4,191 -- ------------ TOTAL OPTIONS PURCHASED (cost $0) -- ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 18.6% Abbey National NA LLC (c)(z) 3.610% due 11/07/05 2,400 2,399 ASIF Global Financing (E)(p) 3.991% due 05/30/06 2,000 2,002 Bank of Ireland Governor & Co. (c)(z) 3.640% due 11/08/05 2,400 2,398 Barclays US Funding, LLC (c)(z) 3.655% due 11/28/05 3,700 3,690 BNP Paribas (c)(z) 3.770% due 12/19/05 4,500 4,477 Capital Auto Receivables Asset Trust (A)(E) Series 2005-1 Class A1 3.980% due 06/15/06 7 7 Countrywide Home Loans, Inc. Series MTNJ 5.500% due 08/01/06 1,600 1,609
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- DaimlerChrysler NA Holding Corp. (E) 4.430% due 05/24/06 400 401 Danske Corp. (z) 4.030% due 02/06/06 3,400 3,352 Danske Corp. Discount Note (c)(z) 3.900% due 12/27/05 5,200 5,168 Dexia Delaware (c)(z) 3.610% due 11/01/05 1,900 1,900 3.655% due 11/08/05 2,400 2,398 DNB Nor Bank ASA (c)(z) 3.525% due 11/07/05 1,800 1,799 Duke Capital Corp. 4.302% due 05/18/06 170 170 Fannie Mae 9.500% due 12/01/05 -- -- 6.000% due 12/15/05 2,100 2,104 9.500% due 01/01/06 -- -- 5.500% due 02/15/06 2,200 2,207 3.799% due 09/22/06 (E)(N) 1,200 1,199 Federal Home Loan Bank System 2.500% due 12/15/05 2,300 2,295 Federal National Mortgage Association Discount Note (c)(z)(sec.) Zero coupon due 12/05/05 290 289 3.530% due 12/05/05 75 75 3.590% due 12/05/05 25 25 3.640% due 12/05/05 25 25 3.700% due 12/05/05 25 25 Ford Motor Credit Co. 6.875% due 02/01/06 800 800 France Telecom SA 7.200% due 03/01/06 800 807 Frank Russell Investment Company Money Market Fund 192,551,032 192,551 Freddie Mac Discount Note (c)(z) 3.359% due 11/29/05 500 498 General Electric Capital Corp. Discount Notes (c)(z) 3.700% due 11/15/05 2,300 2,297 3.910% due 12/27/05 1,800 1,789 General Motors Acceptance Corp. (E) 4.677% due 05/18/06 600 596 Goldman Sachs Group, Inc. Series MTNB 4.129% due 08/01/06 3,000 3,002 HBOS Treasury Services, PLC (c)(z) 3.645% due 11/07/05 2,400 2,399 3.750% due 12/01/05 7,300 7,277
128 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Merrill Lynch & Co., Inc. (E) 4.386% due 10/27/06 2,000 2,003 Nordea North America, Inc. (c)(z) 3.625% due 11/08/05 2,400 2,398 Rabobank USA Financial Corp. (c)(z) 3.610% due 11/09/05 2,400 2,398 3.620% due 11/28/05 3,400 3,391 Skandin Ens Banken AG (z) 4.070% due 01/19/06 600 594 Skandinaviska Enskilda Banken (c)(z) 3.850% due 12/22/05 4,400 4,376 Societe Generale (c)(z) 3.760% due 12/02/05 3,200 3,190 3.780% due 12/23/05 3,500 3,481 Spintab Swedish Mortgage (c)(z) 3.690% due 11/18/05 8,500 8,485 Swedbank Forenings (c)(z) 3.910% due 12/22/05 1,300 1,293 Treasury Bank NA (E) Series CD 3.853% due 11/23/05 2,200 2,199 UBS Financial Del, LLC (z) 3.635% due 11/07/05 (c) 2,400 2,399 3.590% due 11/21/05 (c) 400 399 3.780% due 12/22/05 (c) 300 298 3.945% due 01/26/06 8,200 8,090 United States Treasury Bills (z)(sec.) 3.500% due 12/01/05 (c) 830 828 3.363% due 12/08/05 (c) 500 498 3.459% due 12/15/05 (c)(N) 150 149 3.670% due 03/16/06 100 98 United States Treasury Notes 2.500% due 10/31/06 12,795 12,565 US Bank NA Series BKNT 5.625% due 11/30/05 500 502 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $311,891) 311,664 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 5.6% Frank Russell Investment Company Money Market Fund (X) 30,371,668 30,371 State Street Securities Lending Quality Trust (X) 62,228,679 62,229 ------------ TOTAL OTHER SECURITIES (cost $92,600) 92,600 ------------ TOTAL INVESTMENTS - 120.6% (identified cost $2,036,894) 2,017,620 OTHER ASSETS AND LIABILITIES, NET - (20.6%) (344,321) ------------ NET ASSETS - 100.0% 1,673,299 ============
See accompanying notes which are an integral part of the financial statements. Diversified Bond Fund 129 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions 10 Year Interest Rate Swap Futures expiration date 12/05 (39) 4,175 (101) Eurodollar Futures expiration date 03/06 (225) 53,587 (216) expiration date 06/06 (198) 47,112 (205) expiration date 09/06 (102) 24,265 (58) expiration date 12/06 (145) 34,496 (66) expiration date 03/07 (149) 35,456 (41) expiration date 06/07 (90) 21,414 (33) expiration date 09/07 (31) 7,375 (15) United States Treasury Bonds expiration date 12/05 (88) 9,853 (370) United States Treasury 2 Year Notes expiration date 12/05 (160) 32,833 (193) United States Treasury 5 Year Notes expiration date 12/05 (1,201) 127,175 (2,499) United States Treasury 10 Year Notes expiration date 12/05 (112) 12,147 (174) Short Positions United States Treasury Bonds expiration date 12/05 (161) 18,027 718 United States Treasury 5 Year Notes expiration date 12/05 (50) 5,295 79 United States Treasury 10 Year Notes expiration date 12/05 (202) 21,908 554 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (2,620) ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Dec 2006 95.00 (EUR) Put (10) 2,375 (7) Dec 2006 95.25 (EUR) Put (123) 29,289 (114) United States Treasury Notes 5 Year Futures Nov 2005 108.00 Call (20) 2,160 -- Nov 2005 108.50 Call (5) 543 -- Nov 2005 109.00 Call (43) 4,687 (1) Nov 2005 106.00 Put (20) 2,120 (8) Nov 2005 107.00 Put (20) 2,140 (23) United States Treasury Notes 10 Year Futures Nov 2005 113.00 Call (21) 2,373 -- Nov 2005 114.00 Call (25) 2,850 -- Nov 2005 108.00 Put (12) 1,296 (4) Nov 2005 109.00 Put (53) 5,777 (43) Nov 2005 111.00 Put (25) 2,775 (63) --------------- Total Liability for Options Written (premiums received $169) (263) ===============
See accompanying notes which are an integral part of the financial statements. 130 Diversified Bond Fund FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 1,052 AUD 1,401 11/08/05 (4) USD 3,824 EUR 3,206 11/08/05 20 USD 6,070 EUR 5,071 11/08/05 10 USD 7,901 EUR 6,465 11/08/05 (150) USD 1,164 EUR 930 12/16/05 (47) USD 1,236 EUR 1,020 12/16/05 (11) USD 1,305 EUR 1,070 12/16/05 (19) USD 3,381 EUR 2,795 02/08/06 (12) USD 4,221 JPY 479,863 12/01/05 (84) USD 928 PLN 3,025 11/08/05 (13) AUD 1,401 USD 1,057 11/08/05 9 AUD 1,401 USD 1,048 02/08/06 4 CAD 100 USD 85 11/21/05 -- EUR 2,795 USD 3,363 11/08/05 12 EUR 3,119 USD 3,756 11/08/05 17 EUR 3,670 USD 4,437 11/08/05 37 EUR 5,071 USD 6,133 11/08/05 52 EUR 5,071 USD 6,102 02/08/06 (10) PLN 3,025 USD 884 11/08/05 (31) PLN 3,025 USD 927 02/08/06 13 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (207) ==============
INTEREST RATE SWAP CONTRACTS - ---------------------------------------------------------------------------------------------------------------------- MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ----------------------- -------------- -------------- -------------------- ---------------- ---------------- Barclays GBP 7,700 5.000% Six Month LIBOR 06/15/07 47 Barclays USD 2,100 4.000% Three Month LIBOR 12/15/07 (33) Barclays USD 8,500 4.000% Three Month LIBOR 12/15/10 (344) Consumer Price Index BNP Paribas EUR 1,300 2.090% (France) 10/15/10 -- Goldman USD 200 4.000% Three Month LIBOR 12/10/10 (8) Goldman USD 200 5.000% Three Month LIBOR 12/15/15 (1) Lehman GBP 4,200 4.500% Six Month LIBOR 09/20/09 (30) Lehman USD 8,200 4.000% Three Month LIBOR 12/15/10 (332) Merrill Lynch USD 6,200 4.000% Three Month LIBOR 12/15/07 (98) Merrill Lynch GBP 10,500 4.500% Six Month LIBOR 09/20/09 (75) Morgan Stanley USD 1,300 4.000% Three Month LIBOR 12/15/10 (53) ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($487) (927) ================
See accompanying notes which are an integral part of the financial statements. Diversified Bond Fund 131 FRANK RUSSELL INVESTMENT COMPANY DIVERSIFIED BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 6.5 Corporate Bonds and Notes 14.6 International Debt 2.8 Mortgage-Backed Securities 46.4 Municipal Bonds 0.4 Non-US Bonds 0.3 United States Government Agencies 5.7 United States Government Treasuries 19.6 Preferred Stocks 0.1 Options Purchased --* Short-Term Investments 18.6 Other Securities 5.6 --------------- Total Investments 120.6 Other Assets and Liabilities, Net (20.6) --------------- 100.0 =============== Futures Contracts (0.2) Options Written (--*) Foreign Currency Exchange Contracts (--*) Interest Rate Swap Contracts (0.1)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 132 Diversified Bond Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
MULTISTRATEGY BOND - CLASS S LEHMAN BROTHERS AGGREGATE ** ---------------------------- ---------------------------- * 10000.00 10000.00 1996 10710.00 10585.00 1997 11686.00 11526.00 1998 12456.00 12602.00 1999 12622.00 12669.00 2000 13388.00 13594.00 2001 15085.00 15573.00 2002 15646.00 16490.00 2003 16975.00 17299.00 2004 17940.00 18256.00 2005 18183.00 18463.00
Multistrategy Bond Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.35% 5 Years 6.31%S 10 Years 6.16%S
Multistrategy Bond Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.10% 5 Years 6.03%S 10 Years 5.96%S
Multistrategy Bond Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.35% 5 Years 5.26%S 10 Years 5.44%S
Lehman Brothers Aggregate Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%S 10 Years 6.32%S
134 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income, and as a secondary objective, capital appreciation. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Multistrategy Bond Fund Class S, Class E and Class C Shares gained 1.35%, 1.10% and 0.35%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.13% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) BBB Rated Fixed Income Funds Average returned 1.22%. For the same period, the Lipper(R) Intermediate Investment Grade Debt Funds Average returned 0.81%. These returns serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Rising interest rates negatively impacted nominal returns, but helped the Fund's money managers to achieve excess returns relative to benchmark. The money managers positioned their portfolios to be underweight in short and intermediate maturity bonds, which contributed positively to Fund performance. Rising interest rates during the fiscal year pushed the yields of short and intermediate maturity bonds higher than the yields of longer-term maturity bonds. Yields for longer-term maturity bonds were held lower in part by strong demand for U.S. Treasury securities by Asian central banks. Given the inverse relationship between yields and prices, short and intermediate maturity bonds had lower returns than longer-term maturity bonds during the fiscal year. The credit downgrade in the bond ratings of auto manufacturers in the spring and early summer had a minimal impact on the Fund, as the Fund's money managers added value through security selection. Small exposures to emerging market and high yield sectors also contributed positively to Fund performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The primary contributors to excess returns included the Fund's short duration positioning on the expectation that interest rates would rise and bond prices fall. In addition, the Fund's money managers held small exposures to the high yield and emerging market debt sectors, two sectors that outperformed during the fiscal year. A smaller exposure to investment grade corporates also helped Fund performance in the second half of the fiscal year, as credit downgrades within the auto sector impacted sentiment and pricing for the entire investment grade corporate sector. Non-dollar bonds were an additional source of value, primarily in the spring when interest rates fell by a greater amount in Europe than in the U.S. Finally, the Fund's positioning in mortgages also contributed positively to Fund performance. Specifically, the Fund was underweight in mortgages in the summer, when prices of the bonds declined relative to equivalent Treasuries. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Delaware Management Company continued to provide the best returns over the fiscal year. Delaware was rewarded for its view that high yield and emerging market debt would continue to do well. Delaware maintained a significant weight to those non-benchmark sectors. In addition, Delaware added value through security selection within those sectors. Morgan Stanley Investment Management, Inc. outperformed through its duration strategies. Having forecasted that interest rates would rise two years ago, Morgan Stanley was rewarded for maintaining its conviction and short duration position. Pacific Investment Management Company, LLC (PIMCO) contributed positively to Fund performance with its tactical allocations to non-dollar bonds and its correct forecast that European interest rates would fall further than U.S. rates in the spring. PIMCO also added value through select positions in emerging market debt. Finally, Bear Stearns Asset Management, Inc. also outperformed relative to benchmark, though it lagged behind the Fund's other money managers. Bear Stearns was negatively impacted by selling high yield and emerging market debt early in the year and purchasing relatively safer securities. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes in the Fund's structure or money manager line-up for the fiscal year ending October 31, 2005. Multistrategy Bond Fund 135 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Bear Stearns Asset Management, Inc. Sector Rotation Delaware Management Company (a series of Delaware Management Business Trust) Sector Rotation Morgan Stanley Investment Management, Inc. Fully Discretionary Pacific Investment Management Company, LLC Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Multistrategy Bond Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Multistrategy Bond Fund Class S performance has been linked with Class E to provide historical perspective. For the period September 11, 1998 (commencement of sale) through the current period, Class E paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Multistrategy Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 136 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 997.10 $ 1,015.73 Expenses Paid During Period* $ 9.46 $ 9.55
* Expenses are equal to the Fund's annualized expense ratio of 1.88% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.80 $ 1,019.51 Expenses Paid During Period* $ 5.70 $ 5.75
* Expenses are equal to the Fund's annualized expense ratio of 1.13% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN BEFORE CLASS S PERFORMANCE EXPENSES) - ------- -------------- ----------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,002.00 $ 1,020.77 Expenses Paid During Period* $ 4.44 $ 4.48
* Expenses are equal to the Fund's annualized expense ratio of 0.88% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Multistrategy Bond Fund 137 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 86.8% Asset-Backed Securities - 6.9% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 1,566 1,566 Aames Mortgage Investment Trust Series 2005-2 Class 1A1 4.118% due 07/25/35 106 106 ABSC NIMs Trust (A) Series 2004-HE1 Class A 7.000% due 01/17/34 26 26 ACE Securities Corp. Series 2004-OP1 Class M2 5.088% due 04/25/34 1,580 1,603 Aegis Asset Backed Securities Trust (E) Series 2005-4 Class 1A1 4.148% due 10/25/35 2,106 2,106 Alliance Capital Funding LLC (A) Series 1998-1 Class A3 5.840% due 02/15/10 53 52 American Airlines, Inc. 6.817% due 05/23/11 380 341 American Express Credit Account Master Trust Series 2002-1 Class A 4.080% due 09/15/09 1,600 1,602 Series 2002-2 Class A 4.080% due 11/16/09 2,175 2,179 Series 2002-3 Class A (E) 4.080% due 12/15/09 3,500 3,506 Ameriquest Mortgage Securities, Inc. Series 2002-D Class M1 6.538% due 02/25/33 450 454 Series 2005-R4 Class A2B (E) 4.178% due 07/25/35 1,625 1,625 Argent Securities, Inc. Series 2004-W3 Class A2 4.258% due 02/25/34 316 316 Asset Backed Funding Certificates Series 2004-OPT Class A2 (E) 4.228% due 06/25/25 361 361 Series 2005-WF1 Class A2A 4.118% due 01/25/35 823 823 BA Master Credit Card Trust Series 1999-C Class A 4.220% due 08/15/08 2,000 2,004 Barclays Bank PLC 6.278% due 12/15/34 420 400 Bear Stearns Asset Backed Securities, Inc. (E) Series 2004-BO1 Class 1A1 4.238% due 09/25/34 1,128 1,128
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-HE8 Class A1 4.158% due 08/25/35 1,241 1,241 Burlington Northern and Santa Fe Railway Co. 4.575% due 01/15/21 210 202 Capital Auto Receivables Asset Trust Series 2003-2 Class A3A 1.440% due 02/15/07 204 203 Series 2003-3 Class A3B (E) 4.050% due 01/15/08 1,000 1,001 Series 2004-2 Class A2 3.350% due 02/15/08 900 886 Capital One Auto Finance Trust Series 2005-C Class A3 4.610% due 07/15/10 1,140 1,137 Carrington Mortgage Loan Trust Series 2005-NC3 Class A1A 4.118% due 06/25/35 1,486 1,486 Series 2005-NC4 Class A1 (E) 4.188% due 09/25/35 1,784 1,784 Series 2005-OPT Class A1A 4.128% due 05/25/35 712 713 Cendant Timeshare Receivables Funding LLC (A) Series 2004-1A Class A1 3.670% due 05/20/16 258 251 Chancellor/Triton CBO, Ltd. (A) Series 1998-1A Class A1 6.710% due 08/05/10 248 250 Citibank Credit Card Issuance Trust Series 2000-A3 Class A3 6.875% due 11/16/09 900 937 Series 2005-A7 Class A7 4.750% due 10/22/12 1,100 1,094 Citifinancial Mortgage Securities, Inc. Series 2003-3 Class AF2 3.082% due 08/25/33 260 258 Series 2003-4 Class AF3 3.221% due 10/25/33 370 366 Conseco Finance (E) Series 2000-C Class A 4.340% due 12/15/29 445 445 Countrywide Asset-Backed Certificates Series 2004-10 Class AF2 3.323% due 05/25/22 920 915 Series 2004-13 Class AF2 3.683% due 08/25/24 695 684
138 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-1NI Class NOTE (A) 6.000% due 05/25/34 47 47 Series 2004-7 Class AF2 3.324% due 12/25/23 1,310 1,305 Series 2004-9 Class AF2 3.337% due 09/25/23 625 621 Series 2004-BC1 Class M1 4.538% due 02/25/34 545 546 Series 2004-S1 Class A2 3.872% due 03/25/20 745 731 Series 2005-12 Class 2A2 4.898% due 06/25/32 1,420 1,411 Series 2005-3 Class AF1A 4.158% due 08/25/35 525 525 Credit-Based Asset Servicing and Securitization Series 2005-CB4 Class AV1 4.138% due 08/25/35 1,600 1,600 Series 2005-CB5 Class AV1 (E) 4.148% due 08/25/35 2,028 2,028 Entergy Gulf States, Inc. 4.270% due 12/01/09 335 329 Equifirst Mortgage Loan Trust Series 2005-1 Class A1 4.098% due 04/25/35 1,157 1,157 FHA 221D4 7.430% due 07/02/22 96 97 First Franklin Mortgage Loan Asset Backed Certificates Series 2005-FF7 Class A2 4.138% due 07/25/35 1,673 1,673 GE Capital Credit Card Master Note Trust (E) Series 2004-1 Class A (N) 4.020% due 06/15/10 800 801 Series 2004-2 Class A 4.010% due 09/15/10 1,950 1,952 GE Dealer Floorplan Master Note Trust (E) Series 2004-1 Class A 4.050% due 07/20/08 1,050 1,050 GMAC Mortgage Corp. Loan Trust Series 2004-HE4 Class A1 (E) 4.148% due 03/25/35 1,300 1,301 Series 2004-HE5 Class A3 3.970% due 09/25/34 1,570 1,543 Golden Tree High Yield Opportunities, LP Series 2000-1 Class C1 9.404% due 10/31/07 1,100 1,115 GSAA Trust (A) Series 2004-4N Class NOTE 6.250% due 05/25/34 252 252
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GSAMP Trust Series 2004-NC1 Class A3 4.428% due 03/25/34 980 982 Series 2005-AHL Class A1 4.128% due 04/25/35 720 720 Series 2005-HE4 Class A2A (E) 4.158% due 07/25/45 2,331 2,331 Harley-Davidson Motorcycle Trust Series 2004-2 Class A1 2.180% due 01/15/09 619 613 HFC Home Equity Loan Asset Backed Certificates Series 2003-1 Class A 4.350% due 10/20/32 480 481 Home Equity Asset Trust Series 2004-3 Class M3 5.488% due 08/25/34 1,060 1,076 Honda Auto Receivables Owner Trust Series 2004-2 Class A2 2.520% due 02/15/07 499 497 IXIS Real Estate Capital Trust Series 2005-HE2 Class A1 4.118% due 09/25/35 1,018 1,018 Lehman XS Trust Series 2005-1 Class 2A2 4.660% due 05/25/08 1,326 1,343 Long Beach Mortgage Loan Trust Series 2003-2 Class M2 5.938% due 06/25/33 1,555 1,574 Series 2005-1 Class 2A1 4.178% due 02/25/35 764 764 Series 2005-2 Class 2A1 4.118% due 04/25/35 1,037 1,038 Mastr Asset Backed Securities Trust Series 2005-OPT Class A3 4.128% due 03/25/35 819 819 MBNA Credit Card Master Note Trust Series 2002-A10 Class A10 4.110% due 02/16/10 1,700 1,704 Series 2005-A3 Class A3 4.100% due 10/15/12 685 664 MBNA Master Credit Card Trust USA Series 2000-D Class A (E) 4.170% due 09/15/09 2,425 2,432 Series 2000-E Class A 7.800% due 10/15/12 600 673 Merrill Auto Trust Securitization (E) Series 2005-1 Class A2B 4.048% due 04/25/08 3,200 3,200
Multistrategy Bond Fund 139 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Merrill Lynch Mortgage Investors, Inc.(A) Series 2003-WM1 Class N1 7.000% due 11/25/33 20 20 Series 2004-HE2 Class A2A (E) 4.238% due 08/25/35 260 260 Series 2004-WMC Class A2B1 (E) 4.218% due 07/25/35 70 70 Series 2005-SL1 Class A (E) 4.238% due 06/25/35 1,022 1,022 Series 2005-WMC Class A2A 4.138% due 09/25/35 375 375 Mid-State Trust Series 2003-11 Class A1 4.864% due 07/15/38 172 161 Series 2004-1 Class A 6.005% due 08/15/37 232 237 New Century Home Equity Loan Trust Series 2004-4 Class A3 4.178% due 02/25/35 521 521 Series 2004-A Class AII1 (E) 4.218% due 08/25/34 135 135 Novastar Home Equity Loan Series 2004-4 Class A2B 4.378% due 03/25/35 1,020 1,022 Series 2005-1 Class A2A 4.158% due 06/25/35 1,551 1,552 Option One Mortgage Loan Trust Series 2003-2 Class M2 5.738% due 04/25/33 1,250 1,264 Series 2003-3 Class M3 6.038% due 06/25/33 775 785 Series 2003-4 Class M2 5.688% due 07/25/33 730 739 Series 2005-4 Class A3 (E) 4.140% due 11/25/35 1,605 1,605 Ownit Mortgage Loan Asset Backed Certificates Series 2005-2 Class A2A 4.148% due 03/25/36 880 880 Park Place Securities, Inc. Series 2005-WHQ Class A2A 4.118% due 06/25/35 1,339 1,338 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF2 3.914% due 05/25/35 445 438 Power Contract Financing LLC (A) 6.256% due 02/01/10 450 457 Premium Asset Trust (A) 4.169% due 02/02/07 780 780 Quest Trust (E)(A) Series 2005-X2 Class A1 4.118% due 10/25/35 1,045 1,045
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Renaissance Home Equity Loan Trust Series 2004-4 Class AF2 3.856% due 02/25/35 765 754 Series 2005-2 Class AF2 4.361% due 08/25/35 1,385 1,366 Residential Asset Mortgage Products, Inc. Series 2004-RS1 Class AI2 3.620% due 07/25/26 670 664 Series 2004-RS1 Class AII2 4.268% due 12/25/34 725 726 Series 2004-RS8 Class AI2 3.810% due 01/25/26 780 776 Series 2004-RS8 Class AII1 (E) 4.178% due 05/25/26 831 831 Series 2004-RZ2 Class AI3 4.300% due 01/25/31 480 475 Series 2005-RS1 Class AII1 4.148% due 01/25/35 682 682 Residential Asset Securities Corp. Series 2001-KS3 Class AII 4.268% due 09/25/31 429 429 Series 2003-KS1 Class M2 5.788% due 01/25/33 1,035 1,042 Series 2004-KS8 Class AI2 3.340% due 10/25/24 1,915 1,891 Series 2004-KS9 Class AI1 (E) 4.208% due 07/25/21 149 149 Sankaty Market Value CDO (A) Series 2001-3 Class B1 7.379% due 04/30/09 480 487 Saxon Asset Securities Trust Series 2005-1 Class A2A 4.148% due 05/25/35 533 533 Series 2005-1 Class A2B 4.258% due 05/25/35 905 906 Series 2005-2 Class A2A 4.128% due 09/25/35 1,687 1,687 Sears Credit Account Master Trust (E) Series 2002-5 Class A 4.350% due 11/17/09 3,600 3,600 Sharps SP I LLC 6.850% due 03/01/23 59 59 7.000% due 01/25/34 157 157 Sharps SP I LLC Net Interest Margin Trust (A) Series 2004-HE1 Class N 6.900% due 11/25/33 20 20
140 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SLM Student Loan Trust (E) Series 2004-1 Class A1 4.240% due 01/26/15 294 295 Series 2004-6 Class A2 4.240% due 01/25/13 261 262 Series 2004-9 Class A2 4.220% due 10/25/12 1,174 1,172 Small Business Administration Series 2000-P10 Class 1 7.449% due 08/01/10 148 158 Small Business Administration Participation Certificates 7.500% due 04/01/17 2,006 2,115 Specialty Underwriting & Residential Finance Series 2005-BC2 Class A2A 4.138% due 12/25/35 910 910 Structured Asset Investment Loan Trust Series 2003-BC8 Class M3 6.138% due 08/25/33 1,200 1,219 Series 2005-2 Class A2 4.158% due 03/25/35 696 696 Series 2005-5 Class A6 4.128% due 06/25/35 1,190 1,190 Series 2005-HE1 Class A1 4.138% due 07/25/35 2,130 2,129 Structured Asset Securities Corp. Series 2001-SB1 Class A2 3.375% due 08/25/31 585 534 Series 2004-19X Class A2 4.370% due 10/25/34 2,125 2,106 Series 2005-GEL Class A (E) 4.388% due 12/25/34 2,149 2,149 Series 2005-WMC Class A1 4.118% due 01/25/35 1,080 1,080 Tenaska Alabama II Partners, LP (A) 6.125% due 03/30/23 480 482 Terwin Mortgage Trust Series 2004-22S Class A 4.428% due 11/25/35 750 751 Series 2005-8HE Class A1 (E)(A) 4.158% due 07/25/35 1,470 1,470 TXU Electric Delivery Transition Bond Co. Series 2004-1 Class A2 4.810% due 11/17/14 300 296 United Airlines, Inc. (o) 7.730% due 07/01/10 510 492 USAA Auto Owner Trust Series 2004-2 Class A2 2.410% due 02/15/07 123 123 Wachovia Auto Owner Trust Series 2004-B Class A2 2.400% due 05/21/07 377 375
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wells Fargo Home Equity Trust Series 2004-2 Class A31 4.198% due 06/25/19 4 4 World Financial Properties (A) 6.910% due 09/01/13 675 710 6.950% due 09/01/13 199 209 World Omni Auto Receivables Trust Series 2004-A Class A2 2.580% due 07/12/07 335 334 ------------ 129,265 ------------ Corporate Bonds and Notes - 13.2% Abitibi-Consolidated Finance, LP 7.875% due 08/01/09 870 847 AIG SunAmerica Global Financing VI (A) 6.300% due 05/10/11 1,230 1,302 Albertson's, Inc. 8.000% due 05/01/31 945 865 Amerada Hess Corp. 6.650% due 08/15/11 410 436 7.300% due 08/15/31 525 593 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 100 101 American General Finance Corp. Series MTNG 4.000% due 03/23/07 300 300 Series MTNH 4.625% due 09/01/10 45 44 Series MTNI 4.625% due 05/15/09 220 217 American International Group, Inc.(A) 4.700% due 10/01/10 (N) 1,100 1,080 5.050% due 10/01/15 1,100 1,075 5.050% due 10/01/15 300 293 American RE Corp. Series B 7.450% due 12/15/26 1,155 1,258 AmerisourceBergen Corp. (A) 5.625% due 09/15/12 1,245 1,198 Arizona Public Service Co. 6.750% due 11/15/06 180 183 5.800% due 06/30/14 365 373 5.500% due 09/01/35 625 577 AT&T Corp. 9.050% due 11/15/11 85 94 9.750% due 11/15/31 580 706
Multistrategy Bond Fund 141 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Atmos Energy Corp. 4.525% due 10/15/07 575 575 Autonation, Inc. 9.000% due 08/01/08 275 297 Avista Capital Trust III 6.500% due 04/01/34 980 981 Avista Corp. 7.750% due 01/01/07 55 57 9.750% due 06/01/08 610 669 Axa Financial, Inc. 6.500% due 04/01/08 215 223 BAE Systems Holdings, Inc. (A) 6.400% due 12/15/11 2,930 3,083 Bank of America Corp. 7.800% due 02/15/10 460 508 BellSouth Corp. 4.200% due 09/15/09 710 689 6.550% due 06/15/34 135 139 6.000% due 11/15/34 (N) 125 120 Boeing Capital Corp. (N) 6.100% due 03/01/11 315 331 Bowater, Inc. 9.000% due 08/01/09 685 695 Burlington Northern Santa Fe Corp. 6.875% due 12/01/27 55 62 6.750% due 03/15/29 110 123 Campbell Soup Co. (N) 5.875% due 10/01/08 430 441 Carolina Power & Light Co. 6.500% due 07/15/12 50 53 Caterpillar Financial Services Corp. Series MTNF 3.890% due 08/20/07 (E) 470 471 3.625% due 11/15/07 160 156 CC Funding Trust I 6.900% due 02/16/07 380 389 CenterPoint Energy Houston Electric LLC Series J2 5.700% due 03/15/13 470 480 CenterPoint Energy Resources Corp. Series B 7.875% due 04/01/13 1,360 1,536 Centex Corp. 4.500% due 08/01/07 686 687 Cincinnati Gas & Electric 5.700% due 09/15/12 210 214 Cingular Wireless Services, Inc. 7.875% due 03/01/11 100 112 8.750% due 03/01/31 165 215 CIT Group, Inc. 5.750% due 09/25/07 345 350 3.650% due 11/23/07 260 254 6.875% due 11/01/09 140 149
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Citicorp Series MTNF 6.375% due 11/15/08 265 276 Citigroup Global Markets Holdings, Inc. Series MTNM 3.816% due 03/07/08 1,800 1,799 Citigroup, Inc. 4.200% due 12/20/07 3,600 3,555 3.500% due 02/01/08 3,110 3,023 4.625% due 08/03/10 1,080 1,062 6.000% due 02/21/12 305 320 5.625% due 08/27/12 705 724 4.700% due 05/29/15 815 781 5.875% due 02/22/33 1,445 1,440 Citizens Communications Co. 9.250% due 05/15/11 675 731 Clear Channel Communications, Inc. 5.750% due 01/15/13 275 266 Clorox Co. 3.982% due 12/14/07 595 596 4.200% due 01/15/10 525 511 5.000% due 01/15/15 340 334 Columbus Southern Power Co. Series A 5.500% due 03/01/13 315 318 Comcast Cable Communications 8.375% due 05/01/07 705 739 6.750% due 01/30/11 1,020 1,077 Comcast Corp. 7.625% due 02/15/08 100 105 Consolidated Natural Gas Co. 5.000% due 12/01/14 395 382 Series C 6.250% due 11/01/11 155 163 Consumers Energy Co. Series F 4.000% due 05/15/10 175 166 Series H 4.800% due 02/17/09 325 321 Continental Airlines, Inc. Series 01-1 6.503% due 06/15/11 550 525 Corrections Corp. of America 7.500% due 05/01/11 235 243 Countrywide Home Loans, Inc. 3.250% due 05/21/08 645 618
142 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series MTNK 5.500% due 02/01/07 135 136 COX Communications, Inc. 4.625% due 01/15/10 870 840 Credit Suisse First Boston USA, Inc. 4.625% due 01/15/08 200 199 6.500% due 01/15/12 215 230 5.500% due 08/15/13 230 233 CSC Holdings, Inc. 10.500% due 05/15/16 (N) 350 375 Series B 8.125% due 07/15/09 315 322 DaimlerChrysler NA Holding Corp. 8.500% due 01/18/31 165 194 Series MTND 4.132% due 11/17/06 2,800 2,802 Series MTNE (E) 4.780% due 10/31/08 850 850 Darden Restaurants, Inc. 6.000% due 08/15/35 190 175 Detroit Edison Co. 6.125% due 10/01/10 305 318 6.350% due 10/15/32 275 288 Developers Diversified Realty Corp. 4.625% due 08/01/10 776 750 5.375% due 10/15/12 370 363 Devon Financing Corp. ULC 6.875% due 09/30/11 420 455 Dominion Resources, Inc. Series A 7.195% due 09/15/14 641 706 Series B 4.300% due 09/28/07 (E) 895 895 6.250% due 06/30/12 120 125 DPL, Inc. 6.875% due 09/01/11 680 721 DR Horton, Inc. 5.625% due 01/15/16 935 871 Dresdner Funding Trust I (A) 8.151% due 06/30/31 1,145 1,359 Duke Energy Field Services LLC 5.750% due 11/15/06 80 81 6.875% due 02/01/11 60 64 E*Trade Financial Corp. 8.000% due 06/15/11 350 355 8.000% due 06/15/11 (A) 970 985 Echostar DBS Corp. 6.375% due 10/01/11 595 579 6.625% due 10/01/14 95 92 El Paso Corp. 6.950% due 12/15/07 2,600 2,616 El Paso Natural Gas Co. Series A 7.625% due 08/01/10 225 236
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Eli Lilly & Co. 6.770% due 01/01/36 1,170 1,375 Entergy Gulf States, Inc. 3.600% due 06/01/08 120 115 Enterprise Products Operating, LP 4.000% due 10/15/07 700 685 4.625% due 10/15/09 780 757 EOP Operating, LP 4.750% due 03/15/14 70 66 7.500% due 04/19/29 297 334 Erac USA Finance Co. (A) 7.350% due 06/15/08 730 769 Exelon Corp. 6.750% due 05/01/11 215 227 Farmers Exchange Capital (A) 7.050% due 07/15/28 2,140 2,163 Farmers Insurance Exchange (A) 6.000% due 08/01/14 570 569 8.625% due 05/01/24 1,140 1,347 FedEx Corp. 2.650% due 04/01/07 220 213 7.600% due 07/01/97 225 263 Financing Corp. Principal Only STRIP Series 10P Zero coupon due 11/30/17 2,700 1,475 Series 15P Zero coupon due 03/07/19 390 199 Series 2P Zero coupon due 11/30/17 1,180 645 FirstEnergy Corp. Series B 6.450% due 11/15/11 2,540 2,672 Series C 7.375% due 11/15/31 345 393 Ford Motor Co. 7.450% due 07/16/31 3,165 2,326 7.700% due 05/15/97 1,075 723 Ford Motor Credit Co. 4.050% due 03/13/07 2,250 2,106 4.830% due 09/28/07 1,400 1,340 6.625% due 06/16/08 780 748 5.625% due 10/01/08 481 449 5.700% due 01/15/10 551 496 7.875% due 06/15/10 300 289 7.375% due 02/01/11 1,605 1,507 7.000% due 10/01/13 505 462 FPL Group Capital, Inc. 4.086% due 02/16/07 486 482
Multistrategy Bond Fund 143 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- General Electric Capital Corp. 3.836% due 01/15/08 700 700 4.125% due 03/04/08 1,995 1,964 4.875% due 10/21/10 3,430 3,408 Series MTNA 4.250% due 12/01/10 180 175 5.875% due 02/15/12 120 125 4.750% due 09/15/14 (N) 80 78 6.750% due 03/15/32 465 532 General Motors Acceptance Corp. 5.050% due 01/16/07 1,500 1,479 5.100% due 07/16/07 791 773 6.875% due 09/15/11 420 407 6.750% due 12/01/14 1,300 1,243 8.000% due 11/01/31 1,285 1,327 General Motors Corp. 8.375% due 07/15/33 2,140 1,586 Georgia-Pacific Corp. 8.125% due 05/15/11 1,000 1,085 8.875% due 05/15/31 985 1,120 Glencore Funding LLC (A) 6.000% due 04/15/14 1,370 1,262 Glencore Nickel Ltd. (O) 9.000% due 12/01/14 305 -- Golden West Financial Corp. 4.125% due 08/15/07 360 356 Goldman Sachs Group, Inc. 6.875% due 01/15/11 1,730 1,859 6.600% due 01/15/12 150 160 5.250% due 10/15/13 425 420 6.345% due 02/15/34 955 958 Hartford Financial Services Group, Inc. 7.900% due 06/15/10 80 89 HCA, Inc. 5.500% due 12/01/09 1,000 974 7.875% due 02/01/11 50 53 6.950% due 05/01/12 395 402 7.500% due 12/15/23 400 392 Health Net, Inc. 9.875% due 04/15/11 655 760 Hertz Corp. 7.400% due 03/01/11 135 135 7.625% due 06/01/12 390 390 Historic TW, Inc. 8.180% due 08/15/07 1,553 1,635 9.125% due 01/15/13 835 997 8.050% due 01/15/16 1,490 1,716 HJ Heinz Finance Co. 6.000% due 03/15/12 320 332 6.750% due 03/15/32 250 275 Household Finance Corp. 4.125% due 12/15/08 175 171 5.875% due 02/01/09 660 676 4.750% due 05/15/09 1,570 1,553
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 4.125% due 11/16/09 270 261 8.000% due 07/15/10 165 184 6.375% due 11/27/12 1,120 1,185 HSBC Finance Corp. 4.000% due 09/15/08 (E) 700 700 4.625% due 09/15/10 600 586 Hyatt Equities LLC (A) 6.875% due 06/15/07 435 442 ICI Wilmington, Inc. 4.375% due 12/01/08 210 205 IKON Office Solutions, Inc. (A) 7.750% due 09/15/15 360 341 International Lease Finance Corp. 6.375% due 03/15/09 350 363 International Paper Co. 5.500% due 01/15/14 905 877 Interpublic Group of Cos., Inc. 5.400% due 11/15/09 285 265 ITT Industries, Inc. 7.400% due 11/15/25 455 531 JC Penney Co., Inc. 7.375% due 08/15/08 460 482 7.400% due 04/01/37 380 400 John Hancock Financial Services, Inc. 5.625% due 12/01/08 120 122 John Hancock Global Funding II (A) 7.900% due 07/02/10 440 494 Jones Apparel Group, Inc. 4.250% due 11/15/09 446 419 JP Morgan & Co., Inc. Series MTNA 6.000% due 01/15/09 495 509 JPMorgan Chase & Co. 5.350% due 03/01/07 160 161 6.000% due 02/15/09 170 175 7.000% due 11/15/09 65 70 6.750% due 02/01/11 235 251 6.625% due 03/15/12 95 102 5.150% due 10/01/15 775 755 Kellogg Co. Series B 6.600% due 04/01/11 2,535 2,716 KeySpan Corp. 7.625% due 11/15/10 525 584 Knight Ridder, Inc. 5.750% due 09/01/17 535 510
144 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Kraft Foods, Inc. 5.250% due 06/01/07 170 171 4.125% due 11/12/09 2,227 2,151 5.625% due 11/01/11 2,935 3,000 6.500% due 11/01/31 (N) 170 183 Kroger Co. (The) 7.250% due 06/01/09 270 285 8.000% due 09/15/29 210 233 7.500% due 04/01/31 255 269 Lear Corp. Series B 8.110% due 05/15/09 290 273 Lehman Brothers Holdings, Inc. 6.625% due 01/18/12 1,155 1,241 Levi Strauss & Co. 12.250% due 12/15/12 540 593 Liberty Media Corp. 5.700% due 05/15/13 975 880 Limited Brands 6.950% due 03/01/33 315 298 Lockheed Martin Corp. 8.500% due 12/01/29 255 343 Lodgenet Entertainment Corp. 9.500% due 06/15/13 450 487 Lubrizol Corp. 4.625% due 10/01/09 581 566 M&I Marshall & Ilsley Bank Series BKNT 3.800% due 02/08/08 755 738 Manufacturers & Traders Trust Co. 8.000% due 10/01/10 220 250 Marsh & McLennan Cos., Inc. 5.375% due 03/15/07 1,130 1,133 4.270% due 07/13/07 580 577 5.150% due 09/15/10 775 762 5.375% due 07/15/14 550 527 5.750% due 09/15/15 430 418 5.875% due 08/01/33 (N) 340 304 May Department Stores Co. (The) 4.800% due 07/15/09 195 192 5.750% due 07/15/14 515 515 MBNA America Bank NA 7.125% due 11/15/12 85 94 MBNA Corp. 4.163% due 05/05/08 585 590 6.125% due 03/01/13 405 426 MCI, Inc. 6.908% due 05/01/07 1,440 1,454 7.688% due 05/01/09 465 482 Medco Health Solutions, Inc. 7.250% due 08/15/13 1,277 1,383 Metlife, Inc. 5.000% due 06/15/15 520 505 5.700% due 06/15/35 130 126
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- MGM Mirage 9.750% due 06/01/07 845 887 Midamerican Funding LLC 6.750% due 03/01/11 540 577 Miller Brewing Co. (A) 4.250% due 08/15/08 445 436 5.500% due 08/15/13 705 711 Mohawk Industries, Inc. Series D 7.200% due 04/15/12 220 241 Monumental Global Funding, Ltd. (A) 4.625% due 03/15/10 320 317 Morgan Stanley 5.050% due 01/21/11 455 451 6.750% due 04/15/11 1,160 1,244 4.750% due 04/01/14 875 825 5.375% due 10/15/15 935 923 Motorola, Inc. 4.608% due 11/16/07 1,378 1,371 Natexis Ambs Co. LLC (f)(A) 8.440% due 12/29/49 430 465 National Rural Utilities Cooperative Finance Corp. 5.750% due 08/28/09 200 205 Nationwide Financial Services 6.250% due 11/15/11 395 418 Nationwide Mutual Insurance Co. 7.875% due 04/01/33 (A) 867 1,030 Neiman-Marcus Group, Inc. (N)(A) 10.375% due 10/15/15 705 680 News America Holdings 7.750% due 12/01/45 290 327 7.900% due 12/01/95 410 461 8.250% due 10/17/96 135 159 News America, Inc. 7.125% due 04/08/28 75 79 6.750% due 01/09/38 65 68 Nextel Communications, Inc. Series E 6.875% due 10/31/13 955 999 Nisource Finance Corp. 4.393% due 11/23/09 370 371 7.875% due 11/15/10 735 817 Norfolk Southern Corp. 7.350% due 05/15/07 320 331 7.050% due 05/01/37 280 327 7.900% due 05/15/97 930 1,153 North Front Pass-Through Trust (A) 5.810% due 12/15/24 1,700 1,682
Multistrategy Bond Fund 145 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Northrop Grumman Corp. 4.079% due 11/16/06 155 154 Occidental Petroleum Corp. 9.250% due 08/01/19 285 382 Ohio Power Co. Series F 5.500% due 02/15/13 55 56 Pacific Gas & Electric Co. 3.600% due 03/01/09 325 311 4.200% due 03/01/11 795 757 6.050% due 03/01/34 565 568 Panhandle Eastern Pipe Line Series B 2.750% due 03/15/07 125 121 Pemex Project Funding Master Trust 7.375% due 12/15/14 385 421 8.625% due 02/01/22 1,165 1,392 6.625% due 06/15/35 (A) 205 197 Pepco Holdings, Inc. 5.500% due 08/15/07 970 978 Platinum Underwriters Finance, Inc. Series B 7.500% due 06/01/17 445 445 Popular North America Capital Trust I 6.564% due 09/15/34 807 808 Progress Energy, Inc. 7.100% due 03/01/11 720 770 6.850% due 04/15/12 90 96 7.000% due 10/30/31 620 657 Prudential Holdings LLC (A) Series FSA 7.245% due 12/18/23 155 182 PSEG Energy Holdings LLC 7.750% due 04/16/07 1,645 1,670 8.625% due 02/15/08 230 239 Quest Diagnostics, Inc. (A) 5.125% due 11/01/10 370 369 Qwest Capital Funding, Inc. 7.000% due 08/03/09 65 64 6.500% due 11/15/18 30 25 Qwest Corp. 7.875% due 09/01/11 995 1,042 7.625% due 06/15/15 (p) 1,000 1,025 Qwest Services Corp. 13.500% due 12/15/10 925 1,057 Rabobank Capital Funding II (f)(A) 5.260% due 12/31/49 815 807 Raytheon Co. 8.300% due 03/01/10 125 140 RBS Capital Trust I (f) 5.512% due 09/29/49 1,550 1,524 Reckson Operating Partnership, LP 5.150% due 01/15/11 310 304
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Residential Capital Corp. 6.375% due 06/30/10 (A) 1,150 1,168 6.875% due 06/30/15 1,220 1,285 Safeway, Inc. (N) 5.800% due 08/15/12 110 110 7.250% due 02/01/31 265 272 SBC Communications, Inc. 4.125% due 09/15/09 610 587 5.100% due 09/15/14 635 613 6.450% due 06/15/34 40 41 6.150% due 09/15/34 1,177 1,150 SCANA Corp. 4.020% due 03/01/08 881 881 Sealed Air Corp. (A) 5.625% due 07/15/13 630 615 Sempra Energy 4.621% due 05/17/07 1,347 1,340 4.290% due 05/21/08 831 833 SESI LLC 8.875% due 05/15/11 365 382 SLM Corp. 4.000% due 01/15/10 540 520 Smurfit-Stone Container Enterprises, Inc. 9.250% due 02/01/08 280 285 9.750% due 02/01/11 1,190 1,190 Solar Capital Corp. (A) 9.125% due 08/15/13 660 670 Southern California Edison Co. 3.925% due 12/13/07 921 921 7.625% due 01/15/10 260 283 6.000% due 01/15/34 531 546 Southern Peru Copper Corp. (A) 7.500% due 07/27/35 1,355 1,297 Sprint Capital Corp. 6.375% due 05/01/09 265 275 8.375% due 03/15/12 2,020 2,331 6.875% due 11/15/28 775 826 8.750% due 03/15/32 1,633 2,112 St. Paul Travelers Cos., Inc. (The) 5.010% due 08/16/07 1,400 1,396 Starwood Hotels & Resorts Worldwide, Inc. 7.375% due 05/01/07 65 67 TCI Communications, Inc. 7.875% due 02/15/26 145 165 TECO Energy, Inc. (N) 7.200% due 05/01/11 490 512
146 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Tele-Communications-TCI Group 9.800% due 02/01/12 990 1,198 7.875% due 08/01/13 2,130 2,400 Temple-Inland, Inc. 5.003% due 05/17/07 761 757 Tenaska Alabama Partners, LP (A) 7.000% due 06/30/21 324 329 Tenet Healthcare Corp. (N) 7.375% due 02/01/13 115 102 Tesoro Corp. 8.000% due 04/15/08 725 754 Texas Eastern Transmission, LP 7.000% due 07/15/32 180 205 Texas Genco LLC (A) 6.875% due 12/15/14 1,320 1,412 Time Warner Entertainment Co., LP Series* 8.375% due 03/15/23 426 501 Time Warner Telecom LLC 9.750% due 07/15/08 635 645 Time Warner, Inc. 6.750% due 04/15/11 2,435 2,572 Travelers Property Casualty Corp. (N) 5.000% due 03/15/13 250 242 Trimas Corp. 9.875% due 06/15/12 390 316 Twin Reefs Pass-Through Trust (f)(A) 4.935% due 12/10/49 900 898 TXU Corp. Series O 4.800% due 11/15/09 755 715 Series P 5.550% due 11/15/14 1,805 1,659 TXU Energy Co. LLC 7.000% due 03/15/13 436 454 Tyson Foods, Inc. 8.250% due 10/01/11 280 316 Union Pacific Corp. 6.625% due 02/01/08 265 274 6.650% due 01/15/11 145 154 6.125% due 01/15/12 800 839 Series MTNE 6.790% due 11/09/07 110 114 Union Planters Corp. 7.750% due 03/01/11 265 297 Valero Logistics Operations, LP 6.050% due 03/15/13 1,067 1,097 Verizon 6.500% due 09/15/11 70 72 Verizon Global Funding Corp. 7.250% due 12/01/10 4,125 4,474 4.900% due 09/15/15 (N) 145 138 5.850% due 09/15/35 1,150 1,076
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Visteon Corp. 8.250% due 08/01/10 1,625 1,501 7.000% due 03/10/14 695 591 Washington Mutual, Inc. 8.250% due 04/01/10 560 624 WellPoint, Inc. 3.750% due 12/14/07 735 718 4.250% due 12/15/09 532 516 Wells Fargo & Co. 4.625% due 08/09/10 1,455 1,434 4.950% due 10/16/13 390 385 Williams Gas Pipelines (A) 7.375% due 11/15/06 630 645 Willis Group NA 5.125% due 07/15/10 580 574 5.625% due 07/15/15 735 721 Wisconsin Electric Power 3.500% due 12/01/07 145 141 Wyeth 5.500% due 03/15/13 255 257 5.500% due 02/01/14 105 106 Xlliac Global Funding (A) 4.800% due 08/10/10 730 718 Yum! Brands, Inc. 8.875% due 04/15/11 625 728 Zurich Capital Trust I (A) 8.376% due 06/01/37 1,195 1,293 ------------ 247,543 ------------ International Debt - 4.9% Abbey National PLC (N)(f) (Step Up, 7.570%, 06/15/08) 6.700% due 06/29/49 775 804 Abitibi-Consolidated, Inc. 6.950% due 12/15/06 (N) 438 443 8.550% due 08/01/10 (N) 320 313 8.850% due 08/01/30 935 781 Amvescap PLC 4.500% due 12/15/09 1,137 1,110 Arlington Street CDO, Ltd. (A) Series 2000-1A Class A2 7.660% due 06/10/12 1,772 1,808 AXA SA 8.600% due 12/15/30 255 332 Banco Santander Chile (A) 4.148% due 12/09/09 635 633
Multistrategy Bond Fund 147 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Batterson Park CBO I, Ltd. Series 1998-1A Class A4 6.130% due 01/02/11 22 22 Biovail Corp. 7.875% due 04/01/10 515 531 Bowater Canada Finance 7.950% due 11/15/11 790 754 Brascan Corp. 7.125% due 06/15/12 390 428 Brazilian Government International Bond 9.760% due 06/29/09 1,100 1,281 9.250% due 10/22/10 295 324 11.000% due 01/11/12 (N) 820 976 10.500% due 07/14/14 35 41 8.000% due 01/15/18 3,900 4,029 8.875% due 10/14/19 100 105 8.875% due 04/15/24 1,935 2,005 British Telecommunications PLC 8.375% due 12/15/10 585 667 8.875% due 12/15/30 580 758 Canadian Oil Sands, Ltd. (A) 4.800% due 08/10/09 481 473 Catalyst Paper Corp. Series D 8.625% due 06/15/11 665 642 Chile Government International Bond 5.500% due 01/15/13 3,500 3,583 China Development Bank 5.000% due 10/15/15 200 194 Conoco Funding Co. 6.350% due 10/15/11 2,325 2,487 Corp Nacional del Cobre de Chile (A) 5.625% due 09/21/35 695 660 Deutsche Telekom International Finance BV 8.500% due 06/15/10 70 78 8.750% due 06/15/30 875 1,085 Donohue Forest Products 7.625% due 05/15/07 665 682 El Salvador Government International Bond 7.650% due 06/15/35 780 772 EnCana Corp. 6.500% due 08/15/34 195 214 Export-Import Bank of China (p) 4.875% due 07/21/15 1,090 1,041 4.875% due 07/21/15 200 191 Export-Import Bank of Korea 4.250% due 11/27/07 90 89 4.125% due 02/10/09 (A) 540 524 FBG Finance, Ltd. (A) 5.125% due 06/15/15 505 488
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- France Telecom SA 7.750% due 03/01/11 715 796 8.500% due 03/01/31 465 608 Hanarotelecom, Inc. (A) 7.000% due 02/01/12 970 944 HBOS PLC (f)(p) 5.920% due 09/29/49 1,000 985 5.920% due 09/29/49 200 197 Intelsat, Ltd. 6.500% due 11/01/13 1,040 764 Ispat Inland ULC 9.750% due 04/01/14 1,894 2,140 Juniper CBO, Ltd. (A) Series 1999-1A Class A1 6.830% due 04/15/11 461 466 Korea Development Bank 4.250% due 11/13/07 140 138 Korea Electric Power Corp. (A) 5.125% due 04/23/34 285 279 LG Electronics, Inc. (A) 5.000% due 06/17/10 270 263 Mantis Reef, Ltd. (A) 4.692% due 11/14/08 585 573 Mexico Government International Bond 8.375% due 01/14/11 700 796 6.375% due 01/16/13 260 272 8.125% due 12/30/19 2,400 2,870 8.000% due 09/24/22 400 476 8.300% due 08/15/31 (N) 555 680 Mizuho Financial Group Cayman, Ltd. 5.790% due 04/15/14 (A) 1,375 1,410 Series REGS 5.790% due 04/15/14 185 188 NAK Naftogaz Ukrainy 8.125% due 09/30/09 1,300 1,355 Nationwide Building Society (A) 4.250% due 02/01/10 670 650 Nexen, Inc. 5.875% due 03/10/35 461 439 Nippon Life Insurance (A) 4.875% due 08/09/10 935 916 Oil Insurance, Ltd. (A) 5.150% due 08/15/33 1,633 1,610 Panama Government International Bond 8.875% due 09/30/27 300 349 Petroleum Export, Ltd. (p) 5.265% due 06/15/11 200 197
148 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Petroleum Geo-Services ASA 8.000% due 11/05/06 225 227 Platinum Underwriters Holdings, Ltd. (A) 6.371% due 11/16/07 405 407 Poland Government International Bond (Step Up, 5.000%, 04/27/06) 4.750% due 10/27/24 750 729 Province of Quebec 5.000% due 07/17/09 265 267 Province of Quebec Canada 6.125% due 01/22/11 3,040 3,213 Ras Laffan Liquefied Natural Gas Co., Ltd. (A) 8.294% due 03/15/14 290 334 Ras Laffan Liquefied Natural Gas Co., Ltd. II (A) 5.298% due 09/30/20 885 865 Ras Laffan LNG III (p) 5.838% due 09/30/27 1,310 1,282 Resona Bank, Ltd. (f)(p) 5.850% due 09/29/49 2,105 2,031 5.850% due 09/29/49 300 290 Resona Preferred Global Securities Cayman, Ltd. (A) 7.191% due 12/29/49 1,165 1,187 Royal Bank of Scotland Group PLC (f) Series 1 9.118% due 03/31/49 2,350 2,701 Russia Government International Bond 5.000% due 03/31/30 (A) 1,960 2,176 5.000% due 03/31/30 3,000 3,335 Salomon Brothers AG for OAO Siberian Oil Co. Series REGS 10.750% due 01/15/09 1,790 2,011 Salomon Brothers AG for Tyumen Oil Co. Series REGS 11.000% due 11/06/07 960 1,049 Santander Financial Issuances 6.375% due 02/15/11 540 572 Sanwa Finance Aruba AEC (N) 8.350% due 07/15/09 495 547 Sappi Papier Holding AG (A) 6.750% due 06/15/12 240 238 Secunda International, Ltd. 12.150% due 09/01/12 660 686 Shaw Communications, Inc. 8.250% due 04/11/10 670 722 South Street CBO, Ltd. Series 1999-1A Class A1 7.160% due 07/01/11 512 517 SovRisc (A) 4.625% due 10/31/08 850 847
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Stora Enso OYJ 7.375% due 05/15/11 255 274 Systems 2001 AT LLC (A) 7.156% due 12/15/11 321 336 6.664% due 09/15/13 395 419 Telecom Italia Capital SA 4.000% due 01/15/10 5,626 5,348 5.250% due 10/01/15 680 655 Telefonos de Mexico SA de CV 4.500% due 11/19/08 1,238 1,211 TELUS Corp. 8.000% due 06/01/11 2,410 2,710 Tengizchevroil Finance Co. (A) 6.124% due 11/15/14 810 812 UFJ Finance Aruba AEC 6.750% due 07/15/13 220 238 Venezuela Government International Bond 9.375% due 01/13/34 795 925 WPP Finance UK Corp. 5.875% due 06/15/14 350 357 ------------ 91,227 ------------ Mortgage-Backed Securities - 39.7% American Home Mortgage Investment Trust Series 2004-1 Class 1A (E) 4.388% due 04/25/44 1,593 1,594 Series 2004-4 Class 4A (E) 4.390% due 02/25/45 1,232 1,207 Banc of America Commercial Mortgage, Inc. 4.877% due 11/10/42 1,275 1,262 Series 2004-3 Class A3 4.875% due 06/10/39 2,170 2,151 Series 2004-4 Class A3 4.128% due 07/10/42 1,475 1,429 Series 2004-5 Class A3 4.561% due 11/10/41 550 532 Series 2005-5 Class A4 5.115% due 10/10/45 1,605 1,579 Banc of America Funding Corp. Series 2004-3 Class 2A2 5.000% due 09/25/19 743 737 Series 2005-D Class A1 4.117% due 05/25/35 1,118 1,101
Multistrategy Bond Fund 149 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-F Class 1A2 (E) 4.350% due 09/20/35 889 889 Banc of America Mortgage Securities Series 2005-9 Class 2A1 4.750% due 10/25/20 1,451 1,416 Series 2005-E Class 2A1 4.990% due 06/25/35 710 702 Series 2005-F Class 2A3 4.736% due 07/25/35 1,397 1,376 Series 2005-I Class 2A1 (E) 4.894% due 10/25/35 1,731 1,712 Bank of America Alternative Loan Trust 6.000% due 12/25/34 555 561 Series 2003-10 Class 2A1 6.000% due 12/25/33 729 732 Series 2003-10 Class 2A2 (E) 4.488% due 12/25/33 1,698 1,703 Series 2004-10 Class 1CB1 6.000% due 11/25/34 490 495 Series 2004-2 Class 1A1 6.000% due 03/25/34 496 498 Series 2005-3 Class 2A1 5.500% due 04/25/20 727 729 Series 2005-5 Class 2CB1 6.000% due 06/25/35 918 925 Series 2005-6 Class 7A1 5.500% due 07/25/20 962 963 Series 2005-9 Class 5A1 5.500% due 10/25/20 1,100 1,097 Bank of America Mortgage Securities Series 2003-D Class 1A2 (E) 3.428% due 05/25/33 20 20 Series 2003-I Class 2A4 (E) 3.828% due 10/25/33 760 754 Series 2004-1 Class 5A1 6.500% due 09/25/33 133 134 Series 2004-A Class 1A1 (E) 3.477% due 02/25/34 300 298 Series 2004-E Class 1A1 (E) 3.523% due 06/25/34 669 659 Series 2005-A Class 2A1 4.470% due 02/25/35 574 564 Series 2005-B Class 2A1 4.402% due 03/25/35 1,095 1,073 Bear Stearns Adjustable Rate Mortgage Trust Series 2003-8 Class 4A1 4.699% due 01/25/34 787 765 Series 2005-10 Class A1 (E) 4.750% due 10/25/35 6,350 6,332 Series 2005-7 Class 1A2 (E) 4.750% due 08/25/35 502 491
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 2,101 2,110 Bear Stearns Commercial Mortgage Securities Series 2004-ESA Class E (A) 5.064% due 05/14/16 825 825 Series 2005-T20 Class A4A 5.303% due 10/12/42 720 713 Citigroup Commercial Mortgage Trust (A) Series 2004-FL1 Class A1 4.100% due 07/15/18 454 454 Citigroup/Deutsche Bank Commercial Mortgage Trust Series 2005-CD1 Class A4 5.225% due 09/15/20 1,660 1,661 Series 2005-CD1 Class AJ 5.225% due 09/15/20 395 392 Commercial Mortgage Pass Through Certificates (A) Series 2001-J1A Class A2 6.457% due 02/14/34 718 751 Countrywide Alternative Loan Trust Series 2004-28C Class 6A1 6.000% due 01/25/35 813 819 Series 2004-J7 Class 1A2 4.673% due 08/25/34 710 707 Series 2005-59 Class 1A2B (E) 4.101% due 11/20/35 1,698 1,697 Series 2005-63 Class 3A1 5.915% due 11/25/35 1,600 1,618 Countrywide Home Loan Mortgage Pass Through Trust Series 2005-9 Class M6 5.188% due 05/25/35 719 705 Credit Suisse First Boston Mortgage Securities Corp. Series 2003-29 Class 5A1 7.000% due 12/25/33 304 311 Series 2004-1 Class 3A1 7.000% due 02/25/34 109 111 Series 2004-C1 Class A3 4.321% due 01/15/37 1,895 1,819 Crown Castle Towers LLC (A) 5.074% due 06/15/35 460 448 Deutsche ALT-A Securities, Inc. Alternate Loan Trust Series 2003-3 Class 2A3 4.500% due 10/25/33 157 157
150 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Deutsche Mortgage Securities, Inc. Series 2004-4 Class 1A2 4.010% due 04/25/34 23 23 DLJ Commercial Mortgage Corp. Series 1998-CF1 Class A1B 6.410% due 02/18/31 1,767 1,811 Downey Savings & Loan Association Mortgage Loan Trust Series 2004-AR3 Class 1A1B 5.206% due 07/19/44 1,322 1,340 Fannie Mae 15 Year TBA (I) 4.500% 32,570 31,484 5.000% 27,150 26,774 5.500% 1,165 1,173 30 Year TBA (I) 4.500% 5,720 5,343 5.000% 47,445 45,651 5.500% 38,240 37,714 6.000% 10,005 10,186 6.500% 920 944 7.000% 43,800 45,785 5.500% due 2016 128 130 6.000% due 2016 1,485 1,519 11.000% due 2016 143 159 5.000% due 2017 967 955 5.500% due 2017 608 610 6.000% due 2017 989 1,012 6.500% due 2017 468 483 5.000% due 2018 18,409 18,172 5.000% due 2019 3,774 3,724 4.500% due 2020 935 904 5.000% due 2020 10,298 10,164 5.500% due 2020 789 795 7.500% due 2024 19 20 5.500% due 2025 1,299 1,290 5.258% due 2026 392 401 7.000% due 2026 46 48 9.000% due 2026 71 77 7.500% due 2027 18 19 6.500% due 2028 4 4 5.500% due 2029 2,142 2,118 7.500% due 2029 136 146 7.500% due 2030 636 669 8.000% due 2030 595 634 8.500% due 2030 1,290 1,402 9.500% due 2030 140 155 7.000% due 2031 401 419 7.500% due 2031 712 753 8.000% due 2031 1,007 1,074 8.500% due 2031 816 887 6.000% due 2032 3,867 3,906 6.500% due 2032 1,387 1,428 7.000% due 2032 1,861 1,943 7.500% due 2032 476 503
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 8.000% due 2032 6 6 8.500% due 2032 92 100 5.000% due 2033 4,942 4,781 5.500% due 2033 4,015 3,968 6.000% due 2033 37 37 6.500% due 2033 771 792 5.000% due 2034 3,072 2,973 5.500% due 2034 52,077 51,434 6.000% due 2034 3,147 3,175 6.500% due 2034 198 207 7.500% due 2034 536 566 4.210% due 2035 (E) 5,287 5,214 4.665% due 2035 (E) 4,572 4,546 4.841% due 2035 (E) 5,389 5,329 5.000% due 2035 20,218 19,465 5.500% due 2035 86,156 85,032 6.000% due 2035 8,873 8,952 6.500% due 2035 4,764 4,890 7.000% due 2035 640 670 4.265% due 2040 1,061 1,074 Series 1992-10 Class ZD 8.000% due 11/25/21 866 876 Series 1996-46 Class ZA 7.500% due 11/25/26 353 373 Series 1997-281 Class 2 Interest Only STRIP 9.000% due 11/01/26 66 17 Series 1997-68 Class SC Interest Only STRIP 4.500% due 05/18/27 170 17 Series 2000-306 Class IO Interest Only STRIP 8.000% due 05/01/30 75 18 Series 2001-317 Class 2 Interest Only STRIP 8.000% due 08/01/31 156 34 Series 2001-4 Class SA Interest Only STRIP 3.580% due 02/17/31 308 18 Series 2002-320 Class 2 Interest Only STRIP 7.000% due 03/01/32 47 11 Series 2002-50 Class SC Interest Only STRIP 4.063% due 12/25/29 68 2 Series 2003-122 Class AJ 4.500% due 02/25/28 574 563
Multistrategy Bond Fund 151 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-16 Class NI Interest Only STRIP 5.000% due 02/25/15 943 53 Series 2003-25 Class IK Interest Only STRIP 7.000% due 04/25/33 543 115 Series 2003-32 Class UI Interest Only STRIP 6.000% due 05/25/33 558 125 Series 2003-33 Class IA Interest Only STRIP 6.500% due 05/25/33 2,781 602 Series 2003-35 Class IU Interest Only STRIP 6.000% due 05/25/33 645 143 Series 2003-35 Class UI Interest Only STRIP 6.500% due 05/25/33 673 151 Series 2003-64 Class JI Interest Only STRIP 6.000% due 07/25/33 642 143 Series 2003-82 Class WI Interest Only STRIP 6.000% due 08/25/32 122 14 Series 2004-27 Class JC 5.000% due 05/25/34 92 90 Fannie Mae Grantor Trust Series 1999-T2 Class A1 7.500% due 01/19/39 58 60 Series 2001-T8 Class A2 9.500% due 07/25/41 329 358 Series 2004-T4 Class A2 3.930% due 02/25/20 573 571 Series 2004-T4 Class A3 4.420% due 08/25/24 610 605 Series 2005-T2 Class 1A1 3.712% due 11/28/35 376 376 Fannie Mae Whole Loan Series 2003-W14 Class 1A5 4.710% due 09/25/43 39 39 Series 2003-W17 Class 1A6 5.310% due 08/25/33 5,400 5,261 Series 2003-W18 Class 1A5 4.610% due 08/25/43 590 584 Series 2004-W11 Class 1A2 6.500% due 05/25/44 912 934 Series 2004-W9 Class 2A1 6.500% due 02/25/44 478 490 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2003-58 Class 1A2 3.108% due 05/25/35 179 177 Series 2003-58 Class 2A 6.500% due 09/25/43 437 447
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-H01 Class A1 2.614% due 07/15/11 1,768 1,752 Federal National Mortgage Association Series 2003-82 Class IA Interest Only STRIP 6.000% due 08/25/32 747 116 First Horizon Alternative Mortgage Securities Series 2004-FA1 Class 1A1 6.250% due 10/25/34 1,469 1,488 First Horizon Asset Securities, Inc. Series 2003-5 Class 1A17 8.000% due 07/25/33 159 167 Series 2004-AR5 Class 4A1 (E) 5.698% due 10/25/34 543 533 Series 2004-AR7 Class 1A1 (E) 4.473% due 02/25/35 691 692 First Union-Lehman Brothers-Bank of America Series 1998-C2 Class A2 6.560% due 11/18/35 18 19 Freddie Mac 15 Year TBA (I) 5.000% 2,475 2,441 30 Year TBA (I) 5.000% 18,360 17,660 5.500% 21,025 20,749 6.000% 1,950 1,969 12.000% due 2013 15 16 12.000% due 2014 19 21 11.000% due 2015 20 21 6.000% due 2016 182 186 10.000% due 2016 58 64 12.000% due 2016 8 8 5.000% due 2018 320 316 5.500% due 2019 2,011 2,023 11.000% due 2020 274 295 10.500% due 2021 44 49 5.500% due 2024 2,923 2,905 8.500% due 2025 55 60 7.500% due 2029 127 134 5.638% due 2030 13 13 6.500% due 2030 8 8 7.500% due 2030 395 417 8.000% due 2030 81 87 8.000% due 2030 108 113 8.500% due 2030 388 421 7.000% due 2031 438 458 7.500% due 2031 324 342 8.000% due 2031 423 451
152 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 7.500% due 2032 203 214 5.000% due 2033 1,347 1,301 6.500% due 2033 482 494 3.733% due 2034 (E) 522 524 4.911% due 2034 (E) 4,093 4,045 6.000% due 2034 1,366 1,380 4.820% due 2035 (E) 3,600 3,576 4.876% due 2035 (E) 5,500 5,438 Series 1991-103 Class Z 9.000% due 02/15/21 90 90 Series 1994-173 Class Z 7.000% due 05/15/24 457 478 Series 1999-212 Class SG Interest Only STRIP 3.000% due 06/17/27 2,692 128 Series 2000-224 Class SC Interest Only STRIP 3.530% due 08/15/30 105 4 Series 2000-226 Class F 4.420% due 11/15/30 149 150 Series 2001-232 Class ZQ 6.500% due 06/15/31 1,752 1,831 Series 2002-246 Class SJ Interest Only STRIP 4.030% due 03/15/32 390 33 Series 2003-255 Class QX 4.750% due 06/15/27 640 637 Series 2003-256 Class IM Interest Only STRIP 5.000% due 09/15/14 1,081 64 Series 2003-259 Class IQ Interest Only STRIP 5.000% due 06/15/17 1,918 259 Series 2003-261 Class DI Interest Only STRIP 5.500% due 05/15/27 1,581 70 Series 2003-263 Class YH 3.500% due 08/15/22 3,310 3,283 Series 2003-264 Class IM Interest Only STRIP 7.000% due 07/15/33 628 146 Series 2003-266 Class MA 4.500% due 10/15/31 1,057 1,040 Series 2004-287 Class GC 5.000% due 11/15/29 520 508 Series 2004-288 Class OE 5.000% due 01/15/30 835 823 Series 2004-289 Class PC 5.000% due 07/15/30 1,060 1,036 Series 2004-290 Class LC 5.500% due 12/15/17 770 777 Series 2005-291 Class KP 5.000% due 11/15/29 1,155 1,130
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-292 Class IG Interest Only STRIP 5.000% due 04/15/23 1,279 221 Series 2005-293 Class PC 5.000% due 09/15/30 1,035 1,010 Series 2005-302 Class MB 5.000% due 12/15/28 640 631 Series 2005-303 Class AQ 4.500% due 10/15/22 5,509 5,476 Series 2005-R00 Class AE 4.375% due 04/15/15 973 951 Freddie Mac Gold 15 Year TBA (I) 5.500% 2,275 2,289 5.500% due 2009 21 22 5.500% due 2014 1,670 1,683 5.500% due 2018 3,869 3,895 5.500% due 2019 2,512 2,528 5.500% due 2020 5,086 5,119 7.000% due 2027 320 335 8.500% due 2027 282 307 7.500% due 2028 75 80 7.000% due 2031 223 232 8.000% due 2031 14 15 7.000% due 2032 402 420 5.000% due 2033 1,014 989 7.000% due 2033 108 113 7.500% due 2033 162 172 Series 1998-191 Class IO Interest Only STRIP 8.000% due 01/01/28 54 12 Series 1998-194 Class IO Interest Only STRIP 6.500% due 04/01/28 322 68 Series 2001-212 Class IO Interest Only STRIP 6.000% due 05/01/31 511 115 Series 2001-215 Class IO Interest Only STRIP 8.000% due 06/01/31 254 58 GE Capital Commercial Mortgage Corp. Series 2002-1A Class A3 6.269% due 12/10/35 710 749 Series 2005-C2 Class A2 4.706% due 05/10/43 1,365 1,343 Series 2005-C3 Class A3FX 4.863% due 07/10/45 20 20
Multistrategy Bond Fund 153 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ginnie Mae I 30 Year TBA (I) 6.500% 855 887 11.000% due 2010 48 53 11.500% due 2010 9 9 11.000% due 2013 13 14 10.500% due 2015 58 65 11.000% due 2015 10 11 10.500% due 2016 113 126 10.500% due 2021 88 101 10.000% due 2022 94 104 9.500% due 2023 386 426 10.000% due 2025 115 128 7.500% due 2031 93 98 Ginnie Mae II 3.750% due 2023 30 31 4.125% due 2023 49 49 4.375% due 2023 163 163 3.750% due 2024 212 215 4.125% due 2024 222 224 3.750% due 2025 14 14 4.125% due 2025 20 20 4.375% due 2025 463 466 4.125% due 2026 105 106 8.500% due 2026 78 84 3.750% due 2027 252 256 4.375% due 2027 171 172 4.125% due 2029 731 737 Global Signal Trust (A) Series 2004-2A Class A 4.232% due 12/15/14 655 632 GMAC Commercial Mortgage Securities, Inc. Series 1998-C2 Class A2 6.420% due 05/15/35 763 787 Government National Mortgage Association Series 1999-27 Class SE Interest Only STRIP 4.630% due 08/16/29 164 15 Series 1999-44 Class SA Interest Only STRIP 4.580% due 12/16/29 292 25 Series 2001-46 Class SA Interest Only STRIP 3.610% due 09/16/31 72 4 Series 2002-62 Class B 4.763% due 01/16/25 325 322 Series 2003-5 Class B 4.486% due 10/16/25 795 776 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A7 5.317% due 06/10/36 1,575 1,578
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-GG5 Class A41 5.243% due 04/10/37 2,155 2,166 Series 2005-GG5 Class A5 5.224% due 04/10/37 705 709 GSMPS Mortgage Loan Trust (A) Series 1998-3 Class A 7.750% due 09/19/27 213 224 Series 1999-3 Class A 8.000% due 08/19/29 397 420 Series 2005-RP1 Class 1A3 8.000% due 01/25/35 633 672 Series 2005-RP1 Class 1A4 8.500% due 01/25/35 377 408 GSR Mortgage Loan Trust Series 2004-7 Class 1A1 3.412% due 06/25/34 2,137 2,091 Series 2005-AR6 Class 2A1 (E) 4.541% due 09/25/35 5,293 5,199 Harborview Mortgage Loan Trust (E) Series 2005-10 Class 2A1B 4.377% due 11/19/35 1,497 1,500 Series 2005-5 Class 2A1B 4.287% due 07/19/45 1,060 1,060 Impac CMB Trust Series 2004-3 Class 1A 4.288% due 06/25/34 887 888 Impac Secured Assets CMN Owner Trust Series 2004-3 Class 1A1 4.238% due 11/25/34 285 285 Indymac Index Mortgage Loan Trust 5.910% due 02/15/35 1,170 1,182 IndyMac Index Mortgage Loan Trust Series 2004-AR4 Class 1A 4.669% due 08/25/34 1,451 1,449 Series 2005-AR2 Class 1A21 5.910% due 12/25/35 1,170 1,182 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2002-C1 Class A3 5.376% due 07/12/37 1,155 1,167 Series 2003-C1 Class A2 4.985% due 01/12/37 1,301 1,284 Series 2004-FL1 Class A1 (E)(A) 4.140% due 04/16/19 1,029 1,029 Series 2004-LN2 Class A1 4.475% due 07/15/41 1,880 1,825
154 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-CB1 Class A4 5.335% due 08/12/37 1,670 1,670 JP Morgan Mortgage Trust Series 2005-A6 Class 1A2 5.158% due 09/25/35 1,470 1,449 LB-UBS Commercial Mortgage Trust Series 2004-C4 Class A3 4.985% due 06/15/29 3,135 3,140 Series 2005-C5 Class A2 4.885% due 09/15/30 1,315 1,303 Mastr Alternative Loans Trust Series 2003-9 Class 1A1 5.500% due 12/25/18 535 536 Series 2003-6 Class 3A1 8.000% due 09/25/33 196 200 Series 2005-3 Class 7A1 6.000% due 04/25/35 998 1,005 Mastr Reperforming Loan Trust (A) Series 2005-2 Class 1A4 8.000% due 05/25/35 1,412 1,499 Series 2005-1 Class 1A5 8.000% due 08/25/34 895 949 Mastr Specialized Loan Trust (A) 5.150% due 07/25/35 792 784 Mellon Residential Funding Corp. Series 2000-TBC Class A1 4.210% due 06/15/30 1,413 1,409 Merrill Lynch Mortgage Investors, Inc. (E) Series 2005-A6 Class 2A1 4.158% due 08/25/35 2,049 2,049 Merrill Lynch Mortgage Trust 4.351% due 11/15/10 180 178 4.330% due 11/25/10 185 183 Series 2002-MW1 Class J (A) 5.695% due 07/12/34 365 348 Series 2004-BPC Class A3 4.467% due 10/12/41 365 351 Series 2004-MKB Class A2 4.353% due 02/12/42 1,835 1,794 Series 2005-CIP Class A2 4.960% due 07/12/38 1,615 1,602 Series 2005-CIP Class B 5.101% due 07/12/38 400 393 Morgan Stanley Capital I Series 2005-HQ6 Class A2A 4.882% due 08/13/42 595 587 Nationslink Funding Corp. Series 1999-SL Class A4 6.654% due 11/10/30 244 245 Nomura Asset Acceptance Corp. Series 2004-AP2 Class A2 4.099% due 07/25/34 284 284 Series 2005-WF1 Class 2A2 4.786% due 03/25/35 1,285 1,266
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Prime Mortgage Trust Series 2004-2 Class A2 4.750% due 11/25/19 1,188 1,171 Series 2004-CL1 Class 1A1 6.000% due 02/25/34 337 336 Series 2004-CL1 Class 1A2 4.438% due 02/25/34 243 243 Series 2004-CL1 Class 2A2 4.438% due 02/25/19 70 70 Residential Accredit Loans, Inc. Series 2005-QA8 Class NB3 5.527% due 07/25/35 1,924 1,921 Residential Asset Mortgage Products, Inc. Series 2004-SL1 Class A3 7.000% due 11/25/31 375 384 Series 2004-SL4 Class A3 6.500% due 07/25/32 588 598 Series 2005-SL1 Class A2 6.000% due 05/25/32 959 976 Residential Asset Securitization Trust (E) Series 2003-A15 Class 1A2 4.488% due 02/25/34 3,045 3,051 Residential Funding Mortgage Sec I (E) Series 2003-S5 Class 1A2 4.488% due 11/25/18 1,475 1,482 SACO I, Inc. (E)(p) Series 2004-2 Class A2 4.228% due 07/25/19 469 469 Small Business Administration Participation Certificates 5.520% due 06/01/24 380 388 Structured Adjustable Rate Mortgage Loan Trust Series 2004-18 Class 5A 5.500% due 12/25/34 552 550 Structured Asset Securities Corp. Series 2002-22H Class 1A 6.994% due 11/25/32 140 142 Series 2004-12H Class 1A 6.000% due 05/25/34 586 586 Series 2004-21X Class 1A3 4.440% due 12/25/34 3,410 3,340
Multistrategy Bond Fund 155 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Thornburg Mortgage Securities Trust (E) Series 2004-2 Class A2 4.188% due 06/25/44 167 167 Series 2005-3 Class 1A1 4.268% due 10/25/35 1,395 1,396 Wachovia Bank Commercial Mortgage Trust Series 2005-C16 Class A2 4.380% due 10/15/41 3,330 3,243 Washington Mutual Alternative Mortgage Pass-Through Certs Series 2005-9 Class 3CB 5.500% due 10/25/20 790 797 Washington Mutual (E) Series 2002-AR9 Class 1A 4.265% due 08/25/42 1,287 1,282 Series 2005-AR1 Class A1B1 4.421% due 12/25/45 1,600 1,600 Washington Mutual, Inc. Series 2003-AR4 Class A7 (E) 3.950% due 05/25/33 150 147 Series 2003-AR9 Class 1A7 4.056% due 09/25/33 980 962 Series 2004-AR1 Class A2C 4.135% due 07/25/44 291 291 Series 2004-AR1 Class A3 4.135% due 10/25/44 703 708 Series 2004-CB3 Class 4A 6.000% due 10/25/19 936 950 Series 2005-AR1 Class 1A1 4.845% due 10/25/35 2,121 2,105 Series 2005-AR1 Class 1B14 4.421% due 12/25/45 1,600 1,600 Series 2005-AR1 Class A1A1 (E) 4.328% due 10/25/45 700 700 Series 2005-AR1 Class A1B1 (E) 4.328% due 08/25/45 1,266 1,266 4.298% due 10/25/45 2,125 2,125 Series 2005-AR3 Class A1 4.651% due 03/25/35 908 893 Series 2005-AR6 Class B3 4.698% due 04/25/45 1,370 1,369 Washington Mutual, Inc.l Series 2004-CB3 Class 1A 6.000% due 10/25/34 411 414 Wells Fargo Mortgage Backed Securities Trust Series 2004-DD Class 2A3 4.528% due 01/25/35 840 825 Series 2004-I Class 1A1 3.385% due 07/25/34 1,126 1,123 Series 2004-T Class A1 3.453% due 09/25/34 1,042 1,035
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-AR1 Class 2A1 4.947% due 10/25/35 654 650 ------------ 745,330 ------------ Municipal Bonds - 1.0% California State University Revenue Bonds, weekly demand 5.000% due 11/01/30 435 449 City of Forsyth Montana Revenue Bonds, annual demand 5.200% due 05/01/33 220 228 City of New York New York General Obligation Unlimited, weekly demand 5.000% due 03/01/30 300 305 Colorado Department of Transportation Revenue Bonds (u) 5.000% due 12/15/13 1,570 1,694 County of Clark Nevada General Obligation Limited, weekly demand (u) 5.000% due 06/01/32 100 102 Golden State Tobacco Securitization Corp. Revenue Bonds, weekly demand 5.625% due 06/01/38 415 463 Liberty Development Corp. Revenue Bonds 5.250% due 10/01/35 200 219 Massachusetts School Building Authority Revenue Bonds, weekly demand 5.000% due 08/15/30 955 986 New Jersey Economic Development Authority Revenue Bonds, weekly demand 5.750% due 06/15/34 745 779 New York State Environmental Facilities Corp. Revenue Bonds, weekly demand 5.000% due 06/15/33 300 309 New York State Urban Development Corp. Revenue Bonds, weekly demand 5.250% due 03/15/34 540 572 Sales Tax Asset Receivables Corp. Revenue Bonds, weekly demand (u) 5.250% due 10/15/27 690 738
156 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- State of California General Obligation Unlimited 5.250% due 07/01/13 590 646 5.000% due 02/01/33 370 377 State of Illinois General Obligation Unlimited 5.100% due 06/01/33 480 460 State of Oregon General Obligation Unlimited 5.892% due 06/01/27 555 588 State of Texas General Obligation Unlimited, weekly demand 4.750% due 04/01/35 700 702 Tobacco Settlement Financing Corp. Revenue Bonds, weekly demand 5.750% due 06/01/32 2,575 2,671 University of Illinois Revenue Bonds, weekly demand 5.000% due 04/01/29 4,700 4,842 West Virginia Economic Development Authority Revenue Bonds 5.370% due 07/01/20 (u) 200 201 6.070% due 07/01/26 655 681 ------------ 18,012 ------------ Non-US Bonds - 1.1% Brazilian Government International Bond(N) 12.500% due 01/05/16 BRL 1,445 1,355 Canada Housing Trust No. 1 3.750% due 03/15/10 CAD 1,713 1,440 Canadian Government Bond 3.000% due 12/01/36 CAD 209 231 Deutsche Bundesrepublik 5.000% due 07/04/11 EUR 1,465 1,932 General Motors Corp. 7.250% due 07/03/13 EUR 310 288 Poland Government Bond 5.750% due 03/24/10 PLN 4,437 1,368 6.250% due 10/24/15 PLN 6,431 2,085 Province of Ontario 4.500% due 03/08/15 CAD 850 727 Province of Quebec Canada 5.000% due 12/01/15 CAD 1,234 1,085 Russia Paris Club Participant (A) 1.975% due 08/20/20 JPY 56,548 487 Sweden Government Bond 4.000% due 12/01/09 SEK 6,855 900 4.500% due 08/12/15 SEK 3,480 480 5.000% due 12/01/20 SEK 2,005 298
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United Kingdom Gilt 5.750% due 12/07/09 GBP 2,800 5,218 8.000% due 09/27/13 GBP 830 1,826 8.000% due 06/07/21 GBP 723 1,806 ------------ 21,526 ------------ Registered Investment Company Funds - 0.0% Pacific Investment Management Co. Series High Yield Portfolio Institutional 20,319 167 ------------ United States Government Agencies - 1.2% Fannie Mae 3.875% due 02/15/10 3,405 3,294 4.375% due 03/15/13 1,270 1,230 Zero coupon due 10/09/19 455 212 Financing Corp. Principal Only STRIP Zero coupon due 05/11/16 400 235 Zero coupon due 06/06/16 1,185 694 Zero coupon due 12/27/16 1,410 801 Zero coupon due 10/06/17 2,385 1,315 Zero coupon due 11/30/17 2,600 1,421 Zero coupon due 08/03/18 2,355 1,240 Zero coupon due 11/02/18 2,485 1,291 Zero coupon due 12/06/18 385 199 Zero coupon due 04/05/19 1,445 732 Zero coupon due 09/26/19 1,810 893 Freddie Mac 4.000% due 08/17/07 (N) 2,510 2,484 2.750% due 03/15/08 1,060 1,016 4.000% due 12/15/09 3,445 3,351 5.125% due 11/07/13 1,700 1,700 Residual Funding Principal Only STRIP Zero coupon due 10/15/20 400 189 ------------ 22,297 ------------ United States Government Treasuries - 18.8% United States Treasury Bonds Principal Only STRIP Zero coupon due 02/15/25 (N) 7,750 3,035 Zero coupon due 02/15/27 7,750 2,777 United States Treasury Inflation Indexed Bonds 0.875% due 04/15/10 1,135 1,091 3.000% due 07/15/12 (N) 4,134 4,420 2.000% due 07/15/14 (N) 20,934 20,989 1.875% due 07/15/15 1,373 1,359 2.375% due 01/15/25 (N) 2,813 2,927 3.625% due 04/15/28 364 463
Multistrategy Bond Fund 157 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United States Treasury Notes 3.500% due 11/15/06 (N) 23,400 23,197 3.000% due 12/31/06 15,770 15,521 3.750% due 03/31/07 4,435 4,396 3.125% due 05/15/07 21,250 20,854 4.375% due 05/15/07 (N) 12,590 12,589 3.625% due 06/30/07 44,150 43,603 3.875% due 07/31/07 (N) 485 481 4.125% due 08/15/08 600 596 3.500% due 02/15/10 (N) 200 192 3.875% due 05/15/10 27,850 27,169 3.625% due 06/15/10 1,170 1,129 4.125% due 08/15/10 (N) 3,755 3,698 3.875% due 09/15/10 5,100 4,966 5.000% due 08/15/11 (N) 1,000 1,026 3.875% due 02/15/13 (N) 13,350 12,815 4.250% due 08/15/13 (N) 11,855 11,626 Principal Only STRIP Zero coupon due 11/15/13 (N) 5,060 3,502 4.750% due 05/15/14 (N) 22,157 22,434 4.250% due 08/15/15 (N) 7,220 7,045 8.750% due 05/15/17 (N) 4,710 6,396 8.125% due 08/15/19 (N) 13,425 17,928 7.875% due 02/15/21 2,200 2,925 8.125% due 08/15/21 1,275 1,737 6.250% due 08/15/23 6,700 7,819 7.625% due 02/15/25 (N) 2,500 3,368 6.000% due 02/15/26 (N) 22,325 25,665 6.625% due 02/15/27 1,400 1,732 6.375% due 08/15/27 7,675 9,265 6.125% due 08/15/29 (N) 10,950 12,979 5.375% due 02/15/31 (N) 9,610 10,481 ------------ 354,195 ------------ TOTAL LONG-TERM INVESTMENTS (cost $1,639,486) 1,629,562 ------------ PREFERRED STOCKS - 0.1% Financial Services - 0.1% DG Funding Trust (A) 191 2,047 ------------ Producer Durables - 0.0% Nexen, Inc. 12,590 323 ------------ TOTAL PREFERRED STOCKS (cost $2,325) 2,370 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- WARRANTS & RIGHTS - 0.0% Consumer Discretionary - 0.0% Travelcenters of America, Inc. 2009 Warrants (AE) 30 -- ------------ Materials and Processing - 0.0% Solutia, Inc. 2009 Warrants (AE)(A) 850 -- ------------ Miscellaneous - 0.0% Mexico Government International Bond Value Recovery Rights (AE) Series D 5,887,000 122 Series E 3,950,000 101 ------------ 223 ------------ Utilities - 0.0% GT Group Telecom, Inc. 2010 Warrants (AE)(A) 676 -- ------------ TOTAL WARRANTS & RIGHTS (cost $183) 223 ------------ NOTIONAL AMOUNT $ ------------ OPTIONS PURCHASED - 0.0% (Number of Contracts) Eurodollar Futures Dec 2006 93.75 Put (140) 32,813 1 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Apr 2006 0.00 Call (1) 6,000 7 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.250% (Fund Receives) Oct 2006 0.00 Call (2) 16,000 23 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Oct 2006 0.00 Call (4) 45,900 115 ------------ TOTAL OPTIONS PURCHASED (cost $284) 146 ------------
158 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 27.8% Barclays US Funding, LLC (c)(z) 3.710% due 11/16/05 200 200 3.745% due 11/22/05 500 499 3.655% due 11/28/05 13,100 13,064 3.765% due 12/12/05 2,700 2,688 BNP Paribas (c)(z) 3.680% due 12/02/05 1,000 997 Brazilian Government International Bond 5.188% due 04/15/06 8 8 Capital Auto Receivables Asset Trust (A) Series 2005-1 Class A1 3.980% due 06/15/06 11 11 Caremark Rx, Inc. 7.375% due 10/01/06 1,202 1,225 Citibank New York Commercial Paper 3.970% due 12/29/05 14,000 14,000 CSX Corp. 4.010% due 08/03/06 282 283 Danske Corp. Discount Notes (c)(z) 3.605% due 11/04/05 1,400 1,400 3.680% due 11/14/05 600 599 3.755% due 12/15/05 13,700 13,637 3.780% due 12/23/05 600 597 Delta Air Lines, Inc. Series 00-1 7.779% due 11/18/05 1 1 DNB Nor Bank ASA (c)(z) 3.680% due 11/14/05 14,300 14,281 3.780% due 12/22/05 2,000 1,989 Duke Capital Corp. 4.302% due 05/18/06 320 319 Fannie Mae 3.799% due 09/22/06 2,000 1,999 Ford Motor Credit Co. 6.875% due 02/01/06 100 100 France Telecom SA 7.200% due 03/01/06 1,420 1,432 Frank Russell Investment Company Money Market Fund 304,166,000 304,166 Freddie Mac Discount Notes (c)(z) 3.310% due 11/01/05 3,300 3,300 3.579% due 12/12/05 (N) 14,800 14,738 3.635% due 12/12/05 14,800 14,738 General Electric Capital Corp. Discount Notes (c)(z) 3.620% due 11/02/05 3,100 3,100 General Motors Acceptance Corp. 6.125% due 09/15/06 2,100 2,094
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GTE Hawaiian Telephone Co. Series A 7.000% due 02/01/06 630 630 Series B 7.375% due 09/01/06 200 201 Hartford Financial Services Group, Inc. 2.375% due 06/01/06 40 39 ITT Corp. 6.750% due 11/15/05 2,000 2,000 Kerr-McGee Corp. 5.875% due 09/15/06 45 45 Liberty Media Corp. (E) 5.370% due 09/17/06 758 763 Midland Funding II Series B 13.250% due 07/23/06 517 542 Monongahela Power Co. 5.000% due 10/01/06 630 630 Nisource Finance Corp. 7.625% due 11/15/05 315 315 Power Contract Financing LLC (A) 5.200% due 02/01/06 272 272 Preliminary AM 5.500% due 11/30/05 1,875 1,907 Rabobank USA Financial Corp. (c)(z) 3.860% due 12/23/05 14,900 14,817 3.905% due 12/30/05 1,900 1,888 RC Trust 1 Equity Preferred 3.800% due 05/15/06 1,340 677 Royal Bank of Scotland (c)(z) 3.700% due 11/16/05 14,100 14,078 Skandin Ens Banken AG (z) 4.070% due 01/19/06 15,200 15,042 Smurfit Capital Funding PLC 6.750% due 11/20/05 1,150 1,149 Societe Generale (c)(z) 3.770% due 11/01/05 400 400 3.755% due 12/12/05 7,500 7,468 3.780% due 12/23/05 8,900 8,851 Spintab Swedish Mortgage (c)(z) 3.775% due 12/12/05 7,100 7,069 Sprint Capital Corp. 4.780% due 08/17/06 576 576 Swedbank Forenings (c)(z) 3.910% due 12/28/05 400 398 TXU Corp. Series J 6.375% due 06/15/06 125 126
Multistrategy Bond Fund 159 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- UBS Financial Del, LLC (z) 3.910% due 11/21/05 (c) 2,900 2,894 3.690% due 12/07/05 (c) 5,800 5,779 3.780% due 12/22/05 (c) 400 398 3.945% due 01/26/06 6,800 6,709 United States Treasury Bills (z) 3.500% due 12/01/05 (c)(sec.) 80 80 3.280% due 12/15/05 (c)(sec.)(N) 500 498 3.320% due 12/15/05 (c)(sec.) 25 25 3.380% due 12/15/05 (c)(sec.) 100 100 3.430% due 12/15/05 (c)(sec.) 1,090 1,085 3.495% due 12/15/05 (c)(sec.) 600 597 3.510% due 12/15/05 (c)(sec.) 25 25 3.587% due 12/15/05 (c)(sec.) 25 25 3.350% due 01/12/06 (sec.) 650 639 3.715% due 03/30/06 (N) 465 456 3.670% due 09/16/06 (sec.) 200 196 United States Treasury Notes 1.875% due 01/31/06 4,600 4,576 4.625% due 05/15/06 (N) 620 621 Viacom, Inc. (c)(z) 4.270% due 11/30/05 1,000 997 4.370% due 12/02/05 400 399 4.330% due 12/07/05 1,400 1,394 Westpac Capital Corp. (c)(z) 3.900% due 12/23/05 3,100 3,083 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $522,130) 521,924 ------------ OTHER SECURITIES - 22.3% Frank Russell Investment Company Money Market Fund (X) 137,736,525 137,737 State Street Securities Lending Quality Trust (X) 282,209,126 282,209 ------------ TOTAL OTHER SECURITIES (cost $419,946) 419,946 ------------ TOTAL INVESTMENTS - 137.0% (identified cost $2,584,354) 2,574,171 OTHER ASSETS AND LIABILITIES, NET - (37.0%) (694,909) ------------ NET ASSETS - 100.0% 1,879,262 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Eurodollar Futures expiration date 03/06 (53) 12,623 (102) expiration date 06/06 (320) 76,140 (344) expiration date 09/06 (58) 13,797 (60) expiration date 12/06 (160) 38,064 (27) expiration date 03/07 (219) 52,114 (58) expiration date 06/07 (131) 31,170 (46) expiration date 09/07 (41) 9,753 (20) United States Treasury Bonds expiration date 12/05 (73) 8,174 (331) United States Treasury 2 Year Notes expiration date 12/05 (188) 38,578 (186) United States Treasury 5 Year Notes expiration date 12/05 (601) 63,640 (1,229) United States Treasury 10 Year Notes expiration date 12/05 (953) 103,356 (1,307) Short Positions Germany, Federal Republic 10 Year Bonds expiration date 12/05 (2) 289 7 United States Treasury Bonds expiration date 12/05 (13) 1,456 35 United States Treasury 2 Year Notes expiration date 12/05 (28) 5,746 (1) United States Treasury 5 Year Notes expiration date 12/05 (409) 43,309 808 United States Treasury 10 Year Notes expiration date 12/05 (38) 4,121 98 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (a) (2,763) ===============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. 160 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ 10 Year Japan Government Bond Futures Nov 2005 140.00 (JPY) Call (1) 1,203 -- Eurodollar Futures Dec 2006 95.00 Put (17) 4,038 (11) Dec 2006 95.25 Put (212) 50,483 (196) Swaption JPY Six Month LIBOR (Fund Pays)/USD 1.000% (Fund Receives) Nov 2005 0.00 Call (1) 4,295 (1) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.540% (Fund Receives) Apr 2006 0.00 Call (1) 3,000 (9) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.300% (Fund Receives) Oct 2006 0.00 Call (1) 4,000 (16) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.310% (Fund Receives) Oct 2006 0.00 Call (2) 4,000 (17) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.540% (Fund Receives) Oct 2006 0.00 Call (2) 10,100 (66) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.560% (Fund Receives) Oct 2006 0.00 Call (1) 8,000 (57) Swaption GBP Six Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Dec 2006 0.00 Put (1) 19,116 (20)
- ------------------------------------------------------------------------------------
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ United States Treasury Notes 5 Year Futures Nov 2005 108.00 Call (34) 3,672 (1) Nov 2005 108.50 Call (9) 977 -- Nov 2005 109.00 Call (73) 7,957 (1) Nov 2005 106.00 Put (34) 3,604 (14) Nov 2005 107.00 Put (35) 3,745 (40) United States Treasury Notes 10 Year Futures Nov 2005 114.00 Call (38) 4,332 (1) Nov 2005 108.00 Put (21) 2,268 (7) Nov 2005 109.00 Put (52) 5,668 (42) --------------- Total Liability for Options Written (premiums received $563) (499) ===============
See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 161 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 139 CAD 164 11/10/05 -- USD 586 CAD 712 11/10/05 17 USD 818 CAD 965 11/10/05 (1) USD 1,672 CAD 1,965 11/10/05 (8) USD 745 CAD 877 02/08/06 -- USD 6,249 EUR 5,239 11/08/05 32 USD 864 EUR 700 11/10/05 (24) USD 2,616 EUR 2,090 12/16/05 (105) USD 2,788 EUR 2,300 12/16/05 (25) USD 2,914 EUR 2,390 12/16/05 (43) USD 310 JPY 35,810 11/10/05 (2) USD 503 JPY 58,146 11/10/05 (3) USD 581 JPY 63,872 11/10/05 (32) USD 825 JPY 89,889 11/10/05 (52) USD 1,810 JPY 196,180 11/10/05 (123) USD 6,838 JPY 777,420 12/01/05 (136) USD 1,143 JPY 131,000 12/05/05 (14) USD 2,671 JPY 300,000 12/05/05 (84) USD 3,772 JPY 433,000 12/05/05 (37) USD 752 JPY 85,995 02/08/06 (4) USD 2,123 NOK 13,717 11/10/05 (14) CAD 1 USD 1 11/10/05 -- CAD 43 USD 37 11/10/05 -- CAD 689 USD 581 11/10/05 (2) CAD 965 USD 824 11/10/05 7 CAD 1,708 USD 1,425 11/10/05 (22) CAD 2,154 USD 1,810 11/10/05 (13) CAD 201 USD 171 11/21/05 1 CAD 877 USD 752 02/08/06 7 EUR 5,239 USD 6,309 11/08/05 28 EUR 31 USD 37 11/10/05 -- EUR 700 USD 857 11/10/05 17 EUR 935 USD 1,138 12/05/05 15 EUR 2,152 USD 2,596 12/05/05 12 EUR 3,090 USD 3,760 12/05/05 50 EUR 271 USD 327 01/26/06 1 EUR 793 USD 963 02/08/06 8 GBP 40 USD 73 11/10/05 3 GBP 59 USD 109 11/10/05 4 GBP 126 USD 222 11/10/05 (1) GBP 860 USD 1,551 11/10/05 29 GBP 1,011 USD 1,823 11/10/05 34 JPY 2,385 USD 22 11/10/05 1 JPY 15,243 USD 139 11/10/05 8 JPY 64,294 USD 586 11/10/05 33
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- JPY 89,889 USD 818 11/10/05 45 JPY 93,956 USD 832 11/10/05 24 JPY 180,515 USD 1,650 11/10/05 97 JPY 60 USD 1 02/08/06 -- JPY 85,995 USD 744 02/08/06 (3) NOK 687 USD 110 11/10/05 4 NOK 739 USD 112 11/10/05 (2) NOK 12,290 USD 1,911 11/10/05 22 PLN 7,240 USD 2,232 02/08/06 44 SEK 97 USD 12 11/10/05 -- SEK 5,762 USD 756 11/10/05 32 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (175) ==============
See accompanying notes which are an integral part of the financial statements. 162 Multistrategy Bond Fund FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDEX SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED NOTIONAL APPRECIATION FUND RECEIVES COUNTER AMOUNT FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY $ FLOATING RATE DATE $ - ------------------------------ ---------------- --------- ----------------------- -------------- ---------------- Lehman Brothers 3 Month USD LIBOR CMBS Index - AAA Goldman 5,375 minus 0.050% 01/01/06 (60) ---------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts (60) ================
INTEREST RATE SWAP CONTRACTS - ------------------------------------------------------------------------------------------------------------------------------ MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ----------------------- -------------- ---------------------- -------------------- ---------------- ---------------- Barclays GBP 15,400 5.000% 06/15/07 93 Six Month LIBOR Barclays USD 5,700 4.000% 12/15/07 (89) Three Month LIBOR Barclays EUR 2,800 2.103% 10/15/10 (1) Consumer Price Index (France) Barclays USD 13,400 4.000% 12/15/10 (542) Three Month LIBOR Goldman USD 3,600 4.000% 12/15/10 (146) Three Month LIBOR Goldman USD 4,700 5.000% 12/15/15 (19) Three Month LIBOR Lehman GBP 8,400 4.500% 09/20/09 (60) Six Month LIBOR Lehman USD 12,300 4.000% 12/15/10 (498) Three Month LIBOR Lehman USD 1,100 5.000% 12/15/15 (4) Three Month LIBOR Merrill Lynch USD 12,400 4.000% 12/15/07 (195) Three Month LIBOR Merrill Lynch GBP 19,300 4.500% 09/20/09 (139) Six Month LIBOR Merrill Lynch USD 1,300 4.000% 12/15/10 (53) Three Month LIBOR Morgan Stanley USD 2,200 4.000% 12/15/10 (89) Three Month LIBOR ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($821) (1,742) ================
CREDIT DEFAULT SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- NOTIONAL MARKET REFERENCE COUNTER AMOUNT FUND RECEIVES TERMINATION VALUE ENTITY PARTY $ FIXED RATE DATE $ - ------------------------------ ---------------- --------- ----------------------- -------------- ---------------- Dow Jones CDX High Volatility Index UBS 13,000 0.900% 06/20/10 (155) ---------------- Total Market Value of Open Credit Default Swap Contracts Premiums Paid (Received) - ($169) (155) ================
See accompanying notes which are an integral part of the financial statements. Multistrategy Bond Fund 163 FRANK RUSSELL INVESTMENT COMPANY MULTISTRATEGY BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 6.9 Corporate Bonds and Notes 13.2 International Debt 4.9 Mortgage-Backed Securities 39.7 Municipal Bonds 1.0 Non-US Bonds 1.1 Registered Investment Company Funds --* United States Government Agencies 1.2 United States Government Treasuries 18.8 Preferred Stocks 0.1 Warrants & Rights --* Options Purchased --* Short-Term Investments 27.8 Other Securities 22.3 --------------- Total Investments 137.0 Other Assets and Liabilities, Net (37.0) --------------- 100.0 =============== Futures Contracts (0.1) Options Written (--*) Foreign Currency Exchange Contracts (--*) Index Swap Contracts (--*) Interest Rate Swap Contracts (0.1) Credit Default Swap Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 164 Multistrategy Bond Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
LEHMAN BROTHERS 1-10 YEAR TAX EXEMPT BOND - CLASS S MUNICIPAL ** ------------------------- ------------------------- * 10000 10000 1996 10358 10468 1997 10848 11207 1998 11431 11983 1999 11382 12067 2000 12033 12829 2001 13127 14021 2002 13753 14805 2003 14305 15493 2004 14826 16129 2005 14908 16255
Tax Exempt Bond Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.55% 5 Years 4.38%S 10 Years 4.07%S
Tax Exempt Bond Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.31% 5 Years 4.11%S 10 Years 3.91%S
Tax Exempt Bond Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (0.46)% 5 Years 3.35%S 10 Years 3.40%S
Lehman Brothers 1-10 Year Municipal Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.78% 5 Years 4.85%S 10 Years 4.98%S
166 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide federal tax-exempt current income consistent with the preservation of capital. The Fund will invest, under normal circumstances, at least 80% of the value of its assets in investments the income from which is exempt from federal income tax. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Tax Exempt Bond Fund Class S, Class E and Class C Shares returned 0.55%, 0.31% and (0.46)% respectively. This compared to the Lehman Brothers Municipal 1-10 Year Index, which gained 0.78% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Intermediate Municipal Debt Funds Average returned 0.64%. For the same period, the Lipper(R) Short-Intermediate Municipal Debt Funds Average returned 0.62%. These returns serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The municipal market presented managers with many challenges over the year. Fears of rising interest rates, the lack of traditional investor demand and strong influence by hedge funds were among the main challenges at the beginning of the period and remained major themes throughout the fiscal year. Given the uncertainty in the market, the Fund's money managers tended to follow conservative strategies in their efforts to add value. For example, the Fund's money managers attempted to add value through sector rotation and security selection, while maintaining more cautious duration positions relative to the benchmark. The Fund's overall municipal bond market sector allocations remained relatively constant. The Fund maintained an overweight position as compared to the benchmark in the higher yielding sectors within the municipal bond market. Correspondingly, the Fund maintained an underweight position with respect to lower yielding sectors, such as the general obligation and pre-refunded sectors. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Over the fiscal year, the Fund generated positive performance from security selection mainly in the revenue and general obligation sectors, as well as in the tobacco sub-sector. Also adding to performance was the Fund's overweight in higher yielding sectors, such as the revenue sector. This strategy resulted in a higher yield and, therefore, more income than the benchmark. The largest detractor from performance came from duration decisions. Duration is a measure of a bond price's sensitivity to a change in interest rates. MFS Institutional Advisors, Inc., in particular, felt that interest rates were likely to increase and therefore held a shorter than index duration position. The volatility of interest rates made the timing of MFS' duration position difficult to manage and this strategy resulted in negative performance for MFS relative to the benchmark. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The main investment strategies employed in tax exempt investing include interest rate and maturity management, sector allocation and security selection. The sector allocation strategy used throughout the fiscal year was to overweight higher yielding sectors while underweighting lower yielding sectors. This strategy resulted in an overweight to the revenue sector and an underweight to the general obligation and pre-refunded sectors which contributed to the Fund's performance. Security selection, particularly in tobacco settlement bonds, also contributed positively to performance. In contrast, interest rate and maturity management detracted from performance as some of the Fund's money managers misjudged the timing and magnitude of interest rate changes. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In September 2005, MFS was replaced with Delaware Management Company. Delaware was brought into the Fund at a 50% weight. Tax Exempt Bond Fund 167 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Delaware Management Company (a series of Delaware Management Business Trust) Fully Discretionary Standish Mellon Asset Management Company, LLC Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Tax Exempt Bond Fund Class S assumes initial investment on November 1, 1995. ** Lehman Brothers 1-10 Year Municipal Bond Index is an index, with income reinvested, representative of municipal bonds with maturities ranging from 1-10 years. ++ Tax Exempt Bond Fund Class S performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax Exempt Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From March 29, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 168 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 995.50 $ 1,017.34 Expenses Paid During Period* $ 7.85 $ 7.93
* Expenses are equal to the Fund's annualized expense ratio of 1.56% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 999.40 $ 1,021.12 Expenses Paid During Period* $ 4.08 $ 4.13
* Expenses are equal to the Fund's annualized expense ratio of 0.81% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.10 $ 1,022.38 Expenses Paid During Period* $ 2.82 $ 2.85
* Expenses are equal to the Fund's annualized expense ratio of 0.56% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Tax Exempt Bond Fund 169 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- MUNICIPAL BONDS - 95.4% Alabama - 0.7% City of Tuscaloosa Alabama General Obligation Unlimited 340 5.000 02/15/07 348 County of Jefferson Alabama General Obligation Unlimited (u) 500 5.000 04/01/10 530 Courtland Industrial Development Board Revenue Bonds 250 5.000 11/01/13 257 Marshall County Health Care Authority Revenue Bonds 160 4.500 01/01/06 160 Mobile County Board of School Commissioners General Obligation Unlimited (u) 375 5.000 03/01/12 396 ------------ 1,691 ------------ Alaska - 0.2% City of Anchorage Alaska General Obligation Unlimited (ae)(u) 500 5.750 12/01/16 552 ------------ Arizona - 2.4% Arizona State Transportation Board Revenue Bonds 500 5.250 07/01/12 538 Arizona State Transportation Board Revenue Bonds 1,500 5.000 07/01/14 1,618 Maricopa County Pollution Control Corp. Revenue Bonds 1,000 2.900 06/01/35 964 Maricopa County Pollution Control Corp. Revenue Bonds (E) 1,000 4.000 01/01/38 995 Mesa Arizona General Obligation Unlimited (ae)(u) 1,000 5.000 07/01/17 1,057 Phoenix Civic Improvement Corp. Revenue Bonds (u) 250 5.500 07/01/07 260 University of Arizona Revenue Bonds (u) 430 5.000 06/01/06 435 ------------ 5,867 ------------ California - 9.8% Abag Finance Authority for Nonprofit Corps. Certificate of Participation 600 5.700 08/15/14 630 California Health Facilities Financing Authority Revenue Bonds (E) 1,500 4.950 07/01/26 1,543 California State Department of Water Resources Revenue Bonds 250 5.500 05/01/10 269 California State Department of Water Resources Revenue Bonds (u) 500 5.250 05/01/11 542 California State Department of Water Resources Revenue Bonds (u) 1,000 5.250 05/01/12 1,089 California State Public Works Board Revenue Bonds 630 5.000 06/01/10 666 California Statewide Communities Development Authority Revenue Bonds (E) 1,000 5.200 12/01/29 1,043 California Statewide Communities Development Authority Revenue Bonds (E) 1,250 2.300 04/01/33 1,233 California Statewide Communities Development Authority Revenue Bonds (E) 1,100 2.625 04/01/34 1,073 California Statewide Communities Development Authority Revenue Bonds (E) 500 3.450 04/01/35 488 California Statewide Communities Development Authority Revenue Bonds (E) 900 4.350 11/01/36 911 Golden State Tobacco Securitization Corp. Revenue Bonds 405 5.500 06/01/18 421 Golden State Tobacco Securitization Corp. Revenue Bonds (u) 500 5.000 06/01/20 519 Golden State Tobacco Securitization Corp. Revenue Bonds 695 5.000 06/01/21 703 Golden State Tobacco Securitization Corp. Revenue Bonds (Step Up, 4.600%, 06/01/10) (u) 750 Zero coupon 06/01/23 589 Kings River Conservation District Certificate of Participation 850 5.000 05/01/15 883 Southern California Public Power Authority Revenue Bonds (u) 405 5.375 01/01/12 444 State of California General Obligation Unlimited 1,000 6.600 02/01/10 1,117 State of California General Obligation Unlimited 1,000 5.000 10/01/11 1,069 State of California General Obligation Unlimited 2,050 5.000 02/01/12 2,187 State of California General Obligation Unlimited 1,000 5.250 07/01/12 1,092 State of California General Obligation Unlimited 500 5.250 02/01/14 540 State of California General Obligation Unlimited (E) 1,000 3.500 07/01/23 1,008 State of California General Obligation Unlimited (u) 1,500 5.000 02/01/26 1,539
170 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- University of California Revenue Bonds (u) 1,500 5.000 05/15/13 1,618 University of California Revenue Bonds (u) 1,000 5.000 05/15/33 1,029 ------------ 24,245 ------------ Colorado - 1.0% City of Aspen Co. Revenue Bonds (u) 700 5.250 11/01/24 754 City of Aspen Co. Revenue Bonds (u) 600 5.250 11/01/25 643 Colorado Department of Transportation Revenue Bonds (u) 265 6.000 06/15/08 283 Colorado Housing & Finance Authority Revenue Bonds 75 7.250 04/01/10 77 Colorado Housing & Finance Authority Revenue Bonds 90 6.300 08/01/12 93 Colorado Housing & Finance Authority Revenue Bonds (E) 70 6.300 08/01/16 72 Colorado Housing & Finance Authority Revenue Bonds 40 6.700 10/01/16 40 Jefferson County School District R-001 General Obligation Unlimited (u) 500 5.000 12/15/14 540 ------------ 2,502 ------------ Delaware - 0.4% Delaware State Economic Development Authority Revenue Bonds 630 6.500 01/01/08 651 Delaware State Economic Development Authority Revenue Bonds (E)(u) 250 4.900 05/01/26 265 ------------ 916 ------------ District of Columbia - 0.6% District of Columbia Certificate of Participation (u) 500 5.250 01/01/08 520 District of Columbia General Obligation Unlimited (u) 1,000 5.500 06/01/09 1,068 ------------ 1,588 ------------ Florida - 4.7% City of Tallahassee Florida Revenue Bonds (u) 500 5.000 10/01/11 535 County of Escambia Florida Revenue Bonds (u) 740 5.250 10/01/14 798 County of Hillsborough Florida Revenue Bonds 90 6.200 12/01/08 93 County of Miami-Dade Florida Revenue Bonds (u) 1,000 5.000 06/01/14 1,069 Escambia County Health Facilities Authority Revenue Bonds 1,000 5.000 11/15/06 1,019 Florida State Division of Bond Finance Revenue Bonds (u) 500 5.750 07/01/06 509 Florida State Division of Bond Finance Revenue Bonds (u) 1,600 5.250 07/01/13 1,708 Florida Water Pollution Control Financing Corp. Revenue Bonds 500 5.500 01/15/12 544 Hillsborough County Educational Facilities Authority Revenue Revenue Bonds (u) 870 5.750 04/01/18 928 Miami-Dade County Educational Facilities Authority Revenue Bonds (u) 1,500 5.000 04/01/17 1,586 North Miami Florida Revenue Bonds (u) 1,325 5.000 04/01/10 1,402 Orlando Utilities Commission Revenue Bonds 1,225 5.900 10/01/08 1,314 ------------ 11,505 ------------ Georgia - 1.7% Dalton Georgia Revenue Bonds (u) 500 5.750 01/01/09 536 Georgia Municipal Electric Authority Revenue Bonds (u) 850 6.250 01/01/17 1,008 Georgia State Road & Tollway Authority Revenue Bonds 590 5.250 03/01/11 638 Gwinnett County Water & Sewer Authority Revenue Bonds 265 5.200 08/01/14 279 State of Georgia General Obligation Unlimited 1,000 5.750 08/01/08 1,066 State of Georgia General Obligation Unlimited 600 6.500 12/01/09 671 ------------ 4,198 ------------
Tax Exempt Bond Fund 171 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- Hawaii - 0.6% Kauai County Hawaii General Obligation Unlimited (ae)(u) 375 6.250 08/01/19 421 State of Hawaii General Obligation Unlimited (u) 1,000 5.750 01/01/10 1,089 ------------ 1,510 ------------ Illinois - 5.0% Chicago Board of Education General Obligation Unlimited (u) 1,470 5.250 12/01/30 1,514 Chicago Metropolitan Water Reclamation District-Greater Chicago General Obligation Unlimited 2,000 6.500 12/01/07 2,127 City of Chicago Illinois General Obligation Unlimited (u) 750 6.000 01/01/11 828 City of Chicago Illinois Tax Allocation (u) 700 Zero coupon 12/01/07 653 Cook County Community Consolidated School District No. 15-Palatine General Obligation, Ltd. (u) 2,235 Zero coupon 12/01/13 1,580 Illinois Finance Authority Revenue Bonds (u) 400 Zero coupon 01/01/10 342 Illinois Finance Authority Revenue Bonds 670 5.500 10/01/12 721 Illinois Finance Authority Revenue Bonds 750 5.000 06/01/14 776 Illinois Finance Authority Revenue Bonds (ae) 420 7.375 07/01/21 440 Illinois Health Facilities Authority Revenue Bonds 470 6.000 05/15/10 493 Illinois Health Facilities Authority Revenue Bonds (u) 240 5.500 08/01/07 249 Illinois Housing Development Authority Revenue Bonds (E) 1,000 2.790 08/01/17 995 Lake County Community Unit School District No. 116-Round Lake General Obligation Unlimited (u) 400 7.600 02/01/14 501 Lake County Forest Preservation District General Obligation Unlimited 1,215 Zero coupon 12/01/07 1,134 ------------ 12,353 ------------ Indiana - 2.8% City of Indianapolis Indiana Revenue Bonds (u) 450 5.000 10/01/06 458 Columbus Multi School Building Corp. Indiana Revenue Bonds (u) 450 5.000 01/10/10 476 Dyer Redevelopment Authority Economic Development Lease Rent Revenue Bonds 260 5.000 01/15/11 274 Franklin Township School Building Corp./Marion County Indiana Revenue Bonds 500 5.750 07/15/06 509 Indiana Bond Bank Revenue Bonds (u) 315 5.750 08/01/13 337 Indiana Health Facility Financing Authority Revenue Bonds 1,000 5.500 11/15/10 1,079 Indiana Health Facility Financing Authority Revenue Bonds 1,000 5.000 11/01/11 1,060 Indiana Health Facility Financing Authority Revenue Bonds (E)(ae) 1,255 5.000 11/01/26 1,288 Indiana Health Facility Financing Authority Revenue Bonds (E) 700 2.800 03/01/30 700 Indiana University Revenue Bonds 500 5.750 08/01/10 546 Lawrenceburg Indiana Revenue Bonds (E) 225 2.625 10/01/19 223 ------------ 6,950 ------------ Iowa - 0.1% Iowa Finance Authority Revenue Bonds 290 6.000 07/01/10 313 ------------ Kansas - 1.1% Butler & Sedgwick Counties Unified School District No. 385 Andover General Obligation Unlimited (u) 500 5.000 09/01/09 528
172 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- City of Burlington Kansas Revenue Bonds (E)(u) 750 2.650 06/01/31 748 Kansas Development Finance Authority Revenue Bonds (u) 150 5.000 08/01/10 160 Kansas Development Finance Authority Revenue Bonds (u) 1,000 5.000 08/01/13 1,073 Wyandotte County Kansas City, Kansas United Government Special Obligation Revenue 305 4.750 12/01/16 308 ------------ 2,817 ------------ Louisiana - 1.0% Caddo Parish Parishwide School District General Obligation Unlimited (u) 1,090 5.250 03/01/13 1,179 Jefferson Parish Hospital Service District No. 2 Revenue Bonds (u) 1,000 5.250 12/01/15 1,002 Louisiana Energy & Power Authority Revenue Bonds (u) 200 5.500 01/01/08 209 ------------ 2,390 ------------ Maine - 0.2% Bucksport Maine Revenue Bonds 500 4.000 03/01/14 466 ------------ Massachusetts - 2.9% Commonwealth of Massachusetts General Obligation, Ltd. 1,000 5.500 11/01/15 1,110 Commonwealth of Massachusetts General Obligation, Ltd. 1,000 5.500 10/01/16 1,114 Commonwealth of Massachusetts General Obligation, Ltd. (ae) 430 6.000 02/01/11 475 Commonwealth of Massachusetts General Obligation, Ltd. (ae) 1,000 5.750 10/01/19 1,096 Commonwealth of Massachusetts General Obligation, Ltd. (ae)(u) 1,000 5.250 01/01/22 1,083 Massachusetts Bay Transportation Authority Revenue Bonds 500 6.000 03/01/06 505 Massachusetts Development Finance Agency Revenue Bonds 165 5.125 12/01/11 168 Massachusetts Development Finance Agency Revenue Bonds 50 5.150 10/01/14 51 Massachusetts Health & Educational Facilities Authority Revenue Bonds 65 5.000 07/01/07 66 Massachusetts School Building Authority Revenue Bonds (u) 1,000 5.000 08/15/13 1,077 Massachusetts State Port Authority Revenue Bonds 200 6.000 07/01/06 204 Massachusetts State Port Authority Revenue Bonds 125 5.250 07/01/07 129 Massachusetts State Port Authority Revenue Bonds 150 5.750 07/01/10 163 ------------ 7,241 ------------ Michigan - 1.1% Bishop International Airport Authority Revenue Bonds (u) 750 5.000 12/01/10 780 Kent Hospital Finance Authority Revenue Bonds 250 5.250 01/15/07 256 Manistee Area Public Schools General Obligation Unlimited (u) 235 6.000 05/01/08 250 Michigan Municipal Bond Authority Revenue Bonds (ae) 500 5.750 10/01/11 556 Michigan Municipal Bond Authority Revenue Bonds (u) 665 5.000 05/01/13 715 Michigan State Hospital Finance Authority Revenue Bonds (u) 250 5.000 05/15/07 256 ------------ 2,813 ------------ Minnesota - 1.3% City of Maple Grove Minnesota Revenue Bonds 1,800 5.000 09/01/29 1,822 City of State Cloud Minnesota Revenue Bonds (u) 340 5.500 05/01/06 344 Minnesota State Municipal Power Agency Revenue Bonds 1,000 5.000 10/01/30 1,008 ------------ 3,174 ------------ Mississippi - 0.1% State of Mississippi General Obligation Unlimited 300 5.375 07/01/17 332 ------------
Tax Exempt Bond Fund 173 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- Missouri - 0.9% Joplin Missouri Industrial Development Authority Health Revenue Bonds 270 5.500 02/15/13 287 Missouri Development Finance Board Revenue Bonds (E) 1,600 2.700 12/01/33 1,600 Missouri Housing Development Commission Revenue Bonds 170 4.350 12/01/07 172 Southeast Missouri State University Revenue Bonds (u) 250 5.625 04/01/10 272 ------------ 2,331 ------------ Montana - 0.8% City of Forsyth Montana Revenue Bonds (E) 1,450 5.200 05/01/33 1,505 Montana State Board of Regents Revenue Bonds (u) 500 4.750 05/15/13 528 ------------ 2,033 ------------ Nevada - 1.3% Clark County School District General Obligation Limited (u) 670 5.250 06/15/10 710 Clark County School District General Obligation Limited (u)(ae) 330 5.250 06/15/10 351 Henderson Nevada General Obligation, Ltd. (u) 475 6.000 06/01/06 483 Las Vegas Valley Water District General Obligation, Ltd. (u) 1,050 5.250 06/01/14 1,138 Truckee Meadows Water Authority Revenue Bonds (u) 500 5.500 07/01/11 546 ------------ 3,228 ------------ New Hampshire - 0.1% New Hampshire Health & Education Facilities Authority Revenue Bonds 325 4.600 10/01/07 329 ------------ New Jersey - 4.5% New Jersey Economic Development Authority Revenue Bonds 1,000 5.000 09/01/12 1,064 New Jersey Economic Development Authority Revenue Bonds 1,000 5.250 03/01/14 1,081 New Jersey Economic Development Authority Revenue Bonds 1,020 5.375 06/15/15 1,091 New Jersey Economic Development Authority Revenue Bonds (u) 1,000 5.000 06/15/12 1,060 New Jersey State Educational Facilities Authority Revenue Bonds 1,000 5.750 09/01/10 1,090 New Jersey State Housing & Mortgage Finance Agency Revenue Bonds (u) 915 4.300 11/01/07 928 New Jersey State Transit Corp. Certificate of Participation (u) 1,350 5.500 09/15/07 1,404 New Jersey State Turnpike Authority Revenue Bonds (u) 500 5.500 01/01/09 533 New Jersey Transportation Trust Fund Authority Revenue Bonds 1,000 6.000 06/15/06 1,017 New Jersey Transportation Trust Fund Authority Revenue Bonds 500 6.000 06/15/07 522 Tobacco Settlement Financing Corp. Revenue Bonds 1,000 5.500 06/01/11 1,041 Tobacco Settlement Financing Corp. Revenue Bonds 390 4.375 06/01/19 390 ------------ 11,221 ------------ New Mexico - 1.6% Farmington New Mexico Revenue Bonds, annual demand (E)(u) 2,965 3.550 04/01/29 2,945 New Mexico Finance Authority Revenue Bonds (u) 500 5.000 04/01/15 533 New Mexico State Highway Commission Revenue Bonds 570 5.500 06/15/06 579 ------------ 4,057 ------------ New York - 10.7% City of New York New York General Obligation Unlimited 1,000 5.500 08/01/09 1,068 City of New York New York General Obligation Unlimited 730 5.000 06/01/10 770 City of New York New York General Obligation Unlimited 130 5.000 08/01/10 137 City of New York New York General Obligation Unlimited 1,000 5.250 08/01/10 1,067
174 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- City of New York New York General Obligation Unlimited 500 5.000 08/01/11 529 City of New York New York General Obligation Unlimited 125 5.750 08/01/11 136 City of New York New York General Obligation Unlimited 850 5.000 03/01/12 898 City of New York New York General Obligation Unlimited 750 5.000 11/01/12 796 City of New York New York General Obligation Unlimited 235 5.250 11/01/12 253 City of New York New York General Obligation Unlimited 470 5.000 08/01/13 498 City of New York New York General Obligation Unlimited 1,000 5.000 08/01/14 1,070 City of New York New York General Obligation Unlimited 1,500 5.000 08/01/21 1,551 Metropolitan Transportation Authority Revenue Bonds (u) 1,000 5.000 11/15/30 1,029 New York City Municipal Water Finance Authority Revenue Bonds 1,500 5.250 06/15/12 1,626 New York City Municipal Water Finance Authority Revenue Bonds (u) 1,000 5.000 06/15/23 1,044 New York City Transitional Finance Authority Revenue Bonds 1,000 5.500 02/01/09 1,065 New York Local Government Assistance Corp. Revenue Bonds (u) 1,000 5.200 04/01/12 1,035 New York State Dormitory Authority Revenue Bonds (E) 2,000 5.250 11/15/23 2,137 New York State Dormitory Authority Revenue Bonds (u) 1,035 7.000 07/01/09 1,112 New York State Dormitory Authority Revenue Bonds (u) 960 5.000 02/15/13 1,024 New York State Dormitory Authority Revenue Bonds (E)(u) 650 5.250 11/15/29 699 New York State Environmental Facilities Corp. Revenue Bonds (u) 1,000 6.000 06/15/12 1,128 New York State Urban Development Corp. Revenue Bonds 500 5.250 01/01/21 524 Sales Tax Asset Receivables Corp. Revenue Bonds (u) 2,500 5.000 10/15/29 2,601 Suffolk County Judicial Facilities Agency Revenue Bonds (u) 500 5.500 04/15/09 534 Tobacco Settlement Financing Authority Revenue Bonds 880 5.500 06/01/10 886 Tobacco Settlement Financing Authority Revenue Bonds 300 5.250 06/01/13 312 TSASC, Inc. Revenue Bonds 1,000 5.500 07/15/13 1,050 ------------ 26,579 ------------ North Carolina - 2.4% North Carolina Eastern Municipal Power Agency Revenue Bonds 250 5.500 01/01/10 265 North Carolina Municipal Power Agency No. 1 Catawba Revenue Bonds 200 5.500 01/01/13 216 North Carolina Municipal Power Agency No. 1 Catawba Revenue Bonds (u) 1,500 6.000 01/01/12 1,684 University of North Carolina at Chapel Hill Revenue Bonds (E) 1,100 2.730 02/15/31 1,100 University of North Carolina Revenue Bonds 2,500 5.000 12/01/34 2,590 ------------ 5,855 ------------ Ohio - 2.6% Columbus Ohio General Obligation, Ltd. 585 5.250 01/01/11 631 County of Hamilton Ohio Revenue Bonds (u) 250 6.000 12/01/05 251 Jackson Local School District Stark & Summit Counties General Obligation Unlimited (u) 500 Zero coupon 12/01/07 467 Ohio State Building Authority Revenue Bonds 575 5.750 04/01/08 607 Ohio State Building Authority Revenue Bonds (u) 500 6.000 04/01/06 506 Ohio State Higher Educational Facility Commission Revenue Bonds 1,000 5.000 12/01/09 1,053 State of Ohio General Obligation Unlimited 550 5.500 05/01/08 580 State of Ohio General Obligation Unlimited 1,500 5.000 02/01/10 1,592 Steubenville Ohio Revenue Bonds 280 5.700 10/01/10 302 University of Cincinnati Revenue Bonds (u) 300 5.500 06/01/08 317 ------------ 6,306 ------------
Tax Exempt Bond Fund 175 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- Oklahoma - 0.2% Oklahoma Development Finance Authority Revenue Bonds 275 5.000 10/01/13 284 Oklahoma Housing Finance Agency Revenue Bonds 90 7.600 09/01/15 94 ------------ 378 ------------ Oregon - 2.1% Clackamas County School District No. 62C Oregon City General Obligation Unlimited (ae) 435 6.000 06/15/11 482 Deschutes County Administrative School District No. 1 General Obligation Unlimited (u) 1,000 5.000 06/15/10 1,065 Oregon State Department of Administrative Services Revenue Bonds (u) 1,000 5.000 09/01/08 1,047 Oregon State Department of Administrative Services Revenue Bonds (u) 750 5.250 04/01/10 800 Oregon State Department of Transportation Revenue Bonds 1,000 5.000 11/15/13 1,080 State of Oregon General Obligation, Ltd. 800 5.700 10/01/32 817 ------------ 5,291 ------------ Pennsylvania - 2.3% Allegheny County Port Authority Revenue Bonds (u) 250 5.500 03/01/17 270 Berks County Vocational Technical School Authority Revenue Bonds (u) 1,260 5.000 06/01/15 1,359 City of Philadelphia Pennsylvania Revenue Bonds (u) 500 5.500 07/01/07 518 County of Allegheny Pennsylvania General Obligation Unlimited (u) 1,000 5.000 10/01/15 1,077 Erie County Industrial Development Authority Revenue Bonds 180 5.300 04/01/12 188 Norwin School District General Obligation Unlimited (ae)(u) 250 6.000 04/01/20 275 Owen J Roberts School District General Obligation Unlimited (u) 500 5.000 08/15/12 537 Pittsburgh Public Parking Authority Revenue Bonds (u) 310 5.000 12/01/16 327 Sayre Health Care Facilities Authority Revenue Bonds 690 5.300 12/01/12 720 St. Mary Hospital Authority Revenue Bonds 300 5.000 11/15/13 313 ------------ 5,584 ------------ Puerto Rico - 4.7% Commonwealth of Puerto Rico General Obligation Unlimited (u) 1,000 5.250 07/01/27 1,064 Puerto Rico Electric Power Authority Revenue Bonds 1,000 5.000 07/01/13 1,074 Puerto Rico Electric Power Authority Revenue Bonds (u) 500 5.500 07/01/17 561 Puerto Rico Highway & Transportation Authority Revenue Bonds 2,000 5.000 07/01/13 2,114 Puerto Rico Highway & Transportation Authority Revenue Bonds 1,000 5.000 07/01/30 1,011 Puerto Rico Public Buildings Authority Revenue Bonds (E) 1,500 4.500 07/01/22 1,526 Puerto Rico Public Buildings Authority Revenue Bonds (E) 1,095 5.000 07/01/28 1,143 Puerto Rico Public Finance Corp. Revenue Bonds, weekly demand (E)(u) 3,000 5.750 08/01/27 3,248 ------------ 11,741 ------------ South Carolina - 2.0% Richland-Lexington Airport District Revenue Bonds (u) 250 5.000 01/01/06 251 Richland-Lexington Airport District Revenue Bonds (u) 500 5.000 01/01/09 523 Richland-Lexington Airport District Revenue Bonds (u) 440 5.000 01/01/10 462 Rock Hill South Carolina Revenue Bonds (u) 250 5.000 01/01/10 266 South Carolina State Public Service Authority Revenue Bonds (u) 375 5.500 01/01/11 405 South Carolina Transportation Infrastructure Bank Revenue Bonds (u) 2,500 5.250 10/01/31 2,620 Spartanburg County South Carolina Revenue Bonds (u) 500 6.000 04/15/07 520 ------------ 5,047 ------------
176 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- South Dakota - 0.7% Sioux Falls South Dakota Revenue Bonds (u) 250 5.500 11/15/10 273 South Dakota State Building Authority Revenue Bonds (u) 1,330 5.000 09/01/12 1,425 ------------ 1,698 ------------ Tennessee - 2.3% Chattanooga Health Educational & Housing Facility Board Revenue Bonds 2,000 5.000 10/01/25 1,938 County of Williamson Tennessee General Obligation Unlimited 500 6.000 03/01/06 505 Maury County Tennessee General Obligation Unlimited (u) 1,000 5.000 04/01/16 1,064 Metropolitan Government Nashville & Davidson County Health & Educational Facility Board Revenue Bonds 920 5.000 11/01/06 938 Metropolitan Government Nashville & Davidson County Tennessee Revenue Bonds (u) 180 5.250 01/01/13 197 Tennessee Housing Development Agency Revenue Bonds 925 5.375 01/01/18 961 ------------ 5,603 ------------ Texas - 10.9% Alvin Independent School District General Obligation Unlimited 515 6.750 08/15/09 575 Alvin Independent School District General Obligation Unlimited 545 6.750 08/15/10 621 Boerne Independent School District General Obligation Unlimited 1,380 5.250 02/01/27 1,451 Boerne Independent School District General Obligation Unlimited 1,500 5.250 02/01/29 1,572 Brazos River Harbor Navigation District Revenue Bonds (E) 220 4.750 05/15/33 224 City of Houston Texas Revenue Bonds (u) 515 5.250 05/15/14 562 City of San Antonio Texas Revenue Bonds 1,000 5.250 02/01/13 1,086 County of Harris Texas General Obligation, Ltd. 1,435 5.250 08/15/09 1,525 County of Harris Texas Revenue Bonds (u) 1,500 5.250 08/15/35 1,564 County of Harris Texas Revenue Bonds (u)(E) 1,500 5.000 08/15/21 1,578 County of Travis Texas General Obligation, Ltd. 1,000 5.250 03/01/10 1,069 Dallas Independent School District General Obligation Unlimited 2,100 5.000 02/15/14 2,250 El Paso Independent School District General Obligation Unlimited 1,000 5.375 08/15/09 1,068 Fort Bend County Industrial Development Corp. Revenue Bonds 250 3.500 10/01/11 249 Highland Park Independent School District General Obligation Unlimited 960 5.000 02/15/13 1,028 North Texas Tollway Authority Revenue Bonds (E)(u) 1,000 5.000 01/01/18 1,041 Northside Independent School District General Obligation Unlimited 400 5.500 02/15/16 430 Nueces River Authority Revenue Bonds (u) 245 5.000 07/15/13 263 Port of Corpus Christi Authority of Nueces County Texas Revenue Bonds 385 5.350 11/01/10 392 Round Rock Independent School District General Obligation Unlimited 1,000 6.500 08/01/10 1,127 Round Rock Independent School District General Obligation Unlimited 750 6.500 08/01/11 848 Round Rock Independent School District General Obligation Unlimited 430 5.375 08/01/12 469 Texas A & M University Revenue Bonds 1,000 5.000 07/01/08 1,043 Titus County Hospital District General Obligation Limited (u) 1,000 5.000 08/15/13 1,067 Tyler Independent School District General Obligation Unlimited 1,350 5.000 02/15/10 1,423 University of Houston Revenue Bonds (u) 2,000 5.500 02/15/30 2,132 Waco Health Facilities Development Corp. Revenue Bonds 250 5.200 11/15/06 255 ------------ 26,912 ------------
Tax Exempt Bond Fund 177 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- Utah - 0.7% County of Utah Utah Revenue Bonds 200 5.050 11/01/17 210 Intermountain Power Agency Revenue Bonds (u) 1,400 6.500 07/01/10 1,581 ------------ 1,791 ------------ Virgin Islands - 1.1% Virgin Islands Public Finance Authority Revenue Bonds 2,500 5.500 10/01/14 2,626 ------------ Virginia - 2.0% City of Richmond Virginia General Obligation Unlimited (u) 1,000 5.000 07/15/15 1,075 County of Fairfax Virginia Certificate of Participation 200 5.750 04/15/13 214 Middle River Regional Jail Authority Revenue Bonds (u) 1,015 5.000 05/15/15 1,090 Virgin Islands Public Finance Authority Revenue Bonds 200 5.000 10/01/13 211 Virgin Islands Public Finance Authority Revenue Bonds 250 5.000 10/01/14 264 Virginia Commonwealth Transportation Board Revenue Bonds 360 5.375 05/15/12 389 Virginia Commonwealth Transportation Board Revenue Bonds 1,000 5.250 05/15/16 1,074 Virginia Public Building Authority Revenue Bonds 500 5.750 08/01/07 522 ------------ 4,839 ------------ Washington - 2.2% Clallam County Public Utility District No. 1 Revenue Bonds (u) 385 5.000 01/01/08 399 King County School District No. 405 Bellevue General Obligation Unlimited (u) 2,000 5.000 12/01/14 2,146 Kitsap County Washington General Obligation, Ltd. (u) 775 5.750 07/01/14 851 Tobacco Settlement Authority of Washington Revenue Bonds 880 6.500 06/01/26 953 Washington Public Power Supply System Revenue Bonds 1,000 7.000 07/01/08 1,091 ------------ 5,440 ------------ Wisconsin - 1.6% City of Madison Wisconsin Revenue Bonds 280 4.875 10/01/27 292 Oconto Falls Public School District General Obligation Unlimited (ae)(u) 750 5.750 03/01/13 830 State of Wisconsin General Obligation Unlimited 625 5.125 11/01/11 670 Wisconsin Housing & Economic Development Authority Revenue Bonds 50 6.850 11/01/12 51 Wisconsin State Health & Educational Facilities Authority Revenue Bonds 70 5.000 07/01/06 71 Wisconsin State Health & Educational Facilities Authority Revenue Bonds 210 5.250 05/01/12 219 Wisconsin State Health & Educational Facilities Authority Revenue Bonds 220 5.250 05/01/13 229 Wisconsin State Health & Educational Facilities Authority Revenue Bonds (u) 1,425 5.000 12/01/10 1,512 ------------ 3,874 ------------ TOTAL MUNICIPAL BONDS (cost $235,474) 236,186 ------------
178 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL DATE MARKET AMOUNT ($) RATE OF VALUE OR SHARES % MATURITY $ - -------------------------------------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 3.6% Frank Russell Investment Company Tax Free Money Market Fund 8,987,847 8,988 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $8,988) 8,988 ------------ TOTAL INVESTMENTS - 99.0% (identified cost $244,462) 245,174 OTHER ASSETS AND LIABILITIES, NET - 1.0% 2,495 ------------ NET ASSETS - 100% 247,669 ============
See accompanying notes which are an integral part of the financial statements. Tax Exempt Bond Fund 179 FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005
- ---------------------------------------------------------------------------- QUALITY RATINGS AS A % OF VALUE (Unaudited) AAA 65% AA 14 A 10 BBB 9 Other 2 --- 100% === ECONOMIC SECTOR EMPHASIS AS A % OF VALUE (Unaudited) General Obligations 28% Other 22 Universities 13 Health Care 10 Utilities 10 Cash Equivalents 4 Housing Revenue 4 Pollution Control Revenue 4 State & Community Lease 4 Refunded and Special Obligations 1 --- 100% ===
See accompanying notes which are an integral part of the financial statements. 180 Tax Exempt Bond Fund FRANK RUSSELL INVESTMENT COMPANY TAX EXEMPT BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Alabama 0.7 Alaska 0.2 Arizona 2.4 California 9.8 Colorado 1.0 Delaware 0.4 District of Columbia 0.6 Florida 4.7 Georgia 1.7 Hawaii 0.6 Illinois 5.0 Indiana 2.8 Iowa 0.1 Kansas 1.1 Louisiana 1.0 Maine 0.2 Massachusetts 2.9 Michigan 1.1 Minnesota 1.3 Mississippi 0.1 Missouri 0.9 Montana 0.8 Nevada 1.3 New Hampshire 0.1 New Jersey 4.5 New Mexico 1.6 New York 10.7 North Carolina 2.4 Ohio 2.6 Oklahoma 0.2 Oregon 2.1 Pennsylvania 2.3 Puerto Rico 4.7 South Carolina 2.0 South Dakota 0.7 Tennessee 2.3 Texas 10.9 Utah 0.7 Virgin Islands 1.1 Virginia 2.0 Washington 2.2 Wisconsin 1.6 Short-Term Investments 3.6 --------------- Total Investments 99.0 Other Assets and Liabilities, Net 1.0 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Tax Exempt Bond Fund 181 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
TAX-MANAGED LARGE CAP - CLASS S S&P 500(R) ** ------------------------------- ------------- Inception * 10000 10000 1996 10030 10039 1997 13260 13263 1998 16239 16180 1999 20271 20333 2000 21284 21571 2001 16207 16199 2002 13255 13752 2003 15937 16613 2004 17744 18178 2005 19160 19763
Tax-Managed Large Cap Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 7.98% 5 Years (2.08)%S Inception* 7.44%S
Tax-Managed Large Cap Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 7.72% 5 Years (2.31)%S Inception* 7.30%S
Tax-Managed Large Cap Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 6.94% 5 Years (3.07)%S Inception* 6.72%S
Standard & Poor's 500(R) Composite Stock Price Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.72% 5 Years (1.74)%S Inception* 8.04%S
182 Tax-Managed Large Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth on an after-tax basis. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Tax-Managed Large Cap Fund Class S, Class E and Class C Shares gained 7.98%, 7.72% and 6.94%, respectively. This compared to the S&P 500(R) Index, which gained 8.72% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Large-Cap Core Funds Average returned 8.33%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Concerns over surging oil prices and rising interest rates, and the potential impact these factors would have on consumer spending and corporate profits, led to a very narrow and defensively oriented market. The other energy, integrated oils and consumer staples sectors were the strongest performing sectors in the S&P 500 Index. The Fund's underweight to the other energy sector negatively impacted performance. An overweight in the consumer discretionary sector, one of the weakest groups during the period, also detracted from the Fund's performance. Finally, the Fund's higher financial quality bias, as measured by S&P senior debt ratings, was another detractor from performance. Companies with lower financial quality outperformed those with higher financial quality in the 12 months. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's performance was negatively impacted by its economic sector weightings. An underweight in the other energy sector and overweight in consumer discretionary were key factors behind the Fund's underperformance. In addition, technology stock selection, particularly in computer stocks, also detracted from performance. Greater exposure to large capitalization and higher financial quality companies also detracted from Fund performance, as smaller capitalization and lower financial quality companies fared better over the period. Offsetting these negatives, stock selection in the health care and consumer discretionary sectors positively contributed to performance. The Fund was overweight in the better performing biotechnology, pharmaceutical and consumer electronics sectors. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's growth managers, Sands Capital Management, Inc. and Turner Investment Partners, Inc., outperformed their respective style benchmarks as well as the Fund's S&P 500(R) Index. Sands' weak sector allocation (e.g., zero weight in other energy and overweight in consumer discretionary) was more than offset by strong stock selection. Sands' health care (biotechnology) and technology (consumer electronics) stock selection was particularly strong. Turner, added to the Fund in May 2005, achieved positive results in most sectors; however, the bulk of Turner's outperformance came from health care and consumer discretionary sectors where pharmaceutical, biotech, gaming and consumer electronics stocks had strong gains. These positive contributors to performance were partially offset by Turner's poor stock selection within the financial services sector. Kayne Anderson Rudnick Investment Management, LLC was the Fund's weakest performer, as its "high quality at a reasonable price" strategy was out of favor with the market. Kayne's focus on large cap, high financial quality companies, its underweight in energy sectors and weak stock selection across most sectors were the primary detractors from performance. J.P. Morgan Investment Management, Inc. also trailed its S&P 500 Index benchmark due to its underweight in the other energy sector and weak stock selection in the technology and utilities sectors. John A. Levin underperformed its Russell 1000(R) Value Index benchmark chiefly due to poor stock selection within the financial services, consumer discretionary and health care sectors. Much of this weakness was tied to poor performance from retail, broadcasting, insurance and health care management holdings. These negative factors were partially offset by positive sector allocations and strong stock selection in the utilities sector. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Turner was added to the Fund line-up early in May 2005, to provide a complement to Sands, the sole large cap growth manager at the time. Turner's earnings momentum investment strategy seeks to identify companies it believes have strong or rapidly improving earnings growth. This process is intended to provide a good complement to Sands' focus on companies with unique products or services that it expects will lead to higher sustainable earnings growth rates. Turner's assignment was funded by reducing the allocations to Sands and J.P. Morgan within the Fund. Tax-Managed Large Cap Fund 183 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 John A. Levin & Co., Inc. Value J.P. Morgan Investment Management, Inc. Market-Oriented Kayne Anderson Rudnick Investment Management, LLC Market-Oriented Sands Capital Management, Inc. Growth Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Tax-Managed Large Cap Fund Class S assumes initial investment on October 7, 1996. ** The Standard & Poor's 500(R) Composite Stock Price Index is composed of 500 common stocks which are chosen by Standard & Poor's Corporation to best capture the price performance of a large cross-section of the US publicly traded stock market. The Index is structured to approximate the general distribution of industries in the US economy. ++ Tax-Managed Large Cap Fund Class S performance has been linked with Class E to provide historical perspective. For the period December 8, 2000 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax-Managed Large Cap Fund Class S performance has been linked with Class C to provide historical prospective. For the period December 6, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 184 Tax-Managed Large Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,048.00 $ 1,015.48 Expenses Paid During Period* $ 9.96 $ 9.80
* Expenses are equal to the Fund's annualized expense ratio of 1.93% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,051.80 $ 1,019.26 Expenses Paid During Period* $ 6.10 $ 6.01
* Expenses are equal to the Fund's annualized expense ratio of 1.18% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,053.40 $ 1,020.52 Expenses Paid During Period* $ 4.81 $ 4.74
* Expenses are equal to the Fund's annualized expense ratio of 0.93% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Tax-Managed Large Cap Fund 185 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 95.4% Auto and Transportation - 1.6% Burlington Northern Santa Fe Corp. 11,520 715 CSX Corp. 6,900 316 FedEx Corp. 8,400 772 Harley-Davidson, Inc. (N) 33,300 1,649 Lear Corp. (N) 13,300 405 Norfolk Southern Corp. 4,500 181 Ship Finance International, Ltd. 27,600 526 United Parcel Service, Inc. Class B 26,600 1,940 ------------ 6,504 ------------ Consumer Discretionary - 16.7% Abercrombie & Fitch Co. Class A 9,300 484 Accenture, Ltd. Class A 12,000 316 Apollo Group, Inc. Class A (AE) 61,000 3,844 Bed Bath & Beyond, Inc. (AE) 42,900 1,738 Carnival Corp. 9,000 447 Cintas Corp. 35,000 1,420 Citadel Broadcasting Corp. 27,100 373 Coach, Inc. (AE) 30,950 996 Costco Wholesale Corp. 35,000 1,693 eBay, Inc. (AE) 165,500 6,554 Electronic Arts, Inc. (AE) 13,400 762 EW Scripps Co. Class A 8,200 376 Fisher Scientific International, Inc. (AE) 16,610 938 Gannett Co., Inc. 32,500 2,036 Gap, Inc. (The) 2,700 47 Google, Inc. Class A (AE) 21,990 8,183 Hilton Hotels Corp. 6,600 128 Home Depot, Inc. 95,200 3,907 Iron Mountain, Inc. (AE) 23,000 897 Jones Apparel Group, Inc. 19,200 524 Kohl's Corp. (AE) 41,500 1,997 Leggett & Platt, Inc. 60,600 1,214 Limited Brands, Inc. 37,508 751 Lowe's Cos., Inc. 69,900 4,248 McDonald's Corp. 21,200 670 MGM Mirage (AE) 15,320 573 News Corp. Class A 173,000 2,465 Nike, Inc. Class B 12,800 1,076 Regal Entertainment Group Class A 28,025 517 Scientific Games Corp. Class A (AE) 22,240 666 Sirius Satellite Radio, Inc. (AE) 119,320 745 Starbucks Corp. (AE) 216,560 6,124 Starwood Hotels & Resorts Worldwide, Inc. (o) 4,300 251 Target Corp. 22,900 1,275 Time Warner, Inc. 31,675 565 Viacom, Inc. Class B 75,000 2,323 Wal-Mart Stores, Inc. 81,700 3,865 Walt Disney Co. 26,200 638
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wendy's International, Inc. 1,900 89 Yahoo!, Inc. (AE) 69,950 2,586 Yum! Brands, Inc. 8,000 407 ------------ 68,708 ------------ Consumer Staples - 7.8% Altria Group, Inc. 63,600 4,773 Anheuser-Busch Cos., Inc. 24,000 990 Coca-Cola Co. (The) 85,000 3,637 Colgate-Palmolive Co. 20,300 1,075 Constellation Brands, Inc. Class A (AE) 16,580 390 CVS Corp. 35,400 864 Diageo PLC - ADR 29,600 1,759 General Mills, Inc. 13,100 632 PepsiCo, Inc. 86,980 5,139 Procter & Gamble Co. 136,685 7,653 Sysco Corp. 56,880 1,815 Walgreen Co. 55,800 2,535 Whole Foods Market, Inc. 7,410 1,068 ------------ 32,330 ------------ Financial Services - 18.3% Aflac, Inc. 34,000 1,625 Allstate Corp. (The) 39,500 2,085 Ambac Financial Group, Inc. 23,800 1,687 American Express Co. 16,690 831 American International Group, Inc. 50,120 3,248 Automatic Data Processing, Inc. 33,100 1,544 Bank of America Corp. 177,208 7,751 Bank of New York Co., Inc. (The) 43,200 1,352 Capital One Financial Corp. 30,500 2,329 CarrAmerica Realty Corp. (o) 4,300 142 Chicago Mercantile Exchange 7,800 2,848 Cigna Corp. 8,900 1,031 CIT Group, Inc. 19,000 869 Citigroup, Inc. 208,900 9,563 City National Corp. 500 37 Compass Bancshares, Inc. 6,000 293 Countrywide Financial Corp. 44,700 1,420 E*Trade Financial Corp. (AE) 18,600 345 First Data Corp. 4,700 190 Freddie Mac 15,800 969 Genworth Financial, Inc. Class A 7,600 241 Goldman Sachs Group, Inc. 13,300 1,681 Hartford Financial Services Group, Inc. 11,300 901
186 Tax-Managed Large Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hibernia Corp. Class A 5,800 172 Host Marriott Corp. (o) 7,000 118 Hudson City Bancorp, Inc. 10,300 122 JPMorgan Chase & Co. 40,504 1,483 MBIA, Inc. 11,600 676 MBNA Corp. 33,100 846 Mellon Financial Corp. 14,300 453 Merrill Lynch & Co., Inc. 16,200 1,049 Metlife, Inc. 100 5 Moody's Corp. 44,400 2,365 Morgan Stanley 65,690 3,574 North Fork Bancorporation, Inc. 54,200 1,373 Nuveen Investments, Inc. Class A 25,700 1,040 Paychex, Inc. 36,200 1,403 Piper Jaffray Cos., Inc. (AE)(N) 700 24 ProLogis (o) 7,200 310 Regions Financial Corp. 22,359 728 St. Paul Travelers Cos., Inc. (The) 7,600 342 State Street Corp. 35,700 1,972 SunTrust Banks, Inc. 4,200 304 Synovus Financial Corp. 40,400 1,110 Torchmark Corp. (N) 7,900 417 US Bancorp 149,200 4,413 Wachovia Corp. 59,700 3,016 Washington Mutual, Inc. 21,400 847 Wells Fargo & Co. 70,600 4,250 WR Berkley Corp. 1,300 57 ------------ 75,451 ------------ Health Care - 15.6% Aetna, Inc. 20,400 1,807 Allergan, Inc. 28,200 2,518 American Pharmaceutical Partners, Inc. (AE) 17,300 745 Amgen, Inc. (AE) 67,510 5,115 Biomet, Inc. 6,900 240 Bristol-Myers Squibb Co. 24,900 527 Caremark Rx, Inc. (AE) 19,130 1,002 Eli Lilly & Co. 56,200 2,798 Forest Laboratories, Inc. (AE) 12,100 459 Genentech, Inc. (AE) 84,980 7,699 Genzyme Corp. (AE) 45,300 3,275 Gilead Sciences, Inc. (AE) 32,860 1,553 Guidant Corp. 21,600 1,361 HCA, Inc. 6,900 333 Intuitive Surgical, Inc. (AE) 10,000 887 Johnson & Johnson 135,650 8,494 Medicis Pharmaceutical Corp. Class A (N) 300 9 Medtronic, Inc. 81,700 4,629 Patterson Cos., Inc. (AE) 27,800 1,150 Pfizer, Inc. 266,850 5,801 Schering-Plough Corp. 11,300 230
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Sepracor, Inc. (AE)(N) 16,400 922 Stryker Corp. 43,700 1,795 Teva Pharmaceutical Industries, Ltd. - ADR 94,600 3,606 Watson Pharmaceuticals, Inc. (AE) 2,000 69 WellPoint, Inc. (AE) 31,990 2,389 Wyeth 82,600 3,681 Zimmer Holdings, Inc. (AE) 19,500 1,244 ------------ 64,338 ------------ Integrated Oils - 4.8% BP PLC - ADR 37,630 2,499 Chevron Corp. 91,467 5,220 ConocoPhillips 40,600 2,654 Exxon Mobil Corp. 166,686 9,358 ------------ 19,731 ------------ Materials and Processing - 2.7% Air Products & Chemicals, Inc. 7,000 401 Alcoa, Inc. 20,400 496 Aracruz Celulose SA - ADR 6,400 245 Archer-Daniels-Midland Co. 5,100 124 Cemex SA de CV - ADR 15,640 815 Dow Chemical Co. (The) 30,600 1,403 Eastman Chemical Co. 14,800 781 EI Du Pont de Nemours & Co. 59,100 2,464 Georgia-Pacific Corp. 2,500 81 Masco Corp. 14,600 416 Monsanto Co. 7,300 460 Nalco Holding Co. (AE) 25,700 437 Olin Corp. 40,900 731 Packaging Corp. of America 10,600 215 PPG Industries, Inc. 6,200 372 Praxair, Inc. 7,900 390 Temple-Inland, Inc. (N) 11,600 427 United States Steel Corp. 21,500 786 ------------ 11,044 ------------ Miscellaneous - 4.7% 3M Co. 20,800 1,580 Eaton Corp. 2,800 165 Fortune Brands, Inc. 2,000 152 General Electric Co. 330,120 11,194 Honeywell International, Inc. 24,100 824 Johnson Controls, Inc. 10,700 728 Textron, Inc. 24,300 1,751 Tyco International, Ltd. 114,200 3,014 ------------ 19,408 ------------
Tax-Managed Large Cap Fund 187 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Other Energy - 1.7% Anadarko Petroleum Corp. 20,000 1,814 Apache Corp. 18,200 1,162 Devon Energy Corp. 11,900 719 Dynegy, Inc. Class A (AE)(N) 700 3 Halliburton Co. 3,100 183 Pride International, Inc. (AE) 100 3 Valero Energy Corp. 3,300 347 Weatherford International, Ltd. (AE) 2,600 163 Williams Cos., Inc. 55,300 1,233 XTO Energy, Inc. 32,360 1,406 ------------ 7,033 ------------ Producer Durables - 5.1% ACCO Brands Corp. (AE)(N) 470 11 American Tower Corp. Class A (AE) 14,800 353 Applied Materials, Inc. 22,090 362 Boeing Co. 20,510 1,326 Caterpillar, Inc. 13,760 724 Centex Corp. (N) 1,400 90 Danaher Corp. 12,900 672 Deere & Co. 3,300 200 Diebold, Inc. 32,300 1,167 DR Horton, Inc. 2,800 86 Emerson Electric Co. 26,200 1,822 Hubbell, Inc. Class B 16,100 775 Illinois Tool Works, Inc. 12,300 1,043 Ingersoll-Rand Co. Class A 20,400 771 KB Home 1,800 118 Koninklijke Philips Electronics NV 72,600 1,899 Lennar Corp. Class A 2,500 139 Lockheed Martin Corp. 34,600 2,095 Northrop Grumman Corp. 53,700 2,881 Pitney Bowes, Inc. 28,800 1,212 Pulte Homes, Inc. 400 15 Teradyne, Inc. (AE)(N) 200 3 United Technologies Corp. 66,400 3,405 ------------ 21,169 ------------ Technology - 11.4% Affiliated Computer Services, Inc. Class A (AE)(N) 6,700 363 Altera Corp. (AE) 50,100 834 Analog Devices, Inc. 11,700 407 Apple Computer, Inc. (AE) 19,020 1,095 Broadcom Corp. Class A (AE) 19,190 815 Cisco Systems, Inc. (AE) 113,400 1,979 Computer Associates International, Inc. 758 21 Computer Sciences Corp. (AE) 12,200 625 Corning, Inc. (AE) 108,610 2,182 Dell, Inc. (AE) 144,100 4,594 EMC Corp. (AE) 71,150 993
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hewlett-Packard Co. 30,600 858 Intel Corp. 187,400 4,404 International Business Machines Corp. 60,500 4,954 Intersil Corp. Class A (N) 1,700 39 Juniper Networks, Inc. (AE) 50,180 1,171 Linear Technology Corp. 61,600 2,046 Marvell Technology Group, Ltd. (AE) 24,700 1,146 Microsoft Corp. 334,570 8,598 Motorola, Inc. 43,600 966 NCR Corp. (AE) 22,300 674 Oracle Corp. (AE) 61,300 777 Qualcomm, Inc. 96,300 3,829 Raytheon Co. 11,500 425 Red Hat, Inc. (AE) 74,400 1,728 Seagate Technology, Inc. (AE) 26,700 -- Texas Instruments, Inc. 33,310 951 Xilinx, Inc. 19,800 474 ------------ 46,948 ------------ Utilities - 5.0% Ameren Corp. 11,400 600 AT&T Corp. 34,500 682 Cinergy Corp. 18,000 718 Comcast Corp. Class A (AE) 10,100 281 Comcast Corp. Special Class A (AE) 800 22 Consolidated Edison, Inc. (N) 3,000 137 Constellation Energy Group, Inc. 5,400 296 Dominion Resources, Inc. 2,300 175 Duke Energy Corp. 1,200 32 Edison International 24,600 1,077 Entergy Corp. 25,200 1,782 Exelon Corp. 14,000 728 PanAmSat Holding Corp. 18,100 432 PG&E Corp. (N) 46,600 1,695 Pinnacle West Capital Corp. 19,500 814 PPL Corp. 43,600 1,366 Public Service Enterprise Group, Inc. 14,700 924 SBC Communications, Inc. 176,500 4,210 Sprint Nextel Corp. 25,056 584 TXU Corp. 2,200 222 Verizon Communications, Inc. 87,980 2,772 Western Gas Resources, Inc. 15,350 665 Xcel Energy, Inc. (N) 15,100 277 ------------ 20,491 ------------ TOTAL COMMON STOCKS (cost $302,119) 393,155 ------------
188 Tax-Managed Large Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 4.3% Frank Russell Investment Company Money Market Fund 16,419,000 16,419 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 1,300 1,296 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $17,715) 17,715 ------------ OTHER SECURITIES - 1.2% Frank Russell Investment Company Money Market Fund (X) 1,631,693 1,632 State Street Securities Lending Quality Trust (X) 3,343,184 3,343 ------------ TOTAL OTHER SECURITIES (cost $4,975) 4,975 ------------ TOTAL INVESTMENTS - 100.9% (identified cost $324,809) 415,845 OTHER ASSETS AND LIABILITIES, NET - (0.9%) (3,590) ------------ NET ASSETS - 100.0% 412,255 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions S&P 500 E-Mini Index expiration date 12/05 (51) 3,085 (75) S&P 500 Index expiration date 12/05 (48) 14,518 (118) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (193) ===============
See accompanying notes which are an integral part of the financial statements. Tax-Managed Large Cap Fund 189 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED LARGE CAP FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 1.6 Consumer Discretionary 16.7 Consumer Staples 7.8 Financial Services 18.3 Health Care 15.6 Integrated Oils 4.8 Materials and Processing 2.7 Miscellaneous 4.7 Other Energy 1.7 Producer Durables 5.1 Technology 11.4 Utilities 5.0 Short-Term Investments 4.3 Other Securities 1.2 --------------- Total Investments 100.9 Other Assets and Liabilities, Net (0.9) --------------- 100.0 =============== Futures Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 190 Tax-Managed Large Cap Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
TAX-MANAGED MID & SMALL CAP - CLASS S RUSSELL 2500(TM) ** ----------------------------- ------------------- Inception* 10000 10000 2000 11087 11668 2001 7885 10249 2002 7124 9313 2003 9336 13195 2004 10176 14823 2005 11597 17032
Tax-Managed Mid & Small Cap Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 15.21% 5 Years 1.93%sec. Inception* 3.54%sec.
Tax-Managed Mid & Small Cap Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.87% 5 Years 1.68%sec. Inception* 3.33%sec.
Tax-Managed Mid & Small Cap Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 13.96% 5 Years 0.90%sec. Inception* 2.53%sec.
Russell 2500(TM) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.90% 5 Years 7.86%sec. Inception* 9.35%sec.
192 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth on an after tax basis. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Tax-Managed Mid & Small Cap Fund Class S, Class E and Class C Shares gained 15.21%, 14.87% and 13.96%, respectively. This compared to the Russell 2500(TM) Index, which gained 14.90% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Mid-Cap Core Funds Average returned 14.82%. For the same period, the Lipper(R) Small-Cap Core Funds Average returned 13.24%. These results serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund's slightly larger capitalization weight relative to the benchmark detracted from performance during the fiscal year as smaller capitalization companies outperformed larger capitalization companies. In addition, an underweight to the well-performing utilities sector and overweight to technology stocks also hurt performance. Finally, a bias towards higher growth stocks also detracted as small capitalization value stocks outperformed small capitalization growth stocks in the 12 months. These negatives were offset by an overweight to the other energy sector and underweight to the financial services sector. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Strong stock selection was the primary driver of the Fund's modest outperformance. The Fund's money managers added greatest value in the healthcare, financial services and utilities sectors due to strong gains among some of their biotechnology, REIT and gas distributor stocks. Sector weighting decisions were also positive contributors to performance. Stock selection within the consumer discretionary and consumer staples sectors detracted from results in the period. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? All five money managers outperformed their respective style benchmarks, while four of the five money managers also outperformed the Fund's Russell 2500(TM) Index. Parametric Portfolio Associates, LLC and Turner Investment Partners, Inc., added the greatest value. Transamerica Investment Management, LLC, while outperforming its Russell 2500(TM) Growth Index benchmark, fell slightly short of the Russell 2500(TM) Index and had a small negative impact on Fund performance. Netols Asset Management, Inc., outperformed its Russell 2000(TM) Value Index benchmark with strong stock selection across most sectors. The top positive contributors came from the technology and consumer discretionary sectors due to well-performing commercial service, electronics and software stocks. Netols' sector allocation was also modestly positive. Turner also added value in most sectors, with the best gains from diversified financial service stocks. Consumer discretionary, healthcare and producer durables stock selection was also strong due to good results from advertising, health care management and industrial stocks. Turner's only notable source of weakness came from the technology sector where holdings within the electronics industry detracted from performance. Chartwell Investment Partners added value, as strong selection within financial services offset poor sector selection. Stock selection within the consumer discretionary and materials and processing sectors detracted from performance. Parametric outperformed due to health care stock selection. As a result of sizable unrealized taxable capital gains within health care stocks held by the Fund, Parametric's index optimization strategy led to an overweight within this strongly performing sector. Finally, Transamerica outperformed due to positive stock selection within the financial services and materials and processing sectors. These gains were offset by poor stock selection in the technology and producer durables sectors. Sector weightings also detracted from performance due to overweights in technology and financial services. Tax-Managed Mid & Small Cap Fund 193 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes in the structure of the Fund during the fiscal year; however, Westcap Investors, LLC was acquired by Transamerica Investment Management, LLC in August 2005. The same investment team that managed the Fund's portfolio at Westcap continued to manage the portfolio at Transamerica. Money Managers as of Styles October 31, 2005 Chartwell Investment Partners Value Netols Asset Management, Inc. Value Parametric Portfolio Associates. LLC Market-Oriented Transamerica Investment Management, LLC Growth Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Tax-Managed Mid & Small Cap Fund Class S assumes initial investment on November 30, 1999. ** 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 distribution reinvested as of the ex-dividend dates. ++ Tax-Managed Mid & Small Cap Fund Class S performance has been linked with Class E to provide historical perspective. For the period December 8, 2000 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Tax-Managed Mid & Small Cap Fund Class S performance has been linked with Class C to provide historical perspective. For the period December 2, 1999 (commencement of sale) through the current period, Class C paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 194 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,124.10 $ 1,013.86 Expenses Paid During Period* $ 12.05 $ 11.42
* Expenses are equal to the Fund's annualized expense ratio of 2.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,128.40 $ 1,017.64 Expenses Paid During Period* $ 8.05 $ 7.63
* Expenses are equal to the Fund's annualized expense ratio of 1.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,129.80 $ 1,018.90 Expenses Paid During Period* $ 6.71 $ 6.36
* Expenses are equal to the Fund's annualized expense ratio of 1.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Tax-Managed Mid & Small Cap Fund 195 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 93.2% Auto and Transportation - 4.0% AAR Corp. (AE) 32,775 522 Alexander & Baldwin, Inc. 6,320 309 American Commercial Lines, Inc. (AE) 5,470 154 AMR Corp. (AE)(N) 9,300 126 ArvinMeritor, Inc. 7,500 120 Aviall, Inc. (AE) 20,863 658 CH Robinson Worldwide, Inc. 11,780 415 CNF, Inc. 3,100 174 Fleetwood Enterprises, Inc. (AE)(N) 43,031 476 Forward Air Corp. 14,925 529 Genesee & Wyoming, Inc. Class A (AE) 3,554 114 Gentex Corp. 30,154 568 Hayes Lemmerz International, Inc. (AE)(N) 16,100 63 Keystone Automotive Industries, Inc. (AE) 20,476 586 Modine Manufacturing Co. (AE) 2,700 89 Overseas Shipholding Group, Inc. 4,800 228 RailAmerica, Inc. (AE) 9,000 107 Skywest, Inc. 3,600 106 Superior Industries International (N) 5,400 110 Wabash National Corp. (N) 9,734 179 Wabtec Corp. 24,136 657 Winnebago Industries, Inc. (N) 13,181 386 ------------ 6,676 ------------ Consumer Discretionary - 18.7% Aaron Rents, Inc. 11,869 234 Administaff, Inc. 14,878 630 Advisory Board Co. (The) (AE) 5,987 289 Advo, Inc. 2,600 64 Aeropostale, Inc. (AE) 9,200 180 Alderwoods Group, Inc. (AE) 4,200 66 America's Car Mart, Inc. (AE)(N) 2,397 39 AMN Healthcare Services, Inc. (AE) 7,200 119 AnnTaylor Stores Corp. (AE) 4,200 102 Applebees International, Inc. 8,535 187 aQuantive, Inc. (AE)(N) 33,800 732 Arbitron, Inc. 9,480 355 Big 5 Sporting Goods Corp. (N) 22,625 502 Bright Horizons Family Solutions, Inc. (AE) 7,400 296 California Pizza Kitchen, Inc. (AE)(N) 15,579 499 Casella Waste Systems, Inc. Class A (AE) 24,000 305 Casual Male Retail Group, Inc. (AE)(N) 40,972 236 CDI Corp. (N) 5,200 143 Central European Distribution Corp. (AE)(N) 7,875 314 Chemed Corp. 5,000 240
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chico's FAS, Inc. (AE) 8,340 330 ChoicePoint, Inc. (AE) 15,989 676 CNET Networks, Inc. (AE)(N) 20,310 276 Copart, Inc. (AE) 20,518 480 Corinthian Colleges, Inc. (AE)(N) 38,788 483 Corrections Corp. of America (AE) 3,435 137 Cox Radio, Inc. Class A (AE) 16,110 230 Crown Media Holdings, Inc. Class A (AE)(N) 6,625 71 Ctrip.com International, Ltd. - ADR 2,940 169 DeVry, Inc. (AE) 22,220 502 DiamondCluster International, Inc. (AE) 57,677 371 Discovery Holding Co. Class A (AE) 3,900 55 Dover Motorsports, Inc. (N) 2,300 14 EarthLink, Inc. (AE)(N) 9,100 100 Education Management Corp. (AE) 20,832 642 Elizabeth Arden, Inc. (AE) 12,000 260 Emdeon Corp. (AE) 10,200 94 Entercom Communications Corp. (AE) 7,600 219 Entravision Communications Corp. Class A (AE) 49,338 405 Expedia, Inc. (AE) 3,950 74 Fisher Scientific International, Inc. (AE) 4,200 237 Fossil, Inc. (AE)(N) 42,141 660 Fred's, Inc. (N) 27,386 408 FTI (AE)(N) 36,096 988 GameStop Corp. Class A (AE)(N) 8,970 318 Gaylord Entertainment Co. (AE)(N) 6,720 265 Global Imaging Systems, Inc. (AE) 9,775 348 Gymboree Corp. (AE) 12,950 229 Harman International Industries, Inc. 3,200 320 Harrah's Entertainment, Inc. 1,149 69 Haverty Furniture Cos., Inc. (N) 4,200 51 Hudson Highland Group, Inc. (AE) 4,100 98 Insight Enterprises, Inc. (AE) 7,000 144 InterActiveCorp (AE) 3,950 101 International Speedway Corp. Class A 1,900 98 Ipass, Inc. (AE)(N) 35,482 195 J Jill Group, Inc. (AE) 31,107 395 Jarden Corp. (AE)(N) 20,258 685 Jos A Bank Clothiers, Inc. (AE)(N) 1,407 57 Kellwood Co. 3,100 68 Kelly Services, Inc. Class A 3,500 97 Krispy Kreme Doughnuts, Inc. (AE)(N) 17,300 80 Lamar Advertising Co. Class A (AE) 3,300 147 Landry's Restaurants, Inc. 6,600 181
196 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Liberty Global, Inc. Series A (AE) 1,530 38 Liberty Global, Inc. Series C (AE) 1,530 36 Lodgenet Entertainment Corp. (AE) 2,500 33 Majesco Entertainment Co. (AE)(N) 35,800 61 Matthews International Corp. Class A 5,400 194 MAXIMUS, Inc. 2,102 76 McCormick & Schmick's Seafood Restaurants, Inc. (AE)(N) 14,002 314 Men's Wearhouse, Inc. (The) (AE) 3,000 74 MGM Mirage (AE) 2,000 75 Michaels Stores, Inc. 3,900 129 Monster Worldwide, Inc. (AE) 11,020 362 MPS Group, Inc. (AE) 12,500 156 MSC Industrial Direct Co., Inc. Class A 8,069 308 Navigant Consulting, Inc. (AE) 4,100 86 Oxford Industries, Inc. (N) 6,175 304 Petco Animal Supplies, Inc. (AE) 30,462 579 Playboy Enterprises, Inc. Class B (AE)(N) 40,324 611 Playtex Products, Inc. (AE) 25,050 335 Polo Ralph Lauren Corp. 11,150 549 RC2 Corp. (AE) 7,217 252 Reader's Digest Association, Inc. (The) 32,531 498 Red Robin Gourmet Burgers, Inc. (AE)(N) 4,800 232 Regis Corp. (N) 7,775 298 Rent-A-Center, Inc. (AE) 1,277 23 Revlon, Inc. Class A (AE)(N) 31,424 92 Ruby Tuesday, Inc. (N) 15,140 332 Saks, Inc. (AE) 5,400 98 School Specialty, Inc. (AE) 2,100 71 Scientific Games Corp. Class A (AE) 13,380 401 Service Corp. International 65,279 546 Sharper Image Corp. (AE)(N) 8,900 91 Sirva, Inc. (AE)(N) 11,700 82 Source Interlink Cos., Inc. (AE)(N) 39,692 404 Sourcecorp, Inc. (AE) 5,800 132 Sports Authority, Inc. (The) (AE)(N) 16,898 470 Startek, Inc. (N) 8,500 108 Station Casinos, Inc. 10,410 667 Strayer Education, Inc. 6,655 596 Tetra Tech, Inc. (AE)(N) 3,737 58 Toro Co. 3,800 139 Tractor Supply Co. (AE) 12,530 608 United Natural Foods, Inc. (AE)(N) 5,170 145 United Online, Inc. (N) 10,126 136 USANA Health Sciences, Inc. (AE)(N) 1,176 52 ValueClick, Inc. (AE) 55,118 965 Ventiv Health, Inc. (AE) 4,950 125 Warnaco Group, Inc. (The) (AE) 9,025 205 Watson Wyatt & Co. Holdings 4,851 129 WESCO International, Inc. (AE) 16,280 647
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Westwood One, Inc. 18,818 348 Williams-Sonoma, Inc. (AE) 8,510 333 WMS Industries, Inc. (AE)(N) 11,100 279 XM Satellite Radio Holdings, Inc. Class A (AE) 1,500 43 ------------ 31,284 ------------ Consumer Staples - 1.4% 7-Eleven, Inc. (AE) 3,484 130 Alliance One International, Inc. 39,911 99 Coca-Cola Bottling Co. Consolidated 1,200 55 Del Monte Foods Co. (AE)(N) 40,873 433 Hain Celestial Group, Inc. (AE) 3,384 66 Lance, Inc. 25,861 453 Loews Corp. 1,700 70 Longs Drug Stores Corp. 2,500 104 Performance Food Group Co. (AE)(N) 7,464 206 Ralcorp Holdings, Inc. (AE) 600 23 Rite Aid Corp. (AE)(N) 35,800 125 Ruddick Corp. 4,200 93 SunOpta, Inc. (AE)(N) 65,395 323 Tootsie Roll Industries, Inc. 2,572 78 Tyson Foods, Inc. Class A 3,723 66 Weis Markets, Inc. (N) 2,100 80 ------------ 2,404 ------------ Financial Services - 18.1% Advanta Corp. Class B 15,525 440 Affiliated Managers Group, Inc. (AE)(N) 11,417 876 Alexandria Real Estate Equities, Inc. (o) 2,750 222 Alfa Corp. (N) 6,100 102 Allmerica Financial Corp. 13,714 523 American Financial Realty Trust (o) 19,077 235 Ameritrade Holding Corp. (AE)(N) 13,900 292 AmerUs Group Co. (N) 6,075 359 Arch Capital Group, Ltd. (AE) 8,150 403 Argonaut Group, Inc. (AE)(N) 15,900 464 Aspen Insurance Holdings, Ltd. 16,550 400 Bank of the Ozarks, Inc. (N) 7,400 260 BioMed Realty Trust, Inc. (o) 10,375 259 BISYS Group, Inc. (The) (AE) 30,394 385 Blackrock, Inc. Class A (N) 1,400 133 Capital Automotive REIT (o) 3,500 135 Capital Trust Class A (o)(N) 2,485 76 CarrAmerica Realty Corp. (o) 4,300 142
Tax-Managed Mid & Small Cap Fund 197 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- CB Richard Ellis Group, Inc. Class A (AE) 4,810 235 Cedar Shopping Centers, Inc. (o)(N) 24,200 339 Centerpoint Properties Trust (o)(N) 4,875 222 Chemical Financial Corp. (N) 3,010 97 CIT Group, Inc. 6,400 293 Citizens Banking Corp. (N) 9,000 262 Commercial Capital Bancorp, Inc. 19,750 317 Crescent Real Estate Equities Co. (o)(N) 5,923 118 Cullen/Frost Bankers, Inc. 7,925 419 Delphi Financial Group Class A 4,300 201 Digital Insight Corp. (AE) 32,927 982 Doral Financial Corp. (N) 7,450 64 Factset Research Systems, Inc. (N) 11,983 420 Fair Isaac Corp. 22,254 929 Federal Realty Investors Trust (o) 3,200 194 FelCor Lodging Trust, Inc. (AE)(o) 6,585 98 Fidelity National Financial, Inc. 7,154 268 Fidelity National Title Group, Inc. Class A 1,252 27 First Commonwealth Financial Corp. (N) 8,000 105 First Financial Corp. (N) 4,000 110 First Industrial Realty Trust, Inc. (o)(N) 11,192 455 First Midwest Bancorp, Inc. 9,403 358 First Potomac Realty Trust (o) 11,525 292 GATX Corp. (N) 25,060 936 General Growth Properties, Inc. (o) 10,200 433 Glacier Bancorp, Inc. (N) 5,468 161 Global Payments, Inc. 6,640 285 Gold Banc Corp., Inc. 21,050 312 Gramercy Capital Corp. 16,575 391 Greenhill & Co., Inc. (N) 7,290 350 HCC Insurance Holdings, Inc. 10,215 306 HDFC Bank, Ltd. - ADR (N) 3,500 155 Healthcare Realty Trust, Inc. (o)(N) 4,100 155 Hibernia Corp. Class A 6,500 193 Home Properties, Inc. (o) 3,200 124 Host Marriott Corp. (o) 6,300 106 IndyMac Bancorp, Inc. 2,200 82 Innkeepers USA Trust (o) 14,450 225 Integra Bank Corp. (N) 4,300 87 Investment Technology Group, Inc. (AE) 8,161 265 Investors Financial Services Corp. (N) 16,693 637 Investors Real Estate Trust (o)(N) 8,500 79 Jack Henry & Associates, Inc. 40,155 722 Jefferies Group, Inc. 19,759 839 Kronos, Inc. (AE) 25,334 1,162 LandAmerica Financial Group, Inc. 1,592 101 Legg Mason, Inc. 2,900 311 Leucadia National Corp. (N) 4,635 199
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mercury General Corp. (N) 2,200 133 Mid-America Apartment Communities, Inc. (o) 3,300 154 Mills Corp. (The) (o)(N) 2,514 135 Montpelier Re Holdings, Ltd. (N) 23,046 463 Nasdaq Stock Market, Inc. (AE) 9,770 302 National Penn Bancshares, Inc. (N) 5,500 108 Nationwide Health Properties, Inc. (o)(N) 5,300 123 NCO Group, Inc. (AE) 4,400 79 Nuveen Investments, Inc. Class A (N) 1,400 57 Old Republic International Corp. 10,350 268 Omega Financial Corp. (N) 6,000 175 Oriental Financial Group, Inc. (N) 1,400 17 Phoenix Cos., Inc. (The) (N) 6,100 79 PMI Group, Inc. (The) 3,500 140 Popular, Inc. 13,900 282 Post Properties, Inc. (o) 8,105 331 Provident Bankshares Corp. 3,256 114 Radian Group, Inc. 2,332 122 Raymond James Financial, Inc. 4,992 170 Reckson Associates Realty Corp. (o) 8,650 304 Reinsurance Group of America, Inc. 2,500 114 RLI Corp. 8,000 430 Scottish Re Group, Ltd. (N) 10,450 257 SEI Investments Co. 5,660 220 Selective Insurance Group, Inc. 2,700 148 Shurgard Storage Centers, Inc. Class A (o) 3,400 192 Signature Bank (AE) 14,650 425 Sky Financial Group, Inc. (N) 10,000 281 Sovereign Bancorp, Inc. 11,394 246 State Auto Financial Corp. 800 26 Sterling Financial Corp. 18,670 467 SVB Financial Group (AE) 6,070 302 TD Banknorth, Inc. (N) 4,931 142 Town & Country Trust (The) (o)(N) 3,300 98 U-Store-It Trust (o) 10,960 229 UnionBanCal Corp. 3,300 226 United Bankshares, Inc. (N) 10,100 369 Valley National Bancorp 8,400 204 Vornado Realty Trust (o) 5,300 429 W Holding Co., Inc. (N) 6,600 51 Washington Real Estate Investment Trust (o) 6,500 194 Westamerica Bancorporation 4,600 245
198 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wintrust Financial Corp. 6,706 360 WR Berkley Corp. 1,813 79 ------------ 30,417 ------------ Health Care - 12.5% Advanced Medical Optics, Inc. (AE) 1,167 42 Affymetrix, Inc. (AE)(N) 7,837 356 Align Technology, Inc. (AE)(N) 20,600 152 Amedisys, Inc. (AE)(N) 3,500 134 Amsurg Corp. (AE)(N) 26,078 619 Apria Healthcare Group, Inc. (AE) 17,154 396 Arrow International, Inc. 1,700 49 Bausch & Lomb, Inc. 3,190 237 Celgene Corp. (AE) 8,400 471 Charles River Laboratories International, Inc. (AE) 1,008 44 Community Health Systems, Inc. (AE) 8,500 315 Connetics Corp. (AE)(N) 16,569 216 Cooper Cos., Inc. 8,819 607 Coventry Health Care, Inc. (AE) 8,550 462 CV Therapeutics, Inc. (AE)(N) 1,814 45 Cytyc Corp. (AE) 11,911 302 Datascope Corp. 3,800 121 DaVita, Inc. (AE) 10,160 500 Diagnostic Products Corp. 8,050 339 Durect Corp. (AE)(N) 69,949 444 Edwards Lifesciences Corp. (AE) 3,835 159 Endo Pharmaceuticals Holdings, Inc. (AE) 25,180 678 Enzon Pharmaceuticals, Inc. (AE)(N) 15,400 108 Eyetech Pharmaceuticals, Inc. (AE) 10,300 182 Genentech, Inc. (AE) 5,100 462 Gentiva Health Services, Inc. (AE) 33,905 498 Henry Schein, Inc. (AE) 30,766 1,220 Hooper Holmes, Inc. 29,200 84 Idexx Laboratories, Inc. (AE) 6,981 490 ImClone Systems, Inc. (AE)(N) 900 31 Inamed Corp. (AE) 8,215 584 Invitrogen Corp. (AE) 15,683 997 IVAX Corp. (AE)(N) 5,500 157 Kos Pharmaceuticals, Inc. (AE) 5,350 321 KV Pharmaceutical Co. Class A (AE)(N) 30,813 528 LabOne, Inc. (AE)(N) 4,650 204 LifePoint Hospitals, Inc. (AE) 13,955 546 Ligand Pharmaceuticals, Inc. Class B (AE)(N) 13,900 120 Lincare Holdings, Inc. (AE) 1,600 65 Millennium Pharmaceuticals, Inc. (AE) 9,600 88 Nabi Biopharmaceuticals (AE)(N) 41,001 527 Omnicare, Inc. 3,000 162 Omnicell, Inc. (AE)(N) 4,970 53 PacifiCare Health Systems, Inc. (AE) 8,860 730
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Par Pharmaceutical Cos., Inc. (AE)(N) 20,264 524 Pediatrix Medical Group, Inc. (AE) 4,800 370 PolyMedica Corp. 14,642 483 PSS World Medical, Inc. (AE) 77,193 1,075 Psychiatric Solutions, Inc. (AE)(N) 4,470 245 Quality Systems, Inc. (N) 6,000 401 Rotech Healthcare, Inc. (AE)(N) 15,033 304 Stericycle, Inc. (AE) 14,288 822 Sunrise Senior Living, Inc. (AE)(N) 15,370 497 Techne Corp. (AE) 2,200 119 United Therapeutics Corp. (AE) 5,270 389 US Physical Therapy, Inc. (AE) 23,100 416 Varian Medical Systems, Inc. (AE) 3,900 178 WellCare Health Plans, Inc. (AE)(N) 3,700 117 Zoll Medical Corp. (AE) 4,600 114 Zymogenetics, Inc. (AE) 2,252 39 ------------ 20,938 ------------ Integrated Oils - 0.1% Murphy Oil Corp. 4,600 215 ------------ Materials and Processing - 6.2% Acuity Brands, Inc. 14,242 396 Agrium, Inc. 7,425 157 Airgas, Inc. 18,433 521 Albany International Corp. Class A 5,350 207 Allegheny Technologies, Inc. 15,390 442 Apogee Enterprises, Inc. 23,825 390 Arch Chemicals, Inc. 3,600 95 Armor Holdings, Inc. (AE) 6,200 277 Ashland, Inc. 3,650 195 Buckeye Technologies, Inc. (AE) 12,300 92 Commercial Metals Co. 10,166 323 Compx International, Inc. 6,900 109 Crown Holdings, Inc. (AE) 19,700 320 Cytec Industries, Inc. 5,800 240 Dycom Industries, Inc. (AE) 2,500 50 EMCOR Group, Inc. (AE) 4,500 274 FMC Corp. (AE) 3,400 185 GrafTech International, Ltd. (AE) 19,200 94 Graphic Packaging Corp. (AE)(N) 32,500 86 Griffon Corp. (AE)(N) 12,800 282 Jacobs Engineering Group, Inc. (AE) 16,052 1,023 Lennox International, Inc. 3,600 100 Martin Marietta Materials, Inc. 3,390 268 Novelis, Inc. 9,150 180 Olin Corp. 11,125 199 PAN American Silver Corp. (AE)(N) 7,970 127 Precision Castparts Corp. 5,000 237
Tax-Managed Mid & Small Cap Fund 199 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Quanta Services, Inc. (AE)(N) 23,225 267 RBC Bearings, Inc. (AE) 18,385 287 Rogers Corp. (AE)(N) 11,975 447 Royal Gold, Inc. (N) 2,800 64 RPM International, Inc. 8,201 153 Sonoco Products Co. 6,100 173 Southern Copper Corp. (N) 4,000 221 Spartech Corp. 6,900 131 Standard Register Co. (The) 20,000 304 Steel Dynamics, Inc. (N) 8,750 271 Universal Forest Products, Inc. 3,500 194 URS Corp. (AE) 500 20 USG Corp. (AE)(N) 5,492 325 Washington Group International, Inc. (AE) 1,346 67 Wausau Paper Corp. (AE) 9,800 107 Worthington Industries, Inc. (N) 22,582 454 ------------ 10,354 ------------ Miscellaneous - 0.4% Carlisle Cos., Inc. 2,191 146 Lancaster Colony Corp. 4,400 176 Walter Industries, Inc. (N) 7,353 336 ------------ 658 ------------ Other Energy - 7.0% Arch Coal, Inc. (N) 3,900 301 Cal Dive International, Inc. (AE)(N) 17,426 1,072 CARBO Ceramics, Inc. 2,550 151 Consol Energy, Inc. 6,210 378 Cooper Cameron Corp. (AE) 12,726 938 Encore Acquisition Co. (AE) 15,759 541 Forest Oil Corp. (AE) 10,649 465 Foundation Coal Holdings, Inc. 5,400 203 Global Industries, Ltd. (AE) 34,504 439 Global Power Equipment Group, Inc. (AE)(N) 33,625 211 Grant Prideco, Inc. (AE) 18,696 727 Grey Wolf, Inc. (AE)(N) 13,100 101 Hanover Compressor Co. (AE)(N) 36,648 471 Houston Exploration Co. (AE) 4,700 242 James River Coal Co. (AE)(N) 10,792 461 Key Energy Services, Inc. (AE) 24,300 328 Matrix Service Co. (AE)(N) 25,555 251 National-Oilwell Varco, Inc. (AE) 3,428 214 Oil States International, Inc. (AE) 4,100 136 Patterson-UTI Energy, Inc. 5,300 181 Peabody Energy Corp. 6,800 532 Pioneer Drilling Co. (AE) 21,370 366 Plains Exploration & Production Co. (AE) 8,967 350 Range Resources Corp. 11,690 417 Remington Oil & Gas Corp. (AE) 11,585 405
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- SEACOR Holdings, Inc. (AE)(N) 5,950 426 Tesoro Corp. 9,100 556 W-H Energy Services, Inc. (AE) 14,150 429 XTO Energy, Inc. 8,533 371 ------------ 11,663 ------------ Producer Durables - 8.7% American Tower Corp. Class A (AE) 3,600 86 Ametek, Inc. 8,888 362 Andrew Corp. (AE) 46,117 490 Applied Industrial Technologies, Inc. 5,707 188 Applied Signal Technology, Inc. (N) 16,040 275 BE Aerospace, Inc. (AE) 57,314 1,039 Briggs & Stratton Corp. 11,525 369 C&D Technologies, Inc. 47,538 434 Champion Enterprises, Inc. (AE) 47,212 655 Cognex Corp. 12,901 369 Crane Co. 25,984 805 Crown Castle International Corp. (AE) 19,400 476 Cymer, Inc. (AE) 11,220 391 Dionex Corp. (AE) 4,800 232 Donaldson Co., Inc. 18,292 572 Duratek, Inc. (AE) 18,620 266 Entegris, Inc. (AE) 5,800 57 Esterline Technologies Corp. (AE) 16,130 607 General Cable Corp. (AE)(N) 30,590 497 IDEX Corp. 12,728 509 Joy Global, Inc. 7,940 364 Kadant, Inc. (AE) 13,975 235 Lam Research Corp. (AE) 17,440 588 Lennar Corp. Class A 6,700 372 Lincoln Electric Holdings, Inc. 7,025 278 Littelfuse, Inc. (AE) 24,980 612 Mattson Technology, Inc. (AE)(N) 41,875 330 MDC Holdings, Inc. 4,047 278 Orbital Sciences Corp. (AE)(N) 11,051 129 Park-Ohio Holdings Corp. (AE) 17,989 298 Pentair, Inc. 8,100 263 Photon Dynamics, Inc. (AE)(N) 29,463 513 Power-One, Inc. (AE)(N) 22,100 126 Powerwave Technologies, Inc. (AE)(N) 36,250 406 Technical Olympic USA, Inc. (AE)(N) 12,036 254 Terex Corp. (AE) 6,700 368
200 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Varian Semiconductor Equipment Associates, Inc. (AE) 10,087 382 WCI Communities, Inc. (AE)(N) 1,003 25 ------------ 14,500 ------------ Technology - 12.2% 3Com Corp. (AE) 17,700 68 Actel Corp. (AE) 8,300 116 Agere Systems, Inc. (AE) 7,616 79 Agile Software Corp. (AE) 92,756 659 AMIS Holdings, Inc. (AE) 29,900 333 Anixter International, Inc. 16,400 608 Ansys, Inc. (AE) 8,300 309 Avid Technology, Inc. (AE) 11,480 565 Avnet, Inc. (AE) 4,100 95 Avocent Corp. (AE) 28,320 868 BEA Systems, Inc. (AE) 11,300 100 Benchmark Electronics, Inc. (AE) 29,160 819 Black Box Corp. 3,431 138 Broadwing Corp. (AE)(N) 28,000 178 Cognizant Technology Solutions Corp. Class A (AE) 3,000 132 Comverse Technology, Inc. (AE) 14,380 361 CSG Systems International, Inc. (AE) 3,803 89 Cypress Semiconductor Corp. (AE)(N) 4,700 64 Ditech Communications Corp. (AE)(N) 17,100 109 Emulex Corp. (AE) 3,448 64 Excel Technology, Inc. (AE) 4,000 105 Filenet Corp. (AE) 33,113 932 Formfactor, Inc. (AE) 2,374 58 Harris Corp. 3,600 148 Hutchinson Technology, Inc. (AE) 13,400 332 Hyperion Solutions Corp. (AE) 19,212 929 Informatica Corp. (AE) 60,271 717 Integrated Device Technology, Inc. (AE) 75,062 742 Internet Security Systems, Inc. (AE) 31,047 765 Intersil Corp. Class A 5,200 118 InterVoice, Inc. (AE)(N) 35,990 335 IXYS Corp. (AE) 33,905 347 JDS Uniphase Corp. (AE) 165,400 347 Juniper Networks, Inc. (AE) 15,300 357 Kemet Corp. (AE) 17,800 123 Lattice Semiconductor Corp. (AE) 19,700 86 Leadis Technology, Inc. (AE) 16,000 84 Macrovision Corp. (AE) 40,753 768 Mantech International Corp. Class A (AE) 25,063 694 McAfee, Inc. (AE) 3,400 102 Microchip Technology, Inc. 13,250 400 Microsemi Corp. (AE) 11,300 262 NetIQ Corp. (AE) 36,700 440 ON Semiconductor Corp. (AE) 9,500 44
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Openwave Systems, Inc. (AE)(N) 17,990 322 Perot Systems Corp. Class A (AE) 20,350 282 Redback Networks, Inc. (AE)(N) 32,402 341 RSA Security, Inc. (AE) 17,900 204 SanDisk Corp. (AE) 4,360 257 Semtech Corp. (AE) 3,600 54 Silicon Laboratories, Inc. (AE)(N) 11,200 360 SiRF Technology Holdings, Inc. (AE) 10,240 264 SRA International, Inc. Class A (AE) 4,400 144 Sybase, Inc. (AE) 21,501 478 Sycamore Networks, Inc. (AE) 15,200 59 Syntel, Inc. (N) 5,141 104 Trident Microsystems, Inc. (AE)(N) 11,850 359 UNOVA, Inc. (AE)(N) 20,007 620 Utstarcom, Inc. (AE)(N) 15,000 83 Varian, Inc. (AE) 8,688 320 Vignette Corp. (AE)(N) 8,677 144 Western Digital Corp. (AE)(N) 6,300 76 Witness Systems, Inc. (AE) 17,530 344 Zebra Technologies Corp. Class A (AE) 16,846 726 ------------ 20,530 ------------ Utilities - 3.9% Alaska Communications Systems Group, Inc. (N) 29,300 322 Alltel Corp. 754 47 Aquila, Inc. (AE) 67,325 238 Cablevision Systems Corp. Class A (AE) 4,300 107 Cascade Natural Gas Corp. 5,400 111 Central Vermont Public Service Corp. (N) 6,600 106 CMS Energy Corp. (AE) 25,125 375 Empire District Electric Co. (The) (N) 4,900 99 Great Plains Energy, Inc. (N) 5,300 152 Laclede Group, Inc. (The) 11,100 332 Middlesex Water Co. (N) 3,200 68 NeuStar, Inc. Class A (AE) 19,400 594 New Jersey Resources Corp. 4,300 186 Northwest Natural Gas Co. (N) 8,700 301 NorthWestern Corp. 9,725 289 NSTAR 6,176 168 NTL, Inc. (AE)(N) 800 49 Otter Tail Corp. (N) 4,700 140 PNM Resources, Inc. 9,275 235 Premiere Global Services, Inc. (AE) 5,268 45 Questar Corp. 3,710 292 SCANA Corp. 8,400 333 Southwest Gas Corp. 7,455 203
Tax-Managed Mid & Small Cap Fund 201 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Southwestern Energy Co. (AE) 9,700 704 Telephone & Data Systems, Inc. 1,200 45 Telephone & Data Systems, Inc. Special Shares 1,200 43 Western Gas Resources, Inc. 12,447 539 Wisconsin Energy Corp. 9,500 360 ------------ 6,483 ------------ TOTAL COMMON STOCKS (cost $128,331) 156,122 ------------ SHORT-TERM INVESTMENTS - 6.8% Frank Russell Investment Company Money Market Fund 10,598,000 10,598 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 800 797 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $11,395) 11,395 ------------ OTHER SECURITIES - 22.5% Frank Russell Investment Company Money Market Fund (X) 12,360,535 12,360 State Street Securities Lending Quality Trust (X) 25,325,569 25,326 ------------ TOTAL OTHER SECURITIES (cost $37,686) 37,686 ------------ TOTAL INVESTMENTS - 122.5% (identified cost $177,412) 205,203 OTHER ASSETS AND LIABILITIES, NET - (22.5%) (37,649) ------------ NET ASSETS - 100.0% 167,554 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 2000 Index expiration date 12/05 (18) 5,843 (275) Russell 2000 Mini Index expiration date 12/05 (71) 4,609 (138) S&P 500 Index expiration date 12/05 (2) 605 9 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (404) ===============
See accompanying notes which are an integral part of the financial statements. 202 Tax-Managed Mid & Small Cap Fund FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED MID & SMALL CAP FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 4.0 Consumer Discretionary 18.7 Consumer Staples 1.4 Financial Services 18.1 Health Care 12.5 Integrated Oils 0.1 Materials and Processing 6.2 Miscellaneous 0.4 Other Energy 7.0 Producer Durables 8.7 Technology 12.2 Utilities 3.9 Short-Term Investments 6.8 Other Securities 22.5 --------------- Total Investments 122.5 Other Assets and Liabilities, Net (22.5) --------------- 100.0 =============== Futures Contracts (0.2)
See accompanying notes which are an integral part of the financial statements. Tax-Managed Mid & Small Cap Fund 203 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
SELECT GROWTH - CLASS I RUSSELL 1000(R) GROWTH ** ----------------------- ------------------------- Inception * 10000 10000 2001 6710 6804 2002 5350 5469 2003 7100 6662 2004 7180 6887 2005 7910 7494
Select Growth - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.07% Inception* (4.92)%sec.
Select Growth - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 9.60% Inception* (5.20)%sec.
Select Growth - Class C - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.76% Inception* (6.01)%sec.
Select Growth - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.17% Inception* (4.82)%sec.
Russell 1000(R) Growth Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.81% Inception* (5.95)%sec.
204 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Select Growth Fund Class I, Class S, Class E and Class C Shares gained 10.17%, 10.07%, 9.60% and 8.76%, respectively. This compared to the Russell 1000(R) Growth Index, which gained 8.81% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Growth Funds Average returned 10.09%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Stocks within the energy, utility and consumer staples sectors benefited from sharply higher oil prices and rising interest rates and the impact these developments could have on consumer spending and corporate profits. Smaller capitalization companies and select technology and health care stocks also outperformed due to pockets of strength in the semiconductor, computer technology, biotechnology, specialty pharmaceutical and health care management and service industries. In contrast, the more economically sensitive sectors such as materials and processing, autos and transportation and consumer discretionary underperformed on perceptions of slowing global economic growth and rising input costs. The Fund faced a headwind because of underweights to energy-related and health care stocks and overweights to more economically sensitive sectors such as consumer discretionary and technology. Nevertheless, the Fund benefited from its exposure to smaller capitalization companies. Stocks held within the consumer discretionary, health care and technology sectors were additional sources of added value in the period. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's stock selection was the primary driver of its outperformance. Much of this strength was centered in the technology and consumer discretionary sectors, where consumer electronics and computer stocks performed well. Health care stock selection was also positive due to overweights in health care facilities, medical systems and health care management companies. The Fund's sector positioning detracted from its performance due to underweights in some of the best performing sectors. The other energy, utilities, health care and consumer staples sectors were underweight. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The multi-manager structure of the Fund ensured exposure to each of the primary sectors within its Russell 1000(R) Growth Index benchmark. The different strategies employed by the Fund's money managers led to wide dispersion in performance; however, all of the Fund's money managers outperformed their respective benchmarks in the fiscal year. Delaware Management Company, Inc. was the best performer with strong stock selection making up for weak sector allocation. Delaware's key positive contributors came from selection within the consumer discretionary, health care and technology sectors where commercial service, biotechnology and computer technology stocks did well. The earnings momentum strategy followed by Turner Investment Partners, Inc. added value through overweighting health care management and service stocks. Fuller & Thaler Asset Management, Inc. and CapitalWorks Investment Partners, LLC benefited from their focus on the better performing small capitalization stocks. Finally, Ark Asset Management Co., Inc. outperformed through strong stock selection in the consumer discretionary and technology sectors, particularly in the consumer electronics, hotel and computer technology areas. Positive stock selection offset Ark's weak sector allocation. Select Growth Fund 205 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. TCW Investment Management Company, which pursued a concentrated core growth strategy, was replaced with Transamerica Investment Management, LLC, a growth equity money manager in late 2004. In early 2005, Transamerica's growth team left to join Delaware. FRIMCo terminated Transamerica and hired Delaware. These changes did not materially alter the Fund's structure. Like TCW, Delaware seeks to identify companies it believes have the ability to generate long-term sustainable rates of growth. Money Managers as of Styles October 31, 2005 Ark Asset Management Co., Inc. Growth CapitalWorks Investment Partners, LLC Growth Delaware Management Company (a series of Delaware Management Business Trust) Growth Fuller & Thaler Asset Management, Inc. Growth Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Select Growth Fund commenced operations on January 31, 2001. ** The Russell 1000(R) Growth Index measures the performance of those Russell 1000(R) Index companies with higher price-to-book ratios and higher forecasted growth values. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 206 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,092.40 $ 1,013.76 Expenses Paid During Period* $ 11.97 $ 11.52
* Expenses are equal to the Fund's annualized expense ratio of 2.27% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). On an annual basis and based on average daily net assets, the annualized expense ratio is 2.23% as contractually agreed to by the adviser. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,097.60 $ 1,018.45 Expenses Paid During Period* $ 7.08 $ 6.82
* Expenses are equal to the Fund's annualized expense ratio of 1.34% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,100.10 $ 1,020.42 Expenses Paid During Period* $ 5.03 $ 4.84
* Expenses are equal to the Fund's annualized expense ratio of 0.95% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,099.20 $ 1,019.46 Expenses Paid During Period* $ 6.03 $ 5.80
* Expenses are equal to the Fund's annualized expense ratio of 1.14% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Select Growth Fund 207 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 94.0% Auto and Transportation - 2.0% Burlington Northern Santa Fe Corp. 9,700 602 Expeditors International Washington, Inc. 13,500 819 FedEx Corp. 6,400 589 Freightcar America, Inc. 3,000 131 Hayes Lemmerz International, Inc. (AE)(N) 10,200 40 Mesa Air Group, Inc. (AE)(N) 12,700 143 Norfolk Southern Corp. 10,600 426 Pacer International, Inc. 5,600 145 United Parcel Service, Inc. Class B 11,000 802 ------------ 3,697 ------------ Consumer Discretionary - 18.3% 24/7 Real Media, Inc. (AE) 21,300 136 Activision, Inc. (AE) 14,000 221 AMN Healthcare Services, Inc. (AE) 15,800 261 AnnTaylor Stores Corp. (AE) 13,800 335 aQuantive, Inc. (AE)(N) 15,500 335 Best Buy Co., Inc. 32,160 1,423 BJ's Restaurants, Inc. (AE)(N) 4,100 89 Buca, Inc. (AE)(N) 19,900 116 Casual Male Retail Group, Inc. (AE) 20,200 116 Charlotte Russe Holding, Inc. (AE) 8,800 155 Chemed Corp. 2,800 135 Coach, Inc. (AE) 24,180 778 Cross Country Healthcare, Inc. (AE) 10,000 182 Crown Media Holdings, Inc. Class A (AE)(N) 12,100 129 DiamondCluster International, Inc. (AE) 10,800 69 eBay, Inc. (AE) 58,560 2,319 Electronic Arts, Inc. (AE) 37,390 2,127 Emerson Radio (AE) 23,200 78 Ezcorp, Inc. Class A (AE) 7,100 104 Google, Inc. Class A (AE) 11,062 4,117 Gray Television, Inc. 11,700 105 Gymboree Corp. (AE) 14,600 258 Hudson Highland Group, Inc. (AE) 5,800 139 International Game Technology 32,000 848 J Jill Group, Inc. (AE) 6,200 79 Kohl's Corp. (AE) 19,100 919 Liberty Global, Inc. Series A (AE)(N) 22,000 545 Liberty Global, Inc. Series C (AE) 22,000 522 LIFE TIME Fitness, Inc. (AE) 4,300 160 Lifeline Systems, Inc. (AE) 5,200 172 LoJack Corp. (AE) 5,000 95 Lowe's Cos., Inc. 13,700 832 MGM Mirage (AE) 36,970 1,381 Monster Worldwide, Inc. (AE) 6,700 220 MPS Group, Inc. (AE) 10,300 128
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Multimedia Games, Inc. (AE)(N) 11,100 110 Nordstrom, Inc. 25,970 900 Office Depot, Inc. (AE) 17,900 493 On Assignment, Inc. (AE) 9,200 78 Royal Caribbean Cruises, Ltd. (N) 7,100 294 Scientific Games Corp. Class A (AE) 8,100 243 Sears Holdings Corp. (AE) 6,100 733 Sharper Image Corp. (AE)(N) 7,600 77 Sirius Satellite Radio, Inc. (AE)(N) 94,980 593 Sportsman's Guide, Inc. (The) (AE) 4,700 124 Stamps.com, Inc. (AE) 4,700 95 Staples, Inc. 45,000 1,023 Starbucks Corp. (AE) 29,456 833 Starwood Hotels & Resorts Worldwide, Inc. (o) 21,700 1,268 Steven Madden, Ltd. (AE) 10,800 277 Target Corp. 1,920 107 Texas Roadhouse, Inc. Class A (AE)(N) 6,600 104 Time Warner, Inc. 28,700 512 Urban Outfitters, Inc. (AE) 4,800 136 Valuevision Media, Inc. Class A (AE) 9,700 95 Ventiv Health, Inc. (AE) 6,600 167 Wal-Mart Stores, Inc. 15,000 710 WebSideStory, Inc. (AE) 9,200 160 Weight Watchers International, Inc. (AE) 14,500 762 XM Satellite Radio Holdings, Inc. Class A (AE) 41,200 1,188 Yahoo!, Inc. (AE) 71,819 2,655 ------------ 33,365 ------------ Consumer Staples - 8.5% Altria Group, Inc. 10,400 781 Coca-Cola Co. (The) 8,500 364 Colgate-Palmolive Co. 14,000 741 CVS Corp. 28,400 693 PepsiCo, Inc. 68,245 4,032 Procter & Gamble Co. 105,177 5,889 Walgreen Co. 36,200 1,645 Whole Foods Market, Inc. 4,870 702 WM Wrigley Jr Co. 8,740 607 ------------ 15,454 ------------ Financial Services - 7.4% Advent Software, Inc. (AE) 11,200 344 American Express Co. 50,534 2,515 American International Group, Inc. 31,370 2,033
208 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Automatic Data Processing, Inc. 15,500 723 Capital One Financial Corp. 9,500 725 Charles Schwab Corp. (The) 37,280 567 Chicago Mercantile Exchange 4,160 1,519 Commerce Bancorp, Inc. 16,500 503 Cybersource Corp. (AE) 28,596 192 First Data Corp. 25,000 1,011 HealthExtras, Inc. (AE) 2,800 59 Investors Financial Services Corp. (N) 9,600 366 MCF Corp. (AE) 19,600 21 Moody's Corp. 15,000 799 Morgan Stanley 17,180 935 Paychex, Inc. 27,000 1,046 Pico Holdings, Inc. (AE) 3,800 128 Rewards Network, Inc. (AE) 12,000 65 ------------ 13,551 ------------ Health Care - 19.8% Albany Molecular Research, Inc. (AE) 7,900 106 Alexion Pharmaceuticals, Inc. (AE)(N) 2,300 63 Alkermes, Inc. (AE) 9,600 156 Allergan, Inc. 12,000 1,072 Amgen, Inc. (AE) 43,100 3,265 Anadys Pharmaceuticals, Inc. (AE) 8,200 81 Arthrocare Corp. (AE)(N) 5,023 184 Barr Pharmaceuticals, Inc. (AE) 2,400 138 Bruker BioSciences Corp. (AE) 20,400 85 Caremark Rx, Inc. (AE) 45,615 2,390 Cellegy Pharmaceuticals, Inc. (AE) 14,300 17 Cutera, Inc. (AE)(N) 6,300 173 Cytyc Corp. (AE) 7,200 183 DaVita, Inc. (AE) 12,100 595 Dendreon Corp. (AE)(N) 11,900 73 Digene Corp. (AE)(N) 4,600 139 Foxhollow Technologies, Inc. (AE)(N) 4,800 217 Genentech, Inc. (AE) 38,445 3,483 Gentiva Health Services, Inc. (AE) 1,400 21 Gilead Sciences, Inc. (AE) 28,875 1,364 GTx, Inc. (AE)(N) 9,100 80 Hologic, Inc. (AE) 2,200 122 Human Genome Sciences, Inc. (AE)(N) 55,300 462 ICU Medical, Inc. (AE)(N) 3,400 119 Illumina, Inc. (AE) 8,000 125 Johnson & Johnson 76,930 4,817 Kinetic Concepts, Inc. (AE) 11,600 416 Lifecore Biomedical, Inc. (AE) 6,700 96 Medco Health Solutions, Inc. (AE) 9,500 537 Medimmune, Inc. (AE) 22,800 798 Medtronic, Inc. 38,190 2,164 Meridian Bioscience, Inc. 6,300 132 Merit Medical Systems, Inc. (AE) 5,600 67 Myogen, Inc. (AE)(N) 7,700 154 Nabi Biopharmaceuticals (AE)(N) 9,442 121
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Natus Medical, Inc. (AE) 10,800 177 Neose Technologies, Inc. (AE) 16,300 32 Neurocrine Biosciences, Inc. (AE)(N) 2,700 143 Novartis AG - ADR 6,700 361 Novavax, Inc. (AE) 17,600 71 Omnicare, Inc. 10,900 590 Omnicell, Inc. (AE)(N) 14,800 157 OraSure Technologies, Inc. (AE) 10,500 116 Panacos Pharmaceuticals, Inc. (AE) 38,900 307 Pfizer, Inc. 21,900 476 Phase Forward, Inc. (AE) 9,800 107 Rita Medical Systems, Inc. (AE)(N) 19,500 65 SonoSite, Inc. (AE)(N) 3,600 106 St. Jude Medical, Inc. (AE) 38,510 1,851 Stryker Corp. 9,600 394 Symmetry Medical, Inc. (AE) 5,400 120 Theravance, Inc. (AE) 4,900 106 UnitedHealth Group, Inc. 53,350 3,088 Valeant Pharmaceuticals International 14,100 242 WellPoint, Inc. (AE) 20,500 1,531 Wyeth 26,400 1,176 Zimmer Holdings, Inc. (AE) 13,000 829 ------------ 36,060 ------------ Materials and Processing - 2.7% Archer-Daniels-Midland Co. 30,620 746 Cemex SA de CV - ADR 11,650 607 Ceradyne, Inc. (AE)(N) 8,500 333 Dow Chemical Co. (The) 11,200 514 Harsco Corp. 3,000 193 Housevalues, Inc. (AE)(N) 6,100 90 Insituform Technologies, Inc. Class A (AE) 5,300 95 Layne Christensen Co. (AE) 4,600 97 Monsanto Co. 8,000 504 Nucor Corp. 9,000 539 Praxair, Inc. 18,000 889 Quanta Services, Inc. (AE) 16,300 187 Unifi, Inc. (AE) 27,100 79 ------------ 4,873 ------------ Miscellaneous - 4.8% General Electric Co. 218,328 7,404 ITT Industries, Inc. 5,270 535 Johnson Controls, Inc. 7,070 481 Trinity Industries, Inc. 7,000 266 ------------ 8,686 ------------
Select Growth Fund 209 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Other Energy - 2.1% Baker Hughes, Inc. 7,400 407 ENSCO International, Inc. 4,900 223 EOG Resources, Inc. 10,500 712 Grant Prideco, Inc. (AE) 9,700 377 Halliburton Co. 9,170 542 National-Oilwell Varco, Inc. (AE) 2,300 144 Newfield Exploration Co. (AE) 20,500 929 Petroquest Energy, Inc. (AE) 11,300 110 Todco Class A 5,600 250 Westmoreland Coal Co. (AE) 4,200 113 ------------ 3,807 ------------ Producer Durables - 4.1% American Tower Corp. Class A (AE) 6,400 153 Applied Materials, Inc. 130,397 2,136 Boeing Co. 27,830 1,799 BTU International, Inc. (AE) 3,100 44 Caterpillar, Inc. 12,600 663 Deere & Co. 8,400 510 Distributed Energy Systems Corp. (AE)(N) 14,500 116 Entegris, Inc. (AE) 20,127 196 General Cable Corp. (AE)(N) 8,000 130 Herman Miller, Inc. 14,700 403 Intevac, Inc. (AE)(N) 8,222 75 KLA-Tencor Corp. 13,100 606 Ladish Co., Inc. (AE) 5,000 100 Radyne Comstream Corp. (AE)(N) 11,300 132 Southern Energy Homes, Inc. (AE) 16,500 98 Varian Semiconductor Equipment Associates, Inc. (AE) 4,300 162 Zygo Corp. (AE)(N) 6,000 80 ------------ 7,403 ------------ Technology - 23.0% Actuate Corp. (AE) 16,200 46 Agile Software Corp. (AE) 36,500 259 Akamai Technologies, Inc. (AE) 14,700 255 American Science & Engineering, Inc. (AE) 2,700 155 Apple Computer, Inc. (AE) 28,574 1,646 ATI Technologies, Inc. (AE) 33,100 478 Autodesk, Inc. 3,900 176 Blue Coat Systems, Inc. (AE) 3,600 169 Bottomline Technologies, Inc. (AE) 5,900 75 Broadcom Corp. Class A (AE) 26,070 1,107 Cadence Design Systems, Inc. (AE) 11,800 189 California Micro Devices CP (AE) 8,100 73 Captaris, Inc. (AE) 15,100 54 Centillium Communications, Inc. (AE) 26,526 102 Computer Associates International, Inc. 8 --
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Comverse Technology, Inc. (AE) 7,300 183 Corning, Inc. (AE) 59,815 1,202 Electronics for Imaging, Inc. (AE) 6,600 166 EMC Corp. (AE) 82,867 1,157 Equinix, Inc. (AE) 2,700 100 Genesis Microchip, Inc. (AE) 5,800 112 Hewlett-Packard Co. 40,390 1,132 Ibasis, Inc. (AE)(N) 19,800 39 Informatica Corp. (AE) 24,000 286 Integrated Silicon Solutions, Inc. (AE)(N) 9,800 76 International Business Machines Corp. 11,700 958 Intersil Corp. Class A 7,300 166 Intuit, Inc. (AE) 18,000 827 JDA Software Group, Inc. (AE) 6,800 110 Juniper Networks, Inc. (AE)(N) 39,300 917 Lawson Software, Inc. (AE)(N) 19,900 152 Lucent Technologies, Inc. (AE)(N) 186,370 531 Manugistics Group, Inc. (AE) 32,000 59 Marvell Technology Group, Ltd. (AE) 22,680 1,053 Matrixone, Inc. (AE) 36,000 181 Maxim Integrated Products, Inc. 25,600 888 Micron Technology, Inc. (AE)(N) 41,730 542 Microsoft Corp. 212,800 5,469 Monolithic Power Systems, Inc. (AE) 8,700 112 Motorola, Inc. 152,700 3,384 National Semiconductor Corp. 49,800 1,127 NAVTEQ Corp. (AE) 16,300 638 Neoware Systems, Inc. (AE)(N) 7,500 141 Nuance Communications, Inc. (AE)(N) 18,800 97 Nvidia Corp. (AE) 25,700 862 O2Micro International, Ltd. (AE) 7,992 105 Openwave Systems, Inc. (AE)(N) 12,800 229 Palm, Inc. (AE)(N) 12,600 324 Qualcomm, Inc. 111,500 4,433 Quest Software, Inc. (AE) 8,900 124 Radiant Systems, Inc. (AE) 8,900 101 Redback Networks, Inc. (AE) 39,720 417 Saba Software, Inc. (AE) 18,325 64 Safeguard Scientifics, Inc. (AE) 35,500 53 SanDisk Corp. (AE) 51,750 3,047 Seachange International, Inc. (AE) 18,400 115 Selectica, Inc. (AE) 13,800 41 Silicon Image, Inc. (AE) 47,400 435 Sun Microsystems, Inc. (AE) 164,460 658 Supertex, Inc. (AE) 4,500 165 SYKES Enterprises, Inc. (AE) 10,500 152 Texas Instruments, Inc. 110,441 3,153
210 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Transwitch Corp. (AE) 49,800 80 Ultimate Software Group, Inc. (AE) 5,600 95 Viasat, Inc. (AE) 7,200 178 Vishay Intertechnology, Inc. (AE) 26,600 302 WatchGuard Technologies, Inc. (AE) 17,600 61 ------------ 41,783 ------------ Utilities - 1.3% Alamosa Holdings, Inc. (AE) 12,100 179 America Movil SA de CV Series L 31,644 831 Exelon Corp. 6,200 322 MDU Communications International, Inc. (AE)(N) 29,200 51 Sprint Nextel Corp. 35,000 816 Talk America Holdings, Inc. (AE)(N) 11,400 110 ------------ 2,309 ------------ TOTAL COMMON STOCKS (cost $152,183) 170,988 ------------ SHORT-TERM INVESTMENTS - 5.2% Frank Russell Investment Company Money Market Fund 8,192,000 8,192 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 1,200 1,196 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $9,388) 9,388 ------------ OTHER SECURITIES - 6.2% Frank Russell Investment Company Money Market Fund (X) 3,707,787 3,708 State Street Securities Lending Quality Trust (X) 7,596,905 7,597 ------------ TOTAL OTHER SECURITIES (cost $11,305) 11,305 ------------ TOTAL INVESTMENTS - 105.4% (identified cost $172,876) 191,681 OTHER ASSETS AND LIABILITIES, NET - (5.4%) (9,841) ------------ NET ASSETS - 100.0% 181,840 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Nasdaq 100 Index expiration date 12/05 (20) 3,173 (45) Russell 1000 Growth Index expiration date 12/05 (6) 1,487 (44) S&P 500 E-Mini Index expiration date 12/05 (27) 1,633 (40) S&P 500 Index expiration date 12/05 (12) 3,629 47 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (82) ===============
See accompanying notes which are an integral part of the financial statements. Select Growth Fund 211 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 2.0 Consumer Discretionary 18.3 Consumer Staples 8.5 Financial Services 7.4 Health Care 19.8 Materials and Processing 2.7 Miscellaneous 4.8 Other Energy 2.1 Producer Durables 4.1 Technology 23.0 Utilities 1.3 Short-Term Investments 5.2 Other Securities 6.2 --------------- Total Investments 105.4 Other Assets and Liabilities, Net (5.4) --------------- 100.0 =============== Futures Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 212 Select Growth Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
SELECT VALUE - CLASS I RUSSELL 1000(R) VALUE ** ---------------------- ------------------------ Inception * 10000 10000 2001 8608 8684 2002 7599 7813 2003 9316 9601 2004 10692 11084 2005 12043 12400
Select Value Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.36% Inception* 3.85%sec.
Select Value Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.14% Inception* 3.57%sec.
Select Value Fund - Class C - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.23% Inception* 2.69%sec.
Select Value Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.63% Inception* 3.99%sec.
Russell 1000()(R) Value Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.86% Inception* 4.50%sec.
214 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Select Value Fund Class I, Class S, Class E and Class C Shares gained 12.63%, 12.36%, 12.14% and 11.23%, respectively. This compared to the Russell 1000(R) Value Index, which gained 11.86% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Value Funds Average returned 9.68%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Over the period, the best performing stocks in the U.S. value universe were typically mid-capitalization stocks with strong growth characteristics. Most of these stocks possessed one or more of the following characteristics: low yield, low beta, small to middle market capitalization and high earnings growth. The performance of these stocks appeared to be driven by continued economic growth and strong earnings for U.S. companies. These stocks also benefited from a return to favor in late 2004 after struggling for most of the year. These factors had a positive impact on the Fund's performance given its overweight in higher growth and mid-capitalization stocks relative to benchmark. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Since the Fund was biased toward higher growth, lower yielding and mid-capitalization value stocks relative to the Fund's benchmark, the market environment was favorable for the Fund; however, the strong performance of the energy sector had a slightly negative impact on the Fund due to the Fund's modest underweight in energy stocks. Stock selection was positive in most sectors, but the strongest gains were achieved in health care, consumer discretionary and utilities. Finally, the Fund's policy of always being fully invested contributed to positive performance, as equity markets generally rose during the period. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The strong relative performance of deep value, high dividend-paying and mid-capitalization stocks made those stocks less fundamentally attractive in recent periods. Given their bias towards owning stocks with both attractive values and good growth prospects, the Fund's money managers, moved towards higher growth, larger capitalization stocks. As a result, the Fund had a pronounced tilt toward stocks with higher valuations and higher growth characteristics, e.g., health care stocks. This tilt contributed positively to performance over the last 12 months. On the other hand, the Fund's money managers' search for value caused them to move away from the increasingly expensive energy sector. The Fund's underweight in energy had a negative impact on performance in the fiscal year. Systematic Financial Management, L.P. and Iridian Asset Management, LLC were strong contributors to the Fund's excess returns. Systematic added value through strong stock selection in the financials, other energy and consumer discretionary sectors, while Iridian's strongest gains came from stock selection in health care and utilities. DePrince, Race & Zollo, Inc. underperformed due largely to zero exposure to energy stocks and poor stock selection within the materials and consumer staples sectors. Select Value Fund 215 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There have been no changes to the money manager line-up. The Fund continues to emphasize stocks with higher growth and lower dividend profiles relative to benchmark. The Fund's underweight to financial services stocks has increased significantly over the last twelve months as the Fund's money managers believed these stocks to be fundamentally unattractive. Money Managers as of Style October 31, 2005 DePrince, Race & Zollo, Inc. Value Iridian Asset Management, LLC Value MFS Institutional Advisors, Inc. Value Netols Asset Management, Inc. Value Systematic Financial Management, L.P. Value
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Select Value Fund commenced operations on January 31, 2001. ** Russell 1000(R) Value Index measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 216 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,055.20 $ 1,014.17 Expenses Paid During Period* $ 11.34 $ 11.12
* Expenses are equal to the Fund's annualized expense ratio of 2.19% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,059.20 $ 1,018.70 Expenses Paid During Period* $ 6.70 $ 6.56
* Expenses are equal to the Fund's annualized expense ratio of 1.29% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,061.20 $ 1,020.57 Expenses Paid During Period* $ 4.78 $ 4.69
* Expenses are equal to the Fund's annualized expense ratio of 0.92% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,060.40 $ 1,019.61 Expenses Paid During Period* $ 5.76 $ 5.65
* Expenses are equal to the Fund's annualized expense ratio of 1.11% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Select Value Fund 217 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 92.7% Auto and Transportation - 1.2% Aviall, Inc. (AE) 16,904 533 Burlington Northern Santa Fe Corp. 16,930 1,051 CNF, Inc. 3,970 223 Fleetwood Enterprises, Inc. (AE)(N) 34,908 386 Keystone Automotive Industries, Inc. (AE) 16,571 474 Norfolk Southern Corp. 6,300 253 United Parcel Service, Inc. Class B 13,800 1,007 Wabash National Corp. (N) 7,831 144 Wabtec Corp. 19,467 530 ------------ 4,601 ------------ Consumer Discretionary - 10.0% Abercrombie & Fitch Co. Class A 16,600 863 Accenture, Ltd. Class A 56,960 1,499 Administaff, Inc. (N) 12,008 508 Arbitron, Inc. 7,648 286 California Pizza Kitchen, Inc. (AE)(N) 12,566 402 Casual Male Retail Group, Inc. (AE)(N) 33,050 191 Copart, Inc. (AE) 14,971 350 Corinthian Colleges, Inc. (AE)(N) 31,291 389 DeVry, Inc. (AE) 17,999 407 DiamondCluster International, Inc. (AE) 46,529 299 Family Dollar Stores, Inc. 42,100 932 Gap, Inc. (The) 53,570 926 Harman International Industries, Inc. 11,600 1,158 Harrah's Entertainment, Inc. 43,400 2,625 Hasbro, Inc. 68,820 1,297 J Jill Group, Inc. (AE) 25,110 319 Jarden Corp. (AE)(N) 8,749 296 JC Penney Co., Inc. 69,100 3,538 Kimberly-Clark Corp. 36,150 2,055 Limited Brands, Inc. 48,600 973 Lowe's Cos., Inc. 9,880 600 McCormick & Schmick's Seafood Restaurants, Inc. (AE) 11,296 254 McDonald's Corp. 89,600 2,831 Newell Rubbermaid, Inc. 26,900 618 Nike, Inc. Class B 15,100 1,269 Nordstrom, Inc. 32,100 1,112 Playboy Enterprises, Inc. Class B (AE)(N) 29,596 448 Polo Ralph Lauren Corp. (N) 13,700 674 Reader's Digest Association, Inc. (The) 26,243 402 Reed Elsevier PLC - ADR 16,080 586 Sabre Holdings Corp. Class A 30,500 596 Service Corp. International 43,229 362 Source Interlink Cos., Inc. (AE)(N) 15,364 156 Sports Authority, Inc. (The) (AE)(N) 12,733 355
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Thomson - ADR (N) 15,100 285 Time Warner, Inc. 34,100 608 TJX Cos., Inc. 30,640 660 Tribune Co. (N) 14,130 445 Viacom, Inc. Class B 34,954 1,083 Walt Disney Co. 53,600 1,306 Waste Management, Inc. 34,600 1,021 Westwood One, Inc. 15,252 282 Yum! Brands, Inc. 22,100 1,124 ------------ 36,390 ------------ Consumer Staples - 4.4% Alliance One International, Inc. 32,192 80 Altria Group, Inc. 65,770 4,936 Coca-Cola Co. (The) 20,800 890 Colgate-Palmolive Co. 20,600 1,091 Del Monte Foods Co. (AE)(N) 33,350 353 Diageo PLC - ADR (N) 7,100 422 General Mills, Inc. 10,100 487 HJ Heinz Co. 49,500 1,757 Kellogg Co. 30,760 1,359 Kroger Co. (The) (AE) 56,200 1,118 Lance, Inc. 21,511 377 Molson Coors Brewing Co. Class B (N) 13,200 814 Nestle SA - ADR 7,070 526 PepsiCo, Inc. 10,080 596 Procter & Gamble Co. 14,300 801 Sara Lee Corp. 29,510 527 ------------ 16,134 ------------ Financial Services - 24.1% Aflac, Inc. 5,760 275 AG Edwards, Inc. 22,500 952 Allmerica Financial Corp. 11,062 422 Allstate Corp. (The) 70,350 3,714 American Express Co. 17,030 848 American International Group, Inc. 70,200 4,549 Ameriprise Financial, Inc. 3,406 127 AmSouth Bancorp 21,100 532 AON Corp. 37,000 1,253 Bank of America Corp. 224,366 9,814 Bank of New York Co., Inc. (The) 30,400 951 Bear Stearns Cos., Inc. (The) 18,800 1,989 BISYS Group, Inc. (The) (AE) 25,025 317 Chubb Corp. 5,670 527 Cigna Corp. 10,900 1,263 Citigroup, Inc. 163,520 7,486
218 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cullen/Frost Bankers, Inc. 10,400 549 Dow Jones & Co., Inc. (N) 21,300 722 E*Trade Financial Corp. (AE) 78,800 1,462 Fannie Mae 25,330 1,204 Federated Investors, Inc. Class B 14,600 511 First Data Corp. 88,713 3,588 First Industrial Realty Trust, Inc. (o)(N) 9,254 376 Franklin Resources, Inc. 4,970 439 Freddie Mac 67,970 4,170 GATX Corp. (N) 12,898 482 Goldman Sachs Group, Inc. 32,680 4,130 Hartford Financial Services Group, Inc. 25,910 2,066 Huntington Bancshares, Inc. 44,300 1,030 JPMorgan Chase & Co. 81,100 2,970 Kronos, Inc. (AE) 8,135 373 Lehman Brothers Holdings, Inc. 5,250 628 Lincoln National Corp. 5,600 283 Loews Corp. 11,500 1,069 MBNA Corp. 18,160 464 Mellon Financial Corp. 26,680 846 Merrill Lynch & Co., Inc. 54,400 3,522 Metlife, Inc. 73,780 3,646 Montpelier Re Holdings, Ltd. (N) 18,588 374 Morgan Stanley 44,800 2,438 North Fork Bancorporation, Inc. 24,000 608 PNC Financial Services Group, Inc. 28,120 1,707 Prudential Financial, Inc. 16,900 1,230 South Financial Group, Inc. (The) (N) 19,700 543 St. Paul Travelers Cos., Inc. (The) 23,500 1,058 SunTrust Banks, Inc. 43,350 3,142 UBS AG 9,100 780 UnionBanCal Corp. 12,600 863 US Bancorp 56,200 1,662 W Holding Co., Inc. (N) 5,384 42 Washington Mutual, Inc. 43,888 1,738 Wells Fargo & Co. 13,030 784 Westamerica Bancorporation 3,710 198 Zions Bancorporation 14,700 1,080 ------------ 87,796 ------------ Health Care - 10.0% Abbott Laboratories 35,120 1,512 Amgen, Inc. (AE) 44,100 3,341 Baxter International, Inc. 35,240 1,347 Biogen Idec, Inc. (AE) 96,815 3,933 Biovail Corp. (AE)(N) 30,000 654 Boston Scientific Corp. (AE) 112,700 2,831 Coventry Health Care, Inc. (AE) 18,300 988 Eli Lilly & Co. 24,640 1,227 Gentiva Health Services, Inc. (AE) 27,455 403 Genzyme Corp. (AE) 19,600 1,417
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Johnson & Johnson 47,860 2,997 KV Pharmaceutical Co. Class A (AE)(N) 24,859 426 LifePoint Hospitals, Inc. (AE) 11,256 440 Merck & Co., Inc. 70,970 2,003 Par Pharmaceutical Cos., Inc. (AE)(N) 16,351 423 Pfizer, Inc. 130,640 2,840 PolyMedica Corp. 11,813 390 PSS World Medical, Inc. (AE) 42,107 586 Rotech Healthcare, Inc. (AE) 11,439 232 Sunrise Senior Living, Inc. (AE)(N) 12,418 402 UnitedHealth Group, Inc. 38,900 2,252 US Physical Therapy, Inc. (AE) 18,632 336 WellPoint, Inc. (AE) 44,500 3,323 Wyeth 46,340 2,065 ------------ 36,368 ------------ Integrated Oils - 5.5% Amerada Hess Corp. 5,900 738 Chevron Corp. 81,062 4,626 ConocoPhillips 78,470 5,130 Exxon Mobil Corp. 120,130 6,744 Marathon Oil Corp. 17,800 1,071 Occidental Petroleum Corp. 2,200 174 Total SA - ADR (N) 11,450 1,443 ------------ 19,926 ------------ Materials and Processing - 8.3% Acuity Brands, Inc. 11,489 319 Air Liquide - ADR (N) 5,080 185 Air Products & Chemicals, Inc. 18,160 1,039 Airgas, Inc. 14,729 416 Alcoa, Inc. 37,600 913 Allegheny Technologies, Inc. 30,100 864 American Standard Cos., Inc. 54,500 2,073 Archer-Daniels-Midland Co. 70,220 1,711 Avery Dennison Corp. (N) 19,100 1,082 Bemis Co. (N) 38,800 1,025 Bowater, Inc. (N) 35,120 931 Cabot Corp. (N) 15,800 539 Commercial Metals Co. 8,199 261 Dow Chemical Co. (The) 63,540 2,914 EI Du Pont de Nemours & Co. 49,840 2,078 Engelhard Corp. 19,800 539 International Paper Co. 67,270 1,963 Lafarge North America, Inc. 12,400 750 Masco Corp. 56,190 1,601 MeadWestvaco Corp. 30,800 808
Select Value Fund 219 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Monsanto Co. 29,000 1,827 Nalco Holding Co. (AE)(N) 12,130 206 Packaging Corp. of America 30,100 611 PPG Industries, Inc. 22,330 1,339 Praxair, Inc. 28,550 1,411 Rohm & Haas Co. 20,000 871 Smurfit-Stone Container Corp. (AE) 19,620 207 Syngenta AG - ADR 31,960 687 Valspar Corp. 32,200 710 Worthington Industries, Inc. (N) 18,225 367 ------------ 30,247 ------------ Miscellaneous - 3.5% 3M Co. 9,900 752 Fortune Brands, Inc. 23,200 1,762 General Electric Co. 58,800 1,994 Hillenbrand Industries, Inc. 13,100 604 Honeywell International, Inc. 35,900 1,228 Textron, Inc. 20,700 1,491 Tyco International, Ltd. 102,200 2,697 Vivendi Universal SA - ADR 67,500 2,121 ------------ 12,649 ------------ Other Energy - 4.9% Burlington Resources, Inc. 28,600 2,066 Cal Dive International, Inc. (AE)(N) 7,780 479 Chesapeake Energy Corp. 87,300 2,802 Cimarex Energy Co. (AE) 24,400 958 Devon Energy Corp. 49,080 2,963 Encore Acquisition Co. (AE) 12,744 437 EOG Resources, Inc. 30,720 2,082 Global Industries, Ltd. (AE) 27,835 354 Hanover Compressor Co. (AE)(N) 31,057 399 James River Coal Co. (AE) 8,706 372 Kerr-McGee Corp. 18,600 1,582 Matrix Service Co. (AE)(N) 20,616 203 Noble Corp. 8,700 560 Remington Oil & Gas Corp. (AE) 9,346 327 Sunoco, Inc. 13,700 1,021 Transocean, Inc. (AE) 11,400 655 Valero Energy Corp. 4,400 463 ------------ 17,723 ------------ Producer Durables - 8.4% Agilent Technologies, Inc. (AE) 81,100 2,596 American Power Conversion Corp. 36,900 789 Ametek, Inc. 7,207 293 Applied Signal Technology, Inc. (N) 13,000 223 BE Aerospace, Inc. (AE) 30,168 547 Boeing Co. 19,300 1,248 C&D Technologies, Inc. 38,365 350 Champion Enterprises, Inc. (AE) 38,092 529 Cognex Corp. 10,416 298
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cooper Industries, Ltd. Class A 10,400 737 Crane Co. 13,289 411 Deere & Co. 34,370 2,086 Diebold, Inc. (N) 15,500 560 Dover Corp. 50,700 1,976 Duratek, Inc. (AE) 15,066 215 Emerson Electric Co. 8,090 563 Esterline Technologies Corp. (AE) 13,106 493 General Cable Corp. (AE)(N) 25,444 413 Hubbell, Inc. Class B 21,400 1,031 IDEX Corp. 10,387 416 Illinois Tool Works, Inc. 9,190 779 Ingersoll-Rand Co. Class A 25,000 945 Koninklijke Philips Electronics NV 44,300 1,159 Lennar Corp. Class A (N) 36,400 2,023 Lockheed Martin Corp. 31,930 1,934 Northrop Grumman Corp. 52,310 2,806 Park-Ohio Holdings Corp. (AE)(N) 14,510 240 Sandvik AB - ADR 1,900 91 United Technologies Corp. 45,780 2,348 Varian Semiconductor Equipment Associates, Inc. (AE) 8,136 308 WW Grainger, Inc. 7,280 488 Xerox Corp. (AE) 134,100 1,820 ------------ 30,715 ------------ Technology - 4.9% Analog Devices, Inc. 11,180 389 Avid Technology, Inc. (AE) 9,264 456 Cisco Systems, Inc. (AE) 25,600 447 Computer Associates International, Inc. 197 5 EMC Corp. (AE) 30,600 427 Filenet Corp. (AE) 10,100 284 General Dynamics Corp. 17,900 2,082 Harris Corp. (N) 13,700 563 Hewlett-Packard Co. 64,900 1,820 Integrated Device Technology, Inc. (AE) 32,381 320 Intel Corp. 65,200 1,532 International Business Machines Corp. 29,200 2,391 Internet Security Systems, Inc. (AE) 13,199 325 InterVoice, Inc. (AE)(N) 29,131 271 IXYS Corp. (AE) 26,440 271 Mantech International Corp. Class A (AE) 17,012 471 McAfee, Inc. (AE) 19,100 574 Micron Technology, Inc. (AE)(N) 32,900 427
220 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Motorola, Inc. 33,200 736 National Semiconductor Corp. 17,600 398 Nvidia Corp. (AE) 26,700 896 Oracle Corp. (AE) 44,820 568 Seagate Technology, Inc. (AE) 1,900 -- Sybase, Inc. (AE) 17,352 386 Symantec Corp. (AE) 20,700 494 Tellabs, Inc. (AE) 85,046 813 Texas Instruments, Inc. 14,700 420 ------------ 17,766 ------------ Utilities - 7.5% Alltel Corp. 38,200 2,363 America Movil SA de CV Series L 71,900 1,887 BellSouth Corp. 34,500 898 Citizens Communications Co. 69,200 847 Consolidated Edison, Inc. (N) 20,600 937 Constellation Energy Group, Inc. 11,500 630 Dominion Resources, Inc. 28,410 2,162 Edison International 10,600 464 Entergy Corp. 5,150 364 Exelon Corp. 23,050 1,199 FPL Group, Inc. 4,030 174 NII Holdings, Inc. (AE)(N) 8,000 663 Northeast Utilities 28,000 509 PPL Corp. 40,120 1,257 Progress Energy, Inc. 1,300 -- Public Service Enterprise Group, Inc. 6,960 438 SBC Communications, Inc. 87,400 2,085 Sprint Nextel Corp. 192,020 4,476 TXU Corp. 4,840 488 UGI Corp. 22,500 531 Verizon Communications, Inc. 121,140 3,817 Vodafone Group PLC - ADR 46,408 1,219 ------------ 27,408 ------------ TOTAL COMMON STOCKS (cost $297,489) 337,723 ------------ SHORT-TERM INVESTMENTS - 6.3% Frank Russell Investment Company Money Market Fund 21,745,000 21,745 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 1,100 1,096 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $22,841) 22,841 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 5.0% Frank Russell Investment Company Money Market Fund (X) 5,967,591 5,968 State Street Securities Lending Quality Trust (X) 12,227,030 12,227 ------------ TOTAL OTHER SECURITIES (cost $18,195) 18,195 ------------ TOTAL INVESTMENTS - 104.0% (identified cost $338,525) 378,759 OTHER ASSETS AND LIABILITIES, NET - (4.0%) (14,451) ------------ NET ASSETS - 100.0% 364,308 ============
See accompanying notes which are an integral part of the financial statements. Select Value Fund 221 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Value Index expiration date 12/05 (29) 9,606 (381) S&P 500 E-Mini Index expiration date 12/05 (56) 3,387 (67) S&P 500 Index expiration date 12/05 (36) 10,888 95 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (353) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 1.2 Consumer Discretionary 10.0 Consumer Staples 4.4 Financial Services 24.1 Health Care 10.0 Integrated Oils 5.5 Materials and Processing 8.3 Miscellaneous 3.5 Other Energy 4.9 Producer Durables 8.4 Technology 4.9 Utilities 7.5 Short-Term Investments 6.3 Other Securities 5.0 --------------- Total Investments 104.0 Other Assets and Liabilities, Net (4.0) --------------- 100.0 =============== Futures Contracts (0.1)
See accompanying notes which are an integral part of the financial statements. 222 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO SCHEDULES OF INVESTMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- FOOTNOTES: (AE) Nonincome-producing security. (I) Forward commitment. (E) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. (f) Perpetual floating rate security. Rate shown reflects rate in effect at period end. (o) Real Estate Investment Trust (REIT). (u) Bond is insured by a guarantor. (B) Illiquid security. (O) In default. (c) At amortized cost, which approximates market. (z) Rate noted is yield-to-maturity from date of acquisition. (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. (S) All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. (x) The security is purchased with the cash collateral from the securities loaned. (N) All or a portion of the shares of this security are on loan. (p) Restricted security. Security may have contractual restrictions on resale, may have been offered in a private placement transaction, and may not be registered under the Securities Act of 1933. (A) Illiquid and restricted security. (a) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2. ABBREVIATIONS: ADR - American Depositary Receipt ADS - American Depositary Share CIBOR - Copenhagen Interbank Offered Rate CME - Chicago Mercantile Exchange CMO - Collateralized Mortgage Obligation CVO - Contingent Value Obligation FDIC - Federal Deposit Insurance Company GDR - Global Depositary Receipt GDS - Global Depositary Share LIBOR - London Interbank Offered Rate NIBOR - Norwegian Interbank Offered Rate PIK - Payment in Kind REMIC - Real Estate Mortgage Investment Conduit STRIP - Separate Trading of Registered Interest and Principal of Securities TBA - To Be Announced Security FOREIGN CURRENCY ABBREVIATIONS: ARS - Argentine peso HKD - Hong Kong dollar PHP - Philippine peso AUD - Australian dollar HUF - Hungarian forint PKR - Pakistani rupee BRL - Brazilian real IDR - Indonesian rupiah PLN - Polish zloty CAD - Canadian dollar ILS - Israeli shekel RUB - Russian ruble CHF - Swiss franc INR - Indian rupee SEK - Swedish krona CLP - Chilean peso ITL - Italian lira SGD - Singapore dollar CNY - Chinese renminbi yuan JPY - Japanese yen SKK - Slovakian koruna COP - Colombian peso KES - Kenyan schilling THB - Thai baht CRC - Costa Rica colon KRW - South Korean won TRY - Turkish lira CZK - Czech koruna MXN - Mexican peso TWD - Taiwanese dollar DKK - Danish krone MYR - Malaysian ringgit USD - United States dollar EGP - Egyptian pound NOK - Norwegian krone VEB - Venezuelan bolivar EUR - Euro NZD - New Zealand dollar VND - Vietnam dong GBP - British pound sterling PEN - Peruvian nouveau sol ZAR - South African rand
Notes to Schedules of Investments 223 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005
DIVERSIFIED EQUITY SPECIAL GROWTH AMOUNTS IN THOUSANDS FUND FUND - --------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at identified cost $ 2,570,301 $ 984,440 - --------------------------------------------------------------------------------------------------------------------- Investments, at market*** 2,858,404 1,116,560 Cash -- -- Cash (restricted) -- -- Foreign currency holdings* -- -- Unrealized appreciation on foreign currency exchange contracts -- -- Receivables: Dividends and interest 2,184 366 Dividends from affiliated money market funds 544 122 Investments sold 37,417 16,235 Fund shares sold 4,645 1,872 Foreign taxes recoverable -- -- Miscellaneous receivables -- -- From adviser 52 13 Daily variation margin on futures contracts 1,989 883 Prepaid expenses 22 10 Unrealized appreciation on index swap contracts -- -- Interest rate swap contracts, at market value***** -- -- ------------------- -------------------- Total assets 2,905,257 1,136,061 ------------------- -------------------- LIABILITIES Payables: Investments purchased 40,833 13,631 Fund shares redeemed 2,720 2,102 Accrued fees to affiliates 2,232 1,022 Other accrued expenses 156 119 Daily variation margin on futures contracts -- -- Deferred tax liability -- -- Unrealized depreciation on foreign currency exchange contracts -- -- Options written, at market value** -- -- Payable upon return of securities loaned 122,297 181,187 Unrealized depreciation on index swap contracts -- -- Interest rate swap contracts, at market value***** -- -- Unrealized depreciation on credit default swaps**** -- -- ------------------- -------------------- Total liabilities 168,238 198,061 ------------------- -------------------- NET ASSETS $ 2,737,019 $ 938,000 =================== ==================== Net Assets Consist of: Undistributed (overdistributed) net investment income $ 587 $ (1) Accumulated net realized gain (loss) 49,357 87,156 Unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) 288,103 132,120 Futures contracts (3,239) (1,486) Options written -- -- Credit default swaps -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions -- -- Shares of beneficial interest 617 180 Additional paid-in capital 2,401,594 720,031 ------------------- -------------------- NET ASSETS $ 2,737,019 $ 938,000 =================== ====================
See accompanying notes which are an integral part of the financial statements. 224 Statement of Assets and Liabilities
QUANTITATIVE EQUITY INTERNATIONAL SECURITIES EMERGING MARKETS REAL ESTATE SHORT DURATION FUND FUND FUND SECURITIES FUND BOND FUND - ------------------------------------------------------------------------------------------------------------ $ 2,596,776 $ 2,625,018 $ 630,528 $ 1,234,017 $ 1,270,440 - ------------------------------------------------------------------------------------------------------------ 2,901,396 2,996,887 851,790 1,672,186 1,256,058 -- 80 104 -- -- -- 1,060 -- -- -- -- 5,711 8,633 -- 12 -- 3,917 502 -- 20 2,373 2,664 1,121 3,946 8,343 365 600 98 160 172 8,931 13,915 8,351 8,878 -- 4,216 4,662 1,468 2,721 1,716 -- 154 3 -- -- -- -- -- -- -- 54 53 9 16 27 1,581 3,529 437 -- -- 18 43 1 18 -- -- 511 -- -- -- -- -- -- -- 17 -------------- -------------- -------------- -------------- -------------- 2,918,934 3,033,786 872,517 1,687,925 1,266,365 -------------- -------------- -------------- -------------- -------------- 6,376 11,582 6,420 6,646 45,547 2,923 1,401 456 1,125 1,459 2,302 2,393 966 1,372 602 165 305 205 109 98 -- -- -- -- 45 -- -- 876 -- -- -- 8,372 709 -- -- -- 210 862 -- 265 74,488 541,953 15,121 122,392 4,171 -- 13 -- -- -- -- -- -- -- 598 -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- 86,254 566,229 25,615 131,644 52,785 -------------- -------------- -------------- -------------- -------------- $ 2,832,680 $ 2,467,557 $ 846,902 $ 1,556,281 $ 1,213,580 ============== ============== ============== ============== ============== $ 714 $ 17,725 $ 4,215 $ 1,374 $ 3,335 105,773 71,743 18,797 170,100 (9,181) 304,620 371,869 220,386 438,169 (14,382) (1,747) 4,371 301 -- (1,065) -- (36) (138) -- 57 -- -- -- -- -- -- 498 -- -- -- -- -- -- -- (456) -- (4,559) (246) -- 20 741 379 491 331 650 2,422,579 2,005,567 603,096 946,307 1,234,602 -------------- -------------- -------------- -------------- -------------- $ 2,832,680 $ 2,467,557 $ 846,902 $ 1,556,281 $ 1,213,580 ============== ============== ============== ============== ==============
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 225 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF ASSETS AND LIABILITIES, CONTINUED -- OCTOBER 31, 2005
DIVERSIFIED EQUITY SPECIAL GROWTH FUND FUND - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, offering and redemption price per share: Net asset value per share: Class C****** $ 43.08 $ 47.85 Class C -- Net assets $ 126,122,431 $ 56,083,684 Class C -- Shares outstanding ($.01 par value) 2,927,637 1,171,965 Net asset value per share: Class E****** $ 44.46 $ 50.79 Class E -- Net assets $ 53,227,020 $ 21,436,378 Class E -- Shares outstanding ($.01 par value) 1,197,313 422,055 Net asset value per share: Class I****** $ -- $ -- Class I -- Net assets $ -- $ -- Class I -- Shares outstanding ($.01 par value) -- -- Net asset value per share: Class S****** $ 44.45 $ 52.52 Class S -- Net assets $ 2,557,669,156 $ 860,480,177 Class S -- Shares outstanding ($.01 par value) 57,536,175 16,383,941 - --------------------------------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings - cost $ -- $ -- ** Premiums received on options written $ -- $ -- *** Securities on loan included in investments $ 119,235 $ 179,997 **** Credit default swap contracts - premiums paid (received) $ -- $ -- ***** Interest rate swap contracts - premiums paid (received) $ -- $ -- ****** Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding.
See accompanying notes which are an integral part of the financial statements. 226 Statement of Assets and Liabilities
QUANTITATIVE EQUITY INTERNATIONAL SECURITIES EMERGING MARKETS REAL ESTATE SHORT DURATION FUND FUND FUND SECURITIES FUND BOND FUND - ------------------------------------------------------------------------------------------------------------ $ 37.22 $ 62.35 $ 16.73 $ 46.08 $ 18.63 $ 128,236,284 $ 118,556,420 $ 33,961,278 $ 81,876,013 $ 30,290,443 3,445,331 1,901,551 2,030,323 1,776,920 1,625,762 $ 38.18 $ 64.66 $ 17.25 $ 46.62 $ 18.70 $ 53,724,886 $ 49,489,762 $ 18,854,860 $ 40,295,713 $ 24,850,650 1,407,292 765,351 1,093,038 864,412 1,329,031 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- -- -- -- -- -- $ 38.28 $ 65.35 $ 17.25 $ 47.03 $ 18.67 $2,650,718,404 $2,299,510,966 $ 794,085,634 $1,434,109,063 $1,158,439,136 69,245,903 35,189,801 46,026,021 30,493,073 62,041,384 - ------------------------------------------------------------------------------------------------------------ $ -- $ 5,743 $ 8,666 $ -- $ 12 $ -- $ 174 $ 724 $ -- $ 322 $ 73,754 $ 520,883 $ 14,931 $ 120,447 $ 4,081 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ (125)
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 227 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005
DIVERSIFIED BOND MULTISTRATEGY BOND AMOUNTS IN THOUSANDS FUND FUND - --------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at identified cost $ 2,036,894 $ 2,584,354 - --------------------------------------------------------------------------------------------------------------------- Investments, at market*** 2,017,620 2,574,171 Cash 1,061 36 Cash (restricted) -- 100 Foreign currency holdings* 2 443 Unrealized appreciation on foreign currency exchange contracts 174 575 Receivables: Dividends and interest 11,860 13,730 Dividends from affiliated money market funds 544 964 Investments sold 32,545 79,466 Fund shares sold 3,853 5,982 Foreign taxes recoverable -- -- Miscellaneous receivables 5 -- From adviser 58 48 Daily variation margin on futures contracts 10 38 Prepaid expenses 33 40 Unrealized appreciation on index swap contracts -- -- Interest rate swap contracts, at market value***** 47 93 ------------------- -------------------- Total assets 2,067,812 2,675,686 ------------------- -------------------- LIABILITIES Payables: Investments purchased 298,547 370,885 Fund shares redeemed 654 814 Accrued fees to affiliates 942 1,351 Other accrued expenses 113 115 Daily variation margin on futures contracts 39 14 Deferred tax liability -- -- Unrealized depreciation on foreign currency exchange contracts 381 750 Options written, at market value** 263 499 Payable upon return of securities loaned 92,600 419,946 Unrealized depreciation on index swap contracts -- 60 Interest rate swap contracts, at market value***** 974 1,835 Unrealized depreciation on credit default swaps**** -- 155 ------------------- -------------------- Total liabilities 394,513 796,424 ------------------- -------------------- NET ASSETS $ 1,673,299 $ 1,879,262 =================== ==================== Net Assets Consist of: Undistributed (overdistributed) net investment income $ 6,263 $ 7,040 Accumulated net realized gain (loss) (3,725) 4,215 Unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) (19,274) (10,183) Futures contracts (2,620) (2,763) Options written (94) 64 Credit default swaps -- 14 Index swap contracts -- (60) Interest rate swap contracts (440) (921) Foreign currency-related transactions (207) (177) Shares of beneficial interest 718 1,819 Additional paid-in capital 1,692,678 1,880,214 ------------------- -------------------- NET ASSETS $ 1,673,299 $ 1,879,262 =================== ====================
See accompanying notes which are an integral part of the financial statements. 228 Statement of Assets and Liabilities
TAX EXEMPT TAX-MANAGED TAX-MANAGED MID & SELECT GROWTH SELECT VALUE BOND FUND LARGE CAP FUND SMALL CAP FUND FUND FUND - --------------------------------------------------------------------------------------------- $ 244,462 $ 324,809 $ 177,412 $ 172,876 $ 338,525 - --------------------------------------------------------------------------------------------- 245,174 415,845 205,203 191,681 378,759 -- -- -- -- 10 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 3,176 281 40 71 301 23 52 37 29 58 4,168 1,295 1,435 4,376 4,140 519 1,052 563 819 1,781 -- -- -- -- -- -- -- -- -- -- -- 8 32 71 -- -- 147 229 102 145 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- 253,060 418,680 207,539 197,149 385,194 -------------- -------------- -------------- -------------- -------------- 5,122 778 2,040 3,811 2,229 122 312 52 19 122 107 321 161 137 293 40 39 46 37 47 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 4,975 37,686 11,305 18,195 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- 5,391 6,425 39,985 15,309 20,886 -------------- -------------- -------------- -------------- -------------- $ 247,669 $ 412,255 $ 167,554 $ 181,840 $ 364,308 ============== ============== ============== ============== ============== $ 679 $ 2,110 $ -- $ 43 $ 74 (1,039) (99,179) (10,068) (18,291) 7,150 712 91,036 27,791 18,805 40,234 -- (193) (404) (82) (353) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- 115 227 137 231 319 247,202 418,254 150,098 181,134 316,884 -------------- -------------- -------------- -------------- -------------- $ 247,669 $ 412,255 $ 167,554 $ 181,840 $ 364,308 ============== ============== ============== ============== ==============
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 229 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF ASSETS AND LIABILITIES, CONTINUED -- OCTOBER 31, 2005
DIVERSIFIED BOND MULTISTRATEGY BOND FUND FUND - --------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, offering and redemption price per share: Net asset value per share: Class C****** $ 23.80 $ 10.31 Class C -- Net assets $ 53,203,568 $ 69,426,888 Class C -- Shares outstanding ($.01 par value) 2,235,725 6,731,282 Net asset value per share: Class E****** $ 23.87 $ 10.32 Class E -- Net assets $ 49,514,395 $ 38,311,073 Class E -- Shares outstanding ($.01 par value) 2,074,369 3,710,828 Net asset value per share: Class I****** $ -- $ -- Class I -- Net assets $ -- $ -- Class I -- Shares outstanding ($.01 par value) -- -- Net asset value per share: Class S****** $ 23.28 $ 10.33 Class S -- Net assets $ 1,570,581,049 $ 1,771,524,305 Class S -- Shares outstanding ($.01 par value) 67,451,900 171,437,413 - --------------------------------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings - cost $ 1 $ 466 ** Premiums received on options written $ 169 $ 563 *** Securities on loan included in investments $ 90,699 $ 411,674 **** Credit default swap contracts - premiums paid (received) $ -- $ (169) ***** Interest rate swap contracts - premiums paid (received) $ (487) $ (821) ****** Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding
See accompanying notes which are an integral part of the financial statements. 230 Statement of Assets and Liabilities
TAX EXEMPT TAX MANAGED TAX MANAGED MID & SELECT GROWTH SELECT VALUE BOND FUND LARGE CAP FUND SMALL CAP FUND FUND FUND - --------------------------------------------------------------------------------------------- $ 21.45 $ 17.68 $ 11.59 $ 7.45 $ 11.27 $ 10,492,585 $ 16,954,949 $ 9,294,852 $ 8,149,437 $ 21,227,818 489,203 959,124 801,663 1,094,484 1,884,355 $ 21.52 $ 18.09 $ 12.13 $ 7.76 $ 11.43 $ 8,572,085 $ 8,695,037 $ 1,662,815 $ 4,254,596 $ 8,770,392 398,415 480,727 137,057 548,135 767,039 $ -- $ -- $ -- $ 7.91 $ 11.46 $ -- $ -- $ -- $ 112,112,166 $ 135,759,123 -- -- -- 14,172,949 11,844,628 $ 21.49 $ 18.16 $ 12.27 $ 7.87 $ 11.44 $ 228,604,570 $ 386,605,069 $ 156,596,228 $ 57,324,152 $ 198,550,433 10,638,202 21,286,508 12,761,521 7,287,351 17,358,345 - --------------------------------------------------------------------------------------------- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ 4,901 $ 37,254 $ 11,152 $ 17,944 $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 231 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
DIVERSIFIED EQUITY SPECIAL GROWTH AMOUNTS IN THOUSANDS FUND FUND - --------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 37,763 $ 7,369 Dividends from affiliated money market funds 4,377 1,438 Interest 337 106 Securities lending income 168 438 Less foreign taxes withheld -- -- ------------------- -------------------- Total investment income 42,645 9,351 ------------------- -------------------- EXPENSES Advisory fees 17,835 8,093 Administrative fees 1,224 450 Custodian fees 658 483 Distribution fees - Class C 863 399 Transfer agent fees 2,468 1,982 Transfer agent fees - Class C -- -- Transfer agent fees - Class E -- -- Transfer agent fees - Class I -- -- Transfer agent fees - Class S -- -- Professional fees 139 73 Registration fees 135 81 Shareholder servicing fees - Class C 288 133 Shareholder servicing fees - Class E 126 84 Trustees' fees 58 22 Printing fees 83 72 LifePoints funds fees 1,433 320 Miscellaneous 39 14 ------------------- -------------------- Expenses before reductions 25,349 12,206 Expense reductions (190) (124) ------------------- -------------------- Net expenses 25,159 12,082 ------------------- -------------------- Net investment income (loss) 17,486 (2,731) ------------------- -------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) 166,346 86,357 Futures contracts 16,583 9,361 Options written -- -- Credit default swaps -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions 1 -- ------------------- -------------------- Net realized gain (loss) 182,930 95,718 ------------------- -------------------- Net change in unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) 81,134 7,170 Futures contracts (5,741) (2,714) Options written -- -- Credit default swaps -- -- Index swap contracts -- -- Interest rate swap contracts -- -- Foreign currency-related transactions -- -- ------------------- -------------------- Net change in unrealized appreciation (depreciation) 75,393 4,456 ------------------- -------------------- Net realized and unrealized gain (loss) 258,323 100,174 ------------------- -------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 275,809 $ 97,443 =================== ====================
See accompanying notes which are an integral part of the financial statements. 232 Statement of Operations
QUANTITATIVE EQUITY INTERNATIONAL SECURITIES FUND FUND - ---------------------------------------------------------------------------------------------------------------------- $ 45,774 $ 56,223 2,852 4,960 189 187 85 2,079 -- (5,947) ------------------- ------------------- 48,900 57,502 ------------------- ------------------- 18,600 19,549 1,277 1,087 617 2,294 884 784 2,605 2,372 -- -- -- -- -- -- -- -- 134 164 135 131 295 261 132 109 60 66 135 117 1,446 1,292 39 32 ------------------- ------------------- 26,359 28,258 (123) (336) ------------------- ------------------- 26,236 27,922 ------------------- ------------------- 22,664 29,580 ------------------- ------------------- 140,943 151,329 13,545 32,010 -- (2,247) -- -- -- 459 -- -- -- (4,239) ------------------- ------------------- 154,488 177,312 ------------------- ------------------- 54,614 122,089 (3,661) 5,051 -- 86 -- -- -- 498 -- -- -- (9,486) ------------------- ------------------- 50,953 118,238 ------------------- ------------------- 205,441 295,550 ------------------- ------------------- $ 228,105 $ 325,130 =================== =================== EMERGING MARKETS REAL ESTATE FUND SECURITIES FUND - ------------------------------------------------------------------------------------------------------------------ $ 23,528 $ 42,224 1,041 1,258 90 -- 56 99 (2,316) -- ------------------- ------------------- 22,399 43,581 ------------------- ------------------- 8,499 11,430 370 714 1,709 335 212 551 1,894 2,474 -- -- -- -- -- -- -- -- 111 102 70 103 71 184 42 90 18 34 49 89 238 408 28 24 ------------------- ------------------- 13,311 16,538 (169) (61) ------------------- ------------------- 13,142 16,477 ------------------- ------------------- 9,257 27,104 ------------------- ------------------- 90,845 149,115 3,216 -- 5,410 -- -- -- -- -- -- -- 2,647 -- ------------------- ------------------- 102,118 149,115 ------------------- ------------------- 103,357 62,485 32 -- 63 -- -- -- -- -- -- -- (1,056) -- ------------------- ------------------- 102,396 62,485 ------------------- ------------------- 204,514 211,600 ------------------- ------------------- $ 213,771 $ 238,704 =================== =================== SHORT DURATION BOND FUND - -------------------------------------------------------------------------------------------- $ 78 1,804 38,328 6 -- -------------------- 40,216 -------------------- 5,437 604 296 247 711 -- -- -- -- 98 102 82 60 25 48 608 23 -------------------- 8,341 (48) -------------------- 8,293 -------------------- 31,923 -------------------- (4,723) (3,926) 1 -- -- (207) 103 -------------------- (8,752) -------------------- (15,182) (1,396) 46 -- -- (949) 34 -------------------- (17,447) -------------------- (26,199) -------------------- $ 5,724 ====================
See accompanying notes which are an integral part of the financial statements. Statement of Operations 233 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
DIVERSIFIED BOND MULTISTRATEGY BOND AMOUNTS IN THOUSANDS FUND FUND - --------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 91 $ 228 Dividends from affiliated money market funds 5,608 7,447 Interest 55,008 60,768 Securities lending income 118 531 Less foreign taxes withheld -- -- ------------------- -------------------- Total investment income 60,825 68,974 ------------------- -------------------- EXPENSES Advisory fees 6,030 9,888 Administrative fees 754 824 Custodian fees 580 619 Distribution fees - Class C 379 473 Transfer agent fees 1,220 1,638 Transfer agent fees - Class C -- -- Transfer agent fees - Class E -- -- Transfer agent fees - Class I -- -- Transfer agent fees - Class S -- -- Professional fees 109 102 Registration fees 117 141 Shareholder servicing fees - Class C 126 157 Shareholder servicing fees - Class E 118 88 Trustees' fees 35 39 Printing fees 86 97 LifePoints funds fees 938 1,020 Miscellaneous 28 22 ------------------- -------------------- Expenses before reductions 10,520 15,108 Expense reductions (81) (89) ------------------- -------------------- Net expenses 10,439 15,019 ------------------- -------------------- Net investment income (loss) 50,386 53,955 ------------------- -------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) (2,458) 830 Futures contracts (11) 2,972 Options written 526 890 Credit default swaps 1 -- Index swap contracts -- 143 Interest rate swap contracts 126 2,952 Foreign currency-related transactions 687 (633) ------------------- -------------------- Net realized gain (loss) (1,129) 7,154 ------------------- -------------------- Net change in unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) (38,404) (37,041) Futures contracts (4,041) (4,297) Options written (166) (68) Credit default swaps -- 14 Index swap contracts -- (224) Interest rate swap contracts (286) (931) Foreign currency-related transactions 44 456 ------------------- -------------------- Net change in unrealized appreciation (depreciation) (42,853) (42,091) ------------------- -------------------- Net realized and unrealized gain (loss) (43,982) (34,937) ------------------- -------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 6,404 $ 19,018 =================== ====================
See accompanying notes which are an integral part of the financial statements. 234 Statement of Operations
TAX EXEMPT TAX-MANAGED TAX-MANAGED MID & SELECT GROWTH SELECT VALUE BOND FUND LARGE CAP FUND SMALL CAP FUND FUND FUND - ----------------------------------------------------------------------------------------- $ -- $ 7,442 $ 1,361 $ 1,418 $ 6,367 266 538 319 266 512 8,636 39 21 29 34 -- 3 67 27 36 -- -- -- -- -- ------------- -------------- ---------------- ------------- ------------ 8,902 8,022 1,768 1,740 6,949 ------------- -------------- ---------------- ------------- ------------ 695 2,777 1,484 1,299 2,418 116 198 76 81 173 116 166 167 157 191 84 120 61 56 151 166 287 223 -- -- -- -- -- 23 69 -- -- -- 7 19 -- -- -- 63 75 -- -- -- 97 486 46 48 39 30 68 65 49 34 57 65 28 40 20 19 50 19 19 4 14 24 6 9 19 4 8 10 17 17 12 10 -- 64 19 -- -- 5 7 4 5 8 ------------- -------------- ---------------- ------------- ------------ 1,356 3,801 2,167 1,924 3,815 (4) (42) (228) (227) (134) ------------- -------------- ---------------- ------------- ------------ 1,352 3,759 1,939 1,697 3,681 ------------- -------------- ---------------- ------------- ------------ 7,550 4,263 (171) 43 3,268 ------------- -------------- ---------------- ------------- ------------ 277 9,517 6,663 6,842 23,331 -- 1,736 1,235 1,061 2,243 -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------- -------------- ---------------- ------------- ------------ 277 11,253 7,898 7,903 25,574 ------------- -------------- ---------------- ------------- ------------ (6,794) 14,042 13,196 6,833 10,017 -- (363) (608) (303) (524) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------- -------------- ---------------- ------------- ------------ (6,794) 13,679 12,588 6,530 9,493 ------------- -------------- ---------------- ------------- ------------ (6,517) 24,932 20,486 14,433 35,067 ------------- -------------- ---------------- ------------- ------------ $ 1,033 $ 29,195 $ 20,315 $ 14,476 $ 38,335 ============= ============== ================ ============= ============
See accompanying notes which are an integral part of the financial statements. Statement of Operations 235 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
DIVERSIFIED EQUITY SPECIAL GROWTH FUND FUND ----------------------------------------- ------------------------------------------ AMOUNTS IN THOUSANDS 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 17,486 $ 9,268 $ (2,731) $ (1,566) Net realized gain (loss) 182,930 111,848 95,718 82,068 Net change in unrealized appreciation (depreciation) 75,393 5,936 4,456 (19,814) ------------------- ------------------- ------------------- -------------------- Net increase (decrease) in net assets from operations 275,809 127,052 97,443 60,688 ------------------- ------------------- ------------------- -------------------- DISTRIBUTIONS From net investment income Class C (101) -- -- -- Class E (257) (101) -- -- Class I -- -- -- -- Class S (17,162) (9,386) (1) -- From net realized gain Class C -- -- (6,286) (1,069) Class E -- -- (4,121) (460) Class I -- -- -- -- Class S -- -- (86,902) (16,646) ------------------- ------------------- ------------------- -------------------- Net decrease in net assets from distributions (17,520) (9,487) (97,310) (18,175) ------------------- ------------------- ------------------- -------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 395,071 422,431 151,068 60,095 ------------------- ------------------- ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 653,360 539,996 151,201 102,608 NET ASSETS Beginning of period 2,083,659 1,543,663 786,799 684,191 ------------------- ------------------- ------------------- -------------------- End of period $ 2,737,019 $ 2,083,659 $ 938,000 $ 786,799 =================== =================== =================== ==================== Undistributed (overdistributed) net investment income included in net assets $ 587 $ 621 $ (1) $ --
See accompanying notes which are an integral part of the financial statements. 236 Statement of Changes in Net Assets
QUANTITATIVE EQUITY INTERNATIONAL SECURITIES EMERGING MARKETS REAL ESTATE FUND FUND FUND SECURITIES FUND ----------------------------- ----------------------------- ----------------------------- ----------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- $ 22,664 $ 11,855 $ 29,580 $ 14,542 $ 9,257 $ 4,745 $ 27,104 $ 23,181 154,488 125,222 177,312 111,751 102,118 69,315 149,115 108,208 50,953 11,187 118,238 87,348 102,396 19,464 62,485 170,285 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 228,105 148,264 325,130 213,641 213,771 93,524 238,704 301,674 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (209) -- (820) (769) (83) (309) (700) (1,500) (360) (176) (605) (530) (194) (262) (596) (831) -- -- -- -- -- -- -- -- (22,089) (11,810) (29,701) (26,815) (9,858) (11,244) (25,047) (39,826) -- -- -- -- -- -- (5,310) (7) -- -- -- -- -- -- (2,607) (4) -- -- -- -- -- -- -- -- -- -- -- -- -- -- (98,198) (175) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (22,658) (11,986) (31,126) (28,114) (10,135) (11,815) (132,458) (42,343) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 423,493 409,483 380,785 285,993 59,004 94,089 187,997 122,824 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 628,940 545,761 674,789 471,520 262,640 175,798 294,243 382,155 2,203,740 1,657,979 1,792,768 1,321,248 584,262 408,464 1,262,038 879,883 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 2,832,680 $ 2,203,740 $ 2,467,557 $ 1,792,768 $ 846,902 $ 584,262 $ 1,556,281 $ 1,262,038 ============= ============= ============= ============= ============= ============= ============= ============= $ 714 $ 708 $ 17,725 $ 13,388 $ 4,215 $ (882) $ 1,374 $ (385) SHORT DURATION BOND FUND ----------------------------- 2005 2004 - ---------------------------------- $ 31,923 $ 21,573 (8,752) 1,882 (17,447) (1,952) ------------- ------------- 5,724 21,503 ------------- ------------- (523) (323) (558) (359) -- -- (29,494) (19,418) (24) -- (16) -- -- -- (767) -- ------------- ------------- (31,382) (20,100) ------------- ------------- 42,298 175,555 ------------- ------------- 16,640 176,958 1,196,940 1,019,982 ------------- ------------- $ 1,213,580 $ 1,196,940 ============= ============= $ 3,335 $ 1,891
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 237 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
DIVERSIFIED BOND MULTISTRATEGY BOND FUND FUND ----------------------------------------- ------------------------------------------ AMOUNTS IN THOUSANDS 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 50,386 $ 31,532 $ 53,955 $ 29,625 Net realized gain (loss) (1,129) 21,908 7,154 24,425 Net change in unrealized appreciation (depreciation) (42,853) 7,044 (42,091) 10,982 ------------------- ------------------- ------------------- -------------------- Net increase (decrease) in net assets from operations 6,404 60,484 19,018 65,032 ------------------- ------------------- ------------------- -------------------- DISTRIBUTIONS From net investment income Class C (1,088) (696) (1,363) (976) Class E (1,375) (924) (1,025) (746) Class I -- -- -- -- Class S (45,399) (29,740) (48,760) (34,171) From net realized gain Class C (234) (812) (700) (524) Class E (231) (761) (404) (301) Class I -- -- -- -- Class S (6,573) (22,429) (16,986) (12,913) ------------------- ------------------- ------------------- -------------------- Net decrease in net assets from distributions (54,900) (55,362) (69,238) (49,631) ------------------- ------------------- ------------------- -------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 399,525 269,049 559,768 410,345 ------------------- ------------------- ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 351,029 274,171 509,548 425,746 NET ASSETS Beginning of period 1,322,270 1,048,099 1,369,714 943,968 ------------------- ------------------- ------------------- -------------------- End of period $ 1,673,299 $ 1,322,270 $ 1,879,262 $ 1,369,714 =================== =================== =================== ==================== Undistributed (overdistributed) net investment income included in net assets $ 6,263 $ 3,036 $ 7,040 $ 2,665
See accompanying notes which are an integral part of the financial statements. 238 Statement of Changes in Net Assets
TAX EXEMPT TAX-MANAGED TAX-MANAGED MID & SELECT GROWTH BOND FUND LARGE CAP FUND SMALL CAP FUND FUND ----------------------------- ----------------------------- ----------------------------- ----------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- $ 7,550 $ 6,089 $ 4,263 $ 2,023 $ (171) $ (454) $ 43 $ (400) 277 (357) 11,253 6,442 7,898 18,422 7,903 1,953 (6,794) 596 13,679 27,366 12,588 (6,322) 6,530 (947) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 1,033 6,328 29,195 35,831 20,315 11,646 14,476 606 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (248) (256) (14) -- -- -- -- -- (221) (202) (55) (17) -- -- -- -- -- -- -- -- -- -- -- -- (6,802) (5,538) (3,707) (1,649) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (7,271) (5,996) (3,776) (1,666) -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 51,222 43,401 24,900 5,548 16,873 6,107 44,098 40,106 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 44,984 43,733 50,319 39,713 37,188 17,753 58,574 40,712 202,685 158,952 361,936 322,223 130,366 112,613 123,266 82,554 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 247,669 $ 202,685 $ 412,255 $ 361,936 $ 167,554 $ 130,366 $ 181,840 $ 123,266 ============= ============= ============= ============= ============= ============= ============= ============= $ 679 $ 400 $ 2,110 $ 1,623 $ -- $ -- $ 43 $ -- SELECT VALUE FUND ----------------------------- 2005 2004 - ---------------------------------- $ 3,268 $ 2,091 25,574 21,405 9,493 10,251 ------------- ------------- 38,335 33,747 ------------- ------------- (18) (8) (72) (45) (1,393) (832) (1,866) (1,175) (14) -- (8) -- (83) -- (145) -- ------------- ------------- (3,599) (2,060) ------------- ------------- 27,540 49,612 ------------- ------------- 62,276 81,299 302,032 220,733 ------------- ------------- $ 364,308 $ 302,032 ============= ============= $ 74 $ 155
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 239 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED EQUITY FUND Class C October 31, 2005 38.64 (.10) 4.58 4.48 October 31, 2004 36.27 (.17) 2.54 2.37 October 31, 2003 30.52 (.13) 5.88 5.75 October 31, 2002 35.83 (.18) (5.13) (5.31) October 31, 2001 50.12 (.24) (13.82) (14.06) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 39.75 .23 4.70 4.93 October 31, 2004 37.12 .12 2.61 2.73 October 31, 2003 31.10 .12 6.00 6.12 October 31, 2002 36.35 .08 (5.23) (5.15) October 31, 2001 50.55 .07 (13.96) (13.89) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 39.74 .33 4.71 5.04 October 31, 2004 37.13 .22 2.60 2.82 October 31, 2003 31.09 .20 6.01 6.21 October 31, 2002 36.35 .16 (5.23) (5.07) October 31, 2001 50.55 .18 (13.97) (13.79) - -------------------------------------------------------------------------------------------------------------- SPECIAL GROWTH FUND Class C October 31, 2005 49.16 (.59) 5.78 5.19 October 31, 2004 46.99 (.56) 4.05 3.49 October 31, 2003 33.52 (.46) 13.93 13.47 October 31, 2002 37.42 (.45) (3.45) (3.90) October 31, 2001 51.05 (.38) (7.12) (7.50) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 51.47 (.26) 6.08 5.82 October 31, 2004 48.77 (.20) 4.22 4.02 October 31, 2003 34.53 (.18) 14.42 14.24 October 31, 2002 38.27 (.16) (3.58) (3.74) October 31, 2001 51.74 (.06) (7.25) (7.31) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 52.89 (.12) 6.25 6.13 October 31, 2004 49.95 (.07) 4.33 4.26 October 31, 2003 35.28 (.08) 14.75 14.67 October 31, 2002 39.01 (.07) (3.66) (3.73) October 31, 2001 52.52 .05 (7.37) (7.32) - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ---------------------------------------------------------------------------------------- DIVERSIFIED EQUITY FUND Class C October 31, 2005 (.04) -- -- October 31, 2004 -- -- -- October 31, 2003 --(d) -- -- October 31, 2002 -- -- -- October 31, 2001 -- (.23) -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.22) -- -- October 31, 2004 (.10) -- -- October 31, 2003 (.10) -- -- October 31, 2002 (.09) -- (.01) October 31, 2001 (.08) (.23) -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.33) -- -- October 31, 2004 (.21) -- -- October 31, 2003 (.17) -- -- October 31, 2002 (.16) -- (.03) October 31, 2001 (.18) (.23) -- - ---------------------------------------------------------------------------------------- SPECIAL GROWTH FUND Class C October 31, 2005 -- (6.50) -- October 31, 2004 -- (1.32) -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 -- (6.13) -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 -- (6.50) -- October 31, 2004 -- (1.32) -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (.03) (6.13) -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 -- (6.50) -- October 31, 2004 -- (1.32) -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (.06) (6.13) -- - ----------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 240 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.04) 43.08 11.60 126,123 -- 38.64 6.53 94,663 -- 36.27 18.88 64,316 -- 30.52 (14.85) 33,858 (.23) 35.83 (28.14) 20,222 - ----------------------------------------------------------------------------- (.22) 44.46 12.46 53,227 (.10) 39.75 7.33 45,413 (.10) 37.12 19.77 34,229 (.10) 31.10 (14.22) 23,656 (.31) 36.35 (27.59) 23,586 - ----------------------------------------------------------------------------- (.33) 44.45 12.71 2,557,669 (.21) 39.74 7.61 1,943,583 (.17) 37.13 20.09 1,445,118 (.19) 31.09 (14.02) 972,139 (.41) 36.35 (27.41) 1,119,120 - ----------------------------------------------------------------------------- (6.50) 47.85 10.82 56,084 (1.32) 49.16 7.54 46,919 -- 46.99 40.19 36,364 -- 33.52 (10.42) 18,583 (6.13) 37.42 (15.93) 11,662 - ----------------------------------------------------------------------------- (6.50) 50.79 11.65 21,436 (1.32) 51.47 8.37 32,028 -- 48.77 41.24 16,581 -- 34.53 (9.77) 11,731 (6.16) 38.27 (15.29) 11,051 - ----------------------------------------------------------------------------- (6.50) 52.52 11.95 860,480 (1.32) 52.89 8.64 707,851 -- 49.95 41.61 631,246 -- 35.28 (9.56) 520,666 (6.19) 39.01 (15.05) 608,921 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - --------------------------------------------------------------------------------- 1.98 1.98 (.24) 110.70 2.00 2.00 (.45) 125.03 2.05 2.05 (.39) 109.50 2.03 2.03 (.51) 128.80 1.99 1.99 (.58) 146.81 - --------------------------------------------------------------------------------- 1.23 1.23 .53 110.70 1.24 1.25 .30 125.03 1.30 1.30 .36 109.50 1.28 1.28 .21 128.80 1.24 1.24 .17 146.81 - --------------------------------------------------------------------------------- .98 .98 .77 110.70 .99 1.00 .55 125.03 1.04 1.04 .61 109.50 1.03 1.03 .46 128.80 .99 .99 .42 146.81 - --------------------------------------------------------------------------------- 2.28 2.29 (1.24) 153.63 2.29 2.29 (1.15) 124.97 2.36 2.36 (1.21) 127.15 2.31 2.31 (1.15) 125.06 2.27 2.27 (.89) 126.83 - --------------------------------------------------------------------------------- 1.54 1.54 (.50) 153.63 1.54 1.54 (.39) 124.97 1.62 1.62 (.46) 127.15 1.56 1.56 (.40) 125.06 1.52 1.52 (.14) 126.83 - --------------------------------------------------------------------------------- 1.27 1.29 (.23) 153.63 1.29 1.29 (.14) 124.97 1.35 1.35 (.19) 127.15 1.32 1.32 (.17) 125.06 1.27 1.27 .11 126.83 - ---------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 241 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- QUANTITATIVE EQUITY FUND Class C October 31, 2005 34.24 (.02) 3.07 3.05 October 31, 2004 31.92 (.12) 2.44 2.32 October 31, 2003 26.53 (.09) 5.49 5.40 October 31, 2002 31.88 (.15) (5.20) (5.35) October 31, 2001 43.88 (.21) (10.47) (10.68) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 35.04 .26 3.14 3.40 October 31, 2004 32.55 .14 2.49 2.63 October 31, 2003 26.94 .12 5.60 5.72 October 31, 2002 32.28 .07 (5.27) (5.20) October 31, 2001 44.17 .07 (10.57) (10.50) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 35.13 .35 3.15 3.50 October 31, 2004 32.64 .22 2.49 2.71 October 31, 2003 27.01 .20 5.61 5.81 October 31, 2002 32.36 .15 (5.28) (5.13) October 31, 2001 44.27 .16 (10.59) (10.43) - -------------------------------------------------------------------------------------------------------------- INTERNATIONAL SECURITIES FUND Class C October 31, 2005 54.38 .25 8.24 8.49 October 31, 2004 48.46 --(d) 6.65 6.65 October 31, 2003 38.51 (.05) 10.21 10.16 October 31, 2002 44.53 (.18) (5.84) (6.02) October 31, 2001 62.46 (.19) (14.94) (15.13) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 56.28 .69 8.55 9.24 October 31, 2004 49.98 .39 6.87 7.26 October 31, 2003 39.61 .28 10.50 10.78 October 31, 2002 45.47 .13 (5.99) (5.86) October 31, 2001 63.24 .21 (15.18) (14.97) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 56.84 .88 8.62 9.50 October 31, 2004 50.44 .53 6.92 7.45 October 31, 2003 39.98 .38 10.59 10.97 October 31, 2002 45.78 .25 (6.05) (5.80) October 31, 2001 63.51 .34 (15.26) (14.92) - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ---------------------------------------------------------------------------------------- QUANTITATIVE EQUITY FUND Class C October 31, 2005 (.07) -- -- October 31, 2004 -- -- -- October 31, 2003 (.01) -- -- October 31, 2002 -- -- -- October 31, 2001 -- (1.32) -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.26) -- -- October 31, 2004 (.14) -- -- October 31, 2003 (.11) -- -- October 31, 2002 (.13) -- (.01) October 31, 2001 (.07) (1.32) -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.35) -- -- October 31, 2004 (.22) -- -- October 31, 2003 (.18) -- -- October 31, 2002 (.20) -- (.02) October 31, 2001 (.16) (1.32) -- - ---------------------------------------------------------------------------------------- INTERNATIONAL SECURITIES FUND Class C October 31, 2005 (.52) -- -- October 31, 2004 (.73) -- -- October 31, 2003 (.21) -- -- October 31, 2002 -- -- -- October 31, 2001 -- (2.80) -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.86) -- -- October 31, 2004 (.96) -- -- October 31, 2003 (.41) -- -- October 31, 2002 -- -- -- October 31, 2001 -- (2.80) -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.99) -- -- October 31, 2004 (1.05) -- -- October 31, 2003 (.51) -- -- October 31, 2002 -- -- -- October 31, 2001 (.01) (2.80) -- - ----------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 242 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.07) 37.22 8.92 128,236 -- 34.24 7.27 98,012 (.01) 31.92 20.35 65,096 -- 26.53 (16.78) 34,113 (1.32) 31.88 (24.87) 20,530 - ----------------------------------------------------------------------------- (.26) 38.18 9.72 53,725 (.14) 35.04 8.08 48,646 (.11) 32.55 21.28 37,594 (.14) 26.94 (16.16) 25,667 (1.39) 32.28 (24.30) 23,700 - ----------------------------------------------------------------------------- (.35) 38.28 9.99 2,650,719 (.22) 35.13 8.32 2,057,082 (.18) 32.64 21.58 1,555,289 (.22) 27.01 (15.94) 1,070,673 (1.48) 32.36 (24.11) 1,200,247 - ----------------------------------------------------------------------------- (.52) 62.35 15.72 118,556 (.73) 54.38 13.83 80,622 (.21) 48.46 26.52 47,087 -- 38.51 (13.52) 21,860 (2.80) 44.53 (25.29) 12,470 - ----------------------------------------------------------------------------- (.86) 64.66 16.56 49,490 (.96) 56.28 14.68 38,630 (.41) 49.98 27.57 26,768 -- 39.61 (12.91) 16,796 (2.80) 45.47 (24.70) 15,897 - ----------------------------------------------------------------------------- (.99) 65.35 16.88 2,299,511 (1.05) 56.84 14.98 1,673,516 (.51) 50.44 27.81 1,247,393 -- 39.98 (12.67) 774,146 (2.81) 45.78 (24.51) 812,857 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - --------------------------------------------------------------------------------- 1.98 1.98 (.07) 108.48 1.99 1.99 (.35) 91.31 2.02 2.02 (.32) 108.71 2.02 2.02 (.49) 71.10 1.98 1.98 (.57) 85.00 - --------------------------------------------------------------------------------- 1.23 1.23 .70 108.48 1.24 1.24 .40 91.31 1.28 1.28 .43 108.71 1.27 1.27 .24 71.10 1.22 1.22 .18 85.00 - --------------------------------------------------------------------------------- .98 .98 .94 108.48 .99 .99 .65 91.31 1.02 1.02 .69 108.71 1.02 1.02 .48 71.10 .98 .98 .43 85.00 - --------------------------------------------------------------------------------- 2.24 2.25 .42 79.49 2.29 2.29 -- 76.01 2.42 2.42 (.12) 69.11 2.46 2.46 (.42) 79.09 2.41 2.41 (.36) 104.65 - --------------------------------------------------------------------------------- 1.49 1.50 1.12 79.49 1.54 1.54 .72 76.01 1.67 1.67 .67 69.11 1.72 1.72 .30 79.09 1.66 1.66 .41 104.65 - --------------------------------------------------------------------------------- 1.23 1.25 1.41 79.49 1.29 1.29 .98 76.01 1.42 1.42 .90 69.11 1.47 1.47 .55 79.09 1.42 1.42 .62 104.65 - ---------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 243 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- EMERGING MARKETS FUND Class C October 31, 2005 12.52 .04 4.22 4.26 October 31, 2004 10.68 --(d) 2.08 2.08 October 31, 2003 7.22 .02 3.44 3.46 October 31, 2002 6.89 (.09) .42 .33 October 31, 2001 9.15 (.04) (2.22) (2.26) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 12.93 .16 4.34 4.50 October 31, 2004 10.98 .09 2.15 2.24 October 31, 2003 7.41 .09 3.49 3.58 October 31, 2002 7.01 (.02) .42 .40 October 31, 2001 9.24 .02 (2.25) (2.23) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 12.94 .20 4.34 4.54 October 31, 2004 10.98 .12 2.15 2.27 October 31, 2003 7.43 .11 3.48 3.59 October 31, 2002 7.05 --(d) .40 .40 October 31, 2001 9.25 .04 (2.24) (2.20) - -------------------------------------------------------------------------------------------------------------- REAL ESTATE SECURITIES FUND Class C October 31, 2005 43.10 .42 6.66 7.08 October 31, 2004 33.94 .46 9.92 10.38 October 31, 2003 26.52 1.11 7.53 8.64 October 31, 2002 26.97 1.07 (.01) 1.06 October 31, 2001 25.93 1.16 1.02 2.18 - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 43.55 .76 6.74 7.50 October 31, 2004 34.24 .75 10.04 10.79 October 31, 2003 26.72 1.34 7.60 8.94 October 31, 2002 27.14 1.32 (.06) 1.26 October 31, 2001 26.07 1.38 1.03 2.41 - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 43.90 .88 6.79 7.67 October 31, 2004 34.51 .87 10.09 10.96 October 31, 2003 26.89 1.42 7.67 9.09 October 31, 2002 27.31 1.41 (.06) 1.35 October 31, 2001 26.22 1.46 1.03 2.49 - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ---------------------------------------------------------------------------------------- EMERGING MARKETS FUND Class C October 31, 2005 (.05) -- -- October 31, 2004 (.24) -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.18) -- -- October 31, 2004 (.29) -- -- October 31, 2003 (.01) -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.23) -- -- October 31, 2004 (.31) -- -- October 31, 2003 (.04) -- -- October 31, 2002 (.02) -- -- October 31, 2001 -- -- -- - ---------------------------------------------------------------------------------------- REAL ESTATE SECURITIES FUND Class C October 31, 2005 (.43) (3.67) -- October 31, 2004 (1.21) (.01) -- October 31, 2003 (1.11) (.11) -- October 31, 2002 (1.51) -- -- October 31, 2001 (1.14) -- -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.76) (3.67) -- October 31, 2004 (1.47) (.01) -- October 31, 2003 (1.31) (.11) -- October 31, 2002 (1.68) -- -- October 31, 2001 (1.34) -- -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.87) (3.67) -- October 31, 2004 (1.56) (.01) -- October 31, 2003 (1.36) (.11) -- October 31, 2002 (1.77) -- -- October 31, 2001 (1.40) -- -- - ----------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 244 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.05) 16.73 33.98 33,961 (.24) 12.52 20.04 20,467 -- 10.68 47.58 12,306 -- 7.22 4.94 5,194 -- 6.89 (24.70) 2,377 - ----------------------------------------------------------------------------- (.18) 17.25 34.94 18,855 (.29) 12.93 20.88 14,169 (.01) 10.98 48.39 9,598 -- 7.41 5.71 6,478 -- 7.01 (24.13) 6,959 - ----------------------------------------------------------------------------- (.23) 17.25 35.27 794,086 (.31) 12.94 21.22 549,626 (.04) 10.98 48.27 386,560 (.02) 7.43 5.91 263,563 -- 7.05 (23.89) 273,486 - ----------------------------------------------------------------------------- (4.10) 46.08 17.22 81,876 (1.22) 43.10 30.97 61,089 (1.22) 33.94 33.23 32,784 (1.51) 26.52 3.56 15,712 (1.14) 26.97 8.41 5,718 - ----------------------------------------------------------------------------- (4.43) 46.62 18.09 40,296 (1.48) 43.55 32.00 29,436 (1.42) 34.24 34.21 16,651 (1.68) 26.72 4.27 10,661 (1.34) 27.14 9.23 11,415 - ----------------------------------------------------------------------------- (4.54) 47.03 18.35 1,434,109 (1.57) 43.90 32.30 1,171,513 (1.47) 34.51 34.58 830,448 (1.77) 26.89 4.55 598,133 (1.40) 27.31 9.48 607,280 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - --------------------------------------------------------------------------------- 2.74 2.76 .29 71.86 2.83 2.87 .02 82.02 3.09 3.09 .19 95.13 3.12 3.12 (1.08) 90.21 3.08 3.09 (.55) 83.74 - --------------------------------------------------------------------------------- 1.99 2.01 1.02 71.86 2.07 2.12 .75 82.02 2.36 2.37 1.02 95.13 2.38 2.38 (.29) 90.21 2.33 2.33 .21 83.74 - --------------------------------------------------------------------------------- 1.73 1.76 1.30 71.86 1.83 1.87 1.00 82.02 2.11 2.11 1.30 95.13 2.14 2.14 (.02) 90.21 2.09 2.09 .44 83.74 - --------------------------------------------------------------------------------- 2.10 2.10 .95 63.95 2.12 2.12 1.20 38.04 2.20 2.30 3.67 46.09 2.19 2.59 3.74 67.70 2.17 2.17 4.20 44.50 - --------------------------------------------------------------------------------- 1.35 1.35 1.71 63.95 1.37 1.37 1.95 38.04 1.43 1.62 4.46 46.09 1.46 1.82 4.54 67.70 1.42 1.42 4.96 44.50 - --------------------------------------------------------------------------------- 1.10 1.10 1.95 63.95 1.11 1.11 2.23 38.04 1.18 1.18 4.66 46.09 1.19 1.19 4.82 67.70 1.17 1.18 5.19 44.50 - ---------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 245 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- SHORT DURATION BOND FUND Class C October 31, 2005 19.04 .31 (.40) (.09) October 31, 2004 19.01 .19 (.01) .18 October 31, 2003 18.98 .31 .06 .37 October 31, 2002 19.01 .56 .13 .69 October 31, 2001 18.23 .85 .89 1.74 - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 19.10 .46 (.41) .05 October 31, 2004 19.08 .34 (.01) .33 October 31, 2003 19.04 .48 .03 .51 October 31, 2002 19.02 .77 .06 .83 October 31, 2001 18.24 1.02 .85 1.87 - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 19.07 .51 (.41) .10 October 31, 2004 19.05 .38 (.01) .37 October 31, 2003 19.01 .52 .03 .55 October 31, 2002 18.99 .80 .08 .88 October 31, 2001 18.22 1.07 .83 1.90 - -------------------------------------------------------------------------------------------------------------- DIVERSIFIED BOND FUND Class C October 31, 2005 24.54 .58 (.67) (.09) October 31, 2004 24.49 .41 .58 .99 October 31, 2003 24.68 .48 .38 .86 October 31, 2002 24.49 .74 .23 .97 October 31, 2001 22.71 1.06 1.81 2.87 - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 24.62 .76 (.68) .08 October 31, 2004 24.56 .60 .58 1.18 October 31, 2003 24.74 .67 .37 1.04 October 31, 2002 24.54 .92 .24 1.16 October 31, 2001 22.75 1.22 1.84 3.06 - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 24.04 .80 (.67) .13 October 31, 2004 24.00 .64 .58 1.22 October 31, 2003 24.21 .71 .36 1.07 October 31, 2002 24.03 .97 .23 1.20 October 31, 2001 22.31 1.29 1.75 3.04 - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ---------------------------------------------------------------------------------------- SHORT DURATION BOND FUND Class C October 31, 2005 (.31) (.01) -- October 31, 2004 (.15) -- -- October 31, 2003 (.34) -- -- October 31, 2002 (.72) -- -- October 31, 2001 (.96) -- -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.44) (.01) -- October 31, 2004 (.31) -- -- October 31, 2003 (.47) -- -- October 31, 2002 (.81) -- -- October 31, 2001 (1.09) -- -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.49) (.01) -- October 31, 2004 (.35) -- -- October 31, 2003 (.51) -- -- October 31, 2002 (.86) -- -- October 31, 2001 (1.13) -- -- - ---------------------------------------------------------------------------------------- DIVERSIFIED BOND FUND Class C October 31, 2005 (.53) (.12) -- October 31, 2004 (.41) (.53) -- October 31, 2003 (.49) (.56) -- October 31, 2002 (.78) -- -- October 31, 2001 (1.09) -- -- - ---------------------------------------------------------------------------------------- Class E October 31, 2005 (.71) (.12) -- October 31, 2004 (.59) (.53) -- October 31, 2003 (.66) (.56) -- October 31, 2002 (.96) -- -- October 31, 2001 (1.27) -- -- - ---------------------------------------------------------------------------------------- Class S October 31, 2005 (.77) (.12) -- October 31, 2004 (.65) (.53) -- October 31, 2003 (.72) (.56) -- October 31, 2002 (1.02) -- -- October 31, 2001 (1.32) -- -- - ----------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 246 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.32) 18.63 (.50) 30,290 (.15) 19.04 .97 38,427 (.34) 19.01 1.97 41,644 (.72) 18.98 3.73 16,294 (.96) 19.01 9.77 1,709 - ----------------------------------------------------------------------------- (.45) 18.70 .25 24,851 (.31) 19.10 1.74 23,181 (.47) 19.08 2.70 20,274 (.81) 19.04 4.53 17,516 (1.09) 19.02 10.54 17,685 - ----------------------------------------------------------------------------- (.50) 18.67 .51 1,158,439 (.35) 19.07 1.98 1,135,332 (.51) 19.05 2.95 958,064 (.86) 19.01 4.81 599,795 (1.13) 18.99 10.76 401,137 - ----------------------------------------------------------------------------- (.65) 23.80 (.39) 53,204 (.94) 24.54 4.16 45,970 (1.05) 24.49 3.58 36,159 (.78) 24.68 4.11 26,915 (1.09) 24.49 13.02 15,027 - ----------------------------------------------------------------------------- (.83) 23.87 .32 49,514 (1.12) 24.62 4.97 43,724 (1.22) 24.56 4.36 34,339 (.96) 24.74 4.90 26,985 (1.27) 24.54 13.87 17,763 - ----------------------------------------------------------------------------- (.89) 23.28 .54 1,570,581 (1.18) 24.04 5.22 1,232,576 (1.28) 24.00 4.63 977,601 (1.02) 24.21 5.18 783,332 (1.32) 24.03 14.11 745,020 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------------------------------------------- 1.65 1.66 1.65 202.53 1.63 1.66 1.00 131.57 1.56 1.72 1.63 187.92 1.52 1.70 3.08 163.86 1.52 1.66 4.72 260.94 - ----------------------------------------------------------------------------- .90 .91 2.43 202.53 .88 .91 1.76 131.57 .80 .97 2.52 187.92 .77 .96 4.04 163.86 .77 .91 5.48 260.94 - ----------------------------------------------------------------------------- .65 .66 2.67 202.53 .63 .66 2.01 131.57 .56 .72 2.70 187.92 .52 .71 4.26 163.86 .52 .67 5.76 260.94 - ----------------------------------------------------------------------------- 1.65 1.66 2.38 225.67 1.66 1.66 1.71 140.92 1.69 1.70 1.94 147.44 1.66 1.66 3.09 156.21 1.64 1.64 4.53 155.87 - ----------------------------------------------------------------------------- .90 .91 3.12 225.67 .91 .91 2.46 140.92 .94 .94 2.70 147.44 .91 .91 3.85 156.21 .89 .89 5.22 155.87 - ----------------------------------------------------------------------------- .65 .66 3.38 225.67 .66 .66 2.71 140.92 .69 .69 2.95 147.44 .66 .66 4.11 156.21 .64 .65 5.60 155.87 - -----------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 247 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- MULTISTRATEGY BOND FUND Class C October 31, 2005 10.63 .24 (.20) .04 October 31, 2004 10.54 .17 .31 .48 October 31, 2003 10.03 .23 .50 .73 October 31, 2002 10.20 .30 (.04) .26 October 31, 2001 9.60 .46 .62 1.08 - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.64 .32 (.20) .12 October 31, 2004 10.55 .24 .32 .56 October 31, 2003 10.03 .31 .50 .81 October 31, 2002 10.21 .38 (.06) .32 October 31, 2001 9.61 .53 .62 1.15 - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.65 .35 (.21) .14 October 31, 2004 10.56 .27 .31 .58 October 31, 2003 10.04 .34 .50 .84 October 31, 2002 10.22 .40 (.05) .35 October 31, 2001 9.61 .56 .63 1.19 - -------------------------------------------------------------------------------------------------------------- TAX EXEMPT BOND FUND Class C October 31, 2005 22.03 .51 (.61) (.10) October 31, 2004 21.99 .53 .04 .57 October 31, 2003 21.94 .58 .07 .65 October 31, 2002 21.76 .60 .22 .82 October 31, 2001 20.83 .68 .95 1.63 - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 22.10 .67 (.60) .07 October 31, 2004 22.06 .69 .04 .73 October 31, 2003 21.99 .75 .06 .81 October 31, 2002 21.81 .78 .18 .96 October 31, 2001 20.87 .84 .95 1.79 - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 22.07 .72 (.60) .12 October 31, 2004 22.03 .75 .03 .78 October 31, 2003 21.96 .80 .07 .87 October 31, 2002 21.79 .83 .18 1.01 October 31, 2001 20.84 .89 .96 1.85 - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - -------------------------------------------------------------------------------------------------------------- MULTISTRATEGY BOND FUND Class C October 31, 2005 (.23) (.13) -- October 31, 2004 (.24) (.15) -- October 31, 2003 (.22) -- -- October 31, 2002 (.43) -- -- October 31, 2001 (.48) -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (.31) (.13) -- October 31, 2004 (.32) (.15) -- October 31, 2003 (.29) -- -- October 31, 2002 (.50) -- -- October 31, 2001 (.55) -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (.33) (.13) -- October 31, 2004 (.34) (.15) -- October 31, 2003 (.32) -- -- October 31, 2002 (.53) -- -- October 31, 2001 (.58) -- -- - -------------------------------------------------------------------------------------------------------------- TAX EXEMPT BOND FUND Class C October 31, 2005 (.48) -- -- October 31, 2004 (.53) -- -- October 31, 2003 (.60) -- -- October 31, 2002 (.64) -- -- October 31, 2001 (.70) -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (.65) -- -- October 31, 2004 (.69) -- -- October 31, 2003 (.74) -- -- October 31, 2002 (.78) -- -- October 31, 2001 (.85) -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (.70) -- -- October 31, 2004 (.74) -- -- October 31, 2003 (.80) -- -- October 31, 2002 (.84) -- -- October 31, 2001 (.90) -- -- - --------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 248 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.36) 10.31 .35 69,427 (.39) 10.63 4.66 53,573 (.22) 10.54 7.37 36,397 (.43) 10.03 2.71 24,569 (.48) 10.20 11.58 15,926 - ----------------------------------------------------------------------------- (.44) 10.32 1.10 38,311 (.47) 10.64 5.43 31,621 (.29) 10.55 8.23 20,975 (.50) 10.03 3.36 14,017 (.55) 10.21 12.40 12,675 - ----------------------------------------------------------------------------- (.46) 10.33 1.35 1,771,524 (.49) 10.65 5.68 1,284,520 (.32) 10.56 8.49 886,596 (.53) 10.04 3.72 595,577 (.58) 10.22 12.68 622,518 - ----------------------------------------------------------------------------- (.48) 21.45 (.46) 10,493 (.53) 22.03 2.62 10,611 (.60) 21.99 2.98 8,701 (.64) 21.94 3.84 7,179 (.70) 21.76 7.95 2,248 - ----------------------------------------------------------------------------- (.65) 21.52 .31 8,572 (.69) 22.10 3.38 6,488 (.74) 22.06 3.75 5,849 (.78) 21.99 4.54 5,051 (.85) 21.81 8.77 6,398 - ----------------------------------------------------------------------------- (.70) 21.49 .55 228,604 (.74) 22.07 3.64 185,587 (.80) 22.03 4.01 144,402 (.84) 21.96 4.77 148,675 (.90) 21.79 9.09 140,352 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------------------------------------------- 1.87 1.87 2.31 196.81 1.89 1.89 1.58 221.31 1.94 1.95 2.22 281.71 1.85 1.85 3.08 252.09 1.89 1.89 4.63 176.44 - ----------------------------------------------------------------------------- 1.12 1.12 3.06 196.81 1.14 1.14 2.32 221.31 1.18 1.19 3.01 281.71 1.17 1.17 3.80 252.09 1.14 1.14 5.33 176.44 - ----------------------------------------------------------------------------- .87 .87 3.32 196.81 .89 .89 2.58 221.31 .94 .94 3.22 281.71 .92 .92 4.06 252.09 .89 .89 5.66 176.44 - ----------------------------------------------------------------------------- 1.53 1.53 2.31 43.13 1.53 1.53 2.39 36.68 1.56 1.56 2.62 37.46 1.56 1.56 2.82 39.83 1.53 1.53 3.18 31.16 - ----------------------------------------------------------------------------- .78 .78 3.07 43.13 .78 .78 3.14 36.68 .81 .81 3.37 37.46 .83 .83 3.57 39.83 .78 .78 3.93 31.16 - ----------------------------------------------------------------------------- .53 .53 3.31 43.13 .53 .53 3.39 36.68 .56 .56 3.62 37.46 .57 .57 3.84 39.83 .53 .53 4.21 31.16 - -----------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 249 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- TAX-MANAGED LARGE CAP FUND Class C October 31, 2005 16.55 .01 1.14 1.15 October 31, 2004 15.02 (.06) 1.59 1.53 October 31, 2003 12.61 (.04) 2.45 2.41 October 31, 2002 15.60 (.06) (2.93) (2.99) October 31, 2001 20.68 (.10) (4.98) (5.08) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 16.93 .15 1.15 1.30 October 31, 2004 15.30 .06 1.63 1.69 October 31, 2003 12.83 .06 2.50 2.56 October 31, 2002 15.78 .05 (2.95) (2.90) October 31, 2001 (1) 20.10 .03 (4.25) (4.22) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 16.99 .20 1.15 1.35 October 31, 2004 15.34 .10 1.63 1.73 October 31, 2003 12.87 .10 2.48 2.58 October 31, 2002 15.81 .09 (2.95) (2.86) October 31, 2001 20.87 .08 (5.04) (4.96) - -------------------------------------------------------------------------------------------------------------- TAX-MANAGED MID & SMALL CAP FUND Class C October 31, 2005 10.17 (.12) 1.54 1.42 October 31, 2004 9.33 (.13) .97 .84 October 31, 2003 7.12 (.08) 2.29 2.21 October 31, 2002 7.88 (.09) (.67) (.76) October 31, 2001 11.07 .12 (3.31) (3.19) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.56 (.04) 1.61 1.57 October 31, 2004 9.62 (.06) 1.00 .94 October 31, 2003 7.28 (.02) 2.36 2.34 October 31, 2002 8.00 (.03) (.69) (.72) October 31, 2001 (1) 10.00 (.01) (1.99) (2.00) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.65 (.01) 1.63 1.62 October 31, 2004 9.68 (.03) 1.00 .97 October 31, 2003 7.31 --(d) 2.37 2.37 October 31, 2002 8.02 (.01) (.69) (.70) October 31, 2001 11.15 .01 (3.14) (3.13) - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - -------------------------------------------------------------------------------------------------------------- TAX-MANAGED LARGE CAP FUND Class C October 31, 2005 (.02) -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (.14) -- -- October 31, 2004 (.06) -- -- October 31, 2003 (.09) -- -- October 31, 2002 (.05) -- -- October 31, 2001 (1) (.10) -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (.18) -- -- October 31, 2004 (.08) -- -- October 31, 2003 (.11) -- -- October 31, 2002 (.08) -- -- October 31, 2001 (.10) -- -- - -------------------------------------------------------------------------------------------------------------- TAX-MANAGED MID & SMALL CAP FUND Class C October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (1) -- -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 (.01) -- -- October 31, 2001 -- -- -- - --------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 250 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- (.02) 17.68 6.94 16,955 -- 16.55 10.19 13,304 -- 15.02 19.11 10,022 -- 12.61 (19.17) 7,740 -- 15.60 (24.57) 7,611 - ----------------------------------------------------------------------------- (.14) 18.09 7.72 8,695 (.06) 16.93 11.05 5,991 (.09) 15.30 20.04 4,743 (.05) 12.83 (18.47) 2,618 (.10) 15.78 (21.10) 3,359 - ----------------------------------------------------------------------------- (.18) 18.16 7.98 386,605 (.08) 16.99 11.33 342,640 (.11) 15.34 20.24 307,458 (.08) 12.87 (18.21) 345,335 (.10) 15.81 (23.86) 448,557 - ----------------------------------------------------------------------------- -- 11.59 13.96 9,295 -- 10.17 9.00 6,041 -- 9.33 31.04 5,025 -- 7.12 (9.65) 3,450 -- 7.88 (28.88) 2,688 - ----------------------------------------------------------------------------- -- 12.13 14.87 1,663 -- 10.56 9.77 1,279 -- 9.62 32.14 850 -- 7.28 (9.00) 885 -- 8.00 (20.00) 837 - ----------------------------------------------------------------------------- -- 12.27 15.21 156,596 -- 10.65 10.02 123,045 -- 9.68 32.42 106,738 (.01) 7.31 (8.77) 82,523 -- 8.02 (28.14) 90,095 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------------------------------------------- 1.91 1.91 .08 42.92 1.92 1.92 (.38) 32.15 1.94 1.94 (.30) 127.47 1.91 1.91 (.40) 65.39 1.88 1.88 (.56) 52.57 - ----------------------------------------------------------------------------- 1.16 1.16 .84 42.92 1.17 1.17 .37 32.15 1.19 1.19 .46 127.47 1.16 1.16 .36 65.39 1.15 1.15 .16 52.57 - ----------------------------------------------------------------------------- .90 .91 1.12 42.92 .92 .92 .62 32.15 .94 .94 .71 127.47 .91 .91 .58 65.39 .88 .88 .45 52.57 - ----------------------------------------------------------------------------- 2.24 2.37 (1.06) 57.90 2.25 2.34 (1.33) 203.33 2.25 2.49 (1.06) 81.91 2.25 2.53 (1.12) 89.13 2.25 2.54 (.93) 105.31 - ----------------------------------------------------------------------------- 1.48 1.62 (.32) 57.90 1.50 1.59 (.58) 203.33 1.50 1.74 (.31) 81.91 1.50 1.78 (.37) 89.13 1.50 1.84 (.16) 105.31 - ----------------------------------------------------------------------------- 1.22 1.38 (.06) 57.90 1.25 1.34 (.32) 203.33 1.25 1.49 (.06) 81.91 1.25 1.53 (.13) 89.13 1.25 1.54 .07 105.31 - -----------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 251 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - -------------------------------------------------------------------------------------------------------------- SELECT GROWTH FUND Class C October 31, 2005 6.85 (.08) .68 .60 October 31, 2004 6.85 (.11) .11 -- October 31, 2003 5.23 (.09) 1.71 1.62 October 31, 2002 6.65 (.10) (1.32) (1.42) October 31, 2001 (2) 10.00 (.08) (3.27) (3.35) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 7.08 (.01) .69 .68 October 31, 2004 7.03 (.05) .10 .05 October 31, 2003 5.31 (.04) 1.76 1.72 October 31, 2002 6.68 (.04) (1.33) (1.37) October 31, 2001 (2) 10.00 (.02) (3.30) (3.32) - -------------------------------------------------------------------------------------------------------------- Class I October 31, 2005 7.19 .01 .71 .72 October 31, 2004 7.10 (.02) .11 .09 October 31, 2003 5.35 (.02) 1.77 1.75 October 31, 2002 6.71 (.02) (1.34) (1.36) October 31, 2001 (2) 10.00 --(d) (3.29) (3.29) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 7.15 --(d) .72 .72 October 31, 2004 7.08 (.03) .10 .07 October 31, 2003 5.34 (.02) 1.76 1.74 October 31, 2002 6.71 (.02) (1.35) (1.37) October 31, 2001 (2) 10.00 --(d) (3.29) (3.29) - -------------------------------------------------------------------------------------------------------------- SELECT VALUE FUND Class C October 31, 2005 10.15 (.02) 1.16 1.14 October 31, 2004 8.97 (.03) 1.22 1.19 October 31, 2003 7.41 (.01) 1.58 1.57 October 31, 2002 8.51 (.02) (1.07) (1.09) October 31, 2001 (2) 10.00 --(d) (1.48) (1.48) - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.28 .09 1.16 1.25 October 31, 2004 9.05 .05 1.23 1.28 October 31, 2003 7.46 .06 1.58 1.64 October 31, 2002 8.53 .06 (1.07) (1.01) October 31, 2001 (2) 10.00 .05 (1.48) (1.43) - -------------------------------------------------------------------------------------------------------------- Class I October 31, 2005 10.30 .13 1.17 1.30 October 31, 2004 9.07 .10 1.22 1.32 October 31, 2003 7.46 .08 1.61 1.69 October 31, 2002 8.54 .08 (1.07) (.99) October 31, 2001 (2) 10.00 .09 (1.48) (1.39) - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.29 .11 1.16 1.27 October 31, 2004 9.05 .08 1.24 1.32 October 31, 2003 7.45 .07 1.60 1.67 October 31, 2002 8.53 .07 (1.07) (1.00) October 31, 2001 (2) 10.00 .08 (1.48) (1.40) - -------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - -------------------------------------------------------------------------------------------------------------- SELECT GROWTH FUND Class C October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (2) -- -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (2) -- -- -- - -------------------------------------------------------------------------------------------------------------- Class I October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (2) -- -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (2) -- -- -- - -------------------------------------------------------------------------------------------------------------- SELECT VALUE FUND Class C October 31, 2005 (.01) (.01) -- October 31, 2004 (.01) -- -- October 31, 2003 (.01) -- -- October 31, 2002 (.01) -- -- October 31, 2001 (2) (.01) -- -- - -------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (.09) (.01) -- October 31, 2004 (.05) -- -- October 31, 2003 (.05) -- -- October 31, 2002 (.06) -- -- October 31, 2001 (2) (.04) -- -- - -------------------------------------------------------------------------------------------------------------- Class I October 31, 2005 (.13) (.01) -- October 31, 2004 (.09) -- -- October 31, 2003 (.08) -- -- October 31, 2002 (.09) -- -- October 31, 2001 (2) (.07) -- -- - -------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (.11) (.01) -- October 31, 2004 (.08) -- -- October 31, 2003 (.07) -- -- October 31, 2002 (.08) -- -- October 31, 2001 (2) (.07) -- -- - --------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 252 Financial Highlights
$ $ $ % NET ASSETS, TOTAL NET ASSET VALUE, TOTAL END OF PERIOD DISTRIBUTIONS END OF PERIOD RETURN(B) (000) - ----------------------------------------------------------------------------- -- 7.45 8.76 8,149 -- 6.85 (.15) 5,942 -- 6.85 31.17 3,265 -- 5.23 (21.35) 1,341 -- 6.65 (33.50) 1,017 - ----------------------------------------------------------------------------- -- 7.76 9.60 4,255 -- 7.08 .71 5,749 -- 7.03 32.39 4,865 -- 5.31 (20.51) 2,814 -- 6.68 (33.20) 2,714 - ----------------------------------------------------------------------------- -- 7.91 10.17 112,112 -- 7.19 1.13 60,006 -- 7.10 32.71 32,003 -- 5.35 (20.27) 18,150 -- 6.71 (32.90) 21,044 - ----------------------------------------------------------------------------- -- 7.87 10.07 57,324 -- 7.15 .99 51,569 -- 7.08 32.58 42,421 -- 5.34 (20.42) 24,389 -- 6.71 (32.90) 24,072 - ----------------------------------------------------------------------------- (.02) 11.27 11.23 21,228 (.01) 10.15 13.24 16,834 (.01) 8.97 21.19 9,972 (.01) 7.41 (12.82) 2,061 (.01) 8.51 (14.76) 1,844 - ----------------------------------------------------------------------------- (.10) 11.43 12.14 8,770 (.05) 10.28 14.31 9,167 (.05) 9.05 22.01 7,778 (.06) 7.46 (11.86) 3,314 (.04) 8.53 (14.33) 3,155 - ----------------------------------------------------------------------------- (.14) 11.46 12.63 135,759 (.09) 10.30 14.77 102,397 (.08) 9.07 22.60 74,600 (.09) 7.46 (11.72) 35,169 (.07) 8.54 (13.92) 28,983 - ----------------------------------------------------------------------------- (.12) 11.44 12.36 198,551 (.08) 10.29 14.61 173,635 (.07) 9.05 22.53 128,383 (.08) 7.45 (11.78) 31,806 (.07) 8.53 (14.04) 31,288 - ----------------------------------------------------------------------------- % % % RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET TO AVERAGE TO AVERAGE INVESTMENT INCOME % NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO NET(C)(E) GROSS(C) NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------------------------------------------- 2.23 2.32 (1.15) 127.68 2.25 2.50 (1.53) 134.00 2.20 2.74 (1.57) 149.76 2.11 2.82 (1.53) 212.37 2.17 2.97 (1.32) 169.36 - ----------------------------------------------------------------------------- 1.28 1.40 (.15) 127.68 1.36 1.54 (.65) 134.00 1.26 1.79 (.62) 149.76 1.16 1.87 (.58) 212.37 1.29 2.05 (.45) 169.36 - ----------------------------------------------------------------------------- .92 1.08 .12 127.68 .95 1.20 (.23) 134.00 .93 1.58 (.31) 149.76 .89 1.65 (.31) 212.37 .89 1.75 (.03) 169.36 - ----------------------------------------------------------------------------- 1.06 1.18 .04 127.68 1.09 1.27 (.38) 134.00 1.03 1.56 (.40) 149.76 .97 1.68 (.39) 212.37 .94 1.74 (.09) 169.36 - ----------------------------------------------------------------------------- 2.18 2.20 (.18) 84.74 2.25 2.32 (.31) 96.07 2.15 2.42 (.12) 105.71 2.00 2.40 (.27) 92.95 2.00 2.64 -- 71.75 - ----------------------------------------------------------------------------- 1.25 1.30 .78 84.74 1.39 1.39 .55 96.07 1.21 1.48 .77 105.71 1.04 1.43 .70 92.95 1.25 1.85 .76 71.75 - ----------------------------------------------------------------------------- .86 .91 1.14 84.74 .95 .95 1.00 96.07 .90 1.23 1.12 105.71 .79 1.22 .95 92.95 .79 1.48 1.25 71.75 - ----------------------------------------------------------------------------- 1.07 1.10 .95 84.74 1.10 1.10 .84 96.07 1.01 1.28 1.03 105.71 .87 1.27 .86 92.95 .86 1.50 1.18 71.75 - -----------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 253 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL HIGHLIGHTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- (1) For the period December 6, 2000 (commencement of sale) to October 31, 2001. (2) For the period January 31, 2001 (commencement of operations) to October 31, 2001. (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. (e) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. See accompanying notes which are an integral part of the financial statements. 254 Notes to Financial Highlights FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on fourteen of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. Security Valuation The Funds value portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Money market fund securities are priced using the amortized cost method of valuation, as are debt obligation securities maturing within 60 days at the time of purchase, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has delegated the responsibility for administration of the Securities Valuation Procedures to FRIMCo. Ordinarily, the Funds value each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale price; - US over-the-counter equities: Official closing price; last bid price if no closing price; - Foreign equities: Official closing price, where available, or last sale price; last bid price if no closing price; - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. - The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Funds will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange on which the security is traded. The Fair Value Procedures may involve subjective judgments as to the fair value of securities. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Fund's Board of Trustees believes reflects fair value. The use of fair value pricing by a Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Fund shares and the daily movement of the benchmark index if the index is valued using another pricing method. This policy is intended to assure that the Funds' net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they Notes to Financial Statements 255 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- trade and the time the net asset value of Fund Shares is determined may be reflected in the calculation of net asset values for each applicable Fund when the Funds deem that the particular event or circumstance would materially affect such Fund's net asset value. FRIC Funds that invest primarily in frequently traded exchange listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. FRIC Funds that invest in foreign securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. FRIC Funds that invest in low rated debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage); a company event such as a material business development, dividend declaration, stock split or rights offering; a material disaster; or an armed conflict. Because foreign securities can trade on non-business days, the net asset value of a Fund's portfolio that includes foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. Investment Income Dividend income is recorded net of applicable withholding taxes on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon thereafter as the Funds are informed of the ex-dividend date. Interest income is recorded daily on the accrual basis. 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 or excise tax provision was required for the Funds. Dividends and Distributions to Shareholders For all Funds, income and capital gain distributions, if any, are recorded on the ex-dividend date. Income distributions are generally declared and paid according to the following schedule:
DECLARED PAYABLE FUNDS -------------------------------------------------------------------------------------------------------- Monthly Early in the following month Tax-Exempt Bond, Diversified Bond and Multistrategy Bond Funds Quarterly April, July, October and Diversified Equity, Quantitative December Equity, Real Estate Securities, Short Duration Bond and Select Value Funds Annually Mid-December Special Growth, International Securities, Emerging Markets, Tax- Managed Large Cap, Tax-Managed Mid & Small Cap and Select Growth Funds
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. 256 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in options, futures, forward contracts, swap contracts, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities sold at a loss and capital loss carryforwards. Expenses The Funds will pay their own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Adviser"). 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. Class Allocation The Funds presented herein offer the following classes of shares: Class C, Class E, Class I and Class S. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the applicable distribution fees and shareholder servicing fees. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Foreign Currency Translations The books and records of the Funds are maintained in US dollars. Foreign currency amounts and transactions of the Funds are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at year-end, as a result of changes in the exchange rates. The Funds do not isolate that portion of the results of operations of the Funds that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Funds do isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Capital Gains Taxes The International Securities Fund and Emerging Markets Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which they invest. The Funds have recorded a deferred tax liability in respect of the unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at October 31, 2005. The accrual for capital gains and repatriation taxes is included in net unrealized appreciation (depreciation) on investments in the Statement of Asset and Liabilities for the Funds. The amounts related to capital gains taxes are included in net realized gain (loss) on investments in the Statements of Operations for the Funds.
DEFERRED CAPITAL FUNDS TAX LIABILITY GAINS TAXES -------------------------------------------------------------------------- International Securities $ -- $ 129,751 Emerging Markets 876,385 429,737
Notes to Financial Statements 257 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Derivatives To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds' Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, swaptions, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting their investment strategies. The Funds typically use derivatives in two ways: hedging and return enhancement. The Funds may use a hedging strategy for their cash reserves to achieve a strategy of being fully invested by exposing those reserves to the performance of appropriate markets by purchasing equity or fixed income securities, as appropriate, and/or derivatives. Hedging is also used by some 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, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). The International Securities Fund may enter into forward foreign currency overlays on liquidity reserve balances. Additionally, from time to time the International Securities, Emerging Markets, Short Duration Bond, Diversified Bond and Multistrategy Bond Funds may enter into contracts to hedge certain foreign currency-denominated assets. Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open contracts at October 31, 2005 are presented on the Schedule of Investments for the applicable Funds. 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) 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. Options The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. The Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to equitize liquidity reserve balances. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. Whether an option which the Fund has written 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 258 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 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 presented herein may invest in futures contracts (i.e., interest rate, foreign currency and index futures contracts) to a limited extent. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount, termed the initial margin, which typically represents 5% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. As of October 31, 2005, the Multistrategy Bond Fund had cash collateral balances of $100,000 in connection with futures contracts purchased (sold). Swap Agreements The Funds may enter into several different types of agreements including interest rate, index, credit default and currency swaps. The Funds may enter into index swap agreements as an additional hedging strategy for cash reserves held by those Funds or to effect investment transactions consistent with 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. The Short Duration Bond, Diversified Bond, Multistrategy Bond and International Securities Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether they are hedging their assets or their liabilities, and will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments. When a Fund engages in a swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments). Interest rate swaps are a counterparty agreement and can be customized to meet each parties needs and involves the exchange of a fixed payment per period for a payment that is not fixed. Currency swaps are an agreement where two parties exchange specified amounts of different currencies which are followed by a series of interest payments that are exchanged based on the principal cash flow. At maturity the principal amounts are exchanged back. Credit default swaps are a counterparty agreement which allows the transfer of third party credit risk (the possibility that a issuer will default on their obligation by failing to pay principal or interest in a timely manner) from one party to another. The lender faces the credit risk from a third party and the counterparty in the swap agrees to insure this risk in exchange for regular periodic payments. Notes to Financial Statements 259 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of their portfolios or to protect against any increase in the price of securities they anticipate purchasing at a later date. The net amount of the excess, if any, of the Funds' obligations over their entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid high-grade debt securities having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by the Funds' custodian. To the extent that the Funds enter into swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Funds' obligations, if any, with respect to such interest rate swaps, accrued on a daily basis. If there is a default by the other party to such a transaction, the Funds will have contractual remedies pursuant to the agreement related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. As of October 31, 2005, the International Securities Fund had cash collateral balances of $1,060,000 in connection with index swap contracts purchased. Investments in Emerging Markets Investing in emerging markets may involve special risks and considerations for the Emerging Markets Fund not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices may be more volatile than those of comparable securities in the United States. Guarantees In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. 3. INVESTMENT TRANSACTIONS Securities During the period ended October 31, 2005, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
FUNDS PURCHASES SALES - --------------------------------------------------------------- Diversified Equity $ 2,888,315,224 $ 2,525,397,255 Special Growth 1,357,308,402 1,299,273,266 Quantitative Equity 3,051,918,591 2,650,085,327 International Securities 1,913,371,275 1,566,404,992 Emerging Markets 557,744,073 489,569,166 Real Estate Securities 973,771,838 884,864,116 Short Duration Bond 1,402,424,789 1,293,033,492 Diversified Bond 2,235,188,842 1,874,453,410
- ---------------------------------------------------------------
FUNDS PURCHASES SALES Multistrategy Bond $ 1,194,918,491 $ 1,043,170,370 Tax Exempt Bond 145,359,127 93,679,345 Tax-Managed Large Cap 188,845,226 160,421,940 Tax-Managed Mid & Small Cap 95,809,451 80,776,797 Select Growth 236,279,795 193,505,061 Select Value 295,871,245 274,923,071
Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
FUNDS PURCHASES SALES - --------------------------------------------------------------- Short Duration Bond $ 624,389,436 $ 548,143,821 Diversified Bond 1,570,279,891 1,346,373,774 Multistrategy Bond 2,080,991,261 1,677,826,108 Tax-Managed Large Cap 794,634 431,409
260 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Written Options Contracts Transactions in written options contracts for the period ended October 31, 2005 for the following Funds were as follows:
INTERNATIONAL SECURITIES FUND EMERGING MARKETS FUND ------------------------------------------ ------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------------------ Outstanding October 31, 2004 433 $ 3,730,200 461 $ 1,319,478 Opened 3,644 25,592,656 2,229 4,985,469 Closed (4,037) (29,149,112) (2,404) (5,581,085) Expired -- -- -- -- ------------------- ------------------- ------------------- ------------------- Outstanding October 31, 2005 40 $ 173,744 286 $ 723,862 =================== =================== =================== ===================
SHORT DURATION BOND FUND DIVERSIFIED BOND FUND ------------------------------------------ ------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------------------ Outstanding October 31, 2004 12 $ 13,167 240 $ 149,231 Opened 170 324,666 1,499 579,254 Closed -- -- (135) (59,571) Expired (22) (16,177) (1,227) (499,854) ------------------- ------------------- ------------------- ------------------- Outstanding October 31, 2005 160 $ 321,656 377 $ 169,060 =================== =================== =================== ===================
MULTISTRATEGY BOND FUND ------------------------------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED -------------------------------------------------------------------------------- Outstanding October 31, 2004 504 $ 562,722 Opened 2,356 1,162,245 Closed (1) (125,600) Expired (2,324) (1,036,027) ------------------- ------------------- Outstanding October 31, 2005 535 $ 563,340 =================== ===================
Securities Lending The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets. The Fund receives cash (US currency), US Government or US Government agency obligations as collateral against the loaned securities. To the extent that a loan is collateralized by cash, such collateral is invested by the securities lending agent, State Street Bank and Trust Company ("State Street") in short-term instruments, money market mutual funds and other short-term investments that meet certain quality and diversification requirements. Cash collateral invested in money market funds is included in the Schedules of Investments. The collateral received is recorded on a lending Fund's statement of assets and liabilities along with the related obligation to return the collateral. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street and is recorded as income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street and are recorded as securities lending income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for non-US securities) of the market value of the loaned securities at the inception of each loan. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Fund the next day. Should the borrower of the securities fail financially, there is a risk of Notes to Financial Statements 261 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of October 31, 2005, the non-cash collateral received for the securities on loan in the following funds was:
NON-CASH FUNDS COLLATERAL VALUE NON-CASH COLLATERAL HOLDING --------------------------------------------------------------------------------------------- Special Growth $ 401,021 Pool of US Government securities International Securities 716,776 Pool of US Government securities Tax-Managed Mid & Small Cap 2,274 Pool of US Government securities
4. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to FRIMCo. The Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses) and also may invest a portion of the collateral received from the Investment Company's securities lending program, in the Investment Company's Money Market and Tax Free Money Market Funds (two of the Funds of the Investment Company not presented herein). As of October 31, 2005, $1,773,882,094 of the Money Market Fund's net assets and $8,987,848 of the Tax Free Money Market Fund's net assets represents investments by the Funds presented herein and $713,034,017 of the Money Market Funds' net assets represents the investments of other FRIC Funds not presented herein. The advisory and administrative fees are based upon the average daily net assets of each Fund and the rates specified in the table below, are payable monthly and total $114,034,319 and $7,947,061 respectively, for the period ended October 31, 2005.
ANNUAL RATE ------------------------------- FUNDS ADVISER ADMINISTRATOR - -------------------------------------------------------------- Special Growth .90% .05% Emerging Markets 1.15 .05 Real Estate Securities .80 .05 Short Duration Bond .45 .05 Diversified Bond .40 .05 Multistrategy Bond .60 .05
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ANNUAL RATE ------------------------------- FUNDS ADVISER ADMINISTRATOR Tax Exempt Bond .30% .05% Tax-Managed Large Cap .70 .05 Tax-Managed Mid & Small Cap .98 .05 Select Growth .80 .05 Select Value .70 .05
For the Diversified Equity Fund, the Quantitative Equity Fund and the International Securities Fund, the advisory fee is based on the asset level of the Funds. The advisory fee rates for these Funds are as follows:
DIVERSIFIED EQUITY QUANTITATIVE EQUITY INTERNATIONAL SECURITIES ANNUAL RATE ANNUAL RATE ANNUAL RATE ---------------------------- ---------------------------- ---------------------------- AVERAGE DAILY NET ASSETS ADVISORY ADMINISTRATOR ADVISORY ADMINISTRATOR ADVISORY ADMINISTRATOR --------------------------------------------------------------------------------------------------------------------------------- First $2 Billion .73% .05% .73% .05% .90% .05% Next $3 Billion .72 .05 .72 .05 .89 .05 Over $5 Billion .70 .05 .70 .05 .87 .05
For the Tax-Managed Mid & Small Cap Fund, FRIMCo has contractually agreed to waive, at least until February 28, 2006, up to the full amount of its 1.03% combined advisory and administrative fees and to reimburse the Fund to the extent that Fund-level expenses exceed 1.25% of the average daily net assets of that Fund on an annual basis. Fund-level expenses for the Tax-Managed Mid & Small Cap Fund do not include 12b-1 fees or shareholder servicing fees. The total amount of the waiver for the period ended October 31, 2005 was $187,394. There were no contractual reimbursements for the period ended October 31, 2005. This Fund's expense ratio was less than its expense cap for the period ended October 31, 2005 due to a one-time expense reimbursement from the Adviser during the period. For the Select Growth Fund, FRIMCo has contractually agreed to waive, at least until February 28, 2006, up to the full amount of its transfer agency fees, administrative fees, and advisory fees to the extent that expenses for Class C, Class E, Class I and 262 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Class S exceed 2.25%, 1.40%, 0.95% and 1.15%, respectively, of the average daily net assets of each such class on an annual basis. If a waiver of advisory or administrative fees is required for any class of shares of the Fund, advisory or administrative fees will be waived equally across all classes of the Fund. This may result in a waiver amount that is greater than what is required to reduce total net operating expense for Class C, Class E, Class I and Class S to 2.25%, 1.40%, 0.95% and 1.15%, respectively. The total amount of the waiver for the period ended October 31, 2005 was $103,095. There were no contractual reimbursements for the period ended October 31, 2005. This Fund's expense ratio was less than its expense cap for the period ended October 31, 2005 due to a one-time expense reimbursement from the Adviser during the period. For the Select Value Fund, FRIMCo has contractually agreed to waive, at least until February 28, 2006, up to the full amount of its transfer agency fees, administrative fees, and advisory fees to the extent that expenses for Class C, Class E, Class I and Class S exceed 2.25%, 1.40%, 0.95% and 1.15%, respectively, of the average daily net assets of each such class on an annual basis. If a waiver of advisory or administrative fees is required for any class of shares of the Fund, advisory or administrative fees will be waived equally across all classes of the Fund. This may result in a waiver amount that is greater than what is required to reduce total net operating expense for Class C, Class E, Class I and Class S to 2.25%, 1.40%, 0.95% and 1.15%, respectively. There were no waivers or reimbursements for the period ended October 31, 2005. The Adviser does not have the ability to recover amounts waived or reimbursed from previous periods. The Adviser reimbursed certain Funds for amounts previously paid by those Funds to Russell/Mellon Analytical Services for analytical services received. The amounts of the reimbursement for the period ended October 31, 2005 were:
REIMBURSEMENT FUNDS AMOUNT - ----------------------------------------------------------- Diversified Equity $ 115,714 Special Growth 84,820 Quantitative Equity 43,906 International Securities 259,596 Emerging Markets 132,378
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REIMBURSEMENT FUNDS AMOUNT Real Estate Securities $ 9,957 Tax-Managed Large Cap 26,736 Tax-Managed Mid & Small Cap 31,660 Select Growth 56,775 Select Value 124,589
For the period ended October 31, 2005, the Adviser paid the following amounts to certain Funds with respect to referral fees received:
AMOUNT FUNDS PAID - ------------------------------------------------ Diversified Equity $ 20,063 Special Growth 25,070 Quantitative Equity 24,013 International Securities 21,448 Emerging Markets 26,094 Real Estate Securities 34,900 Short Duration Bond 13,311
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AMOUNT FUNDS PAID Diversified Bond $ 10,191 Multistrategy Bond 14,611 Tax Exempt Bond 3,398 Tax-Managed Large Cap 6,991 Tax-Managed Mid & Small Cap 6,162 Select Growth 3,525 Select Value 8,517
The Adviser reimbursed the Multistrategy Bond Fund for an allocation of a sub-adviser fee that was credited to the Adviser rather than the Fund. The amount of the reimbursement was $1,274. Special Service Charge Special servicing agreements were entered into in February 1999 by the Adviser and were approved annually by the Funds' Board of Trustees. The special servicing agreements were between the Fund of Funds (a group of nine LifePoints Funds and the Tax-Managed Global Equity Fund which invest in a combination of Class S shares of the Investment Company's portfolios) and the Funds listed below, the "Underlying Funds," in which the Fund of Funds invest. In accordance with the special servicing agreements, certain expenses from the operation of the Fund of Funds were borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by the Fund of Funds. No Underlying Funds were charged expenses that exceeded the estimated savings to each respective Underlying Fund. These estimated savings appeared in the form of reduced transfer agent costs resulting from the elimination of separate shareholder accounts which were invested in the Underlying Funds. Rather than having each investor open a shareholder account to invest individually in the Underlying Funds, the Fund of Funds acted as omnibus accounts combining thousands of individual shareholder accounts into a single account. This Notes to Financial Statements 263 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- benefited the Underlying Funds, by reducing the number of shareholder accounts that needed to be maintained, and by the omnibus accounts' netting out the trades of individual shareholders to a point where the Fund of Funds only executed one trade each day with each Underlying Fund. In the event that the financial benefits to the Underlying Funds did not exceed aggregate expenses of any Fund of Fund, the Adviser reimbursed the respective Underlying Funds. The Adviser did not have the ability to recover amounts reimbursed from previous periods. This arrangement was discontinued on June 30, 2005. For the period ended October 31, 2005, the special servicing expense charged to the Underlying Funds amounted to:
AMOUNT UNDERLYING FUNDS PAID - ----------------------------------------------------------- Diversified Equity $ 1,432,949 Special Growth 320,272 Quantitative Equity 1,445,738 International Securities 1,292,156 Emerging Markets 237,856 Real Estate Securities 407,769
- -----------------------------------------------------------
AMOUNT UNDERLYING FUNDS PAID Short Duration Bond $ 608,180 Diversified Bond 938,143 Multistrategy Bond 1,020,111 Tax-Managed Large Cap 63,948 Tax-Managed Mid & Small Cap 19,184
For the period ended October 31, 2005, the Adviser reimbursement to the Underlying Funds amounted to:
AMOUNT FUNDS PAID - ----------------------------------------------------------- Diversified Equity $ 52,352 Special Growth 12,805 Quantitative Equity 53,912 International Securities 52,879 Emerging Markets 8,713 Real Estate Securities 16,048
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AMOUNT FUNDS PAID Short Duration Bond $ 26,879 Diversified Bond 57,598 Multistrategy Bond 48,569 Tax-Managed Large Cap 7,799 Tax-Managed Mid & Small Cap 2,340
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 Fund's expenses. During the period ended October 31, 2005, the Fund's custodian fees were reduced by the following amounts under these arrangements:
AMOUNT FUNDS PAID - ----------------------------------------------------------- Diversified Equity $ 2,058 Special Growth 1,195 Quantitative Equity 861 International Securities 1,698 Emerging Markets 1,383 Real Estate Securities 492 Short Duration Bond 8,041
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AMOUNT FUNDS PAID Diversified Bond $ 13,381 Multistrategy Bond 24,426 Tax Exempt Bond 673 Tax-Managed Large Cap 92 Tax-Managed Mid & Small Cap 167 Select Growth 528 Select Value 552
Transfer agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Funds. FRIMCo retains a portion of this fee for its services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Funds reported herein for the period ended October 31, 2005 were $18,877,736. In addition, FRIMCo has contractually agreed to waive, at least until February 28, 2006, a portion of its transfer agency fees for certain Funds. The total transfer agent fee waivers for the period ended October 31, 2005 were as follows:
TA FEE FUNDS WAIVER AMOUNT ------------------------------------------------------- Select Growth $ 63,098
264 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Distributor and Shareholder Servicing The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to Russell Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of FRIMCo, or any Selling Agents, as defined in the Plan, for sales support services provided and related expenses incurred which were primarily intended to result in the sale of the Class C shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.75% of the average daily net assets of a Fund's Class C shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Funds may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class C or Class E shares of the Funds. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class C and Class E shares on an annual basis. Pursuant to the rules of the National Association of Securities Dealers, Inc. ("NASD"), the asset-based sales charges on Shares of the Funds may not exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25% limitation is imposed at the class level of each Fund rather than on a per shareholder basis. Therefore, long-term shareholders may pay more than the economic equivalent of the maximum sales charges permitted by the NASD. Brokerage Commissions The Funds will effect transactions through Frank Russell Securities, Inc. ("FRS") and its global network of correspondent brokers. FRS is an affiliate of FRIMCo. Trades placed through FRS and its correspondents are used to obtain either research services for FRIMCo, to assist it in its capacity as a manager of managers, to generate commission rebates to the Funds on whose behalf the trades were made or to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions. For purposes of trading to obtain research services for FRIMCo or to generate commission rebates to the Funds, the Funds' money managers are requested to and FRIMCo may, with respect to transactions it places, effect transactions with or through FRS or other brokers and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. Research services provided to FRIMCo by FRS or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be obtained from unaffiliated third parties at market rates. Research provided to FRIMCo will benefit the particular Funds generating the trading activity and may also benefit other Funds within FRIC and other funds and clients managed or advised by FRIMCo or its affiliates. Similarly, the Funds will benefit from research provided with respect to trading by those other funds and clients. In some cases, research may also be provided by non-affiliated brokers. FRS or other brokers may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through FRS and its correspondents in the form of commission recapture. Commission recapture is paid solely to those Funds generating the applicable trades. Commission recapture is generated on the instructions of the Soft Dollar Committee once FRIMCo's research budget has been met. For the period ended October 31, 2005, there was no commission recapture for the Funds. FRS retains a portion of all commissions generated, regardless of whether the trades were used to provide research services to FRIMCo or commission recapture to the Funds. Trades through FRS for transition services and manager funding (i.e. brokerage arrangements designed to reduce costs and optimize performance during the transition of Fund assets upon the hiring, termination or additional funding of a money manager) are at ordinary and customary commission rates and do not result in commission rebates or accrued credits for the procurement of research related services. Amounts retained by Frank Russell Securities, Inc. for the period ended October 31, 2005 were as follows:
FUNDS AMOUNT - ------------------------------------------------ Diversified Equity $ 104,188 Special Growth 31,218 Quantitative Equity 27,865 International Securities 153,592 Emerging Markets 33,965
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FUNDS AMOUNT Real Estate Securities $ 22,960 Tax-Managed Large Cap 8,785 Tax-Managed Mid & Small Cap 4,138 Select Growth 18,619 Select Value 25,283
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Adviser. Notes to Financial Statements 265 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Accrued fees payable to affiliates as of October 31, 2005 were as follows:
DIVERSIFIED SPECIAL QUANTITATIVE INTERNATIONAL EMERGING EQUITY GROWTH EQUITY SECURITIES MARKETS ------------------------------------------------------------------------------------------------------------------------------ Advisory fees $ 1,665,280 $ 707,801 $ 1,721,069 $ 1,866,270 $ 835,247 Administration fees 108,526 39,926 107,614 97,882 34,622 Distribution fees 78,392 34,889 79,641 74,525 21,615 Shareholder servicing fees 37,223 16,102 37,787 35,187 11,114 Transfer agent fees 335,432 220,676 349,062 298,278 62,091 Trustee fees 7,012 2,308 7,278 21,292 1,611 ---------------- ---------------- ---------------- ---------------- ---------------- $ 2,231,865 $ 1,021,702 $ 2,302,451 $ 2,393,434 $ 966,300 ================ ================ ================ ================ ================
REAL ESTATE SHORT DURATION DIVERSIFIED MULTISTRATEGY TAX EXEMPT SECURITIES BOND BOND BOND BOND ------------------------------------------------------------------------------------------------------------------------------ Advisory fees $ 1,032,552 $ 465,233 $ 567,165 $ 955,874 $ 63,536 Administration fees 64,262 49,982 95,908 102,798 10,578 Distribution fees 50,502 19,414 33,636 43,698 6,602 Shareholder servicing fees 25,138 11,706 21,594 22,668 3,995 Transfer agent fees 196,575 52,059 219,104 221,360 21,818 Trustee fees 3,383 3,712 4,730 4,919 443 ---------------- ---------------- ---------------- ---------------- ---------------- $ 1,372,412 $ 602,106 $ 942,137 $ 1,351,317 $ 106,972 ================ ================ ================ ================ ================
TAX-MANAGED TAX-MANAGED SELECT SELECT LARGE CAP MID & SMALL CAP GROWTH VALUE ----------------------------------------------------------------------------------------------------------- Advisory fees $ 240,224 $ 140,764 $ 118,307 $ 205,683 Administration fees 17,157 2,965 7,367 14,681 Distribution fees 10,492 5,654 4,910 12,745 Shareholder servicing fees 5,280 2,221 2,507 6,050 Transfer agent fees 46,542 9,163 3,775 53,651 Trustee fees 890 462 306 688 ---------------- ---------------- ---------------- ---------------- $ 320,585 $ 161,229 $ 137,172 $ 293,498 ================ ================ ================ ================
Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company ("FRIC"), which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and, a new chairperson of the Board was elected with additional annual compensation of $52,000. 266 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 5. FEDERAL INCOME TAXES At October 31, 2005, the following Funds had net tax basis capital loss carryforwards which may be applied against any net realized taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. Available capital loss carryforwards and expiration dates are as follows:
FUNDS 10/31/07 10/31/08 10/31/09 10/31/10 ---------------------------------------------------------------------------------------------------------------- Short Duration Bond $ -- $ -- $ -- -- Diversified Bond -- -- -- -- Tax Exempt Bond -- 682,095 -- -- Tax-Managed Large Cap -- -- 39,369,989 59,069,223 Tax-Managed Mid & Small Cap -- -- -- 10,128,842 Select Growth -- -- 2,811,082 14,206,106 Select Value 8,697,269 451,724 2,362,680 362,611
FUNDS 10/31/11 10/31/12 10/31/13 TOTALS ---------------------------------------------------------------------------------------------------------------- Short Duration Bond $ -- $ -- $10,278,948 $10,278,948 Diversified Bond -- -- 4,976,789 4,976,789 Tax Exempt Bond -- 357,343 -- 1,039,438 Tax-Managed Large Cap -- -- -- 98,439,212 Tax-Managed Mid & Small Cap -- -- -- 10,128,842 Select Growth 263,497 -- -- 17,280,685 Select Value -- -- -- 11,874,284
Select Value Fund had a capital loss carryforward of $11,874,284 that it acquired from the Equity Income Fund and Equity III Fund of which $8,697,269, $451,724, $2,362,680, and $362,611 will expire on October 31 of the years 2007, 2008, 2009 and 2010, respectively. This capital loss carryforward can be utilized at a pace of up to $5,101,116 each year with any unused capital loss annual limitation carried over to each succeeding year or until its respective expiration dates, whichever occurs first. At October 31, 2005, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:
INTERNATIONAL DIVERSIFIED EQUITY SPECIAL GROWTH QUANTITATIVE EQUITY SECURITIES ------------------------------------------------------------------------------------------------------------------------------ Cost of Investments $ 2,600,503,771 $ 989,620,220 $ 2,616,058,092 $ 2,653,229,466 ================ ================ ================ ================ Unrealized Appreciation 316,250,338 154,927,344 347,638,275 370,484,180 Unrealized Depreciation (58,349,789) (27,987,532) (62,300,833) (26,827,004) ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 257,900,549 $ 126,939,812 $ 285,337,442 $ 343,657,176 ================ ================ ================ ================ Undistributed Ordinary Income $ 587,397 $ 14,038,916 $ 714,005 $ 27,780,280 Undistributed Long-Term Capital Gains $ 76,319,474 $ 76,808,705 $ 123,308,071 $ 86,088,638 (Capital Loss Carryforward) $ -- $ -- $ -- $ -- Tax Composition of Distributions: Ordinary Income $ 17,519,516 $ 36,150,962 $ 22,658,275 $ 31,126,104 Long-Term Capital Gains $ -- $ 61,159,219 $ -- $ --
Notes to Financial Statements 267 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
REAL ESTATE SHORT DURATION EMERGING MARKETS SECURITIES BOND DIVERSIFIED BOND MULTISTRATEGY BOND ------------------------------------------------------------------------------------------------------------------------------ Cost of Investments $ 651,433,010 $ 1,227,728,017 $ 1,270,440,702 $ 2,038,243,115 $ 2,587,467,818 ================ ================ ================ ================ ================ Unrealized Appreciation 215,594,654 449,249,336 474,213 4,588,093 11,358,162 Unrealized Depreciation (15,237,551) (4,791,795) (14,856,996) (25,210,841) (23,805,395) ---------------- ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 200,357,103 $ 444,457,541 $ (14,382,783) $ (20,622,748) $ (12,447,233) ================ ================ ================ ================ ================ Undistributed Ordinary Income $ 22,499,562 $ 41,832,169 $ 2,899,428 $ 5,616,113 $ 8,341,007 Undistributed Long-Term Capital Gains $ 21,385,695 $ 123,356,030 $ -- $ -- $ 2,321,868 (Capital Loss Carryforward) $ -- $ -- $ (10,278,948) $ (4,976,789) $ -- Tax Composition of Distributions: Ordinary Income $ 10,135,446 $ 44,634,608 $ 30,576,251 $ 47,868,077 $ 61,359,734 Long-Term Capital Gains $ -- $ 87,823,283 $ 806,070 $ 7,032,036 $ 7,878,472
268 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
TAX-MANAGED TAX-MANAGED TAX EXEMPT BOND LARGE CAP MID & SMALL CAP SELECT GROWTH SELECT VALUE ------------------------------------------------------------------------------------------------------------------------------ Cost of Investments $ 244,462,387 $ 325,696,870 $ 177,754,539 $ 173,967,660 $ 340,287,436 ================ ================ ================ ================ ================ Unrealized Appreciation 2,997,245 94,629,177 32,624,075 21,534,333 47,668,776 Unrealized Depreciation (2,285,393) (4,480,780) (5,176,048) (3,821,349) (9,196,920) ---------------- ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 711,852 $ 90,148,397 $ 27,448,027 $ 17,712,984 $ 38,471,856 ================ ================ ================ ================ ================ Undistributed Ordinary Income $ 678,824 $ 2,109,221 $ -- $ 42,687 $ 6,381,021 Undistributed Long-Term Capital Gains $ -- $ -- $ -- $ -- $ 14,126,155 (Capital Loss Carryforward) $ (1,039,438) $ (98,439,212) $ (10,128,842) $ (17,280,685) $ (11,874,284) Tax Composition of Distributions: Ordinary Income $ 7,270,977 $ 3,776,243 $ -- $ -- $ 3,349,017 Long-Term Capital Gains $ -- $ -- $ -- $ -- $ 250,408
6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 DIVERSIFIED EQUITY ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 913 1,067 $ 38,059 $ 40,591 Proceeds from reinvestment of distributions 2 -- 97 -- Payments for shares redeemed (437) (390) (18,261) (14,807) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 478 677 19,895 25,784 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 342 430 14,843 16,840 Proceeds from reinvestment of distributions 6 3 257 100 Payments for shares redeemed (294) (212) (12,728) (8,287) ----------------- ----------------- ----------------- ----------------- Total net increase (decrease) 54 221 2,372 8,653 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 13,816 16,792 596,026 654,907 Proceeds from reinvestment of distributions 292 105 12,661 4,125 Payments for shares redeemed (5,474) (6,913) (235,883) (271,038) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 8,634 9,984 372,804 387,994 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 9,166 10,882 $ 395,071 $ 422,431 ================= ================= ================= =================
Notes to Financial Statements 269 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SPECIAL GROWTH ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 316 385 $ 15,054 $ 18,776 Proceeds from reinvestment of distributions 130 22 6,105 1,039 Payments for shares redeemed (228) (227) (10,882) (10,972) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 218 180 10,277 8,843 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 208 416 10,673 20,969 Proceeds from reinvestment of distributions 83 9 4,119 445 Payments for shares redeemed (491) (143) (25,280) (7,150) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (200) 282 (10,488) 14,264 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 4,539 4,368 232,791 226,455 Proceeds from reinvestment of distributions 1,596 223 81,481 11,203 Payments for shares redeemed (3,134) (3,844) (162,993) (200,670) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,001 747 151,279 36,988 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 3,019 1,209 $ 151,068 $ 60,095 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 QUANTITATIVE EQUITY ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 1,084 1,244 $ 39,574 $ 41,854 Proceeds from reinvestment of distributions 5 -- 199 -- Payments for shares redeemed (506) (421) (18,512) (14,144) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 583 823 21,261 27,710 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 330 417 12,388 14,350 Proceeds from reinvestment of distributions 10 5 359 173 Payments for shares redeemed (321) (189) (12,054) (6,517) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 19 233 693 8,006 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 17,055 19,903 640,244 684,881 Proceeds from reinvestment of distributions 424 156 16,035 5,367 Payments for shares redeemed (6,785) (9,164) (254,740) (316,481) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 10,694 10,895 401,539 373,767 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 11,296 11,951 $ 423,493 $ 409,483 ================= ================= ================= =================
270 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 INTERNATIONAL SECURITIES ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 656 719 $ 38,805 $ 37,388 Proceeds from reinvestment of distributions 14 15 784 743 Payments for shares redeemed (251) (223) (14,956) (11,610) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 419 511 24,633 26,521 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 229 238 14,246 12,850 Proceeds from reinvestment of distributions 10 10 605 526 Payments for shares redeemed (160) (98) (9,930) (5,275) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 79 150 4,921 8,101 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 8,450 10,417 520,578 560,800 Proceeds from reinvestment of distributions 478 235 28,531 12,187 Payments for shares redeemed (3,183) (5,939) (197,878) (321,616) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,745 4,713 351,231 251,371 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 6,243 5,374 $ 380,785 $ 285,993 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EMERGING MARKETS ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 720 743 $ 10,819 $ 8,601 Proceeds from reinvestment of distributions 6 27 79 295 Payments for shares redeemed (330) (289) (4,983) (3,350) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 396 481 5,915 5,546 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 368 444 5,846 5,367 Proceeds from reinvestment of distributions 13 22 190 254 Payments for shares redeemed (384) (244) (6,138) (2,940) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (3) 222 (102) 2,681 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 9,775 15,089 151,220 180,417 Proceeds from reinvestment of distributions 633 638 9,268 7,205 Payments for shares redeemed (6,854) (8,459) (107,297) (101,760) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,554 7,268 53,191 85,862 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 3,947 7,971 $ 59,004 $ 94,089 ================= ================= ================= =================
Notes to Financial Statements 271 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 REAL ESTATE SECURITIES ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 529 648 $ 23,052 $ 24,331 Proceeds from reinvestment of distributions 135 36 5,811 1,425 Payments for shares redeemed (304) (233) (13,369) (8,932) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 360 451 15,494 16,824 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 398 314 17,861 12,184 Proceeds from reinvestment of distributions 73 21 3,199 829 Payments for shares redeemed (283) (145) (12,674) (5,628) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 188 190 8,386 7,385 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 8,037 7,890 355,555 300,908 Proceeds from reinvestment of distributions 1,955 631 85,775 25,106 Payments for shares redeemed (6,187) (5,898) (277,213) (227,399) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,805 2,623 164,117 98,615 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 4,353 3,264 $ 187,997 $ 122,824 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SHORT DURATION BOND ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 617 939 $ 11,614 $ 17,894 Proceeds from reinvestment of distributions 27 15 502 293 Payments for shares redeemed (1,036) (1,127) (19,514) (21,451) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (392) (173) (7,398) (3,264) ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 320 411 6,052 7,864 Proceeds from reinvestment of distributions 27 17 521 319 Payments for shares redeemed (232) (277) (4,389) (5,285) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 115 151 2,184 2,898 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 16,712 22,446 315,510 428,176 Proceeds from reinvestment of distributions 1,504 508 28,236 9,675 Payments for shares redeemed (15,698) (13,721) (296,234) (261,930) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 2,518 9,233 47,512 175,921 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,241 9,211 $ 42,298 $ 175,555 ================= ================= ================= =================
272 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 DIVERSIFIED BOND ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 735 787 $ 17,801 $ 19,032 Proceeds from reinvestment of distributions 52 60 1,257 1,438 Payments for shares redeemed (424) (451) (10,266) (10,947) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 363 396 8,792 9,523 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 713 663 17,317 16,074 Proceeds from reinvestment of distributions 66 69 1,598 1,674 Payments for shares redeemed (481) (354) (11,706) (8,570) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 298 378 7,209 9,178 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 20,002 18,971 474,388 449,420 Proceeds from reinvestment of distributions 1,927 823 45,639 19,405 Payments for shares redeemed (5,758) (9,239) (136,503) (218,477) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 16,171 10,555 383,524 250,348 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 16,832 11,329 $ 399,525 $ 269,049 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 MULTISTRATEGY BOND ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 2,641 2,363 $ 27,699 $ 24,666 Proceeds from reinvestment of distributions 191 140 1,997 1,455 Payments for shares redeemed (1,140) (917) (11,937) (9,601) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,692 1,586 17,759 16,520 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 1,080 1,164 11,328 12,178 Proceeds from reinvestment of distributions 136 100 1,427 1,046 Payments for shares redeemed (477) (281) (4,997) (2,937) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 739 983 7,758 10,287 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 57,162 49,689 600,754 520,355 Proceeds from reinvestment of distributions 5,721 1,718 59,962 17,900 Payments for shares redeemed (12,051) (14,788) (126,465) (154,717) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 50,832 36,619 534,251 383,538 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 53,263 39,188 $ 559,768 $ 410,345 ================= ================= ================= =================
Notes to Financial Statements 273 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 TAX EXEMPT BOND ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 173 248 $ 3,770 $ 5,453 Proceeds from reinvestment of distributions 8 9 188 207 Payments for shares redeemed (174) (171) (3,785) (3,757) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 7 86 173 1,903 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 161 121 3,512 2,664 Proceeds from reinvestment of distributions 10 9 220 201 Payments for shares redeemed (66) (101) (1,446) (2,210) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 105 29 2,286 655 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 4,673 4,071 101,967 89,463 Proceeds from reinvestment of distributions 254 212 5,537 4,645 Payments for shares redeemed (2,697) (2,430) (58,741) (53,265) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 2,230 1,853 48,763 40,843 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,342 1,968 $ 51,222 $ 43,401 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 TAX-MANAGED LARGE CAP ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 393 319 $ 6,872 $ 5,153 Proceeds from reinvestment of distributions 1 -- 14 -- Payments for shares redeemed (239) (182) (4,179) (2,945) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 155 137 2,707 2,208 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 186 102 3,292 1,689 Proceeds from reinvestment of distributions 3 1 55 17 Payments for shares redeemed (62) (59) (1,104) (971) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 127 44 2,243 735 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 4,824 4,291 86,084 70,925 Proceeds from reinvestment of distributions 193 90 3,437 1,429 Payments for shares redeemed (3,897) (4,253) (69,571) (69,749) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,120 128 19,950 2,605 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 1,402 309 $ 24,900 $ 5,548 ================= ================= ================= =================
274 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 TAX-MANAGED MID & SMALL CAP ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 394 212 $ 4,384 $ 2,098 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (186) (157) (2,063) (1,544) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 208 55 2,321 554 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 62 49 711 505 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (46) (16) (541) (167) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 16 33 170 338 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 3,311 2,549 38,832 25,974 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (2,100) (2,031) (24,450) (20,759) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,211 518 14,382 5,215 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 1,435 606 $ 16,873 $ 6,107 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SELECT GROWTH ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 527 552 $ 3,803 $ 3,849 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (300) (161) (2,175) (1,128) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 227 391 1,628 2,721 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 110 213 810 1,533 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (375) (92) (2,825) (658) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (265) 121 (2,015) 875 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 7,135 4,627 54,091 33,510 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (1,314) (784) (9,983) (5,601) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,821 3,843 44,108 27,909 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 3,690 3,538 27,958 25,490 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (3,612) (2,318) (27,581) (16,889) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 78 1,220 377 8,601 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 5,861 5,575 $ 44,098 $ 40,106 ================= ================= ================= =================
Notes to Financial Statements 275 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SELECT VALUE ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 599 836 $ 6,615 $ 8,118 Proceeds from reinvestment of distributions 3 1 31 8 Payments for shares redeemed (375) (290) (4,176) (2,835) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 227 547 2,470 5,291 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 195 164 2,201 1,610 Proceeds from reinvestment of distributions 7 5 79 45 Payments for shares redeemed (326) (136) (3,702) (1,345) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (124) 33 (1,422) 310 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 3,950 4,468 44,387 44,188 Proceeds from reinvestment of distributions 123 75 1,384 740 Payments for shares redeemed (2,165) (2,833) (24,171) (27,980) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,908 1,710 21,600 16,948 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 5,202 6,828 58,346 67,750 Proceeds from reinvestment of distributions 168 110 1,875 1,084 Payments for shares redeemed (4,888) (4,241) (55,329) (41,771) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 482 2,697 4,892 27,063 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,493 4,987 $ 27,540 $ 49,612 ================= ================= ================= =================
7. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Funds may borrow up to a maximum of 33.33% of the value of their net assets under the agreement. The agreement will expire December 21, 2005 and is expected to be reviewed at that time. The Funds did not have any drawdowns for the period ended October 31, 2005. 276 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 8. RECORD OWNERSHIP As of October 31, 2005, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund.
FUNDS # OF SHAREHOLDERS % -------------------------------------------------------------------------------- Diversified Equity 3 49.3 Special Growth 3 43.1 Quantitative Equity 3 47.8 International Securities 2 39.6 Emerging Markets 3 47.5 Real Estate Securities 2 30.5 Short Duration Bond 3 66.4 Diversified Bond 2 55.8 Multistrategy Bond 2 61.2 Tax Exempt Bond 1 40.2 Tax-Managed Large Cap 2 53.8 Tax-Managed Mid & Small Cap 1 52.6 Select Growth 2 41.5 Select Value 1 28.2
9. RESTRICTED SECURITIES Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are not registered under the Securities Act of 1933 (the "Act"). The most common types of restricted securities are those sold under Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act. A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. Illiquid securities are securities that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid. The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities deemed liquid by FRIMCo or a money manager pursuant to Board approved policies and procedures or (2) illiquid securities that are not restricted securities as designated on the Fund's Schedule of Investments.
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Emerging Markets Fund - 0.1% Coca-Cola Embonor B ADR Reg S 04/23/99 107,000 10.81 1,157 845 Delta Corp, Inc. 08/07/97 1,134,586 0.39 444 389 Far EasTone Telecommunications Co., Ltd. 01/12/05 11,000 17.74 195 192 Holcim Ecuador SA-ADR 07/24/96 10,500 12.67 133 347 Holcim Ecuador SA-GDR 04/29/96 72,000 9.50 684 2,419 KT&G Corp. 01/29/02 53,100 9.28 493 1,099 NovaTek OAO 07/21/05 105,700 21.30 2,252 2,326 OK Zimbabwe 12/03/01 6,402,949 0.02 149 41 Quilmes Industrial 04/18/94 5,027 19.30 97 157 Samsung Electronics Co., Ltd. 05/21/96 10,059 9.43 95 2,055 Tae Young 07/24/96 11,339 5.35 572 435 -------------- 10,305 ==============
Notes to Financial Statements 277 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Diversified Bond Fund - 3.0% ABSC NIMs Trust 07/18/05 498,411 99.96 498 497 ABSC NIMs Trust 07/30/04 60,319 99.62 60 60 Aiful Corp. 08/03/05 300,000 99.69 299 295 American International Group, Inc. 09/27/05 100,000 99.67 100 98 American International Group, Inc. 09/27/05 500,000 99.80 499 491 American International Group, Inc. 09/27/05 500,000 99.67 498 488 Arcap Reit, Inc. 09/21/04 460,000 100.96 464 441 Asset Backed Funding Corp. NIM Trust 08/15/05 439,555 99.71 438 440 BAE Systems Holdings, Inc. 12/28/01 1,270,000 102.84 1,306 1,336 Capital Auto Receivables Asset Trust 05/25/05 7,169 100.00 7 7 Countrywide Asset-Backed Certificates 12/21/04 185,696 100.04 186 185 Countrywide Asset-Backed Certificates 04/27/05 381,614 99.26 379 378 Countrywide Asset-Backed Certificates 07/22/05 361,270 99.42 359 358 Countrywide Asset-Backed Certificates 07/27/05 1,786,038 100.00 1,786 1,786 Countrywide Home Loan Mortgage Pass Through Trust 09/21/05 2,350,614 100.00 2,351 2,351 Credit-Based Asset Servicing and Securitization CBO, Ltd. 03/04/04 2,235,006 100.00 2,235 2,235 Crest, Ltd. 11/25/03 1,655,000 100.00 1,655 1,639 DG Funding Trust 11/04/03 103 10,537.13 1,085 1,104 Dresdner Funding Trust I 04/09/03 510,000 106.99 546 605 Equifirst Mortgage Loan Trust NIM Notes 02/02/05 384,247 100.06 384 384 Equifirst Mortgage Loan Trust NIM Notes 05/06/05 1,263,472 99.95 1,263 1,261 Export-Import Bank of Korea 02/03/04 290,000 99.66 289 281 First Franklin NIM Trust 05/20/04 150,115 100.00 150 150 First Franklin NIM Trust 06/03/04 6,626 100.00 7 7 First Franklin NIM Trust 04/01/05 845,304 99.74 843 841 Fremont NIM Trust 05/20/04 2,147 100.00 2 2 Fremont NIM Trust 02/22/05 218,676 100.00 219 218 Fremont NIM Trust 02/22/05 657,192 99.61 655 653 G-Force CDO, Ltd. 12/08/03 750,000 99.98 750 741 G-Force LLC 02/01/05 2,105,000 100.95 2,125 2,050 Glencore Funding LLC 08/08/05 610,000 94.68 578 562 GSAMP Mortgage Loan Trust 05/20/05 2,119,251 100.19 2,123 2,136 Harrah's Operating Co., Inc. 05/19/05 3,695,000 99.57 3,679 3,546 IndyMac Loan Trust 10/17/03 102,318 100.00 102 102 IndyMac Loan Trust 06/10/04 668,946 100.00 669 669 JP Morgan Chase Commercial Mortgage Securities Corp. 05/27/05 2,685,329 100.00 2,685 2,673 Korea Electric Power Corp. 04/20/04 145,000 98.47 143 142 Lennar Corp. 07/06/05 1,805,000 100.46 1,813 1,729 Long Beach Asset Holdings Corp. 01/19/05 542,601 100.00 543 540 Mach One Trust Commercial Mortgage-Backed 07/12/04 1,480,000 100.95 1,494 1,462 Mastr Reperforming Loan Trust 03/09/05 1,045,556 1.02 1,070 1,053 Miller Brewing Co. 08/06/03 330,000 100.16 331 333 Mizuho Financial Group Cayman, Ltd. 02/27/04 445,000 101.30 451 456 Monumental Global Funding, Ltd. 03/09/05 190,000 100.00 190 188 Morgan Stanley Capital I, Inc. 06/17/04 1,475,000 101.04 1,490 1,476 Natexis Ambs Co. LLC 06/24/98 270,000 108.76 294 292
278 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Newcastle CDO I, Ltd. 03/11/04 870,000 99.94 869 826 Novastar NIM Trust 07/20/04 105,684 100.11 106 105 Novastar NIM Trust 06/21/05 383,429 100.00 383 382 Option One Mortgage Securities Corp. NIM Trust 12/08/03 25,680 100.00 26 26 Park Place Securities NIM Trust 09/22/04 93,613 100.00 94 93 Park Place Securities NIM Trust 07/07/05 614,084 99.86 613 610 Prologis 10/26/05 1,725,000 99.35 1,714 1,720 Rabobank Capital Fund II 05/23/05 30,000 101.81 31 30 Rabobank Capital Funding Trust 05/19/05 60,000 100.77 60 58 Ramp NIMs Trust 05/12/05 375,997 100.00 376 375 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 165,000 100.00 165 161 Renaissance NIM Trust 06/25/04 77,677 100.00 78 78 Renaissance NIM Trust 12/16/04 301,282 100.00 301 301 Residential Capital Corp. 06/21/05 685,000 99.72 683 696 Resona Preferred Global Securities Cayman, Ltd. 07/20/05 375,000 100.89 378 382 Russia Government International Bond 02/01/05 440,000 110.42 486 488 Sharp SP I LLC Net Interest Margin Trust 02/13/04 14,569 99.99 15 15 Systems 2001 AT LLC 06/24/98 219,693 101.72 223 230 Tenaska Alabama II Partners, LP 10/09/03 258,689 100.00 259 260 Tengizchevroil Finance Co. 11/23/04 325,000 100.26 326 326 Textron Financial Floorplan Master Note Trust 05/19/05 2,140,000 100.00 2,140 2,141 Wells Fargo Home Equity Trust 10/01/04 106,194 99.99 106 106 Zurich Capital Trust I 07/11/00 650,000 105.91 688 649 Zurich Capital Trust I 01/10/03 600,000 95.12 571 703 -------------- 49,502 ============== Multistrategy Bond Fund - 3.8% ABSC NIMs Trust 12/18/03 26,187 98.94 26 26 AIG SunAmerica Global Financing VI 05/02/01 1,230,000 107.60 1,323 1,302 Alliance Capital Funding LLC 03/03/04 53,325 101.61 54 52 American International Group, Inc. 09/27/05 300,000 99.67 299 293 American International Group, Inc. 09/27/05 1,100,000 99.80 1,098 1,080 American International Group, Inc. 09/27/05 1,100,000 99.67 1,096 1,075 AmerisourceBergen Corp. 09/08/05 1,000,000 99.51 995 962 AmerisourceBergen Corp. 09/08/05 245,000 99.51 244 236 Arlington Street CDO, Ltd. 06/04/03 1,772,165 102.27 1,812 1,808 BAE Systems Holdings, Inc. 12/28/01 2,930,000 104.59 3,065 3,083 Banco Santander Chile 01/11/05 635,000 99.84 634 633 Bear Stearns Commercial Mortgage Securities 04/19/05 825,000 101.68 839 825 Canadian Oil Sands, Ltd. 08/03/04 481,000 99.95 481 473 Capital Auto Receivables Asset Trust 05/25/05 10,753 100.00 11 11 Cendant Timeshare Receivables Funding LLC 05/18/04 257,554 100.00 258 251 Chancellor/Triton CBO, Ltd. 11/12/03 247,581 96.88 240 250 Citigroup Commercial Mortgage Trust 12/07/04 453,756 100.01 454 454 Commercial Mortgage Pass Through Certificates 09/27/05 717,561 106.12 761 751 Corp Nacional del Cobre de Chile 09/16/05 695,000 98.17 682 660 Countrywide Asset-Backed Certificates 02/25/04 47,014 99.68 47 47 Crown Castle Towers LLC 05/26/05 460,000 100.00 460 448 DG Funding Trust 11/04/03 191 10,537.13 2,013 2,047 Dresdner Funding Trust I 04/09/03 1,145,000 110.38 1,264 1,359 E*Trade Financial Corp. 09/14/05 970,000 103.53 1,004 985
Notes to Financial Statements 279 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Erac USA Finance Co. 07/01/02 730,000 107.03 781 769 Export-Import Bank of Korea 02/03/04 540,000 99.66 538 524 Farmers Exchange Capital 01/28/02 990,000 91.92 910 1,000 Farmers Exchange Capital 01/26/04 1,150,000 104.30 1,199 1,163 Farmers Insurance Exchange 11/27/02 1,140,000 89.10 1,016 1,347 Farmers Insurance Exchange 08/04/04 570,000 99.60 568 569 FBG Finance, Ltd. 06/21/05 505,000 99.54 503 488 Glencore Funding LLC 05/12/04 1,370,000 94.04 1,288 1,262 Global Signal Trust 11/18/04 655,000 100.00 655 632 GSAA Trust 09/16/04 251,618 99.88 251 252 GSMPS Mortgage Loan Trust 05/27/04 212,920 107.33 229 224 GSMPS Mortgage Loan Trust 08/30/04 397,203 109.09 433 420 GSMPS Mortgage Loan Trust 02/16/05 376,910 108.69 410 408 GSMPS Mortgage Loan Trust 03/17/05 632,950 107.29 679 672 GT Group Telecom, Inc. 2010 Warrants 01/27/00 676 48.53 33 -- Hanarotelecom, Inc. 01/25/05 970,000 100.05 971 944 Hyatt Equities LLC 06/12/02 435,000 101.61 442 442 IKON Office Solutions, Inc. 09/16/05 360,000 100.00 360 341 John Hancock Global Funding II 07/29/03 440,000 113.71 500 494 JP Morgan Chase Commercial Mortgage Securities Corp. 08/04/04 1,029,015 100.00 1,029 1,029 Juniper CBO, Ltd. 01/15/04 460,819 102.71 473 466 Korea Electric Power Corp. 04/20/04 285,000 98.47 281 279 LG Electronics, Inc. 06/10/05 270,000 99.53 269 263 Mantis Reef, Ltd. 10/28/03 585,000 99.77 584 573 Master Specialized Loan Trust 06/27/05 792,066 100.00 792 784 Mastr Reperforming Loan Trust 03/09/05 895,025 107.30 960 949 Mastr Reperforming Loan Trust 08/10/05 1,412,053 106.62 1,505 1,499 Merrill Lynch Mortgage Investors, Inc. 05/20/03 20,423 98.49 20 20 Merrill Lynch Mortgage Trust 06/26/02 365,000 79.50 290 348 Miller Brewing Co. 08/06/03 705,000 100.81 711 711 Miller Brewing Co. 08/06/03 445,000 100.22 446 436 Mizuho Financial Group Cayman, Ltd. 02/27/04 905,000 101.46 918 928 Mizuho Financial Group Cayman, Ltd. 02/27/04 470,000 99.96 470 482 Monumental Global Funding, Ltd. 03/09/05 320,000 100.00 320 317 Natexis Ambs Co. LLC 06/24/98 430,000 108.76 468 465 Nationwide Building Society 02/16/05 670,000 98.99 663 650 Nationwide Mutual Insurance Co. 03/20/03 867,000 109.19 947 1,030 Neiman-Marcus Group, Inc. 09/28/05 705,000 100.00 705 680 Nippon Life Insurance 07/14/05 935,000 99.72 932 916 North Front Pass-Through Trust 12/08/04 1,700,000 100.57 1,710 1,682 Oil Insurance, Ltd. 08/19/03 1,633,000 100.96 1,649 1,610 Pemex Project Funding Master Trust 06/01/05 205,000 98.22 201 197 Platinum Underwriters Holdings, Ltd. 08/11/05 405,000 101.00 409 407 Power Contract Financing LLC 06/11/03 450,000 102.40 461 457 Power Contract Financing LLC 06/11/03 271,743 125.62 341 272 Premium Asset Trust 01/28/05 780,000 99.98 780 780 Prudential Holdings LLC 06/05/02 155,000 103.14 160 182 Quest Diagnostics, Inc. 10/25/05 370,000 99.81 369 369 Quest Trust 09/29/05 1,045,151 100.00 1,045 1,045
280 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Rabobank Capital Funding II 11/14/03 815,000 101.40 826 807 Ras Laffan Liquefied Natural Gas Co., Ltd. 03/07/01 290,000 111.61 324 334 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 500,000 100.00 500 489 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 385,000 100.00 385 376 Residential Capital Corp. 06/21/05 690,000 99.72 688 701 Residential Capital Corp. 06/21/05 460,000 100.03 460 467 Resona Preferred Global Securities Cayman, Ltd. 07/25/05 1,165,000 103.15 1,202 1,187 Russia Government International Bond 06/17/02 1,960,000 89.93 1,763 2,176 Russia Paris Club Participant 04/06/04 56,548,140 0.81 460 487 Sankaty Market Value CDO 12/19/03 480,000 104.05 499 487 Sappi Papier Holding AG 07/11/02 240,000 106.15 255 238 Sealed Air Corp. 07/01/03 630,000 99.48 627 615 Sharps SP I LLC Net Interest Margin Trust 01/29/04 20,396 100.00 20 20 Solar Capital Corp. 07/27/05 660,000 100.00 660 670 Solutia, Inc. 2009 Warrants 07/02/02 850 85.33 73 -- Southern Peru Copper Corp. 07/20/05 1,355,000 99.16 1,344 1,297 SovRisc 10/26/05 850,000 99.72 848 847 Systems 2001 AT LLC 06/04/01 395,410 103.63 410 419 Systems 2001 AT LLC 03/08/02 321,090 101.72 327 336 Tenaska Alabama II Partners, LP 10/09/03 479,751 100.16 481 482 Tenaska Alabama Partners, LP 06/13/05 323,909 100.00 324 329 Tengizchevroil Finance Co. 11/23/04 810,000 100.22 812 812 Terwin Mortgage Trust 08/17/05 1,469,941 99.98 1,470 1,470 Texas Genco LLC 12/08/04 1,320,000 100.63 1,328 1,412 Twin Reefs Pass-Through Trust 12/07/04 900,000 100.12 901 898 Williams Gas Pipelines 01/30/04 630,000 103.41 651 645 World Financial Properties 11/08/02 199,152 105.90 211 209 World Financial Properties 11/14/02 675,329 108.10 730 710 Xlliac Global Funding 08/03/05 730,000 99.68 728 718 Zurich Capital Trust I 01/10/03 1,195,000 98.50 1,177 1,293 -------------- 71,819 ============== Short Duration Bond Fund - 4.0% Allstate Financial Global Funding 01/31/05 4,080,000 96.46 3,935 3,838 Alter Moneta Receivables LLC 09/17/03 718,325 100.35 721 713 DG Funding Trust 11/04/03 219 10,537.12 2,308 2,346 GE Corporate Aircraft Financing LLC 10/05/04 702,032 100.00 702 702 HBOS Treasury Services PLC 09/11/03 1,000,000 99.89 999 971 HBOS Treasury Services PLC 01/06/04 900,000 100.00 900 901 HBOS Treasury Services PLC 11/05/04 2,000,000 99.94 1,999 1,949 Hyundai Auto Receivables Trust 09/18/02 99,212 100.00 99 99 Marlin Leasing Receivables LLC 08/11/05 1,650,000 99.99 1,650 1,640 Metropolitan Life Global Funding I 07/19/04 4,000,000 99.88 3,995 3,909 New York Life Global Funding 02/23/04 2,500,000 100.00 2,500 2,501 Nordstrom Private Label Credit Card Master Note Trust 05/01/02 3,500,000 103.17 3,611 3,503 PBG Equipment Trust 06/13/01 789,774 103.38 816 790 Principal Life Global Funding I 06/03/04 2,000,000 102.19 2,044 2,002 Principal Life Global Funding I 06/14/05 5,600,000 96.51 5,404 5,321 Provident Auto Lease ABS Trust 08/20/03 20,817 103.24 21 21 Providian Gateway Master Trust 11/16/04 1,200,000 99.94 1,199 1,172
Notes to Financial Statements 281 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
PRINCIPAL COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Railcar Leasing L.L.C. 06/11/03 1,000,000 115.66 1,157 1,060 Residential Capital Corp. 06/22/05 2,000,000 100.06 2,001 2,031 SLM Student Loan Trust 03/05/04 3,000,000 101.84 3,055 2,898 Susquehanna Auto Lease Trust 11/19/03 518,667 99.80 518 514 Susquehanna Auto Lease Trust 03/24/05 4,000,000 99.79 3,992 3,978 Susquehanna Auto Lease Trust 10/21/05 1,700,000 99.60 1,693 1,688 TIAA Global Markets 10/26/04 3,625,000 102.51 3,716 3,632 USAA Capital Corp. 09/29/04 595,000 102.84 612 587 -------------- 48,766 ==============
Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees. 10. DIVIDENDS On November 1, 2005, the Funds declared the following dividends from net investment income and capital gains, respectively, payable on November 4, 2005 to shareholders on record November 2, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Diversified Bond - Class C $ 0.0546 $ -- $ -- Diversified Bond - Class E 0.0698 -- -- Diversified Bond - Class S 0.0748 -- -- Multistrategy Bond - Class C 0.0225 -- -- Multistrategy Bond - Class E 0.0290 -- -- Multistrategy Bond - Class S 0.0312 -- -- Tax Exempt Bond - Class C 0.0416 -- -- Tax Exempt Bond - Class E 0.0552 -- -- Tax Exempt Bond - Class S 0.0597 -- --
On December 1, 2005, the Board of Trustees of Frank Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 6, 2005 to shareholders on record December 2, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Diversified Bond - Class C $ 0.0600 $ -- $ -- Diversified Bond - Class E 0.0745 -- -- Diversified Bond - Class S 0.0794 -- -- Multistrategy Bond - Class C 0.0243 -- -- Multistrategy Bond - Class E 0.0306 -- -- Multistrategy Bond - Class S 0.0327 -- -- Tax Exempt Bond - Class C 0.0462 -- -- Tax Exempt Bond - Class E 0.0595 -- -- Tax Exempt Bond - Class S 0.0638 -- --
282 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- On December 8, 2005, the Board of Trustees of Frank Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 13, 2005 to shareholders on record December 9, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Diversified Equity - Class C $ 0.0340 $ -- $ 1.2366 Diversified Equity - Class E 0.1141 -- 1.2366 Diversified Equity - Class S 0.1422 -- 1.2366 Quantitative Equity - Class C 0.0342 -- 1.6604 Quantitative Equity - Class E 0.1035 -- 1.6604 Quantitative Equity - Class S 0.1271 -- 1.6604 Real Estate Securities - Class C -- 1.2316 3.7463 Real Estate Securities - Class E 0.0208 1.2316 3.7463 Real Estate Securities - Class S 0.0507 1.2316 3.7463 Select Value - Class C 0.0133 0.2001 0.4433 Select Value - Class E 0.0421 0.2001 0.4433 Select Value - Class I 0.0518 0.2001 0.4433 Select Value - Class S 0.0449 0.2001 0.4433
On December 15, 2005, the Funds declared the following dividends from net investment income and capital gains, respectively, payable on December 20, 2005 to shareholders on record December 16, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Diversified Bond - Class C $ 0.0320 $ -- $ -- Diversified Bond - Class E 0.0463 -- -- Diversified Bond - Class S 0.0512 -- -- Multistrategy Bond - Class C 0.0268 0.0120 0.0121 Multistrategy Bond - Class E 0.0330 0.0120 0.0121 Multistrategy Bond - Class S 0.0350 0.0120 0.0121 Tax Exempt Bond - Class C 0.0671 -- -- Tax Exempt Bond - Class E 0.0804 -- -- Tax Exempt Bond - Class S 0.0848 -- -- Short Duration Bond - Class C 0.0987 -- -- Short Duration Bond - Class E 0.1351 -- -- Short Duration Bond - Class S 0.1469 -- -- Special Growth Bond - Class C -- 0.7828 4.2810 Special Growth Bond - Class E -- 0.7828 4.2810 Special Growth Bond - Class S -- 0.7828 4.2810 Tax-Managed Large Cap - Class C -- -- -- Tax-Managed Large Cap - Class E 0.1027 -- -- Tax-Managed Large Cap - Class S 0.1433 -- -- International Securities - Class C 0.2649 -- 2.2474 International Securities - Class E 0.6879 -- 2.2474 International Securities - Class S 0.8337 -- 2.2474 Emerging Markets - Class C 0.2822 -- 0.4319 Emerging Markets - Class E 0.3925 -- 0.4319 Emerging Markets - Class S 0.4318 -- 0.4319
Notes to Financial Statements 283 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Diversified Equity Fund, Special Growth Fund, Quantitative Equity Fund, International Securities Fund, Emerging Markets Fund, Real Estate Securities Fund, Short Duration Bond Fund (formerly Short Term Bond Fund), Diversified Bond Fund, Multistrategy Bond Fund, Tax Exempt Bond Fund, Tax-Managed Large Cap Fund, Tax-Managed Mid & Small Cap Fund, Select Growth Fund and Select Value Fund (fourteen of the portfolios constituting Frank Russell Investment Company, hereafter collectively referred to as the "Funds") at October 31, 2005, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion. /s/ PricewatehouseCoopers LLP Seattle, Washington December 20, 2005 284 Report of Independent Registered Public Accounting Firm FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- For the tax year ended October 31, 2005, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Form 1099 you receive in January 2006 will show the tax status of all distributions paid to your account in calendar year 2005. The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows: Diversified Equity 100.0% Special Growth 43.1% Quantitative Equity 100.0% International Securities 0.0% Emerging Markets 0.0% Diversified Bond 0.0% Multistrategy Bond 0.0% Real Estate Securities 0.0% Short Duration Bond 0.0% Tax Exempt Bond 0.00% Tax Managed Mid & Small Cap 100.0% Tax Managed Large Cap 100.0% Select Growth 100.0% Select Value 61.7%
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 October 31, 2005: Special Growth $61,159,219 Real Estate Securities 87,823,283 Short Duration Bond 806,070 Diversified Bond 7,032,036 Multistrategy Bond 7,878,472 Select Value 250,408
Of the dividends paid by the Tax Exempt Bond Fund from the net investment income for the taxable year ended October 31, 2005, 100% were exempt interest dividends which are tax exempt for the purposes of regular federal income tax, and for purposes of the federal alternative minimum tax. Please consult a tax adviser for any questions about federal or state income tax laws. The Emerging Markets Fund and International Securities Fund paid foreign taxes of $2,636,608 and $4,786,203 and recognized $19,777,039 and $52,997,599 of foreign source income, respectively, during the taxable year ended October 31, 2005. Pursuant to Section 853 of the Internal Revenue Code, the Emerging Markets Fund and International Securities Fund designates $0.0536 and $0.1264 per share of foreign taxes paid and $0.4024 and $1.4000. of gross income earned from foreign sources, respectively, in the taxable year ended October 31, 2005. Tax Information 285 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with FRIMCo and the portfolio management contract (together, the "investment advisory agreements") with each Money Manager of the Funds at a meeting held on February 23, 2005. During the course of a year, the Trustees received a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds' shares, and the management of the Funds by FRIMCo. In preparation for the annual review, the Board, with the advice and assistance of independent counsel, also received and considered (1) information and reports prepared by FRIMCo relating to the services provided by FRIMCo (and its affiliates) to the Funds, including information requested by the Trustees, and (2) information received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and its operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by FRIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds (collectively, the "Agreement Renewal Information"). Prior to voting, the Independent Trustees reviewed the proposed continuance of the investment advisory agreements with management and independent counsel and received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. The Independent Trustees also reviewed the proposed continuance in a private session with independent counsel at which no representatives of FRIMCo or management were present. The discussion below reflects both of these reviews. In evaluating the advisory agreement with FRIMCo and the portfolio management contracts with the Money Managers of the Funds, the Board considered that the Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. All Funds have multiple Money Managers. The Board considered that FRIMCo (rather than any Money Manager) is responsible under the investment advisory agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund have been allocated among multiple Money Managers. FRIMCo is responsible for selecting Money Managers for each Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for a Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Fund assigned to it by FRIMCo in accordance with the Fund's applicable investment objective, policies and restrictions (each, a "segment"). FRIMCo is responsible for communicating performance expectations and evaluations to each Money Manager; supervising compliance by each Money Manager with each Fund's investment objectives and policies; authorizing Money Managers to engage in certain investment strategies for a Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, FRIMCo is responsible for recommending to the Board the restructuring of Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on FRIMCo's research and analysis, such actions are appropriate. FRIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for a Fund in a complementary manner. Therefore, FRIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Fund. The performance of individual Money Managers for a Fund may reflect the roles assigned to them by FRIMCo in the Fund's investment activities and any constraints placed by FRIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects in great part the performance of FRIMCo in designing the Fund's investment program, structuring Fund segments, selecting an effective Money Manager for each segment with a style that is complementary to the styles of the Money Managers of other Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Fund. The Board also considered that the prospectuses for the Funds emphasize to investors FRIMCo's role as the principal investment manager for each Fund, rather than the investment selection role of the Funds' Money Managers, and describe the manner in which the Funds operate so that investors may take the information into account when deciding to purchase shares of any such Fund. 286 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- In addition to these general factors relating to the manager of managers structure of the Funds, the Trustees considered, with respect to each Fund, various specific factors on the basis of the Agreement Renewal Information in evaluating renewal of the advisory agreement with FRIMCo, including the following: 1. The nature, scope and quality of the services provided to the Fund by FRIMCo; 2. The advisory fee paid by the Fund to FRIMCo and the fact that it encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund; 3. Information provided by FRIMCo as to other fees and benefits received by FRIMCo or its affiliates from the Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by FRIMCo as to investment advisory fees paid by Comparable Funds; 5. Information provided by FRIMCo as to expenses incurred by the Fund; 6. Information provided by FRIMCo as to the profits that FRIMCo derives from its mutual fund operations generally and from each Fund; and 7. The importance of supporting quality, long-term service by FRIMCo to help achieve the Fund's investment performance, including the continuing need of FRIMCo to retain and attract qualified investment and service professionals to serve the Funds. On the basis of the information received, the Board, in respect of each Fund, found the advisory fees charged and costs and expenses incurred by FRIMCo to be fair and reasonable; after giving effect to waivers and/or reimbursements; and considering the composition of the Comparable Funds, the relative performance and expense ratio of the Fund were comparable to those of peer funds; FRIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and FRIMCo's profitability with respect to the Fund was reasonable in light of the nature, scope and quality of the services provided by FRIMCo. The Board considered for each Fund whether economies of scale have been realized and whether the fees for such Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on December 6, 2004 that the investment advisory fees for each Fund appropriately reflect any economies of scale realized by that Fund. Its findings at the earlier meeting were based upon information and analyses prepared by FRIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager of managers structure employed by most Funds relevant to the Board's deliberations, and took into consideration the Funds' rising costs of compliance with applicable laws, rules and regulations. The Trustees considered that fees payable to FRIMCo by institutional clients with investment objectives similar to those of the Funds are lower, and may, in some cases, be substantially lower, than the rates paid by the Funds. FRIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and the Funds. For example, institutional clients have fewer administrative needs than the Funds. It was further noted that since the Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. The Board also considered the special expertise of FRIMCo with respect to the manager of managers structure of the Funds and the likelihood that, at the current expense ratio of each such Fund, there would be no acceptable alternative investment managers to replace FRIMCo on comparable terms given the need to conduct the manager of managers, multi-style strategy of such Fund selected by its shareholders in purchasing their shares. With respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from FRIMCo reporting for each Money Manager, among other things, the Money Manager's performance over various periods; FRIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and Funds, FRIMCo or FRIMCo's affiliates; and FRIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. FRIMCo recommended that each Money Manager be retained at its current fee rate. FRIMCo advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the investment advisory agreements with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with FRIMCo; FRIMCo is aware of the fees charged by Money Managers to other clients; and FRIMCo believes that the fees agreed upon with Money Managers are fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted FRIMCo's explanation in light of the Board's findings as to the fairness and reasonableness of the aggregate investment advisory fees paid by each Fund and the fact that each Money Manager's fee is paid by FRIMCo. Basis for Approval of Investment Advisory Contracts 287 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- Based substantially upon FRIMCo's recommendations together with the information received from FRIMCo in support of its recommendations, the Board concluded that the fees paid to the Money Managers of each Fund were fair and reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of each Fund was in the interests of shareholders. In their deliberations, the Trustees did not identify any particular information as to the investment advisory agreement with FRIMCo or, other than FRIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund. At a meeting held on March 24, 2005, the Trustees received proposals from FRIMCo to effect certain Money Manager changes for the International Securities and Tax-Managed Large Cap Funds; at a meeting held on May 17, 2005 received proposals from FRIMCo to effect certain Money Manager changes for the Special Growth and Select Growth Funds; at a meeting held on July 14, 2005, the Trustees received a proposal from FRIMCo to effect a Money Manager change for the Tax-Managed Mid & Small Cap Fund resulting from a change of control of one of this Fund's Money Managers; and at a meeting on August 23, 2005, the Trustees received a proposal from FRIMCo to effect a Money Manager change for the Tax-Exempt Bond Fund. In the case of each such Fund, the Trustees approved the terms of the proposed portfolio management agreements with the successor Money Manager(s) based substantially upon FRIMCo's recommendation; its explanation as to the lack of relevance of profitability to the evaluation of portfolio management agreements with Money Managers; and its belief that the proposed investment advisory fees for the successor Money Manager(s) would be fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at the February 23, 2005 meeting as to the fairness and reasonableness of the aggregate investment advisory fees paid by each affected Fund, and the fact that the aggregate investment advisory fees paid by such Fund would not increase as a result of the implementation of any proposed Money Manager change because each Money Manager's investment advisory fee is paid by FRIMCo. At a meeting held on May 17, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Diversified Equity Fund (a "Participating Fund") utilizing a "select holdings strategy" pursuant to the terms of the Advisory Agreement between the Fund and FRIMCo; at a meeting held on August 23, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Equity Q Fund (also a "Participating Fund") utilizing the same select holdings strategy; and at a meeting held on November 15, 2005, the Trustees received a proposal from FRIMCo to increase the percentage of each Participating Fund's assets that may be managed by FRIMCo utilizing the select holdings strategy to 10%, the actual allocation to be determined by each Participating Fund's portfolio manager. Under this strategy, FRIMCo analyzes the stocks purchased for a Participating Fund by each of the Fund's Money Managers to identify particular stocks that are concurrently overweighted by two or more of the Money Managers. FRIMCo uses a proprietary model to rank these stocks. Based on this ranking, FRIMCo will purchase additional shares of certain stocks for the Participating Fund. The strategy is designed to increase the Participating Fund's exposure to stocks that are collectively viewed as attractive by multiple Money Managers to the Participating Fund. Implementation of this strategy includes periodic rebalancing of the Participating Fund's holdings. The Trustees received and considered information from FRIMCo regarding the potential enhancements to the Participating Fund's performance based upon FRIMCo's limited experience in employing the same strategy for other types of investment accounts under its management. The Trustees also considered that FRIMCo would not be required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is utilized and that the profits derived by FRIMCo generally and from the Participating Fund consequently may increase incrementally. The Board, however, considered FRIMCo's advice that it will pay certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and expects to incur additional costs in implementing and carrying out the select holdings strategy; the limited amount of assets that would be managed directly by FRIMCo pursuant to the select holdings strategy; the fact that the aggregate investment advisory fees paid by the Participating Fund would not increase as a result of the implementation of the select holdings strategy; and its findings at the meeting held on February 23, 2005 that the aggregate fees payable by the Participating Fund are fair and reasonable. Based upon the Agreement Renewal Information received from FRIMCo at the meeting held on February 23, 2005 and information concerning implementation of the select holdings strategy received from FRIMCo at the meetings held on February 23, 2005, May 17, 2005, August 23, 2005 and November 15, 2005 the Board in the case of the Participating Funds accepted FRIMCo's select holdings strategy proposals, concluding in doing so that the investment advisory fees paid to FRIMCo by such Fund under its advisory agreement with FRIMCo continue to be fair and reasonable in light of the nature and anticipated quality of the investment advisory services to be rendered by FRIMCo. 288 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Shareholder Requests for Additional Information 289 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. 290 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 291 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
292 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. Disclosure of Information about Fund Directors 293 FRANK RUSSELL INVESTMENT COMPANY RUSSELL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
294 Disclosure of Information about Fund Directors RUSSELL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS AS OF OCTOBER 31, 2005 Diversified 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 Institutional Capital Corporation, Chicago, IL Marsico Capital Management, LLC, Denver, CO MFS Institutional Advisors, Inc., Boston, MA Montag & Caldwell, Inc., Atlanta, GA Schneider Capital Management Corporation, Wayne, PA Suffolk Capital Management, LLC, New York, NY Turner Investment Partners, Inc., Berwyn, PA Special Growth Fund CapitalWorks Investment Partners, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Delphi Management, Inc., Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Gould Investment Partners LLC, Berwyn, PA Jacobs Levy Equity Management, Inc., Florham Park, NJ Nicholas-Applegate Capital Management LLC, San Diego, CA TimesSquare Capital Management LLC, New York, NY Tygh Capital Management, Inc., Portland, OR Quantitative Equity Fund Aronson + Johnson + Ortiz, LP, Philadelphia, PA Franklin Portfolio Associates LLC, Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Jacobs Levy Equity Management, Inc., Florham Park, NJ International Securities Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY AQR Capital Management, LLC, Greenwich, CT Axiom International Investors LLC, Greenwich, CT Fidelity Management & Research Company, Boston, MA Marvin & Palmer Associates, Inc., Wilmington, DE MFS Institutional Advisors, Inc., Boston, MA Mondrian Investment Partners Limited, London, England The Boston Company Asset Management, LLC, Boston, MA Wellington Management Company, LLP, Boston, MA Emerging Markets Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY Arrowstreet Capital, Limited Partnership, Cambridge, MA Genesis Asset Managers, LLP, Guernsey, Channel Islands T. Rowe Price International, Inc., Baltimore, MD Wells Capital Management Inc., San Francisco, CA Manager, Money Managers and Service Providers 295 RUSSELL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- Real Estate Securities Fund AEW Management and Advisors, L.P., Boston, MA Heitman Real Estate Securities, LLC, Chicago, IL INVESCO Institutional (N.A.), Inc., through its INVESCO Real Estate division, Dallas, TX RREEF America L.L.C., Chicago, IL Short Duration Bond Fund Merganser Capital Management L.P., Boston, MA Pacific Investment Management Company LLC, Newport Beach, CA STW Fixed Income Management, Carpinteria, CA Diversified Bond Fund Bear Stearns Asset Management Inc., New York, NY Lehman Brothers Asset Management LLC, Chicago, IL Pacific Investment Management Company LLC, Newport Beach, CA Western Asset Management Company, Pasadena, CA Multistrategy Bond Fund Bear Stearns Asset Management Inc., New York, NY Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Morgan Stanley Investment Management Inc., West Conshohocken, PA Pacific Investment Management Company LLC, Newport Beach, CA Tax Exempt Bond Fund Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Standish Mellon Asset Management Company LLC, Boston, MA Tax-Managed Large Cap Fund John A. Levin & Co., Inc., New York, NY J.P. Morgan Investment Management Inc., New York, NY Kayne Anderson Rudnick Investment Management, LLC, Los Angeles, CA Sands Capital Management, Inc., Arlington, VA Turner Investment Partners, Inc., Berwyn, PA Tax-Managed Mid & Small Cap Fund Chartwell Investment Partners, Berwyn, PA Netols Asset Management, Inc., Mequon, WI Parametric Portfolio Associates LLC, Seattle, WA Transamerica Investment Management, LLC, Denver, CO Turner Investment Partners, Inc., Berwyn, PA Select Growth Fund Ark Asset Management Co., Inc., New York, NY CapitalWorks Investment Partners, LLC, San Diego, CA Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Fuller & Thaler Asset Management, Inc., San Mateo, CA Turner Investment Partners, Inc., Berwyn, PA Select Value Fund DePrince, Race & Zollo, Inc., Orlando, FL Iridian Asset Management LLC, Westport, CT MFS Institutional Advisors, Inc., Boston, MA Netols Asset Management, Inc., Mequon, WI Systematic Financial Management, L.P., Teaneck, NJ 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. 296 Manager, Money Managers and Service Providers (This page intentionally left blank) RUSSELL FUNDS 2005 ANNUAL REPORT (RUSSELL LOGO) Frank Russell Investment Company 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-019 (1 10/05) TAX - MANAGED GLOBAL EQUITY FUND 2005 ANNUAL REPORT CLASS C, E, AND S SHARES: TAX-MANAGED GLOBAL EQUITY FUND OCTOBER 31, 2005 [RUSSELL LOGO] Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on one of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company Tax-Managed Global Equity Fund Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Portfolio Management Discussion...................................... 9 Shareholder Expense Example.......................................... 12 Schedule of Investments.............................................. 13 Statement of Assets and Liabilities.................................. 14 Statement of Operations.............................................. 15 Statement of Changes in Net Assets................................... 16 Financial Highlights - Class C....................................... 17 Financial Highlights - Class S....................................... 18 Notes to Financial Statements........................................ 19 Report of Independent Registered Public Accounting Firm.............. 26 Tax Information...................................................... 27 Basis for Approval of Investment Advisory Contracts.................. 28 Shareholder Requests for Additional Information...................... 31 Disclosure of Information about Fund Directors....................... 32 Manager, Money Managers and Service Providers........................ 37
Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MARKET SUMMARY AS OF OCTOBER 31, 2005 U.S. EQUITY MARKETS Though the 2004 presidential election provided a boost to the markets at the start of the fiscal year, stocks made little headway in the first half of the fiscal year as concerns of high oil prices and rising interest rates offset generally strong economic and corporate earnings data. But despite even higher energy costs, rising inflationary pressures, further interest rate hikes by the Federal Reserve, the economic disruptions of hurricanes Rita and Katrina and a sharp fall-off in consumer confidence, stocks were surprisingly resilient in the second half of the fiscal year. For the fiscal year ending October 31, 2005, the Russell 3000(R) Index gained 10.55%. Sector leadership in the first half of the fiscal year was dominated by energy and utilities. As in the previous year, energy stocks dominated the market due to strong global demand for energy. Towards the end of the fiscal year, hurricanes Katrina and Rita provided another boost to energy sectors as damage to the natural gas and petroleum refining and distribution infrastructure caused further spikes in energy prices. Despite a subsequent decline in oil prices and a sharp sell-off in energy stocks in October, the integrated oil and other energy sectors strongly led the U.S. equity market in the fiscal year. Other sectors also performed well in the second half, including technology and healthcare. As a result, the market environment for active management improved in the second half of the fiscal year as the rally in equities broadened beyond the energy and utilities sectors. While lagging far behind energy stocks, consumer staples stocks also outperformed in the fiscal year due to their defensive, stable growth qualities. Biotechnology and non-pharmaceutical healthcare stocks also fared well. In contrast, materials and consumer discretionary stocks lost favor with investors. Though the housing market remained strong, providing support for consumer spending, real estate prices appeared to ease towards the end of the fiscal year as higher energy and mortgage financing costs weakened consumer confidence. Retail and housing-related stocks fell to end the fiscal year among the worst performers. Despite rebounding in the second half of the year, technology stocks also lagged in the fiscal year as rising competitive pressures and generally lackluster earnings outlooks held back large capitalization technology stocks. Small capitalization companies outperformed large capitalization companies, as measured by the 12.08% return of the Russell 2000(R) Index versus 10.47% for the Russell 1000(R) Index for the fiscal year ended October 31, 2005. Though their lead narrowed over the 12 months, small capitalization companies have outperformed large capitalization companies for the last seven years. Small capitalization companies continued to benefit from narrow credit spreads (which allow companies to borrow money at more favorable rates). They also benefited from strong performance of stocks in the energy, healthcare and utilities sectors and the improving performance of technology-related companies. Companies of higher financial quality continued to underperform the broader market as represented by the Russell 3000(R) Index, while higher beta and lower dividend yield companies on the whole outperformed the broader market. 4 Market Summary FRANK RUSSELL INVESTMENT COMPANY Style continued to play an important role in equity returns. Value stocks outperformed growth stocks, though the margin of outperformance was smaller than in recent years. The Russell 1000(R) Value Index returned 11.86% for the fiscal year, compared with 8.81% for the Russell 1000(R) Growth Index. Investors' continued preference for energy-related and utility stocks over technology stocks, strongly favored value stocks in the first half of the fiscal year. But growth stocks performed better in the second half of the fiscal year due to rebounds by technology and biotechnology and health care service-related stocks. The fiscal year ending October 31, 2005 was relatively difficult for active managers given the outstanding performance of the energy sectors, which many active managers were underweight. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.14% while the Lipper Large Cap Value Funds Average underperformed the Russell 1000(R) Value Index by 2.18%. Active management fared better in the growth segment where the Lipper Large Cap Growth Funds Average beat the Russell 1000(R) Growth Index by 1.28%. The environment for active small capitalization investing was also more favorable: the Lipper Small-Cap Core Funds Average beat the Russell 2000(R) Index by 1.16%. Note: Lipper returns are net of fees while the index returns are gross of fees. U.S. REAL ESTATE MARKETS The public real estate investment trust (REIT) market continued to deliver strong performance as the NAREIT Equity REIT Index returned 17.92% in the fiscal year ending October 31, 2005. Though interest rates rose during the fiscal year, they remained low relative to historical levels. The REIT market was further supported by improving property market supply and demand fundamentals and an active mergers and acquisitions environment. Elevated volatility continued to dominate the REIT market. Because yield-oriented investors are a major constituent in the REIT market, the market was highly sensitive to changes in long-term interest rates and shifts in sentiment regarding the direction of rates. During the fiscal year, the spread of average REIT dividend yields to 10-year Treasury yields was compressed, making REITs vulnerable to pricing adjustments based on changes in the outlook for interest rates. Improvements in real estate fundamentals resulted in higher average occupancy rates and rents which contributed to solid growth in REIT earnings and positive performance for most sectors. The strongest performing sectors were self storage and apartments. The self storage sector was attractive due to relative valuations and earnings growth. Apartments benefited from expectations that higher mortgage interest rates would dampen purchases of entry-level single-family homes and boost demand for apartments. Other sectors that outperformed the benchmark included office, regional malls and diversified. The weakest performing sectors included manufactured homes, health care, shopping centers industrial and mixed industrial/office. Investors favored larger capitalization REITs during the fiscal year. The NAREIT Real Estate 50, a benchmark of larger and more frequently traded REITs, returned 19.79%. These companies benefited from their better liquidity, more favorable balance sheets and stronger earnings growth prospects. NON-U.S. EQUITY MARKETS Non-U.S. stocks gained 18.59% as measured by the MSCI EAFE Index for the fiscal year ended October 31, 2005. The performance of non-U.S. stocks was even more impressive given that the strong U.S. dollar muted returns for US investors. The MSCI EAFE Index rose 25.64% as measured in local currencies over the 12-month period. Market Summary 5 FRANK RUSSELL INVESTMENT COMPANY Non-U.S. stocks benefited from steady global growth and improved corporate earnings; however, regional returns showed considerable variation. While the U.S. economy continued to set the tempo for global markets, China's economic growth also had a strong influence, particularly in the Pacific Basin. Japan achieved the strongest returns of the major countries, with the MSCI Japan Index up 22.29% in the fiscal year. Japan's improving economy, increased corporate and consumer spending and demand from China boosted stocks. In addition, investors believed that Prime Minister Koizumi's landslide victory in the September 2005 election increased the likelihood of structural reform intended to accelerate economic growth. The Japanese market was led by strong gains in the financial sector. Japanese banks were expected to further benefit from the improving domestic economy. Japanese materials and energy sectors also performed well in the period. Europe lagged Asia, though the MSCI Europe Index achieved a still impressive 16.84% return over the fiscal year. Smaller markets, such as Norway and Austria, fared best, helped by very strong gains from their energy stocks. Despite good results from energy, materials and financials stocks, the Euro zone's (European Union countries that have adopted the Euro as common currency) larger markets of Germany and France delivered below average returns, held back by poorly performing technology and telecommunications stocks. Elsewhere, the U.K. also lagged the European region with a gain of 14.22% (MSCI UK). The U.K. underperformed due to weakness among its financials and telecommunication stocks. While the Euro zone showed small signs of economic improvement over the fiscal year, the U.K. economy slowed down, causing the Bank of England to cut interest rates towards the end of the period. Markets not represented in the MSCI EAFE Index, but commonly included in non-US stock portfolios, offered significant opportunities for gains during the period. Canadian stocks rose 24.13% (MSCI Canada). Developing markets provided additional opportunity as the MSCI Emerging Markets Index rose 34.34%. These markets benefited from heavy weightings in energy and materials stocks. With market participants focused on rising energy costs and China's strong economic growth, the performance of economic sectors was aligned with these themes. Across the non-U.S. markets, industrial cyclicals were the top performers. The materials sector, led by metals and mining stocks, was the strongest sector, up 29.12% (MSCI EAFE Materials) The energy sector followed with a 25.46% (MSCI EAFE Energy) gain and the industrial sector also fared well, up 25.09% (MSCI EAFE Industrials). In contrast, technology and telecommunications were the worst performing sectors over the period, with gains of only 3.45% (MSCI EAFE Information Technology) and 5.48% (MSCI EAFE Telecommunications Services), respectively. The diverse pressures on these underperforming sectors included increased competition, falling prices, restructuring charges and rising inventories. Sharply higher energy costs also cut into profit margins as the fiscal year progressed. With the value segment of the MSCI EAFE index more weighted towards industrial cyclicals and financials, the environment was slightly more favorable for value-oriented investors; however, the margin of outperformance was relatively small. The MSCI EAFE Value Index rose 19.16%, compared with 18.03% for the MSCI EAFE Growth Index. Investors continued to favor smaller capitalization stocks over their larger capitalization peers with the MSCI EAFE Small Cap Index up 37.29% in the period. Despite their traditional bias towards smaller capitalization stocks, as well as the tendency to hold emerging markets and Canadian stocks, actively-managed international funds found the past fiscal year a challenging period. The average fund, as measured by the Lipper International Funds Average, lagged the MSCI EAFE Index over the period by 0.81%. 6 Market Summary FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS Emerging Markets was the best-performing asset class in the fiscal year with the MSCI Emerging Markets Index up a strong 34.34%. The devastating tsunami that affected much of South Asia in late December 2004 had little impact on the markets of the region, with the exception of Sri Lanka, whose market lost 10% of its value in the last week of December. China's move to revalue its currency (allowing it to rise 2.11% against the US dollar), also had a limited effect on the currencies and markets in the region. Widespread declines in stock prices in March and October across the emerging markets, caused by rising U.S. interest rates and a slowdown in Chinese growth, also proved to be short-lived. Overall, these markets benefited from strong demand for energy and other raw materials, healthier local economies, corporate earnings gains, improving governance and attractive valuations relative to other asset classes. Given the substantial gains relative to the U.S. and non-U.S. developed markets in the fiscal year, the valuation discount of emerging markets narrowed. Regionally, Latin America was the top performer, returning 61.55% (MSCI EM Latin America). EMEA (Europe, Middle East and Africa) also outperformed, returning 39.27% (MSCI EM Europe, Middle East & Africa). In contrast, Asia lagged, returning 23.63% (MSCI EM Asia). Top country performers were some of the smaller markets such as Egypt, Jordan, Columbia and Pakistan which generated gains between 73% (MSCI EM Pakistan) and 159% (MSCI EM Egypt). Despite allegations of government corruption in the second quarter that caused a decline in the market, Brazil was the best performing large country; however, its 76% (MSCI EM Brazil) gain was aided by a 27% rise in its currency. Venezuela was the only country to lose ground in the fiscal year, falling by 34.08% (MSCI EM Venezuela). In terms of sectors, energy, up 53.99% (MSCI EM Energy), was the best performer driven by the strong oil prices over the period. In contrast, technology was the worst performing sector. All other sectors performed more in line with the benchmark. On balance, country selection was the key to outperformance in the fiscal year. U.S. FIXED INCOME MARKETS Interest rates, particularly in shorter-term maturities, took their cue from Federal Reserve policy. The Federal Reserve raised its target for the fed funds rate (the interest rate at which depository institutions lend money at the Federal Reserve to other depository institutions overnight) from 1.75% in the fall of 2004 to 3.75% by the end of October 2005. The Fed's eight interest rate hikes in the fiscal year represented an attempt to move back to a more neutral monetary policy to counter rising inflationary pressures as the fiscal year progressed. Although shorter maturity interest rates tended to move up in a straight line, intermediate and long term rates were volatile as investors grappled with slowing economic growth, moderate employment growth, rising commodity prices and natural disasters. Worries about inflation caused bond markets to gyrate up and down, with the ten-year note moving from a high of over 4.6% in March to a low of under 3.9% in June. For the fiscal year, ten-year rates rose, starting at 4.0% and moving up to end the period at 4.55%. With interest rates rising, investment grade bonds were little changed. For example, the Lehman Brothers US Aggregate Bond Index, a broad measure of US investment grade fixed income securities, returned just 1.13% for the fiscal year ending October 31, 2005. Among sectors, the riskier areas continued to post strong performance. As in the two prior years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from low default levels, healthy economic growth and low interest rates. Emerging market debt performed well due to commodity price increases and better fiscal and monetary governance among a number of developing countries. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 4.08% over the year compared to 0.88% for the Lehman US Treasury Index. Investment Market Summary 7 FRANK RUSSELL INVESTMENT COMPANY grade corporate bonds also benefited from the same factors that drove the high yield market. For the fiscal year, the Lehman US Credit Index returned 0.65%. Despite increased regulatory scrutiny of the mortgage market, mortgage securities also continued to do well, slightly outperforming equivalent duration Treasuries. The Lehman MBS Fixed Rate Index returned 1.75%. As the fiscal year ended, the yield spreads between corporates and mortgages relative to Treasuries continued to be narrow, reflecting a healthy economy where corporations remained conservative in their use of debt. The narrow spread also reflected a large market demand for yield, as coupons across the globe remained very low. 8 Market Summary FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (LINE GRAPH)
TAX MANAGED GLOBAL EQUITY - CLASS S S&P 500(R) MSCI EAFE ------------------ ---------- --------- Inception* 10000.00 10000.00 10000.00 2000 9788.00 10339.00 9212.00 2001 7412.00 7764.00 6939.00 2002 6367.00 6591.00 6042.00 2003 7965.00 7962.00 7708.00 2004 8932.00 8712.00 9193.00 2005 10032.00 9472.00 10902.00
Tax-Managed Global Equity Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.31% 5 Years 0.49%sec. Inception* 0.05%sec.
Tax-Managed Global Equity Fund - Class C - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.26% 5 Years (0.53)%sec. Inception* (0.91)%sec.
Standard & Poors 500(R) Composite Stock Price Index++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.72% 5 Years (1.74)%sec. Inception* (0.94)%sec.
MSCI EAFE Index++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%sec. Inception* 1.51%sec.
Portfolio Management Discussion 9 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth on an after-tax basis. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Tax-Managed Global Equity Fund Class S and Class C Shares gained 12.31% and 11.26% respectively. This compared to the S&P 500(R) Index, which gained 8.72%, and the MSCI EAFE(R) Index, which gained 18.59% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. A 75% allocation to U.S. equity funds, including large, medium and small capitalization stocks, supported the Fund's performance in the fiscal year. The remaining 25% was allocated to mutual funds investing in stocks outside of the U.S., with 20% and 5% invested in non-U.S. and emerging markets, respectively. While emerging markets achieved strong gains in the fiscal year, non-U.S. stocks also outperformed U.S. stocks. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, an allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the Fund was helped by the strong relative performance of the underlying emerging markets and mid and small capitalization U.S. equity funds. The other underlying funds, particularly the non-U.S. equity fund, provided strong absolute returns; however, these underlying funds underperformed their benchmarks. In the U.S. large capitalization segment, economic sector decisions detracted from performance of this underlying fund, as the other energy sector was underweight while the consumer discretionary and technology sectors were overweight. An overall modest growth tilt was also a negative in the period. In addition, technology stock selection detracted from performance. In the non-U.S. segment, underweights by the underlying fund in the well-performing materials and industrial sectors and overweights by the underlying fund in technology detracted from performance, though exposure to Canadian and emerging markets stocks added value. The best-performing underlying funds were the emerging markets and mid and small U.S. equity capitalization funds. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers of this underlying fund capitalized on the strong rallies in energy and other commodity-related stocks. In the mid and small capitalization U.S. equity underlying fund, an underweight in the smaller capitalization tiers of the market and a modest growth bias detracted from performance; however, these negatives were offset by strong stock selection, particularly in the health care, financial services and utilities sectors. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In the U.S. large capitalization underlying fund, Turner Investment Partners, Inc., one of the underlying fund's money managers, achieved positive stock selection in most sectors and performed particularly well in the health care and consumer discretionary sectors where its pharmaceutical, biotech, gaming and consumer electronics stocks had strong gains. Turner was added to the underlying U.S. large capitalization equity fund in May 2005 to provide an investment style intended to complement another U.S. growth money manager, Sands Capital Management, Inc. In contrast, Kayne Anderson Rudnick Investment Management, LLC performed poorly, as its "high quality at a reasonable price" strategy led to an underweight in energy stocks. Kayne also detracted through weak stock selection across most sectors. In the non-U.S. underlying fund, value money managers generally performed better than growth money managers though aggressive growth manager Axiom International Investors, LLC was the strongest non-U.S. money manager in the fiscal year. Axiom delivered strong stock selection in smaller capitalization companies. Other growth money managers in the non-U.S. underlying fund, particularly those following momentum strategies, struggled as the market rotated between styles in the fiscal year. In the mid and small capitalization U.S. equity underlying fund, Turner and Parametric Portfolio Associates, LLC added the greatest value through complementary approaches. Turner was strong in diversified financial services, while Parametric did well in health care stock selection. 10 Portfolio Management Discussion FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors combined with very strong sell disciplines, which allowed them to take profits at opportune times. At the start of the period, value managers outperformed while growth and market-oriented money managers added greater value as the year progressed. T. Rowe Price International, Inc. did well through an overweight to Egypt, the top-performing market. Arrowstreet also added value, as its focus on countries with improving earnings momentum led to overweights in the strong Pakistan and Brazil markets and an underweight in Taiwan. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund's Class S and Class C commenced operations on January 31, 2000. ++ The Standard & Poor's 500(R) Composite Stock Price Index is composed of 500 common stocks which are chosen by Standard & Poor's Corporation to best capture the price performance of a large cross-section of the US publicly traded stock market. The Index is structured to approximate the general distribution of industries in the US economy. ++++ The Morgan Stanley Capital International Europe, Australasia, Far East Index is an Index composed of an arithmetic, market value-weighted average of the performance of securities listed on the stock exchanges of the countries of Europe, Australia, and the Far East. The Index is calculated on a total-return basis, which includes reinvestment of dividends. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Portfolio Management Discussion 11 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING THE FUND'S EXPENSE EXAMPLE. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR THE FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,074.40 $ 1,020.16 Expenses Paid During Period* $ 5.23 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,079.40 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 12 Shareholder Expense Example FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ------------------------------------------------------------- INVESTMENTS - 99.8% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Domestic Equities - 74.9% Quantitative Equity Fund 149,128 5,709 Tax-Managed Large Cap Fund 1,582,681 28,741 Tax-Managed Mid & Small Cap Fund 695,692 8,536 ------------ 42,986 ------------ International Equities - 24.9% Emerging Markets Fund 165,036 2,849 International Securities Fund 174,971 11,434 ------------ 14,283 ------------ TOTAL INVESTMENTS - 99.8% (identified cost $41,019) 57,269 OTHER ASSETS AND LIABILITIES, NET - 0.2% 128 ------------ NET ASSETS - 100.0% 57,397 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ---------------------------------------------------------------- Domestic Equities 74.9 International Equities 24.9 ------------ Total Investments 99.8 Other Assets and Liabilities, Net 0.2 ------------ 100.0 ============
See accompanying notes which are an integral part of the financial statements. Schedule of Investments 13 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005 Amounts in thousands - -------------------------------------------------------------------------------- ASSETS Investments at market (identified cost $41,019)..................................... $ 57,269 Receivables: Investments sold................................................................. 15 Fund shares sold................................................................. 160 From adviser..................................................................... 13 Prepaid expenses.................................................................... 3 ---------------------- Total assets........................................................................ 57,460 ---------------------- LIABILITIES Payables: Fund shares redeemed.................................. $ 36 Accrued fees to affiliates............................ 14 Other accrued expenses................................ 13 -------------------- Total liabilities................................................................... 63 ---------------------- NET ASSETS.......................................................................... $ 57,397 ====================== Net Assets Consist of: Accumulated net realized gain (loss)................................................ $ (17,891) Unrealized appreciation (depreciation) on investments............................... 16,250 Shares of beneficial interest....................................................... 60 Additional paid-in capital.......................................................... 58,978 ---------------------- NET ASSETS.......................................................................... $ 57,397 ====================== NET ASSET VALUE, offering and redemption price per share: Class C ($14,800,728 divided by 1,576,220 shares of $.01 par value shares of beneficial interest outstanding)............................................... $ 9.39 ====================== Class S ($42,596,138 divided by 4,412,608 shares of $.01 par value shares of beneficial interest outstanding)............................................... $ 9.65 ======================
See accompanying notes which are an integral part of the financial statements. 14 Statement of Assets and Liabilities FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005 Amounts in thousands - -------------------------------------------------------------------------------- INVESTMENT INCOME Income distributions from Underlying Funds....................................... $ 512 EXPENSES Advisory fees............................................ $ 107 Administrative fees...................................... 27 Custodian fees........................................... 18 Distribution fees - Class C.............................. 104 Transfer agent fees...................................... 60 Professional fees........................................ 34 Registration fees........................................ 44 Shareholder servicing fees - Class C..................... 35 Trustees' fees........................................... 1 Printing fees............................................ 2 Miscellaneous............................................ 2 -------------------- Expenses before reductions............................... 434 Expense reductions....................................... (295) -------------------- Net expenses........................................................................ 139 ---------------------- Net investment income (loss)........................................................ 373 ---------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on investments............................................. 348 Net change in unrealized appreciation (depreciation) on investments................. 5,222 ---------------------- Net realized and unrealized gain (loss)............................................. 5,570 ---------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............................... $ 5,943 ======================
See accompanying notes which are an integral part of the financial statements. Statement of Operations 15 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 2005 2004 - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss)............................. $ 373 $ 278 Net realized gain (loss)................................. 348 232 Net change in unrealized appreciation (depreciation)..... 5,222 4,742 -------------------- ---------------------- Net increase (decrease) in net assets from operations....... 5,943 5,252 -------------------- ---------------------- DISTRIBUTIONS From net investment income Class C............................................... -- (10) Class S............................................... (338) (317) -------------------- ---------------------- Net decrease in net assets from distributions............... (338) (327) -------------------- ---------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions........................................... 4,318 (1,835) -------------------- ---------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS................. 9,923 3,090 NET ASSETS Beginning of period...................................... 47,474 44,384 -------------------- ---------------------- End of period............................................ $ 57,397 $ 47,474 ==================== ======================
See accompanying notes which are an integral part of the financial statements. 16 Statement of Changes in Net Assets FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS C For a Share Outstanding Throughout each Period.
FOR THE FISCAL YEARS ENDED OCTOBER 31, ------------------------------------------------------------------------------ 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........... $ 8.44 $ 7.61 $ 6.15 $ 7.29 $ 9.73 ------------ ------------ ------------ ------------ -------------- INCOME FROM OPERATIONS Net investment income (loss) (a)(b)......... --(e) (.02) (.02) (.05) (.06) Net realized and unrealized gain (loss)..... .95 .86 1.48 (1.03) (2.38) ------------ ------------ ------------ ------------ -------------- Total from investment operations......... .95 .84 1.46 (1.08) (2.44) ------------ ------------ ------------ ------------ -------------- DISTRIBUTIONS From net investment income.................. -- (.01) -- -- -- From net realized gain...................... -- -- -- (.06) -- ------------ ------------ ------------ ------------ -------------- Total distributions...................... -- (.01) -- (.06) -- ------------ ------------ ------------ ------------ -------------- NET ASSET VALUE, END OF PERIOD................. $ 9.39 $ 8.44 $ 7.61 $ 6.15 $ 7.29 ============ ============ ============ ============ ============== TOTAL RETURN (%)............................... 11.26 10.99 23.74 (14.94) (25.08) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).... 14,801 12,766 11,523 10,130 8,104 Ratios to average net assets (%): Operating expenses, net (d).............. 1.00 1.00 1.00 1.00 1.00 Operating expenses, gross (c)............ 1.55 1.58 1.72 1.64 1.77 Net investment income (loss) (d)......... (.03) (.19) (.25) (.68) (.73) Portfolio turnover rate (%)................. 12.46 21.28 59.50 52.55 30.55
(a) Average month-end shares outstanding were used for this calculation. (b) Recognition of net investment income by the Fund is affected by the timing of the declarations of dividends by the Underlying Funds in which the Fund invests. (c) The calculation includes those expenses charged directly to the Funds, including those fees of the Funds pushed down to the Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. (d) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. Expenses are shown net of those expenses pushed down to Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. (e) Less than $.01 per share. See accompanying notes which are an integral part of the financial statements. Financial Highlights 17 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND FINANCIAL HIGHLIGHTS - CLASS S For a Share Outstanding Throughout each Period.
FOR THE FISCAL YEARS ENDED OCTOBER 31, ------------------------------------------------------------------------------ 2005 2004 2003 2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........... $ 8.67 $ 7.80 $ 6.27 $ 7.38 $ 9.77 ------------ ------------ ------------ ------------ -------------- INCOME FROM OPERATIONS Net investment income (loss) (a)(b)......... .09 .07 .05 .03 .02 Net realized and unrealized gain (loss)..... .97 .87 1.52 (1.06) (2.39) ------------ ------------ ------------ ------------ -------------- Total from investment operations......... 1.06 .94 1.57 (1.03) (2.37) ------------ ------------ ------------ ------------ -------------- DISTRIBUTIONS From net investment income.................. (.08) (.07) (.04) (.02) (.02) From net realized gain...................... -- -- -- (.06) -- ------------ ------------ ------------ ------------ -------------- Total distributions...................... (.08) (.07) (.04) (.08) (.02) ------------ ------------ ------------ ------------ -------------- NET ASSET VALUE, END OF PERIOD................. $ 9.65 $ 8.67 $ 7.80 $ 6.27 $ 7.38 ============ ============ ============ ============ ============== TOTAL RETURN (%)............................... 12.31 12.14 25.09 (14.10) (24.27) RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands).... 42,596 34,708 32,861 29,968 34,661 Ratios to average net assets (%): Operating expenses, net (d).............. -- -- -- -- -- Operating expenses, gross (c)............ .55 .58 .72 .64 .77 Net investment income (loss) (d)......... .95 .87 .77 .39 .29 Portfolio turnover rate (%)................. 12.46 21.28 59.50 52.55 30.55
(a) Average month-end shares outstanding were used for this calculation. (b) Recognition of net investment income by the Fund is affected by the timing of the declarations of dividends by the Underlying Funds in which the Fund invests. (c) The calculation includes those expenses charged directly to the Funds, including those fees of the Funds pushed down to the Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. (d) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. Expenses are shown net of those expenses pushed down to Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. See accompanying notes which are an integral part of the financial statements. 18 Financial Highlights FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on one of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. The Fund allocates its assets by investing in a combination of Class S shares of other of the Investment Company's Funds (the "Underlying Funds"). Frank Russell Investment Management Company ("FRIMCo"), the Fund's investment adviser, may modify the target asset allocation for the Fund and modify the selection of Underlying Funds for the Fund from time to time. From time to time, the Fund may adjust its investments within set limits based on FRIMCo's outlook for the economy, financial markets generally and relative market valuation of the asset classes represented by each Underlying Fund. Additionally, the Fund may deviate from set limits when, in FRIMCo's opinion, it is necessary to do so to pursue the Fund's investment objective. However, the Fund expects that amounts it allocates to each Underlying Fund will generally vary only within 10% of the ranges specified in the table below:
ASSET ALLOCATION ASSET CLASS/UNDERLYING FUNDS TARGETS - ------------------------------------------------------------ Equities US Equities Tax-Managed Large Cap Fund 50% Tax-Managed Mid & Small Cap Fund 15 Quantitative Equity Fund 10 International Equities International Securities Fund 20 Emerging Markets Fund 5 --- 100
Investment Objectives of the Underlying Funds: Tax-Managed Large Cap Fund Seeks to provide long term capital growth on an after-tax basis. Tax-Managed Mid & Small Cap Fund Seeks to provide long term capital growth on an after-tax basis. Quantitative Equity Fund Seeks to provide long term capital growth. International Securities Fund Seeks to provide long term capital growth. Emerging Markets Fund Seeks to provide long term capital growth. 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Notes to Financial Statements 19 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Security Valuation The Fund values its portfolio securities, the shares of the Underlying Funds, at the current net asset value per share of each Underlying Fund. The Underlying Funds value portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Money market fund securities are priced using the amortized cost method of valuation, as are debt obligation securities maturing within 60 days at the time of purchase, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has delegated the responsibility for administration of the Securities Valuation Procedures to FRIMCo. Ordinarily, the Underlying Funds value each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Underlying Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale price; - US over-the-counter equities: Official closing price; last bid price if no closing price; - Foreign equities: Official closing price, where available, or last sale price; last bid price if no closing price; - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. - The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Underlying Funds will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange on which the security is traded. The Fair Value Procedures may involve subjective judgments as to the fair value of securities. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market on which they are traded, but rather may be priced by another method that the Board of Trustees believes reflects fair value. The use of fair value pricing by an Underlying Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Underlying Fund shares and daily movement of the benchmark index if the index is valued using another pricing method. This policy is intended to assure that the Underlying Funds' net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Underlying Fund securities that occur between the closing of the principal markets on which they trade and the time the net asset value of Underlying Fund Shares is determined may be reflected in the calculation of net asset values for each applicable Underlying Fund (and each Fund which invests in such Underlying Fund) when the Underlying Funds deem that the particular event or circumstance would materially affect such Underlying Fund's net asset value. Underlying Funds that invest primarily in frequently traded exchange listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. Underlying Funds that invest in foreign securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. Underlying Funds that invest in low rated debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement (defined in the Fair Value 20 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Procedures as the movement by any two of four major US Indexes greater than a certain percentage); a company event such as a material business development, dividend declaration, stock split or rights offering; a material disaster; or an armed conflict. Because foreign securities can trade on a non-business days, the net asset value of a Fund's portfolio that includes an Underlying Fund which invests in foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost. Investment Income Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date. Federal Income Taxes Since the Investment Company is a Massachusetts business trust, the Fund is a separate corporate taxpayer and determines its net investment income and capital gains (or losses) and the amounts to be distributed to the Fund's shareholders without regard to the income and capital gains (or losses) of the other Funds. It is the 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 Fund. Dividends and Distributions to Shareholders Income, dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Income dividends are generally declared and paid quarterly. Capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund 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) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP relate primarily to wash sale deferrals and capital loss carryforwards. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value. Expenses Expenses included in the accompanying financial statements reflect the expenses of each Fund and do not include those expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of the fees and expenses incurred indirectly by the Funds will vary. Class Allocation The Fund presented herein offers the following classes of shares: Class C and Class S. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the applicable distribution fees and shareholder servicing fees. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Guarantees In the normal course of business the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote. Notes to Financial Statements 21 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Securities During the period ended October 31, 2005, the Fund had purchases and sales of the Underlying Funds of $10,987,596 and $6,667,540, respectively. 4. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to FRIMCo. The Fund is charged an advisory fee equal to 0.20% of average daily net assets. For the period ended October 31, 2005, the Adviser contractually agreed to waive the advisory fee at least through February 28, 2006. The Adviser does not have the ability to recover amounts waived from the period ended October 31, 2005, or previous periods. The administrative fee was charged to the Underlying Funds in accordance with the special servicing agreements discussed below. Direct operating expenses include those arising from accounting, administrative, custody, auditing, legal and transfer agent services. Until June 30, 2005, the foregoing direct operating expenses were borne either by the Underlying Funds in which a Fund invests pursuant to Special Servicing Agreements (described below) between the Fund, Underlying Fund and FRIMCo or by FRIMCo pursuant to a Letter Agreement. Direct operating expenses also include expenses attributable to advisory fees (which are currently waived by FRIMCo), any Rule 12b-1 distribution fee, any shareholder services fees, or any nonrecurring extraordinary expenses, which will be borne by the Fund or its appropriate Classes of Shares. Special Servicing Agreement The special servicing agreement was entered into in February 1999 by the Adviser and was approved annually by the Funds' Board of Trustees. The special servicing agreement was between the Tax-Managed Global Equity Fund and the Underlying Funds in which the Fund invests. In accordance with the special servicing agreement, certain expenses from the operation of the Fund were borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by the Fund. No Underlying Funds were charged expenses that exceeded the estimated savings to each respective Underlying Fund. These estimated savings appeared in the form of reduced transfer agent costs resulting from the elimination of separate shareholder accounts which were invested in the Underlying Funds. Rather than having each investor open a shareholder account to invest individually in the Underlying Funds, the Fund acted as an omnibus account combining thousands of individual shareholder accounts into a single account. This benefited the Underlying Funds, by significantly reducing the number of shareholder accounts that needed to be maintained, and by the omnibus account's netting out the trades of individual shareholders to a point where the Fund only executed one trade each day with each Underlying Fund. In the event that the financial benefits to the Underlying Funds did not exceed aggregate expenses of the Fund, the Adviser reimbursed the respective Underlying Funds. This arrangement was discontinued June 30, 2005. Effective July 1, 2005, FRIMCo, as transfer agent, has agreed to waive its transfer agency fees and to reimburse the Funds for all direct operating expenses other than Rule 12b-1 distribution fees, shareholder services fees, non-recurring expenses and extraordinary expenses. The agreement to reimburse expenses extends through February 28, 2007 and may be renewed thereafter. If this arrangement is discontinued, Fund expenses may increase. For the period ended October 31, 2005, the expenses pushed down to the Underlying Funds under the special servicing arrangements amounted to $127,896. For the period ended October 31, 2005, the amount reimbursed by FRIMCo as transfer agent amounted to $59,448. Transfer Agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. FRIMCo retains a portion of this fee for its services provided to the Fund and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Fund presented herein for the period ended October 31, 2005 were $60,157. Until June 30, 2005, the Underlying Funds and FRIMCo 22 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- as transfer agent have borne this expense pursuant to the special servicing arrangements described above. Effective July 1, 2005, FRIMCo has agreed to waive its transfer agency fees for the Fund through at least February 28, 2007. Distributor and Shareholder Servicing Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributors, Inc. ("Distributor"), a wholly-owned subsidiary of FRIMCo, serves as distributor for all Investment Company portfolio shares, including Class C and Class S shares of the Fund. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor or any Selling Agents, as defined in the Plan for sales support services provided, and related expenses incurred which are primarily intended to result in the sale of Class C shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.75% of the average daily net assets of the Fund's Class C shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Fund may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class C shares of the Fund. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class C shares on an annual basis. Accrued fees payable to affiliates as of October 31, 2005 were as follows:
TAX-MANAGED GLOBAL EQUITY ---------------------------------------------------------- Administration fees $ 2,082 Distribution fees 9,292 Shareholder servicing fees 3,085 Trustee fees 20 ------------------- $ 14,479 ===================
Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company, which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and a new chairperson of the Board was elected with additional annual compensation of $52,000. Transactions With Affiliated Companies An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities. Transactions during the period ended October 31, 2005 with Underlying Funds which are or were an affiliated company are as follows:
PURCHASE SALES INCOME CAPITAL GAINS AFFILIATE COST COST DISTRIBUTIONS DISTRIBUTIONS ------------------------------------------------------------------------------------------------------------------------------ Tax-Managed Global Equity Tax-Managed Large Cap $ 5,628,054 $ 2,315,389 $ 256,239 $ -- Tax-Managed Mid & Small Cap 1,352,713 959,723 -- -- ------------------- ------------------- ------------------- ------------------- $ 6,980,767 $ 3,275,112 $ 256,239 $ -- =================== =================== =================== ===================
Notes to Financial Statements 23 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 5. FEDERAL INCOME TAXES At October 31, 2005, the Fund had a net tax basis capital loss carryforward 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 carryforwards and expiration dates are as follows:
FUNDS 10/31/10 10/31/11 TOTAL ------------------------------------------------------------------------------------------------------ Tax Managed Global Equity $ 1,796,944 $ 3,565,354 $ 5,362,298
At October 31, 2005, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows: Cost of Investments $ 53,547,670 =================== Unrealized Appreciation $ 3,721,442 Unrealized Depreciation -- ------------------- Net Unrealized Appreciation (Depreciation) $ 3,721,442 =================== Undistributed Ordinary Income $ 34,689 Undistributed Long-Term Capital Gains (Capital Loss Carryforward) $ (5,362,298) Tax Composition of Distributions Ordinary Income $ 338,453
6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 TAX-MANAGED GLOBAL EQUITY ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 293 421 $ 2,676 $ 3,451 Proceeds from reinvestment of distributions -- 1 -- 10 Payments for shares redeemed (229) (424) (2,085) (3,484) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 64 (2) 591 (23) ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 1,110 952 10,337 7,887 Proceeds from reinvestment of distributions 35 38 328 309 Payments for shares redeemed (736) (1,201) (6,938) (10,008) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 409 (211) 3,727 (1,812) ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 473 (213) $ 4,318 $ (1,835) ================= ================= ================= =================
7. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Fund may borrow up to a maximum of 33.33% of the value of its net assets under the agreement. The agreement will expire 24 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- December 21, 2005 and is expected to be renewed at that time. The Fund did not have any drawdowns for the period ended October 31, 2005. 8. RECORD OWNERSHIP As of October 31, 2005, the Fund had one shareholder of record with greater than 10% of the total outstanding shares of the Fund in the amount of 16.8%. Notes to Financial Statements 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Tax-Managed Global Equity Fund (one of the portfolios constituting Frank Russell Investment Company, hereafter referred to as the "Fund") at October 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the transfer agent, provide a reasonable basis for our opinion. /s/ PricewatehouseCoopers LLP Seattle, Washington December 20, 2005 26 Report of Independent Registered Public Accounting Firm FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- For the year ended October 31, 2005, the Fund hereby designates 100%, or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Fund designates dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as 81.9%. The Form 1099 you receive in January 2006 will show the tax status of all distributions paid to your account in calendar 2005. Tax Information 27 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with FRIMCo and the portfolio management contract (together, the "investment advisory agreements") with each Money Manager of the Underlying Funds at a meeting held on February 23, 2005. During the course of a year, the Trustees received a wide variety of materials regarding the investment performance of the Fund and the Underlying Funds, sales and redemptions of the Fund's and the Underlying Funds' shares, and the management of the Fund and the Underlying Funds by FRIMCo. In preparation for the annual review, the Board, with the advice and assistance of independent counsel, also received and considered (1) information and reports prepared by FRIMCo relating to the services provided by FRIMCo (and its affiliates) to the Fund and the Underlying Funds, including information requested by the Trustees, and (2) information received from an independent, nationally recognized provider of investment company information comparing the performance of the Fund and the Underlying Funds and their operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by FRIMCo believed by the provider to be generally comparable in investment objectives and size to the Fund and the Underlying Funds (collectively, the "Agreement Renewal Information"). Prior to voting, the Independent Trustees reviewed the proposed continuance of the investment advisory agreements with management and independent counsel and received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. The Independent Trustees also reviewed the proposed continuance in a private session with independent counsel at which no representatives of FRIMCo or management were present. The discussion below reflects both of these reviews. In evaluating the advisory agreement with FRIMCo and the portfolio management contracts with the Money Managers of the Underlying Funds, the Board considered that the Underlying Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. All Underlying Funds have multiple Money Managers. The Board considered that FRIMCo (rather than any Money Manager) is responsible under the investment advisory agreement for determining, implementing and maintaining the investment program for each Underlying Fund. Assets of each Underlying Fund have been allocated among multiple Money Managers. FRIMCo is responsible for selecting Money Managers for each Underlying Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for an Underlying Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Underlying Fund assigned to it by FRIMCo in accordance with the Underlying Fund's applicable investment objective, policies and restrictions (each, a "segment"). FRIMCo is responsible for communicating performance expectations and evaluations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund's investment objectives and policies; authorizing Money Managers to engage in certain investment strategies for an Underlying Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, FRIMCo is responsible for recommending to the Board the restructuring of Underlying Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on FRIMCo's research and analysis, such actions are appropriate. FRIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for an Underlying Fund in a complementary manner. Therefore, FRIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Underlying Fund. The performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by FRIMCo in the Underlying Fund's investment activities and any constraints placed by FRIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of the Fund and the Underlying Funds over appropriate periods reflects in great part the performance of FRIMCo in designing the Underlying Fund's investment program, structuring Underlying Fund segments, selecting an effective Money Manager for each segment with a style that is complementary to the styles of the Money Managers of other Underlying Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Underlying Fund. 28 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- The Board also considered that the prospectuses for the Fund and Underlying Funds emphasize to investors FRIMCo's role as the principal investment manager for the Fund and each Underlying Fund, rather than the investment selection role of the Underlying Funds' Money Managers, and describe the manner in which the Fund and the Underlying Funds operate so that investors may take the information into account when deciding to purchase shares of the Fund. In addition to these general factors relating to the manager of managers structure of the Underlying Funds, the Trustees considered, with respect to the Fund and each Underlying Fund, various specific factors on the basis of the Agreement Renewal Information in evaluating renewal of the advisory agreement with FRIMCo, including the following: 1. The nature, scope and quality of the services provided to the Fund and the Underlying Funds by FRIMCo; 2. The advisory fee paid by the Fund or Underlying Fund to FRIMCo and the fact that it encompasses all investment advisory fees paid by the Fund or Underlying Fund, including the fees for any Money Managers of such Underlying Fund; 3. Information provided by FRIMCo as to other fees and benefits received by FRIMCo or its affiliates from the Fund or Underlying Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by FRIMCo as to investment advisory fees paid by Comparable Funds; 5. Information provided by FRIMCo as to expenses incurred by the Fund or Underlying Fund; 6. Information provided by FRIMCo as to the profits that FRIMCo derives from its mutual fund operations generally and from the Fund and each Underlying Fund; and 7. The importance of supporting quality, long-term service by FRIMCo to help achieve the Fund's or Underlying Fund's investment performance, including the continuing need of FRIMCo to retain and attract qualified investment and service professionals to serve the Fund and the Underlying Funds. On the basis of the information received, the Board, in respect of the Fund and each Underlying Fund, found the advisory fees charged and costs and expenses incurred by FRIMCo to be fair and reasonable; after giving effect to waivers and/or reimbursements; and considering the composition of the Comparable Funds, the relative performance and expense ratio of the Fund or Underlying Fund were comparable to those of peer funds; FRIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and FRIMCo's profitability with respect to the Fund or Underlying Fund was reasonable in light of the nature, scope and quality of the services provided by FRIMCo. The Board considered for the Fund and each Underlying Fund whether economies of scale have been realized and whether the fees for the Fund or such Underlying Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on December 6, 2004 that the investment advisory fees for the Fund and each Underlying Fund appropriately reflect any economies of scale realized by the Fund or that Underlying Fund. Its findings at the earlier meeting were based upon information and analyses prepared by FRIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager of managers structure employed by most Underlying Funds relevant to the Board's deliberations, and took into consideration the Fund's and Underlying Funds' rising costs of compliance with applicable laws, rules and regulations. The Trustees considered that fees payable to FRIMCo by institutional clients with investment objectives similar to those of the Underlying Funds are lower, and may, in some cases, be substantially lower, than the rates paid by the Underlying Funds. FRIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and the Underlying Funds. For example, institutional clients have fewer administrative needs than the Underlying Funds. It was further noted that since the Underlying Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. The Board also considered the special expertise of FRIMCo with respect to the manager of managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of the Fund or each such Underlying Fund, there would be no acceptable alternative investment managers to replace FRIMCo on comparable terms given the need to conduct the manager of managers, multi-style strategy of the Fund or such Underlying Fund selected by its shareholders in purchasing their shares. With respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from FRIMCo reporting for each Money Manager, among other things, the Money Manager's performance Basis for Approval of Investment Advisory Contracts 29 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- over various periods; FRIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and the Fund, the Underlying Funds, FRIMCo or FRIMCo's affiliates; and FRIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. FRIMCo recommended that each Money Manager be retained at its current fee rate. FRIMCo advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the investment advisory agreements with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with FRIMCo; FRIMCo is aware of the fees charged by Money Managers to other clients; and FRIMCo believes that the fees agreed upon with Money Managers are fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted FRIMCo's explanation in light of the Board's findings as to the fairness and reasonableness of the aggregate investment advisory fees paid by the Fund and each Underlying Fund and the fact that each Money Manager's fee is paid by FRIMCo. Based substantially upon FRIMCo's recommendations together with the information received from FRIMCo in support of its recommendations, the Board concluded that the fees paid to the Money Managers of each Underlying Fund were fair and reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of each Underlying Fund was in the interests of shareholders. In their deliberations, the Trustees did not identify any particular information as to the investment advisory agreement with FRIMCo or, other than FRIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of the Fund and each Underlying Fund. At a meeting held on March 24, 2005, the Trustees received proposals from FRIMCo to effect certain Money Manager changes for the International Securities and Tax-Managed Large Cap Funds; and at a meeting held on July 14, 2005, the Trustees received a proposal from FRIMCo to effect a Money Manager change for the Tax-Managed Mid & Small Cap Fund resulting from a change of control of one of this Funds' Money Managers. In the case of each such Underlying Fund, the Trustees approved the terms of the proposed portfolio management agreements with the successor Money Manager(s) based substantially upon FRIMCo's recommendation; its explanation as to the lack of relevance of profitability to the evaluation of portfolio management agreements with Money Managers; and its belief that the proposed investment advisory fees for the successor Money Manager(s) would be fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at the February 23, 2005 meeting as to the fairness and reasonableness of the aggregate investment advisory fees paid by each affected Underlying Fund, and the fact that the aggregate investment advisory fees paid by such Underlying Fund would not increase as a result of the implementation of any proposed Money Manager change because each Money Manager's investment advisory fee is paid by FRIMCo. 30 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Financial Statements of the Underlying Funds can be obtained at no charge by calling the Fund at (800) 787-7354. Shareholder Requests for Additional Information 31 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 - None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified. - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. 32 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 33 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
34 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. Disclosure of Information about Fund Directors 35 FRANK RUSSELL INVESTMENT COMPANY TAX-MANAGED GLOBAL EQUITY FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
36 Disclosure of Information about Fund Directors TAX-MANAGED GLOBAL EQUITY FUND FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS OF UNDERLYING FUNDS AS OF OCTOBER 31, 2005 Quantitative Equity Fund Aronson + Johnson + Ortiz, LP, Philadelphia, PA Franklin Portfolio Associates LLC, Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Jacobs Levy Equity Management, Inc., Florham Park, NJ Tax-Managed Large Cap Fund John A. Levin & Co., Inc., New York, NY J.P. Morgan Investment Management Inc., New York, NY Kayne Anderson Rudnick Investment Management, LLC, Los Angeles, CA Sands Capital Management, Inc., Arlington, VA Turner Investment Partners, Inc., Berwyn, PA Tax-Managed Mid & Small Cap Fund Chartwell Investment Partners, Berwyn, PA Netols Asset Management, Inc., Mequon, WI Parametric Portfolio Associates LLC, Seattle, WA Transamerica Investment Management, LLC, Denver, CO Turner Investment Partners, Inc., Berwyn, PA International Securities Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY AQR Capital Management, LLC, Greenwich, CT Axiom International Investors LLC, Greenwich, CT Fidelity Management & Research Company, Boston, MA Marvin & Palmer Associates, Inc., Wilmington, DE MFS Institutional Advisors, Inc., Boston, MA Mondrian Investment Partners Limited, London, England The Boston Company Asset Management, LLC, Boston, MA Wellington Management Company, LLP, Boston, MA Emerging Markets Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY Arrowstreet Capital, Limited Partnership, Cambridge, MA Genesis Asset Managers, LLP, Guernsey, Channel Islands T. Rowe Price International, Inc., Baltimore, MD Wells Capital Management Inc., San Francisco, CA This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of 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 37 (This page intentionally left blank) [RUSSELL LOGO] FRANK RUSSELL INVESTMENT COMPANY 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-086 (1 10/05) LIFEPOINTS(R) FUNDS 2005 ANNUAL REPORT CLASS A, C, D, E, AND S SHARES: EQUITY AGGRESSIVE STRATEGY FUND AGGRESSIVE STRATEGY FUND BALANCED STRATEGY FUND MODERATE STRATEGY FUND CONSERVATIVE STRATEGY FUND CLASS A, D, E, AND S SHARES: 2010 STRATEGY FUND 2020 STRATEGY FUND 2030 STRATEGY FUND 2040 STRATEGY FUND OCTOBER 31, 2005 (RUSSELL LOGO) Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company LifePoints(R) Funds Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Equity Aggressive Strategy Fund...................................... 10 Aggressive Strategy Fund............................................. 16 Balanced Strategy Fund............................................... 22 Moderate Strategy Fund............................................... 28 Conservative Strategy Fund........................................... 34 2010 Strategy Fund................................................... 40 2020 Strategy Fund................................................... 46 2030 Strategy Fund................................................... 52 2040 Strategy Fund................................................... 58 Statement of Assets and Liabilities.................................. 64 Statement of Operations.............................................. 68 Statement of Changes in Net Assets................................... 70 Financial Highlights................................................. 74 Notes to Financial Highlights........................................ 86 Notes to Financial Statements........................................ 87 Report of Independent Registered Public Accounting Firm.............. 106 Tax Information...................................................... 107 Basis for Approval of Investment Advisory Contracts.................. 108 Shareholder Requests for Additional Information...................... 112 Disclosure of Information about Fund Directors....................... 113 Manager, Money Managers and Service Providers........................ 118
Frank Russell Investment Company - LifePoints Funds Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MARKET SUMMARY AS OF OCTOBER 31, 2005 U.S. EQUITY MARKETS Though the 2004 presidential election provided a boost to the markets at the start of the fiscal year, stocks made little headway in the first half of the fiscal year as concerns of high oil prices and rising interest rates offset generally strong economic and corporate earnings data. But despite even higher energy costs, rising inflationary pressures, further interest rate hikes by the Federal Reserve, the economic disruptions of hurricanes Rita and Katrina and a sharp fall-off in consumer confidence, stocks were surprisingly resilient in the second half of the fiscal year. For the fiscal year ending October 31, 2005, the Russell 3000(R) Index gained 10.55%. Sector leadership in the first half of the fiscal year was dominated by energy and utilities. As in the previous year, energy stocks dominated the market due to strong global demand for energy. Towards the end of the fiscal year, hurricanes Katrina and Rita provided another boost to energy sectors as damage to the natural gas and petroleum refining and distribution infrastructure caused further spikes in energy prices. Despite a subsequent decline in oil prices and a sharp sell-off in energy stocks in October, the integrated oil and other energy sectors strongly led the U.S. equity market in the fiscal year. Other sectors also performed well in the second half, including technology and healthcare. As a result, the market environment for active management improved in the second half of the fiscal year as the rally in equities broadened beyond the energy and utilities sectors. While lagging far behind energy stocks, consumer staples stocks also outperformed in the fiscal year due to their defensive, stable growth qualities. Biotechnology and non-pharmaceutical healthcare stocks also fared well. In contrast, materials and consumer discretionary stocks lost favor with investors. Though the housing market remained strong, providing support for consumer spending, real estate prices appeared to ease towards the end of the fiscal year as higher energy and mortgage financing costs weakened consumer confidence. Retail and housing-related stocks fell to end the fiscal year among the worst performers. Despite rebounding in the second half of the year, technology stocks also lagged in the fiscal year as rising competitive pressures and generally lackluster earnings outlooks held back large capitalization technology stocks. Small capitalization companies outperformed large capitalization companies, as measured by the 12.08% return of the Russell 2000(R) Index versus 10.47% for the Russell 1000(R) Index for the fiscal year ended October 31, 2005. Though their lead narrowed over the 12 months, small capitalization companies have outperformed large capitalization companies for the last seven years. Small capitalization companies continued to benefit from narrow credit spreads (which allow companies to borrow money at more favorable rates). They also benefited from strong performance of stocks in the energy, healthcare and utilities sectors and the improving performance of technology-related companies. Companies of higher financial quality continued to underperform the broader market as represented by the Russell 3000(R) Index, while higher beta and lower dividend yield companies on the whole outperformed the broader market. 4 Market Summary FRANK RUSSELL INVESTMENT COMPANY Style continued to play an important role in equity returns. Value stocks outperformed growth stocks, though the margin of outperformance was smaller than in recent years. The Russell 1000(R) Value Index returned 11.86% for the fiscal year, compared with 8.81% for the Russell 1000(R) Growth Index. Investors' continued preference for energy-related and utility stocks over technology stocks, strongly favored value stocks in the first half of the fiscal year. But growth stocks performed better in the second half of the fiscal year due to rebounds by technology and biotechnology and health care service-related stocks. The fiscal year ending October 31, 2005 was relatively difficult for active managers given the outstanding performance of the energy sectors, which many active managers were underweight. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.14% while the Lipper Large Cap Value Funds Average underperformed the Russell 1000(R) Value Index by 2.18%. Active management fared better in the growth segment where the Lipper Large Cap Growth Funds Average beat the Russell 1000(R) Growth Index by 1.28%. The environment for active small capitalization investing was also more favorable: the Lipper Small-Cap Core Funds Average beat the Russell 2000(R) Index by 1.16%. Note: Lipper returns are net of fees while the index returns are gross of fees. U.S. REAL ESTATE MARKETS The public real estate investment trust (REIT) market continued to deliver strong performance as the NAREIT Equity REIT Index returned 17.92% in the fiscal year ending October 31, 2005. Though interest rates rose during the fiscal year, they remained low relative to historical levels. The REIT market was further supported by improving property market supply and demand fundamentals and an active mergers and acquisitions environment. Elevated volatility continued to dominate the REIT market. Because yield-oriented investors are a major constituent in the REIT market, the market was highly sensitive to changes in long-term interest rates and shifts in sentiment regarding the direction of rates. During the fiscal year, the spread of average REIT dividend yields to 10-year Treasury yields was compressed, making REITs vulnerable to pricing adjustments based on changes in the outlook for interest rates. Improvements in real estate fundamentals resulted in higher average occupancy rates and rents which contributed to solid growth in REIT earnings and positive performance for most sectors. The strongest performing sectors were self storage and apartments. The self storage sector was attractive due to relative valuations and earnings growth. Apartments benefited from expectations that higher mortgage interest rates would dampen purchases of entry-level single-family homes and boost demand for apartments. Other sectors that outperformed the benchmark included office, regional malls and diversified. The weakest performing sectors included manufactured homes, health care, shopping centers industrial and mixed industrial/office. Investors favored larger capitalization REITs during the fiscal year. The NAREIT Real Estate 50, a benchmark of larger and more frequently traded REITs, returned 19.79%. These companies benefited from their better liquidity, more favorable balance sheets and stronger earnings growth prospects. NON-U.S. EQUITY MARKETS Non-U.S. stocks gained 18.59% as measured by the MSCI EAFE Index for the fiscal year ended October 31, 2005. The performance of non-U.S. stocks was even more impressive given that the strong U.S. dollar muted returns for US investors. The MSCI EAFE Index rose 25.64% as measured in local currencies over the 12-month period. Market Summary 5 FRANK RUSSELL INVESTMENT COMPANY Non-U.S. stocks benefited from steady global growth and improved corporate earnings; however, regional returns showed considerable variation. While the U.S. economy continued to set the tempo for global markets, China's economic growth also had a strong influence, particularly in the Pacific Basin. Japan achieved the strongest returns of the major countries, with the MSCI Japan Index up 22.29% in the fiscal year. Japan's improving economy, increased corporate and consumer spending and demand from China boosted stocks. In addition, investors believed that Prime Minister Koizumi's landslide victory in the September 2005 election increased the likelihood of structural reform intended to accelerate economic growth. The Japanese market was led by strong gains in the financial sector. Japanese banks were expected to further benefit from the improving domestic economy. Japanese materials and energy sectors also performed well in the period. Europe lagged Asia, though the MSCI Europe Index achieved a still impressive 16.84% return over the fiscal year. Smaller markets, such as Norway and Austria, fared best, helped by very strong gains from their energy stocks. Despite good results from energy, materials and financials stocks, the Euro zone's (European Union countries that have adopted the Euro as common currency) larger markets of Germany and France delivered below average returns, held back by poorly performing technology and telecommunications stocks. Elsewhere, the U.K. also lagged the European region with a gain of 14.22% (MSCI UK). The U.K. underperformed due to weakness among its financials and telecommunication stocks. While the Euro zone showed small signs of economic improvement over the fiscal year, the U.K. economy slowed down, causing the Bank of England to cut interest rates towards the end of the period. Markets not represented in the MSCI EAFE Index, but commonly included in non-US stock portfolios, offered significant opportunities for gains during the period. Canadian stocks rose 24.13% (MSCI Canada). Developing markets provided additional opportunity as the MSCI Emerging Markets Index rose 34.34%. These markets benefited from heavy weightings in energy and materials stocks. With market participants focused on rising energy costs and China's strong economic growth, the performance of economic sectors was aligned with these themes. Across the non-U.S. markets, industrial cyclicals were the top performers. The materials sector, led by metals and mining stocks, was the strongest sector, up 29.12% (MSCI EAFE Materials) The energy sector followed with a 25.46% (MSCI EAFE Energy) gain and the industrial sector also fared well, up 25.09% (MSCI EAFE Industrials). In contrast, technology and telecommunications were the worst performing sectors over the period, with gains of only 3.45% (MSCI EAFE Information Technology) and 5.48% (MSCI EAFE Telecommunications Services), respectively. The diverse pressures on these underperforming sectors included increased competition, falling prices, restructuring charges and rising inventories. Sharply higher energy costs also cut into profit margins as the fiscal year progressed. With the value segment of the MSCI EAFE index more weighted towards industrial cyclicals and financials, the environment was slightly more favorable for value-oriented investors; however, the margin of outperformance was relatively small. The MSCI EAFE Value Index rose 19.16%, compared with 18.03% for the MSCI EAFE Growth Index. Investors continued to favor smaller capitalization stocks over their larger capitalization peers with the MSCI EAFE Small Cap Index up 37.29% in the period. Despite their traditional bias towards smaller capitalization stocks, as well as the tendency to hold emerging markets and Canadian stocks, actively-managed international funds found the past fiscal year a challenging period. The average fund, as measured by the Lipper International Funds Average, lagged the MSCI EAFE Index over the period by 0.81%. 6 Market Summary FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS Emerging Markets was the best-performing asset class in the fiscal year with the MSCI Emerging Markets Index up a strong 34.34%. The devastating tsunami that affected much of South Asia in late December 2004 had little impact on the markets of the region, with the exception of Sri Lanka, whose market lost 10% of its value in the last week of December. China's move to revalue its currency (allowing it to rise 2.11% against the US dollar), also had a limited effect on the currencies and markets in the region. Widespread declines in stock prices in March and October across the emerging markets, caused by rising U.S. interest rates and a slowdown in Chinese growth, also proved to be short-lived. Overall, these markets benefited from strong demand for energy and other raw materials, healthier local economies, corporate earnings gains, improving governance and attractive valuations relative to other asset classes. Given the substantial gains relative to the U.S. and non-U.S. developed markets in the fiscal year, the valuation discount of emerging markets narrowed. Regionally, Latin America was the top performer, returning 61.55% (MSCI EM Latin America). EMEA (Europe, Middle East and Africa) also outperformed, returning 39.27% (MSCI EM Europe, Middle East & Africa). In contrast, Asia lagged, returning 23.63% (MSCI EM Asia). Top country performers were some of the smaller markets such as Egypt, Jordan, Columbia and Pakistan which generated gains between 73% (MSCI EM Pakistan) and 159% (MSCI EM Egypt). Despite allegations of government corruption in the second quarter that caused a decline in the market, Brazil was the best performing large country; however, its 76% (MSCI EM Brazil) gain was aided by a 27% rise in its currency. Venezuela was the only country to lose ground in the fiscal year, falling by 34.08% (MSCI EM Venezuela). In terms of sectors, energy, up 53.99% (MSCI EM Energy), was the best performer driven by the strong oil prices over the period. In contrast, technology was the worst performing sector. All other sectors performed more in line with the benchmark. On balance, country selection was the key to outperformance in the fiscal year. U.S. FIXED INCOME MARKETS Interest rates, particularly in shorter-term maturities, took their cue from Federal Reserve policy. The Federal Reserve raised its target for the fed funds rate (the interest rate at which depository institutions lend money at the Federal Reserve to other depository institutions overnight) from 1.75% in the fall of 2004 to 3.75% by the end of October 2005. The Fed's eight interest rate hikes in the fiscal year represented an attempt to move back to a more neutral monetary policy to counter rising inflationary pressures as the fiscal year progressed. Although shorter maturity interest rates tended to move up in a straight line, intermediate and long term rates were volatile as investors grappled with slowing economic growth, moderate employment growth, rising commodity prices and natural disasters. Worries about inflation caused bond markets to gyrate up and down, with the ten-year note moving from a high of over 4.6% in March to a low of under 3.9% in June. For the fiscal year, ten-year rates rose, starting at 4.0% and moving up to end the period at 4.55%. With interest rates rising, investment grade bonds were little changed. For example, the Lehman Brothers US Aggregate Bond Index, a broad measure of US investment grade fixed income securities, returned just 1.13% for the fiscal year ending October 31, 2005. Among sectors, the riskier areas continued to post strong performance. As in the two prior years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from low default levels, healthy economic growth and low interest rates. Emerging market debt performed well due to commodity price increases and better fiscal and monetary governance among a number of developing countries. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 4.08% over the year compared to 0.88% for the Lehman US Treasury Index. Investment Market Summary 7 FRANK RUSSELL INVESTMENT COMPANY grade corporate bonds also benefited from the same factors that drove the high yield market. For the fiscal year, the Lehman US Credit Index returned 0.65%. Despite increased regulatory scrutiny of the mortgage market, mortgage securities also continued to do well, slightly outperforming equivalent duration Treasuries. The Lehman MBS Fixed Rate Index returned 1.75%. As the fiscal year ended, the yield spreads between corporates and mortgages relative to Treasuries continued to be narrow, reflecting a healthy economy where corporations remained conservative in their use of debt. The narrow spread also reflected a large market demand for yield, as coupons across the globe remained very low. 8 Market Summary (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) EQUITY AGGRESSIVE STRATEGY FUND - CLASS E RUSSELL 1000 INDEX(R) ** MSCI EAFE *** -------------------------- ------------------------ ------------- Inception 10000.00 10000.00 10000.00 1997 9480.00 9676.00 9234.00 1998 10114.00 11583.00 10152.00 1999 12204.00 14547.00 12525.00 2000 13164.00 15864.00 12191.00 2001 10174.00 11734.00 9183.00 2002 8948.00 10020.00 7995.00 2003 11265.00 12256.00 10200.00 2004 12598.00 13400.00 12165.00 2005 14372.00 14803.00 14426.00
Equity Aggressive Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 7.58% 5 Years 0.92%sec. Inception* 4.05%sec.
Equity Aggressive Strategy Fund - Class C ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 13.29% 5 Years 1.01%sec. Inception* 3.93%sec.
Equity Aggressive Strategy Fund - Class D + - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 13.88% 5 Years 1.52%sec. Inception* 4.36%sec.
Equity Aggressive Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.08% 5 Years 1.77%sec. Inception* 4.59%sec.
Equity Aggressive Strategy Fund - Class S +++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.47% 5 Years 2.04%sec. Inception* 4.81%sec.
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. Inception* 4.88%sec.
MSCI EAFE Index*** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%sec. Inception* 4.64%sec.
10 Equity Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high long term capital appreciation. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Equity Aggressive Strategy Fund Class E, Class D, Class C, Class S and Class A Shares gained 14.08%, 13.88%, 13.29%, 14.47% and 14.09%, respectively. Class A Shares do not reflect deduction of initial sales charges. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. The Fund's 100% allocation to underlying equity mutual funds added to overall returns. Large capitalization U.S. equities participated in a rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. While the non-U.S. equity underlying fund slightly lagged its benchmark, the Fund's allocation to this asset class nevertheless added positively to overall returns. The Fund's small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, added to returns. The Fund's allocation to a real estate underlying fund, the third best performing asset class to which the Fund allocates assets, after emerging markets and non-U.S. equities, provided an additional boost to returns, as this underlying fund out performed its benchmark. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the underlying funds investing in equity securities was driven by strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds provided absolute returns; however, these underlying funds underperformed their benchmarks. The large capitalization U.S. equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors, combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager due to strong stock selection and exposure to smaller capitalization companies. In contrast, non-U.S. momentum- Equity Aggressive Strategy Fund 11 FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- style money managers struggled as the market rotated between styles. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Equity Aggressive Strategy Fund Class E commenced operations on September 30, 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. *** 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 included reinvestment of gross dividends before deduction of withholding taxes. + Equity Aggressive Strategy Fund Class E performance has been linked with Class D to provide historical perspective. From March 24, 1998 (commencement of sale) through the current period, Class D paid shareholder servicing and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++ Equity Aggressive Strategy Fund Class E and Class D performance has been linked with Class C to provide historical perspective. From February 11, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. +++ Equity Aggressive Strategy Fund Class E performance has been linked with Class S to provide historical perspective. From September 30, 1997 through January 31, 2000, performance results include shareholder service fees paid by Class E. # Equity Aggressive Strategy Fund Class E performance has been linked with Class A to provide historical perspective. From March 4, 2003 (commencement of sale) through the current period, Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 12 Equity Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,021.70 $ 1,023.95 Expenses Paid During Period* $ 1.27 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,080.50 $ 1,020.16 Expenses Paid During Period* $ 5.24 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,082.80 $ 1,022.68 Expenses Paid During Period* $ 2.62 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Equity Aggressive Strategy Fund 13 FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,083.40 $ 1,023.95 Expenses Paid During Period* $ 1.31 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,085.30 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 14 Equity Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY AGGRESSIVE STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 99.7% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Domestic Equities - 70.7% Diversified Equity Fund 6,515,719 289,624 Quantitative Equity Fund 7,586,638 290,416 Real Estate Securities Fund 1,508,273 70,934 Special Growth Fund 1,242,597 65,261 ------------ 716,235 ------------ International Equities - 29.0% Emerging Markets Fund 2,938,316 50,715 International Securities Fund 3,719,871 243,094 ------------ 293,809 ------------ TOTAL INVESTMENTS - 99.7% (identified cost $826,341) 1,010,044 OTHER ASSETS AND LIABILITIES, NET - 0.3% 2,879 ------------ NET ASSETS - 100.0% 1,012,923 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Domestic Equities 70.7 International Equities 29.0 --------------- Total Investments 99.7 Other Assets and Liabilities, Net 0.3 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Equity Aggressive Strategy Fund 15 FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) AGGRESSIVE STRATEGY RUSSELL 1000 LEHMAN BROTHERS FUND - CLASS E INDEX(R) *** MSCI EAFE ** AGGREGATE BOND **** ------------------- ------------ ------------ ------------------- Inception 10000.00 10000.00 10000.00 10000.00 1997 9750.00 9718.00 9234.00 10161.00 1998 10293.00 11634.00 10152.00 11109.00 1999 12027.00 14611.00 12525.00 11168.00 2000 12952.00 15934.00 12191.00 11984.00 2001 10828.00 11785.00 9183.00 13729.00 2002 9893.00 10064.00 7995.00 14537.00 2003 12159.00 12310.00 10200.00 15250.00 2004 13462.00 13459.00 12165.00 16093.00 2005 14996.00 14868.00 14426.00 16276.00
Aggressive Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 5.00% 5 Years 1.78%sec. Inception* 4.36%sec.
Aggressive Strategy Fund - Class C ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.70% 5 Years 2.23%sec. Inception* 4.44%sec.
Aggressive Strategy Fund - Class D + - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.22% 5 Years 2.73%sec. Inception* 4.88%sec.
Aggressive Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.40% 5 Years 2.97%sec. Inception* 5.11%sec.
Aggressive Strategy Fund - Class S +++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.83% 5 Years 3.26%sec. Inception* 5.32%sec.
MSCI EAFE Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%sec. Inception* 4.64%sec.
Russell 1000(R) Index*** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. Inception* 4.88%sec.
Lehman Brothers Aggregate Bond Index**** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%sec. Inception* 6.14%sec.
16 Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high long term capital appreciation with low current income. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the period ended October 31, 2005, the Aggressive Strategy Fund Class E, Class D, Class C, Class S and Class A Shares gained 11.40%, 11.22%, 10.70%, 11.83% and 11.44%, respectively. Class A Shares do not reflect deduction of initial sales charges. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. The Fund's 80% allocation to underlying equity mutual funds added to overall returns. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. An allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, an allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. In contrast, the Fund's 20% allocation to a fixed income underlying fund dampened overall returns. This underlying fixed income fund was affected by the volatility of its asset class, which suffered from rising interest rates and fears of an economic slowdown. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the underlying equity funds was driven by strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds provided absolute returns; however, these underlying funds underperformed their benchmarks. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. The Fund's allocation to a fixed income underlying fund dampened returns, especially relative to other fund of funds with higher allocations to equities. The fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning. The fixed income underlying fund provided positive returns and outperformed its benchmark. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions were positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors combined with very strong sell disciplines, which allowed them to take profits at opportune times. Aggressive Strategy Fund 17 FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager due to strong stock selection and exposure to smaller capitalization companies. In contrast, non-U.S. momentum-style money managers struggled, as the market rotated between styles. In the underlying fixed income fund, Pacific Investment Management Company, LLC and Delaware Management Company performed well, aided by non-index holdings and their forecast that European interest rates would fall further than U.S. interest rates. Morgan Stanley Investment Management Company, Inc. was rewarded for its duration strategies, which were put in place two years ago. Bear Stearns Asset Management, Inc. contributed modestly to returns by overweighting corporate bonds early in the fiscal period and taking profits as prices rose later in the fiscal period. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Aggressive Strategy Fund Class E commenced operations on September 16, 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 included reinvestment of gross dividends before deduction of withholding taxes. *** 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. **** 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. + Aggressive Strategy Fund Class E performance has been linked with Class D to provide historical perspective. From March 24, 1998 (commencement of sale) through the current period, Class D paid shareholder servicing and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++ Aggressive Strategy Fund Class E and Class D performance has been linked with Class C to provide historical perspective. From January 29, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. +++ Aggressive Strategy Fund Class E performance has been linked with Class S to provide historical perspective. From September 16, 1997 through February 1, 2000, performance results include shareholder service fees paid by Class E. # Aggressive Strategy Fund Class E performance has been linked with Class A to provide historical perspective. From March 10, 2003 (commencement of sale) through the current period, Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 18 Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,005.40 $ 1,023.95 Expenses Paid During Period* $ 1.26 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,063.70 $ 1,020.16 Expenses Paid During Period* $ 5.20 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,065.60 $ 1,022.68 Expenses Paid During Period* $ 2.60 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Aggressive Strategy Fund 19 FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,067.00 $ 1,023.95 Expenses Paid During Period* $ 1.30 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,068.90 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 20 Aggressive Strategy Fund FRANK RUSSELL INVESTMENT COMPANY AGGRESSIVE STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 99.8% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 20.1% Multistrategy Bond Fund 43,927,032 453,766 ------------ Domestic Equities - 56.8% Diversified Equity Fund 11,506,100 511,446 Quantitative Equity Fund 13,418,085 513,644 Real Estate Securities Fund 2,884,317 135,650 Special Growth Fund 2,296,724 120,624 ------------ 1,281,364 ------------ International Equities - 22.9% Emerging Markets Fund 5,241,196 90,463 International Securities Fund 6,530,129 426,744 ------------ 517,207 ------------ TOTAL INVESTMENTS - 99.8% (identified cost $1,964,959) 2,252,337 OTHER ASSETS AND LIABILITIES, NET - 0.2% 5,392 ------------ NET ASSETS - 100.0% 2,257,729 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 20.1 Domestic Equities 56.8 International Equities 22.9 --------------- Total Investments 99.8 Other Assets and Liabilities, Net 0.2 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Aggressive Strategy Fund 21 FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) BALANCED STRATEGY RUSSELL 1000 LEHMAN BROTHERS FUND - CLASS E INDEX(R)**** MSCI EAFE** AGGREGATE BOND*** ----------------- ------------ ----------- ----------------- Inception 10000 10000 10000 10000 1997 9870 9718 9234 10161 1998 10618 11634 10152 11109 1999 11868 14611 12525 11168 2000 12744 15934 12191 11984 2001 11650 11785 9183 13729 2002 11099 10064 7995 14537 2003 13097 12310 10200 15250 2004 14347 13459 12165 16093 2005 15805 14868 14426 16276
Balanced Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 2.65% 5 Years 2.93%sec. Inception* 4.88%sec.
Balanced Strategy Fund - Class C ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 7.96% 5 Years 3.37%sec. Inception* 4.96%sec.
Balanced Strategy Fund - Class D + - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.61% 5 Years 3.89%sec. Inception* 5.42%sec.
Balanced Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.77% 5 Years 4.13%sec. Inception* 5.63%sec.
Balanced Strategy Fund - Class S +++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 9.10% 5 Years 4.40%sec. Inception* 5.83%sec.
MSCI EAFE Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%sec. Inception* 4.64%sec.
Lehman Brothers Aggregate Bond Index*** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%sec. Inception* 6.14%sec.
Russell 1000(R) Index**** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. Inception* 4.88%sec.
22 Balanced Strategy Fund FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide above average capital appreciation and a moderate level of current income. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Balanced Strategy Fund Class E, Class D, Class C, Class S and Class A Shares gained 8.77%, 8.61%, 7.96%, 9.10% and 8.91% respectively. Class A Shares do not reflect deduction of initial sales charges. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.13% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. The Fund's 60% allocation to underlying equity mutual funds added to overall returns. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, a small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. In contrast, the Fund's 40% allocation to fixed income underlying funds dampened overall returns. These underlying fixed income funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the underlying equity funds was driven by the strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds provided positive absolute returns; however, these underlying funds underperformed their benchmarks. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. The Fund's allocation to fixed income underlying funds dampened returns, especially relative to other fund of funds with higher allocations to equities. The fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns and had mixed results relative to their benchmark. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Balanced Strategy Fund 23 FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager due to strong stock selection and exposure to smaller capitalization companies. In contrast, non-U.S. momentum-style money managers struggled, as the market rotated between styles. In the underlying fixed income funds, Pacific Investment Management Company, LLC (PIMCO) and Delaware Management Company performed well, aided by non-index holdings and their forecast that European interest rates would fall further than U.S. interest rates. Morgan Stanley Investment Management Company, Inc. was rewarded for its duration strategies, which were put in place two years ago. Bear Stearns Asset Management, Inc. contributed modestly to returns by overweighting corporate bonds early in the fiscal period and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Balanced Strategy Fund Class E commenced operations on September 16, 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 included reinvestment of gross dividends before deduction of withholding taxes. *** 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. **** 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. + Balanced Strategy Fund Class E performance has been linked with Class D to provide historical perspective. From March 24, 1998 (commencement of sale) through the current period, Class D paid shareholder servicing and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++ Balanced Strategy Fund Class E and Class D performance has been linked with Class C to provide historical perspective. From January 29, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. +++ Balanced Strategy Fund Class E performance has been linked with Class S to provide historical perspective. From September 16, 1997 through January 31, 2000, performance results include shareholder service fees paid by Class E. # Balanced Strategy Fund Class E performance has been linked with Class A to provide historical perspective. From March 4, 2003 (commencement of sale) through the current period, Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 24 Balanced Strategy Fund FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 990.10 $ 1,023.95 Expenses Paid During Period* $ 1.25 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,045.70 $ 1,020.16 Expenses Paid During Period* $ 5.16 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,049.80 $ 1,022.68 Expenses Paid During Period* $ 2.58 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Balanced Strategy Fund 25 FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,050.10 $ 1,023.95 Expenses Paid During Period* $ 1.29 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,051.20 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 26 Balanced Strategy Fund FRANK RUSSELL INVESTMENT COMPANY BALANCED STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 99.8% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 40.0% Diversified Bond Fund 29,725,299 692,005 Multistrategy Bond Fund 67,377,585 696,010 ------------ 1,388,015 ------------ Domestic Equities - 40.9% Diversified Equity Fund 12,342,074 548,605 Quantitative Equity Fund 14,365,317 549,904 Real Estate Securities Fund 3,705,581 174,274 Special Growth Fund 2,844,739 149,406 ------------ 1,422,189 ------------ International Equities - 18.9% Emerging Markets Fund 6,060,314 104,601 International Securities Fund 8,456,042 552,602 ------------ 657,203 ------------ TOTAL INVESTMENTS - 99.8% (identified cost $3,065,279) 3,467,407 OTHER ASSETS AND LIABILITIES, NET - 0.2% 7,747 ------------ NET ASSETS - 100.0% 3,475,154 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 40.0 Domestic Equities 40.9 International Equities 18.9 --------------- Total Investments 99.8 Other Assets and Liabilities, Net 0.2 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Balanced Strategy Fund 27 FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) MODERATE STRATEGY RUSSELL 1000(R) MERRILL LYNCH 1-2.99 LEHMAN BROTHERS FUND - CLASS E INDEX** YEAR TREASURY**** AGGREGATE BOND*** ----------------- --------------- -------------------- ----------------- Inception 10000 10000 10000 10000 1997 9810 9553 10060 10094 1998 10585 11437 10835 11036 1999 11478 14363 11159 11095 2000 12300 15664 11837 11905 2001 12030 11585 13119 13638 2002 11883 9893 13761 14441 2003 13332 12101 14038 15150 2004 14245 13230 14281 15987 2005 15031 14615 14376 16169
Moderate Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (0.61)% 5 Years 2.88%sec. Inception* 4.41%sec.
Moderate Strategy Fund - Class C ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 4.78% 5 Years 3.32%sec. Inception* 4.51%sec.
Moderate Strategy Fund - Class D + - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 5.25% 5 Years 3.83%sec. Inception* 4.93%sec.
Moderate Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 5.52% 5 Years 4.09%sec. Inception* 5.17%sec.
Moderate Strategy Fund - Class S +++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 5.76% 5 Years 4.34%sec. Inception* 5.34%sec.
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. Inception* 4.88%sec.
Lehman Brothers Aggregate Bond Index*** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%sec. Inception* 6.14%sec.
Merrill Lynch 1-2.99 Years Treasury Index**** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.67% 5 Years 3.96%sec. Inception* 4.60%sec.
28 Moderate Strategy Fund FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high current income and moderate long term capital appreciation. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Moderate Strategy Fund Class E, Class D, Class C, Class S and Class A Shares gained 5.52%, 5.25%, 4.78%, 5.76% and 5.44%, respectively. Class A Shares do not reflect deduction of initial sales charges. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 0.67% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. The Fund's 60% allocation to fixed income underlying funds dampened overall returns. These underlying funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. The Fund's 40% allocation to large and small capitalization U.S. stocks contributed positively to Fund performance. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's allocation to fixed income underlying funds slightly dampened returns, especially relative to other funds of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond money managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns but underperformed their benchmark. Performance of the underlying equity funds was driven by strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed and real estate markets. The U.S. large capitalization and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds also provided strong absolute returns; however, these underlying funds underperformed their benchmarks. In the large capitalization U.S. equity underlying funds benefited from a return to favor of companies with above average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. Managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In both the short duration and fixed income underlying funds, Pacific Investment Management Company, LLC (PIMCO) performed well, aided by its non-index holdings. In short duration bonds, these non-index holdings included emerging market debt and mortgage-backed securities; in fixed income bonds PIMCO capitalized on its forecast that European interest rates would fall further than U.S. interest rates. In the underlying short duration bond fund, Merganser Capital Management, L.P. added to returns through allocations to non-Treasury sectors. STW Fixed Income Management added modest value, yet lagged peers by not investing in the better-performing mortgages, non-dollar and high yield strategies. In fixed income bonds, Bear Stearns Asset Management, Inc. contributed to returns by initially overweighting corporate bonds and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and Moderate Strategy Fund 29 FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Moderate Strategy Fund Class E commenced operations on October 2, 1997. ** Russell 1000(R) Index includes the 1,000 largest companies in the Russell 3000(R) Index. The Russell 1000(R) Index represents the universe of stocks from which most active money managers typically select. The Russell 1000(R) Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates. *** 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. **** Merrill Lynch 1-2.99 Year Treasury Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. + Moderate Strategy Fund Class E performance has been linked with Class D to provide historical perspective. From March 24, 1998 (commencement of sale) through the current period, Class D paid shareholder servicing and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++ Moderate Strategy Fund Class E and Class D performance has been linked with Class C to provide historical perspective. From February 11, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. +++ Moderate Strategy Fund Class E performance has been linked with Class S to provide historical perspective. From October 2, 1997 through February 1, 2000, performance results include shareholder service fees paid by Class E. # Moderate Strategy Fund Class E performance has been linked with Class A to provide historical perspective. From March 5, 2003 (commencement of sale) through the current period, Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 30 Moderate Strategy Fund FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 974.10 $ 1,023.95 Expenses Paid During Period* $ 1.24 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,029.40 $ 1,020.16 Expenses Paid During Period* $ 5.12 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,030.70 $ 1,022.68 Expenses Paid During Period* $ 2.56 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Moderate Strategy Fund 31 FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,033.00 $ 1,023.95 Expenses Paid During Period* $ 1.28 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,033.20 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 32 Moderate Strategy Fund FRANK RUSSELL INVESTMENT COMPANY MODERATE STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 99.9% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 59.6% Diversified Bond Fund 10,296,875 239,711 Short Duration Bond Fund 15,616,391 291,558 ------------ 531,269 ------------ Domestic Equities - 29.3% Diversified Equity Fund 2,201,955 97,877 Quantitative Equity Fund 2,564,997 98,188 Real Estate Securities Fund 769,586 36,194 Special Growth Fund 557,736 29,292 ------------ 261,551 ------------ International Equities - 11.0% International Securities Fund 1,500,289 98,044 ------------ TOTAL INVESTMENTS - 99.9% (identified cost $820,396) 890,864 OTHER ASSETS AND LIABILITIES, NET - 0.1% 996 ------------ NET ASSETS - 100.0% 891,860 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 59.6 Domestic Equities 29.3 International Equities 11.0 --------------- Total Investments 99.9 Other Assets and Liabilities, Net 0.1 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Moderate Strategy Fund 33 FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (PERFORMANCE LINE GRAPH)
LIFEPOINTS(R) CONSERVATIVE MERRILL LYNCH 1-2.99 YEAR LEHMAN BROTHERS STRATEGY FUND - CLASS E TREASURY** AGGREGATE BOND*** -------------------------- ------------------------- ----------------- Inception 10000 10000 10000 1998 10686 10774 10947 1999 11256 11097 11006 2000 12032 11770 11809 2001 12539 13045 13529 2002 12763 13684 14325 2003 13699 13959 15028 2004 14326 14200 15859 2005 14728 14295 16039
Conservative Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (3.17)% 5 Year 2.89%sec. Inception* 4.19%sec.
Conservative Strategy Fund - Class C ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.99% 5 Year 3.36%sec. Inception* 4.28%sec.
Conservative Strategy Fund - Class D + - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 2.55% 5 Year 3.90%sec. Inception* 4.72%sec.
Conservative Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 2.81% 5 Year 4.13%sec. Inception* 4.97%sec.
Conservative Strategy Fund - Class S +++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 3.06% 5 Year 4.39%sec. Inception* 5.17%sec.
Merrill Lynch 1-2.99 Years Treasury Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.67% 5 Year 3.96%sec. Inception* 4.56%sec.
Lehman Brothers Aggregate Bond Index*** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Year 6.31%sec. Inception* 6.07%sec.
34 Conservative Strategy Fund FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide high current income and low long term capital appreciation. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Conservative Strategy Fund Class E, Class D, Class C and Class S Shares gained 2.81%, 2.55%, 1.99%, 3.06% and 2.74%, respectively. Class A Shares do not reflect deduction of initial sales charges. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 0.67% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. The Fund performed well relative to its asset classes, yet its large allocation to fixed income underlying funds, including a short-duration underlying fund, held returns low relative to funds with higher allocations to equity underlying funds. The fixed income underlying funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. The Fund's 20% allocation to underlying equity mutual funds, however, supported returns. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's allocation to fixed income underlying funds slightly dampened returns, especially relative to other funds of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond money managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns but underperformed their benchmark. Performance of the underlying equity funds was driven by strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed and real estate markets. The U.S. large capitalization and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The non U.S. underlying fund provided strong absolute returns; however, this underlying fund underperformed its benchmark. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In both the short duration and fixed income underlying funds, Pacific Investment Management Company, LLC (PIMCO) performed well, aided by its non-index holdings. In short duration bonds, these non-index holdings included emerging market debt and mortgage-backed securities. In fixed income bonds, PIMCO capitalized on its forecast that European interest rates would fall further than U.S. interest rates. In the underlying short duration bond fund, Merganser Capital Management, L.P. added to returns through allocations to non-Treasury sectors. STW Fixed Income Management added modest value, yet lagged peers by not investing in the better-performing mortgages, non-dollar and high yield strategies. In fixed income bonds, Bear Stearns Asset Management, Inc. contributed to returns by initially overweighting corporate bonds and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. In the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Conservative Strategy Fund 35 FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Conservative Strategy Fund Class E commenced operations on November 7, 1997. ** Merrill Lynch 1-2.99 Year Treasury Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. *** 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. + Conservative Strategy Fund Class E performance has been linked with Class D to provide historical perspective. From March 24, 1998 (commencement of sale) through the current period, Class D paid shareholder servicing and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++ Conservative Strategy Fund Class E and Class D performance has been linked with Class C to provide historical perspective. From February 11, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. +++ Conservative Strategy Fund Class E performance has been linked with Class S to provide historical perspective. From November 7, 1997 through February 14, 2000, performance results include shareholder service fees paid by Class E. # Conservative Strategy Fund Class E performance has been linked with Class A to provide historical perspective. From March 3, 2003 (commencement of sale) through the current period, Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 36 Conservative Strategy Fund FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 957.80 $ 1,023.95 Expenses Paid During Period* $ 1.23 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,012.70 $ 1,020.16 Expenses Paid During Period* $ 5.07 $ 5.09
* Expenses are equal to the Fund's annualized expense ratio of 1.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,015.10 $ 1,022.68 Expenses Paid During Period* $ 2.54 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Conservative Strategy Fund 37 FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,017.30 $ 1,023.95 Expenses Paid During Period* $ 1.27 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,018.50 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 38 Conservative Strategy Fund FRANK RUSSELL INVESTMENT COMPANY CONSERVATIVE STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 99.7% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 79.7% Diversified Bond Fund 4,912,270 114,357 Short Duration Bond Fund 16,061,903 299,876 ------------ 414,233 ------------ Domestic Equities - 17.0% Diversified Equity Fund 814,516 36,205 Quantitative Equity Fund 948,220 36,298 Real Estate Securities Fund 335,476 15,778 ------------ 88,281 ------------ International Equities - 3.0% International Securities Fund 238,830 15,607 ------------ TOTAL INVESTMENTS - 99.7% (identified cost $493,025) 518,121 OTHER ASSETS AND LIABILITIES, NET - 0.3% 1,341 ------------ NET ASSETS - 100.0% 519,462 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 79.7 Domestic Equities 17.0 International Equities 3.0 --------------- Total Investments 99.7 Other Assets and Liabilities, Net 0.3 --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. Conservative Strategy Fund 39 FRANK RUSSELL INVESTMENT COMPANY 2010 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) 2010 STRATEGY FUND - LEHMAN BROTHERS AGGREGATE BOND CLASS E ** ---------------------------------- ------------------------------ Inception* 10000.00 10000.00 2005 10196.00 10102.00
2010 Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* (4.61)%
2010 Strategy Fund - Class D - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 1.79%
2010 Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 1.96%
2010 Strategy Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.25%
Lehman Brothers Aggregate Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 1.02%
40 2010 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2010 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide capital growth and income consistent with its current asset allocation which will change over time, with an increasing allocation to fixed income funds. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the period January 1, 2005 to October 31, 2005, the 2010 Strategy Fund Class E, Class D and Class S Shares gained 1.96%, 1.79% and 2.25%, respectively. Class E, Class D and Class S Shares commenced operation on January 1, 2005. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.02% during the same period. For the period September 1, 2005 to October 31, 2005 the 2010 Strategy Fund Class A Shares lost 1.01%. Class A Shares do not reflect deduction of initial sales charges. Class A Shares commenced operation on September 1, 2005. This compared to the Lehman Brothers Aggregate Bond Index, which lost 1.81% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. A greater-than-50% allocation to both short-duration and fixed income underlying funds dampened the Fund's overall returns in the fiscal year. These underlying fixed income funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. The Fund's greater-than-40% allocation to underlying equity funds supported performance. Within the equity component, 32% was allocated to U.S. large, medium and small capitalization underlying funds and real estate underlying funds, while 13% was allocated to non-U.S. and emerging market underlying funds. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, a small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's allocation to fixed income underlying funds slightly dampened returns, especially relative to other funds of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond money managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns and had mixed results relative to their benchmark. Performance of the underlying equity funds was driven by the strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds also provided positive absolute returns; however, these underlying funds underperformed their benchmarks. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In both the short duration and fixed income underlying funds, Pacific Investment Management Company, LLC (PIMCO) performed well, aided by its non-index holdings. In short duration bonds, these non-index holdings included emerging market debt and mortgage-backed securities. In fixed income bonds, PIMCO capitalized on its forecast that European interest rates would fall further than U.S. interest rates. In the 2010 Strategy Fund 41 FRANK RUSSELL INVESTMENT COMPANY 2010 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- underlying short duration bond fund, Merganser Capital Management, L.P. added to returns through allocations to non-Treasury sectors. STW Fixed Income Management added modest value, yet lagged peers by not investing in the better-performing mortgages, non-dollar and high yield strategies. In fixed income bonds, Bear Stearns Asset Management, Inc. contributed to returns by initially overweighting corporate bonds and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors, combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund commenced operations on January 1, 2005. ** 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. # 2010 Strategy Fund Class E performance has been linked with Class A to provide historical perspective. Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 42 2010 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2010 STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for Class D, Class E and Class S is from May 1, 2005 to October 31, 2005. Class A is based on a time period from September 1, 2005 (date of inception) to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value September 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 933.20 $ 1,007.94 Expenses Paid During Period* $ 0.41 $ 0.42
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 61/365 (to reflect the period since inception). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,035.20 $ 1,022.68 Expenses Paid During Period* $ 2.56 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,036.30 $ 1,023.95 Expenses Paid During Period* $ 1.28 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,038.70 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 2010 Strategy Fund 43 FRANK RUSSELL INVESTMENT COMPANY 2010 STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 100.1% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 54.9% Diversified Bond Fund 52,037 1,211 Multistrategy Bond Fund 23,230 240 Short Duration Bond Fund 63,453 1,185 ------------ 2,636 ------------ Domestic Equities - 32.3% Diversified Equity Fund 13,285 591 Quantitative Equity Fund 15,475 592 Real Estate Securities Fund 4,433 209 Special Growth Fund 2,994 157 ------------ 1,549 ------------ International Equities - 12.9% Emerging Markets Fund 2,094 36 International Securities Fund 8,952 585 ------------ 621 ------------ TOTAL INVESTMENTS - 100.1% (identified cost $4,799) 4,806 OTHER ASSETS AND LIABILITIES, NET - (0.1%) (5) ------------ NET ASSETS - 100.0% 4,801 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 54.9 Domestic Equities 32.3 International Equities 12.9 --------------- Total Investments 100.1 Other Assets and Liabilities, Net (0.1) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 44 2010 Strategy Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY 2020 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) 2040 STRATEGY FUND - LEHMAN BROTHERS AGGREGATE BOND CLASS E ** ---------------------------------- ------------------------------ Inception* 10000.00 10000.00 2005 10252.00 10102.00
2020 Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* (3.98)%
2020 Strategy Fund - Class D - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.23%
2020 Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.52%
2020 Strategy Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.71%
Lehman Brothers Aggregate Bond Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 1.02%
46 2020 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2020 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide capital growth and income consistent with its current asset allocation which will change over time, with an increasing allocation to fixed income funds. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the period January 1, 2005 to October 31, 2005, the 2020 Strategy Fund Class E, Class D and Class S Shares gained 2.52%, 2.23% and 2.71%, respectively. Class E, Class D and Class S Shares commenced operation on January 1, 2005. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.02% during the same period. For the period September 1, 2005 to October 31, 2005 the 2020 Strategy Fund Class A Shares lost 1.02%. Class A Shares do not reflect deduction of initial sales charges. Class A Shares commenced operation on September 1, 2005. This compared to the Lehman Brothers Aggregate Bond Index, which lost 1.81% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. A 45% allocation to both short-duration and fixed income underlying funds dampened the Fund's overall returns in the fiscal year. These underlying fixed income funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. The Fund's 55% allocation to underlying equity funds supported performance. Within the equity component, 38% was allocated to U.S. large, medium and small capitalization underlying funds and real estate underlying funds, while 17% was allocated to non-U.S. and emerging market underlying funds. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, a small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's allocation to fixed income underlying funds slightly dampened returns, especially relative to other funds of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond money managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns and had mixed results relative to their benchmark. Performance of the underlying equity funds was driven by the strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds also provided positive absolute returns; however, these underlying funds underperformed their benchmarks. The large capitalization U.S. equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In both the short duration and fixed income underlying funds, Pacific Investment Management Company, LLC (PIMCO) performed well, aided by its non-index holdings. In short duration bonds, these non-index holdings included emerging market debt and mortgage-backed securities. In fixed income bonds, PIMCO capitalized on its forecast that European interest rates would fall further than U.S. interest rates. In the underlying short duration bond fund, Merganser Capital Management, L.P. added to returns through allocations to non-Treasury sectors. STW Fixed Income Management added 2020 Strategy Fund 47 FRANK RUSSELL INVESTMENT COMPANY 2020 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- modest value, yet lagged peers by not investing in the better-performing mortgages, non-dollar and high yield strategies. In fixed income bonds, Bear Stearns Asset Management, Inc. contributed to returns by initially overweighting corporate bonds and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. In one of the large capitalization U.S. equity underlying fund, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors, combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund commenced operations on January 1, 2005. ** 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. # 2020 Strategy Fund Class E performance has been linked with Class A to provide historical perspective. Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 48 2020 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2020 STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for Class D, Class E and Class S is from May 1, 2005 to October 31, 2005. Class A is based on a time period from September 1, 2005 (date of inception) to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value September 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 932.70 $ 1,007.94 Expenses Paid During Period* $ 0.41 $ 0.42
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 61/365 (to reflect the period since inception). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,043.50 $ 1,022.68 Expenses Paid During Period* $ 2.58 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,045.70 $ 1,023.95 Expenses Paid During Period* $ 1.29 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,047.00 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 2020 Strategy Fund 49 FRANK RUSSELL INVESTMENT COMPANY 2020 STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 100.1% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 45.1% Diversified Bond Fund 43,021 1,001 Multistrategy Bond Fund 66,876 691 Short Duration Bond Fund 20,293 379 ------------ 2,071 ------------ Domestic Equities - 38.0% Diversified Equity Fund 15,183 675 Quantitative Equity Fund 17,647 676 Real Estate Securities Fund 4,688 220 Special Growth Fund 3,281 172 ------------ 1,743 ------------ International Equities - 17.0% Emerging Markets Fund 6,010 104 International Securities Fund 10,307 674 ------------ 778 ------------ TOTAL INVESTMENTS - 100.1% (identified cost $4,549) 4,592 OTHER ASSETS AND LIABILITIES, NET - (0.1%) (5) ------------ NET ASSETS - 100.0% 4,587 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 45.1 Domestic Equities 38.0 International Equities 17.0 --------------- Total Investments 100.1 Other Assets and Liabilities, Net (0.1) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 50 2020 Strategy Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY 2030 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) 2030 STRATEGY FUND - CLASS E RUSSELL 1000(R) INDEX ** ---------------------------------- ------------------------ Inception* 10000.00 10000.00 2005 10296.00 10223.00
2030 Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* (3.60)%
2030 Strategy Fund - Class D - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.69%
2030 Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.96%
2030 Strategy Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 3.15%
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.23%
52 2030 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2030 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide capital growth and income consistent with its current asset allocation which will change over time, with an increasing allocation to fixed income funds. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the period January 1, 2005 to October 31, 2005, the 2030 Strategy Fund Class E, Class D and Class S Shares gained 2.96%, 2.69% and 3.15%, respectively. Class E, Class D and Class S Shares commenced operation on January 1, 2005. This compared to the Russell 1000(R) Index, which gained 2.23% during the same period. For the period September 1, 2005 to October 31, 2005 the 2030 Strategy Fund Class A Shares lost 1.01%. Class A Shares do not reflect deduction of initial sales charges. Class A Shares commenced operation on September 1, 2005. This compared to the Russell 1000(R) Index, which lost 0.84% during that same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. A 64% allocation to underlying equity funds supported the Fund's performance in the fiscal year. Within the equity component, just over 44% was allocated to U.S. large, medium and small capitalization underlying funds and real estate underlying funds, while almost 20% was allocated to non-U.S. and emerging markets underlying funds. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, a small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. In contrast, the Fund's 36% allocation to fixed income underlying funds dampened overall returns. These underlying fixed income funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the underlying equity funds was driven by the strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds provided positive absolute returns; however, these underlying funds underperformed their benchmarks. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. The Fund's allocation to fixed income underlying funds dampened returns, especially relative to other fund of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns and had mixed results relative to their benchmark. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. 2030 Strategy Fund 53 FRANK RUSSELL INVESTMENT COMPANY 2030 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Market-oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors, combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager due to strong stock selection and exposure to smaller capitalization companies. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. In the underlying fixed income funds, Pacific Investment Management Company, LLC and Delaware Management Company performed well, aided by non-index holdings and their forecast that European interest rates would fall further than U.S. interest rates. Morgan Stanley Investment Management Company, Inc. was rewarded for its duration strategies, which were put in place two years ago. Bear Stearns Asset Management, Inc. contributed modestly to returns by overweighting corporate bonds early in the fiscal period and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund of fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund commenced operations on January 1, 2005. ** 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. # 2030 Strategy Fund Class E performance has been linked with Class A to provide historical perspective. Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 54 2030 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2030 STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for Class D, Class E and Class S is from May 1, 2005 to October 31, 2005. Class A is based on a time period from September 1, 2005 (date of inception) to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value September 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 933.00 $ 1,007.94 Expenses Paid During Period* $ 0.41 $ 0.42
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 61/365 (to reflect the period since inception). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,051.90 $ 1,022.68 Expenses Paid During Period* $ 2.59 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,054.00 $ 1,023.95 Expenses Paid During Period* $ 1.29 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,055.30 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 2030 Strategy Fund 55 FRANK RUSSELL INVESTMENT COMPANY 2030 STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 100.1% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 36.1% Diversified Bond Fund 30,979 721 Multistrategy Bond Fund 87,286 902 ------------ 1,623 ------------ Domestic Equities - 44.3% Diversified Equity Fund 17,614 783 Quantitative Equity Fund 20,520 785 Real Estate Securities Fund 5,062 238 Special Growth Fund 3,609 190 ------------ 1,996 ------------ International Equities - 19.7% Emerging Markets Fund 8,387 145 International Securities Fund 11,372 743 ------------ 888 ------------ TOTAL INVESTMENTS - 100.1% (identified cost $4,461) 4,507 OTHER ASSETS AND LIABILITIES, NET - (0.1%) (5) ------------ NET ASSETS - 100.0% 4,502 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 36.1 Domestic Equities 44.3 International Equities 19.7 --------------- Total Investments 100.1 Other Assets and Liabilities, Net (0.1) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 56 2030 Strategy Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY 2040 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- [PERFORMANCE LINE GRAPH]
LIFEPOINTS(R) 2040 STRATEGY FUND - CLASS E RUSSELL 1000(R) INDEX ** ---------------------------------- ------------------------ Inception* 10000.00 10000.00 2005 10320.00 10223.00
2040 Strategy Fund - Class A # - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* (3.33)%
2040 Strategy Fund - Class D - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 3.03%
2040 Strategy Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 3.20%
2040 Strategy Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 3.39%
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- Inception* 2.23%
58 2040 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2040 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide capital growth and income consistent with its current asset allocation which will change over time, with an increasing allocation to fixed income funds. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the period January 1, 2005 to October 31, 2005, the 2040 Strategy Fund Class E, Class D and Class S Shares gained 3.20%, 3.03% and 3.39%, respectively. Class E, Class D and Class S Shares commenced operation on January 1, 2005. This compared to the Russell 1000(R) Index, which gained 2.23% during the same period. For the period September 1, 2005 to October 31, 2005 the 2040 Strategy Fund Class A Shares lost 0.95%. Class A Shares do not reflect deduction of initial sales charges. Class A Shares commenced operation on September 1, 2005. This compared to the Russell 1000(R) Index, which lost 0.84% during that same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The Fund is a fund of funds and its performance is based on the performance of the underlying mutual funds in which it invests. A 72% allocation to underlying equity funds supported the Fund's performance in the fiscal year. Within the equity component, over 50% was allocated to U.S. large, medium and small capitalization underlying funds and real estate underlying funds, while just over 21% was allocated to non-U.S. and emerging markets underlying funds. Large capitalization U.S. equities participated in the rising market that favored the energy sector and companies with above-average forecasted growth and lower dividend yields. Value stocks continued to lead the small capitalization U.S. equity market. Small capitalization U.S. stocks outperformed large capitalization U.S. stocks. A small allocation to an underlying fund investing in the strong real estate market provided further support to the Fund's performance. The underlying non-U.S. equity fund slightly lagged its benchmark. Nevertheless, the Fund's allocation to this asset class added positively to overall returns. Finally, a small allocation to an emerging markets underlying fund, the best performing asset class to which the Fund allocated assets, also boosted the Fund's performance. In contrast, the Fund's 28% allocation to fixed income underlying funds dampened overall returns. These underlying fixed income funds were affected by the volatility of their asset class, which suffered from rising interest rates and fears of an economic slowdown. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Performance of the underlying equity funds was driven by the strong returns in the U.S. equity, both small and large capitalization stocks, non-U.S. developed, real estate and emerging markets. The U.S. large capitalization, emerging markets and real estate underlying funds each provided positive absolute returns and outperformed their benchmarks. The U.S. small and medium capitalization and non-U.S. underlying funds also provided positive absolute returns; however, these underlying funds underperformed their benchmarks. The U.S. large capitalization equity underlying funds benefited from a return to favor of companies with above-average forecasted growth and lower dividend yields. In addition, exposure to energy stocks and strong stock selection across most sectors boosted the large capitalization segment of the Fund's U.S. equity component. The real estate underlying fund outperformed its benchmark through its focus on sectors that benefited from steady supply and demand. The underlying emerging markets fund performed well through strong country and stock selection, where the money managers capitalized on the strong rallies in energy and other commodity-related stocks. Money managers in the small and medium capitalization U.S. equity underlying fund underperformed the benchmark due mostly to unrewarded stock selections. The Fund's allocation to fixed income underlying funds also dampened returns, especially relative to other fund of funds with higher allocations to equities. Fixed income money managers held their performance steady through exposure to non-Treasury investments and short duration positioning; however, the core bond managers detracted from returns with poor interest rate forecasting. The fixed income underlying funds provided positive absolute returns and had mixed results relative to their benchmark. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? In one of the large capitalization U.S. equity underlying funds, growth money managers Turner Investment Partners, Inc. and Marsico Capital Management, LLC posted strong returns by focusing on companies with above-average growth rates. Value money managers, particularly Institutional Capital Corporation, fully participated in the energy stock rally and added value through emphasizing companies with stable earnings. Market- 2040 Strategy Fund 59 FRANK RUSSELL INVESTMENT COMPANY 2040 STRATEGY FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- oriented money managers outpaced their benchmark by emphasizing positive price momentum and companies with positive earnings. In the other large capitalization equity underlying fund, the money managers' focus on positive price momentum and positive earnings surprises and revisions was positively rewarded by the market. This focus and strong stock selection contributed positively to this underlying fund's performance. Money managers in the underlying real estate fund added to returns through stock selection in the office, regional malls and shopping sectors. Money managers in the underlying emerging markets fund benefited from exposure to the leading sectors, combined with very strong sell disciplines, which allowed them to take profits at opportune times. Money managers in the small and medium capitalization underlying fund struggled with stock selection and low exposure to the few sectors that drove returns. Value money managers in the non-U.S. underlying fund generally performed better than growth money managers, though aggressive growth manager Axiom International Investors, LLC was the non-U.S. underlying fund's strongest manager due to strong stock selection and exposure to smaller capitalization companies. In contrast, non-U.S. momentum-style money managers struggled as the market rotated between styles. In the underlying fixed income funds, Pacific Investment Management Company, LLC (PIMCO) and Delaware Management Company performed well, aided by non-index holdings and their forecast that European interest rates would fall further than U.S. interest rates. Morgan Stanley Investment Management Company, Inc. was rewarded for its duration strategies, which were put in place two years ago. Bear Stearns Asset Management, Inc. contributed modestly to returns by overweighting corporate bonds early in the fiscal period and taking profits as prices rose later in the fiscal period. In contrast, Western Asset Management Company detracted from returns with its yield curve positioning. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR ALLOCATION TO THE UNDERLYING FUNDS. No changes were made in structure or underlying fund allocations at the fund-of-fund level. The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund commenced operations on January 1, 2005. ** 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. # 2040 Strategy Fund Class E performance has been linked with Class A to provide historical perspective. Class A Shares reflect deduction of initial sales charges. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 60 2040 Strategy Fund FRANK RUSSELL INVESTMENT COMPANY 2040 STRATEGY FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for Class D, Class E and Class S is from May 1, 2005 to October 31, 2005. Class A is based on a time period from September 1, 2005 (date of inception) to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value September 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 933.70 $ 1,007.94 Expenses Paid During Period* $ 0.41 $ 0.42
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 61/365 (to reflect the period since inception). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS D PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,059.20 $ 1,022.68 Expenses Paid During Period* $ 2.60 $ 2.55
* Expenses are equal to the Fund's annualized expense ratio of 0.50% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,060.30 $ 1,023.95 Expenses Paid During Period* $ 1.30 $ 1.28
* Expenses are equal to the Fund's annualized expense ratio of 0.25% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,061.70 $ 1,025.21 Expenses Paid During Period* $ 0.00 $ 0.00
* Expenses are equal to the Fund's annualized expense ratio of 0.00% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. 2040 Strategy Fund 61 FRANK RUSSELL INVESTMENT COMPANY 2040 STRATEGY FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- INVESTMENTS - 100.1% Other Frank Russell Investment Company Series Mutual Funds - Class S Shares Bonds - 28.1% Diversified Bond Fund 16,390 381 Multistrategy Bond Fund 92,358 954 ------------ 1,335 ------------ Domestic Equities - 50.7% Diversified Equity Fund 21,592 960 Quantitative Equity Fund 25,143 963 Real Estate Securities Fund 5,751 270 Special Growth Fund 4,178 219 ------------ 2,412 ------------ International Equities - 21.3% Emerging Markets Fund 9,982 172 International Securities Fund 12,907 844 ------------ 1,016 ------------ TOTAL INVESTMENTS - 100.1% (identified cost $4,703) 4,763 OTHER ASSETS AND LIABILITIES, NET - (0.1%) (4) ------------ NET ASSETS - 100.0% 4,759 ============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Bonds 28.1 Domestic Equities 50.7 International Equities 21.3 --------------- Total Investments 100.1 Other Assets and Liabilities, Net (0.1) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 62 2040 Strategy Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005
EQUITY AGGRESSIVE AGGRESSIVE STRATEGY BALANCED STRATEGY MODERATE STRATEGY AMOUNTS IN THOUSANDS STRATEGY FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at identified cost $ 826,341 $ 1,964,959 $ 3,065,279 $ 820,396 - --------------------------------------------------------------------------------------------------------------------------------- Investments, at market 1,010,044 2,252,337 3,467,407 890,864 Receivables: Investments sold -- -- -- -- Fund shares sold 4,742 9,472 13,845 2,538 From adviser 146 303 484 135 Prepaid expenses 9 25 23 4 ------------------- ------------------- ------------------- -------------------- Total assets 1,014,941 2,262,137 3,481,759 893,541 ------------------- ------------------- ------------------- -------------------- LIABILITIES Payables: Due to adviser -- -- -- -- Investments purchased 558 2,012 1,566 26 Fund shares redeemed 978 1,397 3,472 1,257 Accrued fees to affiliates 452 953 1,502 370 Other accrued expenses 30 46 65 28 ------------------- ------------------- ------------------- -------------------- Total liabilities 2,018 4,408 6,605 1,681 ------------------- ------------------- ------------------- -------------------- NET ASSETS $ 1,012,923 $ 2,257,729 $ 3,475,154 $ 891,860 =================== =================== =================== ==================== Net Assets Consist of: Accumulated net realized gain (loss) $ (47,079) $ (18,260) $ (39,200) $ (5,273) Unrealized appreciation (depreciation) on investments 183,703 287,378 402,128 70,468 Shares of beneficial interest 972 2,070 3,162 824 Additional paid-in capital 875,327 1,986,541 3,109,064 825,841 ------------------- ------------------- ------------------- -------------------- NET ASSETS $ 1,012,923 $ 2,257,729 $ 3,475,154 $ 891,860 =================== =================== =================== ====================
See accompanying notes which are an integral part of the financial statements. 64 Statement of Assets and Liabilities
CONSERVATIVE STRATEGY 2010 STRATEGY 2020 STRATEGY 2030 STRATEGY 2040 STRATEGY FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------- $ 493,025 $ 4,799 $ 4,549 $ 4,461 $ 4,703 - ------------------------------------------------------------------------------------------------- 518,121 4,806 4,592 4,507 4,763 590 -- -- -- -- 1,870 -- 1 -- 1 87 -- -- -- -- 5 35 33 33 33 -------------- -------------- -------------- -------------- -------------- 520,673 4,841 4,626 4,540 4,797 -------------- -------------- -------------- -------------- -------------- -- 17 16 15 16 -- -- 1 -- 1 978 -- -- -- -- 210 1 1 1 1 23 22 21 22 20 -------------- -------------- -------------- -------------- -------------- 1,211 40 39 38 38 -------------- -------------- -------------- -------------- -------------- $ 519,462 $ 4,801 $ 4,587 $ 4,502 $ 4,759 ============== ============== ============== ============== ============== $ (22) $ -- $ 1 $ -- $ -- 25,096 7 43 46 60 486 5 5 4 5 493,902 4,789 4,538 4,452 4,694 -------------- -------------- -------------- -------------- -------------- $ 519,462 $ 4,801 $ 4,587 $ 4,502 $ 4,759 ============== ============== ============== ============== ==============
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 65 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS STATEMENT OF ASSETS AND LIABILITIES, CONTINUED -- OCTOBER 31, 2005
EQUITY AGGRESSIVE AGGRESSIVE STRATEGY BALANCED STRATEGY MODERATE STRATEGY STRATEGY FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, offering and redemption price per share: Net asset value per share: Class A* $ 10.63 $ 10.90 $ 10.99 $ 10.81 Maximum offering price per share (Net asset value plus sales charge of 5.75%): Class A $ 11.28 $ 11.56 $ 11.66 $ 11.47 Class A -- Net assets $ 94,182,032 $ 365,023,662 $ 593,609,181 $ 121,343,359 Class A -- Shares outstanding ($.01 par value) 8,858,525 33,482,155 54,033,229 11,224,021 Net asset value per share: Class C* $ 10.20 $ 10.84 $ 10.93 $ 10.77 Class C -- Net assets $ 284,151,912 $ 572,129,132 $ 964,202,684 $ 183,445,265 Class C -- Shares outstanding ($.01 par value) 27,852,703 52,799,659 88,198,576 17,036,823 Net asset value per share: Class D* $ 10.46 $ 10.93 $ 11.01 $ 10.84 Class D -- Net assets $ 308,387,735 $ 616,938,635 $ 892,607,006 $ 309,823,394 Class D -- Shares outstanding ($.01 par value) 29,493,412 56,427,348 81,100,495 28,572,985 Net asset value per share: Class E* $ 10.46 $ 10.91 $ 11.00 $ 10.82 Class E -- Net assets $ 192,257,930 $ 394,842,579 $ 506,587,084 $ 164,151,101 Class E -- Shares outstanding ($.01 par value) 18,375,332 36,176,163 46,033,091 15,175,856 Net asset value per share: Class S* $ 10.59 $ 10.97 $ 11.05 $ 10.84 Class S -- Net assets $ 133,943,234 $ 308,795,409 $ 518,148,293 $ 113,096,422 Class S -- Shares outstanding ($.01 par value) 12,646,383 28,158,964 46,883,502 10,428,795 * Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding.
See accompanying notes which are an integral part of the financial statements. 66 Statement of Assets and Liabilities
CONSERVATIVE STRATEGY 2010 STRATEGY 2020 STRATEGY 2030 STRATEGY 2040 STRATEGY FUND FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------- $ 10.66 $ 10.06 $ 10.14 $ 10.19 $ 10.23 $ 11.31 $ 10.67 $ 10.76 $ 10.81 $ 10.85 $ 40,224,349 $ 990,291 $ 989,531 $ 989,744 $ 990,805 3,771,968 98,411 97,622 97,158 96,829 $ 10.62 $ -- $ -- $ -- $ -- $ 88,226,155 $ -- $ -- $ -- $ -- 8,304,840 -- -- -- -- $ 10.71 $ 10.07 $ 10.13 $ 10.19 $ 10.24 $ 163,499,186 $ 1,768,118 $ 1,545,051 $ 1,451,572 $ 1,701,279 15,260,047 175,571 152,479 142,427 166,215 $ 10.68 $ 10.07 $ 10.14 $ 10.20 $ 10.24 $ 183,219,133 $ 1,020,231 $ 1,025,137 $ 1,029,268 $ 1,032,200 17,152,927 101,266 101,118 100,954 100,794 $ 10.72 $ 10.08 $ 10.14 $ 10.20 $ 10.24 $ 44,292,707 $ 1,022,343 $ 1,027,259 $ 1,031,398 $ 1,034,342 4,132,691 101,454 101,305 101,141 100,981
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 67 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
EQUITY AGGRESSIVE AGGRESSIVE STRATEGY BALANCED STRATEGY MODERATE STRATEGY AMOUNTS IN THOUSANDS STRATEGY FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Income distributions from Underlying Funds $ 11,987 $ 35,438 $ 66,943 $ 18,352 ------------------- ------------------- ------------------- -------------------- EXPENSES Advisory fees 1,782 3,879 5,991 1,586 Administrative fees 435 942 1,455 388 Custodian fees 36 38 42 36 Distribution fees - Class A 174 660 1,098 218 Distribution fees - Class C 1,831 3,637 6,095 1,258 Distribution fees - Class D 683 1,380 2,013 715 Transfer agent fees 1,120 2,257 2,971 636 Professional fees 57 81 106 53 Registration fees 127 211 291 117 Shareholder servicing fees - Class C 610 1,212 2,031 419 Shareholder servicing fees - Class D 684 1,380 2,013 715 Shareholder servicing fees - Class E 448 883 1,165 360 Trustees' fees 22 48 74 20 Printing fees 30 65 100 27 Offering costs -- -- -- -- Miscellaneous 10 20 30 10 ------------------- ------------------- ------------------- -------------------- Expenses before reductions 8,049 16,693 25,475 6,558 Expense reductions (3,619) (7,540) (11,059) (2,871) ------------------- ------------------- ------------------- -------------------- Net expenses 4,430 9,153 14,416 3,687 ------------------- ------------------- ------------------- -------------------- Net investment income (loss) 7,557 26,285 52,527 14,665 ------------------- ------------------- ------------------- -------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments 1,664 84 129 1,168 Capital gain distributions from Underlying Funds 6,965 14,399 21,777 4,587 ------------------- ------------------- ------------------- -------------------- Net realized gain (loss) 8,629 14,483 21,906 5,755 ------------------- ------------------- ------------------- -------------------- Net change in unrealized appreciation (depreciation) on investments 91,785 149,319 153,673 18,157 ------------------- ------------------- ------------------- -------------------- Net realized and unrealized gain (loss) 100,414 163,802 175,579 23,912 ------------------- ------------------- ------------------- -------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 107,971 $ 190,087 $ 228,106 $ 38,577 =================== =================== =================== ==================== * For the period January 1, 2005 (commencement of operations) to October 31, 2005.
See accompanying notes which are an integral part of the financial statements. 68 Statement of Operations
CONSERVATIVE 2010 STRATEGY 2020 STRATEGY 2030 STRATEGY 2040 STRATEGY STRATEGY FUND FUND* FUND* FUND* FUND* - ---------------------------------------------------------------------------------------- $ 12,361 $ 51 $ 47 $ 40 $ 35 ------------- -------------- ---------------- ---------------- ------------ 1,003 6 6 6 6 249 1 1 1 1 36 5 5 5 5 80 -- -- -- -- 628 -- -- -- -- 390 3 3 2 3 396 1 1 1 1 47 45 46 46 46 83 24 24 24 24 209 -- -- -- -- 390 3 3 2 3 459 2 2 2 2 13 -- -- -- -- 17 -- -- -- -- -- 57 57 58 57 7 3 3 3 3 ------------- -------------- ---------------- ---------------- ------------ 4,007 150 151 150 151 (1,849) (143) (143) (142) (143) ------------- -------------- ---------------- ---------------- ------------ 2,158 7 8 8 8 ------------- -------------- ---------------- ---------------- ------------ 10,203 44 39 32 27 ------------- -------------- ---------------- ---------------- ------------ 1,169 -- 2 1 1 1,699 -- -- -- -- ------------- -------------- ---------------- ---------------- ------------ 2,868 -- 2 1 1 ------------- -------------- ---------------- ---------------- ------------ (286) 7 43 46 60 ------------- -------------- ---------------- ---------------- ------------ 2,582 7 45 47 61 ------------- -------------- ---------------- ---------------- ------------ $ 12,785 $ 51 $ 84 $ 79 $ 88 ============= ============== ================ ================ ============
See accompanying notes which are an integral part of the financial statements. Statement of Operations 69 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
EQUITY AGGRESSIVE STRATEGY FUND ------------------------------------------- AMOUNTS IN THOUSANDS 2005 2004 - ----------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 7,557 $ 4,299 Net realized gain (loss) 8,629 (6,186) Net change in unrealized appreciation (depreciation) 91,785 65,506 ------------------- -------------------- Net increase (decrease) in net assets from operations 107,971 63,619 ------------------- -------------------- DISTRIBUTIONS From net investment income Class A (597) (146) Class C (1,601) (797) Class D (2,336) (1,482) Class E (1,889) (1,610) Class S (1,558) (1,016) From net realized gain Class A -- -- Class C -- -- Class D -- -- Class E -- -- Class S -- -- ------------------- -------------------- Net decrease in net assets from distributions (7,981) (5,051) ------------------- -------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 188,532 184,563 ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 288,522 243,131 NET ASSETS Beginning of period 724,401 481,270 ------------------- -------------------- End of period $ 1,012,923 $ 724,401 =================== ==================== * For the period January 1, 2005 (commencement of operations) to October 31, 2005.
See accompanying notes which are an integral part of the financial statements. 70 Statement of Changes in Net Assets
AGGRESSIVE STRATEGY BALANCED STRATEGY MODERATE STRATEGY CONSERVATIVE STRATEGY FUND FUND FUND FUND ----------------------------- ----------------------------- ----------------------------- ----------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- $ 26,285 $ 14,808 $ 52,527 $ 35,837 $ 14,665 $ 9,164 $ 10,203 $ 7,561 14,483 (1,926) 21,906 (2,021) 5,755 1,608 2,868 1,507 149,319 99,616 153,673 138,025 18,157 24,258 (286) 9,209 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 190,087 112,498 228,106 171,841 38,577 35,030 12,785 18,277 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (3,996) (1,015) (8,687) (2,365) (1,866) (571) (756) (239) (4,357) (2,834) (10,605) (7,408) (2,301) (1,516) (1,287) (783) (7,614) (4,386) (14,304) (9,658) (5,262) (3,286) (3,135) (2,034) (5,832) (3,904) (9,540) (8,770) (3,041) (2,034) (4,078) (3,670) (5,375) (3,281) (10,795) (7,636) (2,538) (1,757) (1,137) (835) -- -- (830) (75) (172) (54) (91) (31) -- -- (1,779) (266) (416) (232) (275) (222) -- -- (1,814) (277) (707) (379) (515) (394) -- -- (1,104) (202) (357) (225) (646) (742) -- -- (1,097) (179) (281) (175) (147) (137) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (27,174) (15,420) (60,555) (36,836) (16,941) (10,229) (12,067) (9,087) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 551,870 572,605 853,024 773,815 175,747 226,452 44,887 76,427 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 714,783 669,683 1,020,575 908,820 197,383 251,253 45,605 85,617 1,542,946 873,263 2,454,579 1,545,759 694,477 443,224 473,857 388,240 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 2,257,729 $ 1,542,946 $ 3,475,154 $ 2,454,579 $ 891,860 $ 694,477 $ 519,462 $ 473,857 ============= ============= ============= ============= ============= ============= ============= =============
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 71 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS STATEMENT OF CHANGES IN NET ASSETS, CONTINUED -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
2010 STRATEGY AMOUNTS IN THOUSANDS FUND* - ---------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 44 Net realized gain (loss) -- Net change in unrealized appreciation 7 ------------------------ Net increase (decrease) in net assets from operations 51 ------------------------ DISTRIBUTIONS From net investment income Class A (5) Class C -- Class D (13) Class E (13) Class S (14) From net realized gain Class A -- Class C -- Class D -- Class E -- Class S -- ------------------------ Net decrease in net assets from distributions (45) ------------------------ SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 4,795 ------------------------ TOTAL NET INCREASE (DECREASE) IN NET ASSETS 4,801 NET ASSETS Beginning of period -- ------------------------ End of period $ 4,801 ======================== * For the period January 1, 2005 (commencement of operations) to October 31, 2005.
See accompanying notes which are an integral part of the financial statements. 72 Statement of Changes in Net Assets
2020 STRATEGY 2030 STRATEGY 2040 STRATEGY FUND* FUND* FUND* - -------------------------------------------------------------------------------------------------------------------------- $ 39 $ 32 $ 27 2 1 1 43 46 60 ------------------------ ------------------------ ------------------------ 84 79 88 ------------------------ ------------------------ ------------------------ (4) (4) (3) -- -- -- (12) (9) (7) (11) (9) (8) (13) (11) (10) -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------------------------ ------------------------ ------------------------ (40) (33) (28) ------------------------ ------------------------ ------------------------ 4,543 4,456 4,699 ------------------------ ------------------------ ------------------------ 4,587 4,502 4,759 -- -- -- ------------------------ ------------------------ ------------------------ $ 4,587 $ 4,502 $ 4,759 ======================== ======================== ========================
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 73 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- EQUITY AGGRESSIVE STRATEGY FUND Class A October 31, 2005 9.42 .10 1.22 1.32 October 31, 2004 8.50 .06 .95 1.01 October 31, 2003 (2) 6.38 .02 2.13 2.15 - ----------------------------------------------------------------------------------------------------------------- Class C October 31, 2005 9.07 .03 1.17 1.20 October 31, 2004 8.23 .01 .89 .90 October 31, 2003 6.60 (.01) 1.65 1.64 October 31, 2002 7.70 (.02) (.93) (.95) October 31, 2001 10.24 (.04) (2.30) (2.34) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 9.27 .09 1.19 1.28 October 31, 2004 8.38 .06 .91 .97 October 31, 2003 6.70 .02 1.69 1.71 October 31, 2002 7.79 .01 (.94) (.93) October 31, 2001 10.33 --(e) (2.32) (2.32) - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 9.27 .11 1.19 1.30 October 31, 2004 8.37 .08 .91 .99 October 31, 2003 6.69 .04 1.68 1.72 October 31, 2002 7.76 .03 (.93) (.90) October 31, 2001 10.28 .03 (2.32) (2.29) - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 9.37 .15 1.20 1.35 October 31, 2004 8.45 .11 .91 1.02 October 31, 2003 6.75 .07 1.69 1.76 October 31, 2002 7.83 .06 (.96) (.90) October 31, 2001 10.34 .05 (2.33) (2.28) - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- EQUITY AGGRESSIVE STRATEGY FUND Class A October 31, 2005 (.11) -- (.11) October 31, 2004 (.09) -- (.09) October 31, 2003 (2) (.03) -- (.03) - ---------------------------------------- Class C October 31, 2005 (.07) -- (.07) October 31, 2004 (.06) -- (.06) October 31, 2003 (.01) -- (.01) October 31, 2002 (.01) (.14) (.15) October 31, 2001 (.12) (.08) (.20) - ---------------------------------------- Class D October 31, 2005 (.09) -- (.09) October 31, 2004 (.08) -- (.08) October 31, 2003 (.03) -- (.03) October 31, 2002 (.02) (.14) (.16) October 31, 2001 (.14) (.08) (.22) - ---------------------------------------- Class E October 31, 2005 (.11) -- (.11) October 31, 2004 (.09) -- (.09) October 31, 2003 (.04) -- (.04) October 31, 2002 (.03) (.14) (.17) October 31, 2001 (.15) (.08) (.23) - ---------------------------------------- Class S October 31, 2005 (.13) -- (.13) October 31, 2004 (.10) -- (.10) October 31, 2003 (.06) -- (.06) October 31, 2002 (.04) (.14) (.18) October 31, 2001 (.15) (.08) (.23) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 74 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ---------------------------------------------------------------------------------------------------------------------------------- 10.63 14.09 94,182 .25 .66 .95 3.44 9.42 11.92 43,148 .25 .65 .69 12.46 8.50 33.75 7,399 .25 1.19 .30 17.81 - ---------------------------------------------------------------------------------------------------------------------------------- 10.20 13.29 284,152 1.00 1.41 .31 3.44 9.07 10.94 192,211 1.00 1.40 .13 12.46 8.23 24.91 99,808 1.00 1.43 (.19) 17.81 6.60 (12.73) 45,267 1.00 1.42 (.32) 29.86 7.70 (23.24) 40,982 1.00 1.39 (.45) 47.86 - ---------------------------------------------------------------------------------------------------------------------------------- 10.46 13.88 308,388 .50 .91 .85 3.44 9.27 11.59 225,187 .50 .90 .64 12.46 8.38 25.60 128,624 .50 .93 .24 17.81 6.70 (12.34) 36,092 .50 .92 .20 29.86 7.79 (22.91) 12,208 .50 .89 .05 47.86 - ---------------------------------------------------------------------------------------------------------------------------------- 10.46 14.08 192,258 .25 .66 1.13 3.44 9.27 11.83 152,589 .25 .65 .89 12.46 8.37 25.89 155,984 .25 .68 .59 17.81 6.69 (12.05) 111,765 .25 .67 .44 29.86 7.76 (22.72) 156,698 .25 .64 .30 47.86 - ---------------------------------------------------------------------------------------------------------------------------------- 10.59 14.47 133,943 -- .41 1.42 3.44 9.37 12.09 111,266 -- .40 1.21 12.46 8.45 26.26 89,455 -- .43 .90 17.81 6.75 (11.95) 58,236 -- .42 .72 29.86 7.83 (22.43) 46,029 -- .39 .59 47.86 - ----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 75 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL INCOME BEGINNING OF INVESTMENT AND UNREALIZED (LOSS) FROM PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- AGGRESSIVE STRATEGY FUND Class A October 31, 2005 9.95 .15 .98 1.13 October 31, 2004 9.12 .11 .87 .98 October 31, 2003 (4) 7.20 .04 1.94 1.98 - ----------------------------------------------------------------------------------------------------------------- Class C October 31, 2005 9.89 .09 .96 1.05 October 31, 2004 9.09 .06 .84 .90 October 31, 2003 7.49 .02 1.61 1.63 October 31, 2002 8.46 .04 (.79) (.75) October 31, 2001 10.35 .05 (1.80) (1.75) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 9.97 .14 .97 1.11 October 31, 2004 9.15 .11 .84 .95 October 31, 2003 7.54 .05 1.63 1.68 October 31, 2002 8.52 .08 (.79) (.71) October 31, 2001 10.41 .10 (1.81) (1.71) - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 9.96 .17 .96 1.13 October 31, 2004 9.13 .15 .82 .97 October 31, 2003 7.51 .08 1.63 1.71 October 31, 2002 8.49 .11 (.81) (.70) October 31, 2001 10.38 .12 (1.80) (1.68) - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.00 .20 .98 1.18 October 31, 2004 9.16 .16 .84 1.00 October 31, 2003 7.54 .10 1.63 1.73 October 31, 2002 8.52 .13 (.81) (.68) October 31, 2001 10.41 .14 (1.80) (1.66) - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- AGGRESSIVE STRATEGY FUND Class A October 31, 2005 (.18) -- (.18) October 31, 2004 (.15) -- (.15) October 31, 2003 (4) (.06) -- (.06) - ---------------------------------------- Class C October 31, 2005 (.10) -- (.10) October 31, 2004 (.10) -- (.10) October 31, 2003 (.03) -- (.03) October 31, 2002 (.05) (.17) (.22) October 31, 2001 (.10) (.04) (.14) - ---------------------------------------- Class D October 31, 2005 (.15) -- (.15) October 31, 2004 (.13) -- (.13) October 31, 2003 (.07) -- (.07) October 31, 2002 (.10) (.17) (.27) October 31, 2001 (.14) (.04) (.18) - ---------------------------------------- Class E October 31, 2005 (.18) -- (.18) October 31, 2004 (.14) -- (.14) October 31, 2003 (.09) -- (.09) October 31, 2002 (.11) (.17) (.28) October 31, 2001 (.17) (.04) (.21) - ---------------------------------------- Class S October 31, 2005 (.21) -- (.21) October 31, 2004 (.16) -- (.16) October 31, 2003 (.11) -- (.11) October 31, 2002 (.13) (.17) (.30) October 31, 2001 (.19) (.04) (.23) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 76 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS NET ASSETS TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ------------------------------------------------------------------------------------------------------------------------------------ 10.90 11.44 365,024 .25 .64 1.43 .72 9.95 10.76 154,884 .25 .63 1.11 2.22 9.12 27.35 27,700 .25 .74 .51 15.15 - ------------------------------------------------------------------------------------------------------------------------------------ 10.84 10.70 572,129 1.00 1.39 .82 .72 9.89 9.90 381,245 1.00 1.38 .67 2.22 9.09 21.89 219,946 1.00 1.41 .24 15.15 7.49 (9.20) 102,324 1.00 1.39 .51 11.73 8.46 (17.06) 80,514 1.00 1.38 .53 13.12 - ------------------------------------------------------------------------------------------------------------------------------------ 10.93 11.22 616,939 .50 .89 1.35 .72 9.97 10.41 452,502 .50 .88 1.14 2.22 9.15 22.44 232,636 .50 .91 .66 15.15 7.54 (8.78) 58,031 .50 .89 .92 11.73 8.52 (16.58) 15,307 .50 .88 1.02 13.12 - ------------------------------------------------------------------------------------------------------------------------------------ 10.91 11.40 394,842 .25 .64 1.63 .72 9.96 10.72 307,304 .25 .63 1.54 2.22 9.13 22.90 233,112 .25 .66 1.02 15.15 7.51 (8.64) 152,805 .25 .64 1.29 11.73 8.49 (16.40) 177,992 .25 .63 1.30 13.12 - ------------------------------------------------------------------------------------------------------------------------------------ 10.97 11.83 308,795 -- .39 1.88 .72 10.00 10.99 247,011 -- .38 1.70 2.22 9.16 23.10 159,869 -- .41 1.30 15.15 7.54 (8.37) 108,267 -- .39 1.51 11.73 8.52 (16.15) 86,466 -- .38 1.50 13.12 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 77 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- BALANCED STRATEGY FUND Class A October 31, 2005 10.33 .20 .71 .91 October 31, 2004 9.64 .16 .74 .90 October 31, 2003 (2) 8.20 .06 1.47 1.53 - ----------------------------------------------------------------------------------------------------------------- Class C October 31, 2005 10.29 .13 .69 .82 October 31, 2004 9.61 .12 .72 .84 October 31, 2003 8.33 .09 1.31 1.40 October 31, 2002 9.04 .12 (.59) (.47) October 31, 2001 10.20 .16 (1.09) (.93) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 10.35 .19 .70 .89 October 31, 2004 9.66 .17 .71 .88 October 31, 2003 8.36 .12 1.34 1.46 October 31, 2002 9.08 .16 (.59) (.43) October 31, 2001 10.25 .21 (1.10) (.89) - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.35 .22 .68 .90 October 31, 2004 9.65 .22 .69 .91 October 31, 2003 8.35 .17 1.31 1.48 October 31, 2002 9.06 .19 (.60) (.41) October 31, 2001 10.22 .24 (1.11) (.87) - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.39 .25 .69 .94 October 31, 2004 9.68 .23 .71 .94 October 31, 2003 8.38 .19 1.31 1.50 October 31, 2002 9.09 .22 (.60) (.38) October 31, 2001 10.25 .28 (1.12) (.84) - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- BALANCED STRATEGY FUND Class A October 31, 2005 (.22) (.03) (.25) October 31, 2004 (.21) -- (.21) October 31, 2003 (2) (.09) -- (.09) - ---------------------------------------- Class C October 31, 2005 (.15) (.03) (.18) October 31, 2004 (.16) -- (.16) October 31, 2003 (.12) -- (.12) October 31, 2002 (.13) (.11) (.24) October 31, 2001 (.20) (.03) (.23) - ---------------------------------------- Class D October 31, 2005 (.20) (.03) (.23) October 31, 2004 (.19) -- (.19) October 31, 2003 (.16) -- (.16) October 31, 2002 (.18) (.11) (.29) October 31, 2001 (.25) (.03) (.28) - ---------------------------------------- Class E October 31, 2005 (.22) (.03) (.25) October 31, 2004 (.21) -- (.21) October 31, 2003 (.18) -- (.18) October 31, 2002 (.19) (.11) (.30) October 31, 2001 (.26) (.03) (.29) - ---------------------------------------- Class S October 31, 2005 (.25) (.03) (.28) October 31, 2004 (.23) -- (.23) October 31, 2003 (.20) -- (.20) October 31, 2002 (.22) (.11) (.33) October 31, 2001 (.29) (.03) (.32) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 78 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ----------------------------------------------------------------------------------------------------------------------------------- 10.99 8.91 593,609 .25 .62 1.88 .55 10.33 9.49 281,685 .25 .59 1.63 6.42 9.64 18.80 60,696 .25 .66 .74 18.55 - ----------------------------------------------------------------------------------------------------------------------------------- 10.93 7.96 964,203 1.00 1.37 1.22 .55 10.29 8.82 653,463 1.00 1.34 1.23 6.42 9.61 17.02 396,344 1.00 1.36 1.05 18.55 8.33 (5.42) 186,825 1.00 1.34 1.38 12.18 9.04 (9.25) 136,748 1.00 1.34 1.71 33.42 - ----------------------------------------------------------------------------------------------------------------------------------- 11.01 8.61 892,607 .50 .87 1.75 .55 10.35 9.25 676,342 .50 .84 1.70 6.42 9.66 17.76 396,545 .50 .86 1.38 18.55 8.36 (5.01) 121,077 .50 .84 1.75 12.18 9.08 (8.83) 38,381 .50 .84 2.25 33.42 - ----------------------------------------------------------------------------------------------------------------------------------- 11.00 8.77 506,587 .25 .62 2.03 .55 10.35 9.54 416,942 .25 .59 2.25 6.42 9.65 18.00 414,051 .25 .61 1.88 18.55 8.35 (4.73) 269,458 .25 .59 2.17 12.18 9.06 (8.59) 288,164 .25 .59 2.51 33.42 - ----------------------------------------------------------------------------------------------------------------------------------- 11.05 9.10 518,148 -- .37 2.28 .55 10.39 9.82 426,147 -- .34 2.23 6.42 9.68 18.22 278,123 -- .36 2.12 18.55 8.38 (4.47) 155,977 -- .34 2.40 12.18 9.09 (8.35) 96,801 -- .34 2.64 33.42 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 79 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- MODERATE STRATEGY FUND Class A October 31, 2005 10.50 .22 .35 .57 October 31, 2004 10.03 .17 .51 .68 October 31, 2003 (3) 9.02 .07 1.06 1.13 - ----------------------------------------------------------------------------------------------------------------- Class C October 31, 2005 10.45 .14 .36 .50 October 31, 2004 10.01 .05 .55 .60 October 31, 2003 9.15 .12 .91 1.03 October 31, 2002 9.59 .19 (.38) (.19) October 31, 2001 10.20 .29 (.58) (.29) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 10.52 .20 .35 .55 October 31, 2004 10.06 .16 .49 .65 October 31, 2003 9.19 .16 .92 1.08 October 31, 2002 9.64 .23 (.38) (.15) October 31, 2001 10.24 .33 (.56) (.23) - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.50 .22 .36 .58 October 31, 2004 10.03 .19 .49 .68 October 31, 2003 9.16 .21 .89 1.10 October 31, 2002 9.59 .27 (.38) (.11) October 31, 2001 10.20 .36 (.58) (.22) - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.52 .25 .35 .60 October 31, 2004 10.05 .21 .49 .70 October 31, 2003 9.17 .23 .90 1.13 October 31, 2002 9.61 .28 (.38) (.10) October 31, 2001 10.21 .39 (.58) (.19) - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- MODERATE STRATEGY FUND Class A October 31, 2005 (.23) (.03) (.26) October 31, 2004 (.19) (.02) (.21) October 31, 2003 (3) (.12) -- (.12) - ---------------------------------------- Class C October 31, 2005 (.15) (.03) (.18) October 31, 2004 (.14) (.02) (.16) October 31, 2003 (.17) -- (.17) October 31, 2002 (.20) (.05) (.25) October 31, 2001 (.30) (.02) (.32) - ---------------------------------------- Class D October 31, 2005 (.20) (.03) (.23) October 31, 2004 (.17) (.02) (.19) October 31, 2003 (.21) -- (.21) October 31, 2002 (.25) (.05) (.30) October 31, 2001 (.35) (.02) (.37) - ---------------------------------------- Class E October 31, 2005 (.23) (.03) (.26) October 31, 2004 (.19) (.02) (.21) October 31, 2003 (.23) -- (.23) October 31, 2002 (.27) (.05) (.32) October 31, 2001 (.37) (.02) (.39) - ---------------------------------------- Class S October 31, 2005 (.25) (.03) (.28) October 31, 2004 (.21) (.02) (.23) October 31, 2003 (.25) -- (.25) October 31, 2002 (.29) (.05) (.34) October 31, 2001 (.39) (.02) (.41) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 80 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ----------------------------------------------------------------------------------------------------------------------------------- 10.81 5.44 121,343 .25 .61 2.03 4.54 10.50 6.87 55,049 .25 .63 1.71 3.99 10.03 12.56 18,820 .25 .77 .84 11.08 - ----------------------------------------------------------------------------------------------------------------------------------- 10.77 4.78 183,445 1.00 1.36 1.31 4.54 10.45 6.00 146,515 1.00 1.37 .48 3.99 10.01 11.36 96,231 1.00 1.42 1.29 11.08 9.15 (2.00) 39,694 1.00 1.46 2.05 15.16 9.59 (2.87) 20,859 1.00 1.54 2.95 42.49 - ----------------------------------------------------------------------------------------------------------------------------------- 10.84 5.25 309,824 .50 .86 1.81 4.54 10.52 6.55 254,060 .50 .87 1.55 3.99 10.06 11.94 154,267 .50 .92 1.62 11.08 9.19 (1.58) 38,170 .50 .96 2.51 15.16 9.64 (2.33) 5,545 .50 1.04 3.39 42.49 - ----------------------------------------------------------------------------------------------------------------------------------- 10.82 5.52 164,151 .25 .61 2.07 4.54 10.50 6.85 132,822 .25 .62 1.85 3.99 10.03 12.19 99,926 .25 .67 2.22 11.08 9.16 (1.22) 66,462 .25 .71 2.84 15.16 9.59 (2.19) 57,885 .25 .79 3.60 42.49 - ----------------------------------------------------------------------------------------------------------------------------------- 10.84 5.76 113,097 -- .36 2.33 4.54 10.52 7.03 106,031 -- .37 2.04 3.99 10.05 12.55 73,980 -- .42 2.44 11.08 9.17 (1.08) 45,579 -- .46 2.97 15.16 9.61 (1.87) 24,078 -- .54 3.97 42.49 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 81 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- CONSERVATIVE STRATEGY FUND Class A October 31, 2005 10.65 .24 .05 .29 October 31, 2004 10.42 .20 .28 .48 October 31, 2003 (1) 9.94 .09 .50 .59 - ----------------------------------------------------------------------------------------------------------------- Class C October 31, 2005 10.61 .16 .05 .21 October 31, 2004 10.38 .12 .28 .40 October 31, 2003 9.90 .12 .52 .64 October 31, 2002 10.10 .28 (.18) .10 October 31, 2001 10.17 .42 (.07) .35 - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 10.69 .21 .06 .27 October 31, 2004 10.47 .18 .26 .44 October 31, 2003 9.97 .16 .55 .71 October 31, 2002 10.17 .33 (.18) .15 October 31, 2001 10.21 .44 (.03) .41 - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 10.66 .24 .06 .30 October 31, 2004 10.43 .20 .27 .47 October 31, 2003 9.94 .20 .52 .72 October 31, 2002 10.13 .36 (.18) .18 October 31, 2001 10.19 .49 (.07) .42 - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 10.70 .27 .05 .32 October 31, 2004 10.47 .23 .27 .50 October 31, 2003 9.97 .23 .52 .75 October 31, 2002 10.16 .38 (.18) .20 October 31, 2001 10.21 .55 (.10) .45 - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- CONSERVATIVE STRATEGY FUND Class A October 31, 2005 (.24) (.04) (.28) October 31, 2004 (.21) (.04) (.25) October 31, 2003 (1) (.11) -- (.11) - ---------------------------------------- Class C October 31, 2005 (.16) (.04) (.20) October 31, 2004 (.13) (.04) (.17) October 31, 2003 (.16) -- (.16) October 31, 2002 (.29) (.01) (.30) October 31, 2001 (.42) -- (.42) - ---------------------------------------- Class D October 31, 2005 (.21) (.04) (.25) October 31, 2004 (.18) (.04) (.22) October 31, 2003 (.21) -- (.21) October 31, 2002 (.34) (.01) (.35) October 31, 2001 (.45) -- (.45) - ---------------------------------------- Class E October 31, 2005 (.24) (.04) (.28) October 31, 2004 (.20) (.04) (.24) October 31, 2003 (.23) -- (.23) October 31, 2002 (.36) (.01) (.37) October 31, 2001 (.48) -- (.48) - ---------------------------------------- Class S October 31, 2005 (.26) (.04) (.30) October 31, 2004 (.23) (.04) (.27) October 31, 2003 (.25) -- (.25) October 31, 2002 (.38) (.01) (.39) October 31, 2001 (.50) -- (.50) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 82 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ----------------------------------------------------------------------------------------------------------------------------------- 10.66 2.74 40,225 .25 .62 2.26 9.45 10.65 4.62 20,709 .25 .66 1.89 6.18 10.42 6.01 5,526 .25 .97 .97 30.98 - ----------------------------------------------------------------------------------------------------------------------------------- 10.62 1.99 88,226 1.00 1.37 1.47 9.45 10.61 3.87 75,976 1.00 1.38 1.15 6.18 10.38 6.51 54,674 1.00 1.43 1.21 30.98 9.90 1.01 24,739 1.00 1.59 2.78 35.08 10.10 3.49 9,850 1.00 1.98 4.20 54.86 - ----------------------------------------------------------------------------------------------------------------------------------- 10.71 2.55 163,499 .50 .87 1.97 9.45 10.69 4.23 146,230 .50 .88 1.65 6.18 10.47 7.17 92,430 .50 .93 1.57 30.98 9.97 1.52 25,145 .50 1.09 3.33 35.08 10.17 4.11 3,066 .50 1.48 4.06 54.86 - ----------------------------------------------------------------------------------------------------------------------------------- 10.68 2.81 183,219 .25 .62 2.20 9.45 10.66 4.57 187,993 .25 .63 1.95 6.18 10.43 7.33 199,230 .25 .68 1.86 30.98 9.94 1.79 35,385 .25 .84 3.54 35.08 10.13 4.21 24,070 .25 1.23 4.83 54.86 - ----------------------------------------------------------------------------------------------------------------------------------- 10.72 3.06 44,293 -- .37 2.46 9.45 10.70 4.82 42,949 -- .38 2.17 6.18 10.47 7.63 36,380 -- .43 2.27 30.98 9.97 2.02 24,953 -- .59 3.79 35.08 10.16 4.52 11,429 -- .98 5.49 54.86 - -----------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 83 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A)(B) GAIN (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------------- 2010 STRATEGY FUND Class A October 31, 2005 (6) 10.21 .04 (.11) (.07) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 (5) 10.00 .10 .08 .18 - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (5) 10.00 .12 .07 .19 - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (5) 10.00 .15 .07 .22 - ----------------------------------------------------------------------------------------------------------------- 2020 STRATEGY FUND Class A October 31, 2005 (6) 10.29 .03 (.11) (.08) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 (5) 10.00 .08 .14 .22 - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (5) 10.00 .11 .14 .25 - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (5) 10.00 .13 .14 .27 - ----------------------------------------------------------------------------------------------------------------- 2030 STRATEGY FUND Class A October 31, 2005 (6) 10.33 .03 (.11) (.08) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 (5) 10.00 .07 .20 .27 - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (5) 10.00 .10 .19 .29 - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (5) 10.00 .12 .19 .31 - ----------------------------------------------------------------------------------------------------------------- 2040 STRATEGY FUND Class A October 31, 2005 (6) 10.36 .02 (.12) (.10) - ----------------------------------------------------------------------------------------------------------------- Class D October 31, 2005 (5) 10.00 .06 .24 .30 - ----------------------------------------------------------------------------------------------------------------- Class E October 31, 2005 (5) 10.00 .08 .24 .32 - ----------------------------------------------------------------------------------------------------------------- Class S October 31, 2005 (5) 10.00 .10 .24 .34 - ----------------------------------------------------------------------------------------------------------------- $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET TOTAL INVESTMENT INCOME REALIZED GAIN DISTRIBUTIONS - ---------------------------------------- 2010 STRATEGY FUND Class A October 31, 2005 (6) (.08) -- (.08) - ---------------------------------------- Class D October 31, 2005 (5) (.11) -- (.11) - ---------------------------------------- Class E October 31, 2005 (5) (.12) -- (.12) - ---------------------------------------- Class S October 31, 2005 (5) (.14) -- (.14) - ---------------------------------------- 2020 STRATEGY FUND Class A October 31, 2005 (6) (.07) -- (.07) - ---------------------------------------- Class D October 31, 2005 (5) (.09) -- (.09) - ---------------------------------------- Class E October 31, 2005 (5) (.11) -- (.11) - ---------------------------------------- Class S October 31, 2005 (5) (.13) -- (.13) - ---------------------------------------- 2030 STRATEGY FUND Class A October 31, 2005 (6) (.06) -- (.06) - ---------------------------------------- Class D October 31, 2005 (5) (.08) -- (.08) - ---------------------------------------- Class E October 31, 2005 (5) (.09) -- (.09) - ---------------------------------------- Class S October 31, 2005 (5) (.11) -- (.11) - ---------------------------------------- 2040 STRATEGY FUND Class A October 31, 2005 (6) (.03) -- (.03) - ---------------------------------------- Class D October 31, 2005 (5) (.06) -- (.06) - ---------------------------------------- Class E October 31, 2005 (5) (.08) -- (.08) - ---------------------------------------- Class S October 31, 2005 (5) (.10) -- (.10) - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 84 Financial Highlights
% % % $ $ RATIO OF EXPENSES RATIO OF EXPENSES RATIO OF NET NET ASSET VALUE, % NET ASSETS, TO AVERAGE TO AVERAGE INVESTMENT INCOME % END OF TOTAL END OF PERIOD NET ASSETS, NET ASSETS, TO AVERAGE PORTFOLIO PERIOD RETURN(C)(F) (000) NET(D)(H) GROSS(D)(G) NET ASSETS(C)(H) TURNOVER RATE(C) - ------------------------------------------------------------------------------------------------------------------------------------ 10.06 (1.01) 990 .25 4.84 .37 .99 - ------------------------------------------------------------------------------------------------------------------------------------ 10.07 1.79 1,768 .50 5.56 1.06 .99 - ------------------------------------------------------------------------------------------------------------------------------------ 10.07 1.96 1,020 .25 5.32 1.25 .99 - ------------------------------------------------------------------------------------------------------------------------------------ 10.08 2.25 1,023 -- 5.07 1.45 .99 - ------------------------------------------------------------------------------------------------------------------------------------ 10.14 (1.02) 990 .25 4.74 .30 6.98 - ------------------------------------------------------------------------------------------------------------------------------------ 10.13 2.23 1,545 .50 5.38 .89 6.98 - ------------------------------------------------------------------------------------------------------------------------------------ 10.14 2.52 1,025 .25 5.13 1.11 6.98 - ------------------------------------------------------------------------------------------------------------------------------------ 10.14 2.71 1,027 -- 4.88 1.31 6.98 - ------------------------------------------------------------------------------------------------------------------------------------ 10.19 (1.01) 990 .25 4.86 .25 1.11 - ------------------------------------------------------------------------------------------------------------------------------------ 10.19 2.69 1,452 .50 5.62 .75 1.11 - ------------------------------------------------------------------------------------------------------------------------------------ 10.20 2.96 1,029 .25 5.37 .95 1.11 - ------------------------------------------------------------------------------------------------------------------------------------ 10.20 3.15 1,031 -- 5.12 1.16 1.11 - ------------------------------------------------------------------------------------------------------------------------------------ 10.23 (.95) 991 .25 4.81 .21 2.39 - ------------------------------------------------------------------------------------------------------------------------------------ 10.24 3.03 1,701 .50 5.52 .59 2.39 - ------------------------------------------------------------------------------------------------------------------------------------ 10.24 3.20 1,032 .25 5.26 .78 2.39 - ------------------------------------------------------------------------------------------------------------------------------------ 10.24 3.39 1,035 -- 5.02 .99 2.39 - ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 85 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL HIGHLIGHTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- (1) For the period March 3, 2003 (commencement of operations) to October 31, 2003. (2) For the period March 4, 2003 (commencement of operations) to October 31, 2003. (3) For the period March 5, 2003 (commencement of operations) to October 31, 2003. (4) For the period March 10, 2003 (commencement of operations) to October 31, 2003. (5) For the period January 1, 2005 (commencement of operations) to October 31, 2005. (6) For the period September 1, 2005 (commencement of operations) to October 31, 2005. (a) Average month-end shares outstanding were used for this calculation. (b) Recognition of net investment income by the Fund is affected by the timing of the declaration of dividends by the Underlying Funds in which the Fund invests. (c) Periods less than one year are not annualized. (d) The ratios for periods less than one year are annualized. (e) Less than $.01 per share for the period. (f) Excludes the effects of sales charges. If sales charges were included, the total return would be lower. (g) The calculation includes only those expenses charged directly to the Funds, including those fees of the Funds pushed down to the Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. (h) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. Expenses are shown net of those expenses pushed down to Underlying Funds through June 30, 2005, as described in note 4 to the financial statements. See accompanying notes which are an integral part of the financial statements. 86 Notes to Financial Highlights FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. Each of the Funds listed in the table below allocates its assets by investing in a combination of Class S shares of other of the Investment Company's Funds (the "Underlying Funds"). Frank Russell Investment Management Company ("FRIMCo"), the Funds' investment adviser, may modify the target asset allocation for any Fund and modify the selection of Underlying Funds for any Fund from time to time. From time to time, each Fund may adjust its investments within set limits based on FRIMCo's outlook for the economy, financial markets generally and relative to market valuation of the asset classes represented by each Underlying Fund. Additionally, each Fund may deviate from set limits when, in FRIMCo's opinion, it is necessary to do so to pursue the Fund's investment objective. However, each Fund expects that amounts it allocates to each Underlying Fund will generally vary only within 10% of the ranges specified below:
ASSET ALLOCATION TARGETS --------------------------------------------------------------------------------------------- EQUITY AGGRESSIVE AGGRESSIVE BALANCED MODERATE CONSERVATIVE ASSET CLASS/UNDERLYING FUNDS STRATEGY FUND STRATEGY FUND STRATEGY FUND STRATEGY FUND STRATEGY FUND - --------------------------------------------------------------------------------------------------------------------------------- Equities US Equities Diversified Equity Fund 29% 23% 16% 11% 7% Special Growth Fund 6 5 4 3 -- Quantitative Equity Fund 29 23 16 11 7 Real Estate Securities Fund 7 6 5 4 3 International Equities International Securities Fund 24 19 16 11 3 Emerging Markets Fund 5 4 3 -- -- Bonds Diversified Bond Fund -- -- 20 27 22 Short Duration Bond Fund -- -- -- 33 58 Multistrategy Bond Fund -- 20 20 -- -- --- --- --- --- --- 100 100 100 100 100
Each of the Funds listed in the table below also allocates its assets by investing in a combination of Class S of the Underlying Funds. The allocation of these Funds' assets to the Underlying Funds in which it invests will become more conservative over time. Currently, FRIMCo will manage each Fund according to its target asset allocation strategy and will not trade actively among Underlying Funds or attempt to capture short-term market opportunities. However, from time to time, FRIMCo may Notes to Financial Statements 87 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- modify the target asset allocation for any Fund and/or the Underlying Funds in which a Fund invests. Each Fund expects that the amounts it allocates to each Underlying Fund will generally vary only within 10% of the percentages specified in the Prospectus. The following table shows the initial target allocation to each Underlying Fund:
ASSET ALLOCATION TARGETS ------------------------------------------------------------------------- 2010 2020 2030 2040 ASSET CLASS/UNDERLYING FUNDS STRATEGY FUND STRATEGY FUND STRATEGY FUND STRATEGY FUND - ------------------------------------------------------------------------------------------------------------------------------ Equities US Equities Diversified Equity Fund 12.25% 14.75% 17.40% 20.20% Special Growth Fund 3.25 3.75 4.20 4.60 Quantitative Equity Fund 12.25 14.75 17.40 20.20 Real Estate Securities Fund 4.25 4.75 5.20 5.60 International Equities International Securities Fund 12.25 14.75 16.60 17.80 Emerging Markets Fund 0.75 2.25 3.20 3.60 Bonds Diversified Bond Fund 25.25 21.75 16.00 8.00 Short Duration Bond Fund 24.75 8.25 -- -- Multistrategy Bond Fund 5.00 15.00 20.00 20.00 ------ ------ ------ ------ 100.00 100.00 100.00 100.00
Investment Objectives of the Underlying Funds: Diversified Equity Fund Seeks to provide long term capital growth. Special Growth Fund Seeks to provide long term capital growth. Quantitative Equity Fund Seeks to provide long term capital growth. Real Estate Securities Fund Seeks to provide current income and long term capital growth. International Securities Fund Seeks to provide long term capital growth. Emerging Markets Fund Seeks to provide long term capital growth. Diversified Bond Fund Seeks to provide current income and the preservation of capital. Short Duration Bond Fund Seeks to provide current income and preservation of capital with a focus on short duration securities. Multistrategy Bond Fund Seeks to provide current income and capital appreciation. 88 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. Security Valuation The Funds value their portfolio securities, the shares of the Underlying Funds, at the current net asset value per share of each Underlying Fund. The Underlying Funds value portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Money market fund securities are priced using the amortized cost method of valuation, as are debt obligation securities maturing within 60 days at the time of purchase, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has delegated the responsibility for administration of the Securities Valuation Procedures to FRIMCo. Ordinarily, the Underlying Funds value each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Underlying Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale; - US over-the-counter equities: Official closing price; last bid price if no closing price; - Foreign equities: Official closing price, where available, or last sale price; last bid price if no closing price; - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. - The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Underlying Funds will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange on which the security is traded. The Fair Value Procedures may involve subjective judgments as to the fair value of securities. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market on which they are traded, but rather may be priced by another method that the Board of Trustees believes reflects fair value. The use of fair value pricing by an Underlying Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Underlying Fund shares and daily movement of the benchmark index if the index is valued using another pricing method. This policy is intended to assure that the Underlying Funds' net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Underlying Fund securities that occur between the closing of the principal markets on which they trade and the time the net asset value of Underlying Fund Shares is determined may be reflected in the calculation of net asset values for each applicable Underlying Fund (and each Fund which invests in such Underlying Fund) when the Underlying Funds deem that the particular event or circumstance would materially affect such Underlying Fund's net asset value. Underlying Funds that invest primarily in frequently traded exchange listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. Underlying Notes to Financial Statements 89 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Funds that invest in foreign securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. Underlying Funds that invest in low rated debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage); a company event such as a material business development, dividend declaration, stock split or rights offering; a material disaster; or an armed conflict. Because foreign securities can trade on a non-business days, the net asset value of a Fund's portfolio that includes an Underlying Fund which invests in foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost. Investment Income Distributions of income and capital gains from the Underlying Funds are recorded on the ex-dividend date. 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 provision was required for the Funds. Dividends and Distributions to Shareholders Income, dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Income dividends are generally declared and paid quarterly. 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) from investment transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP relate primarily to investments in the Underlying Funds sold at a loss, wash sale deferrals, capital loss carryforwards. Accordingly, the Funds may periodically make reclassifications among certain of their capital accounts without impacting their net asset value. Expenses Expenses included in the accompanying financial statements reflect the expenses of each Fund and do not include those expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Funds may own different proportions of the Underlying Funds at different times, the amount of the fees and expenses incurred indirectly by the Funds will vary. Class Allocation The Funds presented herein offer the following classes of shares: Class A, Class C, Class D, Class E and Class S. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the applicable sales charges, distribution fees and shareholder servicing fees. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. 90 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Guarantees In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. 3. INVESTMENT TRANSACTIONS Securities During the period ended October 31, 2005, purchases and sales of the Underlying Funds were as follows:
FUNDS PURCHASES SALES - --------------------------------------------------------------- Equity Aggressive $ 224,320,246 $ 30,547,654 Strategy Aggressive Strategy 577,411,177 13,911,525 Balanced Strategy 879,126,927 16,426,251 Moderate Strategy 215,404,857 35,951,881 Conservative Strategy 91,650,045 47,296,122
- ---------------------------------------------------------------
FUNDS PURCHASES SALES 2010 Strategy Fund $ 4,833,911 $ 34,939 2020 Strategy Fund 4,806,124 258,971 2030 Strategy Fund 4,498,314 38,153 2040 Strategy Fund 4,786,831 84,739
4. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to FRIMCo. The Funds are charged an advisory fee equal to 0.20% and an administrative fee equal to 0.05% of average daily net assets. For the period ended October 31, 2005, the Adviser contractually agreed to waive the advisory fee for the Target Portfolio Funds at least through February 28, 2006, and for the Target Date Funds at least through February 28, 2007. The adviser does not have the ability to recover amounts waived from the period ended October 31, 2005 or previous periods. The administrative fees were charged to the Underlying Funds or reimbursed by FRIMCo as discussed below. Direct operating expenses include those arising from accounting, administrative, custody, auditing, legal and transfer agent services. Until June 30, 2005, the foregoing direct operating expenses were borne either by the Underlying Funds in which a Fund invests pursuant to Special Servicing Agreements (described below) between each affected Fund, Underlying Fund and FRIMCo or by FRIMCo pursuant to a Letter Agreement. Direct operating expenses also include expenses attributable to advisory fees (which are currently waived by FRIMCo), any Rule 12b-1 distribution fee, any shareholder services fees, or any nonrecurring extraordinary expenses, which will be borne by each Fund or its appropriate Classes of Shares. Special Servicing Agreement The special servicing agreements were entered into in February 1999 by the Adviser and were approved annually by the Funds' Board of Trustees. The special servicing agreements were between each Fund and the Underlying Funds, in which the Fund invests. In accordance with the special servicing agreements, certain expenses from the operation of the Funds were borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by the Funds. No Underlying Funds were charged expenses that exceeded the estimated savings to each respective Underlying Fund. These estimated savings appeared in the form of reduced transfer agent costs resulting from the elimination of separate shareholder accounts which were invested in the Underlying Funds. Rather than having each investor open a shareholder account to invest individually in the Underlying Funds, the Funds acted as omnibus accounts combining thousands of individual shareholder accounts into a single account. This benefited the Underlying Funds, by significantly reducing the number of shareholder accounts that needed to be maintained, and by the omnibus accounts' netting out the trades of individual shareholders to a point where the Fund of Funds only executed one trade each day with each Underlying Fund. In the event that the financial benefits to the Underlying Funds did not exceed aggregate expenses of any Fund of Fund, the Adviser reimbursed the respective Underlying Funds. This arrangement was discontinued on June 30, 2005. Effective July 1, 2005, FRIMCo, as transfer agent, has agreed to waive its transfer agency fees and to reimburse the Funds for all direct operating expenses other than Rule 12b-1 distribution fees, shareholder services fees, non-recurring expenses and Notes to Financial Statements 91 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- extraordinary expenses. The agreement to reimburse expenses extends through February 28, 2007 and may be renewed thereafter. If this arrangement is discontinued, Fund expenses may increase. For the period ended October 31, 2005, the expenses pushed down to the Underlying Funds under the special servicing arrangements amounted to:
FUNDS AMOUNT ---------------------------------------------------------- Equity Aggressive Strategy $ 1,128,182 Aggressive Strategy 2,136,723 Balanced Strategy 2,713,164 Moderate Strategy 799,578 Conservative Strategy 545,555 2010 Strategy Fund 84,913 2020 Strategy Fund 83,411 2030 Strategy Fund 83,364 2040 Strategy Fund 83,519
For the period ended October 31, 2005, the amounts reimbursed by FRIMCo as transfer agent amounted to:
FUNDS AMOUNT ---------------------------------------------------------- Equity Aggressive Strategy $ 708,805 Aggressive Strategy 1,524,769 Balanced Strategy 2,355,260 Moderate Strategy 484,949 Conservative Strategy 301,240 2010 Strategy Fund 52,579 2020 Strategy Fund 53,553 2030 Strategy Fund 53,529 2040 Strategy Fund 53,495
Transfer Agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. FRIMCo retains a portion of this fee for its services provided to the Fund and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Funds presented herein for the period ended October 31, 2005 were $7,383,247. Until June 30, 2005 the Underlying Funds and FRIMCo as transfer agent have borne this expense pursuant to the special servicing arrangements described above. Effective July 1, 2005, FRIMCo has agreed to waive its transfer agency fees for the Funds through at least February 28, 2007. Distributor and Shareholder Servicing Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributors, Inc. ("Distributor"), a wholly-owned subsidiary of FRIMCo, serves as distributor for all Investment Company portfolio shares, including Class A, Class C, Class D, and Class E shares of the Funds. The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to the Distributor or any Selling Agents, as defined in the Plan for sales support services provided, and related expenses incurred which are primarily intended to result in the sale of the Class A, Class C and Class D shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.25% of the average daily net assets of a Fund's Class A or Class D shares or 0.75% of the average daily net assets of a Fund's Class C shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Funds may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class C, Class D, and Class E shares of the Funds. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class C, Class D, and Class E shares on an annual basis. 92 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Pursuant to the rules of the National Association of Securities Dealers, Inc. ("NASD"), the aggregate initial sales charges and asset-based sales charges on Shares of the Funds may not exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25% limitation is imposed at the class level on each of the Class A shares, Class C and Class D shares of each Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Class A, Class C and Class D shares may pay more than the economic equivalent of the maximum sales charges permitted by the NASD. For the period ended October 31, 2005, the Distributor retained the following amounts in sales charges:
CONTINGENT DEFERRED SALES CHARGES CLASS A ---------------------------------------------------------- Aggressive Strategy $ 3,593 Balanced Strategy 16,654 Moderate Strategy 3,516 Conservative Strategy 2,199
For the period ended October 31, 2005, the sales commissions paid to the selling agents for the sale of Class A shares are as follows:
AGGREGATE CLASS A FRONT-END FRONT-END SALES SALES CHARGES CHARGES ON RETAINED BY FUNDS CLASS A SHARES DISTRIBUTOR -------------------------------------------------------------------------------- Equity Aggressive Strategy $ 1,322,887 $ 247,242 Aggressive Strategy 5,601,965 1,082,003 Balanced Strategy 7,339,426 1,454,617 Moderate Strategy 1,258,191 219,008 Conservative Strategy 440,787 71,858
Accrued fees payable to affiliates as of October 31, 2005 were as follows:
EQUITY AGGRESSIVE AGGRESSIVE BALANCED MODERATE CONSERVATIVE STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY -------------------------------------------------------------------------------------------------------------------------------- Administration fees $ 31,345 $ 66,106 $ 102,661 $ 28,825 $ 20,341 Distribution fees 258,615 557,799 906,973 204,430 98,416 Shareholder servicing fees 162,096 328,384 491,426 136,549 90,694 Trustee fees 171 296 478 210 225 ----------------- ----------------- ----------------- ----------------- ----------------- $ 452,227 $ 952,585 $ 1,501,538 $ 370,014 $ 209,676 ================= ================= ================= ================= =================
2010 2020 2030 2040 STRATEGY STRATEGY STRATEGY STRATEGY ------------------------------------------------------------------------------------------------------------- Administration fees $ 121 $ 141 $ 127 $ 119 Distribution fees 550 506 502 554 Shareholder servicing fees 562 519 515 567 Trustee fees 14 15 15 14 ----------------- ----------------- ----------------- ----------------- $ 1,247 $ 1,181 $ 1,159 $ 1,254 ================= ================= ================= =================
Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company, which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received Notes to Financial Statements 93 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and a new chairperson of the Board was elected with additional annual compensation of $52,000. Transactions With Affiliated Companies An affiliated company is a company in which a Fund has ownership of at least 5% of the voting securities. Transactions during the period ended October 31, 2005 with Underlying Funds which are or were an affiliated company are as follows:
PURCHASES SALES INCOME CAPITAL GAINS AFFILIATE COST COST DISTRIBUTIONS DISTRIBUTIONS ------------------------------------------------------------------------------------------------------------------------------ Equity Aggressive Strategy Diversified Equity Fund $ 56,716,043 $ 3,208,350 $ 1,912,250 $ -- Special Growth Fund 23,390,624 1,895,782 2,005,232 3,392,021 Quantitative Equity Fund 63,512,733 2,876,325 2,352,377 -- International Securities Fund 50,178,373 9,358,187 3,153,861 -- Emerging Markets Fund 7,723,158 4,936,036 651,101 -- ------------------- ------------------- ------------------- ------------------- $ 201,520,931 $ 22,274,680 $ 10,074,821 $ 3,392,021 =================== =================== =================== =================== Aggressive Strategy Diversified Equity Fund $ 113,349,678 $ 1,358,939 $ 3,284,390 $ -- Special Growth Fund 43,962,669 1,040,716 3,555,707 6,014,780 Quantitative Equity Fund 125,909,975 1,189,411 4,038,099 -- International Securities Fund 85,029,596 1,246,508 5,289,357 -- Emerging Markets Fund 8,650,548 1,567,405 1,118,091 -- Real Estate Securities Fund 40,637,335 6,251,257 3,555,164 6,561,402 Multistrategy Bond Fund 159,871,376 1,172,660 14,597,636 1,822,524 ------------------- ------------------- ------------------- ------------------- $ 577,411,177 $ 13,826,896 $ 35,438,444 $ 14,398,706 =================== =================== =================== =================== Balanced Strategy Diversified Equity Fund $ 105,572,383 $ 1,626,210 $ 3,543,151 $ -- Special Growth Fund 51,453,612 1,925,755 4,506,251 7,622,706 Quantitative Equity Fund 118,008,040 1,209,500 4,356,403 -- International Securities Fund 95,914,262 1,477,537 6,943,369 -- Emerging Markets Fund 7,734,523 2,235,039 1,309,275 -- Real Estate Securities Fund 46,850,343 7,263,468 4,617,614 8,614,265 Diversified Bond Fund 225,348,419 303,287 19,135,648 2,698,080 Multistrategy Bond Fund 228,245,346 256,716 22,531,475 2,842,466 ------------------- ------------------- ------------------- ------------------- $ 879,126,928 $ 16,297,512 $ 66,943,186 $ 21,777,517 =================== =================== =================== =================== Moderate Strategy Short Duration Bond Fund $ 72,854,446 $ 2,465,078 $ 6,798,825 $ 158,876 Diversified Bond Fund 64,505,090 3,459,862 6,876,081 999,800 ------------------- ------------------- ------------------- ------------------- $ 137,359,536 $ 5,924,940 $ 13,674,906 $ 1,158,676 =================== =================== =================== =================== Conservative Strategy Short Duration Bond Fund $ 45,728,417 $ 14,074,980 $ 7,472,470 $ 187,675 Diversified Bond Fund 20,653,161 6,793,887 3,568,199 547,223 ------------------- ------------------- ------------------- ------------------- $ 66,381,578 $ 20,868,867 $ 11,040,669 $ 734,898 =================== =================== =================== ===================
For the period ended October 31, 2005, the 2010 Strategy Fund, 2020 Strategy Fund, 2030 Strategy Fund or 2040 Strategy Fund did not own more than 5% of the voting securities in the Underlying Funds. 94 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 5. FEDERAL INCOME TAXES The Funds may have net tax basis capital loss carryforwards which may be applied against any realized net taxable gains in each succeeding year or until their respective expiration dates, whichever occurs first. At October 31, 2005, the Funds had no capital loss carryforwards. At October 31, 2005, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:
EQUITY AGGRESSIVE AGGRESSIVE BALANCED MODERATE CONSERVATIVE STRATEGY STRATEGY STRATEGY STRATEGY STRATEGY ------------------------------------------------------------------------------------------------------------------------------ Cost of Investments $ 881,517,808 $ 1,995,457,486 $ 3,126,072,136 $ 831,330,924 $ 495,858,050 ================ ================ ================ ================ ================ Unrealized Appreciation $ 128,526,584 $ 257,431,257 $ 348,960,963 $ 65,738,774 $ 27,911,209 Unrealized Depreciation -- (551,738) (7,625,637) (6,205,647) (5,647,833) ---------------- ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 128,526,584 $ 256,879,519 $ 341,335,326 $ 59,533,127 $ 22,263,376 ================ ================ ================ ================ ================ Undistributed Ordinary Income $ -- $ -- $ 112,184 $ 740,718 $ 400,981 Undistributed Long-Term Capital Gains (Capital Loss Carryforward) $ 8,098,684 $ 12,238,086 $ 21,481,688 $ 4,920,743 $ 2,410,307 Tax Composition of Distributions Ordinary Income $ 7,981,423 $ 27,174,088 $ 54,202,490 $ 15,245,472 $ 11,180,705 Long-Term Capital Gains $ -- $ -- $ 6,352,562 $ 1,695,439 $ 885,961
2010 2020 2030 2040 STRATEGY STRATEGY STRATEGY STRATEGY ----------------------------------------------------------------------------------------------------------- Cost of Investments $ 4,799,218 $ 4,550,464 $ 4,460,722 $ 4,703,347 ================ ================ ================ ================ Unrealized Appreciation $ 48,552 $ 74,275 $ 76,639 $ 84,192 Unrealized Depreciation (41,903) (33,037) (30,575) (24,046) ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 6,649 $ 41,238 $ 46,064 $ 60,146 ================ ================ ================ ================ Undistributed Ordinary Income $ 18 $ 2,170 $ -- $ 43 Undistributed Long-Term Capital Gains (Capital Loss Carryforward) $ -- $ -- $ -- $ -- Tax Composition of Distributions Ordinary Income $ 44,788 $ 40,190 $ 33,440 $ 28,289 Long-Term Capital Gains $ -- $ -- $ -- $ --
Notes to Financial Statements 95 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EQUITY AGGRESSIVE STRATEGY ----------------- ----------------- ----------------- ----------------- Class A Proceeds from shares sold 4,985 3,956 $ 51,006 $ 35,957 Proceeds from reinvestment of distributions 57 16 580 146 Payments for shares redeemed (765) (260) (7,983) (2,356) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 4,277 3,712 43,603 33,747 ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 10,044 12,340 98,816 107,801 Proceeds from reinvestment of distributions 159 91 1,559 779 Payments for shares redeemed (3,539) (3,374) (34,932) (29,412) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 6,664 9,057 65,443 79,168 ----------------- ----------------- ----------------- ----------------- Class D Proceeds from shares sold 8,269 12,353 83,324 109,960 Proceeds from reinvestment of distributions 234 168 2,336 1,482 Payments for shares redeemed (3,307) (3,572) (33,426) (32,004) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,196 8,949 52,234 79,438 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 5,740 7,666 57,676 68,614 Proceeds from reinvestment of distributions 188 180 1,871 1,591 Payments for shares redeemed (4,018) (10,021) (40,455) (89,981) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,910 (2,175) 19,092 (19,776) ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 5,235 5,868 53,376 52,957 Proceeds from reinvestment of distributions 145 109 1,462 974 Payments for shares redeemed (4,603) (4,692) (46,678) (41,945) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 777 1,285 8,160 11,986 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 18,824 20,828 $ 188,532 $ 184,563 ================= ================= ================= =================
96 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 AGGRESSIVE STRATEGY ----------------- ----------------- ----------------- ----------------- Class A Proceeds from shares sold 19,250 12,939 $ 204,394 $ 124,598 Proceeds from reinvestment of distributions 373 103 3,957 1,008 Payments for shares redeemed (1,712) (506) (18,244) (4,896) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 17,911 12,536 190,107 120,710 ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 21,081 19,726 222,508 188,886 Proceeds from reinvestment of distributions 408 289 4,282 2,791 Payments for shares redeemed (7,239) (5,656) (76,417) (53,981) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 14,250 14,359 150,373 137,696 ----------------- ----------------- ----------------- ----------------- Class D Proceeds from shares sold 13,472 22,477 143,069 217,015 Proceeds from reinvestment of distributions 718 450 7,615 4,386 Payments for shares redeemed (3,132) (2,974) (33,301) (28,740) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 11,058 19,953 117,383 192,661 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 10,265 12,109 109,709 116,639 Proceeds from reinvestment of distributions 547 399 5,800 3,876 Payments for shares redeemed (5,503) (7,178) (58,370) (69,050) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,309 5,330 57,139 51,465 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 9,469 11,280 101,117 109,104 Proceeds from reinvestment of distributions 450 302 4,795 2,949 Payments for shares redeemed (6,457) (4,333) (69,044) (41,980) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 3,462 7,249 36,868 70,073 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 51,990 59,427 $ 551,870 $ 572,605 ================= ================= ================= =================
Notes to Financial Statements 97 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 BALANCED STRATEGY ----------------- ----------------- ----------------- ----------------- Class A Proceeds from shares sold 29,097 21,684 $ 314,909 $ 217,864 Proceeds from reinvestment of distributions 853 236 9,211 2,379 Payments for shares redeemed (3,172) (960) (34,395) (9,597) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 26,778 20,960 289,725 210,646 ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 35,069 30,947 377,639 308,764 Proceeds from reinvestment of distributions 1,129 758 12,115 7,536 Payments for shares redeemed (11,516) (9,413) (123,958) (93,840) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 24,682 22,292 265,796 222,460 ----------------- ----------------- ----------------- ----------------- Class D Proceeds from shares sold 19,279 27,719 208,441 278,061 Proceeds from reinvestment of distributions 1,491 991 16,117 9,935 Payments for shares redeemed (4,998) (4,429) (54,139) (44,562) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 15,772 24,281 170,419 243,434 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 12,088 15,502 131,403 155,584 Proceeds from reinvestment of distributions 975 886 10,536 8,853 Payments for shares redeemed (7,312) (19,006) (79,228) (190,604) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,751 (2,618) 62,711 (26,167) ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 15,450 19,356 168,328 194,884 Proceeds from reinvestment of distributions 966 685 10,478 6,888 Payments for shares redeemed (10,535) (7,762) (114,433) (78,330) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 5,881 12,279 64,373 123,442 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 78,864 77,194 $ 853,024 $ 773,815 ================= ================= ================= =================
98 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 MODERATE STRATEGY ----------------- ----------------- ----------------- ----------------- Class A Proceeds from shares sold 6,610 3,834 $ 71,204 $ 39,433 Proceeds from reinvestment of distributions 174 57 1,873 592 Payments for shares redeemed (805) (523) (8,659) (5,380) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,979 3,368 64,418 34,645 ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 6,585 7,479 70,482 76,703 Proceeds from reinvestment of distributions 244 163 2,608 1,677 Payments for shares redeemed (3,808) (3,239) (40,766) (33,207) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,021 4,403 32,324 45,173 ----------------- ----------------- ----------------- ----------------- Class D Proceeds from shares sold 6,568 10,719 70,858 110,616 Proceeds from reinvestment of distributions 555 354 5,969 3,665 Payments for shares redeemed (2,691) (2,263) (29,020) (23,166) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 4,432 8,810 47,807 91,115 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 5,891 6,293 63,511 64,629 Proceeds from reinvestment of distributions 315 218 3,384 2,243 Payments for shares redeemed (3,682) (3,822) (39,546) (39,271) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 2,524 2,689 27,349 27,601 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 3,750 5,323 40,502 54,914 Proceeds from reinvestment of distributions 234 167 2,522 1,728 Payments for shares redeemed (3,630) (2,778) (39,175) (28,724) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 354 2,712 3,849 27,918 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 16,310 21,982 $ 175,747 $ 226,452 ================= ================= ================= =================
Notes to Financial Statements 99 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 CONSERVATIVE STRATEGY ----------------- ----------------- ----------------- ----------------- Class A Proceeds from shares sold 2,486 1,577 $ 26,647 $ 16,639 Proceeds from reinvestment of distributions 73 22 778 229 Payments for shares redeemed (732) (184) (7,843) (1,937) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,827 1,415 19,582 14,931 ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 3,968 3,975 42,285 41,731 Proceeds from reinvestment of distributions 141 91 1,500 954 Payments for shares redeemed (2,967) (2,168) (31,652) (22,715) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,142 1,898 12,133 19,970 ----------------- ----------------- ----------------- ----------------- Class D Proceeds from shares sold 3,749 6,212 40,350 65,717 Proceeds from reinvestment of distributions 340 229 3,648 2,427 Payments for shares redeemed (2,503) (1,600) (26,877) (16,889) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,586 4,841 17,121 51,255 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 2,650 3,147 28,397 33,167 Proceeds from reinvestment of distributions 440 417 4,708 4,398 Payments for shares redeemed (3,570) (5,031) (38,291) (53,005) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (480) (1,467) (5,186) (15,440) ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 2,080 2,026 22,426 21,477 Proceeds from reinvestment of distributions 110 84 1,174 886 Payments for shares redeemed (2,072) (1,571) (22,363) (16,652) ----------------- ----------------- ----------------- ----------------- Net increase(decrease) 118 539 1,237 5,711 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 4,193 7,226 $ 44,887 $ 76,427 ================= ================= ================= =================
100 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ----------------- ----------------- 2005 2005 2010 STRATEGY ----------------- ----------------- Class A** Proceeds from shares sold 98 $ 1,000 Proceeds from reinvestment of distributions -- 5 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 98 1,005 ----------------- ----------------- Class D* Proceeds from shares sold 174 1,751 Proceeds from reinvestment of distributions 2 13 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 176 1,764 ----------------- ----------------- Class E* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 12 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,012 ----------------- ----------------- Class S* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 14 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,014 ----------------- ----------------- Total increase (decrease) 476 $ 4,795 ================= =================
Notes to Financial Statements 101 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ----------------- ----------------- 2005 2005 2020 STRATEGY ----------------- ----------------- Class A** Proceeds from shares sold 97 $ 1,000 Proceeds from reinvestment of distributions 1 4 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 98 1,004 ----------------- ----------------- Class D* Proceeds from shares sold 270 2,722 Proceeds from reinvestment of distributions 1 12 Payments for shares redeemed (119) (1,219) ----------------- ----------------- Net increase (decrease) 152 1,515 ----------------- ----------------- Class E* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 11 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,011 ----------------- ----------------- Class S* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 13 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,013 ----------------- ----------------- Total increase (decrease) 452 $ 4,543 ================= =================
102 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ----------------- ----------------- 2005 2005 2030 STRATEGY ----------------- ----------------- Class A** Proceeds from shares sold 97 $ 1,000 Proceeds from reinvestment of distributions -- 4 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 97 1,004 ----------------- ----------------- Class D* Proceeds from shares sold 141 1,423 Proceeds from reinvestment of distributions 1 9 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 142 1,432 ----------------- ----------------- Class E* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 9 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,009 ----------------- ----------------- Class S* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 11 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,011 ----------------- ----------------- Total increase (decrease) 441 $ 4,456 ================= =================
Notes to Financial Statements 103 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ----------------- ----------------- 2005 2005 2040 STRATEGY ----------------- ----------------- Class A** Proceeds from shares sold 97 $ 1,000 Proceeds from reinvestment of distributions -- 3 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 97 1,003 ----------------- ----------------- Class D* Proceeds from shares sold 167 1,686 Proceeds from reinvestment of distributions 1 8 Payments for shares redeemed (2) (16) ----------------- ----------------- Net increase (decrease) 166 1,678 ----------------- ----------------- Class E* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 8 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,008 ----------------- ----------------- Class S* Proceeds from shares sold 100 1,000 Proceeds from reinvestment of distributions 1 10 Payments for shares redeemed -- -- ----------------- ----------------- Net increase (decrease) 101 1,010 ----------------- ----------------- Total increase (decrease) 465 $ 4,699 ================= =================
* For the period January 1, 2005 (commencement of operations) to October 31, 2005. ** For the period September 1, 2005 (commencement of operations) to October 31, 2005. 7. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Funds may borrow up to a maximum of 33.33% of the value of their net assets under the agreement. The agreement will expire December 21, 2005 and is expected to be renewed at that time. The Funds did not have any drawdowns for the period ended October 31, 2005. 104 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 8. RECORD OWNERSHIP As of October 31, 2005, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund.
FUNDS # OF SHAREHOLDERS % -------------------------------------------------------------------------------- Equity Aggressive Strategy 2 33.4 Aggressive Strategy 1 20.4 Balanced Strategy 1 18.9 Moderate Strategy 1 26.4 Conservative Strategy 2 46.1 2010 Strategy 2 98.5 2020 Strategy 2 97.8 2030 Strategy 1 90.6 2040 Strategy 2 99.9
Notes to Financial Statements 105 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Equity Aggressive Strategy Fund, Aggressive Strategy Fund, Balanced Strategy Fund, Moderate Strategy Fund, Conservative Strategy Fund, 2010 Strategy Fund, 2020 Strategy Fund, 2030 Strategy Fund, and 2040 Strategy Fund (nine of the portfolios constituting Frank Russell Investment Company, hereafter collectively referred to as the "Funds") at October 31, 2005, the results of each of their operations for the year then ended for Equity Aggressive Strategy Fund, Aggressive Strategy Fund, Balanced Strategy Fund, Moderate Strategy Fund, and Conservative Strategy Fund and for the period from January 1, 2005 (commencement of operations) through October 31, 2005 for 2010 Strategy Fund, 2020 Strategy Fund, 2030 Strategy Fund, and 2040 Strategy Fund, the changes in each of their net assets and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the transfer agent, provide a reasonable basis for our opinion. /s/ PricewatehouseCoopers LLP Seattle, Washington December 20, 2005 106 Report of Independent Registered Public Accounting Firm FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- For the tax year ended October 31, 2005, the Funds hereby designate 100%, or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows: Equity Aggressive Strategy 67.9% Aggressive Strategy 33.7% Balanced Strategy 18.1% Moderate Strategy 11.8% Conservative Strategy 5.4% 2010 Strategy 9.3% 2020 Strategy 11.9% 2030 Strategy 17.6% 2040 Strategy 24.1%
The Form 1099 you receive in January 2006 will show the tax status of all distributions paid to your account in calendar 2005. 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 October 31, 2005:
TOTAL LONG-TERM CAPITAL GAINS ------------------- Balanced Strategy $ 6,352,562 Moderate Strategy 1,695,439 Conservative Strategy 885,961
Please consult a tax advisor for any questions about federal or state income tax laws. Tax Information 107 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with FRIMCo and the portfolio management contract (together, the "investment advisory agreements") with each Money Manager of the Underlying Funds at a meeting held on February 23, 2005. During the course of a year, the Trustees received a wide variety of materials regarding the investment performance of the Funds and the Underlying Funds, sales and redemptions of the Funds' and the Underlying Funds' shares, and the management of the Funds and the Underlying Funds by FRIMCo. In preparation for the annual review, the Board, with the advice and assistance of independent counsel, also received and considered (1) information and reports prepared by FRIMCo relating to the services provided by FRIMCo (and its affiliates) to the Funds and the Underlying Funds, including information requested by the Trustees, and (2) information received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and the Underlying Funds and their operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by FRIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds and the Underlying Funds (collectively, the "Agreement Renewal Information"). Prior to voting, the Independent Trustees reviewed the proposed continuance of the investment advisory agreements with management and independent counsel and received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. The Independent Trustees also reviewed the proposed continuance in a private session with independent counsel at which no representatives of FRIMCo or management were present. The discussion below reflects both of these reviews. In evaluating the advisory agreement with FRIMCo and the portfolio management contracts with the Money Managers of the Underlying Funds, the Board considered that the Underlying Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. All Underlying Funds have multiple Money Managers. The Board considered that FRIMCo (rather than any Money Manager) is responsible under the investment advisory agreement for determining, implementing and maintaining the investment program for each Underlying Fund. Assets of each Underlying Fund have been allocated among multiple Money Managers. FRIMCo is responsible for selecting Money Managers for each Underlying Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for an Underlying Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Underlying Fund assigned to it by FRIMCo in accordance with the Underlying Fund's applicable investment objective, policies and restrictions (each, a "segment"). FRIMCo is responsible for communicating performance expectations and evaluations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund's investment objectives and policies; authorizing Money Managers to engage in certain investment strategies for an Underlying Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, FRIMCo is responsible for recommending to the Board the restructuring of Underlying Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on FRIMCo's research and analysis, such actions are appropriate. FRIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for an Underlying Fund in a complementary manner. Therefore, FRIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Underlying Fund. The performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by FRIMCo in the Underlying Fund's investment activities and any constraints placed by FRIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Fund and Underlying Fund over appropriate periods reflects in great part the performance of FRIMCo in designing the Underlying Fund's investment program, structuring Underlying Fund segments, selecting an effective Money Manager for each segment with a style that is complementary to the styles of the Money Managers of other Underlying Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Underlying Fund. 108 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- The Board also considered that the prospectuses for the Funds and Underlying Funds emphasize to investors FRIMCo's role as the principal investment manager for each Fund and Underlying Fund, rather than the investment selection role of the Underlying Funds' Money Managers, and describe the manner in which the Funds and Underlying Funds operate so that investors may take the information into account when deciding to purchase shares of any such Fund. In addition to these general factors relating to the manager of managers structure of the Underlying Funds, the Trustees considered, with respect to each Fund and Underlying Fund, various specific factors on the basis of the Agreement Renewal Information in evaluating renewal of the advisory agreement with FRIMCo, including the following: 1. The nature, scope and quality of the services provided to the Fund and the Underlying Funds by FRIMCo; 2. The advisory fee paid by the Fund or Underlying Fund to FRIMCo and the fact that it encompasses all investment advisory fees paid by the Fund or Underlying Fund, including the fees for any Money Managers of such Underlying Fund; 3. Information provided by FRIMCo as to other fees and benefits received by FRIMCo or its affiliates from the Fund or Underlying Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by FRIMCo as to investment advisory fees paid by Comparable Funds; 5. Information provided by FRIMCo as to expenses incurred by the Fund or Underlying Fund; 6. Information provided by FRIMCo as to the profits that FRIMCo derives from its mutual fund operations generally and from each Fund and Underlying Fund; and 7. The importance of supporting quality, long-term service by FRIMCo to help achieve the Fund's or Underlying Fund's investment performance, including the continuing need of FRIMCo to retain and attract qualified investment and service professionals to serve the Funds and Underlying Funds. On the basis of the information received, the Board, in respect of each Fund and Underlying Fund, found the advisory fees charged and costs and expenses incurred by FRIMCo to be fair and reasonable; after giving effect to waivers and/or reimbursements; and considering the composition of the Comparable Funds, the relative performance and expense ratio of the Fund or Underlying Fund were comparable to those of peer funds; FRIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and FRIMCo's profitability with respect to the Fund or Underlying Fund was reasonable in light of the nature, scope and quality of the services provided by FRIMCo. The Board considered for each Fund and Underlying Fund whether economies of scale have been realized and whether the fees for such Fund or Underlying Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on December 6, 2004 that the investment advisory fees for each Fund and Underlying Fund appropriately reflect any economies of scale realized by that Fund or Underlying Fund. Its findings at the earlier meeting were based upon information and analyses prepared by FRIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager of managers structure employed by most Underlying Funds relevant to the Board's deliberations, and took into consideration the Funds' and Underlying Funds' rising costs of compliance with applicable laws, rules and regulations. The Trustees considered that fees payable to FRIMCo by institutional clients with investment objectives similar to those of Underlying Funds are lower, and may, in some cases, be substantially lower, than the rates paid by the Underlying Funds. FRIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and Underlying Funds. For example, institutional clients have fewer administrative needs than the Underlying Funds. It was further noted that since the Underlying Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. The Board also considered the special expertise of FRIMCo with respect to the manager of managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of each such Fund or Underlying Fund, there would be no acceptable alternative investment managers to replace FRIMCo on comparable terms given the need to conduct the manager of managers, multi-style strategy of such Fund or Underlying Fund selected by its shareholders in purchasing their shares. With respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from FRIMCo reporting for each Money Manager, among other things, the Money Manager's performance Basis for Approval of Investment Advisory Contracts 109 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- over various periods; FRIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and the Funds, the Underlying Funds, FRIMCo or FRIMCo's affiliates; and FRIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. FRIMCo recommended that each Money Manager be retained at its current fee rate. FRIMCo advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the investment advisory agreements with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with FRIMCo; FRIMCo is aware of the fees charged by Money Managers to other clients; and FRIMCo believes that the fees agreed upon with Money Managers are fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted FRIMCo's explanation in light of the Board's findings as to the fairness and reasonableness of the aggregate investment advisory fees paid by each Fund and Underlying Fund and the fact that each Money Manager's fee is paid by FRIMCo. Based substantially upon FRIMCo's recommendations together with the information received from FRIMCo in support of its recommendations, the Board concluded that the fees paid to the Money Managers of each Underlying Fund were fair and reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of each Underlying Fund was in the interests of shareholders. In their deliberations, the Trustees did not identify any particular information as to the investment advisory agreement with FRIMCo or, other than FRIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund and Underlying Fund. At a meeting held on March 24, 2005, the Trustees received proposals from FRIMCo to effect certain Money Manager changes for the International Securities Fund; and at a meeting held on May 17, 2005 received proposals from FRIMCo to effect certain Money Manager changes for the Special Growth Fund. In the case of each such Underlying Fund, the Trustees approved the terms of the proposed portfolio management agreements with the successor Money Manager(s) based substantially upon FRIMCo's recommendation; its explanation as to the lack of relevance of profitability to the evaluation of portfolio management agreements with Money Managers; and its belief that the proposed investment advisory fees for the successor Money Manager(s) would be fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at the February 23, 2005 meeting as to the fairness and reasonableness of the aggregate investment advisory fees paid by each affected Underlying Fund, and the fact that the aggregate investment advisory fees paid by such Underlying Fund would not increase as a result of the implementation of any proposed Money Manager change because each Money Manager's investment advisory fee is paid by FRIMCo. At a meeting held on May 17, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Diversified Equity Fund (a "Participating Fund") utilizing a "select holdings strategy" pursuant to the terms of the Advisory Agreement between the Underlying Fund and FRIMCo; at a meeting held on August 23, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Equity Q Fund (also a "Participating Fund") utilizing the same select holdings strategy; and at a meeting held on November 15, 2005, the Trustees received a proposal from FRIMCo to increase the percentage of each Participating Fund's assets that may be managed by FRIMCo utilizing the select holdings strategy to 10%, the actual allocation to be determined by each Participating Fund's portfolio manager. Under this strategy, FRIMCo analyzes the stocks purchased for a Participating Fund by each of the Underlying Fund's Money Managers to identify particular stocks that are concurrently overweighted by two or more of the Money Managers. FRIMCo uses a proprietary model to rank these stocks. Based on this ranking, FRIMCo will purchase additional shares of certain stocks for the Participating Fund. The strategy is designed to increase the Participating Fund's exposure to stocks that are collectively viewed as attractive by multiple Money Managers to the Participating Fund. Implementation of this strategy includes periodic rebalancing of the Participating Fund's holdings. The Trustees received and considered information from FRIMCo regarding the potential enhancements to the Participating Funds' performance based upon FRIMCo's limited experience in employing the same strategy for other types of investment accounts under its management. The Trustees also considered that FRIMCo would not be required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is utilized and that the profits derived by FRIMCo generally and from each Participating Fund consequently may increase incrementally. The Board, however, considered FRIMCo's advice that it will pay certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and expects to incur additional costs in implementing and carrying out the select holdings strategy; the limited amount of assets that would be managed directly by FRIMCo pursuant to the select holdings 110 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- strategy; the fact that the aggregate investment advisory fees paid the Participating Fund would not increase as a result of the implementation of the select holdings strategy; and its findings at the meeting held on February 23, 2005 that the aggregate fees payable by the Participating Fund are fair and reasonable. Based upon the Agreement Renewal Information received from FRIMCo at the meeting held on February 23, 2005 and information concerning implementation of the select holdings strategy received from FRIMCo at the meetings held on February 23, 2005, May 17, 2005, August 23, 2005 and November 15, 2005 the Board in the case of the Participating Funds accepted FRIMCo's select holdings strategy proposals, concluding in doing so that the investment advisory fees paid to FRIMCo by such Underlying Fund under its advisory agreement with FRIMCo continue to be fair and reasonable in light of the nature and anticipated quality of the investment advisory services to be rendered by FRIMCo. Basis for Approval of Investment Advisory Contracts 111 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Financial Statements of the Underlying Funds can be obtained at no charge by calling the Fund at (800)787-7354. 112 Shareholder Requests for Additional Information FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 - None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified. - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. Disclosure of Information about Fund Directors 113 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
114 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 115 FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. 116 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY LIFEPOINTS(R) FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 117 LIFEPOINTS(R) FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS OF UNDERLYING FUNDS AS OF OCTOBER 31, 2005 Diversified 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 Institutional Capital Corporation, Chicago, IL Marsico Capital Management, LLC, Denver, CO MFS Institutional Advisors, Inc., Boston, MA Montag & Caldwell, Inc., Atlanta, GA Schneider Capital Management Corporation, Wayne, PA Suffolk Capital Management, LLC, New York, NY Turner Investment Partners, Inc., Berwyn, PA Quantitative Equity Fund Aronson + Johnson + Ortiz, LP, Philadelphia, PA Franklin Portfolio Associates LLC, Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Jacobs Levy Equity Management, Inc., Florham Park, NJ Special Growth Fund CapitalWorks Investment Partners, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Delphi Management, Inc., Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Gould Investment Partners LLC, Berwyn, PA Jacobs Levy Equity Management, Inc., Florham Park, NJ Nicholas-Applegate Capital Management LLC, San Diego, CA TimesSquare Capital Management LLC, New York, NY Tygh Capital Management, Inc., Portland, OR Real Estate Securities Fund AEW Management and Advisors, L.P., Boston, MA Heitman Real Estate Securities, LLC, Chicago, IL INVESCO Institutional (N.A.), Inc., through its INVESCO Real Estate division, Dallas, TX RREEF America L.L.C., Chicago, IL International Securities Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY AQR Capital Management, LLC, Greenwich, CT Axiom International Investors LLC, Greenwich, CT Fidelity Management & Research Company, Boston, MA Marvin & Palmer Associates, Inc., Wilmington, DE MFS Institutional Advisors, Inc., Boston, MA Mondrian Investment Partners Limited, London, England The Boston Company Asset Management, LLC, Boston, MA Wellington Management Company, LLP, Boston, MA 118 Manager, Money Managers and Service Providers LIFEPOINTS(R) FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- Emerging Markets Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY Arrowstreet Capital, Limited Partnership, Cambridge, MA Genesis Asset Managers, LLP, Guernsey, Channel Islands T. Rowe Price International, Inc., Baltimore, MD Wells Capital Management Inc., San Francisco, CA Diversified Bond Fund Bear Stearns Asset Management Inc., New York, NY Lehman Brothers Asset Management LLC, Chicago, IL Pacific Investment Management Company LLC, Newport Beach, CA Western Asset Management Company, Pasadena, CA Multistrategy Bond Fund Bear Stearns Asset Management Inc., New York, NY Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Morgan Stanley Investment Management Inc., West Conshohocken, PA Pacific Investment Management Company LLC, Newport Beach, CA Short Duration Bond Fund Merganser Capital Management L.P., Boston, MA Pacific Investment Management Company LLC, Newport Beach, CA STW Fixed Income Management, Carpinteria, CA This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of 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 119 (This page intentionally left blank) (RUSSELL LOGO) Frank Russell Investment Company 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-022(1 10/05) (INSTITUTIONAL FUNDS) 2005 ANNUAL REPORT CLASS E, I, AND Y SHARES: EQUITY I FUND EQUITY II FUND EQUITY Q FUND INTERNATIONAL FUND FIXED INCOME I FUND FIXED INCOME III FUND CLASS C, E, AND S SHARES: EMERGING MARKETS FUND REAL ESTATE SECURITIES FUND SHORT DURATION BOND FUND (formerly Short Term Bond Fund) CLASS C, E, I, AND S SHARES: SELECT GROWTH FUND SELECT VALUE FUND OCTOBER 31, 2005 (RUSSELL LOGO) Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on eleven of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company Institutional Funds Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Equity I Fund........................................................ 8 Equity II Fund....................................................... 18 Equity Q Fund........................................................ 32 International Fund................................................... 42 Fixed Income I Fund.................................................. 62 Fixed Income III Fund................................................ 88 Emerging Markets Fund................................................ 120 Real Estate Securities Fund.......................................... 134 Short Duration Bond Fund............................................. 142 Select Growth Fund................................................... 162 Select Value Fund.................................................... 172 Notes to Schedules of Investments.................................... 181 Statement of Assets and Liabilities.................................. 182 Statement of Operations.............................................. 186 Statement of Changes in Net Assets................................... 188 Financial Highlights................................................. 192 Notes to Financial Highlights........................................ 204 Notes to Financial Statements........................................ 205 Report of Independent Registered Public Accounting Firm.............. 232 Tax Information...................................................... 233 Basis for Approval of Investment Advisory Contracts.................. 234 Shareholder Requests for Additional Information...................... 237 Disclosure of Information about Fund Directors....................... 238 Manager, Money Managers and Service Providers........................ 243
Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MARKET SUMMARY AS OF OCTOBER 31, 2005 (UNAUDITED) U.S. EQUITY MARKETS Though the 2004 presidential election provided a boost to the markets at the start of the fiscal year, stocks made little headway in the first half of the fiscal year as concerns of high oil prices and rising interest rates offset generally strong economic and corporate earnings data. But despite even higher energy costs, rising inflationary pressures, further interest rate hikes by the Federal Reserve, the economic disruptions of hurricanes Rita and Katrina and a sharp fall-off in consumer confidence, stocks were surprisingly resilient in the second half of the fiscal year. For the fiscal year ending October 31, 2005, the Russell 3000(R) Index gained 10.55%. Sector leadership in the first half of the fiscal year was dominated by energy and utilities. As in the previous year, energy stocks dominated the market due to strong global demand for energy. Towards the end of the fiscal year, hurricanes Katrina and Rita provided another boost to energy sectors as damage to the natural gas and petroleum refining and distribution infrastructure caused further spikes in energy prices. Despite a subsequent decline in oil prices and a sharp sell-off in energy stocks in October, the integrated oil and other energy sectors strongly led the U.S. equity market in the fiscal year. Other sectors also performed well in the second half, including technology and healthcare. As a result, the market environment for active management improved in the second half of the fiscal year as the rally in equities broadened beyond the energy and utilities sectors. While lagging far behind energy stocks, consumer staples stocks also outperformed in the fiscal year due to their defensive, stable growth qualities. Biotechnology and non-pharmaceutical healthcare stocks also fared well. In contrast, materials and consumer discretionary stocks lost favor with investors. Though the housing market remained strong, providing support for consumer spending, real estate prices appeared to ease towards the end of the fiscal year as higher energy and mortgage financing costs weakened consumer confidence. Retail and housing-related stocks fell to end the fiscal year among the worst performers. Despite rebounding in the second half of the year, technology stocks also lagged in the fiscal year as rising competitive pressures and generally lackluster earnings outlooks held back large capitalization technology stocks. Small capitalization companies outperformed large capitalization companies, as measured by the 12.08% return of the Russell 2000(R) Index versus 10.47% for the Russell 1000(R) Index for the fiscal year ended October 31, 2005. Though their lead narrowed over the 12 months, small capitalization companies have outperformed large capitalization companies for the last seven years. Small capitalization companies continued to benefit from narrow credit spreads (which allow companies to borrow money at more favorable rates). They also benefited from strong performance of stocks in the energy, healthcare and utilities sectors and the improving performance of technology-related companies. Companies of higher financial quality continued to underperform the broader market as represented by the Russell 3000(R) Index, while higher beta and lower dividend yield companies on the whole outperformed the broader market. Style continued to play an important role in equity returns. Value stocks outperformed growth stocks, though the margin of outperformance was smaller than in recent years. The Russell 1000(R) Value Index returned 11.86% for the fiscal year, compared with 8.81% for the Russell 1000(R) Growth Index. Investors' continued 4 Market Summary FRANK RUSSELL INVESTMENT COMPANY preference for energy-related and utility stocks over technology stocks, strongly favored value stocks in the first half of the fiscal year. But growth stocks performed better in the second half of the fiscal year due to rebounds by technology and biotechnology and health care service-related stocks. The fiscal year ending October 31, 2005 was relatively difficult for active managers given the outstanding performance of the energy sectors, which many active managers were underweight. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.14% while the Lipper Large Cap Value Funds Average underperformed the Russell 1000(R) Value Index by 2.18%. Active management fared better in the growth segment where the Lipper Large Cap Growth Funds Average beat the Russell 1000(R) Growth Index by 1.28%. The environment for active small capitalization investing was also more favorable: the Lipper Small-Cap Core Funds Average beat the Russell 2000(R) Index by 1.16%. Note: Lipper returns are net of fees while the index returns are gross of fees. U.S. REAL ESTATE MARKETS The public real estate investment trust (REIT) market continued to deliver strong performance as the NAREIT Equity REIT Index returned 17.92% in the fiscal year ending October 31, 2005. Though interest rates rose during the fiscal year, they remained low relative to historical levels. The REIT market was further supported by improving property market supply and demand fundamentals and an active mergers and acquisitions environment. Elevated volatility continued to dominate the REIT market. Because yield-oriented investors are a major constituent in the REIT market, the market was highly sensitive to changes in long-term interest rates and shifts in sentiment regarding the direction of rates. During the fiscal year, the spread of average REIT dividend yields to 10-year Treasury yields was compressed, making REITs vulnerable to pricing adjustments based on changes in the outlook for interest rates. Improvements in real estate fundamentals resulted in higher average occupancy rates and rents which contributed to solid growth in REIT earnings and positive performance for most sectors. The strongest performing sectors were self storage and apartments. The self storage sector was attractive due to relative valuations and earnings growth. Apartments benefited from expectations that higher mortgage interest rates would dampen purchases of entry-level single-family homes and boost demand for apartments. Other sectors that outperformed the benchmark included office, regional malls and diversified. The weakest performing sectors included manufactured homes, health care, shopping centers, industrial and mixed industrial/office. Investors favored larger capitalization REITs during the fiscal year. The NAREIT Real Estate 50, a benchmark of larger and more frequently traded REITs, returned 19.79%. These companies benefited from their better liquidity, more favorable balance sheets and stronger earnings growth prospects. NON-U.S. EQUITY MARKETS Non-U.S. stocks gained 18.59% as measured by the MSCI EAFE Index for the fiscal year ended October 31, 2005. The performance of non-U.S. stocks was even more impressive given that the strong U.S. dollar muted returns for U.S. investors. The MSCI EAFE Index rose 25.64% as measured in local currencies over the 12-month period. Non-U.S. stocks benefited from steady global growth and improved corporate earnings; however, regional returns showed considerable variation. While the U.S. economy continued to set the tempo for global markets, China's economic growth also had a strong influence, particularly in the Pacific Basin. Japan achieved the strongest returns of the major countries, with the MSCI Japan Index up 22.29% in the fiscal year. Japan's improving economy, increased corporate and consumer spending and demand from China boosted stocks. In Market Summary 5 FRANK RUSSELL INVESTMENT COMPANY addition, investors believed that Prime Minister Koizumi's landslide victory in the September 2005 election increased the likelihood of structural reform intended to accelerate economic growth. The Japanese market was led by strong gains in the financial sector. Japanese banks were expected to further benefit from the improving domestic economy. Japanese materials and energy sectors also performed well in the period. Europe lagged Asia, though the MSCI Europe Index achieved a still impressive 16.84% return over the fiscal year. Smaller markets, such as Norway and Austria, fared best, helped by very strong gains from their energy stocks. Despite good results from energy, materials and financials stocks, the Euro zone's (European Union countries that have adopted the Euro as common currency) larger markets of Germany and France delivered below average returns, held back by poorly performing technology and telecommunications stocks. Elsewhere, the U.K. also lagged the European region with a gain of 14.22% (MSCI UK). The U.K. underperformed due to weakness among its financials and telecommunication stocks. While the Euro zone showed small signs of economic improvement over the fiscal year, the U.K. economy slowed down, causing the Bank of England to cut interest rates towards the end of the period. Markets not represented in the MSCI EAFE Index, but commonly included in non-US stock portfolios, offered significant opportunities for gains during the period. Canadian stocks rose 24.13% (MSCI Canada). Developing markets provided additional opportunity as the MSCI Emerging Markets Index rose 34.34%. These markets benefited from heavy weightings in energy and materials stocks. With market participants focused on rising energy costs and China's strong economic growth, the performance of economic sectors was aligned with these themes. Across the non-U.S. markets, industrial cyclicals were the top performers. The materials sector, led by metals and mining stocks, was the strongest sector, up 29.12% (MSCI EAFE Materials) The energy sector followed with a 25.46% (MSCI EAFE Energy) gain and the industrial sector also fared well, up 25.09% (MSCI EAFE Industrials). In contrast, technology and telecommunications were the worst performing sectors over the period, with gains of only 3.45% (MSCI EAFE Information Technology) and 5.48% (MSCI EAFE Telecommunications Services), respectively. The diverse pressures on these underperforming sectors included increased competition, falling prices, restructuring charges and rising inventories. Sharply higher energy costs also cut into profit margins as the fiscal year progressed. With the value segment of the MSCI EAFE index more weighted towards industrial cyclicals and financials, the environment was slightly more favorable for value-oriented investors; however, the margin of outperformance was relatively small. The MSCI EAFE Value Index rose 19.16%, compared with 18.03% for the MSCI EAFE Growth Index. Investors continued to favor smaller capitalization stocks over their larger capitalization peers with the MSCI EAFE Small Cap Index up 37.29% in the period. Despite their traditional bias towards smaller capitalization stocks, as well as the tendency to hold emerging markets and Canadian stocks, actively-managed international funds found the past fiscal year a challenging period. The average fund, as measured by the Lipper International Funds Average, lagged the MSCI EAFE Index over the period by 0.81%. EMERGING MARKETS Emerging Markets was the best-performing asset class in the fiscal year with the MSCI Emerging Markets Index up a strong 34.34%. The devastating tsunami that affected much of South Asia in late December 2004 had little impact on the markets of the region, with the exception of Sri Lanka, whose market lost 10% of its value in the last week of December. China's move to revalue its currency (allowing it to rise 2.11% against the US dollar), also had a limited effect on the currencies and markets in the region. Widespread declines in stock prices in March and October across the emerging markets, caused by rising U.S. interest rates and a 6 Market Summary FRANK RUSSELL INVESTMENT COMPANY slowdown in Chinese growth, also proved to be short-lived. Overall, these markets benefited from strong demand for energy and other raw materials, healthier local economies, corporate earnings gains, improving governance and attractive valuations relative to other asset classes. Given the substantial gains relative to the U.S. and non-U.S. developed markets in the fiscal year, the valuation discount of emerging markets narrowed. Regionally, Latin America was the top performer, returning 61.55% (MSCI EM Latin America). EMEA (Europe, Middle East and Africa) also outperformed, returning 39.27% (MSCI EM Europe, Middle East & Africa). In contrast, Asia lagged, returning 23.63% (MSCI EM Asia). Top country performers were some of the smaller markets such as Egypt, Jordan, Columbia and Pakistan which generated gains between 73% (MSCI EM Pakistan) and 159% (MSCI EM Egypt). Despite allegations of government corruption in the second quarter that caused a decline in the market, Brazil was the best performing large country; however, its 76% (MSCI EM Brazil) gain was aided by a 27% rise in its currency. Venezuela was the only country to lose ground in the fiscal year, falling by 34.08% (MSCI EM Venezuela). In terms of sectors, energy, up 53.99% (MSCI EM Energy), was the best performer driven by the strong oil prices over the period. In contrast, technology was the worst performing sector. All other sectors performed more in line with the benchmark. On balance, country selection was the key to outperformance in the fiscal year. U.S. FIXED INCOME MARKETS Interest rates, particularly in shorter-term maturities, took their cue from Federal Reserve policy. The Federal Reserve raised its target for the fed funds rate (the interest rate at which depository institutions lend money at the Federal Reserve to other depository institutions overnight) from 1.75% in the fall of 2004 to 3.75% by the end of October 2005. The Fed's eight interest rate hikes in the fiscal year represented an attempt to move back to a more neutral monetary policy to counter rising inflationary pressures as the fiscal year progressed. Although shorter maturity interest rates tended to move up in a straight line, intermediate and long term rates were volatile as investors grappled with slowing economic growth, moderate employment growth, rising commodity prices and natural disasters. Worries about inflation caused bond markets to gyrate up and down, with the ten-year note moving from a high of over 4.6% in March to a low of under 3.9% in June. For the fiscal year, ten-year rates rose, starting at 4.0% and moving up to end the period at 4.55%. With interest rates rising, investment grade bonds were little changed. For example, the Lehman Brothers US Aggregate Bond Index, a broad measure of US investment grade fixed income securities, returned just 1.13% for the fiscal year ending October 31, 2005. Among sectors, the riskier areas continued to post strong performance. As in the two prior years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from low default levels, healthy economic growth and low interest rates. Emerging market debt performed well due to commodity price increases and better fiscal and monetary governance among a number of developing countries. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 4.08% over the year compared to 0.88% for the Lehman US Treasury Index. Investment grade corporate bonds also benefited from the same factors that drove the high yield market. For the fiscal year, the Lehman US Credit Index returned 0.65%. Despite increased regulatory scrutiny of the mortgage market, mortgage securities also continued to do well, slightly outperforming equivalent duration Treasuries. The Lehman MBS Fixed Rate Index returned 1.75%. As the fiscal year ended, the yield spreads between corporates and mortgages relative to Treasuries continued to be narrow, reflecting a healthy economy where corporations remained conservative in their use of debt. The narrow spread also reflected a large market demand for yield, as coupons across the globe remained very low. Market Summary 7 FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
EQUITY I - CLASS I RUSSELL 1000(R) ** ------------------ ------------------ * 10000.00 10000.00 1996 12324.00 12292.00 1997 16503.00 16206.00 1998 19142.00 19401.00 1999 23705.00 24364.00 2000 24687.00 26571.00 2001 18027.00 19652.00 2002 15495.00 16783.00 2003 18752.00 20528.00 2004 20250.00 22443.00 2005 22875.00 24793.00
Equity I - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.97% 5 Years (1.51)%sec. 10 Years 8.63%sec.
Equity I - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.70% 5 Years (1,74)%sec. 10 Years 8.46%sec.
Equity I - Class Y ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 13.00% 5 Years (1.45)%sec. 10 Years 8.67%sec.
Russell 1000(R) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. 10 Years 9.50%sec.
8 Equity I Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Equity I Fund Class I, Class E and Class Y gained 12.97%, 12.70% and 13.00%, respectively. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Core Funds Average returned 8.33%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? During the past 12 months, the Fund benefited from the rising stock market due to its fully invested stance, favorable stock selection and its allocation to the energy sector. Since energy stocks have dominated market returns, exposure to this group was an important contributor to the Fund's performance. In addition, the market favored companies with above-average forecasted growth and lower dividend yields, and the Fund was positioned to benefit from these trends. The Fund also overcame a challenging active management environment to post favorable peer-relative returns. A key contributor to the Fund's outperformance relative to peers included full participation in the energy stock rally, as many of the Fund's peers were underweight this sector. Strong stock selection across almost every other sector contributed to the Fund's favorable performance versus its peers. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? There were a number of contributing factors to the Fund's outperformance relative to its benchmark and peers. First, the Fund was fully invested in equities in a positive stock market. Second, stock selection was favorable across most economic sectors. Third, several overweighted positions had significant returns including Google, Genentech, ConocoPhillips, Altria and Boeing. Fourth, the Fund benefited from holding stocks that export to developing countries (e.g., Proctor & Gamble, Caterpillar, and PepsiCo). Fifth, the Fund was modestly overweighted in the energy sector. Finally, most of the Fund's money managers such as Institutional Capital Corporation, Suffolk Capital Management, LLC, Marsico Capital Management, LLC and Turner Investment Partners, Inc. substantially outperformed their respective benchmarks. Detractors to performance in the fiscal year were the Fund's overweight in consumer discretionary stocks and its modestly above-market beta. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The market environment for the 12 months was favorable for strategies emphasized by the Fund. The Fund's growth money managers that focused on companies with above-average growth rates posted strong returns, as the market favored dynamic industries such as biotechnology over slower growing industries such as pharmaceuticals. Outperforming money managers within this group of money managers included Turner and Marsico. Turner's stock selection was positive across most sectors but was particularly strong in the health care, consumer staples and financial services sectors. Marsico also delivered good results in the health care and financial services sectors, but added additional value through its positioning in the technology sector. Marsico's large overweight to Google was one of the strongest contributors to performance. The Fund's value money managers, on average, fully participated in the energy stock rally and emphasized companies with stable earnings in a decelerating profit growth environment. In this group of money managers, Institutional Capital had strong energy and consumer staples stock selection. The market-oriented money managers benefited from owning companies with positive earnings surprises and rising earnings estimates. Suffolk's health care stock selection was strong, but this manager also added value through good stock selection in the materials and processing and consumer discretionary sectors, two of the fiscal year's worst-performing sectors. Overall, the Fund's performance was helped by the market's preference for companies with above-average forecasted growth. After five years of underperformance in the U.S. market, growth companies are selling at historically low valuation premiums. The Fund's money managers responded by emphasizing growth companies to a greater degree and this strategy was rewarded in the period. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In July 2005, Jacobs Levy Equity Management, Inc. was terminated. At the same time, a "select holdings" strategy was implemented. Pursuant to this strategy, FRIMCo analyzes the stocks purchased for the Fund by each of the Fund's money managers to identify particular stocks that are concurrently overweighted by the money managers. Based on rankings from a proprietary model, FRIMCo purchases additional shares of certain stocks for the Fund. The Fund continues to pursue a strategy of increasing stock specific risk and these changes were consistent with this strategy. Equity I Fund 9 FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management L.P., through its Bernstein Investment Research & Management Unit Value Ark Asset Management Co., Inc. Growth Institutional Capital Corporation Value Marsico Capital Management, LLC Growth MFS Institutional Advisors, Inc. Value Montag & Caldwell, Inc. Growth Schneider Capital Management Corporation Value Suffolk Capital Management, LLC Market-Oriented Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Equity I Fund Class I assumes initial investment on November 1, 1995. ** 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 from income dividends and capital gain distributions reinvested as of the ex-dividend dates. ++++ Equity I Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Equity I Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 10 Equity I Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,075.30 $ 1,020.42 Expenses Paid During Period* $ 4.97 $ 4.84
* Expenses are equal to the Fund's annualized expense ratio of 0.95% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,076.50 $ 1,021.53 Expenses Paid During Period* $ 3.82 $ 3.72
* Expenses are equal to the Fund's annualized expense ratio of 0.73% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,076.90 $ 1,021.93 Expenses Paid During Period* $ 3.40 $ 3.31
* Expenses are equal to the Fund's annualized expense ratio of 0.65% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Equity I Fund 11 FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 94.0% Auto and Transportation - 3.5% American Axle & Manufacturing Holdings, Inc. (N) 14,200 310 Autoliv, Inc. 8,800 378 BorgWarner, Inc. (N) 7,000 406 Burlington Northern Santa Fe Corp. 98,987 6,143 CH Robinson Worldwide, Inc. (N) 36,200 1,276 Cooper Tire & Rubber Co. (N) 11,500 157 CSX Corp. 223,050 10,218 Dana Corp. (N) 29,300 220 FedEx Corp. 68,947 6,338 Ford Motor Co. (N) 17,400 145 General Motors Corp. (N) 18,500 507 Honda Motor Co., Ltd. - ADR 68,800 1,913 Lear Corp. (N) 12,100 369 Magna International, Inc. Class A 2,800 195 Navistar International Corp. (AE) 77,650 2,137 Norfolk Southern Corp. 130,950 5,264 Southwest Airlines Co. 41,450 664 Swift Transportation Co., Inc. (AE) 24,000 438 Union Pacific Corp. 14,287 988 United Parcel Service, Inc. Class B 42,800 3,122 Visteon Corp. 130,500 1,087 ------------ 42,275 ------------ Consumer Discretionary - 14.8% Accenture, Ltd. Class A 126,930 3,340 AnnTaylor Stores Corp. (AE)(N) 64,400 1,563 Apollo Group, Inc. Class A (AE)(N) 28,200 1,777 aQuantive, Inc. (AE)(N) 25,900 561 Bed Bath & Beyond, Inc. (AE) 59,900 2,427 Best Buy Co., Inc. 59,615 2,639 Carnival Corp. 108,800 5,404 Cendant Corp. 237,750 4,142 Chico's FAS, Inc. (AE) 31,750 1,255 Circuit City Stores, Inc. 14,100 251 Coach, Inc. (AE) 44,160 1,421 Convergys Corp. (AE) 7,850 128 Costco Wholesale Corp. 29,000 1,402 Eastman Kodak Co. (N) 18,000 394 eBay, Inc. (AE) 164,770 6,525 Electronic Arts, Inc. (AE) 67,250 3,825 Estee Lauder Cos., Inc. (The) Class A (N) 52,300 1,735 Fisher Scientific International, Inc. (AE) 34,500 1,949 Foot Locker, Inc. 17,300 336 Four Seasons Hotels, Inc. (N) 52,879 2,836 GameStop Corp. Class A (AE) 2,650 94 Gannett Co., Inc. 3,300 207 Gap, Inc. (The) 122,690 2,120 Google, Inc. Class A (AE) 44,909 16,712 GTECH Holdings Corp. 11,500 366
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Harman International Industries, Inc. 1,896 189 Harrah's Entertainment, Inc. 37,000 2,238 Hewitt Associates, Inc. Class A (AE)(N) 87,000 2,322 Hilton Hotels Corp. 19,550 380 Home Depot, Inc. 98,801 4,055 Interpublic Group of Cos., Inc. (AE) 25,100 259 JC Penney Co., Inc. 104,000 5,325 Jones Apparel Group, Inc. 15,700 428 Kimberly-Clark Corp. 49,050 2,788 Kohl's Corp. (AE)(N) 162,850 7,838 Liberty Global, Inc. Series A (AE) 44,251 1,096 Liberty Global, Inc. Series C (AE) 45,301 1,075 Liberty Media Corp. Series A (AE) 289,750 2,309 Limited Brands, Inc. 21,650 433 Lowe's Cos., Inc. 102,884 6,252 Mattel, Inc. 9,800 145 McDonald's Corp. 439,000 13,872 MGM Mirage (AE)(N) 91,771 3,429 Newell Rubbermaid, Inc. 46,650 1,073 Nike, Inc. Class B 29,400 2,471 Nordstrom, Inc. 49,310 1,709 Office Depot, Inc. (AE) 55,300 1,522 Omnicom Group 33,800 2,804 RadioShack Corp. 11,300 250 Royal Caribbean Cruises, Ltd. (N) 64,300 2,665 RR Donnelley & Sons Co. 110,869 3,883 Scientific Games Corp. Class A (AE)(N) 36,920 1,106 Sears Holdings Corp. (AE)(N) 22,850 2,748 Sirius Satellite Radio, Inc. (AE)(N) 208,380 1,300 Starbucks Corp. (AE) 95,930 2,713 Starwood Hotels & Resorts Worldwide, Inc. (o) 68,700 4,014 Target Corp. 104,879 5,841 Tech Data Corp. (AE) 7,600 263 Tiffany & Co. 22,100 871 Time Warner, Inc. 294,700 5,255 VF Corp. 9,600 502 Viacom, Inc. Class B 107,340 3,324 Wal-Mart Stores, Inc. 137,600 6,510 Walt Disney Co. 28,900 704 Wynn Resorts, Ltd. (AE)(N) 14,487 676 XM Satellite Radio Holdings, Inc. Class A (AE)(N) 17,500 505 Yahoo!, Inc. (AE) 124,290 4,595 Yum! Brands, Inc. 54,775 2,786 ------------ 177,932 ------------ Consumer Staples - 8.4% Altria Group, Inc. 282,020 21,166 Cadbury Schweppes PLC - ADR (N) 61,700 2,449 Clorox Co. 5,300 287 Coca-Cola Co. (The) 107,600 4,603
12 Equity I Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Colgate-Palmolive Co. 74,800 3,961 CVS Corp. 366,010 8,934 Dean Foods Co. (AE) 16,050 580 Diageo PLC - ADR (N) 22,700 1,349 Kellogg Co. 84,670 3,740 Kroger Co. (The) (AE) 35,400 705 Molson Coors Brewing Co. Class B 6,500 401 PepsiCo, Inc. 275,416 16,272 Procter & Gamble Co. 499,635 27,975 Reynolds American, Inc. (N) 7,400 629 Safeway, Inc. 12,900 300 Sara Lee Corp. 22,750 406 Supervalu, Inc. 3,800 119 Unilever NV 2,800 197 UST, Inc. 11,200 464 Walgreen Co. 63,110 2,867 Whole Foods Market, Inc. 16,410 2,365 WM Wrigley Jr Co. 16,150 1,122 ------------ 100,891 ------------ Financial Services - 17.6% ACE, Ltd. 5,300 276 Allstate Corp. (The) 66,410 3,506 American Express Co. 163,970 8,161 American International Group, Inc. 128,540 8,329 Annaly Mortgage Management, Inc. (o) 40,000 459 AON Corp. 167,000 5,653 Astoria Financial Corp. 8,400 235 Automatic Data Processing, Inc. 25,800 1,204 Bank of America Corp. 532,951 23,311 Bank of New York Co., Inc. (The) 202,250 6,328 BB&T Corp. 12,800 542 Capital One Financial Corp. 15,800 1,206 Chicago Mercantile Exchange 12,210 4,458 Chubb Corp. 37,600 3,496 Citigroup, Inc. 425,406 19,475 Comerica, Inc. 9,800 566 Commerce Bancorp, Inc. (N) 27,600 841 Countrywide Financial Corp. 95,793 3,043 Deluxe Corp. (N) 8,650 288 E*Trade Financial Corp. (AE) 7,800 145 Equity Residential (o) 6,300 247 Fannie Mae 169,890 8,073 Franklin Resources, Inc. 11,300 999 Freddie Mac 31,100 1,908 Genworth Financial, Inc. Class A (N) 74,450 2,359 Global Payments, Inc. (N) 28,400 1,217 Goldman Sachs Group, Inc. 98,382 12,433 Hartford Financial Services Group, Inc. 108,280 8,635 Host Marriott Corp. (o) 15,900 267 Hudson City Bancorp, Inc. 31,050 368 Huntington Bancshares, Inc. 12,900 300
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Investors Financial Services Corp. (N) 16,100 615 iShares Russell 1000 Value Index Fund 11,900 795 JPMorgan Chase & Co. 484,150 17,730 KeyCorp 19,900 642 Lehman Brothers Holdings, Inc. 46,699 5,588 Lincoln National Corp. 93,880 4,751 Loews Corp. 13,950 1,297 MBIA, Inc. 5,000 291 MBNA Corp. 17,600 450 Merrill Lynch & Co., Inc. 35,000 2,266 Metlife, Inc. 112,050 5,536 MGIC Investment Corp. 5,300 314 Morgan Stanley 61,960 3,371 National City Corp. 32,510 1,048 North Fork Bancorporation, Inc. 94,650 2,398 PartnerRe, Ltd. 3,500 223 Paychex, Inc. (N) 72,300 2,802 PMI Group, Inc. (The) 4,400 175 PNC Financial Services Group, Inc. 52,430 3,183 Progressive Corp. (The) 12,064 1,397 Prudential Financial, Inc. 8,100 590 RenaissanceRe Holdings, Ltd. (N) 22,525 853 SLM Corp. 72,257 4,012 Sovereign Bancorp, Inc. 8,850 191 St. Paul Travelers Cos., Inc. (The) 187,714 8,453 SunTrust Banks, Inc. 50,470 3,658 T Rowe Price Group, Inc. 24,260 1,590 Torchmark Corp. 3,400 180 Trizec Properties, Inc. (o) 55,850 1,243 UBS AG 7,792 668 UCBH Holdings, Inc. (N) 25,922 451 UnumProvident Corp. (N) 27,050 549 US Bancorp 15,974 473 Wachovia Corp. 38,100 1,925 Waddell & Reed Financial, Inc. Class A (N) 9,200 176 Washington Mutual, Inc. 44,885 1,777 Wells Fargo & Co. 31,920 1,922 XL Capital, Ltd. Class A 2,900 186 ------------ 212,097 ------------ Health Care - 14.3% Abbott Laboratories 229,510 9,880 AmerisourceBergen Corp. 23,900 1,823 Amgen, Inc. (AE) 235,132 17,814 Amylin Pharmaceuticals, Inc. (AE)(N) 21,801 733 Boston Scientific Corp. (AE) 6,900 173 Bristol-Myers Squibb Co. 5,200 110 Cardinal Health, Inc. 40,100 2,507 Caremark Rx, Inc. (AE) 114,710 6,011 DaVita, Inc. (AE) 20,200 993 Eli Lilly & Co. 181,050 9,015
Equity I Fund 13 FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Genentech, Inc. (AE) 227,872 20,645 Genzyme Corp. (AE) 16,501 1,193 Gilead Sciences, Inc. (AE) 60,870 2,876 HCA, Inc. 5,800 280 Human Genome Sciences, Inc. (AE)(N) 210,700 1,759 Johnson & Johnson 380,572 23,831 Kinetic Concepts, Inc. (AE) 19,400 696 McKesson Corp. 31,000 1,408 Medco Health Solutions, Inc. (AE) 25,200 1,424 Medimmune, Inc. (AE) 21,900 766 Medtronic, Inc. 227,363 12,882 Merck & Co., Inc. 128,700 3,632 Novartis AG - ADR 72,100 3,880 Omnicare, Inc. 18,200 985 Panacos Pharmaceuticals, Inc. (AE)(N) 53,900 426 Pfizer, Inc. 234,600 5,100 Protein Design Labs, Inc. (AE)(N) 51,780 1,451 Quest Diagnostics, Inc. 28,404 1,327 Sanofi-Aventis - ADR 97,082 3,895 Sepracor, Inc. (AE)(N) 20,110 1,131 St. Jude Medical, Inc. (AE) 78,240 3,761 Stryker Corp. 93,100 3,824 Triad Hospitals, Inc. (AE) 36,400 1,497 UnitedHealth Group, Inc. 249,995 14,472 Valeant Pharmaceuticals International (N) 23,600 405 WellPoint, Inc. (AE) 51,400 3,839 Wyeth 82,720 3,686 Zimmer Holdings, Inc. (AE) 42,719 2,724 ------------ 172,854 ------------ Integrated Oils - 5.3% Amerada Hess Corp. 20,200 2,527 BP PLC - ADR 35,300 2,344 Chevron Corp. 106,891 6,100 ConocoPhillips 229,820 15,026 Exxon Mobil Corp. 263,500 14,793 Marathon Oil Corp. 125,953 7,577 Occidental Petroleum Corp. 127,500 10,057 Suncor Energy, Inc. 49,200 2,639 Total SA - ADR (N) 18,450 2,325 ------------ 63,388 ------------ Materials and Processing - 2.6% Air Products & Chemicals, Inc. 35,410 2,027 Archer-Daniels-Midland Co. 53,071 1,293 Bayer AG - ADR 22,250 774 Bemis Co. 4,000 106 Bowater, Inc. 1,600 42 Bunge, Ltd. (N) 5,000 260 Cemex SA de CV - ADR 24,910 1,297 Ceradyne, Inc. (AE)(N) 14,100 553 Cia Vale do Rio Doce - ADR 24,770 1,024
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Corn Products International, Inc. 80,150 1,908 Cytec Industries, Inc. 650 27 Dow Chemical Co. (The) 57,410 2,633 EI Du Pont de Nemours & Co. 15,400 642 Hercules, Inc. (AE)(N) 7,500 84 Hughes Supply, Inc. 32,150 1,075 International Paper Co. 108,090 3,154 Lubrizol Corp. 8,950 372 Lyondell Chemical Co. 13,275 356 Martin Marietta Materials, Inc. 4,900 387 Masco Corp. 58,250 1,660 Monsanto Co. 13,400 844 Mosaic Co. (The) (AE) 142,400 1,880 Nucor Corp. 19,300 1,155 Pactiv Corp. (AE) 31,850 628 PPG Industries, Inc. 41,030 2,461 Praxair, Inc. 13,690 676 Smurfit-Stone Container Corp. (AE) 39,000 412 Sonoco Products Co. (N) 6,300 178 St. Joe Co. (The) 19,634 1,295 Syngenta AG - ADR 101,823 2,188 United States Steel Corp. (N) 11,700 427 ------------ 31,818 ------------ Miscellaneous - 3.2% 3M Co. 34,200 2,598 ABB, Ltd. - ADR (AE) 44,150 344 Eaton Corp. 8,900 524 General Electric Co. 760,598 25,792 Honeywell International, Inc. 74,600 2,551 ITT Industries, Inc. 11,290 1,147 Johnson Controls, Inc. 4,700 320 SPX Corp. (N) 8,950 385 Textron, Inc. 26,650 1,920 Tyco International, Ltd. 106,700 2,816 ------------ 38,397 ------------ Other Energy - 3.2% Apache Corp. 41,300 2,636 Baker Hughes, Inc. 35,100 1,929 Devon Energy Corp. 37,460 2,262 Diamond Offshore Drilling, Inc. (N) 7,300 412 El Paso Corp. 46,600 553 ENSCO International, Inc. 9,800 447 EOG Resources, Inc. 17,600 1,193 GlobalSantaFe Corp. 4,600 205 Halliburton Co. 201,895 11,932 National-Oilwell Varco, Inc. (AE) 17,910 1,119 Newfield Exploration Co. (AE) 34,200 1,550 Noble Corp. 4,450 287 NRG Energy, Inc. (AE) 14,250 613 Peabody Energy Corp. 19,810 1,548 Pride International, Inc. (AE) 11,900 334
14 Equity I Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Reliant Energy, Inc. (AE) 300,700 3,819 Schlumberger, Ltd. 71,400 6,481 Williams Cos., Inc. 55,210 1,231 ------------ 38,551 ------------ Producer Durables - 5.1% Agilent Technologies, Inc. (AE) 38,600 1,236 Applied Materials, Inc. 251,900 4,126 Boeing Co. 143,550 9,279 Caterpillar, Inc. 138,028 7,259 Cooper Industries, Ltd. Class A (N) 35,950 2,549 Crown Castle International Corp. (AE) 16,200 397 Deere & Co. 74,000 4,490 Goodrich Corp. 27,300 985 Herman Miller, Inc. 24,700 677 Hubbell, Inc. Class B 4,500 217 Illinois Tool Works, Inc. 50,890 4,314 Ingersoll-Rand Co. Class A 6,200 234 Joy Global, Inc. 29,870 1,370 KB Home 19,735 1,290 Lennar Corp. Class A 30,236 1,681 Lockheed Martin Corp. 94,586 5,728 MDC Holdings, Inc. 15,604 1,070 Northrop Grumman Corp. 85,030 4,562 Pitney Bowes, Inc. 3,500 147 Pulte Homes, Inc. 3,200 121 Teradyne, Inc. (AE)(N) 116,680 1,580 Thermo Electron Corp. (AE) 86,200 2,602 Toll Brothers, Inc. (AE)(N) 15,993 590 United Technologies Corp. 76,110 3,903 WW Grainger, Inc. 19,470 1,304 ------------ 61,711 ------------ Technology - 11.6% ADC Telecommunications, Inc. (AE)(N) 19,121 334 Advanced Micro Devices, Inc. (AE)(N) 49,540 1,150 Agere Systems, Inc. (AE)(N) 26,200 272 Apple Computer, Inc. (AE) 87,691 5,050 Arrow Electronics, Inc. (AE) 7,800 230 ATI Technologies, Inc. (AE)(N) 55,200 798 AU Optronics Corp. - ADR 121,512 1,549 Avnet, Inc. (AE) 88,700 2,045 BearingPoint, Inc. (AE) 170,100 1,194 Broadcom Corp. Class A (AE) 58,950 2,503 Celestica, Inc. (AE) 59,500 569 Cisco Systems, Inc. (AE) 96,300 1,680 Computer Associates International, Inc. 655 18 Comverse Technology, Inc. (AE) 42,120 1,057 Corning, Inc. (AE) 99,350 1,996 Electronic Data Systems Corp. 17,700 413 EMC Corp. (AE) 145,620 2,033 Flextronics International, Ltd. (AE) 20,450 190
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- General Dynamics Corp. 28,031 3,260 Hewlett-Packard Co. 316,657 8,879 Ingram Micro, Inc. Class A (AE) 13,300 241 Intel Corp. 9,200 216 International Business Machines Corp. 118,950 9,740 International Rectifier Corp. (AE) 23,050 682 JDS Uniphase Corp. (AE) 405,610 852 Juniper Networks, Inc. (AE) 340,900 7,953 L-3 Communications Holdings, Inc. 14,000 1,083 Lucent Technologies, Inc. (AE)(N) 456,790 1,302 Marvell Technology Group, Ltd. (AE) 41,560 1,929 Maxim Integrated Products, Inc. 119,900 4,158 Microsoft Corp. 960,513 24,685 Motorola, Inc. 466,817 10,345 National Semiconductor Corp. 83,200 1,883 Network Appliance, Inc. (AE) 37,000 1,012 Nvidia Corp. (AE)(N) 42,900 1,439 Oracle Corp. (AE) 473,000 5,998 Palm, Inc. (AE)(N) 21,000 539 Qualcomm, Inc. 363,375 14,448 Rockwell Automation, Inc. 48,000 2,551 SanDisk Corp. (AE) 56,960 3,354 Sanmina-SCI Corp. (AE) 314,800 1,149 Seagate Technology, Inc. (AE) 9,400 -- Silicon Image, Inc. (AE)(N) 79,100 726 Solectron Corp. (AE) 97,600 345 Sony Corp. - ADR 24,380 800 Sun Microsystems, Inc. (AE) 274,400 1,098 Tellabs, Inc. (AE) 23,300 223 Texas Instruments, Inc. 169,640 4,843 Unisys Corp. (AE) 17,700 90 Vishay Intertechnology, Inc. (AE) 44,400 503 ------------ 139,407 ------------ Utilities - 4.4% Alltel Corp. 2,100 130 America Movil SA de CV Series L 35,930 943 American Electric Power Co., Inc. 4,600 175 BellSouth Corp. 224,600 5,844 Comcast Corp. Class A (AE) 133,333 3,711 Constellation Energy Group, Inc. 13,200 723 Dominion Resources, Inc. 76,500 5,820 DTE Energy Co. 4,700 203 Entergy Corp. 61,900 4,378 Exelon Corp. 10,300 536 Kinder Morgan, Inc. (N) 12,150 1,105 Northeast Utilities 20,100 366 Progress Energy, Inc. 20,800 767 Puget Energy, Inc. (N) 3,600 77 SBC Communications, Inc. 49,600 1,183 Sprint Nextel Corp. 733,990 17,109 Telephone & Data Systems, Inc. 6,750 255
Equity I Fund 15 FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Telephone & Data Systems, Inc. Special Shares 21,850 790 TXU Corp. 33,690 3,394 Verizon Communications, Inc. 144,559 4,555 Wisconsin Energy Corp. 13,300 503 Xcel Energy, Inc. (N) 6,400 117 ------------ 52,684 ------------ TOTAL COMMON STOCKS (cost $1,006,717) 1,132,005 ------------ LONG-TERM INVESTMENTS - 0.0% Corporate Bonds and Notes - 0.0% AMR Corp. 4.250% due 09/23/23 336 304 ------------ TOTAL LONG-TERM INVESTMENTS (cost $284) 304 ------------ SHORT-TERM INVESTMENTS - 5.8% Frank Russell Investment Company Money Market Fund 64,029,285 64,029 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 6,000 5,979 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $70,008) 70,008 ------------ OTHER SECURITIES - 4.1% Frank Russell Investment Company Money Market Fund (X) 16,087,091 16,087 State Street Securities Lending Quality Trust (X) 32,960,929 32,961 ------------ TOTAL OTHER SECURITIES (cost $49,048) 49,048 ------------ TOTAL INVESTMENTS - 103.9% (identified cost $1,126,057) 1,251,365 OTHER ASSETS AND LIABILITIES, NET - (3.9%) (47,233) ------------ NET ASSETS - 100.0% 1,204,132 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 12/05 (16) 5,263 (126) Russell 1000 Mini Index (CME) expiration date 12/05 (20) 1,315 (27) S&P 500 E-Mini Index (CME) expiration date 12/05 (112) 6,775 (166) S&P 500 Index (CME) expiration date 12/05 (134) 40,528 88 S&P Midcap 400 Index (CME) expiration date 12/05 (47) 16,521 (440) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (671) ===============
See accompanying notes which are an integral part of the financial statements. 16 Equity I Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY I FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 3.5 Consumer Discretionary 14.8 Consumer Staples 8.4 Financial Services 17.6 Health Care 14.3 Integrated Oils 5.3 Materials and Processing 2.6 Miscellaneous 3.2 Other Energy 3.2 Producer Durables 5.1 Technology 11.6 Utilities 4.4 Long-Term Investments --* Short-Term Investments 5.8 Other Securities 4.1 --------------- Total Investments 103.9 Other Assets and Liabilities, Net (3.9) --------------- 100.0 =============== Futures Contracts (0.1)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Equity I Fund 17 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
Equity II - Class I Russell 2500(TM) ** * 10000 10000 1996 12107 11879 1997 15901 15338 1998 14501 14157 1999 17271 16705 2000 21872 20593 2001 18660 18088 2002 16949 16435 2003 24080 23287 2004 26242 26161 2005 29332 30059
Equity II Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.77% 5 Years 6.05%sec. 10 Years 11.36%sec.
Equity II Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.53% 5 Years 5.83%sec. 10 Years 11.21%sec.
Equity II Fund - Class Y ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.85% 5 Years 6.16%sec. 10 Years 11.43%sec.
Russell 2500(TM) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 14.90% 5 Years 7.86%sec. 10 Years 11.63%sec.
18 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Equity II Fund Class I, Class E and Class Y gained 11.77%, 11.53% and 11.85%, respectively. This compared to the Russell 2500(TM) Index, which gained 14.90% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper Mid-Cap(R) Core Funds Average returned 14.82%, while the Lipper(R) Small-Cap Core Funds Average rose 13.24%. These results serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? For the most part, market conditions did not materially affect the Fund's performance over the fiscal year. The Fund's underperformance was driven by poor stock selection from most of the Fund's money managers; in particular, Gould Investment Partners, LLC underperformed by a substantial margin over the 12 months. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Poor stock selection in four sectors--technology, consumer discretionary, producer durables and health care--was the predominant driver of the Fund's underperformance results. In terms of money managers, Gould significantly underperformed the benchmark and was the largest detractor to the Fund's performance in the period. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund has nine money managers: four growth, two market-oriented and three value. Three of the four growth money managers underperformed their respective benchmarks. As noted, Gould underperformed by a substantial margin, while CapitalWorks Investment Partners, LLC and Roxbury Capital Management, Inc., had relatively modest shortfalls. Gould's performance was disappointing, but not beyond what might be reasonably expected given the aggressive nature of this money manager's investment approach. In contrast, TimesSquare Capital Management, Inc. the money manager with the largest allocation within the growth segment solidly outperformed the benchmark. Moreover, the continued preference for value stocks over growth for much of the period led to a difficult environment for an aggressive growth manager. In the value segment, all three money managers underperformed, with David J. Greene & Company, LLC, and Delphi Management, Inc., the largest detractors from performance. Jacobs Levy Equity Management, Inc., with the largest allocation in the value segment, had a relatively modest shortfall from the benchmark. David J. Greene's substantial overweight in technology detracted from performance. Delphi underperformed due to weak stock selection in the financial services and consumer discretionary sectors. In particular, Delphi was negatively impacted by holding some Bermuda-based reinsurers in the aftermath of Hurricane Katrina. In the market-oriented segment, Goldman Sachs Asset Management, L.P., underperformed modestly, while Nicholas-Applegate Capital Management, LLC, strongly outperformed the benchmark. Goldman Sachs' stock selection was weak in the technology, other energy, and autos and transportation sectors. In contrast, Nicholas-Applegate, also a quantitative manager, outperformed due in part to its energy overweight. Strong stock selection in eight of the 12 economic sectors also boosted its results. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. FRIMCo introduced a modest growth tilt in December 2004 by reallocating approximately 4% of the Fund's assets from value to growth managers. The net impact of this decision has been negligible to date, as the combined growth manager results have been similar to the combined value manager returns in the period. Nicholas-Applegate was hired in December 2004 and funded through reducing the Fund's allocation to Goldman Sachs. This change added value, as Nicholas-Applegate substantially outperformed Goldman Sachs in the period from December 2004 through the fiscal year-end. Roxbury Capital Management, Inc. was removed from the Fund in May 2005 and replaced by Tygh Capital Management, Inc. Equity II Fund 19 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 CapitalWorks Investment Partners, LLC Growth David J. Greene & Company, LLC Value Delphi Management, Inc. Value Goldman Sachs Asset Management, L.P. Market-Oriented Gould Investment Partners, LLC Growth Jacobs Levy Equity Management, Inc. Value Nicholas-Applegate Capital Management, LLC Market-Oriented TimesSquare Capital Management, Inc. Growth Tygh Capital Management, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Equity II Fund Class I assumes initial investment on November 1, 1995. ** Russell 2500(TM) Index is composed of the bottom 500 stocks 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. ++++ Equity II Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Equity II Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 20 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,104.30 $ 1,019.61 Expenses Paid During Period* $ 5.89 $ 5.65
* Expenses are equal to the Fund's annualized expense ratio of 1.11% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,105.80 $ 1,020.67 Expenses Paid During Period* $ 4.78 $ 4.58
* Expenses are equal to the Fund's annualized expense ratio of 0.90% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,106.10 $ 1,021.02 Expenses Paid During Period* $ 4.41 $ 4.23
* Expenses are equal to the Fund's annualized expense ratio of 0.83% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Equity II Fund 21 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 94.9% Auto and Transportation - 4.0% Airtran Holdings, Inc. (AE) 31,777 475 Alaska Air Group, Inc. (AE) 2,500 79 Alexander & Baldwin, Inc. 1,900 93 American Commercial Lines, Inc. (AE) 1,915 54 AMR Corp. (AE) 23,100 312 ArvinMeritor, Inc. 72,600 1,164 Autoliv, Inc. 60,570 2,602 CNF, Inc. 7,200 405 DryShips, Inc. (N) 45,000 677 Expeditors International Washington, Inc. 10,024 608 Frontier Airlines, Inc. (AE)(N) 18,600 176 General Maritime Corp. (N) 28,000 1,042 Gol Linhas Aereas Inteligentes SA - ADR (N) 22,800 790 Grupo TMM SA Series A (AE) 61,600 231 IMPCO Technologies, Inc. (AE)(N) 11,525 60 Kansas City Southern (AE)(N) 24,900 552 Laidlaw International, Inc. 96,450 2,193 Landstar System, Inc. 15,027 579 Marten Transport, Ltd. (AE) 7,900 210 Martin Midstream Partners, LP (N) 32,306 1,048 Mesa Air Group, Inc. (AE)(N) 41,200 465 Navistar International Corp. (AE) 22,000 605 Offshore Logistics, Inc. (AE) 15,600 530 OMI Corp. (N) 61,500 1,112 Pacer International, Inc. 28,500 737 Polaris Industries, Inc. (N) 6,220 280 Republic Airways Holdings, Inc. (AE)(N) 23,200 362 SCS Transportation, Inc. (AE) 11,600 232 Skywest, Inc. (N) 28,800 844 Stolt-Nielsen SA - ADR 7,000 251 Teekay Shipping Corp. (N) 23,500 927 Tenneco Automotive, Inc. (AE) 28,135 465 TRW Automotive Holdings Corp. (AE) 56,900 1,539 US Xpress Enterprises, Inc. Class A (AE)(N) 14,600 178 UTI Worldwide, Inc. (N) 22,936 1,962 Visteon Corp. (N) 64,300 536 Wabtec Corp. 32,965 897 World Air Holdings, Inc. (AE) 22,900 240 ------------ 25,512 ------------ Consumer Discretionary - 18.7% ABM Industries, Inc. 24,400 483 Activision, Inc. (AE) 117,600 1,855 Adesa, Inc. 48,700 1,042 Administaff, Inc. (N) 19,650 832 Advance Auto Parts, Inc. (AE) 34,600 1,297 Advisory Board Co. (The) (AE) 26,426 1,275
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- AFC Enterprises (N) 19,300 224 Alberto-Culver Co. 4,700 204 Alliance Gaming Corp. (AE)(N) 47,900 518 American Greetings Corp. Class A 37,650 951 AMN Healthcare Services, Inc. (AE) 78,500 1,295 Arbitron, Inc. 21,980 822 Asbury Automotive Group, Inc. (AE)(N) 15,400 260 Banta Corp. 16,500 831 BJ's Restaurants, Inc. (AE)(N) 19,600 425 Borders Group, Inc. 15,000 294 Brightpoint, Inc. (AE)(N) 79,950 1,726 Brink's Co. (The) 25,600 1,005 Brown Shoe Co., Inc. 1,900 62 Buckle, Inc. (The) 1,800 66 Catalina Marketing Corp. 5,300 138 Cato Corp. (The) Class A (N) 21,150 423 Central European Distribution Corp. (AE)(N) 52,700 2,098 Central Garden and Pet Co. (AE)(N) 21,400 917 Charlotte Russe Holding, Inc. (AE) 4,700 83 Cheesecake Factory, Inc. (The) (AE) 15,141 520 Chemed Corp. 36,816 1,770 Children's Place Retail Stores, Inc. (The) (AE)(N) 17,710 760 Choice Hotels International, Inc. 28,500 943 ChoicePoint, Inc. (AE) 25,000 1,056 Circuit City Stores, Inc. 129,029 2,295 Claire's Stores, Inc. 47,700 1,243 CNET Networks, Inc. (AE) 75,100 1,021 CNS, Inc. 36,500 952 Cogent, Inc. (AE)(N) 29,000 770 Coldwater Creek, Inc. (AE) 3,350 90 Convergys Corp. (AE) 70,000 1,137 Corinthian Colleges, Inc. (AE)(N) 15,100 188 Corporate Executive Board Co. 31,750 2,624 Cosi, Inc. (AE)(N) 88,600 775 CoStar Group, Inc. (AE)(N) 16,700 801 Cross Country Healthcare, Inc. (AE) 49,500 899 Dillard's, Inc. Class A 36,610 758 Dolby Laboratories, Inc. Class A (AE) 33,600 541 Dollar Thrifty Automotive Group (AE) 4,700 177 Domino's Pizza, Inc. (N) 31,150 745 DreamWorks Animation SKG, Inc. Class A (AE) 22,361 573 Dress Barn, Inc. (AE)(N) 9,700 258 EarthLink, Inc. (AE)(N) 45,500 501 Education Management Corp. (AE) 101,436 3,128 Emdeon Corp. (AE) 45,500 419 Entercom Communications Corp. (AE) 33,300 961 Ethan Allen Interiors, Inc. (N) 24,500 829 Ezcorp, Inc. Class A (AE) 10,800 159 Famous Dave's of America, Inc. (AE) 33,100 396 Federated Department Stores, Inc. 11,900 730 Foot Locker, Inc. 32,500 632
22 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- FTI (AE) 14,000 383 Furniture Brands International, Inc. 23,800 432 Genesco, Inc. (AE)(N) 4,400 162 Getty Images, Inc. (AE)(N) 29,013 2,408 Gevity HR, Inc. (N) 35,300 909 Gildan Activewear, Inc. (AE) 17,400 607 Guess?, Inc. (AE)(N) 48,000 1,302 Gymboree Corp. (AE) 72,300 1,280 Handleman Co. (N) 18,400 219 Hearst-Argyle Television, Inc. (N) 71,830 1,721 Heidrick & Struggles International, Inc. (AE)(N) 16,900 545 Helen of Troy, Ltd. (AE)(N) 33,500 601 Hewitt Associates, Inc. Class A (AE)(N) 16,858 450 Hot Topic, Inc. (AE) 29,433 438 Hudson Highland Group, Inc. (AE) 28,700 687 Insight Enterprises, Inc. (AE) 27,516 565 International Speedway Corp. Class A 5,000 258 ITT Educational Services, Inc. (AE) 5,900 326 Jack in the Box, Inc. (AE) 55,200 1,639 Jarden Corp. (AE)(N) 8,300 280 Jo-Ann Stores, Inc. (AE) 24,000 351 John Wiley & Sons, Inc. Class A 3,000 118 Jones Apparel Group, Inc. 21,500 586 Korn/Ferry International (AE) 12,613 217 La-Z-Boy, Inc. (N) 66,900 792 Labor Ready, Inc. (AE)(N) 21,850 510 Lamar Advertising Co. Class A (AE) 47,900 2,137 Leapfrog Enterprises, Inc. (AE)(N) 31,500 472 Lee Enterprises, Inc. (N) 19,500 765 LIFE TIME Fitness, Inc. (AE)(N) 63,200 2,347 Lifeline Systems, Inc. (AE) 26,000 858 Lifetime Brands, Inc. 2,900 68 Lightbridge, Inc. (AE) 44,900 364 Lin TV Corp. Class A (AE) 49,400 634 Lithia Motors, Inc. Class A (N) 11,200 305 Liz Claiborne, Inc. 37,200 1,309 Luby's, Inc. (AE)(N) 19,450 245 MarineMax, Inc. (AE)(N) 8,300 205 Marvel Entertainment, Inc. (AE)(N) 34,850 613 MAXIMUS, Inc. 11,100 402 McClatchy Co. Class A 14,100 884 Men's Wearhouse, Inc. (The) (AE) 42,300 1,045 Meredith Corp. 12,100 604 Mohawk Industries, Inc. (AE) 11,400 890 Monster Worldwide, Inc. (AE) 33,400 1,096 Movado Group, Inc. (N) 100 2 MPS Group, Inc. (AE) 93,176 1,160 Netease.com, Inc. - ADR (AE)(N) 7,600 580 Netratings, Inc. (AE)(N) 4,500 67 Oakley, Inc. (N) 31,600 468 Orient-Express Hotels, Ltd. Class A 46,778 1,319 Pacific Sunwear of California, Inc. (AE) 55,900 1,399
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Pantry, Inc. (The) (AE) 2,200 85 Papa John's International, Inc. (AE)(N) 16,700 867 Payless Shoesource, Inc. (AE) 47,400 871 Pegasus Solutions, Inc. (AE) 35,500 301 Perry Ellis International, Inc. (AE)(N) 2,100 43 PF Chang's China Bistro, Inc. (AE) 11,603 531 PHH Corp. (AE) 32,600 917 Phillips-Van Heusen Corp. 28,900 822 Pier 1 Imports, Inc. (N) 47,800 493 Pixar (AE) 9,117 462 Playtex Products, Inc. (AE) 41,200 552 Polo Ralph Lauren Corp. 11,100 546 Pre-Paid Legal Services, Inc. (N) 14,720 630 Providence Service Corp. (AE) 47,800 1,476 Radio One, Inc. Class D (AE)(N) 28,600 337 RadioShack Corp. 22,500 497 Rent-Way, Inc. (AE)(N) 5,300 33 Resources Connection, Inc. (AE)(N) 58,075 1,658 Rocky Shoes & Boots, Inc. (AE)(N) 3,100 77 RR Donnelley & Sons Co. 22,577 791 Ryan's Restaurant Group, Inc. (AE)(N) 96,400 1,028 Saks, Inc. (AE) 19,000 345 Scholastic Corp. (AE) 9,900 322 Scientific Games Corp. Class A (AE) 40,000 1,198 SCP Pool Corp. 79,000 2,842 Select Comfort Corp. (AE) 22,300 488 Service Corp. International 111,300 932 ServiceMaster Co. (The) 59,000 742 Shuffle Master, Inc. (AE)(N) 3,500 89 Skechers USA, Inc. Class A (AE)(N) 12,400 157 Sonic Automotive, Inc. 31,650 700 Sourcecorp, Inc. (AE) 8,300 189 Stage Stores, Inc. 44,040 1,221 Stanley Furniture Co., Inc. 2,900 62 Stanley Works (The) 19,800 949 Steven Madden, Ltd. (AE) 28,100 720 Strayer Education, Inc. 8,079 723 Stride Rite Corp. (The) 15,800 206 Tech Data Corp. (AE) 19,170 664 TeleTech Holdings, Inc. (AE)(N) 19,730 206 Texas Roadhouse, Inc. Class A (AE)(N) 33,400 526 Trans World Entertainment, Corp. (AE)(N) 16,900 108 True Religion Apparel, Inc. (AE) 32,100 402 Tupperware Corp. 13,200 303 United Auto Group, Inc. (N) 2,250 76 Urban Outfitters, Inc. (AE)(N) 23,800 674 USANA Health Sciences, Inc. (AE)(N) 37,710 1,660 Valassis Communications, Inc. (AE) 10,900 341 Volcom, Inc. 10,700 327 Washington Post, Inc. (The) Class B 975 726 Watson Wyatt & Co. Holdings 10,700 284 WD-40 Co. 4,400 121 WebSideStory, Inc. (AE)(N) 45,600 793
Equity II Fund 23 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- WESCO International, Inc. (AE) 20,850 829 West Corp. (AE) 42,000 1,657 Wet Seal, Inc. (The) Class A (AE)(N) 50,400 261 ------------ 120,661 ------------ Consumer Staples - 0.9% Boston Beer Co., Inc. Class A (AE)(N) 3,200 82 Chiquita Brands International, Inc. 7,550 208 Coca-Cola Bottling Co. Consolidated 20,330 927 Constellation Brands, Inc. Class A (AE) 31,200 734 Longs Drug Stores Corp. (N) 21,390 892 Molson Coors Brewing Co. Class B (N) 15,900 981 Pathmark Stores, Inc. (AE)(N) 25,600 250 Pilgrim's Pride Corp. 16,090 507 Seaboard Corp. (N) 300 426 Spartan Stores, Inc. (AE)(N) 11,500 114 Weis Markets, Inc. 19,500 744 ------------ 5,865 ------------ Financial Services - 18.3% 21st Century Insurance Group 1,100 18 Advent Software, Inc. (AE) 55,400 1,702 Affiliated Managers Group, Inc. (AE) 14,035 1,077 Alfa Corp. (N) 6,200 104 Alliance Data Systems Corp. (AE) 103,229 3,671 Allmerica Financial Corp. 29,600 1,128 AMB Property Corp. (o) 28,600 1,264 American Financial Group, Inc. 21,900 749 American Home Mortgage Investment Corp. (o) 25,160 680 AmeriCredit Corp. (AE) 44,480 994 AmerUs Group Co. (N) 9,410 556 Annaly Mortgage Management, Inc. (o) 28,650 329 Anthracite Capital, Inc. (N)(o) 24,700 259 Apollo Investment Corp. 21,500 402 Aspen Insurance Holdings, Ltd. 57,500 1,391 Associated Banc-Corp 42,780 1,335 Axis Capital Holdings, Ltd. 20,800 539 Bank of Hawaii Corp. 21,030 1,080 Bear Stearns Cos., Inc. (The) 7,200 762 Bimini Mortgage Management, Inc. Class A (N)(o) 11,500 114 BISYS Group, Inc. (The) (AE) 97,300 1,234 BOK Financial Corp. 6,720 296 Camden Property Trust (o) 23,300 1,313 CapitalSource, Inc. (AE)(N) 95,700 2,105 Cathay General Bancorp (N) 10,200 398 CB Richard Ellis Group, Inc. Class A (AE) 33,600 1,641 CBL & Associates Properties, Inc. (o) 56,030 2,093 Central Pacific Financial Corp. 2,930 106 Checkfree Corp. (AE) 54,700 2,325
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chemical Financial Corp. (N) 3,990 128 Chittenden Corp. (N) 14,600 420 CIT Group, Inc. 14,200 649 City National Corp. 16,000 1,174 CNA Surety Corp. (AE) 57,700 810 Colonial BancGroup, Inc. (The) 78,800 1,919 Commerce Group, Inc. 2,800 159 Commercial Net Lease Realty (N)(o) 46,570 902 Community Bank System, Inc. (N) 38,200 907 CompuCredit Corp. (AE)(N) 9,000 394 Conseco, Inc. (AE)(N) 32,700 664 Correctional Properties Trust (o) 4,600 129 Corus Bankshares, Inc. (N) 1,700 93 Cousins Properties, Inc. (o) 24,000 709 Crescent Real Estate Equities Co. (N)(o) 47,100 940 CVB Financial Corp. 7,500 148 Cybersource Corp. (AE) 65,900 442 Downey Financial Corp. 7,900 481 Entertainment Properties Trust (o) 9,100 365 Equifax, Inc. 27,600 951 Equity One, Inc. (o) 17,300 406 Fair Isaac Corp. (N) 17,000 710 Federal Realty Investors Trust (o) 18,400 1,116 FelCor Lodging Trust, Inc. (AE)(o) 23,200 346 First American Corp. 49,000 2,147 First Financial Bankshares, Inc. (N) 100 4 First Niagara Financial Group, Inc. (N) 29,014 427 FirstFed Financial Corp. (AE)(N) 10,030 536 FPIC Insurance Group, Inc. (AE) 9,100 343 Fremont General Corp. (N) 28,220 612 Fulton Financial Corp. (N) 19,700 331 GATX Corp. (N) 45,100 1,685 GFI Group, Inc. (AE)(N) 27,200 1,223 Glacier Bancorp, Inc. 3,900 115 Global Payments, Inc. 81,138 3,477 Hanmi Financial Corp. 27,200 498 Harleysville Group, Inc. 241 6 HCC Insurance Holdings, Inc. 35,450 1,063 HealthExtras, Inc. (AE) 82,500 1,737 Highwoods Properties, Inc. (o) 300 8 Horace Mann Educators Corp. 10,000 194 Hospitality Properties Trust (o) 13,900 552 HRPT Properties Trust (o) 169,470 1,849 Infinity Property & Casualty Corp. (N) 18,000 670 Innkeepers USA Trust (o) 39,000 608 Investment Technology Group, Inc. (AE) 75,750 2,463 Investors Financial Services Corp. (N) 42,800 1,634 IPC Holdings, Ltd. (N) 23,500 619 iStar Financial, Inc. (o) 20,100 741 Jack Henry & Associates, Inc. (N) 61,300 1,102 Jefferies Group, Inc. 24,000 1,019
24 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- John H Harland Co. (N) 9,700 403 Jones Lang LaSalle, Inc. 14,800 744 Knight Capital Group, Inc. Class A (AE)(N) 107,468 1,028 La Quinta Corp. (AE)(o) 71,971 601 LandAmerica Financial Group, Inc. (N) 36,021 2,275 Liberty Property Trust (o) 6,000 250 LTC Properties, Inc. (o) 5,300 109 Macerich Co. (The) (o) 16,500 1,060 Mack-Cali Realty Corp. (o) 22,700 968 Markel Corp. (AE) 4,950 1,574 MeriStar Hospitality Corp. (AE)(o) 61,300 531 MoneyGram International, Inc. 18,600 452 Montpelier Re Holdings, Ltd. (N) 31,500 633 Nasdaq Stock Market, Inc. (AE) 15,700 485 National Penn Bancshares, Inc. (N) 6,234 122 Nationwide Financial Services, Inc. Class A 20,300 820 New Century Financial Corp. (o) 12,100 374 North Fork Bancorporation, Inc. 32,500 824 OceanFirst Financial Corp. 6,300 142 Ohio Casualty Corp. 6,195 169 Old Republic International Corp. 36,800 953 Omega Healthcare Investors, Inc. (o) 22,100 272 Pan Pacific Retail Properties, Inc. (o) 4,000 254 PFF Bancorp, Inc. 7,275 219 Phoenix Cos., Inc. (The) 39,700 514 Piper Jaffray Cos., Inc. (AE) 10,500 361 Portfolio Recovery Associates, Inc. (AE)(N) 36,940 1,437 Post Properties, Inc. (o) 5,300 216 Primus Guaranty, Ltd. (AE)(N) 27,700 244 ProAssurance Corp. (AE) 18,281 856 Protective Life Corp. 35,400 1,552 Provident Bankshares Corp. (N) 11,498 401 PS Business Parks, Inc. (o) 10,400 484 R&G Financial Corp. Class B 17,100 168 Radian Group, Inc. 18,000 938 Raymond James Financial, Inc. 35,000 1,191 Reinsurance Group of America, Inc. 20,100 920 RenaissanceRe Holdings, Ltd. (N) 21,000 795 Republic Bancorp, Inc. Class A (N) 37,025 759 Rewards Network, Inc. (AE)(N) 6,900 37 RLI Corp. 6,600 355 Ryder System, Inc. 57,200 2,269 Safety Insurance Group, Inc. (N) 10,400 391 Senior Housing Properties Trust (o) 48,030 851 Southwest Bancorp, Inc. 35,500 831 Sovereign Bancorp, Inc. (N) 38,000 820 Sovran Self Storage, Inc. (o) 17,500 814 Stancorp Financial Group, Inc. 19,751 1,819 State Auto Financial Corp. 6,700 221 Sterling Bancshares, Inc. 20,100 297
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Sterling Financial Corp. (N) 4,500 95 Stewart Information Services Corp. 21,250 1,082 Strategic Hotel Capital, Inc. (o) 14,100 240 Sunstone Hotel Investors, Inc. (o) 17,100 383 SVB Financial Group (AE) 17,610 875 TCF Financial Corp. 21,000 569 TD Banknorth, Inc. (N) 25,800 743 TierOne Corp. 11,200 316 Trizec Properties, Inc. (o) 2,800 62 UCBH Holdings, Inc. (N) 3,000 52 UICI 11,200 405 UMB Financial Corp. (N) 990 66 United Fire & Casualty Co. 2,700 122 United Rentals, Inc. (AE)(N) 33,200 650 Universal Health Realty Income Trust (o) 6,500 212 W Holding Co., Inc. (N) 61,047 471 Webster Financial Corp. 18,000 831 Whitney Holding Corp. 11,850 320 WR Berkley Corp. 53,705 2,347 Wright Express Corp. (AE)(N) 50,000 1,079 Zenith National Insurance Corp. (N) 24,465 1,101 Zions Bancorporation 9,000 661 ------------ 117,775 ------------ Health Care - 12.7% Accelrys, Inc. (AE)(N) 64,700 423 Albany Molecular Research, Inc. (AE) 28,900 387 Alexion Pharmaceuticals, Inc. (AE)(N) 11,300 310 Alkermes, Inc. (AE)(N) 47,700 777 Allied Healthcare International, Inc. (AE) 44,200 269 Allion Healthcare, Inc. (AE)(N) 23,800 380 Allscripts Healthcare Solutions, Inc. (AE) 32,395 518 Alpharma, Inc. Class A 17,600 438 American Dental Partners, Inc. (AE) 13,800 293 Anadys Pharmaceuticals, Inc. (AE) 40,800 404 Applera Corp. - Celera Genomics Group (AE) 127,650 1,516 Arena Pharmaceuticals, Inc. (AE)(N) 26,680 277 Arqule, Inc. (AE) 7,300 52 Arthrocare Corp. (AE)(N) 43,340 1,592 Barr Pharmaceuticals, Inc. (AE) 12,000 689 Bausch & Lomb, Inc. 14,800 1,098 Bio-Rad Laboratories, Inc. Class A (AE)(N) 28,900 1,691 Cephalon, Inc. (AE)(N) 20,200 921 Community Health Systems, Inc. (AE) 57,831 2,146 Cooper Cos., Inc. 8,006 551 Critical Therapeutics, Inc. (AE)(N) 23,600 162 Cytyc Corp. (AE) 85,900 2,178 Dade Behring Holdings, Inc. 23,900 861
Equity II Fund 25 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- DaVita, Inc. (AE) 103,774 5,104 Digene Corp. (AE)(N) 22,900 692 Edwards Lifesciences Corp. (AE) 38,510 1,594 Flamel Technologies SA - ADR (AE)(N) 15,900 283 Foxhollow Technologies, Inc. (AE)(N) 52,900 2,397 Gene Logic, Inc. (AE)(N) 19,200 73 Genesis HealthCare Corp. (AE)(N) 29,500 1,197 Gentiva Health Services, Inc. (AE) 6,600 97 Greatbatch, Inc. (AE) 3,250 85 Haemonetics Corp. (AE) 16,200 785 Health Net, Inc. (AE) 38,200 1,789 HealthTronics, Inc. (AE) 30,900 281 Henry Schein, Inc. (AE) 17,768 704 Hologic, Inc. (AE) 42,200 2,340 ICU Medical, Inc. (AE) 5,300 185 Illumina, Inc. (AE)(N) 40,000 623 Immucor, Inc. (AE) 28,545 740 Invitrogen Corp. (AE) 14,400 916 IRIS International, Inc. (AE) 44,100 1,034 Kendle International, Inc. (AE) 19,800 477 Kindred Healthcare, Inc. (AE)(N) 14,720 412 Kinetic Concepts, Inc. (AE) 4,750 171 Kos Pharmaceuticals, Inc. (AE) 13,656 819 Kyphon, Inc. (AE)(N) 14,200 569 LCA-Vision, Inc. 4,600 193 LifePoint Hospitals, Inc. (AE) 6,300 246 Lincare Holdings, Inc. (AE) 79,275 3,238 Magellan Health Services, Inc. (AE) 81,100 2,411 Matria Healthcare, Inc. (AE)(N) 46,600 1,563 Maxygen, Inc. (AE) 8,300 73 Medcath Corp. (AE) 6,800 125 Medicis Pharmaceutical Corp. Class A 21,603 637 Medimmune, Inc. (AE) 48,300 1,690 Mentor Corp. (N) 20,450 920 Merit Medical Systems, Inc. (AE)(N) 27,900 333 Myogen, Inc. (AE)(N) 38,200 766 Myriad Genetics, Inc. (AE)(N) 25,200 488 Nabi Biopharmaceuticals (AE)(N) 46,861 602 Natus Medical, Inc. (AE) 38,400 629 Neurocrine Biosciences, Inc. (AE)(N) 31,952 1,688 Nuvelo, Inc. (AE)(N) 14,800 124 Odyssey HealthCare, Inc. (AE) 17,800 308 OraSure Technologies, Inc. (AE) 49,900 549 Orthofix International NV (AE) 6,900 260 Panacos Pharmaceuticals, Inc. (AE) 33,000 261 Parexel International Corp. (AE) 19,100 418 Pediatrix Medical Group, Inc. (AE) 17,500 1,349 Pharmaceutical Product Development, Inc. (AE) 8,000 460 Pharmacopeia Drug Discovery, Inc. (AE) 33,500 126 Phase Forward, Inc. (AE) 48,300 527 PolyMedica Corp. (N) 27,389 904
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Radiation Therapy Services, Inc. (AE) 12,000 360 Resmed, Inc. (AE)(N) 44,556 1,699 Respironics, Inc. (AE) 55,100 1,976 SFBC International, Inc. (AE) 17,562 749 Sierra Health Services, Inc. (AE) 4,600 345 SonoSite, Inc. (AE)(N) 17,700 520 Stericycle, Inc. (AE) 50,700 2,918 Sunrise Senior Living, Inc. (AE)(N) 7,800 252 Sybron Dental Specialties, Inc. (AE) 14,799 635 Symmetry Medical, Inc. (AE) 40,146 889 Syneron Medical, Ltd. (AE)(N) 30,800 1,107 Techne Corp. (AE) 13,500 732 Theravance, Inc. (AE) 33,500 726 Thoratec Corp. (AE) 28,300 560 United Surgical Partners International, Inc. (AE) 35,757 1,282 United Therapeutics Corp. (AE)(N) 6,570 485 Varian Medical Systems, Inc. (AE) 29,342 1,337 VCA Antech, Inc. (AE) 52,200 1,347 Ventana Medical Systems, Inc. (AE)(N) 3,380 130 ViaCell, Inc. (AE)(N) 5,900 30 Viasys Healthcare, Inc. (AE) 15,000 358 ViroPharma, Inc. (AE) 15,700 301 Watson Pharmaceuticals, Inc. (AE) 26,250 907 ------------ 81,833 ------------ Integrated Oils - 0.0% Giant Industries, Inc. (AE) 5,600 320 ------------ Materials and Processing - 6.3% Agrium, Inc. 42,200 895 Airgas, Inc. 32,676 924 Albany International Corp. Class A 12,800 494 AM Castle & Co. (AE) 54,500 1,086 Apogee Enterprises, Inc. (N) 7,400 121 Ashland, Inc. 6,200 332 Ball Corp. 19,900 783 Bluegreen Corp. (AE)(N) 5,000 76 Builders FirstSource, Inc. (AE)(N) 22,600 442 Calgon Carbon Corp. (N) 10,100 55 Cambrex Corp. 25,400 485 Cameco Corp. (AE) 8,276 396 Celanese Corp. (N) 40,600 716 CF Industries Holdings, Inc. 11,100 153 Chemtura Corp. 49,500 530 Chicago Bridge & Iron Co. NV 16,109 359 Comfort Systems USA, Inc. (AE)(N) 8,810 75 Constar International, Inc. (AE)(N) 34,600 69 Crown Holdings, Inc. (AE) 68,500 1,111 Cytec Industries, Inc. 44,300 1,830 Eagle Materials, Inc. (N) 4,400 469 ElkCorp 18,700 592 EMCOR Group, Inc. (AE) 18,200 1,110
26 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Energizer Holdings, Inc. (AE) 14,190 716 Engelhard Corp. 55,200 1,501 Exide Technologies (AE)(N) 48,000 204 Florida Rock Industries, Inc. 3,300 188 Gold Kist, Inc. (AE)(N) 29,500 507 Granite Construction, Inc. (N) 10,000 341 Harsco Corp. 15,100 970 HB Fuller Co. 4,050 121 Hercules, Inc. (AE) 108,000 1,203 Insituform Technologies, Inc. Class A (AE) 26,100 469 Jacuzzi Brands, Inc. (AE) 69,500 513 Lafarge North America, Inc. 35,500 2,148 Lennox International, Inc. 7,000 195 Louisiana-Pacific Corp. 6,650 166 Martin Marietta Materials, Inc. 30,400 2,399 Metal Management, Inc. (N) 31,500 763 Mosaic Co. (The) (AE)(N) 26,700 352 Mueller Industries, Inc. 16,400 452 NewMarket Corp. (AE)(N) 7,900 148 NS Group, Inc. (AE) 17,333 600 Olympic Steel, Inc. (AE)(N) 36,000 640 OM Group, Inc. (AE) 32,100 513 Oregon Steel Mills, Inc. (AE) 36,601 929 Pactiv Corp. (AE) 16,300 321 PolyOne Corp. (AE)(N) 56,900 328 Precision Castparts Corp. 12,200 578 Quanex Corp. (N) 36,330 2,104 Quanta Services, Inc. (AE)(N) 122,200 1,404 Regeneron Pharmaceuticals, Inc. (AE) 12,000 150 Reliance Steel & Aluminum Co. 12,900 736 Schnitzer Steel Industries, Inc. Class A 25,500 813 Silgan Holdings, Inc. 12,600 405 Terra Industries, Inc. (AE)(N) 68,250 417 Texas Industries, Inc. (N) 14,500 719 Trammell Crow Co. (AE) 8,000 205 UAP Holding Corp. (N) 36,000 688 Unifi, Inc. (AE) 31,500 92 Universal Forest Products, Inc. 2,000 111 URS Corp. (AE) 15,085 610 USEC, Inc. 49,540 495 USG Corp. (AE)(N) 6,040 357 Vertex Pharmaceuticals, Inc. (AE)(N) 10,000 228 Washington Group International, Inc. (AE) 13,551 674 Wheeling-Pittsburgh Corp. (AE)(N) 8,800 113 ------------ 40,689 ------------ Miscellaneous - 1.2% Brunswick Corp. 32,800 1,251 Hillenbrand Industries, Inc. 9,600 442 Johnson Controls, Inc. 11,200 762
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- McDermott International, Inc. (AE) 21,527 782 SPX Corp. 8,800 379 Teleflex, Inc. 12,800 847 Trinity Industries, Inc. (N) 35,100 1,336 Walter Industries, Inc. 19,691 899 Wesco Financial Corp. 2,800 971 ------------ 7,669 ------------ Other Energy - 8.2% Alliance Resource Partners, LP 10,000 422 Alpha Natural Resources, Inc. (AE)(N) 19,000 451 Arch Coal, Inc. 14,583 1,124 Atwood Oceanics, Inc. (AE) 4,071 287 Berry Petroleum Co. Class A 1,200 72 Cabot Oil & Gas Corp. 5,400 247 Cal Dive International, Inc. (AE)(N) 37,150 2,286 Callon Petroleum Co. (AE) 23,900 437 Consol Energy, Inc. 15,400 938 Cooper Cameron Corp. (AE) 14,000 1,032 Core Laboratories NV (AE) 29,728 958 Denbury Resources, Inc. (AE) 49,200 2,147 Diamond Offshore Drilling, Inc. 13,726 775 Dril-Quip, Inc. (AE) 5,400 221 Dynegy, Inc. Class A (AE) 61,400 273 Enbridge Energy Partners, LP (N) 16,800 848 ENSCO International, Inc. 24,400 1,112 Foundation Coal Holdings, Inc. 14,300 536 Frontier Oil Corp. 28,200 1,040 Global Industries, Ltd. (AE) 17,600 224 Grant Prideco, Inc. (AE) 64,980 2,527 Helmerich & Payne, Inc. 22,400 1,241 Holly Corp. 13,300 766 Hornbeck Offshore Services, Inc. (AE)(N) 8,300 267 Houston Exploration Co. (AE) 23,300 1,201 Input/Output, Inc. (AE)(N) 41,200 316 Nabors Industries, Ltd. (AE) 8,688 596 National-Oilwell Varco, Inc. (AE) 34,175 2,135 NRG Energy, Inc. (AE) 25,100 1,080 Ormat Technologies, Inc. (N) 12,400 253 Patterson-UTI Energy, Inc. 33,100 1,130 Pogo Producing Co. 11,000 556 Precision Drilling Corp. (AE) 19,024 875 Pride International, Inc. (AE) 37,300 1,047 Quicksilver Resources, Inc. (AE)(N) 22,700 879 Range Resources Corp. 52,992 1,891 Smith International, Inc. 25,400 823 Swift Energy Co. (AE) 28,310 1,236 Talisman Energy, Inc. 17,400 771 TEPPCO Partners, LP (N) 23,000 899 Tesoro Corp. 8,900 544 Tetra Technologies, Inc. (AE) 25,530 714 Todco Class A 147,820 6,615
Equity II Fund 27 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Unit Corp. (AE) 44,703 2,342 Universal Compression Holdings, Inc. (AE) 35,420 1,263 Valero, LP 11,000 643 Veritas DGC, Inc. (AE) 28,334 913 Vintage Petroleum, Inc. 10,263 533 W-H Energy Services, Inc. (AE)(N) 30,200 915 Whiting Petroleum Corp. (AE) 24,500 994 XTO Energy, Inc. 26,997 1,173 ------------ 52,568 ------------ Producer Durables - 6.4% American Tower Corp. Class A (AE) 127,385 3,038 Ametek, Inc. 20,800 847 AO Smith Corp. (N) 3,050 99 Applied Industrial Technologies, Inc. 1,800 59 Arris Group, Inc. (AE) 129,900 1,074 Asyst Technologies, Inc. (AE) 38,200 165 ATMI, Inc. (AE)(N) 28,000 765 Audiovox Corp. Class A (AE) 7,300 104 Axcelis Technologies, Inc. (AE) 130,300 567 BE Aerospace, Inc. (AE) 17,800 323 Briggs & Stratton Corp. 18,000 576 Bucyrus International, Inc. Class A 16,732 695 C&D Technologies, Inc. 1,600 15 Cascade Corp. (N) 25,700 1,252 CNH Global NV (N) 24,880 464 Cognex Corp. (N) 30,000 857 Columbus McKinnon Corp. (AE) 12,600 288 Credence Systems Corp. (AE) 60,673 467 Crown Castle International Corp. (AE) 46,200 1,133 Cymer, Inc. (AE)(N) 32,200 1,122 Dionex Corp. (AE) 12,600 610 Dominion Homes, Inc. (AE)(N) 3,900 47 DR Horton, Inc. 23,501 721 Encore Wire Corp. (AE) 3,500 75 Entegris, Inc. (AE) 100,031 976 ESCO Technologies, Inc. (AE) 3,400 147 Esterline Technologies Corp. (AE) 1,800 68 Flowserve Corp. (AE) 11,100 389 Gehl Co. (AE)(N) 8,900 204 Genlyte Group, Inc. (AE) 14,680 748 Graco, Inc. 19,800 679 HNI Corp. 3,100 152 IDEX Corp. 10,715 429 Itron, Inc. (AE) 14,100 613 JLG Industries, Inc. (N) 30,050 1,153 Joy Global, Inc. 26,549 1,218 KB Home 7,400 484 Kennametal, Inc. 15,412 788 Kimball International, Inc. Class B (N) 4,310 48 Lennar Corp. Class A 13,500 750
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Levitt Corp. Class A (N) 13,900 273 LTX Corp. (AE)(N) 26,300 90 Manitowoc Co. 7,800 415 MDC Holdings, Inc. 19,015 1,304 Meritage Homes Corp. (AE) 19,500 1,214 Middleby Corp. (AE)(N) 13,900 1,008 Milacron, Inc. (AE)(N) 90,858 116 Orbital Sciences Corp. (AE)(N) 29,700 345 Orleans Homebuilders, Inc. (N) 4,400 88 Pall Corp. 46,200 1,209 Roper Industries, Inc. 40,198 1,515 Standard-Pacific Corp. 24,200 934 Steelcase, Inc. Class A (N) 27,600 395 Technical Olympic USA, Inc. (AE)(N) 32,500 687 Tecumseh Products Co. Class A 24,200 487 Teledyne Technologies, Inc. (AE) 20,650 728 Tennant Co. 3,430 149 Teradyne, Inc. (AE) 65,700 890 Thermo Electron Corp. (AE) 64,100 1,935 Thomas & Betts Corp. (AE) 9,200 358 Toll Brothers, Inc. (AE) 18,000 664 Ultratech, Inc. (AE)(N) 7,000 96 Varian Semiconductor Equipment Associates, Inc. (AE) 38,600 1,460 WCI Communities, Inc. (AE)(N) 21,900 548 ------------ 41,117 ------------ Technology - 15.0% ADTRAN, Inc. 18,163 549 Agile Software Corp. (AE) 181,200 1,287 Akamai Technologies, Inc. (AE) 72,900 1,264 Alliance Semiconductor Corp. (AE)(N) 46,400 122 American Reprographics Co. (AE)(N) 35,000 590 Amkor Technology, Inc. (AE) 27,100 143 Amphenol Corp. Class A 23,575 942 Anixter International, Inc. 6,950 258 Ansoft Corp. (AE)(N) 5,900 189 Ansys, Inc. (AE) 1,900 71 Anteon International Corp. (AE) 18,400 832 Applera Corp. - Applied Biosystems Group 30,800 747 ASE Test, Ltd. (AE) 45,700 252 AsiaInfo Holdings, Inc. (AE)(N) 23,100 89 Atmel Corp. (AE) 55,300 136 Autodesk, Inc. 19,200 866 Avid Technology, Inc. (AE) 26,000 1,280 Avnet, Inc. (AE) 49,400 1,139 AVX Corp. (N) 62,000 768 BearingPoint, Inc. (AE)(N) 108,900 764 Bottomline Technologies, Inc. (AE) 29,900 378 Cadence Design Systems, Inc. (AE) 100,500 1,606 Carrier Access Corp. (AE) 9,200 40 Ciena Corp. (AE) 411,500 975
28 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cirrus Logic, Inc. (AE) 22,800 150 Coherent, Inc. (AE) 7,000 207 Compuware Corp. (AE) 75,200 608 Comtech Telecommunications Corp. (AE)(N) 6,450 247 Comverse Technology, Inc. (AE) 36,200 909 Conexant Systems, Inc. (AE) 29,000 56 Digitas, Inc. (AE) 62,000 670 Electronics for Imaging, Inc. (AE) 82,680 2,076 EMS Technologies, Inc. (AE) 3,100 51 Emulex Corp. (AE) 52,000 963 Equinix, Inc. (AE)(N) 20,100 741 ESS Technology, Inc. (AE) 15,300 44 F5 Networks, Inc. (AE) 15,151 788 Fairchild Semiconductor International, Inc. (AE) 91,200 1,404 Filenet Corp. (AE) 13,000 366 Flir Systems, Inc. (AE) 16,178 339 Formfactor, Inc. (AE) 12,502 308 Foundry Networks, Inc. (AE) 37,600 449 Genesis Microchip, Inc. (AE) 28,900 556 GTSI Corp. (AE)(N) 96,791 788 Harris Corp. 50,400 2,071 Ikanos Communications, Inc. (AE)(N) 23,400 369 InFocus Corp. (AE)(N) 50,300 161 Informatica Corp. (AE)(N) 186,000 2,213 Ingram Micro, Inc. Class A (AE) 82,250 1,489 Integrated Device Technology, Inc. (AE) 40,800 403 Integrated Silicon Solutions, Inc. (AE)(N) 122,000 942 Intergraph Corp. (AE)(N) 9,890 478 Intermagnetics General Corp. (AE) 30,213 866 Intersil Corp. Class A 78,268 1,781 Interwoven, Inc. (AE) 20,600 194 j2 Global Communications, Inc. (AE)(N) 76,700 3,391 JDA Software Group, Inc. (AE) 21,500 348 Keane, Inc. (AE)(N) 30,300 342 Kemet Corp. (AE)(N) 22,000 152 Keynote Systems, Inc. (AE) 37,100 483 Komag, Inc. (AE)(N) 3,500 94 Kopin Corp. (AE) 44,600 252 Lawson Software, Inc. (AE)(N) 145,500 1,115 LSI Logic Corp. (AE) 298,500 2,421 M-Systems Flash Disk Pioneers Ltd. (AE)(N) 72,100 2,285 Macromedia, Inc. (AE) 8,200 360 Matrixone, Inc. (AE)(N) 178,400 899 Maxtor Corp. (AE)(N) 485,700 1,700 McAfee, Inc. (AE) 19,200 577 MEMC Electronic Materials, Inc. (AE) 54,500 978 Merix Corp. (AE)(N) 5,300 29 Methode Electronics, Inc. 4,040 41
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Microchip Technology, Inc. 13,200 398 Micros Systems, Inc. (AE) 18,400 845 Microsemi Corp. (AE)(N) 92,100 2,134 Microtune, Inc. (AE) 5,120 20 Nam Tai Electronics, Inc. 13,000 294 NAVTEQ Corp. (AE) 12,700 497 Ness Technologies, Inc. (AE) 15,500 141 NETGEAR, Inc. (AE)(N) 11,200 219 Netlogic Microsystems, Inc. (AE)(N) 81,100 1,586 Network Engines, Inc. (AE) 52,700 69 Novell, Inc. (AE)(N) 39,600 302 Nuance Communications, Inc. (AE)(N) 93,100 479 Nvidia Corp. (AE) 41,500 1,392 O2Micro International, Ltd. (AE) 39,602 519 Openwave Systems, Inc. (AE)(N) 63,700 1,138 Parametric Technology Corp. (AE) 114,621 746 PerkinElmer, Inc. 18,500 408 Perot Systems Corp. Class A (AE)(N) 10,000 139 PMC - Sierra, Inc. (AE)(N) 126,000 895 Quantum Corp. (AE)(N) 217,400 657 Quest Software, Inc. (AE) 44,200 615 Rackable Systems, Inc. (AE) 81,700 1,136 RADWARE, Ltd. (AE) 11,800 217 Redback Networks, Inc. (AE)(N) 123,466 1,298 Reynolds & Reynolds Co. (The) Class A 16,700 443 RF Micro Devices, Inc. (AE) 69,600 365 Rockwell Automation, Inc. 10,836 576 RSA Security, Inc. (AE)(N) 47,100 537 Safeguard Scientifics, Inc. (AE) 41,600 62 SafeNet, Inc. (AE)(N) 12,500 415 Salesforce.com, Inc. (AE) 11,900 297 Sapient Corp. (AE)(N) 36,700 190 Satyam Computer Services, Ltd. -ADR 31,200 1,066 Seachange International, Inc. (AE)(N) 29,600 185 Semtech Corp. (AE) 39,900 602 Serena Software, Inc. (AE)(N) 32,000 700 Silicon Storage Technology, Inc. (AE) 34,900 176 SiRF Technology Holdings, Inc. (AE) 11,700 302 Solectron Corp. (AE) 227,500 803 SonicWALL, Inc. (AE) 33,617 234 SPSS, Inc. (AE)(N) 6,300 144 SYKES Enterprises, Inc. (AE) 35,000 505 Symbol Technologies, Inc. 124 1 Tekelec (AE)(N) 34,000 466 Tellabs, Inc. (AE) 114,740 1,097 Tessera Technologies, Inc. (AE) 30,738 858 TIBCO Software, Inc. (AE) 127,000 964 Transaction Systems Architects, Inc. Class A (AE) 34,041 919 Trident Microsystems, Inc. (AE)(N) 53,500 1,619 Triquint Semiconductor, Inc. (AE) 50,900 214 Trizetto Group, Inc. (The) (AE) 30,600 434 Ulticom, Inc. (AE) 2,200 23
Equity II Fund 29 FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ultimate Software Group, Inc. (AE)(N) 53,900 916 Unisys Corp. (AE) 120,800 617 UNOVA, Inc. (AE) 32,839 1,018 Utstarcom, Inc. (AE)(N) 26,100 144 Vasco Data Security International (AE)(N) 17,500 187 VeriFone Holdings, Inc. (AE) 66,100 1,533 Verint Systems, Inc. (AE)(N) 17,000 651 Verity, Inc. (AE) 45,400 452 Viasat, Inc. (AE)(N) 35,800 887 WatchGuard Technologies, Inc. (AE) 28,600 100 Wavecom SA - ADR (AE) 18,700 266 Websense, Inc. (AE) 15,440 912 Western Digital Corp. (AE)(N) 174,200 2,108 Wind River Systems, Inc. (AE)(N) 106,481 1,395 Witness Systems, Inc. (AE) 47,400 929 Zoran Corp. (AE)(N) 72,000 1,057 ------------ 96,954 ------------ Utilities - 3.2% Alamosa Holdings, Inc. (AE) 102,700 1,520 Allete, Inc. 23,000 1,012 Alliant Energy Corp. 42,600 1,127 Avista Corp. 26,010 456 Cablevision Systems Corp. Class A (AE) 31,300 776 Cascade Natural Gas Corp. 17,400 358 Centerpoint Energy, Inc. (N) 34,900 462 CenturyTel, Inc. 14,000 458 CMS Energy Corp. (AE) 42,800 638 Commonwealth Telephone Enterprises, Inc. 29,380 1,054 Energen Corp. 3,500 132 IDACORP., Inc. 13,400 387 IDT Corp. Class B (AE)(N) 1,000 12 Laclede Group, Inc. (The) (N) 5,400 161 Leap Wireless International, Inc. (AE) 18,106 598 National Fuel Gas Co. 19,200 579 NeuStar, Inc. Class A (AE) 14,200 434 NII Holdings, Inc. (AE) 5,815 482 Northeast Utilities 106,400 1,935 NorthWestern Corp. 4,900 146 OGE Energy Corp. 39,000 1,005 Oneok, Inc. 10,100 290 Pepco Holdings, Inc. 42,000 903 Pinnacle West Capital Corp. 22,000 919 PNM Resources, Inc. 16,200 411 RCN Corp. (AE)(N) 3,900 79
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Sierra Pacific Resources (AE)(N) 53,210 689 South Jersey Industries, Inc. 6,400 179 Talk America Holdings, Inc. (AE)(N) 34,500 333 UbiquiTel, Inc. (AE)(N) 133,900 1,157 UGI Corp. 37,150 877 US Cellular Corp. (AE) 9,130 466 Westar Energy, Inc. 23,100 510 ------------ 20,545 ------------ TOTAL COMMON STOCKS (cost $503,618) 611,508 ------------ WARRANTS & RIGHTS - 0.0% Washington Mutual, Inc.(AE) 2050 Warrants 121 16 ------------ TOTAL WARRANTS & RIGHTS (cost $20) 16 ------------ SHORT-TERM INVESTMENTS - 4.8% Frank Russell Investment Company Money Market Fund 29,197,002 29,197 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 2,000 1,993 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $31,190) 31,190 ------------ OTHER SECURITIES - 18.4% Frank Russell Investment Company Money Market Fund (X) 38,818,126 38,818 State Street Securities Lending Quality Trust (X) 79,534,672 79,535 ------------ TOTAL OTHER SECURITIES (cost $118,353) 118,353 ------------ TOTAL INVESTMENTS - 118.1% (identified cost $653,181) 761,067 OTHER ASSETS AND LIABILITIES, NET - (18.1%) (116,877) ------------ NET ASSETS - 100.0% 644,190 ============
See accompanying notes which are an integral part of the financial statements. 30 Equity II Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY II FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 2000 Mini Index (CME) expiration date 12/05 (471) 30,577 (816) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (816) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 4.0 Consumer Discretionary 18.7 Consumer Staples 0.9 Financial Services 18.3 Health Care 12.7 Integrated Oils --* Materials and Processing 6.3 Miscellaneous 1.2 Other Energy 8.2 Producer Durables 6.4 Technology 15.0 Utilities 3.2 Warrants & Rights --* Short-Term Investments 4.8 Other Securities 18.4 --------------- Total Investments 118.1 Other Assets and Liabilities, Net (18.1) --------------- 100.0 =============== Futures Contracts (0.1)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Equity II Fund 31 FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
EQUITY Q - CLASS I RUSSELL 1000(R) ** ------------------ ------------------ * 10000.00 10000.00 1996 12339.00 12292.00 1997 16359.00 16206.00 1998 19298.00 19401.00 1999 24567.00 24364.00 2000 26804.00 26571.00 2001 20421.00 19652.00 2002 17256.00 16783.00 2003 21060.00 20528.00 2004 22842.00 22443.00 2005 25195.00 24793.00
Equity Q Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.30% 5 Years (1.23)%sec. 10 Years 9.68%sec.
Equity Q Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.03 5 Years (1.46)%sec. 10 Years 9.52%sec.
Equity Q Fund - Class Y ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.34% 5 Years (1.15)%sec. 10 Years 9.73%sec.
Russell 1000(TM) Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.47% 5 Years (1.38)%sec. 10 Years 9.50%sec.
32 Equity Q Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Equity Q Fund Class I, Class E and Class Y gained 10.30%, 10.03% and 10.34%, respectively. This compared to the Russell 1000(R) Index, which gained 10.47% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Core Funds Average returned 8.33%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The primary performance drivers were the Fund's fully invested position and exposure to companies with factor exposures, or characteristics, that the Fund's money managers believed to be predictive of positive long-term excess returns. The key factors that were positively rewarded by the market were positive price momentum and positive earnings surprises and revisions. These are two of the primary long term factors on which the Fund's money managers selected stocks. The third primary stock selection factor is lower valuation, which was rewarded to a lesser extent during the twelve months. Energy stocks significantly outperformed during the fiscal year. The Fund had a greater-than-benchmark weight in the integrated oils sector, but was slightly underweight in the extremely strong other energy sector, particularly the oil well equipment and service sub-sector. Although the Fund did well in most sectors, an underweight in consumer staples and overweight in technology detracted from performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? A key detractor to performance was an underweight in consumer staples and weak stock selection within that sector, particularly in tobacco stocks. An underweight in Altria was one of the key detractors from performance. In addition, a modest overweight in technology also offset some of the Fund's money managers' positive achievements in the fiscal year. Exposure to stocks with positive price momentum and positive earnings surprise and revisions were significant positive contributors to the Fund's performance. The Fund also was characterized by a lower dividend yield stance, another positive contributor. Dividend yield was not rewarded during the period due to steadily rising interest rates. The Fund was also rewarded for its modest value bias. Security selection was the primary positive contributor to Fund's performance, with selection positive in eight out of 11 economic sectors. The largest positive contributors to performance came from overweighting the integrated oils sector coupled with strong stock selection in that sector, and underweighting the weak materials and processing sector together with strong stock selection within that sector. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's money managers emphasized those factors they believed would be rewarded with long-term positive excess returns. These included positive price momentum and positive earnings surprises and revisions. A slightly lower valuation stance than the benchmark as well as a lower dividend yield were modest positive contributors to the Fund's performance. The broadly diversified nature of the Fund and money manager assignments resulted in a slightly greater than benchmark exposure to energy stocks, though the stronger other energy sector was underweight. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Barclays Global Investors was terminated in December 2004 and replaced with Goldman Sachs Asset Management, L.P. In August 2005, a "select holdings" strategy was implemented. Pursuant to this strategy, FRIMCo analyzes the stocks purchased for the Fund by each of the Fund's money managers to identify particular stocks that are concurrently overweighted by the money managers. Based on rankings from a proprietary model, FRIMCo purchases additional shares of certain stocks for the Fund. The Fund continues to pursue a strategy of increasing stock specific risk and these changes were consistent with this strategy. All other managers were equally weighted in the Fund. Equity Q Fund 33 FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Aronson + Johnson + Ortiz, L.P. Market-Oriented Franklin Portfolio Associates, LLC Market-Oriented Goldman Sachs Asset Management, L.P. Market-Oriented Jacobs Levy Equity Management, Inc. Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Equity Q Fund Class I assumes initial investment on November 1, 1995. ** 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. ++++ Equity Q Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Equity Q Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 34 Equity Q Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,066.20 $ 1,020.57 Expenses Paid During Period* $ 4.79 $ 4.69
* Expenses are equal to the Fund's annualized expense ratio of 0.92% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,067.50 $ 1,021.78 Expenses Paid During Period* $ 3.54 $ 3.47
* Expenses are equal to the Fund's annualized expense ratio of 0.68% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,067.80 $ 1,021.98 Expenses Paid During Period* $ 3.34 $ 3.26
* Expenses are equal to the Fund's annualized expense ratio of 0.64% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Equity Q Fund 35 FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 97.9% Auto and Transportation - 3.1% Burlington Northern Santa Fe Corp. 85,100 5,281 CNF, Inc. 21,800 1,227 Continental Airlines, Inc. Class B (AE)(N) 16,000 207 CSX Corp. 232,000 10,628 FedEx Corp. 66,000 6,067 Ford Motor Co. (N) 491,900 4,093 Goodyear Tire & Rubber Co. (The) (AE)(N) 96,400 1,508 Harley-Davidson, Inc. 16,600 822 JB Hunt Transport Services, Inc. (N) 80,200 1,557 Landstar System, Inc. 19,000 732 Norfolk Southern Corp. 67,500 2,713 Oshkosh Truck Corp. 10,600 462 Paccar, Inc. 58,112 4,069 Polaris Industries, Inc. 7,600 343 Southwest Airlines Co. 146,000 2,337 Swift Transportation Co., Inc. (AE) 16,500 301 United Parcel Service, Inc. Class B 5,000 365 US Airways Group, Inc. (AE) 5,300 131 ------------ 42,843 ------------ Consumer Discretionary - 12.6% Abercrombie & Fitch Co. Class A 19,600 1,019 Activision, Inc. (AE) 30,400 479 American Eagle Outfitters, Inc. 89,000 2,096 American Greetings Corp. Class A 47,100 1,189 Arbitron, Inc. (N) 7,200 269 Autonation, Inc. (AE) 60,800 1,209 Autozone, Inc. (AE) 4,000 324 Black & Decker Corp. 35,000 2,874 Bright Horizons Family Solutions, Inc. (AE)(N) 5,600 224 Brinker International, Inc. 24,600 938 Career Education Corp. (AE)(N) 29,200 1,039 Cendant Corp. 487,200 8,487 Choice Hotels International, Inc. 9,000 298 Circuit City Stores, Inc. 180,289 3,207 Citadel Broadcasting Corp. (N) 15,600 215 Coach, Inc. (AE) 409,700 13,184 Convergys Corp. (AE) 33,300 541 Costco Wholesale Corp. 36,500 1,765 Darden Restaurants, Inc. 69,700 2,260 Dillard's, Inc. Class A 126,600 2,622 EchoStar Communications Corp. 43,900 1,180 Emdeon Corp. (AE) 89,900 827 Federated Department Stores, Inc. 1,600 98 Gemstar-TV Guide International, Inc. (AE) 44,800 116
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Google, Inc. Class A (AE) 13,600 5,061 Hilton Hotels Corp. 2,300 45 Home Depot, Inc. 333,790 13,699 InterActiveCorp (AE) 23,600 604 Kimberly-Clark Corp. 94,535 5,373 Liberty Media Corp. Class A (AE) 1,386,300 11,049 Marriott International, Inc. Class A 109,300 6,516 McGraw-Hill Cos., Inc. (The) 127,600 6,245 Men's Wearhouse, Inc. (The) (AE) 17,100 422 MGM Mirage (AE) 22,700 848 News Corp. Class A 425,400 6,062 Nike, Inc. Class B 69,300 5,825 Nordstrom, Inc. 323,600 11,213 O'Reilly Automotive, Inc. (AE)(N) 15,700 443 Office Depot, Inc. (AE) 29,400 809 Omnicom Group 14,100 1,170 PHH Corp. (AE)(N) 3,300 93 Phillips-Van Heusen Corp. (N) 6,000 171 Quiksilver, Inc. (AE)(N) 38,900 448 Republic Services, Inc. 17,000 601 Robert Half International, Inc. 15,800 583 RR Donnelley & Sons Co. 41,200 1,443 SCP Pool Corp. (N) 8,350 300 Staples, Inc. 262,600 5,969 Starbucks Corp. (AE) 55,200 1,561 Target Corp. 143,300 7,980 Time Warner, Inc. 513,000 9,147 Toro Co. (N) 13,700 500 Viacom, Inc. Class B 332,757 10,305 Wal-Mart Stores, Inc. 27,343 1,294 Walt Disney Co. 285,500 6,958 Yahoo!, Inc. (AE) 34,800 1,287 Yum! Brands, Inc. 101,800 5,179 ------------ 175,663 ------------ Consumer Staples - 5.7% Altria Group, Inc. 182,100 13,667 Clorox Co. 27,100 1,467 Coca-Cola Co. (The) 149,400 6,391 Coca-Cola Enterprises, Inc. 44,900 849 Colgate-Palmolive Co. 79,800 4,226 ConAgra Foods, Inc. (N) 54,200 1,261 CVS Corp. 86,800 2,119 General Mills, Inc. 84,200 4,063 Kellogg Co. 12,000 530 Kroger Co. (The) (AE) 262,035 5,214 Pepsi Bottling Group, Inc. 61,200 1,740 PepsiCo, Inc. 292,100 17,257 Pilgrim's Pride Corp. 56,100 1,766 Procter & Gamble Co. 135,750 7,601 Reynolds American, Inc. 40,100 3,409 Safeway, Inc. 44,200 1,028
36 Equity Q Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Supervalu, Inc. 29,500 927 Tyson Foods, Inc. Class A 166,300 2,960 UST, Inc. 13,400 555 Walgreen Co. 63,600 2,889 ------------ 79,919 ------------ Financial Services - 22.2% Allstate Corp. (The) 50,100 2,645 American Express Co. 182,000 9,058 American Financial Group, Inc. 33,600 1,148 American International Group, Inc. 84,771 5,493 AmeriCredit Corp. (AE) 49,800 1,113 Ameriprise Financial, Inc. 33,400 1,243 Ameritrade Holding Corp. (AE)(N) 45,900 965 AmerUs Group Co. 18,700 1,106 Annaly Mortgage Management, Inc. (o) 43,300 497 AON Corp. 20,600 697 Archstone-Smith Trust (o) 8,600 349 Assurant, Inc. (N) 7,400 283 Automatic Data Processing, Inc. 55,100 2,571 Bank of America Corp. 724,578 31,693 Bank of Hawaii Corp. 33,800 1,737 BB&T Corp. (N) 78,500 3,324 Bear Stearns Cos., Inc. (The) 33,700 3,565 CB Richard Ellis Group, Inc. Class A (AE) 11,300 552 CBL & Associates Properties, Inc. (o) 18,400 687 Charles Schwab Corp. (The) 173,300 2,634 Checkfree Corp. (AE) 32,100 1,364 Chubb Corp. 28,200 2,622 Cigna Corp. 67,100 7,775 Cincinnati Financial Corp. (N) 33,022 1,405 CIT Group, Inc. 14,921 682 Citigroup, Inc. 328,502 15,039 Comerica, Inc. 53,800 3,109 Countrywide Financial Corp. 53,000 1,684 Developers Diversified Realty Corp. (o) 12,200 533 East-West Bancorp, Inc. (N) 1,400 54 Equity Office Properties Trust (o) 143,300 4,414 Fannie Mae 46,000 2,186 Fidelity National Financial, Inc. 16,122 604 Fidelity National Title Group, Inc. Class A 2,821 61 First American Corp. 60,000 2,629 Fiserv, Inc. (AE) 146,500 6,399 Franklin Resources, Inc. 56,800 5,019 Genworth Financial, Inc. Class A 80,300 2,545 Golden West Financial Corp. 21,500 1,263 Goldman Sachs Group, Inc. 44,900 5,674 H&R Block, Inc. 16,400 408 Host Marriott Corp. (o) 5,900 99 Hudson City Bancorp, Inc. (N) 162,800 1,928 IndyMac Bancorp, Inc. (N) 7,900 295
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- JPMorgan Chase & Co. 392,800 14,384 KeyCorp 101,910 3,286 Kimco Realty Corp. (o) 33,000 977 La Quinta Corp. (AE)(o) 1,400 12 Lehman Brothers Holdings, Inc. 90,700 10,854 Lincoln National Corp. 42,000 2,126 Loews Corp. 53,900 5,012 MBIA, Inc. 59,300 3,454 MBNA Corp. 53,459 1,367 Merrill Lynch & Co., Inc. 212,700 13,770 Metlife, Inc. 271,600 13,420 Moody's Corp. 78,300 4,170 Morgan Stanley 134,500 7,318 National City Corp. 297,800 9,598 Nationwide Financial Services, Inc. Class A 6,600 267 New Century Financial Corp. (o) 17,700 546 North Fork Bancorporation, Inc. 31,700 803 Old Republic International Corp. 26,500 687 Paychex, Inc. 89,400 3,465 People's Bank (N) 3,500 113 Plum Creek Timber Co., Inc. (o) 8,000 311 Principal Financial Group, Inc. 94,000 4,665 Progressive Corp. (The) 25,400 2,942 ProLogis (o) 48,100 2,068 Protective Life Corp. 8,900 390 Prudential Financial, Inc. 5,900 429 Radian Group, Inc. 13,400 698 Regions Financial Corp. 10,290 335 Safeco Corp. 25,300 1,409 SLM Corp. 11,000 611 St. Paul Travelers Cos., Inc. (The) 67,140 3,023 Stancorp Financial Group, Inc. 5,000 460 SunTrust Banks, Inc. 48,893 3,544 UnionBanCal Corp. 76,100 5,211 United Rentals, Inc. (AE) 19,200 376 US Bancorp 181,200 5,360 Vornado Realty Trust (o) 10,400 842 W Holding Co., Inc. (N) 19,700 152 Wachovia Corp. 316,600 15,995 Washington Mutual, Inc. 430,000 17,028 Wells Fargo & Co. 141,400 8,512 WR Berkley Corp. 16,700 730 ------------ 309,871 ------------ Health Care - 14.2% Abbott Laboratories 129,800 5,588 Abgenix, Inc. (AE) 2,800 29 Aetna, Inc. 127,000 11,247 Allergan, Inc. 69,200 6,180 American Medical Systems Holdings, Inc. (AE) 12,950 212
Equity Q Fund 37 FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- AmerisourceBergen Corp. 85,300 6,506 Amgen, Inc. (AE) 312,800 23,698 Barr Pharmaceuticals, Inc. (AE) 14,000 804 Baxter International, Inc. 40,500 1,548 Becton Dickinson & Co. 168,100 8,531 Bio-Rad Laboratories, Inc. Class A (AE)(N) 3,200 187 Bristol-Myers Squibb Co. 52,000 1,101 Cardinal Health, Inc. 100,600 6,289 Caremark Rx, Inc. (AE) 89,000 4,664 Community Health Systems, Inc. (AE)(N) 13,000 482 Coventry Health Care, Inc. (AE) 41,850 2,259 CR Bard, Inc. 26,600 1,659 Dade Behring Holdings, Inc. 20,800 749 Edwards Lifesciences Corp. (AE) 41,600 1,721 Express Scripts, Inc. (AE) 21,000 1,584 Genentech, Inc. (AE) 34,900 3,162 Genzyme Corp. (AE) 23,700 1,714 Gilead Sciences, Inc. (AE) 122,200 5,774 Guidant Corp. 9,000 567 HCA, Inc. 51,900 2,501 Health Net, Inc. (AE) 20,900 979 Hospira, Inc. (AE) 10,800 430 Humana, Inc. (AE) 75,000 3,329 Johnson & Johnson 574,800 35,994 Lincare Holdings, Inc. (AE) 2,400 98 McKesson Corp. 94,900 4,311 Medarex, Inc. (AE)(N) 10,000 87 Medco Health Solutions, Inc. (AE) 38,100 2,153 Medtronic, Inc. 73,800 4,182 Merck & Co., Inc. 293,000 8,268 Pfizer, Inc. 993,294 21,594 Respironics, Inc. (AE) 11,000 395 St. Jude Medical, Inc. (AE) 92,100 4,427 UnitedHealth Group, Inc. 89,400 5,175 Universal Health Services, Inc. Class B (N) 40,700 1,919 WellPoint, Inc. (AE) 29,100 2,173 Wyeth 71,900 3,204 Zimmer Holdings, Inc. (AE) 500 32 ------------ 197,506 ------------ Integrated Oils - 6.1% Chevron Corp. 392,783 22,416 ConocoPhillips 357,800 23,393 Exxon Mobil Corp. 652,422 36,627 Occidental Petroleum Corp. 24,400 1,925 ------------ 84,361 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Materials and Processing - 3.2% AK Steel Holding Corp. (AE) 3,700 26 Allegheny Technologies, Inc. (N) 10,200 293 Archer-Daniels-Midland Co. 171,027 4,168 Ashland, Inc. 38,100 2,039 Avery Dennison Corp. 9,600 544 Celanese Corp. (N) 5,000 88 Dow Chemical Co. (The) 95,600 4,384 Energizer Holdings, Inc. (AE) 40,800 2,060 Florida Rock Industries, Inc. (N) 14,800 842 Freeport-McMoRan Copper & Gold, Inc. Class B (N) 101,400 5,011 Georgia-Pacific Corp. 70,300 2,287 Gold Kist, Inc. (AE)(N) 7,600 131 Granite Construction, Inc. 10,200 348 Lafarge North America, Inc. 9,500 575 Lennox International, Inc. 2,200 61 Monsanto Co. 60,200 3,793 Newmont Mining Corp. 6,700 285 Nucor Corp. 175,651 10,513 Phelps Dodge Corp. 39,700 4,783 Rohm & Haas Co. 34,900 1,519 Southern Copper Corp. 4,900 270 USG Corp. (AE) 8,400 497 ------------ 44,517 ------------ Miscellaneous - 2.3% 3M Co. 17,800 1,353 Fortune Brands, Inc. 7,100 539 General Electric Co. 844,140 28,625 ITT Industries, Inc. 9,300 945 ------------ 31,462 ------------ Other Energy - 3.4% Anadarko Petroleum Corp. 54,900 4,980 Apache Corp. 70,700 4,513 BJ Services Co. 26,700 928 Burlington Resources, Inc. 103,000 7,439 Devon Energy Corp. 131,100 7,916 Diamond Offshore Drilling, Inc. (N) 15,700 886 EOG Resources, Inc. 40,300 2,732 Houston Exploration Co. (AE)(N) 12,800 660 Newfield Exploration Co. (AE) 23,100 1,047 Smith International, Inc. 26,400 855 Sunoco, Inc. 117,800 8,776 Todco Class A (N) 10,000 447 Valero Energy Corp. 57,100 6,009 ------------ 47,188 ------------
38 Equity Q Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Producer Durables - 6.1% Agilent Technologies, Inc. (AE) 64,300 2,058 Ametek, Inc. 15,400 627 Boeing Co. 144,700 9,353 Caterpillar, Inc. 79,500 4,181 Danaher Corp. 42,300 2,204 DR Horton, Inc. 362,531 11,126 Emerson Electric Co. 9,600 668 Genlyte Group, Inc. (AE)(N) 5,400 275 Herman Miller, Inc. 11,400 313 Joy Global, Inc. 23,200 1,064 KB Home 29,700 1,941 KLA-Tencor Corp. 94,300 4,365 Lennar Corp. Class A (N) 72,300 4,018 Lockheed Martin Corp. 220,900 13,378 MDC Holdings, Inc. (N) 9,500 652 Meritage Homes Corp. (AE)(N) 3,600 224 Northrop Grumman Corp. 254,100 13,633 NVR, Inc. (AE) 500 343 Pulte Homes, Inc. 63,000 2,381 Standard-Pacific Corp. 23,200 895 Steelcase, Inc. Class A (N) 8,300 119 Technical Olympic USA, Inc. (AE)(N) 6,500 137 Teradyne, Inc. (AE)(N) 48,900 662 Thermo Electron Corp. (AE) 21,400 646 Toll Brothers, Inc. (AE)(N) 82,700 3,052 United Technologies Corp. 132,000 6,769 WCI Communities, Inc. (AE)(N) 4,400 110 ------------ 85,194 ------------ Technology - 13.7% 3Com Corp. (AE) 4,700 18 Acxiom Corp. 16,300 348 Adobe Systems, Inc. 30,900 996 Advanced Micro Devices, Inc. (AE) 42,400 984 Akamai Technologies, Inc. (AE)(N) 29,100 505 Amphenol Corp. Class A 18,400 735 Apple Computer, Inc. (AE) 287,720 16,570 Applera Corp. - Applied Biosystems Group 9,600 233 Applied Micro Circuits Corp. (AE) 67,800 165 Arrow Electronics, Inc. (AE) 10,700 316 Atmel Corp. (AE) 68,300 168 Autodesk, Inc. 138,000 6,228 BEA Systems, Inc. (AE) 9,600 85 BMC Software, Inc. (AE) 18,100 355 Cadence Design Systems, Inc. (AE) 43,000 687 Ciena Corp. (AE) 80,900 192 Cisco Systems, Inc. (AE) 372,500 6,500 Citrix Systems, Inc. (AE) 11,900 328
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Computer Associates International, Inc. 1,889 53 Computer Sciences Corp. (AE) 150,000 7,687 Comverse Technology, Inc. (AE) 37,000 929 Corning, Inc. (AE) 147,500 2,963 Dell, Inc. (AE) 9,800 312 Electronic Data Systems Corp. 39,600 923 Electronics for Imaging, Inc. (AE)(N) 4,800 121 EMC Corp. (AE) 576,600 8,049 F5 Networks, Inc. (AE)(N) 3,800 198 General Dynamics Corp. 41,100 4,780 Harris Corp. (N) 83,300 3,424 Hewlett-Packard Co. 572,600 16,056 Ingram Micro, Inc. Class A (AE) 122,300 2,214 Intel Corp. 1,381,100 32,456 International Business Machines Corp. 120,400 9,858 Jabil Circuit, Inc. (AE) 62,600 1,869 LSI Logic Corp. (AE)(N) 27,200 221 McAfee, Inc. (AE) 70,500 2,117 Micron Technology, Inc. (AE) 167,600 2,177 Microsoft Corp. 690,852 17,755 Motorola, Inc. 321,800 7,131 National Semiconductor Corp. 3,800 86 NCR Corp. (AE) 63,200 1,910 Oracle Corp. (AE) 477,000 6,048 Parametric Technology Corp. (AE) 51,300 334 Qualcomm, Inc. 79,300 3,153 Raytheon Co. 57,100 2,110 Rockwell Automation, Inc. 28,300 1,504 Sanmina-SCI Corp. (AE) 101,300 370 Scientific-Atlanta, Inc. 11,600 411 Seagate Technology, Inc. (AE) 57,274 -- Solectron Corp. (AE) 90,200 318 Sun Microsystems, Inc. (AE) 284,300 1,137 Symantec Corp. (AE) 29,900 713 Tellabs, Inc. (AE) 83,600 799 Texas Instruments, Inc. 446,300 12,742 TIBCO Software, Inc. (AE) 17,900 136 Western Digital Corp. (AE)(N) 261,000 3,158 ------------ 191,635 ------------ Utilities - 5.3% Ameren Corp. 34,400 1,809 American Electric Power Co., Inc. 10,100 383 AT&T Corp. 67,800 1,341 BellSouth Corp. 138,641 3,607 CenturyTel, Inc. 109,000 3,568 Citizens Communications Co. (N) 34,700 425 CMS Energy Corp. (AE) 71,700 1,069 Comcast Corp. Class A (AE) 157,200 4,375 Comcast Corp. Special Class A (AE) 40,400 1,107 Consolidated Edison, Inc. (N) 24,700 1,124
Equity Q Fund 39 FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Constellation Energy Group, Inc. 46,600 2,554 Duke Energy Corp. 97,900 2,592 Edison International 290,200 12,699 Entergy Corp. 5,600 396 FirstEnergy Corp. 14,200 675 Nextel Partners, Inc. Class A (AE)(N) 118,100 2,970 Pepco Holdings, Inc. 18,900 406 PG&E Corp. 111,200 4,046 Pinnacle West Capital Corp. 4,400 184 SBC Communications, Inc. 240,000 5,724 Sempra Energy 29,000 1,285 Sierra Pacific Resources (AE) 79,700 1,032 Sprint Nextel Corp. 74,600 1,739 Telephone & Data Systems, Inc. 14,300 541 TXU Corp. 87,800 8,846 Verizon Communications, Inc. 285,700 9,002 ------------ 73,499 ------------ TOTAL COMMON STOCKS (cost $1,178,942) 1,363,658 ------------ SHORT-TERM INVESTMENTS - 1.9% Frank Russell Investment Company Money Market Fund 22,834,900 22,835 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 4,000 3,986 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $26,821) 26,821 ------------ OTHER SECURITIES - 2.6% Frank Russell Investment Company Money Market Fund (X) 11,814,148 11,814 State Street Securities Lending Quality Trust (X) 24,206,073 24,206 ------------ TOTAL OTHER SECURITIES (cost $36,020) 36,020 ------------ TOTAL INVESTMENTS - 102.4% (identified cost $1,241,783) 1,426,499 OTHER ASSETS AND LIABILITIES, NET - (2.4%) (32,837) ------------ NET ASSETS - 100.0% 1,393,662 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Index expiration date 12/05 (20) 6,579 (157) Russell 1000 Mini Index (CME) expiration date 12/05 (8) 526 (17) S&P 500 E-Mini Index (CME) expiration date 12/05 (68) 4,113 (103) S&P 500 Index (CME) expiration date 12/05 (19) 5,747 114 S&P Midcap 400 E-Mini Index (CME) expiration date 12/05 (145) 10,194 25 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (138) ===============
See accompanying notes which are an integral part of the financial statements. 40 Equity Q Fund FRANK RUSSELL INVESTMENT COMPANY EQUITY Q FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 3.1 Consumer Discretionary 12.6 Consumer Staples 5.7 Financial Services 22.2 Health Care 14.2 Integrated Oils 6.1 Materials and Processing 3.2 Miscellaneous 2.3 Other Energy 3.4 Producer Durables 6.1 Technology 13.7 Utilities 5.3 Short-Term Investments 1.9 Other Securities 2.6 --------------- Total Investments 102.4 Other Assets and Liabilities, Net (2.4) --------------- 100.0 =============== Futures Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Equity Q Fund 41 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
INTERNATIONAL - CLASS I MSCI EAFE ** ----------------------- ------------ * 10000.00 10000.00 1996 11090.00 11080.00 1997 11634.00 11625.00 1998 12120.00 12782.00 1999 14766.00 15769.00 2000 14949.00 15349.00 2001 11306.00 11561.00 2002 9897.00 10066.00 2003 12705.00 12841.00 2004 14671.00 15316.00 2005 17235.00 18163.00
International Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.48% 5 Years 2.89%sec. 10 Years 5.59%sec.
International Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.19% 5 Years 2.69%sec. 10 Years 5.45%sec.
International Fund - Class Y ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.53% 5 Years 2.97%sec. 10 Years 5.64%sec.
MSCI EAFE Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.59% 5 Years 3.42%sec. 10 Years 6.15%sec.
42 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and the preservation of capital. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the International Fund Class I, Class E and Class Y gained 17.48%, 17.19% and 17.53%, respectively. This compared to the MSCI EAFE(R) Index, which gained 18.59% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) International Funds Average returned 17.78%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Given some of the uncertainties in the market during the period, the Fund was positioned relatively conservatively with a slight tilt towards growth sectors. The Fund had a modest overweight to the consumer discretionary and information technology sectors and underweight to industrials. Due to the stronger performance of the cyclical sectors, the Fund's underweight in industrials, combined with an underweight and some weak stock selection in materials, detracted from the performance. An overweight in the lagging information technology sector also contributed negatively to the Fund's performance. In terms of country positions, the Fund was penalized for an underweight to Australia and an overweight to Taiwanese technology companies. Overall, however, exposure to Canadian and emerging markets stocks proved to be beneficial, given their generally strong gains over the period. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund lagged the MSCI EAFE(R) Index over the 12 months. Much of the shortfall was attributable to the first six months of the fiscal year, when the Fund's performance suffered from overweights to price and earnings momentum strategies and an overweight to stocks with high long-term earnings forecasts. From a sector perspective, the Fund's underweight in the industrials sector and overweights in information technology and consumer discretionary stocks were significant detractors from performance. From a country perspective, an underweight to Australia had the biggest negative impact to Fund performance. In the aggregate, the Fund's money managers viewed Australia's market valuation as less attractive given its strong performance in recent periods. Stock selection overall was effective in most areas, but was more than offset by these negative contributors to Fund performance. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The market slightly favored value-oriented money managers in the period. However, the Fund's best performing money manager was Axiom International Investors, LLC, an aggressive growth manager. Axiom outperformed the benchmark by a substantial margin on strong stock selection and exposure to smaller capitalization stocks. Alliance Capital Management, L.P., through its Bernstein Investment Research & Management Unit, was the strongest performer among the value money managers and delivered a solid excess return for the period. AllianceBernstein did well through strong stock selection, particularly in Japan, with holdings such as Sumitomo Heavy Industries, Sumitomo Metal Industries and Kobe Steel. AllianceBernstein's stock selection in Germany was also strong, helped by positions in Heidelberg Cement and Continental. Oechsle International Advisors, LLC, a momentum-driven growth manager, struggled over the first half of the fiscal year in the very reactive, rotational market and detracted significantly from the Fund's performance. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. To improve the structure of the Fund's growth segment, Oechsle and Capital International, Inc., were terminated in April 2005. Wellington Management Company, LLP and MFS Institutional Advisors, Inc., were hired to provide consistent growth strategies intended to complement the processes of the remaining growth managers. These changes moderated the Fund's momentum exposure and increased exposure to high quality defensive growth stocks. International Fund 43 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management, L.P., through its Bernstein Investment Research and Management Unit Value AQR Capital Management, LLC Market-Oriented Axiom International Investors, LLC Growth Fidelity Management & Research Company Market-Oriented Marvin & Palmer Associates, Inc. Growth MFS Institutional Advisors, Inc. Growth Mondrian Investment Partners Limited Value The Boston Company Asset Management, LLC Value Wellington Management Company, LLP Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * International Fund Class I assumes initial investment on November 1, 1995. ** 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. ++++ International Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++International Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 44 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,092.60 $ 1,019.31 Expenses Paid During Period* $ 6.17 $ 5.96
* Expenses are equal to the Fund's annualized expense ratio of 1.17% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,093.80 $ 1,020.52 Expenses Paid During Period* $ 4.91 $ 4.74
* Expenses are equal to the Fund's annualized expense ratio of 0.93% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,094.10 $ 1,020.82 Expenses Paid During Period* $ 4.59 $ 4.43
* Expenses are equal to the Fund's annualized expense ratio of 0.87% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). International Fund 45 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- COMMON STOCKS - 92.2% Australia - 3.7% ABC Learning Centres, Ltd. (N) 72,433 354 Amcor, Ltd. 911,089 4,571 AMP Ltd. 188,200 1,029 Australia & New Zealand Banking Group, Ltd. 102,972 1,818 Australian Gas Light Co., Ltd. 21,000 238 AXA Asia Pacific Holdings, Ltd. 45,500 162 BHP Billiton, Ltd. 400,562 6,216 BlueScope Steel, Ltd. 165,200 1,049 Boral, Ltd. 13,700 78 Bradken, Ltd. 58,101 164 Caltex Australia, Ltd. 20,200 308 CFS Gandel Retail Trust 118,400 165 Challenger Financial Services Group, Ltd. 21,500 59 Coles Myer, Ltd. 405,516 3,047 Commonwealth Bank of Australia 27,500 801 Commonwealth Property Office Fund 81,900 74 Computershare, Ltd. 182,800 898 ConnectEast Group 238,671 130 CSR, Ltd. 64,600 141 David Jones, Ltd. (N) 80,100 136 DB RREEF Trust (o) 47,660 48 DCA Group, Ltd. (N) 64,600 187 Downer EDI, Ltd. 85,848 391 Foster's Group, Ltd. 1,343,721 5,837 Futuris Corp., Ltd. (N) 43,900 61 GPT Group 97,500 281 Gunns, Ltd. (N) 117,200 244 Iluka Resources, Ltd. 23,100 134 Insurance Australia Group, Ltd. 51,200 199 Lend Lease Corp., Ltd. 13,100 134 Lion Nathan, Ltd. (N) 19,200 114 Macquarie Airports 486,300 1,095 Macquarie Bank, Ltd. (N) 118,790 5,772 Macquarie Infrastructure Group 349,200 899 Mayne Group, Ltd. (N) 15,800 62 National Australia Bank, Ltd. (N) 409,643 10,135 Oil Search, Ltd. 171,600 423 OneSteel, Ltd. (N) 74,500 197 Origin Energy, Ltd. 40,500 204 PaperlinX, Ltd. (N) 62,500 144 Publishing & Broadcasting, Ltd. (N) 27,430 332 Qantas Airways, Ltd. 26,300 67 QBE Insurance Group, Ltd. (N) 317,969 4,247 Ramsay Health Care, Ltd. 27,900 184 Rinker Group, Ltd. 206,960 2,348 Rio Tinto, Ltd. (N) 8,600 363 Santos, Ltd. 28,500 234 Seek, Ltd. (N) 36,800 78 Sons of Gwalia, Ltd. (AE)(N)(B) 22,400 --
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Stockland (N) 32,500 149 Suncorp-Metway, Ltd. 30,200 436 TABCORP Holdings, Ltd. 12,300 147 Telstra Corp., Ltd. (N) 1,259,536 3,962 Transurban Group 121,100 581 United Group, Ltd. 36,200 286 Wesfarmers, Ltd. (N) 10,874 291 Westfield Group (N) 83,396 1,038 Westpac Banking Corp. 41,900 652 Woodside Petroleum, Ltd. 57,200 1,351 Woolworths, Ltd. (N) 87,652 1,072 ----------- 65,817 ----------- Austria - 0.5% Erste Bank der Oesterreichischen Sparkassen AG 117,816 6,126 OMV AG 37,300 2,013 Raiffeisen International Bank Holding AG (AE)(N) 6,000 377 ----------- 8,516 ----------- Belgium - 0.9% Belgacom SA 17,800 597 Delhaize Group (N) 37,300 2,164 Dexia 16,900 365 Electrabel (N) 6,833 3,381 Fortis (N) 235,571 6,707 KBC Groep NV (N) 20,300 1,654 Mobistar SA (N) 2,000 162 Solvay SA Class A 2,400 279 Umicore 2,200 220 ----------- 15,529 ----------- Brazil - 0.3% Cia Vale do Rio Doce - ADR 66,010 2,728 Petroleo Brasileiro SA - ADR (N) 27,410 1,752 Telecomunicacoes Brasileiras SA - ADR (N) 39,900 1,329 ----------- 5,809 ----------- Canada - 1.8% Bank of Nova Scotia 20,718 754 Cameco Corp. (N) 18,400 880 Canadian National Railway Co. 46,650 3,381 Canadian Natural Resources, Ltd. 69,500 2,842 Canadian Pacific Railway, Ltd. 42,500 1,747 EnCana Corp. 98,740 4,514 Inco, Ltd. (AE) 20,800 837 Manulife Financial Corp. 15,000 781 Nexen, Inc. 26,300 1,082 Petro-Canada 99,500 3,467 Research In Motion, Ltd. (AE) 42,000 2,583
46 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Rogers Communications, Inc. Class B 30,400 1,199 SNC-Lavalin Group, Inc. 27,700 1,747 Talisman Energy, Inc. 60,300 2,671 Teck Cominco, Ltd. Class B 20,400 859 TELUS Corp. 16,400 615 Toronto-Dominion Bank 22,300 1,052 ----------- 31,011 ----------- China - 0.0% China Construction Bank Class H (AE) 527,000 160 China Telecom Corp., Ltd. Class H 918,000 299 Foxconn International Holdings, Ltd. (AE) 211,000 227 ----------- 686 ----------- Denmark - 0.3% AP Moller - Maersk A/S Class B 195 1,764 Danske Bank A/S 70,625 2,215 East Asiatic Co., Ltd. A/S (N) 2,325 176 GN Store Nord A/S 48,700 586 Novo-Nordisk A/S Series B 5,750 295 Novozymes A/S (N) 500 26 TDC A/S 4,100 230 Topdanmark A/S (AE)(N) 1,050 80 ----------- 5,372 ----------- Finland - 1.1% Elisa OYJ Series A (N) 2,900 51 Fortum OYJ 144,971 2,566 Kesko OYJ Class B 3,900 107 M-real OYJ Class S (N) 301,100 1,433 Neste Oil OYJ (AE) 55,317 1,716 Nokia OYJ 294,050 4,934 Nokia OYJ - ADR 51,303 863 Orion OYJ Class B 1,200 26 Pohjola Group OYJ Class D (N) 9,400 151 Rautaruukki OYJ 8,000 163 Sampo OYJ 141,200 2,166 UPM-Kymmene OYJ 210,961 4,074 Wartsila OYJ Class S 16,400 455 ----------- 18,705 ----------- France - 9.8% Air Liquide SA (N) 28,596 5,200 Alstom RGPT (AE) 2,200 105 Altran Technologies SA (AE) 124,990 1,461 Areva SA 100 45 Assurances Generales de France (N) 30,700 2,923 Axa SA (N) 315,027 9,123 BNP Paribas (N) 139,818 10,600 Business Objects SA (AE) 29,262 1,003 Cap Gemini SA (AE) 22,100 812 Carrefour SA (N) 85,540 3,802
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Christian Dior SA (N) 18,800 1,509 Cie de Saint-Gobain (N) 83,497 4,574 Cie Generale d'Optique Essilor International SA (N) 42,804 3,523 CNP Assurances (N) 12,700 884 Credit Agricole SA (N) 252,744 7,407 Dassault Systemes SA (AE) 71,341 3,679 Eiffage (N) 749 65 France Telecom SA (N) 142,250 3,698 Gaz de France (N) 1,400 43 Groupe Danone (N) 30,644 3,112 Lafarge SA (N) 9,621 791 Lagardere SCA (N) 10,600 728 LVMH Moet Hennessy Louis Vuitton SA (N) 99,658 8,069 Natexis Banques Populaires 700 105 Pernod-Ricard (N) 6,880 1,203 Peugeot SA (N) 26,918 1,634 Pinault-Printemps-Redoute 8,542 897 Publicis Groupe (N) 88,426 2,925 Renault SA (N) 34,700 3,003 Sanofi-Aventis (N) 122,806 9,833 Sanofi-Aventis 2,746 219 Schneider Electric SA (N) 67,777 5,565 Societe BIC SA (N) 7,000 398 Societe Generale (N) 91,450 10,441 Societe Television Francaise 1 (N) 28,472 730 Sodexho Alliance SA (N) 27,200 1,058 Suez SA (N) 38,700 1,048 Technip SA (N) 47,500 2,586 Thomson (N) 123,390 2,326 Total SA (N) 111,435 28,061 Total SA - ADR 21,926 2,763 Unibail (N) 15,835 2,092 Valeo SA (N) 60,497 2,266 Vallourec SA (N) 1,600 719 Veolia Environnement (N) 211,815 8,831 Vinci SA (N) 41,800 3,265 Vivendi Universal SA (N) 245,585 7,717 ----------- 172,841 ----------- Germany - 5.7% Adidas-Salomon AG 16,745 2,808 Allianz AG (N) 51,029 7,207 AMB Generali Holding AG 2,000 180 Bayer AG 122,458 4,252 Bayerische Hypo-und Vereinsbank AG (AE) 239,346 6,670 Bilfinger Berger AG 18,800 813 Celanese AG (AE) 1,200 75 Celesio AG 10,500 907 Commerzbank AG 3,300 86
International Fund 47 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Continental AG 60,500 4,624 DaimlerChrysler AG 14,000 701 Deutsche Bank AG 31,741 2,973 Deutsche Boerse AG (N) 40,937 3,852 Deutsche Lufthansa AG (N) 142,382 1,904 Deutsche Post AG 152,060 3,389 Deutsche Telekom AG (N) 214,050 3,784 E.ON AG (N) 159,092 14,416 Fraport AG Frankfurt Airport Services Worldwide (N) 1,000 51 Fresenius Medical Care AG (N) 800 72 Hannover Rueckversicherung AG (N) 47,110 1,705 Heidelberger Druckmaschinen (N) 32,300 1,026 Hochtief AG 13,500 546 Infineon Technologies AG (AE)(N) 174,040 1,627 KarstadtQuelle AG (N) 6,379 75 MAN AG (N) 51,900 2,410 Medion AG (N) 24,750 343 Merck KGaA 89,546 7,409 Metro AG 6,200 282 MLP AG (AE) 2,400 46 Muenchener Rueckversicherungs-Gesellschaft AG 52,332 6,147 RWE AG 99,699 6,368 Salzgitter AG 20,500 897 SAP AG 20,600 3,522 Schering AG 50,847 3,141 Siemens AG 32,768 2,437 Suedzucker AG (N) 3,100 65 ThyssenKrupp AG (N) 11,600 236 TUI AG (N) 48,000 933 Volkswagen AG (N) 44,058 2,400 ----------- 100,379 ----------- Greece - 0.3% EFG Eurobank Ergasias SA 67,000 2,013 National Bank of Greece SA 25,600 1,000 OPAP SA 60,260 1,740 Public Power Corp. 20,940 445 ----------- 5,198 ----------- Hong Kong - 1.9% AAC Acoustic Technology Holdings, Inc. (AE) 56,000 29 Bank of East Asia, Ltd. 714,192 2,086 BOC Hong Kong Holdings, Ltd. (N) 73,500 137 Cheung Kong Holdings, Ltd. 401,200 4,188 China Mobile Hong Kong, Ltd. 313,500 1,403 Citic Pacific, Ltd. 250,000 649 CLP Holdings, Ltd. 43,500 249 CNOOC, Ltd. 5,026,000 3,264 Esprit Holdings, Ltd. 396,500 2,816
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Hang Seng Bank, Ltd. (N) 7,200 93 HongKong Electric Holdings (N) 548,000 2,591 Hopewell Holdings 79,000 193 Hutchison Telecommunications International, Ltd. (AE) 2,163,000 2,712 Hutchison Whampoa, Ltd. (N) 234,000 2,221 Jardine Matheson Holdings, Ltd. 129,300 2,046 Kerry Properties, Ltd. (N) 61,500 154 Kingboard Chemical Holdings, Ltd. 26,000 55 Li & Fung, Ltd. 246,000 527 Melco International Development, Inc. (N) 786,000 757 New World Development, Ltd. 119,000 148 Noble Group, Ltd. (N) 96,000 87 Orient Overseas International, Ltd. (N) 44,900 144 Shangri-La Asia, Ltd. (N) 140,000 196 Sino Land Co. (N) 1,096,000 1,219 Sun Hung Kai Properties, Ltd. 21,000 199 Swire Pacific, Ltd. 102,400 919 Techtronic Industries Co. (N) 113,500 280 Television Broadcasts, Ltd. 75,000 417 Wharf Holdings, Ltd. 936,537 3,197 ----------- 32,976 ----------- Hungary - 0.3% Mol Magyar Olaj- es Gazipari Rt 7,500 699 OTP Bank Rt. - GDR 29,815 2,145 OTP Bank Rt. 71,000 2,565 ----------- 5,409 ----------- Indonesia - 0.1% Bank Central Asia Tbk PT 2,986,500 953 Telekomunikasi Indonesia Tbk PT 1,522,000 762 Telekomunikasi Indonesia Tbk PT - ADR (N) 5,423 110 ----------- 1,825 ----------- Ireland - 0.7% Allied Irish Banks PLC 49,400 1,034 Anglo Irish Bank Corp. PLC 45,600 622 Bank of Ireland PLC 234,184 3,566 CRH PLC 81,739 2,044 Depfa Bank PLC 226,155 3,523 Ryanair Holdings PLC - ADR (N) 28,013 1,389 ----------- 12,178 ----------- Israel - 0.3% Check Point Software Technologies (AE) 88,600 1,981 Teva Pharmaceutical Industries, Ltd. - ADR (N) 71,100 2,710 ----------- 4,691 -----------
48 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Italy - 2.8% Autostrade SpA (N) 82,836 1,895 Banca Intesa SpA (N) 1,479,941 6,911 Banca Popolare di Milano SCRL 15,700 150 Banco Popolare di Verona e Novara SCRL (N) 138,598 2,558 Benetton Group SpA (N) 96,490 1,020 CIR-Compagnie Industriali Riunite SpA 35,200 100 Enel SpA (N) 129,200 1,042 Eni SpA (N) 597,922 15,993 ERG SpA 28,800 726 Fastweb (AE)(N) 25,985 1,183 Finmeccanica SpA (AE)(N) 41,210 749 Fondiaria-Sai SpA (N) 39,800 1,100 Hera SpA 36,000 92 Italcementi SpA (N) 45,600 748 Lottomatica SpA (N) 25,500 926 Mediaset SpA (N) 43,800 481 Milano Assicurazioni SpA 115,900 725 Parmalat Finanziaria SpA (AE)(N) 46,200 -- Recordati SpA 61,300 448 Saipem SpA (N) 132,600 1,901 Seat Pagine Gialle SpA (AE) 2,236,900 1,039 Snam Rete Gas SpA (N) 111,500 612 Telecom Italia Media SpA (N) 156,778 89 Telecom Italia SpA (N) 303,500 878 Telecom Italia SpA 465,971 1,126 UniCredito Italiano SpA (N) 1,127,040 6,293 ----------- 48,785 ----------- Japan - 22.4% 77 Bank, Ltd. (The) 268,500 2,146 Access Co., Ltd. (AE) 12 235 Aderans Co., Ltd. 4,300 115 Aeon Co., Ltd. 181,100 3,773 Aida Engineering, Ltd. (N) 41,000 283 Aiful Corp. 13,450 1,005 Aioi Insurance Co., Ltd. 38,000 269 Aisin Seiki Co., Ltd. 29,600 893 Alps Electric Co., Ltd. (N) 64,000 1,017 Arrk Corp. 12,100 668 Aruze Corp. 14,200 256 Asahi Breweries, Ltd. (N) 9,700 121 Asahi Glass Co., Ltd. (N) 478,000 5,183 Asahi Kasei Corp. 56,000 300 Astellas Pharma, Inc. 76,900 2,750 Autobacs Seven Co., Ltd. (N) 2,400 98 Bandai Visual Co., Ltd. 103 344 Bank of Kyoto, Ltd. (The) (N) 9,000 99 Bank of Yokohama, Ltd. (The) 14,000 114 Bridgestone Corp. 154,000 3,152 BSL Corp. (N) 97,000 205
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Canon Sales Co., Inc. 8,000 175 Canon, Inc. 334,890 17,722 Chiba Bank, Ltd. (The) 21,000 188 Chiyoda Corp. (N) 94,000 1,619 Chubu Electric Power Co., Inc. (N) 23,200 576 Chugai Pharmaceutical Co., Ltd. 211,600 4,648 Circle K Sunkus Co., Ltd. 22,200 508 Citizen Watch Co., Ltd. 16,500 125 COMSYS Holdings Corp. 16,000 181 Cosmo Oil Co., Ltd. (N) 45,000 218 Credit Saison Co., Ltd. (N) 21,400 972 Cyber Communications, Inc. (AE) 113 286 Dai Nippon Printing Co., Ltd. 40,000 653 Daihatsu Motor Co., Ltd. (N) 15,000 143 Daiichi Sankyo Co., Ltd. (AE) 17,161 311 Daikin Industries, Ltd. 24,200 630 Daimaru, Inc. 26,000 318 Dainippon Ink and Chemicals, Inc. 26,000 78 Dainippon Pharmaceutical Co., Ltd. 15,000 141 Dainippon Screen Manufacturing Co., Ltd. (N) 52,000 320 Daiwa House Industry Co., Ltd. 17,000 228 Daiwa Securities Group, Inc. 144,000 1,190 Denso Corp. 2,800 80 Dentsu, Inc. (N) 544 1,476 Don Quijote Co., Ltd. (N) 9,100 658 East Japan Railway Co. 682 4,065 Eisai Co., Ltd. (N) 112,100 4,402 Exedy Corp. 21,000 490 Fanuc, Ltd. 61,900 4,892 Frontier Real Estate Investment Corp. (o) 47 293 Fuji Heavy Industries, Ltd. 329,900 1,653 Fuji Photo Film Co., Ltd. 73,000 2,331 Fujitsu, Ltd. 193,000 1,279 Funai Electric Co., Ltd. (N) 21,450 1,752 Glory, Ltd. 9,700 189 Hachijuni Bank, Ltd. (The) 8,000 67 Hirose Electric Co., Ltd. (N) 2,700 309 Hitachi Chemical Co., Ltd. (N) 12,600 272 Hitachi Koki Co., Ltd. (N) 46,000 625 Hitachi Kokusai Electric, Inc. 37,000 366 Hitachi, Ltd. 610,000 3,751 Hokkaido Electric Power Co., Inc. 5,000 103 Hokuhoku Financial Group, Inc. (N) 226,000 941 Honda Motor Co., Ltd. 98,900 5,493 Hoya Corp. (N) 12,600 443 Hoya Corp. 60,600 2,098 Ibiden Co., Ltd. (N) 106,800 4,348 Isuzu Motors, Ltd. (N) 19,000 75 Itochu Corp. (N) 515,000 3,539 Itochu-Shokuhin Co., Ltd. (N) 5,700 193 Iyo Bank, Ltd. (The) 9,000 90
International Fund 49 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Japan Asia Investment Co., Ltd. 63,000 353 Japan Logistics Fund, Inc. (AE)(o) 65 404 Japan Tobacco, Inc. 770 12,189 JFE Holdings, Inc. (N) 120,000 3,712 JGC Corp. (N) 22,000 362 JS Group Corp. 87,500 1,485 JSR Corp. (N) 104,900 2,470 Kadokawa Holdings, Inc. (N) 17,500 629 Kaken Pharmaceutical Co., Ltd. (N) 9,000 64 Kamigumi Co., Ltd. 52,000 430 Kaneka Corp. 135,000 1,669 Kansai Electric Power Co., Inc. (The) 25,600 563 Kansai Paint Co., Ltd. 58,000 348 Kao Corp. 88,700 2,118 Kawasaki Heavy Industries, Ltd. (N) 82,000 215 Kawasaki Kisen Kaisha, Ltd. (N) 35,000 219 KDDI Corp. 1,354 7,728 Keihin Corp. (N) 4,800 107 Keyence Corp. 12,700 2,937 Kirin Beverage Corp. (N) 8,300 174 Kirin Brewery Co., Ltd. 11,000 122 Kobe Steel, Ltd. (N) 567,000 1,670 Koei Co., Ltd. (N) 15,700 474 Koito Manufacturing Co., Ltd. 24,000 322 Komatsu, Ltd. 616,000 8,294 Kose Corp. (N) 11,100 400 Koyo Seiko Co., Ltd. (N) 72,000 1,160 Kubota Corp. 69,000 502 Kuraray Co., Ltd. (N) 158,600 1,505 Kyocera Corp. 7,700 499 Kyowa Hakko Kogyo Co., Ltd. 52,000 403 Kyushu Electric Power Co., Inc. 10,800 232 Kyushu-Shinwa Holdings, Inc. (AE)(N) 157,000 432 Leopalace21 Corp. 11,300 292 Livedoor Co., Ltd. (AE)(N) 148,738 545 Mabuchi Motor Co., Ltd. (N) 44,100 2,146 Makita Corp. (N) 14,000 325 Mars Engineering Corp. 7,200 220 Marubeni Corp. 476,000 2,227 Matsumotokiyoshi Co., Ltd. (N) 12,900 390 Matsushita Electric Industrial Co., Ltd. (N) 432,000 7,930 Matsushita Electric Works, Ltd. (N) 22,000 206 Mazda Motor Corp. (N) 51,000 242 Meitec Corp. 5,300 172 Millea Holdings, Inc. 176 3,201 Minebea Co., Ltd. (N) 321,000 1,253 Mitsubishi Chemical Holdings Corp. (AE) 51,500 320 Mitsubishi Corp. 76,000 1,488 Mitsubishi Electric Corp. (N) 84,000 505 Mitsubishi Estate Co., Ltd. (N) 22,000 327 Mitsubishi Gas Chemical Co., Inc. 23,000 156
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Mitsubishi Rayon Co., Ltd. (N) 154,000 715 Mitsubishi Tokyo Financial Group, Inc. 891 11,235 Mitsui & Co., Ltd. (N) 142,000 1,741 Mitsui Chemicals, Inc. (N) 68,000 407 Mitsui Fudosan Co., Ltd. (N) 295,000 4,864 Mitsui OSK Lines, Ltd. 191,000 1,349 Mitsui Sumitomo Insurance Co., Ltd. 199,000 2,569 Mitsui Trust Holdings, Inc. (N) 24,000 290 Mizuho Financial Group, Inc. 845 5,676 Mori Seiki Co., Ltd. 22,300 295 Murata Manufacturing Co., Ltd. 16,300 818 Netprice, Ltd. (AE) 69 254 Nidec Copal Corp. (N) 7,500 82 Nidec Corp. (N) 4,300 252 Nidec Corp. (AE) 4,300 238 Nikko Cordial Corp. 82,000 1,003 Nintendo Co., Ltd. 22,200 2,492 Nippon Electric Glass Co., Ltd. (N) 314,000 6,008 Nippon Express Co., Ltd. 682,700 3,749 Nippon Light Metal Co., Ltd. (N) 28,000 74 Nippon Meat Packers, Inc. 55,000 610 Nippon Mining Holdings, Inc. 257,500 1,895 Nippon Oil Corp. 171,000 1,452 Nippon Paper Group, Inc. 251 857 Nippon Shokubai Co., Ltd. 12,000 130 Nippon Steel Corp. (N) 332,000 1,183 Nippon Telegraph & Telephone Corp. 238 1,134 Nippon Yusen KK (N) 191,000 1,156 Nishi-Nippon City Bank, Ltd. (The) (N) 143,000 841 Nishimatsu Construction Co., Ltd. (N) 26,000 120 Nissan Motor Co., Ltd. (N) 415,200 4,339 Nissha Printing Co., Ltd. (N) 13,000 261 Nisshin Seifun Group, Inc. 1,100 11 Nisshin Steel Co., Ltd. (N) 94,000 298 Nitto Denko Corp. 63,600 3,850 NOK Corp. (N) 17,900 541 Nomura Holdings, Inc. 40,400 622 NTT DoCoMo, Inc. 1,112 1,925 NTT Urban Development Corp. (N) 81 476 Obayashi Corp. 20,000 146 Obic Co., Ltd. 3,600 588 OJI Paper Co., Ltd. 89,000 452 OMC Card, Inc. (N) 16,000 270 Omron Corp. 34,100 805 ORIX Corp. (N) 75,700 14,191 Osaka Gas Co., Ltd. 53,000 194 Parco Co., Ltd. 38,000 368 Privee Zurich Turnaround Group Co., Ltd. (AE) 8,000 21 Promise Co., Ltd. 800 51 Rakuten, Inc. (N) 492 320 Rengo Co., Ltd. (N) 34,000 184
50 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Renown D'urban Holdings, Inc. (AE) 5,400 56 Resona Holdings, Inc. (AE) 123 359 Ricoh Co., Ltd. 251,500 3,985 Rinnai Corp. (N) 72,770 1,734 Rohm Co., Ltd. (N) 35,600 2,886 Sanken Electric Co., Ltd. (N) 29,000 336 Sankyo Co., Ltd. 4,700 249 Sanyo Shinpan Finance Co., Ltd. 14,900 1,081 Sapporo Hokuyo Holdings, Inc. 8 83 SBI Holdings, Inc. (N) 1,085 543 Sega Sammy Holdings, Inc. (N) 107,400 3,873 Sekisui Chemical Co., Ltd. 127,000 802 Sekisui House, Ltd. 174,300 2,169 Seven & I Holdings Co., Ltd. (AE) 77,760 2,538 SFCG Co., Ltd. (N) 920 221 Shimadzu Corp. 19,000 135 Shin-Etsu Chemical Co., Ltd. 78,400 3,773 Shinsei Bank, Ltd. 412,000 2,402 Shionogi & Co., Ltd. 50,000 608 Shizuoka Bank, Ltd. (The) (N) 60,000 634 Showa Shell Sekiyu KK (N) 7,800 97 Skylark Co., Ltd. (N) 106,800 1,764 SMBC Friend Securities Co., Ltd. 20,500 124 SMC Corp. 3,100 414 Softbank Corp. (N) 46,100 2,621 Sohgo Security Services Co., Ltd. (N) 45,988 758 Sompo Japan Insurance, Inc. 99,000 1,489 Sony Corp. (N) 15,700 512 Stanley Electric Co., Ltd. (N) 38,300 591 Sumisho Lease Co., Ltd. (N) 19,900 947 Sumitomo Bakelite Co., Ltd. (N) 145,800 966 Sumitomo Chemical Co., Ltd. (N) 211,000 1,246 Sumitomo Electric Industries, Ltd. 66,000 870 Sumitomo Forestry Co., Ltd. 55,000 509 Sumitomo Heavy Industries, Ltd. 365,000 2,549 Sumitomo Metal Industries, Ltd. 607,000 2,106 Sumitomo Mitsui Financial Group, Inc. (N) 1,809 16,846 Sumitomo Rubber Industries, Inc. 39,000 481 Sumitomo Trust & Banking Co., Ltd. (The) 44,000 374 Sumitomo Warehouse Co., Ltd. (The) 31,000 240 T&D Holdings, Inc. 22,050 1,397 Taiheiyo Cement Corp. (N) 52,000 189 Take And Give Needs Co., Ltd. (AE)(N) 569 797 Takeda Pharmaceutical Co., Ltd. 182,600 10,041 Takefuji Corp. 47,350 3,328 Tanabe Seiyaku Co., Ltd. 18,000 174 TDK Corp. (N) 11,700 793 Teijin, Ltd. (N) 57,000 341 Telewave, Inc. 80 468 Terumo Corp. (N) 39,900 1,210
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Toagosei Co., Ltd. (N) 18,000 92 Tobu Railway Co., Ltd. (N) 12,000 51 Toda Corp. 34,000 198 Tohoku Electric Power Co., Inc. (N) 12,700 259 Tokuyama Corp. (N) 64,000 633 Tokyo Electric Power Co., Inc. (The) 88,200 2,192 Tokyo Gas Co., Ltd. (N) 883,000 3,478 Toppan Printing Co., Ltd. (N) 28,000 271 Toray Industries, Inc. 384,000 2,130 Toshiba Corp. (N) 113,000 526 Tosoh Corp. 17,000 76 Toyo Seikan Kaisha, Ltd. 13,000 184 Toyobo Co., Ltd. 45,000 114 Toyoda Gosei Co., Ltd. (N) 78,600 1,473 Toyota Motor Corp. 548,700 25,474 Toyota Tsusho Corp. 8,000 178 Ube Industries, Ltd. 50,000 128 UNY Co., Ltd. 10,000 125 USS Co., Ltd. 5,310 364 Valor Co., Ltd. 7,560 228 West Japan Railway Co. 493 1,753 Xebio Co., Ltd. (N) 7,900 339 Yahoo! Japan Corp. (N) 465 492 Yahoo! Japan Corp. (AE) 420 451 Yamada Denki Co., Ltd. (N) 50,800 4,491 Yamaha Corp. (N) 6,300 112 Yamaha Motor Co., Ltd. 18,400 396 Yamato Transport Co., Ltd. (N) 297,000 4,901 Yokogawa Electric Corp. (N) 27,300 402 ----------- 394,287 ----------- Luxembourg - 0.5% Arcelor (N) 129,599 3,078 SES Global 238,987 3,776 Tenaris SA - ADR (N) 11,700 1,285 ----------- 8,139 ----------- Mexico - 0.9% America Movil SA de CV Series L 77,100 2,024 Cemex SA de CV 144,000 749 Coca-Cola Femsa SA de CV - ADR (N) 57,200 1,471 Fomento Economico Mexicano SA de CV - ADR 16,900 1,149 Grupo Televisa SA - ADR 107,430 7,853 Telefonos de Mexico SA de CV Series L 85,600 1,727 ----------- 14,973 ----------- Netherlands - 3.5% ABN AMRO Holding NV (N) 210,625 4,979 Aegon NV (N) 187,225 2,817 Buhrmann NV (N) 77,500 857 CSM NV Class A 7,300 186
International Fund 51 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Euronext NV 26,000 1,105 European Aeronautic Defense and Space Co. (N) 134,019 4,640 Heineken Holding NV (N) 1,700 50 Heineken NV 90,782 2,875 Hunter Douglas NV 1,300 62 ING Groep NV 429,495 12,386 Koninklijke Ahold NV (AE) 63,600 444 Koninklijke DSM NV 22,000 790 Koninklijke Philips Electronics NV 300,276 7,851 OCE NV 15,500 222 Reed Elsevier NV 361,759 4,873 Rodamco Europe NV 13,100 1,042 Royal Dutch Petroleum Co. 5,027 322 Royal Dutch Shell PLC Class A (N) 92,300 2,861 Royal KPN NV 79,100 750 Royal Numico NV (AE) 135,577 5,488 TomTom NV (AE) 21,361 823 Unilever NV 4,000 282 VNU NV (N) 104,590 3,325 Wolters Kluwer NV 117,486 2,179 ----------- 61,209 ----------- New Zealand - 0.2% Telecom Corp. of New Zealand, Ltd. 850,291 3,479 ----------- Norway - 0.7% Aker Kvaerner ASA (AE)(N) 32,000 1,646 DNB NOR ASA (N) 230,163 2,353 Norsk Hydro ASA 12,800 1,270 Petroleum Geo-Services ASA (AE)(N) 38,500 974 Statoil ASA (N) 214,900 4,772 Stolt Offshore SA (AE)(N) 87,900 910 Yara International ASA 44,600 734 ----------- 12,659 ----------- Poland - 0.0% Powszechna Kasa Oszczednosci Bank Polski SA 89,662 753 ----------- Portugal - 0.1% Energias de Portugal SA (N) 662,800 1,875 ----------- Singapore - 1.0% CapitaCommercial Trust (o) 163,000 152 CapitaLand, Ltd. (N) 251,000 473 DBS Group Holdings, Ltd. 310,240 2,807 Flextronics International, Ltd. (AE)(N) 106,600 990 Fraser and Neave, Ltd. 15,000 149 Jardine Cycle & Carriage, Ltd. 29,000 181 Keppel Corp., Ltd. (N) 382,000 2,623 MobileOne, Ltd. 44,000 52 NatSteel, Ltd. (N) 49,400 62
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Neptune Orient Lines, Ltd. 91,000 164 Oversea-Chinese Banking Corp. 566,800 2,112 Parkway Holdings, Ltd. 229,000 268 SembCorp Industries, Ltd. 81,580 130 SembCorp Marine, Ltd. 10,000 16 Singapore Airlines, Ltd. 17,000 113 Singapore Petroleum Co., Ltd. (N) 30,000 86 Singapore Technologies Engineering, Ltd. 148,000 223 Singapore Telecommunications, Ltd. (N) 3,529,940 4,866 United Overseas Bank, Ltd. 215,100 1,758 United Overseas Land, Ltd. (N) 29,900 41 Venture Corp., Ltd. 41,000 303 ----------- 17,569 ----------- South Africa - 0.2% Nedbank Group, Ltd. 109,879 1,400 Sasol, Ltd. 52,083 1,662 ----------- 3,062 ----------- South Korea - 0.9% Daewoo Securities Co., Ltd. (AE)(N) 84,770 924 Hana Bank (AE) 23,520 854 Hynix Semiconductor, Inc. (AE)(N) 65,900 1,224 Hynix Semiconductor, Inc. - GDR (AE) 8,100 148 Korea Electric Power Corp. -ADR (N) 76,340 1,247 KT Corp. - ADR (N) 66,200 1,427 Samsung Electronics Co., Ltd. 16,204 8,640 SK Telecom Co., Ltd. - ADR 83,390 1,685 ----------- 16,149 ----------- Spain - 3.5% Actividades de Construccion y Servicios SA (N) 68,892 1,969 Altadis SA 141,521 6,005 Antena 3 de Television SA (N) 23,400 455 Banco Bilbao Vizcaya Argentaria SA 379,964 6,695 Banco de Sabadell SA (N) 116,740 3,083 Banco Popular Espanol SA (N) 73,500 892 Banco Santander Central Hispano SA (N) 338,258 4,314 Cia de Distribucion Integral Logista SA (N) 1,700 90 Corp Mapfre SA (N) 73,380 1,285 Ebro Puleva SA (N) 48,600 810 Endesa SA (N) 170,737 4,247 Fomento de Construcciones y Contratas SA (N) 5,800 318 Gestevision Telecinco SA 35,100 778 Iberdrola SA 236,299 6,324 Iberia Lineas Aereas de Espana (N) 88,700 222 Indra Sistemas SA 58,900 1,207 Repsol YPF SA 130,000 3,875 Repsol YPF SA - ADR (N) 93,883 2,799
52 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Sociedad General de Aguas de Barcelona SA Class A 2,400 55 Union Fenosa SA (N) 24,400 808 ----------- 60,657 ----------- Sweden - 2.2% Atlas Copco AB Class A (N) 190,600 3,481 Billerud AB (N) 6,000 69 Elekta AB Class B 6,300 96 Fabege AB 3,600 61 Hennes & Mauritz AB Series B (N) 142,146 4,613 Lundin Petroleum AB (AE)(N) 16,200 164 Nordea Bank AB 77,500 759 OMX AB (AE) 9,800 120 Sandvik AB (N) 142,810 6,866 Skandia Forsakrings AB (N) 403,508 2,011 Skandinaviska Enskilda Banken AB Class A (N) 24,200 451 Skanska AB Class B (N) 8,200 115 Ssab Svenskt Stal AB 6,600 197 Svenska Cellulosa AB Series B 79,010 2,663 Svenska Handelsbanken Series A (N) 85,450 1,948 Swedish Match AB (N) 4,100 47 Tele2 AB Class B (N) 17,550 166 Telefonaktiebolaget LM Ericsson Series B (N) 4,412,237 14,476 TeliaSonera AB 47,000 229 Trelleborg AB Class B (N) 5,200 80 Volvo AB Class A 6,200 246 Volvo AB Class B 3,300 136 ----------- 38,994 ----------- Switzerland - 6.6% ABB, Ltd. (AE) 414,875 3,202 Ciba Specialty Chemicals AG 54,770 3,146 Clariant AG 87,970 1,174 Compagnie Financiere Richemont AG Class A 76,222 2,901 Credit Suisse Group (N) 290,713 12,860 Georg Fischer AG (AE) 916 283 Givaudan 1,059 683 Julius Baer Holding AG Class B 15,253 1,183 Kuehne & Nagel International AG 7,000 1,638 Lonza Group AG (N) 12,103 697 Micronas Semiconductor Holding AG (AE) 11,200 379 Nestle SA (N) 64,493 19,197 Nobel Biocare Holding AG 2,700 622 Novartis AG 238,615 12,836 PubliGroupe SA 64 18 Rieter Holding AG 123 35 Roche Holding AG 168,848 25,226 Sulzer AG 1,769 851 Swatch Group AG (AE) 42,266 1,202
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Swiss Life Holding (AE)(N) 589 91 Swiss Reinsurance 44,180 2,983 Swisscom AG 1,716 565 Syngenta AG (AE) 11,180 1,198 Synthes, Inc. 26,344 2,788 UBS AG (N) 203,992 17,316 Xstrata PLC (N) 127,734 2,924 Zurich Financial Services AG 1,902 324 ----------- 116,322 ----------- Taiwan - 0.1% Taiwan Semiconductor Manufacturing Co., Ltd. - ADR 139,600 1,128 United Microelectronics Corp. - ADR (N) 468,908 1,369 ----------- 2,497 ----------- Thailand - 0.1% Bangkok Bank PCL 435,300 1,101 ----------- Turkey - 0.0% Turkiye Garanti Bankasi AS (AE) 108,100 322 ----------- United Kingdom - 18.6% 3i Group PLC 247,226 3,317 Alliance & Leicester PLC 16,400 242 Alliance Unichem PLC 29,400 401 Anglo American PLC 195,138 5,765 Antofagasta PLC 6,000 154 Associated British Foods PLC 44,800 627 AstraZeneca PLC 188,095 8,441 Aviva PLC 481,534 5,686 BAA PLC 201,680 2,190 BAE Systems PLC 1,365,907 7,987 Barclays PLC 881,717 8,736 Barratt Developments PLC 47,600 637 BG Group PLC 1,410,523 12,377 BHP Billiton PLC 250,200 3,686 BOC Group PLC 141,155 2,781 Boots Group PLC 616,279 6,714 BP PLC 2,105,256 23,300 BPB PLC 14,500 188 Bradford & Bingley PLC 35,900 221 Brambles Industries PLC 609,110 3,518 British Airways PLC (AE) 122,200 653 British American Tobacco PLC 169,200 3,724 British Land Co. PLC 174,800 2,754 BT Group PLC 1,382,523 5,218 Burren Energy PLC 81,700 1,157 Cable & Wireless PLC 266,500 544 Capita Group PLC 111,600 770 Carnival PLC 37,818 1,919 Carphone Warehouse Group PLC 733,953 2,547
International Fund 53 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Centrica PLC 594,533 2,511 Compass Group PLC 6,100 21 Corus Group PLC 460,783 390 Diageo PLC 400,928 5,926 easyJet PLC (AE) 54,500 287 EMI Group PLC 837,075 3,168 Exel PLC 1,500 32 Friends Provident PLC 457,650 1,428 George Wimpey PLC 186,500 1,349 GKN PLC 863,286 4,252 GlaxoSmithKline PLC 932,160 24,251 Hanson PLC 35,500 360 HBOS PLC 637,854 9,417 Hilton Group PLC 776,921 4,663 HMV Group PLC 86,100 287 HSBC Holdings PLC 578,544 9,104 HSBC Holdings PLC (N) 6,465 101 Imperial Chemical Industries PLC 152,200 775 Imperial Tobacco Group PLC 81,200 2,329 Inchcape PLC 18,300 667 Intercontinental Hotels Group PLC 146,389 1,828 International Power PLC 178,200 732 ITV PLC 28,500 52 J Sainsbury PLC 765,597 3,781 Kesa Electricals PLC 22,255 95 Land Securities Group PLC 6,000 148 Lloyds TSB Group PLC 820,838 6,729 Man Group PLC 2,700 74 Marks & Spencer Group PLC 312,126 2,306 Meggitt PLC 64,400 345 Mitchells & Butlers PLC 240,170 1,542 Next PLC 97,803 2,308 Northern Foods PLC 45,000 120 Northumbrian Water Group PLC 28,500 120 Old Mutual PLC 560,000 1,306 Persimmon PLC 84,200 1,285 Pilkington PLC 94,000 255 Prudential PLC 173,871 1,459 Punch Taverns PLC 98,920 1,279 Reckitt Benckiser PLC 384,644 11,623 Reed Elsevier PLC 12,600 115 Reuters Group PLC 388,400 2,468 Rexam PLC (N) 115,796 986 Rio Tinto PLC 282,941 10,807 Rolls-Royce Group PLC 3,755,035 711 Royal & Sun Alliance Insurance Group PLC 968,327 1,651 Royal Bank of Scotland Group PLC 340,257 9,420 Royal Dutch Shell PLC Class A (N) 315,186 9,719 Royal Dutch Shell PLC Class B 237,442 7,746 SABMiller PLC 12,900 243 Scottish & Southern Energy PLC 153,500 2,663
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- Scottish Power PLC 50,100 490 Shire Pharmaceuticals PLC 46,600 551 Smith & Nephew PLC 254,994 2,158 Smiths Group PLC 96,500 1,558 Somerfield PLC 35,000 121 Sportingbet PLC (N) 127,200 663 Standard Chartered PLC 353,065 7,413 Tate & Lyle PLC 226,200 1,855 Taylor Woodrow PLC 81,900 454 Tesco PLC 1,110,710 5,913 Trinity Mirror PLC 96,400 1,015 Unilever PLC 734,045 7,442 United Utilities PLC 37,300 411 Vodafone Group PLC 7,201,725 18,901 Whitbread PLC 72,000 1,197 William Hill PLC 387,574 3,665 Wolseley PLC 12,000 244 WPP Group PLC 14,500 143 Yell Group PLC 183,124 1,434 ----------- 327,116 ----------- United States - 0.2% Transocean, Inc. (AE) 39,800 2,288 Weatherford International, Ltd. (AE) 18,100 1,133 ----------- 3,421 ----------- TOTAL COMMON STOCKS (cost $1,324,952) 1,620,311 ----------- PREFERRED STOCKS - 0.3% Brazil - 0.1% Banco Itau Holding Financeira SA (AE) 65,000 1,556 ----------- Germany - 0.2% Fresenius AG 22,100 3,105 ----------- Italy - 0.0% Unipol SpA (N) 162,800 340 ----------- TOTAL PREFERRED STOCKS (cost $3,412) 5,001 ----------- NOTIONAL AMOUNT $ ----------- OPTIONS PURCHASED - 0.0% (Number of Contracts) Switzerland - 0.0% Swiss Market Index Dec 2005 6,913.061 (CHF) Put (21) 1,126 81 ----------- TOTAL OPTIONS PURCHASED (cost $81) 81 -----------
54 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - --------------------------------------------------------------------------- WARRANTS & RIGHTS - 0.1% Luxembourg - 0.1% Bharti Televentures (AE) 2009 Warrants 119 924 Satyam Computer Services, Ltd. (AE) 2007 Warrants 88 1,168 ----------- TOTAL WARRANTS & RIGHTS (cost $1,371) 2,092 ----------- SHORT-TERM INVESTMENTS - 6.8% United States - 6.8% Frank Russell Investment Company Money Market Fund 106,373,001 106,373 United States Treasury Bills (z)(sec.) 3.373% due 12/08/05 (c) 8,000 7,973 3.520% due 01/05/06 5,000 4,956 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $119,314) 119,302 ----------- OTHER SECURITIES - 22.7% Frank Russell Investment Company Money Market Fund (X) 130,755,816 130,756 State Street Securities Lending Quality Trust (X) 267,906,312 267,906 ----------- TOTAL OTHER SECURITIES (cost $398,662) 398,662 ----------- TOTAL INVESTMENTS - 122.1% (identified cost $1,847,792) 2,145,449 OTHER ASSETS AND LIABILITIES, NET - (22.1%) (388,980) ----------- NET ASSETS - 100.0% 1,756,469 ===========
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. International Fund 55 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions AEX Index (Netherlands) expiration date 11/05 (139) 13,111 76 CAC-40 Index (France) expiration date 11/05 (160) 8,508 9 expiration date 12/05 (174) 9,248 (96) DAX Index (Germany) expiration date 12/05 (108) 15,934 (84) EUR STOXX 50 Index (EMU) expiration date 12/05 (595) 23,625 (310) FTSE-100 Index (UK) expiration date 12/05 (287) 27,042 (329) Hang Seng Index (Hong Kong) expiration date 11/05 (24) 2,227 (5) OMX Stockholm 30 Index (Sweden) expiration date 11/05 (633) 7,021 73 SPI 200 Index (Australia) expiration date 12/05 (70) 5,829 (63) TOPIX Index (Japan) expiration date 12/05 (271) 33,757 2,978 Short Positions FTSE-100 Index (UK) expiration date 12/05 (142) 13,379 130 Hang Seng Index (Hong Kong) expiration date 11/05 (21) 1,948 5 IBEX Plus Index (Spain) expiration date 11/05 (42) 5,268 36 MIB-30 (Italy) expiration date 12/05 (25) 4,906 235 SPI 200 Index (Australia) expiration date 12/05 (115) 9,576 92 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 2,747 ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Switzerland Swiss Market Index Dec 2005 6,913.06 (CHF) Call (21) 1,126 (103) --------------- Total Liability for Options Written (premiums received $81) (103) ===============
See accompanying notes which are an integral part of the financial statements. 56 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 80 AUD 105 11/01/05 (1) USD 749 AUD 1,000 12/21/05 (3) USD 1,271 AUD 1,663 12/21/05 (30) USD 1,271 AUD 1,663 12/21/05 (30) USD 3,812 AUD 4,989 12/21/05 (88) USD 4,445 AUD 5,821 12/21/05 (101) USD 4,446 AUD 5,821 12/21/05 (102) USD 5,715 AUD 7,484 12/21/05 (130) USD 6,679 AUD 8,700 12/21/05 (187) USD 6,956 AUD 9,106 12/21/05 (160) USD 114 CHF 145 11/01/05 (1) USD 874 CHF 1,121 11/02/05 (5) USD 816 CHF 1,052 11/03/05 -- USD 77 CHF 97 12/21/05 (1) USD 155 CHF 197 12/21/05 (1) USD 1,377 CHF 1,745 12/21/05 (17) USD 18 DKK 110 12/02/05 -- USD 202 DKK 1,240 12/02/05 (3) USD -- DKK 1 12/21/05 -- USD 9 DKK 53 12/21/05 -- USD 64 DKK 392 12/21/05 -- USD 375 DKK 2,292 12/21/05 (6) USD 55 EUR 45 11/01/05 -- USD 593 EUR 489 11/01/05 (7) USD 14 EUR 12 11/02/05 -- USD 661 EUR 548 11/02/05 (4) USD 151 EUR 126 11/03/05 -- USD 292 EUR 240 12/02/05 (4) USD 2,871 EUR 2,360 12/02/05 (38) USD 601 EUR 500 12/21/05 -- USD 608 EUR 500 12/21/05 (7) USD 1,207 EUR 1,000 12/21/05 (5) USD 3,625 EUR 3,000 12/21/05 (20) USD 53,775 EUR 43,600 12/21/05 (1,377) USD 744 GBP 417 11/01/05 (6) USD 951 GBP 533 11/01/05 (8) USD 94 GBP 53 11/02/05 -- USD 749 GBP 422 11/02/05 (2) USD 125 GBP 70 12/02/05 (1) USD 874 GBP 490 12/02/05 (7) USD 361 GBP 200 12/21/05 (7) USD 879 GBP 500 12/21/05 5 USD 882 GBP 500 12/21/05 3 USD 17,834 GBP 9,896 12/21/05 (327) USD 30,954 GBP 17,000 12/21/05 (878) USD 5 HKD 40 11/01/05 -- USD 22 HKD 172 12/21/05 -- USD 34 HKD 260 12/21/05 --
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 524 HKD 4,066 12/21/05 1 USD 3 JPY 373 11/01/05 -- USD 4 JPY 440 11/01/05 -- USD 12 JPY 1,329 11/01/05 -- USD 12 JPY 1,330 11/01/05 -- USD 60 JPY 6,868 11/01/05 (1) USD 61 JPY 7,060 11/01/05 (1) USD 73 JPY 8,450 11/01/05 (1) USD 459 JPY 52,982 11/01/05 (4) USD 4 JPY 431 11/02/05 -- USD 26 JPY 3,026 11/02/05 -- USD 59 JPY 6,812 11/02/05 (1) USD 65 JPY 7,515 11/02/05 (1) USD 97 JPY 11,172 11/02/05 (1) USD 244 JPY 28,377 11/02/05 -- USD 3 JPY 383 11/04/05 -- USD 4 JPY 430 11/04/05 -- USD 33 JPY 3,820 11/04/05 -- USD 129 JPY 15,046 11/04/05 -- USD 307 JPY 35,773 11/04/05 -- USD 693 JPY 80,555 11/04/05 (1) USD 441 JPY 48,646 12/21/05 (21) USD 441 JPY 50,000 12/21/05 (9) USD 891 JPY 100,000 12/21/05 (27) USD 892 JPY 100,000 12/21/05 (28) USD 1,476 JPY 166,836 12/21/05 (34) USD 1,753 JPY 200,000 12/21/05 (24) USD 2,621 JPY 300,000 12/21/05 (28) USD 5,464 JPY 617,145 12/21/05 (131) USD 27,901 JPY 3,050,000 12/21/05 (1,544) USD 47 NOK 300 12/02/05 (1) USD 391 NOK 2,510 12/02/05 (5) USD 19,427 NOK 124,093 12/21/05 (309) USD 4,512 NZD 6,480 12/21/05 2 USD 495 SGD 833 12/21/05 (2) USD 536 SGD 902 12/21/05 (2) USD 851 SGD 1,432 12/21/05 (3) USD 1,484 SGD 2,499 12/21/05 (5) USD 1,484 SGD 2,499 12/21/05 (5) USD 1,835 SGD 3,076 12/21/05 (15) USD 1,835 SGD 3,076 12/21/05 (15) USD 1,835 SGD 3,076 12/21/05 (15) USD 1,845 SGD 3,093 12/21/05 (15) AUD 420 USD 314 11/04/05 -- AUD 300 USD 229 12/21/05 5 AUD 368 USD 277 12/21/05 2 AUD 500 USD 376 12/21/05 3 AUD 500 USD 384 12/21/05 11
See accompanying notes which are an integral part of the financial statements. International Fund 57 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- AUD 828 USD 626 12/21/05 8 AUD 828 USD 626 12/21/05 8 AUD 993 USD 751 12/21/05 10 AUD 1,000 USD 756 12/21/05 10 AUD 12,169 USD 9,296 12/21/05 214 CAD 224 USD 191 11/01/05 1 CAD 731 USD 625 11/01/05 6 CAD 117 USD 99 11/03/05 -- CHF 328 USD 258 11/01/05 3 CHF 730 USD 568 12/02/05 -- CHF 860 USD 663 12/02/05 (6) CHF 1,153 USD 903 12/21/05 5 DKK 1,190 USD 190 12/02/05 (1) DKK 1,240 USD 201 12/02/05 1 EUR 456 USD 553 11/01/05 7 EUR 468 USD 568 11/01/05 7 EUR 89 USD 107 11/02/05 1 EUR 375 USD 451 11/02/05 1 EUR 2,070 USD 2,472 12/02/05 (13) EUR 2,360 USD 2,849 12/02/05 16 EUR 500 USD 605 12/21/05 4 EUR 500 USD 611 12/21/05 10 EUR 621 USD 761 12/21/05 15 EUR 840 USD 1,017 12/21/05 8 EUR 1,000 USD 1,207 12/21/05 5 EUR 1,000 USD 1,211 12/21/05 10 EUR 1,000 USD 1,213 12/21/05 12 EUR 1,000 USD 1,228 12/21/05 26 EUR 1,300 USD 1,607 12/21/05 44 EUR 1,500 USD 1,850 12/21/05 47 EUR 1,596 USD 1,931 12/21/05 13 EUR 4,000 USD 4,871 12/21/05 64 EUR 20,925 USD 25,532 12/21/05 384 GBP 31 USD 55 11/03/05 -- GBP 103 USD 183 11/03/05 -- GBP 528 USD 934 11/03/05 -- GBP 490 USD 867 12/02/05 -- GBP 580 USD 1,017 12/02/05 (9) GBP 600 USD 1,094 12/21/05 33 GBP 1,000 USD 1,810 12/21/05 41 GBP 1,170 USD 2,074 12/21/05 4 GBP 1,328 USD 2,352 12/21/05 2 GBP 1,619 USD 2,867 12/21/05 3 GBP 2,000 USD 3,565 12/21/05 26 GBP 2,490 USD 4,410 12/21/05 5 GBP 2,497 USD 4,505 12/21/05 87 GBP 2,511 USD 4,528 12/21/05 86 GBP 4,328 USD 7,812 12/21/05 154
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- GBP 4,661 USD 8,415 12/21/05 168 GBP 7,084 USD 12,578 01/31/06 47 HKD 518 USD 67 11/01/05 -- HKD 543 USD 70 11/01/05 -- HKD 614 USD 79 11/02/05 -- HKD 72 USD 9 12/21/05 -- HUF 41,241 USD 198 11/04/05 1 IDR 722,728 USD 71 11/10/05 (1) JPY 1,413 USD 12 11/01/05 -- JPY 2,246 USD 20 11/01/05 -- JPY 4,793 USD 42 11/01/05 -- JPY 8,075 USD 70 11/01/05 1 JPY 2,245 USD 19 11/02/05 -- JPY 6,084 USD 53 11/02/05 -- JPY 37,807 USD 327 11/02/05 2 JPY 366 USD 3 11/04/05 -- JPY 2,225 USD 19 11/04/05 -- JPY 2,246 USD 19 11/04/05 -- JPY 2,862 USD 25 11/04/05 -- JPY 308,160 USD 2,715 12/02/05 58 JPY 100,000 USD 870 12/21/05 6 JPY 100,000 USD 869 12/21/05 5 JPY 100,000 USD 908 12/21/05 44 JPY 147,225 USD 1,278 12/21/05 6 JPY 200,000 USD 1,765 12/21/05 37 JPY 200,000 USD 1,835 12/21/05 107 JPY 300,000 USD 2,619 12/21/05 26 JPY 333,244 USD 3,004 12/21/05 124 JPY 666,489 USD 6,009 12/21/05 248 JPY 965,621 USD 8,710 12/21/05 367 NOK 2,564 USD 396 11/02/05 2 NOK 2,500 USD 379 12/02/05 (6) NOK 2,510 USD 387 12/02/05 1 NOK 8,334 USD 1,309 12/21/05 25 NOK 12,885 USD 2,024 12/21/05 39 NOK 13,781 USD 2,114 12/21/05 (9) NOK 14,167 USD 2,224 12/21/05 42 NOK 23,284 USD 3,571 12/21/05 (16) NZD 2,004 USD 1,382 12/21/05 (14) NZD 4,476 USD 3,093 12/21/05 (25) SEK 2,945 USD 375 11/01/05 5 SEK 1,038 USD 131 11/02/05 1 SEK 596 USD 75 11/03/05 -- SEK 3,145 USD 395 11/03/05 -- SEK 1,150 USD 148 12/02/05 4 SEK 2,150 USD 276 12/02/05 5 SEK 533 USD 70 12/21/05 3 SEK 749 USD 96 12/21/05 1
See accompanying notes which are an integral part of the financial statements. 58 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- SEK 1,149 USD 150 12/21/05 5 SEK 35,009 USD 4,580 12/21/05 168 SGD 13 USD 8 12/21/05 -- SGD 22 USD 13 12/21/05 -- TRY 100 USD 74 11/02/05 -- -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (2,952) ==============
See accompanying notes which are an integral part of the financial statements. International Fund 59 FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDEX SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED APPRECIATION FUND RECEIVES COUNTER NOTIONAL FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY AMOUNT FLOATING RATE DATE $ - ------------------------------ ---------------- --------- ----------------------- -------------- ---------------- MSCI Austria 1 Month EUR LIBOR- Local Net Total Return plus 0.40% Index Merrill Lynch EUR 670 01/23/06 10 MSCI Austria 1 Month EUR LIBOR- Local Net Total Return plus 0.40% Index Merrill Lynch EUR 561 01/26/06 8 MSCI Belgium 1 Month EUR LIBOR- Local Net Total Return minus 0.40% Index Merrill Lynch EUR 691 01/18/06 (5) MSCI Denmark 1 Month DKK CIBOR- Local Net Total Return plus 0.40% Index Merrill Lynch DKK 5,761 01/23/06 16 MSCI Norway 1 Month NOK NIBOR- Local Net Total Return plus 0.40% Index Merrill Lynch NOK 42,704 01/23/06 301 ---------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts (a) 330 ================
% OF MARKET INDUSTRY DIVERSIFICATION NET VALUE (UNAUDITED) ASSETS $ - ------------------------------------------------------------------------------------ Auto and Transportation 5.8 102,883 Consumer Discretionary 8.5 150,434 Consumer Staples 6.7 121,418 Financial Services 23.5 403,446 Health Care 7.7 134,818 Integrated Oils 7.1 125,451 Materials and Processing 9.1 171,082 Miscellaneous .9 15,567 Other Energy 2.1 34,196 Producer Durables 6.2 112,805 Technology 4.6 78,365 Utilities 10.0 169,846 Preferred Stock 0.3 5,001 Options Purchased 0.0 81 Warrants & Rights 0.1 2,092 Short-Term Investments 6.8 119,302 Other Securities 22.7 398,662 --------------- --------------- Total Investments 122.1 2,145,449 Other Assets and Liabilities, Net (22.1) (388,980) --------------- --------------- Net Assets 100.0 1,756,469 =============== ===============
% OF MARKET GEOGRAPHIC DIVERSIFICATION NET VALUE (UNAUDITED) ASSETS $ - ------------------------------------------------------------------------------------ Africa 0.2 3,062 Asia 8.1 142,099 Europe 39.8 699,460 Japan 22.4 394,287 Latin America 1.3 22,338 Middle East 0.2 4,691 Other Regions 8.8 153,734 United Kingdom 18.6 327,116 Other Securities 22.7 398,662 --------------- --------------- Total Investments 122.1 2,145,449 Other Assets and Liabilities, Net (22.1) (388,980) --------------- --------------- Net Assets 100.0 1,756,469 =============== ===============
See accompanying notes which are an integral part of the financial statements. 60 International Fund FRANK RUSSELL INVESTMENT COMPANY INTERNATIONAL FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Australia 3.7 Austria 0.5 Belgium 0.9 Brazil 0.3 Canada 1.8 China --* Denmark 0.3 Finland 1.1 France 9.8 Germany 5.7 Greece 0.3 Hong Kong 1.9 Hungary 0.3 Indonesia 0.1 Ireland 0.7 Israel 0.3 Italy 2.8 Japan 22.4 Luxembourg 0.5 Mexico 0.9 Netherlands 3.5 New Zealand 0.2 Norway 0.7 Poland --* Portugal 0.1 Singapore 1.0 South Africa 0.2 South Korea 0.9 Spain 3.5 Sweden 2.2 Switzerland 6.6 Taiwan 0.1 Thailand 0.1 Turkey --* United Kingdom 18.6 United States 0.2 Preferred Stocks 0.3 Options Purchased --* Warrants & Rights 0.1 Short-Term Investments 6.8 Other Securities 22.7 --------------- Total Investments 122.1 Other Assets and Liabilities, Net (22.1) --------------- 100.0 =============== Futures Contracts 0.2 Options Written (--*) Foreign Currency Exchange Contracts (0.2) Index Swap Contracts --*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. International Fund 61 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
LEHMAN BROTHERS AGGREGATE BOND FIXED I - CLASS I ** ----------------- ------------------------------ * 10000 10000 1996 10586 10585 1997 11520 11526 1998 12534 12602 1999 12578 12669 2000 13487 13594 2001 15372 15573 2002 16199 16490 2003 17050 17299 2004 17992 18256 2005 18149 18463
Fixed Income I Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.88% 5 Years 6.12%sec. 10 Years 6.14%sec.
Fixed Income I Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.60% 5 Years 5.84%sec. 10 Years 5.96%sec.
Fixed Income I Fund - Class Y ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.91% 5 Years 6.19%sec. 10 Years 6.18%sec.
Lehman Brothers Aggregate Bond Index ** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%sec. 10 Years 6.32%sec.
62 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and the preservation of capital. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Fixed Income I Fund Class I, Class E and Class Y gained 0.88%, 0.60% and 0.91%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.13% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Intermediate Investment Grade Debt Funds Average returned 0.81%. This return serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Rising interest rates hurt nominal returns over the fiscal year with the broad bond market benchmark, the Lehman Brothers Aggregate Bond Index, posting just a 1.13% return. While the Fund's money managers started out the period believing that interest rates would rise, higher energy prices and the potential for an economic slowdown led the Fund's money managers to forecast that rates would fall near the end of the fiscal year. However, interest rates rose near the end of the period and the money managers' forecasting detracted from performance. The credit downgrade in the bond rating of auto manufacturers in the spring and early summer had a very modest impact, as the Fund's money managers held diversified positions within the auto sector. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Interest rate forecasting by the Fund's money managers late in the fiscal year detracted from performance. The Fund's money managers were not rewarded for their forecasts of slower growth as the Federal Reserve surprised many market participants by continuing to raise interest rates after Hurricanes Katrina and Rita. Offsetting the negative impact of the incorrect interest rate forecasting by the Fund's money managers, positive contributions to Fund performance came from overweights in the investment grade corporate sector early in the fiscal year and profit taking, as prices of investment grade corporate bonds rose relative to Treasury securities. The Fund's money managers also added value through security selection in the mortgage sector. Finally, non-dollar bonds also contributed positively to performance, particularly in early 2005, when rates fell further in Europe than in the U.S. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Pacific Investment Management Company, LLC (PIMCO) did well over the year, capitalizing on its forecast that European interest rates would fall further than U.S. rates in the spring. PIMCO also added value by underweighting investment grade corporate bonds (corporates) and through security selection in the mortgage sector. Bear Stearns Asset Management, Inc. did well early in the fiscal year by overweighting corporates and strong security selection within that sector. As corporate bond prices rose, Bear Stearns took profits and brought its allocation to corporates down to a more benchmark-neutral weight. Interest rate forecasting also led to suboptimal yield curve strategies for most of the money managers in the period. Western Asset Management Company's yield curve positioning had the largest negative impact to performance. This negative was partially offset by Western's overweight to, and security selection in, the corporate sector. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In January, Western was added as a money manager for the Fund. The weighting to Lehman Brothers Asset Management, LLC was decreased to allow for the addition of Western to the Fund's line up. This action resulted in a slightly higher allocation to investment grade corporate bonds and generally wider deviations from the benchmark with respect to interest rate strategies, as Lehman manages portfolios in a fairly risk managed manner. Fixed Income I Fund 63 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Bear Stearns Asset Management, Inc. Sector Rotation Lehman Brothers Asset Management, LLC Enhanced Core Pacific Investment Management Company, LLC Fully Discretionary Western Asset Management Company Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company(FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Fixed Income I Fund Class I assumes initial investment on November 1, 1995. ** 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. ++++ Fixed Income I Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Fixed Income I Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 64 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 998.60 $ 1,021.78 Expenses Paid During Period* $ 3.43 $ 3.47
* Expenses are equal to the Fund's annualized expense ratio of 0.68% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.30 $ 1,023.24 Expenses Paid During Period* $ 1.97 $ 1.99
* Expenses are equal to the Fund's annualized expense ratio of 0.39% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.50 $ 1,023.44 Expenses Paid During Period* $ 1.76 $ 1.79
* Expenses are equal to the Fund's annualized expense ratio of 0.35% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Fixed Income I Fund 65 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 98.6% Asset-Backed Securities - 6.9% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 702 702 Aames Mortgage Investment Trust (E)(A) Series 2005-2 Class 1A1 4.118% due 07/25/35 53 53 Series 2005-3 Class A1 4.188% due 08/25/35 1,548 1,547 ABSC NIMs Trust (A) Series 2004-HE5 Class A1 5.000% due 08/27/34 55 55 Series 2005-HE6 Class A1 5.050% due 08/27/35 382 381 ACE Securities Corp. (E) Series 2001-HE1 Class A 4.370% due 11/20/31 873 873 Series 2004-OP1 Class M2 5.088% due 04/25/34 490 497 Ameriquest Mortgage Securities, Inc. (E) Series 2002-D Class M1 6.538% due 02/25/33 155 156 Argent Securities, Inc. (E) Series 2004-W3 Class A2 4.258% due 02/25/34 111 111 Asset Backed Funding Corp. NIMs Trust (A) Series 2005-WF1 Class N1 4.750% due 03/26/35 332 332 Bank One Issuance Trust (E) Series 2003-A1 Class A1 4.090% due 09/15/10 1,600 1,603 Carrington Mortgage Loan Trust (E) Series 2005-NC3 Class A1A 4.118% due 06/25/35 167 167 Chase Funding Mortgage Loan Asset-Backed Certificates (E) Series 2002-2 Class 2A1 4.288% due 05/25/32 315 316 Chase Issuance Trust (E) Series 2005-A3 Class A 3.990% due 10/17/11 3,095 3,096 Countrywide Asset-Backed Certificates Series 2001-BC3 Class A 4.278% due 12/25/31 128 128 Series 2003-BC2 Class 2A1 (E) 4.338% due 06/25/33 64 64
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-BC4 Class 2A2 (E) 4.358% due 09/25/33 141 142 Series 2004-13 Class AF2 3.683% due 08/25/24 860 847 Series 2004-14N Class N(A) 5.000% due 06/25/36 149 148 Series 2004-7 Class AF2 3.324% due 12/25/23 555 553 Series 2004-BC1 Class M1 (E) 4.538% due 02/25/34 190 190 Series 2004-S1 Class A1 4.258% due 12/25/18 1,299 1,300 Series 2005-2N Class N(A) 4.500% due 08/25/36 301 299 Series 2005-5N Class N(A) 5.000% due 07/25/36 269 266 Series 2005-AB3 Class 2A1 (E) 4.158% due 02/25/36 1,673 1,673 Series 2005-SD2 Class A1A (E)(A) 4.198% due 08/25/35 1,341 1,342 Countrywide Home Equity Loan Trust (E) Series 2005-G Class 2A 4.123% due 12/15/35 1,700 1,700 Credit-Based Asset Servicing and Securitization Series 2004-CB6 Class AF1 4.228% due 07/25/35 265 265 Daimler Chrysler Auto Trust Series 2005-A Class A3 3.490% due 12/08/08 1,165 1,149 Discover Card Master Trust I Series 2005-1 Class A 3.980% due 09/16/10 3,075 3,068 Distribution Financial Services Floorplan Master Trust (E) Series 2003-2 Class A 4.070% due 04/15/08 1,415 1,416 Equifirst Mortgage Loan Trust (E) Series 2004-1 Class 2A1 4.138% due 01/25/34 366 366 Series 2005-1 Class A1 4.098% due 04/25/35 691 691 Equifirst Mortgage Loan Trust NIMs Notes (A) Series 2005-1 Class N1 4.458% due 04/25/35 1,001 999 FHA Proj Citi 68 NP 7.430% due 06/27/21 262 265
66 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- First Franklin Mortgage Loan Asset Backed Certificates (E) Series 2004-FF1 Class A2 4.438% due 12/25/32 1,700 1,705 Series 2004-FFH Class 2A1 4.418% due 10/25/34 1,018 1,021 First Franklin NIMs Trust (A) Series 2004-FFH Class N2 7.385% due 03/25/34 143 142 Series 2005-FF1 Class N1 4.213% due 01/25/35 648 645 Ford Credit Auto Owner Trust Series 2005-A Class A3 3.480% due 11/15/08 505 498 Ford Credit Floorplan Master Owner Trust Series 2001-2 Class A 4.110% due 07/15/08 1,115 1,116 Series 2004-1 Class A (E) 4.010% due 07/15/09 1,770 1,771 Fremont NIMs Trust (A) Series 2005-A Class NOTE 3.750% due 01/25/35 524 520 Series 2004-B Class NOTE 4.703% due 05/25/34 2 2 Series 2005-C Class NOTE 5.584% due 07/25/35 163 162 GE Dealer Floorplan Master Note Trust (E) Series 2004-2 Class A 4.080% due 07/20/09 955 956 Series 2005-1 Class A 4.040% due 04/20/10 1,425 1,425 GMAC Mortgage Corp. Loan Trust Series 1999-1 Class A (E) 4.270% due 06/18/27 527 527 Series 2004-HE5 Class A1 (E) 4.178% due 09/25/34 520 520 Series 2004-HE5 Class A3 3.970% due 09/25/34 590 580 Greenpoint Mortgage Funding Trust (E) Series 2005-HE4 Class 2A1C 4.148% due 07/25/30 1,416 1,415 GSAMP Trust Series 2003-AHL Class A2A (E) 4.238% due 10/25/33 147 147 Series 2004-FM1 Class NOTE (A) 5.250% due 11/25/33 13 13 Series 2004-NC1 Class A3 (E) 4.428% due 03/25/34 340 341
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-SEA Class A1A (E) 4.228% due 10/25/33 371 371 HFC Home Equity Loan Asset Backed Certificates Series 2003-1 Class A 4.350% due 10/20/32 250 250 Home Equity Asset Trust (E) Series 2004-3 Class M3 5.488% due 08/25/34 370 376 Home Equity Mortgage Trust (E) Series 2005-4 Class A2A 4.148% due 01/25/36 1,580 1,580 IndyMac Residential Asset Backed Trust (E) Series 2005-A Class AII1 4.148% due 03/25/35 678 678 JP Morgan Mortgage Acquisition Corp. (E) Series 2005-FLD Class A1 4.158% due 08/25/27 1,412 1,412 Lehman XS Trust (E) Series 2005-1 Class 2A2 4.660% due 05/25/08 446 452 Long Beach Asset Holdings Corp. (A) Series 2005-1 Class N1 4.115% due 02/25/35 379 377 Long Beach Mortgage Loan Trust (E) Series 2003-2 Class M2 5.938% due 06/25/33 540 547 Series 2005-WL1 Class 2A1 4.148% due 06/25/35 1,135 1,135 Mastr Asset Backed Securities Trust Series 2004-OPT Class A3 4.298% due 02/25/34 279 279 Merrill Auto Trust Securitization (E) Series 2005-1 Class A2B 4.048% due 04/25/08 1,415 1,415 Merrill Lynch Mortgage Investors, Inc. Series 2003-WMC Class A2 3.800% due 02/25/34 1 1 Series 2004-WMC Class A2 4.338% due 10/25/34 171 171 Morgan Stanley ABS Capital I Series 2003-NC5 Class A2 4.318% due 04/25/33 35 35 Series 2005-HE1 Class A3A 4.168% due 12/25/34 310 310 Morgan Stanley Dean Witter Capital I Series 2003-NC4 Class A2 4.408% due 04/25/33 44 44
Fixed Income I Fund 67 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Navistar Financial Corp. Owner Trust Series 2003-B Class A3 4.170% due 04/15/08 727 728 New Century Home Equity Loan Trust (E) Series 2005-B Class A2A 4.158% due 10/25/35 1,677 1,677 Nissan Master Owner Trust Receivables (E) Series 2005-A Class A 4.000% due 07/15/10 1,305 1,305 Novastar Home Equity Loan Series 2004-4 Class A2A 4.228% due 03/25/35 246 246 Series 2005-1 Class A2A (E) 4.158% due 06/25/35 1,025 1,025 Novastar NIMs Trust (A) Series 2004-N2 Class NOTE 4.458% due 06/26/34 92 92 Option One Mortgage Loan Trust Series 2001-4 Class A 4.638% due 01/25/32 247 247 Series 2002-2 Class A 4.308% due 06/25/32 179 179 Series 2003-1 Class A2 4.458% due 02/25/33 312 312 Series 2003-2 Class A2 4.338% due 04/25/33 143 143 Series 2003-2 Class M2 (E) 5.738% due 04/25/33 435 440 Series 2003-3 Class M3 (E) 6.038% due 06/25/33 260 263 Series 2003-4 Class M2 (E) 5.688% due 07/25/33 235 238 Series 2005-1 Class A2 4.168% due 02/25/35 396 396 Park Place Securities, Inc. Series 2005-WCH Class A3A 4.158% due 01/25/36 169 169 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF2 3.914% due 05/25/35 160 157 Ramp NIMs Trust (A) Series 2005-NM2 Class NOTE 5.193% due 04/25/35 298 297 Renaissance Home Equity Loan Trust (E) Series 2005-3 Class AF1 4.188% due 11/25/35 1,686 1,686
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-3 Class AV1 4.178% due 11/25/35 1,685 1,685 Renaissance NIMs Trust (A) Series 2004-B Class NOTE 5.193% due 08/26/34 72 72 Series 2004-D Class NOTE 4.459% due 02/25/35 240 240 Residential Asset Mortgage Products, Inc. Series 2002-RS5 Class AII 4.408% due 09/25/32 322 323 Series 2003-RS1 Class AII 4.428% due 02/25/33 389 390 Series 2003-RS2 Class AII 4.378% due 03/25/33 365 366 Series 2003-RS3 Class AII 4.398% due 04/25/33 226 227 Series 2004-RS2 Class AIIB 4.288% due 02/25/34 726 727 Series 2004-RS6 Class AI1 4.188% due 08/25/22 15 15 Series 2004-RS8 Class AI1 4.218% due 12/25/23 263 263 Series 2004-RS8 Class AI2 3.810% due 01/25/26 335 333 Series 2004-RS8 Class AII1 4.178% due 05/25/26 359 359 Residential Asset Securities Corp. Series 2001-KS1 Class AII 4.273% due 03/25/32 181 181 Series 2001-KS3 Class AII (E) 4.268% due 09/25/31 149 149 Series 2002-KS3 Class A1B 4.288% due 05/25/32 328 328 Series 2003-KS1 Class M2 (E) 5.788% due 01/25/33 365 368 Series 2004-KS8 Class AI2 3.340% due 10/25/24 820 810 Residential Funding Mortgage Securities II (E) Series 2005-HI2 Class A1 4.178% due 05/25/35 2,185 2,185 Residential Funding Mortgage Securities II, Inc. (E) Series 2005-HS1 Class AI1 4.158% due 09/25/35 1,649 1,648 Saxon Asset Securities Trust Series 2003-1 Class AV1 4.348% due 06/25/33 36 36 Series 2004-1 Class A 4.308% due 03/25/35 566 566
68 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Securitized Asset Backed Receivables LLC Trust Series 2004-OP1 Class A2 4.288% due 02/25/34 298 298 Series 2005-FR4 Class A3 (E) 4.238% due 01/25/36 876 875 Sharps SP I LLC Net Interest Margin Trust (A) Series 2004-FM1 Class N 6.160% due 09/25/33 14 14 Series 2004-OP1 Class NA 4.450% due 12/25/33 40 40 Small Business Administration Series 2000-P10 Class 1 7.449% due 08/01/10 148 158 Soundview Assets 4.703% due 06/25/35 616 615 Specialty Underwriting & Residential Finance Series 2003-BC1 Class A 4.378% due 01/25/34 96 96 Series 2004-BC2 Class A2 4.308% due 05/25/35 491 492 Structured Asset Investment Loan Trust (E) Series 2003-BC8 Class M3 6.138% due 08/25/33 415 422 Series 2004-7 Class A1 4.293% due 08/25/34 1,488 1,491 Structured Asset Securities Corp. Series 2003-BC1 Class A 4.538% due 05/25/32 228 228 Series 2004-19X Class A2 4.370% due 10/25/34 765 758 Series 2005-5N Class A1 (E) 4.381% due 11/25/35 1,700 1,700 Tenaska Alabama II Partners, LP (A) 6.125% due 03/30/23 230 232 Textron Financial Floorplan Master Note Trust (E)(A) Series 2005-1A Class A 4.061% due 05/13/10 1,640 1,640 Volkswagen Credit Auto Master Trust (E) Series 2005-1 Class A 4.020% due 07/20/10 1,485 1,485 Wachovia Asset Securitization, Inc. Series 2003-HE3 Class A 4.288% due 11/25/33 372 372
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wachovia Mortgage Loan Trust LLC (E) Series 2005-WMC Class A1 4.148% due 10/25/35 1,662 1,662 Whole Auto Loan Trust Series 2004-1 Class A4 3.260% due 03/15/11 1,085 1,055 ------------ 84,203 ------------ Corporate Bonds and Notes - 14.2% Allstate Life Global Funding Trusts 3.850% due 01/25/08 1,195 1,169 Altria Group, Inc. 7.000% due 11/04/13 580 628 Amerada Hess Corp. 7.300% due 08/15/31 750 847 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 35 35 American General Finance Corp. Series MTNG (E) 4.000% due 03/23/07 100 100 Series MTNI 4.100% due 06/27/08 (E) 1,300 1,301 4.875% due 07/15/12 1,000 973 American International Group, Inc. (A) 4.700% due 10/01/10 (N) 400 393 5.050% due 10/01/15 400 391 American RE Corp. Series B 7.450% due 12/15/26 405 441 Anheuser-Busch Cos., Inc. 4.950% due 01/15/14 535 533 ASIF Global Financing (A) 4.900% due 01/17/13 90 89 BAE Systems Holdings, Inc. (A) 6.400% due 12/15/11 825 868 Bank of America Corp. 4.500% due 08/01/10 430 421 4.375% due 12/01/10 1,395 1,354 Banque Paribas 6.875% due 03/01/09 350 370 Bear Stearns Cos., Inc. (The) 2.875% due 07/02/08 775 736 5.300% due 10/30/15 775 764 BellSouth Corp. 4.200% due 09/15/09 115 112 6.550% due 06/15/34 (N) 45 46 Berkshire Hathaway Finance Corp. 4.125% due 01/15/10 1,440 1,398
Fixed Income I Fund 69 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Boeing Capital Corp. (N) 6.100% due 03/01/11 150 158 Burlington Northern Santa Fe Corp. 4.967% due 04/01/23 235 231 6.875% due 12/01/27 80 90 Campbell Soup Co. 5.875% due 10/01/08 165 169 Carolina Power & Light Co. 5.150% due 04/01/15 590 579 Caterpillar Financial Services Corp. 4.875% due 06/15/07 460 461 CenterPoint Energy Houston Electric LLC Series J2 5.700% due 03/15/13 195 199 CenterPoint Energy Resources Corp. Series B 7.875% due 04/01/13 395 446 Cingular Wireless Services, Inc. 7.875% due 03/01/11 985 1,103 8.750% due 03/01/31 1,550 2,021 CIT Group, Inc. 5.750% due 09/25/07 120 122 4.750% due 08/15/08 785 781 6.875% due 11/01/09 80 85 Citicorp 7.250% due 10/15/11 455 506 Citigroup, Inc. 3.500% due 02/01/08 985 958 4.625% due 08/03/10 235 231 5.000% due 09/15/14 5,875 5,753 Clear Channel Communications, Inc. 4.250% due 05/15/09 100 96 5.750% due 01/15/13 (N) 100 97 Clorox Co. 4.200% due 01/15/10 165 161 5.000% due 01/15/15 125 123 Columbus Southern Power Co. Series A 5.500% due 03/01/13 105 106 Comcast Cable Communications 6.750% due 01/30/11 1,270 1,342 Comcast Cable Communications Holdings, Inc. 8.375% due 03/15/13 2,125 2,448 Comcast Corp. 6.500% due 01/15/15 785 823 ConocoPhillips Holding Co. 6.950% due 04/15/29 735 871 Consolidated Natural Gas Co. 6.850% due 04/15/11 385 414
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Constellation Energy Group, Inc. 6.125% due 09/01/09 380 391 Countrywide Home Loans, Inc. Series MTNK 5.500% due 02/01/07 100 101 COX Communications, Inc. 3.875% due 10/01/08 240 231 6.750% due 03/15/11 3,465 3,637 Credit Suisse First Boston USA, Inc. 4.625% due 01/15/08 155 154 3.875% due 01/15/09 580 561 6.500% due 01/15/12 20 21 5.500% due 08/15/13 95 96 5.125% due 08/15/15 1,810 1,764 DaimlerChrysler NA Holding Corp. 4.026% due 03/07/07 (E) 2,200 2,196 4.050% due 06/04/08 705 684 Detroit Edison Co. 6.125% due 10/01/10 120 125 6.350% due 10/15/32 105 110 Devon Energy Corp. 7.950% due 04/15/32 430 536 Dominion Resources, Inc. 4.750% due 12/15/10 90 88 5.700% due 09/17/12 330 335 Series B (N) 6.250% due 06/30/12 90 94 Series C 5.150% due 07/15/15 775 743 Dresdner Funding Trust I (A) 8.151% due 06/30/31 370 439 Duke Energy Corp. 6.250% due 01/15/12 150 157 5.625% due 11/30/12 325 331 Duke Energy Field Services LLC 5.750% due 11/15/06 50 50 6.875% due 02/01/11 35 37 Eastman Kodak Co. 7.250% due 11/15/13 30 28 Eli Lilly & Co. 6.770% due 01/01/36 485 570 EOP Operating, LP 4.650% due 10/01/10 1,205 1,172 Exelon Corp. 4.900% due 06/15/15 830 780 FedEx Corp. 7.600% due 07/01/97 135 158 Financing Corp. Series 10P Principal Only STRIP Zero coupon due 11/30/17 940 514
70 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- FirstEnergy Corp. Series B 6.450% due 11/15/11 1,475 1,552 Series C 7.375% due 11/15/31 715 814 FleetBoston Financial Corp. 4.875% due 12/01/06 655 655 Ford Motor Co. 7.450% due 07/16/31 290 213 Ford Motor Credit Co. 4.950% due 01/15/08 320 300 7.375% due 10/28/09 2,430 2,319 7.875% due 06/15/10 515 496 7.375% due 02/01/11 280 263 General Electric Capital Corp. 4.125% due 03/04/08 345 340 3.250% due 06/15/09 900 850 4.875% due 10/21/10 1,255 1,247 4.250% due 06/15/12 860 817 4.875% due 03/04/15 795 778 Series MTNA 4.250% due 01/15/08 590 583 6.000% due 06/15/12 135 142 5.450% due 01/15/13 1,305 1,329 General Electric Co. 5.000% due 02/01/13 260 258 General Motors Acceptance Corp. 6.125% due 02/01/07 200 198 6.150% due 04/05/07 140 138 6.125% due 08/28/07 760 748 5.625% due 05/15/09 1,375 1,300 7.750% due 01/19/10 230 231 General Motors Corp. 8.375% due 07/15/33 90 67 Glencore Funding LLC (A) 6.000% due 04/15/14 455 419 Golden West Financial Corp. (N) 4.125% due 08/15/07 270 267 Goldman Sachs Group, Inc. 6.875% due 01/15/11 570 612 4.750% due 07/15/13 915 878 5.125% due 01/15/15 145 141 6.345% due 02/15/34 1,050 1,053 Goldman Sachs Group, LP 4.500% due 06/15/10 1,060 1,032 Harrah's Operating Co., Inc. (A) 5.625% due 06/01/15 2,695 2,586 Historic TW, Inc. 9.125% due 01/15/13 160 191 8.050% due 01/15/16 460 530 6.950% due 01/15/28 805 844
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- HJ Heinz Finance Co. 6.750% due 03/15/32 145 160 Household Finance Corp. 4.750% due 05/15/09 4,595 4,545 4.125% due 11/16/09 2,470 2,386 6.750% due 05/15/11 1,140 1,225 7.000% due 05/15/12 1,485 1,621 6.375% due 11/27/12 365 386 International Lease Finance Corp. 6.375% due 03/15/09 1,315 1,366 3.500% due 04/01/09 485 460 4.750% due 07/01/09 1,085 1,066 Series MTNQ 4.625% due 06/02/08 910 900 International Paper Co. 5.500% due 01/15/14 405 392 ITT Industries, Inc. 7.400% due 11/15/25 195 228 John Deere Capital Corp. Series MTND 4.400% due 07/15/09 1,495 1,470 JP Morgan & Co., Inc. Series MTNA 6.000% due 01/15/09 260 267 JP Morgan Chase Capital XV 5.875% due 03/15/35 2,435 2,308 JPMorgan Chase & Co. 5.125% due 09/15/14 620 607 5.150% due 10/01/15 610 594 Kellogg Co. Series B 6.600% due 04/01/11 815 873 Kraft Foods, Inc. 4.000% due 10/01/08 1,180 1,150 5.625% due 11/01/11 1,210 1,237 Kroger Co. (The) 7.500% due 04/01/31 65 69 Lehman Brothers Holdings, Inc. 4.000% due 01/22/08 390 383 6.625% due 01/18/12 370 398 Lennar Corp. (A) 5.600% due 05/31/15 1,310 1,255 Lockheed Martin Corp. 8.500% due 12/01/29 330 444 M&I Marshall & Ilsley Bank Series BKNT 4.400% due 03/15/10 1,095 1,070 Manufacturers & Traders Trust Co. 8.000% due 10/01/10 160 182
Fixed Income I Fund 71 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- May Department Stores Co. (The) 4.800% due 07/15/09 80 79 5.750% due 07/15/14 185 185 Merrill Lynch & Co., Inc. Series MTNB 3.125% due 07/15/08 1,125 1,074 Series MTNC (E) 3.970% due 03/12/07 270 269 Metlife, Inc. 5.700% due 06/15/35 1,085 1,048 Miller Brewing Co. (A) 5.500% due 08/15/13 250 252 Monumental Global Funding, Ltd. (A) 4.625% due 03/15/10 200 198 Morgan Stanley 3.625% due 04/01/08 630 612 3.875% due 01/15/09 690 666 6.750% due 04/15/11 390 418 4.750% due 04/01/14 250 236 Series MTNF 4.284% due 01/18/08 1,100 1,101 Natexis Ambs Co. LLC (f)(A) 8.440% due 12/29/49 300 324 National City Bank 4.500% due 03/15/10 1,525 1,494 National Rural Utilities Cooperative Finance Corp. 5.750% due 08/28/09 1,705 1,747 News America Holdings 7.900% due 12/01/95 250 281 8.250% due 10/17/96 50 59 News America, Inc. Series WI 6.200% due 12/15/34 3,200 3,084 Nisource Finance Corp. 7.875% due 11/15/10 265 295 Norfolk Southern Corp. 6.200% due 04/15/09 645 670 7.050% due 05/01/37 355 414 7.900% due 05/15/97 135 167 Northern States Power Co. Series B 8.000% due 08/28/12 780 906 Occidental Petroleum Corp. 9.250% due 08/01/19 165 221 Ohio Power Co. Series F 5.500% due 02/15/13 45 45
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Pacific Gas & Electric Co. 3.600% due 03/01/09 50 48 4.200% due 03/01/11 165 157 6.050% due 03/01/34 535 537 Pacificorp 4.300% due 09/15/08 730 717 Pemex Project Funding Master Trust 7.375% due 12/15/14 600 656 8.625% due 02/01/22 100 120 Progress Energy, Inc. 5.850% due 10/30/08 760 773 7.100% due 03/01/11 105 112 7.750% due 03/01/31 95 109 7.000% due 10/30/31 165 175 Prologis (A) 5.625% due 11/15/15 1,255 1,252 Rabobank Capital Funding II (f)(A) 5.260% due 12/31/49 20 20 Rabobank Capital Funding Trust (f)(A) 5.254% due 12/31/49 40 39 Raytheon Co. 6.750% due 08/15/07 420 432 RBS Capital Trust I (f) 5.512% due 12/31/49 500 491 Regions Financial Corp. 4.500% due 08/08/08 1,220 1,205 Residential Capital Corp. (A) 6.375% due 06/30/10 525 533 Safeway, Inc. 7.250% due 02/01/31 45 46 SBC Communications, Inc. 4.125% due 09/15/09 1,695 1,632 5.100% due 09/15/14 210 203 6.450% due 06/15/34 5 5 Simon Property Group, LP 4.600% due 06/15/10 1,220 1,191 4.875% due 08/15/10 880 867 5.100% due 06/15/15 695 668 SLM Corp. Series MTNA 4.000% due 01/15/09 1,945 1,888 Sovereign Bank 5.125% due 03/15/13 400 392 Sprint Capital Corp. 6.000% due 01/15/07 975 987 6.125% due 11/15/08 860 886 7.625% due 01/30/11 2,365 2,603 8.375% due 03/15/12 325 375 6.875% due 11/15/28 420 448 8.750% due 03/15/32 1,725 2,231
72 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Suntrust Bank 5.000% due 09/01/15 2,240 2,186 Tele-Communications-TCI Group 9.800% due 02/01/12 385 466 7.875% due 08/01/13 730 823 Time Warner Entertainment Co., LP Series * 8.375% due 03/15/23 490 576 8.375% due 07/15/33 1,015 1,225 Time Warner, Inc. 6.750% due 04/15/11 970 1,025 6.875% due 05/01/12 485 519 7.700% due 05/01/32 420 478 Travelers Property Casualty Corp. 5.000% due 03/15/13 180 174 TXU Corp. Series R 6.550% due 11/15/34 475 422 TXU Electric Delivery Co. 6.375% due 05/01/12 815 854 6.375% due 01/15/15 140 147 TXU Energy Co. LLC 7.000% due 03/15/13 465 484 Unilever Capital Corp. 5.900% due 11/15/32 315 324 United Technologies Corp. 5.400% due 05/01/35 70 68 Univision Communications, Inc. 3.500% due 10/15/07 675 653 US Bancorp Series MTNN 3.125% due 03/15/08 1,250 1,203 US Bank NA 5.700% due 12/15/08 70 72 Valero Energy Corp. 7.500% due 04/15/32 585 690 Verizon Global Funding Corp. 7.250% due 12/01/10 1,330 1,442 7.375% due 09/01/12 535 593 5.850% due 09/15/35 2,265 2,118 Verizon Maryland, Inc. Series A 6.125% due 03/01/12 985 1,002 Verizon Wireless Capital LLC 5.375% due 12/15/06 405 407 Viacom, Inc. 6.625% due 05/15/11 720 750 Virginia Electric and Power Co. Series A 5.375% due 02/01/07 1,300 1,308 Wachovia Bank NA Series BKNT 5.800% due 12/01/08 280 287
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Pacific Gas & Electric Co. 3.600% due 03/01/09 50 48 4.200% due 03/01/11 165 157 6.050% due 03/01/34 535 537 Pacificorp 4.300% due 09/15/08 730 717 Wachovia Corp. 5.250% due 08/01/14 3,270 3,261 6.550% due 10/15/35 370 406 Wal-Mart Stores, Inc. 4.750% due 08/15/10 1,080 1,069 4.500% due 07/01/15 1,385 1,316 Waste Management, Inc. 6.375% due 11/15/12 355 375 Wells Fargo & Co. 4.200% due 01/15/10 360 350 4.625% due 08/09/10 355 350 4.950% due 10/16/13 215 212 4.750% due 02/09/15 2,305 2,225 Weyerhaeuser Co. 6.125% due 03/15/07 223 226 6.750% due 03/15/12 765 810 Wyeth 6.950% due 03/15/11 1,215 1,310 5.500% due 03/15/13 70 71 5.500% due 02/01/14 55 55 XTO Energy, Inc. 6.250% due 04/15/13 360 378 Yum! Brands, Inc. 8.875% due 04/15/11 130 151 Zurich Capital Trust I (A) 8.376% due 06/01/37 1,365 1,476 ------------ 172,659 ------------ International Debt - 3.2% Abbey National PLC (f) (Step Up, 7.570%, 06/15/08) 6.700% due 12/31/49 720 747 Aiful Corp. (A) 4.450% due 02/16/10 100 96 5.000% due 08/10/10 100 98 Alcan, Inc. 5.750% due 06/01/35 670 630 Anadarko Finance Co. Series B 7.500% due 05/01/31 315 379 Apache Finance Canada Corp. 4.375% due 05/15/15 490 467 AXA SA 8.600% due 12/15/30 1,165 1,516 Banque Centrale de Tunisie 8.250% due 09/19/27 550 679 BNP Paribas (f)(p) 5.186% due 12/31/49 800 769
Fixed Income I Fund 73 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- British Telecommunications PLC 8.875% due 12/15/30 250 327 ChevronTexaco Capital Co. 3.500% due 09/17/07 470 460 Chile Government International Bond 5.625% due 07/23/07 420 425 China Development Bank 5.000% due 10/15/15 100 97 Conoco Funding Co. 6.350% due 10/15/11 775 829 Credit-Based Asset Servicing and Securitization CBO, Ltd. (E)(A) Series 2004-9A Class A1 4.470% due 04/08/39 2,165 2,165 Crest, Ltd. (A) Series 2003-2A Class C2 5.709% due 12/28/38 1,710 1,693 Deutsche Telekom International Finance BV 8.500% due 06/15/10 (E) 435 485 5.250% due 07/22/13 155 153 8.750% due 06/15/30 (E) 125 155 Diageo Finance BV 3.000% due 12/15/06 705 691 EnCana Corp. 6.500% due 08/15/34 75 82 Equifirst Mortgage Loan Trust NIMs Notes (A) Series 2004-2 Class N1 3.967% due 10/25/34 299 299 Export-Import Bank of China (N)(p) 4.875% due 07/21/15 465 444 Export-Import Bank of Korea (A) 4.125% due 02/10/09 255 247 First Franklin NIMs Trust (A) Series 2004-FF5 Class N1 4.212% due 04/25/34 6 6 France Telecom SA 7.750% due 03/01/11 235 262 G-Force CDO, Ltd. (A) Series 2003-1A Class CFX 5.700% due 12/25/38 765 756 HBOS PLC (f)(p) 5.920% due 09/29/49 100 99 Intelsat, Ltd. 6.500% due 11/01/13 335 246 Korea Development Bank 4.250% due 11/13/07 710 700 Korea Electric Power Corp. (A) 5.125% due 04/23/34 125 123
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mexico Government International Bond 8.375% due 01/14/11 655 745 8.125% due 12/30/19 900 1,076 8.300% due 08/15/31 500 613 7.500% due 04/08/33 1,880 2,131 Mizuho Financial Group Cayman, Ltd. (A) 5.790% due 04/15/14 315 323 Newcastle CDO I, Ltd. (A) Series 2004-4A Class 3FX 5.110% due 03/24/39 845 802 Petroleum Export, Ltd. (p) 5.265% due 06/15/11 100 99 Province of Quebec Canada 6.125% due 01/22/11 1,260 1,332 Ras Laffan Liquefied Natural Gas Co., Ltd. II (A) 5.298% due 09/30/20 125 122 Ras Laffan LNG III (p) 5.838% due 09/30/27 250 245 Resona Bank, Ltd. (f)(p) 5.850% due 09/29/49 375 362 Resona Preferred Global Securities Cayman, Ltd. (E)(f)(A) 7.191% due 12/29/49 300 306 Royal Bank of Scotland Group PLC (f) Series 1 9.118% due 03/31/49 200 230 Russia Government International Bond 5.000% due 03/31/30 1,150 1,278 5.000% due 03/31/30 (A) 315 350 Santander Financial Issuances 6.375% due 02/15/11 120 127 Sanwa Finance Aruba AEC 8.350% due 07/15/09 350 387 Scottish Power PLC 5.375% due 03/15/15 705 693 Systems 2001 AT LLC (A) 7.156% due 12/15/11 330 345 Teck Cominco, Ltd. 6.125% due 10/01/35 700 657 Telecom Italia Capital SA 4.000% due 01/15/10 1,375 1,307 4.950% due 09/30/14 590 560 5.250% due 10/01/15 5,105 4,914 Telefonica Europe BV 7.750% due 09/15/10 750 827 Telefonos de Mexico SA de CV 4.500% due 11/19/08 515 504
74 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- TELUS Corp. 8.000% due 06/01/11 775 871 Tengizchevroil Finance Co. (A) 6.124% due 11/15/14 245 246 Tyco International Group SA 6.375% due 10/15/11 355 373 6.000% due 11/15/13 720 747 Vodafone Group PLC 7.750% due 02/15/10 375 413 Wells Fargo Home Equity Trust (A) Series 2004-2N Class N1 4.450% due 10/26/34 89 88 ------------ 39,198 ------------ Mortgage-Backed Securities - 49.5% American Home Mortgage Investment Trust (E) Series 2004-4 Class 4A 4.390% due 02/25/45 493 483 Series 2005-2 Class 5A2 4.188% due 09/25/35 1,389 1,389 Series 2005-3 Class 3A2 4.218% due 09/25/35 1,345 1,346 Series 2005-4 Class 1A1 4.328% due 11/25/45 1,699 1,699 Arcap Reit, Inc. (A) Series 2004-RR3 Class B 5.040% due 09/21/45 420 403 Banc of America Commercial Mortgage, Inc. Series 2004-3 Class A3 4.875% due 06/10/39 850 843 Series 2004-4 Class A3 4.128% due 07/10/42 580 562 Series 2005-3 Class A4 4.668% due 07/10/43 1,200 1,145 Banc of America Funding Corp. (E) Series 2005-D Class A1 4.117% due 05/25/35 559 551 Bank of America Alternative Loan Trust (E) Series 2003-10 Class 2A2 4.488% due 12/25/33 547 548 Bank of America Mortgage Securities Series 2004-1 Class 5A1 6.500% due 09/25/33 53 54 Series 2004-2 Class 5A1 6.500% due 10/25/31 184 188
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bear Stearns Adjustable Rate Mortgage Trust Series 2004-3 Class 4A 4.913% due 07/25/34 1,150 1,116 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 963 967 Bear Stearns Commercial Mortgage Securities Series 2004-PWR Class A3 4.565% due 07/11/42 35 34 Series 2005-PWR Class A1 4.386% due 02/11/41 815 806 Chaseflex Trust Series 2005-2 Class 4A2 5.500% due 05/25/20 1,162 1,164 Commercial Mortgage Acceptance Corp. Series 1998-C2 Class A3 6.040% due 09/15/30 3,715 3,809 Countrywide Alternative Loan Trust (E) Series 2005-56 Class 4A1 4.348% due 11/25/35 1,794 1,794 Series 2005-59 Class 1A1 4.330% due 10/25/35 1,999 2,002 Series 2005-J12 Class 2A1 4.330% due 08/25/35 1,770 1,770 Countrywide Asset-Backed Certificates (E) Series 2005-IM1 Class A1 4.168% due 07/25/35 1,402 1,402 Countrywide Home Loan Mortgage Pass Through Trust (E) Series 2003-42 Class 2A1 3.960% due 10/25/33 50 50 Series 2004-7 Class 5A2 4.308% due 05/25/34 302 301 Series 2005-3 Class 1A2 4.328% due 04/25/35 170 170 Series 2005-9 Class M6 5.188% due 05/25/35 250 245 Series 2005-R3 Class AF (A) 4.438% due 09/25/35 1,665 1,665 Credit Suisse First Boston Mortgage Securities Corp. Series 2003-C5 Class A1 3.093% due 12/15/36 1,729 1,672 Series 2005-C4 Class A3 5.120% due 08/15/38 915 909
Fixed Income I Fund 75 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-C5 Class A3 5.100% due 08/15/38 1,165 1,151 DLJ Commercial Mortgage Corp. Series 1998-CF1 Class A1B 6.410% due 02/18/31 634 650 Downey Savings & Loan Association Mortgage Loan Trust Series 2004-AR3 Class 1A1B (E) 5.206% due 07/19/44 489 496 Series 2005-AR6 Class 2A1A (E) 4.287% due 10/19/45 1,689 1,689 Fannie Mae 15 Year TBA (I) 4.000% 4,975 4,714 4.500% 7,160 6,923 5.000% 8,160 8,048 5.500% 700 705 30 Year TBA (I) 4.500% 2,115 1,976 5.000% 45,365 43,650 5.500% 51,240 50,535 6.000% 11,555 11,652 6.500% 8,390 8,610 7.200% due 2007 666 682 7.000% due 2011 12 13 8.000% due 2011 8 8 5.500% due 2013 17 17 6.500% due 2013 65 67 6.500% due 2015 40 41 7.000% due 2015 13 14 6.000% due 2016 335 344 6.500% due 2016 45 46 5.000% due 2017 303 299 5.500% due 2017 26 26 6.000% due 2017 5,575 5,703 6.500% due 2017 474 489 7.500% due 2017 1 1 9.000% due 2017 3 3 4.500% due 2018 9,910 9,600 5.000% due 2018 8,395 8,289 5.500% due 2018 659 664 6.000% due 2018 292 298 6.500% due 2018 478 492 8.500% due 2018 5 5 4.500% due 2019 1,007 975 5.000% due 2019 11,609 11,455 6.500% due 2019 238 247 4.500% due 2020 961 929 5.000% due 2020 11,798 11,642 6.500% due 2020 88 91 8.000% due 2024 185 198
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 8.500% due 2024 29 31 9.000% due 2024 9 10 7.000% due 2025 35 37 8.000% due 2025 4 5 8.500% due 2025 39 43 7.000% due 2026 36 38 9.000% due 2026 6 7 7.000% due 2027 10 10 9.000% due 2027 2 3 6.500% due 2028 693 716 6.500% due 2029 1,453 1,496 7.000% due 2029 223 234 6.500% due 2030 13 14 8.000% due 2030 237 253 6.500% due 2031 291 300 8.000% due 2031 233 250 5.500% due 2032 89 88 6.000% due 2032 2,267 2,288 6.500% due 2032 1,584 1,630 7.000% due 2032 1,132 1,182 8.000% due 2032 10 11 4.500% due 2033 1,159 1,086 5.000% due 2033 6,820 6,586 5.500% due 2033 18,100 17,887 6.000% due 2033 634 640 6.500% due 2033 872 896 4.500% due 2034 1,176 1,100 5.000% due 2034 10,973 10,595 5.500% due 2034 35,764 35,316 6.000% due 2034 10,700 10,796 6.500% due 2034 974 1,000 1.178% due 2035 (E) 700 722 2.124% due 2035 (E) 1,000 1,030 3.035% due 2035 (E) 1,699 1,727 4.500% due 2035 2,951 2,758 4.590% due 2035 (E) 1,385 1,373 5.000% due 2035 17,029 16,396 5.500% due 2035 60,480 59,689 6.000% due 2035 8,414 8,490 6.500% due 2035 633 649 Series 1992-158 Class ZZ 7.750% due 08/25/22 389 416 Series 1993-134 Class H 6.500% due 08/25/08 1,420 1,446 Series 1997-81 Class PC 5.000% due 04/18/27 12 12 Series 2004-27 Class JC 5.000% due 05/25/34 35 35 Fannie Mae Grantor Trust Series 2001-T6 Class B 6.088% due 05/25/11 1,810 1,908
76 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2002-T13 Class A1 (E) 4.138% due 08/25/32 9 9 Series 2002-T5 Class A1 (E) 4.158% due 05/25/32 520 520 Series 2005-T2 Class 1A1 (E) 3.712% due 11/28/35 164 164 Series 2005-T3 Class A1A (E) 4.078% due 07/25/35 4,365 4,365 Fannie Mae Whole Loan Series 2002-W2 Class AV1 (E) 4.298% due 06/25/32 299 299 Series 2003-W16 Class AV1 (E) 4.188% due 11/25/33 333 333 Series 2004-W2 Class 5AF (E) 4.388% due 03/25/44 916 916 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2004-H01 Class A1 2.614% due 07/15/11 762 755 Freddie Mac 15 Year TBA (I) 5.000% 4,000 3,945 30 Year TBA (I) 5.000% 22,395 21,541 5.500% 16,215 16,002 6.000% 4,305 4,347 8.000% due 2009 10 10 7.000% due 2010 48 50 8.000% due 2010 2 2 6.000% due 2011 30 30 12.000% due 2014 30 32 6.000% due 2016 562 574 9.000% due 2016 103 110 6.000% due 2017 511 521 4.500% due 2018 1,296 1,256 5.000% due 2018 853 842 4.500% due 2019 1,158 1,122 5.000% due 2019 432 426 5.500% due 2019 1,707 1,718 6.500% due 2025 23 24 8.000% due 2025 15 16 9.000% due 2025 4 4 9.000% due 2026 1 2 5.496% due 2027 (E) 75 78 6.500% due 2027 3 3 6.500% due 2028 232 239 6.500% due 2029 501 516 5.638% due 2030 (E) 9 10 6.000% due 2031 20 20 6.500% due 2031 909 934 6.500% due 2032 522 536
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 7.000% due 2032 428 447 7.500% due 2032 133 141 5.000% due 2033 659 637 5.500% due 2033 640 633 6.000% due 2033 371 375 4.500% due 2034 159 149 6.000% due 2034 3,493 3,529 Series 1993-160 Class I Interest Only STRIP 6.500% due 11/15/08 184 11 Series 1998-210 Class ZM 6.000% due 12/15/28 878 890 Series 2000-226 Class F (E) 4.420% due 11/15/30 19 19 Series 2003-263 Class YH 3.500% due 08/15/22 1,190 1,180 Series 2005-292 Class IG Interest Only STRIP 5.000% due 04/15/23 443 77 Freddie Mac Gold 7.000% due 2008 19 20 6.000% due 2010 55 56 7.000% due 2010 69 71 8.000% due 2010 24 25 6.000% due 2011 222 227 7.000% due 2011 14 14 6.000% due 2012 5 5 6.000% due 2013 37 37 5.500% due 2020 2,043 2,055 8.000% due 2025 24 26 8.500% due 2027 95 103 6.500% due 2028 36 37 6.500% due 2032 340 349 5.500% due 2033 5,510 5,448 6.000% due 2033 361 365 5.000% due 2034 2,841 2,743 5.500% due 2034 942 931 6.500% due 2034 82 84 5.000% due 2035 499 480 5.500% due 2035 1,528 1,509 G-Force LLC (A) 4.830% due 09/22/13 1,670 1,626 GE Capital Commercial Mortgage Corp. Series 2005-C1 Class A1 4.012% due 06/10/48 680 669 Series 2005-C1 Class A5 4.772% due 06/10/48 400 385
Fixed Income I Fund 77 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ginnie Mae I 30 Year TBA (I) 5.000% 7,345 7,164 5.500% 1,200 1,198 6.000% 9,800 9,975 6.500% due 2008 8 8 6.500% due 2009 52 53 6.500% due 2010 9 9 7.000% due 2011 17 18 9.500% due 2016 6 6 8.000% due 2017 11 12 10.500% due 2020 61 69 8.000% due 2022 29 31 8.500% due 2022 2 3 8.500% due 2024 14 15 8.000% due 2025 54 58 8.000% due 2026 179 191 8.000% due 2029 91 97 8.500% due 2029 52 56 8.000% due 2030 134 143 8.500% due 2030 17 18 7.000% due 2031 339 356 6.000% due 2032 16 16 7.000% due 2032 133 141 5.000% due 2033 1,258 1,230 7.000% due 2033 19 21 6.000% due 2034 742 755 Ginnie Mae II 4.125% due 2027 (E) 74 74 3.500% due 2030 (E) 332 333 4.375% due 2030 (E) 56 56 7.500% due 2032 33 35 4.500% due 2035 817 769 GMAC Commercial Mortgage Securities, Inc. Series 2005-C1 Class A2 4.471% due 05/10/43 465 453 Government National Mortgage Association Series 2002-61 Class BA 4.648% due 03/16/26 844 835 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A7 5.317% due 06/10/36 570 571 Series 2005-GG3 Class A1 3.919% due 08/10/42 896 880 Series 2005-GG5 Class A41 5.243% due 04/10/37 695 698 GS Mortgage Securities Corp. II Series 1998-C1 Class A2 6.620% due 10/18/30 1,453 1,503 Series 2005-GG4 Class AABA 4.680% due 07/10/39 600 581
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GSAMP Mortgage Loan Trust (E)(A) Series 2004-4 Class 1AF 4.438% due 06/25/34 1,626 1,631 Harborview Mortgage Loan Trust (E) Series 2004-4 Class 3A 2.975% due 06/19/34 2,818 2,760 Impac CMB Trust Series 2004-2 Class A2 4.288% due 04/25/34 259 259 Series 2004-3 Class 1A (E) 4.288% due 06/25/34 292 292 Impac Secured Assets CMN Owner Trust (E) Series 2004-3 Class 1A1 4.238% due 11/25/34 100 100 IndyMac Index Mortgage Loan Trust Series 2005-AR2 Class 4A1 5.509% due 11/25/35 1,694 1,697 IndyMac Loan Trust Series 2003-L1 Class A1 (A) 4.418% due 11/25/08 109 109 Series 2004-L1 Class A1 (A) 4.318% due 07/25/09 621 621 Series 2005-L1 Class A (E) 4.238% due 06/25/10 1,659 1,661 Series 2005-L2 Class A1 (E) 4.258% due 01/25/11 1,809 1,811 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2003-CB7 Class A3 4.449% due 01/12/38 940 910 Series 2004-C3 Class A4 4.657% due 01/15/42 1,120 1,084 Series 2004-LN2 Class A1 4.475% due 07/15/41 722 701 Series 2005-CB1 Class A1 4.520% due 08/12/37 1,243 1,231 Series 2005-CB1 Class A4 4.895% due 09/12/37 80 78 Series 2005-FL1 Class A1 (E)(A) 4.080% due 02/15/19 2,061 2,051 Series 2005-LDP Class A1 4.116% due 03/15/46 654 644 Series 2005-LDP Class A3 4.959% due 08/15/42 690 678
78 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-LDP Class A4 4.918% due 10/15/42 1,885 1,830 JP Morgan Mortgage Trust Series 2005-A2 Class 3A1 4.920% due 04/25/35 1,569 1,557 Series 2005-A3 Class 6A1 4.926% due 06/25/35 2,185 2,164 Series 2005-A4 Class 1A1 5.415% due 07/25/35 836 829 Series 2005-A4 Class 3A1 5.190% due 07/25/35 1,287 1,275 Series 2005-A6 Class 2A2 4.987% due 08/25/35 1,436 1,427 Series 2005-ALT Class 3A1 5.500% due 10/25/35 1,572 1,569 Series 2005-S2 Class 2A15 6.000% due 09/25/35 2,086 2,087 LB-UBS Commercial Mortgage Trust Series 2001-C3 Class A1 6.058% due 06/15/20 569 581 Series 2003-C3 Class A1 2.599% due 05/15/27 628 603 Series 2004-C2 Class A1 2.946% due 03/15/29 1,550 1,475 Series 2004-C4 Class A3 4.985% due 06/15/29 1,180 1,182 Series 2005-C3 Class A5 4.739% due 07/15/30 340 327 Series 2005-C3 Class AAB 4.664% due 07/15/30 400 387 Mach One Trust Commercial Mortgage-Backed (A) Series 2004-1A Class A3 5.220% due 05/28/40 1,350 1,334 Mastr Reperforming Loan Trust (A) Series 2005-1 Class 1A1 6.000% due 08/25/34 871 877 Merrill Lynch Mortgage Investors, Inc. Series 2005-A7 Class 2A1 5.406% due 09/25/35 1,529 1,517 Merrill Lynch Mortgage Trust Series 2004-MKB Class A2 4.353% due 02/12/42 790 772 Series 2005-MKB Class A1 4.446% due 09/12/42 1,101 1,089 Series 2005-MKB Class A4 5.204% due 09/12/42 555 551 Morgan Stanley Capital I Series 2004-HQ3 Class A1 3.100% due 01/13/41 1,106 1,067 Series 2004-RR2 Class A2 (A) 5.450% due 10/28/33 1,370 1,371 Series 2005-HQ5 Class A4 5.168% due 01/14/42 880 872
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-HQ6 Class A4A 4.989% due 08/13/42 820 801 Series 2005-IQ9 Class A1 3.990% due 07/15/56 714 702 Series 2005-T17 Class A5 4.780% due 12/13/41 250 241 Morgan Stanley Dean Witter Capital I Series 2001-TOP Class A3 6.200% due 07/15/33 845 869 Mortgage Capital Funding, Inc. Series 1998-MC2 Class A2 6.423% due 06/18/30 1,923 1,977 Nomura Asset Securities Corp. Series 1998-D6 Class A1B 6.590% due 03/15/30 785 813 Novastar NIMs Trust (A) Series 2005-N1 Class NOTE 4.777% due 10/26/35 294 294 Prime Mortgage Trust Series 2004-CL1 Class 1A2 4.438% due 02/25/34 139 139 Series 2004-CL1 Class 2A2 4.438% due 02/25/19 35 35 Residential Accredit Loans, Inc. Series 2005-QA8 Class NB3 5.527% due 07/25/35 646 645 Series 2005-QO3 Class A1 (E) 4.470% due 10/25/45 1,800 1,803 Residential Asset Securitization Trust (E) Series 2003-A15 Class 1A2 4.488% due 02/25/34 982 984 Residential Funding Mortgage Sec I (E) Series 2003-S5 Class 1A2 4.488% due 11/25/18 476 478 Salomon Brothers Mortgage Securities VII Series 2003-UP2 Class A1 4.000% due 12/25/18 593 569 Small Business Administration Series 1999-P10 Class 1 7.540% due 08/10/09 414 440 Small Business Administration Participation Certificates Series 2003-20I Class 1 5.130% due 09/01/23 89 89
Fixed Income I Fund 79 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Structured Adjustable Rate Mortgage Loan Trust (E) Series 2005-19X Class 1A1 4.358% due 10/25/35 1,658 1,659 Structured Asset Securities Corp. Series 2004-21X Class 1A3 4.440% due 12/25/34 1,230 1,205 Wachovia Bank Commercial Mortgage Trust Series 2003-C9 Class A1 3.291% due 12/15/35 1,335 1,291 Series 2005-C16 Class A2 4.380% due 10/15/41 1,195 1,164 Series 2005-C17 Class A1 4.430% due 03/15/42 2,845 2,816 Washington Mutual, Inc. Series 2004-AR1 Class A1B1 4.165% due 11/25/34 739 739 Series 2005-AR1 Class 1A1 4.845% due 10/25/35 687 682 Series 2005-AR1 Class 2A1 (E) 5.073% due 09/25/35 1,297 1,282 Series 2005-AR1 Class A1A1 (E) 4.328% due 10/25/45 2,000 2,000 Series 2005-AR1 Class A1A2 (E) 4.446% due 11/25/45 1,700 1,700 Series 2005-AR6 Class B3 (E) 4.698% due 04/25/45 475 475 Wells Fargo Mortgage Backed Securities Trust (E) Series 2005-AR1 Class 7A1 5.264% due 10/25/35 1,230 1,211 ------------ 601,942 ------------ Municipal Bonds - 0.3% City of New York New York General Obligation Unlimited, weekly demand 5.000% due 03/01/30 100 102 Golden State Tobacco Securitization Corp. Revenue Bonds, weekly demand 6.250% due 06/01/33 650 713 Liberty Development Corp. Revenue Bonds 5.250% due 10/01/35 230 252 Metropolitan Pier & Exposition Authority Revenue Bonds (u) Zero coupon due 12/15/34 6,200 1,459 New York State Environmental Facilities Corp. Revenue Bonds, weekly demand 5.000% due 07/15/33 100 103
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- State of Texas General Obligation Unlimited, weekly demand 4.750% due 04/01/35 300 301 Tobacco Settlement Financing Corp. Revenue Bonds 6.125% due 06/01/24 150 167 6.750% due 06/01/39 700 804 ------------ 3,901 ------------ Non-US Bonds - 0.4% Canadian Government Bond 4.000% due 12/01/31 CAD 388 498 3.000% due 12/01/36 CAD 104 116 France Government Bond OAT 3.000% due 07/25/09 EUR 1,760 2,281 General Motors Corp. 8.375% due 07/05/33 EUR 70 62 Poland Government Bond 6.000% due 05/24/09 PLN 2,400 746 Queensland Treasury Corp. 6.000% due 06/14/11 AUD 1,070 817 ------------ 4,520 ------------ United States Government Agencies - 5.7% Fannie Mae 3.550% due 01/12/07 4,260 4,208 3.375% due 05/15/07 3,480 3,416 6.625% due 10/15/07 1,595 1,653 2.500% due 06/15/08 (N) 4,620 4,372 4.500% due 10/15/08 5,100 5,071 3.250% due 02/15/09 585 560 4.250% due 05/15/09 4,190 4,132 3.875% due 02/15/10 1,495 1,446 4.750% due 04/19/10 2,950 2,915 4.375% due 03/15/13 (N) 1,025 993 5.250% due 03/24/15 495 488 5.000% due 04/26/17 945 907 6.625% due 11/15/30 630 758 6.210% due 08/06/38 420 486 Zero coupon due 07/05/14 2,280 1,487 Federal Home Loan Bank System 4.875% due 05/15/07 2,240 2,248 4.125% due 10/19/07 3,240 3,208 3.250% due 12/17/07 3,795 3,687 5.250% due 06/18/14 105 108 5.125% due 08/15/19 330 328
80 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Financing Corp. Principal Only STRIP Zero coupon due 05/11/16 140 82 Zero coupon due 06/06/16 410 240 Zero coupon due 12/27/16 490 278 Zero coupon due 10/06/17 800 441 Zero coupon due 11/30/17 875 478 Zero coupon due 08/03/18 825 434 Zero coupon due 11/02/18 835 434 Zero coupon due 04/05/19 1,200 608 Zero coupon due 09/26/19 1,075 531 Freddie Mac 3.750% due 11/15/06 2,480 2,459 4.375% due 11/16/07 1,905 1,896 4.250% due 07/15/09 3,555 3,631 6.625% due 09/15/09 2,985 3,180 4.000% due 12/15/09 1,505 1,464 4.500% due 11/15/11 870 851 5.750% due 01/15/12 3,715 3,887 5.125% due 07/15/12 1,170 1,187 5.050% due 01/26/15 1,155 1,142 4.750% due 11/17/15 1,775 1,745 6.750% due 09/15/29 1,620 1,965 ------------ 69,404 ------------ United States Government Treasuries - 18.4% United States Treasury Inflation Indexed Bonds 0.875% due 04/15/10 2,622 2,520 2.000% due 07/15/14 6,146 6,162 1.625% due 01/15/15 51 50 1.875% due 07/15/15 2,776 2,748 2.375% due 01/15/25 4,438 4,618 3.875% due 04/15/29 263 349 United States Treasury Notes 2.875% due 11/30/06 8,170 8,041 3.750% due 03/31/07 500 496 3.125% due 05/15/07 8,805 8,641 4.375% due 05/15/07 4,875 4,874 6.625% due 05/15/07 965 998 3.625% due 06/30/07 (N) 8,980 8,869 3.250% due 08/15/07 460 451 6.125% due 08/15/07 3,295 3,393 3.000% due 02/15/08 3,950 3,830 3.750% due 05/15/08 6,120 6,023 3.125% due 09/15/08 8,390 8,100 3.375% due 12/15/08 14,655 14,206 4.000% due 06/15/09 815 803 3.625% due 07/15/09 2,875 2,795 3.375% due 09/15/09 2,420 2,329 3.500% due 12/15/09 1,145 1,104 3.625% due 01/15/10 2,960 2,865 4.000% due 03/15/10 3,735 3,666
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 4.000% due 04/15/10 1,170 1,148 3.875% due 05/15/10 (N) 10,625 10,365 3.625% due 06/15/10 1,340 1,293 3.875% due 09/15/10 3,750 3,652 4.250% due 10/15/10 810 803 5.000% due 02/15/11 1,205 1,235 13.875% due 05/15/11 3,365 3,535 5.000% due 08/15/11 4,880 5,007 14.000% due 11/15/11 1,590 1,744 4.875% due 02/15/12 3,260 3,325 10.375% due 11/15/12 2,840 3,167 3.875% due 02/15/13 3,810 3,657 4.250% due 08/15/13 315 309 4.250% due 11/15/13 1,205 1,180 4.750% due 05/15/14 6,756 6,840 4.250% due 11/15/14 360 351 4.250% due 08/15/15 1,100 1,073 9.250% due 02/15/16 1,825 2,506 7.250% due 05/15/16 2,270 2,755 7.500% due 11/15/16 1,925 2,389 8.750% due 05/15/17 2,460 3,341 8.875% due 08/15/17 2,180 2,995 8.125% due 08/15/19 4,285 5,722 7.875% due 02/15/21 (N) 1,000 1,329 8.125% due 05/15/21 (N) 500 680 8.125% due 08/15/21 4,890 6,664 7.125% due 02/15/23 8,110 10,275 6.000% due 02/15/26 9,635 11,076 6.125% due 11/15/27 2,945 3,460 6.125% due 08/15/29 6,385 7,568 6.250% due 05/15/30 2,920 3,528 5.375% due 02/15/31 10,270 11,201 United States Treasury Principal Only STRIP Zero coupon due 11/15/09 90 75 Zero coupon due 11/15/21 4,835 2,217 ------------ 224,396 ------------ TOTAL LONG-TERM INVESTMENTS (cost $1,214,800) 1,200,223 ------------ PREFERRED STOCKS - 0.2% Auto and Transportation - 0.0% General Motors Corp. 16,500 271 ------------ Financial Services - 0.2% DG Funding Trust (A) 94 1,007
Fixed Income I Fund 81 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Fannie Mae 6,200 339 ------------ 1,346 ------------ TOTAL PREFERRED STOCKS (cost $1,597) 1,617 ------------ NOTIONAL AMOUNT ($) ------------ - ----------------------------------------------------------------------------- OPTIONS PURCHASED - 0.0% (Number of Contracts) Euribor Futures Dec 2005 92.00 (EUR) Put (48) 13,231 -- Dec 2005 93.25 (EUR) Put (8) 1,556 -- ------------ TOTAL OPTIONS PURCHASED (cost $1) -- ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 18.3% Abbey National NA LLC (c)(z) 3.610% due 11/07/05 1,800 1,799 ASB Bank Ltd. (z)(p) 4.085% due 01/18/06 4,000 3,959 Bank of Ireland Governor & Co. (c)(z) 3.640% due 11/08/05 1,800 1,799 Barclays US Funding, LLC (c)(z) 3.690% due 11/14/05 1,700 1,698 3.655% due 11/28/05 2,100 2,094 Capital Auto Receivables Asset Trust (E)(A) Series 2005-1 Class A1 3.980% due 06/15/06 4 4 Citigroup, Inc. 5.750% due 05/10/06 790 795 Countrywide Home Loans, Inc. Series MTNJ 5.500% due 08/01/06 1,300 1,308 Danske Corp. (z) 4.030% due 02/06/06 1,700 1,676 Dexia Delaware (c)(z) 3.610% due 11/01/05 3,700 3,700 3.655% due 11/08/05 1,800 1,799 DNB Nor Bank ASA (c)(z) 3.525% due 11/07/05 300 300 Duke Capital Corp. 4.302% due 05/18/06 165 165
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Fannie Mae 6.000% due 12/15/05 1,700 1,703 5.500% due 02/15/06 1,700 1,706 3.799% due 09/22/06 (E)(N) 900 899 Federal Home Loan Bank System 2.500% due 12/15/05 1,800 1,796 Federal National Mortgage Association Discount Notes (c)(z)(sec.) 3.530% due 12/05/05 25 25 3.590% due 12/05/05 30 30 3.600% due 12/05/05 100 100 3.640% due 12/05/05 30 30 Zero coupon due 12/05/05 225 224 Ford Motor Credit Co. 6.875% due 02/01/06 600 600 Frank Russell Investment Company Money Market Fund 139,044,183 139,044 General Motors Acceptance Corp. 4.677% due 05/18/06 (E) 400 398 6.125% due 09/15/06 1,000 997 Goldman Sachs Group, Inc. Series MTNB 4.129% due 08/01/06 1,100 1,101 HBOS Treasury Services, PLC (c)(z) 3.645% due 11/07/05 1,800 1,799 3.750% due 12/01/05 2,900 2,891 Nordea North America, Inc. (z) 3.625% due 11/08/05 (c) 1,800 1,799 4.075% due 01/20/06 2,700 2,672 Rabobank USA Financial Corp. (c)(z) 3.610% due 11/09/05 1,800 1,799 3.860% due 12/23/05 6,400 6,364 Skandinaviska Enskilda Banken (z)(p) 3.985% due 01/05/06 1,800 1,782 Societe Generale (c)(z) 3.760% due 12/02/05 2,500 2,492 3.780% due 12/22/05 1,100 1,094 3.790% due 12/28/05 2,100 2,087 Societe Generale NA (z) 3.960% due 01/27/06 1,400 1,381 Swedbank Forenings (z) 3.910% due 12/22/05 (c) 1,600 1,591 4.075% due 01/20/06 5,400 5,344 Treasury Bank NA (E) Series CD 3.853% due 11/23/05 1,700 1,700
82 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- UBS Financial Del, LLC (z) 3.635% due 11/07/05 (c) 1,800 1,799 3.585% due 11/21/05 (c) 3,400 3,393 3.590% due 11/21/05 (c) 2,600 2,595 3.970% due 01/30/06 1,100 1,085 United States Treasury Bills (z)(sec.) 3.372% due 12/01/05 (c) 590 588 3.500% due 12/01/05 (c) 450 449 3.363% due 12/08/05 (c) 400 399 3.670% due 03/16/06 75 74 United States Treasury Notes 2.500% due 10/31/06 7,960 7,816 US Bank NA Series BKNT 5.625% due 11/30/05 560 561 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $223,459) 223,303 ------------ OTHER SECURITIES - 5.1% Frank Russell Investment Company Money Market Fund (X) 20,419,395 20,419 State Street Securities Lending Quality Trust (X) 41,837,411 41,838 ------------ TOTAL OTHER SECURITIES (cost $62,257) 62,257 ------------ TOTAL INVESTMENTS - 122.2% (identified cost $1,502,114) 1,487,400 OTHER ASSETS AND LIABILITIES, NET - (22.2%) (270,078) ------------ NET ASSETS - 100.0% 1,217,322 ============
See accompanying notes which are an integral part of the financial statements. Fixed Income I Fund 83 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions 10 Year Interest Rate Swap Futures expiration date 12/05 (35) 3,747 (114) Eurodollar Futures expiration date 03/06 (173) 41,202 (171) expiration date 06/06 (149) 35,453 (161) expiration date 09/06 (68) 16,176 (42) expiration date 12/06 (115) 27,359 (52) expiration date 06/07 (79) 18,797 (30) expiration date 03/07 (138) 32,839 (38) expiration date 09/07 (30) 7,137 (15) United States Treasury Bonds expiration date 12/05 (45) 5,039 (177) United States Treasury 2 Year Notes expiration date 12/05 (123) 25,240 (134) United States Treasury 5 Year Notes expiration date 12/05 (737) 78,041 (1,394) United States Treasury 10 Year Notes expiration date 12/05 (61) 6,616 (109) Short Positions United States Treasury Bonds expiration date 12/05 (138) 15,452 615 United States Treasury 5 Year Notes expiration date 09/05 (21) 2,224 33 United States Treasury 10 Year Notes expiration date 12/05 (172) 18,654 471 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (a) (1,318) ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Dec 2006 95.00 Put (7) 1,663 (5) Dec 2006 95.25 Put (87) 20,717 (80) United States Treasury Notes 5 Year Futures Nov 2005 108.00 Call (14) 1,512 -- Nov 2005 108.50 Call (4) 434 -- Nov 2005 109.00 Call (30) 3,270 (1) Nov 2005 106.00 Put (14) 1,484 (6) Nov 2005 107.00 Put (15) 1,605 (17) United States Treasury Notes 10 Year Futures Nov 2005 113.00 Call (16) 1,808 -- Nov 2005 114.00 Call (18) 2,052 -- Nov 2005 108.00 Put (9) 972 (3) Nov 2005 111.00 Put (18) 1,998 (46) Nov 2005 109.00 Put (40) 4,360 (32) --------------- Total Liability for Options Written (premiums received $122) (190) ===============
See accompanying notes which are an integral part of the financial statements. 84 Fixed Income I Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 817 AUD 1,089 11/08/05 (3) USD 424 CAD 519 11/08/05 15 USD 896 CAD 1,063 11/08/05 4 USD 438 CAD 519 02/08/06 2 USD 2,300 EUR 1,902 11/08/05 (19) USD 2,451 EUR 2,055 11/08/05 13 USD 5,395 EUR 4,414 11/08/05 (103) USD 7,133 EUR 5,959 11/08/05 12 USD 885 EUR 730 12/16/05 (8) USD 914 EUR 750 12/16/05 (13) USD 2,284 EUR 1,902 02/08/06 8 USD 2,769 EUR 2,289 02/08/06 (10) USD 3,269 JPY 371,639 12/01/05 (65) USD 784 PLN 2,556 11/08/05 (11) AUD 1,089 USD 821 11/08/05 7 AUD 1,089 USD 814 02/08/06 3 CAD 519 USD 437 11/08/05 (2) CAD 1,063 USD 874 11/08/05 (26) CAD 101 USD 86 11/21/05 -- CAD 1,063 USD 899 02/08/06 (4) EUR 1,902 USD 2,272 11/08/05 (8) EUR 1,949 USD 2,347 11/08/05 10 EUR 2,125 USD 2,569 11/08/05 21 EUR 2,290 USD 2,755 11/08/05 10 EUR 5,959 USD 7,206 11/08/05 61 EUR 5,959 USD 7,170 02/08/06 (11) PLN 2,556 USD 747 11/08/05 (26) PLN 2,556 USD 784 02/08/06 11 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (132) ==============
See accompanying notes which are an integral part of the financial statements. Fixed Income I Fund 85 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME I FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INTEREST RATE SWAPS CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ----------------------- ----------------- ---------------- -------------------- ---------------- ---------------- Barclays GBP 6,200 5.000% Six Month LIBOR 06/15/07 37 Barclays USD 2,900 4.000% Three Month LIBOR 12/15/07 (45) Barclays USD 4,000 4.000% Three Month LIBOR 12/15/10 (162) Consumer Price Index BNP Paribas EUR 1,200 2.090% (France) 10/15/10 -- Goldman USD 100 4.000% Three Month LIBOR 12/15/10 (4) Goldman USD 100 5.000% Three Month LIBOR 12/15/15 -- Lehman GBP 3,300 4.500% Six Month LIBOR 09/20/09 (24) Merrill Lynch USD 7,800 4.000% Three Month LIBOR 12/15/07 (123) Merrill Lynch GBP 5,700 4.500% Six Month LIBOR 09/20/09 (41) Morgan Stanley USD 1,000 4.000% Three Month LIBOR 12/15/10 (40) ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($232) (402) ================
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 6.9 Corporate Bonds and Notes 14.2 International Debt 3.2 Mortgage-Backed Securities 49.5 Municipal Bonds 0.3 Non-US Bonds 0.4 United States Government Agencies 5.7 United States Government Treasuries 18.4 Preferred Stocks 0.2 Options Purchased --* Short-Term Investments 18.3 Other Securities 5.1 --------------- Total Investments 122.2 Other Assets and Liabilities, Net (22.2) --------------- 100.0 =============== Futures Contracts (0.2) Options Written (--*) Foreign Currency Exchange Contracts (--*) Interest Rate Swap Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 86 Fixed Income I Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
LEHMAN BROTHERS AGGREGATE FIXED III - CLASS I BOND** ------------------- ------------------------- * 10000 10000 1996 10685 10585 1997 11671 11526 1998 12472 12602 1999 12677 12669 2000 13478 13594 2001 15197 15573 2002 15779 16490 2003 17242 17299 2004 18274 18256 2005 18575 18463
Fixed Income III Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.65% 5 Years 6.63%sec. 10 Years 6.39%sec.
Fixed Income III Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.37% 5 Years 6.36%sec. 10 Years 6.22%sec.
Fixed Income III - Class Y++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.67% 5 Years 6.63%sec. 10 Years 6.39%sec.
Lehman Brothers Aggregate Bond Index ** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 1.13% 5 Years 6.31%sec. 10 Years 6.32%sec.
88 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income, and as a secondary objective, capital appreciation. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Fixed Income III Fund Class I, Class E and Class Y gained 1.65%, 1.37% and 1.67%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 1.13% during the same period. Class I, Class E and Class Y performance is net of operating expenses of 0.69%, 0.93% and 0.64%, respectively. Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) BBB Rated Fixed Income Funds Average returned 1.22%. For the same period, the Lipper(R) Intermediate Investment Grade Debt Funds Average returned 0.81%. These returns serve as peer comparisons and are expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Rising interest rates negatively impacted nominal returns, but helped the Fund's money managers to achieve excess returns relative to benchmark. The money managers positioned their portfolios to be underweight in short and intermediate maturity bonds, which contributed positively to Fund performance. Rising interest rates during the fiscal year pushed the yields of short and intermediate maturity bonds higher than the yields of longer-term maturity bonds. Yields for longer-term maturity bonds were held lower in part by strong demand for U.S. Treasury securities by Asian central banks. Given the inverse relationship between yields and prices, short and intermediate maturity bonds had lower returns than longer-term maturity bonds during the fiscal year. The credit downgrade in the bond ratings of auto manufacturers in the spring and early summer had a minimal impact on the Fund, as the Fund's money managers added value through security selection. Small exposures to emerging market and high yield sectors also contributed positively to Fund performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The primary contributors to excess returns included the Fund's short duration positioning on the expectation that interest rates would rise and bond prices fall. In addition, the Fund's money managers held small exposures to the high yield and emerging market debt sectors, two sectors that outperformed during the fiscal year. A smaller exposure to investment grade corporates also helped Fund performance in the second half of the fiscal year, as credit downgrades within the auto sector impacted sentiment and pricing for the entire investment grade corporate sector. Non-dollar bonds were an additional source of value, primarily in the spring when interest rates fell by a greater amount in Europe than in the U.S. Finally, the Fund's positioning in mortgages also contributed positively to Fund performance. Specifically, the Fund was underweight in mortgages in the summer, when prices of the bonds declined relative to equivalent Treasuries. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? Delaware Management Company continued to provide the best returns over the fiscal year. Delaware was rewarded for its view that high yield and emerging market debt would continue to do well. Delaware maintained a significant weight to those non-benchmark sectors. In addition, Delaware added value through security selection within those sectors. Morgan Stanley Investment Management, Inc. outperformed through its duration strategies. Having forecasted that interest rates would rise two years ago, Morgan Stanley was rewarded for maintaining its conviction and short duration position. Pacific Investment Management Company, LLC (PIMCO) contributed positively to Fund performance with its tactical allocations to non-dollar bonds and its correct forecast that European interest rates would fall further than U.S. rates in the spring. PIMCO also added value through select positions in emerging market debt. Finally, Bear Stearns Asset Management, Inc. also outperformed relative to benchmark, though it lagged behind the Fund's other money managers. Bear Stearns was negatively impacted by selling high yield and emerging market debt early in the year and purchasing relatively safer securities. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes in the Fund's structure or money manager line-up for the fiscal year ending October 31, 2005. Fixed Income III Fund 89 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Bear Stearns Asset Management, Inc. Sector Rotation Delaware Management Company (a series of Delaware Management Business Trust) Sector Rotation Morgan Stanley Investment Management, Inc. Fully Discretionary Pacific Investment Management Company, LLC Fully Discretionary
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Fixed Income III Fund Class I assumes initial investment on November 1, 1995. ** 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. ++++ Fixed Income III Fund Class I performance has been linked with Class E to provide historical perspective. From May 14, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Fixed Income III Fund Class I performance has been linked with Class Y to provide historical perspective. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 90 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for Class E and Class I is from May 1, 2005 to October 31, 2005. Class Y is based on a time period from June 23, 2005 (date of inception), to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,002.10 $ 1,020.42 Expenses Paid During Period* $ 4.79 $ 4.84
* Expenses are equal to the Fund's annualized expense ratio of 0.95% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,004.20 $ 1,021.58 Expenses Paid During Period* $ 3.64 $ 3.67
* Expenses are equal to the Fund's annualized expense ratio of 0.72% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS Y PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value June 23, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 988.50 $ 1,015.77 Expenses Paid During Period* $ 2.30 $ 2.33
* Expenses are equal to the Fund's annualized expense ratio of 0.64% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 132/365 (to reflect the period since inception). Fixed Income III Fund 91 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 87.6% Asset-Backed Securities - 6.7% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 645 645 Aames Mortgage Investment Trust (E) Series 2005-2 Class 1A1 4.118% due 07/25/35 53 53 ABSC NIMs Trust (A) Series 2004-HE1 Class A 7.000% due 01/17/34 8 8 ACE Securities Corp. (E) Series 2004-OP1 Class M2 5.088% due 04/25/34 455 462 Aegis Asset Backed Securities Trust (E) Series 2005-4 Class 1A1 4.148% due 10/25/35 637 637 Alliance Capital Funding LLC (A) Series 1998-1 Class A3 5.840% due 02/15/10 15 15 American Airlines, Inc. 6.817% due 05/23/11 125 112 American Express Credit Account Master Trust (E) Series 2002-1 Class A 4.080% due 09/15/09 500 501 Series 2002-2 Class A 4.080% due 11/16/09 675 676 Series 2002-3 Class A 4.080% due 12/15/09 1,075 1,077 Ameriquest Mortgage Securities, Inc. (E) Series 2002-D Class M1 6.538% due 02/25/33 145 146 Argent Securities, Inc. (E) Series 2004-W3 Class A2 4.258% due 02/25/34 102 102 Asset Backed Funding Certificates (E) Series 2004-OPT Class A2 4.228% due 06/25/25 112 112 Series 2005-WF1 Class A2A 4.118% due 01/25/35 270 270 BA Master Credit Card Trust (E) Series 1999-C Class A 4.220% due 08/15/08 825 826 Barclays Bank PLC 6.278% due 12/15/34 130 124
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Bear Stearns Asset Backed Securities, Inc. (E) Series 2004-BO1 Class 1A1 4.238% due 09/25/34 367 367 Series 2005-HE1 Class A1 4.201% due 11/25/35 650 650 Series 2005-HE8 Class A1 4.158% due 08/25/35 383 383 Burlington Northern and Santa Fe Railway Co. 4.575% due 01/15/21 70 67 Capital Auto Receivables Asset Trust Series 2003-2 Class A3A 1.440% due 02/15/07 66 65 Series 2003-3 Class A3B (E) 4.050% due 01/15/08 350 350 Series 2004-2 Class A2 3.350% due 02/15/08 300 295 Capital One Auto Finance Trust Series 2005-C Class A3 4.610% due 07/15/10 365 364 Carrington Mortgage Loan Trust (E) Series 2005-NC1 Class A1A 4.168% due 01/25/35 236 236 Series 2005-NC3 Class A1A 4.118% due 06/25/35 502 502 Series 2005-NC4 Class A1 4.188% due 09/25/35 595 595 Chancellor/Triton CBO, Ltd. (A) Series 1998-1A Class A1 6.710% due 08/05/10 83 83 Citibank Credit Card Issuance Trust Series 2000-A3 Class A3 6.875% due 11/16/09 200 208 Series 2005-A7 Class A7 4.750% due 10/22/12 375 373 Citifinancial Mortgage Securities, Inc. Series 2003-3 Class AF2 3.082% due 08/25/33 80 79 Series 2003-4 Class AF3 3.221% due 10/25/33 115 114 Countrywide Asset-Backed Certificates Series 2004-10 Class AF2 3.323% due 05/25/22 285 283 Series 2004-13 Class AF2 3.683% due 08/25/24 235 231 Series 2004-1NI Class NOTE (A) 6.000% due 05/25/34 14 14 Series 2004-7 Class AF2 3.324% due 12/25/23 405 404
92 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-9 Class AF2 3.337% due 09/25/23 195 194 Series 2004-BC1 Class M1 (E) 4.538% due 02/25/34 175 175 Series 2004-S1 Class A2 3.872% due 03/25/20 245 241 Series 2005-12 Class 2A2 4.898% due 06/25/32 455 452 Series 2005-7 Class AF2 4.367% due 11/25/35 430 423 Credit-Based Asset Servicing and Securitization (E) Series 2005-CB4 Class AV1 4.138% due 08/25/35 510 510 Series 2005-CB5 Class AV1 4.148% due 08/25/35 613 613 Entergy Gulf States, Inc. (E) 4.270% due 12/01/09 100 98 Equifirst Mortgage Loan Trust (E) Series 2005-1 Class A1 4.098% due 04/25/35 354 354 First Franklin Mortgage Loan Asset Backed Certificates (E) Series 2005-FF7 Class A2 4.138% due 07/25/35 550 550 GE Capital Credit Card Master Note Trust (E) Series 2004-1 Class A (N) 4.020% due 06/15/10 300 300 Series 2004-2 Class A 4.010% due 09/15/10 600 601 GE Dealer Floorplan Master Note Trust (E) Series 2004-1 Class A 4.050% due 07/20/08 350 350 GMAC Mortgage Corp. Loan Trust Series 2004-HE4 Class A1 (E) 4.148% due 03/25/35 400 400 Series 2004-HE5 Class A3 3.970% due 09/25/34 530 521 GSAA Trust (A) Series 2004-4N Class NOTE 6.250% due 05/25/34 48 48 GSAMP Trust (E) Series 2004-NC1 Class A3 4.428% due 03/25/34 315 316 Series 2004-NC2 Class A2A 4.218% due 10/01/34 63 63 Series 2004-SEA Class A2A 4.328% due 03/25/34 314 314 Series 2005-AHL Class A1 4.128% due 04/25/35 229 229 Series 2005-HE4 Class A2A 4.158% due 07/25/45 746 746
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Harley-Davidson Motorcycle Trust Series 2004-2 Class A1 2.180% due 01/15/09 206 204 Home Equity Asset Trust (E) Series 2004-3 Class M3 5.488% due 08/25/34 340 345 Honda Auto Receivables Owner Trust Series 2004-2 Class A2 2.520% due 02/15/07 166 166 Lehman XS Trust (E) Series 2005-1 Class 2A2 4.660% due 05/25/08 412 417 Long Beach Mortgage Loan Trust (E) Series 2003-2 Class M2 5.938% due 06/25/33 485 491 Series 2005-1 Class 2A1 4.178% due 02/25/35 247 247 Series 2005-2 Class 2A1 4.118% due 04/25/35 329 329 Mastr Asset Backed Securities Trust (E) Series 2005-OPT Class A3 4.128% due 03/25/35 267 267 MBNA Credit Card Master Note Trust Series 2002-A10 Class A10 (E) 4.110% due 02/16/10 550 551 Series 2005-A3 Class A3 4.100% due 10/15/12 220 213 MBNA Master Credit Card Trust USA Series 2000-E Class A 7.800% due 10/15/12 705 790 Merrill Lynch Mortgage Investors, Inc. (E) Series 2004-HE2 Class A2A 4.238% due 08/25/35 80 80 Series 2004-WMC Class A2B1 4.218% due 07/25/35 23 23 Series 2005-SL1 Class A 4.238% due 06/25/35 336 336 Series 2005-WMC Class A2A 4.138% due 09/25/35 141 141 Mid-State Trust Series 2003-11 Class A1 4.864% due 07/15/38 62 58 Series 2004-1 Class A 6.005% due 08/15/37 64 66
Fixed Income III Fund 93 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- New Century Home Equity Loan Trust (E) Series 2004-4 Class A3 4.178% due 02/25/35 169 169 Series 2004-A Class AII1 4.218% due 08/25/34 50 50 Novastar Home Equity Loan (E) Series 2004-4 Class A2B 4.378% due 03/25/35 320 321 Series 2005-1 Class A2A 4.158% due 06/25/35 815 815 Option One Mortgage Loan Trust (E) Series 2003-2 Class M2 5.738% due 04/25/33 400 405 Series 2003-3 Class M3 6.038% due 06/25/33 240 243 Series 2003-4 Class M2 5.688% due 07/25/33 215 218 Series 2005-4 Class A3 4.140% due 11/25/35 510 510 Ownit Mortgage Loan Asset Backed Certificates (E) Series 2005-2 Class A2A 4.148% due 03/25/36 287 287 Park Place Securities, Inc. (E) Series 2005-WHQ Class A2A 4.118% due 06/25/35 422 422 Popular ABS Mortgage Pass-Through Trust Series 2005-1 Class AF2 3.914% due 05/25/35 145 143 Power Contract Financing LLC (A) 6.256% due 02/01/10 165 168 Premium Asset Trust (A) 4.169% due 02/02/07 245 245 Renaissance Home Equity Loan Trust Series 2004-4 Class AF2 3.856% due 02/25/35 260 256 Series 2005-2 Class AF2 4.361% due 08/25/35 315 311 Residential Asset Mortgage Products, Inc. Series 2004-RS1 Class AI2 3.620% due 07/25/26 210 208 Series 2004-RS1 Class AII2 (E) 4.268% due 12/25/34 280 280 Series 2004-RS8 Class AI2 3.810% due 01/25/26 245 244 Series 2004-RS8 Class AII1 (E) 4.178% due 05/25/26 270 270 Series 2004-RZ2 Class AI3 4.300% due 01/25/31 155 153 Series 2005-RS1 Class AII1 (E) 4.148% due 01/25/35 227 227
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Residential Asset Securities Corp. Series 2001-KS3 Class AII (E) 4.268% due 09/25/31 137 137 Series 2003-KS1 Class M2 (E) 5.788% due 01/25/33 330 332 Series 2004-KS8 Class AI2 3.340% due 10/25/24 600 593 Series 2004-KS9 Class AI1 (E) 4.208% due 07/25/21 50 50 Saxon Asset Securities Trust (E) Series 2005-1 Class A2A 4.148% due 05/25/35 155 156 Series 2005-1 Class A2B 4.258% due 05/25/35 280 280 Series 2005-2 Class A2A 4.128% due 09/25/35 522 522 Sears Credit Account Master Trust (E) Series 2002-5 Class A 4.350% due 11/17/09 1,100 1,100 Sharps SP I, LLC 6.850% due 03/01/23 27 27 7.000% due 01/25/34 48 48 Sharps SP I LLC Net Interest Margin Trust (A) Series 2004-HE1 Class N 6.900% due 11/25/33 6 6 SLM Student Loan Trust (E) Series 2004-1 Class A1 4.240% due 01/26/15 91 92 Series 2004-6 Class A2 4.240% due 01/25/13 85 85 Series 2004-9 Class A2 4.220% due 10/25/12 361 361 Small Business Administration Series 2000-P10 Class 1 7.449% due 08/01/10 123 132 Small Business Administration Participation Certificates 7.500% due 04/01/17 2,006 2,115 Specialty Underwriting & Residential Finance (E) Series 2005-BC2 Class A2A 4.138% due 12/25/35 286 286 Structured Asset Investment Loan Trust (E) Series 2003-BC1 Class 3A 4.378% due 11/25/33 282 283
94 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-BC8 Class M3 6.138% due 08/25/33 375 381 Series 2005-2 Class A2 4.158% due 03/25/35 227 227 Series 2005-5 Class A6 4.128% due 06/25/35 373 373 Structured Asset Securities Corp. Series 2001-SB1 Class A2 3.375% due 08/25/31 195 178 Series 2004-19X Class A2 4.370% due 10/25/34 600 595 Series 2005-GEL Class A (E) 4.388% due 12/25/34 676 676 Series 2005-WMC Class A1 (E) 4.118% due 01/25/35 356 356 Tenaska Alabama II Partners, LP (A) 6.125% due 03/30/23 155 156 Terwin Mortgage Trust (E) Series 2004-22S Class A 4.428% due 11/25/35 232 233 Series 2005-8HE Class A1 (A) 4.158% due 07/25/35 464 464 TXU Electric Delivery Transition Bond Co. Series 2004-1 Class A2 4.810% due 11/17/14 100 99 United Airlines, Inc. (o) 7.730% due 07/01/10 170 164 USAA Auto Owner Trust Series 2004-2 Class A2 2.410% due 02/15/07 41 41 Wachovia Auto Owner Trust Series 2004-B Class A2 2.400% due 05/21/07 120 120 Wells Fargo Home Equity Trust (E) Series 2004-2 Class A31 4.198% due 06/25/19 1 1 World Financial Properties (A) 6.910% due 09/01/13 167 176 6.950% due 09/01/13 199 209 World Omni Auto Receivables Trust Series 2004-A Class A2 2.580% due 07/12/07 107 106 ------------ 40,756 ------------ Corporate Bonds and Notes - 12.9% Abitibi-Consolidated Finance, LP 7.875% due 08/01/09 290 278 AIG SunAmerica Global Financing VI (A) 6.300% due 05/10/11 375 397 Albertson's, Inc. 8.000% due 05/01/31 315 288
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Amerada Hess Corp. 6.650% due 08/15/11 155 165 7.300% due 08/15/31 170 192 American Electric Power Co., Inc. Series C 5.375% due 03/15/10 40 40 American General Finance Corp. Series MTNG (E) 4.000% due 03/23/07 100 100 Series MTNH 4.625% due 09/01/10 20 19 Series MTNI 4.625% due 05/15/09 70 69 American International Group, Inc. (A) 4.700% due 10/01/10 (N) 400 393 5.050% due 10/01/15 400 391 American RE Corp. Series B 7.450% due 12/15/26 365 398 AmerisourceBergen Corp. (A) 5.625% due 09/15/12 415 399 Arizona Public Service Co. 6.750% due 11/15/06 60 61 5.800% due 06/30/14 120 123 5.500% due 09/01/35 195 180 AT&T Corp. 9.050% due 11/15/11 28 31 9.750% due 11/15/31 175 213 Atmos Energy Corp. (E) 4.525% due 10/15/07 190 190 Autonation, Inc. 9.000% due 08/01/08 90 97 Avista Capital Trust III 6.500% due 04/01/34 350 351 Avista Corp. 9.750% due 06/01/08 220 241 Axa Financial, Inc. 6.500% due 04/01/08 70 73 BAE Systems Holdings, Inc. (A) 6.400% due 12/15/11 920 968 Bank of America Corp. 7.800% due 02/15/10 65 72 4.250% due 10/01/10 45 43 BellSouth Corp. 4.200% due 09/15/09 230 223 6.550% due 06/15/34 (N) 40 41 6.000% due 11/15/34 (N) 40 38
Fixed Income III Fund 95 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Boeing Capital Corp. (N) 6.100% due 03/01/11 100 105 Bowater, Inc. 9.000% due 08/01/09 195 198 Burlington Northern Santa Fe Corp. 6.875% due 12/01/27 60 68 Campbell Soup Co. (N) 5.875% due 10/01/08 115 118 Carolina Power & Light Co. 6.500% due 07/15/12 45 48 Caterpillar Financial Services Corp. Series MTNF 3.890% due 08/20/07 (E) 155 155 3.625% due 11/15/07 60 59 CC Funding Trust I 6.900% due 02/16/07 130 133 CenterPoint Energy Houston Electric LLC Series J2 5.700% due 03/15/13 135 138 CenterPoint Energy Resources Corp. Series B 7.875% due 04/01/13 460 519 Centex Corp. (E) 3.950% due 08/01/07 215 215 Cincinnati Gas & Electric 5.700% due 09/15/12 65 66 Cingular Wireless Services, Inc. 8.750% due 03/01/31 90 117 CIT Group, Inc. 5.750% due 09/25/07 90 91 3.650% due 11/23/07 90 88 6.875% due 11/01/09 55 59 Citicorp Series MTNF 6.375% due 11/15/08 205 214 Citigroup Global Markets Holdings, Inc. (E) Series MTNM 3.816% due 03/07/08 700 700 Citigroup, Inc. 3.500% due 02/01/08 830 807 4.625% due 08/03/10 300 295 6.000% due 02/21/12 40 42 5.625% due 08/27/12 135 139 4.700% due 05/29/15 345 331 5.875% due 02/22/33 520 518 Citizens Communications Co. 9.250% due 05/15/11 210 227 Clear Channel Communications, Inc. (N) 5.750% due 01/15/13 90 87
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Clorox Co. 3.982% due 12/14/07 (E) 190 190 4.200% due 01/15/10 155 151 5.000% due 01/15/15 115 113 Columbus Southern Power Co. Series A 5.500% due 03/01/13 80 81 Comcast Cable Communications 8.375% due 05/01/07 (N) 320 336 6.750% due 01/30/11 365 386 Consolidated Natural Gas Co. 5.000% due 12/01/14 120 116 Series C 6.250% due 11/01/11 80 84 Consumers Energy Co. Series F 4.000% due 05/15/10 50 47 Series H 4.800% due 02/17/09 115 114 Continental Airlines, Inc. Series 01-1 6.503% due 06/15/11 175 167 Corrections Corp. of America 7.500% due 05/01/11 80 83 Countrywide Home Loans, Inc. 3.250% due 05/21/08 210 201 Series MTNK 5.500% due 02/01/07 70 70 COX Communications, Inc. 4.625% due 01/15/10 285 275 Credit Suisse First Boston USA, Inc. 4.625% due 01/15/08 100 100 6.500% due 01/15/12 70 75 5.500% due 08/15/13 55 56 CSC Holdings, Inc. 10.500% due 05/15/16 115 123 Series B 8.125% due 07/15/09 85 87 DaimlerChrysler NA Holding Corp. 8.500% due 01/18/31 (N) 100 117 Series MTND (E) 4.132% due 11/17/06 900 901 Series MTNE (E) 4.780% due 10/31/08 285 285 Darden Restaurants, Inc. 6.000% due 08/15/35 60 55
96 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Detroit Edison Co. 6.125% due 10/01/10 15 16 6.350% due 10/15/32 130 136 Developers Diversified Realty Corp. 4.625% due 08/01/10 255 246 5.375% due 10/15/12 110 108 Devon Financing Corp. ULC 6.875% due 09/30/11 130 141 Dominion Resources, Inc. Series A 7.195% due 09/15/14 240 265 Series B 4.300% due 09/28/07 (E) 285 285 6.250% due 06/30/12 60 63 DPL, Inc. 6.875% due 09/01/11 216 229 DR Horton, Inc. 5.625% due 01/15/16 290 270 Dresdner Funding Trust I (A) 8.151% due 06/30/31 380 451 Duke Energy Field Services LLC 5.750% due 11/15/06 40 40 6.875% due 02/01/11 20 21 E*Trade Financial Corp. 8.000% due 06/15/11 115 117 8.000% due 06/15/11 (A) 325 330 Echostar DBS Corp. 6.375% due 10/01/11 195 190 6.625% due 10/01/14 35 34 El Paso Corp. 7.875% due 06/15/12 (N) 300 306 8.050% due 10/15/30 500 505 El Paso Natural Gas Co. Series A 7.625% due 08/01/10 65 68 Eli Lilly & Co. 6.770% due 01/01/36 370 435 Entergy Gulf States, Inc. 3.600% due 06/01/08 40 38 Enterprise Products Operating, LP 4.000% due 10/15/07 255 249 4.625% due 10/15/09 250 242 EOP Operating, LP 4.750% due 03/15/14 20 19 7.500% due 04/19/29 95 107 Erac USA Finance Co. (A) 7.350% due 06/15/08 270 284 Exelon Corp. 6.750% due 05/01/11 70 74 Farmers Exchange Capital (A) 7.050% due 07/15/28 770 778 Farmers Insurance Exchange (A) 6.000% due 08/01/14 225 224 8.625% due 05/01/24 310 366
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- FedEx Corp. 2.650% due 04/01/07 70 68 7.600% due 07/01/97 90 105 Financing Corp. Principal Only STRIP Series 10P Zero coupon due 11/30/17 840 459 Series 15P Zero coupon due 03/07/19 90 46 Series 2P Zero coupon due 11/30/17 340 186 FirstEnergy Corp. Series B 6.450% due 11/15/11 775 815 Series C 7.375% due 11/15/31 140 159 Ford Motor Co. 7.450% due 07/16/31 (N) 1,080 794 7.700% due 05/15/97 330 222 Ford Motor Credit Co. 4.740% due 11/16/06 (E) 400 395 4.870% due 03/21/07 (E) 900 876 6.625% due 06/16/08 250 240 5.625% due 10/01/08 (N) 145 135 5.700% due 01/15/10 (N) 170 153 7.875% due 06/15/10 210 202 7.375% due 02/01/11 400 376 7.000% due 10/01/13 (N) 170 156 FPL Group Capital, Inc. 4.086% due 02/16/07 160 159 General Electric Capital Corp. 4.125% due 470 463 4.875% due 10/21/10 1,235 1,227 Series MTNA 4.250% due 12/01/10 55 53 5.875% due 02/15/12 30 31 4.750% due 09/15/14 (N) 45 44 6.750% due 03/15/32 150 172 General Motors Acceptance Corp. 5.050% due 01/16/07 (E) 200 197 5.100% due 07/16/07 (E) 250 244 6.875% due 09/15/11 140 136 6.750% due 12/01/14 (N) 435 416 8.000% due 11/01/31 (N) 425 439 General Motors Corp. (N) 8.375% due 07/15/33 705 523 Georgia-Pacific Corp. 8.875% due 05/15/31 325 370
Fixed Income III Fund 97 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Glencore Funding LLC (A) 6.000% due 04/15/14 460 424 Glencore Nickel Ltd. (O) 9.000% due 12/01/14 235 -- Golden West Financial Corp. 4.125% due 08/15/07 160 158 Goldman Sachs Group, Inc. 6.875% due 01/15/11 580 623 5.250% due 10/15/13 185 183 6.345% due 02/15/34 365 366 Halliburton Co. 5.500% due 10/15/10 115 117 Hartford Financial Services Group, Inc. 7.900% due 06/15/10 35 39 HCA, Inc. 5.500% due 12/01/09 310 302 7.875% due 02/01/11 40 42 6.950% due 05/01/12 30 31 7.500% due 12/15/23 200 196 Health Net, Inc. 9.875% due 04/15/11 210 244 Hertz Corp. 7.400% due 03/01/11 40 40 7.625% due 06/01/12 125 125 Historic TW, Inc. 8.180% due 08/15/07 495 521 9.125% due 01/15/13 460 549 8.050% due 01/15/16 580 668 HJ Heinz Finance Co. 6.000% due 03/15/12 50 52 6.750% due 03/15/32 (N) 105 116 Household Finance Corp. 5.875% due 02/01/09 260 266 4.750% due 05/15/09 610 603 4.125% due 11/16/09 105 101 8.000% due 07/15/10 45 50 6.375% due 11/27/12 335 354 HSBC Finance Corp. (E) 4.000% due 09/15/08 200 200 Hyatt Equities LLC (A) 6.875% due 06/15/07 140 142 ICI Wilmington, Inc. 4.375% due 12/01/08 65 64 IKON Office Solutions, Inc. (A) 7.750% due 09/15/15 120 114 International Lease Finance Corp. (N) 6.375% due 03/15/09 155 161 International Paper Co. 5.500% due 01/15/14 280 271 Interpublic Group of Cos., Inc. 5.400% due 11/15/09 100 93 ITT Industries, Inc. 7.400% due 11/15/25 135 158
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- JC Penney Co., Inc. 7.375% due 08/15/08 145 152 7.400% due 04/01/37 125 132 John Hancock Global Funding II (A) 7.900% due 07/02/10 200 225 Jones Apparel Group, Inc. 4.250% due 11/15/09 145 136 JP Morgan & Co., Inc. Series MTNA 6.000% due 01/15/09 165 170 JPMorgan Chase & Co. 5.350% due 03/01/07 75 76 7.000% due 11/15/09 10 11 6.750% due 02/01/11 90 96 6.625% due 03/15/12 35 37 5.150% due 10/01/15 250 244 Kellogg Co. Series B 6.600% due 04/01/11 825 884 Knight Ridder, Inc. 5.750% due 09/01/17 180 172 Kraft Foods, Inc. 5.250% due 06/01/07 75 75 4.125% due 11/12/09 710 686 5.625% due 11/01/11 970 991 6.500% due 11/01/31 (N) 55 59 Kroger Co. (The) 7.250% due 06/01/09 175 185 8.000% due 09/15/29 75 83 Lear Corp. Series B 8.110% due 05/15/09 95 89 Lehman Brothers Holdings, Inc. 6.625% due 01/18/12 375 403 Levi Strauss & Co. 12.250% due 12/15/12 170 187 Liberty Media Corp. (N) 5.700% due 05/15/13 325 293 Limited Brands 6.950% due 03/01/33 105 99 Lockheed Martin Corp. 8.500% due 12/01/29 35 47 Lodgenet Entertainment Corp. 9.500% due 06/15/13 190 206 Lubrizol Corp. 4.625% due 10/01/09 190 185
98 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- M&I Marshall & Ilsley Bank Series BKNT 3.800% due 02/08/08 245 240 Manufacturers & Traders Trust Co. 8.000% due 10/01/10 115 130 Marsh & McLennan Cos., Inc. 5.375% due 03/15/07 375 376 4.270% due 07/13/07 (E) 220 219 5.150% due 09/15/10 260 256 5.375% due 07/15/14 (N) 180 172 5.750% due 09/15/15 135 131 5.875% due 08/01/33 (N) 115 103 May Department Stores Co. (The) 4.800% due 07/15/09 60 59 5.750% due 07/15/14 (N) 170 170 MBNA America Bank NA 7.125% due 11/15/12 30 33 MBNA Corp. 4.163% due 05/05/08 (E) 190 192 6.125% due 03/01/13 130 137 MCI, Inc. 6.908% due 05/01/07 465 470 7.688% due 05/01/09 155 161 Medco Health Solutions, Inc. 7.250% due 08/15/13 430 466 Metlife, Inc. 5.000% due 06/15/15 165 160 5.700% due 06/15/35 40 39 MGM Mirage 9.750% due 06/01/07 265 278 Midamerican Funding LLC 6.750% due 03/01/11 210 224 Miller Brewing Co. (A) 4.250% due 08/15/08 145 142 5.500% due 08/15/13 230 232 Mohawk Industries, Inc. Series D 7.200% due 04/15/12 75 82 Monumental Global Funding, Ltd. (A) 4.625% due 03/15/10 135 134 Morgan Stanley 5.050% due 01/21/11 150 149 6.750% due 04/15/11 360 386 4.750% due 04/01/14 280 264 5.375% due 10/15/15 310 306 Motorola, Inc. 4.608% due 11/16/07 455 453 Natexis Ambs Co. LLC (f)(A) 8.440% due 12/29/49 185 200 National Rural Utilities Cooperative Finance Corp. 5.750% due 08/28/09 85 87 Nationwide Financial Services 6.250% due 11/15/11 265 280
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Nationwide Mutual Insurance Co. (A) 7.875% due 04/01/33 290 344 Neiman-Marcus Group, Inc. (N)(A) 10.375% due 10/15/15 225 217 News America Holdings 9.250% due 02/01/13 25 30 7.750% due 12/01/45 110 124 7.900% due 12/01/95 120 135 8.250% due 10/17/96 45 53 News America, Inc. 7.125% due 04/08/28 30 32 Nextel Communications, Inc. Series E 6.875% due 10/31/13 310 324 Nisource Finance Corp. 4.393% due 11/23/09 (E) 120 120 7.875% due 11/15/10 225 250 Norfolk Southern Corp. 7.350% due 05/15/07 100 104 7.050% due 05/01/37 115 134 7.900% due 05/15/97 285 353 North Front Pass-Through Trust (A) 5.810% due 12/15/24 500 495 Northrop Grumman Corp. 4.079% due 11/16/06 50 50 Occidental Petroleum Corp. 9.250% due 08/01/19 135 181 Ohio Power Co. (N) Series F 5.500% due 02/15/13 25 25 Pacific Gas & Electric Co. 3.600% due 03/01/09 165 158 4.200% due 03/01/11 205 195 6.050% due 03/01/34 185 186 Panhandle Eastern Pipe Line Series B 2.750% due 03/15/07 45 44 Pemex Project Funding Master Trust 8.000% due 11/15/11 20 22 7.375% due 12/15/14 200 219 8.625% due 02/01/22 285 341 6.625% due 06/15/35 (A) 70 67 Pepco Holdings, Inc. 5.500% due 08/15/07 305 307
Fixed Income III Fund 99 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Platinum Underwriters Finance, Inc. Series B 7.500% due 06/01/17 145 145 Popular North America Capital Trust I 6.564% due 09/15/34 290 290 Progress Energy, Inc. 7.100% due 03/01/11 195 209 7.000% due 10/30/31 210 223 PSEG Energy Holdings LLC 7.750% due 04/16/07 510 518 8.625% due 02/15/08 105 109 Quest Diagnostics, Inc. (A) 5.125% due 11/01/10 125 125 Qwest Capital Funding, Inc. 7.000% due 08/03/09 (N) 25 24 6.500% due 11/15/18 25 21 Qwest Corp. 7.875% due 09/01/11 320 335 7.625% due 06/15/15 (p) 300 307 Qwest Services Corp. 13.500% due 12/15/10 275 314 Rabobank Capital Funding II (f)(A) 5.260% due 12/31/49 260 257 Raytheon Co. 8.300% due 03/01/10 50 56 RBS Capital Trust I (f) 5.512% due 09/29/49 505 496 Reckson Operating Partnership, LP 5.150% due 01/15/11 95 93 Residential Capital Corp. 6.375% due 06/30/10 (A) 370 376 6.875% due 06/30/15 390 411 Safeway, Inc. 5.800% due 08/15/12 (N) 70 70 7.250% due 02/01/31 70 72 SBC Communications, Inc. 4.125% due 09/15/09 195 188 5.100% due 09/15/14 225 217 6.450% due 06/15/34 5 5 6.150% due 09/15/34 (N) 375 366 SCANA Corp. (E) 4.020% due 03/01/08 325 325 Sealed Air Corp. (A) 5.625% due 07/15/13 195 190 Sempra Energy 4.621% due 05/17/07 450 448 4.290% due 05/21/08 (E) 260 261 SESI LLC 8.875% due 05/15/11 115 120 SLM Corp. 4.000% due 01/15/10 175 169
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Smurfit-Stone Container Enterprises, Inc. 9.250% due 02/01/08 95 97 9.750% due 02/01/11 395 395 Solar Capital Corp. (A) 9.125% due 08/15/13 215 218 Southern California Edison Co. 3.925% due 12/13/07 (E) 295 295 7.625% due 01/15/10 80 87 6.000% due 01/15/34 170 175 Southern Peru Copper Corp. (A) 7.500% due 07/27/35 445 426 Sprint Capital Corp. 6.375% due 05/01/09 75 78 8.375% due 03/15/12 535 617 6.875% due 11/15/28 285 304 8.750% due 03/15/32 535 692 St. Paul Travelers Cos., Inc. (The) 5.010% due 08/16/07 445 444 Starwood Hotels & Resorts Worldwide, Inc. 7.375% due 05/01/07 20 20 TCI Communications, Inc. 7.875% due 02/15/26 80 91 TECO Energy, Inc. (N) 7.200% due 05/01/11 160 167 Tele-Communications-TCI Group 9.800% due 02/01/12 300 363 7.875% due 08/01/13 680 766 Temple-Inland, Inc. 5.003% due 05/17/07 240 239 Tenaska Alabama Partners, LP (A) 7.000% due 06/30/21 105 106 Tenet Healthcare Corp. 7.375% due 02/01/13 50 44 Tesoro Corp. 8.000% due 04/15/08 220 229 Texas Eastern Transmission, LP 7.000% due 07/15/32 45 51 Texas Genco LLC (A) 6.875% due 12/15/14 410 439 Time Warner Entertainment Co., LP Series * 8.375% due 03/15/23 135 159 Time Warner Telecom LLC (N) 9.750% due 07/15/08 200 203 Time Warner, Inc. 6.750% due 04/15/11 440 465 Travelers Property Casualty Corp. 5.000% due 03/15/13 110 106
100 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Trimas Corp. 9.875% due 06/15/12 125 101 Twin Reefs Pass-Through Trust (E)(f)(A) 4.935% due 12/10/49 300 299 TXU Corp. Series O 4.800% due 11/15/09 250 237 Series P 5.550% due 11/15/14 570 524 TXU Energy Co. LLC 7.000% due 03/15/13 135 141 Tyson Foods, Inc. 8.250% due 10/01/11 90 101 Union Pacific Corp. 5.750% due 10/15/07 45 46 6.625% due 02/01/08 90 93 6.650% due 01/15/11 45 48 6.125% due 01/15/12 195 204 Series MTNE 6.790% due 11/09/07 35 36 Union Planters Corp. 7.750% due 03/01/11 125 140 Valero Logistics Operations, LP 6.050% due 03/15/13 350 360 Verizon 6.500% due 09/15/11 40 41 Verizon Global Funding Corp. 7.250% due 12/01/10 1,380 1,497 4.900% due 09/15/15 (N) 45 43 5.850% due 09/15/35 375 351 Visteon Corp. 8.250% due 08/01/10 (N) 560 517 7.000% due 03/10/14 205 174 Washington Mutual, Inc. 8.250% due 04/01/10 180 201 WellPoint, Inc. 3.750% due 12/14/07 240 234 4.250% due 12/15/09 170 165 Wells Fargo & Co. 4.625% due 08/09/10 450 444 4.950% due 10/16/13 155 153 Williams Gas Pipelines (A) 7.375% due 11/15/06 200 205 Willis Group NA 5.125% due 07/15/10 185 183 5.625% due 07/15/15 230 226 Wisconsin Electric Power 3.500% due 12/01/07 65 63 Wyeth 5.500% due 03/15/13 100 101 5.500% due 02/01/14 15 15 Xlliac Global Funding (A) 4.800% due 08/10/10 240 236
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Yum! Brands, Inc. 8.875% due 04/15/11 205 239 Zurich Capital Trust I (A) 8.376% due 06/01/37 370 400 ------------ 78,693 ------------ International Debt - 5.4% Abbey National PLC (N)(f) (Step Up, 7.570%, 06/15/08) 6.700% due 06/29/49 275 285 Abitibi-Consolidated, Inc. 6.950% due 12/15/06 138 140 8.550% due 08/01/10 (N) 90 88 8.850% due 08/01/30 290 242 Amvescap PLC 4.500% due 12/15/09 395 385 Arlington Street CDO, Ltd. (A) Series 2000-1A Class A2 7.660% due 06/10/12 886 904 AXA SA 8.600% due 12/15/30 85 111 Banco Santander Chile (E)(A) 4.148% due 12/09/09 195 194 Batterson Park CBO I, Ltd. Series 1998-1A Class A4 6.130% due 01/02/11 14 14 Biovail Corp. 7.875% due 04/01/10 165 170 BNP Paribas (f)(p) 5.186% due 06/29/49 600 577 Bowater Canada Finance 7.950% due 11/15/11 245 234 Brascan Corp. 7.125% due 06/15/12 130 143 Brazilian Government International Bond 5.250% due 04/15/09 (E) 576 570 9.760% due 06/29/09 (E) 100 117 9.250% due 10/22/10 90 99 11.000% due 01/11/12 (N) 300 357 7.875% due 03/07/15 1,400 1,422 8.000% due 01/15/18 1,000 1,033 8.875% due 04/15/24 595 616 British Telecommunications PLC 8.375% due 12/15/10 185 211 8.875% due 12/15/30 200 261
Fixed Income III Fund 101 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Canadian Oil Sands, Ltd. (A) 4.800% due 08/10/09 140 138 Catalyst Paper Corp. Series D 8.625% due 06/15/11 215 207 Chile Government International Bond 5.500% due 01/15/13 1,500 1,536 China Development Bank 5.000% due 10/15/15 100 97 Conoco Funding Co. 6.350% due 10/15/11 780 834 Corp Nacional del Cobre de Chile (A) 5.625% due 09/21/35 230 219 Deutsche Telekom International Finance BV (E) 8.500% due 06/15/10 55 61 8.750% due 06/15/30 260 322 Donohue Forest Products 7.625% due 05/15/07 200 205 El Salvador Government International Bond 7.650% due 06/15/35 250 248 EnCana Corp. 6.500% due 08/15/34 60 66 Export-Import Bank of China (N)(p) 4.875% due 07/21/15 455 434 Export-Import Bank of Korea 4.250% due 11/27/07 80 79 4.125% due 02/10/09 (A) 160 155 FBG Finance, Ltd. (A) 5.125% due 06/15/15 155 150 France Telecom SA 7.750% due 03/01/11 220 245 8.500% due 03/01/31 150 196 Hanarotelecom, Inc. (A) 7.000% due 02/01/12 400 389 HBOS PLC (f)(p) 5.920% due 09/29/49 400 394 Intelsat, Ltd. (N) 6.500% due 11/01/13 325 239 Ispat Inland ULC 9.750% due 04/01/14 614 694 Juniper CBO, Ltd. (A) Series 1999-1A Class A1 6.830% due 04/15/11 142 144 Korea Development Bank (N) 4.250% due 11/13/07 45 44 Korea Electric Power Corp. (A) 5.125% due 04/23/34 85 83 LG Electronics, Inc. (A) 5.000% due 06/17/10 90 88 Mantis Reef, Ltd. (A) 4.692% due 11/14/08 200 196
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mexico Government International Bond 8.375% due 01/14/11 100 114 6.375% due 01/16/13 100 105 8.125% due 12/30/19 200 239 8.000% due 09/24/22 300 357 8.300% due 08/15/31 310 380 Mizuho Financial Group Cayman, Ltd. (A) 5.790% due 04/15/14 430 441 NAK Naftogaz Ukrainy 8.125% due 09/30/09 500 521 Nationwide Building Society (A) 4.250% due 02/01/10 210 204 Nexen, Inc. 5.875% due 03/10/35 145 138 Nippon Life Insurance (A) 4.875% due 08/09/10 295 289 Oil Insurance, Ltd. (A) 5.150% due 08/15/33 520 513 Peru Government International Bond 9.125% due 02/21/12 100 116 Petroleum Export, Ltd. (p) 5.265% due 06/15/11 100 99 Petroleum Geo-Services ASA 8.000% due 11/05/06 69 69 Platinum Underwriters Holdings, Ltd. (A) 6.371% due 11/16/07 135 136 Province of Quebec (N) 5.000% due 07/17/09 25 25 Province of Quebec Canada 6.125% due 01/22/11 1,035 1,094 Ras Laffan Liquefied Natural Gas Co., Ltd. (A) 8.294% due 03/15/14 85 98 Ras Laffan Liquefied Natural Gas Co., Ltd. II (A) 5.298% due 09/30/20 370 362 Ras Laffan LNG III (p) 5.838% due 09/30/27 410 401 Resona Bank, Ltd. (f)(p) 5.850% due 09/29/49 830 801 Resona Preferred Global Securities Cayman, Ltd. (E)(f)(A) 7.191% due 12/29/49 385 392 Royal Bank of Scotland Group PLC (f) Series 1 9.118% due 03/31/49 600 690
102 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Russia Government International Bond 5.000% due 03/31/30 (A) 650 721 5.000% due 03/31/30 900 1,000 Salomon Brothers AG for OAO Siberian Oil Co. Series REGS 10.750% due 01/15/09 585 657 Salomon Brothers AG for Tyumen Oil Co. Series REGS 11.000% due 11/06/07 330 360 Santander Financial Issuances 6.375% due 02/15/11 180 191 Santander US Debt SA Universal (E)(A) 3.930% due 09/21/07 900 900 Sanwa Finance Aruba AEC 8.350% due 07/15/09 170 188 Sappi Papier Holding AG (A) 6.750% due 06/15/12 65 64 Secunda International, Ltd. (E) 12.150% due 09/01/12 220 229 Shaw Communications, Inc. 8.250% due 04/11/10 210 226 South Street CBO, Ltd. Series 1999-1A Class A1 7.160% due 07/01/11 143 145 SovRisc (A) 4.625% due 10/31/08 280 279 Stora Enso OYJ 7.375% due 05/15/11 105 113 Systems 2001 AT LLC (A) 7.156% due 12/15/11 169 177 6.664% due 09/15/13 128 135 Telecom Italia Capital SA 4.000% due 01/15/10 1,915 1,820 5.250% due 10/01/15 180 173 Telefonos de Mexico SA de CV 4.500% due 11/19/08 395 386 TELUS Corp. 8.000% due 06/01/11 785 883 Tengizchevroil Finance Co. (A) 6.124% due 11/15/14 250 251 UFJ Finance Aruba AEC 6.750% due 07/15/13 120 130 Venezuela Government International Bond (N) 9.375% due 01/13/34 255 297 WPP Finance UK Corp. 5.875% due 06/15/14 115 117 ------------ 32,662 ------------ Mortgage-Backed Securities - 40.2%
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- American Home Mortgage Investment Trust Series 2004-1 Class 1A (E) 4.388% due 04/25/44 498 498 Series 2004-4 Class 4A (E) 4.390% due 02/25/45 411 403 Banc of America Commercial Mortgage, Inc. 4.877% due 11/10/42 495 490 Series 2004-3 Class A3 4.875% due 06/10/39 675 669 Series 2004-4 Class A3 4.128% due 07/10/42 455 441 Series 2004-5 Class A3 4.561% due 11/10/41 185 179 Series 2005-5 Class A4 5.115% due 10/10/45 510 502 Banc of America Funding Corp. Series 2004-3 Class 2A2 5.000% due 09/25/19 234 232 Series 2005-D Class A1 (E) 4.117% due 05/25/35 373 367 Series 2005-F Class 1A2 (E) 4.350% due 09/20/35 296 296 Banc of America Mortgage Securities Series 2005-9 Class 2A1 4.750% due 10/25/20 451 440 Series 2005-E Class 2A1 (E) 4.990% due 06/25/35 283 280 Series 2005-F Class 2A3 (E) 4.736% due 07/25/35 446 440 Series 2005-I Class 2A1 (E) 4.894% due 10/25/35 627 620 Bank of America Alternative Loan Trust 6.000% due 12/25/34 173 175 Series 2003-10 Class 2A1 6.000% due 12/25/33 244 245 Series 2003-10 Class 2A2 (E) 4.488% due 12/25/33 565 567 Series 2004-10 Class 1CB1 6.000% due 11/25/34 152 154 Series 2004-2 Class 1A1 6.000% due 03/25/34 140 140 Series 2005-3 Class 2A1 5.500% due 04/25/20 235 235
Fixed Income III Fund 103 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-5 Class 2CB1 6.000% due 06/25/35 328 330 Series 2005-6 Class 7A1 5.500% due 07/25/20 259 260 Series 2005-9 Class 5A1 5.500% due 10/25/20 432 431 Bank of America Mortgage Securities Series 2003-D Class 1A2 (E) 3.428% due 05/25/33 8 8 Series 2003-I Class 2A4 (E) 3.828% due 10/25/33 265 263 Series 2004-1 Class 5A1 6.500% due 09/25/33 27 27 Series 2004-A Class 1A1 (E) 3.477% due 02/25/34 89 89 Series 2004-E Class 1A1 (E) 3.523% due 06/25/34 215 212 Series 2005-A Class 2A1 (E) 4.470% due 02/25/35 158 155 Series 2005-B Class 2A1 (E) 4.402% due 03/25/35 316 310 Bear Stearns Adjustable Rate Mortgage Trust (E) Series 2005-10 Class A1 4.750% due 10/25/35 2,125 2,119 Series 2005-7 Class 1A2 4.750% due 08/25/35 166 162 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 700 703 Bear Stearns Commercial Mortgage Securities Series 2004-ESA Class E (A) 5.064% due 05/14/16 265 265 Series 2005-T20 Class A4A 5.303% due 10/12/42 240 238 Citigroup Commercial Mortgage Trust (E)(A) Series 2004-FL1 Class A1 4.100% due 07/15/18 153 154 Citigroup/Deutsche Bank Commercial Mortgage Trust Series 2005-CD1 Class A4 5.225% due 09/15/20 550 551 Series 2005-CD1 Class AJ 5.225% due 09/15/20 130 129 Commercial Mortgage Pass Through Certificates (A) Series 2001-J1A Class A2 6.457% due 02/14/34 229 240 Countrywide Alternative Loan Trust Series 2004-28C Class 6A1 6.000% due 01/25/35 321 324
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-J7 Class 1A2 4.673% due 08/25/34 230 229 Series 2005-51 Class 2A2A (E) 4.290% due 10/25/35 549 549 Series 2005-59 Class 1A2B (E) 4.101% due 11/20/35 549 549 Series 2005-63 Class 3A1 5.915% due 11/25/35 515 521 Countrywide Home Loan Mortgage Pass Through Trust (E) Series 2005-11 Class 5A1 4.338% due 03/25/35 361 361 Series 2005-9 Class M6 5.188% due 05/25/35 225 220 Credit Suisse First Boston Mortgage Securities Corp. Series 2003-29 Class 5A1 7.000% due 12/25/33 94 97 Series 2004-1 Class 3A1 7.000% due 02/25/34 35 36 Series 2004-C1 Class A3 4.321% due 01/15/37 615 591 Crown Castle Towers LLC (A) 5.074% due 06/15/35 150 146 Deutsche ALT-A Securities, Inc. Alternate Loan Trust Series 2003-3 Class 2A3 4.500% due 10/25/33 52 52 Deutsche Mortgage Securities, Inc. Series 2004-4 Class 1A2 4.010% due 04/25/34 7 7 DLJ Commercial Mortgage Corp. Series 1998-CF1 Class A1B 6.410% due 02/18/31 569 583 Downey Savings & Loan Association Mortgage Loan Trust (E) Series 2004-AR3 Class 1A1B 5.206% due 07/19/44 427 432 Fannie Mae 15 Year TBA (I) 4.500% 10,950 10,585 5.000% 9,720 9,585 5.500% 1,120 1,127 30 Year TBA (I) 4.500% 1,235 1,154 5.000% 14,560 14,009 5.500% 12,425 12,254 6.000% 3,415 3,472
104 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 7.000% 14,340 14,990 7.500% 180 190 6.000% due 2016 39 40 5.000% due 2017 14 14 5.500% due 2017 56 56 6.000% due 2017 76 78 6.500% due 2017 150 154 5.000% due 2018 1,298 1,280 10.000% due 2018 49 54 5.000% due 2020 3,419 3,375 5.500% due 2020 250 252 10.000% due 2024 55 60 5.255% due 2025 (E) 41 42 5.500% due 2025 495 492 5.258% due 2026 (E) 288 294 7.500% due 2027 20 21 7.000% due 2028 48 50 5.500% due 2029 689 681 6.500% due 2029 4 4 7.000% due 2029 125 130 7.500% due 2029 130 136 8.000% due 2029 11 11 8.500% due 2029 4 5 7.000% due 2030 8 8 7.500% due 2030 85 89 8.500% due 2030 409 440 9.500% due 2030 112 122 7.000% due 2031 218 228 7.500% due 2031 325 343 8.000% due 2031 441 472 8.500% due 2031 406 436 6.000% due 2032 1,201 1,213 6.500% due 2032 323 332 7.000% due 2032 400 418 7.500% due 2032 286 303 8.000% due 2032 54 57 4.689% due 2033 (E) 1,080 1,074 5.000% due 2033 1,423 1,377 5.500% due 2033 2.600 2,568 6.500% due 2033 689 707 5.000% due 2034 877 849 5.500% due 2034 17,703 17,499 6.000% due 2034 1,060 1,070 6.500% due 2034 -- -- 7.500% due 2034 255 269 4.510% due 2035 (E) 1,738 1,723 4.841% due 2035 (E) 1,764 1,744 5.000% due 2035 237 230 5.500% due 2035 43,795 43,222 6.000% due 2035 2,745 2,769 6.500% due 2035 1,104 1,133 7.000% due 2035 171 178 Series 1992-10 Class ZD 8.000% due 11/25/21 866 890
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 1996-46 Class ZA 7.500% due 11/25/26 109 116 Series 1997-281 Class 2 Interest Only STRIP 9.000% due 11/01/26 53 14 Series 2000-306 Class IO Interest Only STRIP 8.000% due 05/01/30 58 14 Series 2001-317 Class 2 Interest Only STRIP 8.000% due 08/01/31 61 13 Series 2002-320 Class 2 Interest Only STRIP 7.000% due 03/01/32 28 7 Series 2002-50 Class SC (E) Interest Only STRIP 4.063% due 12/25/29 38 1 Series 2003-122 Class AJ 4.500% due 02/25/28 183 179 Series 2003-16 Class NI Interest Only STRIP 5.000% due 02/25/15 371 21 Series 2003-25 Class IK Interest Only STRIP 7.000% due 04/25/33 136 29 Series 2003-32 Class UI Interest Only STRIP 6.000% due 05/25/33 162 36 Series 2003-33 Class IA Interest Only STRIP 6.500% due 05/25/33 1,082 234 Series 2003-35 Class IU Interest Only STRIP 6.000% due 05/25/33 215 48 Series 2003-35 Class UI Interest Only STRIP 6.500% due 05/25/33 221 50 Series 2003-64 Class JI Interest Only STRIP 6.000% due 07/25/33 203 45 Series 2003-82 Class WI Interest Only STRIP 6.000% due 08/25/32 46 5 Series 2004-27 Class JC 5.000% due 05/25/34 29 28 Fannie Mae Grantor Trust Series 2001-T8 Class A2 9.500% due 07/25/41 101 111
Fixed Income III Fund 105 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-T4 Class A2 3.930% due 02/25/20 197 196 Series 2004-T4 Class A3 4.420% due 08/25/24 185 183 Series 2005-T2 Class 1A1 (E) 3.712% due 11/28/35 125 125 Fannie Mae Whole Loan Series 2003-W14 Class 1A5 4.710% due 09/25/43 9 9 Series 2003-W17 Class 1A6 5.310% due 08/25/33 1,700 1,656 Series 2003-W18 Class 1A5 4.610% due 08/25/43 190 188 Series 2004-W11 Class 1A2 6.500% due 05/25/44 294 301 Series 2004-W9 Class 2A1 6.500% due 02/25/44 150 154 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2003-58 Class 1A2 3.108% due 05/25/35 61 61 Series 2003-58 Class 2A 6.500% due 09/25/43 140 143 Series 2004-H01 Class A1 2.614% due 07/15/11 545 540 Federal National Mortgage Association Series 2003-82 Class IA Interest Only STRIP 6.000% due 08/25/32 219 34 First Horizon Alternative Mortgage Securities Series 2004-FA1 Class 1A1 6.250% due 10/25/34 466 472 First Horizon Asset Securities, Inc. Series 2003-5 Class 1A17 8.000% due 07/25/33 61 64 Series 2004-AR5 Class 4A1 (E) 5.698% due 10/25/34 173 169 Series 2004-AR7 Class 1A1 (E) 4.473% due 02/25/35 344 344 First Union-Lehman Brothers-Bank of America Series 1998-C2 Class A2 6.560% due 11/18/35 18 19 Freddie Mac 15 Year TBA (I) 5.000% 775 764 30 Year TBA (I) 5.000% 7,185 6,911 5.500% 7,000 6,908 6.000% 450 454 6.000% due 2016 69 71 8.500% due 2017 74 80 10.500% due 2017 28 32
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 5.000% due 2018 122 120 5.500% due 2019 661 665 10.000% due 2020 74 81 5.500% due 2024 952 946 8.500% due 2025 28 30 5.496% due 2027 (E) 80 82 4.744% due 2028 (E) 56 57 5.355% due 2028 (E) 54 55 5.638% due 2030 (E) 10 10 7.000% due 2030 124 131 7.500% due 2030 186 197 8.000% due 2030 100 106 7.000% due 2031 232 244 8.000% due 2031 32 34 7.500% due 2032 133 141 5.000% due 2033 427 412 6.500% due 2033 71 73 3.733% due 2034 (E) 165 166 4.911% due 2034 (E) 1,340 1,324 6.000% due 2034 449 453 Series 1991-103 Class Z 9.000% due 02/15/21 90 90 Series 1994-173 Class Z 7.000% due 05/15/24 149 155 Series 1999-212 Class SG (E) Interest Only STRIP 3.000% due 06/17/27 660 31 Series 2001-232 Class ZQ 6.500% due 06/15/31 566 592 Series 2003-255 Class QX 4.750% due 06/15/27 210 209 Series 2003-259 Class IQ Interest Only STRIP 5.000% due 06/15/17 391 53 Series 2003-261 Class DI Interest Only STRIP 5.500% due 05/15/27 274 12 Series 2003-261 Class UI Interest Only STRIP 6.500% due 05/15/33 147 30
106 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2003-263 Class YH 3.500% due 08/15/22 1,065 1,056 Series 2003-264 Class IM Interest Only STRIP 7.000% due 07/15/33 194 45 Series 2003-266 Class MA 4.500% due 10/15/31 336 330 Series 2004-287 Class GC 5.000% due 11/15/29 170 166 Series 2004-288 Class OE 5.000% due 01/15/30 290 286 Series 2004-289 Class PC 5.000% due 07/15/30 340 332 Series 2004-290 Class LC 5.500% due 12/15/17 250 252 Series 2005-291 Class KP 5.000% due 11/15/29 215 210 Series 2005-292 Class IG Interest Only STRIP 5.000% due 04/15/23 407 70 Series 2005-293 Class PC 5.000% due 09/15/30 335 327 Series 2005-302 Class MB 5.000% due 12/15/28 200 197 Series 2005-R00 Class AE 4.375% due 04/15/15 326 318 Freddie Mac Gold 15 Year TBA (I) 5.500% 550 553 5.500% due 2019 466 469 5.500% due 2020 3,987 4,014 8.500% due 2027 136 147 7.500% due 2030 90 95 7.500% due 2031 21 22 5.000% due 2033 359 350 7.000% due 2033 55 57 Series 1998-191 Class IO Interest Only STRIP 8.000% due 01/01/28 43 9 Series 1998-194 Class IO Interest Only STRIP 6.500% due 04/01/28 140 30 Series 2001-212 Class IO Interest Only STRIP 6.000% due 05/01/31 110 25 Series 2001-215 Class IO Interest Only STRIP 8.000% due 06/01/31 85 19 GE Capital Commercial Mortgage Corp. Series 2002-1A Class A3 6.269% due 12/10/35 250 264 Series 2005-C2 Class A2 4.706% due 05/10/43 475 467
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2005-C3 Class A3FX 4.863% due 07/10/45 20 20 Ginnie Mae I 30 Year TBA (I) 6.500% 290 301 10.500% due 2016 25 28 11.000% due 2020 77 84 10.000% due 2022 62 69 7.500% due 2024 25 28 7.500% due 2032 42 44 Ginnie Mae II (E) 3.750% due 2023 30 31 4.125% due 2023 78 78 3.750% due 2024 218 221 4.125% due 2024 222 224 3.750% due 2025 7 7 4.375% due 2025 277 280 4.125% due 2026 105 106 3.750% due 2027 139 141 4.125% due 2027 13 13 4.375% due 2027 180 181 4.375% due 2028 5 6 4.375% due 2030 368 369 Global Signal Trust (A) Series 2004-2A Class A 4.232% due 12/15/14 225 217 GMAC Commercial Mortgage Securities, Inc. Series 1998-C2 Class A2 6.420% due 05/15/35 194 200 Government National Mortgage Association Series 1999-27 Class SE (E) Interest Only STRIP 4.630% due 08/16/29 218 20 Series 1999-44 Class SA (E) Interest Only STRIP 4.580% due 12/16/29 228 19 Series 2000-29 Class S (E) Interest Only STRIP 4.500% due 09/20/30 67 4 Series 2002-27 Class SA (E) Interest Only STRIP 4.030% due 05/16/32 99 6
Fixed Income III Fund 107 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2002-62 Class B 4.763% due 01/16/25 160 159 Greenwich Capital Commercial Funding Corp. Series 2004-GG1 Class A7 5.317% due 06/10/36 435 436 Series 2005-GG5 Class A41 5.243% due 04/10/37 1,040 1,045 Series 2005-GG5 Class A5 5.224% due 04/10/37 230 231 GSMPS Mortgage Loan Trust (A) Series 1998-3 Class A 7.750% due 09/19/27 70 74 Series 1999-3 Class A 8.000% due 08/19/29 119 126 Series 2005-RP1 Class 1A3 8.000% due 01/25/35 204 217 Series 2005-RP1 Class 1A4 8.500% due 01/25/35 117 127 GSR Mortgage Loan Trust Series 2004-7 Class 1A1 3.412% due 06/25/34 647 634 Series 2005-AR6 Class 2A1 (E) 4.541% due 09/25/35 1,800 1,768 Harborview Mortgage Loan Trust Series 2004-5 Class 2A2A 3.316% due 06/19/34 176 176 Series 2005-10 Class 2A1B (E) 4.377% due 11/19/35 499 500 Series 2005-5 Class 2A1B (E) 4.287% due 07/19/45 337 337 Impac CMB Trust (E) Series 2004-3 Class 1A 4.288% due 06/25/34 280 280 Impac Secured Assets CMN Owner Trust (E) Series 2004-3 Class 1A1 4.238% due 11/25/34 92 92 Indymac Index Mortgage Loan Trust 5.910% due 02/15/35 375 379 IndyMac Index Mortgage Loan Trust Series 2004-AR4 Class 1A 4.669% due 08/25/34 456 455 Series 2005-AR2 Class 1A21 5.910% due 12/25/35 375 379 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2002-C1 Class A3 5.376% due 07/12/37 220 222 Series 2003-C1 Class A2 4.985% due 01/12/37 337 333 Series 2004-FL1 Class A1 (E)(A) 4.140% due 04/16/19 358 358
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-LN2 Class A1 4.475% due 07/15/41 588 571 Series 2005-CB1 Class A4 5.335% due 08/12/37 555 555 JP Morgan Mortgage Trust Series 2005-A6 Class 1A2 5.158% due 09/25/35 475 468 LB-UBS Commercial Mortgage Trust Series 2004-C4 Class A3 4.985% due 06/15/29 1,055 1,057 Series 2005-C5 Class A2 4.885% due 09/15/30 415 411 Mastr Alternative Loans Trust Series 2003-6 Class 3A1 8.000% due 09/25/33 54 55 Series 2005-3 Class 7A1 6.000% due 04/25/35 327 329 Series 2003-9 Class 1A1 5.500% due 12/25/18 195 195 Mastr Reperforming Loan Trust (A) Series 2005-1 Class 1A5 8.000% due 08/25/34 292 309 Series 2005-2 Class 1A4 8.000% due 05/25/35 382 405 Mastr Specialized Loan Trust (A) 5.150% due 07/25/35 253 250 Mellon Residential Funding Corp. (E) Series 2000-TBC Class A1 4.210% due 06/15/30 457 456 Merrill Lynch Mortgage Investors, Inc. (E) Series 2005-A6 Class 2A1 4.158% due 08/25/35 668 668 Merrill Lynch Mortgage Trust 4.351% due 11/15/10 105 104 4.330% due 11/25/10 105 104 Series 2002-MW1 Class J (A) 5.695% due 07/12/34 185 176 Series 2004-BPC Class A3 4.467% due 10/12/41 115 111 Series 2004-MKB Class A2 4.353% due 02/12/42 580 567 Series 2005-CIP Class A2 4.960% due 07/12/38 585 580 Series 2005-CIP Class B 5.101% due 07/12/38 125 123 Morgan Stanley Capital I Series 2005-HQ6 Class A2A 4.882% due 08/13/42 215 212
108 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Nomura Asset Acceptance Corp. Series 2004-AP2 Class A2 4.099% due 07/25/34 93 93 Series 2005-WF1 Class 2A2 4.786% due 03/25/35 415 409 Prime Mortgage Trust Series 2004-2 Class A2 4.750% due 11/25/19 382 377 Series 2004-CL1 Class 1A1 6.000% due 02/25/34 104 104 Series 2004-CL1 Class 1A2 (E) 4.438% due 02/25/34 69 69 Series 2004-CL1 Class 2A2 (E) 4.438% due 02/25/19 35 35 Residential Accredit Loans, Inc. Series 2005-QA8 Class NB3 5.527% due 07/25/35 598 597 Residential Asset Mortgage Products, Inc. Series 2004-SL1 Class A3 7.000% due 11/25/31 115 117 Series 2004-SL4 Class A3 6.500% due 07/25/32 190 194 Series 2005-SL1 Class A2 6.000% due 05/25/32 308 313 Residential Asset Securitization Trust (E) Series 2003-A15 Class 1A2 4.488% due 02/25/34 1,013 1,015 Residential Funding Mortgage Sec I (E) Series 2003-S5 Class 1A2 4.488% due 11/25/18 491 493 Small Business Administration Participation Certificates Series 2005-20G Class 1 4.750% due 07/01/25 1,600 1,562 Structured Adjustable Rate Mortgage Loan Trust Series 2004-18 Class 5A 5.500% due 12/25/34 191 190 Structured Asset Securities Corp. Series 2002-22H Class 1A 6.994% due 11/25/32 46 47 Series 2004-12H Class 1A 6.000% due 05/25/34 192 192 Series 2004-21X Class 1A3 4.440% due 12/25/34 1,105 1,082 Thornburg Mortgage Securities Trust (E) Series 2004-2 Class A2 4.188% due 06/25/44 48 48 Series 2005-3 Class 1A1 4.268% due 10/25/35 447 447
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Wachovia Bank Commercial Mortgage Trust Series 2005-C16 Class A2 4.380% due 10/15/41 1,095 1,066 Washington Mutual (E) Series 2005-AR1 Class A1B1 4.4210% due 12/25/45 525 525 Washington Mutual, Inc. Series 2003-AR4 Class A7 (E) 3.950% due 05/25/33 50 49 Series 2003-AR9 Class 1A7 (E) 4.056% due 09/25/33 210 206 Series 2004-AR1 Class A2C (E) 4.135% due 07/25/44 87 87 Series 2004-AR1 Class A3 (E) 4.135% due 10/25/44 224 225 Series 2004-CB3 Class 4A 6.000% due 10/25/19 286 290 Series 2005-AR1 Class 1A1 4.845% due 10/25/35 673 668 Series 2005-AR1 Class 1B14 4.421% due 12/25/45 525 525 Series 2005-AR1 Class A1A1 (E) 4.328% due 10/25/45 200 200 Series 2005-AR1 Class A1B1 (E) 4.328% due 08/25/45 414 414 4.298% due 10/25/45 700 700 Series 2005-AR3 Class A1 4.651% due 03/25/35 286 282 Series 2005-AR6 Class B3 (E) 4.698% due 04/25/45 425 425 Washington Mutual, Inc.l Series 2004-CB3 Class 1A 6.000% due 10/25/34 109 110 Wells Fargo Mortgage Backed Securities Trust Series 2004-DD Class 2A3 (E) 4.528% due 01/25/35 280 275 Series 2004-I Class 1A1 3.385% due 07/25/34 363 363
Fixed Income III Fund 109 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-T Class A1 (E) 3.453% due 09/25/34 340 338 Series 2005-AR1 Class 2A1 4.947% due 10/25/35 284 282 ------------ 245,657 ------------ Municipal Bonds - 1.0% Badger TOB Asset Securitization Corp. Revenue Bonds, weekly demand 6.375% due 06/01/32 800 850 California State University Revenue Bonds, weekly demand (u) 5.000% due 11/01/30 140 145 City of Colorado Springs Colorado Revenue Bonds, weekly demand 5.000% due 11/15/33 200 205 City of Forsyth Montana Revenue Bonds, annual demand (E) 5.200% due 05/01/33 70 73 City of New York New York General Obligation Unlimited, weekly demand 5.000% due 03/01/30 100 102 Colorado Department of Transportation Revenue Bonds (u) 5.000% due 12/15/13 480 518 Golden State Tobacco Securitization Corp. Revenue Bonds 6.250% due 06/01/33 435 477 5.625% due 06/01/38 140 156 Liberty Development Corp. Revenue Bonds 5.250% due 10/01/35 100 109 Massachusetts School Building Authority Revenue Bonds, weekly demand (u) 5.000% due 08/15/30 305 315 New Jersey Economic Development Authority Revenue Bonds, weekly demand 5.750% due 06/15/34 235 246 New York State Urban Development Corp. Revenue Bonds, weekly demand (u) 5.250% due 03/15/34 180 191 Sales Tax Asset Receivables Corp. Revenue Bonds, weekly demand (u) 5.250% due 10/15/27 215 230
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- State of California General Obligation Unlimited 5.250% due 07/01/13 190 208 5.000% due 02/01/33 100 101 State of Illinois General Obligation Unlimited 5.100% due 06/01/33 150 144 State of Oregon General Obligation Unlimited 5.892% due 06/01/27 175 185 State of Texas General Obligation Unlimited, weekly demand 4.750% due 04/01/35 250 251 University of Illinois Revenue Bonds, weekly demand (u) 5.000% due 04/01/29 1,500 1,545 West Virginia Economic Development Authority Revenue Bonds 5.370% due 07/01/20 (u) 65 65 6.070% due 07/01/26 200 208 ------------ 6,324 ------------ Non-US Bonds - 1.3% Brazilian Government International Bond 12.500% due 01/05/16 BRL 480 450 Canada Housing Trust No. 1 3.750% due 03/15/10 CAD 554 466 Canadian Government Bond 3.000% due 12/01/36 CAD 104 115 Deutsche Bundesrepublik 5.000% due 07/04/11 EUR 457 603 General Motors Corp. (A) 7.250% due 07/03/13 EUR 100 93 KBC Bank Funding Trust I 6.875% due 06/30/49 EUR 600 803 Poland Government Bond 5.750% due 03/24/10 PLN 1,403 433 6.250% due 10/24/15 PLN 2,034 659 Province of Ontario 4.500% due 03/08/15 CAD 215 184 Province of Quebec Canada 5.000% due 12/01/15 CAD 410 360 Russia Paris Club Participant (A) 1.975% due 08/20/20 JPY 17,343 149 Sweden Government Bond 4.000% due 12/01/09 SEK 2,260 297 4.500% due 08/12/15 SEK 1,090 151 5.000% due 12/01/20 SEK 655 97
110 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United Kingdom Gilt 5.750% due 12/07/09 GBP 900 1,677 8.000% due 09/27/13 GBP 254 559 8.000% due 06/07/21 GBP 224 559 ------------ 7,655 ------------ Registered Investment Company Funds - 0.0% Pacific Investment Management Co. Series High Yield Portfolio Institutional 6,541 54 ------------ United States Government Agencies - 1.1% Fannie Mae 3.875% due 02/15/10 (N) 1,075 1,040 4.375% due 03/15/13 (N) 435 422 Principal Only STRIP Zero coupon due 10/09/19 120 56 Financing Corp. Principal Only STRIP Zero coupon due 05/11/16 130 76 Zero coupon due 06/06/16 380 223 Zero coupon due 12/27/16 450 256 Zero coupon due 10/06/17 735 405 Zero coupon due 11/11/17 45 24 Zero coupon due 11/30/17 810 442 Zero coupon due 08/03/18 755 397 Zero coupon due 11/02/18 770 400 Zero coupon due 12/27/18 40 21 Zero coupon due 04/05/19 475 241 Zero coupon due 09/26/19 790 390 Freddie Mac 4.000% due 08/17/07 (N) 650 643 2.750% due 03/15/08 280 268 4.000% due 12/15/09 (N) 1,080 1,051 5.125% due 11/07/13 530 530 ------------ 6,885 ------------ United States Government Treasuries - 19.0% United States Treasury Bonds (N) Principal Only STRIP Zero coupon due 02/15/25 2,450 959 Zero coupon due 02/15/27 2,450 878 United States Treasury Inflation Indexed Bonds 3.375% due 01/15/07 (sec.) 992 1,017 0.875% due 04/15/10 (N) 461 443 3.000% due 07/15/12 (N) 1,272 1,360 2.000% due 07/15/14 (N) 6,891 6,909 1.875% due 07/15/15 (N) 434 430 2.375% due 01/15/25 313 325 3.625% due 04/15/28 (N) 364 463
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- United States Treasury Notes 3.500% due 11/15/06 (N) 7,850 7,782 3.125% due 05/15/07 (N) 3,900 3,827 4.375% due 05/15/07 (N) 4,180 4,180 3.500% due 05/31/07 (N) 365 360 3.625% due 06/30/07 (N) 19,425 19,184 3.875% due 07/31/07 (N) 3,595 3,566 4.125% due 08/15/08 200 199 3.500% due 02/15/10 (N) 200 193 3.875% due 05/15/10 (N) 8,655 8,443 4.125% due 08/15/10 (N) 935 921 3.875% due 09/15/10 (N) 185 180 5.000% due 08/15/11 (N) 350 359 3.875% due 02/15/13 (N) 4,650 4,464 4.250% due 08/15/13 (N) 3,105 3,045 Principal Only STRIP Zero coupon due 11/15/13 (N) 1,635 1,132 4.750% due 05/15/14 (N) 9,499 9,618 4.250% due 08/15/15 (N) 2,235 2,181 8.750% due 05/15/17 (N) 775 1,052 8.125% due 08/15/19 (N) 4,950 6,610 7.875% due 02/15/21 (N) 100 133 6.250% due 08/15/23 (N) 4,900 5,719 7.625% due 02/15/25 (N) 1,450 1,953 6.000% due 02/15/26 (N) 7,550 8,680 6.375% due 08/15/27 (N) 745 899 6.125% due 08/15/29 (N) 3,910 4,635 5.375% due 02/15/31 (N)(sec.) 3,540 3,861 ------------ 115,960 ------------ TOTAL LONG-TERM INVESTMENTS (cost $537,467) 534,646 ------------ PREFERRED STOCKS - 0.1% Financial Services - 0.1% DG Funding Trust (A) 59 633 ------------ Producer Durables - 0.0% Nexen, Inc. 4,055 104 ------------ TOTAL PREFERRED STOCKS (cost $723) 737 ------------ WARRANTS & RIGHTS - 0.0% Consumer Discretionary - 0.0% Travelcenters of America, Inc. (AE) 2009 Warrants 20 -- ------------
Fixed Income III Fund 111 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Materials and Processing - 0.0% Solutia, Inc. (AE)(A) 2009 Warrants 450 -- ------------ Miscellaneous - 0.0% Mexico Government International Bond Value Recovery Rights (AE) Series E 1,300,000 33 Series D 1,996,000 41 ------------ 74 ------------ Utilities - 0.0% GT Group Telecom, Inc. (AE)(A) 2010 Warrants 450 -- ------------ TOTAL WARRANTS & RIGHTS (cost $83) 74 ------------ NOTIONAL AMOUNT $ ------------ OPTIONS PURCHASED - 0.0% (Number of Contracts) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Apr 2006 0.00 Call (1) 2,000 3 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.250% (Fund Receives) Oct 2006 0.00 Call (2) 5,000 7 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Oct 2006 0.00 Call (3) 12,900 33 ------------ TOTAL OPTIONS PURCHASED (cost $83) 43 ------------ PRINCIPAL AMOUNT ($) MARKET OR SHARES VALUE - ----------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 26.3% ANZ Delaware, Inc. (c)(z) 3.790% due 12/27/05 2,900 2,883 ANZ National, Ltd. Commercial Paper (z) 4.085% due 01/17/06 2,100 2,079 Brazilian Government International Bond (E) 5.188% due 04/15/06 76 76 Capital Auto Receivables Asset Trust (E)(A) Series 2005-1 Class A1 3.980% due 06/15/06 4 4 Caremark Rx, Inc. 7.375% due 10/01/06 410 418 CBA (DE) Finance Discount Note (c)(z) 3.680% due 11/14/05 4,700 4,694 3.910% due 12/28/05 600 596 CSX Corp. (E) 4.010% due 08/03/06 93 93 Danske Corp. (z) 4.030% due 02/06/06 900 887 Dexia Delaware (c)(z) 3.610% due 11/01/05 1,100 1,100 DNB Nor Bank ASA (c)(z) 3.530% due 11/07/05 4,400 4,397 3.590% due 11/18/05 300 299 Duke Capital Corp. 4.302% due 05/18/06 95 95 Fannie Mae (N)(E) 3.799% due 09/22/06 600 600 Fannie Mae Discount Notes (z) 3.765% due 01/18/06 1,900 1,868 3.994% due 03/29/06 300 294 Federal Home Loan Bank Discount Note (c)(z) Zero coupon due 11/09/05 5,000 4,996 Ford Motor Credit Co. 6.875% due 02/01/06 300 300 France Telecom SA 7.200% due 03/01/06 750 756 Frank Russell Investment Company Money Market Fund 91,310,000 91,310 General Electric Capital Corp. Discount Notes (c)(z) 3.700% due 11/15/05 1,600 1,598 3.910% due 12/27/05 2,600 2,584
112 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL AMOUNT ($) MARKET OR SHARES VALUE - ----------------------------------------------------------------------------- General Motors Acceptance Corp. (E) 5.070% due 04/13/06 1,100 1,095 GTE Hawaiian Telephone Co. Series A 7.000% due 02/01/06 195 195 Series B 7.375% due 09/01/06 65 65 HBOS Treasury Services, PLC (c)(z) 3.760% due 11/30/05 2,800 2,792 ING US Funding, LLC (c)(z) 3.760% due 12/01/05 2,700 2,692 ITT Corp. 6.750% due 11/15/05 600 600 Kerr-McGee Corp. 5.875% due 09/15/06 20 20 Liberty Media Corp. (E) 5.370% due 09/17/06 242 244 Midland Funding II Series B 13.250% due 07/23/06 162 170 Monongahela Power Co. 5.000% due 10/01/06 210 210 Nisource Finance Corp. 7.625% due 11/15/05 95 95 Nordea North America, Inc. (c)(z) 3.685% due 12/09/05 3,700 3,686 Power Contract Financing LLC (A) 5.200% due 02/01/06 79 79 Preliminary AM 5.500% due 11/30/05 625 636 Rabobank USA Financial Corp. (c)(z) 3.620% due 11/28/05 3,400 3,391 3.855% due 12/23/05 1,900 1,889 3.905% due 12/30/05 100 99 RC Trust 1 Equity Preferred 3.500% due 05/15/06 420 212 Skandin Ens Banken AG (z) 4.070% due 09/19/06 400 396 Smurfit Capital Funding PLC 6.750% due 11/20/05 360 360 Societe Generale (c)(z) 3.700% due 11/17/05 4,600 4,592 3.770% due 12/19/05 600 597 Spintab Swedish Mortgage (c)(z) 3.730% due 12/01/05 300 299 3.775% due 12/12/05 400 398 Sprint Capital Corp. 4.780% due 08/17/06 185 185 Swedbank (z) 4.075% due 01/20/06 4,700 4,651
PRINCIPAL AMOUNT ($) MARKET OR SHARES VALUE - ----------------------------------------------------------------------------- TXU Corp. Series J 6.375% due 06/15/06 40 40 UBS Financial Del, LLC (z) 3.635% due 11/28/05 (c) 1,700 1,695 3.670% due 11/30/05 (c) 1,000 997 3.760% due 12/01/05 (c) 400 399 3.945% due 01/26/06 2,200 2,172 United States Treasury Bills 3.360% due 12/15/05 (c)(z)(sec.) 25 25 3.380% due 12/15/05 (c)(z)(sec.) 25 25 3.587% due 12/15/05 (c)(z)(sec.) 25 25 3.349% due 01/12/06 (z)(sec.) 200 197 3.670% due 03/16/06 (z)(sec.) 75 74 3.715% due 03/30/06 (N) 175 172 United States Treasury Notes (N) 4.625% due 05/15/06 1,820 1,824 7.000% due 07/15/06 170 173 Viacom, Inc. (c)(z) 4.270% due 11/30/05 300 299 4.330% due 12/07/05 600 597 Westpac Capital Corp. (c)(z) 3.730% due 12/09/05 500 498 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $160,875) 160,787 ------------ OTHER SECURITIES - 21.1% Frank Russell Investment Company Money Market Fund (X) 42,136,071 42,136 State Street Securities Lending Quality Trust (X) 86,332,829 86,333 ------------ TOTAL OTHER SECURITIES (cost $128,469) 128,469 ------------ TOTAL INVESTMENTS - 135.1% (identified cost $827,700) 824,756 OTHER ASSETS AND LIABILITIES, NET - (35.1%) (214,333) ------------ NET ASSETS - 100.0% 610,423 ============
A portion of the portfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. Fixed Income III Fund 113 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Eurodollar Futures expiration date 03/06 (23) 5,478 (39) expiration date 06/06 (78) 18,559 (110) expiration date 09/06 (16) 3,806 (13) expiration date 12/06 (43) 10,230 (8) expiration date 03/07 (86) 20,465 (22) expiration date 06/07 (44) 10,469 (16) expiration date 09/07 (13) 3,093 (6) United States Treasury Bonds expiration date 12/05 (52) 5,822 (212) United States Treasury 2 Year Notes expiration date 12/05 (62) 12,723 (61) United States Treasury 5 Year Notes expiration date 12/05 (144) 15,248 (221) United States Treasury 10 Year Notes expiration date 12/05 (282) 30,584 (331) Short Positions Germany, Federal Republic 10 Year Bonds expiration date 12/05 (1) 144 3 United States Treasury Bonds expiration date 12/05 (3) 336 9 United States Treasury 5 Year Notes expiration date 12/05 (108) 11,436 219 United States Treasury 10 Year Notes expiration date 12/05 (17) 1,844 44 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (a) (764) ===============
See accompanying notes which are an integral part of the financial statements. 114 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Dec 2006 95.00 Put (6) 1,425 (4) Dec 2006 95.25 Put (71) 16,907 (66) Swaption USD Three Month LIBOR(Fund Pays)/ USD 4.540% (Fund Receives) Apr 2006 0.00 Call (1) 1,000 (3) Swaption USD Three Month LIBOR(Fund Pays)/ USD 4.300% (Fund Receives) Oct 2006 0.00 Call (1) 1,000 (4) Swaption USD Three Month LIBOR(Fund Pays)/ USD 4.310% (Fund Receives) Oct 2006 0.00 Call (1) 1,000 (4) Swaption USD Three Month LIBOR(Fund Pays)/ USD 4.540% (Fund Receives) Oct 2006 0.00 Call (2) 2,700 (18) Swaption USD Three Month LIBOR(Fund Pays)/ USD 4.560% (Fund Receives) Oct 2006 0.00 Call (1) 3,000 (21) Swaption GBP Six Month LIBOR(Fund Pays)/ USD 4.500% (Fund Receives) Dec 2006 0.00 Put (1) 5,841 (6) United States Treasury Notes 5 Year Futures Nov 2005 108.00 Call (12) 1,296 -- Nov 2005 108.50 Call (3) 326 -- Nov 2005 109.00 Call (24) 2,616 -- Nov 2005 106.00 Put (12) 1,272 (5) Nov 2005 107.00 Put (11) 1,177 (13) United States Treasury Notes 10 Year Futures Nov 2005 114.00 Call (12) 1,368 -- Nov 2005 108.00 Put (7) 756 (2) Nov 2005 109.00 Put (17) 1,853 (14) --------------- Total Liability for Options Written (premiums received $175) (160) ===============
See accompanying notes which are an integral part of the financial statements. Fixed Income III Fund 115 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 184 CAD 224 11/10/05 5 USD 279 CAD 330 11/10/05 -- USD 573 CAD 674 11/10/05 (3) USD 247 CAD 291 02/08/06 -- USD 60 EUR 50 11/08/05 -- USD 2,399 EUR 2,011 11/08/05 12 USD 247 EUR 200 11/10/05 (7) USD 826 EUR 660 12/16/05 (33) USD 876 EUR 700 12/16/05 (35) USD 897 EUR 740 12/16/05 (8) USD 975 EUR 800 12/16/05 (14) USD 95 JPY 10,950 11/10/05 (1) USD 153 JPY 17,620 11/10/05 (1) USD 182 JPY 19,989 11/10/05 (10) USD 282 JPY 30,690 11/10/05 (17) USD 571 JPY 61,856 11/10/05 (39) USD 2,294 JPY 260,840 12/01/05 (45) USD 375 JPY 43,000 12/05/05 (4) USD 891 JPY 100,000 12/05/05 (27) USD 1,237 JPY 142,000 12/05/05 (12) USD 250 JPY 28,565 02/08/06 (1) USD 656 NOK 4,237 11/10/05 (4) CAD 216 USD 182 11/10/05 (1) CAD 330 USD 281 11/10/05 2 CAD 566 USD 472 11/10/05 (7) CAD 679 USD 571 11/10/05 (4) CAD 111 USD 95 11/21/05 -- CAD 291 USD 250 02/08/06 2 EUR 2,727 USD 3,284 11/08/05 15 EUR 200 USD 245 11/10/05 5 EUR 310 USD 377 12/05/05 5 EUR 709 USD 855 12/05/05 4 EUR 1,015 USD 1,235 12/05/05 16 EUR 88 USD 106 01/26/06 -- EUR 257 USD 312 02/08/06 2 GBP 19 USD 35 11/10/05 1 GBP 277 USD 499 11/10/05 9 GBP 324 USD 585 11/10/05 11 JPY 1,118 USD 10 11/10/05 1 JPY 20,227 USD 184 11/10/05 10 JPY 28,570 USD 253 11/10/05 7 JPY 30,690 USD 279 11/10/05 15 JPY 61,617 USD 563 11/10/05 33 JPY 20 USD -- 02/08/06 -- JPY 28,565 USD 247 02/08/06 (1)
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- NOK 410 USD 66 11/10/05 3 NOK 3,826 USD 595 11/10/05 7 PLN 2,290 USD 706 02/08/06 14 SEK 1,902 USD 250 11/10/05 10 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (85) ==============
See accompanying notes which are an integral part of the financial statements. 116 Fixed Income III Fund FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDEX SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED NOTIONAL APPRECIATION FUND RECEIVES COUNTER AMOUNT FUND PAYS TERMINATION (DEPRECIATION) UNDERLYING SECURITY PARTY $ FLOATING RATE DATE $ - -------------------------------- -------------- -------------- -------------------- -------------- -------------- Lehman Brothers 3 Month USD LIBOR CMBS Index-AAA Goldman 1,780 minus 0.050% 01/01/06 (20) -------------- Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts (20) ==============
INTEREST RATE SWAP CONTRACTS - -------------------------------------------------------------------------------------------------------------------------- MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ---------------------- ----------------- ---------------- -------------------- ---------------- ---------------- Barclays GBP 7,600 5.000% Six Month LIBOR 06/15/07 45 Barclays USD 700 4.000% Three Month LIBOR 12/15/07 (11) Barclays USD 5,600 4.000% Three Month LIBOR 12/15/10 (227) BNP Paribas EUR 900 2.090% Consumer Price Index 10/15/10 -- (France) Goldman USD 200 4.000% Three Month LIBOR 12/15/10 (8) Goldman USD 200 5.000% Three Month LIBOR 12/15/15 (1) Lehman GBP 4,100 4.500% Six Month LIBOR 09/20/09 (29) Merrill Lynch USD 8,000 4.000% Three Month LIBOR 12/15/07 (126) Merrill Lynch GBP 5,600 4.500% Six Month LIBOR 09/20/09 (40) Morgan Stanley USD 700 4.000% Three Month LIBOR 12/15/10 (28) ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($223) (425) ================
CREDIT DEFAULT SWAP CONTRACTS - --------------------------------------------------------------------------------------------------------------------------------- NOTIONAL MARKET REFERENCE COUNTER AMOUNT TERMINATION VALUE ENTITY PARTY $ FUND RECEIVES FIXED RATE DATE $ - ------------------------- -------------- ------------------- ------------------------ ---------------- ---------------- Dow Jones CDX High Volatility Index UBS 5,000 0.900% 06/20/10 (60) ---------------- Total Market Value of Open Credit Default Swap Contracts Premiums Paid (Received) - ($65) (60) ================
See accompanying notes which are an integral part of the financial statements. Fixed Income III Fund 117 FRANK RUSSELL INVESTMENT COMPANY FIXED INCOME III FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 6.7 Corporate Bonds and Notes 12.8 International Debt 5.4 Mortgage-Backed Securities 40.3 Municipal Bonds 1.0 Non-US Bonds 1.3 Registered Investment Company Funds --* United States Government Agencies 1.1 United States Government Treasuries 19.0 Preferred Stocks 0.2 Warrants & Rights --* Options Purchased --* Short Term Investments 26.3 Other Securities 21.0 --------------- Total Investments 135.1 Other Assets and Liabilities, Net (35.1) --------------- 100.0 =============== Futures Contracts (0.1) Options Written (--*) Foreign Currency Exchange Contracts (--*) Index Swap Contracts (--*) Interest Rate Swap Contracts (0.1) Credit Default Swaps (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 118 Fixed Income III Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
EMERGING MARKETS - CLASS S MSCI EMF ** -------------------------- ----------- * 10000 10000 1996 11081 10648 1997 11045 9745 1998 7761 6725 1999 9339 9727 2000 8743 8870 2001 6654 6789 2002 7048 7362 2003 10449 10951 2004 12667 13076 2005 17144 17566
Emerging Markets Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 35.27% 5 Years 14.42%S 10 Years 5.54%S
Emerging Markets Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 34.94% 5 Years 14.20%S 10 Years 5.39%S
Emerging Markets Fund - Class C ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 33.98% 5 Years 13.40%S 10 Years 4.88%S
MSCI Emerging Markets Free Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 34.34% 5 Years 14.64%S 10 Years 5.80%S
120 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Emerging Markets Fund Class S, Class E and Class C Shares gained 35.27%, 34.94% and 33.98%, respectively. This compared to the MSCI Emerging Markets Index(SM), which gained 34.34% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, 2005, the Lipper(R) Emerging Markets Funds Average returned 32.17%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The strength of energy stocks over the period did not have a significant effect on Fund performance given the Fund's neutral position relative to the benchmark; however; stock selection within the energy sector was positive. Exposure to other cyclical stocks also benefited the Fund, as did an underweight in information technology stocks. An overweight position to Egypt was also a positive contributor to the Fund's performance. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's outperformance relative to the benchmark was a result of both strong country allocation and stock selection. All but one of the Fund's money managers were underweight Taiwan. This weighting, together with strong stock selection in Mexico, were the two biggest positive contributors to the Fund's performance in the period. Wells Capital Management Incorporated and Genesis Asset Managers, LLP had strong stock selection in Mexico. Egypt, a beneficiary of improving fundamentals and good economic data, was another source of excess returns. T. Rowe Price International, Inc. and Genesis added value to the Fund by being overweight to Egypt. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's money managers tended to outperform in months of strong gains for the emerging markets and generally kept pace with the index in weaker periods. These results were aided by strong sell disciplines and portfolio repositioning by the Fund's money managers, which allowed money managers to lock in gains. Over the first few months of the fiscal year, value stocks outperformed, providing a favorable environment for value manager Alliance Capital Management, L.P. Alliance's strong performance in the early part of the fiscal year was largely due to stock selection in Korea, Mexico, India and South Africa. Country allocation decisions also added to Alliance's performance, particularly through underweighting Taiwan. As the year progressed, growth and quality-oriented strategies gained favor in the market. In this environment, growth manager T. Rowe Price delivered good results. Its overweight position in Egypt, the top-performing country in the index, was the largest positive contributor to performance. T. Rowe Price also added value through strong stock selection in India and Turkey. Market-oriented manager Arrowstreet Capital, L.P. also outperformed, helped by the momentum factors in its model. Focus on improving momentum led Arrowstreet to overweight Pakistan and Brazil and underweight Taiwan, and these actions contributed positively to the Fund's performance in the fiscal year. The Fund's policy of being fully invested helped it keep pace with a strong performing market. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes to the Fund's structure or money manager line-up during the year. Emerging Markets Fund 121 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 Alliance Capital Management, L.P., through its Bernstein Investment Research & Management Unit Value Arrowstreet Capital, L.P. Market-Oriented Genesis Asset Managers, LLP Market-Oriented T. Rowe Price International, Inc. Growth Wells Capital Management Incorporated Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Emerging Markets Fund Class S assumes initial investment on November 1, 1995. ** The Morgan Stanley Capital International Emerging Markets Free Index is a market capitalization-weighted Index of over 850 stocks traded in 22 world markets. ++++ Emerging Markets Fund Class S performance has been linked with Class E to provide historical perspective. For the period September 22, 1998 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Emerging Markets Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 122 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,176.10 $ 1,011.34 Expenses Paid During Period* $ 15.08 $ 13.94
* Expenses are equal to the Fund's annualized expense ratio of 2.75% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,180.20 $ 1,015.07 Expenses Paid During Period* $ 11.05 $ 10.21
* Expenses are equal to the Fund's annualized expense ratio of 2.01% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,181.60 $ 1,016.38 Expenses Paid During Period* $ 9.62 $ 8.89
* Expenses are equal to the Fund's annualized expense ratio of 1.75% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Emerging Markets Fund 123 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 87.5% Argentina - 0.1% Acindar Industria Argentina de Aceros SA (AE) 155,000 261 Central Costanera SA Class T (AE) 233,100 325 IRSA Inversiones y Representaciones SA (AE) 6 -- IRSA Inversiones y Representaciones SA - GDR (AE)(N) 15,500 179 ------------ 765 ------------ Bermuda - 0.1% Credicorp, Ltd. (N) 21,200 558 ------------ Brazil - 7.1% Banco do Brasil SA 36,400 669 Brasil Telecom Participacoes SA - ADR (N) 61,000 2,538 Braskem SA - ADR (AE) 42,079 715 Cia Brasileira de Distribuicao Grupo Pao de Acucar - ADR (N) 39,800 1,097 Cia de Bebidas das Americas - ADR (N) 30,000 1,065 Cia de Bebidas das Americas - ADR 4,820 135 Cia de Saneamento Basico do Estado de Sao Paulo 27,260,000 1,742 Cia Siderurgica Nacional SA 180,333 3,464 Cia Vale do Rio Doce 43,700 1,808 Cia Vale do Rio Doce - ADR 244,400 9,264 EDP - Energias do Brasil SA (AE) 62,000 617 Empresa Brasileira de Aeronautica SA - ADR 22,000 854 Gerdau SA - ADR (N) 277,100 3,760 Gol Linhas Aereas Inteligentes SA - ADR (N) 13,300 461 Natura Cosmeticos SA 119,563 4,732 Petroleo Brasileiro SA 280,156 4,435 Petroleo Brasileiro SA - ADR 220,900 13,509 Tele Centro Oeste Celular Participacoes SA 1,064 9 Tele Centro Oeste Celular Participacoes SA - ADR (N) 58,600 530 Tele Norte Leste Participacoes SA 51,606 1,235 Tele Norte Leste Participacoes SA - ADR (N) 178,400 3,158 Unibanco - Uniao de Bancos Brasileiros SA - GDR 77,000 4,027 ------------ 59,824 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chile - 0.2% Banco de Credito e Inversiones 11,200 282 Coca-Cola Embonor SA - ADR (AE)(A) 107,000 845 Embotelladora Andina SA Class B 58,700 819 ------------ 1,946 ------------ China - 4.3% Bank of Communications Co., Ltd. Class H (AE) 9,129,534 3,748 China Petroleum & Chemical Corp. Class H 14,665,254 5,891 China Shenhua Energy Co., Ltd. Class H (AE) 4,925,700 5,411 China Telecom Corp., Ltd. Class H 1,648,000 537 Datang International Power Generation Co., Ltd. Class H 804,000 571 Huadian Power International Co. Class H 226,000 57 Jiangsu Express Class H 1,579,400 835 Maanshan Iron & Steel Class H 910,000 274 PetroChina Co., Ltd. Class H 15,331,176 11,732 PetroChina Co., Ltd. - ADR (N) 20,040 1,538 Ping An Insurance Group Co. of China, Ltd. Class H 1,044,500 1,674 Semiconductor Manufacturing International Corp. (AE) 2,698,400 360 Sinopec Shanghai Petrochemical Co., Ltd. Class H 3,189,000 970 Sinopec Yizheng Chemical Fibre Co., Ltd. Class H 628,000 95 Travelsky Technology, Ltd. Class H 200,000 173 Yanzhou Coal Mining Co., Ltd. Class H 2,704,000 1,737 Zijin Mining Group Co., Ltd. Class H 580,000 183 ZTE Corp. Class H 190,600 564 ------------ 36,350 ------------ Colombia - 0.4% BanColombia SA 145,000 790 BanColombia SA - ADR (N) 87,600 2,076 Inversiones Nacionales de Chocolates SA 54,121 220 ------------ 3,086 ------------ Croatia - 0.1% Pliva DD - GDR 94,900 1,257 ------------
124 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Ecuador - 0.3% Holcim Ecuador SA - GDR (A) 72,000 2,419 Holcim Ecuador SA - ADR (A) 10,500 347 ------------ 2,766 ------------ Egypt - 2.3% Commercial International Bank 192,393 1,850 Commercial International Bank - GDR 15,600 147 Egyptian Co. for Mobile Services 151,932 5,017 Orascom Construction Industries 246,364 8,342 Orascom Telecom Holding SAE 16,570 1,649 Orascom Telecom Holding SAE - GDR (N) 2,062 101 Vodafone Egypt Telecommunications SAE 131,295 2,077 ------------ 19,183 ------------ Hong Kong - 2.4% Beijing Enterprises Holdings, Ltd. 150,000 230 Brilliance China Automotive Holdings, Ltd. 770,000 102 China Insurance International Holdings Co., Ltd. 1,350,000 488 China Mobile Hong Kong, Ltd. 1,459,500 6,531 China Mobile Hong Kong, Ltd. - ADR (N) 31,400 705 China Netcom Group Corp. Hong Kong, Ltd. 969,000 1,532 China Overseas Land & Investment, Ltd. 8,846,800 2,717 China Resources Power Holdings Co. 2,636,000 1,585 China Unicom, Ltd. 724,000 556 Citic Pacific, Ltd. 145,000 377 CNOOC, Ltd. 931,500 605 Kingboard Chemical Holdings, Ltd. 126,000 268 Luen Thai Holdings, Ltd. 924,000 245 Silver Grant International 48,000 12 Solomon Systemtech International, Ltd. 2,231,000 822 Techtronic Industries Co. 1,243,800 3,069 Tom Group, Ltd. (AE) 1,326,000 239 ------------ 20,083 ------------ Hungary - 2.3% Magyar Telekom Rt. 534,545 2,538 Mol Magyar Olaj- es Gazipari Rt. 71,971 6,712
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mol Magyar Olaj- es Gazipari Rt. - GDR 28,400 2,620 OTP Bank Rt. 216,662 7,826 ------------ 19,696 ------------ India - 4.2% Allahabad Bank 243,535 427 Andhra Bank 429,000 828 Arvind Mills, Ltd. 250,100 588 Ballarpur Industries, Ltd. 115,100 264 Bank of Baroda 220,000 1,071 Bank of India 44,300 105 Bharti Televentures (AE) 193,000 1,383 Chennai Petroleum Corp., Ltd. 151,660 805 GAIL India, Ltd. - GDR (N) 59,000 1,829 Genesis Indian Investment Co. (AE) 670,419 16,807 I-Flex Solutions, Ltd. 41,900 829 Indian Overseas Bank 165,900 335 Infosys Technologies, Ltd. 27,000 1,514 National Thermal Power Corp., Ltd. 592,100 1,278 Oriental Bank of Commerce 111,000 594 Petronet LNG, Ltd. (AE) 804,000 1,036 PTC India, Ltd. 276,519 284 State Bank of India, Ltd. - GDR 72,210 3,116 Suzlon Energy, Ltd. (AE) 40,065 639 Union Bank Of India 118,000 297 Videsh Sanchar Nigam, Ltd. 258,600 1,669 ------------ 35,698 ------------ Indonesia - 3.1% Aneka Tambang Tbk PT 4,667,646 1,190 Astra Agro Lestari Tbk PT 244,789 130 Astra International Tbk PT 4,153,777 3,821 Bank Central Asia Tbk PT 5,909,181 1,885 Bank Danamon Indonesia Tbk PT 1,754,700 681 Bank Mandiri Persero Tbk PT 31,287,503 4,088 Bank Rakyat Indonesia 28,587,272 6,932 Bumi Resources Tbk PT 11,399,809 878 Indonesian Satellite Corp. Tbk PT 1,273,500 613 Ramayana Lestari Sentosa Tbk PT 6,547,500 466 Telekomunikasi Indonesia Tbk PT 11,316,700 5,668 ------------ 26,352 ------------ Israel - 1.7% Bank Hapoalim, Ltd. 974,800 3,732 Bank Leumi Le-Israel BM 1,280,902 4,181 Check Point Software Technologies (AE) 94,600 2,115 Discount Investment Corp. 19,366 430 IDB Development Corp., Ltd. 11,903 337
Emerging Markets Fund 125 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Israel Chemicals, Ltd. 98,129 372 Lipman Electronic Engineering, Ltd. 30,000 667 Orbotech, Ltd. (AE) 30,200 656 Teva Pharmaceutical Industries, Ltd. - ADR (N) 52,800 2,013 ------------ 14,503 ------------ Luxembourg - 0.8% Quilmes Industrial SA - ADR (N)(A) 5,027 157 Tenaris SA 1 -- Tenaris SA - ADR 59,668 6,554 ------------ 6,711 ------------ Malaysia - 1.2% AirAsia BHD (AE) 425,900 180 Astro All Asia Networks PLC 890,700 1,298 CIMB BHD 665,666 1,085 Hong Leong Bank BHD 177,700 247 IJM Corp. BHD 357,200 454 IOI Corp. BHD 457,200 1,585 Magnum Corp. BHD 2,334,500 1,218 Malakoff BHD 500,600 1,041 Malaysia International Shipping Corp. BHD 293,400 738 MK Land Holdings BHD 1,015,200 199 OYL Industries BHD 1,317,800 1,062 PLUS Expressways BHD 765,000 620 Proton Holdings BHD 24,000 49 TAN Chong Motor Holdings BHD 908,000 378 Tenaga Nasional BHD 39,100 104 ------------ 10,258 ------------ Mexico - 6.7% Alfa SA de CV Class A 427,900 2,484 America Movil SA de CV Series L 379,400 9,959 Cemex SA de CV (AE) 2,471,054 12,844 Cemex SA de CV - ADR 57,000 2,968 Fomento Economico Mexicano SA de CV - ADR (AE) 85,824 5,835 Grupo Aeroportuario del Sureste SA de CV - ADR 14,900 484 Grupo Financiero Banorte SA de CV Class O 435,300 3,711 Grupo Mexico SA de CV Series B 690,686 1,332 Grupo Modelo SA 1,046,700 3,213 Grupo Televisa SA - ADR 58,873 4,304 Organizacion Soriana SA de CV Class B (AE) 174,100 681 Telefonos de Mexico SA de CV Series L 238,700 4,817
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Urbi Desarrollos Urbanos SA de CV (AE) 176,300 1,112 Wal-Mart de Mexico SA de CV Series V 649,959 3,164 ------------ 56,908 ------------ Pakistan - 1.1% Engro Chemical Pakistan, Ltd. 1,047,300 2,733 Fauji Fertilizer Co., Ltd. 1,423,020 3,224 ICI Pakistan, Ltd. 265,200 507 Pakistan Petroleum, Ltd. 72,500 241 Pakistan Telecommunication Co., Ltd. 2,781,923 2,664 ------------ 9,369 ------------ Philippines - 0.4% Globe Telecom, Inc. 47,200 605 Philippine Long Distance Telephone 86,000 2,613 ------------ 3,218 ------------ Russia - 4.7% LUKOIL - ADR (N) 451,602 24,838 Mobile Telesystems - ADR 144,000 5,327 NovaTek OAO - GDR (AE)(A) 105,700 2,326 OAO Gazprom - ADR 47,400 2,801 Promstroibank State Petersburg (AE) 696,000 773 Pyaterochka Holding NV - GDR (AE)(N) 86,600 1,697 RBC Information Systems (AE) 111,100 603 Sberbank RF 1,350 1,200 Tatneft - ADR (N) 4,300 273 ------------ 39,838 ------------ South Africa - 10.2% ABSA Group, Ltd. 273,675 3,629 Aeci, Ltd. 98,900 724 African Bank Investments, Ltd. 288,600 861 Alexander Forbes, Ltd. 323,600 684 AngloGold Ashanti, Ltd. 15,500 609 AngloGold Ashanti, Ltd. - ADR (N) 32,434 1,268 Aveng, Ltd. 424,706 1,067 Barloworld, Ltd. 228,960 3,585 Bidvest Group, Ltd. 62,437 837 City Lodge Hotels, Ltd. 10,927 60 Consol, Ltd. 460,900 745 Edgars Consolidated Stores, Ltd. 717,880 3,191 FirstRand, Ltd. 1,224,306 2,881 Foschini, Ltd. 119,945 764 Impala Platinum Holdings, Ltd. 45,544 4,971 Imperial Holdings, Ltd. (AE) 184,276 3,431 Investec, Ltd. 30,000 1,078
126 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- JD Group, Ltd. 222,741 2,382 Kumba Resources, Ltd. 128,400 1,898 Massmart Holdings, Ltd. 91,300 705 Medi-Clinic Corp., Ltd. 175,000 509 MTN Group, Ltd. 850,800 6,337 Murray & Roberts Holdings, Ltd. 305,000 877 Nampak, Ltd. 128,696 298 Naspers, Ltd. Class N 364,308 5,256 Network Healthcare Holdings, Ltd. (AE) 1,165,000 1,120 Pick'n Pay Stores, Ltd. 187,300 765 Reunert, Ltd. 35,300 243 Sanlam, Ltd. 2,404,140 4,426 Sasol, Ltd. 386,454 12,335 Standard Bank Group, Ltd. 1,058,408 10,911 Sun International, Ltd. 72,337 819 Telkom SA, Ltd. 89,579 1,692 Tiger Brands, Ltd. 103,718 2,072 Truworths International, Ltd. 702,900 1,990 VenFin, Ltd. 249,100 1,356 ------------ 86,376 ------------ South Korea - 16.5% Amorepacific Corp. 6,670 1,988 Cheil Communications, Inc. 3,320 612 Daelim Industrial Co. 45,680 2,669 Daewoo Engineering & Construction Co., Ltd. 4,190 42 Dongkuk Steel Mill Co., Ltd. 19,810 359 GS Engineering & Construction Corp. 16,880 724 Hankook Tire Co., Ltd. 205,597 2,470 Hanwha Chemical Corp. 186,210 1,986 Honam Petrochemical Corp. 26,400 1,286 Hyosung Corp. 23,210 271 Hyundai Development Co. 40,520 1,480 Hyundai Heavy Industries 8,920 583 Hyundai Mobis 70,300 5,612 Hyundai Motor Co. 107,710 7,945 Industrial Bank of Korea (N) 202,000 2,414 INI Steel Co. 28,720 640 KCC Corp. 9,814 1,891 Kookmin Bank 193,306 11,091 Kookmin Bank - ADR 4,200 245 Korea Electric Power Corp. 217,510 7,095 Korea Electric Power Corp. - ADR (N) 90,360 1,476 Korean Air Lines Co., Ltd. 21,720 407 KT Corp. 58,300 2,345 KT&G Corp. 63,600 2,604 KT&G Corp. - GDR (A) 53,100 1,099 LG Chem, Ltd. 18,780 829 LG Electronics, Inc. 40,620 2,656
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LG Petrochemical Co., Ltd. (AE) 7,520 198 LG.Philips LCD Co., Ltd. (AE) 7,580 284 LG.Philips LCD Co., Ltd. - ADR (AE)(N) 26,200 498 Lotte Chilsung Beverage Co., Ltd. 1,050 931 NCSoft Corp. (AE) 9,054 849 Poongsan Corp. 56,600 652 POSCO 58,975 12,022 POSCO - ADR 13,600 698 S-Oil Corp. 46,780 3,497 S1 Corp. 16,230 705 Samsung Corp. 37,080 611 Samsung Electronics - GDR 4,560 1,218 Samsung Electronics Co., Ltd. 48,619 25,922 Samsung Electronics Co., Ltd. - GDR (N)(A) 10,059 2,055 Samsung Fine Chemicals Co., Ltd. 13,910 340 Samsung Fire & Marine Insurance Co., Ltd. 31,450 2,999 Samsung Heavy Industries Co., Ltd. (AE) 18,560 237 Samsung Securities Co., Ltd. 97,560 3,733 Shinhan Financial Group Co., Ltd. 339,060 11,368 Shinsegae Co., Ltd. 4,300 1,544 SK Corp. 33,710 1,733 SK Telecom Co., Ltd. 12,820 2,310 SK Telecom Co., Ltd. - ADR (AE)(N) 14,700 297 Tae Young Corp. (A) 11,339 435 Woori Finance Holdings Co., Ltd. 130,740 2,024 ------------ 139,979 ------------ Taiwan - 8.4% Acer, Inc. 1,412,500 2,878 Advantech Co., Ltd. 672,921 1,485 Asustek Computer, Inc. 1,277,000 3,361 AU Optronics Corp. 1,493,000 1,898 AU Optronics Corp. - ADR 27,800 354 Basso Industry Corp. 255,816 595 Cathay Financial Holding Co., Ltd. 2,303,200 4,056 China Steel Corp. 1,945,807 1,538 China Steel Corp. - GDR 62,591 1,005 Chunghwa Telecom Co., Ltd. 1,065,000 1,805 Chunghwa Telecom Co., Ltd. - ADR 147,700 2,558 CMC Magnetics Corp. (AE) 5,893,000 1,859 Compal Electronics, Inc. 4,275,923 3,811 Compal Electronics, Inc. - GDR (N) 216,133 973 Delta Electronics, Inc. 492,000 831 E.Sun Financial Holding Co., Ltd. 1,542,990 928 Elitegroup Computer Systems (AE) 525,000 324 Evergreen Marine Corp. 418,000 259 Far Eastern Textile Co., Ltd. 1,136,637 664
Emerging Markets Fund 127 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Far EasTone Telecommunications Co., Ltd. 1,324,000 1,542 Far EasTone Telecommunications Co., Ltd. - GDR (A) 11,000 192 Faraday Technology Corp. 297,185 447 Gigabyte Technology Co., Ltd. 1,088,718 905 HON HAI Precision Industry 1,722,423 7,473 Lite-On Technology Corp. 39,900 44 MediaTek, Inc. 38,200 331 Phoenixtec Power Co., Ltd. 565,629 505 Quanta Computer, Inc. 1,120,250 1,554 Realtek Semiconductor Corp. 12,550 13 Ritek Corp. (AE) 5,371,161 1,612 Taiwan Mobile Co., Ltd. 3,098,520 2,589 Taiwan Semiconductor Manufacturing Co., Ltd. 10,441,749 16,332 Taiwan Semiconductor Manufacturing Co., Ltd. - ADR 347,464 2,808 U-Ming Marine Transport Corp. 911,000 901 Vanguard International Semiconductor Corp. 1,726,518 1,135 Via Technologies, Inc. (AE) 570,693 299 Wintek Corp. 423,000 585 Zyxel Communications Corp. 469,680 845 ------------ 71,294 ------------ Thailand - 2.4% Advanced Info Service PCL 76,400 187 Airports of Thailand PCL 1,156,600 1,432 Bank of Ayudhya PCL 6,588,900 2,003 Charoen Pokphand Foods PCL 444,400 57 CP Seven Eleven PCL 5,188,300 763 Glow Energy PCL 942,500 502 Kasikornbank PCL 671,400 996 Kiatnakin Finance PCL 309,500 213 Land and Houses PCL (N) 2,842,700 554 National Petrochemical PCL 517,000 1,585 PTT Exploration & Production PCL 751,700 7,742 PTT PCL 453,100 2,444 Ratchaburi Electricity Generating Holding PCL 522,100 493 Regional Container Lines PCL 500,000 402 Siam City Bank PCL 1,778,400 1,033 Siam City Cement PCL 37,100 264 ------------ 20,670 ------------ Turkey - 3.8% Akbank TAS 659,787 4,104 Akcansa Cimento AS 65,996 310
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Anadolu Efes Biracilik Ve Malt Sanayii AS 135,230 3,303 Arcelik 87,000 519 Cimsa Cimento Sanayi VE Tica 263,875 1,533 Denizbank AS (AE) 354,206 1,983 Eregli Demir ve Celik Fabrikalari TAS 583,121 3,156 Finansbank (AE) 331,533 1,008 Ford Otomotiv Sanayi AS 320,400 2,290 Hurriyet Gazetecilik AS 420,200 1,182 Migros Turk TAS 219,555 1,919 Trakya Cam Sanayi AS 241,747 855 Tupras Turkiye Petrol Rafine 227,407 3,889 Turkcell Iletisim Hizmet AS 226,187 1,189 Turkcell Iletisim Hizmet AS - ADR 8,900 117 Turkiye Garanti Bankasi AS (AE) 617,600 1,837 Turkiye Is Bankasi 373,580 2,590 ------------ 31,784 ------------ United Kingdom - 2.3% Anglo American PLC 261,953 7,643 Genesis Smaller Companies (AE) 254,984 10,607 Old Mutual PLC 2,300 5 SABMiller PLC 76,800 1,443 ------------ 19,698 ------------ United States - 0.1% Investcom LLC - GDR (AE) 68,400 924 ------------ Venezuela - 0.2% Cia Anonima Nacional Telefonos de Venezuela - CANTV - ADR 126,182 1,628 Siderurgica Venezolana Sivensa SACA (AE) 1,306,495 19 ------------ 1,647 ------------ Zimbabwe - 0.1% Delta Corp., Ltd. (A) 1,134,586 389 OK Zimbabwe (A) 6,402,949 41 ------------ 430 ------------ TOTAL COMMON STOCKS (cost $542,767) 741,171 ------------ PREFERRED STOCKS - 6.8% Brazil - 5.8% Banco Bradesco SA 93,283 4,801 Banco Itau Holding Financeira SA (AE) 123,110 2,947 Brasil Telecom Participacoes SA 56,200,000 458 Braskem SA 258,400 2,226
128 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Caemi Mineracao e Metalurgica SA 706,000 1,122 Centrais Eletricas Brasileiras SA 65,823,500 1,137 Cia de Tecidos do Norte de Minas - Coteminas 5,276,440 539 Cia Siderurgica de Tubarao 56,800,000 3,481 Cia Vale do Rio Doce 165,600 6,096 Empresa Brasileira de Aeronautica SA 39,700 383 Gerdau SA 11,200 152 Klabin SA 441,000 842 Perdigao SA 21,700 588 Petroleo Brasileiro SA 943,372 13,494 Sadia SA 28,000 69 Suzano Bahia Sul Papel e Celulose SA 230,000 1,328 Tele Centro Oeste Celular Participacoes SA 56,932 506 Usinas Siderurgicas de Minas Gerais SA 305,200 6,166 Votorantim Celulose e Papel SA 177,327 2,126 Weg SA 136,900 446 ------------ 48,907 ------------ Colombia - 0.0% BanColombia SA 7,200 41 ------------ South Korea - 1.0% Hyundai Motor Co. 41,560 2,112 Samsung Electronics Co., Ltd. 15,079 6,186 ------------ 8,298 ------------ TOTAL PREFERRED STOCKS (cost $34,464) 57,246 ------------ WARRANTS & RIGHTS - 0.0% Malaysia - 0.0% IJM Corp. (AE) 2010 Warrants 71 8 ------------ TOTAL WARRANTS & RIGHTS (cost $1) 8 ------------ NOTIONAL MARKET AMOUNT VALUE $ $ - ----------------------------------------------------------------------------- OPTIONS PURCHASED - 0.3% (Number of Contracts) Brazil - 0.0% Bovespa Index Futures Dec 2005 31,365.00 (BRL) Call (150) 6,268 60 ------------ South Korea - 0.3% Kospi 200 Index Dec 2005 124.82 (KRW) Call (136) 8,130 2,194 ------------ TOTAL OPTIONS PURCHASED (cost $2,185) 2,254 ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 4.2% United States - 4.2% Frank Russell Investment Company Money Market Fund 31,505,000 31,505 United States Treasury Bills (c)(z)(sec.) 3.363% due 12/08/05 4,500 4,485 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $35,990) 35,990 ------------ OTHER SECURITIES - 1.8% Frank Russell Investment Company Money Market Fund (X) 4,959,363 4,960 State Street Securities Lending Quality Trust (X) 10,161,266 10,161 ------------ TOTAL OTHER SECURITIES (cost $15,121) 15,121 ------------ TOTAL INVESTMENTS - 100.6% (identified cost $630,528) 851,790 OTHER ASSETS AND LIABILITIES, NET - (0.6%) (4,888) ------------ NET ASSETS - 100.0% 846,902 ============
A portion of the Porfolio has been fair valued as of period end. See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 129 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Hang Seng Index (Hong Kong) expiration date 11/05 (56) 5,195 (8) JSE-40 Index (South Africa) expiration date 12/05 (320) 7,162 222 MSCI Singapore Index expiration date 11/05 (380) 9,147 87 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts 301 ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Brazil Bovespa Index Futures Dec 2005 31,365.00 (BRL) Put (150) 6,268 (210) South Korea Kospi 200 Index Futures Dec 2005 124.82 (KRW) Put (136) 8,130 (652) --------------- Total Liability for Options Written (premiums received $724) (862) ===============
See accompanying notes which are an integral part of the financial statements. 130 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 39 BRL 88 11/01/05 -- USD 49 BRL 111 11/01/05 -- USD 63 BRL 144 11/01/05 1 USD 13 BRL 30 11/03/05 -- USD 66 BRL 148 11/03/05 -- USD 417 BRL 1,000 12/21/05 19 USD 995 BRL 2,400 12/21/05 51 USD 2,528 BRL 6,100 12/21/05 133 USD 3,523 BRL 8,500 12/21/05 184 USD 18 HKD 140 11/01/05 -- USD 142 HKD 1,102 11/01/05 -- USD 86 HKD 669 11/02/05 -- USD 107 HKD 827 11/02/05 -- USD 54 HKD 417 11/03/05 -- USD 107 HUF 22,391 11/02/05 -- USD 18 IDR 177,246 11/09/05 -- USD 4,683 KRW 4,800,000 12/21/05 (83) USD 8,198 KRW 8,400,000 12/21/05 (148) USD 12 MYR 45 11/02/05 -- USD 4 MYR 16 11/07/05 -- USD 5 THB 219 11/01/05 -- USD 3 THB 143 11/02/05 -- USD 20 ZAR 135 11/01/05 -- USD 97 ZAR 652 11/02/05 -- USD 10 ZAR 68 11/03/05 -- USD 24 ZAR 160 11/04/05 -- USD 302 ZAR 2,000 12/21/05 (5) USD 8,411 ZAR 54,000 12/21/05 (397) BRL 1,000 USD 421 12/21/05 (15) BRL 2,000 USD 826 12/21/05 (46) HKD 276 USD 36 11/01/05 -- HKD 6,292 USD 811 11/01/05 -- IDR 100,519 USD 10 11/01/05 -- IDR 133,661 USD 13 11/09/05 -- ILS 814 USD 175 11/01/05 -- KRW 1,000,000 USD 975 12/21/05 17 KRW 1,000,000 USD 977 12/21/05 18 KRW 1,200,000 USD 1,169 12/21/05 19 MXN 595 USD 55 11/01/05 -- MYR 1 USD -- 11/02/05 -- MYR 104 USD 27 11/02/05 -- MYR 157 USD 42 11/02/05 -- MYR 75 USD 20 11/07/05 -- MYR 215 USD 57 11/07/05 -- THB 1,410 USD 35 11/01/05 --
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- THB 751 USD 18 11/02/05 -- THB 3,303 USD 81 11/02/05 -- ZAR 2,391 USD 357 11/01/05 -- ZAR 3,565 USD 532 11/01/05 -- ZAR 7,765 USD 1,171 11/01/05 13 ZAR 409 USD 61 11/02/05 -- ZAR 2,065 USD 307 11/02/05 (1) ZAR 6,063 USD 901 11/02/05 (3) ZAR 1,148 USD 171 11/03/05 (1) ZAR 2,316 USD 344 11/03/05 (1) ZAR 466 USD 69 11/04/05 -- ZAR 955 USD 142 11/04/05 -- ZAR 12,260 USD 1,818 11/04/05 (9) ZAR 198 USD 29 11/07/05 -- ZAR 445 USD 66 11/07/05 -- ZAR 2,000 USD 303 12/21/05 6 ZAR 2,000 USD 312 12/21/05 15 ZAR 4,000 USD 620 12/21/05 26 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts (207) ==============
See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 131 FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
INDUSTRY DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Auto and Transportation 3.4 27,042 Consumer Discretionary 4.4 36,620 Consumer Staples 4.1 35,436 Financial Services 20.2 174,493 Health Care 0.5 4,899 Integrated Oils 11.8 100,062 Materials and Processing 17.4 150,758 Miscellaneous 1.5 12,689 Other Energy 3.7 31,424 Producer Durables 1.7 13,111 Technology 11.3 95,061 Utilities 14.3 116,822 Options Purchased 0.3 2,254 Warrants and Rights -- 8 Short-Term Investments 4.2 35,990 Other Securities 1.8 15,121 ------------ ------------ Total Investments 100.6 851,790 Other Assets and Liabilities, Net (0.6) (4,888) ------------ ------------ Net Assets 100.0 846,902 ============ ============
GEOGRAPHIC DIVERSIFICATION % OF MARKET NET VALUE (UNAUDITED) ASSETS $ - ----------------------------------------------------------------------------- Africa 10.3 86,806 Asia 45.3 383,771 Europe 11.7 99,286 Latin America 20.9 176,508 Middle East 4.0 33,686 Other Regions 4.3 36,914 United Kingdom 2.3 19,698 Other Securities 1.8 15,121 ------------ ------------ Total Investments 100.6 851,790 Other Assets and Liabilities, Net (0.6) (4,888) ------------ ------------ Net Assets 100.0 846,902 ============ ============
See accompanying notes which are an integral part of the financial statements. 132 Emerging Markets Fund FRANK RUSSELL INVESTMENT COMPANY EMERGING MARKETS FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Argentina 0.1 Bermuda 0.1 Brazil 7.1 Chile 0.2 China 4.3 Columbia 0.4 Croatia 0.1 Ecuador 0.3 Egypt 2.3 Hong Kong 2.4 Hungary 2.3 India 4.2 Indonesia 3.1 Israel 1.7 Luxembourg 0.8 Malaysia 1.2 Mexico 6.7 Pakistan 1.1 Philippines 0.4 Russia 4.7 South Africa 10.2 South Korea 16.5 Taiwan 8.4 Thailand 2.4 Turkey 3.8 United Kingdom 2.3 United States 0.1 Venezuela 0.2 Zimbabwe 0.1 Preferred Stock 6.8 Warrants & Rights --* Options Purchased 0.3 Short-Term Investments 4.2 Other Securities 1.8 --------------- Total Investments 100.6 Other Assets and Liabilities Net (0.6) --------------- 100.0 =============== Futures Contracts --* Options Written (0.1) Foreign Currency Exchange Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Emerging Markets Fund 133 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
REAL ESTATE SECURITIES - CLASS S NAREIT EQUITY REIT ** -------------------------------- --------------------- * 10000.00 10000.00 1996 12515.00 12471.00 1997 16478.00 16554.00 1998 14547.00 14438.00 1999 13907.00 13422.00 2000 17384.00 15877.00 2001 19032.00 18148.00 2002 19897.00 19302.00 2003 26778.00 25851.00 2004 35427.00 33592.00 2005 41928.00 39620.00
Real Estate Securities Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.35% 5 Years 19.25%S 10 Years 15.41%S
Real Estate Securities Fund - Class E ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 18.09% 5 Years 18.96%S 10 Years 15.08%S
Real Estate Securities Fund - Class C ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.22% 5 Years 18.09%S 10 Years 14.51%S
NAREIT Equity REIT Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 17.92% 5 Years 20.07%S 10 Years 14.76%S
134 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Real Estate Securities Fund Class S, Class E and Class C Shares gained 18.35%, 18.09% and 17.22%, respectively. This compared to the NAREIT Equity REIT Index, which gained 17.92% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ending October 31, the Lipper(R) Real Estate Funds Average returned 17.49%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? The money managers positioned the Fund to capitalize on the strengthening economy and improving real estate market fundamentals. The largest overweight positions were in the lodging and regional malls sectors, which posted strong earnings growth during the fiscal year. The money managers maintained smaller overweights in the industrial, apartments and office sectors in view of the slower expected growth in these sectors. Sector positioning was a positive contributor to the Fund's performance during the fiscal year. The Fund maintained a primary focus on larger capitalization and more liquid real estate investment trusts (REITs) during the fiscal year. As this segment of the market outperformed the broader REIT market, the Fund benefited from this trend. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Both stock and property sector selection contributed positively to performance. Stock selection had the largest impact on performance and was strongest in the office, shopping centers, apartments, diversified and health care sectors. The Fund benefited from overweight positions in the apartments, regional malls and office sectors. Underweight positions in the free standing retail, health care and mixed industrial/office sectors contributed positively to performance. The Fund's overweight position in the industrial sector and underweight positions in the self storage and specialty sectors detracted from performance. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? AEW Management and Advisors, L.P. pursues a value-oriented style that focuses on identifying companies that it believes are mispriced relative to underlying real estate net asset values. AEW's portfolio tends to track relatively closely to the benchmark sector weights. AEW outperformed the benchmark during the fiscal year, primarily due to stock selection in the office, apartments and shopping centers sectors. Sector selection was also positive, as overweight positions in the apartments and regional malls sectors and underweight positions in the free standing retail, health care and office sectors boosted performance. These positive contributors to performance were partially offset by an overweight position in the mixed industrial/office sector which detracted from performance. INVESCO Institutional (N.A.), Inc., maintains a broadly diversified portfolio with exposure to all major property sectors. Its investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. INVESCO outperformed the benchmark during the fiscal year due to positive stock and sector selection. Stock selection was strongest in the office, regional malls, shopping centers and diversified sectors. Sector selection added value through an overweight in the regional malls sector and underweight positions in the health care, free standing retail and mixed industrial/office sectors. These gains were partially offset by underweight positions in the specialty and self storage sectors. RREEF America, LLC.'s style emphasizes a top-down approach to property sector weights, based on an assessment of property market fundamentals. RREEF outperformed the benchmark primarily due to positive stock selection in the shopping centers, office, diversified and health care sectors. Sector selection was mixed and provided a small positive contribution to performance. An overweight position in the apartments sector and underweight positions in the free standing retail and mixed industrial/office sectors boosted returns, but this was partially offset by underweight positions in the self storage and specialty sectors. Heitman Real Estate Securities, LLC follows a bottom-up investment approach, selecting a smaller number of stocks than the Fund's other money managers. Heitman focuses on companies that it believes have attractive valuations relative to growth prospects. Heitman outperformed the benchmark for the portion of the fiscal year it was in the Fund due to strong stock selection in the office sector. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. Heitman was added to the Fund's money manager line-up in January 2005. Heitman is expected to be complementary to the other money managers in the Fund due to its growth-oriented style and more concentrated portfolio. Real Estate Securities Fund 135 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- Money Managers as of Styles October 31, 2005 AEW Management and Advisors, L.P. Value Heitman Real Estate Securities, LLC Growth INVESCO Institutional (N.A.), Inc., through INVESCO Real Estate Division Market-Oriented RREEF America, LLC Market-Oriented
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Real Estate Securities Fund Class S assumes initial investment on November 1, 1995. ** 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. ++ Real Estate Securities Fund Class S performance has been linked with Class E to provide historical perspective. For the period, November 4, 1996 (commencement of sale) through May 15, 1998, Class E paid shareholder service and Rule 12b-1 distribution fees. From May 16, 1998 through the current period, Class E paid only shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++ Real Estate Securities Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From January 27, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 136 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,091.20 $ 1,014.62 Expenses Paid During Period* $ 11.07 $ 10.66
* Expenses are equal to the Fund's annualized expense ratio of 2.10% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,095.20 $ 1,018.40 Expenses Paid During Period* $ 7.13 $ 6.87
* Expenses are equal to the Fund's annualized expense ratio of 1.35% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,096.60 $ 1,019.66 Expenses Paid During Period* $ 5.81 $ 5.60
* Expenses are equal to the Fund's annualized expense ratio of 1.10% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Real Estate Securities Fund 137 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 96.6% Apartments - 17.5% Apartment Investment & Management Co. Class A (o)(N) 585,775 22,494 Archstone-Smith Trust (o) 1,247,505 50,611 AvalonBay Communities, Inc. (o) 811,600 70,001 BRE Properties Class A (o)(N) 85,800 3,785 Camden Property Trust (o)(N) 620,999 34,993 Equity Residential (o) 1,403,500 55,087 Essex Property Trust, Inc. (o)(N) 240,000 21,571 GMH Communities Trust (o) 524,600 7,853 Post Properties, Inc. (o) 32,800 1,338 United Dominion Realty Trust, Inc. (o) 220,000 4,869 ------------ 272,602 ------------ Diversified - 5.5% Colonial Properties Trust (o)(N) 114,600 5,009 iStar Financial, Inc. (o) 111,000 4,093 Spirit Finance Corp. (o)(N) 793,200 8,900 Vornado Realty Trust (o) 834,172 67,568 ------------ 85,570 ------------ Free Standing Retail - 0.1% Realty Income Corp. (o)(N) 96,500 2,149 ------------ Health Care - 3.4% Healthcare Realty Trust, Inc. (o)(N) 178,000 6,736 LTC Properties, Inc. (o)(N) 56,500 1,158 National Health Investors, Inc. (o)(N) 117,250 3,148 Omega Healthcare Investors, Inc. (o)(N) 270,000 3,318 Ventas, Inc. (o) 1,269,250 38,877 ------------ 53,237 ------------ Industrial - 7.4% AMB Property Corp. (o)(N) 330,100 14,584 Centerpoint Properties Trust (o)(N) 331,100 15,085 First Potomac Realty Trust (o)(N) 211,100 5,349 ProLogis (o) 1,878,972 80,796 ------------ 115,814 ------------ Lodging/Resorts - 9.0% Hilton Hotels Corp. 1,089,900 21,198 Hospitality Properties Trust (o)(N) 67,000 2,660 Host Marriott Corp. (o) 2,548,700 42,793 Innkeepers USA Trust (o) 109,300 1,705 La Quinta Corp. (AE)(o)(N) 64,900 542 LaSalle Hotel Properties (o)(N) 342,320 12,115 Starwood Hotels & Resorts Worldwide, Inc. (o) 980,383 57,284 Strategic Hotel Capital, Inc. (o) 68,000 1,155 ------------ 139,452 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Manufactured Homes - 0.8% Equity Lifestyle Properties, Inc. (o)(N) 261,900 11,086 Sun Communities, Inc. (o) 38,000 1,159 ------------ 12,245 ------------ Mixed Industrial/Office - 3.1% Digital Realty Trust, Inc. (o) 282,100 5,411 Duke Realty Corp. (o) 528,700 18,029 Liberty Property Trust (o) 502,600 20,953 PS Business Parks, Inc. (o)(N) 90,000 4,188 ------------ 48,581 ------------ Office - 18.5% Alexandria Real Estate Equities, Inc. (o)(N) 162,700 13,154 American Financial Realty Trust (o)(N) 230,700 2,840 Arden Realty, Inc. (o)(N) 468,900 21,166 BioMed Realty Trust, Inc. (o)(N) 472,750 11,824 Boston Properties, Inc. (o) 1,026,100 71,027 Brandywine Realty Trust (o)(N) 569,500 15,604 Brookfield Properties Co. 962,300 28,195 CarrAmerica Realty Corp. (o)(N) 241,100 7,940 Corporate Office Properties Trust (o)(N) 337,800 11,742 Equity Office Properties Trust (o) 252,100 7,765 Highwoods Properties, Inc. (o)(N) 240,000 6,770 Kilroy Realty Corp. (o)(N) 158,700 8,911 Mack-Cali Realty Corp. (o) 211,100 9,003 Maguire Properties, Inc. (o)(N) 110,600 3,318 Prentiss Properties Trust (o)(N) 309,000 12,193 Reckson Associates Realty Corp. (o) 513,700 18,031 SL Green Realty Corp. (o) 211,200 14,368 Trizec Properties, Inc. (o)(N) 1,062,200 23,634 ------------ 287,485 ------------ Regional Malls - 16.6% CBL & Associates Properties, Inc. (o)(N) 174,600 6,521 General Growth Properties, Inc. (o)(N) 1,477,900 62,781 Macerich Co. (The) (o)(N) 612,200 39,346 Mills Corp. (The) (o)(N) 409,388 21,902 Pennsylvania Real Estate Investment Trust (o) 90,671 3,491
138 Real Estate Securities Fund FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Simon Property Group, Inc. (o) 1,593,800 114,148 Taubman Centers, Inc. (o) 313,000 10,320 ------------ 258,509 ------------ Self Storage - 4.1% Extra Space Storage, Inc. (o)(N) 82,300 1,202 Public Storage, Inc. (o)(N) 638,800 42,289 Shurgard Storage Centers, Inc. Class A (o) 80,000 4,514 U-Store-It Trust (o)(N) 721,500 15,050 ------------ 63,055 ------------ Shopping Centers - 10.0% Acadia Realty Trust (o) 62,500 1,188 Developers Diversified Realty Corp. (o)(N) 771,600 33,704 Equity One, Inc. (o)(N) 224,700 5,269 Federal Realty Investors Trust (o) 474,400 28,772 Inland Real Estate Corp. (o)(N) 351,500 5,009 Kimco Realty Corp. (o) 315,000 9,330 Kite Realty Group Trust (o)(N) 197,800 2,923 New Plan Excel Realty Trust (o)(N) 88,800 2,042 Pan Pacific Retail Properties, Inc. (o) 419,213 26,620 Ramco-Gershenson Properties Trust (o)(N) 86,800 2,408 Regency Centers Corp. (o) 610,300 33,975 Weingarten Realty Investors (o) 112,600 4,004 ------------ 155,244 ------------ Specialty - 0.6% Capital Automotive REIT (o)(N) 59,400 2,294 Plum Creek Timber Co., Inc. (o)(N) 200,000 7,780 ------------ 10,074 ------------ TOTAL COMMON STOCKS (cost $1,065,848) 1,504,017 ------------ SHORT-TERM INVESTMENTS - 2.9% Frank Russell Investment Company Money Market Fund 45,777,000 45,777 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $45,777) 45,777 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 7.9% Frank Russell Investment Company Money Market Fund (X) 40,143,053 40,143 State Street Securities Lending Quality Trust (X) 82,249,322 82,249 ------------ TOTAL OTHER SECURITIES (cost $122,392) 122,392 ------------ TOTAL INVESTMENTS - 107.4% (identified cost $1,234,017) 1,672,186 OTHER ASSETS AND LIABILITIES, NET - (7.4%) (115,905) ------------ NET ASSETS - 100.0% 1,556,281 ============
See accompanying notes which are an integral part of the financial statements. Real Estate Securities Fund 139 FRANK RUSSELL INVESTMENT COMPANY REAL ESTATE SECURITIES FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Apartments 17.5 Diversified 5.5 Free Standing Retail 0.1 Health Care 3.4 Industrial 7.4 Lodging/Resorts 9.0 Manufactured Homes 0.8 Mixed Industrial/Office 3.1 Office 18.5 Regional Malls 16.6 Self Storage 4.1 Shopping Center 10.0 Specialty 0.6 Short-Term Investments 2.9 Other Securities 7.9 --------------- Total Investments 107.4 Other Assets and Liabilities, Net (7.4) --------------- 100.0 ===============
See accompanying notes which are an integral part of the financial statements. 140 Real Estate Securities Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
MERRILL LYNCH 1-2.99 YEARS SHORT DURATION BOND - CLASS S TREASURY ** ----------------------------- -------------------------- * 10000 10000 1996 10561 10591 1997 11204 11278 1998 11941 12146 1999 12282 12510 2000 13028 13270 2001 14430 14707 2002 15124 15427 2003 15569 15737 2004 15878 16009 2005 15959 16116
Short Duration Bond Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.51% 5 Years 4.14%S 10 Years 4.79%S
Short Duration Bond Fund - Class E ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.25% 5 Years 3.89%S 10 Years 4.61%S
Short Duration Bond Fund - Class C ++++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year (0.50)% 5 Years 3.13%S 10 Years 4.09%S
Merrill Lynch 1-2.99 Years Treasury Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 0.67% 5 Years 3.96%S 10 Years 4.89%S
142 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide current income and preservation of capital with a focus on short duration securities. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Short Duration Bond Fund Class S, Class E and Class C Shares returned 0.51%, 0.25% and (0.50)% respectively. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 0.67% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Short Investment Grade Debt Funds Average returned 0.96%. This return serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Short-term interest rates increased over the 12 months ending October 31, 2005. Therefore, the Fund's money managers who favored shorter-than-index duration positions should have performed better. However, given spikes in interest rate volatility throughout the year, money managers that responded more tactically by changing their duration stance relatively quickly performed better. Duration is a measure of a bond price's sensitivity to a change in interest rates. Fund performance was helped by tactical duration decisions and yield curve positioning. Despite the increase in short-term interest rates, shorter maturity non-Treasury sectors achieved strong benchmark relative performance. The Fund benefited from having an overweight position in non-Treasury sectors, such as corporate and mortgage-backed securities, as well as high yield corporate bonds and emerging market debt securities. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund derived much of its performance by maintaining overweighted positions in the riskier sectors of the fixed income markets relative to the all-Treasury benchmark. These sectors included investment grade corporate, mortgage- and asset-backed securities, high yield and emerging market debt. The allocation to these non-Treasury sectors benefited the Fund by providing a larger-than-benchmark yield and higher-than-benchmark total return. In addition, the Fund's money managers added value through positive security selection and sector allocation decisions. Finally, duration and yield curve positioning also benefited the Fund. In contrast, investments in government securities such as Treasury Inflation Protected Securities (TIPS) detracted from performance during the fiscal year. The Fund's performance shortfall relative to benchmark was due to the impact of Fund operating expenses. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund entered the fiscal year positioned to take advantage of the anticipated continued strong performance in the non-Treasury sectors such as investment grade and emerging market debt; however, the Fund was also positioned to reflect a more cautious view on the direction of interest rates. As the fiscal year progressed, shorter duration non-Treasury sectors continued to perform well, leading to less attractive valuations in those sectors. In response, the Fund's money managers reduced risk by reducing exposure to non-investment grade sectors and focusing on higher quality securities. While the Fund's money managers took profits in the non-Treasury sectors, the Fund maintained a near benchmark duration stance throughout most of the fiscal year although duration positioning did vary as the Fund's money managers made tactical investment decisions. The key investment strategies of sector rotation, issue selection, and duration and yield curve management all helped performance. Sector rotation strategies drove the Fund's money managers to overweight non-benchmark sectors, which tended to outperform the all-Treasury security benchmark. The money managers also added value through security selection. Finally, in order to take advantage of interest rates changes, some money managers took either longer or shorter duration positions at various times resulting in positive performance. Short Duration Bond Fund 143 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There were no changes to Fund's structure or the money manager line-up in the fiscal year. Money Managers as of Styles October 31, 2005 Merganser Capital Management, L.P. Sector Rotation Pacific Investment Management Company, LLC Sector Rotation STW Fixed Income Management Ltd. Sector Rotation
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * Short Duration Bond Fund Class S assumes initial investment on November 1, 1995. ** Merrill Lynch 1-2.99 Years Treasury Index is an index composed of approximately 160 issues in the form of publicly placed, coupon-bearing US Treasury debt. Issues must carry a term to maturity of at least one year, and par amounts outstanding must be no less than $10 million at the start and at the close of the performance measurement periods. ++++ Short Duration Bond Fund Class S performance has been linked with Class E to provide historical perspective. From February 18, 1999 (commencement of sale) through the current period, Class E paid shareholder service fees. Total return would have been lower had these fees been in effect during prior reporting periods. ++++++Short Duration Bond Fund Class S and Class E performance has been linked with Class C to provide historical perspective. From March 3, 1999 (commencement of sale) through the current period, Class C paid shareholder service and Rule 12b-1 distribution fees. Total return would have been lower had these fees been in effect during prior reporting periods. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 144 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,000.20 $ 1,016.84 Expenses Paid During Period* $ 8.37 $ 8.44
* Expenses are equal to the Fund's annualized expense ratio of 1.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,004.00 $ 1,020.62 Expenses Paid During Period* $ 4.60 $ 4.63
* Expenses are equal to the Fund's annualized expense ratio of 0.91% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,005.20 $ 1,021.88 Expenses Paid During Period* $ 3.34 $ 3.36
* Expenses are equal to the Fund's annualized expense ratio of 0.66% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Short Duration Bond Fund 145 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- LONG-TERM INVESTMENTS - 78.6% Asset-Backed Securities - 24.4% AAA Trust (p) Series 2005-2 Class A1 4.151% due 11/26/35 1,306 1,305 Aegis Asset Backed Securities Trust (E) Series 2005-1 Class 1A1 4.158% due 03/25/35 253 253 Alter Moneta Receivables LLC (A) Series 2003-1 Class NOTE 2.563% due 03/15/11 718 713 AmeriCredit Automobile Receivables Trust Series 2005-AX Class A3 3.630% due 01/06/10 2,000 1,970 Asset Backed Securities Corp. Home Equity (E) Series 2002-HE1 Class M1 5.070% due 03/15/32 1,400 1,434 Banc of America Securities Auto Trust Series 2005-WF1 Class A4 4.080% due 04/18/10 3,000 2,945 Bank One Issuance Trust Series 2004-A1 Class A1 3.450% due 10/17/11 8,185 7,849 Series 2004-B2 Class B2 4.370% due 04/15/12 1,500 1,467 Bay View Auto Trust Series 2003-LJ1 Class A3 2.430% due 07/25/08 83 83 Bear Stearns Asset Backed Securities, Inc. (E) Series 2004-BO1 Class 1A1 4.238% due 09/25/34 472 472 BMW Vehicle Owner Trust Series 2004-A Class A4 3.320% due 02/25/09 4,200 4,112 California Infrastructure PG&E-1 Series 1997-1 Class A7 6.420% due 09/25/08 940 949 Series 1997-1 Class A8 6.480% due 12/26/09 3,000 3,085 California Infrastructure SCE-1 Series 1997-1 Class A7 6.420% due 12/26/09 7,450 7,653 California Infrastructure SDG&E-1 Series 1997-1 Class A6 6.310% due 09/25/08 273 275 Capital Auto Receivables Asset Trust Series 2004-1 Class A3 2.000% due 11/15/07 777 767
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-2 Class A2 3.350% due 02/15/08 3,000 2,954 Capital One Auto Finance Trust Series 2001-B Class A4 4.880% due 09/15/08 759 759 Series 2005-BSS Class A3 4.080% due 11/15/09 2,000 1,973 Capital One Master Trust Series 2002-4A Class A 4.900% due 03/15/10 1,000 1,002 Capital One Prime Auto Receivables Trust Series 2004-3 Class A4 3.690% due 06/15/10 1,000 974 Series 2004-3 Class B 3.860% due 08/15/11 1,500 1,462 Carmax Auto Owner Trust Series 2004-2 Class A4 3.460% due 09/15/11 2,500 2,423 Series 2005-2 Class A4 4.340% due 09/15/10 2,000 1,966 Carrington Mortgage Loan Trust (E) Series 2005-NC3 Class A1A 4.118% due 06/25/35 335 335 Series 2005-OPT Class A1A 4.128% due 05/25/35 613 613 Centex Home Equity Series 2003-C Class AF4 4.960% due 04/25/32 1,750 1,742 Chase Credit Card Master Trust (E) Series 2001-1 Class A 4.110% due 06/16/08 1,800 1,801 Series 2004-2 Class A 4.010% due 09/15/09 2,500 2,501 Chase Issuance Trust Series 2004-A9 Class A9 3.220% due 06/15/10 3,000 2,915 Chase Manhattan Auto Owner Trust Series 2002-B Class A4 4.210% due 01/15/09 4,411 4,409 Series 2004-A Class A4 2.830% due 09/15/10 1,800 1,740 Series 2005-A Class A4 3.980% due 04/15/11 1,000 976 Series 2005-A Class CTFS 4.040% due 04/15/11 1,000 984
146 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Chemical Master Credit Card Trust 1 Series 1996-2 Class A 5.980% due 09/15/08 6,000 6,018 CIT Equipment Collateral Series 2003-VT1 Class A3B 1.630% due 04/20/07 138 136 Series 2004-VT1 Class A3 2.200% due 03/20/08 1,123 1,106 Series 2005-VT1 Class A3 4.120% due 08/20/08 1,150 1,139 CIT Marine Trust Series 1999-A Class A4 6.250% due 11/15/19 843 848 CIT RV Trust Series 1998-A Class A5 6.120% due 11/15/13 699 704 Citibank Credit Card Issuance Trust Series 2003-A3 Class A3 3.100% due 03/10/10 1,000 962 Series 2003-A5 Class A5 2.500% due 04/07/08 1,700 1,685 Series 2004-A1 Class A1 2.550% due 01/20/09 6,975 6,788 Series 2004-A4 Class A4 3.200% due 08/24/09 3,425 3,331 Citigroup Mortgage Loan Trust, Inc. (E) Series 2005-HE3 Class A2A 4.148% due 09/25/35 1,345 1,345 CNH Equipment Trust Series 2003-A Class A3B 1.890% due 07/16/07 240 239 CNH Wholesale Master Note Trust (E) Series 2005-1 Class A 4.080% due 06/15/11 1,500 1,500 Community Program Loan Trust Series 1987-A Class A4 4.500% due 10/01/18 2,419 2,380 Connecticut RRB Special Purpose Trust CL&P Series 2001-1 Class A5 6.210% due 12/30/11 1,000 1,049 Countrywide Asset-Backed Certificates Series 2001-BC3 Class A (E) 4.278% due 12/25/31 273 273 Series 2004-7 Class AF2 3.324% due 12/25/23 1,000 997 Series 2005-4 Class 3AV1 (E) 4.118% due 10/25/35 2,184 2,184 Series 2005-5 Class 2A1 (E) 4.118% due 10/25/35 668 668 Series 2005-9 Class 2A1 (E) 3.938% due 08/25/35 1,074 1,074
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Daimler Chrysler Auto Trust Series 2005-A Class A3 3.490% due 12/08/08 2,330 2,297 Series 2005-A Class A4 3.740% due 02/08/10 8,100 7,925 Dillard Credit Card Master Trust Series 2002-2 Class A 3.800% due 09/15/10 3,650 3,623 Discover Card Master Trust I Series 1996-3 Class A 6.050% due 08/18/08 2,225 2,235 Series 2002-2 Class B 5.450% due 10/15/09 1,000 1,009 E-Trade RV and Marine Trust Series 2004-1 Class A3 3.620% due 10/08/18 1,300 1,245 Equifirst Mortgage Loan Trust (E) Series 2005-1 Class A1 4.098% due 04/25/35 1,929 1,929 Federal Farm Credit Bank 12.250% due 02/01/07 2,446 2,544 Fifth Third Auto Trust Series 2004-A Class A3 3.190% due 02/20/08 2,000 1,978 Finance America Mortgage Loan Trust (E) Series 2004-1 Class 2A1 4.208% due 06/25/34 367 367 First National Master Note Trust (E) Series 2003-1 Class A 4.070% due 08/15/08 1,000 1,000 First NLC Trust (E) Series 2005-2 Class AV1 4.148% due 09/25/35 757 757 Fleet Credit Card Master Trust II Series 2001-B Class A 5.600% due 12/15/08 3,000 3,017 Series 2001-B Class B 5.900% due 12/15/08 1,100 1,108 Ford Credit Auto Owner Trust Series 2005-A Class A3 3.480% due 11/15/08 8,225 8,114 Series 2005-B Class A4 4.380% due 01/15/10 500 495 Series 2005-B Class B 4.640% due 04/15/10 1,250 1,236 Series 2005-C Class B 4.520% due 09/15/10 1,000 982
Short Duration Bond Fund 147 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Franklin Auto Trust Series 2003-1 Class A4 2.270% due 05/20/11 1,027 1,003 Fremont Home Loan Trust (E) Series 2004-4 Class 2A1 4.198% due 03/25/35 282 282 GE Commercial Equipment Financing LLC (E) Series 2004-1 Class B 4.200% due 12/20/15 606 606 GE Corporate Aircraft Financing LLC (E)(A) Series 2004-1A Class B 4.888% due 01/25/18 702 702 GE Dealer Floorplan Master Note Trust (E) Series 2004-2 Class B 4.290% due 07/20/09 1,000 1,002 GMAC Mortgage Corp. Loan Trust Series 2004-GH1 Class A2 4.390% due 12/25/25 1,500 1,487 GS Auto Loan Trust Series 2004-1 Class A3 2.130% due 11/15/07 1,573 1,557 Series 2005-1 Class A4 4.560% due 11/15/13 1,300 1,286 GSAMP Trust (E) Series 2004-NC2 Class A2A 4.218% due 10/01/34 154 154 Series 2004-SEA Class A2A 4.328% due 03/25/34 941 941 Honda Auto Receivables Owner Trust Series 2003-2 Class A4 2.160% due 10/21/08 5,505 5,369 Series 2003-3 Class A4 2.770% due 11/21/08 2,000 1,954 Series 2003-4 Class A4 2.790% due 03/16/09 1,000 976 Series 2003-5 Class A3 2.300% due 10/18/07 726 718 Series 2003-5 Class A4 2.960% due 04/20/09 2,135 2,079 Series 2004-3 Class A4 3.280% due 02/18/10 2,000 1,925 Household Automotive Trust Series 2005-3 Class A2 4.700% due 01/17/09 2,600 2,600 Household Mortgage Loan Trust (E) Series 2003-HC1 Class A 4.350% due 02/20/33 520 521 Household Private Label Credit Card Master Note Trust I (E) Series 2002-2 Class A 4.140% due 01/18/11 1,000 1,001
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Hyundai Auto Receivables Trust Series 2002-A Class A3 (A) 2.800% due 02/15/07 99 99 Series 2004-A Class A3 2.970% due 05/15/09 1,000 980 Series-A Class A3 3.980% due 11/16/09 1,500 1,478 Illinois Power Special Purpose Trust Series 1998-1 Class A6 5.540% due 06/25/09 3,829 3,857 IXIS Real Estate Capital Trust (E) Series 2005-HE2 Class A1 4.118% due 09/25/35 764 764 Long Beach Auto Receivables Trust Series 2005-B Class A3 4.406% due 05/15/10 1,500 1,486 Marlin Leasing Receivables LLC (A) Series 2005-1A Class A3 4.630% due 11/17/08 1,650 1,640 MBNA Credit Card Master Note Trust Series 2001-A1 Class A1 5.750% due 10/15/08 1,000 1,006 Series 2003-A6 Class A6 2.750% due 10/15/10 1,430 1,361 Series 2004-A4 Class A4 2.700% due 09/15/09 11,005 10,690 Series 2005-A7 Class A7 4.300% due 02/15/11 1,500 1,480 Merrill Auto Trust Securitization Series 2005-1 Class A3 4.100% due 08/25/09 3,000 2,965 Morgan Stanley Dean Witter Capital I (E) Series 2002-HE1 Class A2 4.368% due 07/25/32 3 3 National City Auto Receivables Trust Series 2002-A Class A4 4.830% due 08/15/09 865 866 Series 2004-A Class A3 2.110% due 07/15/08 1,334 1,318 National City Bank 2.700% due 08/24/09 1,818 1,726 Navistar Financial Corp. Owner Trust Series 2002-A Class A4 4.760% due 04/15/09 524 524
148 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Nelnet Education Loan Funding, Inc. Series 2001-A Class A1 5.760% due 07/01/12 2,267 2,306 Nelnet Student Loan Trust (E) Series 2002-2 Class A3 4.061% due 09/25/13 366 366 Nissan Auto Lease Trust Series 2005-A Class A3 4.700% due 10/15/08 3,000 2,996 Nissan Auto Receivables Owner Trust Series 2005-A Class A3 3.540% due 10/15/08 1,650 1,625 Series 2005-B Class A3 3.990% due 07/15/09 1,600 1,581 Nordstrom Private Label Credit Card Master Note Trust (A) Series 2001-1A Class A 4.820% due 04/15/10 3,500 3,503 Onyx Acceptance Grantor Trust Series 2005-A Class A4 3.910% due 09/15/11 2,000 1,955 Option One Mortgage Loan Trust (E) Series 2005-1 Class A2 4.168% due 02/25/35 735 735 PBG Equipment Trust (A) Series 1998-1A Class A 6.270% due 01/20/12 790 790 Peco Energy Transition Trust Series 1999-A Class A6 6.050% due 03/01/09 1,996 2,018 PG&E Energy Recovery Funding LLC Series 2005-1 Class A2 3.870% due 06/25/11 2,905 2,855 PNC Student Loan Trust I Series 1997-2 Class A7 6.728% due 01/25/07 682 688 Popular ABS Mortgage Pass-Through Trust Series 2004-5 Class AF2 3.735% due 12/25/34 965 951 Series 2005-3 Class AF3 4.437% due 07/25/35 2,000 1,969 Provident Auto Lease ABS Trust (A) Series 1999-1 Class A2 7.025% due 01/14/12 21 21 Providian Gateway Master Trust (A) Series 2004-FA Class A 3.650% due 11/15/11 1,200 1,172 PSE&G Transition Funding LLC Series 2001-1 Class A3 5.980% due 06/15/08 1,831 1,841
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Public Service New Hampshire Funding LLC Series 2001-1 Class A2 5.730% due 11/01/10 1,263 1,276 Railcar Leasing LLC (A) Series 1997-1 Class A2 7.125% due 01/15/13 1,000 1,060 Regions Auto Receivables Trust Series 2003-2 Class A3 2.310% due 01/15/08 875 869 Residential Asset Mortgage Products, Inc. (E) Series 2004-RS1 Class AII1 4.168% due 06/25/27 1,576 1,577 Series 2004-RS2 Class AIIB 4.288% due 02/25/34 1,542 1,544 Series 2004-RS8 Class AII1 4.178% due 05/25/26 809 809 Sears Credit Account Master Trust Series 1999-3 Class A 6.450% due 11/17/09 121 121 Series 2002-5 Class A (E) 4.350% due 11/17/09 3,500 3,500 SLM Student Loan Trust (A) Series 2003-4 Class A5B 3.390% due 03/15/33 3,000 2,898 Specialty Underwriting & Residential Finance (E) Series 2004-BC4 Class A2A 4.188% due 10/25/35 1,094 1,094 Susquehanna Auto Lease Trust (A) Series 2003-1 Class A3 2.460% due 01/14/07 519 514 Series 2005-1 Class A3 4.430% due 06/16/08 4,000 3,978 Series 2005-1 Class B 4.710% due 07/14/08 1,700 1,688 Toyota Auto Receivables Owner Trust Series 2003-B Class A4 2.790% due 01/15/10 4,670 4,581 Toyota Motor Credit Corp. 2.750% due 08/06/09 2,909 2,788 Triad Auto Receivables Owner Trust Series 2002-A Class A4 3.240% due 08/12/09 1,504 1,490 Series 2003-B Class A3 2.480% due 03/12/08 595 592 Series 2004-A Class A3 1.900% due 07/14/08 1,000 990
Short Duration Bond Fund 149 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- USAA Auto Owner Trust Series 2004-2 Class A3 3.030% due 06/16/08 4,425 4,376 Series 2004-2 Class A4 3.580% due 02/15/11 1,700 1,665 Series 2005-2 Class A4 4.170% due 02/15/11 4,000 3,922 Wachovia Auto Owner Trust Series 2004-A Class A3 3.190% due 06/20/08 2,000 1,980 Series 2004-A Class A4 3.660% due 07/20/10 10,500 10,280 Series 2004-B Class A3 2.910% due 04/20/09 5,000 4,916 Wells Fargo Financial Auto Owner Trust Series 2004-A Class A4 2.670% due 08/16/10 2,000 1,946 Wells Fargo Home Equity Trust (E) Series 2004-2 Class A31 4.198% due 06/25/19 4 4 West Penn Funding LLC Transition Bonds Series 1999-A Class A3 6.810% due 09/25/08 780 786 WFS Financial Owner Trust Series 2002-3 Class A4 3.500% due 02/20/10 1,407 1,397 Series 2004-1 Class A3 2.190% due 06/20/08 1,500 1,490 Whole Auto Loan Trust Series 2003-1 Class A3B 1.990% due 05/15/07 1,001 995 Series 2003-1 Class B 2.240% due 03/15/10 433 426 World Omni Auto Receivables Trust (E) Series 2005-B Class A4 4.020% due 09/20/12 2,000 2,000 ------------ 296,478 ------------ Corporate Bonds and Notes - 17.4% ABN Amro Bank NV 7.125% due 06/18/07 1,700 1,760 Allstate Financial Global Funding (A) 2.500% due 06/20/08 4,080 3,838 Altria Group, Inc. 7.650% due 07/01/08 1,500 1,595 American Express Centurion Bank Series BKNT 4.375% due 07/30/09 3,440 3,370
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- American General Finance Corp. (E) Series MTNG 4.000% due 03/23/07 200 200 Associates Corp. of North America 6.250% due 11/01/08 1,900 1,973 8.550% due 07/15/09 750 840 Bank of America Corp. 6.375% due 02/15/08 3,000 3,095 Bank of Montreal 7.800% due 04/01/07 3,000 3,119 Bank One Corp. 2.625% due 06/30/08 3,050 2,881 BankAmerica Corp. 6.250% due 04/01/08 2,000 2,059 7.125% due 03/01/09 1,500 1,597 BB&T Corp. (E) Series BKNT 3.831% due 06/04/07 3,500 3,502 BellSouth Corp. 4.200% due 09/15/09 6,980 6,770 Boeing Co. 8.100% due 11/15/06 2,375 2,453 British Aerospace Finance, Inc. (p) 7.000% due 07/01/07 900 925 CIT Group, Inc. 7.375% due 04/02/07 6,800 7,032 4.120% due 09/20/07 (N)(E) 3,800 3,811 Citigroup Global Markets Holdings, Inc. (E) Series MTNM 3.816% due 03/07/08 1,600 1,599 Citigroup, Inc. (E) 3.821% due 06/04/07 1,000 1,000 Consolidated Edison Co. of New York Series B 7.150% due 12/01/09 1,000 1,080 CSX Corp. 6.250% due 10/15/08 2,000 2,066 Deutsche Bank Financial, Inc. 7.500% due 04/25/09 2,000 2,159 Dominion Resources, Inc. Series G 3.660% due 11/15/06 1,800 1,778 Entergy Mississippi, Inc. 4.350% due 04/01/08 500 490 Fifth Third Bancorp Series BKNT 3.375% due 08/15/08 2,000 1,923 Fifth Third Bank Series BKNT 4.200% due 02/23/10 2,000 1,945
150 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- FleetBoston Financial Corp. 6.375% due 05/15/08 4,185 4,324 Ford Motor Credit Co. 6.500% due 01/25/07 1,500 1,482 4.870% due 03/21/07 (E) 2,800 2,726 7.260% due 11/02/07 (E) 200 199 GATX Rail Corp. 6.750% due 05/01/09 2,500 2,594 General Electric Capital Corp. 4.281% due 10/21/10 (E) 2,000 1,999 Series MTNA 4.625% due 09/15/09 6,460 6,388 General Mills, Inc. 5.125% due 02/15/07 3,000 3,004 General Motors Acceptance Corp. (E) 5.050% due 01/16/07 200 197 Goldman Sachs Group, Inc. 4.202% due 10/05/07 (E) 2,000 2,004 4.500% due 10/07/11 (E) 3,000 3,013 Series MTNB (E) 4.524% due 07/23/09 2,000 2,011 Harrah's Operating Co., Inc. 7.500% due 01/15/09 1,500 1,595 Household Finance Corp. (E) 3.900% due 02/28/07 3,200 3,201 HSBC Finance Corp. 6.500% due 11/15/08 10,130 10,554 International Lease Finance Corp. 5.625% due 06/01/07 (N) 1,600 1,616 4.750% due 07/01/09 2,250 2,210 Series MTNP 3.125% due 05/03/07 2,200 2,143 John Hancock Global Funding II 6.000% due 12/28/06 2,450 2,479 Lehman Brothers Holdings, Inc. 7.875% due 08/15/10 1,000 1,114 Lehman Brothers, Inc. 6.625% due 02/15/08 1,500 1,556 Medco Health Solutions, Inc. 7.250% due 08/15/13 1,750 1,895 Merrill Lynch & Co., Inc. 4.831% due 10/27/08 3,925 3,909 Metropolitan Life Global Funding I (A) 4.250% due 07/30/09 4,000 3,909 MGM Mirage 9.750% due 06/01/07 1,200 1,260 Morgan Stanley 4.341% due 07/27/07 (E) 3,000 3,005 3.875% due 01/15/09 2,000 1,930 National City Bank Series BKNT 4.250% due 01/29/10 1,375 1,338
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- National Rural Utilities Cooperative Finance Corp. Series MTNC 6.500% due 03/01/07 2,200 2,248 New York Life Global Funding (E)(A) 3.901% due 02/26/07 2,500 2,501 Nisource Finance Corp. 3.200% due 11/01/06 2,795 2,749 3.628% due 11/01/06 1,300 1,283 Northern States Power-Minnesota 6.875% due 08/01/09 3,000 3,179 Pepco Holdings, Inc. 5.500% due 08/15/07 400 403 Principal Life Global Funding I (A) 5.125% due 06/28/07 2,000 2,002 2.800% due 06/26/08 5,600 5,321 Principal Life Income Funding Trusts 3.200% due 04/01/09 1,500 1,426 Prudential Financial, Inc. 4.104% due 11/15/06 500 495 Residential Capital Corp. (A) 6.375% due 06/30/10 2,000 2,031 SBC Communications Capital Corp. Series MTND 6.680% due 11/28/07 1,075 1,105 SLM Corp. 3.625% due 03/17/08 7,200 7,009 Texas Eastern Transmission, LP 5.250% due 07/15/07 2,900 2,913 Textron, Inc. 6.375% due 11/15/08 2,500 2,601 TIAA Global Markets (A) 5.000% due 03/01/07 3,625 3,632 Unilever Capital Corp. 7.125% due 11/01/10 1,000 1,094 US Bancorp Series MTNN 5.100% due 07/15/07 1,650 1,658 US Bank NA Series BKNT 4.125% due 03/17/08 1,600 1,577 US Central Credit Union 2.750% due 05/30/08 1,880 1,788 USAA Capital Corp. (A) Series MTNB 4.640% due 12/15/09 595 587
Short Duration Bond Fund 151 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Virginia Electric and Power Co. Series A 5.375% due 02/01/07 675 679 Wachovia Bank NA Series BKNT 4.375% due 08/15/08 2,250 2,224 Wachovia Corp. 5.625% due 12/15/08 (N) 8,200 8,393 Series* (E) 4.121% due 07/20/07 3,500 3,504 Wells Fargo (N) 4.125% due 03/10/08 820 809 Wells Fargo & Co. 6.250% due 04/15/08 8,337 8,608 ------------ 210,334 ------------ International Debt - 2.1% Brazilian Government International Bond 9.760% due 06/29/09 (E) 1,150 1,340 8.000% due 01/15/18 2,000 2,066 British Telecommunications PLC 7.000% due 05/23/07 1,700 1,748 Eli Lilly Services, Inc. (E)(p) 3.907% due 09/12/08 4,000 3,999 HBOS Treasury Services PLC (A) 4.203% due 01/12/07 (E) 900 901 3.500% due 11/30/07 2,000 1,949 3.750% due 09/30/08 1,000 971 HSBC Bank PLC 6.950% due 03/15/11 1,000 1,108 Inter-American Development Bank 12.250% due 12/15/08 1,250 1,517 Interstar Millennium Trust (E) Series 2004-2G Class A 4.057% due 03/14/36 1,900 1,900 Mexico Government International Bond 4.625% due 10/08/08 3,250 3,211 National Westminster Bank PLC 7.375% due 10/01/09 1,000 1,086 Panama Government International Bond 8.250% due 04/22/08 1,200 1,274 Peru Government International Bond 9.125% due 01/15/08 900 972 Province of Ontario 5.500% due 10/01/08 1,500 1,536 ------------ 25,578 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Mortgage-Backed Securities - 20.7% American Home Mortgage Investment Trust (E) Series 2004-3 Class 5A 4.290% due 10/25/34 2,599 2,544 Series 2004-4 Class 4A 4.390% due 02/25/45 904 885 Banc of America Commercial Mortgage, Inc. Series 2004-2 Class A1 2.764% due 11/10/38 2,346 2,255 Banc of America Funding Corp. (E) Series 2005-D Class A1 4.117% due 05/25/35 10,426 10,269 Banc of America Mortgage Securities Series 2004-2 Class 2A1 5.250% due 03/25/34 1,385 1,382 Bank of America Mortgage Securities Series 2002-K Class 2A1 (E) 5.487% due 10/20/32 55 55 Series 2004-2 Class 5A1 6.500% due 10/25/31 399 406 Bear Stearns Adjustable Rate Mortgage Trust Series 2002-9 Class 2A 5.279% due 10/25/32 18 18 Series 2003-1 Class 5A1 5.448% due 04/25/33 547 533 Series 2003-8 Class 2A1 (E) 4.830% due 01/25/34 583 578 Bear Stearns Alt-A Trust Series 2005-4 Class 23A1 5.431% due 05/25/35 1,663 1,670 Bear Stearns Asset Backed Securities, Inc. Series 2003-AC3 Class A1 4.000% due 07/25/33 617 607 Bear Stearns Commercial Mortgage Securities Series 1998-C1 Class A1 6.340% due 06/16/30 415 420 Series 1999-C1 Class A2 6.020% due 02/14/31 2,000 2,054 Series 2001-TOP Class A1 5.060% due 11/15/16 781 782 Series 2003-PWR Class A1 3.432% due 05/11/39 758 732 Series 2003-T10 Class A1 4.000% due 03/13/40 1,490 1,434 Series 2003-T12 Class A1 2.960% due 08/13/39 1,480 1,421
152 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Commercial Mortgage Pass Through Certificates Series 2004-LB2 Class A2 3.600% due 03/10/39 1,000 958 Countrywide Alternative Loan Trust Series 2003-6T2 Class A1 6.500% due 06/25/33 295 296 Series 2003-J2 Class A1 6.000% due 10/25/33 691 691 Credit Suisse First Boston Mortgage (E)(p) Series 2002-P3 Class A 1.691% due 08/25/33 332 333 Credit Suisse First Boston Mortgage Securities Corp. Series 2002-AR2 Class 2A2 5.641% due 10/25/32 41 41 Series 2003-C4 Class A2 3.908% due 08/15/36 1,000 974 Series 2003-CK2 Class A1 3.006% due 03/15/36 906 878 Series 2004-C1 Class A1 2.254% due 01/15/37 1,878 1,821 Series 2005-C5 Class A1 5.046% due 08/15/38 3,750 3,759 Fannie Mae 30 year TBA (I) 4.660% 4,000 4,007 6.000% due 2008 103 104 5.500% due 2009 2,315 2,333 6.000% due 2010 217 222 6.500% due 2010 172 178 6.000% due 2011 224 229 6.500% due 2011 145 150 4.500% due 2013 2,998 2,929 5.000% due 2013 3,048 3,026 5.500% due 2013 405 408 6.000% due 2013 480 491 6.000% due 2014 2,354 2,410 5.500% due 2016 1,415 1,424 5.000% due 2017 106 105 5.500% due 2017 2,059 2,074 6.000% due 2017 217 224 4.500% due 2018 143 139 5.000% due 2018 4,775 4,712 4.500% due 2019 347 336 5.000% due 2019 554 547 4.500% due 2020 462 447 5.000% due 2020 388 383 5.500% due 2022 1,435 1,427 5.500% due 2033 92 91 6.000% due 2033 35 36 5.500% due 2034 16,932 16,725 4.690% due 2035 (E) 667 659
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- 4.900% due 2035 (E) 35,038 34,784 5.500% due 2035 22,952 22,651 4.115% due 2041 (E) 1,249 1,264 4.065% due 2042 (E) 1,187 1,197 Series 1994-1 Class K 6.500% due 06/25/13 99 99 Series 2003-129 Class PQ 4.500% due 07/25/33 566 564 Series 2003-24 Class PU 3.500% due 11/25/15 331 321 Series 2003-27 Class TJ 4.000% due 10/25/16 557 555 Series 2003-46 Class PQ 3.000% due 06/25/19 3,500 3,442 Series 2003-62 Class OD 3.500% due 04/25/26 1,250 1,192 Series 2003-63 Class GU 4.000% due 07/25/33 2,673 2,624 Series 2003-67 Class TA 3.000% due 08/25/17 4,005 3,750 Series 2003-75 Class NB 3.250% due 08/25/18 714 684 Series 2003-92 Class BR 5.000% due 04/25/14 709 708 Series 2004-17 Class HA 3.000% due 01/25/19 2,294 2,119 Series 2004-21 Class QA 4.000% due 11/25/17 2,887 2,863 Fannie Mae Grantor Trust (E) Series 2002-T10 Class A1 4.158% due 06/25/32 5,732 5,726 Series 2005-T2 Class 1A1 3.712% due 11/28/35 314 313 Series 2005-T4 Class A1A 4.088% due 09/25/35 2,067 2,067 Fannie Mae-Aces Series 1998-M1 Class A2 6.250% due 01/25/08 1,497 1,525 Federal Home Loan Bank System Series 2004-900 Class 1 3.920% due 09/25/09 1,738 1,684 Series 2005-058 Class H 4.750% due 10/25/10 4,133 4,109 Federal Home Loan Mortgage Corp. Structured Pass Through Securities Series 2003-H00 Class A2 1.876% due 03/15/08 216 214
Short Duration Bond Fund 153 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Freddie Mac 5.500% due 2008 127 128 6.500% due 2008 123 128 6.000% due 2009 101 103 6.500% due 2009 419 430 8.000% due 2010 48 49 6.000% due 2013 151 154 5.500% due 2014 624 629 6.000% due 2014 156 160 6.000% due 2016 677 692 5.500% due 2017 1,029 1,036 5.000% due 2018 634 626 6.000% due 2028 140 142 5.500% due 2029 967 957 6.000% due 2029 286 290 6.000% due 2031 391 395 Series 1993-164 Class PD 4.500% due 09/15/08 148 147 Series 2003-255 Class PB 5.500% due 08/15/30 102 101 Series 2003-258 Class NS 3.250% due 09/15/15 1,572 1,517 Series 2003-258 Class QK 4.000% due 04/15/22 527 526 Series 2003-261 Class JA 3.760% due 03/15/29 1,403 1,349 Series 2003-262 Class KP 2.870% due 12/15/16 3,324 3,126 Series 2003-263 Class NK 4.000% due 02/15/15 804 801 Series 2003-263 Class YH 3.500% due 08/15/22 1,250 1,240 Series 2003-268 Class MX 4.000% due 07/15/16 2,495 2,422 Series 2003-271 Class OJ 3.500% due 03/15/11 1,810 1,800 Series 2004-276 Class EA 4.500% due 04/15/13 1,660 1,652 Series 2004-278 Class HE 4.000% due 09/15/17 3,868 3,729 Series 2004-285 Class BA 4.500% due 02/15/20 1,654 1,627 Series 2005-305 Class AP 5.500% due 01/15/27 3,000 3,026 Freddie Mac Gold 4.000% due 2007 1,044 1,025 4.000% due 2008 883 864 4.500% due 2008 982 978 5.500% due 2009 294 297 6.000% due 2009 85 87 6.000% due 2010 171 174 6.000% due 2011 578 590 6.000% due 2032 503 509 6.000% due 2033 855 865
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- GE Capital Commercial Mortgage Corp. Series 2001-3 Class A1 5.560% due 06/10/38 1,602 1,621 Series 2004-C3 Class A1 3.752% due 07/10/39 2,945 2,873 Series 2005-C1 Class A1 4.012% due 06/10/48 1,767 1,736 Ginnie Mae I 7.000% due 2007 4 4 6.000% due 2008 98 100 9.500% due 2017 1 1 Ginnie Mae II (E) 3.750% due 2027 154 157 4.000% due 2032 311 311 Government National Mortgage Association Series 2004-78 Class A 3.590% due 11/16/17 2,802 2,718 GSR Mortgage Loan Trust Series 2004-7 Class 1A1 3.412% due 06/25/34 2,137 2,091 Impac CMB Trust (E) Series 2004-2 Class A2 4.288% due 04/25/34 562 561 JP Morgan Chase Commercial Mortgage Securities Corp. Series 2002-C2 Class A1 4.326% due 12/12/34 788 770 Series 2005-LDP Class A1 4.655% due 08/15/42 1,856 1,844 4.613% due 10/15/42 2,721 2,698 Series 2005-LDP Class A2 4.790% due 10/15/42 2,150 2,116 LB-UBS Commercial Mortgage Trust Series 2003-C1 Class A1 2.720% due 03/15/27 1,366 1,321 Series 2003-C3 Class A1 2.599% due 05/15/27 1,895 1,820 Lehman Large Loan Series 1997-LLI Class A2 6.840% due 10/12/34 70 71 Mellon Residential Funding Corp. (E) Series 2000-TBC Class A1 4.210% due 06/15/30 1,543 1,539 Morgan Stanley Capital I Series 2003-T11 Class A1 3.260% due 06/13/41 1,523 1,478
154 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Series 2004-T13 Class A1 2.850% due 09/13/45 776 747 Series 2005-HQ6 Class A1 4.646% due 08/13/42 2,055 2,039 Morgan Stanley Dean Witter Capital I Series 2001-TOP Class A1 5.020% due 10/15/35 274 274 Series 2002-HQ Class A2 6.090% due 04/15/34 354 361 Prime Mortgage Trust (E) Series 2004-CL1 Class 1A2 4.438% due 02/25/34 278 278 Series 2004-CL1 Class 2A2 4.438% due 02/25/19 70 70 SACO I, Inc. (E)(p) Series 2004-2 Class A2 4.228% due 07/25/19 469 469 Salomon Brothers Mortgage Securities VII Series 2003-UP2 Class A1 4.000% due 12/25/18 1,255 1,204 Structured Asset Mortgage Investments, Inc. (E) Series 2002-AR3 Class A1 4.327% due 09/19/32 125 125 Structured Asset Securities Corp. (E) Series 2001-21A Class 1A1 6.250% due 01/25/32 130 132 Vendee Mortgage Trust Series 2001-3 Class J 6.500% due 05/15/08 437 444 Wachovia Bank Commercial Mortgage Trust Series 2002-C2 Class A2 4.043% due 11/15/34 2,020 1,961 Series 2003-C4 Class A1 3.003% due 04/15/35 1,562 1,514 Washington Mutual Series 2002-AR1 Class A6 4.816% due 10/25/32 729 725 Series 2002-AR9 Class 1A (E) 4.265% due 08/25/42 1,474 1,469 Washington Mutual MSC Mortgage Pass-Through CTFS (E) Series 2002-AR2 Class 2A1 6.060% due 07/25/32 18 18 Washington Mutual, Inc. (E) Series 2002-AR6 Class A 4.419% due 06/25/42 669 673 Series 2005-AR1 Class A1A1 4.328% due 10/25/45 500 500 ------------ 251,271 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Non-US Bonds - 0.1% Landwirtschaftliche Rentenbank 0.650% due 09/30/08 JPY 60,000 519 ------------ United States Government Agencies - 0.3% Federal Home Loan Bank System 5.925% due 04/09/08 1,600 1,645 Zero coupon due 04/27/10 749 671 Freddie Mac 5.810% due 04/04/08 1,000 1,026 ------------ 3,342 ------------ United States Government Treasuries - 13.6% United States Treasury Notes 3.125% due 05/15/07 48,040 47,145 3.625% due 06/30/07 96,635 95,438 2.750% due 08/15/07 8,000 7,776 3.375% due 12/15/08 15,500 15,025 ------------ 165,384 ------------ TOTAL LONG-TERM INVESTMENTS (cost $966,737) 952,906 ------------ PREFERRED STOCKS - 0.2% Financial Services - 0.2% DG Funding Trust (A) 219 2,346 ------------ TOTAL PREFERRED STOCKS (cost $2,306) 2,346 ------------
Short Duration Bond Fund 155 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
NOTIONAL MARKET AMOUNT VALUE $ $ - ----------------------------------------------------------------------------- OPTIONS PURCHASED - 0.0% (Number of Contracts) Swaption USD Three Month LIBOR (Fund Pays)/USD 4.500% (Fund Receives) Apr 2006 0.00 Call (1) 5,000 6 Swaption USD Three Month LIBOR (Fund Pays)/USD 4.250% (Fund Receives) Oct 2006 0.00 Call (3) 13,000 19 Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.500% (Fund Receives) Oct 2006 0.00 Call (3) 29,600 76 ------------ TOTAL OPTIONS PURCHASED (cost $198) 101 ------------ PRINCIPAL AMOUNT ($) OR SHARES ------------ SHORT-TERM INVESTMENTS - 24.4% American Electric Power Co., Inc. Series A 6.125% due 05/15/06 5,790 5,827 Associates Corp. of North America Series MTNH 7.250% due 05/08/06 2,000 2,027 7.240% due 05/17/06 1,000 1,014 BankAmerica Corp. 6.200% due 02/15/06 750 754 Barclays US Funding, LLC (z) 3.655% due 11/28/05 (c) 10,700 10,671 4.190% due 02/27/06 1,400 1,380 BNP Paribas (z) 4.155% due 02/27/06 7,000 6,899 Brazilian Government International Bond (E) 5.188% due 04/15/06 416 416 British Sky Broadcasting PLC 7.300% due 10/15/06 2,000 2,044 Burlington Northern Santa Fe Corp. 6.375% due 12/15/05 1,535 1,538 Capital Auto Receivables Asset Trust Series 2002-3 Class A3 3.580% due 10/16/06 1,705 1,703
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- CBA (Delaware) Finance Discount Notes (z) 4.120% due 01/25/06 12,100 10,788 4.140% due 01/30/06 12,100 1,187 Citigroup, Inc. 6.750% due 12/01/05 (N) 6,500 6,512 5.750% due 05/10/06 1,370 1,378 ConAgra Foods, Inc. 6.000% due 09/15/06 1,300 1,312 Continental Cablevision, Inc. 8.300% due 05/15/06 400 407 COX Communications, Inc. 7.750% due 08/15/06 2,900 2,961 DaimlerChrysler NA Holding Corp. 6.400% due 05/15/06 1,200 1,210 4.430% due 05/24/06 (E) 2,800 2,807 Danske Corp. Discount Notes (c)(z) 3.605% due 11/04/05 1,700 1,699 3.625% due 11/07/05 4,000 3,998 3.680% due 11/14/05 6,200 6,192 Devon Energy Corp. 2.750% due 08/01/06 4,954 4,872 DNB Nor Bank ASA (c)(z) 3.590% due 11/21/05 10,700 10,679 3.595% due 11/21/05 1,200 1,198 Fannie Mae (E) 3.799% due 09/22/06 1,600 1,599 France Telecom SA 7.200% due 03/01/06 1,200 1,210 Frank Russell Investment Company Money Market Fund 59,953,334 59,953 Freddie Mac Discount Notes (c)(z) 3.359% due 11/29/05 500 498 General Electric Capital Corp. (z) 4.120% due 01/24/06 11,000 10,887 4.130% due 01/25/06 1,100 1,089 General Motors Acceptance Corp. 5.070% due 04/13/06 (E) 2,300 2,290 4.677% due 05/18/06 (E) 400 398 6.125% due 09/15/06 300 299 Government Trust Certificate 8.500% due 04/01/06 228 233 GTE Corp. 6.360% due 04/15/06 5,000 5,035 HBOS Treasury Service PLC (z) 4.190% due 02/27/06 3,500 3,450 Heller Financial, Inc. 6.375% due 03/15/06 1,000 1,007 Historic TW, Inc. 8.110% due 08/15/06 2,000 2,048
156 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- HSBC Bank PLC 7.625% due 06/15/06 4,500 4,578 Hydro Quebec Series MTNB 6.520% due 02/23/06 1,000 1,007 KFW International Finance Series DTC 5.250% due 06/28/06 2,000 2,007 Kroger Co. (The) 8.150% due 07/15/06 3,885 3,967 Nordea Bank Finland PLC 6.500% due 01/15/06 3,000 3,014 Nordea North America, Inc. (c)(z) 3.680% due 11/14/05 10,900 10,886 Northrop Grumman Corp. 7.000% due 03/01/06 2,000 2,017 Pepco Holdings, Inc. 3.750% due 02/15/06 3,654 3,644 Progress Energy, Inc. 6.750% due 03/01/06 4,000 4,025 Rabobank USA Financial Corp. (c)(z) 3.620% due 11/28/05 700 698 3.860% due 12/23/05 11,000 10,939 Safeway, Inc. 6.150% due 03/01/06 4,000 4,010 Societe Generale NA 3.960% due 01/27/06 (z) 1,000 987 4.145% due 02/01/06 1,100 1,088 SouthTrust Bank (E) Series BKNT 3.807% due 12/14/05 3,000 2,999 Sprint Capital Corp. 7.125% due 01/30/06 1,000 1,006 4.780% due 08/17/06 3,000 2,999 Svenska Handelsbanken (z) 4.065% due 01/20/06 11,000 10,884 Swedbank Forenings (c)(z) 3.910% due 12/22/05 6,100 6,066 Swiss Bank Corp. 7.250% due 09/01/06 1,500 1,527 TCI Communications, Inc. 6.875% due 02/15/06 2,109 2,120 Time Warner, Inc. 6.125% due 04/15/06 1,900 1,911 Tyco International Group SA 6.375% due 02/15/06 4,000 4,020
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- UBS Financial Del, LLC (z) 3.690% due 12/07/05 (c) 1,800 1,793 3.945% due 01/26/06 9,900 9,768 4.155% due 02/28/06 400 394 Union Bank Switzerland 7.250% due 07/15/06 1,000 1,016 United States Treasury Bills (c)(z)(sec.) 3.363% due 12/08/05 150 149 3.430% due 12/15/05 1,070 1,066 3.452% due 12/15/05 500 498 3.495% due 12/15/05 60 60 US Bank NA (E) Series BKNT 3.761% due 12/05/05 1,500 1,500 USX Corp. 6.650% due 02/01/06 600 603 Virginia Electric and Power Co. Series A 5.750% due 03/31/06 3,785 3,801 Washington Mutual Financial Corp. 7.250% due 06/15/06 3,005 3,053 Wells Fargo & Co. 3.960% due 09/15/06 (E) 3,000 3,003 Series MTNH 6.750% due 10/01/06 1,930 1,962 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $297,028) 296,534 ------------ OTHER SECURITIES - 0.3% Frank Russell Investment Company Money Market Fund (X) 1,368,117 1,368 State Street Securities Lending Quality Trust (X) 2,803,143 2,803 ------------ TOTAL OTHER SECURITIES (cost $4,171) 4,171 ------------ TOTAL INVESTMENTS - 103.5% (identified cost $1,270,440) 1,256,058 OTHER ASSETS AND LIABILITIES, NET - (3.5%) (42,478) ------------ NET ASSETS - 100.0% 1,213,580 ============
See accompanying notes which are an integral part of the financial statements. Short Duration Bond Fund 157 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Eurodollar Futures expiration date 03/06 (100) 23,816 (206) expiration date 06/06 (431) 102,551 (449) expiration date 09/06 (49) 11,656 (68) expiration date 12/06 (186) 44,249 (22) expiration date 03/07 (350) 83,287 (82) expiration date 06/07 (173) 41,163 (59) expiration date 09/07 (26) 6,185 (12) United States Treasury 2 Year Notes expiration date 12/05 (133) 27,292 (167) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (1,065) ===============
NOTIONAL MARKET OPTIONS WRITTEN AMOUNT VALUE (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Eurodollar Futures Dec 2006 95.00 Put (12) 2,850 (8) Dec 2006 95.25 Put (140) 33,338 (130) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.300% (Fund Receives) Oct 2006 0.00 Call (1) 3,000 (12) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.310% (Fund Receives) Oct 2006 0.00 Call (2) 3,000 (12) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.540% (Fund Receives) Apr 2006 0.00 Call (1) 2,000 (6) Oct 2006 0.00 Call (2) 7,700 (51) Swaption USD Three Month LIBOR (Fund Pays)/ USD 4.560% (Fund Receives) Oct 2006 0.00 Call (1) 6,000 (43) Swaption GBP Six Month LIBOR (Fund Pays)/ USD 4.500% (Fund Receives) Dec 2006 0.00 Put (1) 3,009 (3) --------------- Total Liability for Options Written (premiums received $322) (265) ===============
See accompanying notes which are an integral part of the financial statements. 158 Short Duration Bond Fund FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
FOREIGN CURRENCY EXCHANGE CONTRACTS UNREALIZED APPRECIATION AMOUNT AMOUNT SETTLEMENT (DEPRECIATION) SOLD BOUGHT DATE $ - ------------------- -------------------- ----------- -------------- USD 986 EUR 827 11/08/05 5 EUR 18 USD 22 11/08/05 -- EUR 809 USD 974 11/08/05 4 JPY 61,632 USD 542 12/01/05 11 -------------- Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts 20 ==============
INTEREST RATE SWAP CONTRACTS - ------------------------------------------------------------------------------------------------------------------------ MARKET COUNTER NOTIONAL TERMINATION VALUE PARTY AMOUNT FUND RECEIVES FUND PAYS DATE $ - ----------------------- -------------- ---------------- -------------------- ---------------- ---------------- Barclays GBP 2,800 5.000% Six Month LIBOR 06/15/07 17 Consumer Price Index BNP Paribas EUR 1,200 2.090% (France) 10/15/10 -- Lehman Brothers GBP 1,500 4.500% Six Month LIBOR 09/20/09 (11) Merrill Lynch GBP 1,600 4.500% Six Month LIBOR 09/20/09 (11) UBS USD 36,800 4.000% Three Month LIBOR 12/15/07 (576) ---------------- Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($125) (581) ================
See accompanying notes which are an integral part of the financial statements. Short Duration Bond Fund 159 FRANK RUSSELL INVESTMENT COMPANY SHORT DURATION BOND FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Asset-Backed Securities 24.4 Corporate Bonds and Notes 17.4 International Debt 2.1 Mortgage-Backed Securities 20.7 Non-US Bonds 0.1 United States Government Agencies 0.3 United States Government Treasuries 13.6 Preferred Stock 0.2 Options Purchased --* Short-Term Investments 24.4 Other Securities 0.3 --------------- Total Investments 103.5 Other Assets and Liabilities, Net (3.5) --------------- 100.0 =============== Futures Contracts (0.1) Options Written (--*) Foreign Currency Exchange Contracts --* Interest Rate Swap Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 160 Short Duration Bond Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
SELECT GROWTH - CLASS I RUSSELL 1000(R) GROWTH ** ----------------------- ------------------------- Inception* 10000 10000 2001 6710 6804 2002 5350 5469 2003 7100 6662 2004 7180 6887 2005 7910 7494
Select Growth - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.07% Inception* (4.92)%sec.
Select Growth - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 9.60% Inception* (5.20)%sec.
Select Growth - Class C - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.76% Inception* (6.01)%sec.
Select Growth - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 10.17% Inception* (4.82)%sec.
Russell 1000(R) Growth Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 8.81% Inception* (5.95)%sec.
162 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Select Growth Fund Class I, Class S, Class E and Class C Shares gained 10.17%, 10.07%, 9.60% and 8.76%, respectively. This compared to the Russell 1000(R) Growth Index, which gained 8.81% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Growth Funds Average returned 10.09%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Stocks within the energy, utility and consumer staples sectors benefited from sharply higher oil prices and rising interest rates and the impact these developments could have on consumer spending and corporate profits. Smaller capitalization companies and select technology and health care stocks also outperformed due to pockets of strength in the semiconductor, computer technology, biotechnology, specialty pharmaceutical and health care management and service industries. In contrast, the more economically sensitive sectors such as materials and processing, autos and transportation and consumer discretionary underperformed on perceptions of slowing global economic growth and rising input costs. The Fund faced a headwind because of underweights to energy-related and health care stocks and overweights to more economically sensitive sectors such as consumer discretionary and technology. Nevertheless, the Fund benefited from its exposure to smaller capitalization companies. Stocks held within the consumer discretionary, health care and technology sectors were additional sources of added value in the period. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The Fund's stock selection was the primary driver of its outperformance. Much of this strength was centered in the technology and consumer discretionary sectors, where consumer electronics and computer stocks performed well. Health care stock selection was also positive due to overweights in health care facilities, medical systems and health care management companies. The Fund's sector positioning detracted from its performance due to underweights in some of the best performing sectors. The other energy, utilities, health care and consumer staples sectors were underweight. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The multi-manager structure of the Fund ensured exposure to each of the primary sectors within its Russell 1000(R) Growth Index benchmark. The different strategies employed by the Fund's money managers led to wide dispersion in performance; however, all of the Fund's money managers outperformed their respective benchmarks in the fiscal year. Delaware Management Company, Inc. was the best performer with strong stock selection making up for weak sector allocation. Delaware's key positive contributors came from selection within the consumer discretionary, health care and technology sectors where commercial service, biotechnology and computer technology stocks did well. The earnings momentum strategy followed by Turner Investment Partners, Inc. added value through overweighting health care management and service stocks. Fuller & Thaler Asset Management, Inc. and CapitalWorks Investment Partners, LLC benefited from their focus on the better performing small capitalization stocks. Finally, Ark Asset Management Co., Inc. outperformed through strong stock selection in the consumer discretionary and technology sectors, particularly in the consumer electronics, hotel and computer technology areas. Positive stock selection offset Ark's weak sector allocation. Select Growth Fund 163 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. TCW Investment Management Company, which pursued a concentrated core growth strategy, was replaced with Transamerica Investment Management, LLC, a growth equity money manager in late 2004. In early 2005, Transamerica's growth team left to join Delaware. FRIMCo terminated Transamerica and hired Delaware. These changes did not materially alter the Fund's structure. Like TCW, Delaware seeks to identify companies it believes have the ability to generate long-term sustainable rates of growth. Money Managers as of Styles October 31, 2005 Ark Asset Management Co., Inc. Growth CapitalWorks Investment Partners, LLC Growth Delaware Management Company (a series of Delaware Management Business Trust) Growth Fuller & Thaler Asset Management, Inc. Growth Turner Investment Partners, Inc. Growth
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Select Growth Fund commenced operations on January 31, 2001. ** The Russell 1000(R) Growth Index measures the performance of those Russell 1000(R) Index companies with higher price-to-book ratios and higher forecasted growth values. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 164 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,092.40 $ 1,013.76 Expenses Paid During Period* $ 11.97 $ 11.52
* Expenses are equal to the Fund's annualized expense ratio of 2.27% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). On an annual basis and based on average daily net assets, the annualized expense ratio is 2.23% as contractually agreed to by the adviser. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,097.60 $ 1,018.45 Expenses Paid During Period* $ 7.08 $ 6.82
* Expenses are equal to the Fund's annualized expense ratio of 1.34% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,100.10 $ 1,020.42 Expenses Paid During Period* $ 5.03 $ 4.84
* Expenses are equal to the Fund's annualized expense ratio of 0.95% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,099.20 $ 1,019.46 Expenses Paid During Period* $ 6.03 $ 5.80
* Expenses are equal to the Fund's annualized expense ratio of 1.14% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Select Growth Fund 165 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 94.0% Auto and Transportation - 2.0% Burlington Northern Santa Fe Corp. 9,700 602 Expeditors International Washington, Inc. 13,500 819 FedEx Corp. 6,400 589 Freightcar America, Inc. 3,000 131 Hayes Lemmerz International, Inc. (AE)(N) 10,200 40 Mesa Air Group, Inc. (AE)(N) 12,700 143 Norfolk Southern Corp. 10,600 426 Pacer International, Inc. 5,600 145 United Parcel Service, Inc. Class B 11,000 802 ------------ 3,697 ------------ Consumer Discretionary - 18.3% 24/7 Real Media, Inc. (AE) 21,300 136 Activision, Inc. (AE) 14,000 221 AMN Healthcare Services, Inc. (AE) 15,800 261 AnnTaylor Stores Corp. (AE) 13,800 335 aQuantive, Inc. (AE)(N) 15,500 335 Best Buy Co., Inc. 32,160 1,423 BJ's Restaurants, Inc. (AE)(N) 4,100 89 Buca, Inc. (AE)(N) 19,900 116 Casual Male Retail Group, Inc. (AE) 20,200 116 Charlotte Russe Holding, Inc. (AE) 8,800 155 Chemed Corp. 2,800 135 Coach, Inc. (AE) 24,180 778 Cross Country Healthcare, Inc. (AE) 10,000 182 Crown Media Holdings, Inc. Class A (AE)(N) 12,100 129 DiamondCluster International, Inc. (AE) 10,800 69 eBay, Inc. (AE) 58,560 2,319 Electronic Arts, Inc. (AE) 37,390 2,127 Emerson Radio (AE) 23,200 78 Ezcorp, Inc. Class A (AE) 7,100 104 Google, Inc. Class A (AE) 11,062 4,117 Gray Television, Inc. 11,700 105 Gymboree Corp. (AE) 14,600 258 Hudson Highland Group, Inc. (AE) 5,800 139 International Game Technology 32,000 848 J Jill Group, Inc. (AE) 6,200 79 Kohl's Corp. (AE) 19,100 919 Liberty Global, Inc. Series A (AE)(N) 22,000 545 Liberty Global, Inc. Series C (AE) 22,000 522 LIFE TIME Fitness, Inc. (AE) 4,300 160 Lifeline Systems, Inc. (AE) 5,200 172 LoJack Corp. (AE) 5,000 95 Lowe's Cos., Inc. 13,700 832 MGM Mirage (AE) 36,970 1,381 Monster Worldwide, Inc. (AE) 6,700 220 MPS Group, Inc. (AE) 10,300 128
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Multimedia Games, Inc. (AE)(N) 11,100 110 Nordstrom, Inc. 25,970 900 Office Depot, Inc. (AE) 17,900 493 On Assignment, Inc. (AE) 9,200 78 Royal Caribbean Cruises, Ltd. (N) 7,100 294 Scientific Games Corp. Class A (AE) 8,100 243 Sears Holdings Corp. (AE) 6,100 733 Sharper Image Corp. (AE)(N) 7,600 77 Sirius Satellite Radio, Inc. (AE)(N) 94,980 593 Sportsman's Guide, Inc. (The) (AE) 4,700 124 Stamps.com, Inc. (AE) 4,700 95 Staples, Inc. 45,000 1,023 Starbucks Corp. (AE) 29,456 833 Starwood Hotels & Resorts Worldwide, Inc. (o) 21,700 1,268 Steven Madden, Ltd. (AE) 10,800 277 Target Corp. 1,920 107 Texas Roadhouse, Inc. Class A (AE)(N) 6,600 104 Time Warner, Inc. 28,700 512 Urban Outfitters, Inc. (AE) 4,800 136 Valuevision Media, Inc. Class A (AE) 9,700 95 Ventiv Health, Inc. (AE) 6,600 167 Wal-Mart Stores, Inc. 15,000 710 WebSideStory, Inc. (AE) 9,200 160 Weight Watchers International, Inc. (AE) 14,500 762 XM Satellite Radio Holdings, Inc. Class A (AE) 41,200 1,188 Yahoo!, Inc. (AE) 71,819 2,655 ------------ 33,365 ------------ Consumer Staples - 8.5% Altria Group, Inc. 10,400 781 Coca-Cola Co. (The) 8,500 364 Colgate-Palmolive Co. 14,000 741 CVS Corp. 28,400 693 PepsiCo, Inc. 68,245 4,032 Procter & Gamble Co. 105,177 5,889 Walgreen Co. 36,200 1,645 Whole Foods Market, Inc. 4,870 702 WM Wrigley Jr Co. 8,740 607 ------------ 15,454 ------------ Financial Services - 7.4% Advent Software, Inc. (AE) 11,200 344 American Express Co. 50,534 2,515 American International Group, Inc. 31,370 2,033
166 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Automatic Data Processing, Inc. 15,500 723 Capital One Financial Corp. 9,500 725 Charles Schwab Corp. (The) 37,280 567 Chicago Mercantile Exchange 4,160 1,519 Commerce Bancorp, Inc. 16,500 503 Cybersource Corp. (AE) 28,596 192 First Data Corp. 25,000 1,011 HealthExtras, Inc. (AE) 2,800 59 Investors Financial Services Corp. (N) 9,600 366 MCF Corp. (AE) 19,600 21 Moody's Corp. 15,000 799 Morgan Stanley 17,180 935 Paychex, Inc. 27,000 1,046 Pico Holdings, Inc. (AE) 3,800 128 Rewards Network, Inc. (AE) 12,000 65 ------------ 13,551 ------------ Health Care - 19.8% Albany Molecular Research, Inc. (AE) 7,900 106 Alexion Pharmaceuticals, Inc. (AE)(N) 2,300 63 Alkermes, Inc. (AE) 9,600 156 Allergan, Inc. 12,000 1,072 Amgen, Inc. (AE) 43,100 3,265 Anadys Pharmaceuticals, Inc. (AE) 8,200 81 Arthrocare Corp. (AE)(N) 5,023 184 Barr Pharmaceuticals, Inc. (AE) 2,400 138 Bruker BioSciences Corp. (AE) 20,400 85 Caremark Rx, Inc. (AE) 45,615 2,390 Cellegy Pharmaceuticals, Inc. (AE) 14,300 17 Cutera, Inc. (AE)(N) 6,300 173 Cytyc Corp. (AE) 7,200 183 DaVita, Inc. (AE) 12,100 595 Dendreon Corp. (AE)(N) 11,900 73 Digene Corp. (AE)(N) 4,600 139 Foxhollow Technologies, Inc. (AE)(N) 4,800 217 Genentech, Inc. (AE) 38,445 3,483 Gentiva Health Services, Inc. (AE) 1,400 21 Gilead Sciences, Inc. (AE) 28,875 1,364 GTx, Inc. (AE)(N) 9,100 80 Hologic, Inc. (AE) 2,200 122 Human Genome Sciences, Inc. (AE)(N) 55,300 462 ICU Medical, Inc. (AE)(N) 3,400 119 Illumina, Inc. (AE) 8,000 125 Johnson & Johnson 76,930 4,817 Kinetic Concepts, Inc. (AE) 11,600 416 Lifecore Biomedical, Inc. (AE) 6,700 96 Medco Health Solutions, Inc. (AE) 9,500 537 Medimmune, Inc. (AE) 22,800 798 Medtronic, Inc. 38,190 2,164 Meridian Bioscience, Inc. 6,300 132 Merit Medical Systems, Inc. (AE) 5,600 67 Myogen, Inc. (AE)(N) 7,700 154 Nabi Biopharmaceuticals (AE)(N) 9,442 121
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Natus Medical, Inc. (AE) 10,800 177 Neose Technologies, Inc. (AE) 16,300 32 Neurocrine Biosciences, Inc. (AE)(N) 2,700 143 Novartis AG - ADR 6,700 361 Novavax, Inc. (AE) 17,600 71 Omnicare, Inc. 10,900 590 Omnicell, Inc. (AE)(N) 14,800 157 OraSure Technologies, Inc. (AE) 10,500 116 Panacos Pharmaceuticals, Inc. (AE) 38,900 307 Pfizer, Inc. 21,900 476 Phase Forward, Inc. (AE) 9,800 107 Rita Medical Systems, Inc. (AE)(N) 19,500 65 SonoSite, Inc. (AE)(N) 3,600 106 St. Jude Medical, Inc. (AE) 38,510 1,851 Stryker Corp. 9,600 394 Symmetry Medical, Inc. (AE) 5,400 120 Theravance, Inc. (AE) 4,900 106 UnitedHealth Group, Inc. 53,350 3,088 Valeant Pharmaceuticals International 14,100 242 WellPoint, Inc. (AE) 20,500 1,531 Wyeth 26,400 1,176 Zimmer Holdings, Inc. (AE) 13,000 829 ------------ 36,060 ------------ Materials and Processing - 2.7% Archer-Daniels-Midland Co. 30,620 746 Cemex SA de CV - ADR 11,650 607 Ceradyne, Inc. (AE)(N) 8,500 333 Dow Chemical Co. (The) 11,200 514 Harsco Corp. 3,000 193 Housevalues, Inc. (AE)(N) 6,100 90 Insituform Technologies, Inc. Class A (AE) 5,300 95 Layne Christensen Co. (AE) 4,600 97 Monsanto Co. 8,000 504 Nucor Corp. 9,000 539 Praxair, Inc. 18,000 889 Quanta Services, Inc. (AE) 16,300 187 Unifi, Inc. (AE) 27,100 79 ------------ 4,873 ------------ Miscellaneous - 4.8% General Electric Co. 218,328 7,404 ITT Industries, Inc. 5,270 535 Johnson Controls, Inc. 7,070 481 Trinity Industries, Inc. 7,000 266 ------------ 8,686 ------------
Select Growth Fund 167 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Other Energy - 2.1% Baker Hughes, Inc. 7,400 407 ENSCO International, Inc. 4,900 223 EOG Resources, Inc. 10,500 712 Grant Prideco, Inc. (AE) 9,700 377 Halliburton Co. 9,170 542 National-Oilwell Varco, Inc. (AE) 2,300 144 Newfield Exploration Co. (AE) 20,500 929 Petroquest Energy, Inc. (AE) 11,300 110 Todco Class A 5,600 250 Westmoreland Coal Co. (AE) 4,200 113 ------------ 3,807 ------------ Producer Durables - 4.1% American Tower Corp. Class A (AE) 6,400 153 Applied Materials, Inc. 130,397 2,136 Boeing Co. 27,830 1,799 BTU International, Inc. (AE) 3,100 44 Caterpillar, Inc. 12,600 663 Deere & Co. 8,400 510 Distributed Energy Systems Corp. (AE)(N) 14,500 116 Entegris, Inc. (AE) 20,127 196 General Cable Corp. (AE)(N) 8,000 130 Herman Miller, Inc. 14,700 403 Intevac, Inc. (AE)(N) 8,222 75 KLA-Tencor Corp. 13,100 606 Ladish Co., Inc. (AE) 5,000 100 Radyne Comstream Corp. (AE)(N) 11,300 132 Southern Energy Homes, Inc. (AE) 16,500 98 Varian Semiconductor Equipment Associates, Inc. (AE) 4,300 162 Zygo Corp. (AE)(N) 6,000 80 ------------ 7,403 ------------ Technology - 23.0% Actuate Corp. (AE) 16,200 46 Agile Software Corp. (AE) 36,500 259 Akamai Technologies, Inc. (AE) 14,700 255 American Science & Engineering, Inc. (AE) 2,700 155 Apple Computer, Inc. (AE) 28,574 1,646 ATI Technologies, Inc. (AE) 33,100 478 Autodesk, Inc. 3,900 176 Blue Coat Systems, Inc. (AE) 3,600 169 Bottomline Technologies, Inc. (AE) 5,900 75 Broadcom Corp. Class A (AE) 26,070 1,107 Cadence Design Systems, Inc. (AE) 11,800 189 California Micro Devices CP (AE) 8,100 73 Captaris, Inc. (AE) 15,100 54 Centillium Communications, Inc. (AE) 26,526 102 Computer Associates International, Inc. 8 --
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Comverse Technology, Inc. (AE) 7,300 183 Corning, Inc. (AE) 59,815 1,202 Electronics for Imaging, Inc. (AE) 6,600 166 EMC Corp. (AE) 82,867 1,157 Equinix, Inc. (AE) 2,700 100 Genesis Microchip, Inc. (AE) 5,800 112 Hewlett-Packard Co. 40,390 1,132 Ibasis, Inc. (AE)(N) 19,800 39 Informatica Corp. (AE) 24,000 286 Integrated Silicon Solutions, Inc. (AE)(N) 9,800 76 International Business Machines Corp. 11,700 958 Intersil Corp. Class A 7,300 166 Intuit, Inc. (AE) 18,000 827 JDA Software Group, Inc. (AE) 6,800 110 Juniper Networks, Inc. (AE)(N) 39,300 917 Lawson Software, Inc. (AE)(N) 19,900 152 Lucent Technologies, Inc. (AE)(N) 186,370 531 Manugistics Group, Inc. (AE) 32,000 59 Marvell Technology Group, Ltd. (AE) 22,680 1,053 Matrixone, Inc. (AE) 36,000 181 Maxim Integrated Products, Inc. 25,600 888 Micron Technology, Inc. (AE)(N) 41,730 542 Microsoft Corp. 212,800 5,469 Monolithic Power Systems, Inc. (AE) 8,700 112 Motorola, Inc. 152,700 3,384 National Semiconductor Corp. 49,800 1,127 NAVTEQ Corp. (AE) 16,300 638 Neoware Systems, Inc. (AE)(N) 7,500 141 Nuance Communications, Inc. (AE)(N) 18,800 97 Nvidia Corp. (AE) 25,700 862 O2Micro International, Ltd. (AE) 7,992 105 Openwave Systems, Inc. (AE)(N) 12,800 229 Palm, Inc. (AE)(N) 12,600 324 Qualcomm, Inc. 111,500 4,433 Quest Software, Inc. (AE) 8,900 124 Radiant Systems, Inc. (AE) 8,900 101 Redback Networks, Inc. (AE) 39,720 417 Saba Software, Inc. (AE) 18,325 64 Safeguard Scientifics, Inc. (AE) 35,500 53 SanDisk Corp. (AE) 51,750 3,047 Seachange International, Inc. (AE) 18,400 115 Selectica, Inc. (AE) 13,800 41 Silicon Image, Inc. (AE) 47,400 435 Sun Microsystems, Inc. (AE) 164,460 658 Supertex, Inc. (AE) 4,500 165 SYKES Enterprises, Inc. (AE) 10,500 152 Texas Instruments, Inc. 110,441 3,153
168 Select Growth Fund FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Transwitch Corp. (AE) 49,800 80 Ultimate Software Group, Inc. (AE) 5,600 95 Viasat, Inc. (AE) 7,200 178 Vishay Intertechnology, Inc. (AE) 26,600 302 WatchGuard Technologies, Inc. (AE) 17,600 61 ------------ 41,783 ------------ Utilities - 1.3% Alamosa Holdings, Inc. (AE) 12,100 179 America Movil SA de CV Series L 31,644 831 Exelon Corp. 6,200 322 MDU Communications International, Inc. (AE)(N) 29,200 51 Sprint Nextel Corp. 35,000 816 Talk America Holdings, Inc. (AE)(N) 11,400 110 ------------ 2,309 ------------ TOTAL COMMON STOCKS (cost $152,183) 170,988 ------------ SHORT-TERM INVESTMENTS - 5.2% Frank Russell Investment Company Money Market Fund 8,192,000 8,192 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 1,200 1,196 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $9,388) 9,388 ------------ OTHER SECURITIES - 6.2% Frank Russell Investment Company Money Market Fund (X) 3,707,787 3,708 State Street Securities Lending Quality Trust (X) 7,596,905 7,597 ------------ TOTAL OTHER SECURITIES (cost $11,305) 11,305 ------------ TOTAL INVESTMENTS - 105.4% (identified cost $172,876) 191,681 OTHER ASSETS AND LIABILITIES, NET - (5.4%) (9,841) ------------ NET ASSETS - 100.0% 181,840 ============
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Nasdaq 100 Index expiration date 12/05 (20) 3,173 (45) Russell 1000 Growth Index expiration date 12/05 (6) 1,487 (44) S&P 500 E-Mini Index expiration date 12/05 (27) 1,633 (40) S&P 500 Index expiration date 12/05 (12) 3,629 47 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (82) ===============
See accompanying notes which are an integral part of the financial statements. Select Growth Fund 169 FRANK RUSSELL INVESTMENT COMPANY SELECT GROWTH FUND PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 2.0 Consumer Discretionary 18.3 Consumer Staples 8.5 Financial Services 7.4 Health Care 19.8 Materials and Processing 2.7 Miscellaneous 4.8 Other Energy 2.1 Producer Durables 4.1 Technology 23.0 Utilities 1.3 Short-Term Investments 5.2 Other Securities 6.2 --------------- Total Investments 105.4 Other Assets and Liabilities, Net (5.4) --------------- 100.0 =============== Futures Contracts (--*)
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. 170 Select Growth Fund (This page intentionally left blank) FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
SELECT VALUE - CLASS I RUSSELL 1000(R) VALUE ** ---------------------- ------------------------ Inception* 10000 10000 2001 8608 8684 2002 7599 7813 2003 9316 9601 2004 10692 11084 2005 12043 12400
Select Value Fund - Class S - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.36% Inception* 3.85%sec.
Select Value Fund - Class E - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.14% Inception* 3.57%sec.
Select Value Fund - Class C - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.23% Inception* 2.69%sec.
Select Value Fund - Class I - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 12.63% Inception* 3.99%sec.
Russell 1000()(R) Value Index** - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - ------------------------- ------------------------- 1 Year 11.86% Inception* 4.50%sec.
172 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks to provide long term capital growth. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Select Value Fund Class I, Class S, Class E and Class C Shares gained 12.63%, 12.36%, 12.14% and 11.23%, respectively. This compared to the Russell 1000(R) Value Index, which gained 11.86% during the same period. The Fund's performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. For the year ended October 31, 2005, the Lipper(R) Large-Cap Value Funds Average returned 9.68%. This result serves as a peer comparison and is expressed net of operating expenses. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? Over the period, the best performing stocks in the U.S. value universe were typically mid-capitalization stocks with strong growth characteristics. Most of these stocks possessed one or more of the following characteristics: low yield, low beta, small to middle market capitalization and high earnings growth. The performance of these stocks appeared to be driven by continued economic growth and strong earnings for U.S. companies. These stocks also benefited from a return to favor in late 2004 after struggling for most of the year. These factors had a positive impact on the Fund's performance given its overweight in higher growth and mid-capitalization stocks relative to benchmark. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? Since the Fund was biased toward higher growth, lower yielding and mid-capitalization value stocks relative to the Fund's benchmark, the market environment was favorable for the Fund; however, the strong performance of the energy sector had a slightly negative impact on the Fund due to the Fund's modest underweight in energy stocks. Stock selection was positive in most sectors, but the strongest gains were achieved in health care, consumer discretionary and utilities. Finally, the Fund's policy of always being fully invested contributed to positive performance, as equity markets generally rose during the period. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The strong relative performance of deep value, high dividend-paying and mid-capitalization stocks made those stocks less fundamentally attractive in recent periods. Given their bias towards owning stocks with both attractive values and good growth prospects, the Fund's money managers, moved towards higher growth, larger capitalization stocks. As a result, the Fund had a pronounced tilt toward stocks with higher valuations and higher growth characteristics, e.g., health care stocks. This tilt contributed positively to performance over the last 12 months. On the other hand, the Fund's money managers' search for value caused them to move away from the increasingly expensive energy sector. The Fund's underweight in energy had a negative impact on performance in the fiscal year. Systematic Financial Management, L.P. and Iridian Asset Management, LLC were strong contributors to the Fund's excess returns. Systematic added value through strong stock selection in the financials, other energy and consumer discretionary sectors, while Iridian's strongest gains came from stock selection in health care and utilities. DePrince, Race & Zollo, Inc. underperformed due largely to zero exposure to energy stocks and poor stock selection within the materials and consumer staples sectors. Select Value Fund 173 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. There have been no changes to the money manager line-up. The Fund continues to emphasize stocks with higher growth and lower dividend profiles relative to benchmark. The Fund's underweight to financial services stocks has increased significantly over the last twelve months as the Fund's money managers believed these stocks to be fundamentally unattractive. Money Managers as of Style October 31, 2005 DePrince, Race & Zollo, Inc. Value Iridian Asset Management, LLC Value MFS Institutional Advisors, Inc. Value Netols Asset Management, Inc. Value Systematic Financial Management, L.P. Value
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Select Value Fund commenced operations on January 31, 2001. ** Russell 1000(R) Value Index measures the performance of those Russell 1000(R) Index securities with higher price-to-book ratios and higher forecasted growth values. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. 174 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING EACH FUND'S EXPENSE EXAMPLE, WHICH APPEARS ON EACH FUND'S INDIVIDUAL PAGE IN THIS ANNUAL REPORT. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR A FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS C PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,055.20 $ 1,014.17 Expenses Paid During Period* $ 11.34 $ 11.12
* Expenses are equal to the Fund's annualized expense ratio of 2.19% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS E PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,059.20 $ 1,018.70 Expenses Paid During Period* $ 6.70 $ 6.56
* Expenses are equal to the Fund's annualized expense ratio of 1.29% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS I PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,061.20 $ 1,020.57 Expenses Paid During Period* $ 4.78 $ 4.69
* Expenses are equal to the Fund's annualized expense ratio of 0.92% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS S PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 1,060.40 $ 1,019.61 Expenses Paid During Period* $ 5.76 $ 5.65
* Expenses are equal to the Fund's annualized expense ratio of 1.11% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher. Select Value Fund 175 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 92.7% Auto and Transportation - 1.2% Aviall, Inc. (AE) 16,904 533 Burlington Northern Santa Fe Corp. 16,930 1,051 CNF, Inc. 3,970 223 Fleetwood Enterprises, Inc. (AE)(N) 34,908 386 Keystone Automotive Industries, Inc. (AE) 16,571 474 Norfolk Southern Corp. 6,300 253 United Parcel Service, Inc. Class B 13,800 1,007 Wabash National Corp. (N) 7,831 144 Wabtec Corp. 19,467 530 ------------ 4,601 ------------ Consumer Discretionary - 10.0% Abercrombie & Fitch Co. Class A 16,600 863 Accenture, Ltd. Class A 56,960 1,499 Administaff, Inc. (N) 12,008 508 Arbitron, Inc. 7,648 286 California Pizza Kitchen, Inc. (AE)(N) 12,566 402 Casual Male Retail Group, Inc. (AE)(N) 33,050 191 Copart, Inc. (AE) 14,971 350 Corinthian Colleges, Inc. (AE)(N) 31,291 389 DeVry, Inc. (AE) 17,999 407 DiamondCluster International, Inc. (AE) 46,529 299 Family Dollar Stores, Inc. 42,100 932 Gap, Inc. (The) 53,570 926 Harman International Industries, Inc. 11,600 1,158 Harrah's Entertainment, Inc. 43,400 2,625 Hasbro, Inc. 68,820 1,297 J Jill Group, Inc. (AE) 25,110 319 Jarden Corp. (AE)(N) 8,749 296 JC Penney Co., Inc. 69,100 3,538 Kimberly-Clark Corp. 36,150 2,055 Limited Brands, Inc. 48,600 973 Lowe's Cos., Inc. 9,880 600 McCormick & Schmick's Seafood Restaurants, Inc. (AE) 11,296 254 McDonald's Corp. 89,600 2,831 Newell Rubbermaid, Inc. 26,900 618 Nike, Inc. Class B 15,100 1,269 Nordstrom, Inc. 32,100 1,112 Playboy Enterprises, Inc. Class B (AE)(N) 29,596 448 Polo Ralph Lauren Corp. (N) 13,700 674 Reader's Digest Association, Inc. (The) 26,243 402 Reed Elsevier PLC - ADR 16,080 586 Sabre Holdings Corp. Class A 30,500 596 Service Corp. International 43,229 362 Source Interlink Cos., Inc. (AE)(N) 15,364 156 Sports Authority, Inc. (The) (AE)(N) 12,733 355
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Thomson - ADR (N) 15,100 285 Time Warner, Inc. 34,100 608 TJX Cos., Inc. 30,640 660 Tribune Co. (N) 14,130 445 Viacom, Inc. Class B 34,954 1,083 Walt Disney Co. 53,600 1,306 Waste Management, Inc. 34,600 1,021 Westwood One, Inc. 15,252 282 Yum! Brands, Inc. 22,100 1,124 ------------ 36,390 ------------ Consumer Staples - 4.4% Alliance One International, Inc. 32,192 80 Altria Group, Inc. 65,770 4,936 Coca-Cola Co. (The) 20,800 890 Colgate-Palmolive Co. 20,600 1,091 Del Monte Foods Co. (AE)(N) 33,350 353 Diageo PLC - ADR (N) 7,100 422 General Mills, Inc. 10,100 487 HJ Heinz Co. 49,500 1,757 Kellogg Co. 30,760 1,359 Kroger Co. (The) (AE) 56,200 1,118 Lance, Inc. 21,511 377 Molson Coors Brewing Co. Class B (N) 13,200 814 Nestle SA - ADR 7,070 526 PepsiCo, Inc. 10,080 596 Procter & Gamble Co. 14,300 801 Sara Lee Corp. 29,510 527 ------------ 16,134 ------------ Financial Services - 24.1% Aflac, Inc. 5,760 275 AG Edwards, Inc. 22,500 952 Allmerica Financial Corp. 11,062 422 Allstate Corp. (The) 70,350 3,714 American Express Co. 17,030 848 American International Group, Inc. 70,200 4,549 Ameriprise Financial, Inc. 3,406 127 AmSouth Bancorp 21,100 532 AON Corp. 37,000 1,253 Bank of America Corp. 224,366 9,814 Bank of New York Co., Inc. (The) 30,400 951 Bear Stearns Cos., Inc. (The) 18,800 1,989 BISYS Group, Inc. (The) (AE) 25,025 317 Chubb Corp. 5,670 527 Cigna Corp. 10,900 1,263 Citigroup, Inc. 163,520 7,486
176 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cullen/Frost Bankers, Inc. 10,400 549 Dow Jones & Co., Inc. (N) 21,300 722 E*Trade Financial Corp. (AE) 78,800 1,462 Fannie Mae 25,330 1,204 Federated Investors, Inc. Class B 14,600 511 First Data Corp. 88,713 3,588 First Industrial Realty Trust, Inc. (o)(N) 9,254 376 Franklin Resources, Inc. 4,970 439 Freddie Mac 67,970 4,170 GATX Corp. (N) 12,898 482 Goldman Sachs Group, Inc. 32,680 4,130 Hartford Financial Services Group, Inc. 25,910 2,066 Huntington Bancshares, Inc. 44,300 1,030 JPMorgan Chase & Co. 81,100 2,970 Kronos, Inc. (AE) 8,135 373 Lehman Brothers Holdings, Inc. 5,250 628 Lincoln National Corp. 5,600 283 Loews Corp. 11,500 1,069 MBNA Corp. 18,160 464 Mellon Financial Corp. 26,680 846 Merrill Lynch & Co., Inc. 54,400 3,522 Metlife, Inc. 73,780 3,646 Montpelier Re Holdings, Ltd. (N) 18,588 374 Morgan Stanley 44,800 2,438 North Fork Bancorporation, Inc. 24,000 608 PNC Financial Services Group, Inc. 28,120 1,707 Prudential Financial, Inc. 16,900 1,230 South Financial Group, Inc. (The) (N) 19,700 543 St. Paul Travelers Cos., Inc. (The) 23,500 1,058 SunTrust Banks, Inc. 43,350 3,142 UBS AG 9,100 780 UnionBanCal Corp. 12,600 863 US Bancorp 56,200 1,662 W Holding Co., Inc. (N) 5,384 42 Washington Mutual, Inc. 43,888 1,738 Wells Fargo & Co. 13,030 784 Westamerica Bancorporation 3,710 198 Zions Bancorporation 14,700 1,080 ------------ 87,796 ------------ Health Care - 10.0% Abbott Laboratories 35,120 1,512 Amgen, Inc. (AE) 44,100 3,341 Baxter International, Inc. 35,240 1,347 Biogen Idec, Inc. (AE) 96,815 3,933 Biovail Corp. (AE)(N) 30,000 654 Boston Scientific Corp. (AE) 112,700 2,831 Coventry Health Care, Inc. (AE) 18,300 988 Eli Lilly & Co. 24,640 1,227 Gentiva Health Services, Inc. (AE) 27,455 403 Genzyme Corp. (AE) 19,600 1,417
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Johnson & Johnson 47,860 2,997 KV Pharmaceutical Co. Class A (AE)(N) 24,859 426 LifePoint Hospitals, Inc. (AE) 11,256 440 Merck & Co., Inc. 70,970 2,003 Par Pharmaceutical Cos., Inc. (AE)(N) 16,351 423 Pfizer, Inc. 130,640 2,840 PolyMedica Corp. 11,813 390 PSS World Medical, Inc. (AE) 42,107 586 Rotech Healthcare, Inc. (AE) 11,439 232 Sunrise Senior Living, Inc. (AE)(N) 12,418 402 UnitedHealth Group, Inc. 38,900 2,252 US Physical Therapy, Inc. (AE) 18,632 336 WellPoint, Inc. (AE) 44,500 3,323 Wyeth 46,340 2,065 ------------ 36,368 ------------ Integrated Oils - 5.5% Amerada Hess Corp. 5,900 738 Chevron Corp. 81,062 4,626 ConocoPhillips 78,470 5,130 Exxon Mobil Corp. 120,130 6,744 Marathon Oil Corp. 17,800 1,071 Occidental Petroleum Corp. 2,200 174 Total SA - ADR (N) 11,450 1,443 ------------ 19,926 ------------ Materials and Processing - 8.3% Acuity Brands, Inc. 11,489 319 Air Liquide - ADR (N) 5,080 185 Air Products & Chemicals, Inc. 18,160 1,039 Airgas, Inc. 14,729 416 Alcoa, Inc. 37,600 913 Allegheny Technologies, Inc. 30,100 864 American Standard Cos., Inc. 54,500 2,073 Archer-Daniels-Midland Co. 70,220 1,711 Avery Dennison Corp. (N) 19,100 1,082 Bemis Co. (N) 38,800 1,025 Bowater, Inc. (N) 35,120 931 Cabot Corp. (N) 15,800 539 Commercial Metals Co. 8,199 261 Dow Chemical Co. (The) 63,540 2,914 EI Du Pont de Nemours & Co. 49,840 2,078 Engelhard Corp. 19,800 539 International Paper Co. 67,270 1,963 Lafarge North America, Inc. 12,400 750 Masco Corp. 56,190 1,601 MeadWestvaco Corp. 30,800 808
Select Value Fund 177 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Monsanto Co. 29,000 1,827 Nalco Holding Co. (AE)(N) 12,130 206 Packaging Corp. of America 30,100 611 PPG Industries, Inc. 22,330 1,339 Praxair, Inc. 28,550 1,411 Rohm & Haas Co. 20,000 871 Smurfit-Stone Container Corp. (AE) 19,620 207 Syngenta AG - ADR 31,960 687 Valspar Corp. 32,200 710 Worthington Industries, Inc. (N) 18,225 367 ------------ 30,247 ------------ Miscellaneous - 3.5% 3M Co. 9,900 752 Fortune Brands, Inc. 23,200 1,762 General Electric Co. 58,800 1,994 Hillenbrand Industries, Inc. 13,100 604 Honeywell International, Inc. 35,900 1,228 Textron, Inc. 20,700 1,491 Tyco International, Ltd. 102,200 2,697 Vivendi Universal SA - ADR 67,500 2,121 ------------ 12,649 ------------ Other Energy - 4.9% Burlington Resources, Inc. 28,600 2,066 Cal Dive International, Inc. (AE)(N) 7,780 479 Chesapeake Energy Corp. 87,300 2,802 Cimarex Energy Co. (AE) 24,400 958 Devon Energy Corp. 49,080 2,963 Encore Acquisition Co. (AE) 12,744 437 EOG Resources, Inc. 30,720 2,082 Global Industries, Ltd. (AE) 27,835 354 Hanover Compressor Co. (AE)(N) 31,057 399 James River Coal Co. (AE) 8,706 372 Kerr-McGee Corp. 18,600 1,582 Matrix Service Co. (AE)(N) 20,616 203 Noble Corp. 8,700 560 Remington Oil & Gas Corp. (AE) 9,346 327 Sunoco, Inc. 13,700 1,021 Transocean, Inc. (AE) 11,400 655 Valero Energy Corp. 4,400 463 ------------ 17,723 ------------ Producer Durables - 8.4% Agilent Technologies, Inc. (AE) 81,100 2,596 American Power Conversion Corp. 36,900 789 Ametek, Inc. 7,207 293 Applied Signal Technology, Inc. (N) 13,000 223 BE Aerospace, Inc. (AE) 30,168 547 Boeing Co. 19,300 1,248 C&D Technologies, Inc. 38,365 350 Champion Enterprises, Inc. (AE) 38,092 529 Cognex Corp. 10,416 298
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Cooper Industries, Ltd. Class A 10,400 737 Crane Co. 13,289 411 Deere & Co. 34,370 2,086 Diebold, Inc. (N) 15,500 560 Dover Corp. 50,700 1,976 Duratek, Inc. (AE) 15,066 215 Emerson Electric Co. 8,090 563 Esterline Technologies Corp. (AE) 13,106 493 General Cable Corp. (AE)(N) 25,444 413 Hubbell, Inc. Class B 21,400 1,031 IDEX Corp. 10,387 416 Illinois Tool Works, Inc. 9,190 779 Ingersoll-Rand Co. Class A 25,000 945 Koninklijke Philips Electronics NV 44,300 1,159 Lennar Corp. Class A (N) 36,400 2,023 Lockheed Martin Corp. 31,930 1,934 Northrop Grumman Corp. 52,310 2,806 Park-Ohio Holdings Corp. (AE)(N) 14,510 240 Sandvik AB - ADR 1,900 91 United Technologies Corp. 45,780 2,348 Varian Semiconductor Equipment Associates, Inc. (AE) 8,136 308 WW Grainger, Inc. 7,280 488 Xerox Corp. (AE) 134,100 1,820 ------------ 30,715 ------------ Technology - 4.9% Analog Devices, Inc. 11,180 389 Avid Technology, Inc. (AE) 9,264 456 Cisco Systems, Inc. (AE) 25,600 447 Computer Associates International, Inc. 197 5 EMC Corp. (AE) 30,600 427 Filenet Corp. (AE) 10,100 284 General Dynamics Corp. 17,900 2,082 Harris Corp. (N) 13,700 563 Hewlett-Packard Co. 64,900 1,820 Integrated Device Technology, Inc. (AE) 32,381 320 Intel Corp. 65,200 1,532 International Business Machines Corp. 29,200 2,391 Internet Security Systems, Inc. (AE) 13,199 325 InterVoice, Inc. (AE)(N) 29,131 271 IXYS Corp. (AE) 26,440 271 Mantech International Corp. Class A (AE) 17,012 471 McAfee, Inc. (AE) 19,100 574 Micron Technology, Inc. (AE)(N) 32,900 427
178 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Motorola, Inc. 33,200 736 National Semiconductor Corp. 17,600 398 Nvidia Corp. (AE) 26,700 896 Oracle Corp. (AE) 44,820 568 Seagate Technology, Inc. (AE) 1,900 -- Sybase, Inc. (AE) 17,352 386 Symantec Corp. (AE) 20,700 494 Tellabs, Inc. (AE) 85,046 813 Texas Instruments, Inc. 14,700 420 ------------ 17,766 ------------ Utilities - 7.5% Alltel Corp. 38,200 2,363 America Movil SA de CV Series L 71,900 1,887 BellSouth Corp. 34,500 898 Citizens Communications Co. 69,200 847 Consolidated Edison, Inc. (N) 20,600 937 Constellation Energy Group, Inc. 11,500 630 Dominion Resources, Inc. 28,410 2,162 Edison International 10,600 464 Entergy Corp. 5,150 364 Exelon Corp. 23,050 1,199 FPL Group, Inc. 4,030 174 NII Holdings, Inc. (AE)(N) 8,000 663 Northeast Utilities 28,000 509 PPL Corp. 40,120 1,257 Progress Energy, Inc. 1,300 -- Public Service Enterprise Group, Inc. 6,960 438 SBC Communications, Inc. 87,400 2,085 Sprint Nextel Corp. 192,020 4,476 TXU Corp. 4,840 488 UGI Corp. 22,500 531 Verizon Communications, Inc. 121,140 3,817 Vodafone Group PLC - ADR 46,408 1,219 ------------ 27,408 ------------ TOTAL COMMON STOCKS (cost $297,489) 337,723 ------------ SHORT-TERM INVESTMENTS - 6.3% Frank Russell Investment Company Money Market Fund 21,745,000 21,745 United States Treasury Bills (c)(z)(sec.) 3.373% due 12/08/05 1,100 1,096 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $22,841) 22,841 ------------
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- OTHER SECURITIES - 5.0% Frank Russell Investment Company Money Market Fund (X) 5,967,591 5,968 State Street Securities Lending Quality Trust (X) 12,227,030 12,227 ------------ TOTAL OTHER SECURITIES (cost $18,195) 18,195 ------------ TOTAL INVESTMENTS - 104.0% (identified cost $338,525) 378,759 OTHER ASSETS AND LIABILITIES, NET - (4.0%) (14,451) ------------ NET ASSETS - 100.0% 364,308 ============
See accompanying notes which are an integral part of the financial statements. Select Value Fund 179 FRANK RUSSELL INVESTMENT COMPANY SELECT VALUE FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions Russell 1000 Value Index expiration date 12/05 (29) 9,606 (381) S&P 500 E-Mini Index expiration date 12/05 (56) 3,387 (67) S&P 500 Index expiration date 12/05 (36) 10,888 95 --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (353) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 1.2 Consumer Discretionary 10.0 Consumer Staples 4.4 Financial Services 24.1 Health Care 10.0 Integrated Oils 5.5 Materials and Processing 8.3 Miscellaneous 3.5 Other Energy 4.9 Producer Durables 8.4 Technology 4.9 Utilities 7.5 Short-Term Investments 6.3 Other Securities 5.0 --------------- Total Investments 104.0 Other Assets and Liabilities, Net (4.0) --------------- 100.0 =============== Futures Contracts (0.1)
See accompanying notes which are an integral part of the financial statements. 180 Select Value Fund FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO SCHEDULES OF INVESTMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- FOOTNOTES: (AE) Nonincome-producing security. (I) Forward commitment. (E) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. (f) Perpetual floating rate security. Rate shown reflects rate in effect at period end. (o) Real Estate Investment Trust (REIT). (u) Bond is insured by a guarantor. (B) Illiquid security. (O) In default. (c) At amortized cost, which approximates market. (z) Rate noted is yield-to-maturity from date of acquisition. (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. (S) All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. (x) The security is purchased with the cash collateral from the securities loaned. (N) All or a portion of the shares of this security are on loan. (p) Restricted security. Security may have contractual restrictions on resale, may have been offered in a private placement transaction, and may not be registered under the Securities Act of 1933. (A) Illiquid and restricted security. (a) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2. ABBREVIATIONS: ADR - American Depositary Receipt ADS - American Depositary Share CIBOR - Copenhagen Interbank Offered Rate CME - Chicago Mercantile Exchange CMO - Collateralized Mortgage Obligation CVO - Contingent Value Obligation GDR - Global Depositary Receipt GDS - Global Depositary Share FDIC - Federal Deposit Insurance Company LIBOR - London Interbank Offered Rate NIBOR - Norwegian Interbank Offered Rate PIK - Payment in Kind REMIC - Real Estate Mortgage Investment Conduit STRIP - Separate Trading of Registered Interest and Principal of Securities TBA - To Be Announced Security FOREIGN CURRENCY ABBREVIATIONS: ARS - Argentine peso HKD - Hong Kong dollar PHP - Philippine peso AUD - Australian dollar HUF - Hungarian forint PKR - Pakistani rupee BRL - Brazilian real IDR - Indonesian rupiah PLN - Polish zloty CAD - Canadian dollar ILS - Israeli shekel RUB - Russian ruble CHF - Swiss franc INR - Indian rupee SEK - Swedish krona CLP - Chilean peso ITL - Italian lira SGD - Singapore dollar CNY - Chinese renminbi yuan JPY - Japanese yen SKK - Slovakian koruna COP - Colombian peso KES - Kenyan schilling THB - Thai baht CRC - Costa Rica colon KRW - South Korean won TRY - Turkish lira CZK - Czech koruna MXN - Mexican peso TWD - Taiwanese dollar DKK - Danish krone MYR - Malaysian ringgit USD - United States dollar EGP - Egyptian pound NOK - Norwegian krone VEB - Venezuelan bolivar EUR - Euro NZD - New Zealand dollar VND - Vietnam dong GBP - British pound sterling PEN - Peruvian nouveau sol ZAR - South African rand
Notes to Schedules of Investments 181 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005
EQUITY I EQUITY II EQUITY Q INTERNATIONAL AMOUNTS IN THOUSANDS FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- ASSETS Investments, at identified cost $ 1,126,057 $ 653,181 $ 1,241,783 $ 1,847,792 - --------------------------------------------------------------------------------------------------------------------------------- Investments, at market*** 1,251,365 761,067 1,426,499 2,145,449 Cash -- 21 -- 67 Cash (restricted) -- -- -- 600 Foreign currency holdings* -- -- -- 5,041 Unrealized appreciation on foreign currency exchange contracts -- -- -- 2,961 Receivables: Dividends and interest 991 234 1,212 1,962 Dividends from affiliated money market funds 244 85 76 399 Investments sold 16,059 11,083 3,558 11,291 Fund shares sold 1,498 684 1,755 1,880 Foreign taxes recoverable -- -- -- 149 From adviser -- -- -- -- Daily variation margin on futures contracts 754 655 340 2,146 Prepaid expenses 8 -- -- 3 Unrealized appreciation on index swap contracts -- -- -- 335 Interest rate swap contracts, at market value***** -- -- -- -- Unrealized appreciation on credit default swaps**** -- -- -- -- -------------- -------------- -------------- -------------- Total assets 1,270,919 773,829 1,433,440 2,172,283 -------------- -------------- -------------- -------------- LIABILITIES Payables: Investments purchased 16,537 9,001 2,481 9,474 Fund shares redeemed 437 1,731 441 233 Accrued fees to affiliates 669 475 748 1,207 Other accrued expenses 96 79 88 217 Daily variation margin on futures contracts -- -- -- -- Deferred tax liability -- -- -- -- Unrealized depreciation on foreign currency exchange contracts -- -- -- 5,913 Options written, at market value** -- -- -- 103 Payable upon return of securities loaned 49,048 118,353 36,020 398,662 Unrealized depreciation on index swap contracts -- -- -- 5 Interest rate swap contracts, at market value***** -- -- -- -- Unrealized depreciation on credit default swaps**** -- -- -- -- -------------- -------------- -------------- -------------- Total liabilities 66,787 129,639 39,778 415,814 -------------- -------------- -------------- -------------- NET ASSETS $ 1,204,132 $ 644,190 $ 1,393,662 $ 1,756,469 ============== ============== ============== ============== Net Assets Consist of: Undistributed (overdistributed) net investment income $ 603 $ 125 $ 790 $ 21,985 Accumulated net realized gain (loss) 38,293 153,881 23,457 (13,488) Unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) 125,308 107,886 184,716 297,657 Futures contracts (671) (816) (138) 2,747 Options written -- -- -- (22) Credit default swaps -- -- -- -- Index swap contracts -- -- -- 330 Interest rate swap contracts -- -- -- -- Foreign currency-related transactions -- -- -- (3,041) Shares of beneficial interest 391 167 396 434 Additional paid-in capital 1,040,208 382,947 1,184,441 1,449,867 -------------- -------------- -------------- -------------- NET ASSETS $ 1,204,132 $ 644,190 $ 1,393,662 $ 1,756,469 ============== ============== ============== ==============
See accompanying notes which are an integral part of the financial statements. 182 Statement of Assets and Liabilities
FIXED INCOME I FIXED INCOME III EMERGING MARKETS REAL ESTATE SHORT DURATION SELECT GROWTH SELECT VALUE FUND FUND FUND SECURITIES FUND BOND FUND FUND FUND - ----------------------------------------------------------------------------------------------------------------------------------- $ 1,502,114 $ 827,700 $ 630,528 $ 1,234,017 $ 1,270,440 $ 172,876 $ 338,525 - ----------------------------------------------------------------------------------------------------------------------------------- 1,487,400 824,756 851,790 1,672,186 1,256,058 191,681 378,759 1,439 2,070 104 -- -- -- 10 -- 100 -- -- -- -- -- 3 30 8,633 -- 12 -- -- 177 189 502 -- 20 -- -- 8,765 4,602 1,121 3,946 8,343 71 301 416 311 98 160 172 29 58 24,938 31,810 8,351 8,878 -- 4,376 4,140 2,620 1,467 1,468 2,721 1,716 819 1,781 -- -- 3 -- -- -- -- -- -- 9 16 27 71 -- 9 11 437 -- -- 102 145 -- 1 1 18 -- -- -- -- -- -- -- -- -- -- 37 45 -- -- -- -- -- -- -- -- -- 17 -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 1,525,804 865,392 872,517 1,687,925 1,266,365 197,149 385,194 -------------- -------------- -------------- -------------- -------------- -------------- -------------- 244,196 124,963 6,420 6,646 45,547 3,811 2,229 618 176 456 1,125 1,459 19 122 339 303 966 1,372 602 137 293 93 67 205 109 98 37 47 41 7 -- -- 45 -- -- -- -- 876 -- -- -- -- 309 274 709 -- -- -- -- 190 160 862 -- 265 -- -- 62,257 128,469 15,121 122,392 4,171 11,305 18,195 -- 20 -- -- -- -- -- 439 470 -- -- 598 -- -- -- 60 -- -- -- -- -- -------------- -------------- -------------- -------------- -------------- -------------- -------------- 308,482 254,969 25,615 131,644 52,785 15,309 20,886 -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 1,217,322 $ 610,423 $ 846,902 $ 1,556,281 $ 1,213,580 $ 181,840 $ 364,308 ============== ============== ============== ============== ============== ============== ============== $ 3,940 $ 2,438 $ 4,215 $ 1,374 $ 3,335 $ 43 $ 74 (3,517) 1,521 18,797 170,100 (9,181) (18,291) 7,150 (14,714) (2,944) 220,386 438,169 (14,382) 18,805 40,234 (1,318) (764) 301 -- (1,065) (82) (353) (68) 15 (138) -- 57 -- -- -- 5 -- -- -- -- -- -- (20) -- -- -- -- -- (170) (202) -- -- (456) -- -- (132) (80) (246) -- 20 -- -- 587 585 491 331 650 231 319 1,232,714 609,869 603,096 946,307 1,234,602 181,134 316,884 -------------- -------------- -------------- -------------- -------------- -------------- -------------- $ 1,217,322 $ 610,423 $ 846,902 $ 1,556,281 $ 1,213,580 $ 181,840 $ 364,308 ============== ============== ============== ============== ============== ============== ==============
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 183 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS STATEMENT OF ASSETS AND LIABILITIES, CONTINUED -- OCTOBER 31, 2005
EQUITY I EQUITY II EQUITY Q INTERNATIONAL FUND FUND FUND FUND - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, offering and redemption price per share: Net asset value per share: Class C****** $ -- $ -- $ -- $ -- Class C -- Net assets $ -- $ -- $ -- $ -- Class C -- Shares outstanding ($.01 par value) -- -- -- -- Net asset value per share: Class E****** $ 30.81 $ 38.43 $ 35.20 $ 40.45 Class E -- Net assets $ 37,665,710 $ 34,848,962 $ 46,352,027 $ 41,415,058 Class E -- Shares outstanding ($.01 par value) 1,222,674 906,879 1,316,934 1,023,969 Net asset value per share: Class I****** $ 30.79 $ 38.57 $ 35.20 $ 40.47 Class I -- Net assets $ 825,171,769 $ 496,716,350 $ 1,009,002,304 $ 1,127,302,780 Class I -- Shares outstanding ($.01 par value) 26,803,989 12,878,861 28,664,551 27,855,882 Net asset value per share: Class S****** $ -- $ -- $ -- $ -- Class S -- Net assets $ -- $ -- $ -- $ -- Class S -- Shares outstanding ($.01 par value) -- -- -- -- Net asset value per share: Class Y****** $ 30.77 $ 38.58 $ 35.20 $ 40.47 Class Y -- Net assets $ 341,294,405 $ 112,624,637 $ 338,308,002 $ 587,750,950 Class Y -- Shares outstanding ($.01 par value) 11,090,693 2,918,953 9,610,212 14,524,365 - --------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands * Foreign currency holdings - cost $ -- $ -- $ -- $ 5,083 ** Premiums received on options written $ -- $ -- $ -- $ 81 *** Securities on loan included in investments $ 47,951 $ 117,614 $ 35,688 $ 382,861 **** Credit default swap contracts - premiums paid (received) $ -- $ -- $ -- $ -- ***** Interest rate swap contracts - premiums paid (received) $ -- $ -- $ -- $ -- ****** Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding.
See accompanying notes which are an integral part of the financial statements. 184 Statement of Assets and Liabilities
FIXED INCOME I FIXED INCOME III EMERGING MARKETS REAL ESTATE SHORT DURATION SELECT GROWTH SELECT VALUE FUND FUND FUND SECURITIES FUND BOND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------------------ $ -- $ -- $ 16.73 $ 46.08 $ 18.63 $ 7.45 $ 11.27 $ -- $ -- $ 33,961,278 $ 81,876,013 $ 30,290,443 $ 8,149,437 $ 21,227,818 -- -- 2,030,323 1,776,920 1,625,762 1,094,484 1,884,355 $ 20.75 $ 10.44 $ 17.25 $ 46.62 $ 18.70 $ 7.76 $ 11.43 $ 29,632,139 $ 9,267,944 $ 18,854,860 $ 40,295,713 $ 24,850,650 $ 4,254,596 $ 8,770,392 1,428,062 887,377 1,093,038 864,412 1,329,031 548,135 767,039 $ 20.75 $ 10.43 $ -- $ -- $ -- $ 7.91 $ 11.46 $ 788,807,508 $ 560,896,215 $ -- $ -- $ -- $ 112,112,166 $ 135,759,123 38,017,299 53,796,273 -- -- -- 14,172,949 11,844,628 $ -- $ -- $ 17.25 $ 47.03 $ 18.67 $ 7.87 $ 11.44 $ -- $ -- $ 794,085,634 $1,434,109,063 $1,158,439,136 $ 57,324,152 $ 198,550,433 -- -- 46,026,021 30,493,073 62,041,384 7,287,351 17,358,345 $ 20.76 $ 10.43 $ -- $ -- $ -- $ -- $ -- $ 398,882,154 $ 40,258,774 $ -- $ -- $ -- $ -- $ -- 19,216,474 3,859,683 -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------ $ 3 $ 31 $ 8,666 $ -- $ 12 $ -- $ -- $ 122 $ 175 $ 724 $ -- $ 322 $ -- $ -- $ 60,999 $ 125,868 $ 14,931 $ 120,447 $ 4,081 $ 11,152 $ 17,944 $ -- $ (65) $ -- $ -- $ -- $ -- $ -- $ (232) $ (223) $ -- $ -- $ (125) $ -- $ --
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 185 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005
EQUITY I EQUITY II EQUITY Q INTERNATIONAL AMOUNTS IN THOUSANDS FUND FUND FUND FUND - ------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME Dividends $ 15,432 $ 7,145 $ 26,576 $ 42,731 Dividends from affiliated money market funds 1,926 932 826 3,163 Interest 180 90 119 210 Securities lending income 59 443 46 1,568 Less foreign taxes withheld -- -- -- (4,561) -------------- -------------- -------------- ----------------- Total investment income 17,597 8,610 27,567 43,111 -------------- -------------- -------------- ----------------- EXPENSES Advisory fees 5,567 6,115 7,881 11,427 Administrative fees 506 437 716 816 Custodian fees 406 486 434 1,926 Distribution fees - Class C -- -- -- -- Transfer agent fees -- -- -- -- Transfer agent fees - Class C -- -- -- -- Transfer agent fees - Class E 13 20 15 15 Transfer agent fees - Class I 458 494 395 462 Transfer agent fees - Class S -- -- -- -- Transfer agent fees - Class Y 5 3 6 9 Professional fees 92 71 102 143 Registration fees 126 63 86 91 Shareholder servicing fees - Class C -- -- -- -- Shareholder servicing fees - Class E 90 196 121 99 Trustees' fees 24 22 35 39 Printing fees 40 47 64 70 LifePoints funds fees -- -- -- -- Miscellaneous 15 14 20 22 -------------- -------------- -------------- ----------------- Expenses before reductions 7,342 7,968 9,875 15,119 Expense reductions (352) (302) (352) (600) -------------- -------------- -------------- ----------------- Net expenses 6,990 7,666 9,523 14,519 -------------- -------------- -------------- ----------------- Net investment income (loss) 10,607 944 18,044 28,592 -------------- -------------- -------------- ----------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments (Emerging Markets Fund - net of foreign capital gains taxes) 68,200 154,868 114,899 131,618 Futures contracts 7,837 5,309 6,813 20,676 Options written -- -- -- (1,708) Credit default swap contracts -- -- -- -- Index swap contracts -- -- -- 401 Interest rate swap contracts -- -- -- -- Foreign currency-related transactions -- -- -- 516 -------------- -------------- -------------- ----------------- Net realized gain (loss) 76,037 160,177 121,712 151,503 -------------- -------------- -------------- ----------------- Net change in unrealized appreciation (depreciation) on: Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes) 30,967 (49,326) 1,777 79,688 Futures contracts (1,451) (1,642) (858) 3,391 Options written -- -- -- 74 Credit default swap contracts -- -- -- -- Index swap contracts -- -- -- 330 Interest rate swap contracts -- -- -- -- Foreign currency-related transactions -- -- -- (7,298) -------------- -------------- -------------- ----------------- Net change in unrealized appreciation (depreciation) 29,516 (50,968) 919 76,185 -------------- -------------- -------------- ----------------- Net realized and unrealized gain (loss) 105,553 109,209 122,631 227,688 -------------- -------------- -------------- ----------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 116,160 $ 110,153 $ 140,675 $ 256,280 ============== ============== ============== =================
See accompanying notes which are an integral part of the financial statements. 186 Statement of Operations
FIXED INCOME I FIXED INCOME III EMERGING MARKETS REAL ESTATE SHORT DURATION SELECT GROWTH SELECT VALUE FUND FUND FUND SECURITIES FUND BOND FUND FUND FUND - ---------------------------------------------------------------------------------------------------------------------------- $ 105 $ 73 $ 23,528 $ 42,224 $ 78 $ 1,418 $ 6,367 4,190 2,367 1,041 1,258 1,804 266 512 43,869 20,108 90 -- 38,328 29 34 88 157 56 99 6 27 36 -- -- (2,316) -- -- -- -- ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 48,252 22,705 22,399 43,581 40,216 1,740 6,949 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 2,906 2,670 8,499 11,430 5,437 1,299 2,418 581 267 370 714 604 81 173 525 389 1,709 335 296 157 191 -- -- 212 551 247 56 151 -- -- 1,894 2,474 711 -- -- -- -- -- -- -- 23 69 16 4 -- -- -- 7 19 245 278 -- -- -- 63 75 -- -- -- -- -- 97 486 7 1 -- -- -- -- -- 109 57 111 102 98 30 68 109 95 70 103 102 57 65 -- -- 71 184 82 19 50 73 21 42 90 60 14 24 27 14 18 34 25 4 8 53 24 49 89 48 12 10 -- -- 238 408 608 -- -- 17 10 28 24 23 5 8 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 4,668 3,830 13,311 16,538 8,341 1,924 3,815 (248) (120) (169) (61) (48) (227) (134) ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 4,420 3,710 13,142 16,477 8,293 1,697 3,681 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 43,832 18,995 9,257 27,104 31,923 43 3,268 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ (1,649) 1,297 90,845 149,115 (4,723) 6,842 23,331 (777) 831 3,216 -- (3,926) 1,061 2,243 414 269 5,410 -- 1 -- -- (12) -- -- -- -- -- -- -- 46 -- -- -- -- -- 77 222 -- -- (207) -- -- 714 (236) 2,647 -- 103 -- -- ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ (1,233) 2,429 102,118 149,115 (8,752) 7,903 25,574 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ (30,257) (12,562) 103,357 62,485 (15,182) 6,833 10,017 (2,241) (1,172) 32 -- (1,396) (303) (524) (130) (31) 63 -- 46 -- -- -- 5 -- -- -- -- -- -- (73) -- -- -- -- -- (35) (178) -- -- (949) -- -- 92 138 (1,056) -- 34 -- -- ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ (32,571) (13,873) 102,396 62,485 (17,447) 6,530 9,493 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ (33,804) (11,444) 204,514 211,600 (26,199) 14,433 35,067 ------------- -------------- ---------------- ---------------- --------------- ---------- ------------ 10,028 $ $ 7,551 $ 213,771 $ 238,704 $ 5,724 $ 14,476 $ 38,335 ============= ============== ================ ================ =============== ========== ============
See accompanying notes which are an integral part of the financial statements. Statement of Operations 187 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
EQUITY I EQUITY II FUND FUND -------------------------------- -------------------------------- AMOUNTS IN THOUSANDS 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 10,607 $ 6,409 $ 944 $ 2,482 Net realized gain (loss) 76,037 69,170 160,177 101,303 Net change in unrealized appreciation (depreciation) 29,516 (19,382) (50,968) (29,283) -------------- -------------- -------------- -------------- Net increase (decrease) in net assets from operations 116,160 56,197 110,153 74,502 -------------- -------------- -------------- -------------- DISTRIBUTIONS From net investment income Class C -- -- -- -- Class E (293) (202) (114) -- Class I (8,027) (5,442) (2,033) (774) Class S -- -- -- -- Class Y (2,220) (820) (635) (478) From net realized gain Class C -- -- -- -- Class E -- -- (10,499) -- Class I -- -- (87,641) -- Class S -- -- -- -- Class Y -- -- (20,999) -- -------------- -------------- -------------- -------------- Net decrease in net assets from distributions (10,540) (6,464) (121,921) (1,252) -------------- -------------- -------------- -------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 263,392 83,154 (258,684) (1,908) -------------- -------------- -------------- -------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 369,012 132,887 (270,452) 71,342 NET ASSETS Beginning of period 835,120 702,233 914,642 843,300 -------------- -------------- -------------- -------------- End of period $ 1,204,132 $ 835,120 $ 644,190 $ 914,642 ============== ============== ============== ============== Undistributed (overdistributed) net investment income included in net assets $ 603 $ 536 $ 125 $ 1,957
See accompanying notes which are an integral part of the financial statements. 188 Statement of Changes in Net Assets
EQUITY Q INTERNATIONAL FIXED INCOME I FUND FUND FUND ------------------------------- ------------------------------- ------------------------------- 2005 2004 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------------------- $ 18,044 $ 12,632 $ 28,592 $ 17,751 $ 43,832 $ 34,754 121,712 147,227 151,503 115,380 (1,233) 19,100 919 (61,134) 76,185 56,347 (32,571) 4,457 -------------- -------------- -------------- -------------- -------------- -------------- 140,675 98,725 256,280 189,478 10,028 58,311 -------------- -------------- -------------- -------------- -------------- -------------- -- -- -- -- -- -- (492) (366) (681) (655) (1,004) (859) (13,322) (9,334) (20,055) (15,369) (28,735) (23,390) -- -- -- -- -- -- (4,330) (3,409) (10,709) (14,740) (12,901) (13,121) -- -- -- -- -- -- -- -- -- -- (691) (809) -- -- -- -- (18,576) (18,686) -- -- -- -- -- -- -- -- -- -- (7,263) (12,596) -------------- -------------- -------------- -------------- -------------- -------------- (18,144) (13,109) (31,445) (30,764) (69,170) (69,461) -------------- -------------- -------------- -------------- -------------- -------------- (132,081) (220,202) 88,868 94,361 211,492 9,666 -------------- -------------- -------------- -------------- -------------- -------------- (9,550) (134,586) 313,703 253,075 152,350 (1,484) 1,403,212 1,537,798 1,442,766 1,189,691 1,064,972 1,066,456 -------------- -------------- -------------- -------------- -------------- -------------- $ 1,393,662 $ 1,403,212 $ 1,756,469 $ 1,442,766 $ 1,217,322 $ 1,064,972 ============== ============== ============== ============== ============== ============== $ 790 $ 890 $ 21,985 $ 15,748 $ 3,940 $ 1,814 FIXED INCOME III FUND ------------------------------- 2005 2004 - --- $ 18,995 $ 10,361 2,429 7,193 (13,873) 3,476 -------------- -------------- 7,551 21,030 -------------- -------------- -- -- (255) (241) (16,744) (12,760) -- -- (720) -- -- -- (62) (109) (3,882) (4,989) -- -- -- -- -------------- -------------- (21,663) (18,099) -------------- -------------- 155,080 162,317 -------------- -------------- 140,968 165,248 469,455 304,207 -------------- -------------- $ 610,423 $ 469,455 ============== ============== $ 2,438 $ 734
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 189 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
EMERGING MARKETS FUND ------------------------------------------- AMOUNTS IN THOUSANDS 2005 2004 - --------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss) $ 9,257 $ 4,745 Net realized gain (loss) 102,118 69,315 Net change in unrealized appreciation (depreciation) 102,396 19,464 ------------------- -------------------- Net increase (decrease) in net assets from operations 213,771 93,524 ------------------- -------------------- DISTRIBUTIONS From net investment income Class C (83) (309) Class E (194) (262) Class I -- -- Class S (9,858) (11,244) Class Y -- -- From net realized gain Class C -- -- Class E -- -- Class I -- -- Class S -- -- Class Y -- -- ------------------- -------------------- Net decrease in net assets from distributions (10,135) (11,815) ------------------- -------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions 59,004 94,089 ------------------- -------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS 262,640 175,798 NET ASSETS Beginning of period 584,262 408,464 ------------------- -------------------- End of period $ 846,902 $ 584,262 =================== ==================== Undistributed (overdistributed) net investment income included in net assets $ 4,215 $ (882)
See accompanying notes which are an integral part of the financial statements. 190 Statement of Changes in Net Assets
REAL ESTATE SECURITIES SHORT DURATION BOND SELECT GROWTH SELECT VALUE FUND FUND FUND FUND ----------------------------- ----------------------------- ----------------------------- ----------------------------- 2005 2004 2005 2004 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------------------------------------------- $ 27,104 $ 23,181 $ 31,923 $ 21,573 $ 43 $ (400) $ 3,268 $ 2,091 149,115 108,208 (8,752) 1,882 7,903 1,953 25,574 21,405 62,485 170,285 (17,447) (1,952) 6,530 (947) 9,493 10,251 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 238,704 301,674 5,724 21,503 14,476 606 38,335 33,747 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (700) (1,500) (523) (323) -- -- (18) (8) (596) (831) (558) (359) -- -- (72) (45) -- -- -- -- -- -- (1,393) (832) (25,047) (39,826) (29,494) (19,418) -- -- (1,866) (1,175) -- -- -- -- -- -- -- -- (5,310) (7) (24) -- -- -- (14) -- (2,607) (4) (16) -- -- -- (8) -- -- -- -- -- -- -- (83) -- (98,198) (175) (767) -- -- -- (145) -- -- -- -- -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- (132,458) (42,343) (31,382) (20,100) -- -- (3,599) (2,060) ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 187,997 122,824 42,298 175,555 44,098 40,106 27,540 49,612 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- 294,243 382,155 16,640 176,958 58,574 40,712 62,276 81,299 1,262,038 879,883 1,196,940 1,019,982 123,266 82,554 302,032 220,733 ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- $ 1,556,281 $ 1,262,038 $ 1,213,580 $ 1,196,940 $ 181,840 $ 123,266 $ 364,308 $ 302,032 ============= ============= ============= ============= ============= ============= ============= ============= $ 1,374 $ (385) $ 3,335 $ 1,891 $ 43 $ -- $ 74 $ 155
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 191 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ EQUITY I FUND Class E October 31, 2005 27.56 .25 3.24 3.49 October 31, 2004 25.75 .16 1.82 1.98 October 31, 2003 21.46 .15 4.28 4.43 October 31, 2002 25.25 .12 (3.69) (3.57) October 31, 2001 35.21 .15 (9.62) (9.47) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 27.54 .32 3.24 3.56 October 31, 2004 25.72 .23 1.82 2.05 October 31, 2003 21.44 .21 4.26 4.47 October 31, 2002 25.23 .19 (3.70) (3.51) October 31, 2001 35.21 .22 (9.63) (9.41) - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 27.53 .31 3.26 3.57 October 31, 2004 25.72 .25 1.81 2.06 October 31, 2003 21.43 .23 4.27 4.50 October 31, 2002 25.24 .20 (3.71) (3.51) October 31, 2001 35.21 .23 (9.61) (9.38) - ------------------------------------------------------------------------------------------------------------------ EQUITY II FUND Class E October 31, 2005 39.28 (.04) 4.44 4.40 October 31, 2004 36.12 .04 3.12 3.16 October 31, 2003 25.54 .01 10.65 10.66 October 31, 2002 28.24 .02 (2.65) (2.63) October 31, 2001 38.33 .12 (5.36) (5.24) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 39.39 .04 4.45 4.49 October 31, 2004 36.19 .10 3.15 3.25 October 31, 2003 25.59 .06 10.66 10.72 October 31, 2002 28.29 .08 (2.65) (2.57) October 31, 2001 38.35 .18 (5.37) (5.19) - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 39.41 .07 4.45 4.52 October 31, 2004 36.22 .14 3.14 3.28 October 31, 2003 25.61 .10 10.67 10.77 October 31, 2002 28.32 .12 (2.65) (2.53) October 31, 2001 38.35 .20 (5.35) (5.15) - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ---------------------------------------- EQUITY I FUND Class E October 31, 2005 (.24) -- -- October 31, 2004 (.17) -- -- October 31, 2003 (.14) -- -- October 31, 2002 (.16) -- (.06) October 31, 2001 (.13) (.36) -- - ---------------------------------------- Class I October 31, 2005 (.31) -- -- October 31, 2004 (.23) -- -- October 31, 2003 (.19) -- -- October 31, 2002 (.20) -- (.08) October 31, 2001 (.21) (.36) -- - ---------------------------------------- Class Y October 31, 2005 (.33) -- -- October 31, 2004 (.25) -- -- October 31, 2003 (.21) -- -- October 31, 2002 (.22) -- (.08) October 31, 2001 (.23) (.36) -- - ---------------------------------------- EQUITY II FUND Class E October 31, 2005 (.06) (5.19) -- October 31, 2004 -- -- -- October 31, 2003 (.08) -- -- October 31, 2002 (.07) -- -- October 31, 2001 (.07) (4.78) -- - ---------------------------------------- Class I October 31, 2005 (.12) (5.19) -- October 31, 2004 (.05) -- -- October 31, 2003 (.12) -- -- October 31, 2002 (.13) -- -- October 31, 2001 (.09) (4.78) -- - ---------------------------------------- Class Y October 31, 2005 (.16) (5.19) -- October 31, 2004 (.09) -- -- October 31, 2003 (.16) -- -- October 31, 2002 (.18) -- -- October 31, 2001 (.10) (4.78) -- - ----------------------------------------
See accompanying notes which are an integral part of the financial statements. 192 Financial Highlights
$ % % NET ASSETS, RATIO OF EXPENSES RATIO OF EXPENSES $ $ % END OF TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (.24) 30.81 12.70 37,666 .92 .96 (.17) 27.56 7.69 33,143 .94 .96 (.14) 25.75 20.79 32,632 .99 .99 (.22) 21.46 (14.26) 19,476 .98 .98 (.49) 25.25 (27.13) 30,646 .92 .92 - --------------------------------------------------------------------------------------------------------------------- (.31) 30.79 12.97 825,172 .69 .73 (.23) 27.54 7.99 697,537 .71 .72 (.19) 25.72 21.02 580,055 .75 .75 (.28) 21.44 (14.04) 588,901 .74 .74 (.57) 25.23 (26.98) 813,827 .71 .71 - --------------------------------------------------------------------------------------------------------------------- (.33) 30.77 13.00 341,294 .65 .67 (.25) 27.53 8.07 104,440 .63 .65 (.21) 25.72 21.09 89,546 .66 .66 (.30) 21.43 (13.96) 57,147 .64 .64 (.59) 25.24 (26.93) 146,156 .62 .62 - --------------------------------------------------------------------------------------------------------------------- (5.25) 38.43 11.53 34,849 1.08 1.11 -- 39.28 8.72 80,542 1.09 1.09 (.08) 36.12 41.88 46,901 1.12 1.12 (.07) 25.54 (9.37) 25,874 1.12 1.12 (4.85) 28.24 (14.86) 29,647 1.08 1.09 - --------------------------------------------------------------------------------------------------------------------- (5.31) 38.57 11.77 496,716 .87 .91 (.05) 39.39 8.98 674,280 .90 .90 (.12) 36.19 42.08 606,333 .94 .94 (.13) 25.59 (9.17) 464,113 .92 .92 (4.87) 28.29 (14.69) 584,718 .90 .90 - --------------------------------------------------------------------------------------------------------------------- (5.35) 38.58 11.85 112,625 .81 .83 (.09) 39.41 9.05 159,820 .79 .79 (.16) 36.22 42.34 190,066 .81 .81 (.18) 25.61 (9.07) 147,610 .79 .79 (4.88) 28.32 (14.59) 126,876 .78 .79 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- .83 109.71 .61 129.94 .68 115.73 .49 130.46 .51 144.94 - ----------------------------------------- 1.06 109.71 .84 129.94 .92 115.73 .74 130.46 .72 144.94 - ----------------------------------------- 1.03 109.71 .92 129.94 1.00 115.73 .85 130.46 .81 144.94 - ----------------------------------------- (.09) 156.39 .09 125.94 .04 132.27 .07 126.57 .37 134.79 - ----------------------------------------- .12 156.39 .27 125.94 .22 132.27 .27 126.57 .55 134.79 - ----------------------------------------- .18 156.39 .37 125.94 .36 132.27 .41 126.57 .65 134.79 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 193 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ EQUITY Q FUND Class E October 31, 2005 32.32 .35 2.88 3.23 October 31, 2004 30.10 .23 2.24 2.47 October 31, 2003 24.90 .22 5.18 5.40 October 31, 2002 29.75 .17 (4.81) (4.64) October 31, 2001 40.70 .20 (9.75) (9.55) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 32.32 .44 2.88 3.32 October 31, 2004 30.10 .30 2.24 2.54 October 31, 2003 24.89 .27 5.19 5.46 October 31, 2002 29.75 .24 (4.82) (4.58) October 31, 2001 40.69 .26 (9.72) (9.46) - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 32.32 .45 2.88 3.33 October 31, 2004 30.09 .32 2.25 2.57 October 31, 2003 24.89 .30 5.17 5.47 October 31, 2002 29.75 .27 (4.82) (4.55) October 31, 2001 40.69 .28 (9.71) (9.43) - ------------------------------------------------------------------------------------------------------------------ INTERNATIONAL FUND Class E October 31, 2005 35.15 .57 5.41 5.98 October 31, 2004 31.22 .38 4.29 4.67 October 31, 2003 24.71 .30 6.59 6.89 October 31, 2002 28.34 .16 (3.75) (3.59) October 31, 2001 39.51 .28 (9.53) (9.25) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 35.16 .68 5.39 6.07 October 31, 2004 31.20 .46 4.29 4.75 October 31, 2003 24.74 .36 6.53 6.89 October 31, 2002 28.38 .26 (3.78) (3.52) October 31, 2001 39.60 .34 (9.52) (9.18) - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 35.17 .68 5.40 6.08 October 31, 2004 31.21 .45 4.33 4.78 October 31, 2003 24.75 .38 6.54 6.92 October 31, 2002 28.42 .32 (3.83) (3.51) October 31, 2001 39.62 .46 (9.60) (9.14) - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ------------------------------------------------------------------------------------------ EQUITY Q FUND Class E October 31, 2005 (.35) -- -- October 31, 2004 (.25) -- -- October 31, 2003 (.20) -- -- October 31, 2002 (.21) -- -- October 31, 2001 (.17) (1.23) -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 (.44) -- -- October 31, 2004 (.32) -- -- October 31, 2003 (.25) -- -- October 31, 2002 (.28) -- -- October 31, 2001 (.25) (1.23) -- - ------------------------------------------------------------------------------------------ Class Y October 31, 2005 (.45) -- -- October 31, 2004 (.34) -- -- October 31, 2003 (.27) -- -- October 31, 2002 (.31) -- -- October 31, 2001 (.28) (1.23) -- - ------------------------------------------------------------------------------------------ INTERNATIONAL FUND Class E October 31, 2005 (.68) -- -- October 31, 2004 (.74) -- -- October 31, 2003 (.38) -- -- October 31, 2002 (.04) -- -- October 31, 2001 -- (1.92) -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 (.76) -- -- October 31, 2004 (.79) -- -- October 31, 2003 (.43) -- -- October 31, 2002 (.12) -- -- October 31, 2001 (.12) (1.92) -- - ------------------------------------------------------------------------------------------ Class Y October 31, 2005 (.78) -- -- October 31, 2004 (.82) -- -- October 31, 2003 (.46) -- -- October 31, 2002 (.16) -- -- October 31, 2001 (.14) (1.92) -- - ------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 194 Financial Highlights
$ % % NET ASSETS, RATIO OF EXPENSES RATIO OF EXPENSES $ $ % END OF TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (.35) 35.20 10.03 46,352 .91 .93 (.25) 32.32 8.22 47,570 .92 .93 (.20) 30.10 21.76 40,924 .94 .94 (.21) 24.90 (15.70) 17,503 .94 .94 (1.40) 29.75 (23.98) 21,979 .89 .89 - --------------------------------------------------------------------------------------------------------------------- (.44) 35.20 10.30 1,009,002 .66 .69 (.32) 32.32 8.46 1,018,806 .69 .69 (.25) 30.10 22.04 822,548 .72 .72 (.28) 24.89 (15.50) 854,495 .70 .70 (1.48) 29.75 (23.82) 983,176 .70 .70 - --------------------------------------------------------------------------------------------------------------------- (.45) 35.20 10.34 338,308 .63 .65 (.34) 32.32 8.58 336,836 .61 .61 (.27) 30.09 22.13 674,326 .63 .63 (.31) 24.89 (15.41) 514,589 .60 .60 (1.51) 29.75 (23.74) 456,512 .61 .61 - --------------------------------------------------------------------------------------------------------------------- (.68) 40.45 17.19 41,415 1.15 1.18 (.74) 35.15 15.20 35,442 1.19 1.20 (.38) 31.22 28.33 24,163 1.26 1.26 (.04) 24.71 (12.68) 11,965 1.31 1.32 (1.92) 28.34 (24.54) 19,449 1.26 1.26 - --------------------------------------------------------------------------------------------------------------------- (.76) 40.47 17.48 1,127,303 .90 .93 (.79) 35.16 15.47 915,469 .95 .96 (.43) 31.20 28.37 597,650 1.06 1.06 (.12) 24.74 (12.46) 527,791 1.07 1.07 (2.04) 28.38 (24.37) 658,920 1.06 1.06 - --------------------------------------------------------------------------------------------------------------------- (.78) 40.47 17.53 587,751 .86 .89 (.82) 35.17 15.54 491,855 .87 .88 (.46) 31.21 28.51 567,878 .96 .96 (.16) 24.75 (12.42) 395,955 .97 .97 (2.06) 28.42 (24.26) 386,538 .96 .96 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- 1.01 117.34 .71 102.51 .80 114.72 .58 71.16 .58 79.24 - ----------------------------------------- 1.26 117.34 .94 102.51 1.02 114.72 .82 71.16 .77 79.24 - ----------------------------------------- 1.30 117.34 1.05 102.51 1.10 114.72 .93 71.16 .86 79.24 - ----------------------------------------- 1.49 80.36 1.13 81.19 1.14 79.40 .57 87.84 .82 111.84 - ----------------------------------------- 1.76 80.36 1.36 81.19 1.38 79.40 .92 87.84 1.00 111.84 - ----------------------------------------- 1.76 80.36 1.35 81.19 1.45 79.40 1.12 87.84 1.40 111.84 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 195 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ FIXED INCOME I FUND Class E October 31, 2005 21.88 .74 (.61) .13 October 31, 2004 22.12 .63 .48 1.11 October 31, 2003 22.15 .72 .36 1.08 October 31, 2002 22.32 .90 .17 1.07 October 31, 2001 20.79 1.19 1.58 2.77 - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 21.87 .80 (.61) .19 October 31, 2004 22.11 .68 .49 1.17 October 31, 2003 22.15 .78 .35 1.13 October 31, 2002 22.32 .96 .17 1.13 October 31, 2001 20.79 1.24 1.58 2.82 - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 21.88 .80 (.61) .19 October 31, 2004 22.12 .70 .48 1.18 October 31, 2003 22.16 .79 .36 1.15 October 31, 2002 22.32 .98 .18 1.16 October 31, 2001 20.79 1.23 1.61 2.84 - ------------------------------------------------------------------------------------------------------------------ FIXED INCOME III FUND Class E October 31, 2005 10.70 .35 (.21) .14 October 31, 2004 10.67 .28 .31 .59 October 31, 2003 10.11 .38 .52 .90 October 31, 2002 10.37 .40 (.05) .35 October 31, 2001 9.77 .57 .61 1.18 - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 10.69 .38 (.22) .16 October 31, 2004 10.65 .30 .32 .62 October 31, 2003 10.09 .40 .52 .92 October 31, 2002 10.36 .42 (.06) .36 October 31, 2001 9.76 .59 .63 1.22 - ------------------------------------------------------------------------------------------------------------------ Class Y October 31, 2005 (2) 10.74 .14 (.26) (.12) - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ------------------------------------------------------------------------------------------ FIXED INCOME I FUND Class E October 31, 2005 (.73) (.53) -- October 31, 2004 (.69) (.66) -- October 31, 2003 (.67) (.44) -- October 31, 2002 (.97) (.27) -- October 31, 2001 (1.24) -- -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 (.78) (.53) -- October 31, 2004 (.75) (.66) -- October 31, 2003 (.73) (.44) -- October 31, 2002 (1.03) (.27) -- October 31, 2001 (1.29) -- -- - ------------------------------------------------------------------------------------------ Class Y October 31, 2005 (.78) (.53) -- October 31, 2004 (.76) (.66) -- October 31, 2003 (.75) (.44) -- October 31, 2002 (1.05) (.27) -- October 31, 2001 (1.31) -- -- - ------------------------------------------------------------------------------------------ FIXED INCOME III FUND Class E October 31, 2005 (.32) (.08) -- October 31, 2004 (.38) (.18) -- October 31, 2003 (.34) -- -- October 31, 2002 (.61) -- -- October 31, 2001 (.58) -- -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 (.34) (.08) -- October 31, 2004 (.40) (.18) -- October 31, 2003 (.36) -- -- October 31, 2002 (.63) -- -- October 31, 2001 (.62) -- -- - ------------------------------------------------------------------------------------------ Class Y October 31, 2005 (2) (.19) -- -- - ------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 196 Financial Highlights
$ % % NET ASSETS, RATIO OF EXPENSES RATIO OF EXPENSES $ $ % END OF TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (1.26) 20.75 .60 29,632 .65 .68 (1.35) 21.88 5.22 27,515 .65 .66 (1.11) 22.12 5.01 27,009 .67 .67 (1.24) 22.15 5.10 27,576 .64 .66 (1.24) 22.32 13.72 35,123 .61 .61 - --------------------------------------------------------------------------------------------------------------------- (1.31) 20.75 .88 788,808 .38 .40 (1.41) 21.87 5.52 752,229 .39 .40 (1.17) 22.11 5.26 639,846 .41 .41 (1.30) 22.15 5.38 713,210 .38 .38 (1.29) 22.32 13.98 827,324 .39 .39 - --------------------------------------------------------------------------------------------------------------------- (1.31) 20.76 .91 398,882 .35 .37 (1.42) 21.88 5.58 285,228 .33 .34 (1.19) 22.12 5.33 399,601 .35 .35 (1.32) 22.16 5.50 506,495 .31 .31 (1.31) 22.32 14.07 520,186 .32 .32 - --------------------------------------------------------------------------------------------------------------------- (.40) 10.44 1.37 9,268 .93 .95 (.56) 10.70 5.65 7,489 .96 .96 (.34) 10.67 9.05 6,481 1.00 1.00 (.61) 10.11 3.61 5,912 .97 .98 (.58) 10.37 12.47 6,037 .93 .94 - --------------------------------------------------------------------------------------------------------------------- (.42) 10.43 1.65 560,896 .69 .71 (.58) 10.69 5.99 461,966 .72 .72 (.36) 10.65 9.27 297,726 .78 .78 (.63) 10.09 3.84 306,550 .76 .76 (.62) 10.36 12.76 408,341 .72 .72 - --------------------------------------------------------------------------------------------------------------------- (.19) 10.43 (1.15) 40,259 .64 .67 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- 3.49 201.90 2.88 153.79 3.25 184.29 4.17 165.28 5.51 188.97 - ----------------------------------------- 3.76 201.90 3.15 153.79 3.50 184.29 4.42 165.28 5.75 188.97 - ----------------------------------------- 3.81 201.90 3.18 153.79 3.53 184.29 4.45 165.28 5.62 188.97 - ----------------------------------------- 3.32 197.66 2.64 195.68 3.61 266.11 4.00 231.09 5.66 165.41 - ----------------------------------------- 3.55 197.66 2.85 195.68 3.83 266.11 4.22 231.09 5.87 165.41 - ----------------------------------------- 3.74 197.66 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 197 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ EMERGING MARKETS FUND Class C October 31, 2005 12.52 .04 4.22 4.26 October 31, 2004 10.68 --(d) 2.08 2.08 October 31, 2003 7.22 .02 3.44 3.46 October 31, 2002 6.89 (.09) .42 .33 October 31, 2001 9.15 (.04) (2.22) (2.26) - ------------------------------------------------------------------------------------------------------------------ Class E October 31, 2005 12.93 .16 4.34 4.50 October 31, 2004 10.98 .09 2.15 2.24 October 31, 2003 7.41 .09 3.49 3.58 October 31, 2002 7.01 (.02) .42 .40 October 31, 2001 9.24 .02 (2.25) (2.23) - ------------------------------------------------------------------------------------------------------------------ Class S October 31, 2005 12.94 .20 4.34 4.54 October 31, 2004 10.98 .12 2.15 2.27 October 31, 2003 7.43 .11 3.48 3.59 October 31, 2002 7.05 --(d) .40 .40 October 31, 2001 9.25 .04 (2.24) (2.20) - ------------------------------------------------------------------------------------------------------------------ REAL ESTATE SECURITIES FUND Class C October 31, 2005 43.10 .42 6.66 7.08 October 31, 2004 33.94 .46 9.92 10.38 October 31, 2003 26.52 1.11 7.53 8.64 October 31, 2002 26.97 1.07 (.01) 1.06 October 31, 2001 25.93 1.16 1.02 2.18 - ------------------------------------------------------------------------------------------------------------------ Class E October 31, 2005 43.55 .76 6.74 7.50 October 31, 2004 34.24 .75 10.04 10.79 October 31, 2003 26.72 1.34 7.60 8.94 October 31, 2002 27.14 1.32 (.06) 1.26 October 31, 2001 26.07 1.38 1.03 2.41 - ------------------------------------------------------------------------------------------------------------------ Class S October 31, 2005 43.90 .88 6.79 7.67 October 31, 2004 34.51 .87 10.09 10.96 October 31, 2003 26.89 1.42 7.67 9.09 October 31, 2002 27.31 1.41 (.06) 1.35 October 31, 2001 26.22 1.46 1.03 2.49 - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ------------------------------------------------------------------------------------------ EMERGING MARKETS FUND Class C October 31, 2005 (.05) -- -- October 31, 2004 (.24) -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - ------------------------------------------------------------------------------------------ Class E October 31, 2005 (.18) -- -- October 31, 2004 (.29) -- -- October 31, 2003 (.01) -- -- October 31, 2002 -- -- -- October 31, 2001 -- -- -- - ------------------------------------------------------------------------------------------ Class S October 31, 2005 (.23) -- -- October 31, 2004 (.31) -- -- October 31, 2003 (.04) -- -- October 31, 2002 (.02) -- -- October 31, 2001 -- -- -- - ------------------------------------------------------------------------------------------ REAL ESTATE SECURITIES FUND Class C October 31, 2005 (.43) (3.67) -- October 31, 2004 (1.21) (.01) -- October 31, 2003 (1.11) (.11) -- October 31, 2002 (1.51) -- -- October 31, 2001 (1.14) -- -- - ------------------------------------------------------------------------------------------ Class E October 31, 2005 (.76) (3.67) -- October 31, 2004 (1.47) (.01) -- October 31, 2003 (1.31) (.11) -- October 31, 2002 (1.68) -- -- October 31, 2001 (1.34) -- -- - ------------------------------------------------------------------------------------------ Class S October 31, 2005 (.87) (3.67) -- October 31, 2004 (1.56) (.01) -- October 31, 2003 (1.36) (.11) -- October 31, 2002 (1.77) -- -- October 31, 2001 (1.40) -- -- - ------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 198 Financial Highlights
% % $ RATIO OF EXPENSES RATIO OF EXPENSES $ $ % NET ASSETS, TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL END OF PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (.05) 16.73 33.98 33,961 2.74 2.76 (.24) 12.52 20.04 20,467 2.83 2.87 -- 10.68 47.58 12,306 3.09 3.09 -- 7.22 4.94 5,194 3.12 3.12 -- 6.89 (24.70) 2,377 3.08 3.09 - --------------------------------------------------------------------------------------------------------------------- (.18) 17.25 34.94 18,855 1.99 2.01 (.29) 12.93 20.88 14,169 2.07 2.12 (.01) 10.98 48.39 9,598 2.36 2.37 -- 7.41 5.71 6,478 2.38 2.38 -- 7.01 (24.13) 6,959 2.33 2.33 - --------------------------------------------------------------------------------------------------------------------- (.23) 17.25 35.27 794,086 1.73 1.76 (.31) 12.94 21.22 549,626 1.83 1.87 (.04) 10.98 48.27 386,560 2.11 2.11 (.02) 7.43 5.91 263,563 2.14 2.14 -- 7.05 (23.89) 273,486 2.09 2.09 - --------------------------------------------------------------------------------------------------------------------- (4.10) 46.08 17.22 81,876 2.10 2.10 (1.22) 43.10 30.97 61,089 2.12 2.12 (1.22) 33.94 33.23 32,784 2.20 2.30 (1.51) 26.52 3.56 15,712 2.19 2.59 (1.14) 26.97 8.41 5,718 2.17 2.17 - --------------------------------------------------------------------------------------------------------------------- (4.43) 46.62 18.09 40,296 1.35 1.35 (1.48) 43.55 32.00 29,436 1.37 1.37 (1.42) 34.24 34.21 16,651 1.43 1.62 (1.68) 26.72 4.27 10,661 1.46 1.82 (1.34) 27.14 9.23 11,415 1.42 1.42 - --------------------------------------------------------------------------------------------------------------------- (4.54) 47.03 18.35 1,434,109 1.10 1.10 (1.57) 43.90 32.30 1,171,513 1.11 1.11 (1.47) 34.51 34.58 830,448 1.18 1.18 (1.77) 26.89 4.55 598,133 1.19 1.19 (1.40) 27.31 9.48 607,280 1.17 1.18 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- .29 71.86 .02 82.02 .19 95.13 (1.08) 90.21 (.55) 83.74 - ----------------------------------------- 1.02 71.86 .75 82.02 1.02 95.13 (.29) 90.21 .21 83.74 - ----------------------------------------- 1.30 71.86 1.00 82.02 1.30 95.13 (.02) 90.21 .44 83.74 - ----------------------------------------- .95 63.95 1.20 38.04 3.67 46.09 3.74 67.70 4.20 44.50 - ----------------------------------------- 1.71 63.95 1.95 38.04 4.46 46.09 4.54 67.70 4.96 44.50 - ----------------------------------------- 1.95 63.95 2.23 38.04 4.66 46.09 4.82 67.70 5.19 44.50 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 199 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ SHORT DURATION BOND FUND Class C October 31, 2005 19.04 .31 (.40) (.09) October 31, 2004 19.01 .19 (.01) .18 October 31, 2003 18.98 .31 .06 .37 October 31, 2002 19.01 .56 .13 .69 October 31, 2001 18.23 .85 .89 1.74 - ------------------------------------------------------------------------------------------------------------------ Class E October 31, 2005 19.10 .46 (.41) .05 October 31, 2004 19.08 .34 (.01) .33 October 31, 2003 19.04 .48 .03 .51 October 31, 2002 19.02 .77 .06 .83 October 31, 2001 18.24 1.02 .85 1.87 - ------------------------------------------------------------------------------------------------------------------ Class S October 31, 2005 19.07 .51 (.41) .10 October 31, 2004 19.05 .38 (.01) .37 October 31, 2003 19.01 .52 .03 .55 October 31, 2002 18.99 .80 .08 .88 October 31, 2001 18.22 1.07 .83 1.90 - ------------------------------------------------------------------------------------------------------------------ SELECT GROWTH FUND Class C October 31, 2005 6.85 (.08) .68 .60 October 31, 2004 6.85 (.11) .11 -- October 31, 2003 5.23 (.09) 1.71 1.62 October 31, 2002 6.65 (.10) (1.32) (1.42) October 31, 2001 (1) 10.00 (.08) (3.27) (3.35) - ------------------------------------------------------------------------------------------------------------------ Class E October 31, 2005 7.08 (.01) .69 .68 October 31, 2004 7.03 (.05) .10 .05 October 31, 2003 5.31 (.04) 1.76 1.72 October 31, 2002 6.68 (.04) (1.33) (1.37) October 31, 2001 (1) 10.00 (.02) (3.30) (3.32) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 7.19 .01 .71 .72 October 31, 2004 7.10 (.02) .11 .09 October 31, 2003 5.35 (.02) 1.77 1.75 October 31, 2002 6.71 (.02) (1.34) (1.36) October 31, 2001 (1) 10.00 --(d) (3.29) (3.29) - ------------------------------------------------------------------------------------------------------------------ Class S October 31, 2005 7.15 --(d) .72 .72 October 31, 2004 7.08 (.03) .10 .07 October 31, 2003 5.34 (.02) 1.76 1.74 October 31, 2002 6.71 (.02) (1.35) (1.37) October 31, 2001 (1) 10.00 --(d) (3.29) (3.29) - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ------------------------------------------------------------------------------------------ SHORT DURATION BOND FUND Class C October 31, 2005 (.31) (.01) -- October 31, 2004 (.15) -- -- October 31, 2003 (.34) -- -- October 31, 2002 (.72) -- -- October 31, 2001 (.96) -- -- - ------------------------------------------------------------------------------------------ Class E October 31, 2005 (.44) (.01) -- October 31, 2004 (.31) -- -- October 31, 2003 (.47) -- -- October 31, 2002 (.81) -- -- October 31, 2001 (1.09) -- -- - ------------------------------------------------------------------------------------------ Class S October 31, 2005 (.49) (.01) -- October 31, 2004 (.35) -- -- October 31, 2003 (.51) -- -- October 31, 2002 (.86) -- -- October 31, 2001 (1.13) -- -- - ------------------------------------------------------------------------------------------ SELECT GROWTH FUND Class C October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (1) -- -- -- - ------------------------------------------------------------------------------------------ Class E October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (1) -- -- -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (1) -- -- -- - ------------------------------------------------------------------------------------------ Class S October 31, 2005 -- -- -- October 31, 2004 -- -- -- October 31, 2003 -- -- -- October 31, 2002 -- -- -- October 31, 2001 (1) -- -- -- - ------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 200 Financial Highlights
% % $ RATIO OF EXPENSES RATIO OF EXPENSES $ $ % NET ASSETS, TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL END OF PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (.32) 18.63 (.50) 30,290 1.65 1.66 (.15) 19.04 .97 38,427 1.63 1.66 (.34) 19.01 1.97 41,644 1.56 1.72 (.72) 18.98 3.73 16,294 1.52 1.70 (.96) 19.01 9.77 1,709 1.52 1.66 - --------------------------------------------------------------------------------------------------------------------- (.45) 18.70 .25 24,851 .90 .91 (.31) 19.10 1.74 23,181 .88 .91 (.47) 19.08 2.70 20,274 .80 .97 (.81) 19.04 4.53 17,516 .77 .96 (1.09) 19.02 10.54 17,685 .77 .91 - --------------------------------------------------------------------------------------------------------------------- (.50) 18.67 .51 1,158,439 .65 .66 (.35) 19.07 1.98 1,135,332 .63 .66 (.51) 19.05 2.95 958,064 .56 .72 (.86) 19.01 4.81 599,795 .52 .71 (1.13) 18.99 10.76 401,137 .52 .67 - --------------------------------------------------------------------------------------------------------------------- -- 7.45 8.76 8,149 2.23 2.32 -- 6.85 (.15) 5,942 2.25 2.50 -- 6.85 31.17 3,265 2.20 2.74 -- 5.23 (21.35) 1,341 2.11 2.82 -- 6.65 (33.50) 1,017 2.17 2.97 - --------------------------------------------------------------------------------------------------------------------- -- 7.76 9.60 4,255 1.28 1.40 -- 7.08 .71 5,749 1.36 1.54 -- 7.03 32.39 4,865 1.26 1.79 -- 5.31 (20.51) 2,814 1.16 1.87 -- 6.68 (33.20) 2,714 1.29 2.05 - --------------------------------------------------------------------------------------------------------------------- -- 7.91 10.17 112,112 .92 1.08 -- 7.19 1.13 60,006 .95 1.20 -- 7.10 32.71 32,003 .93 1.58 -- 5.35 (20.27) 18,150 .89 1.65 -- 6.71 (32.90) 21,044 .89 1.75 - --------------------------------------------------------------------------------------------------------------------- -- 7.87 10.07 57,324 1.06 1.18 -- 7.15 .99 51,569 1.09 1.27 -- 7.08 32.58 42,421 1.03 1.56 -- 5.34 (20.42) 24,389 .97 1.68 -- 6.71 (32.90) 24,072 .94 1.74 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- 1.65 202.53 1.00 131.57 1.63 187.92 3.08 163.86 4.72 260.94 - ----------------------------------------- 2.43 202.53 1.76 131.57 2.52 187.92 4.04 163.86 5.48 260.94 - ----------------------------------------- 2.67 202.53 2.01 131.57 2.70 187.92 4.26 163.86 5.76 260.94 - ----------------------------------------- (1.15) 127.68 (1.53) 134.00 (1.57) 149.76 (1.53) 212.37 (1.32) 169.36 - ----------------------------------------- (.15) 127.68 (.65) 134.00 (.62) 149.76 (.58) 212.37 (.45) 169.36 - ----------------------------------------- .12 127.68 (.23) 134.00 (.31) 149.76 (.31) 212.37 (.03) 169.36 - ----------------------------------------- .04 127.68 (.38) 134.00 (.40) 149.76 (.39) 212.37 (.09) 169.36 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 201 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS -- FOR THE FISCAL YEARS ENDED For a Share Outstanding Throughout Each Period.
$ $ $ $ NET ASSET VALUE, NET NET REALIZED TOTAL FROM BEGINNING OF INVESTMENT AND UNREALIZED INVESTMENT PERIOD INCOME (LOSS)(A) GAIN (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------------------ SELECT VALUE FUND Class C October 31, 2005 10.15 (.02) 1.16 1.14 October 31, 2004 8.97 (.03) 1.22 1.19 October 31, 2003 7.41 (.01) 1.58 1.57 October 31, 2002 8.51 (.02) (1.07) (1.09) October 31, 2001 (1) 10.00 --(d) (1.48) (1.48) - ------------------------------------------------------------------------------------------------------------------ Class E October 31, 2005 10.28 .09 1.16 1.25 October 31, 2004 9.05 .05 1.23 1.28 October 31, 2003 7.46 .06 1.58 1.64 October 31, 2002 8.53 .06 (1.07) (1.01) October 31, 2001 (1) 10.00 .05 (1.48) (1.43) - ------------------------------------------------------------------------------------------------------------------ Class I October 31, 2005 10.30 .13 1.17 1.30 October 31, 2004 9.07 .10 1.22 1.32 October 31, 2003 7.46 .08 1.61 1.69 October 31, 2002 8.54 .08 (1.07) (.99) October 31, 2001 (1) 10.00 .09 (1.48) (1.39) - ------------------------------------------------------------------------------------------------------------------ Class S October 31, 2005 10.29 .11 1.16 1.27 October 31, 2004 9.05 .08 1.24 1.32 October 31, 2003 7.45 .07 1.60 1.67 October 31, 2002 8.53 .07 (1.07) (1.00) October 31, 2001 (1) 10.00 .08 (1.48) (1.40) - ------------------------------------------------------------------------------------------------------------------ $ $ DISTRIBUTIONS DISTRIBUTIONS $ FROM NET FROM NET RETURN OF INVESTMENT INCOME REALIZED GAIN CAPITAL - ------------------------------------------------------------------------------------------ SELECT VALUE FUND Class C October 31, 2005 (.01) (.01) -- October 31, 2004 (.01) -- -- October 31, 2003 (.01) -- -- October 31, 2002 (.01) -- -- October 31, 2001 (1) (.01) -- -- - ------------------------------------------------------------------------------------------ Class E October 31, 2005 (.09) (.01) -- October 31, 2004 (.05) -- -- October 31, 2003 (.05) -- -- October 31, 2002 (.06) -- -- October 31, 2001 (1) (.04) -- -- - ------------------------------------------------------------------------------------------ Class I October 31, 2005 (.13) (.01) -- October 31, 2004 (.09) -- -- October 31, 2003 (.08) -- -- October 31, 2002 (.09) -- -- October 31, 2001 (1) (.07) -- -- - ------------------------------------------------------------------------------------------ Class S October 31, 2005 (.11) (.01) -- October 31, 2004 (.08) -- -- October 31, 2003 (.07) -- -- October 31, 2002 (.08) -- -- October 31, 2001 (1) (.07) -- -- - ------------------------------------------------------------------------------------------
See accompanying notes which are an integral part of the financial statements. 202 Financial Highlights
% % $ RATIO OF EXPENSES RATIO OF EXPENSES $ $ % NET ASSETS, TO AVERAGE TO AVERAGE TOTAL NET ASSET VALUE, TOTAL END OF PERIOD NET ASSETS, NET ASSETS, DISTRIBUTIONS END OF PERIOD RETURN(B) (000) NET(C)(E) GROSS(C) - --------------------------------------------------------------------------------------------------------------------- (.02) 11.27 11.23 21,228 2.18 2.20 (.01) 10.15 13.24 16,834 2.25 2.32 (.01) 8.97 21.19 9,972 2.15 2.42 (.01) 7.41 (12.82) 2,061 2.00 2.40 (.01) 8.51 (14.76) 1,844 2.00 2.64 - --------------------------------------------------------------------------------------------------------------------- (.10) 11.43 12.14 8,770 1.25 1.30 (.05) 10.28 14.31 9,167 1.39 1.39 (.05) 9.05 22.01 7,778 1.21 1.48 (.06) 7.46 (11.86) 3,314 1.04 1.43 (.04) 8.53 (14.33) 3,155 1.25 1.85 - --------------------------------------------------------------------------------------------------------------------- (.14) 11.46 12.63 135,759 .86 .91 (.09) 10.30 14.77 102,396 .95 .95 (.08) 9.07 22.60 74,600 .90 1.23 (.09) 7.46 (11.72) 35,169 .79 1.22 (.07) 8.54 (13.92) 28,983 .79 1.48 - --------------------------------------------------------------------------------------------------------------------- (.12) 11.44 12.36 198,550 1.07 1.10 (.08) 10.29 14.61 173,635 1.10 1.10 (.07) 9.05 22.53 128,383 1.01 1.28 (.08) 7.45 (11.78) 31,806 .87 1.27 (.07) 8.53 (14.04) 31,288 .86 1.50 - --------------------------------------------------------------------------------------------------------------------- % RATIO OF NET INVESTMENT INCOME % TO AVERAGE PORTFOLIO NET ASSETS(C)(E) TURNOVER RATE(B) - ----------------------------------------- (.18) 84.74 (.31) 96.07 (.12) 105.71 (.27) 92.95 -- 71.75 - ----------------------------------------- .78 84.74 .55 96.07 .77 105.71 .70 92.95 .76 71.75 - ----------------------------------------- 1.14 84.74 1.00 96.07 1.12 105.71 .95 92.95 1.25 71.75 - ----------------------------------------- .95 84.74 .84 96.07 1.03 105.71 .86 92.95 1.18 71.75 - -----------------------------------------
See accompanying notes which are an integral part of the financial statements. Financial Highlights 203 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL HIGHLIGHTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- (1) For the period January 31, 2001 (commencement of operations) to October 31, 2001. (2) For the period June 23, 2005 (commencement of operations) to October 31, 2005. (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. (e) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. See accompanying notes which are an integral part of the financial statements. 204 Notes to Financial Highlights FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on eleven of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees (the "Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. 2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by each Fund in the preparation of its financial statements. Security Valuation The Funds value portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Money market fund securities are priced using the amortized cost method of valuation, as are debt obligation securities maturing within 60 days at the time of purchase, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. The Board has delegated the responsibility for administration of the Securities Valuation Procedures to FRIMCo. Ordinarily, the Funds value each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale price; - US over-the-counter equities: Official closing price; last bid price if no closing price; - Foreign equities: Official closing price, where available, or last sale price; last bid price if no closing price; - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds, Eurobonds/foreign bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. - The value of swap agreements are equal to the Funds' obligation (or rights) under swap contracts which will generally be equal to the net amounts to be paid or received under the contracts based upon the relative values of the positions held by each party to the contracts. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Funds will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange on which the security is traded. The Fair Value Procedures may involve subjective judgments as to the fair value of securities. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market in which they are traded, but rather may be priced by another method that the Fund's Board of Trustees believes reflects fair value. The use of fair value pricing by a Fund may cause the net asset value of its shares to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Fund shares and the daily movement of the benchmark index if the index is valued using another pricing method. This policy is intended to assure that the Funds' net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they Notes to Financial Statements 205 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- trade and the time the net asset value of Fund Shares is determined may be reflected in the calculation of net asset values for each applicable Fund when the Funds deem that the particular event or circumstance would materially affect such Fund's net asset value. FRIC Funds that invest primarily in frequently traded exchange listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. FRIC Funds that invest in foreign securities are likely to use fair value pricing more often since significant events may occur between the close of foreign markets and the time of pricing which would trigger fair value pricing of the foreign securities. FRIC Funds that invest in low rated debt securities are also likely to use fair value pricing more often since the markets in which such securities are traded are generally thinner, more limited and less active than those for higher rated securities. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage); a company event such as a material business development, dividend declaration, stock split or rights offering; a material disaster; or an armed conflict. Because foreign securities can trade on non-business days, the net asset value of a Fund's portfolio that includes foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. Investment Income Dividend income is recorded net of applicable withholding taxes on the ex-dividend date, except that certain dividends from foreign securities are recorded as soon thereafter as the Funds are informed of the ex-dividend date. Interest income is recorded daily on the accrual basis. 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 or excise tax provision was required for the Funds. Dividends and Distributions to Shareholders For all Funds, income and capital gain distributions, if any, are recorded on the ex-dividend date. Income distributions are generally declared and paid according to the following schedule:
DECLARED PAYABLE FUNDS -------------------------------------------------------------------------------- Quarterly April, July, Equity I, Equity Q, October and Real Estate December Securities, Short Duration Bond, Fixed Income I, Fixed Income III and Select Value Funds Annually Mid-December International, Emerging Markets, Equity II and Select Growth Funds
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. 206 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- The timing and characterization of certain income and capital gain distributions are determined in accordance with federal tax regulations which may differ from GAAP. As a result, net investment income and net realized gain (or loss) on investment and foreign currency-related transactions for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in options, futures, forward contracts, swap contracts, passive foreign investment companies, foreign-denominated investments, mortgage-backed securities, certain securities sold at a loss and capital loss carryforwards. Expenses The Funds will pay their own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Adviser"). 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. Class Allocation The Funds presented herein offer the following classes of shares: Class C, Class E, Class I, Class S and Class Y. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the applicable distribution fees and shareholder servicing fees. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Foreign Currency Translations The books and records of the Funds are maintained in US dollars. Foreign currency amounts and transactions of the Funds are translated into US dollars on the following basis: (a) Market value of investment securities, other assets and liabilities at the closing rate of exchange on the valuation date. (b) Purchases and sales of investment securities and income at the closing rate of exchange prevailing on the respective trade dates of such transactions. Reported net realized gains or losses from foreign currency-related transactions arise from: sales and maturities of short-term securities; sales of foreign currencies; currency gains or losses realized between the trade and settlement dates on securities transactions; the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books and the US dollar equivalent of the amounts actually received or paid. Net unrealized gains or losses from foreign currency-related transactions arise from changes in the value of assets and liabilities, other than investments in securities, at year-end, as a result of changes in the exchange rates. The Funds do not isolate that portion of the results of operations of the Funds that arises as a result of changes in exchange rates from that portion that arises from changes in market prices of investments during the year. Such fluctuations are included with the net realized and unrealized gain or loss from investments. However, for federal income tax purposes the Funds do isolate the effects of changes in foreign exchange rates from the fluctuations arising from changes in market prices for realized gain (or loss) on debt obligations. Capital Gains Taxes The International Fund and Emerging Markets Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which they invest. The Funds have recorded a deferred tax liability in respect of the unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at October 31, 2005. The accrual for capital gains and repatriation taxes is included in net unrealized appreciation (depreciation) on investments in the Statement of Asset and Liabilities for the Funds. The amounts related to capital gains taxes are included in net realized gain (loss) on investments in the Statements of Operations for the Funds.
DEFERRED CAPITAL FUNDS TAX LIABILITY GAINS TAXES -------------------------------------------------------------------------------- International $ -- $ 99,094 Emerging Markets 876,385 429,737
Notes to Financial Statements 207 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Derivatives To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds' Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, swaptions, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting their investment strategies. The Funds typically use derivatives in two ways: hedging and return enhancement. The Funds may use a hedging strategy for their cash reserves to achieve a strategy of being fully invested by exposing those reserves to the performance of appropriate markets by purchasing equity or fixed income securities, as appropriate, and/or derivatives. Hedging is also used by some 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, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts ("contracts"). The International Fund may enter into foreign currency forward overlays on liquidity reserve balances. Additionally, from time to time the International, Emerging Markets, Short Duration Bond, Fixed Income I and Fixed Income III Funds may enter into contracts to hedge certain foreign currency-denominated assets. Contracts are recorded at market value. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts and are generally limited to the amount of unrealized gain on the contracts, if any, that are recognized in the Statement of Assets and Liabilities. Realized gains or losses arising from such transactions are included in net realized gain (or loss) from foreign currency-related transactions. Open contracts at October 31, 2005, are presented on the Schedule of Investments for the applicable Funds. 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) 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. Options The Funds may purchase and sell (write) call and put options on securities and securities indices, provided such options are traded on a national securities exchange or in an over-the-counter market. The Funds may also purchase and sell call and put options on foreign currencies. The domestic equity Funds may utilize options to equitize liquidity reserve balances. When a Fund writes a covered call or a put option, an amount equal to the premium received by the Fund is included in the Fund's Statement of Assets and Liabilities as an asset and as an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. The Fund receives a premium on the sale of a call option but gives up the opportunity to profit from any increase in stock value above the exercise price of the option, and when the Fund writes a put option it is exposed to a decline in the price of the underlying security. Whether an option which the Fund has written 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 208 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 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 presented herein may invest in futures contracts (i.e., interest rate, foreign currency and index futures contracts) to a limited extent. The face or contract amounts of these instruments reflect the extent of the Funds' exposure to off balance sheet risk. The primary risks associated with the use of futures contracts are an imperfect correlation between the change in market value of the securities held by the Fund and the prices of futures contracts and the possibility of an illiquid market. Upon entering into a futures contract, the Funds are required to deposit with a broker an amount, termed the initial margin, which typically represents 5% of the purchase price indicated in the futures contract. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. As of October 31, 2005, the Fixed Income III Fund had cash collateral balances of $100,000 in connection with futures contracts purchased (sold). Swap Agreements The Funds may enter into several different types of agreements including interest rate, index, credit default and currency swaps. The Funds may enter into index swap agreements as an additional hedging strategy for cash reserves held by those Funds or to effect investment transactions consistent with these Funds' investment objectives and strategies. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular investments or instruments. The returns to be exchanged between the parties are calculated with respect to a "notional amount" (i.e. a specified dollar amount that is hypothetically invested in a "basket" of securities representing a particular index). Amounts paid to and received from the swap counterparties representing capital appreciation and depreciation on the underlying securities and accrued interest expense and interest income are recorded as net realized gain (loss). The 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. The Short Duration Bond, Fixed Income I, Fixed Income III and International Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether they are hedging their assets or their liabilities, and will usually enter into swaps on a net basis, i.e., the two payment streams are netted out, with the Funds receiving or paying, as the case may be, only the net amount of the two payments. When a Fund engages in a swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments). Interest rate swaps are a counterparty agreement and can be customized to meet each parties needs and involves the exchange of a fixed payment per period for a payment that is not fixed. Currency swaps are an agreement where two parties exchange specified amounts of different currencies which are followed by a series of interest payments that are exchanged based on the principal cash flow. At maturity the principal amounts are exchanged back. Credit default swaps are a counterparty agreement which allows the transfer of third party credit risk (the possibility that a issuer will default on their obligation by failing to pay principal or interest in a timely manner) from one party to another. The lender faces the credit risk from a third party and the counterparty in the swap agrees to insure this risk in exchange for regular periodic payments. The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of their portfolios or to protect against any increase in the price of securities they anticipate purchasing at a later date. The net amount of the excess, if any, of the Funds' obligations over their entitlements with respect to each swap will be accrued on a daily basis and an amount of cash or liquid high-grade debt securities having an aggregate net asset value at least equal to the Notes to Financial Statements 209 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- accrued excess will be maintained in a segregated account by the Funds' custodian. To the extent that the Funds enter into swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Funds' obligations, if any, with respect to such interest rate swaps, accrued on a daily basis. If there is a default by the other party to such a transaction, the Funds will have contractual remedies pursuant to the agreement related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. As of October 31, 2005, the International Fund had cash collateral balances of $600,000 in connection with index swap contracts purchased. Investments in Emerging Markets Investing in emerging markets may involve special risks and considerations for the Emerging Markets Fund not typically associated with investing in the United States markets. These risks include revaluation of currencies, high rates of inflation, repatriation, restrictions on income and capital, and future adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, delayed settlements, and their prices may be more volatile than those of comparable securities in the United States. Guarantees In the normal course of business the Funds enter into contracts that contain a variety of representations which provide general indemnifications. The Funds' maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Funds that have not yet occurred. However, the Funds expect the risk of loss to be remote. 3. INVESTMENT TRANSACTIONS Securities During the period ended October 31, 2005, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were as follows:
FUNDS PURCHASES SALES - ---------------------------------------------------------------- Equity I $ 1,305,332,873 $ 1,026,781,780 Equity II 1,295,385,700 1,655,157,818 Equity Q 1,626,348,115 1,703,779,133 International 1,338,487,156 1,197,882,967 Fixed Income I 932,183,462 926,703,637 Fixed Income III 413,587,841 341,578,642
- ----------------------------------------------------------------
FUNDS PURCHASES SALES Emerging Markets $ 557,744,073 $ 489,569,166 Real Estate Securities 973,771,838 884,864,116 Short Duration Bond 1,402,424,789 1,293,033,492 Select Growth 236,279,795 193,505,061 Select Value 295,871,245 274,923,071
Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) were as follows:
FUNDS PURCHASES SALES -------------------------------------------------------------------------------- Fixed Income I $ 1,313,307,493 $ 1,261,951,726 Fixed Income III 698,734,764 552,103,163 Short Duration Bond 624,389,436 548,143,821
210 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Written Options Contracts Transactions in written options contracts for the period ending October 31, 2005 for the following Funds were as follows:
INTERNATIONAL FUND FIXED INCOME I FUND ------------------------------------------ ------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------------------ Outstanding October 31, 2004 342 $ 2,970,126 206 $ 130,230 Opened 2,644 18,995,778 1,100 435,715 Closed (2,965) (21,884,669) (106) (46,744) Expired -- -- (928) (397,579) ------------------- ------------------- ------------------- ------------------- Outstanding October 31, 2005 21 $ 81,235 272 $ 121,622 =================== =================== =================== ===================
FIXED INCOME III FUND EMERGING MARKETS FUND ------------------------------------------ ------------------------------------------ NUMBER OF PREMIUMS NUMBER OF PREMIUMS CONTRACTS RECEIVED CONTRACTS RECEIVED ------------------------------------------------------------------------------------------------------------------------------ Outstanding October 31, 2004 156 $ 94,089 461 $ 1,319,478 Opened 708 353,962 2,229 4,985,469 Closed (16) (12,627) (2,404) (5,581,085) Expired (666) (260,860) -- -- ------------------- ------------------- ------------------- ------------------- Outstanding October 31, 2005 182 $ 174,564 286 $ 723,862 =================== =================== =================== ===================
SHORT DURATION BOND FUND ------------------------------------------ NUMBER OF PREMIUMS CONTRACTS RECEIVED ---------------------------------------------------------------------------------------- Outstanding October 31, 2004 12 $ 13,167 Opened 170 324,666 Closed -- -- Expired (22) (16,177) ------------------- ------------------- Outstanding October 31, 2005 160 $ 321,656 =================== ===================
Securities Lending The Investment Company has a securities lending program whereby each Fund can loan securities with a value up to 33 1/3% of its total assets. The Fund receives cash (US currency), US Government or US Government agency obligations as collateral against the loaned securities. To the extent that a loan is collateralized by cash, such collateral is invested by the securities lending agent, State Street Bank and Trust Company ("State Street") in short-term instruments, money market mutual funds and other short-term investments that meet certain quality and diversification requirements. Cash collateral invested in money market funds is included in the Schedules of Investments. The collateral received is recorded on a lending Fund's statement of assets and liabilities along with the related obligation to return the collateral. Income generated from the investment of cash collateral, less negotiated rebate fees paid to participating brokers and transaction costs, is divided between the Fund and State Street and is recorded as income for the Fund. To the extent that a loan is secured by non-cash collateral, brokers pay the Fund negotiated lenders' fees, which are divided between the Fund and State Street and are recorded as securities lending income for the Fund. All collateral received will be in an amount at least equal to 102% (for loans of US securities) or 105% (for non-US securities) of the market value of the loaned securities at the inception of each loan. The market value of the loaned securities is determined at the close of business of the Funds and any additional required collateral is delivered to the Fund the next day. Should the borrower of the securities fail financially, there is a risk of Notes to Financial Statements 211 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- delay in recovery of the securities or loss of rights in the collateral. Consequently, loans are made only to borrowers which are deemed to be of good financial standing. As of October 31, 2005, the non-cash collateral received for the securities on loan in the following funds was:
NON-CASH COLLATERAL FUNDS VALUE NON-CASH COLLATERAL HOLDING - ----------------------------------------------------------------------------------------- Equity II $ 164,111 Pool of US Government securities International 612,732 Pool of US Government securities
4. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to FRIMCo. The Funds are permitted to invest their cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses), and also may invest a portion of the collateral received from the Investment Company's securities lending program in the Investment Company's Money Market Fund (one of the Funds of the Investment Company not presented herein). As of October 31, 2005, $936,137,262 of the Money Market Fund's net assets represents investments by the Funds presented herein, and $1,550,778,849 represents the investments of other FRIC Funds not presented herein. The advisory and administrative fees are based upon the average daily net assets of each Fund and the rates specified in the table below. The advisory and administrative fees are payable monthly and total $65,651,224 and $5,265,936 respectively, for the period ended October 31, 2005.
ANNUAL RATE ------------------------------- FUNDS ADVISER ADMINISTRATOR - -------------------------------------------------------------- Equity I .55% .05% Equity II .70 .05 Equity Q .55 .05 International .70 .05 Fixed Income I .25 .05 Fixed Income III .50 .05
- --------------------------------------------------------------
ANNUAL RATE ------------------------------- FUNDS ADVISER ADMINISTRATOR Emerging Markets 1.15% .05% Real Estate Securities .80 .05 Short Duration Bond .45 .05 Select Growth .80 .05 Select Value .70 .05
For the Equity I, Equity II, Equity Q, International, Fixed Income I and Fixed Income III Funds, FRIMCo has contractually agreed to waive 0.02% of its administrative fees. The total amount of the waiver for the period ended October 31, 2005 was $1,329,582. For the Select Growth Fund, FRIMCo has contractually agreed to waive, at least until February 28, 2006, up to the full amount of its transfer agency fees, administrative fees, and advisory fees to the extent that expenses for Class C, Class E, Class I and Class S exceed 2.25%, 1.40%, 0.95% and 1.15%, respectively, of the average daily net assets of each such class on an annual basis. If a waiver of advisory or administrative fees is required for any class of shares of the Fund, advisory or administrative fees will be waived equally across all classes of the Fund. This may result in a waiver amount that is greater than what is required to reduce total net operating expense for Class C, Class E, Class I and Class S to 2.25%, 1.40%, 0.95% and 1.15%, respectively. The total amount of the waiver for the period ended October 31, 2005 was $103,095. There were no contractual reimbursements for the period ended October 31, 2005. The expense ratio for the Select Growth Fund was less than its expense cap for the period ended October 31, 2005 due to a one-time expense reimbursement from the Adviser during the period. For the Select Value Fund, FRIMCo has contractually agreed to waive, at least until February 28, 2006, up to the full amount of its transfer agency fees, administrative fees, and advisory fees to the extent that expenses for Class C, Class E, Class I and Class S exceed 2.25%, 1.40%, 0.95% and 1.15%, respectively, of the average daily net assets of each such class on an annual basis. If a waiver of advisory or administrative fees is required for any class of shares of the Fund, advisory or administrative fees will be waived equally across all classes of the Fund. This may result in a waiver amount that is greater than what is 212 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- required to reduce total net operating expense for Class C, Class E, Class I and Class S to 2.25%, 1.40%, 0.95% and 1.15%, respectively. There were no waivers or reimbursements for the period ended October 31, 2005. The Adviser does not have the ability to recover amounts waived or reimbursed from previous periods. The Adviser reimbursed certain Funds for amounts previously paid by those Funds to Russell/Mellon Analytical Services for analytical services received. The amounts of the reimbursement for the period ended October 31, 2005 were:
REIMBURSEMENT FUNDS AMOUNT - ---------------------------------------------------------- Equity I $ 139,005 Equity II 100,597 Equity Q 51,419 International 259,596
- ----------------------------------------------------------
REIMBURSEMENT FUNDS AMOUNT Emerging Markets $ 132,378 Real Estate Securities 9,957 Select Growth 56,775 Select Value 124,589
The Adviser paid the following amounts to certain Funds with respect to referral fees received:
AMOUNT FUNDS PAID - --------------------------------------------------------- Equity I $ 10,312 Equity II 25,085 Equity Q 12,444 International 12,268 Fixed Income I 4,270 Fixed Income III 5,585
- ---------------------------------------------------------
AMOUNT FUNDS PAID Emerging Markets $ 26,094 Real Estate Securities 34,900 Short Duration Bond 13,311 Select Growth 3,525 Select Value 8,517
The Adviser reimbursed the Fixed Income III Fund for an allocation of a sub-adviser fee that was credited to the Adviser rather than the Fund. The amount of the reimbursement was $1,004. Special Service Charge Special servicing agreements were entered into in February 1999 by the Adviser and were approved annually by the Funds' Board of Trustees. The special servicing agreements were between the Fund of Funds (a group of nine LifePoints Funds and the Tax-Managed Global Equity Fund which invest in a combination of Class S shares of the Investment Company's portfolios) and the Funds listed below, the "Underlying Funds," in which the Fund of Funds invest. In accordance with the special servicing agreements, certain expenses from the operation of the Fund of Funds were borne by the Underlying Funds based on each Underlying Fund's proportionate share of assets owned by the Fund of Funds. No Underlying Funds were charged expenses that exceeded the estimated savings to each respective Underlying Fund. These estimated savings appeared in the form of reduced transfer agent costs resulting from the elimination of separate shareholder accounts which were invested in the Underlying Funds. Rather than having each investor open a shareholder account to invest individually in the Underlying Funds, the Fund of Funds acted as omnibus accounts combining thousands of individual shareholder accounts into a single account. This benefited the Underlying Funds, by reducing the number of shareholder accounts that needed to be maintained, and by the omnibus accounts' netting out the trades of individual shareholders to a point where the Fund of Funds only executed one trade each day with each Underlying Fund. In the event that the financial benefits to the Underlying Funds did not exceed aggregate expenses of any Fund of Fund, the Adviser reimbursed the respective Underlying Funds. The Adviser did not have the ability to recover amounts reimbursed from previous periods. This arrangement was discontinued on June 30, 2005. For the period ended October 31, 2005, the special servicing expense charged to the Underlying Funds amounted to:
AMOUNT UNDERLYING FUNDS PAID ------------------------------------------------------- Emerging Markets $ 237,856 Real Estate Securities 407,769 Short Duration Bond 608,180
Notes to Financial Statements 213 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- For the period ended October 31, 2005, the Adviser reimbursement to the Underlying Funds amounted to:
AMOUNT FUNDS PAID ------------------------------------------------------- Emerging Markets $ 8,713 Real Estate Securities 16,048 Short Duration Bond 26,879
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 Fund's expenses. During the period ended October 31, 2005, the Fund's custodian fees were reduced by the following amounts under these arrangements:
AMOUNT FUNDS PAID - --------------------------------------------------------- Equity I $ 678 Equity II 1,567 Equity Q 1,450 International 1,309 Fixed Income I 11,689 Fixed Income III 6,213
- ---------------------------------------------------------
AMOUNT FUNDS PAID Emerging Markets $ 1,383 Real Estate Securities 492 Short Duration Bond 8,041 Select Growth 528 Select Value 552
Transfer Agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Funds. FRIMCo retains a portion of this fee for its services provided to the Funds and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Funds reported herein for the period ended October 31, 2005 were $8,361,847. In addition, FRIMCo has contractually agreed to waive, at least until February 28, 2006, a portion of its transfer agency fees for certain Funds. The total transfer agent fee waivers for the period ended October 31, 2005 were as follows:
TA FEE FUNDS WAIVER AMOUNT ------------------------------------------------------- Select Growth $ 63,098
Distributor and Shareholder Servicing The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to Russell Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary of FRIMCo, or any Selling Agents, as defined in the Plan, for sales support services provided and related expenses incurred which were primarily intended to result in the sale of the Class C shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.75% of the average daily net assets of a Fund's Class C shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Funds may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class C or Class E shares of the Funds. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class C and Class E shares on an annual basis. Pursuant to the rules of the National Association of Securities Dealers, Inc. ("NASD"), the asset-based sales charges on Shares of the Funds may not exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25% limitation is imposed at the class level of each Fund rather than on a per shareholder basis. Therefore, long-term shareholders may pay more than the economic equivalent of the maximum sales charges permitted by the NASD. 214 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Brokerage Commissions The Funds will effect transactions through Frank Russell Securities, Inc. ("FRS") and its global network of correspondent brokers. FRS is an affiliate of FRIMCo. Trades placed through FRS and its correspondents are used to obtain either research services for FRIMCo, to assist it in its capacity as a manager of managers, to generate commission rebates to the Funds on whose behalf the trades were made or to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions. For purposes of trading to obtain research services for FRIMCo or to generate commission rebates to the Funds, the Funds' money managers are requested to and FRIMCo may, with respect to transactions it places, effect transactions with or through FRS or other brokers and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. Research services provided to FRIMCo by FRS or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be obtained from unaffiliated third parties at market rates. Research provided to FRIMCo will benefit the particular Funds generating the trading activity and may also benefit other Funds within FRIC and other funds and clients managed or advised by FRIMCo or its affiliates. Similarly, the Funds will benefit from research provided with respect to trading by those other funds and clients. In some cases, research may also be provided by non-affiliated brokers. FRS or other brokers may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through FRS and its correspondents in the form of commission recapture. Commission recapture is paid solely to those Funds generating the applicable trades. Commission recapture is generated on the instructions of the Soft Dollar Committee once FRIMCo's research budget has been met. For the period ended October 31, 2005, there was no commission recapture for the Funds. FRS retains a portion of all commissions generated, regardless of whether the trades were used to provide research services to FRIMCo or commission recapture to the Funds. Trades through FRS for transition services and manager funding (i.e. brokerage arrangements designed to reduce costs and optimize performance during the transition of Fund assets upon the hiring, termination or additional funding of a money manager) are at ordinary and customary commission rates and do not result in commission rebates or accrued credits for the procurement of research related services. Amounts retained by Frank Russell Securities, Inc. for the period ended October 31, 2005 were as follows:
FUNDS AMOUNT - --------------------------------------------------------- Equity I $ 79,477 Equity II 30,911 Equity Q 20,268 International 132,883
- ---------------------------------------------------------
FUNDS AMOUNT Emerging Markets $ 33,965 Real Estate Securities 22,960 Select Growth 18,619 Select Value 25,283
Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Adviser. Accrued fees payable to affiliates as of October 31, 2005 were as follows:
FIXED FIXED EMERGING EQUITY I EQUITY II EQUITY Q INTERNATIONAL INCOME I INCOME III MARKETS ----------------------------------------------------------------------------------------------------------------------------- Advisory fees $ 549,221 $ 386,681 $ 645,866 $ 1,050,632 $ 259,002 $ 260,436 $ 835,247 Administration fees 29,957 16,570 35,216 45,004 31,048 15,626 34,622 Distribution fees -- -- -- -- -- -- 21,615 Shareholder servicing fees 7,818 7,957 9,603 8,678 6,257 1,959 11,114 Transfer agent fees 80,564 62,044 54,444 99,800 40,246 23,240 62,091 Trustee fees 1,732 2,161 2,935 2,971 2,307 1,791 1,611 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 669,292 $ 475,413 $ 748,064 $ 1,207,085 $ 338,860 $ 303,052 $ 966,300 =========== =========== =========== =========== =========== =========== ===========
Notes to Financial Statements 215 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
REAL ESTATE SHORT DURATION SELECT SELECT SECURITIES BOND GROWTH VALUE ------------------------------------------------------------------------------------------------------------ Advisory fees $ 1,032,552 $ 465,233 $ 118,307 $ 205,683 Administration fees 64,262 49,982 7,367 14,681 Distribution fees 50,502 19,414 4,910 12,745 Shareholder servicing fees 25,138 11,706 2,507 6,050 Transfer agent fees 196,575 52,059 3,775 53,651 Trustee fees 3,383 3,712 306 688 ---------------- ---------------- ---------------- ---------------- $ 1,372,412 $ 602,106 $ 137,172 $ 293,498 ================ ================ ================ ================
Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company, which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and a new chairperson of the Board was elected with additional annual compensation of $52,000. 5. FEDERAL INCOME TAXES At October 31, 2005, 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 carryforwards and expiration dates
FUNDS 10/31/07 10/31/08 10/31/09 10/31/10 ---------------------------------------------------------------------------------------------------------------- International $ -- $ -- $ -- $ -- Fixed Income I -- -- -- -- Short Duration Bond -- -- -- -- Select Growth -- -- 2,811,082 14,206,106 Select Value 8,697,269 451,724 2,362,680 362,611
216 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
FUNDS 10/31/11 10/31/12 10/31/13 TOTALS ----------------------------------------------------------------------------------------------------------------------- International $ 4,998,152 $ -- $ -- $ 4,998,152 Fixed Income I -- -- 3,909,179 3,909,179 Short Duration Bond -- -- 10,278,948 10,278,948 Select Growth 263,497 -- -- 17,280,685 Select Value -- -- -- 11,874,284
Select Value Fund had a capital loss carryforward of $11,874,284 that it acquired from the Equity Income Fund and Equity III Fund of which $8,697,269, $451,724, $2,362,680, and $362,611 will expire on October 31 of the years 2007, 2008, 2009 and 2010, respectively. This capital loss carryforward can be utilized at a pace of up to $5,101,116 each year with any unused capital loss annual limitation carried over to each succeeding year or until its respective expiration dates, whichever occurs first. At October 31, 2005, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:
EQUITY I EQUITY II EQUITY Q -------------------------------------------------------------------------------------------------- Cost of Investments $ 1,138,083,989 $ 658,396,505 $ 1,252,936,715 ================ ================ ================ Unrealized Appreciation 138,677,182 121,026,921 204,674,849 Unrealized Depreciation (25,396,181) (18,355,939) (31,112,994) ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 113,281,001 $ 102,670,982 $ 173,561,855 ================ ================ ================ Undistributed Ordinary Income $ 4,180,347 $ 32,339,461 $ 789,184 Undistributed Long-Term Capital Gains $ 46,073,026 $ 126,066,484 $ 34,471,918 (Capital Loss Carryforward) $ -- $ -- $ -- Tax Composition of Distributions: Ordinary Income $ 10,540,321 $ 47,334,315 $ 18,144,354 Long-Term Capital Gains $ -- $ 74,586,776 $ --
INTERNATIONAL FIXED INCOME I FIXED INCOME III EMERGING MARKETS --------------------------------------------------------------------------------------------------------------------- Cost of Investments $ 1,867,692,434 $ 1,504,683,878 $ 828,801,828 $ 651,433,010 ================ ================ ================ ================ Unrealized Appreciation 297,368,378 4,936,509 5,186,242 215,594,654 Unrealized Depreciation (19,612,047) (22,220,778) (9,232,462) (15,237,551) ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 277,756,331 $ (17,284,269) $ (4,046,220) $ 200,357,103 ================ ================ ================ ================ Undistributed Ordinary Income $ 30,862,211 $ 5,219,143 $ 3,201,364 $ 22,499,562 Undistributed Long-Term Capital Gains $ -- $ -- $ 812,781 $ 21,385,695 (Capital Loss Carryforward) $ (4,998,152) $ (3,909,179) $ -- $ -- Tax Composition of Distributions: Ordinary Income $ 31,445,447 $ 58,850,502 $ 19,752,776 $ 10,135,446 Long-Term Capital Gains $ -- $ 10,319,360 $ 1,910,645 $ --
Notes to Financial Statements 217 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
REAL ESTATE SHORT DURATION SECURITIES BOND SELECT GROWTH SELECT VALUE --------------------------------------------------------------------------------------------------------------------- Cost of Investments $ 1,227,728,017 $ 1,270,440,702 $ 173,967,660 $ 340,287,436 ================ ================ ================ ================ Unrealized Appreciation 449,249,336 474,213 21,534,333 47,668,776 Unrealized Depreciation (4,791,795) (14,856,996) (3,821,349) (9,196,920) ---------------- ---------------- ---------------- ---------------- Net Unrealized Appreciation (Depreciation) $ 444,457,541 $ (14,382,783) $ 17,712,984 $ 38,471,856 ================ ================ ================ ================ Undistributed Ordinary Income $ 41,832,169 $ 2,899,428 $ 42,687 $ 6,381,021 Undistributed Long-Term Capital Gains $ 123,356,030 $ -- $ -- $ 14,126,155 (Capital Loss Carryforward) $ -- $ (10,278,948) $ (17,280,685) $ (11,874,284) Tax Composition of Distributions: Ordinary Income $ 44,634,608 $ 30,576,251 $ -- $ 3,349,017 Long-Term Capital Gains $ 87,823,283 $ 806,070 $ -- $ 250,408
6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EQUITY I ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 221 275 $ 6,621 $ 7,453 Proceeds from reinvestment of distributions 9 7 273 191 Payments for shares redeemed (210) (346) (6,297) (9,361) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 20 (64) 597 (1,717) ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 8,645 10,260 259,820 279,847 Proceeds from reinvestment of distributions 245 183 7,308 4,986 Payments for shares redeemed (7,415) (7,663) (222,656) (208,381) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,475 2,780 44,472 76,452 ----------------- ----------------- ----------------- ----------------- Class Y Proceeds from shares sold 7,895 1,402 236,439 38,069 Proceeds from reinvestment of distributions 74 30 2,220 820 Payments for shares redeemed (672) (1,120) (20,336) (30,470) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 7,297 312 218,323 8,419 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 8,792 3,028 $ 263,392 $ 83,154 ================= ================= ================= =================
218 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EQUITY II ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 393 1,196 $ 14,775 $ 46,867 Proceeds from reinvestment of distributions 280 -- 10,503 -- Payments for shares redeemed (1,816) (444) (70,496) (17,044) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (1,143) 752 (45,218) 29,823 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 2,746 4,405 103,743 170,296 Proceeds from reinvestment of distributions 2,231 19 83,814 720 Payments for shares redeemed (9,217) (4,058) (354,333) (155,941) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (4,240) 366 (166,776) 15,075 ----------------- ----------------- ----------------- ----------------- Class Y Proceeds from shares sold 279 145 10,549 5,562 Proceeds from reinvestment of distributions 576 13 21,634 477 Payments for shares redeemed (1,991) (1,350) (78,873) (52,845) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (1,136) (1,192) (46,690) (46,806) ----------------- ----------------- ----------------- ----------------- Total increase (decrease) (6,519) (74) $ (258,684) $ (1,908) ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EQUITY Q ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 261 468 $ 9,027 $ 14,766 Proceeds from reinvestment of distributions 13 11 465 351 Payments for shares redeemed (429) (367) (14,801) (11,696) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (155) 112 (5,309) 3,421 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 7,174 11,458 247,602 366,031 Proceeds from reinvestment of distributions 347 267 11,995 8,488 Payments for shares redeemed (10,375) (7,537) (359,044) (239,252) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (2,854) 4,188 (99,447) 135,267 ----------------- ----------------- ----------------- ----------------- Class Y Proceeds from shares sold 3,055 2,564 105,804 79,672 Proceeds from reinvestment of distributions 123 106 4,261 3,374 Payments for shares redeemed (3,990) (14,659) (137,390) (441,936) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (812) (11,989) (27,325) (358,890) ----------------- ----------------- ----------------- ----------------- Total increase (decrease) (3,821) (7,689) $ (132,081) $ (220,202) ================= ================= ================= =================
Notes to Financial Statements 219 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 INTERNATIONAL ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 224 447 $ 8,539 $ 14,934 Proceeds from reinvestment of distributions 18 20 661 638 Payments for shares redeemed (226) (233) (8,801) (7,850) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 16 234 399 7,722 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 7,381 10,893 282,241 366,536 Proceeds from reinvestment of distributions 492 439 18,116 14,030 Payments for shares redeemed (6,054) (4,448) (232,553) (148,078) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,819 6,884 67,804 232,488 ----------------- ----------------- ----------------- ----------------- Class Y Proceeds from shares sold 1,984 721 76,142 23,702 Proceeds from reinvestment of distributions 231 399 8,518 12,741 Payments for shares redeemed (1,677) (5,329) (63,995) (182,292) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 538 (4,209) 20,665 (145,849) ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,373 2,909 $ 88,868 $ 94,361 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 FIXED INCOME I ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 402 300 $ 8,595 $ 6,491 Proceeds from reinvestment of distributions 75 73 1,577 1,559 Payments for shares redeemed (307) (336) (6,532) (7,278) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 170 37 3,640 772 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 10,527 14,236 223,287 308,094 Proceeds from reinvestment of distributions 1,952 1,773 41,098 38,028 Payments for shares redeemed (8,864) (10,546) (188,125) (228,621) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,615 5,463 76,260 117,501 ----------------- ----------------- ----------------- ----------------- Class Y Proceeds from shares sold 6,643 5,959 141,569 130,103 Proceeds from reinvestment of distributions 932 1,189 19,628 25,486 Payments for shares redeemed (1,398) (12,178) (29,605) (264,196) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 6,177 (5,030) 131,592 (108,607) ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 9,962 470 $ 211,492 $ 9,666 ================= ================= ================= =================
220 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 FIXED INCOME III ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 306 236 $ 3,272 $ 2,466 Proceeds from reinvestment of distributions 24 27 252 287 Payments for shares redeemed (143) (170) (1,522) (1,785) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 187 93 2,002 968 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 22,321 21,610 236,687 227,893 Proceeds from reinvestment of distributions 1,827 1,646 19,196 17,162 Payments for shares redeemed (13,578) (7,977) (144,251) (83,706) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 10,570 15,279 111,632 161,349 ----------------- ----------------- ----------------- ----------------- Class Y* Proceeds from shares sold 3,827 -- 41,100 -- Proceeds from reinvestment of distributions 68 -- 720 -- Payments for shares redeemed (35) -- (374) -- ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,860 -- 41,446 -- ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 14,617 15,372 $ 155,080 $ 162,317 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 EMERGING MARKETS ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 720 743 $ 10,819 $ 8,601 Proceeds from reinvestment of distributions 6 27 79 295 Payments for shares redeemed (330) (289) (4,983) (3,350) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 396 481 5,915 5,546 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 368 444 5,846 5,367 Proceeds from reinvestment of distributions 13 22 190 254 Payments for shares redeemed (384) (244) (6,138) (2,940) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (3) 222 (102) 2,681 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 9,775 15,089 151,220 180,417 Proceeds from reinvestment of distributions 632 638 9,268 7,205 Payments for shares redeemed (6,853) (8,459) (107,297) (101,760) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,554 7,268 53,191 85,862 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 3,947 7,971 $ 59,004 $ 94,089 ================= ================= ================= =================
* For the period June 23, 2005 (commencement of operations) to October 31, 2005. Notes to Financial Statements 221 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 REAL ESTATE SECURITIES ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 529 648 $ 23,052 $ 24,331 Proceeds from reinvestment of distributions 135 36 5,811 1,425 Payments for shares redeemed (304) (233) (13,369) (8,932) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 360 451 15,494 16,824 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 398 314 17,861 12,184 Proceeds from reinvestment of distributions 73 21 3,199 829 Payments for shares redeemed (283) (145) (12,674) (5,628) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 188 190 8,386 7,385 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 8,037 7,890 355,555 300,908 Proceeds from reinvestment of distributions 1,955 631 85,775 25,106 Payments for shares redeemed (6,187) (5,898) (277,213) (227,399) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 3,805 2,623 164,117 98,615 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 4,353 3,264 $ 187,997 $ 122,824 ================= ================= ================= =================
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SHORT DURATION BOND ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 617 939 $ 11,614 $ 17,894 Proceeds from reinvestment of distributions 27 15 502 293 Payments for shares redeemed (1,036) (1,127) (19,514) (21,451) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (392) (173) (7,398) (3,264) ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 320 411 6,052 7,864 Proceeds from reinvestment of distributions 27 17 521 319 Payments for shares redeemed (232) (277) (4,389) (5,285) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 115 151 2,184 2,898 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 16,712 22,446 315,510 428,176 Proceeds from reinvestment of distributions 1,504 508 28,236 9,675 Payments for shares redeemed (15,698) (13,721) (296,234) (261,930) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 2,518 9,233 47,512 175,921 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,241 9,211 $ 42,298 $ 175,555 ================= ================= ================= =================
222 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SELECT GROWTH ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 527 552 $ 3,803 $ 3,849 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (300) (161) (2,175) (1,128) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 227 391 1,628 2,721 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 110 213 810 1,533 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (375) (92) (2,825) (658) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (265) 121 (2,015) 875 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 7,135 4,627 54,091 33,510 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (1,314) (784) (9,983) (5,601) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 5,821 3,843 44,108 27,909 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 3,690 3,538 27,958 25,490 Proceeds from reinvestment of distributions -- -- -- -- Payments for shares redeemed (3,612) (2,318) (27,581) (16,889) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 78 1,220 377 8,601 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 5,861 5,575 $ 44,098 $ 40,106 ================= ================= ================= =================
Notes to Financial Statements 223 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) (continued)
SHARES DOLLARS ------------------------------------- ------------------------------------- 2005 2004 2005 2004 SELECT VALUE ----------------- ----------------- ----------------- ----------------- Class C Proceeds from shares sold 599 836 $ 6,615 $ 8,118 Proceeds from reinvestment of distributions 3 1 31 8 Payments for shares redeemed (375) (290) (4,176) (2,835) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 227 547 2,470 5,291 ----------------- ----------------- ----------------- ----------------- Class E Proceeds from shares sold 195 164 2,201 1,610 Proceeds from reinvestment of distributions 7 5 79 45 Payments for shares redeemed (326) (136) (3,702) (1,345) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) (124) 33 (1,422) 310 ----------------- ----------------- ----------------- ----------------- Class I Proceeds from shares sold 3,950 4,468 44,387 44,188 Proceeds from reinvestment of distributions 123 75 1,384 740 Payments for shares redeemed (2,165) (2,833) (24,171) (27,980) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 1,908 1,710 21,600 16,948 ----------------- ----------------- ----------------- ----------------- Class S Proceeds from shares sold 5,202 6,828 58,345 67,750 Proceeds from reinvestment of distributions 168 110 1,876 1,084 Payments for shares redeemed (4,888) (4,241) (55,329) (41,771) ----------------- ----------------- ----------------- ----------------- Net increase (decrease) 482 2,697 4,892 27,063 ----------------- ----------------- ----------------- ----------------- Total increase (decrease) 2,493 4,987 $ 27,540 $ 49,612 ================= ================= ================= =================
7. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Funds may borrow up to a maximum of 33.33% of the value of their net assets under the agreement. The agreement will expire December 21, 2005 and is expected to be renewed at that time. The Funds did not have any drawdowns for the period ended October 31, 2005. 224 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 8. RECORD OWNERSHIP As of October 31, 2005, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund:
FUNDS # OF SHAREHOLDERS % -------------------------------------------------------------------------------- Equity I 1 32.7 Equity II 1 35.8 Equity Q 1 34.9 International 2 43.0 Fixed Income I 1 18.3 Fixed Income III 1 43.4 Emerging Markets 3 47.5 Real Estate Securities 2 30.5 Short Duration Bond 3 66.4 Select Growth 2 41.5 Select Value 1 28.2
9. RESTRICTED SECURITIES Restricted securities are subject to contractual limitations on resale, are often issued in private placement transactions, and are not registered under the Securities Act of 1933 (the "Act"). The most common types of restricted securities are those sold under Rule 144A of the Act and commercial paper sold under Section 4(2) of the Act. A Fund may invest a portion of its net assets not to exceed 15% in securities that are illiquid. Illiquid securities are securities that may not be readily marketable, and that cannot be sold within seven days in the ordinary course of business at the approximate amount at which the Fund has valued the securities. Restricted securities are generally considered to be illiquid. Notes to Financial Statements 225 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities deemed liquid by FRIMCo or a money manager pursuant to Board approved policies and procedures or (2) illiquid securities that are not restricted securities as designated on the Fund's Schedule of Investments.
COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION PRINCIPAL AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Fixed Income I Fund - 3.4% Aames Mortgage Investment Trust 09/08/05 1,547,716 99.98 1,547 1,547 Aames Mortgage Investment Trust 05/25/05 53,000 100.00 53 53 ABSC NIMs Trust 07/30/04 55,493 99.62 55 55 ABSC NIMs Trust 07/18/05 381,960 99.96 382 381 Aiful Corp. 08/03/05 100,000 99.62 100 98 Aiful Corp. 08/04/05 100,000 97.70 98 96 American International Group, Inc. 09/27/05 400,000 99.80 399 393 American International Group, Inc. 09/27/05 300,000 99.67 299 293 American International Group, Inc. 09/27/05 100,000 99.67 100 98 Arcap Reit, Inc. 09/21/04 420,000 100.96 424 403 ASIF Global Financing 05/18/05 90,000 99.83 90 89 Asset Backed Funding Corp. NIM Trust 08/15/05 331,664 99.71 331 332 BAE Systems Holdings, Inc. 12/28/01 825,000 104.74 864 868 Capital Auto Receivables Asset Trust 05/25/05 3,584 100.00 4 4 Countrywide Asset-Backed Certificates 12/21/04 149,046 100.04 149 148 Countrywide Asset-Backed Certificates 04/27/05 301,274 99.26 299 299 Countrywide Asset-Backed Certificates 07/27/05 1,341,445 100.00 1,341 1,342 Countrywide Asset-Backed Certificates 07/22/08 268,852 99.42 267 266 Countrywide Home Loan Mortgage Pass Through Trust 09/21/05 1,665,018 100.00 1,665 1,665 Credit-Based Asset Servicing and Securitization CBO, Ltd. 03/04/04 2,164,750 100.00 2,165 2,165 Crest, Ltd. 11/25/03 1,710,000 100.00 1,710 1,693 DG Funding Trust 11/04/03 94 10537.14 990 1,007 Dresdner Funding Trust I 04/09/03 370,000 102.18 378 439 Equifirst Mortgage Loan Trust NIM Notes 02/02/05 298,996 100.06 299 299 Equifirst Mortgage Loan Trust NIM Notes 05/06/05 1,000,644 99.95 1,000 999 Export-Import Bank of Korea 02/03/04 255,000 99.66 254 247 First Franklin NIMs Trust 05/20/04 142,609 100.00 143 142 First Franklin NIMs Trust 06/03/04 6,169 100.00 6 6 First Franklin NIMs Trust 04/01/05 647,978 99.74 646 645 Fremont NIMs Trust 05/20/04 2,038 100.00 2 2 Fremont NIMs Trust 02/22/05 523,572 99.61 522 520 Fremont NIMs Trust 08/12/05 162,935 100.00 163 162 G-Force CDO, Ltd. 12/08/03 765,000 99.98 765 756 G-Force LLC 02/01/05 1,670,000 100.88 1,685 1,626 Glencore Funding LLC 08/08/05 455,000 94.67 431 419 GSAMP Mortgage Loan Trust 05/20/05 1,625,625 100.19 1,629 1,631 GSAMP Trust 02/27/04 13,362 99.87 13 13 Harrah's Operating Co., Inc. 05/19/05 2,695,000 99.54 2,683 2,586 IndyMac Loan Trust 10/17/03 108,576 100.00 109 109 IndyMac Loan Trust 06/10/04 620,851 100.00 621 621 JP Morgan Chase Commercial Mortgage Securities Corp. 05/27/05 2,060,834 100.00 2,061 2,051 Korea Electric Power Corp. 04/20/04 125,000 98.47 123 123
226 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION PRINCIPAL AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Lennar Corp. 07/06/05 1,310,000 100.50 1,317 1,255 Long Beach Asset Holdings Corp. 01/19/05 379,010 100.00 379 377 Mach One Trust Commercial Mortgage-Backed 07/12/04 1,350,000 100.95 1,363 1,334 Mastr Reperforming Loan Trust 03/09/05 871,296 102.37 892 877 Miller Brewing Co. 08/06/03 250,000 99.36 248 252 Mizuho Financial Group Cayman, Ltd. 02/27/04 315,000 100.53 317 323 Monumental Global Funding, Ltd. 03/09/05 200,000 100.00 200 198 Morgan Stanley Cap I, Inc. 06/17/04 1,370,000 101.04 1,384 1,371 Natexis Ambs Co. LLC 06/24/98 300,000 108.74 326 324 Newcastle CDO I, Ltd. 03/11/04 845,000 99.94 845 802 Novastar NIMs Trust 07/20/04 92,474 100.10 93 92 Novastar NIMs Trust 06/21/05 294,419 100.00 294 294 Prologis 10/26/05 1,255,000 99.35 1,247 1,252 Rabobank Capital Funding II 05/23/05 20,000 101.81 20 20 Rabobank Capital Funding Trust 05/19/05 40,000 100.78 40 39 Ramp NIMs Trust 05/12/05 297,665 100.00 298 297 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 125,000 100.00 125 122 Renaissance NIMs Trust 06/25/04 71,880 100.00 72 72 Renaissance NIMs Trust 12/16/04 240,183 100.00 240 240 Residential Capital Corp. 06/21/05 525,000 99.72 524 533 Resona Preferred Global Securities Cayman, Ltd. 07/20/05 300,000 100.90 303 306 Russia Government International Bond 02/01/05 315,000 110.43 348 350 Sharp SP I LLC Net Interest Margin Trust 02/13/04 14,083 99.99 14 14 Sharp SP I LLC Net Interest Margin Trust 03/10/04 39,640 99.99 40 40 Systems 2001 AT LLC 03/08/02 329,540 101.75 335 345 Tenaska Alabama II Partners, LP 10/09/03 230,469 102.11 235 232 Tengizchevroil Finance Co. 11/23/04 245,000 100.29 246 246 Textron Financial Floorplan Master Note Trust 05/19/05 1,640,000 100.00 1,640 1,640 Wells Fargo Home Equity Trust 10/01/04 88,703 99.99 89 88 Zurich Capital Trust I 07/11/00 835,000 105.91 884 903 Zurich Capital Trust I 01/10/03 530,000 93.93 498 573 -------------- 41,502 ============== Fixed Income III Fund - 4.0% ABSC NIMs Trust 12/18/03 7,856 98.94 8 8 AIG SunAmerica Global Financing VI 05/02/01 375,000 107.13 402 397 Alliance Capital Funding LLC 03/03/04 15,236 101.61 15 15 American International Group, Inc. 09/27/05 100,000 99.67 100 98 American International Group, Inc. 09/27/05 400,000 99.80 399 393 American International Group, Inc. 09/27/05 300,000 99.67 299 293 AmerisourceBergen Corp. 09/08/05 335,000 99.51 333 322 AmerisourceBergen Corp. 09/08/05 80,000 99.51 80 77 Arlington Street CDO, Ltd. 06/04/03 886,082 102.27 906 904 BAE Systems Holdings, Inc. 12/28/01 920,000 103.45 952 968 Banco Santander Chile 01/11/05 195,000 99.83 195 194 Bear Stearns Commercial Mortgage Securities 04/19/05 265,000 101.68 269 265 Canadian Oil Sands, Ltd. 08/03/04 140,000 99.93 140 138 Capital Auto Receivables Asset Trust 05/25/05 3,584 100.00 4 4 Chancellor/Triton CBO, Ltd. 11/12/03 82,527 96.88 80 83
Notes to Financial Statements 227 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION PRINCIPAL AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Citigroup Commercial Mortgage Trust 12/07/04 153,476 100.01 153 154 Commercial Mortgage Pass Through Certificates 09/27/05 229,221 106.12 243 240 Corp Nacional del Cobre de Chile 09/16/05 230,000 98.17 226 219 Countrywide Asset-Backed Certificates 02/25/04 14,104 99.68 14 14 Crown Castle Towers LLC 05/26/05 150,000 100.00 150 146 DG Funding Trust 11/04/03 59 10537.12 622 633 Dresdner Funding Trust I 04/09/03 380,000 109.96 418 451 E*Trade Financial Corp. 09/14/05 325,000 103.54 336 330 Erac USA Finance Co. 07/01/02 270,000 106.38 287 284 Export Import Bank of Korea 02/03/04 160,000 99.66 159 155 Farmers Exchange Capital 01/28/02 250,000 82.29 206 253 Farmers Exchange Capital 12/15/04 520,000 106.23 552 525 Farmers Insurance Exchange 11/27/02 310,000 74.28 230 366 Farmers Insurance Exchange 08/04/04 225,000 100.05 225 224 FBG Finance, Ltd. 06/21/05 155,000 99.54 154 150 General Motors Corp. 05/05/05 100,000 106.15 106 93 Glencore Funding LLC 05/12/04 460,000 94.11 433 424 Global Signal Trust 11/18/04 225,000 100.00 225 217 GSAA Trust 09/16/04 47,776 99.88 48 48 GSMPS Mortgage Loan Trust 05/27/04 70,097 107.33 75 74 GSMPS Mortgage Loan Trust 08/30/04 119,357 109.09 130 126 GSMPS Mortgage Loan Trust 02/16/05 117,261 108.69 127 127 GSMPS Mortgage Loan Trust 03/17/05 204,178 107.29 219 217 GT Group Telecom, Inc. 01/27/00 450 49.90 22 -- Hanarotelecom, Inc. 01/25/05 400,000 100.15 401 389 Hyatt Equities LLC 06/12/02 140,000 101.19 142 142 IKON Office Solutions, Inc. 09/16/05 120,000 100.00 120 114 John Hancock Global Funding II 07/29/03 200,000 113.75 228 225 JP Morgan Chase Commercial Mortgage Securities Corp. 08/04/04 357,918 100.00 358 358 Juniper CBO, Ltd. 01/15/04 142,347 102.71 146 144 Korea Electric Power Corp. 04/20/04 85,000 98.47 84 83 LG Electronics, Inc. 06/10/05 90,000 99.53 90 88 Mantis Reef, Ltd. 10/28/03 200,000 100.00 200 196 Mastr Reperforming Loan Trust 08/10/05 381,636 106.62 407 405 Mastr Reperforming Loan Trust 03/09/05 291,592 107.30 313 309 Mastr Sprcialized Loan Trust 06/27/05 252,787 100.00 253 250 Merrill Lynch Mortgage Trust 06/26/02 185,000 79.34 147 176 Miller Brewing Co. 08/06/03 230,000 100.64 231 232 Miller Brewing Co. 08/06/03 145,000 100.20 145 142 Mizuho Financial Group Cayman, Ltd. 02/27/04 280,000 101.48 284 287 Mizuho Financial Group Cayman, Ltd. 02/27/04 150,000 99.96 150 154 Monumental Global Funding, Ltd. 03/09/05 135,000 100.00 135 134 Natexis Ambs Co. LLC 06/24/98 185,000 108.75 201 200 Nationwide Building Society 02/16/05 210,000 99.01 208 204 Nationwide Mutual Insurance Co. 03/20/03 290,000 108.46 315 344 Neiman-Marcus Group, Inc. 09/28/05 225,000 100.00 225 217 Nippon Life Insurance 07/14/05 295,000 99.68 294 289 North Front Pass-Through Trust 12/08/04 500,000 100.69 503 495
228 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION PRINCIPAL AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Oil Insurance, Ltd. 08/19/03 520,000 101.10 526 513 Pemex Project Funding Master Trust 06/01/05 70,000 98.66 69 67 Platinum Underwriters Holdings, Ltd. 08/11/05 135,000 101.01 136 136 Power Contract Financing LLC 06/11/03 165,000 101.23 167 168 Power Contract Financing LLC 06/11/03 79,115 100.96 80 79 Premium Asset Trust 01/28/05 245,000 99.97 245 245 Quest Diagnostics, Inc. 10/25/05 125,000 99.81 125 125 Rabobank Capital Funding II 11/14/03 260,000 101.51 264 257 Ras Laffan Liquefied Natural Gas Co., Ltd. 03/07/01 85,000 111.27 95 98 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 250,000 100.00 250 244 Ras Laffan Liquefied Natural Gas Co., Ltd. II 08/04/05 120,000 100.00 120 118 Residential Capital Corp. 06/21/05 220,000 99.72 219 223 Residential Capital Corp. 06/21/05 150,000 100.06 150 153 Resona Preferred Global Securities Cayman, Ltd. 07/25/05 385,000 103.28 398 392 Russia Government International Bond 06/17/02 650,000 89.28 580 721 Russia Paris Club Participant 04/06/04 17,343,270 0.82 142 149 Santander US Debt SA Universal 09/13/05 900,000 100.00 900 900 Sappi Papier Holding AG 07/11/02 65,000 104.42 68 64 Sealed Air Corp. 07/01/03 195,000 99.77 195 190 Sharp SP I LLC Net Interest Margin Trust 01/29/04 5,998 100.00 6 6 Solar Capital Corp. 07/27/05 215,000 100.00 215 218 Solutia, Inc. 07/02/02 450 85.33 38 -- Southern Peru Copper Corp. 07/20/05 445,000 99.16 441 426 SovRisc 10/26/05 280,000 99.72 279 279 Systems 2001 AT LLC 06/04/01 127,652 102.28 131 135 Systems 2001 AT LLC 03/08/02 168,995 101.75 172 177 Tenaska Alabama II Partners, LP 10/09/03 155,204 100.05 155 156 Tenaska Alabama Partners, LP 06/13/05 104,647 100.00 105 106 Tengizchevroil Finance Co. 11/23/04 250,000 100.23 251 251 Terwin Mortgage Trust 08/17/05 464,192 99.98 464 464 Texas Genco LLC 12/08/04 410,000 100.64 413 439 Twin Reefs Pass-Through Trust 12/07/04 300,000 100.18 301 299 Williams Gas Pipelines 01/30/04 200,000 103.43 207 205 World Financial Properties 11/08/02 199,153 105.90 211 209 World Financial Properties 04/27/05 167,161 107.76 180 176 Xlliac Global Funding 08/03/05 240,000 99.68 239 236 Zurich Capital Trust I 01/10/03 370,000 94.41 349 400 -------------- 24,230 ============== Emerging Markets Fund - 0.1% Coca-Cola Embonor B ADR Reg S 04/23/99 107,000 10.81 1,157 845 Delta Corp, Inc. 08/07/97 1,134,586 0.39 444 389 Far EasTone Telecommunications Co., Ltd. 01/12/05 11,000 17.74 195 192 Holcim Ecuador SA-ADR 07/24/96 10,500 12.67 133 347 Holcim Ecuador SA-GDR 04/29/96 72,000 9.50 684 2,419 KT&G Corp. 01/29/02 53,100 9.28 493 1,099 NovaTek OAO 07/21/05 105,700 21.30 2,252 2,326 OK Zimbabwe 12/03/01 6,402,949 0.02 149 41 Quilmes Industrial 04/18/94 5,027 19.30 97 157
Notes to Financial Statements 229 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
COST MARKET VALUE FUND - % OF NET ASSETS ACQUISITION PRINCIPAL AMOUNT ($) COST PER UNIT (000) (000) SECURITIES DATE OR SHARES $ $ $ ------------------------------------------------------------------------------------------------------------------------------ Samsung Electronics Co., Ltd. 05/21/96 10,059 9.43 95 2,055 Tae Young 07/24/96 11,339 5.35 572 435 -------------- 10,305 ============== Short Duration Bond Fund - 4.0% Allstate Financial Global Funding 01/31/05 4,080,000 96.46 3,935 3,838 Alter Moneta Receivables LLC 09/17/03 718,325 100.35 721 713 DG Funding Trust 11/04/03 219 10,537.12 2,308 2,346 GE Corporate Aircraft Financing LLC 10/05/04 702,032 100.00 702 702 HBOS Treasury Services PLC 09/11/03 1,000,000 99.89 999 971 HBOS Treasury Services PLC 01/06/04 900,000 100.00 900 901 HBOS Treasury Services PLC 11/05/04 2,000,000 99.94 1,999 1,949 Hyundai Auto Receivables Trust 09/18/02 99,212 100.00 99 99 Marlin Leasing Receivables LLC 08/11/05 1,650,000 99.99 1,650 1,640 Metropolitan Life Global Funding I 07/19/04 4,000,000 99.88 3,995 3,909 New York Life Global Funding 02/23/04 2,500,000 100.00 2,500 2,501 Nordstrom Private Label Credit Card Master Note Trust 05/01/02 3,500,000 103.17 3,611 3,503 PBG Equipment Trust 06/13/01 789,774 103.38 816 790 Principal Life Global Funding I 06/03/04 2,000,000 102.19 2,044 2,002 Principal Life Global Funding I 06/14/05 5,600,000 96.51 5,404 5,321 Provident Auto Lease ABS Trust 08/20/03 20,817 103.24 21 21 Providian Gateway Master Trust 11/16/04 1,200,000 99.94 1,199 1,172 Railcar Leasing L.L.C. 06/11/03 1,000,000 115.66 1,157 1,060 Residential Capital Corp. 06/22/05 2,000,000 100.06 2,001 2,031 SLM Student Loan Trust 03/05/04 3,000,000 101.84 3,055 2,898 Susquehanna Auto Lease Trust 11/19/03 518,667 99.80 518 514 Susquehanna Auto Lease Trust 03/24/05 4,000,000 99.79 3,992 3,978 Susquehanna Auto Lease Trust 10/21/05 1,700,000 99.60 1,693 1,688 TIAA Global Markets 10/26/04 3,625,000 102.51 3,716 3,632 USAA Capital Corp. 09/29/04 595,000 102.84 612 587 -------------- 48,766 ==============
Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees. 10. DIVIDENDS On December 8, 2005, the Funds declared the following dividends from net investment income and capital gains, respectively, payable on December 13, 2005 to shareholders on record December 9, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Equity I - Class E $ 0.0908 $ 0.0914 $ 1.1743 Equity I - Class I 0.1082 0.0914 1.1743 Equity I - Class Y 0.1115 0.0914 1.1743 Equity Q - Class E 0.1168 -- 0.8738 Equity Q - Class I 0.1397 -- 0.8738 Equity Q - Class Y 0.1429 -- 0.8738
230 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - --------------------------------------------------------------------------------
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Real Estate Securities - Class C $ -- $ 1.2316 $ 3.7463 Real Estate Securities - Class E 0.0208 1.2316 3.7463 Real Estate Securities - Class S 0.0507 1.2316 3.7463 Select Value - Class C 0.0133 0.2001 0.4433 Select Value - Class E 0.0421 0.2001 0.4433 Select Value - Class I 0.0518 0.2001 0.4433 Select Value - Class S 0.0449 0.2001 0.4433
On December 15, 2005, the Board of Trustees of Frank Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 20, 2005 to shareholders on record December 16, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------------------ Equity II - Class E $ -- $ 2.0497 $ 8.0042 Equity II - Class I 0.0859 2.0497 8.0042 Equity II - Class Y 0.1245 2.0497 8.0042 International - Class E 0.6762 -- -- International - Class I 0.7753 -- -- International - Class Y 0.7910 -- -- Fixed Income I - Class E 0.2305 -- -- Fixed Income I - Class I 0.2471 -- -- Fixed Income I - Class Y 0.2495 -- -- Fixed Income III - Class E 0.1133 0.0171 0.0135 Fixed Income III - Class I 0.1181 0.0171 0.0135 Fixed Income III - Class Y 0.1214 0.0171 0.0135 Emerging Markets - Class C 0.2822 -- 0.4319 Emerging Markets - Class E 0.3925 -- 0.4319 Emerging Markets - Class S 0.4318 -- 0.4319 Short Duration Bond - Class C 0.0987 -- -- Short Duration Bond - Class E 0.1351 -- -- Short Duration Bond - Class S 0.1469 -- --
Notes to Financial Statements 231 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Equity I Fund, Equity II Fund, Equity Q Fund, International Fund, Fixed Income I Fund, Fixed Income III Fund, Emerging Markets Fund, Real Estate Securities Fund, Short Duration Bond Fund (formerly Short Term Bond Fund), Select Growth Fund and Select Value Fund (eleven of the portfolios constituting Frank Russell Investment Company, hereafter collectively referred to as the "Funds") at October 31, 2005, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion. /s/ PricewatehouseCoopers LLP Seattle, Washington December 20, 2005 232 Report of Independent Registered Public Accounting Firm FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- For the tax year ended October 31, 2005, the Funds hereby designate 100% or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Form 1099 you receive in January 2006 will show the tax status of all distributions paid to your account in calendar year 2005. The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:
Equity I 100.0% Equity II 15.1% Equity Q 100.0% International 0.0% Fixed I 0.0% Fixed III 0.0% Emerging Markets 0.0% Real Estate Securities 0.0% Short Duration Bond 0.0% Select Growth 100.0% Select Value 61.7%
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 October 31, 2005:
Equity II $74,586,776 Fixed Income I 10,319,360 Fixed Income III 1,910,645 Real Estate Securities 87,823,283 Short Duration Bond 806,070 Select Value 250,408
Please consult a tax adviser for any questions about federal or state income tax laws. The Emerging Markets Fund and International Fund paid foreign taxes of $2,636,608 and $3,621,151 and recognized $19,777,039 and $40,147,441 of foreign source income, respectively, during the taxable year ended October 31, 2005. Pursuant to Section 853 of the Internal Revenue Code, the Emerging Markets Fund and International Fund designates $0.0536 and $0.0834 per share of foreign taxes paid and $0.4024 and $0.9250 of gross income earned from foreign sources, respectively, in the taxable year ended October 31, 2005. Tax Information 233 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with FRIMCo and the portfolio management contract (together, the "investment advisory agreements") with each Money Manager of the Funds at a meeting held on February 23, 2005. During the course of a year, the Trustees received a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds' shares, and the management of the Funds by FRIMCo. In preparation for the annual review, the Board, with the advice and assistance of independent counsel, also received and considered (1) information and reports prepared by FRIMCo relating to the services provided by FRIMCo (and its affiliates) to the Funds, including information requested by the Trustees, and (2) information received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and its operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by FRIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds (collectively, the "Agreement Renewal Information"). Prior to voting, the Independent Trustees reviewed the proposed continuance of the investment advisory agreements with management and independent counsel and received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. The Independent Trustees also reviewed the proposed continuance in a private session with independent counsel at which no representatives of FRIMCo or management were present. The discussion below reflects both of these reviews. In evaluating the advisory agreement with FRIMCo and the portfolio management contracts with the Money Managers of the Funds, the Board considered that the Funds, in employing a manager-of-managers method of investment, operate in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. All Funds have multiple Money Managers. The Board considered that FRIMCo (rather than any Money Manager) is responsible under the investment advisory agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund have been allocated among multiple Money Managers. FRIMCo is responsible for selecting Money Managers for each Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for a Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Fund assigned to it by FRIMCo in accordance with the Fund's applicable investment objective, policies and restrictions (each, a "segment"). FRIMCo is responsible for communicating performance expectations and evaluations to each Money Manager; supervising compliance by each Money Manager with each Fund's investment objectives and policies; authorizing Money Managers to engage in certain investment strategies for a Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, FRIMCo is responsible for recommending to the Board the restructuring of Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on FRIMCo's research and analysis, such actions are appropriate. FRIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for a Fund in a complementary manner. Therefore, FRIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the same Fund. The performance of individual Money Managers for a Fund may reflect the roles assigned to them by FRIMCo in the Fund's investment activities and any constraints placed by FRIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects in great part the performance of FRIMCo in designing the Fund's investment program, structuring Fund segments, selecting an effective Money Manager for each segment with a style that is complementary to the styles of the Money Managers of other Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Fund. The Board also considered that the prospectuses for the Funds emphasize to investors FRIMCo's role as the principal investment manager for each Fund, rather than the investment selection role of the Funds' Money Managers, and describe the manner in which the Funds operate so that investors may take the information into account when deciding to purchase shares of any such Fund. 234 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- In addition to these general factors relating to the manager of managers structure of the Funds, the Trustees considered, with respect to each Fund, various specific factors on the basis of the Agreement Renewal Information in evaluating renewal of the advisory agreement with FRIMCo, including the following: 1. The nature, scope and quality of the services provided to the Fund by FRIMCo; 2. The advisory fee paid by the Fund to FRIMCo and the fact that it encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of such Fund; 3. Information provided by FRIMCo as to other fees and benefits received by FRIMCo or its affiliates from the Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by FRIMCo as to investment advisory fees paid by Comparable Funds; 5. Information provided by FRIMCo as to expenses incurred by the Fund; 6. Information provided by FRIMCo as to the profits that FRIMCo derives from its mutual fund operations generally and from each Fund; and 7. The importance of supporting quality, long-term service by FRIMCo to help achieve the Fund's investment performance, including the continuing need of FRIMCo to retain and attract qualified investment and service professionals to serve the Funds. On the basis of the information received, the Board, in respect of each Fund, found the advisory fees charged and costs and expenses incurred by FRIMCo to be fair and reasonable; after giving effect to waivers and/or reimbursements; and considering the composition of the Comparable Funds, the relative performance and expense ratio of the Fund were comparable to those of peer funds; FRIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and FRIMCo's profitability with respect to the Fund was reasonable in light of the nature, scope and quality of the services provided by FRIMCo. The Board considered for each Fund whether economies of scale have been realized and whether the fees for such Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on December 6, 2004 that the investment advisory fees for each Fund appropriately reflect any economies of scale realized by that Fund. Its findings at the earlier meeting were based upon information and analyses prepared by FRIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager of managers structure employed by most Funds relevant to the Board's deliberations, and took into consideration the Funds' rising costs of compliance with applicable laws, rules and regulations. The Trustees considered that fees payable to FRIMCo by institutional clients with investment objectives similar to those of the Funds are lower, and may, in some cases, be substantially lower, than the rates paid by the Funds. FRIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and the Funds. For example, institutional clients have fewer administrative needs than the Funds. It was further noted that since the Funds must constantly issue and redeem their shares, they are more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. The Board also considered the special expertise of FRIMCo with respect to the manager of managers structure of the Funds and the likelihood that, at the current expense ratio of each such Fund, there would be no acceptable alternative investment managers to replace FRIMCo on comparable terms given the need to conduct the manager of managers, multi-style strategy of such Fund selected by its shareholders in purchasing their shares. With respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from FRIMCo reporting for each Money Manager, among other things, the Money Manager's performance over various periods; FRIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and Funds, FRIMCo or FRIMCo's affiliates; and FRIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. FRIMCo recommended that each Money Manager be retained at its current fee rate. FRIMCo advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the investment advisory agreements with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with FRIMCo; FRIMCo is aware of the fees charged by Money Managers to other clients; and FRIMCo believes that the fees agreed upon with Money Managers are Basis for Approval of Investment Advisory Contracts 235 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted FRIMCo's explanation in light of the Board's findings as to the fairness and reasonableness of the aggregate investment advisory fees paid by each Fund and the fact that each Money Manager's fee is paid by FRIMCo. Based substantially upon FRIMCo's recommendations together with the information received from FRIMCo in support of its recommendations, the Board concluded that the fees paid to the Money Managers of each Fund were fair and reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of each Fund was in the interests of shareholders. In their deliberations, the Trustees did not identify any particular information as to the investment advisory agreement with FRIMCo or, other than FRIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them on a Fund-by-Fund basis and their determinations were made in respect of each Fund. At a meeting held on March 24, 2005, the Trustees received proposals from FRIMCo to effect certain Money Manager changes for the International Fund; and at a meeting held on May 17, 2005 received proposals from FRIMCo to effect certain Money Manager changes for the Equity II and Select Growth Funds. In the case of each such Fund, the Trustees approved the terms of the proposed portfolio management agreements with the successor Money Manager(s) based substantially upon FRIMCo's recommendation; its explanation as to the lack of relevance of profitability to the evaluation of portfolio management agreements with Money Managers; and its belief that the proposed investment advisory fees for the successor Money Manager(s) would be fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at the February 23, 2005 meeting as to the fairness and reasonableness of the aggregate investment advisory fees paid by each affected Fund, and the fact that the aggregate investment advisory fees paid by such Fund would not increase as a result of the implementation of any proposed Money Manager change because each Money Manager's investment advisory fee is paid by FRIMCo. At a meeting held on May 17, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Equity I Fund (a "Participating Fund") utilizing a "select holdings strategy" pursuant to the terms of the Advisory Agreement between the Fund and FRIMCo; at a meeting held on August 23, 2005, the Trustees received a proposal from FRIMCo to manage directly approximately 5% of the assets of the Equity Q Fund (also a "Participating Fund") utilizing the same select holdings strategy; and at a meeting held on November 15, 2005, the Trustees received a proposal from FRIMCo to increase the percentage of each Participating Fund's assets that may be managed by FRIMCo utilizing the select holdings strategy to 10%, the actual allocation to be determined by each Participating Fund's portfolio manager. Under this strategy, FRIMCo analyzes the stocks purchased for a Participating Fund by each of the Fund's Money Managers to identify particular stocks that are concurrently overweighted by two or more of the Money Managers. FRIMCo uses a proprietary model to rank these stocks. Based on this ranking, FRIMCo will purchase additional shares of certain stocks for the Participating Fund. The strategy is designed to increase the Participating Fund's exposure to stocks that are collectively viewed as attractive by multiple Money Managers to the Participating Fund. Implementation of this strategy includes periodic rebalancing of the Participating Fund's holdings. The Trustees received and considered information from FRIMCo regarding the potential enhancements to the Participating Fund's performance based upon FRIMCo's limited experience in employing the same strategy for other types of investment accounts under its management. The Trustees also considered that FRIMCo would not be required to pay investment advisory fees to a Money Manager with respect to assets for which the select holdings strategy is utilized and that the profits derived by FRIMCo generally and from the Participating Fund consequently may increase incrementally. The Board, however, considered FRIMCo's advice that it will pay certain Money Managers additional fees for providing information and other services in connection with the select holdings strategy and expects to incur additional costs in implementing and carrying out the select holdings strategy; the limited amount of assets that would be managed directly by FRIMCo pursuant to the select holdings strategy; the fact that the aggregate investment advisory fees paid by the Participating Fund would not increase as a result of the implementation of the select holdings strategy; and its findings at the meeting held on February 23, 2005 that the aggregate fees payable by the Participating Fund are fair and reasonable. Based upon the Agreement Renewal Information received from FRIMCo at the meeting held on February 23, 2005 and information concerning implementation of the select holdings strategy received from FRIMCo at the meetings held on February 23, 2005, May 17, 2005, August 23, 2005 and November 15, 2005 the Board in the case of the Participating Funds accepted FRIMCo's select holdings strategy proposals, concluding in doing so that the investment advisory fees paid to FRIMCo by such Fund under its advisory agreement with FRIMCo continue to be fair and reasonable in light of the nature and anticipated quality of the investment advisory services to be rendered by FRIMCo. 236 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Shareholder Requests for Additional Information 237 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. 238 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 239 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
240 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. Disclosure of Information about Fund Directors 241 FRANK RUSSELL INVESTMENT COMPANY INSTITUTIONAL FUNDS DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
242 Disclosure of Information about Fund Directors INSTITUTIONAL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS AS OF OCTOBER 31, 2005 Equity I 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 Institutional Capital Corporation, Chicago, IL Marsico Capital Management, LLC, Denver, CO MFS Institutional Advisors, Inc., Boston, MA Montag & Caldwell, Inc., Atlanta, GA Schneider Capital Management Corporation, Wayne, PA Suffolk Capital Management, LLC, New York, NY Turner Investment Partners, Inc., Berwyn, PA Equity II Fund CapitalWorks Investment Partners, LLC, San Diego, CA David J. Greene and Company, LLC, New York, NY Delphi Management, Inc., Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Gould Investment Partners LLC, Berwyn, PA Jacobs Levy Equity Management, Inc., Florham Park, NJ Nicholas-Applegate Capital Management LLC, San Diego, CA TimesSquare Capital Management LLC, New York, NY Tygh Capital Management, Inc., Portland, OR Equity Q Fund Aronson + Johnson + Ortiz, LP, Philadelphia, PA Franklin Portfolio Associates LLC, Boston, MA Goldman Sachs Asset Management, L.P., New York, NY Jacobs Levy Equity Management, Inc., Florham Park, NJ International Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY AQR Capital Management, LLC, Greenwich, CT Axiom International Investors LLC, Greenwich, CT Fidelity Management & Research Company, Boston, MA Marvin & Palmer Associates, Inc., Wilmington, DE MFS Institutional Advisors, Inc., Boston, MA Mondrian Investment Partners Limited, London, England The Boston Company Asset Management, LLC, Boston, MA Wellington Management Company, LLP, Boston, MA Emerging Markets Fund Alliance Capital Management L.P., through its Bernstein Investment Research and Management Unit, New York, NY Arrowstreet Capital, Limited Partnership, Cambridge, MA Genesis Asset Managers, LLP, Guernsey, Channel Islands T. Rowe Price International, Inc., Baltimore, MD Wells Capital Management Inc., San Francisco, CA Manager, Money Managers and Service Providers 243 INSTITUTIONAL FUNDS FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- Real Estate Securities Fund AEW Management and Advisors, L.P., Boston, MA Heitman Real Estate Securities, LLC, Chicago, IL INVESCO Institutional (N.A.), Inc., through its INVESCO Real Estate division, Dallas, TX Short Duration Bond Fund Merganser Capital Management L.P., Boston, MA Pacific Investment Management Company LLC, Newport Beach, CA STW Fixed Income Management, Carpinteria, CA Fixed Income I Fund Bear Stearns Asset Management Inc., New York, NY Lehman Brothers Asset Management LLC, Chicago, IL Pacific Investment Management Company LLC, Newport Beach, CA Western Asset Management Company, Pasadena, CA Fixed Income III Fund Bear Stearns Asset Management Inc., New York, NY Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Morgan Stanley Investment Management Inc., West Conshohocken, PA Pacific Investment Management Company LLC, Newport Beach, CA Select Growth Fund Ark Asset Management Co., Inc., New York, NY CapitalWorks Investment Partners, LLC, San Diego, CA Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA Fuller & Thaler Asset Management, Inc., San Mateo, CA Turner Investment Partners, Inc., Berwyn, PA Select Value Fund DePrince, Race & Zollo, Inc., Orlando, FL Iridian Asset Management LLC, Westport, CT MFS Institutional Advisors, Inc., Boston, MA Netols Asset Management, Inc., Mequon, WI Systematic Financial Management, L.P., Teaneck, NJ 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. 244 Manager, Money Managers and Service Providers (This page intentionally left blank) (RUSSELL LOGO) Frank Russell Investment Company 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-020 (1 10/05) RUSSELL FUNDS 2005 ANNUAL REPORT CLASS A AND B SHARES: RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND OCTOBER 31, 2005 (RUSSELL LOGO) Frank Russell Investment Company Frank Russell Investment Company is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on one of these Funds. Frank Russell Investment Management Company Responsible for overall management and administration of the Funds. [Blank Page] Frank Russell Investment Company Russell Multi-Manager Principal Protected Fund Annual Report October 31, 2005 Table of Contents
Page To Our Clients....................................................... 3 Market Summary....................................................... 4 Portfolio Management Discussion...................................... 6 Shareholder Expense Example.......................................... 8 Schedule of Investments.............................................. 9 Notes to Schedule of Investments..................................... 12 Statement of Assets and Liabilities.................................. 13 Statement of Operations.............................................. 14 Statement of Changes in Net Assets................................... 15 Financial Highlights - Class A....................................... 16 Financial Highlights - Class B....................................... 17 Notes to Financial Statements........................................ 18 Report of Independent Registered Public Accounting Firm.............. 26 Tax Information...................................................... 27 Basis for Approval of Investment Advisory Contracts.................. 28 Shareholder Requests for Additional Information...................... 31 Disclosure of Information about Fund Directors....................... 32 Manager, Money Managers and Service Providers........................ 37
Copyright (c) Frank Russell Company 2005. All rights reserved. The Russell logo is a trademark and service mark of Frank Russell Company. Frank Russell Company and Standard & Poor's Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Indexes are unmanaged and cannot be invested in directly. FUND OBJECTIVES, RISKS, CHARGES AND EXPENSES SHOULD BE CAREFULLY CONSIDERED BEFORE INVESTING. A PROSPECTUS CONTAINING THIS AND OTHER IMPORTANT INFORMATION MUST PRECEDE OR ACCOMPANY THIS MATERIAL. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. Performance quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Current to the most recent month-end performance data may be obtained by visiting www.russell.com/us/fundperformance. Russell Fund Distributors, Inc., is the distributor of Frank Russell Investment Company. TO OUR CLIENTS Thank you for selecting Russell to help provide for your financial security. As you read Frank Russell Investment Company's 2005 Annual Report, we ask that you take this opportunity to review the value Russell's investment approach provides. Today, as well as tomorrow, our approach remains consistent. We continue to maintain our long-term focus, strategic diversification, active management, and goal-oriented planning. In 2006, and beyond, our commitment to you remains the same. Our mutual funds offer the Russell approach to investors of all types. Our purpose is to be one of the reasons that you and your family view the future with confidence. Thank you for your continued support and for choosing Russell, GLOBAL LEADERS IN MULTI-MANAGER INVESTING. Regards, (/s/ GREG STARK) Greg Stark Chief Executive Officer, Chairman and President. To Our Clients 3 FRANK RUSSELL INVESTMENT COMPANY MARKET SUMMARY AS OF OCTOBER 31, 2005 U.S. EQUITY MARKETS Though the 2004 presidential election provided a boost to the markets at the start of the fiscal year, stocks made little headway in the first half of the fiscal year as concerns of high oil prices and rising interest rates offset generally strong economic and corporate earnings data. But despite even higher energy costs, rising inflationary pressures, further interest rate hikes by the Federal Reserve, the economic disruptions of hurricanes Rita and Katrina and a sharp fall-off in consumer confidence, stocks were surprisingly resilient in the second half of the fiscal year. For the fiscal year ending October 31, 2005, the Russell 3000(R) Index gained 10.55%. Sector leadership in the first half of the fiscal year was dominated by energy and utilities. As in the previous year, energy stocks dominated the market due to strong global demand for energy. Towards the end of the fiscal year, hurricanes Katrina and Rita provided another boost to energy sectors as damage to the natural gas and petroleum refining and distribution infrastructure caused further spikes in energy prices. Despite a subsequent decline in oil prices and a sharp sell-off in energy stocks in October, the integrated oil and other energy sectors strongly led the U.S. equity market in the fiscal year. Other sectors also performed well in the second half, including technology and healthcare. As a result, the market environment for active management improved in the second half of the fiscal year as the rally in equities broadened beyond the energy and utilities sectors. While lagging far behind energy stocks, consumer staples stocks also outperformed in the fiscal year due to their defensive, stable growth qualities. Biotechnology and non-pharmaceutical healthcare stocks also fared well. In contrast, materials and consumer discretionary stocks lost favor with investors. Though the housing market remained strong, providing support for consumer spending, real estate prices appeared to ease towards the end of the fiscal year as higher energy and mortgage financing costs weakened consumer confidence. Retail and housing-related stocks fell to end the fiscal year among the worst performers. Despite rebounding in the second half of the year, technology stocks also lagged in the fiscal year as rising competitive pressures and generally lackluster earnings outlooks held back large capitalization technology stocks. Small capitalization companies outperformed large capitalization companies, as measured by the 12.08% return of the Russell 2000(R) Index versus 10.47% for the Russell 1000(R) Index for the fiscal year ended October 31, 2005. Though their lead narrowed over the 12 months, small capitalization companies have outperformed large capitalization companies for the last seven years. Small capitalization companies continued to benefit from narrow credit spreads (which allow companies to borrow money at more favorable rates). They also benefited from strong performance of stocks in the energy, healthcare and utilities sectors and the improving performance of technology-related companies. Companies of higher financial quality continued to underperform the broader market as represented by the Russell 3000(R) Index, while higher beta and lower dividend yield companies on the whole outperformed the broader market. 4 Market Summary FRANK RUSSELL INVESTMENT COMPANY Style continued to play an important role in equity returns. Value stocks outperformed growth stocks, though the margin of outperformance was smaller than in recent years. The Russell 1000(R) Value Index returned 11.86% for the fiscal year, compared with 8.81% for the Russell 1000(R) Growth Index. Investors' continued preference for energy-related and utility stocks over technology stocks, strongly favored value stocks in the first half of the fiscal year. But growth stocks performed better in the second half of the fiscal year due to rebounds by technology and biotechnology and health care service-related stocks. The fiscal year ending October 31, 2005 was relatively difficult for active managers given the outstanding performance of the energy sectors, which many active managers were underweight. The Lipper Large-Cap Core Funds Average trailed the Russell 1000(R) Index by 2.14% while the Lipper Large Cap Value Funds Average underperformed the Russell 1000(R) Value Index by 2.18%. Active management fared better in the growth segment where the Lipper Large Cap Growth Funds Average beat the Russell 1000(R) Growth Index by 1.28%. The environment for active small capitalization investing was also more favorable: the Lipper Small-Cap Core Funds Average beat the Russell 2000(R) Index by 1.16%. Note: Lipper returns are net of fees while the index returns are gross of fees U.S. FIXED INCOME MARKETS Interest rates, particularly in shorter-term maturities, took their cue from Federal Reserve policy. The Federal Reserve raised its target for the fed funds rate (the interest rate at which depository institutions lend money at the Federal Reserve to other depository institutions overnight) from 1.75% in the fall of 2004 to 3.75% by the end of October 2005. The Fed's eight interest rate hikes in the fiscal year represented an attempt to move back to a more neutral monetary policy to counter rising inflationary pressures as the fiscal year progressed. Although shorter maturity interest rates tended to move up in a straight line, intermediate and long term rates were volatile as investors grappled with slowing economic growth, moderate employment growth, rising commodity prices and natural disasters. Worries about inflation caused bond markets to gyrate up and down, with the ten-year note moving from a high of over 4.6% in March to a low of under 3.9% in June. For the fiscal year, ten-year rates rose, starting at 4.0% and moving up to end the period at 4.55%. With interest rates rising, investment grade bonds were little changed. For example, the Lehman Brothers US Aggregate Bond Index, a broad measure of US investment grade fixed income securities, returned just 1.13% for the fiscal year ending October 31, 2005. Among sectors, the riskier areas continued to post strong performance. As in the two prior years, high yield and emerging market debt bonds outperformed other bond sectors. High yield bonds continued to benefit from low default levels, healthy economic growth and low interest rates. Emerging market debt performed well due to commodity price increases and better fiscal and monetary governance among a number of developing countries. The high yield bond sector, as represented by the Lehman Brothers US Corporate High Yield Index, returned 4.08% over the year compared to 0.88% for the Lehman US Treasury Index. Investment grade corporate bonds also benefited from the same factors that drove the high yield market. For the fiscal year, the Lehman US Credit Index returned 0.65%. Despite increased regulatory scrutiny of the mortgage market, mortgage securities also continued to do well, slightly outperforming equivalent duration Treasuries. The Lehman MBS Fixed Rate Index returned 1.75%. As the fiscal year ended, the yield spreads between corporates and mortgages relative to Treasuries continued to be narrow, reflecting a healthy economy where corporations remained conservative in their use of debt. The narrow spread also reflected a large market demand for yield, as coupons across the globe remained very low. Market Summary 5 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- (GRAPHIC)
MULTI-MANAGER PRINCIPAL LEHMAN BROTHERS 3-5 YEAR PROTECTED - CLASS A RUSSELL 1000(R) INDEX TREASURY INDEX ----------------------- --------------------- ------------------------ Inception* 9497.00 10000.00 10000.00 2003 9804.00 12132.00 10229.00 2004 10059.00 13264.00 10605.00 2005 10091.00 14653.00 10515.00
Multi-Manager Principal Protected Fund - Class A# - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - --------------------- -------------------------------- 1 Year 0.31% Inception* 0.33%
Multi-Manager Principal Protected Fund - Class B - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - --------------------- -------------------------------- 1 Year (0.47)% Inception* 0.00%
Russell 1000()(R) Index ++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - --------------------- -------------------------------- 1 Year 10.47% Inception* 16.37%
Lehman Brothers 3-5 Year Treasury Index ++++ - ----------------------------------------------------------
PERIODS ENDED TOTAL 10/31/05 RETURN - --------------------- -------------------------------- 1 Year (0.85)% Inception* 5.15%
6 Portfolio Management Discussion FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND PORTFOLIO MANAGEMENT DISCUSSION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- WHAT IS THE FUND'S INVESTMENT OBJECTIVE? The Fund seeks some capital growth, while seeking to preserve principal. HOW DID THE FUND PERFORM RELATIVE TO ITS BENCHMARK FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005? For the fiscal year ended October 31, 2005, the Russell Multi-Manager Principal Protected Fund Class A and Class B Shares returned 0.31% and (0.47)%, respectively. This compared to the Russell 1000(R) Index, which gained 10.47%, and the Lehman 3-5 Year Government Treasury Index, which returned (0.85)% during the same period. The Fund's performance includes operating expenses, whereas the Index returns are unmanaged and do not include expenses of any kind. HOW DID THE MARKET CONDITIONS DESCRIBED IN THE MARKET SUMMARY REPORT AFFECT THE FUND'S PERFORMANCE? With more than two-thirds of the Fund's assets allocated to fixed income, the overall performance of the Fund was dampened in the fiscal year despite generally strong equity returns. Due to rising interest rates, the Fund's fixed income exposure produced a negative return, as capital losses offset interest income from holdings. Over the period, however, the Fund's fixed income portion outperformed the benchmark due to its shorter average maturity portfolio relative to the index. As the Fund gets closer to its "guarantee maturity date," the fixed income portion will continue to be shorter in maturity relative to the constant three- to five-year maturity index. In the equity market, oil and natural gas-related stocks led the U.S. stock market upward during the fiscal year. The Fund's equity segment had a slightly above-benchmark allocation to energy stocks, and this contributed to the equity segment's excess return relative to its Russell 1000 Index benchmark. This positive impact was offset by the equity segment's large capitalization character. Medium and smaller capitalization stocks performed better than large capitalization stocks in the fiscal year. WHAT WERE THE PRIMARY CONTRIBUTORS AND DETRACTORS TO THE FUND'S PERFORMANCE DURING THE LAST 12 MONTHS? The primary determinant of performance in the fixed income portion of the Fund was rising interest rates, leading to falling prices on bond holdings. As noted, the weighting toward shorter maturities boosted performance of the fixed income segment relative to its benchmark. In the equity segment, oil and other energy-related stocks boosted performance; however, these gains were partially offset by poor industry selection within the consumer discretionary sector, where entertainment and newspaper stocks performed poorly. In addition, pharmaceutical stocks within the health care sector also detracted from returns. HOW DID THE INVESTMENT STRATEGIES AND TECHNIQUES EMPLOYED BY THE FUND AND ITS MONEY MANAGERS AFFECT ITS PERFORMANCE? The Fund's fixed income money manager, Lehman Brothers Asset Management, LLC, maintained its exposure to the bond market throughout the period, but as bonds aged, the average maturity of the portfolio declined to 2.2 years at the end of the fiscal year. In the equity segment, MFS Institutional Advisors, Inc. was in the Fund for 10 months of the fiscal year. MFS's strategy included above-benchmark exposure to the integrated oils and other energy sectors. This helped MFS outperform the benchmark for 10 months ending August 31, 2005. Kayne Anderson Rudnick Investment Management, LLC was in the Fund for the final two months of the fiscal year, and its strategy emphasized companies with low financial leverage and low economic sensitivity. This helped Kayne's portfolio to exceed the benchmark during its brief tenure in the Fund. In contrast, Lord, Abbett & Co., LLC's emphasis on large capitalization stocks, particularly in the materials and health care sectors, caused its performance to fall short of the benchmark for the fiscal year. DESCRIBE ANY CHANGES TO THE FUND'S STRUCTURE OR THE MONEY MANAGER LINE-UP. In the equity segment of the Fund, MFS was terminated and replaced by Kayne at the end of August 2005. Money Managers as of Styles October 31, 2005 Kayne Anderson Rudnick Investment Management, LLC Market-Oriented Lehman Brothers Asset Management, LLC Duration-Matched Lord, Abbett & Co., LLC Value
The views expressed in this report reflect those of the portfolio managers only through the end of the period covered by the report. These views do not necessarily represent the views of Frank Russell Investment Management Company (FRIMCo), or any other person in FRIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and FRIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and, because investment decisions for a Frank Russell Investment Company (FRIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any FRIC Fund. -------------------- * The Fund commenced operations on January 21, 2003. Index comparison began January 21, 2003. Class A returns reflect the deduction of 5.00% sales charge. # The inception total return reflects the deduction of 5.00% sales charge for Class A and reflects a 4.00% deferred sales charge for Class B. Neither of these sales charges were deducted from the total returns for the one year period since no shares were sold during this period. ++ The 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. ++++ The Lehman 3-5 Year Government Treasury Index contains US Treasury securities with a maturity from 3 up to (but not including) 5 years. 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. The returns shown do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Portfolio Management Discussion 7 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND SHAREHOLDER EXPENSE EXAMPLE -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- FUND EXPENSES THE FOLLOWING DISCLOSURE PROVIDES IMPORTANT INFORMATION REGARDING THE FUND'S EXPENSE EXAMPLE. PLEASE REFER TO THIS INFORMATION WHEN REVIEWING THE EXPENSE EXAMPLE FOR THE FUND. EXAMPLE As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including advisory and administrative fees; distribution and/or service (12b-1) fees; and other Fund expenses. The Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period indicated, which for this Fund is from May 1, 2005 to October 31, 2005. ACTUAL EXPENSES The information in the table under the heading "Actual Performance" provides information about actual account values and actual expenses. You may use the information in this column, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first column in the row entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The information in the table under the heading "Hypothetical Performance (5% return before expenses)" provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the information under the heading "Hypothetical Performance (5% return before expenses)" is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS A PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 957.80 $ 1,014.62 Expenses Paid During Period* $ 10.36 $ 10.66
* Expenses are equal to the Fund's annualized expense ratio of 2.10% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period).
HYPOTHETICAL PERFORMANCE ACTUAL (5% RETURN CLASS B PERFORMANCE BEFORE EXPENSES) - ------- -------------- ---------------- Beginning Account Value May 1, 2005 $ 1,000.00 $ 1,000.00 Ending Account Value October 31, 2005 $ 952.90 $ 1,010.84 Expenses Paid During Period* $ 14.03 $ 14.44
* Expenses are equal to the Fund's annualized expense ratio of 2.85% (representing the six month period annualized), multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). 8 Shareholder Expense Example FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- COMMON STOCKS - 30.6% Auto and Transportation - 0.8% Harley-Davidson, Inc. 4,255 211 Union Pacific Corp. 1,213 84 United Parcel Service, Inc. Class B 2,516 183 ------------ 478 ------------ Consumer Discretionary - 3.4% Cintas Corp. 5,034 204 Costco Wholesale Corp. 4,873 236 Expedia, Inc. (AE) 782 15 Gannett Co., Inc. 3,658 229 Home Depot, Inc. 6,723 276 InterActiveCorp (AE) 782 20 Kimberly-Clark Corp. 2,135 121 Leggett & Platt, Inc. 8,450 169 RadioShack Corp. 1,130 25 Tribune Co. 2,890 91 Wal-Mart Stores, Inc. 9,920 469 Walt Disney Co. 3,274 80 Waste Management, Inc. 2,018 60 ------------ 1,995 ------------ Consumer Staples - 3.9% Anheuser-Busch Cos., Inc. 3,406 141 Campbell Soup Co. 4,249 124 Clorox Co. 1,405 76 Coca-Cola Co. (The) 8,608 368 CVS Corp. 2,905 71 Diageo PLC - ADR 1,023 61 General Mills, Inc. 466 22 HJ Heinz Co. 1,968 70 Kraft Foods, Inc. Class A 5,130 145 Kroger Co. (The) (AE) 4,799 95 PepsiCo, Inc. 5,977 353 Procter & Gamble Co. 10,771 603 Sysco Corp. 4,535 145 ------------ 2,274 ------------ Financial Services - 6.8% ACE, Ltd. 1,018 53 Aflac, Inc. 6,241 298 American International Group, Inc. 6,963 451 Automatic Data Processing, Inc. 8,149 380 Bank of America Corp. 8,636 378 Bank of New York Co., Inc. (The) 5,223 163 Citigroup, Inc. 10,642 487 Hartford Financial Services Group, Inc. 1,317 105 JPMorgan Chase & Co. 3,704 136 Marshall & Ilsley Corp. 1,339 58 Morgan Stanley 2,978 162 Paychex, Inc. 5,003 194
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- PNC Financial Services Group, Inc. 1,342 81 State Street Corp. 4,414 244 Synovus Financial Corp. 5,740 158 US Bancorp 5,611 166 Wachovia Corp. 644 33 Wells Fargo & Co. 6,966 419 ------------ 3,966 ------------ Health Care - 4.4% Baxter International, Inc. 4,123 157 Biogen Idec, Inc. (AE) 471 19 Bristol-Myers Squibb Co. 2,322 49 Eli Lilly & Co. 3,830 191 GlaxoSmithKline PLC - ADR 1,841 96 Guidant Corp. 207 13 Johnson & Johnson 8,726 546 Medimmune, Inc. (AE) 3,182 111 Medtronic, Inc. 5,719 324 Merck & Co., Inc. 2,274 64 Novartis AG - ADR 2,893 156 Pfizer, Inc. 26,452 575 Schering-Plough Corp. 3,276 67 Teva Pharmaceutical Industries, Ltd. - ADR 1,145 44 Wyeth 4,309 192 ------------ 2,604 ------------ Integrated Oils - 1.2% Chevron Corp. 1,115 64 Exxon Mobil Corp. 11,656 654 ------------ 718 ------------ Materials and Processing - 1.5% Barrick Gold Corp. 2,113 53 EI Du Pont de Nemours & Co. 6,808 284 Fluor Corp. 1,365 87 International Paper Co. 5,152 150 Monsanto Co. 1,174 74 Newmont Mining Corp. 3,372 144 Praxair, Inc. 1,707 84 ------------ 876 ------------ Miscellaneous - 1.6% 3M Co. 2,900 221 Eaton Corp. 524 31
Schedule of Investments 9 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands (except share amounts)
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- General Electric Co. 18,167 616 Honeywell International, Inc. 2,027 69 ------------ 937 ------------ Other Energy - 0.4% Baker Hughes, Inc. 1,551 85 El Paso Corp. 2,567 31 Schlumberger, Ltd. 1,202 109 ------------ 225 ------------ Producer Durables - 1.7% Boeing Co. 247 16 Caterpillar, Inc. 860 45 Deere & Co. 1,890 115 Diebold, Inc. 4,400 159 Emerson Electric Co. 4,520 315 Illinois Tool Works, Inc. 1,747 148 Pall Corp. 1,789 47 Parker Hannifin Corp. 2,030 127 ------------ 972 ------------ Technology - 3.4% Electronic Data Systems Corp. 2,056 48 EMC Corp. (AE) 1,144 16 General Dynamics Corp. 781 91 Hewlett-Packard Co. 4,220 118 Intel Corp. 15,361 361 International Business Machines Corp. 3,949 323 Linear Technology Corp. 7,700 256 Microsoft Corp. 20,794 535 Motorola, Inc. 7,003 155 Raytheon Co. 2,171 80 ------------ 1,983 ------------ Utilities - 1.5% Ameren Corp. 1,080 57 BellSouth Corp. 3,057 79 Comcast Corp. Special Class A (AE) 2,773 76 SBC Communications, Inc. 17,380 414
PRINCIPAL MARKET AMOUNT ($) VALUE OR SHARES $ - ----------------------------------------------------------------------------- Southern Co. (The) 988 35 Sprint Nextel Corp. 3,478 81 Verizon Communications, Inc. 3,862 122 ------------ 864 ------------ TOTAL COMMON STOCKS (cost $16,682) 17,892 ------------ LONG-TERM DEBT OBLIGATIONS - 61.9% United States Government Treasuries - 61.9% United States Treasury Principal Only STRIP Zero coupon due 02/15/08 32,295 29,242 Zero coupon due 05/15/08 7,690 6,886 ------------ TOTAL LONG-TERM DEBT OBLIGATIONS (cost $36,538) 36,128 ------------ SHORT-TERM INVESTMENTS - 7.5% Frank Russell Investment Company Money Market Fund 215,000 215 Frank Russell Investment Company US Government Money Market Fund 3,801,000 3,801 United States Treasury Bills (c)(z)(sec.) 3.363% due 12/08/05 380 379 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $4,395) 4,395 ------------ TOTAL INVESTMENTS - 100.0% (identified cost $57,615) 58,415 OTHER ASSETS AND LIABILITIES, NET - (0.0%) (6) ------------ NET ASSETS - 100.0% 58,409 ============
See accompanying notes which are an integral part of the financial statements. 10 Schedule of Investments FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND SCHEDULE OF INVESTMENTS, CONTINUED -- OCTOBER 31, 2005 Amounts in thousands
UNREALIZED NOTIONAL APPRECIATION FUTURES CONTRACTS AMOUNT (DEPRECIATION) (NUMBER OF CONTRACTS) $ $ - ------------------------------------------------------------------------------------ Long Positions S&P 500 E-Mini Index expiration date 12/05 (10) 605 2 United States Treasury 2 Year Notes expiration date 12/05 (13) 2,668 (13) United States Treasury 5 Year Notes expiration date 12/05 (6) 635 (7) --------------- Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (18) ===============
- -------------------------------------------------------------------------------- PRESENTATION OF PORTFOLIO HOLDINGS -- OCTOBER 31, 2005 (UNAUDITED)
% OF NET CATEGORIES ASSETS - ----------------------------------------------------------------- Auto and Transportation 0.8 Consumer Discretionary 3.4 Consumer Staples 3.9 Financial Services 6.8 Health Care 4.4 Integrated Oils 1.2 Materials and Processing 1.5 Miscellaneous 1.6 Other Energy 0.4 Producer Durables 1.7 Technology 3.4 Utilities 1.5 Long-Term Debt Obligations 61.9 Short-Term Investments 7.5 --------------- Total Investments 100.0 Other Assets and Liabilities, Net --* --------------- 100.0 =============== Futures Contracts --*
* Less than .05% of net assets. See accompanying notes which are an integral part of the financial statements. Schedule of Investments 11 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO SCHEDULE OF INVESTMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- FOOTNOTES: (AE) Nonincome-producing security. (o) Real Estate Investment Trust (REIT). (sec.)All or a portion of the shares of this security are held as collateral in connection with futures contracts purchased (sold) or options written by the Fund. (z) Rate noted is yield-to-maturity from date of acquisition. (c) At amortized cost, which approximates market. ABBREVIATIONS: ADR - American Depositary Receipt ADS - American Depositary Share CMO - Collateralized Mortgage Obligation FDIC - Federal Deposit Insurance Company GDR - Global Depositary Receipt GDS - Global Depositary Share LIBOR - London Interbank Offered Rate STRIP - Separate Trading of Registered Interest and Principal of Securities 12 Notes to Schedule of Investments FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND STATEMENT OF ASSETS AND LIABILITIES -- OCTOBER 31, 2005 Amounts in thousands - -------------------------------------------------------------------------------- ASSETS Investments at market (identified cost $57,615)..................................... $ 58,415 Cash................................................................................ 107 Receivables: Dividends and interest........................................................... 17 Dividends from affiliated money market funds..................................... 9 Investments sold................................................................. 33 From custodian................................................................... 6 From adviser..................................................................... 19 Daily variation margin on futures contracts...................................... 2 Prepaid expenses.................................................................... 2 ---------------------- Total assets........................................................................ 58,610 ---------------------- LIABILITIES Payables: Investments purchased................................. $ 23 Fund shares redeemed.................................. 13 Accrued fees to affiliates............................ 101 Other accrued expenses................................ 64 -------------------- Total liabilities................................................................... 201 ---------------------- NET ASSETS.......................................................................... $ 58,409 ====================== Net Assets Consist of: Accumulated net realized gain (loss)................................................ $ 1,788 Unrealized appreciation (depreciation) on: Investments...................................................................... 800 Futures contracts................................................................ (18) Shares of beneficial interest....................................................... 57 Additional paid-in capital.......................................................... 55,782 ---------------------- NET ASSETS.......................................................................... $ 58,409 ====================== NET ASSET VALUE, per share: Class A ($1,883,393 divided by 180,568 shares of $.01 par value shares of beneficial interest outstanding).................................... $ 10.43 ====================== Class B ($56,525,595 divided by 5,530,162 shares of $.01 par value shares of beneficial interest outstanding).................................... $ 10.22 ======================
See accompanying notes which are an integral part of the financial statements. Statement of Assets and Liabilities 13 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND STATEMENT OF OPERATIONS -- FOR THE FISCAL YEAR ENDED OCTOBER 31, 2005 Amounts in thousands - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividends........................................................................ $ 336 Dividends from affiliated money market funds..................................... 97 Interest......................................................................... 1,283 ---------------------- Total investment income............................................................. 1,716 EXPENSES Advisory fees............................................ $ 593 Administrative fees...................................... 34 Custodian fees........................................... 96 Distribution fees - Class B.............................. 489 Transfer agent fees...................................... 99 Professional fees........................................ 49 Registration fees........................................ 32 Shareholder servicing fees - Class A..................... 5 Shareholder servicing fees - Class B..................... 163 Trustees' fees........................................... 2 Insurance policy fees.................................... 506 Printing fees............................................ 2 Miscellaneous............................................ 9 -------------------- Expenses before reductions............................... 2,079 Expense reductions....................................... (181) -------------------- Net expenses........................................................................ 1,898 ---------------------- Net investment income (loss)........................................................ (182) ---------------------- NET REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on: Investments.............................................. 2,001 Futures contracts........................................ (99) 1,902 -------------------- Net change in unrealized appreciation (depreciation) on: Investments.............................................. (1,853) Futures contracts........................................ (19) (1,872) -------------------- ---------------------- Net realized and unrealized gain (loss)............................................. 30 ---------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS............................... $ (152) ======================
See accompanying notes which are an integral part of the financial statements. 14 Statement of Operations FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND STATEMENT OF CHANGES IN NET ASSETS -- FOR THE FISCAL YEARS ENDED OCTOBER 31,
AMOUNTS IN THOUSANDS 2005 2004 - -------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS OPERATIONS Net investment income (loss)............................. $ (182) $ (439) Net realized gain (loss)................................. 1,902 1,019 Net change in unrealized appreciation (depreciation)..... (1,872) 975 -------------------- ---------------------- Net increase (decrease) in net assets from operations....... (152) 1,555 -------------------- ---------------------- DISTRIBUTIONS From net realized gain Class A............................................... (20) (29) Class B............................................... (579) (801) -------------------- ---------------------- Net decrease in net assets from distributions............... (599) (830) -------------------- ---------------------- SHARE TRANSACTIONS Net increase (decrease) in net assets from share transactions........................................... (17,376) (13,785) -------------------- ---------------------- TOTAL NET INCREASE (DECREASE) IN NET ASSETS................. (18,127) (13,060) NET ASSETS Beginning of period...................................... 76,536 89,596 -------------------- ---------------------- End of period............................................ $ 58,409 $ 76,536 ==================== ======================
See accompanying notes which are an integral part of the financial statements. Statement of Changes in Net Assets 15 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND FINANCIAL HIGHLIGHTS - CLASS A For a Share Outstanding Throughout each Period.
FOR THE FISCAL YEARS ENDED OCTOBER 31, ---------------------------------------------- 2005 2004 2003* - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.48 $ 10.31 $ 10.00 ------------ ------------ -------------- INCOME FROM OPERATIONS Net investment income (loss) (a)......................... .05 .02 .02 Net realized and unrealized gain (loss).................. (.02) .17 .29 ------------ ------------ -------------- Total income (loss) from operations................... .03 .19 .31 ------------ ------------ -------------- DISTRIBUTIONS From net investment income (b)........................... -- -- -- From net realized gain................................... (.08) (.02) -- ------------ ------------ -------------- Total distributions................................... (.08) (.02) -- ------------ ------------ -------------- NET ASSET VALUE, END OF PERIOD.............................. $ 10.43 $ 10.48 $ 10.31 ============ ============ ============== TOTAL RETURN (%) (c)(d)..................................... .31 2.61 3.17 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)................. 1,883 2,567 3,521 Ratios to average net assets (%) (e): Operating expenses, net (f)........................... 2.09 2.10 2.02 Operating expenses, gross............................. 2.36 2.34 2.24 Net investment income (loss) (f)...................... .46 .19 .27 Portfolio turnover rate (%) (c).......................... 78.54 81.15 38.14
* For the period January 21, 2003 (commencement of operations) to October 31, 2003. (a) Average month-end shares were used for this calculation. (b) Less than $.01 per share for the period ended October 31, 2003. (c) Periods less than one year are not annualized. (d) Excludes the effects of sales charges. If sales charges were included, the total return would be lower. (e) The ratios for periods less than one year are annualized. (f) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. See accompanying notes which are an integral part of the financial statements. 16 Financial Highlights - Class A FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND FINANCIAL HIGHLIGHTS - CLASS B For a Share Outstanding Throughout each Period.
FOR THE FISCAL YEARS ENDED OCTOBER 31, ---------------------------------------------- 2005 2004 2003* - -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.35 $ 10.26 $ 10.00 ------------ ------------ -------------- INCOME FROM OPERATIONS Net investment income (loss) (a)......................... (.03) (.06) (.04) Net realized and unrealized gain (loss).................. (.02) .17 .30 ------------ ------------ -------------- Total income (loss) from operations................... (.05) .11 .26 ------------ ------------ -------------- DISTRIBUTIONS From net investment income (b)........................... -- -- -- From net realized gain................................... (.08) (.02) -- ------------ ------------ -------------- Total distributions................................... (.08) (.02) -- ------------ ------------ -------------- NET ASSET VALUE, END OF PERIOD.............................. $ 10.22 $ 10.35 $ 10.26 ============ ============ ============== TOTAL RETURN (%) (c)(d)..................................... (.47) 1.83 2.60 RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in thousands)................. 56,526 73,969 86,075 Ratios to average net assets (%) (e): Operating expenses, net (f)........................... 2.84 2.85 2.79 Operating expenses, gross............................. 3.11 3.09 3.01 Net investment income (loss) (f)...................... (.29) (.56) (.49) Portfolio turnover rate (%) (c).......................... 78.54 81.15 38.14
* For the period January 21, 2003 (commencement of operations) to October 31, 2003. (a) Average month-end shares were used for this calculation. (b) Less than $.01 per share for the period ended October 31, 2003. (c) Periods less than one year are not annualized. (d) Excludes the effects of sales charges. If sales charges were included, the total return would be lower. (e) The ratios for periods less than one year are annualized. (f) May reflect amounts waived and/or reimbursed by FRIMCo as the investment adviser and transfer agent. See accompanying notes which are an integral part of the financial statements. Financial Highlights - Class B 17 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 1. ORGANIZATION Frank Russell Investment Company (the "Investment Company" or "FRIC") is a series investment company with 34 different investment portfolios referred to as Funds. These financial statements report on one of these Funds. The Investment Company is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. It is organized and operates as a Massachusetts business trust under an amended and restated master trust agreement dated August 19, 2002. The Investment Company's master trust agreement permits the Board of Trustees ("the Board") to issue an unlimited number of shares of beneficial interest at a $.01 par value per share. The Fund has an Offering Period, a Guarantee Period and a Post Guarantee Period. Shares of the Fund were offered during the Offering Period but are not offered during the Guarantee Period, except in connection with reinvestment of distributions and dividends. Shares of the Fund will be offered on a continuous basis during the Post Guarantee Period without the principal protection feature. During the Guarantee Period, the Fund seeks some capital growth, while seeking to preserve principal. As of October 31, 2005, the Fund's allocation to equity securities was approximately 30% and the Fund's allocation to fixed income securities was approximately 70% of total net assets. Provided that all dividends and distributions received from the Fund have been reinvested and no shares have been redeemed by a shareholder, the Fund guarantees that the amount distributed, if any, to each shareholder at the end of the Guarantee Period will be no less than the value of that shareholder's investment as of the inception of the Guarantee Period less certain expenses. Certain expenses which are not covered by the Expense Limitation Agreement, such as litigation and other expenses not incurred in the ordinary course of the Fund's business, will reduce the Guarantee Amount. The Fund's Guarantee is backed by an unconditional and irrevocable financial guarantee from Ambac Assurance Corporation ("Ambac"), a financial guarantor and an operating subsidiary of Ambac Financial Group, Inc., pursuant to a financial guarantee insurance policy issued by Ambac for the benefit of the shareholders of the Fund. The Fund will pay to Ambac a fee equal to 0.75% per annum of the average daily net assets of the Fund during the Guarantee Period for providing the financial guarantee insurance policy. If the value of a shareholder's account is less than the Guaranteed Amount on the Guarantee Maturity Date, the Fund will be unable to meet its obligations under the Guarantee. If the Fund is unable to meet its obligations under the Guarantee on the Guarantee Maturity Date, the insurance policy requires Ambac to pay the Fund an amount sufficient to ensure that all shareholders would be able to redeem their shares on the Guarantee Maturity Date for an amount equal to their respective Guaranteed Amounts on the Guarantee Maturity Date. During the Post Guarantee Period, which will commence immediately following the Guarantee Period, the Fund seeks long-term growth of capital through investments primarily in common stocks and other equity securities. The following table presents the time periods of the Fund's three phases: Offering Period 01/21/03 - 02/27/03 Guarantee Period 03/03/03 - 03/03/08 Post Guarantee Period Commencement 03/04/08
2. SIGNIFICANT ACCOUNTING POLICIES The Funds' financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") which require the use of management estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following is a summary of the significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security Valuation The Fund values portfolio securities according to Board-approved Securities Valuation Procedures, including Market Value Procedures, Fair Value Procedures and Pricing Services. Debt obligation securities maturing within 60 days at the time of purchase are priced using the amortized cost method of valuation, unless the Board determines that amortized cost does not represent market value of short-term debt obligations. Ordinarily, the Fund values each portfolio security based on market quotations provided by Pricing Services or alternative pricing services or dealers (when permitted by the Market Value Procedures). Generally, Fund securities are valued at the close of the market on which they are traded as follows: - US listed equities; equity and fixed income options: Last sale price; last bid price if no last sale price; - US over-the-counter equities: Official closing price; last bid price if no closing price; 18 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- - Listed ADRs/GDRs: Last sale price; last bid price if no sales; - Municipal bonds, US bonds: Evaluated bid price; broker quote if no evaluated bid price; - Futures: Settlement price. - Investments in other mutual funds are valued at their net asset value per share, calculated at 4 p.m. Eastern time or as of the close of the NYSE, whichever is earlier. - Short-term investments purchased by the Fund and maturing within 60 days of the date of purchase are valued at "amortized cost" unless the Board of Trustees determines that amortized cost does not represent fair value. - The value of swap agreements is 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. If market quotations are not readily available for a security or if subsequent events suggest that a market quotation is not reliable, the Fund will use the security's fair value, as determined in accordance with the Fair Value Procedures. This generally means that equity securities and fixed income securities listed and traded principally on any national securities exchange are valued on the basis of the last sale price or, lacking any sales, at the closing bid price, on the primary exchange in which the security is traded. The effect of fair value pricing is that securities may not be priced on the basis of quotations from the primary market on which they are traded, but rather may be priced by another method that the Fund's Board of Trustees believes reflects fair value. The use of fair value pricing by the Fund may cause the net asset of its share to differ significantly from the net asset value that would be calculated using current market values. Fair value pricing could also cause discrepancies between the daily movement of the value of Fund shares and daily movement of the benchmark index if the index is valued using another pricing method. This policy is intended to assure that the Fund's net asset values fairly reflect security values as of the time of pricing. Events or circumstances affecting the values of Fund securities that occur between the closing of the principal markets on which they trade and the time the net asset value of Fund Shares is determined may be reflected in the calculation of net asset values for the Fund when the Fund deems that the particular event or circumstance would materially affect the Fund's net asset value. Investments in frequently traded exchange listed securities will use fair value pricing in limited circumstances since reliable market quotations will often be readily available. Examples of events that could trigger fair value pricing of one or more securities are: a material market movement (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage); a company event such as a material business development, dividend declaration, stock split or rights offering; a material disaster or an armed conflict. Investment Transactions Securities transactions are recorded on a trade date basis. Realized gains and losses from securities transactions, if any, are recorded on the basis of specific identified cost incurred by each money manager within a particular Fund. Investment Income Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. 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 or excise tax provision was required for the Fund. Notes to Financial Statements 19 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Dividends and Distributions to Shareholders Income, dividends and capital gain distributions, if any, are recorded on the ex-dividend date. Dividends and capital gain distributions are generally declared and paid annually. An additional distribution may be paid by the Fund to avoid imposition of federal income 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 investments for a reporting period may differ significantly from distributions during such period. The differences between tax regulations and GAAP primarily relate to investments in futures, wash sale deferrals, and certain securities sold at a loss. Expenses The Fund will pay its own expenses other than those expressly assumed by Frank Russell Investment Management Company ("FRIMCo" or "Adviser"). Most expenses can be directly attributed to the individual Fund. Expenses which cannot be directly attributed to a specific Fund are allocated among all Funds principally based on their relative net assets. Class Allocation The Fund presented herein offers the following classes of shares: Class A and Class B. All share classes have identical voting, dividend, liquidation and other rights and the same terms and conditions. The separate classes of shares differ principally in the applicable sales charges, distribution fees and shareholder servicing fees. Class B Shares were purchased at net asset value without paying an initial sales charge. However, if a shareholder redeems his or her Class B Shares within five years of the purchase date, the shareholder will pay a deferred sales charge calculated as a percentage of NAV at time of purchase. Shareholders of each class bear certain expenses that pertain to that particular class. Realized and unrealized gains (losses), net investment income, and expenses with the exception of class level expenses, are allocated daily to each class of Shares based upon the relative proportion of net assets of each class. Class B Shares, along with their pro rata reinvested dividend shares, automatically convert to Class A Shares eight years after purchase. Derivatives To the extent permitted by the investment objectives, restrictions and policies set forth in the Fund's Prospectus and Statement of Additional Information, the Fund 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 Fund in meeting its investment strategies. The Fund typically uses derivatives in two ways: hedging and return enhancement. The Fund may use a hedging strategy for its cash reserves to achieve a strategy of being fully invested by exposing those reserves to the performance of appropriate markets by purchasing equity or fixed income securities, as appropriate, and/or derivatives. Hedging is also used by the Fund 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, the Fund may more effectively achieve the desired portfolio characteristics that assist the Fund in meeting its 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. Options The Fund 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. When the 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. 20 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 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 Fund's 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 instruments and the price of the underlying securities and interest rates. Futures Contracts The Fund utilizes futures contracts to manage allocations between equity and fixed-income weightings. The face or contract amounts of these instruments reflect the extent of the Fund's exposure to market 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 initial settlement value are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Index Swap Agreements The Fund may enter into index swap agreements as an additional hedging strategy for cash reserves held by the Fund or to effect investment transactions consistent with the Fund's 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. Interest Rate Swap Agreements The Fund may enter into interest rate swap agreements, on either an asset-based or liability basis, depending on whether they are hedging their assets or their liabilities, and will usually enter into interest rate swaps on a net basis, i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. When the Fund engages in an interest rate swap, it exchanges its obligations to pay or rights to receive payments for the obligations or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments). The Fund expects to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of their portfolios or to protect against any increase in the price of securities they anticipate purchasing at a later date. The net amount of the excess, if any, of the Fund's obligations over their entitlements with respect to each interest rate swap will be accrued on a daily basis and an amount of cash or liquid high-grade debt securities having an aggregate net asset value at least equal to the accrued excess will be maintained in a segregated account by the Fund's custodian. To the extend that the Funds enter into interest rate swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Funds' obligations, if any, with respect to such interest rate swaps, accrued on a daily basis. If there is a default by the other party to such a transaction, the Fund will have contractual remedies pursuant to the agreement related to the transaction. The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid. Notes to Financial Statements 21 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- Guarantees In the normal course of business the Fund enters into contracts that contain a variety of representations which provide general indemnifications. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund expects the risk of loss to be remote. 3. INVESTMENT TRANSACTIONS Securities During the period ended October 31, 2005, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were $34,732,409 and $66,003,167, respectively. Purchases and sales of US Government and Agency obligations (excluding short-term instruments, options, futures and repurchase agreements) were $14,783,476 and $3,069,254, respectively. Under the Financial Guarantee Agreement with Ambac, the Fund has certain restrictions with respect to the type, weighting, and duration of securities for which it may enter into transactions. 4. RELATED PARTIES Adviser and Administrator FRIMCo advises and administers all of the Funds which comprise the Investment Company. FRIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager evaluation services to FRIMCo. The Fund is permitted to invest its cash reserves (i.e., cash awaiting investment or cash held to meet redemption requests or to pay expenses) in the Investment Company's Money Market Fund and US Government Money Market Fund (collectively the "Money Market Funds") (two of the Funds of the Investment Company not presented herein). As of October 31, 2005, $215,000 of the Money Market Fund's net assets represents investments by this Fund and $1,686,701,111 represents investment by other FRIC Funds not presented herein. As of October 31, 2005, $3,801,000 of the US Government Money Market Fund's net assets represents investment by this Fund. The advisory and administrative fees are based upon the average daily net assets of the Fund and the rate specified in the table below. The advisory and administrative fees are payable monthly and total $593,041 and $33,695, respectively, for the period ended October 31, 2005.
ANNUAL RATE ------------------------------- ADVISER ADMINISTRATOR ---------------------------------------------------------------------- Guarantee Period 0.88% 0.05% Post Guarantee Period 0.88 0.05
Pursuant to an expense limitation agreement (the "Expense Limitation Agreement") and subject to possible reimbursement to the investment adviser within three years, the adviser has contractually agreed to waive, during the Guarantee Period ending March 3, 2008, up to the full amount of its 0.93% combined advisory and administrative fees and to reimburse the Fund to the extent that expenses for Class A and Class B Shares exceed 2.10% and 2.85%, respectively, of average net assets on an annualized basis. Certain expenses that are not covered by the Expense Limitation Agreement, such as extraordinary expenses and other expenses not incurred in the ordinary course of the Fund's business, will reduce the Guaranteed Amount. The total amount of the waiver for the period ended October 31, 2005 was $174,205. To the extent fees are waived by the Adviser, the Fund may reimburse the Adviser for any reductions in the Fund's expenses during the three years following the reduction if such reimbursement is requested by the Adviser, if such reimbursement can be achieved within the specified expense limitation and if the Board of Trustees approves the reimbursement as not inconsistent with the best interest of the Fund. For the periods ended October 31, 2005, October 31, 2004 and October 31, 2003, the Adviser has not recouped waivers of $174,205, $201,841 and $140,944, respectively. The Fund's expense ratio was less than its expense cap for the period ended October 31, 2005 due to a one-time expense reimbursement from the Adviser during the period. The Adviser reimbursed the Fund for amounts previously paid by the Fund 22 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- to Russell/Mellon Analytical Services for analytical services received. The amount of the reimbursement for the period ended October 31, 2005 was $6,511. Custodian The Fund has entered into arrangements with its Custodian whereby custody credits realized as a result of uninvested cash balances were used to reduce a portion of the Fund's expenses. During the period ended October 31, 2005, the Fund's custodian fees were reduced $44 under these arrangements. Transfer Agent FRIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, FRIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. FRIMCo retains a portion of this fee for its services provided to the Fund and pays the balance to unaffiliated agents who assist in providing these services. Total fees for the Fund reported herein for the period ended October 31, 2005 were $98,533. Distributor and Shareholder Servicing The Investment Company has a Distribution Plan pursuant to Rule 12b-1 (the "Plan") under the 1940 Act. Under this Plan, the Investment Company is authorized to make payments to Russell Fund Distributors, Inc. (the "Distributor") a wholly-owned subsidiary of FRIMCo, or any Selling Agents, as defined in the Plan, for sales support services provided and related expenses incurred which were primarily intended to result in the sale of the Class B Shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.75% of the average daily net assets of a Fund's Class B Shares on an annual basis. In addition, the Investment Company has adopted a Shareholder Services Plan (the "Services Plan") under which the Fund may make payments to the Distributor or any Servicing Agent for any activities or expenses primarily intended to assist, support or service the Servicing Agents' clients who beneficially own Class A or Class B Shares of the Fund. The shareholder servicing payments shall not exceed 0.25% of the average daily net assets of a Fund's Class A and Class B Shares on an annual basis. Pursuant to the rules of the National Association of Securities Dealers, Inc. ("NASD"), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on Shares of the Fund may not exceed 6.25% of total gross sales, subject to certain exclusions. This 6.25% limitation is imposed at the class level on each of the Class A Shares and the Class B Shares of the Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Class A and Class B Shares may pay more than the economic equivalent of the maximum sales charges permitted by the NASD. Accrued fees payable to affiliates as of October 31, 2005 were as follows:
MULTI-MANAGER PRINCIPAL PROTECTED ---------------------------------------------------------- Advisory fees $ 44,857 Administration fees 2,546 Distribution fees 36,985 Shareholder servicing fees 12,562 Transfer agent fees 3,422 Trustee fees 155 ---------------- $ 100,527 ================
Brokerage Commissions The Fund will effect transactions through Frank Russell Securities, Inc. ("FRS") and its global network of correspondent brokers. FRS is an affiliate of FRIMCo. Trades placed through FRS and its correspondents are used to obtain either research services for FRIMCo, to assist it in its capacity as a manager of managers, to generate commission rebates to the Funds on whose behalf the trades were made or to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions. For purposes of trading to obtain research services for FRIMCo or to generate commission rebates to the Fund, the Fund's money managers are requested to and FRIMCo may, with respect to transactions it places, effect transactions with or through FRS or other brokers and its correspondents or other brokers only to the extent that the Fund will receive competitive execution, price and commissions. Research services provided to FRIMCo by Notes to Financial Statements 23 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- FRS or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be obtained from unaffiliated third parties at market rates. Research provided to FRIMCo will benefit the particular Funds generating the trading activity and may also benefit other Funds within FRIC and other funds and clients managed or advised by FRIMCo or its affiliates. Similarly, the Fund will benefit from research provided with respect to trading by those other funds and clients. In some cases, research may also be provided by non-affiliated brokers. FRS or other brokers may also rebate to the Fund a portion of commission earned on certain trading by the Fund through FRS and its correspondents in the form of commission recapture. Commission recapture is paid solely to the Fund generating the applicable trades. Commission recapture is generated on the instructions of the Soft Dollar Committee once FRIMCo's research budget has been met. For the period ended October 31, 2005, there was no commission recapture for the Fund. FRS retains a portion of all commissions generated, regardless of whether the trades were used to provide research services to FRIMCo or commission recapture to the Funds. Trades through FRS for transition services and manager funding (i.e. brokerage arrangements designed to reduce costs and optimize performance during the transition of Fund assets upon the hiring, termination or additional funding of a money manager) are at ordinary and customary commission rates and do not result in commission rebates or accrued credits for the procurement of research related services. The amount retained by Frank Russell Securities, Inc. for the period ended October 31, 2005 was $631. Additionally, the Fund paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Adviser. Board of Trustees The Russell Fund Complex consists of Frank Russell Investment Company, which has 34 Funds, and Russell Investment Funds ("RIF"), which has five Funds. Each of the Trustees is a Trustee for both FRIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees 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 Audit Committee meeting or Nominating and Governance Committee meeting or any other committee meeting established and approved by the Board that is attended in person. Each Trustee receives a $500 fee for attending the meetings (quarterly, special, committee) by phone instead of receiving the full fee had the member attended in person. Trustees' out of pocket expenses are also paid by the Russell Fund Complex. During the period, the Audit Committee Chair was paid a fee of $12,000 per year and the Nominating and Governance Committee chair was paid a fee of $6,000 per year. Prior to June 1, 2005, the Lead Trustee received compensation of $10,000 annually. Effective June 1, 2005, the position of Lead Trustee was eliminated and a new chairperson of the Board was elected with additional annual compensation of $52,000. 5. FEDERAL INCOME TAXES The Fund may have net tax basis capital loss carryforwards which may be applied against any realized net taxable gains in each succeeding year or until its respective expiration dates, whichever occurs first. At October 31, 2005, the Fund had no capital loss carryforwards. At October 31, 2005, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows: Cost of Investments $ 57,699,583 ================ Unrealized Appreciation $ 1,532,840 Unrealized Depreciation (817,710) ---------------- Net Unrealized Appreciation (Depreciation) $ 715,130 ================ Undistributed Long-Term Capital Gains (Capital Loss Carryforward) $ 1,853,989 Tax Composition of Distributions Long-Term Capital Gains $ 599,341
24 Notes to Financial Statements FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND NOTES TO FINANCIAL STATEMENTS, CONTINUED -- OCTOBER 31, 2005 - -------------------------------------------------------------------------------- 6. FUND SHARE TRANSACTIONS (amounts in thousands) Share transactions for the periods ended October 31, 2005 and October 31, 2004 were as follows:
SHARES DOLLARS ----------------------------------- ----------------------------------- 2005 2004 2005 2004 RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND ---------------- ---------------- ---------------- ---------------- Class A Proceeds from shares sold -- -- $ -- $ -- Proceeds from reinvestment of distributions 2 3 19 28 Payments for shares redeemed (66) (99) (693) (1,028) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) (64) (96) (674) (1,000) ---------------- ---------------- ---------------- ---------------- Class B Proceeds from shares sold -- -- -- -- Proceeds from reinvestment of distributions 52 73 552 753 Payments for shares redeemed (1,672) (1,312) (17,254) (13,538) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) (1,620) (1,239) (16,702) (12,785) ---------------- ---------------- ---------------- ---------------- Total increase (decrease) (1,684) (1,335) $ (17,376) $ (13,785) ================ ================ ================ ================
7. LINE OF CREDIT The Investment Company has a $75 million revolving credit facility for temporary or emergency purposes, including the meeting of redemption requests that otherwise might require the untimely disposition of securities. The Investment Company is charged an annual commitment fee of .125% on the average daily unused amount of the aggregate commitment, which is allocated among each of the Investment Company's Funds. Interest is calculated at the Federal Fund Rate plus .50% annually. The Fund may borrow up to a maximum of 33.33% of the value of its net assets under the agreement. The agreement will expire December 21, 2005 and is expected to be renewed at that time. The Fund did not have any drawdowns for the period ended October 31, 2005. 8. RECORD OWNERSHIP As of October 31, 2005, the Fund had no shareholders of record with greater than 10% of the total outstanding shares. 9. DIVIDENDS On December 15, 2005, the Board of Trustees of Frank Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 20, 2005 to shareholders on record December 16, 2005.
NET INVESTMENT SHORT-TERM LONG-TERM FUNDS INCOME CAPITAL GAINS CAPITAL GAINS ------------------------------------------------------------------------------------------- Russell Multi-Manager Principal Protected - Class A $ -- $ -- $ 0.3358 Russell Multi-Manager Principal Protected - Class B -- -- 0.3358
Notes to Financial Statements 25 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Frank Russell Investment Company: In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Russell Multi-Manager Principal Protected Fund (one of the portfolios constituting Frank Russell Investment Company, hereafter referred to as the "Fund") at October 31, 2005, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, 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 Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 October 31, 2005 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion. /s/ PricewatehouseCoopers LLP Seattle, Washington December 20, 2005 26 Report of Independent Registered Public Accounting Firm FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANGER PRINCIPAL PROTECTED FUND TAX INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- For the year ended October 31, 2005, the Fund hereby designates 100%, or the maximum amount allowable, of its net taxable income as qualified dividends taxed at individual net capital gain rates. The Fund designates dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as 100%. The Form 1099 you receive in January 2006 will show the tax status of all distributions paid to your account in calendar 2005. Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $599,341 as long-term capital gain dividends for their taxable year ended October 31, 2005. Tax Information 27 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS (UNAUDITED) - -------------------------------------------------------------------------------- APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees, including all of the Independent Trustees, last considered and approved the continuation of the advisory agreement with FRIMCo and the portfolio management contract (together, the "investment advisory agreements") with each Money Manager of the Fund at a meeting held on February 23, 2005. During the course of a year, the Trustees received a wide variety of materials regarding the investment performance of the Fund, sales and redemptions of the Fund's shares, and the management of the Fund by FRIMCo. In preparation for the annual review, the Board, with the advice and assistance of independent counsel, also received and considered (1) information and reports prepared by FRIMCo relating to the services provided by FRIMCo (and its affiliates) to the Fund, including information requested by the Trustees, and (2) information received from an independent, nationally recognized provider of investment company information comparing the performance of the Fund and its operating expenses over various periods of time with other peer funds ("Comparable Funds") not managed by FRIMCo believed by the provider to be generally comparable in investment objectives and size to the Fund (collectively, the "Agreement Renewal Information"). Prior to voting, the Independent Trustees reviewed the proposed continuance of the investment advisory agreements with management and independent counsel and received a memorandum from independent counsel discussing the legal standards for their consideration of the proposed continuances. The Independent Trustees also reviewed the proposed continuance in a private session with independent counsel at which no representatives of FRIMCo or management were present. The discussion below reflects both of these reviews. In evaluating the advisory agreement with FRIMCo and the portfolio management contracts with the Money Managers of the Fund, the Board considered that the Fund, in employing a manager-of-managers method of investment, operates in a manner that is distinctly different from most other investment companies. In the case of most other investment companies, an advisory fee is paid by the investment company to its adviser which in turn employs and compensates individual portfolio managers to make specific securities selections consistent with the adviser's style and investment philosophy. The Board considered that FRIMCo (rather than any Money Manager) is responsible under the investment advisory agreement for determining, implementing and maintaining the investment program for the Fund. Assets of the Fund have been allocated among multiple Money Managers. FRIMCo is responsible for selecting Money Managers for the Fund and for determining allocations and reallocations of assets among the Money Managers. Each Money Manager for the Fund in effect performs the function of an individual portfolio manager who is responsible for selecting portfolio securities for the portion of the Fund assigned to it by FRIMCo in accordance with the Fund's investment objective, policies and restrictions (each, a "segment"). FRIMCo is responsible for communicating performance expectations and evaluations to each Money Manager; supervising compliance by each Money Manager with the Fund's investment objectives and policies; authorizing Money Managers to engage in certain investment strategies for the Fund; and recommending annually to the Board whether portfolio management contracts should be renewed, modified or terminated. In addition to its annual recommendation as to the renewal, modification or termination of portfolio management contracts, FRIMCo is responsible for recommending to the Board the restructuring of Fund segments and additions of new Money Managers or replacements of existing Money Managers at any time when, based on FRIMCo's research and analysis, such actions are appropriate. FRIMCo may develop specific constraints from time to time for each Money Manager intended to capitalize on the strengths of that Money Manager or to coordinate the investment activities of Money Managers for the Fund in a complementary manner. Therefore, FRIMCo's selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Managers in the Fund. The performance of individual Money Managers for the Fund may reflect the roles assigned to them by FRIMCo in the Fund's investment activities and any constraints placed by FRIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of the Fund over appropriate periods reflects in great part the performance of FRIMCo in designing the Fund's investment program, structuring Fund segments, selecting an effective Money Manager for each segment with a style that is complementary to the styles of the Money Managers of other Fund segments, and allocating assets among the Money Managers in a manner designed to achieve the objectives of the Fund. The Board also considered that the prospectus for the Fund emphasizes to investors FRIMCo's role as the principal investment manager for the Fund, rather than the investment selection role of the Fund's Money Managers, and describes the manner in which the Fund operates so that investors may take the information into account when deciding to purchase shares of the Fund. 28 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- In addition to these general factors relating to the manager of managers structure of the Fund, the Trustees considered various specific factors on the basis of the Agreement Renewal Information in evaluating renewal of the advisory agreement with FRIMCo, including the following: 1. The nature, scope and quality of the services provided to the Fund by FRIMCo; 2. The advisory fee paid by the Fund to FRIMCo and the fact that it encompasses all investment advisory fees paid by the Fund, including the fees for any Money Managers of the Fund; 3. Information provided by FRIMCo as to other fees and benefits received by FRIMCo or its affiliates from the Fund, including any administrative, transfer agent, cash management and securities lending fees, soft dollar arrangements and commissions in connection with portfolio securities transactions; 4. Information provided by FRIMCo as to investment advisory fees paid by Comparable Funds; 5. Information provided by FRIMCo as to expenses incurred by the Fund; 6. Information provided by FRIMCo as to the profits that FRIMCo derives from its mutual fund operations generally and from the Fund; and 7. The importance of supporting quality, long-term service by FRIMCo to help achieve the Fund's investment performance, including the continuing need of FRIMCo to retain and attract qualified investment and service professionals to serve the Fund. On the basis of the information received, the Board, in respect of the Fund, found the advisory fees charged and costs and expenses incurred by FRIMCo to be fair and reasonable; after giving effect to waivers and/or reimbursements; and considering the composition of the Comparable Funds, the relative performance and expense ratio of the Fund were comparable to those of peer funds; FRIMCo's methodology of allocating expenses of operating funds in the complex was reasonable; and FRIMCo's profitability with respect to the Fund was reasonable in light of the nature, scope and quality of the services provided by FRIMCo. The Board considered for the Fund whether economies of scale have been realized and whether the fees for the Fund appropriately reflect or should be revised to reflect any such economies. In its deliberations, the Board noted its findings reached at a meeting held on December 6, 2004 that the investment advisory fees for the Fund appropriately reflect any economies of scale realized by the Fund. Its findings at the earlier meeting were based upon information and analyses prepared by FRIMCo, including information as to variability of Money Manager investment advisory fees and other factors associated with the manager of managers structure employed by the Fund relevant to the Board's deliberations, and took into consideration the Fund's rising costs of compliance with applicable laws, rules and regulations. The Trustees considered that fees payable to FRIMCo by institutional clients with investment objectives similar to those of the Fund are lower, and may, in some cases, be substantially lower, than the rates paid by the Fund. FRIMCo reviewed with the Trustees the differences in the scope of services it provides to institutional clients and the Fund. For example, institutional clients have fewer administrative needs than the Fund. It was further noted that since the Fund must be able to constantly redeem its shares, it is more difficult to manage than institutional accounts, where assets are relatively stable. Accordingly, the Trustees did not regard these fee differences as relevant to their deliberations. The Board also considered the special expertise of FRIMCo with respect to the manager of managers structure of the Fund and the likelihood that, at the current expense ratio of the Fund, there would be no acceptable alternative investment managers to replace FRIMCo on comparable terms given the need to conduct the manager of managers, multi-style strategy of the Fund selected by its shareholders in purchasing their shares. With respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from FRIMCo reporting for each Money Manager, among other things, the Money Manager's performance over various periods; FRIMCo's assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and the Fund, FRIMCo or FRIMCo's affiliates; and FRIMCo's recommendation to retain the Money Manager at the current fee rate, to retain the Money Manager at a reduced fee rate or to terminate the Money Manager. FRIMCo recommended that each Money Manager be retained at its current fee rate. FRIMCo advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the investment advisory agreements with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm's-length negotiations with FRIMCo; FRIMCo is aware of the fees charged by Money Managers to other clients; and FRIMCo believes that the fees agreed upon with Money Managers are Basis for Approval of Investment Advisory Contracts 29 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND BASIS FOR APPROVAL OF INVESTMENT ADVISORY CONTRACTS, CONTINUED (UNAUDITED) - -------------------------------------------------------------------------------- fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted FRIMCo's explanation in light of the Board's findings as to the fairness and reasonableness of the aggregate investment advisory fees paid by the Fund and the fact that each Money Manager's fee is paid by FRIMCo. Based substantially upon FRIMCo's recommendations together with the information received from FRIMCo in support of its recommendations, the Board concluded that the fees paid to the Money Managers of the Fund were fair and reasonable in light of the quality of the investment advisory services provided and that continuation of the portfolio management agreement with each Money Manager of the Fund was in the interests of shareholders. In their deliberations, the Trustees did not identify any particular information as to the investment advisory agreement with FRIMCo or, other than FRIMCo's recommendation, the portfolio management agreement with any Money Manager that was all-important or controlling and each Trustee attributed different weights to the various factors considered. The Trustees evaluated all information available to them and their determinations were made in respect of the Fund. At a meeting held on August 23, 2005, the Trustees received a proposal from FRIMCo to effect a Money Manager change for the Fund. In the case of the Fund, the Trustees approved the terms of the proposed portfolio management agreement with the successor Money Manager based substantially upon FRIMCo's recommendation; its explanation as to the lack of relevance of profitability to the evaluation of portfolio management agreements with Money Managers; and its belief that the proposed investment advisory fees for the successor Money Manager would be fair and reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at the February 23, 2005 meeting as to the fairness and reasonableness of the aggregate investment advisory fees paid by the Fund, and the fact that the aggregate investment advisory fees paid by the Fund would not increase as a result of the implementation of the proposed Money Manager change because each Money Manager's investment advisory fee is paid by FRIMCo. 30 Basis for Approval of Investment Advisory Contracts FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND SHAREHOLDER REQUESTS FOR ADDITIONAL INFORMATION -- OCTOBER 31, 2005 (UNAUDITED) - -------------------------------------------------------------------------------- As a courtesy to our Fund shareholders, a complete unaudited schedule of investments is made available generally no later than 60 days after the end of the first and third quarters of each fiscal year. These reports are available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, (iii) on the Securities and Exchange Commission's website at www.sec.gov, and (iv) at the Securities and Exchange Commission's public reference room. The Board has delegated to FRIMCo, as FRIC's investment adviser, the primary responsibility for monitoring, evaluating and voting proxies solicited by or with respect to issuers of securities in which assets of the Funds may be invested. FRIMCo has established a proxy voting committee ("Committee") and has adopted written proxy voting policies and procedures ("P&P") and proxy voting guidelines ("Guidelines"). The Funds maintain a Portfolio Holdings Disclosure Policy that governs the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by a Fund. A description of the P&P, Guidelines and Portfolio Holdings Disclosure Policy are contained in the Funds' Statement of Additional Information ("SAI"). The SAI is available (i) free of charge, upon request, by calling the Fund at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission's website at www.sec.gov. Ambac Assurance Corporation, a Wisconsin domiciled stock insurance company (the "Insurer"), is the issuer of a financial guarantee policy for the benefit of shareholders of the Fund. If the Fund is unable to meet its obligations under the guarantee on the Guarantee Maturity Date, the insurance policy requires Ambac to pay the Fund an amount sufficient to ensure that all shareholders would be able to redeem their shares on the Guarantee Maturity Date for an amount equal to their respective guaranteed amounts on the Guarantee Maturity Date. Ambac is a wholly-owned subsidiary of AFG, a publicly-held company. AFG is subject to the informational requirements of the Securities Exchange Act, and in accordance therewith files reports and other information with the SEC. Such reports and other information, including AFG's most recent annual or quarterly report, may be inspected and copied at the public reference facilities maintained by the Securities and Exchange Commission, or may be obtained free of charge by calling the Fund at (800) 787-7354. Shareholder Requests for Additional Information 31 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS -- OCTOBER 31, 2005 (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 34 funds, and Russell Investment Funds ("RIF"), which has five 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 trustees emeritus. The fourth table provides information for the officers.
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- *Lynn L. Anderson, Trustee since Appointed until - Vice Chairman, FRC 39 - Trustee, The Born April 22, 1987 successor is - Trustee, FRIC and RIF SSgA Funds 1939 duly elected - Until 2005, Chairman of the (investment and qualified Board, FRIC and RIF company) 909 A Street - CEO, Russell Fund Tacoma, Washington Distributors, Inc. 98402-1616 (broker-dealer "RFD")) - President and Chairman of the Board, SSgA Funds (investment company) - Chairman of the Board, FRTC - Until July 2004, Director, Frank Russell Investments (Ireland) Limited (Irish limited company) and Frank Russell Investments (Cayman) Ltd. (manager of variable capital investment companies) - Until October 2002, President and CEO, FRIC and RIF - Until January 2005, Chairman of the Board, RFD and FRIMCo - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- *Michael J.A. Trustee since Appointed until - Chairman of the Board, FRC 39 - None Phillips, 2002 successor is - 1990-2003, President, FRC Born January 20, duly elected - 1993-2003, CEO, FRC 1948 and qualified. - Trustee, FRIC and RIF - Director, FRTC; Frank 909 A Street Russell Investments (Suisse) Tacoma, Washington S.A. (global investment 98402-1616 services); Frank Russell Company Limited (consultant to institutional investors in Europe and the UK) - Chairman of the Board and President, Russell 20-20 Association; and Frank Russell Investments (Delaware), Inc. (general partner in various limited partnerships ("FRIDI")) - ----------------------------------------------------------------------------------------------------------------------------
* Each of Messrs. Anderson and Phillips is also an officer and/or director of one or more an affiliates of FRIC and RIF and is therefore an interested trustee. 32 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES - ---------------------------------------------------------------------------------------------------------------------------- Paul E. Anderson, Trustee since Appointed until - President, Anderson 39 None Born October 15, 1984 successor is Management Group LLC 1931 duly elected (private investments and qualified consulting) 909 A Street - February 2002 to June 2005, Tacoma, Washington Lead Trustee, FRIC and RIF 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Kristianne Blake, Trustee since Appointed until - President, Kristianne Gates 39 - Trustee WM Group Born January 22, 2000 successor is Blake, P.S. (accounting of Funds 1954 duly elected services) (investment Chairperson and qualified - Director and Chairman of the company); 909 A Street since 2005 Audit Committee, Avista - Director, Avista Tacoma, Washington Annual Corp. Corp 98402-1616 - Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds - February 2002 to June 2005, Chairman of the Audit Committee, FRIC and RIF - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Daniel P. Connealy, Trustee since Appointed until - June 2004 to present, Senior 39 - Director, Born June 6, 1946 2003 successor is Vice President and Chief Gold Banc duly elected Financial Officer, Waddell & Corporation, 909 A Street Chairman of and qualified Reed Financial, Inc. Inc. Tacoma, Washington Audit Committee - 2003, Retired 98402-1616 since 2005 Appointed until - 2001-2003, Vice President successor is and Chief Financial Officer, duly elected Janus Capital Group Inc. and qualified - 1979-2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jonathan Fine, Trustee since Appointed until - President and Chief 39 None Born July 8, 1954 2004 successor is Executive Officer, United duly elected Way of King County, WA 909 A Street and qualified Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Lee C. Gingrich, Trustee since Appointed until - Retired since 1995 39 None Born October 6, 1984 successor is 1930 duly elected Chairman of the and qualified 909 A Street Nominating and Tacoma, Washington Governance Appointed until 98402-1616 Committee since successor is 2005 duly elected and qualified - ----------------------------------------------------------------------------------------------------------------------------
Disclosure of Information about Fund Directors 33 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- INDEPENDENT TRUSTEES (CONTINUED) - ---------------------------------------------------------------------------------------------------------------------------- Raymond P. Trustee since Appointed until - President, Simpson 39 None Tennison, Jr., 2000 successor is Investment Company and Born December 21, duly elected several additional 1955 and qualified subsidiary companies, including Simpson Timber 909 A Street Company, Simpson Paper Tacoma, Washington Company and Simpson Tacoma 98402-1616 Kraft Company - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Jack Thompson, Trustee since Appointed until - September 2003 to present, 39 Director, Sparx Born March 21, 1949 2005 successor is Independent Board Chair and Japan Fund duly elected Chairman of the Audit 909 A Street and qualified Committee, Sparx Japan Fund Tacoma, Washington - February 1999 to May 2003, 98402-1616 President, Chief Executive Officer and Director, Berger Financial Group, LLC - May 1999 to May 2003, President and Trustee, Berger Funds - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Julie W. Weston, Trustee since Appointed until - Retired since 2000 39 None Born October 2, 2002 successor is - 1987 to 2002, Director, 1943 duly elected Smith Barney Fundamental and qualified Value Fund 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
34 Disclosure of Information about Fund Directors FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- No. of Portfolios in Russell Position(s) Held Fund Name, with Fund and Term Principal Occupation(s) Complex Other Age, Length of of During the Overseen Directorships Held Address Time Served Office Past 5 Years by Trustee by Trustee - ---------------------------------------------------------------------------------------------------------------------------- TRUSTEES EMERITUS - ---------------------------------------------------------------------------------------------------------------------------- *George F. Russell, Trustee Emeritus Until - Director Emeritus, Frank 39 None Jr., and Chairman resignation or Russell Company (investment Born July 3, 1932 Emeritus since removal consultant to institutional 1999 investors ("FRC")); and 909 A Street FRIMCo Tacoma, Washington - Chairman Emeritus, FRIC and 98402-1616 RIF; Frank Russell Securities, Inc. (broker-dealer and investment adviser ("FRS")); Russell 20-20 Association (non-profit corporation); and Frank Russell Trust Company (non-depository trust company ("FRTC")) - Chairman, Sunshine Management Services, LLC (investment adviser) - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Paul Anton, Ph.D., Trustee Emeritus Five year term - Retired since 1997 39 None Born December 1, since 2003 - Trustee of FRIC and RIF 1919 until 2002 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- William E. Baxter, Trustee Emeritus Five year term - Retired since 1986 39 None Born June 8, 1925 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Eleanor W. Palmer, Trustee Emeritus Five year term - Retired since 1981 39 None Born May 5, 1926 since 2004 - Trustee of FRIC and RIF until 2004 909 A Street Tacoma, Washington 98402-1616 - ----------------------------------------------------------------------------------------------------------------------------
* Mr. Russell is also a director emeritus of one or more affiliates of FRIC and RIF. Disclosure of Information about Fund Directors 35 FRANK RUSSELL INVESTMENT COMPANY RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND DISCLOSURE OF INFORMATION ABOUT FUND DIRECTORS, CONTINUED -- OCTOBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------- Position(s) Held Name, with Fund and Term Principal Occupation(s) Age, Length of of During the Address Time Served Office Past 5 Years - -------------------------------------------------------------------------------------------------------------------------- OFFICERS - -------------------------------------------------------------------------------------------------------------------------- Cheryl Wichers, Chief Compliance Until successor - Chief Compliance Officer, FRIC Born December 16, 1966 Officer since is chosen and - Chief Compliance Officer, RIF 2005 qualified by - Chief Compliance Officer, FRIMCo 909 A Street Trustees - April 2002-May 2005, Manager, Global Regulatory Tacoma, Washington 98402-1616 Policy - 1998-2002, Compliance Supervisor, Russell Investment Group - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Greg J. Stark, President and Until successor - President and CEO, FRIC and RIF Born May 3, 1968 Chief Executive is chosen and - Chairman of the Board, President and CEO, FRIMCo Officer since qualified by - Chairman of the Board and President, RFD and Russell 909 A Street 2004 Trustees Insurance Agency, Inc. (insurance agency ("RIA")) Tacoma, Washington 98402-1616 - Until 2004, Managing Director of Individual Investor Services, FRC - 2000 to 2004, Managing Director, Sales and Client Service, FRIMCo - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Mark E. Swanson, Treasurer and Until successor - Treasurer and Chief Accounting Officer, FRIC and RIF Born November 26, 1963 Chief Accounting is chosen and - Director, Funds Administration, FRIMCo, FRTC and RFD Officer since qualified by - Treasurer and Principal Accounting Officer, SSgA 909 A Street 1998 Trustees Funds Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Thomas F. Hanly, Chief Investment Until removed - Chief Investment Officer, FRIC, RIF, FRC, FRTC Born November 17, 1964 Officer since by Trustees - Director and Chief Investment Officer, FRIMCo and RFD 2004 - 1999 to 2003, Chief Financial Officer, FRC, FRIC and 909 A Street RIF Tacoma, Washington 98402-1616 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Karl J. Ege, Secretary and Until removed - General Counsel and Managing Director of Law and Born October 8, 1941 General Counsel by Trustees Government Affairs, Secretary, FRC since 1994 909 A Street Tacoma, Washington 98402-1616 - --------------------------------------------------------------------------------------------------------------------------
36 Disclosure of Information about Fund Directors RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND FRANK RUSSELL INVESTMENT COMPANY 909 A Street, Tacoma, Washington 98402 (800) 787-7354 - -------------------------------------------------------------------------------- TRUSTEES Lynn L. Anderson Paul E. Anderson Kristianne Blake Daniel P. Connealy Jonathan Fine Lee C. Gingrich Michael J.A. Phillips Raymond P. Tennison, Jr. Jack R. Thompson Julie W. Weston TRUSTEES EMERITUS George F. Russell, Jr. Paul Anton, PhD William E. Baxter Eleanor W. Palmer OFFICERS Gregory J. Stark, President and Chief Executive Officer Cheryl Wichers, Chief Compliance Officer (effective May 17, 2005) Thomas F. Hanly, Chief Investment Officer Mark E. Swanson, Treasurer and Chief Accounting Officer Karl J. Ege, Secretary ADVISER, ADMINISTRATOR, TRANSFER AND DIVIDEND DISBURSING AGENT Frank Russell Investment Management 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 REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 1420 5th Avenue Suite 1900 Seattle, WA 98101 MONEY MANAGERS AS OF OCTOBER 31, 2005 Kayne Anderson Rudnick Investment Management, LLC, Los Angeles, CA Lehman Brothers Asset Management LLC, Chicago, IL Lord, Abbett & Co., Jersey City, NJ 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 37 (This page intentionally left blank) (RUSSELL LOGO) Frank Russell Investment Company 909 A Street Tacoma, Washington 98402 800-787-7354 Fax: 253-591-3495 www.russell.com 36-08-155(1 10/05) ITEM 2. CODE OF ETHICS. [ANNUAL REPORT ONLY] (a) As of the end of the period covered by the report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer ("Code"). (b) That Code comprises written standards that are reasonably designed to deter wrongdoing and to promote: 1) honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 2) full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission ("SEC") and in other public communications made by each Mutual Fund; 3) compliance with applicable laws and governmental rules and regulations; 4) the prompt internal reporting to an appropriate person or persons identified in the Code of violations of the Code; and 5) accountability for adherence to the Code. (c) The Code was restated as of December 6, 2004; the restatement did not involve any material change. (d) As of the end of the period covered by the report, there have been no waivers granted from a provision of the Code that applies to the registrant's principal executive officer and principal financial officer. (e) Not applicable. (f) The registrant has filed with the SEC, pursuant to Item 11(a)(1), a copy of the Code that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, as an exhibit to its annual report on this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. [ANNUAL REPORT ONLY] Registrant's board of trustees has determined at a meeting held on February 23, 2005, that the Registrant has at least one audit committee financial expert serving on its audit committee. Daniel P. Connealy was determined to be the Audit Committee Financial Expert and is also determined to be "independent" for purposes of Item 3, paragraph (a)(2)(i) and (ii) of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. [ANNUAL REPORT ONLY] AUDIT FEES (a) The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were as follows: 2004 $ 833,920 2005 $1,206,402
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 ---- ------------------ 2004 $40,719 Performance of agreed-upon procedures with respect to 04/30/04 semi-annual reports 2005 $49,753 Performance of agreed-upon procedures with respect to 04/30/05 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 ---- ------------------ 2004 $550,443 Tax services 2005 $283,703 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 ---- ------------------ 2004 $46,554 Review excise reconciliations; funds merger analysis, review equalization calculations, anti-money laundering 2005 $28,089 Review excise reconciliations, transfer agent internal controls analysis, overhead/travel
(e) (1) Registrant's audit committee has adopted the following pre-approval policies and procedures for certain services provided by Registrant's accountants: FRANK RUSSELL INVESTMENT COMPANY RUSSELL INVESTMENT FUNDS AUDIT AND NON-AUDIT SERVICES PRE-APPROVAL POLICY EFFECTIVE DATE: MAY 19, 2003 AS AMENDED THROUGH NOVEMBER 14, 2005 I. STATEMENT OF PURPOSE. This Policy has been adopted by the Audit Committee (the "FRIC Audit Committee") of the Board of Trustees of Frank Russell Investment Company ("FRIC") and the Audit Committee (the "RIF Audit Committee") of the Russell Investment Funds ("RIF") to apply to any and all engagements of the independent auditor to FRIC and RIF, respectively, for audit, non-audit, tax or other services. In the case of FRIC, the term "Audit Committee" as used in this policy shall refer to the FRIC Audit Committee and the term "Fund" shall refer to FRIC. In the case of RIF, the term "Audit Committee" as used in this Policy shall refer to the RIF Audit Committee and the term "Fund" shall refer to RIF. The term "Investment Adviser" shall refer to Frank Russell Investment Management Company. This Policy does not delegate to management the responsibilities set forth herein for the pre-approval of services performed by the Funds' independent auditor. II. STATEMENT OF PRINCIPLES. Under the Sarbanes-Oxley Act of 2002 (the "Act"), the Audit Committee of the Fund's Board of Trustees (the "Audit Committee") is charged with responsibility for the appointment, compensation and oversight of the work of the independent auditor for the Fund. As part of these responsibilities, the Audit Committee is required to pre-approve the audit services and permissible non-audit services ("non-audit services") performed by the independent auditor for the Fund to assure that the independence of the auditor is not in any way compromised or impaired. In determining whether an auditor is independent, there are three guiding principles under the Act that must be considered. In general, the independence of the auditor to the Fund would be deemed impaired if the auditor provides a service whereby it: - Functions in the role of management of the Fund, the adviser of the Fund or any other affiliate* of the Fund; - Is in the position of auditing its own work; or - Serves in an advocacy role for the Fund, the adviser of the Fund or any other affiliate of the Fund. Accordingly, it is the policy of the Fund that the independent auditor for the Fund must not be engaged to perform any service that contravenes any of the three guidelines set forth above, or which in any way could be deemed to impair or compromise the independence of the auditor for - ---------- * For purposes of this Policy, an affiliate of the Funds is defined as the Funds' investment adviser (but not a sub-adviser whose role is primarily portfolio management and whose activities are overseen by the principal investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the Fund. the Fund. This Policy is designed to accomplish those requirements and will henceforth be applied to all engagements by the Fund of its independent auditor, whether for audit, audit-related, tax, or other non-audit services. Rules adopted by the United States Securities and Exchange Commission (the "SEC") establish two distinct approaches to the pre-approval of services by the Audit Committee. The proposed services either may receive general pre-approval through adoption by the Audit Committee of a list of authorized services for the Fund, together with a budget of expected costs for those services ("general pre-approval"), or specific pre-approval by the Audit Committee of all services provided to the Fund on a case-by-case basis ("specific pre-approval"). The Audit Committee believes that the combination of these two approaches reflected in this Policy will result in an effective and efficient procedure for the pre-approval of permissible services performed by the Fund's independent audit. The appendices to this Policy list the audit, audit-related, tax and other services that have the general pre-approval of the Audit Committee. As set forth in this Policy, unless a particular service has received general pre-approval, those services will require specific pre-approval by the Audit Committee before any such services can be provided by the independent auditor. Any proposed service to the Fund that exceeds the pre-approved budget for those services will also require specific pre-approval by the appropriate Audit Committee. In assessing whether a particular audit or non-audit service should be approved, the Audit Committee will take into account the ratio between the total amounts paid for audit, audit-related, tax and other services, based on historical patterns at the Fund, with a view toward assuring that the level of fees paid for non-audit services as they relate to the fees paid for audit services does not compromise or impair the independence of the auditor. The Audit Committee will review the list of general pre-approved services, including the pre-approved budget for those services, at least annually and more frequently if deemed appropriate by the Audit Committee, and may implement changes thereto from time to time. III. DELEGATION. As provided in the Act and in the SEC's rules, the Audit Committee from time to time may delegate either general or specific pre-approval authority to one or more of its members. Any member to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting. IV. AUDIT SERVICES. The annual audit services engagement terms and fees for the independent auditor for the Fund require specific pre-approval of the Audit Committee. Audit services include the annual financial statement audit and other procedures required to be performed by the independent auditor in order to be able to form an opinion on the financial statements for the Fund for that year. These other procedures include reviews of information systems, procedural reviews and testing performed in order to understand and rely on the Fund's systems of internal control, and consultations relating to the audit. Audit services also include the attestation engagement for the independent auditor's report on the report from management on financial reporting internal controls. The Audit Committee will review the audit services engagement as necessary or appropriate in the sole judgment of the Audit Committee. In addition to the pre-approval by the Audit Committee of the annual engagement of the independent auditor to perform audit services, the Audit Committee may grant general pre-approval to other audit services, which are those services that only the independent auditor reasonably can provide. These may include statutory audits and services associated with the Fund's SEC registration statement on Form N-1A, periodic reports and documents filed with the SEC or other documents issued in connection with the Fund's securities offerings. The Audit Committee has pre-approved the audit services set forth in Schedule A of the Audit and Non-Audit Pre-Approved Services. All other audit services not listed in Schedule A of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. V. AUDIT-RELATED SERVICES. Audit-related services are assurance and related services that are reasonably related to the performance of the audit or review of the financial statements for the Fund, or the separate financial statements for a series of the Fund that are traditionally performed by the independent auditor. Because the Audit Committee believes that the provision of audit-related services does not compromise or impair the independence of the auditor and is consistent with the SEC's rules on auditor independence, the Audit Committee may grant pre-approval to audit related services. "Audit related services" include, among others, accounting consultations related to accounting, financial reporting or disclosure matters not classified as "audit services;" assistance with understanding and implementing new accounting and financial report or disclosure matters not classified as "audit services;" assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; agreed upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal reporting requirements under Form N-SAR and Form N-CSR. The Audit Committee has pre-approved the audit-related services set forth in Schedule B of the Audit and Non-Audit Pre-Approved Services. All other audit-related services not listed in Schedule B of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. VI. TAX SERVICES. The Audit Committee believes that the independent auditor can provide tax services to the Fund, such as tax compliance, tax planning and tax advice, without impairing the auditor's independence and the SEC has stated that the independent auditor may provide such services. Consequently, the Audit Committee believes that it may grant general pre-approval to those tax services that have historically been provided by the auditor, that the Audit Committee has reviewed and believes would not impair the independence of the auditor, and that are consistent with the SEC's rules on auditor independence. However, the Audit Committee will not permit the retention of the independent auditor to provide tax advice in connection with any transaction recommended by the independent auditor, the sole business purpose of which may be tax avoidance and the tax treatment of which may not be supported by the United States Internal Revenue Code and related regulations or the applicable tax statutes and regulations that apply to the Funds investments outside the United States. The Audit Committees will consult with the Treasurer of the Fund or outside counsel to determine that the Fund's tax planning and reporting positions are consistent with this policy. The Audit Committee has pre-approved the tax services set forth in Schedule C of the Audit and Non-Audit Pre-Approved Services. All other tax services not listed in Schedule C of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. VII. ALL OTHER SERVICES. The Audit Committee believes, based on the SEC's rules prohibiting the independent auditor from providing specific non-audit services, that other types of non-audit services are permitted. Accordingly, the Audit Committee believes that it may grant general pre-approval to those permissible non-audit services classified as "all other" services that the Audit Committee believes are routine and recurring services, would not impair or compromise the independence of the auditor and are consistent with the SEC's rules on auditor independence. The Audit Committee has pre-approved the permissible "all other services" set forth in Schedule D of the Audit and Non-Audit Pre-Approved Services. Permissible "all other services" not listed in Schedule D of the Audit and Non-Audit Pre-Approved Services must be specifically pre-approved by the Audit Committee. A list of the SEC's prohibited non-audit services is attached to this Policy as Schedule E of the Audit and Non-Audit Pre-Approved Services. The SEC's rules and relevant official interpretations and guidance should be consulted to determine the scope of these prohibited services and the applicability of any exceptions to certain of the prohibitions. Under no circumstance may an executive, manager or associate of the Fund, or the Investment Adviser, authorize the independent auditor for the Fund to provide prohibited non-audit services. VIII. PRE-APPROVAL FEE LEVELS OR BUDGETED AMOUNTS. Pre-Approval fee levels or budgeted amounts for all services to be provided by the independent auditor will be established annually by the Audit Committee and shall be subject to periodic subsequent review during the year if deemed appropriate by the Audit Committee. (Separate amounts may be specified for the Fund and for other affiliates in the investment company complex subject to pre-approval). Any proposed services exceeding these levels or amounts will require specific pre-approval by the Audit Committee. The Audit Committee will be mindful of the overall relationship of fees for audit and non-audit services in determining whether to pre-approve any such services. For each fiscal year, the Audit Committee may determine the appropriateness of the ratio between the total amount of fees for Audit, Audit-related, and Tax services for the Fund (including any Audit-related or Tax services fees for affiliates subject to pre-approval), and the total amount of fees for certain permissible non-audit services classified as "all other services" for the Fund (including any such services for affiliates subject to pre-approval by the Audit Committee). IX. PROCEDURES. All requests or applications for services to be provided by the independent auditor that do not require specific pre-approval by the Audit Committee will be submitted to the "FRIC/RIF Clearance Committee" (the "Clearance Committee") (which shall be comprised of not less than three members, including the Treasurer of the Fund who shall serve as its Chairperson) and must include a detailed description of the services to be rendered and the estimated costs of those services. The Clearance Committee will determine whether such services are included within the list of services that have received general pre-approval by the Audit Committee. The Audit Committee will be informed not less frequently than quarterly by the Chairperson of the Clearance Committee of any such services rendered by the independent auditor for the Fund and the fees paid to the independent auditors for such services. Requests or applications to provide services that require specific pre-approval by the Audit Committee will be submitted to the Audit Committee by both the independent auditor and the Clearance Committee and must include a joint certification by the engagement partner of the independent auditor and the Chairperson of the Clearing Committee that, in their view, the request or application is consistent with the SEC's rules governing auditor independence. The Internal Audit Department of Frank Russell Company, the parent company of FRIMCo, and the officers of FRIC and RIF will report to the Chairman of the Audit Committee any breach of this Policy that comes to the attention of the Internal Audit Department of Frank Russell Company or an officer of FRIC or RIF. X. ADDITIONAL REQUIREMENTS. The Audit Committee has determined to take additional measures on an annual basis to meet its responsibility to oversee the work performed by the independent auditor and to assure the internal auditor's continuing independence from the Fund and its affiliates, including Frank Russell Company. Such efforts will include, but not be limited to, reviewing a written annual statement from the independent auditor delineating all relationships between the independent auditor and FRIC, RIF, and Russell and its subsidiaries and affiliates, consistent with Independence Standards Board Standard No. 1, and discussing with the independent auditor its methods and procedures for ensuring its independence. (e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X is as follows: AUDIT FEES 100% AUDIT-RELATED FEES 100% TAX FEES 100% ALL OTHER FEES 100%
(f) For services, 50 percent or more of which were pre-approved, the percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%. (g) The aggregate non-audit fees billed by registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant were as follows: 2004 $114,012 2005 $127,413
(h) The registrant's audit committee of the board of trustees has considered whether the provision of nonaudit services that were rendered to the registrant's investment adviser (not including any subadviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. [NOT APPLICABLE] ITEM 6. [SCHEDULES OF INVESTMENTS ARE INCLUDED AS PART OF THE REPORT TO SHAREHOLDERS FILED UNDER ITEM 1 OF THIS FORM] ITEMS 7-9. [NOT APPLICABLE] ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. ITEM 11. CONTROLS AND PROCEDURES (a) Registrant's principal executive officer and principal financial officer have concluded that Registrant's disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940 (the "Act")) are effective, based on their evaluation of these controls and procedures as of a date within 90 days of the date this report is filed with the Securities and Exchange Commission. (b) There were no significant changes in Registrant's internal control over financial reporting that occurred during the period covered by this report that has materially affected or is likely to materially affect Registrant's internal control over financial reporting. ITEM 12. EXHIBIT LIST (a) Registrant's code of ethics described in Item 2 (b) Certification for principal executive officer of Registrant as required by Rule 30a-2(a) under the Act and certification for principal financial officer of Registrant as required by Rule 30a-2(a) under the Act. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANK RUSSELL INVESTMENT COMPANY By: /s/ Greg J. Stark --------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer Date: December 20, 2005 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Greg J. Stark --------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer Date: December 20, 2005 By: /s/ Mark E. Swanson --------------------------------- Mark E. Swanson Principal Financial Officer, Principal Accounting Officer and Treasurer Date: December 20, 2005 EX-99.CODE ETH 2 f42506exv99wcodeeth.txt EXHIBIT 99.CODE ETH EXHIBIT (A) FRANK RUSSELL INVESTMENT COMPANY RUSSELL INVESTMENT FUNDS CODE OF ETHICS FOR SENIOR MUTUAL FUND OFFICERS This Code of Ethics applies to the Chief Executive Officer and Chief Financial Officer (each, a "Senior Mutual Fund Officer") of Frank Russell Investment Company and Russell Investment Funds (each, a "Mutual Fund") and, pursuant to the Sarbanes-Oxley Act of 2002 is designated to promote: - - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - - full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities Exchange Commission ("SEC") and in other public communications made by each Mutual Fund; - - compliance with applicable laws and governmental rules and regulations; - - the prompt internal reporting to an appropriate person or persons identified in this section of the Code of violations of this section of the Code; and - - accountability for adherence to this section of the Code. I. SENIOR MUTUAL FUND OFFICERS SHOULD ACT HONESTLY AND CANDIDLY Each Senior Mutual Fund Officer owes a duty to the Mutual Fund to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Senior Mutual Fund Officer must: - - act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Mutual Fund's policies; - - observe both the form and spirit of laws and governmental rules and regulations, accounting standards and Mutual Fund policies; - - adhere to a high standard of business ethics; and - - place the interests of the Mutual Fund before the Senior Mutual Fund Officer's own personal interests. - - All activities of Senior Mutual Fund Officers should be guided by and adhere to these fiduciary standards. II. SENIOR MUTUAL FUND OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST GUIDING PRINCIPLES. A "conflict of interest" occurs when a Mutual Fund Officer's private interest interferes with the interests of his or her service to the Mutual Fund. A conflict of interest can arise when a Senior Mutual Fund Officer takes actions or has interests that may make it difficult to perform his or her Mutual Fund work objectively and effectively. For example, a conflict of interest would arise if a Senior Mutual Fund Officer, or a member or his family, receives improper personal benefits as a result of his or her position in the Mutual Fund. In addition, Senior Mutual Fund Officers should be sensitive to situations that create apparent, not actual, conflicts of interest. Service to the Mutual Fund should never be subordinated to personal gain and advantage. Certain conflicts of interest arise out of the relationships between Senior Mutual Fund Officers and the Mutual Fund that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act. For example, Senior Mutual Fund Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Mutual Fund because of their status as "affiliated persons" of the Mutual Fund. Therefore, the existing statutory and regulatory prohibitions on individual behavior will be deemed to be incorporated into this section of the Code and therefore any such violation will also be deemed a violation of this section of the Code. Senior Mutual Fund Officers must in all cases comply with applicable statutes and regulations. As to conflicts arising from, or as a result of the contractual relationship between each Mutual Fund and its investment adviser of which the Senior Mutual Fund Officers are also officers or employees, it is recognized by the Board that, subject to the adviser's fiduciary duties to the Mutual Fund, the Senior Mutual Fund Officers will in the normal course of their duties (whether formally for the Mutual Fund or for the adviser, or for both) be involved in establishing policies and implementing decisions which will have different effects on the adviser and the Mutual Fund. The Board recognizes that the participation of the Senior Mutual Fund Officers in such activities is inherent in the contractual relationship between the Mutual Fund and the adviser and is consistent with the expectation of the Board of the performance by the Senior Mutual Fund Officers of their duties as officers of the Mutual Fund. In addition, it is recognized by the Board that the Senior Mutual Fund Officers may also be officers or employees of other investment companies advised by the same adviser and the codes of those investment companies will apply to the Senior Mutual Fund Officers acting in those distinct capacities. Each Senior Mutual Fund Officer must: - - avoid conflicts of interest wherever possible; - - handle any actual or apparent conflict of interest ethically; - - not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by the Mutual Fund whereby the Senior Mutual Fund Officer would benefit personally to the detriment of the Mutual Fund; - - not cause the Mutual Fund to take action, or fail to take action, for the personal benefit of the Senior Mutual Fund Officer rather than the benefit of the Mutual Fund; - - not use material non-public knowledge of portfolio transactions made or contemplated for the Mutual Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; - - as described in more detail below, discuss any material transaction or relationship that could reasonably be expected to give rise to a conflict of interest with the Mutual Fund's Chief Legal Counsel; and - - report at least annually any affiliations or other relationships related to conflicts of interest as requested from time to time in the Mutual Fund's directors & officers questionnaire. The Senior Mutual Fund Officers should follow the precepts and requirements of the Code as adopted by the Mutual Fund from time to time, including its policies regarding personal securities accounts, outside business affiliations, gifts and entertainment and conflicts of interests. III. DISCLOSURE Each Senior Mutual Fund Officer is required to be familiar with, and comply with the Mutual Fund's disclosure controls and procedures so that the Mutual Fund's reports and documents filed with the SEC and other public communications comply in all material respects with the applicable federal securities laws and SEC rules. In addition, each Senior Mutual Fund Officer having direct or supervisory authority regarding these SEC filings or the Mutual Fund's other public communications should, to the extent appropriate within his area of responsibility, consult with other Mutual Fund officers and employees and the adviser and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure. Each Senior Mutual Fund Officer must: - - familiarize himself with the disclosure requirements generally applicable to the Mutual Fund; and - - not knowingly misrepresent, or cause others to misrepresent, facts about the Mutual Fund to others, whether within or outside the Mutual Fund, including to the Mutual Fund's auditors, independent directors, independent auditors, and to governmental regulators and self-regulatory organizations. IV. COMPLIANCE It is the Mutual Fund's policy to comply with all applicable laws and governmental rules and regulations. It is the personal responsibility of each Senior Mutual Fund Officer to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to affiliated transactions, accounting and auditing matters. V. REPORTING AND ACCOUNTABILITY Each Senior Mutual Fund Officer must: - - upon receipt of this Code, and annually thereafter acknowledge that he or she has read the Code, understood its provisions and agrees to abide by its requirements as set forth elsewhere in this Code; - - not retaliate against any officer or employee of the Mutual Fund or their affiliated persons for reports of potential violations that are made in good faith; and - - notify the Mutual Fund's Chief Legal Counsel promptly if he or she becomes aware of any existing or potential violation of this section of the Code. Failure to do so is itself a violation of this section of the Code. Except as described otherwise below, the Investment Company's Chief Compliance Officer is responsible for applying this section of the Code to specific situations in which questions are presented to him or her and has the authority to interpret this section of the Code in any particular situation. The Investment Company's Chief Compliance Officer shall take all action he or she considers appropriate to investigate any actual or potential violations reported to him or her. The Mutual Fund's Chief Compliance Officer is authorized to consult, as appropriate, with the Mutual Fund's Chief Legal Counsel, legal counsel to the Mutual Fund's independent trustees, or the chair of the Audit Committee (the "Committee"), and is encouraged to do so. The Committee is responsible for granting waivers and determining sanctions, as appropriate(1). In addition, approvals, interpretations, or waivers sought by the Chief Executive Officer will be considered by the Committee. The Funds will follow these procedures in investigating and enforcing this section of the Code: - - the Chief Legal Counsel will take all appropriate action to investigate any potential violations reported to him; - - if, after such investigation, the Chief Legal Counsel believes that no violation has occurred, the Chief Legal Counsel is not required to take any further action; - - any matter that the Chief Legal Counsel believes is a violation will be reported to the Committee; - - if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; - ---------- (1) Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. notification to appropriate personnel of the adviser or its board; or a recommendation to dismiss the Mutual Fund Officer; - - the Committee will be responsible for granting waivers, as appropriate; and - - any changes to or waivers of this section of the Code will, to the extent required, be disclosed as provided by SEC rules. VI. OTHER POLICIES AND PROCEDURES The rest of this Code, including the Mutual Fund's adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the Investment Company Act and the more detailed policies and procedures set forth therein are separate requirements applying to Senior Mutual Fund Officers and others, and are not part of this Section of the Code. VII. AMENDMENTS This section of the Code may not be amended except in a written document that is specifically approved by a majority vote of the Mutual Fund's Board of Trustees, including a majority of independent trustees. VIII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this section of the Code shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this section of the Code, such matters shall not be disclosed to anyone other than the Mutual Fund's Chief Compliance Officer, Chief Legal Counsel, the members of the Board of Trustees and their counsels, the Mutual Fund and its adviser and principal underwriter and their legal counsel. IX. INTERNAL USE This section of the Code is intended solely for the internal use by each Mutual Fund and does not constitute an admission, by or on behalf of any Mutual Fund, as to any fact, circumstance, or legal conclusion. EX-99.CERT 3 f42506exv99wcert.txt EXHIBIT 99.CERT EXHIBIT (B) EX-99.CERT CERTIFICATION I, Greg J. Stark, certify that: 1. I have reviewed this report on Form N-CSR of Frank Russell Investment Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the second quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: December 20, 2005 /s/ Greg J. Stark ---------------------------------------- Greg J. Stark Principal Executive Officer and Chief Executive Officer EXHIBIT (B) EX-99.CERT CERTIFICATION I, Mark E. Swanson, certify that: 1. I have reviewed this report on Form N-CSR of Frank Russell Investment Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the Registrant as of, and for, the periods presented in this report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the Registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the Registrant's internal control over financial reporting that occurred during the fourth fiscal quarter of period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and 5. The Registrant's other certifying officer and I have disclosed to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: December 20, 2005 /s/ Mark E. Swanson ---------------------------------------- Mark E. Swanson Principal Financial Officer, Principal Accounting Officer and Treasurer EX-99.906CERT 4 f42506exv99w906cert.txt EXHIBIT 99.906CERT EX-99.906CERT SECTION 906 CERTIFICATIONS Greg J. Stark, Principal Executive Officer and Chief Executive Officer; and Mark E. Swanson, Principal Financial Officer, Principal Accounting Officer and Treasurer of Frank Russell Investment Company, a Massachusetts Business Trust (the "Registrant"), each certify that: 1. The Registrant's periodic report on Form N-CSR for the period ended, October 31, 2005 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended, as applicable; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. A signed original of this written statement required by Section 906 has been provided to Frank Russell Investment Company and will be retained by Frank Russell Investment Company and furnished to the Securities and Exchange Commission or its staff upon request. Principal Executive Officer and Principal Financial Officer, Chief Executive Officer Principal Accounting Frank Russell Investment Company Officer and Treasurer Frank Russell Investment Company /s/ Greg J. Stark /s/ Mark E. Swanson - ------------------------------------- ---------------------------------------- Greg J. Stark Mark E. Swanson Date: December 20, 2005 Date: December 20, 2005 -----END PRIVACY-ENHANCED MESSAGE-----