N-CSR 1 dncsr.htm RUSSELL INVESTMENT COMPANY N-CSR Russell Investment Company N-CSR
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT

INVESTMENT COMPANIES

 

Investment Company Act file number: 811-03153

 

 

 

 

 

 

 

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

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, 2006 to October 31, 2007

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Item 1. Reports to Stockholders

Table of Contents

RUSSELL FUNDS

2007 Annual Report

 

CLASS A, C, E, AND S SHARES:

DIVERSIFIED EQUITY FUND

SPECIAL GROWTH FUND

QUANTITATIVE EQUITY FUND

INTERNATIONAL SECURITIES FUND

GLOBAL EQUITY FUND

MULTISTRATEGY BOND FUND

OCTOBER 31, 2007

 

LOGO

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Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on six of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

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Russell Investment Company

Russell Funds

Annual Report

October 31, 2007

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     Page
To Our Shareholders    3
Market Summary    4
Diversified Equity Fund    10
Special Growth Fund    22
Quantitative Equity Fund    40
International Securities Fund    54
Global Equity Fund    78
Multistrategy Bond Fund    94
Notes to Schedules of Investments    157
Statements of Assets and Liabilities    160
Statements of Operations    164
Statements of Changes in Net Assets    166
Financial Highlights    168
Notes to Financial Highlights    174
Notes to Financial Statements    175
Report of Independent Registered Public Accounting Firm    194
Tax Information    195
Basis of Approval of Investment Advisory Contracts    196
Shareholder Requests for Additional Information    200
Disclosure of Information about Fund Directors    201
Matter Submitted to a Vote of Shareholders    205
Manager, Money Managers and Service Providers    206

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Russell Investment Company - Russell Funds.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

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To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

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Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising defaults rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

4   Market Summary

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Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Real Estate Markets

For the fiscal year ending October 31, 2007, real estate investment trusts (REITs) generated a 0.57% return, as measured by the FTSE NAREIT Equity Index. As well as being well below the overall U.S. equity market return, this return represented a substantial pull-back from the prior year’s return of 36.37%. The low REIT return was also accompanied by exceptionally high volatility during the period. During the first three months of the fiscal year, REITs were up over 11%; the following six months, REITs lost nearly 20%; and finally, during the last three months, REITs rallied with a 12% return.

Early in the fiscal year, the REIT market continued to be driven by the same factors that made the prior year so successful, mainly mergers and acquisitions by private investors acquiring public REITs at large premiums to their share prices. The most prominent privatization was Equity Office Property, the industry’s largest REIT, which became the prize in a bidding war between Blackstone, a private equity firm and Vornado, a public company. The REIT market peaked at all-time record levels in mid-February 2007. At that time, while property market fundamentals were improving and REIT earnings were solid, REIT pricing appeared to be well ahead of earnings expectations.

By June 2007, concerns arose among REIT investors that problems in the residential subprime mortgage loan market would be a precursor to similar issues in the commercial mortgage market. Additionally, the 0.6% increase in the 10 year treasury rate which occurred during that month caused investors to reassess the capitalization rates used to value real estate. These events combined to put substantial downward pressure on REIT share prices.

Market Summary   5

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REITs ended the fiscal year with some positive results and the market volatility appears to have removed the speculative valuation premiums applied to REITs due to the robust merger and acquisition activity over the last several years. However, concerns about a weaker economy and more stringent mortgage lending standards amidst an overall tightening of credit has put the focus back on real estate fundamentals and the specific growth prospects of each company.

Non-U.S. Equity Markets

Non-U.S. stocks gained 24.91% as measured by the MSCI EAFE® Index for the fiscal year ending October 31, 2007. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE® Index rose 14.00% over the 12-month period.

The market continued to benefit from global growth, merger and acquisition activity and strong corporate earnings and withstood several brief periods of increased market volatility brought on by investors’ risk aversion relating to the potential negative spillover effects of the housing slowdown in the U.S. Growth in emerging economies, like India and China, also had a positive impact on the strength of developed markets through their demand for goods and infrastructure development.

Europe, as represented by the MSCI Europe Index, returned 27.96% over the fiscal year. Merger and acquisition-related gains combined with strong earnings drove European equities higher, with merger-and-acquisition activity in the year surpassing last year’s record pace. Across Europe, the best performing sectors were materials and telecommunication services, up 53.36% and 47.56%, respectively. By country, of particular note were more heavily laden energy/commodity markets, such as Norway, up 59.76%, which benefited from the strong performance of the global materials and energy sectors. Germany also stood out as a market leader, benefiting from the strong performance of its automobiles industry. Elsewhere, MSCI United Kingdom Index lagged continental Europe with a gain of 23.62%. The U.K. underperformed the rest of Europe due to weakness in its health care sector.

The MSCI Japan Index continued to lag other major non-U.S. markets in the fiscal year, returning only 4.84%. Investor concerns included weak economic data, lackluster earnings from financial institutions and political turmoil. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 56.48% with strong gains in the Hong Kong, Singapore and Australian markets.

From a sector perspective, materials stocks had the best returns, up 48.26%, especially in the area of metals and mining, which was driven by industry consolidation and the continued upturn in commodities prices. Telecommunication services, up 41.84%, also benefited from strong earnings results. Health care and financials were the notable laggards, returning 2.56% and 14.02%, respectively, as measured by the health care and financials sector grouping based on the Global Industry Classification Standard definitions.

A reversal in market leadership in terms of style was seen in March, with the value segment of the MSCI EAFE® Index dominating in the first half of the period, and the growth segment leading in the second half. The period ended with the MSCI EAFE Growth Index rising 28.52%, compared with 21.33% for the MSCI EAFE Value Index. Investors, in general, continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex-U.S. Index (an index of smaller capitalization companies) up 28.38% in the period versus the S&P/Citigroup PMI World ex–U.S. (an index of larger capitalization companies) up 27.24%.

Markets not represented in the MSCI EAFE® Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed

6   Market Summary

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counterparts, as the MSCI Emerging Markets Index rose 67.84%. Emerging markets countries benefited from the materials and industrials sectors, both posting over 100% returns for the period. Canadian stocks, as measured by the MSCI Canada Index, rose 44.95% during the period.

Emerging Markets

During the fiscal year, the MSCI Emerging Markets Index (“Index”) posted a strong return of 67.84%, outperforming developed markets as measured by the MSCI World Index Free which returned 20.39%. Larger capitalization stocks and those with strong price momentum, particularly those in cyclical sectors, were key drivers of performance. Significant capital inflows and outperformance of energy and material stocks resulting from strong commodity prices also contributed positively to performance. The emerging markets asset class performed strongly despite two market pull-backs in late February and July. The first sell-off was triggered by a concern that China would tighten controls on investment, and the second sell-off occurred more recently when credit concerns over U.S. subprime mortgage loans broadened to larger concerns about the world’s capital markets. Each time, however, emerging markets rallied back to hit new highs as investors continued to search for growth.

In terms of regions, Latin America was the top performer (+78.08% as measured by the MSCI EM Latin America Index) followed closely by Asia (+75.44% as measured by the MSCI EM Asia Index). The MSCI EM (Emerging Markets) Europe, Middle East and Africa Index (EMEA) lagged the Index but still posted a solid return of 45.94%. The BRIC (Brazil, Russia, India and China) economies with the exception of Russia all outperformed the broader Index with China leading the group (+155.68% as measured by the MSCI China Index) due in part to the strong performance of the country’s commodity-related and financial stocks. MSCI China Index stocks were also buoyed in the third quarter by the rumor that the local Chinese investors would be allowed to invest through the Hong Kong stock exchange. Strength in resource-related stocks helped Brazil post strong returns over the period (+110.24% as measured by the MSCI Brazil Index). Some of the smaller markets such as Indonesia and Peru posted strong gains; in the case of Peru, the market returned +149.20% as measured by the MSCI Peru Index due mainly to one stock, Southern Copper Corporation. The small market of Jordan was the only country with single digit absolute returns, rising 3.97% as measured by the MSCI Jordan Index. Other notable relative underperformers included Taiwan (+38.56% as measured by the MSCI Taiwan Index), South Africa (+53.76% as measured by the MSCI South Africa Index), and Egypt (+51.41% as measured by the MSCI Egypt Index).

Currencies were broadly strong against the U.S. dollar with some, such as the Brazilian Real, up more than 18%.

Within emerging markets, the industrials sector and resource-related areas performed strongly. Chinese financials and telecom stocks along with Korean and Brazilian materials stocks were key market movers. Technology and consumer stocks underperformed the Index, but still returned more than 20% in absolute terms. Utilities, a sector leveraged to emerging markets energy demand growth, performed strongly, while the health care sector, dominated by Teva Pharmaceuticals, lagged the Index.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

Market Summary   7

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There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages –and securities firms packaging the subprime debt into AAA-rated bonds –helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

 

 

1

  

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

 

2

  

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

 

8   Market Summary

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The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

3

  

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

Market Summary   9

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Russell Investment Company

Diversified Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Diversified Equity Fund - Class S        
          Total
Return		  

1 Year

       20.12 %

5 Years

       14.83 %§

10 Years

       6.30 %§

 

Diversified Equity Fund - Class E‡        
          Total
Return		  

1 Year

       19.81 %

5 Years

       14.54 %§

10 Years

       6.01 %§

 

Diversified Equity Fund - Class C‡‡  
          Total
Return		  

1 Year

       18.92 %

5 Years

       13.68 %§

10 Years

       5.32 %§

 

Diversified Equity Fund - Class A‡‡‡  
          Total
Return		  

1 Year

       12.99 %

5 Years

       13.20 %§

10 Years

       5.39 %§

 

Russell 1000® Index**        
          Total
Return		  

1 Year

       15.03 %

5 Years

       14.54 %§

10 Years

       7.40 %§

10   Diversified Equity Fund

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Russell Investment Company

Diversified Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Diversified Equity Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has ten money managers.

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, 2006?

For the fiscal year ended October 31, 2007, the Diversified Equity Fund Class A, Class C, Class E and Class S Shares gained 19.88%, 18.92%, 19.81% and 20.12%, respectively. This compared to the Russell 1000® Index, which gained 15.03% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ended October 31, 2007, the Lipper® Large-Cap Core Funds Average returned 14.44%. This result serves as a peer comparison and is expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

For the fiscal year, the U.S. equity market was led by large capitalization growth companies and by companies that could benefit directly or indirectly from the expansion of developing markets. After many years of value-led markets, growth stocks outpaced value for the fiscal year. This was a favorable environment for the Diversified Equity Fund. The Fund’s emphasis on companies with above-average growth, capitalization, beta and momentum was rewarded over the period.

 

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Over the past year, the Fund maintained its preference for companies with above-average growth rates that were selling at attractive valuations. That positioning was rewarded in this period where growth stocks outpaced value stocks. The Fund benefited from growing global demand through its exposure to infrastructure and agriculture related stocks.

At the sector level, the Fund was overweight to the energy sector, which contributed positively to performance. Additionally, strong stock selection in the consumer discretionary and technology sectors contributed to returns. Exposure to some financials stocks detracted from Fund returns due to rising defaults in subprime loans.

The Fund’s growth money managers, Turner Investment Partners, Inc., Columbus Circle Investors, Montag & Caldwell, Inc. and Marsico Capital Management, LLC, benefited from the strong growth environment as well as favorable stock selection and all outperformed both the Russell 1000® Index return of 15.0%, as well as the Russell 1000® Growth Index return of 19.2%. Value manager, AllianceBernstein L.P., suffered from weak stock selection, from overweights to underperforming sectors such as financial services and from underweights to outperforming sectors such as energy and technology. Deep value manager, Schneider Capital Management Corporation, also underperformed for the fiscal year due in part to an overweight to and weak stock selection within the financial services sector.

RIMCo currently employs a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings of the Fund’s money managers in their Fund segments to identify particular stocks that have been selected by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. As the Fund outperformed for the period, the select holdings strategy also outperformed the benchmark.

At the stock selection level, the Fund benefited from overweights in large outperformers such as Apple Inc., Reliant Energy Inc., Schlumberger Ltd., Hess Corp., Monsanto Co., and Research in Motion Ltd. An underweight position in Exxon Mobil Corp. detracted from performance, as did overweights to negatively performing stocks such as Countrywide Financial Corp., Starbucks Corp., and Genworth Financial Inc.


Diversified Equity Fund   11

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Russell Investment Company

Diversified Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Describe any changes to the Fund’s structure or the money manager line-up.

In March 2007, Columbus Circle Investors replaced Ark Asset Management Co., Inc. as a growth manager in the Fund. In September 2007, Arnhold and S. Bleichroeder Advisers, LLC was added as a market-oriented manager in the Fund.

 

Money Managers as of October 31, 2007   Styles

AllianceBernstein L.P.

   Value

Arnhold and S. Bleichroeder Advisers, LLC

   Market-Oriented

Columbus Circle Investors

   Growth

Institutional Capital LLC

   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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡   The returns shown for Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to February 28, 2007. The returns shown for the Fund’s Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of the Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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

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Russell Investment Company

Diversified Equity Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,099.30    $ 1,019.06

Expenses Paid During Period*

    $ 6.46    $ 6.21

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.22% (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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,094.70    $ 1,015.27

Expenses Paid During Period*

    $ 10.40    $ 10.01

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.97% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,098.80    $ 1,019.06

Expenses Paid During Period*

    $ 6.45    $ 6.21

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.22% (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

Table of Contents

Russell Investment Company

Diversified Equity Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,100.10    $ 1,020.32

Expenses Paid During Period*

    $ 5.13    $ 4.94

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.97% (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).

14   Diversified Equity Fund

Table of Contents

Russell Investment Company

Diversified Equity Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 96.2%

        

Auto and Transportation - 2.8%

        

American Axle & Manufacturing Holdings, Inc. (Ñ)

    25,700      706

Autoliv, Inc.

    22,300      1,409

BorgWarner, Inc.

    16,100      1,702

Burlington Northern Santa Fe Corp.

    46,590      4,060

CH Robinson Worldwide, Inc.

    153,090      7,642

CSX Corp.

    84,850      3,799

Daimler AG

    11,200      1,234

FedEx Corp.

    117,463      12,139

General Motors Corp. (Ñ)

    441,000      17,283

Goodyear Tire & Rubber Co. (The) (Æ)(Ñ)

    190,920      5,756

JB Hunt Transport Services, Inc. (Ñ)

    29,350      814

Magna International, Inc. Class A

    10,400      985

Navistar International Corp. (Æ)(Ñ)

    342,000      21,546

Norfolk Southern Corp.

    324,000      16,735

Toyota Motor Corp. - ADR

    83,453      9,550

UAL Corp. (Æ)(Ñ)

    188,800      9,043

Union Pacific Corp.

    130,697      16,734

Visteon Corp. (Æ)(Ñ)

    377,600      2,398
         
        133,535
         

Consumer Discretionary - 11.5%

        

Accenture, Ltd. Class A

    12,800      500

Activision, Inc. (Æ)

    172,520      4,080

Amazon.com, Inc. (Æ)(Ñ)

    188,310      16,788

Apollo Group, Inc. Class A (Æ)

    71,500      5,667

Avis Budget Group, Inc. (Æ)(Ñ)

    45,250      944

Avon Products, Inc.

    183,605      7,524

Black & Decker Corp. (Ñ)

    11,100      998

Carnival Corp. (Ñ)

    65,400      3,138

CBS Corp. Class B (Ñ)

    94,950      2,725

Chico’s FAS, Inc. (Æ)(Ñ)

    67,050      881

Citadel Broadcasting Corp. (Ñ)

    3,190      14

Coach, Inc. (Æ)

    109,590      4,007

Costco Wholesale Corp.

    193,700      13,028

eBay, Inc. (Æ)

    514,800      18,584

EchoStar Communications Corp. Class A (Æ)

    35,990      1,762

Electronic Arts, Inc. (Æ)

    248,200      15,170

Family Dollar Stores, Inc. (Ñ)

    13,000      330

GameStop Corp. Class A (Æ)

    73,140      4,331

Gannett Co., Inc.

    38,700      1,641

Gap, Inc. (The)

    56,100      1,060

Google, Inc. Class A (Æ)

    143,012      101,109

Guess?, Inc. (Ñ)

    208,000      10,689
     Principal
Amount ($)
or Shares		      Market
Value
$

Home Depot, Inc.

    81,900      2,581

Idearc, Inc. (Ñ)

    45,700      1,233

Intercontinental Hotels Group
PLC - ADR (Ñ)

    219,541      5,124

International Game Technology

    131,300      5,726

JC Penney Co., Inc.

    169,000      9,505

Jones Apparel Group, Inc. (Ñ)

    57,600      1,206

Kohl’s Corp. (Æ)

    164,100      9,021

Las Vegas Sands Corp. (Æ)(Ñ)

    222,517      29,613

Liberty Media Holding Corp. Series A (Æ)

    58,810      7,350

Limited Brands, Inc.

    31,800      700

Lowe’s Cos., Inc. (Ñ)

    336,709      9,054

Macy’s, Inc.

    401,480      12,859

Mattel, Inc.

    50,400      1,053

McDonald’s Corp.

    1,074,067      64,122

MGM Mirage (Æ)

    133,354      12,217

Nike, Inc. Class B (Ñ)

    495,200      32,812

RadioShack Corp. (Ñ)

    48,300      996

Royal Caribbean Cruises, Ltd. (Ñ)

    303,300      13,006

Saks, Inc. (Ñ)

    298,200      6,310

Staples, Inc.

    48,400      1,130

Starbucks Corp. (Æ)

    456,670      12,184

Target Corp.

    182,100      11,174

Time Warner, Inc.

    100,950      1,843

Tribune Co. (Ñ)

    21,398      647

Under Armour, Inc. Class A (Æ)(Ñ)

    62,410      3,885

VeriSign, Inc. (Æ)(Ñ)

    169,730      5,786

VF Corp.

    22,100      1,926

Viacom, Inc. Class B (Æ)

    159,300      6,577

Wal-Mart Stores, Inc.

    18,300      827

Walt Disney Co. (The)

    330,340      11,440

Wendy’s International, Inc. (Ñ)

    26,400      918

Wynn Resorts, Ltd. (Ñ)

    130,148      21,010

XM Satellite Radio Holdings, Inc. Class A (Æ)(Ñ)

    639,400      8,491

Yahoo!, Inc. (Æ)

    226,700      7,050

Yum! Brands, Inc.

    371,384      14,956
         
        549,302
         

Consumer Staples - 6.9%

        

Altria Group, Inc.

    433,870      31,642

Coca-Cola Co. (The)

    1,470,085      90,792

Coca-Cola Enterprises, Inc.

    45,400      1,172

Colgate-Palmolive Co.

    90,700      6,918

ConAgra Foods, Inc.

    27,100      643

Diageo PLC - ADR

    75,020      6,883

Fomento Economico Mexicano
SAB de CV - ADR

    140,700      5,010

Diversified Equity Fund   15

Table of Contents

Russell Investment Company

Diversified Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Hansen Natural Corp. (Ñ)

    59,470      4,044

Heineken NV - ADR

    234,829      8,172

Kellogg Co.

    5,500      290

Kraft Foods, Inc. Class A

    247,400      8,266

Kroger Co. (The)

    52,300      1,537

Molson Coors Brewing Co. Class B (Ñ)

    195,000      11,160

Nestle SA - ADR

    91,400      10,538

PepsiCo, Inc.

    507,080      37,382

Procter & Gamble Co.

    1,097,400      76,291

Safeway, Inc.

    22,200      755

Sara Lee Corp.

    85,300      1,411

Smithfield Foods, Inc. (Æ)(Ñ)

    21,600      619

Tesco PLC - ADR (Ñ)

    86,566      2,627

Tyson Foods, Inc. Class A (Ñ)

    161,550      2,553

Unilever NV

    260,800      8,466

Walgreen Co.

    54,868      2,176

Whole Foods Market, Inc.

    57,680      2,857

Wm. Wrigley Jr. Co.

    140,505      8,665
         
        330,869
         

Financial Services - 18.2%

        

ACE, Ltd.

    46,500      2,818

Allstate Corp. (The)

    335,460      17,578

Ambac Financial Group, Inc. (Ñ)

    21,000      773

American Express Co.

    272,700      16,621

American International Group, Inc.

    738,455      46,611

Annaly Capital Management, Inc. (ö)(Ñ)

    1,394,675      23,835

AON Corp.

    130,100      5,896

Bank of America Corp.

    875,168      42,253

Bank of New York Mellon Corp. (The)

    534,064      26,089

Capital One Financial Corp.

    218,050      14,302

Chubb Corp.

    89,900      4,796

CIT Group, Inc.

    45,700      1,611

Citigroup, Inc. (Ñ)

    1,605,313      67,263

Clear Channel Outdoor Holdings, Inc. Class A (Æ)(Ñ)

    623,129      15,840

CME Group, Inc.

    13,160      8,768

Comerica, Inc.

    32,900      1,536

Countrywide Financial Corp. (Ñ)

    206,800      3,210

Deutsche Bank AG

    6,000      803

Fannie Mae (Ñ)

    960,142      54,767

Fidelity National Financial, Inc. Class A (Ñ)

    64,000      985

First American Corp.

    140,600      4,232

Freddie Mac

    626,050      32,699

Genworth Financial, Inc. Class A

    913,050      24,926

Goldman Sachs Group, Inc. (The) (Ñ)

    348,466      86,392
     Principal
Amount ($)
or Shares		      Market
Value
$

Hartford Financial Services Group, Inc.

    137,680      13,359

Host Hotels & Resorts, Inc. (ö)

    560,550      12,422

IntercontinentalExchange, Inc. (Æ)

    49,430      8,808

iShares Russell 1000 Value Index Fund

    189,975      16,347

iStar Financial, Inc. (ö)(Ñ)

    44,900      1,370

JPMorgan Chase & Co.

    1,083,523      50,926

Keycorp

    56,300      1,602

Lehman Brothers Holdings, Inc. (Ñ)

    234,012      14,822

MasterCard, Inc. Class A (Ñ)

    155,483      29,472

MBIA, Inc. (Ñ)

    19,500      839

Merrill Lynch & Co., Inc.

    311,000      20,532

MetLife, Inc. (Ñ)

    286,930      19,755

MGIC Investment Corp. (Ñ)

    41,300      800

Morgan Stanley

    768,578      51,695

National City Corp. (Ñ)

    85,090      2,063

Old Republic International Corp.

    62,800      963

PartnerRe, Ltd. - ADR

    8,300      691

Paychex, Inc.

    202,200      8,448

PMI Group, Inc. (The) (Ñ)

    192,650      3,088

Radian Group, Inc. (Ñ)

    23,300      293

Redwood Trust, Inc. (ö)(Ñ)

    142,900      3,765

RenaissanceRe Holdings, Ltd. (Ñ)

    80,575      4,701

State Street Corp. (Ñ)

    245,900      19,616

SunTrust Banks, Inc.

    55,680      4,042

Travelers Cos., Inc. (The)

    82,559      4,310

UBS AG

    182,960      9,823

Unum Group

    149,500      3,489

US Bancorp

    12,756      423

Wachovia Corp.

    271,900      12,434

Washington Mutual, Inc. (Ñ)

    173,630      4,841

Wells Fargo & Co.

    1,114,049      37,889

XL Capital, Ltd. Class A

    8,300      597
         
        868,829
         

Health Care - 13.4%

        

Abbott Laboratories

    269,200      14,704

Alcon, Inc.

    48,900      7,443

Allergan, Inc. (Ñ)

    329,960      22,299

AmerisourceBergen Corp. Class A

    36,100      1,701

Amylin Pharmaceuticals, Inc. (Æ)

    109,311      4,921

Baxter International, Inc.

    165,500      9,932

Boston Scientific Corp. (Æ)

    219,800      3,049

Bristol-Myers Squibb Co.

    477,000      14,305

Cardinal Health, Inc.

    140,500      9,558

Celgene Corp. (Æ)(Ñ)

    61,720      4,073

Charles River Laboratories International, Inc. (Æ)

    51,650      2,996

16   Diversified Equity Fund

Table of Contents

Russell Investment Company

Diversified Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Cooper Cos., Inc. (The) (Ñ)

    93,800      3,940

Covidien, Ltd.

    223,362      9,292

CVS Caremark Corp.

    2,121,637      88,621

Eli Lilly & Co.

    61,400      3,325

Express Scripts, Inc. Class A (Æ)

    129,400      8,165

Genentech, Inc. (Æ)

    163,577      12,126

Genzyme Corp. (Æ)

    74,830      5,685

Gilead Sciences, Inc. (Æ)

    744,200      34,374

GlaxoSmithKline PLC - ADR

    50,400      2,583

Health Management Associates, Inc. Class A (Ñ)

    119,000      786

Human Genome Sciences, Inc. (Æ)(Ñ)

    607,300      5,745

Intuitive Surgical, Inc. (Æ)

    57,673      18,851

Johnson & Johnson

    367,580      23,955

Medco Health Solutions, Inc. (Æ)

    189,720      17,906

Merck & Co., Inc.

    1,686,631      98,263

Novartis AG - ADR

    359,400      19,109

Omnicare, Inc. (Ñ)

    256,750      7,574

Pfizer, Inc.

    850,900      20,941

PharMerica Corp. (Æ)(Ñ)

    3,009      48

Schering-Plough Corp.

    433,900      13,243

Shire PLC - ADR (Ñ)

    65,770      4,943

St. Jude Medical, Inc. (Æ)

    187,230      7,626

Stericycle, Inc. (Æ)

    38,840      2,265

Stryker Corp. (Ñ)

    209,300      14,860

Teva Pharmaceutical Industries,
Ltd. - ADR

    147,100      6,474

Thermo Fisher Scientific, Inc. (Æ)

    683,640      40,205

UnitedHealth Group, Inc.

    548,990      26,983

Vertex Pharmaceuticals, Inc. (Æ)(Ñ)

    131,600      4,256

WellPoint, Inc. (Æ)

    88,400      7,004

Wyeth

    710,536      34,553
         
        638,682
         

Integrated Oils - 4.6%

        

BP PLC - ADR

    12,400      967

Chevron Corp.

    385,187      35,248

ConocoPhillips

    179,502      15,251

Exxon Mobil Corp.

    750,390      69,028

Hess Corp. (Ñ)

    441,600      31,623

Marathon Oil Corp.

    159,000      9,402

Occidental Petroleum Corp.

    599,100      41,368

Petroleo Brasileiro SA - ADR

    44,395      4,246

Royal Dutch Shell PLC - ADR

    10,400      910

Total SA - ADR

    152,270      12,274
         
        220,317
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Materials and Processing - 5.1%

        

Agrium, Inc.

    113,100      7,190

Air Products & Chemicals, Inc.

    26,977      2,640

Allegheny Technologies, Inc.

    39,767      4,063

ArcelorMittal Class A (Ñ)

    20,200      1,615

Ashland, Inc.

    14,100      828

Ball Corp.

    11,600      575

Bunge, Ltd. (Ñ)

    43,718      5,036

Cameco Corp.

    93,300      4,576

Cytec Industries, Inc.

    113,300      7,558

Dow Chemical Co. (The)

    94,300      4,247

EI Du Pont de Nemours & Co. (Ñ)

    452,835      22,420

Freeport-McMoRan Copper & Gold, Inc.

    142,669      16,789

International Paper Co.

    345,250      12,760

Lennar Corp. Class B (Ñ)

    13,200      281

Louisiana-Pacific Corp. (Ñ)

    59,600      981

Lubrizol Corp.

    17,000      1,154

Masco Corp. (Ñ)

    668,110      16,088

Monsanto Co.

    548,183      53,519

Nalco Holding Co.

    433,809      10,785

Nucor Corp.

    120,150      7,452

Potash Corp. of Saskatchewan

    71,900      8,831

PPG Industries, Inc.

    204,130      15,257

Praxair, Inc.

    169,047      14,450

Rio Tinto PLC - ADR (Ñ)

    25,900      9,713

Rohm & Haas Co. (Ñ)

    210,200      10,905

Shaw Group, Inc. (The) (Æ)

    46,950      3,502

Sherwin-Williams Co. (The)

    11,600      742

Smurfit-Stone Container Corp. (Æ)(Ñ)

    55,600      673

Sonoco Products Co.

    41,700      1,289
         
        245,919
         

Miscellaneous - 2.4%

        

3M Co. (Ñ)

    125,334      10,824

ABB, Ltd. - ADR

    269,000      8,129

Eaton Corp. (Ñ)

    73,000      6,758

General Electric Co.

    1,782,727      73,377

SPX Corp.

    17,700      1,793

Textron, Inc.

    202,350      14,005
         
        114,886
         

Other Energy - 6.0%

        

Arch Coal, Inc. (Ñ)

    522,950      21,441

Baker Hughes, Inc.

    167,900      14,560

Cameron International Corp. (Æ)(Ñ)

    118,881      11,574

Diversified Equity Fund   17

Table of Contents

Russell Investment Company

Diversified Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Consol Energy, Inc.

    568,820      32,138

Devon Energy Corp.

    532,140      49,702

Diamond Offshore Drilling, Inc. (Ñ)

    46,240      5,236

FMC Technologies, Inc. (Æ)

    96,800      5,869

Halliburton Co.

    349,200      13,766

Massey Energy Co. (Ñ)

    153,550      4,864

National Oilwell Varco, Inc. (Æ)

    124,600      9,126

Reliant Energy, Inc. (Æ)

    665,300      18,309

Schlumberger, Ltd.

    583,686      56,367

Transocean, Inc. (Æ)

    43,403      5,181

Valero Energy Corp.

    80,000      5,634

Williams Cos., Inc.

    280,523      10,236

XTO Energy, Inc.

    353,430      23,461
         
        287,464
         

Producer Durables - 4.8%

        

AGCO Corp. (Æ)

    4,900      292

Applied Materials, Inc.

    840,790      16,328

Boeing Co.

    115,608      11,398

Bombardier, Inc. (Æ)

    1,217,100      7,215

Caterpillar, Inc.

    10,600      791

Centex Corp. (Ñ)

    320,500      8,032

Deere & Co.

    129,020      19,985

Emerson Electric Co.

    486,500      25,429

Goodrich Corp.

    46,350      3,229

Ingersoll-Rand Co., Ltd. Class A

    16,000      806

KB Home (Ñ)

    40,600      1,122

Lexmark International, Inc. Class A (Æ)(Ñ)

    17,400      731

Lockheed Martin Corp.

    370,735      40,796

Nokia OYJ - ADR

    299,300      11,888

Northrop Grumman Corp.

    247,500      20,696

NVR, Inc. (Æ)(Ñ)

    4,850      2,307

Parker Hannifin Corp. (Ñ)

    155,078      12,463

Pitney Bowes, Inc.

    17,700      709

Pulte Homes, Inc. (Ñ)

    198,500      2,946

Raytheon Co.

    228,330      14,524

Roper Industries, Inc.

    87,130      6,170

United Technologies Corp. (Ñ)

    291,175      22,301
         
        230,158
         

Technology - 16.2%

        

Amphenol Corp. Class A

    509,586      22,559

Analog Devices, Inc. (Ñ)

    167,869      5,617

Apple, Inc. (Æ)

    477,474      90,696

Applera Corp. - Applied Biosystems Group

    195,200      7,250

Arrow Electronics, Inc. (Æ)

    44,500      1,779
     Principal
Amount ($)
or Shares		      Market
Value
$

AU Optronics Corp. - ADR (Ñ)

    1,036,837      22,530

Avnet, Inc. (Æ)

    35,900      1,498

BearingPoint, Inc. (Æ)(Ñ)

    776,650      3,720

Broadcom Corp. Class A (Æ)

    263,880      8,589

Celestica, Inc. (Æ)(Ñ)

    405,500      2,753

Cisco Systems, Inc. (Æ)

    3,151,187      104,178

Citrix Systems, Inc. (Æ)

    72,500      3,117

Cognizant Technology Solutions Corp. Class A (Æ)

    235,800      9,776

Corning, Inc.

    331,900      8,055

Dell, Inc. (Æ)(Ñ)

    793,844      24,292

EMC Corp. (Æ)

    297,200      7,546

Flextronics International, Ltd. (Æ)

    73,700      907

Garmin, Ltd. (Ñ)

    77,200      8,291

General Dynamics Corp.

    163,576      14,879

Hewlett-Packard Co.

    1,251,018      64,653

Intel Corp.

    2,819,154      75,835

International Business Machines Corp.

    191,000      22,179

International Rectifier Corp. (Æ)(Ñ)

    149,600      4,994

Juniper Networks, Inc. (Æ)

    447,993      16,128

Maxim Integrated Products, Inc.

    355,000      9,620

MEMC Electronic Materials, Inc. (Æ)

    123,100      9,013

Microsoft Corp.

    2,189,870      80,609

Motorola, Inc.

    1,062,150      19,958

Nvidia Corp.

    197,700      6,995

Oracle Corp. (Æ)

    415,960      9,222

Qimonda AG - ADR (Æ)(Ñ)

    190,550      1,841

Qualcomm, Inc.

    514,300      21,976

Research In Motion, Ltd. (Æ)

    240,918      29,997

Salesforce.com, Inc. (Æ)(Ñ)

    97,570      5,500

Sanmina-SCI Corp. (Æ)

    302,700      669

Seagate Technology, Inc. (Æ)

    9,200      —

Sunpower Corp. Class A (Æ)(Ñ)

    54,680      6,915

Texas Instruments, Inc.

    564,250      18,395

Tyco Electronics, Ltd.

    330,600      11,792

VeriFone Holdings, Inc. (Æ)

    103,400      5,111

VMware, Inc. Class A (Æ)(Ñ)

    49,240      6,147
         
        775,581
         

Utilities - 4.3%

        

Ameren Corp.

    40,700      2,200

America Movil SAB de CV - ADR Series L

    139,779      9,140

American Electric Power Co., Inc.

    60,800      2,931

AT&T, Inc.

    1,609,739      67,271

China Mobile, Ltd. - ADR (Ñ)

    172,205      17,854

CMS Energy Corp.

    79,700      1,353

Comcast Corp. Class A (Æ)(Ñ)

    528,047      11,116

Constellation Energy Group, Inc.

    27,200      2,576

18   Diversified Equity Fund

Table of Contents

Russell Investment Company

Diversified Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal
Amount ($)
or Shares

      Market
Value
$		  
       

Embarq Corp.

    211,811      11,209  

Entergy Corp.

    7,600      911  

FPL Group, Inc.

    77,160      5,279  

Mirant Corp. (Æ)

    114,069      4,832  

Progress Energy, Inc. - CVO

    5,500      2  

Public Service Enterprise Group, Inc. (Ñ)

    123,000      11,759  

Rogers Communications, Inc. Class B

    6,090      310  

Sprint Nextel Corp.

    440,050      7,525  

Verizon Communications, Inc.

    565,200      26,039  

Vodafone Group PLC - ADR

    609,100      23,919  

Wisconsin Energy Corp.

    34,400      1,646  
           
        207,872  
           
Total Common Stocks        

(cost $3,701,945)

         4,603,414  
           
Short-Term Investments - 4.0%     

Russell Investment Company
Money Market Fund

    179,477,926      179,478  

United States Treasury Bills (ç)(ž)(§) 3.650% due 12/20/07

    10,000      9,951  
           
Total Short-Term Investments     

(cost $189,429)

         189,429  
           
Other Securities - 8.2%        

Russell Investment Company
Money Market Fund (×)

    83,512,559      83,513  

State Street Securities Lending Quality Trust (×)

    311,099,719      311,100  
           
Total Other Securities        

(cost $394,613)

         394,613  
           
Total Investments - 108.4%        

(identified cost $4,285,986)

         5,187,456  
Other Assets and Liabilities, Net - (8.4%)         (402,273 )
           
Net Assets - 100.0%         4,785,184  
           

Futures Contracts

(Number of Contracts)

   Notional
Amount 		  Unrealized
Appreciation
(Depreciation)
$

Long Positions

    

Russell 1000 Index expiration date 12/07 (65)

   USD 27,547   1,157

S&P 500 E-Mini Index (CME) expiration date 12/07 (530)

   USD 41,205   1,247

S&P 500 Index (CME)
expiration date 12/07 (122)

   USD 47,424   1,172

S&P Midcap 400 E-Mini Index (CME) expiration date 12/07 (769)

   USD   70,140   3,242
     

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

     6,818
     

 

See accompanying notes which are an integral part of the financial statements.

Diversified Equity Fund   19

Table of Contents

Russell Investment Company

Diversified Equity Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of
Net
Assets		  
  
  

Auto and Transportation

    2.8  

Consumer Discretionary

    11.5  

Consumer Staples

    6.9  

Financial Services

    18.2  

Health Care

    13.4  

Integrated Oils

    4.6  

Materials and Processing

    5.1  

Miscellaneous

    2.4  

Other Energy

    6.0  

Producer Durables

    4.8  

Technology

    16.2  

Utilities

    4.3  

Short-Term Investments

    4.0  

Other Securities

    8.2  
      

Total Investments

    108.4  

Other Assets and Liabilities, Net

    (8.4 )
      
   100.0  
      

Futures Contracts

    0.1  

 

See accompanying notes which are an integral part of the financial statements.

20   Diversified Equity Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Special Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Special Growth Fund - Class S  
          Total
Return		  

1 Year

       15.78 %

5 Years

       18.55 %§

10 Years

       9.37 %§

 

Special Growth Fund - Class E‡  
          Total
Return		  

1 Year

       15.49 %

5 Years

       18.24 %§

10 Years

       9.08 %§

 

Special Growth Fund - Class C‡‡        
          Total
Return		  

1 Year

       14.63 %

5 Years

       17.36 %§

10 Years

       8.37 %§
Special Growth Fund - Class A‡‡‡  
          Total
Return		  

1 Year

       8.85 %

5 Years

       16.85 %§

10 Years

       8.43 %§

 

Russell 2500™ Index**  
          Total
Return		  

1 Year

       12.71 %

5 Years

       19.39 %§

10 Years

       10.02 %§

 

22   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Special Growth Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has eight money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Special Growth Fund Class A, Class C, Class E and Class S Shares gained 15.49%, 14.63%, 15.49% and 15.78% respectively. This compared to the Russell 2500™ Index, which gained 12.71% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ending October 31, 2007, the Lipper® Mid-Cap Core Funds Average returned 15.89%, while the Lipper® Small-Cap Core Funds Average rose 9.70%. 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?

In general, the market conditions presented a positive environment for active small cap managers. This is evidenced by the outperformance of the Small Cap Lipper averages over the Russell 2000. Furthermore, it was a good environment for the Fund, which outperformed its benchmark. While 2006 was one of the worst years in the past two decades for active small cap managers, 2007 saw a reversal of this trend. The money managers employed by the Fund were well positioned for the change in market leadership and the resurgence of growth after a long period of value leadership. In addition, underweights to the financials sector, which served as a barrier to outperformance in the past, contributed positively to Fund performance in the wake of developments in the subprime

lending market. While sector selection contributed positively to Fund performance, the Fund outperformed its benchmark for the period primarily due to strong stock selection by the money managers.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund employs eight money managers: three growth, two market-oriented and three value. The outperformance for the year was largely driven by the growth managers in the Fund. Gould Investment Partners LLC, the most growth-oriented manager, significantly outperformed the benchmark. Gould’s outperformance over the past year was not unexpected given Gould’s technology overweight, positive stock selection and high growth style of investing. Tygh Capital Management, Inc., a growth manager, outperformed despite its quality growth style of investing in a market that favored higher growth characteristics.

Among the value managers, David J. Greene and Company, LLC contributed positively to Fund performance, benefiting from both stock selection as well as an underweight to financials and overweight to technology within the value space.

The Fund’s quantitative managers, PanAgora Asset Management, Inc., ClariVest Asset Management LLC and Jacobs Levy Equity Management, Inc., underperformed the Fund’s benchmark during what was a difficult period for quantitative processes. In the earlier part of the year, quantitative managers had a difficult time outperforming the benchmark as market sentiment shifted from rewarding value factors to rewarding growth factors. During transitional markets, quantitative strategies will generally lag for a period as their models are adjusted. In early August 2007, there was a market sell-off led by quantitative hedge funds followed by a rapid decrease in leverage by the hedge funds. This drove prices of commonly held quantitative securities down. Subsequently, quantitative managers as a group underperformed the market.

Describe any changes to the Fund’s structure or the money manager line-up.

In January of 2007, ClariVest Asset Management LLC was hired to replace Goldman Sachs Asset Management, L.P. In March of 2007, pursuant to an asset purchase agreement with CapitalWorks Investment Partners, LLC, the CapitalWorks investment team became Berkeley Capital Management, LLP. In September of 2007, Berkeley was replaced by Ranger Investment Management L.P.


Special Growth Fund   23

Table of Contents

Russell Investment Company

Special Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

Money Managers as of
October 31, 2007		   Styles

Clarivest Asset Management LLC

   Market-Oriented

Jacobs Levy Equity Management, Inc.

   Value

Delphi Management, Inc.

   Value

Tygh Capital Management, Inc.

   Growth

Ranger Investment Management L.P.

   Growth

David J Greene and Company, LLC

   Value

Gould Investment Partners, LLC

   Growth

PanAgora Asset 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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**   Russell 2500™ Index is composed of the bottom 500 stocks in the Russell 1000™ Index and all the stocks in the Russell 2000™ Index. The Russell 2500™ Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡   The returns shown for Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to February 28, 2007. The returns shown for the Fund’s Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of the Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.70    $ 1,017.74

Expenses Paid During Period*

    $ 7.69    $ 7.53

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.48% (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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,057.50    $ 1,014.06

Expenses Paid During Period*

    $ 11.46    $ 11.22

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.21% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.50    $ 1,017.85

Expenses Paid During Period*

    $ 7.59    $ 7.43

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.46% (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   25

Table of Contents

Russell Investment Company

Special Growth Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,063.00    $ 1,019.11

Expenses Paid During Period*

    $ 6.29    $ 6.16

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.21% (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).

 


26   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 93.2%

        

Auto and Transportation - 2.8%

     

AAR Corp. (Æ)(Ñ)

    152,700      4,894

Accuride Corp. (Æ)(Ñ)

    54,904      560

Aftermarket Technology Corp. (Æ)

    48,983      1,691

Alaska Air Group, Inc. (Æ)(Ñ)

    43,300      1,100

Amerigon, Inc. (Æ)(Ñ)

    58,800      1,155

Arctic Cat, Inc. (Ñ)

    13,000      187

Arkansas Best Corp. (Ñ)

    39,100      1,073

ArvinMeritor, Inc. (Ñ)

    56,362      836

Autoliv, Inc.

    1,900      120

Bristow Group, Inc. (Æ)(Ñ)

    34,980      1,745

Con-way, Inc. (Ñ)

    40,800      1,738

Continental Airlines, Inc. Class A (Æ)(Ñ)

    10,437      359

Cooper Tire & Rubber Co. (Ñ)

    12,419      277

Dana Corp. (Æ)(Ñ)

    292,900      44

Danaos Corp.

    26,000      934

DryShips, Inc. (Ñ)

    20,900      2,463

Horizon Lines, Inc. Class A (Ñ)

    27,675      871

HUB Group, Inc. Class A (Æ)

    36,195      918

K-Sea Transportation Partners, LP (Ñ)

    34,500      1,370

Kansas City Southern (Æ)(Ñ)

    35,500      1,373

Kirby Corp. (Æ)(Ñ)

    84,239      3,848

Lear Corp. (Æ)

    409      15

Mesa Air Group, Inc. (Æ)

    25,046      116

Modine Manufacturing Co. (Ñ)

    32,600      758

Navistar International Corp. (Æ)(Ñ)

    16,500      1,040

Pinnacle Airlines Corp. (Æ)(Ñ)

    1,908      30

Saia, Inc. (Æ)(Ñ)

    8,005      113

Skywest, Inc. (Ñ)

    35,111      958

StealthGas, Inc.

    78,500      1,425

Stoneridge, Inc. (Æ)(Ñ)

    8,300      85

Teekay Corp. (Ñ)

    18,300      1,024

TRW Automotive Holdings Corp. (Æ)

    63,800      1,894

US Airways Group, Inc. (Æ)(Ñ)

    89,900      2,487

UTI Worldwide, Inc.

    96,991      2,474

Wabtec Corp. (Ñ)

    133,546      5,012
         
        44,987
         

Consumer Discretionary - 15.5%

     

Abercrombie & Fitch Co. Class A (Ñ)

    67,800      5,370

ABM Industries, Inc. (Ñ)

    76,393      1,797

Activision, Inc. (Æ)(Ñ)

    338,360      8,002

Administaff, Inc.

    14,716      587

Advance Auto Parts, Inc. (Ñ)

    29,500      1,007

Advisory Board Co. (The) (Æ)(Ñ)

    63,779      4,095

Aeropostale, Inc. (Æ)

    32,798      751
     Principal
Amount ($)
or Shares		      Market
Value
$

AFC Enterprises (Æ)(Ñ)

    29,600      395

Alberto-Culver Co. Class B

    103,000      2,677

American Eagle Outfitters, Inc. (Ñ)

    56,500      1,344

American Greetings Corp. Class A (Ñ)

    43,072      1,135

American Woodmark Corp. (Ñ)

    26,834      681

Asbury Automotive Group, Inc. (Ñ)

    27,500      504

AutoNation, Inc. (Æ)(Ñ)

    124,200      2,197

Bally Technologies, Inc. (Æ)(Ñ)

    155,671      6,278

Barnes & Noble, Inc. (Ñ)

    65,200      2,519

Big Lots, Inc. (Æ)(Ñ)

    46,710      1,120

BJ’s Wholesale Club, Inc. (Æ)(Ñ)

    95,900      3,441

Blockbuster, Inc. Class A (Æ)(Ñ)

    187,375      986

Blyth, Inc. (Ñ)

    57,340      1,095

Bob Evans Farms, Inc. (Ñ)

    31,763      895

Books-A-Million, Inc. Class A (Ñ)

    9,431      126

Bowne & Co., Inc. (Ñ)

    56,815      987

Brown Shoe Co., Inc. (Ñ)

    20,188      412

Buckle, Inc. (The) (Ñ)

    17,800      767

Build-A-Bear Workshop, Inc. Class A (Æ)(Ñ)

    55,700      1,081

Capella Education Co. (Æ)(Ñ)

    7,500      465

Carter’s, Inc. (Æ)(Ñ)

    27,200      601

CBRL Group, Inc. (Ñ)

    26,087      1,041

CDI Corp. (Ñ)

    13,800      380

CEC Entertainment, Inc. (Æ)(Ñ)

    26,300      784

Chemed Corp. (Ñ)

    89,159      5,111

Chipotle Mexican Grill, Inc. Class A (Æ)(Ñ)

    27,000      3,753

CMGI, Inc. (Æ)(Ñ)

    1,228,046      1,732

Convergys Corp. (Æ)(Ñ)

    174,600      3,200

Corinthian Colleges, Inc. (Æ)(Ñ)

    93,100      1,526

Corrections Corp. of America (Æ)(Ñ)

    59,800      1,692

CROCS, Inc. (Æ)(Ñ)

    124,100      9,276

CSS Industries, Inc. (Ñ)

    9,200      364

Denny’s Corp. (Æ)(Ñ)

    130,239      628

Discovery Holding Co. Class A (Æ)

    26,400      753

Dolby Laboratories, Inc. Class A (Æ)

    76,300      3,163

Dollar Tree Stores, Inc. (Æ)

    42,100      1,612

DreamWorks Animation SKG, Inc. Class A (Æ)

    45,600      1,485

Dress Barn, Inc. (Æ)(Ñ)

    32,916      539

DynCorp International, Inc. Class A (Æ)(Ñ)

    67,802      1,535

Earthlink, Inc. (Æ)(Ñ)

    115,800      916

Electronic Arts, Inc. (Æ)(Ñ)

    58,106      3,551

Elizabeth Arden, Inc. (Æ)(Ñ)

    17,895      446

Ethan Allen Interiors, Inc. (Ñ)

    46,970      1,450

Ezcorp, Inc. Class A (Æ)(Ñ)

    28,943      381

Finish Line Class A (Ñ)

    49,700      186

Special Growth Fund   27

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Focus Media Holding, Ltd. - ADR (Æ)(Ñ)

    52,400      3,249

FTD Group, Inc. (Ñ)

    27,800      391

FTI Consulting, Inc. (Æ)(Ñ)

    71,000      3,855

G-III Apparel Group, Ltd. (Æ)(Ñ)

    400      7

Gaiam, Inc. Class A (Æ)

    57,900      1,346

GameStop Corp. Class A (Æ)

    48,074      2,847

Gaylord Entertainment Co. (Æ)(Ñ)

    29,600      1,613

Geo Group, Inc. (The) (Æ)

    74,685      2,362

Greenfield Online, Inc. (Æ)(Ñ)

    12,851      196

Hasbro, Inc. (Ñ)

    90,800      2,710

Helen of Troy, Ltd. (Æ)(Ñ)

    52,430      944

Hewitt Associates, Inc. Class A (Æ)

    37,100      1,309

Home Solutions of America, Inc. (Æ)(Ñ)

    218,807      554

Hooker Furniture Corp. (Ñ)

    20,551      443

Hudson Highland Group, Inc. (Æ)(Ñ)

    35,014      402

ICF International, Inc. (Æ)

    29,000      900

Idearc, Inc. (Ñ)

    35,000      944

Ihop Corp.

    9,330      591

Insight Enterprises, Inc. (Æ)

    30,300      837

Inter Parfums, Inc. (Ñ)

    14,600      348

International Speedway Corp. Class A

    29,700      1,320

inVentiv Health, Inc. (Æ)

    77,200      3,260

Jack in the Box, Inc. (Æ)

    55,500      1,741

Jakks Pacific, Inc. (Æ)(Ñ)

    77,653      2,058

Jo-Ann Stores, Inc. (Æ)(Ñ)

    34,206      659

Jones Apparel Group, Inc. (Ñ)

    29,000      607

JOS A Bank Clothiers, Inc. (Æ)(Ñ)

    49,853      1,456

Journal Communications, Inc.
Class A (Ñ)

    36,976      329

Kelly Services, Inc. Class A

    23,300      490

Kenneth Cole Productions, Inc. Class A (Ñ)

    16,000      299

Labor Ready, Inc. (Æ)(Ñ)

    3,432      60

Leapfrog Enterprises, Inc. Class A (Æ)(Ñ)

    89,400      670

LIFE TIME FITNESS, Inc. (Æ)(Ñ)

    16,200      982

Lin TV Corp. Class A (Æ)(Ñ)

    35,740      521

LKQ Corp. (Æ)(Ñ)

    95,229      3,672

LoJack Corp. (Æ)(Ñ)

    11,228      197

Luby’s, Inc. (Æ)(Ñ)

    10,700      118

Macy’s, Inc.

    47,035      1,507

Maidenform Brands, Inc. (Æ)(Ñ)

    16,200      241

MAXIMUS, Inc.

    12,648      606

Meredith Corp. (Ñ)

    41,000      2,552

Movado Group, Inc. (Ñ)

    14,848      447

MSC Industrial Direct Co. Class A

    75,690      3,687
     Principal
Amount ($)
or Shares		      Market
Value
$

New Oriental Education & Technology Group - ADR (Æ)

    43,000      3,849

Nu Skin Enterprises, Inc. Class A

    35,800      618

O’Charleys, Inc. (Ñ)

    77,900      1,249

O’Reilly Automotive, Inc. (Æ)(Ñ)

    117,630      3,884

Orient-Express Hotels, Ltd. Class A (Ñ)

    94,211      6,105

Oxford Industries, Inc. (Ñ)

    17,400      451

Papa John’s International, Inc. (Æ)(Ñ)

    24,300      566

PC Connection, Inc. (Æ)(Ñ)

    27,349      402

Perficient, Inc. (Æ)(Ñ)

    242,900      4,579

Perry Ellis International, Inc. (Æ)(Ñ)

    49,717      1,153

PetMed Express, Inc. (Æ)

    11,883      173

Phillips-Van Heusen (Ñ)

    131,703      6,295

Pier 1 Imports, Inc. (Æ)(Ñ)

    123,100      627

Pre-Paid Legal Services, Inc. (Æ)(Ñ)

    6,652      396

PRG-Schultz International, Inc. (Æ)

    21,687      357

Priceline.com, Inc. (Æ)(Ñ)

    38,400      3,575

Quiksilver, Inc. (Æ)(Ñ)

    134,600      1,817

Republic Services, Inc. Class A

    157,330      5,379

Resources Connection, Inc.

    64,439      1,467

Robert Half International, Inc. (Ñ)

    55,882      1,681

Scholastic Corp. (Æ)(Ñ)

    49,100      1,943

Service Corp. International (Ñ)

    49,300      713

Shanda Interactive Entertainment, Ltd. - ADR (Æ)(Ñ)

    69,300      2,728

Shutterfly, Inc. (Æ)

    48,400      1,615

Sinclair Broadcast Group, Inc.
Class A (Ñ)

    64,711      779

Sonic Automotive, Inc. Class A (Ñ)

    33,000      834

Spherion Corp. (Æ)(Ñ)

    118,400      1,032

Stage Stores, Inc. (Ñ)

    71,411      1,340

Stanley Works (The) (Ñ)

    29,100      1,675

Stein Mart, Inc. (Ñ)

    34,100      224

Stewart Enterprises, Inc. Class A (Ñ)

    158,200      1,435

Strayer Education, Inc. (Ñ)

    18,600      3,468

Sturm Ruger & Co., Inc. (Æ)(Ñ)

    73,691      689

Tech Data Corp. (Æ)

    46,900      1,845

TeleTech Holdings, Inc. (Æ)(Ñ)

    53,626      1,337

Timberland Co. Class A (Æ)(Ñ)

    36,200      706

Toro Co. (Ñ)

    11,400      635

Tupperware Brands Corp. (Ñ)

    99,226      3,582

United Natural Foods, Inc. (Æ)(Ñ)

    119,766      3,466

United Online, Inc. (Ñ)

    94,800      1,668

United Stationers, Inc. (Æ)

    16,500      956

Urban Outfitters, Inc. (Æ)(Ñ)

    138,400      3,497

Valueclick, Inc. (Æ)(Ñ)

    41,865      1,138

VeriSign, Inc. (Æ)(Ñ)

    118,973      4,056

28   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Viad Corp.

    23,200      822

Volcom, Inc. (Æ)(Ñ)

    59,100      1,729

Warnaco Group, Inc. (The) (Æ)(Ñ)

    32,700      1,331

Warner Music Group Corp. (Ñ)

    136,800      1,393

Washington Post Co. (The) Class B (Ñ)

    2,405      2,042

West Marine, Inc. (Æ)(Ñ)

    48,723      526

Westwood One, Inc. (Ñ)

    20,659      44

World Fuel Services Corp. (Ñ)

    32,800      1,453

Zumiez, Inc. (Æ)(Ñ)

    33,900      1,419
         
        246,889
         

Consumer Staples - 1.8%

        

Alliance One International, Inc. (Æ)(Ñ)

    264,826      1,729

Boston Beer Co., Inc. Class A (Æ)

    14,620      764

Coca-Cola Bottling Co. Consolidated (Ñ)

    17,028      1,005

Del Monte Foods Co.

    65,100      673

Fresh Del Monte Produce, Inc. (Æ)(Ñ)

    92,800      3,367

Green Mountain Coffee Roasters, Inc. (Æ)(Ñ)

    90,009      3,357

Hansen Natural Corp. (Ñ)

    53,491      3,637

Hormel Foods Corp. (Ñ)

    14,300      522

JM Smucker Co. (The)

    18,300      978

Loews Corp. - Carolina Group

    39,000      3,345

Longs Drug Stores Corp.

    2,100      110

Molson Coors Brewing Co. Class B (Ñ)

    68,000      3,892

Nash Finch Co. (Ñ)

    28,495      1,067

NBTY, Inc. (Æ)

    3,177      113

PepsiAmericas, Inc.

    35,100      1,254

Sanderson Farms, Inc. (Ñ)

    17,600      612

Spartan Stores, Inc. (Ñ)

    20,200      449

TreeHouse Foods, Inc. (Æ)(Ñ)

    23,400      653

Universal Corp. (Ñ)

    21,813      1,063

Vector Group, Ltd. (Ñ)

    1,628      36
         
        28,626
         

Financial Services - 13.0%

        

Advance America Cash Advance Centers, Inc. (Ñ)

    79,464      760

Advanta Corp. Class B (Ñ)

    44,555      704

Affiliated Managers Group, Inc. (Æ)(Ñ)

    67,860      8,927

Allied World Assurance Holdings, Ltd.

    21,800      1,044

AMB Property Corp. (ö)

    55,700      3,640

American Financial Group, Inc. (Ñ)

    54,700      1,636

Amerisafe, Inc. (Æ)(Ñ)

    34,123      552
     Principal
Amount ($)
or Shares		      Market
Value
$

Annaly Capital Management, Inc. (ö)

    111,600      1,907

Anthracite Capital, Inc. (ö)(Ñ)

    10,733      89

Apartment Investment & Management Co. Class A (ö)(Ñ)

    58,500      2,734

Apollo Investment Corp. (Ñ)

    57,000      1,186

Arch Capital Group, Ltd. (Æ)(Ñ)

    52,300      3,910

Ares Capital Corp. (Ñ)

    102,300      1,702

Ashford Hospitality Trust, Inc. (ö)

    338,515      3,331

Aspen Insurance Holdings, Ltd.

    132,208      3,617

Assurant, Inc. (Ñ)

    96,443      5,636

Axis Capital Holdings, Ltd.

    124,700      4,956

Bancfirst Corp. (Ñ)

    4,100      186

Banco Latinoamericano de Exportaciones SA Class E

    27,600      537

BancorpSouth, Inc. (Ñ)

    28,900      701

Bank of Hawaii Corp. (Ñ)

    31,100      1,653

BankUnited Financial Corp. Class A (Ñ)

    57,205      494

Banner Corp. (Ñ)

    4,100      134

Bear Stearns Cos., Inc. (The) (Ñ)

    10,100      1,147

BOK Financial Corp.

    8,156      445

Broadridge Financial Solutions, Inc. (Ñ)

    77,200      1,544

Calamos Asset Management, Inc. Class A (Ñ)

    7,173      244

Camden Property Trust (ö)(Ñ)

    25,500      1,590

Cash America International, Inc. (Ñ)

    31,743      1,238

CBL & Associates Properties, Inc. (ö)(Ñ)

    66,600      2,205

Central Pacific Financial Corp. (Ñ)

    16,703      375

CIT Group, Inc. (Ñ)

    29,800      1,050

City Bank (Ñ)

    14,544      348

City National Corp. (Ñ)

    2,800      189

CNA Surety Corp. (Æ)

    77,700      1,538

Colonial BancGroup, Inc. (The) (Ñ)

    144,400      2,770

Commerce Group, Inc. (Ñ)

    17,100      807

Community Bancorp (Æ)(Ñ)

    17,195      349

Corus Bankshares, Inc. (Ñ)

    64,564      712

Crystal River Capital, Inc. (ö)(Ñ)

    3,775      55

Deerfield Triarc Capital Corp. (ö)(Ñ)

    56,800      542

Deluxe Corp. (Ñ)

    81,271      3,278

DiamondRock Hospitality Co. (ö)(Ñ)

    12,902      247

Digital Realty Trust, Inc. (ö)

    16,870      742

Duke Realty Corp. (ö)(Ñ)

    36,970      1,189

East West Bancorp, Inc. (Ñ)

    56,200      1,896

EastGroup Properties, Inc. (ö)(Ñ)

    8,000      381

Education Realty Trust, Inc. (ö)(Ñ)

    20,200      261

EMC Insurance Group, Inc. (Ñ)

    2,300      61

Equity Lifestyle Properties, Inc. (ö)(Ñ)

    8,584      431

Special Growth Fund   29

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Euronet Worldwide, Inc. (Æ)(Ñ)

    133,683      4,282

Extra Space Storage, Inc. (ö)(Ñ)

    4,100      64

Factset Research Systems, Inc.

    19,600      1,382

Federal Realty Investors Trust (ö)

    11,100      979

Feldman Mall Properties, Inc. (ö)(Ñ)

    90,700      364

Fidelity National Financial, Inc. Class A (Ñ)

    26,600      409

First American Corp.

    58,800      1,770

First Industrial Realty Trust, Inc. (ö)(Ñ)

    37,100      1,512

First Mutual Bancshares, Inc.

    64,072      1,709

First Place Financial Corp. (Ñ)

    10,548      176

First Regional Bancorp (Æ)(Ñ)

    59,484      1,398

FirstFed Financial Corp. (Æ)(Ñ)

    19,138      819

Fulton Financial Corp. (Ñ)

    13,610      178

GAMCO Investors, Inc. Class A (Ñ)

    8,100      501

GFI Group, Inc. (Æ)(Ñ)

    6,851      591

Global Payments, Inc.

    125,488      5,968

Gramercy Capital Corp. (ö)(Ñ)

    5,800      153

Great Southern Bancorp, Inc. (Ñ)

    3,200      75

Green Bankshares, Inc. (Ñ)

    19,700      631

Hallmark Financial Services (Æ)

    9,200      154

Hanmi Financial Corp. (Ñ)

    67,583      745

Hanover Insurance Group, Inc. (The)

    42,000      1,935

Harleysville Group, Inc. (Ñ)

    12,200      380

HCC Insurance Holdings, Inc. (Ñ)

    50,700      1,515

Hersha Hospitality Trust (ö)(Ñ)

    16,800      182

Hospitality Properties Trust (ö)(Ñ)

    105,500      4,178

HRPT Properties Trust (ö)

    161,900      1,520

Huron Consulting Group, Inc. (Æ)(Ñ)

    49,000      3,424

IBERIABANK Corp. (Ñ)

    2,620      130

Imperial Capital Bancorp, Inc.

    5,053      109

Intervest Bancshares Corp. Class A (Ñ)

    14,259      298

Invesco PLC - ADR (Ñ)

    187,591      5,752

Investors Real Estate Trust (ö)

    9,000      98

IPC Holdings, Ltd. (Ñ)

    72,900      2,180

iStar Financial, Inc. (ö)(Ñ)

    38,600      1,178

Janus Capital Group, Inc.

    13,200      456

Jefferies Group, Inc.

    122,920      3,286

Jones Lang LaSalle, Inc. (Ñ)

    6,039      576

Knight Capital Group, Inc. Class A (Æ)

    95,700      1,283

Kohlberg Capital Corp. (Ñ)

    93,412      1,203

Liberty Property Trust (ö)

    64,100      2,411

MainSource Financial Group, Inc.

    4,300      72

Marlin Business Services Corp. (Æ)(Ñ)

    67,000      850

MCG Capital Corp. (Ñ)

    57,000      799
     Principal
Amount ($)
or Shares		      Market
Value
$

Meadowbrook Insurance Group, Inc. (Æ)(Ñ)

    63,900      615

MFA Mortgage Investments, Inc. (ö)

    138,400      1,185

Nara Bancorp, Inc. (Ñ)

    28,047      434

Nasdaq Stock Market, Inc. (The) (Æ)

    64,700      3,022

National Retail Properties, Inc. (ö)(Ñ)

    92,116      2,335

Nationwide Financial Services (Ñ)

    34,700      1,862

NorthStar Realty Finance Corp. (ö)(Ñ)

    134,900      1,261

Ocwen Financial Corp. (Æ)(Ñ)

    52,617      393

Odyssey Re Holdings Corp. (Ñ)

    39,900      1,484

Old Republic International Corp.

    60,250      924

optionsXpress Holdings, Inc. (Ñ)

    22,308      664

Oriental Financial Group

    16,200      202

Pacific Capital Bancorp NA (Ñ)

    8,778      182

Pennsylvania Real Estate Investment Trust (ö)

    29,100      1,110

People’s United Financial, Inc. (Ñ)

    99,400      1,767

Platinum Underwriters Holdings, Ltd.

    68,300      2,459

Portfolio Recovery Associates, Inc. (Ñ)

    5,267      238

Post Properties, Inc. (ö)(Ñ)

    10,483      430

Potlatch Corp. (ö)(Ñ)

    23,325      1,112

Preferred Bank (Ñ)

    13,150      391

Protective Life Corp.

    52,300      2,242

Ramco-Gershenson Properties (ö)(Ñ)

    3,068      88

Raymond James Financial, Inc. (Ñ)

    122,900      4,578

Realty Income Corp. (ö)

    28,374      838

Reinsurance Group of America, Inc. (Ñ)

    27,300      1,560

RenaissanceRe Holdings, Ltd.

    65,500      3,821

Ryder System, Inc. (Ñ)

    89,595      4,287

S1 Corp. (Æ)

    192,472      1,621

Safety Insurance Group, Inc. (Ñ)

    20,863      750

SeaBright Insurance Holdings, Inc. (Æ)

    22,206      370

SEI Investments Co. (Ñ)

    144,300      4,563

Senior Housing Properties Trust (ö)(Ñ)

    17,103      383

Sotheby’s Holdings Class A (Ñ)

    12,452      675

Southwest Bancorp, Inc. (Ñ)

    47,936      907

Sovran Self Storage, Inc. (ö)

    32,500      1,538

StanCorp Financial Group, Inc.

    42,600      2,349

Sterling Bancshares, Inc. (Ñ)

    36,950      451

Sterling Financial Corp. (Ñ)

    37,903      853

Sunstone Hotel Investors, Inc. (ö)(Ñ)

    49,780      1,384

Susquehanna Bancshares, Inc. (Ñ)

    13,729      277

SWS Group, Inc. (Ñ)

    84,248      1,600

Taubman Centers, Inc. (ö)

    39,400      2,319

Taylor Capital Group, Inc. (Ñ)

    12,081      312

Transatlantic Holdings, Inc.

    9,600      716

30   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Triad Guaranty, Inc. (Æ)(Ñ)

    9,418      76

U-Store-It Trust (ö)(Ñ)

    84,400      1,089

United America Indemnity, Ltd. Class A (Æ)

    18,900      417

United Fire & Casualty Co. (Ñ)

    17,600      564

United Rentals, Inc. (Æ)

    56,000      1,915

Unitrin, Inc. (Ñ)

    20,300      940

Universal American Financial Corp. (Æ)(Ñ)

    14,400      349

Universal Health Realty Income
Trust (ö)(Ñ)

    5,732      212

Webster Financial Corp. (Ñ)

    14,300      518

Whitney Holding Corp. (Ñ)

    47,249      1,212

Wilmington Trust Corp. (Ñ)

    18,800      684

Wilshire Bancorp, Inc. (Ñ)

    3,700      38

Winthrop Realty Trust (ö)

    47,300      258

Zenith National Insurance Corp. (Ñ)

    65,996      2,652

Zions Bancorporation (Ñ)

    22,000      1,300
         
        206,121
         

Health Care - 10.4%

        

Accelrys, Inc. (Æ)(Ñ)

    143,200      1,113

Advanced Medical Optics, Inc. (Æ)(Ñ)

    79,000      2,169

Albany Molecular Research, Inc. (Æ)(Ñ)

    52,681      953

Allscripts Healthcare Solutions, Inc. (Æ)(Ñ)

    194,319      5,383

American Dental Partners, Inc. (Æ)

    13,600      337

American Medical Systems Holdings, Inc. (Æ)(Ñ)

    240,383      3,075

AMERIGROUP Corp. Class A (Æ)

    122,200      4,277

Amsurg Corp. Class A (Æ)(Ñ)

    27,940      739

Analogic Corp.

    6,400      366

Applera Corp. - Celera Group (Æ)

    83,100      1,355

Apria Healthcare Group, Inc. (Æ)(Ñ)

    43,063      1,041

Arthrocare Corp. (Æ)(Ñ)

    91,047      5,904

Beckman Coulter, Inc. (Ñ)

    20,100      1,423

Bio-Rad Laboratories, Inc. Class A (Æ)(Ñ)

    23,880      2,306

Bio-Reference Labs, Inc. (Æ)

    4,715      151

Bradley Pharmaceuticals, Inc. (Æ)(Ñ)

    13,902      273

Centene Corp. (Æ)

    67,700      1,579

Cepheid, Inc. (Æ)(Ñ)

    41,700      1,079

Community Health Systems, Inc. (Æ)

    66,200      2,180

Conmed Corp. (Æ)

    57,650      1,640

Cooper Cos., Inc. (The) (Ñ)

    70,800      2,974

Cubist Pharmaceuticals, Inc. (Æ)(Ñ)

    100,546      2,353

Cypress Bioscience, Inc. (Æ)

    38,305      517
     Principal
Amount ($)
or Shares		      Market
Value
$

Discovery Laboratories, Inc. (Æ)(Ñ)

    87,400      218

Emergency Medical Services Corp. Class A (Æ)(Ñ)

    16,184      492

eResearchTechnology, Inc. (Æ)

    59,900      665

Gen-Probe, Inc. (Æ)

    83,600      5,854

Greatbatch, Inc. (Æ)(Ñ)

    33,401      830

Haemonetics Corp. (Æ)

    75,756      3,893

Hanger Orthopedic Group, Inc. (Æ)

    9,900      123

Healthspring, Inc. (Æ)(Ñ)

    137,771      2,893

Healthways, Inc. (Æ)(Ñ)

    108,194      6,567

Hologic, Inc. (Æ)(Ñ)

    61,071      4,149

I-Flow Corp. (Æ)(Ñ)

    14,080      257

Icon PLC - ADR (Æ)

    39,958      2,318

Illumina, Inc. (Æ)(Ñ)

    167,844      9,424

Immucor, Inc. (Æ)

    156,200      5,037

IMS Health, Inc. (Ñ)

    16,300      411

Intuitive Surgical, Inc. (Æ)

    12,400      4,053

Invacare Corp. (Ñ)

    34,793      942

Invitrogen Corp. (Æ)

    23,500      2,135

Isis Pharmaceuticals, Inc. (Æ)

    42,900      756

Kinetic Concepts, Inc. (Æ)(Ñ)

    8,300      499

King Pharmaceuticals, Inc. (Æ)(Ñ)

    142,300      1,508

KV Pharmaceutical Co. Class A (Æ)(Ñ)

    50,000      1,567

Kyphon, Inc. (Æ)(Ñ)

    41,103      2,913

LCA-Vision, Inc. (Ñ)

    16,325      279

Martek Biosciences Corp. (Æ)(Ñ)

    17,869      546

Masimo Corp. (Æ)

    44,519      1,523

Matria Healthcare, Inc. (Æ)(Ñ)

    32,474      834

Medcath Corp. (Æ)

    27,370      759

Medicis Pharmaceutical Corp.
Class A (Ñ)

    116,391      3,456

Medtox Scientific, Inc. (Æ)(Ñ)

    29,318      508

Meridian Bioscience, Inc. (Ñ)

    71,400      2,363

Molina Healthcare, Inc. (Æ)(Ñ)

    31,200      1,189

Myriad Genetics, Inc. (Æ)(Ñ)

    45,000      2,491

Neurocrine Biosciences, Inc. (Æ)(Ñ)

    80,500      745

NuVasive, Inc. (Æ)

    30,600      1,309

OraSure Technologies, Inc. (Æ)(Ñ)

    16,069      146

Pediatrix Medical Group, Inc. (Æ)

    72,500      4,749

Pharmacopeia, Inc. (Æ)(Ñ)

    98,450      567

PharmaNet Development Group, Inc. (Æ)(Ñ)

    15,881      515

PharMerica Corp. (Æ)(Ñ)

    57,700      920

Phase Forward, Inc. (Æ)

    33,900      806

PSS World Medical, Inc. (Æ)(Ñ)

    25,632      518

Psychiatric Solutions, Inc. (Æ)(Ñ)

    210,973      8,355

Quality Systems, Inc. (Ñ)

    86,833      3,146

RehabCare Group, Inc. (Æ)

    9,800      203

Special Growth Fund   31

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Resmed, Inc. (Æ)(Ñ)

    96,558      4,000

Respironics, Inc. (Æ)

    27,716      1,387

Sciele Pharma, Inc. (Æ)(Ñ)

    176,231      4,483

Sierra Health Services, Inc. (Æ)(Ñ)

    67,644      2,861

Sirona Dental Systems, Inc. (Æ)(Ñ)

    133,735      4,499

Sun Healthcare Group, Inc. (Æ)

    3,409      55

Techne Corp. (Æ)(Ñ)

    78,689      5,134

TomoTherapy, Inc. (Æ)(Ñ)

    54,100      1,183

VCA Antech, Inc. (Æ)

    94,400      4,347

Viropharma, Inc. (Æ)(Ñ)

    107,300      924

WellCare Health Plans, Inc. (Æ)(Ñ)

    10,302      249
         
        165,740
         

Materials and Processing - 12.6%

     

Acuity Brands, Inc.

    26,966      1,289

Airgas, Inc.

    106,464      5,373

Albemarle Corp. (Ñ)

    150,123      7,170

AM Castle & Co. (Ñ)

    45,585      1,372

Apogee Enterprises, Inc.

    19,898      468

Ashland, Inc.

    45,200      2,654

Ball Corp.

    13,000      645

BlueLinx Holdings, Inc. (Ñ)

    9,700      51

Buckeye Technologies, Inc. (Æ)(Ñ)

    162,094      2,905

Cambrex Corp.

    105,700      1,204

Carpenter Technology Corp. (Ñ)

    16,560      2,400

Celanese Corp. Class A

    67,400      2,828

Century Aluminum Co. (Æ)(Ñ)

    21,713      1,263

Ceradyne, Inc. (Æ)(Ñ)

    5,300      363

CF Industries Holdings, Inc.

    44,745      3,933

Chemtura Corp. (Ñ)

    96,500      899

Chicago Bridge & Iron Co. NV

    104,275      5,214

Cie Generale de Geophysique-
Veritas - ADR (Æ)

    33,195      2,179

Cleveland-Cliffs, Inc. (Ñ)

    15,480      1,481

Comfort Systems USA, Inc. (Ñ)

    51,500      753

Commercial Metals Co.

    121,800      3,822

Constar International, Inc. (Æ)(Ñ)

    64,300      197

Corn Products International, Inc.

    41,200      1,753

Crown Holdings, Inc. (Æ)

    104,900      2,601

Cytec Industries, Inc.

    84,000      5,604

Darling International, Inc. (Æ)

    44,541      448

Dycom Industries, Inc. (Æ)

    19,100      540

Dynamic Materials Corp. (Ñ)

    27,700      1,524

Eastman Chemical Co. (Ñ)

    45,000      2,997

EMCOR Group, Inc. (Æ)(Ñ)

    242,949      8,365

Encore Wire Corp. (Ñ)

    12,316      259

Ennis, Inc. (Ñ)

    83,900      1,715

Ferro Corp. (Ñ)

    13,505      280
     Principal
Amount ($)
or Shares		      Market
Value
$

FMC Corp.

    53,000      3,047

Gerdau Ameristeel Corp.

    119,700      1,623

GrafTech International, Ltd. (Æ)(Ñ)

    58,543      1,106

Granite Construction, Inc.

    38,000      1,627

Haynes International, Inc. (Æ)(Ñ)

    37,200      3,256

Hercules, Inc.

    61,800      1,162

Horsehead Holding Corp. (Æ)(Ñ)

    74,500      1,699

Innospec, Inc. (Ñ)

    25,138      535

Jacobs Engineering Group, Inc. (Æ)(Ñ)

    64,100      5,586

KBR, Inc. (Æ)

    219,117      9,396

Koppers Holdings, Inc.

    61,900      2,773

Lamson & Sessions Co. (The) (Æ)(Ñ)

    65,400      1,781

Landec Corp. (Æ)(Ñ)

    43,038      640

Layne Christensen Co. (Æ)(Ñ)

    45,300      2,579

LB Foster Co. Class A (Æ)(Ñ)

    25,200      1,085

Lennox International, Inc. (Ñ)

    118,300      4,223

LSI Industries, Inc.

    28,300      535

Lubrizol Corp.

    21,000      1,425

Lydall, Inc. (Æ)

    23,443      252

McDermott International, Inc. (Æ)

    188,502      11,510

Michael Baker Corp. (Æ)

    10,092      533

Minerals Technologies, Inc. (Ñ)

    6,600      463

Multi-Color Corp. (Ñ)

    6,900      159

Myers Industries, Inc. (Ñ)

    27,798      589

New Market Corp. (Ñ)

    13,800      742

Novagold Resources, Inc. (Æ)(Ñ)

    84,050      1,580

Olin Corp. (Ñ)

    110,800      2,524

OM Group, Inc. (Æ)(Ñ)

    72,492      3,841

Owens-Illinois, Inc. (Æ)

    14,600      648

Perini Corp. (Æ)

    51,854      2,974

PolyOne Corp. (Æ)(Ñ)

    53,856      430

Quaker Chemical Corp.

    7,000      151

Quanex Corp. (Ñ)

    3,226      133

Quanta Services, Inc. (Æ)(Ñ)

    189,003      6,237

Rock-Tenn Co. Class A

    105,898      3,088

Rockwood Holdings, Inc. (Æ)(Ñ)

    16,151      631

RPM International, Inc.

    174,371      3,737

RTI International Metals, Inc. (Æ)

    37,000      2,893

Schnitzer Steel Industries, Inc. Class A (Ñ)

    13,900      918

Sigma-Aldrich Corp. (Ñ)

    40,300      2,082

Simpson Manufacturing Co., Inc. (Ñ)

    15,307      459

Smurfit-Stone Container Corp. (Æ)

    189,700      2,297

Sonoco Products Co.

    50,100      1,549

Spartech Corp. (Ñ)

    77,750      1,195

Steel Dynamics, Inc. (Ñ)

    34,500      1,836

Superior Essex, Inc. (Æ)

    26,589      884

32   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Terra Industries, Inc. (Æ)(Ñ)

    49,166      1,814

Timken Co.

    76,800      2,554

Tredegar Corp. (Ñ)

    21,614      376

Trimas Corp. (Æ)(Ñ)

    78,600      1,258

UAP Holding Corp.

    48,600      1,547

URS Corp. (Æ)(Ñ)

    128,992      7,973

USEC, Inc. (Æ)(Ñ)

    20,764      183

Valspar Corp.

    33,800      846

Washington Group International, Inc. (Æ)(Ñ)

    98,292      9,569

Wausau Paper Corp. (Ñ)

    24,400      244

Westlake Chemical Corp. (Ñ)

    45,500      1,117

Worthington Industries, Inc. (Ñ)

    11,423      286
         
        200,729
         

Miscellaneous - 0.9%

        

Brunswick Corp. (Ñ)

    84,000      1,874

Foster Wheeler, Ltd. (Æ)

    18,908      2,803

Johnson Controls, Inc. (Ñ)

    49,800      2,177

SPX Corp.

    32,000      3,242

Teleflex, Inc. (Ñ)

    29,300      2,145

Wesco Financial Corp. (Ñ)

    4,658      1,854
         
        14,095
         

Other Energy - 6.1%

        

Alon USA Energy, Inc. (Ñ)

    24,907      916

Atlas Pipeline Partners, LP (Ñ)

    30,075      1,456

ATP Oil & Gas Corp. (Æ)

    39,700      2,277

Atwood Oceanics, Inc. (Æ)(Ñ)

    46,100      3,883

Berry Petroleum Co. Class A (Ñ)

    55,900      2,723

Bois d’Arc Energy, Inc. (Æ)(Ñ)

    100,900      2,214

Brigham Exploration Co. (Æ)(Ñ)

    181,070      1,334

Bronco Drilling Co., Inc. (Æ)(Ñ)

    88,500      1,204

Cameron International Corp. (Æ)(Ñ)

    38,654      3,763

Carrizo Oil & Gas, Inc. (Æ)(Ñ)

    16,900      868

Clayton Williams Energy, Inc. (Æ)

    4,000      120

Comstock Resources, Inc. (Æ)

    48,100      1,758

Core Laboratories NV (Æ)(Ñ)

    59,967      8,752

Dawson Geophysical Co. (Æ)(Ñ)

    11,500      918

Delek US Holdings, Inc. (Ñ)

    26,000      624

Dresser-Rand Group, Inc. (Æ)

    43,200      1,672

Dril-Quip, Inc. (Æ)

    69,151      3,688

Enbridge Energy Partners, LP Class A

    33,070      1,756

EnerNOC, Inc. - ADR (Æ)(Ñ)

    35,000      1,631

Exterran Holdings, Inc. (Æ)(Ñ)

    2,794      235

FMC Technologies, Inc. (Æ)

    24,600      1,491

Frontier Oil Corp.

    63,500      2,908

Global Industries, Ltd. (Æ)

    65,100      1,603
     Principal
Amount ($)
or Shares		      Market
Value
$

Goodrich Petroleum Corp. (Æ)(Ñ)

    67,223      2,232

Grey Wolf, Inc. (Æ)(Ñ)

    402,379      2,265

Helix Energy Solutions Group, Inc. (Æ)(Ñ)

    32,000      1,480

Helmerich & Payne, Inc. (Ñ)

    13,300      421

Hercules Offshore, Inc. (Æ)

    55,000      1,487

ION Geophysical Corp. (Æ)(Ñ)

    142,800      2,163

JA Solar Holdings Co., Ltd. - ADR (Æ)(Ñ)

    49,500      2,851

Meridian Resource Corp. (Æ)

    58,527      148

NATCO Group, Inc. Class A (Æ)

    28,400      1,514

Newfield Exploration Co. (Æ)(Ñ)

    16,800      905

Oceaneering International, Inc. (Æ)

    54,800      4,234

Ormat Technologies, Inc. (Ñ)

    29,800      1,607

Parker Drilling Co. (Æ)(Ñ)

    71,100      600

Penn Virginia Corp. (Ñ)

    20,158      976

Petroquest Energy, Inc. (Æ)(Ñ)

    358,700      4,627

Pioneer Drilling Co. (Æ)(Ñ)

    81,623      994

Rosetta Resources, Inc. (Æ)(Ñ)

    20,511      390

Rowan Cos., Inc. (Ñ)

    44,900      1,750

SEACOR Holdings, Inc. (Æ)(Ñ)

    25,100      2,300

Southwestern Energy Co. (Æ)(Ñ)

    56,200      2,907

Stone Energy Corp. (Æ)

    25,000      1,114

TEPPCO Partners, LP (Ñ)

    38,000      1,530

Tesoro Corp. (Ñ)

    40,600      2,458

Tetra Technologies, Inc. (Æ)(Ñ)

    46,200      910

Union Drilling, Inc. (Æ)(Ñ)

    14,300      191

Unit Corp. (Æ)

    27,000      1,290

Western Refining, Inc. (Ñ)

    41,400      1,519

Whiting Petroleum Corp. (Æ)

    36,800      1,989

XTO Energy, Inc.

    32,609      2,165
         
        96,811
         

Producer Durables - 7.2%

        

Advanced Energy Industries, Inc. (Æ)(Ñ)

    47,723      764

AGCO Corp. (Æ)(Ñ)

    27,454      1,638

Altra Holdings, Inc. (Æ)

    100,526      1,634

Applied Industrial Technologies, Inc.

    4,300      152

Arris Group, Inc. (Æ)(Ñ)

    116,394      1,339

Asyst Technologies, Inc. (Æ)

    38,100      183

BE Aerospace, Inc. (Æ)

    155,700      7,740

Belden, Inc. (Ñ)

    23,180      1,351

C&D Technologies, Inc. (Æ)(Ñ)

    24,700      119

C-COR, Inc. (Æ)(Ñ)

    59,254      726

Chart Industries, Inc. (Æ)(Ñ)

    48,600      1,594

Cognex Corp. (Ñ)

    63,300      1,138

Columbus McKinnon Corp. (Æ)(Ñ)

    33,509      1,112

Special Growth Fund   33

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Crane Co.

    50,000      2,372

Credence Systems Corp. (Æ)(Ñ)

    347,637      1,060

CTS Corp.

    75,391      931

Curtiss-Wright Corp. (Ñ)

    6,221      350

Cymer, Inc. (Æ)(Ñ)

    34,485      1,466

Dionex Corp. (Æ)(Ñ)

    27,284      2,401

Ducommun, Inc. (Æ)

    41,900      1,665

EnPro Industries, Inc. (Æ)(Ñ)

    20,896      857

Entegris, Inc. (Æ)(Ñ)

    48,282      441

ESCO Technologies, Inc. (Æ)(Ñ)

    33,400      1,382

Flowserve Corp.

    51,900      4,098

Gardner Denver, Inc. (Æ)

    86,200      3,114

General Cable Corp. (Æ)(Ñ)

    78,023      5,617

Genlyte Group, Inc. (Æ)(Ñ)

    8,536      556

Goodrich Corp.

    137,120      9,552

Hardinge, Inc.

    5,022      162

HNI Corp.

    15,800      685

Hubbell, Inc. Class B

    61,100      3,360

Hurco Cos., Inc. (Æ)(Ñ)

    2,846      163

Kennametal, Inc.

    30,351      2,768

Knoll, Inc.

    47,603      904

LTX Corp. (Æ)(Ñ)

    135,735      449

Manitowoc Co., Inc. (The)

    17,500      862

MasTec, Inc. (Æ)(Ñ)

    32,900      519

Milacron, Inc. (Æ)(Ñ)

    16,612      126

Mitcham Industries, Inc. (Æ)

    9,280      202

MKS Instruments, Inc. (Æ)

    5,591      112

Molex, Inc.

    59,100      1,688

Moog, Inc. Class A (Æ)(Ñ)

    37,416      1,727

NACCO Industries, Inc. Class A

    4,451      461

Pall Corp.

    141,000      5,650

Park-Ohio Holdings Corp. (Æ)

    8,400      201

Photon Dynamics, Inc. (Æ)(Ñ)

    11,953      123

Polycom, Inc. (Æ)

    145,140      4,061

Ritchie Bros Auctioneers, Inc.

    80,180      6,000

Robbins & Myers, Inc.

    62,100      4,490

Steelcase, Inc. Class A (Ñ)

    43,800      783

Sun Hydraulics Corp. (Ñ)

    11,850      426

Suntech Power Holdings Co., Ltd. - ADR (Æ)(Ñ)

    77,600      4,570

Tecumseh Products Co. Class A (Æ)(Ñ)

    103,500      1,870

Teledyne Technologies, Inc. (Æ)(Ñ)

    46,500      2,432

Tennant Co. (Ñ)

    20,000      943

Teradyne, Inc. (Æ)

    34,200      422

Tessco Technologies, Inc. (Æ)

    6,888      105

Thomas & Betts Corp. (Æ)(Ñ)

    6,600      370

Triumph Group, Inc. (Ñ)

    50,700      4,037
     Principal
Amount ($)
or Shares		      Market
Value
$

Ultra Clean Holdings (Æ)(Ñ)

    113,500      1,457

Ultratech, Inc. (Æ)(Ñ)

    118,400      1,372

Waters Corp. (Æ)

    15,200      1,170

Woodward Governor Co.

    30,431      2,039

W.W. Grainger, Inc. (Ñ)

    18,200      1,637
         
        113,698
         

Technology - 19.3%

        

ActivIdentity Corp. (Æ)

    2,000      9

Adaptec, Inc. (Æ)(Ñ)

    136,300      481

ADC Telecommunications, Inc. (Æ)(Ñ)

    112,900      2,111

Alliance Semiconductor Corp.

    104,700      215

American Software, Inc. Class A

    17,718      144

AMIS Holdings, Inc. (Æ)

    34,644      266

Amkor Technology, Inc. (Æ)(Ñ)

    67,800      768

Amphenol Corp. Class A

    215,744      9,551

Anadigics, Inc. (Æ)(Ñ)

    189,800      2,800

Ansoft Corp. (Æ)

    7,855      236

Ansys, Inc. (Æ)

    333,454      12,941

Applied Micro Circuits Corp. (Æ)(Ñ)

    222,500      716

ARM Holdings PLC - ADR

    216,700      2,013

Arrow Electronics, Inc. (Æ)

    56,400      2,255

ASE Test, Ltd. (Æ)(Ñ)

    93,300      1,353

AsiaInfo Holdings, Inc. (Æ)(Ñ)

    25,849      316

Avanex Corp. (Æ)(Ñ)

    222,800      412

Avnet, Inc. (Æ)(Ñ)

    129,600      5,407

BearingPoint, Inc. (Æ)(Ñ)

    223,400      1,070

Blackboard, Inc. (Æ)(Ñ)

    149,600      7,465

Blue Coat Systems, Inc. (Æ)(Ñ)

    10,100      410

Bookham, Inc. (Æ)

    86,500      259

Brocade Communications Systems, Inc. (Æ)(Ñ)

    392,900      3,736

CACI International, Inc. Class A (Æ)(Ñ)

    11,902      641

Captaris, Inc. (Æ)

    52,249      242

Cavium Networks, Inc. (Æ)(Ñ)

    103,700      3,016

Cbeyond, Inc. (Æ)(Ñ)

    27,600      1,080

Checkpoint Systems, Inc. (Æ)

    52,201      1,579

ChipMOS TECHNOLOGIES Bermuda, Ltd. (Æ)(Ñ)

    208,966      1,174

Ciber, Inc. (Æ)

    16,900      132

Ciena Corp. (Æ)(Ñ)

    121,470      5,814

Cognizant Technology Solutions Corp. Class A (Æ)

    62,400      2,587

CommScope, Inc. (Æ)(Ñ)

    69,621      3,284

Compuware Corp. (Æ)

    31,300      313

COMSYS IT Partners, Inc. (Æ)

    13,242      235

34   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Comtech Telecommunications Corp. (Æ)(Ñ)

    65,791      3,569

Comverse Technology, Inc. (Æ)(Ñ)

    126,000      2,422

Concur Technologies, Inc. (Æ)

    18,171      655

CSG Systems International, Inc. (Æ)(Ñ)

    98,912      2,031

Cubic Corp. (Ñ)

    31,654      1,424

Data Domain, Inc. (Æ)(Ñ)

    87,400      3,017

DealerTrack Holdings, Inc. (Æ)

    72,700      3,569

Diodes, Inc. (Æ)(Ñ)

    93,510      3,091

DivX, Inc. (Æ)(Ñ)

    105,800      1,326

Eclipsys Corp. (Æ)(Ñ)

    15,856      358

EMS Technologies, Inc. (Æ)

    11,126      312

EPIQ Systems, Inc. (Æ)(Ñ)

    54,060      1,048

Equinix, Inc. (Æ)(Ñ)

    67,270      7,848

First Solar, Inc. (Æ)(Ñ)

    10,700      1,699

Flir Systems, Inc. (Æ)(Ñ)

    97,090      6,737

Foundry Networks, Inc. (Æ)(Ñ)

    250,655      5,299

Genesis Microchip, Inc. (Æ)(Ñ)

    75,900      560

GeoEye, Inc. (Æ)(Ñ)

    87,653      2,744

Gerber Scientific, Inc. (Æ)(Ñ)

    21,900      242

Harris Corp.

    68,200      4,130

Hittite Microwave Corp. (Æ)(Ñ)

    118,519      5,956

HMS Holdings Corp. (Æ)

    194,300      5,532

Ikanos Communications, Inc. (Æ)(Ñ)

    102,600      675

Informatica Corp. (Æ)(Ñ)

    255,060      4,356

Ingram Micro, Inc. Class A (Æ)

    121,300      2,576

Intermec, Inc. (Æ)(Ñ)

    112,059      2,849

Interwoven, Inc. (Æ)

    125,300      1,778

Ixia (Æ)(Ñ)

    14,171      148

IXYS Corp. (Æ)

    3,500      37

JDA Software Group, Inc. (Æ)(Ñ)

    17,500      437

JDS Uniphase Corp. (Æ)(Ñ)

    87,900      1,341

Keynote Systems, Inc. (Æ)(Ñ)

    90,600      1,331

Lawson Software, Inc. (Æ)

    58,060      655

Leadis Technology, Inc. (Æ)

    4,700      14

Manhattan Associates, Inc. (Æ)

    39,709      1,198

Marvell Technology Group, Ltd. (Æ)

    119,849      2,161

Mellanox Technologies, Ltd. (Æ)(Ñ)

    25,800      609

MEMC Electronic Materials, Inc. (Æ)(Ñ)

    53,800      3,939

Mercury Computer Systems, Inc. (Æ)(Ñ)

    68,700      1,074

Merix Corp. (Æ)(Ñ)

    13,385      93

Methode Electronics, Inc.

    58,351      732

Micrel, Inc. (Ñ)

    60,302      546

Micros Systems, Inc. (Æ)(Ñ)

    123,132      8,843

Microsemi Corp. (Æ)(Ñ)

    118,600      3,156

MicroStrategy, Inc. Class A (Æ)

    3,246      319
     Principal
Amount ($)
or Shares		      Market
Value
$

Monolithic Power Systems, Inc. (Æ)

    58,547      1,284

Netlogic Microsystems, Inc. (Æ)(Ñ)

    79,000      2,623

Nice Systems, Ltd. - ADR (Æ)

    205,376      8,098

Novatel Wireless, Inc. (Æ)(Ñ)

    8,433      219

Nuance Communications, Inc. (Æ)

    38,200      845

Omniture, Inc. (Æ)(Ñ)

    85,900      2,934

ON Semiconductor Corp. (Æ)(Ñ)

    3,456      35

Orckit Communications, Ltd. (Æ)(Ñ)

    73,800      540

Pegasystems, Inc. (Ñ)

    10,169      119

PerkinElmer, Inc.

    125,600      3,457

Rackable Systems, Inc. (Æ)(Ñ)

    60,800      831

RADWARE, Ltd. (Æ)

    47,100      797

RealNetworks, Inc. (Æ)(Ñ)

    300,700      2,183

Riverbed Technology, Inc. (Æ)

    47,000      1,588

SAIC, Inc. (Æ)(Ñ)

    49,900      984

SanDisk Corp. (Æ)(Ñ)

    114,374      5,078

Sanmina-SCI Corp. (Æ)

    548,400      1,212

Satyam Computer Services, Ltd. - ADR (Ñ)

    128,600      3,903

SAVVIS, Inc. (Æ)(Ñ)

    8,500      321

Seachange International, Inc. (Æ)(Ñ)

    166,600      1,035

Seagate Technology (Ñ)

    112,545      3,133

Sigma Designs, Inc. (Æ)(Ñ)

    96,300      5,660

Sigmatel, Inc. (Æ)(Ñ)

    40,100      123

Silicon Storage Technology, Inc. (Æ)(Ñ)

    217,800      723

SiRF Technology Holdings, Inc. (Æ)(Ñ)

    192,085      5,726

Skyworks Solutions, Inc. (Æ)(Ñ)

    456,100      4,205

SonicWALL, Inc. (Æ)

    86,400      893

SPSS, Inc. (Æ)(Ñ)

    1,291      49

Starent Networks Corp. (Æ)(Ñ)

    37,100      919

Sunpower Corp. Class A (Æ)(Ñ)

    22,800      2,883

Sybase, Inc. (Æ)

    50,037      1,431

Sycamore Networks, Inc. (Æ)(Ñ)

    161,400      689

Synaptics, Inc. (Æ)(Ñ)

    31,400      1,707

Synchronoss Technologies, Inc. (Æ)(Ñ)

    12,600      504

Syniverse Holdings, Inc. (Æ)(Ñ)

    99,809      1,666

SYNNEX Corp. (Æ)(Ñ)

    35,000      783

Synopsys, Inc. (Æ)

    34,100      964

Syntel, Inc.

    29,400      1,252

Tekelec (Æ)(Ñ)

    244,300      3,225

Tessera Technologies, Inc. (Æ)

    168,391      6,431

TIBCO Software, Inc. (Æ)(Ñ)

    299,500      2,749

Trimble Navigation, Ltd. (Æ)

    94,964      3,960

TriQuint Semiconductor, Inc. (Æ)(Ñ)

    255,500      1,602

Unisys Corp. (Æ)(Ñ)

    321,900      1,957

Utstarcom, Inc. (Æ)(Ñ)

    166,600      533

Special Growth Fund   35

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

VeriFone Holdings, Inc. (Æ)(Ñ)

    186,800      9,234

Verigy, Ltd. (Æ)

    229,439      5,275

Verint Systems, Inc. (Æ)(Ñ)

    146,806      3,682

Vignette Corp. (Æ)(Ñ)

    47,981      827

Vocus, Inc. (Æ)(Ñ)

    110,000      3,958

Wavecom SA - ADR (Æ)

    32,200      785

Western Digital Corp. (Æ)(Ñ)

    265,300      6,877

Zebra Technologies Corp. Class A (Æ)

    75,424      2,948

Zoran Corp. (Æ)

    117,400      2,994
         
        305,900
         

Utilities - 3.6%

        

Alliant Energy Corp. (Ñ)

    35,100      1,404

Atmos Energy Corp. (Ñ)

    83,181      2,333

Black Hills Corp. (Ñ)

    30,002      1,333

Centennial Communications Corp. (Æ)

    27,884      286

Centerpoint Energy, Inc. (Ñ)

    119,100      1,996

CenturyTel, Inc.

    57,600      2,537

Cincinnati Bell, Inc. (Æ)(Ñ)

    213,662      1,158

Citizens Communications Co. (Ñ)

    97,800      1,287

CMS Energy Corp. (Ñ)

    110,900      1,882

Energen Corp. (Ñ)

    48,700      3,117

Laclede Group, Inc. (The) (Ñ)

    3,900      136

MDU Resources Group, Inc. (Ñ)

    60,700      1,709

New Jersey Resources Corp. (Ñ)

    25,733      1,267

NII Holdings, Inc. (Æ)(Ñ)

    75,174      4,360

Northeast Utilities

    151,200      4,661

NSTAR (Ñ)

    27,100      953

NTELOS Holdings Corp.

    55,289      1,669

OGE Energy Corp.

    11,400      437

Oneok, Inc. (Ñ)

    20,700      1,034

Pepco Holdings, Inc. (Ñ)

    122,700      3,496

Portland General Electric Co.

    82,539      2,323

Premiere Global Services, Inc. (Æ)

    43,900      723

Rural Cellular Corp. Class A (Æ)(Ñ)

    11,031      489

Sierra Pacific Resources (Ñ)

    102,800      1,734

Southern Union Co.

    71,300      2,246

Southwest Gas Corp. (Ñ)

    38,089      1,134

Suburban Propane Partners, LP (Ñ)

    12,100      583

TECO Energy, Inc.

    98,700      1,661

Time Warner Telecom, Inc. Class A (Æ)(Ñ)

    190,751      4,433

UGI Corp.

    119,600      3,184
     Principal
Amount ($)
or Shares		      Market
Value
$		  

USA Mobility, Inc. (Æ)(Ñ)

    30,553      478  

WGL Holdings, Inc. (Ñ)

    16,333      555  
           
        56,598  
           
Total Common Stocks        

(cost $1,281,905)

         1,480,194  
           
Warrants & Rights - 0.0%        

Financial Services - 0.0%

        

Washington Mutual, Inc.
2050 Warrants (Æ)

    226,300      41  
           
Total Warrants & Rights        

(cost $47)

         41  
           
Short-Term Investments - 6.6%     

Russell Investment Company
Money Market Fund

    99,657,444      99,657  

United States Treasury Bills (ç)(ž)(§) 3.650% due 12/20/07

    5,000      4,976  
           
Total Short-Term Investments        

(cost $104,633)

         104,633  
           
Other Securities - 39.0%        

Russell Investment Company
Money Market Fund (×)

    142,360,352      142,360  

State Street Securities Lending Quality Trust (×)

    475,451,685      475,452  
           
Total Other Securities        

(cost $617,812)

         617,812  
           
Total Investments - 138.8%        

(identified cost $2,004,397)

         2,202,680  
Other Assets and Liabilities, Net - (38.8%)         (615,892 )
           
Net Assets - 100.0%         1,586,788  
           

 

See accompanying notes which are an integral part of the financial statements.

36   Special Growth Fund

Table of Contents

Russell Investment Company

Special Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Futures Contracts

(Number of Contracts)

   Notional
Amount		      Unrealized
Appreciation
(Depreciation)
$
         

Long Positions

          

Russell 2000 Mini Index (CME) expiration date 12/07 (1,242)

   USD      103,372      4,957
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

           4,957
           

 

See accompanying notes which are an integral part of the financial statements.

Special Growth Fund   37

Table of Contents

Russell Investment Company

Special Growth Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  
  

Auto and Transportation

    2.8  

Consumer Discretionary

    15.5  

Consumer Staples

    1.8  

Financial Services

    13.0  

Health Care

    10.4  

Materials and Processing

    12.6  

Miscellaneous

    0.9  

Other Energy

    6.1  

Producer Durables

    7.2  

Technology

    19.3  

Utilities

    3.6  

Warrants & Rights

    — *

Short-Term Investments

    6.6  

Other Securities

    39.0  
      

Total Investments

    138.8  

Other Assets and Liabilities, Net

    (38.8 )
      
   100.0  
      

Futures Contracts

    0.3  

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

38   Special Growth Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Quantitative Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Quantitative Equity Fund - Class S  
          Total
Return		  

1 Year

       10.79 %

5 Years

       13.14 %§

10 Years

       6.67 %§

 

Quantitative Equity Fund - Class E‡  
          Total
Return		  

1 Year

       10.53 %

5 Years

       12.86 %§

10 Years

       6.37 %§

 

Quantitative Equity Fund - Class C‡‡  
          Total
Return		  

1 Year

       9.67 %

5 Years

       12.01 %§

10 Years

       5.72 %§

 

Quantitative Equity Fund - Class A‡‡‡  
          Total
Return		  

1 Year

       4.19 %

5 Years

       11.53 %§

10 Years

       5.74 %§

 

Russell 1000® Index**  
          Total
Return		  

1 Year

       15.03 %

5 Years

       14.54 %§

10 Years

       7.40 %§

40   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Quantitative Equity Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Quantitative Equity Fund Class A, Class C, Class E and Class S Shares gained 10.53%, 9.67%, 10.53% and 10.79%, respectively. This compared to the Russell 1000® Index, which gained 15.03% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ended October 31, 2007, the Lipper® Multi-Cap Core Funds Average returned 15.69%. 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 Fund’s money managers typically use a variety of quantitative investment models and techniques to rank the relative attractiveness of securities based upon expected ability to outperform the total return of the Russell 1000 Index. Quantitative managers seek to find market factors, such as price/earnings, price momentum, earnings revisions and earnings surprise, which are predictive of positive excess returns over the long term. The market transition from value to growth over this fiscal year made for a difficult environment for quantitative strategies. During transitional markets, quantitative strategies must adjust their models to incorporate the new market data, often causing them to lag the market at the onset of the transition.

Over the fiscal year, price momentum and earnings revisions were the factors that were most rewarded by the market, while exposure to low price/earnings stocks was detrimental. This proved challenging for the Fund, as the Fund’s factor exposures

were focused on valuation factors such as price/earnings and price/book, and less on momentum and earnings revisions.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The quantitative nature of the Fund, along with its valuation bias made this a difficult market environment for the Fund. The Fund’s focus on valuation factors such as price/book and earnings yield was detrimental to performance. Though the Fund was generally invested in sectors that outperformed, it held underperforming stocks in those sectors. Exposure to financial companies that had subprime mortgage holdings contributed to the Fund’s underperformance. The Fund’s performance was also hurt by weak stock selection in the consumer discretionary and heath care sectors.

RIMCo currently employs a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings of the Fund’s money managers in their Fund segments to identify particular stocks that have been selected by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. As the Fund underperformed for the period, the select holdings strategy also underperformed the benchmark.

Aronson+Johnson+Ortiz, L.P. underperformed for the period due mainly to weak stock selection in the financial services and materials and processing sectors. Aronson suffered from holding financial companies such as Countrywide Financial Corp. due to subprime lending exposure. Its performance was also hurt by not holding some of the best performing stocks for the period, such as the fertilizer company, Mosaic and gaming company, Las Vegas Sands.

Franklin Portfolio Associates, LLC underperformed the benchmark for the period. Franklin had weak stock selection in the consumer discretionary, financial services and heath care sectors. Franklin’s exposure to low price/earnings stocks was detrimental; however, the momentum component of their model added marginally to returns.

Goldman Sachs Asset Management, L.P. underperformed the benchmark. Goldman also felt the effects of subprime lending exposure, and had negative stock selection in the financial services sector. Also showing weakness was their stock selection in the consumer discretionary and technology sectors.

Jacobs Levy Equity Management, Inc. was the only manager to outperform the benchmark over the fiscal year. Though Jacobs


Quantitative Equity Fund   41

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

also had weak stock selection in the consumer discretionary and technology sectors, they benefited from several short positions in the financial services sector. Additionally, an overweight to the materials and processing sector was beneficial.

Describe any changes to the Fund’s structure or the money manager line-up.

In April 2007, Aronson’s long-only mandate was changed to a limited long/short assignment. There were no changes to the manager line-up for the fiscal year ending October 31, 2007.

 

Money Managers as of
October 31, 2007		   Styles

Aronson+Johnson+Ortiz, LP

   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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡   The returns shown for Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to February 28, 2007. The returns shown for the Fund’s Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of the Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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.

42   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,028.30    $ 1,018.40

Expenses Paid During Period*

    $ 6.90    $ 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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,024.20    $ 1,014.32

Expenses Paid During Period*

    $ 11.02    $ 10.97

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.16% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,028.30    $ 1,018.10

Expenses Paid During Period*

    $ 7.21    $ 7.17

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.41% (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   43

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,029.40    $ 1,019.36

Expenses Paid During Period*

    $ 5.93    $ 5.90

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.16% (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).

44   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Common Stocks - 106.5%

        

Auto and Transportation - 1.8%

        

Con-way, Inc.

    23,800      1,014

Continental Airlines, Inc. Class A (Æ)

    20,200      694

CSX Corp.

    71,984      3,223

FedEx Corp. (Ú)

    124,400      12,855

Ford Motor Co. (Æ)

    488,600      4,334

Frontline, Ltd. (Ñ)

    109,000      4,949

General Motors Corp.

    242,600      9,507

JB Hunt Transport Services, Inc. (Ñ)

    48,470      1,343

Landstar System, Inc.

    18,100      762

Lear Corp. (Æ)

    29,500      1,048

Norfolk Southern Corp.

    144,200      7,448

Overseas Shipholding Group, Inc. (Ñ)

    73,169      5,444

TRW Automotive Holdings Corp. (Æ)(Ñ)

    59,100      1,755

Union Pacific Corp. (Ú)

    163,800      20,973

United Parcel Service, Inc. Class B

    102,900      7,728

US Airways Group, Inc. (Æ)

    55,000      1,521
         
        84,598
         

Consumer Discretionary - 14.9%

     

Accenture, Ltd. Class A

    603,810      23,579

Allied Waste Industries, Inc. (Æ)(Ñ)

    219,700      2,777

Amazon.com, Inc. (Æ)(Ñ)(Ú)

    186,300      16,609

American Greetings Corp. Class A (Ñ)

    158,620      4,178

Apollo Group, Inc. Class A (Æ)

    135,700      10,756

AutoNation, Inc. (Æ)(Ñ)

    447,539      7,917

Autozone, Inc. (Æ)

    4,600      572

Avis Budget Group, Inc. (Æ)

    89,120      1,860

Avon Products, Inc.

    191,000      7,827

Barnes & Noble, Inc.

    81,700      3,157

Bed Bath & Beyond, Inc. (Æ)

    238,800      8,105

Best Buy Co., Inc.

    220,500      10,699

Big Lots, Inc. (Æ)(Ñ)

    135,570      3,251

BJ’s Wholesale Club, Inc. (Æ)

    63,000      2,260

Black & Decker Corp. (Ñ)

    8,100      728

Brinker International, Inc.

    91,900      2,333

Burger King Holdings, Inc.

    26,100      690

Career Education Corp. (Æ)(Ñ)

    13,500      483

Carnival Corp. (Ñ)

    6,500      312

CBS Corp. Class B (Ñ)

    600,509      17,235

Coach, Inc. (Æ)

    313,600      11,465

Convergys Corp. (Æ)

    82,600      1,514

Costco Wholesale Corp.

    108,900      7,325

Darden Restaurants, Inc.

    100,200      4,309

DeVry, Inc.

    2,600      142

DIRECTV Group, Inc. (The) (Æ)(Ú)

    1,460,400      38,671
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Dollar Tree Stores, Inc. (Æ)

    9,600      368

DreamWorks Animation SKG, Inc. Class A (Æ)

    46,700      1,521

eBay, Inc. (Æ)(Ú)

    655,900      23,678

EchoStar Communications Corp. Class A (Æ)

    300,900      14,732

Estee Lauder Cos., Inc. (The) Class A

    255,100      11,199

Expedia, Inc. (Æ)(Ñ)

    324,330      10,593

Family Dollar Stores, Inc. (Ñ)

    148,400      3,762

Foot Locker, Inc.

    125,400      1,867

GameStop Corp. Class A (Æ)

    68,400      4,051

Gap, Inc. (The)

    350,800      6,630

Gemstar-TV Guide International, Inc. (Æ)

    1,159      8

Google, Inc. Class A (Æ)(Ú)

    39,600      27,997

Guess ?, Inc.

    14,000      719

Hasbro, Inc.

    203,200      6,066

Hewitt Associates, Inc. Class A (Æ)

    44,300      1,563

Home Depot, Inc.

    132,000      4,159

Idearc, Inc. (Ñ)

    12,800      345

Insight Enterprises, Inc. (Æ)

    18,200      503

ITT Educational Services, Inc. (Æ)

    72,140      9,176

Jack in the Box, Inc. (Æ)

    22,400      703

Jarden Corp. (Æ)

    22,000      781

JC Penney Co., Inc.

    56,800      3,194

Kimberly-Clark Corp. (Ú)

    190,300      13,490

Liberty Global, Inc. Class A (Æ)

    215,200      8,447

Liberty Media Corp. - Capital Series A (Æ)

    15,589      1,948

Live Nation, Inc. (Æ)

    22,600      462

Manpower, Inc.

    536,009      40,061

Marriott International, Inc. Class A

    175,100      7,198

Mattel, Inc.

    214,200      4,475

McDonald’s Corp. (Ú)

    369,331      22,049

MSC Industrial Direct Co. Class A (Ñ)

    29,200      1,422

News Corp. Class A

    718,500      15,570

Nike, Inc. Class B

    317,400      21,031

Office Depot, Inc. (Æ)

    163,800      3,073

Omnicom Group, Inc.

    136,600      6,964

RadioShack Corp. (Ñ)

    89,410      1,844

Tech Data Corp. (Æ)

    110,400      4,342

Time Warner, Inc. (Ú)

    3,666,970      66,959

TJX Cos., Inc.

    661,000      19,123

Toro Co.

    3,400      189

VeriSign, Inc. (Æ)(Ñ)

    73,200      2,495

Viacom, Inc. Class B (Æ)

    98,500      4,067

Wal-Mart Stores, Inc. (Ú)

    589,100      26,633

Walt Disney Co. (The)

    1,855,630      64,260

Whirlpool Corp.

    49,100      3,888

Quantitative Equity Fund   45

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Wyndham Worldwide Corp.

    68,000      2,232

Wynn Resorts, Ltd. (Ñ)

    78,850      12,729

Yum! Brands, Inc.

    529,300      21,315
         
        698,635
         

Consumer Staples - 6.5%

        

Altria Group, Inc. (Ú)

    142,000      10,356

Anheuser-Busch Cos., Inc.

    228,500      11,717

Coca-Cola Co. (The)

    302,340      18,673

Colgate-Palmolive Co. (Ú)

    143,100      10,914

ConAgra Foods, Inc.

    340,300      8,075

General Mills, Inc.

    178,100      10,282

Hansen Natural Corp. (Ñ)

    79,400      5,399

Kroger Co. (The)

    1,849,079      54,344

Loews Corp. - Carolina Group

    16,200      1,390

McCormick & Co., Inc.

    23,300      816

Molson Coors Brewing Co. Class B

    78,260      4,479

NBTY, Inc. (Æ)

    200,700      7,145

Pepsi Bottling Group, Inc.

    230,100      9,913

PepsiAmericas, Inc.

    6,200      221

PepsiCo, Inc.

    500,800      36,919

Procter & Gamble Co.

    620,995      43,172

Safeway, Inc.

    194,500      6,613

Smithfield Foods, Inc. (Æ)

    36,200      1,038

SUPERVALU, Inc.

    125,200      4,852

Sysco Corp.

    698,900      23,965

Tyson Foods, Inc. Class A

    473,980      7,489

Universal Corp.

    4,000      195

UST, Inc. (Ñ)

    170,020      9,065

Walgreen Co.

    518,000      20,539
         
        307,571
         

Financial Services - 20.6%

        

ACE, Ltd.

    157,300      9,534

Allied World Assurance Holdings, Ltd.

    5,900      283

Allstate Corp. (The) (Ú)

    350,800      18,382

AMB Property Corp. (ö)

    10,500      686

AMBAC Financial Group, Inc. (Ñ)

    42,234      1,555

American Financial Group, Inc.

    24,800      742

American International Group, Inc. (Ú)

    768,100      48,482

AmeriCredit Corp. (Æ)(Ñ)

    60,640      856

Ameriprise Financial, Inc.

    381,940      24,055

AON Corp.

    225,400      10,215

Arch Capital Group, Ltd. (Æ)

    36,000      2,692

Arthur J Gallagher & Co.

    45,100      1,200

Ashford Hospitality Trust, Inc. (ö)

    87,700      863

Automatic Data Processing, Inc.

    423,200      20,974

AvalonBay Communities, Inc. (ö)

    31,550      3,870
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Axis Capital Holdings, Ltd.

    79,900      3,175

Bank of America Corp. (Ú)

    1,136,222      54,857

Bank of New York Mellon Corp.
(The) (Ú)

    362,204      17,694

BB&T Corp.

    4,800      177

Boston Properties, Inc. (ö)

    14,250      1,544

Camden Property Trust (ö)

    15,000      935

CB Richard Ellis Group, Inc.
Class A (Æ)(Ñ)

    359,600      8,767

CBL & Associates Properties, Inc. (ö)

    24,700      818

Charles Schwab Corp. (The)

    361,800      8,408

Chubb Corp.

    268,700      14,335

Cigna Corp.

    369,310      19,385

Cincinnati Financial Corp. (Ñ)

    144,627      5,753

Citigroup, Inc. (Ú)

    2,071,500      86,796

CME Group, Inc. Class A

    4,050      2,698

CNA Financial Corp. (Ñ)

    53,900      2,136

Comerica, Inc.

    176,400      8,234

Discover Financial Services

    31,766      613

Duke Realty Corp. (ö)

    21,600      694

Dun & Bradstreet Corp.

    69,500      6,731

East West Bancorp, Inc.

    12,000      405

Endurance Specialty Holdings, Ltd.

    23,400      918

Everest Re Group, Ltd.

    2,700      288

Federal Realty Investors Trust (ö)

    17,600      1,553

Federated Investors, Inc. Class B

    2,700      116

Fifth Third Bancorp

    381,100      11,921

First American Corp.

    23,000      692

First Marblehead Corp. (The) (Ñ)

    219,200      8,512

First Niagara Financial Group, Inc.

    7,000      92

Franklin Resources, Inc.

    82,700      10,725

General Growth Properties, Inc. (ö)

    146,100      7,942

Genworth Financial, Inc. Class A

    34,500      942

Goldman Sachs Group, Inc. (The) (Ú)

    256,800      63,666

Hanover Insurance Group, Inc.

    30,100      1,387

Hartford Financial Services Group, Inc. (Ú)

    103,900      10,081

HCC Insurance Holdings, Inc. (Ñ)

    150,500      4,498

Hospitality Properties Trust (ö)(Ñ)

    193,605      7,667

Investment Technology Group,
Inc. (Æ)

    29,900      1,253

iStar Financial, Inc. (ö)(Ñ)

    3,710      113

Jones Lang LaSalle, Inc.

    24,000      2,288

JPMorgan Chase & Co. (Ú)

    2,200,576      103,427

Keycorp

    198,400      5,644

Legg Mason, Inc.

    89,400      7,415

Lincoln National Corp.

    214,400      13,372

Loews Corp.

    287,810      14,129

Macerich Co. (The) (ö)

    17,800      1,526

46   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Mastercard, Inc. Class A (Ñ)

    21,150      4,009

MBIA, Inc. (Ñ)

    83,303      3,585

Merrill Lynch & Co., Inc. (Ú)

    500,600      33,050

MetLife, Inc. (Ú)

    121,000      8,331

MoneyGram International, Inc.

    32,662      521

Moody’s Corp. (Ñ)

    66,500      2,907

Morgan Stanley (Ú)

    726,340      48,854

Morningstar, Inc. (Æ)

    500      37

Nasdaq Stock Market, Inc. (The) (Æ)

    67,300      3,143

Nationwide Financial Services

    29,000      1,556

Northern Trust Corp.

    127,100      9,559

Odyssey Re Holdings Corp.

    14,700      547

Old Republic International Corp.

    21,200      325

Potlatch Corp. (ö)(Ñ)

    32,000      1,525

Principal Financial Group, Inc.

    100,700      6,814

Prologis (ö)

    188,241      13,504

Prudential Financial, Inc. (Ú)

    227,400      21,994

Raymond James Financial, Inc.

    38,000      1,415

Rayonier, Inc. (ö)(Ñ)

    22,300      1,077

Regency Centers Corp. (ö)

    3,900      279

Regions Financial Corp.

    90,860      2,464

RenaissanceRe Holdings, Ltd.

    56,000      3,267

Ryder System, Inc.

    3,800      182

Safeco Corp.

    158,100      9,154

Simon Property Group, Inc. (ö)

    16,340      1,701

Sotheby’s Holdings Class A (Ñ)

    63,600      3,445

StanCorp Financial Group, Inc.

    6,800      375

State Street Corp. (Ú)

    115,400      9,205

SunTrust Banks, Inc.

    170,400      12,371

Taubman Centers, Inc. (ö)

    5,100      300

Total System Services, Inc. (Ñ)

    43,500      1,303

Travelers Cos., Inc. (The) (Ú)

    499,695      26,089

Ventas, Inc. (ö)

    29,800      1,278

Vornado Realty Trust (ö)

    32,300      3,609

Wachovia Corp.

    155,200      7,097

Washington Mutual, Inc. (Ñ)

    368,700      10,279

Wells Fargo & Co.

    701,750      23,867

Western Union Co. (The)

    347,800      7,666

WR Berkley Corp.

    95,675      2,879

XL Capital, Ltd. Class A

    128,400      9,238
         
        967,512
         

Health Care - 13.5%

        

Aetna, Inc.

    823,700      46,267

AMERIGROUP Corp. Class A (Æ)

    30,700      1,074

AmerisourceBergen Corp. Class A

    910,912      42,913

Amgen, Inc. (Æ)

    105,520      6,132

Apria Healthcare Group, Inc. (Æ)(Ñ)

    53,630      1,296
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Baxter International, Inc. (Ú)

    464,100      27,851

Beckman Coulter, Inc.

    35,700      2,528

Becton Dickinson & Co.

    69,800      5,826

Biogen Idec, Inc. (Æ)

    187,400      13,950

Boston Scientific Corp. (Æ)

    42,600      591

Bristol-Myers Squibb Co. (Ú)

    385,000      11,546

Cardinal Health, Inc.

    276,500      18,810

Celgene Corp. (Æ)

    106,800      7,049

Coventry Health Care, Inc. (Æ)

    63,900      3,854

Dentsply International, Inc.

    77,700      3,223

Edwards Lifesciences Corp. (Æ)

    13,718      689

Eli Lilly & Co. (Ú)

    286,600      15,519

Express Scripts, Inc. Class A (Æ)

    279,800      17,655

Forest Laboratories, Inc. (Æ)

    87,600      3,423

Gen-Probe, Inc. (Æ)

    5,700      399

Genentech, Inc. (Æ)

    71,400      5,293

Genzyme Corp. (Æ)

    128,900      9,793

Gilead Sciences, Inc. (Æ)

    496,100      22,915

Health Net, Inc. (Æ)

    122,700      6,578

Healthspring, Inc. (Æ)

    25,500      536

Hlth Corp. (Æ)(Ñ)

    438,800      6,191

Humana, Inc. (Æ)

    193,500      14,503

Invitrogen Corp. (Æ)

    8,400      763

Johnson & Johnson (Ú)

    1,180,750      76,949

Kinetic Concepts, Inc. (Æ)

    28,000      1,683

King Pharmaceuticals, Inc. (Æ)

    147,000      1,558

Lincare Holdings, Inc. (Æ)

    61,800      2,149

McKesson Corp.

    284,600      18,812

Medco Health Solutions, Inc. (Æ)

    483,090      45,594

Medtronic, Inc. (Ú)

    27,900      1,324

Merck & Co., Inc. (Ú)

    329,260      19,183

Millennium Pharmaceuticals, Inc. (Æ)

    57,290      677

Pfizer, Inc. (Ú)

    3,694,680      90,926

Schering-Plough Corp. (Ú)

    621,200      18,959

Stryker Corp.

    4,200      298

UnitedHealth Group, Inc. (Ú)

    473,800      23,287

Ventana Medical Systems, Inc. (Æ)

    4,800      422

Watson Pharmaceuticals, Inc.
Class B (Æ)

    47,600      1,455

WellCare Health Plans, Inc. (Æ)(Ñ)

    900      22

WellPoint, Inc. (Æ)(Ú)

    243,900      19,324

Wyeth

    27,700      1,347

Zimmer Holdings, Inc. (Æ)

    216,300      15,031
         
        636,167
         

Integrated Oils - 6.8%

        

Chevron Corp. (Ú)

    852,010      77,967

ConocoPhillips

    360,100      30,594

Quantitative Equity Fund   47

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Exxon Mobil Corp. (Ú)

    1,674,318      154,021

Hess Corp.

    228,900      16,392

Marathon Oil Corp. (Ú)

    378,400      22,375

Murphy Oil Corp.

    127,300      9,373

Occidental Petroleum Corp.

    117,700      8,127
         
        318,849
         

Materials and Processing - 5.9%

        

AK Steel Holding Corp. (Æ)

    99,900      5,008

Albemarle Corp.

    70,900      3,386

American Standard Cos., Inc.

    113,253      4,221

Archer-Daniels-Midland Co.

    87,400      3,127

Armstrong World Industries,
Inc. (Æ)(Ñ)

    5,000      205

Ashland, Inc. (Ñ)

    191,700      11,257

Avery Dennison Corp.

    29,400      1,702

Celanese Corp. Class A

    87,950      3,690

CF Industries Holdings, Inc.

    37,400      3,287

Cleveland-Cliffs, Inc. (Ñ)

    4,800      459

Commercial Metals Co.

    95,300      2,991

Crown Holdings, Inc. (Æ)

    157,500      3,906

Domtar Corp. (Æ)(Ñ)

    15,142      130

Dow Chemical Co. (The) (Ú)

    465,042      20,945

Eastman Chemical Co.

    45,900      3,056

EI Du Pont de Nemours & Co. (Ú)

    179,500      8,887

EMCOR Group, Inc. (Æ)

    61,500      2,117

Energizer Holdings, Inc. (Æ)

    135,170      14,098

Fluor Corp.

    56,800      8,974

FMC Corp.

    200      12

Freeport-McMoRan Copper & Gold, Inc. Class B

    213,150      25,084

Granite Construction, Inc.

    19,500      835

Greif, Inc. Class A

    19,000      1,208

International Paper Co.

    471,100      17,412

Jacobs Engineering Group, Inc. (Æ)

    75,600      6,589

KBR, Inc. (Æ)

    62,900      2,697

Lennox International, Inc.

    8,400      300

McDermott International, Inc. (Æ)

    123,000      7,510

Minerals Technologies, Inc.

    7,400      520

Monsanto Co. (Ú)

    91,100      8,894

Mosaic Co. (The) (Æ)(Ñ)

    21,000      1,466

Newmont Mining Corp.

    5,660      288

Nucor Corp.

    156,000      9,675

Olin Corp.

    4,600      105

Owens-Illinois, Inc. (Æ)

    7,500      333

Pactiv Corp. (Æ)

    198,600      5,456

Perini Corp. (Æ)

    24,800      1,422

PPG Industries, Inc.

    134,700      10,067
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Precision Castparts Corp.

    120,750      18,090

Sealed Air Corp. (Ñ)

    56,100      1,399

Sherwin-Williams Co. (The)

    385,800      24,660

Southern Copper Corp. (Ñ)

    104,950      14,662

Terra Industries, Inc. (Æ)(Ñ)

    32,000      1,180

Timken Co.

    52,300      1,740

United States Steel Corp.

    109,950      11,864

URS Corp. (Æ)

    29,200      1,805

Worthington Industries, Inc.

    16,000      400
         
        277,119
         

Miscellaneous - 2.6%

        

3M Co.

    138,000      11,918

Brunswick Corp.

    98,700      2,202

Eaton Corp.

    97,700      9,045

Foster Wheeler, Ltd. (Æ)

    75,700      11,223

General Electric Co. (Ú)

    1,276,520      52,542

Honeywell International, Inc. (Ú)

    244,500      14,770

ITT Corp.

    83,300      5,574

SPX Corp.

    75,420      7,640

Teleflex, Inc.

    29,200      2,138

Textron, Inc.

    75,600      5,232

Tyco International, Ltd.

    52,200      2,149
         
        124,433
         

Other Energy - 6.0%

        

Anadarko Petroleum Corp. (Ñ)

    68,400      4,037

Apache Corp.

    114,500      11,886

Atwood Oceanics, Inc. (Æ)

    4,700      396

Chesapeake Energy Corp. (Ñ)

    348,300      13,751

Cimarex Energy Co.

    5,200      211

Delek US Holdings, Inc.

    10,300      247

Devon Energy Corp.

    160,390      14,980

Dresser-Rand Group, Inc. (Æ)

    21,400      828

Dynegy, Inc. Class A (Æ)

    4,230      39

ENSCO International, Inc.

    11,100      616

FMC Technologies, Inc. (Æ)

    56,000      3,395

Frontier Oil Corp.

    126,800      5,806

Global Industries, Ltd. (Æ)

    201,700      4,966

GlobalSantaFe Corp. (Ñ)

    35,100      2,844

Halliburton Co. (Ú)

    1,159,400      45,704

Holly Corp.

    157,700      9,904

Nabors Industries, Ltd. (Æ)

    81,700      2,294

National Oilwell Varco, Inc. (Æ)

    338,600      24,799

Noble Corp.

    71,200      3,770

Noble Energy, Inc.

    155,500      11,902

NRG Energy, Inc. (Æ)(Ñ)

    106,200      4,849

Patterson-UTI Energy, Inc. (Ñ)

    144,400      2,879

48   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Pioneer Natural Resources Co.

    2,200      112

Plains Exploration & Production
Co. (Æ)(Ñ)

    1,400      71

Pogo Producing Co.

    1,500      89

Reliant Energy, Inc. (Æ)

    515,000      14,173

SEACOR Holdings, Inc. (Æ)(Ñ)

    34,900      3,199

Smith International, Inc.

    16,500      1,090

St. Mary Land & Exploration Co.

    30,500      1,292

Sunoco, Inc.

    209,200      15,397

Superior Energy Services, Inc. (Æ)

    63,600      2,358

Tesoro Corp.

    363,800      22,021

Unit Corp. (Æ)

    42,400      2,025

Valero Energy Corp. (Ú)

    394,900      27,813

Western Refining, Inc. (Ñ)

    184,100      6,753

XTO Energy, Inc.

    229,400      15,228
         
        281,724
         

Producer Durables - 7.1%

        

AGCO Corp. (Æ)

    197,460      11,784

Applied Materials, Inc.

    2,047,900      39,770

Boeing Co. (Ú)

    295,400      29,124

Caterpillar, Inc. (Ú)

    297,800      22,219

Crane Co.

    10,500      498

Cummins, Inc.

    97,462      11,692

Emerson Electric Co.

    5,700      298

Gardner Denver, Inc. (Æ)

    45,400      1,640

General Cable Corp. (Æ)(Ñ)

    7,000      504

Herman Miller, Inc.

    7,600      207

HNI Corp. (Ñ)

    34,700      1,505

Hubbell, Inc. Class B

    3,600      198

Ingersoll-Rand Co., Ltd. Class A

    13,200      665

KIA-Tencor Corp.

    72,000      3,791

Lexmark International, Inc.
Class A (Æ)(Ñ)

    100,670      4,227

Lockheed Martin Corp. (Ú)

    561,160      61,750

Manitowoc Co., Inc. (The)

    121,200      5,970

Mettler Toledo International, Inc. (Æ)

    14,300      1,521

Molex, Inc.

    85,200      2,433

Northrop Grumman Corp.

    698,175      58,381

Novellus Systems, Inc. (Æ)(Ñ)

    138,700      3,940

Parker Hannifin Corp.

    76,950      6,184

Raytheon Co.

    322,290      20,501

Rockwell Collins, Inc.

    28,000      2,095

Steelcase, Inc. Class A

    72,100      1,288

Thomas & Betts Corp. (Æ)

    40,600      2,274

United Technologies Corp. (Ú)

    151,100      11,573

W.W. Grainger, Inc.

    2,200      198

Waters Corp. (Æ)

    63,050      4,854

Xerox Corp. (Æ)

    1,260,000      21,974
         
        333,058
         
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Technology - 15.3%

        

ADC Telecommunications, Inc. (Æ)

    65,200      1,219

Analog Devices, Inc.

    70,200      2,349

Apple, Inc. (Æ)

    208,800      39,662

Applera Corp. - Applied Biosystems Group

    105,889      3,933

Arrow Electronics, Inc. (Æ)

    86,600      3,462

Atmel Corp. (Æ)

    179,400      877

Autodesk, Inc. (Æ)

    183,200      8,959

Avnet, Inc. (Æ)

    555,990      23,196

Blue Coat Systems, Inc. (Æ)

    19,200      779

BMC Software, Inc. (Æ)

    156,900      5,310

Brocade Communications Systems, Inc. (Æ)

    99,200      943

Cadence Design Systems, Inc. (Æ)

    4,700      92

Cisco Systems, Inc. (Æ)

    1,226,870      40,560

Computer Sciences Corp. (Æ)

    237,029      13,840

Compuware Corp. (Æ)

    90,300      903

Corning, Inc. (Ú)

    376,100      9,128

Dell, Inc. (Æ)(Ú)

    798,900      24,446

Electronic Data Systems Corp.

    272,700      5,888

EMC Corp. (Æ)(Ñ)

    180,300      4,578

First Solar, Inc. (Æ)

    9,400      1,493

Garmin, Ltd.

    132,150      14,193

Harris Corp.

    128,000      7,752

Hewlett-Packard Co. (Ú)

    1,007,140      52,049

Ingram Micro, Inc. Class A (Æ)

    169,300      3,596

Intel Corp. (Ú)

    1,069,690      28,775

International Business Machines
Corp. (Ú)

    297,500      34,546

Intuit, Inc. (Æ)

    124,500      4,005

Juniper Networks, Inc. (Æ)

    647,900      23,324

L-3 Communications Holdings, Inc.

    77,300      8,475

LSI Corp. (Æ)

    226,000      1,492

Maxim Integrated Products, Inc.

    17,700      480

McAfee, Inc. (Æ)

    80,400      3,325

MEMC Electronic Materials, Inc. (Æ)

    45,300      3,317

Microsoft Corp. (Ú)

    3,239,540      119,247

National Instruments Corp.

    22,600      733

National Semiconductor Corp.

    66,300      1,667

NCR Corp. (Æ)

    39,000      1,076

Novell, Inc. (Æ)

    79,800      598

Nvidia Corp.

    427,550      15,127

Oracle Corp. (Æ)(Ú)

    2,935,600      65,082

PerkinElmer, Inc.

    17,800      490

Qualcomm, Inc. (Ú)

    652,100      27,864

Rockwell Automation, Inc.

    121,900      8,396

SanDisk Corp. (Æ)

    89,700      3,983

Sanmina-SCI Corp. (Æ)

    227,700      503

Quantitative Equity Fund   49

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Seagate Technology, Inc. (Æ)

    67,668      —

Sun Microsystems, Inc. (Æ)

    1,141,700      6,519

Symantec Corp. (Æ)

    2,049,530      38,490

Synopsys, Inc. (Æ)

    254,751      7,199

Texas Instruments, Inc.

    975,180      31,791

Tyco Electronics, Ltd.

    239,100      8,529

Unisys Corp. (Æ)

    232,800      1,415

Vishay Intertechnology, Inc. (Æ)

    74,900      943

Western Digital Corp. (Æ)

    104,100      2,698
         
        719,296
         

Utilities - 5.5%

        

AES Corp. (The) (Æ)

    324,600      6,950

AGL Resources, Inc.

    19,300      763

Alliant Energy Corp.

    12,400      496

Alltel Corp.

    20,480      1,457

AT&T, Inc.

    827,499      34,581

Centerpoint Energy, Inc. (Ñ)

    200,400      3,359

CenturyTel, Inc.

    201,520      8,877

Constellation Energy Group, Inc.

    146,300      13,855

DTE Energy Co.

    8,200      407

Duke Energy Corp.

    1,227,540      23,532

Edison International

    216,841      12,609

Embarq Corp. (Ñ)

    190,800      10,097

FirstEnergy Corp.

    155,600      10,845

Mirant Corp. (Æ)

    86,300      3,656

Oneok, Inc.

    26,910      1,344

PG&E Corp. (Ñ)

    704,910      34,491

Public Service Enterprise Group, Inc.

    124,400      11,893

Qwest Communications International, Inc. (Æ)(Ñ)

    1,871,900      13,440

SCANA Corp. (Ñ)

    37,200      1,510

Sprint Nextel Corp.

    1,457,570      24,924

Verizon Communications, Inc. (Ú)

    800,386      36,873
         
        255,959
         
Total Common Stocks        

(cost $4,352,477)

         5,004,921
         
Short-Term Investments - 4.5%     

Russell Investment Company
Money Market Fund

    199,929,000      199,929

United States Treasury Bills (ç)(ž)(§) 3.650% due 12/20/07

    10,000      9,951
         
Total Short-Term Investments        

(cost $209,880)

         209,880
         
    

Principal

Amount ($)

or Shares

       

Market

Value

$

  

Other Securities - 3.5%

        

Russell Investment Company
Money Market Fund (×)

    38,841,978        38,842  

State Street Securities Lending Quality Trust (×)

    126,707,534        126,708  
           
Total Other Securities        

(cost $165,550)

         165,550  
           
Total Investments - 114.5%        

(identified cost $4,727,907)

         5,380,351  
Securities Sold Short - (10.8%)       

Auto and Transportation - (0.4%)

 

     

CH Robinson Worldwide, Inc.

    (90,900 )      (4,538 )

Expeditors International Washington, Inc.

    (192,800 )      (9,765 )

Gentex Corp.

    (143,000 )      (2,972 )

JB Hunt Transport Services, Inc.

    (25,300 )      (701 )
           
        (17,976 )
           

Consumer Discretionary - (2.1%)

 

     

Bare Escentuals, Inc. (Æ)

    (52,000 )      (1,284 )

Coldwater Creek, Inc. (Æ)

    (38,800 )      (347 )

CoStar Group, Inc. (Æ)

    (13,300 )      (765 )

CROCS, Inc. (Æ)

    (69,800 )      (5,218 )

Electronic Arts, Inc. (Æ)

    (168,500 )      (10,299 )

Fastenal Co.

    (117,900 )      (5,244 )

JC Penney Co., Inc.

    (120,300 )      (6,766 )

Lamar Advertising Co. Class A

    (87,700 )      (4,688 )

Las Vegas Sands Corp. (Æ)

    (74,900 )      (9,968 )

Liberty Global, Inc. Class A (Æ)

    (59,500 )      (2,335 )

Limited Brands, Inc.

    (379,695 )      (8,357 )

LKQ Corp. (Æ)

    (68,700 )      (2,649 )

Mattel, Inc.

    (304,500 )      (6,361 )

MGM Mirage (Æ)

    (98,700 )      (9,042 )

MSC Industrial Direct Co. Class A

    (28,538 )      (1,390 )

Nordstrom, Inc.

    (211,100 )      (8,326 )

RH Donnelley Corp. (Æ)

    (64,700 )      (3,549 )

RR Donnelley & Sons Co.

    (96,200 )      (3,876 )

Scientific Games Corp. Class A (Æ)

    (58,400 )      (2,111 )

Service Corp. International

    (183,500 )      (2,655 )

Urban Outfitters, Inc. (Æ)

    (99,000 )      (2,502 )

Virgin Media, Inc.

    (12,300 )      (272 )

Warner Music Group Corp.

    (16,800 )      (171 )
           
        (98,175 )
           

50   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

       

Market

Value

$

  
       

Consumer Staples - (0.5%)

        

Brown-Forman Corp. Class B

    (113,600 )      (8,404 )

Clorox Co.

    (63,100 )      (3,948 )

Hershey Co. (The)

    (203,300 )      (8,764 )

Kraft Foods, Inc. Class A

    (121,100 )      (4,046 )

Reynolds American, Inc.

    (8,700 )      (561 )
           
        (25,723 )
           

Financial Services - (1.5%)

        

Affiliated Managers Group, Inc. (Æ)

    (32,700 )      (4,302 )

AMBAC Financial Group, Inc.

    (77,500 )      (2,854 )

Annaly Capital Management, Inc. (ö)

    (187,200 )      (3,199 )

Bear Stearns Cos., Inc. (The)

    (106,600 )      (12,110 )

Capitol Federal Financial

    (12,428 )      (411 )

Countrywide Financial Corp.

    (287,000 )      (4,454 )

Federal National Mortgage Association

    (6,400 )      (365 )

Fidelity National Information Services, Inc.

    (11,000 )      (507 )

IntercontinentalExchange, Inc. (Æ)

    (14,800 )      (2,637 )

KKR Financial Holdings LLC

    (28,100 )      (439 )

MBIA, Inc.

    (213,300 )      (9,180 )

MGIC Investment Corp.

    (109,600 )      (2,122 )

Moody’s Corp.

    (187,700 )      (8,206 )

New York Community Bancorp, Inc.

    (119,800 )      (2,230 )

Plum Creek Timber Co., Inc. (ö)

    (97,500 )      (4,355 )

PMI Group, Inc. (The) (Ñ)

    (106,500 )      (1,707 )

Radian Group, Inc.

    (93,900 )      (1,182 )

State Street Corp.

    (132,800 )      (10,594 )
           
        (70,854 )
           

Health Care - (1.1%)

        

Affymetrix, Inc. (Æ)

    (50,300 )      (1,281 )

Alexion Pharmaceuticals, Inc. (Æ)

    (21,800 )      (1,668 )

Amylin Pharmaceuticals, Inc. (Æ)

    (106,500 )      (4,795 )

BioMarin Pharmaceuticals, Inc. (Æ)

    (34,900 )      (968 )

Celgene Corp. (Æ)

    (58,600 )      (3,868 )

Cephalon, Inc. (Æ)

    (53,600 )      (3,952 )

Cerner Corp. (Æ)

    (51,500 )      (3,067 )

Chattem, Inc. (Æ)

    (11,700 )      (869 )

Hologic, Inc. (Æ)

    (10,400 )      (706 )

Humana, Inc. (Æ)

    (62,100 )      (4,654 )

Inverness Medical Innovations,
Inc. (Æ)

    (16,700 )      (1,004 )

Millipore Corp. (Æ)

    (33,600 )      (2,609 )

Myriad Genetics, Inc. (Æ)

    (22,900 )      (1,268 )

NuVasive, Inc. (Æ)

    (42,100 )      (1,801 )

Quest Diagnostics, Inc.

    (221,500 )      (11,779 )

Stericycle, Inc. (Æ)

    (23,100 )      (1,347 )
    

Principal

Amount ($)

or Shares

       

Market

Value

$

  

Stryker Corp.

    (78,500 )      (5,574 )

Techne Corp. (Æ)

    (8,900 )      (581 )

Tenet Healthcare Corp. (Æ)

    (354,100 )      (1,243 )
           
        (53,034 )
           

Materials and Processing - (0.5%)

 

     

Alcoa, Inc.

    (210,700 )      (8,342 )

Louisiana-Pacific Corp.

    (80,800 )      (1,330 )

Martin Marietta Materials, Inc.

    (41,300 )      (5,342 )

Mosaic Co. (The) (Æ)

    (139,800 )      (9,758 )
           
        (24,772 )
           

Miscellaneous - (0.3%)

        

Fortune Brands, Inc.

    (105,200 )      (8,813 )

Foster Wheeler, Ltd. (Æ)

    (40,400 )      (5,989 )
           
        (14,802 )
           

Other Energy - (1.9%)

        

Arch Coal, Inc.

    (144,500 )      (5,924 )

Arena Resources, Inc. (Æ)

    (22,400 )      (818 )

Baker Hughes, Inc.

    (99,200 )      (8,603 )

Berry Petroleum Co. Class A

    (3,100 )      (151 )

Bill Barrett Corp. (Æ)

    (23,800 )      (1,114 )

Carrizo Oil & Gas, Inc. (Æ)

    (11,100 )      (570 )

CNX Gas Corp. (Æ)

    (14,200 )      (453 )

Denbury Resources, Inc. (Æ)

    (50,000 )      (2,830 )

Diamond Offshore Drilling, Inc.

    (71,900 )      (8,141 )

Encore Acquisition Co. (Æ)

    (21,700 )      (796 )

EOG Resources, Inc.

    (114,000 )      (10,100 )

Equitable Resources, Inc.

    (98,500 )      (5,548 )

EXCO Resources, Inc. (Æ)

    (100,400 )      (1,695 )

Hercules Offshore, Inc. (Æ)

    (26,400 )      (714 )

Peabody Energy Corp.

    (230,900 )      (12,873 )

Quicksilver Resources, Inc. (Æ)

    (38,900 )      (2,217 )

Range Resources Corp.

    (85,800 )      (3,855 )

Schlumberger, Ltd.

    (84,400 )      (8,151 )

Southwestern Energy Co. (Æ)

    (68,100 )      (3,523 )

Whiting Petroleum Corp. (Æ)

    (18,000 )      (973 )

Williams Cos., Inc.

    (214,800 )      (7,838 )

XTO Energy, Inc.

    (64,300 )      (4,268 )
           
        (91,155 )
           

Producer Durables - (0.7%)

        

ACCO Brands Corp. (Æ)

    (27,900 )      (598 )

Briggs & Stratton Corp.

    (71,400 )      (1,607 )

Bucyrus International, Inc. Class A

    (16,100 )      (1,328 )

Centex Corp.

    (114,200 )      (2,862 )

DR Horton, Inc.

    (333,900 )      (4,237 )

Quantitative Equity Fund   51

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

       

Market

Value

$

  
       

Itron, Inc. (Æ)

    (6,700 )      (720 )

KB Home

    (125,500 )      (3,469 )

KIA-Tencor Corp.

    (85,300 )      (4,491 )

Lennar Corp. Class A

    (97,400 )      (2,226 )

Ryland Group, Inc.

    (54,200 )      (1,541 )

SBA Communications Corp.
Class A (Æ)

    (28,700 )      (1,022 )

Terex Corp. (Æ)

    (89,000 )      (6,606 )
           
        (30,707 )
           

Technology - (0.8%)

        

Advanced Micro Devices, Inc. (Æ)

    (289,700 )      (3,789 )

Cognizant Technology Solutions Corp. Class A (Æ)

    (203,600 )      (8,441 )

EMC Corp. (Æ)

    (173,000 )      (4,392 )

Equinix, Inc. (Æ)

    (2,500 )      (292 )

Micron Technology, Inc. (Æ)

    (617,100 )      (6,486 )

Network Appliance, Inc. (Æ)

    (312,100 )      (9,828 )

Nuance Communications, Inc. (Æ)

    (19,300 )      (427 )

SanDisk Corp. (Æ)

    (62,200 )      (2,762 )

VeriFone Holdings, Inc. (Æ)

    (18,761 )      (927 )
           
        (37,344 )
           

Utilities - (1.0%)

        

Consolidated Edison, Inc.

    (168,300 )      (7,925 )

DPL, Inc.

    (174,887 )      (5,079 )

Embarq Corp.

    (107,900 )      (5,710 )

Hawaiian Electric Industries, Inc.

    (40,200 )      (933 )

ITC Holdings Corp.

    (45,800 )      (2,622 )

Level 3 Communications, Inc. (Æ)

    (1,070,100 )      (3,242 )

National Fuel Gas Co.

    (75,100 )      (3,642 )

NeuStar, Inc. Class A (Æ)

    (70,800 )      (2,421 )

NII Holdings, Inc. (Æ)

    (105,500 )      (6,119 )

Progress Energy, Inc.

    (74,300 )      (3,566 )

Southern Co.

    (106,500 )      (3,904 )
           
        (45,163 )
           
Total Securities Sold Short        

(proceeds $496,487)

         (509,705 )
           
Other Assets and Liabilities, Net - (3.7%)         (173,255 )
           
Net Assets - 100.0%         4,697,391  
           

Futures Contracts

(Number of Contracts)

   Notional
Amount		    Unrealized
Appreciation
(Depreciation)
$

Long Positions

       

Russell 1000 Index
expiration date 12/07 (49)

   USD     20,766    872

Russell 1000 Mini Index (CME) expiration date 12/07 (21)

   USD     1,780    74

S&P 500 E-Mini Index (CME)
expiration date 12/07 (810)

   USD     62,973    1,159

S&P 500 Index (CME)
expiration date 12/07 (125)

   USD     48,591    722

S&P Midcap 400 E-Mini
Index (CME)
expiration date 12/07 (840)

   USD     76,616    2,371
        

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

        5,198
        

 

See accompanying notes which are an integral part of the financial statements.

52   Quantitative Equity Fund

Table of Contents

Russell Investment Company

Quantitative Equity Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of
Net
Assets		  
  
  

Auto and Transportation

    1.8  

Consumer Discretionary

    14.9  

Consumer Staples

    6.5  

Financial Services

    20.6  

Health Care

    13.5  

Integrated Oils

    6.8  

Materials and Processing

    5.9  

Miscellaneous

    2.6  

Other Energy

    6.0  

Producer Durables

    7.1  

Technology

    15.3  

Utilities

    5.5  

Short-Term Investments

    4.5  

Other Securities

    3.5  
      

Total Investments

    114.5  

Securities Sold Short

    (10.8 )

Other Assets and Liabilities, Net

    (3.7 )
      
   100.0  
      

Futures Contracts

    0.1  

 

See accompanying notes which are an integral part of the financial statements.

Quantitative Equity Fund   53

Table of Contents

Russell Investment Company

International Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

International Securities Fund - Class S  
          Total
Return		  

1 Year

       28.30 %

5 Years

       22.81 %§

10 Years

       8.92 %§

 

International Securities Fund - Class E‡  
          Total
Return		  

1 Year

       27.98 %

5 Years

       22.52 %§

10 Years

       8.64 %§

 

International Securities Fund - Class C‡‡  
          Total
Return		  

1 Year

       27.02 %

5 Years

       21.59 %§

10 Years

       7.92 %§
International Securities Fund - Class A‡‡‡  
          Total
Return		  

1 Year

       20.57 %

5 Years

       21.06 %§

10 Years

       7.99 %§

 

MSCI EAFE® Index**  
          Total
Return		  

1 Year

       24.91 %

5 Years

       23.21 %§

10 Years

       9.26 %§

54   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The International Securities Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has nine money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the International Securities Fund Class A, Class C, Class E and Class S Shares gained 27.94%, 27.02%, 27.98% and 28.30%, respectively. This compared to the MSCI EAFE® Index Net (USD), which gained 24.91% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ending October 31, 2007, the Lipper® International Multi Cap-Core Funds Average returned 27.67%. 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?

Improving trends for growth stocks in the second half of the fiscal year proved an important change contributing to the Fund’s outperformance in the period. Portfolio characteristics continued to demonstrate throughout the period the Fund’s money managers’ expectations of an imminent rotation in market leadership to growth-driven stocks. This positioning proved very effective in capturing the market’s rotation to growth mid-way through the fiscal year. In addition, the Fund money managers’ regional positioning, though generally attributable to bottom up stock selection decisions, further leveraged these trends with significant gains from emerging markets exposure and the Fund’s underweighted position in Japan. The chief contributors in this regard were Axiom International Investors LLC, Wellington Management Company, LLP, Marsico Capital Management, LLC, and UBS Global Asset Management (Americas) Inc.

These money managers’ focus on high growth and momentum-driven stocks provided significant gains versus the Fund’s benchmark, particularly in the latter half of the period.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund’s multi-style discipline provided a critical risk control in the period given the extreme variability in style leadership from the first half to the second half of the fiscal year. Stock selection made the largest contribution to the Fund’s performance in the period. Early in the year, the strongest gains came from the Fund’s value managers, particularly AllianceBernstein L.P. and Mondrian Investment Partners Ltd. In the latter half of the year, the Fund’s growth managers, particularly Marsico Capital Management, LLC, Axiom International Investors LLC, Wellington Management Company, LLP, and UBS Global Asset Management (Americas) Inc. were most successful. Sector allocation also contributed positively to performance with a material underweight of the financial sector proving critical to avoiding some of the weakness tied to developments in the subprime lending market in the U.S.

Many of the Fund’s best stock performers came from non-benchmark holdings. Research in Motion (RIM), the Canadian-based producer of the Blackberry handheld device, was a strong performer. Its products continued to take market share in a rapidly growing market segment. The success of its consumer-oriented products added to its strong position in the business sector. The stock was held throughout the period by Wellington, Axiom and Marsico also benefited from their holding of RIM.

At the regional level, stock selection was particularly effective in Japan. The Fund’s top stock contributor was video game maker Nintendo. However, avoidance of some of the weaker segments of the Japanese market was as critical and the Fund was effectively positioned. Emerging markets exposure was also a significant contributor to Fund performance. Mexican wireless telecommunications company, America Movil, China Construction Bank and Banca Itau in Brazil posted sizable gains. Regional exposures also had important implications for the currency effects on Fund performance. While every major currency appreciated against the U.S. dollar in the period, the Fund’s overweightings of stronger currencies, particularly the Euro and Canadian dollar provided another source of gain to the U.S. dollar performance of the Fund.

Despite a difficult environment through the first half of the fiscal year, growth managers produced significant benchmark-relative gains over the entire period with especially strong gains in September. Axiom was the best performer for the entire


International Securities Fund   55

Table of Contents

Russell Investment Company

International Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

period. Marsico, added to the Fund in November 2006, UBS, added to the Fund in July 2007, and Wellington also had strong performance. Among the remaining managers, MFS Institutional Advisors, Inc.’s focus on high quality, consistent growth companies was a less effective strategy for the year. Among the value managers in the Fund, AllianceBernstein L.P. and Mondrian Investment Partners Limited performed well in the period but lost ground as market leadership shifted to growth. Mondrian performed slightly better due to its underweight to Japan.

Describe any changes to the Fund’s structure or the money manager line-up.

Four changes were made to the Fund’s money manager line-up in the year. In November of 2006, the Fund hired Marsico to replace Fidelity Management & Research Company. Nicholas-Applegate Capital Management, LLC was hired to replace Marvin & Palmer Associates, Inc. in March 2007. Altrinsic Global Advisors, LLC was hired to replace The Boston Company Asset Management, LLC in June 2007. Finally, in July 2007, UBS Global Asset Management (Americas), Inc. was hired to replace Nicholas-Applegate after the portfolio management team at Nicholas-Applegate was lifted out by UBS.

 

Money Managers as of
October 31, 2007		   Styles

AllianceBernstein L.P.

   Value

Altrinsic Global Advisors, LLC

   Value

AQR Capital Management, LLC

   Market-Oriented

Axiom International Investors LLC

   Growth

Marsico Capital Management, LLC

   Growth

MFS Institutional Advisors, Inc.

   Market-Oriented

Mondrian Investment Partners Ltd.

   Value

UBS Global Asset Management (Americas) Inc.

   Growth

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**   Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which includes reinvestment of gross dividends before deduction of withholding taxes.

 

‡   The returns shown for Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to February 28, 2007. The returns shown for the Fund’s Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of the Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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.

56   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,122.10    $ 1,017.90

Expenses Paid During Period*

    $ 7.76    $ 7.37

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.45% (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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,117.80    $ 1,014.06

Expenses Paid During Period*

    $ 11.80    $ 11.22

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.21% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,122.20    $ 1,017.85

Expenses Paid During Period*

    $ 7.81    $ 7.43

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.46% (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   57

Table of Contents

Russell Investment Company

International Securities Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,123.50    $ 1,019.11

Expenses Paid During Period*

    $ 6.48    $ 6.16

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.21% (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).

58   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 91.5%

        

Australia - 4.1%

        

Adelaide Brighton, Ltd.

    6,461      22

AGL Energy, Ltd.

    14,745      167

Amcor, Ltd.

    1,044,268      6,857

AMP, Ltd.

    301,050      2,874

Ansell, Ltd.

    42,124      488

APN News & Media, Ltd. (Ñ)

    9,165      46

Asciano Group (Æ)(Ñ)

    8,459      67

ASX, Ltd.

    6,220      336

Australia & New Zealand Banking Group, Ltd. (Ñ)

    70,293      1,984

Babcock & Brown Infrastructure Group (Ñ)

    11,870      18

Babcock & Brown Power (Ñ)

    10,559      32

Babcock & Brown Wind Partners (Ñ)

    4,104      7

BHP Billiton, Ltd. (Ñ)

    260,300      11,330

Brambles, Ltd.

    483,225      6,436

Caltex Australia, Ltd.

    34,628      697

Centro Properties Group

    37,194      245

CFS Retail Property Trust (Ñ)

    12,126      28

Challenger Financial Services Group, Ltd.

    64,904      387

Coca-Cola Amatil, Ltd.

    109,951      1,052

Coles Group, Ltd.

    36,442      551

Commonwealth Bank of Australia

    44,737      2,582

CSL, Ltd.

    648,525      22,047

CSR, Ltd. (Ñ)

    73,390      234

David Jones, Ltd. (Ñ)

    36,449      170

DB RREEF Trust (Ñ)

    140,434      275

Fairfax Media, Ltd. (Ñ)

    36,993      164

Foster’s Group, Ltd.

    2,150,399      12,840

Futuris Corp., Ltd. (Ñ)

    56,975      113

Goodman Group (Ñ)

    37,483      243

GPT Group

    70,782      308

Incitec Pivot, Ltd. (Ñ)

    57,406      4,755

ING Industrial Fund (Ñ)

    6,473      17

Insurance Australia Group, Ltd. (Ñ)

    75,414      332

Leighton Holdings, Ltd. (Ñ)

    16,167      952

Lend Lease Corp., Ltd.

    6,121      115

Macquarie Airports (Ñ)

    978,560      4,018

Macquarie Bank, Ltd. (Ñ)

    63,372      5,017

Macquarie Infrastructure Group (Ñ)

    826,340      2,452

Macquarie Office Trust

    16,086      25

Minara Resources, Ltd. (Ñ)

    14,521      89

Mirvac Group

    20,535      112

Multiplex Group

    17,784      83

National Australia Bank, Ltd. (Ñ)

    1,071,728      43,369
     Principal
Amount ($)
or Shares		      Market
Value
$

Orica, Ltd. (Ñ)

    10,496      305

Oxiana, Ltd. (Ñ)

    275,700      1,096

Pacific Brands, Ltd.

    268,750      877

Qantas Airways, Ltd.

    184,255      1,020

QBE Insurance Group, Ltd.

    208,203      6,350

Rio Tinto, Ltd. (Ñ)

    47,910      4,976

Santos, Ltd. (Ñ)

    64,201      850

Sons of Gwalia, Ltd. (Æ)(Ñ)(ß)

    34,800      —

Stockland (Ñ)

    52,119      438

Suncorp-Metway, Ltd.

    71,747      1,363

Symbion Health, Ltd. (Ñ)

    19,028      72

TABCORP Holdings, Ltd. (Ñ)

    4,937      72

Tattersall’s, Ltd. (Ñ)

    45,428      178

Telstra Corp., Ltd. (Ñ)

    3,836,525      16,817

Telstra Corp., Ltd.

    27,307      82

Wesfarmers, Ltd. (Ñ)

    175,635      7,253

Westfield Group (Ñ)

    64,533      1,320

Westpac Banking Corp.

    69,713      1,998

Woolworths, Ltd.

    25,777      809

Zinifex, Ltd. (Ñ)

    305,385      4,866
         
        184,678
         

Austria - 0.6%

        

Erste Bank der Oesterreichischen Sparkassen AG (Ñ)

    257,960      21,054

Voestalpine AG

    61,600      5,563
         
        26,617
         

Belgium - 0.7%

        

Belgacom SA

    24,618      1,180

D’ieteren SA

    263      114

Delhaize Group

    6,824      648

Fortis

    389,475      12,503

Fortis (Ñ)

    329,536      10,575

Fortis (Æ)(Ñ)

    258,444      4

InBev NV (Ñ)

    47,272      4,469

Nationale A Portefeuille

    1,709      122

Omega Pharma SA

    982      66

Solvay SA

    8,397      1,279
         
        30,960
         

Bermuda - 0.9%

        

Aquarius Platinum, Ltd.

    68,894      2,645

Benfield Group, Ltd. (Ñ)

    584,435      3,707

Bunge, Ltd.

    29,900      3,444

Catlin Group, Ltd.

    28,036      294

CNPC Hong Kong, Ltd.

    230,000      191

Credicorp, Ltd.

    45,100      3,352

International Securities Fund   59

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Esprit Holdings, Ltd.

    345,900      5,882

Guoco Group, Ltd.

    10,000      154

Jardine Matheson Holdings, Ltd.

    176,100      5,390

Jardine Strategic Holdings, Ltd.

    7,500      125

Li & Fung, Ltd.

    778,800      3,688

Noble Group, Ltd.

    90,000      150

Orient Overseas International, Ltd.

    31,000      322

People’s Food Holdings, Ltd.

    43,162      39

SeaDrill, Ltd. (Æ)(Ñ)

    339,800      8,143

Shangri-La Asia, Ltd.

    1,598,000      5,115

Vostok Gas, Ltd. (Æ)

    750      51

VTech Holdings, Ltd.

    19,663      170
         
        42,862
         

Brazil - 1.6%

        

All America Latina Logistica SA

    179,221      2,848

Banco do Brasil SA

    80,400      1,454

Bovespa Holding SA (Æ)

    386,500      7,258

Cia Vale do Rio Doce - ADR

    346,000      13,037

Gafisa SA

    235,419      4,206

Gerdau SA - ADR (Ñ)

    62,300      1,938

JHSF Participacoes SA (Æ)

    435,200      2,062

Petroleo Brasileiro SA - ADR

    143,405      13,714

Redecard SA (Æ)

    295,100      6,138

Unibanco - Uniao de Bancos Brasileiros SA - GDR (Æ)

    118,366      18,707
         
        71,362
         

Canada - 2.2%

        

Agrium, Inc.

    59,400      3,773

Canadian Imperial Bank of Commerce (Ñ)

    38,000      4,103

Canadian National Railway Co. (Ñ)

    85,720      4,800

Canadian Natural Resources, Ltd.

    59,500      4,948

EnCana Corp. (Ñ)

    60,600      4,240

Gammon Gold, Inc. (Æ)(Ñ)

    203,476      2,111

Gerdau Ameristeel Corp.

    105,900      1,447

Gildan Activewear, Inc. (Æ)

    35,800      1,639

HudBay Minerals, Inc. (Æ)

    61,600      1,776

Inmet Mining Corp.

    16,200      1,732

Methanex Corp. (Ñ)

    68,818      2,102

Potash Corp. of Saskatchewan

    110,513      13,573

Research In Motion, Ltd. (Æ)

    193,544      24,098

Rogers Communications, Inc. Class B (Ñ)

    313,900      15,997

Suncor Energy, Inc.

    45,600      4,994

Teck Cominco, Ltd. Class B

    51,200      2,560

Teck Cominco, Ltd. Class B (Ñ)

    68,556      3,433
         
        97,326
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Cayman Islands - 0.4%

        

Alibaba.com, Ltd. (Æ)

    308,376      537

ASM Pacific Technology (Ñ)

    12,000      95

Baidu.com - ADR (Æ)

    11,835      4,527

Kingboard Chemical Holdings, Ltd.

    62,000      410

Melco PBL Entertainment Macau, Ltd. - ADR (Æ)(Ñ)

    198,573      3,157

Noble Corp. (Ñ)

    47,000      2,489

Shanda Interactive Entertainment, Ltd. - ADR (Æ)(Ñ)

    47,000      1,851

Shui On Land, Ltd.

    39,000      54

Suntech Power Holdings Co., Ltd. - ADR (Æ)(Ñ)

    85,400      5,029

Tencent Holdings, Ltd.

    23,000      200

Tingyi Cayman Islands Holding Corp.

    30,000      46

Transocean, Inc. (Æ)

    6,800      811
         
        19,206
         

China - 0.4%

        

China Coal Energy Co.

    435,000      1,479

China Communications Construction Co., Ltd. Class H

    2,079,300      6,599

China Construction Bank Corp. Class H (Ñ)

    2,458,000      2,793

China Merchants Bank Co., Ltd. (Ñ)

    975,500      5,095

China Petroleum & Chemical Corp. Class H (Ñ)

    2,274,000      3,460
         
        19,426
         

Colombia - 0.1%

        

BanColombia SA - ADR (Ñ)

    72,900      2,679
         

Cyprus - 0.1%

        

Bank of Cyprus Public Co., Ltd.

    118,800      2,328
         

Czech Republic - 0.1%

        

Komercni Banka AS

    13,341      3,068
         

Denmark - 0.9%

        

Carlsberg A/S Class B (Ñ)

    123,000      16,615

FLSmidth & Co. A/S

    70,050      7,639

Novo Nordisk A/S Class B

    34,500      4,297

Rockwool International AS Class B (Ñ)

    345      111

Sydbank A/S

    11,300      524

Vestas Wind Systems A/S (Æ)

    120,300      10,836
         
        40,022
         

60   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Egypt - 0.1%

        

Orascom Construction Industries - GDR

    19,794      3,655
         

Finland - 1.6%

        

Cargotec Corp. Class B

    5,259      326

Fortum OYJ

    30,000      1,304

Kesko OYJ Class B

    31,121      1,868

Nokia OYJ

    1,103,070      43,778

Orion OYJ Class B

    24,376      627

Outokumpu OYJ

    21,696      814

Outotec OYJ

    116,020      8,925

Rautaruukki OYJ

    11,142      642

Stora Enso OYJ Class R (Ñ)

    148,946      2,742

UPM-Kymmene OYJ

    320,075      7,186

Wartsila OYJ Class B (Ñ)

    57,900      4,746
         
        72,958
         

France - 11.7%

        

Accor SA (Ñ)

    99,346      9,513

Air France-KLM

    27,900      1,064

Air Liquide (Ñ)

    58,998      8,146

Alcatel-Lucent - ADR

    537,970      5,213

Alstom (Ñ)

    120,506      28,702

Arkema (Æ)(Ñ)

    31,298      2,136

AXA SA (Ñ)

    270,487      12,144

BNP Paribas (Ñ)

    245,676      27,214

Bouygues (Ñ)

    1,307      126

Carrefour SA (Ñ)

    214,805      15,506

Casino Guichard Perrachon SA (Ñ)

    8,522      954

Cie de Saint-Gobain (Ñ)

    127,600      13,786

Cie Generale d’Optique Essilor International SA (Ñ)

    67,866      4,342

Cie Generale de Geophysique-Veritas (Æ)(Ñ)

    30,566      10,027

Ciments Francais SA

    2,069      390

CNP Assurances (Ñ)

    22,806      2,913

Compagnie Generale des Etablissements Michelin Class B (Ñ)

    31,600      4,251

Credit Agricole SA (Ñ)

    649,586      25,771

Electricite de France (Ñ)

    88,823      10,684

France Telecom SA (Ñ)

    738,339      27,310

Gaz de France SA (Ñ)

    91,180      5,192

JC Decaux SA (Ñ)

    195,457      7,211

Klepierre

    8,367      455

L’Oreal SA (Ñ)

    45,612      6,003

Lafarge SA (Ñ)

    2,665      435

Lagardere SCA (Ñ)

    47,800      4,050
     Principal
Amount ($)
or Shares		      Market
Value
$

Legrand SA (Ñ)

    160,530      5,944

LVMH Moet Hennessy Louis Vuitton SA (Ñ)

    125,135      16,159

Neopost SA

    17,383      2,020

Nexans SA (Ñ)

    417      71

NicOx SA (Æ)(Ñ)

    34,166      815

Pernod-Ricard SA (Ñ)

    42,942      9,939

Peugeot SA

    13,493      1,255

PPR (Ñ)

    44,158      8,777

Publicis Groupe

    53,965      2,198

Renault SA (Ñ)

    176,476      29,767

Rhodia SA (Æ)

    30,942      1,205

Sanofi-Aventis (Ñ)

    255,217      22,455

Schneider Electric SA (Ñ)

    97,999      13,540

SEB SA

    1,567      300

Societe BIC SA

    2,394      186

Societe Generale (Ñ)

    182,049      30,689

Societe Television Francaise 1 (Ñ)

    85,214      2,365

Sodexho Alliance SA (Ñ)

    156      11

Suez SA (Ñ)

    154,558      10,086

Suez SA (Æ)

    40,348      1

Teleperformance

    4,253      170

Thales SA (Ñ)

    49,135      3,069

Thomson (Æ)

    71,723      1,255

Total SA (Ñ)

    805,159      64,980

Total SA - ADR

    48,500      3,910

UBISOFT Entertainment (Æ)

    10,565      870

Unibail-Rodamco (Ñ)

    4,249      1,060

Valeo SA (Ñ)

    45,534      2,500

Vallourec

    15,386      4,498

Veolia Environnement (Ñ)

    361,629      32,364

Vinci SA

    21,150      1,741

Vivendi (Ñ)

    409,994      18,511
         
        526,249
         

Germany - 7.6%

        

Allianz SE (Ñ)

    76,728      17,310

Altana AG (Ñ)

    65,401      1,588

Arcandor AG (Æ)(Ñ)

    450,887      14,508

Arques Industries AG

    16,002      688

BASF AG

    83,106      11,506

Bayer AG

    294,296      24,640

Bayerische Motoren Werke AG (Ñ)

    77,780      5,220

Continental AG (Ñ)

    125,818      19,061

Daimler AG (Ñ)

    365,804      40,423

Deutsche Bank AG (Ñ)

    61,680      8,263

Deutsche Boerse AG

    27,663      4,389

Deutsche Lufthansa AG

    191,600      5,668

International Securities Fund   61

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Deutsche Telekom AG (Ñ)

    1,057,510      21,714

Deutz AG (Æ)(Ñ)

    21,259      293

E.ON AG (Ñ)

    184,178      36,012

Epcos AG

    51,621      1,046

Freenet AG

    18,003      448

GEA Group AG (Æ)

    166,336      6,289

Hochtief AG

    20,574      2,860

Kloeckner & Co. AG

    12,436      666

Krones AG (Ñ)

    2,048      189

KUKA AG (Æ)(Ñ)

    12,543      511

Lanxess AG

    45,029      2,259

Linde AG

    77,490      9,810

Merck KGaA

    42,500      5,332

Metro AG (Ñ)

    97,396      8,842

MTU Aero Engines Holding AG

    70,453      4,319

Muenchener Rueckversicherungs AG (Ñ)

    48,204      9,273

Norddeutsche Affinerie AG (Ñ)

    8,883      372

RWE AG (Ñ)

    223,782      30,608

Salzgitter AG

    44,893      8,872

SGL Carbon AG (Æ)

    52,000      3,055

Siemens AG

    57,480      7,832

Solarworld AG (Ñ)

    51,526      3,520

Stada Arzneimittel AG

    42,086      2,683

ThyssenKrupp AG

    4,943      331

Tognum AG (Æ)

    52,300      1,894

TUI AG (Æ)(Ñ)

    86,600      2,567

United Internet AG (Ñ)

    138,450      3,049

Volkswagen AG (Ñ)

    26,921      7,731

Vossloh AG

    4,411      522

Wacker Chemie AG (Ñ)

    16,810      4,158
         
        340,321
         

Greece - 0.3%

        

National Bank of Greece SA

    162,996      11,382

Public Power Corp. SA

    73,100      2,972
         
        14,354
         

Hong Kong - 1.7%

        

Bank of East Asia, Ltd.

    32,800      222

BOC Hong Kong Holdings, Ltd.

    219,000      628

Cathay Pacific Airways, Ltd. (Ñ)

    70,000      210

Cheung Kong Holdings, Ltd.

    225,950      4,439

China Merchants Holdings International Co., Ltd.

    802,000      5,686

China Mobile, Ltd.

    1,264,000      26,384
     Principal
Amount ($)
or Shares		      Market
Value
$

China Netcom Group Corp. Hong Kong, Ltd. (Ñ)

    552,000      1,705

China Resources Enterprise

    710,000      3,124

China Unicom, Ltd.

    16,000      39

CITIC International Financial Holdings, Ltd. (Æ)

    45,000      39

CLP Holdings, Ltd.

    49,000      331

CNOOC, Ltd. (Ñ)

    3,274,200      7,118

Hang Lung Group, Ltd.

    41,000      242

Henderson Land Development Co., Ltd. (Ñ)

    40,000      359

Hong Kong Exchanges and Clearing, Ltd.

    36,000      1,201

HongKong Electric Holdings (Ñ)

    1,405,500      7,236

Hopewell Holdings

    44,000      228

Hutchison Whampoa, Ltd.

    47,000      592

Hysan Development Co., Ltd.

    11,000      33

Link REIT (The) (ö)

    60,500      138

Minmetals Resources, Ltd.

    228,000      201

New World Development, Ltd.

    970,000      3,479

Sino Land Co.

    52,000      163

Sun Hung Kai Properties, Ltd.

    250,000      4,778

Swire Pacific, Ltd.

    55,000      788

Techtronic Industries Co. (Ñ)

    36,000      39

Television Broadcasts, Ltd.

    44,000      285

Wharf Holdings, Ltd. (Ñ)

    1,476,862      8,941

Wheelock & Co., Ltd. (Ñ)

    47,000      152
         
        78,780
         

India - 0.3%

        

ICICI Bank, Ltd. - ADR (Ñ)

    137,129      9,523

Satyam Computer Services, Ltd. - ADR (Ñ)

    86,100      2,613

State Bank of India, Ltd. - GDR

    24,500      3,055
         
        15,191
         

Indonesia - 0.2%

        

Bank Central Asia Tbk PT

    2,133,500      1,729

Bank Mandiri Persero Tbk PT

    6,552,000      2,753

Bumi Resources Tbk PT

    5,043,500      2,700

Telekomunikasi Indonesia Tbk PT

    1,270,500      1,533
         
        8,715
         

Ireland - 0.2%

        

Elan Corp. PLC - ADR (Æ)

    108,857      2,591

Ryanair Holdings PLC - ADR (Æ)(Ñ)

    98,612      4,851
         
        7,442
         

62   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Israel - 0.1%

        

Check Point Software Technologies (Æ)

    149,400      3,774

Teva Pharmaceutical Industries, Ltd. - ADR

    54,100      2,381
         
        6,155
         

Italy - 3.4%

        

Alleanza Assicurazioni SpA

    399,357      5,416

Ansaldo STS SpA (Æ)

    293,417      4,282

Arnoldo Mondadori Editore SpA (Ñ)

    450,942      4,465

Assicurazioni Generali SpA

    57,268      2,727

Banca Popolare di Milano Scarl

    14,330      225

Buzzi Unicem SpA (Ñ)

    173,337      4,916

Enel SpA

    214,805      2,574

ENI SpA (Ñ)

    811,100      29,641

Esprinet SpA (Ñ)

    16,079      275

Fiat SpA

    218,339      7,076

Finmeccanica SpA

    45,988      1,372

Fondiaria-Sai SpA (Ñ)

    110,499      5,376

Fondiaria-Sai SpA

    9,900      338

Indesit Co. SpA (Ñ)

    24,700      440

Intesa Sanpaolo SpA (Ñ)

    2,712,444      21,508

Italcementi SpA (Ñ)

    163,240      3,757

Luxottica Group SpA (Ñ)

    56,572      1,988

Mediaset SpA (Ñ)

    810,735      8,408

Milano Assicurazioni SPA (Ñ)

    112,608      941

Parmalat Finanziaria SpA (Æ)(Ñ)(ß)

    42,200      —

Prysmian SpA (Æ)

    11,937      344

Saipem SpA

    137,838      6,101

Telecom Italia SpA (Ñ)

    4,052,584      10,494

UniCredito Italiano SpA

    3,261,631      27,999

Unione di Banche Italiane SCPA

    6,266      174
         
        150,837
         

Japan - 15.0%

        

77 Bank, Ltd. (The)

    35,000      236

Aeon Credit Service Co., Ltd. (Ñ)

    171,800      2,641

Alfresa Holdings Corp.

    3,800      221

Alpine Electronics, Inc. (Ñ)

    12,400      199

Alps Electric Co., Ltd. (Ñ)

    95,500      1,194

Amada Co., Ltd.

    27,000      274

Asahi Breweries, Ltd.

    54,600      903

Asahi Glass Co., Ltd. (Ñ)

    370,000      5,086

Asahi Kasei Corp.

    118,000      897

Astellas Pharma, Inc.

    215,800      9,538

Bank of Nagoya, Ltd. (The)

    5,000      37

Bank of Yokohama, Ltd. (The)

    100,000      706
     Principal
Amount ($)
or Shares		      Market
Value
$

Bosch Corp. (Ñ)

    144,000      753

Bridgestone Corp.

    168,800      3,732

Brother Industries, Ltd. (Ñ)

    47,600      637

Canon Marketing Japan, Inc.

    9,500      187

Canon, Inc.

    719,200      36,340

Capcom Co., Ltd. (Ñ)

    9,300      267

Chuo Mitsui Trust Holdings, Inc.

    628,000      5,016

COMSYS Holdings Corp.

    18,000      176

Credit Saison Co., Ltd.

    50,800      1,611

Daihatsu Motor Co., Ltd.

    29,000      308

Daiichi Sankyo Co., Ltd.

    27,400      779

Daikin Industries, Ltd.

    93,600      4,700

Dainippon Ink and Chemicals, Inc.

    503,000      2,406

Daishi Bank, Ltd. (The)

    14,000      61

Daiwa House Industry Co., Ltd.

    299,010      4,258

Daiwa Securities Group, Inc.

    294,920      2,841

Denki Kagaku Kogyo Kabashiki Kaisha

    113,000      664

Denso Corp.

    14,200      574

East Japan Railway Co.

    264      2,173

EDION Corp. (Ñ)

    113,300      1,298

Eisai Co., Ltd.

    9,100      382

Elpida Memory, Inc. (Æ)(Ñ)

    1,500      51

Fanuc, Ltd.

    101,700      11,131

Fuji Fire & Marine Insurance Co., Ltd. (The)

    97,000      349

Fuji Heavy Industries, Ltd. (Ñ)

    128,000      664

Fuji Television Network, Inc.

    2,367      4,772

FUJIFILM Holdings Corp.

    23,300      1,113

Fujitsu, Ltd.

    983,000      7,749

Futaba Industrial Co., Ltd.

    2,300      64

H2O Retailing Corp. (Ñ)

    18,000      150

Hachijuni Bank, Ltd. (The)

    65,000      496

Hakuhodo DY Holdings, Inc. (Ñ)

    900      65

Higo Bank, Ltd. (The)

    19,000      132

Hino Motors, Ltd. (Ñ)

    46,000      333

Hirose Electric Co., Ltd. (Ñ)

    21,900      2,619

Hitachi, Ltd. (Ñ)

    105,000      712

Hokkaido Electric Power Co., Inc.

    10,300      222

Honda Motor Co., Ltd.

    144,400      5,411

Hosiden Corp. (Ñ)

    167,900      2,944

Hyakugo Bank, Ltd. (The)

    27,000      161

Hyakujushi Bank, Ltd. (The)

    19,000      96

Ibiden Co., Ltd.

    123,500      10,495

Idemitsu Kosan Co., Ltd. (Ñ)

    1,600      186

Inpex Holdings, Inc.

    521      5,645

Isuzu Motors, Ltd. (Ñ)

    660,000      3,260

Itochu Corp.

    136,000      1,731

International Securities Fund   63

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Iyo Bank, Ltd. (The) (Ñ)

    18,000      176

Izumi Co., Ltd. (Ñ)

    15,800      235

Japan Steel Works, Ltd. (The) (Ñ)

    146,700      2,407

Japan Tobacco, Inc.

    2,577      14,999

JFE Holdings, Inc.

    141,000      8,237

JFE Shoji Holdings, Inc.

    61,000      466

JGC Corp. (Ñ)

    50,000      1,002

Joyo Bank, Ltd. (The) (Ñ)

    1,143,590      7,069

JTEKT Corp.

    3,600      69

Juki Corp.

    42,000      355

Juroku Bank, Ltd. (The)

    15,000      91

Kagoshima Bank, Ltd. (The)

    33,000      228

Kandenko Co., Ltd. (Ñ)

    2,000      12

Kansai Electric Power Co., Inc. (The)

    81,000      1,823

Kao Corp.

    1,192,000      34,192

Kawasaki Kisen Kaisha, Ltd. (Ñ)

    74,000      1,026

KDDI Corp.

    1,181      8,940

Keiyo Bank, Ltd. (The)

    78,000      402

Kintetsu World Express, Inc.

    6,800      244

Kobe Steel, Ltd.

    219,000      786

Komatsu, Ltd.

    201,400      6,747

Komori Corp.

    9,000      239

Kose Corp. (Ñ)

    249,200      6,385

Kubota Corp.

    91,000      765

Kyocera Corp.

    2,600      220

Kyowa Hakko Kogyo Co., Ltd. (Ñ)

    5,000      55

Kyushu Electric Power Co., Inc.

    140,100      3,411

Leopalace21 Corp.

    10,600      340

Makino Milling Machine Co., Ltd.

    26,000      273

Makita Corp.

    17,100      827

Marubeni Corp.

    830,000      7,104

Matsushita Electric Industrial Co., Ltd.

    103,000      1,969

Matsushita Electric Works, Ltd.

    100,000      1,104

Mazda Motor Corp. (Ñ)

    185,000      1,110

Meiji Dairies Corp. (Ñ)

    77,000      407

MID Reit, Inc. Class A (ö)(Ñ)

    419      1,839

Millea Holdings, Inc.

    294,000      11,580

Mitsubishi Chemical Holdings Corp. (Ñ)

    159,000      1,312

Mitsubishi Corp.

    444,600      13,822

Mitsubishi Electric Corp.

    87,000      1,055

Mitsubishi Estate Co., Ltd.

    47,000      1,404

Mitsubishi Heavy Industries, Ltd. (Ñ)

    78,000      455

Mitsubishi Materials Corp.

    38,000      223

Mitsubishi UFJ Financial Group, Inc.

    1,215,790      12,111

Mitsui & Co., Ltd.

    296,000      7,695

Mitsui Chemicals, Inc.

    463,000      4,334
     Principal
Amount ($)
or Shares		      Market
Value
$

Mitsui Engineering & Shipbuilding Co., Ltd. (Ñ)

    573,800      3,363

Mitsui Fudosan Co., Ltd.

    37,000      1,022

Mitsui OSK Lines, Ltd.

    1,073,000      17,713

Mitsui-Soko Co., Ltd. (Ñ)

    491,480      2,364

Mitsumi Electric Co., Ltd.

    84,000      3,899

Mizuho Financial Group, Inc.

    171      961

Mochida Pharmaceutical Co., Ltd.

    9,000      86

Musashino Bank, Ltd. (The)

    3,200      151

New City Residence Investment Corp. Class A (ö)

    403      1,883

Nichirei Corp.

    139,000      594

Nikon Corp. (Ñ)

    97,600      3,114

Nintendo Co., Ltd.

    59,800      37,684

Nippon Commercial Investment Corp. (ö)

    802      3,471

Nippon Electric Glass Co., Ltd.

    163,000      2,762

Nippon Express Co., Ltd. (Ñ)

    71,000      355

Nippon Kayaku Co., Ltd.

    36,000      289

Nippon Mining Holdings, Inc.

    271,000      2,553

Nippon Oil Corp.

    159,000      1,411

Nippon Residential Investment Corp. Class A (ö)

    496      2,494

Nippon Seiki Co., Ltd.

    4,000      93

Nippon Steel Corp.

    239,000      1,584

Nippon Telegraph & Telephone Corp.

    1,582      7,249

Nippon Yusen KK (Ñ)

    393,000      4,055

Nipponkoa Insurance Co., Ltd. (Ñ)

    1,026,020      9,389

Nishi-Nippon City Bank, Ltd. (The)

    80,000      237

Nissan Motor Co., Ltd.

    729,500      8,405

Nisshin Seifun Group, Inc.

    14,000      127

Nisshin Steel Co., Ltd. (Ñ)

    67,000      257

Nisshinbo Industries, Inc. (Ñ)

    19,000      259

Nissin Kogyo Co., Ltd.

    8,000      207

Nitto Denko Corp. (Ñ)

    130,100      6,346

Nomura Holdings, Inc.

    1,384,960      24,675

Noritsu Koki Co., Ltd. (Ñ)

    2,700      55

NTN Corp. (Ñ)

    79,000      751

NTT DoCoMo, Inc.

    576      835

Oki Electric Industry Co., Ltd. (Æ)(Ñ)

    422,000      717

Okinawa Electric Power Co., Inc. (The)

    1,800      94

Omron Corp.

    149,200      3,653

ORIX Corp.

    31,670      6,445

Pacific Metals Co., Ltd. (Ñ)

    42,000      539

QP Corp.

    11,600      114

Rengo Co., Ltd. (Ñ)

    129,000      927

Resona Holdings, Inc. (Ñ)

    223      395

64   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Ricoh Co., Ltd.

    344,000      6,782

San-In Godo Bank, Ltd. (The)

    14,000      126

Santen Pharmaceutical Co., Ltd. (Ñ)

    11,400      268

Sanwa Holdings Corp. (Ñ)

    21,000      111

Sapporo Hokuyo Holdings, Inc.

    44      452

Sasebo Heavy Industries Co., Ltd. (Ñ)

    8,000      59

Seiko Epson Corp. (Ñ)

    5,800      138

Seino Holdings Corp.

    23,000      197

Sekisui House, Ltd.

    31,000      396

Seven & I Holdings Co., Ltd.

    328,378      8,454

Sharp Corp. (Ñ)

    279,000      4,392

Shiga Bank, Ltd. (The)

    22,000      156

Shin-Etsu Chemical Co., Ltd.

    42,600      2,729

Shinwa Kaiun Kaisha, Ltd.

    39,000      401

Shizuoka Bank, Ltd. (The) (Ñ)

    297,000      3,107

Showa Denko KK

    82,000      320

Showa Shell Sekiyu KK (Ñ)

    96,579      1,140

SMC Corp.

    15,408      2,064

Sohgo Security Services Co., Ltd.

    21,800      364

Sony Corp. (Ñ)

    26,400      1,304

Star Micronics Co., Ltd.

    2,800      89

Sugi Pharmacy Co., Ltd.

    187,510      5,413

Sumco Corp.

    152,100      5,534

Sumco Techxiv Corp.

    2,100      113

Sumitomo Bakelite Co., Ltd. (Ñ)

    685,400      4,188

Sumitomo Corp.

    38,100      664

Sumitomo Heavy Industries, Ltd.

    244,800      3,237

Sumitomo Metal Industries, Ltd.

    158,000      779

Sumitomo Metal Mining Co., Ltd.

    7,000      156

Sumitomo Mitsui Financial Group, Inc. (Ñ)

    1,024      8,356

Sumitomo Realty & Development Co., Ltd.

    13,000      457

Sumitomo Trust & Banking Co., Ltd. (The)

    1,336,010      9,922

Suzuken Co., Ltd.

    6,600      213

Suzuki Motor Corp. (Ñ)

    152,920      4,997

Taiheiyo Cement Corp. (Ñ)

    423,300      1,328

Takeda Pharmaceutical Co., Ltd.

    283,000      17,664

TDK Corp.

    8,200      674

Terumo Corp.

    27,500      1,340

Tobu Railway Co., Ltd. (Ñ)

    36,000      170

Toho Co., Ltd./Tokyo (Ñ)

    14,700      294

Toho Pharmaceutical Co., Ltd.

    8,572      151

Tokai Rubber Industries, Inc.

    24,100      475

Tokuyama Corp. (Ñ)

    116,000      1,628

Tokyo Electric Power Co., Inc. (The)

    262,200      6,652

Tokyo Gas Co., Ltd.

    611,000      2,731
     Principal
Amount ($)
or Shares		      Market
Value
$

Tokyo Star Bank, Ltd. (The)

    27      79

Tokyu Corp. (Ñ)

    45,000      292

Tokyu Land Corp.

    337,900      3,481

TonenGeneral Sekiyu KK (Ñ)

    42,000      424

Toppan Printing Co., Ltd. (Ñ)

    20,000      195

Toshiba Corp. (Ñ)

    709,000      5,978

Toshiba TEC Corp.

    22,000      140

Toyo Engineering Corp.

    19,000      117

Toyo Ink Manufacturing Co., Ltd.

    16,000      55

Toyo Seikan Kaisha, Ltd. (Ñ)

    7,300      132

Toyo Suisan Kaisha, Ltd.

    24,000      416

Toyobo Co., Ltd. (Ñ)

    23,000      54

Toyota Auto Body Co., Ltd.

    18,000      290

Toyota Boshoku Corp.

    8,300      272

Toyota Motor Corp.

    801,800      45,805

United Urban Investment Corp. (ö)

    318      2,317

West Japan Railway Co.

    1,189      5,944

Yahoo! Japan Corp. (Ñ)

    4,955      2,198

Yamada Denki Co., Ltd. (Ñ)

    66,460      6,841

Yamaha Corp.

    9,600      223

Yamaha Motor Co., Ltd.

    7,700      219

Yamato Kogyo Co., Ltd.

    13,600      632

Yokohama Rubber Co., Ltd. (The) (Ñ)

    13,000      97
         
        671,154
         

Luxembourg - 0.8%

        

ArcelorMittal (Æ)

    41,674      3,372

ArcelorMittal (Æ)(Ñ)

    163,878      13,259

Evraz Group SA - GDR

    53,675      4,053

Millicom International Cellular SA (Æ)(Ñ)

    115,000      13,510

SES

    52,954      1,309
         
        35,503
         

Mauritius - 0.0%

        

Golden Agri-Resources, Ltd.

    10,000      12
         

Mexico - 0.6%

        

America Movil SAB de CV Series L

    272,366      17,810

Grupo Televisa SA - ADR

    348,963      8,672
         
        26,482
         

Netherlands - 3.4%

        

Akzo Nobel NV

    2,080      168

ASM International NV (Ñ)

    13,283      377

ASML Holding NV (Æ)

    336,088      11,761

Boskalis Westminster

    55,700      3,397

Corporate Express (Ñ)

    481,344      5,363

International Securities Fund   65

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

CSM

    12,043      420

Fugro NV

    26,200      2,303

Heineken Holding NV

    9,699      576

Heineken NV

    515,219      36,129

ING Groep NV

    964,909      43,551

Koninklijke Ahold NV (Æ)

    335,253      5,048

Koninklijke Philips Electronics NV

    206,470      8,550

OCE NV

    68,235      1,374

Reed Elsevier NV

    535,972      10,403

Rodamco Europe NV (Ñ)

    3,882      551

Royal KPN NV

    88,647      1,676

Royal Numico NV

    4,055      320

SBM Offshore NV

    51,185      1,974

TNT NV

    211,380      8,691

TomTom NV (Æ)

    6,449      517

Unilever NV (Ñ)

    357,216      11,635
         
        154,784
         

Netherlands Antilles - 0.3%

        

Hunter Douglas NV

    7,488      700

Schlumberger, Ltd.

    114,435      11,051
         
        11,751
         

New Zealand - 0.1%

        

Telecom Corp. of New Zealand, Ltd. (Ñ)

    1,390,702      4,674
         

Norway - 0.4%

        

Aker Kvaerner ASA

    98,100      3,440

Renewable Energy Corp. AS (Æ)(Ñ)

    52,800      2,710

StatoilHydro ASA

    130,515      4,419

Yara International ASA

    162,500      6,326
         
        16,895
         

Portugal - 0.1%

        

Energias de Portugal SA

    635,272      4,094
         

Russia - 0.2%

        

Gazprom OAO - ADR

    127,400      6,367

Mobile Telesystems OJSC - ADR

    49,000      4,067
         
        10,434
         

Singapore - 0.7%

        

Allgreen Properties, Ltd.

    201,000      223

Ascendas Real Estate Investment Trust (Æ)(ö)

    18,000      32

CapitaCommercial Trust (Æ)(ö)

    18,000      34

CapitaLand, Ltd. (Ñ)

    1,566,000      8,815
     Principal
Amount ($)
or Shares		      Market
Value
$

CapitaMall Trust (ö)

    23,000      59

China Aviation Oil Singapore Corp., Ltd. (Ñ)

    37,000      70

Cosco Corp. Singapore, Ltd.

    18,000      99

Creative Technology, Ltd.

    5,950      25

DBS Group Holdings, Ltd.

    201,000      3,140

Flextronics International, Ltd. (Æ)(Ñ)

    130,600      1,608

Jardine Cycle & Carriage, Ltd. (Ñ)

    22,000      323

Keppel Corp., Ltd.

    52,000      537

NatSteel, Ltd.

    48,000      54

Neptune Orient Lines, Ltd.

    76,000      275

Oversea-Chinese Banking Corp.

    887,800      5,706

Pacific Century Regional Developments, Ltd. (Æ)

    322,000      82

Singapore Airlines, Ltd.

    31,740      433

Singapore Telecommunications, Ltd.

    2,538,310      7,211

STATS ChipPAC, Ltd. (Æ)(Ñ)

    61,936      70

Suntec Real Estate Investment Trust (Æ)(ö)

    14,000      18

United Overseas Bank, Ltd.

    44,000      660

Wing Tai Holdings, Ltd. (Ñ)

    144,000      350
         
        29,824
         

South Africa - 0.5%

        

Impala Platinum Holdings, Ltd.

    62,818      2,372

MTN Group, Ltd.

    836,462      16,327

Sanlam, Ltd.

    335,000      1,229

Standard Bank Group, Ltd.

    36,800      668
         
        20,596
         

South Korea - 0.9%

        

Daelim Industrial Co.

    12,876      2,838

Honam Petrochemical Corp.

    9,400      1,438

Hynix Semiconductor, Inc. (Æ)

    28,700      810

Hyundai Engineering & Construction Co., Ltd. (Æ)

    30,800      3,157

Hyundai Heavy Industries

    2,430      1,376

Hyundai Mobis

    13,890      1,412

Hyundai Motor Co. - GDR (þ)

    12,130      481

Industrial Bank of Korea (Ñ)

    58,000      1,194

Kookmin Bank

    9,300      768

Kookmin Bank - ADR

    60,300      4,926

LG Electronics, Inc.

    33,908      3,566

POSCO

    1,900      1,387

Samsung Electronics Co., Ltd.

    23,636      14,675

Samsung Heavy Industries Co., Ltd.

    10,560      641

Shinhan Financial Group Co., Ltd.

    15,000      978
         
        39,647
         

66   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Spain - 2.6%

        

Altadis SA

    9,709      693

Avanzit SA (Æ)(Ñ)

    67,107      562

Banco Bilbao Vizcaya Argentaria SA (Ñ)

    232,871      5,892

Banco Santander SA (Ñ)

    895,482      19,573

Gamesa Corp. Tecnologica SA (Ñ)

    172,394      8,811

Gas Natural SDG SA (Ñ)

    2,079      128

Gestevision Telecinco SA (Ñ)

    52,525      1,517

Grifols SA

    5,830      155

Iberdrola SA (Ñ)

    1,346,820      21,702

Iberia Lineas Aereas de Espana (Ñ)

    339,128      1,725

Mapfre SA (Ñ)

    10,485      49

Repsol YPF SA (Ñ)

    246,962      9,800

Tecnicas Reunidas SA

    37,430      3,167

Telefonica SA (Ñ)

    1,233,085      40,828

Union Fenosa SA (Ñ)

    10,041      669
         
        115,271
         

Sweden - 1.0%

        

Alfa Laval AB

    28,600      2,288

Boliden AB (Æ)

    37,700      668

Electrolux AB

    200,300      3,876

Industrivarden AB Class A

    7,200      156

JM AB

    61,700      1,375

Nordea Bank AB

    529,540      9,504

Peab AB

    9,800      89

Peab Industri AB Class B (Æ)

    4,900      42

SAS AB (Æ)

    20,600      361

Scania AB Class B (Æ)

    103,400      2,829

Skandinaviska Enskilda Banken AB Class A

    28,400      874

SKF AB Class B

    67,800      1,329

SSAB Svenskt Stal AB

        

Series A

    90,700      2,948

Series B

    10,500      310

Svenska Cellulosa AB Class B

    164,100      2,900

Tele2 AB Class B

    181,200      4,284

Telefonaktiebolaget LM Ericsson Class B

    3,179,510      9,552

TeliaSonera AB

    111,500      1,100

Volvo AB (Æ)

        

Class A

    15,600      306

Class B

    43,850      866
         
        45,657
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Switzerland - 6.7%

        

ABB, Ltd.

    496,765      15,020

Actelion, Ltd. (Æ)

    203,490      10,109

Baloise Holding AG

    4,157      443

Ciba Specialty Chemicals AG

    9,726      484

Clariant AG (Æ)

    29,411      378

Compagnie Financiere Richemont SA Class A

    74,070      5,298

Credit Suisse Group

    166,386      11,233

Geberit AG

    1,607      217

Givaudan SA

    8,210      8,087

Helvetia Holding AG

    1,656      602

Holcim, Ltd.

    142,121      16,257

Julius Baer Holding AG

    403,209      35,099

Kudelski SA (Ñ)

    9,261      262

Kuehne & Nagel International AG

    22,017      2,361

Kuoni Reisen Holding AG

    372      186

Logitech International SA (Æ)

    263,652      9,163

Lonza Group AG

    73,654      8,603

Nestle SA

    134,976      62,394

Novartis AG

    393,039      20,939

Rieter Holding AG

    261      152

Roche Holding AG

    238,085      40,699

Sika AG

    121      240

Sonova Holding AG

    84,735      9,543

Sulzer AG

    19      31

Swatch Group AG

    77,423      4,862

Swatch Group AG Class B

    14,814      4,749

Swiss Reinsurance

    107,819      10,153

Swisscom AG

    3,686      1,366

Syngenta AG

    12,760      3,081

UBS AG

    297,515      15,968

Zurich Financial Services AG

    5,104      1,542
         
        299,521
         

Taiwan - 0.5%

        

AU Optronics Corp.

    1,044,386      2,259

China Steel Corp.

    844,600      1,205

High Tech Computer Corp.

    215,000      4,465

HON HAI Precision Industry Co., Ltd.

    1,012,480      7,781

Siliconware Precision Industries Co.

    936,110      2,021

Taiwan Semiconductor Manufacturing Co., Ltd.

    587,924      1,173

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

    335,260      3,571

United Microelectronics Corp.

    1,255,596      833
         
        23,308
         

International Securities Fund   67

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Thailand - 0.1%

        

Bangkok Bank PCL

    742,110      2,802
         

Turkey - 0.2%

        

Turkcell Iletisim Hizmet AS

    1      —

Turkcell Iletisim Hizmet AS - ADR (Ñ)

    261,500      6,286

Turkiye Garanti Bankasi AS

    485,300      4,495
         
        10,781
         

United Kingdom - 17.8%

        

3i Group PLC (Æ)

    3,763      85

Amec PLC

    55,814      977

Anglo American PLC

    41,715      2,880

Antofagasta PLC

    29,100      509

ARM Holdings PLC

    1,771,975      5,493

AstraZeneca PLC

    198,557      9,806

Autonomy Corp. PLC (Æ)

    169,800      3,488

Aviva PLC

    637,480      10,051

BAE Systems PLC

    2,325,415      24,161

Barclays PLC

    755,933      9,593

BBA Aviation PLC

    10,707      54

Berkeley Group Holdings PLC (Æ)

    27,306      970

BG Group PLC

    796,711      14,748

BHP Billiton PLC

    409,361      15,617

BP PLC

    2,189,691      28,472

BP PLC - ADR (Ñ)

    100,610      7,847

Brit Insurance Holdings PLC

    78,139      529

British Airways PLC (Æ)

    167,917      1,562

British American Tobacco PLC

    101,793      3,880

British Energy Group PLC

    157,732      1,756

British Land Co. PLC (ö)

    19,652      445

British Sky Broadcasting Group PLC

    907,138      12,858

BT Group PLC

    1,098,961      7,473

Burberry Group PLC

    626,668      8,038

Cadbury Schweppes PLC

    676,242      8,972

Carnival PLC

    3,495      164

Carphone Warehouse Group PLC (Ñ)

    1,075,339      7,860

Charter PLC (Æ)

    95,033      2,150

Compass Group PLC

    750,502      5,419

Davis Service Group PLC

    68,332      779

Diageo PLC

    995,646      22,826

Experian Group, Ltd.

    123,158      1,298

Friends Provident PLC

    45,949      176

GKN PLC

    758,174      5,801

GlaxoSmithKline PLC

    2,295,579      59,208

Great Portland Estates PLC (ö)

    4,547      54

Hammerson PLC (ö)

    1,544      36

HBOS PLC

    1,322,439      24,109
     Principal
Amount ($)
or Shares		      Market
Value
$

Home Retail Group PLC

    736,723      6,707

HSBC Holdings PLC

    476,384      9,438

Imperial Chemical Industries PLC

    37,696      517

Inchcape PLC

    22,176      218

International Power PLC

    970,212      9,901

Invensys PLC (Æ)

    16,450      112

Invesco PLC

    961,241      14,795

ITV PLC

    915,088      1,890

J Sainsbury PLC

    257,753      2,933

John Wood Group PLC

    404,800      3,519

Johnson Matthey PLC

    68,769      2,565

Kazakhmys PLC

    47,100      1,446

Kesa Electricals PLC

    293,988      1,947

Kingfisher PLC

    2,463,347      10,134

Ladbrokes PLC

    576,630      4,954

Land Securities Group PLC (ö)

    23,318      800

Legal & General Group PLC

    1,037,484      3,032

Liberty International PLC (ö)

    2,234      56

Lloyds TSB Group PLC

    1,245,381      14,170

Man Group PLC

    1,950,734      23,990

Marston’s PLC

    295,200      2,117

National Express Group PLC

    48,266      1,333

National Grid PLC

    102,713      1,716

Next PLC

    61,532      2,836

Pearson PLC

    34,020      566

Premier Farnell PLC

    13,121      44

Reckitt Benckiser PLC

    552,083      32,081

Reed Elsevier PLC

    25,166      330

Regus Group PLC

    99,263      227

Resolution PLC

    29,288      445

Reuters Group PLC

    42,361      583

Rio Tinto PLC

    225,551      21,115

Royal & Sun Alliance Insurance Group

    547,110      1,802

Royal Bank of Scotland Group PLC

    3,578,076      38,606

Royal Dutch Shell PLC Class A(Ñ)

    1,147,640      50,229

Royal Dutch Shell PLC Class B

    192,180      8,379

SABMiller PLC

    82,748      2,492

Schroders PLC

    265,787      8,536

Scottish & Newcastle PLC

    19,700      322

Scottish & Southern Energy PLC

    135,258      4,386

Signet Group PLC

    49,062      92

Smiths Group PLC

    332,248      7,836

Stagecoach Group PLC

    313,460      1,776

Standard Chartered PLC

    233,111      9,086

Taylor Wimpey PLC

    496,179      2,568

Tesco PLC

    4,249,258      43,226

Trinity Mirror PLC

    381,099      3,193

Tullett Prebon PLC

    37,058      342

68   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Unilever PLC

    637,282      21,590

United Utilities PLC

    3,966      60

Vodafone Group PLC

    8,815,502      34,772

Vodafone Group PLC - ADR

    386,730      15,187

Weir Group PLC (The)

    35,460      656

William Hill PLC

    715,384      9,240

William Morrison Supermarkets PLC

    330,100      2,036

WPP Group PLC

    2,049,329      28,059

Xstrata PLC

    207,556      14,904
         
        796,036
         

United States - 0.3%

        

Las Vegas Sands Corp. (Æ)(Ñ)

    43,875      5,839

Mettler Toledo International, Inc. (Æ)

    26,900      2,861

Synthes, Inc.

    44,069      5,511
         
        14,211
         
Total Common Stocks        

(cost $3,090,828)

         4,098,628
         
Preferred Stocks - 0.5%        

Australia - 0.0%

        

BBI EPS, Ltd. (Æ)(Ñ)

    25,240      21
         

Brazil - 0.2%

        

Banco Itau Holding Financeira SA

    189,400      5,406

Petroleo Brasileiro SA

    44,300      1,843

Usinas Siderurgicas de Minas Gerais SA

    41,200      3,238
         
        10,487
         

Germany - 0.3%

        

Henkel KGaA

    154,415      7,907

Porsche AG

    1,116      2,977

Volkswagen AG

    3,732      709
         
        11,593
         

Italy - 0.0%

        

Unipol Gruppo Finanziario SpA

    165,757      595
         
     Principal
Amount ($)
or Shares		      Market
Value
$		  

South Korea - 0.0%

        

Hyundai Motor Co.

    21,000      806  

Samsung Electronics Co., Ltd.

    1,600      769  
           
        1,575  
           
Total Preferred Stocks        

(cost $18,688)

         24,271  
           
Warrants & Rights - 0.1%        

United States - 0.1%

        

Bharti Airtel, Ltd. (Æ)(Þ) 2012 Warrants 

    128,100      3,289  
           
Total Warrants & Rights        

(cost $2,007)

         3,289  
           
Short-Term Investments - 7.0%     

United States - 7.0%

        

Russell Investment Company
Money Market Fund

    296,046,000      296,046  

United States Treasury Bills (ç)(ž)(§) 3.691% due 12/20/07

    18,500      18,409  
           
Total Short-Term Investments        

(cost $314,455)

         314,455  
           
Other Securities - 17.9%        

Russell Investment Company
Money Market Fund (×)

    169,137,908      169,138  

State Street Securities Lending Quality Trust (×)

    632,350,413      632,350  
           
Total Other Securities        

(cost $801,488)

         801,488  
           
Total Investments - 117.0%        

(identified cost $4,227,466)

         5,242,131  
Other Assets and Liabilities, Net - (17.0%)         (760,198 )
           
Net Assets - 100.0%         4,481,933  
           

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   69

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts
(Number of Contracts)		    Notional
Amount		     Unrealized
Appreciation
(Depreciation)
$		  
       

Long Positions

        

AEX Index (Netherlands) expiration date 11/07 (125)

    EUR    13,700     (124 )

CAC-40 Index (France) expiration date 11/07 (445)

    EUR    26,001     465  

DAX Index (Germany) expiration date 12/07 (254)

    EUR    51,178     2,407  

EUR STOXX 50 Index (EMU) expiration date 12/07 (913)

    EUR    41,122     1,743  

FTSE-100 Index (UK) expiration date 12/07 (431)

    GBP    29,086     1,924  

Hang Seng Index (Hong Kong) expiration date 11/07 (178)

    HKD    278,294     984  

Hang Seng Index (Hong Kong) expiration date 11/07 (42)

    HKD    65,665     292  

MSCI Singapore Index expiration date 11/07 (9)

    USD    833     5  

SPI 200 Index (Australia) expiration date 12/07 (134)

    AUD    22,759     1,490  

TOPIX Index (Japan) expiration date 12/07 (758)

    JPY    12,253,070     5,639  

Short Positions

        

CAC-40 Index (France) expiration date 11/07 (235)

    EUR    13,731     (244 )

FTSE-100 Index (UK) expiration date 12/07 (78)

    GBP    5,264     (544 )

IBEX Plus Index (Spain) expiration date 11/07 (85)

    EUR    (13,481 )   (832 )

MIB-30 (Italy) expiration date 12/07 (32)

    EUR    6,509     (124 )

OMX Index expiration date 11/07 (756)

    SEK    89,624     (77 )

SPI 200 Index (Australia) expiration date 12/07 (209)

    AUD    35,499     (2,271 )
           

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

         10,733  
           

 

See accompanying notes which are an integral part of the financial statements.

70   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Index Swap Contracts  

Fund Receives
Underlying Security

   

Counter
Party

    Notional
Amount		    Fund Pays
Floating Rate		    Termination
Date		    Unrealized
Appreciation
(Depreciation)
$ 		 
                 

MSCI Belgium VII
Net Total Return Index

    Merrill Lynch    EUR   

1,862

    1 Month EUR LIBOR
plus 0.120%		    12/19/07    (13 )

MSCI Denmark V
Net Total Return Index

    Merrill Lynch    DKK   

20,899

    1 Month DKK LIBOR
minus 0.800%		    12/19/07    (121 )
                     

Total Unrealized Appreciation (Depreciation) on Open Index Swaps

          (134 )
                     

 

See accompanying notes which are an integral part of the financial statements.

International Securities Fund   71

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts
         
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$
         
USD   12   AUD   26   11/01/07   12
USD   409   AUD   500   12/19/07   55
USD   411   AUD   500   12/19/07   54
USD   413   AUD   500   12/19/07   52
USD   418   AUD   500   12/19/07   46
USD   840   AUD   1,000   12/19/07   89
USD   1,240   AUD   1,500   12/19/07   153
USD   1,261   AUD   1,500   12/19/07   132
USD   1,332   AUD   1,500   12/19/07   61
USD   1,643   AUD   2,000   12/19/07   215
USD   4,710   AUD   5,720   12/19/07   603
USD   7,671   AUD   9,300   12/19/07   968
USD   9,960   AUD   12,050   12/19/07   1,233
USD   700   BRL   1,222   11/01/07   6
USD   159   CAD   152   11/02/07   1
USD   204   CAD   192   11/05/07   —
USD   143   CHF   168   12/19/07   3
USD   79,411   CHF   93,576   12/19/07   1,633
USD   86   DKK   451   12/19/07   2
USD   74   EUR   51   11/01/07   —
USD   1,053   EUR   730   11/01/07   4
USD   2,863   EUR   1,984   11/01/07   11
USD   232   EUR   160   11/02/07   —
USD   315   EUR   218   11/02/07   1
USD   1,678   EUR   1,163   11/06/07   7
USD   1,372   EUR   1,000   12/19/07   77
USD   1,428   EUR   1,000   12/19/07   22
USD   2,045   EUR   1,500   12/19/07   129
USD   2,780   EUR   2,000   12/19/07   119
USD   2,784   EUR   2,000   12/19/07   115
USD   2,851   EUR   2,000   12/19/07   48
USD   2,855   EUR   2,000   12/19/07   44
USD   2,862   EUR   2,000   12/19/07   37
USD   4,116   EUR   3,000   12/19/07   232
USD   6,668   EUR   4,698   12/19/07   142
USD   6,670   EUR   4,698   12/19/07   141
USD   6,867   EUR   5,000   12/19/07   380
USD   9,765   EUR   7,000   12/19/07   382
USD   13,682   EUR   10,000   12/19/07   814
USD   18,249   EUR   13,300   12/19/07   1,030
USD   19,612   EUR   13,821   12/19/07   422
USD   67,870   EUR   49,500   12/19/07   3,880
USD   98,208   EUR   71,600   12/19/07   5,577
USD   224   GBP   109   11/01/07   2
USD   144   GBP   70   11/02/07   1
USD   1,001   GBP   500   12/19/07   37
USD   1,216   GBP   600   12/19/07   30
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
USD   2,005   GBP   1,000   12/19/07   71  
USD   2,006   GBP   1,000   12/19/07   70  
USD   2,018   GBP   1,000   12/19/07   58  
USD   3,069   GBP   1,500   12/19/07   45  
USD   3,209   GBP   1,600   12/19/07   112  
USD   3,834   GBP   1,900   12/19/07   111  
USD   4,014   GBP   2,000   12/19/07   138  
USD   4,027   GBP   2,000   12/19/07   125  
USD   4,053   GBP   2,000   12/19/07   99  
USD   6,060   GBP   3,000   12/19/07   169  
USD   28,917   GBP   14,325   12/19/07   822  
USD   56,524   GBP   28,000   12/19/07   1,606  
USD   83   HKD   639   11/01/07   —  
USD   —   HKD   1   11/06/07   —  
USD   5   HKD   35   11/06/07   —  
USD   98   HKD   763   11/06/07   —  
USD   112   HKD   869   11/06/07   —  
USD   440   HKD   3,407   11/06/07   —  
USD   440   HKD   3,407   11/06/07   —  
USD   55   HKD   425   12/19/07   —  
USD   222   HKD   1,726   12/19/07   1  
USD   613   HKD   4,762   12/19/07   2  
USD   413   JPY   47,362   11/01/07   (2 )
USD   115   JPY   13,217   11/05/07   —  
USD   436   JPY   50,000   12/19/07   —  
USD   875   JPY   100,000   12/19/07   (4 )
USD   894   JPY   100,000   12/19/07   (22 )
USD   1,753   JPY   200,000   12/19/07   (10 )
USD   1,757   JPY   200,000   12/19/07   (13 )
USD   1,932   JPY   220,000   12/19/07   (14 )
USD   2,630   JPY   300,000   12/19/07   (14 )
USD   2,636   JPY   300,000   12/19/07   (21 )
USD   3,511   JPY   400,000   12/19/07   (24 )
USD   3,547   JPY   400,000   12/19/07   (60 )
USD   6,788   JPY   777,049   12/19/07   (13 )
USD   7,004   JPY   800,000   12/19/07   (30 )
USD   9,786   JPY   1,120,067   12/19/07   (21 )
USD   17,582   JPY   2,000,000   12/19/07   (146 )
USD   24,381   JPY   2,777,657   12/19/07   (164 )
USD   58,435   JPY   6,650,000   12/19/07   (458 )
USD   124   NOK   664   11/01/07   (1 )
USD   3,007   NOK   16,346   12/19/07   36  
USD   3,009   NOK   16,346   12/19/07   34  
USD   9,033   NOK   49,038   12/19/07   97  
USD   15,052   NOK   81,729   12/19/07   164  
USD   24,547   NOK   138,399   12/19/07   1,219  
USD   26,343   NOK   143,009   12/19/07   282  

 

See accompanying notes which are an integral part of the financial statements.

72   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
USD   677   SEK   4,390   12/19/07   15  
USD   52   SGD   79   12/19/07   3  
USD   562   ZAR   3,661   11/02/07   1  
USD   208   ZAR   1,362   11/05/07   2  
USD   212   ZAR   1,377   11/07/07   —  
AUD   360   USD   330   11/01/07   (5 )
AUD   115   USD   106   11/02/07   (1 )
AUD   300   USD   271   12/19/07   (8 )
AUD   800   USD   661   12/19/07   (82 )
AUD   800   USD   679   12/19/07   (64 )
AUD   1,000   USD   825   12/19/07   (104 )
AUD   900   USD   837   12/19/07   1  
AUD   1,000   USD   901   12/19/07   (27 )
AUD   1,000   USD   931   12/19/07   2  
AUD   2,000   USD   1,649   12/19/07   (209 )
AUD   3,200   USD   2,820   12/19/07   (152 )
AUD   6,000   USD   4,957   12/19/07   (616 )
CHF   2,862   USD   2,429   12/19/07   (49 )
CHF   2,862   USD   2,430   12/19/07   (49 )
CHF   3,337   USD   2,833   12/19/07   (57 )
CHF   5,808   USD   4,984   12/19/07   (46 )
CHF   5,808   USD   4,985   12/19/07   (45 )
CHF   5,808   USD   4,988   12/19/07   (42 )
CHF   11,617   USD   9,975   12/19/07   (86 )
CHF   17,425   USD   14,958   12/19/07   (134 )
CHF   29,188   USD   25,062   12/19/07   (217 )
DKK   627   USD   119   12/19/07   (3 )
DKK   3,540   USD   662   12/19/07   (26 )
EUR   3   USD   5   11/01/07   —  
EUR   117   USD   168   11/01/07   (1 )
EUR   577   USD   843   11/01/07   7  
EUR   614   USD   886   11/01/07   (3 )
EUR   28   USD   40   11/02/07   —  
EUR   131   USD   190   11/05/07   —  
EUR   6   USD   8   12/19/07   —  
EUR   1,000   USD   1,371   12/19/07   (78 )
EUR   1,000   USD   1,373   12/19/07   (77 )
EUR   1,000   USD   1,444   12/19/07   (5 )
EUR   1,500   USD   2,057   12/19/07   (117 )
EUR   1,800   USD   2,502   12/19/07   (107 )
EUR   1,800   USD   2,554   12/19/07   (55 )
EUR   2,000   USD   2,802   12/19/07   (97 )
EUR   3,000   USD   4,118   12/19/07   (231 )
EUR   3,000   USD   4,253   12/19/07   (95 )
EUR   3,000   USD   4,272   12/19/07   (76 )
EUR   3,800   USD   5,361   12/19/07   (147 )
EUR   4,000   USD   5,493   12/19/07   (306 )
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
EUR   4,700   USD   6,811   12/19/07   (1 )
EUR   5,000   USD   7,246   12/19/07   (1 )
EUR   5,777   USD   8,202   12/19/07   (171 )
EUR   5,777   USD   8,201   12/19/07   (173 )
EUR   5,777   USD   8,203   12/19/07   (170 )
EUR   6,000   USD   8,232   12/19/07   (465 )
EUR   10,500   USD   14,407   12/19/07   (812 )
EUR   13,000   USD   18,424   12/19/07   (420 )
EUR   22,000   USD   30,189   12/19/07   (1,701 )
EUR   35,935   USD   50,070   12/19/07   (2,018 )
GBP   15   USD   31   11/01/07   —  
GBP   256   USD   541   11/01/07   10  
GBP   149   USD   308   11/02/07   (1 )
GBP   87   USD   176   12/19/07   (4 )
GBP   200   USD   406   12/19/07   (10 )
GBP   300   USD   605   12/19/07   (17 )
GBP   400   USD   807   12/19/07   (23 )
GBP   400   USD   813   12/19/07   (18 )
GBP   479   USD   969   12/19/07   (25 )
GBP   800   USD   1,606   12/19/07   (55 )
GBP   1,000   USD   2,008   12/19/07   (68 )
GBP   1,000   USD   2,017   12/19/07   (59 )
GBP   1,000   USD   2,039   12/19/07   (37 )
GBP   1,100   USD   2,219   12/19/07   (65 )
GBP   1,500   USD   2,985   12/19/07   (130 )
GBP   1,500   USD   3,028   12/19/07   (86 )
GBP   2,000   USD   4,036   12/19/07   (117 )
GBP   2,000   USD   4,154   12/19/07   2  
GBP   3,092   USD   6,239   12/19/07   (180 )
GBP   3,092   USD   6,243   12/19/07   (177 )
GBP   3,092   USD   6,246   12/19/07   (173 )
GBP   3,463   USD   6,999   12/19/07   (190 )
GBP   4,400   USD   8,884   12/19/07   (251 )
GBP   4,900   USD   9,987   12/19/07   (186 )
GBP   6,184   USD   12,497   12/19/07   (341 )
GBP   7,800   USD   15,744   12/19/07   (449 )
GBP   24,366   USD   49,448   12/19/07   (1,137 )
GBP   17,173   USD   35,242   01/31/08   (355 )
HKD   1,476   USD   190   11/01/07   —  
HKD   5,787   USD   747   11/01/07   —  
HKD   20   USD   3   11/06/07   —  
IDR   551,965   USD   61   11/05/07   —  
IDR   1,844,177   USD   203   11/05/07   —  
JPY   24,925   USD   199   11/01/07   (17 )
JPY   42,519   USD   371   11/01/07   2  
JPY   43,300   USD   378   11/01/07   2  
JPY   28,696   USD   250   11/02/07   1  

 

See accompanying notes which are an integral part of the financial statements.

International Securities Fund   73

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
JPY   51,427   USD   448   11/02/07   2  
JPY   71,747   USD   622   11/02/07   —  
JPY   14,398   USD   125   11/05/07   —  
JPY   46,861   USD   406   11/05/07   —  
JPY   50,000   USD   437   12/19/07   —  
JPY   60,000   USD   522   12/19/07   (1 )
JPY   100,000   USD   879   12/19/07   7  
JPY   106,748   USD   916   12/19/07   (14 )
JPY   150,000   USD   1,318   12/19/07   10  
JPY   200,000   USD   1,757   12/19/07   13  
JPY   200,000   USD   1,759   12/19/07   15  
JPY   280,000   USD   2,439   12/19/07   (2 )
JPY   300,000   USD   2,573   12/19/07   (43 )
JPY   300,000   USD   2,613   12/19/07   (2 )
JPY   300,000   USD   2,638   12/19/07   23  
JPY   700,000   USD   6,144   12/19/07   41  
JPY   880,000   USD   7,739   12/19/07   67  
JPY   1,100,000   USD   9,580   12/19/07   (10 )
JPY   1,135,000   USD   9,960   12/19/07   64  
NOK   25,217   USD   4,664   12/19/07   (31 )
NOK   25,217   USD   4,663   12/19/07   (32 )
NOK   26,898   USD   4,974   12/19/07   (34 )
SEK   4,390   USD   661   12/19/07   (30 )
SGD   79   USD   53   12/19/07   (1 )
             
Total Unrealized Appreciation (Depreciation) on
Open Foreign Currency Exchange Contracts		   9,816  
             

 

See accompanying notes which are an integral part of the financial statements.

74   International Securities Fund

Table of Contents

Russell Investment Company

International Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

Industry Diversification
(Unaudited)		    % of
Net
Assets		        Market
Value
$		  
       
       

Auto and Transportation

    6.6        290,823  

Consumer Discretionary

    9.2        412,966  

Consumer Staples

    8.2        369,466  

Financial Services

    20.1        898,554  

Health Care

    5.7        257,136  

Integrated Oils

    5.5        246,436  

Materials and Processing

    11.2        504,088  

Miscellaneous

    1.1        47,781  

Other Energy

    1.9        86,437  

Producer Durables

    7.3        325,000  

Technology

    3.6        162,174  

Utilities

    11.6        522,038  

Warrants & Rights

    0.1        3,289  

Short-Term Investments

    7.0        314,455  

Other Securities

    17.9        801,488  
               

Total Investments

    117.0        5,242,131  

Other Assets and Liabilities, Net

    (17.0 )      (760,198 )
               

Net Assets

    100.0        4,481,933  
               
Geographic Diversification
(Unaudited)		    % of
Net
Assets		        Market
Value
$		  
       

Africa

    0.4        20,608  

Asia

    9.1        408,641  

Europe

    42.8        1,920,284  

Japan

    15.0        671,154  

Latin America

    3.8        173,078  

Middle East

    0.2        9,810  

Netherlands Antilles

    0.3        11,751  

Other Regions

    9.7        429,281  

United Kingdom

    17.8        796,036  

Other Securities

    17.9        801,488  
               

Total Investments

    117.0        5,242,131  

Other Assets and Liabilities, Net

    (17.0 )      (760,198 )
               

Net Assets

    100.0        4,481,933  
               

 

See accompanying notes which are an integral part of the financial statements.

International Securities Fund   75

Table of Contents

Russell Investment Company

International Securities Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of
Net
Assets		  
  
  

Australia

    4.1  

Austria

    0.6  

Belgium

    0.7  

Bermuda

    0.9  

Brazil

    1.6  

Canada

    2.2  

Cayman Islands

    0.4  

China

    0.4  

Colombia

    0.1  

Cyprus

    0.1  

Czech Republic

    0.1  

Denmark

    0.9  

Egypt

    0.1  

Finland

    1.6  

France

    11.7  

Germany

    7.6  

Greece

    0.3  

Hong Kong

    1.7  

India

    0.3  

Indonesia

    0.2  

Ireland

    0.2  

Israel

    0.1  

Italy

    3.4  

Japan

    15.0  

Luxembourg

    0.8  

Mauritius

    — *

Mexico

    0.6  

Netherlands

    3.4  

Netherlands Antilles

    0.3  

New Zealand

    0.1  

Norway

    0.4  

Portugal

    0.1  

Russia

    0.2  

Singapore

    0.7  

South Africa

    0.5  

South Korea

    0.9  

Spain

    2.6  

Sweden

    1.0  

Switzerland

    6.7  

Taiwan

    0.5  

Thailand

    0.1  

Turkey

    0.2  

United Kingdom

    17.8  

United States

    0.3  

Preferred Stocks

    0.5  

Warrants & Rights

    0.1  

Short-Term Investments

    7.0  

Other Securities

    17.9  
      

Total Investments

    117.0  

Other Assets and Liabilities, Net

    (17.0 )
      

Net Assets

    100.0  
      
Categories    % of
Net
Assets		  

Futures Contracts

    0.2  

Foreign Currency Exchange Contracts

    0.2  

Index Swaps

    — *

 

* Less than .05% of net assets

 

See accompanying notes which are an integral part of the financial statements.

76   International Securities Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Global Equity Fund - Class S  
          Total
Return		  

Inception*

       13.90 %§

 

Global Equity Fund - Class E  
          Total
Return		  

Inception*

       13.70 %§

 

Global Equity Fund - Class C  
          Total
Return		  

Inception*

       13.10 %§
Global Equity Fund - Class A  
          Total
Return		  

Inception*

       7.16 %§

 

MSCI World Net Dividend Index**  
          Total
Return		  

Inception*

       14.42 %§

78   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Global Equity Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

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, 2007?

For the period February 28, 2007 (inception of the Fund) through October 31, 2007, the Global Equity Fund Class A, Class C, Class E and Class S Shares gained 13.70%, 13.10%, 13.70% and 13.90%, respectively. This compared to the MSCI World Net Dividend® Index (USD) which gained 14.42% 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, 2007, the Lipper® Global Multi-Cap Core Funds Average returned 13.44%. This result serves as a peer comparison and is expressed net of operating expenses.

How did the market conditions described in the Market Summary affect the Fund’s performance?

In the face of the impact of developments in the subprime lending market, global equity markets continued to perform well as rate cuts by the Federal Reserve buoyed markets. Despite tremendous volatility and turmoil within credit markets around the world, global equities, as measured by the MSCI World Index, added 14.4% since the March 1, 2007 Fund launch. Global equity markets fell in the summer months as investors worried about the potential for subprime problems to spill over into the broader global economy. However, aggressive action by the Federal Reserve to lower the Federal Funds Rate by .50%, then another .25%, along with injections of liquidity into the short-term money markets to ease the liquidity crisis, led to a sharp recovery in global markets and Fund performance in August and September.

From a regional perspective, Japan continued to lag other regions, and was the only market to post a negative return for the period, falling 3% in U.S. dollar terms. Although managers increasingly found attractive opportunities in the region, the Fund benefited from its underweight to Japan. The Fund rotated away from Canada as managers took profits following good returns in the Canadian materials and financials following

rising commodity prices. Additionally, the Fund’s managers rotated out of the U.S. and into Asia ex Japan, which positively contributed to Fund performance as Asia and Europe subsequently outperformed the U.S.

With the initial concerns regarding a U.S. housing slump and developments in the subprime lending market, managers rotated away from financials such that the Fund had a 2.7% underweight to the financials sector at the end of the fiscal year. The other rotation at the time was a move out of the materials sector, as managers were able to find fewer attractive opportunities. As such, the Fund held a 3.2% underweight to materials at the end of the fiscal year. A 6.7% overweight to the telecommunications sector was the Fund’s most substantial sector overweight as managers increasingly found attractive opportunities with companies that have benefited from globalization and growth in the emerging markets.

Aggressive growth managers tended to do best in this market environment, following the strong outperformance of market oriented, quantitative managers in the first quarter of the calendar year. Additionally, higher price/earnings stocks performed better than their cheaper counterparts. This has been a key driver of manager and Fund performance in recent quarters.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

While stock selection for the Fund has been strong since inception, the managers’ underweights to energy and materials were the main detractor from Fund performance. Commodity prices continued to climb with gold reaching 27-year highs and oil reaching a record $95 dollars a barrel. With commodities on the rise, the materials and energy sectors posted the strongest gains since March 1, rising 33.3% and 35.3% as measured by MSCI World. The strong gains in the metals and mining industry negatively impacted Fund performance as managers had in general rotated into other areas of the market with more attractive valuations. While most managers were underweight to the energy sector, some were able to add value through good stock selection in emerging market energy companies.

The Fund’s growth managers’ stock selection contributed positively to Fund performance. Stock selection was also strong in the technology sector. Stock selection was weakest in the consumer discretionary sector as U.S. housing companies performed poorly due to the escalation of the subprime mortgage problem. The consumer discretionary and financials sectors lagged the overall market, rising 5.7% and 2.7% as measured by MSCI World, as markets feared further subprime fallout would impact the consumer. While the Fund had a neutral weight to the financials sector, selection within the sector detracted from performance. Exposure within the sector


Global Equity Fund   79

Table of Contents

Russell Investment Company

Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

to the mortgage backed securities hurt some of the larger diversified institutions, such UBS, RBS and Bear Stearns, who all lagged the benchmark. The Fund was also affected by some of the subprime mortgage impact that occurred within Europe. However, the Fund continued to benefit from a relatively large overweight to emerging markets as these markets continued to outperform developed markets. Overweights in China and Brazil were especially important contributors to Fund returns.

Since inception, the Fund has been significantly overweight to smaller capitalization companies than the MSCI World Index, as managers continued to find greater value in the smaller companies with higher growth prospects. While over the past few months smaller capitalization companies have fared worse than larger capitalization companies, the Fund’s small cap positioning contributed positively to performance.

Three of the Fund’s four managers outperformed during the period. T. Rowe Price International, Inc. outperformed by nearly 8% in a market where the manager’s exposures to growth and emerging markets were rewarded. Quantitative manager, ClariVest Asset Management LLC outperformed the Fund’s benchmark by almost 3% since inception even in an environment where returns of quantitative managers were negatively impacted by a liquidity crunch. Altrinsic Global Advisors, LLC was the only underperforming manager during the last quarter of the fiscal year. Altrinsic underperformed the Fund’s benchmark by nearly 9% since March 1, offsetting the gains made by both T. Rowe Price and ClariVest. While the overall market environment did not lend itself well to Altrinsic’s style, the manager did not outperform when expected during the

more defensive periods when markets rewarded quality companies. However, in the fourth fiscal quarter, the Fund benefited from the addition of Gartmore Global Partners, a momentum growth manager, which has outperformed since being added to the Fund in September.

Describe any changes to the Fund’s structure or the money manager line-up.

During the fourth fiscal quarter, Gartmore Global Partners was added at a 10% weight to the Fund. Also during the fourth fiscal quarter, manager weights were adjusted, moving 10% of the Fund from Altrinsic to T. Rowe Price.

 

Money Managers as of
October 31, 2007		   Styles

Altrinsic Global Advisors, LLC

   Value

ClariVest Asset Management LLC

   Market-Oriented

Gartmore Global Partners

   Growth

T. Rowe Price International, 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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Commenced operations on February 28, 2007.

 

**   The Morgan Stanley Capital International (MSCI) World Net Dividend Index is a market capitalization index, with net dividends reinvested, that is designed to measure global developed market equity performance. The Index is composed of companies representative of the market structure of 23 developed market countries in North America, Europe, and the Asia/Pacific Region.

 

§   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.

 

80   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,086.00    $ 1,017.19

Expenses Paid During Period*

    $ 8.36    $ 8.08

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.59% (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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,081.30    $ 1,013.41

Expenses Paid During Period*

    $ 12.28    $ 11.88

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.34% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,086.00    $ 1,017.14

Expenses Paid During Period*

    $ 8.41    $ 8.13

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.60% (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).

Global Equity Fund   81

Table of Contents

Russell Investment Company

Global Equity Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,086.80    $ 1,018.45

Expenses Paid During Period*

    $ 7.05    $ 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).

82   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 93.9%

        

Australia - 0.3%

        

Centennial Coal Co., Ltd. (Ñ)

    238,174      960

Incitec Pivot, Ltd. (Ñ)

    25,706      2,129
         
        3,089
         

Austria - 0.7%

        

Erste Bank der Oesterreichischen Sparkassen AG (Ñ)

    105,139      8,581
         

Belgium - 0.4%

        

Dexia SA

    93,213      3,001

Fortis

    13,101      420

Mobistar SA

    7,506      681
         
        4,102
         

Bermuda - 2.8%

        

Axis Capital Holdings, Ltd.

    117,500      4,669

Central European Media Enterprises, Ltd. Class A (Æ)

    19,700      2,261

Covidien, Ltd.

    39,287      1,634

Everest Re Group, Ltd.

    26,842      2,860

GOME Electrical Appliances Holdings, Ltd.

    1,098,000      2,513

Marvell Technology Group, Ltd. (Æ)(Ñ)

    324,700      5,854

Pacific Basin Shipping, Ltd.

    2,255,529      5,120

RenaissanceRe Holdings, Ltd. (Ñ)

    33,400      1,948

Tyco Electronics, Ltd.

    32,737      1,168

Tyco International, Ltd.

    103,737      4,271
         
        32,298
         

Brazil - 2.2%

        

B2W Companhia Global Do Varejo

    84,500      4,584

Banco Itau Holding Financeira
SA - ADR

    362,100      10,338

Bovespa Holding SA (Æ)

    186,300      3,338

Petroleo Brasileiro SA - ADR

    31,600      2,629

Tam SA - ADR (Æ)(Ñ)

    151,200      4,461
         
        25,350
         

British Virgin Islands - 0.2%

        

UTI Worldwide, Inc.

    99,800      2,546
         

Canada - 1.0%

        

ARC Energy Trust (Ñ)

    82,700      1,871

Breakwater Resources, Ltd. (Æ)

    581,500      1,705

Gammon Gold, Inc. (Æ)(Ñ)

    137,060      1,422

Husky Energy, Inc. (Ñ)

    40,800      1,902
     Principal
Amount ($)
or Shares		      Market
Value
$

Laurentian Bank of Canada

    15,800      731

Rogers Communications, Inc. Class B

    73,100      3,725
         
        11,356
         

Cayman Islands - 2.5%

        

ACE, Ltd.

    91,600      5,552

GlobalSantaFe Corp.

    52,400      4,246

Hutchison Telecommunications International, Ltd.

    2,589,000      3,695

Noble Corp.

    64,500      3,415

Seagate Technology (Ñ)

    49,800      1,386

Tencent Holdings, Ltd.

    329,000      2,853

Transocean, Inc. (Æ)

    37,400      4,465

XL Capital, Ltd. Class A (Ñ)

    40,500      2,914
         
        28,526
         

China - 0.9%

        

China Construction Bank Corp.

    3,623,000      4,117

China Shenhua Energy Co., Ltd.

    341,500      2,245

Industrial & Commercial Bank of China

    4,215,000      4,027
         
        10,389
         

Denmark - 0.5%

        

Alm. Brand A/S (Æ)

    9,900      657

D/S Norden A/S

    39,475      4,918
         
        5,575
         

Egypt - 0.4%

        

Orascom Telecom Holding SAE

    296,000      4,269
         

Finland - 0.4%

        

Nokia OYJ

    110,090      4,373
         

France - 5.6%

        

Alcatel-Lucent

    542,700      5,256

Alcatel-Lucent - ADR

    275,460      2,669

AXA SA (Ñ)

    96,179      4,318

BNP Paribas (Ñ)

    8,356      926

Carrefour SA (Ñ)

    46,958      3,390

Credit Agricole SA (Ñ)

    19,317      766

France Telecom SA

    103,462      3,827

JC Decaux SA (Ñ)

    110,491      4,076

Nexans SA

    4,817      826

Peugeot SA

    39,355      3,660

Sanofi-Aventis (Ñ)

    29,291      2,577

Schneider Electric SA (Ñ)

    92,631      12,798

Societe Generale

    49,156      8,286

Global Equity Fund   83

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Total SA (Ñ)

    72,992      5,891

Vivendi (Ñ)

    125,184      5,652
         
        64,918
         

Germany - 3.3%

        

Allianz SE (Ñ)

    19,086      4,306

Daimler AG

    31,933      3,530

Deutsche Beteiligungs AG

    20,244      708

Deutsche Telekom AG

    130,381      2,677

E.ON AG

    34,060      6,660

Hypo Real Estate Holding AG

    73,100      4,366

MAN AG

    23,086      4,147

Metro AG (Ñ)

    44,072      4,001

Salzgitter AG

    8,339      1,648

SAP AG

    60,828      3,299

Siemens AG

    17,056      2,324
         
        37,666
         

Greece - 0.6%

        

Mytilineos Holdings SA

    4,917      292

National Bank of Greece SA

    95,941      6,700
         
        6,992
         

Hong Kong - 1.0%

        

BOC Hong Kong Holdings, Ltd.

    650,000      1,863

Cheung Kong Holdings, Ltd.

    74,787      1,469

Hang Lung Group, Ltd.

    419,069      2,473

Hutchison Whampoa, Ltd.

    309,300      3,898

New World Development, Ltd.

    416,000      1,492
         
        11,195
         

Ireland - 0.5%

        

Anglo Irish Bank Corp. PLC (Ñ)

    257,178      4,331

Anglo Irish Bank Corp. PLC

    117,322      1,981
         
        6,312
         

Italy - 2.8%

        

Alleanza Assicurazioni SpA (Ñ)

    198,523      2,692

Banco Popolare Scarl (Æ)(Ñ)

    94,645      2,279

Enel SpA (Ñ)

    521,696      6,251

ENI SpA (Ñ)

    92,719      3,388

Fiat SpA

    134,088      4,346

Mediaset SpA

    453,120      4,699

Telecom Italia SpA (Ñ)

    2,057,859      5,329

UniCredito Italiano SpA

    415,050      3,563
         
        32,547
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Japan - 8.7%

        

A&D Co., Ltd. (Ñ)

    28,600      323

Astellas Pharma, Inc.

    83,500      3,691

Bosch Corp. (Ñ)

    107,000      560

Canon, Inc.

    27,400      1,384

Daiwa House Industry Co., Ltd.

    139,550      1,987

Eizo Nanao Corp.

    19,100      640

Fuji Machine Manufacturing Co., Ltd.

    31,700      708

Fuji Television Network, Inc.

    1,357      2,736

FUJIFILM Holdings Corp.

    27,500      1,314

Itochu Corp.

    512,000      6,519

Japan Tobacco, Inc.

    378      2,200

JFE Holdings, Inc.

    21,900      1,279

Joyo Bank, Ltd. (The) (Ñ)

    441,150      2,727

Jupiter Telecommunications Co., Ltd. (Æ)

    2,572      2,065

Kansai Electric Power Co., Inc. (The)

    86,500      1,947

Kawasaki Kisen Kaisha, Ltd. (Ñ)

    281,000      3,894

Marubeni Corp.

    96,000      822

MID Reit, Inc. Class A (ö)(Ñ)

    285      1,251

Mitsubishi Estate Co., Ltd.

    193,000      5,767

Mitsubishi Steel Manufacturing Co., Ltd.

    298,000      1,444

Mitsubishi UFJ Financial Group, Inc.

    157,290      1,567

Mitsui & Co., Ltd.

    174,000      4,523

New City Residence Investment Corp. Class A (ö)

    251      1,173

Nintendo Co., Ltd.

    14,600      9,200

Nippon Commercial Investment Corp. (ö)

    298      1,290

Nippon Residential Investment Corp. Class A (ö)

    231      1,161

Nipponkoa Insurance Co., Ltd. (Ñ)

    497,170      4,549

Nipro Corp. (Ñ)

    59,000      1,125

Nissin Kogyo Co., Ltd.

    23,900      618

Ricoh Co., Ltd.

    24,000      473

Seven & I Holdings Co., Ltd.

    165,229      4,254

SMC Corp.

    9,678      1,296

Sony Corp. (Ñ)

    12,800      632

Sumitomo Corp. (Ñ)

    205,700      3,584

Sumitomo Metal Industries, Ltd.

    299,000      1,473

Sumitomo Trust & Banking Co., Ltd. (The)

    776,200      5,764

Takata Corp. (Ñ)

    26,300      936

Toho Pharmaceutical Co., Ltd. (Ñ)

    32,200      567

Toyota Motor Corp.

    222,600      12,717

Yamaha Motor Co., Ltd.

    16,700      475
         
        100,635
         

84   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Mexico - 2.4%

        

America Movil SAB de CV

    271,400      17,747

Grupo Financiero Banorte SAB de CV

    2,079,000      9,769
         
        27,516
         

Netherlands - 1.5%

        

Corporate Express (Ñ)

    224,500      2,501

Heineken NV (Ñ)

    61,831      4,336

ING Groep NV

    98,664      4,453

Koninklijke Philips Electronics NV

    51,292      2,130

TomTom NV (Æ)(Ñ)

    50,040      4,009
         
        17,429
         

Netherlands Antilles - 0.4%

        

Schlumberger, Ltd.

    51,800      5,002
         

Oman - 0.2%

        

Bank Muscat SAOG - GDR

    155,555      2,489
         

Russia - 0.8%

        

Gazprom OAO - ADR

    177,600      8,876
         

Singapore - 0.5%

        

DBS Group Holdings, Ltd.

    86,000      1,343

Flextronics International, Ltd. (Æ)

    167,480      2,062

Neptune Orient Lines, Ltd. (Ñ)

    819,000      2,959
         
        6,364
         

South Korea - 0.3%

        

Kookmin Bank - ADR

    33,977      2,775

Samsung Electronics Co., Ltd.

    2,127      1,321
         
        4,096
         

Spain - 2.9%

        

Telefonica SA (Ñ)

    1,007,928      33,373
         

Sweden - 1.7%

        

Atlas Copco AB Class A (Æ)

    501,300      8,401

JM AB

    21,600      481

Nordea Bank AB

    126,551      2,272

Peab AB

    44,900      408

Peab Industri AB Class B (Æ)

    21,900      186

Skandinaviska Enskilda Banken AB Class A

    78,100      2,403

Telefonaktiebolaget LM Ericsson Class B

    1,726,635      5,187
         
        19,338
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Switzerland - 4.2%

        

ABB, Ltd.

    132,574      4,009

EMS-Chemie Holding AG

    2,393      352

Galenica AG

    1,900      920

Julius Baer Holding AG

    41,116      3,579

Nestle SA

    38,529      17,810

Swiss Reinsurance

    66,139      6,228

Swisscom AG

    13,088      4,849

Temenos Group AG (Æ)

    29,665      830

UBS AG

    80,442      4,317

Zurich Financial Services AG

    18,116      5,475
         
        48,369
         

Thailand - 0.1%

        

Bangkok Bank PCL

    427,900      1,616
         

Turkey - 0.4%

        

Turkiye Garanti Bankasi AS

    474,000      4,390
         

United Kingdom - 8.8%

        

Amdocs, Ltd. (Æ)

    120,900      4,159

Anglo American PLC

    45,131      3,116

AstraZeneca PLC

    19,049      941

BHP Billiton PLC

    252,417      9,629

BP PLC - ADR

    62,276      4,857

British Energy Group PLC

    55,724      620

Britvic PLC

    79,857      598

Cadbury Schweppes PLC

    419,272      5,563

Carphone Warehouse Group PLC

    233,146      1,704

Centrica PLC

    533,340      4,101

Diageo PLC

    264,395      6,061

GlaxoSmithKline PLC

    251,896      6,497

HBOS PLC

    50,772      926

HSBC Holdings PLC

    165,762      3,284

Kingfisher PLC

    1,322,372      5,440

Lloyds TSB Group PLC

    56,352      641

Marston’s PLC

    76,141      546

Rio Tinto PLC

    108,621      10,169

Royal Bank of Scotland Group PLC

    322,251      3,477

Scottish & Southern Energy PLC

    72,142      2,340

Tesco PLC

    42,849      435

Venture Production PLC (Ñ)

    128,680      2,128

Vodafone Group PLC

    1,407,107      5,550

Vodafone Group PLC - ADR

    177,833      6,983

William Morrison Supermarkets PLC

    585,952      3,615

WPP Group PLC

    372,928      5,106

Xstrata PLC

    48,742      3,500
         
        101,986
         

Global Equity Fund   85

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

United States - 34.9%

        

Aetna, Inc.

    46,600      2,618

Alon USA Energy, Inc. (Ñ)

    30,400      1,118

Altria Group, Inc.

    81,221      5,923

AMBAC Financial Group, Inc. (Ñ)

    69,930      2,576

American International Group, Inc.

    14,800      934

American Tower Corp. Class A (Æ)

    371,100      16,395

Anheuser-Busch Cos., Inc.

    43,200      2,215

Anixter International, Inc. (Æ)(Ñ)

    9,300      668

Annaly Capital Management, Inc. (ö)

    206,900      3,536

Apache Corp.

    24,184      2,511

Apple, Inc. (Æ)

    26,600      5,053

Applied Materials, Inc.

    150,300      2,919

AT&T, Inc.

    177,400      7,414

ATP Oil & Gas Corp. (Æ)

    40,600      2,328

Baker Hughes, Inc.

    48,700      4,223

Bear Stearns Cos., Inc. (The) (Ñ)

    46,300      5,260

Bed Bath & Beyond, Inc. (Æ)(Ñ)

    91,300      3,099

BMC Software, Inc. (Æ)

    19,200      650

Boeing Co.

    47,470      4,680

Boston Scientific Corp. (Æ)

    178,252      2,472

Brocade Communications Systems, Inc. (Æ)

    184,630      1,756

Cameron International Corp. (Æ)

    41,600      4,050

Caterpillar, Inc.

    40,200      2,999

Celgene Corp. (Æ)(Ñ)

    27,600      1,822

Cephalon, Inc. (Æ)(Ñ)

    39,700      2,927

Cisco Systems, Inc. (Æ)

    220,070      7,276

Coca-Cola Co. (The)

    39,100      2,415

Cognizant Technology Solutions Corp. Class A (Æ)

    24,000      995

ConocoPhillips

    49,220      4,182

Consol Energy, Inc.

    133,300      7,531

Constellation Energy Group, Inc. (Ñ)

    9,600      909

Cooper Cos., Inc. (The) (Ñ)

    71,010      2,982

Cummins, Inc. (Ñ)

    14,800      1,775

CVS Caremark Corp.

    39,500      1,650

Deere & Co.

    8,300      1,286

DR Horton, Inc. (Ñ)

    554,900      7,042

ENSCO International, Inc. (Ñ)

    23,700      1,315

EOG Resources, Inc.

    20,890      1,851

FMC Corp.

    29,800      1,713

Freeport-McMoRan Copper & Gold, Inc. Class B

    17,400      2,048

Genentech, Inc. (Æ)

    169,100      12,535

General Electric Co.

    84,076      3,461

General Motors Corp. (Ñ)

    112,084      4,393

Gilead Sciences, Inc. (Æ)

    96,500      4,457
     Principal
Amount ($)
or Shares		      Market
Value
$

Goldman Sachs Group, Inc. (The) (Ñ)

    48,400      11,999

Google, Inc. Class A (Æ)

    16,200      11,453

Healthsouth Corp. (Æ)(Ñ)

    133,259      2,672

Healthspring, Inc. (Æ)

    71,300      1,497

Hess Corp.

    49,000      3,509

Hewlett-Packard Co.

    225,300      11,643

Hovnanian Enterprises, Inc. Class A (Æ)(Ñ)

    169,700      1,929

Humana, Inc. (Æ)(Ñ)

    23,800      1,784

ImClone Systems, Inc. (Æ)

    50,838      2,194

Ingram Micro, Inc. Class A (Æ)

    148,800      3,161

InterActiveCorp (Æ)(Ñ)

    75,861      2,235

International Business Machines Corp.

    72,700      8,442

International Game Technology

    94,500      4,121

Johnson Controls, Inc.

    96,400      4,215

JPMorgan Chase & Co.

    97,177      4,567

Juniper Networks, Inc. (Æ)

    236,800      8,525

Kraft Foods, Inc. Class A

    18,777      627

Lam Research Corp. (Æ)(Ñ)

    11,900      597

Lennar Corp. Class A (Ñ)

    272,300      6,222

Liberty Media Corp.—Capital Series A (Æ)

    44,078      5,509

Lincare Holdings, Inc. (Æ)(Ñ)

    54,700      1,902

Lockheed Martin Corp.

    52,400      5,766

Massey Energy Co. (Ñ)

    48,090      1,523

McDonald’s Corp.

    144,200      8,609

MEMC Electronic Materials, Inc. (Æ)

    9,500      696

Merck & Co., Inc.

    38,900      2,266

Merrill Lynch & Co., Inc.

    36,600      2,416

Microsoft Corp.

    319,062      11,745

Molson Coors Brewing Co. Class B

    60,274      3,449

Monster Worldwide, Inc. (Æ)

    127,600      5,178

Morgan Stanley

    25,800      1,735

Murphy Oil Corp.

    75,900      5,589

NII Holdings, Inc. (Æ)

    59,300      3,439

Noble Energy, Inc.

    21,251      1,627

OfficeMax, Inc.

    79,789      2,525

Oracle Corp. (Æ)

    431,006      9,555

Peabody Energy Corp.

    77,600      4,326

PPG Industries, Inc. (Ñ)

    25,600      1,913

Precision Castparts Corp.

    44,000      6,592

Principal Financial Group, Inc. (Ñ)

    82,400      5,576

Procter & Gamble Co.

    7,100      494

Protective Life Corp.

    61,172      2,622

Prudential Financial, Inc.

    18,900      1,828

QLogic Corp. (Æ)

    126,180      1,960

Qualcomm, Inc.

    62,100      2,654

Red Hat, Inc. (Æ)(Ñ)

    84,500      1,824

86   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		     

Market
Value

$

       

Schering-Plough Corp.

    199,900      6,101

Smith International, Inc.

    71,500      4,723

Sprint Nextel Corp. (Ñ)

    298,963      5,112

Stillwater Mining Co. (Æ)(Ñ)

    121,899      1,357

SYNNEX Corp. (Æ)(Ñ)

    42,700      955

Thermo Fisher Scientific, Inc. (Æ)

    12,000      706

Torchmark Corp.

    66,286      4,319

Travelers Cos., Inc. (The)

    8,300      433

Unit Corp. (Æ)

    11,600      554

United Technologies Corp.

    62,000      4,749

UnitedHealth Group, Inc.

    106,200      5,220

Valero Energy Corp.

    32,400      2,282

WellPoint, Inc. (Æ)

    41,700      3,304

WR Berkley Corp.

    29,900      900

Wyeth

    112,851      5,488

XM Satellite Radio Holdings, Inc. Class A (Æ)(Ñ)

    251,500      3,340
         
        404,215
         
Total Common Stocks        

(cost $977,817)

         1,085,778
         

Preferred Stocks - 0.3%

        

Germany - 0.3%

        

Henkel KGaA (Ñ)

    75,784      3,881
         
Total Preferred Stocks        

(cost $3,626)

         3,881
         
     Principal
Amount ($)
or Shares		     

Market
Value

$

  

Short-Term Investments - 4.8%

        

United States - 4.8%

        

Russell Investment Company
Money Market Fund

    48,438,000      48,438  

United States Treasury Bills(ç)(ž)(§) 3.691% due 12/20/07

    7,500      7,463  
           
Total Short-Term Investments        

(cost $55,901)

         55,901  
           

Other Securities - 12.2%

        

Russell Investment Company
Money Market Fund (×)

    31,256,048      31,256  

State Street Securities Lending Quality Trust (×)

    109,846,007      109,846  
           
Total Other Securities        

(cost $141,102)

         141,102  
           
Total Investments - 111.2%        

(identified cost $1,178,446)

         1,286,662  
Other Assets and Liabilities, Net - (11.2%)         (129,590 )
           
Net Assets - 100.0%         1,157,072  
           

 

See accompanying notes which are an integral part of the financial statements.

Global Equity Fund   87

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts
(Number of Contracts)		   Notional
Amount		   Unrealized
Appreciation
(Depreciation)
$
      

Long Positions

       

EUR STOXX 50 Index (EMU)
expiration date 12/07 (190)

   EUR    12,381   260

FTSE 100 Index (United Kingdom)
expiration date 12/07 (44)

   GBP    6,168   195

Hang Seng Index (Hong Kong)
expiration date 11/07 (4)

   HKD    807   28

S&P 500 E-Mini
expiration date 12/07 (52)

   USD    4,043   77

S&P 500 Index
expiration date 12/07 (60)

   USD    23,324   344

TSE 60 Index (Canada)
expiration date 12/07 (14)

   CAD    2,513   112

SPI 200 Index (Australia)
expiration date 12/07 (13)

   AUD    2,046   93

TOPIX Index (Japan)
expiration date 12/07 (42)

   JPY    5,889   218
        

Total Unrealized Appreciation
(Depreciation) on Open
Futures Contracts

        1,327
        

 

See accompanying notes which are an integral part of the financial statements.

88   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts
         
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$
USD   86   AUD   100   12/19/07   6
USD   89   AUD   100   12/19/07   3
USD   172   AUD   200   12/19/07   13
USD   246   AUD   300   12/19/07   31
USD   248   AUD   300   12/19/07   29
USD   252   AUD   300   12/19/07   25
USD   328   AUD   400   12/19/07   42
USD   522   AUD   600   12/19/07   32
USD   660   AUD   800   12/19/07   80
USD   908   AUD   1,100   12/19/07   109
USD   1,198   AUD   1,450   12/19/07   142
USD   2,149   AUD   2,600   12/19/07   254
USD   3,132   AUD   3,800   12/19/07   380
USD   95   CAD   100   12/19/07   10
USD   95   CAD   100   12/19/07   10
USD   102   CAD   100   12/19/07   3
USD   205   CAD   200   12/19/07   5
USD   207   CAD   200   12/19/07   4
USD   698   CAD   700   12/19/07   40
USD   773   CAD   800   12/19/07   70
USD   785   CAD   825   12/19/07   84
USD   1,141   CAD   1,200   12/19/07   123
USD   3,663   CAD   3,850   12/19/07   392
USD   4,276   CAD   4,500   12/19/07   463
USD   600   CHF   696   11/01/07   2
USD   398   EUR   275   11/01/07   1
USD   58   EUR   40   11/05/07   —
USD   683   EUR   500   12/19/07   41
USD   699   EUR   500   12/19/07   25
USD   704   EUR   500   12/19/07   20
USD   712   EUR   500   12/19/07   12
USD   714   EUR   500   12/19/07   10
USD   715   EUR   500   12/19/07   8
USD   1,368   EUR   1,000   12/19/07   80
USD   1,395   EUR   1,000   12/19/07   53
USD   1,416   EUR   1,000   12/19/07   32
USD   1,500   EUR   1,100   12/19/07   93
USD   1,784   EUR   1,300   12/19/07   98
USD   3,543   EUR   2,500   12/19/07   76
USD   7,270   EUR   5,300   12/19/07   403
USD   11,663   EUR   8,500   12/19/07   640
USD   19,484   EUR   14,200   12/19/07   1,071
USD   27,188   EUR   19,800   12/19/07   1,473
USD   399   GBP   200   12/19/07   16
USD   401   GBP   200   12/19/07   14
USD   403   GBP   200   12/19/07   11
USD   406   GBP   200   12/19/07   9
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
USD   408   GBP   200   12/19/07   7  
USD   408   GBP   200   12/19/07   7  
USD   802   GBP   400   12/19/07   27  
USD   1,003   GBP   500   12/19/07   34  
USD   1,013   GBP   500   12/19/07   24  
USD   1,611   GBP   800   12/19/07   48  
USD   3,897   GBP   1,930   12/19/07   106  
USD   6,054   GBP   3,000   12/19/07   169  
USD   10,598   GBP   5,250   12/19/07   291  
USD   12,111   GBP   6,000   12/19/07   334  
USD   355   JPY   40,000   12/19/07   (6 )
USD   436   JPY   50,000   12/19/07   —  
USD   438   JPY   50,000   12/19/07   (2 )
USD   438   JPY   50,000   12/19/07   (2 )
USD   441   JPY   50,000   12/19/07   (5 )
USD   443   JPY   50,000   12/19/07   (7 )
USD   690   JPY   80,000   12/19/07   8  
USD   1,142   JPY   130,000   12/19/07   (8 )
USD   1,588   JPY   180,000   12/19/07   (18 )
USD   4,959   JPY   565,000   12/19/07   (30 )
USD   5,270   JPY   600,000   12/19/07   (36 )
USD   8,775   JPY   1,000,000   12/19/07   (51 )
USD   13,186   JPY   1,500,000   12/19/07   (100 )
USD   589   MXN   6,309   11/05/07   3  
AUD   100   USD   93   12/19/07   1  
AUD   100   USD   85   12/19/07   (7 )
AUD   100   USD   88   12/19/07   (4 )
AUD   100   USD   83   12/19/07   (10 )
AUD   150   USD   134   12/19/07   (4 )
AUD   200   USD   178   12/19/07   (7 )
AUD   300   USD   264   12/19/07   (13 )
AUD   300   USD   245   12/19/07   (33 )
AUD   400   USD   366   12/19/07   (3 )
AUD   2,500   USD   2,095   12/19/07   (215 )
AUD   5,830   USD   4,801   12/19/07   (587 )
CAD   50   USD   49   12/19/07   (4 )
CAD   100   USD   102   12/19/07   (3 )
CAD   100   USD   102   12/19/07   (3 )
CAD   150   USD   155   12/19/07   (3 )
CAD   200   USD   212   12/19/07   2  
CAD   200   USD   195   12/19/07   (16 )
CAD   300   USD   301   12/19/07   (15 )
CAD   350   USD   353   12/19/07   (15 )
CAD   650   USD   675   12/19/07   (9 )
CAD   2,600   USD   2,519   12/19/07   (219 )
CAD   5,800   USD   5,510   12/19/07   (598 )
CHF   1,275   USD   1,099   11/02/07   (2 )

 

See accompanying notes which are an integral part of the financial statements.

Global Equity Fund   89

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
EUR   200   USD   280   12/19/07   (9 )
EUR   200   USD   290   12/19/07   —  
EUR   200   USD   275   12/19/07   (15 )
EUR   500   USD   708   12/19/07   (15 )
EUR   500   USD   706   12/19/07   (18 )
EUR   600   USD   857   12/19/07   (12 )
EUR   700   USD   973   12/19/07   (41 )
EUR   800   USD   1,132   12/19/07   (26 )
EUR   1,000   USD   1,418   12/19/07   (30 )
EUR   1,100   USD   1,568   12/19/07   (24 )
EUR   1,300   USD   1,842   12/19/07   (40 )
EUR   2,500   USD   3,600   12/19/07   (19 )
EUR   11,000   USD   15,305   12/19/07   (618 )
EUR   29,400   USD   40,311   12/19/07   (2,248 )
GBP   100   USD   204   12/19/07   (4 )
GBP   100   USD   204   12/19/07   (3 )
GBP   100   USD   202   12/19/07   (5 )
GBP   200   USD   408   12/19/07   (7 )
GBP   200   USD   415   12/19/07   1  
GBP   200   USD   403   12/19/07   (12 )
GBP   250   USD   512   12/19/07   (7 )
GBP   300   USD   597   12/19/07   (25 )
GBP   350   USD   714   12/19/07   (12 )
GBP   400   USD   815   12/19/07   (14 )
GBP   450   USD   922   12/19/07   (12 )
GBP   3,900   USD   7,888   12/19/07   (202 )
GBP   10,125   USD   20,439   12/19/07   (562 )
HKD   2,611   USD   337   11/01/07   —  
JPY   10,000   USD   88   12/19/07   1  
JPY   10,000   USD   87   12/19/07   —  
JPY   30,000   USD   261   12/19/07   —  
JPY   50,000   USD   430   12/19/07   (6 )
JPY   50,000   USD   430   12/19/07   (6 )
JPY   50,000   USD   439   12/19/07   3  
JPY   100,000   USD   871   12/19/07   (1 )
JPY   110,000   USD   959   12/19/07   (1 )
JPY   150,000   USD   1,320   12/19/07   12  
JPY   160,000   USD   1,407   12/19/07   11  
JPY   750,000   USD   6,578   12/19/07   35  
JPY   2,254,000   USD   19,815   12/19/07   151  
             
Total Unrealized Appreciation (Depreciation) on Open
Foreign Currency Exchange Contracts		   1,784  
             

 


 

See accompanying notes which are an integral part of the financial statements.

90   Global Equity Fund

Table of Contents

Russell Investment Company

Global Equity Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Industry Diversification

(Unaudited)

    % of
Net
Assets		        Market
Value
$		  
       
       

Auto and Transportation

    4.6        55,133  

Consumer Discretionary

    9.8        113,605  

Consumer Staples

    5.7        67,559  

Financial Services

    20.0        227,858  

Health Care

    7.2        82,549  

Integrated Oils

    2.8        31,947  

Materials and Processing

    5.7        68,066  

Miscellaneous

    1.5        15,845  

Other Energy

    6.3        73,170  

Producer Durables

    9.9        112,772  

Technology

    9.2        107,592  

Utilities

    11.5        133,563  

Short-Term Investments

    4.8        55,901  

Other Securities

    12.2        141,102  
               

Total Investments

    111.2        1,286,662  

Other Assets and Liabilities, Net

    (11.2 )      (129,590 )
               

Net Assets

    100.0        1,157,072  
               

Geographic Diversification

(Unaudited)

    % of
Net
Assets		        Market
Value
$		  
       

Asia

    3.1        36,749  

Europe

    26.6        306,722  

Japan

    8.7        100,635  

Latin America

    9.9        113,690  

Middle East

    0.6        6,758  

Netherlands Antilles

    0.4        5,002  

Other Regions

    40.7        471,472  

United Kingdom

    9.0        104,532  

Other Securities

    12.2        141,102  
               

Total Investments

    111.2        1,286,662  

Other Assets and Liabilities, Net

    (11.2 )      (129,590 )
               

Net Assets

    100.0        1,157,072  
               

 

See accompanying notes which are an integral part of the financial statements.

Global Equity Fund   91

Table of Contents

Russell Investment Company

Global Equity Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of Net
Assets		  
  
  

Australia

    0.3  

Austria

    0.7  

Belgium

    0.4  

Bermuda

    2.8  

Brazil

    2.2  

British Virgin Islands

    0.2  

Canada

    1.0  

Cayman Islands

    2.5  

China

    0.9  

Denmark

    0.5  

Egypt

    0.4  

Finland

    0.4  

France

    5.6  

Germany

    3.3  

Greece

    0.6  

Hong Kong

    1.0  

Ireland

    0.5  

Italy

    2.8  

Japan

    8.7  

Mexico

    2.4  

Netherlands

    1.5  

Netherlands Antilles

    0.4  

Oman

    0.2  

Russia

    0.8  

Singapore

    0.5  

South Korea

    0.3  

Spain

    2.9  

Sweden

    1.7  

Switzerland

    4.2  

Thailand

    0.1  

Turkey

    0.4  

United Kingdom

    8.8  

United States

    34.9  

Preferred Stocks

    0.3  

Short-Term Investments

    4.8  

Other Securities

    14.6  
      

Total Investments

    113.6  

Other Assets and Liabilities Net

    (13.6 )
      
   100.0  
      

Futures Contracts

    0.1  

Foreign Currency Exchange Contracts

    0.1  

 

See accompanying notes which are an integral part of the financial statements.

92   Global Equity Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Multistrategy Bond Fund - Class S  
          Total
Return		  

1 Year

       4.89 %

5 Years

       5.02 %§

10 Years

       5.52 %§

 

Multistrategy Bond Fund - Class E‡  
          Total
Return		  

1 Year

       4.64 %

5 Years

       4.77 %§

10 Years

       5.27 %§

 

Multistrategy Bond Fund - Class C‡‡  
          Total
Return		  

1 Year

       3.88 %

5 Years

       3.99 %§

10 Years

       4.60 %§

 

Multistrategy Bond Fund - Class A‡‡‡  
          Total
Return		  

1 Year

       0.77 %

5 Years

       3.98 %§

10 Years

       4.86 %§

 

Lehman Brothers Aggregate Bond Index**  
          Total
Return		  

1 Year

       5.38 %

5 Years

       4.41 %§

10 Years

       5.91 %§

94   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Multistrategy Bond Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Multistrategy Bond Fund Class A, Class C, Class E and Class S Shares gained 4.67%, 3.88%, 4.64% and 4.89% respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ended October 31, 2007, the Lipper® BBB Rated Corporate Debt Funds Average returned 4.43%. For the same period, the Lipper® Intermediate Investment Grade Debt Funds Average returned 4.05%. 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?

Investors’ departure from investments with more risk to the relative safety of U.S. Treasuries and the subsequent re-pricing of risk (i.e. the market demanding increased compensation for assuming a given level of risk) impacted nearly all non-Treasury fixed income investments. As a result, non-Treasury investments posted lower returns than the benchmark. Given that the Fund’s money managers typically invest in non-Treasury sectors, the Fund underperformed its benchmark. However, the managers’ sector allocation and security selection decisions resulted in the Fund outperforming its peers as measured by the Lipper BBB Rated Fixed Income Funds Average.

 

The decline in short-term interest rates benefited the Fund as several of the Fund’s managers anticipated the decline and increased sensitivity to interest rates (also called increased duration). In general, as interest rates decline bond prices increase; therefore, the increase in duration had a positive impact on performance.

Finally, as the Federal Reserve decreased the federal funds rate, intermediate maturity yields also declined resulting in a shift in yields otherwise known as a shift in the yield curve. This yield curve movement benefited the Fund as the Fund’s money managers anticipated the change and varied the maturity of their securities.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Several of the Fund’s money managers successfully increased their duration exposure as interest rates declined and, therefore, made positive contributions to performance. Sector allocation and security selection decisions had mixed results as several of the Fund’s money managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

At the manager level, managers that underperformed over the year included Delaware Management Company, whose performance suffered from allocations to corporate bonds, and Drake Capital Management, LLC, whose performance suffered from duration and mortgage-backed security issues. Pacific Investment Management Company LLC (“PIMCO”) was the best performing manager driven mainly by its duration and sector allocation decisions. Goldman Sachs Asset Management, L.P. also generated positive performance as duration management as well as investments in securities outside of the U.S. generated positive excess return.

Describe any changes to the Fund’s structure or the money manager line-up.

In July 2007, Morgan Stanley Investment Management, Inc. was replaced with Drake Capital Management, LLC.


Multistrategy Bond Fund   95

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Money Managers as of
October 31, 2007		   Styles

Bear Stearns Asset Management Inc.

   Sector Rotation

Drake Capital Management, LLC

   Fully Discretionary

Goldman Sachs Asset Management, L.P.

   Fully Discretionary

Delaware Management Company, a series of Delaware Management Business Trust

   Sector Rotation

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**   Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization.

 

‡   The Fund first issued Class E Shares on September 11, 1998. The returns shown for Class E Shares prior to September 11, 1998 are those of the Fund’s Class S Shares and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to September 10, 1998 and the returns of the Fund’s Class E Shares from September 11, 1998 to January 26, 1999 and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to September 10, 1998 and do not reflect deduction of Rule 12b-1 distribution fees. Had it done so, returns shown for that period would have been lower. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from September 11, 1998 to February 28, 2007. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 3.75%.

 

§   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.

96   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,022.60    $ 1,020.11

Expenses Paid During Period*

    $ 5.15    $ 5.14

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.01% (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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,018.80    $ 1,016.43

Expenses Paid During Period*

    $ 8.85    $ 8.84

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.74% (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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,022.40    $ 1,020.21

Expenses Paid During Period*

    $ 5.05    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

Multistrategy Bond Fund   97

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return
before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,023.70    $ 1,021.48

Expenses Paid During Period*

    $ 3.77    $ 3.77

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.74% (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.

98   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

 

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Long-Term Investments - 97.8%

        

Asset-Backed Securities - 9.8%

        

Accredited Mortgage Loan Trust (Ê)

        

Series 2004-2 Class A2

        

5.173% due 07/25/34

    243      236

ACE Securities Corp. (Ê)

        

Series 2003-HE1 Class M1

        

5.523% due 11/25/33

    4,618      4,522

Series 2003-OP1 Class M2

        

6.373% due 12/25/33

    605      590

Series 2004-IN1 Class A1

        

5.193% due 05/25/34

    291      282

Series 2005-HE3 Class A2C

        

5.193% due 05/25/35

    12,418      12,377

Series 2005-HE7 Class A2B

        

5.053% due 11/25/35

    1,219      1,213

Series 2005-SD3 Class A

        

5.273% due 08/25/45

    1,992      1,970

Series 2006-ASP Class A2A

        

4.943% due 12/25/35

    344      343

4.953% due 10/25/36

    496      490

Series 2006-HE2 Class A2A

        

4.933% due 05/25/36

    653      651

Aegis Asset Backed Securities Trust (Ê)

        

Series 2003-3 Class M2

        

6.523% due 01/25/34

    1,255      1,137

Alliance Bancorp Trust (Ê)

        

Series 2007-OA1 Class A1

        

5.113% due 07/25/37

    4,504      4,431

American Airlines, Inc.

        

Series 01-1

        

6.817% due 11/23/12

    5,820      5,660

6.977% due 05/23/21

    194      182

American Express Credit Account Master Trust

        

Series 2001-5 Class B

        

5.102% due 11/15/10

    1,492      1,492

Series 2003-1 Class B (Ê)

        

5.491% due 09/15/10

    8,632      8,641

Series 2003-2 Class B (Ê)

        

5.461% due 10/15/10

    4,500      4,505

Series 2004-1

        

4.902% due 09/15/11

    117      117

Series 2004-4 Class B

        

5.371% due 03/15/12

    1,749      1,743

Series 2004-5 Class B

        

5.341% due 04/16/12

    1,224      1,219
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2004-C Class C (Ê)(Å)

        

5.591% due 02/15/12

    19,550      19,528

Series 2005-3 Class B

        

5.231% due 01/18/11

    466      465

Series 2007-3 Class A (Ê)

        

5.091% due 10/15/12

    3,550      3,532

American Express Issuance Trust (Ê)

        

Series 2007-1 Class B

        

5.266% due 09/15/11

    4,500      4,500

Ameriquest Mortgage Securities, Inc. (Ê)

        

Series 2002-D Class M1

        

7.556% due 02/25/33

    655      503

Series 2004-R8 Class A5

        

5.243% due 09/25/34

    318      316

Series 2004-R10 Class A5

        

5.263% due 11/25/34

    3      3

Series 2005-R3 Class A1A

        

5.073% due 05/25/35

    8,041      7,872

Series 2005-R5 Class A2B

        

5.103% due 07/25/35

    1,649      1,643

Series 2005-R6 Class A2

        

5.073% due 08/25/35

    13,331      12,899

Series 2005-R7 Class A2C

        

5.133% due 09/25/35

    2,121      2,097

Series 2006-R1 Class A2C

        

5.063% due 08/01/16

    820      791

Argent Securities, Inc. (Ê)

        

Series 2005-W2 Class A2B2

        

5.133% due 10/25/35

    2,007      1,983

Series 2006-M2 Class A2A

        

4.923% due 09/25/36

    289      287

Series 2006-M3 Class A2A

        

4.923% due 10/25/36

    1,279      1,266

Asset Backed Funding Certificates (Ê)

        

Series 2006-HE1 Class A2A

        

4.933% due 01/25/37

    2,087      2,063

Series 2006-OPT Class A3A

        

4.933% due 10/25/36

    1,015      1,006

4.933% due 11/25/36

    708      705

Bank of America Credit Card Trust (Ê)

        

Series 2006-C4 Class C4

        

5.321% due 11/15/11

    13,292      13,086

Series 2006-C7 Class C7

        

5.321% due 03/15/12

    1,300      1,280

Bank One Issuance Trust

        

Series 2003-A3 Class A3 (Ê)

        

5.201% due 12/15/10

    3,800      3,801

Multistrategy Bond Fund   99

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2003-B1 Class B1 (Ê)

        

5.461% due 12/15/10

    2,516      2,519

Series 2003-C4 Class C4

        

6.121% due 02/15/11

    1,866      1,868

Series 2004-B1 Class B1 (Ê)

        

4.972% due 03/15/12

    1,942      1,937

Bayview Financial Acquisition Trust

        

Series 2004-C Class A1 (Ê)

        

5.549% due 05/28/44

    535      527

Series 2006-A Class 1A3

        

5.865% due 02/28/41

    1,540      1,477

Bear Stearns Asset Backed Securities Trust (Ê)

        

Series 2004-BO1 Class 1A1
5.073% due 09/25/34

    141      141

Series 2005-AQ1 Class 2A1
5.093% due 03/25/35

    245      243

Series 2005-HE6 Class A2
5.113% due 06/25/35

    2,188      2,187

Series 2006-HE3 Class A1

4.953% due 04/25/36

    1,248      1,241

Burlington Northern Santa Fe Corp.

        

4.967% due 04/01/23

    222      212

Capital One Multi-Asset Execution Trust

        

Series 2007-A7 Class A7
5.750% due 07/15/20

    2,810      2,842

Cendant Timeshare Receivables Funding LLC (Þ)

        

Series 2004-1A Class A1
3.670% due 05/20/16

    97      94

Centex Home Equity

        

Series 2002-D Class AF4
5.210% due 11/25/28

    152      150

Series 2005-C Class AV3 (Ê)
5.103% due 06/25/35

    6,481      6,467

Series 2005-D Class AF4
5.270% due 10/25/35

    1,000      993

Series 2006-A Class AV2 (Ê)
4.973% due 06/25/36

    3,000      2,957

Chase Credit Card Master Trust

        

Series 2002-3 Class B
5.102% due 09/15/11

    1,458      1,457

Series 2003-2 Class B (Ê)
5.441% due 07/15/10

    7,999      8,008

Series 2003-3 Class B
5.441% due 10/15/10

    758      758

Series 2003-6 Class A (Ê)
5.201% due 02/15/11

    1,300      1,299
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2003-6 Class B
5.441% due 02/15/11

    1,307      1,306

Series 2003-6 Class C (Ê)
5.891% due 02/15/11

    1,500      1,497

Chase Issuance Trust

        

Series 2004-C3 Class C3 (Ê)
5.561% due 06/15/12

    900      890

Series 2005-A12 Class A (Ê)
5.101% due 02/15/11

    1,500      1,497

Series 2005-C1 Class C1 (Ê)
5.461% due 11/15/12

    9,000      8,852

Series 2005-C3 Class C3
4.992% due 11/15/12

    1,166      1,144

Series 2006-A3 Class A3 (Ê)
5.081% due 07/15/11

    1,100      1,097

Series 2006-B1 Class B1
5.241% due 04/15/13

    2,831      2,797

Series 2006-B2 Class B
5.191% due 10/15/12

    2,612      2,582

Series 2006-C3 Class C3 (Ê)
5.321% due 06/15/11

    1,600      1,582

Series 2007-A17 Class A
5.120% due 10/15/14

    325      325

CIT Mortgage Loan Trust (Ê)(Å)

        

Series 2007-1 Class 2A1
6.129% due 10/01/37

    6,200      6,200

Series 2007-1 Class 2A2
6.379% due 10/01/37

    1,700      1,700

Series 2007-1 Class 2A3
6.579% due 10/01/37

    3,150      3,150

Citibank Credit Card Issuance Trust

        

Series 2000-A3 Class A3
6.875% due 11/16/09

    900      900

Series 2001-A1 Class A1 (Ê)
5.530% due 02/07/10

    4,025      4,027

Series 2001-C1 Class C1 (Ê)
6.323% due 01/15/10

    12,282      12,311

Series 2002-C3 Class C3
6.834% due 12/15/09

    443      444

Series 2003-C1 Class C1
6.354% due 04/07/10

    349      350

Series 2007-A1 Class A1 (Ê)
5.200% due 03/22/12

    4,350      4,326

Series 2007-A8 Class A8
5.650% due 09/20/19

    1,850      1,863

Citigroup Mortgage Loan Trust,
Inc. (Ê)

        

Series 2006-NC1 Class A2A
4.943% due 08/25/36

    701      698

100   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2006-NC2 Class A2A
4.913% due 09/25/36

    2,365      2,345

Series 2006-WFH Class A1
4.913% due 08/25/36

    979      973

Series 2006-WFH Class A1A
4.943% due 01/25/36

    191      191

Countrywide Alternative Loan Trust (Þ)

        

Interest Only STRIP

        

Series 2007-OA7 Class CP
2.465% due 05/25/47

    5,631      223

Countrywide Asset-Backed Certificates

        

Series 2004-13 Class AF3
3.989% due 02/25/31

    85      85

Series 2004-AB2 Class M3 (Ê)
5.473% due 05/25/36

    1,165      1,065

Series 2004-BC1 Class M1 (Ê)
5.631% due 02/25/34

    708      681

Series 2005-4 Class AF3
4.456% due 10/25/35

    1,449      1,429

Series 2005-7 Class AF3
4.454% due 11/25/35

    410      402

Series 2005-11 Class AF1 (Ê)
5.053% due 02/25/36

    228      228

Series 2005-16 Class 2AF1 (Ê)
5.023% due 05/25/36

    619      617

Series 2005-17 Class 1AF1 (Ê)
5.073% due 12/25/36

    369      369

Series 2005-AB1 Class A2 (Ê)
5.083% due 10/25/34

    2,395      2,371

Series 2006-1 Class AF3
5.348% due 07/25/36

    2,025      1,995

Series 2006-3 Class 2A2 (Ê)
5.053% due 06/25/36

    5,195      4,989

Series 2006-11 Class 1AF3
6.050% due 09/25/46

    2,085      2,056

Series 2006-11 Class 1AF4
6.300% due 09/25/46

    1,935      1,910

Series 2006-13 Class 1AF3
5.944% due 01/25/37

    3,050      3,003

Series 2006-13 Class 3AV1 (Ê)

4.923% due 01/25/37

    661      657

Series 2006-15 Class A1 (Ê)
4.983% due 10/25/46

    586      582

Series 2006-15 Class A3
5.689% due 10/25/46

    1,350      1,311

Series 2006-16 Class 2A1 (Ê)
4.923% due 12/25/46

    221      220

Series 2006-19 Class 2A1 (Ê)
4.933% due 03/25/37

    769      760
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-22 Class 2A1 (Ê)
4.923% due 05/25/37

    526      520

Series 2006-23 Class 2A1 (Ê)
4.923% due 11/25/37

    512      506

Series 2006-BC1 Class 2A2 (Ê)
5.053% due 04/25/36

    1,390      1,360

Series 2006-BC2 Class 2A1 (Ê)
4.913% due 07/25/36

    2,094      2,082

Series 2006-S1 Class A2
5.549% due 08/25/21

    495      490

Series 2006-S3 Class A2
6.085% due 06/25/21

    2,100      2,026

Series 2006-S6 Class A2
5.519% due 03/25/34

    5,025      4,908

Series 2006-S7 Class A3
5.712% due 04/25/35

    5,860      5,552

Series 2006-S9 Class A3
5.728% due 08/25/36

    1,490      1,366

Series 2007-4 Class A2
5.530% due 03/25/37

    3,032      3,018

Countrywide Home Equity Loan
Trust (Ê)

        

Series 2006-HW Class 2A1B
5.241% due 11/15/36

    4,333      4,182

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 2005-AGE Class A2
4.640% due 02/25/32

    1,000      988

Credit-Based Asset Servicing and Securitization LLC

        

Series 2004-CB7 Class AF5
4.585% due 10/25/34

    770      746

Series 2006-CB5 Class A1 (Ê)
4.933% due 06/25/36

    692      689

Series 2007-CB1 Class AF2
5.721% due 01/25/37

    1,460      1,458

Daimler Chrysler Auto Trust

        

Series 2006-C Class A2
5.250% due 05/08/09

    510      511

Dunkin Securitization (Þ)

        

Series 2006-1 Class A2
5.779% due 06/20/31

    4,435      4,469

Entergy Gulf States, Inc. (Ê)

        

5.980% due 12/01/09

    335      332

FBR Securitization Trust (Ê)

        

Series 2005-2 Class AV3A

        

5.163% due 09/25/35

    4,689      4,675

Multistrategy Bond Fund   101

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Federal Home Loan Mortgage Corp. Structured Pass Through Securities

        

Series 2000-30 Class A5
8.610% due 12/25/30

    513      523

First Franklin Mortgage Loan Asset Backed Certificates (Ê)

        

Series 2004-FF1 Class A2
5.273% due 12/25/32

    68      67

Series 2005-FF4 Class 2A3
5.093% due 05/25/35

    301      301

Series 2005-FF9 Class A2
4.993% due 10/25/35

    719      717

Series 2005-FFH Class A2B
5.123% due 06/25/36

    6,397      6,384

Series 2006-FF1 Class A2
4.923% due 07/25/36

    1,060      1,048

Series 2006-FF1 Class A3
4.923% due 11/25/36

    1,043      1,022

Series 2006-FF2 Class A2
4.943% due 02/25/36

    1,634      1,623

Series 2007-FF1 Class A2A
4.913% due 01/25/38

    2,311      2,295

First USA Credit Card Master Trust (Ê)

        

Series 1998-6 Class A
5.195% due 04/18/11

    5,400      5,401

Franklin Mortgage Loan Asset Backed Certificates

        

Series 2005-FF8 Class A2C
5.143% due 09/25/35

    3,769      3,729

Fremont Home Loan Trust (Ê)

        

Series 2006-3 Class 2A1
4.943% due 02/25/37

    891      886

Series 2006-E Class 2A1
4.933% due 01/25/37

    515      509

GE Capital Credit Card Master Note Trust

        

Series 2005-3 Class B
5.391% due 06/15/13

    1,049      1,041

Series 2006-1 Class A
5.080% due 09/15/12

    4,960      4,993

GMAC Mortgage Corp. Loan Trust

        

Series 2007-HE2 Class A2
6.054% due 12/25/37

    2,780      2,741

Series 2007-HE3 Class 2A1
7.000% due 09/25/37

    1,500      1,503

Green Tree Financial Corp.

        

Series 1994-1 Class A5
7.650% due 04/15/19

    4,462      4,661
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 1994-3 Class A5
8.400% due 06/15/19

    2,772      2,822

Series 1994-5 Class A5
8.300% due 12/15/19

    193      201

GS Mortgage Securities Corp. (Å)

        

Series 2007-NIM Class N1
6.250% due 01/25/37

    1,032      1,022

GSAA Trust

        

Series 2006-2 Class 2A3 (Ê)
5.143% due 12/25/35

    2,675      2,620

Series 2006-4 Class 1A2
5.951% due 03/25/36

    1,839      1,843

GSAMP Trust

        

Series 2003-HE2 Class M1 (Ê)
5.225% due 08/25/33

    1,166      1,070

Series 2006-FM2 Class A2A (Ê)
4.943% due 09/25/36

    538      534

Series 2006-HE1 Class A2A (Ê)
4.953% due 01/25/36

    240      238

Series 2006-HE4 Class A2A (Ê)
4.943% due 06/25/36

    883      879

Series 2006-S3 Class A1
6.085% due 05/25/36

    2,453      1,649

Series 2007-FM1 Class A2A (Ê)
4.943% due 12/25/36

    1,259      1,239

HFC Home Equity Loan Asset Backed Certificates (Ê)

        

Series 2005-1 Class A
5.288% due 01/20/34

    2,572      2,510

Series 2007-2 Class A1V
5.088% due 07/21/36

    2,467      2,446

Series 2007-3 Class APT
6.235% due 11/20/36

    6,400      6,367

Home Equity Asset Trust (Ê)

        

Series 2005-2 Class 2A2
5.073% due 07/25/35

    53      53

Series 2006-3 Class 2A1
4.943% due 07/25/36

    235      234

Household Affinity Credit Card Master Note Trust I

        

Series 2003-1 Class C
6.541% due 02/15/10

    396      397

Household Credit Card Master Note Trust I

        

Series 2006-1 Class A
5.100% due 06/15/12

    2,770      2,786

Series 2006-1 Class B
5.231% due 06/15/12

    932      923

102   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

HSI Asset Securitization Corp.
Trust (Ê)

        

Series 2006-HE1 Class 2A1
4.923% due 10/25/36

    3,869      3,797

Series 2006-HE2 Class 2A1
5.181% due 12/25/36

    1,006      989

Series 2006-OPT Class 2A1
4.953% due 12/25/35

    281      279

Indymac Residential Asset Backed Trust (Ê)

        

Series 2006-H2 Class A
5.279% due 06/28/36

    1,963      1,915

JP Morgan Mortgage Acquisition
Corp. (Ê)

        

Series 2006-CW1 Class A2
4.913% due 07/25/28

    235      234

Series 2006-HE1 Class A2
4.953% due 01/25/36

    507      504

Series 2006-WMC Class A2
4.923% due 07/25/30

    957      952

4.943% due 03/25/36

    375      374

4.923% due 08/25/36

    318      315

Lehman XS Trust (Ê)

        

Series 2005-1 Class 2A2
4.660% due 07/25/35

    916      906

Series 2006-9 Class A1A
4.943% due 05/25/46

    244      243

Series 2006-11 Class 1A1
4.953% due 06/25/46

    2,026      2,016

Series 2006-16N Class A1A
4.953% due 11/25/46

    1,360      1,334

Series 2007-4N Class 3A2A
5.755% due 04/25/37

    7,314      7,113

Long Beach Mortgage Loan Trust (Ê)

        

Series 2002-5 Class M1
6.118% due 11/25/32

    2,883      2,814

Series 2003-3 Class M1
5.623% due 07/25/33

    3,086      3,004

Series 2004-4 Class 1A1
5.153% due 10/25/34

    29      29

Series 2005-3 Class 2A2
5.153% due 09/25/35

    2,125      2,104

Series 2005-WL2 Class 3A3
5.143% due 07/25/35

    1,283      1,276

Series 2005-WL3 Class 2A2A
5.013% due 11/25/35

    13,358      13,271

Series 2006-4 Class 2A1
4.923% due 05/25/36

    1,355      1,351
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-9 Class 2A1
4.933% due 10/25/36

    4,054      4,019

Mastr Asset Backed Securities
Trust (Ê)

        

Series 2003-WMC Class M2
7.348% due 08/25/33

    436      359

Series 2006-AM3 Class A1
4.933% due 10/25/36

    336      335

Series 2006-FRE Class A1
4.943% due 12/25/35

    300      300

Series 2006-WMC Class A1
4.943% due 02/25/36

    592      589

MBNA Credit Card Master Note
Trust (Ê)

        

Series 2001-C2 Class C2 (Å)
6.241% due 12/15/10

    3,000      3,010

Series 2003-B1 Class B1
5.531% due 07/15/10

    5,191      5,197

Series 2003-B5 Class B5
5.461% due 02/15/11

    2,000      1,999

Series 2003-C3 Class C3
6.002% due 10/15/10

    303      304

Series 2005-C3 Class C
5.361% due 03/15/11

    15,192      15,057

MBNA Master Credit Card Trust

        

Series 2000-E Class A
7.800% due 10/15/12

    600      643

Meritage Mortgage Loan Trust (Ê)

        

Series 2005-2 Class 2A2
5.123% due 11/25/35

    3,118      3,117

Merrill Lynch Mortgage Investors,
Inc. (Ê)

        

Series 2006-AR1 Class A2C
5.033% due 03/25/37

    2,775      2,616

Series 2006-HE1 Class A2A
4.953% due 12/25/36

    1,492      1,485

Series 2006-RM1 Class A2A
4.943% due 02/25/37

    597      595

Series 2006-RM3 Class A2A
4.903% due 06/25/37

    516      513

Mid-State Trust

        

Series 2003-11 Class A1
4.864% due 07/15/38

    136      128

Series 2004-1 Class A
6.005% due 08/15/37

    175      178

Series 2005-1 Class A
5.745% due 01/15/40

    170      165

Series 2006-1 Class A (Þ)
5.787% due 10/15/40

    806      775

Multistrategy Bond Fund   103

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Morgan Stanley ABS Capital I (Ê)

        

Series 2003-NC8 Class M1
5.573% due 09/25/33

    3,000      2,893

Series 2003-NC8 Class M3
6.973% due 09/25/33

    317      272

Series 2006-HE3 Class A2A
4.913% due 04/25/36

    758      755

Series 2006-HE4 Class A1
4.913% due 06/25/36

    647      643

Series 2006-HE7 Class A2A
4.923% due 09/25/36

    3,670      3,634

Series 2006-NC5 Class A2A
4.913% due 10/25/36

    5,510      5,473

Series 2007-NC3 Class A2A
4.933% due 05/25/37

    3,300      3,277

Morgan Stanley Home Equity
Loans (Ê)

        

Series 2006-1 Class A2A
4.953% due 12/25/35

    332      330

Series 2006-3 Class A1
4.923% due 04/25/36

    472      469

Morgan Stanley IXIS Real Estate Capital Trust (Ê)

        

Series 2006-2 Class A1
4.923% due 11/25/36

    557      551

Morgan Stanley Mortgage Loan
Trust (Ê)

        

Series 2006-12X Class A1
4.993% due 10/25/36

    591      591

Nationstar Home Equity Loan Trust (Ê)

        

Series 2006-B Class AV1
5.380% due 09/25/36

    1,623      1,614

Nelnet Student Loan Trust (Ê)

        

Series 2006-3 Class A1
5.183% due 09/25/12

    281      281

New Century Home Equity Loan
Trust (Ê)

        

Series 2004-4 Class M2
5.403% due 02/25/35

    1,720      1,616

Newcastle Mortgage Securities
Trust (Ê)

        

Series 2006-1 Class A1
4.943% due 03/25/36

    377      375

Option One Mortgage Loan Trust (Ê)

        

Series 2003-2 Class M2
6.573% due 04/25/33

    379      328

Series 2003-3 Class M3
6.873% due 06/25/33

    201      161
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2003-4 Class M2
6.523% due 07/25/33

    215      189

Series 2005-2 Class A5
5.203% due 05/25/35

    3,000      2,938

Series 2005-3 Class A4
5.123% due 08/25/35

    6,822      6,817

Series 2005-4 Class A3
5.133% due 11/25/35

    1,772      1,725

Series 2006-1 Class 2A1
4.943% due 01/25/36

    1,458      1,452

Series 2007-1 Class 2A1
4.923% due 01/25/37

    1,802      1,786

Park Place Securities, Inc. (Ê)

        

Series 2004-MCW Class A1
5.185% due 10/25/34

    789      757

Series 2004-WWF Class A1D
5.333% due 02/25/35

    162      156

Series 2005-WCW Class M1
5.323% due 09/25/35

    1,705      1,657

Popular ABS Mortgage Pass-Through Trust

        

Series 2005-6 Class A3
5.680% due 01/25/36

    1,855      1,827

Power Contract Financing LLC (Þ)
6.256% due 02/01/10

    1,324      1,345

RAAC Series (Ê)

        

Series 2006-SP1 Class A1
4.973% due 09/25/45

    395      392

Renaissance Home Equity Loan Trust

        

Series 2005-1 Class M1
5.357% due 05/25/35

    880      783

Series 2005-2 Class AF4
4.934% due 08/25/35

    610      598

Series 2005-4 Class A2
5.399% due 02/25/36

    255      254

Series 2005-4 Class A3
5.565% due 02/25/36

    395      391

Series 2006-1 Class AF6
5.746% due 05/25/36

    1,445      1,377

Series 2006-1 Class AV1 (Ê)
4.953% due 05/25/36

    399      397

Series 2006-2 Class AV1 (Ê)
4.923% due 08/25/36

    601      600

Series 2007-1 Class AF2
5.512% due 04/25/37

    5,245      5,234

Series 2007-2 Class AF2
5.675% due 06/25/37

    1,425      1,405

104   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Residential Asset Mortgage Products, Inc.

        

Series 2003-RS1 Class AI6A
5.980% due 12/25/33

    1,631      1,614

Series 2006-RS2 Class A1 (Ê)
4.953% due 03/25/36

    587      586

Series 2006-RS3 Class A1 (Ê)
4.953% due 05/25/36

    50      50

Series 2006-RZ3 Class A1 (Ê)
4.943% due 08/25/36

    1,474      1,459

Residential Asset Securities Corp.

        

Series 2001-KS3 Class AII (Ê)
5.333% due 09/25/31

    181      179

Series 2003-KS2 Class MI1
4.800% due 04/25/33

    3,395      3,163

Series 2003-KS2 Class MI3
6.100% due 04/25/33

    718      572

Series 2003-KS5 Class AI4
3.230% due 12/25/30

    62      61

Series 2005-AHL Class A2 (Ê)
5.143% due 06/25/35

    809      796

Series 2005-KS8 Class A3 (Ê)
5.133% due 08/25/35

    4,871      4,847

Series 2006-KS1 Class A2 (Ê)
5.013% due 02/25/36

    4,133      4,092

Series 2006-KS2 Class A1 (Ê)
4.943% due 03/25/36

    293      293

Series 2006-KS3 Class AI2 (Ê)
4.993% due 04/25/36

    3,500      3,477

Series 2006-KS3 Class AI3 (Ê)
5.043% due 04/25/36

    875      834

Series 2006-KS6 Class A1 (Ê)
4.913% due 08/25/36

    276      275

Series 2006-KS9 Class AI1 (Ê)
4.943% due 11/25/36

    762      753

Residential Funding Mortgage Securities II, Inc.

        

Series 2006-HI1 Class A1 (Ê)
4.983% due 02/25/36

    326      320

Series 2006-HSA Class AI2
5.495% due 03/25/36

    2,420      2,382

Saxon Asset Securities Trust

        

Series 2005-4 Class A2C
5.123% due 11/25/37

    3,898      3,814

Series 2006-3 Class A1 (Ê)
4.933% due 11/25/36

    1,663      1,643

SBI Heloc Trust (Ê)(Þ)

        

Series 2006-1A Class 1A2A
5.043% due 08/25/36

    426      406
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Securitized Asset Backed Receivables LLC Trust (Ê)

        

Series 2006-OP1 Class A2B
5.073% due 10/25/35

    2,215      2,201

Series 2006-WM1 Class A2A

        

4.943% due 12/25/35

    283      281

Series 2007-HE1 Class A2A
4.933% due 12/25/36

    2,815      2,716

Sharps SP I, LLC
7.000% due 01/25/34

    7      3

SLM Student Loan Trust (Ê)

        

Series 2005-10 Class A2
5.094% due 04/27/15

    992      992

Series 2006-3 Class A2
5.084% due 01/25/16

    218      218

Series 2006-8 Class A2
5.084% due 10/25/16

    3,013      3,001

Series 2007-1 Class A1
5.054% due 04/25/12

    1,280      1,280

Small Business Administration

        

Series 2000-P10 Class 1
7.449% due 08/10/10

    41      41

Small Business Administration Participation Certificates

        

Series 1997-20D Class 1
7.500% due 04/01/17

    1,028      1,070

Soundview Home Equity Loan Trust

        

Series 2005-4 Class 2A3 (Ê)
5.103% due 03/25/36

    11,000      10,980

Series 2005-OPT Class 2A3
5.133% due 12/25/35

    4,128      3,989

Series 2006-EQ1 Class A1 (Ê)
4.923% due 10/25/36

    356      353

Series 2006-EQ2 Class A1 (Ê)
4.953% due 01/25/37

    3,822      3,785

Series 2006-OPT Class A2 (Ê)
4.993% due 05/25/36

    1,615      1,601

Series 2006-WF1 Class A2
5.645% due 10/25/36

    3,105      3,058

Series 2007-OPT Class 2A1 (Ê)
4.953% due 06/25/37

    2,830      2,814

Specialty Underwriting & Residential Finance (Ê)

        

Series 2005-BC4 Class A2B
5.103% due 09/25/36

    2,000      1,979

Series 2006-AB1 Class A1
4.953% due 12/25/36

    657      653

Series 2006-AB2 Class A2A
4.913% due 06/25/37

    1,000      989

Multistrategy Bond Fund   105

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Structured Asset Investment Loan Trust

        

Series 2003-BC1 Class A2
5.553% due 01/25/33

    4,494      4,344

Series 2005-3 Class M2 (Ê)
5.313% due 04/25/35

    675      629

Series 2005-6 Class A8 (Ê)
5.113% due 07/25/35

    7,817      7,813

Series 2005-7 Class A4 (Ê)
5.063% due 08/25/35

    7,320      7,256

Series 2006-BNC Class A2 (Ê)
4.913% due 09/25/36

    1,941      1,918

Structured Asset Securities Corp.

        

Series 2001-SB1 Class A2
3.375% due 08/25/31

    654      577

Series 2004-16X Class A2
4.910% due 08/25/34

    87      87

Series 2004-19X Class A2
4.370% due 10/25/34

    987      983

Series 2005-4XS Class 1A2B
4.670% due 03/25/35

    549      546

Series 2005-GEL Class A (Ê)
5.223% due 12/25/34

    370      361

Series 2006-BC3 Class A2 (Ê)
4.923% due 10/25/36

    2,126      2,107

Terwin Mortgage Trust (Þ)

        

Series 2006-2HG Class A1
4.500% due 03/25/37

    1,919      1,822

TXU Electric Delivery Transition Bond Co. LLC

        

Series 2004-1 Class A2
4.810% due 11/17/14

    300      299

VTB 24 Capital PLC (Ê)

        

6.540% due 12/07/09

    3,105      3,059

Washington Mutual Asset-Backed Certificates (Ê)

        

Series 2006-HE2 Class A1
4.913% due 05/25/36

    756      751

Wells Fargo Alternative Loan Trust Zero coupon due 11/25/37

    13,000      13,130

Wells Fargo Home Equity Trust (Ê)

        

Series 2005-4 Class AI1 (Þ)
4.993% due 12/25/35

    1,118      1,112

Series 2006-3 Class A1
4.923% due 01/25/37

    500      494

World Financial Properties (Å)
6.950% due 09/01/13

    159      164
         
        628,578
         
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Certificates of Deposit - 0.3%

        

Bank of Ireland
5.400% due 01/15/10

    11,200      11,216

Calyon NY
5.300% due 01/16/09

    3,400      3,399

Nordea Bank Finland PLC
5.317% due 04/09/09

    4,500      4,498

Skandinaviska Enskilda Banken
5.480% due 02/13/09

    1,700      1,700
         
        20,813
         

Corporate Bonds and Notes - 18.1%

     

Abbott Laboratories
5.600% due 05/15/11

    2,990      3,055

5.875% due 05/15/16

    1,070      1,098

AbitibiBowater, Inc. (Ñ)
9.000% due 08/01/09

    2,560      2,509

Ace Capital Trust II (Ñ)
9.700% due 04/01/30

    1,050      1,341

AES Corp. (The) (Þ)
9.000% due 05/15/15

    1,500      1,597

AIG SunAmerica Global Financing VI (Å)
6.300% due 05/10/11

    3,095      3,177

Alamosa Delaware, Inc.
8.500% due 01/31/12

    800      833

Alion Science and Technology Corp.
10.250% due 02/01/15

    2,555      2,389

Allied Waste NA, Inc. (Ñ)

        

Series B
7.125% due 05/15/16

    500      505

Allison Transmission (Ñ)(Å)

        

11.000% due 11/01/15

    1,675      1,706

11.250% due 11/01/15

    840      832

Altria Group, Inc.

        

7.000% due 11/04/13

    4,750      5,198

7.750% due 01/15/27 (Ñ)

    200      248

American Casino & Entertainment Properties LLC

        

7.850% due 02/01/12

    1,040      1,078

American Electric Power Co., Inc.

        

Series C
5.375% due 03/15/10

    100      101

American Express Bank

        

Series BKNT
6.000% due 09/13/17

    500      505

American Express Centurion Bank

        

Series BKNT
5.130% due 06/12/09 (Ê)

    5,700      5,676

5.550% due 10/17/12

    2,620      2,645

6.000% due 09/13/17

    500      504

106   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

American Express Credit Corp. (Ê)

        

5.184% due 03/02/09

    1,800      1,795

5.182% due 11/09/09

    900      893

American General Finance Corp.

        

4.875% due 05/15/10

    1,300      1,292

Series MTNH
4.625% due 09/01/10

    45      44

Series MTNI
4.625% due 05/15/09

    220      218

American Honda Finance Corp. (Ê)(Þ)

        

5.410% due 02/09/10

    1,600      1,596

American International Group, Inc.

        

5.110% due 06/16/09 (Ê)(Þ)

    700      700

4.700% due 10/01/10

    1,730      1,716

5.375% due 10/18/11

    2,110      2,129

5.050% due 10/01/15 (Ñ)

    1,775      1,721

6.250% due 03/15/87

    4,050      3,769

Americo Life, Inc. (Þ)

        

7.875% due 05/01/13

    250      256

Ameriprise Financial, Inc.

        

7.518% due 06/01/66

    7,235      7,394

AmerisourceBergen Corp.

        

Series WI
5.625% due 09/15/12

    3,210      3,218

AMFM, Inc.

        

8.000% due 11/01/08

    950      965

Amgen, Inc. (Ê)(Þ)

        

5.585% due 11/28/08

    4,600      4,592

Amkor Technology, Inc. (Ñ)

        

7.750% due 05/15/13

    2,025      1,959

Anadarko Petroleum Corp.

        

5.950% due 09/15/16

    2,635      2,649

ANZ Capital Trust (ƒ)(Þ)

        

4.484% due 12/31/49

    2,550      2,489

Apache Corp.

        

5.250% due 04/15/13

    1,640      1,643

Appalachian Power Co.

        

Series O
5.650% due 08/15/12

    795      804

Aramark Corp.

        

8.500% due 02/01/15

    2,155      2,182

8.856% due 02/01/15 (Ê)

    780      784

Arizona Public Service Co.

        

5.800% due 06/30/14

    2,800      2,809

6.250% due 08/01/16

    850      869

ArvinMeritor, Inc. (Ñ)

        

8.750% due 03/01/12

    1,095      1,090

AT&T Corp.

        

7.300% due 11/15/11

    4,055      4,376

8.000% due 11/15/31

    2,295      2,848
    

Principal

Amount ($)

or Shares

     

Market

Value

$

AT&T, Inc.

        

5.785% due 11/14/08 (Ê)

    3,400      3,402

5.100% due 09/15/14

    425      417

6.500% due 09/01/37

    515      543

AT&T Mobility LLC

        

6.500% due 12/15/11

    2,660      2,790

Atmos Energy Corp.

        

6.350% due 06/15/17

    800      819

Avista Capital Trust III

        

6.500% due 04/01/34

    1,426      1,426

BAE Systems Holdings, Inc. (Þ)

        

6.400% due 12/15/11

    5,800      6,020

Bank of America Corp.

        

5.875% due 02/15/09 (Ñ)

    95      96

5.608% due 06/19/09 (Ê)

    9,200      9,168

5.625% due 10/14/16

    465      464

5.420% due 03/15/17

    480      466

6.000% due 09/01/17 (Ñ)

    4,190      4,271

Bank of America NA

        

Series BKNT
5.646% due 12/18/08 (Ê)

    400      400

5.505% due 02/27/09 (Ê)

    400      399

5.704% due 06/12/09 (Ê)

    6,200      6,183

5.974% due 06/15/16 (Ê)

    3,100      3,038

6.000% due 10/15/36

    500      485

Bank of New York Mellon Corp. (The)

        

5.125% due 11/01/11

    2,400      2,401

Bausch & Lomb, Inc. (Ñ)(Å)

        

9.875% due 11/01/15

    1,605      1,653

Bear Stearns Cos., Inc. (The)

        

5.494% due 07/16/09 (Ê)

    1,500      1,484

5.590% due 08/21/09 (Ê)

    4,100      4,005

5.630% due 05/18/10 (Ê)

    8,400      8,203

5.550% due 01/22/17 (Ñ)

    1,345      1,257

Series MTNB (Ê)
5.284% due 01/30/09 (Ñ)

    1,000      991

5.288% due 03/30/09

    900      892

BellSouth Corp.

        

4.240% due 04/26/21 (Þ)

    1,800      1,792

6.550% due 06/15/34

    260      271

Bellsouth Telecommunications, Inc.

        

7.000% due 12/01/95

    2,185      2,198

BNP Paribas Capital Trust (ƒ)(Þ)

        

9.003% due 12/29/49

    2,600      2,850

Boardwalk Pipelines, LP

        

5.875% due 11/15/16

    2,825      2,806

Boeing Capital Corp., Ltd. (Ñ)

        

6.100% due 03/01/11

    500      517

Multistrategy Bond Fund   107

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Boston Scientific Corp.

        

6.400% due 06/15/16

    5,095      4,764

BP AMI Leasing, Inc. (Ê)(Þ)

        

5.210% due 06/26/09

    4,700      4,703

Burlington Northern Santa Fe Corp.

        

6.750% due 07/15/11

    110      116

5.650% due 05/01/17

    1,425      1,410

6.875% due 12/01/27

    100      105

6.750% due 03/15/29

    110      116

Caesars Entertainment, Inc. (Ñ)

        

8.125% due 05/15/11

    4,000      4,060

California Steel Industries, Inc.

        

6.125% due 03/15/14

    3,795      3,463

Capmark Financial Group, Inc. (Å)

        

5.875% due 05/10/12

    2,825      2,536

6.300% due 05/10/17

    5,950      4,866

Carolina Power & Light Co.

        

6.500% due 07/15/12

    60      63

Caterpillar Financial Services Corp.

        

5.570% due 05/18/09 (Ê)

    1,600      1,594

4.300% due 06/01/10

    2,090      2,061

5.850% due 09/01/17 (Ñ)

    1,315      1,340

Catlin Insurance Co., Ltd. (ƒ)(Å)

        

7.249% due 12/31/49

    1,280      1,208

CCH I Holdings LLC (Ñ)

        

13.500% due 01/15/14

    3,430      3,173

CenterPoint Energy Houston Electric LLC

        

Series J2
5.700% due 03/15/13

    470      473

CenterPoint Energy Resources Corp.

        

6.250% due 02/01/37

    170      163

Series B
7.875% due 04/01/13

    2,960      3,246

Chubb Corp.

        

6.375% due 03/29/37

    2,000      1,969

6.000% due 05/11/37

    1,035      1,007

CIT Group Holdings, Inc. (Ê)

        

5.516% due 01/30/09

    800      778

CIT Group, Inc.

        

5.748% due 12/19/08 (Ê)

    1,800      1,756

5.640% due 08/17/09 (Ê)

    6,300      6,052

6.875% due 11/01/09 (Ñ)

    220      224

4.125% due 11/03/09

    265      256

Citicorp

        

Series MTNF
6.375% due 11/15/08

    265      269
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Citigroup Funding, Inc. (Ê)

        

5.714% due 12/08/08

    400      399

4.950% due 04/23/09

    3,600      3,596

5.200% due 06/26/09

    1,800      1,792

Citigroup Global Markets Holdings, Inc. (Ê)

        

Series MTNA
5.794% due 03/17/09

    300      300

Citigroup, Inc.

        

5.240% due 12/26/08 (Ê)

    3,200      3,200

5.024% due 01/30/09 (Ê)

    400      400

5.228% due 12/28/09 (Ê)

    1,600      1,595

4.125% due 02/22/10

    720      708

6.500% due 01/18/11

    4,890      5,093

5.500% due 08/27/12

    1,900      1,923

5.300% due 10/17/12 (Ñ)

    1,300      1,305

4.700% due 05/29/15

    180      170

6.000% due 08/15/17

    4,000      4,077

6.125% due 08/25/36 (Ñ)

    700      683

5.875% due 05/29/37

    2,605      2,474

Citizens Communications Co.

        

9.250% due 05/15/11

    1,250      1,366

Clorox Co.

        

4.200% due 01/15/10

    725      711

CNA Financial Corp.

        

6.500% due 08/15/16

    850      872

Columbus Southern Power Co.

        

Series C
5.500% due 03/01/13

    360      359

Comcast Cable Communications Holdings, Inc.

        

9.455% due 11/15/22

    1,575      2,034

Comcast Cable Communications LLC

        

6.875% due 06/15/09

    525      538

6.750% due 01/30/11

    425      443

Comcast Cable Holdings LLC

        

9.800% due 02/01/12

    1,310      1,517

7.875% due 08/01/13

    4,490      4,939

Comcast Corp.

        

5.543% due 07/14/09 (Ê)

    1,000      996

6.500% due 01/15/15 (Ñ)

    280      293

5.900% due 03/15/16

    2,325      2,337

6.500% due 01/15/17

    1,105      1,155

5.875% due 02/15/18

    200      200

6.500% due 11/15/35

    1,800      1,826

6.450% due 03/15/37 (Ñ)

    735      741

6.950% due 08/15/37

    5,450      5,832

108   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Commonwealth Edison Co.

        

6.950% due 07/15/18

    300      315

5.900% due 03/15/36 (Ñ)

    1,100      1,048

Series 98
6.150% due 03/15/12

    1,000      1,030

Series 100
5.875% due 02/01/33

    975      934

Series 105
5.400% due 12/15/11

    625      627

Community Health Systems, Inc. (Þ)

        

8.875% due 07/15/15

    4,735      4,794

ConAgra Foods, Inc.

        

7.000% due 10/01/28

    855      906

8.250% due 09/15/30

    275      330

Consolidated Natural Gas Co.

        

Series C
6.250% due 11/01/11

    155      160

Constellation Brands, Inc. (Ñ)

        

Series B
8.125% due 01/15/12

    2,080      2,116

Consumers Energy Co.

        

Series F
4.000% due 05/15/10

    775      757

Series H
4.800% due 02/17/09

    325      324

Continental Airlines, Inc.

        

Series 01-1
6.503% due 06/15/11

    905      911

Cooper Industries, Inc.

        

Series WI
5.250% due 11/15/12

    500      500

Costco Wholesale Corp.

        

5.500% due 03/15/17

    1,545      1,520

COX Communications, Inc.

        

4.625% due 01/15/10

    3,665      3,625

5.875% due 12/01/16 (Þ)

    525      523

Credit Suisse USA, Inc.

        

4.875% due 08/15/10

    335      335

5.250% due 03/02/11 (Ñ)

    1,030      1,035

6.500% due 01/15/12

    260      272

5.500% due 08/15/13 (Ñ)

    325      326

4.875% due 01/15/15

    1,025      985

CSC Holdings, Inc.

        

Series B
8.125% due 07/15/09

    2,600      2,652

8.125% due 08/15/09

    2,180      2,224

Series WI
6.750% due 04/15/12

    500      484
    

Principal

Amount ($)

or Shares

     

Market

Value

$

CVS Caremark Corp.

        

5.750% due 08/15/11

    2,300      2,342

5.750% due 06/01/17

    3,135      3,119

CVS Lease Pass Through (Å)
6.036% due 12/10/28

    1,212      1,192

Daimler Finance NA LLC

        

6.053% due 03/13/09 (Ê)

    1,700      1,698

6.133% due 03/13/09 (Ê)

    2,900      2,900

5.810% due 08/03/09 (Ê)

    800      801

6.500% due 11/15/13

    1,725      1,812

8.500% due 01/18/31

    620      788

Darden Restaurants, Inc.

        

6.200% due 10/15/17

    880      894

6.800% due 10/15/37

    1,005      1,038

DCP Midstream LLC (Ñ)

        

6.875% due 02/01/11

    90      94

Delhaize America, Inc.

        

9.000% due 04/15/31

    1,515      1,834

Delta Air Lines, Inc.

        

6.821% due 08/10/22 (Å)

    2,510      2,410

Series 00-1
7.379% due 05/18/10

    1,736      1,753

7.570% due 11/18/10

    1,565      1,616

Detroit Edison Co. (The)

        

6.125% due 10/01/10

    810      836

5.400% due 08/01/14

    240      238

6.350% due 10/15/32

    350      355

Developers Diversified Realty Corp.

        

5.000% due 05/03/10

    420      419

4.625% due 08/01/10

    876      863

5.250% due 04/15/11

    50      50

5.375% due 10/15/12

    2,580      2,548

Devon Financing Corp. ULC

        

7.875% due 09/30/31

    1,209      1,465

Dex Media East Finance Co.

        

9.875% due 11/15/09

    1,500      1,539

12.125% due 11/15/12

    1,220      1,298

Dex Media Finance Co.

        

Series B
9.875% due 08/15/13

    2,420      2,580

DirecTV Financing Co.

        

8.375% due 03/15/13

    1,000      1,045

Discover Financial Services (Ê)(Þ)

        

6.234% due 06/11/10

    4,300      4,180

Dobson Cellular Systems, Inc.

        

9.875% due 11/01/12

    3,870      4,189

Dominion Resources, Inc.

        

Series 06-B
6.300% due 09/30/66

    2,710      2,699

Multistrategy Bond Fund   109

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series A
5.200% due 01/15/16

    2,275      2,184

Series B (Ñ)
6.250% due 06/30/12

    1,131      1,169

DPL, Inc.

        

6.875% due 09/01/11

    1,555      1,632

Drummond Co., Inc. (Å)

        

7.375% due 02/15/16

    2,055      1,932

E*Trade Financial Corp.

        

8.000% due 06/15/11

    3,525      3,349

Echostar DBS Corp.

        

6.375% due 10/01/11

    1,395      1,412

6.625% due 10/01/14

    280      286

7.125% due 02/01/16

    1,500      1,567

El Paso Natural Gas Co.

        

7.500% due 11/15/26

    1,175      1,248

Eli Lilly & Co.

        

5.200% due 03/15/17

    3,205      3,160

Energy Future Holdings (Þ)

        

10.875% due 11/01/17

    1,745      1,765

Energy Partners, Ltd.

        

9.750% due 04/15/14

    900      987

Energy Transfer Partners, LP

        

5.950% due 02/01/15

    4,500      4,454

Entergy Gulf States, Inc. (Ê)(Å)

        

6.474% due 12/08/08

    570      572

Enterprise Products Operating, LP

        

4.950% due 06/01/10

    825      821

8.375% due 08/01/66

    2,720      2,831

7.034% due 01/15/68

    475      437

Series B (Ñ)

        

5.750% due 03/01/35

    675      613

Erac USA Finance Co. (Þ)

        

5.300% due 11/15/08

    350      347

Exelon Generation Co. LLC

        

6.200% due 10/01/17

    1,145      1,149

Farmers Exchange Capital (Å)

        

7.050% due 07/15/28

    4,550      4,626

Farmers Insurance Exchange

        

6.000% due 08/01/14

    570      581

8.625% due 05/01/24

    1,830      2,087

FedEx Corp.

        

5.500% due 08/15/09

    620      625

7.600% due 07/01/97

    585      666

First Data Corp. (Å)

        

9.875% due 09/24/15

    2,385      2,284

First Union Institutional Capital II

        

7.850% due 01/01/27

    1,680      1,748
    

Principal

Amount ($)

or Shares

     

Market

Value

$

FirstEnergy Corp.

        

Series B

        

6.450% due 11/15/11

    3,450      3,560

Series C

        

7.375% due 11/15/31

    1,630      1,779

Ford Motor Co. (Ñ)

        

7.450% due 07/16/31

    5,225      4,128

Ford Motor Credit Co. LLC

        

7.375% due 10/28/09

    1,800      1,736

9.875% due 08/10/11

    12,905      12,885

7.250% due 10/25/11

    600      558

7.993% due 01/13/12 (Ê)

    3,235      2,995

7.800% due 06/01/12

    1,515      1,423

7.000% due 10/01/13 (Ñ)

    675      606

8.000% due 12/15/16 (Ñ)

    1,625      1,504

Series WI
9.750% due 09/15/10

    2,710      2,699

Freeport-McMoRan Copper & Gold, Inc.

        

8.375% due 04/01/17

    6,470      7,085

Freescale Semiconductor, Inc.

        

8.875% due 12/15/14

    950      899

10.125% due 12/15/16 (Ñ)

    1,975      1,790

Gambles Credit

        

Zero coupon due 10/10/14

    4,130      4,120

General Electric Capital Corp.

        

3.250% due 06/15/09

    600      584

5.250% due 01/20/10 (Ê)

    5,200      5,189

5.250% due 10/19/12

    2,200      2,215

5.443% due 01/08/16 (Ê)

    1,100      1,080

5.625% due 09/15/17

    1,365      1,378

Series GMTN

        

5.734% due 03/12/10 (Ê)

    1,900      1,895

5.500% due 04/28/11

    1,295      1,311

Series MTN (Ê)

        

5.283% due 01/05/09

    800      799

Series MTN (Ê)

        

5.095% due 10/26/09

    2,400      2,393

Series MTNA

        

4.250% due 12/01/10

    180      177

5.875% due 02/15/12

    320      330

5.450% due 01/15/13

    5,900      5,966

4.750% due 09/15/14 (Ñ)

    80      78

General Mills, Inc.

        

5.310% due 01/22/10 (Ê)

    1,100      1,092

5.650% due 09/10/12

    975      990

General Motors Corp. (Ñ)

        

8.375% due 07/15/33

    5,230      4,759

110   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Georgia-Pacific Corp.

        

8.125% due 05/15/11

    1,000      1,020

9.500% due 12/01/11

    1,285      1,356

8.875% due 05/15/31

    1,856      1,856

Glencore Nickel, Ltd. (Ø)

        

9.000% due 12/01/14

    305      —

GMAC LLC (Ñ)

        

6.875% due 09/15/11

    12,656      11,664

8.000% due 11/01/31

    6,835      6,318

Goldman Sachs Group, Inc. (The)

        

5.250% due 12/23/08 (Ê)

    800      798

5.248% due 03/30/09 (Ê)

    2,800      2,791

5.300% due 06/23/09 (Ê)

    4,000      3,989

5.610% due 11/16/09 (Ê)

    600      599

6.875% due 01/15/11

    5,560      5,821

4.750% due 07/15/13

    1,275      1,222

5.350% due 01/15/16

    4,250      4,138

5.625% due 01/15/17 (Ñ)

    795      770

6.250% due 09/01/17 (Ñ)

    9,860      10,029

6.750% due 10/01/37

    330      331

Series MTNB (Ê)

        

5.300% due 12/22/08

    1,800      1,796

5.481% due 07/23/09

    3,500      3,502

Goldman Sachs Group, LP

        

4.500% due 06/15/10

    1,040      1,026

Goodyear Tire & Rubber Co. (The) (Ñ)

        

9.135% due 12/01/09 (Ê)

    1,000      1,012

9.000% due 07/01/15

    625      684

GrafTech Finance, Inc.

        

10.250% due 02/15/12

    1,500      1,567

Harrah’s Operating Co., Inc.

        

5.500% due 07/01/10

    525      507

6.500% due 06/01/16

    4,555      3,610

Hawaiian Telcom Communications, Inc. (Ê)(Ñ)

        

Series B

        

10.860% due 05/01/13

    2,945      2,982

HCA, Inc.

        

6.500% due 02/15/16 (Ñ)

    1,315      1,123

Series WI

        

9.125% due 11/15/14

    2,000      2,070

9.250% due 11/15/16

    1,570      1,652

9.625% due 11/15/16

    1,000      1,057

HCP, Inc. (Ñ)

        

5.950% due 09/15/11

    1,750      1,771

Health Net, Inc.

        

6.375% due 06/01/17

    2,145      2,119

Healthsouth Corp.

        

10.750% due 06/15/16 (Ñ)

    3,185      3,360
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Hertz Corp.

        

8.875% due 01/01/14

    2,745      2,827

Historic TW, Inc.
8.050% due 01/15/16

    2,360      2,663

HJ Heinz Co. (Þ)
6.428% due 12/01/08

    200      203

HJ Heinz Finance Co.
6.000% due 03/15/12

    240      245

Home Depot, Inc.
5.400% due 03/01/16

    435      416

Hospira, Inc. (Ê)
5.678% due 03/30/10

    1,580      1,568

Hospitality Properties Trust

        

Series WI
5.625% due 03/15/17

    5,775      5,410

HRPT Properties Trust
5.750% due 02/15/14

    1,940      1,900

HSBC Bank PLC (Ê)
5.286% due 02/21/12

    1,300      1,413

HSBC Bank USA NA (Ê)

        

Series BKNT
5.864% due 06/10/09

    500      498

HSBC Finance Corp.

        

4.125% due 12/15/08

    175      173

5.875% due 02/01/09 (Ñ)

    660      667

5.240% due 10/21/09 (Ê)

    1,500      1,492

4.125% due 11/16/09 (Ñ)

    1,270      1,247

5.630% due 05/10/10 (Ê)

    1,300      1,296

8.000% due 07/15/10

    165      176

6.750% due 05/15/11

    900      939

6.375% due 10/15/11

    465      481

6.375% due 11/27/12

    1,770      1,839

5.000% due 06/30/15

    1,330      1,260

HUB International Holdings, Inc. (Þ)

        

10.250% due 06/15/15

    4,415      4,084

Huntsman LLC
11.500% due 07/15/12

    2,500      2,719

ICI Wilmington, Inc.

        

4.375% due 12/01/08

    210      209

Idearc, Inc.

        

8.000% due 11/15/16

    500      501

Inmarsat Finance PLC

        

(Step Up, 10.375, 11/15/08)
Zero coupon due 11/15/12

    1,625      1,568

International Business Machines Corp.

        

5.700% due 09/14/17

    2,040      2,071

7.125% due 12/01/96

    2,580      2,893

International Lease Finance Corp.

        

3.500% due 04/01/09

    550      538

5.750% due 06/15/11

    890      899

5.625% due 09/20/13 (Ñ)

    2,710      2,709

Multistrategy Bond Fund   111

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

International Paper Co.
5.850% due 10/30/12

    6,530      6,631

International Steel Group, Inc. (Ñ)

        

6.500% due 04/15/14

    2,820      2,895

iStar Financial, Inc.

        

Series B
5.125% due 04/01/11

    1,100      1,028

JC Penney Corp., Inc.

        

6.375% due 10/15/36

    2,070      1,974

Jersey Central Power & Light Co.

        

5.625% due 05/01/16

    1,240      1,212

John Hancock Financial Services, Inc.

        

5.625% due 12/01/08

    120      121

John Hancock Global Funding II (Å)

        

7.900% due 07/02/10

    440      472

Johnson & Johnson

        

5.550% due 08/15/17

    410      422

5.950% due 08/15/37

    525      549

JP Morgan Chase Bank

        

Series EMTN
6.000% due 05/22/45

    4,511      4,225

JP Morgan Chase Capital XX

        

Series T
6.550% due 09/15/66

    200      188

JP Morgan Chase Capital XXII (Ñ)

        

Series V
6.450% due 02/02/37

    6,500      6,013

JPMorgan Chase & Co.

        

6.000% due 02/15/09

    170      172

7.000% due 11/15/09

    415      430

5.400% due 05/07/10 (Ê)

    3,200      3,181

6.750% due 02/01/11

    175      183

5.600% due 06/01/11

    675      685

5.375% due 01/15/14

    2,070      2,069

Series 1 (Ê)

        

4.906% due 06/26/09

    700      697

JPMorgan Chase Bank NA

        

Series BKNT

        

5.875% due 06/13/16

    1,285      1,300

6.000% due 10/01/17

    3,300      3,347

K Hovnanian Enterprises, Inc. (Ñ)

        

6.000% due 01/15/10

    1,050      803

KAR Holdings, Inc. (Þ)
10.000% due 05/01/15

    3,510      3,352

KBC Bank Funding Trust III (ƒ)(Þ)

        

9.860% due 11/29/49

    1,960      2,144

Kellogg Co.

        

Series B
6.600% due 04/01/11

    5,245      5,477
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Kerr-McGee Corp.
6.950% due 07/01/24

    2,455      2,613

Kraft Foods, Inc.

        

4.125% due 11/12/09

    1,152      1,134

6.000% due 08/11/10 (Ê)

    8,200      8,208

5.625% due 11/01/11

    6,260      6,346

6.500% due 08/11/17

    1,475      1,548

6.500% due 11/01/31

    410      418

Kroger Co. (The)

        

7.250% due 06/01/09

    270      279

8.000% due 09/15/29 (Ñ)

    165      187

7.500% due 04/01/31 (Ñ)

    415      468

L-3 Communications Corp.

        

Series B
6.375% due 10/15/15

    1,500      1,500

LaBranche & Co., Inc.

        

9.500% due 05/15/09 (Ñ)

    2,865      2,908

11.000% due 05/15/12

    1,775      1,757

Land O’ Lakes, Inc.
8.750% due 11/15/11

    625      641

Lear Corp.

        

Series B
8.750% due 12/01/16

    805      773

Lehman Brothers Holdings, Inc.

        

4.869% due 11/24/08 (Ê)

    1,400      1,389

5.320% due 04/03/09 (Ê)

    5,500      5,429

5.600% due 08/21/09 (Ê)

    800      791

5.645% due 05/25/10 (Ê)

    900      886

5.429% due 07/18/11 (Ê)

    600      583

5.250% due 02/06/12

    1,790      1,766

5.375% due 10/17/12

    4,200      5,993

6.200% due 09/26/14

    2,825      2,843

5.500% due 04/04/16 (Ñ)

    960      926

6.500% due 07/19/17 (Ñ)

    3,960      3,988

7.000% due 09/27/27

    890      911

6.875% due 07/17/37

    4,250      4,211

Series MTN (Ê)

        

5.630% due 11/16/09

    5,600      5,522

Lehman XS Trust (Ê)

        

Series 2007-16N Class 2A2
5.723% due 09/25/47

    11,977      11,928

Level 3 Communications, Inc.
6.000% due 09/15/09

    1,230      1,153

Level 3 Financing, Inc. (Ñ)
12.250% due 03/15/13

    3,240      3,467

Liberty Mutual Group, Inc. (Þ)

        

7.000% due 03/15/37 (Ñ)

    3,685      3,464

7.800% due 03/15/37

    10,420      9,840

112   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Limited Brands, Inc.

        

6.900% due 07/15/17

    2,395      2,362

7.600% due 07/15/37

    2,210      2,184

Lowe’s Cos., Inc.
6.100% due 09/15/17

    550      563

Lubrizol Corp.
4.625% due 10/01/09

    1,781      1,767

Lyondell Chemical Co. (Ñ)
8.250% due 09/15/16

    3,760      4,296

M&T Bank Corp.
5.375% due 05/24/12

    3,825      3,879

MacDermid, Inc. (Þ)
9.500% due 04/15/17

    3,695      3,529

Macys Retail Holdings, Inc.

        

5.350% due 03/15/12

    1,625      1,584

6.375% due 03/15/37 (Ñ)

    2,500      2,269

Mandalay Resort Group
6.500% due 07/31/09

    500      500

Manufacturers & Traders Trust Co.

        

5.585% due 12/28/20

    411      397

Max USA Holdings, Ltd. (Þ)
7.200% due 04/14/17

    1,915      1,876

McDonald’s Corp.
5.800% due 10/15/17

    5,700      5,756

McLeodUSA, Inc. (Å)
10.500% due 10/01/11

    2,750      3,094

Medco Health Solutions, Inc.
7.250% due 08/15/13

    3,347      3,541

MedQuest, Inc.

        

Series B
11.875% due 08/15/12

    2,855      2,919

Merrill Lynch & Co., Inc.

        

5.701% due 12/04/09 (Ê)

    1,000      987

5.284% due 07/25/11 (Ê)

    1,100      1,071

6.050% due 08/15/12

    5,700      5,784

6.050% due 05/16/16

    1,390      1,378

5.700% due 05/02/17

    835      798

6.400% due 08/28/17

    4,870      4,912

Series MTN (Ê)

        

5.406% due 05/08/09

    2,300      2,279

5.665% due 08/14/09

    700      692

Series MTNC

        

4.250% due 02/08/10

    290      283

MetLife, Inc.

        

5.000% due 06/15/15

    1,095      1,045

6.400% due 12/15/36

    400      379

MetroPCS Wireless, Inc. (Å)
9.250% due 11/01/14

    1,000      992
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Metropolitan Life Global Funding I (Ê)(Þ)

        

5.560% due 05/17/10

    4,300      4,265

MGM Mirage
6.750% due 09/01/12

    2,925      2,881

Midamerican Energy Holdings Co.

        

Series WI
6.125% due 04/01/36

    2,775      2,744

Midamerican Funding LLC
6.750% due 03/01/11

    1,820      1,890

Miller Brewing Co. (Þ)
5.500% due 08/15/13

    1,305      1,301

Mohegan Tribal Gaming Authority

        

8.000% due 04/01/12

    1,000      1,021

Monumental Global Funding II (Þ)

        

4.625% due 03/15/10

    475      472

Morgan Stanley

        

5.410% due 05/07/09 (Ê)

    5,100      5,075

5.375% due 10/15/15

    1,635      1,574

5.550% due 04/27/17

    840      817

6.250% due 08/28/17

    900      921

Series GMTN

        

5.470% due 02/09/09 (Ê)

    3,100      3,090

5.750% due 08/31/12 (Ñ)

    1,600      1,629

Series MTN (Ê)

        

5.333% due 01/15/10

    2,300      2,277

Natexis Ambs Co. LLC (ƒ)(Þ)
8.440% due 12/29/49

    650      664

National Rural Utilities Cooperative Finance Corp.

        

5.750% due 08/28/09

    2,150      2,180

5.450% due 04/10/17

    2,360      2,323

Nationwide Financial Services
6.250% due 11/15/11

    395      405

Nationwide Mutual Insurance Co. (Þ)

        

7.875% due 04/01/33

    947      1,084

Neff Corp. (Ñ)

        

Series WI
10.000% due 06/01/15

    1,290      929

Neiman-Marcus Group, Inc.
7.125% due 06/01/28

    2,500      2,412

Nelnet, Inc.
7.400% due 09/29/36

    600      590

Nevada Power Co.

        

Series L
5.875% due 01/15/15

    550      552

New Cingular Wireless Services, Inc.

        

7.875% due 03/01/11

    825      894

8.125% due 05/01/12

    1,415      1,578

8.750% due 03/01/31

    2,850      3,685

Multistrategy Bond Fund   113

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

News America Holdings, Inc.

        

7.750% due 12/01/45

    1,670      1,896

7.900% due 12/01/95

    595      649

8.250% due 10/17/96

    195      222

Nextel Communications, Inc.

        

Series E
6.875% due 10/31/13

    2,265      2,271

Nisource Finance Corp.

        

6.064% due 11/23/09 (Ê)

    370      369

7.875% due 11/15/10

    1,510      1,616

6.400% due 03/15/18

    1,785      1,814

Noranda Aluminium Acquisition Corp. (Ê)(Þ)

        

9.360% due 05/15/15

    1,640      1,513

Norfolk Southern Corp.

        

7.050% due 05/01/37

    880      973

7.900% due 05/15/97

    6,280      7,209

North Front Pass-Through Trust (Þ)

        

5.810% due 12/15/24

    5,535      5,422

Nuveen Investments, Inc.
10.500% due 11/15/15

    2,885      2,917

Ohio Power Co.

        

Series F

        

5.500% due 02/15/13

    55      55

Series K

        

6.000% due 06/01/16

    560      569

ONEOK Partners, LP

        

6.650% due 10/01/36

    2,175      2,215

6.850% due 10/15/37

    1,150      1,201

Pacific Gas & Electric Co.

        

3.600% due 03/01/09

    155      152

4.200% due 03/01/11

    1,815      1,766

6.050% due 03/01/34 (Ñ)

    955      951

5.800% due 03/01/37 (Ñ)

    5,425      5,219

PAETEC Holding Corp. (Þ)
9.500% due 07/15/15

    2,905      2,978

Panama Canal Railway Co. (Å)
7.000% due 11/01/26

    1,000      1,002

PartnerRe Finance II
6.440% due 12/01/66

    150      139

Peabody Energy Corp. (Ñ)
7.875% due 11/01/26

    400      418

Pemex Project Funding Master Trust

        

5.750% due 03/01/18 (Å)

    2,680      2,703

Series I44A (Å)

        

6.625% due 06/15/35

    2,175      2,325

Series REGS

        

5.750% due 03/01/18

    2,680      2,703

Pepco Holdings, Inc. (Ê)
6.246% due 06/01/10

    3,475      3,464
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Phoenix Life Insurance Co. (Þ)
7.150% due 12/15/34

    1,450      1,525

Pilgrim’s Pride Corp.
7.625% due 05/01/15

    1,000      1,005

Platinum Underwriters Finance, Inc.

        

Series B
7.500% due 06/01/17

    520      555

Popular NA Capital Trust I
6.564% due 09/15/34

    647      557

Premcor Refining Group, Inc. (The)

        

9.500% due 02/01/13

    5,900      6,221

Pride International, Inc.
7.375% due 07/15/14

    2,380      2,439

Progress Energy, Inc.

        

7.100% due 03/01/11

    1,739      1,832

5.625% due 01/15/16 (Ñ)

    510      507

7.750% due 03/01/31

    135      159

7.000% due 10/30/31

    760      830

Qwest Corp.

        

7.875% due 09/01/11

    4,540      4,790

7.625% due 06/15/15

    800      842

Rabobank Capital Funding II (ƒ)(Å)

        

5.260% due 12/31/49

    1,425      1,363

RBS Capital Trust III (ƒ)(Ñ)
5.512% due 09/29/49

    3,750      3,513

Realogy Corp. (Ñ)(Þ)
12.375% due 04/15/15

    2,560      1,869

Reckson Operating Partnership, LP

        

7.750% due 03/15/09

    175      181

5.150% due 01/15/11

    457      450

Reinsurance Group of America, Inc.

        

6.750% due 12/15/65

    325      309

Residential Capital LLC

        

7.125% due 11/21/08

    1,885      1,588

9.044% due 04/17/09 (Ê)(Þ)

    3,175      1,968

7.595% due 05/22/09 (Ê)

    2,600      2,028

7.375% due 06/30/10

    3,272      2,413

6.000% due 02/22/11

    1,975      1,442

5.125% due 05/17/12

    1,865      1,864

7.500% due 04/17/13

    3,320      2,424

Series WI

        

6.875% due 06/30/15

    4,566      3,333

Rohm & Haas Co.
6.000% due 09/15/17

    1,300      1,317

RSC Equipment Rental, Inc.
9.500% due 12/01/14

    1,540      1,480

Rural Cellular Corp. (Ê)
10.661% due 11/01/12

    1,750      1,785

114   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Ryerson, Inc. (Ñ)(Å)
12.000% due 11/01/15

    2,775      2,851

Safeway, Inc. (Ñ)

        

5.800% due 08/15/12

    60      61

7.250% due 02/01/31

    155      170

SB Treasury Co. LLC (ƒ)(Þ)
9.400% due 12/29/49

    2,028      2,070

Schering-Plough Corp.

        

5.530% due 12/01/13

    2,390      2,400

6.550% due 09/15/37

    1,330      1,378

Simon Property Group, LP
5.600% due 09/01/11

    1,000      1,002

SLM Corp.

        

4.000% due 01/15/10

    710      666

Series MTNA

        

4.000% due 01/15/09

    500      483

5.224% due 07/27/09 (Ê)(Ñ)

    600      577

4.500% due 07/26/10

    1,460      1,367

Smurfit-Stone Container Enterprises, Inc.

        

8.375% due 07/01/12

    2,150      2,150

Southern California Edison Co.

        

5.459% due 02/02/09 (Ê)

    600      599

7.625% due 01/15/10

    600      631

Southern Copper Corp.
7.500% due 07/27/35

    2,830      3,085

Southern Natural Gas Co.
7.350% due 02/15/31

    1,050      1,116

Spansion, Inc. (Ñ)(Þ)
11.250% due 01/15/16

    2,220      2,134

Sprint Capital Corp.

        

7.625% due 01/30/11 (Ñ)

    4,575      4,832

6.875% due 11/15/28

    1,500      1,437

8.750% due 03/15/32

    2,125      2,423

Sprint Nextel Corp.
6.000% due 12/01/16

    4,280      4,115

Starbucks Corp.
6.250% due 08/15/17

    950      969

State Street Bank & Trust Co.

        

Series BKNT
5.300% due 01/15/16

    200      195

Stingray Pass-Through Trust (Þ)
5.902% due 01/12/15

    3,400      2,547

Structured Asset Mortgage Investments, Inc. (Ê)

        

Series 2006-AR5 Class 1A2
5.133% due 05/25/36

    714      700

Suncom Wireless, Inc. (Ñ)
8.500% due 06/01/13

    4,020      4,216
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Sungard Data Systems, Inc. (Ñ)
10.250% due 08/15/15

    2,056      2,143

Swiss Re Capital I, LP (ƒ)(Þ)
6.854% due 05/29/49

    2,250      2,269

Symetra Financial Corp.

       

6.125% due 04/01/16 (Þ)

    900      903

8.300% due 10/15/67 (Å)

    2,490      2,537

Temple-Inland, Inc.
7.875% due 05/01/12

    4,480      4,879

Tennessee Gas Pipeline Co.
7.000% due 10/15/28

    700      715

Tesoro Corp. (Å)
6.500% due 06/01/17

    1,200      1,185

Texas Competitive Electric Holdings Co. LLC (Þ)

        

10.250% due 11/01/15

    3,620      3,638

Time Warner Cable, Inc.

        

Series WI

        

5.400% due 07/02/12

    7,510      7,487

5.850% due 05/01/17

    3,480      3,450

6.550% due 05/01/37

    2,665      2,687

Time Warner Entertainment Co., LP

        

Series*
8.375% due 03/15/23

    1,006      1,187

Time Warner, Inc.

        

5.730% due 11/13/09 (Ê)

    2,655      2,640

5.500% due 11/15/11

    1,930      1,935

Transcontinental Gas Pipe Line Corp.

        

7.250% due 12/01/26

    1,225      1,302

Travelers Cos., Inc. (The)

        

5.375% due 06/15/12

    885      890

6.250% due 06/15/37

    1,110      1,095

Travelport LLC (Ñ)
11.875% due 09/01/16

    1,610      1,739

Twin Reefs Pass-Through Trust (Ê)(ƒ)(Þ)

        

6.120% due 12/10/49

    2,300      1,981

UBS Preferred Funding Trust V (ƒ)(Ñ)

        

Series 1
6.243% due 05/12/49

    3,600      3,559

Unilever Capital Corp. (Ñ)
5.900% due 11/15/32

    1,340      1,321

Union Electric Co.
6.400% due 06/15/17

    3,635      3,830

Union Pacific Corp.

        

3.625% due 06/01/10

    590      571

6.125% due 01/15/12

    800      819

Union Planters Corp.
7.750% due 03/01/11

    265      284

Multistrategy Bond Fund   115

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

United Rentals NA, Inc. (Ñ)
6.500% due 02/15/12

    1,500      1,552

United States Steel Corp.

        

5.650% due 06/01/13

    2,150      2,081

6.050% due 06/01/17

    2,970      2,851

6.650% due 06/01/37

    520      490

UnitedHealth Group, Inc.

        

5.250% due 03/15/11

    810      813

6.000% due 06/15/17 (Þ)

    775      792

6.500% due 06/15/37 (Þ)

    3,525      3,614

Universal City Development Partners

        

11.750% due 04/01/10

    1,250      1,312

Unum Group
5.859% due 05/15/09

    740      746

US Bank NA
5.700% due 12/15/08

    55      55

US Oncology, Inc.
9.000% due 08/15/12

    1,305      1,308

USB Capital IX (ƒ)(Ñ)
6.189% due 04/15/49

    200      202

USB Realty Corp. (ƒ)(Þ)
6.091% due 12/22/49

    3,900      3,778

Valero Logistics Operations, LP
6.050% due 03/15/13

    2,787      2,807

Verizon Communications, Inc. (Ê)

        

5.280% due 04/03/09

    4,800      4,790

Verizon Global Funding Corp. (Ñ)

        

6.875% due 06/15/12

    17,757      19,012

Verizon, Inc.
6.500% due 09/15/11

    70      73

Viacom, Inc.

        

5.750% due 04/30/11

    1,735      1,752

6.875% due 04/30/36

    1,295      1,314

Visteon Corp. (Ñ)
8.250% due 08/01/10

    1,010      939

Wachovia Bank NA (Ê)

        

Series BKNT

        

5.565% due 05/25/10

    3,800      3,774

Series DPNT

        

5.250% due 03/23/09

    1,500      1,496

Wachovia Capital Trust III (ƒ)

        

5.800% due 03/15/42

    7,000      6,944

Wachovia Corp.

        

5.373% due 10/15/11 (Ê)

    1,800      1,784

5.750% due 06/15/17 (Ñ)

    1,950      1,958

Walt Disney Co. (The) (Ê)

        

5.294% due 07/16/10

    6,500      6,478
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Washington Mutual Preferred Funding (ƒ)(Å)

        

9.750% due 10/29/49

    5,900      5,841

6.665% due 12/31/49

    600      456

WellPoint, Inc.

        

4.250% due 12/15/09

    150      148

5.850% due 01/15/36

    2,740      2,575

6.375% due 06/15/37

    2,755      2,801

Wells Fargo & Co.

        

5.794% due 09/15/09 (Ê)(Ñ)

    1,000      999

5.250% due 10/23/12

    1,665      1,669

4.950% due 10/16/13

    585      571

Wells Fargo Bank NA

        

5.750% due 05/16/16

    1,520      1,527

Weyerhaeuser Co.

        

6.750% due 03/15/12

    4,895      5,096

Willis NA, Inc.

        

5.125% due 07/15/10

    1,555      1,543

Windstream Corp.
Series WI

        

8.625% due 08/01/16

    375      401

Wyeth

        

6.950% due 03/15/11

    3,490      3,695

5.500% due 03/15/13

    1,010      1,018

5.500% due 02/01/14

    2,195      2,201

5.950% due 04/01/37

    3,410      3,372

Xcel Energy, Inc.

        

6.500% due 07/01/36

    880      885

Xerox Corp.

        

5.500% due 05/15/12

    2,385      2,386

Xlliac Global Funding (Å)

        

4.800% due 08/10/10

    730      722

Yum! Brands, Inc.

        

8.875% due 04/15/11

    350      387

ZFS Finance USA Trust I (Þ)

        

5.875% due 05/09/32

    2,100      1,951

6.500% due 05/09/67

    1,390      1,338

ZFS Finance USA Trust II (Þ)

        

6.450% due 12/15/65

    2,505      2,409
         
        1,169,511
         

International Debt - 7.6%

        

Abbey National PLC (ƒ)

        

(Step Up, 7.730, 06/15/08)
6.700% due 06/29/49

    1,220      1,232

Abu Dhabi National Energy Co. (Þ)

        

5.875% due 10/27/16

    1,190      1,169

6.500% due 10/27/36

    1,790      1,743

116   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Alfa MTN Markets, Ltd. for ABH Financial Ltd (Þ)

        

8.200% due 06/25/12

    2,305      2,195

Altos Hornos de Mexico SA de CV (Ø)(Ñ)

     

Series A
11.375% due 04/30/49

    3,920      2,920

America Movil SAB de CV

        

5.500% due 03/01/14

    500      499

ANZ National International, Ltd. (Ê)(Þ)

        

5.396% due 08/07/09

    2,800      2,790

Argentina Bonos
Series VII

        

7.000% due 09/12/13

    9,320      8,411

Arlington Street CDO, Ltd. (Þ)

        

Series 2000-1A Class A2
7.660% due 06/10/12

    1,650      1,628

Aspen Insurance Holdings, Ltd.

        

6.000% due 08/15/14

    200      197

AstraZeneca PLC

        

5.900% due 09/15/17

    900      920

6.450% due 09/15/37

    800      843

AXA SA

        

8.600% due 12/15/30

    355      444

6.463% due 12/31/49 (ƒ)(Þ)

    275      256

Banco Mercantil del Norte SA (Þ)

        

6.862% due 10/13/21

    2,930      2,964

Bank of Scotland PLC (Ê)(Þ)

        

Series MTN
5.254% due 07/17/09

    2,900      2,896

Barclays Bank PLC

        

5.450% due 09/12/12

    14,600      14,764

7.375% due 06/29/49 (ƒ)(Þ)

    2,010      2,096

7.434% due 09/29/49 (ƒ)(Þ)

    1,455      1,542

Bolivarian Republic of Venezuela (Ñ)

        

9.375% due 01/13/34

    2,060      2,275

British Telecommunications PLC

        

8.625% due 12/15/10

    3,820      4,203

Brookfield Asset Management, Inc.

        

7.125% due 06/15/12

    675      722

5.800% due 04/25/17

    1,300      1,298

C10 Capital SPV, Ltd. (ƒ)(Þ)

        

6.722% due 12/31/49

    1,500      1,446

Canadian Natural Resources, Ltd.

        

6.000% due 08/15/16

    670      681

5.700% due 05/15/17

    1,325      1,314

5.850% due 02/01/35

    75      71

6.500% due 02/15/37

    1,430      1,464

6.250% due 03/15/38

    2,630      2,599

Canadian Oil Sands, Ltd. (Þ)

        

4.800% due 08/10/09

    981      974
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Catalyst Paper Corp.

        

Series D
8.625% due 06/15/11

    4,190      3,321

China Development Bank

        

5.000% due 10/15/15

    300      291

CIT Group Funding Co. of Canada (Ñ)

        

5.600% due 11/02/11

    820      798

Citic Resources Finance, Ltd. (Ñ)(Å)

        

6.750% due 05/15/14

    500      480

Citigroup Global Markets Deutschland AG for OAO Gazprom

        

10.500% due 10/21/09

    1,300      1,418

Commonwealth Bank of Australia (ƒ)(Þ)

        

6.024% due 03/29/49

    3,700      3,565

Conoco Funding Co.

        

6.350% due 10/15/11

    3,905      4,099

Corp. Nacional del Cobre de Chile (Þ)

        

6.150% due 10/24/36

    100      100

Covidien International Finance SA (Å)

        

5.450% due 10/15/12

    1,830      1,830

6.000% due 10/15/17

    3,090      3,132

6.550% due 10/15/37

    2,110      2,150

Credit Agricole SA (Ê)(Þ)

        

5.505% due 05/28/09

    2,000      2,001

5.555% due 05/28/10

    2,300      2,302

Deutsche ALT-A Securities NIM
Trust (Å)

        

Series 2007-AHM Class N1
6.750% due 02/25/47

    912      881

Deutsche Bank AG (Ñ)

        

6.000% due 09/01/17

    4,700      4,808

Deutsche Telekom International Finance BV

        

5.390% due 03/23/09 (Ê)

    6,400      6,396

8.000% due 06/15/10

    1,330      1,426

5.375% due 03/23/11

    475      478

8.250% due 06/15/30

    1,100      1,371

DNB Nor Bank ASA (Ê)(Þ)

        

5.313% due 10/13/09

    7,100      7,106

DP World, Ltd. (Ñ)(Þ)

        

6.850% due 07/02/37

    3,190      3,203

EEB International, Ltd. (Å)

        

8.750% due 10/31/14

    2,000      1,982

Egypt Government AID Bonds

        

4.450% due 09/15/15

    2,950      2,873

Endurance Specialty Holdings, Ltd.

        

6.150% due 10/15/15 (Ñ)

    500      490

7.000% due 07/15/34

    1,500      1,426

Multistrategy Bond Fund   117

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Export-Import Bank of China (Þ)

        

4.875% due 07/21/15

    1,725      1,662

Export-Import Bank of Korea

        

4.125% due 02/10/09 (Þ)

    170      167

5.711% due 06/01/09 (Ê)

    2,800      2,803

5.125% due 02/14/11

    2,555      2,556

5.500% due 10/17/12

    1,230      1,239

FBG Finance, Ltd. (Å)

        

5.125% due 06/15/15

    585      569

Federative Republic of Brazil (Ñ)

        

6.000% due 01/17/17

    11,640      11,896

FMG Finance Pty, Ltd. (Þ)

        

10.625% due 09/01/16

    5,775      6,843

France Telecom SA (Ñ)

        

8.500% due 03/01/31

    1,295      1,697

Galaxy Entertainment Finance Co., Ltd. (Þ)

        

9.875% due 12/15/12

    3,780      4,054

Gaz Capital for Gazprom (Å)

        

6.212% due 11/22/16

    2,155      2,125

GTL Trade Finance, Inc. (Ñ)(Å)

        

7.250% due 10/20/17

    4,635      4,694

Harborview NIM Corp.

        

Series 2006-9A Class N1 (Å)

        

6.409% due 11/19/36

    552      551

Series 2007-14 Class N1 (Å)

        

6.409% due 12/19/36

    662      658

Series 2007-1A Class N1 (Å)

        

6.409% due 03/19/37

    716      691

HBOS PLC (ƒ)(Å)

        

5.920% due 09/29/49

    1,200      1,091

HSBC Holdings PLC

        

6.500% due 05/02/36

    1,580      1,560

6.500% due 09/15/37

    1,000      991

Inco, Ltd.

        

5.700% due 10/15/15

    1,050      1,028

Independencia International, Ltd.

        

Series REGS
9.875% due 01/31/17

    976      1,000

Intelsat Bermuda, Ltd.

        

11.409% due 06/15/13 (Ê)

    1,000      1,042

8.886% due 01/15/15 (Ê)

    2,420      2,456

Series WI

        

11.250% due 06/15/16

    3,410      3,666

Intelsat Subsidiary Holding Co., Ltd.

        

8.625% due 01/15/15

    1,500      1,522

Intergen NV (Þ)

        

9.000% due 06/30/17

    2,255      2,385
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Invesco PLC

        

4.500% due 12/15/09

    3,157      3,114

5.625% due 04/17/12

    3,345      3,306

5.375% due 02/27/13 (Ñ)

    1,600      1,551

Ispat Inland ULC

        

9.750% due 04/01/14

    7,911      8,612

Korea Development Bank (Ê)

        

5.370% due 04/03/10

    8,900      8,872

Korea Electric Power Corp. (Þ)

        

5.125% due 04/23/34

    400      396

Kreditanstalt fuer Wiederaufbau

        

Series GMTN
4.500% due 09/21/09

    59,300      59,536

Landsbanki Islands HF (ƒ)(Ñ)(Å)

        

7.431% due 12/31/49

    3,785      3,723

LG Electronics, Inc. (Å)

        

5.000% due 06/17/10

    390      387

Lukoil International Finance BV (Þ)

        

6.356% due 06/07/17

    4,055      3,903

Mantis Reef, Ltd. (Å)

        

4.692% due 11/14/08

    585      582

Millicom International Cellular SA

        

10.000% due 12/01/13

    2,000      2,152

Mizuho Financial Group Cayman, Ltd.

        

5.790% due 04/15/14 (Þ)

    1,150      1,164

Series REGS

        

5.790% due 04/15/14

    185      193

Montpelier Re Holdings, Ltd.

        

6.125% due 08/15/13

    3,860      3,844

MUFG Capital Finance 1, Ltd. (ƒ)

        

6.346% due 07/25/99

    3,625      3,456

Nexen, Inc.

        

6.400% due 05/15/37

    1,435      1,428

Nippon Life Insurance (Þ)

        

4.875% due 08/09/10

    2,685      2,665

Norske Skogindustrier ASA (Þ)

        

7.125% due 10/15/33

    3,090      2,680

Peruvian Government International Bond

        

8.375% due 05/03/16

    1,995      2,349

Petrobras International Finance Co.

        

5.875% due 03/01/18

    1,650      1,617

8.375% due 12/10/18 (Ñ)

    3,490      4,101

Petroleum Export, Ltd. (Þ)

        

5.265% due 06/15/11

    160      159

Province of Quebec Canada

        

5.000% due 07/17/09 (Ñ)

    30      30

Series PJ

        

6.125% due 01/22/11

    4,080      4,258

118   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Ras Laffan Liquefied Natural Gas Co., Ltd. II (Þ)

        

5.298% due 09/30/20

    2,000      1,931

Ras Laffan Liquefied Natural Gas Co., Ltd. III (Þ)

        

5.832% due 09/30/16

    2,530      2,538

5.838% due 09/30/27

    6,820      6,408

Rede Empresas de Energia Eletrica SA (ƒ)(Þ)

        

11.125% due 04/02/49

    1,765      1,778

Reliance Industries, Ltd. (Þ)

        

10.250% due 01/15/97

    750      1,065

Resona Bank, Ltd.

        

5.850% due 09/29/49 (ƒ)(Þ)

    8,005      7,416

Series REGS (ƒ)

        

5.850% due 09/29/49

    535      500

Resona Preferred Global Securities Cayman, Ltd. (ƒ)(Å)

        

7.191% due 12/29/49

    16,155      16,223

Rogers Wireless, Inc.

        

6.375% due 03/01/14

    4,410      4,505

Royal Bank of Scotland Group PLC

        

7.640% due 03/31/49 (ƒ)

    2,200      2,280

6.990% due 10/29/49 (ƒ)(Å)

    6,025      6,089

Series 1 (ƒ)

        

9.118% due 03/31/49

    4,025      4,305

RSHB Capital SA for OJSC Russian Agricultural Bank

        

6.875% due 11/29/10

    1,450      1,469

Russia Government International Bond

        

7.500% due 03/31/30 (Þ)

    3,065      3,453

Series REGS

        

7.500% due 03/31/30

    1,134      1,278

Salomon Brothers AG for OAO Siberian Oil Co.

        

Series REGS
10.750% due 01/15/09

    3,045      3,205

Santander Financial Issuances

        

6.375% due 02/15/11

    335      346

Santander Perpetual SA Unipersonal (ƒ)(Å)

        

6.671% due 10/29/49

    2,400      2,390

Santander US Debt SA Unipersonal (Ê)(Þ)

        

5.729% due 11/20/09

    2,800      2,789

Sappi Papier Holding AG (Þ)

        

6.750% due 06/15/12

    1,175      1,154

7.500% due 06/15/32

    3,400      3,087
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Shimao Property Holdings, Ltd. (Ñ)(Þ)

        

8.000% due 12/01/16

    1,340      1,310

Shinsei Finance II (ƒ)(Þ)

        

7.160% due 07/25/49

    1,270      1,151

Siemens Financieringsmaatschappij NV (Ê)(Þ)

        

5.625% due 08/14/09

    1,500      1,500

SMFG Preferred Capital USD 1, Ltd. (ƒ)(Å)

        

6.078% due 01/29/49

    1,000      935

Stora Enso OYJ (Þ)

        

7.250% due 04/15/36

    1,595      1,613

Sumitomo Mitsui Banking Corp. (ƒ)(Þ)

        

5.625% due 07/29/49

    655      611

Systems 2001 AT LLC

       

7.156% due 12/15/11 (Þ)

    345      363

6.664% due 09/15/13 (Å)

    355      365

Telecom Italia Capital SA

        

4.000% due 01/15/10

    4,076      3,983

4.875% due 10/01/10

    950      944

5.819% due 07/18/11 (Ê)

    1,100      1,099

6.200% due 07/18/11

    1,355      1,395

5.250% due 10/01/15

    1,260      1,214

6.000% due 09/30/34

    1,050      1,006

7.200% due 07/18/36

    1,250      1,358

Telefonica Emisiones SAU

        

5.888% due 06/19/09 (Ê)

    1,000      1,001

5.984% due 06/20/11

    1,330      1,363

6.421% due 06/20/16

    960      1,004

6.221% due 07/03/17

    955      988

7.045% due 06/20/36

    895      983

Telefonica Europe BV

        

8.250% due 09/15/30

    1,400      1,719

TMK Capital SA for OAO TMK

        

8.500% due 09/29/09

    1,100      1,107

TNK-BP Finance SA

        

6.125% due 03/20/12 (Þ)

    400      379

7.500% due 03/13/13 (Å)

    3,430      3,430

6.625% due 03/20/17 (Þ)

    1,955      1,786

7.875% due 03/13/18 (Å)

    10,525      10,384

Series 144A (Å)

        

7.500% due 07/18/16

    1,330      1,297

Tristan Oil, Ltd.

        

10.500% due 01/01/12 (Þ)

    700      679

Series REGS

        

10.500% due 01/01/12

    1,035      994

True Move Co., Ltd. (Þ)

        

10.375% due 08/01/14

    1,830      1,865

Multistrategy Bond Fund   119

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Tyco Electronics Group SA (Þ)

        

6.000% due 10/01/12

    6,310      6,381

6.550% due 10/01/17

    3,135      3,199

7.125% due 10/01/37

    2,190      2,290

Tyco International Group SA

        

6.750% due 02/15/11

    2,260      2,386

UBS AG (Å)

        

10.000% due 02/17/12

    1,670      1,916

UFJ Finance Aruba AEC

        

6.750% due 07/15/13

    220      232

Vale Overseas, Ltd.

        

6.250% due 01/11/16

    460      469

6.250% due 01/23/17

    3,490      3,529

6.875% due 11/21/36

    200      208

Vedanta Resources PLC (Þ)

        

6.625% due 02/22/10

    3,065      3,050

Venezuela Government International Bond (Ñ)

        

9.250% due 09/15/27

    1,270      1,392

Vodafone Group PLC

        

6.150% due 02/27/37

    4,890      4,800

VTB Capital SA
Series 144A

        

6.660% due 11/02/09

    2,100      2,100

Western Oil Sands, Inc.

        

8.375% due 05/01/12

    1,325      1,472

Westfield Capital Corp., Ltd./WT Finance Aust Pty Ltd/WEA Finance LLC (Þ)

        

5.125% due 11/15/14

    700      667

Westfield Group (Þ)

        

5.400% due 10/01/12

    827      822

White Mountains Re Group, Ltd. (ƒ)(Þ)

        

7.506% due 05/29/49

    8,125      7,666

XL Capital, Ltd. (ƒ)(Ñ)

        

Series E
6.500% due 12/31/49

    11,195      10,397

Xstrata Canada Corp.

        

7.250% due 07/15/12

    275      300

6.000% due 10/15/15

    2,860      2,880

Xstrata Finance Canada, Ltd. (Þ)

        

5.500% due 11/16/11

    485      487

Xstrata Finance Dubai, Ltd. (Ê)(Þ)

        

5.850% due 11/13/09

    885      882
         
        487,067
         

Loan Agreements - 1.1%

        

Adam Aircraft, Term Loan

        

12.380% due 05/01/12

    1,100      1,034
    

Principal

Amount ($)

or Shares

     

Market

Value

$

ALLTEL Holding Corp., Term Loan

        

6.714% due 07/17/13

    2,035      2,018

Avis Budget Holdings, Term Loan

        

6.210% due 04/19/12

    674      654

AWAS, Second Lien Term Loan

        

11.250% due 03/21/13

    773      734

Coffeyville Resources, LLC

        

8.481% due 12/28/13

    596      590

DaimlerChrysler Financial Services Americas LLC

        

11.860% due 07/01/13

    4,425      4,403

DB UFC Zuffa Bank Loan

        

7.563% due 06/28/12

    3,140      2,842

Douglas Dynamics

        

7.448% due 05/21/13

    1,891      1,796

First Data Corp., Term Loan B

        

7.960% due 09/24/14

    5,190      4,993

Flextronics International, Ltd., Term Loan B

        

7.394% due 10/12/14

    1,685      1,671

7.395% due 10/12/14

    109      108

7.455% due 10/12/14

    516      511

Ford Motor Co.

        

8.700% due 12/15/13

    10,462      10,038

General Motors Corp.

        

7.615% due 11/01/13

    3,693      3,608

7.615% due 11/29/13

    1,350      1,319

Georgia-Pacific Corp., Term Loan B

        

6.948% due 12/20/12

    476      463

7.264% due 12/20/12

    252      245

7.474% due 12/20/12

    3,263      3,180

HCA, Inc., Term Loan B

        

7.448% due 12/30/13

    4,784      4,664

Healthsouth Corp., Term Loan B

        

7.320% due 03/10/13

    18      18

7.630% due 03/10/13

    2,517      2,468

Hexion Specialty Chemicals

        

7.500% due 05/05/13

    496      491

Idearc, Inc., Term Loan B

        

7.200% due 11/17/14

    2,589      2,548

Landsource Communities Development LLC

        

8.249% due 02/19/13

    9      8

Lyondell Chemical Co., Term Loan

        

6.250% due 08/16/13

    2,278      2,263

6.820% due 08/16/13

    6      6

Realogy Corp.

        

7.974% due 04/10/13

    297      271

8.240% due 04/10/13

    1,100      1,003

120   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Stallion Oilfield Services, Inc.

        

9.626% due 06/12/13

    4,500      4,410

Starbound Reinsurance, Ltd.

        

8.550% due 08/20/09

    5,235      5,228

Talecris Biotherapeutics, Inc., Second Lien Term Loan

        

12.080% due 12/06/14

    800      802

Travelport Holdings, Ltd.

        

12.360% due 03/01/13

    3,110      3,032

United Airlines, Inc.

        

6.875% due 02/01/14

    746      714

7.125% due 02/01/14

    754      721

Univision Communications, Inc.

        

7.003% due 09/15/14

    49      47

7.210% due 09/15/14

    1,727      1,634

USI Holdings Corp.

        

7.950% due 05/04/14

    698      676

Visteon Corp., Term Loan B

        

8.380% due 06/13/13

    2,200      2,090

Windstream Corp.

        

6.714% due 07/17/13

    300      298
         
        73,599
         

Mortgage-Backed Securities - 54.6%

        

Adjustable Rate Mortgage Trust

        

Series 2004-5 Class 2A1

        

4.991% due 04/25/35

    1,410      1,397

Series 2005-1 Class 5A2 (Ê)

        

5.203% due 05/25/35

    850      825

Series 2005-3 Class 8A2 (Ê)

        

5.113% due 07/25/35

    1,488      1,458

American Home Mortgage Assets (Ê)

        

Series 2007-1 Class A1

        

5.633% due 02/25/47

    3,607      3,510

Series 2007-2 Class A1

        

4.998% due 03/25/47

    4,148      4,058

American Home Mortgage Investment Trust (Ê)

        

Series 2004-1 Class 1A

        

5.223% due 04/25/44

    250      250

Series 2004-4 Class 4A

        

4.390% due 02/25/45

    1,046      1,030

Series 2005-2 Class 1A1

        

5.173% due 09/25/45

    5,575      5,468

Series 2005-2 Class 5A2

        

5.023% due 09/25/35

    197      197

Series 2005-3 Class 3A2

        

5.053% due 09/25/35

    50      50
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2005-4 Class 1A1

        

5.163% due 11/25/45

    1,239      1,201

Series 2007-1 Class GA1C

        

5.063% due 05/25/47

    5,987      5,856

Banc of America Alternative Loan Trust

        

Series 2003-1 Class A2

        

5.500% due 02/25/33

    1,112      1,098

Series 2003-2 Class CB2 (Ê)

        

5.373% due 04/25/33

    727      724

Series 2003-10 Class 2A1

        

6.000% due 12/25/33

    540      537

Series 2003-10 Class 2A2 (Ê)

        

5.323% due 12/25/33

    1,710      1,703

Series 2004-2 Class 1A1

        

6.000% due 03/25/34

    1,237      1,230

Series 2004-10 Class 1CB1

        

6.000% due 11/25/34

    359      362

Series 2004-11 Class 1CB1

        

6.000% due 12/25/34

    416      413

Series 2005-1 Class 2A1

        

5.500% due 02/25/20

    3,227      3,210

Series 2005-3 Class 2A1

        

5.500% due 04/25/20

    535      532

Series 2005-5 Class 2CB1

        

6.000% due 06/25/35

    631      628

Series 2005-6 Class 7A1

        

5.500% due 07/25/20

    705      701

Series 2005-9 Class 5A1

        

5.500% due 10/25/20

    998      993

Series 2006-5 Class CB17

        

6.000% due 06/25/36

    2,393      2,391

Series 2006-6 Class CB6

        

6.000% due 07/25/46

    2,105      2,110

Banc of America Commercial Mortgage, Inc.

        

Series 2004-3 Class A3

        

4.875% due 06/10/39

    1,837      1,831

Series 2004-4 Class A3

        

4.128% due 07/10/42

    6,757      6,656

Series 2005-2 Class A4

        

4.783% due 07/10/43

    3,125      3,055

Series 2005-3 Class A2

        

4.501% due 07/10/43

    1,720      1,692

Series 2005-5 Class A4

        

5.115% due 10/10/45

    6,255      6,077

Series 2005-6 Class A4

        

5.181% due 09/10/47

    14,500      14,222

Multistrategy Bond Fund   121

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2006-1 Class A4

        

5.372% due 09/10/45

    2,520      2,485

Series 2006-3 Class A4

        

5.889% due 07/10/44

    175      178

Series 2006-4 Class A4

        

5.634% due 07/10/46

    5,003      5,005

Series 2007-1 Class A4

        

5.451% due 01/15/49

    1,200      1,191

Series 2007-2 Class A2

        

5.634% due 04/10/49

    3,540      3,567

Banc of America Funding Corp.

        

Series 2004-2 Class 3A11

        

5.250% due 09/20/34

    1,988      1,972

Series 2005-5 Class 1A11

        

5.500% due 09/25/35

    937      915

Series 2005-8 Class 1A1

        

5.500% due 01/25/36

    1,159      1,133

Series 2005-D Class A1 (Ê)

        

4.111% due 05/25/35

    1,364      1,341

Series 2005-F Class 1A2 (Ê)

        

5.348% due 09/20/35

    331      327

Series 2006-3 Class 5A8

        

5.500% due 03/25/36

    3,710      3,596

Series 2006-A Class 3A2

        

5.890% due 02/20/36

    1,439      1,447

Series 2006-A Class 4A1 (Ê)

        

5.571% due 02/20/36

    3,835      3,831

Series 2006-F Class 1A2 (Ê)

        

5.165% due 07/20/36

    384      384

Series 2006-H Class 4A4

        

6.201% due 09/20/46

    1,451      1,467

Series 2006-J Class 4A1

        

6.145% due 01/20/47

    1,167      1,171

Banc of America Mortgage Securities, Inc.

        

Series 2003-9 Class 1A12 (Ê)

        

5.323% due 12/25/33

    4,212      4,191

Series 2003-D Class 1A2 (Ê)

        

7.281% due 05/25/33

    2      2

Series 2003-I Class 2A5 (Ê)

        

4.149% due 10/25/33

    1,616      1,594

Series 2004-1 Class 5A1

        

6.500% due 09/25/33

    79      80

Series 2004-2 Class 1A9 (Ê)

        

5.323% due 03/25/34

    2,569      2,556

Series 2004-11 Class 2A1

        

5.750% due 01/25/35

    3,095      3,032
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2004-D Class 1A1 (Ê)

        

5.614% due 05/25/34

    180      181

Series 2004-F Class 1A1 (Ê)

        

5.656% due 07/25/34

    2,162      2,168

Series 2005-9 Class 2A1

        

4.750% due 10/25/20

    1,102      1,077

Series 2005-H Class 2A5 (Ê)

        

4.803% due 09/25/35

    2,700      2,627

Series 2005-I Class 2A2 (Ê)

        

4.868% due 10/25/35

    3,821      3,792

Series 2005-I Class 4A1 (Ê)

        

5.262% due 10/25/35

    1,810      1,780

Series 2005-L Class 3A1 (Ê)

        

5.459% due 01/25/36

    1,805      1,796

Series 2006-2 Class A12

        

6.000% due 07/25/36

    1,653      1,651

Series 2006-2 Class A15

        

6.000% due 07/25/36

    2,928      2,952

Series 2007-3 Class 1A1

        

6.000% due 09/25/37

    15,691      15,553

Bayview Financial Acquisition Trust (Ê)

        

Series 2006-C Class 2A1
4.929% due 11/28/36

    833      830

Bear Stearns Adjustable Rate Mortgage Trust

        

Series 2002-11 Class 1A2

        

5.289% due 02/25/33

    38      39

Series 2003-1 Class 6A1

        

5.038% due 04/25/33

    120      119

Series 2003-8 Class 4A1

        

4.613% due 01/25/34

    496      500

Series 2004-1 Class 21A1

        

4.453% due 04/25/34

    2,256      2,234

Series 2004-3 Class 1A1 (Ê)

        

5.712% due 07/25/34

    1,817      1,813

Series 2004-8 Class 2A1

        

5.076% due 11/25/34

    3,885      3,859

Series 2004-10 Class 22A1

        

4.956% due 01/25/35

    1,659      1,637

Series 2005-2 Class A1 (Ê)

        

4.125% due 03/25/35

    18,013      17,837

Series 2005-2 Class A2 (Ê)

        

4.125% due 03/25/35

    995      977

Series 2005-3 Class 2A1

        

5.080% due 06/25/35

    5,261      5,207

Series 2005-10 Class A1 (Ê)

        

4.750% due 10/25/35

    3,268      3,247

122   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2007-1 Class 3A2

        

5.764% due 02/25/47

    3,348      3,371

Series 2007-3 Class 1A1

        

5.481% due 05/25/47

    6,918      6,861

Bear Stearns Alt-A Trust

        

Series 2005-4 Class 23A1

        

5.373% due 05/25/35

    1,909      1,915

Series 2005-5 Class 21A1

        

4.680% due 06/25/35

    5,226      5,190

Series 2005-7 Class 22A1

        

5.520% due 09/25/35

    756      756

Series 2005-8 Class 11A1 (Ê)

        

5.143% due 10/25/35

    3,273      3,200

Series 2006-3 Class 33A1 (Ê)

        

6.160% due 05/25/36

    1,520      1,529

Series 2006-3 Class 34A1

        

6.165% due 05/25/36

    3,132      3,147

Bear Stearns Alt-A Trust II

        

Series 2007-1 Class 1A1
6.280% due 09/25/47

    11,717      11,647

Bear Stearns Asset Backed Securities Trust

        

Series 2005-AC8 Class A5
5.500% due 11/25/35

    1,101      1,101

Bear Stearns Commercial Mortgage Securities

        

Series 2005-PW1 Class A4

        

5.405% due 12/11/40

    3,500      3,450

Series 2006-PW1 Class A4

        

5.201% due 12/11/38

    11,000      10,662

Bear Stearns Mortgage Funding Trust (Ê)

        

Series 2006-AR2 Class 1A1

        

5.073% due 09/25/36

    9,043      8,884

Series 2006-AR2 Class 2A1

        

5.103% due 10/25/36

    2,241      2,190

Series 2006-AR3 Class 1A1

        

5.053% due 03/25/36

    2,129      2,055

Series 2006-AR4 Class A1

        

5.083% due 12/25/36

    2,599      2,506

Series 2006-AR5 Class 1A1

        

5.033% due 12/25/36

    5,671      5,497

Series 2007-AR2 Class A1

        

5.043% due 03/25/37

    2,669      2,568

Series 2007-AR3 Class 1A1

        

5.013% due 03/25/37

    4,043      3,955

Bear Stearns Structured Products, Inc.

        

Series 2007-R6 Class 1A1

        

5.688% due 01/26/36

    2,733      2,718
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2007-R6 Class 2A1

        

5.788% due 12/26/46

    1,561      1,549

Series 2007-R7 Class A1 (Ê)(Þ)

        

5.320% due 01/25/37

    4,866      4,834

Chase Mortgage Finance Corp.

        

Series 2003-S8 Class A1

        

4.500% due 09/25/18

    1,737      1,672

Series 2006-S4 Class A3

        

6.000% due 12/25/36

    2,900      2,926

Series 2006-S4 Class A4

        

6.000% due 12/25/36

    1,525      1,533

Series 2007-A1 Class 1A3

        

4.357% due 02/25/37

    2,621      2,600

Series 2007-A1 Class 4A1

        

4.481% due 02/25/37

    860      849

Series 2007-A1 Class 5A1

        

4.169% due 02/25/37

    1,829      1,802

Citicorp Mortgage Securities, Inc.

        

Series 2006-3 Class 1A6

        

6.000% due 06/25/36

    1,093      1,091

Series 2006-3 Class 1A9

        

5.750% due 06/25/36

    1,650      1,589

Citigroup Mortgage Loan Trust, Inc.

        

Series 2005-11 Class A2A (Ê)

        

4.700% due 12/25/35

    325      320

Series 2006-WFH Class A2 (Ê)

        

4.973% due 11/25/36

    6,300      6,138

Series 2007-AR8 Class 2A1A

        

5.927% due 08/25/37

    3,127      3,129

Citigroup/Deutsche Bank Commercial Mortgage Trust

        

Series 2005-CD1 Class A4

        

5.225% due 07/15/44

    4,000      3,934

Series 2006-CD3 Class A5

        

5.617% due 10/15/48

    2,605      2,602

Citimortgage Alternative Loan Trust

        

Series 2006-A3 Class 1A5

        

6.000% due 07/25/36

    1,781      1,793

Series 2007-A1 Class 1A5

        

6.000% due 01/25/37

    2,829      2,774

Commercial Mortgage Pass Through Certificates

        

Series 2001-J1A Class A2 (Þ)

        

6.457% due 02/16/34

    665      686

Series 2006-C7 Class A2

        

5.690% due 06/10/46

    825      834

Countrywide Alternative Loan Trust

        

Series 2004-2CB Class 1A4 (Ê)

        

5.273% due 03/25/34

    803      800

Multistrategy Bond Fund   123

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2004-28C Class 6A1

        

6.000% due 01/25/35

    568      565

Series 2004-J7 Class 1A2

        

4.673% due 08/25/34

    130      129

Series 2004-J8 Class 1A1

        

7.000% due 09/25/34

    575      589

Series 2005-1CB Class 2A2

        

5.500% due 03/25/35

    1,686      1,653

Series 2005-16 Class A1 (Ê)

        

6.578% due 06/25/35

    2,856      2,844

Series 2005-32T Class A7 (Ê)

        

5.123% due 08/25/35

    2,029      2,029

Series 2005-38 Class A1 (Ê)

        

6.433% due 09/25/35

    1,169      1,164

Series 2005-38 Class A3 (Ê)

        

5.223% due 09/25/35

    1,559      1,539

Series 2005-51 Class 1A1 (Ê)

        

5.318% due 11/20/35

    1,921      1,852

Series 2005-56 Class 2A2 (Ê)

        

6.973% due 11/25/35

    1,194      1,204

Series 2005-56 Class 3A1 (Ê)

        

5.163% due 11/25/35

    574      561

Series 2005-56 Class 4A1 (Ê)

        

5.183% due 11/25/35

    1,315      1,270

Series 2005-58 Class A2 (Ê)

        

5.388% due 12/20/35

    1,393      1,343

Series 2005-59 Class 1A1 (Ê)

        

5.328% due 11/20/35

    3,090      3,050

Series 2005-59 Class 1A2B (Ê)

        

5.756% due 11/20/35

    483      481

Series 2005-62 Class 1A1 (Ê)

        

5.173% due 12/25/35

    2,076      2,013

Series 2005-63 Class 3A1

        

5.890% due 11/25/35

    1,436      1,426

Series 2005-63 Class 5A1 (Ê)

        

5.322% due 12/25/35

    3,694      3,669

Series 2005-85C Class 2A2

        

5.500% due 02/25/36

    98      98

Series 2005-J8 Class 1A3

        

5.500% due 07/25/35

    2,279      2,226

Series 2005-J11 Class 1A10

        

5.000% due 09/25/35

    1,627      1,603

Series 2005-J13 Class 2A3

        

5.500% due 11/25/35

    1,151      1,138

Series 2006-9T1 Class A7

        

6.000% due 05/25/36

    1,201      1,215

Series 2006-43C Class 1A7

        

6.000% due 02/25/37

    3,659      3,668
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-J2 Class A3

        

6.000% due 04/25/36

    1,776      1,791

Series 2006-OA1 Class A1 (Ê)

        

5.178% due 02/20/47

    5,303      5,193

Series 2006-OA1 Class 4A1 (Ê)

        

5.063% due 08/25/46

    2,826      2,772

Series 2006-OA2 Class A1 (Ê)

        

5.033% due 02/25/47

    3,366      3,305

Series 2006-OA6 Class 1A3 (Ê)

        

5.143% due 07/25/46

    1,166      1,146

Series 2007-J2 Class 2A1

        

6.000% due 07/25/37

    3,600      3,610

Series 2007-OA1 Class A1A (Ê)

        

6.244% due 04/25/43

    9,703      9,694

Series 2007-OA4 Class A1 (Ê)

        

5.043% due 05/25/47

    4,922      4,824

Countrywide Home Loan Mortgage Pass Through Trust

        

Series 2003-8 Class A2 (Ê)

        

5.373% due 05/25/18

    2,339      2,337

Series 2003-20 Class 1A9

        

5.500% due 07/25/33

    1,775      1,770

Series 2003-42 Class M (Ê)

        

4.383% due 10/25/33

    908      898

Series 2003-52 Class A1

        

4.504% due 02/19/34

    3,667      3,643

Series 2003-56 Class 3A5

        

4.150% due 12/25/33

    397      394

Series 2004-12 Class 1M

        

5.111% due 08/25/34

    362      361

Series 2004-16 Class 1A1 (Ê)

        

5.273% due 09/25/34

    1,564      1,564

Series 2004-22 Class A3

        

4.797% due 11/25/34

    2,437      2,412

Series 2004-HYB Class 1A1

        

4.737% due 02/20/35

    4,412      4,374

Series 2004-HYB Class A2

        

4.560% due 11/20/34

    1,826      1,803

Series 2004-J9 Class 2A1

        

5.250% due 01/25/35

    1,800      1,785

Series 2005-1 Class 2A1 (Ê)

        

5.163% due 03/25/35

    1,157      1,136

Series 2005-3 Class 1A3 (Ê)

        

5.113% due 04/25/35

    76      76

Series 2005-8R Class A4

        

6.000% due 10/25/34

    1,623      1,628

Series 2005-23 Class A1

        

5.500% due 11/25/35

    3,068      2,999

124   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2005-29 Class A1

        

5.750% due 12/25/35

    1,759      1,719

Series 2005-HYB Class 2A1

        

4.898% due 08/20/35

    7,059      6,967

Series 2005-HYB Class 3A2A (Ê)

        

5.250% due 02/20/36

    374      374

Series 2005-HYB Class 4A1

        

5.619% due 12/20/35

    2,507      2,478

Series 2006-1 Class A2

        

6.000% due 03/25/36

    961      960

Series 2006-1 Class A3

        

6.000% due 03/25/36

    339      337

Series 2006-13 Class 1A23

        

6.250% due 09/25/36

    571      573

Series 2006-15 Class A3

        

6.250% due 10/25/36

    1,357      1,370

Series 2006-HYB Class 3A1A

        

6.096% due 05/20/36

    1,563      1,600

Series 2006-J4 Class A2

        

6.250% due 09/25/36

    1,006      1,007

Series 2006-J4 Class A10

        

6.250% due 09/25/36

    539      542

Series 2006-OA5 Class 2A1 (Ê)

        

5.073% due 04/25/46

    3,886      3,781

Series 2006-R2 Class AF1 (Ê)(Þ)

        

5.293% due 08/25/36

    3,688      3,671

Series 2007-18 Class 2A1

        

6.500% due 09/25/37

    3,715      3,735

Series 2007-HY1 Class 1A2

        

5.701% due 04/25/37

    1,123      1,137

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 1998-C2 Class A2

        

6.300% due 11/15/30

    1,065      1,073

Series 2001-CKN Class A4

        

5.435% due 09/15/34

    7,995      8,059

Series 2001-SPG Class A2 (Þ)

        

6.515% due 08/13/18

    800      836

Series 2002-30 Class DB1

        

7.369% due 11/25/32

    650      648

Series 2003-29 Class 5A1

        

7.000% due 12/25/33

    112      115

Series 2004-1 Class 3A1

        

7.000% due 02/25/34

    47      48

Series 2004-C1 Class A3

        

4.321% due 01/15/37

    2,780      2,726

Series 2005-9 Class 2A1

        

5.500% due 10/25/35

    5,777      5,577
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Credit Suisse Mortgage Capital Certificates

        

Series 2006-C1 Class AAB

        

5.555% due 02/15/39

    1,480      1,481

Series 2006-C4 Class A3

        

5.467% due 09/15/39

    3,350      3,307

Series 2007-C1 Class AAB

        

5.336% due 02/15/40

    4,500      4,423

Series 2007-C3 Class AAB

        

5.723% due 06/15/39

    4,650      4,673

Crown Castle Towers LLC (Þ)

        

Series 2005-1A Class AFL (Ê)

        

5.471% due 06/15/35

    6,685      6,710

Series 2005-1A Class C

        

5.074% due 06/15/35

    591      592

Deutsche ALT-A Securities, Inc. Alternate Loan Trust

        

Series 2005-AR1 Class 2A3
4.998% due 08/25/35

    3,735      3,655

DLJ Commercial Mortgage Corp.

        

Series 1998-CF1 Class A1B

        

6.410% due 02/18/31

    175      175

Series 1999-CG1 Class S
Interest Only STRIP
0.830% due 03/10/32

    17,975      217

Series 1999-CG3 Class A3

        

7.730% due 10/10/32

    1,020      1,067

Downey Savings & Loan Association Mortgage Loan Trust

        

Series 2004-AR3 Class 1A1B (Ê)

        

7.260% due 07/19/44

    566      574

Series 2006-AR1 Class 2A1A (Ê)

        

5.923% due 04/19/47

    1,719      1,721

Fannie Mae

        

7.000% due 2009

    12      12

5.200% due 2012

    2,139      2,146

5.500% due 2013

    14      15

5.500% due 2014

    42      42

6.500% due 2015

    15      15

5.000% due 2016

    386      384

5.500% due 2016

    79      80

6.000% due 2016

    844      855

11.000% due 2016

    85      96

5.000% due 2017

    6,514      6,445

5.500% due 2017

    542      546

6.000% due 2017

    516      527

6.500% due 2017

    829      849

8.000% due 2017

    36      37

4.000% due 2018

    4,996      4,741

Multistrategy Bond Fund   125

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

4.500% due 2018

    25,253      24,504

5.000% due 2018

    22,239      21,972

5.500% due 2018

    458      460

6.500% due 2018

    261      268

4.500% due 2019

    2,090      2,027

5.000% due 2019

    9,097      8,980

5.500% due 2019

    192      193

6.000% due 2019

    5,095      5,194

6.500% due 2019

    122      125

4.500% due 2020

    2,246      2,178

5.000% due 2020

    6,426      6,333

5.500% due 2020

    1,238      1,243

6.000% due 2020

    6,415      6,539

6.500% due 2020

    50      51

8.000% due 2020

    5      6

5.000% due 2021

    7,696      7,582

5.500% due 2021

    187      188

5.000% due 2022

    1,950      1,920

6.500% due 2022

    69      72

6.500% due 2024

    1,695      1,743

7.500% due 2024

    9      10

8.000% due 2024

    80      83

6.500% due 2025

    1,032      1,061

7.000% due 2025

    3      3

7.000% due 2026

    244      256

7.200% due 2026 (Ê)

    217      219

9.000% due 2026

    37      40

6.000% due 2027

    6,533      6,608

7.000% due 2027

    7      8

7.500% due 2027

    8      9

6.500% due 2028

    331      342

7.000% due 2028

    428      448

6.500% due 2029

    740      765

7.000% due 2029

    2,019      2,115

7.500% due 2029

    51      54

6.500% due 2030

    189      195

7.000% due 2030

    792      829

7.500% due 2030

    347      365

8.000% due 2030

    455      478

8.500% due 2030

    646      693

9.500% due 2030

    83      91

6.500% due 2031

    642      659

7.000% due 2031

    1,596      1,670

7.500% due 2031

    446      472

8.000% due 2031

    566      597

8.500% due 2031

    321      343

6.000% due 2032

    3,975      4,026

6.500% due 2032

    1,917      1,974

7.000% due 2032

    5,473      5,721
    

Principal

Amount ($)

or Shares

     

Market

Value

$

7.500% due 2032

    271      289

8.000% due 2032

    3      3

8.500% due 2032

    51      55

3.700% due 2033 (Ê)

    31      31

3.800% due 2033 (Ê)

    35      35

3.900% due 2033 (Ê)

    1,961      1,972

4.000% due 2033 (Ê)

    127      127

4.500% due 2033 (Ê)

    136      138

4.600% due 2033 (Ê)

    1,618      1,636

5.000% due 2033

    3,537      3,404

5.100% due 2033 (Ê)

    1,185      1,201

5.500% due 2033

    12,126      11,983

6.000% due 2033

    875      884

6.500% due 2033

    1,206      1,241

7.000% due 2033

    604      629

4.400% due 2034 (Ê)

    3,410      3,404

4.900% due 2034 (Ê)

    391      393

5.000% due 2034

    9,401      9,046

5.400% due 2034 (Ê)

    2,022      2,039

5.500% due 2034

    55,180      54,515

6.000% due 2034

    2,544      2,569

6.300% due 2034 (Ê)

    3,888      3,899

6.500% due 2034

    1,538      1,578

7.000% due 2034

    321      334

7.500% due 2034

    188      198

4.100% due 2035 (Ê)

    3,489      3,483

4.200% due 2035 (Ê)

    4,009      4,004

4.500% due 2035 (Ê)

    5,880      5,873

4.700% due 2035 (Ê)

    3,734      3,748

4.800% due 2035 (Ê)

    6,171      6,159

5.000% due 2035

    6,766      6,500

5.500% due 2035

    115,252      113,739

6.000% due 2035

    2,994      3,020

6.500% due 2035

    112      116

7.000% due 2035

    805      836

7.500% due 2035

    1,016      1,075

5.000% due 2036

    28,206      27,100

5.500% due 2036

    29,295      28,827

6.000% due 2036

    35,215      35,457

6.500% due 2036

    11,429      11,699

7.000% due 2036

    954      988

4.400% due 2037 (Ê)

    4,455      4,475

5.000% due 2037

    5,324      5,110

5.200% due 2037 (Ê)

    3,335      3,342

5.500% due 2037 (Ê)

    4,018      4,053

5.500% due 2037

    69,820      68,675

5.600% due 2037 (Ê)

    4,506      4,561

6.000% due 2037 (Ê)

    3,765      3,812

6.000% due 2037

    37,066      37,344

126   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

6.500% due 2037

    17,487      17,869

7.000% due 2037

    79,699      82,656

7.500% due 2037

    13,000      13,586

6.400% due 10/01/40 (Ê)

    489      491

Series 1997-281 Class 2
Interest Only STRIP
9.000% due 11/01/26

    39      11

Series 2000-306 Class IO
Interest Only STRIP
8.000% due 05/01/30

    43      11

Series 2001-317 Class 2
Interest Only STRIP
8.000% due 08/01/31

    88      22

Series 2002-320 Class 2
Interest Only STRIP
7.000% due 03/01/32

    28      7

Series 2003-337 Class 1
Principal Only STRIP
Zero coupon due 07/01/33

    2,864      2,061

Series 2003-339 Class 23
Interest Only STRIP
5.000% due 07/01/18

    1,978      290

Series 2003-343 Class 6
Interest Only STRIP
5.000% due 10/01/33

    2,827      713

Series 2003-345 Class 18
Interest Only STRIP
4.500% due 12/01/18

    9,146      1,336

Series 2003-345 Class 19
Interest Only STRIP
4.500% due 01/01/19

    10,218      1,493

Series 2004-353 Class 2
Interest Only STRIP
5.000% due 08/01/34

    7,020      1,803

Series 2004-356 Class 35
Interest Only STRIP
4.500% due 03/01/20

    1,760      272

Series 2004-356 Class 36
Interest Only STRIP
4.500% due 03/01/20

    2,995      465

Series 2005-365 Class 12
Interest Only STRIP
5.500% due 12/01/35

    13,265      3,214

Series 2006-369 Class 8
Interest Only STRIP
5.500% due 04/01/36

    2,437      607

Series 2006-372 Class 2
Interest Only STRIP
6.000% due 08/01/36

    6,894      1,595
    

Principal

Amount ($)

or Shares

     

Market

Value

$

15 Year TBA (Ï)

        

4.500%

    11,065      10,702

5.000%

    16,765      16,503

5.500%

    68,750      68,857

6.000%

    22,335      22,719

30 Year TBA (Ï)

        

4.500%

    5,815      5,419

5.000%

    98,655      94,669

5.500%

    345,455      340,365

6.000%

    290,507      292,595

6.500%

    103,780      106,195

7.000%

    61,720      63,937

Fannie Mae Grantor Trust

        

Series 1999-T2 Class A1
7.500% due 01/19/39

    35      37

Series 2001-T8 Class A2
9.500% due 07/25/41

    193      208

Series 2003-T4 Class 2A5
4.907% due 09/26/33

    1,088      1,089

Fannie Mae REMICS

        

Series 1992-10 Class ZD
8.000% due 11/25/21

    273      274

Series 1996-46 Class ZA
7.500% due 11/25/26

    261      272

Series 1997-68 Class SC (Ê)
Interest Only STRIP
3.438% due 05/18/27

    102      10

Series 1999-56 Class Z
7.000% due 12/18/29

    1,104      1,147

Series 2001-4 Class SA (Ê)
Interest Only STRIP
2.505% due 02/17/31

    193      14

Series 2003-16 Class NI
Interest Only STRIP
5.000% due 02/25/15

    269      5

Series 2003-21 Class M
5.000% due 02/25/17

    546      544

Series 2003-25 Class IK
Interest Only STRIP
7.000% due 04/25/33

    322      77

Series 2003-32 Class FH (Ê)
5.273% due 11/25/22

    2,675      2,668

Series 2003-32 Class UI
Interest Only STRIP
6.000% due 05/25/33

    410      93

Series 2003-33 Class IA
Interest Only STRIP
6.500% due 05/25/33

    1,838      413

Multistrategy Bond Fund   127

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2003-35 Class FY (Ê)
5.273% due 05/25/18

    5,325      5,359

Series 2003-35 Class IU
Interest Only STRIP
6.000% due 05/25/33

    449      104

Interest Only STRIP
Series 2003-35 Class UI
6.500% due 05/25/33

    443      97

Series 2003-64 Class JI
Interest Only STRIP
6.000% due 07/25/33

    458      106

Series 2003-78 Class FI (Ê)
5.273% due 01/25/33

    2,567      2,574

Series 2003-82 Class IA
Interest Only STRIP
6.000% due 08/25/32

    378      45

Series 2003-82 Class WI
Interest Only STRIP
6.000% due 08/25/32

    60      7

Series 2003-122 Class AJ
4.500% due 02/25/28

    540      532

Series 2004-21 Class FL (Ê)
5.223% due 11/25/32

    1,257      1,257

Series 2005-36 Class AI
Interest Only STRIP
5.500% due 10/25/26

    2,126      132

Series 2005-65 Class FP (Ê)
5.123% due 08/25/35

    481      481

Series 2005-69 Class IO (Ê)
Principal Only STRIP
Zero coupon due 08/25/35

    49      16

Series 2005-79 Class FC (Ê)
5.173% due 02/25/22

    3,100      3,083

Series 2005-110 Class MB
5.500% due 09/25/35

    2,089      2,109

Series 2006-5 Class 3A2 (Ê)
4.672% due 05/25/35

    500      498

Series 2006-48 Class LG
Principal Only STRIP
Zero coupon due 06/25/36

    696      526

Series 2006-81 Class LF (Ê)
Zero coupon due 09/25/36

    178      186

Series 2006-118 Class A1 (Ê)
4.933% due 12/25/36

    503      499

Series 2006-118 Class A2 (Ê)
4.933% due 12/25/36

    1,342      1,332

Series 2007-27 Class XA (Ê)
Zero coupon due 05/25/35

    94      91
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2007-42 Class LF (Ê)
Zero coupon due 05/25/37

    268      290

Series 2007-53 Class UF (Ê)
Zero coupon due 06/25/37

    194      208

Series 2007-56 Class GY (Ê)
Zero coupon due 06/25/37

    97      110

Series 2007-73 Class A1 (Ê)
4.933% due 07/25/37

    3,807      3,735

Fannie Mae Whole Loan

        

Series 2003-W17 Class 1A6
5.310% due 08/25/33

    5,400      5,410

Series 2004-W9 Class 2A1
6.500% due 02/25/44

    290      301

Series 2004-W11 Class 1A2
6.500% due 05/25/44

    510      528

Federal Home Loan Mortgage Corp. Structured Pass Through Securities

        

Series 2003-58 Class 2A
6.500% due 09/25/43

    269      276

Series 2005-63 Class 1A1 (Ê)
6.183% due 02/25/45

    152      152

FHA PJ Reilly 67 NCP

        

7.400% due 03/15/24

    62      62

First Horizon Alternative Mortgage Securities

        

Series 2004-AA3 Class A1 (Ê)
5.300% due 09/25/34

    411      411

Series 2005-AA2 Class 1A1 (Ê)
5.059% due 03/25/35

    335      334

Series 2005-AA5 Class 1A1 (Ê)
5.292% due 07/25/35

    384      383

Series 2006-AA5 Class A2 (Ê)
6.525% due 09/25/36

    1,603      1,646

Series 2006-FA3 Class A6
6.000% due 07/25/36

    1,967      1,969

First Horizon Asset Securities, Inc.

        

Series 2003-5 Class 1A17
8.000% due 07/25/33

    120      127

Series 2004-AR5 Class 4A1 (Ê)
5.700% due 10/25/34

    406      402

Series 2004-AR6 Class 2A1 (Ê)
4.750% due 12/25/34

    741      733

Series 2005-AR3 Class 2A1 (Ê)
5.372% due 08/25/35

    856      853

Series 2005-AR5 Class 3A1 (Ê)
5.535% due 10/25/35

    856      853

First Union-Lehman Brothers-Bank of America

        

Series 1998-C2 Class A2
6.560% due 11/18/35

    13      13

128   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Freddie Mac

        

5.500% due 2013

    2      2

12.000% due 2013

    11      11

12.000% due 2014

    14      16

11.000% due 2015

    11      12

5.500% due 2016

    35      36

6.000% due 2016

    108      111

10.000% due 2016

    51      57

5.500% due 2017

    229      229

4.000% due 2018

    12,190      11,563

4.500% due 2018

    2,243      2,176

5.000% due 2018

    4,293      4,246

5.500% due 2018

    77      77

4.000% due 2019

    11,779      11,129

4.500% due 2019

    306      297

5.000% due 2019

    5,439      5,373

5.500% due 2019

    218      219

4.500% due 2020

    2,300      2,228

5.000% due 2020

    13,827      13,640

5.500% due 2020

    7,921      7,952

8.000% due 2020

    110      117

11.000% due 2020

    46      52

5.000% due 2021

    1,503      1,486

10.500% due 2021

    26      29

5.500% due 2022

    255      255

6.500% due 2025

    5      5

8.500% due 2025

    30      33

7.000% due 2027

    219      229

8.500% due 2027

    166      178

7.500% due 2028

    51      54

6.500% due 2029

    145      149

7.500% due 2029

    81      86

6.500% due 2030

    8      8

7.400% due 2030 (Ê)

    31      31

7.500% due 2030

    228      241

8.000% due 2030

    53      56

8.500% due 2030

    164      175

6.500% due 2031

    1,119      1,152

7.000% due 2031

    435      456

7.500% due 2031

    143      151

8.000% due 2031

    249      267

6.000% due 2032

    122      123

7.000% due 2032

    238      249

7.500% due 2032

    112      119

3.500% due 2033 (Ê)

    943      940

3.800% due 2033 (Ê)

    179      179

5.000% due 2033

    1,022      984

5.500% due 2033

    4,865      4,803

6.000% due 2033

    279      282
    

Principal

Amount ($)

or Shares

     

Market

Value

$

6.500% due 2033

    436      448

7.000% due 2033

    581      606

7.500% due 2033

    105      111

4.900% due 2034 (Ê)

    5,262      5,291

5.500% due 2034

    1,687      1,665

6.000% due 2034

    963      970

6.300% due 2034 (Ê)

    287      293

6.900% due 2034 (Ê)

    859      866

4.800% due 2035 (Ê)

    2,472      2,473

4.900% due 2035 (Ê)

    4,312      4,295

5.000% due 2035

    815      783

6.000% due 2035

    1,596      1,593

5.900% due 2036 (Ê)

    4,177      4,229

6.000% due 2036 (Ê)

    1,486      1,505

5.500% due 2037

    43,883      43,202

5.600% due 2037 (Ê)

    6,006      6,053

5.700% due 2037 (Ê)

    6,312      6,383

5.800% due 2037 (Ê)

    9,082      9,207

5.900% due 2037 (Ê)

    1,919      1,944

6.000% due 2037

    3,996      4,022

6.100% due 2037 (Ê)

    5,330      5,430

15 Year TBA (Ï)

        

5.500%

    58,000      58,072

30 Year TBA (Ï)

        

5.000%

    19,725      18,930

5.500%

    18,550      18,260

6.000%

    6,280      6,319

Freddie Mac Reference REMIC

        

Series 2006-R00 Class AK
5.750% due 12/15/18

    2,277      2,294

Freddie Mac REMICS

        

Series 1991-103 Class Z
9.000% due 02/15/21

    49      49

Series 1994-173 Class Z
7.000% due 05/15/24

    302      318

Series 1999-212 Class SG (Ê)
Interest Only STRIP
1.938% due 06/17/27

    1,473      52

Series 2000-224 Class SC (Ê)
Interest Only STRIP
2.409% due 08/15/30

    55      4

Series 2000-226 Class F (Ê)
5.541% due 11/15/30

    83      83

Series 2001-229 Class KF (Ê)
5.123% due 07/25/22

    1,109      1,110

Series 2001-232 Class ZQ
6.500% due 06/15/31

    1,651      1,729

Series 2002-246 Class SJ (Ê)
Interest Only STRIP
2.909% due 03/15/32

    222      19

Multistrategy Bond Fund   129

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2003-256 Class FJ (Ê)
5.491% due 02/15/33

    1,708      1,719

Series 2003-256 Class IM
Interest Only STRIP
5.000% due 09/15/14

    303      6

Series 2003-258 Class IG
Interest Only STRIP
4.500% due 10/15/16

    872      77

Series 2003-259 Class IQ
Interest Only STRIP
5.000% due 06/15/17

    1,229      130

Series 2003-262 Class AB
2.900% due 11/15/14

    2,027      1,987

Series 2003-262 Class QH
5.000% due 05/15/33

    1,210      1,143

5.000% due 06/15/33

    1,310      1,235

Series 2003-264 Class IM
Interest Only STRIP
7.000% due 07/15/33

    390      88

Series 2003-266 Class MA
4.500% due 10/15/31

    933      923

Series 2003-269 Class FE (Ê)
5.691% due 12/15/28

    3,137      3,149

Series 2004-276 Class IP
Interest Only STRIP
5.500% due 07/15/23

    1,023      27

Series 2004-277 Class UF (Ê)
5.391% due 06/15/33

    3,181      3,180

Series 2004-281 Class DF (Ê)
5.541% due 06/15/23

    665      671

Series 2004-287 Class GC
5.000% due 11/15/29

    835      822

Series 2004-289 Class PC
5.000% due 07/15/30

    1,490      1,467

Series 2005-291 Class KP
5.000% due 11/15/29

    1,495      1,474

Series 2005-292 Class IG
Interest Only STRIP
5.000% due 04/15/23

    1,234      177

Series 2005-292 Class NA
5.000% due 12/15/20

    543      542

Series 2005-294 Class FA (Ê)
5.261% due 03/15/20

    1,292      1,293

Series 2005-299 Class KF (Ê)
5.491% due 06/15/35

    593      588

Series 2005-300 Class ED
5.000% due 07/15/25

    1,655      1,567

Series 2005-301 Class IM
Interest Only STRIP
5.500% due 01/15/31

    2,132      246
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2005-302 Class MB
5.000% due 12/15/28

    640      637

Series 2005-303 Class AQ
4.500% due 10/15/22

    2,067      2,059

Series 2005-303 Class XA (Ê)
Zero coupon due 09/15/35

    295      298

Series 2005-305 Class JF (Ê)
5.391% due 10/15/35

    607      606

Series 2005-306 Class PC
5.000% due 02/15/29

    1,795      1,788

Series 2006-312 Class HT
5.000% due 03/15/26

    3,356      3,153

Series 2006-313 Class FP (Ê)
Zero coupon due 04/15/36

    852      918

Series 2006-313 Class X (Ê)
Zero coupon due 04/15/36

    155      175

Series 2006-314 Class LF (Ê)
5.391% due 05/15/36

    580      580

Series 2006-315 Class EQ
5.000% due 05/15/36

    1,485      1,398

Series 2006-316 Class X (Ê)
Zero coupon due 06/15/36

    414      400

Series 2006-317 Class XI (Ê)
Interest Only STRIP
12.600% due 10/15/35

    2,663      69

Series 2006-323 Class PA
6.000% due 03/15/26

    3,105      3,142

Series 2007-326 Class DO (Ê)
Zero coupon due 01/15/37

    96      101

Series 2007-327 Class SX (Ê)
Zero coupon due 07/15/36

    185      192

Series 2007-327 Class UF (Ê)
Zero coupon due 02/15/37

    188      213

Series 2007-327 Class WF (Ê)
Zero coupon due 09/15/36

    91      98

Series 2007-330 Class GL (Ê)
7.886% due 04/15/37

    753      834

Series 2007-333 Class AF (Ê)
5.241% due 10/15/20

    21,578      21,500

Series 2007-333 Class BF (Ê)
5.241% due 07/15/19

    3,559      3,546

Series 2007-333 Class FT (Ê)
5.241% due 08/15/19

    16,103      16,042

Series 2007-334 Class FA (Ê)
5.321% due 02/15/19

    15,507      15,449

Freddie Mac Strips

        

Interest Only STRIP
Series 1998-191 Class IO
8.000% due 01/01/28

    34      8

130   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 1998-194 Class IO
6.500% due 04/01/28

    214      53

Series 2001-212 Class IO
6.000% due 05/01/31

    330      77

Series 2001-215 Class IO
8.000% due 06/01/31

    144      35

Series 2007-245 Class IO
5.000% due 05/15/37

    21      6

GE Capital Commercial Mortgage Corp.

        

Series 2002-1A Class A3
6.269% due 12/10/35

    745      772

Series 2002-3A Class A1
4.229% due 12/10/37

    3,388      3,341

Series 2006-C1 Class A4
5.339% due 03/10/44

    1,010      999

Ginnie Mae I

        

11.000% due 2010

    13      14

11.000% due 2013

    9      10

10.500% due 2015

    41      47

11.000% due 2015

    3      3

10.500% due 2016

    62      70

8.000% due 2017

    —      —

10.500% due 2021

    59      69

8.000% due 2022

    22      24

10.000% due 2022

    62      70

9.500% due 2023

    238      260

8.000% due 2025

    14      14

10.000% due 2025

    71      80

8.000% due 2030

    311      331

7.500% due 2031

    52      55

8.000% due 2031

    2      2

8.000% due 2032

    15      16

6.000% due 2036

    304      307

6.000% due 2037

    1,678      1,699

30 Year TBA (Ï)

        

5.500%

    18,095      17,982

Ginnie Mae II

        

5.800% due 2023 (Ê)

    17      18

6.100% due 2023 (Ê)

    273      275

6.400% due 2023 (Ê)

    237      240

5.800% due 2024 (Ê)

    131      133

6.100% due 2024 (Ê)

    138      140

6.400% due 2024 (Ê)

    47      47

5.800% due 2025 (Ê)

    8      8

6.100% due 2025 (Ê)

    13      13

6.400% due 2025 (Ê)

    242      246

6.100% due 2026 (Ê)

    60      61

8.500% due 2026 (Ê)

    37      40
    

Principal

Amount ($)

or Shares

     

Market

Value

$

5.800% due 2027 (Ê)

    149      149

6.400% due 2027 (Ê)

    91      92

6.100% due 2029 (Ê)

    317      320

Global Signal Trust (Þ)

        

Series 2004-2A Class A
4.232% due 12/15/14

    1,070      1,049

Series 2006-1 Class B
5.588% due 02/15/36

    750      751

Series 2006-1 Class C
5.707% due 02/15/36

    635      642

GMAC Commercial Mortgage Securities, Inc.

        

Series 1999-C2 Class A2
6.945% due 09/15/33

    2,658      2,715

GMAC Mortgage Corp. Loan Trust

        

Series 2004-HE5 Class A3
3.970% due 09/25/34

    499      496

Series 2005-AR2 Class 4A (Ê)
5.183% due 05/25/35

    7,367      7,308

Series 2005-AR6 Class 3A1
5.298% due 11/19/35

    2,950      2,926

Series 2006-HE3 Class A2
5.750% due 10/25/36

    2,235      2,185

Series 2007-HE3 Class 1A1
7.000% due 09/25/37

    3,000      3,006

Government National Mortgage Association

        

Series 1998-23 Class ZA
6.500% due 09/20/28

    2,191      2,239

Series 1999-27 Class SE (Ê)
Interest Only STRIP
3.540% due 08/16/29

    94      10

Series 1999-40 Class FE (Ê)
5.610% due 11/16/29

    896      903

Series 1999-44 Class SA (Ê)
Interest Only STRIP
3.490% due 12/16/29

    184      18

Series 2001-46 Class SA (Ê)
Interest Only STRIP
2.520% due 09/16/31

    36      3

Series 2003-5 Class B
4.486% due 10/16/25

    795      786

Greenpoint Mortgage Funding Trust

        

Series 2005-AR3 Class X1
Interest Only STRIP
28.400% due 08/25/45

    140      4

Series 2005-AR4 Class X4
Interest Only STRIP
2.300% due 10/25/45

    153      5

Multistrategy Bond Fund   131

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2006-AR5 Class A1A (Ê)
4.953% due 10/25/46

    2,236      2,223

Series 2006-AR6 Class A1A (Ê)
4.953% due 10/25/46

    852      844

Series 2006-AR8 Class 1A1A (Ê)
4.953% due 01/25/47

    811      812

Greenpoint Mortgage Pass-Through Certificates (Ê)

        

Series 2003-1 Class A1
4.384% due 10/25/33

    2,113      2,101

Greenwich Capital Commercial Funding Corp.

        

Series 2002-C1 Class XP (Þ)
Interest Only STRIP
1.776% due 01/11/35

    4,721      330

Series 2003-C2 Class A2
4.022% due 01/05/36

    2,630      2,592

Series 2004-GG1 Class A7
5.317% due 06/10/36

    4,950      4,905

Series 2005-GG5 Class A41
5.243% due 04/10/37

    2,680      2,658

Series 2007-GG9 Class A4
5.444% due 03/10/39

    5,585      5,499

GS Mortgage Securities Corp. (Þ)

        

Series 2006-OA1 Class A
Interest Only STRIP
2.740% due 08/25/35

    107      4

GS Mortgage Securities Corp. II

        

Series 2006-FL8 Class A1 (Ê)(Þ)
5.222% due 06/06/20

    15      15

Series 2006-GG6 Class A4
5.553% due 04/10/38

    1,775      1,771

Series 2006-GG8 Class AAB
5.535% due 11/10/39

    2,250      2,240

Series 2006-RR2 Class A1 (Þ)
5.686% due 06/23/46

    1,040      987

Series 2006-RR3 Class A1S (Þ)
5.466% due 03/18/49

    7,645      7,194

Series 2007-EOP Class A1 (Ê)(Þ)
5.212% due 03/06/20

    2,748      2,728

Series 2007-GG1 Class A4
5.799% due 08/10/45

    10,350      10,485

GSMPS Mortgage Loan Trust (Þ)

        

Series 1998-1 Class A
8.000% due 09/19/27

    168      179

Series 1998-3 Class A
7.750% due 09/19/27

    133      141

Series 1999-3 Class A
8.000% due 08/19/29

    371      394
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2005-RP1 Class 1A3
8.000% due 01/25/35

    884      948

Series 2005-RP1 Class 1A4
8.500% due 01/25/35

    1,073      1,157

Series 2006-RP1 Class 1A2
7.500% due 01/25/36

    1,074      1,140

Series 2006-RP1 Class 1A3
8.000% due 01/25/36

    463      472

GSR Mortgage Loan Trust

        

Series 2004-7 Class 1A1
5.301% due 06/25/34

    613      612

Series 2004-11 Class 1A1
6.263% due 09/25/34

    608      609

Series 2004-12 Class 2A3
6.553% due 12/25/34

    803      810

Series 2005-AR6 Class 2A1 (Ê)

        

4.540% due 09/25/35

    3,955      3,922

Series 2005-AR7 Class 6A1

        

5.250% due 11/25/35

    2,731      2,617

Series 2006-1F Class 5A2

        

6.000% due 02/25/36

    563      559

Series 2006-OA1 Class 2A1 (Ê)

        

5.063% due 08/25/46

    1,908      1,873

Harborview Mortgage Loan Trust

        

Series 2005-2 Class 2A1A (Ê)

        

5.241% due 05/19/35

    160      158

Series 2005-4 Class 3A1

        

5.147% due 07/19/35

    2,039      2,030

Series 2005-5 Class 2A1B (Ê)

        

5.311% due 07/19/45

    399      388

Series 2005-10 Class 2A1A (Ê)

        

5.331% due 11/19/35

    2,233      2,202

Series 2005-10 Class 2A1B (Ê)

        

5.401% due 11/19/35

    744      725

Series 2005-14 Class 3A1A

        

5.301% due 12/19/35

    861      863

Series 2005-14 Class 5A1A

        

5.751% due 12/19/35

    3,765      3,680

Series 2005-15 Class 2A11 (Ê)

        

5.268% due 10/20/45

    1,683      1,637

Series 2005-16 Class 3A1A (Ê)

        

5.271% due 01/19/36

    6,766      6,640

Series 2005-16 Class 3A1B (Ê)

        

5.361% due 01/19/36

    887      867

Series 2006-1 Class 2A1A (Ê)

        

5.261% due 03/19/37

    1,209      1,188

Series 2006-9 Class 2A1A (Ê)

        

5.208% due 11/19/36

    2,258      2,209

132   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2006-10 Class 2A1A (Ê)

        

5.201% due 11/19/36

    2,542      2,493

Series 2006-10 Class 2A1B (Ê)

        

5.261% due 11/19/36

    2,966      2,891

Series 2006-12 Class 2A2A (Ê)

        

5.211% due 01/19/38

    16,193      15,874

Series 2006-14 Class 2A1A (Ê)

        

5.171% due 03/19/38

    7,439      7,284

Series 2006-14 Class 2A1B (Ê)

        

5.221% due 03/19/38

    1,848      1,798

Series 2007-1 Class 2A1A (Ê)

        

5.003% due 04/19/38

    1,498      1,469

Impac Secured Assets CMN Owner Trust (Ê)

        

Series 2005-2 Class A1

        

5.193% due 03/25/36

    1,481      1,450

Series 2006-4 Class A2A

        

4.953% due 01/25/37

    550      546

Indymac Index Mortgage Loan Trust

        

Series 2005-AR1 Class 4A1

        

5.377% due 08/25/35

    3,353      3,354

Series 2005-AR1 Class A1

        

5.443% due 09/25/35

    2,784      2,737

Series 2005-AR2 Class 1A21

        

5.847% due 12/25/35

    849      856

Series 2005-AR3 Class 1A1

        

5.171% due 01/25/36

    1,785      1,761

Series 2006-AR1 Class 1A1A (Ê)

        

4.963% due 11/25/46

    478      481

Series 2006-AR2 Class A2 (Ê)

        

4.953% due 11/25/36

    1,425      1,415

JP Morgan Chase Commercial Mortgage Securities Corp.

        

Series 2002-C1 Class A3

        

5.376% due 07/12/37

    1,610      1,613

Series 2002-C2 Class A2

        

5.050% due 12/12/34

    12,000      11,855

Series 2003-C1 Class A2

        

4.985% due 01/12/37

    1,618      1,589

Series 2004-LN2 Class A1

        

4.475% due 07/15/41

    3,955      3,881

Series 2005-LDP Class A2

        

4.851% due 08/15/42

    3,000      2,973

Series 2005-LDP Class A3A1

        

4.871% due 10/15/42

    3,620      3,566

Series 2005-LDP Class A4

        

4.918% due 10/15/42

    1,345      1,288

5.179% due 12/15/44

    5,980      5,867
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-CB1 Class A4

        

5.817% due 05/12/45

    3,435      3,414

Series 2006-LDP Class A3

        

5.336% due 05/15/47

    3,995      3,898

Series 2006-LDP Class A3B

        

5.447% due 05/15/45

    3,080      3,058

Series 2006-LDP Class A4

        

5.875% due 04/15/45

    3,355      3,429

5.561% due 05/15/45

    3,005      2,955

Series 2006-LDP Class AJ

        

5.875% due 04/15/45

    1,110      1,102

Series 2006-RR1 Class A1 (Þ)

        

5.455% due 10/18/52

    9,005      8,591

Series 2007-CB2 Class AJ

        

6.099% due 02/12/51

    1,055      1,078

Series 2007-LD1 Class A4

        

5.819% due 06/15/49

    8,375      8,578

Series 2007-LDP Class A3

        

5.393% due 01/15/49

    3,390      3,328

JP Morgan Mortgage Trust

        

Series 2005-A1 Class 4A1 (Ê)

        

4.779% due 02/25/35

    1,578      1,553

Series 2005-A1 Class 6T1 (Ê)

        

5.023% due 02/25/35

    970      942

Series 2005-A4 Class 1A1

        

5.399% due 07/25/35

    808      806

Series 2005-A4 Class 2A1

        

5.069% due 07/25/35

    6,827      6,767

Series 2005-A6 Class 1A2

        

5.138% due 09/25/35

    1,470      1,424

Series 2005-A8 Class 1A1

        

5.406% due 11/25/35

    8,288      8,149

Series 2007-A1 Class 1A1 (Ê)

        

4.200% due 07/25/35

    933      917

Series 2007-A1 Class 2A2 (Ê)

        

4.756% due 07/25/35

    893      883

Series 2007-A1 Class 4A2 (Ê)

        

4.070% due 07/25/35

    921      903

Series 2007-A1 Class 5A2 (Ê)

        

4.770% due 07/25/35

    889      877

Series 2007-A1 Class B1

        

4.816% due 07/25/35

    159      156

LB-UBS Commercial Mortgage Trust

        

Series 2001-C2 Class A2

        

6.653% due 11/15/27

    12,000      12,559

Series 2002-C1 Class A4

        

6.462% due 03/15/31

    65      68

Series 2003-C3 Class A1

        

2.599% due 05/15/27

    407      404

Multistrategy Bond Fund   133

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2004-C4 Class A3

        

4.972% due 06/15/29

    4,310      4,324

Series 2006-C1 Class A4

        

5.156% due 02/15/31

    4,000      3,887

Series 2006-C4 Class A4

        

5.883% due 06/15/38

    1,605      1,642

Series 2007-C1 Class A3

        

5.398% due 02/15/40

    2,400      2,372

Series 2007-C6 Class A4

        

5.858% due 07/15/40

    3,250      3,332

Lehman Brothers Floating Rate Commercial Mortgage Trust (Ê)

        

Series 2006-LLF Class A1 (Þ)

        

5.171% due 09/15/21

    153      153

Series 2006-LLF Class A2 (Å)

        

5.211% due 09/15/21

    1,738      1,732

Lehman Mortgage Trust

        

Series 2005-2 Class 2A3

        

5.500% due 12/25/35

    1,191      1,189

Series 2005-3 Class 1A3

        

5.500% due 01/25/36

    4,819      4,829

Lehman XS Trust (Ê)

        

Series 2005-5N Class 1A1

        

5.173% due 11/25/35

    906      888

Series 2005-5N Class 3A1A

        

5.173% due 11/25/35

    2,080      2,040

Series 2005-9N Class 1A1

        

5.143% due 02/25/36

    649      638

Series 2006-16N Class A4A

        

5.063% due 11/25/46

    3,592      3,455

Luminent Mortgage Trust (Ê)

        

Series 2006-1 Class A1

        

5.113% due 04/25/36

    1,706      1,678

Series 2006-5 Class A1A

        

5.063% due 07/25/36

    2,853      2,790

Series 2006-6 Class A1

        

5.073% due 10/25/46

    1,367      1,341

Mastr Adjustable Rate Mortgages Trust

        

Series 2004-10 Class 2A2

        

7.550% due 10/25/34

    20      21

Series 2004-13 Class 3A4 (Ê)

        

3.787% due 11/21/34

    2,300      2,274

Series 2005-1 Class B1

        

5.416% due 03/25/35

    1,241      1,236

Series 2005-6 Class 7A1

        

5.328% due 06/25/35

    508      507

Series 2005-7 Class 2A2

        

5.360% due 09/25/35

    2,489      2,463
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-1 Class I2A3 (Ê)

        

5.723% due 01/25/47

    3,660      3,577

Series 2006-2 Class 3A1

        

4.846% due 01/25/36

    750      740

Series 2006-2 Class 4A1

        

4.991% due 02/25/36

    5,349      5,317

Series 2006-OA2 Class 4A1A (Ê)

        

5.833% due 12/25/46

    3,513      3,418

Series 2006-OA2 Class 4A1B (Ê)

        

6.183% due 12/25/46

    12,890      12,740

Series 2007-3 Class 22A1 (Ê)

        

4.983% due 05/25/47

    2,092      2,078

Mastr Alternative Loans Trust

        

Series 2003-4 Class B1

        

5.674% due 06/25/33

    1,486      1,475

Series 2003-6 Class 3A1

        

8.000% due 09/25/33

    93      96

Series 2003-9 Class 1A1

        

5.500% due 12/25/18

    360      358

Series 2004-10 Class 5A6

        

5.750% due 09/25/34

    1,810      1,751

Series 2005-3 Class 7A1

        

6.000% due 04/25/35

    2,452      2,437

Mastr Asset Backed Securities Trust (Ê)

        

Series 2007-HE1 Class A1
4.953% due 05/25/37

    1,826      1,817

Mastr Asset Securitization Trust

        

Series 2003-7 Class 4A35 (Ê)

        

5.273% due 09/25/33

    2,682      2,654

Series 2003-11 Class 6A8 (Ê)

        

5.373% due 12/25/33

    3,372      3,344

Series 2004-4 Class 2A2 (Ê)

        

5.323% due 04/25/34

    655      653

Series 2005-2 Class 1A1

        

5.250% due 11/25/35

    1,291      1,259

Mastr Reperforming Loan Trust (Þ)

        

Series 2005-1 Class 1A5

        

8.000% due 08/25/34

    896      956

Series 2005-2 Class 1A4

        

8.000% due 05/25/35

    911      928

Mastr Specialized Loan Trust (Þ)

        

Series 2005-2 Class A2
5.006% due 07/25/35

    596      566

Mellon Residential Funding Corp. (Ê)

        

Series 2000-TBC Class A1
5.571% due 06/15/30

    858      847

Merrill Lynch Floating Trust (Ê)(Þ)

        

Series 2006-1 Class A1
5.161% due 06/15/22

    3,644      3,657

134   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Merrill Lynch Mortgage Investors, Inc.

        

Series 2005-A6 Class 2A1 (Ê)

        

4.993% due 08/25/35

    78      78

Series 2005-A8 Class A1B1

        

5.250% due 08/25/36

    1,746      1,744

Series 2005-A10 Class A (Ê)

        

5.083% due 02/25/36

    804      790

Merrill Lynch Mortgage Trust

        

Series 2002-MW1 Class J (Þ)

        

5.695% due 07/12/34

    365      332

Series 2004-MKB Class A2

        

4.353% due 02/12/42

    2,865      2,835

Series 2005-CIP Class A2

        

4.960% due 07/12/38

    225      224

Series 2005-CKI Class A6

        

5.244% due 11/12/37

    1,730      1,700

Series 2005-GGP Class E (Þ)

        

4.330% due 11/15/10

    185      185

Series 2005-GGP Class F (Þ)

        

4.351% due 11/15/10

    180      180

Series 2006-C1 Class A1

        

5.528% due 05/12/39

    2,333      2,346

MLCC Mortgage Investors, Inc. (Ê)

        

Series 2004-HB1 Class A2

        

5.750% due 04/25/29

    263      261

Series 2005-2 Class 3A

        

5.873% due 10/25/35

    307      304

Series 2005-3 Class 5A

        

5.123% due 11/25/35

    1,335      1,305

Morgan Stanley Capital I

        

Series 1999-FNV Class G (Þ)

        

6.120% due 03/15/31

    500      496

Series 2005-IQ1 Class AAB

        

5.178% due 09/15/42

    3,305      3,265

Series 2006-HQ1 Class A4

        

5.328% due 11/12/41

    1,615      1,581

Series 2006-HQ8 Class A4

        

5.388% due 03/12/44

    3,895      3,867

Series 2006-HQ9 Class A4

        

5.731% due 07/12/44

    2,124      2,139

Series 2007-IQ1 Class A2

        

5.610% due 04/15/49

    4,000      4,022

Morgan Stanley Dean Witter Capital I

        

Series 2001-TOP Class A3

        

6.200% due 07/15/33

    166      166

Series 2001-TOP Class E (Þ)

        

7.331% due 02/15/33

    180      181

Morgan Stanley Mortgage Loan Trust

        

Series 2006-2 Class 6A
6.500% due 02/25/36

    2,543      2,558
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Nomura Asset Acceptance Corp.

        

Series 2005-WF1 Class 2A2

        

4.786% due 03/25/35

    1,405      1,370

Series 2006-AF1 Class 1A2

        

6.159% due 05/25/36

    2,105      2,090

Nomura Asset Securities Corp.

        

Series 1998-D6 Class A1B
6.590% due 03/15/30

    620      622

Prime Mortgage Trust

        

Series 2004-CL1 Class 1A1

        

6.000% due 02/25/34

    345      347

Series 2004-CL1 Class 1A2 (Ê)

        

5.273% due 02/25/34

    146      144

Series 2004-CL1 Class 2A2 (Ê)

        

5.273% due 02/25/19

    36      36

Renaissance Home Equity Loan Trust

        

Series 2006-3 Class AF1
5.917% due 11/25/36

    5,032      5,009

Residential Accredit Loans, Inc.

        

Series 2004-QS5 Class A1

        

4.600% due 04/25/34

    1,140      1,098

Series 2004-QS5 Class A5

        

4.750% due 04/25/34

    798      772

Series 2004-QS5 Class A6 (Ê)

        

5.473% due 04/25/34

    368      365

Series 2004-QS8 Class A4 (Ê)

        

5.273% due 06/25/34

    2,455      2,441

Series 2005-QA1 Class A41

        

5.681% due 09/25/35

    1,391      1,389

Series 2005-QA8 Class NB3

        

5.479% due 07/25/35

    1,794      1,794

Series 2005-QO4 Class 2A1 (Ê)

        

5.153% due 12/25/45

    2,637      2,577

Series 2005-QO5 Class A1 (Ê)

        

5.983% due 01/25/46

    4,788      4,701

Series 2006-QO1 Class 1A1 (Ê)

        

5.133% due 02/25/46

    508      501

Series 2006-QO1 Class 2A1 (Ê)

        

5.143% due 02/25/46

    534      526

Series 2006-QS4 Class A11

        

6.000% due 04/25/36

    1,070      1,071

Series 2006-QS6 Class 1A13

        

6.000% due 06/25/36

    4,403      4,426

Series 2007-QH9 Class A1

        

6.550% due 11/25/37

    13,000      13,103

Series 2007-QO3 Class SB (Þ)
Interest Only STRIP
2.557% due 03/25/47

    578      23

Multistrategy Bond Fund   135

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2007-QO4 Class A1 (Ê)

        

5.073% due 05/25/47

    8,347      8,181

Series 2007-QO4 Class SB (Þ)
Interest Only STRIP
9.100% due 05/25/47

    530      23

Residential Asset Mortgage Products, Inc.

        

Series 2004-SL1 Class A3

        

7.000% due 11/25/31

    92      94

Series 2004-SL4 Class A3

        

6.500% due 07/25/32

    371      381

Residential Asset Securities Corp. (Ê)

        

Series 2003-KS4 Class AIIB
5.453% due 06/25/33

    341      337

Residential Asset Securitization Trust

        

Series 2003-A15 Class 1A2 (Ê)

        

5.323% due 02/25/34

    2,792      2,781

Series 2007-A5 Class 2A3

        

6.000% due 05/25/37

    1,786      1,795

Series 2007-A9 Class A6

        

6.250% due 08/25/13

    10,202      10,294

Residential Funding Mortgage Securities I

        

Series 2003-S5 Class 1A2 (Ê)

        

5.323% due 11/25/18

    1,007      1,007

Series 2003-S14 Class A5 (Ê)

        

5.273% due 07/25/18

    2,064      2,055

Series 2003-S20 Class 1A7 (Ê)

        

5.373% due 12/25/33

    232      230

Series 2005-SA4 Class 1A21

        

5.216% due 09/25/35

    2,429      2,425

Series 2005-SA4 Class 2A1

        

5.207% due 09/25/35

    5,985      5,935

Series 2005-SA4 Class 2A2

        

5.185% due 09/25/35

    3,987      3,917

Series 2006-SA3 Class 3A1

        

6.040% due 09/25/36

    1,434      1,453

Series 2006-SA4 Class 2A1

        

6.119% due 11/25/36

    6,555      6,617

SBA CMBS Trust (Þ)

        

Series 2006-1A Class B
5.451% due 11/15/36

    2,060      2,062

Sequoia Mortgage Trust (Ê)

        

Series 2004-3 Class A
5.670% due 04/20/34

    2,373      2,350

Small Business Administration

        

Series 1999-P10 Class 1

        

7.540% due 08/10/09

    264      271
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2000-10B Class 1

        

7.452% due 09/01/10

    200      207

Small Business Administration Participation Certificates

        

Series 2004-20F Class 1

        

5.520% due 06/01/24

    319      324

Series 2005-20G Class 1

        

4.750% due 07/01/25

    2,636      2,567

Structured Adjustable Rate Mortgage Loan Trust

        

Series 2004-5 Class 3A1

        

4.380% due 05/25/34

    2,516      2,475

Series 2004-12 Class 3A2

        

5.250% due 09/25/34

    1,097      1,095

Series 2004-16 Class 3A1

        

5.450% due 11/25/34

    4,600      4,603

Series 2004-18 Class 5A

        

5.500% due 12/25/34

    438      438

Series 2004-20 Class 3A1

        

5.348% due 01/25/35

    2,754      2,744

Series 2005-19X Class 1A1 (Ê)

        

5.193% due 10/25/35

    865      852

Series 2005-22 Class 4A2

        

5.373% due 12/25/35

    126      125

Series 2006-1 Class 2A3

        

5.620% due 02/25/36

    1,865      1,873

Series 2006-1 Class 5A2

        

5.250% due 02/25/36

    6,000      6,019

Series 2006-5 Class 5A4

        

5.544% due 06/25/36

    307      306

Structured Asset Mortgage Investments, Inc.

        

Series 2005-AR8 Class A2 (Ê)

        

6.413% due 02/25/36

    3,554      3,554

Series 2006-AR1 Class 3A1 (Ê)

        

5.103% due 02/25/36

    759      743

Series 2006-AR3 Class 3A1 (Ê)

        

5.063% due 02/25/36

    663      648

Series 2006-AR6 Class 1A3 (Ê)

        

5.063% due 07/25/36

    1,860      1,808

Series 2006-AR8 Class A1A (Ê)

        

5.073% due 10/25/36

    7,769      7,595

Series 2007-AR4 Class A4A (Ê)

        

5.053% due 09/25/47

    6,457      6,268

Series 2007-AR6 Class A1 (Ê)

        

6.433% due 11/25/37

    12,000      11,970

Structured Asset Securities Corp.

        

Series 2002-22H Class 1A

        

6.943% due 11/25/32

    85      86

136   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2003-26A Class 3A4

        

4.500% due 09/25/33

    769      764

Series 2003-26A Class 3A5

        

4.530% due 09/25/33

    2,000      1,988

Series 2004-5H Class A2

        

4.430% due 12/25/33

    23      23

Series 2004-12H Class 1A

        

6.000% due 05/25/34

    358      359

Series 2004-21X Class 1A3

        

4.440% due 12/25/34

    3,658      3,633

Series 2005-6 Class B2

        

5.345% due 05/25/35

    280      218

Thornburg Mortgage Securities Trust (Ê)

        

Series 2003-2 Class A1

        

5.213% due 04/25/43

    1,398      1,398

Series 2006-5 Class A1

        

4.993% due 08/25/36

    4,760      4,689

Series 2006-6 Class A1

        

4.983% due 12/25/36

    1,756      1,735

Wachovia Bank Commercial Mortgage Trust

        

Series 2005-C16 Class A2

        

4.380% due 10/15/41

    3,926      3,867

Series 2005-C20 Class A4

        

5.244% due 07/15/42

    5,000      5,003

Series 2005-C21 Class A4

        

5.210% due 10/15/44

    4,000      3,923

Series 2006-C28 Class A2

        

5.500% due 10/15/48

    1,510      1,515

Series 2006-WL7 Class A1 (Ê)(Þ)

        

5.181% due 09/15/21

    11,210      11,174

Series 2007-C31 Class A2

        

5.421% due 04/15/47

    4,000      3,991

Series 2007-WHL Class A1 (Ê)(Þ)

        

5.171% due 06/15/20

    3,379      3,335

Washington Mutual Alternative Mortgage Pass-Through Certificates

        

Series 2005-4 Class CB11

        

5.500% due 06/25/35

    980      948

Series 2005-9 Class 3CB

        

5.500% due 10/25/20

    624      621

Series 2006-2 Class 2CB

        

6.500% due 03/25/36

    844      853

Series 2006-5 Class 2CB3

        

6.000% due 07/25/36

    1,645      1,661

Series 2006-AR2 Class A1A (Ê)

        

5.873% due 04/25/46

    1,493      1,465

Series 2006-AR5 Class 3A (Ê)

        

5.923% due 07/25/46

    913      846
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2006-AR6 Class 1A (Ê)

        

5.063% due 07/25/46

    819      804

Series 2006-AR7 Class A1A (Ê)

        

5.853% due 09/25/46

    861      868

Series 2006-AR8 Class 2A (Ê)

        

5.783% due 10/25/46

    3,235      3,138

Series 2006-AR9 Class 2A (Ê)

        

5.773% due 11/25/46

    3,551      3,427

Series 2007-OA1 Class 2A (Ê)

        

5.653% due 12/25/46

    18,247      17,895

Washington Mutual Mortgage Pass Through Certificates

        

Series 2002-AR9 Class 1A (Ê)

        

6.333% due 08/25/42

    303      304

Series 2003-S9 Class A2 (Ê)

        

5.423% due 10/25/33

    2,748      2,731

Series 2004-AR1 Class X

        

Interest Only STRIP

        

0.538% due 07/25/44

    934      18

Series 2004-AR3 Class A2

        

4.243% due 06/25/34

    3,210      3,167

Series 2004-AR4 Class A2

        

2.980% due 06/25/34

    3      3

Series 2004-AR8 Class X

        

Principal Only STRIP

        

Zero coupon due 06/25/44

    229      4

Series 2004-CB3 Class 1A

        

6.000% due 10/25/34

    315      313

Series 2004-CB3 Class 4A

        

6.000% due 10/25/19

    642      649

Series 2005-AR1 Class 1A1

        

4.834% due 10/25/35

    2,201      2,181

Series 2005-AR1 Class A1A (Ê)

        

5.825% due 08/25/45

    1,366      1,338

Series 2005-AR1 Class A1A1 (Ê)

        

5.163% due 10/25/45

    3,729      3,663

5.765% due 11/25/45

    1,485      1,461

Series 2005-AR1 Class A1A2 (Ê)

        

5.153% due 11/25/45

    1,188      1,161

5.163% due 12/25/45

    1,935      1,892

Series 2005-AR1 Class A1B1 (Ê)

        

5.163% due 08/25/45

    99      99

5.133% due 10/25/45

    235      234

5.123% due 11/25/45

    387      386

5.123% due 12/25/45

    473      470

Series 2005-AR6 Class B3 (Ê)

        

5.533% due 04/25/45

    1,552      1,537

Series 2005-AR8 Class 2A1A (Ê)

        

5.163% due 07/25/45

    801      782

Multistrategy Bond Fund   137

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2005-AR8 Class 2AB3 (Ê)

        

5.233% due 07/25/45

    641      630

Series 2006-AR1 Class 1A1

        

5.943% due 09/25/36

    1,441      1,448

Series 2006-AR1 Class 1A4

        

5.647% due 11/25/36

    7,009      6,986

Series 2006-AR1 Class 2A (Ê)

        

6.433% due 09/25/46

    657      652

Series 2006-AR1 Class 3A1A (Ê)

        

5.853% due 09/25/46

    822      798

Series 2006-AR2 Class 1A1

        

5.314% due 03/25/37

    10,645      10,568

Series 2006-AR4 Class 1A1B (Ê)

        

5.873% due 05/25/46

    —      —

Series 2006-AR7 Class 1A (Ê)

        

5.963% due 07/25/46

    1,658      1,664

Series 2006-AR7 Class 2A (Ê)

        

5.913% due 07/25/46

    8,231      8,135

Series 2006-AR8 Class 1A5

        

5.892% due 08/25/46

    251      252

Series 2006-AR8 Class 2A3 (Ê)

        

6.133% due 08/25/46

    173      176

Series 2007-HY1 Class 1A1

        

5.718% due 02/25/37

    7,083      7,093

Series 2007-HY2 Class 3A1

        

5.941% due 09/25/36

    4,268      4,319

Series 2007-HY3 Class 4A1

        

5.349% due 03/25/37

    17,457      17,362

Series 2007-HY3 Class 4B1

        

5.349% due 03/25/37

    1,473      1,418

Series 2007-HY4 Class 1A1 (Ê)

        

5.559% due 04/25/37

    2,123      2,112

Series 2007-OA2 Class 1A (Ê)

        

5.633% due 03/25/47

    1,764      1,717

Wells Fargo Mortgage Backed Securities Trust

        

Series 2003-8 Class A3

        

4.500% due 08/25/18

    235      234

Series 2004-AA Class A1 (Ê)

        

4.995% due 12/25/34

    2,354      2,322

Series 2004-CC Class A1 (Ê)

        

4.950% due 01/25/35

    3,146      3,081

Series 2004-E Class A2 (Ê)

        

4.500% due 05/25/34

    2,118      2,044

Series 2004-T Class A1 (Ê)

        

6.081% due 09/25/34

    287      287

Series 2005-12 Class 1A7

        

5.500% due 11/25/35

    1,511      1,469
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 2005-14 Class 2A1

        

5.500% due 12/25/35

    2,446      2,391

Series 2005-17 Class 1A1

        

5.500% due 01/25/36

    2,043      1,996

Series 2005-17 Class 1A2

        

5.500% due 01/25/36

    1,188      1,154

Series 2005-17 Class 2A1

        

5.500% due 01/25/36

    8,154      7,912

Series 2005-18 Class 1A1

        

5.500% due 01/25/36

    7,417      7,192

Series 2005-AR6 Class A1 (Ê)

        

5.040% due 04/25/35

    11,474      11,105

Series 2006-1 Class A3

        

5.000% due 03/25/21

    1,350      1,315

Series 2006-2 Class 2A3

        

5.500% due 03/25/36

    3,549      3,537

Series 2006-2 Class 3A1

        

5.750% due 03/25/36

    8,794      8,574

Series 2006-4 Class 1A8

        

5.750% due 04/25/36

    825      833

Series 2006-4 Class 2A3

        

5.750% due 04/25/36

    638      630

Series 2006-7 Class 2A1

        

6.000% due 06/25/36

    453      453

Series 2006-9 Class 1A14

        

6.000% due 08/25/36

    767      765

Series 2006-AR1 Class 1A2 (Ê)

        

6.025% due 09/25/36

    743      743

Series 2006-AR1 Class 2A2

        

5.720% due 11/25/36

    944      947

Series 2006-AR1 Class 2A4 (Ê)

        

6.089% due 10/25/36

    1,219      1,235

Series 2006-AR1 Class 5A1 (Ê)

        

5.597% due 07/25/36

    1,375      1,375

Series 2006-AR1 Class A1

        

5.730% due 12/25/36

    4,237      4,234

Series 2006-AR1 Class A7

        

5.517% due 08/25/36

    1,703      1,693

Series 2006-AR2 Class 2A1

        

4.950% due 03/25/36

    2,615      2,588

Series 2006-AR4 Class 1A1 (Ê)

        

5.857% due 04/25/36

    1,869      1,849

Series 2006-AR4 Class 2A1 (Ê)

        

5.774% due 04/25/36

    3,209      3,160

Series 2006-AR5 Class 2A1 (Ê)

        

5.533% due 04/25/36

    442      444

Series 2006-AR6 Class 7A1 (Ê)

        

5.114% due 03/25/36

    8,171      7,941

138   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

Series 2007-8 Class 1A16

        

6.000% due 07/25/37

    4,566      4,536

Series 2007-10 Class 2A5

        

6.250% due 07/25/37

    2,290      2,317

Series 2007-14 Class 1A1

        

6.000% due 10/25/37

    5,275      5,225

Zuni Mortgage Loan Trust (Ê)

        

Series 2006-OA1 Class A1
5.003% due 08/25/36

    2,320      2,305
         
        3,520,201
         

Municipal Bonds - 0.1%

        

Badger TOB Asset Securitization Corp. Revenue Bonds
weekly demand
6.375% due 06/01/32

    700      726

New Jersey Economic Development Authority Revenue Bonds
weekly demand
5.750% due 06/15/34

    745      776

New York State Urban Development Corp. Revenue Bonds (µ)
weekly demand
5.250% due 03/15/34

    540      570

State of California General Obligation Unlimited

        

5.000% due 02/01/33

    270      273

5.000% due 02/01/33 (æ)

    100      108

State of Illinois General Obligation Unlimited
5.100% due 06/01/33

    480      455

State of Texas General Obligation Unlimited
weekly demand
4.750% due 04/01/35

    450      450

Tobacco Settlement Authority of Iowa Revenue Bonds
weekly demand
6.500% due 02/20/23

    385      369

Tobacco Settlement Finance Authority of West Virginia Revenue Bonds
7.467% due 06/01/47

    3,425      3,385

Tobacco Settlement Financing Corp. Revenue Bonds
weekly demand
5.500% due 06/01/26

    1,500      1,638

West Virginia Economic Development Authority Revenue Bonds (m)
5.370% due 07/01/20

    200      198
         
        8,948
         
    Principal
Amount ($)
or Shares		     

Market

Value

$

Non-US Bonds - 1.4%

         

Arab Republic of Egypt (Å)
8.750% due 07/18/12

   EGP   4,920      918

Argentina Bocon
Series PR12
2.000% due 01/03/16

   ARS   15,496      6,963

Argentina Bonos
Series $ V
10.500% due 06/12/12

   ARS   9,350      2,470

Argentina Government International Bond

         

Series dis
5.830% due 12/31/33

   ARS   1,919      764

Barclays Bank PLC (Ê)(Þ)
4.860% due 05/19/15

   BRL   25,000      22,466

Bombardier, Inc.
7.250% due 11/15/16

   EUR   375      555

Byggingarsjodur Verkamanna

         

Series 2
3.750% due 04/15/34

   ISK   234,274      3,328

Series 3
3.750% due 06/15/44

   ISK   453,556      6,465

Colombia Government International Bond

         

12.000% due 10/22/15

   COP   2,316,000      1,319

European Investment Bank
2.160% due 01/18/27

   JPY   472,600      4,091

Federative Republic of Brazil

         

12.500% due 01/05/22

   BRL   1,516      1,424

10.250% due 01/10/28

   BRL   23,264      13,493

Hellas Telecommunications Luxembourg V (Ê)

         

Series REGS
8.232% due 10/15/12

   EUR   1,000      1,449

Ineos Group Holdings PLC

         

Series REGS
7.875% due 02/15/16

   EUR   1,000      1,333

Mexican Bonos

         

Series M 10
8.000% due 12/17/15

   MXN   7,833      740

Series M 20
10.000% due 12/05/24

   MXN   21,290      2,384

Series MI10
9.500% due 12/18/14

   MXN   6,295      642

New South Wales Treasury Corp.

         

Series 12RG
6.000% due 05/01/12

   AUD   5,260      4,702

Province of Quebec Canada
5.000% due 12/01/15

   CAD   4,929      5,323

Multistrategy Bond Fund   139

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    Principal
Amount ($)
or Shares		     

Market

Value

$

        

Republic of Colombia
9.850% due 06/28/27

   COP   11,273,000      5,866

Rhodia SA (Ê)

         

Series REGS
7.482% due 10/15/13

   EUR   1,250      1,797

Santa Fe de Bogota DC (Þ)
9.750% due 07/26/28

   COP   2,056      2,019

TELUS Corp.

         

Series CD
4.950% due 03/15/17

   CAD   1,095      1,070
          
         91,581
          

United States Government Agencies - 1.3%

     

Fannie Mae

         

4.150% due 09/10/09 (Ñ)

     12,000      11,959

7.250% due 01/15/10 (Ñ)

     3,025      3,208

3.875% due 02/15/10

     5,035      4,986

4.750% due 04/20/10 (Ñ)

     7,620      7,688

4.375% due 06/21/10

     8,000      7,998

5.050% due 02/07/11

     6,600      6,722

Zero coupon due 10/09/19

     1,960      1,059

Federal Home Loan Bank (Ñ)
5.375% due 08/19/11

     1,240      1,276

Federal Home Loan Bank System
5.310% due 12/28/12 (Ñ)

     5,500      5,663

Series VX10
4.200% due 05/07/10

     9,000      8,927

Financing Corp.

         

Principal Only STRIP

         

Series 1

         

Zero coupon due 05/11/16

     400      266

Series 2P

         

Zero coupon due 11/30/17

     330      202

Series 3P

         

Zero coupon due 11/30/17

     885      542

Series 5P

         

Zero coupon due 02/08/18

     490      297

Series 6P

         

Zero coupon due 08/03/18

     2,355      1,387

Series 8P

         

Zero coupon due 08/03/18

     4,660      2,745

Series 9P

         

Zero coupon due 10/06/17

     2,315      1,430

Series 10P

         

Zero coupon due 11/30/17

     3,865      2,367

Series 12P

         

Zero coupon due 12/06/18

     1,770      1,022

Series 13

         

Zero coupon due 12/27/16

     2,055      1,319
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Series 13P

        

Zero coupon due 12/27/18

    11,060      6,362

Series 15P

        

Zero coupon due 03/07/19

    525      299

Series 16P

        

Zero coupon due 04/05/19

    2,320      1,314

Series 19

        

Zero coupon due 06/06/16

    1,185      785

Series A-P

        

Zero coupon due 10/06/17

    345      213

Series B-P

        

Zero coupon due 04/06/18

    785      471

Series C-P

        

Zero coupon due 11/30/17

    1,820      1,115

Series D-P

        

Zero coupon due 09/26/19

    1,340      740

Series E-P

        

Zero coupon due 11/02/18

    855      496

Freddie Mac

        

5.000% due 06/11/09

    395      399
         
        83,257
         

United States Government Treasuries - 3.5%

United States Treasury Inflation Indexed Bonds

        

0.875% due 04/15/10 (Ñ)

    34,586      33,791

2.375% due 04/15/11 (Ñ)

    3,060      3,107

3.375% due 01/15/12 (Ñ)

    7,126      7,556

2.000% due 04/15/12

    4,406      4,417

2.000% due 01/15/14

    1,607      1,606

2.000% due 07/15/14 (Ñ)

    48,551      48,535

2.375% due 01/15/17

    228      233

2.625% due 07/15/17 (Ñ)

    6,076      6,348

2.375% due 01/15/25

    2,544      2,598

2.000% due 01/15/26

    1,681      1,623

2.375% due 01/15/27

    3,825      3,924

3.625% due 04/15/28

    773      952

United States Treasury Notes

        

4.750% due 12/31/08 (Ñ)

    37,185      37,493

4.250% due 09/30/12

    260      261

4.125% due 10/31/12

    210      207

12.000% due 08/15/13 (Ñ)

    315      334

13.250% due 05/15/14

    510      579

12.500% due 08/15/14 (Ñ)

    605      693

4.250% due 11/15/14 (Ñ)

    2,655      2,646

4.250% due 08/15/15 (Ñ)

    4,160      4,129

5.125% due 05/15/16 (Ñ)

    90      94

4.875% due 08/15/16 (Ñ)

    590      609

140   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

4.625% due 11/15/16 (Ñ)

    80      81

4.625% due 02/15/17 (Ñ)

    70      71

8.750% due 05/15/17 (Ñ)

    1,545      2,048

4.750% due 08/15/17 (Ñ)

    75      77

7.125% due 02/15/23 (Ñ)

    6,600      8,271

6.000% due 02/15/26 (Ñ)

    31,380      35,930

4.750% due 02/15/37 (Ñ)

    12,255      12,248

5.000% due 05/15/37 (Ñ)

    4,350      4,523

United States Treasury Principal (Ñ)

        

Zero coupon due 11/15/21

    5      3
         
        224,987
         
Total Long-Term Investments        

(cost $6,315,551)

         6,308,542
         
Common Stocks - 1.0%        

Financial Services - 1.0%

        

Emerging Market Local Currency Fund (Æ)

    2,273,059      28,958

Pacific Investment Management Co. Series High Yield Portfolio Institutional

    4,265,999      36,601
         
Total Common Stocks        

(cost $61,834)

         65,559
         
Preferred Stocks - 0.1%        

Financial Services - 0.1%

        

Deutsche Bank Contingent Capital Trust II (Æ)

    82,250      1,974

DG Funding Trust (Æ)(Å)

    361      3,798

Harborview NIM Corp. (Æ)(Þ)

    14,173      781
         
        6,553
         

Producer Durables - 0.0%

        

Nexen, Inc. (Æ)

    15,695      387
         
Total Preferred Stocks        

(cost $7,182)

         6,940
         
Warrants & Rights - 0.0%        

Materials and Processing - 0.0%

     

Solutia, Inc. (Æ)(Þ)
2009 Warrants

    850      —
         
Total Warrants & Rights        

(cost $73)

         —
         
         

Notional
Amount

     

Market

Value

$

Options Purchased - 0.1%

        

(Number of Contracts)

           

Euro-Bund Futures

           

Sep 2008 92.50 Put (1,308)

    USD    302,475      8

Eurodollar Futures

           

Dec 2007 91.25 Put (608)

    USD    138,700      4

Sep 2008 92.25 Put (615)

    USD    141,834      4

Mar 2008 91.75 Put (1,500)

    USD    344,063      9

Mar 2008 92.25 Put (2,723)

    USD    627,992      17

Jun 2008 92.75 Put (472)

    USD    109,445      3

Mar 2008 93.00 Put (436)

    USD    101,370      3

Jun 2008 92.50 Put (500)

    USD    115,625      3

Swaptions

           

(Fund Pays/Fund Receives)

           

USD Three Month LIBOR/USD 4.750%
Feb 2008 0.00 Call

       32,000      101

USD Three Month LIBOR/USD 5.000%
Feb 2008 0.00 Call

       47,700      466

USD Three Month LIBOR/USD 4.750%
Mar 2008 0.00 Call (2)

       95,700      683

USD Three Month LIBOR/USD 4.750%
Sep 2008 0.00 Call (3)

       98,500      814

USD Three Month LIBOR/USD 4.750%
Dec 2008 0.00 Call

       49,600      416

USD Three Month LIBOR/USD
5.000%
Dec 2008 0.00 Call

       125,500      1,362

USD Three Month LIBOR/USD 5.200%
Feb 2009 0.00 Call

       39,000      505

United States Treasury Bonds

           

Nov 2007 105.00 Put (1,400)

    USD    147,000      22

United States Treasury Notes 5 Year Futures

           

Nov 2007 106.00 Call (199)

    USD    21,094      159

Nov 2007 109.00 Call (612)

    USD    66,708      38
            
Total Options Purchased           

(cost $2,722)

            4,617
            

Multistrategy Bond Fund   141

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       
Short-Term Investments - 17.1%        

Abbey National Treasury Services PLC
5.074% due 07/02/08

    2,800      2,799

ALROSA Finance SA
8.125% due 05/06/08

    4,240      4,276

American Express Bank (Ê)

        

Series BKNT
5.070% due 10/16/08

    3,000      2,992

American Express Centurion Bank (Ê)

        

Series BKNT
5.122% due 05/07/08

    800      799

AT&T, Inc. (Ê)
5.648% due 05/15/08

    3,300      3,298

Avista Corp.
9.750% due 06/01/08

    1,045      1,071

AXA Financial, Inc.
6.500% due 04/01/08

    325      327

Barclays Bank PLC
5.704% due 03/17/08

    5,500      5,502

BellSouth Corp. (Ê)
5.658% due 08/15/08

    1,300      1,299

Campbell Soup Co.
5.875% due 10/01/08

    130      131

Caterpillar Financial Services Corp.

        

Series MTNF
3.625% due 11/15/07

    160      160

CIT Group, Inc.
3.650% due 11/23/07

    260      260

Citigroup Funding, Inc.

        

Zero coupon due 11/15/07

    3,010      3,403

Zero coupon due 07/17/08

    385      522

Citigroup Global Markets Deutschland for Tyumen Oil Co.

        

Series REGS
11.000% due 11/06/07

    1,175      1,175

Citigroup Global Markets Holdings, Inc. (Ê)

        

Series MTNM
5.760% due 03/07/08

    3,100      3,102

Citigroup, Inc.

        

4.200% due 12/20/07

    3,600      3,596

3.500% due 02/01/08

    4,645      4,627

Clear Channel Communications, Inc.
4.625% due 01/15/08

    625      622

Clorox Co. (Ê)
5.828% due 12/14/07

    705      706

Comcast LCI Holdings
7.625% due 02/15/08

    100      101
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Constellation Brands, Inc.

        

Series B
8.000% due 02/15/08

    835      835

Countrywide Home Loans, Inc.
3.250% due 05/21/08 (Ñ)

    680      646

Series MTNK (Ñ)
4.250% due 12/19/07

    750      741

CSC Holdings, Inc.
7.250% due 07/15/08

    1,500      1,504

Daimler Finance NA LLC
4.750% due 01/15/08

    300      300

Delphi Corp. Term Loan C
7.875% due 12/31/07

    400      398

Dexia Credit SA
5.079% due 09/29/08

    11,300      11,293

Dominion Resources, Inc.

        

Series A
5.687% due 05/15/08

    1,675      1,677

Dresdner Bank AG (Þ)
Zero coupon due 01/24/08

    2,885      2,854

El Paso Corp. (Ñ)
6.950% due 12/15/07

    2,600      2,603

Entergy Gulf States, Inc.
3.600% due 06/01/08

    235      232

Fannie Mae
4.200% due 03/24/08 (Ñ)

    11,000      10,976

3.500% due 03/28/08

    1,925      1,916

2.500% due 06/15/08

    3,460      3,416

Fannie Mae REMICS

        

Series 1993-134 Class H
6.500% due 08/25/08

    117      117

Federal Home Loan Bank System
4.800% due 05/02/08 (Ñ)

    18,000      18,014

Series 577 (Ñ)
4.500% due 09/26/08

    16,900      16,897

Series IY08
3.400% due 03/18/08

    6,000      5,971

Zero coupon due 11/08/07 (ç)(§)(ž)

    7,160      7,154

Fortis Bank
5.074% due 09/30/08

    2,900      2,898

Fortis Bank SA - NY (Ê)

        

Series YCD
4.738% due 06/30/08

    2,700      2,696

Freddie Mac
3.450% due 03/12/08

    6,000      5,973

Galleon Capital Corp.
5.320% due 11/01/07

    16,965      16,965

142   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    Principal
Amount ($)
or Shares		     

Market

Value

$

        

Gazinvest Luxembourg SA for Gazprombank
7.250% due 10/30/08

     2,300      2,311

General Electric Capital Corp.

         

Series MTNA (Ê)

         

5.696% due 01/15/08

     700      700

5.111% due 07/28/08

     2,000      2,001

Greater Bay Bancorp

         

Series B
5.250% due 03/31/08

     900      901

Harley-Davidson Motorcycle Trust

         

Series 2007-2 Class A1
5.310% due 05/15/08

     1,630      1,630

HSBC Finance Corp. (Ê)
5.824% due 09/15/08

     4,500      4,498

JC Penney Corp., Inc.
7.375% due 08/15/08

     1,550      1,574

JetBlue Airways Corp. (Ê)

         

Series 04-1
9.944% due 03/15/08

     2,285      2,287

John Deere Capital Corp. (Ê)
5.293% due 07/15/08

     800      800

Kansas City Southern Railway
9.500% due 10/01/08

     4,000      4,090

Kingdom of the Netherlands
Zero coupon due 12/19/07

   EUR   1,500      2,162

Knight Ridder, Inc.
6.625% due 11/01/07

     2,400      2,400

Lehman Brothers Holdings, Inc. (Ê)
5.270% due 10/22/08

     1,800      1,791

Mandalay Resort Group
9.500% due 08/01/08

     465      477

MBNA Corp. (Ê)

         

Series MTNF
3.590% due 05/05/08

     780      782

Merrill Lynch & Co., Inc. (Ê)
5.794% due 06/16/08

     6,800      6,781

Morgan Stanley (Ê)

         

Series MTNF
5.334% due 01/18/08

     1,400      1,400

Nordea Bank Finland PLC
5.443% due 05/28/08

     1,700      1,699

Owens-Illinois, Inc.
7.350% due 05/15/08

     650      653

Platinum Underwriters Holdings, Ltd.

         

Series B
6.371% due 11/16/07

     405      405
    

Principal

Amount ($)

or Shares

     

Market

Value

$

Popular NA, Inc.
4.250% due 04/01/08

    545      543

Series MTNE
3.875% due 10/01/08

    1,600      1,577

PSEG Energy Holdings LLC
8.625% due 02/15/08

    94      95

Rabobank USA Financial Corp.
4.810% due 11/01/07

    13,700      13,700

Residential Capital LLC (Ê)
6.224% due 06/09/08

    3,540      3,168

Royal Bank of Scotland
5.265% due 03/26/08

    400      400

Royal Bank of Scotland PLC (The) (Ê)(Þ)
5.230% due 07/21/08

    800      800

Russell Investment Company
Money Market Fund

    810,004,000      810,004

Santander US Debt SA Unipersonal (Ê)(Þ)
5.298% due 09/19/08

    4,300      4,297

Skandinaviska Enskilda Banken
5.340% due 08/21/08

    3,000      2,999

SLM Corp. (Ê)

        

Series MTNA
5.294% due 07/25/08

    6,200      6,125

Societe Generale
5.271% due 06/30/08

    6,900      6,901

Transocean, Inc. (Ê)
5.869% due 09/05/08

    2,000      1,996

UBS Financial Del LLC
5.245% due 11/02/07

    800      800

Unicredit Luxembourg Finance SA (Ê)(Å)
5.143% due 10/24/08

    5,610      5,597

Unicredito Italiano NY (Ê)

        

Series YCD
5.350% due 05/06/08

    6,300      6,292

Unicredito Italiano SpA
5.346% due 05/29/08

    2,800      2,804

Union Pacific Corp.
6.625% due 02/01/08

    265      266

Series MTNE
6.790% due 11/09/07

    110      110

United States Treasury Bills (ç)(§)(z)

        

3.895% due 11/29/07

    500      499

3.972% due 11/29/07

    3,890      3,878

4.734% due 11/29/07

    4,660      4,643

Multistrategy Bond Fund   143

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value

$

       

4.740% due 11/29/07

    500      498

3.771% due 12/13/07 (Ñ)

    500      498

3.859% due 12/13/07 (Ñ)

    500      498

3.864% due 12/13/07 (Ñ)

    800      796

3.889% due 12/13/07 (Ñ)

    400      398

3.890% due 12/13/07 (Ñ)

    500      498

3.916% due 12/13/07 (Ñ)

    600      597

3.921% due 12/13/07 (Ñ)

    760      757

3.947% due 12/13/07 (Ñ)

    250      249

3.983% due 12/13/07 (Ñ)

    750      747

3.734% due 12/27/07

    1,200      1,193

3.908% due 12/27/07

    150      149

3.935% due 12/27/07

    70      70

4.017% due 12/27/07

    150      149

4.273% due 12/27/07

    100      99

5.036% due 01/10/08 (Ñ)

    1,000      976

United States Treasury Notes (Ñ)

        

3.000% due 02/15/08

    130      130

3.375% due 02/15/08

    300      299

VTB Capital SA for Vneshtorgbank

        

5.956% due 08/01/08 (Ê)(þ)

    3,200      3,168

Series REGS (Ê)

        

5.956% due 08/01/08

    1,840      1,822

Wachovia Bank NA (Ê)
Series BKNT
5.190% due 06/27/08

    800      799

Wachovia Corp. (Ê)
5.034% due 10/28/08

    3,000      2,998

Wal-Mart Stores, Inc. (Ê)
5.594% due 06/16/08

    1,900      1,901

WellPoint, Inc.
3.750% due 12/14/07

    270      270

Westpac Banking Corp.

        

5.250% due 11/02/07

    4,500      4,496

Series DPNT (Ê)

        

5.082% due 06/06/08

    1,300      1,299

Wisconsin Electric Power Co.
3.500% due 12/01/07

    145      145
         
Total Short-Term Investments        

(cost $1,099,001)

         1,099,179
         
    

Principal

Amount ($)

or Shares

     

Market

Value

$

  

Other Securities - 6.0%

        

Russell Investment Company
Money Market Fund (×)

    88,048,280      88,048  

State Street Securities Lending
Quality Trust (×)

    298,404,750      298,405  
           
Total Other Securities        

(cost $386,453)

         386,453  
           
Total Investments - 122.1%        

(identified cost $7,872,816)

         7,871,290  
Other Assets and Liabilities,
Net - (22.1%)		         (1,424,911 )
           

Net Assets - 100.0%

         6,446,379  
           

 

See accompanying notes which are an integral part of the financial statements.

144   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Futures Contracts
(Number of Contracts)		   Notional
Amount		   Unrealized
Appreciation
(Depreciation)
$		  
     
Long Positions      
Euro-Bund Futures (Germany)
expiration date 12/07 (154)		   EUR   25,250   (5 )
Euro-Schatz Bond Futures
expiration date 12/07 (3)		   EUR   448   (15 )
Euro Yen Futures
expiration date 12/07 (66)		   JPY   1,636,553   20  
Eurodollar Futures (CME)
expiration date 03/09 (1,846)		   USD   441,448   82  
expiration date 12/08 (3,859)   USD   923,266   3,473  
expiration date 12/08 (38)   USD   9,092   48  
expiration date 06/08 (2,468)   USD   589,975   2,058  
expiration date 06/08 (38)   USD   9,084   39  
expiration date 03/08 (38)   USD   9,073   34  
expiration date 09/08 (1,357)   USD   324,628   1,974  
expiration date 09/08 (38)   USD   9,091   44  
expiration date 09/09 (111)   USD   26,490   38  
expiration date 06/09 (117)   USD   27,951   53  
expiration date 06/09 (38)   USD   9,078   45  
expiration date 12/07 (183)   USD   43,577   103  
expiration date 03/09 (38)   USD   9,087   47  
Japanese 10 Year Bond
(Japan)
expiration date 12/07 (54)		   JPY   63,698   309  
LIBOR Futures
expiration date 03/08 (35)		   GBP   4,118   (7 )
expiration date 06/08 (107)   GBP   12,617   (18 )
expiration date 12/07 (4)   GBP   469   3  
expiration date 12/08 (61)   GBP   7,207   120  
expiration date 09/08 (72)   GBP   8,501   86  
expiration date 03/09 (51)   GBP   6,026   82  
expiration date 06/09 (17)   GBP   2,008   30  
Three Month Short Sterling
Interest Rate Futures (UK)
expiration date 12/07 (133)		   GBP   56   24  
United States Treasury Bonds
expiration date 12/07 (236)		   USD   26,572   258  
expiration date 12/07 (596)   USD   67,106   (53 )
expiration date 12/07 (778)   USD   87,598   1,016  
expiration date 12/07 (5)   USD   563   7  
Futures Contracts
(Number of Contracts)		   Notional
Amount		   Unrealized
Appreciation
(Depreciation)
$		  
United States Treasury 2 Year
Notes
expiration date 12/07
(266)		   USD   55,091   123  
expiration date 12/07 (313)   USD   64,825   37  
expiration date 12/07 (287)   USD   59,440   173  
expiration date 12/07 (132)   USD   27,338   107  
United States Treasury 5 Year
Notes
expiration date 12/07 (1,059)		   USD   113,677   536  
expiration date 12/07 (939)   USD   100,796   629  
expiration date 12/07 (487)   USD   52,276   (199 )
expiration date 12/07 (321)   USD   34,457   255  
expiration date 12/07 (2,307)   USD   247,642   1,633  
United States Treasury
10 Year Notes		      
expiration date 03/08 (526)   USD   57,671   420  
expiration date 12/07 (533)   USD   58,638   480  
expiration date 12/07 (127)   USD   13,972   (135 )
expiration date 12/07 (27)   USD   2,970   10  
Short Positions      
Euro-Bobl Futures (Germany)
expiration date 12/07 (818)		   EUR   129,650   (2 )
Japanese 10 Year Bond
(Japan)
expiration date 12/07 (31)		   JPY   4,215,690   (91 )
Long Gilt Bond (UK)
expiration date 12/07 (43)		   GBP   9,585   (24 )
Three Month Short Sterling
Interest Rate Futures (UK)
expiration date 12/07 (133)		   GBP   17   47  
United States Treasury Bonds
expiration date 12/07 (96)		   USD   10,809   51  
expiration date 12/07 (97)   USD   10,922   (92 )
United States Treasury 5 Year
Notes
expiration date 12/07 (712)		   USD   76,429   (331 )
United States Treasury
10 Year Notes
expiration date 12/07 (345)		   USD   37,955   (202 )
expiration date 12/07 (2,506)   USD   275,699   (2,545 )
         
Total Unrealized Appreciation
(Depreciation) on Open
Futures Contracts		       10,775  
         

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   145

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Options Written
(Number of Contracts)		         Notional
Amount 		     Market
Value
$		  
          

Swaptions

           

(Fund Pays/Fund Receives)

           

USD 5.100%/USD Three Month LIBOR

           

Feb 2008 0.00 Call (1)

       21,000      (329 )

USD 4.900%/USD Three Month LIBOR

           

Feb 2008 0.00 Call (1)

       7,000      (71 )

USD 4.900%/USD Three Month LIBOR

           

Mar 2008 0.00 Call (2)

       29,600      (350 )

USD 4.950%/USD Three Month LIBOR

           

Mar 2008 0.00 Call (1)

       12,000      (156 )

USD 4.950%/USD Three Month LIBOR

           

Sep 2008 0.00 Call (3)

       42,400      (657 )

USD 5.000%/USD Three Month LIBOR

           

Dec 2008 0.00 Call (1)

       16,600      (314 )

USD 5.200%/USD Three Month LIBOR

           

Dec 2008 0.00 Call (1)

       41,800      (1,018 )

USD 5.450%/USD Three Month LIBOR

           

Feb 2009 0.00 Call (1)

       17,000      (477 )

United States Treasury Bonds

           

Nov 2007 105.00 Put (1,400)

    USD    147,000      (22 )

Nov 2007 106.00 Put (2,602)

    USD    275,812      (41 )

Nov 2007 107.00 Put (2,017)

    USD    215,819      (63 )

Nov 2007 116.00 Call (3,015)

    USD    349,740      (283 )

United States Treasury Notes
2 Year Futures

           

Nov 2007 104.00 Call (985)

    USD    204,880      (92 )

5 Year Futures

           

Nov 2007 109.00 Call (612)

    USD    66,708      (38 )
Options Written
(Number of Contracts)		         Notional
Amount 		   Market
Value
$		  

10 Year Futures

         

Nov 2007 106.00 Put (3,692)

    USD    391,352    (58 )

Nov 2007 107.00 Put (70)

    USD    7,490    (3 )

Nov 2007 112.00 Call (2,631)

    USD    294,672    (370 )
            

Total Liability for Options Written (premiums received $5,536)

          (4,342 )
            

 

See accompanying notes which are an integral part of the financial statements.

146   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Index Swap Contracts                                

Fund Receives
Underlying Security

  

Counter
Party

  

Notional
Amount

 

Fund Pays
Floating Rate

   Termination
Date		   Unrealized
Appreciation
(Depreciation)
$		  
           

CMBS AAA 10 Year Index

   Bank of America   USD   700  

CMBS AAA 10 Year Index
plus 0.700%

   11/30/07   10  

CMBS AAA 10 Year Index

   Bank of America   USD   3,100  

CMBS AAA 10 Year Index
plus 0.450%

   12/31/07   43  

CMBS AAA 10 Year Index

  

Bank of America

   USD   15,000  

CMBS AAA 10 Year Index
minus 0.100%

   12/31/07   (165 )

CMBS AAA 10 Year Index

  

Bank of America

   USD   14,000  

CMBS AAA 10 Year Index
minus 0.500%

   01/31/08   159  

CMBS AAA 10 Year Index

  

Bank of America

   USD   5,000  

CMBS AAA 10 Year Index
minus 0.075%

   01/31/08   (55 )

CMBS AAA 10 Year Index

  

Bank of America

   USD   5,000  

CMBS AAA 10 Year Index
minus 0.100%

   02/29/08   (55 )

CMBS AAA 10 Year Index

   Deutsche Bank   USD   15,000  

CMBS AAA 10 Year Index

   11/30/07   (164 )

CMBS AAA 10 Year Index

  

Deutsche Bank

   USD   19,000  

CMBS AAA 10 Year Index

   01/31/08   (207 )

CMBS AAA 10 Year Index

  

Deutsche Bank

   USD   20,000  

CMBS AAA 10 Year Index
minus 0.150%

   01/31/08   221  

Turkish Overnight Index Tuibon

   Deutsche Bank   TRY   2,879  

Turkish Overnight Index Tuibon
plus 0.500%

   03/07/12   370  

CMBS AAA 10 Year Index

   JP Morgan   USD   700  

CMBS AAA 10 Year Index
plus 0.750%

   11/30/07   9  

CMBS AAA 10 Year Index

  

JP Morgan

  USD   15,000  

CMBS AAA 10 Year Index
minus 0.050%

   01/31/08   164  

CMBS AAA 10 Year Index

  

JP Morgan

   USD   15,000  

CMBS AAA 10 Year Index
minus 0.300%

   01/31/08   (168 )
               

Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts

     162  
               

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   147

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Interest Rate Swap Contracts  

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Bank of America

    CAD    17,800    Three Month LIBOR   

4.967%

    05/30/10    (116 )

Bank of America

    USD    37,500    5.473%   

Three Month LIBOR

    06/14/11    1,437  

Bank of America

    USD    12,400    5.000%   

Three Month LIBOR

    12/19/12    97  

Bank of America

    USD    30,900    5.000%   

Three Month LIBOR

    12/19/12    242  

Bank of America

    USD    47,800    5.000%   

Three Month LIBOR

    12/19/12    374  

Bank of America

    USD    103,100    5.000%   

Three Month LIBOR

    12/19/12    806  

Bank of America

    CAD    11,170    4.955%   

Three Month LIBOR

    05/30/13    104  

Bank of America

    USD    16,200    Three Month LIBOR   

5.000%

    12/19/14    (38 )

Bank of America

    USD    13,200    5.548%   

Three Month LIBOR

    06/14/16    457  

Bank of America

    USD    4,800    5.000%   

Three Month LIBOR

    12/19/17    (40 )

Bank of America

    USD    26,200    5.250%   

Three Month LIBOR

    12/19/22    (7 )

Bank of America

    USD    27,700    5.000%   

Three Month LIBOR

    12/19/22    (723 )

Bank of America

    USD    7,000    5.628%   

Three Month LIBOR

    06/16/36    380  

Bank of America

    CAD    1,540    Three Month LIBOR   

4.990%

    05/30/38    5  

Barclays Bank PLC

    GBP    3,700    6.000%   

Six Month LIBOR

    03/20/09    22  

Barclays Bank PLC

    EUR    55,040    Six Month LIBOR   

4.500%

    12/19/09    93  

Barclays Bank PLC

    BRL    5,600    11.360%   

Brazil Interbank Deposit Rate

    01/04/10    (20 )

Barclays Bank PLC

    EUR    2,800    2.103%   

Consumer Price Index (France)

    10/15/10    55  

Barclays Bank PLC

    GBP    6,250    Six Month LIBOR   

5.750%

    12/19/12    (101 )

Barclays Bank PLC

    EUR    8,670    4.500%   

Six Month LIBOR

    12/19/12    (28 )

Barclays Bank PLC

    GBP    11,350    Six Month LIBOR   

5.750%

    12/19/12    (183 )

Barclays Bank PLC

    GBP    11,770    5.750%   

Six Month LIBOR

    12/19/12    190  

Barclays Bank PLC

    GBP    12,410    Six Month LIBOR   

5.750%

    12/19/12    (201 )

Barclays Bank PLC

    GBP    13,280    5.750%   

Six Month LIBOR

    12/19/12    215  

Barclays Bank PLC

    EUR    17,220    4.500%   

Six Month LIBOR

    12/19/12    (55 )

Barclays Bank PLC

    JPY    7,442,000    Six Month LIBOR   

1.750%

    12/19/14    (972 )

Barclays Bank PLC

    EUR    22,000    4.250%   

Six Month LIBOR

    07/20/16    (2,125 )

Barclays Bank PLC

    EUR    730    Six Month LIBOR   

4.500%

    12/19/17    13  

Barclays Bank PLC

    GBP    820    5.500%   

Six Month LIBOR

    12/19/17    16  

Barclays Bank PLC

    EUR    2,010    Six Month LIBOR   

4.500%

    12/19/17    36  

Barclays Bank PLC

    EUR    6,650    Six Month LIBOR   

4.500%

    12/19/17    120  

Barclays Bank PLC

    SEK    7,000    4.500%   

Three Month LIBOR

    12/19/17    (28 )

Barclays Bank PLC

    EUR    9,100    Six Month LIBOR   

4.500%

    12/19/17    165  

Barclays Bank PLC

    EUR    11,880    Six Month LIBOR   

4.500%

    12/19/17    215  

Barclays Bank PLC

    EUR    13,400    4.500%   

Six Month LIBOR

    12/19/17    (242 )

Barclays Bank PLC

    SEK    19,000    4.500%   

Three Month LIBOR

    12/19/17    (75 )

Barclays Bank PLC

    SEK    63,000    4.500%   

Three Month LIBOR

    12/19/17    (249 )

Barclays Bank PLC

    SEK    68,000    Three Month LIBOR   

4.500%

    12/19/17    285  

Barclays Bank PLC

    SEK    85,000    4.500%   

Three Month LIBOR

    12/19/17    (335 )

Barclays Bank PLC

    SEK    113,000    4.500%   

Three Month LIBOR

    12/19/17    (446 )

Barclays Bank PLC

    JPY    180,000    2.000%   

Six Month LIBOR

    12/19/17    28  

Barclays Bank PLC

    SEK    262,000    Three Month LIBOR   

4.500%

    12/19/17    1,099  

Barclays Bank PLC

    GBP    600    Six Month LIBOR   

4.000%

    12/15/36    173  

Barclays Bank PLC

    GBP    2,280    4.750%   

Six Month LIBOR

    12/19/37    (65 )

Barclays Bank PLC

    EUR    3,290    Six Month LIBOR   

4.500%

    12/19/37    227  

Barclays Bank PLC

    GBP    4,550    4.750%   

Six Month LIBOR

    12/19/37    (129 )

 

See accompanying notes which are an integral part of the financial statements.

148   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Interest Rate Swap Contracts  

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Barclays Bank PLC

    EUR    5,830    4.500%   

Six Month LIBOR

    12/19/37    (403 )

Barclays Bank PLC

    EUR    6,570    Six Month LIBOR   

4.500%

    12/19/37    —  

Barclays Bank PLC

    GBP    11,630    Six Month LIBOR   

4.750%

    12/19/37    330  

Bear Stearns

    USD    35,300    5.000%   

Three Month LIBOR

    12/19/12    276  

Bear Stearns

    USD    110,200    Three Month LIBOR   

5.282%

    08/20/14    (2,160 )

Bear Stearns

    USD    43,500    Three Month LIBOR   

5.000%

    12/19/14    (102 )

Bear Stearns

    USD    52,200    5.000%   

Three Month LIBOR

    12/19/14    122  

Bear Stearns

    USD    283,400    5.000%   

Three Month LIBOR

    12/19/14    663  

Bear Stearns

    USD    23,500    Three Month LIBOR   

5.000%

    12/19/14    (55 )

Bear Stearns

    USD    3,200    5.250%    Three Month LIBOR    12/19/17    54  

Bear Stearns

    USD    3,200    Three Month LIBOR   

5.250%

    12/19/27    5  

Bear Stearns

    USD    9,300    5.250%    Three Month LIBOR    12/19/37    (140 )

BNP Paribas

    EUR    23,230    4.250%   

Six Month LIBOR

    06/22/09    (310 )

BNP Paribas

    EUR    5,600    4.500%   

Six Month LIBOR

    12/19/37    (387 )

Citibank

    GBP    4,620    5.750%   

Six Month LIBOR

    12/19/12    75  

Citibank

    GBP    11,760    Six Month LIBOR   

5.750%

    12/19/12    (190 )

Citibank

    GBP    11,850    5.750%   

Six Month LIBOR

    12/19/12    192  

Citibank

    JPY    78,000    Six Month LIBOR   

1.500%

    12/19/12    (6 )

Citibank

    USD    32,400    Three Month LIBOR   

5.000%

    12/19/14    (76 )

Citibank

    JPY    347,000    1.750%   

Six Month LIBOR

    12/19/14    45  

Citibank

    JPY    1,765,000    Six Month LIBOR   

1.750%

    12/19/14    (230 )

Citibank

    JPY    2,443,000    1.750%   

Six Month LIBOR

    12/19/14    319  

Citibank

    JPY    2,490,000    Six Month LIBOR   

1.750%

    12/19/14    (325 )

Citibank

    JPY    2,502,000    1.750%   

Six Month LIBOR

    12/19/14    327  

Citibank

    JPY    8,792,000    Six Month LIBOR   

1.750%

    12/19/14    (1,148 )

Citibank

    MXN    2,300    8.170%   

Mexico Interbank 28 Day Deposit Rate

    11/04/16    —  

Citibank

    JPY    868,000    Six Month LIBOR   

2.000%

    12/19/17    (133 )

Citibank

    JPY    4,684,000    2.000%   

Six Month LIBOR

    12/19/17    716  

Credit Suisse First Boston

    EUR    45,890    Six Month LIBOR   

4.500%

    12/19/09    78  

Credit Suisse First Boston

    EUR    55,070    Six Month LIBOR   

4.500%

    12/19/09    93  

Credit Suisse First Boston

    EUR    129,290    4.500%   

Six Month LIBOR

    12/19/09    (219 )

Credit Suisse First Boston

    USD    61,490    Three Month LIBOR   

5.000%

    12/19/12    (481 )

Credit Suisse First Boston

    EUR    67,380    Six Month LIBOR   

4.500%

    12/19/12    215  

Credit Suisse First Boston

    EUR    690    Six Month LIBOR   

4.500%

    12/19/17    13  

Credit Suisse First Boston

    EUR    2,200    Six Month LIBOR   

4.500%

    12/19/17    40  

Credit Suisse First Boston

    EUR    2,300    Six Month LIBOR   

4.500%

    12/19/17    42  

Credit Suisse First Boston

    USD    5,200    5.250%   

Three Month LIBOR

    12/19/17    58  

Credit Suisse First Boston

    EUR    5,250    Six Month LIBOR   

4.500%

    12/19/17    95  

Credit Suisse First Boston

    SEK    6,000    4.500%   

Three Month LIBOR

    12/19/17    (24 )

Credit Suisse First Boston

    EUR    19,330    Six Month LIBOR   

4.500%

    12/19/17    350  

Credit Suisse First Boston

    EUR    19,340    Six Month LIBOR   

4.500%

    12/19/17    350  

Credit Suisse First Boston

    SEK    21,000    4.500%   

Three Month LIBOR

    12/19/17    (83 )

Credit Suisse First Boston

    SEK    22,000    4.500%   

Three Month LIBOR

    12/19/17    (87 )

Credit Suisse First Boston

    EUR    22,230    4.500%   

Six Month LIBOR

    12/19/17    (402 )

Credit Suisse First Boston

    EUR    38,110    4.500%   

Six Month LIBOR

    12/19/17    (690 )

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   149

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Interest Rate Swap Contracts  

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Credit Suisse First Boston

    SEK    50,000    4.500%   

Three Month LIBOR

    12/19/17    (197 )

Credit Suisse First Boston

    SEK    138,000    Three Month LIBOR   

4.500%

    12/19/17    579  

Credit Suisse First Boston

    GBP    2,600    4.750%   

Six Month LIBOR

    12/19/37    (47 )

Credit Suisse First Boston

    GBP    2,750    Six Month LIBOR   

4.750%

    12/19/37    78  

Credit Suisse First Boston

    EUR    4,890    4.500%   

Six Month LIBOR

    12/19/37    (338 )

Credit Suisse First Boston

    GBP    5,760    Six Month LIBOR   

4.750%

    12/19/37    163  

Credit Suisse First Boston

    EUR    5,870    4.500%   

Six Month LIBOR

    12/19/37    (406 )

Credit Suisse First Boston

    EUR    10,100    4.500%   

Six Month LIBOR

    12/19/37    (699 )

Credit Suisse First Boston

    EUR    10,100    4.500%   

Six Month LIBOR

    12/19/37    (698 )

Credit Suisse First Boston

    EUR    11,970    4.500%   

Six Month LIBOR

    12/19/37    (828 )

Credit Suisse First Boston

    EUR    20,030    Six Month LIBOR   

4.500%

    12/19/37    1,385  

Deutsche Bank

    EUR    400    5.000%   

Six Month LIBOR

    12/19/09    5  

Deutsche Bank

    USD    21,000    5.000%   

Three Month LIBOR

    12/19/09    187  

Deutsche Bank

    AUD    42,910    6.500%   

Six Month LIBOR

    12/19/12    (1,283 )

Deutsche Bank

    AUD    49,910    Six Month LIBOR   

6.500%

    12/19/12    1,575  

Deutsche Bank

    USD    53,100    5.000%   

Three Month LIBOR

    12/19/12    415  

Deutsche Bank

    JPY    78,000    1.500%   

Six Month LIBOR

    12/19/12    6  

Deutsche Bank

    JPY    3,812,000    1.750%   

Six Month LIBOR

    12/19/14    546  

Deutsche Bank

    EUR    4,770    Six Month LIBOR   

4.500%

    12/19/17    86  

Deutsche Bank

    USD    7,500    5.250%   

Three Month LIBOR

    12/19/17    119  

Deutsche Bank

    EUR    21,420    4.500%   

Six Month LIBOR

    12/19/17    (388 )

Deutsche Bank

    SEK    45,000    4.500%   

Three Month LIBOR

    12/19/17    (178 )

Deutsche Bank

    JPY    340,000    2.000%   

Six Month LIBOR

    12/19/17    52  

Deutsche Bank

    SEK    386,000    Three Month LIBOR   

4.500%

    12/19/17    1,618  

Deutsche Bank

    JPY    3,816,000    Six Month LIBOR   

2.000%

    12/19/17    (673 )

Deutsche Bank

    USD    1,500    5.000%   

Three Month LIBOR

    12/19/22    (39 )

Deutsche Bank

    USD    7,500    Three Month LIBOR   

5.250%

    12/19/27    16  

Deutsche Bank

    USD    10    5.000%   

Three Month LIBOR

    12/19/37    (1 )

Deutsche Bank

    EUR    3,200    Six Month LIBOR   

4.500%

    12/19/37    221  

Deutsche Bank

    EUR    4,970    4.500%   

Six Month LIBOR

    12/19/37    (344 )

Goldman Sachs

    EUR    800    4.000%   

Six Month LIBOR

    03/20/09    (6 )

Goldman Sachs

    GBP    400    5.000%   

Six Month LIBOR

    06/15/09    (11 )

Goldman Sachs

    GBP    24,600    6.000%   

Six Month LIBOR

    06/19/09    196  

Goldman Sachs

    BRL    1,400    11.465%   

Brazil Interbank Deposit Rate

    01/04/10    (3 )

Goldman Sachs

    EUR    800    1.960%   

Consumer Price Index (France)

    03/30/12    (5 )

Goldman Sachs

    MXN    15,700    7.780%   

Mexico Interbank 28 Day Deposit Rate

    04/03/12    (18 )

Goldman Sachs

    USD    21,405    4.987%   

Three Month LIBOR

    05/02/12    (500 )

Goldman Sachs

    GBP    1,600    Six Month LIBOR   

5.500%

    12/15/36    (312 )

HSBC

    GBP    200    Six Month LIBOR   

4.000%

    12/15/36    58  

JP Morgan

    USD    31,300    5.000%   

Three Month LIBOR

    12/19/10    328  

JP Morgan

    EUR    2,500    1.948%   

Consumer Price Index (France)

    03/15/12    (17 )

JP Morgan

    USD    15,000    Three Month LIBOR   

5.000%

    12/19/12    (117 )

JP Morgan

    USD    31,000    Three Month LIBOR   

5.000%

    12/19/12    (242 )

JP Morgan

    USD    54,100    Three Month LIBOR   

5.000%

    12/19/14    (127 )

Lehman Brothers

    GBP    12,600    4.500%   

Six Month LIBOR

    09/20/09    (608 )

 

See accompanying notes which are an integral part of the financial statements.

150   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Interest Rate Swap Contracts  

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Lehman Brothers

    EUR    26,710    4.500%   

Six Month LIBOR

    12/19/09    (45 )

Lehman Brothers

    JPY    3,356,000    1.188%   

Six Month LIBOR

    12/17/10    —  

Lehman Brothers

    JPY    1,500,000    1.750%   

Six Month LIBOR

    12/19/14    196  

Lehman Brothers

    JPY    2,127,000    Six Month LIBOR   

1.709%

    12/17/15    —  

Lehman Brothers

    USD    32,800    5.335%   

Three Month LIBOR

    05/22/17    1,049  

Lehman Brothers

    USD    24,600    5.371%   

Three Month LIBOR

    05/23/17    857  

Lehman Brothers

    USD    51,000    5.336%   

Three Month LIBOR

    05/24/17    1,631  

Lehman Brothers

    USD    46,100    5.403%   

Three Month LIBOR

    05/25/17    1,721  

Lehman Brothers

    USD    63,000    5.440%   

Three Month LIBOR

    05/29/17    2,530  

Lehman Brothers

    JPY    431,000    2.648%   

Six Month LIBOR

    12/17/38    —  

Merrill Lynch

    GBP    29,800    4.500%   

Six Month LIBOR

    09/20/09    (1,439 )

Merrill Lynch

    BRL    1,200    12.948%   

Brazil Interbank Deposit Rate

    01/04/10    20  

Merrill Lynch

    BRL    3,700    11.430%   

Brazil Interbank Deposit Rate

    01/04/10    (11 )

Merrill Lynch

    GBP    300    Six Month LIBOR   

4.000%

    12/15/35    24  

Merrill Lynch

    GBP    3,010    Six Month LIBOR   

4.750%

    12/19/37    85  

Morgan Stanley

    USD    7,100    5.000%   

Three Month LIBOR

    12/19/37    (371 )

Royal Bank of Scotland

    GBP    500    6.000%   

Six Month LIBOR

    03/20/09    3  

Royal Bank of Scotland

    GBP    3,700    6.000%   

Six Month LIBOR

    06/19/09    29  

Royal Bank of Scotland

    USD    17,500    5.000%    Three Month LIBOR    12/19/09    156  

Royal Bank of Scotland

    GBP    16,630    5.750%   

Six Month LIBOR

    12/19/10    90  

Royal Bank of Scotland

    EUR    900    1.955%   

Consumer Price Index (France)

    03/28/12    (7 )

Royal Bank of Scotland

    USD    9,000    Three Month LIBOR   

5.000%

    12/19/12    70  

Royal Bank of Scotland

    USD    9,800    5.000%   

Three Month LIBOR

    12/19/17    (81 )

Royal Bank of Scotland

    GBP    200    Six Month LIBOR   

5.500%

    12/15/36    (39 )

Royal Bank of Scotland

    GBP    1,600    Six Month LIBOR   

4.000%

    12/15/36    461  

Royal Bank of Scotland

    USD    7,400    5.000%   

Three Month LIBOR

    12/19/37    (386 )

UBS

    AUD    26,900    7.000%   

Three Month LIBOR

    09/15/09    (84 )

UBS

    GBP    3,310    Six Month LIBOR   

5.750%

    12/19/10    (18 )

UBS

    GBP    8,540    5.750%   

Six Month LIBOR

    12/19/10    46  

UBS

    GBP    8,570    Six Month LIBOR   

5.750%

    12/19/10    (46 )

UBS

    GBP    8,570    Six Month LIBOR   

5.750%

    12/19/10    (46 )

UBS

    GBP    8,600    5.750%   

Six Month LIBOR

    12/19/10    47  

UBS

    GBP    13,320    Six Month LIBOR   

5.750%

    12/19/10    (72 )

UBS

    USD    15,500    5.000%   

Three Month LIBOR

    12/19/12    121  

UBS

    GBP    17,360    5.750%   

Six Month LIBOR

    12/19/12    281  

UBS

    GBP    18,870    5.750%   

Six Month LIBOR

    12/19/12    305  

UBS

    EUR    26,370    Six Month LIBOR   

4.500%

    12/19/12    84  

UBS

    JPY    2,443,000    1.750%   

Six Month LIBOR

    12/19/14    319  
                     

Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($21,816)

    4,511  
                     

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   151

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Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Credit Default Swap Contracts  

Reference
Entity

   

Counter
Party

    Notional
Amount		   

Fund (Pays)/Receives
Fixed Rate

    Termination
Date		    Market Value
$		  
                 

Anadarko Petroleum Corp.

    Goldman Sachs    USD    500    0.150%    03/20/08    —  

Argentina Government International Bond

    Deutsche Bank    USD    3,270    (4.786%)    09/20/12    135  

Argentina Government International Bond

    Deutsche Bank    USD    3,220    (4.984%)    09/20/12    152  

Argentina Government International Bond

    JP Morgan    USD    2,830    (5.055%)    09/20/12    141  

Argentina Government International Bond

    Lehman Brothers    USD    8,000    1.700%    08/20/08    70  

Brazilian Government International Bond

    Citibank    USD    4,500    (1.500%)    08/22/11    123  

Brazilian Government International Bond

    Lehman Brothers    USD    5,200    1.120%    11/20/11    114  

Brazilian Government International Bond

    Morgan Stanley    USD    500    1.660%    03/20/13    20  

Chesapeake Energy Corp.

    Lehman Brothers    USD    8,000    0.750%    09/20/08    32  

Countrywide Home Loans

    Lehman Brothers    USD    9,503    0.480%    06/20/12    (1,267 )

Countrywide Home Loans

    Lehman Brothers    USD    5,630    (0.710%)    06/20/17    (842 )

Dow Jones CDX High Volatility Index

    Citibank    USD    5,100    0.355%    06/20/12    (76 )

Dow Jones CDX High Volatility Index

    Citibank    USD    5,000    0.360%    06/20/12    (73 )

Dow Jones CDX High Volatility Index

    Citibank    USD    1,100    0.401%    06/20/12    (14 )

Dow Jones CDX High Volatility Index

    Merrill Lynch    USD    1,100    1.833%    06/20/12    (3 )

Dow Jones CDX High Volatility Index

    Morgan Stanley    USD    1,100    2.080%    06/20/12    8  

Dow Jones CDX High Volatility Index

    Morgan Stanley    USD    500    2.170%    06/20/12    9  

Ford Motor Corp. Capital Trust II

    Lehman Brothers    USD    2,210    1.100%    03/20/08    (8 )

Ford Motor Credit Co.

    Barclays Bank PLC    USD    700    5.650%    09/20/12    22  

Ford Motor Credit Co.

    Goldman Sachs    USD    300    3.850%    09/20/12    (9 )

Ford Motor Credit Co.

    Lehman Brothers    USD    1,520    1.200%    03/20/08    (5 )

Ford Motor Credit Co.

    Lehman Brothers    USD    2,200    2.200%    03/20/08    4  

Ford Motor Credit Co.

    Lehman Brothers    USD    1,500    5.150%    09/20/12    22  

Gaz Capital for Gazprom

    Chase Securities Inc.    USD    500    0.970%    12/20/12    (4 )

Gaz Capital for Gazprom

    Chase Securities Inc.    USD    500    1.020%    12/20/12    (2 )

Gaz Capital for Gazprom

    HSBC    USD    300    0.970%    11/20/08    —  

Gaz Capital for Gazprom

    JP Morgan    USD    1,000    0.360%    05/20/09    (8 )

Gaz Capital for Gazprom

    JP Morgan    USD    4,400    0.415%    11/20/07    8  

General Motors Acceptance Corp.

    Bank of America    USD    4,000    1.000%    09/20/08    (112 )

General Motors Acceptance Corp.

    Lehman Brothers    USD    4,000    3.600%    09/20/08    4  

General Motors Acceptance Corp.

    Merrill Lynch    USD    400    1.850%    09/20/09    (17 )

General Motors Acceptance Corp.

    Morgan Stanley    USD    5,000    0.970%    09/20/08    (141 )

General Motors Corp.

    Citibank    USD    10,000    4.630%    12/20/12    (102 )

General Motors Corp.

    Lehman Brothers    USD    5,000    2.300%    09/20/08    (17 )

Goldman Sachs Group, Inc.

    Credit Suisse First Boston    USD    3,300    0.940%    09/20/12    52  

Goldman Sachs Group, Inc.

    Deutsche Bank    USD    1,700    0.880%    09/20/12    22  

IAC/InterActiveCorp

    Lehman Brothers    USD    2,620    (1.350%)    09/20/12    24  

Indonesia Government International Bond

    JP Morgan    USD    1,000    0.390%    12/20/08    (1 )

Indonesia Government International Bond

    Lehman Brothers    USD    400    0.400%    12/20/08    —  

International Paper Company

    Lehman Brothers    USD    6,530    (0.340%)    06/20/12    (15 )

Kazkommerts International BV

    Morgan Stanley    USD    2,700    4.250%    10/20/12    (55 )

 

See accompanying notes which are an integral part of the financial statements.

152   Multistrategy Bond Fund

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Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Credit Default Swap Contracts  

Reference
Entity

   

Counter
Party

    Notional
Amount		   

Fund (Pays)/Receives
Fixed Rate

    Termination
Date		    Market Value
$		  
                 

Lyondell Chemical Co.

    Lehman Brothers    USD    2,805    0.500%    09/20/12    (417 )

Lyondell Chemical Co.

    Lehman Brothers    USD    1,880    4.900%    09/20/12    40  

Masco Corporation

    Lehman Brothers    USD    3,275    (0.800%)    09/20/12    (3 )

Masco Corporation

    Lehman Brothers    USD    3,260    (0.820%)    09/20/12    1  

MeadWestvaco Corp.

    Lehman Brothers    USD    1,640    (4.000%)    09/20/12    (10 )

MediaCom LLC

    Lehman Brothers    USD    3,500    1.200%    03/20/08    (13 )

Mexico Government International Bond

    JP Morgan    USD    2,400    0.920%    03/20/16    60  

Mexico Government International Bond

    Lehman Brothers    USD    1,655    (0.490%)    12/20/12    1  

Mexico Government International Bond

    Lehman Brothers    USD    1,655    (0.630%)    12/20/12    11  

Panama Government International Bond

    Chase Securities Inc.    USD    300    1.250%    01/20/17    —  

Pitney Bowes Inc.

    Lehman Brothers    USD    3,275    (0.220%)    09/20/12    2  

Residential Capital LLC

    Lehman Brothers    USD    800    5.000%    09/20/08    (79 )

Russia Government International Bond

    Deutsche Bank    USD    3,000    0.240%    12/20/07    2  

Russia Government International Bond

    Deutsche Bank    USD    1,000    0.260%    12/20/07    1  

Russia Government International Bond

    JP Morgan    USD    300    0.800%    03/20/16    (1 )

Russia Government International Bond

    Morgan Stanley    USD    200    0.245%    06/20/08    —  

Russia Government International Bond

    Morgan Stanley    USD    2,900    0.795%    08/20/12    19  

Russia Government International Bond

    Morgan Stanley    USD    300    0.780%    03/20/16    (1 )

Sunguard Data Systems

    Lehman Brothers    USD    8,000    3.500%    09/20/12    51  

Talisman Energy Inc.

    Lehman Brothers    USD    2,650    (0.510%)    09/20/12    18  

The Neiman Marcus Group

    Lehman Brothers    USD    4,000    1.100%    09/20/08    18  

Ukraine SP Dub

    JP Morgan    USD    4,500    0.730%    04/20/09    (14 )

Univision Communications Inc

    Lehman Brothers    USD    8,000    1.750%    12/20/08    67  

Usani LLC

    Lehman Brothers    USD    2,620    (1.380%)    09/20/12    (40 )

Usani LLC

    Lehman Brothers    USD    3,260    (5.000%)    09/20/12    (78 )

Verizon Communications Inc.

    Lehman Brothers    USD    10,940    (0.180%)    06/20/12    (8 )

Weyerhaeuser Company

    Lehman Brothers    USD    3,260    (0.700%)    09/20/12    2  
                     

Total Market Value of Open Credit Default Swap Contracts Premiums Paid (Received) - ($136)

    (2,180 )
                     

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   153

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Foreign Currency Exchange Contracts
         
Amount Sold  

Amount Bought

   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$
         
USD   1,422   AUD   1,585   11/08/07   54
USD   653   AUD   739   11/21/07   34
USD   8,256   AUD   10,082   12/19/07   1,109
USD   8,356   AUD   9,363   12/19/07   341
USD   8,357   AUD   9,326   12/19/07   306
USD   8,358   AUD   9,530   12/19/07   494
USD   8,365   AUD   10,178   12/19/07   1,088
USD   202   AUD   225   12/20/07   7
USD   2,497   AUD   2,800   12/20/07   104
USD   630   BRL   1,137   11/01/07   27
USD   780   BRL   1,547   11/01/07   114
USD   7,019   BRL   12,320   11/01/07   99
USD   7,125   BRL   12,506   11/01/07   100
USD   7,125   BRL   12,506   11/01/07   100
USD   8,383   BRL   14,713   11/01/07   118
USD   9,172   BRL   16,281   11/01/07   235
USD   9,245   BRL   16,281   11/01/07   162
USD   9,365   BRL   16,800   11/01/07   343
USD   842   BRL   1,604   11/05/07   84
USD   851   BRL   1,571   11/05/07   56
USD   980   BRL   1,848   11/05/07   87
USD   2,401   BRL   4,524   11/05/07   211
USD   4,325   BRL   8,125   11/05/07   366
USD   650   BRL   1,151   02/06/08   7
USD   883   BRL   1,571   02/06/08   13
USD   8,839   BRL   16,100   02/06/08   342
USD   1,246   CAD   1,213   11/01/07   38
USD   3,182   CAD   3,226   11/01/07   233
USD   1,001   CAD   1,002   11/02/07   60
USD   8,363   CAD   8,316   12/19/07   442
USD   8,446   CAD   8,222   12/19/07   260
USD   4,673   CAD   4,439   12/20/07   27
USD   8,245   CHF   9,850   12/19/07   286
USD   8,258   CHF   9,863   12/19/07   285
USD   8,260   CHF   9,629   12/19/07   79
USD   8,261   CHF   9,723   12/19/07   160
USD   8,267   CHF   9,720   12/19/07   151
USD   8,357   CHF   9,844   12/19/07   169
USD   8,362   CHF   9,705   12/19/07   43
USD   1,551   EUR   1,074   11/01/07   4
USD   4,181   EUR   2,900   11/05/07   20
USD   4,662   EUR   3,292   11/05/07   107
USD   2,935   EUR   2,065   11/20/07   58
USD   8,258   EUR   6,029   12/19/07   480
USD   8,261   EUR   5,946   12/19/07   358
USD   8,265   EUR   5,978   12/19/07   401
USD   8,267   EUR   5,964   12/19/07   378
Foreign Currency Exchange Contracts  
Amount Sold  

Amount Bought

   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
USD   8,325   EUR   6,079   12/19/07   486  
USD   8,440   EUR   5,948   12/19/07   182  
USD   8,447   EUR   5,905   12/19/07   112  
USD   8,451   EUR   5,873   12/19/07   61  
USD   17,069   EUR   11,984   12/19/07   303  
USD   24,695   EUR   17,346   12/19/07   448  
USD   667   EUR   466   12/20/07   9  
USD   2,575   EUR   1,800   12/20/07   34  
USD   3,266   EUR   2,285   12/20/07   46  
USD   541   GBP   269   11/01/07   18  
USD   233   GBP   118   11/15/07   11  
USD   2,160   GBP   1,059   11/15/07   41  
USD   8,363   GBP   4,110   12/19/07   169  
USD   555   GBP   269   12/20/07   3  
USD   1,285   INR   53,640   11/29/07   77  
USD   3,940   INR   155,512   11/29/07   9  
USD   2,140   INR   84,551   02/22/08   (1 )
USD   25,624   JPY   2,957,000   11/06/07   26  
USD   8,258   JPY   938,311   12/19/07   (78 )
USD   8,261   JPY   930,445   12/19/07   (149 )
USD   8,342   JPY   949,990   12/19/07   (60 )
USD   8,348   JPY   949,990   12/19/07   (65 )
USD   8,446   JPY   961,248   12/19/07   (65 )
USD   8,447   JPY   968,364   12/19/07   (4 )
USD   16,902   JPY   1,922,652   12/19/07   (140 )
USD   17,653   JPY   2,004,990   01/23/08   (105 )
USD   631   KRW   593,970   11/07/07   28  
USD   842   KRW   781,788   11/07/07   26  
USD   6,082   KRW   5,682,756   11/07/07   229  
USD   1,296   KRW   1,175,602   01/30/08   14  
USD   1,970   KRW   1,780,388   01/30/08   13  
USD   7,738   KRW   7,058,513   01/30/08   124  
USD   650   MXN   7,016   01/17/08   4  
USD   2,888   MXN   31,824   01/17/08   79  
USD   1,000   MYR   3,407   11/07/07   22  
USD   1,010   MYR   3,407   02/04/08   15  
USD   13,290   NOK   72,175   11/06/07   157  
USD   8,261   NOK   46,707   12/19/07   435  
USD   8,270   NOK   48,242   12/19/07   711  
USD   8,293   NOK   48,242   12/19/07   688  
USD   8,362   NOK   45,231   12/19/07   59  
USD   8,353   NZD   10,876   12/19/07   (8 )
USD   17,245   NZD   23,459   12/19/07   755  
USD   650   PLN   1,636   01/17/08   4  
USD   19,378   PLN   51,608   01/17/08   1,239  
USD   650   RUB   16,453   11/02/07   17  
USD   937   RUB   23,954   12/10/07   32  

 

See accompanying notes which are an integral part of the financial statements.

154   Multistrategy Bond Fund

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Russell Investment Company

Multistrategy Bond Fund

Schedule of Investments, continued — October 31, 2007

Foreign Currency Exchange Contracts  
         
Amount Sold   Amount Bought   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
USD   3,844   RUB   98,250   12/10/07   133  
USD   660   RUB   16,453   01/11/08   6  
USD   1,514   RUB   37,502   01/11/08   3  
USD   2,450   RUB   60,613   01/11/08   1  
USD   17,546   SEK   114,046   11/06/07   410  
USD   8,251   SEK   56,817   12/19/07   701  
USD   8,260   SEK   54,015   12/19/07   250  
USD   8,362   SEK   53,859   12/19/07   124  
USD   5,000   SEK   32,016   12/20/07   44  
USD   7,862   SGD   11,800   11/09/07   299  
USD   1,296   SGD   1,868   02/20/08   4  
USD   1,970   SGD   2,838   02/20/08   5  
USD   8,102   SGD   11,800   02/20/08   113  
USD   6,894   ZAR   48,815   01/17/08   519  
AUD   9,256   USD   8,353   12/19/07   (245 )
AUD   10,068   USD   8,265   12/19/07   (1,087 )
AUD   200   USD   178   12/20/07   (7 )
BRL   1,137   USD   648   11/01/07   (9 )
BRL   1,547   USD   882   11/01/07   (12 )
BRL   12,320   USD   6,422   11/01/07   (695 )
BRL   12,506   USD   6,515   11/01/07   (710 )
BRL   12,506   USD   6,548   11/01/07   (678 )
BRL   14,713   USD   7,807   11/01/07   (693 )
BRL   16,281   USD   9,276   11/01/07   (130 )
BRL   16,281   USD   9,276   11/01/07   (130 )
BRL   16,800   USD   9,572   11/01/07   (135 )
BRL   1,571   USD   893   11/05/07   (15 )
BRL   16,100   USD   8,930   11/05/07   (367 )
BRL   16,281   USD   9,134   02/06/08   (151 )
BRL   16,281   USD   9,060   02/06/08   (224 )
BRL   16,800   USD   9,254   02/06/08   (327 )
CAD   16,600   JPY   1,965,639   11/06/07   (831 )
CAD   4,439   USD   4,673   11/01/07   (27 )
CAD   8,262   USD   8,438   12/19/07   (310 )
CAD   8,299   USD   8,362   12/19/07   (426 )
CAD   16,497   USD   16,713   12/19/07   (756 )
CAD   2,600   USD   2,670   12/20/07   (83 )
CHF   9,188   USD   7,800   12/19/07   (158 )
CHF   9,733   USD   8,265   12/19/07   (164 )
CHF   9,766   USD   8,363   12/19/07   (95 )
CHF   9,807   USD   8,361   12/19/07   (133 )
CHF   10,687   USD   9,080   12/19/07   (176 )
CHF   19,304   USD   16,449   12/19/07   (270 )
EUR   430   USD   613   11/01/07   (10 )
EUR   644   USD   918   11/01/07   (15 )
EUR   1,074   USD   1,552   11/05/07   (4 )
EUR   12,170   USD   17,168   11/06/07   (463 )
Foreign Currency Exchange Contracts  
Amount Sold   Amount Bought   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
         
EUR   7,276   USD   10,341   11/20/07   (202 )
EUR   5,863   USD   8,363   12/19/07   (135 )
EUR   5,865   USD   8,363   12/19/07   (138 )
EUR   5,902   USD   8,358   12/19/07   (196 )
EUR   5,948   USD   8,261   12/19/07   (361 )
EUR   11,831   USD   16,722   12/19/07   (428 )
EUR   11,878   USD   16,713   12/19/07   (505 )
EUR   11,886   USD   16,891   12/19/07   (338 )
EUR   12,066   USD   16,489   12/19/07   (1,001 )
GBP   269   USD   556   11/01/07   (3 )
GBP   90   USD   187   11/02/07   (1 )
GBP   1,059   USD   2,132   11/15/07   (69 )
GBP   1,059   USD   2,133   11/15/07   (68 )
GBP   4,083   USD   8,267   12/19/07   (209 )
GBP   4,112   USD   8,245   12/19/07   (291 )
GBP   4,118   USD   8,251   12/19/07   (298 )
GBP   4,141   USD   8,358   12/19/07   (239 )
GBP   4,158   USD   8,261   12/19/07   (372 )
ISK   650,160   USD   10,507   11/06/07   (366 )
JPY   178,662   USD   1,566   12/13/07   9  
JPY   956,715   USD   8,358   12/19/07   17  
JPY   979,647   USD   8,440   12/19/07   (101 )
JPY   1,890,977   USD   16,521   12/19/07   35  
CAD   16,600   JPY   1,965,639   11/06/07   308  
KRW   7,058,513   USD   7,712   11/07/07   (127 )
MXN   5,637   USD   525   11/01/07   (4 )
MYR   3,407   USD   1,004   11/07/07   (17 )
NOK   72,175   SEK   85,620   11/06/07   (257 )
NOK   46,966   USD   8,267   12/19/07   (477 )
NOK   48,004   USD   8,251   12/19/07   (686 )
NZD   11,073   USD   8,363   12/19/07   (133 )
NZD   11,300   USD   8,446   12/19/07   (225 )
NZD   11,776   USD   8,062   12/19/07   (974 )
NZD   11,776   USD   8,037   12/19/07   (999 )
RUB   16,453   USD   661   11/02/07   (6 )
NOK   72,175   SEK   85,620   11/06/07   291  
SEK   79,547   USD   12,370   11/06/07   (154 )
SEK   26,040   USD   3,836   12/11/07   (266 )
SGD   11,800   USD   8,058   11/09/07   (103 )
             
Total Unrealized Appreciation (Depreciation) on Open
Foreign Currency Exchange Contracts		   38  
             

 

See accompanying notes which are an integral part of the financial statements.

Multistrategy Bond Fund   155

Table of Contents

Russell Investment Company

Multistrategy Bond Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories   

% of
Net

Assets

  
  
  

Asset-Backed Securities

    9.8  

Certificates of Deposit

    0.3  

Corporate Bonds and Notes

    18.1  

International Debt

    7.6  

Loan Agreements

    1.1  

Mortgage-Backed Securities

    54.6  

Municipal Bonds

    0.1  

Non-US Bonds

    1.4  

United States Government Agencies

    1.3  

United States Government Treasuries

    3.5  

Common Stocks

    1.0  

Preferred Stocks

    0.1  

Warrants & Rights

    — *

Options Purchased

    0.1  

Short-Term Investments

    17.1  

Other Securities

    6.0  
      

Total Investments

    122.1  

Other Assets and Liabilities, Net

    (22.1 )
      
   100.0  
      

Futures Contracts

    0.2  

Options Written

    (0.1 )

Index Swap Contracts

    — *

Interest Rate Swap Contracts

    0.1  

Credit Default Swap Contracts

    (— )*

Foreign Currency Exchange Contracts

    — *

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

156   Multistrategy Bond Fund

Table of Contents

Russell Investment Company

Russell Funds

Notes to Schedules of Investments — October 31, 2007

 

 

Footnotes:

(Æ) Non-income producing.
(Ï) Forward commitment.
(Ê) Adjustable or floating rate security. Rate shown reflects rate in effect at period end.
(ƒ) Perpetual floating rate security. Rate shown reflects rate in effect at period end.
(ö) Real Estate Investment Trust (REIT).
(m) Bond is insured by a guarantor.
(ß) Illiquid security.
(Ø) In default.
(ç) At amortized cost, which approximates market.
(ž) Rate noted is yield-to-maturity from date of acquisition.
(æ) 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.
(§) 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.
(×) The security is purchased with the cash collateral from the securities loaned.
(Ñ) All or a portion of the shares of this security are on loan.
(Þ) 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.
(Å) Illiquid and restricted security.
(å) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into by the Fund. See Note 2.
(Ú) All or a portion of the shares of this security are held as collateral in connection with securities sold short.

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

Notes to Schedules of Investments   157

Table of Contents

Russell Investment Company

Russell Funds

Notes to Schedules of Investments, continued — October 31, 2007

 

 

Foreign Currency Abbreviations:

 

ARS - Argentine peso

   HKD - Hong Kong dollar   PEN - Peruvian nouveau sol

AUD - Australian dollar

   HUF - Hungarian forint   PHP - Philippine peso

BRL - Brazilian real

   IDR - Indonesian rupiah   PKR - Pakistani rupee

CAD - Canadian dollar

   IEP - Irish pundt   PLN - Polish zloty

CHF - Swiss franc

   ILS - Israeli shekel   RUB - Russian ruble

CLP - Chilean peso

   INR - Indian rupee   SEK - Swedish krona

CNY - Chinese renminbi yuan

   ISK- Iceland Krona   SGD - Singapore dollar

COP - Colombian peso

   JPY - Japanese yen   SKK - Slovakian koruna

CRC - Costa Rica colon

   KES - Kenyan schilling   THB - Thai baht

CZK - Czech koruna

   KRW - South Korean won   TRY - Turkish lira

DKK - Danish krone

   MXN - Mexican peso   TWD - Taiwanese dollar

EGP - Egyptian pound

   MYR - Malaysian ringgit   USD - United States dollar

EUR - Euro

   NOK - Norwegian krone   VEB - Venezuelan bolivar

GBP - British pound sterling

   NZD - New Zealand dollar   VND - Vietnam dong
    ZAR - South African rand
158   Notes to Schedules of Investments

Table of Contents

 

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Table of Contents

Russell Investment Company

Russell Funds

Statements of Assets and Liabilities — October 31, 2007

Amounts in thousands   Diversified Equity
Fund		    Special Growth
Fund
    

Assets

     

Investments, at identified cost

   $ 4,285,986    $ 2,004,397

Investments, at market***

     5,187,456      2,202,680

Cash

     125      —

Cash (Restricted)

     —      —

Foreign currency holdings*

     8      —

Unrealized appreciation on foreign currency exchange contracts

     —      —

Receivables:

     

Dividends and interest

     3,999      522

Dividends from affiliated money market funds

     747      432

Investments sold

     65,642      19,476

Fund shares sold

     5,502      2,102

Foreign taxes recoverable

     —      —

Miscellaneous receivables

     —      —

From Adviser

     —      —

Daily variation margin on futures contracts

     2,587      1,689

Prepaid expenses

     5      4

Unrealized appreciation on index swap contracts

     —      —

Interest rate swap contracts, at market value*****

     —      —

Credit default swap contracts, at market value****

     —      —
            

Total assets

     5,266,071      2,226,905
            
Liabilities     

Payables:

     

Due to Custodian

     —      —

Investments purchased

     79,430      19,566

Fund shares redeemed

     2,699      1,005

Accrued fees to affiliates

     3,887      1,564

Other accrued expenses

     259      170

Dividends for securities sold short

     —      —

Daily variation margin on futures contracts

     —      —

Deferred tax liability

     —      —

Unrealized depreciation on foreign currency exchange contracts

     —      —

Options written, at market value**

     —      —

Securities sold short, at market value ******

     —      —

Payable upon return of securities loaned

     394,612      617,812

Unrealized depreciation on index swap contracts

     —      —

Interest rate swap contracts, at market value*****

     —      —

Credit default swaps, at market value****

     —      —
            

Total liabilities

     480,887      640,117
            
    

Net Assets

   $ 4,785,184    $ 1,586,788
            

 

See accompanying notes which are an integral part of the financial statements.

160   Statements of Assets and Liabilities

Table of Contents
Quantitative Equity
Fund		    International
Securities Fund		    Global Equity
Fund		    Multistrategy Bond
Fund
        
        
$ 4,727,907    $ 4,227,466    $ 1,178,446    $ 7,872,816
  5,380,351      5,242,131      1,286,662      7,871,290
  —      12,602      —      —
  —      15,808      —      11,497
  —      11,718      8,129      157
  —      24,553      7,813      19,998
        
  3,282      7,526      1,238      49,915
  836      1,299      294      3,414
  158,059      21,190      11,188      409,997
  5,435      5,760      1,522      10,171
  —      402      246      —
  —      4      1      —
  —      —      —      97
  2,819      1,253      541      8,917
  5      5      31      5
  —      —      —      976
  —      —      —      29,070
  —      —      —      1,255
                        
  5,550,787      5,344,251      1,317,665      8,416,759
                        
        
        
  —      —      1,452      20,994
  172,051      23,656      9,340      1,500,920
  1,703      9,389      1,275      2,269
  3,827      4,244      1,137      4,067
  296      638      234      394
  264      —      —      —
  —     
 8,013
      —      2,173
  —      19      24      —
  —      14,737      6,029      19,960
  —      —      —      4,342
  509,705      —      —      —
  165,550      801,488      141,102      386,453
  —      134      —      814
  —      —      —      24,559
  —      —      —      3,435
                        
  853,396      862,318      160,593      1,970,380
                        
        
$ 4,697,391    $ 4,481,933    $ 1,157,072    $ 6,446,379
                        

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   161

Table of Contents

Russell Investment Company

Russell Funds

Statements of Assets and Liabilities, continued — October 31, 2007

Amounts in thousands   Diversified Equity
Fund		    Special Growth
Fund
    

Net Assets Consist of:

     

Undistributed (overdistributed) net investment income

   $ 1,084    $ 2,101

Accumulated net realized gain (loss)

     327,403      135,388

Unrealized appreciation (depreciation) on:

     

Investments (International Securities Fund and Global Equity Fund - net of deferred tax liability for foreign capital gains taxes)

     901,470      198,283

Futures contracts

     6,818      4,957

Options written

     —      —

Credit default swaps

     —      —

Index swap contracts

     —      —

Interest rate swap contracts

     —      —

Securities sold short

     —      —

Foreign currency-related transactions

     —      —

Shares of beneficial interest

     858      282

Additional paid-in capital

     3,547,551      1,245,777
            

Net Assets

   $ 4,785,184    $ 1,586,788
            

Net Asset Value, offering and redemption price per share:

     

Net asset value per share: Class A*******

   $ 55.84    $ 54.04

Maximum offering price per share (Net asset value plus sales charge of 5.75%********): Class A

   $ 59.25    $ 57.34

Class A — Net assets

   $ 7,437,512    $ 3,270,540

Class A — Shares outstanding ($.01 par value)

     133,192      60,520

Net asset value per share: Class C*******

   $ 53.67    $ 49.25

Class C — Net assets

   $ 168,870,395    $ 70,322,259

Class C — Shares outstanding ($.01 par value)

     3,146,483      1,427,759

Net asset value per share: Class E*******

   $ 55.85    $ 54.05

Class E — Net assets

   $ 79,125,220    $ 29,837,861

Class E — Shares outstanding ($.01 par value)

     1,416,636      552,062

Net asset value per share: Class S*******

   $ 55.87    $ 56.70

Class S — Net assets

   $ 4,529,750,493    $ 1,483,357,435

Class S — Shares outstanding ($.01 par value)

     81,079,781      26,163,357
Amounts in thousands     

*                Foreign currency holdings - cost

   $ 8    $ —

**              Premiums received on options written

   $ —    $ —

***            Securities on loan included in investments

   $ 424,880    $ 612,070

****          Credit default swap contracts - premiums paid (received)

   $ —    $ —

*****        Interest rate swap contracts - premiums paid (received)

   $ —    $ —

******      Proceeds on securities sold short

   $ —    $ —

*******    Net asset value per share equals class level net assets divided by class level shares of beneficial interest outstanding.

     

******** Multistrategy Bond Fund’s maximum sale charge is 3.75%.

     

 

See accompanying notes which are an integral part of the financial statements.

162   Statements of Assets and Liabilities

Table of Contents
Quantitative Equity
Fund		     International
Securities Fund		     Global Equity
Fund		    Multistrategy Bond
Fund		  
      
      
$ 146     $ 64,976     $ 8,515    $ 33,357  
  284,354       538,538       16,236      (48,111 )
      
 
 		     
652,444		  
 		     1,014,646       108,192      (1,526 )
  5,198       10,733       1,327      10,775  
  —       —       —      1,194  
  —       —       —      (2,044 )
  —       (134 )     —      162  
  —       —       —      26,327  
  (13,218 )     —       —      —  
  —       9,866       2,061      223  
  1,073       493       1,016      6,211  
  3,767,394       2,842,815       1,019,725      6,419,811  
                            
$ 4,697,391     $ 4,481,933     $ 1,157,072    $ 6,446,379  
                            
      
$ 43.67     $ 89.96     $ 11.37    $ 10.37  
$ 46.33     $ 95.45     $ 12.07    $ 10.78  
$ 6,808,621     $ 8,353,347     $ 2,444,908    $ 9,438,614  
  155,916       92,854       214,986      910,046  
$ 42.33     $ 86.15     $ 11.31    $ 10.35  
$ 159,955,110     $ 182,280,941     $ 10,801,861    $ 115,506,581  
  3,778,999       2,115,784       954,865      11,158,592  
$ 43.69     $ 89.99     $ 11.37    $ 10.37  
$ 78,687,715     $ 95,103,085     $ 15,683,531    $ 117,069,577  
  1,800,994       1,056,769       1,379,782      11,292,533  
$ 43.83     $ 91.16     $ 11.39    $ 10.38  
$ 4,451,940,001     $ 4,196,195,491     $ 1,128,141,712    $ 6,204,364,514  
  101,565,703       46,033,224       99,021,788      597,732,006  
      
$ —     $ 11,683     $ 7,799    $ 217  
$ —     $ —     $ —    $ 5,536  
$ 179,752     $ 786,209     $ 143,742    $ 372,245  
$ —     $ —     $ —    $ (136 )
$ —     $ —     $ —    $ (21,816 )
$ 496,487     $ —     $ —    $ —  
      
      

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   163

Table of Contents

Russell Investment Company

Russell Funds

Statements of Operations — For the Fiscal Year Ended October 31, 2007

 

Amounts in thousands   Diversified Equity
Fund		     Special Growth
Fund		  
   

Investment Income

    

Dividends

   $ 61,280     $ 13,652  

Dividends from affiliated money market funds

     13,430       4,679  

Interest

     453       216  

Securities lending income

     938       1,501  

Less foreign taxes withheld

     —       —  
               

Total investment income

     76,101       20,048  
               

Expenses

    

Advisory fees

     30,920       12,583  

Administrative fees

     2,132       699  

Custodian fees

     975       592  

Distribution fees - Class A

     7       4  

Distribution fees - Class C

     1,225       529  

Transfer agent fees

     6,406       2,856  

Professional fees

     140       68  

Registration fees

     242       123  

Shareholder servicing fees - Class C

     408       176  

Shareholder servicing fees - Class E

     187       71  

Trustees’ fees

     72       23  

Printing fees

     223       152  

Offering fees

     8       8  

Dividends from securities sold short

     —       —  

Interest expense from securities sold short

     —       —  

Miscellaneous

     178       61  
               

Expenses before reductions

     43,123       17,945  

Expense reductions

     (56 )     (21 )
               

Net expenses

     43,067       17,924  
               

Net investment income (loss)

     33,034       2,124  
               

Net Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) on:

    

Investments (International Securities Fund and Global Equity Fund - net of deferred tax liability for foreign capital gains taxes)

     358,916       141,660  

Futures contracts

     19,644       8,132  

Options written

     —       —  

Credit default swaps

     —       —  

Index swap contracts

     —       —  

Interest rate swap contracts

     —       —  

Securities sold short

     —       —  

Foreign currency-related transactions

     2       —  
               

Net realized gain (loss)

     378,562       149,792  
               

Net change in unrealized appreciation (depreciation) on:

    

Investments (International Securities Fund and Global Equity Fund - Net of deferred tax liability for foreign capital gains taxes)

     375,626       53,809  

Futures contracts

     (2,377 )     (144 )

Options written

     —       —  

Credit default swaps

     —       —  

Index swap contracts

     —       —  

Interest rate swap contracts

     —       —  

Securities sold short

     —       —  

Foreign currency-related transactions

     —       —  
               

Net change in unrealized appreciation (depreciation)

     373,249       53,665  
               

Net realized and unrealized gain (loss)

     751,811       203,457  
               

Net Increase (Decrease) in Net Assets from Operations

   $ 784,845     $ 205,581  
               

 

* For the period ended February 28, 2007 (commencement of operations) to October 31, 2007.

 

See accompanying notes which are an integral part of the financial statements.

164   Statements of Operations

Table of Contents
Quantitative Equity
Fund		     International
Securities Fund		     Global Equity
Fund*		     Multistrategy Bond
Fund		  
     
     
$ 72,782     $ 100,068     $ 13,121     $ 715  
  9,983       14,539       2,971       42,171  
  467       795       384       232,676  
  191       3,852       400       1,141  
  —       (8,414 )     (1,053 )     —  
                             
  83,423       110,840       15,823       276,703  
                             
     
  31,169       35,211       6,154       29,116  
  2,150       1,966       324       2,454  
  1,001       3,281       534       1,617  
  7       8       3       9  
  1,225       1,297       36       785  
  6,459       5,907       1,176       5,391  
  123       173       95       157  
  249       186       158       392  
  408       432       12       262  
  191       209       24       233  
  73       66       11       83  
  201       257       38       190  
  8       8       64       8  
  4,031       —       —       —  
  1,634       —       —       —  
  174       167       37       212  
                             
  49,103       49,168       8,666       40,909  
  (34 )     (75 )     —       (2,016 )
                             
  49,069       49,093       8,666       38,893  
                             
  34,354       61,747       7,157       237,810  
                             
     
     
 
 		     
346,713		  
 		     541,766       13,821       (2,372 )
  5,905       30,590       2,598       (5,978 )
  —       (1,136 )     —       (5,697 )
  —       —       —       3,666  
  —       (519 )     —       (884 )
  —       —       —       (18,827 )
  (36,967 )     —       —       —  
  —       13,587       1,080       1,013  
                             
  315,651       584,288       17,499       (29,079 )
                             
     
  86,941       323,401       108,192       (18,532 )
  490       6,788       1,327       9,616  
  —       30       —       1,879  
  —       —       —       (2,464 )
  —       (65 )     —       415  
  —       —       —       24,476  
  (4,932 )     —       —       —  
  —       10,884       2,061       1,119  
                             
  82,499       341,038       111,580       16,509  
                             
  398,150       925,326       129,079       (12,570 )
                             
$ 432,504     $ 987,073     $ 136,236     $ 225,240  
                             

 

See accompanying notes which are an integral part of the financial statements.

Statements of Operations   165

Table of Contents

Russell Investment Company

Russell Funds

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

 

    Diversified Equity
Fund		     Special Growth
Fund		  
Amounts in thousands   2007     2006     2007     2006  
       

Increase (Decrease) in Net Assets

        

Operations

        

Net investment income (loss)

   $ 33,034     $ 22,740     $ 2,124     $ (400 )

Net realized gain (loss)

     378,562       149,814       149,792       148,189  

Net change in unrealized appreciation (depreciation)

     373,249       250,175       53,665       18,941  
                               

Net increase (decrease) in net assets from operations

     784,845       422,729       205,581       166,730  
                               

Distributions

        

From net investment income

        

Class A

     (16 )     —       —       —  

Class C

     (120 )     (102 )     —       —  

Class E

     (419 )     (298 )     —       —  

Class S

     (32,507 )     (21,815 )     —       (1 )

From net realized gain

        

Class C

     (7,141 )     (3,691 )     (9,911 )     (5,980 )

Class E

     (3,123 )     (1,492 )     (3,495 )     (2,068 )

Class S

     (163,053 )     (71,829 )     (144,994 )     (82,803 )
                               

Net decrease in net assets from distributions

     (206,379 )     (99,227 )     (158,400 )     (90,852 )
                               

Share Transactions

        

Net increase (decrease) in net assets from share transactions

     425,814       720,383       351,201       174,528  
                               

Total Net Increase (Decrease) in Net Assets

     1,004,280       1,043,885       398,382       250,406  

Net Assets

        

Beginning of period

     3,780,904       2,737,019       1,188,406       938,000  
                               

End of period

   $ 4,785,184     $ 3,780,904     $ 1,586,788     $ 1,188,406  
                               

Undistributed (overdistributed) net investment income included in net assets

   $ 1,084     $ 1,111     $ 2,101     $ (1 )

 

* For the period February 28, 2007 (commencement of operations) to October 31, 2007.

 

See accompanying notes which are an integral part of the financial statements.

166   Statements of Changes in Net Assets

Table of Contents
Quantitative Equity
Fund		     International Securities
Fund		     Global Equity
Fund		   Multistrategy Bond
Fund		  
2007     2006     2007     2006     2007*   2007     2006  
           
           
           
$ 34,354     $ 30,289     $ 61,747     $ 54,402     $ 7,157   $ 237,810     $ 97,625  
  315,651       190,010       584,288       317,456       17,499     (29,079 )     (21,495 )
  82,499       259,052       341,038       321,930       111,580     16,509       32,628  
                                                   
  432,504       479,351       987,073       693,788       136,236     225,240       108,758  
                                                   
           
           
  (16 )     —       —       —       —     (146 )     —  
  (165 )     (120 )     (1,534 )     (516 )     —     (3,694 )     (2,433 )
  (477 )     (436 )     (2,240 )     (539 )     —     (3,921 )     (1,753 )
  (35,129 )     (28,910 )     (74,906 )     (29,811 )     —     (206,940 )     (87,675 )
           
  (8,239 )     (5,834 )     (6,515 )     (4,377 )     —     —       (167 )
  (3,730 )     (2,398 )     (14,325 )     (1,760 )     —     —       (93 )
  (190,999 )     (115,840 )     (286,980 )     (80,360 )     —     —       (4,348 )
                                                   
  (238,755 )     (153,538 )     (386,500 )     (117,363 )     —     (214,701 )     (96,469 )
                                                   
           
  598,724       746,425       369,894       467,484       1,020,836     3,824,075       720,214  
                                                   
  792,473       1,072,238       970,467       1,043,909       1,157,072     3,834,614       732,503  
           
  3,904,918       2,832,680       3,511,466       2,467,557       —     2,611,765       1,879,262  
                                                   
$ 4,697,391     $ 3,904,918     $ 4,481,933     $ 3,511,466     $ 1,157,072   $ 6,446,379     $ 2,611,765  
                                                   
    
$		  
146		  
 		   $ 1,537     $ 64,976     $ 54,339     $ 8,515   $ 33,357     $ 10,284  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   167

Table of Contents

Russell Investment Company

Russell Funds

Financial Highlights — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

     

$

Net Asset Value,
Beginning of
Period

    $
Net
Investment
Income (Loss)(a)		      $
Net Realized
and Unrealized
Gain (Loss)		    $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		     $
Distributions
from Net
Realized Gain		  
Diversified Equity Fund              

Class A

                 

October 31, 2007(2)

    48.45    .14      7.45    7.59    (.20 )   —  

Class C

                 

October 31, 2007

    47.30    (.09 )    8.70    8.61    (.04 )   (2.20 )

October 31, 2006

    43.08    (.11 )    5.60    5.49    (.03 )   (1.24 )

October 31, 2005

    38.64    (.10 )    4.58    4.48    (.04 )   —  

October 31, 2004

    36.27    (.17 )    2.54    2.37    —     —  

October 31, 2003

    30.52    (.13 )    5.88    5.75    — (d)   —  

Class E

                 

October 31, 2007

    49.01    .29      9.04    9.33    (.29 )   (2.20 )

October 31, 2006

    44.46    .23      5.79    6.02    (.23 )   (1.24 )

October 31, 2005

    39.75    .23      4.70    4.93    (.22 )   —  

October 31, 2004

    37.12    .12      2.61    2.73    (.10 )   —  

October 31, 2003

    31.10    .12      6.00    6.12    (.10 )   —  

Class S

                 

October 31, 2007

    49.02    .42      9.05    9.47    (.42 )   (2.20 )

October 31, 2006

    44.45    .35      5.79    6.14    (.33 )   (1.24 )

October 31, 2005

    39.74    .33      4.71    5.04    (.33 )   —  

October 31, 2004

    37.13    .22      2.60    2.82    (.21 )   —  

October 31, 2003

    31.09    .20      6.01    6.21    (.17 )   —  
Special Growth Fund              

Class A

                 

October 31, 2007(2)

    49.13    (.02 )    4.93    4.91    —     —  

Class C

                 

October 31, 2007

    50.08    (.37 )    6.89    6.52    —     (7.35 )

October 31, 2006

    47.85    (.47 )    7.76    7.29    —     (5.06 )

October 31, 2005

    49.16    (.59 )    5.78    5.19    —     (6.50 )

October 31, 2004

    46.99    (.56 )    4.05    3.49    —     (1.32 )

October 31, 2003

    33.52    (.46 )    13.93    13.47    —     —  

Class E

                 

October 31, 2007

    53.90    (.02 )    7.52    7.50    —     (7.35 )

October 31, 2006

    50.79    (.11 )    8.28    8.17    —     (5.06 )

October 31, 2005

    51.47    (.26 )    6.08    5.82    —     (6.50 )

October 31, 2004

    48.77    (.20 )    4.22    4.02    —     (1.32 )

October 31, 2003

    34.53    (.18 )    14.42    14.24    —     —  

Class S

                 

October 31, 2007

    56.07    .11      7.87    7.98    —     (7.35 )

October 31, 2006

    52.52    .02      8.59    8.61    — (d)   (5.06 )

October 31, 2005

    52.89    (.12 )    6.25    6.13    —     (6.50 )

October 31, 2004

    49.95    (.07 )    4.33    4.26    —     (1.32 )

October 31, 2003

    35.28    (.08 )    14.75    14.67    —     —  

 

See accompanying notes which are an integral part of the financial statements.

168   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)(f)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		    %
Portfolio
Turnover Rate(b)
             
             
(.20 )   55.84   15.70   7,438   1.22   1.22   .42     110.60
             
(2.24 )   53.67   18.92   168,871   1.97   1.97   (.18 )   110.60
(1.27 )   47.30   12.98   151,890   1.97   1.97   (.25 )   96.67
(.04 )   43.08   11.60   126,123   1.98   1.98   (.24 )   110.70
—     38.64   6.53   94,663   2.00   2.00   (.45 )   125.03
—     36.27   18.88   64,316   2.05   2.05   (.39 )   109.50
             
(2.49 )   55.85   19.81   79,125   1.22   1.22   .57     110.60
(1.47 )   49.01   13.80   69,011   1.22   1.22   .50     96.67
(.22 )   44.46   12.46   53,227   1.23   1.23   .53     110.70
(.10 )   39.75   7.33   45,413   1.24   1.25   .30     125.03
(.10 )   37.12   19.77   34,229   1.30   1.30   .36     109.50
             
(2.62 )   55.87   20.14   4,529,750   .97   .97   .82     110.60
(1.57 )   49.02   14.12   3,560,003   .97   .97   .75     96.67
(.33 )   44.45   12.71   2,557,669   .98   .98   .77     110.70
(.21 )   39.74   7.61   1,943,583   .99   1.00   .55     125.03
(.17 )   37.13   20.09   1,445,118   1.04   1.04   .61     109.50
             
             
—     54.04   10.01   3,271   1.48   1.48   (.06 )   143.53
             
(7.35 )   49.25   14.63   70,322   2.23   2.23   (.79 )   143.53
(5.06 )   50.08   16.26   67,164   2.23   2.23   (.98 )   154.79
(6.50 )   47.85   10.82   56,084   2.28   2.29   (1.24 )   153.63
(1.32 )   49.16   7.54   46,919   2.29   2.29   (1.15 )   124.97
—     46.99   40.19   36,364   2.36   2.36   (1.21 )   127.15
             
(7.35 )   54.05   15.49   29,838   1.48   1.48   (.04 )   143.53
(5.06 )   53.90   17.12   25,435   1.48   1.48   (.22 )   154.79
(6.50 )   50.79   11.65   21,436   1.54   1.54   (.50 )   153.63
(1.32 )   51.47   8.37   32,028   1.54   1.54   (.39 )   124.97
—     48.77   41.24   16,581   1.62   1.62   (.46 )   127.15
             
(7.35 )   56.70   15.78   1,483,357   1.23   1.23   .21     143.53
(5.06 )   56.07   17.42   1,095,807   1.23   1.23   .03     154.79
(6.50 )   52.52   11.95   860,480   1.27   1.29   (.23 )   153.63
(1.32 )   52.89   8.64   707,851   1.29   1.29   (.14 )   124.97
—     49.95   41.61   631,246   1.35   1.35   (.19 )   127.15

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   169

Table of Contents

Russell Investment Company

Russell Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		     $
Net Realized
and Unrealized
Gain (Loss)		    $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Quantitative Equity Fund              

Class A

                 

October 31, 2007(2)

    40.69    .11     3.05    3.16    —      (.18 )

Class C

                 

October 31, 2007

    40.71    (.06 )   3.85    3.79    (.05 )    (2.12 )

October 31, 2006

    37.22    (.02 )   5.20    5.18    (.03 )    (1.66 )

October 31, 2005

    34.24    (.02 )   3.07    3.05    (.07 )    —  

October 31, 2004

    31.92    (.12 )   2.44    2.32    —      —  

October 31, 2003

    26.53    (.09 )   5.49    5.40    (.01 )    —  

Class E

                 

October 31, 2007

    41.86    .25     3.97    4.22    (.27 )    (2.12 )

October 31, 2006

    38.18    .27     5.34    5.61    (.27 )    (1.66 )

October 31, 2005

    35.04    .26     3.14    3.40    (.26 )    —  

October 31, 2004

    32.55    .14     2.49    2.63    (.14 )    —  

October 31, 2003

    26.94    .12     5.60    5.72    (.11 )    —  

Class S

                 

October 31, 2007

    41.99    .36     3.98    4.34    (.38 )    (2.12 )

October 31, 2006

    38.28    .38     5.36    5.74    (.37 )    (1.66 )

October 31, 2005

    35.13    .35     3.15    3.50    (.35 )    —  

October 31, 2004

    32.64    .22     2.49    2.71    (.22 )    —  

October 31, 2003

    27.01    .20     5.61    5.81    (.18 )    —  
International Securities Fund              

Class A

                 

October 31, 2007(2)

    75.34    .80     13.82    14.62    —      —  

Class C

                 

October 31, 2007

    75.34    .49     18.19    18.68    (1.06 )    (6.81 )

October 31, 2006

    62.35    .61     14.89    15.50    (.26 )    (2.25 )

October 31, 2005

    54.38    .25     8.24    8.49    (.52 )    —  

October 31, 2004

    48.46    — (d)   6.65    6.65    (.73 )    —  

October 31, 2003

    38.51    (.05 )   10.21    10.16    (.21 )    —  

Class E

                 

October 31, 2007

    78.34    1.10     18.96    20.06    (1.60 )    (6.81 )

October 31, 2006

    64.66    1.17     15.45    16.62    (.69 )    (2.25 )

October 31, 2005

    56.28    .69     8.55    9.24    (.86 )    —  

October 31, 2004

    49.98    .39     6.87    7.26    (.96 )    —  

October 31, 2003

    39.61    .28     10.50    10.78    (.41 )    —  

Class S

                 

October 31, 2007

    79.23    1.31     19.20    20.51    (1.77 )    (6.81 )

October 31, 2006

    65.35    1.35     15.61    16.96    (.83 )    (2.25 )

October 31, 2005

    56.84    .88     8.62    9.50    (.99 )    —  

October 31, 2004

    50.44    .53     6.92    7.45    (1.05 )    —  

October 31, 2003

    39.98    .38     10.59    10.97    (.51 )    —  

 

See accompanying notes which are an integral part of the financial statements.

170   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)(f)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		     %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e)		     %
Portfolio
Turnover Rate(b)
             
             
(.18 )   43.67   7.75   6,808   1.35 (j)   1.35   .29     100.78
             
(2.17 )   42.33   9.67   159,955   2.10 (k)   2.10   (.15 )   100.78
(1.69 )   40.71   14.34   155,978   1.98 (g)   1.98   (.05 )   104.52
(.07 )   37.22   8.92   128,236   1.98     1.98   (.07 )   108.48
—     34.24   7.27   98,012   1.99     1.99   (.35 )   91.31
(.01 )   31.92   20.35   65,096   2.02     2.02   (.32 )   108.71
             
(2.39 )   43.69   10.53   78,688   1.35 (l)   1.35   .60     100.78
(1.93 )   41.86   15.18   73,033   1.23 (h)   1.23   .70     104.52
(.26 )   38.18   9.72   53,725   1.23     1.23   .70     108.48
(.14 )   35.04   8.08   48,646   1.24     1.24   .40     91.31
(.11 )   32.55   21.28   37,594   1.28     1.28   .43     108.71
             
(2.50 )   43.83   10.79   4,451,940   1.10 (m)   1.10   .84     100.78
(2.03 )   41.99   15.49   3,675,907   .98 (i)   .98   .95     104.52
(.35 )   38.28   9.99   2,650,719   .98     .98   .94     108.48
(.22 )   35.13   8.32   2,057,082   .99     .99   .65     91.31
(.18 )   32.64   21.58   1,555,289   1.02     1.02   .69     108.71
             
             
—     89.96   19.42   8,354   1.45     1.45   1.57     108.37
             
(7.87 )   86.15   27.02   182,281   2.20     2.20   .64     108.37
(2.51 )   75.34   25.54   156,760   2.21     2.21   .87     76.65
(.52 )   62.35   15.72   118,556   2.24     2.25   .42     79.49
(.73 )   54.38   13.83   80,622   2.29     2.29   —     76.01
(.21 )   48.46   26.52   47,087   2.42     2.42   (.12 )   69.11
             
(8.41 )   89.99   27.98   95,103   1.45     1.45   1.37     108.37
(2.94 )   78.34   26.50   73,044   1.45     1.46   1.61     76.65
(.86 )   64.66   16.56   49,490   1.49     1.50   1.12     79.49
(.96 )   56.28   14.68   38,630   1.54     1.54   .72     76.01
(.41 )   49.98   27.57   26,768   1.67     1.67   .67     69.11
             
(8.58 )   91.16   28.30   4,196,195   1.20     1.20   1.62     108.37
(3.08 )   79.23   26.80   3,281,662   1.20     1.21   1.85     76.65
(.99 )   65.35   16.88   2,299,511   1.23     1.25   1.41     79.49
(1.05 )   56.84   14.98   1,673,516   1.29     1.29   .98     76.01
(.51 )   50.44   27.81   1,247,393   1.42     1.42   .90     69.11

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   171

Table of Contents

Russell Investment Company

Russell Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		     $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Global Equity Fund              

Class A

                 

October 31, 2007(1)

    10.00    .05     1.32      1.37    —      —  

Class C

                 

October 31, 2007(1)

    10.00    — (d)   1.31      1.31    —      —  

Class E

                 

October 31, 2007(1)

    10.00    .06     1.31      1.37    —      —  

Class S

                 

October 31, 2007(1)

    10.00    .08     1.31      1.39    —      —  
Multistrategy Bond Fund              

Class A

                 

October 31, 2007(2)

    10.38    .30     (.03 )    .27    (.28 )    —  

Class C

                 

October 31, 2007

    10.34    .39     (.02 )    .37    (.36 )    —  

October 31, 2006

    10.31    .35     .03      .38    (.33 )    (.02 )

October 31, 2005

    10.63    .24     (.20 )    .04    (.23 )    (.13 )

October 31, 2004

    10.54    .17     .31      .48    (.24 )    (.15 )

October 31, 2003

    10.03    .23     .50      .73    (.22 )    —  

Class E

                 

October 31, 2007

    10.35    .49     (.03 )    .46    (.44 )    —  

October 31, 2006

    10.32    .43     .03      .46    (.41 )    (.02 )

October 31, 2005

    10.64    .32     (.20 )    .12    (.31 )    (.13 )

October 31, 2004

    10.55    .24     .32      .56    (.32 )    (.15 )

October 31, 2003

    10.03    .31     .50      .81    (.29 )    —  

Class S

                 

October 31, 2007

    10.36    .52     (.04 )    .48    (.46 )    —  

October 31, 2006

    10.33    .45     .03      .48    (.43 )    (.02 )

October 31, 2005

    10.65    .35     (.21 )    .14    (.33 )    (.13 )

October 31, 2004

    10.56    .27     .31      .58    (.34 )    (.15 )

October 31, 2003

    10.04    .34     .50      .84    (.32 )    —  

 

See accompanying notes which are an integral part of the financial statements.

172   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)(f)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average Net
Assets(c)(e) 		    %
Portfolio
Turnover Rate(b)
             
             
—     11.37   13.70   2,445   1.58   1.58   .77     62.05
             
—     11.31   13.10   10,802   2.33   2.33   (.04 )   62.05
             
—     11.37   13.70   15,683   1.58   1.58   .90     62.05
             
—     11.39   13.90   1,128,142   1.33   1.33   1.12     62.05
             
             
(.28 )   10.37   2.69   9,439   1.02   1.06   4.79     756.38
             
(.36 )   10.35   3.68   115,507   1.77   1.81   3.78     756.38
(.35 )   10.34   3.80   83,363   1.84   1.86   3.39     261.90
(.36 )   10.31   .35   69,427   1.87   1.87   2.31     196.81
(.39 )   10.63   4.66   53,573   1.89   1.89   1.58     221.31
(.22 )   10.54   7.37   36,397   1.94   1.95   2.22     281.71
             
(.44 )   10.37   4.54   117,069   1.02   1.06   4.63     756.38
(.43 )   10.35   4.57   51,698   1.09   1.11   4.16     261.90
(.44 )   10.32   1.10   38,311   1.12   1.12   3.06     196.81
(.47 )   10.64   5.43   31,621   1.14   1.14   2.32     221.31
(.29 )   10.55   8.23   20,975   1.18   1.19   3.01     281.71
             
(.46 )   10.38   4.79   6,204,364   .77   .81   4.87     756.38
(.45 )   10.36   4.82   2,476,704   .84   .86   4.41     261.90
(.46 )   10.33   1.35   1,771,524   .87   .87   3.32     196.81
(.49 )   10.65   5.68   1,284,520   .89   .89   2.58     221.31
(.32 )   10.56   8.49   886,596   .94   .94   3.22     281.71

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   173

Table of Contents

Russell Investment Company

Russell Funds

Notes to Financial Highlights — October 31, 2007

 

 

(1) For the period February 28, 2007 (commencement of operations) to October 31, 2007.
(2) For the period March 1, 2007 (commencement of operations) to October 31, 2007.
(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 RIMCo as the investment adviser and transfer agent, and for certain funds, custody credit arrangements.
(f) Total return for A shares does not reflect a front-end sales charge.
(g) The annualized net expense ratio is 1.97% not including the dividends from securities sold short as contractually agreed by the Adviser.
(h) The annualized net expense ratio is 1.22% not including the dividends from securities sold short as contractually agreed by the Adviser.
(i) The annualized net expense ratio is 0.96% not including the dividends from securities sold short as contractually agreed by the Adviser.
(j) The annualized net expense ratio is 1.25% not including the dividends from securities sold short as contractually agreed by the Adviser.
(k) The annualized net expense ratio is 1.97% not including the dividends from securities sold short as contractually agreed by the Adviser.
(l) The annualized net expense ratio is 1.22% not including the dividends from securities sold short as contractually agreed by the Adviser.
(m) The annualized net expense ratio is 0.97% not including the dividends from securities sold short as contractually agreed by the Adviser.

 

See accompanying notes which are an integral part of the financial statements.

174   Notes to Financial Highlights

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Russell Investment Company

Russell Funds

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds (each a “Fund” and collectively the “Funds”). These financial statements report on six 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, as amended. 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 Russell Investment Management Company (“RIMCo”).

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;

 

  •  

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 New York Stock Exchange, 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.

 

  •  

Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded.

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. 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 normal pricing methods. 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 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

Notes to Financial Statements   175

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Russell Funds

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value. 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. 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. 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 of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural 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.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds’ financial statement disclosure.

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 is required for the Funds.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Funds’ net assets and results of operations.

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    Multistrategy Bond

Quarterly

   April, July, October and December    Diversified Equity and
Quantitative Equity

Annually

   Mid-December    Special Growth,
International Securities and
Global Equity
176   Notes to Financial Statements

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Russell Investment Company

Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 RIMCo (“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 A, Class C, 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 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.

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 and Global Equity Funds 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, 2007. 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 Statement of Operations for the Funds.

 

Funds    Deferred Tax
Liability		    Capital Gains
Taxes
     

International Securities

    $ 19,050    $ 15,772

Global Equity

      24,396      26,626
Notes to Financial Statements   177

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Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Derivatives

To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds’ Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting its investment strategies.

The Funds typically use derivatives in three ways: exposing cash reserves to markets, hedging and return enhancement. The Funds may pursue their strategy of being fully invested by exposing cash reserves to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as though cash reserves were actually invested in those markets. Hedging is also used by the 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, the 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 investment transactions consistent with the Funds’ investment objective and strategies, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts (“contracts”). The International Securities and Global Equity Funds may enter into forward foreign currency overlays on liquidity reserve balances. Additionally, from time to time the International Securities, Global Equity 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, 2007 are presented on the Schedules 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 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.

Loan Agreements

The Multistrategy Bond Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. At the period ended October 31, 2007, the Multistrategy Bond Fund had $3,058,054 in unfunded loan commitments.

178   Notes to Financial Statements

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Russell Investment Company

Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 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, 2007, the International Securities Fund and the MultiStrategy Bond Fund had cash collateral balances of $15,808,373 and $11,497,067 respectively 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 the Funds or to effect investment transactions consistent with the Funds’ investment objectives and strategies. Swap agreements are two party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, the two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular investments or instruments. The returns to be exchanged between the parties are calculated with respect to a “notional amount” (i.e. a specified dollar amount that is hypothetically invested in a “basket” of securities representing a particular index). Amounts paid to and received from the swap counterparties representing capital appreciation and depreciation on the underlying securities and accrued interest expense and interest income are recorded as net realized gain (loss). The Funds are exposed to credit risk in the event of non-performance by the swap counterparties; however, the Funds do not anticipate non-performance by the counterparties.

The Multistrategy Bond, Global Equity 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

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Russell Funds

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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 the Funds engage in a swap, they exchange their obligations to pay or rights to receive payments for the obligations to pay or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments).

Interest rate swaps are counterparty agreements and can be customized to meet each party’s needs and involve the exchange of a fixed payment per period for a payment that is not fixed. Currency swaps are agreements 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 to the original party. Credit default swaps are counterparty agreements which allow the transfer of third party credit risk (the possibility that an 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 Funds expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. The net amount of the excess, if any, of the Funds’ obligations over its 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 Fund’s obligations, if any, with respect to such 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.

Short Sales

The Quantitative Equity Fund may enter into short sale transactions. In a short sale, the seller sells a security that it does not own, typically a security borrowed from a broker or dealer. Because the seller remains liable to return the underlying security that it borrowed from the broker or dealer, the seller must purchase the security prior to the date on which delivery to the broker or dealer is required. The Fund will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The Fund will realize a gain if the security declines in price between those dates. The making of short sales exposes the Fund to the risk of liability for the market value of the security that is sold (the amount of which liability increases as the market value of the underlying security increases), in addition to the costs associated with establishing, maintaining and closing out the short position.

Although the Fund’s potential for gain as a result of a short sale is limited to the price at which it sold the security short less the cost of borrowing the security, its potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. When the Fund makes a short sale, the Fund may use all or a portion of the cash proceeds of short sales to purchase additional securities or for any other permissible Fund purpose. To the extent necessary to meet collateral requirements, the Fund is required to pledge assets in a segregated account maintained by the Fund’s custodian for the benefit of the broker. The Fund also may use securities it owns to meet any such collateral obligations. Until a Fund replaces a borrowed security in connection with a short sale, the Fund will: (a) maintain daily a segregated account, containing cash, cash equivalents, or liquid marketable securities, at such a level that the amount deposited in the segregated account plus the amount deposited with the broker as collateral will equal the current requirement under Regulation T promulgated by the Board of Governors of the Federal Reserve System under the authority of section 7 and 8 of the Securities Exchange Act of 1934, as amended; or (b) otherwise cover its short position in accordance with positions taken by the staff of the Securities and Exchange Commission (e.g., taking an offsetting long position in the security sold short.) As of October 31, 2007, $633,475,075 was held as collateral.

Investments in Emerging Markets

Investing in emerging markets may involve special risks and considerations for the International Securities Fund and Global Equity 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.

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Russell Funds

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Mortgage-Related and Other Asset-Backed Securities

The Multistrategy Bond Fund may invest in mortgage or other asset-backed securities. These securities may include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of some mortgage or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.

One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). Payments received for the IOs are included in interest income on the Statement of Operations. Because principal will not be received at the maturity of an IO, adjustments are made to the book value of the security on a daily basis until maturity. These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

Inflation-Indexed Bonds

The Multistrategy Bond Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity.

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, 2007, 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

    $ 4,745,744,366    $ 4,411,560,133

Special Growth

      2,054,936,254      1,868,325,084

Quantitative Equity

      5,743,667,132      5,409,528,248

International Securities

      3,926,332,261      3,918,516,917

Global Equity

      1,536,707,286      569,087,940

Multistrategy Bond

      32,409,038,779      29,053,202,554

Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) for the Multistrategy Bond Fund totaled $4,082,743,006 and $4,005,923,161 respectively, for the period ended October 31, 2007.

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Russell Funds

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Written Options Contracts

Transactions in written options contracts for the period ended October 31, 2007 for the following Funds were as follows:

 

     International Securities Fund      Multistrategy Bond Fund  
      Number of
Contracts		      Premiums
Received		      Number of
Contracts		      Premiums
Received		  
           

Outstanding October 31, 2006

    416      $ 1,886,640      1,169      $ 1,995,299  

Opened

    2,736        12,508,567      180,924        62,356,265  

Closed

    (3,152 )      (14,395,207 )    (152,341 )      (54,959,740 )

Expired

    —        —      (12,717 )      (3,855,515 )
                               

Outstanding October 31, 2007

    —      $ —      17,035      $ 5,536,309  
                               

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 each Fund’s 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 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, 2007, the non-cash collateral pledged for the securities on loan in the following funds was:

 

      Non-Cash
Collateral Value		    Non-Cash Collateral Holding
     

Diversified Equity

    $ 33,424,879    Pool of US Government Securities

Special Growth

      10,237,418    Pool of US Government Securities

Quantitative Equity

      19,167,245    Pool of US Government Securities

International Securities

      8,006,827    Pool of US Government Securities

Global Equity

      9,289,729    Pool of US Government Securities

Custodian

The Funds have entered into arrangements with their custodian whereby custody credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ expenses. During the period ended October 31, 2007, the Funds’ custodian fees were reduced by the following amounts under these arrangements which are included in expense reductions on the Statement of Operations:

 

Funds    Amount
Paid
  

Diversified Equity

    $ 56,368

Special Growth

      21,291

Quantitative Equity

      33,577

International Securities

      75,183

Multistrategy Bond

      543,157
182   Notes to Financial Statements

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4.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

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 RIC Money Market Fund. As of October 31, 2007, $1,617,993,698 of the Money Market Fund’s net assets represents investments by the Funds.

The advisory and administrative fees are based upon the average daily net assets of each Fund at the rates specified in the tables below, are payable monthly and total $145,152,197 and $9,725,470 respectively, for the period ended October 31, 2007.

 

     Annual Rate  
Funds    Adviser        Administrative  

Special Growth

    .90 %      .05 %

Global Equity

    .95        .05  

For the Diversified Equity Fund, the Quantitative Equity Fund, the International Securities Fund, and the Multistrategy Bond Fund, the advisory fee is based on the asset levels of the Funds. The advisory and administrative fee rates for these Funds are as follows:

 

     Diversified Equity Fund          Quantitative Equity Fund  
     Annual Rate          Annual Rate  
Average Daily Net Assets    Advisory     Administrative           Advisory     Administrative  
           

First $2 Billion

    .73 %   .05 %      .73 %   .05 %

Next $3 Billion

    .72     .05        .72     .05  

Over $5 Billion

    .70     .05        .70     .05  

 

     International Securities Fund          Multistrategy Bond Fund  
     Annual Rate          Annual Rate  
Average Daily Net Assets    Advisory     Administrative           Advisory     Administrative  
           

First $2 Billion

    .90 %   .05 %      .60 %   .05 %

Next $3 Billion

    .89     .05        .59     .05  

Over $5 Billion

    .87     .05        .57     .05  

For the Multistrategy Bond Fund, there was a voluntary advisory fee waiver of 0.03% applicable to the period ended October 31, 2007, totaling $1,472,346.

The Adviser does not have the ability to recover amounts waived or reimbursed from previous periods.

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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 transfer agency fees paid by the Funds presented herein for the period ended October 31, 2007 were $28,193,900.

Distributor and Shareholder Servicing

Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributors, Inc. (“Distributor”), a wholly-owned subsidiary of RIMCo, serves as distributor for all Investment Company portfolio shares, including Class A, Class C, Class E and Class S 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 were primarily intended to result in the sale of the Class A and

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Class C 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 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 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 Financial Industry Regulatory Authority (“FINRA”), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on Class A and Class C Shares of the Funds may not exceed 7.25% and 6.25%, respectively, of total gross sales, subject to certain exclusions. These limitations are imposed at the class level on each class of shares of each Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Class A and Class C shares may pay more than the economic equivalent of the maximum sales charges permitted by FINRA.

For the period ended October 31, 2007, the sales commissions paid to the selling agents for the sale of Class A shares are as follows:

 

Funds    Aggregate
Front-End
Sales Charges
on Class A Shares		    Class A Front-End
Sales Charges
Retained by
Distributor
     

Diversified Equity

   $ 103,953    $ 20,364

Special Growth

     57,176      10,340

Quantitative Equity

     101,741      19,868

International Securities

     113,832      21,675

Global Equity

     30,332      5,643

Multistrategy Bond

     104,423      21,353

Brokerage Commissions

The Funds will effect transactions through Russell Implementation Services, Inc. (“RIS”) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions, or (ii) to execute portfolio securities transactions for the portion of each Fund’s assets that RIMCo determines not to allocate to money managers, including assets allocated to the “select holdings” strategy, and for each Fund’s cash reserves.

The Funds effect certain transactions through BNY ConvergeFX Group — LJR Recapture Services (“LJR”) and its global network of correspondent brokers. LJR is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through LJR and its correspondents are used (i) to obtain research services for RIMCo to assist it in its capacity as a manager of managers and (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds’ money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through LJR and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through LJR based upon asset class, investment style and other factors. Research services provided to RIMCo by LJR or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be generally obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients.

LJR may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through LJR and their 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 RIMCo’s research budget has been met, as determined annually in the Soft Dollar Committee budgeting process.

Additionally, the Funds paid brokerage commissions to non-affiliated brokers who provided brokerage and research services to the Adviser.

184   Notes to Financial Statements

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Accrued fees payable to affiliates as October 31, 2007 were as follows:

 

      Diversified Equity
Fund		    Special Growth
Fund		    Quantitative Equity
Fund		    International
Securities Fund		    Global Equity
Fund		    Multistrategy Bond
Fund
                 

Advisory Fees

    $ 2,927,590    $ 1,192,512    $ 2,885,626    $ 3,332,103    $ 905,570    $ 3,122,582

Administration Fees

      199,356      66,251      196,465      184,326      47,662      271,508

Distribution Fees

      109,388      45,658      104,378      116,822      7,005      78,591

Shareholder Servicing Fees

      52,650      21,365      51,061      58,027      5,441      50,747

Transfer Agent Fees

      598,093      238,499      589,345      552,956      171,582      543,007

Trustee Fees

      274      140      315      213      78      311
                                         
   $ 3,887,351    $ 1,564,424    $ 3,827,190    $ 4,244,447    $ 1,137,338    $ 4,066,747
                                         

Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives additional annual compensation of $52,000.

 

5.   Federal Income Taxes

Multistrategy Bond Fund 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 for October 31, 2014 and October 31, 2015 are $14,540,672 and $15,723,968, respectively, totaling $30,264,640 for the period ending October 31, 2007.

Notes to Financial Statements   185

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At October 31, 2007, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:

 

      Diversified Equity Fund     Special Growth Fund     Quantitative Equity Fund  
      

Cost of Investments

    $ 4,317,302,243     $ 2,010,622,650     $ 4,752,318,662  
                        

Unrealized Appreciation

    $ 958,100,189     $ 255,648,442     $ 734,059,793  

Unrealized Depreciation

      (87,946,720 )     (63,591,499 )     (106,027,231 )
                        

Net Unrealized Appreciation (Depreciation)

    $ 870,153,469     $ 192,056,943     $ 628,032,562  
                        

Undistributed Ordinary Income

    $ 101,838,135     $ 43,980,996     $ 54,441,765  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 264,782,124     $ 104,688,775     $ 259,677,773  

Tax Composition of Distributions:

       

Ordinary Income

    $ 69,624,958     $ 41,729,987     $ 70,564,921  

Long-Term Capital Gains

    $ 136,754,180     $ 116,670,315     $ 168,189,056  
      International Securities Fund     Global Equity Fund     Multistrategy Bond Fund  
      

Cost of Investments

    $ 4,265,661,622     $ 1,182,683,673     $ 7,877,888,023  
                        

Unrealized Appreciation

    $ 1,022,050,439     $ 137,752,259     $ 219,407,544  

Unrealized Depreciation

      (45,580,905 )     (33,774,262 )     (226,005,976 )
                        

Net Unrealized Appreciation (Depreciation)

    $ 976,469,534     $ 103,977,997     $ (6,598,432 )
                        

Undistributed Ordinary Income

    $ 292,711,164     $ 29,864,523     $ 57,521,509  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 358,648,545     $ 1,327,797     $ (30,264,640 )

Tax Composition of Distributions:

       

Ordinary Income

    $ 184,124,769     $ —     $ 214,700,400  

Long-Term Capital Gains

    $ 202,375,410     $ —     $ —  

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
Diversified Equity Fund    2007     2006     2007     2006  
        
        

Class A(2)

         

Proceeds from shares sold

    158     —     $ 8,096     $ —  

Proceeds from reinvestment of distributions

    —     —       15       —  

Payments for shares redeemed

    (25 )   —       (1,310 )     —  
                            

Net increase (decrease)

    133     —       6,801       —  
                            
        

Class C

         

Proceeds from shares sold

    569     653       27,724       29,359  

Proceeds from reinvestment of distributions

    150     83       6,962       3,657  

Payments for shares redeemed

    (783 )   (453 )     (38,789 )     (20,433 )
                            

Total net increase (decrease)

    (64 )   283       (4,103 )     12,583  
                            
        

Class E

         

Proceeds from shares sold

    339     403       17,252       18,678  

Proceeds from reinvestment of distributions

    73     39       3,539       1,788  

Payments for shares redeemed

    (403 )   (232 )     (20,552 )     (10,766 )
                            

Total net increase (decrease)

    9     210       239       9,700  
                            
        
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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Diversified Equity Fund    2007     2006     2007     2006  
        
        

Class S

         

Proceeds from shares sold

    20,006     18,131     $ 1,008,986     $ 842,087  

Proceeds from reinvestment of distributions

    3,923     2,004       190,965       91,133  

Payments for shares redeemed

    (15,471 )   (5,050 )     (777,074 )     (235,120 )
                            

Net increase (decrease)

    8,458     15,085       422,877       698,100  
                            

Total increase (decrease)

    8,536     15,578     $ 425,814     $ 720,383  
                            
        
     Shares     Dollars  
Special Growth Fund    2007     2006     2007     2006  
        
        

Class A(2)

         

Proceeds from shares sold

    82     —     $ 4,191     $ —  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (22 )   —       (1,153 )     —  
                            

Net increase (decrease)

    60     —       3,038       —  
                            
        

Class C

         

Proceeds from shares sold

    249     270       11,647       13,121  

Proceeds from reinvestment of distributions

    215     127       9,576       5,785  

Payments for shares redeemed

    (377 )   (228 )     (17,745 )     (11,060 )
                            

Net increase (decrease)

    87     169       3,478       7,846  
                            
        

Class E

         

Proceeds from shares sold

    143     121       7,262       6,297  

Proceeds from reinvestment of distributions

    72     42       3,492       2,068  

Payments for shares redeemed

    (135 )   (114 )     (6,899 )     (5,898 )
                            

Net increase (decrease)

    80     49       3,855       2,467  
                            
        

Class S

         

Proceeds from shares sold

    8,165     4,747       430,955       253,937  

Proceeds from reinvestment of distributions

    2,759     1,570       139,972       79,639  

Payments for shares redeemed

    (4,303 )   (3,158 )     (230,097 )     (169,361 )
                            

Net increase (decrease)

    6,621     3,159       340,830       164,215  
                            

Total increase (decrease)

    6,848     3,377     $ 351,201     $ 174,528  
                            
     Shares     Dollars  
Quantitative Equity Fund    2007     2006     2007     2006  
        
        

Class A(2)

         

Proceeds from shares sold

    185     —     $ 7,805     $ —  

Proceeds from reinvestment of distributions

    —     —       15       —  

Payments for shares redeemed

    (29 )   —       (1,258 )     —  
                            

Net increase (decrease)

    156     —       6,562       —  
                            
        
Notes to Financial Statements   187

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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Quantitative Equity Fund    2007     2006     2007     2006  
        
        
        

Class C

         

Proceeds from shares sold

    665     773     $ 27,139     $ 29,611  

Proceeds from reinvestment of distributions

    204     154       8,042       5,745  

Payments for shares redeemed

    (922 )   (540 )     (37,845 )     (20,768 )
                            

Net increase (decrease)

    (53 )   387       (2,664 )     14,588  
                            
        

Class E

         

Proceeds from shares sold

    420     450       17,654       17,705  

Proceeds from reinvestment of distributions

    103     73       4,188       2,821  

Payments for shares redeemed

    (467 )   (186 )     (19,530 )     (7,324 )
                            

Net increase (decrease)

    56     337       2,312       13,202  
                            
        

Class S

         

Proceeds from shares sold

    27,414     20,967       1,152,745       827,015  

Proceeds from reinvestment of distributions

    5,378     3,628       219,863       139,968  

Payments for shares redeemed

    (18,776 )   (6,291 )     (780,094 )     (248,348 )
                            

Net increase (decrease)

    14,016     18,304       592,514       718,635  
                            

Total increase (decrease)

    14,175     19,028     $ 598,724     $ 746,425  
                            
     Shares     Dollars  
International Securities Fund    2007     2006     2007     2006  
        

Class A(2)

         

Proceeds from shares sold

    108     —     $ 8,732     $ —  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (15 )   —       (1,253 )     —  
                            

Net increase (decrease)

    93     —       7,479       —  
                            
        

Class C

         

Proceeds from shares sold

    393     432       30,016       29,899  

Proceeds from reinvestment of distributions

    222     73       15,825       4,728  

Payments for shares redeemed

    (580 )   (326 )     (45,142 )     (22,969 )
                            

Net increase (decrease)

    35     179       699       11,658  
                            
        

Class E

         

Proceeds from shares sold

    372     288       29,593       20,770  

Proceeds from reinvestment of distributions

    109     34       8,037       2,297  

Payments for shares redeemed

    (356 )   (155 )     (28,038 )     (11,177 )
                            

Net increase (decrease)

    125     167       9,592       11,890  
                            
        

Class S

         

Proceeds from shares sold

    11,105     9,112       885,474       662,381  

Proceeds from reinvestment of distributions

    4,727     1,599       353,027       107,525  

Payments for shares redeemed

    (11,217 )   (4,482 )     (886,377 )     (325,970 )
                            

Net increase (decrease)

    4,615     6,229       352,124       443,936  
                            

Total increase (decrease)

    4,868     6,575     $ 369,894     $ 467,484  
                            
188   Notes to Financial Statements

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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares           Dollars        
Global Equity Fund    2007           2007        
        
        

Class A(1)

         

Proceeds from shares sold

    314       $ 3,256    

Proceeds from reinvestment of distributions

    —         —    

Payments for shares redeemed

    (99 )       (1,049 )  
                  

Net increase (decrease)

    215         2,207    
                  
        

Class C(1)

         

Proceeds from shares sold

    1,116         11,534    

Proceeds from reinvestment of distributions

    —         —    

Payments for shares redeemed

    (161 )       (1,694 )  
                  

Net increase (decrease)

    955         9,840    
                  
        

Class E(1)

         

Proceeds from shares sold

    1,650         16,391    

Proceeds from reinvestment of distributions

    —         —    

Payments for shares redeemed

    (270 )       (2,851 )  
                  

Net increase (decrease)

    1,380         13,540    
                  
        

Class S(1)

         

Proceeds from shares sold

    106,414         1,072,533    

Proceeds from reinvestment of distributions

    —         —    

Payments for shares redeemed

    (7,392 )       (77,284 )  
                  

Net increase (decrease)

    99,022         995,249    
                  

Total increase (decrease)

    101,572       $ 1,020,836    
                  
     Shares     Dollars  
Multistrategy Bond Fund    2007     2006     2007     2006  
        
        

Class A(2)

         

Proceeds from shares sold

    1,003     —     $ 10,311     $ —  

Proceeds from reinvestment of distributions

    14     —       142       —  

Payments for shares redeemed

    (107 )   —       (1,101 )     —  
                            

Net increase (decrease)

    910     —       9,352       —  
                            
        

Class C

         

Proceeds from shares sold

    6,123     2,562       62,913       26,226  

Proceeds from reinvestment of distributions

    340     244       3,495       2,488  

Payments for shares redeemed

    (3,367 )   (1,475 )     (34,616 )     (15,077 )
                            

Net increase (decrease)

    3,096     1,331       31,792       13,637  
                            
        

Class E

         

Proceeds from shares sold

    8,058     1,533       83,361       15,701  

Proceeds from reinvestment of distributions

    380     181       3,902       1,843  

Payments for shares redeemed

    (2,140 )   (430 )     (21,994 )     (4,406 )
                            

Net increase (decrease)

    6,298     1,284       65,269       13,138  
                            
        
Notes to Financial Statements   189

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Russell Investment Company

Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Multistrategy Bond Fund    2007     2006     2007     2006  
        
        

Class S

         

Proceeds from shares sold

    413,550     75,561     $ 4,281,004     $ 775,132  

Proceeds from reinvestment of distributions

    19,651     8,695       201,952       88,843  

Payments for shares redeemed

    (74,308 )   (16,654 )     (765,294 )     (170,536 )
                            

Net increase (decrease)

    358,693     67,602       3,717,662       693,439  
                            

Total increase (decrease)

    368,997     70,217     $ 3,824,075     $ 720,214  
                            

 

(1) For the period February 28, 2007 (commencement of operations) to October 31, 2007.

 

(2) For the period March 1, 2007 (commencement of operations) to October 31, 2007.

 

7.   Interfund Lending Program

The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity or additional borrowing costs. For the period ended October 31, 2007, the Funds did not participate in the interfund lending program.

 

8.   Record Ownership

As of October 31, 2007, 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      50.5

Special Growth

    3      41.7

Quantitative Equity

    3      49.0

International Securities

    3      48.3

Global Equity

    3      61.8

Multistrategy Bond

    3      63.5

 

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.

190   Notes to Financial Statements

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Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

The following table lists restricted securities held by a Fund that are illiquid. The following table does not include (1) securities deemed liquid by RIMCo 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.

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              
              

Multistrategy Bond Fund - 2.6%

               

AIG SunAmerica Global Financing VI

    05/30/07    3,095,000    103.77    3,212    3,177

Allison Transmission

    10/11/07    1,675,000    102.18    1,712    1,706

Allison Transmission

    10/11/07    840,000    100.22    842    832

American Express Credit Account Master Trust

    08/02/07    19,549,909    100.02    19,558    19,528

Arab Republic of Egypt

    04/12/07    4,920,000    17.47    860    918

Bausch & Lomb, Inc.

    10/22/07    1,605,000    101.50    1,629    1,653

CIT Mortgage Loan Trust

    10/15/07    6,200,000    100.00    6,200    6,200

CIT Mortgage Loan Trust

    10/15/07    1,700,000    100.00    1,700    1,700

CIT Mortgage Loan Trust

    10/15/07    3,150,000    100.00    3,150    3,150

CVS Lease Pass Through

    11/14/06    1,212,413    100.47    1,218    1,192

Capmark Financial Group, Inc.

    05/03/07    5,950,000    99.73    5,928    4,866

Capmark Financial Group, Inc.

    05/03/07    2,825,000    99.96    2,824    2,536

Catlin Insurance Co., Ltd.

    01/11/07    1,280,000    100.68    1,290    1,208

Citic Resources Finance, Ltd.

    08/01/07    500,000    95.38    477    480

Covidien International Finance SA

    10/17/07    1,830,000    99.86    1,828    1,830

Covidien International Finance SA

    10/17/07    3,090,000    99.93    3,088    3,132

Covidien International Finance SA

    10/17/07    2,110,000    99.56    2,101    2,150

Deutsche ALT-A Securities NIM Trust

    03/12/07    911,695    99.65    908    881

DG Funding Trust

    11/04/06    361    10585.00    3,821    3,798

Delta Air Lines, Inc.

    05/01/07    2,510,000    100.00    2,510    2,410

Drummond Co., Inc.

    10/22/07    2,055,000    94.01    1,932    1,932

EEB International, Ltd.

    10/24/07    2,000,000    100.00    2,000    1,982

Entergy Gulf States, Inc.

    11/30/05    570,000    100.01    570    572

FBG Finance, Ltd.

    06/21/05    585,000    99.35    581    569

Farmers Exchange Capital

    01/26/04    4,550,000    100.95    4,613    4,626

First Data Corp.

    10/16/07    2,385,000    94.81    2,261    2,284

GTL Trade Finance, Inc.

    10/17/07    4,635,000    99.44    4,616    4,694

GS Mortgage Securities Corp.

    03/19/07    1,032,356    99.71    1,029    1,022

Gaz Capital for Gazprom

    02/28/07    2,155,000    100.08    2,157    2,125

John Hancock Global Funding II

    04/21/04    440,000    108.19    476    472

Harborview NIM Corp.

    03/13/07    662,476    100.00    662    658

Harborview NIM Corp.

    03/13/07    551,820    99.83    551    551

Harborview NIM Corp.

    03/13/07    716,026    99.88    715    691

HBOS PLC

    09/22/05    1,200,000    99.89    1,198    1,091

LG Electronics, Inc.

    03/03/06    390,000    99.25    387    387

Landsbanki Islands HF

    10/12/07    3,785,000    100.00    3,785    3,723

Lehman Brothers Floating Rate Commercial Mortgage Trust

    02/14/07    1,737,754    100.03    1,738    1,732

MBNA Credit Card Master Note Trust

    07/30/07    3,000,000    100.71    3,021    3,010

Mantis Reef, Ltd.

    10/28/03    585,000    99.92    585    582

McLeodUSA, Inc.

    10/15/07    2,750,000    113.14    3,111    3,094

MetroPCS Wireless, Inc.

    09/05/07    1,000,000    100.25    1,002    992

Panama Canal Railway Co.

    10/29/07    1,000,000    100.00    1,000    1,002

Pemex Project Funding Master Trust

    10/17/07    2,680,000    99.32    2,662    2,703

Pemex Project Funding Master Trust

    10/17/07    2,175,000    103.70    2,255    2,325
Notes to Financial Statements   191

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Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$

Rabobank Capital Funding II

    11/14/03    1,425,000    100.13    1,427    1,363

Resona Preferred Global Securities Cayman, Ltd.

    06/21/07    16,155,000    101.98    16,463    16,223

Royal Bank of Scotland Group PLC

    09/26/07    6,025,000    101.00    6,063    6,089

Ryerson, Inc.

    10/04/07    2,775,000    104.64    2,904    2,851

SMFG Preferred Capital USD 1, Ltd.

    02/28/07    1,000,000    100.46    1,005    935

Santander Perpetual SA Unipersonal

    10/18/07    2,400,000    100.15    2,404    2,390

Symetra Financial Corp.

    10/26/07    2,490,000    99.99    2,490    2,537

Systems 2001 AT LLC

    09/25/03    354,615    102.69    364    365

TNK-BP Finance SA

    09/28/07    1,330,000    101.67    1,352    1,297

TNK-BP Finance SA

    09/28/07    3,430,000    99.17    3,402    3,430

TNK-BP Finance SA

    09/28/07    10,525,000    98.73    10,392    10,384

Tesoro Corp.

    10/29/07    1,200,000    99.38    1,193    1,185

UBS AG

    10/09/07    1,670,000    114.71    1,916    1,916

Unicredit Luxembourg Finance SA

    02/28/07    5,610,000    100.01    5,610    5,597

Washington Mutual Preferred Funding

    12/06/06    600,000    99.83    599    456

Washington Mutual Preferred Funding

    12/06/06    5,900,000    99.72    5,883    5,841

World Financial Properties

    11/08/02    158,663    104.48    166    164

Xlliac Global Funding

    08/03/05    730,000    99.80    729    722
                
               169,911
                

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, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income payable on November 6, 2007 to shareholders on record November 2, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Multistrategy Bond - Class A

    $ 0.0480    $ —    $ —

Multistrategy Bond - Class C

      0.0402      —      —

Multistrategy Bond - Class E

      0.0478      —      —

Multistrategy Bond - Class S

      0.0503      —      —

On December 3, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income payable on December 6, 2007 to shareholders on record December 4, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Multistrategy Bond - Class A

    $ 0.0428    $ —    $ —

Multistrategy Bond - Class C

      0.0367      —      —

Multistrategy Bond - Class E

      0.0428      —      —

Multistrategy Bond - Class S

      0.0449      —      —

On December 13, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 18, 2007 to shareholders on record December 14, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Diversified Equity - Class A

    $ 0.1657    $ 1.1717    $ 3.0458

Diversified Equity - Class C

      0.0503      1.1717      3.0458

Diversified Equity - Class E

      0.1499      1.1717      3.0458
192   Notes to Financial Statements

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Russell Investment Company

Russell Funds

Notes to Financial Statements, continued — October 31, 2007

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Diversified Equity - Class S

    $ 0.1847    $ 1.1717    $ 3.0458

Special Growth Bond - Class A

      0.0381      1.4725      3.6441

Special Growth Bond - Class C

      —      1.4725      3.6441

Special Growth Bond - Class E

      —      1.4725      3.6441

Special Growth Bond - Class S

      0.0786      1.4725      3.6441

Quantitative Equity - Class A

      0.1145      0.5181      2.4731

Quantitative Equity - Class C

      0.0231      0.5181      2.4731

Quantitative Equity - Class E

      0.1024      0.5181      2.4731

Quantitative Equity - Class S

      0.1297      0.5181      2.4731

International Securities - Class A

      2.2221      3.9462      7.2617

International Securities - Class C

      1.4464      3.9462      7.2617

International Securities - Class E

      2.0836      3.9462      7.2617

International Securities - Class S

      2.2879      3.9462      7.2617

Global Equity - Class A

      0.1136      0.1808      0.0127

Global Equity - Class C

      0.0637      0.1808      0.0127

Global Equity - Class E

      0.1069      0.1808      0.0127

Global Equity - Class S

      0.1285      0.1808      0.0127

Multistrategy Bond - Class A

      0.0689      —      —

Multistrategy Bond - Class C

      0.0550      —      —

Multistrategy Bond - Class E

      0.0675      —      —

Multistrategy Bond - Class S

      0.0718      —      —
Notes to Financial Statements   193

Table of Contents

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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, Global Equity Fund, and Multistrategy Bond Fund (six of the portfolios constituting Russell Investment Company, hereafter collectively referred to as the “Funds”) at October 31, 2007, the results of each of their operations for the year or period then ended, 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 audits 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, 2007 by correspondence with the custodian, brokers and transfer agents, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

194   Report of Independent Registered Public Accounting Firm

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Russell Funds

Tax Information — October 31, 2007 (Unaudited)

 

 

For the tax year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Funds hereby designate under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Form 1099 you receive in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:

 

Diversified Equity

    41.0 %

Special Growth

    20.5 %

Quantitative Equity

    75.6 %

International Securities

    0.0 %

Global Equity

    7.6 %

Multistrategy Bond

    0.0 %

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, 2007:

 

Diversified Equity

    $ 136,754,180

Special Growth

      116,670,315

Quantitative Equity

      168,189,056

International Securities

      202,375,410

Please consult a tax adviser for any questions about federal or state income tax laws.

The International Securities Fund and Global Equity Fund paid foreign taxes of $8,309,465 and $1,047,500 and recognized $95,195,175 and $10,136,753 of foreign source income, respectively, during the taxable year ended October 31, 2007. Pursuant to Section 853 of the Internal Revenue Code, the International Securities Fund and Global Equity Fund designates $0.1686 and $0.0103 per share of foreign taxes paid and $1.9310 and $0.0998 of gross income earned from foreign sources, respectively, in the taxable year ended October 31, 2007.

Tax Information   195

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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 RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) at a meeting held on April 24, 2007. During the course of a year, the Trustees receive 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 RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds; (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and their respective operating expenses over various periods of time with other peer funds (“Comparable Funds”) not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds; and (3) RIMCo’s response to questions from the Board concerning the Third-Party Information addressing, among other things, performance and expense differentials between certain Funds and their respective Comparable Funds. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuances.

On April 23, 2007, the Independent Trustees met to review the Agreement Renewal Information in a private session with their independent counsel at which no representatives of RIMCo or management were present. At the April 24 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews.

In evaluating the portfolio management contracts, 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. RIMCo has engaged multiple Money Managers for all Funds.

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo manages directly a portion of certain Funds’ assets employing a “select holdings strategy,” as described below, and directly manages the investment of each Fund’s cash reserves. RIMCo also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of a Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo in accordance with the RIMCo Agreement.

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations and reallocations of assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk aware manner. 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 RIMCo (each, a “segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in a Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Fund’s investment objective 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, RIMCo 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 RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may assign specific investment 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, RIMCo’s selection of

196   Basis for Approval of Investment Advisory Contracts

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Russell Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Manager in the same Fund. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Fund’s investment program, structuring the Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment 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 considered that the prospectuses for the Funds and other public disclosures emphasize to investors RIMCo’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 that information into account when deciding to purchase shares of any such Fund.

The Board also considered the special expertise of RIMCo 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 RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each such Fund selected by shareholders in purchasing their shares.

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 in evaluating renewal of the RIMCo Agreement, including the following:

 

1. The nature, scope and quality of the services provided to the Fund by RIMCo;

 

2. The advisory fee paid by the Fund to RIMCo 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 RIMCo as to other fees and benefits received by RIMCo 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 RIMCo as to expenses incurred by the Fund; and

 

5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund.

As noted above, RIMCo pursuant to the terms of the RIMCo Agreement directly manages a portion—up to 10%—of the assets of each of the Diversified Equity Fund, the Quantitative Equity Fund and the International Securities Fund (each a “Participating Fund”) utilizing a select holdings strategy, the actual allocation being determined by each Participating Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets for a Participating Fund is designed to increase the Participating Fund’s exposure to stocks that are viewed as attractive by multiple Money Managers of that Participating Fund. The Board reviewed the results of the select holdings strategy in respect of each Participating Fund since implementation taking into account that the strategy has been utilized for a limited period of time. The Trustees considered that RIMCo 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 RIMCo generally and from the Participating Fund consequently may increase incrementally. The Board, however, also considered RIMCo’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 carrying out the select holdings strategy; the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment advisory fees paid by the Participating Fund are not increased as a result of the select holdings strategy.

At the April 24 Board meeting, RIMCo and management discussed the reasonableness of the Funds’ investment advisory fees. In discussing whether the Funds’ performance supported these fees, RIMCo noted differences between the investment strategies of certain Funds and their respective Comparable Funds in pursuing their investment objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Funds during the periods covered by the Third-Party Information did result, in lower performance than that of some of their respective Comparable Funds. RIMCo stated that the strategies pursued by the Funds are intended to result in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time.

Basis for Approval of Investment Advisory Contracts   197

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Russell Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

At the April 24 Board meeting, RIMCo and management discussed their intent to recommend to the Board the merger of the Diversified Bond Fund into the Fixed Income I Fund at the upcoming regularly scheduled May Board meeting.

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the course of the year or presented at the April 24 Board meeting by RIMCo, the Board, in respect of each Fund, found, after giving effect to any applicable waivers and/or reimbursements (1) the advisory fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Funds; (2) the relative expense ratio of the Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. The Board also concluded that the performance of each of the Funds supported continuation of the RIMCo Agreement. In evaluating performance, the Board considered each Fund’s absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. The Board also considered RIMCo’s investment strategy of managing the Funds in a risk aware manner.

At the April 24 Board meeting, 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. The Board determined that the investment advisory fees for each Fund appropriately reflect any economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and other RIC funds under the Board’s supervision are lower, and may, in some cases, be substantially lower, than the rates paid by RIC funds supervised by the Board, including the Funds. The Trustees reviewed with RIMCo the differences in the scope of services it provides to institutional clients and the Funds. In response to the Trustees’ inquiries, RIMCo noted, among other things, that institutional clients have fewer administrative needs than the Funds. It was further noted by RIMCo 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.

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of the Funds and their respective shareholders and voted to approve the continuation of the agreement.

At the April 24 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., (“RFD”) the Funds’ underwriter; and RIMCo’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. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the aggregate investment advisory fees paid by each Fund and the fact that each Money Manager’s fee is paid by RIMCo.

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its recommendations at the April 24 meeting, the Board concluded that the fees paid to the Money Managers of each Fund are 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 would be in the best interests of the Fund and its shareholders.

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’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.

Also, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2007, to effect a money manager change for the International Securities Fund; (2) at a meeting held on July 23, 2007, to effect a money manager change for the Multistrategy Bond Fund and the International Securities Fund; (3) at a meeting held on August 28, 2007, to effect a money

198   Basis for Approval of Investment Advisory Contracts

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Russell Investment Company

Russell Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

manager change for the Global Equity Fund, the Diversified Equity Fund, the Multistrategy Bond Fund and the Special Growth Fund; at that same meeting, to effect a money manager change for the Diversified Equity Fund and the International Securities Fund resulting from a change of control of one of these Funds’ Money Managers; (4) at a meeting held on October 26, 2007, to effect a money manager change for the Diversified Equity Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or RFD, the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2007 meeting as to the 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 the money managers’ investment advisory fee is paid by RIMCo.

Basis for Approval of Investment Advisory Contracts   199

Table of Contents

Russell Investment Company

Russell Funds

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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. RIMCo 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 Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

To reduce expenses, we may mail only one copy of the Funds’ prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

200   Shareholder Requests for Additional Information

Table of Contents

Russell Investment Company

Russell Funds

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		  

Term

of
Office*

  

Principal Occupation(s)
During the

Past 5 Years

   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

            

**Greg J. Stark

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

•  President and Chief Executive Officer since 2004

 

•  Trustee since 2007

  

•  Appointed until successor is duly elected and qualified

 

•  Until successor is chosen and qualified by Trustees

  

•  President and CEO RIC and RIF

•  Chairman of the Board, President and CEO, RIMCo

•  Chairman of the Board, President and CEO, RFD

•  Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•  Until 2004, Managing Director, of Individual Investor Services, FRC

•  2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

          

Thaddas L. Alston

Born April 7, 1945

 

909 A Street
Tacoma, Washington

98402-1616

  

Trustee since 2006

  

Appointed until successor is duly elected and qualified

  

•  Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,
Born January 22, 1954

 

909 A Street
Tacoma, Washington 98402-1616

  

•  Trustee since 2000

 

•  Chairperson since 2005

 

•  Appointed until successor is duly elected and qualified

 

•  Annual

  

•  Director and Chairman of the Audit Committee, Avista Corp.

•  Trustee, Principal Investors Fund and Principal Variable Contracts Fund

•  Regent, University of Washington

•  President, Kristianne Gates Blake, P.S. (accounting services)

•  February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

•  Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999-2006

   41  

•  Director, Avista Corp; (electric utilities)

•  Trustee, Principal Investors Fund (investment company);

•  Trustee, Principal Variable Contracts Fund (investment company)

 

* Each Trustee is subject to mandatory retirement at age 72.
Disclosure of Information about Fund Directors   201

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Russell Investment Company

Russell Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

          

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2003

 

 

•  Chairman of Audit Committee since 2005

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

•  2003, Retired

•  2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

•  1979–2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee

since 2004

   Appointed until successor is duly elected and qualified  

•  President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2000

 

•  Chairman of the Nominating and Governance Committee since 2007

  

•  Appointed until successor is duly elected and qualified.

•  Appointed until successor is duly elected and qualified

 

•  President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2005   Appointed until successor is duly elected and qualified  

•  September 2003 to present, Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

•  May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

•  May 1999 to May 2003, President and Trustee, Berger Funds

   41  

•  Director, Sparx Japan Fund (investment company)

             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2002

 

 

•  Chairperson of the Investment Committee since 2006

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  Retired since 2000

•  1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.
202   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Russell Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

•  Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

•  Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

•  Chairman, Sunshine Management Services, LLC (investment adviser)

  41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

•  President, Anderson Management Group LLC (private investments consulting)

•  February 2002 to June 2005, Lead Trustee, RIC and RIF

•  Trustee of RIC and RIF Until 2006

•  Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

•  Retired since 1997

•  Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

•  Retired since 1986

•  Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

•  Retired since 1995

•  Trustee of RIC and RIF Until 2005

•  Chairman of the Nominating and Governance Committee 2001-2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

•  Retired since 1981

•  Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.
Disclosure of Information about Fund Directors   203

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Russell Investment Company

Russell Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name ,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years

OFFICERS

        

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

•  Chief Compliance Officer, RIC

•  Chief Compliance Officer, RIF

•  Chief Compliance Officer, RIMCo

•  April 2002-May 2005, Manager, Global Regulatory Policy

•  1998-2002, Compliance Supervisor, Russell Investment Group

         

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

•  President and CEO, RIC and RIF

•  Chairman of the Board, President and CEO, RIMCo

•  Chairman of the Board, President and CEO, RFD

•  Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•  Until 2004, Managing Director of Individual Investor Services, FRC

•  2000 to 2004, Managing Director, Sales and Client Service, RIMCo

         

Mark E. Swanson,

Born November 26, 1963

 

909 A Street
Tacoma, Washington 98402-1616

  

Treasurer and Chief Accounting Officer since 1998

 

CFO since 2007

   Until successor is chosen and qualified by Trustees  

•  Treasurer, Chief Accounting Officer and CFO, RIC and RIF

•  Director, Funds Administration, RIMCo, RTC and RFD

•  Treasurer and Principal Accounting Officer, SSgA Funds

         

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004   Until removed by Trustees  

•  Chief Investment Officer, RIC, RIF, FRC, RTC

•  Director and Chief Investment Officer, RIMCo and RFD

•  1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

         

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

•  Associate General Counsel and Assistant Secretary FRC and RIA

•  Director and Secretary, RIMCo and RFD

•  Secretary and Chief Legal Counsel, RIC and RIF

204   Disclosure of Information about Fund Directors

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Russell Investment Company

Russell Funds

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

 

1. Election of Trustees.

         

Vote:

               
     For         Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752

2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.

Vote:

               
     For    Against    Abstain

Diversified Equity Fund

    51,988,574.161    3,811,340.944    1,169,359.652

Special Growth Fund

    15,434,199.763    1,195,659.539    254,721.867

Quantitative Equity Fund

    60,019,851.138    7,148,524.269    1,397,518.112

International Securities Fund

    29,882,429.656    2,078,957.460    661,065.859

Multistrategy Bond Fund

    417,082,193.836    27,797,380.230    11,789,412.794

3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.

Vote:

               
     For    Against    Abstain

Diversified Equity Fund

    51,985,097.095    3,843,534.710    1,140,642.952

Special Growth Fund

    15,383,003.287    1,241,433.799    260,144.083

Quantitative Equity Fund

    59,961,085.952    7,187,262.907    1,417,544.660

International Securities Fund

    29,870,784.381    2,109,755.786    641,912.808

Multistrategy Bond Fund

    417,552,135.154    27,375,862.631    11,740,989.074
Matter Submitted to a Vote of Shareholders   205

Table of Contents

Russell Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Diversified Equity Fund

AllianceBernstein L.P., New York, NY

Arnhold and S. Bleichroeder Advisers, LLC, New York, NY

Columbus Circle Investors, Stamford, CT

Institutional Capital LLC, 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

ClariVest Asset Management LLC, San Diego, CA

David J. Greene and Company, LLC, New York, NY

Delphi Management, Inc., Boston, MA

Gould Investment Partners LLC, Berwyn, PA

Jacobs Levy Equity Management, Inc., Florham Park, NJ

PanAgora Asset Management, Inc., Boston, MA

Ranger Investment Management, L.P., Dallas, TX

Tygh Capital Management, Inc., Portland, OR


206   Manager, Money Managers and Service Providers

Table of Contents

Russell Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

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

AllianceBernstein L.P., New York, NY

Altrinsic Global Advisors, LLC, Stamford, CT

AQR Capital Management, LLC, Greenwich, CT

Axiom International Investors LLC, Greenwich, CT

Marsico Capital Management, LLC, Denver, CO

MFS Institutional Advisors, Inc., Boston, MA

Mondrian Investment Partners Ltd., London, United Kingdom

UBS Global Asset Management (Americas) Inc., Chicago, IL

Wellington Management Company, LLP, Boston, MA

Global Equity Fund

Altrinsic Global Advisors, LLC, Stamford, CT

ClariVest Asset Management, LLC, San Diego, CA

Gartmore Global Partners, London, United Kingdom

Multistrategy Bond Fund

Bear Stearns Asset Management Inc., New York, NY

Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA

Drake Capital Management, LLC, New York, NY

Goldman Sachs Asset Management, L.P., New York, NY

Pacific Investment Management Company LLC, Newport Beach, 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 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   207

Table of Contents

 

LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

    LOGO
  

36-08-019 (1 10/07)

Table of Contents

2007 Annual Report

 

CLASS A, C, E, AND S SHARES:

EMERGING MARKETS FUND

REAL ESTATE SECURITIES FUND

SHORT DURATION BOND FUND

CLASS C, E, AND S SHARES:

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

CLASS C, E, I, S, AND Y SHARES:

FIXED INCOME I FUND

OCTOBER 31, 2007

 

LOGO

Table of Contents

 

 

Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

Table of Contents

 

Russell Investment Company

Specialty Funds

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Market Summary    4
Emerging Markets Fund    10
Real Estate Securities Fund    28
Short Duration Bond Fund    38
Tax Exempt Bond Fund    56
Tax-Managed Large Cap Fund    74
Tax-Managed Mid & Small Cap Fund    84
Select Growth Fund    96
Select Value Fund    106
Fixed Income I Fund    116
Notes to Schedules of Investments    154
Statements of Assets and Liabilities    156
Statements of Operations    160
Statements of Changes in Net Assets    162
Financial Highlights    166
Notes to Financial Highlights    176
Notes to Financial Statements    177
Report of Independent Registered Public Accounting Firm    199
Tax Information    200
Basis for Approval of Investment Advisory Contracts    201
Shareholder Requests for Additional Information    204
Disclosure of Information about Fund Directors    205
Matter Submitted to a Vote of Shareholders    209
Manager, Money Managers and Service Providers    210

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Russell Investment Company - Specialty Funds.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

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To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

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Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising default rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

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Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Real Estate Markets

For the fiscal year ending October 31, 2007, real estate investment trusts (REITs) generated a 0.57% return, as measured by the FTSE NAREIT Equity Index. As well as being well below the overall U.S. equity market return, this return represented a substantial pull-back from the prior year’s return of 36.37%. The low REIT return was also accompanied by exceptionally high volatility during the period. During the first three months of the fiscal year, REITs were up over 11%; the following six months, REITs lost nearly 20%; and finally, during the last three months, REITs rallied with a 12% return.

Early in the fiscal year, the REIT market continued to be driven by the same factors that made the prior year so successful, mainly mergers and acquisitions by private investors acquiring public REITs at large premiums to their share prices. The most prominent privatization was Equity Office Property, the industry’s largest REIT, which became the prize in a bidding war between Blackstone, a private equity firm and Vornado, a public company. The REIT market peaked at all-time record levels in mid-February 2007. At that time, while property market fundamentals were improving and REIT earnings were solid, REIT pricing appeared to be well ahead of earnings expectations.

By June 2007, concerns arose among REIT investors that problems in the residential subprime mortgage loan market would be a precursor to similar issues in the commercial mortgage market. Additionally, the 0.6% increase in the 10 year treasury rate which occurred during that month caused investors to reassess the capitalization rates used to value real estate. These events combined to put substantial downward pressure on REIT share prices.

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REITs ended the fiscal year with some positive results and the market volatility appears to have removed the speculative valuation premiums applied to REITs due to the robust merger and acquisition activity over the last several years. However, concerns about a weaker economy and more stringent mortgage lending standards amidst an overall tightening of credit has put the focus back on real estate fundamentals and the specific growth prospects of each company.

Non-U.S. Equity Markets

Non-U.S. stocks gained 24.91% as measured by the MSCI EAFE® Index for the fiscal year ending October 31, 2007. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE® Index rose 14.00% over the 12-month period.

The market continued to benefit from global growth, merger and acquisition activity and strong corporate earnings and withstood several brief periods of increased market volatility brought on by investors’ risk aversion relating to the potential negative spillover effects of the housing slowdown in the U.S. Growth in emerging economies, like India and China, also had a positive impact on the strength of developed markets through their demand for goods and infrastructure development.

Europe, as represented by the MSCI Europe Index, returned 27.96% over the fiscal year. Merger and acquisition-related gains combined with strong earnings drove European equities higher, with merger-and-acquisition activity in the year surpassing last year’s record pace. Across Europe, the best performing sectors were materials and telecommunication services, up 53.36% and 47.56%, respectively. By country, of particular note were more heavily laden energy/commodity markets, such as Norway, up 59.76%, which benefited from the strong performance of the global materials and energy sectors. Germany also stood out as a market leader, benefiting from the strong performance of its automobiles industry. Elsewhere, MSCI United Kingdom Index lagged continental Europe with a gain of 23.62%. The U.K. underperformed the rest of Europe due to weakness in its health care sector.

The MSCI Japan Index continued to lag other major non-U.S. markets in the fiscal year, returning only 4.84%. Investor concerns included weak economic data, lackluster earnings from financial institutions and political turmoil. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 56.48% with strong gains in the Hong Kong, Singapore and Australian markets.

From a sector perspective, materials stocks had the best returns, up 48.26%, especially in the area of metals and mining, which was driven by industry consolidation and the continued upturn in commodities prices. Telecommunication services, up 41.84%, also benefited from strong earnings results. Health care and financials were the notable laggards, returning 2.56% and 14.02%, respectively, as measured by the health care and financials sector grouping based on the Global Industry Classification Standard definitions.

A reversal in market leadership in terms of style was seen in March, with the value segment of the MSCI EAFE® Index dominating in the first half of the period, and the growth segment leading in the second half. The period ended with the MSCI EAFE Growth Index rising 28.52%, compared with 21.33% for the MSCI EAFE Value Index. Investors, in general, continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex-U.S. Index (an index of smaller capitalization companies) up 28.38% in the period versus the S&P/Citigroup PMI World ex-U.S. (an index of larger capitalization companies) up 27.24%.

Markets not represented in the MSCI EAFE® Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed

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counterparts, as the MSCI Emerging Markets Index rose 67.84%. Emerging markets countries benefited from the materials and industrials sectors, both posting over 100% returns for the period. Canadian stocks, as measured by the MSCI Canada Index, rose 44.95% during the period.

Emerging Markets

During the fiscal year, the MSCI Emerging Markets Index (“Index”) posted a strong return of 67.84%, outperforming developed markets as measured by the MSCI World Index Free which returned 20.39%. Larger capitalization stocks and those with strong price momentum, particularly those in cyclical sectors, were key drivers of performance. Significant capital inflows and outperformance of energy and material stocks resulting from strong commodity prices also contributed positively to performance. The emerging markets asset class performed strongly despite two market pull-backs in late February and July. The first sell-off was triggered by a concern that China would tighten controls on investment, and the second sell-off occurred more recently when credit concerns over U.S. subprime mortgage loans broadened to larger concerns about the world’s capital markets. Each time, however, emerging markets rallied back to hit new highs as investors continued to search for growth.

In terms of regions, Latin America was the top performer (+78.08% as measured by the MSCI EM Latin America Index) followed closely by Asia (+75.44% as measured by the MSCI EM Asia Index). The MSCI EM (Emerging Markets) Europe, Middle East and Africa Index (EMEA) lagged the Index but still posted a solid return of 45.94%. The BRIC (Brazil, Russia, India and China) economies with the exception of Russia all outperformed the broader Index with China leading the group (+155.68% as measured by the MSCI China Index) due in part to the strong performance of the country’s commodity-related and financial stocks. MSCI China Index stocks were also buoyed in the third quarter by the rumor that the local Chinese investors would be allowed to invest through the Hong Kong stock exchange. Strength in resource-related stocks helped Brazil post strong returns over the period (+110.24% as measured by the MSCI Brazil Index). Some of the smaller markets such as Indonesia and Peru posted strong gains; in the case of Peru, the market returned +149.20% as measured by the MSCI Peru Index due mainly to one stock, Southern Copper Corporation. The small market of Jordan was the only country with single digit absolute returns, rising 3.97% as measured by the MSCI Jordan Index. Other notable relative underperformers included Taiwan (+38.56% as measured by the MSCI Taiwan Index), South Africa (+53.76% as measured by the MSCI South Africa Index), and Egypt (+51.41% as measured by the MSCI Egypt Index).

Currencies were broadly strong against the U.S. dollar with some, such as the Brazilian Real, up more than 18%.

Within emerging markets, the industrials sector and resource-related areas performed strongly. Chinese financials and telecom stocks along with Korean and Brazilian materials stocks were key market movers. Technology and consumer stocks underperformed the Index, but still returned more than 20% in absolute terms. Utilities, a sector leveraged to emerging markets energy demand growth, performed strongly, while the health care sector, dominated by Teva Pharmaceuticals, lagged the Index.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

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There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages — and securities firms packaging the subprime debt into AAA-rated bonds — helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

 

1

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

2

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

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The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

 

 

 

3

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

Market Summary   9

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Russell Investment Company

Emerging Markets Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Emerging Markets Fund - Class S  
         

Total

Return

  

1 Year

       65.53 %

5 Years

       39.87 %§

10 Years

       13.07 %§

 

Emerging Markets Fund - Class E ‡  
         

Total

Return

  

1 Year

       65.17 %

5 Years

       39.60 %§

10 Years

       12.86 %§

 

Emerging Markets Fund - Class C ‡‡  
         

Total

Return

  

1 Year

       63.90 %

5 Years

       38.63 %§

10 Years

       12.14 %§
Emerging Markets Fund - Class A ‡‡‡  
         

Total

Return

  

1 Year

       55.69 %

5 Years

       37.98 %§

10 Years

       12.20 %§

 

MSCI Emerging Markets Free Index **  
         

Total

Return

  

1 Year

       67.84 %

5 Years

       39.86 %§

10 Years

       N/A  

10   Emerging Markets Fund

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Russell Investment Company

Emerging Markets Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Emerging Markets Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has six money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Emerging Markets Fund Class A, Class C, Class E and Class S Shares gained 65.22%, 63.90%, 65.17% and 65.53%, respectively. This compared to the MSCI Emerging Markets Index Net (USD)SM, which gained 67.84% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ending October 31, 2007, the Lipper® Emerging Markets Funds Average returned 62.41%. 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 Fund’s underperformance during this period resulted primarily from two weak months in September and October. During these months, the Fund’s underweight to China and tilt away from mega cap stocks had a strong negative impact on performance as Chinese stocks and mega cap stocks outperformed and attracted new cash inflows coming into the asset class.

The year ended October 31, 2007 was another particularly strong year for emerging markets as the asset class benefited from huge cash inflows. In this environment, the Fund’s performance was negatively impacted by not having more exposure to stocks with high levels of relative price strength. Except for an underweight to China, the Fund’s country positioning contributed positively to Fund performance. The Fund was significantly overweight to Brazil, which had strong returns, and significantly underweight to Russia and Taiwan, two countries that significantly lagged the benchmark.

 

As shown by the Lipper® Emerging Markets Funds Average, active managers in general struggled over this fiscal year, particularly those with a disciplined fundamental approach that avoided strongly appreciating stocks. Most active management processes without a significant exposure to momentum struggled to keep pace with the market.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The market environment during the fiscal year generally favored managers with exposure to large capitalization stocks, China and price momentum.

Genesis Asset Managers, LLP struggled in this period as its focus on valuation and cash flow growth limited its exposure to China and strongly appreciating sectors. Weak stock selection in materials and Korean industrials along with its Taiwan positions also detracted from performance.

AllianceBernstein L.P. underperformed the Fund’s benchmark during the fiscal year. Its underweight to Russian energy and Brazil stock selection was positive; however, this was offset by an underweight to China and ineffective stock selection in Korea.

T. Rowe Price International, Inc. performed strongly during the fiscal year due in part to its China overweight and effective stock selection in financials and materials stocks. Underexposure to Russia energy and information technology stock selection also contributed positively to T. Rowe’s performance.

Arrowstreet Capital, a quantitative manager, performed well during the fiscal year. Its outperformance was due in large part to its exposure to cyclical sectors and stock selection in Korea. The China overweight and Chinese stock selection contributed positively to performance.

Harding, Loevner Management, L.P. struggled as its quality focus was out of favor during this momentum-driven market. Its China underweight, especially in Chinese financials, along with weak stock selection in Korean industrials were key detractors from performance.

UBS Global Asset Management performed well since it was added to the Fund in July. Its focus on stocks with rising relative price strength and accelerating earnings growth positively contributed to relative performance.

Describe any changes to the Fund’s structure or the money manager line-up.

In July 2007, UBS Global Asset Management (Americas) Inc. was added as a money manager for the Fund. UBS was added at a 10% weight and T. Rowe Price and Genesis Asset Managers, LLP weights were each reduced by 5%.


Emerging Markets Fund   11

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Russell Investment Company

Emerging Markets Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

Money Managers as of
October 31, 2007		   Styles

AllianceBernstein L.P.

   Value

Arrowstreet Capital, Limited Partnership

   Market-Oriented

Genesis Asset Managers, LLP

   Market-Oriented

Harding, Loevner Management, L.P.

   Market-Oriented

T. Rowe Price International, Inc.

   Growth

UBS Global Asset Management (Americas) 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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

*   Assumes initial investment on November 1, 1997.

 

**   The Morgan Stanley Capital International (MSCI) Emerging Markets Free Index is a market capitalization-weighted Index of over 850 stocks traded in 22 world markets.

 

‡   The Fund first issued Class E Shares on September 22, 1998. The returns shown for Class E Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to September 21, 1998 and do not reflect deduction of shareholder services fees. Had it done so, returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to September 21, 1998, and the returns of the Fund’s Class E Shares from September 22, 1998 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to September 21, 1998 and do not reflect deduction of Rule 12b-1 distribution fees. Had it done so, returns for that period would have been lower. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from September 22, 1998 to February 28, 2007. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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.

 

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Emerging Markets Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,383.40    $ 1,015.73

Expenses Paid During Period*

    $ 11.29    $ 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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,377.60    $ 1,011.95

Expenses Paid During Period*

    $ 15.76    $ 13.34

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.63% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,383.00    $ 1,015.73

Expenses Paid During Period*

    $ 11.29    $ 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).

Emerging Markets Fund   13

Table of Contents

Russell Investment Company

Emerging Markets Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,385.10    $ 1,016.99

Expenses Paid During Period*

    $ 9.80    $ 8.29

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.63% (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).

14   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 91.3%

        

Bahrain - 0.1%

        

Gulf Finance House EC - GDR (Æ)(Å)

    35,500      941

Gulf Finance House EC - GDR (Æ)

    12,800      334
         
        1,275
         

Bermuda - 1.6%

        

Aquarius Platinum, Ltd.

    30,400      1,167

Brilliance China Automotive Holdings, Ltd. (Æ)

    5,874,000      1,590

China Hongxing Sports, Ltd. (Ñ)

    5,266,100      4,745

COSCO Pacific, Ltd.

    1,190,000      3,696

Credicorp, Ltd. (Ñ)

    88,472      6,576

FibreChem Technologies, Ltd.

    1,806,000      2,070

GOME Electrical Appliances Holdings, Ltd.

    959,000      2,195

Nine Dragons Paper Holdings, Ltd.

    675,300      1,850

Shangri-La Asia, Ltd.

    374,000      1,197

Sinofert Holdings, Ltd.

    3,072,000      2,891

TPV Technology, Ltd.

    2,252,000      1,515

Wilson Sons, Ltd. Class BDR (Æ)

    51,344      641
         
        30,133
         

Brazil - 8.8%

        

All America Latina Logistica SA

    254,600      4,046

Amil Participacoes SA (Æ)

    148,040      1,446

Aracruz Celulose SA - ADR (Ñ)

    30,500      2,345

Banco do Brasil SA

    672,000      12,154

Banco Itau Holding Financeira SA - ADR (Ñ)

    250,990      7,166

Banco Nossa Caixa SA

    100,300      1,776

Bovespa Holding SA (Æ)

    30,593      575

Brasil Telecom Participacoes SA

    42,700      1,283

Centrais Eletricas Brasileiras SA

    358,646      5,564

Cia Brasileira de Distribuicao Grupo Pao de Acucar (Æ)

    62,560      1,009

Cia Brasileira de Distribuicao Grupo Pao de Acucar - ADR (Ñ)

    48,200      1,551

Cia de Bebidas das Americas - ADR

    30,500      2,492

Cia de Saneamento Basico do Estado de Sao Paulo (Æ)

    431,240      11,121

Cia de Saneamento Basico do Estado de Sao Paulo - ADR (Æ)(Ñ)

    27,760      1,444

Cia de Saneamento de Minas Gerais -COPASA (Æ)

    72,000      1,352

Cia Vale do Rio Doce - ADR

    1,187,705      40,647

Cyrela Brazil Realty SA

    227,000      3,948

Gerdau SA

    7,300      187
     Principal
Amount ($)
or Shares		      Market
Value
$

Gerdau SA - ADR (Ñ)

    379,400      11,799

Gol Linhas Aereas Inteligentes SA - ADR (Ñ)

    35,900      983

Lojas Renner SA

    56,900      1,413

Natura Cosmeticos SA

    53,400      642

Perdigao SA

    80,909      2,182

Petroleo Brasileiro SA

    104,900      5,018

Petroleo Brasileiro SA - ADR (Ñ)

    84,300      7,013

Petroleo Brasileiro SA - ADR

    195,900      18,734

Positivo Informatica SA

    64,600      1,717

Rossi Residencial SA

    53,500      1,805

Souza Cruz SA

    15,200      430

Tele Norte Leste Participacoes SA - ADR (Ñ)

    199,400      4,347

Unibanco - Uniao de Bancos Brasileiros SA - GDR (Æ)

    45,400      7,175

Weg SA

    101,500      1,542
         
        164,906
         

Canada - 0.2%

        

First Quantum Minerals, Ltd.

    32,000      3,445
         

Cayman Islands - 1.6%

        

Agile Property Holdings, Ltd.

    522,000      1,269

Alibaba.com, Ltd. (Æ)

    110,246      192

ASM Pacific Technology

    338,000      2,671

Belle International Holdings, Ltd.

    821,500      1,333

China Infrastructure Machinery Holdings, Ltd.

    624,000      1,396

China Mengniu Dairy Co., Ltd.

    317,000      1,353

Focus Media Holding, Ltd. -
ADR (Æ)(Ñ)

    39,200      2,430

Foxconn International Holdings, Ltd. (Æ)

    1,012,000      2,819

Global Bio-Chem Technology Group Co., Ltd.

    1,646,000      611

Hengan International Group Co., Ltd.

    566,300      2,205

Integra Group Holdings - GDR (Æ)(Þ)

    101,650      1,626

Integra Group Holdings - GDR (Æ)

    22,400      359

Kingboard Chemical Holdings, Ltd.

    306,500      2,028

Luen Thai Holdings, Ltd.

    1,628,000      222

Pacific Textile Holdings, Ltd. (Æ)

    1,069,000      433

Parkson Retail Group, Ltd.

    42,052      484

Shimao Property Holdings, Ltd.

    511,500      1,829

Shui On Land, Ltd.

    2,672,555      3,715

Sina Corp./China (Æ)(Ñ)

    24,200      1,387

Tencent Holdings, Ltd.

    142,000      1,231
         
        29,593
         

Emerging Markets Fund   15

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Chile - 0.5%

        

Banco de Credito e Inversiones

    41,000      1,365

Banco Santander Chile SA - ADR

    66,183      3,507

Cia Cervecerias Unidas SA - ADR

    300      13

Embotelladora Andina SA - ADR

    66,100      1,345

Lan Airlines SA - ADR (Ñ)

    106,000      1,764

Sociedad Quimica y Minera de Chile SA - ADR

    3,464      665
         
        8,659
         

China - 5.2%

        

Anhui Conch Cement Co., Ltd. Class H

    482,000      4,866

Byd Co., Ltd. Class H

    45,500      429

China Citic Bank (Æ)

    872,000      720

China Communications Construction Co., Ltd. Class H

    1,235,000      3,920

China Construction Bank Corp. Class H

    1,364,000      1,550

China Eastern Airlines Corp., Ltd. Class H (Æ)

    2,538,000      2,731

China International Marine Containers Co., Ltd. Class B

    684,396      1,419

China Merchants Bank Co., Ltd.

    511,500      2,671

China National Building Material Co., Ltd. Class H

    452,000      2,002

China Petroleum & Chemical Corp. - ADR (Ñ)

    24,323      4,036

China Petroleum & Chemical Corp. Class H

    9,455,254      14,384

China Shenhua Energy Co., Ltd.

    1,798,600      11,822

China Shipping Container Lines Co., Ltd. Class H

    756,000      1,011

China Telecom Corp., Ltd. Class H

    17,677,000      15,657

Dongfeng Motor Group Co., Ltd. Class H

    744,000      686

Guangzhou R&F Properties Co., Ltd.

    572,100      3,020

Huaneng Power International, Inc. Class H

    602,000      720

Industrial & Commercial Bank of China

    6,476,000      6,188

Jiangxi Copper Co., Ltd. Class H

    625,000      2,251

PetroChina Co., Ltd. Class H

    2,903,000      7,541

Ping An Insurance Group Co. of China, Ltd. Class H

    312,600      4,374

Shanghai Electric Group Co., Ltd. Class H

    1,362,000      1,364

Shanghai Forte Land Co. Class H

    1,448,000      1,131
     Principal
Amount ($)
or Shares		      Market
Value
$

Sinotrans, Ltd. Class H

    893,000      575

Weiqiao Textile Co. Class H

    780,000      1,465

Wumart Stores, Inc. Class H

    807,200      734
         
        97,267
         

Colombia - 0.3%

        

BanColombia SA

    229,305      2,009

BanColombia SA - ADR (Ñ)

    112,200      4,124
         
        6,133
         

Cyprus - 0.0%

        

Mirland Development Corp. PLC (Æ)

    9,000      111
         

Czech Republic - 0.6%

        

CEZ

    96,900      7,007

Komercni Banka AS

    2,000      460

Telefonica O2 Czech Republic AS

    125,000      3,878
         
        11,345
         

Egypt - 1.9%

        

Commercial International Bank

    72,884      1,020

Egyptian Co. for Mobile Services

    30,244      1,069

Egyptian Financial Group-Hermes Holding

    403,422      4,047

Orascom Construction Industries

    160,600      14,700

Orascom Construction Industries - GDR

    59,711      11,025

Orascom Telecom Holding SAE

    175,315      2,528

Orascom Telecom Holding SAE -
GDR (Ñ)

    6,200      445
         
        34,834
         

Greece - 0.0%

        

Coca Cola Hellenic Bottling Co. SA

    9,136      568
         

Hong Kong - 3.0%

        

Beijing Enterprises Holdings, Ltd.

    686,000      4,289

China Insurance International Holdings Co., Ltd. (Æ)

    1,001,000      3,327

China Merchants Holdings International Co., Ltd.

    815,000      5,778

China Mobile, Ltd.

    457,000      9,539

China Mobile, Ltd. - ADR (Ñ)

    79,100      8,201

China Netcom Group Corp. Hong Kong, Ltd.

    1,762,000      5,443

China Overseas Land & Investment, Ltd.

    1,018,333      2,440

China Resources Enterprise

    1,542,000      6,784

16   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Citic Pacific, Ltd.

    349,000      2,197

Franshion Properties China, Ltd. (Æ)

    2,402,000      1,927

Guangzhou Investment Co., Ltd.

    1,180,000      510

Shanghai Industrial Holdings, Ltd.

    106,000      628

Shenzhen Investment, Ltd.

    1,224,000      1,207

Shougang Concord International Enterprises Co., Ltd.

    3,194,000      1,723

Tianjin Development Holdings

    1,635,000      2,757
         
        56,750
         

Hungary - 0.4%

        

Magyar Telekom Telecommunications PLC

    331,449      1,788

MOL Hungarian Oil and Gas NyRt

    19,680      3,037

MOL Hungarian Oil and Gas NyRt - ADR

    12,700      1,949
         
        6,774
         

India - 6.6%

        

Allahabad Bank

    243,535      640

Andhra Bank

    429,000      974

Bajaj Auto, Ltd.

    73,894      4,684

Bank of Baroda

    220,000      1,949

BF Utilities, Ltd. (Æ)

    21,153      1,413

Bharti Airtel, Ltd. (Æ)

    259,300      6,754

Chennai Petroleum Corp., Ltd.

    119,260      1,016

Container Corp. of India

    60,552      3,059

Dish TV India, Ltd. (Æ)

    74,831      116

DLF, Ltd.

    252,024      6,123

Financial Technologies India, Ltd.

    11,590      770

GAIL India, Ltd. - GDR

    50,327      3,171

Genesis Indian Investment Co., Ltd. (Æ)

    571,019      29,653

GMR Infrastructure, Ltd. (Æ)

    429,805      1,938

Great Eastern Shipping Co., Ltd. (The)

    223,050      2,772

HDFC Bank, Ltd. - ADR

    31,000      4,309

Hindustan Petroleum Corp., Ltd.

    24,261      149

Housing Development Finance Corp.

    57,203      4,058

ICICI Bank, Ltd.

    127,400      4,110

Indian Overseas Bank

    250,000      858

Larsen & Toubro, Ltd.

    32,000      3,509

Mahanagar Telephone Nigam

    175,906      809

Maruti Suzuki India, Ltd. (Æ)

    50,526      1,395

NTPC, Ltd.

    492,500      3,022

Oil & Natural Gas Corp., Ltd.

    72,735      2,335

Oriental Bank of Commerce

    111,000      656

Reliance Industries, Ltd.

    115,286      8,183

Reliance Industries, Ltd. - GDR (Þ)

    26,500      3,833
     Principal
Amount ($)
or Shares		      Market
Value
$

State Bank of India, Ltd. - GDR

    66,950      8,349

Sterlite Industries India, Ltd. - ADR (Æ)(Ñ)

    107,300      2,787

Sun TV Network, Ltd.

    232,404      1,951

Suzlon Energy, Ltd.

    107,505      5,407

Union Bank of India

    118,000      530

United Spirits, Ltd.

    28,550      1,461

Videocon Industries, Ltd.

    84,549      797

Zee Entertainment Enterprises, Ltd.

    50,788      431
         
        123,971
         

Indonesia - 2.0%

        

Astra Agro Lestari Tbk PT

    336,789      841

Bakrie and Brothers Tbk PT (Æ)

    27,193,000      958

Bank Danamon Indonesia Tbk PT

    2,925,000      2,807

Bank Mandiri Persero Tbk PT

    2,612,227      1,098

Bank Niaga Tbk PT

    7,081,500      678

Bank Rakyat Indonesia

    14,340,642      12,344

Kawasan Industri Jababeka Tbk PT (Æ)

    43,405,000      1,165

PT Astra International Tbk

    1,676,277      4,760

Ramayana Lestari Sentosa Tbk PT

    3,552,008      349

Telekomunikasi Indonesia Tbk PT

    8,182,807      9,871

Telekomunikasi Indonesia Tbk PT - ADR

    70,300      3,392
         
        38,263
         

Israel - 2.7%

        

Bank Hapoalim BM

    1,621,305      8,964

Bank Leumi Le-Israel BM

    1,763,354      8,479

Bezeq Israeli Telecommunication Corp., Ltd.

    572,837      1,019

Check Point Software Technologies (Æ)

    358,381      9,053

IDB Development Corp., Ltd.

    20,729      824

Israel Chemicals, Ltd.

    706,716      7,852

Israel Discount Bank, Ltd. Class A (Æ)

    174,403      445

Mizrahi Tefahot Bank, Ltd.

    74,094      578

Nice Systems, Ltd. - ADR (Æ)(Ñ)

    28,300      1,116

Partner Communications

    247,731      4,720

Teva Pharmaceutical Industries,
Ltd. - ADR (Ñ)

    153,300      6,747
         
        49,797
         

Kazakhstan - 0.1%

        

Halyk Savings Bank Kazakhstan - GDR

    120,200      2,231
         

Emerging Markets Fund   17

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Lebanon - 0.0%

        

Solidere - GDR

    8,200      149
         

Luxembourg - 2.6%

        

Evraz Group SA - GDR

    123,800      9,353

Genesis Smaller Companies

    362,684      31,016

Millicom International Cellular SA (Æ)(Ñ)

    12,300      1,445

Tenaris SA - ADR

    119,765      6,444
         
        48,258
         

Malaysia - 2.5%

        

AirAsia BHD (Æ)

    1,587,500      933

AMMB Holdings BHD

    325,500      415

Bumiputra-Commerce Holdings BHD

    4,434,042      15,415

Bursa Malaysia BHD

    760,200      3,611

Digi.Com BHD

    195,800      1,481

Golden Hope Plantations BHD

    33,700      92

IGB Corp. BHD

    1,829,900      1,450

IOI Corp. BHD (Æ)

    3,656,875      8,351

KLCC Property Holdings BHD

    256,000      276

Kuala Lumpur Kepong BHD

    100,400      448

Magnum Corp. BHD

    843,300      747

Malaysian Bulk Carriers BHD

    414,625      679

MISC BHD

    789,100      2,340

Mulpha International BHD (Æ)

    564,900      247

Multi-Purpose Holdings BHD

    518,200      360

PPB Group BHD

    123,000      358

Proton Holdings BHD (Æ)

    169,800      269

Sime Darby BHD

    906,700      3,045

SP Setia BHD

    221,700      526

TA Enterprise BHD

    954,000      436

Telekom Malaysia BHD

    519,800      1,594

Tenaga Nasional BHD

    792,500      2,232

Transmile Group BHD (Æ)

    138,900      167

UEM World BHD

    1,051,300      1,370
         
        46,842
         

Mexico - 4.8%

        

Alfa SAB de CV Class A (Ñ)

    781,800      5,278

America Movil SAB de CV

    361,800      1,149

America Movil SAB de CV
Series L - ADR

    285,773      18,687

Carso Global Telecom SAB de CV (Æ)

    140,600      675

Cemex SAB de CV (Æ)(Ñ)

    3,720,344      11,410

Corp. Moctezuma SAB de CV

    295,400      953

Fomento Economico Mexicano SAB de CV - ADR

    183,682      6,541
     Principal
Amount ($)
or Shares		      Market
Value
$

Grupo Aeroportuario del Pacifico SA de CV - ADR

    35,800      1,878

Grupo Carso SAB de CV (Ñ)

    115,000      496

Grupo Financiero Banorte SAB de CV Class O (Ñ)

    1,325,900      6,230

Grupo Financiero Inbursa SA Class O

    488,354      1,282

Grupo Mexico SAB de CV

    836,600      7,611

Grupo Modelo SAB de CV

    404,936      1,889

Grupo Televisa SA - ADR (Ñ)

    47,192      1,173

Telefonos de Mexico SAB de CV (Ñ)

    4,319,600      7,900

Telefonos de Mexico SAB de CV Series L

    122,700      4,487

Urbi Desarrollos Urbanos SA de CV (Æ)(Ñ)

    1,371,200      5,297

Wal-Mart de Mexico SAB de CV

    1,207,477      4,903

Wal-Mart de Mexico SAB
de CV - ADR (Ñ)

    65,000      2,626
         
        90,465
         

Netherlands - 0.5%

        

X 5 Retail Group NV - GDR (Æ)

    221,963      8,019

Zentiva NV

    30,700      1,648
         
        9,667
         

Nigeria - 0.1%

        

Guaranty Trust Bank - GDR (Æ)

    181,400      2,046
         

Oman - 0.2%

        

Bank Muscat SAOG - GDR

    209,490      3,352
         

Pakistan - 0.5%

        

Engro Chemical Pakistan, Ltd.

    880,800      4,052

Fauji Fertilizer Co., Ltd.

    1,804,822      3,696

ICI Pakistan, Ltd.

    265,200      960

Oil & Gas Development Co., Ltd.

    188,000      397

Pakistan Telecommunication Co., Ltd.

    1,152,923      954
         
        10,059
         

Philippines - 0.6%

        

Banco de Oro-EPCI, Inc. (Æ)

    712,300      1,035

Bank of the Philippine Islands

    670,800      1,014

Megaworld Corp.

    8,044,100      833

Philippine Long Distance Telephone Co.

    84,100      5,772

Philippine Long Distance Telephone Co. - ADR

    15,200      1,043

Universal Robina Corp.

    2,009,000      684
         
        10,381
         

18   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Poland - 0.8%

        

Bank Pekao SA

    15,400      1,647

KGHM Polska Miedz SA

    179,470      9,730

Polski Koncern Naftowy Orlen (Æ)

    76,600      1,773

TVN SA

    189,186      1,893
         
        15,043
         

Russia - 6.2%

        

Bank VTB North-West

    696,000      1,183

Comstar United Telesystems - GDR

    166,800      2,043

Gazprom OAO - ADR (Ñ)

    98,053      4,883

Gazprom OAO - ADR

    218,600      10,925

Kalina

    15,100      648

LUKOIL - ADR

    275,772      25,210

Magnit OAO (Æ)

    44,200      2,022

Magnitogorsk Iron & Steel Works - GDR (Å)

    87,200      1,474

Magnitogorsk Iron & Steel Works - GDR

    137,200      2,332

Mechel - ADR (Ñ)

    33,600      2,827

MMC Norilsk Nickel

    12,600      3,720

MMC Norilsk Nickel - ADR

    60,133      18,942

Mobile Telesystems OJSC

    196,500      2,708

Mobile Telesystems OJSC - ADR

    61,684      5,120

NovaTek OAO - GDR (Å)

    32,200      1,771

Open Investments (Æ)

    4,900      1,352

Pharmstandard - GDR (Æ)

    46,300      1,010

PIK Group - GDR (Æ)

    129,300      3,530

RBC Information Systems (Æ)

    135,259      1,238

Sberbank

    2,345,500      10,153

Seventh Continent

    101,500      2,659

Sistema-Hals - GDR (Æ)

    87,300      852

TMK OAO - GDR (Ñ)

    5,300      236

TMK OAO - GDR

    5,300      237

TMK OAO Class T

    109,400      1,203

Uralkali - GDR (Æ)

    85,000      2,134

Vimpel-Communications - ADR

    11,200      370

VTB Bank OJSC - GDR (Æ)(Å)

    43,600      419

VTB Bank OJSC - GDR (Æ)

    571,337      5,506
         
        116,707
         

Singapore - 0.3%

        

Jiutian Chemical Group, Ltd. (Ñ)

    4,295,000      1,910

Straits Asia Resources, Ltd. (Ñ)

    1,584,000      2,939

Yanlord Land Group, Ltd. (Ñ)

    379,000      1,034
         
        5,883
         
     Principal
Amount ($)
or Shares		      Market
Value
$

South Africa - 6.8%

        

ABSA Group, Ltd.

    118,787      2,388

African Bank Investments, Ltd.

    120,250      671

ArcelorMittal South Africa, Ltd.

    35,835      813

Aveng, Ltd.

    923,099      9,120

Barloworld, Ltd.

    196,383      3,830

Bidvest Group, Ltd.

    371,502      7,857

DataTec, Ltd.

    270,000      1,584

Exxaro Resources, Ltd.

    126,423      2,054

Foschini, Ltd.

    136,800      1,122

Grindrod, Ltd.

    669,329      2,609

Impala Platinum Holdings, Ltd.

    264,320      9,982

Imperial Holdings, Ltd. (Æ)

    85,100      1,737

Investec, Ltd.

    79,600      1,006

Kumba Iron Ore, Ltd.

    55,574      2,174

Massmart Holdings, Ltd.

    149,983      1,887

Metropolitan Holdings, Ltd.

    530,822      1,300

Mondi, Ltd.

    155,123      1,579

Murray & Roberts Holdings, Ltd.

    53,800      825

Naspers, Ltd. Class N

    98,300      3,120

Network Healthcare Holdings, Ltd. (Æ)

    1,253,000      2,541

Pick’n Pay Stores, Ltd.

    153,554      863

Pretoria Portland Cement Co., Ltd.

    604,604      4,419

Reunert, Ltd.

    167,959      2,009

Sanlam, Ltd.

    4,037,648      14,809

Sasol, Ltd.

    429,844      22,227

Standard Bank Group, Ltd.

    1,168,607      21,223

Steinhoff International Holdings, Ltd.

    864,400      2,691

Wilson Bayly Holmes-Ovcon, Ltd.

    49,780      1,006
         
        127,446
         

South Korea - 12.6%

        

Amorepacific Corp.

    2,992      2,859

Asiana Airlines

    66,494      752

Daelim Industrial Co.

    17,765      3,916

Daewoo Shipbuilding & Marine Engineering Co., Ltd.

    95,450      6,121

Daum Communications Corp. (Æ)

    14,464      1,321

Dongkuk Steel Mill Co., Ltd.

    11,730      707

GS Engineering & Construction Corp.

    3,498      739

GS Holdings Corp.

    26,600      1,911

Hana Financial Group, Inc.

    56,700      2,889

Hanjin Shipping Co., Ltd. (Ñ)

    57,070      3,396

Hankook Tire Co., Ltd.

    127,000      2,726

Hanwha Chem Corp.

    179,600      5,369

Honam Petrochemical Corp.

    62,105      9,501

Hynix Semiconductor, Inc. (Æ)

    245,700      6,932

Hyosung Corp.

    4,469      338

Emerging Markets Fund   19

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Hyundai Development Co.

    28,700      3,220

Hyundai Engineering & Construction Co., Ltd. (Æ)

    26,501      2,716

Hyundai Heavy Industries

    903      511

Hyundai Mipo Dockyard

    4,520      2,023

Hyundai Mobis

    50,550      5,137

Hyundai Motor Co. (Ñ)

    79,470      6,320

Hyundai Steel Co.

    46,140      4,667

Hyunjin Materials Co., Ltd. (Ñ)

    31,469      2,087

Industrial Bank of Korea (Ñ)

    270,560      5,569

KCC Corp. (Ñ)

    10,138      7,534

Kookmin Bank

    154,502      12,758

Kookmin Bank - ADR

    32,100      2,622

Korea Electric Power Corp.

    163,470      7,288

Korea Electric Power Corp. - ADR

    3,900      87

Korea Investment Holdings Co., Ltd.

    53,285      4,791

Korea Zinc Co., Ltd.

    5,129      1,035

Korean Air Lines Co., Ltd.

    27,576      2,462

KT Corp.

    143,600      6,809

KT Corp. - ADR

    30,440      716

LG Corp.

    47,700      4,385

LG Household & Health Care, Ltd. (Ñ)

    19,346      4,311

LG Petrochemical Co., Ltd. (Ñ)

    74,880      4,395

LIG Non-Life Insurance Co., Ltd.

    35,500      1,120

Lotte Shopping Co., Ltd.

    3,395      1,597

NHN Corp. (Æ)

    7,789      2,528

Poongsan Corp. (Ñ)

    44,390      1,249

POSCO (Ñ)

    14,698      10,732

S-Oil Corp. (Ñ)

    58,812      5,396

S1 Corp.

    6,970      466

Samsung Card Co. (Æ)(Ñ)

    27,360      1,906

Samsung Corp.

    15,902      1,482

Samsung Electro-Mechanics Co., Ltd. (Ñ)

    35,135      2,351

Samsung Electronics Co., Ltd.

    18,310      11,368

Samsung Electronics Co.,
Ltd. - GDR (Þ)

    18,780      5,728

Samsung Electronics Co., Ltd. - GDR

    6,959      1,643

Samsung Fire & Marine Insurance Co., Ltd.

    39,060      10,841

Samsung Heavy Industries Co., Ltd.

    24,911      1,512

Samsung SDI Co., Ltd. (Ñ)

    11,656      941

Samsung Securities Co., Ltd. (Ñ)

    20,830      2,613

Shinhan Financial Group Co., Ltd.

    123,630      8,060

Shinsegae Co., Ltd.

    2,284      1,796

SK Energy Co., Ltd. (Æ)

    27,481      6,405

SK Holdings Co., Ltd.

    7,052      2,123

SK Telecom Co., Ltd.

    12,199      2,874
     Principal
Amount ($)
or Shares		      Market
Value
$

SK Telecom Co., Ltd. - ADR

    14,700      453

STX Pan Ocean Co., Ltd.

    1,640,600      4,247

Taeyoung Engineering & Construction (Ñ)

    27,911      353

Woori Finance Holdings Co., Ltd. (Ñ)

    237,910      5,177
         
        235,881
         

Taiwan - 9.2%

        

Acer, Inc.

    429,311      1,027

Advanced Semiconductor Engineering, Inc. - ADR (Ñ)

    385,756      2,322

Advantech Co., Ltd.

    636,526      1,737

Asia Cement Corp.

    1,037,491      1,698

Asustek Computer, Inc.

    934,000      3,340

AU Optronics Corp.

    1,775,458      3,841

AU Optronics Corp. - ADR (Ñ)

    130,984      2,846

Cathay Financial Holding Co., Ltd.

    1,098,245      2,878

Cathay Financial Holding Co., Ltd. - GDR

    53,500      1,338

China Steel Corp.

    6,735,087      9,610

China Steel Corp. - GDR

    24,660      710

China Steel Corp. - GDR (Ñ)

    8,253      240

Chunghwa Telecom Co., Ltd. (Æ)

    3,744,000      7,239

CMC Magnetics Corp. (Æ)

    5,459,000      2,382

Compal Electronics, Inc.

    2,181,746      2,805

D-Link Corp.

    333,632      760

Delta Electronics, Inc.

    1,495,492      6,092

Eternal Chemical Co., Ltd.

    82,000      106

Evergreen Marine Corp. Taiwan, Ltd.

    1,707,870      1,696

Far Eastern Textile Co., Ltd.

    970,254      1,302

Formosa Chemicals & Fibre Corp.

    2,352,000      6,411

Formosa Plastics Corp.

    1,131,000      3,533

Foxconn Technology Co., Ltd.

    237,935      2,915

High Tech Computer Corp.

    216,710      4,501

HON HAI Precision Industry Co., Ltd.

    1,264,850      9,720

King Yuan Electronics Co., Ltd.

    2,419,064      1,624

Kinpo Electronics

    339,660      136

Macronix International

    2,027,100      1,332

MediaTek, Inc.

    605,160      12,006

Micro-Star International Co., Ltd.

    1,398,340      1,511

Nan Ya Plastics Corp.

    1,852,710      5,594

Oriental Union Chemical Corp.

    192,780      274

Phoenixtec Power Co., Ltd.

    326,629      340

POU Chen Corp.

    1,336,024      1,284

Powerchip Semiconductor Corp.

    10,293,307      4,797

Powertech Technology, Inc.

    465,750      1,909

Quanta Computer, Inc.

    274,084      463

Realtek Semiconductor Corp.

    173,250      672

20   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Ritek Corp. (Æ)

    2,653,161      798

Siliconware Precision Industries Co.

    1,589,293      3,431

Siliconware Precision Industries Co. - ADR (Ñ)

    158,200      1,832

Synnex Technology International Corp.

    1,023,000      3,465

Taiwan Cement Corp.

    2,234,480      3,871

Taiwan Mobile Co., Ltd.

    2,204,520      2,976

Taiwan Semiconductor Manufacturing Co., Ltd.

    10,640,306      21,234

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

    216,978      2,311

Teco Electric and Machinery Co., Ltd.

    1,415,000      791

U-Ming Marine Transport Corp.

    715,000      2,386

Uni-President Enterprises Corp.

    1,965,240      2,863

United Microelectronics Corp.

    7,938,812      5,269

Vanguard International Semiconductor Corp.

    846,426      730

Walsin Lihwa Corp.

    451,000      247

Wistron Corp.

    1,650,765      3,356

Wistron Corp. - GDR

    36,142      723

Yieh Phui Enterprise

    831,652      357

Yuanta Financial Holding Co., Ltd. (Æ)

    2,614,135      1,947
         
        171,578
         

Thailand - 2.5%

        

Airports of Thailand PCL

    1,029,900      1,849

Aromatics Thailand PCL

    311,200      649

Bank of Ayudhya PCL

    77,800      68

Bank of Ayudhya PCL NVDR

    1,946,600      1,676

Banpu PCL

    49,300      649

Charoen Pokphand Foods PCL

    1,099,500      162

Electricity Generating PCL

    167,100      583

Glow Energy PCL

    942,500      984

Hana Microelectronics PCL

    623,500      459

IRPC PCL

    1,627,700      324

Precious Shipping PCL

    1,054,000      951

PTT Chemical PCL

    1,130,432      4,557

PTT Exploration & Production PCL

    726,200      3,462

PTT PCL

    810,500      10,016

Ratchaburi Electricity Generating Holding PCL

    270,600      399

Rayong Refinery PCL

    5,804,000      4,324

Regional Container Lines PCL

    962,600      843

Siam Cement PCL

    120,100      930

Siam City Bank PCL

    178,400      92

Siam Commercial Bank PCL

    2,340,200      6,507

Thai Airways International PCL

    442,800      515
     Principal
Amount ($)
or Shares		      Market
Value
$

Thai Beverage PCL

    17,363,430      3,141

Thai Oil PCL

    725,200      2,048

Thoresen Thai Agencies PCL

    539,600      979
         
        46,167
         

Turkey - 3.0%

        

Akcansa Cimento AS

    75,895      556

Anadolu Efes Biracilik Ve Malt Sanayii AS

    443,095      5,417

Asya Katilim Bankasi AS (Æ)

    286,200      2,439

BIM Birlesik Magazalar AS

    17,100      1,411

Cimsa Cimento Sanayi VE Tica

    263,875      2,257

Dogan Sirketler Grubu Holdings (Æ)

    2,341,900      5,180

Eregli Demir ve Celik Fabrikalari TAS

    873,570      8,513

Ford Otomotiv Sanayi AS

    158,997      1,875

Haci Omer Sabanci Holding AS

    413,100      2,839

Ihlas Holding (Æ)

    1,899,716      1,881

Migros Turk TAS (Ñ)

    163,423      2,864

Trakya Cam Sanayi AS

    453,212      1,182

Tupras Turkiye Petrol Rafine

    241,718      6,882

Turk Hava Yollari (Æ)(Ñ)

    132,113      943

Turk Sise ve Cam Fabrikalari AS

    100,353      222

Turkiye Garanti Bankasi AS

    163,100      1,511

Turkiye Is Bankasi Class C (Ñ)

    640,199      4,407

Vestel Elektronik Sanayi (Æ)(Ñ)

    402,003      1,192

Yapi ve Kredi Bankasi AS (Æ)

    1,041,686      4,086
         
        55,657
         

United Kingdom - 1.3%

        

Anglo American PLC

    113,626      7,862

Antofagasta PLC

    151,000      2,642

Hikma Pharmaceuticals PLC

    222,600      2,316

Kazakhmys PLC

    40,900      1,256

SABMiller PLC

    88,700      2,649

Tullow Oil PLC

    500,600      6,665
         
        23,390
         

United States - 1.2%

        

Central European Distribution Corp. (Æ)(Ñ)

    82,200      4,371

CTC Media, Inc. (Æ)(Ñ)

    61,300      1,538

Golden Telecom, Inc.

    21,900      2,266

NII Holdings, Inc. (Æ)(Ñ)

    28,000      1,624

Southern Copper Corp. (Ñ)

    92,377      12,905
         
        22,704
         

Emerging Markets Fund   21

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Venezuela - 0.0%

        

Siderurgica Venezolana Sivensa SACA

    1,306,495      137
         

Zimbabwe - 0.0%

        

Delta Corp., Ltd. (ß)

    1,323,859      324
         
Total Common Stocks        

(cost $992,772)

         1,708,191
         
Preferred Stocks - 6.1%        

Brazil - 5.0%

        

Aracruz Celulose SA

    347,000      2,657

Banco Bradesco SA (Æ)

    109,874      3,758

Banco Itau Holding Financeira SA

    222,520      6,352

Brasil Telecom Participacoes SA

    296,400      4,434

Centrais Eletricas Brasileiras SA (Æ)

    660,769      9,977

Cia de Tecidos do Norte de Minas - Coteminas

    166,794      1,320

Cia Energetica de Minas Gerais

    77,700      1,666

Cia Paranaense de Energia

    204,200      3,397

Duratex SA (Æ)

    57,800      1,954

Gerdau SA

    19,400      605

Investimentos Itau SA

    198,743      1,510

Lojas Americanas SA (Æ)

    77,000      903

Petroleo Brasileiro SA

    591,100      24,598

Tam SA

    43,300      1,278

Tele Norte Leste Participacoes SA

    315,000      6,916

Usinas Siderurgicas de Minas Gerais SA

    275,400      21,642

Votorantim Celulose e Papel SA (Æ)

    49,000      1,556
         
        94,523
         

Chile - 0.1%

        

Embotelladora Andina SA

        

Class A

    13,200      40

Class B

    318,000      1,065
         
        1,105
         

Colombia - 0.0%

        

BanColombia SA

    7,200      66
         

Russia - 0.3%

        

Transneft

    1,330      2,602

URSA Bank

    1,518,300      2,884
         
        5,486
         
            Principal
Amount ($)
or Shares		      Market
Value
$

South Korea - 0.7%

             

Hyundai Motor Co.

         14,440      554

Samsung Electronics Co., Ltd. (Ñ)

         26,806      12,877
              
             13,431
              
Total Preferred Stocks          

(cost $68,358)

              114,611
              
Warrants & Rights - 0.4%          

Netherlands Antilles - 0.1%

     

Yes Bank, Ltd. (Æ)
2010 Warrants

         277,454      1,536
              

Singapore - 0.0%

             

Jiutian Chemical Group, Ltd.(Æ) 2010 Warrants

      859,000      140
              

United States - 0.3%

             

Everlight Electronics Co., Ltd. (Æ)(Þ)
2012 Warrants

      349,034      1,516

Far Eastern Textile Co., Ltd. (Æ)(Þ)
2012 Warrants

      1,032,279      1,356

HON HAI Precision Industry Co., Ltd. (Æ)(Þ)
2012 Warrants

      195,836      1,479

JSW Steel, Ltd. (Æ)
2010 Warrants

         95,946      2,330
              
             6,681
              
Total Warrants & Rights          

(cost $7,424)

              8,357
              
           

Notional
Amount

       

Options Purchased - 0.2%

          

(Number of Contracts)

          

Brazil - 0.0%

             

Bovespa Index Futures

Dec 2007 62,660.00 Call (120)

    BRL      4,402      239

Dec 2007 62,885.00 Call (70)

    BRL      7,519      130
              
             369
              

 

22   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

        Notional
Amount
      Market
Value
$		  
        

South Korea - 0.2%

         

Kospi 200 Index Futures
Dec 2007 198.26 Call (88)

   KRW   8,723,550      3,592  
            
Total Options Purchased         

(cost $2,145)

          3,961  
            
        Principal
Amount ($)
or Shares		         

Short-Term Investments - 1.3%

     

United States - 1.3%

         

Russell Investment Company
Money Market Fund

     19,557,000      19,557  

United States Treasury Bills (ç)(ž)(§)
3.734% due 12/27/07

     4,700      4,673  
            
Total Short-Term Investments       

(cost $24,230)

          24,230  
            
Other Securities - 7.3%         

Russell Investment Company Money Market Fund (×)

     31,180,156      31,180  

State Street Securities Lending Quality Trust (×)

     106,109,654      106,110  
            
Total Other Securities         

(cost $137,290)

          137,290  
            
Total Investments - 106.6%       

(identified cost $1,232,219)

          1,996,640  
Other Assets and Liabilities, Net - (6.6%)          (124,092 )
            
Net Assets - 100.0%          1,872,548  
            

 

 

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   23

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Foreign Currency Exchange Contracts  
         
Amount Sold   Amount Bought   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
USD   1,008   BRL   2,000   12/19/07   141  
USD   1,011   BRL   2,000   12/19/07   137  
USD   1,212   BRL   2,400   12/19/07   166  
USD   1,508   BRL   3,000   12/19/07   215  
USD   8,652   BRL   17,100   12/19/07   1,167  
USD   1,301   CZK   24,285   11/01/07   5  
USD   189   HKD   1,466   11/01/07   —  
USD   194   HKD   1,503   11/06/07   —  
USD   7   IDR   61,620   11/02/07   —  
USD   8   IDR   71,261   11/05/07   —  
USD   21   ILS   82   11/01/07   —  
USD   537   KRW   500,000   12/20/07   20  
USD   537   KRW   500,000   12/20/07   19  
USD   752   KRW   700,000   12/20/07   27  
USD   858   KRW   800,000   12/20/07   32  
USD   2,465   KRW   2,300,000   12/20/07   94  
USD   9,021   KRW   8,400,000   12/20/07   324  
USD   12,656   KRW   11,800,000   12/20/07   471  
USD   2   MXN   24   11/01/07   —  
USD   10   MXN   108   11/01/07   —  
USD   90   MXN   1,000   12/19/07   4  
USD   269   MXN   3,000   12/19/07   11  
USD   361   MXN   4,000   12/19/07   13  
USD   522   MXN   5,800   12/19/07   20  
USD   1,080   MXN   12,000   12/19/07   41  
USD   2,627   MXN   29,200   12/19/07   100  
USD   4,499   MXN   50,000   12/19/07   172  
USD   21   MYR   69   11/01/07   —  
USD   21   MYR   69   11/02/07   —  
USD   236   ZAR   1,544   11/02/07   2  
USD   211   ZAR   1,381   11/05/07   2  
USD   110   ZAR   800   12/19/07   12  
USD   685   ZAR   5,000   12/19/07   78  
USD   828   ZAR   6,000   12/19/07   88  
USD   959   ZAR   7,000   12/19/07   109  
USD   3,557   ZAR   25,900   12/19/07   396  
USD   3,667   ZAR   26,742   12/19/07   414  
USD   4,276   ZAR   31,200   12/19/07   486  
USD   7,356   ZAR   53,700   12/19/07   840  
BRL   9   USD   5   11/01/07   —  
BRL   162   USD   93   11/06/07   —  
BRL   1,000   USD   545   12/19/07   (29 )
BRL   1,000   USD   550   12/19/07   (24 )
BRL   1,000   USD   565   12/19/07   (9 )
BRL   3,000   USD   1,518   12/19/07   (205 )
BRL   3,000   USD   1,627   12/19/07   (96 )
BRL   5,500   USD   2,767   12/19/07   (392 )
Foreign Currency Exchange Contracts  
Amount Sold   Amount Bought   Settlement
Date		   Unrealized
Appreciation
(Depreciation)
$		  
IDR   1,105,648   USD   121   11/01/07   —  
KRW   100,000   USD   107   12/20/07   (4 )
KRW   300,000   USD   322   12/20/07   (12 )
KRW   1,000,000   USD   1,071   12/20/07   (41 )
KRW   1,000,000   USD   1,088   12/20/07   (25 )
KRW   1,000,000   USD   1,104   12/20/07   (8 )
KRW   5,000,000   USD   5,481   12/20/07   (81 )
KRW   9,100,000   USD   9,757   12/20/07   (367 )
MXN   1,195   USD   111   11/01/07   (1 )
MXN   6,633   USD   620   11/05/07   (2 )
MXN   2,000   USD   184   12/19/07   (3 )
MXN   3,000   USD   276   12/19/07   (5 )
MXN   3,500   USD   318   12/19/07   (9 )
MXN   4,000   USD   371   12/19/07   (2 )
MXN   4,000   USD   374   12/19/07   —  
MXN   5,000   USD   459   12/19/07   (8 )
MXN   8,500   USD   776   12/19/07   (18 )
MXN   22,000   USD   1,980   12/19/07   (75 )
MXN   29,000   USD   2,610   12/19/07   (99 )
MYR   136   USD   40   11/01/07   —  
PHP   1,182   USD   27   11/06/07   —  
PHP   3,289   USD   75   11/06/07   —  
PHP   14,832   USD   338   11/06/07   (2 )
PHP   15,440   USD   352   11/06/07   (2 )
PHP   3,270   USD   75   11/07/07   —  
THB   37,413   USD   1,097   11/02/07   (4 )
ZAR   86   USD   13   11/01/07   —  
ZAR   109   USD   19   11/01/07   2  
ZAR   769   USD   117   11/01/07   (2 )
ZAR   1,009   USD   154   11/01/07   (1 )
ZAR   1,920   USD   293   11/05/07   (2 )
ZAR   196   USD   30   11/06/07   —  
ZAR   1,900   USD   269   12/19/07   (21 )
ZAR   2,000   USD   304   12/19/07   (1 )
ZAR   4,000   USD   577   12/19/07   (33 )
ZAR   4,000   USD   595   12/19/07   (15 )
ZAR   4,000   USD   604   12/19/07   (6 )
ZAR   4,000   USD   610   12/19/07   —  
ZAR   13,000   USD   1,782   12/19/07   (202 )
ZAR   17,742   USD   2,435   12/19/07   (273 )
ZAR   18,100   USD   2,583   12/19/07   (180 )
ZAR   55,600   USD   7,622   12/19/07   (864 )
             
Total Unrealized Appreciation (Depreciation) on Open
Foreign Currency Exchange Contracts		   2,485  
             

 

See accompanying notes which are an integral part of the financial statements.

24   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts

(Number of Contracts)

       

Notional

Amount

   Unrealized
Appreciation
(Depreciation)
$
       

Long Positions

        

Hang Seng Index (Hong Kong)
expiration date 11/07 (30)

    HKD     46,904    198

H-Shares Index (Hong Kong)
expiration date 11/07 (46)

    HKD     45,988    82

Mexican Bolsa Index
expiration date 12/07 (100)

    MXN     31,682    22

JSE-40 Index (South Africa)
expiration date 12/07 (150)

    ZAR     43,317    541

MSCI Taiwan Index
expiration date 11/07 (238)

    USD     9,123    136
         

Total Unrealized Appreciation
(Depreciation) on Open Futures Contracts

      979
         

 

Options Written

(Number of Contracts)

         Notional
Amount 		    

Market
Value
$

  

Brazil - 0.1%

           

Bovespa Index Futures

           

Dec 2007 62,885.00 Put (70)

    BRL    4,402      (12 )

Dec 2007 62,660.00 Put (120)

    BRL    7,519      (21 )

South Korea - 0.3%

           

Kospi 200 Index Futures

           

Dec 2007 198.26 Put (88)

    KRW    8,723,550      (488 )
              

Total Liability for Options Written (premiums received $501)

            (521 )
              

 

See accompanying notes which are an integral part of the financial statements.

Emerging Markets Fund   25

Table of Contents

Russell Investment Company

Emerging Markets Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Industry Diversification

(Unaudited)

    % of
Net
Assets		        Market
Value
$		  
       
       

Auto and Transportation

    4.5        83,888  

Consumer Discretionary

    3.7        69,106  

Consumer Staples

    3.9        72,811  

Financial Services

    20.0        374,760  

Health Care

    0.9        16,467  

Integrated Oils

    7.5        140,726  

Materials and Processing

    24.0        449,046  

Miscellaneous

    3.4        63,312  

Other Energy

    4.5        84,384  

Producer Durables

    3.1        58,669  

Technology

    9.0        167,168  

Utilities

    12.9        242,465  

Warrants & Rights

    0.4        8,357  

Options Purchased

    0.2        3,961  

Short-Term Investments

    1.3        24,230  

Other Securities

    7.3        137,290  
               

Total Investments

    106.6        1,996,640  

Other Assets and Liabilities, Net

    (6.6 )      (124,092 )
               

Net Assets

    100.0        1,872,548  
               

Geographic Diversification

(Unaudited)

    % of
Net
Assets		        Market
Value
$		  
       

Africa

    6.9        129,816  

Asia

    45.9        860,205  

Europe

    14.4        269,616  

Latin America

    22.7        426,089  

Middle East

    4.9        91,638  

Netherlands Antilles

    0.1        1,536  

Other Regions

    3.1        57,060  

United Kingdom

    1.3        23,390  

Other Securities

    7.3        137,290  
               

Total Investments

    106.6        1,996,640  

Other Assets and Liabilities, Net

    (6.6 )      (124,092 )
               

Net Assets

    100.0        1,872,548  
               

 

See accompanying notes which are an integral part of the financial statements.

26   Emerging Markets Fund

Table of Contents

Russell Investment Company

Emerging Markets Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of
Net
Assets		  
  
  

Bahrain

    0.1  

Bermuda

    1.6  

Brazil

    8.8  

Canada

    0.2  

Cayman Islands

    1.6  

Chile

    0.5  

China

    5.2  

Colombia

    0.3  

Cyprus

    — *

Czech Republic

    0.6  

Egypt

    1.9  

Greece

    — *

Hong Kong

    3.0  

Hungary

    0.4  

India

    6.6  

Indonesia

    2.0  

Israel

    2.7  

Kazakhstan

    0.1  

Lebanon

    — *

Luxembourg

    2.6  

Malaysia

    2.5  

Mexico

    4.8  

Netherlands

    0.5  

Nigeria

    0.1  

Oman

    0.2  

Pakistan

    0.5  

Philippines

    0.6  

Poland

    0.8  

Russia

    6.2  

Singapore

    0.3  

South Africa

    6.8  

South Korea

    12.6  

Taiwan

    9.2  

Thailand

    2.5  

Turkey

    3.0  

United Kingdom

    1.3  

United States

    1.2  

Venezuela

    — *

Zimbabwe

    — *

Preferred Stock

    6.1  

Warrants & Rights

    0.4  

Options Purchased

    0.2  

Short-Term Investments

    1.3  

Other Securities

    7.3  
      

Total Investments

    106.6  

Other Assets and Liabilities Net

    (6.6 )
      
   100.0  
      
     % of
Net
Assets		  

Futures Contracts

    0.1  

Foreign Currency Exchange Contracts

    0.1  

Options Written

    — *

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

Emerging Markets Fund   27

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Real Estate Securities Fund - Class S  
     Total
Return		  

1 Year

    1.59 %

5 Years

    24.19 %§

10 Years

    13.56 %§
Real Estate Securities Fund - Class E ‡  
     Total
Return		  

1 Year

    1.33 %

5 Years

    23.88 %§

10 Years

    13.25 %§
Real Estate Securities Fund - Class C ‡‡  
     Total
Return		  

1 Year

    0.57 %

5 Years

    22.96 %§

10 Years

    12.52 %§
Real Estate Securities Fund - Class A ‡‡‡  
     Total
Return		  

1 Year

    -4.52 %

5 Years

    22.41 %§

10 Years

    12.58 %§
FTSE NAREIT Equity REITs Index **  
     Total
Return		  

1 Year

    0.57 %

5 Years

    23.00 %§

10 Years

    12.62 %§

28   Real Estate Securities Fund

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Real Estate Securities Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Real Estate Securities Fund Class A, Class C, Class E and Class S Shares gained 1.29%, 0.57%, 1.33% and 1.59%, respectively. This compared to the FTSE NAREIT Equity REITs Index, which gained 0.57% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ending October 31, 2007, the Lipper® Real Estate Funds Average returned 2.28%. 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 benefit from property sectors with the strongest supply and demand fundamentals. The largest overweight positions were in the regional malls and office sectors. The market favored the more defensive sectors, including industrial, health care and specialty. As discussed below, sector positioning was a negative contributor to the Fund’s performance during the fiscal year.

The Fund maintained a primary focus on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the fiscal year, this positioning generally benefited the Fund during periods when the REIT market was rising, but detracted during periods when the market was declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Mergers and acquisitions activity was a positive contributor to the Fund’s performance. The Fund maintained overweight positions in two companies that were acquisition targets: Hilton

Hotels Corporation and Archstone-Smith Trust. Both companies were acquired by private market investors at significant premiums to their share prices.

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 value. AEW underperformed the benchmark during the fiscal year due primarily to adverse sector selection. The primary detractors were an overweight position in the underperforming office sector and underweight positions in the outperforming health care and specialty sectors. Stock selection was a positive contributor to performance, particularly in the lodging/resorts and regional malls sectors.

INVESCO Institutional (N.A.) maintains a broadly diversified portfolio with exposure to all major property sectors. Their investment style incorporates fundamental property market research and bottom-up quantitative securities analysis. INVESCO outperformed the benchmark during the fiscal year due to contributions from stock selection. Stock selection was strongest in the office, lodging/resorts and apartments sectors. Sector selection had a neutral impact on overall performance.

RREEF America L.L.C.’s style emphasizes a top-down approach to property sector weights based on an assessment of property market fundamentals. RREEF outperformed the benchmark during the fiscal year due to contributions from stock selection. Stock selection was strongest in the shopping centers, apartments, office, regional malls, specialty and industrial sectors. Sector selection had a slight negative impact on overall performance, driven by an underweight in the outperforming specialty sector.

Heitman Real Estate Securities LLC manages a concentrated portfolio with a bottom-up approach to stock selection focusing on companies that it believes have attractive valuations relative to growth prospects. Heitman outperformed the benchmark during the fiscal year, primarily as a result of effective stock selection. Stock selection was strongest in the shopping centers, regional malls, apartments, specialty and health care sectors. Sector selection detracted from performance, driven primarily by underweight positions in the outperforming specialty and health care sectors.

Cohen & Steers Capital Management Inc. was added to the Fund in May 2007 and manages a broadly diversified portfolio of global property securities. Cohen & Steers uses a bottom-up approach to portfolio construction, emphasizing the relationship between price and net asset value as the principal valuation


Real Estate Securities Fund   29

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

metric. From its hire through the end of the fiscal year, their global portfolio had a positive impact on Fund performance. Investments in the Asia Pacific region, particularly in Hong Kong, had a positive contribution, but this was partially offset by investments in the underperforming United Kingdom and Continental European markets.

Describe any changes to the Fund’s structure or the money manager line-up.

Cohen & Steers was added to the manager line-up in May 2007 at a 10% target weight to implement a global strategy for the Fund. The global strategy is intended to provide diversification benefits and the potential to participate in the evolving non-U.S. REIT market. The non-U.S. REIT market continues to grow as more countries adopt REIT structures.

 

Money Managers as of

October 31, 2007

    Styles

AEW Management and Advisors, L.P.

    Value

Cohen & Steers Capital Management, Inc.

    Global
Market-Oriented

Heitman Real Estate Securities LLC

    Growth

INVESCO Institutional (N.A.), Inc. which acts as a money manager to the Fund through its INVESCO Real Estate division

    Market-Oriented

RREEF America L.L.C.

    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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

*   Assumes initial investment on November 1, 1997.

 

**   FTSE National Association of Real Estate Investment Trusts (NAREIT) Equity REITs 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.

 

‡   The returns shown for Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees.

 

‡‡   The Fund first issued Class C Shares on January 27, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to January 26, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to February 28, 2007. The returns shown for the Fund’s Class E Shares from November 1, 1997 to May 17, 1998 reflect the deduction of the Rule 12b-1 distribution and shareholder services fees. Effective May 18, 1998, Class E Shares of the Fund no longer charged Rule 12b-1 distribution fees, which had reduced Class E returns prior to that date. The returns shown have not been increased to reflect the elimination of those fees. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

§   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   Real Estate Securities Fund

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 949.10    $ 1,018.50

Expenses Paid During Period*

    $ 6.53    $ 6.77

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.33% (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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 946.00    $ 1,014.67

Expenses Paid During Period*

    $ 10.25    $ 10.61

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.09% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 949.70    $ 1,018.45

Expenses Paid During Period*

    $ 6.59    $ 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).

Real Estate Securities Fund   31

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 950.90    $ 1,019.76

Expenses Paid During Period*

    $ 5.31    $ 5.50

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.08% (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).

32   Real Estate Securities Fund

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 95.9%

        

Apartments - 13.6%

        

Apartment Investment & Management Co. Class A (ö)(Ñ)

    568,550      26,568

AvalonBay Communities, Inc. (ö)(Ñ)

    770,033      94,445

BRE Properties, Inc. Class A (ö)(Ñ)

    620,076      33,980

Camden Property Trust (ö)(Ñ)

    616,100      38,414

Deutsche Wohnen AG

    272      12

Equity Residential (ö)(Ñ)

    1,494,117      62,424

Essex Property Trust, Inc. (ö)(Ñ)

    264,750      32,678

Home Properties, Inc. (ö)

    44,500      2,288

Mid-America Apartment Communities, Inc. (ö)

    129,800      6,750

New City Residence Investment Corp. Class A (ö)

    38      178

Post Properties, Inc. (ö)

    147,300      6,039

UDR, Inc. (ö)(Ñ)

    318,074      7,551
         
        311,327
         

Diversified - 10.3%

        

British Land Co. PLC (ö)

    228,330      5,168

CA Immobilien Anlagen AG (Æ)

    38,231      1,034

Castellum AB

    176,894      2,251

Cheung Kong Holdings, Ltd.

    32,365      636

Eurocastle Investment, Ltd.

    20,882      667

Fonciere Des Regions

    7,337      1,073

Forest City Enterprises, Inc. Class A (Ñ)

    56,971      3,243

GPT Group (Ñ)

    708,744      3,080

Great Eagle Holdings, Ltd. (Ñ)

    906,000      3,811

Heiwa Real Estate Co., Ltd. (Ñ)

    153,000      1,092

Helical Bar PLC

    123,300      1,135

Henderson Land Development Co., Ltd. (Ñ)

    489,132      4,385

Hysan Development Co., Ltd.

    794,000      2,399

iStar Financial, Inc. (ö)(Ñ)

    208,900      6,374

IVG Immobilien AG

    8,711      396

Kenedix Realty Investment Corp. Class A (ö)(Ñ)

    160      1,106

Kerry Properties, Ltd. (Ñ)

    136,000      1,184

Land Securities Group PLC (ö)

    312,324      10,716

Mirvac Group

    248,278      1,352

Mitsubishi Estate Co., Ltd.

    354,000      10,577

Mitsui Fudosan Co., Ltd.

    369,000      10,188

New World China Land, Ltd. (Ñ)

    1,027,000      1,207

Sino Land Co.

    864,257      2,710

Sino-Ocean Land Holdings, Ltd. (Æ)

    169      —
     Principal
Amount ($)
or Shares		      Market
Value
$

Sponda OYJ

    73,658      1,013

Stockland

    202,140      1,697

Sun Hung Kai Properties, Ltd.

    212,232      4,056

Unibail-Rodamco

    38,618      9,627

Vornado Realty Trust (ö)(Ñ)

    1,161,469      129,759

Washington Real Estate Investment Trust (ö)(Ñ)

    291,600      10,270

Wharf Holdings, Ltd.

    585,540      3,545
         
        235,751
         

Free Standing Retail - 0.2%

        

Realty Income Corp. (ö)

    140,000      4,136
         

Health Care - 6.2%

        

HCP, Inc. (ö)(Ñ)

    826,400      28,131

Health Care REIT, Inc. (ö)(Ñ)

    456,700      20,227

Healthcare Realty Trust, Inc. (ö)(Ñ)

    150,000      3,966

LTC Properties, Inc. (ö)

    160,450      4,066

Nationwide Health Properties, Inc. (ö)

    938,150      29,289

Omega Healthcare Investors, Inc. (ö)(Ñ)

    417,400      6,983

Senior Housing Properties Trust (ö)(Ñ)

    255,600      5,730

Ventas, Inc. (ö)

    988,500      42,397
         
        140,789
         

Industrial - 7.2%

        

AMB Property Corp. (ö)

    604,850      39,527

DCT Industrial Trust, Inc. (ö)(Ñ)

    1,000,000      10,730

First Potomac Realty Trust (ö)(Ñ)

    236,500      4,943

Goodman Group (Ñ)

    207,931      1,350

Prologis (ö)

    1,506,560      108,080
         
        164,630
         

Lodging/Resorts - 7.7%

        

Ashford Hospitality Trust, Inc. (ö)(Ñ)

    450,900      4,437

DiamondRock Hospitality Co. (ö)

    77,500      1,485

FelCor Lodging Trust, Inc. (ö)(Ñ)

    343,000      7,182

Hospitality Properties Trust (ö)

    68,000      2,693

Host Hotels & Resorts, Inc. (ö)(Ñ)

    4,503,604      99,800

LaSalle Hotel Properties (ö)(Ñ)

    465,659      19,241

Shangri-La Asia, Ltd.

    671,082      2,148

Starwood Hotels & Resorts Worldwide, Inc. (ö)

    708,696      40,296
         
        177,282
         

Manufactured Homes - 0.4%

        

Equity Lifestyle Properties, Inc. (ö)

    195,550      9,825
         

Real Estate Securities Fund   33

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Mixed Industrial/Office - 1.2%

        

Liberty Property Trust (ö)

    512,380      19,276

PS Business Parks, Inc. (ö)

    100,800      5,876

Segro PLC (ö)

    316,302      3,082
         
        28,234
         

Office - 15.4%

        

Alexandria Real Estate Equities, Inc. (ö)(Ñ)

    196,100      20,226

Alstria Office AG (Æ)(ö)

    44,615      789

Beni Stabili SpA (Ñ)

    1,496,648      1,898

BioMed Realty Trust, Inc. (ö)

    612,945      14,643

Boston Properties, Inc. (ö)

    797,445      86,395

Brandywine Realty Trust (ö)(Ñ)

    826,021      21,369

Brookfield Properties Corp.

    812,977      20,300

CapitaCommercial Trust (Æ)(ö)(Ñ)

    766,000      1,435

Commonwealth Property Office Fund

    1,207,378      1,788

Corporate Office Properties Trust (ö)(Ñ)

    200,000      8,266

DA Office Investment Corp.
Class A (ö)

    137      902

Derwent London PLC (ö)

    194,266      6,745

Douglas Emmett, Inc. (ö)(Ñ)

    1,130,300      29,738

Great Portland Estates PLC (ö)

    264,219      3,152

Highwoods Properties, Inc. (ö)(Ñ)

    160,900      5,786

Hongkong Land Holdings, Ltd. (Ñ)

    1,170,000      5,867

HRPT Properties Trust (ö)(Ñ)

    680,000      6,385

Kilroy Realty Corp. (ö)(Ñ)

    285,745      18,585

Mack-Cali Realty Corp. (ö)(Ñ)

    279,800      11,077

Maguire Properties, Inc. (ö)

    43,667      1,190

Nomura Real Estate Office Fund, Inc. Class A (ö)(Ñ)

    117      1,179

Norwegian Property ASA

    107,723      1,346

Parkway Properties, Inc. (ö)(Ñ)

    45,500      1,957

SL Green Realty Corp. (ö)

    638,510      77,043

Societe Immobiliere de Location pour l’Industrie et le Commerce

    6,217      964

Tishman Speyer Office Fund (Ñ)

    512,013      1,047

Tokyo Tatemono Co., Ltd.

    85,000      1,090
         
        351,162
         

Regional Malls - 16.7%

        

Aeon Mall Co., Ltd. (Ñ)

    86,400      2,239

CBL & Associates Properties, Inc. (ö)(Ñ)

    228,300      7,559
     Principal
Amount ($)
or Shares		      Market
Value
$

CFS Retail Property Trust (Ñ)

    772,890      1,775

General Growth Properties, Inc. (ö)(Ñ)

    1,422,982      77,353

Macerich Co. (The) (ö)(Ñ)

    796,369      68,257

Simon Property Group, Inc. (ö)(Ñ)

    1,817,615      189,232

Taubman Centers, Inc. (ö)

    563,056      33,147

Westfield Group

    114,449      2,340
         
        381,902
         

Self Storage - 4.1%

        

Extra Space Storage, Inc. (ö)(Ñ)

    379,200      5,961

Public Storage, Inc. (ö)(Ñ)

    1,074,575      87,008
         
        92,969
         

Shopping Centers - 10.7%

        

Cedar Shopping Centers, Inc. (ö)(Ñ)

    233,300      2,998

Citycon OYJ

    176,776      1,152

Corio NV

    14,600      1,284

Developers Diversified Realty Corp. (ö)

    948,246      47,792

Federal Realty Investors Trust (ö)(Ñ)

    850,700      75,049

Hammerson PLC (ö)

    140,771      3,267

Kimco Realty Corp. (ö)(Ñ)

    723,700      30,048

Kite Realty Group Trust (ö)(Ñ)

    374,800      6,791

Regency Centers Corp. (ö)

    814,450      58,217

Saul Centers, Inc. (ö)

    75,850      4,158

Tanger Factory Outlet Centers (ö)(Ñ)

    304,500      12,825
         
        243,581
         

Specialty - 2.2%

        

Digital Realty Trust, Inc. (ö)(Ñ)

    734,200      32,297

DuPont Fabros Technology, Inc. (Æ)(ö)

    224,400      4,820

Entertainment Properties Trust (ö)(Ñ)

    69,500      3,814

Plum Creek Timber Co., Inc. (ö)(Ñ)

    195,100      8,715
         
        49,646
         
Total Common Stocks        

(cost $1,601,541)

         2,191,234
         
Short-Term Investments - 4.2%     

Russell Investment Company
Money Market Fund

    95,941,000      95,941
         

Total Short-Term Investments

(cost $95,941)

         95,941
         

34   Real Estate Securities Fund

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$		  
       

Other Securities - 12.2%

        

Russell Investment Company
Money Market Fund (×)

    58,533,718      58,534  

State Street Securities Lending Quality Trust (×)

    219,867,383      219,867  
           
Total Other Securities        

(cost $278,401)

         278,401  
           
Total Investments - 112.3%        

(identified cost $1,975,883)

         2,565,576  
Other Assets and Liabilities, Net - (12.3%)         (280,862 )
           
Net Assets - 100.0%         2,284,714  
           

 

See accompanying notes which are an integral part of the financial statements.

Real Estate Securities Fund   35

Table of Contents

Russell Investment Company

Real Estate Securities Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts
              

Amount
Sold

    Amount
Bought		   

Settlement
Date

    Unrealized
Appreciation
(Depreciation)
$
              
USD    10    EUR    7    11/02/07    —
USD    6    HKD    48    11/01/07    —
USD    13    HKD    97    11/01/07    —
USD    11    JPY    1,300    11/01/07    —
HKD    429    USD    55    11/01/07    —
HKD    1,133    USD    146    11/01/07    —
JPY    1,057    USD    9    11/01/07    —
JPY    1,067    USD    9    11/02/07    —
                

Total Unrealized Appreciation (Depreciation) on Open Foreign Currency Exchange Contracts

    —
                

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  

Apartments

    13.6  

Diversified

    10.3  

Free Standing Retail

    0.2  

Health Care

    6.2  

Industrial

    7.2  

Lodging/Resorts

    7.7  

Manufactured Homes

    0.4  

Mixed Industrial/Office

    1.2  

Office

    15.4  

Regional Malls

    16.7  

Self Storage

    4.1  

Shopping Center

    10.7  

Specialty

    2.2  

Short-Term Investments

    4.2  

Other Securities

    12.2  
      

Total Investments

    112.3  

Other Assets and Liabilities, Net

    (12.3 )
      
   100.0  
      

Foreign Currency Exchange Contracts

    — *

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

36   Real Estate Securities Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Short Duration Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

LOGO

 

Short Duration Bond Fund - Class S  
     Total
Return		  

1 Year

    4.99 %

5 Years

    2.87 %§

10 Years

    4.51 %§
Short Duration Bond Fund - Class E ‡  
     Total
Return		  

1 Year

    4.72 %

5 Years

    2.61 %§

10 Years

    4.28 %§
Short Duration Bond Fund - Class C ‡‡  
     Total
Return		  

1 Year

    3.98 %

5 Years

    1.85 %§

10 Years

    3.62 %§
Short Duration Bond Fund - Class A ‡‡‡  
     Total
Return		  

1 Year

    0.75%  

5 Years

    1.82% §

10 Years

    3.88% §
Merrill Lynch U.S. Treasuries 1-3 Year Index **  
     Total
Return		  

1 Year

    5.78%  

5 Years

    2.85% §

10 Years

    4.64% §

38   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Short Duration Bond Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has three money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Short Duration Bond Fund Class A, Class C, Class E and Class S Shares gained 4.68%, 3.98%, 4.72% and 4.99%, respectively. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 5.78% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class A Shares commenced operations on March 1, 2007. The returns shown for Class A Shares prior to March 1, 2007 are the returns of Class E Shares.

For the year ended October 31, 2007, the Lipper® Short Investment Grade Debt Funds Average returned 4.09%. 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?

Investors’ departure from investments with more risk to the relative safety of U.S. Treasuries and the subsequent re-pricing of risk (i.e. the market demanding increased compensation for assuming a given level of risk) impacted nearly all non-Treasury fixed income investments. As a result, non-Treasury investments posted lower returns than the benchmark. Given that the Fund’s money managers typically invest in non-Treasury sectors, the Fund underperformed its benchmark. However, the managers’ sector allocation and security selection decisions resulted in the Fund outperforming its peers as measured by the Lipper Short Intermediate Investment Grade Debt Funds Average.

The decline in short-term interest rates benefited the Fund as several of the Fund’s managers anticipated the decline and increased sensitivity to interest rates (also called increased duration). In general, as interest rates decline bond prices

increase; therefore, the increase in duration had a positive impact on performance.

Finally, as the Federal Reserve decreased the federal funds rate, intermediate maturity yields also declined resulting in a shift in yields otherwise known as a shift in the yield curve. This yield curve movement benefited the Fund as the Fund’s money managers anticipated the change and varied the maturity of their securities.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Given investor’s flight to the relative safety of U.S. Treasures, it was difficult for the Fund’s money managers to generate return outside of Treasury sector. The performance of all the money managers suffered from an allocation to corporate, mortgage-backed, and asset-backed securities. The performance of these holdings was negatively impacted by the market’s requirement of higher compensation on relatively riskier assets. This requirement led to a lower mark-to-market price of the holdings.

Pacific Investment Management Company LLC (“PIMCO”) was the only manager to generate positive excess return over the period. The majority of its positive return was driven by its investments related to yield curve movements. Merganser Capital Management, L.P. generated the weakest performance largely driven by exposure to mortgage-backed and asset-backed investments.

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 lineup during the fiscal year.

 

Money Managers as of
October 31, 2007		   Styles

Merganser Capital Management, L.P.

   Sector Rotation

Pacific Investment Management Company LLC

   Fully Discretionary

STW Fixed Income Management

   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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


Short Duration Bond Fund

   39

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 


*   Assumes initial investment on November 1, 1997.

 

**   Merrill Lynch U.S. Treasuries 1-3 Year 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.

 

‡   The Fund first issued Class E Shares on February 18, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class S Shares and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class C Shares on March 3, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to February 17, 1999 and the returns of the Fund’s Class E Shares from February 18, 1999 to March 2, 1999 and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class A Shares on March 1, 2007. The returns shown for Class A Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to February 17, 1999 and do not reflect deduction of Rule 12b-1 distribution fees. Had it done so, returns for that period would have been lower. The returns shown for Class A Shares are the returns of the Fund’s Class E Shares from February 18, 1999 to February 28, 2007. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 3.75%.

 

§   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.

40   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,025.50    $ 1,020.57

Expenses Paid During Period*

    $ 4.70    $ 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).

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,021.70    $ 1,016.74

Expenses Paid During Period*

    $ 8.56    $ 8.54

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.68% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,025.50    $ 1,020.47

Expenses Paid During Period*

    $ 4.80    $ 4.79

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.94% (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.

Short Duration Bond Fund   41

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,026.30    $ 1,021.68

Expenses Paid During Period*

    $ 3.58    $ 3.57

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.70% (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).

42   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Long-Term Investments - 81.6%

        

Asset-Backed Securities - 22.5%

        

AmeriCredit Automobile
Receivables Trust

        

Series 2005-AX Class A3

        

3.630% due 01/06/10

    204      204

Argent Securities, Inc. (Ê)

        

Series 2006-M2 Class A2A

        

4.923% due 09/25/36

    241      239

Asset Backed Securities Corp. Home Equity (Ê)

        

Series 2002-HE1 Class M1

        

6.741% due 03/15/32

    751      749

Series 2004-HE6 Class A1

        

5.148% due 09/25/34

    160      156

Atlantic City Electric Transition Funding LLC

        

Series 2003-1 Class A2

        

4.460% due 10/20/16

    1,525      1,500

Bank One Issuance Trust

        

Series 2003-A9 Class A9

        

3.860% due 06/15/11

    1,000      991

Series 2004-B2 Class B2

        

4.370% due 04/15/12

    2,000      1,977

Bear Stearns Asset Backed Securities Trust (Ê)

        

Series 2004-BO1 Class 1A1

        

5.073% due 09/25/34

    59      59

Series 2007-HE7 Class 1A1

        

5.873% due 08/25/37

    700      697

Cabela’s Master Credit Card Trust (Þ)

        

Series 2006-3A Class A1

        

5.260% due 10/15/14

    1,000      1,012

California Infrastructure PG&E-1

        

Series 1997-1 Class A8

        

6.480% due 12/26/09

    337      337

California Infrastructure SCE-1

        

Series 1997-1 Class A7

        

6.420% due 12/26/09

    464      465

Capital Auto Receivables Asset Trust

        

Series 2005-1 Class A4

        

4.050% due 07/15/09

    542      541

Series 2006-1 Class A3

        

5.030% due 10/15/09

    1,045      1,045

Capital One Auto Finance Trust

        

Series 2005-BSS Class A3

        

4.080% due 11/15/09

    319      319
     Principal
Amount ($)
or Shares		      Market
Value
$

Capital One Multi-Asset Execution Trust

        

Series 2003-A4 Class A4

        

3.650% due 07/15/11

    1,825      1,806

Series 2005-A2 Class A2

        

4.050% due 02/15/11

    1,215      1,210

Series 2005-A8 Class A

        

4.400% due 08/15/11

    1,500      1,494

Capital One Prime Auto Receivables Trust

        

Series 2004-3 Class A4

        

3.690% due 06/15/10

    947      938

Series 2004-3 Class B

        

3.860% due 08/15/11

    1,500      1,486

Carmax Auto Owner Trust

        

Series 2005-2 Class A4

        

4.340% due 09/15/10

    2,000      1,987

Caterpillar Financial Asset Trust

        

Series 2006-A Class A3

        

5.570% due 05/25/10

    1,000      1,005

Centex Home Equity

        

Series 2003-C Class AF4

        

4.960% due 04/25/32

    136      135

Chase Issuance Trust

        

Series 2005-A10 Class A10

        

4.650% due 12/17/12

    3,905      3,886

Chase Manhattan Auto Owner Trust

        

Series 2004-A Class A4

        

2.830% due 09/15/10

    414      411

Series 2005-A Class CTFS

        

4.040% due 04/15/11

    587      584

Series 2006-A Class A3

        

5.340% due 07/15/10

    1,765      1,770

CIT Equipment Collateral

        

Series 2006-VT1 Class A4

        

5.160% due 02/20/13

    1,250      1,252

CIT Marine Trust

        

Series 1999-A Class A4

        

6.250% due 11/15/19

    427      427

CIT RV Trust

        

Series 1998-A Class A5

        

6.120% due 11/15/13

    78      78

Citibank Credit Card Issuance Trust

        

Series 2003-A6 Class A6

        

2.900% due 05/17/10

    1,305      1,290

Series 2007-A5 Class A5

        

5.500% due 06/22/12

    5,875      5,966

Short Duration Bond Fund   43

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Community Program Loan Trust

        

Series 1987-A Class A4

        

4.500% due 10/01/18

    1,588      1,567

Countrywide Asset-Backed Certificates (Ê)

        

Series 2001-BC3 Class A

        

5.353% due 12/25/31

    107      104

Series 2006-16 Class 2A1

        

4.923% due 12/25/46

    221      220

Daimler Chrysler Auto Trust

        

Series 2005-A Class A4

        

3.740% due 02/08/10

    3,762      3,739

E-Trade RV and Marine Trust

        

Series 2004-1 Class A3

        

3.620% due 10/08/18

    1,300      1,272

Equity One ABS, Inc.

        

Series 2003-4 Class M1

        

5.369% due 10/25/34

    1,500      1,442

First USA Credit Card Master Trust (Ê)

        

Series 1998-6 Class A

        

5.195% due 04/18/11

    700      700

Ford Credit Auto Owner Trust

        

Series 2005-B Class A4

        

4.380% due 01/15/10

    700      698

Series 2005-B Class B

        

4.640% due 04/15/10

    1,250      1,247

Series 2005-C Class B

        

4.520% due 09/15/10

    1,000      996

Series 2007-B Class A4A

        

5.240% due 07/15/12

    5,750      5,788

FPL Recovery Funding LLC

        

Series 2007-A Class A1

        

5.053% due 02/01/13

    1,615      1,623

Fremont Home Loan Trust (Ê)

        

Series 2006-E Class 2A1

        

4.933% due 01/25/37

    515      509

GE Capital Credit Card Master Note Trust

        

Series 2007-3 Class A2

        

5.400% due 06/15/13

    4,000      4,058

GE Commercial Equipment Financing LLC (Ê)

        

Series 2004-1 Class B

        

5.198% due 12/20/15

    468      465

GE Corporate Aircraft Financing LLC (Ê)(Þ)

        

Series 2004-1A Class B

        

5.723% due 01/25/18

    194      194
     Principal
Amount ($)
or Shares		      Market
Value
$

GE-WMC Mortgage Securities LLC (Ê)

        

Series 2006-1 Class A2A

        

4.913% due 08/25/36

    312      310

GMAC Mortgage Corp. Loan Trust

        

Series 2004-GH1 Class A2

        

4.390% due 12/25/25

    824      811

GS Auto Loan Trust

        

Series 2006-1 Class A3

        

5.370% due 12/15/10

    1,300      1,305

GSAMP Trust (Ê)

        

Series 2004-SEA Class A2A

        

5.163% due 03/25/34

    301      300

Series 2007-FM1 Class A2A

        

4.943% due 12/25/36

    708      697

Harley-Davidson Motorcycle Trust

        

Series 2003-4 Class A2

        

2.690% due 04/15/11

    363      358

Series 2006-3 Class A3

        

5.240% due 01/15/12

    2,285      2,291

Series 2007-3 Class A4

        

5.520% due 11/15/13

    2,000      2,026

HFC Home Equity Loan Asset Backed Certificates (Ê)

        

Series 2005-1 Class A

        

5.288% due 01/20/34

    312      304

Honda Auto Receivables Owner Trust

        

Series 2004-3 Class A4

        

3.280% due 02/18/10

    1,685      1,672

Series 2005-2 Class A4

        

4.150% due 10/15/10

    870      865

Series 2005-3 Class A4

        

4.030% due 12/20/10

    2,750      2,729

Series 2006-3 Class A3

        

5.120% due 10/15/10

    590      592

Household Credit Card Master Note Trust I (Ê)

        

Series 2007-2 Class A

        

5.667% due 10/15/10

    3,860      3,884

Hyundai Auto Receivables Trust

        

Series 2004-A Class A3

        

2.970% due 05/15/09

    74      74

Series 2005-A Class A3

        

3.980% due 11/16/09

    751      747

Lehman XS Trust (Ê)

        

Series 2006-9 Class A1A

        

4.943% due 05/25/46

    209      208

Long Beach Auto Receivables Trust

        

Series 2005-B Class A3

        

4.406% due 05/15/10

    661      660

44   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Long Beach Mortgage Loan Trust (Ê)

        

Series 2004-4 Class 1A1

        

5.153% due 10/25/34

    20      20

Marlin Leasing Receivables LLC (Þ)

        

Series 2005-1A Class A3

        

4.630% due 11/17/08

    930      930

Mastr Asset Backed Securities Trust (Ê)

        

Series 2006-HE5 Class A1

        

4.933% due 11/25/36

    622      616

MBNA Credit Card Master Note Trust

        

Series 2005-A1 Class A1

        

4.200% due 09/15/10

    4,205      4,191

Series 2006-A1 Class A1

        

4.900% due 07/15/11

    3,545      3,552

Nissan Auto Receivables Owner Trust

        

Series 2004-A Class A4

        

2.760% due 07/15/09

    729      724

Series 2005-B Class A3

        

3.990% due 07/15/09

    448      447

Onyx Acceptance Grantor Trust

        

Series 2005-A Class A4

        

3.910% due 09/15/11

    1,969      1,956

PG&E Energy Recovery Funding LLC

        

Series 2005-1 Class A2

        

3.870% due 06/25/11

    945      937

Series 2005-2 Class A1

        

4.850% due 06/25/11

    657      657

Providian Gateway Master Trust (Þ)

        

Series 2004-FA Class A

        

3.650% due 11/15/11

    1,200      1,199

Public Service New Hampshire Funding LLC

        

Series 2001-1 Class A2

        

5.730% due 11/01/10

    517      519

Railcar Leasing LLC (Þ)

        

Series 1997-1 Class A2

        

7.125% due 01/15/13

    825      873

SBI Heloc Trust (Ê)(Þ)

        

Series 2006-1A Class 1A2A

        

5.043% due 08/25/36

    426      406

Susquehanna Auto Lease Trust (Þ)

        

Series 2006-1 Class A3

        

5.210% due 03/16/09

    1,000      1,000

Toyota Auto Receivables Owner Trust

        

Series 2003-B Class A4

        

2.790% due 01/15/10

    440      440
     Principal
Amount ($)
or Shares		      Market
Value
$

USAA Auto Owner Trust

        

Series 2004-2 Class A4

        

3.580% due 02/15/11

    890      886

Series 2005-2 Class A4

        

4.170% due 02/15/11

    1,885      1,871

Series 2006-4 Class A2

        

5.160% due 11/16/09

    1,356      1,356

Series 2007-2 Class A3

        

4.900% due 02/15/12

    1,900      1,904

Wells Fargo Financial Auto Owner Trust 2004-A

        

Series 2004-A Class A4

        

2.670% due 08/16/10

    869      869
         
        105,824
         

Corporate Bonds and Notes - 17.6%

     

Abbott Laboratories

        

3.500% due 02/17/09

    2,000      1,964

Allstate Corp. (The)

        

7.200% due 12/01/09

    2,000      2,089

American Express Centurion Bank

        

Series BKNT

        

4.375% due 07/30/09

    1,250      1,239

American Express Travel Related Services Co., Inc. (Þ)

        

5.250% due 11/21/11

    3,150      3,149

American International Group, Inc.

        

4.700% due 10/01/10

    1,270      1,260

Ameritech Capital Funding Corp.

        

6.250% due 05/18/09

    2,000      2,047

Associates Corp. of North America

        

6.250% due 11/01/08

    599      606

8.550% due 07/15/09

    750      789

AT&T, Inc.

        

4.125% due 09/15/09

    2,510      2,472

Bank of America Corp.

        

7.125% due 03/01/09

    1,500      1,534

Bear Stearns Cos., Inc. (The) (Ê)

        

5.494% due 07/16/09

    1,600      1,583

Capmark Financial Group, Inc. (Å)

        

5.875% due 05/10/12

    775      696

Caterpillar Financial Services Corp.

        

4.500% due 06/15/09

    1,250      1,244

Caterpillar, Inc.

        

7.250% due 09/15/09

    2,150      2,239

CIT Group Holdings, Inc. (Ê)

        

5.516% due 01/30/09

    2,320      2,257

Short Duration Bond Fund   45

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

CIT Group, Inc.

        

4.250% due 02/01/10 (Ñ)

    1,095      1,058

5.824% due 03/12/10 (Ê)

    1,305      1,225

Citigroup Funding, Inc. (Ê)

        

5.200% due 06/26/09

    200      199

Citigroup, Inc.

        

6.200% due 03/15/09

    2,685      2,730

ConocoPhillips

        

8.750% due 05/25/10

    1,246      1,360

Countrywide Home Loans, Inc.

        

4.125% due 09/15/09

    350      306

Deutsche Bank Financial, Inc.

        

7.500% due 04/25/09

    2,000      2,069

Ford Motor Credit Co. LLC

        

7.375% due 10/28/09

    200      193

General Electric Capital Corp.

        

4.875% due 10/21/10 (Ñ)

    3,150      3,153

5.280% due 10/21/10 (Ê)

    1,000      996

Gillette Co. (The)

        

3.800% due 09/15/09

    1,750      1,732

GMAC LLC

        

6.000% due 12/15/11

    100      89

Goldman Sachs Capital II (ƒ)

        

5.793% due 12/29/49

    750      699

Goldman Sachs Group, Inc. (The) (Ê)

        

5.248% due 03/30/09

    2,100      2,093

Hertz Vehicle Financing LLC (Þ)

        

Series 2005-2A Class A2

        

4.930% due 02/25/10

    1,000      1,001

HSBC Finance Corp.

        

6.500% due 11/15/08

    3,270      3,312

International Lease Finance Corp.

        

5.750% due 06/15/11

    1,585      1,601

John Deere Capital Corp. (Ê)

        

5.514% due 10/16/09

    5,700      5,701

JPMorgan Chase & Co.

        

3.800% due 10/02/09

    3,040      2,972

5.375% due 10/01/12 (Ñ)

    1,775      1,784

Lehman Brothers Holdings, Inc.

        

5.645% due 05/25/10 (Ê)

    800      788

Series MTNG

        

3.950% due 11/10/09

    1,800      1,758

Lowe’s Cos., Inc.

        

5.600% due 09/15/12

    1,300      1,319

Marshall & Ilsley Corp.

        

5.626% due 08/17/09

    4,850      4,882

Metropolitan Life Global Funding I (Þ)

        

Series 144A

        

5.750% due 07/25/11

    2,000      2,053
     Principal
Amount ($)
or Shares		      Market
Value
$

Morgan Stanley

        

5.625% due 01/09/12

    2,000      2,028

National City Bank Series BKNT

        

4.250% due 01/29/10

    1,650      1,624

Procter & Gamble Co. (Ê)(Þ)

        

5.253% due 07/06/09

    1,370      1,371

SLM Corp. Series MTNA

        

4.500% due 07/26/10

    1,075      1,007

TIAA Global Markets, Inc. (Å)

        

5.125% due 10/10/12

    2,500      2,505

Wachovia Corp.

        

5.625% due 12/15/08 (Ñ)

    2,260      2,264

6.375% due 01/15/09

    210      213

Wells Fargo & Co.

        

4.200% due 01/15/10

    1,600      1,576

World Savings Bank FSB

        

Series BKNT

        

4.125% due 12/15/09

    130      129
         
        82,958
         

International Debt - 4.2%

        

Arran Residential Mortgages Funding PLC (Ê)(Þ)

        

Series 2006-1A Class A1B

        

5.130% due 04/12/36

    218      218

AstraZeneca PLC

        

5.400% due 09/15/12

    6,145      6,204

Barclays Bank PLC

        

5.450% due 09/12/12

    5,960      6,027

Credit Agricole SA/London (Ê)

        

5.505% due 05/28/09

    300      300

5.555% due 05/28/10

    300      300

Glitnir Banki HF (Å)

        

6.375% due 09/25/12

    5,420      5,459

ICICI Bank, Ltd. (Ê)(Þ)

        

5.788% due 01/12/10

    1,100      1,087
         
        19,595
         

Mortgage-Backed Securities - 32.5%

     

American Home Mortgage Investment Trust

        

Series 2004-3 Class 5A

        

4.290% due 10/25/34

    1,555      1,526

Series 2004-4 Class 4A

        

4.390% due 02/25/45

    479      472

Banc of America Commercial Mortgage, Inc.

        

Series 2006-4 Class A2

        

5.522% due 09/10/11

    1,200      1,208

46   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Banc of America Funding Corp.

        

Series 2005-D Class A1 (Ê)

        

4.111% due 05/25/35

    7,895      7,765

Series 2006-2 Class 2A18

        

5.750% due 03/25/36

    2,954      2,941

Banc of America Mortgage Securities, Inc.

        

Series 2004-2 Class 2A1

        

5.250% due 03/25/34

    817      813

Series 2004-2 Class 5A1

        

6.500% due 10/25/31

    209      211

Bear Stearns Adjustable Rate Mortgage Trust (Ê)

        

Series 2003-1 Class 5A1

        

5.435% due 04/25/33

    452      451

Series 2003-8 Class 2A1 (Ê)

        

4.779% due 01/25/34

    356      359

Bear Stearns Alt-A Trust (Ê)

        

Series 2005-4 Class 23A1

        

5.373% due 05/25/35

    955      958

Series 2005-7 Class 22A1

        

5.520% due 09/25/35

    58      58

Bear Stearns Asset Backed Securities Trust

        

Series 2003-AC3 Class A1

        

4.000% due 07/25/33

    359      334

Bear Stearns Commercial Mortgage Securities

        

Series 2001-TOP Class A1

        

5.060% due 11/15/16

    300      299

Bear Stearns Mortgage Funding Trust (Ê)

        

Series 2007-AR1 Class 2A1

        

4.943% due 02/25/37

    1,264      1,249

Bear Stearns Structured Products, Inc.

        

Series 2007-R6 Class 1A1

        

5.688% due 01/26/36

    293      291

Series 2007-R6 Class 2A1

        

5.788% due 12/26/46

    195      194

Chase Issuance Trust

        

Series 2007-A15 Class A

        

4.960% due 09/17/12

    3,200      3,203

Citigroup/Deutsche Bank Commercial Mortgage Trust

        

Series 2007-CD4 Class A1

        

4.977% due 12/11/49

    1,038      1,038
     Principal
Amount ($)
or Shares		      Market
Value
$

Commercial Mortgage Pass Through Certificates

        

Series 1999-1 Class A2

        

6.455% due 05/15/32

    812      816

Series 2004-LB2 Class A2

        

3.600% due 03/10/39

    1,000      983

Countrywide Alternative Loan Trust

        

Series 2003-6T2 Class A1

        

6.500% due 06/25/33

    45      45

Series 2003-J2 Class A1

        

6.000% due 10/25/33

    340      331

Series 2004-12C Class 1A1

        

5.000% due 07/25/19

    2,176      2,117

Countrywide Home Loan Mortgage Pass Through Trust

        

Series 2004-22 Class A3

        

4.797% due 11/25/34

    289      286

Series 2004-HYB Class 1A1

        

4.737% due 02/20/35

    545      540

Series 2005-HYB Class 5A1 (Ê)

        

5.250% due 02/20/36

    962      970

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 2003-C4 Class A2

        

3.908% due 08/15/36

    907      897

Deutsche ALT-A Securities, Inc. Alternate Loan Trust (Ê)

        

Series 2007-AR1 Class A3B

        

4.943% due 01/25/47

    564      558

Fannie Mae

        

6.000% due 2008

    23      23

5.500% due 2009

    822      826

6.000% due 2010

    66      67

6.500% due 2010

    73      74

6.000% due 2011

    100      101

6.500% due 2011

    50      51

5.000% due 2013

    562      562

6.000% due 2013

    265      270

6.000% due 2014

    1,333      1,360

5.500% due 2016

    912      918

5.000% due 2017

    77      76

5.500% due 2017

    1,410      1,415

6.000% due 2017

    151      155

5.000% due 2018

    3,195      3,154

5.000% due 2019

    420      414

5.000% due 2020

    274      270

Short Duration Bond Fund   47

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

5.000% due 2021

    837      825

5.500% due 2033

    68      68

6.000% due 2033

    24      24

5.500% due 2034

    5,931      5,874

4.700% due 2035 (Ê)

    3,914      3,891

4.900% due 2035 (Ê)

    24,736      24,631

5.500% due 2035

    17,432      17,200

6.200% due 2041 (Ê)

    701      701

6.200% due 2042 (Ê)

    383      386

Fannie Mae REMICS

        

Series 2003-16 Class BH

        

5.000% due 03/25/17

    1,901      1,893

Series 2003-24 Class PU

        

3.500% due 11/25/15

    177      173

Series 2003-62 Class OD

        

3.500% due 04/25/26

    1,250      1,222

Series 2003-63 Class GU

        

4.000% due 07/25/33

    872      862

Series 2003-75 Class NB

        

3.250% due 08/25/18

    435      420

Series 2004-17 Class HA

        

3.000% due 01/25/19

    1,685      1,567

Series 2007-73 Class A1 (Ê)

        

4.933% due 07/25/37

    453      445

Federal Home Loan Mortgage Corp. Structured Pass Through Securities (Ê)

        

Series 2005-63 Class 1A1

        

6.183% due 02/25/45

    750      752

Freddie Mac

        

5.500% due 2009

    76      76

6.000% due 2009

    42      42

6.500% due 2009

    103      104

6.000% due 2010

    39      39

8.000% due 2010

    3      3

6.000% due 2011

    262      265

6.000% due 2013

    84      86

5.500% due 2014

    333      335

6.000% due 2014

    92      94

6.000% due 2016

    393      398

5.000% due 2018

    458      453

6.000% due 2028

    106      107

5.500% due 2029

    713      705

6.000% due 2029

    204      207

6.000% due 2031

    277      280

6.000% due 2032

    338      342

6.000% due 2033

    573      586

4.900% due 2035 (Ê)

    765      761
     Principal
Amount ($)
or Shares		      Market
Value
$

Freddie Mac REMICS

        

Series 2003-255 Class PB

        

5.500% due 08/15/30

    5      5

Series 2003-258 Class NS

        

3.250% due 09/15/15

    875      852

Series 2003-261 Class JA

        

3.760% due 03/15/29

    1,059      1,021

Series 2003-263 Class CD

        

4.000% due 10/15/26

    1,500      1,474

Series 2003-268 Class MX

        

4.000% due 07/15/16

    1,645      1,608

Series 2004-282 Class EA

        

4.500% due 11/15/15

    2,057      2,040

Series 2004-285 Class BA

        

4.500% due 02/15/20

    1,082      1,068

Series 2006-314 Class LF (Ê)

        

5.391% due 05/15/36

    580      580

Series 2007-333 Class AF (Ê)

        

5.241% due 10/15/20

    2,908      2,898

Series 2007-333 Class BF (Ê)

        

5.241% due 07/15/19

    468      467

Series 2007-333 Class FT (Ê)

        

5.241% due 08/15/19

    2,247      2,238

Series 2007-334 Class FA (Ê)

        

5.321% due 02/15/19

    1,914      1,907

GE Capital Commercial Mortgage Corp.

        

Series 2001-3 Class A1

        

5.560% due 06/10/38

    736      742

Series 2004-C3 Class A1

        

3.752% due 07/10/39

    1,286      1,270

Series 2005-C1 Class A1

        

4.012% due 06/10/48

    799      790

Ginnie Mae I

        

6.000% due 2008

    20      20

9.500% due 2017

    —      —

Ginnie Mae II (Ê)

        

5.800% due 2027

    73      74

6.000% due 2032

    113      114

Government National Mortgage Association

        

Series 2004-78 Class A

        

3.590% due 11/16/17

    1,573      1,551

Series 2006-67 Class A

        

3.947% due 11/16/30

    924      904

Series 2007-4 Class A

        

4.206% due 06/15/29

    984      968

Series 2007-15 Class A

        

4.512% due 10/16/28

    1,382      1,367

48   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Greenpoint Mortgage Funding Trust (Ê)

        

Series 2006-AR8 Class 1A1A

        

4.953% due 01/25/47

    721      722

GS Mortgage Securities Corp. II

        

Series 2007-GG1 Class A1

        

5.690% due 08/10/45

    1,242      1,269

GSR Mortgage Loan Trust (Ê)

        

Series 2004-7 Class 1A1

        

5.301% due 06/25/34

    613      612

Harborview Mortgage Loan Trust

        

Series 2005-4 Class 3A1

        

5.147% due 07/19/35

    255      254

Series 2006-12 Class 2A11 (Ê)

        

5.111% due 01/19/38

    1,093      1,089

Indymac Index Mortgage Loan Trust (Ê)

        

Series 2006-AR1 Class 1A1A

        

4.963% due 11/25/46

    478      481

JP Morgan Chase Commercial Mortgage Securities Corp.

        

Series 2002-C2 Class A1

        

4.326% due 12/12/34

    586      577

Series 2005-LDP Class A1

        

4.655% due 08/15/42

    1,202      1,193

4.613% due 10/15/42

    692      688

JP Morgan Mortgage Trust (Ê)

        

Series 2005-A1 Class 6T1

        

5.023% due 02/25/35

    69      67

LB-UBS Commercial Mortgage Trust

        

Series 2003-C3 Class A1

        

2.599% due 05/15/27

    1,140      1,131

Mastr Adjustable Rate Mortgages Trust (Ê)

        

Series 2004-13 Class 3A4

        

3.787% due 11/21/34

    300      297

Mellon Residential Funding Corp. (Ê)

        

Series 2000-TBC Class A1

        

5.571% due 06/15/30

    909      897

Merrill Lynch Mortgage Investors, Inc. (Ê)

        

Series 2005-A10 Class A

        

5.083% due 02/25/36

    73      72

Merrill Lynch Mortgage Trust

        

Series 2006-C1 Class A1

        

5.528% due 05/12/39

    2,158      2,170

MLCC Mortgage Investors, Inc. (Ê)

        

Series 2005-3 Class 5A

        

5.123% due 11/25/35

    121      119
     Principal
Amount ($)
or Shares		      Market
Value
$

Morgan Stanley Capital I

        

Series 2003-T11 Class A1

        

3.260% due 06/13/41

    420      417

Series 2005-HQ6 Class A1

        

4.646% due 08/13/42

    1,418      1,406

Morgan Stanley Dean Witter Capital I

        

Series 2002-HQ Class A2

        

6.090% due 04/15/34

    38      38

Prime Mortgage Trust (Ê)

        

Series 2004-CL1 Class 1A2

        

5.273% due 02/25/34

    167      164

Series 2004-CL1 Class 2A2

        

5.273% due 02/25/19

    36      36

Salomon Brothers Mortgage Securities VII, Inc.

        

Series 2003-UP2 Class A1

        

4.000% due 12/25/18

    681      645

Structured Asset Mortgage
Investments, Inc. (Ê)

        

Series 2002-AR3 Class A1

        

5.351% due 09/19/32

    36      36

Structured Asset Securities Corp. (Ê)

        

Series 2001-21A Class 1A1

        

7.188% due 01/25/32

    20      20

Thornburg Mortgage Securities Trust (Ê)

        

Series 2006-6 Class A1

        

4.983% due 12/25/36

    639      631

Wachovia Auto Owner Trust

        

Series 2005-B Class A4

        

4.840% due 04/20/11

    590      590

Wachovia Bank Commercial Mortgage Trust

        

Series 2003-C4 Class A1

        

3.003% due 04/15/35

    849      843

Washington Mutual Mortgage Pass Through Certificates (Ê)

        

Series 2002-AR6 Class A

        

6.333% due 06/25/42

    177      175

Series 2002-AR9 Class 1A

        

6.333% due 08/25/42

    348      348

Series 2004-AR1 Class A2A

        

5.558% due 11/25/34

    859      847

Series 2005-AR1 Class A1A1

        

5.163% due 10/25/45

    199      196

Series 2006-AR1 Class 2A

        

6.433% due 09/25/46

    656      652

Wells Fargo Mortgage Backed Securities Trust

     

Series 2004-CC Class A1 (Ê)

        

4.950% due 01/25/35

    402      393

Short Duration Bond Fund   49

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2005-9 Class 1A1

        

4.750% due 10/25/35

      2,238      2,192

Series 2006-AR2 Class 2A1

        

4.950% due 03/25/36

      1,062      1,051
         
        152,742
         

United States Government Agencies - 0.1%

     

Federal Home Loan Bank

        

Discount Notes

        

Series HK10

        

Zero coupon due 04/27/10

      401      380
         

United States Government Treasuries - 4.7%

United States Treasury Inflation Indexed Bonds

     

2.375% due 04/15/11

      3,352      3,404

United States Treasury Notes

        

4.625% due 07/31/09

      15,150      15,317

4.625% due 07/31/12

      3,345      3,413
         
        22,134
         
Total Long-Term Investments        

(cost $384,614)

         383,633
         
Preferred Stocks - 0.5%        

Financial Services - 0.5%

        

DG Funding Trust (Æ)(Å)

      219      2,303
         
Total Preferred Stocks        

(cost $2,306)

         2,303
         
     Notional
Amount		       

Options Purchased - 0.2%

        

(Number of Contracts)

        

Eurodollar Futures

        

Dec 2007 91.25 Put (777)

    USD 1,943      5

Mar 2008 91.75 Put (450)

    USD 1,125      3

Mar 2008 92.50 Put (171)

    USD 428      1

Mar 2008 92.75 Put (1,009)

    USD 2,523      6

Swaptions

        

(Fund Pays/Fund Receives)

        

USD Three Month LIBOR/

        

USD 4.750%

        

Sep 2008 0.00 Call (1)

      23,000      190

USD Three Month LIBOR/

        

USD 5.000%

        

Feb 2008 0.00 Call (1)

      27,800      271
     Notional
Amount		      Market
Value
$

USD Three Month LIBOR/

        

USD 4.750%

        

Mar 2008 0.00 Call (2)

    36,500      261

USD Three Month LIBOR/

        

USD 4.750%

        

Sep 2008 0.00 Call (1)

    3,100      26

USD Three Month LIBOR/

        

USD 5.000%

        

Dec 2008 0.00 Call (1)

    20,900      227
         
Total Options Purchased        

(cost $569)

         990
         
     Principal
Amount ($)
or Shares		       

Short-Term Investments - 14.5%

     

Allstate Financial Global Funding (Þ)

        

2.500% due 06/20/08

    1,000      985

Altria Group, Inc.

        

7.650% due 07/01/08

    1,500      1,530

ASIF Global Financing XVIII (Þ)

        

3.850% due 11/26/07

    334      334

ASIF Global Financing XXIII (Þ)

        

3.900% due 10/22/08

    1,070      1,056

Bank of Scotland PLC (Þ)

        

3.750% due 09/30/08

    1,000      985

Bank One Corp.

        

2.625% due 06/30/08

    2,475      2,439

Bank One NA Series BKNT

        

3.700% due 01/15/08

    1,405      1,401

Barclays US Funding Corp. (ž)

        

5.100% due 01/25/08

    2,200      2,162

Calyon NY (ž)

        

4.770% due 01/18/08

    4,200      4,153

Caterpillar Financial Services Corp. (Ñ)

        

Series MTNF

        

4.500% due 09/01/08

    2,000      1,993

CIT Equipment Collateral

        

Series 2005-VT1 Class A3

        

4.120% due 08/20/08

    65      64

Federal National Mortgage Association Discount Notes (ç)(ž)

        

4.500% due 11/07/07

    900      899

FleetBoston Financial Corp.

        

6.375% due 05/15/08

    1,970      1,982

50   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    Principal
Amount ($)
or Shares		      Market
Value
$
      

Ford Motor Credit Co. LLC (Ê)(Ñ)

       

8.359% due 11/02/07

     200      200

Freddie Mac

       

4.000% due 01/01/08

     436      435

4.500% due 01/01/08

     436      435

6.500% due 05/01/08

     8      8

5.500% due 08/15/08

     28      28

Freddie Mac Discount Notes (ç)(ž)

       

4.520% due 12/10/07

     100      100

French Republic Zero coupon due 12/20/07

   EUR 600      865

HBOS Treasury Services PLC (ç)(ž)

       

4.810% due 11/15/07

     500      499

Intesa Funding LLC (ž)

       

4.680% due 01/22/08

     2,700      2,671

Landwirtschaftliche Rentenbank

       

0.650% due 09/30/08

   JPY 60,000      519

Merrill Lynch & Co., Inc.

       

4.831% due 10/27/08

     1,500      1,492

Ohio Edison Co.

       

4.000% due 05/01/08

     1,750      1,739

Principal Life Global Funding I (Þ)

       

2.800% due 06/26/08

     4,100      4,032

Royal Bank of Scotland (ž)

       

5.265% due 03/26/08

     600      600

Royal Bank of Scotland Group PLC (ž)

       

5.050% due 01/28/08

     4,400      4,323

Russell Investment Company
Money Market Fund

     15,633,334      15,633

Susquehanna Auto Lease Trust (Þ)

       

Series 2005-1 Class B

       

4.710% due 07/14/08

     1,700      1,699

Swedbank (ž)

       

4.730% due 01/23/08

     4,200      4,153

Swedbank Mortgage AB (ž)

       

4.800% due 01/17/08

     600      593

United States Treasury Bills (ç)(ž)(§)

       

3.605% due 12/13/07

     60      60

3.831% due 12/13/07

     75      75

3.859% due 12/13/07

     420      418

3.865% due 12/13/07

     250      249

3.921% due 12/13/07

     105      105

3.733% due 12/27/07

     150      149

US Bank NA Series BKNT

       

4.125% due 03/17/08

     1,600      1,593
     Principal
Amount ($)
or Shares		      Market
Value
$

Vendee Mortgage Trust

        

Series 2001-3 Class J

        

6.500% due 05/15/08

    95      95

VTB Capital SA for Vneshtorgbank (Ê)(Þ)

        

5.956% due 08/01/08

    700      693

Wells Fargo

        

6.250% due 04/15/08

    3,927      3,937

Wells Fargo & Co.

        

4.125% due 03/10/08

    820      817
         
Total Short-Term Investments        

(cost $68,379)

         68,198
         
Other Securities - 0.9%        

Russell Investment Company
Money Market Fund (×)

    828,867      829

State Street Securities Lending
Quality Trust (×)

    3,534,406      3,534
         
Total Other Securities        

(cost $4,363)

         4,363
         
Total Investments - 97.7%        

(identified cost $460,231)

         459,487

Other Assets and Liabilities,

Net - 2.3%

         10,747
         
Net Assets - 100.0%         470,234
         

 

See accompanying notes which are an integral part of the financial statements.

Short Duration Bond Fund   51

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

Futures Contracts
(Number of Contracts)		   Notional
Amount
   Unrealized
Appreciation
(Depreciation)
$		  
     

Long Positions

      

Eurodollar Futures (CME)

      

expiration date 09/08 (179)

   USD   42,821   222  

expiration date 12/08 (431)

   USD   103,117   399  

expiration date 03/09 (199)

   USD   47,588   63  

expiration date 06/09 (28)

   USD   6,689   14  

expiration date 09/09 (18)

   USD   4,296   10  

LIBOR Futures

      

expiration date 03/08 (2)

   GBP   235   (1 )

expiration date 06/08 (19)

   GBP   2,240   3  

United States Treasury 2 Year Notes

      

expiration date 12/07 (43)

   USD   8,906   14  

United States Treasury 5 Year Notes

      

expiration date 12/07 (215)

   USD   23,079   145  

Short Positions

      

United States Treasury Bonds

      

expiration date 12/07 (156)

   USD   17,565   (201 )
         

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

       668  
         

 

Options Written
(Number of Contracts)		    Notional
Amount
   

    
Market

Value

$

  
     

Swaptions

      

(Fund Pays/Fund Receives)

      

USD 5.100%/USD Three Month LIBOR

      

Feb 2008 0.00 Call (1)

    12,000    (188 )

USD 4.950%/USD Three Month LIBOR

      

Sep 2008 0.00 Call (2)

    11,300    (175 )

USD 5.200%/USD Three Month LIBOR

      

Dec 2008 0.00 Call (1)

    7,000    (171 )

USD 4.900%/USD Three Month LIBOR

      

Mar 2008 0.00 Call (2)

    8,100    (96 )

USD 4.950%/USD Three Month LIBOR

      

Mar 2008 0.00 Call (1)

    8,000    (104 )

United States Treasury Notes 10 Year Futures

      

Nov 2007 107.00 Put (8)

    8    —  
         

Total Liability for Options Written

      

(premiums received $545)

       (734 )
         

 

 

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

  
         
USD   225   EUR   159   11/05/07   5  
EUR   596   USD   843   11/05/07   (20 )
EUR   240   USD   342   11/08/07   (6 )
JPY   60,478   USD   530   12/13/07   3  
             
Total Unrealized Appreciation (Depreciation) on
Open Foreign Currency Exchange Contracts		   (18 )
             

 

See accompanying notes which are an integral part of the financial statements.

52   Short Duration Bond Fund

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Interest Rate Swap Contracts                                      

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

BNP Paribas

    EUR    1,200    2.090%   

Consumer Price Index (France)

    10/15/10    22  

Deutsche Bank

    GBP    600    6.000%   

Six Month LIBOR

    12/20/08    2  

Deutsche Bank

    USD    2,200    5.000%   

Three Month LIBOR

    12/19/09    19  

Goldman

    EUR    700    4.000%   

Six Month LIBOR

    03/20/09    (6 )

Goldman

    MXN    2,300    7.780%   

Mexico Interbank 28 Day Deposit Rate

    04/03/12    (3 )

JP Morgan

    EUR    200    1.948%   

Consumer Price Index (France)

    03/15/12    (1 )

Lehman Brothers

    GBP    1,500    4.500%   

Six Month LIBOR

    09/20/09    (73 )

Merrill Lynch

    BRL    700    12.948%   

Brazil Interbank Deposit Rate

    01/04/10    9  

Merrill Lynch

    BRL    100    11.980%   

Brazil Interbank Deposit Rate

    01/02/12    1  

UBS

    BRL    1,100    10.575%   

Brazil Interbank Deposit Rate

    01/02/12    (17 )
                     

Total Market Value of Open Interest Rate Swap Contracts
(Premiums Paid (Received) - ($27))

    (47 )
                     

 

Credit Default Swap Contracts                                      

Reference
Entity

   

Counter
Party

    Notional
Amount		    Fund Receives
Fixed Rate		    Termination
Date		    Market Value
$		  
                 

Brazilian Government International Bond

    Barclays Bank PLC    USD   

1,000

    0.290%    06/20/09    (1 )

Brazilian Government International Bond

    Lehman Brothers    USD   

3,200

    1.120%    11/20/11    70  

Dow Jones CDX High Volatility Index

    Citibank    USD   

500

    2.144%    06/20/12    5  

Ford Motor Credit Co.

    Barclays Bank PLC    USD   

2,000

    6.150%    09/20/12    98  

Gaz Capital for Gazprom

    JP Morgan    USD   

2,700

    0.415%    11/20/07    4  

Gaz Capital for Gazprom

    Morgan Stanley    USD   

1,400

    0.860%    11/20/11    (7 )

General Motors Acceptance Corp.

    Lehman Brothers    USD   

700

    1.680%    09/20/08    (15 )

General Motors Acceptance Corp.

    Merrill Lynch    USD   

1,000

    1.850%    09/20/09    (42 )

Goldman Sachs Group, Inc.

    Barclays Bank PLC    USD   

1,300

    0.320%    09/20/08    (3 )

Goldman Sachs Group, Inc.

    Bear Stearns    USD   

500

    0.820%    09/20/12    5  

Indonesia Government International Bond

    Royal Bank of Scotland    USD   

1,000

    0.400%    12/20/08    (1 )

Indonesia Government International Bond

    Royal Bank of Scotland    USD   

1,000

    0.438%    06/20/09    (2 )

Lehman Brothers

    Barclays Bank PLC    USD   

800

    0.190%    09/20/08    (5 )

Lehman Brothers

    Royal Bank of Scotland    USD   

500

    0.300%    09/20/08    (3 )

Panama Government International Bond

    Deutsche Bank    USD   

300

    0.250%    12/20/08    -  

Russia Government International Bond

    Morgan Stanley    USD   

1,000

    0.305%    12/20/08    (1 )

Russia Government International Bond

    Barclays Bank PLC    USD   

1,000

    0.275%    06/20/09    (3 )

Ukraine Government International Bond

    HSBC    USD   

1,000

    0.490%    06/20/09    (6 )
                     

Total Market Value of Open Credit Default Swap Contracts
(Premiums Paid (Received) - $0)

    93  
                     

 

See accompanying notes which are an integral part of the financial statements.

Short Duration Bond Fund   53

Table of Contents

Russell Investment Company

Short Duration Bond Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of
Net
Assets		  
    
    

Asset-Backed Securities

      22.5  

Corporate Bonds and Notes

      17.6  

International Debt

      4.2  

Mortgage-Backed Securities

      32.5  

United States Government Agencies

      0.1  

United States Government Treasuries

      4.7  

Preferred Stocks

      0.5  

Options Purchased

      0.2  

Short Term Investments

      14.5  

Other Securities

      0.9  
        

Total Investments

      97.7  

Other Assets and Liabilities, Net

      2.3  
        
     100.0  
        

Futures Contracts

      0.1  

Options Written

      (0.2 )

Foreign Currency Exchange Contracts

      (— )*

Interest Rate Swap Contracts

      (— )*

Credit Default Swap Contracts

      — *

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

54   Short Duration Bond Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Tax Exempt Bond Fund - Class S  
         

Total

Return

  

1 Year

       2.26 %

5 Years

       2.99 %§

10 Years

       3.92 %§

 

Tax Exempt Bond Fund - Class E ‡  
         

Total

Return

  

1 Year

       1.96 %

5 Years

       2.72 %§

10 Years

       3.70 %§

 

Tax Exempt Bond Fund - Class C ‡‡  
         

Total

Return

  

1 Year

       1.21 %

5 Years

       1.96 %§

10 Years

       3.04 %§

 

Lehman Brothers Municipal 1-10 Year Index **  
         

Total

Return

  

1 Year

       3.66 %

5 Years

       3.51 %§

10 Years

       4.61 %§

56   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Tax Exempt Bond Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has two money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Tax Exempt Bond Fund Class C, Class E and Class S Shares gained 1.21%, 1.96% and 2.26%, respectively. This compared to the Lehman Brothers Municipal 1-10 Year Index, which gained 3.66%, 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, 2007, the Lipper® Intermediate Municipal Debt Funds Average returned 2.36%. 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 municipal bond market was not immune to investors’ departure from investments with more risk to the relative safety of U.S. Treasuries or the ripple effects stemming from the developments in the credit market and, as a result, the market price of lower quality municipal bonds suffered. In addition, municipal yields changed across the maturity spectrum with short and intermediate yields declining and longer-term yields

increasing. The result was a challenging market environment for the Fund in terms of sector allocation, security selection, and interest rate management.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Delaware Management Company is a manager that takes more interest rate and quality risk than the other fund manager, Standish Mellon Asset Management Company LLC. As a result of the change in yields and investors’ departure to the relative safety of U.S. Treasuries, Delaware generated the weakest performance over the year due mainly to its interest rate and maturity exposure. Standish Mellon also generated below benchmark returns due mainly to its sector overweight to, and specific security selection in, the revenue sector.

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 lineup during the fiscal year.

 

Money Managers as of
October 31, 2007		   Styles

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

Tax Exempt Bond Fund   57

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 


 

*   Assumes initial investment on November 1, 1997.

 

**   Lehman Brothers Municipal 1-10 Year Index is an index, with income reinvested, representative of municipal bonds with maturities ranging from 1-10 years.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on March 29, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to March 28, 1999 and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

§   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.

 

58   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,004.50    $ 1,017.39

Expenses Paid During Period*

    $ 7.83    $ 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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,008.20    $ 1,021.17

Expenses Paid During Period*

    $ 4.05    $ 4.08

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.80% (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).

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,009.50    $ 1,022.43

Expenses Paid During Period*

    $ 2.79    $ 2.80

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.55% (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).

Tax Exempt Bond Fund   59

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Municipal Bonds - 98.1%

                  

Alabama - 0.3%

                  

County of Jefferson Alabama General Obligation Unlimited (µ)

    500      5.000      04/01/10      517

Courtland Industrial Development Board Revenue Bonds

    250      5.000      11/01/13      257

Mobile County Board of School Commissioners General Obligation Unlimited (µ)(æ)

    375      5.000      03/01/12      393
                   
                  1,167
                   

Alaska - 0.4%

                  

City of Anchorage Alaska General Obligation Unlimited (µ)(æ)

    500      5.750      12/01/16      534

Northern TOB Securitization Corp. Revenue Bonds

    930      4.625      06/01/23      894
                   
                  1,428
                   

Arizona - 1.2%

                  

Arizona State Transportation Board Revenue Bonds

    500      5.250      07/01/12      530

Arizona State Transportation Board Revenue Bonds

    1,500      5.000      07/01/14      1,617

Maricopa County Pollution Control Corp. Revenue Bonds (Ê)

    1,000      2.900      06/01/35      987

Salt River Project Agricultural Improvement & Power District Revenue Bonds

    1,350      5.000      01/01/25      1,397
                   
                  4,531
                   

California - 8.4%

                  

Abag Finance Authority for Nonprofit Corps. Certificate Of Participation

    600      5.700      08/15/14      607

California State Department of Water Resources Revenue Bonds

    250      5.500      05/01/10      262

California State Department of Water Resources Revenue Bonds (µ)

    1,000      5.250      05/01/12      1,071

California Statewide Communities Development Authority Revenue Bonds (Ê)(µ)

    610      4.100      04/01/28      623

California Statewide Communities Development Authority Revenue Bonds (Ê)

    1,000      5.200      12/01/29      1,021

California Statewide Communities Development Authority Revenue Bonds (Ê)

    1,100      2.625      04/01/34      1,094

Golden State Tobacco Securitization Corp. Revenue Bonds (µ)

    500      5.000      06/01/20      512

Golden State Tobacco Securitization Corp. Revenue Bonds (æ)

    80      5.000      06/01/21      81

Golden State Tobacco Securitization Corp. Revenue Bonds (µ)

    750      4.600      06/01/23      664

Golden State Tobacco Securitization Corp. Revenue Bonds

    2,290      4.500      06/01/27      2,129

Golden State Tobacco Securitization Corp. Revenue Bonds

    750      5.300      06/01/37      493

Golden State Tobacco Securitization Corp. Revenue Bonds

    500      5.750      06/01/47      481

Kings River Conservation District Certificate Of Participation

    850      5.000      05/01/15      892

Los Angeles Unified School District General Obligation Unlimited (µ)

    215      4.250      01/01/28      203

Roseville Westpark Community Facilities District No. 1 Special Tax

    600      5.250      09/01/37      573

Santa Clara Unified School District General Obligation Unlimited (µ)

    2,895      5.000      07/01/26      2,989

Southern California Public Power Authority Revenue Bonds (µ)

    405      5.375      01/01/12      434

State of California General Obligation Unlimited

    1,000      6.600      02/01/10      1,065

State of California General Obligation Unlimited

    2,050      5.000      02/01/12      2,155

State of California General Obligation Unlimited

    1,000      5.250      07/01/12      1,072

State of California General Obligation Unlimited

    550      5.000      08/01/14      587

State of California General Obligation Unlimited

    880      5.000      11/01/15      943

State of California General Obligation Unlimited

    1,000      5.000      03/01/17      1,061

State of California General Obligation Unlimited

    2,000      5.250      02/01/25      2,102

State of California General Obligation Unlimited (µ)

    1,500      5.000      02/01/26      1,547
60   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

State of California General Obligation Unlimited (µ)

    1,500      5.250      02/01/30      1,564

State of California General Obligation Unlimited

    1,250      5.000      02/01/33      1,266

Tobacco Securitization Authority of Southern California Revenue Bonds

    970      4.750      06/01/25      917

University of California Revenue Bonds (µ)

    1,500      5.000      05/15/13      1,611

University of California Revenue Bonds (µ)

    1,000      5.000      05/15/33      1,033
                   
                  31,052
                   

Colorado - 1.0%

                  

City of Colorado Springs Colorado Revenue Bonds (Ê)

    800      3.500      06/01/29      800

Colorado Department of Transportation Revenue Bonds (µ)

    265      6.000      06/15/08      269

Colorado Health Facilities Authority Revenue Bonds (µ)(æ)

    1,000      5.500      05/15/14      1,040

Colorado Health Facilities Authority Revenue Bonds

    1,000      5.250      06/01/23      1,026

Colorado Housing & Finance Authority Revenue Bonds

    35      7.250      04/01/10      36

Colorado Housing & Finance Authority Revenue Bonds

    40      6.300      08/01/12      41

Colorado Housing & Finance Authority Revenue Bonds (Ê)

    40      6.300      08/01/16      41

Colorado Housing & Finance Authority Revenue Bonds

    25      6.700      10/01/16      25

Jefferson County School District R-001 General Obligation Unlimited (µ)

    500      5.000      12/15/14      541
                   
                  3,819
                   

Connecticut - 0.3%

                  

Connecticut State Health & Educational Facility Authority Revenue Bonds (Ê)

    1,000      3.500      07/01/29      1,000
                   

Delaware - 0.2%

                  

Delaware State Economic Development Authority Revenue Bonds

    225      6.500      01/01/08      226

Delaware State Economic Development Authority Revenue Bonds (Ê)(µ)

    250      4.900      05/01/26      259

University of Delaware Revenue Bonds (Ê)

    170      3.570      11/01/26      170
                   
                  655
                   

District of Columbia - 0.6%

                  

District of Columbia General Obligation Unlimited (µ)

    1,000      5.500      06/01/09      1,032

District of Columbia Revenue Bonds (µ)

    1,000      5.000      02/01/12      1,052
                   
                  2,084
                   

Florida - 7.9%

                  

City of Gulf Breeze Florida Revenue Bonds (µ)

    1,825      5.000      12/01/15      1,929

City of Pembroke Pines Florida Revenue Bonds (µ)

    1,000      5.000      10/01/16      1,082

City of Tallahassee Florida Revenue Bonds (µ)

    500      5.000      10/01/11      527

County of Hillsborough Florida Revenue Bonds

    40      6.200      12/01/08      40

County of Hillsborough Florida Revenue Bonds (µ)

    1,000      5.500      08/01/12      1,082

County of Miami-Dade Florida Revenue Bonds (µ)

    1,000      5.000      06/01/14      1,067

Escambia County Health Facilities Authority Revenue Bonds

    1,000      5.250      11/15/11      1,053

Escambia County Health Facilities Authority Revenue Bonds

    1,000      5.250      11/15/13      1,067

Florida Department of Childrens & Family Services Certificate Of Participation (µ)

    1,175      5.000      10/01/15      1,254

Florida Hurricane Catastrophe Fund Revenue Bonds

    1,600      5.000      07/01/10      1,658

Florida State Board of Education General Obligation Unlimited

    1,500      5.000      01/01/09      1,527

Florida State Board of Education General Obligation Unlimited

    1,000      5.000      06/01/16      1,081

Florida State Board of Education Revenue Bonds (µ)

    1,000      5.250      01/01/13      1,074
Tax Exempt Bond Fund   61

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Florida State Division of Bond Finance Revenue Bonds (µ)

    1,600      5.250      07/01/13      1,659

Florida State Turnpike Authority Revenue Bonds (µ)

    2,000      5.000      07/01/13      2,135

Florida Water Pollution Control Financing Corp. Revenue Bonds

    500      5.500      01/15/12      533

Hillsborough County Educational Facilities Authority Revenue Revenue Bonds (µ)

    775      5.750      04/01/18      795

Miami-Dade County Educational Facilities Authority Revenue Bonds (µ)(æ)

    1,750      5.000      04/01/34      1,881

Miami-Dade County School Board Certificate Of Participation (µ)

    1,000      5.000      05/01/15      1,069

North Miami Fl Revenue Bonds (µ)

    1,325      5.000      04/01/10      1,369

Orlando Utilities Commission Revenue Bonds

    1,000      5.900      10/01/08      1,022

Orlando Utilities Commission Revenue Bonds (æ)

    630      5.250      10/01/20      675

Orlando Utilities Commission Revenue Bonds

    370      5.250      10/01/20      390

Palm Beach County School Board Certificate Of Participation (µ)

    1,000      5.000      08/01/14      1,065

Palm Glades Community Development District Special Assessment

    920      4.850      08/01/11      879

Tampa-Hillsborough County Expressway Authority Revenue Bonds (µ)

    1,000      5.000      07/01/14      1,074
                   
                  28,987
                   

Georgia - 2.6%

                  

County of Fulton Georgia Revenue Bonds (µ)

    1,500      5.250      01/01/35      1,568

Dalton Georgia Revenue Bonds (µ)

    500      5.750      01/01/09      513

Georgia State Road & Tollway Authority Revenue Bonds

    590      5.250      03/01/11      622

Gwinnett County School District General Obligation Unlimited

    1,750      5.000      02/01/11      1,831

Main Street Natural Gas, Inc. Revenue Bonds

    825      5.000      03/15/16      851

Municipal Electric Authority of Georgia Revenue Bonds (µ)

    850      6.250      01/01/17      1,002

State of Georgia General Obligation Unlimited

    1,000      5.750      08/01/08      1,017

State of Georgia General Obligation Unlimited

    600      6.500      12/01/09      638

State of Georgia General Obligation Unlimited

    1,550      5.000      08/01/12      1,650
                   
                  9,692
                   

Hawaii - 0.5%

                  

Hawaii Housing & Community Development Corp. Revenue Bonds

    420      3.700      01/01/22      417

Kauai County Hawaii General Obligation Unlimited (µ)(æ)

    375      6.250      08/01/19      403

State of Hawaii General Obligation Unlimited (µ)

    1,000      5.750      01/01/10      1,047
                   
                  1,867
                   

Idaho - 0.4%

                  

Boise State University Revenue Bonds (µ)(æ)

    1,230      5.375      04/01/22      1,322

Boise State University Revenue Bonds (µ)

    20      5.375      04/01/22      21
                   
                  1,343
                   

Illinois - 4.1%

                  

Chicago Metropolitan Water Reclamation District-Greater Chicago General Obligation Unlimited

    2,000      6.500      12/01/07      2,004

City of Chicago Illinois General Obligation Unlimited (µ)

    750      6.000      01/01/11      795

City of Chicago Illinois General Obligation Unlimited (µ)

    2,135      5.000      12/01/23      2,248

City of Chicago Illinois Tax Allocation (µ)

    700      Zero coupon      12/01/07      698

Cook County Community Consolidated School District No. 15-Palatine General Obligation Limited (µ)

    2,235      Zero coupon      12/01/13      1,769
62   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

County of Cook Illinois General Obligation Unlimited (µ)(æ)

    2,160      5.375      11/15/21      2,294

Illinois Finance Authority Revenue Bonds (µ)

    400      Zero coupon      01/01/10      370

Illinois Finance Authority Revenue Bonds

    670      5.500      10/01/12      714

Illinois Finance Authority Revenue Bonds

    1,250      5.000      05/01/30      1,165

Illinois Finance Authority Revenue Bonds

    575      5.000      04/01/36      560

Illinois Health Facilities Authority Revenue Bonds

    295      6.000      05/15/10      300

Illinois Housing Development Authority Revenue Bonds

    500      4.850      01/01/37      483

Lake County Community Unit School District No. 116-Round Lake General Obligation Unlimited (µ)

    400      7.600      02/01/14      487

State of Illinois Revenue Bonds (µ)

    1,000      5.000      06/15/16      1,081
                   
                  14,968
                   

Indiana - 1.9%

                  

Columbus Multi School Building Corp. Indiana Revenue Bonds (µ)

    450      5.000      01/10/10      464

Indiana Bond Bank Revenue Bonds (µ)

    250      5.750      08/01/13      261

Indiana Health Facility Financing Authority Revenue Bonds

    1,000      5.500      11/15/10      1,058

Indiana Health Facility Financing Authority Revenue Bonds

    1,000      5.000      11/01/11      1,043

Indiana State Finance Authority Revenue Bonds (µ)

    925      5.000      07/01/11      968

Indiana State Finance Authority Revenue Bonds

    1,500      5.250      02/01/18      1,650

Indiana University Revenue Bonds (æ)

    500      5.750      08/01/10      524

Indianapolis Local Public Improvement Bond Bank Revenue Bonds

    1,000      5.000      02/01/18      1,079
                   
                  7,047
                   

Iowa - 0.4%

                  

Iowa Finance Authority Revenue Bonds

    290      6.000      07/01/10      304

Tobacco Settlement Authority of Iowa Revenue Bonds (æ)

    1,000      5.600      06/01/35      1,077
                   
                  1,381
                   

Kansas - 1.9%

                  

Butler & Sedgwick Counties Unified School District No. 385 Andover General Obligation Unlimited (µ)

    500      5.000      09/01/09      514

Kansas Development Finance Authority Revenue Bonds (µ)

    150      5.000      08/01/10      156

Kansas Development Finance Authority Revenue Bonds (µ)

    1,000      5.000      08/01/13      1,071

Kansas State Department of Transportation Revenue Bonds (Ê)

    4,200      3.580      09/01/20      4,200

Wyandotte County-Kansas City Unified Government Revenue Bonds

    305      4.750      12/01/16      307

Wyandotte County-Kansas City Unified Government Transportation Development Dist Revenue Bonds

    735      4.875      10/01/28      687
                   
                  6,935
                   

Louisiana - 0.3%

                  

Louisiana Energy & Power Authority Revenue Bonds (µ)

    200      5.500      01/01/08      200

Louisiana Offshore Terminal Authority Revenue Bonds (Ê)

    1,000      4.000      09/01/23      1,003
                   
                  1,203
                   

Maryland - 3.0%

                  

Maryland Health & Higher Educational Facilities Authority Revenue Bonds

    1,000      5.400      01/01/31      977
Tax Exempt Bond Fund   63

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Maryland Health & Higher Educational Facilities Authority Revenue Bonds

    500      5.000      07/01/40      487

Maryland Health & Higher Educational Facilities Authority Revenue Bonds

    865      5.500      07/01/42      875

Maryland State Transportation Authority Revenue Bonds

    1,000      5.000      03/01/16      1,084

State of Maryland General Obligation Unlimited

    2,500      5.250      03/01/13      2,704

State of Maryland General Obligation Unlimited

    1,000      5.500      03/01/14      1,106

State of Maryland General Obligation Unlimited

    1,500      5.000      08/01/14      1,624

State of Maryland General Obligation Unlimited

    1,895      5.000      03/15/19      2,043
                   
                  10,900
                   

Massachusetts - 4.0%

                  

Commonwealth of Massachusetts General Obligation Limited (æ)

    430      6.000      02/01/11      458

Commonwealth of Massachusetts General Obligation Limited

    2,000      5.000      07/01/12      2,118

Commonwealth of Massachusetts General Obligation Limited

    1,000      5.500      11/01/15      1,115

Commonwealth of Massachusetts General Obligation Limited (æ)

    1,000      5.750      10/01/19      1,064

Commonwealth of Massachusetts General Obligation Limited (µ)(æ)

    1,000      5.250      01/01/22      1,076

Commonwealth of Massachusetts General Obligation Unlimited

    3,000      5.250      08/01/13      3,243

Commonwealth of Massachusetts General Obligation Unlimited

    1,000      5.500      10/01/16      1,121

Massachusetts Development Finance Agency Revenue Bonds

    125      5.125      12/01/11      127

Massachusetts Development Finance Agency Revenue Bonds

    50      5.150      10/01/14      51

Massachusetts Development Finance Agency Revenue Bonds

    1,500      5.000      10/01/17      1,523

Massachusetts Development Finance Agency Revenue Bonds (Ê)(µ)

    200      3.580      10/01/42      200

Massachusetts Port Authority Revenue Bonds

    150      5.750      07/01/10      158

Massachusetts School Building Authority Revenue Bonds (µ)

    750      5.000      08/15/13      802

Massachusetts Water Resources Authority Revenue Bonds (µ)(æ)

    1,425      5.500      08/01/20      1,536
                   
                  14,592
                   

Michigan - 2.5%

                  

Bishop International Airport Authority Revenue Bonds (µ)

    750      5.000      12/01/10      761

Detroit Michigan Revenue Bonds (µ)

    1,000      5.000      07/01/14      1,072

Detroit Michigan Revenue Bonds (µ)

    1,015      5.000      07/01/18      1,084

Manistee Area Public Schools General Obligation Unlimited (µ)

    235      6.000      05/01/08      238

Michigan Municipal Bond Authority Revenue Bonds

    1,000      5.250      10/01/11      1,063

Michigan Municipal Bond Authority Revenue Bonds (æ)

    500      5.750      10/01/11      537

Michigan State Hospital Finance Authority Revenue Bonds

    1,000      5.500      11/01/14      1,064

Michigan State Hospital Finance Authority Revenue Bonds (µ)(æ)

    1,000      6.125      11/15/26      1,062

Michigan State Hospital Finance Authority Revenue Bonds

    1,750      5.250      11/15/46      1,778

Michigan State Housing Development Authority Revenue Bonds (µ)

    405      4.150      10/01/13      407
                   
                  9,066
                   

Minnesota - 1.4%

                  

State of Minnesota General Obligation Unlimited

    2,500      5.000      06/01/10      2,598

State of Minnesota General Obligation Unlimited

    1,425      5.000      11/01/11      1,507

State of Minnesota General Obligation Unlimited

    545      5.000      06/01/14      589

State Paul Housing & Redevelopment Authority Revenue Bonds

    500      5.250      05/15/36      490
                   
                  5,184
                   

Mississippi - 0.3%

                  

Mississippi Development Bank Special Obligation Revenue Bonds (µ)

    1,000      5.000      07/01/15      1,077
                   
64   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Missouri - 1.3%

                  

City of State Louis Missouri Revenue Bonds (µ)

    1,000      5.250      07/01/11      1,057

City of State Louis Missouri Revenue Bonds (µ)

    1,000      5.000      07/01/14      1,070

Gravois Bluffs Transportation Development District Revenue Bonds

    750      4.750      05/01/32      730

Joplin Industrial Development Authority Revenue Bonds

    270      5.500      02/15/13      284

Missouri Development Finance Board Revenue Bonds

    1,150      5.000      03/01/28      1,160

Missouri Housing Development Commission Revenue Bonds

    115      4.350      12/01/07      115

Southeast Missouri State University Revenue Bonds (µ)

    250      5.625      04/01/10      262
                   
                  4,678
                   

Montana - 0.4%

                  

City of Forsyth Montana Revenue Bonds (Ê)

    1,450      5.200      05/01/33      1,474
                   

Nevada - 0.5%

                  

Clark County School District General Obligation Limited (µ)(æ)

    330      5.250      06/15/10      340

County of Clark Nevada General Obligation Limited (µ)

    1,000      5.000      11/01/13      1,069

Truckee Meadows Water Authority Revenue Bonds (µ)

    500      5.500      07/01/11      532
                   
                  1,941
                   

New Hampshire - 0.4%

                  

New Hampshire Health & Education Facilities Authority Revenue Bonds

    1,675      5.000      07/01/32      1,595
                   

New Jersey - 3.2%

                  

New Jersey Economic Development Authority Revenue Bonds

    1,000      5.000      09/01/12      1,059

New Jersey Economic Development Authority Revenue Bonds

    1,000      5.250      03/01/14      1,082

New Jersey Economic Development Authority Revenue Bonds

    1,020      5.375      06/15/15      1,078

New Jersey Health Care Facilities Financing Authority Revenue Bonds (µ)

    1,000      5.000      09/15/17      1,082

New Jersey Health Care Facilities Financing Authority Revenue Bonds

    500      5.250      07/01/25      521

New Jersey Health Care Facilities Financing Authority Revenue Bonds

    375      5.250      07/01/30      362

New Jersey State Educational Facilities Authority Revenue Bonds

    1,000      5.750      09/01/10      1,059

New Jersey State Housing & Mortgage Finance Agency Revenue Bonds (µ)

    740      4.300      11/01/07      740

New Jersey State Turnpike Authority Revenue Bonds (µ)

    500      5.500      01/01/09      512

Tobacco Settlement Financing Corp. Revenue Bonds

    1,000      5.500      06/01/11      1,065

Tobacco Settlement Financing Corp. Revenue Bonds (æ)

    210      4.375      06/01/19      211

Tobacco Settlement Financing Corp. Revenue Bonds

    2,675      4.500      06/01/23      2,514

Tobacco Settlement Financing Corp. Revenue Bonds

    500      5.000      06/01/41      429
                   
                  11,714
                   

New York - 9.1%

                  

Battery Park City Authority Revenue Bonds

    1,500      5.250      11/01/22      1,609

City of New York New York General Obligation Unlimited

    500      5.000      08/01/10      519

City of New York New York General Obligation Unlimited

    1,000      5.250      08/01/10      1,045

City of New York New York General Obligation Unlimited

    1,500      5.000      08/01/11      1,574

City of New York New York General Obligation Unlimited

    125      5.750      08/01/11      133

City of New York New York General Obligation Unlimited

    850      5.000      03/01/12      896

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      251
Tax Exempt Bond Fund   65

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

City of New York New York General Obligation Unlimited (µ)

    1,000      5.000      08/01/14      1,075

City of New York New York General Obligation Unlimited (µ)

    1,000      5.000      08/01/17      1,063

City of New York New York General Obligation Unlimited

    1,500      5.000      08/01/21      1,563

City of New York New York General Obligation Unlimited

    1,500      5.000      11/01/34      1,536

Long Island Power Authority Revenue Bonds (µ)

    1,250      5.000      12/01/23      1,314

New York City Municipal Water Finance Authority Revenue Bonds

    1,500      5.250      06/15/12      1,606

New York City Municipal Water Finance Authority Revenue Bonds

    1,000      5.000      06/15/35      1,027

New York City Municipal Water Finance Authority Revenue Bonds

    3,500      5.000      06/15/39      3,563

New York City Transitional Finance Authority Revenue Bonds

    1,000      5.500      02/01/09      1,026

New York Mortgage Agency Revenue Bonds

    425      5.150      04/01/17      438

New York State Dormitory Authority Revenue Bonds (µ)

    560      7.000      07/01/09      580

New York State Dormitory Authority Revenue Bonds (µ)

    960      5.000      02/15/13      1,022

New York State Dormitory Authority Revenue Bonds (Ê)

    2,000      5.250      11/15/23      2,127

New York State Environmental Facilities Corp. Revenue Bonds (µ)

    1,000      6.000      06/15/12      1,106

New York State Environmental Facilities Corp. Revenue Bonds

    1,500      5.000      06/15/34      1,555

Sales Tax Asset Receivables Corp. Revenue Bonds (µ)

    1,000      5.000      10/15/29      1,042

Suffolk County Industrial Development Agency Revenue Bonds

    1,500      5.000      11/01/28      1,407

Suffolk County Judicial Facilities Agency Revenue Bonds (µ)

    500      5.500      04/15/09      515

TSASC, Inc. Revenue Bonds (æ)

    1,000      5.500      07/15/13      1,014

TSASC, Inc. Revenue Bonds

    1,090      4.750      06/01/22      1,054

United Nations Development Corp. Revenue Bonds

    1,000      5.000      07/01/11      1,002
                   
                  33,458
                   

North Carolina - 2.4%

                  

Mecklenburg County North Carolina General Obligation Unlimited

    1,000      5.000      02/01/11      1,048

North Carolina Eastern Municipal Power Agency Revenue Bonds

    250      5.500      01/01/10      259

North Carolina Medical Care Commission Revenue Bonds

    500      5.400      10/01/27      501

North Carolina Municipal Power Agency No. 1 Catawba Revenue Bonds (µ)

    1,500      6.000      01/01/12      1,636

North Carolina Municipal Power Agency No. 1 Catawba Revenue Bonds

    200      5.500      01/01/13      214

State of North Carolina General Obligation Unlimited

    1,000      5.000      03/01/12      1,059

State of North Carolina General Obligation Unlimited

    900      5.000      06/01/14      972

State of North Carolina General Obligation Unlimited

    2,000      5.000      03/01/15      2,167

University of North Carolina Revenue Bonds (æ)

    1,065      5.375      12/01/14      1,131
                   
                  8,987
                   

North Dakota - 0.2%

                  

County of Williams North Dakota Revenue Bonds

    750      5.000      11/01/31      730
                   

Ohio - 1.8%

                  

Buckeye Tobacco Settlement Financing Authority Revenue Bonds

    1,805      6.500      06/01/47      1,877

City of Columbus Ohio General Obligation Limited

    585      5.250      01/01/11      616

Jackson Local School District Stark & Summit Counties General Obligation Unlimited (µ)

    500      Zero coupon      12/01/07      499

Ohio State Building Authority Revenue Bonds

    575      5.750      04/01/08      580

Ohio State Higher Educational Facility Commission Revenue Bonds

    1,000      5.000      12/01/09      1,028

State of Ohio General Obligation Unlimited

    1,500      5.000      09/15/14      1,616

University of Cincinnati Revenue Bonds (µ)

    300      5.500      06/01/08      304
                   
                  6,520
                   
66   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Oklahoma - 0.9%

                  

Oklahoma Development Finance Authority Revenue Bonds (æ)

    1,000      5.750      08/15/13      1,050

Oklahoma Development Finance Authority Revenue Bonds

    275      5.000      10/01/13      286

Oklahoma Development Finance Authority Revenue Bonds

    1,000      5.000      02/15/16      1,051

Oklahoma Housing Finance Agency Revenue Bonds

    45      7.600      09/01/15      46

Tulsa Industrial Authority Revenue Bonds

    1,000      5.000      10/01/37      998
                   
                  3,431
                   

Oregon - 0.8%

                  

Clackamas County School District No. 62C Oregon City General Obligation Unlimited (æ)

    435      6.000      06/15/11      463

Oregon State Department of Administrative Services Revenue Bonds (µ)

    750      5.250      04/01/10      775

Oregon State Department of Transportation Revenue Bonds

    1,000      5.000      11/15/13      1,074

State of Oregon General Obligation Limited

    650      5.700      10/01/32      653
                   
                  2,965
                   

Pennsylvania - 3.4%

                  

Allegheny County Industrial Development Authority Revenue Bonds (Ê)(µ)

    300      3.460      06/01/38      300

Allegheny County Port Authority Revenue Bonds (µ)

    250      5.500      03/01/17      267

Berks County Vocational Technical School Authority Revenue Bonds (µ)

    1,260      5.000      06/01/15      1,360

Commonwealth of Pennsylvania General Obligation Unlimited

    2,500      5.500      01/01/14      2,747

Commonwealth of Pennsylvania General Obligation Unlimited (µ)

    1,300      5.375      07/01/17      1,454

County of Allegheny Pennsylvania General Obligation Unlimited (µ)

    1,000      5.000      10/01/15      1,083

Cumberland County Municipal Authority Revenue Bonds

    645      5.000      01/01/36      597

Erie County Industrial Development Authority Revenue Bonds

    180      5.300      04/01/12      186

Lancaster Higher Education Authority Revenue Bonds

    1,705      5.000      04/15/25      1,760

Montgomery County Higher Education & Health Authority Revenue Bonds

    1,000      5.125      06/01/32      1,007

Norwin School District General Obligation Unlimited (µ)(æ)

    250      6.000      04/01/20      264

Pennsylvania Turnpike Commission Revenue Bonds (Ê)(µ)

    900      3.430      10/01/22      900

Sayre Health Care Facilities Authority Revenue Bonds (æ)

    555      5.300      12/01/12      575
                   
                  12,500
                   

Puerto Rico - 5.2%

                  

Commonwealth of Puerto Rico General Obligation Unlimited

    750      5.250      07/01/15      803

Commonwealth of Puerto Rico General Obligation Unlimited

    1,000      5.500      07/01/18      1,092

Commonwealth of Puerto Rico General Obligation Unlimited

    1,780      5.250      07/01/22      1,845

Commonwealth of Puerto Rico General Obligation Unlimited (µ)

    1,000      5.250      07/01/27      1,038

Commonwealth of Puerto Rico General Obligation Unlimited

    1,000      5.250      07/01/32      1,031

Government Development Bank for Puerto Rico Revenue Bonds

    3,250      5.000      12/01/09      3,331

Puerto Rico Convention Center Authority Revenue Bonds (µ)

    1,250      5.000      07/01/31      1,301

Puerto Rico Electric Power Authority Revenue Bonds

    500      5.000      07/01/08      505

Puerto Rico Electric Power Authority Revenue Bonds (µ)

    500      5.500      07/01/17      565

Puerto Rico Highway & Transportation Authority Revenue Bonds

    2,000      5.000      07/01/13      2,103

Puerto Rico Public Buildings Authority Revenue Bonds

    2,000      5.500      07/01/23      2,104

Puerto Rico Public Finance Corp. Revenue Bonds (Ê)(µ)

    3,250      5.750      08/01/27      3,447
                   
                  19,165
                   
Tax Exempt Bond Fund   67

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Rhode Island - 0.3%

                  

Rhode Island Economic Development Corp. Revenue Bonds (µ)

    1,000      5.000      06/15/12      1,059
                   

South Carolina - 1.9%

                  

Greenville County School District Revenue Bonds

    1,000      5.000      12/01/11      1,049

Orangeburg Joint Governmental Action Authority Revenue Bonds (µ)

    1,050      5.000      10/01/09      1,081

Richland-Lexington Airport District Revenue Bonds (µ)

    500      5.000      01/01/09      509

Richland-Lexington Airport District Revenue Bonds (µ)

    440      5.000      01/01/10      453

South Carolina Jobs-Economic Development Authority Revenue Bonds

    950      5.625      11/15/30      980

South Carolina State Public Service Authority Revenue Bonds (µ)

    375      5.500      01/01/11      393

South Carolina Transportation Infrastructure Bank Revenue Bonds (µ)(æ)

    2,500      5.250      10/01/31      2,659
                   
                  7,124
                   

South Dakota - 0.7%

                  

South Dakota Housing Development Authority Revenue Bonds

    1,000      4.800      05/01/22      1,000

South Dakota State Building Authority Revenue Bonds (µ)

    1,330      5.000      09/01/12      1,409
                   
                  2,409
                   

Tennessee - 1.7%

                  

Clarksville Natural Gas Acquisition Corp. Revenue Bonds

    1,000      5.000      12/15/14      1,032

Memphis-Shelby County Airport Authority Revenue Bonds

    2,160      5.050      09/01/12      2,230

Tennessee Energy Acquisition Corp. Revenue Bonds

    1,000      5.000      02/01/16      1,031

Tennessee Energy Acquisition Corp. Revenue Bonds

    1,000      5.250      09/01/17      1,050

Tennessee Housing Development Agency Revenue Bonds

    950      5.375      01/01/18      975
                   
                  6,318
                   

Texas - 11.5%

                  

Alvin Independent School District General Obligation Unlimited

    515      6.750      08/15/09      544

Alvin Independent School District General Obligation Unlimited

    545      6.750      08/15/10      591

Boerne Independent School District General Obligation Unlimited

    1,380      5.250      02/01/27      1,448

Boerne Independent School District General Obligation Unlimited

    1,500      5.250      02/01/29      1,570

Canadian River Municipal Water Authority Revenue Bonds (µ)

    1,080      5.000      02/15/11      1,127

Canadian River Municipal Water Authority Revenue Bonds (µ)

    800      5.000      02/15/17      857

Canadian River Municipal Water Authority Revenue Bonds (µ)

    415      5.000      02/15/18      442

City of Dallas Texas Revenue Bonds (µ)

    1,000      4.875      08/15/23      1,014

City of Dallas Texas Revenue Bonds (µ)

    3,500      5.000      10/01/24      3,561

City of San Antonio Texas Revenue Bonds

    1,000      5.250      02/01/13      1,075

City of San Antonio Texas Revenue Bonds

    1,000      5.000      02/01/14      1,070

Conroe Independent School District General Obligation Unlimited

    1,445      5.000      02/15/13      1,536

County of Fort Bend Texas General Obligation Limited (µ)

    1,000      5.000      03/01/16      1,080

County of Harris Texas General Obligation Limited

    1,435      5.250      08/15/09      1,480

County of Harris Texas Revenue Bonds (Ê)(µ)

    1,500      5.000      08/15/21      1,537

Dallas Independent School District General Obligation Unlimited

    2,100      5.000      02/15/14      2,248

Grand Prairie Independent School District General Obligation Unlimited

    750      5.000      02/15/19      800

Midlothian Development Authority Tax Allocation (µ)

    500      5.000      11/15/09      510

North East Independent School District General Obligation Unlimited

    1,000      5.000      08/01/18      1,076

North Texas Municipal Water District Revenue Bonds (µ)

    2,000      5.000      09/01/13      2,134

North Texas Tollway Authority Revenue Bonds (Ê)(µ)(æ)

    15      5.000      01/01/18      15
68   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

North Texas Tollway Authority Revenue Bonds (Ê)(µ)

    985      5.000      01/01/18      995

Port of Corpus Christi Authority of Nueces County Texas Revenue Bonds

    385      5.350      11/01/10      388

Round Rock Independent School District General Obligation Unlimited

    1,000      6.500      08/01/10      1,077

Round Rock Independent School District General Obligation Unlimited (æ)

    750      6.500      08/01/11      810

Round Rock Independent School District General Obligation Unlimited

    430      5.375      08/01/12      463

SA Energy Acquisition Public Facility Corp. Revenue Bonds

    1,500      5.250      08/01/15      1,576

Sabine River Authority Revenue Bonds

    1,500      5.200      05/01/28      1,342

San Leanna Educational Facilities Corp. Revenue Bonds

    1,000      5.125      06/01/36      980

State of Texas General Obligation Unlimited

    1,500      5.000      04/01/24      1,574

Texas A&M University Revenue Bonds

    1,000      5.000      07/01/08      1,010

Texas Municipal Gas Acquisition & Supply Corp. I Revenue Bonds

    1,000      5.000      12/15/11      1,027

Texas Municipal Gas Acquisition & Supply Corp. I Revenue Bonds

    1,000      5.000      12/15/13      1,029

Texas State Transportation Commission Revenue Bonds

    1,000      5.000      04/01/18      1,074

Tyler Independent School District General Obligation Unlimited

    1,350      5.000      02/15/10      1,393

University of Houston Revenue Bonds (µ)(æ)

    2,000      5.500      02/15/30      2,091
                   
                  42,544
                   

Utah - 0.5%

                  

County of Utah Utah Revenue Bonds

    200      5.050      11/01/17      208

Intermountain Power Agency Revenue Bonds (µ)

    1,400      6.500      07/01/10      1,506
                   
                  1,714
                   

Virgin Islands - 0.7%

                  

Virgin Islands Public Finance Authority Revenue Bonds

    200      5.000      10/01/13      210

Virgin Islands Public Finance Authority Revenue Bonds

    2,500      5.500      10/01/14      2,551
                   
                  2,761
                   

Virginia - 1.8%

                  

County of Fairfax Virginia General Obligation Unlimited

    1,750      5.250      04/01/14      1,914

Suffolk Industrial Development Authority Revenue Bonds

    625      5.300      09/01/31      604

Tobacco Settlement Financing Corp. Revenue Bonds

    675      5.000      06/01/47      572

University of Virginia Revenue Bonds

    1,295      5.000      06/01/20      1,359

University of Virginia Revenue Bonds

    1,495      5.000      06/01/21      1,565

Virginia Commonwealth Transportation Board Revenue Bonds

    360      5.375      05/15/12      382

Virginia Housing Development Authority Revenue Bonds (µ)

    400      5.375      07/01/36      410
                   
                  6,806
                   

Washington - 4.2%

                  

County of King Washington Revenue Bonds (µ)

    1,625      5.000      01/01/14      1,737

Energy Northwest Revenue Bonds

    1,000      7.000      07/01/08      1,023

Energy Northwest Revenue Bonds

    1,000      5.000      07/01/11      1,048

Energy Northwest Revenue Bonds

    1,000      5.000      07/01/14      1,071

Energy Northwest Revenue Bonds

    1,000      7.125      07/01/16      1,227

King County Public Hospital District No. 2 General Obligation Limited (µ)

    1,000      5.000      12/01/19      1,057

King County School District No. 405 Bellevue General Obligation Unlimited (µ)

    1,000      5.000      12/01/14      1,076

Kitsap County Washington General Obligation Limited (µ)(æ)

    775      5.750      07/01/14      821
Tax Exempt Bond Fund   69

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

 

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity		      Market
Value
$
                 

Mason County School District No. 309 Shelton General Obligation Unlimited (µ)

    1,115      5.000      12/01/18      1,206

State of Washington General Obligation Unlimited

    1,780      5.000      07/01/16      1,920

State of Washington General Obligation Unlimited

    1,500      5.000      01/01/20      1,516

Tobacco Settlement Authority of Washington Revenue Bonds

    840      6.500      06/01/26      880

Washington Higher Education Facilities Authority Revenue Bonds (µ)

    1,000      5.000      11/01/13      1,033
                   
                  15,615
                   

Wisconsin - 1.6%

                  

City of Madison Wisconsin Revenue Bonds

    280      4.875      10/01/27      291

Oconto Falls Public School District General Obligation Unlimited (µ)(æ)

    750      5.750      03/01/13      803

State of Wisconsin Certificate Of Participation (µ)

    2,825      5.000      03/01/11      2,950

Wisconsin Health & Educational Facilities Authority Revenue Bonds (µ)

    1,425      5.000      12/01/10      1,481

Wisconsin Health & Educational Facilities Authority Revenue Bonds

    210      5.250      05/01/12      216

Wisconsin Health & Educational Facilities Authority Revenue Bonds

    220      5.250      05/01/13      227
                   
                  5,968
                   
Total Municipal Bonds (cost $361,492)                   361,454
                   
Short-Term Investments - 1.1%                  

Russell Investment Company Money Market Fund

    3,955,000                3,955
                   
Total Short-Term Investments (cost $3,955)                   3,955
                   
Total Investments - 99.2% (identified cost $365,447)                   365,409
Other Assets and Liabilities, Net - 0.8%                   3,030
                   
Net Assets - 100.0%                   368,439
                   

See accompanying notes which are an integral part of the financial statements.

70   Tax Exempt Bond Fund

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

 

     %
  
Quality Ratings as a % of Value     

(Unaudited)

AAA

    49

AA

    23

A

    11

BBB

    14

BB

    1

Other

    2
    
   100
    

 

Economic Sector Emphasis as a % of Value

(Unaudited)

General Obligation

    33

Utility Revenue

    15

Other Revenue

    14

Education Revenue

    9

Industrial Revenue

    9

Healthcare Revenue

    9

Cash Equivalents

    4

Leasing Revenue

    3

Pollution Control Revenue

    2

Housing Revenue

    2

Refunded and Special Obligations

    —
    
   100
    

 

See accompanying notes which are an integral part of the financial statements.

Tax Exempt Bond Fund   71

Table of Contents

Russell Investment Company

Tax Exempt Bond Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets
  
  

Alabama

    0.3

Alaska

    0.4

Arizona

    1.2

California

    8.4

Colorado

    1.0

Connecticut

    0.3

Delaware

    0.2

District of Columbia

    0.6

Florida

    7.9

Georgia

    2.6

Hawaii

    0.5

Idaho

    0.4

Illinois

    4.1

Indiana

    1.9

Iowa

    0.4

Kansas

    1.9

Louisiana

    0.3

Maryland

    3.0

Massachusetts

    4.0

Michigan

    2.5

Minnesota

    1.4

Mississippi

    0.3

Missouri

    1.3

Montana

    0.4

Nevada

    0.5

New Hampshire

    0.4

New Jersey

    3.2

New York

    9.1

North Carolina

    2.4

North Dakota

    0.2

Ohio

    1.8

Oklahoma

    0.9

Oregon

    0.8

Pennsylvania

    3.4

Puerto Rico

    5.2

Rhode Island

    0.3

South Carolina

    1.9

South Dakota

    0.7

Tennessee

    1.7

Texas

    11.5

Utah

    0.5

Virgin Islands

    0.7

Virginia

    1.8

Washington

    4.2

Wisconsin

    1.6

Short-Term Investments

    1.1
    

Total Investments

    99.2

Other Assets and Liabilities, Net

    0.8
    
   100.0
    

 


 

See accompanying notes which are an integral part of the financial statements.

72   Tax Exempt Bond Fund

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Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Tax-Managed Large Cap Fund - Class S  
         

Total

Return

  

1 Year

       17.28 %

5 Years

       13.71 %§

10 Years

       6.63 %§

 

Tax-Managed Large Cap Fund - Class E ‡  
         

Total

Return

  

1 Year

       17.01 %

5 Years

       13.44 %§

10 Years

       6.45 %§

 

Tax-Managed Large Cap Fund - Class C ‡‡  
         

Total

Return

  

1 Year

       16.11 %

5 Years

       12.58 %§

10 Years

       5.77 %§

 

Standard & Poor’s 500® Composite Stock Price
Index **		  
         

Total

Return

  

1 Year

       14.56 %

5 Years

       13.88 %§

10 Years

       7.10 %§

74   Tax-Managed Large Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Tax-Managed Large Cap Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Tax-Managed Large Cap Fund Class C, Class E and Class S Shares gained 16.11%, 17.01% and 17.28% respectively. This compared to the S&P 500® Index, which gained 14.56% 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, 2007, the Lipper® Large-Cap Core Funds Average returned 14.44%. This result serves as a peer comparison and is expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

An overweight to the consumer discretionary sector (one of the weakest performing sectors in the Fund’s benchmark) and an underweight to the integrated oils sector (one of the best performing sectors in the benchmark) detracted from Fund returns. The outperformance of growth stocks versus value stocks contributed to the Fund’s returns as a result of the tilt towards growth stocks in the Fund and in the managers’ selection of companies. Stock selection in the health care and technology sectors, two sectors traditionally identified with growth investing, contributed positively to Fund performance. Stock selection within the financial services sector contributed positively to Fund performance as well due to lower exposures to the banking related areas and greater exposure to non-banking related areas such as securities brokerage and services. The Fund’s underweight to stocks with larger dividend

yields benefited Fund returns as lower yielding stocks performed better. Companies that had higher valuations (as represented by their price to book and price to earnings ratios) and higher levels of estimated growth outperformed and contributed positively to performance.

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 style benchmark (the Russell 1000® Growth Index which returned 19.23% for the year), as well as the S&P 500® Index. Relative to the Fund’s benchmark, Turner was the strongest performer in the Fund as its investment process favors higher growth and earnings momentum companies that were in favor over this period. Positive stock selection across a majority of sectors, but particularly within the health care, technology, consumer discretionary, and financial services sectors, contributed significantly to its outperformance. Turner’s sector weighting decisions also contributed positively to performance on account of a sizable underweight to the financial services sector and overweight to the technology sector. Sands benefited as well from the market’s preference for companies with higher historical and estimated growth during the period. Sands experienced positive results from its stock selection across most sectors, particularly within the financial services, health care, and technology sectors. Sands’ sector weighting decisions detracted modestly from performance as a result of an overweight to the consumer discretionary sector and an underweight to the integrated oils sector.

J.P. Morgan Investment Management, Inc., a market-oriented manager, outperformed the benchmark by a small margin. Positive stock selection in the materials and processing, consumer discretionary, and consumer staples sectors offset weak stock selection in the financial services and technology sectors.

The two value managers in the Fund, Armstrong Shaw Associates, Inc. and Palisades Investment Partners, LLC, underperformed the S&P 500 Index. While Armstrong Shaw underperformed its style benchmark (the Russell 1000® Value Index which returned 10.83% for the year), Palisades outperformed the Russell 1000® Value Index during the period. From October 31, 2006 to March 26, 2007, Nicholas-Applegate managed assets in the Fund. Nicholas-Applegate was replaced by Armstrong Shaw on March 27, 2007. In the period that Nicholas-Applegate was in the Fund, it outperformed the Fund’s benchmark, mainly due to an underweight in the technology sector and stock selection in the integrated oils and other energy sectors. Armstrong Shaw underperformed the Fund’s benchmark as a result of both its stock selection and


Tax-Managed Large Cap Fund   75

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

sector weighting decisions. Stock selection detracted the most from Armstrong Shaw’s return, due primarily to its stock selection within the consumer discretionary, health care, and technology sectors. Armstrong Shaw’s sector weighting decisions detracted from returns due mostly to an overweight to the financial services sector.

Palisades Investment Partners, LLC underperformed the Fund’s benchmark as well, albeit by a small margin. Palisades’ stock selection had a positive impact on results, but this was more than offset by the negative impact from its sector weighting decisions. Stock selection was positive across most sectors, with the largest positive impacts stemming from selection within the consumer discretionary and financial services sectors. Palisades’ sector weighting decisions detracted most from returns as a result of a sizable overweight to the financial services sector, an underweight to the technology sector, and no exposure to the other energy and materials and processing sectors.

Describe any changes to the Fund’s structure or the money manager line-up.

In March 2007, Armstrong Shaw replaced Nicholas-Applegate Capital Management, LLC as a money manager in the Fund.

 

Money Managers as of
October 31, 2007		   Styles

Armstrong Shaw Associates Inc.

   Value

J.P. Morgan Investment Management Inc.

   Market-Oriented

Palisades Investment Partners, LLC

   Value

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**

  

The Standard & Poor’s 500® 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 Fund first issued Class E Shares on December 6, 2000. The returns shown for Class E Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to December 5, 2000 and do not reflect deduction of the shareholder services fees that apply to Class E Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on December 1, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class S Shares from November 1, 1997 to November 30, 1999 and do not reflect deduction of the Rule 12b-1 distribution fees or shareholder services fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

§   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.

76   Tax-Managed Large Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,078.60    $ 1,015.53

Expenses Paid During Period*

    $ 10.06    $ 9.75

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.92% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,083.30    $ 1,019.31

Expenses Paid During Period*

    $ 6.14    $ 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).

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

October 31, 2007

    $ 1,084.40    $ 1,020.57

Expenses Paid During Period*

    $ 4.83    $ 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).

Tax-Managed Large Cap Fund   77

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 93.2%

        

Auto and Transportation - 1.6%

     

Burlington Northern Santa Fe Corp.

    4,200      366

CH Robinson Worldwide, Inc. (Ñ)

    25,520      1,274

CSX Corp.

    27,800      1,244

Expeditors International Washington, Inc. (Ñ)

    45,500      2,304

FedEx Corp.

    200      21

Harley-Davidson, Inc.

    3,100      160

Norfolk Southern Corp.

    35,800      1,849

United Parcel Service, Inc. Class B

    35,590      2,673
         
        9,891
         

Consumer Discretionary - 13.5%

     

Abercrombie & Fitch Co. Class A (Ñ)

    9,300      737

Activision, Inc. (Æ)

    59,640      1,411

Advance Auto Parts, Inc.

    8,500      290

Allied Waste Industries, Inc. (Æ)(Ñ)

    176,600      2,232

Apollo Group, Inc. Class A (Æ)

    24,110      1,911

CBS Corp. Class B (Ñ)

    52,850      1,517

Citadel Broadcasting Corp. (Ñ)

    103,176      454

Coach, Inc. (Æ)

    10,100      369

Dick’s Sporting Goods, Inc. (Æ)(Ñ)

    15,800      527

eBay, Inc. (Æ)

    26,700      964

Electronic Arts, Inc.(Æ)

    3,400      208

Gemstar - TV Guide International, Inc. (Æ)

    1,796      12

Google, Inc. Class A (Æ)

    26,810      18,955

Guess ?, Inc. (Ñ)

    24,570      1,263

Hanesbrands, Inc. (Æ)(Ñ)

    48,500      1,505

Home Depot, Inc.

    12,100      381

International Game Technology

    7,100      310

Iron Mountain, Inc. (Æ)(Ñ)

    40,350      1,401

Kohl’s Corp. (Æ)

    10,400      572

Las Vegas Sands Corp. (Æ)(Ñ)

    14,990      1,995

Lowe’s Cos., Inc. (Ñ)

    243,300      6,542

McDonald’s Corp.

    37,900      2,263

News Corp. Class A

    90,900      1,970

Nike, Inc. Class B

    25,600      1,696

Staples, Inc.

    28,400      663

Starbucks Corp. (Æ)

    202,400      5,400

Starwood Hotels & Resorts Worldwide, Inc. (ö)

    5,700      324

Target Corp.

    22,900      1,405

Tim Hortons, Inc. (Ñ)

    2,573      98

Time Warner, Inc.

    268,775      4,908

Under Armour, Inc. Class A (Æ)(Ñ)

    15,570      969

VeriSign, Inc. (Æ)(Ñ)

    40,200      1,370
     Principal
Amount ($)
or Shares		      Market
Value
$

Wal-Mart Stores, Inc.

    91,300      4,128

Walt Disney Co. (The)

    147,600      5,111

Wyndham Worldwide Corp. (Ñ)

    102,500      3,365

Wynn Resorts, Ltd. (Ñ)

    9,600      1,550

Yahoo!, Inc. (Æ)

    97,790      3,041

Yum! Brands, Inc.

    16,000      644
         
        82,461
         

Consumer Staples - 5.4%

     

Altria Group, Inc.

    45,800      3,340

Anheuser-Busch Cos., Inc.

    14,200      728

Coca-Cola Co. (The)

    99,420      6,140

Colgate-Palmolive Co.

    11,300      862

ConAgra Foods, Inc.

    41,500      985

General Mills, Inc.

    13,700      791

Kraft Foods, Inc. Class A

    114,104      3,812

Molson Coors Brewing Co. Class B

    28,600      1,637

PepsiCo, Inc.

    55,410      4,085

Procter & Gamble Co.

    110,385      7,674

Safeway, Inc.

    18,100      615

Walgreen Co.

    61,100      2,423
         
        33,092
         

Financial Services - 16.7%

     

Aflac, Inc.

    3,800      239

AllianceBernstein Holding, LP (Ñ)

    14,000      1,196

Allstate Corp. (The)

    39,000      2,044

AMBAC Financial Group, Inc. (Ñ)

    23,850      878

American Express Co.

    53,710      3,274

American International Group, Inc.

    79,500      5,018

AON Corp. (Ñ)

    34,130      1,547

Apartment Investment & Management Co. Class A (ö)(Ñ)

    1,000      47

Assurant, Inc. (Ñ)

    6,900      403

Bank of America Corp.

    146,979      7,096

Bank of New York Mellon Corp. (The)

    74,211      3,625

Capital One Financial Corp.

    65,370      4,288

Charles Schwab Corp. (The)

    58,800      1,366

Cigna Corp.

    26,700      1,401

CIT Group, Inc. (Ñ)

    34,100      1,202

Citigroup, Inc.

    196,600      8,238

City National Corp. (Ñ)

    500      34

CME Group, Inc. Class A (Ñ)

    10,140      6,756

Countrywide Financial Corp. (Ñ)

    44,700      694

Discover Financial Services

    40,350      779

E*TRADE Financial Corp. (Æ)(Ñ)

    98,900      1,102

Federal National Mortgage Association

    9,300      530

Franklin Resources, Inc.

    3,300      428

78   Tax-Managed Large Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Genworth Financial, Inc. Class A

    19,700      538

Goldman Sachs Group, Inc. (The)

    29,240      7,249

Hartford Financial Services Group, Inc.

    9,800      951

Hospitality Properties Trust (ö)(Ñ)

    7,000      277

Host Hotels & Resorts, Inc. (ö)

    9,932      220

IntercontinentalExchange, Inc. (Æ)(Ñ)

    37,510      6,684

Janus Capital Group, Inc. (Ñ)

    79,400      2,740

JPMorgan Chase & Co.

    48,200      2,265

Lehman Brothers Holdings, Inc.

    33,300      2,109

Lincoln National Corp.

    6,600      412

MBIA, Inc. (Ñ)

    15,100      650

Merrill Lynch & Co., Inc.

    32,300      2,132

MetLife, Inc. (Ñ)

    13,500      929

Moody’s Corp. (Ñ)

    74,400      3,253

Morgan Stanley

    55,400      3,726

Piper Jaffray Cos. (Æ)(Ñ)

    700      36

Progressive Corp. (The) (Ñ)

    38,100      705

Prologis (ö)(Ñ)

    7,200      517

Public Storage, Inc. (ö)(Ñ)

    2,400      194

Simon Property Group, Inc. (ö)

    1,900      198

State Street Corp.

    28,200      2,249

TCF Financial Corp. (Ñ)

    12,600      287

TD Ameritrade Holding Corp. (Æ)

    79,500      1,522

Torchmark Corp.

    7,900      515

Travelers Cos., Inc. (The)

    10,000      522

US Bancorp

    66,800      2,215

Ventas, Inc. (ö)

    7,300      313

Wachovia Corp.

    84,900      3,882

Wells Fargo & Co.

    52,700      1,792

Western Union Co. (The)

    2,440      54

WR Berkley Corp.

    1,950      59

Zions Bancorporation (Ñ)

    9,400      556
         
        101,936
         

Health Care - 15.1%

        

Abbott Laboratories

    91,800      5,014

Abraxis BioScience, Inc. (Æ)(Ñ)

    36,400      904

Aetna, Inc.

    60,100      3,376

Allergan, Inc.

    97,810      6,610

Amgen, Inc. (Æ)

    22,000      1,278

Baxter International, Inc.

    18,200      1,092

Biogen Idec, Inc. (Æ)

    9,800      729

Celgene Corp. (Æ)(Ñ)

    30,220      1,994

Cerner Corp. (Æ)(Ñ)

    25,400      1,513

Covidien, Ltd.

    60,425      2,514

CR Bard, Inc.

    7,700      644

CVS Caremark Corp.

    141,200      5,898
     Principal
Amount ($)
or Shares		      Market
Value
$

Express Scripts, Inc. Class A (Æ)

    29,100      1,836

Forest Laboratories, Inc. (Æ)

    12,100      473

Genentech, Inc. (Æ)

    50,300      3,729

Genzyme Corp. (Æ)

    65,100      4,946

Gilead Sciences, Inc. (Æ)

    93,520      4,320

GlaxoSmithKline PLC - ADR

    25,700      1,317

Intuitive Surgical, Inc. (Æ)

    25,370      8,293

Johnson & Johnson

    49,316      3,214

Merck & Co., Inc.

    95,000      5,535

Pfizer, Inc.

    192,900      4,747

Schering-Plough Corp.

    98,600      3,009

Sepracor, Inc. (Æ)(Ñ)

    4,500      124

Shire PLC - ADR

    28,360      2,131

Stryker Corp.

    35,600      2,528

Teva Pharmaceutical Industries,
Ltd. - ADR

    47,600      2,095

Thermo Fisher Scientific, Inc. (Æ)

    17,870      1,051

UnitedHealth Group, Inc.

    63,400      3,116

Varian Medical Systems, Inc. (Æ)(Ñ)

    50,200      2,448

Watson Pharmaceuticals, Inc. (Æ)(Ñ)

    42,800      1,308

WellPoint, Inc. (Æ)

    15,400      1,220

Wyeth

    42,000      2,042

Zimmer Holdings, Inc. (Æ)

    16,000      1,112
         
        92,160
         

Integrated Oils - 4.3%

        

BP PLC - ADR

    19,100      1,490

Chevron Corp.

    79,687      7,292

ConocoPhillips

    73,479      6,243

Exxon Mobil Corp.

    95,246      8,762

Marathon Oil Corp.

    8,600      508

Occidental Petroleum Corp.

    17,400      1,201

Royal Dutch Shell PLC - ADR

    7,300      639
         
        26,135
         

Materials and Processing - 3.2%

     

Air Products & Chemicals, Inc.

    10,400      1,018

Alcoa, Inc.

    76,370      3,024

Archer-Daniels-Midland Co.

    5,100      182

Bunge, Ltd.

    20,330      2,342

Cemex SAB de CV - ADR (Æ)

    80,836      2,479

Eastman Chemical Co.

    6,900      459

Masco Corp. (Ñ)

    12,100      291

Monsanto Co.

    33,040      3,226

Nucor Corp.

    22,360      1,387

Praxair, Inc.

    9,500      812

Precision Castparts Corp.

    8,620      1,291

Rohm & Haas Co. (Ñ)

    8,400      436

Tax-Managed Large Cap Fund   79

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Temple-Inland, Inc.

    11,600      623

United States Steel Corp.

    21,500      2,320
         
        19,890
         

Miscellaneous - 3.4%

        

Eaton Corp.

    14,600      1,352

Fortune Brands, Inc.

    2,000      167

General Electric Co.

    325,120      13,382

Honeywell International, Inc.

    14,600      882

Johnson Controls, Inc.

    49,500      2,164

Tyco International, Ltd.

    69,125      2,846
         
        20,793
         

Other Energy - 4.6%

        

Anadarko Petroleum Corp.

    24,100      1,422

Baker Hughes, Inc.

    20,600      1,786

Cameron International Corp. (Æ)(Ñ)

    26,840      2,613

Devon Energy Corp.

    39,800      3,717

Dynegy, Inc. Class A (Æ)

    3,332      31

EOG Resources, Inc.

    5,400      479

FMC Technologies, Inc. (Æ)

    25,000      1,516

Halliburton Co.

    10,200      402

National Oilwell Varco, Inc. (Æ)

    74,800      5,478

Schlumberger, Ltd.

    80,300      7,755

Valero Energy Corp.

    6,600      465

Weatherford International, Ltd. (Æ)

    6,900      448

XTO Energy, Inc.

    32,760      2,175
         
        28,287
         

Producer Durables - 4.4%

        

American Tower Corp. Class A (Æ)

    14,600      645

Applied Materials, Inc.

    110,190      2,140

Boeing Co.

    8,200      808

Caterpillar, Inc.

    6,800      507

Deere & Co.

    14,640      2,268

Dover Corp.

    17,100      787

Emerson Electric Co.

    14,600      763

Ingersoll-Rand Co., Ltd. Class A

    20,400      1,027

Lexmark International, Inc.
Class A (Æ)(Ñ)

    32,700      1,373

Lockheed Martin Corp.

    8,600      946

Nokia OYJ - ADR

    47,370      1,882

Northrop Grumman Corp.

    12,000      1,004

Parker Hannifin Corp. (Ñ)

    12,000      965

Raytheon Co.

    9,800      623

Roper Industries, Inc. (Ñ)

    32,960      2,334

Toll Brothers, Inc. (Æ)(Ñ)

    11,400      261
     Principal
Amount ($)
or Shares		      Market
Value
$

United Technologies Corp.

    112,800      8,639
         
        26,972
         

Technology - 15.1%

        

Altera Corp.

    59,600      1,169

Analog Devices, Inc.

    3,000      100

Apple, Inc. (Æ)

    54,590      10,369

Broadcom Corp. Class A (Æ)

    158,800      5,169

Cisco Systems, Inc. (Æ)

    397,930      13,156

Computer Sciences Corp. (Æ)(Ñ)

    9,000      526

Corning, Inc.

    75,500      1,832

Dell, Inc. (Æ)

    71,600      2,191

Electronics for Imaging, Inc. (Æ)(Ñ)

    15,800      360

EMC Corp. (Æ)

    315,000      7,998

First Solar, Inc. (Æ)(Ñ)

    11,230      1,784

Hewlett-Packard Co.

    60,300      3,116

Intel Corp.

    129,530      3,484

International Business Machines Corp.

    71,500      8,303

Intersil Corp. Class A

    1,700      52

Jabil Circuit, Inc.

    38,800      843

Juniper Networks, Inc. (Æ)

    15,400      554

Linear Technology Corp. (Ñ)

    12,100      400

Microsoft Corp.

    215,420      7,930

NCR Corp. (Æ)

    22,300      615

Oracle Corp. (Æ)

    202,400      4,487

Qualcomm, Inc.

    57,300      2,448

Research In Motion, Ltd. (Æ)

    14,010      1,744

Salesforce.com, Inc. (Æ)(Ñ)

    73,230      4,128

Seagate Technology, Inc. (Æ)

    26,700      —

Sun Microsystems, Inc. (Æ)

    86,900      496

Sybase, Inc. (Æ)

    25,600      732

Symantec Corp. (Æ)

    157,500      2,958

Teradata Corp. (Æ)

    22,300      636

Tyco Electronics, Ltd.

    16,025      572

VeriFone Holdings, Inc. (Æ)

    23,670      1,170

VMware, Inc. Class A (Æ)(Ñ)

    14,220      1,775

Xilinx, Inc. (Ñ)

    38,300      935
         
        92,032
         

Utilities - 5.9%

        

America Movil SAB de CV

    79,700      5,212

American Electric Power Co., Inc.

    12,400      598

AT&T, Inc.

    156,606      6,545

Comcast Corp. Class A (Æ)(Ñ)

    38,400      808

Comcast Corp. Special Class A (Æ)(Ñ)

    104,500      2,181

Edison International

    31,300      1,820

Embarq Corp. (Ñ)

    17,052      902

Exelon Corp.

    36,100      2,988

80   Tax-Managed Large Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$		  
       

FirstEnergy Corp.

    8,900      620  

Northeast Utilities

    22,200      684  

PG&E Corp.

    46,600      2,280  

Pinnacle West Capital Corp. (Ñ)

    4,200      170  

PPL Corp.

    1,600      83  

Sierra Pacific Resources

    22,200      375  

Spectra Energy Corp.

    4,600      120  

Sprint Nextel Corp.

    168,256      2,877  

Verizon Communications, Inc.

    151,530      6,981  

Xcel Energy, Inc. (Ñ)

    23,300      525  
           
        35,769  
           
Total Common Stocks        

(cost $399,105)

         569,418  
           

Short-Term Investments - 7.1%

        

Russell Investment Company
Money Market Fund

    41,251,000      41,251  

United States Treasury Bills (ç)(z)(§) 3.650% due 12/20/07

    2,000      1,990  
           
Total Short - Term Investments        

(cost $43,241)

         43,241  
           

Other Securities- 10.8%

        

Russell Investment Company
Money Market Fund (×)

    14,653,442      14,653  

State Street Securities Lending
Quality Trust (×)

    51,518,715      51,519  
           
Total Other Securities        

(cost $66,172)

         66,172  
           
Total Investments - 111.1%        

(identified cost $508,518)

         678,831  
Other Assets and Liabilities,
Net - (11.1%)		         (68,110 )
           
Net Assets - 100.0%         610,721  
           

 

See accompanying notes which are an integral part of the financial statements.

Tax-Managed Large Cap Fund   81

Table of Contents

Russell Investment Company

Tax-Managed Large Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Futures Contracts
(Number of Contracts)		   

Notional
Amount

    Unrealized
Appreciation
(Depreciation)
$
        
        

Long Positions

         

S&P 500 E-Mini Index (CME)
expiration date 12/07 (305)

    USD    23,712    642

S&P 500 Index (CME)
expiration date 12/07 (48)

    USD    18,659    769
          

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

          1,411
          

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories      % of
Net
Assets		  
    

Auto and Transportation

      1.6  

Consumer Discretionary

      13.5  

Consumer Staples

      5.4  

Financial Services

      16.7  

Health Care

      15.1  

Integrated Oils

      4.3  

Materials and Processing

      3.2  

Miscellaneous

      3.4  

Other Energy

      4.6  

Producer Durables

      4.4  

Technology

      15.1  

Utilities

      5.9  

Short-Term Investments

      7.1  

Other Securities

      10.8  
        

Total Investments

      111.1  

Other Assets and Liabilities, Net

      (11.1 )
        
     100.0  
        

Futures Contracts

      0.2  

 

See accompanying notes which are an integral part of the financial statements.

82   Tax-Managed Large Cap Fund

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Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Tax-Managed Mid & Small Cap Fund - Class S

 
         

Total

Return

  

1 Year

       16.97 %

5 Years

       17.72 %§

Inception *

       6.57 %§

 

Tax-Managed Mid & Small Cap Fund - Class E ‡

  
         

Total

Return

  

1 Year

       16.70 %

5 Years

       17.43 %§

Inception *

       6.34 %§

 

Tax-Managed Mid & Small Cap Fund - Class C

  
         

Total

Return

  

1 Year

       15.70 %

5 Years

       16.52 %§

Inception *

       5.52 %§

 

Russell 2500™ Index **

 
         

Total

Return

  

1 Year

       12.71 %

5 Years

       19.39 %§

Inception *

       10.84 %§

84   Tax-Managed Mid & Small Cap

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Tax-Managed Mid & Small Cap Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Tax-Managed Mid & Small Cap Fund Class C, Class E and Class S Shares gained 15.70%, 16.70% and 16.97% respectively. This compared to the Russell 2500™ Index, which gained 12.71% 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, 2007, the Lipper® Mid-Cap Core Funds Average returned 15.89%. For the same period, the Lipper® Small-Cap Core Funds Average returned 9.70%. These results serve as peer comparisons and are expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

An underweight to the financial services sector (one of the weakest performing sectors in the Fund’s benchmark) and an overweight to the health care and technology sectors (two of the best performing sectors in the benchmark) contributed positively to Fund returns. The outperformance of growth stocks versus value stocks contributed to the Fund’s returns as a result of the tilt towards growth in the Fund and in the managers’ stock selection. Stock selection in the health care and consumer discretionary sectors, two sectors traditionally identified with growth investing, contributed positively to Fund performance. Stock selection within the materials and processing and producer durables sectors contributed positively to Fund performance as well due to the strength in global demand. The Fund’s underweight to stocks with larger dividend yields

benefited Fund returns as lower yielding stock outperformed. Companies that had higher valuations (as represented by their price to book and price to earnings ratios) and higher levels of estimated growth outperformed and contributed positively to performance.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Both of the Fund’s growth managers, Transamerica Investment Management, LLC and Turner Investment Partners, Inc., outperformed their style benchmark (the Russell 2500™ Growth Index which returned 20.36% for the year) and Fund’s benchmark. Stock selection across most sectors, but particularly within the consumer discretionary, financial services, health care, and materials and processing sectors, contributed to Transamerica’s outperformance. Sector weighting decisions also contributed positively to Transamerica’s performance due to an underweight to the financial services sector and an overweight to the technology sector. Turner benefited from strong stock selection as well, particularly within the consumer discretionary, financial services, health care, producer durables, and materials and processing sectors. Sector weighting decisions also contributed positively to Turner’s performance due to an underweight to the financial services sector and an overweight to the technology sector.

Parametric Portfolio Associates LLC, a market oriented manager, underperformed the Fund’s benchmark as a result of its stock selection. Parametric’s index optimization strategy to minimize unrealized taxable capital gains led to its weak stock selection that detracted from results. Parametric’s stock selection within the financial services, health care and producer durables sectors also detracted from performance.

Chartwell Investment Partners, a value manager, outperformed its style benchmark (the Russell 2000® Value Index which returned 2.05% for the year) but lagged the Fund’s benchmark. Stock selection detracted most from Chartwell’s return, primarily due to stock selection within the consumer discretionary, financial services, and technology sectors. An overweight to the financial services sector detracted from Chartwell’s relative performance.

Netols Asset Management, Inc., a value manager, outperformed both its style benchmark (the Russell 2000® Value Index which returned 2.05% for the year) and the Fund’s benchmark. Netols’ sector weighting decisions contributed the most to its outperformance as a result of a significant underweight to the financial services sector and an overweight to the other energy sector. Stock selection was positive across most sectors and contributed to Netols’ outperformance. Stock selection within the producer durables and other energy sectors had a positive


Tax-Managed Mid & Small Cap Fund   85

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

impact on results, although this was partially offset by weaker stock selection within the consumer discretionary and consumer staples sectors.

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.

 

Money Managers as of
October 31, 2007		    Styles

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Commenced operations on December 1, 1999.

 

**

  

Russell 2500™ Index is composed of the bottom 500 stocks in the Russell 1000® Index and all the stocks in the Russell 2000® Index. The Russell 2500™ Index return reflects adjustments for income dividends and capital gains distribution reinvested as of the ex-dividend dates.

 

‡   The Fund first issued Class E Shares on December 6, 2000. The returns shown for Class E Shares are the returns of the Fund’s Class S Shares from December 1, 1999 to December 5, 2000 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

§   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.

86   Tax-Managed Mid & Small Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.30    $ 1,013.86

Expenses Paid During Period*

    $ 11.69    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,065.80    $ 1,017.64

Expenses Paid During Period*

    $ 7.81    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,067.50    $ 1,018.90

Expenses Paid During Period*

    $ 6.51    $ 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   87

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 92.5%

        

Auto and Transportation - 4.7%

        

AAR Corp. (Æ)(Ñ)

    14,875      477

Alaska Air Group, Inc. (Æ)(Ñ)

    6,575      167

Alexander & Baldwin, Inc.

    13,321      698

AMR Corp. (Æ)(Ñ)

    9,300      223

ArvinMeritor, Inc. (Ñ)

    9,430      140

BorgWarner, Inc.

    5,110      540

Bristow Group, Inc. (Æ)(Ñ)

    5,580      278

Con-way, Inc.

    3,720      159

Fleetwood Enterprises, Inc. (Æ)(Ñ)

    59,114      532

General Maritime Corp. (Ñ)

    36,362      1,025

Genesee & Wyoming, Inc. Class A (Æ)(Ñ)

    6,251      183

Gentex Corp. (Ñ)

    13,110      272

Kirby Corp. (Æ)

    10,680      488

Modine Manufacturing Co.

    7,245      169

Nordic American Tanker Shipping (Ñ)

    6,625      256

Old Dominion Freight Line, Inc. (Æ)(Ñ)

    19,325      437

Overseas Shipholding Group, Inc.

    5,850      435

Skywest, Inc.

    7,965      217

Strattec Security Corp.

    2,790      136

Tenneco, Inc. (Æ)

    60,705      1,858

UTI Worldwide, Inc.

    89,415      2,281

Visteon Corp. (Æ)(Ñ)

    22,275      141

Wabtec Corp.

    42,406      1,591

Winnebago Industries (Ñ)

    23,488      606
         
        13,309
         

Consumer Discretionary - 18.1%

     

99 Cents Only Stores (Æ)(Ñ)

    67,764      729

Aaron Rents, Inc.

    13,504      286

Activision, Inc. (Æ)

    157,175      3,717

Advisory Board Co. (The) (Æ)

    6,782      436

Aeropostale, Inc. (Æ)

    16,095      369

AMN Healthcare Services, Inc. (Æ)

    8,410      160

AnnTaylor Stores Corp. (Æ)

    4,620      143

Applebees International, Inc.

    11,560      293

Arbitron, Inc. (Ñ)

    19,290      977

Big 5 Sporting Goods Corp. (Ñ)

    10,660      190

Borders Group, Inc. (Ñ)

    9,925      153

Bright Horizons Family Solutions, Inc. (Æ)

    8,425      327

Callaway Golf Co. (Ñ)

    11,795      204

Carter’s, Inc. (Æ)(Ñ)

    38,198      843

Casual Male Retail Group, Inc. (Æ)(Ñ)

    70,288      588

Cato Corp. (The) Class A (Ñ)

    26,400      530
     Principal
Amount ($)
or Shares		      Market
Value
$

CDI Corp. (Ñ)

    5,480      151

CEC Entertainment, Inc. (Æ)

    16,500      492

Central European Distribution Corp. (Æ)(Ñ)

    13,072      695

Consolidated Graphics, Inc. (Æ)

    13,950      893

Corinthian Colleges, Inc. (Æ)(Ñ)

    65,521      1,074

Corrections Corp. of America (Æ)

    11,134      315

CoStar Group, Inc. (Æ)(Ñ)

    15,765      907

Cox Radio, Inc. Class A (Æ)(Ñ)

    49,315      596

DeVry, Inc. (Ñ)

    17,296      946

Diamond Management & Technology Consultants, Inc.

    43,547      465

DreamWorks Animation SKG, Inc. Class A (Æ)

    8,930      291

Earthlink, Inc. (Æ)

    109,400      865

Ethan Allen Interiors, Inc. (Ñ)

    5,180      160

Focus Media Holding, Ltd.- ADR (Æ)(Ñ)

    10,780      668

Fossil, Inc. (Æ)

    29,716      1,116

Fred’s, Inc. Class A (Ñ)

    64,871      688

FTI Consulting, Inc. (Æ)(Ñ)

    30,434      1,653

GameStop Corp. Class A (Æ)

    11,140      660

Gemstar-TV Guide International, Inc. (Æ)

    265      2

Geo Group, Inc. (The) (Æ)(Ñ)

    5,700      180

Greenfield Online, Inc. (Æ)

    30,365      463

Guess ?, Inc.

    15,750      809

Harman International Industries, Inc.

    3,200      269

Harte-Hanks, Inc.

    7,210      127

Hearst-Argyle Television, Inc. Class A

    8,840      197

Heidrick & Struggles International, Inc. (Ñ)

    3,600      156

Ihop Corp. (Ñ)

    3,225      204

International Speedway Corp. Class A

    3,990      177

inVentiv Health, Inc. (Æ)

    5,660      239

Ipass, Inc. (Æ)(Ñ)

    29,602      142

J Crew Group, Inc. (Æ)(Ñ)

    6,770      253

John Wiley & Sons, Inc. Class A

    5,840      257

Kellwood Co.

    6,700      111

Kenexa Corp. (Æ)

    41,160      1,207

Korn/Ferry International (Æ)

    7,525      144

Krispy Kreme Doughnuts, Inc. (Æ)(Ñ)

    21,600      69

Lamar Advertising Co. Class A (Ñ)

    3,075      164

Landry’s Restaurants, Inc. (Ñ)

    7,100      204

Life Time Fitness, Inc. (Æ)(Ñ)

    5,610      340

Lifetime Brands, Inc. (Ñ)

    37,225      597

LKQ Corp. (Æ)

    8,350      322

Lodgenet Entertainment Corp. (Æ)(Ñ)

    5,540      120

88   Tax-Managed Mid & Small Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Matthews International Corp. Class A

    22,500      1,025

MAXIMUS, Inc.

    5,202      249

Men’s Wearhouse, Inc.

    5,355      226

MPS Group, Inc. (Æ)

    14,295      175

MSC Industrial Direct Co. Class A

    8,919      434

Navigant Consulting, Inc. (Æ)(Ñ)

    9,475      125

Net 1 UEPS Technologies, Inc. (Æ)(Ñ)

    22,630      725

Oxford Industries, Inc. (Ñ)

    11,800      306

Pep Boys-Manny Moe & Jack (Ñ)

    11,320      167

PF Chang’s China Bistro, Inc. (Æ)(Ñ)

    54,865      1,597

Polo Ralph Lauren Corp. Class A

    6,110      420

RadioShack Corp. (Ñ)

    10,815      223

RC2 Corp. (Æ)

    16,025      478

Red Robin Gourmet Burgers, Inc. (Æ)(Ñ)

    4,925      197

Rent-A-Center, Inc.(Æ)(Ñ)

    10,102      162

School Specialty, Inc. (Æ)(Ñ)

    22,761      768

Scientific Games Corp. Class A (Æ)

    57,300      2,071

Service Corp. International

    23,020      333

Sina Corp./China (Æ)(Ñ)

    7,650      439

Station Casinos, Inc. (Ñ)

    5,210      468

Stein Mart, Inc. (Ñ)

    17,875      117

Strayer Education, Inc.

    16,406      3,059

Sturm Ruger & Co., Inc. (Æ)(Ñ)

    44,590      417

Tetra Tech, Inc. (Æ)

    9,297      217

Toro Co.

    4,960      276

Tupperware Brands Corp.

    8,625      311

Under Armour, Inc. Class A (Æ)(Ñ)

    11,610      723

United Online, Inc. (Ñ)

    16,656      293

USANA Health Sciences, Inc. (Æ)(Ñ)

    4,931      201

Valueclick, Inc. (Æ)(Ñ)

    109,613      2,980

VistaPrint, Ltd. (Æ)(Ñ)

    17,270      822

Watson Wyatt Worldwide, Inc. Class A

    5,411      258

WESCO International, Inc. (Æ)(Ñ)

    8,540      398

WMS Industries, Inc. (Æ)(Ñ)

    27,645      958

Zumiez, Inc. (Æ)(Ñ)

    10,510      440
         
        51,391
         

Consumer Staples - 2.4%

        

Coca-Cola Bottling Co. Consolidated

    2,645      156

Cott Corp. (Æ)(Ñ)

    86,107      617

Hain Celestial Group, Inc. (Æ)(Ñ)

    7,729      271

Hansen Natural Corp.

    10,230      696

J&J Snack Foods Corp.

    5,950      212

Lance, Inc. (Ñ)

    31,860      675

Longs Drug Stores Corp.

    4,195      220

Peet’s Coffee & Tea, Inc. (Æ)(Ñ)

    32,090      875
     Principal
Amount ($)
or Shares		      Market
Value
$

Performance Food Group Co. (Æ)

    8,039      217

Ralcorp Holdings, Inc. (Æ)

    4,120      232

Rite Aid Corp. (Æ)(Ñ)

    45,570      178

Ruddick Corp.

    7,780      265

SunOpta, Inc. (Æ)(Ñ)

    87,995      1,318

Tootsie Roll Industries, Inc. (Ñ)

    6,108      157

TreeHouse Foods, Inc. (Æ)(Ñ)

    23,300      650

Weis Markets, Inc. (Ñ)

    3,845      169
         
        6,908
         

Financial Services - 14.9%

        

Advanta Corp. Class B (Ñ)

    32,337      511

Affiliated Managers Group, Inc. (Æ)(Ñ)

    4,550      599

Alexander’s, Inc. (Æ)(ö)(Ñ)

    490      197

Alfa Corp. (Ñ)

    6,670      121

American Campus Communities, Inc. (ö)

    17,725      504

American Equity Investment Life Holding Co. (Ñ)

    75,525      738

Arbor Realty Trust, Inc. (ö)(Ñ)

    23,563      445

Argo Group International Holdings, Ltd. (Æ)

    16,944      722

Bank of the Ozarks, Inc. (Ñ)

    7,890      228

BioMed Realty Trust, Inc. (ö)

    12,300      294

Boston Private Financial Holdings, Inc.

    6,500      187

Capital Southwest Corp. (Ñ)

    1,110      136

Capital Trust, Inc. Class A (ö)(Ñ)

    4,615      156

Cash America International, Inc.

    5,325      208

Cedar Shopping Centers, Inc. (ö)(Ñ)

    68,321      878

CIT Group, Inc.

    5,650      199

Citizens Republic Bancorp, Inc. (Ñ)

    9,325      142

Cullen/Frost Bankers, Inc.

    9,400      500

Delphi Financial Group, Inc. Class A

    7,845      304

Deltic Timber Corp.

    6,925      387

Dun & Bradstreet Corp.

    3,850      373

EastGroup Properties, Inc. (ö)(Ñ)

    3,875      185

Employers Holdings, Inc.

    7,250      139

Enstar Group, Ltd. (Æ)(Ñ)

    1,475      189

Euronet Worldwide, Inc. (Æ)(Ñ)

    91,300      2,924

Extra Space Storage, Inc. (ö)(Ñ)

    10,650      167

Federal Realty Investors Trust (ö)

    3,380      298

FelCor Lodging Trust, Inc. (ö)

    7,905      166

Fidelity National Financial, Inc. Class A

    16,821      259

Fidelity National Information Services, Inc.

    3,844      177

Tax-Managed Mid & Small Cap Fund   89

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

First Industrial Realty Trust, Inc. (ö)(Ñ)

    14,704      599

First Midwest Bancorp, Inc. (Ñ)

    14,828      499

First Potomac Realty Trust (ö)(Ñ)

    13,650      285

FNB Corp. (Ñ)

    13,745      228

Franklin Street Properties Corp. (ö)(Ñ)

    8,825      143

Friedman Billings Ramsey Group, Inc. Class A (ö)(Ñ)

    31,875      137

Fulton Financial Corp. (Ñ)

    18,530      243

GATX Corp. (Ñ)

    28,080      1,150

General Growth Properties, Inc. (ö)

    10,200      555

Glacier Bancorp, Inc. (Ñ)

    9,997      203

Glimcher Realty Trust (ö)(Ñ)

    7,410      165

Greenhill & Co., Inc. (Ñ)

    9,700      718

Hanover Insurance Group, Inc. (The)

    15,894      732

Harleysville Group, Inc. (Ñ)

    4,925      154

Health Care REIT, Inc. (ö)

    4,510      200

Hersha Hospitality Trust (ö)(Ñ)

    64,950      702

Home Properties, Inc. (ö)

    10,180      523

Huntington Bancshares, Inc.

    10,930      196

IndyMac Bancorp, Inc. (Ñ)

    1,725      23

Infinity Property & Casualty Corp.

    3,025      122

Inland Real Estate Corp. (ö)(Ñ)

    10,800      161

Interactive Brokers Group, Inc. Class A (Æ)(Ñ)

    8,100      234

International Securities Exchange Holdings, Inc. Class A

    4,000      268

Investment Technology Group, Inc. (Æ)

    19,531      818

Investors Real Estate Trust (ö)(Ñ)

    15,230      165

LandAmerica Financial Group, Inc. (Ñ)

    2,742      76

Leucadia National Corp. (Ñ)

    10,410      527

MCG Capital Corp.

    11,200      157

Mercury General Corp.

    3,250      167

MF Global, Ltd. (Æ)

    16,370      484

Mid-America Apartment Communities, Inc. (ö)

    28,268      1,470

National City Corp.

    7,377      179

National Penn Bancshares, Inc. (Ñ)

    9,060      153

Nationwide Health Properties, Inc. (ö)

    7,670      239

Navigators Group, Inc. (Æ)

    4,675      282

Nelnet, Inc. Class A (Ñ)

    30,675      570

Nuveen Investments, Inc. Class A (Ñ)

    5,530      358

Old National Bancorp (Ñ)

    10,825      181

Old Republic International Corp.

    14,477      222

Phoenix Cos., Inc. (The)

    12,090      167

Piper Jaffray Cos. (Æ)(Ñ)

    3,000      154
     Principal
Amount ($)
or Shares		      Market
Value
$

PMI Group, Inc. (The)

    5,435      87

Post Properties, Inc. (ö)

    8,955      367

Provident Bankshares Corp. (Ñ)

    5,146      127

Raymond James Financial, Inc.

    9,058      337

Reinsurance Group of America, Inc.

    4,685      268

RLI Corp. (Ñ)

    10,150      590

Selective Insurance Group (Ñ)

    6,565      160

Signature Bank (Æ)(Ñ)

    33,800      1,154

Sotheby’s Holdings Class A (Ñ)

    10,720      581

South Financial Group, Inc. (The)

    8,465      175

Sovereign Bancorp, Inc.

    11,963      173

State Auto Financial Corp. (Ñ)

    4,405      121

State Street Corp.

    4,936      394

Sterling Financial Corp. (Ñ)

    6,428      145

Sun Communities, Inc. (ö)

    31,377      957

Tanger Factory Outlet Centers (ö)(Ñ)

    4,575      193

TD Ameritrade Holding Corp. (Æ)

    13,900      266

Texas Capital Bancshares, Inc. (Æ)

    76,365      1,690

UCBH Holdings, Inc.

    30,079      513

UnionBanCal Corp.

    3,300      178

United Bankshares, Inc. (Ñ)

    14,500      439

United Fire & Casualty Co. (Ñ)

    20,450      655

Valley National Bancorp (Ñ)

    12,549      257

Vornado Realty Trust (ö)

    5,230      584

W Holding Co., Inc. (Ñ)

    136,441      287

Waddell & Reed Financial, Inc. Class A

    28,375      943

Washington Real Estate Investment Trust (ö)(Ñ)

    7,720      272

Wells Fargo & Co.

    5,467      186

Westamerica Bancorporation (Ñ)

    12,833      617

Wintrust Financial Corp. (Ñ)

    44,888      1,649

World Acceptance Corp. (Æ)(Ñ)

    27,450      886
         
        42,193
         

Health Care - 13.0%

        

Abraxis BioScience, Inc. (Æ)(Ñ)

    6,245      155

Adams Respiratory Therapeutics, Inc. (Æ)(Ñ)

    4,725      208

Alexion Pharmaceuticals, Inc. (Æ)

    8,470      648

Align Technology, Inc. (Æ)(Ñ)

    24,445      506

Alpharma, Inc. Class A (Æ)(Ñ)

    7,175      148

Amedisys, Inc. (Æ)(Ñ)

    4,917      209

Applera Corp. - Celera Group (Æ)

    33,440      545

Arthrocare Corp. (Æ)(Ñ)

    23,035      1,494

Beckman Coulter, Inc.

    8,570      607

BioMarin Pharmaceuticals, Inc. (Æ)

    12,050      334

Celgene Corp. (Æ)

    11,230      741

90   Tax-Managed Mid & Small Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Charles River Laboratories International, Inc. (Æ)

    4,718      274

Chattem, Inc. (Æ)(Ñ)

    13,628      1,013

Cooper Cos., Inc. (The) (Ñ)

    4,920      207

Covance, Inc. (Æ)

    12,625      1,042

Coventry Health Care, Inc. (Æ)

    8,550      516

Durect Corp. (Æ)(Ñ)

    69,949      407

Gen-Probe, Inc. (Æ)

    12,780      895

Gentiva Health Services, Inc. (Æ)

    43,258      821

Haemonetics Corp. (Æ)

    18,956      974

Healthspring, Inc. (Æ)(Ñ)

    9,475      199

Henry Schein, Inc. (Æ)(Ñ)

    11,690      700

Hlth Corp. (Æ)(Ñ)

    19,215      271

Hologic, Inc. (Æ)

    6,989      475

Human Genome Sciences, Inc. (Æ)(Ñ)

    20,550      194

ICU Medical, Inc. (Æ)(Ñ)

    20,515      823

Idexx Laboratories, Inc. (Æ)

    20,393      2,483

ImClone Systems, Inc. (Æ)

    5,990      258

Intuitive Surgical, Inc. (Æ)

    2,040      667

Invitrogen Corp. (Æ)

    16,236      1,475

Kindred Healthcare, Inc. (Æ)(Ñ)

    10,425      221

KV Pharmaceutical Co.
Class A (Æ)(Ñ)

    53,733      1,684

Ligand Pharmaceuticals, Inc.
Class B (Ñ)

    24,975      134

Matria Healthcare, Inc. (Æ)(Ñ)

    18,810      483

Medical Action Industries, Inc. (Æ)(Ñ)

    37,282      766

Mentor Corp. (Ñ)

    4,000      170

Merit Medical Systems, Inc. (Æ)(Ñ)

    77,896      1,017

MGI Pharma, Inc. (Æ)

    20,140      656

Millennium Pharmaceuticals, Inc. (Æ)

    17,600      208

Nighthawk Radiology Holdings, Inc. (Æ)(Ñ)

    116,190      2,735

Omnicell, Inc. (Æ)

    8,150      215

Onyx Pharmaceuticals, Inc. (Æ)

    10,980      513

OSI Pharmaceuticals, Inc. (Æ)(Ñ)

    5,694      237

Par Pharmaceutical Cos., Inc. (Æ)(Ñ)

    38,791      715

PSS World Medical, Inc. (Æ)(Ñ)

    36,080      729

Quality Systems, Inc. (Ñ)

    12,990      471

Renovis, Inc. (Æ)(Ñ)

    37,600      133

Respironics, Inc. (Æ)

    18,650      934

Stericycle, Inc. (Æ)

    12,591      734

Sunrise Senior Living, Inc. (Æ)(Ñ)

    17,048      631

SurModics, Inc. (Æ)(Ñ)

    14,920      847

Symmetry Medical, Inc. (Æ)(Ñ)

    33,875      581

Techne Corp. (Æ)

    3,040      198

Thoratec Corp. (Æ)

    8,000      160

United Therapeutics Corp. (Æ)

    4,850      332
     Principal
Amount ($)
or Shares		      Market
Value
$

US Physical Therapy, Inc. (Æ)

    31,441      462

Viropharma, Inc. (Æ)(Ñ)

    15,275      131

Vital Signs, Inc.

    13,600      719

WebMD Health Corp. Class A (Æ)(Ñ)

    3,400      156

WellCare Health Plans, Inc. (Æ)(Ñ)

    4,120      100

Zoll Medical Corp. (Æ)

    11,060      271

Zymogenetics, Inc. (Æ)(Ñ)

    10,875      146
         
        36,778
         

Integrated Oils - 0.1%

        

Delta Petroleum Corp. (Æ)(Ñ)

    13,800      258
         

Materials and Processing - 7.8%

     

Acuity Brands, Inc.

    12,697      607

Apex Silver Mines, Ltd. (Æ)

    9,425      193

Apogee Enterprises, Inc. (Ñ)

    27,975      658

Arch Chemicals, Inc.

    5,780      264

Beacon Roofing Supply, Inc. (Æ)(Ñ)

    1,050      9

Brush Engineered Materials, Inc. (Æ)(Ñ)

    14,678      709

Buckeye Technologies, Inc. (Æ)

    12,300      220

Celanese Corp. Class A

    13,410      563

CF Industries Holdings, Inc.

    6,820      599

Clarcor, Inc. (Ñ)

    20,025      730

Coeur d’Alene Mines Corp. (Æ)(Ñ)

    41,925      166

Commercial Metals Co.

    22,448      704

Compass Minerals International, Inc. (Ñ)

    24,285      896

Cytec Industries, Inc.

    6,750      450

EnerSys (Æ)

    9,420      171

ENGlobal Corp. (Æ)

    79,485      1,103

Ennis, Inc. (Ñ)

    9,800      200

FMC Corp.

    7,960      458

GrafTech International, Ltd. (Æ)

    29,020      548

Graphic Packaging Corp. (Æ)(Ñ)

    32,560      160

HB Fuller Co.

    7,775      229

Hercules, Inc.

    19,600      369

Huntsman Corp.

    10,065      265

Interface, Inc. Class A

    10,710      205

Interline Brands, Inc. (Æ)

    6,950      166

Jacobs Engineering Group, Inc. (Æ)

    21,079      1,837

Lennox International, Inc.

    7,530      269

LSI Industries, Inc.

    48,872      924

MGP Ingredients, Inc. (Ñ)

    43,813      418

Minerals Technologies, Inc.

    3,835      269

NCI Building Systems, Inc. (Æ)(Ñ)

    3,500      137

Owens-Illinois, Inc. (Æ)

    11,310      502

Polypore International, Inc. (Æ)(Ñ)

    62,300      1,069

Tax-Managed Mid & Small Cap Fund   91

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Precision Castparts Corp.

    5,000      749

Rogers Corp. (Æ)(Ñ)

    4,580      225

RPM International, Inc.

    13,056      280

Shaw Group, Inc. (The) (Æ)

    8,870      662

Sonoco Products Co.

    8,910      276

Southern Copper Corp. (Ñ)

    4,050      566

Spartech Corp.

    8,230      126

Standard Register Co. (The) (Ñ)

    20,000      257

Terra Industries, Inc. (Æ)(Ñ)

    33,451      1,234

Texas Industries, Inc. (Ñ)

    5,500      402

Universal Forest Products, Inc. (Ñ)

    3,925      141

USG Corp. (Æ)(Ñ)

    6,077      242

Washington Group International, Inc. (Æ)

    2,981      290

Watsco, Inc. (Ñ)

    17,225      717
         
        22,234
         

Miscellaneous - 0.6%

        

Carlisle Cos., Inc.

    6,097      241

Foster Wheeler, Ltd. (Æ)

    6,545      970

Lancaster Colony Corp.

    5,150      207

Walter Industries, Inc. (Ñ)

    8,388      257
         
        1,675
         

Other Energy - 5.6%

        

Arch Coal, Inc. (Ñ)

    7,800      320

Basic Energy Services, Inc. (Æ)(Ñ)

    19,475      385

Core Laboratories NV (Æ)(Ñ)

    3,060      447

Encore Acquisition Co. (Æ)

    26,208      962

Exterran Holdings, Inc. (Æ)(Ñ)

    6,702      564

Forest Oil Corp. (Æ)(Ñ)

    26,091      1,268

Foundation Coal Holdings, Inc.

    22,255      951

Global Industries, Ltd. (Æ)

    31,019      764

Goodrich Petroleum Corp. (Æ)(Ñ)

    7,150      237

Grey Wolf, Inc. (Æ)(Ñ)

    38,735      218

Helix Energy Solutions Group, Inc. (Æ)(Ñ)

    21,225      982

Hercules Offshore, Inc. (Æ)

    10,450      283

Hornbeck Offshore Services, Inc. (Æ)(Ñ)

    6,565      257

International Coal Group, Inc. (Æ)(Ñ)

    139,778      752

Lufkin Industries, Inc. (Ñ)

    3,130      186

Oil States International, Inc. (Æ)(Ñ)

    6,815      294

Parker Drilling Co. (Æ)(Ñ)

    31,395      265

Peabody Energy Corp.

    13,600      758

PetroHawk Energy Corp. (Æ)

    17,320      320

Plains Exploration & Production Co. (Æ)(Ñ)

    9,947      507
     Principal
Amount ($)
or Shares		      Market
Value
$

Range Resources Corp.

    20,925      940

Southwestern Energy Co. (Æ)

    16,670      862

Stone Energy Corp. (Æ)

    7,700      343

Tesoro Corp.

    19,240      1,165

W-H Energy Services, Inc. (Æ)

    10,650      613

Whiting Petroleum Corp. (Æ)

    20,587      1,113

Willbros Group, Inc. (Æ)

    5,525      211
         
        15,967
         

Producer Durables - 7.6%

        

Ametek, Inc.

    10,600      498

Applied Industrial Technologies, Inc.

    8,810      312

AZZ, Inc. (Æ)

    3,900      133

BE Aerospace, Inc. (Æ)

    15,858      788

Beazer Homes USA, Inc. (Ñ)

    9,225      104

C&D Technologies, Inc. (Æ)(Ñ)

    89,443      431

Champion Enterprises, Inc. (Æ)(Ñ)

    80,309      953

Covanta Holding Corp. (Æ)(Ñ)

    8,670      235

Crown Castle International Corp. (Æ)

    10,950      450

Dionex Corp. (Æ)(Ñ)

    6,300      554

Donaldson Co., Inc.

    23,464      1,006

EnPro Industries, Inc. (Æ)(Ñ)

    19,250      789

Entegris, Inc. (Æ)

    18,480      169

ESCO Technologies, Inc. (Æ)(Ñ)

    3,925      162

FEI Co. (Æ)(Ñ)

    5,525      160

Flowserve Corp.

    4,980      393

General Cable Corp. (Æ)(Ñ)

    29,505      2,124

Hovnanian Enterprises, Inc.
Class A (Æ)(Ñ)

    9,475      108

IDEX Corp.

    16,737      593

Kadant, Inc. (Æ)

    16,550      537

Kennametal, Inc.

    17,005      1,551

Lennar Corp. Class A (Ñ)

    6,700      153

Littelfuse, Inc. (Æ)

    5,680      181

MasTec, Inc. (Æ)(Ñ)

    10,525      166

MDC Holdings, Inc. (Ñ)

    4,807      195

Middleby Corp. (Æ)(Ñ)

    14,890      970

Mueller Water Products, Inc. Class B

    12,827      136

Orbital Sciences Corp. (Æ)(Ñ)

    11,591      296

Pentair, Inc.

    8,700      308

Polycom, Inc. (Æ)

    21,295      596

Robbins & Myers, Inc.

    22,987      1,662

Roper Industries, Inc.

    7,450      528

SBA Communications Corp.
Class A (Æ)

    18,150      646

Standard-Pacific Corp. (Ñ)

    12,450      60

TAL International Group, Inc. (Ñ)

    23,500      555

Tennant Co.

    23,175      1,093

92   Tax-Managed Mid & Small Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Terex Corp. (Æ)

    13,140      975

Varian Semiconductor Equipment Associates, Inc. (Æ)

    18,356      845
         
        21,415
         

Technology - 13.7%

        

3Com Corp. (Æ)

    50,045      244

American Science & Engineering, Inc. (Ñ)

    14,626      884

Anadigics, Inc. (Æ)(Ñ)

    22,210      328

Anixter International, Inc. (Æ)(Ñ)

    10,030      721

Ansys, Inc. (Æ)

    18,720      727

Atheros Communications, Inc. (Æ)(Ñ)

    14,620      513

Avnet, Inc. (Æ)

    9,335      390

BEA Systems, Inc. (Æ)(Ñ)

    27,925      472

Benchmark Electronics, Inc. (Æ)

    50,862      1,043

Black Box Corp.

    4,436      177

BMC Software, Inc. (Æ)

    12,450      421

CACI International, Inc.
Class A (Æ)(Ñ)

    21,988      1,184

Cavium Networks, Inc. (Æ)(Ñ)

    7,880      229

Cbeyond, Inc. (Æ)(Ñ)

    10,940      428

Ciena Corp. (Æ)

    14,220      681

Cognizant Technology Solutions Corp. Class A (Æ)

    6,000      249

CSG Systems International, Inc. (Æ)

    6,573      135

Diodes, Inc. (Æ)(Ñ)

    29,338      970

Electronics for Imaging, Inc. (Æ)

    40,675      927

Emulex Corp. (Æ)

    49,648      1,075

EPIQ Systems, Inc. (Æ)(Ñ)

    40,072      777

F5 Networks, Inc. (Æ)

    29,770      1,073

Fairchild Semiconductor International, Inc. (Æ

    26,875      491

Flir Systems, Inc. (Æ)

    6,570      456

Formfactor, Inc. (Æ)

    6,249      244

Foundry Networks, Inc. (Æ)

    49,150      1,039

GTSI Corp. (Æ)(Ñ)

    44,268      492

Harris Corp.

    3,880      235

Informatica Corp. (Æ)

    159,739      2,728

Intersil Corp. Class A

    10,130      307

Kemet Corp. (Æ)(Ñ)

    23,005      163

Lattice Semiconductor Corp. (Æ)

    28,860      121

LSI Corp. (Æ)

    40,609      268

Macrovision Corp. (Æ)(Ñ)

    105,135      2,523

Mantech International Corp.
Class A (Æ)

    26,783      1,065

Mentor Graphics Corp. (Æ)

    28,050      449

Microchip Technology, Inc.

    13,250      440
     Principal
Amount ($)
or Shares		      Market
Value
$

Netgear, Inc. (Æ)

    6,525      231

Omniture, Inc. (Æ)

    13,380      457

Omnivision Technologies, Inc. (Æ)(Ñ)

    9,250      205

ON Semiconductor Corp. (Æ)(Ñ)

    33,545      342

Parametric Technology Corp. (Æ)

    29,835      570

Perot Systems Corp. Class A (Æ)(Ñ)

    51,525      752

Plexus Corp. (Æ)

    7,375      190

Progress Software Corp. (Æ)

    35,500      1,161

RF Micro Devices, Inc. (Æ)(Ñ)

    28,800      179

Salesforce.com, Inc. (Æ)

    8,930      503

SanDisk Corp. (Æ)

    3,510      156

Silicon Laboratories, Inc. (Æ)

    11,290      493

SiRF Technology Holdings, Inc. (Æ)(Ñ)

    52,280      1,559

Sonus Networks, Inc. (Æ)(Ñ)

    103,380      713

Sunpower Corp. Class A (Æ)(Ñ)

    6,430      813

Sycamore Networks, Inc. (Æ)(Ñ)

    55,830      238

Syntel, Inc. (Ñ)

    6,416      273

Varian, Inc. (Æ)

    13,151      972

Veraz Networks, Inc. (Æ)(Ñ)

    78,926      633

VeriFone Holdings, Inc. (Æ)

    14,440      714

Vignette Corp. (Æ)

    9,077      157

Zebra Technologies Corp.
Class A (Æ)(Ñ)

    76,756      3,000
         
        38,980
         

Utilities - 4.0%

        

Alaska Communications Systems Group, Inc. (Ñ)

    101,334      1,649

Black Hills Corp. (Ñ)

    15,675      696

Cablevision Systems Corp.
Class A (Æ)

    3,775      111

Central Vermont Public Service Corp. (Ñ)

    6,600      210

Cleco Corp. (Ñ)

    30,338      799

El Paso Electric Co. (Æ)

    31,030      756

Empire District Electric Co. (The)

    7,200      173

Great Plains Energy, Inc. (Ñ)

    9,600      286

Level 3 Communications, Inc. (Æ)(Ñ)

    88,695      269

NeuStar, Inc. Class A (Æ)(Ñ)

    78,263      2,677

New Jersey Resources Corp. (Ñ)

    5,455      269

Northwest Natural Gas Co. (Ñ)

    4,175      201

NorthWestern Corp.

    13,675      377

NSTAR

    9,261      326

Otter Tail Corp. (Ñ)

    5,290      183

PNM Resources, Inc. (Ñ)

    18,925      473

Puget Energy, Inc.

    8,190      231

SCANA Corp.

    8,870      360

Tax-Managed Mid & Small Cap Fund   93

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$		  
       

Southwest Gas Corp.

    8,940      266  

Telephone & Data Systems, Inc.

    5,915      413  

Wisconsin Energy Corp.

    11,400      546  
           
        11,271  
           
Total Common Stocks        

(cost $203,776)

         262,379  
           

Short-Term Investments - 7.5%

        

Russell Investment Company
Money Market Fund

    20,235,000      20,235  

United States Treasury Bills (ç)(z)(§) 3.650% due 12/20/07

    1,000      995  
           
Total Short-Term Investments        

(cost $21,230)

         21,230  
           
Other Securities - 32.2%        

Russell Investment Company
Money Market Fund (×)

    20,641,254      20,641  

State Street Securities Lending
Quality Trust (×)

    70,704,229      70,704  
           
Total Other Securities        

(cost $91,345)

         91,345  
           
Total Investments - 132.2%        

(identified cost $316,351)

         374,954  
Other Assets and Liabilities, Net - (32.2%)         (91,405 )
           
Net Assets - 100.0%         283,549  
           

 


 

See accompanying notes which are an integral part of the financial statements.

94   Tax-Managed Mid & Small Cap Fund

Table of Contents

Russell Investment Company

Tax-Managed Mid & Small Cap Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Futures Contracts
(Number of Contracts)		   

Notional
Amount

    Unrealized
Appreciation
(Depreciation)
$
        

Long Positions

         

Russell 2000 Mini Index (CME)
expiration date 12/07 (256)

    USD    21,307    811
          

Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts

       811
          

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  

Auto and Transportation

    4.7  

Consumer Discretionary

    18.1  

Consumer Staples

    2.4  

Financial Services

    14.9  

Health Care

    13.0  

Integrated Oils

    0.1  

Materials and Processing

    7.8  

Miscellaneous

    0.6  

Other Energy

    5.6  

Producer Durables

    7.6  

Technology

    13.7  

Utilities

    4.0  

Short-Term Investments

    7.5  

Other Securities

    32.2  
      

Total Investments

    132.2  

Other Assets and Liabilities, Net

    (32.2 )
      
   100.0  
      

Futures Contracts

    0.3  

 

See accompanying notes which are an integral part of the financial statements.

Tax-Managed Mid & Small Cap Fund   95

Table of Contents

Russell Investment Company

Select Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Select Growth Fund - Class I  
         

Total

Return

  

1 Year

       18.25 %

5 Years

       13.29 %§

Inception *

       -0.02 %§

 

Select Growth Fund - Class S

  
          Total
Return		  

1 Year

       18.14 %

5 Years

       13.14 %§

Inception *

       -0.15 %§

 

Select Growth Fund - Class E

  
          Total
Return		  

1 Year

       17.82 %

5 Years

       12.85 %§

Inception *

       -0.42 %§

Select Growth Fund - Class C

 
          Total
Return		  

1 Year

       16.96 %

5 Years

       11.89 %§

Inception *

       -1.28 %§

 

Russell 1000® Growth Index **

 
          Total
Return		  

1 Year

       19.22 %

5 Years

       12.61 %§

Inception *

       -0.14 %§

96   Select Growth Fund

Table of Contents

Russell Investment Company

Select Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Select Growth Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has six money managers.

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, 2007.

For the fiscal year ended October 31, 2007, the Select Growth Fund Class C, Class E, Class I and Class S Shares gained 16.96%, 17.82%, 18.25% and 18.14% respectively. This compared to the Russell 1000® Growth Index, which gained 19.22% 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, 2007, the Lipper® Large-Cap Growth Funds Average returned 21.63%. For the same period, the Lipper Multi-Cap Growth Funds Average returned 23.57%. These results serve as peer comparisons and are expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

The Fund’s sector positioning was unfavorable during the fiscal year ending October 31, 2007. The Fund’s underweight in materials and processing stocks detracted from performance as the sector (the top performer in the Russell 1000® Growth Index over this period) benefited from global demand, particularly from China and other emerging market countries that continued to develop their infrastructure. The Fund’s underweight to energy and commodity-oriented stocks in general detracted from performance. These stocks continued to perform strongly, benefiting from both global demand and, in the case of energy, record-high oil prices. Overweights in the consumer discretionary and financial services sectors also had a negative impact on performance, as concern about consumer spending grew due to rising energy prices and the developments in the subprime lending market.

 

Money manager stock selection had a positive impact on performance. In a reversal of what occurred in 2006, the market returned to rewarding earnings and the Fund’s overweight to companies with higher growth rates, higher valuations, and lower dividend yields contributed positively to the Fund’s fiscal 2007 performance. Stock selection was strongest in the consumer discretionary sector over the fiscal year, but weak in the slower-growing consumer staples sector. Finally, while it has been greatly reduced over the course of the year on a tactical basis, an out-of-benchmark exposure to microcap stocks had a negative impact on performance as those stocks underperformed both large cap and small cap stocks.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Two of the Fund’s large cap managers had difficulty due to the adverse factor environment, particularly in the first part of the period, which favored commodity-oriented stocks. Sustainable Growth Advisers, LP and Delaware Management Company both trailed the Fund’s benchmark due to their more stable, consistent growth focused strategies, which kept them out of energy and other commodity-oriented stocks. Delaware was able to make up the lost ground for the period while Sustainable Growth Advisers was not.

In a reversal from 2006, the Fund’s emphasis on companies experiencing positive earnings surprises and revisions allowed the Fund to capitalize on the market once again rewarding earnings growth. Stocks with higher growth and higher momentum, two of the Fund’s main overweights, generally performed better, but it was later in the fiscal year that momentum really gained favor. The Fund benefited from manager stock selection in the consumer discretionary (particularly gaming stocks) and financial services sectors, as well as an underweight in utilities. The Fund’s underweight to earnings variability and the more commodity-oriented sectors that led the Index over the past year was the main detractor from performance during the period.

In addition to its underweight in the materials and processing and other energy sectors, Sustainable Growth Adviser’s underweight in technology stocks was a major detractor from performance. Stock selection was weakest in the consumer discretionary (restaurants and retail) and consumer staples sectors. The biggest positive contributors to their performance were an overweight in the other sector and a zero weight in utilities.

Despite difficulty in the first half of the year due to a lack of exposure to more commodity oriented companies and unfavorable sector weights, particularly an overweight in the consumer discretionary sector and a zero weight in the other energy sector, Delaware outperformed for the period on the


Select Growth Fund   97

Table of Contents

Russell Investment Company

Select Growth Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

strength of its stock selection. Stock selection was strongest in the consumer discretionary (gaming), financial services (brokerages), and technology (communications technology) sectors. After a difficult 2006, Delaware’s highly concentrated portfolio of stocks with high expected long-term growth prospects fared much better in 2007, particularly from May onward.

Fuller & Thaler underperformed its microcap benchmark (the Russell Microcap® Index which returned 5.05% for the year) due to weak stock selection in the technology, producer durables, and materials and processing sectors. An overweight in the consumer discretionary sector also detracted from performance. An underweight in financial services stocks contributed to performance, along with strong stock selection in the health care and autos and transportation sectors.

Turner Investment Partners, Inc. performed well over the entire period. Turner outperformed on the strength of its health care (biotech and pharmaceuticals), technology (communications), and consumer discretionary (retail) stock selection. Focusing on high earnings and price momentum, Turner’s process was much more in favor in 2007 as the earnings and price momentum factor was rewarded by the market.

Cornerstone Capital Management, Inc. added significant value since being added to the Fund in May 2007. Cornerstone benefited most from strong stock selection in the consumer discretionary sector. In that sector, stock selection in the gaming industry contributed the most to performance. Cornerstone’s overweight in technology stocks also contributed positively to its outperformance, while the biggest detractor was its stock selection in the materials and processing sector.

Suffolk Capital Management, LLC was added to the Fund in September, but underperformed for the short period from when it was added to the end of the fiscal year. During its short time in the Fund, Suffolk’s stock selection in the technology (semiconductors and software), producer durables, and other energy sectors detracted from performance.

 

Describe any changes to the Fund’s structure or the money manager line-up.

In March of 2007, pursuant to an asset purchase agreement with CapitalWorks Investment Partners, LLC, the CapitalWorks Investment Team became Berkeley Capital Management, LLP. Suffolk was hired to replace Berkeley Capital Management, LLP in September 2007. Given that this reduced the small-cap exposure within the Fund, Turner’s benchmark was changed from the Russell Top 200® Growth Index to the Russell 1000® Growth Index. Ark Asset Management Company, Inc. was replaced by Cornerstone in May 2007. As mentioned previously, the weight in micro-cap stocks (Fuller & Thaler) was also tactically reduced during the period given the outperformance of smaller-cap stocks over the last several years.

 

Money Managers as of
October 31, 2007		    Styles

Cornerstone Capital Management, Inc.

    Growth

Delaware Management Company, a series of Delaware Management Business Trust

    Growth

Fuller & Thaler Asset Management, Inc.

    Blend

Suffolk Capital Management, LLC

    Growth

Sustainable Growth Advisers, LP

    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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Commenced operations on January 31, 2001.

 

**

  

The Russell 1000® Growth Index measures the performance of those Russell 1000® Index companies with higher price-to-book ratios and higher forecasted growth values.

 

§   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.

98   Select Growth Fund

Table of Contents

Russell Investment Company

Select Growth Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,115.60    $ 1,013.86

Expenses Paid During Period*

    $ 12.00    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,119.80    $ 1,018.35

Expenses Paid During Period*

    $ 7.27    $ 6.92

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.36% (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.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,121.40    $ 1,019.91

Expenses Paid During Period*

    $ 5.61    $ 5.35

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.05% (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   99

Table of Contents

Russell Investment Company

Select Growth Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,121.20    $ 1,019.31

Expenses Paid During Period*

    $ 6.26    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

100   Select Growth Fund

Table of Contents

Russell Investment Company

Select Growth Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)
or Shares

     

Market

Value
$

       

Common Stocks - 95.7%

        

Auto and Transportation - 2.9%

     

Amerigon, Inc. (Æ)(Ñ)

    5,276      104

Arctic Cat, Inc. (Ñ)

    2,900      42

CH Robinson Worldwide, Inc. (Ñ)

    14,650      731

Expeditors International Washington, Inc.

    33,100      1,676

FedEx Corp.

    13,200      1,364

Goodyear Tire & Rubber Co. (The) (Æ)(Ñ)

    17,800      537

Mesa Air Group, Inc. (Æ)(Ñ)

    11,600      54

United Parcel Service, Inc. Class B

    22,000      1,652
         
        6,160
         

Consumer Discretionary - 17.3%

     

Activision, Inc. (Æ)

    16,420      388

AFC Enterprises (Æ)(Ñ)

    3,100      41

Amazon.com, Inc. (Æ)(Ñ)

    9,900      883

Apollo Group, Inc. Class A (Æ)(Ñ)

    6,800      539

Autobytel, Inc. (Æ)(Ñ)

    15,500      40

Buca, Inc. (Æ)(Ñ)

    12,200      31

Carmax, Inc. (Æ)(Ñ)

    27,842      581

Coach, Inc. (Æ)

    19,144      700

Cost Plus, Inc. (Æ)(Ñ)

    12,200      36

Costco Wholesale Corp.

    10,300      693

Deckers Outdoor Corp. (Æ)(Ñ)

    900      126

dELiA*s, Inc. (Æ)(Ñ)

    7,800      26

Design Within Reach, Inc. (Æ)(Ñ)

    9,100      36

Dick’s Sporting Goods, Inc. (Æ)(Ñ)

    19,007      634

DTS, Inc. (Æ)(Ñ)

    3,000      85

eBay, Inc. (Æ)

    83,152      3,002

Electronic Arts, Inc. (Æ)(Ñ)

    23,700      1,449

Fastenal Co. (Ñ)

    30,761      1,368

GameStop Corp. Class A (Æ)

    9,900      586

Google, Inc. Class A (Æ)

    9,409      6,652

Gray Television, Inc. (Ñ)

    7,600      72

Guess ?, Inc. (Ñ)

    7,750      398

International Game Technology (Ñ)

    48,200      2,102

Jamba, Inc. (Æ)(Ñ)

    6,800      37

JC Penney Co., Inc. (Ñ)

    22,706      1,277

Kohl’s Corp. (Æ)(Ñ)

    9,300      511

Las Vegas Sands Corp. (Æ)(Ñ)

    11,290      1,502

Leapfrog Enterprises, Inc. Class A (Æ)(Ñ)

    12,100      91

Lowe’s Cos., Inc. (Ñ)

    37,400      1,006

MGM Mirage (Æ)

    19,000      1,741

Multimedia Games, Inc. (Æ)(Ñ)

    6,800      60

Revlon, Inc. Class A (Æ)(Ñ)

    46,100      53
    

Principal

Amount ($)
or Shares

     

Market

Value
$

Shutterfly, Inc. (Æ)(Ñ)

    4,000      134

Stamps.com, Inc. (Æ)(Ñ)

    3,900      54

Staples, Inc. (Ñ)

    141,700      3,307

Starbucks Corp. (Æ)

    35,500      947

Under Armour, Inc. Class A (Æ)

    4,452      277

Valuevision Media, Inc. Class A (Æ)(Ñ)

    6,000      31

VeriSign, Inc. (Æ)(Ñ)

    21,500      733

Viacom, Inc. Class B (Æ)

    6,500      268

Wal-Mart Stores, Inc.

    26,800      1,212

Walt Disney Co. (The) (Ñ)

    25,096      869

Weight Watchers International, Inc. (Ñ)

    25,000      1,281

Wilsons The Leather Experts, Inc. (Æ)(Ñ)

    13,894      20

Yahoo!, Inc. (Æ)(Ñ)

    16,000      498

Youbet.com, Inc. (Æ)(Ñ)

    26,300      31

Yum! Brands, Inc. (Ñ)

    9,630      388
         
        36,796
         

Consumer Staples - 8.3%

        

Coca-Cola Co. (The) (Ñ)

    54,554      3,369

Colgate-Palmolive Co.

    14,146      1,079

Diageo PLC - ADR

    9,137      838

Diamond Foods, Inc. (Ñ)

    4,600      100

Kraft Foods, Inc. Class A (Ñ)

    14,200      474

Molson Coors Brewing Co. Class B (Ñ)

    7,400      423

Monterey Gourmet Foods, Inc. (Æ)

    5,948      23

PepsiCo, Inc.

    42,900      3,163

Procter & Gamble Co.

    54,600      3,796

Sysco Corp.

    23,200      796

Walgreen Co. (Ñ)

    61,400      2,435

Whole Foods Market, Inc. (Ñ)

    21,400      1,060
         
        17,556
         

Financial Services - 10.4%

        

American Express Co.

    3,300      201

American International Group, Inc.

    17,500      1,105

AON Corp. (Ñ)

    12,320      558

Automatic Data Processing, Inc.

    28,200      1,398

Blackstone Group, LP (The) (Æ)(Ñ)

    27,410      697

CBRE Realty Finance, Inc. (ö)(Ñ)

    8,000      39

Citigroup, Inc. (Ñ)

    11,900      499

CME Group, Inc. Class A (Ñ)

    4,350      2,898

eHealth, Inc. (Æ)(Ñ)

    3,600      101

Endurance Specialty Holdings, Ltd. (Ñ)

    30,759      1,206

Goldman Sachs Group, Inc. (The) (Ñ)

    6,914      1,714

GSC Investment Corp.

    4,300      50

Select Growth Fund   101

Table of Contents

Russell Investment Company

Select Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)
or Shares

     

Market

Value
$

       

IntercontinentalExchange, Inc. (Æ)(Ñ)

    20,783      3,704

Mastercard, Inc. Class A

    2,600      493

Merrill Lynch & Co., Inc. (Ñ)

    9,732      642

Morgan Stanley (Ñ)

    7,800      525

Paychex, Inc.

    41,200      1,721

Pico Holdings, Inc. (Æ)(Ñ)

    2,000      82

Reuters Group PLC - ADR

    12,000      999

SLM Corp.

    3,992      188

State Street Corp.

    16,800      1,340

Western Union Co. (The)

    81,283      1,791
         
        21,951
         

Health Care - 16.7%

        

Albany Molecular Research, Inc. (Æ)(Ñ)

    3,200      58

Allergan, Inc.

    40,350      2,727

Baxter International, Inc.

    15,680      941

Cardinal Health, Inc.

    7,600      517

Celgene Corp. (Æ)(Ñ)

    27,617      1,823

Cerus Corp. (Æ)

    8,200      74

Cooper Cos., Inc. (The) (Ñ)

    4,400      185

Covance, Inc. (Æ)

    2,206      182

CVS Caremark Corp.

    32,100      1,341

Cynosure, Inc. Class A (Æ)(Ñ)

    3,200      122

Dentsply International, Inc.

    6,400      265

Discovery Laboratories, Inc. (Æ)(Ñ)

    13,400      33

Dov Pharmaceutical, Inc. (Æ)

    24,800      5

Genentech, Inc. (Æ)

    25,200      1,868

Genzyme Corp. (Æ)(Ñ)

    25,490      1,936

Gilead Sciences, Inc. (Æ)

    57,910      2,675

GTx, Inc. (Æ)(Ñ)

    3,400      54

Hi-Tech Pharmacal Co., Inc. (Æ)(Ñ)

    4,282      45

Human Genome Sciences, Inc. (Æ)(Ñ)

    36,200      342

Intuitive Surgical, Inc. (Æ)

    2,060      673

Johnson & Johnson

    26,800      1,747

Medco Health Solutions, Inc. (Æ)

    7,600      717

Medtronic, Inc. (Ñ)

    61,112      2,899

Merck & Co., Inc.

    45,844      2,671

Nabi Biopharmaceuticals (Æ)(Ñ)

    11,700      45

Obagi Medical Products, Inc. (Æ)(Ñ)

    5,900      129

OXiGENE, Inc. (Æ)(Ñ)

    6,400      20

Questcor Pharmaceuticals, Inc. (Æ)(Ñ)

    26,200      36

Schering-Plough Corp.

    47,448      1,448

Sequenom, Inc. (Æ)(Ñ)

    13,200      128

Shire PLC - ADR

    6,230      468

Spectranetics Corp. (Æ)(Ñ)

    4,300      69

Stryker Corp. (Ñ)

    11,600      824

Teva Pharmaceutical Industries,
Ltd. - ADR

    70,427      3,099
    

Principal

Amount ($)
or Shares

     

Market

Value
$

Thermo Fisher Scientific, Inc. (Æ)(Ñ)

    21,220      1,248

Titan Pharmaceuticals, Inc. (Æ)(Ñ)

    13,300      27

UnitedHealth Group, Inc.

    43,900      2,158

Vertex Pharmaceuticals, Inc. (Æ)

    5,300      171

Wyeth

    3,000      146

Zimmer Holdings, Inc. (Æ)

    21,000      1,459
         
        35,375
         

Integrated Oils - 0.3%

        

Exxon Mobil Corp.

    5,900      543

Hess Corp.

    700      50
         
        593
         

Materials and Processing - 4.2%

     

Agrium, Inc.

    5,400      343

Archer-Daniels-Midland Co. (Ñ)

    56,255      2,013

Bunge, Ltd. (Ñ)

    3,600      415

California Coastal Communities,
Inc. (Æ)(Ñ)

    3,200      31

Cytec Industries, Inc. (Ñ)

    4,600      307

Ecolab, Inc. (Ñ)

    12,400      585

Exide Technologies (Æ)(Ñ)

    12,300      103

Grubb & Ellis Co. (Æ)(Ñ)

    5,400      46

Housevalues, Inc. (Æ)(Ñ)

    12,300      48

Immunogen, Inc. (Æ)(Ñ)

    10,900      53

Landec Corp. (Æ)(Ñ)

    7,100      105

McDermott International, Inc. (Æ)

    5,510      336

Monsanto Co.

    15,200      1,484

Nucor Corp.

    11,450      710

Polypore International, Inc. (Æ)

    1,300      22

Praxair, Inc.

    21,000      1,795

Rohm & Haas Co. (Ñ)

    10,400      540

Valence Technology, Inc. (Æ)(Ñ)

    19,300      36
         
        8,972
         

Miscellaneous - 2.6%

        

3M Co.

    8,546      738

ABB, Ltd. - ADR

    25,120      759

General Electric Co.

    66,100      2,721

Textron, Inc.

    19,831      1,372
         
        5,590
         

Other Energy - 3.1%

        

Apache Corp.

    19,353      2,009

Cameron International Corp. (Æ)(Ñ)

    8,300      808

Consol Energy, Inc.

    12,400      701

Diamond Offshore Drilling, Inc. (Ñ)

    4,410      499

FMC Technologies, Inc. (Æ)(Ñ)

    4,500      273

Halliburton Co. (Ñ)

    10,000      394

102   Select Growth Fund

Table of Contents

Russell Investment Company

Select Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)
or Shares

     

Market

Value
$

       

Petroquest Energy, Inc. (Æ)(Ñ)

    6,900      89

Schlumberger, Ltd.

    4,000      386

Sunoco, Inc.

    8,369      616

Toreador Resources Corp. (Æ)(Ñ)

    5,300      56

XTO Energy, Inc.

    11,320      751
         
        6,582
         

Producer Durables - 4.2%

        

Applied Materials, Inc.

    58,110      1,129

Boeing Co.

    9,172      904

Credence Systems Corp. (Æ)(Ñ)

    20,100      61

Crown Castle International Corp. (Æ)(Ñ)

    36,100      1,483

Deere & Co.

    7,887      1,222

Eddie Bauer Holdings, Inc. (Æ)(Ñ)

    6,000      45

EFJ, Inc. (Æ)(Ñ)

    10,200      33

Electroglas, Inc. (Æ)(Ñ)

    10,900      23

Joy Global, Inc. (Ñ)

    14,911      866

Nokia OYJ - ADR

    9,400      373

Roper Industries, Inc.

    8,350      591

Terex Corp. (Æ)(Ñ)

    30,135      2,237
         
        8,967
         

Technology - 25.0%

        

Actuate Corp. (Æ)(Ñ)

    9,900      87

Adobe Systems, Inc. (Æ)

    14,322      686

Apple, Inc. (Æ)

    22,057      4,190

Applera Corp. - Applied Biosystems Group

    11,900      442

AsiaInfo Holdings, Inc. (Æ)(Ñ)

    11,700      143

AU Optronics Corp. - ADR (Ñ)

    25,300      550

AuthenTec, Inc. (Æ)

    1,200      19

Avistar Communications Corp. (Æ)

    29,800      25

Bottomline Technologies, Inc. (Æ)(Ñ)

    6,600      106

Broadcom Corp. Class A (Æ)(Ñ)

    22,100      719

Callidus Software, Inc. (Æ)(Ñ)

    1,900      14

Captaris, Inc. (Æ)(Ñ)

    9,200      43

Catapult Communications Corp. (Æ)(Ñ)

    6,000      45

Centillium Communications, Inc. (Æ)(Ñ)

    16,126      25

Chordiant Software, Inc. (Æ)(Ñ)

    6,400      92

Cisco Systems, Inc. (Æ)

    137,032      4,530

Citrix Systems, Inc. (Æ)

    6,880      296

Corning, Inc.

    114,534      2,780

EMC Corp. (Æ)(Ñ)

    19,300      490

Evolving Systems, Inc. (Æ)(Ñ)

    11,600      21

Extreme Networks (Æ)(Ñ)

    24,200      106

Hewlett-Packard Co.

    10,200      527
    

Principal

Amount ($)
or Shares

     

Market

Value
$

Immersion Corp. (Æ)(Ñ)

    6,700      108

Integrated Silicon Solutions, Inc. (Æ)

    3,400      23

Intel Corp.

    141,546      3,808

International Business Machines Corp. (Ñ)

    6,100      708

Intuit, Inc. (Æ)

    60,000      1,930

Iomega Corp. (Æ)(Ñ)

    10,600      42

JDS Uniphase Corp. (Æ)(Ñ)

    60,132      918

Juniper Networks, Inc. (Æ)(Ñ)

    19,150      689

Magma Design Automation, Inc. (Æ)(Ñ)

    5,400      80

MathStar, Inc. (Æ)(Ñ)

    20,100      22

Maxim Integrated Products, Inc.

    18,500      501

MEMC Electronic Materials, Inc. (Æ)(Ñ)

    29,153      2,135

Merge Technologies, Inc. (Æ)(Ñ)

    5,800      11

Microsoft Corp. (Ñ)

    165,579      6,095

Microtune, Inc. (Æ)(Ñ)

    9,900      60

Napster, Inc. (Æ)(Ñ)

    14,300      47

National Semiconductor Corp. (Ñ)

    16,000      402

ON Semiconductor Corp. (Æ)(Ñ)

    42,300      431

Optium Corp. (Æ)(Ñ)

    6,100      65

Oracle Corp. (Æ)

    109,705      2,432

Packeteer, Inc. (Æ)(Ñ)

    11,900      103

Pericom Semiconductor Corp. (Æ)

    3,200      49

Phoenix Technologies, Ltd. (Æ)(Ñ)

    7,100      81

Pixelworks, Inc. (Æ)(Ñ)

    23,500      27

Planar Systems, Inc. (Æ)(Ñ)

    3,700      25

Qualcomm, Inc.

    104,971      4,485

Research In Motion, Ltd. (Æ)

    27,000      3,362

Safeguard Scientifics, Inc. (Æ)(Ñ)

    21,700      51

Salesforce.com, Inc. (Æ)(Ñ)

    9,310      525

SanDisk Corp. (Æ)(Ñ)

    35,772      1,588

SAP AG - ADR (Ñ)

    14,900      809

Seachange International, Inc. (Æ)(Ñ)

    11,200      70

Seagate Technology (Ñ)

    75,900      2,113

Secure Computing Corp. (Æ)(Ñ)

    14,700      146

Smith Micro Software, Inc. (Æ)(Ñ)

    5,400      83

Sunpower Corp. Class A (Æ)(Ñ)

    5,180      655

Telular Corp. (Æ)(Ñ)

    9,700      80

Teradata Corp. (Æ)

    44,100      1,258

Texas Instruments, Inc.

    12,400      404

Transwitch Corp. (Æ)(Ñ)

    30,400      36

Vignette Corp. (Æ)(Ñ)

    4,800      83

Vmware, Inc. Class A (Æ)(Ñ)

    4,600      574

Zhone Technologies, Inc. (Æ)(Ñ)

    38,900      54
         
        53,104
         

Select Growth Fund   103

Table of Contents

Russell Investment Company

Select Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)
or Shares

     

Market

Value
$

  
       

Utilities - 0.7%

        

China Mobile, Ltd. - ADR (Ñ)

    2,940      305  

MDU Communications International, Inc. (Æ)

    17,800      10  

Rogers Communications, Inc. Class B

    90      4  

Verizon Communications, Inc.

    27,200      1,253  
           
        1,572  
           
Total Common Stocks        

(cost $167,648)

         203,218  
           

Short-Term Investments - 4.3%

        

Russell Investment Company
Money Market Fund

    8,137,000      8,137  

United States Treasury Bills (ç)(z)(§)
3.650% due 12/20/07

    1,000      995  
           
Total Short-Term Investments        

(cost $9,132)

         9,132  
           
Other Securities - 25.9%        

Russell Investment Company
Money Market Fund (×)

    12,198,995      12,199  

State Street Securities Lending
Quality Trust (×)

    42,660,658      42,661  
           
Total Other Securities        

(cost $54,860)

         54,860  
           
Total Investments - 125.9%        

(identified cost $231,640)

         267,210  
Other Assets and Liabilities,
Net - (25.9%)		         (54,951 )
           
Net Assets - 100.0%         212,259  
           

 

See accompanying notes which are an integral part of the financial statements.

104   Select Growth Fund

Table of Contents

Russell Investment Company

Select Growth Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts

(Number of Contracts)

  

Notional

Amount

  

Unrealized

Appreciation

(Depreciation)
$

     
     

Long Positions

      

Nasdaq 100 E-Mini Index (CME)
expiration date 12/07 (32)

   USD   1,442   61

Nasdaq 100 Index (CME)
expiration date 12/07 (10)

   USD   2,253   228

S&P 500 E-Mini Index (CME) expiration date 12/07 (21)

   USD   1,633   27

S&P 500 Index (CME)
expiration date 12/07 (9)

   USD   3,499   20
       

Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts

     336
       

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of
Net
Assets		  
    

Auto and Transportation

      2.9  

Consumer Discretionary

      17.3  

Consumer Staples

      8.3  

Financial Services

      10.4  

Health Care

      16.7  

Integrated Oils

      0.3  

Materials and Processing

      4.2  

Miscellaneous

      2.6  

Other Energy

      3.1  

Producer Durables

      4.2  

Technology

      25.0  

Utilities

      0.7  

Short-Term Investments

      4.3  

Other Securities

      25.9  
        

Total Investments

      125.9  

Other Assets and Liabilities, Net

      (25.9 )
        
     100.0  
        

Futures Contracts

      0.2  

 

See accompanying notes which are an integral part of the financial statements.

Select Growth Fund   105

Table of Contents

Russell Investment Company

Select Value Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Select Value Fund - Class I

  
         

Total

Return

  

1 Year

       10.97 %

5 Years

       15.81 %§

Inception *

       7.05 %§

Select Value Fund - Class S

  
         

Total

Return

  

1 Year

       10.87 %

5 Years

       15.64 %§

Inception *

       6.90 %§

Select Value Fund - Class E

  
         

Total

Return

  

1 Year

       10.64 %

5 Years

       15.38 %§

Inception *

       6.65 %§
Select Value Fund - Class C  
         

Total

Return

  

1 Year

       9.73 %

5 Years

       14.41 %§

Inception *

       5.73 %§

Russell 1000® Value Index **

  
         

Total

Return

  

1 Year

       10.83 %

5 Years

       16.39 %§

Inception *

       7.89 %§

106   Select Value Fund

Table of Contents

Russell Investment Company

Select Value Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Select Value Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Select Value Fund Class C, Class E, Class I and Class S Shares gained 9.73%, 10.64%, 10.97% and 10.87%, respectively. This compared to the Russell 1000® Value Index, which gained 10.83% 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, 2007, the Lipper® Multi-Cap Value Funds Average returned 10.71%. 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?

As the difficulties in the housing and mortgage markets continued at the end of 2006 and early 2007, the managers in the Fund gradually increased their positions in mortgage related industries. This had a negative impact on performance as the weakness in these industries was exacerbated by the developments in the subprime lending market in the summer of 2007.

Although the strength in the price of oil had significant impact on various positions in the Fund, the net impact was close to neutral. The Fund was underweight in integrated oil stocks, particularly Exxon Mobil, which had very strong performance during the fiscal year. However, the Fund benefited from positions in the other energy sector, which included drilling, equipment and oil services stocks.

The Fund continues to be overweight relative to its benchmark in stocks with above average valuations and high trailing growth rates. This contributed positively to performance during the fiscal year. Additionally, stocks with lower or no dividend yields outperformed during the year, which also helped the Fund’s performance.

 

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Value managers tend to be contrarian, buying stocks that have underperformed and are selling at attractive valuations. The strong relative performance of deep value and high yielding stocks in recent years made those stocks less fundamentally attractive to value managers. With a tilt towards owning stocks with both attractive values and good growth prospects, the Fund’s money managers focused on higher growth, less defensive, and larger capitalization stocks. As a result, the Fund had a pronounced tilt toward stocks with higher growth characteristics selling at moderate valuations. Also, the Fund’s money managers avoided stocks with high dividend yields. These tilts contributed positively to the Fund’s performance during the fiscal year as the market favored higher growth, low dividend yield stocks.

Iridian Asset Management LLC and Systematic Financial Management, L.P. were the biggest positive contributors to Fund performance, significantly outperforming the Fund’s benchmark due to its exposure to high growth and low yield stocks, in addition to strong stock selection. Systematic also benefited from an emphasis on buying stocks with positive changes in analyst earnings estimates, a strategy that was rewarded during the fiscal year. JS Asset Management, LLC struggled during the middle of 2007 due to a large exposure to mortgage related stocks.

At the stock selection level, overweights in China Mobile Limited, Freeport-McMoRan, and National Oilwell Varco were the largest positive contributors to Fund performance, while an overweight in Countrywide Financial hurt performance. The Fund’s underweight in Exxon Mobil also detracted from results.

Describe any changes to the Fund’s structure or the money manager line-up.

In March, 2007, JS Asset Management, LLC was added to the Fund, replacing MFS Institutional Advisors, Inc. and Netols Asset Management, Inc.

 

 

Money Managers as of
October 31, 2007		   Styles

DePrince, Race & Zollo, Inc.

   Value

Iridian Asset Management LLC

   Value

JS Asset Management, LLC

   Value

Systematic Financial Management, L.P.

   Value

Select Value Fund   107

Table of Contents

Russell Investment Company

Select Value Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and

RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Commenced operations on January 31, 2001.

 

**

  

Russell 1000® Value Index measures the performance of those Russell 1000® Index securities with higher price-to-book ratios and higher forecasted growth values.

 

§   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.

108   Select Value Fund

Table of Contents

Russell Investment Company

Select Value Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 998.10    $ 1,014.67

Expenses Paid During Period*

    $ 10.53    $ 10.61

 

* Expenses are equal to the Fund’s annualized expense ratio of 2.09% (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).

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,002.90    $ 1,018.80

Expenses Paid During Period*

    $ 6.41    $ 6.46

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.27% (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).

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,003.70    $ 1,020.47

Expenses Paid During Period*

    $ 4.75    $ 4.79

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.94% (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).

Select Value Fund   109

Table of Contents

Russell Investment Company

Select Value Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,002.60    $ 1,019.96

Expenses Paid During Period*

    $ 5.25    $ 5.30

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.04% (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).

110   Select Value Fund

Table of Contents

Russell Investment Company

Select Value Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Common Stocks - 94.8%

        

Auto and Transportation - 1.6%

        

Ford Motor Co. (Æ)(Ñ)

    165,000      1,464

Magna International, Inc. Class A

    10,100      957

Navistar International Corp. (Æ)

    12,800      806

Polaris Industries, Inc. (Ñ)

    19,700      969

UAL Corp. (Æ)(Ñ)

    29,800      1,427

United Parcel Service, Inc. Class B

    19,900      1,495
         
        7,118
         

Consumer Discretionary - 9.5%

        

Big Lots, Inc. (Æ)(Ñ)

    19,200      460

Black & Decker Corp. (Ñ)

    15,200      1,367

Cinemark Holdings, Inc. (Ñ)

    52,600      905

Darden Restaurants, Inc.

    14,700      632

DIRECTV Group, Inc. (The) (Æ)

    224,280      5,939

Foot Locker, Inc.

    89,000      1,325

Gap, Inc. (The)

    128,800      2,434

Home Depot, Inc.

    48,800      1,538

Jack in the Box, Inc. (Æ)

    29,200      916

JC Penney Co., Inc.

    27,300      1,535

Jones Apparel Group, Inc. (Ñ)

    53,600      1,122

Kimberly-Clark Corp.

    15,900      1,127

Liberty Media Corp. - Capital Series A (Æ)

    31,070      3,883

Limited Brands, Inc.

    59,600      1,312

Macy’s, Inc.

    63,580      2,037

McDonald’s Corp. (Ñ)

    47,070      2,810

OfficeMax, Inc.

    48,500      1,535

Phillips-Van Heusen

    15,000      717

RR Donnelley & Sons Co.

    36,200      1,459

Snap-On, Inc.

    22,200      1,108

TJX Cos., Inc.

    22,300      645

Virgin Media, Inc.

    114,230      2,526

Wal-Mart Stores, Inc.

    50,500      2,283

Walt Disney Co. (The)

    34,900      1,209

Waste Management, Inc.

    56,300      2,049
         
        42,873
         

Consumer Staples - 5.2%

        

Altria Group, Inc.

    37,700      2,749

Campbell Soup Co.

    33,300      1,231

Clorox Co.

    40,400      2,528

ConAgra Foods, Inc.

    37,300      885

Hershey Co. (The) (Ñ)

    41,000      1,768

HJ Heinz Co.

    23,300      1,090

Kraft Foods, Inc. Class A

    62,100      2,075

Loews Corp. - Carolina Group

    18,700      1,604
    

Principal

Amount ($)

or Shares

     

Market

Value
$

McCormick & Co., Inc.

    30,700      1,075

Molson Coors Brewing Co.
Class B (Ñ)

    23,400      1,339

Pepsi Bottling Group, Inc.

    25,900      1,116

PepsiCo, Inc.

    14,800      1,091

Procter & Gamble Co.

    19,000      1,321

Safeway, Inc.

    11,200      381

Tyson Foods, Inc. Class A (Ñ)

    113,300      1,790

UST, Inc. (Ñ)

    23,500      1,253
         
        23,296
         

Financial Services - 24.7%

        

American International Group, Inc.

    21,100      1,332

Ameriprise Financial, Inc. (Ñ)

    15,600      982

Annaly Capital Management, Inc. (ö)

    97,000      1,658

AON Corp. (Ñ)

    33,300      1,509

Astoria Financial Corp. (Ñ)

    36,500      949

Automatic Data Processing, Inc.

    35,800      1,774

Bank of America Corp.

    126,480      6,106

Bank of New York Mellon Corp. (The)

    42,700      2,086

Cigna Corp.

    33,100      1,737

Citigroup, Inc.

    202,700      8,493

Colonial BancGroup, Inc. (The) (Ñ)

    54,600      1,047

Countrywide Financial Corp. (Ñ)

    154,200      2,393

Credit Suisse Group - ADR (Æ)

    30,820      2,087

Cullen/Frost Bankers, Inc. (Ñ)

    18,000      957

Federal National Mortgage Association (Ñ)

    137,250      7,829

Federated Investors, Inc. Class B (Ñ)

    26,600      1,144

First Horizon National Corp. (Ñ)

    23,800      621

Freddie Mac

    85,400      4,460

Genworth Financial, Inc. Class A

    134,268      3,666

Goldman Sachs Group, Inc. (The)

    7,600      1,884

H&R Block, Inc. (Ñ)

    45,500      992

Hartford Financial Services Group, Inc.

    15,800      1,533

Health Care REIT, Inc. (ö)(Ñ)

    37,800      1,674

iShares Russell 1000 Value Index Fund

    37,500      3,227

JPMorgan Chase & Co.

    190,860      8,970

Lehman Brothers Holdings, Inc. (Ñ)

    45,810      2,902

Lincoln National Corp.

    24,300      1,516

Marshall & Ilsley Corp.

    43,600      1,862

MBIA, Inc.

    22,700      977

Mercury General Corp. (Ñ)

    22,200      1,139

Morgan Stanley

    43,340      2,915

New York Community Bancorp, Inc. (Ñ)

    75,400      1,403

Select Value Fund   111

Table of Contents

Russell Investment Company

Select Value Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Northern Trust Corp.

    23,000      1,730

Paychex, Inc.

    24,400      1,019

PMI Group, Inc. (The) (Ñ)

    7,900      127

Prologis (ö)

    19,600      1,406

Protective Life Corp.

    27,200      1,166

Prudential Financial, Inc.

    18,100      1,751

Radian Group, Inc. (Ñ)

    66,900      842

Raymond James Financial, Inc.

    13,800      514

South Financial Group, Inc. (The) (Ñ)

    44,500      919

State Street Corp.

    18,310      1,461

SunTrust Banks, Inc.

    21,200      1,539

TCF Financial Corp. (Ñ)

    22,700      517

Travelers Cos., Inc. (The)

    31,700      1,655

Unum Group

    46,700      1,090

US Bancorp

    94,710      3,141

W Holding Co., Inc. (Ñ)

    230,600      484

Wachovia Corp.

    38,100      1,742

Washington Mutual, Inc. (Ñ)

    125,100      3,488

Wells Fargo & Co.

    97,340      3,311

Wilmington Trust Corp. (Ñ)

    40,100      1,458
         
        111,184
         

Health Care - 7.1%

        

Amgen, Inc. (Æ)

    71,030      4,128

Biogen Idec, Inc. (Æ)

    41,335      3,077

Bristol-Myers Squibb Co.

    117,600      3,527

Eli Lilly & Co.

    18,600      1,007

Genzyme Corp. (Æ)

    69,840      5,306

Humana, Inc. (Æ)

    21,800      1,634

Invitrogen Corp. (Æ)

    18,200      1,654

Johnson & Johnson

    33,100      2,157

Medco Health Solutions, Inc. (Æ)

    11,200      1,057

Merck & Co., Inc.

    41,000      2,389

Omnicare, Inc. (Ñ)

    24,500      723

Pfizer, Inc.

    33,500      824

Sanofi-Aventis - ADR

    60,200      2,649

Thermo Fisher Scientific, Inc. (Æ)

    11,000      647

Wyeth

    22,300      1,084
         
        31,863
         

Integrated Oils - 4.0%

        

Chevron Corp.

    44,412      4,064

ConocoPhillips

    26,300      2,234

Exxon Mobil Corp.

    65,000      5,979

Marathon Oil Corp.

    47,200      2,791

Occidental Petroleum Corp.

    44,700      3,087
         
        18,155
         
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Materials and Processing - 8.0%

     

AbitibiBowater, Inc.

    75,620      2,591

Alcoa, Inc.

    28,200      1,116

American Standard Cos., Inc. (Ñ)

    72,480      2,701

Ashland, Inc.

    31,500      1,850

Avery Dennison Corp.

    17,100      990

Bemis Co., Inc. (Ñ)

    39,000      1,098

Cabot Corp.

    29,100      1,019

Celanese Corp. Class A

    81,600      3,424

Chemtura Corp. (Ñ)

    56,500      527

Cytec Industries, Inc.

    14,000      934

Freeport-McMoRan Copper & Gold, Inc. Class B

    34,480      4,058

International Paper Co.

    42,900      1,586

Masco Corp.

    51,800      1,247

Packaging Corp. of America

    34,500      1,098

PPG Industries, Inc.

    15,700      1,173

Praxair, Inc.

    19,170      1,639

Rohm & Haas Co. (Ñ)

    40,300      2,091

RPM International, Inc.

    51,100      1,095

Sonoco Products Co.

    34,900      1,079

Teck Cominco, Ltd. Class B

    47,200      2,360

Timken Co.

    31,600      1,051

Valspar Corp.

    42,700      1,069
         
        35,796
         

Miscellaneous - 2.1%

        

Brunswick Corp. (Ñ)

    40,700      908

General Electric Co.

    119,800      4,931

SPX Corp. (Ñ)

    8,600      871

Textron, Inc.

    29,870      2,067

Tyco International, Ltd.

    20,775      856
         
        9,633
         

Other Energy - 7.3%

        

Anadarko Petroleum Corp.

    19,600      1,157

Devon Energy Corp.

    52,160      4,872

Dynegy, Inc. Class A (Æ)

    2,043      19

EOG Resources, Inc. (Ñ)

    23,620      2,093

Exterran Holdings, Inc. (Æ)(Ñ)

    10,700      901

Frontier Oil Corp.

    16,500      756

GlobalSantaFe Corp.

    34,970      2,834

Halliburton Co.

    94,950      3,743

National Oilwell Varco, Inc. (Æ)

    30,960      2,267

NRG Energy, Inc. (Æ)(Ñ)

    27,000      1,233

Peabody Energy Corp. (Ñ)

    74,700      4,164

Reliant Energy, Inc. (Æ)

    121,900      3,355

Sunoco, Inc.

    12,300      905

112   Select Value Fund

Table of Contents

Russell Investment Company

Select Value Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Tesoro Corp.

    10,000      605

Transocean, Inc. (Æ)

    23,430      2,797

Valero Energy Corp.

    19,700      1,387
         
        33,088
         

Producer Durables - 6.9%

        

Agilent Technologies, Inc. (Æ)

    66,240      2,441

Alcatel-Lucent - ADR

    360,000      3,488

Boeing Co.

    41,520      4,093

CNH Global NV (Ñ)

    22,200      1,456

Cooper Industries, Ltd. Class A

    26,500      1,388

Cummins, Inc.

    8,800      1,056

Diebold, Inc.

    24,100      1,008

DR Horton, Inc. (Ñ)

    141,100      1,791

Goodrich Corp.

    15,100      1,052

Graco, Inc. (Ñ)

    27,900      1,098

KB Home (Ñ)

    25,500      705

KLA-Tencor Corp.

    39,350      2,072

Molex, Inc.

    41,500      1,185

Nortel Networks Corp. (Æ)(Ñ)

    21,300      344

Pentair, Inc. (Ñ)

    44,400      1,571

Pulte Homes, Inc. (Ñ)

    157,500      2,337

Raytheon Co.

    49,660      3,159

Terex Corp. (Æ)

    12,800      950
         
        31,194
         

Technology - 9.5%

        

Adobe Systems, Inc. (Æ)

    19,100      915

Analog Devices, Inc.

    15,400      515

AU Optronics Corp. - ADR (Ñ)

    169,291      3,679

BearingPoint, Inc. (Æ)(Ñ)

    556,600      2,666

Cisco Systems, Inc. (Æ)

    103,010      3,405

Dell, Inc. (Æ)

    90,600      2,772

General Dynamics Corp.

    50,240      4,570

Hewlett-Packard Co.

    128,170      6,624

Intel Corp.

    92,100      2,477

International Business Machines Corp.

    30,680      3,563

Maxim Integrated Products, Inc.

    72,800      1,973

Motorola, Inc.

    103,100      1,937

SanDisk Corp. (Æ)(Ñ)

    34,600      1,536

Sanmina-SCI Corp. (Æ)

    418,600      925

Seagate Technology, Inc. (Æ)

    1,900      —

Sun Microsystems, Inc. (Æ)

    95,400      545

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

    185,222      1,973

Teradata Corp. (Æ)

    30,600      873

Texas Instruments, Inc.

    56,410      1,839
         
        42,787
         
    

Principal

Amount ($)

or Shares

     

Market

Value
$

  

Utilities - 8.9%

        

America Movil SAB de CV Series L

    34,220      2,238  

American Electric Power Co., Inc.

    69,500      3,351  

Aqua America, Inc. (Ñ)

    55,000      1,279  

AT&T, Inc.

    164,730      6,884  

China Mobile, Ltd. - ADR (Ñ)

    37,530      3,891  

China Unicom, Ltd. - ADR

    119,210      2,923  

Citizens Communications Co. (Ñ)

    80,900      1,065  

Edison International

    45,000      2,617  

FirstEnergy Corp.

    19,700      1,373  

Mirant Corp. (Æ)

    49,900      2,114  

NiSource, Inc.

    37,400      765  

Northeast Utilities

    69,100      2,130  

Pepco Holdings, Inc.

    38,700      1,102  

Progress Energy, Inc. - CVO

    1,300      —  

SCANA Corp.

    14,500      588  

Sprint Nextel Corp.

    169,400      2,897  

TECO Energy, Inc.

    38,900      655  

Verizon Communications, Inc.

    64,700      2,981  

Xcel Energy, Inc.

    45,200      1,019  
           
        39,872  
           
Total Common Stocks        

(cost $385,045)

         426,859  
           
Short-Term Investments - 5.0%        

Russell Investment Company
Money Market Fund

    20,924,000      20,924  

United States Treasury Bills (ç)(z)(§)
3.650% due 12/20/07

    1,500      1,493  
           
Total Short-Term Investments        

(cost $22,417)

         22,417  
           
Other Securities - 15.7%        

Russell Investment Company
Money Market Fund (×)

    15,386,579      15,387  

State Street Securities Lending
Quality Trust (×)

    55,381,161      55,381  
           

Total Other Securities

        

(cost $70,768)

         70,768  
           
Total Investments - 115.5%        

(identified cost $478,230)

         520,044  

Other Assets and Liabilities, Net - (15.5%)

         (69,689 )
           
Net Assets - 100.0%         450,355  
           

 

See accompanying notes which are an integral part of the financial statements.

Select Value Fund   113

Table of Contents

Russell Investment Company

Select Value Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Futures Contracts

(Number of Contracts)

   

Notional

Amount

   

Unrealized

Appreciation

(Depreciation)
$

        

Long Positions

         

S&P 500 E-Mini Index (CME)
expiration date 12/07 (122)

    USD    9,485    55

S&P 500 Index (CME)
expiration date 12/07 (32)

    USD    12,439    90
          

Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts

       145
          

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  

Auto and Transportation

    1.6  

Consumer Discretionary

    9.5  

Consumer Staples

    5.2  

Financial Services

    24.7  

Health Care

    7.1  

Integrated Oils

    4.0  

Materials and Processing

    8.0  

Miscellaneous

    2.1  

Other Energy

    7.3  

Producer Durables

    6.9  

Technology

    9.5  

Utilities

    8.9  

Short-Term Investments

    5.0  

Other Securities

    15.7  
      

Total Investments

    115.5  

Other Assets and Liabilities, Net

    (15.5 )
      
   100.0  
      

Futures Contracts

    — *

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

114   Select Value Fund

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Table of Contents

Russell Investment Company

Fixed Income I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Fixed Income I Fund - Class I  
          Total
Return		  

1 Year

       4.85 %

5 Years

       4.30 %§

10 Years

       5.67 %§
Fixed Income I Fund - Class E‡  
          Total
Return		  

1 Year

       4.64 %

5 Years

       4.04 %§

10 Years

       5.44 %§
Fixed Income I Fund - Class Y‡‡  
          Total
Return		  

1 Year

       4.90 %

5 Years

       4.35 %§

10 Years

       5.72 %§
Fixed Income I Fund - Class C‡‡‡  
          Total
Return		  

1 Year

       4.64 %

5 Years

       4.04 %§

10 Years

       5.44 %§
Fixed Income I Fund - Class S‡‡‡‡  
          Total
Return		  

1 Year

       4.85 %

5 Years

       4.30 %§

10 Years

       5.67 %§
Lehman Brothers Aggregate Bond Index**  
          Total
Return		  

1 Year

       5.38 %

5 Years

       4.41 %§

10 Years

       5.91 %§

116   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fixed Income I Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Fixed Income I Fund Class C, Class E, Class I, Class S and Class Y gained 4.64%, 4.64%, 4.85%, 4.85% and 4.90%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% during the same period. The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind.

Class C and S Shares commenced operations on October 22, 2007. The returns shown for Class C and S Shares prior to October 22, 2007 are the returns of Class E and I Shares, respectively.

For the year ended October 31, 2007, the Lipper® Intermediate Investment Grade Debt Funds Average returned 4.05%. 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?

Investors’ departure from investments with more risk to the relative safety of U.S. Treasuries and the subsequent re-pricing of risk (i.e. the market demanding increased compensation for assuming a given level of risk) impacted nearly all non-Treasury fixed income investments. As a result, non-Treasury investments posted lower returns than the benchmark. Given that the Fund’s money managers typically invest in non-Treasury sectors, the Fund underperformed its benchmark. However, the managers’ sector allocation and security selection decisions resulted in the Fund outperforming its peers as measured by the Lipper Intermediate Investment Grade Debt Funds Average.

The decline in short-term interest rates benefited the Fund as several of the Fund’s managers anticipated the decline and increased sensitivity to interest rates (also called increased

duration). In general, as interest rates decline bond prices increase; therefore, the increase in duration had a positive impact on performance.

Finally, as the Federal Reserve decreased the federal funds rate, intermediate maturity yields also declined resulting in a shift in yields otherwise known as a shift in the yield curve. This yield curve movement benefited the Fund as the Fund’s money managers anticipated the change and varied the maturity of their securities.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Interest rates with maturities of 10 years or less decreased over the fiscal year, while 30-year securities experienced a slight increase. The Fund’s money managers anticipated the change in interest rates and positioned their portfolios to benefit from these changes in interest rates.

By far, the largest impact on the Fund performance was from the re-pricing of risk (i.e. the market demanding increased compensation for assuming a given level of risk) and the concern with the consumer’s ability to make mortgage payments. This fear of consumer creditworthiness also spread to sectors and securities without exposure to weaker consumer risk, which in turn added to volatility and lower returns. Given that the Fund’s money managers held consumer-related investments such as the mortgage-backed and asset-backed sectors, performance suffered relative to the benchmark.

At the manager level, managers that underperformed over the year included Bear Stearns Asset Management Inc., whose performance suffered from duration positioning, and Western Asset Management Company, whose performance suffered from mortgage-backed security issues. Pacific Investment Management Company LLC (“PIMCO”) was the best performing manager driven mainly by its yield curve and sector allocation decisions.

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 fiscal year.

 

 

Money Managers as of
October 31, 2007		    Styles

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

Western Asset Management Company Limited

    Fully Discretionary

Fixed Income I Fund

   117

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Russell Investment Company

Fixed Income I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and

RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**   Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on March 29, 2000. The returns shown for Class Y Shares prior to March 29, 2000 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

‡‡‡   The Fund first issued Class C Shares on October 22, 2007. The returns shown for Class C Shares are the returns of the Fund’s Class I Shares for the period November 1, 1997 to May 13, 1999 and do not reflect the deduction of 12b-1 distribution and shareholder services fees. Had they done so, the returns shown would have been lower. The returns shown from May 14, 1999 to October 21, 2007 are the returns of the Fund’s Class E Shares and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had they done so, the returns shown would have been lower.

 

‡‡‡‡   The Fund first issued Class S Shares on October 22, 2007. The returns shown for Class S Shares are the returns of the Fund’s Class I Shares. However, the returns for Class S Shares would be substantially similar to those of Class I Shares because they are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class S Shares do not have the same expenses as the Class I Shares.

 

§   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.

118   Fixed Income I Fund

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Russell Investment Company

Fixed Income I Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

October 22, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,000.00    $ 1,000.93

Expenses Paid During Period*

    $ 0.44    $ 0.44

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.60% (representing the 10-day period annualized), multiplied by the average account value over the period, multiplied by 10/365 (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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,021.10    $ 1,021.93

Expenses Paid During Period*

    $ 3.31    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,022.40    $ 1,023.19

Expenses Paid During Period*

    $ 2.04    $ 2.04

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.40% (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.

Fixed Income I Fund   119

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Russell Investment Company

Fixed Income I Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

October 22, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,000.00    $ 1,001.22

Expenses Paid During Period*

    $ 0.15    $ 0.15

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.53% (representing the 10-day period annualized), multiplied by the average account value over the period, multiplied by 10/365 (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.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,022.60    $ 1,023.39

Expenses Paid During Period*

    $ 1.84    $ 1.84

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.36% (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.

120   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Long-Term Investments - 108.1%

     

Asset-Backed Securities - 6.1%

     

Aames Mortgage Investment
Trust (Ê)(Å)

        

Series 2005-3 Class A1

        

5.023% due 08/25/35

    530      529

ABSC NIMs Trust (Þ)

        

Series 2005-HE6 Class A1

        

5.050% due 08/27/35

    40      28

Accredited Mortgage Loan Trust (Ê)

        

Series 2004-2 Class A2

        

5.173% due 07/25/34

    175      171

ACE Securities Corp.

        

Series 2003-OP1 Class M2 (Ê)

        

6.373% due 12/25/33

    195      190

Series 2005-SD3 Class A (Ê)

        

5.273% due 08/25/45

    424      419

Series 2006-FM1 Class A2A (Ê)

        

4.913% due 07/25/36

    530      527

Series 2006-FM1 Class A2B (Ê)

        

4.963% due 07/25/36

    1,825      1,783

Series 2006-HE4 Class A2A

        

4.933% due 10/25/36

    542      536

Aegis Asset Backed Securities
Trust (Ê)

        

Series 2003-3 Class M2

        

6.523% due 01/25/34

    350      317

Air 2 US (Å)

        

8.027% due 10/01/19

    845      849

American Express Credit Account Master Trust (Ê)(Þ)

        

Series 2006-A Class A

        

5.081% due 08/15/11

    1,680      1,676

Ameriquest Mortgage Securities, Inc. (Ê)

        

Series 2002-D Class M1

        

7.556% due 02/25/33

    155      119

Series 2004-R10 Class A5

        

5.263% due 11/25/34

    2      2

Asset Backed Funding Certificates (Ê)

        

Series 2006-HE1 Class A2A

        

4.933% due 01/25/37

    506      500

Series 2006-OPT Class A3A

        

4.933% due 10/25/36

    462      457

Asset Backed Securities Corp. Home Equity (Ê)

        

Series 2006-HE2 Class A1A

        

5.125% due 03/25/36

    1,403      1,304
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2006-HE3 Class A3

        

4.933% due 03/25/36

    28      28

BA Credit Card Trust (Ê)

        

Series 2007-A13 Class A13

        

5.345% due 04/16/12

    4,620      4,624

Bank One Issuance Trust (Ê)

        

Series 2003-A1 Class A1

        

5.211% due 09/15/10

    1,100      1,100

Bayview Financial Acquisition Trust

        

Series 2006-A Class 1A3

        

5.865% due 02/28/41

    410      393

Bear Stearns Asset Backed Securities Trust (Ê)

        

Series 2003-1 Class A1

        

5.373% due 11/25/42

    194      193

Series 2003-SD1 Class A

        

5.323% due 12/25/33

    140      140

Series 2005-2 Class A3

        

5.273% due 04/25/35

    65      63

Series 2006-SD2 Class A2

        

5.073% due 06/25/36

    495      485

Series 2007-HE5 Class 1A1

        

4.963% due 05/25/37

    84      83

Series 2007-HE6 Class 1A1

        

6.123% due 06/25/37

    976      979

BNC Mortgage Loan Trust (Ê)

        

Series 2007-2 Class A2

        

4.973% due 05/25/37

    268      265

Burlington Northern Santa Fe Corp.

        

4.967% due 04/01/23

    205      196

Business Loan Express (Ê)(Å)

        

Series 2003-2A Class A

        

5.673% due 01/25/32

    386      389

Capital One Master Trust (Ê)

        

Series 2001-1 Class A

        

5.291% due 12/15/10

    600      600

Carrington Mortgage Loan Trust (Ê)

        

Series 2005-NC5 Class A2

        

5.451% due 10/25/35

    375      369

Series 2006-NC3 Class A3

        

5.023% due 08/25/36

    2,105      1,985

Cendant Mortgage Corp. (Ê)(Å)

        

Series 2003-A Class A3

        

5.423% due 07/25/43

    170      170

Citigroup Mortgage Loan Trust, Inc. (Ê)

        

Series 2006-SHL Class A1 (Å)

        

5.073% due 11/25/45

    1,361      1,328

Fixed Income I Fund   121

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Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2007-AMC Class A2A

        

4.983% due 03/25/37

    715      710

Countrywide Asset-Backed Certificates

        

Series 2001-BC3 Class A (Ê)

        

5.353% due 12/25/31

    107      104

Series 2004-13 Class AF3

        

3.989% due 02/25/31

    93      92

Series 2004-AB2 Class M3 (Ê)

        

5.473% due 05/25/36

    310      283

Series 2004-BC1 Class M1 (Ê)

        

5.631% due 02/25/34

    209      201

Series 2005-17 Class 1AF1 (Ê)

        

5.073% due 12/25/36

    104      104

Series 2006-3 Class 3A1 (Ê)

        

4.993% due 06/25/36

    447      433

Series 2006-6 Class 2A2 (Ê)

        

5.053% due 09/25/36

    800      793

Series 2006-11 Class 1AF4

        

6.300% due 09/25/46

    505      498

Series 2006-BC1 Class 1A (Ê)

        

5.073% due 04/25/36

    2,071      1,988

Series 2006-BC4 Class 2A2 (Ê)

        

5.033% due 07/25/36

    2,220      2,084

Series 2007-7 Class 2A1 (Ê)

        

4.953% due 10/25/28

    261      258

Countrywide Home Equity Loan Trust (Ê)

        

Series 2005-A Class 2A

        

5.331% due 04/15/35

    265      260

Series 2005-G Class 2A

        

5.321% due 12/15/35

    1,327      1,313

Series 2006-E Class 2A

        

5.231% due 07/15/36

    1,223      1,185

Series 2007-GW Class A

        

5.641% due 11/15/28

    1,825      1,803

Credit-Based Asset Servicing and Securitization LLC

        

Series 2004-CB7 Class AF5

        

4.585% due 10/25/34

    550      533

Series 2005-CB5 Class AV2 (Ê)

        

5.133% due 08/25/35

    508      497

Series 2006-CB3 Class AV1 (Ê)

        

4.933% due 03/25/36

    319      319

Series 2006-CB3 Class AV3

        

5.043% due 03/25/36

    3,335      3,230

Series 2006-CB6 Class A21 (Ê)

        

4.913% due 07/25/36

    1,109      1,100
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2007-RP1 Class A (Å)

        

5.183% due 05/25/46

    1,603      1,586

Series 2007-SP2 Class A1 (Å)

        

5.023% due 07/25/36

    2,121      2,094

CVS Caremark Corp. (Å)

        

5.789% due 01/10/26

    271      270

CVS Lease Pass Through (Å)

        

5.880% due 01/10/28

    12      12

Discover Card Master Trust

        

Series 2007-A1 Class A1

        

5.650% due 03/16/20

    2,915      2,884

Discover Card Master Trust I (Ê)

        

Series 2005-4 Class A1

        

5.151% due 06/18/13

    1,500      1,493

Ellington Loan Acquisition Trust (Ê)(Å)

        

Series 2007-1 Class A2A1

        

5.873% due 05/25/37

    985      985

Series 2007-1 Class A2C

        

6.123% due 05/25/37

    1,000      1,000

First Franklin Mortgage Loan Asset Backed Certificates (Ê)

        

Series 2004-FF1 Class A2

        

5.273% due 12/25/32

    48      48

Series 2004-FFH Class 2A1

        

5.253% due 10/25/34

    17      17

Series 2005-FF1 Class A2A

        

4.963% due 11/25/36

    84      84

Series 2006-FF3 Class A2A

        

4.953% due 02/25/36

    339      337

Fremont Home Loan Trust (Ê)

        

Series 2006-3 Class 2A1

        

4.943% due 02/25/37

    212      211

Fremont NIM Trust (Þ)

        

Series 2005-C Class NOTE

        

Interest Only STRIP

        

5.584% due 07/25/35

    55      4

GE Dealer Floorplan Master Note Trust (Ê)

        

Series 2005-1 Class A

        

5.038% due 04/20/10

    1,425      1,424

Series 2006-3 Class A

        

5.008% due 07/20/11

    1,980      1,971

GE-WMC Mortgage Securities LLC (Ê)

        

Series 2006-1 Class A2A

        

4.913% due 08/25/36

    312      310

122   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

GSAA Trust

        

Series 2006-2 Class 2A3 (Ê)

        

5.143% due 12/25/35

    570      558

Series 2006-4 Class 1A2

        

5.951% due 03/25/36

    534      535

GSAMP Trust (Ê)

        

Series 2003-HE2 Class M1

        

5.225% due 08/25/33

    251      230

HFC Home Equity Loan Asset Backed Certificates (Ê)

        

Series 2005-1 Class A

        

5.288% due 01/20/34

    546      532

Series 2006-2 Class A1

        

5.148% due 03/20/36

    1,748      1,669

Home Equity Asset Trust (Ê)

        

Series 2005-2 Class 2A2

        

5.073% due 07/25/35

    39      39

HSI Asset Securitization Corp. Trust (Ê)

        

Series 2006-HE2 Class 2A1

        

5.181% due 12/25/36

    232      228

Indymac Seconds Asset Backed Trust (Ê)

        

Series 2006-1 Class A1

        

4.973% due 05/25/36

    717      711

JP Morgan Mortgage Acquisition Corp. (Ê)

        

Series 2006-WMC Class A2

        

4.923% due 08/25/36

    212      210

Series 2007-CH3 Class A2

        

4.953% due 03/25/37

    658      646

Lehman XS Trust (Ê)

        

Series 2005-1 Class 2A1

        

4.660% due 07/25/35

    819      818

Series 2005-1 Class 2A2

        

4.660% due 07/25/35

    213      211

Series 2006-16N Class A1A

        

4.953% due 11/25/46

    556      546

Series 2006-17 Class WF11

        

4.993% due 11/25/36

    624      619

Long Beach Mortgage Loan Trust (Ê)

        

Series 2004-4 Class 1A1

        

5.153% due 10/25/34

    35      34

Series 2006-1 Class 2A1

        

4.953% due 02/25/36

    25      25

Series 2006-9 Class 2A1

        

4.933% due 10/25/36

    2,448      2,427
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Master Asset Backed Securities Trust (Ê)

        

Series 2003-WMC Class M2

        

7.348% due 08/25/33

    84      69

MBNA Credit Card Master Note Trust

        

Series 2005-A1 Class A1

        

4.200% due 09/15/10

    800      797

Morgan Stanley ABS Capital I (Ê)

        

Series 2003-NC8 Class M3

        

6.973% due 09/25/33

    66      57

Series 2006-HE7 Class A2A

        

4.923% due 09/25/36

    1,586      1,570

Series 2007-HE5 Class A2A

        

4.983% due 03/25/37

    1,917      1,906

Series 2007-HE6 Class A1

        

4.933% due 05/25/37

    267      262

Series 2007-NC3 Class A2A

        

4.933% due 05/25/37

    178      177

Morgan Stanley Mortgage Loan Trust (Ê)

        

Series 2006-12X Class A1

        

4.993% due 10/25/36

    402      402

MSDWCC Heloc Trust (Ê)

        

Series 2005-1 Class A

        

5.063% due 07/25/17

    80      79

Nationstar Home Equity Loan Trust (Ê)

        

Series 2007-B Class 2AV1

        

4.993% due 05/25/37

    703      697

New Century Home Equity Loan Trust (Ê)

        

Series 2004-4 Class M2

        

5.403% due 02/25/35

    370      348

Nissan Master Owner Trust Receivables (Ê)

        

Series 2005-A Class A

        

4.121% due 07/15/10

    1,305      1,303

Option One Mortgage Loan Trust (Ê)

        

Series 2003-2 Class

        

6.573% due 04/25/33

    92      80

Series 2003-3 Class M3

        

6.873% due 06/25/33

    157      125

Series 2003-4 Class M2

        

6.523% due 07/25/33

    132      117

Series 2006-1 Class 2A1

        

4.943% due 01/25/36

    123      122

Series 2007-4 Class 2A1

        

5.221% due 04/25/37

    3,015      2,978

Fixed Income I Fund   123

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2007-6 Class 2A1

        

4.933% due 06/25/37

    705      701

Option One Mortgage Securities Corp. NIM Trust (Ê)(Þ)

        

Series 2006-1A

        

4.973% due 12/25/10

    894      894

Origen Manufactured Housing

        

Series 2005-B Class A4

        

5.910% due 01/15/37

    100      100

Series 2006-A Class A1 (Ê)

        

5.241% due 11/15/18

    525      525

Ownit Mortgage Loan Asset Backed Certificates (Ê)

        

Series 2006-6 Class A2C

        

5.033% due 09/25/37

    2,390      2,182

Park Place Securities, Inc. (Ê)

        

Series 2004-WWF Class A1D

        

5.333% due 02/25/35

    117      113

Series 2005-WCW Class M1

        

5.323% due 09/25/35

    370      360

Popular ABS Mortgage Pass-Through Trust

        

Series 2005-6 Class A3

        

5.680% due 01/25/36

    390      384

RAAC Series (Ê)(Å)

        

Series 2006-RP2 Class A

        

5.123% due 02/25/37

    857      841

Renaissance Home Equity Loan Trust

        

Series 2003-3 Class A (Ê)

        

5.373% due 12/25/33

    435      423

Series 2005-1 Class M1

        

5.357% due 05/25/35

    225      200

Series 2005-2 Class AF4

        

4.934% due 08/25/35

    585      573

Series 2005-3 Class AV1 (Ê)

        

5.013% due 10/25/35

    26      26

Series 2005-4 Class N (Þ)

        

7.142% due 02/25/36

    50      42

Series 2006-1 Class AF6

        

5.746% due 05/25/36

    305      291

Residential Asset Mortgage Products, Inc.

        

Series 2003-RS1 Class AI6A

        

5.980% due 12/25/33

    343      340

Series 2003-RS2 Class AII (Ê)

        

5.213% due 03/25/33

    139      137

Series 2003-RS3 Class AII (Ê)

        

5.593% due 04/25/33

    94      94
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Residential Asset Securities Corp.

        

Series 2001-KS1 Class AI6

        

6.349% due 03/25/32

    505      503

Series 2001-KS1 Class AII (Ê)

        

5.343% due 03/25/32

    100      99

Series 2001-KS3 Class AII (Ê)

        

5.333% due 09/25/31

    58      57

Series 2003-KS2 Class MI1

        

4.800% due 04/25/33

    955      890

Series 2003-KS2 Class MI3

        

6.100% due 04/25/33

    176      140

Series 2006-KS6 Class A1 (Ê)

        

4.913% due 08/25/36

    197      196

Residential Funding Mortgage Securities II, Inc. (Ê)

        

Series 2005-HS1 Class AI1

        

4.993% due 09/25/35

    901      896

Series 2007-HSA Class AI1

        

4.993% due 05/25/37

    254      249

SACO I, Inc. (Ê)

        

Series 2005-WM3 Class A1

        

5.133% due 09/25/35

    94      92

Series 2006-1 Class A

        

5.043% due 09/25/35

    469      447

Saxon Asset Securities Trust (Ê)

        

Series 2004-1 Class A

        

5.413% due 03/25/35

    57      56

Series 2006-1 Class A2A

        

4.933% due 03/25/36

    793      792

Securitized Asset Backed Receivables LLC Trust (Ê)

        

Series 2005-FR4 Class A3

        

5.073% due 01/25/36

    58      58

Security National Mortgage Loan Trust (Ê)(Å)

        

Series 2006-3A Class A1

        

5.153% due 10/25/09

    454      450

Sierra Receivables Funding Co. (Ê)(Å)

        

Series 2006-1A Class A2

        

5.148% due 05/20/18

    279      272

Small Business Administration

        

Series 2000-P10 Class 1

        

7.449% due 08/10/10

    61      62

Small Business Administration Pools (Ê)

        

7.580% due 09/25/18

    259      273

Soundview Home Equity Loan Trust

        

Series 2006-2 Class A2 (Ê)

        

5.003% due 03/25/36

    928      925

124   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2006-WF1 Class A2

        

5.645% due 10/25/36

    1,060      1,044

Specialty Underwriting & Residential Finance (Ê)

        

Series 2003-BC1 Class A

        

5.213% due 01/25/34

    25      24

Series 2006-AB1 Class A2

        

5.013% due 12/25/36

    850      834

Structured Asset Investment Loan Trust (Ê)

        

Series 2005-3 Class M2

        

5.313% due 04/25/35

    500      466

Structured Asset Securities Corp.

        

Series 2002-AL1 Class A3

        

3.450% due 02/25/32

    476      427

Series 2002-HF1 Class A (Ê)

        

5.163% due 01/25/33

    13      12

Series 2004-19X Class A2

        

4.370% due 10/25/34

    326      324

Series 2005-WF1 Class A2 (Ê)

        

5.073% due 02/25/35

    171      171

Series 2006-BC3 Class A2 (Ê)

        

4.923% due 10/25/36

    515      511

Textron Financial Floorplan Master Note Trust (Ê)(Þ)

        

Series 2005-1A Class A

        

5.211% due 05/13/10

    1,640      1,639

Truman Capital Mortgage Loan Trust (Ê)(Å)

        

Series 2006-1 Class A

        

5.133% due 03/25/36

    1,417      1,304

Wachovia Asset Securitization, Inc. (Ê)

        

Series 2003-HE3 Class A

        

5.123% due 11/25/33

    211      208

Wells Fargo Home Equity Trust (Ê)

        

Series 2005-4 Class AI1 (Þ)

        

4.993% due 12/25/35

    292      290

Series 2007-1 Class A1

        

4.973% due 03/25/37

    686      680
         
        99,059
         

Certificates of Deposit - 0.0%

     

Calyon NY

        

5.300% due 01/16/09

    800      800
         

Corporate Bonds and Notes - 17.7%

     

Abbott Laboratories

        

5.600% due 05/15/11

    415      424
    

Principal

Amount ($)

or Shares

     

Market

Value
$

5.875% due 05/15/16

    360      369

Alamosa Delaware, Inc.

        

8.500% due 01/31/12

    225      234

Altria Group, Inc.

        

7.000% due 11/04/13

    300      328

American Electric Power Co., Inc.

        

Series C

        

5.375% due 03/15/10

    120      121

American Express Centurion Bank

        

Series BKNT

        

5.130% due 06/12/09

    1,900      1,892

5.550% due 10/17/12

    430      434

American Express Co.

        

6.150% due 08/28/17

    1,565      1,596

6.800% due 09/01/66

    150      154

American International Group, Inc.

        

4.700% due 10/01/10

    485      481

5.375% due 10/18/11 (Ñ)

    570      575

5.050% due 10/01/15 (Ñ)

    505      490

6.250% due 03/15/87

    1,800      1,675

Amgen, Inc.

        

5.585% due 11/28/08

    1,000      998

Anadarko Petroleum Corp.

        

6.094% due 09/15/09 (Ê)

    480      478

5.950% due 09/15/16

    500      503

6.450% due 09/15/36

    630      637

Apache Corp.

        

6.000% due 01/15/37

    420      414

Appalachian Power Co.

        

Series O

        

5.650% due 08/15/12

    175      177

ASIF Global Financing XIX (Å)

        

4.900% due 01/17/13

    50      48

AT&T Mobility LLC

        

6.500% due 12/15/11

    575      603

AT&T, Inc.

        

5.100% due 09/15/14

    310      304

6.500% due 09/01/37

    1,435      1,514

Atmos Energy Corp.

        

6.350% due 06/15/17

    185      189

BAE Systems Holdings, Inc. (Þ)

        

6.400% due 12/15/11

    1,210      1,256

Bank of America Corp.

        

5.875% due 02/15/09 (Ê)

    205      206

5.608% due 06/19/09 (Ê)

    2,700      2,691

4.375% due 12/01/10

    1,700      1,676

5.375% due 08/15/11

    280      283

5.420% due 03/15/17

    20      19

6.000% due 09/01/17

    845      861

Fixed Income I Fund   125

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Bank of America NA

        

Series BKNT

        

5.646% due 12/18/08

    200      200

5.974% due 06/15/16 (Ê)

    1,200      1,176

6.000% due 10/15/36

    300      291

Bank of New York Mellon Corp. (The)

        

5.125% due 11/01/11

    830      830

Bank of Scotland PLC

        

5.250% due 02/21/17

    230      231

Banque Paribas

        

6.875% due 03/01/09

    350      359

Bear Stearns Cos., Inc. (The)

        

5.494% due 07/16/09

    1,900      1,879

5.590% due 08/21/09 (Ê)

    800      781

6.400% due 10/02/17

    580      578

BellSouth Corp.

        

4.750% due 11/15/12

    20      20

6.550% due 06/15/34 (Ñ)

    175      183

Bellsouth Telecommunications, Inc.

        

7.000% due 12/01/95

    685      689

Bundesrepublik Deutschland

        

Series 04

        

3.750% due 01/04/15

    1,040      1,465

Burlington Northern Santa Fe Corp.

        

5.650% due 05/01/17

    115      114

6.875% due 12/01/27 (Ñ)

    90      95

Camden Property Trust

        

5.700% due 05/15/17

    2,340      2,229

Cardinal Health, Inc.

        

5.850% due 12/15/17

    470      471

Carolina Power & Light Co.

        

6.500% due 07/15/12

    5      5

Caterpillar Financial Services Corp.

        

5.293% due 10/09/09 (Ê)

    2,100      2,090

4.300% due 06/01/10

    430      424

5.850% due 09/01/17 (Ñ)

    245      250

Center Point Energy Houston Electric LLC

        

Series J2

        

5.700% due 03/15/13

    350      352

Center Point Energy Resources Corp.

        

Series B

        

7.875% due 04/01/13

    440      482

Chubb Corp. (Ñ)

        

6.000% due 05/11/37

    220      214

CIT Group Holdings, Inc. (Ê)

        

5.516% due 01/30/09

    2,400      2,334
    

Principal

Amount ($)

or Shares

     

Market

Value
$

CIT Group, Inc.

        

6.875% due 11/01/09 (Ñ)

    100      102

4.125% due 11/03/09

    10      10

Citicorp

        

7.250% due 10/15/11

    565      607

Citigroup Funding, Inc.

        

5.714% due 12/08/08 (Ê)

    400      399

5.200% due 06/26/09

    400      398

Citigroup, Inc.

        

5.240% due 12/26/08 (Ê)

    600      600

5.024% due 01/30/09 (Ê)

    1,400      1,399

5.228% due 12/28/09 (Ê)

    800      797

4.125% due 02/22/10

    630      619

6.500% due 01/18/11 (Ñ)

    380      396

5.500% due 08/27/12

    500      506

5.300% due 10/17/12

    300      301

5.000% due 09/15/14

    3,940      3,824

6.000% due 08/15/17

    300      306

6.125% due 08/25/36 (Ñ)

    500      488

Clear Channel Communications, Inc.

        

4.250% due 05/15/09

    230      221

6.250% due 03/15/11

    290      267

Clorox Co.

        

4.200% due 01/15/10 (Ñ)

    215      211

5.450% due 10/15/12

    775      776

Columbus Southern Power Co.

        

Series C

        

5.500% due 03/01/13

    85      85

Comcast Cable Communications LLC

        

6.875% due 06/15/09

    625      641

Comcast Cable Holdings LLC

        

9.800% due 02/01/12

    715      828

7.875% due 08/01/13

    830      913

Comcast Corp.

        

6.500% due 01/15/15 (Ñ)

    1,050      1,098

5.900% due 03/15/16

    65      65

6.500% due 01/15/17

    715      748

6.300% due 11/15/17

    3,170      3,270

6.500% due 11/15/35

    920      933

6.450% due 03/15/37

    115      116

Commonwealth Edison Co.

        

Series 98

        

6.150% due 03/15/12

    215      222

ConocoPhillips Holding Co.

        

6.950% due 04/15/29

    825      939

Continental Airlines, Inc.

        

Series A

        

5.983% due 04/19/22

    3,625      3,562

126   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Countrywide Financial Corp.

        

Series MTN

        

5.800% due 06/07/12

    3,045      2,622

Credit Suisse USA, Inc.

        

3.875% due 01/15/09

    295      291

4.875% due 08/15/10

    275      275

5.250% due 03/02/11 (Ñ)

    310      312

6.500% due 01/15/12

    20      21

5.500% due 08/15/13 (Ñ)

    115      115

CRH America, Inc.

        

6.000% due 09/30/16

    1,475      1,453

CVS Caremark Corp.

        

5.750% due 08/15/11

    320      326

5.750% due 06/01/17

    535      532

6.250% due 06/01/27

    3,630      3,610

CVS Lease Pass Through

        

6.036% due 12/10/28 (Å)

    1,096      1,077

Daimler Finance NA LLC

        

6.053% due 03/13/09

    1,600      1,598

6.133% due 03/13/09 (Ñ)

    1,100      1,100

5.875% due 03/15/11

    300      306

6.500% due 11/15/13

    455      478

DCP Midstream LLC

        

6.875% due 02/01/11

    45      47

6.750% due 09/15/37

    1,020      1,048

Delta Air Lines, Inc.

        

6.821% due 08/10/22 (Å)

    4,625      4,440

Series 00-1

        

7.570% due 11/18/10

    2,040      2,106

Delta Air Lines, Inc.

        

Series 01-1

        

6.619% due 09/18/12

    506      509

Detroit Edison Co. (The)

        

5.400% due 08/01/14

    105      104

6.350% due 10/15/32

    125      127

Devon Financing Corp. ULC

        

7.875% due 09/30/31

    255      309

Dominion Resources, Inc.

        

4.750% due 12/15/10

    90      89

5.700% due 09/17/12

    455      461

Series A (Ñ)

        

5.200% due 01/15/16

    695      667

Series B (Ñ)

        

6.250% due 06/30/12

    15      16

DPL, Inc.

        

6.875% due 09/01/11

    495      520

DTE Energy Co.

        

7.050% due 06/01/11

    1,475      1,552
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Duke Energy Carolinas LLC

        

5.625% due 11/30/12

    265      270

Duke Realty, LP

        

5.950% due 02/15/17

    885      868

Eastman Kodak Co.

        

7.250% due 11/15/13

    70      70

Electronic Data Systems Corp.

        

7.125% due 10/15/09

    630      649

Eli Lilly & Co. (Ñ)

        

5.200% due 03/15/17

    685      675

Energy Future Holdings

        

Series P

        

5.550% due 11/15/14

    150      117

Series Q

        

6.500% due 11/15/24

    90      66

Series R

        

6.550% due 11/15/34

    635      458

Enterprise Products Operating, LP

        

6.300% due 09/15/17

    1,770      1,802

Erac USA Finance Co. (Å)

        

7.000% due 10/15/37

    4,415      4,345

Exelon Corp.

        

4.900% due 06/15/15

    985      924

5.625% due 06/15/35

    330      297

Exelon Generation Co. LLC

        

6.200% due 10/01/17

    245      246

FedEx Corp.

        

5.500% due 08/15/09

    1,500      1,512

7.600% due 07/01/97

    170      194

FirstEnergy Corp.

        

Series B

        

6.450% due 11/15/11

    2,640      2,724

Series C

        

7.375% due 11/15/31

    865      944

Ford Motor Co. (Ñ)

        

7.450% due 07/16/31

    410      324

Ford Motor Credit Co. LLC

        

7.375% due 10/28/09

    3,240      3,125

General Electric Capital Corp.

        

3.250% due 06/15/09

    1,295      1,261

5.250% due 01/20/10 (Ê)

    600      599

5.628% due 08/15/11 (Ê)

    1,500      1,491

5.250% due 10/19/12

    11,310      11,387

5.500% due 09/15/67

    300      437

Series GMTN

        

5.500% due 04/28/11

    540      546

Series MTN (Ê)

        

Fixed Income I Fund   127

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

5.095% due 10/26/09

    2,700      2,693

Series MTNA

        

6.000% due 06/15/12

    1,420      1,473

5.450% due 01/15/13

    960      971

General Motors Corp.

        

8.375% due 07/05/33

    160      202

Glen Meadow Pass-Through Trust (Å)

        

6.505% due 02/12/67

    200      194

GMAC LLC

        

5.625% due 05/15/09 (Ñ)

    2,250      2,144

7.750% due 01/19/10

    230      223

Goldman Sachs Group, Inc. (The)

        

5.250% due 12/23/08 (Ê)

    100      100

5.248% due 03/30/09 (Ê)

    600      598

5.300% due 06/23/09 (Ê)

    500      499

6.875% due 01/15/11

    1,150      1,204

5.300% due 02/14/12

    3,300      3,301

5.450% due 11/01/12

    80      80

4.750% due 07/15/13

    1,070      1,025

5.350% due 01/15/16

    1,155      1,124

5.625% due 01/15/17 (Ñ)

    165      160

6.250% due 09/01/17 (Ñ)

    1,800      1,831

5.950% due 01/15/27

    650      604

6.450% due 05/01/36

    390      381

6.750% due 10/01/37

    75      75

Goldman Sachs Group, LP

        

4.500% due 06/15/10

    1,275      1,258

Hartford Financial Services Group, Inc.

        

5.250% due 10/15/11

    730      726

Hess Corp.

        

7.875% due 10/01/29

    60      70

7.300% due 08/15/31

    515      577

Historic TW, Inc.

        

8.050% due 01/15/16

    565      638

HJ Heinz Co. (Å)

        

6.428% due 12/01/08

    100      102

HJ Heinz Finance Co.

        

6.000% due 03/15/12

    10      10

Home Depot, Inc.

        

5.400% due 03/01/16

    100      96

HSBC Bank USA NA (Ê)

        

Series BKNT

        

5.864% due 06/10/09

    800      796

HSBC Finance Corp.

        

5.809% due 12/05/08 (Ê)

    500      499

4.750% due 05/15/09

    4,050      4,020

5.240% due 10/21/09 (Ê)

    400      398
    

Principal

Amount ($)

or Shares

     

Market

Value
$

4.125% due 11/16/09

    2,865      2,813

5.784% due 03/12/10 (Ê)

    700      695

6.375% due 11/27/12

    390      405

5.000% due 06/30/15

    325      308

ILFC E-Capital Trust II (Å)

        

6.250% due 12/21/65

    290      285

International Business Machines Corp.

        

5.700% due 09/14/17

    1,960      1,989

7.125% due 12/01/96

    540      606

International Lease Finance Corp.

        

4.750% due 07/01/09

    2,040      2,014

5.625% due 09/15/10

    1,350      1,369

5.750% due 06/15/11

    250      252

5.625% due 09/20/13 (Ñ)

    1,320      1,320

International Paper Co.

        

5.850% due 10/30/12

    1,490      1,513

International Steel Group, Inc. (Ñ)

        

6.500% due 04/15/14

    615      631

Jersey Central Power & Light Co.

        

5.625% due 05/01/16

    260      254

John Deere Capital Corp.

        

4.875% due 03/16/09

    725      723

Johnson & Johnson

        

5.550% due 08/15/17

    90      93

5.950% due 08/15/37

    115      120

JP Morgan Chase Capital XV (Ñ)

        

5.875% due 03/15/35

    1,505      1,366

JP Morgan Chase Capital XX (Ñ)

        

Series T

        

6.550% due 09/15/66

    200      188

JP Morgan Chase & Co.

        

5.600% due 06/01/11

    190      193

5.375% due 10/01/12

    2,430      2,443

5.375% due 01/15/14

    475      475

5.125% due 09/15/14 (Ñ)

    1,085      1,058

5.150% due 10/01/15

    520      505

JP Morgan Chase Bank NA

        

Series BKNT (Ñ)

        

5.875% due 06/13/16

    180      182

Kaupthing Bank Hf (Ê)(Þ)

        

5.939% due 04/12/11

    1,020      1,016

Kellogg Co.

        

Series B

        

6.600% due 04/01/11

    1,225      1,279

Kerr-McGee Corp.

        

6.950% due 07/01/24

    290      309

Kinder Morgan Energy Partners, LP

        

7.125% due 03/15/12

    185      196

128   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

5.000% due 12/15/13

    115      111

6.000% due 02/01/17 (Ñ)

    60      60

6.950% due 01/15/38

    1,785      1,871

Kraft Foods, Inc.

        

6.000% due 08/11/10 (Ê)

    1,700      1,702

5.625% due 11/01/11

    1,355      1,374

Kroger Co. (The)

        

7.500% due 04/01/31

    80      90

Lehman Brothers Holdings Capital Trust V

        

5.857% due 11/29/49

    340      317

Lehman Brothers Holdings, Inc.

        

5.241% due 01/23/09 (Ê)

    1,200      1,186

5.320% due 04/03/09 (Ê)

    1,000      987

5.600% due 08/21/09 (Ê)

    400      395

5.645% due 05/25/10

    300      295

5.250% due 02/06/12

    310      306

6.200% due 09/26/14

    150      151

5.500% due 04/04/16 (Ñ)

    300      289

7.394% due 09/15/22 (Ê)

    1,380      1,410

Liberty Property, LP

        

5.500% due 12/15/16

    685      645

M&T Bank Corp.

        

5.375% due 05/24/12

    685      695

Manufacturers & Traders Trust Co.

        

5.585% due 12/28/20

    180      174

Marathon Oil Corp.

        

6.000% due 10/01/17

    615      625

Merrill Lynch & Co., Inc.

        

5.284% due 07/25/11 (Ê)

    700      682

6.050% due 08/15/12

    700      710

6.050% due 05/16/16

    80      79

5.700% due 05/02/17

    175      167

6.400% due 08/28/17

    1,865      1,881

6.220% due 09/15/26

    1,245      1,188

Series MTNC

        

4.250% due 02/08/10

    470      459

MetLife, Inc.

        

5.700% due 06/15/35

    880      816

6.400% due 12/15/36

    990      938

Metropolitan Life Global Funding I

        

5.560% due 05/17/10

    900      893

Midamerican Energy Co.

        

5.800% due 10/15/36

    1,100      1,069

Midamerican Energy Holdings Co.

        

Series WI

        

6.125% due 04/01/36

    2,720      2,690
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Miller Brewing Co. (Þ)

        

5.500% due 08/15/13

    390      389

Monumental Global Funding II (Þ)

        

4.625% due 03/15/10

    235      233

Morgan Stanley

        

3.875% due 01/15/09

    980      967

5.625% due 01/09/12

    510      517

4.750% due 04/01/14

    250      237

5.375% due 10/15/15

    345      332

5.659% due 10/18/16 (Ê)

    140      136

5.550% due 04/27/17

    175      170

6.250% due 08/28/17

    300      307

Series GMTN (Ê)

        

5.470% due 02/09/09

    100      100

Series MTN (Ê)

        

5.333% due 01/15/10

    600      594

Motorola, Inc.

        

6.625% due 11/15/37

    1,740      1,706

5.220% due 10/01/97 (Ñ)

    980      715

Natexis Ambs Co. LLC (ƒ)(Þ)

        

8.440% due 12/29/49

    350      357

National Rural Utilities Cooperative Finance Corp.

        

5.750% due 08/28/09

    2,335      2,368

5.450% due 04/10/17

    520      512

New Cingular Wireless Services, Inc.

        

7.875% due 03/01/11

    3,795      4,111

8.125% due 05/01/12

    350      390

8.750% due 03/01/31

    1,405      1,817

News America Holdings, Inc.

        

7.750% due 12/01/45

    15      17

7.900% due 12/01/95

    295      322

8.250% due 10/17/96

    65      74

News America, Inc.

        

6.200% due 12/15/34

    35      34

6.150% due 03/01/37

    2,815      2,702

Nisource Finance Corp.

        

7.875% due 11/15/10

    465      498

6.400% due 03/15/18

    315      320

Norfolk Southern Corp.

        

6.200% due 04/15/09

    645      654

7.050% due 05/01/37

    215      238

7.900% due 05/15/97

    1,150      1,320

Northern States Power Co.

        

Series B

        

8.000% due 08/28/12

    1,305      1,458

Fixed Income I Fund   129

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Northwest Airlines, Inc.

        

Series 07-1

        

7.027% due 11/01/19

    1,910      1,936

Ohio Power Co.

        

Series F

        

5.500% due 02/15/13

    45      45

ONEOK Partners, LP

        

6.650% due 10/01/36

    605      616

Owens Corning, Inc.

        

Series WI

        

6.500% due 12/01/16

    585      569

Pacific Gas & Electric Co.

        

3.600% due 03/01/09

    115      113

4.200% due 03/01/11

    255      248

6.050% due 03/01/34

    520      518

5.800% due 03/01/37

    110      106

Pactiv Corp.

        

5.875% due 07/15/12

    680      693

Pemex Project Funding Master Trust

        

Series WI

        

6.625% due 06/15/35

    430      460

Progress Energy, Inc.

        

7.100% due 03/01/11

    43      45

7.750% due 03/01/31 (Ñ)

    130      153

7.000% due 10/30/31

    210      229

Prologis

        

5.625% due 11/15/15

    1,030      1,001

Prudential Financial, Inc.

        

5.100% due 12/14/11

    1,135      1,129

Qwest Corp.

        

8.875% due 03/15/12

    1,295      1,418

Rabobank Capital Funding II (ƒ)(Å)

        

5.260% due 12/31/49

    20      19

Rabobank Capital Funding Trust (ƒ)(Å)

        

5.254% due 12/29/49

    40      38

RBS Capital Trust III (ƒ)(Ñ)

        

5.512% due 09/29/49

    675      632

Residential Capital LLC

        

7.125% due 11/21/08 (Ñ)(Ê)

    290      244

7.314% due 04/17/09

    50      39

7.595% due 05/22/09

    330      257

6.000% due 02/22/11

    970      708

6.500% due 06/01/12 (Ñ)

    300      219

Safeway, Inc. (Ñ)

        

7.250% due 02/01/31

    55      60

Schering-Plough Corp.

        

5.530% due 12/01/13

    520      522
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Sigma Finance, Inc.-SIV (Ê)(Å)

        

8.500% due 08/11/16

    1,660      1,560

Simon Property Group, LP

        

5.750% due 12/01/15

    1,965      1,926

6.100% due 05/01/16

    930      934

5.250% due 12/01/16

    3,180      3,008

Southern Natural Gas Co. (Å)

        

5.900% due 04/01/17

    30      29

Southwest Airlines Co.

        

Series 07-1

        

6.150% due 08/01/22

    445      453

Sprint Capital Corp.

        

8.375% due 03/15/12

    360      393

6.875% due 11/15/28

    320      307

8.750% due 03/15/32

    40      46

Sprint Nextel Corp.

        

6.000% due 12/01/16

    4,265      4,101

State Street Capital Trust IV (Ê)

        

6.694% due 06/15/37

    100      90

SunTrust Capital VIII

        

6.100% due 12/15/36

    630      570

Time Warner Cable, Inc.

        

Series WI

        

5.400% due 07/02/12

    740      738

5.850% due 05/01/17

    4,490      4,452

6.550% due 05/01/37

    270      272

Time Warner Entertainment Co., LP

        

8.375% due 07/15/33

    105      126

Time Warner, Inc.

        

5.730% due 11/13/09

    400      398

6.875% due 05/01/12

    485      511

5.875% due 11/15/16

    825      820

7.700% due 05/01/32

    100      112

Travelers Cos., Inc. (The)

        

5.375% due 06/15/12

    130      131

6.250% due 03/15/37

    600      583

6.250% due 06/15/37

    1,585      1,564

Unilever Capital Corp. (Ñ)

        

5.900% due 11/15/32

    255      251

Union Electric Co.

        

6.400% due 06/15/17

    545      574

Union Pacific Corp.

        

3.625% due 06/01/10

    570      551

United States Steel Corp.

        

5.650% due 06/01/13

    260      252

6.050% due 06/01/17

    260      250

6.650% due 06/01/37

    120      113

130   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

United Technologies Corp. (Ñ)

        

5.400% due 05/01/35

    70      66

UnitedHealth Group, Inc.

        

5.250% due 03/15/11

    280      281

6.000% due 06/15/17

    65      66

6.500% due 06/15/37

    120      123

US Bancorp

        

5.300% due 04/28/09

    1,705      1,715

US Bank NA/Cincinnati OH

        

5.700% due 12/15/08

    85      85

USB Capital IX (ƒ)(Ñ)

        

6.189% due 04/15/49

    200      202

Verizon Communications, Inc.

        

5.350% due 02/15/11

    940      951

Verizon Global Funding Corp.

        

6.875% due 06/15/12 (Ñ)

    3,835      4,106

7.375% due 09/01/12

    275      301

Wachovia Bank NA/Charlotte NC

        

Series BKNT

        

5.800% due 12/01/08

    280      283

Wachovia Capital Trust III (ƒ)

        

5.800% due 03/15/42

    340      337

Wachovia Corp.

        

5.700% due 08/01/13

    2,010      2,023

5.250% due 08/01/14

    460      451

5.625% due 10/15/16 (Ñ)

    400      396

5.750% due 06/15/17

    460      462

Wal-Mart Stores, Inc. (Ñ)

        

5.800% due 02/15/18

    570      584

Waste Management, Inc.

        

6.375% due 11/15/12

    555      577

Wells Fargo & Co.

        

5.250% due 10/23/12

    345      346

4.950% due 10/16/13

    180      176

Wells Fargo Bank NA

        

5.750% due 05/16/16

    310      312

Wells Fargo Capital X

        

5.950% due 12/15/36

    200      188

Weyerhaeuser Co.

        

6.750% due 03/15/12

    1,510      1,572

Wyeth

        

6.950% due 03/15/11

    1,985      2,102

5.500% due 03/15/13 (Ñ)

    430      433

5.500% due 02/01/14

    55      55

5.950% due 04/01/37

    755      747

Xcel Energy, Inc.

        

7.000% due 12/01/10

    595      626
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Xerox Corp.

        

5.500% due 05/15/12

    2,665      2,666

XTO Energy, Inc.

        

7.500% due 04/15/12

    130      142
         
        286,489
         

International Debt - 4.5%

        

Abbey National PLC (ƒ)

        

(Step Up, 7.730%, 06/15/08)
6.700% due 06/29/49

    105      106

Aiful Corp. (Å)

        

5.000% due 08/10/10

    400      379

America Movil SAB de CV

        

5.625% due 11/15/17

    220      218

Anadarko Finance Co.

        

Series B

        

7.500% due 05/01/31

    575      644

AstraZeneca PLC

        

5.900% due 09/15/17

    300      307

AXA SA

        

8.600% due 12/15/30

    125      156

Banque Centrale de Tunisie

        

8.250% due 09/19/27

    550      681

BNP Paribas (ƒ)(Þ)

        

5.186% due 06/29/49

    1,900      1,760

British Telecommunications PLC

        

8.625% due 12/15/10

    595      655

9.125% due 12/15/30

    65      88

Canadian Natural Resources, Ltd.

        

6.500% due 02/15/37

    220      225

China Development Bank

        

5.000% due 10/15/15

    100      97

CIT Group Funding Co. of Canada

        

5.600% due 11/02/11

    280      273

Citigroup Global Markets Deutschland AG for OAO Gazprom

        

10.500% due 10/21/09

    700      763

Conoco Funding Co.

        

6.350% due 10/15/11

    705      740

Corp. Nacional del Cobre de Chile (Þ)

        

6.150% due 10/24/36

    100      100

Covidien International Finance SA (Å)

        

6.000% due 10/15/17

    1,325      1,343

Credit Agricole SA/London

        

5.505% due 05/28/09

    400      400

5.555% due 05/28/10

    600      600

Credit Suisse Guernsey, Ltd.

        

5.860% due 05/29/49

    1,310      1,220

Fixed Income I Fund   131

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Crest, Ltd. (Þ)

        

Series 2003-2A Class C2

        

5.709% due 12/28/38

    2,160      2,002

Depfa ACS Bank (Å)

        

5.125% due 03/16/37

    400      378

Deutsche Bank AG

        

6.000% due 09/01/17

    1,000      1,023

Deutsche Bank AG/London

        

5.375% due 10/12/12

    4,130      4,170

Deutsche Telekom International Finance BV

        

5.390% due 03/23/09 (Ê)

    900      900

8.000% due 06/15/10

    665      713

5.750% due 03/23/16 (Ñ)

    300      301

8.250% due 06/15/30

    160      199

Egypt Government AID Bonds

        

4.450% due 09/15/15

    835      813

Eksportfinans A/S

        

5.500% due 05/25/16

    550      567

EnCana Corp.

        

6.625% due 08/15/37

    585      618

European Investment Bank

        

4.625% due 09/15/10

    1,505      1,513

Export-Import Bank of China (Þ)

        

4.875% due 07/21/15

    670      646

Export-Import Bank of Korea

        

4.125% due 02/10/09 (Þ)

    345      340

5.711% due 06/01/09 (Ê)

    200      200

5.500% due 10/17/12

    415      418

Gaz Capital for Gazprom (Å)

        

6.212% due 11/22/16

    1,515      1,494

6.510% due 03/07/22

    420      412

Glitnir Banki HF (Å)

        

6.330% due 07/28/11

    270      275

6.375% due 09/25/12

    390      393

6.693% due 06/15/16

    700      716

Harborview NIM Corp. (Å)

        

Series 2006-9A Class N1

        

6.409% due 11/19/36

    122      122

HBOS Capital Funding, LP (ƒ)(Å)

        

6.071% due 06/30/49

    110      106

HBOS PLC (ƒ)(Þ)

        

5.920% due 09/29/49

    200      182

HSBC Holdings PLC

        

6.500% due 05/02/36

    685      676

6.500% due 09/15/37

    1,355      1,342

Intergas Finance BV (Å)(Ñ)

        

6.375% due 05/14/17

    641      599
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Ispat Inland ULC

        

9.750% due 04/01/14

    1,615      1,758

Kaupthing Bank Hf (Å)

        

5.750% due 10/04/11

    100      97

7.125% due 05/19/16

    1,480      1,467

Klio Funding, Ltd. (Ê)(Þ)

        

Series 2004-1A Class A1

        

5.910% due 04/23/39

    3,695      3,407

Korea Development Bank (Ê)

        

5.370% due 04/03/10

    700      698

Korea Electric Power Corp. (Þ)

        

5.125% due 04/23/34

    155      153

Lukoil International Finance BV

        

6.356% due 06/07/17

    805      775

Mexico Government International Bond (Ñ)

        

Series MTNA

        

6.750% due 09/27/34

    973      1,088

Mizuho Financial Group Cayman, Ltd. (Þ)

        

5.790% due 04/15/14

    400      405

MUFG Capital Finance 1, Ltd. (ƒ)

        

6.346% due 07/25/99

    200      191

National Australia Bank, Ltd. (Ê)(Þ)

        

5.765% due 09/11/09

    500      499

Newcastle CDO, Ltd. (Þ)

        

Series 2004-4A Class 3FX

        

5.110% due 03/24/39

    1,075      948

Petrobras International Finance Co.

        

6.125% due 10/06/16

    460      465

8.375% due 12/10/18 (Ñ)

    750      881

Petroleum Export, Ltd. (Þ)

        

5.265% due 06/15/11

    160      159

Province of Quebec Canada

        

5.000% due 07/17/09 (Ñ)

    10      10

Series PJ

        

6.125% due 01/22/11

    1,060      1,106

Ras Laffan Liquefied Natural Gas Co., Ltd. II (Þ)

        

5.298% due 09/30/20

    550      531

Ras Laffan Liquefied Natural Gas Co., Ltd. III (Þ)

        

5.838% due 09/30/27

    250      235

Resona Bank, Ltd. (ƒ)

        

5.850% due 09/29/49

    450      417

Resona Preferred Global Securities Cayman, Ltd. (ƒ)(Þ)

        

7.191% due 12/29/49

    405      407

132   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Rogers Wireless, Inc.

        

6.375% due 03/01/14

    750      766

Royal Bank of Scotland Group PLC

        

7.640% due 03/31/49 (ƒ)

    100      104

6.990% due 10/29/49 (ƒ)(Å)

    180      182

Series 1 (ƒ)

        

9.118% due 03/31/49

    200      214

Royal KPN NV

        

8.000% due 10/01/10

    620      667

RSHB Capital SA for OJSC Russian Agricultural Bank (Å)

        

6.299% due 05/15/17

    310      294

Russia Government International Bond

        

7.500% due 03/31/30 (Þ)

    668      753

Series REGS

        

7.500% due 03/31/30

    49      55

Santander Financial Issuances

        

6.375% due 02/15/11

    145      150

Santander Perpetual SA Unipersonal (ƒ)(Å)

        

6.671% due 10/29/49

    400      398

Santander US Debt SA Unipersonal (Ê)

        

5.679% due 11/20/08

    1,200      1,198

Shinsei Finance Cayman, Ltd. (ƒ)(Å)

        

6.418% due 01/29/49

    630      587

Siemens Financieringsmaatschappij NV

        

5.500% due 02/16/12

    1,400      1,418

6.125% due 08/17/26 (Þ)

    1,890      1,908

SMFG Preferred Capital USD 1, Ltd. (Å)

        

6.078% due 01/29/49

    1,120      1,048

Sumitomo Mitsui Banking Corp. (ƒ)(Þ)

        

5.625% due 07/29/49

    185      173

Suncor Energy, Inc. (Ñ)

        

6.500% due 06/15/38

    2,705      2,832

Systems 2001 AT LLC (Þ)

        

7.156% due 12/15/11

    257      271

Telecom Italia Capital SA

        

6.200% due 07/18/11

    290      299

5.250% due 10/01/15

    620      597

Telefonica Emisiones SAU

        

5.888% due 06/19/09 (Ê)

    800      800

6.221% due 07/03/17

    175      181

Telefonica Europe BV

        

7.750% due 09/15/10

    1,040      1,114

Telefonos de Mexico SAB de CV

        

4.500% due 11/19/08

    515      511
    

Principal

Amount ($)

or Shares

     

Market

Value
$

TNK-BP Finance SA (Å)

        

7.875% due 03/13/18

    240      237

Series 144a

        

7.500% due 07/18/16

    540      527

Tyco International Group SA

        

6.125% due 11/01/08

    40      40

6.125% due 01/15/09

    10      10

6.750% due 02/15/11 (Ñ)

    880      929

6.375% due 10/15/11

    465      477

6.000% due 11/15/13

    835      847

7.000% due 06/15/28

    70      76

6.875% due 01/15/29

    210      213

UFJ Finance Aruba AEC

        

6.750% due 07/15/13

    60      63

Vale Overseas, Ltd.

        

6.250% due 01/11/16

    95      97

6.250% due 01/23/17

    285      288

6.875% due 11/21/36

    837      870

Vodafone Group PLC

        

6.150% due 02/27/37

    305      299

WEA Finance LLC/WCI Finance LLC (Þ)

        

5.700% due 10/01/16

    2,660      2,600

Western Oil Sands, Inc.

        

8.375% due 05/01/12

    235      262

Xstrata Canada Corp.

        

6.000% due 10/15/15

    635      639

Xstrata Finance Canada, Ltd.

        

5.500% due 11/16/11

    75      75
         
        72,639
         

Loan Agreements - 0.1%

        

Starbound Reinsurance, Ltd.

        

Term Loan B

        

8.550% due 03/31/08

    415      415

7.550% due 08/20/09

    795      794
         
        1,209
         

Mortgage-Backed Securities - 64.8%

     

Adjustable Rate Mortgage Trust (Ê)

        

Series 2005-3 Class 8A2

        

5.113% due 07/25/35

    313      307

American Home Mortgage Investment Trust (Ê)

        

Series 2004-4 Class 4A

        

4.390% due 02/25/45

    261      257

Series 2005-2 Class 5A2

        

5.023% due 09/25/35

    545      544

Fixed Income I Fund   133

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2005-3 Class 3A2

        

5.053% due 09/25/35

    30      30

Series 2005-4 Class 1A1

        

5.163% due 11/25/45

    878      851

Arcap Reit, Inc. (Þ)

        

Series 2004-RR3 Class B

        

5.040% due 09/21/45

    515      492

Banc of America Alternative Loan Trust

        

Series 2003-2 Class CB2 (Ê)

        

5.373% due 04/25/33

    153      153

Series 2003-10 Class 2A2 (Ê)

        

5.323% due 12/25/33

    381      379

Series 2006-5 Class CB17

        

6.000% due 06/25/36

    847      847

Banc of America Commercial Mortgage, Inc.

        

Series 2004-3 Class A3

        

4.875% due 06/10/39

    635      633

Series 2004-4 Class A3

        

4.128% due 07/10/42

    580      571

Series 2005-2 Class A4

        

4.783% due 07/10/43

    1,100      1,075

Series 2005-3 Class A2

        

4.501% due 07/10/43

    445      438

Series 2005-3 Class A4

        

4.668% due 07/10/43

    1,200      1,132

Series 2005-6 Class A1

        

5.001% due 09/10/47

    1,494      1,490

Series 2005-6 Class A2

        

5.165% due 09/10/47

    1,650      1,649

Series 2006-1 Class A4

        

5.372% due 09/10/45

    725      715

Series 2006-3 Class A4

        

5.889% due 07/10/44

    1,330      1,355

Series 2007-1 Class A3

        

5.449% due 01/15/49

    1,235      1,250

Series 2007-3 Class A4

        

5.659% due 06/10/49

    200      200

Banc of America Funding Corp.

        

Series 2005-5 Class 1A11

        

5.500% due 09/25/35

    1,067      1,042

Series 2005-D Class A1 (Ê)

        

4.111% due 05/25/35

    431      424

Series 2006-3 Class 5A8

        

5.500% due 03/25/36

    1,040      1,008

Series 2006-A Class 3A2

        

5.899% due 02/20/36

    4,330      4,355
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2006-A Class 4A1 (Ê)

        

5.571% due 02/20/36

    1,099      1,098

Series 2006-B Class 7A1 (Ê)

        

5.895% due 03/20/36

    777      781

Series 2006-G Class 2A1 (Ê)

        

5.218% due 07/20/36

    1,032      1,023

Series 2006-G Class 2A2 (Ê)

        

5.078% due 07/20/36

    801      798

Series 2007-E Class 4A1 (Ê)

        

5.936% due 09/20/37

    1,089      1,095

Banc of America Mortgage Securities, Inc.

        

Series 2003-9 Class 1A12 (Ê)

        

5.323% due 12/25/33

    927      923

Series 2004-1 Class 5A1

        

6.500% due 09/25/33

    63      64

Series 2004-2 Class 5A1

        

6.500% due 10/25/31

    97      97

Series 2004-11 Class 2A1

        

5.750% due 01/25/35

    868      850

Series 2005-H Class 2A5 (Ê)

        

4.803% due 09/25/35

    575      559

Series 2005-L Class 3A1 (Ê)

        

5.459% due 01/25/36

    529      526

Series 2006-2 Class A15

        

6.000% due 07/25/36

    1,006      1,014

Series 2007-3 Class 1A1

        

6.000% due 09/25/37

    2,475      2,453

Bear Stearns Adjustable Rate Mortgage Trust

        

Series 2002-11 Class 1A1

        

5.605% due 02/25/33

    35      35

Series 2004-1 Class 23A1 (Ê)

        

5.441% due 04/25/34

    266      259

Series 2004-4 Class A4

        

3.537% due 06/25/34

    319      316

Series 2004-8 Class 2A1

        

5.076% due 11/25/34

    820      815

Series 2004-9 Class 22A1 (Ê)

        

4.776% due 11/25/34

    253      251

Series 2004-10 Class 22A1

        

4.956% due 01/25/35

    369      364

Series 2005-2 Class A1 (Ê)

        

4.125% due 03/25/35

    4,031      3,992

Bear Stearns Alt-A Trust

        

Series 2005-4 Class 23A1

        

5.373% due 05/25/35

    553      554

Series 2005-7 Class 22A1

        

5.520% due 09/25/35

    349      349

134   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2006-4 Class 32A1

        

6.479% due 07/25/36

    4,620      4,702

Bear Stearns Commercial Mortgage Securities

        

Series 2005-PWR Class A1

        

4.386% due 02/11/41

    345      343

Series 2006-PW1 Class A1

        

5.044% due 12/01/38

    2,850      2,839

Bear Stearns Structured Products, Inc.

        

Series 2007-R6 Class 1A1

        

5.688% due 01/26/36

    586      582

Series 2007-R6 Class 2A1

        

5.788% due 12/26/46

    293      290

Series 2007-R10 Class A1 (Ê)(Å)

        

5.479% due 09/26/37

    1,828      1,819

Series 2007-R11 Class A1A (Ê)(Å)

        

6.103% due 09/27/37

    1,894      1,864

Chase Mortgage Finance Corp.

        

Series 2003-S8 Class A1

        

4.500% due 09/25/18

    547      526

Series 2005-A1 Class 2A2 (Ê)

        

5.238% due 12/25/35

    1,867      1,861

Series 2006-A1 Class 1A1 (Ê)

        

6.039% due 09/25/36

    1,493      1,500

Series 2006-S4 Class A3

        

6.000% due 12/25/36

    990      999

Series 2006-S4 Class A4

        

6.000% due 12/25/36

    520      523

Series 2007-A1 Class 5A1

        

4.169% due 02/25/37

    4,497      4,429

Citigroup Mortgage Loan Trust, Inc.

        

Series 2004-HYB Class A2 (Ê)

        

6.204% due 02/25/34

    61      61

Series 2005-3 Class 2A2B

        

4.677% due 08/25/35

    771      764

Series 2005-11 Class A2A (Ê)

        

4.700% due 12/25/35

    407      401

Series 2005-11 Class A3 (Ê)

        

4.900% due 12/25/35

    581      566

Series 2006-WFH Class A1 (Ê)

        

4.923% due 10/25/36

    1,211      1,202

Series 2007-AHL Class A3A (Ê)

        

4.933% due 05/25/37

    362      355

Series 2007-AR8 Class 2A1A

        

5.927% due 08/25/37

    668      668

Citigroup/Deutsche Bank Commercial Mortgage Trust

        

Series 2006-CD3 Class A5

        

5.617% due 10/15/48

    685      684
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Citimortgage Alternative Loan Trust

        

Series 2006-A3 Class 1A5

        

6.000% due 07/25/36

    552      556

Countrywide Alternative Loan Trust

        

Series 2004-2CB Class 1A4 (Ê)

        

5.273% due 03/25/34

    581      579

Series 2005-56 Class 4A1 (Ê)

        

5.183% due 11/25/35

    986      952

Series 2005-59 Class 1A1 (Ê)

        

5.328% due 11/20/35

    1,188      1,173

Series 2005-J8 Class 1A3

        

5.500% due 07/25/35

    800      782

Series 2005-J12 Class 2A1 (Ê)

        

5.143% due 11/25/35

    827      826

Series 2005-J13 Class 2A3

        

5.500% due 11/25/35

    327      324

Series 2006-43C Class 1A7

        

6.000% due 02/25/37

    270      270

Series 2006-9T1 Class A7

        

6.000% due 05/25/36

    426      431

Series 2006-J2 Class A3

        

6.000% due 04/25/36

    624      629

Series 2007-J2 Class 2A1

        

6.000% due 07/25/37

    765      767

Series 2007-OA6 Class A1B (Ê)

        

5.073% due 06/25/37

    711      692

Series 2007-OA7 Class A1A (Ê)

        

5.053% due 05/25/47

    704      681

Countrywide Asset-Backed Certificates

        

Series 2005-IM2 Class A3 (Ê)

        

5.143% due 01/25/36

    2,535      2,500

Series 2006-IM1 Class A2 (Ê)

        

5.113% due 04/25/36

    7,555      7,251

Countrywide Home Loan Mortgage Pass Through Trust

        

Series 2004-7 Class 5A2 (Ê)

        

5.143% due 05/25/34

    18      18

Series 2004-16 Class 1A1 (Ê)

        

5.273% due 09/25/34

    342      342

Series 2004-22 Class A3 (Ê)

        

4.797% due 11/25/34

    496      491

Series 2004-HYB Class 1A1 (Ê)

        

4.737% due 02/20/35

    1,152      1,142

Series 2005-3 Class 1A2 (Ê)

        

5.163% due 04/25/35

    171      168

Series 2005-HYB Class 3A2A (Ê)

        

5.250% due 02/20/36

    150      149

Series 2005-R3 Class AF (Ê)(Å)

        

5.531% due 09/25/35

    1,045      1,017

Fixed Income I Fund   135

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2006-HYB Class 2A1A

        

5.725% due 05/20/36

    761      771

Series 2006-OA4 Class A1 (Ê)

        

5.965% due 04/25/46

    426      428

Series 2007-18 Class 2A1

        

6.500% due 09/25/37

    792      797

Series 2007-HY1 Class 1A2 (Ê)

        

5.701% due 04/25/37

    365      369

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 1998-C2 Class A2

        

6.300% due 11/15/30

    264      266

Series 2004-C1 Class A3

        

4.321% due 01/15/37

    211      207

Series 2005-9 Class 2A1

        

5.500% due 10/25/35

    1,230      1,188

Series 2005-C4 Class A3

        

5.120% due 08/15/38

    5,050      4,985

Series 2005-C6 Class A1

        

4.938% due 12/15/40

    932      928

Credit Suisse Mortgage Capital Certificates

        

Series 2006-C1 Class A1

        

4.367% due 07/15/10

    407      402

Series 2006-C1 Class AAB

        

5.555% due 02/15/39

    1,220      1,221

Series 2006-C2 Class A1

        

5.250% due 03/15/39

    973      974

Series 2006-C2 Class A2

        

5.659% due 03/15/39

    1,120      1,128

Series 2006-C4 Class A1

        

4.771% due 09/15/39

    2,087      2,068

Series 2006-TFL Class A1 (Ê)(Þ)

        

5.211% due 04/15/21

    301      301

Series 2007-C1 Class A3

        

5.383% due 02/15/40

    2,500      2,448

Series 2007-C2 Class A2 (Ê)

        

5.448% due 01/15/49

    2,285      2,287

Series 2007-C3 Class A4

        

5.913% due 06/15/39

    2,265      2,290

Series 2007-C4 Class A4

        

5.811% due 09/15/39

    1,760      1,808

Series 2007-TF2 Class A1

        

5.271% due 04/15/22

    1,300      1,290

Series 2007-TF2 Class A3

        

5.361% due 04/15/22

    2,900      2,864

CW Capital Cobalt, Ltd.

        

Series 2007-C3 Class A2

        

5.740% due 05/15/46

    1,450      1,477
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Deutsche ALT-A Securities, Inc. Alternate Loan Trust (Ê)

        

Series 2005-AR1 Class 2A3

        

4.998% due 08/25/35

    1,060      1,037

DLJ Commercial Mortgage Corp.

        

Series 1998-CF1 Class A1B

        

6.410% due 02/18/31

    44      44

Downey Savings & Loan Association Mortgage Loan Trust (Ê)

        

Series 2004-AR3 Class 1A1B

        

7.260% due 07/19/44

    189      192

Series 2005-AR6 Class 2A1A

        

5.311% due 10/19/45

    981      963

Fannie Mae

        

7.000% due 2009

    9      10

7.000% due 2011

    11      11

8.000% due 2011

    4      4

5.200% due 2012

    748      751

7.000% due 2012

    3      3

5.500% due 2013

    10      10

6.500% due 2013

    54      55

5.500% due 2014

    24      24

6.500% due 2015

    22      22

7.000% due 2015

    15      16

5.500% due 2016

    5      5

6.000% due 2016

    153      156

6.500% due 2016

    123      126

9.000% due 2016

    2      2

5.500% due 2017

    215      217

6.000% due 2017

    1,296      1,321

6.500% due 2017

    279      287

7.500% due 2017

    1      1

8.500% due 2017

    4      5

4.500% due 2018

    4,199      4,072

5.000% due 2018

    3,097      3,059

5.500% due 2018

    2,560      2,573

6.500% due 2018

    296      306

4.500% due 2019

    1,893      1,834

5.000% due 2019

    13,709      13,528

6.500% due 2019

    156      162

4.000% due 2020

    3,917      3,694

4.500% due 2020

    6,316      6,118

5.000% due 2020

    13,483      13,295

6.500% due 2020

    64      67

5.000% due 2021

    862      849

5.500% due 2021

    766      767

6.000% due 2021

    3,233      3,291

5.000% due 2022

    977      962

5.500% due 2022

    409      409

136   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

8.000% due 2024

    112      118

8.500% due 2024

    21      22

9.000% due 2024

    4      4

7.000% due 2025

    17      18

8.000% due 2025

    1      1

8.500% due 2025

    27      28

7.000% due 2026

    28      28

9.000% due 2026

    5      6

6.000% due 2027

    1,515      1,532

7.000% due 2027

    10      10

9.000% due 2027

    1      1

6.500% due 2028

    504      521

6.500% due 2029

    1,465      1,515

7.000% due 2029

    133      140

6.500% due 2030

    9      9

8.000% due 2030

    141      149

6.500% due 2031

    153      158

8.000% due 2031

    124      131

5.500% due 2032

    68      67

6.000% due 2032

    1,416      1,433

6.500% due 2032

    2,016      2,076

7.000% due 2032

    873      909

8.000% due 2032

    5      6

3.900% due 2033 (Ê)

    566      569

4.500% due 2033

    1,601      1,496

5.000% due 2033

    5,717      5,507

5.100% due 2033 (Ê)

    336      340

5.500% due 2033

    24,395      24,108

6.000% due 2033

    1,119      1,131

6.500% due 2033

    899      926

7.000% due 2033

    211      220

4.500% due 2034

    1,437      1,341

5.000% due 2034

    14,193      13,657

5.500% due 2034

    32,713      32,313

6.000% due 2034

    9,902      10,006

6.500% due 2034

    985      1,011

4.500% due 2035

    2,572      2,398

4.500% due 2035 (Ê)

    614      612

4.700% due 2035 (Ê)

    1,866      1,828

4.800% due 2035 (Ê)

    613      604

4.800% due 2035 (Ê)

    420      421

5.000% due 2035

    13,649      13,121

5.100% due 2035 (Ê)

    1,420      1,403

5.500% due 2035

    52,470      51,785

6.000% due 2035

    6,813      6,880

6.900% due 2035 (Ê)

    3,384      3,472

7.000% due 2035 (Ê)

    313      321

4.800% due 2036 (Ê)

    989      990
    

Principal

Amount ($)

or Shares

     

Market

Value
$

5.000% due 2036

    13,175      12,658

5.500% due 2036

    3,569      3,512

6.000% due 2036

    12,818      12,907

6.500% due 2036

    5,521      5,653

7.000% due 2036

    187      194

5.000% due 2037

    3,589      3,445

5.500% due 2037

    16,887      16,645

5.600% due 2037 (Ê)

    1,758      1,773

5.900% due 2037 (Ê)

    200      204

6.000% due 2037 (Ê)

    675      681

6.000% due 2037

    500      504

6.500% due 2037

    6,305      6,445

6.200% due 2044 (Ê)

    183      185

Series 2003-337 Class 1

Principal Only Strip

        

Zero coupon due 07/01/33

    1,008      726

Series 2003-343 Class 6

        

5.000% due 10/01/33

    989      249

Series 2003-345 Class 18

        

4.500% due 12/01/18

    2,427      355

Series 2003-345 Class 19

        

4.500% due 01/01/19

    2,710      396

Series 2004-353 Class 2

        

5.000% due 08/01/34

    1,492      383

Series 2004-356 Class 35

        

4.500% due 03/01/20

    420      65

Series 2004-356 Class 36

        

4.500% due 03/01/20

    719      112

Series 2005-365 Class 12

        

5.500% due 12/01/35

    2,833      687

Series 2006-369 Class 8

        

5.500% due 04/01/36

    734      183

Series 2006-372 Class 2

        

6.000% due 08/01/36

    1,429      331

15 Year TBA (Ï)

        

4.500% due

    3,340      3,230

5.000% due

    5,655      5,565

5.500% due

    14,730      14,753

6.000% due

    46,795      47,136

30 Year TBA (Ï)

        

4.500% due

    2,025      1,887

5.000% due

    59,935      57,502

5.500% due

    49,440      48,708

6.000% due

    5,200      5,289

6.500% due

    20,025      20,494

Fannie Mae Grantor Trust

        

Series 2001-T6 Class B

        

6.088% due 05/25/11

    1,810      1,876

Fixed Income I Fund   137

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2002-T5 Class A1 (Ê)

        

5.113% due 05/25/32

    713      713

Series 2003-T4 Class 1A (Ê)

        

4.983% due 09/26/33

    202      202

Fannie Mae REMICS

        

Series 1992-158 Class ZZ

        

7.750% due 08/25/22

    233      246

Series 1999-56 Class Z

        

7.000% due 12/18/29

    391      406

Series 2003-21 Class M

        

5.000% due 02/25/17

    29      29

Series 2003-32 Class FH (Ê)

        

5.273% due 11/25/22

    247      246

Series 2003-35 Class FY

        

5.273% due 05/25/18

    1,243      1,251

Series 2003-37 Class HY

        

5.000% due 12/25/16

    652      649

Series 2003-78 Class FI (Ê)

        

5.273% due 01/25/33

    547      548

Series 2004-21 Class FL (Ê)

        

5.223% due 11/25/32

    274      274

Series 2005-65 Class FP (Ê)

        

5.123% due 08/25/35

    348      347

Series 2006-5 Class 3A2 (Ê)

        

4.672% due 05/25/35

    100      100

Series 2006-48 Class LG

Principal Only STRIP

        

Zero coupon due 06/25/36

    219      165

Series 2007-73 Class A1 (Ê)

        

4.933% due 07/25/37

    816      800

Fannie Mae Whole Loan

        

Series 2003-W1 Class 1A1

        

6.500% due 12/25/42

    63      65

Series 2003-W5 Class A (Ê)

        

5.093% due 04/25/33

    257      249

Series 2003-W9 Class A (Ê)

        

5.113% due 06/25/33

    360      360

Series 2004-W2 Class 5AF (Ê)

        

5.223% due 03/25/44

    487      482

Federal Home Loan Mortgage Corp. Structured Pass Through Securities (Ê)

        

Series 2005-63 Class 1A1

        

6.183% due 02/25/45

    76      76

FHA Project Citi 68 NP
7.400% due 01/01/21

    156      156
    

Principal

Amount ($)

or Shares

     

Market

Value
$

First Horizon Alternative Mortgage Securities

        

Series 2004-AA3 Class A1

        

5.300% due 09/25/34

    351      351

Series 2006-AA5 Class A2 (Ê)

        

6.525% due 09/25/36

    563      578

Series 2006-AA7 Class A1

        

6.543% due 01/25/37

    2,769      2,823

Series 2006-FA3 Class A6

        

6.000% due 07/25/36

    559      560

First Horizon Asset Securities, Inc. (Ê)

        

Series 2005-AR5 Class 3A1

        

5.535% due 10/25/35

    247      246

Freddie Mac

        

7.000% due 2008

    3      3

8.000% due 2009

    8      8

6.000% due 2010

    32      32

7.000% due 2010

    51      52

8.000% due 2010

    13      14

6.000% due 2011

    107      108

7.000% due 2011

    8      8

8.000% due 2011

    9      10

6.000% due 2012

    2      2

8.000% due 2012

    5      5

4.500% due 2013 (Ñ)

    1,020      1,012

6.000% due 2013

    25      25

7.000% due 2014

    55      57

12.000% due 2014

    25      27

6.000% due 2016

    329      335

9.000% due 2016

    91      99

6.000% due 2017

    526      537

8.000% due 2017

    14      15

4.500% due 2018

    1,518      1,472

5.000% due 2018

    934      924

4.500% due 2019

    860      832

5.000% due 2019

    723      714

5.500% due 2019

    935      938

4.500% due 2020

    794      768

5.500% due 2020

    2,456      2,465

4.500% due 2021

    49      47

9.000% due 2024

    5      6

6.500% due 2025

    15      16

8.000% due 2025

    29      30

9.000% due 2025

    8      9

9.000% due 2026

    2      2

6.500% due 2027

    2      2

7.300% due 2027 (Ê)

    28      28

8.500% due 2027

    55      59

138   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

6.500% due 2028

    171      176

6.500% due 2029

    317      328

7.400% due 2030 (Ê)

    9      9

6.000% due 2031

    14      14

6.500% due 2031

    452      466

5.500% due 2032

    4,273      4,218

6.000% due 2032

    62      63

6.500% due 2032

    553      570

7.000% due 2032

    494      513

7.500% due 2032

    67      70

5.000% due 2033

    1,038      999

5.000% due 2033 (Ê)

    2,045      2,086

5.500% due 2033

    6,684      6,597

6.000% due 2033

    512      516

6.500% due 2033

    255      262

4.500% due 2034

    328      306

5.000% due 2034

    3,699      3,560

5.500% due 2034

    3,312      3,269

6.000% due 2034

    845      852

6.500% due 2034

    222      228

6.900% due 2034 (Ê)

    241      243

5.000% due 2035

    7,892      7,581

5.500% due 2035

    2,799      2,760

6.000% due 2035

    502      501

5.000% due 2036

    4,193      4,029

5.100% due 2036 (Ê)

    2,143      2,128

5.500% due 2036

    1,563      1,540

5.900% due 2036 (Ê)

    1,174      1,189

6.000% due 2036

    459      465

6.200% due 2036 (Ê)

    842      858

5.000% due 2037

    3,892      3,735

5.500% due 2037

    5,058      4,980

5.600% due 2037 (Ê)

    480      484

5.700% due 2037 (Ê)

    1,872      1,891

5.700% due 2037 (Ê)

    236      239

5.800% due 2037 (Ê)

    2,073      2,098

5.900% due 2037 (Ê)

    1,432      1,440

5.900% due 2037 (Ê)

    1,522      1,541

6.100% due 2037 (Ê)

    1,800      1,834

15 Year TBA (Ï)

        

5.000% due

    2,500      2,462

30 Year TBA (Ï)

        

5.000% due

    8,665      8,315

5.500% due

    15,840      15,592

6.000% due

    36,025      36,250

Freddie Mac Reference REMIC

        

Series 2006-R00 Class AK

        

5.750% due 12/15/18

    643      648
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Freddie Mac REMICS

        

Series 1991-105 Class G

        

7.000% due 03/15/21

    35      35

Series 1993-160 Class I Interest Only STRIP

        

6.500% due 11/15/08

    41      —

Series 1998-210 Class ZM

        

6.000% due 2028

    623      626

Series 2000-226 Class F (Ê)

        

5.541% due 11/15/30

    11      11

Series 2001-229 Class KF (Ê)

        

5.123% due 07/25/22

    367      367

Series 2003-258 Class IG Interest Only STRIP

        

4.500% due 10/15/16

    735      65

Series 2003-262 Class AB

        

2.900% due 11/15/14

    589      577

Series 2003-269 Class FE (Ê)

        

5.691% due 12/15/28

    685      687

Series 2004-277 Class UF (Ê)

        

5.391% due 06/15/33

    669      669

Series 2004-281 Class DF (Ê)

        

5.541% due 06/15/23

    497      501

Series 2005-292 Class IG Interest Only STRIP

        

5.000% due 04/15/23

    392      56

Series 2005-294 Class FA (Ê)

        

5.261% due 03/15/20

    966      967

Series 2005-295 Class NA

        

4.250% due 09/15/24

    448      444

Series 2005-299 Class KF

        

5.491% due 06/15/35

    529      524

Series 2005-301 Class IM Interest Only STRIP

        

5.500% due 01/15/31

    565      65

Series 2005-305 Class JF (Ê)

        

5.391% due 10/15/35

    438      437

Series 2006-323 Class PA

        

6.000% due 03/15/26

    1,060      1,073

Series 2007-333 Class AF

        

5.241% due 10/15/20

    5,911      5,889

Series 2007-333 Class BF

        

5.241% due 07/15/19

    1,405      1,400

Series 2007-333 Class FT

        

5.241% due 08/15/19

    3,370      3,358

Series 2007-334 Class FA

        

5.321% due 02/15/19

    3,925      3,910

Fixed Income I Fund   139

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Freddie Mac Strips

        

Series 2007-245 Class IO Interest Only STRIP

        

5.000% due 05/15/37

    4      1

GE Capital Commercial Mortgage Corp.

        

Series 2005-C1 Class A1

        

4.012% due 06/10/48

    392      387

Series 2005-C1 Class A5

        

4.772% due 06/10/48

    530      504

Series 2006-C1 Class A4 (Ê)

        

5.339% due 03/10/44

    1,145      1,133

Series 2007-C1 Class A4 (Ê)

        

5.489% due 12/10/49

    250      248

Ginnie Mae I

        

6.500% due 2009

    62      63

6.500% due 2010

    3      3

7.000% due 2011

    12      12

9.500% due 2016

    2      2

8.000% due 2017

    10      10

10.500% due 2020

    8      9

8.000% due 2022

    20      21

8.500% due 2022

    10      11

8.500% due 2024

    10      11

8.000% due 2025

    19      21

9.000% due 2025

    17      19

8.000% due 2026

    88      94

7.000% due 2029

    6      6

8.000% due 2029

    55      59

8.500% due 2029

    20      22

8.000% due 2030

    78      82

8.500% due 2030

    21      22

7.000% due 2031

    401      422

7.000% due 2032

    114      119

5.000% due 2033

    2,772      2,694

7.000% due 2033

    17      17

5.000% due 2035

    435      422

6.000% due 2035

    3,849      3,900

30 Year TBA (Ï)

        

5.500% due

    6,365      6,324

6.500% due

    2,700      2,777

Ginnie Mae II

        

6.100% due 2027 (Ê)

    41      41

5.000% due 2030 (Ê)

    135      136

6.400% due 2030 (Ê)

    23      23

7.500% due 2032

    15      15

4.500% due 2035

    811      760
    

Principal

Amount ($)

or Shares

     

Market

Value
$

GMAC Commercial Mortgage Securities, Inc.

        

Series 2001-C1 Class A2

        

6.465% due 04/15/34

    670      695

Series 2005-C1 Class A2

        

4.471% due 05/10/43

    465      458

GMAC Mortgage Corp. Loan Trust

        

Series 2004-HE5 Class A3

        

3.970% due 09/25/34

    128      127

Series 2005-AR6 Class 3A1

        

5.298% due 11/19/35

    860      853

Series 2006-AR1 Class 1A1 (Ê)

        

5.596% due 03/19/36

    1,984      1,997

Series 2006-HE4 Class A1 (Ê)

        

4.943% due 12/25/36

    600      597

Government National Mortgage Association (Ê)

        

Series 1999-40 Class FE

        

5.610% due 11/16/29

    859      866

Greenpoint Mortgage Funding Trust (Ê)

        

Series 2006-AR5 Class A1A

        

4.953% due 10/25/46

    1,542      1,533

Greenpoint Mortgage Pass-Through Certificates (Ê)

        

Series 2003-1 Class A1

        

4.384% due 10/25/33

    439      436

Greenwich Capital Commercial Funding Corp.

        

Series 2004-GG1 Class A7

        

5.317% due 06/10/36

    1,745      1,729

Series 2005-GG3 Class A1

        

3.919% due 08/10/42

    577      571

Series 2005-GG5 Class A41

        

5.243% due 04/10/37

    695      689

Series 2007-GG1 Class A4

        

5.736% due 12/10/49

    1,645      1,653

GS Mortgage Securities Corp. II

        

Series 1998-C1 Class A2

        

6.620% due 10/18/30

    1,140      1,144

Series 2005-GG4 Class AABA

        

4.680% due 07/10/39

    600      581

Series 2006-FL8 Class A1 (Ê)(Þ)

        

5.222% due 06/06/20

    44      44

Series 2006-GG6 Class A4

        

5.553% due 04/10/38

    725      723

Series 2006-GG8 Class AAB

        

5.535% due 11/10/39

    575      572

140   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2007-GG1 Class A4

        

5.799% due 08/10/45

    660      669

GSMPS Mortgage Loan Trust (Ê)(Þ)

        

Series 2004-4 Class 1AF

        

5.273% due 06/25/34

    977      966

GSR Mortgage Loan Trust

        

Series 2004-5 Class 1A3

        

5.840% due 05/25/34

    528      532

Series 2004-7 Class 4A1

        

4.837% due 06/25/34

    68      65

Series 2005-AR7 Class 6A1

        

5.250% due 11/25/35

    620      594

Harborview Mortgage Loan Trust

        

Series 2004-4 Class 3A (Ê)

        

6.253% due 06/19/34

    268      268

Series 2005-4 Class 3A1

        

5.147% due 07/19/35

    446      444

Series 2005-14 Class 3A1A

        

5.301% due 12/19/35

    240      241

Series 2006-2 Class 1A

        

5.430% due 02/25/36

    1,094      1,086

Series 2006-3 Class 1A1A (Ê)

        

6.376% due 06/19/36

    5,887      5,990

Series 2006-14 Class 2A1A (Ê)

        

5.171% due 03/19/38

    2,939      2,877

HSI Asset Securitization Corp. Trust (Ê)

        

Series 2005-I1 Class 2A1

        

4.993% due 11/25/35

    218      218

Impac CMB Trust (Ê)

        

Series 2004-5 Class 1A1

        

5.233% due 10/25/34

    291      291

Impac Secured Assets CMN Owner Trust (Ê)

        

Series 2005-2 Class A1

        

5.193% due 03/25/36

    1,007      986

Indymac INDA Mortgage Loan Trust (Ê)

        

Series 2007-AR7 Class 1A1

        

7.438% due 11/25/37

    310      313

Indymac Index Mortgage Loan Trust

        

Series 2005-AR1 Class A2

        

5.099% due 09/25/35

    299      292

Series 2006-AR2 Class A2 (Ê)

        

4.953% due 11/25/36

    136      135

Series 2006-AR3 Class 2A1A (Ê)

        

6.374% due 03/25/36

    7,785      7,950
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Indymac Loan Trust (Ê)

        

Series 2004-L1 Class A1 (Þ)

        

5.153% due 07/25/09

    215      213

Series 2005-L1 Class A

        

5.073% due 06/25/10

    584      579

Series 2005-L2 Class A1

        

5.093% due 01/25/11

    700      695

JP Morgan Alternative Loan Trust (Ê)

        

Series 2006-A2 Class 3A1

        

5.942% due 05/25/36

    3,373      3,406

Series 2006-A3 Class 1A2

        

4.943% due 07/25/36

    707      703

Series 2006-A4 Class A4

        

4.943% due 08/25/36

    548      548

Series 2006-A6 Class 1A2

        

5.201% due 11/25/36

    968      956

Series 2006-S4 Class A1B

        

5.211% due 12/25/36

    1,630      1,622

JP Morgan Chase Commercial Mortgage Securities Corp.

        

Series 2003-CB7 Class A3

        

4.449% due 01/12/38

    1,205      1,182

Series 2004-LN2 Class A1

        

4.475% due 07/15/41

    650      638

Series 2005-CB1 Class A1

        

4.520% due 08/12/37

    746      740

Series 2005-CB1 Class A2

        

5.247% due 01/12/43

    1,230      1,231

Series 2005-CB1 Class A4

        

4.895% due 09/12/37

    160      153

5.294% due 01/12/43 (Ê)

    200      197

Series 2005-FL1 Class A1 (Ê)(Þ)

        

5.201% due 02/15/19

    156      156

Series 2005-LDP Class A1

        

5.035% due 12/15/44

    3,020      3,011

4.116% due 03/15/46

    381      377

Series 2005-LDP Class A3

        

4.959% due 08/15/42

    885      865

5.209% due 12/15/44 (Ê)

    2,845      2,816

Series 2005-LDP Class A3A1

        

4.871% due 10/15/42

    1,940      1,911

Series 2005-LDP Class A4

        

4.918% due 10/15/42

    690      661

5.179% due 12/15/44 (Ê)

    645      633

Series 2006-CB1 Class A1

        

5.279% due 12/12/43

    808      813

Series 2006-CB1 Class A3A (Þ)

        

5.491% due 12/12/44

    1,765      1,767

Fixed Income I Fund   141

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2006-CB1 Class A4

        

5.481% due 12/12/44

    1,090      1,081

5.817% due 05/12/45

    785      780

Series 2006-CB1 Class ASB

        

5.506% due 12/12/44

    470      469

Series 2006-LDP Class A1S (Ê)

        

5.284% due 05/15/47

    5,146      5,129

Series 2006-LDP Class A3

        

5.336% due 05/15/47

    485      473

Series 2006-LDP Class A3B

        

5.447% due 05/15/45

    820      814

Series 2006-LDP Class A4 (Ê)

        

5.875% due 04/15/45

    1,580      1,615

5.561% due 05/15/45

    1,055      1,037

Series 2007-CB1 Class A2

        

5.815% due 02/12/49

    595      601

Series 2007-CB2 Class A4

        

5.794% due 02/12/51

    2,785      2,804

Series 2007-LD1 Class A2

        

5.827% due 02/15/51

    2,550      2,585

Series 2007-LD1 Class A4

        

5.819% due 06/15/49

    1,200      1,229

5.882% due 02/15/51

    1,265      1,282

Series 2007-LDP Class A2

        

5.434% due 01/15/49

    4,150      4,085

Series 2007-LDP Class A3

        

5.393% due 01/15/49

    2,890      2,837

JP Morgan Mortgage Trust

        

Series 2005-A1 Class 6T1 (Ê)

        

5.023% due 02/25/35

    485      471

Series 2005-A2 Class 3A1 (Ê)

        

4.900% due 04/25/35

    1,098      1,089

Series 2005-A3 Class 6A1 (Ê)

        

4.912% due 06/25/35

    1,632      1,623

Series 2005-A6 Class 2A2 (Ê)

        

4.973% due 08/25/35

    1,118      1,109

Series 2006-A2 Class 1A1 (Ê)

        

5.460% due 04/25/36

    1,802      1,785

Series 2007-A1 Class 3A2 (Ê)

        

5.007% due 07/25/35

    5,584      5,530

Series 2007-A1 Class 6A1 (Ê)

        

4.780% due 07/25/35

    2,016      1,990

Series 2007-A4 Class 3A1

        

5.882% due 06/25/37

    1,863      1,860

LB-UBS Commercial Mortgage Trust

        

Series 2001-C3 Class A1

        

6.058% due 06/15/20

    193      196

Series 2003-C3 Class A1

        

2.599% due 05/15/27

    465      462
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2004-C2 Class A1

        

2.946% due 03/15/29

    1,377      1,346

Series 2004-C4 Class A3 (Ê)

        

4.972% due 06/15/29

    1,460      1,465

Series 2005-C3 Class A5

        

4.739% due 07/15/30

    820      777

Series 2005-C3 Class AAB

        

4.664% due 07/15/30

    1,000      967

Series 2006-C4 Class A4 (Ê)

        

5.883% due 06/15/38

    400      409

Series 2007-C6 Class A4

        

5.858% due 07/15/40

    695      713

Lehman Brothers Floating Rate Commercial Mortgage Trust (Ê)(Þ)

        

Series 2006-LLF Class A1

        

5.171% due 09/15/21

    102      102

Lehman Mortgage Trust

        

Series 2005-3 Class 1A3

        

5.500% due 01/25/36

    1,366      1,369

Lehman XS Trust (Ê)

        

Series 2005-5N Class 1A1

        

5.173% due 11/25/35

    669      657

Series 2005-7N Class 1A1B

        

5.173% due 12/25/35

    497      481

Mach One Trust Commercial Mortgage-Backed (Þ)

        

Series 2004-1A Class A3

        

5.220% due 05/28/40

    1,665      1,619

Master Adjustable Rate Mortgages Trust

        

Series 2004-13 Class 3A4 (Ê)

        

3.787% due 11/21/34

    500      494

Series 2006-2 Class 3A1

        

4.846% due 01/25/36

    1,241      1,223

Series 2006-OA2 Class 1A1 (Ê)

        

5.783% due 12/25/46

    520      508

Series 2007-3 Class 12A1 (Ê)

        

5.073% due 05/25/47

    1,694      1,646

Master Reperforming Loan Trust (Å)

        

Series 2005-1 Class 1A1

        

6.000% due 08/25/34

    549      549

Mastr Alternative Loans Trust

        

Series 2003-4 Class B1 (Ê)

        

5.674% due 06/25/33

    423      420

Series 2004-10 Class 5A6

        

5.750% due 09/25/34

    640      619

Mastr Asset Securitization Trust

        

Series 2003-7 Class 4A35 (Ê)

        

5.273% due 09/25/33

    690      683

142   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2003-11 Class 6A8 (Ê)

        

5.373% due 12/25/33

    712      706

Series 2004-4 Class 2A2 (Ê)

        

5.323% due 04/25/34

    631      628

Series 2005-2 Class 1A1

        

5.250% due 11/25/35

    1,413      1,378

Merrill Lynch Mortgage Investors, Inc.

        

Series 2005-A10 Class A (Ê)

        

5.083% due 02/25/36

    292      287

Series 2006-A1 Class 1A1

        

5.852% due 03/25/36

    4,571      4,607

Merrill Lynch Mortgage Trust

        

Series 2004-MKB Class A2

        

4.353% due 02/12/42

    820      811

Series 2005-LC1 Class A1

        

5.017% due 01/12/44

    239      239

Series 2005-LC1 Class A2

        

5.202% due 01/12/44

    1,645      1,645

Series 2005-MKB Class A1

        

4.446% due 09/12/42

    615      609

Series 2006-C1 Class A4

        

5.659% due 05/12/39

    660      666

Merrill Lynch/Countrywide Commercial Mortgage Trust

        

Series 2006-3 Class A2

        

5.291% due 07/12/46

    1,820      1,815

Series 2006-4 Class A1

        

3.642% due 12/12/49

    939      911

Series 2007-5 Class A4

        

5.378% due 08/12/48

    485      479

Series 2007-8 Class A3

        

5.957% due 07/12/17

    1,015      1,040

MLCC Mortgage Investors, Inc. (Ê)

        

Series 2004-HB1 Class A2

        

5.750% due 04/25/29

    192      190

Series 2005-2 Class 3A

        

5.873% due 10/25/35

    171      169

Series 2005-3 Class 4A

        

5.123% due 11/25/35

    117      115

Morgan Stanley Capital I

        

Series 2004-HQ3 Class A1

        

3.100% due 01/13/41

    276      274

Series 2004-RR2 Class A2 (Þ)

        

5.450% due 10/28/33

    1,705      1,664

Series 2005-HQ5 Class A4

        

5.168% due 01/14/42

    1,125      1,092

Series 2005-HQ6 Class A4A

        

4.989% due 08/13/42

    530      510
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2005-IQ1 Class AAB

        

5.178% due 09/15/42

    940      929

Series 2005-IQ9 Class A1

        

3.990% due 07/15/56

    507      499

Series 2005-T17 Class A5

        

4.780% due 12/13/41

    310      295

Series 2006-HQ1 Class A4

        

5.328% due 11/12/41

    345      338

Series 2006-HQ8 Class A4

        

5.388% due 03/12/44

    1,025      1,018

Series 2006-HQ9 Class A4

        

5.731% due 07/12/44

    745      750

Series 2007-HQ1 Class A4

        

5.447% due 02/12/44

    1,335      1,325

Morgan Stanley Dean Witter Capital I

        

Series 2001-TOP Class A3

        

6.200% due 07/15/33

    178      178

Morgan Stanley Mortgage Loan Trust

        

Series 2006-3AR Class 2A3 (Ê)

        

5.707% due 03/25/36

    1,136      1,152

Nomura Asset Acceptance Corp.

        

Series 2007-2 Class A1A

        

4.993% due 06/25/15

    3,248      3,240

Novastar Mortgage-Backed Notes (Ê)

        

Series 2006-MTA Class 2A1A

        

5.063% due 09/25/46

    896      871

Prime Mortgage Trust

        

Series 2004-CL1 Class 1A2 (Ê)

        

5.273% due 02/25/34

    167      164

Series 2004-CL1 Class 2A2 (Ê)

        

5.273% due 02/25/19

    36      36

Series 2006-DR1 Class 2A1 (Å)

        

5.500% due 05/25/35

    2,371      2,345

Series 2006-DR1 Class 2A2 (Å)

        

6.000% due 05/25/35

    2,103      2,085

Residential Accredit Loans, Inc.

        

Series 2004-QS5 Class A6 (Ê)

        

5.473% due 04/25/34

    265      263

Series 2004-QS8 Class A4 (Ê)

        

5.273% due 06/25/34

    537      534

Series 2005-QA1 Class 2A1

        

5.833% due 12/25/35

    1,167      1,172

Series 2005-QA1 Class A41 (Ê)

        

5.681% due 09/25/35

    877      876

Series 2005-QA8 Class NB3 (Ê)

        

5.479% due 07/25/35

    556      556

Series 2005-QO3 Class A1 (Ê)

        

5.273% due 10/25/45

    972      955

Fixed Income I Fund   143

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 2006-QA1 Class A21 (Ê)

        

5.967% due 01/25/36

    2,807      2,843

Series 2006-QO7 Class 3A2 (Ê)

        

5.078% due 09/25/46

    1,340      1,297

Series 2006-QS6 Class 1A13

        

6.000% due 06/25/36

    1,581      1,589

Residential Asset Securities Corp. (Ê)

        

Series 2003-KS4 Class AIIB

        

5.453% due 06/25/33

    246      243

Residential Asset Securitization Trust

        

Series 2003-A15 Class 1A2 (Ê)

        

5.323% due 02/25/34

    623      620

Series 2007-A5 Class 2A3

        

6.000% due 05/25/37

    389      391

Residential Funding Mortgage Securities I

        

Series 2003-S5 Class 1A2 (Ê)

        

5.323% due 11/25/18

    775      775

Series 2003-S14 Class A5 (Ê)

        

5.273% due 07/25/18

    798      794

Series 2003-S20 Class 1A7 (Ê)

        

5.373% due 12/25/33

    326      324

Series 2006-SA4 Class 2A1 (Ê)

        

6.119% due 11/25/36

    1,474      1,488

Salomon Brothers Mortgage Securities VII, Inc.

        

Series 2003-UP2 Class A1

        

4.000% due 12/25/18

    322      305

Sequoia Mortgage Trust (Ê)

        

Series 2004-3 Class A

        

5.670% due 04/20/34

    506      501

Small Business Administration

        

Series 1999-P10 Class 1

        

7.540% due 08/10/09

    159      163

Small Business Administration Participation Certificates

        

Series 2003-20I Class 1

        

5.130% due 09/01/23

    71      71

Structured Adjustable Rate Mortgage Loan Trust (Ê)

        

Series 2005-19X Class 1A1

        

5.193% due 10/25/35

    639      630

Structured Asset Mortgage Investments, Inc. (Ê)

        

Series 2005-AR5 Class A2

        

5.271% due 07/19/35

    363      354

Structured Asset Securities Corp.

        

Series 2004-21X Class 1A3

        

4.440% due 12/25/34

    1,264      1,255
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Series 2006-11 Class A1 (Å)

        

5.322% due 10/25/35

    394      392

Thornburg Mortgage Securities Trust (Ê)

        

Series 2003-2 Class A1

        

5.213% due 04/25/43

    204      204

Series 2006-1 Class A3

        

5.043% due 01/25/36

    2,882      2,869

Series 2006-3 Class A3

        

4.983% due 06/25/36

    1,714      1,703

Series 2006-6 Class A1

        

4.983% due 12/25/36

    479      473

Series 2007-4 Class 2A1

        

6.240% due 09/25/37

    974      981

Series 2007-4 Class 3A1

        

6.220% due 09/25/37

    885      881

Tobacco Settlement Authority of Iowa Revenue Bonds

        

6.500% due 02/20/23

    95      91

Wachovia Bank Commercial Mortgage Trust

        

Series 2003-C9 Class A1

        

3.291% due 12/15/35

    603      594

Series 2005-C16 Class A2

        

4.380% due 10/15/41

    969      955

Series 2005-C17 Class A1

        

4.430% due 03/15/42

    252      251

Series 2005-C22 Class A3 (Ê)

        

5.286% due 12/15/44

    2,435      2,423

Series 2007-C30 Class A5

        

5.342% due 12/15/43

    1,890      1,844

Series 2007-C31 Class A2

        

5.421% due 04/15/47

    1,850      1,846

Series 2007-C31 Class A4

        

5.540% due 04/15/47

    1,820      1,795

Series 2007-C33 Class A2

        

6.055% due 02/15/51

    1,700      1,732

Series 2007-WHL Class A1 (Ê)(Å)

        

5.171% due 06/15/20

    193      191

WaMu Mortgage Pass Through Certificates

        

Series 2002-AR1 Class 1A (Ê)

        

6.133% due 11/25/42

    129      130

Series 2003-S9 Class A2 (Ê)

        

5.423% due 10/25/33

    592      588

Series 2005-AR1 Class 1A1

        

4.834% due 10/25/35

    693      686

Series 2005-AR1 Class A1A1 (Ê)

        

5.163% due 10/25/45

    798      784

144   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value $

       

Series 2005-AR1 Class A1A2 (Ê)

        

5.153% due 11/25/45

    841      822

5.163% due 12/25/45

    440      432

Series 2005-AR6 Class B3 (Ê)

        

5.533% due 04/25/45

    496      491

Series 2006-AR1 Class 1A1

        

5.943% due 09/25/36

    1,685      1,693

Series 2006-AR1 Class 1A1A (Ê)

        

6.053% due 01/25/46

    469      467

Series 2007-HY3 Class 4B1

        

5.349% due 03/25/37

    409      394

Series 2007-HY4 Class 1A1

        

5.559% due 04/25/37

    473      470

Washington Mutual Alternative Mortgage Pass-Through Certificates

        

Series 2005-4 Class CB11

        

5.500% due 06/25/35

    350      339

Series 2007-OA2 Class 2A (Ê)

        

5.633% due 01/25/47

    530      513

Series 2007-OA5 Class A1A

        

5.822% due 05/25/47

    1,761      1,720

Wells Fargo Mortgage Backed Securities Trust

        

Series 2004-CC Class A1 (Ê)

        

4.950% due 01/25/35

    675      661

Series 2005-17 Class 2A1

        

5.500% due 01/25/36

    1,735      1,683

Series 2005-AR1 Class 4A2

        

4.991% due 10/25/35

    2,360      2,349

Series 2006-2 Class 2A3

        

5.500% due 03/25/36

    1,030      1,026

Series 2006-AR2 Class 2A1

        

4.950% due 03/25/36

    654      647

Series 2006-AR8 Class 2A3

        

5.240% due 04/25/36

    141      141

Series 2007-8 Class 1A16

        

6.000% due 07/25/37

    977      971

Series 2007-10 Class 2A5

        

6.250% due 07/25/37

    491      497

Zuni Mortgage Loan Trust (Ê)

        

Series 2006-OA1 Class A1

        

5.003% due 08/25/36

    909      903
         
        1,046,222
         

Municipal Bonds - 0.0%

        

State of Texas General Obligation Unlimited, weeklydemand

        

4.750% due 04/01/35

    300      300
         
    

Principal

Amount ($)

or Shares

     

Market

Value
$

Non-US Bonds - 0.1%

        

Canadian Government Bond

        

4.000% due 12/01/31

    CAD  171      246

Poland Government Bond Series

        

1013 5.000% due 10/24/13

    PLN  2,540      987
         
        1,233
         

United States Government Agencies - 4.6%

        

Fannie Mae

        

5.125% due 07/13/09 (Ñ)

      935      947

7.250% due 01/15/10 (Ñ)

      600      636

3.875% due 02/15/10

      1,495      1,481

4.750% due 04/19/10 (Ñ)

      3,765      3,791

4.250% due 08/15/10 (Ñ)

      3,310      3,297

4.375% due 09/13/10 (Ñ)

      670      670

5.125% due 04/15/11 (Ñ)

      2,270      2,319

5.000% due 02/16/12 (Ñ)

      4,050      4,111

4.375% due 09/15/12 (Ñ)

      470      465

4.375% due 03/15/13 (Ñ)

      140      138

5.250% due 03/24/15

      650      650

5.375% due 06/12/17 (Ñ)

      605      625

6.625% due 11/15/30 (Ñ)

      345      409

6.210% due 08/06/38

      420      483

Federal Farm Credit Bank (Ñ)

        

5.125% due 08/25/16

      830      845

Federal Home Loan Bank

        

4.500% due 10/09/09 (Ñ)

      3,320      3,329

5.375% due 08/19/11 (Ñ)

      555      571

4.625% due 10/10/12 (Ñ)

      900      899

5.375% due 05/15/19

      315      322

5.125% due 08/15/19

      330      333

Federal Home Loan Bank System (Ñ)

        

5.625% due 06/11/21

      1,070      1,109

Series VB15

       

5.000% due 12/21/15

      955      964

Federal National Mortgage Association

        

Zero coupon due 07/05/14

      2,565      1,892

6.000% due 08/22/16

      4,360      4,402

5.000% due 04/26/17

      1,315      1,297

5.625% due 07/15/37 (Ñ)

      130      138

Financing Corp.

        

Principal Only STRIP

        

Series 1

        

Zero coupon due 05/11/16

      325      216

Series 13

        

Zero coupon due 12/27/16

      490      315

Fixed Income I Fund   145

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

Series 19

        

Zero coupon due 06/06/16

    955      633

Series 1P

        

Zero coupon due 05/11/18

    90      54

Series 2P

        

Zero coupon due 11/30/17

    240      147

Series 3P

        

Zero coupon due 11/30/17

    300      184

Series 5P

        

Zero coupon due 02/08/18

    140      85

Series 6P

        

Zero coupon due 08/03/18

    510      300

Series 8P

        

Zero coupon due 08/03/18

    1,085      639

Series 9P

        

Zero coupon due 10/06/17

    540      334

Series 10P

        

Zero coupon due 11/30/17

    940      576

Series 12P

        

Zero coupon due 12/06/18

    420      242

Series 13P

        

Zero coupon due 12/27/18

    2,330      1,340

Series 15P

        

Zero coupon due 03/07/19

    30      17

Series 16P

        

Zero coupon due 04/05/19

    1,200      680

Series A-P

        

Zero coupon due 10/06/17

    260      161

Series B-P

        

Zero coupon due 04/06/18

    565      339

Series C-P

        

Zero coupon due 11/30/17

    1,145      701

Series D-P

        

Zero coupon due 09/26/19

    1,355      748

Series E-P

        

Zero coupon due 11/02/18

    1,940      1,126

Freddie Mac

        

5.125% due 08/23/10 (Ñ)

    8,270      8,427

4.125% due 10/18/10

    530      526

5.625% due 11/23/35 (Ñ)

    1,240      1,226

Freddie Mac MAC

        

4.750% due 03/05/12 (Ñ)

    3,890      3,911

5.050% due 01/26/15

    1,470      1,489

5.125% due 11/17/17 (Ñ)

    3,315      3,319

6.750% due 03/15/31 (Ñ)

    90      108

Tennessee Valley Authority

        

6.150% due 01/15/38

    1,535      1,754
    

Principal

Amount ($)

or Shares

     

Market

Value
$

United States Treasury Inflation Indexed Bonds (Ñ)

        

2.375% due 01/15/27

    785      805

United States Treasury Notes (Ñ)

        

4.625% due 07/31/12

    540      551

4.000% due 02/15/14

    1,650      1,629

4.625% due 02/15/17

    80      81

4.500% due 02/15/36

    2,290      2,198

4.750% due 02/15/37

    3,010      3,008
         
        73,992
         

United States Government Treasuries - 10.2%

        

United States Treasury (Ñ)

        

Principal Only STRIP

        

Zero Coupon due 11/15/21

    5,605      2,829

United States Treasury Inflation Indexed Bonds

        

0.875% due 04/15/10 (Ñ)

    11      11

2.375% due 04/15/11 (Ñ)

    3,061      3,108

3.375% due 01/15/12 (Ñ)

    1,704      1,807

2.000% due 04/15/12 (Ñ)

    1,025      1,027

2.000% due 01/15/14 (Ñ)

    450      450

2.000% due 07/15/14 (Ñ)

    4,754      4,753

1.625% due 01/15/15 (Ñ)

    54      53

1.875% due 07/15/15 (Ñ)

    3,635      3,589

2.500% due 07/15/16 (Ñ)

    2,152      2,222

2.625% due 07/15/17

    1,104      1,153

2.375% due 01/15/25 (Ñ)

    5,759      5,881

2.000% due 01/15/26 (Ñ)

    618      597

3.625% due 04/15/28 (Ñ)

    514      633

3.875% due 04/15/29 (Ñ)

    1,897      2,436

United States Treasury Notes

        

4.000% due 08/31/09 (Ñ)

    24,700      24,717

3.500% due 02/15/10 (Ñ)

    3,000      2,972

4.000% due 03/15/10 (Ñ)

    9,505      9,521

3.625% due 06/15/10 (Ñ)

    1,470      1,459

3.875% due 09/15/10 (Ñ)

    1,135      1,133

4.500% due 11/15/10 (Ñ)

    420      426

4.875% due 04/30/11 (Ñ)

    3,085      3,170

4.625% due 08/31/11 (Ñ)

    415      423

4.500% due 09/30/11 (Ñ)

    110      112

4.750% due 01/31/12 (Ñ)

    2,120      2,173

4.500% due 03/31/12 (Ñ)

    50      51

4.750% due 05/31/12 (Ñ)

    6,530      6,700

4.250% due 09/30/12

    150      151

10.375% due 11/15/12 (Ñ)

    2,090      2,094

4.250% due 11/15/13

    3,840      3,849

146   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal

Amount ($)

or Shares

     

Market

Value
$

       

4.750% due 05/15/14 (Ñ)

    8,640      8,880

4.250% due 08/15/14 (Ñ)

    14,360      14,329

12.500% due 08/15/14 (Ñ)

    155      178

4.250% due 11/15/14 (Ñ)

    3,005      2,994

4.125% due 05/15/15 (Ñ)

    1,815      1,789

4.250% due 08/15/15 (Ñ)

    2,305      2,288

5.125% due 05/15/16 (Ñ)

    690      724

4.500% due 05/15/17 (Ñ)

    4,170      4,182

8.750% due 05/15/17 (Ñ)

    1,055      1,399

4.750% due 08/15/17 (Ñ)

    765      782

8.875% due 08/15/17 (Ñ)

    265      355

8.125% due 08/15/19 (Ñ)

    4,560      5,980

8.125% due 08/15/21 (Ñ)

    4,185      5,607

7.125% due 02/15/23 (Ñ)

    5,490      6,880

6.250% due 08/15/23 (Ñ)

    4,705      5,461

6.875% due 08/15/25 (Ñ)

    475      592

6.000% due 02/15/26 (Ñ)

    5,120      5,862

6.125% due 08/15/29 (Ñ)

    2,445      2,885

5.375% due 02/15/31 (Ñ)

    1,415      1,533

5.000% due 05/15/37 (Ñ)

    2,790      2,901
         
        165,101
         
Total Long-Term Investments        

(cost $1,750,541)

         1,747,044
         
Preferred Stocks - 0.3%        

Auto and Transportation - 0.0%

        

General Motors Corp. (Æ)(Ñ)

    31,725      702
         

Financial Services - 0.3%

        

DG Funding Trust (Æ)(Å)

    392      4,124
         

Mortgage-Backed
Securities - 0.0%

        

Federal National Mortgage Association (Æ)

    1,000      53
         

Total Preferred Stocks

        

(cost $4,774)

         4,879
         

 

     Notional
Amount		      Market
Value
$

Options Purchased - 0.0%

        

(Number of Contracts)

        

Eurodollar Futures

        

Mar 2008 94.50 Put (11)

    USD  28      —

Sep 2008 92.50 Put (452)

    USD  1,130      3

Dec 2007 91.25 Put (156)

    USD  390      1

Dec 2007 91.50 Put (3)

    USD  8      —

Mar 2008 91.75 Put (630)

    USD  1,575      4

Sep 2008 92.25 Put (35)

    USD  88      —

Mar 2008 92.75 Put (109)

    USD  273      1

United States Treasury Notes

        

5 Year Futures

        

Nov 2007 109.00 Call (136)

    USD  136      8

10 Year Futures

        

Nov 2007 105.00 Put (299)

    USD  299      5

30 Year Futures

        

Nov 2007 106.00 Put (427)

    USD  427      7
         
Total Options Purchased        

(cost $115)

         29
         
     Principal
Amount ($)
or Shares		       

Short-Term Investments - 8.2%

        

Abbey National Treasury

        

Services PLC

        

5.074% due 07/02/08

      1,100      1,100

American Express Bank FSB/Salt Lake City UT (Ê)

        

Series BKNT

        

5.070% due 10/16/08

      800      798

American General Finance Corp. (Ê)

        

Series MTNI

        

5.330% due 06/27/08

      1,300      1,300

Campbell Soup Co.

        

5.875% due 10/01/08

      195      197

Citigroup, Inc.

        

3.500% due 02/01/08

      1,350      1,345

COX Communications, Inc.

        

3.875% due 10/01/08

      240      237

Daimler Finance NA LLC

        

4.050% due 06/04/08

      165      164

Fannie Mae

        

2.500% due 06/15/08 (Ñ)

      3,065      3,026

7.000% due 08/15/08

      2      2

Fixed Income I Fund   147

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Fannie Mae REMICS

        

Series 1993-134 Class H

        

6.500% due 08/25/08

    445      447

Federal Home Loan Bank Discount Notes (ç)(z)

        

Zero coupon due 11/08/07

    1,510      1,509

Federal National Mortgage Association

        

3.500% due 03/28/08

    1,790      1,782

Federal National Mortgage Association Discount Notes

        

Zero coupon due 03/17/08

    1,175      1,156

Ford Motor Credit Co. LLC

        

4.950% due 01/15/08

    320      319

Fortis Bank

        

5.074% due 09/30/08

    800      800

Freddie Mac

        

7.000% due 05/01/08

    4      4

French Republic

        

Zero coupon due 12/20/07

    700      1,009

Ginnie Mae I

        

6.500% due 07/15/08

    1      1

6.500% due 08/15/08

    1      1

Goldman Sachs Group, Inc. (The) (Ê)

        

Series MTNB

        

5.111% due 07/29/08

    2,000      1,998

Merrill Lynch & Co., Inc. (Ê)

        

Series MTNC

        

5.170% due 06/16/08

    1,900      1,893

Morgan Stanley

        

5.770% due 03/07/08 (Ê)(Ñ)

    500      499

3.625% due 04/01/08

    100      100

Series MTNF (Ê)

        

5.334% due 01/18/08

    1,100      1,100

Nordea Bank Finland PLC

        

5.443% due 05/28/08

    1,600      1,599

Rabobank USA Financial Corp.

        

4.810% due 11/01/07

    2,600      2,600

Regions Financial Corp.

        

4.500% due 08/08/08

    760      755

Russell Investment Company Money Market Fund

    89,334,215      89,334

Skandinaviska Enskilda Banken

        

5.340% due 08/21/08

    1,100      1,100

Transocean, Inc. (Ê)

        

5.869% due 09/05/08

    500      499
     Principal
Amount ($)
or Shares		      Market
Value
$		  

Unicredito Italiano SpA

        

5.346% due 05/29/08

    500      501  

United States Treasury Bills (z)(ç)(§)

        

3.859% due 12/13/07

    1,155      1,150  

3.992% due 12/13/07

    115      114  

3.724% due 12/27/07

    200      199  

3.733% due 12/27/07

    300      298  

United States Treasury Notes

        

4.625% due 02/29/08

    3,760      3,767  

3.750% due 05/15/08 (Ñ)

    6,000      5,986  

Wachovia Bank NA

        

Series BKNT

        

5.200% due 10/03/08

    3,000      2,994  
           
Total Short-Term Investments        

(cost $131,680)

         131,683  
           
Other Securities - 15.2%        

Russell Investment Company
Money Market Fund (×)

    55,065,966      55,066  

State Street Securities Lending Quality Trust (×)

    191,105,180      191,105  
           
Total Other Securities        

(cost $246,171)

         246,171  
           
Total Investments - 131.8%        

(identified cost $2,133,281)

         2,129,806  
Other Assets and Liabilities, Net - (31.8%)         (514,125 )
           
Net Assets - 100.0%         1,615,681  
           

 

See accompanying notes which are an integral part of the financial statements.

148   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts

(Number of Contracts)

  

Notional
Amount

  

Unrealized

Appreciation

(Depreciation)
$

  
     

Long Positions

      

Euro-Bobl 10 Year Bond
expiration date 12/07 (53)

   EUR   6,006   13  

Eurodollar Futures (CME)
expiration date 03/08 (382)

   USD   91,207   351  

expiration date 06/08 (566)

   USD   135,302   576  

expiration date 09/08 (306)

   USD   73,203   555  

expiration date 12/08 (810)

   USD   193,793   855  

expiration date 03/09 (450)

   USD   107,612   28  

expiration date 06/09 (53)

   USD   12,662   11  

expiration date 09/09 (29)

   USD   6,921   7  

LIBOR Futures
expiration date 03/08 (33)

   GBP   3,883   7  

expiration date 06/08 (16)

   GBP   1,887   (1 )

expiration date 09/08 (20)

   GBP   2,362   17  

expiration date 12/08 (33)

   GBP   3,899   30  

expiration date 03/09 (15)

   GBP   1,772   23  

expiration date 06/09 (4)

   GBP   473   6  

United States Treasury Bonds
expiration date 12/07 (196)

   USD   22,068   77  

United States Treasury 2 Year Notes
expiration date 12/07 (100)

   USD   20,711   33  

United States Treasury 5 Year Notes
expiration date 12/07 (365)

   USD   39,180   199  

United States Treasury 10 Year Notes
expiration date 12/07 (64)

   USD   7,041   5  

Short Positions

      

Eurodollar Futures (CME)
expiration date 09/08 (9)

   USD   2,153   (16 )

United States Treasury Bonds
expiration date 12/07 (1)

   USD   113   (1 )

United States Treasury 2 Year Notes
expiration date 12/07 (40)

   USD   8,284   (50 )

United States Treasury 10 Year Notes
expiration date 12/07 (459)

   USD   50,497   (328 )
         

Total Unrealized Appreciation
(Depreciation) on Open Futures
Contracts

       2,397  
         

Options Written

(Number of Contracts)

   

Notional

Amount

     

Market

Value
$

  

Eurodollar Futures

             

Mar 2008 95.38 Call (22)

    USD      55      (6 )

Mar 2008 95.50 Call (45)

    USD      113      (21 )

Mar 2008 96.00 Call (24)

    USD      60      (4 )

Mar 2008 95.38 Put (24)

    USD      60      (6 )

Mar 2008 95.50 Put (43)

    USD      108      (18 )

United States Treasury Bonds

             

Nov 2007 116.00 Call (636)

    USD      636      (60 )

Nov 2007 105.00 Put (299)

    USD      299      (5 )

Nov 2007 106.00 Put (968)

    USD      968      (15 )

Nov 2007 107.00 Put (429)

    USD      429      (13 )

United States Treasury Notes 2 Year Futures

             

Nov 2007 104.00 Call (234)

    USD      468      (22 )

5 Year Futures

             

Nov 2007 109.00 Call (136)

    USD      136      (9 )

10 Year Futures

             

Nov 2007 110.00 Call (46)

    USD      46      (29 )

Nov 2007 112.00 Call (599)

    USD      599      (83 )

Feb 2008 112.00 Call (20)

    USD      20      (10 )

Nov 2007 105.00 Put (4)

    USD      4      —  

Nov 2007 106.00 Put (788)

    USD      788      (12 )

Nov 2007 107.00 Put (13)

    USD      13      (1 )

Feb 2008 107.00 Put (32)

    USD      32      (10 )
                

Total Liability for Options Written (premiums received $1,041)

              (324 )
                

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income I Fund   149

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Interest Rate Swaps Contracts       

Counter
Party

   Notional
Amount		   Fund Receives  

Fund Pays

   Termination
Date		   Market
Value
$		  
           

Bank of America

   USD   300   5.000%  

Three Month LIBOR

   12/19/17   (2 )

Barclays Bank PLC

   GBP   400   6.000%  

Six Month LIBOR

   03/20/09   2  

Barclays Bank PLC

   GBP   100   Six Month LIBOR  

4.000%

   12/15/36   29  

Barclays Bank PLC

   JPY   30,000   2.000%   Six Month LIBOR   12/19/17   5  

BNP Paribas

   EUR   1,200   Consumer Price Index (France)  

2.090%

   10/15/10   22  

Citibank

   MXN   1,000   8.170%  

Mexico Interbank
28 Day Deposit Rate

   11/04/16   —  

Credit Suisse First Boston

   GBP   200   5.000%  

Six Month LIBOR

   06/15/09   (6 )

Deutsche Bank

   GBP   100   6.000%  

Six Month LIBOR

   12/20/08   —  

Deutsche Bank

   JPY   60,000   2.000%  

Six Month LIBOR

   12/19/17   9  

Deutsche Bank

   USD   12,700   5.000%  

Three Month LIBOR

   12/19/09   114  

Deutsche Bank

   USD   400   Three Month LIBOR  

5.000%

   12/19/17   3  

Deutsche Bank

   USD   820   5.000%  

Three Month LIBOR

   12/19/37   (43 )

Goldman Sachs

   EUR   300   4.000%  

Six Month LIBOR

   03/20/09   (2 )

Goldman Sachs

   GBP   100   5.000%  

Six Month LIBOR

   06/15/09   (3 )

Goldman Sachs

   GBP   2,300   6.000%  

Six Month LIBOR

   06/19/09   18  

Goldman Sachs

   GBP   800   6.000%  

Six Month LIBOR

   12/19/09   9  

Goldman Sachs

   GBP   200   Six Month LIBOR  

5.500%

   12/15/36   (39 )

Goldman Sachs

   GBP   100   Six Month LIBOR  

5.000%

   12/19/37   (5 )

Lehman Brothers

   GBP   3,300   4.500%  

Six Month LIBOR

   09/20/09   (159 )

Merrill Lynch

   GBP   5,700   4.500%  

Six Month LIBOR

   09/20/09   (275 )

Merrill Lynch

   GBP   200   Six Month LIBOR  

4.000%

   12/15/35   16  

Morgan Stanley

   USD   1,300   5.000%  

Three Month LIBOR

   12/19/37   (68 )

Royal Bank of Scotland

   GBP   1,500   6.000%  

Six Month LIBOR

   06/19/09   12  

Royal Bank of Scotland

   USD   3,300   5.000%  

Three Month LIBOR

   12/19/09   29  

Royal Bank of Scotland

   GBP   500   Six Month LIBOR  

4.000%

   12/15/36   144  

Royal Bank of Scotland

   GBP   100   Six Month LIBOR  

5.500%

   12/15/36   (19 )

Royal Bank of Scotland

   USD   1,100   5.000%  

Three Month LIBOR

   12/19/17   (9 )

Royal Bank of Scotland

   USD   1,300   5.000%  

Three Month LIBOR

   12/19/37   (68 )

UBS

   AUD   5,300   7.000%  

Three Month LIBOR

   09/15/09   (17 )
               

Total Market Value of Open Interest Rate Swap Contracts
(Premiums Paid (Received) - ($528))

   (303 )
               

 

See accompanying notes which are an integral part of the financial statements.

150   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Credit Default Swap Contracts                                  

Reference
Entity

   

Counter
Party

   

Notional
Amount

    Fund (Pays)/
Receives
Fixed Rate		      Termination
Date		    Market
Value
$		  
                 

Anadarko Petroleum Corp.

    Goldman Sachs    USD   

200

    0.150%      03/20/08    —  

Countrywide Home Loans

    Lehman Brothers    USD   

2,228

    0.480%      06/20/12    (293 )

Countrywide Home Loans

    Lehman Brothers    USD   

1,313

    (0.710% )    06/20/17    (195 )

Dow Jones CDX High Volatility Index

    Merrill Lynch    USD   

1,000

    1.833%      06/20/12    (3 )

Gaz Capital for Gazprom

    Chase Securities Inc.    USD   

200

    0.970%      12/20/12    (1 )

Gaz Capital for Gazprom

    Chase Securities Inc.    USD   

200

    1.020%      12/20/12    (1 )

Gaz Capital for Gazprom

   

HSBC

    USD   

200

    0.970%      11/20/08    —  

IAC/InterActiveCorp

    Lehman Brothers    USD   

555

    (1.350% )    09/20/12    5  

International Paper Company

    Lehman Brothers    USD   

1,490

    (0.340% )    06/20/12    (4 )

Masco Corporation

    Lehman Brothers    USD   

695

    (0.820% )    09/20/12    -  

Masco Corporation

    Lehman Brothers    USD   

695

    (0.800% )    09/20/12    (1 )

MeadWestvaco Corp.

    Lehman Brothers    USD   

340

    (4.000% )    09/20/12    (2 )

Mexico Government International Bond

    Lehman Brothers    USD   

340

    (0.490% )    12/20/12    -  

Mexico Government International Bond

    Lehman Brothers    USD   

340

    (0.630% )    12/20/12    2  

Pitney Bowes

    Lehman Brothers    USD   

550

    (0.220% )    09/20/12    —  

Pitney Bowes

    Lehman Brothers    USD   

145

    (0.220% )    09/20/12    —  

Russia Government International Bond

    Deutsche Bank    USD   

2,000

    0.260%      12/20/07    2  

Russia Government International Bond

    Morgan Stanley    USD   

100

    0.245%      06/20/08    —  

Russia Government International Bond

    Morgan Stanley    USD   

1,000

    0.305%      12/20/08    (1 )

Russia Government International Bond

    Morgan Stanley    USD   

1,000

    0.795%      08/20/12    8  

Talisman Energy Inc.

    Lehman Brothers    USD   

560

    (0.510% )    09/20/12    4  

Usani LLC

    Lehman Brothers    USD   

555

    (1.380% )    09/20/12    (8 )

Usani LLC

    Lehman Brothers    USD   

695

    (5.000% )    09/20/12    (15 )

Verizon Communications

    Lehman Brothers    USD   

2,505

    (0.180% )    06/20/12    (2 )

Weyerhaeuser Company

    Lehman Brothers    USD   

695

    (0.700% )    09/20/12    —  
                     

Total Market Value of Open Credit Default Contracts
(Premiums Paid (Received) - $0)

    (505 )
                     

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income I Fund   151

Table of Contents

Russell Investment Company

Fixed Income I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts      
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized

Appreciation

(Depreciation)
$

  
         
USD   922   AUD   1,033   11/01/07   40  
USD   2,554   AUD   2,861   11/01/07   111  
USD   153   AUD   171   11/08/07   6  
USD   651   AUD   726   11/08/07   25  
USD   2,637   AUD   2,861   11/29/07   24  
USD   71   CAD   69   11/01/07   2  
USD   271   CAD   275   11/01/07   20  
USD   982   CAD   996   11/01/07   72  
USD   342   CAD   356   11/07/07   35  
USD   570   CAD   594   11/07/07   59  
USD   1,098   CAD   1,063   11/07/07   27  
USD   1,121   CAD   1,065   12/20/07   6  
USD   366   CAD   356   02/12/08   11  
USD   617   CAD   594   02/12/08   12  
USD   5,662   EUR   3,920   11/01/07   16  
USD   272   EUR   191   11/05/07   5  
USD   1,471   EUR   1,039   11/05/07   34  
USD   7,527   EUR   5,315   11/05/07   173  
USD   306   EUR   215   11/07/07   5  
USD   1,127   EUR   791   11/07/07   19  
USD   340   EUR   240   11/08/07   7  
USD   70   GBP   35   11/01/07   2  
USD   136   GBP   67   11/01/07   3  
USD   647   JPY   77,112   11/07/07   22  
USD   672   JPY   77,112   11/07/07   (3 )
USD   2,074   JPY   247,044   11/07/07   69  
USD   3,657   JPY   415,370   01/23/08   (22 )
USD   2,870   JPY   324,156   02/12/08   (27 )
USD   161   KRW   151,371   11/07/07   7  
USD   327   KRW   307,435   11/07/07   15  
USD   330   KRW   301,125   01/30/08   5  
USD   337   KRW   307,435   01/30/08   5  
USD   80   MXN   881   01/17/08   2  
USD   80   MXN   881   01/17/08   2  
USD   330   MXN   3,585   01/17/08   4  
USD   262   PLN   686   11/07/07   12  
USD   993   PLN   2,556   11/07/07   28  
USD   95   PLN   254   01/17/08   6  
USD   154   PLN   410   01/17/08   10  
USD   250   PLN   665   01/17/08   16  
USD   330   PLN   851   01/17/08   10  
USD   91   RUB   2,321   12/10/07   4  
USD   140   RUB   3,573   12/10/07   6  
USD   231   RUB   5,895   12/10/07   9  
USD   330   RUB   8,219   01/11/08   2  
USD   167   SGD   251   11/09/07   6  
USD   330   SGD   482   11/09/07   4  
USD   352   SGD   528   11/09/07   13  
USD   694   SGD   1,011   02/20/08   10  
Foreign Currency Exchange Contracts      
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized

Appreciation

(Depreciation)
$

  
         
USD   26   ZAR   181   01/17/08   2  
USD   2,165   ZAR   15,330   01/17/08   163  
USD   2,191   ZAR   15,511   01/17/08   165  
AUD   30   USD   27   11/01/07   (1 )
AUD   1,003   USD   888   11/01/07   (46 )
AUD   2,861   USD   2,641   11/01/07   (24 )
AUD   171   USD   151   11/08/07   (8 )
CAD   275   USD   281   11/01/07   (10 )
CAD   1,065   USD   1,121   11/01/07   (6 )
CAD   356   USD   366   11/07/07   (11 )
CAD   594   USD   617   11/07/07   (12 )
CAD   1,063   USD   1,020   11/07/07   (105 )
CAD   1,063   USD   1,098   02/12/08   (27 )
EUR   1,568   USD   2,235   11/01/07   (37 )
EUR   2,352   USD   3,351   11/01/07   (56 )
EUR   695   USD   983   11/05/07   (24 )
EUR   1,230   USD   1,743   11/05/07   (39 )
EUR   3,920   USD   5,663   11/05/07   (16 )
EUR   215   USD   298   11/07/07   (13 )
EUR   791   USD   1,097   11/07/07   (50 )
EUR   240   USD   342   11/08/07   (6 )
EUR   215   USD   306   02/12/08   (5 )
EUR   791   USD   1,128   02/12/08   (19 )
GBP   6   USD   12   11/01/07   —  
GBP   61   USD   123   11/01/07   (3 )
JPY   77,112   USD   672   11/07/07   3  
JPY   324,156   USD   2,838   11/07/07   26  
JPY   32,761   USD   287   12/13/07   2  
KRW   151,371   USD   165   11/07/07   (3 )
KRW   307,435   USD   336   11/07/07   (6 )
MXN   881   USD   81   01/17/08   (1 )
MXN   881   USD   81   01/17/08   (1 )
PLN   686   USD   253   11/07/07   (22 )
PLN   2,556   USD   941   11/07/07   (81 )
PLN   410   USD   157   01/17/08   (7 )
PLN   410   USD   157   01/17/08   (7 )
PLN   2,556   USD   993   02/12/08   (28 )
RUB   3,573   USD   143   12/10/07   (2 )
RUB   3,573   USD   143   12/10/07   (3 )
SGD   251   USD   171   11/09/07   (3 )
SGD   1,011   USD   690   11/09/07   (10 )
ZAR   18   USD   3   01/17/08   —  
ZAR   18   USD   3   01/17/08   —  
ZAR   163   USD   23   01/17/08   (1 )
ZAR   163   USD   23   01/17/08   (1 )
             
Total Unrealized Appreciation (Depreciation) on Open
Foreign Currency Exchange Contracts		   596  
             

 

See accompanying notes which are an integral part of the financial statements.

152   Fixed Income I Fund

Table of Contents

Russell Investment Company

Fixed Income I Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  
  

Asset-Backed Securities

    6.1  

Certificate of Deposits

    — *

Corporate Bonds and Notes

    17.7  

International Debt

    4.5  

Loan Agreements

    0.1  

Mortgage-Backed Securities

    64.8  

Municipal Bonds

    — *

Non-US Bonds

    0.1  

United States Government Agencies

    4.6  

United States Government Treasuries

    10.2  

Preferred Stocks

    0.3  

Options Purchased

    — *

Short-Term Investments

    8.2  

Other Securities

    15.2  
      

Total Investments

    131.8  

Other Assets and Liabilities, Net

    (31.8 )
      
   100.0  
      

Futures Contracts

    0.1  

Options Written

    (— )*

Foreign Currency Exchange Contracts

    — *

Interest Rate Swap Contracts

    (— )*

Credit Default Swap Contracts

    (— )*

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income I Fund   153

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Russell Investment Company

Specialty Funds

Notes to Schedules of Investments — October 31, 2007

 

 

Footnotes:

(Æ) Non-income producing security.
(Ï) Forward commitment.
(Ê) Adjustable or floating rate security. Rate shown reflects rate in effect at period end.
(ƒ) Perpetual floating rate security. Rate shown reflects rate in effect at period end.
(ö) Real Estate Investment Trust (REIT).
(m) Bond is insured by a guarantor.
(ß) Illiquid security.
(Ø) In default.
(ç) At amortized cost, which approximates market.
(ž) Rate noted is yield-to-maturity from date of acquisition.
(æ) 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.
(§) 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.
(×) The security is purchased with the cash collateral from the securities loaned.
(Ñ) All or a portion of the shares of this security are on loan.
(Þ) 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.
(Å) Illiquid and restricted security.
(å) 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

SIV - Structured Investment Vehicle

TBA - To Be Announced Security

154   Notes to Schedules of Investments

Table of Contents

Russell Investment Company

Specialty Funds

Notes to Schedule of Investments, continued — October 31, 2007

 

 

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 krone

CLP - Chilean peso

   ISK - Iceland krona   SGD - Singapore dollar

CNY - Chinese remninbi 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 - Vietnamese dong

GBP - British pound sterling

   PEN - Peruvian nouveau sol   ZAR - South African rand
Notes to Schedules of Investments   155

Table of Contents

Russell Investment Company

Specialty Funds

Statements of Assets and Liabilities — October 31, 2007

Amounts in thousands   Emerging
Markets Fund		    Real Estate
Securities Fund

Assets

     

Investments, at identified cost

   $ 1,232,219    $ 1,975,883

Investments, at market***

     1,996,640      2,565,576

Cash

     1,979      —

Cash (restricted)

     4,000      —

Foreign currency holdings*

     13,358      899

Unrealized appreciation on foreign currency exchange contracts

     5,608      —

Receivables:

     

Dividends and interest

     2,389      1,273

Dividends from affiliated money market funds

     174      325

Investments sold

     9,256      2,934

Fund shares sold

     2,641      4,063

Foreign taxes recoverable

     50      —

Miscellaneous

    1      1

From Adviser

     —      —

Daily variation margin on futures contracts

     22      —

Prepaid expenses

     4      4

Interest rate swap contracts, at market value*****

     —      —

Credit default swap contracts, at market value****

     —      —
            

Total assets

     2,036,122      2,575,075
            
Liabilities     

Payables:

     

Investments purchased

     10,887      7,116

Fund shares redeemed

     5,429      2,649

Accrued fees to affiliates

     2,158      2,077

Other accrued expenses

     592      118

Daily variation margin on futures contracts

     218      —

Deferred tax liability

     3,356      —

Unrealized depreciation on foreign currency exchange contracts

     3,123      —

Options written, at market value**

     521      —

Payable upon return of securities loaned

     137,290      278,401

Interest rate swap contracts, at market value*****

     —      —

Credit default swap contracts, at market value****

     —      —
            

Total liabilities

     163,574      290,361
            
    

Net Assets

   $ 1,872,548    $ 2,284,714
            

 

See accompanying notes which are an integral part of the financial statements.

156   Statements of Assets and Liabilities

Table of Contents
Short Duration
Bond Fund		    Tax Exempt Bond
Fund		    Tax-Managed
Large Cap Fund		    Tax-Managed Mid
& Small Cap Fund		    Select Growth
Fund		    Select Value
Fund		    Fixed Income I
Fund
                 
$ 460,231    $ 365,447    $ 508,518    $ 316,351    $ 231,640    $ 478,230    $ 2,133,281
  459,487      365,409      678,831      374,954      267,210      520,044      2,129,806
  2,805      —      —         17      385      2,409
  —      —      —      —      —      —      141
  353      —      —      —      —      —      1,357
  8      —      —      —      —      —      1,342
  —      —      —      —      —      —      —
  2,646      5,092      435      79      98      499      11,786
  86      21      153      83      37      91      427
  15,646      325      7,557      3,147      6,062      5,684      115,160
  350      2,438      2,112      568      252      702      2,021
  —      —       —      —      —      —      —
  —      —      —      —      —      —      —
  —      —      —      —      —      —      3
  —      —      521      344      120      266      40
  4      —      —      15      —      —      1
  53      —      —      —      —      —      412
  182      —      —      —      —      —      21
                                             
  481,620      373,285      689,609      379,190      273,796      527,671      2,264,926
                                             
                 
                 
  4,843      3,997      12,067      3,669      6,256      4,604      396,639
  582      636      126      278      169      1,493      2,158
  257      154      455      293      191      390      535
  123      59      68      56      61      61      296
  269      —      —      —      —      —      1,135
  —      —      —      —      —      —      —
  26      —      —      —      —      —      746
  734      —      —      —      —      —      324
  4,363      —      66,172      91,345      54,860      70,768      246,171
  100      —      —      —      —      —      715
  89      —      —      —      —      —      526
                                             
  11,386      4,846      78,888      95,641      61,537      77,316      649,245
                                             
                 
$ 470,234    $ 368,439    $ 610,721    $ 283,549    $ 212,259    $ 450,355    $ 1,615,681
                                             

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   157

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Russell Investment Company

Specialty Funds

Statements of Assets and Liabilities, continued — October 31, 2007

Amounts in thousands   Emerging
Markets Fund		     Real Estate
Securities Fund
   

Net Assets Consist of:

    

Undistributed (overdistributed) net investment income

   $ (10,990 )   $ 875

Accumulated net realized gain (loss)

     312,208       232,674

Unrealized appreciation (depreciation) on:

    

Investments (Emerging Markets Fund - net of deferred tax liability for foreign capital gains taxes)

     761,065       589,693

Futures contracts

     979       —

Options written

     (20 )     —

Credit default swaps

     —       —

Interest rate swap contracts

     —       —

Foreign currency-related transactions

     2,806       29

Shares of beneficial interest

     608       432

Additional paid-in capital

     805,892       1,461,011
             

Net Assets

   $ 1,872,548     $ 2,284,714
             
               

Net Asset Value, offering and redemption price per share:

    

Net asset value per share: Class A******

   $ 30.85     $ 52.29

Maximum offering price per share (Net asset value plus sales charge of 5.75%*******): Class A

   $ 32.73     $ 55.48

Class A — Net assets

   $ 3,537,379     $ 7,867,572

Class A — Shares outstanding ($.01 par value)

     114,678       150,466

Net asset value per share: Class C******

   $ 29.66     $ 51.42

Class C — Net assets

   $ 66,706,868     $ 98,745,340

Class C — Shares outstanding ($.01 par value)

     2,248,949       1,920,257

Net asset value per share: Class E******

   $ 30.84     $ 52.36

Class E — Net assets

   $ 41,910,978     $ 51,298,607

Class E — Shares outstanding ($.01 par value)

     1,359,016       979,749

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******

   $ 30.86     $ 52.94

Class S — Net assets

   $ 1,760,392,380     $ 2,126,802,496

Class S — Shares outstanding ($.01 par value)

     57,044,130       40,171,487

Net asset value per share: Class Y******

   $ —     $ —

Class Y — Net assets

   $ —     $ —

Class Y — Shares outstanding ($.01 par value)

     —       —
Amounts in thousands    

*                Foreign currency holdings - cost

   $ 13,049     $ 875

**              Premiums received on options written

   $ 501     $ —

***            Securities on loan included in investments

   $ 132,578     $ 276,496

****          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.

    

*******   Short Duration Bond Fund’s maximum sale charge is 3.75%.

    

 

See accompanying notes which are an integral part of the financial statements.

158   Statements of Assets and Liabilities

Table of Contents
Short Duration
Bond Fund		     Tax Exempt Bond
Fund		     Tax-Managed
Large Cap Fund		     Tax-Managed Mid
& Small Cap Fund		    Select Growth
Fund		    Select Value
Fund		    Fixed Income I
Fund		  
              
              
$ 1,916     $ 1,183     $ 2,514     $ 43    $ —    $ 262    $ 6,374  
  (19,418 )     (2,870 )     (48,443 )     19,805      7,359      60,413      (20,200 )
              
  (744 )     (38 )     170,313       58,603      35,570      41,814      (3,475 )
  668       —       1,411       811      336      145      2,397  
  (189 )     —       —       —      —      —      717  
  93       —       —       —      —      —      (505 )
  (20 )     —       —       —      —      —      225  
  4       —       —       —      —      —      622  
  250       173       260       175      215      344      778  
  487,674       369,991       484,666       204,112      168,779      347,377      1,628,748  
                                                  
$ 470,234     $ 368,439     $ 610,721     $ 283,549    $ 212,259    $ 450,355    $ 1,615,681  
                                                  
                                                  
              
$ 18.81     $ —     $ —     $ —    $ —    $ —    $ —  
$ 19.54     $ —     $ —     $ —    $ —    $ —    $ —  
$ 1,363,287     $ —     $ —     $ —    $ —    $ —    $ —  
  72,491       —       —       —      —      —      —  
$ 18.76     $ 21.31     $ 22.78     $ 15.07    $ 9.17    $ 12.84    $ 20.76  
$ 16,074,712     $ 12,721,766     $ 21,692,050     $ 14,088,351    $ 11,204,130    $ 25,687,913    $ 35,688,677  
  857,007       596,978       952,248       934,992      1,222,421      2,000,916      1,718,842  
$ 18.82     $ 21.38     $ 23.41     $ 16.03    $ 9.72    $ 13.10    $ 20.77  
$ 17,092,127     $ 19,442,277     $ 16,890,675     $ 3,653,505    $ 7,104,365    $ 10,774,538    $ 53,662,694  
  908,209       909,241       721,663       227,948      730,772      822,680      2,584,006  
$ —     $ —     $ —     $ —    $ 9.98    $ 13.13    $ 20.76  
$ —     $ —     $ —     $ —    $ 113,988,531    $ 139,537,866    $ 689,651,147  
  —       —       —       —      11,421,050      10,627,053      33,219,171  
$ 18.79     $ 21.36     $ 23.52     $ 16.30    $ 9.89    $ 13.10    $ 20.76  
$ 435,703,690     $ 336,275,174     $ 572,138,650     $ 265,807,136    $ 79,962,081    $ 274,355,029    $ 226,995,156  
  23,184,142       15,745,424       24,325,580       16,311,642      8,082,252      20,942,874      10,933,441  
$ —     $ —     $ —     $ —    $ —    $ —    $ 20.77  
$ —     $ —     $ —     $ —    $ —    $ —    $ 609,683,009  
  —       —       —       —      —      —      29,354,767  
              
$ 331     $ —     $ —     $ —    $ —    $ —    $ 1,335  
$ 545     $ —     $ —     $ —    $ —    $ —    $ 1,041  
$ 4,406     $ —     $ 71,045     $ 92,171    $ 56,674    $ 70,882    $ 237,968  
$ —     $ —     $ —     $ —    $ —    $ —    $ —  
$ (27 )   $ —     $ —     $ —    $ —    $ —    $ (528 )

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   159

Table of Contents

Russell Investment Company

Specialty Funds

Statements of Operations — For the Fiscal Year Ended October 31, 2007

Amounts in thousands   Emerging
Markets Fund		     Real Estate
Securities Fund		  
   

Investment Income

    

Dividends

   $ 37,269     $ 49,210  

Dividends from affiliated money market funds

     2,677       3,701  

Interest

     176       —  

Securities lending income

     816       399  

Less foreign taxes withheld

     (3,682 )     —  
               

Total investment income

     37,256       53,310  
               

Expenses

    

Advisory fees

     16,651       17,375  

Administrative fees

     724       1,086  

Custodian fees

     2,962       513  

Distribution fees - Class A

     4       8  

Distribution fees - Class C

     401       818  

Transfer agent fees

     2,933       3,911  

Transfer agent fees - Class C

     —       —  

Transfer agent fees - Class E

     —       —  

Transfer agent fees - Class I

     —       —  

Transfer agent fees - Class S

     —       —  

Transfer agent fees - Class Y

     —       —  

Professional fees

     145       82  

Registration fees

     104       138  

Shareholder servicing fees - Class C

     134       273  

Shareholder servicing fees - Class E

     82       145  

Trustees’ fees

     24       37  

Printing fees

     79       108  

Offering fees

     8       8  

Miscellaneous

     69       99  
               

Expenses before reductions

     24,320       24,601  

Expense reductions

     (41 )     (12 )
               

Net expenses

     24,279       24,589  
               

Net investment income (loss)

     12,977       28,721  
               

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)

     306,155       240,939  

Futures contracts

     15,273       —  

Options written

     1,452       —  

Credit default swap contracts

     —       —  

Interest rate swap contracts

     —       —  

Foreign currency-related transactions

     1,449       129  
               

Net realized gain (loss)

     324,329       241,068  
               

Net change in unrealized appreciation (depreciation) on:

    

Investments (Emerging Markets Fund - Net of deferred tax liability for foreign capital gains taxes)

     427,834       (229,104 )

Futures contracts

     201       —  

Options written

     (6 )     —  

Credit default swap contracts

     —       —  

Interest rate swap contracts

     —       —  

Foreign currency-related transactions

     2,538       29  
               

Net change in unrealized appreciation (depreciation)

     430,567       (229,075 )
               

Net realized and unrealized gain (loss)

     754,896       11,993  
               

Net Increase (Decrease) in Net Assets from Operations

   $ 767,873     $ 40,714  
               

 

See accompanying notes which are an integral part of the financial statements.

160   Statements of Operations

Table of Contents
Short Duration
Bond Fund		     Tax Exempt
Bond Fund		     Tax-Managed
Large Cap Fund		     Tax-Managed Mid
& Small Cap Fund		     Select Growth
Fund		      Select Value
Fund		      Fixed Income I
Fund		  
             
             
$ 127     $ —     $ 7,243     $ 2,041     $ 1,539      $ 8,342      $ 4,583  
  2,633       227       1,457       905       430        1,251        428  
  32,283       13,915       72       47       47        69        68,775  
  18       —       56       278       79        140        356  
  —       —       —       —       —        —        —  
                                                       
  35,061       14,142       8,828       3,271       2,095        9,802        74,142  
                                                       
             
  3,241       994       3,821       2,432       1,535        3,188        3,432  
  360       166       273       128       96        228        687  
  349       156       198       188       192        220        667  
  2       —       —       —       —        —        —  
  139       93       160       102       77        200        7  
  717       332       546       381       —        —        —  
  —       —       —       —       26        66        2  
  —       —       —       —       10        21        17  
  —       —       —       —       43        141        377  
  —       —       —       —       138        595        11  
  —       —       —       —       —        —        25  
  61       49       45       31       35        47        110  
  78       81       53       50       55        69        126  
  46       31       53       34       26        67        2  
  50       42       37       8       17        29        84  
  11       5       9       4       3        7        23  
  38       16       28       12       15        30        58  
  8       —       —       —       —        —        —  
  31       19       27       15       15        26        58  
                                                       
  5,131       1,984       5,250       3,385       2,283        4,934        5,686  
  (56 )     (7 )     (1 )     (137 )     (92 )      (2 )      (358 )
                                                       
  5,075       1,977       5,249       3,248       2,191        4,932        5,328  
                                                       
  29,986       12,165       3,579       23       (96 )      4,870        68,814  
                                                       
             
             
  (1,858 )     (1,193 )     28,461       19,751       17,688        66,794        3,344  
  (1,089 )     —       2,032       1,534       1,208        2,920        (1,783 )
  (27 )     —       —       —       —        —        (901 )
  244       —       —       —       —        —        (785 )
  20       —       —       —       —        —        (57 )
  (104 )     —       —       —       —        —        (176 )
                                                       
  (2,814 )     (1,193 )     30,493       21,285       18,896        69,714        (358 )
                                                       
             
  5,401       (3,805 )     52,784       17,471       13,736        (28,161 )      (6,977 )
  1,670       —       655       (385 )     (88 )      (761 )      2,181  
  223       —       —       —       —        —        711  
  92       —       —       —       —        —        (505 )
  (303 )     —       —       —       —        —        253  
  4       —       —       —       —        —        830  
                                                       
  7,087       (3,805 )     53,439       17,086       13,648        (28,922 )      (3,507 )
                                                       
  4,273       (4,998 )     83,932       38,371       32,544        40,792        (3,865 )
                                                       
$ 34,259     $ 7,167     $ 87,511     $ 38,394     $ 32,448      $ 45,662      $ 64,949  
                                                       

 

See accompanying notes which are an integral part of the financial statements.

Statements of Operations   161

Table of Contents

Russell Investment Company

Specialty Funds

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

    Emerging Markets
Fund		  
Amounts in thousands   2007     2006  
   

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 12,977     $ 10,510  

Net realized gain (loss)

     324,329       160,254  

Net change in unrealized appreciation (depreciation)

     430,567       113,960  
               

Net increase (decrease) in net assets from operations

     767,873       284,724  
               

Distributions

    

From net investment income

    

Class A

     —       —  

Class C

     (540 )     (580 )

Class E

     (518 )     (442 )

Class I

     —       —  

Class S

     (23,139 )     (20,081 )

Class Y

     —       —  

From net realized gain

    

Class C

     (6,471 )     (887 )

Class E

     (3,838 )     (487 )

Class I

     —       —  

Class S

     (151,400 )     (20,087 )
               

Net decrease in net assets from distributions

     (185,906 )     (42,564 )
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     125,659       75,860  
               

Total Net Increase (Decrease) in Net Assets

     707,626       318,020  

Net Assets

    

Beginning of period

     1,164,922       846,902  
               

End of period

   $ 1,872,548     $ 1,164,922  
               

Undistributed (overdistributed) net investment income included in net assets

   $ (10,990 )   $ (7,191 )

 

See accompanying notes which are an integral part of the financial statements.

162   Statements of Changes in Net Assets

Table of Contents
Real Estate
Securities Fund		     Short Duration
Bond Fund		     Tax Exempt Bond
Fund		     Tax-Managed
Large Cap Fund		  
2007     2006     2007     2006     2007     2006     2007     2006  
             
             
             
$ 28,721     $ 24,653     $ 29,986     $ 42,526     $ 12,165     $ 9,801     $ 3,579     $ 3,709  
  241,068       169,551       (2,814 )     (7,206 )     (1,193 )     (638 )     30,493       20,243  
  (229,075 )     380,628       7,087       8,551       (3,805 )     3,055       53,439       27,442  
                                                             
  40,714       574,832       34,259       43,871       7,167       12,218       87,511       51,394  
                                                             
             
             
  (49 )     —       (32 )     —       —       —       —       —  
  (711 )     (699 )     (623 )     (655 )     (334 )     (285 )     —       —  
  (725 )     (630 )     (841 )     (882 )     (553 )     (324 )     (73 )     (51 )
  —       —       —       —       —       —       —       —  
  (29,653 )     (24,741 )     (31,025 )     (40,141 )     (11,045 )     (8,921 )     (3,672 )     (3,088 )
  —       —       —       —       —       —       —       —  
             
  (9,460 )     (8,834 )     —       —       —       —       —       —  
  (5,015 )     (4,267 )     —       —       —       —       —       —  
  —       —       —       —       —       —       —       —  
  (159,326 )     (150,805 )     —       —       —       —       —       —  
                                                             
  (204,939 )     (189,976 )     (32,521 )     (41,678 )     (11,932 )     (9,530 )     (3,745 )     (3,139 )
                                                             
             
  375,519       132,283       (687,090 )     (60,187 )     75,142       47,705       37,115       29,330  
                                                             
  211,294       517,139       (685,352 )     (57,994 )     70,377       50,393       120,881       77,585  
             
  2,073,420       1,556,281       1,155,586       1,213,580       298,062       247,669       489,840       412,255  
                                                             
$ 2,284,714     $ 2,073,420     $ 470,234     $ 1,155,586     $ 368,439     $ 298,062     $ 610,721     $ 489,840  
                                                             
$ 875     $ 1,960     $ 1,916     $ 4,238     $ 1,183     $ 950     $ 2,514     $ 2,680  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   163

Table of Contents

Russell Investment Company

Specialty Funds

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

    Tax-Managed Mid
& Small Cap Fund		  
Amounts in thousands   2007     2006  
   

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 23     $ (289 )

Net realized gain (loss)

     21,285       11,684  

Net change in unrealized appreciation (depreciation)

     17,086       14,941  
               

Net increase (decrease) in net assets from operations

     38,394       26,336  
               

Distributions

    

From net investment income

    

Class A

     —       —  

Class C

     —       —  

Class E

     —       —  

Class I

     —       —  

Class S

     —       —  

Class Y

     —       —  

From net realized gain

    

Class C

     (186 )     —  

Class E

     (36 )     —  

Class I

     —       —  

Class S

     (2,860 )     —  
               

Net decrease in net assets from distributions

     (3,082 )     —  
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     35,657       18,690  
               

Total Net Increase (Decrease) in Net Assets

     70,969       45,026  

Net Assets

    

Beginning of period

     212,580       167,554  
               

End of period

   $ 283,549     $ 212,580  
               

Undistributed (overdistributed) net investment income included in net assets

   $ 43     $ 1  

 

See accompanying notes which are an integral part of the financial statements.

164   Statements of Changes in Net Assets

Table of Contents
Select Growth
Fund		     Select Value
Fund		     Fixed Income I
Fund		  
2007     2006     2007     2006     2007     2006  
         
         
         
$ (96 )   $ (147 )   $ 4,870     $ 4,112     $ 68,814     $ 62,804  
  18,896       6,754       69,714       29,157       (358 )     (15,439 )
  13,648       3,535       (28,922 )     31,000       (3,507 )     18,982  
                                             
  32,448       10,142       45,662       64,269       64,949       66,347  
                                             
         
         
  —       —       —       —       —       —  
  —       —       (43 )     (49 )     —       —  
  —       —       (98 )     (88 )     (1,579 )     (1,333 )
  —       (44 )     (1,637 )     (1,579 )     (37,229 )     (36,219 )
  —       —       (2,899 )     (2,401 )     —       (23,717 )
  —       —       —       —       (29,369 )     —  
         
  —       —       (1,561 )     (1,230 )     —       —  
  —       —       (649 )     (494 )     —       —  
  —       —       (7,736 )     (7,528 )     —       —  
  —       —       (15,104 )     (11,306 )     —       —  
                                             
  —       (44 )     (29,727 )     (24,675 )     (68,177 )     (61,269 )
                                             
         
  1,071       (13,198 )     12,301       18,217       207,108       189,401  
                                             
  33,519       (3,100 )     28,236       57,811       203,880       194,479  
         
  178,740       181,840       422,119       364,308       1,411,801       1,217,322  
                                             
$ 212,259     $ 178,740     $ 450,355     $ 422,119     $ 1,615,681     $ 1,411,801  
                                             
$ —     $ 1     $ 262     $ 69     $ 6,374     $ 5,612  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   165

Table of Contents

Russell Investment Company

Specialty Funds

Financial Highlights — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		     $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		      $
Return of
capital
Emerging Markets Fund                 

Class A

                    

October 31, 2007(1)

    20.50    .14     10.21      10.35      —      —      —

Class C

                    

October 31, 2007

    21.17    (.02 )   11.80      11.78      (.25 )    (3.04 )    —

October 31, 2006

    16.73    .01     5.14      5.15      (.28 )    (.43 )    —

October 31, 2005

    12.52    .04     4.22      4.26      (.05 )    —      —

October 31, 2004

    10.68    — (d)   2.08      2.08      (.24 )    —      —

October 31, 2003

    7.22    .02     3.44      3.46      —      —      —

Class E

                    

October 31, 2007

    21.89    .16     12.24      12.40      (.41 )    (3.04 )    —

October 31, 2006

    17.25    .17     5.29      5.46      (.39 )    (.43 )    —

October 31, 2005

    12.93    .16     4.34      4.50      (.18 )    —      —

October 31, 2004

    10.98    .09     2.15      2.24      (.29 )    —      —

October 31, 2003

    7.41    .09     3.49      3.58      (.01 )    —      —

Class S

                    

October 31, 2007

    21.91    .22     12.23      12.45      (.46 )    (3.04 )    —

October 31, 2006

    17.25    .21     5.31      5.52      (.43 )    (.43 )    —

October 31, 2005

    12.94    .20     4.34      4.54      (.23 )    —      —

October 31, 2004

    10.98    .12     2.15      2.27      (.31 )    —      —

October 31, 2003

    7.43    .11     3.48      3.59      (.04 )    —      —
Real Estate Securities Fund                 

Class A

                    

October 31, 2007(1)

    57.37    .11     (4.50 )    (4.39 )    (.69 )    —      —

Class C

                    

October 31, 2007

    56.11    .20     .27      .47      (.34 )    (4.82 )    —

October 31, 2006

    46.08    .22     15.14      15.36      (.35 )    (4.98 )    —

October 31, 2005

    43.10    .42     6.66      7.08      (.43 )    (3.67 )    —

October 31, 2004

    33.94    .46     9.92      10.38      (1.21 )    (.01 )    —

October 31, 2003

    26.52    1.11     7.53      8.64      (1.11 )    (.11 )    —

Class E

                    

October 31, 2007

    56.95    .62     .28      .90      (.67 )    (4.82 )    —

October 31, 2006

    46.62    .59     15.36      15.95      (.64 )    (4.98 )    —

October 31, 2005

    43.55    .76     6.74      7.50      (.76 )    (3.67 )    —

October 31, 2004

    34.24    .75     10.04      10.79      (1.47 )    (.01 )    —

October 31, 2003

    26.72    1.34     7.60      8.94      (1.31 )    (.11 )    —

Class S

                    

October 31, 2007

    57.53    .75     .28      1.03      (.80 )    (4.82 )    —

October 31, 2006

    47.03    .73     15.51      16.24      (.76 )    (4.98 )    —

October 31, 2005

    43.90    .88     6.79      7.67      (.87 )    (3.67 )    —

October 31, 2004

    34.51    .87     10.09      10.96      (1.56 )    (.01 )    —

October 31, 2003

    26.89    1.42     7.67      9.09      (1.36 )    (.11 )    —

 

See accompanying notes which are an integral part of the financial statements.

166   Financial Highlights

Table of Contents

$

Total
Distributions

    

$
Net Asset Value,
End of

Period

   %
Total
Return(b)(f)		    

$

Net Assets,
End of Period
(000)

  

%
Ratio of Expenses

to Average
Net Assets,
Net(c)(e)

   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		  

%

Ratio of Net
Investment Income
to Average
Net Assets(c)(e)

    

%

Portfolio

Turnover Rate(b)

             
             
—     30.85   50.49     3,537   1.88   1.89   .86     66.66
             
(3.29 )   29.66   63.90     66,707   2.63   2.64   (.07 )   66.66
(.71 )   21.17   31.63     44,977   2.68   2.68   .07     68.52
(.05 )   16.73   33.98     33,961   2.74   2.76   .29     71.86
(.24 )   12.52   20.04     20,467   2.83   2.87   .02     82.02
—     10.68   47.58     12,306   3.09   3.09   .19     95.13
             
(3.45 )   30.84   65.17     41,911   1.88   1.89   .68     66.66
(.82 )   21.89   32.64     27,862   1.93   1.93   .83     68.52
(.18 )   17.25   34.94     18,855   1.99   2.01   1.02     71.86
(.29 )   12.93   20.88     14,169   2.07   2.12   .75     82.02
(.01 )   10.98   48.39     9,598   2.36   2.37   1.02     95.13
             
(3.50 )   30.86   65.53     1,760,393   1.63   1.64   .94     66.66
(.86 )   21.91   33.04     1,092,083   1.68   1.68   1.06     68.52
(.23 )   17.25   35.27     794,086   1.73   1.76   1.30     71.86
(.31 )   12.94   21.22     549,626   1.83   1.87   1.00     82.02
(.04 )   10.98   48.27     386,560   2.11   2.11   1.30     95.13
             
             
(.69 )   52.29   (7.70 )   7,868   1.32   1.33   .35     70.46
             
(5.16 )   51.42   .56     98,745   2.07   2.08   .38     70.46
(5.33 )   56.11   36.63     110,287   2.07   2.08   .45     48.64
(4.10 )   46.08   17.22     81,876   2.10   2.10   .95     63.95
(1.22 )   43.10   30.97     61,089   2.12   2.12   1.20     38.04
(1.22 )   33.94   33.23     32,784   2.20   2.30   3.67     46.09
             
(5.49 )   52.36   1.33     51,299   1.32   1.33   1.13     70.46
(5.62 )   56.95   37.65     59,768   1.32   1.32   1.19     48.64
(4.43 )   46.62   18.09     40,296   1.35   1.35   1.71     63.95
(1.48 )   43.55   32.00     29,436   1.37   1.37   1.95     38.04
(1.42 )   34.24   34.21     16,651   1.43   1.62   4.46     46.09
             
(5.62 )   52.94   1.57     2,126,802   1.07   1.08   1.38     70.46
(5.74 )   57.53   38.04     1,903,365   1.07   1.07   1.46     48.64
(4.54 )   47.03   18.35     1,434,109   1.10   1.10   1.95     63.95
(1.57 )   43.90   32.30     1,171,513   1.11   1.11   2.23     38.04
(1.47 )   34.51   34.58     830,448   1.18   1.18   4.66     46.09

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   167

Table of Contents

Russell Investment Company

Specialty Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

 

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		      $
Return of
capital
Short Duration Bond Fund                  

Class A

                     

October 31, 2007(1)

    18.71    .49    .09      .58      (.48 )    —      —

Class C

                     

October 31, 2007

    18.66    .59    .14      .73      (.63 )    —      —

October 31, 2006

    18.63    .50    .03      .53      (.50 )    —      —

October 31, 2005

    19.04    .31    (.40 )    (.09 )    (.31 )    (.01 )    —

October 31, 2004

    19.01    .19    (.01 )    .18      (.15 )    —      —

October 31, 2003

    18.98    .31    .06      .37      (.34 )    —      —

Class E

                     

October 31, 2007

    18.73    .72    .14      .86      (.77 )    —      —

October 31, 2006

    18.70    .65    .03      .68      (.65 )    —      —

October 31, 2005

    19.10    .46    (.41 )    .05      (.44 )    (.01 )    —

October 31, 2004

    19.08    .34    (.01 )    .33      (.31 )    —      —

October 31, 2003

    19.04    .48    .03      .51      (.47 )    —      —

Class S

                     

October 31, 2007

    18.70    .75    .16      .91      (.82 )    —      —

October 31, 2006

    18.67    .69    .03      .72      (.69 )    —      —

October 31, 2005

    19.07    .51    (.41 )    .10      (.49 )    (.01 )    —

October 31, 2004

    19.05    .38    (.01 )    .37      (.35 )    —      —

October 31, 2003

    19.01    .52    .03      .55      (.51 )    —      —
Tax Exempt Bond Fund                  

Class C

                     

October 31, 2007

    21.63    .58    (.32 )    .26      (.58 )    —      —

October 31, 2006

    21.45    .57    .17      .74      (.56 )    —      —

October 31, 2005

    22.03    .51    (.61 )    (.10 )    (.48 )    —      —

October 31, 2004

    21.99    .53    .04      .57      (.53 )    —      —

October 31, 2003

    21.94    .58    .07      .65      (.60 )    —      —

Class E

                     

October 31, 2007

    21.70    .76    (.34 )    .42      (.74 )    —      —

October 31, 2006

    21.52    .73    .17      .90      (.72 )    —      —

October 31, 2005

    22.10    .67    (.60 )    .07      (.65 )    —      —

October 31, 2004

    22.06    .69    .04      .73      (.69 )    —      —

October 31, 2003

    21.99    .75    .06      .81      (.74 )    —      —

Class S

                     

October 31, 2007

    21.67    .80    (.32 )    .48      (.79 )    —      —

October 31, 2006

    21.49    .79    .16      .95      (.77 )    —      —

October 31, 2005

    22.07    .72    (.60 )    .12      (.70 )    —      —

October 31, 2004

    22.03    .75    .03      .78      (.74 )    —      —

October 31, 2003

    21.96    .80    .07      .87      (.80 )    —      —

 

See accompanying notes which are an integral part of the financial statements.

168   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)(f)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		  %
Portfolio
Turnover Rate(b)
             
             
(.48 )   18.81   3.16     1,363   .92   .93   3.92   172.85
             
(.63 )   18.76   3.98     16,075   1.67   1.68   3.18   172.85
(.50 )   18.66   2.89     21,840   1.65   1.66   2.71   111.57
(.32 )   18.63   (.50 )   30,290   1.65   1.66   1.65   202.53
(.15 )   19.04   .97     38,427   1.63   1.66   1.00   131.57
(.34 )   19.01   1.97     41,644   1.56   1.72   1.63   187.92
             
(.77 )   18.82   4.72     17,092   .92   .93   3.95   172.85
(.65 )   18.73   3.69     26,800   .90   .91   3.49   111.57
(.45 )   18.70   .25     24,851   .90   .91   2.43   202.53
(.31 )   19.10   1.74     23,181   .88   .91   1.76   131.57
(.47 )   19.08   2.70     20,274   .80   .97   2.52   187.92
             
(.82 )   18.79   4.99     435,704   .67   .68   4.20   172.85
(.69 )   18.70   3.95     1,106,946   .65   .65   3.73   111.57
(.50 )   18.67   .51     1,158,439   .65   .66   2.67   202.53
(.35 )   19.07   1.98     1,135,332   .63   .66   2.01   131.57
(.51 )   19.05   2.95     958,064   .56   .72   2.70   187.92
             
             
(.58 )   21.31   1.21     12,722   1.55   1.55   2.72   72.45
(.56 )   21.63   3.50     11,819   1.56   1.56   2.66   63.34
(.48 )   21.45   (.46 )   10,493   1.53   1.53   2.31   43.13
(.53 )   22.03   2.62     10,611   1.53   1.53   2.39   36.68
(.60 )   21.99   2.98     8,701   1.56   1.56   2.62   37.46
             
(.74 )   21.38   1.96     19,442   .80   .80   3.48   72.45
(.72 )   21.70   4.26     11,805   .80   .81   3.41   63.34
(.65 )   21.52   .31     8,572   .78   .78   3.07   43.13
(.69 )   22.10   3.38     6,488   .78   .78   3.14   36.68
(.74 )   22.06   3.75     5,849   .81   .81   3.37   37.46
             
(.79 )   21.36   2.26     336,275   .55   .55   3.72   72.45
(.77 )   21.67   4.53     274,438   .55   .56   3.66   63.34
(.70 )   21.49   .55     228,604   .53   .53   3.31   43.13
(.74 )   22.07   3.64     185,587   .53   .53   3.39   36.68
(.80 )   22.03   4.01     144,402   .56   .56   3.62   37.46

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   169

Table of Contents

Russell Investment Company

Specialty Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		     $
Net Realized
and Unrealized
Gain (Loss)		    $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		      $
Return of
capital
Tax-Managed Large Cap Fund                 

Class C

                    

October 31, 2007

    19.62    (.06 )   3.22    3.16    —      —      —

October 31, 2006

    17.68    (.02 )   1.96    1.94    —      —      —

October 31, 2005

    16.55    .01     1.14    1.15    (.02 )    —      —

October 31, 2004

    15.02    (.06 )   1.59    1.53    —      —      —

October 31, 2003

    12.61    (.04 )   2.45    2.41    —      —      —

Class E

                    

October 31, 2007

    20.12    .10     3.31    3.41    (.12 )    —      —

October 31, 2006

    18.09    .11     2.02    2.13    (.10 )    —      —

October 31, 2005

    16.93    .15     1.15    1.30    (.14 )    —      —

October 31, 2004

    15.30    .06     1.63    1.69    (.06 )    —      —

October 31, 2003

    12.83    .06     2.50    2.56    (.09 )    —      —

Class S

                    

October 31, 2007

    20.21    .15     3.32    3.47    (.16 )    —      —

October 31, 2006

    18.16    .17     2.02    2.19    (.14 )    —      —

October 31, 2005

    16.99    .20     1.15    1.35    (.18 )    —      —

October 31, 2004

    15.34    .10     1.63    1.73    (.08 )    —      —

October 31, 2003

    12.87    .10     2.48    2.58    (.11 )    —      —
Tax-Managed Mid & Small Cap Fund                

Class C

                    

October 31, 2007

    13.22    (.13 )   2.18    2.05    —      (.20 )    —

October 31, 2006

    11.59    (.14 )   1.77    1.63    —      —      —

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    —      —      —

Class E

                    

October 31, 2007

    13.93    (.03 )   2.33    2.30    —      (.20 )    —

October 31, 2006

    12.13    (.05 )   1.85    1.80    —      —      —

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    —      —      —

Class S

                    

October 31, 2007

    14.13    .01     2.36    2.37    —      (.20 )    —

October 31, 2006

    12.27    (.01 )   1.87    1.86    —      —      —

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    —      —      —

 

See accompanying notes which are an integral part of the financial statements.

170   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		    %
Portfolio
Turnover Rate(b)
             
             
—     22.78   16.11   21,692   1.92   1.92   (.30 )   50.10
—     19.62   10.97   19,112   1.92   1.92   (.13 )   60.63
(.02 )   17.68   6.94   16,955   1.91   1.91   .08     42.92
—     16.55   10.19   13,304   1.92   1.92   (.38 )   32.15
—     15.02   19.11   10,022   1.94   1.94   (.30 )   127.47
             
(.12 )   23.41   17.01   16,891   1.17   1.17   .45     50.10
(.10 )   20.12   11.82   12,726   1.17   1.17   .60     60.63
(.14 )   18.09   7.72   8,695   1.16   1.16   .84     42.92
(.06 )   16.93   11.05   5,991   1.17   1.17   .37     32.15
(.09 )   15.30   20.04   4,743   1.19   1.19   .46     127.47
             
(.16 )   23.52   17.28   572,138   .92   .92   .70     50.10
(.14 )   20.21   12.12   458,002   .92   .92   .87     60.63
(.18 )   18.16   7.98   386,605   .90   .91   1.12     42.92
(.08 )   16.99   11.33   342,640   .92   .92   .62     32.15
(.11 )   15.34   20.24   307,458   .94   .94   .71     127.47
             
             
(.20 )   15.07   15.70   14,088   2.25   2.30   (.93 )   56.71
—     13.22   14.06   11,975   2.25   2.35   (1.09 )   54.34
—     11.59   13.96   9,295   2.24   2.37   (1.06 )   57.90
—     10.17   9.00   6,041   2.25   2.34   (1.33 )   203.33
—     9.33   31.04   5,025   2.25   2.49   (1.06 )   81.91
             
(.20 )   16.03   16.70   3,654   1.50   1.55   (.19 )   56.71
—     13.93   14.84   2,523   1.50   1.60   (.34 )   54.34
—     12.13   14.87   1,663   1.48   1.62   (.32 )   57.90
—     10.56   9.77   1,279   1.50   1.59   (.58 )   203.33
—     9.62   32.14   850   1.50   1.74   (.31 )   81.91
             
(.20 )   16.30   16.97   265,807   1.25   1.30   .07     56.71
—     14.13   15.16   198,081   1.25   1.35   (.09 )   54.34
—     12.27   15.21   156,596   1.22   1.38   (.06 )   57.90
—     10.65   10.02   123,045   1.25   1.34   (.32 )   203.33
—     9.68   32.42   106,738   1.25   1.49   (.06 )   81.91

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   171

Table of Contents

Russell Investment Company

Specialty Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		     $
Net Realized
and Unrealized
Gain (Loss)		    $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		     $
Distributions
from Net
Realized Gain		      $
Return of
capital
Select Growth Fund                   

Class C

                   

October 31, 2007

    7.84    (.09 )   1.42    1.33    —     —      —

October 31, 2006

    7.45    (.09 )   .48    .39    —     —      —

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    —     —      —

Class E

                   

October 31, 2007

    8.25    (.02 )   1.49    1.47    —     —      —

October 31, 2006

    7.76    (.03 )   .52    .49    —     —      —

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    —     —      —

Class I

                   

October 31, 2007

    8.44    .01     1.53    1.54    —     —      —

October 31, 2006

    7.91    .01     .52    .53    — (d)   —      —

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    —     —      —

Class S

                   

October 31, 2007

    8.38    (.01 )   1.52    1.51    —     —      —

October 31, 2006

    7.87    (.01 )   .52    .51    —     —      —

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    —     —      —
Select Value Fund                   

Class C

                   

October 31, 2007

    12.44    .01     1.16    1.17    (.02 )   (.75 )    —

October 31, 2006

    11.27    .01     1.83    1.84    (.03 )   (.64 )    —

October 31, 2005

    10.15    (.02 )   1.16    1.14    (.01 )   (.01 )    —

October 31, 2004

    8.97    (.03 )   1.22    1.19    (.01 )   —      —

October 31, 2003

    7.41    (.01 )   1.58    1.57    (.01 )   —      —

Class E

                   

October 31, 2007

    12.66    .11     1.19    1.30    (.11 )   (.75 )    —

October 31, 2006

    11.43    .11     1.87    1.98    (.11 )   (.64 )    —

October 31, 2005

    10.28    .09     1.16    1.25    (.09 )   (.01 )    —

October 31, 2004

    9.05    .05     1.23    1.28    (.05 )   —      —

October 31, 2003

    7.46    .06     1.58    1.64    (.05 )   —      —

Class I

                   

October 31, 2007

    12.69    .16     1.18    1.34    (.15 )   (.75 )    —

October 31, 2006

    11.46    .15     1.87    2.02    (.15 )   (.64 )    —

October 31, 2005

    10.30    .13     1.17    1.30    (.13 )   (.01 )    —

October 31, 2004

    9.07    .10     1.22    1.32    (.09 )   —      —

October 31, 2003

    7.46    .08     1.61    1.69    (.08 )   —      —

Class S

                   

October 31, 2007

    12.67    .14     1.17    1.31    (.14 )   (.75 )    —

October 31, 2006

    11.44    .13     1.87    2.00    (.13 )   (.64 )    —

October 31, 2005

    10.29    .11     1.16    1.27    (.11 )   (.01 )    —

October 31, 2004

    9.05    .08     1.24    1.32    (.08 )   —      —

October 31, 2003

    7.45    .07     1.60    1.67    (.07 )   —      —

 

See accompanying notes which are an integral part of the financial statements.

172   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		    %
Portfolio
Turnover Rate(b)
             
             
—     9.17   16.96     11,204   2.23   2.27   (1.14 )   138.41
—     7.84   5.23     9,764   2.22   2.27   (1.20 )   148.35
—     7.45   8.76     8,149   2.23   2.32   (1.15 )   127.68
—     6.85   (.15 )   5,942   2.25   2.50   (1.53 )   134.00
—     6.85   31.17     3,265   2.20   2.74   (1.57 )   149.76
             
—     9.72   17.82     7,104   1.37   1.41   (.28 )   138.41
—     8.25   6.31     6,590   1.36   1.42   (.34 )   148.35
—     7.76   9.60     4,255   1.28   1.40   (.15 )   127.68
—     7.08   .71     5,749   1.36   1.54   (.65 )   134.00
—     7.03   32.39     4,865   1.26   1.79   (.62 )   149.76
             
—     9.98   18.25     113,989   1.00   1.06   .09     138.41
—     8.44   6.75     90,953   .95   1.13   .07     148.35
—     7.91   10.17     112,112   .92   1.08   .12     127.68
—     7.19   1.13     60,006   .95   1.20   (.23 )   134.00
—     7.10   32.71     32,003   .93   1.58   (.31 )   149.76
             
—     9.89   18.02     79,962   1.16   1.20   (.07 )   138.41
—     8.38   6.48     71,433   1.15   1.21   (.13 )   148.35
—     7.87   10.07     57,324   1.06   1.18   .04     127.68
—     7.15   .99     51,569   1.09   1.27   (.38 )   134.00
—     7.08   32.58     42,421   1.03   1.56   (.40 )   149.76
             
             
(.77 )   12.84   9.73     25,688   2.09   2.09   .06     128.36
(.67 )   12.44   17.01     26,168   2.11   2.11   .08     86.60
(.02 )   11.27   11.23     21,228   2.18   2.20   (.18 )   84.74
(.01 )   10.15   13.24     16,834   2.25   2.32   (.31 )   96.07
(.01 )   8.97   21.19     9,972   2.15   2.42   (.12 )   105.71
             
(.86 )   13.10   10.64     10,774   1.27   1.27   .88     128.36
(.75 )   12.66   18.15     10,871   1.27   1.27   .91     86.60
(.10 )   11.43   12.14     8,770   1.25   1.30   .78     84.74
(.05 )   10.28   14.31     9,167   1.39   1.39   .55     96.07
(.05 )   9.05   22.01     7,778   1.21   1.48   .77     105.71
             
(.90 )   13.13   10.97     139,538   .94   .94   1.21     128.36
(.79 )   12.69   18.47     131,494   .94   .94   1.26     86.60
(.14 )   11.46   12.63     135,759   .86   .91   1.14     84.74
(.09 )   10.30   14.77     102,397   .95   .95   1.00     96.07
(.08 )   9.07   22.60     74,600   .90   1.23   1.12     105.71
             
(.88 )   13.10   10.87     274,355   1.05   1.05   1.10     128.36
(.77 )   12.67   18.32     253,586   1.09   1.10   1.09     86.60
(.12 )   11.44   12.36     198,551   1.07   1.10   .95     84.74
(.08 )   10.29   14.61     173,635   1.10   1.10   .84     96.07
(.07 )   9.05   22.53     128,383   1.01   1.28   1.03     105.71

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   173

Table of Contents

Russell Investment Company

Specialty Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		      $
Return of
capital
Fixed Income I Fund                  

Class C

                     

October 31, 2007(2)

    20.76    .08    (.08 )    —    —      —      —

Class E

                     

October 31, 2007

    20.82    .96    (.02 )    0.94    (.99 )    —      —

October 31, 2006

    20.75    .92    .04      .96    (.89 )    —      —

October 31, 2005

    21.88    .74    (.61 )    .13    (.73 )    (.53 )    —

October 31, 2004

    22.12    .63    .48      1.11    (.69 )    (.66 )    —

October 31, 2003

    22.15    .72    .36      1.08    (.67 )    (.44 )    —

Class I

                     

October 31, 2007

    20.82    1.04    (.06 )    0.98    (1.04 )    —      —

October 31, 2006

    20.75    .97    .05      1.02    (.95 )    —      —

October 31, 2005

    21.87    .80    (.61 )    .19    (.78 )    (.53 )    —

October 31, 2004

    22.11    .68    .49      1.17    (.75 )    (.66 )    —

October 31, 2003

    22.15    .78    .35      1.13    (.73 )    (.44 )    —

Class S

                     

October 31, 2007(2)

    20.75    .01    —      .01    —      —      —

Class Y

                     

October 31, 2007

    20.83    1.04    (.05 )    0.99    (1.05 )    —      —

October 31, 2006

    20.76    .99    .04      1.03    (.96 )    —      —

October 31, 2005

    21.88    .80    (.61 )    .19    (.78 )    (.53 )    —

October 31, 2004

    22.12    .70    .48      1.18    (.76 )    (.66 )    —

October 31, 2003

    22.16    .79    .36      1.15    (.75 )    (.44 )    —

 

See accompanying notes which are an integral part of the financial statements.

174   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   (%)
Total
Return(b)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		  %
Portfolio
Turnover Rate(b)
             
             
—     20.76   —   35,689   1.60   1.62   4.21   198.79
             
(.99 )   20.77   4.64   53,663   .65   .67   4.76   198.79
(.89 )   20.82   4.79   31,504   .64   .67   4.45   125.38
(1.26 )   20.75   .60   29,632   .65   .68   3.49   201.90
(1.35 )   21.88   5.22   27,515   .65   .66   2.88   153.79
(1.11 )   22.12   5.01   27,009   .67   .67   3.25   184.29
             
(1.04 )   20.76   4.85   689,651   .40   .42   4.99   198.79
(.95 )   20.82   5.06   829,914   .40   .42   4.70   125.38
(1.31 )   20.75   .88   788,808   .38   .40   3.76   201.90
(1.41 )   21.87   5.52   752,229   .39   .40   3.15   153.79
(1.17 )   22.11   5.26   639,846   .41   .41   3.50   184.29
             
—     20.76   .05   226,995   .53   .55   5.30   198.79
             
(1.05 )   20.77   4.90   609,683   .36   .38   5.04   198.79
(.96 )   20.83   5.11   550,383   .35   .38   4.77   125.38
(1.31 )   20.76   .91   398,882   .35   .37   3.81   201.90
(1.42 )   21.88   5.58   285,228   .33   .34   3.18   153.79
(1.19 )   22.12   5.33   399,601   .35   .35   3.53   184.29

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   175

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Notes to Financial Highlights — October 31, 2007

 

 

(1) For the period March 1, 2007 (commencement of operations) to October 31, 2007.
(2) For the period October 22, 2007 (commencement of operations) to October 31, 2007.
(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 Russell Investment Management Company (“RIMCo”) as the investment advisor and transfer agent, and for certain funds, custody credit arrangements.
(f) Excludes the effects of sales charges. If sales charges were included, the total return would be lower.

 

See accompanying notes which are an integral part of the financial statements.

176   Notes to Financial Highlights

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Russell Investment Company

Specialty Funds

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds (each a “Fund” and collectively the “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, as amended. 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 Russell Investment Management Company (“RIMCo”).

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;

 

  •  

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 New York Stock Exchange, whichever is earlier.

 

  •  

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.

 

  •  

Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded.

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 normal pricing methods. 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.

Notes to Financial Statements   177

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Specialty Funds

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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 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. 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. 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. 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 of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural 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.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds’ financial statement disclosure.

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 is required for the Funds.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Funds’ net assets and results of operations.

178   Notes to Financial Statements

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Specialty Funds

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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 

Quarterly

    April, July, October and December    Real Estate Securities,

Short Duration Bond,


Select Value and Fixed Income I

Annually

    Mid-December    Emerging Markets,

Tax-Managed Large Cap,


Tax-Managed Mid & Small Cap and
Select Growth 

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 RIMCo (“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 may offer the following classes of shares: Class A, 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.

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.

Notes to Financial Statements   179

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Specialty Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 Emerging Markets Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded a deferred tax liability of $3,355,934 in respect of the unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at October 31, 2007. 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 Fund. The amounts related to capital gains taxes are $2,571,952 and are included in net realized gain (loss) on investments in the Statement of Operations for the Fund.

Derivatives

To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds’ Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting its investment strategies.

The Funds typically use derivatives in three ways: exposing cash reserves to markets, hedging and return enhancement. The Funds may pursue their strategy of being fully invested by exposing cash reserves to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as though cash reserves were actually invested in those markets. Hedging is also used by the 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, the 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 investment transactions consistent with the Funds’ investment objective and strategies, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts (“contracts”). From time to time the Emerging Markets, Short Duration Bond and Fixed Income I 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, 2007 are presented on the Schedules 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 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.

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Specialty Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Loan Agreements

The Fixed Income I Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. At the period ended October 31, 2007, there were no unfunded loan commitments in the Fixed Income I Fund.

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 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 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, 2007, the Fixed Income I Fund had cash collateral balance of $164,474 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.

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Specialty Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 those 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 and Fixed Income I 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 the Funds engage in a swap, they exchange their obligations to pay or rights to receive payments for the obligations to pay or rights to receive payments of another party (i.e., an exchange of floating rate payments for fixed rate payments).

Interest rate swaps are counterparty agreements and can be customized to meet each party’s needs and involve the exchange of a fixed payment per period for a payment that is not fixed. Currency swaps are agreements 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 to the original party. Credit default swaps are counterparty agreements which allow the transfer of third party credit risk (the possibility that an 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 Funds expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. The net amount of the excess, if any, of the Fund’s obligations over its 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 Fund’s custodian. To the extent that the Fund enters into swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Fund’s obligations, if any, with respect to such 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.

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.

Mortgage-Related and Other Asset-Backed Securities

Certain Funds may invest in mortgage or other asset-backed securities. Theses securities may include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of some mortgage or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.

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Specialty Funds

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One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). Payments received for the IOs are included in interest income on the Statement of Operations. Because principal will not be received at the maturity of an IO, adjustments are made to the book value of the security on a daily basis until maturity. These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

Inflation-Indexed Bonds

Certain Funds may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity.

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.

Custodian

The Funds have entered into arrangements with their Custodian whereby custody credits realized as a result of uninvested cash balances are used to reduce a portion of the Funds’ expenses. During the period ended October 31, 2007, the Funds’ custodian fees were reduced by the following amounts under these arrangements which are included in expense reductions on the Statement of Operations:

 

Funds    Amount Paid
  

Emerging Markets

    $ 40,514

Real Estate Securities

      11,807

Short Duration Bond

      56,225

Tax Exempt Bond

      7,204

Tax-Managed Large Cap

      1,443

Tax-Managed Mid & Small Cap

      2,703

Select Growth

      583

Select Value

      1,604

Fixed Income I

      83,451

 

3.   Investment Transactions

Securities

During the period ended October 31, 2007, 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
     

Emerging Markets

    $ 921,016,412    $ 918,455,937

Real Estate Securities

      1,676,519,391      1,478,537,899

Short Duration Bond

      581,915,684      1,086,202,249

Tax Exempt Bond

      304,168,850      227,549,373

Tax-Managed Large Cap

      281,267,279      257,805,573

Tax-Managed Mid & Small Cap

      161,548,075      129,958,849

Select Growth

      253,338,030      251,953,552

Select Value

      548,537,366      557,183,937

Fixed Income I

      2,532,629,318      2,301,109,147
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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

    $ 387,497,398    $ 429,657,069

Select Growth

      —      795,303

Fixed Income I

      572,766,683      529,285,456

Written Options Contracts

Transactions in written options contracts for the period ended October 31, 2007 for the following Funds were as follows:

 

     Emerging Markets Fund     Short Duration Bond Fund  
      Number of
Contracts		     Premiums
Received		     Number of
Contracts		     Premiums
Received		  
        

Outstanding October 31, 2006

    626     $ 828,429     415     $ 773,315  

Opened

    3,920       4,658,851     24       737,840  

Closed

    (4,268 )     (4,985,911 )   (362 )     (840,591 )

Expired

    —       —     (62 )     (125,883 )
                            

Outstanding October 31, 2007

    278     $ 501,369     15     $ 544,681  
                            

 

     Fixed Income I      
      Number of
Contracts		     Premiums
Received		             
         

Outstanding October 31, 2006

    574     $ 208,180       

Opened

    32,928       10,779,690       

Closed

    (28,081 )     (9,563,898 )     

Expired

    (1,059 )     (383,267 )     
                   

Outstanding October 31, 2007

    4,362     $ 1,040,705       
                   

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 each Fund’s 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 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, 2007, the non-cash collateral pledged for the securities on loan in the following funds was:

 

Funds    Non-Cash
Collateral Value		    Non-Cash Collateral Holding
     

Emerging Markets

    $ 698,891    Pool of US Government Securities

Tax Managed Large Cap

      5,985,885    Pool of US Government Securities

Tax Managed Mid & Small Cap

      3,095,037    Pool of US Government Securities

Select Growth

      3,023,166    Pool of US Government Securities

Select Value

      1,677,255    Pool of US Government Securities
184   Notes to Financial Statements

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4.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

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 RIC Money Market Fund (the Fund of the Investment Company not presented herein). As of October 31, 2007, $314,325,549 of the Money Market Fund’s net assets represents investments by the Funds 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 $52,669,555 and $3,747,569 respectively, for the period ended October 31, 2007.

 

     Annual Rate  
Funds    Adviser        Administrator  

Emerging Markets

    1.15 %      .05 %

Real Estate Securities

    .80        .05  

Short Duration Bond

    .45        .05  

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  

Fixed Income I

    .25        .05  

For the Short Duration Bond Fund, RIMCo has contractually agreed to waive, at least until February 29, 2008, up to the full amount of its 0.50% combined advisory and administrative fees and to reimburse the Fund for other direct Fund-level expenses to the extent that direct Fund-level expenses exceed 0.75% of the average daily net assets of that Fund on an annual basis. This waiver may not be terminated during the relevant period except at the Board’s discretion. Direct Fund-level expenses for the Short Duration Bond Fund do not include 12b-1 fees, shareholder services fees or the expenses of other investment companies in which the Fund invests which are borne indirectly by the Fund. There were no waivers for the period ended October 31, 2007.

For the Tax-Managed Mid & Small Cap Fund, RIMCo has contractually agreed to waive, at least until February 29, 2008, up to the full amount of its 1.03% combined advisory and administrative fees and to reimburse the Fund for other direct Fund-level expenses to the extent that direct Fund-level expenses exceed 1.25% of the average daily net assets of that Fund on an annual basis. This waiver may not be terminated during the relevant period except at the Board’s discretion. Direct Fund-level expenses for the Tax-Managed Mid & Small Cap Fund do not include 12b-1 fees, shareholder services fees or the expenses of other investment companies in which the Fund invests which are borne indirectly by the Fund. The total amount of the waiver for period ended October 31, 2007 was $134,550.

For the Select Growth Fund, RIMCo has contractually agreed to waive, at least until February 29, 2008, up to the full amount of its 0.85% combined advisory and administrative fees and to reimburse the Fund for other direct Fund-level expenses to the extent that direct Fund-level expenses exceed 0.98% of the average daily net assets of that Fund on an annual basis. This waiver may not be terminated during the relevant period except at the Board’s discretion. Direct Fund-level expenses for the Select Growth Fund do not include 12b-1, shareholder services or transfer agency fees or the expenses of other investment companies in which the Fund invests which are borne indirectly by the Fund. The total amount of the waiver for the period ended October 31, 2007 was $73,533.

For the Fixed Income I Fund, RIMCo has contractually agreed to waive 0.02% of its administrative fees. The total amount of the waiver for the period ended October 31, 2007 was $274,600. The waiver may not be terminated except at the Board’s discretion.

The Adviser does not have the ability to recover amounts waived or reimbursed from previous periods.

Notes to Financial Statements   185

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Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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 transfer agency fees paid by the Funds presented herein for the period ended October 31, 2007 were $10,291,856.

For Class I Shares of the Select Growth Fund, RIMCo, as transfer agent to RIC, has contractually agreed to waive, at least until February 29, 2008, its transfer agency fees for Class I Shares to the extent that those fees for that class exceed 0.01% of the average daily net assets of the Class I Shares. The amount of the waiver for the period ended October 31, 2007 was $17,793.

Distributor and Shareholder Servicing

Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributor, Inc. (“Distributor”), a wholly-owned subsidiary of RIMCo, serves as a distributor for all Investment Company portfolio shares, including Class A, Class C, Class E and Class S 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 were primarily intended to result in the sale of the Class A and Class C shares subject to the Distribution Plan. The 12b-1 distribution payments shall not exceed 0.25% or 0.75% of the average daily net assets of a Fund’s Class A or Class C shares, respectively, 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 Financial Industry Regulatory Authority (“FINRA”), these limitation are 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 FINRA.

The aggregate initial sales charges, deferred sales charges and asset-based sales charges on Class A and Class C Shares of the Funds may not exceed 7.25% and 6.25%, respectively, of total gross sales, subject to certain exclusions.

For the period ended October 31, 2007, the sales commissions paid to the selling agents for the sale of Class A shares are as follows:

 

Funds    Aggregate
Front-End
Sales Charges
on Class A Shares		    Class A Front-End
Sales Charges
Retained by
Distributor
     

Emerging Markets

   $ 47,351    $ 8,440

Real Estate Securities

     212,623      37,462

Short Duration Bond

     3,885      786

Brokerage Commissions

The Funds effect certain transactions through Russell Implementation Services, Inc. (“RIS”) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions, or (ii) to execute portfolio securities transactions for the portion of each Fund’s assets that RIMCo determines not to allocate to money managers, including assets allocated to the “select holdings” strategy, and for each Fund’s cash reserves.

The Funds effect certain transactions through BNY ConvergeFX Group — LJR Recapture Services (“LJR”) and its global network of correspondent brokers. LJR is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through LJR and its correspondents are used (i) to obtain research services for RIMCo to assist it in its capacity as a manager of managers

186   Notes to Financial Statements

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and (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds’ money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through LJR and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through LJR based upon asset class, investment style and other factors. Research services provided to RIMCo by LJR or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be generally obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients.

LJR may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through LJR and their 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 RIMCo’s research budget has been met, as determined annually in the Soft Dollar Committee budgeting process.

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 October 31, 2007 were as follows:

 

      Emerging Markets
Fund		    Real Estate
Securities Fund		    Short Duration
Bond Fund		    Tax Exempt
Bond Fund		    Tax Managed
Large Cap Fund
              
              

Advisory Fees

    $ 1,745,195    $ 1,537,066    $ 179,686    $ 92,546    $ 356,402

Administration Fees

      75,878      96,067      19,965      15,424      25,457

Distribution Fees

      41,415      65,508      10,688      8,166      14,071

Shareholder Servicing Fees

      22,062      32,342      7,118      6,824      8,238

Transfer Agent Fees

      273,009      345,713      39,929      30,826      50,904

Trustee Fees

      114      114      41      35      35
                                  
   $ 2,157,673    $ 2,076,810    $ 257,427    $ 153,821    $ 455,107
                                  
      Tax Managed
Mid & Small Cap
Fund		    Select Growth
Fund		    Select Value
Fund		    Fixed Income I
Fund		      

Advisory Fees

    $ 232,282    $ 155,548    $ 269,005    $ 369,228   

Administration Fees

      11,851      8,875      19,215      44,643   

Distribution Fees

      9,036      7,014      16,500      23,377   

Shareholder Servicing Fees

      3,782      3,830      7,950      18,975   

Transfer Agent Fees

      35,545      16,129      77,578      77,219   

Trustee Fees

      21      34      47      1,082   
                              
   $ 292,517    $ 191,430    $ 390,295    $ 534,524   
                              

Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives additional annual compensation of $52,000.

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5.   Federal Income Taxes

At October 31, 2007, 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

   10/31/08    10/31/09   10/31/10   10/31/11    
          

Short Duration Bond

   $ —    $ —   $ —   $ —  

Tax Exempt Bond

     682,095      —     —     —  

Tax-Managed Large Cap

     —      —     46,414,873     —  

Select Value

     —      1,393,793     362,611     —  

Fixed Income I

     —      —     —     —  

Funds

   10/31/12    10/31/13   10/31/14   10/31/15   Totals

Short Duration Bond

   $ —    $ 10,268,501   $ 7,439,440   $ 1,010,942   $ 18,718,883

Tax Exempt Bond

     357,343      —     634,298     1,197,042     2,870,778

Tax-Managed Large Cap

     —      —     —     —     46,414,873

Select Value

     —      —     —     —     1,756,404

Fixed Income I

     —      15,614,663     14,307,836     —     29,922,499

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 $1,393,793 and $362,611 will expire on October 31 of the years of 2009 and 2010, respectively.

Fixed Income I Fund had a capital loss carryforward of $13,283,390 that it acquired from the Diversified Bond Fund which will expire on October 31, 2013. This capital loss carryforward can be utilized without any limitation until its expiration date.

At October 31, 2007, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows:

 

     Emerging Markets
Fund		     Real Estate
Securities Fund		     Short Duration
Bond Fund		  
      

Cost of Investments

    $ 1,287,085,489     $ 1,991,440,402     $ 460,272,720  
                        

Unrealized Appreciation

    $ 719,275,623     $ 611,120,476     $ 1,936,345  

Unrealized Depreciation

      (9,720,579 )     (36,985,246 )     (2,722,047 )
                        

Net Unrealized Appreciation (Depreciation)

    $ 709,555,044     $ 574,135,230     $ (785,702 )
                        

Undistributed Ordinary Income

    $ 130,957,175     $ 34,455,125     $ 1,919,663  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 227,617,608     $ 214,653,998     $ (18,718,883 )

Tax Composition of Distributions:

       

Ordinary Income

    $ 63,225,251     $ 71,670,516     $ 32,520,638  

Long-Term Capital Gains

    $ 122,680,719     $ 133,267,398     $ —  
      Tax Exempt
Bond Fund		     Tax-Managed
Large Cap Fund		     Tax-Managed
Mid & Small Cap
Fund		  

Cost of Investments

    $ 365,447,039     $ 509,135,303     $ 316,584,032  
                        

Unrealized Appreciation

    $ 2,777,891     $ 177,682,086     $ 66,506,839  

Unrealized Depreciation

      (2,816,086 )     (7,986,541 )     (8,136,331 )
                        

Net Unrealized Appreciation (Depreciation)

    $ (38,195 )   $ 169,695,545     $ 58,370,508  
                        

Undistributed Ordinary Income

    $ 1,182,929     $ 2,512,662     $ 2,525,740  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ (2,870,778 )   $ (46,414,873 )   $ 18,365,432  

Tax Composition of Distributions:

       

Ordinary Income

    $ 11,931,673     $ 3,745,276     $ —  

Long-Term Capital Gains

    $ —     $ —     $ 3,082,422  
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      Select Growth
Fund		    

Select Value

Fund

     Fixed Income I
Fund		  
      

Cost of Investments

    $ 232,982,842     $ 480,709,587     $ 2,134,441,450  
                        

Unrealized Appreciation

    $ 37,061,715     $ 62,446,111     $ 15,176,259  

Unrealized Depreciation

      (2,834,469 )     (23,112,074 )     (19,811,454 )
                        

Net Unrealized Appreciation (Depreciation)

    $ 34,227,246     $ 39,334,037     $ (4,635,195 )
                        

Undistributed Ordinary Income

    $ —     $ 11,765,726     $ 7,286,107  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 9,038,337     $ 53,290,313     $ (29,922,499 )

Tax Composition of Distributions:

       

Ordinary Income

    $ —     $ 9,170,315     $ 68,176,605  

Long-Term Capital Gains

    $ —     $ 20,557,258     $ —  

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
Emerging Markets Fund    2007     2006     2007     2006  
        
        

Class A(a)

         

Proceeds from shares sold

    169     —     $ 3,936     $ —  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (54 )   —       (1,347 )     —  
                            

Net increase (decrease)

    115     —       2,589       —  
                            
        

Class C

         

Proceeds from shares sold

    440     600       10,003       11,923  

Proceeds from reinvestment of distributions

    346     79       6,707       1,405  

Payments for shares redeemed

    (662 )   (585 )     (15,321 )     (11,516 )
                            

Net increase (decrease)

    124     94       1,389       1,812  
                            
        

Class E

         

Proceeds from shares sold

    531     483       12,605       9,841  

Proceeds from reinvestment of distributions

    214     50       4,273       907  

Payments for shares redeemed

    (658 )   (354 )     (15,434 )     (7,159 )
                            

Net increase (decrease)

    87     179       1,444       3,589  
                            
        

Class S

         

Proceeds from shares sold

    16,902     13,204       385,688       265,826  

Proceeds from reinvestment of distributions

    8,412     2,101       168,078       38,232  

Payments for shares redeemed

    (18,123 )   (11,478 )     (433,529 )     (233,599 )
                            

Net increase (decrease)

    7,191     3,827       120,237       70,459  
                            

Total increase (decrease)

    7,517     4,100     $ 125,659     $ 75,860  
                            
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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Real Estate Securities Fund    2007     2006     2007     2006  
        
        

Class A(a)

         

Proceeds from shares sold

    181     —     $ 9,650     $ —  

Proceeds from reinvestment of distributions

    1     —       48       —  

Payments for shares redeemed

    (32 )   —       (1,683 )     —  
                            

Net increase (decrease)

    150     —       8,015       —  
                            
        

Class C

         

Proceeds from shares sold

    317     360       16,962       17,358  

Proceeds from reinvestment of distributions

    183     209       9,779       9,190  

Payments for shares redeemed

    (546 )   (380 )     (28,667 )     (18,551 )
                            

Net increase (decrease)

    (46 )   189       (1,926 )     7,997  
                            
        

Class E

         

Proceeds from shares sold

    396     334       21,270       16,642  

Proceeds from reinvestment of distributions

    105     109       5,726       4,891  

Payments for shares redeemed

    (571 )   (258 )     (30,369 )     (12,859 )
                            

Net increase (decrease)

    (70 )   185       (3,373 )     8,674  
                            
        

Class S

         

Proceeds from shares sold

    13,353     6,471       717,887       317,576  

Proceeds from reinvestment of distributions

    3,294     3,663       180,617       166,170  

Payments for shares redeemed

    (9,563 )   (7,539 )     (525,701 )     (368,134 )
                            

Net increase (decrease)

    7,084     2,595       372,803       115,612  
                            

Total increase (decrease)

    7,118     2,969     $ 375,519     $ 132,283  
                            
     Shares     Dollars  
Short Duration Bond Fund    2007     2006     2007     2006  
        
        

Class A(a)

         

Proceeds from shares sold

    87     —     $ 1,635     $ —  

Proceeds from reinvestment of distributions

    2     —       31       —  

Payments for shares redeemed

    (17 )   —       (311 )     —  
                            

Net increase (decrease)

    72     —       1,355       —  
                            
        

Class C

         

Proceeds from shares sold

    263     287       4,913       5,330  

Proceeds from reinvestment of distributions

    30     32       557       599  

Payments for shares redeemed

    (607 )   (774 )     (11,313 )     (14,409 )
                            

Net increase (decrease)

    (314 )   (455 )     (5,843 )     (8,480 )
                            
        

Class E

         

Proceeds from shares sold

    344     363       6,443       6,787  

Proceeds from reinvestment of distributions

    42     44       785       821  

Payments for shares redeemed

    (909 )   (306 )     (17,025 )     (5,701 )
                            

Net increase (decrease)

    (523 )   101       (9,797 )     1,907  
                            
        

Class S

         

Proceeds from shares sold

    10,184     14,343       190,348       267,444  

Proceeds from reinvestment of distributions

    1,599     2,054       29,764       38,127  

Payments for shares redeemed

    (47,792 )   (19,246 )     (892,917 )     (359,185 )
                            

Net increase (decrease)

    (36,009 )   (2,849 )     (672,805 )     (53,614 )
                            

Total increase (decrease)

    (36,774 )   (3,203 )   $ (687,090 )   $ (60,187 )
                            
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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Tax Exempt Bond Fund    2007     2006     2007     2006  
        
        

Class C

         

Proceeds from shares sold

    173     126     $ 3,708     $ 2,696  

Proceeds from reinvestment of distributions

    12     11       259       225  

Payments for shares redeemed

    (135 )   (79 )     (2,885 )     (1,694 )
                            

Net increase (decrease)

    50     58       1,082       1,227  
                            
        

Class E

         

Proceeds from shares sold

    640     187       13,763       4,006  

Proceeds from reinvestment of distributions

    24     15       517       324  

Payments for shares redeemed

    (299 )   (56 )     (6,387 )     (1,203 )
                            

Net increase (decrease)

    365     146       7,893       3,127  
                            
        

Class S

         

Proceeds from shares sold

    7,043     5,079       151,047       108,842  

Proceeds from reinvestment of distributions

    460     360       9,845       7,703  

Payments for shares redeemed

    (4,419 )   (3,416 )     (94,725 )     (73,194 )
                            

Net increase (decrease)

    3,084     2,023       66,167       43,351  
                            

Total increase (decrease)

    3,499     2,227     $ 75,142     $ 47,705  
                            
     Shares     Dollars  
Tax-Managed Large Cap Fund    2007     2006     2007     2006  
        
        

Class C

         

Proceeds from shares sold

    187     201     $ 3,940     $ 3,747  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (209 )   (186 )     (4,556 )     (3,441 )
                            

Net increase (decrease)

    (22 )   15       (616 )     306  
                            
        

Class E

         

Proceeds from shares sold

    180     192       3,879       3,652  

Proceeds from reinvestment of distributions

    4     3       73       51  

Payments for shares redeemed

    (94 )   (43 )     (2,033 )     (823 )
                            

Net increase (decrease)

    90     152       1,919       2,880  
                            
        

Class S

         

Proceeds from shares sold

    4,919     4,237       106,174       80,602  

Proceeds from reinvestment of distributions

    168     152       3,467       2,903  

Payments for shares redeemed

    (3,420 )   (3,016 )     (73,829 )     (57,361 )
                            

Net increase (decrease)

    1,667     1,373       35,812       26,144  
                            

Total increase (decrease)

    1,735     1,540     $ 37,115     $ 29,330  
                            
Notes to Financial Statements   191

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Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Tax-Managed Mid & Small Cap Fund    2007     2006     2007     2006  
        
        

Class C

         

Proceeds from shares sold

    196     233     $ 2,764     $ 2,955  

Proceeds from reinvestment of distributions

    13     —       180       —  

Payments for shares redeemed

    (181 )   (129 )     (2,587 )     (1,624 )
                            

Net increase (decrease)

    28     104       357       1,331  
                            
        

Class E

         

Proceeds from shares sold

    71     58       1,072       772  

Proceeds from reinvestment of distributions

    3     —       37       —  

Payments for shares redeemed

    (27 )   (14 )     (405 )     (191 )
                            

Net increase (decrease)

    47     44       704       581  
                            
        

Class S

         

Proceeds from shares sold

    4,958     3,087       75,154       41,391  

Proceeds from reinvestment of distributions

    189     —       2,723       —  

Payments for shares redeemed

    (2,855 )   (1,828 )     (43,281 )     (24,613 )
                            

Net increase (decrease)

    2,292     1,259       34,596       16,778  
                            

Total increase (decrease)

    2,367     1,407     $ 35,657     $ 18,690  
                            
     Shares     Dollars  
Select Growth Fund    2007     2006     2007     2006  
        
        

Class C

         

Proceeds from shares sold

    272     403     $ 2,251     $ 3,166  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (294 )   (253 )     (2,439 )     (1,970 )
                            

]Net increase (decrease)

    (22 )   150       (188 )     1,196  
                            
        

Class E

         

Proceeds from shares sold

    124     322       1,080       2,672  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (192 )   (71 )     (1,661 )     (575 )
                            

Net increase (decrease)

    (68 )   251       (581 )     2,097  
                            
        

Class I

         

Proceeds from shares sold

    3,420     3,901       30,678       32,598  

Proceeds from reinvestment of distributions

    —     5       —       41  

Payments for shares redeemed

    (2,780 )   (7,298 )     (25,125 )     (59,655 )
                            

Net increase (decrease)

    640     (3,392 )     5,553       (27,016 )
                            
        

Class S

         

Proceeds from shares sold

    3,441     4,481       30,716       36,926  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (3,887 )   (3,241 )     (34,429 )     (26,401 )
                            

Net increase (decrease)

    (446 )   1,240       (3,713 )     10,525  
                            

Total increase (decrease)

    104     (1,751 )   $ 1,071     $ (13,198 )
                            
192   Notes to Financial Statements

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Notes to Financial Statements, continued — October 31, 2007

 

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Select Value Fund    2007     2006     2007     2006  
        
        
        

Class C

         

Proceeds from shares sold

    267     407     $ 3,372     $ 4,719  

Proceeds from reinvestment of distributions

    124     110       1,506       1,226  

Payments for shares redeemed

    (493 )   (298 )     (6,263 )     (3,508 )
                            

Net increase (decrease)

    (102 )   219       (1,385 )     2,437  
                            
        

Class E

         

Proceeds from shares sold

    188     219       2,445       2,586  

Proceeds from reinvestment of distributions

    60     51       747       582  

Payments for shares redeemed

    (284 )   (179 )     (3,658 )     (2,117 )
                            

Net increase (decrease)

    (36 )   91       (466 )     1,051  
                            
        

Class I

         

Proceeds from shares sold

    2,329     2,050       30,178       24,190  

Proceeds from reinvestment of distributions

    718     766       8,957       8,716  

Payments for shares redeemed

    (2,779 )   (4,301 )     (36,156 )     (49,514 )
                            

Net increase (decrease)

    268     (1,485 )     2,979       (16,608 )
                            
        

Class S

         

Proceeds from shares sold

    5,909     5,847       76,224       69,086  

Proceeds from reinvestment of distributions

    1,374     1,143       17,102       12,991  

Payments for shares redeemed

    (6,361 )   (4,328 )     (82,153 )     (50,740 )
                            

Net increase (decrease)

    922     2,662       11,173       31,337  
                            

Total increase (decrease)

    1,052     1,487     $ 12,301     $ 18,217  
                            
Notes to Financial Statements   193

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Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Fixed Income I Fund    2007     2006     2007     2006  
        
        
        

Class C(b)

         

Proceeds from shares sold

    —     —     $ 12     $ —  

Shares issued in connection with acquisition of Diversified Bond Fund

    1,756     —       36,569       —  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (37 )   —       (778 )     —  
                            

Net increase (decrease)

    1,719     —       35,803       —  
                            
        

Class E

         

Proceeds from shares sold

    449     357       9,291       7,369  

Shares issued in connection with acquisition of Diversified Bond Fund

    847     —       17,648       —  

Proceeds from reinvestment of distributions

    71     61       1,455       1,240  

Payments for shares redeemed

    (295 )   (333 )     (6,112 )     (6,851 )
                            

Net increase (decrease)

    1,072     85       22,282       1,758  
                            
        

Class I

         

Proceeds from shares sold

    9,989     10,020       207,015       206,675  

Proceeds from reinvestment of distributions

    1,594     1,534       32,843       31,405  

Payments for shares redeemed

    (18,227 )   (9,708 )     (378,446 )     (200,070 )
                            

Net increase (decrease)

    (6,644 )   1,846       (138,588 )     38,010  
                            
        

Class S(b)

         

Proceeds from shares sold

    111     —       2,332       —  

Shares issued in connection with acquisition of Diversified Bond Fund

    11,102     —       231,136       —  

Proceeds from reinvestment of distributions

    —     —       —       —  

Payments for shares redeemed

    (280 )   —       (5,840 )     —  
                            

Net increase (decrease)

    10,933     —       227,628       —  
                            
        

Class Y

         

Proceeds from shares sold

    6,443     11,112       132,994       230,209  

Proceeds from reinvestment of distributions

    1,426     1,159       29,369       23,717  

Payments for shares redeemed

    (4,939 )   (5,062 )     (102,380 )     (104,293 )
                            

Net increase (decrease)

    2,930     7,209       59,983       149,633  
                            

Total increase (decrease)

    10,010     9,140     $ 207,108     $ 189,401  
                            

 

(a) For the period March 1, 2007 (commencement of operations) to October 31, 2007.
(b) For the period October 19, 2007 (commencement of operations) to October 31, 2007.

 

7.   Interfund Lending Program

The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to a participating Fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend

194   Notes to Financial Statements

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Notes to Financial Statements, continued — October 31, 2007

 

 

overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity or additional borrowing costs. For the period ended October 31, 2007, the Funds presented herein did not participate in the interfund lending program.

 

8.   Record Ownership

As of October 31, 2007, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund:

 

Funds    # of Shareholders      %

Emerging Markets

    3      44.3

Real Estate Securities

    3      41.6

Short Duration Bond

    2      42.2

Tax Exempt Bond

    2      53.3

Tax-Managed Large Cap

    1      51.4

Tax-Managed Mid & Small Cap

    1      53.3

Select Growth

    1      21.1

Select Value

    1      27.2

Fixed Income I

    1      15.2

 

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 RIMCo 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.

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal
Amount ($)
or Shares		    Cost per
Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              
              

Emerging Markets Fund - 0.2 %

               

Gulf Finance House EC - GDR

    09/21/07    35,500    25.00    888    941

Magnitogorsk Iron & Steel Works - GDR

    04/24/07    87,200    13.00    1,090    1,474

NovaTek OAO - GDR

    07/21/05    32,200    21.00    681    1,771

VTB Bank OJSC - GDR

    05/11/07    43,600    11.00    460    419
                
               4,605
                

Short Duration Bond Fund - 2.3 %

               

Capmark Financial Group, Inc.

    05/03/07    775,000    100.00    775    696

DG Funding Trust

    11/04/03    219    10,537.12    2,308    2,303

Glitnir Banki HF

    09/20/07    5,420,000    100.00    5,408    5,459

TIAA Global Markets, Inc.

    10/04/07    2,500,000    100.00    2,497    2,505
                
               10,963
                

Fixed Income I Fund - 3.1%

               

Aames Mortgage Investment Trust

    09/08/05    530,426    100.00    530    529

Aiful Corp.

    08/03/05    400,000    99.00    397    379

Air 2 US

    01/10/07    845,292    105.00    888    849
Notes to Financial Statements   195

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Specialty Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal
Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              

ASIF Global Financing XIX

    05/18/05    50,000    100.00    50    48

Bear Stearns Structured Products, Inc.

    09/12/07    1,828,358    100.00    1,819    1,819

Bear Stearns Structured Products, Inc.

    09/14/07    1,894,065    98.00    1,864    1,864

Business Loan Express

    03/08/07    385,507    100.00    386    389

Cendant Mortgage Corp.

    03/08/07    170,183    100.00    170    170

Citigroup Mortgage Loan Trust, Inc.

    10/18/06    1,360,667    100.00    1,360    1,328

Countrywide Home Loan Mortgage Pass Through Trust

    09/21/05    1,045,474    100.00    1,045    1,017

Covidien International Finance SA

    10/17/07    1,325,000    100.00    1,324    1,343

Credit-Based Asset Servicing and Securitization LLC

    06/06/07    1,603,299    100.00    1,603    1,586

Credit-Based Asset Servicing and Securitization LLC

    06/27/07    2,120,747    100.00    2,121    2,094

CVS Caremark Corp.

    02/01/07    270,929    98.00    265    270

CVS Lease Pass Through

    01/09/07    1,095,590    99.00    1,086    1,077

CVS Lease Pass Through

    03/21/07    12,481    100.00    12    12

Delta Air Lines, Inc.

    10/04/07    4,625,000    100.00    4,632    4,440

Depfa ACS Bank

    03/08/07    400,000    98.00    394    378

DG Funding Trust

    11/04/03    392    10,587.00    4,150    4,124

Ellington Loan Acquisition Trust

    08/23/07    985,401    100.00    987    985

Ellington Loan Acquisition Trust

    08/23/07    1,000,000    101.00    1,008    1,000

Erac USA Finance Co.

    10/10/07    4,415,000    99.00    4,377    4,345

Gaz Capital for Gazprom

    03/01/07    1,935,000    100.00    1,934    1,906

Glen Meadow Pass-Through Trust

    09/13/07    200,000    96.00    193    194

Glitnir Banki HF

    06/12/06    1,360,000    100.00    1,358    1,384

Harborview NIM Corp.

    12/01/06    122,165    100.00    122    122

HBOS Capital Funding, LP

    09/14/07    110,000    94.00    104    106

HJ Heinz Co.

    11/28/05    100,000    101.00    101    102

ILFC E-Capital Trust II

    09/12/06    290,000    100.00    289    285

Intergas Finance BV

    05/03/07    641,000    99.00    634    599

Kaupthing Bank Hf

    05/12/06    1,480,000    100.00    1,473    1,467

Kaupthing Bank Hf

    10/03/06    100,000    100.00    100    97

Master Reperforming Loan Trust

    03/09/05    549,440    102.00    562    549

Prime Mortgage Trust

    10/25/06    2,102,985    99.00    2,080    2,085

Prime Mortgage Trust

    11/22/06    2,370,549    98.00    2,330    2,345

RAAC Series

    05/08/06    857,129    100.00    857    841

Rabobank Capital Funding II

    05/23/05    20,000    102.00    20    19

Rabobank Capital Funding Trust

    05/19/05    40,000    101.00    40    38

Resona Preferred Global Securities Cayman, Ltd.

    07/20/05    450,000    101.00    408    417

Royal Bank of Scotland Group PLC

    09/26/07    180,000    100.00    180    182

RSHB Capital SA for OJSC Russian Agricultural Bank

    05/10/07    310,000    100.00    310    294

Santander Perpetual SA Unipersonal

    10/18/07    400,000    100.00    401    398

Security National Mortgage Loan Trust

    03/08/07    453,884    100.00    454    450

Shinsei Finance Cayman, Ltd.

    02/16/06    630,000    98.00    620    587

Sierra Receivables Funding Co.

    03/08/07    278,731    100.00    278    272

Sigma Finance, Inc.

    07/26/06    1,660,000    100.00    1,660    1,560

SMFG Preferred Capital USD 1, Ltd.

    12/13/06    1,120,000    100.00    1,120    1,048

Southern Natural Gas Co.

    03/28/07    30,000    100.00    30    29

Structured Asset Securities Corp.

    05/15/07    393,967    99.00    392    392

TNK-BP Finance SA

    07/13/06    540,000    100.00    539    527

TNK-BP Finance SA

    07/13/06    240,000    99.00    237    237

Truman Capital Mortgage Loan Trust

    07/27/06    1,416,942    100.00    1,417    1,304

Wachovia Bank Commercial Mortgage Trust

    06/15/07    193,082    100.00    193    191
                
               50,064
                

Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees.

 

196   Notes to Financial Statements

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Russell Investment Company

Specialty Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

10.   Dividends

On November 1, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income payable on November 6, 2007 to shareholders on record November 2, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Tax Exempt Bond - Class S

    $ 0.0695    $ —    $ —

Tax Exempt Bond - Class E

      0.0646      —      —

Tax Exempt Bond - Class C

      0.0495      —      —

On December 3, 2007, the following dividends payable were declared from net investment income. Dividends will be payable on December 6, 2007, to shareholders of record effective with the opening of business on December 4, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Tax-Exempt Bond - Class S

    $ 0.0652    $ —    $ —

Tax-Exempt Bond - Class E

      0.0612      —      —

Tax-Exempt Bond - Class C

      0.0484      —      —

On December 13, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 18, 2007 to shareholders on record December 14, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Emerging Markets - Class A

    $ 0.7301    $ 1.4388    $ 3.7800

Emerging Markets - Class C

      0.4905      1.4388      3.7800

Emerging Markets - Class E

      0.6800      1.4388      3.7800

Emerging Markets - Class S

      0.7442      1.4388      3.7800

Real Estate Securities - Class A

      0.1369      0.8484      4.9225

Real Estate Securities - Class C

      0.0238      0.8484      4.9225

Real Estate Securities - Class E

      0.1198      0.8484      4.9225

Real Estate Securities - Class S

      0.1519      0.8484      4.9225

Short Duration Bond - Class A

      0.1665      —      —

Short Duration Bond - Class C

      0.1229      —      —

Short Duration Bond - Class E

      0.1607      —      —

Short Duration Bond - Class S

      0.1730      —      —

Tax Exempt Bond - Class C

      0.0607      —      —

Tax Exempt Bond - Class E

      0.0829      —      —

Tax Exempt Bond - Class S

      0.0911      —      —

Tax-Managed Large Cap - Class C

      —      —      —

Tax-Managed Large Cap - Class E

      0.1121      —      —

Tax-Managed Large Cap - Class S

      0.1643      —      —

Tax-Managed Mid & Small Cap - Class C

      —      0.1467      1.0752

Tax-Managed Mid & Small Cap - Class E

      —      0.1467      1.0752

Tax-Managed Mid & Small Cap - Class S

      0.0064      0.1467      1.0752

Select Growth - Class C

      —      —      0.4127

Select Growth - Class E

      —      —      0.4127

Select Growth - Class I

      —      —      0.4127

Select Growth - Class S

      —      —      0.4127

Select Value - Class C

      0.0176      0.3571      1.5955

Select Value - Class E

      0.0449      0.3571      1.5955

Select Value - Class I

      0.0538      0.3571      1.5955

Select Value - Class S

      0.0484      0.3571      1.5955

Fixed Income I - Class C

      0.2393      —      —

Fixed Income I - Class E

      0.2758      —      —

Fixed Income I - Class I

      0.2857      —      —

Fixed Income I - Class S

      0.2805      —      —

Fixed Income I - Class Y

      0.2882      —      —

 

Notes to Financial Statements   197

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

11.   Reorganizations

On October 22, 2007, the Fixed Income I Fund (“Acquiring Fund”) acquired the assets and liabilities of the Diversified Bond Fund (“Acquired Fund”) through a reorganization pursuant of a plan of reorganization approved by the Board of Trustees and shareholders of the Acquired Fund. The following is a summary of shares outstanding, net assets, net asset value per share, unrealized appreciation/(depreciation) and accumulated net realized gain (losses) immediately before and after the reorganization:

 

     Before Reorganization    After Reorganization  
     Diversified Bond
Fund		     Fixed Income I
Fund		    Fixed Income I
Fund		  
       

Class C

        

Shares

      1,549,504          1,755,594  

Net assets

    $ 36,569,024        $ 36,569,024  

Net asset value

    $ 23.60        $ 20.83  

Unrealized appreciation/(depreciation)

    $ (1,743,859 )      $ (1,743,859 )

Accumulated net realized gains/(losses)

    $ —        $ —  

Class E

        

Shares

      745,923       1,694,700      2,541,940  

Net assets

    $ 17,648,005     $ 35,293,996    $ 52,942,001  

Net asset value

    $ 23.66     $ 20.83    $ 20.83  

Unrealized appreciation/(depreciation)

    $ (1,401,229 )   $ 585,052    $ (816,177 )

Accumulated net realized gains/(losses)

    $ —     $ 1,560,304    $ 1,560,304  

Class I

        

Shares

        33,170,704      33,170,704  

Net assets

      $ 690,608,745    $ 690,608,745  

Net asset value

      $ 20.82    $ 20.82  

Unrealized appreciation/(depreciation)

      $ 5,542,191    $ 5,542,191  

Accumulated net realized gains/(losses)

      $ 42,681,489    $ 42,681,489  

Class S

        

Shares

      10,059,171          11,101,619  

Net assets

    $ 231,135,715        $ 231,135,715  

Net asset value

    $ 22.98        $ 20.82  

Unrealized appreciation/(depreciation)

    $ 4,053,187        $ 4,053,187  

Accumulated net realized gains/(losses)

    $ —        $ —  

Class Y

        

Shares

        29,481,588      29,481,588  

Net assets

      $ 614,067,476    $ 614,067,476  

Net asset value

      $ 20.83    $ 20.83  

Unrealized appreciation/(depreciation)

      $ 92,396    $ 92,396  

Accumulated net realized gains/(losses)

      $ 35,938,452    $ 35,938,452  

 

198   Notes to Financial Statements

Table of Contents

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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 Emerging Markets Fund, Real Estate Securities Fund, Short Duration Bond Fund, Tax Exempt Bond Fund, Tax-Managed Large Cap Fund, Tax-Managed Mid & Small Cap Fund, Select Growth Fund, Select Value Fund, and Fixed Income I Fund (nine of the portfolios constituting Russell Investment Company, hereafter collectively referred to as the “Funds”) at October 31, 2007, 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 audits 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, 2007 by correspondence with the custodian, brokers and transfer agent provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

 

Report of Independent Registered Public Accounting Firm   199

Table of Contents

Russell Investment Company

Specialty Funds

Tax Information — October 31, 2007 (Unaudited)

 

 

For the tax year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Funds hereby designate under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Form 1099 you receive in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:

 

Emerging Markets

    0.0 %

Real Estate Securities

    0.0 %

Short Duration Bond

    0.0 %

Tax Exempt Bond

    0.0 %

Tax-Managed Large Cap

    100 %

Tax-Managed Mid & Small Cap

    50.3 %

Select Growth

    0.0 %

Select Value

    43.6 %

Fixed Income I

    0.0 %

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, 2007:

 

Emerging Markets

    $ 122,680,719

Real Estate Securities

      133,267,398

Tax-Managed Mid & Small Cap

      3,082,422

Select Value

      20,557,258

Please consult a tax adviser for any questions about federal or state income tax laws.

The Emerging Markets Fund paid foreign taxes of $3,934,276 and recognized $30,024,834 of foreign source income during the taxable year ended October 31, 2007. Pursuant to Section 853 of the Internal Revenue Code, the Emerging Markets Fund designates $0.0647 per share of foreign taxes paid and $0.4941 of gross income earned from foreign sources in the taxable year ended October 31, 2007.

200   Tax Information

Table of Contents

Russell Investment Company

Specialty 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 RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) at a meeting held on April 24, 2007. During the course of a year, the Trustees receive 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 RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds; (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and their respective operating expenses over various periods of time with other peer funds (“Comparable Funds”) not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds; and (3) RIMCo’s response to questions from the Board concerning the Third-Party Information addressing, among other things, performance and expense differentials between certain Funds and their respective Comparable Funds. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuances.

On April 23, 2007, the Independent Trustees met to review the Agreement Renewal Information in a private session with their independent counsel at which no representatives of RIMCo or management were present. At the April 24 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews.

In evaluating the portfolio management contracts, 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. RIMCo has engaged multiple Money Managers for all Funds.

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo directly manages the investment of each Fund’s cash reserves. RIMCo also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of a Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo in accordance with the RIMCo Agreement.

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations and reallocations of assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk aware manner. 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 RIMCo (each, a “segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in a Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Fund’s investment objective 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, RIMCo 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 RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may assign specific investment 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, RIMCo’s selection of Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money

Basis for Approval of Investment Advisory Contracts   201

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Russell Investment Company

Specialty Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

Managers in the same Fund. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Fund’s investment program, structuring the Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment 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 considered that the prospectuses for the Funds and other public disclosures emphasize to investors RIMCo’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 that information into account when deciding to purchase shares of any such Fund.

The Board also considered the special expertise of RIMCo 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 RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each such Fund selected by shareholders in purchasing their shares.

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 in evaluating renewal of the RIMCo Agreement, including the following:

 

  1. The nature, scope and quality of the services provided to the Fund by RIMCo;

 

  2. The advisory fee paid by the Fund to RIMCo 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 RIMCo as to other fees and benefits received by RIMCo 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 RIMCo as to expenses incurred by the Fund; and

 

  5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund.

At the April 24 Board meeting, RIMCo and management discussed the reasonableness of the Funds’ investment advisory fees. In discussing whether the Funds’ performance supported these fees, RIMCo noted differences between the investment strategies of certain Funds and their respective Comparable Funds in pursuing their investment objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Funds during the periods covered by the Third-Party Information did result, in lower performance than that of some of their respective Comparable Funds. RIMCo stated that the strategies pursued by the Funds are intended to result in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time.

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the course of the year or presented at the April 24 Board meeting by RIMCo, the Board, in respect of each Fund, found, after giving effect to any applicable waivers and/or reimbursements (1) the advisory fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Funds; (2) the relative expense ratio of the Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. The Board also concluded that the performance of each of the Funds supported continuation of the RIMCo Agreement. In evaluating performance, the Board considered each Fund’s absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. The Board also considered RIMCo’s investment strategy of managing the Funds in a risk aware manner.

At the April 24 Board meeting, 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. The Board determined that the investment advisory fees for each Fund appropriately reflect any economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives

202   Basis for Approval of Investment Advisory Contracts

Table of Contents

Russell Investment Company

Specialty Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

similar to those of the Funds and other RIC funds under the Board’s supervision are lower, and may, in some cases, be substantially lower, than the rates paid by RIC funds supervised by the Board, including the Funds. The Trustees reviewed with RIMCo the differences in the scope of services it provides to institutional clients and the Funds. In response to the Trustees’ inquiries, RIMCo noted, among other things, that institutional clients have fewer administrative needs than the Funds. It was further noted by RIMCo 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.

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of the Funds and their respective shareholders and voted to approve the continuation of the agreement.

At the April 24 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., (“RFD”) the Funds’ underwriter; and RIMCo’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. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the aggregate investment advisory fees paid by each Fund and the fact that each Money Manager’s fee is paid by RIMCo.

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its recommendations at the April 24 meeting, the Board concluded that the fees paid to the Money Managers of each Fund are 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 would be in the best interests of the Fund and its shareholders.

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’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.

Also, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2007, to effect a money manager change for the Real Estate Securities Fund and the Select Growth Fund; (2) at a meeting held on July 23, 2007, to effect a money manager change for the Emerging Markets Fund; (3) at a meeting held on August 28, 2007, to effect a money manager change for the Select Growth Fund and the Short Duration Bond Fund; In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or RFD, the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2007 meeting as to the 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 the money managers’ investment advisory fee is paid by RIMCo.

Basis for Approval of Investment Advisory Contracts   203

Table of Contents

Russell Investment Company

Specialty Funds

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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. RIMCo 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 Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

To reduce expenses, we may mail only one copy of the Funds’ prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

204   Shareholder Requests for Additional Information

Table of Contents

Russell Investment Company

Specialty Funds

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

**Greg J. Stark

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

President and Chief Executive Officer since 2004

 

Trustee since 2007

  

Appointed until successor is duly elected and qualified

 

Until successor is chosen and qualified by Trustees

  

• President and CEO RIC and RIF

• Chairman of the Board, President and CEO, RIMCo

• Chairman of the Board, President and CEO, RFD

• Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

• Until 2004, Managing Director, of Individual Investor Services, FRC

• 2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2006   Appointed until successor is duly elected and qualified  

• Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington 98402-1616

  

Trustee since 2000

 

Chairperson since 2005

  

Appointed until successor is duly elected and qualified

 

Annual

  

• Director and Chairman of the Audit Committee, Avista Corp.

• Trustee, Principal Investors Fund and Principal Variable Contracts Fund

• Regent, University of Washington

• President, Kristianne Gates Blake, P.S. (accounting services)

• February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

• Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999-2006

   41  

• Director, Avista Corp; (electric utilities)

• Trustee, Principal Investors Fund (investment company);

• Trustee, Principal Variable Contracts Fund (investment company)

 

Disclosure of Information about Fund Directors   205

Table of Contents

Russell Investment Company

Specialty Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name,

Age,

Address

  

Position(s) Held

with Fund and

Length of

Time Served

  

Term

of

Office*

  

Principal Occupation(s)

During the

Past 5 Years

   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES (continued)

Daniel P. Connealy
Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2003

 

Chairman of Audit Committee since 2005

  

Appointed until successor is duly elected and qualified

 

Appointed until successor is duly elected and qualified

  

• June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

• 2003, Retired

• 2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

• 1979–2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2004   Appointed until successor is duly elected and qualified  

• President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2000

 

Chairman of the Nominating and Governance Committee since 2007

  

Appointed until successor is duly elected and qualified.

 

Appointed until successor is duly elected and qualified

  

• President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2005   Appointed until successor is duly elected and qualified  

• September 2003 to present, Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

• May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

• May 1999 to May 2003, President and Trustee, Berger Funds

   41  

• Director, Sparx Japan Fund (investment company)

             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee

since 2002

 

Chairperson of the Investment Committee since 2006

  

Appointed until successor is duly elected and qualified

 

Appointed until successor is duly elected and qualified

  

• Retired since 2000

• 1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.
206   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Specialty Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

            

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

• Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

• Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

• Chairman, Sunshine Management Services, LLC (investment adviser)

   41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

• President, Anderson Management Group LLC (private investments consulting)

• February 2002 to June 2005, Lead Trustee, RIC and RIF

• Trustee of RIC and RIF Until 2006

• Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

• Retired since 1997

• Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

• Retired since 1986

• Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

• Retired since 1995

• Trustee of RIC and RIF Until 2005

• Chairman of the Nominating and Governance Committee 2001-2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

• Retired since 1981

• Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.
Disclosure of Information about Fund Directors   207

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Russell Investment Company

Specialty Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name,

Age,

Address

  

Position(s) Held

with Fund and

Length of

Time Served

  

Term

of

Office

  

Principal Occupation(s)

During the

Past 5 Years

OFFICERS

        

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

• Chief Compliance Officer, RIC

• Chief Compliance Officer, RIF

• Chief Compliance Officer, RIMCo

• April 2002-May 2005, Manager, Global Regulatory Policy

• 1998-2002, Compliance Supervisor, Russell Investment Group

         

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

President and Chief Executive Officer since 2004

   Until successor is chosen and qualified by Trustees  

• President and CEO, RIC and RIF

• Chairman of the Board, President and CEO, RIMCo

• Chairman of the Board, President and CEO, RFD

• Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

• Until 2004, Managing Director of Individual Investor Services, FRC

• 2000 to 2004, Managing Director, Sales and Client Service, RIMCo

         

Mark E. Swanson,

Born November 26, 1963

 

909 A Street

Tacoma, Washington

98402-1616

  

Treasurer and Chief Accounting Officer since 1998

 

CFO since 2007

   Until successor is chosen and qualified by Trustees  

• Treasurer, Chief Accounting Officer and CFO, RIC and RIF

• Director, Funds Administration, RIMCo, RTC and RFD

• Treasurer and Principal Accounting Officer, SSgA Funds

         

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004  

Until removed

by Trustees

  

• Chief Investment Officer, RIC, RIF, FRC, RTC

• Director and Chief Investment Officer, RIMCo and RFD

• 1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

         

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

• Associate General Counsel and Assistant Secretary FRC and RIA

• Director and Secretary, RIMCo and RFD

• Secretary and Chief Legal Counsel, RIC and RIF

 

208   Disclosure of Information about Fund Directors

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Russell Investment Company

Specialty Funds

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

 

1. Election of Trustees.         
Vote:         
     For         Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752
2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.
Vote:         
     For    Against    Abstain

Emerging Markets Fund

    33,800,656.154    3,760,913.811    402,692.576

Real Estate Securities Fund

    21,416,340.977    2,944,046.698    332,698.045

Short Duration Bond Fund

    14,794,620.321    1,781,016.103    133,848.791

Tax Exempt Bond Fund

    7,961,175.606    528,415.504    110,486.564

Tax-Managed Large Cap Fund

    18,259,844.524    89,953.201    100,263.004

Tax-Managed Mid & Small Cap Fund

    9,702,929.192    141,014.745    65,372.339

Select Growth Fund

    7,857,619.843    156,938.000    106,355.625

Select Value Fund

    11,813,399.553    956,253.935    202,000.885

Fixed Income I Fund

    21,011,383.228    3,123,428.358    39,810.000
3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.
Vote:         
     For    Against    Abstain

Emerging Markets Fund

    33,766,075.254    3,794,687.434    403,499.853

Real Estate Securities Fund

    21,400,018.250    2,962,595.157    330,472.313

Short Duration Bond Fund

    14,787,586.349    1,792,747.855    129,151.011

Tax Exempt Bond Fund

    7,960,177.606    526,181.504    113,718.564

Tax-Managed Large Cap Fund

    18,262,914.916    88,167.300    98,978.514

Tax-Managed Mid & Small Cap Fund

    9,706,523.355    134,232.116    68,560.805

Select Growth Fund

    7,853,534.193    161,739.650    105,639.625

Select Value Fund

    11,798,653.987    962,463.501    210,536.885

Fixed Income I Fund

    20,969,856.228    3,156,520.358    48,245.000
4. Approve a status change for the Real Estate Securities Fund.
Vote:         
     For    Against    Abstain

Real Estate Securities Fund

    23,132,683.363    1,156,462.474    403,939.883
Matter Submitted to a Vote of Shareholders   209

Table of Contents

Specialty Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Emerging Markets Fund

AllianceBernstein L.P., New York, NY

Arrowstreet Capital, Limited Partnership, Cambridge, MA

Genesis Asset Managers, LLP, London, United Kingdom

Harding, Loevner Management, L.P., Somerville, NJ

T. Rowe Price International, Inc., Baltimore, MD

UBS Global Asset Management (Americas) Inc., Chicago, IL

Real Estate Securities Fund

AEW Management and Advisors, L.P., Boston, MA

Cohen & Steers Capital Management, Inc., New York, NY

Heitman Real Estate Securities LLC, Chicago, IL

INVESCO Institutional (N.A.), Inc. which acts as a money manager to the Fund 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

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

Armstrong Shaw Associates Inc., New Canaan, CT

J.P. Morgan Investment Management Inc., New York, NY

Palisades Investment Partners, LLC, Santa Monica, 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, Los Angeles, CA

Turner Investment Partners, Inc., Berwyn, PA

Select Growth Fund

Cornerstone Capital Management, Inc., Bloomington, MN

Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA

Fuller & Thaler Asset Management, Inc., San Mateo, CA

Suffolk Capital Management, LLC, New York, NY

Sustainable Growth Advisers, LP, Stamford, CT

Turner Investment Partners, Inc., Berwyn, PA

Select Value Fund

DePrince, Race & Zollo, Inc., Winter Park, FL

Iridian Asset Management LLC, Westport, CT

JS Asset Management, LLC, West Conshohocken, PA

Systematic Financial Management, L.P., Teaneck, NJ

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

Western Asset Management Company Limited, London, England


 

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 Russell Investment Company. Such offering is made only by Prospectus, which includes details as to offering price and other material information.

210   Manager, Money Managers and Service Providers

Table of Contents

LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
   36-08-192 (1 10/07)

Table of Contents

TAX-MANAGED GLOBAL EQUITY FUND

2007 Annual Report

 

CLASS C, E, AND S SHARES:

TAX-MANAGED GLOBAL EQUITY FUND

OCTOBER 31, 2007

 

LOGO

Table of Contents

 

 

Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

Table of Contents

 

Russell Investment Company

Tax-Managed Global Equity Fund

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Market Summary    4
Portfolio Management Discussion and Analysis    10
Shareholder Expense Example    13
Schedule of Investments    14
Statement of Assets and Liabilities    15
Statement of Operations    16
Statements of Changes in Net Assets    17
Financial Highlights - Class C    18
Financial Highlights - Class S    19
Notes to Financial Statements    20
Report of Independent Registered Public Accounting Firm    26
Tax Information    27
Basis for Approval of Investment Advisory Contracts    28
Shareholder Requests for Additional Information    32
Disclosure of Information about Fund Directors    33
Matter Submitted to a Vote of Shareholders    37
Manager, Money Managers and Service Providers    38

Table of Contents

 

Russell Investment Company - Tax-Managed Global Equity Fund.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

 

 

Table of Contents

 

To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

Table of Contents

 

Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising default rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

4   Market Summary

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Russell Investment Company

 

Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Real Estate Markets

For the fiscal year ending October 31, 2007, real estate investment trusts (REITs) generated a 0.57% return, as measured by the FTSE NAREIT Equity Index. As well as being well below the overall U.S. equity market return, this return represented a substantial pull-back from the prior year’s return of 36.37%. The low REIT return was also accompanied by exceptionally high volatility during the period. During the first three months of the fiscal year, REITs were up over 11%; the following six months, REITs lost nearly 20%; and finally, during the last three months, REITs rallied with a 12% return.

Early in the fiscal year, the REIT market continued to be driven by the same factors that made the prior year so successful, mainly mergers and acquisitions by private investors acquiring public REITs at large premiums to their share prices. The most prominent privatization was Equity Office Property, the industry’s largest REIT, which became the prize in a bidding war between Blackstone, a private equity firm and Vornado, a public company. The REIT market peaked at all-time record levels in mid-February 2007. At that time, while property market fundamentals were improving and REIT earnings were solid, REIT pricing appeared to be well ahead of earnings expectations.

By June 2007, concerns arose among REIT investors that problems in the residential subprime mortgage loan market would be a precursor to similar issues in the commercial mortgage market. Additionally, the 0.6% increase in the 10 year treasury rate which occurred during that month caused investors to reassess the capitalization rates used to value real estate. These events combined to put substantial downward pressure on REIT share prices.

Market Summary   5

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Russell Investment Company

 

REITs ended the fiscal year with some positive results and the market volatility appears to have removed the speculative valuation premiums applied to REITs due to the robust merger and acquisition activity over the last several years. However, concerns about a weaker economy and more stringent mortgage lending standards amidst an overall tightening of credit has put the focus back on real estate fundamentals and the specific growth prospects of each company.

Non-U.S. Equity Markets

Non-U.S. stocks gained 24.91% as measured by the MSCI EAFE® Index for the fiscal year ending October 31, 2007. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE® Index rose 14.00% over the 12-month period.

The market continued to benefit from global growth, merger and acquisition activity and strong corporate earnings and withstood several brief periods of increased market volatility brought on by investors’ risk aversion relating to the potential negative spillover effects of the housing slowdown in the U.S. Growth in emerging economies, like India and China, also had a positive impact on the strength of developed markets through their demand for goods and infrastructure development.

Europe, as represented by the MSCI Europe Index, returned 27.96% over the fiscal year. Merger and acquisition-related gains combined with strong earnings drove European equities higher, with merger-and-acquisition activity in the year surpassing last year’s record pace. Across Europe, the best performing sectors were materials and telecommunication services, up 53.36% and 47.56%, respectively. By country, of particular note were more heavily laden energy/commodity markets, such as Norway, up 59.76%, which benefited from the strong performance of the global materials and energy sectors. Germany also stood out as a market leader, benefiting from the strong performance of its automobiles industry. Elsewhere, MSCI United Kingdom Index lagged continental Europe with a gain of 23.62%. The U.K. underperformed the rest of Europe due to weakness in its health care sector.

The MSCI Japan Index continued to lag other major non-U.S. markets in the fiscal year, returning only 4.84%. Investor concerns included weak economic data, lackluster earnings from financial institutions and political turmoil. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 56.48% with strong gains in the Hong Kong, Singapore and Australian markets.

From a sector perspective, materials stocks had the best returns, up 48.26%, especially in the area of metals and mining, which was driven by industry consolidation and the continued upturn in commodities prices. Telecommunication services, up 41.84%, also benefited from strong earnings results. Health care and financials were the notable laggards, returning 2.56% and 14.02%, respectively, as measured by the health care and financials sector grouping based on the Global Industry Classification Standard definitions.

A reversal in market leadership in terms of style was seen in March, with the value segment of the MSCI EAFE® Index dominating in the first half of the period, and the growth segment leading in the second half. The period ended with the MSCI EAFE Growth Index rising 28.52%, compared with 21.33% for the MSCI EAFE Value Index. Investors, in general, continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex-U.S. Index (an index of smaller capitalization companies) up 28.38% in the period versus the S&P/Citigroup PMI World ex-U.S. (in index of larger capitalization companies) up 27.24%.

Markets not represented in the MSCI EAFE® Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed

6   Market Summary

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counterparts, as the MSCI Emerging Markets Index rose 67.84%. Emerging markets countries benefited from the materials and industrials sectors, both posting over 100% returns for the period. Canadian stocks, as measured by the MSCI Canada Index, rose 44.95% during the period.

Emerging Markets

During the fiscal year, the MSCI Emerging Markets Index (“Index”) posted a strong return of 67.84%, outperforming developed markets as measured by the MSCI World Index Free which returned 20.39%. Larger capitalization stocks and those with strong price momentum, particularly those in cyclical sectors, were key drivers of performance. Significant capital inflows and outperformance of energy and material stocks resulting from strong commodity prices also contributed positively to performance. The emerging markets asset class performed strongly despite two market pull-backs in late February and July. The first sell-off was triggered by a concern that China would tighten controls on investment, and the second sell-off occurred more recently when credit concerns over U.S. subprime mortgage loans broadened to larger concerns about the world’s capital markets. Each time, however, emerging markets rallied back to hit new highs as investors continued to search for growth.

In terms of regions, Latin America was the top performer (+78.08% as measured by the MSCI EM Latin America Index) followed closely by Asia (+75.44% as measured by the MSCI EM Asia Index). The MSCI EM (Emerging Markets) Europe, Middle East and Africa Index (EMEA) lagged the Index but still posted a solid return of 45.94%. The BRIC (Brazil, Russia, India and China) economies with the exception of Russia all outperformed the broader Index with China leading the group (+155.68% as measured by the MSCI China Index) due in part to the strong performance of the country’s commodity-related and financial stocks. MSCI China Index stocks were also buoyed in the third quarter by the rumor that the local Chinese investors would be allowed to invest through the Hong Kong stock exchange. Strength in resource-related stocks helped Brazil post strong returns over the period (+110.24% as measured by the MSCI Brazil Index). Some of the smaller markets such as Indonesia and Peru posted strong gains; in the case of Peru, the market returned +149.20% as measured by the MSCI Peru Index due mainly to one stock, Southern Copper Corporation. The small market of Jordan was the only country with single digit absolute returns, rising 3.97% as measured by the MSCI Jordan Index. Other notable relative underperformers included Taiwan (+38.56% as measured by the MSCI Taiwan Index), South Africa (+53.76% as measured by the MSCI South Africa Index), and Egypt (+51.41% as measured by the MSCI Egypt Index).

Currencies were broadly strong against the U.S. dollar with some, such as the Brazilian Real, up more than 18%.

Within emerging markets, the industrials sector and resource-related areas performed strongly. Chinese financials and telecom stocks along with Korean and Brazilian materials stocks were key market movers. Technology and consumer stocks underperformed the Index, but still returned more than 20% in absolute terms. Utilities, a sector leveraged to emerging markets energy demand growth, performed strongly, while the health care sector, dominated by Teva Pharmaceuticals, lagged the Index.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

Market Summary   7

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There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages — and securities firms packaging the subprime debt into AAA-rated bonds — helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

 

1

  

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

 

2

  

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

8   Market Summary

Table of Contents

Russell Investment Company

 

The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

 

 

 

3

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

 

Market Summary   9

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Tax-Managed Global Equity Fund - Class C  
         Total
Return		  

1 Year

      19.68 %

5 Years

      16.18 %§

Inception*

      3.59 %§

 

Tax-Managed Global Equity Fund - Class S  
         Total
Return		  

1 Year

      20.86 %

5 Years

      17.37 %§

Inception*

      4.61 %§
Standard & Poor’s 500® Composite Stock Price Index ‡  
         Total
Return		  

1 Year

      14.56 %

5 Years

      13.88 %§

Inception*

      3.05 %§

 

MSCI EAFE® Index ‡‡  
         Total
Return		  

1 Year

      24.91 %

5 Years

      23.21 %§

Inception*

      7.10 %§

10  

Portfolio Management Discussion and Analysis

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Tax-Managed Global Equity Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Tax-Managed Global Equity Fund Class C and Class S Shares gained 19.68% and 20.86%, respectively. This compared to the S&P 500® Index, which gained 14.56%, and the MSCI EAFE® Index Net (USD), which gained 24.91% during the same period.

The Fund’s performance includes operating expenses, whereas Index returns are unmanaged and do not include expenses of any kind. The Fund’s returns relative to S&P 500® Index were aided by exposure to non-U.S. developed and emerging market equities.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance.

 

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The U.S. equity tax-managed and non-tax-managed Underlying Funds held by the Fund (75% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates, lower dividend yields and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment strong stock selection in the health care, consumer discretionary and technology sectors contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S. and emerging markets Underlying Funds (a combined 25% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The International Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks.

Describe any changes to the Fund’s structure or allocation to the underlying funds.

There were no changes to the Fund’s structure or the allocation to the Underlying Funds.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


Portfolio Management Discussion and Analysis   11

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 


 

 

*   Commenced operations on January 31, 2000.

 

‡

  

The Standard & Poor’s 500® 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.

 

‡‡   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.

 

§   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   Portfolio Management Discussion and Analysis

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,093.40    $ 1,020.16

Expenses Paid During Period*

    $ 5.28    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,098.40    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

Shareholder Expense Example   13

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

 

     Shares      Market
Value
$
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Domestic Equities - 74.6%

        

Quantitative Equity Fund

    224,412      9,836

Tax-Managed Large Cap Fund

    2,090,432      49,167

Tax Managed Mid & Small Cap Fund

    906,237      14,772
         
        73,775
         

International Equities - 25.4%

        

Emerging Markets Fund

    165,053      5,093

International Securities Fund

    218,995      19,964
         
        25,057
         
Total Investments - 100.0%        

(identified cost $60,818)

         98,832
Other Assets and Liabilities, Net - 0.0%         1
         
Net Assets - 100.0%         98,833
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

 

Categories    % of Net
Assets		  
  

Domestic Equities

    74.6  

International Equities

    25.4  
      

Total Investments

    100.0  

Other Assets and Liabilities, Net

    — *
      
   100.0  
      

 

* Less than .05% of net assets.
14   Schedule of Investments

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Statement of Assets and Liabilities — October 31, 2007

 

Amounts in thousands              
     

Assets

      

Investments at market (identified cost $60,818)

    $ 98,832  

Receivables:

   

Fund shares sold

      91  

From Adviser

      33  
           

Total assets

      98,956  
Liabilities      

Payables:

      

Investments purchased

    $ 31   

Fund shares redeemed

      40   

Accrued fees to affiliates

      27   

Other accrued expenses

      25   
         

Total liabilities

      123  
           
     

Net Assets

    $ 98,833  
           

Net Assets Consist of:

      

Undistributed (overdistributed) net investment income

    $ (39 )

Accumulated net realized gain (loss)

      (14,771 )

Unrealized appreciation (depreciation) on investments

      38,014  

Shares of beneficial interest

      75  

Additional paid-in capital

      75,554  
           

Net Assets

    $ 98,833  
           
                 

Net Asset Value, offering and redemption price per share:

     

Net asset value per share: Class C*

    $ 12.88  

Class C — Net assets

    $ 27,992,977  

Class C — Shares outstanding ($.01 par value)

      2,174,029  

Net asset value per share: Class S*

    $ 13.29  

Class S — Net assets

    $ 70,840,378  

Class S — Shares outstanding ($.01 par value)

      5,329,334  

 

* 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.

Statement of Assets and Liabilities   15

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Statement of Operations — For the Fiscal Year Ended October 31, 2007

 

Amounts in thousands              
     

Investment Income

      

Income distributions from Underlying Funds

 

    $ 1,419

Expenses

      

Advisory fees

    $ 176     

Administrative fees

      44     

Custodian fees

      21     

Distribution fees - Class C

      174     

Transfer agent fees

      132     

Professional fees

      37     

Registration fees

      48     

Shareholder servicing fees - Class C

      58     

Trustees’ fees

      1     

Printing fees

      5     

Miscellaneous

      11     
           

Expenses before reductions

      707     

Expense reductions

      (475 )   
           

Net expenses

 

      232
         

Net investment income (loss)

 

      1,187
         

Net Realized and Unrealized Gain (Loss)

      

Net realized gain (loss) on:

      

Investments

      360     

Capital gain distributions from Underlying Funds

      1,714        2,074
           

Net change in unrealized appreciation (depreciation) on investments

 

      13,168
         

Net realized and unrealized gain (loss)

 

      15,242
         

Net Increase (Decrease) in Net Assets from Operations

 

    $ 16,429
         

 

See accompanying notes which are an integral part of the financial statements.

16   Statement of Operations

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

Amounts in thousands   2007     2006  
   

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 1,187     $ 337  

Net realized gain (loss)

     2,074       1,046  

Net change in unrealized appreciation (depreciation)

     13,168       8,596  
               

Net increase (decrease) in net assets from operations

     16,429       9,979  
               

Distributions

    

From net investment income

    

Class C

     (207 )     —  

Class S

     (1,042 )     (350 )
               

Net decrease in net assets from distributions

     (1,249 )     (350 )
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     9,195       7,432  
               

Total Net Increase (Decrease) in Net Assets

     24,375       17,061  

Net Assets

    

Beginning of period

     74,458       57,397  
               

End of period

  $ 98,833     $ 74,458  
               

Undistributed (overdistributed) net investment income included in net assets

   $ (39 )   $ 23  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   17

Table of Contents

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,  
     2007     2006     2005     2004      2003  
          

Net Asset Value, Beginning of Period

   $ 10.87     $ 9.39     $ 8.44     $ 7.61      $ 6.15  
                                        
          

Income From Operations

           

Net investment income (loss) (a)(b)

     .07       (.03 )     — (e)     (.02 )      (.02 )

Net realized and unrealized gain (loss)

     2.05       1.51       .95       .86        1.48  
                                        

Total from investment operations

     2.12       1.48       .95       .84        1.46  
                                        

Distributions

           

From net investment income

     (.11 )     —       —       (.01 )      —  
                                        

Net Asset Value, End of Period

   $ 12.88     $ 10.87     $ 9.39     $ 8.44      $ 7.61  
                                        

Total Return (%)

     19.68       15.76       11.26       10.99        23.74  

Ratios/Supplemental Data:

           

Net Assets, end of period (in thousands)

     27,993       19,439       14,801       12,766        11,523  

Ratios to average net assets (%):

           

Operating expenses, net (c)(d)

     1.00       1.00       1.00       1.00        1.00  

Operating expenses, gross (c)

     1.54       1.58       1.55       1.58        1.72  

Net investment income (loss) (d)

     .57       (.27 )     (.03 )     (.19 )      (.25 )

Portfolio turnover rate (%)

     11.75       9.32       12.46       21.28        59.50  

 

(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 only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Fund in which the Fund invests.
(d)   May reflect amounts waived and/or reimbursed by Russell Investment Management Company (“RIMCo”) as the investment adviser and transfer agent.
(e)   Less than $.01 per share.

 

See accompanying notes which are an integral part of the financial statements.

18   Financial Highlights — Class C

Table of Contents

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,  
     2007     2006     2005     2004      2003  
          

Net Asset Value, Beginning of Period

   $ 11.20     $ 9.65     $ 8.67     $ 7.80      $ 6.27  
                                        

Income From Operations

           

Net investment income (loss) (a)(b)

     .20       .08       .09       .07        .05  

Net realized and unrealized gain (loss)

     2.10       1.55       .97       .87        1.52  
                                        

Total from investment operations

     2.30       1.63       1.06       .94        1.57  
                                        

Distributions

           

From net investment income

     (.21 )     (.08 )     (.08 )     (.07 )      (.04 )
                                        

Net Asset Value, End of Period

   $ 13.29     $ 11.20     $ 9.65     $ 8.67      $ 7.80  
                                        

Total Return (%)

     20.86       16.95       12.31       12.14        25.09  

Ratios/Supplemental Data:

           

Net Assets, end of period (in thousands)

     70,840       55,019       42,596       34,708        32,861  

Ratios to average net assets (%):

           

Operating expenses, net (c)(d)

     —       —       —       —        —  

Operating expenses, gross (c)

     .54       .58       .55       .58        .72  

Net investment income (loss) (d)

     1.63       .79       .95       .87        .77  

Portfolio turnover rate (%)(c)

     11.75       9.32       12.46       21.28        59.50  

 

(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 only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Fund in which the Fund invests.
(d)   May reflect amounts waived and/or reimbursed by RIMCo as the investment adviser and transfer agent.

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights — Class S   19

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds (the “Fund”). 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.

In the table below, 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”). Russell Investment Management Company (“RIMCo”), the Fund’s investment adviser, may modify the target asset allocation for the Fund and/or the Underlying Funds in which the Fund invests. From time to time, the Fund may adjust its investments within set limits based on RIMCo’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 RIMCo’s opinion, it is necessary to do so to pursue the Fund’s investment objective. In the future, the Fund may also invest in other funds which are not currently Underlying Funds.

 

Asset Class/Underlying Funds    Asset Allocation
Targets per Prospectus		  
  
  

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.

20   Notes to Financial Statements

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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 RIMCo.

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;

 

  •  

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 New York Stock Exchange, whichever is earlier.

 

  •  

The value of swap agreements is equal to the Fund’s 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.

 

  •  

Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded.

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 Funds’ 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 normal pricing methods. 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

Notes to Financial Statements   21

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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 of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural 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 an Underlying Fund which invests in foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund’s financial statement disclosure.

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.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Fund’s net assets and results of operations.

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 the Fund and do not include those expenses incurred by the Underlying Funds. Because the Underlying Funds have varied expense and fee levels and the Fund may own different proportions of the Underlying Funds at different times, the amount of the fees and expenses incurred indirectly by the Fund will vary.

22   Notes to Financial Statements

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

Class Allocation

The Fund presented herein offers the following classes of shares: Class C, Class E and Class S (The Class E shares currently do not have any assets). 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.

 

3.   Investment Transactions

Securities

During the period ended October 31, 2007, the Fund had purchases and sales of the Underlying Funds (excluding short-term investments) of $20,266,581 and $10,262,793, respectively.

 

4.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo is a wholly-owned subsidiary of Frank Russell Company (a subsidiary of The Northwestern Mutual Life Insurance Company). Frank Russell Company provides money manager research services to RIMCo.

The Fund is charged an advisory fee equal to 0.20% and an administrative fee equal to 0.05% of average daily net assets. The Adviser has contractually agreed to waive the advisory fee at least through February 29, 2008. The amount of the waiver for the period ended October 31, 2007 was $175,560. The Adviser does not have the ability to recover amounts waived from the period ended October 31, 2007, or previous periods.

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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 for the period ended October 31, 2007 were $131,864.

RIMCo, as transfer agent, 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.

For the period ended October 31, 2007, the amount waived and reimbursed by RIMCo as transfer agent amounted to $167,709.

Distributor and Shareholder Servicing

Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributors, Inc. (“Distributor”), a wholly-owned subsidiary of RIMCo, serves as distributor for all Investment Company portfolio shares, including Class C, Class E 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.

Notes to Financial Statements   23

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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 and Class E 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 and Class E shares on an annual basis.

Pursuant to the rules of the Financial Industry Regulatory Authority (“FINRA”), these limitations are 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 FINRA.

Accrued fees payable to affiliates for the period ended October 31, 2007 were as follows:

 

  

Administration fees

    $ 4,101

Distribution fees

      17,390

Shareholder servicing fees

      5,797

Trustee fees

      53
      
   $ 27,341
      

Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives 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 or under common control. Transactions during the period ended October 31, 2007 with Underlying Funds which are or were an affiliated company are as follows:

 

Affiliate    Purchase
Cost		    Sales
Cost		    Income
Distributions		    Capital Gains
Distributions
           

Quantitative Equity Fund

    $ 2,707,141    $ 753,802    $ 141,770    $ 321,990

International Securities Fund

      5,034,478      2,735,705      775,345      844,505

Emerging Markets Fund

      1,510,934      1,623,350      200,421      386,020

Tax-Managed Mid & Small Cap Fund

      3,485,518      1,740,200      —      161,700

Tax-Managed Large Cap Fund

      9,162,324      3,850,128      301,556      —
                           
   $ 21,900,395    $ 10,703,185    $ 1,419,092    $ 1,714,215
                           

 

5.   Federal Income Taxes

The Fund may have 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. At October 31, 2007, available capital carryforwards of $2,165,730 expire on October 31, 2011.

24   Notes to Financial Statements

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

At October 31, 2007, 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

    $ 73,421,872  
        

Unrealized Appreciation

    $ 25,409,909  

Unrealized Depreciation

      —  
        

Net Unrealized Appreciation (Depreciation)

    $ 25,409,909  
        

Undistributed Ordinary Income

    $ —  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ (2,165,730 )

Tax Composition of Distributions:

   

Ordinary Income

    $ 1,249,191  

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
     2007     2006     2007     2006  
        
        

Class C

         

Proceeds from shares sold

    628     481     $ 7,461     $ 4,918  

Proceeds from reinvestment of distributions

    18     —       202       —  

Payments for shares redeemed

    (261 )   (268 )     (3,092 )     (2,728 )
                            

Net increase (decrease)

    385     213       4,571       2,190  
                            
        

Class S

         

Proceeds from shares sold

    1,470     996       17,195       10,417  

Proceeds from reinvestment of distributions

    86     33       982       332  

Payments for shares redeemed

    (1,139 )   (529 )     (13,553 )     (5,507 )
                            

Net increase (decrease)

    417     500       4,624       5,242  
                            

Total increase (decrease)

    802     713     $ 9,195     $ 7,432  
                            

 

7.   Interfund Lending Program

The Investment Company Fund has been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Investment Company may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to the Fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Fund will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The Fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity of additional borrowing costs. The Fund did not borrow from the program for the period ended October 31, 2007.

 

8.   Record Ownership

As of October 31, 2007, the Fund had one shareholder of record with greater than 10% of the total outstanding shares of the Fund in the amount of 16.4%.

 

9.   Dividends

On December 18, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income payable on December 21, 2007 to shareholders on record December 19, 2007.

 

Funds    Net Investment
Income
  

Tax Managed Global Equity - Class C

    $ 0.2728

Tax Managed Global Equity - Class S

      0.2904

 

Notes to Financial Statements   25

Table of Contents

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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 Russell Investment Company, hereafter referred to as the “Fund”) at October 31, 2007, 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, 2007 by correspondence with the transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

26  

Report of Independent Registered Public Accounting Firm

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Tax Information — October 31, 2007 (Unaudited)

 

 

For the year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Fund hereby designates under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Fund designates dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as 34.4%.

The Form 1099 mailed to you in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

Tax Information   27

Table of Contents

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 RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Underlying Funds (collectively, the “portfolio management contracts”) at a meeting held on April 24, 2007. During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Fund, sales and redemptions of the Fund’s and Underlying Funds’ shares, and the management of the Fund and the Underlying Funds by RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Fund and the Underlying Funds; (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of the Fund and the Underlying Funds and their respective operating expenses over various periods of time with other peer funds (“Comparable Funds”) not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Fund and the Underlying Funds; and (3) RIMCo’s response to questions from the Board concerning the Third-Party Information addressing, among other things, performance and expense differentials between certain RIC funds and Underlying Funds and their respective Comparable Funds. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuances.

On April 23, 2007, the Independent Trustees met to review the Agreement Renewal Information in a private session with their independent counsel at which no representatives of RIMCo or management were present. At the April 24 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Fund and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews.

In evaluating the portfolio management contracts, 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. RIMCo has engaged multiple Money Managers for all Underlying Funds.

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for allocating assets of the Fund among its Underlying Funds and for determining, implementing and maintaining the investment program for each Underlying Fund. The assets of the Fund are invested in different combinations of the Underlying Funds pursuant to target asset allocations set by RIMCo. RIMCo may modify the target asset allocation for the Fund and/or the Underlying Funds in which the Fund invests. Assets of each Underlying Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Underlying Fund. RIMCo manages directly a portion of certain Underlying Funds’ assets employing a “select holdings strategy,” as described below, and directly manages the investment of each Underlying Fund’s cash reserves. RIMCo also may manage directly any portion of each Underlying Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of an Underlying Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo in accordance with the RIMCo Agreement.

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Underlying Fund and for actively managing allocations and reallocations of its assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk aware manner. 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 RIMCo (each, a “segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in an Underlying Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund’s investment objective 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

28   Basis for Approval of Investment Advisory Contracts

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

management contracts, RIMCo 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 RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may assign specific investment 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, the performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by RIMCo in the Underlying Funds’ investment activities and any constraints placed by RIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Underlying Fund’s investment program, structuring an Underlying Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment 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. The Board considered that the prospectuses for the Fund and the Underlying Funds and other public disclosures emphasize to investors RIMCo’s role as the principal investment manager for each Underlying Fund, rather than the investment selection role of the Underlying Funds’ Money Managers, and describe the manner in which the Fund or Underlying Funds operate so that investors may take that information into account when deciding to purchase shares of the Fund.

The Board also considered the special expertise of RIMCo with respect to the manager-of-managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of each such Underlying Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each such Underlying Fund selected by shareholders in purchasing their shares of the Fund or Underlying 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 in evaluating renewal of the RIMCo Agreement, including the following:

 

1. The nature, scope and quality of the services provided to the Fund or Underlying Fund by RIMCo;

 

2. The advisory fee paid by the Fund or Underlying Fund to RIMCo 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 RIMCo as to other fees and benefits received by RIMCo 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 RIMCo as to expenses incurred by the Fund or Underlying Fund; and

 

5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund or Underlying Fund.

As noted above, RIMCo, pursuant to the terms of the RIMCo Agreement directly manages a portion—up to 10%—of the assets of each of the Quantitative Equity Fund and the International Securities Fund (each a “Participating Underlying Fund”) utilizing a select holdings strategy, the actual allocation being determined by each Participating Underlying Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets for a Participating Underlying Fund is designed to increase the Participating Underlying Fund’s exposure to stocks that are viewed as attractive by multiple Money Managers of that Participating Underlying Fund. The Board reviewed the results of the select holdings strategy in respect of each Participating Underlying Fund since implementation taking into account that the strategy has been utilized for a limited period of time. With respect to each Participating Underlying Fund, the Trustees considered that RIMCo 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 RIMCo generally and from the Participating Underlying Fund consequently may increase incrementally. The Board, however, also considered RIMCo’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 carrying out the select holdings strategy; the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment advisory fees paid by the Participating Underlying Fund are not increased as a result of the select holdings strategy.

At the April 24 Board meeting, RIMCo and management discussed the reasonableness of the Fund’s and the Underlying Funds’ investment advisory fees. In discussing whether the Fund’s and the Underlying Funds’ performance supported these fees, RIMCo

Basis for Approval of Investment Advisory Contracts   29

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

noted differences between the investment strategies of certain Underlying Funds and their respective Comparable Funds in pursuing their investment objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Underlying Funds during the periods covered by the Third-Party Information did result, in lower performance of the Fund than that of some of its respective Comparable Funds. According to RIMCo, the strategies pursued by the Underlying Funds, among other things, are intended to result in less volatile, more moderate returns relative to the Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time. RIMCo stated that the Fund has a lower allocation to non-US equity Underlying Funds and a higher allocation to US equity Underlying Funds than some of its respective Comparable Funds, and as a result, the Fund had lower performance than that of some of its Comparable Funds during the periods covered by the Third-Party Information.

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the course of the year or presented at the April 24 Board meeting by RIMCo, the Board, in respect of the Fund and Underlying Fund, found, after giving effect to waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds (1) the advisory fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Fund or Underlying Funds; (2) the relative expense ratio of the Fund and each Underlying Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund and each Underlying Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. The Board also concluded that the performance of the Fund and the Underlying Funds supported continuation of the RIMCo Agreement. In evaluating performance, the Board considered the Fund’s and each Underlying Fund’s absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. The Board also considered RIMCo’s investment strategy of managing the Underlying Funds in a risk aware manner.

At the April 24 Board meeting, 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 Underlying Fund appropriately reflect or should be revised to reflect any such economies. The Board determined that the investment advisory fees for the Fund or Underlying Fund appropriately reflect any economies of scale realized by such fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Underlying Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Fund and other RIC funds under the Board’s supervision, including the Underlying Funds are lower, and may, in some cases, be substantially lower, than the rates paid by RIC funds supervised by the Board, including the Fund. The Trustees reviewed with RIMCo the differences in the scope of services it provides to institutional clients and the funds under its supervision, including the Underlying Funds. In response to the Trustees’ inquiries, RIMCo noted, among other things, that institutional clients have fewer administrative needs than the Fund. It was further noted by RIMCo that since the Fund must constantly issue and 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.

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of the Fund and the Underlying Funds and their respective shareholders and voted to approve the continuation of the agreement.

At the April 24 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers for the Underlying Funds, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., (“RFD”) the Fund’s and Underlying Funds’ underwriter; and RIMCo’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. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the 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 RIMCo.

30   Basis for Approval of Investment Advisory Contracts

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its recommendations at the April 24 meeting, the Board concluded that the fees paid to the Money Managers of each Underlying Fund are 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 would be in the best interests of the Fund and its shareholders.

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s recommendation, the portfolio management agreement with any Money Manager for an Underlying Fund 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 Underlying Fund.

Also, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2007, to effect a money manager change for the International Securities Fund; (2) at a meeting held on July 23, 2007, to effect a money manager change for the International Securities Fund and the Emerging Markets Fund; at a meeting held on August 28, 2007, to effect a money manager change for the International Securities Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or RFD, the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2007 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Underlying Fund, and the fact that the aggregate investment advisory fees paid by the Underlying Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.

Basis for Approval of Investment Advisory Contracts   31

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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 Fund may be invested. RIMCo has established a proxy voting committee (“Committee”) and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Fund maintains 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 the Fund. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Fund’s 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 Funds at (800) 787-7354.

To reduce expenses, we may mail only one copy of the Fund’s prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Fund’s prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

32   Shareholder Requests for Additional Information

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		  

Term

of

Office*

   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

            

**Greg J. Stark

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

•   President and Chief Executive Officer since 2004

 

•   Trustee since 2007

  

•   Appointed until successor is duly elected and qualified

 

•   Until successor is chosen and qualified by Trustees

  

•   President and CEO RIC and RIF

•   Chairman of the Board, President and CEO, RIMCo

•   Chairman of the Board, President and CEO, RFD

•   Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•   Until 2004, Managing Director, of Individual Investor Services, FRC

•   2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

          

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2006   Appointed until successor is duly elected and qualified  

•   Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

•   Trustee since 2000

 

•   Chairperson since 2005

  

•   Appointed until successor is duly elected and qualified

 

•   Annual

  

•   Director and Chairman of the Audit Committee, Avista Corp.

•   Trustee, Principal Investors Fund and Principal Variable Contracts Fund

•   Regent, University of Washington

•   President, Kristianne Gates Blake, P.S. (accounting services)

•   February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

•   Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999–2006

   41  

•   Director, Avista Corp; (electric utilities)

•   Trustee, Principal Investors Fund (investment company);

•   Trustee, Principal Variable Contracts Fund (investment company)

 

* Each Trustee is subject to mandatory retirement at age 72.
Disclosure of Information about Fund Directors   33

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

        

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2003

 

•  Chairman of Audit

Committee since 2005

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

•  2003, Retired

•  2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

•  1979–2001, Audit and Accounting Partner,
PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2004   Appointed until successor is duly elected and qualified  

•  President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2000

 

•  Chairman of the Nominating and Governance Committee since 2007

  

•  Appointed until successor is duly elected and qualified.

 

•  Appointed until successor is duly elected and qualified

  

•  President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2005   Appointed until successor is duly elected and qualified  

•  September 2003 to present, Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

•  May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial
Group, LLC

•  May 1999 to May 2003, President and Trustee, Berger Funds

   41  

•  Director, Sparx Japan Fund (investment company)

             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2002

 

•  Chairperson of the Investment Committee since 2006

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  Retired since 2000

•  1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.
34   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

          

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

•  Director Emeritus, Frank Russell Company (investment consultant to institutional investors
(“FRC”)); and RIMCo

•  Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20–20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

•  Chairman, Sunshine Management Services, LLC (investment adviser)

   41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

•  President, Anderson Management Group LLC (private investments consulting)

•  February 2002 to June 2005, Lead Trustee, RIC and RIF

•  Trustee of RIC and RIF Until 2006

•  Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

•  Retired since 1997

•  Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

•  Retired since 1986

•  Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

•  Retired since 1995

•  Trustee of RIC and RIF Until 2005

•  Chairman of the Nominating and Governance Committee 2001–2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

•  Retired since 1981

•  Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.
Disclosure of Information about Fund Directors   35

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		  

Position(s) Held

With Fund and
Length of
Time Served

   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years

OFFICERS

        

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

•   Chief Compliance Officer, RIC

•   Chief Compliance Officer, RIF

•   Chief Compliance Officer, RIMCo

•   April 2002-May 2005, Manager, Global Regulatory Policy

•   1998-2002, Compliance Supervisor, Russell Investment Group

         

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

•   President and CEO, RIC and RIF

•   Chairman of the Board, President and CEO, RIMCo

•   Chairman of the Board, President and CEO, RFD

•   Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•   Until 2004, Managing Director of Individual Investor Services, FRC

•   2000 to 2004, Managing Director, Sales and Client Service, RIMCo

         

Mark E. Swanson,

Born November 26, 1963

 

909 A Street

Tacoma, Washington
98402-1616

  

•   Treasurer and Chief Accounting Officer since 1998

 

•   CFO since 2007

   Until successor is chosen and qualified by Trustees  

•   Treasurer, Chief Accounting Officer and CFO, RIC and RIF

•   Director, Funds Administration, RIMCo, RTC and RFD

•   Treasurer and Principal Accounting Officer, SSgA Funds

         

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004  

Until removed by

Trustees

  

•   Chief Investment Officer, RIC, RIF, FRC, RTC

•   Director and Chief Investment Officer, RIMCo and RFD

•   1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

         

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

•   Associate General Counsel and Assistant Secretary FRC and RIA

•   Director and Secretary, RIMCo and RFD

•   Secretary and Chief Legal Counsel, RIC and RIF

 

36   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Tax-Managed Global Equity Fund

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

 

1. Election of Trustees.         
Vote:         
    

For

        

Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752
2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.
Vote:         
    

For

   

Against

   

Abstain

Tax-Managed Global Equity Fund

    3,185,157.606    143,006.000    72,068.000
3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.
Vote:         
    

For

   

Against

   

Abstain

Tax-Managed Global Equity Fund

    3,187,081.606    141,082.000    72,068.000
Matter Submitted to a Vote of Shareholders   37

Table of Contents

Tax-Managed Global Equity Fund

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

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

AllianceBernstein L.P., New York, NY

Altrinsic Global Advisors, LLC, Stamford, CT

AQR Capital Management, LLC, Greenwich, CT

Axiom International Investors LLC, Greenwich, CT

Marsico Capital Management, LLC, Denver, CO

MFS Institutional Advisors, Inc., Boston, MA

Mondrian Investment Partners Ltd., London, United Kingdom

UBS Global Asset Management (Americas) Inc., Chicago, IL

Wellington Management Company, LLP, Boston, MA

Emerging Markets Fund

AllianceBernstein L.P., New York, NY

Arrowstreet Capital, Limited Partnership, Cambridge, MA

Genesis Asset Managers, LLP, London, United Kingdom

Harding, Loevner Management, L.P., Somerville, NJ

T. Rowe Price International, Inc., Baltimore, MD

UBS Global Asset Management (Americas) Inc., Chicago, IL

Tax-Managed Large Cap Fund

Armstrong Shaw Associates Inc., New Canaan, CT

J.P. Morgan Investment Management Inc., New York, NY

Palisades Investment Partners, LLC, Santa Monica, 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, Los Angeles, CA

Turner Investment Partners, Inc., Berwyn, PA


 

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 Russell Investment Company. Such offering is made only by Prospectus, which includes details as to offering price and other material information.

38   Manager, Money Managers and Service Providers

Table of Contents

 

LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
  

36-08-086 (1 10/07)

Table of Contents

RUSSELL FUNDS

2007 Annual Report

 

CLASS A AND B SHARES:

RUSSELL MULTI-MANAGER PRINCIPAL PROTECTED FUND

OCTOBER 31, 2007

 

LOGO

Table of Contents

 

 

Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

Table of Contents

 

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Market Summary    4
Portfolio Management Discussion and Analysis    8
Shareholder Expense Example    11
Schedule of Investments    12
Notes to Schedule of Investments    16
Statement of Assets and Liabilities    17
Statement of Operations    18
Statements of Changes in Net Assets    19
Financial Highlights - Class A    20
Financial Highlights - Class B    21
Notes to Financial Statements    22
Report of Independent Registered Public Accounting Firm    30
Investment Objective and Investment Strategy during the Guarantee Period    31
Tax Information    32
Shareholder Requests for Additional Information    33
Disclosure of Information about Fund Directors    34
Matter Submitted to a Vote of Shareholders    38
Manager, Money Managers and Service Providers    39

Table of Contents

 

Russell Investment Company - Russell Multi-Manager Principal Protected Fund.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

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To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

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Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising default rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

 

4   Market Summary

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Russel Investment Company

 

Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages — and securities firms packaging the subprime debt into AAA-rated bonds — helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default

Market Summary   5

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Russell Investment Company

 

risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

1

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

 

2

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

 

3

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

6   Market Summary

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Russell Multi-Manager Principal Protected Fund - Class A #  
     Total Return  

1 Year

    5.37 %

Inception*

    2.40 %§

 

Russell Multi-Manager Principal Protected Fund - Class B #  
     Total Return  

1 Year

    4.51 %

Inception*

    2.16 %§

 

Russell 1000® Index ‡  
     Total Return  

1 Year

    15.03 %

Inception*

    14.69 %§

 

Lehman Brothers 3-5 Year Treasury Index ‡‡  
     Total Return  

1 Year

    6.07 %

Inception*

    16.77 %§

8   Portfolio Management Discussion and Analysis

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Russell Multi-Manager Principal Protected Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has two money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Russell Multi-Manager Principal Protected Fund Class A and Class B Shares gained 5.37% and 4.51%, respectively. This compared to the Russell 1000® Index, which gained 15.03%, and the Lehman Brothers 3-5 Year Treasury Index, which returned 6.07% 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. The Fund is currently meeting its capital preservation objective.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

With short term interest rates falling during the last quarter of the fiscal year, the Fund’s fixed income component (which had a total annual return of 5.17%) trailed the Lehman Brothers 3-5 Year Treasury Index’s total return of 6.07%. The Fund’s fixed income component is managed to mature at or before the end of the guarantee period, March 3, 2008. As the Fund approaches the end of the guarantee period, the maturity of the Fund’s fixed income component becomes increasingly short relative to that of the Lehman Brothers 3-5 Year Treasury Index. As a result, the Fund’s fixed income component was shorter in duration relative to the Lehman Brothers 3-5 Year Treasury Index, which contributed to the fixed income component’s underperformance.

 

The equity segment returned 14.79%, but trailed the Russell 1000 Index slightly. The Fund’s equity manager employs a quantitative, market-oriented strategy. The market transition from favoring value stocks to growth stocks over this fiscal year made for a difficult environment for quantitative strategies, which tend to have a valuation bias. During transitional markets, quantitative strategies must adjust their models to incorporate the new market data, often causing them to lag the market at the onset of the transition.

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 overweight to shorter maturity bonds as required by the Fund’s Financial Guarantee Agreement, which resulted in the Fund having a shorter duration relative to the Lehman Brothers 3-5 Year Treasury Index. This detracted from the fixed income component’s relative performance. During the fiscal year the average maturity of the Fund’s fixed income component declined from 1.33 years to 0.28 years.

In the equity segment, Jacobs Levy Equity Management, Inc. the sole equity manager in the Fund, underperformed relative to benchmark. Jacobs Levy’s portfolio benefited from positive stock selection within the financial services and autos and transportation sectors. Yet this was offset by unrewarded selection in the health care and technology sectors. While the segment’s overweight to integrated oils boosted returns, its overweight to consumer discretionary detracted from benchmark-relative returns.

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 fiscal year.

 

Money Managers as of
October 31, 2007		    Styles

Jacobs Levy Equity Management, Inc.

    Market-Oriented

Lehman Brothers Asset Management, LLC

    Duration-Matched

Portfolio Management Discussion and Analysis   9

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.

 


 

 

*   Commenced operations on January 21, 2003.

 

#   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 there were not any shares sold during this period.

 

‡

  

The Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡‡   The Lehman Brothers 3-5 Year Treasury Index contains US Treasury securities with a maturity from 3 up to (but not including) 5 years.

 

§   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   Portfolio Management Discussion and Analysis

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,021.80    $ 1,014.62

Expenses Paid During Period*

    $ 10.70    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class B

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,018.40    $ 1,010.84

Expenses Paid During Period*

    $ 14.50    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

Shareholder Expense Example   11

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 39.2%

        

Auto and Transportation - 1.1%

        

FedEx Corp.

    1,000      103

General Motors Corp.

    2,200      86

TRW Automotive Holdings Corp. (Æ)

    900      27

Union Pacific Corp.

    1,000      128

US Airways Group, Inc. (Æ)

    700      20
         
        364
         

Consumer Discretionary - 6.2%

        

Accenture, Ltd. Class A

    3,100      121

Apollo Group, Inc. Class A (Æ)

    500      40

Avon Products, Inc.

    2,700      111

Barnes & Noble, Inc.

    900      35

BJ’s Wholesale Club, Inc. (Æ)

    800      29

Brink’s Co. (The)

    400      25

Brinker International, Inc.

    500      13

Convergys Corp. (Æ)

    900      16

Costco Wholesale Corp.

    1,900      128

Darden Restaurants, Inc.

    1,400      60

DIRECTV Group, Inc. (The) (Æ)

    3,500      93

DreamWorks Animation SKG, Inc. Class A (Æ)

    500      16

eBay, Inc. (Æ)

    4,000      144

Google, Inc. Class A (Æ)

    400      283

Hewitt Associates, Inc. Class A (Æ)

    500      18

International Game Technology

    900      39

ITT Educational Services, Inc. (Æ)

    500      64

Kimberly-Clark Corp.

    300      21

Manpower, Inc.

    500      37

Marriott International, Inc. Class A

    2,300      94

Mattel, Inc.

    3,500      73

McDonald’s Corp.

    800      48

Nike, Inc. Class B

    2,000      132

Office Depot, Inc. (Æ)

    1,700      32

Starwood Hotels & Resorts Worldwide, Inc.

    800      45

TJX Cos., Inc.

    2,100      61

Wal-Mart Stores, Inc.

    4,400      199

Whirlpool Corp.

    500      40

Yum! Brands, Inc.

    2,700      109
         
        2,126
         

Consumer Staples - 2.3%

        

Altria Group, Inc.

    3,100      226

Colgate-Palmolive Co.

    1,800      137

Hormel Foods Corp.

    500      18

Kroger Co. (The)

    4,000      118
     Principal
Amount ($)
or Shares		      Market
Value
$

NBTY, Inc. (Æ)

    500      18

Pepsi Bottling Group, Inc.

    900      39

PepsiCo, Inc.

    2,800      206

Safeway, Inc.

    900      31
         
        793
         

Financial Services - 7.4%

        

ACE, Ltd.

    1,300      79

Allstate Corp. (The)

    500      26

American International Group, Inc.

    3,200      202

Ameriprise Financial, Inc.

    1,400      88

AON Corp.

    1,000      45

Apartment Investment & Management Co. Class A (ö)

    800      37

Arch Capital Group, Ltd. (Æ)

    500      37

Axis Capital Holdings, Ltd.

    600      24

Bank of New York Mellon Corp. (The)

    3,400      166

Charles Schwab Corp. (The)

    4,200      98

Citigroup, Inc.

    3,100      130

General Growth Properties, Inc. (ö)

    1,500      82

Goldman Sachs Group, Inc. (The)

    900      223

Hartford Financial Services Group, Inc.

    1,300      126

JPMorgan Chase & Co.

    4,800      226

Loews Corp.

    700      34

MetLife, Inc.

    1,400      96

MoneyGram International, Inc.

    600      10

Morgan Stanley

    2,500      168

Northern Trust Corp.

    1,600      120

Odyssey Re Holdings Corp.

    500      19

Prologis (ö)

    100      7

RenaissanceRe Holdings, Ltd.

    600      35

SEI Investments Co.

    900      29

Travelers Cos., Inc. (The)

    2,400      125

Ventas, Inc. (ö)

    500      21

Wells Fargo & Co.

    4,000      136

Western Union Co. (The)

    4,200      93

WR Berkley Corp.

    900      27
         
        2,509
         

Health Care - 5.9%

        

Aetna, Inc.

    2,100      118

AMERIGROUP Corp. (Æ)

    500      17

Baxter International, Inc.

    1,400      84

Becton Dickinson & Co.

    600      50

Bristol-Myers Squibb Co.

    5,100      153

Cardinal Health, Inc.

    1,600      109

Coventry Health Care, Inc. (Æ)

    500      30

Eli Lilly & Co.

    2,200      119

12   Schedule of Investments

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Forest Laboratories, Inc. (Æ)

    1,200      47

Genzyme Corp. (Æ)

    600      46

Health Net, Inc. (Æ)

    1,200      64

Humana, Inc. (Æ)

    1,500      112

Johnson & Johnson

    2,100      137

King Pharmaceuticals, Inc. (Æ)

    1,900      20

McKesson Corp.

    1,800      119

Medtronic, Inc.

    2,300      109

Pfizer, Inc.

    9,900      244

Schering-Plough Corp.

    4,900      150

UnitedHealth Group, Inc.

    3,100      152

WellPoint, Inc. (Æ)

    1,400      111
         
        1,991
         

Integrated Oils - 2.9%

        

Chevron Corp.

    3,100      284

Exxon Mobil Corp.

    5,700      524

Hess Corp.

    700      50

Marathon Oil Corp.

    2,300      136
         
        994
         

Materials and Processing - 2.4%

     

AK Steel Holding Corp. (Æ)

    400      20

Ashland, Inc.

    700      41

Commercial Metals Co.

    800      25

Eastman Chemical Co.

    700      47

EI Du Pont de Nemours & Co.

    1,800      89

EMCOR Group, Inc. (Æ)

    900      31

Energizer Holdings, Inc. (Æ)

    500      52

Fluor Corp.

    500      79

International Paper Co.

    500      19

Jacobs Engineering Group, Inc. (Æ)

    900      78

KBR, Inc. (Æ)

    600      26

McDermott International, Inc. (Æ)

    1,000      61

Monsanto Co.

    1,200      117

Pactiv Corp. (Æ)

    900      25

Perini Corp. (Æ)

    500      29

Sonoco Products Co.

    300      9

United States Steel Corp.

    500      54
         
        802
         

Miscellaneous - 0.7%

        

Brunswick Corp.

    900      20

Foster Wheeler, Ltd. (Æ)

    200      30

General Electric Co.

    2,100      86

Honeywell International, Inc.

    300      18

ITT Corp.

    1,100      74

Tyco International, Ltd.

    400      16
         
        244
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Other Energy - 1.6%

        

Frontier Oil Corp.

    500      23

Global Industries, Ltd. (Æ)

    1,200      30

Halliburton Co.

    3,200      126

Nabors Industries, Ltd. (Æ)

    1,000      28

National Oilwell Varco, Inc. (Æ)

    1,000      73

Sunoco, Inc.

    900      66

Superior Energy Services, Inc. (Æ)

    500      19

Tesoro Corp.

    700      42

Valero Energy Corp.

    1,800      127
         
        534
         

Producer Durables - 1.8%

        

Boeing Co.

    1,700      167

Caterpillar, Inc.

    800      60

Emerson Electric Co.

    2,100      110

Lockheed Martin Corp.

    1,400      154

Manitowoc Co., Inc. (The)

    500      25

United Technologies Corp.

    1,400      107
         
        623
         

Technology - 5.3%

        

Applera Corp. - Applied Biosystems Group

    800      30

Avnet, Inc. (Æ)

    400      17

BMC Software, Inc. (Æ)

    1,500      51

Computer Sciences Corp. (Æ)

    1,400      82

Corning, Inc. 2008

    3,000      73

Dell, Inc. (Æ)

    5,300      162

Electronic Data Systems Corp.

    3,100      67

Hewlett-Packard Co.

    1,900      98

Intel Corp.

    7,900      212

International Business Machines Corp.

    1,900      221

Microsoft Corp.

    9,700      357

Oracle Corp. (Æ)

    7,800      173

Qualcomm, Inc.

    3,300      141

Sun Microsystems, Inc. (Æ)

    7,200      41

Synopsys, Inc. (Æ)

    1,600      45

Unisys Corp. (Æ)

    2,500      15

Western Digital Corp. (Æ)

    1,000      26
         
        1,811
         

Utilities - 1.6%

        

AES Corp. (The) (Æ)

    1,800      38

American Electric Power Co., Inc.

    1,000      48

Constellation Energy Group, Inc.

    1,200      114

Edison International

    1,500      87

Embarq Corp.

    900      48

Schedule of Investments   13

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

    

Principal
Amount ($)
or Shares

      Market
Value
$
       

PG&E Corp.

    1,000      49

Verizon Communications, Inc.

    3,800      175
         
        559
         
Total Common Stocks        

(cost $11,975)

         13,350
         
Short-Term Investments - 59.7%        

Federal Home Loan Bank

        

Series 627

4.625% due 02/08/08

    1,700      1,700

Federal Home Loan Bank

        

System

5.250% due 02/13/08

    3,645      3,650

Russell Investment Company

        

Money Market Fund

    2,367,000      2,367

United States Treasury

       

Principal Only STRIP

Zero coupon due 02/15/08

    12,650      12,498

United States Treasury Bills (ç)(z)(§) 3.732% due 12/27/07

    150      149
         
Total Short-Term Investments        

(cost $20,352)

         20,364
         
Total Investments - 98.9%        

(identified cost $32,327)

         33,714

Other Assets and Liabilities,

Net - 1.1%

         373
         
Net Assets - 100.0%         34,087
         

Futures Contracts

(Number of
Contracts)

      Notional
Amount		      Unrealized
Appreciation
(Depreciation)
$
            

Long Positions

          

S&P 500 E-Mini Index (CME) expiration date 12/07 (17)

      USD    1,322              13
              

Total Unrealized Appreciation (Depreciation) on Open
Futures Contracts

                   13
              

 

See accompanying notes which are an integral part of the financial statements.

14   Schedule of Investments

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  
  

Auto and Transportation

    1.1  

Consumer Discretionary

    6.2  

Consumer Staples

    2.3  

Financial Services

    7.4  

Health Care

    5.9  

Integrated Oils

    2.9  

Materials and Processing

    2.4  

Miscellaneous

    0.7  

Other Energy

    1.6  

Producer Durables

    1.8  

Technology

    5.3  

Utilities

    1.6  

Short-Term Investments

    59.7  
      

Total Investments

    98.9  

Other Assets and Liabilities, Net

    1.1  
      
   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   15

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Schedule of Investments — October 31, 2007

 

 

Footnotes:

(Æ) Nonincome-producing security.
(ö) Real Estate Investment Trust (REIT).
(§) 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.
(ž) Rate noted is yield-to-maturity from date of acquisition.
(ç) At amortized cost, which approximates market.

Abbreviations:

ADR - American Depositary Receipt

ADS - American Depositary Share

CME - Chicago Mercantile Exchange

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

16   Notes to Schedules of Investments

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Statement of Assets and Liabilities — October 31, 2007

Amounts in thousands           
    

Assets

     

Investments at market (identified cost $32,327)

      $ 33,714

Cash

        466

Receivables:

     

Dividends and interest

        67

Dividends from affiliated money market funds

        10

Investments sold

        276

From Adviser

        17

Daily variation margin on futures contracts

        18
        

Total assets

        34,568
Liabilities     

Payables:

     

Investments purchased

   $ 341   

Fund shares redeemed

     7   

Accrued fees to affiliates

     63   

Other accrued expenses

     70   
        

Total liabilities

        481
        
    

Net Assets

      $ 34,087
        

Net Assets Consist of:

     

Undistributed (overdistributed) net investment income

      $ 185

Accumulated net realized gain (loss)

        1,813

Unrealized appreciation (depreciation) on:

     

Investments

        1,387

Futures contracts

        13

Shares of beneficial interest

        32

Additional paid-in capital

        30,657
        

Net Assets

      $ 34,087
        
              

Net Asset Value, per share:

     

Net asset value per share: Class A*

      $ 10.80

Class A — Net assets

      $ 1,407,480

Class A — Shares outstanding ($.01 par value)

        130,285

Net asset value per share: Class B*

      $ 10.50

Class B — Net assets

      $ 32,679,186

Class B — Shares outstanding ($.01 par value)

        3,111,492

*           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.

Statement of Assets and Liabilities   17

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Statement of Operations — For the Fiscal Year Ended October 31, 2007

Amounts in thousands              
   

Investment Income

    

Dividends

 

   $ 227  

Dividends from affiliated money market funds

 

     135  

Interest

 

     911  
         

Total investment income

 

     1,273  
   

Expenses

    

Advisory fees

   $ 335    

Administrative fees

     19    

Custodian fees

     81    

Distribution fees - Class B

     275    

Transfer agent fees

     95    

Professional fees

     93    

Registration fees

     31    

Shareholder servicing fees - Class A

     4    

Shareholder servicing fees - Class B

     92    

Trustees’ fees

     1    

Insurance policy fees

     285    

Printing fees

     3    

Miscellaneous

     19    
         

Expenses before reductions

     1,333    

Expense reductions

     (257 )  
         

Net expenses

 

     1,076  
         

Net investment income (loss)

 

     197  
         

Net Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) on:

    

Investments

     2,010    

Futures contracts

     (142 )     1,868  
         

Net change in unrealized appreciation (depreciation) on:

    

Investments

     (327 )  

Futures contracts

     (9 )     (336 )
               

Net realized and unrealized gain (loss)

       1,532  
         

Net Increase (Decrease) in Net Assets from Operations

 

   $ 1,729  
         

 

See accompanying notes which are an integral part of the financial statements.

18   Statement of Operations

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

Amounts in thousands   2007     2006  
   

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 197     $ 211  

Net realized gain (loss)

     1,868       1,035  

Net change in unrealized appreciation (depreciation)

     (336 )     954  
               

Net increase (decrease) in net assets from operations

     1,729       2,200  
               

Distributions

    

From net investment income

    

Class A

     (20 )     —  

Class B

     (203 )     —  

From net realized gain

    

Class A

     (36 )     (60 )

Class B

     (988 )     (1,794 )
               

Net decrease in net assets from distributions

     (1,247 )     (1,854 )
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     (9,691 )     (15,459 )
               

Total Net Increase (Decrease) in Net Assets

     (9,209 )     (15,113 )

Net Assets

    

Beginning of period

     43,296       58,409  
               

End of period

  $ 34,087     $ 43,296  
               

Undistributed (overdistributed) net investment income included in net assets

   $ 185     $ 211  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   19

Table of Contents

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,  
      2007     2006     2005     2004     2003*  
          

Net Asset Value, Beginning of Period

    $ 10.64     $ 10.43     $ 10.48     $ 10.31     $ 10.00  
                                        

Income From Operations

           

Net investment income (loss) (a)

      .13       .12       .05       .02       .02  

Net realized and unrealized gain (loss)

      .42       .43       (.02 )     .25       .29  
                                        

Total income (loss) from operations

      .55       .55       .03       .27       .31  
                                        

Distributions

           

From net investment income

      (.14 )     —       —       —       — (b)

From net realized gain

      (.25 )     (.34 )     (.08 )     (.10 )     —  
                                        

Total distributions

      (.39 )     (.34 )     (.08 )     (.10 )     —  
                                        

Net Asset Value, End of Period

    $ 10.80     $ 10.64     $ 10.43     $ 10.48     $ 10.31  
                                        

Total Return (%) (c)(d)

      5.37       5.35       .31       2.61       3.17  

Ratios/Supplemental Data:

           

Net Assets, end of period (in thousands)

      1,408       1,548       1,883       2,567       3,521  

Ratios to average net assets (%) (e):

           

Operating expenses, net (f)

      2.10       2.10       2.09       2.10       2.02  

Operating expenses, gross

      2.77       2.60       2.36       2.34       2.24  

Net investment income (loss) (f)

      1.24       1.14       .46       .19       .27  

Portfolio turnover rate (%) (c)

      155.24       74.03       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.
(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 Russell Investment Management Company (“RIMCo”) as the investment adviser and custody credit arrangements.

 

See accompanying notes which are an integral part of the financial statements.

20   Financial Highlights - Class A

Table of Contents

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,  
      2007     2006     2005     2004     2003*  
          

Net Asset Value, Beginning of Period

    $ 10.35     $ 10.22     $ 10.35     $ 10.26     $ 10.00  
                                        

Income From Operations

           

Net investment income (loss) (a)

      .05       .04       (.03 )     (.06 )     (.04 )

Net realized and unrealized gain (loss)

      .41       .43       (.02 )     .25       .30  
                                        

Total income (loss) from operations

      .46       .47       (.05 )     .19       .26  
                                        

Distributions

           

From net investment income

      (.06 )     —       —       —       — (b)

From net realized gain

      (.25 )     (.34 )     (.08 )     (.10 )     —  
                                        

Total distributions

      (.31 )     (.34 )     (.08 )     (.10 )     —  
                                        

Net Asset Value, End of Period

    $ 10.50     $ 10.35     $ 10.22     $ 10.35     $ 10.26  
                                        

Total Return (%) (c)(d)

      4.51       4.65       (.47 )     1.83       2.60  

Ratios/Supplemental Data:

           

Net Assets, end of period (in thousands)

      32,679       41,748       56,526       73,969       86,075  

Ratios to average net assets (%) (e):

           

Operating expenses, net (f)

      2.85       2.85       2.84       2.85       2.79  

Operating expenses, gross

      3.52       3.35       3.11       3.09       3.01  

Net investment income (loss) (f)

      .49       .40       (.29 )     (.56 )     (.49 )

Portfolio turnover rate (%) (c)

      155.24       74.03       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.
(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 RIMCo as the investment adviser and custody credit arrangements.

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights - Class B   21

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds (the “Fund”). 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, as amended. 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. During the Guarantee Period, the Fund seeks some capital growth, while seeking to preserve principal. As of October 31, 2007, the Fund’s allocation to equity securities was approximately 39% and the Fund’s allocation to fixed income securities was approximately 60% 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 Fund’s 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. 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 Russell Investment Management Company (“RIMCo”).

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;

22   Notes to Financial Statements

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

  •  

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 New York Stock Exchange, 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 Fund’s 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 value of its shares to differ significantly from the net asset value that would be calculated using normal pricing methods. 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 of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; a company development; a natural disaster; or an armed conflict.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund’s financial statement disclosure.

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.

Notes to Financial Statements   23

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating what impact, if any, the adoption of FIN 48 will have on the Fund’s net assets and results of operations.

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 RIMCo. 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 net asset value 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 three ways: exposing cash reserves to markets, hedging and return enhancement. The Fund may pursue its strategy of being fully invested by exposing cash reserves to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Fund to perform as though cash reserves were actually invested in those markets. 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.

24   Notes to Financial Statements

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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.

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 Fund’s 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 Fund is 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.

Swap Agreements

The Fund may enter into several different types of agreements including interest rate and index swaps.

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.

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).

Notes to Financial Statements   25

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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 extent that the Fund enters into interest rate swaps on other than a net basis, the amount maintained in a segregated account will be the full amount of the Fund’s obligations, if any, with respect to such 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.

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.

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, 2007, the Fund’s custodian fees were reduced $627 under these arrangements which are included in expense reductions on the Statement of Operations.

 

3.   Investment Transactions

Securities

During the period ended October 31, 2007, purchases and sales of investment securities (excluding US Government and Agency obligations, short-term investments, options, futures and repurchase agreements) were $34,587,835 and $45,354,965, 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

Advisor and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

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 RIC Money Market Fund. As of October 31, 2007, $2,367,000 of the RIC Money Market Fund’s net assets represents investments 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 $334,833 and $19,027, respectively, for the period ended October 31, 2007.

 

     Annual Rate  
      Advisory     Administrative  

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

26   Notes to Financial Statements

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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, 2007 was $255,941.

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, 2007, October 31, 2006, and October 31, 2005, the Adviser has not recouped waivers of $255,941, $249,134 and $174,205, respectively.

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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, 2007 were $95,146.

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 RIMCo, 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 this Fund’s Class A and Class B Shares on an annual basis.

Pursuant to the rules of the Financial Industry Regulatory Authority (“FINRA”), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on Shares of the Fund may not exceed 7.25% of total gross sales, subject to certain exclusions. This 7.25% 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 FINRA.

Accrued fees payable to affiliates for the period ended October 31, 2007 were as follows:

 

  

Advisory fees

    $  25,735

Administration fees

      1,462

Distribution fees

      21,040

Shareholder servicing fees

      7,311

Transfer agent fees

      7,311

Trustee fees

      5
      
   $ 62,864
      

Brokerage Commissions

The Funds will effect transactions through Russell Implementation Services, Inc. (“RIS”) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions or (ii) to execute portfolio securities transactions for the portion of each Fund’s assets that RIMCo determines not to allocate to money managers and for each Fund’s cash reserves.

The Funds effect certain transactions through BNY ConvergeFX Group - LJR Recapture Services (“LJR”) and its global network of correspondent brokers. LJR is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through LJR

Notes to Financial Statements   27

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

and its correspondents are used (i) to obtain research services for RIMCo to assist it in its capacity as a manager of managers and (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds’ money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through LJR and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through LJR based upon asset class, investment style and other factors. Research services provided to RIMCo by LJR or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be generally obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients.

LJR may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through LJR and their 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 RIMCo’s research budget has been met, as determined annually in the Soft Dollar Committee budgeting process.

There was no amount retained by Russell Implementation Services, Inc. for the period ended October 31, 2007.

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 Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives 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 their respective expiration dates, whichever occurs first. At October 31, 2007, the Fund had no capital loss carryforwards.

At October 31, 2007, 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

    $ 32,341,062  
        

Unrealized Appreciation

    $ 1,686,467  

Unrealized Depreciation

      (313,686 )
        

Net Unrealized Appreciation (Depreciation)

    $ 1,372,781  
        

Undistributed Ordinary Income

    $ 986,871  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 1,037,603  

Tax Composition of Distributions:

   

Ordinary Income

    $ 386,014  

Long-Term Capital Gains

    $ 861,604  
28   Notes to Financial Statements

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
     2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    —     —     $ —     $ —  

Proceeds from reinvestment of distributions

    5     6       56       57  

Payments for shares redeemed

    (20 )   (41 )     (216 )     (419 )
                            

Net increase (decrease)

    (15 )   (35 )     (160 )     (362 )
                            
        

Class B

         

Proceeds from shares sold

    —     —       —       —  

Proceeds from reinvestment of distributions

    110     168       1,118       1,691  

Payments for shares redeemed

    (1,034 )   (1,663 )     (10,649 )     (16,788 )
                            

Net increase (decrease)

    (924 )   (1,495 )     (9,531 )     (15,097 )
                            

Total increase (decrease)

    (939 )   (1,530 )   $ (9,691 )   $ (15,459 )
                            

 

7.   Interfund Lending Program

The Investment Company Fund has been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Investment Company may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to the Fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Fund will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The Fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity of additional borrowing costs. The Fund did not borrow through the program for the period ended October 31, 2007.

 

8.   Record Ownership

As of October 31, 2007, the Fund had no shareholders of record with greater than 10% of the total outstanding shares.

 

9.   Dividends

On December 13, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 18, 2007 to shareholders on record December 14, 2007

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains
        

Russell Multi-Manager Principal Protected - Class A

    $ 0.1087    $ 0.2591    $ 0.3353

Russell Multi-Manager Principal Protected - Class B

      0.0605      0.2591      0.3353
Notes to Financial Statements   29

Table of Contents

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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 Russell Investment Company, hereafter referred to as the “Fund”) at October 31, 2007, 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, 2007 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

30   Report of Independent Registered Public Accounting Firm

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Investment Objective and Investment Strategy during the Guarantee Period (Unaudited)

 

 

Investment Objective during the Guarantee Period

During the Guarantee Period, the Fund seeks some capital growth, while seeking to preserve principal.

Investment Strategy during the Guarantee Period

Under normal market conditions, during the Guarantee Period the Fund’s assets will be allocated between:

 

•  

An equity component, consisting primarily of common stocks and common stock equivalents, such a preferred stocks and securities convertible into common stocks; and

 

•  

A fixed income component, consisting primarily of high quality debt instruments.

The Fund’s investment adviser, RIMCo, will allocate the Fund’s assets on an ongoing basis between the equity component and the fixed income component. Assets not allocated to money managers are managed by RIMCo. The Fund intends to be fully invested at all times in fixed income securities, equity securities and money market instruments or funds.

Equity component. The equity component consists primarily of common stocks of large and medium capitalization companies, most of which are US based. While market capitalization changes over time and there is not one universally accepted definition of the lines between large, medium and small capitalization companies, the Fund generally defines large and medium capitalization stocks as stocks of companies comprising the Russell 1000® Index.

The Fund employs a multi-manager approach whereby portions of the Fund are allocated to different money managers whose approaches are intended to complement one another. Assets not allocated to money managers are managed by RIMCo. The Fund generally pursues a market-oriented style of security selection. Managers select securities from the broad large and medium capitalization market rather than focusing exclusively on the growth or value segments of the market. As a result, the Fund holds securities representing a broad cross-section of companies and industries.

Fixed income component. The fixed income component consists primarily of high quality debt instruments. The weighted average duration of the fixed income component is expected to correspond (within approximately one month) to the period remaining until the Guarantee Maturity Date. Generally, fixed income securities with longer durations are more sensitive to changes in interest rates. The fixed income component may include US Government securities and other high quality debt securities, such as commercial paper. The US Government securities may, but need not, be backed by the full faith and credit of the United States. US Government securities include securities called STRIPS (Separate Trading of Registered Interest and Principal of Securities). STRIPS are created by separating the interest and principal components of an outstanding US Treasury or agency note or bond and selling them as individual securities. The Fund does not expect to invest in interest-only STRIPS. The fixed income component may also include futures contracts or fixed income securities, swaps and money market instruments.

For more information, please refer to the Fund’s most recent prospectus and Statement of Additional Information.

Investment Objective and Investment Strategy during the Guarantee Period   31

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Tax Information — October 31, 2007 (Unaudited)

 

 

For the year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Fund hereby designates under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Fund designates dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as 22.7%.

The Form 1099 mailed to you in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

Pursuant to Section 852 of the Internal Revenue Code, the Fund designates $861,604 as long-term capital gain dividends for their taxable year ended October 31, 2007.

32   Tax Information

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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 Fund may be invested. RIMCo has established a proxy voting committee (“Committee”) and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Fund maintains 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, Portfolio Holdings Disclosure Policy and additional information about Fund Directors 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.

To reduce expenses, we may mail only one copy of the Fund’s prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Fund’s prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

Shareholder Requests for Additional Information   33

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

**Greg J. Stark

  Born May 3, 1968

 

  909 A Street

  Tacoma, Washington

  98402-1616

  

•   President and Chief Executive Officer since 2004

 

•   Trustee since 2007

  

•   Appointed until successor is duly elected and qualified

 

•   Until successor is chosen and qualified by Trustees

  

•   President and CEO RIC and RIF

•   Chairman of the Board, President and CEO, RIMCo

•   Chairman of the Board, President and CEO, RFD

•   Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•   Until 2004, Managing Director, of Individual Investor Services, FRC

•   2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2006

   Appointed until successor is duly elected and qualified  

•   Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
 

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington 98402-1616

  

•   Trustee since 2000

 

 

•   Chairperson since 2005

  

•   Appointed until successor is duly elected and qualified

 

•   Annual

  

•   Director and Chairman of the Audit Committee, Avista Corp.

•   Trustee, Principal Investors Fund and Principal Variable Contracts Fund

•   Regent, University of Washington

•   President, Kristianne Gates Blake, P.S. (accounting services)

•   February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

•   Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999-2006

   41  

•   Director, Avista Corp; (electric utilities)

•   Trustee, Principal Investors Fund (investment company);

•   Trustee, Principal Variable Contracts Fund (investment company)

 

* Each Trustee is subject to mandatory retirement at age 72.
34   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES (continued)

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

•   Trustee since 2003

 

•   Chairman of Audit Committee since 2005

  

•   Appointed until successor is duly elected and qualified

•   Appointed until successor is duly elected and qualified

  

•   June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

•   2003, Retired

•   2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

•   1979–2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP

   41   None
 

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2004

  

Appointed until successor is duly elected and qualified

  

•   President and Chief Executive Officer, United Way of King County, WA

   41   None
 

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

•   Trustee since 2000

 

•   Chairman of the Nominating and Governance Committee since 2007

  

•   Appointed until successor is duly elected and qualified.

•   Appointed until successor is duly elected and qualified

  

•   President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
 

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2005

  

Appointed until successor is duly elected and qualified

  

•   September 2003 to present, Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

•   May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

•   May 1999 to May 2003, President and Trustee, Berger Funds

   41   Director, Sparx Japan Fund (investment company)
 

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington 98402-1616

  

•   Trustee since 2002

 

•   Chairperson of the Investment Committee since 2006

  

•   Appointed until successor is duly elected and qualified

•   Appointed until successor is duly elected and qualified

  

•   Retired since 2000

•   1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.

 

Disclosure of Information about Fund Directors   35

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

•   Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

•   Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

•   Chairman, Sunshine Management Services, LLC (investment adviser)

   41   None
 

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

•   President, Anderson Management Group LLC (private investments consulting)

•   February 2002 to June 2005, Lead Trustee, RIC and RIF

•   Trustee of RIC and RIF Until 2006

•   Chairman of the Nominating and Governance Committee 2006

   41   None
 

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

•   Retired since 1997

•   Trustee of RIC and RIF Until 2002

   41   None
 

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

•   Retired since 1986

•   Trustee of RIC and RIF Until 2004

   41   None
 

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

•   Retired since 1995

•   Trustee of RIC and RIF Until 2005

•   Chairman of the Nominating and Governance Committee 2001-2005

   41   None
 

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

•   Retired since 1981

•   Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.

 

36   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years

OFFICERS

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

•   Chief Compliance Officer, RIC

•   Chief Compliance Officer, RIF

•   Chief Compliance Officer, RIMCo

•   April 2002–May 2005, Manager, Global Regulatory Policy

•   1998–2002, Compliance Supervisor, Russell Investment Group

 

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

•   President and CEO, RIC and RIF

•   Chairman of the Board, President and CEO, RIMCo

•   Chairman of the Board, President and CEO, RFD

•   Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•   Until 2004, Managing Director of Individual Investor Services, FRC

•   2000 to 2004, Managing Director, Sales and Client Service, RIMCo

 

Mark E. Swanson,

Born November 26, 1963

 

909 A Street

Tacoma, Washington 98402-1616

  

•   Treasurer and Chief Accounting Officer since 1998

 

•   CFO since 2007

   Until successor is chosen and qualified by Trustees  

•   Treasurer, Chief Accounting Officer and CFO, RIC and RIF

•   Director, Funds Administration, RIMCo, RTC and RFD

•   Treasurer and Principal Accounting Officer, SSgA Funds

 

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004  

Until removed by

Trustees

  

•   Chief Investment Officer, RIC, RIF, FRC, RTC

•   Director and Chief Investment Officer, RIMCo and RFD

•   1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

 

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

•   Associate General Counsel and Assistant Secretary FRC and RIA

•   Director and Secretary, RIMCo and RFD

•   Secretary and Chief Legal Counsel, RIC and RIF

Disclosure of Information about Fund Directors   37

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Russell Investment Company

Russell Multi-Manager Principal Protected Fund

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007, which was adjourned until October 25, 2007. The October 25, 2007 meeting was adjourned until November 9, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

 

1. Election of Trustees.         
Vote:         
     For         Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752
2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.
Vote:         
     For    Against    Abstain

Russell Multi-Manager Principal Protected Fund

    1,187,048.000    109,196.000    100,481.000
3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.
Vote:         
     For    Against    Abstain

Russell Multi-Manager Principal Protected Fund

    1,199,888.000    103,878.000    92,959.000
38   Matter Submitted to a Vote of Shareholders

Table of Contents

Russell Multi-Manager Principal Protected Fund

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Jacobs Levy Equity Management, Inc., Florham Park, NJ

Lehman Brothers Asset Management, LLC, Chicago, IL


 

This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of 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

Table of Contents

 

LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
  

36-08-155 (1 10/07)

Table of Contents

2007 Annual Report

 

CLASS A, C, E, R1, R2, R3, AND S SHARES:

EQUITY GROWTH STRATEGY FUND

GROWTH STRATEGY FUND

BALANCED STRATEGY FUND

MODERATE STRATEGY FUND

CONSERVATIVE STRATEGY FUND

CLASS A, E, R1, R2, R3, AND S SHARES:

2010 STRATEGY FUND

2020 STRATEGY FUND

2030 STRATEGY FUND

2040 STRATEGY FUND

OCTOBER 31, 2007

 

LOGO

Table of Contents

 

 

Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

Table of Contents

 

Russell Investment Company

LifePoints® Funds

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Market Summary    4
Equity Growth Strategy Fund    10
Growth 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
Statements of Assets and Liabilities    64
Statements of Operations    68
Statements of Changes in Net Assets    70
Financial Highlights    74
Notes to Financial Highlights    92
Notes to Financial Statements    93
Report of Independent Registered Public Accounting Firm    114
Tax Information    115
Basis for Approval of Investment Advisory Contracts    116
Shareholder Requests for Additional Information    120
Disclosure of Information about Fund Directors    121
Matter Submitted to a Vote of Shareholders    125
Manager, Money Managers and Service Providers    126

Table of Contents

 

Russell Investment Company - LifePoints® Funds.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

Table of Contents

 

To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

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Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising default rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

4   Market Summary

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Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Real Estate Markets

For the fiscal year ending October 31, 2007, real estate investment trusts (REITs) generated a 0.57% return, as measured by the FTSE NAREIT Equity Index. As well as being well below the overall U.S. equity market return, this return represented a substantial pull-back from the prior year’s return of 36.37%. The low REIT return was also accompanied by exceptionally high volatility during the period. During the first three months of the fiscal year, REITs were up over 11%; the following six months, REITs lost nearly 20%; and finally, during the last three months, REITs rallied with a 12% return.

Early in the fiscal year, the REIT market continued to be driven by the same factors that made the prior year so successful, mainly mergers and acquisitions by private investors acquiring public REITs at large premiums to their share prices. The most prominent privatization was Equity Office Property, the industry’s largest REIT, which became the prize in a bidding war between Blackstone, a private equity firm and Vornado, a public company. The REIT market peaked at all-time record levels in mid-February 2007. At that time, while property market fundamentals were improving and REIT earnings were solid, REIT pricing appeared to be well ahead of earnings expectations.

By June 2007, concerns arose among REIT investors that problems in the residential subprime mortgage loan market would be a precursor to similar issues in the commercial mortgage market. Additionally, the 0.6% increase in the 10 year treasury rate which occurred during that month caused investors to reassess the capitalization rates used to value real estate. These events combined to put substantial downward pressure on REIT share prices.

Market Summary   5

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Russell Investment Company

 

REITs ended the fiscal year with some positive results and the market volatility appears to have removed the speculative valuation premiums applied to REITs due to the robust merger and acquisition activity over the last several years. However, concerns about a weaker economy and more stringent mortgage lending standards amidst an overall tightening of credit has put the focus back on real estate fundamentals and the specific growth prospects of each company.

Non-U.S. Equity Markets

Non-U.S. stocks gained 24.91% as measured by the MSCI EAFE® Index for the fiscal year ending October 31, 2007. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE® Index rose 14.00% over the 12-month period.

The market continued to benefit from global growth, merger and acquisition activity and strong corporate earnings and withstood several brief periods of increased market volatility brought on by investors’ risk aversion relating to the potential negative spillover effects of the housing slowdown in the U.S. Growth in emerging economies, like India and China, also had a positive impact on the strength of developed markets through their demand for goods and infrastructure development.

Europe, as represented by the MSCI Europe Index, returned 27.96% over the fiscal year. Merger and acquisition-related gains combined with strong earnings drove European equities higher, with merger-and-acquisition activity in the year surpassing last year’s record pace. Across Europe, the best performing sectors were materials and telecommunication services, up 53.36% and 47.56%, respectively. By country, of particular note were more heavily laden energy/commodity markets, such as Norway, up 59.76%, which benefited from the strong performance of the global materials and energy sectors. Germany also stood out as a market leader, benefiting from the strong performance of its automobiles industry. Elsewhere, MSCI United Kingdom Index lagged continental Europe with a gain of 23.62%. The U.K. underperformed the rest of Europe due to weakness in its health care sector.

The MSCI Japan Index continued to lag other major non-U.S. markets in the fiscal year, returning only 4.84%. Investor concerns included weak economic data, lackluster earnings from financial institutions and political turmoil. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 56.48% with strong gains in the Hong Kong, Singapore and Australian markets.

From a sector perspective, materials stocks had the best returns, up 48.26%, especially in the area of metals and mining, which was driven by industry consolidation and the continued upturn in commodities prices. Telecommunication services, up 41.84%, also benefited from strong earnings results. Health care and financials were the notable laggards, returning 2.56% and 14.02%, respectively, as measured by the health care and financials sector grouping based on the Global Industry Classification Standard definitions.

A reversal in market leadership in terms of style was seen in March, with the value segment of the MSCI EAFE® Index dominating in the first half of the period, and the growth segment leading in the second half. The period ended with the MSCI EAFE Growth Index rising 28.52%, compared with 21.33% for the MSCI EAFE Value Index. Investors, in general, continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex-U.S. Index (an index of smaller capitalization companies) up 28.38% in the period versus the S&P/Citigroup PMI World ex-U.S. (an index of larger capitalization companies) up 27.24%.

Markets not represented in the MSCI EAFE® Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed counterparts, as the MSCI Emerging Markets Index rose 67.84%. Emerging markets countries benefited from

6   Market Summary

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Russell Investment Company

 

the materials and industrials sectors, both posting over 100% returns for the period. Canadian stocks, as measured by the MSCI Canada Index, rose 44.95% during the period.

Emerging Markets

During the fiscal year, the MSCI Emerging Markets Index (“Index”) posted a strong return of 67.84%, outperforming developed markets as measured by the MSCI World Index Free which returned 20.39%. Larger capitalization stocks and those with strong price momentum, particularly those in cyclical sectors, were key drivers of performance. Significant capital inflows and outperformance of energy and material stocks resulting from strong commodity prices also contributed positively to performance. The emerging markets asset class performed strongly despite two market pull-backs in late February and July. The first sell-off was triggered by a concern that China would tighten controls on investment, and the second sell-off occurred more recently when credit concerns over U.S. subprime mortgage loans broadened to larger concerns about the world’s capital markets. Each time, however, emerging markets rallied back to hit new highs as investors continued to search for growth.

In terms of regions, Latin America was the top performer (+78.08% as measured by the MSCI EM Latin America Index) followed closely by Asia (+75.44% as measured by the MSCI EM Asia Index). The MSCI EM (Emerging Markets) Europe, Middle East and Africa Index (EMEA) lagged the Index but still posted a solid return of 45.94%. The BRIC (Brazil, Russia, India and China) economies with the exception of Russia all outperformed the broader Index with China leading the group (+155.68% as measured by the MSCI China Index) due in part to the strong performance of the country’s commodity-related and financial stocks. MSCI China Index stocks were also buoyed in the third quarter by the rumor that the local Chinese investors would be allowed to invest through the Hong Kong stock exchange. Strength in resource-related stocks helped Brazil post strong returns over the period (+110.24% as measured by the MSCI Brazil Index). Some of the smaller markets such as Indonesia and Peru posted strong gains; in the case of Peru, the market returned +149.20% as measured by the MSCI Peru Index due mainly to one stock, Southern Copper Corporation. The small market of Jordan was the only country with single digit absolute returns, rising 3.97% as measured by the MSCI Jordan Index. Other notable relative underperformers included Taiwan (+38.56% as measured by the MSCI Taiwan Index), South Africa (+53.76% as measured by the MSCI South Africa Index), and Egypt (+51.41% as measured by the MSCI Egypt Index).

Currencies were broadly strong against the U.S. dollar with some, such as the Brazilian Real, up more than 18%.

Within emerging markets, the industrials sector and resource-related areas performed strongly. Chinese financials and telecom stocks along with Korean and Brazilian materials stocks were key market movers. Technology and consumer stocks underperformed the Index, but still returned more than 20% in absolute terms. Utilities, a sector leveraged to emerging markets energy demand growth, performed strongly, while the health care sector, dominated by Teva Pharmaceuticals, lagged the Index.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many

Market Summary   7

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Russell Investment Company

 

fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages — and securities firms packaging the subprime debt into AAA-rated bonds — helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

 

 

 

 

 

 

 

 

1

  

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

 

2

  

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

 

8   Market Summary

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Russell Investment Company

 

The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

 

 

3

  

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

Market Summary   9

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Russell Investment Company

Equity Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Equity Growth Strategy Fund - Class A#  
     Total
Return		  

1 Year

    12.55 %

5 Years

    17.16 %§

10 Years

    7.62 %§

 

Equity Growth Strategy Fund - Class C‡‡  
     Total
Return		  

1 Year

    18.51 %

5 Years

    17.26 %§

10 Years

    7.36 %§

 

Equity Growth Strategy Fund - Class E  
     Total
Return		  

1 Year

    19.44 %

5 Years

    18.15 %§

10 Years

    8.07 %§

 

Equity Growth Strategy Fund - Class R1‡‡‡‡  
     Total
Return		  

1 Year

    19.66 %

5 Years

    18.46 %§

10 Years

    8.31 %§

 

Equity Growth Strategy Fund - Class R2‡‡‡‡‡  
     Total
Return		  

1 Year

    19.40 %

5 Years

    18.16 %§

10 Years

    8.07 %§

 

Equity Growth Strategy Fund - Class R3‡  
     Total
Return		  

1 Year

    19.24 %

5 Years

    17.88 %§

10 Years

    7.83 %§

 

Equity Growth Strategy Fund - Class S‡‡‡  
     Total
Return		  

1 Year

    19.74 %

5 Years

    18.48 %§

10 Years

    8.32 %§

 

Russell 1000® Index**  
     Total
Return		  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

 

MSCI EAFE® Index***  
     Total
Return		  

1 Year

    24.91 %

5 Years

    23.21 %§

10 Years

    9.26 %§

 

10   Equity Growth Strategy Fund

Table of Contents

Russell Investment Company

Equity Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Equity Growth Strategy Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Equity Growth Strategy Fund Class A, Class C, Class E, Class R1, Class R2, Class R3 and Class S Shares gained 19.45%, 18.51%, 19.44%, 19.66%, 19.40%, 19.24% and 19.74%, respectively. These returns compared to the Russell 1000® Index, which gained 15.03% 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. The Fund’s returns relative to Russell 1000® Index were aided by exposure to non-U.S. developed and emerging markets.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The U.S. equity Underlying Funds held by the Fund (58% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive

valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global and emerging markets Underlying Funds (a combined 35% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (7% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, the Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo disclaims any responsibility to update the views contained herein. These views should not be relied on as investment advice and,


Equity Growth Strategy Fund   11

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Russell Investment Company

Equity Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

because investment decisions for a Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® 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.

 

#   The Fund first issued Class A Shares on March 4, 2003. The returns shown for Class A Shares prior to March 4, 2003 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class D Shares on March 24, 1998. Class D Shares were redesignated Class R3 Shares on March 1, 2006. The returns shown for Class R3 Shares prior to March 24, 1998 are the returns of the Fund’s Class E Shares, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class R3 Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on February 11, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to March 23, 1998 and the returns of the Fund’s Class D Shares from March 24, 1998 to February 10, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class S Shares on January 31, 2000. The returns shown for Class S Shares prior to January 31, 2000 are the returns of the Fund’s Class E Shares.

 

‡‡‡‡   The Fund first issued Class R1 Shares on May 19, 2006. The returns shown for Class R1 Shares prior to May 19, 2006 are the returns of the Fund’s Class E Shares from November 1, 1997 to January 30, 2000 and the returns of the Fund’s Class S Shares from January 31, 2000 to May 18, 2006.

 

‡‡‡‡‡   The Fund first issued Class R2 Shares on March 29, 2006. The returns shown for Class R2 Shares prior to March 29, 2006 are the returns of the Fund’s Class E Shares.

 

§   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 Growth Strategy Fund

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Russell Investment Company

Equity Growth Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,085.20    $ 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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,081.50    $ 1,020.16

Expenses Paid During Period*

    $ 5.25    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,085.10    $ 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.

Equity Growth Strategy Fund   13

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Russell Investment Company

Equity Growth Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,086.30    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,085.10    $ 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.

 

Class R3

    Actual
Performance		   

Hypothetical
Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,084.50    $ 1,022.68

Expenses Paid During Period*

    $ 2.63    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,087.10    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

14   Equity Growth Strategy Fund

Table of Contents

Russell Investment Company

Equity Growth Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$		  
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Domestic Equities - 64.4%

        

Diversified Equity Fund

    10,505,216      586,822  

Quantitative Equity Fund

    12,796,186      560,857  

Real Estate Securities Fund

    2,981,684      157,850  

Special Growth Fund

    2,785,520      157,939  
           
        1,463,468  
           

International Equities - 35.6%

     

Emerging Markets Fund

    3,889,412      120,027  

Global Equity Fund

    13,981,261      159,247  

International Securities Fund

    5,817,162      530,292  
           
        809,566  
           
Total Investments - 100.0%     

(identified cost $1,700,346)

         2,273,034  
Other Assets and Liabilities, Net - 0.0%         (117 )
           
Net Assets - 100.0%         2,272,917  
           

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Domestic Equities

      64.4  

International Equities

      35.6  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      (— )*
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

Equity Growth Strategy Fund   15

Table of Contents

Russell Investment Company

Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Growth Strategy Fund - Class A#  
     Total
Return		  

1 Year

    9.58 %

5 Years

    14.20 %§

10 Years

    7.03 %§

 

Growth Strategy Fund - Class C‡‡  
     Total
Return		  

1 Year

    15.39 %

5 Years

    14.69 %§

10 Years

    6.93 %§

 

Growth Strategy Fund - Class E  
     Total
Return		  

1 Year

    16.23 %

5 Years

    15.55 %§

10 Years

    7.65 %§

 

Growth Strategy Fund - Class R1‡‡‡‡  
     Total
Return		  

1 Year

    16.53 %

5 Years

    15.83 %§

10 Years

    7.87 %§

 

Growth Strategy Fund - Class R2‡‡‡‡‡  
     Total
Return		  

1 Year

    16.30 %

5 Years

    15.56 %§

10 Years

    7.66 %§

 

Growth Strategy Fund - Class R3‡  
     Total
Return		  

1 Year

    15.97 %

5 Years

    15.25 %§

10 Years

    7.41 %§

 

Growth Strategy Fund - Class S‡‡‡  
     Total
Return		  

1 Year

    16.53 %

5 Years

    15.83 %§

10 Years

    7.87 %§

 

MSCI EAFE® Index**  
     Total
Return		  

1 Year

    24.91 %

5 Years

    23.21 %§

10 Years

    9.26 %§

 

Russell 1000® Index***  
     Total
Return		  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

 

Lehman Brothers Aggregate Bond Index****  
     Total
Return		  

1 Year

    5.38 %

5 Years

    4.41 %§

10 Years

    5.91 %§

16   Growth Strategy Fund

Table of Contents

Russell Investment Company

Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Growth Strategy Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Growth Strategy Fund Class A, Class C, Class E, Class R1, Class R2, Class R3, and Class S Shares gained 16.26%, 15.39%, 16.23%, 16.53%, 16.30%, 15.97% and 16.53%, respectively. These compared to the Russell 1000® Index, which gained 15.03% 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. The Fund’s returns relative to Russell 1000® Index were aided by exposure to non-U.S. developed and emerging markets.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

The fixed income Underlying Fund slightly trailed its index benchmark, yet performed well relative to peers. The decline in interest rates benefited the fixed income performance as several managers anticipated the decline and increased sensitivity to interest rates (also called increased duration). In general, as interest rates decline bond prices increase, therefore the

increase in duration added to performance of the fixed income Underlying Fund.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The U.S. equity Underlying Funds held by the Fund (47% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The fixed income Underlying Funds (20% of the Fund’s assets are allocated to fixed income Underlying Funds) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The non-U.S., global and emerging markets Underlying Funds (a combined 27% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (6% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs


Growth Strategy Fund   17

Table of Contents

Russell Investment Company

Growth Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, two changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced. In addition, The Multistrategy Bond Fund replaced the Diversified Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**   Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which included reinvestment of gross dividends before deduction of withholding taxes.

 

***

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® 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.

 

#   The Fund first issued Class A Shares on March 10, 2003. The returns shown for Class A Shares prior to March 10, 2003 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class D Shares on March 24, 1998. Class D Shares were redesignated Class R3 Shares on March 1, 2006. The returns shown for Class R3 Shares prior to March 24, 1998 are the returns of the Fund’s Class E Shares, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class R3 Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on January 29, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to March 23, 1998 and the returns of the Fund’s Class D Shares from March 24, 1998 to January 28, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class S Shares on February 1, 2000. The returns shown for Class S Shares prior to February 1, 2000 are the returns of the Fund’s Class E Shares.

 

‡‡‡‡   The Fund first issued Class R1 Shares on May 19, 2006. The returns shown for Class R1 Shares prior to May 19, 2006 are the returns of the Fund’s Class E Shares from November 1, 1997 to January 31, 2000 and the returns of the Fund’s Class S Shares from February 1, 2000 to May 18, 2006.

 

‡‡‡‡‡   The Fund first issued Class R2 Shares on March 29, 2006. The returns shown for Class R2 Shares prior to March 29, 2006 are the returns of the Fund’s Class E Shares.

 

§   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   Growth Strategy Fund

Table of Contents

Russell Investment Company

Growth Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     
     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,072.20    $ 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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,068.30    $ 1,020.16

Expenses Paid During Period*

    $ 5.21    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,072.00    $ 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.

Growth Strategy Fund   19

Table of Contents

Russell Investment Company

Growth Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,073.10    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,072.00    $ 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.

 

Class R3

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,071.20    $ 1,022.68

Expenses Paid During Period*

    $ 2.61    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,073.10    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

20   Growth Strategy Fund

Table of Contents

Russell Investment Company

Growth Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 19.8%

        

Multistrategy Bond Fund

    83,427,459      866,811
         

Domestic Equities - 52.7%

        

Diversified Equity Fund

    16,487,892      921,014

Quantitative Equity Fund

    19,858,872      870,414

Real Estate Securities Fund

    4,910,497      259,962

Special Growth Fund

    4,627,854      262,399
         
        2,313,789
         

International Equities - 27.5%

        

Emerging Markets Fund

    5,942,024      183,371

Global Equity Fund

    23,271,412      265,061

International Securities Fund

    8,320,772      758,522
         
        1,206,954
         
Total Investments - 100.0%        

(identified cost $3,467,631)

         4,387,554
Other Assets and Liabilities, Net - 0.0%         2,171
         
Net Assets - 100.0%         4,389,725
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Bonds

      19.8  

Domestic Equities

      52.7  

International Equities

      27.5  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      — *
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

Growth Strategy Fund   21

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Balanced Strategy Fund - Class A#  
     Total
Return		  

1 Year

    6.99 %

5 Years

    11.41 %§

10 Years

    6.80 %§

 

Balanced Strategy Fund - Class C‡‡  
     Total
Return		  

1 Year

    12.60 %

5 Years

    11.89 %§

10 Years

    6.71 %§

 

Balanced Strategy Fund - Class E  
     Total
Return		  

1 Year

    13.47 %

5 Years

    12.73 %§

10 Years

    7.43 %§

 

Balanced Strategy Fund - Class R1‡‡‡‡  
     Total
Return		  

1 Year

    13.69 %

5 Years

    13.00 %§

10 Years

    7.64 %§

 

Balanced Strategy Fund - Class R2‡‡‡‡‡  
     Total
Return		  

1 Year

    13.48 %

5 Years

    12.73 %§

10 Years

    7.43 %§

 

Balanced Strategy Fund - Class R3‡  
     Total
Return		  

1 Year

    13.16 %

5 Years

    12.45 %§

10 Years

    7.19 %§

 

Balanced Strategy Fund - Class S‡‡‡  
     Total
Return		  

1 Year

    13.69 %

5 Years

    13.00 %§

10 Years

    7.64 %§

 

MSCI EAFE® Index**  
     Total
Return		  

1 Year

    24.91 %

5 Years

    23.21 %§

10 Years

    9.26 %§

 

Lehman Brothers Aggregate Bond Index***  
     Total
Return		  

1 Year

    5.38 %

5 Years

    4.41 %§

10 Years

    5.91 %§

 

Russell 1000® Index****  
     Total
Return		  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

22   Balanced Strategy Fund

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Balanced Strategy Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Balanced Strategy Fund Class A, Class C, Class E, Class R1, Class R2, Class R3 and Class S Shares gained 13.49%, 12.60%, 13.47%, 13.69%, 13.48%, 13.16% and 13.69% respectively. These compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% 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. The Fund’s returns relative to Lehman Brothers Aggregate Bond Index were aided by exposure to equities, especially from non-U.S. developed and emerging markets.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

The fixed income Underlying Fund trailed its index benchmark, yet performed well relative to peers. The decline in interest rates boosted the fixed income performance. Several of the fixed income Underlying Fund’s managers anticipated the decline and increased the duration of their portfolios (duration is a

weighted average of the maturity of all income streams). As bond prices move inversely to interest rates, the longer duration stance helped performance of the fixed income Underlying Fund.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The U.S. equity Underlying Funds held by the Fund (34% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The fixed income Underlying Funds (40% of the Fund’s assets are allocated to fixed income Underlying Funds) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The non-U.S., global and emerging markets Underlying Funds (a combined 21% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (5% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced


Balanced Strategy Fund   23

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, two changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced. In addition, the Multistrategy Bond Fund replaced the Diversified Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Assumes initial investment on November 1, 1997.

 

**   Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value-weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which 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® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

#   The Fund first issued Class A Shares on March 4, 2003. The returns shown for Class A Shares prior to March 4, 2003 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class D Shares on March 24, 1998. Class D Shares were redesignated Class R3 Shares on March 1, 2006. The returns shown for Class R3 Shares prior to March 24, 1998 are the returns of the Fund’s Class E Shares, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class R3 Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on January 29, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to March 23, 1998 and the returns of the Fund’s Class D Shares from March 24, 1998 to January 28, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class S Shares on January 31, 2000. The returns shown for Class S Shares prior to January 31, 2000 are the returns of the Fund’s Class E Shares.

 

‡‡‡‡   The Fund first issued Class R1 Shares on June 6, 2006. The returns shown for Class R1 Shares prior to June 6, 2006 are the returns of the Fund’s Class E Shares from November 1, 1997 to January 30, 2000 and the returns of the Fund’s Class S Shares from January 31, 2000 to June 5, 2006.

 

‡‡‡‡‡   The Fund first issued Class R2 Shares on April 3, 2006. The returns shown for Class R2 Shares prior to April 3, 2006 are the returns of the Fund’s Class E Shares.

 

§   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

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,060.50    $ 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.

 

Class C

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,056.50    $ 1,020.16

Expenses Paid During Period*

    $ 5.18    $ 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.

 

Class E

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,060.40    $ 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.

Balanced Strategy Fund   25

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R1

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class R2

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,060.40    $ 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.

 

Class R3

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,058.10    $ 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.

 

Class S

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

Table of Contents

Russell Investment Company

Balanced Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Shares

      Market
Value
$
       

Investments - 99.9%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 39.6%

        

Multistrategy Bond Fund

    228,024,591      2,369,176
         

Domestic Equities - 38.9%

        

Diversified Equity Fund

    16,111,477      899,987

Quantitative Equity Fund

    20,419,074      894,968

Real Estate Securities Fund

    5,632,240      298,171

Special Growth Fund

    4,226,677      239,652
         
        2,332,778
         

International Equities - 21.4%

     

Emerging Markets Fund

    6,047,034      186,612

Global Equity Fund

    21,202,721      241,499

International Securities Fund

    9,348,520      852,211
         
        1,280,322
         
Total Investments - 99.9%        

(identified cost $4,902,929)

         5,982,276
Other Assets and Liabilities, Net - 0.1%         3,936
         
Net Assets - 100.0%         5,986,212
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets
    

Bonds

      39.6

Domestic Equities

      38.9

International Equities

      21.4
      

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.

Balanced Strategy Fund   27

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Moderate Strategy Fund - Class A#  
     Total
Return		  

1 Year

    4.05 %

5 Years

    7.75 %§

10 Years

    5.81 %§

 

Moderate Strategy Fund - Class C‡‡  
     Total
Return		  

1 Year

    9.52 %

5 Years

    8.21 %§

10 Years

    5.73 %§

 

Moderate Strategy Fund - Class E  
     Total
Return		  

1 Year

    10.34 %

5 Years

    9.02 %§

10 Years

    6.43 %§

 

Moderate Strategy Fund - Class R1‡‡‡‡  
     Total
Return		  

1 Year

    10.70 %

5 Years

    9.16 %§

10 Years

    6.56 %§

 

Moderate Strategy Fund - Class R2‡‡‡‡‡  
     Total
Return		  

1 Year

    10.28 %

5 Years

    9.00 %§

10 Years

    6.42 %§

 

Moderate Strategy Fund - Class R3‡  
     Total
Return		  

1 Year

    10.02 %

5 Years

    8.75 %§

10 Years

    6.18 %§

 

Moderate Strategy Fund - Class S‡‡‡  
     Total
Return		  

1 Year

    10.61 %

5 Years

    9.29 %§

10 Years

    6.63 %§

 

Russell 1000® Index**  
     Total
Return		  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

 

Lehman Brothers Aggregate Bond Index***  
     Total
Return		  

1 Year

    5.38 %

5 Years

    4.41 %§

10 Years

    5.91 %§

 

Merrill Lynch U.S. Treasuries 1-3 Year Index****  
     Total
Return		  

1 Year

    5.78 %

5 Years

    2.85 %§

10 Years

    4.64 %§

28   Moderate Strategy Fund

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Moderate Strategy Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Moderate Strategy Fund Class A, Class C, Class E, Class R1, Class R2, Class R3 and Class S Shares gained 10.36%, 9.52%, 10.34%, 10.70%, 10.28%, 10.02% and 10.61% respectively. These compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% 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. The Fund’s returns relative to Lehman Brothers Aggregate Bond Index were aided by exposure to equities, especially from non-U.S. developed and emerging market equities.

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 (the “Underlying Funds”) in which it invests. The fixed income Underlying Fund trailed its index benchmarks, yet held up well relative to peers. The decline in interest rates boosted the fixed income performance. Several of the fixed income Underlying Funds’ money managers anticipated the decline and increased the duration of their portfolios (duration is a weighted average of the maturity of all income streams). As bond prices move inversely to interest rates, the longer duration stance helped performance of the fixed income Underlying Fund.

The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added

to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The fixed income Underlying Funds (60% of the Fund’s assets are allocated to fixed income Underlying Funds) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The U.S. equity Underlying Funds held by the Fund (23% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global and emerging markets Underlying Funds (a combined 14% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (3% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced


Moderate Strategy Fund   29

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced. In addition, the Multistrategy Bond Fund replaced the Diversified Bond Fund. Exposure to the Short Duration Bond Fund was replaced by increased exposure to the Multistrategy Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® 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 U.S. Treasuries 1-3 Year 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.

 

#   The Fund first issued Class A Shares on March 5, 2003. The returns shown for Class A Shares prior to that date are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class D Shares on March 24, 1998. Class D Shares were redesignated Class R3 Shares on March 1, 2006. The returns shown for Class R3 Shares prior to March 24, 1998 are the returns of the Fund’s Class E Shares, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class R3 Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on February 11, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class E Shares from November 1, 1997 to March 23, 1998 and the returns of the Fund’s Class D Shares from March 24, 1998 to February 10, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class S Shares on February 1, 2000. The returns shown for Class S Shares prior to February 1, 2000 are the returns of the Fund’s Class E Shares.

 

‡‡‡‡   The Fund first issued Class R1 Shares on October 3, 2006. The returns shown for Class R1 Shares prior to October 3, 2006 are the returns of the Fund’s Class E Shares from November 1, 1997 to January 31, 2000 and the returns of the Fund’s Class S Shares from February 1, 2000 to October 2, 2006.

 

‡‡‡‡‡   The Fund first issued Class R2 Shares on March 29, 2006. The returns shown for Class R2 Shares prior to March 29, 2006 are the returns of the Fund’s Class E Shares.

 

§   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

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,047.90    $ 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.

 

Class C

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,043.50    $ 1,020.16

Expenses Paid During Period*

    $ 5.15    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,047.80    $ 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.

Moderate Strategy Fund   31

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,049.20    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,047.90    $ 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.

 

Class R3

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,046.20    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,049.20    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

Table of Contents

Russell Investment Company

Moderate Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$
       

Investments - 99.8%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 59.4%

        

Multistrategy Bond Fund

    70,992,269      737,610
         

Domestic Equities - 26.1%

        

Diversified Equity Fund

    2,234,685      124,829

Quantitative Equity Fund

    2,835,980      124,301

Real Estate Securities Fund

    708,170      37,490

Special Growth Fund

    660,063      37,426
         
        324,046
         

International Equities - 14.3%

        

Emerging Markets Fund

    835,857      25,795

Global Equity Fund

    3,312,759      37,732

International Securities Fund

    1,250,659      114,010
         
        177,537
         
Total Investments - 99.8%        

(identified cost $1,070,770)

         1,239,193
Other Assets and Liabilities, Net - 0.2%         1,984
         
Net Assets - 100.0%         1,241,177
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets
    

Bonds

      59.4

Domestic Equities

      26.1

International Equities

      14.3
      

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.

Moderate Strategy Fund   33

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Conservative Strategy Fund - Class A#  
     Total
Return		  

1 Year

    0.62 %

5 Years

    4.43 %§

Inception*

    4.73 %§

 

Conservative Strategy Fund - Class C‡‡  
     Total
Return		  

1 Year

    6.04 %

5 Years

    4.90 %§

Inception*

    4.64 %§

 

Conservative Strategy Fund - Class E  
     Total
Return		  

1 Year

    6.84 %

5 Years

    5.69 %§

Inception*

    5.35 %§

 

Conservative Strategy Fund - Class R1‡‡‡‡  
     Total
Return		  

1 Year

    7.01 %

5 Years

    5.92 %§

Inception*

    5.55 %§

 

Conservative Strategy Fund - Class R2‡‡‡‡‡  
     Total
Return		  

1 Year

    6.75 %

5 Years

    5.68 %§

Inception*

    5.35 %§

 

Conservative Strategy Fund - Class R3‡  
     Total
Return		  

1 Year

    6.53 %

5 Years

    5.43 %§

Inception*

    5.10 %§

 

Conservative Strategy Fund - Class S‡‡‡  
     Total
Return		  

1 Year

    7.10 %

5 Years

    5.94 %§

Inception*

    5.56 %§

 

Merrill Lynch U.S. Treasuries 1-3 Year Index**  
     Total
Return		  

1 Year

    5.78 %

5 Years

    2.85 %§

Inception*

    4.66 %§

 

Lehman Brothers Aggregate Bond Index***  
     Total
Return		  

1 Year

    5.38 %

5 Years

    4.41 %§

Inception*

    5.93 %§

 

34   Conservative Strategy Fund

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The Conservative Strategy Fund (“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, 2007?

For the fiscal year ended October 31, 2007, the Conservative Strategy Fund Class A, Class C, Class E, Class R2, Class R3 and Class S Shares gained 6.76%, 6.04%, 6.84%, 6.75%, 6.53% and 7.10%, respectively. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 5.78% during the same period.

From December 29, 2006 to October 31, 2007, the Conservative Strategy Fund Class R1 Shares gained 5.72%. Class R1 Shares commenced operation on December 29, 2006. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 5.25% 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. The Fund’s return relative to the Merrill Lynch U.S. Treasuries 1-3 Year Index were aided by exposure to both U.S. and non-U.S. developed market equities.

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 (the “Underlying Funds”) in which it invests. The core and short duration fixed income Underlying Funds trailed their respective index benchmarks, yet performed well relative to peers. The decline in interest rates boosted fixed income performance. Several of the fixed income Underlying Funds’ managers anticipated the decline and increased the duration of their portfolios (duration is a weighted average of the maturity of all income streams). As bond prices move inversely to interest rates, the longer duration stance helped performance of the fixed income Underlying Funds.

The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Non-U.S. stocks also added value with help from large currency gains. In terms

of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The fixed income Underlying Funds (80% of the Fund’s assets) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance. Managers of short duration bonds suffered from an allocation to corporate, mortgage-backed, and asset-backed securities. The performance of these holdings was driven by the market’s concern with subprime borrowers.

The U.S. equity Underlying Funds held by the Fund (11% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global Underlying Funds (a combined 6% of the Fund’s assets) provided strong absolute returns. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.


Conservative Strategy Fund   35

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The real estate Underlying Fund (3% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, several changes were made to the Fund’s allocations to Underlying Funds. The Multistrategy Bond Fund replaced the Diversified Bond Fund. Exposure to the Short Duration Bond Fund was reduced in favor of increased exposure to the Multistrategy Bond Fund.

 

The Global Equity Fund was added as an Underlying Fund to the equity portion and the allocations to U.S. equity and international equity Underlying Funds were reduced. The ratio of the Fund’s exposure to equities and fixed income remained the same.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Commenced operations by issuing Class E Shares on November 7, 1997.

 

**   Merrill Lynch U.S. Treasuries 1-3 Year 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.

 

#   The Fund first issued Class A Shares on March 3, 2003. The returns shown for Class A Shares prior to March 3, 2003 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class D Shares on March 24, 1998. Class D Shares were redesignated Class R3 Shares on March 1, 2006. The returns shown for Class R3 Shares prior to March 24, 1998 are the returns of the Fund’s Class E Shares, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class R3 Shares. Had it done so, the returns shown would have been lower.

 

‡‡   The Fund first issued Class C Shares on February 11, 1999. The returns shown for Class C Shares are the returns of the Fund’s Class E Shares from November 7, 1997 to March 23, 1998 and the returns of the Fund’s Class D Shares from March 24, 1998 to February 10, 1999, and do not reflect deduction of the Rule 12b-1 distribution fees that apply to Class C Shares. Had it done so, the returns shown would have been lower.

 

‡‡‡   The Fund first issued Class S Shares on February 14, 2000. The returns shown for Class S Shares prior to February 14, 2000 are the returns of the Fund’s Class E Shares.

 

‡‡‡‡   The Fund first issued Class R1 Shares on December 29, 2006. The returns shown for Class R1 Shares prior to December 29, 2006 are the returns of the Fund’s Class E Shares from November 7, 1997 to February 13, 2000 and the returns of the Fund’s Class S Shares from February 14, 2000 to December 28, 2006.

 

‡‡‡‡‡   The Fund first issued Class R2 Shares on March 29, 2006. The returns shown for Class R2 Shares prior to March 29, 2006 are the returns of the Fund’s Class E Shares.

 

§   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

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,032.30    $ 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.

 

Class C

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,028.00    $ 1,020.16

Expenses Paid During Period*

    $ 5.11    $ 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.

 

Class E

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,032.20    $ 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.

Conservative Strategy Fund   37

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R1

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,032.70    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class R2

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,032.30    $ 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.

 

Class R3

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,030.60    $ 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.

 

Class S

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,033.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

Table of Contents

Russell Investment Company

Conservative Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 79.7%

        

Multistrategy Bond Fund

    27,448,757      285,192

Short Duration Bond Fund

    5,065,388      95,179
         
        380,371
         

Domestic Equities - 14.2%

        

Diversified Equity Fund

    517,698      28,919

Quantitative Equity Fund

    549,015      24,063

Real Estate Securities Fund

    274,305      14,522
         
        67,504
         

International Equities - 6.1%

        

Global Equity Fund

    848,514      9,664

International Securities Fund

    212,953      19,413
         
        29,077
         
Total Investments - 100.0%        

(identified cost $437,692)

         476,952
Other Assets and Liabilities,
Net - 0.0%		         89
         
Net Assets - 100.0%         477,041
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Bonds

      79.7  

Domestic Equities

      14.2  

International Equities

      6.1  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      — *
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

Conservative Strategy Fund   39

Table of Contents

Russell Investment Company

2010 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

2010 Strategy Fund - Class A#  
     Total
Return		  

1 Year

    3.92 %

Inception*

    5.90 %§

 

2010 Strategy Fund - Class E  
     Total
Return		  

1 Year

    10.12 %

Inception*

    8.11 %§

 

2010 Strategy Fund - Class R1‡  
     Total
Return		  

1 Year

    10.49 %

Inception*

    8.40 %§

 

2010 Strategy Fund - Class R2‡‡  
     Total
Return		  

1 Year

    10.20 %

Inception*

    8.14 %§

 

2010 Strategy Fund - Class R3‡‡‡  
     Total
Return		  

1 Year

    9.91 %

Inception*

    7.85 %§

 

2010 Strategy Fund - Class S  
     Total
Return		  

1 Year

    10.38 %

Inception*

    8.40 %§

 

Lehman Brothers Aggregate Bond Index**  
     Total
Return		  

1 Year

    5.38 %

Inception*

    4.07 %§

 

Merrill Lynch U.S. Treasuries 1-3 Year Index***  
     Total
Return		  

1 Year

    5.78 %

Inception*

    3.83 %§

40   2010 Strategy Fund

Table of Contents

Russell Investment Company

2010 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The 2010 Strategy Fund (“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.

The Fund pursues this objective by investing in a diversified portfolio that, as of March 1, 2007, consisted of approximately 38% stock funds and 62% fixed income funds, with an increasing allocation to fixed income funds over time. The Fund’s allocation to fixed income funds will be fixed at 68% in approximately the year 2010.

How did the Fund perform relative to its benchmark for the fiscal year ended October 31, 2007?

For the fiscal year ended October 31, 2007, the 2010 Strategy Fund Class A, Class E, Class R1, Class R3 and Class S Shares gained 10.22%, 10.12%, 10.49%, 9.91% and 10.38%, respectively. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 5.78% during the same period.

From November 10, 2006 to October 31, 2007 the 2010 Strategy Fund Class R2 Shares gained 10.10%. Class R2 Shares commenced operation on November 10, 2006. This compared to the Merrill Lynch U.S. Treasuries 1-3 Year Index, which gained 5.76% 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. The Fund’s returns relative to the Merrill Lynch U.S. Treasuries 1-3 Year Index were aided by exposure to equities, especially from non-U.S. developed and emerging market equities.

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 (the “Underlying Funds”) in which it invests. The fixed income Underlying Funds trailed their index benchmarks, yet performed well relative to peers.

 

The decline in interest rates boosted the fixed income performance. Several of the fixed income Underlying Fund’s managers anticipated the decline and increased the duration of their portfolios (duration is a weighted average of the maturity of all income streams). As bond prices move inversely to interest rates, the longer duration stance helped performance of the fixed income Underlying Funds.

The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The fixed income Underlying Funds (62% of the Fund’s assets are allocated to fixed income Underlying Funds) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The U.S. equity Underlying Funds held by the Fund (22% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global and emerging markets Underlying Funds (a combined 13% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other


2010 Strategy Fund   41

Table of Contents

Russell Investment Company

2010 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (3% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

 

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, several changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced. In addition, the Multistrategy Bond Fund replaced the Diversified Bond Fund. Exposure to the Short Duration Bond Fund was reduced by increased exposure to the Multistrategy Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Commenced operations by issuing Class D, E and S Shares on December 31, 2004.

 

**   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 U.S. Treasuries 1-3 Year 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. Effective October 2, 2006, the Fund began using the Merrill Lynch U.S. Treasuries 1-3 Year Index for comparative purposes. This change was made following the re-allocation of Fund assets to include the Short Duration Bond Fund.

 

#   The Fund first issued Class A Shares on September 1, 2005. The returns shown for Class A Shares prior to September 1, 2005 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class R1 Shares on June 7, 2006. The returns shown for Class R1 Shares prior to June 7, 2006 are the returns of the Fund’s Class S Shares.

 

‡‡   The Fund first issued Class R2 Shares on November 10, 2006. The returns shown for Class R2 Shares prior to November 10, 2006 are the returns of the Fund’s Class E Shares.

 

‡‡‡   The Fund first issued Class D Shares on December 31, 2004. Class D Shares were redesignated Class R3 Shares on March 1, 2006.

 

§   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.

42   2010 Strategy Fund

Table of Contents

Russell Investment Company

2010 Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,047.30    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,046.30    $ 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.

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,048.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

Table of Contents

Russell Investment Company

2010 Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,047.30    $ 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.

 

Class R3

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,045.30    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,048.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

44   2010 Strategy Fund

Table of Contents

Russell Investment Company

2010 Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Shares

      Market
Value
$		  
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 61.5%

        

Multistrategy Bond Fund

    1,876,548      19,497  

Short Duration Bond Fund

    34,619      651  
           
        20,148  
           

Domestic Equities - 25.0%

        

Diversified Equity Fund

    56,526      3,158  

Quantitative Equity Fund

    71,838      3,149  

Real Estate Securities Fund

    18,814      996  

Special Growth Fund

    15,723      891  
           
        8,194  
           

International Equities - 13.5%

        

Emerging Markets Fund

    19,877      613  

Global Equity Fund

    84,648      964  

International Securities Fund

    31,219      2,846  
           
        4,423  
           
Total Investments - 100.0%        

(identified cost $31,046)

         32,765  
Other Assets and Liabilities,
Net - 0.0%		         (7 )
           
Net Assets - 100.0%         32,758  
           

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Bonds

      61.5  

Domestic Equities

      25.0  

International Equities

      13.5  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      (— )*
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

2010 Strategy Fund   45

Table of Contents

Russell Investment Company

2020 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

2020 Strategy Fund - Class A#  
     Total
Return		  

1 Year

    7.25 %

Inception*

    8.11 %§

 

2020 Strategy Fund - Class E  
     Total
Return		  

1 Year

    13.79 %

Inception*

    10.39 %§

 

2020 Strategy Fund - Class R1‡  
     Total
Return		  

1 Year

    14.05 %

Inception*

    10.65 %§

 

2020 Strategy Fund - Class R2‡‡  
     Total
Return		  

1 Year

    13.81 %

Inception*

    10.38 %§

 

2020 Strategy Fund - Class R3‡‡‡  
     Total
Return		  

1 Year

    13.50 %

Inception*

    10.08 %§

 

2020 Strategy Fund - Class S  
     Total
Return		  

1 Year

    14.16 %

Inception*

    10.65 %§

 

Lehman Brothers Aggregate Bond Index**  
     Total
Return		  

1 Year

    5.38 %

Inception*

    4.07 %§

46   2020 Strategy Fund

Table of Contents

Russell Investment Company

2020 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The 2020 Strategy Fund (“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.

The Fund pursues this objective by investing in a diversified portfolio that, as of March 1, 2007, consisted of approximately 61% stock funds and 39% fixed income funds, with an increasing allocation to fixed income funds over time. The Fund’s allocation to fixed income funds will be fixed at 68% in approximately the year 2020.

How did the Fund perform relative to its benchmark for the fiscal year ended October 31, 2007?

For the fiscal year ended October 31, 2007, the 2020 Strategy Fund Class A, Class E, Class R1, Class R2, Class R3 and Class S gained 13.83%, 13.79%, 14.05%, 13.81%, 13.50% and 14.16%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% 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. The Fund’s returns relative to Lehman Brothers Aggregate Bond Index were aided by exposure to equities, especially from non-U.S. developed and emerging market equities.

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 (the “Underlying Funds”) in which it invests. The fixed income Underlying Fund trailed its index benchmarks, yet performed well relative to peers. The decline in interest rates boosted the fixed income performance. Several of the fixed income Underlying Fund’s managers anticipated the decline and increased the duration of their portfolios (duration is a weighted average of the maturity of all income streams). As bond prices move inversely to interest rates, the longer duration stance helped performance of the fixed income Underlying Funds.

 

The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The fixed income Underlying Funds (39% of the Fund’s assets are allocated to fixed income Underlying Funds) trailed their index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The U.S. equity Underlying Funds held by the Fund (34% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global and emerging markets Underlying Funds (a combined 22% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller


2020 Strategy Fund   47

Table of Contents

Russell Investment Company

2020 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (5% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, two changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the

allocations to the U.S. equity and international equity Underlying Funds were reduced. In addition, the Multistrategy Bond Fund replaced the Diversified Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Commenced operations by issuing Class D, E and S Shares on December 31, 2004.

 

**   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.

 

#   The Fund first issued Class A Shares on September 1, 2005. The returns shown for Class A Shares prior to September 1, 2005 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class R1 Shares on June 7, 2006. The returns shown for Class R1 Shares prior to June 7, 2006 are the returns of the Fund’s Class S Shares.

 

‡‡   The Fund first issued Class R2 Shares on September 8, 2006. The returns shown for Class R2 Shares prior to September 8, 2006 are the returns of the Fund’s Class E Shares.

 

‡‡‡   The Fund first issued Class D Shares on December 31, 2004. Class D Shares were redesignated Class R3 Shares on March 1, 2006.

 

§   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   2020 Strategy Fund

Table of Contents

Russell Investment Company

2020 Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.00    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.10    $ 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.

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,061.60    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

Table of Contents

Russell Investment Company

2020 Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,060.20    $ 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.

 

Class R3

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,059.10    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,062.50    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

50   2020 Strategy Fund

Table of Contents

Russell Investment Company

2020 Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$		  
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 38.5%

        

Multistrategy Bond Fund

    3,298,905      34,276  
           

Domestic Equities - 39.9%

        

Diversified Equity Fund

    243,737      13,615  

Quantitative Equity Fund

    310,373      13,604  

Real Estate Securities Fund

    86,157      4,561  

Special Growth Fund

    64,503      3,657  
           
        35,437  
           

International Equities - 21.6%

        

Emerging Markets Fund

    90,151      2,782  

Global Equity Fund

    322,261      3,671  

International Securities Fund

    139,832      12,747  
           
        19,200  
           
Total Investments - 100.0%        

(identified cost $82,206)

         88,913  
Other Assets and Liabilities,
Net - 0.0%		         (11 )
           
Net Assets - 100.0%         88,902  
           

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Bonds

      38.5  

Domestic Equities

      39.9  

International Equities

      21.6  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      (— )*
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

2020 Strategy Fund   51

Table of Contents

Russell Investment Company

2030 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

2030 Strategy Fund - Class A#  
     Total
Return		  

1 Year

    11.72 %

Inception*

    10.48 %§

 

2030 Strategy Fund - Class E  
     Total
Return		  

1 Year

    18.42 %

Inception*

    12.79 %§

 

2030 Strategy Fund - Class R1‡  
     Total
Return		  

1 Year

    18.80 %

Inception*

    13.08 %§

 

2030 Strategy Fund - Class R2‡‡  
     Total
Return		  

1 Year

    18.46 %

Inception*

    12.79 %§

 

2030 Strategy Fund - Class R3‡‡‡  
     Total
Return		  

1 Year

    18.08 %

Inception*

    12.53 %§

 

2030 Strategy Fund - Class S  
     Total
Return		  

1 Year

    18.70 %

Inception*

    13.08 %§

 

Russell 1000® Index **  
     Total
Return		  

1 Year

    15.03 %

Inception*

    11.59 %§

52   2030 Strategy Fund

Table of Contents

Russell Investment Company

2030 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The 2030 Strategy Fund (“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.

The Fund pursues this objective by investing in a diversified portfolio that, as of March 1, 2007, consisted of approximately 94% stock funds and 6% fixed income funds with an increasing allocation to fixed income funds over time. The Fund’s allocation to fixed income funds will be fixed at 68% in approximately the year 2030.

How did the Fund perform relative to its benchmark for the fiscal year ended October 31, 2007?

For the fiscal year ended October 31, 2007, the 2030 Strategy Fund Class A, Class E, Class R1, Class R2, Class R3 and Class S Shares gained 18.51%, 18.42%, 18.80%, 18.46%, 18.08% and 18.70%, respectively. This compared to the Russell 1000® Index, which gained 15.03% 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. The Fund’s returns relative to Russell 1000® Index were aided by exposure to non-U.S. developed and emerging markets.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment

trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

The fixed income Underlying Fund slightly trailed its index benchmark, yet performed well relative to peers. The decline in interest rates benefited the fixed income performance as several managers anticipated the decline and increased sensitivity to interest rates (also called increased duration). In general, as interest rates decline bond prices increase, therefore the increase in duration added to performance of the fixed income Underlying Fund.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The U.S. equity Underlying Funds held by the Fund (55% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The fixed income Underlying Fund (6% of the Fund’s assets are allocated to fixed income Underlying Fund) trailed its index slightly due primarily to out-of-favor non-Treasury exposure. Sector allocation and security selection decisions had mixed results on performance as several of the Underlying Fund’s managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

The non-U.S., global and emerging markets Underlying Funds (a combined 32% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary


2030 Strategy Fund   53

Table of Contents

Russell Investment Company

2030 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (7% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007 two changes were made to the Fund. The Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity

Underlying Funds were reduced. In addition, the Multistrategy Bond Fund replaced the Diversified Bond Fund. The ratio of the Fund’s exposure to equities and fixed income remained the same.

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Commenced operations by issuing Class D, E and S Shares on December 31, 2004.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

#   The Fund first issued Class A Shares on September 1, 2005. The returns shown for Class A Shares prior to September 1, 2005 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class R1 Shares on June 7, 2006. The returns shown for Class R1 Shares prior to June 7, 2006 are the returns of the Fund’s Class S Shares.

 

‡‡   The Fund first issued Class R2 Shares on September 8, 2006. The returns shown for Class R2 Shares prior to September 8, 2006 are the returns of the Fund’s Class E Shares.

 

‡‡‡   The Fund first issued Class D Shares on December 31, 2004. Class D Shares were redesignated Class R3 Shares on March 1, 2006.

 

§   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.

54   2030 Strategy Fund

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Russell Investment Company

2030 Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,081.30    $ 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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,080.50    $ 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.

 

Class R1

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,082.70    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

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Russell Investment Company

2030 Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R2

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,080.60    $ 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.

 

Class R3

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,079.30    $ 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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,082.70    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

56   2030 Strategy Fund

Table of Contents

Russell Investment Company

2030 Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Shares      Market
Value
$		  
       

Investments - 100.0%

        

Other Russell Investment Company Series Mutual Funds - Class S Shares

        

Bonds - 5.9%

        

Multistrategy Bond Fund

    360,750      3,748  
           

Domestic Equities - 61.3%

        

Diversified Equity Fund

    271,069      15,142  

Quantitative Equity Fund

    345,498      15,143  

Real Estate Securities Fund

    80,456      4,260  

Special Growth Fund

    74,659      4,233  
           
        38,778  
           

International Equities - 32.8%

     

Emerging Markets Fund

    99,154      3,060  

Global Equity Fund

    371,759      4,234  

International Securities Fund

    147,871      13,480  
           
        20,774  
           
Total Investments - 100.0%     

(identified cost $56,696)

         63,300  
Other Assets and Liabilities,
Net - 0.0%		      (7 )
           
Net Assets - 100.0%         63,293  
           

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Bonds

      5.9  

Domestic Equities

      61.3  

International Equities

      32.8  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      (— )*
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

2030 Strategy Fund   57

Table of Contents

Russell Investment Company

2040 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

2040 Strategy Fund - Class A#  
     Total
Return		  

1 Year

    12.23 %

Inception*

    11.12 %§

 

2040 Strategy Fund - Class E  
     Total
Return		  

1 Year

    19.12 %

Inception*

    13.51 %§

 

2040 Strategy Fund - Class R1‡  
     Total
Return		  

1 Year

    19.31 %

Inception*

    13.77 %§

 

2040 Strategy Fund - Class R2‡‡  
     Total
Return		  

1 Year

    19.11 %

Inception*

    13.49 %§

 

2040 Strategy Fund - Class R3‡‡‡  
     Total
Return		  

1 Year

    18.75 %

Inception*

    13.19 %§

 

2040 Strategy Fund - Class S  
     Total
Return		  

1 Year

    19.30 %

Inception*

    13.77 %§

 

Russell 1000® Index**  
     Total
Return		  

1 Year

    15.03 %

Inception *

    11.59 %§

 

58   2040 Strategy Fund

Table of Contents

Russell Investment Company

2040 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fund is a fund of funds that invests in other Russell Investment Company mutual funds (the “Underlying Funds”). The Underlying Funds allocate most of their assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Underlying Funds’ advisor, may change the allocation of the Underlying Funds’ assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager in an Underlying Fund at any time, subject to the approval by the Underlying Fund’s Board without a shareholder vote.

What is the Fund’s investment objective?

The 2040 Strategy Fund (“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.

The Fund pursues this objective by investing in a diversified portfolio that, as of March 1, 2007, consisted of approximately 100% stock funds, with an increasing allocation to fixed income funds over time. The Fund’s allocation to fixed income funds will be fixed at 68% in approximately the year 2040.

How did the Fund perform relative to its benchmark for the fiscal year ended October 31, 2007?

For the fiscal year ended October 31, 2007, the 2040 Strategy Fund Class A, Class E, Class R1, Class R2, Class R3 and Class S Shares gained 19.04%, 19.12%, 19.31%, 19.11%, 18.75% and 19.30%, respectively. This compared to the Russell 1000® Index, which gained 15.03% 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. The Fund’s returns relative to Russell 1000® Index were aided by exposure to non-U.S. developed and emerging markets.

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 (the “Underlying Funds”) in which it invests. The strong performance of the equity Underlying Funds supported the Fund’s return for the fiscal year. Emerging markets stocks contributed most to performance; non-U.S. stocks also added value with help from large currency gains. In terms of style, growth stocks led value stocks for both U.S. and non-U.S. developed market returns in a reversal from the prior fiscal year. As a result, the Underlying Funds’ overweight to equities with above average earnings, growth rates and lower valuations in both U.S. and non-U.S. developed markets added to the Underlying Funds’ performance. The impact of REITs (real estate investment trusts) on Fund performance was flat in contrast with strong outperformance during the prior fiscal period.

How did the investment strategies and techniques employed by the Fund and its money managers of the Underlying Funds affect the Fund’s performance?

The U.S. equity Underlying Funds held by the Fund (58% of the Fund’s assets) maintained an overall preference for companies with above-average growth rates and attractive valuations. That positioning was rewarded in an environment where growth outpaced value. This segment benefited from growing global demand through its exposure to infrastructure and agricultural stocks. At the sector level, the U.S. equity segment was overweight energy, which was beneficial. Strong stock selection in the consumer discretionary and technology sectors also contributed to returns. Exposure to some financials stocks detracted from returns due to their exposure to subprime mortgage securities. In addition, quantitatively managed strategies in the U.S equity segment faced a difficult environment due to their valuation bias.

The non-U.S., global and emerging markets Underlying Funds (a combined 35% of the Fund’s assets) provided strong absolute returns. The emerging markets Underlying Fund led all other asset class funds due to a combination of strong demand for energy and materials and huge cash inflows into emerging markets. The non-U.S. developed market Underlying Fund added value through its positioning in growth stocks, an underweight in Japan and exposure to non-benchmark emerging markets stocks. The global equity Underlying Fund, added to the Fund in March 2007, benefited from emerging markets exposure and strong stock selection, particularly in smaller capitalization companies. However, sector allocations dampened these gains, as did weak stock selection in Europe. A greater-than-benchmark exposure to consumer discretionary stocks, U.S. homebuilders in particular, detracted from returns. In Europe, underweights in German autos and overweights in Irish financials detracted from performance.

The real estate Underlying Fund (7% of the Fund’s assets) focused primarily on the larger and more liquid REITs during the fiscal year. With the exceptional volatility experienced during the period, this positioning generally benefited the Fund when the REIT market was rising, but detracted when REITs were declining. Non-dedicated REIT investors typically trade the more liquid securities when they rotate into or out of the sector.

Describe any changes to the Fund’s structure or allocation to the Underlying Funds.

On March 1, 2007, the Global Equity Fund was added as an Underlying Fund and the allocations to the U.S. equity and international equity Underlying Funds were reduced.


 

2040 Strategy Fund   59

Table of Contents

Russell Investment Company

2040 Strategy Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


*   Commenced operations by issuing Class D, E and S Shares on December 31, 2004.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

#   The Fund first issued Class A Shares on September 1, 2005. The returns shown for Class A Shares prior to September 1, 2005 are the returns of the Fund’s Class E Shares. The performance shown has been adjusted to reflect deduction of the maximum Class A sales charge of 5.75%.

 

‡   The Fund first issued Class R1 Shares on June 7, 2006. The returns shown for Class R1 Shares prior to June 7, 2006 are the returns of the Fund’s Class S Shares.

 

‡‡   The Fund first issued Class R2 Shares on March 17, 2006. The returns shown for Class R2 Shares prior to March 17, 2006 are the returns of the Fund’s Class E Shares.

 

‡‡‡   The Fund first issued Class D Shares on December 31, 2004. Class D Shares were redesignated Class R3 Shares on March 1, 2006.

 

§   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.

60   2040 Strategy Fund

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Russell Investment Company

2040 Strategy Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,082.10    $ 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.

 

Class E

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,081.90    $ 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.

 

Class R1

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,083.40    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. 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

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Russell Investment Company

2040 Strategy Fund

Shareholder Expense Example, continued — October 31, 2007 (Unaudited)

 

 

Class R2

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,082.10    $ 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.

 

Class R3

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,080.50    $ 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.

 

Class S

    Actual
Performance		    Hypothetical
Performance
(5% return
before expenses)
     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,083.40    $ 1,025.21

Expenses Paid During Period*

    $ 0.00    $ 0.00

 

* There were no expenses charged to the Class. Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

62   2040 Strategy Fund

Table of Contents

Russell Investment Company

2040 Strategy Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

    

Shares

      Market
Value
$
       

Investments - 100.0%

        

Other Russell Investment Company
Series Mutual Funds - Class S Shares

        

Domestic Equities - 64.7%

        

Diversified Equity Fund

    217,168      12,131

Quantitative Equity Fund

    276,513      12,120

Real Estate Securities Fund

    63,323      3,352

Special Growth Fund

    58,762      3,332
         
        30,935
         

International Equities - 35.3%

        

Emerging Markets Fund

    80,046      2,470

Global Equity Fund

    293,100      3,338

International Securities Fund

    121,499      11,076
         
        16,884
         
Total Investments - 100.0%        

(identified cost $42,436)

         47,819
Other Assets and Liabilities,
Net - 0.0%		      3
         
Net Assets - 100.0%         47,822
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories      % of Net
Assets		  
    

Domestic Equities

      64.7  

International Equities

      35.3  
        

Total Investments

      100.0  

Other Assets and Liabilities, Net

      — *
        
     100.0  
        

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

2040 Strategy Fund   63

Table of Contents

Russell Investment Company

LifePoints® Funds

Statements of Assets and Liabilities — October 31, 2007

Amounts in thousands   Equity Growth
Strategy Fund		     Growth Strategy
Fund		     Balanced Strategy
Fund
     

Assets

      

Investments, at identified cost

   $ 1,700,346     $ 3,467,631     $ 4,902,929

Investments, at market

     2,273,034       4,387,554       5,982,276

Receivables:

      

Dividends

     1       —       —

Investments sold

     1,832       2,831       7,810

Fund shares sold

     4,816       9,844       12,622

From Adviser

     290       527       720

Prepaid expenses

     1       1       2
                     

Total assets

     2,279,974       4,400,757       6,003,430
                     
Liabilities      

Payables:

      

Due to Custodian

     —       —       2

Investments purchased

     —       —       —

Fund shares redeemed

     5,960       8,989       14,347

Accrued fees to affiliates

     1,021       1,933       2,724

Other accrued expenses

     76       110       145

Income distribution

     —       —       —
                     

Total liabilities

     7,057       11,032       17,218
                     
     

Net Assets

   $ 2,272,917     $ 4,389,725     $ 5,986,212
                     

Net Assets Consist of:

      

Undistributed (overdistributed) net investment income

   $ (1 )   $ (1 )   $ —

Accumulated net realized gain (loss)

     27,031       118,840       118,341

Unrealized appreciation (depreciation) on investments

     572,688       919,923       1,079,347

Shares of beneficial interest

     1,630       3,189       4,571

Additional paid-in capital

     1,671,569       3,347,774       4,783,953
                     

Net Assets

   $ 2,272,917     $ 4,389,725     $ 5,986,212
                     

 

See accompanying notes which are an integral part of the financial statements.

64   Statements of Assets and Liabilities

Table of Contents
Moderate Strategy
Fund		     Conservative
Strategy Fund		     2010 Strategy
Fund		     2020 Strategy
Fund		     2030 Strategy
Fund		    2040 Strategy
Fund		  
          
          
$ 1,070,770     $ 437,692     $ 31,046     $ 82,206     $ 56,696    $ 42,436  
  1,239,193       476,952       32,765       88,913       63,300      47,819  
          
  —       —       —       —       —      —  
  1,370       684       —       6       —      —  
  3,472       871       158       98       189      123  
  169       87       38       39       36      33  
  —       —       —       —       —      —  
                                            
  1,244,204       478,594       32,961       89,056       63,525      47,975  
                                            
          
          
  10       —       —       —       —      —  
  —       —       124       —       131      100  
  2,436       1,309       32       96       51      7  
  526       204       10       25       18      16  
  51       40       37       33       32      30  
  4       —       —       —       —      —  
                                            
  3,027       1,553       203       154       232      153  
                                            
          
$ 1,241,177     $ 477,041     $ 32,758     $ 88,902     $ 63,293    $ 47,822  
                                            
          
$ (1 )   $ (1 )   $ (1 )   $ (1 )   $ 1    $ (1 )
  19,001       2,840       180       755       730      691  
  168,423       39,260       1,719       6,707       6,604      5,383  
  1,026       431       29       72       48      36  
  1,052,728       434,511       30,831       81,369       55,910      41,713  
                                            
$ 1,241,177     $ 477,041     $ 32,758     $ 88,902     $ 63,293    $ 47,822  
                                            

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   65

Table of Contents

Russell Investment Company

LifePoints® Funds

Statements of Assets and Liabilities, continued — October 31, 2007

     Equity Growth
Strategy Fund		    Growth Strategy
Fund		    Balanced Strategy
Fund
       

Net Asset Value, offering and redemption price per share:

        

Net asset value per share: Class A*

   $ 14.27    $ 13.76    $ 13.10

Maximum offering price per share (Net asset value plus sales
charge of 5.75%): Class A

   $ 15.14    $ 14.60    $ 13.89

Class A — Net assets

   $ 391,792,101    $ 1,055,684,168    $ 1,352,283,756

Class A — Shares outstanding ($.01 par value)

     27,465,061      76,696,825      103,259,681
       

Net asset value per share: Class C*

   $ 13.54    $ 13.67    $ 13.03

Class C — Net assets

   $ 654,857,949    $ 1,176,447,933    $ 1,770,369,009

Class C — Shares outstanding ($.01 par value)

     48,360,142      86,047,879      135,914,273
       

Net asset value per share: Class E*

   $ 14.02    $ 13.78    $ 13.12

Class E — Net assets

   $ 317,412,377    $ 632,163,083    $ 760,312,013

Class E — Shares outstanding ($.01 par value)

     22,635,592      45,863,648      57,942,139
       

Net asset value per share: Class R1*

   $ 14.23    $ 13.85    $ 13.18

Class R1 — Net assets

   $ 10,543,407    $ 15,575,733    $ 27,052,471

Class R1 — Shares outstanding ($.01 par value)

     741,071      1,124,209      2,052,184
       

Net asset value per share: Class R2*

   $ 14.03    $ 13.79    $ 13.12

Class R2 — Net assets

   $ 25,129,697    $ 16,799,605    $ 22,546,397

Class R2 — Shares outstanding ($.01 par value)

     1,790,857      1,218,059      1,718,934
       

Net asset value per share: Class R3*

   $ 13.98    $ 13.81    $ 13.12

Class R3 — Net assets

   $ 553,383,082    $ 992,589,095    $ 1,307,641,219

Class R3 — Shares outstanding ($.01 par value)

     39,569,926      71,874,171      99,635,186
       

Net asset value per share: Class S*

   $ 14.23    $ 13.85    $ 13.18

Class S — Net assets

   $ 319,798,330    $ 500,465,052    $ 746,006,654

Class S — Shares outstanding ($.01 par value)

     22,476,387      36,122,451      56,592,093
       

*  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   Statements of Assets and Liabilities

Table of Contents
Moderate Strategy
Fund		    Conservative
Strategy Fund		    2010 Strategy
Fund		    2020 Strategy
Fund		    2030 Strategy
Fund		    2040 Strategy
Fund
              
              
$ 12.09    $ 11.03    $ 11.45    $ 12.42    $ 13.23    $ 13.44

$

12.83

    $ 11.70    $ 12.15    $ 13.18    $ 14.03    $ 14.26
$ 211,856,442    $ 52,516,415    $ 1,957,500    $ 2,015,876    $ 3,738,940    $ 2,363,004
  17,519,174      4,761,388      170,996      162,334      282,701      175,770
              
$ 12.04    $ 10.99    $ —    $ —    $ —    $ —
$ 262,501,125    $ 84,746,324    $ —    $ —    $ —    $ —
  21,800,899      7,711,593      —      —      —      —
              
$ 12.10    $ 11.06    $ 11.46    $ 12.42    $ 13.23    $ 13.46
$ 208,295,851    $ 83,893,538    $ 4,797,165    $ 9,498,623    $ 10,490,258    $ 6,353,122
  17,212,827      7,587,564      418,526      764,868      792,650      472,165
              
$ 12.14    $ 11.08    $ 11.47    $ 12.42    $ 13.24    $ 13.46
$ 2,104,043    $ 1,913,855    $ 5,137,765    $ 19,193,648    $ 8,582,067    $ 2,935,127
  173,322      172,669      448,066      1,544,957      648,357      218,007
              
$ 12.09    $ 11.05    $ 11.46    $ 12.41    $ 13.22    $ 13.46
$ 4,067,559    $ 3,156,202    $ 690,761    $ 4,135,041    $ 3,358,948    $ 2,060,393
  336,316      285,609      60,275      333,074      254,043      153,130
              
$ 12.13    $ 11.09    $ 11.45    $ 12.39    $ 13.22    $ 13.43
$ 394,039,098    $ 194,815,705    $ 17,600,059    $ 44,037,791    $ 29,199,673    $ 29,700,291
  32,471,468      17,567,539      1,537,516      3,553,955      2,208,302      2,211,107
              
$ 12.13    $ 11.09    $ 11.47    $ 12.42    $ 13.24    $ 13.46
$ 158,313,216    $ 55,998,642    $ 2,574,596    $ 10,021,414    $ 7,922,914    $ 4,410,144
  13,046,721      5,049,547      224,399      806,873      598,633      327,563
                                      

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   67

Table of Contents

Russell Investment Company

LifePoints® Funds

Statements of Operations — For the Fiscal Year Ended October 31, 2007

Amounts in thousands   Equity Growth
Strategy Fund		     Growth Strategy
Fund		     Balanced Strategy
Fund		  
     

Investment Income

      

Income distributions from Underlying Funds

   $ 48,976     $ 115,332     $ 189,691  
                       

Expenses

      

Advisory fees

     3,874       7,737       10,861  

Administrative fees

     968       1,934       2,715  

Custodian fees

     48       52       57  

Distribution fees - Class A

     758       2,188       2,952  

Distribution fees - Class C

     4,133       7,651       11,653  

Distribution fees - Class R3

     1,236       2,271       3,072  

Transfer agent fees

     2,911       5,811       8,156  

Professional fees

     60       84       103  

Registration fees

     222       335       416  

Shareholder servicing fees - Class C

     1,378       2,551       3,884  

Shareholder servicing fees - Class E

     716       1,446       1,744  

Shareholder servicing fees - Class R2

     55       35       48  

Shareholder servicing fees - Class R3

     1,236       2,271       3,072  

Trustees’ fees

     33       66       92  

Printing fees

     123       243       314  

Miscellaneous

     94       170       233  
                       

Expenses before reductions

     17,845       34,845       49,372  

Expense reductions

     (8,333 )     (16,432 )     (22,947 )
                       

Net expenses

     9,512       18,413       26,425  
                       

Net investment income (loss)

     39,464       96,919       163,266  
                       

Net Realized and Unrealized Gain (Loss)

      

Net realized gain (loss) on:

      

Investments

     878       10,548       27,188  

Capital gain distributions from Underlying Funds

     83,128       138,489       153,472  
                       

Net realized gain (loss)

     84,006       149,037       180,660  

Net change in unrealized appreciation (depreciation) on investments

     217,057       331,481       330,425  
                       

Net realized and unrealized gain (loss)

     301,063       480,518       511,085  
                       

Net Increase (Decrease) in Net Assets from Operations

   $ 340,527     $ 577,437     $ 674,351  
                       

 

See accompanying notes which are an integral part of the financial statements.

68   Statements of Operations

Table of Contents
Moderate Strategy
Fund		     Conservative
Strategy Fund		     2010 Strategy
Fund		    

2020 Strategy

Fund

     2030 Strategy
Fund		      2040 Strategy
Fund		  
          
          
$ 45,119     $ 18,876     $ 698     $ 1,571     $ 808      $ 513  
                                              
          
  2,343       925       40       114       80        57  
  586       231       10       28       20        14  
  47       46       48       49       49        48  
  467       126       5       4       8        5  
  2,001       634       —       —       —        —  
  949       478       22       66       45        40  
  1,172       463       11       29       20        20  
  51       43       39       39       38        35  
  145       93       66       72       72        70  
  667       211       —       —       —        —  
  495       207       9       16       21        13  
  8       6       1       6       5        4  
  949       478       23       65       45        39  
  20       8       —       1       1        1  
  60       23       2       4       3        2  
  56       24       7       8       8        7  
                                              
  10,016       3,996       283       501       415        355  
  (4,480 )     (1,856 )     (223 )     (344 )     (291 )      (254 )
                                              
  5,536       2,140       60       157       124        101  
                                              
  39,583       16,736       638       1,414       684        412  
                                              
          
          
  8,111       1,452       (26 )     (88 )     (349 )      (59 )
  22,127       3,958       224       915       1,098        783  
                                              
  30,238       5,410       198       827       749        724  
  43,281       7,488       1,317       5,552       5,317        4,259  
                                              
  73,519       12,898       1,515       6,379       6,066        4,983  
                                              
$ 113,102     $ 29,634     $ 2,153     $ 7,793     $ 6,750      $ 5,395  
                                              

 

See accompanying notes which are an integral part of the financial statements.

Statements of Operations   69

Table of Contents

Russell Investment Company

LifePoints® Funds

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

    Equity Growth Strategy
Fund		  
Amounts in thousands   2007     2006  
   

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 39,464     $ 8,323  

Net realized gain (loss)

     84,006       42,188  

Net change in unrealized appreciation (depreciation)

     217,057       171,928  
               

Net increase (decrease) in net assets from operations

     340,527       222,439  
               

Distributions

    

From net investment income

    

Class A

     (5,815 )     (1,113 )

Class C

     (10,667 )     (1,649 )

Class E

     (6,724 )     (1,894 )

Class R1

     (39 )     (2 )

Class R2

     (477 )     (58 )

Class R3

     (10,707 )     (2,476 )

Class S

     (6,376 )     (1,825 )

From net realized gain

    

Class A

     (5,675 )     (773 )

Class C

     (12,082 )     (2,330 )

Class E

     (6,640 )     (1,512 )

Class R1

     (33 )     —  

Class R2

     (490 )     —  

Class R3

     (11,067 )     (2,450 )

Class S

     (5,974 )     (1,036 )
               

Net decrease in net assets from distributions

     (82,766 )     (17,118 )
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     441,978       354,934  
               

Total Net Increase (Decrease) in Net Assets

     699,739       560,255  

Net Assets

    

Beginning of period

     1,573,178       1,012,923  
               

End of period

   $ 2,272,917     $ 1,573,178  
               

Undistributed (overdistributed) net investment income included in net assets

   $ (1 )   $ —  

 

See accompanying notes which are an integral part of the financial statements.

70   Statements of Changes in Net Assets

Table of Contents
Growth Strategy
Fund		     Balanced Strategy
Fund		     Moderate Strategy
Fund		     Conservative Strategy
Fund		  
2007     2006     2007     2006     2007     2006     2007     2006  
             
             
             
$ 96,919     $ 36,594     $ 163,266     $ 80,801     $ 39,583     $ 23,836     $ 16,736     $ 12,967  
  149,037       79,360       180,660       99,514       30,238       17,468       5,410       10,779  
  331,481       301,064       330,425       346,794       43,281       54,674       7,488       6,676  
                                                             
  577,437       417,018       674,351       527,109       113,102       95,978       29,634       30,422  
                                                             
             
             
  (23,234 )     (8,063 )     (38,232 )     (17,803 )     (6,742 )     (3,921 )     (1,943 )     (1,367 )
  (20,010 )     (6,285 )     (38,308 )     (17,561 )     (7,593 )     (4,188 )     (2,638 )     (2,049 )
  (16,268 )     (7,199 )     (22,792 )     (12,392 )     (7,166 )     (4,539 )     (3,215 )     (3,057 )
  (232 )     (11 )     (528 )     (36 )     (30 )     —       (40 )     —  
  (357 )     (94 )     (621 )     (184 )     (103 )     (36 )     (93 )     (47 )
  (22,933 )     (9,686 )     (37,004 )     (19,967 )     (12,703 )     (8,115 )     (6,806 )     (5,092 )
  (14,260 )     (6,661 )     (26,332 )     (14,926 )     (5,352 )     (3,498 )     (2,038 )     (1,544 )
             
  (16,479 )     (2,041 )     (20,715 )     (3,917 )     (2,586 )     (841 )     (1,062 )     (249 )
  (20,338 )     (3,154 )     (27,473 )     (6,200 )     (3,931 )     (1,227 )     (1,774 )     (548 )
  (12,077 )     (2,130 )     (12,667 )     (3,141 )     (2,864 )     (1,074 )     (1,797 )     (1,124 )
  (122 )     —       (213 )     —       —       —       —       —  
  (263 )     —       (343 )     —       (31 )     —       (36 )     —  
  (18,821 )     (3,285 )     (22,633 )     (5,589 )     (5,554 )     (2,049 )     (4,072 )     (1,006 )
  (9,702 )     (1,639 )     (13,918 )     (3,226 )     (2,000 )     (751 )     (996 )     (278 )
                                                             
  (175,096 )     (50,248 )     (261,779 )     (104,942 )     (56,655 )     (30,239 )     (26,510 )     (16,361 )
                                                             
             
  690,202       672,683       792,887       883,432       91,815       135,316       31,022       (90,628 )
                                                             
  1,092,543       1,039,453       1,205,459       1,305,599       148,262       201,055       34,146       (76,567 )
             
  3,297,182       2,257,729       4,780,753       3,475,154       1,092,915       891,860       442,895       519,462  
                                                             
$ 4,389,725     $ 3,297,182     $ 5,986,212     $ 4,780,753     $ 1,241,177     $ 1,092,915     $ 477,041     $ 442,895  
                                                             
$ (1 )   $ —     $ —     $ —     $ (1 )   $ —     $ (1 )   $ —  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   71

Table of Contents

Russell Investment Company

LifePoints® Funds

Statements of Changes in Net Assets, continued — For the Fiscal Years Ended October 31,

     2010 Strategy
Fund		  
Amounts in thousands    2007      2006  
     

Increase (Decrease) in Net Assets

 

   

Operations

      

Net investment income (loss)

    $ 638      $ 158  

Net realized gain (loss)

      198        128  

Net change in unrealized appreciation (depreciation)

      1,317        395  
                 

Net increase (decrease) in net assets from operations

      2,153        681  
                 

Distributions

      

From net investment income

      

Class A

      (66 )      (35 )

Class E

      (109 )      (32 )

Class R1

      (64 )      (2 )

Class R2

      (9 )      —  

Class R3

      (267 )      (55 )

Class S

      (129 )      (35 )

From net realized gain

      

Class A

      (21 )      —  

Class E

      (20 )      —  

Class R1

      (13 )      —  

Class R2

      —        —  

Class R3

      (48 )      —  

Class S

      (37 )      —  
                 

Net decrease in net assets from distributions

      (783 )      (159 )
                 

Share Transactions

      

Net increase (decrease) in net assets from share transactions

      22,642        3,423  
                 

Total Net Increase (Decrease) in Net Assets

      24,012        3,945  

Net Assets

      

Beginning of period

      8,746        4,801  
                 

End of period

    $ 32,758      $ 8,746  
                 

Undistributed (overdistributed) net investment income included in net assets

    $ (1 )    $ —  

 

See accompanying notes which are an integral part of the financial statements.

72   Statements of Changes in Net Assets

Table of Contents
2020 Strategy
Fund		     2030 Strategy
Fund		     2040 Strategy
Fund		  
2007     2006     2007     2006     2007      2006  
          
          
          
$ 1,414     $ 216     $ 684     $ 167     $ 412      $ 133  
  827       54       749       126       724        153  
  5,552       1,112       5,317       1,241       4,259        1,064  
                                              
  7,793       1,382       6,750       1,534       5,395        1,350  
                                              
          
          
  (38 )     (31 )     (81 )     (40 )     (50 )      (26 )
  (138 )     (30 )     (155 )     (32 )     (103 )      (27 )
  (336 )     (7 )     (30 )     (3 )     (12 )      (1 )
  (53 )     (3 )     (25 )     (2 )     (33 )      (10 )
  (566 )     (91 )     (254 )     (63 )     (157 )      (44 )
  (289 )     (59 )     (143 )     (32 )     (66 )      (30 )
          
  (4 )     —       (17 )     —       (21 )      —  
  (8 )     (1 )     (30 )     —       (42 )      —  
  (33 )     —       (4 )     —       (3 )      —  
  (2 )     —       (4 )     —       (14 )      —  
  (42 )     —       (56 )     —       (70 )      —  
  (27 )     —       (25 )     —       (23 )      —  
                                              
  (1,536 )     (222 )     (824 )     (172 )     (594 )      (138 )
                                              
          
  61,711       15,187       38,155       13,348       29,518        7,532  
                                              
  67,968       16,347       44,081       14,710       34,319        8,744  
          
  20,934       4,587       19,212       4,502       13,503        4,759  
                                              
$ 88,902     $ 20,934     $ 63,293     $ 19,212     $ 47,822      $ 13,503  
                                              
$ (1 )   $ —     $ 1     $ 1     $ (1 )    $ (1 )

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   73

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		      $
Net Realized
and Unrealized
Gain (Loss)		    $
Total Income
(Loss) from
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Equity Growth Strategy Fund               

Class A

                  

October 31, 2007

    12.55    .28      2.08    2.36    (.32 )    (.32 )

October 31, 2006

    10.63    .10      2.00    2.10    (.10 )    (.08 )

October 31, 2005

    9.42    .10      1.22    1.32    (.11 )    —  

October 31, 2004

    8.50    .06      .95    1.01    (.09 )    —  

October 31, 2003 (2)

    6.38    .02      2.13    2.15    (.03 )    —  

Class C

                  

October 31, 2007

    12.00    .17      1.97    2.14    (.28 )    (.32 )

October 31, 2006

    10.20    .01      1.93    1.94    (.06 )    (.08 )

October 31, 2005

    9.07    .03      1.17    1.20    (.07 )    —  

October 31, 2004

    8.23    .01      .89    .90    (.06 )    —  

October 31, 2003

    6.60    (.01 )    1.65    1.64    (.01 )    —  

Class E

                  

October 31, 2007

    12.35    .32      1.99    2.31    (.32 )    (.32 )

October 31, 2006

    10.46    .11      1.96    2.07    (.10 )    (.08 )

October 31, 2005

    9.27    .11      1.19    1.30    (.11 )    —  

October 31, 2004

    8.37    .08      .91    .99    (.09 )    —  

October 31, 2003

    6.69    .04      1.68    1.72    (.04 )    —  

Class R1

                  

October 31, 2007

    12.51    .15      2.22    2.37    (.33 )    (.32 )

October 31, 2006 (11)

    11.57    .04      .95    .99    (.05 )    —  

Class R2

                  

October 31, 2007

    12.35    .31      1.99    2.30    (.30 )    (.32 )

October 31, 2006 (8)

    11.60    .03      .76    .79    (.04 )    —  

Class R3 (9)

                  

October 31, 2007

    12.33    .27      2.00    2.27    (.30 )    (.32 )

October 31, 2006

    10.46    .08      1.95    2.03    (.08 )    (.08 )

October 31, 2005

    9.27    .09      1.19    1.28    (.09 )    —  

October 31, 2004

    8.38    .06      .91    .97    (.08 )    —  

October 31, 2003

    6.70    .02      1.69    1.71    (.03 )    —  

Class S

                  

October 31, 2007

    12.51    .35      2.02    2.37    (.33 )    (.32 )

October 31, 2006

    10.59    .14      1.99    2.13    (.13 )    (.08 )

October 31, 2005

    9.37    .15      1.20    1.35    (.13 )    —  

October 31, 2004

    8.45    .11      .91    1.02    (.10 )    —  

October 31, 2003

    6.75    .07      1.69    1.76    (.06 )    —  

 

See accompanying notes which are an integral part of the financial statements.

74   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g)		     %
Portfolio
Turnover Rate(c)
             
             
(.64 )   14.27   19.54   391,792   .25   .68   2.12     17.68
(.18 )   12.55   19.99   211,813   .25   .68   .85     3.27
(.11 )   10.63   14.09   94,182   .25   .66   .95     3.44
(.09 )   9.42   11.92   43,148   .25   .65   .69     12.46
(.03 )   8.50   33.75   7,399   .25   1.19   .30     17.81
             
(.60 )   13.54   18.51   654,858   1.00   1.43   1.39     17.68
(.14 )   12.00   19.16   438,483   1.00   1.43   .07     3.27
(.07 )   10.20   13.29   284,152   1.00   1.41   .31     3.44
(.06 )   9.07   10.94   192,211   1.00   1.40   .13     12.46
(.01 )   8.23   24.91   99,808   1.00   1.43   (.19 )   17.81
             
(.64 )   14.02   19.44   317,412   .25   .68   2.45     17.68
(.18 )   12.35   20.02   241,818   .25   .68   .99     3.27
(.11 )   10.46   14.08   192,258   .25   .66   1.13     3.44
(.09 )   9.27   11.83   152,589   .25   .65   .89     12.46
(.04 )   8.37   25.89   155,984   .25   .68   .59     17.81
             
(.65 )   14.23   19.74   10,544   —   .43   1.18     17.68
(.05 )   12.51   8.32   1,391   —   .44   .28     3.27
             
(.62 )   14.03   19.40   25,130   .25   .68   2.42     17.68
(.04 )   12.35   6.82   19,094   .25   .69   .26     3.27
             
(.62 )   13.98   19.16   553,383   .50   .93   2.12     17.68
(.16 )   12.33   19.61   432,147   .50   .93   .68     3.27
(.09 )   10.46   13.88   308,388   .50   .91   .85     3.44
(.08 )   9.27   11.59   225,187   .50   .90   .64     12.46
(.03 )   8.38   25.60   128,624   .50   .93   .24     17.81
             
(.65 )   14.23   19.74   319,798   —   .43   2.63     17.68
(.21 )   12.51   20.34   228,432   —   .43   1.17     3.27
(.13 )   10.59   14.47   133,943   —   .41   1.42     3.44
(.10 )   9.37   12.09   111,266   —   .40   1.21     12.46
(.06 )   8.45   26.26   89,455   —   .43   .90     17.81

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   75

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

 

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		    $
Total Income
(Loss) from
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Growth Strategy Fund                  

Class A

                  

October 31, 2007

    12.47    .34    1.61    1.95    (.37 )    (.29 )

October 31, 2006

    10.90    .17    1.65    1.82    (.19 )    (.06 )

October 31, 2005

    9.95    .15    .98    1.13    (.18 )    —  

October 31, 2004

    9.12    .11    .87    .98    (.15 )    —  

October 31, 2003 (4)

    7.20    .04    1.94    1.98    (.06 )    —  

Class C

                  

October 31, 2007

    12.39    .25    1.59    1.84    (.27 )    (.29 )

October 31, 2006

    10.84    .09    1.62    1.71    (.10 )    (.06 )

October 31, 2005

    9.89    .09    .96    1.05    (.10 )    —  

October 31, 2004

    9.09    .06    .84    .90    (.10 )    —  

October 31, 2003

    7.49    .02    1.61    1.63    (.03 )    —  

Class E

                  

October 31, 2007

    12.49    .36    1.59    1.95    (.37 )    (.29 )

October 31, 2006

    10.91    .19    1.64    1.83    (.19 )    (.06 )

October 31, 2005

    9.96    .17    .96    1.13    (.18 )    —  

October 31, 2004

    9.13    .15    .82    .97    (.14 )    —  

October 31, 2003

    7.51    .08    1.63    1.71    (.09 )    —  

Class R1

                  

October 31, 2007

    12.55    .21    1.79    2.00    (.41 )    (.29 )

October 31, 2006 (11)

    11.76    .08    .84    .92    (.13 )    —  

Class R2

                  

October 31, 2007

    12.48    .34    1.62    1.96    (.36 )    (.29 )

October 31, 2006 (8)

    11.86    .09    .64    .73    (.11 )    —  

Class R3(9)

                  

October 31, 2007

    12.51    .33    1.60    1.93    (.34 )    (.29 )

October 31, 2006

    10.93    .15    1.65    1.80    (.16 )    (.06 )

October 31, 2005

    9.97    .14    .97    1.11    (.15 )    —  

October 31, 2004

    9.15    .11    .84    .95    (.13 )    —  

October 31, 2003

    7.54    .05    1.63    1.68    (.07 )    —  

Class S

                  

October 31, 2007

    12.55    .40    1.60    2.00    (.41 )    (.29 )

October 31, 2006

    10.97    .22    1.64    1.86    (.22 )    (.06 )

October 31, 2005

    10.00    .20    .98    1.18    (.21 )    —  

October 31, 2004

    9.16    .16    .84    1.00    (.16 )    —  

October 31, 2003

    7.54    .10    1.63    1.73    (.11 )    —  

 

See accompanying notes which are an integral part of the financial statements.

76   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g) 		  %
Portfolio
Turnover Rate(c)
             
             
(.66 )   13.76   16.26   1,055,684   .25   .68   2.62   16.18
(.25 )   12.47   16.87   680,892   .25   .67   1.49   2.14
(.18 )   10.90   11.44   365,024   .25   .64   1.43   .72
(.15 )   9.95   10.76   154,884   .25   .63   1.11   2.22
(.06 )   9.12   27.35   27,700   .25   .74   .51   15.15
             
(.56 )   13.67   15.39   1,176,448   1.00   1.43   1.93   16.18
(.16 )   12.39   15.95   856,552   1.00   1.42   .77   2.14
(.10 )   10.84   10.70   572,129   1.00   1.39   .82   .72
(.10 )   9.89   9.90   381,245   1.00   1.38   .67   2.22
(.03 )   9.09   21.89   219,946   1.00   1.41   .24   15.15
             
(.66 )   13.78   16.23   632,163   .25   .68   2.81   16.18
(.25 )   12.49   16.93   503,741   .25   .67   1.58   2.14
(.18 )   10.91   11.40   394,842   .25   .64   1.63   .72
(.14 )   9.96   10.72   307,304   .25   .63   1.54   2.22
(.09 )   9.13   22.90   233,112   .25   .66   1.02   15.15
             
(.70 )   13.85   16.53   15,576   —   .43   1.62   16.18
(.13 )   12.55   7.41   1,857   —   .43   .62   2.14
             
(.65 )   13.79   16.30   16,800   .25   .68   2.61   16.18
(.11 )   12.48   6.23   10,647   .25   .68   .71   2.14
             
(.63 )   13.81   15.97   992,589   .50   .93   2.55   16.18
(.22 )   12.51   16.62   822,822   .50   .92   1.32   2.14
(.15 )   10.93   11.22   616,939   .50   .89   1.35   .72
(.13 )   9.97   10.41   452,502   .50   .88   1.14   2.22
(.07 )   9.15   22.44   232,636   .50   .91   .66   15.15
             
(.70 )   13.85   16.53   500,465   —   .43   3.08   16.18
(.28 )   12.55   17.12   420,671   —   .42   1.83   2.14
(.21 )   10.97   11.83   308,795   —   .39   1.88   .72
(.16 )   10.00   10.99   247,011   —   .38   1.70   2.22
(.11 )   9.16   23.10   159,869   —   .41   1.30   15.15

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   77

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		    $
Total Income
(Loss) from
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Balanced Strategy Fund                  

Class A

                  

October 31, 2007

    12.18    .40    1.18    1.58    (.42 )    (.24 )

October 31, 2006

    10.99    .25    1.27    1.52    (.26 )    (.07 )

October 31, 2005

    10.33    .20    .71    .91    (.22 )    (.03 )

October 31, 2004

    9.64    .16    .74    .90    (.21 )    —  

October 31, 2003 (2)

    8.20    .06    1.47    1.53    (.09 )    —  

Class C

                  

October 31, 2007

    12.12    .30    1.18    1.48    (.33 )    (.24 )

October 31, 2006

    10.93    .17    1.27    1.44    (.18 )    (.07 )

October 31, 2005

    10.29    .13    .69    .82    (.15 )    (.03 )

October 31, 2004

    9.61    .12    .72    .84    (.16 )    —  

October 31, 2003

    8.33    .09    1.31    1.40    (.12 )    —  

Class E

                  

October 31, 2007

    12.20    .41    1.17    1.58    (.42 )    (.24 )

October 31, 2006

    11.00    .26    1.27    1.53    (.26 )    (.07 )

October 31, 2005

    10.35    .22    .68    .90    (.22 )    (.03 )

October 31, 2004

    9.65    .22    .69    .91    (.21 )    —  

October 31, 2003

    8.35    .17    1.31    1.48    (.18 )    —  

Class R1

                  

October 31, 2007

    12.26    .30    1.32    1.62    (.46 )    (.24 )

October 31, 2006 (12)

    11.62    .10    .73    .83    (.19 )    —  

Class R2

                  

October 31, 2007

    12.19    .40    1.19    1.59    (.42 )    (.24 )

October 31, 2006 (10)

    11.76    .12    .49    .61    (.18 )    —  

Class R3(9)

                  

October 31, 2007

    12.20    .38    1.17    1.55    (.39 )    (.24 )

October 31, 2006

    11.01    .23    1.26    1.49    (.23 )    (.07 )

October 31, 2005

    10.35    .19    .70    .89    (.20 )    (.03 )

October 31, 2004

    9.66    .17    .71    .88    (.19 )    —  

October 31, 2003

    8.36    .12    1.34    1.46    (.16 )    —  

Class S

                  

October 31, 2007

    12.26    .45    1.17    1.62    (.46 )    (.24 )

October 31, 2006

    11.05    .29    1.28    1.57    (.29 )    (.07 )

October 31, 2005

    10.39    .25    .69    .94    (.25 )    (.03 )

October 31, 2004

    9.68    .23    .71    .94    (.23 )    —  

October 31, 2003

    8.38    .19    1.31    1.50    (.20 )    —  

 

See accompanying notes which are an integral part of the financial statements.

78   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g) 		  %
Portfolio
Turnover Rate(c)
             
             
(.66 )   13.10   13.49   1,352,284   .25   .67   3.21   33.75
(.33 )   12.18   14.03   996,628   .25   .67   2.15   2.80
(.25 )   10.99   8.91   593,609   .25   .62   1.88   .55
(.21 )   10.33   9.49   281,685   .25   .59   1.63   6.42
(.09 )   9.64   18.80   60,696   .25   .66   .74   18.55
             
(.57 )   13.03   12.60   1,770,369   1.00   1.42   2.44   33.75
(.25 )   12.12   13.29   1,328,971   1.00   1.42   1.43   2.80
(.18 )   10.93   7.96   964,203   1.00   1.37   1.22   .55
(.16 )   10.29   8.82   653,463   1.00   1.34   1.23   6.42
(.12 )   9.61   17.02   396,344   1.00   1.36   1.05   18.55
             
(.66 )   13.12   13.47   760,312   .25   .67   3.26   33.75
(.33 )   12.20   14.09   615,865   .25   .67   2.23   2.80
(.25 )   11.00   8.77   506,587   .25   .62   2.03   .55
(.21 )   10.35   9.54   416,942   .25   .59   2.25   6.42
(.18 )   9.65   18.00   414,051   .25   .61   1.88   18.55
             
(.70 )   13.18   13.69   27,053   —   .42   2.42   33.75
(.19 )   12.26   6.60   4,295   —   .43   .80   2.80
             
(.66 )   13.12   13.48   22,546   .25   .67   3.21   33.75
(.18 )   12.19   5.26   15,035   .25   .68   1.14   2.80
             
(.63 )   13.12   13.16   1,307,641   .50   .92   3.04   33.75
(.30 )   12.20   13.72   1,129,000   .50   .92   1.97   2.80
(.23 )   11.01   8.61   892,607   .50   .87   1.75   .55
(.19 )   10.35   9.25   676,342   .50   .84   1.70   6.42
(.16 )   9.66   17.76   396,545   .50   .86   1.38   18.55
             
(.70 )   13.18   13.69   746,007   —   .42   3.59   33.75
(.36 )   12.26   14.40   690,959   —   .42   2.46   2.80
(.28 )   11.05   9.10   518,148   —   .37   2.28   .55
(.23 )   10.39   9.82   426,147   —   .34   2.23   6.42
(.20 )   9.68   18.22   278,123   —   .36   2.12   18.55

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   79

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		    $
Total Income
(Loss) from
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Moderate Strategy Fund                  

Class A

                  

October 31, 2007

    11.54    .42    .74    1.16    (.43 )    (.18 )

October 31, 2006

    10.81    .29    .81    1.10    (.30 )    (.07 )

October 31, 2005

    10.50    .22    .35    .57    (.23 )    (.03 )

October 31, 2004

    10.03    .17    .51    .68    (.19 )    (.02 )

October 31, 2003 (3)

    9.02    .07    1.06    1.13    (.12 )    —  

Class C

                  

October 31, 2007

    11.49    .33    .73    1.06    (.33 )    (.18 )

October 31, 2006

    10.77    .21    .80    1.01    (.22 )    (.07 )

October 31, 2005

    10.45    .14    .36    .50    (.15 )    (.03 )

October 31, 2004

    10.01    .05    .55    .60    (.14 )    (.02 )

October 31, 2003

    9.15    .12    .91    1.03    (.17 )    —  

Class E

                  

October 31, 2007

    11.55    .42    .74    1.16    (.43 )    (.18 )

October 31, 2006

    10.82    .29    .81    1.10    (.30 )    (.07 )

October 31, 2005

    10.50    .22    .36    .58    (.23 )    (.03 )

October 31, 2004

    10.03    .19    .49    .68    (.19 )    (.02 )

October 31, 2003

    9.16    .21    .89    1.10    (.23 )    —  

Class R1

                  

October 31, 2007

    11.58    .33    .87    1.20    (.46 )    (.18 )

October 31, 2006 (15)

    11.47    .11    .09    .20    (.09 )    —  

Class R2

                  

October 31, 2007

    11.54    .39    .76    1.15    (.42 )    (.18 )

October 31, 2006 (8)

    11.25    .25    .27    .52    (.23 )    —  

Class R3(9)

                  

October 31, 2007

    11.58    .39    .73    1.12    (.39 )    (.18 )

October 31, 2006

    10.84    .27    .81    1.08    (.27 )    (.07 )

October 31, 2005

    10.52    .20    .35    .55    (.20 )    (.03 )

October 31, 2004

    10.06    .16    .49    .65    (.17 )    (.02 )

October 31, 2003

    9.19    .16    .92    1.08    (.21 )    —  

Class S

                  

October 31, 2007

    11.58    .45    .74    1.19    (.46 )    (.18 )

October 31, 2006

    10.84    .32    .82    1.14    (.33 )    (.07 )

October 31, 2005

    10.52    .25    .35    .60    (.25 )    (.03 )

October 31, 2004

    10.05    .21    .49    .70    (.21 )    (.02 )

October 31, 2003

    9.17    .23    .90    1.13    (.25 )    —  

 

See accompanying notes which are an integral part of the financial statements.

80   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g)		   %
Portfolio
Turnover Rate(c)
             
             
(.61 )   12.09   10.36   211,856   .25   .63   3.56   78.30
(.37 )   11.54   10.34   165,654   .25   .63   2.63   5.71
(.26 )   10.81   5.44   121,343   .25   .61   2.03   4.54
(.21 )   10.50   6.87   55,049   .25   .63   1.71   3.99
(.12 )   10.03   12.56   18,820   .25   .77   .84   11.08
             
(.51 )   12.04   9.52   262,501   1.00   1.38   2.86   78.30
(.29 )   11.49   9.51   252,478   1.00   1.38   1.88   5.71
(.18 )   10.77   4.78   183,445   1.00   1.36   1.31   4.54
(.16 )   10.45   6.00   146,515   1.00   1.37   .48   3.99
(.17 )   10.01   11.36   96,231   1.00   1.42   1.29   11.08
             
(.61 )   12.10   10.34   208,296   .25   .63   3.60   78.30
(.37 )   11.55   10.32   181,883   .25   .63   2.64   5.71
(.26 )   10.82   5.52   164,151   .25   .61   2.07   4.54
(.21 )   10.50   6.85   132,822   .25   .62   1.85   3.99
(.23 )   10.03   12.19   99,926   .25   .67   2.22   11.08
             
(.64 )   12.14   10.70   2,104   —   .38   2.74   78.30
(.09 )   11.58   .96   215   —   .20   .89   5.71
             
(.60 )   12.09   10.28   4,068   .25   .63   3.26   78.30
(.23 )   11.54   4.68   1,654   .25   .64   2.01   5.71
             
(.57 )   12.13   10.02   394,039   .50   .88   3.36   78.30
(.34 )   11.58   10.13   364,759   .50   .88   2.39   5.71
(.23 )   10.84   5.25   309,824   .50   .86   1.81   4.54
(.19 )   10.52   6.55   254,060   .50   .87   1.55   3.99
(.21 )   10.06   11.94   154,267   .50   .92   1.62   11.08
             
(.64 )   12.13   10.61   158,313   —   .38   3.86   78.30
(.40 )   11.58   10.67   126,487   —   .38   2.89   5.71
(.28 )   10.84   5.76   113,097   —   .36   2.33   4.54
(.23 )   10.52   7.03   106,031   —   .37   2.04   3.99
(.25 )   10.05   12.55   73,980   —   .42   2.44   11.08

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   81

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		    $
Total Income
(Loss) from
Operations		    $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Conservative Strategy Fund               

Class A

                  

October 31, 2007

    10.98    .42    .29    .71    (.42 )    (.24 )

October 31, 2006

    10.66    .34    .40    .74    (.35 )    (.07 )

October 31, 2005

    10.65    .24    .05    .29    (.24 )    (.04 )

October 31, 2004

    10.42    .20    .28    .48    (.21 )    (.04 )

October 31, 2003 (1)

    9.94    .09    .50    .59    (.11 )    —  

Class C

                  

October 31, 2007

    10.93    .34    .30    .64    (.34 )    (.24 )

October 31, 2006

    10.62    .25    .39    .64    (.26 )    (.07 )

October 31, 2005

    10.61    .16    .05    .21    (.16 )    (.04 )

October 31, 2004

    10.38    .12    .28    .40    (.13 )    (.04 )

October 31, 2003

    9.90    .12    .52    .64    (.16 )    —  

Class E

                  

October 31, 2007

    11.00    .42    .30    .72    (.42 )    (.24 )

October 31, 2006

    10.68    .30    .43    .73    (.34 )    (.07 )

October 31, 2005

    10.66    .24    .06    .30    (.24 )    (.04 )

October 31, 2004

    10.43    .20    .27    .47    (.20 )    (.04 )

October 31, 2003

    9.94    .20    .52    .72    (.23 )    —  

Class R1

                  

October 31, 2007 (17)

    10.77    .40    .22    .62    (.31 )    —  

Class R2

                  

October 31, 2007

    10.99    .40    .31    .71    (.41 )    (.24 )

October 31, 2006 (8)

    10.86    .33    .09    .42    (.29 )    —  

Class R3(9)

                  

October 31, 2007

    11.03    .39    .30    .69    (.39 )    (.24 )

October 31, 2006

    10.71    .31    .40    .71    (.32 )    (.07 )

October 31, 2005

    10.69    .21    .06    .27    (.21 )    (.04 )

October 31, 2004

    10.47    .18    .26    .44    (.18 )    (.04 )

October 31, 2003

    9.97    .16    .55    .71    (.21 )    —  

Class S

                  

October 31, 2007

    11.03    .44    .31    .75    (.45 )    (.24 )

October 31, 2006

    10.72    .36    .39    .75    (.37 )    (.07 )

October 31, 2005

    10.70    .27    .05    .32    (.26 )    (.04 )

October 31, 2004

    10.47    .23    .27    .50    (.23 )    (.04 )

October 31, 2003

    9.97    .23    .52    .75    (.25 )    —  

 

See accompanying notes which are an integral part of the financial statements.

82   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g) 		  %
Portfolio
Turnover Rate(c)
             
             
(.66 )   11.03   6.76   52,516   .25   .65   3.87   79.31
(.42 )   10.98   7.04   46,364   .25   .65   3.14   16.00
(.28 )   10.66   2.74   40,225   .25   .62   2.26   9.45
(.25 )   10.65   4.62   20,709   .25   .66   1.89   6.18
(.11 )   10.42   6.01   5,526   .25   .97   .97   30.98
             
(.58 )   10.99   6.04   84,747   1.00   1.40   3.10   79.31
(.33 )   10.93   6.16   80,692   1.00   1.40   2.34   16.00
(.20 )   10.62   1.99   88,226   1.00   1.37   1.47   9.45
(.17 )   10.61   3.87   75,976   1.00   1.38   1.15   6.18
(.16 )   10.38   6.51   54,674   1.00   1.43   1.21   30.98
             
(.66 )   11.06   6.84   83,894   .25   .65   3.84   79.31
(.41 )   11.00   6.96   80,224   .25   .65   2.90   16.00
(.28 )   10.68   2.81   183,219   .25   .62   2.20   9.45
(.24 )   10.66   4.57   187,993   .25   .63   1.95   6.18
(.23 )   10.43   7.33   199,230   .25   .68   1.86   30.98
             
(.31 )   11.08   5.72   1,914   —   .40   2.98   79.31
             
(.65 )   11.05   6.75   3,156   .25   .65   3.64   79.31
(.29 )   10.99   3.95   1,466   .25   .67   2.72   16.00
             
(.63 )   11.09   6.53   194,815   .50   .90   3.59   79.31
(.39 )   11.03   6.74   187,837   .50   .90   2.85   16.00
(.25 )   10.71   2.55   163,499   .50   .87   1.97   9.45
(.22 )   10.69   4.23   146,230   .50   .88   1.65   6.18
(.21 )   10.47   7.17   92,430   .50   .93   1.57   30.98
             
(.69 )   11.09   7.10   55,999   —   .40   4.02   79.31
(.44 )   11.03   7.16   46,312   —   .40   3.36   16.00
(.30 )   10.72   3.06   44,293   —   .37   2.46   9.45
(.27 )   10.70   4.82   42,949   —   .38   2.17   6.18
(.25 )   10.47   7.63   36,380   —   .43   2.27   30.98

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   83

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total Income
(Loss) from
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
2010 Strategy Fund                  

Class A

                  

October 31, 2007

    10.88    .40    .68      1.08      (.38 )    (.13 )

October 31, 2006

    10.06    .27    .83      1.10      (.28 )    —  

October 31, 2005 (6)

    10.21    .04    (.11 )    (.07 )    (.08 )    —  

Class E

                  

October 31, 2007

    10.90    .35    .72      1.07      (.38 )    (.13 )

October 31, 2006

    10.07    .27    .83      1.10      (.27 )    —  

October 31, 2005 (5)

    10.00    .12    .07      .19      (.12 )    —  

Class R1

                  

October 31, 2007

    10.90    .35    .76      1.11      (.41 )    (.13 )

October 31, 2006 (13)

    10.45    .13    .53      .66      (.21 )    —  

Class R2

                  

October 31, 2007 (16)

    10.91    .31    .76      1.07      (.39 )    (.13 )

Class R3(9)

                  

October 31, 2007

    10.89    .31    .74      1.05      (.36 )    (.13 )

October 31, 2006

    10.07    .23    .84      1.07      (.25 )    —  

October 31, 2005 (5)

    10.00    .10    .08      .18      (.11 )    —  

Class S

                  

October 31, 2007

    10.91    .45    .65      1.10      (.41 )    (.13 )

October 31, 2006

    10.08    .29    .84      1.13      (.30 )    —  

October 31, 2005 (5)

    10.00    .15    .07      .22      (.14 )    —  

 

See accompanying notes which are an integral part of the financial statements.

84   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g) 		  %
Portfolio
Turnover Rate(c)
             
             
(.51 )   11.45   10.22     1,957   .25   1.36   3.61   93.17
(.28 )   10.88   11.02     1,723   .25   3.41   2.53   70.61
(.08 )   10.06   (1.01 )   990   .25   4.84   .37   .99
             
(.51 )   11.46   10.12     4,797   .25   1.36   3.14   93.17
(.27 )   10.90   11.08     1,485   .25   2.90   2.54   70.61
(.12 )   10.07   1.96     1,020   .25   5.32   1.25   .99
             
(.54 )   11.47   10.49     5,138   —   1.11   3.27   93.17
(.21 )   10.90   5.69     150   —   3.35   1.11   70.61
             
(.52 )   11.46   10.10     691   .25   1.36   2.62   93.17
             
(.49 )   11.45   9.91     17,600   .50   1.61   2.78   93.17
(.25 )   10.89   10.73     4,028   .50   3.15   2.27   70.61
(.11 )   10.07   1.79     1,768   .50   5.56   1.06   .99
             
(.54 )   11.47   10.38     2,575   —   1.11   3.93   93.17
(.30 )   10.91   11.35     1,360   —   2.69   2.73   70.61
(.14 )   10.08   2.25     1,023   —   5.07   1.45   .99

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   85

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total Income
(Loss) from
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
2020 Strategy Fund                  

Class A

                  

October 31, 2007

    11.24    .34    1.19      1.53      (.32 )    (.03 )

October 31, 2006

    10.14    .23    1.11      1.34      (.24 )    —  

October 31, 2005 (6)

    10.29    .03    (.11 )    (.08 )    (.07 )    —  

Class E

                  

October 31, 2007

    11.25    .29    1.23      1.52      (.32 )    (.03 )

October 31, 2006

    10.14    .22    1.13      1.35      (.24 )    —  

October 31, 2005 (5)

    10.00    .11    .14      .25      (.11 )    —  

Class R1

                  

October 31, 2007

    11.25    .24    1.31      1.55      (.35 )    (.03 )

October 31, 2006 (13)

    10.62    .09    .70      .79      (.16 )    —  

Class R2

                  

October 31, 2007

    11.24    .27    1.25      1.52      (.32 )    (.03 )

October 31, 2006 (14)

    10.82    .02    .50      .52      (.10 )    —  

Class R3(9)

                  

October 31, 2007

    11.23    .28    1.21      1.49      (.30 )    (.03 )

October 31, 2006

    10.13    .18    1.14      1.32      (.22 )    —  

October 31, 2005 (5)

    10.00    .08    .14      .22      (.09 )    —  

Class S

                  

October 31, 2007

    11.24    .42    1.14      1.56      (.35 )    (.03 )

October 31, 2006

    10.14    .22    1.14      1.36      (.26 )    —  

October 31, 2005 (5)

    10.00    .13    .14      .27      (.13 )    —  

 

See accompanying notes which are an integral part of the financial statements.

86   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g)		   %
Portfolio
Turnover Rate(c)
             
             
(.35 )   12.42   13.83     2,016   .25   .86   2.93   43.86
(.24 )   11.24   13.33     2,165   .25   2.38   2.12   46.56
(.07 )   10.14   (1.02 )   990   .25   4.74   .30   6.98
             
(.35 )   12.42   13.79     9,498   .25   .86   2.44   43.86
(.24 )   11.25   13.42     2,118   .25   1.95   2.12   46.56
(.11 )   10.14   2.52     1,025   .25   5.13   1.11   6.98
             
(.38 )   12.42   14.05     19,194   —   .61   2.02   43.86
(.16 )   11.25   6.98     702   —   1.77   .80   46.56
             
(.35 )   12.41   13.81     4,135   .25   .86   2.20   43.86
(.10 )   11.24   4.34     641   .25   1.62   .27   46.56
             
(.33 )   12.39   13.50     44,038   .50   1.11   2.33   43.86
(.22 )   11.23   13.14     9,355   .50   2.12   1.70   46.56
(.09 )   10.13   2.23     1,545   .50   5.38   .89   6.98
             
(.38 )   12.42   14.16     10,021   —   .61   3.49   43.86
(.26 )   11.24   13.59     5,953   —   1.63   2.15   46.56
(.13 )   10.14   2.71     1,027   —   4.88   1.31   6.98

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   87

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total Income
(Loss) from
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
2030 Strategy Fund                  

Class A

                  

October 31, 2007

    11.53    .31    1.77      2.08      (.31 )    (.07 )

October 31, 2006

    10.19    .21    1.34      1.55      (.21 )    —  

October 31, 2005 (6)

    10.33    .03    (.11 )    (.08 )    (.06 )    —  

Class E

                  

October 31, 2007

    11.54    .23    1.85      2.08      (.32 )    (.07 )

October 31, 2006

    10.20    .18    1.37      1.55      (.21 )    —  

October 31, 2005 (5)

    10.00    .10    .19      .29      (.09 )    —  

Class R1

                  

October 31, 2007

    11.54    .14    1.98      2.12      (.35 )    (.07 )

October 31, 2006 (13)

    10.75    .07    .86      .93      (.14 )    —  

Class R2

                  

October 31, 2007

    11.53    .16    1.92      2.08      (.32 )    (.07 )

October 31, 2006 (14)

    10.98    .02    .62      .64      (.09 )    —  

Class R3(9)

                  

October 31, 2007

    11.54    .17    1.87      2.04      (.29 )    (.07 )

October 31, 2006

    10.19    .16    1.38      1.54      (.19 )    —  

October 31, 2005 (5)

    10.00    .07    .20      .27      (.08 )    —  

Class S

                  

October 31, 2007

    11.55    .29    1.82      2.11      (.35 )    (.07 )

October 31, 2006

    10.20    .23    1.35      1.58      (.23 )    —  

October 31, 2005 (5)

    10.00    .12    .19      .31      (.11 )    —  

 

See accompanying notes which are an integral part of the financial statements.

88   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g) 		  %
Portfolio
Turnover Rate(c)
             
             
(.38 )   13.23   18.51     3,739   .25   .98   2.51   31.07
(.21 )   11.53   15.38     2,854   .25   2.38   1.93   104.15
(.06 )   10.19   (1.01 )   990   .25   4.86   .25   1.11
             
(.39 )   13.23   18.42     10,490   .25   .98   1.88   31.07
(.21 )   11.54   15.35     4,616   .25   2.15   1.72   104.15
(.09 )   10.20   2.96     1,029   .25   5.37   .95   1.11
             
(.42 )   13.24   18.80     8,582   —   .73   1.21   31.07
(.14 )   11.54   8.22     347   —   2.07   .65   104.15
             
(.39 )   13.22   18.46     3,359   .25   .98   1.26   31.07
(.09 )   11.53   5.40     633   .25   1.79   .18   104.15
             
(.36 )   13.22   18.08     29,200   .50   1.23   1.39   31.07
(.19 )   11.54   15.22     8,249   .50   2.33   1.42   104.15
(.08 )   10.19   2.69     1,452   .50   5.62   .75   1.11
             
(.42 )   13.24   18.70     7,923   —   .73   2.32   31.07
(.23 )   11.55   15.70     2,513   —   1.85   2.13   104.15
(.11 )   10.20   3.15     1,031   —   5.12   1.16   1.11

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   89

Table of Contents

Russell Investment Company

LifePoints® Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

      $
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)(b)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total Income
(Loss) from
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
2040 Strategy Fund                  

Class A

                  

October 31, 2007

    11.71    .31    1.86      2.17      (.31 )    (.13 )

October 31, 2006

    10.23    .19    1.48      1.67      (.19 )    —  

October 31, 2005 (6)

    10.36    .02    (.12 )    (.10 )    (.03 )    —  

Class E

                  

October 31, 2007

    11.72    .24    1.94      2.18      (.31 )    (.13 )

October 31, 2006

    10.24    .17    1.50      1.67      (.19 )    —  

October 31, 2005 (5)

    10.00    .08    .24      .32      (.08 )    —  

Class R1

                  

October 31, 2007

    11.73    .12    2.08      2.20      (.34 )    (.13 )

October 31, 2006 (13)

    10.89    .06    .90      .96      (.12 )    —  

Class R2

                  

October 31, 2007

    11.71    .28    1.90      2.18      (.30 )    (.13 )

October 31, 2006 (7)

    11.14    .09    .59      .68      (.11 )    —  

Class R3(9)

                  

October 31, 2007

    11.71    .12    2.02      2.14      (.29 )    (.13 )

October 31, 2006

    10.24    .14    1.50      1.64      (.17 )    —  

October 31, 2005 (5)

    10.00    .06    .24      .30      (.06 )    —  

Class S

                  

October 31, 2007

    11.73    .26    1.94      2.20      (.34 )    (.13 )

October 31, 2006

    10.24    .22    1.49      1.71      (.22 )    —  

October 31, 2005 (5)

    10.00    .10    .24      .34      (.10 )    —  

 

See accompanying notes which are an integral part of the financial statements.

90   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of
Period		   %
Total
Return(c)(e)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(d)(f)(g)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(d)(f)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(g)		   %
Portfolio
Turnover Rate(c)
             
             
(.44 )   13.44   19.04     2,363   .25   1.14   2.49   21.79
(.19 )   11.71   16.49     1,886   .25   2.64   1.72   88.23
(.03 )   10.23   (.95 )   991   .25   4.81   .21   2.39
             
(.44 )   13.46   19.12     6,353   .25   1.14   1.96   21.79
(.19 )   11.72   16.48     3,096   .25   2.30   1.55   88.23
(.08 )   10.24   3.20     1,032   .25   5.26   .78   2.39
             
(.47 )   13.46   19.31     2,935   —   .89   .99   21.79
(.12 )   11.73   8.47     93   —   2.27   .56   88.23
             
(.43 )   13.46   19.11     2,061   .25   1.14   2.28   21.79
(.11 )   11.71   6.11     1,256   .25   2.16   .86   88.23
             
(.42 )   13.43   18.75     29,700   .50   1.39   .96   21.79
(.17 )   11.71   16.11     5,506   .50   2.48   1.25   88.23
(.06 )   10.24   3.03     1,701   .50   5.52   .59   2.39
             
(.47 )   13.46   19.30     4,410   —   .89   2.07   21.79
(.22 )   11.73   16.84     1,666   —   1.97   2.00   88.23
(.10 )   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   91

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Highlights — October 31, 2007

 

 

(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.
(7) For the period March 17, 2006 (commencement of operations) to October 31, 2006.
(8) For the period March 29, 2006 (commencement of operations) to October 31, 2006.
(9) Class D Shares were redesignated Class R3 Shares on March 1, 2006.
(10) For the period April 3, 2006 (commencement of operations) to October 31, 2006.
(11) For the period May 19, 2006 (commencement of operations) to October 31, 2006.
(12) For the period June 6, 2006 (commencement of operations) to October 31, 2006.
(13) For the period June 7, 2006 (commencement of operations) to October 31, 2006.
(14) For the period September 8, 2006 (commencement of operations) to October 31, 2006.
(15) For the period October 3, 2006 (commencement of operations) to October 31, 2006.
(16) For the period November 9, 2006 (commencement of operations) to October 31, 2007.
(17) For the period December 28, 2006 (commencement of operations) to October 31, 2007.
(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) Total return for A share does not reflect a front-end sales charge.
(f) The calculation includes only those expenses charged directly to the Fund and does not include expenses charged to the Underlying Funds in which the Fund invests.
(g) May reflect amounts waived and/or reimbursed by RIMCo as the investment adviser and transfer agent.

 

See accompanying notes which are an integral part of the financial statements.

92   Notes to Financial Highlights

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on nine of these Funds (each a “Fund” and collectively the “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, as amended. 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”). Russell Investment Management Company (“RIMCo”), the Funds’ investment adviser, may modify the target asset allocation for any Fund and/or the Underlying Funds in which the Funds invest. From time to time, each Fund may adjust its investments within set limits based on RIMCo’s outlook for the economy, financial markets generally and relative market valuation of the asset classes represented by each Underlying Fund. Additionally, each Fund may deviate from set limits when, in RIMCo’s opinion, it is necessary to do so to pursue the Fund’s investment objective. In the future, the Funds may also invest in other funds which are not currently Underlying Funds.

 

     Asset Allocation Targets per Prospectus  
Asset Class/Underlying Funds    Equity Growth
Strategy Fund		     Growth
Strategy Fund		     Balanced
Strategy Fund		     Moderate
Strategy Fund		     Conservative
Strategy Fund		  
          

Equities

           

US Equities

           

Diversified Equity Fund

    26 %   21 %   15 %   10 %   6 %

Special Growth Fund

    7     6     4     3     —  

Quantitative Equity Fund

    25     20     15     10     5  

Real Estate Securities Fund

    7     6     5     3     3  

International Equities

           

International Securities Fund

    23     17     14     9     4  

Emerging Markets Fund

    5     4     3     2     —  

Global Equity Fund

    7     6     4     3     2  

Bonds

           

Short Duration Bond Fund

    —     —     —     —     20  

Multistrategy Bond Fund

    —     20     40     60     60  
                              
   100     100     100     100     100  
Notes to Financial Statements   93

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Each of the Funds listed in the table below allocates its assets by investing in a combination of Class S shares 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, RIMCo 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, RIMCo expects to modify the target asset allocation for the Funds and/or the Underlying Funds in which a Fund invests. In addition, the Funds may in the future invest in other funds which are not currently Underlying Funds.

 

     Asset Allocation Targets per Prospectus  
Asset Class/Underlying Funds    2010
Strategy Fund		     2020
Strategy Fund		     2030
Strategy Fund		     2040
Strategy Fund		  
        

Equities

         

US Equities

         

Diversified Equity Fund

    10 %   15 %   24 %   26 %

Special Growth Fund

    2     4     7     7  

Quantitative Equity Fund

    10     15     24     25  

Real Estate Securities Fund

    3     5     7     7  

International Equities

         

International Securities Fund

    8     14     20     23  

Emerging Markets Fund

    2     4     5     5  

Global Equity Fund

    3     4     7     7  

Bonds

         

Short Duration Bond Fund

    2     —     —     —  

Multistrategy Bond Fund

    60     39     6     —  
                        
   100     100     100     100  

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.

Global Equity Fund

Seeks to provide long term capital growth.

Short Duration Bond Fund

Seeks to provide current income and preservation of capital with a focus on short duration securities.

94   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Multistrategy Bond Fund

Seeks to provide current income and as a secondary objective, capital appreciation.

 

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 RIMCo.

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;

 

  •  

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 New York Stock Exchange, whichever is earlier.

 

  •  

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.

 

  •  

Equity securities traded on a national foreign securities exchange or a foreign over the counter market are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded.

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. 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 Funds’ 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 normal pricing methods. 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

Notes to Financial Statements   95

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 of the US securities market (defined in the Fair Value Procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural 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 an Underlying Fund which invests in foreign securities may change on days when shareholders will not be able to purchase or redeem fund shares.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds’ financial statement disclosure.

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 tax provision was required for the Funds.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Funds’ net assets and results of operations.

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

96   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 E, Class R1, Class R2, Class R3 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.

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, 2007, purchases and sales of the Underlying Funds (excluding short-term investments) were as follows:

 

Funds    Purchases    Sales
     

Equity Growth Strategy

    $ 840,386,993    $ 341,299,012

Growth Strategy

      1,378,542,611      624,697,331

Balanced Strategy

      2,679,230,904      1,830,259,791

Moderate Strategy

      1,013,331,419      917,335,611

Conservative Strategy

      391,536,101      366,826,280

2010 Strategy

      41,450,685      18,688,748

2020 Strategy

      81,414,505      24,617,547

2030 Strategy

      51,535,458      12,380,244

2040 Strategy

      36,307,745      6,187,438

 

4.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

The Funds are charged an advisory fee equal to 0.20% and an administrative fee equal to 0.05% of average daily net assets. The Adviser has contractually agreed to waive the advisory fee for all Funds at least through February 29, 2008. The adviser does not have the ability to recover amounts waived for the period ended October 31, 2007 or previous periods.

Notes to Financial Statements   97

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

For the period ended October 31, 2007, the advisory fee waived by RIMCo as Adviser amounted to:

 

Funds    Amount
  

Equity Growth Strategy

    $ 3,873,625

Growth Strategy

      7,736,970

Balanced Strategy

      10,861,232

Moderate Strategy

      2,343,359

Conservative Strategy

      924,676

2010 Strategy

     40,402

2020 Strategy

     113,514

2030 Strategy

     80,179

2040 Strategy

     57,198

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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, 2007 were $18,592,197.

RIMCo, 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.

For the period ended October 31, 2007, the direct operating expenses reimbursed by RIMCo as transfer agent and waived transfer agency fees amounted to:

 

Funds    Amount
Waived		    Amount
Reimbursed
     
     

Equity Growth Strategy

    $ 2,910,539    $ 1,548,366

Growth Strategy

      5,811,190      2,884,217

Balanced Strategy

      8,155,717      3,929,566

Moderate Strategy

      1,172,448      964,306

Conservative Strategy

      462,578      469,138

2010 Strategy

     11,081      172,646

2020 Strategy

     28,611      201,180

2030 Strategy

     20,169      190,324

2040 Strategy

     19,864      176,238

Distributor and Shareholder Servicing

Pursuant to the Distribution Agreement with the Investment Company, Russell Fund Distributors, Inc. (“Distributor”), a wholly-owned subsidiary of RIMCo, serves as distributor for all Investment Company portfolio shares, including Class A, Class C, Class E, Class R2 and Class R3 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 R3 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 R3 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 E, Class R2 and Class R3 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 E, Class R2 and Class R3 shares on an annual basis.

98   Notes to Financial Statements

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LifePoints® Funds

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Pursuant to the rules of the Financial Industry Regulatory Authority (“FINRA”), the aggregate initial sales charges, deferred sales charges and asset-based sales charges on Class A, Class C and Class R3 Shares of the Funds may not exceed 7.25%, 6.25% and 6.25%, respectively, of total gross sales, subject to certain exclusions. These limitations are imposed at the class level on each class of shares of each Fund rather than on a per shareholder basis. Therefore, long-term shareholders of the Class A, Class C and Class R3 Shares may pay more than the economic equivalent of the maximum sales charges permitted by FINRA.

For the period ended October 31, 2007, the Distributor retained the following amounts in sales charges:

 

Contingent Deferred

Sales Charges

    Class A Shares

Equity Aggressive Strategy

    $ 2,579

Growth Strategy

      5,281

Balanced Strategy

      40,079

Moderate Strategy

      6,899

Conservative Strategy

      2,606

2010 Strategy

      26

2020 Strategy

      —

2030 Strategy

      —

2040 Strategy

      —

For the period ended October 31, 2007, the sales commissions paid to the selling agents for the sale of Class A shares are as follows:

 

Funds    Aggregate Front-End
Sales Charges on
Class A Shares		    Class A Front-End
Sales Charges
Retained by
Distributor
     

Equity Aggressive Strategy

    $ 4,229,756    $ 728,637

Growth Strategy

      9,937,063      1,726,481

Balanced Strategy

      894,010      1,628,451

Moderate Strategy

      947,974      195,405

Conservative Strategy

      206,665      37,711

2010 Strategy

      16,295      2,761

2020 Strategy

      23,240      4,004

2030 Strategy

      37,552      6,296

2040 Strategy

      23,861      3,715

Accrued fees payable to affiliates for the period ended October 31, 2007 were as follows:

 

     Equity Growth
Strategy Fund		    Growth Strategy
Fund		    Balanced Strategy
Fund		    Moderate Strategy
Fund		    Conservative
Strategy Fund
              

Administration fees

    $ 94,414    $ 183,092    $ 250,869    $ 52,100    $ 20,069

Distribution fees

      603,725      1,161,298      1,664,534      292,161      106,220

Shareholder servicing fees

      322,219      587,986      808,672      181,968      77,472

Trustee fees

      170      249      350      117      92
                                  
   $ 1,020,528    $ 1,932,625    $ 2,724,425    $ 526,346    $ 203,853
                                  
     2010 Strategy
Fund		    2020 Strategy
Fund		    2030 Strategy
Fund		    2040 Strategy
Fund		     

Administration fees

    $ 1,353    $ 3,655    $ 2,582    $ 1,956   

Distribution fees

      4,096      9,653      6,792      6,614   

Shareholder servicing fees

      4,810      11,999      8,844      7,866   

Trustee fees

      1      3      8      2   
                              
   $ 10,260    $ 25,310    $ 18,226    $ 16,438   
                              

 

Notes to Financial Statements   99

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LifePoints® Funds

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Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives 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 or under common control. Transactions during the period ended October 31, 2007 with Underlying Funds which are, or were, an affiliated company are as follows:

 

Affiliate    Purchases Cost    Sales Cost    Income Distributions    Capital Gains
Distributions
           

Equity Growth Strategy Fund

            

Diversified Equity Fund

    $ 160,687,919    $ 94,765,717    $ 8,613,721    $ 16,623,902

Special Growth Fund

      68,863,532      11,034,856      3,340,273      9,334,976

Quantitative Equity Fund

      197,050,623      110,122,311      8,470,379      19,916,091

International Securities Fund

      152,685,757      68,228,573      20,049,561      21,837,958

Emerging Markets Fund

      30,493,812      23,274,747      4,260,165      8,205,250

Global Equity Fund

      149,855,678      9,603,678      —      —

Real Estate Securities Fund

      80,749,672      23,391,049      4,241,741      7,209,807
                           
   $ 840,386,993    $ 340,420,931    $ 48,975,840    $ 83,127,984
                           

Growth Strategy Fund

            

Diversified Equity Fund

    $ 177,066,300    $ 121,719,634    $ 14,009,645    $ 27,274,140

Special Growth Fund

      106,224,008      19,801,782      5,774,266      16,137,195

Quantitative Equity Fund

      227,605,601      147,396,930      13,725,828      32,677,951

International Securities Fund

      161,149,804      126,317,634      32,861,801      35,793,035

Emerging Markets Fund

      41,919,000      40,678,073      7,120,928      13,715,195

Global Equity Fund

      248,580,426      15,666,491      —      —

Real Estate Securities Fund

      114,859,100      42,117,586      7,409,679      12,891,184

Multistrategy Bond Fund

      301,138,372      100,450,614      34,430,630      —
                           
   $ 1,378,542,611    $ 614,148,744    $ 115,332,777    $ 138,488,700
                           

Balanced Strategy Fund

            

Diversified Equity Fund

    $ 146,769,881    $ 113,073,123    $ 14,008,822    $ 27,309,816

Special Growth Fund

      63,497,779      22,521,194      6,665,010      18,626,535

Quantitative Equity Fund

      185,774,751      88,703,487      13,938,417      32,711,117

International Securities Fund

      171,450,931      187,803,147      39,952,658      43,516,386

Emerging Markets Fund

      40,190,578      46,778,358      7,877,651      15,172,675

Global Equity Fund

      232,410,704      20,303,851      —      —

Real Estate Securities Fund

      116,103,948      51,328,517      8,971,055      16,135,807

Multistrategy Bond Fund

      1,609,064,811      202,006,548      80,390,976      —
                           
   $ 2,565,263,383    $ 732,518,225    $ 171,804,589    $ 153,472,336
                           
100   Notes to Financial Statements

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Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

Affiliate    Purchases Cost    Sales Cost    Income Distributions    Capital Gains
Distributions
           

Moderate Strategy Fund

            

Diversified Equity Fund

    $ 18,389,934    $ 28,720,447    $ 2,128,589    $ 4,265,054

Special Growth Fund

      9,552,376      6,223,079      1,136,095      3,175,015

Quantitative Equity Fund

      23,041,215      24,701,155      2,117,434      5,110,313

International Securities Fund

      26,221,124      44,321,230      6,231,836      6,787,709

Emerging Markets Fund

      24,977,919      7,868,187      —      —

Global Equity Fund

      38,333,910      5,219,016      —      —

Real Estate Securities Fund

      17,541,395      19,428,474      1,382,471      2,788,530

Multistrategy Bond Fund

      803,411,935      66,456,267      20,520,764      —
                           
   $ 961,469,808    $ 202,937,855    $ 33,517,189    $ 22,126,621
                           

Conservative Strategy Fund

            

Diversified Equity Fund

    $ 8,941,908    $ 12,901,669    $ 529,015    $ 1,085,455

Quantitative Equity Fund

      8,757,753      13,622,261      501,132      1,300,029

International Securities Fund

      11,358,872      7,817,765      675,891      736,179

Global Equity Fund

      11,230,282      2,758,550      —      —

Real Estate Securities Fund

      9,431,619      7,046,178      459,286      836,034

Short Duration Bond Fund

      25,819,709      191,464,818      6,888,052      —

Multistrategy Bond Fund

      310,189,427      25,092,656      8,050,502      —
                           
   $ 385,729,570    $ 260,703,897    $ 17,103,878    $ 3,957,697
                           

2010 Strategy Fund

            

Diversified Equity Fund

    $ 2,830,439    $ 964,426    $ 27,066    $ 43,260

Special Growth Fund

      841,909      263,935      11,469      32,050

Quantitative Equity Fund

      2,928,208      888,605      27,287      51,825

International Securities Fund

      2,691,162      1,178,776      62,979      68,596

Emerging Markets Fund

      610,392      179,935      —      —

Global Equity Fund

      1,044,949      187,602      —      —

Real Estate Securities Fund

      1,122,544      466,240      18,720      28,283

Short Duration Bond Fund

      4,254,048      6,494,195      89,265      —

Multistrategy Bond Fund

      22,358,228      2,977,454      400,065      —
                           
   $ 38,681,879    $ 13,601,168    $ 636,851    $ 224,014
                           

2020 Strategy Fund

            

Diversified Equity Fund

    $ 11,498,200    $ 3,027,994    $ 112,176    $ 168,773

Special Growth Fund

      3,208,815      665,137      39,672      110,868

Quantitative Equity Fund

      12,011,520      2,730,079      113,518      202,150

International Securities Fund

      11,061,034      3,570,971      232,923      253,700

Emerging Markets Fund

      2,249,648      957,689      46,246      89,071

Global Equity Fund

      3,822,107      562,629      —      —

Real Estate Securities Fund

      4,493,905      957,456      74,454      90,703

Multistrategy Bond Fund

      35,643,402      5,753,430      844,392      —
                           
   $ 83,988,631    $ 18,225,385    $ 1,463,381    $ 915,265
                           

2030 Strategy Fund

            

Diversified Equity Fund

    $ 11,580,695    $ 3,250,882    $ 134,632    $ 218,956

Special Growth Fund

      3,506,693      594,488      44,484      124,318

Quantitative Equity Fund

      12,344,065      3,075,636      135,231      262,280

International Securities Fund

      9,986,242      2,589,730      263,735      287,259

Emerging Markets Fund

      1,946,789      688,124      56,184      108,212

Global Equity Fund

      4,346,556      550,988      —      —

Real Estate Securities Fund

      3,996,696      890,698      71,789      96,590

Multistrategy Bond Fund

      3,827,680      1,079,954      102,404      —
                           
   $ 51,535,416    $ 12,720,500    $ 808,459    $ 1,097,615
                           
Notes to Financial Statements   101

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LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Affiliate    Purchases Cost    Sales Cost    Income Distributions    Capital Gains
Distributions
           

2040 Strategy Fund

            

Diversified Equity Fund

    $ 8,801,555    $ 1,811,065    $ 100,053    $ 156,819

Special Growth Fund

      2,632,601      290,635      31,586      88,275

Quantitative Equity Fund

      9,406,749      1,688,342      100,602      187,822

International Securities Fund

      7,740,387      1,313,681      188,041      204,813

Emerging Markets Fund

      1,553,884      450,953      40,272      77,565

Global Equity Fund

      3,246,879      252,729      —      —

Real Estate Securities Fund

      2,925,635      427,235      52,695      68,064
                           
   $ 36,307,690    $ 6,234,640    $ 513,249    $ 783,358
                           

For the period ended October 31, 2007, 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 any Underlying Fund.

 

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, 2007, the Funds had no capital loss carryforwards.

For the period ended October 31, 2007, 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 Growth
Strategy Fund		   Growth Strategy
Fund		   Balanced Strategy
Fund		   Moderate Strategy
Fund		   Conservative Strategy
Fund
         

Cost of Investments

   $ 1,761,324,473   $ 3,502,155,508   $ 4,967,265,551   $ 1,081,522,733   $ 440,136,429
                             

Unrealized Appreciation

   $ 511,709,347   $ 885,398,627   $ 1,015,010,008   $ 157,670,429   $ 36,815,792

Unrealized Depreciation

     —     —     —     —     —
                             

Net Unrealized Appreciation (Depreciation)

   $ 511,709,347   $ 885,398,627   $ 1,015,010,008   $ 157,670,429   $ 36,815,792
                             

Undistributed Ordinary Income

   $ 2,358,225   $ 6,634,970   $ 10,700,665   $ 4,765,601   $ 1,087,517

Undistributed Long-Term Capital Gains (Capital Loss Carryforward)

   $ 85,650,424   $ 146,729,697   $ 171,977,354   $ 24,988,782   $ 4,196,237

Tax Composition of Distributions:

          

Ordinary Income

   $ 40,830,882   $ 97,293,214   $ 163,816,370   $ 39,688,265   $ 16,772,329

Long-Term Capital Gains

   $ 41,934,881   $ 77,802,179   $ 97,962,326   $ 16,965,875   $ 9,737,931
    2010 Strategy
Fund		   2020 Strategy
Fund		   2030 Strategy
Fund		   2040 Strategy
Fund		    

Cost of Investments

   $ 31,132,797   $ 82,540,071   $ 57,081,400   $ 42,573,862  
                         

Unrealized Appreciation

   $ 1,632,161   $ 6,372,550   $ 6,218,585   $ 5,245,346  

Unrealized Depreciation

     —     —     —     —  
                         

Net Unrealized Appreciation (Depreciation)

   $ 1,632,161   $ 6,372,550   $ 6,218,585   $ 5,245,346  
                         

Undistributed Ordinary Income

   $ 98,835   $ 287,632   $ 140,055   $ 76,499  

Undistributed Long-Term Capital Gains (Capital Loss Carryforward)

   $ 166,388   $ 800,280   $ 975,009   $ 752,553  

Tax Composition of Distributions:

          

Ordinary Income

   $ 663,017   $ 1,433,599   $ 732,301   $ 473,429  

Long-Term Capital Gains

   $ 119,737   $ 101,799   $ 91,922   $ 120,885  

 

102   Notes to Financial Statements

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LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
Equity Growth Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    13,055     9,416     $ 170,060     $ 110,447  

Proceeds from reinvestment of distributions

    892     160       11,107       1,819  

Payments for shares redeemed

    (3,354 )   (1,562 )     (43,909 )     (18,295 )
                            

Net increase (decrease)

    10,593     8,014       137,258       93,971  
                            
        

Class C

         

Proceeds from shares sold

    16,879     13,818       209,627       154,921  

Proceeds from reinvestment of distributions

    1,878     364       22,287       3,907  

Payments for shares redeemed

    (6,948 )   (5,484 )     (86,746 )     (61,228 )
                            

Net increase (decrease)

    11,809     8,698       145,168       97,600  
                            
        

Class E

         

Proceeds from shares sold

    8,080     6,110       103,172       70,060  

Proceeds from reinvestment of distributions

    1,083     305       13,264       3,384  

Payments for shares redeemed

    (6,105 )   (5,212 )     (78,544 )     (59,036 )
                            

Net increase (decrease)

    3,058     1,203       37,892       14,408  
                            
        

Class R1

         

Proceeds from shares sold

    796     112       10,389       1,284  

Proceeds from reinvestment of distributions

    6     —       73       2  

Payments for shares redeemed

    (172 )   (1 )     (2,223 )     (9 )
                            

Net increase (decrease)

    630     111       8,239       1,277  
                            
        

Class R2

         

Proceeds from shares sold

    373     1,662       4,750       19,455  

Proceeds from reinvestment of distributions

    79     5       967       58  

Payments for shares redeemed

    (208 )   (120 )     (2,693 )     (1,424 )
                            

Net increase (decrease)

    244     1,547       3,024       18,089  
                            
        

Class R3(3)

         

Proceeds from shares sold

    9,103     9,161       116,246       105,456  

Proceeds from reinvestment of distributions

    1,781     446       21,774       4,926  

Payments for shares redeemed

    (6,348 )   (4,066 )     (81,212 )     (46,661 )
                            

Net increase (decrease)

    4,536     5,541       56,808       63,721  
                            
        

Class S

         

Proceeds from shares sold

    11,141     9,138       145,366       106,965  

Proceeds from reinvestment of distributions

    930     237       11,545       2,688  

Payments for shares redeemed

    (7,858 )   (3,758 )     (103,322 )     (43,785 )
                            

Net increase (decrease)

    4,213     5,617       53,589       65,868  
                            

Total increase (decrease)

    35,083     30,731     $ 441,978     $ 354,934  
                            
Notes to Financial Statements   103

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LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Growth Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    25,662     24,393     $ 328,785     $ 286,986  

Proceeds from reinvestment of distributions

    3,130     857       39,074       9,986  

Payments for shares redeemed

    (6,687 )   (4,141 )     (86,175 )     (48,906 )
                            

Net increase (decrease)

    22,105     21,109       281,684       248,066  
                            
        

Class C

         

Proceeds from shares sold

    26,590     25,134       338,379       293,331  

Proceeds from reinvestment of distributions

    3,224     813       39,648       9,301  

Payments for shares redeemed

    (12,899 )   (9,615 )     (165,014 )     (112,051 )
                            

Net increase (decrease)

    16,915     16,332       213,013       190,581  
                            
        

Class E

         

Proceeds from shares sold

    12,254     11,277       156,909       132,319  

Proceeds from reinvestment of distributions

    2,265     800       28,263       9,290  

Payments for shares redeemed

    (8,993 )   (7,916 )     (115,825 )     (92,603 )
                            

Net increase (decrease)

    5,526     4,161       69,347       49,006  
                            
        

Class R1

         

Proceeds from shares sold

    1,143     147       14,798       1,694  

Proceeds from reinvestment of distributions

    28     1       354       11  

Payments for shares redeemed

    (195 )   —       (2,489 )     (1 )
                            

Net increase (decrease)

    976     148       12,663       1,704  
                            
        

Class R2

         

Proceeds from shares sold

    464     960       5,918       11,471  

Proceeds from reinvestment of distributions

    50     8       620       94  

Payments for shares redeemed

    (148 )   (115 )     (1,921 )     (1,382 )
                            

Net increase (decrease)

    366     853       4,617       10,183  
                            
        

Class R3(3)

         

Proceeds from shares sold

    11,128     12,397       143,042       146,016  

Proceeds from reinvestment of distributions

    3,346     1,116       41,753       12,971  

Payments for shares redeemed

    (8,379 )   (4,163 )     (108,206 )     (48,966 )
                            

Net increase (decrease)

    6,095     9,350       76,589       110,021  
                            
        

Class S

         

Proceeds from shares sold

    13,660     13,215       176,462       155,660  

Proceeds from reinvestment of distributions

    1,726     638       21,685       7,464  

Payments for shares redeemed

    (12,782 )   (8,492 )     (165,858 )     (100,002 )
                            

Net increase (decrease)

    2,604     5,361       32,289       63,122  
                            

Total increase (decrease)

    54,587     57,314     $ 690,202     $ 672,683  
                            
104   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Balanced Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    30,989     33,691     $ 384,180     $ 390,271  

Proceeds from reinvestment of distributions

    4,710     1,831       57,433       21,147  

Payments for shares redeemed

    (14,254 )   (7,740 )     (176,923 )     (89,667 )
                            

Net increase (decrease)

    21,445     27,782       264,690       321,751  
                            
        

Class C

         

Proceeds from shares sold

    41,510     38,041       511,730       438,872  

Proceeds from reinvestment of distributions

    5,296     2,024       63,959       23,154  

Payments for shares redeemed

    (20,573 )   (18,581 )     (253,738 )     (213,793 )
                            

Net increase (decrease)

    26,233     21,484       321,951       248,233  
                            
        

Class E

         

Proceeds from shares sold

    15,730     13,696       195,313       159,160  

Proceeds from reinvestment of distributions

    2,886     1,334       35,239       15,399  

Payments for shares redeemed

    (11,136 )   (10,601 )     (138,689 )     (122,935 )
                            

Net increase (decrease)

    7,480     4,429       91,863       51,624  
                            
        

Class R1

         

Proceeds from shares sold

    1,790     358       22,407       4,173  

Proceeds from reinvestment of distributions

    60     3       741       36  

Payments for shares redeemed

    (149 )   (11 )     (1,863 )     (122 )
                            

Net increase (decrease)

    1,701     350       21,285       4,087  
                            
        

Class R2

         

Proceeds from shares sold

    745     1,315       9,179       15,201  

Proceeds from reinvestment of distributions

    79     16       964       183  

Payments for shares redeemed

    (338 )   (97 )     (4,193 )     (1,144 )
                            

Net increase (decrease)

    486     1,234       5,950       14,240  
                            
        

Class R3(3)

         

Proceeds from shares sold

    17,043     15,268       212,147       177,564  

Proceeds from reinvestment of distributions

    4,893     2,214       59,637       25,556  

Payments for shares redeemed

    (14,804 )   (6,079 )     (184,826 )     (70,592 )
                            

Net increase (decrease)

    7,132     11,403       86,958       132,528  
                            
        

Class S

         

Proceeds from shares sold

    24,886     21,018       311,093       245,739  

Proceeds from reinvestment of distributions

    2,954     1,383       36,234       16,059  

Payments for shares redeemed

    (27,611 )   (12,921 )     (347,137 )     (150,829 )
                            

Net increase (decrease)

    229     9,480       190       110,969  
                            

Total increase (decrease)

    64,706     76,162     $ 792,887     $ 883,432  
                            
Notes to Financial Statements   105

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Moderate Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    5,814     4,731     $ 67,785     $ 52,681  

Proceeds from reinvestment of distributions

    756     399       8,719       4,444  

Payments for shares redeemed

    (3,400 )   (2,005 )     (39,680 )     (22,390 )
                            

Net increase (decrease)

    3,170     3,125       36,824       34,735  
                            
        

Class C

         

Proceeds from shares sold

    6,915     8,818       80,137       97,636  

Proceeds from reinvestment of distributions

    966     468       11,074       5,190  

Payments for shares redeemed

    (8,050 )   (4,352 )     (92,709 )     (48,365 )
                            

Net increase (decrease)

    (169 )   4,934       (1,498 )     54,461  
                            
        

Class E

         

Proceeds from shares sold

    5,954     5,555       69,478       61,913  

Proceeds from reinvestment of distributions

    867     502       10,004       5,591  

Payments for shares redeemed

    (5,352 )   (5,488 )     (62,464 )     (61,186 )
                            

Net increase (decrease)

    1,469     569       17,018       6,318  
                            
        

Class R1

         

Proceeds from shares sold

    204     —       2,376       —  

Proceeds from reinvestment of distributions

    3     —       30       —  

Payments for shares redeemed

    (34 )   —       (397 )     —  
                            

Net increase (decrease)

    173     —       2,009       —  
                            
        

Class R2

         

Proceeds from shares sold

    231     237       2,665       2,672  

Proceeds from reinvestment of distributions

    12     3       134       36  

Payments for shares redeemed

    (49 )   (97 )     (572 )     (1,090 )
                            

Net increase (decrease)

    194     143       2,227       1,618  
                            
        

Class R3(3)

         

Proceeds from shares sold

    5,097     5,196       59,503       58,041  

Proceeds from reinvestment of distributions

    1,579     910       18,257       10,164  

Payments for shares redeemed

    (5,703 )   (3,181 )     (66,718 )     (35,510 )
                            

Net increase (decrease)

    973     2,925       11,042       32,695  
                            
        

Class S

         

Proceeds from shares sold

    8,119     4,025       94,417       45,044  

Proceeds from reinvestment of distributions

    574     343       6,650       3,830  

Payments for shares redeemed

    (6,566 )   (3,877 )     (76,874 )     (43,385 )
                            

Net increase (decrease)

    2,127     491       24,193       5,489  
                            

Total increase (decrease)

    7,937     12,187     $ 91,815     $ 135,316  
                            
106   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Conservative Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    1,721     1,659     $ 18,654     $ 17,916  

Proceeds from reinvestment of distributions

    241     133       2,595       1,428  

Payments for shares redeemed

    (1,425 )   (1,340 )     (15,496 )     (14,432 )
                            

Net increase (decrease)

    537     452       5,753       4,912  
                            
        

Class C

         

Proceeds from shares sold

    3,293     2,198       35,593       23,592  

Proceeds from reinvestment of distributions

    399     235       4,284       2,515  

Payments for shares redeemed

    (3,361 )   (3,357 )     (36,263 )     (36,070 )
                            

Net increase (decrease)

    331     (924 )     3,614       (9,963 )
                            
        

Class E

         

Proceeds from shares sold

    2,748     2,461       29,955       26,529  

Proceeds from reinvestment of distributions

    459     386       4,957       4,155  

Payments for shares redeemed

    (2,913 )   (12,708 )     (31,656 )     (137,627 )
                            

Net increase (decrease)

    294     (9,861 )     3,256       (106,943 )
                            
        

Class R1

         

Proceeds from shares sold

    214     —       2,317       —  

Proceeds from reinvestment of distributions

    4     —       40       —  

Payments for shares redeemed

    (45 )   —       (491 )     —  
                            

Net increase (decrease)

    173     —       1,866       —  
                            
        

Class R2

         

Proceeds from shares sold

    165     226       1,787       2,454  

Proceeds from reinvestment of distributions

    12     4       129       47  

Payments for shares redeemed

    (25 )   (97 )     (273 )     (1,045 )
                            

Net increase (decrease)

    152     133       1,643       1,456  
                            
        

Class R3(3)

         

Proceeds from shares sold

    3,391     3,663       36,998       39,750  

Proceeds from reinvestment of distributions

    1,005     564       10,879       6,096  

Payments for shares redeemed

    (3,859 )   (2,456 )     (42,140 )     (26,603 )
                            

Net increase (decrease)

    537     1,771       5,737       19,243  
                            
        

Class S

         

Proceeds from shares sold

    3,735     1,869       40,640       20,258  

Proceeds from reinvestment of distributions

    264     157       2,858       1,697  

Payments for shares redeemed

    (3,147 )   (1,962 )     (34,345 )     (21,288 )
                            

Net increase (decrease)

    852     64       9,153       667  
                            

Total increase (decrease)

    2,876     (8,365 )   $ 31,022     $ (90,628 )
                            
Notes to Financial Statements   107

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
2010 Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    84     57     $ 922     $ 592  

Proceeds from reinvestment of distributions

    8     3       87       35  

Payments for shares redeemed

    (79 )   —       (873 )     —  
                            

Net increase (decrease)

    13     60       136       627  
                            
        

Class E

         

Proceeds from shares sold

    349     143       3,822       1,502  

Proceeds from reinvestment of distributions

    12     3       128       32  

Payments for shares redeemed

    (79 )   (111 )     (868 )     (1,178 )
                            

Net increase (decrease)

    282     35       3,082       356  
                            
        

Class R1

         

Proceeds from shares sold

    453     16       5,013       165  

Proceeds from reinvestment of distributions

    7     —       77       2  

Payments for shares redeemed

    (26 )   (2 )     (285 )     (24 )
                            

Net increase (decrease)

    434     14       4,805       143  
                            
        

Class R2

         

Proceeds from shares sold

    61     —       673       —  

Proceeds from reinvestment of distributions

    1     —       9       —  

Payments for shares redeemed

    (2 )   —       (17 )     —  
                            

Net increase (decrease)

    60     —       665       —  
                            
        

Class R3(3)

         

Proceeds from shares sold

    1,590     334       17,525       3,539  

Proceeds from reinvestment of distributions

    29     5       315       55  

Payments for shares redeemed

    (451 )   (145 )     (4,990 )     (1,527 )
                            

Net increase (decrease)

    1,168     194       12,850       2,067  
                            
        

Class S

         

Proceeds from shares sold

    317     125       3,497       1,314  

Proceeds from reinvestment of distributions

    15     3       166       35  

Payments for shares redeemed

    (233 )   (105 )     (2,559 )     (1,119 )
                            

Net increase (decrease)

    99     23       1,104       230  
                            

Total increase (decrease)

    2,056     326     $ 22,642     $ 3,423  
                            
108   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
2020 Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    96     93     $ 1,116     $ 988  

Proceeds from reinvestment of distributions

    4     3       41       32  

Payments for shares redeemed

    (130 )   —       (1,483 )     (5 )
                            

Net increase (decrease)

    (30 )   96       (326 )     1,015  
                            
        

Class E

         

Proceeds from shares sold

    686     199       7,950       2,124  

Proceeds from reinvestment of distributions

    13     3       146       31  

Payments for shares redeemed

    (122 )   (114 )     (1,450 )     (1,189 )
                            

Net increase (decrease)

    577     88       6,646       966  
                            
        

Class R1

         

Proceeds from shares sold

    1,675     62       19,705       660  

Proceeds from reinvestment of distributions

    32     1       369       7  

Payments for shares redeemed

    (224 )   —       (2,640 )     (3 )
                            

Net increase (decrease)

    1,483     63       17,434       664  
                            
        

Class R2

         

Proceeds from shares sold

    281     57       3,267       623  

Proceeds from reinvestment of distributions

    5     —       55       3  

Payments for shares redeemed

    (10 )   —       (112 )     (1 )
                            

Net increase (decrease)

    276     57       3,210       625  
                            
        

Class R3(3)

         

Proceeds from shares sold

    3,901     734       45,547       7,879  

Proceeds from reinvestment of distributions

    52     9       608       92  

Payments for shares redeemed

    (1,232 )   (62 )     (14,581 )     (670 )
                            

Net increase (decrease)

    2,721     681       31,574       7,301  
                            
        

Class S

         

Proceeds from shares sold

    608     540       7,055       5,803  

Proceeds from reinvestment of distributions

    27     6       315       60  

Payments for shares redeemed

    (358 )   (117 )     (4,197 )     (1,247 )
                            

Net increase (decrease)

    277     429       3,173       4,616  
                            

Total increase (decrease)

    5,304     1,414     $ 61,711     $ 15,187  
                            
Notes to Financial Statements   109

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
2030 Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    97     246     $ 1,188     $ 2,643  

Proceeds from reinvestment of distributions

    8     4       92       38  

Payments for shares redeemed

    (70 )   (99 )     (847 )     (1,081 )
                            

Net increase (decrease)

    35     151       433       1,600  
                            
        

Class E

         

Proceeds from shares sold

    560     418       6,785       4,593  

Proceeds from reinvestment of distributions

    16     3       185       32  

Payments for shares redeemed

    (183 )   (122 )     (2,212 )     (1,343 )
                            

Net increase (decrease)

    393     299       4,758       3,282  
                            
        

Class R1

         

Proceeds from shares sold

    640     30       8,012       323  

Proceeds from reinvestment of distributions

    3     —       34       3  

Payments for shares redeemed

    (25 )   —       (312 )     (3 )
                            

Net increase (decrease)

    618     30       7,734       323  
                            
        

Class R2

         

Proceeds from shares sold

    208     55       2,506       610  

Proceeds from reinvestment of distributions

    2     —       29       2  

Payments for shares redeemed

    (11 )   —       (136 )     —  
                            

Net increase (decrease)

    199     55       2,399       612  
                            
        

Class R3(3)

         

Proceeds from shares sold

    2,093     729       25,650       7,944  

Proceeds from reinvestment of distributions

    26     6       310       63  

Payments for shares redeemed

    (626 )   (162 )     (7,673 )     (1,754 )
                            

Net increase (decrease)

    1,493     573       18,287       6,253  
                            
        

Class S

         

Proceeds from shares sold

    634     252       7,692       2,780  

Proceeds from reinvestment of distributions

    14     3       167       32  

Payments for shares redeemed

    (267 )   (139 )     (3,315 )     (1,534 )
                            

Net increase (decrease)

    381     116       4,544       1,278  
                            

Total increase (decrease)

    3,119     1,224     $ 38,155     $ 13,348  
                            
110   Notes to Financial Statements

Table of Contents

Russell Investment Company

LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
2040 Strategy Fund    2007     2006     2007     2006  
        
        

Class A

         

Proceeds from shares sold

    67     63     $ 842     $ 674  

Proceeds from reinvestment of distributions

    6     2       70       25  

Payments for shares redeemed

    (58 )   (1 )     (723 )     (14 )
                            

Net increase (decrease)

    15     64       189       685  
                            
        

Class E

         

Proceeds from shares sold

    280     282       3,396       3,104  

Proceeds from reinvestment of distributions

    12     2       146       27  

Payments for shares redeemed

    (84 )   (121 )     (1,051 )     (1,308 )
                            

Net increase (decrease)

    208     163       2,491       1,823  
                            
        

Class R1

         

Proceeds from shares sold

    238     8       3,006       86  

Proceeds from reinvestment of distributions

    1     —       15       1  

Payments for shares redeemed

    (29 )   —       (357 )     —  
                            

Net increase (decrease)

    210     8       2,664       87  
                            
        

Class R2

         

Proceeds from shares sold

    68     106       850       1,188  

Proceeds from reinvestment of distributions

    4     1       47       10  

Payments for shares redeemed

    (26 )   —       (322 )     —  
                            

Net increase (decrease)

    46     107       575       1,198  
                            
        

Class R3(3)

         

Proceeds from shares sold

    2,140     444       26,363       4,863  

Proceeds from reinvestment of distributions

    19     4       227       44  

Payments for shares redeemed

    (418 )   (144 )     (5,256 )     (1,584 )
                            

Net increase (decrease)

    1,741     304       21,334       3,323  
                            
        

Class S

         

Proceeds from shares sold

    286     162       3,520       1,824  

Proceeds from reinvestment of distributions

    7     3       89       30  

Payments for shares redeemed

    (107 )   (124 )     (1,344 )     (1,438 )
                            

Net increase (decrease)

    186     41       2,265       416  
                            

Total increase (decrease)

    2,406     687     $ 29,518     $ 7,532  
                            

 

7.   Interfund Lending Program

The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from the RIC Money Market Fund for Temporary purposes. All such borrowing and lending will be subject to a participating fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in

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LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

repayment to the RIC Money Market Fund could result in a lost investment opportunity of additional borrowing costs. The funds did not participate in the credit facility for the period ended October 31, 2007.

 

8.   Record Ownership

As of October 31, 2007, the following table includes shareholders of record with greater than 10% of the total outstanding shares of each respective Fund.

 

Funds    # of Shareholders      %  

Equity Growth Strategy

    2      27.6  

Growth Strategy

    1      16.2  

Balanced Strategy

    1      15.1  

Moderate Strategy

    1      22.7  

Conservative Strategy

    2      39.4  

2010 Strategy

    3      49.6 *

2020 Strategy

    3      49.0 *

2030 Strategy

    3      56.1 *

2040 Strategy

    4      61.7 *

 

* Northwestern Mutual Life Insurance Company separate accounts were a shareholder in the Fund.

 

9.   Dividends

On December 18, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 21, 2007 to shareholders on record December 19, 2007.

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains

Equity Growth Strategy – Class A

    $ 0.4655    $ 0.0144    $ 0.5175

Equity Growth Strategy – Class C

      0.4482      0.0144      0.5175

Equity Growth Strategy – Class E

      0.4654      0.0144      0.5175

Equity Growth Strategy – Class R1

      0.4714      0.0144      0.5175

Equity Growth Strategy – Class R2

      0.4666      0.0144      0.5175

Equity Growth Strategy – Class R3

      0.4591      0.0144      0.5175

Equity Growth Strategy – Class S

      0.4714      0.0144      0.5175

Growth Strategy – Class A

      0.4027      0.0206      0.4543

Growth Strategy – Class C

      0.3847      0.0206      0.4543

Growth Strategy – Class E

      0.4025      0.0206      0.4543

Growth Strategy – Class R1

      0.4085      0.0206      0.4543

Growth Strategy – Class R2

      0.4051      0.0206      0.4543

Growth Strategy – Class R3

      0.3963      0.0206      0.4543

Growth Strategy – Class S

      0.4085      0.0206      0.4543

Balanced Strategy – Class A

      0.3504      0.0233      0.3734

Balanced Strategy – Class C

      0.3330      0.0233      0.3734

Balanced Strategy – Class E

      0.3502      0.0233      0.3734

Balanced Strategy – Class R1

      0.3560      0.0233      0.3734

Balanced Strategy – Class R2

      0.3532      0.0233      0.3734

Balanced Strategy – Class R3

      0.3441      0.0233      0.3734

Balanced Strategy – Class S

      0.3560      0.0233      0.3734

Moderate Strategy – Class A

      0.2774      0.0460      0.2412

Moderate Strategy – Class C

      0.2613      0.0460      0.2412

Moderate Strategy – Class E

      0.2773      0.0460      0.2412

Moderate Strategy – Class R1

      0.2826      0.0460      0.2412

Moderate Strategy – Class R2

      0.2797      0.0460      0.2412

Moderate Strategy – Class R3

      0.2718      0.0460      0.2412

Moderate Strategy – Class S

      0.2826      0.0460      0.2412
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LifePoints® Funds

Notes to Financial Statements, continued — October 31, 2007

 

Funds    Net Investment
Income		    Short-Term
Capital Gains		    Long-Term
Capital Gains

Conservative Strategy – Class A

    0.1908    0.0257    0.0972

Conservative Strategy – Class C

    0.1756    0.0257    0.0972

Conservative Strategy – Class E

    0.1906    0.0257    0.0972

Conservative Strategy – Class R1

    0.1955    0.0257    0.0972

Conservative Strategy – Class R2

    0.1924    0.0257    0.0972

Conservative Strategy – Class R3

    0.1857    0.0257    0.0972

Conservative Strategy – Class S

    0.1955    0.0257    0.0972

2010 Strategy Class – Class A

    0.2493    0.0307    0.0517

2010 Strategy Class – Class E

    0.2496    0.0307    0.0517

2010 Strategy Class – Class R1

    0.2545    0.0307    0.0517

2010 Strategy Class – Class R2

    0.2538    0.0307    0.0517

2010 Strategy Class – Class R3

    0.2420    0.0307    0.0517

2010 Strategy Class – Class S

    0.2545    0.0307    0.0517

2020 Strategy Class – Class A

    0.3218    0.0372    0.1015

2020 Strategy Class – Class E

    0.3218    0.0372    0.1015

2020 Strategy Class – Class R1

    0.3273    0.0372    0.1015

2020 Strategy Class – Class R2

    0.3261    0.0372    0.1015

2020 Strategy Class – Class R3

    0.3138    0.0372    0.1015

2020 Strategy Class – Class S

    0.3273    0.0372    0.1015

2030 Strategy Class – Class A

    0.3938    0.0240    0.1610

2030 Strategy Class – Class E

    0.3934    0.0240    0.1610

2030 Strategy Class – Class R1

    0.3993    0.0240    0.1610

2030 Strategy Class – Class R2

    0.3983    0.0240    0.1610

2030 Strategy Class – Class R3

    0.3861    0.0240    0.1610

2030 Strategy Class – Class S

    0.3993    0.0240    0.1610

2040 Strategy Class – Class A

    0.4043    0.0168    0.1650

2040 Strategy Class – Class E

    0.4042    0.0168    0.1650

2040 Strategy Class – Class R1

    0.4100    0.0168    0.1650

2040 Strategy Class – Class R2

    0.4091    0.0168    0.1650

2040 Strategy Class – Class R3

    0.3975    0.0168    0.1650

2040 Strategy Class – Class S

    0.4100    0.0168    0.1650
Notes to Financial Statements   113

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Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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 Growth Strategy Fund, Growth 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 Russell Investment Company, hereafter collectively referred to as the “Funds”) at October 31, 2007, 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 audits 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, 2007 by correspondence with the transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

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LifePoints® Funds

Tax Information — October 31, 2007 (Unaudited)

 

 

For the tax year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Funds hereby designate under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Form 1099 mailed to you in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:

 

Equity Growth Strategy Fund

    24.6 %

Growth Strategy Fund

    16.7 %

Balanced Strategy Fund

    10.1 %

Moderate Strategy Fund

    6.1 %

Conservative Strategy Fund

    3.3 %

2010 Strategy Fund

    4.6 %

2020 Strategy Fund

    8.2 %

2030 Strategy Fund

    20.1 %

2040 Strategy Fund

    24.8 %

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, 2007:

 

  

Equity Growth Strategy Fund

    $         41,934,881

Growth Strategy Fund

      77,802,179

Balanced Strategy Fund

      97,962,326

Moderate Strategy Fund

      16,965,875

Conservative Strategy Fund

      9,737,931

2010 Strategy Fund

      119,737

2020 Strategy Fund

      101,799

2030 Strategy Fund

      91,922

2040 Strategy Fund

      120,885

Please consult a tax advisor for any questions about federal or state income tax laws.

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LifePoints® 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 RIMCo (the ‘‘RIMCo Agreement’’) and the portfolio management contract with each Money Manager of the Underlying Funds (collectively, the ‘‘portfolio management contracts’’) at a meeting held on April 24, 2007. During the course of a year, the Trustees receive a wide variety of materials regarding the investment performance of the Funds, sales and redemptions of the Funds’ and Underlying Funds’ shares, and the management of the Funds and the Underlying Funds by RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds and the Underlying Funds; (2) information (the ‘‘Third-Party 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 respective operating expenses over various periods of time with other peer funds (‘‘Comparable Funds’’) not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds and the Underlying Funds; and (3) RIMCo’s response to questions from the Board concerning the Third-Party Information addressing, among other things, performance and expense differentials between certain Funds and Underlying Funds and their respective Comparable Funds. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuances.

On April 23, 2007, the Independent Trustees met to review the Agreement Renewal Information in a private session with their independent counsel at which no representatives of RIMCo or management were present. At the April 24 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews.

In evaluating the portfolio management contracts, 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. RIMCo has engaged multiple Money Managers for all Underlying Funds.

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for allocating assets of each Fund among its Underlying Funds and for determining, implementing and maintaining the investment program for each Underlying Fund. The assets of each Fund are invested in different combinations of the Underlying Funds pursuant to target asset allocations set by RIMCo. RIMCo may modify the target asset allocation for any Fund and/or the Underlying Funds in which the Funds invest. Assets of each Underlying Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Underlying Fund. RIMCo manages directly a portion of certain Underlying Funds’ assets employing a “select holdings strategy,” as described below, and directly manages the investment of each Underlying Fund’s cash reserves. RIMCo also may manage directly any portion of each Underlying Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of an Underlying Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo in accordance with the RIMCo Agreement.

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Underlying Fund and for actively managing allocations and reallocations of its assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk aware manner. 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 RIMCo (each, a ‘‘segment’’) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in an Underlying Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Underlying Fund’s investment objective 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

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LifePoints® Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

termination of portfolio management contracts, RIMCo 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 RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may assign specific investment 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, the performance of individual Money Managers for an Underlying Fund may reflect the roles assigned to them by RIMCo in the Underlying Funds’ investment activities and any constraints placed by RIMCo upon their selection of portfolio securities. In light of the foregoing, the overall performance of each Underlying Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Underlying Fund’s investment program, structuring an Underlying Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment 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. The Board considered that the prospectuses for the Funds and the Underlying Funds and other public disclosures emphasize to investors RIMCo’s role as the principal investment manager for each Underlying Fund, rather than the investment selection role of the Underlying Funds’ Money Managers, and describe the manner in which the Funds or Underlying Funds operate so that investors may take that information into account when deciding to purchase shares of any Fund.

The Board also considered the special expertise of RIMCo with respect to the manager-of-managers structure of the Underlying Funds and the likelihood that, at the current expense ratio of each such Underlying Fund, there would be no acceptable alternative investment managers to replace RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each such Underlying Fund selected by shareholders in purchasing their shares of a Fund or Underlying 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 in evaluating renewal of the RIMCo Agreement, including the following:

 

  1. The nature, scope and quality of the services provided to the Fund and the Underlying Fund by RIMCo;

 

  2. The advisory fee paid by the Fund or the Underlying Fund to RIMCo 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 RIMCo as to other fees and benefits received by RIMCo 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 RIMCo as to expenses incurred by the Fund or the Underlying Fund; and

 

  5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund or Underlying Fund.

As noted above, RIMCo pursuant to the terms of the RIMCo Agreement directly manages a portion — up to 10% — of the assets of each of the Diversified Equity Fund, the Quantitative Equity Fund and the International Securities Fund (each a ‘‘Participating Underlying Fund’’) utilizing a select holdings strategy, the actual allocation being determined by each Participating Underlying Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets for a Participating Underlying Fund is designed to increase the Participating Underlying Fund’s exposure to stocks that are viewed as attractive by multiple Money Managers of that Participating Underlying Fund. The Board reviewed the results of the select holdings strategy in respect of each Participating Underlying Fund since implementation taking into account that the strategy has been utilized for a limited period of time. The Trustees considered that RIMCo 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 RIMCo generally and from the Participating Underlying Fund consequently may increase incrementally. The Board, however, also considered RIMCo’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 carrying out the select holdings strategy; the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment advisory fees paid by the Participating Underlying Fund are not increased as a result of the select holdings strategy.

At the April 24 Board meeting, RIMCo and management discussed the reasonableness of the Funds’ and the Underlying Funds’ investment advisory fees. In discussing whether the Funds’ and the Underlying Funds’ performance supported these fees, RIMCo noted differences between the investment strategies of certain Underlying Funds and their respective Comparable Funds in

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pursuing their investment objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Underlying Funds during the periods covered by the Third-Party Information did result, in lower performance of the Funds than that of some of their respective Comparable Funds. Among other things, RIMCo stated that the strategies pursued by the Underlying Funds are intended to result in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time. RIMCo stated that certain Funds have lower allocations to equity Underlying Funds and higher allocations to fixed income Underlying Funds than some of their respective Comparable Funds, and as a result, other Funds had lower performance than that of some of their Comparable Funds during the periods covered by the Third-Party Information.

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the course of the year or presented at the April 24 Board meeting by RIMCo, the Board, in respect of each Fund and Underlying Fund, found, after giving effect to waivers and/or reimbursements and considering differences in the composition and investment strategies of their respective Comparable Funds (1) the advisory fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Funds or Underlying Funds; (2) the relative expense ratio of each Fund and Underlying Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund and each Underlying Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. The Board also concluded that the performance of each of the Funds and Underlying Funds supported continuation of the RIMCo Agreement. In evaluating performance, the Board considered each Fund’s and Underlying Fund’s absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. The Board also considered RIMCo’s investment strategy of managing the Underlying Funds in a risk aware manner.

At the April 24 Board meeting, 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. The Board determined that the investment advisory fees for each Fund or Underlying Fund appropriately reflect any economies of scale realized by that fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Underlying Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and other RIC funds under the Board’s supervision, including the Underlying Funds are lower, and may, in some cases, be substantially lower, than the rates paid by RIC funds supervised by the Board, including the Funds. The Trustees reviewed with RIMCo the differences in the scope of services it provides to institutional clients and the funds under its supervision, including the Underlying Funds. In response to the Trustees’ inquiries, RIMCo noted, among other things, that institutional clients have fewer administrative needs than the Funds. It was further noted by RIMCo 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.

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of the Funds and the Underlying Funds and their respective shareholders and voted to approve the continuation of the agreement.

At the April 24 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers for the Underlying Funds, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., (“RFD”) the Funds’ and Underlying Funds’ underwriter; and RIMCo’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. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the 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 RIMCo.

 

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LifePoints® Funds

Basis for Approval of Investment Advisory Contracts, continued (Unaudited)

 

 

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its recommendations at the April 24 meeting, the Board concluded that the fees paid to the Money Managers of each Underlying Fund are 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 would be in the best interests of the Fund and its shareholders.

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’s recommendation, the portfolio management agreement with any Money Manager for an Underlying Fund 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.

Also, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2007, to effect a money manager change for the Real Estate Securities Fund and the International Securities Fund; (2) at a meeting held on July 23, 2007, to effect a money manager change for the Multistrategy Bond Fund, the Emerging Markets Fund and the International Securities Fund; (3) at a meeting held on August 28, 2007, to effect a money manager change for the Global Equity Fund, the Diversified Equity Fund, the Special Growth Fund, the Multistrategy Bond Fund and the Short Duration Bond Fund; at that same meeting, to effect a money manager change for the Diversified Equity Fund and the International Securities Fund resulting from a change of control of one of these Funds’ Money Managers; (4) at a meeting held on October 26, 2007, to effect a money manager change for the Diversified Equity Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or RFD, the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2007 meeting as to the reasonableness of the aggregate investment advisory fees paid by the Underlying Fund, and the fact that the aggregate investment advisory fees paid by the Underlying Fund would not increase as a result of the implementation of the proposed money manager change because the money managers’ investment advisory fee is paid by RIMCo.

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Russell Investment Company

LifePoints® Funds

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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. RIMCo 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 Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds 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 Funds at (800) 787-7354.

To reduce expenses, we may mail only one copy of the Funds’ prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

120   Shareholder Requests for Additional Information

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Russell Investment Company

LifePoints® Funds

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,

Address

   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office*		  

Principal Occupation(s)

During the
Past 5 Years

   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

    

**Greg J. Stark

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

• President and Chief Executive Officer since 2004

 

• Trustee since 2007

  

• Appointed until successor is duly elected and qualified

 

• Until successor is chosen and qualified by Trustees

  

• President and CEO RIC and RIF

• Chairman of the Board, President and CEO, RIMCo

• Chairman of the Board, President and CEO, RFD

• Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

• Until 2004, Managing Director, of Individual Investor Services, FRC

• 2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		  

Term

of

Office*

   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

    

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2006   Appointed until successor is duly elected and qualified  

• Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington 98402-1616

  

• Trustee since 2000

 

• Chairperson since 2005

  

• Appointed until successor is duly elected and qualified

 

• Annual

  

• Director and Chairman of the Audit Committee, Avista Corp.

• Trustee, Principal Investors Fund and Principal Variable Contracts Fund

• Regent, University of Washington

• President, Kristianne Gates Blake, P.S. (accounting services)

• February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

• Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999–2006

   41  

• Director, Avista Corp; (electric utilities)

• Trustee, Principal Investors Fund (investment company);

• Trustee, Principal Variable Contracts Fund (investment company)

 

* Each Trustee is subject to mandatory retirement at age 72.
Disclosure of Information about Fund Directors   121

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Russell Investment Company

LifePoints® Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES (continued)

      

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

• Trustee since 2003

 

• Chairman of Audit Committee since 2005

  

• Appointed until successor is duly elected and qualified

 

• Appointed until successor is duly elected and qualified

  

• June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

• 2003, Retired

• 2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

• 1979–2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2004

   Appointed until successor is duly elected and qualified  

• President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

• Trustee since 2000

 

• Chairman of the Nominating and Governance Committee since 2007

  

• Appointed until successor is duly elected and qualified.

 

• Appointed until successor is duly elected and qualified

  

• President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2005

   Appointed until successor is duly elected and qualified  

• September 2003 to present,

• Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

• May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

• May 1999 to May 2003, President and Trustee, Berger Funds

   41   Director, Sparx Japan Fund (investment company)
             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

• Trustee since 2002

 

• Chairperson of the Investment Committee since 2006

  

• Appointed until successor is duly elected and qualified

 

• Appointed until successor is duly elected and qualified

  

• Retired since 2000

• 1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.
122   Disclosure of Information about Fund Directors

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Russell Investment Company

LifePoints® Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

            

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

• Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

• Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

• Chairman, Sunshine Management Services, LLC (investment adviser)

   41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

• President, Anderson Management Group LLC (private investments consulting)

• February 2002 to June 2005, Lead Trustee, RIC and RIF

• Trustee of RIC and RIF Until 2006

• Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

• Retired since 1997

• Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

• Retired since 1986

• Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

• Retired since 1995

• Trustee of RIC and RIF Until 2005

• Chairman of the Nominating and Governance Committee 2001–2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

• Retired since 1981

• Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.
Disclosure of Information about Fund Directors   123

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Russell Investment Company

LifePoints® Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years

OFFICERS

        

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

• Chief Compliance Officer, RIC

• Chief Compliance Officer, RIF

• Chief Compliance Officer, RIMCo

• April 2002–May 2005, Manager, Global Regulatory Policy

• 1998–2002, Compliance Supervisor, Russell Investment Group

         

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

• President and CEO, RIC and RIF

• Chairman of the Board, President and CEO, RIMCo

• Chairman of the Board, President and CEO, RFD

• Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

• Until 2004, Managing Director of Individual Investor Services, FRC

• 2000 to 2004, Managing Director, Sales and Client Service, RIMCo

         

Mark E. Swanson,

Born November 26, 1963

 

909 A Street
Tacoma, Washington
98402-1616

  

Treasurer and Chief Accounting Officer since 1998

 

CFO since 2007

   Until successor is chosen and qualified by Trustees  

• Treasurer, Chief Accounting Officer and CFO, RIC and RIF

• Director, Funds Administration, RIMCo, RTC and RFD

• Treasurer and Principal Accounting Officer, SSgA Funds

         

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004  

Until removed by

Trustees

  

• Chief Investment Officer, RIC, RIF, FRC, RTC

• Director and Chief Investment Officer, RIMCo and RFD

• 1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

         

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

• Associate General Counsel and Assistant Secretary FRC and RIA

• Director and Secretary, RIMCo and RFD

• Secretary and Chief Legal Counsel, RIC and RIF

124   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

LifePoints Funds

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

1. Election of Trustees.

Vote:

 

     For         Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752

2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.

Vote:

 

     For    Against    Abstain

Equity Growth Strategy Fund

    72,956,303.128    3,142,358.523    1,747,671.915

Growth Strategy Fund

    154,460,043.239    5,189,657.664    2,902,627.397

Balanced Strategy Fund

    232,755,843.287    11,093,881.508    6,294,915.642

Moderate Strategy Fund

    54,026,609.687    1,742,059.658    1,569,886.263

Conservative Strategy Fund

    21,481,078.416    597,111.471    420,829.261

2010 Strategy Fund

    1,029,574.276    154,811.322    3,516.228

2020 Strategy Fund

    2,425,028.424    382,034.554    6,389.229

2030 Strategy Fund

    1,904,259.519    259,507.003    815.958

2040 Strategy Fund

    1,017,607.086    283,486.127    5,048.018

3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.

Vote:

 

     For    Against    Abstain

Equity Growth Strategy Fund

    72,953,366.255    3,200,106.567    1,692,860.745

Growth Strategy Fund

    154,468,843.131    5,063,106.594    3,020,378.575

Balanced Strategy Fund

    232,910,697.609    10,836,083.119    6,397,859.709

Moderate Strategy Fund

    54,014,410.719    1,782,063.080    1,542,081.810

Conservative Strategy Fund

    21,475,219.808    595,569.079    428,230.261
Matter Submitted to a Vote of Shareholders   125

Table of Contents

LifePoints® Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Diversified Equity Fund

AllianceBernstein L.P., New York, NY

Arnhold and S. Bleichroeder Advisers, LLC, New York, NY

Columbus Circle Investors, Stamford, CT

Institutional Capital LLC, 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

ClariVest Asset Management LLC, San Diego, CA

David J. Greene and Company, LLC, New York, NY

Delphi Management, Inc., Boston, MA

Gould Investment Partners LLC, Berwyn, PA

Jacobs Levy Equity Management, Inc., Florham Park, NJ

PanAgora Asset Management, Inc., Boston, MA

Ranger Investment Management, L.P., Dallas, TX

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

AllianceBernstein L.P., New York, NY

Altrinsic Global Advisors, LLC, Stamford, CT

AQR Capital Management, LLC, Greenwich, CT

Axiom International Investors LLC, Greenwich, CT

Marsico Capital Management, LLC, Denver, CO

MFS Institutional Advisors, Inc., Boston, MA

Mondrian Investment Partners Ltd., London, United Kingdom

UBS Global Asset Management (Americas) Inc., Chicago, IL

Wellington Management Company, LLP, Boston, MA


126   Manager, Money Managers and Service Providers

Table of Contents

LifePoints® Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Global Equity Fund

Altrinsic Global Advisors, LLC, Stamford, CT

ClariVest Asset Management, LLC, San Diego, CA

Gartmore Global Partners, London, United Kingdom

T. Rowe Price International, Inc., Baltimore, MD

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

Multistrategy Bond Fund

Bear Stearns Asset Management Inc., New York, NY

Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA

Drake Capital Management, LLC, New York, NY

Goldman Sachs Asset Management, L.P., New York, NY

Pacific Investment Management Company LLC, Newport Beach, CA

Real Estate Securities Fund

AEW Management and Advisors, L.P., Boston, MA

Cohen & Steers Capital Management, Inc., New York, NY

Heitman Real Estate Securities LLC, Chicago, IL

INVESCO Institutional (N.A.), Inc. which acts as a money manager to the Fund through its INVESCO Real Estate division, Dallas, TX

RREEF America L.L.C., Chicago, IL

Emerging Markets Fund

AllianceBernstein L.P., New York, NY

Arrowstreet Capital, Limited Partnership, Cambridge, MA

Genesis Asset Managers, LLP, London, United Kingdom

Harding, Loevner Management, L.P., Somerville, NJ

T. Rowe Price International, Inc., Baltimore, MD

UBS Global Asset Management (Americas) Inc., Chicago, IL


 

This report is prepared from the books and records of the Funds and is submitted for the general information of shareholders and is not authorized for distribution to prospective investors unless accompanied or preceded by an effective Prospectus. Nothing herein contained is to be considered an offer of sale or a solicitation of an offer to buy shares of 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   127

Table of Contents

 

LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
  

36-08-022 (1 10/07)

Table of Contents

MONEY MARKET FUND

2007 Annual Report

 

CLASS A AND S SHARES

MONEY MARKET FUND

OCTOBER 31, 2007

 

LOGO

Table of Contents

 

Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

Table of Contents

 

Russell Investment Company

Money Market Fund

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Shareholder Expense Example    4
Schedule of Investments    5
Notes to Schedules of Investments    9
Statement of Assets and Liabilities    10
Statement of Operations    11
Statements of Changes in Net Assets    12
Financial Highlights - Class A    13
Financial Highlights - Class S    14
Notes to Financial Statements    15
Report of Independent Registered Public Accounting Firm    20
Shareholder Requests for Additional Information    21
Disclosure of Information about Fund Directors    22
Matter Submitted to a Vote of Shareholders    26
Manager, Money Managers and Service Providers    27

Table of Contents

 

Russell Investment Company – Money Market Fund.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

 

Table of Contents

 

To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets—and the people who make investment decisions in them—extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

To Our Shareholders   3

Table of Contents

Russell Investment Company

Money Market Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class A

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,026.50    $ 1,023.89

Expenses Paid During Period*

    $ 1.33    $ 1.33

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.26% (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.

 

Class S

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,027.00    $ 1,024.40

Expenses Paid During Period*

    $ 0.82    $ 0.82

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.16% (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   Shareholder Expense Example

Table of Contents

Russell Investment Company

Money Market Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

 

     

Principal
Amount ($)

or Shares

      Rate
%		      Date
of
Maturity#		      Value
$
                 

Corporate Bonds and Notes - 41.5%

                  

AIG Matched Funding Corp. (Ê)

    166,500      5.035      12/17/07      166,494

Bank of America Corp.

    50,000      5.500      11/17/07      50,000

Barclays Bank PLC

    50,000      5.400      07/01/08      50,000

Bear Stearns Cos., Inc. (The) (Ê)

    260,000      5.438      11/01/07      260,000

BNP Paribas (Ê)

    100,000      5.330      05/07/08      99,995

BNP Paribas (Ê)

    99,000      5.500      05/19/08      99,000

Caterpillar Financial Services Corp. (Ê)

    20,000      5.214      04/17/08      20,001

Citigroup, Inc. (Ê)

    10,000      5.409      05/02/08      9,999

Commonwealth Bank of Australia (Ê)

    27,400      5.485      02/28/08      27,376

Credit Agricole (Ê)

    75,000      5.180      10/21/08      74,986

General Electric Capital Corp. (Ê)

    62,230      5.293      01/15/08      62,217

General Electric Capital Corp. (Ê)

    23,650      5.661      03/04/08      23,661

General Electric Capital Corp. (Ê)

    57,000      5.303      04/15/08      57,025

General Electric Capital Corp. (Ê)

    5,000      5.111      07/28/08      5,000

General Electric Capital Corp. (Ê)

    25,000      5.068      08/22/08      24,996

Goldman Sachs Group, Inc. (Ê)

    6,100      5.111      07/29/08      6,105

HSBC Finance Corp. (Ê)(Þ)

    5,000      5.500      05/09/08      4,999

HSBC Finance Corp. (Ê)(Þ)

    50,000      5.500      05/21/08      50,008

Lehman Brothers Holdings, Inc. (Ê)

    19,000      5.260      04/02/08      19,004

Lehman Brothers Holdings, Inc. (Ê)

    13,000      5.536      05/29/08      13,004

Lehman Brothers Holdings, Inc. (Ê)

    57,000      5.510      09/26/08      57,000

MBNA Corp. (Ê)

    55,000      5.790      05/05/08      55,067

Merrill Lynch & Co., Inc. (Ê)

    55,000      5.175      04/10/08      55,000

Merrill Lynch & Co., Inc. (Ê)

    97,000      5.794      06/16/08      97,076

Merrill Lynch & Co., Inc. (Ê)

    15,000      5.342      08/22/08      15,000

Merrill Lynch & Co., Inc. (Ê)

    9,000      5.585      08/22/08      9,007

Metropolitan Life Insurance Co. (Ê)(Å)

    75,000      5.450      11/12/07      75,000

Morgan Stanley (Ê)

    93,361      5.334      01/18/08      93,391

Morgan Stanley (Ê)

    25,000      5.770      03/07/08      25,006

Morgan Stanley (Ê)

    90,000      4.930      10/03/08      90,000

New York Life Capital Corp. (Ê)

    50,000      5.570      11/16/07      50,000

New York Life Capital Corp. (Ê)(Å)

    150,000      5.580      05/15/08      150,000

Principal Life Income Funding (Ê)

    30,800      5.508      11/15/07      30,800

Protective Life Insurance Co. (Ê)(Å)

    50,000      5.655      02/23/08      50,000

Protective Life Secured Trust (Ê)

    55,000      5.323      01/14/08      55,011

Protective Life Secured Trust (Ê)

    49,000      5.620      05/16/08      49,030

Royal Bank of Scotland Group PLC (Ê)

    38,700      5.238      12/21/07      38,695

Royal Bank of Scotland Group PLC (Ê)

    100,000      5.219      04/18/08      99,888

Royal Bank of Scotland Group PLC (Ê)

    30,000      5.233      07/07/08      30,003

Royal Bank of Scotland Group PLC (Ê)

    25,000      5.230      07/21/08      25,013

Suntrust Bank (Ê)

    25,000      4.809      01/28/08      24,996

Tango Finance Corp. (Ê)(Þ)

    75,000      5.049      07/25/08      74,995
                   
Total Corporate Bonds and Notes (amortized cost $2,373,848)                   2,373,848
                   
Registered Investment Company Funds - 2.8%                  

Merrill Lynch Premier Institutional Fund

    361,495                361

Reserve Primary Fund Class Institutional

    160,000,043                160,000
                   
Total Registered Investment Company Funds (amortized cost $160,361)                   160,361
                   
Schedule of Investments   5

Table of Contents

Russell Investment Company

Money Market Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity#		      Value
$
                 

Domestic Commercial Paper - 44.1%

                  

Barclays US Funding LLC

    50,000      5.040      02/29/08      49,212

Citigroup Funding, Inc.

    60,000      5.200      11/27/07      59,771

Citigroup Funding, Inc.

    75,000      5.160      02/01/08      74,082

Co-Op Association of Tractor Dealers - Series B

    37,410      5.290      11/13/07      37,348

Co-Op Association of Tractor Dealers - Series B

    8,000      5.230      11/14/07      7,985

Co-Op Association of Tractor Dealers - Series B

    14,027      5.300      11/16/07      13,995

Co-Op Association of Tractor Dealers - Series B

    9,000      5.290      11/20/07      8,975

Co-Op Association of Tractor Dealers - Series B

    4,999      5.230      11/21/07      4,985

Co-Op Association of Tractor Dealers - Series B

    5,000      4.950      11/28/07      4,982

Co-Op Association of Tractor Dealers - Series B

    6,410      5.250      12/11/07      6,373

Co-Op Association of Tractor Dealers - Series B

    19,463      5.250      12/28/07      19,302

Co-Op Association of Tractor Dealers - Series B

    8,230      5.270      01/10/08      8,146

Co-Op Association of Tractor Dealers - Series B

    8,420      5.150      04/09/08      8,230

Co-Op Association of Tractor Dealers - Series B

    12,500      5.180      04/11/08      12,213

Co-Op Association of Tractor Dealers - Series B

    9,140      4.850      04/17/08      8,935

Co-Op Association of Tractor Dealers - Series B

    38,807      4.850      04/25/08      37,901

Curzon Funding LLC

    50,000      5.250      12/20/07      49,645

Curzon Funding LLC

    100,000      5.190      01/17/08      98,890

Curzon Funding LLC

    50,000      4.870      03/03/08      49,175

Curzon Funding LLC

    50,000      5.100      04/16/08      48,826

Dealers Capital Access Trust

    6,381      6.150      11/09/07      6,373

Dealers Capital Access Trust

    15,250      4.950      11/28/07      15,195

Dealers Capital Access Trust

    7,031      5.120      11/30/07      7,002

Dealers Capital Access Trust

    12,000      5.180      01/04/08      11,892

Dealers Capital Access Trust

    22,000      5.010      01/11/08      21,786

Dealers Capital Access Trust

    7,220      5.150      01/22/08      7,137

Dealers Capital Access Trust

    2,087      6.000      03/10/08      2,043

Falcon Asset Securitization Co. LLC

    75,000      6.200      12/14/07      74,449

Galleon Capital LLC

    6,290      5.320      11/01/07      6,290

Galleon Capital LLC

    50,000      4.910      11/26/07      49,831

Giro Balanced Funding Corp.

    150,000      6.050      11/01/07      150,000

Giro Balanced Funding Corp. (Ê)

    50,000      5.674      12/17/07      50,000

Giro Balanced Funding Corp.

    20,000      5.340      01/18/08      20,000

Lockhart Funding LLC

    174,021      5.400      11/07/07      173,867

Lockhart Funding LLC

    50,000      5.900      11/20/07      49,846

Long Lane Master Trust IV

    75,000      5.900      11/28/07      74,668

Long Lane Master Trust IV

    75,000      6.120      12/10/07      74,504

Long Lane Master Trust IV

    35,000      4.840      01/28/08      34,590

Louis Dreyfus Corp.

    34,350      5.040      11/19/07      34,265

Louis Dreyfus Corp.

    6,389      5.080      11/20/07      6,372

Louis Dreyfus Corp.

    28,287      5.060      11/26/07      28,188

Louis Dreyfus Corp.

    18,179      4.930      11/27/07      18,115

Louis Dreyfus Corp.

    31,512      5.060      11/27/07      31,397

Manhattan Asset Funding Co.

    79,535      4.900      11/28/07      79,247

Manhattan Asset Funding Co.

    10,000      5.025      01/24/08      9,884

NATC California LLC

    18,437      5.260      01/10/08      18,252

NATC California LLC

    65,400      5.260      01/11/08      64,733
6   Schedule of Investments

Table of Contents

Russell Investment Company

Money Market Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

      Principal
Amount ($)
or Shares		      Rate
%		      Date
of
Maturity#		      Value
$
                 

Three Pillars Funding

    50,000      5.240      11/07/07      49,957

Three Pillars Funding

    50,000      5.230      11/15/07      49,900

Three Pillars Funding

    25,000      5.240      11/28/07      24,909

Three Pillars Funding

    75,000      5.240      01/16/08      74,177

Three Rivers Funding Corp.

    50,000      5.550      11/15/07      49,895

Three Rivers Funding Corp.

    100,000      5.550      11/16/07      99,788

UBS Finance Delaware LLC

    50,000      4.960      02/25/08      49,224

UBS Finance Delaware LLC

    100,000      5.480      03/10/08      98,090

UBS Finance Delaware LLC

    50,000      5.510      03/13/08      49,019

Victory Receivables Corp.

    50,000      5.150      01/18/08      49,451

Victory Receivables Corp.

    30,094      5.100      01/24/08      29,736

Victory Receivables Corp.

    75,000      5.320      01/31/08      73,998

Westpac Banking Corp.

    48,640      5.245      11/01/07      48,640

Westpac Securities NZ Ltd.

    4,100      5.270      11/06/07      4,097

Westpac Securities NZ Ltd.

    40,452      5.180      11/26/07      40,305
                   
Total Domestic Commercial Paper (amortized cost $2,520,083)                   2,520,083
                   
Eurodollar Certificate of Deposit - 1.4%                  

Union Bank of California

    81,394      4.813      11/01/07      81,394
                   
Total Eurodollar Certificate of Deposit (amortized cost $81,394)                   81,394
                   
United States Government Agency - 0.1%                  

AID to INH Portugal Guaranteed Note, weekly demand (LIBOR Floater) (Ê)(ß)

    6,563      5.139      12/01/17      6,619
                   
Total United States Government Agencies (amortized cost $6,619)                   6,619
                   
Yankee Certificates of Deposit - 10.1%                  

Bank of Montreal (Chicago) (Ê)

    100,000      5.465      05/22/08      100,000

Bank of Montreal (Chicago)

    25,000      5.320      05/23/08      25,000

Barclays Bank PLC (New York)

    50,000      5.320      01/16/08      50,000

Barclays Bank PLC (New York) (Ê)

    37,600      5.021      03/17/08      37,577

Barclays Bank PLC (New York)

    30,000      5.400      06/09/08      30,000

Calyon (New York) (Ê)

    12,400      5.350      05/19/08      12,385

Deutsche Bank Financial, Inc.

    127,200      5.270      04/10/08      127,204

Royal Bank of Scotland PLC (New York) (Ê)

    40,000      5.043      02/25/08      40,001

Royal Bank of Scotland PLC (New York) (Ê)

    16,800      4.801      03/26/08      16,786

Royal Bank of Scotland PLC (New York) (Ê)

    10,800      5.066      04/03/08      10,791

Societe Generale (New York)

    100,000      5.417      07/03/08      100,000

UBS AG (Stamford)

    27,000      5.105      04/01/08      26,996
                   
Total Yankee Certificates of Deposit (amortized cost $576,740)                   576,740
                   
Total Investments - 100.0% (amortized cost $5,719,045) (†)                   5,719,045
Other Assets and Liabilities, Net - 0.0%                   2,243
                   
Net Assets - 100.0%                   5,721,288
                   

 

See accompanying notes which are an integral part of the financial statements.

Schedule of Investments   7

Table of Contents

Russell Investment Company

Money Market Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets		  
  
  

Corporate Bonds and Notes

    41.5  

Registered Investment Company Funds

    2.8  

Domestic Commercial Paper

    44.1  

Eurodollar Certificate of Deposit

    1.4  

United States Government Agency

    0.1  

Yankee Certificates of Deposit

    10.1  
      

Total Investments

    100.0  

Other Assets and Liabilities, Net

    — *
      
   100.0  
      

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

8   Schedule of Investments

Table of Contents

Russell Investment Company

Money Market Fund

Notes to Schedules of Investments — October 31, 2007

 

 

Footnotes:

(Ê) Adjustable or floating rate security. Rate shown reflects rate in effect at period end.
(ß) Illiquid security.
(†) The identified cost for Federal income tax purpose is the same as shown above.
#   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.
(Å) Illiquid and restricted security.
(Þ) Security issued by a structured investment vehicle.

Abbreviations:

LIBOR - London Interbank Offered Rate

Notes to Schedules of Investments   9

Table of Contents

Russell Investment Company

Money Market Fund

Statement of Assets and Liabilities — October 31, 2007

 

Amounts in thousands             

Assets

     

Investments at amortized cost which approximates value

    $ 5,719,045  

Cash

      45  

Interest receivable

      28,271  

Prepaid expenses

      2  
          

Total assets

        5,747,363  
Liabilities     

Payables:

     

Accrued fees to affiliates

   $ 545   

Other accrued expenses

     322   

Dividends

     25,208   
        

Total liabilities

      26,075  
          
    

Net Assets

    $ 5,721,288  
          

Net Assets Consist of:

     

Undistributed (overdistributed) net investment income

    $ 24  

Accumulated net realized gain (loss)

      (201 )

Shares of beneficial interest

      57,215  

Additional paid-in capital

      5,664,250  
          

Net Assets

    $ 5,721,288  
          
                
Net Asset Value, offering and redemption price per share:     

Net asset value per share: Class A*

    $ 1.00  

Class A - Net assets

    $ 291,636,004  

Class A - Shares outstanding ($.01 par value)

      291,636,361  

Net asset value per share: Class S*

    $ 1.00  

Class S - Net assets

    $ 5,429,652,427  

Class S - Shares outstanding ($.01 par value)

      5,429,818,669  

 

 

* 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.

10   Statement of Assets and Liabilities

Table of Contents

Russell Investment Company

Money Market Fund

Statement of Operations — For the Fiscal Year Ended October 31, 2007

 

Amounts in thousands              

Investment Income

    

Interest

 

   $ 286,381  
Expenses    

Advisory fees

   $ 10,565    

Administrative fees

     2,641    

Custodian fees

     937    

Distribution fees - Class A

     161    

Transfer agent fees

     533    

Professional fees

     75    

Registration fees

     512    

Trustees’ fees

     91    

Printing fees

     248    

Miscellaneous

     219    
   

Expenses before reductions

     15,982    

Expense reductions

     (7,941 )  
         

Net expenses

 

     8,041  
         

Net investment income (loss)

 

     278,340  
   

Net Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) on investments

 

     (17 )
         

Net Increase (Decrease) in Net Assets from Operations

 

   $ 278,323  
         

 

See accompanying notes which are an integral part of the financial statements.

Statement of Operations   11

Table of Contents

Russell Investment Company

Money Market Fund

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

 

Amounts in thousands   2007     2006  

Increase (Decrease) in Net Assets

    

Operations

    

Net investment income (loss)

   $ 278,340     $ 176,171  

Net realized gain (loss)

     (17 )     (12 )
               

Net increase (decrease) in net assets from operations

     278,323       176,159  
               

Distributions

    

From net investment income

    

Class A

     (8,328 )     (1,756 )

Class S

     (270,013 )     (174,415 )
               

Net decrease in net assets from distributions

     (278,341 )     (176,171 )
               

Share Transactions

    

Net increase (decrease) in net assets from share transactions

     1,479,224       1,082,092  
               

Total Net Increase (Decrease) in Net Assets

     1,479,206       1,082,080  

Net Assets

    

Beginning of period

     4,242,082       3,160,002  
               

End of period

   $ 5,721,288     $ 4,242,082  
               

Undistributed (overdistributed) net investment income included in net assets

   $ 24     $ 25  

 

See accompanying notes which are an integral part of the financial statements.

12   Statements of Changes in Net Assets

Table of Contents

Russell Investment Company

Money Market Fund

Financial Highlights — Class A

For a Share Outstanding Throughout Each Period.

 

    For the Fiscal Years Ended October 31,  
     2007     2006     2005     2004      2003 (1)  
          

Net Asset Value, Beginning of Period

   $ 1.0000     $ 1.0000     $ 1.0000     $ 1.0000      $ 1.0000  
                                        

Income From Operations

           

Net investment income (loss) (a)

     .0517       .0464       .0271       .0108        .0051  
                                        

Distributions

           

From net investment income

     (.0517 )     (.0464 )     (.0271 )     (.0108 )      (.0051 )
                                        

Net Asset Value, End of Period

   $ 1.0000     $ 1.0000     $ 1.0000     $ 1.0000      $ 1.0000  
                                        
Total Return (%) (b)     5.30       4.74       2.74       1.08        .59  
Ratios/Supplemental Data:           

Net Assets, end of period (in thousands)

     291,636       76,031       14,410       3,989        682  

Ratios to average net assets (%):

           

Operating expenses, net (c)(d)

     .25       .25       .25       .25        .26  

Operating expenses, gross (c)

     .40       .40       .40       .40        5.24  

Net investment income (loss) (c)(d)

     5.18       4.82       2.91       1.18        .96  

 

(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 Russell Investment Management Company (“RIMCo”) as the investment adviser and custody credit arrangements.

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights — Class A   13

Table of Contents

Russell Investment Company

Money Market Fund

Financial Highlights — Class S

For a Share Outstanding Throughout Each Period.

 

    For the Fiscal Years Ended October 31,  
     2007     2006     2005     2004      2003  
          

Net Asset Value, Beginning of Period

   $ 1.0000     $ 1.0000     $ 1.0000     $ 1.0000      $ 1.0000  
                                        

Income From Operations

           

Net investment income (loss)(a)

     .0527       .0474       .0280       .0117        .0121  
                                        

Distributions

           

From net investment income

     (.0527 )     (.0474 )     (.0280 )     (.0117 )      (.0121 )
                                        

Net Asset Value, End of Period

   $ 1.0000     $ 1.0000     $ 1.0000     $ 1.0000      $ 1.0000  
                                        
Total Return (%)     5.40       4.84       2.82       1.17        1.28  
Ratios/Supplemental Data:           

Net Assets, end of period (in thousands)

     5,429,652       4,166,051       3,145,592       2,958,692        2,363,623  

Ratios to average net assets (%):

           

Operating expenses, net(b)

     .15       .15       .15       .15        .16  

Operating expenses, gross

     .30       .30       .30       .30        .31  

Net investment income (loss)(b)

     5.27       4.78       2.83       1.16        1.21  

 

(a)   Average month-end shares were used for this calculation.
(b)   May reflect amounts waived and/or reimbursed by RIMCo as the investment adviser and custody credit arrangements.

 

See accompanying notes which are an integral part of the financial statements.

14   Financial Highlights — Class S

Table of Contents

Russell Investment Company

Money Market Fund

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on one of these Funds (“the Fund”). 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, as amended. 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 Fund’s 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 investments 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 the 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 New York Stock Exchange, 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 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 provision was required for the Fund.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Fund’s net assets and results of operations.

Dividends and Distributions to Shareholders

The Fund declares and records dividends daily and pays them monthly. 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) on investment for a

Notes to Financial Statements   15

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Russell Investment Company

Money Market Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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, the Fund may periodically make reclassifications among certain of its capital accounts without impacting its net asset value.

Expenses

The Fund will pay its own expenses other than those expressly assumed by RIMCo. 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 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.

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.

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, 2007, the Fund’s custodian fees were reduced by $17,637 under these arrangements which are included in expense reductions on the Statement of Operations.

 

3.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

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 RIC Money Market Fund. As of October 31, 2007, $2,542,539,434 represents investment by other Investment Company Funds not presented herein and investment by the Russell Investment Funds (“RIF”) in the Fund. RIF employs the same investment adviser as RIC. In addition, a portion of the collateral received from the Investment Company’s securities lending program in the amount of $1,000,000,000 is invested in the RIC Money Market Fund.

The advisory fee of 0.20% and administrative fee of 0.05% are based upon the average daily net assets of the Fund and are payable monthly totaling $10,565,141 and $2,641,285 respectively, for the period ended October 31, 2007.

The adviser has contractually agreed to waive 0.15% of its 0.25% combined advisory and administrative fees, at least through February 29, 2008. The amount of such waiver for the period ended October 31, 2007 was $7,923,640. The adviser does not have the ability to recover amounts waived for the period ended October 31, 2007 or previous periods.

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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, 2007 were $533,442.

16   Notes to Financial Statements

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Russell Investment Company

Money Market Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

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 RIMCo, 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 the Fund’s Class A Shares on an annual basis. The Fund’s Class S Shares do not participate in the Investment Company’s distribution plan.

Pursuant to the rules of the Financial Industry Regulatory Authority (“FINRA”), these limitation are 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 FINRA.

Accrued Fees Payable to Affiliates

Accrued fees payable to affiliates for the period ended October 31, 2007 were as follows:

 

      
  

Advisory fees

    $ 236,937

Administration fees

      236,937

Distribution fees

      23,092

Transfer agent fees

      47,387

Trustee fees

      335
      
   $ 544,688
      

Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and RIF, which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives additional annual compensation of $52,000.

 

4.   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 their respective expiration dates, whichever occurs first. At October 31, 2007, available capital loss carryforwards and expiration dates are as follows:

 

10/31/08    10/31/09    10/31/10    10/31/11    10/31/12    10/31/13    10/31/14    10/31/15    Total
$ 90,626    $ 35,378    $         —    $ 43,223    $         —    $ 3,147    $ 11,753    $ 17,488    $ 201,615
Notes to Financial Statements   17

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Russell Investment Company

Money Market Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

5.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     On a Constant Dollar Basis  
     2007     2006  
    

Class A

     

Proceeds from shares sold

    $ 398,952     $ 109,252  

Proceeds from reinvestment of distributions

      6,994       1,430  

Payments for shares redeemed

      (190,341 )     (49,059 )
                

Net increase (decrease)

      215,605       61,623  
                
    

Class S

     

Proceeds from shares sold

      39,305,173       21,923,421  

Proceeds from reinvestment of distributions

      57,984       27,585  

Payments for shares redeemed

      (38,099,538 )     (20,930,537 )
                

Net increase (decrease)

      1,263,619       1,020,469  
                

Total increase (decrease)

    $ 1,479,224     $ 1,082,092  
                

 

6.   Interfund Lending Program

The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from the RIC Money Market Fund for temporary purposes. All such borrowing and lending will be subject to a participating fund’s fundamental investment limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity of additional borrowing costs. Interest Income on the Statement of Operations for the Fund includes $ 7,013 received from the Interfund Lending Program for the period ending October 31, 2007.

 

7.   Record Ownership

As of October 31, 2007, the Fund had one shareholder of record with greater than 10% of the total outstanding shares of the Fund in the amount of 18.56%.

 

8.   Restricted Securities

Restricted securities are subject to contractual limitations on resale, often issued in private placement transactions, and 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.

The Fund may invest a portion of its net assets not to exceed 10% in securities that are illiquid. Illiquid securities are securities that may not be readily marketable, and 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.

18   Notes to Financial Statements

Table of Contents

Russell Investment Company

Money Market Fund

Notes to Financial Statements, continued — October 31, 2007

 

 

The following table lists restricted securities held by the Fund that are illiquid. The following table does not include (1) securities deemed liquid by RIMCo 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.

 

Fund - % of Net Assets

Securities

    Acquisition
Date		    Principal
Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              

Money Market Fund - 4.8%

               

Protective Life Insurance Co.

    10/01/07    50,000,000    100.00    50,000    50,000

Metlife Insurance Company of CT

    11/10/06    75,000,000    100.00    75,000    75,000

New York Life Capital Corp.

    05/14/07    150,000,000    100.00    150,000    150,000
                
               275,000
                

Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees.

 

9.   Market/Security Events

Structured investment vehicles (SIVs) have experienced significantly decreased liquidity as well as declines in the market value of certain categories of collateral underlying the SIVs, although, based on available information, the substantial majority of the underlying collateral remains of high quality. The value of SIVs may be affected by, among other things, changes in: interest rates, the quality of the underlying assets or the market’s assessment thereof, factors concerning the interests in and structure of the issuer or the originator of the receivables, or the creditworthiness of the entities that provide any credit enhancements.

Notes to Financial Statements   19

Table of Contents

 

Report of Independent Registered Public Accounting Firm

To the Board of Trustees and Shareholders

of 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 Money Market Fund (one of the portfolios constituting Russell Investment Company, hereafter referred to as the “Fund”) at October 31, 2007, 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, 2007 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

20   Report of Independent Registered Public Accounting Firm

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Russell Investment Company

Money Market Fund

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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 Fund may be invested. RIMCo has established a proxy voting committee (“Committee”) and has adopted written proxy voting policies and procedures (“P&P”) and proxy voting guidelines (“Guidelines”). The Fund maintains 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 the Fund. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Fund’s 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.

To reduce expenses, we may mail only one copy of the Fund’s prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Fund’s prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

Shareholder Requests for Additional Information   21

Table of Contents

Russell Investment Company

Money Market Fund

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

**Greg J. Stark

  Born May 3, 1968

 

  909 A Street

  Tacoma, Washington

  98402-1616

  

President and Chief Executive Officer since 2004

 

Trustee since 2007

  

Appointed until successor is duly elected and qualified

 

Until successor is chosen and qualified by Trustees

  

•  President and CEO RIC and RIF

•  Chairman of the Board, President and CEO, RIMCo

•  Chairman of the Board, President and CEO, RFD

•  Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•  Until 2004, Managing Director, of Individual Investor Services, FRC

•  2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2006   Appointed until successor is duly elected and qualified  

•  Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2000

 

Chairperson since 2005

  

Appointed until successor is duly elected and qualified

 

Annual

  

•  Director and Chairman of the Audit Committee, Avista Corp.

•  Trustee, Principal Investors Fund and Principal Variable Contracts Fund

•  Regent, University of Washington

•  President, Kristianne Gates Blake, P.S. (accounting services)

•  February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

•  Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999-2006

   41  

•  Director, Avista Corp; (electric utilities)

•  Trustee, Principal Investors Fund (investment company);

•  Trustee, Principal Variable Contracts Fund (investment company)

* Each Trustee is subject to mandatory retirement at age 72.

 

22   Disclosure of Information about Fund Directors

Table of Contents

Russell Investment Company

Money Market Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		  

Term

of
Office*

   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES (continued)

          

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2003

 

Chairman of Audit Committee since 2005

  

Appointed until successor is duly elected and qualified

 

Appointed until successor is duly elected and qualified

  

•  June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed Financial, Inc.

•  2003, Retired

•  2001 – 2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

•  1979 – 2001, Audit and Accounting Partner, PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2004   Appointed until successor is duly elected and qualified  

•  President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2000

 

Chairman of the Nominating and Governance Committee since 2007

  

Appointed until successor is duly elected and qualified.

 

Appointed until successor is duly elected and qualified

  

•  President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2005   Appointed until successor is duly elected and qualified  

•  September 2003 to present,

•  Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

•  May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

•  May 1999 to May 2003, President and Trustee, Berger Funds

   41   Director, Sparx Japan Fund (investment company)
             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2002

 

Chairperson of the Investment Committee since 2006

  

Appointed until successor is duly elected and qualified

 

Appointed until successor is duly elected and qualified

  

•  Retired since 2000

•  1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.

 

Disclosure of Information about Fund Directors   23

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Russell Investment Company

Money Market Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007

(Unaudited)

 

 

Name,
Age,
Address		   Position(s)
Held with
Fund and
Length of
Time Served		   Term of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other Directorships
Held by Trustee

TRUSTEES EMERITUS

            

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

•  Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

•  Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20-20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

•  Chairman, Sunshine Management Services, LLC (investment adviser)

  41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

•  President, Anderson Management Group LLC (private investments consulting)

•  February 2002 to June 2005, Lead Trustee, RIC and RIF

•  Trustee of RIC and RIF Until 2006

•  Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

•  Retired since 1997

•  Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

•  Retired since 1986

•  Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

•  Retired since 1995

•  Trustee of RIC and RIF Until 2005

•  Chairman of the Nominating and Governance Committee 2001-2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

•  Retired since 1981

•  Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.

 

24   Disclosure of Information about Fund Directors

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Russell Investment Company

Money Market Fund

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

Name ,

Age,

Address

  

Position(s) Held

With Fund and

Length of

Time Served

  

Term

of

Office

  

Principal Occupation(s)

During the

Past 5 Years

OFFICERS

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

•   Chief Compliance Officer, RIC

•   Chief Compliance Officer, RIF

•   Chief Compliance Officer, RIMCo

•   April 2002-May 2005, Manager, Global Regulatory Policy

•   1998-2002, Compliance Supervisor, Russell Investment Group

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

•   President and CEO, RIC and RIF

•   Chairman of the Board, President and CEO, RIMCo

•   Chairman of the Board, President and CEO, RFD

•   Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•   Until 2004, Managing Director of Individual Investor Services, FRC

•   2000 to 2004, Managing Director, Sales and Client Service, RIMCo

Mark E. Swanson,

Born November 26, 1963

 

909 A Street

Tacoma, Washington

98402-1616

  

•   Treasurer and Chief Accounting Officer since 1998

 

•   CFO since 2007

   Until successor is chosen and qualified by Trustees  

•   Treasurer, Chief Accounting Officer and CFO, RIC and RIF

•   Director, Funds Administration, RIMCo, RTC and RFD

•   Treasurer and Principal Accounting Officer, SSgA Funds

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004   Until removed by Trustees  

•   Chief Investment Officer, RIC, RIF, FRC, RTC

•   Director and Chief Investment Officer, RIMCo and RFD

•   1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

•   Associate General Counsel and Assistant Secretary FRC and RIA

•   Director and Secretary, RIMCo and RFD

•   Secretary and Chief Legal Counsel, RIC and RIF

Disclosure of Information about Fund Directors   25

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Russell Investment Company

Money Market Fund

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

THE FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

1. Election of Trustees.

Vote:

 

     For         Against

Greg J. Stark

    6,275,366,242.443       238,500,496.197

Thaddas L. Alston

    6,275,783,094.828       238,083,643.812

Kristianne Blake

    6,438,961,734.968       74,905,003.672

Daniel P. Connealy

    6,441,243,550.495       72,623,188.145

Jonathan Fine

    6,434,295,116.486       79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918       73,944,094.722

Jack R. Thompson

    6,441,278,003.434       72,588,735.206

Julie W. Weston

    6,440,367,146.888       73,499,591.752

2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.

Vote:

 

     For    Against    Abstain

Money Market Fund

    2,416,984,794.978    1,210,735,518.894    40,189,892.949

3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.

Vote:

 

     For    Against    Abstain

Money Market Fund

    2,407,671,915.115    1,217,601,695.925    42,636,595.782
26   Matter Submitted to a Vote of Shareholders

Table of Contents

Money Market Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Money Market Fund

Russell Investment Management Company, Tacoma, WA


 

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 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   27

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LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
  

36-08-083 (1 10-07)

Table of Contents

INSTITUTIONAL FUNDS

2007 Annual Report

 

CLASS E, I, AND Y SHARES:

EQUITY I FUND

EQUITY II FUND

EQUITY Q FUND

INTERNATIONAL FUND

FIXED INCOME III FUND

OCTOBER 31, 2007

 

LOGO

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Russell Investment Company

Russell Investment Company is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on five of these Funds.

Russell Investment Management Company

Responsible for overall management and administration of the Funds.

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Russell Investment Company

Institutional Funds

Annual Report

October 31, 2007

Table of Contents

 

     Page
To Our Shareholders    3
Market Summary    4
Equity I Fund    10
Equity II Fund    20
Equity Q Fund    36
International Fund    50
Fixed Income III Fund    72
Notes to Schedules of Investments    128
Statements of Assets and Liabilities    130
Statements of Operations    134
Statements of Changes in Net Assets    136
Financial Highlights    138
Notes to Financial Highlights    144
Notes to Financial Statements    145
Report of Independent Registered Public Accounting Firm    161
Tax Information    162
Basis for Approval of Investment Advisory Contracts    163
Shareholder Requests for Additional Information    167
Disclosure of Information about Fund Directors    168
Matter Submitted to a Vote of Shareholders    172
Manager, Money Managers and Service Providers    173

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Russell Investment Company - Institutional Funds.

Copyright © Russell Investment Group 2007. All rights reserved.

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

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.

Securities distributed through Russell Fund Distributors, Inc. member FINRA, part of Russell Investment Group.

Russell Investment Group and Standard & Poor’s Corporation are the owners of the trademarks, service marks, and copyrights related to their respective indexes. Index performance is not indicative of the performance of any specific investment. Indexes are not managed and may not be invested in directly.

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.

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To Our Shareholders

Thank you for taking the time to review Russell Investment Company’s 2007 Annual Report. The portfolio management discussions and fund-specific details will give you a deeper understanding of fund performance for the fiscal year ending October 31, 2007.

Every day, we strive to improve financial security for people and earn the continued support of our investors.

Our decades of experience evaluating global markets — and the people who make investment decisions in them — extends through numerous cycles, trends and turnarounds. It’s a perspective that allows us to deliver you long-term investment strategies.

Our dedicated money manager research analysts and portfolio managers perform the vital work to select some of the world’s best managers for the funds. This deliberate combination of investment managers is intended to help provide more consistent returns through all kinds of market environments.

We appreciate your continued support.

Regards,

LOGO

Greg Stark

Chief Executive Officer, Chairman and President

Russell Investment Management Company

 

To Our Shareholders   3

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Russell Investment Company

Market Summary as of October 31, 2007 (Unaudited)

U.S. Equity Markets

For the fiscal year ending October 31, 2007, US equity markets were strong, with the broad market Russell 3000® Index returning more than 14%. Valuations of US equities began the period attractive relative to bonds. Stocks also benefited from increased merger and acquisition activity during the first half of the year, and from surprisingly strong corporate profits. For the fiscal year, the growth rates of gross domestic product and corporate profits remained strong but decelerated throughout the period. After almost four years of double-digit profit growth, earnings growth fell to single digit levels.

The housing slowdown that began in the summer of 2006 continued through this fiscal year, and was further impacted by rising default rates in subprime loans. At the same time, there was significant weakness in the US dollar, as it depreciated against all major currencies. Over the fiscal year, The Federal Reserve Board lowered the federal funds rate twice, the first such cuts in four years, citing the slowing pace of economic expansion and the intensification of the housing correction as the reason behind the cuts. The period also saw significantly higher commodity prices. At the end of October, crude oil prices rose to a record level of $95 per barrel.

Although the domestic economy was decelerating, the U.S. equity market was buoyed by strong exports to faster growing developing, non-U.S. economies. With approximately 40% of U.S. corporation’s revenues derived from international customers, the declining U.S. dollar provided increased demand for U.S. products abroad.

In the wake of these powerful macroeconomic forces, the fiscal year was a transitional one marked by three distinct themes: Multinational companies with exposure to developing markets outpaced domestically-driven companies, growth companies fared better than their value counterparts and U.S. large capitalization stocks outperformed U.S. small capitalization stocks.

US companies with revenue streams that could benefit either directly or indirectly from the expanding global economy were rewarded over the fiscal year. The best performing sectors in the Russell 3000® Index were those that had some tie to the global markets — commodities, technology, and industrials. Agriculture and fertilizer stocks led the Russell 3000® Index due to increased global demand for food and an increase in corn production due to ethanol demand. Similarly, commodities related companies, especially copper, benefited from the construction boom in Asia and elsewhere. For the fiscal year, the energy sector of the Russell 3000® Index returned 41.6%, the integrated oils sector returned 37.3%, and the materials and processing sector returned 36.8%.

The worst performing sectors in the Russell 3000® Index were those tied closely to domestic consumer spending and the housing and subprime markets, particularly mortgage lenders. The repercussions of the developments in the subprime lending market and the resulting housing slowdown caused homebuilders and building related industries to struggle as well. The financial services sector returned -0.7% for the fiscal year and consumer discretionary sector returned +8.8%, both significantly trailing the Russell 3000® Index return of +15.5%.

4   Market Summary

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Reversing a trend that had prevailed for the last six years, growth stocks outperformed value stocks over the fiscal year. Growth and momentum factors were rewarded over the period, especially exposure to high price to book stocks and those with high historical growth rates. The Russell 1000® Growth Index returned 20.3% while the Russell 1000® Value Index returned 11.5%. A similar, but even more pronounced trend was seen in small cap markets, with the Russell 2000® Growth Index and Russell 2000® Value Index returning 19.2% and 3.8%, respectively.

In a turnaround from the previous fiscal year, large capitalization stocks outperformed small capitalization stocks. The Russell 1000® Index returned 15.0% for the fiscal year, while the Russell 2000® Index returned 9.3%. The larger in capitalization a company was, the better its returns were over the fiscal period. The Russell Top 200® Index, an index of the 200 largest capitalization stocks, returned 15.9% for the fiscal year. Conversely, microcap stocks struggled even more than the broader small cap Russell 2000® Index, with the Russell Microcap Index returning 6.9% for the fiscal year.

During the fiscal year, the market environment was largely favorable for active growth managers. The Lipper Large Cap Growth Funds Average outperformed the Russell 1000® Growth Index by 2.41%, as active managers held companies with strong momentum that were growing faster than the companies in the Russell 1000® Growth Index. The period was also favorable for active value managers who typically do not have as much exposure to the financial services sector as the Russell 1000® Value Index. The Lipper® Large Cap Value Funds Average outperformed the Russell 1000® Value Index by 1.39%. The market environment was more challenging for active core, or market-oriented, managers as the markets were driven by commodity based companies, not an area where market-oriented managers typically focus. The Lipper® Large Cap Core Funds Average trailed the Russell 1000® Index by .50% net of fees, but modestly outperformed on a gross of fee basis. The Lipper® Small Cap Core Funds Average outpaced the Russell 2000® Index by .72%.

U.S. Real Estate Markets

For the fiscal year ending October 31, 2007, real estate investment trusts (REITs) generated a 0.57% return, as measured by the FTSE NAREIT Equity Index. As well as being well below the overall U.S. equity market return, this return represented a substantial pull-back from the prior year’s return of 36.37%. The low REIT return was also accompanied by exceptionally high volatility during the period. During the first three months of the fiscal year, REITs were up over 11%; the following six months, REITs lost nearly 20%; and finally, during the last three months, REITs rallied with a 12% return.

Early in the fiscal year, the REIT market continued to be driven by the same factors that made the prior year so successful, mainly mergers and acquisitions by private investors acquiring public REITs at large premiums to their share prices. The most prominent privatization was Equity Office Property, the industry’s largest REIT, which became the prize in a bidding war between Blackstone, a private equity firm and Vornado, a public company. The REIT market peaked at all-time record levels in mid-February 2007. At that time, while property market fundamentals were improving and REIT earnings were solid, REIT pricing appeared to be well ahead of earnings expectations.

By June 2007, concerns arose among REIT investors that problems in the residential subprime mortgage loan market would be a precursor to similar issues in the commercial mortgage market. Additionally, the 0.6% increase in the 10 year treasury rate which occurred during that month caused investors to reassess the capitalization rates used to value real estate. These events combined to put substantial downward pressure on REIT share prices.

Market Summary   5

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Russell Investment Company

 

REITs ended the fiscal year with some positive results and the market volatility appears to have removed the speculative valuation premiums applied to REITs due to the robust merger and acquisition activity over the last several years. However, concerns about a weaker economy and more stringent mortgage lending standards amidst an overall tightening of credit has put the focus back on real estate fundamentals and the specific growth prospects of each company.

Non-U.S. Equity Markets

Non-U.S. stocks gained 24.91% as measured by the MSCI EAFE® Index for the fiscal year ending October 31, 2007. Non-U.S. stocks were boosted as the U.S. dollar weakened over the course of the fiscal year. In local currency, the MSCI EAFE® Index rose 14.00% over the 12-month period.

The market continued to benefit from global growth, merger and acquisition activity and strong corporate earnings and withstood several brief periods of increased market volatility brought on by investors’ risk aversion relating to the potential negative spillover effects of the housing slowdown in the U.S. Growth in emerging economies, like India and China, also had a positive impact on the strength of developed markets through their demand for goods and infrastructure development.

Europe, as represented by the MSCI Europe Index, returned 27.96% over the fiscal year. Merger and acquisition-related gains combined with strong earnings drove European equities higher, with merger-and-acquisition activity in the year surpassing last year’s record pace. Across Europe, the best performing sectors were materials and telecommunication services, up 53.36% and 47.56%, respectively. By country, of particular note were more heavily laden energy/commodity markets, such as Norway, up 59.76%, which benefited from the strong performance of the global materials and energy sectors. Germany also stood out as a market leader, benefiting from the strong performance of its automobiles industry. Elsewhere, MSCI United Kingdom Index lagged continental Europe with a gain of 23.62%. The U.K. underperformed the rest of Europe due to weakness in its health care sector.

The MSCI Japan Index continued to lag other major non-U.S. markets in the fiscal year, returning only 4.84%. Investor concerns included weak economic data, lackluster earnings from financial institutions and political turmoil. Elsewhere in the region, the MSCI Pacific ex-Japan Index gained 56.48% with strong gains in the Hong Kong, Singapore and Australian markets.

From a sector perspective, materials stocks had the best returns, up 48.26%, especially in the area of metals and mining, which was driven by industry consolidation and the continued upturn in commodities prices. Telecommunication services, up 41.84%, also benefited from strong earnings results. Health care and financials were the notable laggards, returning 2.56% and 14.02%, respectively, as measured by the health care and financials sector grouping based on the Global Industry Classification Standard definitions.

A reversal in market leadership in terms of style was seen in March, with the value segment of the MSCI EAFE® Index dominating in the first half of the period, and the growth segment leading in the second half. The period ended with the MSCI EAFE Growth Index rising 28.52%, compared with 21.33% for the MSCI EAFE Value Index. Investors, in general, continued to favor smaller capitalization stocks over larger capitalization stocks with the S&P/Citigroup EMI World ex-U.S. Index (an index of smaller capitalization companies) up 28.38% in the period versus the S&P/Citigroup PMI World ex-U.S. (in index of larger capitalization companies) up 27.24%.

Markets not represented in the MSCI EAFE® Index, but commonly included in non-U.S. stock funds, offered significant opportunities for gains during the period. Emerging markets outperformed their developed

6   Market Summary

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counterparts, as the MSCI Emerging Markets Index rose 67.84%. Emerging markets countries benefited from the materials and industrials sectors, both posting over 100% returns for the period. Canadian stocks, as measured by the MSCI Canada Index, rose 44.95% during the period.

Emerging Markets

During the fiscal year, the MSCI Emerging Markets Index (“Index”) posted a strong return of 67.84%, outperforming developed markets as measured by the MSCI World Index Free which returned 20.39%. Larger capitalization stocks and those with strong price momentum, particularly those in cyclical sectors, were key drivers of performance. Significant capital inflows and outperformance of energy and material stocks resulting from strong commodity prices also contributed positively to performance. The emerging markets asset class performed strongly despite two market pull-backs in late February and July. The first sell-off was triggered by a concern that China would tighten controls on investment, and the second sell-off occurred more recently when credit concerns over U.S. subprime mortgage loans broadened to larger concerns about the world’s capital markets. Each time, however, emerging markets rallied back to hit new highs as investors continued to search for growth.

In terms of regions, Latin America was the top performer (+78.08% as measured by the MSCI EM Latin America Index) followed closely by Asia (+75.44% as measured by the MSCI EM Asia Index). The MSCI EM (Emerging Markets) Europe, Middle East and Africa Index (EMEA) lagged the Index but still posted a solid return of 45.94%. The BRIC (Brazil, Russia, India and China) economies with the exception of Russia all outperformed the broader Index with China leading the group (+155.68% as measured by the MSCI China Index) due in part to the strong performance of the country’s commodity-related and financial stocks. MSCI China Index stocks were also buoyed in the third quarter by the rumor that the local Chinese investors would be allowed to invest through the Hong Kong stock exchange. Strength in resource-related stocks helped Brazil post strong returns over the period (+110.24% as measured by the MSCI Brazil Index). Some of the smaller markets such as Indonesia and Peru posted strong gains; in the case of Peru, the market returned +149.20% as measured by the MSCI Peru Index due mainly to one stock, Southern Copper Corporation. The small market of Jordan was the only country with single digit absolute returns, rising 3.97% as measured by the MSCI Jordan Index. Other notable relative underperformers included Taiwan (+38.56% as measured by the MSCI Taiwan Index), South Africa (+53.76% as measured by the MSCI South Africa Index), and Egypt (+51.41% as measured by the MSCI Egypt Index).

Currencies were broadly strong against the U.S. dollar with some, such as the Brazilian Real, up more than 18%.

Within emerging markets, the industrials sector and resource-related areas performed strongly. Chinese financials and telecom stocks along with Korean and Brazilian materials stocks were key market movers. Technology and consumer stocks underperformed the Index, but still returned more than 20% in absolute terms. Utilities, a sector leveraged to emerging markets energy demand growth, performed strongly, while the health care sector, dominated by Teva Pharmaceuticals, lagged the Index.

U.S. Fixed Income Markets

The Lehman Brothers U.S. Aggregate Bond Index, a broad measure of U.S. investment grade fixed income securities, returned 5.38% for the fiscal year ended October 31, 2007. All major sub-sectors trailed U.S. Treasuries as the subprime crisis largely caused a widespread “flight to quality” throughout fixed income markets, where investors moved their capital away from riskier investments to the safest possible investments (in this case U.S. Treasuries).

 

Market Summary   7

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There were two predominant factors that affected fixed income markets throughout fiscal 2007. The first, occurring during the third quarter of calendar 2007, took the form of a massive re-pricing of risk across many fixed income sectors, largely as a result of developments within the subprime lending market. The second was the Federal Reserve’s September and October cuts to the target federal funds rate for overnight loans between banks.

The Subprime Market

Subprime borrowers are often defined loosely as those borrowers with higher risk/higher interest rate loans because of lack of income documentation, poor credit history, and/or high loan-to-value ratios. The proliferation of the subprime mortgages — and securities firms packaging the subprime debt into AAA-rated bonds — helped fuel the U.S. housing boom over the past decade.

Many factors contributed to a surge in what some regard as looser mortgage lending practices in late 2005 and 2006. The strength of the real estate market created additional demand for mortgage-backed securities, including those that were backed by subprime loans. This increased the potential profit for originating subprime mortgages, loans which many banks had previously avoided making because of their higher default risk. Traditional requirements to obtaining a mortgage (such as proof of income, a down payment or a moderate loan-to-value ratio) were abandoned and adjustable rate loans with artificially low introductory rates and interest-only loans became more common. Record low interest rates and loosening lending standards assisted in pushing real estate prices to record highs and resulted in a record number of re-financings. A high level of liquidity in the market enabled investment banks to borrow more to produce more “structured” financial products. This included buying lower credit rated mortgage-backed securities and re-packaging them into higher rated collateralized debt obligations (CDOs), which were in turn re-introduced into the market.

Problems in the subprime market appeared during the fourth quarter of 2006 when borrower delinquencies reached a four-year high1. Adjustable rate mortgages reset to higher rates and some borrowers could not afford to make the new higher monthly payments. The housing market began to cool, with some borrowers now owing more than their homes were worth.

Concerns increased in May 2007 when the U.S. housing market continued to soften and, for the first time since 1991, national home prices posted a year-over-year decrease2. During 2007, the level of payment delinquencies and early defaults on mortgage loans to subprime borrowers increased significantly. Demand for CDOs evaporated and mortgage lenders no longer had easy access to capital to originate loans. Investors became more risk averse and a flight to quality ensued.

The subsequent fallout from developments in the subprime market has been widespread. The housing market, consumer confidence and companies in the financial services sector were negatively impacted. Access to capital became more constrained resulting in less liquidity in the markets and a “credit crunch” (an environment where investment capital is difficult to obtain). Some mortgage lenders declared bankruptcy or exited the business. Non-U.S. Treasury fixed income sectors generally performed poorly as investors moved out of those sectors and into U.S. Treasuries. The uncertainty surrounding the extent of the impact to the global economy led to market volatility and impacted equity and fixed income markets around the globe.

 

1

  

Bloomberg, U.S. Subprime Mortgage Delinquencies at 4-Year High, 13-Mar-07.

 

2

  

Bloomberg, Fed Sees Housing Dampening Growth Longer than Expected (per S&P/Case-Shiller study), 30-May-07.

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The Federal Reserve’s September and October Rate Cuts

On two separate occasions during the third quarter of 2007, the Federal Reserve (“the Fed”) cut the target rate for overnight loans between banks. On September 18, the Fed lowered the target rate by 0.50% to 4.75%, the first rate change since the Fed last raised the target to 5.25% in June 2006. The reason cited for the cut was that “the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally” and that the rate cut “is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time”3. On October 31, a further 0.25% cut lowered the target rate to 4.50%, with the Fed stating that inflation and growth risks were approximately balanced.

Prior to the Federal Reserve rate cuts, the flight to quality pushed up U.S. Treasury prices, which, in turn, lowered their yields (also referred to as a downward shift in the yield curve). The decline in yields was most notable in shorter duration Treasuries; yields on 2-year Treasuries declined by 0.63% while 10-year Treasuries declined by 0.13%. The Federal Reserve’s rate cuts continued this downward progression of yields, but only for those Treasuries with maturities below ten years. After the rate cuts, yields on 2-year Treasuries declined by 0.12% while yields on 10-year Treasuries remained unchanged.

 

3

Bloomberg, Fed Surprises with a 50-basis point Rate Cut, 18-Sep-07.

Market Summary   9

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Russell Investment Company

Equity I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Equity I Fund - Class I  
     Total Return  

1 Year

    20.17 %

5 Years

    15.20 %§

10 Years

    6.65 %§

 

Equity I Fund - Class E‡  
     Total Return  

1 Year

    19.82 %

5 Years

    14.91 %§

10 Years

    6.44 %§

 

Equity I Fund - Class Y‡‡  
     Total Return  

1 Year

    20.23 %

5 Years

    15.27 %§

10 Years

    6.71 %§

 

Russell 1000® Index**  
     Total Return  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

10   Equity I Fund

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Russell Investment Company

Equity I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Equity I Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has ten money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Equity I Fund Class E, Class I and Class Y gained 19.82%, 20.17% and 20.23%, respectively. This compared to the Russell 1000® Index, which gained 15.03% 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, 2007, the Lipper® Large-Cap Core Funds Average returned 14.44%. This result serves as a peer comparison and is expressed net of operating expenses.

RIMCo may assign a money manager a specific style or capitalization benchmark other than the Fund’s index. However, the Fund’s primary index remains the benchmark for the Fund and is representative of the aggregate of each money manager’s benchmark index.

How did the market conditions described in the Market Summary report affect the Fund’s performance?

For the fiscal year, the U.S. equity market was led by large capitalization growth companies, and by companies that could benefit directly or indirectly from the expansion of developing markets. After many years of value-led markets, growth stocks outpaced value for the fiscal year. This was a favorable environment for the Equity I Fund. The Fund’s emphasis on companies with above-average growth, capitalization, beta and momentum was rewarded over the period.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Over the past year, the Fund maintained it’s preference for companies with above-average growth rates that were selling at attractive valuations. That positioning was rewarded in this period where growth stocks outpaced value stocks. The Fund benefited from growing global demand through it’s exposure to infrastructure- and agriculture-related stocks.

 

At the sector level, the Fund was overweight to the energy sector, which contributed positively to performance. Additionally, strong stock selection in the consumer discretionary and technology sectors contributed to returns. Exposure to some financials stocks detracted from Fund returns due to rising defaults in subprime loans.

The Fund’s growth money managers, Turner Investment Partners, Inc., Columbus Circle Investors, Montag & Caldwell, Inc. and Marsico Capital Management, LLC, benefited from the strong growth environment as well as favorable stock selection and all outperformed both the Russell 1000® Index return of 15.0%, as well as the Russell 1000® Growth Index return of 19.2%. Value manager, AllianceBernstein L.P., suffered from weak stock selection and from overweights to underperforming sectors such as financial services, and from underweights to outperforming sectors such as energy and technology. Deep value manager, Schneider Capital Management Corporation also underperformed for the fiscal year due in part to an overweight to and weak stock selection within the financial services sector.

RIMCo currently employs a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings of the Fund’s money managers in their Fund segments to identify particular stocks that have been selected by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. As the Fund outperformed for the period, the select holdings strategy also outperformed the benchmark.

At the stock selection level, the Fund benefited from overweights in large outperformers such as Apple Inc., Reliant Energy Inc., Schlumberger Ltd., Hess Corp., Monsanto Co., and Research in Motion Ltd. added to performance over the period. An underweight position in Exxon Mobil Corp. detracted from performance, as did overweights to negatively performing stocks such as Countrywide Financial Corp., Starbucks Corp., and Genworth Financial Inc.

Describe any changes to the Fund’s structure or the money manager line-up.

In March 2007, Columbus Circle Investors replaced Ark Asset Management Co., Inc. as a growth manager in the Fund. In September 2007, Arnhold and S. Bleichroeder Advisers, LLC was added as a market-oriented manager in the Fund.


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Russell Investment Company

Equity I Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Money Managers as of
October 31, 2007		    Styles

AllianceBernstein L.P.

    Value

Arnhold and S. Bleichroeder Advisers, LLC

    Market-Oriented

Columbus Circle Investors

    Growth

Institutional Capital LLC

    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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments from income dividends and capital gain distributions reinvested as of the ex-dividend dates.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on March 29, 2000. The returns shown for Class Y Shares prior to March 29, 2000 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

§   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 I Fund

Table of Contents

Russell Investment Company

Equity I Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,098.40    $ 1,020.47

Expenses Paid During Period*

    $ 4.97    $ 4.79

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.94% (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.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,100.20    $ 1,021.83

Expenses Paid During Period*

    $ 3.55    $ 3.41

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.67% (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.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,100.60    $ 1,021.98

Expenses Paid During Period*

    $ 3.39    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

Equity I Fund   13

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 95.4%

        

Auto and Transportation - 2.7%

        

American Axle & Manufacturing Holdings, Inc. (Ñ)

    14,200      390

Autoliv, Inc.

    8,800      556

BorgWarner, Inc.

    5,400      571

Burlington Northern Santa Fe Corp.

    19,590      1,707

CH Robinson Worldwide, Inc. (Ñ)

    66,470      3,318

CSX Corp.

    37,000      1,657

Daimler AG

    3,300      364

FedEx Corp.

    49,848      5,151

Ford Motor Co. (Æ)(Ñ)

    28,400      252

General Motors Corp. (Ñ)

    180,700      7,082

Goodyear Tire & Rubber Co.
(The) (Æ)(Ñ)

    82,870      2,499

JB Hunt Transport Services, Inc. (Ñ)

    12,750      353

Magna International, Inc. Class A

    2,800      265

Navistar International Corp. (Æ)(Ñ)

    148,800      9,374

Norfolk Southern Corp.

    135,700      7,009

Toyota Motor Corp. - ADR

    29,293      3,352

UAL Corp. (Æ)(Ñ)

    74,900      3,588

Union Pacific Corp.

    54,142      6,932

Visteon Corp. (Æ)(Ñ)

    167,500      1,064
         
        55,484
         

Consumer Discretionary - 11.4%

        

Accenture, Ltd. Class A

    7,300      285

Activision, Inc. (Æ)

    74,720      1,767

Amazon.com, Inc. (Æ)(Ñ)

    78,540      7,002

Apollo Group, Inc. Class A (Æ)

    31,000      2,457

Avis Budget Group, Inc. (Æ)

    20,200      422

Avon Products, Inc.

    72,960      2,990

Black & Decker Corp. (Ñ)

    4,800      432

Carnival Corp. (Ñ)

    29,150      1,399

CBS Corp. Class B (Ñ)

    43,200      1,240

Chico’s FAS, Inc. (Æ)(Ñ)

    29,050      382

Citadel Broadcasting Corp. (Ñ)

    1,174      5

Coach, Inc. (Æ)

    47,460      1,735

Costco Wholesale Corp.

    79,900      5,374

eBay, Inc. (Æ)

    212,700      7,678

EchoStar Communications Corp. Class A (Æ)(Ñ)

    14,865      728

Electronic Arts, Inc. (Æ)(Ñ)

    104,440      6,383

Family Dollar Stores, Inc. (Ñ)

    8,400      213

GameStop Corp. Class A (Æ)

    31,731      1,879

Gannett Co., Inc.

    16,800      713

Gap, Inc. (The)

    24,400      461

Google, Inc. Class A (Æ)

    59,000      41,713
     Principal
Amount ($)
or Shares		      Market
Value
$

Guess?, Inc.

    85,690      4,404

Home Depot, Inc.

    33,400      1,052

Idearc, Inc. (Ñ)

    19,800      534

Intercontinental Hotels Group PLC - ADR (Ñ)

    92,002      2,147

International Game Technology

    55,700      2,429

JC Penney Co., Inc.

    72,500      4,077

Jones Apparel Group, Inc. (Ñ)

    24,500      513

Kohl’s Corp. (Æ)

    69,600      3,826

Las Vegas Sands Corp. (Æ)(Ñ)

    94,994      12,642

Liberty Media Holding Corp.
Series A (Æ)

    25,682      3,210

Limited Brands, Inc. (Ñ)

    12,900      284

Lowe’s Cos., Inc. (Ñ)

    147,694      3,972

Macy’s, Inc.

    169,730      5,436

Mattel, Inc.

    18,900      395

McDonald’s Corp.

    441,599      26,363

MGM Mirage (Æ)

    56,264      5,154

Nike, Inc. Class B (Ñ)

    204,780      13,569

RadioShack Corp. (Ñ)

    26,800      553

Royal Caribbean Cruises, Ltd. (Ñ)

    129,300      5,544

Saks, Inc. (Ñ)

    118,600      2,510

Staples, Inc.

    21,000      490

Starbucks Corp. (Æ)(Ñ)

    188,694      5,034

Target Corp.

    76,250      4,679

Time Warner, Inc.

    41,600      760

Tribune Co. (Ñ)

    9,346      283

Under Armour, Inc. Class A (Æ)(Ñ)

    27,120      1,688

VeriSign, Inc. (Æ)(Ñ)

    73,690      2,512

VF Corp.

    9,300      810

Viacom, Inc. Class B (Æ)

    67,700      2,795

Wal-Mart Stores, Inc.

    6,500      294

Walt Disney Co. (The)

    143,300      4,962

Wendy’s International, Inc. (Ñ)

    9,500      330

Wynn Resorts, Ltd. (Ñ)

    55,387      8,941

XM Satellite Radio Holdings, Inc. Class A (Æ)(Ñ)

    277,950      3,691

Yahoo!, Inc. (Æ)(Ñ)

    94,600      2,942

Yum! Brands, Inc. (Ñ)

    153,230      6,171
         
        230,254
         

Consumer Staples - 6.7%

        

Altria Group, Inc.

    182,330      13,297

Coca-Cola Co. (The)

    608,629      37,589

Coca-Cola Enterprises, Inc. (Ñ)

    21,100      545

Colgate-Palmolive Co.

    37,400      2,853

ConAgra Foods, Inc.

    11,300      268

Diageo PLC - ADR

    31,400      2,881

14   Equity I Fund

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Fomento Economico Mexicano SAB de CV - ADR

    59,700      2,126

Hansen Natural Corp. (Ñ)

    25,770      1,752

Heineken NV - ADR

    73,888      2,571

Kraft Foods, Inc. Class A

    106,300      3,552

Kroger Co. (The)

    14,100      414

Molson Coors Brewing Co. Class B

    67,400      3,857

Nestle SA - ADR

    38,330      4,420

PepsiCo, Inc.

    213,470      15,737

Procter & Gamble Co.

    461,360      32,074

Safeway, Inc.

    8,300      282

Sara Lee Corp.

    40,100      663

Smithfield Foods, Inc. (Æ)(Ñ)

    9,350      268

Tesco PLC - ADR (Ñ)

    36,615      1,111

Tyson Foods, Inc. Class A (Ñ)

    74,300      1,174

Unilever NV

    109,900      3,567

Walgreen Co. (Ñ)

    22,598      896

Whole Foods Market, Inc. (Ñ)

    25,010      1,239

Wm. Wrigley Jr. Co.

    55,827      3,443
         
        136,579
         

Financial Services - 17.9%

        

ACE, Ltd.

    20,300      1,230

Allstate Corp. (The)

    142,250      7,454

Ambac Financial Group, Inc. (Ñ)

    9,300      342

American Express Co.

    113,200      6,900

American International Group, Inc.

    251,250      15,859

Annaly Capital Management, Inc. (ö)

    605,625      10,350

AON Corp. (Ñ)

    56,400      2,556

Bank of America Corp.

    365,962      17,669

Bank of New York Mellon Corp. (The)

    223,722      10,929

Capital One Financial Corp.

    91,550      6,005

Chubb Corp.

    37,670      2,010

CIT Group, Inc.

    20,200      712

Citigroup, Inc. (Ñ)

    675,940      28,322

Clear Channel Outdoor Holdings, Inc. Class A (Æ)(Ñ)

    257,228      6,539

CME Group, Inc.

    5,700      3,798

Comerica, Inc.

    13,200      616

Countrywide Financial Corp. (Ñ)

    89,200      1,384

Deutsche Bank AG

    2,600      348

Fannie Mae (Ñ)

    404,241      23,058

Fidelity National Financial, Inc. Class A (Ñ)

    28,000      431

Fifth Third Bancorp (Ñ)

    4,800      150

First American Corp. (Ñ)

    60,850      1,832

Freddie Mac

    264,950      13,838

Genworth Financial, Inc. Class A

    381,100      10,404

Goldman Sachs Group, Inc. (The)

    140,859      34,922
     Principal
Amount ($)
or Shares		      Market
Value
$

Hartford Financial Services Group, Inc. (Ñ)

    57,300      5,560

Host Hotels & Resorts, Inc. (ö)

    234,750      5,202

IntercontinentalExchange, Inc. (Æ)(Ñ)

    21,430      3,819

iShares Russell 1000 Value Index Fund

    84,050      7,232

iStar Financial, Inc. (ö)(Ñ)

    19,550      596

JPMorgan Chase & Co.

    457,700      21,512

Keycorp

    18,200      518

Lehman Brothers Holdings, Inc.

    99,041      6,273

MasterCard, Inc. Class A w (Ñ)

    65,996      12,510

MBIA, Inc. (Ñ)

    8,800      379

Merrill Lynch & Co., Inc.

    131,700      8,695

MetLife, Inc.

    119,210      8,208

MGIC Investment Corp. (Ñ)

    19,150      371

Morgan Stanley

    327,689      22,040

National City Corp. (Ñ)

    37,010      897

Old Republic International Corp.

    28,600      438

PartnerRe, Ltd. - ADR (Ñ)

    5,300      441

Paychex, Inc. (Ñ)

    83,400      3,484

PMI Group, Inc. (The) (Ñ)

    83,750      1,342

Radian Group, Inc. (Ñ)

    10,050      127

Redwood Trust, Inc. (ö)(Ñ)

    62,050      1,635

RenaissanceRe Holdings, Ltd. (Ñ)

    35,025      2,043

State Street Corp. (Ñ)

    101,400      8,089

SunTrust Banks, Inc.

    23,330      1,694

Torchmark Corp.

    3,400      222

Travelers Cos., Inc. (The)

    34,485      1,800

UBS AG

    76,620      4,114

Unum Group

    65,900      1,538

US Bancorp

    7,974      264

Wachovia Corp.

    114,000      5,213

Washington Mutual, Inc. (Ñ)

    70,985      1,979

Wells Fargo & Co. (Ñ)

    466,926      15,880

XL Capital, Ltd. Class A

    4,750      342
         
        362,115
         

Health Care - 13.4%

        

Abbott Laboratories

    111,000      6,063

Alcon, Inc.

    19,400      2,953

Allergan, Inc.

    138,590      9,366

AmerisourceBergen Corp. Class A

    3,500      165

Amylin Pharmaceuticals, Inc. (Æ)

    46,377      2,088

Baxter International, Inc.

    71,730      4,304

Boston Scientific Corp. (Æ)

    95,750      1,328

Bristol-Myers Squibb Co.

    199,700      5,989

Cardinal Health, Inc.

    59,500      4,048

Celgene Corp. (Æ)(Ñ)

    26,730      1,764

Equity I Fund   15

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Charles River Laboratories International, Inc. (Æ)

    22,390      1,299

Cooper Cos., Inc. (The) (Ñ)

    39,500      1,659

Covidien, Ltd.

    94,675      3,938

CVS Caremark Corp.

    883,069      36,886

Eli Lilly & Co.

    26,100      1,413

Express Scripts, Inc. Class A (Æ)

    51,400      3,243

Genentech, Inc. (Æ)

    84,390      6,256

Genzyme Corp. (Æ)

    32,420      2,463

Gilead Sciences, Inc. (Æ)

    393,740      18,187

GlaxoSmithKline PLC - ADR

    21,060      1,079

Health Management Associates, Inc. Class A (Ñ)

    52,000      344

Human Genome Sciences, Inc. (Æ)(Ñ)

    221,500      2,095

Intuitive Surgical, Inc. (Æ)

    23,686      7,742

Johnson & Johnson

    157,980      10,296

Medco Health Solutions, Inc. (Æ)

    78,290      7,389

Merck & Co., Inc.

    698,986      40,723

Novartis AG - ADR

    150,600      8,007

Omnicare, Inc. (Ñ)

    112,500      3,319

Pfizer, Inc.

    361,400      8,894

PharMerica Corp. (Æ)(Ñ)

    291      5

Schering-Plough Corp.

    178,900      5,460

Shire PLC - ADR

    28,500      2,142

St. Jude Medical, Inc. (Æ)(Ñ)

    77,334      3,150

Stericycle, Inc. (Æ)

    16,840      982

Stryker Corp.

    86,300      6,127

Teva Pharmaceutical Industries,
Ltd. - ADR

    58,500      2,575

Thermo Fisher Scientific, Inc. (Æ)(Ñ)

    288,660      16,976

UnitedHealth Group, Inc.

    232,691      11,437

Vertex Pharmaceuticals, Inc. (Æ)(Ñ)

    51,700      1,672

WellPoint, Inc. (Æ)

    37,060      2,936

Wyeth (Ñ)

    297,321      14,459
         
        271,221
         

Integrated Oils - 4.6%

        

BP PLC - ADR

    5,400      421

Chevron Corp.

    162,981      14,914

ConocoPhillips

    75,720      6,433

Exxon Mobil Corp.

    313,880      28,874

Hess Corp.

    185,010      13,249

Marathon Oil Corp.

    65,930      3,899

Occidental Petroleum Corp.

    250,600      17,304

Petroleo Brasileiro SA - ADR

    18,831      1,801

Royal Dutch Shell PLC - ADR

    4,400      385

Total SA - ADR

    63,480      5,117
         
        92,397
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Materials and Processing - 5.0%

        

Agrium, Inc.

    47,900      3,045

Air Products & Chemicals, Inc.

    11,451      1,120

Allegheny Technologies, Inc.

    16,879      1,725

ArcelorMittal Class A (Ñ)

    8,800      704

Ashland, Inc.

    5,100      299

Ball Corp.

    5,500      273

Bunge, Ltd.

    18,860      2,172

Cameco Corp.

    40,450      1,984

Cytec Industries, Inc.

    48,650      3,245

Dow Chemical Co. (The)

    41,900      1,887

EI Du Pont de Nemours & Co. (Ñ)

    188,600      9,338

Freeport-McMoRan Copper & Gold, Inc.

    58,114      6,839

International Paper Co.

    141,500      5,230

Lennar Corp. Class B (Ñ)

    6,400      136

Louisiana-Pacific Corp. (Ñ)

    24,400      402

Lubrizol Corp.

    6,650      451

Masco Corp. (Ñ)

    279,920      6,740

Monsanto Co.

    223,735      21,843

Nalco Holding Co. (Ñ)

    179,026      4,451

Nucor Corp.

    52,080      3,230

Potash Corp. of Saskatchewan

    28,600      3,513

PPG Industries, Inc.

    85,800      6,413

Praxair, Inc.

    71,410      6,104

Rio Tinto PLC - ADR (Ñ)

    10,900      4,088

Rohm & Haas Co. (Ñ)

    89,200      4,628

Shaw Group, Inc. (The) (Æ)

    20,340      1,517

Smurfit-Stone Container Corp. (Æ)(Ñ)

    24,300      294

Sonoco Products Co.

    17,700      547
         
        102,218
         

Miscellaneous - 2.4%

        

3M Co. (Ñ)

    51,768      4,471

ABB, Ltd. - ADR

    116,500      3,520

Eaton Corp.

    29,310      2,713

General Electric Co.

    752,155      30,959

SPX Corp. (Ñ)

    8,950      907

Textron, Inc.

    84,800      5,869
         
        48,439
         

Other Energy - 6.0%

        

Arch Coal, Inc. (Ñ)

    227,200      9,315

Baker Hughes, Inc.

    69,300      6,010

Cameron International Corp. (Æ)

    51,903      5,053

Consol Energy, Inc.

    243,920      13,782

Devon Energy Corp.

    218,591      20,416

Diamond Offshore Drilling, Inc. (Ñ)

    20,030      2,268

16   Equity I Fund

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

FMC Technologies, Inc. (Æ)(Ñ)

    41,000      2,486

Halliburton Co.

    144,100      5,681

Massey Energy Co. (Ñ)

    66,700      2,113

National Oilwell Varco, Inc. (Æ)

    49,500      3,625

Reliant Energy, Inc. (Æ)(Ñ)

    286,450      7,883

Schlumberger, Ltd.

    242,889      23,456

Transocean, Inc. (Æ)

    18,414      2,198

Valero Energy Corp. (Ñ)

    36,800      2,592

Williams Cos., Inc. (Ñ)

    115,868      4,228

XTO Energy, Inc.

    149,840      9,946
         
        121,052
         

Producer Durables - 4.8%

        

AGCO Corp. (Æ)(Ñ)

    2,150      128

Applied Materials, Inc.

    362,960      7,049

Boeing Co.

    49,694      4,899

Bombardier, Inc. (Æ)

    526,800      3,123

Caterpillar, Inc.

    4,800      358

Centex Corp. (Ñ)

    138,950      3,482

Deere & Co.

    53,690      8,317

Emerson Electric Co.

    199,200      10,412

Goodrich Corp.

    20,400      1,421

Ingersoll-Rand Co., Ltd. Class A

    8,800      443

KB Home (Ñ)

    17,600      486

Lexmark International, Inc.
Class A (Æ)(Ñ)

    8,000      336

Lockheed Martin Corp.

    158,562      17,448

Nokia OYJ - ADR

    122,500      4,866

Northrop Grumman Corp.

    102,840      8,600

NVR, Inc. (Æ)(Ñ)

    2,150      1,023

Parker Hannifin Corp. (Ñ)

    64,055      5,148

Pitney Bowes, Inc.

    7,900      316

Pulte Homes, Inc. (Ñ)

    85,250      1,265

Raytheon Co. (Ñ)

    94,310      5,999

Roper Industries, Inc. (Ñ)

    37,850      2,680

United Technologies Corp. (Ñ)

    119,031      9,117
         
        96,916
         

Technology - 16.1%

        

Amphenol Corp. Class A (Ñ)

    210,398      9,314

Analog Devices, Inc. (Ñ)

    75,079      2,512

Apple, Inc. (Æ)

    194,757      36,994

Applera Corp. - Applied Biosystems Group

    83,800      3,112

Arrow Electronics, Inc. (Æ)

    16,500      660

AU Optronics Corp. - ADR (Ñ)

    449,014      9,757

Avnet, Inc. (Æ)

    20,400      851

BearingPoint, Inc. (Æ)(Ñ)

    337,750      1,618
     Principal
Amount ($)
or Shares		      Market
Value
$

Broadcom Corp. Class A (Æ)

    113,172      3,684

Celestica, Inc. (Æ)(Ñ)

    175,350      1,191

Cisco Systems, Inc. (Æ)

    1,307,361      43,221

Citrix Systems, Inc. (Æ)

    31,400      1,350

Cognizant Technology Solutions Corp. Class A (Æ)

    93,600      3,881

Corning, Inc.

    142,600      3,461

Dell, Inc. (Æ)(Ñ)

    332,032      10,160

EMC Corp. (Æ)

    127,600      3,240

Flextronics International, Ltd. (Æ)

    20,450      252

Garmin, Ltd. (Ñ)

    30,700      3,297

General Dynamics Corp.

    73,818      6,714

Hewlett-Packard Co.

    525,195      27,142

Intel Corp.

    1,190,216      32,017

International Business Machines Corp.

    82,060      9,529

International Rectifier Corp. (Æ)(Ñ)

    65,100      2,173

Juniper Networks, Inc. (Æ)

    182,227      6,560

Maxim Integrated Products, Inc. (Ñ)

    150,300      4,073

MEMC Electronic Materials,
Inc. (Æ)

    48,900      3,580

Microsoft Corp.

    924,514      34,031

Motorola, Inc.

    439,150      8,252

Nvidia Corp.

    78,600      2,781

Oracle Corp. (Æ)

    174,490      3,868

Qimonda AG - ADR New (Æ)(Ñ)

    82,350      796

Qualcomm, Inc.

    214,800      9,178

Research In Motion, Ltd. (Æ)

    99,758      12,421

Salesforce.com, Inc. (Æ)(Ñ)

    42,300      2,384

Sanmina-SCI Corp. (Æ)

    132,400      293

Seagate Technology, Inc. (Æ)

    9,400      —

Sunpower Corp. Class A (Æ)(Ñ)

    23,680      2,995

Texas Instruments, Inc.

    238,950      7,790

Tyco Electronics, Ltd.

    138,000      4,922

VeriFone Holdings, Inc. (Æ)

    41,100      2,032

VMware, Inc. Class A (Æ)(Ñ)

    21,370      2,668
         
        324,754
         

Utilities - 4.4%

        

Ameren Corp.

    18,500      1,000

America Movil SAB de CV - ADR Series L

    53,814      3,519

American Electric Power Co., Inc.

    26,200      1,263

AT&T, Inc.

    688,001      28,752

China Mobile, Ltd. - ADR (Ñ)

    76,998      7,983

CMS Energy Corp. (Ñ)

    33,800      574

Comcast Corp. Class A (Æ)(Ñ)

    223,690      4,709

Constellation Energy Group, Inc.

    10,200      966

Duke Energy Corp.

    18,500      355

Equity I Fund   17

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Embarq Corp. (Ñ)

    88,878      4,703

Entergy Corp.

    3,600      431

FPL Group, Inc.

    32,300      2,210

Mirant Corp. (Æ)

    47,115      1,996

Progress Energy, Inc. - CVO

    3,200      1

Public Service Enterprise Group, Inc.

    51,540      4,927

Rogers Communications, Inc.
Class B

    470      24

Sprint Nextel Corp.

    184,100      3,148

Verizon Communications, Inc.

    243,279      11,208

Vodafone Group PLC - ADR

    255,550      10,035

Wisconsin Energy Corp.

    15,100      723
         
        88,527
         
Total Common Stocks        

(cost $1,546,244)

         1,929,956
         
Short-Term Investments - 4.7%        

Russell Investment Company
Money Market Fund

    88,628,285      88,628

United States Treasury Bills (ç)(ž)(§) 3.650% due 12/20/07

    6,000      5,971
         
Total Short-Term Investments        

(cost $94,599)

         94,599
         
     Principal
Amount ($)
or Shares		      Market
Value
$		  
Other Securities - 11.6%        

Russell Investment Company
Money Market Fund (×)

    52,213,684      52,214  

State Street Securities Lending Quality Trust (×)

    182,122,440      182,122  
           
Total Other Securities        

(cost $234,336)

         234,336  
           
Total Investments - 111.7%        

(identified cost $1,875,179)

         2,258,891  
Other Assets and Liabilities, Net - (11.7%)         (237,175 )
           
Net Assets - 100.0%         2,021,716  
           

 

See accompanying notes which are an integral part of the financial statements.

18   Equity I Fund

Table of Contents

Russell Investment Company

Equity I Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts
(Number of Contracts)		   Notional
Amount		   

Unrealized
Appreciation
(Depreciation)

$

    
    

Long Positions

     

Russell 1000 Index
expiration date 12/07 (24)

   USD  10,171    427

Russell 1000 Mini Index (CME) expiration date 12/07 (12)

   USD 1,017    42

S&P 500 E-Mini Index (CME) expiration date 12/07 (280)

   USD 21,769    597

S&P 500 Index (CME)
expiration date 12/07 (88)

   USD 34,208    414

S&P Midcap 400 E-Mini Index (CME)
expiration date 12/07 (322)

   USD 29,370    1,362
      

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

      2,842
      

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of Net
Assets		  
  

Auto and Transportation

    2.7  

Consumer Discretionary

    11.4  

Consumer Staples

    6.7  

Financial Services

    17.9  

Health Care

    13.4  

Integrated Oils

    4.6  

Materials and Processing

    5.0  

Miscellaneous

    2.4  

Other Energy

    6.0  

Producer Durables

    4.8  

Technology

    16.1  

Utilities

    4.4  

Short-Term Investments

    4.7  

Other Securities

    11.6  
      

Total Investments

    111.7  

Other Assets and Liabilities, Net

    (11.7 )
      
   100.0  
      

Futures Contracts

    0.1  

 

See accompanying notes which are an integral part of the financial statements.

Equity I Fund   19

Table of Contents

Russell Investment Company

Equity II Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

 

Equity II Fund - Class I  
     Total Return  

1 Year

    16.21 %

5 Years

    18.90 %§

10 Years

    9.74 %§

 

Equity II Fund - Class E‡  
     Total Return  

1 Year

    15.98 %

5 Years

    18.66 %§

10 Years

    9.54 %§

 

Equity II Fund - Class Y‡‡  
     Total Return  

1 Year

    16.30 %

5 Years

    19.02 %§

10 Years

    9.83 %§

 

Russell 2500™ Index**  
     Total Return  

1 Year

    12.71 %

5 Years

    19.39 %§

10 Years

    10.02 %§

20   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Equity II Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has eight money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Equity II Fund Class E, Class I and Class Y gained 15.98%, 16.21% and 16.30%, respectively. This compared to the Russell 2500™ Index, which gained 12.71% 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, 2007, the Lipper Mid-Cap® Core Funds Average returned 15.89%, while the Lipper® Small-Cap Core Funds Average rose 9.70%. 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?

In general, the market conditions presented a positive environment for active small cap managers. This is evidenced by the outperformance of the Small Cap Lipper averages over the Russell 2000® Index. Furthermore, it was a good environment for the Fund, which outperformed both peers and the Index. While 2006 was one of the worst years in the past two decades for active small cap managers, 2007 saw a reversal of this trend. The money managers employed by the Fund were well positioned for the change in market leadership and the resurgence of growth after a long period of value leadership. In addition, underweights to the financials sector, which served as a barrier to outperformance in the past, contributed positively to Fund performance in the wake of developments in the subprime lending market. While sector selection contributed positively to Fund performance, the Fund outperformed its benchmark for the period primarily due to strong stock selection by the money managers.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund employs eight money managers: three growth, two market-oriented and three value. The outperformance for the year was largely driven by the growth managers in the Fund. Gould Investment Partners, LLC, the most growth-oriented manager, significantly outperformed the benchmark. Gould’s outperformance over the past year was not unexpected given Gould’s technology overweight, positive stock selection and high growth style of investing. Tygh Capital Management, Inc., a growth manager, outperformed despite its quality growth style of investing in a market that favored higher growth characteristics.

Among the value managers, David J. Greene and Company, LLC contributed positively to Fund performance, benefiting from both stock selection as well as an underweight to financials and overweight to technology within the value space.

The Fund’s quantitative managers, PanAgora Asset Management, Inc., ClariVest Asset Management LLC and Jacobs Levy Equity Management, Inc., underperformed the Fund’s benchmark during what was a difficult period for quantitative processes. In the earlier part of the year, quantitative managers had a difficult time outperforming the benchmark as market sentiment shifted from rewarding value factors to rewarding growth factors. During transitional markets, quantitative strategies will generally lag for a period as their models are adjusted. In early August 2007, there was a market sell-off led by quantitative hedge funds followed by a rapid decrease in leverage by the hedge funds. This drove prices of commonly held quantitative securities down. Subsequently, quantitative managers as a group underperformed the market.

Describe any changes to the Fund’s structure or the money manager line-up.

In January of 2007, ClariVest Asset Management LLC was hired to replace Goldman Sachs Asset Management, L.P. In March of 2007, pursuant to an asset purchase agreement with CapitalWorks Investment Partners, LLC, the CapitalWorks investment team became the Berkeley Capital Management, LLP. In September of 2007, Berkeley was replaced by Ranger Investment Management L.P.


 

Equity II Fund   21

Table of Contents

Russell Investment Company

Equity II Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Money Managers as of
October 31, 2007		   Styles

ClariVest Asset Management LLC

   Market-Oriented

David J. Greene and Company, LLC

   Value

Delphi Management, Inc.

   Value

Gould Investment Partners LLC

   Growth

Jacobs Levy Equity Management, Inc.

   Value

PanAgora Asset Management, Inc.

   Market-Oriented

Ranger Investment Management, L.P.

   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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

 

*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 2500tm Index is composed of the bottom 500 stocks the Russell 1000® Index and all the stocks in the Russell 2000® Index. The Russell 2500tm Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on March 29, 2000. The returns shown for Class Y Shares prior to March 29, 2000 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

§   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   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,062.10    $ 1,019.46

Expenses Paid During Period*

    $ 5.93    $ 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.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,063.20    $ 1,020.47

Expenses Paid During Period*

    $ 4.89    $ 4.79

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.94% (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.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,063.50    $ 1,020.97

Expenses Paid During Period*

    $ 4.37    $ 4.28

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.84% (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 II Fund   23

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 95.4%

        

Auto and Transportation - 3.2%

        

AAR Corp. (Æ)(Ñ)

    63,700      2,042

Accuride Corp. (Æ)(Ñ)

    23,534      240

Aftermarket Technology Corp. (Æ)

    21,180      731

Alaska Air Group, Inc. (Æ)(Ñ)

    15,200      386

Amerigon, Inc. (Æ)(Ñ)

    25,800      507

Arctic Cat, Inc. (Ñ)

    9,100      131

ArvinMeritor, Inc. (Ñ)

    24,162      358

Bristow Group, Inc. (Æ)(Ñ)

    15,375      767

Con-way, Inc. (Ñ)

    18,600      793

Continental Airlines, Inc.
Class A (Æ)(Ñ)

    4,454      153

Cooper Tire & Rubber Co. (Ñ)

    5,323      119

Dana Corp. (Æ)(Ñ)

    98,600      15

Danaos Corp.

    8,800      316

DryShips, Inc. (Ñ)

    9,228      1,088

Frozen Food Express Industries (Ñ)

    59,058      337

Horizon Lines, Inc. Class A (Ñ)

    12,243      385

HUB Group, Inc. Class A (Æ)

    15,440      392

K-Sea Transportation Partners, LP (Ñ)

    15,100      600

Kansas City Southern (Æ)(Ñ)

    12,000      464

Kirby Corp. (Æ)(Ñ)

    30,221      1,380

Mesa Air Group, Inc. (Æ)

    10,734      50

Modine Manufacturing Co. (Ñ)

    11,500      267

Navistar International Corp. (Æ)(Ñ)

    5,600      353

Pinnacle Airlines Corp. (Æ)(Ñ)

    818      13

Skywest, Inc. (Ñ)

    15,049      411

StealthGas, Inc.

    51,084      927

Stoneridge, Inc. (Æ)(Ñ)

    5,000      51

Teekay Corp. (Ñ)

    7,900      442

Tidewater, Inc. (Ñ)

    9,000      492

TRW Automotive Holdings
Corp. (Æ)(Ñ)

    30,600      908

US Airways Group, Inc. (Æ)(Ñ)

    40,900      1,131

UTi Worldwide, Inc. (Ñ)

    34,641      884

Vitran Corp., Inc. Class A (Æ)

    27,100      379

Wabtec Corp. (Ñ)

    55,640      2,088
         
        19,600
         

Consumer Discretionary - 15.8%

     

Abercrombie & Fitch Co. Class A (Ñ)

    17,700      1,402

ABM Industries, Inc. (Ñ)

    36,031      847

Activision, Inc. (Æ)

    121,201      2,866

Administaff, Inc. (Ñ)

    6,307      252

Advance Auto Parts, Inc.

    10,000      341

Advisory Board Co. (The) (Æ)(Ñ)

    23,084      1,482

Aeropostale, Inc. (Æ)(Ñ)

    14,061      322
     Principal
Amount ($)
or Shares		      Market
Value
$

AFC Enterprises (Æ)(Ñ)

    12,600      168

Alberto-Culver Co. Class B

    37,100      964

American Eagle Outfitters, Inc. (Ñ)

    24,000      571

American Greetings Corp. Class A (Ñ)

    18,463      486

American Woodmark Corp. (Ñ)

    11,502      292

Asbury Automotive Group, Inc. (Ñ)

    10,800      198

AutoNation, Inc. (Æ)(Ñ)

    29,900      529

Bally Technologies, Inc. (Æ)(Ñ)

    58,012      2,340

Barnes & Noble, Inc. (Ñ)

    27,300      1,055

Big Lots, Inc. (Æ)(Ñ)

    20,021      480

BJ’s Wholesale Club, Inc. (Æ)(Ñ)

    40,500      1,453

Blockbuster, Inc. Class A (Æ)(Ñ)

    80,333      423

Blyth, Inc. (Ñ)

    25,790      492

Bob Evans Farms, Inc. (Ñ)

    13,616      384

Books-A-Million, Inc. Class A (Ñ)

    4,293      57

Bowne & Co., Inc. (Ñ)

    26,666      463

Brown Shoe Co., Inc. (Ñ)

    8,654      177

Buckle, Inc. (The) (Ñ)

    7,850      338

Build-A-Bear Workshop, Inc.
Class A (Æ)(Ñ)

    27,300      530

Capella Education Co. (Æ)(Ñ)

    2,800      174

Carter’s, Inc. (Æ)(Ñ)

    9,200      203

CBRL Group, Inc. (Ñ)

    11,184      446

CCA Industries, Inc. (Ñ)

    35,738      363

CDI Corp. (Ñ)

    7,600      209

Chemed Corp. (Ñ)

    34,631      1,985

Chipotle Mexican Grill, Inc.
Class A (Æ)(Ñ)

    10,000      1,390

CMGI, Inc. (Æ)(Ñ)

    554,253      782

Convergys Corp. (Æ)

    78,500      1,439

Corinthian Colleges, Inc. (Æ)(Ñ)

    31,400      515

Corrections Corp. of America (Æ)(Ñ)

    25,000      707

CROCS, Inc. (Æ)(Ñ)

    46,100      3,446

CSS Industries, Inc. (Ñ)

    3,800      150

Denny’s Corp. (Æ)(Ñ)

    55,823      269

Discovery Holding Co. Class A (Æ)

    11,500      328

Dolby Laboratories, Inc. Class A (Æ)

    28,300      1,173

Dollar Tree Stores, Inc. (Æ)(Ñ)

    18,600      712

DreamWorks Animation SKG, Inc. Class A (Æ)(Ñ)

    26,100      850

Dress Barn, Inc. (Æ)(Ñ)

    13,741      225

DynCorp International, Inc.
Class A (Æ)

    29,461      667

Earthlink, Inc. (Æ)(Ñ)

    38,900      308

Electronic Arts, Inc. (Æ)

    20,841      1,274

Elizabeth Arden, Inc. (Æ)(Ñ)

    7,984      199

Ethan Allen Interiors, Inc. (Ñ)

    20,789      642

Ezcorp, Inc. Class A (Æ)(Ñ)

    12,406      163

24   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Finish Line Class A (Ñ)

    19,800      74

Focus Media Holding, Ltd. - ADR (Æ)(Ñ)

    21,900      1,358

FTD Group, Inc. (Ñ)

    12,300      173

FTI Consulting, Inc. (Æ)(Ñ)

    26,300      1,428

Gaiam, Inc. Class A (Æ)(Ñ)

    21,500      500

GameStop Corp. Class A (Æ)

    17,241      1,021

Gaylord Entertainment Co. (Æ)(Ñ)

    12,400      676

Geo Group, Inc. (The) (Æ)

    29,786      942

Greenfield Online, Inc. (Æ)(Ñ)

    5,696      87

Hasbro, Inc. (Ñ)

    36,700      1,096

Helen of Troy, Ltd. (Æ)(Ñ)

    22,600      407

Hewitt Associates, Inc. Class A (Æ)

    16,300      575

Home Solutions of America, Inc. (Æ)(Ñ)

    108,000      273

Hooker Furniture Corp. (Ñ)

    8,679      187

Hudson Highland Group, Inc. (Æ)(Ñ)

    15,008      172

ICF International, Inc. (Æ)(Ñ)

    13,800      428

Idearc, Inc. (Ñ)

    15,900      429

Ihop Corp.

    3,998      253

Insight Enterprises, Inc. (Æ)

    14,200      392

International Speedway Corp. Class A

    12,200      542

inVentiv Health, Inc. (Æ)(Ñ)

    32,200      1,360

Jack in the Box, Inc. (Æ)

    22,500      706

Jakks Pacific, Inc. (Æ)(Ñ)

    18,327      486

Jo-Ann Stores, Inc. (Æ)(Ñ)

    14,663      283

Jones Apparel Group, Inc. (Ñ)

    17,766      372

JOS A Bank Clothiers, Inc. (Æ)(Ñ)

    21,253      621

Journal Communications, Inc.
Class A (Ñ)

    15,849      141

Kelly Services, Inc. Class A

    10,600      223

Kenneth Cole Productions, Inc. Class A (Ñ)

    7,000      131

Labor Ready, Inc. (Æ)(Ñ)

    1,471      26

Leapfrog Enterprises, Inc.
Class A (Æ)(Ñ)

    33,500      251

LIFE TIME FITNESS, Inc. (Æ)(Ñ)

    6,000      364

Lin TV Corp. Class A (Æ)(Ñ)

    15,319      223

LKQ Corp. (Æ)(Ñ)

    34,151      1,317

LoJack Corp. (Æ)(Ñ)

    4,812      85

Luby’s, Inc. (Æ)(Ñ)

    3,900      43

Macy’s, Inc.

    20,513      657

Maidenform Brands, Inc. (Æ)(Ñ)

    7,300      108

MAXIMUS, Inc.

    5,421      260

Meredith Corp. (Ñ)

    18,400      1,145

Morton’s Restaurant Group, Inc. (Æ)(Ñ)

    6,300      87

Movado Group, Inc. (Ñ)

    6,550      197

MSC Industrial Direct Co. Class A (Ñ)

    27,146      1,322
     Principal
Amount ($)
or Shares		      Market
Value
$

New Oriental Education & Technology Group - ADR (Æ)

    15,900      1,423

Nu Skin Enterprises, Inc. Class A

    12,300      212

O’Charleys, Inc. (Ñ)

    32,992      529

O’Reilly Automotive, Inc. (Æ)(Ñ)

    42,234      1,395

Office Depot, Inc. (Æ)(Ñ)

    29,500      553

Orient-Express Hotels, Ltd.
Class A (Ñ)

    33,726      2,185

Oxford Industries, Inc. (Ñ)

    7,100      184

Papa John’s International, Inc. (Æ)(Ñ)

    7,000      163

PC Connection, Inc. (Æ)(Ñ)

    11,580      170

Perficient, Inc. (Æ)(Ñ)

    101,300      1,910

Perry Ellis International, Inc. (Æ)(Ñ)

    20,752      481

PetMed Express, Inc. (Æ)

    5,093      74

Phillips-Van Heusen (Ñ)

    55,861      2,670

Pier 1 Imports, Inc. (Æ)(Ñ)

    41,000      209

Pre-Paid Legal Services, Inc. (Æ)(Ñ)

    2,851      170

PRG-Schultz International, Inc. (Æ)

    9,296      153

priceline.com, Inc. (Æ)(Ñ)

    14,300      1,331

Quiksilver, Inc. (Æ)(Ñ)

    50,800      686

Republic Services, Inc. Class A

    60,810      2,079

Resources Connection, Inc.

    22,675      516

Robert Half International, Inc.

    20,024      603

Scholastic Corp. (Æ)(Ñ)

    16,600      657

Service Corp. International

    21,700      314

Shanda Interactive Entertainment,
Ltd. - ADR (Æ)

    25,700      1,012

Shutterfly, Inc. (Æ)

    18,000      601

Sinclair Broadcast Group, Inc.
Class A (Ñ)

    27,743      334

Sonic Automotive, Inc. Class A (Ñ)

    18,300      462

Spherion Corp. (Æ)(Ñ)

    55,600      485

Stage Stores, Inc. (Ñ)

    30,059      564

Stein Mart, Inc. (Ñ)

    14,600      96

Stewart Enterprises, Inc. Class A (Ñ)

    69,600      631

Strayer Education, Inc. (Ñ)

    6,900      1,287

Sturm Ruger & Co., Inc. (Æ)(Ñ)

    32,140      301

Tech Data Corp. (Æ)

    18,600      732

TeleTech Holdings, Inc. (Æ)

    20,860      520

Timberland Co. Class A (Æ)(Ñ)

    17,000      332

Toro Co. (Ñ)

    5,000      278

Town Sports International Holdings, Inc. (Æ)(Ñ)

    7,800      119

Tupperware Brands Corp. (Ñ)

    45,857      1,655

United Natural Foods, Inc. (Æ)(Ñ)

    42,849      1,240

United Online, Inc. (Ñ)

    40,600      715

United Stationers, Inc. (Æ)

    9,200      533

Urban Outfitters, Inc. (Æ)(Ñ)

    57,500      1,453

Valueclick, Inc. (Æ)(Ñ)

    17,945      488

Equity II Fund   25

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

VeriSign, Inc. (Æ)(Ñ)

    42,652      1,454

Viad Corp.

    12,800      454

Volcom, Inc. (Æ)(Ñ)

    24,500      717

Warnaco Group, Inc. (The) (Æ)

    14,400      586

Warner Music Group Corp. (Ñ)

    46,400      472

Washington Post Co. (The) Class B (Ñ)

    1,050      891

West Marine, Inc. (Æ)(Ñ)

    18,870      204

Westwood One, Inc. (Ñ)

    8,856      19

Zumiez, Inc. (Æ)(Ñ)

    12,600      527
         
        96,781
         

Consumer Staples - 2.0%

        

Alliance One International, Inc. (Æ)(Ñ)

    115,124      752

Boston Beer Co., Inc. Class A (Æ)

    5,180      271

Coca-Cola Bottling Co.
Consolidated (Ñ)

    8,320      491

Del Monte Foods Co.

    18,900      195

Fresh Del Monte Produce, Inc. (Æ)(Ñ)

    41,300      1,498

Green Mountain Coffee Roasters,
Inc. (Æ)(Ñ)

    33,832      1,262

Hansen Natural Corp. (Ñ)

    19,433      1,321

Imperial Sugar Co. (Ñ)

    2,500      64

JM Smucker Co. (The) (Ñ)

    8,100      433

Loews Corp. - Carolina Group

    17,200      1,475

Longs Drug Stores Corp. (Ñ)

    3,000      158

Molson Coors Brewing Co. Class B (Ñ)

    35,500      2,032

Nash Finch Co. (Ñ)

    12,214      457

NBTY, Inc. (Æ)

    1,362      49

PepsiAmericas, Inc.

    15,400      550

Ruddick Corp. (Ñ)

    4,800      163

Sanderson Farms, Inc. (Ñ)

    7,700      268

Spartan Stores, Inc. (Ñ)

    8,400      187

TreeHouse Foods, Inc. (Æ)(Ñ)

    10,200      285

Universal Corp. (Ñ)

    9,314      454

Vector Group, Ltd. (Ñ)

    697      15
         
        12,380
         

Financial Services - 14.2%

        

Advance America Cash Advance Centers, Inc. (Ñ)

    34,063      326

Advanta Corp. Class B (Ñ)

    19,938      315

Affiliated Managers Group, Inc. (Æ)(Ñ)

    24,323      3,200

Allied World Assurance Holdings, Ltd.

    9,200      441

AMB Property Corp. (ö)

    23,000      1,503

American Financial Group, Inc. (Ñ)

    31,400      939

Amerisafe, Inc. (Æ)(Ñ)

    14,319      231

Annaly Capital Management,
Inc. (ö)(Ñ)

    49,000      837
     Principal
Amount ($)
or Shares		      Market
Value
$

Anthracite Capital, Inc. (ö)

    5,807      48

Apartment Investment & Management Co. Class A (ö)(Ñ)

    26,100      1,220

Apollo Investment Corp. (Ñ)

    25,200      524

Arch Capital Group, Ltd. (Æ)

    22,400      1,675

Ares Capital Corp. (Ñ)

    41,000      682

Ashford Hospitality Trust, Inc. (ö)(Ñ)

    142,320      1,400

Aspen Insurance Holdings, Ltd. (Ñ)

    64,301      1,759

Assurant, Inc. (Ñ)

    34,593      2,022

Axis Capital Holdings, Ltd.

    54,672      2,173

Bancfirst Corp. (Ñ)

    2,500      114

Banco Latinoamericano de Exportaciones SA Class E (Ñ)

    9,800      191

Bancorpsouth, Inc. (Ñ)

    11,900      289

Bank of Hawaii Corp.

    11,400      606

BankUnited Financial Corp.
Class A (Ñ)

    24,522      212

Banner Corp. (Ñ)

    3,000      98

Bear Stearns Cos., Inc. (The) (Ñ)

    5,250      596

BOK Financial Corp. (Ñ)

    4,720      257

Broadridge Financial Solutions,
Inc. (Ñ)

    26,200      524

Calamos Asset Management, Inc. Class A (Ñ)

    3,074      105

Camden Property Trust (ö)(Ñ)

    8,400      524

Cash America International, Inc. (Ñ)

    13,594      530

CBL & Associates Properties,
Inc. (ö)(Ñ)

    22,800      755

Central Pacific Financial Corp. (Ñ)

    7,162      161

CIT Group, Inc. (Ñ)

    10,200      359

City Bank (Ñ)

    5,829      140

City National Corp. (Ñ)

    14,100      953

CNA Surety Corp. (Æ)(Ñ)

    34,320      679

Colonial BancGroup, Inc. (The) (Ñ)

    31,525      605

Commerce Bancshares, Inc. (Ñ)

    6,720      317

Community Bancorp (Æ)(Ñ)

    4,884      99

Corus Bankshares, Inc. (Ñ)

    27,677      305

Crystal River Capital, Inc. (ö)(Ñ)

    1,618      24

Deerfield Triarc Capital Corp. (ö)(Ñ)

    25,000      239

Deluxe Corp.

    30,821      1,243

DiamondRock Hospitality Co. (ö)(Ñ)

    5,530      106

Digital Realty Trust, Inc. (ö)

    7,230      318

East West Bancorp, Inc. (Ñ)

    26,300      887

EastGroup Properties, Inc. (ö)

    5,300      253

Education Realty Trust, Inc. (ö)(Ñ)

    7,900      102

EMC Insurance Group, Inc. (Ñ)

    1,600      42

Equity Lifestyle Properties, Inc. (ö)(Ñ)

    3,679      185

Euronet Worldwide, Inc. (Æ)(Ñ)

    50,951      1,632

Extra Space Storage, Inc. (ö)(Ñ)

    2,100      33

26   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Factset Research Systems, Inc. (Ñ)

    8,900      628

FBL Financial Group, Inc. Class A

    1,800      73

Federal Realty Investors Trust (ö)

    3,100      273

Feldman Mall Properties, Inc. (ö)(Ñ)

    40,900      164

Fidelity National Financial, Inc. Class A (Ñ)

    49,000      754

First American Corp. (Ñ)

    19,900      599

First Industrial Realty Trust, Inc. (ö)(Ñ)

    14,500      591

First Mutual Bancshares, Inc. (Ñ)

    31,310      835

First Place Financial Corp. (Ñ)

    4,180      70

First Regional Bancorp (Æ)(Ñ)

    24,413      574

FirstFed Financial Corp. (Æ)(Ñ)

    8,198      351

GAMCO Investors, Inc. Class A (Ñ)

    3,600      223

GFI Group, Inc. (Æ)

    2,936      253

Global Payments, Inc. (Ñ)

    44,959      2,138

Gramercy Capital Corp. (ö)(Ñ)

    3,300      87

Great Southern Bancorp, Inc. (Ñ)

    2,000      47

Green Bankshares, Inc. (Ñ)

    8,289      266

Hallmark Financial Services (Æ)

    3,800      64

Hanmi Financial Corp. (Ñ)

    40,750      449

Hanover Insurance Group, Inc.

    17,200      792

Harleysville Group, Inc.

    3,800      118

HCC Insurance Holdings, Inc.

    30,500      912

Hersha Hospitality Trust (ö)

    9,600      104

Hospitality Properties Trust (ö)(Ñ)

    47,100      1,865

HRPT Properties Trust (ö)

    85,300      801

Huron Consulting Group, Inc. (Æ)(Ñ)

    18,200      1,272

IBERIABANK Corp. (Ñ)

    1,123      56

Imperial Capital Bancorp, Inc.

    2,166      47

Integra Bank Corp. (Ñ)

    1,500      26

Intervest Bancshares Corp. Class A (Ñ)

    7,234      151

Invesco PLC - ADR (Ñ)

    67,333      2,064

Investors Real Estate Trust (ö)

    7,900      86

IPC Holdings, Ltd. (Ñ)

    32,291      966

iStar Financial, Inc. (ö)(Ñ)

    17,700      540

Jefferies Group, Inc. (Ñ)

    44,171      1,181

Jones Lang LaSalle, Inc. (Ñ)

    2,589      247

Knight Capital Group, Inc.
Class A (Æ)(Ñ)

    42,127      565

Kohlberg Capital Corp. (Ñ)

    41,711      537

Liberty Property Trust (ö)

    21,300      801

MainSource Financial Group, Inc. (Ñ)

    3,300      55

Marlin Business Services Corp. (Æ)(Ñ)

    28,775      365

MCG Capital Corp. (Ñ)

    25,200      353

Meadowbrook Insurance Group,
Inc. (Æ)

    28,000      270

MFA Mortgage Investments, Inc. (ö)

    60,900      521

Nara Bancorp, Inc. (Ñ)

    12,463      193
     Principal
Amount ($)
or Shares		      Market
Value
$

Nasdaq Stock Market, Inc. (The) (Æ)

    24,800      1,158

National Retail Properties, Inc. (ö)(Ñ)

    43,623      1,106

Nationwide Financial Services (Ñ)

    15,200      815

NorthStar Realty Finance Corp. (ö)(Ñ)

    62,000      580

Ocwen Financial Corp. (Æ)(Ñ)

    22,553      168

Odyssey Re Holdings Corp. (Ñ)

    16,600      617

optionsXpress Holdings, Inc. (Ñ)

    9,561      284

Pacific Capital Bancorp NA (Ñ)

    3,764      78

Pennsylvania Real Estate Investment Trust (ö)

    15,200      580

People’s United Financial, Inc. (Ñ)

    45,300      805

Platinum Underwriters Holdings, Ltd.

    28,500      1,026

Portfolio Recovery Associates, Inc. (Ñ)

    2,257      102

Post Properties, Inc. (ö)(Ñ)

    4,494      184

Potlatch Corp. (ö)(Ñ)

    11,263      537

Preferred Bank (Ñ)

    6,150      183

Procentury Corp.

    2,400      36

Protective Life Corp.

    23,900      1,025

Ramco-Gershenson Properties (ö)(Ñ)

    1,315      38

Raymond James Financial, Inc. (Ñ)

    59,150      2,203

Realty Income Corp. (ö)

    12,162      359

Reinsurance Group of America, Inc. (Ñ)

    25,100      1,434

RenaissanceRe Holdings, Ltd. (Ñ)

    33,900      1,978

Ryder System, Inc. (Ñ)

    37,200      1,780

S1 Corp. (Æ)

    69,492      585

Safety Insurance Group, Inc. (Ñ)

    8,705      313

SeaBright Insurance Holdings, Inc. (Æ)(Ñ)

    9,519      159

SEI Investments Co. (Ñ)

    61,300      1,938

Senior Housing Properties Trust (ö)(Ñ)

    7,331      164

Sotheby’s Holdings Class A (Ñ)

    5,337      289

Southwest Bancorp, Inc. (Ñ)

    24,061      455

Sovran Self Storage, Inc. (ö)(Ñ)

    15,000      710

StanCorp Financial Group, Inc.

    18,000      992

Sterling Bancshares, Inc. (Ñ)

    26,250      320

Sterling Financial Corp. (Ñ)

    16,248      366

Sun Bancorp, Inc. (Æ)(Ñ)

    2,400      42

Sunstone Hotel Investors, Inc. (ö)(Ñ)

    21,398      595

Susquehanna Bancshares, Inc. (Ñ)

    5,885      119

SWS Group, Inc. (Ñ)

    34,725      659

Taubman Centers, Inc. (ö)

    15,900      936

Taylor Capital Group, Inc.

    5,462      141

Transatlantic Holdings, Inc. (Ñ)

    4,300      320

Triad Guaranty, Inc. (Æ)(Ñ)

    4,037      32

U-Store-It Trust (ö)(Ñ)

    36,000      464

United America Indemnity, Ltd. Class A (Æ)

    8,600      190

United Fire & Casualty Co. (Ñ)

    7,500      240

Equity II Fund   27

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

United Rentals, Inc. (Æ)(Ñ)

    17,400      595

Universal American Financial Corp. (Æ)(Ñ)

    6,300      153

Universal Health Realty Income Trust (ö)(Ñ)

    2,456      91

Washington Trust Bancorp, Inc. (Ñ)

    900      22

Webster Financial Corp. (Ñ)

    6,900      250

Whitney Holding Corp. (Ñ)

    19,750      507

Wilmington Trust Corp. (Ñ)

    9,900      360

Wilshire Bancorp, Inc.

    2,500      26

Winthrop Realty Trust (ö)

    19,700      108

Zenith National Insurance Corp. (Ñ)

    28,904      1,161

Zions Bancorporation (Ñ)

    10,200      603
         
        87,086
         

Health Care - 10.4%

        

Accelrys, Inc. (Æ)

    53,600      416

Advanced Medical Optics, Inc. (Æ)(Ñ)

    26,800      736

Albany Molecular Research, Inc. (Æ)(Ñ)

    22,822      413

Allscripts Healthcare Solutions, Inc. (Æ)(Ñ)

    74,690      2,069

American Dental Partners, Inc. (Æ)(Ñ)

    6,000      149

American Medical Systems Holdings, Inc. (Æ)(Ñ)

    86,400      1,105

AMERIGROUP Corp. Class A (Æ)

    48,800      1,708

Amsurg Corp. Class A (Æ)(Ñ)

    11,975      317

Analogic Corp. (Ñ)

    2,800      160

Applera Corp. - Celera Group (Æ)

    28,000      457

Apria Healthcare Group, Inc. (Æ)(Ñ)

    18,409      445

Arthrocare Corp. (Æ)(Ñ)

    33,109      2,147

Beckman Coulter, Inc.

    8,800      623

Bio-Rad Laboratories, Inc. Class A (Æ)

    11,649      1,125

Bio-Reference Labs, Inc. (Æ)

    2,020      65

Bradley Pharmaceuticals, Inc. (Æ)(Ñ)

    5,960      117

Centene Corp. (Æ)

    30,900      721

Cepheid, Inc. (Æ)

    15,500      401

Community Health Systems, Inc. (Æ)(Ñ)

    22,400      738

Conmed Corp. (Æ)

    13,351      380

Cooper Cos., Inc. (The) (Ñ)

    24,000      1,008

Cubist Pharmaceuticals, Inc. (Æ)(Ñ)

    38,749      907

Cypress Bioscience, Inc. (Æ)

    16,774      226

Discovery Laboratories, Inc. (Æ)(Ñ)

    29,500      73

Emergency Medical Services Corp. Class A (Æ)(Ñ)

    7,051      214

eResearchTechnology, Inc. (Æ)

    26,300      292

Gen-Probe, Inc. (Æ)

    32,700      2,290
     Principal
Amount ($)
or Shares		      Market
Value
$

Greatbatch, Inc. (Æ)(Ñ)

    14,318      356

Haemonetics Corp. (Æ)(Ñ)

    27,147      1,395

Hanger Orthopedic Group, Inc. (Æ)

    4,100      51

Healthspring, Inc. (Æ)(Ñ)

    59,495      1,249

Healthways, Inc. (Æ)(Ñ)

    39,029      2,369

Hologic, Inc. (Æ)

    21,927      1,489

I-Flow Corp. (Æ)

    6,034      110

Icon PLC - ADR (Æ)(Ñ)

    16,641      965

Illumina, Inc. (Æ)(Ñ)

    63,212      3,549

Immucor, Inc. (Æ)(Ñ)

    61,800      1,993

IMS Health, Inc. (Ñ)

    5,500      139

Intuitive Surgical, Inc. (Æ)

    4,600      1,504

Invacare Corp. (Ñ)

    9,611      260

Invitrogen Corp. (Æ)

    9,600      872

Isis Pharmaceuticals, Inc. (Æ)(Ñ)

    18,900      333

Kinetic Concepts, Inc. (Æ)(Ñ)

    3,100      186

King Pharmaceuticals, Inc. (Æ)(Ñ)

    64,000      678

KV Pharmaceutical Co. Class A (Æ)(Ñ)

    22,100      693

Kyphon, Inc. (Æ)

    14,794      1,049

LCA-Vision, Inc. (Ñ)

    6,998      119

Martek Biosciences Corp. (Æ)(Ñ)

    7,658      234

Masimo Corp. (Æ)

    18,567      635

Matria Healthcare, Inc. (Æ)(Ñ)

    13,919      357

Medcath Corp. (Æ)(Ñ)

    15,874      440

Medicis Pharmaceutical Corp.
Class A (Ñ)

    41,618      1,236

Medtox Scientific, Inc. (Æ)(Ñ)

    12,566      218

Meridian Bioscience, Inc. (Ñ)

    26,500      877

Molina Healthcare, Inc. (Æ)(Ñ)

    13,500      514

Myriad Genetics, Inc. (Æ)(Ñ)

    15,300      847

Neurocrine Biosciences, Inc. (Æ)(Ñ)

    27,300      253

NuVasive, Inc. (Æ)

    11,400      488

OraSure Technologies, Inc. (Æ)

    6,887      62

Pediatrix Medical Group, Inc. (Æ)(Ñ)

    30,200      1,978

Pharmacopeia, Inc. (Æ)(Ñ)

    33,000      190

PharmaNet Development Group, Inc. (Æ)(Ñ)

    6,807      221

PharMerica Corp. (Æ)(Ñ)

    19,600      313

Phase Forward, Inc. (Æ)

    12,600      300

PSS World Medical, Inc. (Æ)

    10,985      222

Psychiatric Solutions, Inc. (Æ)(Ñ)

    82,892      3,283

Quality Systems, Inc. (Ñ)

    31,044      1,125

RehabCare Group, Inc. (Æ)

    4,300      89

Resmed, Inc. (Æ)(Ñ)

    34,700      1,438

Respironics, Inc. (Æ)

    12,146      608

Sciele Pharma, Inc. (Æ)(Ñ)

    67,257      1,711

Sierra Health Services, Inc. (Æ)(Ñ)

    24,165      1,022

Sirona Dental Systems, Inc. (Æ)(Ñ)

    47,885      1,611

28   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Sun Healthcare Group, Inc. (Æ)

    1,461      24

Techne Corp. (Æ)(Ñ)

    28,264      1,844

TomoTherapy, Inc. (Æ)(Ñ)

    15,200      332

VCA Antech, Inc. (Æ)

    39,400      1,814

Viropharma, Inc. (Æ)(Ñ)

    42,900      369

WellCare Health Plans, Inc. (Æ)(Ñ)

    4,414      107
         
        63,423
         

Materials and Processing - 13.0%

     

Acuity Brands, Inc. (Ñ)

    9,901      473

Airgas, Inc.

    38,143      1,925

Albemarle Corp. (Ñ)

    55,022      2,628

AM Castle & Co. (Ñ)

    20,287      611

Apogee Enterprises, Inc. (Ñ)

    8,528      201

Arch Chemicals, Inc.

    8,700      397

Ashland, Inc. (Ñ)

    21,300      1,251

Ball Corp.

    5,700      283

BlueLinx Holdings, Inc. (Ñ)

    5,000      26

Buckeye Technologies, Inc. (Æ)(Ñ)

    74,820      1,341

Cambrex Corp.

    45,800      522

Carpenter Technology Corp. (Ñ)

    6,910      1,001

Celanese Corp. Class A (Ñ)

    29,700      1,246

Century Aluminum Co. (Æ)(Ñ)

    9,306      542

Ceradyne, Inc. (Æ)(Ñ)

    2,400      164

CF Industries Holdings, Inc.

    19,534      1,717

Chemtura Corp. (Ñ)

    32,700      305

Chicago Bridge & Iron Co. NV

    37,160      1,858

Cie Generale de Geophysique-Veritas - ADR (Æ)

    11,906      781

Cleveland-Cliffs, Inc. (Ñ)

    6,635      635

Comfort Systems USA, Inc.

    28,700      420

Commercial Metals Co. (Ñ)

    53,200      1,669

Constar International, Inc. (Æ)(Ñ)

    17,400      53

Corn Products International, Inc. (Ñ)

    7,400      315

Crown Holdings, Inc. (Æ)

    40,900      1,014

Cytec Industries, Inc.

    31,900      2,128

Darling International, Inc. (Æ)

    19,091      192

Dycom Industries, Inc. (Æ)

    8,000      226

Dynamic Materials Corp. (Ñ)

    10,300      567

Eastman Chemical Co. (Ñ)

    23,800      1,585

EMCOR Group, Inc. (Æ)

    97,439      3,355

Encore Wire Corp. (Ñ)

    5,279      111

Ennis, Inc. (Ñ)

    39,800      813

Ferro Corp. (Ñ)

    5,788      120

FMC Corp.

    10,800      621

GrafTech International, Ltd. (Æ)(Ñ)

    19,777      374

Granite Construction, Inc. (Ñ)

    16,200      694

Haynes International, Inc. (Æ)(Ñ)

    15,500      1,357
     Principal
Amount ($)
or Shares		      Market
Value
$

Hercules, Inc. (Ñ)

    20,700      389

Horsehead Holding Corp. (Æ)(Ñ)

    37,500      855

Innospec, Inc. (Ñ)

    10,776      229

Jacobs Engineering Group, Inc. (Æ)(Ñ)

    25,900      2,257

KBR, Inc. (Æ)(Ñ)

    82,984      3,558

Koppers Holdings, Inc.

    22,300      999

Lamson & Sessions Co. (The) (Æ)(Ñ)

    29,235      796

Landec Corp. (Æ)(Ñ)

    18,954      282

Layne Christensen Co. (Æ)(Ñ)

    18,100      1,031

LB Foster Co. Class A (Æ)

    10,900      469

Lennox International, Inc. (Ñ)

    43,900      1,567

LSI Industries, Inc. (Ñ)

    11,800      223

Lubrizol Corp.

    10,200      692

Lydall, Inc. (Æ)

    9,999      108

McDermott International, Inc. (Æ)(Ñ)

    67,637      4,130

Michael Baker Corp. (Æ)

    4,439      234

Minerals Technologies, Inc. (Ñ)

    2,900      204

Myers Industries, Inc.

    11,915      252

Novagold Resources, Inc. (Æ)(Ñ)

    41,069      772

Olin Corp. (Ñ)

    46,100      1,050

Olympic Steel, Inc. (Ñ)

    22,340      581

OM Group, Inc. (Æ)(Ñ)

    27,963      1,481

Owens-Illinois, Inc. (Æ)

    6,100      271

Perini Corp. (Æ)

    21,953      1,259

PolyOne Corp. (Æ)(Ñ)

    22,925      183

Quaker Chemical Corp.

    1,000      22

Quanex Corp. (Ñ)

    1,383      57

Quanta Services, Inc. (Æ)(Ñ)

    67,807      2,238

Rock-Tenn Co. Class A (Ñ)

    39,710      1,158

Rockwood Holdings, Inc. (Æ)(Ñ)

    6,922      271

RPM International, Inc.

    46,518      997

RTI International Metals, Inc. (Æ)(Ñ)

    15,400      1,204

Schnitzer Steel Industries, Inc.
Class A (Ñ)

    6,100      403

Seabridge Gold, Inc. (Æ)(Ñ)

    22,500      812

Sigma-Aldrich Corp. (Ñ)

    17,600      909

Simpson Manufacturing Co., Inc. (Ñ)

    6,560      197

Smurfit-Stone Container Corp. (Æ)(Ñ)

    68,100      825

Sonoco Products Co.

    23,200      717

Spartech Corp. (Ñ)

    38,038      585

Standard Register Co. (The) (Ñ)

    6,500      83

Superior Essex, Inc. (Æ)(Ñ)

    15,390      512

Terra Industries, Inc. (Æ)

    21,074      777

Timken Co.

    34,900      1,161

Tredegar Corp. (Ñ)

    6,007      105

Trimas Corp. (Æ)(Ñ)

    52,300      837

UAP Holding Corp.

    20,100      640

URS Corp. (Æ)(Ñ)

    54,186      3,349

USEC, Inc. (Æ)(Ñ)

    8,902      78

Equity II Fund   29

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Valspar Corp. (Ñ)

    15,900      398

Washington Group International, Inc. (Æ)(Ñ)

    35,287      3,435

Wausau Paper Corp. (Ñ)

    6,800      68

Worthington Industries, Inc. (Ñ)

    4,896      122
         
        79,353
         

Miscellaneous - 0.7%

        

Brunswick Corp. (Ñ)

    36,900      823

Foster Wheeler, Ltd. (Æ)

    6,781      1,005

Johnson Controls, Inc. (Ñ)

    21,300      931

Teleflex, Inc.

    12,600      923

Wesco Financial Corp. (Ñ)

    2,207      878
         
        4,560
         

Other Energy - 6.1%

        

Alon USA Energy, Inc. (Ñ)

    10,803      397

ATP Oil & Gas Corp. (Æ)

    14,700      843

Atwood Oceanics, Inc. (Æ)(Ñ)

    17,500      1,474

Berry Petroleum Co. Class A (Ñ)

    20,700      1,008

Bois d’Arc Energy, Inc. (Æ)(Ñ)

    37,400      821

Brigham Exploration Co. (Æ)(Ñ)

    75,554      557

Cameron International Corp. (Æ)(Ñ)

    15,026      1,463

Carrizo Oil & Gas, Inc. (Æ)(Ñ)

    7,000      360

Clayton Williams Energy, Inc. (Æ)

    1,800      54

Comstock Resources, Inc. (Æ)

    23,354      854

Core Laboratories NV (Æ)(Ñ)

    22,016      3,213

Dawson Geophysical Co. (Æ)(Ñ)

    4,300      343

Delek US Holdings, Inc. (Ñ)

    20,500      492

Dresser-Rand Group, Inc. (Æ)(Ñ)

    14,500      561

Dril-Quip, Inc. (Æ)(Ñ)

    27,584      1,471

Enbridge Energy Partners, LP Class A

    16,148      857

EnerNOC, Inc. - ADR (Æ)(Ñ)

    13,000      606

Exterran Holdings, Inc. (Æ)(Ñ)

    1,197      101

FMC Technologies, Inc. (Æ)(Ñ)

    9,100      552

Frontier Oil Corp.

    25,200      1,154

Global Industries, Ltd. (Æ)

    22,100      544

Goodrich Petroleum Corp. (Æ)(Ñ)

    24,837      825

Grey Wolf, Inc. (Æ)(Ñ)

    179,269      1,009

Helix Energy Solutions Group,
Inc. (Æ)(Ñ)

    11,900      550

Helmerich & Payne, Inc.

    4,200      133

Hercules Offshore, Inc. (Æ)

    23,475      635

ION Geophysical Corp. (Æ)(Ñ)

    48,000      727

JA Solar Holdings Co., Ltd. - ADR (Æ)(Ñ)

    18,200      1,048

Meridian Resource Corp. (Æ)(Ñ)

    25,084      63

NATCO Group, Inc. Class A (Æ)

    10,500      560
     Principal
Amount ($)
or Shares		      Market
Value
$

Newfield Exploration Co. (Æ)(Ñ)

    6,200      334

Oceaneering International, Inc. (Æ)

    20,300      1,569

Ormat Technologies, Inc. (Ñ)

    10,100      545

Penn Virginia Corp.

    8,641      418

Petroquest Energy, Inc. (Æ)(Ñ)

    149,600      1,930

Pioneer Drilling Co. (Æ)(Ñ)

    42,348      516

Rosetta Resources, Inc. (Æ)(Ñ)

    8,792      167

Rowan Cos., Inc. (Ñ)

    19,400      756

SEACOR Holdings, Inc. (Æ)(Ñ)

    10,400      953

Southwestern Energy Co. (Æ)(Ñ)

    23,400      1,210

Stone Energy Corp. (Æ)

    11,000      490

TEPPCO Partners, LP (Ñ)

    19,737      795

Tesoro Corp. (Ñ)

    18,000      1,089

Tetra Technologies, Inc. (Æ)(Ñ)

    15,700      309

Union Drilling, Inc. (Æ)(Ñ)

    7,500      100

Unit Corp. (Æ)(Ñ)

    13,725      656

Western Refining, Inc. (Ñ)

    17,300      635

Whiting Petroleum Corp. (Æ)

    15,800      854

XTO Energy, Inc.

    14,397      956
         
        37,557
         

Producer Durables - 7.1%

        

Advanced Energy Industries, Inc. (Æ)

    20,457      327

AGCO Corp. (Æ)(Ñ)

    11,767      702

Altra Holdings, Inc. (Æ)

    37,500      609

Arris Group, Inc. (Æ)(Ñ)

    43,168      496

Asyst Technologies, Inc. (Æ)(Ñ)

    15,900      76

BE Aerospace, Inc. (Æ)

    62,300      3,097

Belden, Inc. (Ñ)

    9,935      579

C-COR, Inc. (Æ)(Ñ)

    25,398      311

Chart Industries, Inc. (Æ)(Ñ)

    18,100      594

Cognex Corp. (Ñ)

    21,500      387

Columbus McKinnon Corp. (Æ)

    30,351      1,007

Crane Co. (Ñ)

    17,000      806

Credence Systems Corp. (Æ)(Ñ)

    148,223      452

CTS Corp. (Ñ)

    31,983      395

Curtiss-Wright Corp. (Ñ)

    2,666      150

Cymer, Inc. (Æ)(Ñ)

    14,700      625

Dionex Corp. (Æ)(Ñ)

    11,880      1,045

EnPro Industries, Inc. (Æ)(Ñ)

    8,957      367

Entegris, Inc. (Æ)(Ñ)

    20,697      189

ESCO Technologies, Inc. (Æ)(Ñ)

    11,300      468

Flowserve Corp. (Ñ)

    20,600      1,627

Gardner Denver, Inc. (Æ)(Ñ)

    36,400      1,315

General Cable Corp. (Æ)(Ñ)

    27,964      2,013

Goodrich Corp. (Ñ)

    51,847      3,612

Hardinge, Inc.

    2,152      70

HNI Corp.

    7,000      304

30   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Hubbell, Inc. Class B (Ñ)

    22,900      1,260

Hurco Cos., Inc. (Æ)(Ñ)

    1,220      70

Kennametal, Inc.

    10,915      996

Kimball International, Inc. Class B (Ñ)

    7,300      97

Knoll, Inc.

    20,406      388

LTX Corp. (Æ)(Ñ)

    58,186      193

Manitowoc Co., Inc. (The) (Ñ)

    6,500      320

MasTec, Inc. (Æ)

    11,700      185

Milacron, Inc. (Æ)(Ñ)

    9,115      69

Mitcham Industries, Inc. (Æ)

    3,977      86

MKS Instruments, Inc. (Æ)

    2,396      48

Molex, Inc.

    11,393      325

Moog, Inc. Class A (Æ)(Ñ)

    13,382      618

NACCO Industries, Inc. Class A (Ñ)

    1,908      198

Pall Corp.

    53,700      2,152

Photon Dynamics, Inc. (Æ)(Ñ)

    5,123      53

Polycom, Inc. (Æ)

    52,060      1,457

Ritchie Bros Auctioneers, Inc.

    31,705      2,372

Robbins & Myers, Inc. (Ñ)

    23,100      1,670

Steelcase, Inc. Class A (Ñ)

    27,600      493

Sun Hydraulics Corp. (Ñ)

    5,250      189

Suntech Power Holdings Co., Ltd. - ADR (Æ)(Ñ)

    28,800      1,696

Tecumseh Products Co. Class A (Æ)(Ñ)

    35,100      634

Teledyne Technologies, Inc. (Æ)(Ñ)

    15,800      826

Tennant Co. (Ñ)

    9,300      439

Tessco Technologies, Inc. (Æ)

    2,952      45

Thomas & Betts Corp. (Æ)(Ñ)

    3,000      168

Triumph Group, Inc. (Ñ)

    21,100      1,680

Ultra Clean Holdings (Æ)(Ñ)

    48,500      623

Ultratech, Inc. (Æ)(Ñ)

    39,700      460

W.W. Grainger, Inc. (Ñ)

    8,100      728

Waters Corp. (Æ)

    6,600      508

Woodward Governor Co.

    10,913      731
         
        43,400
         

Technology - 19.3%

        

ActivIdentity Corp. (Æ)

    1,200      6

Adaptec, Inc. (Æ)(Ñ)

    62,000      219

ADC Telecommunications, Inc. (Æ)(Ñ)

    49,700      929

Alliance Semiconductor Corp.

    37,700      77

American Software, Inc. Class A

    7,595      62

AMIS Holdings, Inc. (Æ)

    14,850      114

Amkor Technology, Inc. (Æ)(Ñ)

    29,900      339

Amphenol Corp. Class A (Ñ)

    76,666      3,394

Anadigics, Inc. (Æ)(Ñ)

    70,400      1,038

Ansoft Corp. (Æ)

    3,367      101

Ansys, Inc. (Æ)(Ñ)

    119,616      4,642
     Principal
Amount ($)
or Shares		      Market
Value
$

Applied Micro Circuits Corp. (Æ)(Ñ)

    75,500      243

ARM Holdings PLC - ADR

    72,500      673

Arrow Electronics, Inc. (Æ)

    38,000      1,519

ASE Test, Ltd. (Æ)(Ñ)

    42,495      616

AsiaInfo Holdings, Inc. (Æ)(Ñ)

    12,880      157

Avanex Corp. (Æ)(Ñ)

    80,800      149

Avnet, Inc. (Æ)(Ñ)

    55,100      2,299

BearingPoint, Inc. (Æ)(Ñ)

    75,700      363

Blackboard, Inc. (Æ)(Ñ)

    57,800      2,884

Blue Coat Systems, Inc. (Æ)

    3,800      154

Bookham, Inc. (Æ)

    36,000      108

Brocade Communications Systems, Inc. (Æ)(Ñ)

    133,200      1,267

CACI International, Inc. Class A (Æ)(Ñ)

    5,101      275

Captaris, Inc. (Æ)

    22,394      104

Cavium Networks, Inc. (Æ)(Ñ)

    38,400      1,117

Cbeyond, Inc. (Æ)(Ñ)

    10,200      399

Checkpoint Systems, Inc. (Æ)(Ñ)

    22,615      684

ChipMOS TECHNOLOGIES Bermuda, Ltd. (Æ)(Ñ)

    89,634      504

Ciber, Inc. (Æ)

    7,000      54

Ciena Corp. (Æ)(Ñ)

    44,328      2,121

Cognizant Technology Solutions Corp. Class A (Æ)(Ñ)

    25,800      1,070

CommScope, Inc. (Æ)(Ñ)

    25,734      1,214

Compuware Corp. (Æ)

    13,800      138

COMSYS IT Partners, Inc. (Æ)(Ñ)

    5,676      101

Comtech Telecommunications
Corp. (Æ)(Ñ)

    25,827      1,401

Comverse Technology, Inc. (Æ)(Ñ)

    43,600      838

Concur Technologies, Inc. (Æ)

    7,788      281

CSG Systems International, Inc. (Æ)(Ñ)

    30,521      627

Cubic Corp. (Ñ)

    13,823      622

Data Domain, Inc. (Æ)(Ñ)

    32,400      1,118

DealerTrack Holdings, Inc. (Æ)

    27,000      1,325

Diodes, Inc. (Æ)(Ñ)

    39,000      1,289

DivX, Inc. (Æ)(Ñ)

    44,100      553

Eclipsys Corp. (Æ)

    6,795      153

EMS Technologies, Inc. (Æ)(Ñ)

    4,769      134

EPIQ Systems, Inc. (Æ)(Ñ)

    23,175      449

Equinix, Inc. (Æ)(Ñ)

    24,255      2,830

First Solar, Inc. (Æ)(Ñ)

    4,000      635

Flir Systems, Inc. (Æ)(Ñ)

    37,510      2,603

Foundry Networks, Inc. (Æ)(Ñ)

    88,543      1,872

Genesis Microchip, Inc. (Æ)(Ñ)

    30,200      223

GeoEye, Inc. (Æ)(Ñ)

    37,238      1,166

Gerber Scientific, Inc. (Æ)(Ñ)

    9,500      105

Harris Corp.

    28,300      1,714

Equity II Fund   31

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Hittite Microwave Corp. (Æ)(Ñ)

    42,870      2,154

HMS Holdings Corp. (Æ)

    79,100      2,252

Ikanos Communications, Inc. (Æ)(Ñ)

    34,600      228

Informatica Corp. (Æ)(Ñ)

    96,904      1,655

Ingram Micro, Inc. Class A (Æ)

    41,100      873

Intermec, Inc. (Æ)(Ñ)

    40,186      1,021

Interwoven, Inc. (Æ)

    44,500      631

Ixia (Æ)(Ñ)

    6,073      63

IXYS Corp. (Æ)

    3,500      37

JDA Software Group, Inc. (Æ)(Ñ)

    7,700      192

JDS Uniphase Corp. (Æ)(Ñ)

    29,800      455

Keynote Systems, Inc. (Æ)

    30,500      448

Lawson Software, Inc. (Æ)

    24,884      281

Leadis Technology, Inc. (Æ)

    2,600      8

Manhattan Associates, Inc. (Æ)

    16,662      502

Marvell Technology Group, Ltd. (Æ)

    42,981      775

Mellanox Technologies, Ltd. (Æ)(Ñ)

    9,600      227

MEMC Electronic Materials,
Inc. (Æ)(Ñ)

    22,300      1,633

Mercury Computer Systems,
Inc. (Æ)(Ñ)

    23,200      363

Merix Corp. (Æ)(Ñ)

    5,737      40

Methode Electronics, Inc. (Ñ)

    25,017      314

Micrel, Inc. (Ñ)

    25,848      234

Micros Systems, Inc. (Æ)(Ñ)

    46,806      3,362

Microsemi Corp. (Æ)(Ñ)

    49,300      1,312

MicroStrategy, Inc. Class A (Æ)(Ñ)

    1,392      137

Monolithic Power Systems, Inc. (Æ)(Ñ)

    25,564      561

Netlogic Microsystems, Inc. (Æ)

    33,000      1,096

Nice Systems, Ltd. - ADR (Æ)(Ñ)

    79,874      3,149

Novatel Wireless, Inc. (Æ)(Ñ)

    3,614      94

Nuance Communications, Inc. (Æ)

    16,800      371

Omniture, Inc. (Æ)

    31,900      1,090

ON Semiconductor Corp. (Æ)(Ñ)

    1,481      15

Orckit Communications, Ltd. (Æ)

    24,400      179

Pegasystems, Inc. (Ñ)

    5,502      64

PerkinElmer, Inc.

    34,800      958

Rackable Systems, Inc. (Æ)(Ñ)

    22,800      311

RADWARE, Ltd. (Æ)(Ñ)

    15,900      269

RealNetworks, Inc. (Æ)(Ñ)

    120,900      878

Riverbed Technology, Inc. (Æ)(Ñ)

    17,400      588

SAIC, Inc. (Æ)(Ñ)

    39,900      786

SanDisk Corp. (Æ)(Ñ)

    41,080      1,824

Sanmina-SCI Corp. (Æ)(Ñ)

    154,300      341

Satyam Computer Services, Ltd. - ADR (Ñ)

    53,400      1,621

SAVVIS, Inc. (Æ)(Ñ)

    3,600      136

Seachange International, Inc. (Æ)(Ñ)

    56,000      348
     Principal
Amount ($)
or Shares		      Market
Value
$

Seagate Technology (Ñ)

    41,085      1,144

Sigma Designs, Inc. (Æ)(Ñ)

    35,700      2,098

Sigmatel, Inc. (Æ)(Ñ)

    17,500      54

Silicon Storage Technology,
Inc. (Æ)(Ñ)

    93,800      311

SiRF Technology Holdings,
Inc. (Æ)(Ñ)

    70,725      2,108

Skyworks Solutions, Inc. (Æ)

    167,000      1,540

SonicWALL, Inc. (Æ)

    47,500      491

SPSS, Inc. (Æ)(Ñ)

    553      21

Starent Networks Corp. (Æ)(Ñ)

    13,800      342

Sunpower Corp. Class A (Æ)(Ñ)

    8,500      1,075

Sybase, Inc. (Æ)(Ñ)

    21,437      613

Synaptics, Inc. (Æ)(Ñ)

    11,700      636

Synchronoss Technologies, Inc. (Æ)(Ñ)

    4,700      188

Syniverse Holdings, Inc. (Æ)(Ñ)

    51,319      856

SYNNEX Corp. (Æ)(Ñ)

    14,800      331

Synopsys, Inc. (Æ)(Ñ)

    12,600      356

Syntel, Inc. (Ñ)

    10,900      464

Tekelec (Æ)(Ñ)

    91,000      1,201

Tessera Technologies, Inc. (Æ)(Ñ)

    60,169      2,298

TIBCO Software, Inc. (Æ)(Ñ)

    101,500      932

Trimble Navigation, Ltd. (Æ)

    34,058      1,420

TriQuint Semiconductor, Inc. (Æ)

    135,200      848

TTM Technologies, Inc. (Æ)(Ñ)

    60,033      770

Unisys Corp. (Æ)(Ñ)

    146,500      891

Utstarcom, Inc. (Æ)(Ñ)

    56,500      181

VeriFone Holdings, Inc. (Æ)(Ñ)

    72,500      3,584

Verigy, Ltd. (Æ)

    88,676      2,039

Verint Systems, Inc. (Æ)

    53,729      1,347

Vignette Corp. (Æ)(Ñ)

    14,010      241

Vocus, Inc. (Æ)(Ñ)

    42,800      1,540

Wavecom SA - ADR (Æ)

    10,900      266

Western Digital Corp. (Æ)

    107,200      2,779

Zebra Technologies Corp.
Class A (Æ)(Ñ)

    27,100      1,059

Zoran Corp. (Æ)

    39,800      1,015
         
        117,987
         

Utilities - 3.6%

        

Alliant Energy Corp. (Ñ)

    31,900      1,276

Atmos Energy Corp. (Ñ)

    37,710      1,058

Black Hills Corp. (Ñ)

    12,862      571

Centennial Communications Corp. (Æ)

    11,952      122

Centerpoint Energy, Inc. (Ñ)

    40,000      670

CenturyTel, Inc.

    25,400      1,119

Cincinnati Bell, Inc. (Æ)(Ñ)

    91,588      496

CMS Energy Corp. (Ñ)

    37,400      635

32   Equity II Fund

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Energen Corp. (Ñ)

    20,200      1,293

MDU Resources Group, Inc. (Ñ)

    26,900      758

New Jersey Resources Corp. (Ñ)

    6,800      335

NII Holdings, Inc. (Æ)

    26,958      1,564

Northeast Utilities

    66,600      2,053

NTELOS Holdings Corp. (Ñ)

    24,039      726

OGE Energy Corp.

    5,000      192

Oneok, Inc. (Ñ)

    9,000      450

Pepco Holdings, Inc. (Ñ)

    48,800      1,390

Portland General Electric Co. (Ñ)

    35,063      987

Premiere Global Services, Inc. (Æ)(Ñ)

    19,300      318

Rural Cellular Corp. Class A (Æ)(Ñ)

    4,729      210

Sierra Pacific Resources (Ñ)

    45,300      764

Southern Union Co.

    24,000      756

Southwest Gas Corp. (Ñ)

    16,469      490

Suburban Propane Partners, LP

    5,300      255

Telephone & Data Systems, Inc.

    1,200      84

Time Warner Telecom, Inc.
Class A (Æ)(Ñ)

    68,552      1,593

UGI Corp.

    64,100      1,706

USA Mobility, Inc. (Æ)(Ñ)

    14,981      234

WGL Holdings, Inc. (Ñ)

    7,000      237
         
        22,342
         
Total Common Stocks        

(cost $501,754)

         584,469
         
Warrants & Rights - 0.0%        

Financial Services - 0.0%

        

Washington Mutual, Inc. (Æ)
2050 Warrants

    87,100      16
         
Total Warrants & Rights        

(cost $13)

         16
         
     Principal
Amount ($)
or Shares		      Market
Value
$		  

Short-Term Investments - 4.5%

        

Russell Investment Company
Money Market Fund

    25,911,001      25,911  

United States Treasury Bills (ç)(ž)(§) 3.650% due 12/20/07

    1,900      1,891  
           
Total Short-Term Investments        

(cost $27,802)

         27,802  
           
Other Securities - 42.0%        

Russell Investment Company
Money Market Fund (×)

    57,989,767      57,990  

State Street Securities Lending Quality Trust (×)

    199,140,838      199,141  
           
Total Other Securities        

(cost $257,131)

         257,131  
           
Total Investments - 141.9%        

(identified cost $786,700)

         869,418  
Other Assets and Liabilities, Net - (41.9%)         (256,932 )
           
Net Assets - 100.0%         612,486  
           

 

See accompanying notes which are an integral part of the financial statements.

Equity II Fund   33

Table of Contents

Russell Investment Company

Equity II Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts
(Number of Contracts)		    Notional
Amount		      Unrealized
Appreciation
(Depreciation)
$
       

Long Positions

        

Russell 2000 Mini Index (CME) expiration date 12/07 (326)

    USD  27,133      529
         

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

         529
         

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of Net
Assets		  
  

Auto and Transportation

    3.2  

Consumer Discretionary

    15.8  

Consumer Staples

    2.0  

Financial Services

    14.2  

Health Care

    10.4  

Materials and Processing

    13.0  

Miscellaneous

    0.7  

Other Energy

    6.1  

Producer Durables

    7.1  

Technology

    19.3  

Utilities

    3.6  

Warrants & Rights

    — *

Short-Term Investments

    4.5  

Other Securities

    42.0  
      

Total Investments

    141.9  

Other Assets and Liabilities, Net

    (41.9 )
      
   100.0  
      

Futures Contracts

    0.1  

 

* Less than .05% of net assets.

 

See accompanying notes which are an integral part of the financial statements.

34   Equity II Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

Equity Q Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Equity Q Fund - Class I  
     Total Return  

1 Year

    11.42 %

5 Years

    13.51 %§

10 Years

    7.11 %§

 

Equity Q Fund - Class E‡  
     Total Return  

1 Year

    11.08 %

5 Years

    13.23 %§

10 Years

    6.90 %§

 

Equity Q Fund - Class Y‡‡  
     Total Return  

1 Year

    11.44 %

5 Years

    13.58 %§

10 Years

    7.17 %§

 

Russell 1000® Index**  
     Total Return  

1 Year

    15.03 %

5 Years

    14.54 %§

10 Years

    7.40 %§

36   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Equity Q Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has four money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Equity Q Fund Class E, Class I and Class Y gained 11.08%, 11.42% and 11.44%, respectively. This compared to the Russell 1000® Index, which gained 15.03% 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, 2007, the Lipper® Multi-Cap Core Funds Average returned 15.69%. 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 Fund’s money managers typically use a variety of quantitative investment models and techniques to rank the relative attractiveness of securities based upon expected ability to outperform the total return of the Russell 1000® Index. Quantitative managers seek to find market factors, such as price/earnings, price momentum, earnings revisions and earnings surprise, which are predictive of positive excess returns over the long term. The market transition from value to growth over this fiscal year made for a difficult environment for quantitative strategies. During transitional markets, quantitative strategies must adjust their models to incorporate the new market data, often causing them to lag the market at the onset of the transition.

Over the fiscal year, price momentum and earnings revisions were the factors that were most rewarded by the market, while exposure to low price/earnings stocks was detrimental. This proved challenging for the Fund, as the Fund’s factor exposures were focused on valuation factors such as price/earnings and price/book, and less on momentum and earnings revisions.

 

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The quantitative nature of the Fund, along with its valuation bias made this a difficult market environment for the Fund. The Fund’s focus on valuation factors such as price/book and earnings yield was detrimental to performance. Though the Fund was generally invested in the sectors that outperformed, it held underperforming stocks in those sectors. Exposure to financial companies that had subprime mortgage holdings contributed to the Fund’s underperformance. The Fund’s performance was also hurt by weak stock selection in the consumer discretionary and heath care sectors.

RIMCo currently employs a “select holdings” strategy for a portion of the Fund’s assets that RIMCo determines not to allocate to the money managers. Pursuant to this strategy, RIMCo analyzes the holdings of the Fund’s money managers in their Fund segments to identify particular stocks that have been selected by multiple money managers. RIMCo uses a proprietary model to rank these stocks. Based on this ranking, RIMCo purchases additional shares of certain stocks for the Fund. The strategy is designed to increase the Fund’s exposure to stocks that are viewed as attractive by multiple money managers. As the Fund underperformed for the period, the select holdings strategy also underperformed the benchmark.

Aronson+Johnson+Ortiz, L.P. underperformed for the period due mainly to weak stock selection in the financial services and materials and processing sectors. Aronson suffered holding financial companies such as Countrywide Financial Corp. due to subprime lending exposure. Its performance was also hurt by not holding some of the best performing stocks for the period, such as the fertilizer company, Mosaic, and gaming company, Las Vegas Sands.

Franklin Portfolio Associates, LLC underperformed the benchmark for the period. Franklin had weak stock selection in the consumer discretionary, financial services and heath care sectors. Franklin’s exposure to low price/earnings stocks was detrimental; however, the momentum component of their model added marginally to returns.

Goldman Sachs Asset Management, L.P. underperformed the benchmark. Goldman also felt the effects of subprime lending exposure, and had negative stock selection in the financial services sector. Also showing weakness was their stock selection in the consumer discretionary and technology sectors.


Equity Q Fund   37

Table of Contents

Russell Investment Company

Equity Q Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Jacobs Levy Equity Management, Inc. was the only manager to outperform the benchmark over the fiscal year. Though Jacobs also had weak stock selection in the consumer discretionary and technology sectors, they benefited from several short positions in the financial services sector. Additionally, an overweight to the materials and processing sector was beneficial.

Describe any changes to the Fund’s structure or the money manager line-up.

In April 2007, Aronson’s long-only mandate was changed to a limited long/short assignment. There were no changes to the manager line-up for the fiscal year ending October 31, 2007.

 

Money Managers as of
October 31, 2007		   Styles

Aronson+Johnson+Ortiz, LP

   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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

 

*   Assumes initial investment on November 1, 1997.

 

**

  

Russell 1000® Index includes the 1,000 largest companies in the Russell 3000® Index. The Russell 1000® Index represents the universe of stocks from which most active money managers typically select. The Russell 1000® Index return reflects adjustments for income dividends and capital gains distributions reinvested as of the ex-dividend dates.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on March 30, 2000. The returns shown for Class Y Shares prior to March 30, 2000 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

§   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   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,031.70    $ 1,019.51

Expenses Paid During Period*

    $ 5.79    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,033.30    $ 1,020.82

Expenses Paid During Period*

    $ 4.46    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,033.50    $ 1,020.97

Expenses Paid During Period*

    $ 4.31    $ 4.28

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.84% (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 Q Fund   39

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 108.4%

        

Auto and Transportation - 1.8%

        

Continental Airlines, Inc. Class A (Æ)

    8,300      285

CSX Corp.

    29,217      1,308

FedEx Corp. (Ú)

    47,200      4,878

Ford Motor Co. (Æ)

    200,600      1,779

Frontline, Ltd. (Ñ)

    43,900      1,993

General Motors Corp.

    98,500      3,860

JB Hunt Transport Services, Inc. (Ñ)

    18,700      518

Landstar System, Inc.

    7,300      307

Lear Corp. (Æ)

    11,800      419

Norfolk Southern Corp.

    42,900      2,216

Overseas Shipholding Group, Inc. (Ñ)

    27,501      2,046

TRW Automotive Holdings
Corp. (Æ)(Ñ)

    24,100      716

Union Pacific Corp. (Ú)

    66,500      8,515

United Parcel Service, Inc. Class B

    26,460      1,987

US Airways Group, Inc. (Æ)

    19,500      540
         
        31,367
         

Consumer Discretionary - 15.0%

     

Accenture, Ltd. Class A

    232,300      9,071

Alberto-Culver Co. Class B

    33,600      873

Allied Waste Industries, Inc. (Æ)

    88,900      1,124

Amazon.com, Inc. (Æ)(Ú)

    71,520      6,376

American Greetings Corp. Class A

    59,300      1,562

Apollo Group, Inc. Class A (Æ)

    53,150      4,213

AutoNation, Inc. (Æ)(Ñ)

    171,199      3,028

Autozone, Inc. (Æ)

    1,800      224

Avis Budget Group, Inc. (Æ)

    32,500      678

Avon Products, Inc.

    78,400      3,213

Barnes & Noble, Inc.

    33,100      1,279

Bed Bath & Beyond, Inc. (Æ)

    110,100      3,737

Best Buy Co., Inc.

    87,400      4,241

Big Lots, Inc. (Æ)(Ñ)

    51,700      1,240

BJ’s Wholesale Club, Inc. (Æ)

    25,700      922

Black & Decker Corp. (Ñ)

    3,200      288

Brinker International, Inc.

    50,650      1,286

Burger King Holdings, Inc.

    10,600      280

Career Education Corp. (Æ)(Ñ)

    4,400      157

Carnival Corp.

    2,550      122

CBS Corp. Class B

    232,150      6,663

Coach, Inc. (Æ)

    72,100      2,636

Convergys Corp. (Æ)

    33,900      621

Costco Wholesale Corp.

    41,400      2,785

Darden Restaurants, Inc.

    41,800      1,797

DeVry, Inc.

    1,000      55

DIRECTV Group, Inc. (The) (Æ)(Ú)

    272,500      7,216
     Principal
Amount ($)
or Shares		      Market
Value
$

Dolby Laboratories, Inc. Class A (Æ)

    3,500      145

Dollar Tree Stores, Inc. (Æ)

    3,900      149

DreamWorks Animation SKG, Inc. Class A (Æ)

    18,200      593

eBay, Inc. (Æ)(Ú)

    260,000      9,386

EchoStar Communications Corp. Class A (Æ)

    90,600      4,436

Estee Lauder Cos., Inc. (The) Class A

    84,100      3,692

Expedia, Inc. (Æ)(Ñ)

    160,500      5,242

Family Dollar Stores, Inc. (Ñ)

    49,200      1,247

Foot Locker, Inc.

    48,000      715

GameStop Corp. Class A (Æ)

    25,750      1,525

Gap, Inc. (The)

    127,900      2,417

Gemstar-TV Guide International,
Inc. (Æ)

    1,386      9

Google, Inc. Class A (Æ)(Ú)

    15,800      11,171

Guess ?, Inc.

    6,600      339

Hasbro, Inc.

    81,800      2,442

Hewitt Associates, Inc. Class A (Æ)

    18,100      639

Home Depot, Inc.

    49,500      1,560

Idearc, Inc. (Ñ)

    5,200      140

Insight Enterprises, Inc. (Æ)

    7,500      207

ITT Educational Services, Inc. (Æ)

    27,680      3,521

Jack in the Box, Inc. (Æ)

    9,400      295

Jarden Corp. (Æ)

    8,900      316

JC Penney Co., Inc. (Ñ)

    22,800      1,282

Kimberly-Clark Corp. (Ú)

    84,535      5,993

Liberty Global, Inc. Class A (Æ)

    89,100      3,497

Liberty Media Corp. - Capital
Series A (Æ)

    5,807      726

Live Nation, Inc. (Æ)

    7,500      153

Manpower, Inc. (Ñ)

    214,141      16,005

Marriott International, Inc. Class A

    75,100      3,087

Mattel, Inc.

    87,900      1,836

McDonald’s Corp.

    117,600      7,021

MSC Industrial Direct Co. Class A

    11,800      575

News Corp. Class A

    289,200      6,267

Nike, Inc. Class B

    141,800      9,396

Office Depot, Inc. (Æ)

    68,800      1,291

OfficeMax, Inc.

    8,200      259

Omnicom Group, Inc.

    53,000      2,702

Phillips-Van Heusen

    1,100      53

RadioShack Corp. (Ñ)

    33,400      689

Tech Data Corp. (Æ)

    37,550      1,477

Time Warner, Inc. (Ú)

    1,426,600      26,050

TJX Cos., Inc.

    502,400      14,534

Toro Co.

    1,300      72

VeriSign, Inc. (Æ)(Ñ)

    39,500      1,347

Wal-Mart Stores, Inc. (Ú)

    199,100      9,001

40   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Walt Disney Co. (The)

    741,700      25,685

Whirlpool Corp.

    20,460      1,620

Wyndham Worldwide Corp.

    24,200      794

Wynn Resorts, Ltd.

    30,690      4,954

Yum! Brands, Inc.

    218,500      8,799
         
        271,038
         

Consumer Staples - 6.7%

        

Altria Group, Inc.

    39,080      2,850

Anheuser-Busch Cos., Inc.

    91,900      4,713

Coca-Cola Co. (The)

    77,650      4,796

Colgate-Palmolive Co. (Ú)

    56,900      4,340

ConAgra Foods, Inc.

    138,500      3,287

General Mills, Inc.

    72,650      4,194

Hansen Natural Corp. (Ñ)

    30,050      2,043

Kroger Co. (The)

    780,435      22,937

Loews Corp. - Carolina Group

    9,000      772

McCormick & Co., Inc.

    9,400      329

Molson Coors Brewing Co. Class B

    29,870      1,709

NBTY, Inc. (Æ)

    80,900      2,880

Pepsi Bottling Group, Inc.

    91,300      3,933

PepsiAmericas, Inc.

    2,400      86

PepsiCo, Inc.

    201,750      14,873

Procter & Gamble Co.

    247,855      17,231

Reynolds American, Inc.

    24,600      1,585

Safeway, Inc.

    127,300      4,328

SUPERVALU, Inc.

    47,700      1,848

Sysco Corp.

    227,200      7,791

Tyson Foods, Inc. Class A

    179,400      2,835

Universal Corp. (Ñ)

    1,500      73

UST, Inc. (Ñ)

    64,800      3,455

Walgreen Co.

    194,600      7,716
         
        120,604
         

Financial Services - 21.2%

        

ACE, Ltd.

    54,000      3,273

Allied World Assurance Holdings, Ltd.

    2,200      105

Allstate Corp. (The) (Ú)

    140,700      7,373

AMB Property Corp. (ö)

    4,200      275

AMBAC Financial Group, Inc. (Ñ)

    15,800      582

American International Group, Inc. (Ú)

    300,900      18,993

AmeriCredit Corp. (Æ)(Ñ)

    23,300      329

Ameriprise Financial, Inc. (Ñ)

    277,170      17,456

AON Corp.

    88,900      4,029

Arch Capital Group, Ltd. (Æ)

    13,750      1,028

Arthur J Gallagher & Co.

    16,900      450

Ashford Hospitality Trust, Inc. (ö)

    35,600      350

Automatic Data Processing, Inc.

    169,800      8,415
     Principal
Amount ($)
or Shares		      Market
Value
$

AvalonBay Communities, Inc. (ö)

    12,100      1,484

Axis Capital Holdings, Ltd.

    24,700      982

Bank of America Corp. (Ú)

    420,555      20,304

Bank of New York Mellon Corp. (The) (Ú)

    143,050      6,988

BB&T Corp.

    1,800      67

Boston Properties, Inc. (ö)

    5,600      607

Camden Property Trust (ö)

    12,700      792

CB Richard Ellis Group, Inc.
Class A (Æ)(Ñ)

    138,300      3,372

CBL & Associates Properties, Inc. (ö)

    10,200      338

Charles Schwab Corp. (The)

    137,700      3,200

Chubb Corp.

    107,900      5,757

Cigna Corp.

    146,490      7,689

Cincinnati Financial Corp. (Ñ)

    58,232      2,317

Citigroup, Inc. (Ú)

    796,452      33,371

CME Group, Inc. Class A

    1,539      1,025

CNA Financial Corp. (Ñ)

    22,400      888

Comerica, Inc.

    58,700      2,740

Discover Financial Services

    11,973      231

Duke Realty Corp. (ö)

    9,300      299

Dun & Bradstreet Corp.

    34,840      3,374

E*TRADE Financial Corp. (Æ)

    21,000      234

East West Bancorp, Inc.

    4,400      148

Endurance Specialty Holdings, Ltd.

    8,550      335

Everest Re Group, Ltd.

    1,050      112

Federal Realty Investors Trust (ö)

    6,720      593

Federated Investors, Inc. Class B (Ñ)

    1,100      47

Fifth Third Bancorp

    192,400      6,018

First American Corp.

    11,300      340

First Marblehead Corp. (The) (Ñ)

    88,850      3,450

First Niagara Financial Group, Inc.

    2,600      34

Franklin Resources, Inc.

    34,300      4,448

General Growth Properties, Inc. (ö)

    58,600      3,186

Genworth Financial, Inc. Class A

    12,200      333

Goldman Sachs Group, Inc. (The) (Ú)

    98,400      24,395

Hanover Insurance Group, Inc.

    11,400      525

Hartford Financial Services Group, Inc. (Ú)

    40,380      3,918

HCC Insurance Holdings, Inc.

    60,500      1,808

Hospitality Properties Trust (ö)

    78,300      3,101

Investment Technology Group,
Inc. (Æ)

    15,300      641

iStar Financial, Inc. (ö)(Ñ)

    1,750      53

Jones Lang LaSalle, Inc.

    9,160      873

JPMorgan Chase & Co. (Ú)

    820,500      38,564

Keycorp

    112,100      3,189

Legg Mason, Inc.

    25,100      2,082

Lincoln National Corp.

    86,300      5,383

Equity Q Fund   41

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Loews Corp.

    115,650      5,677

Macerich Co. (The) (ö)

    6,830      585

Mastercard, Inc. Class A (Ñ)

    7,980      1,513

MBIA, Inc. (Ñ)

    30,800      1,326

Merrill Lynch & Co., Inc. (Ú)

    201,800      13,323

MetLife, Inc. (Ú)

    51,800      3,566

MoneyGram International, Inc.

    20,300      324

Moody’s Corp. (Ñ)

    25,100      1,097

Morgan Stanley (Ú)

    279,720      18,814

Morningstar, Inc. (Æ)

    300      22

Nasdaq Stock Market, Inc. (The) (Æ)

    26,400      1,233

Nationwide Financial Services

    10,550      566

Northern Trust Corp.

    48,000      3,610

Odyssey Re Holdings Corp.

    8,000      297

Old Republic International Corp.

    8,000      123

Potlatch Corp. (ö)(Ñ)

    11,750      560

Principal Financial Group, Inc.

    39,900      2,700

Prologis (ö)

    60,850      4,365

Prudential Financial, Inc. (Ú)

    69,080      6,681

Raymond James Financial, Inc.

    15,900      592

Rayonier, Inc. (ö)(Ñ)

    9,000      435

Regency Centers Corp. (ö)

    1,480      106

Regions Financial Corp.

    34,400      933

RenaissanceRe Holdings, Ltd.

    18,100      1,056

Ryder System, Inc.

    1,350      65

Safeco Corp.

    63,600      3,682

Simon Property Group, Inc. (ö)

    6,120      637

Sotheby’s Holdings Class A (Ñ)

    23,650      1,281

State Street Corp. (Ú)

    45,200      3,606

SunTrust Banks, Inc.

    81,390      5,909

Taubman Centers, Inc. (ö)

    1,950      115

Total System Services, Inc. (Ñ)

    17,900      536

Travelers Cos., Inc. (The) (Ú)

    191,850      10,017

Ventas, Inc. (ö)

    25,250      1,083

Vornado Realty Trust (ö)

    12,200      1,363

Wachovia Corp.

    74,050      3,386

Washington Mutual, Inc. (Ñ)

    150,100      4,185

Wells Fargo & Co.

    230,100      7,826

Western Union Co. (The)

    142,100      3,132

WR Berkley Corp.

    35,600      1,071

XL Capital, Ltd. Class A

    42,570      3,063
         
        382,754
         

Health Care - 13.8%

        

Aetna, Inc.

    345,300      19,395

AMERIGROUP Corp. Class A (Æ)

    11,700      409

AmerisourceBergen Corp. Class A

    358,350      16,882

Amgen, Inc. (Æ)

    39,700      2,307
     Principal
Amount ($)
or Shares		      Market
Value
$

Apria Healthcare Group, Inc. (Æ)(Ñ)

    20,800      503

Baxter International, Inc. (Ú)

    183,300      11,000

Beckman Coulter, Inc.

    13,800      977

Becton Dickinson & Co.

    31,400      2,621

Biogen Idec, Inc. (Æ)

    71,250      5,304

Boston Scientific Corp. (Æ)

    16,200      225

Bristol-Myers Squibb Co. (Ú)

    135,300      4,058

Cardinal Health, Inc.

    113,300      7,708

Celgene Corp. (Æ)(Ñ)

    43,000      2,838

Coventry Health Care, Inc. (Æ)

    25,100      1,514

Dentsply International, Inc.

    30,650      1,271

Eli Lilly & Co.

    51,800      2,805

Express Scripts, Inc. Class A (Æ)

    110,200      6,954

Forest Laboratories, Inc. (Æ)

    75,800      2,961

Gen-Probe, Inc. (Æ)

    2,200      154

Genentech, Inc. (Æ)

    28,600      2,120

Genzyme Corp. (Æ)

    19,500      1,481

Gilead Sciences, Inc. (Æ)

    197,600      9,127

Health Net, Inc. (Æ)

    51,500      2,761

Healthspring, Inc. (Æ)

    9,700      204

Hlth Corp. (Æ)(Ñ)

    176,600      2,492

Humana, Inc. (Æ)

    74,700      5,599

Invitrogen Corp. (Æ)

    3,190      290

Johnson & Johnson (Ú)

    358,700      23,376

Kinetic Concepts, Inc. (Æ)(Ñ)

    11,050      664

King Pharmaceuticals, Inc. (Æ)

    47,600      504

Lincare Holdings, Inc. (Æ)

    24,900      866

McKesson Corp.

    118,900      7,859

Medco Health Solutions, Inc. (Æ)

    184,350      17,399

Medtronic, Inc. (Ú)

    13,500      640

Merck & Co., Inc. (Ú)

    130,550      7,606

Millennium Pharmaceuticals, Inc. (Æ)

    20,000      236

Pfizer, Inc. (Ú)

    1,474,100      36,278

Schering-Plough Corp. (Ñ)(Ú)

    464,600      14,180

Stryker Corp.

    1,650      117

UnitedHealth Group, Inc. (Ú)

    182,000      8,945

Ventana Medical Systems, Inc. (Æ)

    1,800      158

Watson Pharmaceuticals, Inc.
Class B (Æ)

    17,400      532

WellCare Health Plans, Inc. (Æ)

    1,100      27

WellPoint, Inc. (Æ)(Ú)

    114,400      9,064

Wyeth (Ú)

    17,700      861

Zimmer Holdings, Inc. (Æ)

    87,100      6,053
         
        249,325
         

Integrated Oils - 6.8%

        

Chevron Corp. (Ú)

    346,060      31,668

ConocoPhillips

    145,180      12,335

42   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Exxon Mobil Corp. (Ú)

    653,932      60,155

Hess Corp.

    57,300      4,103

Marathon Oil Corp. (Ú)

    155,400      9,189

Murphy Oil Corp.

    39,500      2,908

Occidental Petroleum Corp.

    29,650      2,047
         
        122,405
         

Materials and Processing - 5.9%

     

AK Steel Holding Corp. (Æ)

    38,750      1,943

Albemarle Corp.

    27,200      1,299

American Standard Cos., Inc.

    46,500      1,733

Archer-Daniels-Midland Co.

    38,700      1,385

Armstrong World Industries,
Inc. (Æ)(Ñ)

    1,900      78

Ashland, Inc.

    72,250      4,243

Avery Dennison Corp.

    7,800      452

Celanese Corp. Class A

    33,800      1,418

CF Industries Holdings, Inc.

    14,190      1,247

Cleveland-Cliffs, Inc. (Ñ)

    2,000      191

Commercial Metals Co.

    38,700      1,214

Crown Holdings, Inc. (Æ)

    63,800      1,582

Domtar Corp. (Æ)(Ñ)

    5,204      45

Dow Chemical Co. (The) (Ú)

    186,400      8,395

Eastman Chemical Co.

    16,700      1,112

EI Du Pont de Nemours & Co. (Ú)

    71,600      3,545

EMCOR Group, Inc. (Æ)

    22,900      788

Energizer Holdings, Inc. (Æ)(Ñ)

    52,300      5,455

Fluor Corp.

    17,300      2,733

FMC Corp.

    100      6

Freeport-McMoRan Copper & Gold, Inc. Class B

    84,310      9,922

Granite Construction, Inc.

    8,500      364

Greif, Inc. Class A

    7,000      445

International Paper Co.

    165,200      6,106

Jacobs Engineering Group, Inc. (Æ)

    32,600      2,841

KBR, Inc. (Æ)

    24,800      1,063

Lennox International, Inc.

    3,300      118

McDermott International, Inc. (Æ)

    48,300      2,949

Minerals Technologies, Inc.

    2,850      200

Monsanto Co. (Ú)

    34,580      3,376

Mosaic Co. (The) (Æ)(Ñ)

    8,300      579

Newmont Mining Corp.

    2,200      112

Nucor Corp.

    64,000      3,969

Olin Corp.

    1,700      39

Owens - Illinois, Inc. (Æ)

    2,750      122

Pactiv Corp. (Æ)

    80,500      2,211

Perini Corp. (Æ)

    10,300      591

PPG Industries, Inc.

    30,400      2,272
     Principal
Amount ($)
or Shares		      Market
Value
$

Precision Castparts Corp.

    47,390      7,100

Sealed Air Corp. (Ñ)

    22,600      563

Sherwin-Williams Co. (The)

    156,800      10,023

Sonoco Products Co.

    10,900      337

Southern Copper Corp. (Ñ)

    41,440      5,789

Terra Industries, Inc. (Æ)(Ñ)

    12,000      443

Timken Co.

    21,500      715

United States Steel Corp.

    45,560      4,916

URS Corp. (Æ)

    11,900      736

Worthington Industries, Inc.

    6,000      150
         
        106,915
         

Miscellaneous - 2.5%

        

3M Co.

    34,550      2,984

Brunswick Corp.

    33,900      756

Eaton Corp.

    17,700      1,639

Foster Wheeler, Ltd. (Æ)

    30,000      4,447

General Electric Co. (Ú)

    500,140      20,586

Honeywell International, Inc. (Ú)

    101,800      6,150

ITT Corp.

    32,400      2,168

SPX Corp.

    29,020      2,940

Teleflex, Inc.

    11,600      849

Textron, Inc.

    30,800      2,132

Tyco International, Ltd.

    20,750      854
         
        45,505
         

Other Energy - 6.4%

        

Anadarko Petroleum Corp.

    25,900      1,529

Apache Corp.

    49,230      5,111

Atwood Oceanics, Inc. (Æ)

    1,700      143

Chesapeake Energy Corp.

    144,500      5,705

Cimarex Energy Co. (Ñ)

    2,000      81

Delek US Holdings, Inc.

    5,900      141

Devon Energy Corp.

    82,840      7,737

Dresser-Rand Group, Inc. (Æ)

    7,300      282

Dynegy, Inc. Class A (Æ)

    5,054      47

ENSCO International, Inc. (Ñ)

    4,400      244

FMC Technologies, Inc. (Æ)

    23,000      1,394

Frontier Oil Corp.

    50,150      2,296

Global Industries, Ltd. (Æ)

    76,300      1,878

GlobalSantaFe Corp. (Ñ)

    13,570      1,100

Halliburton Co. (Ñ)(Ú)

    450,550      17,761

Helmerich & Payne, Inc.

    9,900      313

Holly Corp.

    61,550      3,865

Nabors Industries, Ltd. (Æ)

    33,500      941

National Oilwell Varco, Inc. (Æ)

    132,250      9,686

Noble Corp.

    28,600      1,514

Noble Energy, Inc.

    61,900      4,738

Equity Q Fund   43

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

NRG Energy, Inc. (Æ)(Ñ)

    42,000      1,918

Oil States International, Inc. (Æ)

    9,000      389

Patterson-UTI Energy, Inc.

    55,100      1,099

Pioneer Natural Resources Co.

    850      43

Plains Exploration & Production
Co. (Æ)(Ñ)

    450      23

Pogo Producing Co.

    600      36

Reliant Energy, Inc. (Æ)

    197,000      5,421

SEACOR Holdings, Inc. (Æ)(Ñ)

    13,290      1,218

Smith International, Inc.

    6,000      396

St. Mary Land & Exploration Co.

    14,600      618

Sunoco, Inc.

    87,200      6,418

Superior Energy Services, Inc. (Æ)

    29,000      1,075

Tesoro Corp.

    146,900      8,892

Unit Corp. (Æ)

    15,400      736

Valero Energy Corp. (Ú)

    159,400      11,227

Western Refining, Inc. (Ñ)

    71,700      2,630

XTO Energy, Inc.

    92,300      6,127
         
        114,772
         

Producer Durables - 7.5%

        

AGCO Corp. (Æ)

    75,850      4,527

Applied Materials, Inc.

    824,600      16,014

Boeing Co. (Ú)

    116,880      11,523

Caterpillar, Inc. (Ú)

    111,500      8,319

Crane Co.

    4,000      190

Cummins, Inc.

    32,732      3,926

Emerson Electric Co.

    2,250      118

Gardner Denver, Inc. (Æ)

    16,600      600

General Cable Corp. (Æ)(Ñ)

    2,650      191

Herman Miller, Inc.

    2,800      76

HNI Corp. (Ñ)

    13,500      585

Hubbell, Inc. Class B

    1,400      77

Ingersoll-Rand Co., Ltd. Class A

    5,000      252

Kla-Tencor Corp.

    34,700      1,827

Lexmark International, Inc.
Class A (Æ)(Ñ)

    38,350      1,610

Lockheed Martin Corp. (Ú)

    225,490      24,813

Manitowoc Co., Inc. (The)

    54,400      2,680

Mettler Toledo International, Inc. (Æ)

    3,900      415

Molex, Inc.

    34,100      974

Northrop Grumman Corp.

    271,351      22,690

Novellus Systems, Inc. (Æ)(Ñ)

    55,300      1,571

Parker Hannifin Corp.

    46,000      3,697

Raytheon Co.

    107,350      6,829

Rockwell Collins, Inc.

    10,500      785

Steelcase, Inc. Class A

    30,300      541

Thomas & Betts Corp. (Æ)

    15,950      893
     Principal
Amount ($)
or Shares		      Market
Value
$

United Technologies Corp. (Ú)

    103,900      7,958

W.W. Grainger, Inc.

    840      75

Waters Corp. (Æ)

    21,950      1,690

Xerox Corp. (Æ)

    513,800      8,961
         
        134,407
         

Technology - 15.8%

        

ADC Telecommunications, Inc. (Æ)

    23,900      447

Analog Devices, Inc.

    26,500      887

Apple, Inc. (Æ)

    82,760      15,720

Applera Corp. - Applied Biosystems Group

    40,300      1,497

Arrow Electronics, Inc. (Æ)

    32,100      1,283

Atmel Corp. (Æ)

    75,400      369

Autodesk, Inc. (Æ)

    86,450      4,227

Avnet, Inc. (Æ)

    216,900      9,049

Blue Coat Systems, Inc. (Æ)

    7,600      308

BMC Software, Inc. (Æ)

    59,000      1,997

Broadcom Corp. Class A (Æ)

    26,000      846

Brocade Communications Systems,
Inc. (Æ)

    38,500      366

Cadence Design Systems, Inc. (Æ)

    1,800      35

Cisco Systems, Inc. (Æ)

    489,800      16,193

Computer Sciences Corp. (Æ)

    107,351      6,268

Compuware Corp. (Æ)

    34,400      344

Corning, Inc. (Ú)

    147,600      3,582

Dell, Inc. (Æ)(Ú)

    315,100      9,642

Electronic Data Systems Corp.

    114,500      2,472

EMC Corp. (Æ)(Ñ)

    68,400      1,737

First Solar, Inc. (Æ)

    3,600      572

Garmin, Ltd.

    59,400      6,380

Harris Corp.

    51,500      3,119

Hewlett-Packard Co. (Ú)

    380,150      19,646

Ingram Micro, Inc. Class A (Æ)

    69,300      1,472

Intel Corp. (Ú)

    296,900      7,987

International Business Machines
Corp. (Ú)

    145,500      16,895

Intuit, Inc. (Æ)

    50,700      1,631

Jabil Circuit, Inc.

    14,000      304

Juniper Networks, Inc. (Æ)

    236,250      8,505

L-3 Communications Holdings, Inc.

    15,000      1,645

LSI Corp. (Æ)

    86,000      568

Maxim Integrated Products, Inc.

    7,100      192

McAfee, Inc. (Æ)

    33,700      1,394

MEMC Electronic Materials, Inc. (Æ)

    18,700      1,369

Microsoft Corp. (Ú)

    1,291,200      47,529

National Instruments Corp.

    9,100      295

National Semiconductor Corp.

    25,500      641

44   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

NCR Corp. (Æ)

    15,000      414

Novell, Inc. (Æ)

    30,000      225

Nvidia Corp.

    131,650      4,658

Oracle Corp. (Æ)(Ú)

    1,225,600      27,172

PerkinElmer, Inc.

    6,900      190

Qualcomm, Inc. (Ú)

    259,900      11,106

Rockwell Automation, Inc.

    51,250      3,530

SanDisk Corp. (Æ)

    35,600      1,581

Sanmina-SCI Corp. (Æ)

    86,600      191

Seagate Technology, Inc. (Æ)

    57,274      —

Sun Microsystems, Inc. (Æ)

    468,600      2,676

Symantec Corp. (Æ)

    816,100      15,326

Synopsys, Inc. (Æ)

    104,501      2,953

Texas Instruments, Inc.

    384,200      12,525

Tyco Electronics, Ltd.

    89,600      3,196

Unisys Corp. (Æ)

    95,600      581

Vishay Intertechnology, Inc. (Æ)

    10,500      132

Western Digital Corp. (Æ)

    52,400      1,358
         
        285,227
         

Utilities - 5.0%

        

AES Corp. (The) (Æ)

    127,500      2,730

AGL Resources, Inc.

    7,800      308

Alliant Energy Corp.

    5,000      200

Alltel Corp.

    7,550      537

AT&T, Inc.

    363,378      15,186

Centerpoint Energy, Inc. (Ñ)

    80,700      1,352

CenturyTel, Inc.

    75,600      3,330

Constellation Energy Group, Inc.

    44,800      4,243

DTE Energy Co.

    3,300      164

Duke Energy Corp.

    481,700      9,234

Edison International

    83,200      4,838

Embarq Corp.

    75,700      4,006

FirstEnergy Corp.

    63,500      4,426

Oneok, Inc. (Ñ)

    10,050      502

PG&E Corp.

    136,349      6,672

Public Service Enterprise Group, Inc.

    50,700      4,847

Qwest Communications International, Inc. (Æ)(Ñ)

    753,500      5,410

SCANA Corp. (Ñ)

    15,000      609

Sprint Nextel Corp.

    545,800      9,333

Telephone & Data Systems, Inc.

    50      3

Verizon Communications, Inc. (Ú)

    259,600      11,960
         
        89,890
         
Total Common Stocks        

(cost $1,666,296)

         1,954,209
         
     Principal
Amount ($)
or Shares		        Market
Value
$		  

Short-Term Investments - 2.6%

        

Russell Investment Company
Money Market Fund

    45,203,900        45,204  

United States Treasury Bills (ç)(ž)(§)

        

3.650% due 12/20/07

    2,100        2,090  

3.816% due 12/20/07

    500        497  
           
Total Short-Term Investments        

(cost $47,791)

         47,791  
           

Other Securities - 3.7%

        

Russell Investment Company
Money Market Fund (×)

    10,004,135        10,004  

State Street Securities Lending Quality Trust (×)

    56,260,190        56,260  
           
Total Other Securities        

(cost $66,264)

         66,264  
           
Total Investments - 114.7%        

(identified cost $1,780,351)

 

      2,068,264  
           
Securities Sold Short - (11.0%)        

Auto and Transportation - (0.4%)

        

AAR Corp. (Æ)

    (2,700 )      (87 )

Expeditors International Washington, Inc.

    (63,100 )      (3,196 )

Ford Motor Co. (Æ)

    (187,600 )      (1,664 )

Gentex Corp.

    (43,600 )      (906 )

JB Hunt Transport Services, Inc.

    (8,100 )      (225 )
           
        (6,078 )
           

Consumer Discretionary - (2.2%)

        

Bare Escentuals, Inc. (Æ)

    (19,900 )      (492 )

Coldwater Creek, Inc. (Æ)

    (16,200 )      (145 )

CoStar Group, Inc. (Æ)

    (2,900 )      (167 )

CROCS, Inc. (Æ)

    (26,500 )      (1,981 )

Electronic Arts, Inc. (Æ)

    (68,800 )      (4,205 )

Fastenal Co.

    (40,200 )      (1,788 )

JC Penney Co., Inc.

    (36,400 )      (2,047 )

Lamar Advertising Co. Class A

    (35,600 )      (1,903 )

Las Vegas Sands Corp. (Æ)

    (30,500 )      (4,059 )

Limited Brands, Inc.

    (141,000 )      (3,103 )

LKQ Corp. (Æ)

    (27,900 )      (1,076 )

Mattel, Inc.

    (133,700 )      (2,793 )

McGraw-Hill Cos., Inc. (The)

    (32,600 )      (1,631 )

MGM Mirage (Æ)

    (41,000 )      (3,756 )

MSC Industrial Direct Co. Class A

    (7,900 )      (385 )

Nordstrom, Inc.

    (83,700 )      (3,301 )

RH Donnelley Corp. (Æ)

    (29,700 )      (1,629 )

Equity Q Fund   45

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		        Market
Value
$		  
       

RR Donnelley & Sons Co.

    (69,100 )      (2,784 )

Scientific Games Corp. Class A (Æ)

    (21,400 )      (774 )

Service Corp. International

    (74,600 )      (1,079 )

Urban Outfitters, Inc. (Æ)

    (37,600 )      (950 )

Virgin Media, Inc.

    (15,700 )      (347 )

Warner Music Group Corp.

    (5,600 )      (57 )
           
        (40,452 )
           

Consumer Staples - (0.6%)

        

Brown-Forman Corp. Class B

    (46,200 )      (3,418 )

Hershey Co. (The)

    (81,500 )      (3,513 )

Kraft Foods, Inc. Class A

    (116,800 )      (3,902 )

Reynolds American, Inc.

    (8,800 )      (567 )
           
        (11,400 )
           

Financial Services - (1.6%)

        

Affiliated Managers Group, Inc. (Æ)

    (12,400 )      (1,631 )

AMBAC Financial Group, Inc.

    (31,300 )      (1,153 )

Bear Stearns Cos., Inc. (The)

    (48,500 )      (5,510 )

Capitol Federal Financial

    (5,900 )      (195 )

Countrywide Financial Corp.

    (109,100 )      (1,693 )

Federal National Mortgage Association

    (3,100 )      (177 )

Fidelity National Information Services, Inc.

    (4,500 )      (208 )

IntercontinentalExchange, Inc. (Æ)

    (6,500 )      (1,158 )

KKR Financial Holdings LLC

    (10,700 )      (167 )

MBIA, Inc.

    (86,200 )      (3,710 )

MGIC Investment Corp.

    (41,600 )      (805 )

Moody’s Corp.

    (82,000 )      (3,585 )

New York Community Bancorp, Inc.

    (41,500 )      (772 )

Plum Creek Timber Co., Inc. (ö)(Ñ)

    (36,700 )      (1,639 )

PMI Group, Inc. (The) (Ñ)

    (39,500 )      (633 )

Radian Group, Inc.

    (35,600 )      (448 )

Rayonier, Inc. (ö)

    (11,400 )      (551 )

State Street Corp.

    (55,100 )      (4,396 )
           
        (28,431 )
           

Health Care - (1.2%)

        

Affymetrix, Inc. (Æ)

    (20,400 )      (519 )

Alexion Pharmaceuticals, Inc. (Æ)

    (9,100 )      (696 )

American Medical Systems Holdings, Inc. (Æ)

    (5,800 )      (74 )

Amylin Pharmaceuticals, Inc. (Æ)

    (40,500 )      (1,823 )

BioMarin Pharmaceuticals, Inc. (Æ)

    (14,700 )      (408 )

Celgene Corp. (Æ)

    (25,500 )      (1,683 )

Cephalon, Inc. (Æ)

    (20,400 )      (1,504 )

Cerner Corp. (Æ)

    (16,100 )      (959 )

Chattem, Inc. (Æ)

    (4,900 )      (364 )
     Principal
Amount ($)
or Shares		        Market
Value
$		  

Hologic, Inc. (Æ)

    (4,000 )      (272 )

Humana, Inc. (Æ)

    (52,800 )      (3,957 )

Millipore Corp. (Æ)

    (12,800 )      (994 )

Myriad Genetics, Inc. (Æ)

    (9,600 )      (531 )

NuVasive, Inc. (Æ)

    (6,000 )      (257 )

Omnicare, Inc.

    (28,200 )      (832 )

Quest Diagnostics, Inc.

    (65,800 )      (3,499 )

Stericycle, Inc. (Æ)

    (9,600 )      (560 )

Stryker Corp.

    (24,400 )      (1,732 )

Techne Corp. (Æ)

    (3,600 )      (236 )

Tenet Healthcare Corp. (Æ)

    (143,300 )      (503 )
           
        (21,403 )
           

Materials and Processing - (0.5%)

 

     

Alcoa, Inc.

    (63,300 )      (2,506 )

Louisiana-Pacific Corp.

    (33,500 )      (551 )

Martin Marietta Materials, Inc.

    (15,800 )      (2,044 )

Mosaic Co. (The) (Æ)

    (55,500 )      (3,874 )
           
        (8,975 )
           

Miscellaneous - (0.3%)

        

Fortune Brands, Inc.

    (43,600 )      (3,652 )

Foster Wheeler, Ltd. (Æ)

    (13,000 )      (1,927 )
           
        (5,579 )
           

Other Energy - (2.0%)

        

Arch Coal, Inc.

    (56,700 )      (2,325 )

Arena Resources, Inc. (Æ)

    (8,400 )      (307 )

Baker Hughes, Inc.

    (41,900 )      (3,634 )

Berry Petroleum Co. Class A

    (2,300 )      (112 )

Bill Barrett Corp. (Æ)

    (8,500 )      (398 )

Carrizo Oil & Gas, Inc. (Æ)

    (4,000 )      (206 )

CNX Gas Corp. (Æ)

    (2,600 )      (83 )

Denbury Resources, Inc. (Æ)

    (20,500 )      (1,160 )

Diamond Offshore Drilling, Inc.

    (32,500 )      (3,680 )

Encore Acquisition Co. (Æ)

    (8,900 )      (327 )

EOG Resources, Inc.

    (46,500 )      (4,120 )

Equitable Resources, Inc.

    (39,000 )      (2,196 )

EXCO Resources, Inc. (Æ)

    (37,300 )      (630 )

Hercules Offshore, Inc. (Æ)

    (10,000 )      (270 )

NRG Energy, Inc. (Æ)

    (23,700 )      (1,082 )

Peabody Energy Corp.

    (94,400 )      (5,263 )

Quicksilver Resources, Inc. (Æ)

    (16,000 )      (912 )

Range Resources Corp.

    (34,700 )      (1,559 )

Schlumberger, Ltd.

    (21,700 )      (2,096 )

Southwestern Energy Co. (Æ)

    (19,300 )      (998 )

Whiting Petroleum Corp. (Æ)

    (7,400 )      (400 )

Williams Cos., Inc.

    (85,900 )      (3,134 )

XTO Energy, Inc.

    (25,500 )      (1,694 )
           
        (36,586 )
           

46   Equity Q Fund

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		        Market
Value
$		  
       

Producer Durables - (0.6%)

        

ACCO Brands Corp. (Æ)

    (11,700 )      (251 )

Briggs & Stratton Corp.

    (29,300 )      (660 )

Bucyrus International, Inc. Class A

    (6,700 )      (553 )

Centex Corp.

    (46,600 )      (1,168 )

DR Horton, Inc.

    (131,000 )      (1,662 )

Itron, Inc. (Æ)

    (2,600 )      (279 )

KB Home

    (47,700 )      (1,318 )

Kla-Tencor Corp.

    (28,700 )      (1,511 )

Lennar Corp. Class A

    (21,900 )      (500 )

Ryland Group, Inc.

    (22,500 )      (640 )

SBA Communications Corp.
Class A (Æ)

    (29,000 )      (1,032 )

Terex Corp. (Æ)

    (19,100 )      (1,418 )
           
        (10,992 )
           

Technology - (0.9%)

        

Advanced Micro Devices, Inc. (Æ)

    (62,200 )      (814 )

CA, Inc.

    (62,400 )      (1,650 )

Cognizant Technology Solutions Corp. Class A (Æ)

    (82,800 )      (3,433 )

Corning, Inc.

    (63,800 )      (1,548 )

EMC Corp. (Æ)

    (65,900 )      (1,673 )

Equinix, Inc. (Æ)

    (1,100 )      (128 )

Micron Technology, Inc. (Æ)

    (242,900 )      (2,553 )

Network Appliance, Inc. (Æ)

    (87,600 )      (2,759 )

Nuance Communications, Inc. (Æ)

    (7,300 )      (161 )

SanDisk Corp. (Æ)

    (21,000 )      (932 )

VeriFone Holdings, Inc. (Æ)

    (19,200 )      (949 )
           
        (16,600 )
           
     Principal
Amount ($)
or Shares		        Market
Value
$		  

Utilities - (0.7%)

        

Consolidated Edison, Inc.

    (45,000 )      (2,119 )

DPL, Inc.

    (65,400 )      (1,899 )

Hawaiian Electric Industries, Inc.

    (16,200 )      (376 )

ITC Holdings Corp.

    (16,400 )      (939 )

Level 3 Communications, Inc. (Æ)

    (407,100 )      (1,234 )

National Fuel Gas Co.

    (22,000 )      (1,067 )

NeuStar, Inc. Class A (Æ)

    (28,200 )      (964 )

NII Holdings, Inc. (Æ)

    (19,600 )      (1,137 )

Sempra Energy

    (44,800 )      (2,756 )
           
        (12,491 )
           
Total Securities Sold Short        

(proceeds $193,443)

         (198,987 )
           
Other Assets and Liabilities,
Net - (3.7%)		         (66,599 )
           
Net Assets - 100.0%         1,802,678  
           

 

See accompanying notes which are an integral part of the financial statements.

Equity Q Fund   47

Table of Contents

Russell Investment Company

Equity Q Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Futures Contracts
(Number of Contracts)		   Notional
Amount		   Unrealized
Appreciation
(Depreciation)
$		  
   
   

Long Positions

    

Russell 1000 Index
expiration date 12/07 (22)

   USD 9,324   391  

S&P 500 E-Mini Index (CME)
expiration date 12/07 (170)

   USD  13,217   242  

S&P 500 Index (CME)
expiration date 12/07 (22)

   USD 8,552   (14 )

S&P Midcap 400 E-Mini Index (CME)
expiration date 12/07 (182)

   USD 16,600   490  
       

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts

     1,109  
       

 

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of Net
Assets		  
  

Auto and Transportation

    1.8  

Consumer Discretionary

    15.0  

Consumer Staples

    6.7  

Financial Services

    21.2  

Health Care

    13.8  

Integrated Oils

    6.8  

Materials and Processing

    5.9  

Miscellaneous

    2.5  

Other Energy

    6.4  

Producer Durables

    7.5  

Technology

    15.8  

Utilities

    5.0  

Short-Term Investments

    2.6  

Other Securities

    3.7  
      

Total Investments

    114.7  

Securities Sold Short

    (11.0 )

Other Assets and Liabilities, Net

    (3.7 )
      
   100.0  
      

Futures Contracts

    0.1  

 

See accompanying notes which are an integral part of the financial statements.

48   Equity Q Fund

Table of Contents

 

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Table of Contents

Russell Investment Company

International Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

International Fund - Class I  
     Total Return  

1 Year

    28.77 %

5 Years

    23.31 %§

10 Years

    9.27 %§

 

International Fund - Class E‡  
     Total Return  

1 Year

    28.47 %

5 Years

    23.06 %§

10 Years

    9.06 %§

 

International Fund - Class Y‡‡  
     Total Return  

1 Year

    28.85 %

5 Years

    23.39 %§

10 Years

    9.33 %§

 

MSCI EAFE® Index**  
     Total Return  

1 Year

    24.91 %

5 Years

    23.21 %§

10 Years

    9.26 %§

 

50   International Fund

Table of Contents

Russell Investment Company

International Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The International Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has nine money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the International Fund Class E, Class I and Class Y gained 28.47%, 28.77% and 28.85% respectively. This compared to the MSCI EAFE® Index Net (USD), which gained 24.91% 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, 2007, the Lipper® International Multi Cap-Core Funds Average returned 27.67%. 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?

Improving trends for growth stocks in the second half of the fiscal year proved an important change contributing to the Fund’s outperformance in the period. Portfolio characteristics continued to demonstrate throughout the period the Fund’s money managers’ expectations of an imminent rotation in market leadership to growth-driven stocks. This positioning proved very effective in capturing the market’s rotation to growth mid-way through the fiscal year. In addition, the Fund’s money managers’ regional positioning, though generally attributable to bottom up stock selection decisions, further leveraged these trends with significant gains from emerging markets exposure and the Fund’s underweighted position in Japan. The chief contributors in this regard were Axiom International Investors LLC, Wellington Management Company, LLC, Marsico Capital Management, LLC, and UBS Global Asset Management (Americas) Inc. These money managers’ focus on high growth and momentum-driven stocks provided significant gains versus the Fund’s benchmark, particularly in the latter half of the period.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

The Fund’s multi-style discipline provided a critical risk control in the period given the extreme variability in style

leadership from the first half to the second half of the fiscal year. Stock selection made the largest contribution to the Fund’s performance in the period. Early in the year, the strongest gains came from the Fund’s value managers, particularly AllianceBernstein L.P. and Mondrian Investment Partners Ltd. In the latter half of the year, the Fund’s growth managers, particularly Marsico Capital Management, LLC, Axiom International Investors LLC, Wellington Management Company, LLC, and UBS Global Asset Management (Americas) Inc. were most successful. Sector allocation also contributed positively to performance with a material underweight of the financial sector proving critical to avoiding some of the weakness tied to developments in the subprime lending market in the U.S.

Many of the Fund’s best stock performers came from non-benchmark holdings. Research in Motion (RIM), the Canadian-based producer of the Blackberry handheld device, was a strong performer. Its products continued to take market share in a rapidly growing market segment. The success of its consumer-oriented products added to its strong position in the business sector. The stock was held throughout the period by Wellington. Axiom and Marsico also benefited from their holding of RIM.

At the regional level, stock selection was particularly effective in Japan. Among the Fund’s top stock contributors was video game maker Nintendo. However, avoidance of some of the weaker segments of the Japanese market was as critical and the Fund was effectively positioned with underweighted positions in Japanese banks, Mizuho and Mitsubishi UFJ. Emerging markets exposure was also a significant contributor to Fund performance. Mexican and Chinese wireless telecommunications companies, America Movil and China Mobile, as well as Brazilian metals mining company Companhia Vale do Rio Doce (CVRD), were among the stocks with sizable contributions to Fund results. Regional exposures also had important implications for the currency effects on Fund performance. While every major currency appreciated against the U.S. dollar in the period, the Fund’s overweightings of stronger currencies, particularly the Euro and Canadian dollar provided another source of gain to the U.S. dollar performance of the Fund.

Despite a difficult environment through the first half of the fiscal year, growth managers produced significant benchmark-relative gains over the entire period with especially strong gains in September. Axiom was the best performer for the entire period. Marsico, added to the Fund in November 2006, UBS, added to the Fund in July 2007, and Wellington also had strong performance. Among the remaining managers, MFS Institutional Advisors, Inc.’s focus on high quality, consistent growth companies was a less effective strategy for the year. Among


International Fund   51

Table of Contents

Russell Investment Company

International Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

the value managers in the Fund, AllianceBernstein L.P. and Mondrian Investment Partners Limited performed well in the period but lost ground as market leadership shifted to growth. Mondrian performed slightly better due to its underweight to Japan.

Describe any changes to the Fund’s structure or the money manager line-up.

Four changes were made to the Fund’s money manager line-up in the year. In November of 2006, the Fund hired Marsico to replace Fidelity Management & Research Company. Nicholas-Applegate Capital Management, LLC was hired to replace Marvin & Palmer Associates, Inc. in March 2007. Altrinsic Global Advisors, LLC was hired to replace The Boston Company Asset Management, LLC in June 2007. Finally, in July 2007, UBS Global Asset Management (Americas), Inc. was hired to replace Nicholas-Applegate after the portfolio management team at Nicholas-Applegate was lifted out by UBS.

 

Money Managers as of
October 31, 2007		    Styles

AllianceBernstein L.P.

    Value

Altrinsic Global Advisors, LLC

    Value

AQR Capital Management, LLC

    Market-Oriented

Axiom International Investors LLC

    Growth

Marsico Capital Management, LLC

    Growth

MFS Institutional Advisors, Inc.

    Market-Oriented

Mondrian Investment Partners Ltd.

    Value

UBS Global Asset Management (Americas) Inc.

    Growth

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

*   Assumes initial investment on November 1, 1997.

 

**   Morgan Stanley Capital International Europe, Australia, Far East (MSCI EAFE) Index is an index composed of an arithmetic, market value- weighted average of the performance of approximately 1,600 securities listed on the stock exchange of the countries of Europe, Australia, and the Far East. The index is calculated on a total-return basis, which includes reinvestment of gross dividends before deduction of withholding taxes.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on March 29, 2000. The returns shown for Class Y Shares prior to March 29, 2000 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

§   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.

52   International Fund

Table of Contents

Russell Investment Company

International Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,125.70    $ 1,019.41

Expenses Paid During Period*

    $ 6.16    $ 5.85

 

* Expenses are equal to the Fund’s annualized expense ratio of 1.15% (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.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,127.30    $ 1,020.62

Expenses Paid During Period*

    $ 4.88    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,127.30    $ 1,020.87

Expenses Paid During Period*

    $ 4.61    $ 4.38

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.86% (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.

International Fund   53

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Common Stocks - 91.6%

        

Australia - 4.1%

        

Adelaide Brighton, Ltd.

    5,924      20

AGL Energy, Ltd.

    6,813      77

Amcor, Ltd.

    532,911      3,499

AMP, Ltd.

    158,733      1,515

Ansell, Ltd.

    22,851      265

APN News & Media, Ltd. (Ñ)

    4,398      22

Asciano Group (Æ)

    4,161      33

ASX, Ltd.

    4,055      219

Australia & New Zealand Banking Group, Ltd. (Ñ)

    38,582      1,089

Babcock & Brown Infrastructure Group (Ñ)

    5,617      9

Babcock & Brown Power (Ñ)

    4,996      15

Babcock & Brown Wind Partners (Ñ)

    1,941      3

BHP Billiton, Ltd. (Ñ)

    163,787      7,129

Brambles, Ltd.

    217,963      2,903

Caltex Australia, Ltd.

    13,868      279

Centro Properties Group

    16,965      112

CFS Retail Property Trust (Ñ)

    6,632      15

Challenger Financial Services Group, Ltd.

    25,962      155

Coca-Cola Amatil, Ltd.

    46,832      448

Coles Group, Ltd.

    17,925      271

Commonwealth Bank of Australia

    24,078      1,389

CSL, Ltd.

    337,008      11,457

CSR, Ltd. (Ñ)

    39,999      128

David Jones, Ltd. (Ñ)

    19,286      90

DB RREEF Trust

    69,752      137

Fairfax Media, Ltd. (Ñ)

    17,406      77

Foster’s Group, Ltd.

    1,074,533      6,416

Futuris Corp., Ltd.

    27,080      54

Goodman Group (Ñ)

    19,662      128

GPT Group

    38,566      168

Harvey Norman Holdings, Ltd.

    6,114      39

Incitec Pivot, Ltd. (Ñ)

    30,180      2,500

ING Industrial Fund (Ñ)

    3,184      8

Insurance Australia Group, Ltd. (Ñ)

    31,387      138

Leighton Holdings, Ltd. (Ñ)

    6,075      358

Lend Lease Corp., Ltd.

    4,985      93

Macquarie Airports

    402,945      1,655

Macquarie Bank, Ltd. (Ñ)

    28,897      2,288

Macquarie Infrastructure Group (Ñ)

    46,374      138

Macquarie Office Trust

    8,799      13

Minara Resources, Ltd.

    5,159      32

Mirvac Group

    10,625      58

Multiplex Group

    9,117      43
     Principal
Amount ($)
or Shares		      Market
Value
$

National Australia Bank, Ltd. (Ñ)

    487,623      19,732

Orica, Ltd. (Ñ)

    5,150      150

Oxiana, Ltd. (Ñ)

    211,500      841

Pacific Brands, Ltd.

    137,899      450

Qantas Airways, Ltd.

    91,593      507

QBE Insurance Group, Ltd.

    75,667      2,308

Rio Tinto, Ltd. (Ñ)

    25,468      2,645

Santos, Ltd. (Ñ)

    37,445      496

Sons of Gwalia, Ltd. (Æ)(Ñ)(ß)

    22,400      —

Stockland (Ñ)

    19,799      166

Suncorp-Metway, Ltd.

    33,900      644

Symbion Health, Ltd. (Ñ)

    10,210      39

TABCORP Holdings, Ltd. (Ñ)

    1,956      28

Tattersall’s, Ltd. (Ñ)

    17,843      70

Telstra Corp., Ltd. (Ñ)

    2,068,583      9,067

Telstra Corp., Ltd.

    10,535      31

Wesfarmers, Ltd. (Ñ)

    88,586      3,658

Westfield Group (Ñ)

    31,742      649

Westpac Banking Corp.

    27,152      778

Woolworths, Ltd.

    13,984      439

Zinifex, Ltd. (Ñ)

    139,543      2,224
         
        90,407
         

Austria - 0.6%

        

Erste Bank der Oesterreichischen Sparkassen AG (Ñ)

    117,828      9,617

Voestalpine AG

    38,900      3,513
         
        13,130
         

Belgium - 0.7%

        

Belgacom SA

    17,908      858

D’ieteren SA

    131      57

Delhaize Group

    2,268      216

Fortis

    222,300      7,136

Fortis (Ñ)

    153,767      4,934

Fortis (Æ)

    138,452      2

InBev NV (Ñ)

    24,411      2,308

Nationale A Portefeuille

    855      61

Omega Pharma SA

    865      58

Solvay SA

    6,114      932
         
        16,562
         

Bermuda - 1.0%

        

Aquarius Platinum, Ltd.

    36,220      1,391

Benfield Group, Ltd. (Ñ)

    296,587      1,881

Bunge, Ltd.

    23,000      2,649

Catlin Group, Ltd.

    40,037      419

CNPC Hong Kong, Ltd.

    110,000      91

54   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Credicorp, Ltd. (Ñ)

    23,700      1,762

Esprit Holdings, Ltd.

    151,850      2,582

Jardine Matheson Holdings, Ltd. (Ñ)

    90,100      2,758

Jardine Strategic Holdings, Ltd.

    4,000      67

Li & Fung, Ltd.

    354,200      1,677

Noble Group, Ltd.

    46,000      76

Orient Overseas International, Ltd.

    14,900      155

People’s Food Holdings, Ltd.

    16,649      15

SeaDrill, Ltd. (Æ)(Ñ)

    162,800      3,901

Shangri-La Asia, Ltd.

    682,000      2,183

Vostok Gas, Ltd. (Æ)

    1,525      105

VTech Holdings, Ltd.

    9,438      82
         
        21,794
         

Brazil - 1.5%

        

All America Latina Logistica SA

    78,160      1,242

Banco do Brasil SA

    43,800      792

Bovespa Holding SA (Æ)

    168,600      3,166

Cia Vale do Rio Doce - ADR

    164,300      6,191

Gafisa SA

    102,678      1,834

Gerdau SA - ADR (Ñ)

    30,800      958

JHSF Participacoes SA (Æ)

    189,790      899

Petroleo Brasileiro SA - ADR

    63,051      6,030

Redecard SA (Æ)

    172,490      3,588

Unibanco - Uniao de Bancos Brasileiros SA - GDR (Æ)

    52,003      8,219
         
        32,919
         

Canada - 2.3%

        

Agrium, Inc. (Ñ)

    45,600      2,896

Bombardier, Inc. (Æ)

    109,289      648

Canadian Imperial Bank of Commerce (Ñ)

    20,800      2,246

Canadian National Railway Co. (Ñ)

    39,580      2,216

Canadian Natural Resources, Ltd.

    45,600      3,792

EnCana Corp. (Ñ)

    11,700      819

Gammon Gold, Inc. (Æ)(Ñ)

    103,461      1,073

Gerdau Ameristeel Corp.

    56,700      775

Gildan Activewear, Inc. (Æ)

    18,600      852

HudBay Minerals, Inc. (Æ)

    32,300      932

Inmet Mining Corp.

    8,400      898

Methanex Corp. (Ñ)

    37,897      1,157

Potash Corp. of Saskatchewan

    48,702      5,982

Research In Motion, Ltd. (Æ)

    97,903      12,190

Rogers Communications, Inc.
Class B (Ñ)

    170,900      8,709

Suncor Energy, Inc.

    20,600      2,256

Teck Cominco, Ltd. Class B

    16,400      820

Teck Cominco, Ltd. Class B (Ñ)

    36,168      1,811
         
        50,072
         
     Principal
Amount ($)
or Shares		      Market
Value
$

Cayman Islands - 0.5%

        

Alibaba.com, Ltd. (Æ)

    135,377      236

ASM Pacific Technology (Ñ)

    7,500      59

Baidu.com - ADR (Æ)(Ñ)

    5,162      1,974

Kingboard Chemical Holdings, Ltd.

    27,000      179

Melco PBL Entertainment Macau,
Ltd. - ADR (Æ)(Ñ)

    86,602      1,377

Noble Corp. (Ñ)

    36,100      1,911

Shanda Interactive Entertainment,
Ltd. - ADR (Æ)(Ñ)

    36,100      1,421

Shui On Land, Ltd.

    19,500      27

Suntech Power Holdings Co., Ltd. - ADR (Æ)(Ñ)

    41,500      2,444

Tencent Holdings, Ltd.

    10,000      87

Tingyi Cayman Islands Holding Corp.

    12,000      19

Transocean, Inc. (Æ)

    5,200      620
         
        10,354
         

China - 0.5%

        

China Coal Energy Co.

    226,000      769

China Communications Construction Co., Ltd. Class H

    971,300      3,083

China Construction Bank Corp. Class H (Ñ)

    1,886,000      2,143

China Merchants Bank Co., Ltd. (Ñ)

    440,500      2,300

China Petroleum & Chemical Corp. Class H

    1,250,000      1,902
         
        10,197
         

Colombia - 0.1%

        

BanColombia SA - ADR (Ñ)

    37,700      1,385
         

Cyprus - 0.1%

        

Bank of Cyprus Public Co., Ltd.

    91,200      1,788
         

Czech Republic - 0.1%

        

Komercni Banka AS

    5,644      1,298
         

Denmark - 0.6%

        

Carlsberg A/S Class B (Ñ)

    18,125      2,448

FLSmidth & Co. A/S

    36,600      3,991

Novo Nordisk A/S Series B Class B

    19,050      2,373

Rockwool International AS Class B

    180      58

Sydbank A/S

    8,000      371

Vestas Wind Systems A/S (Æ)

    53,900      4,855
         
        14,096
         

International Fund   55

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Egypt - 0.1%

        

Orascom Construction
Industries - GDR

    10,237      1,890
         

Finland - 1.6%

        

Cargotec Corp. Class B

    2,037      126

Fortum OYJ

    23,000      1,000

Kesko OYJ Class B

    17,294      1,038

Metso Oyj

    2,098      129

Nokia OYJ

    505,448      20,058

Orion Oyj Class B

    10,646      274

Outokumpu OYJ

    11,762      441

Outotec OYJ

    69,473      5,344

Rautaruukki OYJ

    5,828      336

Stora Enso OYJ Class R

    50,600      932

UPM-Kymmene OYJ

    169,253      3,800

Wartsila OYJ Class B

    36,300      2,975
         
        36,453
         

France - 11.4%

        

Accor SA (Ñ)

    43,325      4,149

Air France-KLM (Ñ)

    23,070      880

Air Liquide (Ñ)

    27,520      3,800

Alcatel-Lucent - ADR

    273,150      2,647

Alstom (Ñ)

    57,059      13,590

Arkema (Æ)(Ñ)

    18,027      1,230

AXA SA (Ñ)

    110,317      4,953

BNP Paribas (Ñ)

    121,715      13,482

Bouygues (Ñ)

    670      65

Carrefour SA (Ñ)

    107,708      7,775

Casino Guichard Perrachon SA (Ñ)

    6,796      761

Christian Dior SA (Ñ)

    4,470      610

Cie de Saint-Gobain (Ñ)

    60,239      6,508

Cie Generale d’Optique Essilor International SA (Ñ)

    30,646      1,961

Cie Generale de Geophysique-Veritas (Æ)(Ñ)

    14,689      4,819

Ciments Francais SA

    489      92

CNP Assurances (Ñ)

    10,957      1,400

Compagnie Generale des Etablissements Michelin
Class B (Ñ)

    16,200      2,180

Credit Agricole SA (Ñ)

    312,383      12,393

Electricite de France (Ñ)

    38,737      4,659

France Telecom SA (Ñ)

    303,594      11,229

Gaz de France SA (Ñ)

    42,420      2,416

JC Decaux SA (Ñ)

    85,250      3,145

L’Oreal SA (Ñ)

    23,735      3,124
     Principal
Amount ($)
or Shares		      Market
Value
$

Lafarge SA (Ñ)

    1,082      177

Lagardere SCA (Ñ)

    26,200      2,220

Legrand SA (Ñ)

    74,460      2,757

LVMH Moet Hennessy Louis Vuitton SA (Ñ)

    58,314      7,530

Neopost SA

    8,995      1,045

Nexans SA

    439      75

NicOx SA (Æ)(Ñ)

    18,262      436

Pernod-Ricard SA (Ñ)

    19,856      4,595

Peugeot SA

    5,287      492

PPR

    19,257      3,827

Publicis Groupe

    24,367      993

Renault SA (Ñ)

    89,214      15,048

Rhodia SA (Æ)

    15,014      585

Sanofi-Aventis (Ñ)

    130,561      11,487

Schneider Electric SA (Ñ)

    45,577      6,297

SEB SA

    783      150

Societe BIC SA

    1,197      93

Societe Generale (Ñ)

    94,716      15,967

Societe Television Francaise 1 (Ñ)

    39,588      1,099

Sodexho Alliance SA (Ñ)

    721      52

Suez SA (Æ)(Ñ)

    84,090      5,487

Suez SA (Æ)

    27,332      —

Thales SA (Ñ)

    31,503      1,968

Thomson (Æ)

    31,492      551

Total SA (Ñ)

    378,996      30,587

Total SA - ADR

    25,100      2,023

UBISOFT Entertainment (Æ)

    6,005      494

Unibail-Rodamco (Ñ)

    2,191      547

Valeo SA

    23,380      1,284

Vallourec (Ñ)

    6,948      2,031

Veolia Environnement (Ñ)

    163,967      14,674

Vivendi (Ñ)

    198,925      8,981
         
        251,420
         

Germany - 7.5%

        

Allianz SE (Ñ)

    43,548      9,824

Altana AG

    29,189      709

Arcandor AG (Æ)(Ñ)

    206,606      6,648

Arques Industries AG

    8,001      344

BASF AG

    35,105      4,860

Bayer AG (Ñ)

    139,341      11,667

Bayerische Motoren Werke AG (Ñ)

    36,140      2,425

Continental AG (Ñ)

    54,873      8,313

Daimler AG

    168,854      18,658

Deutsche Bank AG (Ñ)

    38,172      5,114

Deutsche Boerse AG

    12,080      1,917

Deutsche Lufthansa AG

    112,300      3,322

56   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Deutsche Telekom AG (Ñ)

    550,331      11,300

Deutz AG (Æ)

    12,695      175

E.ON AG (Ñ)

    90,696      17,733

Epcos AG

    31,473      638

Freenet AG

    9,001      224

GEA Group AG (Æ)

    78,759      2,978

Hochtief AG

    5,343      743

Kloeckner & Co. AG

    5,054      271

KUKA AG (Æ)(Ñ)

    6,272      255

Lanxess AG

    23,121      1,160

Linde AG

    36,140      4,575

Merck KGaA

    19,800      2,484

Metro AG (Ñ)

    47,854      4,344

MTU Aero Engines Holding AG

    32,766      2,009

Muenchener Rueckversicherungs AG (Ñ)

    23,408      4,503

Norddeutsche Affinerie AG (Ñ)

    4,441      186

RWE AG (Ñ)

    123,842      16,939

Salzgitter AG (Ñ)

    20,643      4,080

SGL Carbon AG (Æ)(Ñ)

    26,900      1,580

Siemens AG

    28,177      3,839

Solarworld AG (Ñ)

    26,598      1,817

Stada Arzneimittel AG

    22,043      1,405

ThyssenKrupp AG

    2,694      180

Tognum AG (Æ)

    40,100      1,452

United Internet AG

    72,678      1,601

Volkswagen AG (Ñ)

    12,332      3,542

Vossloh AG

    2,206      261

Wacker Chemie AG (Ñ)

    10,160      2,513
         
        166,588
         

Greece - 0.3%

        

National Bank of Greece SA

    94,299      6,585
         

Hong Kong - 1.8%

        

Bank of East Asia, Ltd.

    15,400      104

BOC Hong Kong Holdings, Ltd.

    93,000      266

Cathay Pacific Airways, Ltd. (Ñ)

    25,000      75

Cheung Kong Holdings, Ltd.

    113,900      2,238

China Merchants Holdings International Co., Ltd.

    351,800      2,494

China Mobile, Ltd.

    634,000      13,234

China Netcom Group Corp. Hong Kong, Ltd. (Ñ)

    244,000      754

China Resources Enterprise

    318,900      1,403

China Unicom, Ltd.

    4,000      10

CITIC International Financial Holdings, Ltd. (Æ)

    30,000      26

CLP Holdings, Ltd.

    19,500      132
     Principal
Amount ($)
or Shares		      Market
Value
$

CNOOC, Ltd.

    1,427,450      3,103

Hang Lung Group, Ltd.

    23,000      136

Hang Seng Bank, Ltd.

    9,900      205

Henderson Land Development Co., Ltd. (Ñ)

    18,000      161

Hong Kong Exchanges and Clearing, Ltd.

    18,000      601

HongKong Electric Holdings

    748,500      3,854

Hopewell Holdings

    25,000      129

Hutchison Whampoa, Ltd.

    23,000      290

Hysan Development Co., Ltd.

    5,000      15

Industrial and Commercial Bank of China Asia, Ltd.

    4,000      11

Link REIT (The) (ö)

    32,500      74

Minmetals Resources, Ltd.

    100,000      88

New World Development, Ltd. (Ñ)

    735,000      2,636

Sino Land Co.

    22,000      69

Sun Hung Kai Properties, Ltd.

    112,000      2,141

Swire Pacific, Ltd.

    25,500      365

Techtronic Industries Co. (Ñ)

    17,000      18

Television Broadcasts, Ltd.

    22,000      143

Wharf Holdings, Ltd. (Ñ)

    773,537      4,683

Wheelock & Co., Ltd.

    70,000      227
         
        39,685
         

India - 0.2%

        

ICICI Bank, Ltd. - ADR

    59,804      4,153

Satyam Computer Services, Ltd. - ADR (Ñ)

    40,100      1,217
         
        5,370
         

Indonesia - 0.3%

        

Bank Central Asia Tbk PT

    994,500      806

Bank Mandiri Persero Tbk PT

    5,027,500      2,112

Bumi Resources Tbk PT

    3,872,000      2,073

Telekomunikasi Indonesia Tbk PT

    975,500      1,177
         
        6,168
         

Ireland - 0.1%

        

Elan Corp. PLC - ADR (Æ)

    49,200      1,171

Ryanair Holdings PLC - ADR (Æ)(Ñ)

    44,526      2,190
         
        3,361
         

Israel - 0.2%

        

Check Point Software
Technologies (Æ)

    114,600      2,895

Teva Pharmaceutical Industries, Ltd. - ADR

    41,500      1,826
         
        4,721
         

International Fund   57

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Italy - 3.4%

        

AEM SpA (Ñ)

    13,980      59

Alleanza Assicurazioni SpA

    207,814      2,818

Ansaldo STS SpA (Æ)

    149,123      2,176

Arnoldo Mondadori Editore SpA (Ñ)

    234,654      2,324

Assicurazioni Generali SpA

    28,023      1,334

Banca Popolare di Milano Scarl

    15,179      239

Benetton Group SpA

    8,300      154

Buzzi Unicem SpA (Ñ)

    77,098      2,187

ENI SpA (Ñ)

    404,318      14,775

Esprinet SpA (Ñ)

    5,293      91

Fiat SpA

    143,057      4,636

Finmeccanica SpA

    29,664      885

Fondiaria-Sai SpA

    63,536      3,091

Indesit Co. SpA (Ñ)

    17,506      312

Intesa Sanpaolo SpA

    1,325,513      10,510

Italcementi SpA (Ñ)

    33,558      772

Luxottica Group SpA (Ñ)

    25,572      898

Mediaset SpA

    412,247      4,275

Milano Assicurazioni SPA (Ñ)

    84,307      704

Parmalat Finanziaria SpA (Ñ)(ß)

    46,200      —

Prysmian SpA (Æ)

    7,555      218

Saipem SpA

    62,232      2,755

Telecom Italia SpA (Ñ)

    2,016,837      5,223

UniCredito Italiano SpA

    1,700,462      14,597

Unione di Banche Italiane SCPA

    2,967      83
         
        75,116
         

Japan - 15.1%

        

77 Bank, Ltd. (The)

    17,000      115

Aeon Credit Service Co., Ltd. (Ñ)

    79,900      1,228

Alfresa Holdings Corp.

    1,900      110

Alpine Electronics, Inc. (Ñ)

    6,200      100

Amada Co., Ltd.

    15,000      152

AOC Holdings, Inc.

    1,600      24

Asahi Breweries, Ltd.

    30,000      496

Asahi Glass Co., Ltd. (Ñ)

    173,000      2,378

Asahi Kasei Corp.

    58,000      441

Astellas Pharma, Inc.

    108,500      4,795

Bank of Nagoya, Ltd. (The)

    2,000      15

Bank of Yokohama, Ltd. (The)

    48,000      339

Bosch Corp.

    64,000      335

Bridgestone Corp.

    79,500      1,758

Brother Industries, Ltd. (Ñ)

    24,200      324

Canon Electronics, Inc.

    900      23

Canon Marketing Japan, Inc.

    6,500      128

Canon, Inc.

    349,950      17,682

Capcom Co., Ltd. (Ñ)

    4,500      129
     Principal
Amount ($)
or Shares		      Market
Value
$

Chuo Mitsui Trust Holdings, Inc.

    274,000      2,188

COMSYS Holdings Corp.

    10,000      98

Credit Saison Co., Ltd.

    22,900      726

Daihatsu Motor Co., Ltd.

    11,000      117

Daiichi Sankyo Co., Ltd.

    14,400      410

Daikin Industries, Ltd.

    40,800      2,049

Dainippon Sumitomo Pharma Co., Ltd. (Ñ)

    8,000      74

Daishi Bank, Ltd. (The)

    16,000      70

Daiwa House Industry Co., Ltd.

    151,950      2,164

Daiwa Securities Group, Inc. (Ñ)

    149,910      1,444

Denki Kagaku Kogyo Kabushiki Kaisha

    53,000      311

Denso Corp.

    8,200      331

EDION Corp. (Ñ)

    63,700      730

Eisai Co., Ltd.

    4,500      189

Elpida Memory, Inc. (Æ)(Ñ)

    900      31

Fanuc, Ltd.

    46,100      5,046

Fuji Fire & Marine Insurance Co., Ltd. (The)

    47,000      169

Fuji Heavy Industries, Ltd. (Ñ)

    49,000      254

Fuji Television Network, Inc.

    1,230      2,480

FUJIFILM Holdings Corp.

    11,600      554

Fujitsu, Ltd.

    442,000      3,484

Futaba Industrial Co., Ltd.

    1,000      28

H2O Retailing Corp. (Ñ)

    5,000      42

Hachijuni Bank, Ltd. (The)

    23,000      176

Hakuhodo DY Holdings, Inc. (Ñ)

    600      43

Higo Bank, Ltd. (The)

    5,000      35

Hino Motors, Ltd. (Ñ)

    20,000      145

Hirose Electric Co., Ltd. (Ñ)

    10,000      1,196

Hitachi, Ltd. (Ñ)

    49,000      332

Hokkaido Electric Power Co., Inc.

    4,600      99

Honda Motor Co., Ltd.

    61,400      2,301

Hosiden Corp. (Ñ)

    86,800      1,522

Hyakugo Bank, Ltd. (The)

    13,000      78

Hyakujushi Bank, Ltd. (The)

    9,000      45

Ibiden Co., Ltd.

    67,700      5,753

Idemitsu Kosan Co., Ltd. (Ñ)

    1,400      162

Inpex Holdings, Inc.

    235      2,546

Isuzu Motors, Ltd.

    364,000      1,798

Itochu Corp.

    67,000      853

Iyo Bank, Ltd. (The) (Ñ)

    9,000      88

Izumi Co., Ltd. (Ñ)

    6,300      94

Japan Steel Works, Ltd. (The) (Ñ)

    76,500      1,255

Japan Tobacco, Inc.

    1,395      8,119

JFE Holdings, Inc.

    79,900      4,667

JFE Shoji Holdings, Inc.

    29,000      222

JGC Corp. (Ñ)

    24,000      481

58   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Joyo Bank, Ltd. (The) (Ñ)

    580,930      3,591

Juki Corp.

    21,000      177

Juroku Bank, Ltd. (The) (Ñ)

    7,000      42

Kagoshima Bank, Ltd. (The)

    16,000      111

Kandenko Co., Ltd. (Ñ)

    3,000      19

Kansai Electric Power Co., Inc. (The)

    39,400      887

Kao Corp.

    583,000      16,723

Kawasaki Kisen Kaisha, Ltd. (Ñ)

    37,000      513

KDDI Corp.

    528      3,997

Keiyo Bank, Ltd. (The)

    37,000      191

Kintetsu World Express, Inc.

    3,400      122

Kobe Steel, Ltd.

    113,000      406

Komatsu, Ltd.

    120,600      4,040

Komori Corp.

    5,000      133

Kose Corp. (Ñ)

    129,710      3,323

Kubota Corp.

    43,000      362

Kyocera Corp.

    2,800      237

Kyowa Hakko Kogyo Co., Ltd. (Ñ)

    6,000      66

Kyushu Electric Power Co., Inc.

    60,300      1,468

Leopalace21 Corp.

    4,700      151

Makino Milling Machine Co., Ltd. (Ñ)

    14,000      147

Makita Corp.

    8,100      392

Marubeni Corp.

    366,000      3,133

Matsushita Electric Industrial Co., Ltd.

    53,000      1,013

Matsushita Electric Works, Ltd.

    47,000      519

Mazda Motor Corp. (Ñ)

    84,000      504

Meiji Dairies Corp. (Ñ)

    28,000      148

MID Reit, Inc. Class A (ö)

    218      957

Millea Holdings, Inc.

    148,500      5,849

Mitsubishi Chemical Holdings Corp. (Ñ)

    105,500      870

Mitsubishi Corp.

    210,400      6,541

Mitsubishi Electric Corp.

    45,000      546

Mitsubishi Estate Co., Ltd.

    24,000      717

Mitsubishi Heavy Industries, Ltd. (Ñ)

    37,000      216

Mitsubishi Materials Corp.

    15,000      88

Mitsubishi UFJ Financial Group, Inc.

    572,600      5,704

Mitsui & Co., Ltd.

    137,000      3,562

Mitsui Chemicals, Inc.

    285,000      2,668

Mitsui Engineering & Shipbuilding Co., Ltd. (Ñ)

    296,700      1,739

Mitsui Fudosan Co., Ltd.

    18,000      497

Mitsui OSK Lines, Ltd.

    506,000      8,353

Mitsui-Soko Co., Ltd. (Ñ)

    255,750      1,230

Mitsumi Electric Co., Ltd.

    64,500      2,994

Mizuho Financial Group, Inc.

    85      478

Mori Seiki Co., Ltd. (Ñ)

    2,800      70

Musashino Bank, Ltd. (The)

    1,600      76

Namco Bandai Holdings, Inc. (Ñ)

    76,800      1,179
     Principal
Amount ($)
or Shares		      Market
Value
$

New City Residence Investment Corp. Class A (ö)

    209      976

Nichirei Corp.

    76,000      325

Nikon Corp. (Ñ)

    74,500      2,377

Nintendo Co., Ltd.

    32,900      20,732

Nippon Commercial Investment Corp. (ö)

    417      1,805

Nippon Electric Glass Co., Ltd.

    84,200      1,427

Nippon Express Co., Ltd.

    44,000      220

Nippon Kayaku Co., Ltd.

    18,000      145

Nippon Mining Holdings, Inc.

    216,500      2,039

Nippon Oil Corp.

    78,000      692

Nippon Residential Investment Corp. Class A (ö)

    258      1,297

Nippon Seiki Co., Ltd.

    2,000      46

Nippon Steel Corp. (Ñ)

    119,000      789

Nippon Telegraph & Telephone Corp.

    850      3,895

Nippon Yusen KK (Ñ)

    250,000      2,579

Nipponkoa Insurance Co., Ltd. (Ñ)

    534,000      4,886

Nishi-Nippon City Bank, Ltd. (The)

    31,000      92

Nissan Motor Co., Ltd.

    362,400      4,176

Nisshin Seifun Group, Inc.

    3,000      27

Nisshin Steel Co., Ltd. (Ñ)

    30,000      115

Nisshinbo Industries, Inc. (Ñ)

    10,000      136

Nissin Kogyo Co., Ltd.

    4,000      103

Nitto Denko Corp. (Ñ)

    64,500      3,146

Nomura Holdings, Inc.

    644,560      11,484

Noritsu Koki Co., Ltd. (Ñ)

    1,200      25

NTN Corp. (Ñ)

    40,000      380

NTT DoCoMo, Inc.

    314      455

Oki Electric Industry Co., Ltd. (Æ)(Ñ)

    383,000      651

Okinawa Electric Power Co., Inc. (The)

    900      47

Omron Corp.

    65,400      1,601

ORIX Corp.

    14,380      2,926

Pacific Metals Co., Ltd. (Ñ)

    18,000      231

QP Corp.

    5,100      50

Resona Holdings, Inc. (Ñ)

    127      225

Ricoh Co., Ltd.

    164,000      3,233

San-In Godo Bank, Ltd. (The)

    16,000      144

Santen Pharmaceutical Co., Ltd.

    4,800      113

Sanwa Holdings Corp. (Ñ)

    7,000      37

Sapporo Hokuyo Holdings, Inc.

    21      216

Sasebo Heavy Industries Co., Ltd. (Ñ)

    4,000      30

Seiko Epson Corp. (Ñ)

    1,700      40

Seino Holdings Corp.

    6,000      51

Sekisui House, Ltd.

    16,000      205

Seven & I Holdings Co., Ltd.

    167,060      4,301

Sharp Corp. (Ñ)

    148,000      2,330

Shiga Bank, Ltd. (The)

    11,000      78

International Fund   59

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Shin-Etsu Chemical Co., Ltd.

    22,500      1,441

Shinwa Kaiun Kaisha, Ltd.

    18,000      185

Shizuoka Bank, Ltd. (The) (Ñ)

    137,000      1,433

Showa Denko KK

    30,000      117

Showa Shell Sekiyu KK (Ñ)

    39,854      471

SMC Corp.

    7,829      1,049

Sohgo Security Services Co., Ltd.

    12,800      214

Sony Corp. (Ñ)

    14,000      692

Star Micronics Co., Ltd.

    1,800      57

Sugi Pharmacy Co., Ltd.

    95,010      2,743

Sumco Corp. (Ñ)

    103,900      3,780

Sumco Techxiv Corp.

    1,000      54

Sumitomo Bakelite Co., Ltd. (Ñ)

    356,620      2,179

Sumitomo Corp.

    19,700      343

Sumitomo Heavy Industries, Ltd.

    127,900      1,691

Sumitomo Metal Industries, Ltd.

    75,000      370

Sumitomo Metal Mining Co., Ltd.

    3,000      67

Sumitomo Mitsui Financial Group, Inc. (Ñ)

    467      3,811

Sumitomo Realty & Development Co., Ltd.

    7,000      246

Sumitomo Trust & Banking Co.,
Ltd. (The)

    679,320      5,045

Suzuken Co., Ltd.

    4,700      152

Suzuki Motor Corp. (Ñ)

    79,580      2,600

Taiheiyo Cement Corp. (Ñ)

    205,000      643

Takeda Pharmaceutical Co., Ltd.

    143,950      8,985

TDK Corp.

    3,800      312

Terumo Corp.

    21,100      1,028

Tobu Railway Co., Ltd. (Ñ)

    16,000      75

Toho Co., Ltd./Tokyo (Ñ)

    6,900      138

Toho Pharmaceutical Co., Ltd.

    4,286      75

Tokai Rubber Industries, Inc.

    12,700      250

Tokuyama Corp. (Ñ)

    61,000      856

Tokyo Electric Power Co., Inc. (The)

    145,000      3,679

Tokyo Gas Co., Ltd.

    290,000      1,296

Tokyo Star Bank, Ltd. (The)

    14      41

Tokyu Corp.

    21,000      136

Tokyu Land Corp.

    173,000      1,782

TonenGeneral Sekiyu KK (Ñ)

    21,000      212

Toshiba Corp. (Ñ)

    416,000      3,508

Toshiba TEC Corp.

    11,000      70

Toyo Engineering Corp. (Ñ)

    10,000      61

Toyo Ink Manufacturing Co., Ltd.

    8,000      27

Toyo Seikan Kaisha, Ltd. (Ñ)

    4,000      72

Toyo Suisan Kaisha, Ltd.

    15,000      260

Toyota Auto Body Co., Ltd.

    6,200      100

Toyota Boshoku Corp.

    5,100      167

Toyota Motor Corp.

    384,800      21,983
     Principal
Amount ($)
or Shares		      Market
Value
$

United Urban Investment Corp. (ö)

    150      1,093

West Japan Railway Co.

    608      3,039

Yahoo! Japan Corp. (Ñ)

    2,237      992

Yamada Denki Co., Ltd. (Ñ)

    29,310      3,017

Yamaha Corp.

    5,000      116

Yamaha Motor Co., Ltd.

    3,300      94

Yamato Holdings Co., Ltd.

    6,000      88

Yamato Kogyo Co., Ltd.

    6,500      302

Yokohama Rubber Co., Ltd. (The)

    8,000      60
         
        336,495
         

Luxembourg - 0.7%

        

ArcelorMittal

    33,238      2,690

ArcelorMittal (Ñ)

    53,902      4,361

Evraz Group SA - GDR

    27,822      2,101

Millicom International Cellular SA (Æ)(Ñ)

    51,900      6,097

SES

    23,913      591
         
        15,840
         

Mexico - 0.6%

        

America Movil SAB de CV Series L

    161,142      10,537

Grupo Televisa SA - ADR

    152,187      3,782
         
        14,319
         

Netherlands - 3.6%

        

Akzo Nobel NV

    2,447      197

ASM International NV (Ñ)

    6,641      188

ASML Holding NV (Æ)

    151,738      5,310

Boskalis Westminster

    42,800      2,610

Corporate Express (Ñ)

    251,257      2,800

CSM

    4,402      154

Fugro NV

    20,100      1,767

Heineken Holding NV

    5,613      333

Heineken NV

    255,837      17,940

ING Groep NV

    474,211      21,403

Koninklijke Ahold NV (Æ)

    61,776      930

Koninklijke Philips Electronics NV

    107,149      4,437

OCE NV

    36,440      734

Reed Elsevier NV

    267,224      5,187

Rodamco Europe NV (Ñ)

    1,978      281

Royal KPN NV

    91,302      1,726

Royal Numico NV

    1,993      158

SBM Offshore NV

    26,491      1,022

TNT NV

    98,500      4,050

TomTom NV (Æ)

    3,919      314

Unilever NV (Ñ)

    179,920      5,860

Wolters Kluwer NV

    44,700      1,406
         
        78,807
         

60   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Netherlands Antilles - 0.3%

        

Hunter Douglas NV

    4,847      454

Schlumberger, Ltd.

    63,470      6,129
         
        6,583
         

New Zealand - 0.1%

        

Telecom Corp. of New Zealand, Ltd. (Ñ)

    742,068      2,494
         

Norway - 0.5%

        

Aker Kvaerner ASA

    75,200      2,637

Renewable Energy Corp. AS (Æ)(Ñ)

    27,300      1,401

StatoilHydro ASA

    66,358      2,247

Yara International ASA

    102,000      3,971
         
        10,256
         

Portugal - 0.1%

        

Energias de Portugal SA

    330,575      2,131
         

Russia - 0.3%

        

Gazprom OAO - ADR

    57,500      2,873

LUKOIL - ADR

    7,450      681

Mobile Telesystems OJSC - ADR

    37,600      3,121
         
        6,675
         

Singapore - 0.7%

        

Allgreen Properties, Ltd.

    94,000      104

Ascendas Real Estate Investment Trust (Æ)(ö)

    9,000      16

CapitaCommercial Trust (Æ)(ö)

    6,000      11

CapitaLand, Ltd. (Ñ)

    684,000      3,851

CapitaMall Trust (ö)

    11,000      28

China Aviation Oil Singapore Corp., Ltd. (Ñ)

    16,000      31

Cosco Corp. Singapore, Ltd. (Ñ)

    8,000      44

Creative Technology, Ltd.

    6,800      29

DBS Group Holdings, Ltd.

    100,700      1,573

Flextronics International, Ltd. (Æ)(Ñ)

    97,000      1,194

Jardine Cycle & Carriage, Ltd.

    10,000      147

Keppel Corp., Ltd.

    21,000      217

NatSteel, Ltd.

    44,400      50

Neptune Orient Lines, Ltd. (Ñ)

    42,000      152

Oversea-Chinese Banking Corp.

    480,800      3,090

Pacific Century Regional Developments, Ltd. (Æ)

    127,000      32

SembCorp Industries, Ltd.

    13,580      56

Singapore Airlines, Ltd.

    19,600      268
     Principal
Amount ($)
or Shares		      Market
Value
$

Singapore Telecommunications, Ltd.

    1,149,500      3,265

STATS ChipPAC, Ltd. (Æ)(Ñ)

    15,851      18

Suntec Real Estate Investment Trust (Æ)(ö)(Ñ)

    5,000      6

United Overseas Bank, Ltd.

    21,000      315

Wing Tai Holdings, Ltd. (Ñ)

    67,000      163
         
        14,660
         

South Africa - 0.5%

        

Impala Platinum Holdings, Ltd.

    32,564      1,230

MTN Group, Ltd.

    438,964      8,568

Sanlam, Ltd.

    209,900      770

Standard Bank Group, Ltd.

    19,000      345
         
        10,913
         

South Korea - 0.9%

        

Daelim Industrial Co.

    9,882      2,178

Hynix Semiconductor, Inc. (Æ)

    15,400      435

Hyundai Engineering & Construction Co., Ltd. (Æ)

    15,900      1,630

Hyundai Heavy Industries

    1,870      1,059

Hyundai Mobis

    7,500      762

Industrial Bank of Korea (Ñ)

    34,000      700

Kookmin Bank

    5,500      454

Kookmin Bank - ADR

    31,380      2,563

LG Electronics, Inc.

    15,309      1,610

POSCO

    1,600      1,168

Samsung Electronics Co., Ltd.

    10,659      6,618

Samsung Heavy Industries Co., Ltd.

    5,430      330

Shinhan Financial Group Co., Ltd.

    9,200      600
         
        20,107
         

Spain - 2.6%

        

Altadis SA

    5,161      368

Avanzit SA (Æ)(Ñ)

    25,525      214

Banco Bilbao Vizcaya Argentaria SA (Ñ)

    107,335      2,716

Banco Santander SA (Ñ)

    433,534      9,476

Gamesa Corp. Tecnologica SA (Ñ)

    82,379      4,210

Gas Natural SDG SA (Ñ)

    14,050      867

Gestevision Telecinco SA (Ñ)

    30,363      877

Grifols SA

    11,274      299

Iberdrola SA

    631,684      10,179

Iberia Lineas Aereas de Espana

    170,706      868

Mapfre SA (Ñ)

    11,179      52

Repsol YPF SA (Ñ)

    125,861      4,995

Tecnicas Reunidas SA

    19,386      1,640

Telefonica SA (Ñ)

    627,378      20,773
         
        57,534
         

International Fund   61

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Sweden - 1.0%

        

Alfa Laval AB

    21,900      1,752

Boliden AB (Æ)

    17,250      306

D Carnegie & Co. AB (Ñ)

    14,700      325

Electrolux AB

    107,200      2,075

Industrivarden AB Class A

    3,600      78

JM AB

    21,200      472

Kungsleden AB

    14,300      205

Lindex AB

    3,600      65

Nordea Bank AB

    170,230      3,055

Peab AB

    10,600      96

Peab Industri AB Class B (Æ)

    5,300      45

SAS AB (Æ)

    10,300      180

Scania AB Class B (Æ)

    53,100      1,453

Ssab Svenskt Stal AB Series A

    45,400      1,476

Saab Svenskt Stal AB Series B (Ñ)

    5,800      171

Svenska Cellulosa AB Class B

    92,100      1,628

Tele2 AB Class B

    139,100      3,289

Telefonaktiebolaget LM Ericsson Class B

    1,614,810      4,851

TeliaSonera AB

    70,000      691

Volvo AB Class A (Æ)

    14,700      288

Volvo AB Class B (Æ)

    35,950      710
         
        23,211
         

Switzerland - 6.7%

        

ABB, Ltd.

    230,127      6,958

Actelion, Ltd. (Æ)(Ñ)

    106,385      5,285

Baloise Holding AG

    2,466      263

Barry Callebaut AG (Æ)

    207      166

Ciba Specialty Chemicals AG

    6,060      302

Clariant AG (Æ)

    15,976      205

Compagnie Financiere Richemont SA Class A

    56,830      4,065

Credit Suisse Group (Æ)

    93,688      6,325

Geberit AG

    1,748      235

Givaudan SA

    3,820      3,763

Helvetia Holding AG

    343      125

Holcim, Ltd.

    61,986      7,091

Julius Baer Holding AG

    205,166      17,859

Kudelski SA (Ñ)

    7,601      215

Kuehne & Nagel International AG

    9,600      1,029

Kuoni Reisen Holding AG

    412      206

Logitech International SA (Æ)

    121,338      4,217

Lonza Group AG

    32,121      3,752

Nestle SA

    67,346      31,131

Novartis AG

    196,565      10,472

Rieter Holding AG

    238      139
     Principal
Amount ($)
or Shares		      Market
Value
$

Roche Holding AG

    110,631      18,911

Sika AG

    70      139

Sonova Holding AG

    38,258      4,309

Sulzer AG

    186      300

Swatch Group AG

    40,047      2,515

Swatch Group AG Class B

    11,154      3,576

Swiss Reinsurance

    50,775      4,781

Swisscom AG

    1,875      695

Syngenta AG (Æ)

    6,614      1,597

UBS AG

    134,125      7,199

Zurich Financial Services AG

    1,620      489
         
        148,314
         

Taiwan - 0.5%

        

AU Optronics Corp.

    376,346      814

High Tech Computer Corp.

    97,000      2,014

HON HAI Precision Industry Co., Ltd.

    451,720      3,471

Siliconware Precision Industries Co.

    529,239      1,143

Taiwan Semiconductor Manufacturing Co., Ltd.

    370,844      740

Taiwan Semiconductor Manufacturing Co., Ltd. - ADR

    155,760      1,659

United Microelectronics Corp. (Æ)

    757,819      503
         
        10,344
         

Thailand - 0.1%

        

Bangkok Bank PCL

    386,110      1,458

PTT PCL

    48,200      595
         
        2,053
         

Turkey - 0.3%

        

Turkcell Iletisim Hizmet AS - ADR

    168,200      4,043

Turkiye Garanti Bankasi AS

    372,500      3,450
         
        7,493
         

United Kingdom - 17.7%

        

3i Group PLC (Æ)

    656      15

Amec PLC

    27,442      480

Anglo American PLC

    20,511      1,416

Antofagasta PLC

    31,961      559

ARM Holdings PLC

    797,201      2,471

AstraZeneca PLC

    108,788      5,373

Atkins WS PLC

    9,998      253

Autonomy Corp. PLC (Æ)

    87,800      1,804

Aviva PLC

    351,397      5,541

BAE Systems PLC

    1,151,145      11,960

Barclays PLC

    334,194      4,241

BG Group PLC

    404,719      7,492

62   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

BHP Billiton PLC

    196,485      7,496

Bovis Homes Group PLC

    2,592      36

BP PLC

    1,099,898      14,302

BP PLC - ADR (Ñ)

    51,150      3,989

Brit Insurance Holdings PLC

    72,028      488

British Airways PLC (Æ)

    89,620      834

British American Tobacco PLC

    23,492      895

British Energy Group PLC

    42,443      473

British Land Co. PLC (ö)

    11,148      252

British Sky Broadcasting Group PLC

    395,548      5,606

BT Group PLC

    556,147      3,782

Burberry Group PLC

    282,954      3,630

Cadbury Schweppes PLC

    343,851      4,562

Carnival PLC

    8,297      389

Carphone Warehouse Group PLC

    485,631      3,550

Charter PLC (Æ)

    74,843      1,693

Compass Group PLC

    347,140      2,506

Davis Service Group PLC

    42,978      490

Diageo PLC

    684,898      15,702

Experian Group, Ltd.

    3,955      42

FKI PLC

    15,710      30

Friends Provident PLC

    22,593      87

Galiform PLC (Æ)

    1,909      5

GKN PLC

    384,348      2,941

GlaxoSmithKline PLC

    1,119,054      28,863

Hammerson PLC (ö)

    1,226      28

HBOS PLC

    682,717      12,446

Home Retail Group PLC

    409,591      3,729

HSBC Holdings PLC

    227,254      4,502

Imperial Chemical Industries PLC

    18,535      254

Inchcape PLC

    5,995      59

International Power PLC

    501,915      5,122

Invensys PLC (Æ)

    8,271      56

Invesco PLC

    434,032      6,680

ITV PLC

    593,308      1,225

J Sainsbury PLC

    130,267      1,482

John Wood Group PLC

    209,200      1,818

Johnson Matthey PLC

    29,993      1,119

Kazakhmys PLC

    4,800      147

Kesa Electricals PLC

    146,025      967

Kingfisher PLC

    1,252,457      5,152

Ladbrokes PLC

    268,019      2,303

Land Securities Group PLC (ö)

    10,967      376

Legal & General Group PLC

    347,501      1,016

Lloyds TSB Group PLC

    742,820      8,452
     Principal
Amount ($)
or Shares		      Market
Value
$

Man Group PLC

    872,657      10,732

Marks & Spencer Group PLC

    2,429      33

Marston’s PLC

    142,400      1,021

Mitchells & Butlers PLC

    62,700      869

National Express Group PLC

    13,936      385

National Grid PLC

    55,499      927

Next PLC

    9,450      436

Pearson PLC

    44,551      741

Premier Farnell PLC

    7,224      24

Reckitt Benckiser PLC

    253,761      14,746

Reed Elsevier PLC

    13,165      173

Regus Group PLC

    41,137      94

Resolution PLC

    14,400      219

Reuters Group PLC

    20,157      277

Rio Tinto PLC

    101,733      9,524

Rolls-Royce Group PLC (Æ)

    20,485      230

Rolls-Royce Group PLC Class B (Æ)

    827,594      2

Royal & Sun Alliance Insurance Group

    513,760      1,692

Royal Bank of Scotland Group PLC

    1,769,214      19,089

Royal Dutch Shell PLC Class A (Ñ)

    465,549      20,377

Royal Dutch Shell PLC Class B

    51,058      2,226

SABMiller PLC

    35,514      1,070

Schroders PLC

    139,835      4,491

Scottish & Newcastle PLC

    9,753      159

Scottish & Southern Energy PLC

    70,377      2,282

Shire PLC

    1,604      40

Signet Group PLC

    25,848      49

Smiths Group PLC

    156,502      3,691

Stagecoach Group PLC

    193,930      1,099

Standard Chartered PLC

    244,654      9,536

Taylor Wimpey PLC

    256,659      1,328

Tesco PLC

    1,818,663      18,501

Tomkins PLC

    53,057      246

Trinity Mirror PLC

    162,352      1,360

Tullett Prebon PLC

    38,373      354

Unilever PLC

    317,512      10,757

Vodafone Group PLC

    4,532,341      17,877

Vodafone Group PLC - ADR

    201,240      7,903

Weir Group PLC (The)

    10,934      202

William Hill PLC

    350,024      4,521

WM Morrison Supermarkets PLC

    52,434      323

WPP Group PLC

    977,141      13,379

Xstrata PLC

    103,056      7,400
         
        391,566
         

International Fund   63

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

 

     Principal
Amount ($)
or Shares		      Market
Value
$
       

United States - 0.3%

        

Las Vegas Sands Corp. (Æ)(Ñ)

    20,003      2,662

Mettler Toledo International, Inc. (Æ)(Ñ)

    20,600      2,191

Synthes, Inc.

    20,571      2,572
         
        7,425
         
Total Common Stocks        

(cost $1,509,956)

         2,028,579
         
Preferred Stocks - 0.7%        

Australia - 0.0%

        

BBI EPS, Ltd. (Æ)(Ñ)

    11,944      10
         

Brazil - 0.4%

        

Banco Itau Holding Financeira SA

    145,400      4,150

Petroleo Brasileiro SA

    29,000      1,207

Usinas Siderurgicas de Minas Gerais SA

    27,500      2,161
         
        7,518
         

Germany - 0.3%

        

Henkel KGaA

    78,479      4,018

Porsche AG

    579      1,545

Volkswagen AG

    2,357      448
         
        6,011
         

Italy - 0.0%

        

Unipol Gruppo Finanziario SpA

    82,879      297
         

South Korea - 0.0%

        

Samsung Electronics Co., Ltd.

    900      432
         
Total Preferred Stocks        

(cost $10,208)

         14,268
         

Warrants & Rights - 0.1%

        

United States - 0.1%

        

Bharti Airtel, Ltd. (Þ)(Æ)
2012 Warrants

    98,400      2,526
         
Total Warrants & Rights        

(cost $1,542)

         2,526
         

A portion of the portfolio has been fair valued at period end.

     Principal
Amount ($)
or Shares		      Market
Value
$		  
Short-Term Investments - 6.6%     

United States - 6.6%

        

Russell Investment Company
Money Market Fund

    136,990,001      136,990  

United States Treasury Bills (ç)(ž)(§) 3.691% due 12/20/07

    10,000      9,951  
           
Total Short-Term Investments        

(cost $146,941)

         146,941  
           
Other Securities - 18.4%        

Russell Investment Company
Money Market Fund (×)

    87,029,040      87,029  

State Street Securities Lending Quality Trust (×)

    319,045,643      319,046  
           
Total Other Securities        

(cost $406,075)

         406,075  
           
Total Investments - 117.4%        

(identified cost $2,074,722)

         2,598,389  
Other Assets and Liabilities, Net - (17.4%)         (384,618 )
           
Net Assets - 100.0%         2,213,771  
           

 

See accompanying notes which are an integral part of the financial statements.

64   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts
(Number of Contracts)		   Notional
Amount		  

Unrealized

Appreciation
(Depreciation)
$

  
   
   

Long Positions

    

AEX Index (Netherlands) expiration date 11/07 (63)

   EUR 6,905   (63 )

CAC-40 Index (France) expiration date 11/07 (210)

   EUR 12,270   241  

DAX Index (Germany)
expiration date 12/07 (123)

   EUR 24,783   1,128  

EUR STOXX 50 Index (EMU) expiration date 12/07 (485)

   EUR 21,844   1,058  

FTSE-100 Index (UK)
expiration date 12/07 (233)

   GBP 15,724   1,088  

Hang Seng Index (Hong Kong) expiration date 11/07 (110)

   HKD 171,980   617  

MSCI Singapore Index
expiration date 11/07 (5)

   SGD 463   2  

SPI 200 Index (Australia) expiration date 12/07 (62)

   AUD 10,531   632  

TOPIX Index (Japan)
expiration date 12/07 (362)

   JPY 5,851,730   2,628  

Short Positions

    

CAC-40 Index (France) expiration date 11/07 (112)

   EUR 6,544   (116 )

FTSE-100 Index (UK)
expiration date 12/07 (40)

   GBP 2,699   (284 )

IBEX Plus Index (Spain) expiration date 11/07 (42)

   EUR 6,661   (411 )

MIB-30 (Italy)
expiration date 12/07 (16)

   EUR 3,255   (64 )

OMX Index (Sweden)
expiration date 11/07 (366)

   SEK 43,389   (37 )

SPI 200 Index (Australia) expiration date 12/07 (103)

   AUD 17,495   (1,125 )
       

Total Unrealized Appreciation (Depreciation) on Open Futures Contracts (å)

     5,294  
       

 

See accompanying notes which are an integral part of the financial statements.

International Fund   65

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts
         

Amount

Sold

   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

         
USD   4   AUD   11   11/01/07   6
USD   4   AUD   4   11/02/07   —
USD   168   AUD   200   12/19/07   18
USD   268   AUD   300   12/19/07   11
USD   411   AUD   500   12/19/07   54
USD   419   AUD   500   12/19/07   45
USD   449   AUD   500   12/19/07   15
USD   535   AUD   650   12/19/07   69
USD   622   AUD   700   12/19/07   29
USD   673   AUD   800   12/19/07   71
USD   825   AUD   1,000   12/19/07   104
USD   827   AUD   1,000   12/19/07   102
USD   16,386   AUD   19,825   12/19/07   2,028
USD   306   BRL   534   11/01/07   3
USD   119   CAD   114   11/02/07   1
USD   158   CAD   149   11/05/07   —
USD   71   CHF   84   12/19/07   1
USD   39,054   CHF   46,021   12/19/07   803
USD   29   DKK   152   12/19/07   1
USD   37   EUR   26   11/01/07   —
USD   797   EUR   552   11/01/07   3
USD   1,293   EUR   896   11/01/07   5
USD   11   EUR   8   11/02/07   —
USD   164   EUR   113   11/02/07   —
USD   248   EUR   172   11/02/07   1
USD   831   EUR   576   11/06/07   3
USD   1,392   EUR   1,000   12/19/07   58
USD   1,425   EUR   1,000   12/19/07   24
USD   1,428   EUR   1,000   12/19/07   22
USD   1,428   EUR   1,000   12/19/07   22
USD   1,431   EUR   1,000   12/19/07   18
USD   1,444   EUR   1,000   12/19/07   6
USD   1,785   EUR   1,300   12/19/07   99
USD   1,892   EUR   1,380   12/19/07   108
USD   2,727   EUR   2,000   12/19/07   172
USD   2,744   EUR   2,000   12/19/07   155
USD   2,747   EUR   2,000   12/19/07   152
USD   2,862   EUR   2,000   12/19/07   37
USD   3,246   EUR   2,287   12/19/07   69
USD   3,246   EUR   2,287   12/19/07   69
USD   3,487   EUR   2,500   12/19/07   136
USD   6,841   EUR   5,000   12/19/07   407
USD   9,546   EUR   6,727   12/19/07   205
USD   56,374   EUR   41,100   12/19/07   3,201
USD   77,523   EUR   56,500   12/19/07   4,374
USD   172   GBP   83   11/01/07   1
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

  
         
USD   111   GBP   54   11/02/07   1  
USD   118   GBP   58   11/02/07   3  
USD   615   GBP   300   12/19/07   8  
USD   1,001   GBP   500   12/19/07   37  
USD   1,816   GBP   900   12/19/07   52  
USD   2,006   GBP   1,000   12/19/07   70  
USD   2,007   GBP   1,000   12/19/07   69  
USD   2,013   GBP   1,000   12/19/07   63  
USD   2,027   GBP   1,000   12/19/07   50  
USD   2,041   GBP   1,000   12/19/07   35  
USD   2,046   GBP   1,000   12/19/07   30  
USD   3,030   GBP   1,500   12/19/07   84  
USD   6,459   GBP   3,200   12/19/07   184  
USD   68,485   GBP   33,925   12/19/07   1,945  
USD   38   HKD   293   11/01/07   —  
USD   2   HKD   16   11/06/07   —  
USD   5   HKD   36   11/06/07   —  
USD   44   HKD   344   11/06/07   —  
USD   192   HKD   1,486   11/06/07   —  
USD   23   HKD   182   12/19/07   —  
USD   89   HKD   694   12/19/07   —  
USD   266   HKD   2,070   12/19/07   1  
USD   324   JPY   37,147   11/01/07   (2 )
USD   29   JPY   3,825   11/02/07   4  
USD   74   JPY   8,518   11/05/07   —  
USD   351   JPY   40,000   12/19/07   (3 )
USD   703   JPY   80,000   12/19/07   (5 )
USD   873   JPY   100,000   12/19/07   (1 )
USD   875   JPY   100,000   12/19/07   (4 )
USD   879   JPY   100,000   12/19/07   (7 )
USD   1,317   JPY   150,000   12/19/07   (9 )
USD   1,755   JPY   200,000   12/19/07   (11 )
USD   1,757   JPY   200,000   12/19/07   (13 )
USD   1,757   JPY   200,000   12/19/07   (14 )
USD   2,182   JPY   250,000   12/19/07   (2 )
USD   2,192   JPY   250,000   12/19/07   (12 )
USD   2,627   JPY   300,000   12/19/07   (11 )
USD   3,365   JPY   385,174   12/19/07   (7 )
USD   4,851   JPY   555,203   12/19/07   (10 )
USD   11,937   JPY   1,359,923   12/19/07   (80 )
USD   31,371   JPY   3,570,000   12/19/07   (246 )
USD   34,504   JPY   3,932,000   12/19/07   (223 )
USD   97   NOK   519   11/01/07   (1 )
USD   1,483   NOK   8,065   12/19/07   18  
USD   1,485   NOK   8,065   12/19/07   17  
USD   4,456   NOK   24,194   12/19/07   48  

 

See accompanying notes which are an integral part of the financial statements.

66   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

  
         
USD   7,426   NOK   40,323   12/19/07   81  
USD   12,036   NOK   67,862   12/19/07   598  
USD   12,997   NOK   70,557   12/19/07   139  
USD   401   SEK   2,598   12/19/07   9  
USD   52   SGD   79   12/19/07   3  
USD   245   ZAR   1,598   11/02/07   —  
USD   91   ZAR   594   11/05/07   1  
USD   163   ZAR   1,061   11/07/07   —  
AUD   80   USD   74   11/01/07   (1 )
AUD   18   USD   31   11/02/07   15  
AUD   200   USD   173   12/19/07   (13 )
AUD   300   USD   247   12/19/07   (31 )
AUD   400   USD   340   12/19/07   (32 )
AUD   400   USD   345   12/19/07   (27 )
AUD   400   USD   358   12/19/07   (14 )
AUD   600   USD   491   12/19/07   (66 )
AUD   600   USD   494   12/19/07   (63 )
AUD   800   USD   660   12/19/07   (83 )
AUD   1,000   USD   901   12/19/07   (27 )
AUD   2,200   USD   1,824   12/19/07   (219 )
AUD   2,900   USD   2,394   12/19/07   (300 )
AUD   6,100   USD   5,040   12/19/07   (627 )
CHF   2   USD   2   11/01/07   —  
CHF   1,450   USD   1,231   12/19/07   (25 )
CHF   1,450   USD   1,231   12/19/07   (25 )
CHF   1,691   USD   1,435   12/19/07   (29 )
CHF   2,836   USD   2,434   12/19/07   (23 )
CHF   2,836   USD   2,434   12/19/07   (22 )
CHF   2,836   USD   2,436   12/19/07   (21 )
CHF   5,672   USD   4,871   12/19/07   (42 )
CHF   8,508   USD   7,304   12/19/07   (65 )
CHF   14,252   USD   12,237   12/19/07   (106 )
DKK   212   USD   40   12/19/07   (1 )
DKK   1,732   USD   324   12/19/07   (13 )
EUR   273   USD   399   11/01/07   3  
EUR   326   USD   470   11/01/07   (1 )
EUR   104   USD   151   11/05/07   —  
EUR   10   USD   14   12/19/07   (1 )
EUR   100   USD   142   12/19/07   (3 )
EUR   200   USD   274   12/19/07   (15 )
EUR   200   USD   280   12/19/07   (10 )
EUR   200   USD   282   12/19/07   (8 )
EUR   200   USD   283   12/19/07   (7 )
EUR   200   USD   285   12/19/07   (5 )
EUR   300   USD   435   12/19/07   —  
EUR   500   USD   704   12/19/07   (21 )
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

  
         
EUR   900   USD   1,274   12/19/07   (31 )
EUR   1,000   USD   1,373   12/19/07   (77 )
EUR   1,000   USD   1,406   12/19/07   (44 )
EUR   1,000   USD   1,418   12/19/07   (32 )
EUR   1,500   USD   2,057   12/19/07   (118 )
EUR   1,700   USD   2,398   12/19/07   (66 )
EUR   2,000   USD   2,822   12/19/07   (77 )
EUR   2,850   USD   4,046   12/19/07   (85 )
EUR   2,850   USD   4,047   12/19/07   (84 )
EUR   2,850   USD   4,047   12/19/07   (84 )
EUR   4,000   USD   5,491   12/19/07   (307 )
EUR   4,000   USD   5,697   12/19/07   (101 )
EUR   4,500   USD   6,174   12/19/07   (349 )
EUR   7,000   USD   9,604   12/19/07   (542 )
EUR   10,000   USD   13,896   12/19/07   (599 )
EUR   17,459   USD   24,326   12/19/07   (981 )
EUR   37,300   USD   51,183   12/19/07   (2,883 )
GBP   8   USD   16   11/01/07   —  
GBP   119   USD   251   11/01/07   4  
GBP   62   USD   128   11/02/07   —  
GBP   40   USD   81   12/19/07   (2 )
GBP   100   USD   202   12/19/07   (6 )
GBP   200   USD   408   12/19/07   (7 )
GBP   234   USD   474   12/19/07   (12 )
GBP   300   USD   602   12/19/07   (20 )
GBP   300   USD   612   12/19/07   (11 )
GBP   400   USD   806   12/19/07   (24 )
GBP   400   USD   807   12/19/07   (23 )
GBP   500   USD   1,016   12/19/07   (22 )
GBP   600   USD   1,207   12/19/07   (39 )
GBP   760   USD   1,534   12/19/07   (44 )
GBP   1,000   USD   2,019   12/19/07   (57 )
GBP   1,400   USD   2,825   12/19/07   (82 )
GBP   1,500   USD   3,058   12/19/07   (56 )
GBP   1,535   USD   3,098   12/19/07   (89 )
GBP   1,535   USD   3,099   12/19/07   (88 )
GBP   1,535   USD   3,101   12/19/07   (86 )
GBP   1,719   USD   3,475   12/19/07   (94 )
GBP   2,000   USD   4,035   12/19/07   (117 )
GBP   3,070   USD   6,204   12/19/07   (170 )
GBP   4,000   USD   8,071   12/19/07   (233 )
GBP   4,600   USD   9,155   12/19/07   (395 )
GBP   11,913   USD   24,176   12/19/07   (556 )
GBP   13,450   USD   27,156   12/19/07   (767 )
GBP   8,587   USD   17,622   01/31/08   (178 )
HKD   738   USD   95   11/01/07   —  

 

See accompanying notes which are an integral part of the financial statements.

International Fund   67

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation

(Depreciation)
$

  
         
HKD   2,534   USD   327   11/01/07   —  
HKD   2,431   USD   314   11/02/07   —  
HKD   4   USD   —   11/06/07   —  
IDR   424,880   USD   47   11/05/07   —  
IDR   1,415,387   USD   155   11/05/07   —  
JPY   12,180   USD   99   11/01/07   (7 )
JPY   19,541   USD   170   11/01/07   1  
JPY   19,747   USD   172   11/01/07   1  
JPY   21,522   USD   188   11/02/07   1  
JPY   22,040   USD   192   11/02/07   1  
JPY   35,873   USD   311   11/02/07   —  
JPY   7,199   USD   62   11/05/07   —  
JPY   39,602   USD   343   11/05/07   —  
JPY   30,000   USD   261   12/19/07   —  
JPY   40,000   USD   345   12/19/07   (4 )
JPY   50,000   USD   435   12/19/07   —  
JPY   50,258   USD   431   12/19/07   (7 )
JPY   60,000   USD   528   12/19/07   5  
JPY   100,000   USD   859   12/19/07   (13 )
JPY   200,000   USD   1,750   12/19/07   6  
JPY   200,000   USD   1,757   12/19/07   14  
JPY   200,000   USD   1,759   12/19/07   15  
JPY   300,000   USD   2,573   12/19/07   (43 )
JPY   450,000   USD   3,956   12/19/07   32  
JPY   470,000   USD   4,133   12/19/07   36  
JPY   650,000   USD   5,710   12/19/07   43  
JPY   750,000   USD   6,593   12/19/07   55  
JPY   800,000   USD   7,023   12/19/07   49  
JPY   2,070,000   USD   18,169   12/19/07   122  
NOK   12,261   USD   2,267   12/19/07   (15 )
NOK   12,261   USD   2,268   12/19/07   (15 )
NOK   13,078   USD   2,418   12/19/07   (17 )
SEK   4   USD   1   11/02/07   —  
SEK   2,598   USD   391   12/19/07   (18 )
SGD   4   USD   3   11/02/07   —  
SGD   79   USD   53   12/19/07   (1 )
             
          4,276  
             

 

See accompanying notes which are an integral part of the financial statements.

68   International Fund

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Index Swap Contracts                                

Fund Receives
Underlying Security

   

Counter
Party

    Notional
Amount		   

Fund Pays
Floating Rate

    Termination
Date		    Unrealized
Appreciation
(Depreciation)
$		  
              

MSCI Belgium VII
Local Net Total Return Index

    Merrill Lynch      EUR871   

1 Month EUR LIBOR plus 0.12%

    12/19/07    (7 )

MSCI Denmark V
Local Net Total Return Index

    Merrill Lynch      DKK 10,143   

1 Month DKK LIBOR minus 0.80%

    12/19/07    (58 )
                  

Total Unrealized Appreciation (Depreciation) on Open Index Swaps

          (65 )
                  

 

See accompanying notes which are an integral part of the financial statements.

International Fund   69

Table of Contents

Russell Investment Company

International Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Industry Diversification
(Unaudited)		    % of
Net
Assets		        Market
Value
$		  
       
       

Auto and Transportation

    6.4        140,875  

Consumer Discretionary

    9.4        207,416  

Consumer Staples

    8.0        175,778  

Financial Services

    20.2        448,766  

Health Care

    5.8        128,263  

Integrated Oils

    5.2        115,684  

Materials and Processing

    11.2        246,865  

Miscellaneous

    1.0        23,107  

Other Energy

    2.0        45,214  

Producer Durables

    7.5        165,439  

Technology

    3.7        80,903  

Utilities

    11.9        264,537  

Warrants & Rights

    0.1        2,526  

Short-Term Investments

    6.6        146,941  

Other Securities

    18.4        406,075  
               

Total Investments

    117.4        2,598,389  

Other Assets and Liabilities, Net

    (17.4 )      (384,618 )
               

Net Assets

    100.0        2,213,771  
               
Geographic Diversification
(Unaudited)		    % of
Net
Assets		        Market
Value
$		  
       

Africa

    0.5        10,913  

Asia

    9.2        201,927  

Europe

    42.5        942,966  

Japan

    15.1        336,495  

Latin America

    4.1        88,289  

Middle East

    0.3        6,611  

Netherlands Antilles

    0.3        6,583  

Other Regions

    9.3        206,964  

United Kingdom

    17.7        391,566  

Other Securities

    18.4        406,075  
               

Total Investments

    117.4        2,598,389  

Other Assets and Liabilities, Net

    (17.4 )      (384,618 )
               

Net Assets

    100.0        2,213,771  
               

 

See accompanying notes which are an integral part of the financial statements.

70   International Fund

Table of Contents

Russell Investment Company

International Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

Categories    % of
Net
Assets
  
  

Australia

    4.1

Austria

    0.6

Belgium

    0.7

Bermuda

    1.0

Brazil

    1.5

Canada

    2.3

Cayman Islands

    0.5

China

    0.5

Colombia

    0.1

Cyprus

    0.1

Czech Republic

    0.1

Denmark

    0.6

Egypt

    0.1

Finland

    1.6

France

    11.4

Germany

    7.5

Greece

    0.3

Hong Kong

    1.8

India

    0.2

Indonesia

    0.3

Ireland

    0.1

Israel

    0.2

Italy

    3.4

Japan

    15.1

Luxembourg

    0.7

Mexico

    0.6

Netherlands

    3.6

Netherlands Antilles

    0.3

New Zealand

    0.1

Norway

    0.5

Portugal

    0.1

Russia

    0.3

Singapore

    0.7

South Africa

    0.5

South Korea

    0.9

Spain

    2.6

Sweden

    1.0

Switzerland

    6.7

Taiwan

    0.5

Thailand

    0.1

Turkey

    0.3

United Kingdom

    17.7

United States

    0.3

Preferred Stocks

    0.7
Categories    % of
Net
Assets		  
  

Warrants & Rights

    0.1  

Short-Term Investments

    6.6  

Other Securities

    18.4  
      

Total Investments

    117.4  

Other Assets and Liabilities, Net

    (17.4 )
      
   100.0  
      

Futures Contracts

    0.2  

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   71

Table of Contents

Russell Investment Company

Fixed Income III Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

LOGO

Fixed Income III Fund - Class I  
     Total Return  

1 Year

    5.27 %

5 Years

    5.39 %§

10 Years

    5.81 %§

 

Fixed Income III Fund - Class E‡  
     Total Return  

1 Year

    4.99 %

5 Years

    5.15 %§

10 Years

    5.60 %§

 

Fixed Income III Fund - Class Y‡‡  
     Total Return  

1 Year

    5.30 %

5 Years

    5.42 %§

10 Years

    5.82 %§

 

Lehman Brothers Aggregate Bond Index**  
     Total Return  

1 Year

    5.38 %

5 Years

    4.41 %§

10 Years

    5.91 %§

72   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

The Fixed Income III Fund (the “Fund”) allocates most of its assets among multiple money managers. Russell Investment Management Company (“RIMCo”), as the Fund’s advisor, may change the allocation of the Fund’s assets among money managers at any time. An exemptive order from the Securities and Exchange Commission (SEC) permits RIMCo to engage or terminate a money manager at any time, subject to the approval by the Fund’s Board without a shareholder vote. Pursuant to the terms of the exemptive order, the Fund is required to notify its shareholders within 60 days of when a money manager begins providing services. The Fund currently has five money managers.

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, 2007?

For the fiscal year ended October 31, 2007, the Fixed Income III Fund Class E, Class I, and Class Y gained 4.99%, 5.27% and 5.30%, respectively. This compared to the Lehman Brothers Aggregate Bond Index, which gained 5.38% 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, 2007, the Lipper® BBB Rated Fixed Income Funds Average returned 4.43%. For the same period, the Lipper® Intermediate Investment Grade Debt Funds Average returned 4.05%. 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?

Investors’ departure from investments with more risk to the relative safety of U.S. Treasuries and the subsequent re-pricing of risk (i.e. the market demanding increased compensation for assuming a given level of risk) impacted nearly all non-Treasury fixed income investments. As a result, non-Treasury investments posted lower returns than the benchmark. Given that the Fund’s money managers typically invest in non-Treasury sectors, the Fund underperformed its benchmark. However, the managers’ sector allocation and security selection decisions resulted in the Fund outperforming its peers as measured by the Lipper BBB Rated Fixed Income Funds Average.

 

The decline in short-term interest rates benefited the Fund as several of the Fund’s managers anticipated the decline and increased sensitivity to interest rates (also called increased duration). In general, as interest rates decline bond prices increase; therefore, the increase in duration had a positive impact on performance.

Finally, as the Federal Reserve decreased the federal funds rate, intermediate maturity yields also declined resulting in a shift in yields otherwise known as a shift in the yield curve. This yield curve movement benefited the Fund as the Fund’s money managers anticipated the change and varied the maturity of their securities.

How did the investment strategies and techniques employed by the Fund and its money managers affect its performance?

Several of the Fund’s money managers successfully increased their duration exposure as interest rates declined and, therefore, made positive contributions to performance. Sector allocation and security selection decisions had mixed results as several of the Fund’s money managers had an overweight to non-Treasury sectors, which underperformed the benchmark. However, security selection decisions within various sectors contributed positively to performance.

At the manager level, managers that underperformed over the year included Delaware Management Company, whose performance suffered from allocations to corporate bonds, and Drake Capital Management, LLC, whose performance suffered from duration and mortgage-backed security issues. Pacific Investment Management Company LLC (“PIMCO”) was the best performing manager driven mainly by its duration and sector allocation decisions. Goldman Sachs Asset Management, L.P. also generated positive performance as duration management as well as investments in securities outside of the U.S. generated positive excess return.

Describe any changes to the Fund’s structure or the money manager line-up.

In July 2007, Morgan Stanley Investment Management, Inc. was replaced with Drake Capital Management, LLC.


Fixed Income III Fund   73

Table of Contents

Russell Investment Company

Fixed Income III Fund

Portfolio Management Discussion and Analysis — October 31, 2007 (Unaudited)

 

 

Money Managers as of
October 31, 2007		   Styles

Bear Stearns Asset Management Inc.

   Sector Rotation

Drake Capital Management, LLC

   Fully Discretionary

Goldman Sachs Asset Management, L.P.

   Fully Discretionary

Delaware Management Company, a series of Delaware Management Business Trust

   Sector Rotation

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 Russell Investment Management Company (RIMCo), or any other person in RIMCo or any other affiliated organization. These views are subject to change at any time based upon market conditions or other events, and RIMCo 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 Russell Investment Company (RIC) Fund are based on numerous factors, should not be relied on as an indication of investment decisions of any RIC Fund.


 

 

 

*   Assumes initial investment on November 1, 1997.

 

**   Lehman Brothers Aggregate Bond Index is composed of securities from Lehman Brothers Government/Corporate Bond Index, Mortgage-Backed Securities Index, and the Asset-Backed Securities Index. Total return comprises price appreciation/ depreciation and income as a percentage of the original investment. Indexes are rebalanced monthly by market capitalization.

 

‡   The Fund first issued Class E Shares on May 14, 1999. The returns shown for Class E Shares are the returns of the Fund’s Class I Shares from November 1, 1997 to May 13, 1999 and do not reflect deduction of shareholder services fees. Had it done so, the returns shown for that period would have been lower.

 

‡‡   The Fund first issued Class Y Shares on June 7, 2000, closed its Class Y Shares on November 19, 2001 and reopened its Class Y Shares on June 23, 2005. The returns shown for Class Y Shares prior to June 23, 2005 are the returns of the Fund’s Class I Shares. Class Y Shares will have substantially similar annual returns as the Class I Shares because the Shares of each Class are invested in the same portfolio of securities. Annual returns for each Class will differ only to the extent that the Class Y Shares do not have the same expenses as the Class I Shares.

 

§   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.

74   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Shareholder Expense Example — October 31, 2007 (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 (12b-1) and/or service 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, 2007 to October 31, 2007.

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.

 

Class E

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,023.40    $ 1,020.42

Expenses Paid During Period*

    $ 4.85    $ 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.

 

Class I

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,024.80    $ 1,021.83

Expenses Paid During Period*

    $ 3.42    $ 3.41

 

* Expenses are equal to the Fund’s annualized expense ratio of 0.67% (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.

 

Class Y

   

Actual

Performance

   

Hypothetical

Performance

(5% return

before expenses)

     

Beginning Account Value

      

May 1, 2007

    $ 1,000.00    $ 1,000.00

Ending Account Value

      

October 31, 2007

    $ 1,024.90    $ 1,021.98

Expenses Paid During Period*

    $ 3.27    $ 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). Reflects amounts waived and/or reimbursed by the investment adviser. Without the waiver and/or reimbursement, expenses would have been higher.

Fixed Income III Fund   75

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Long-Term Investments - 96.8%

        

Asset-Backed Securities - 10.7%

        

Accredited Mortgage Loan Trust (Ê)

        

Series 2004-2 Class A2

        

5.173% due 07/25/34

    76      74

ACE Securities Corp. (Ê)

        

Series 2003-HE1 Class M1

        

5.523% due 11/25/33

    1,131      1,107

Series 2003-OP1 Class M2

        

6.373% due 12/25/33

    130      127

Series 2004-IN1 Class A1

        

5.193% due 05/25/34

    97      94

Series 2005-HE3 Class A2C

        

5.193% due 05/25/35

    3,104      3,094

Series 2005-HE7 Class A2B

        

5.053% due 11/25/35

    298      296

Series 2005-SD3 Class A

        

5.273% due 08/25/45

    454      449

Series 2006-ASP Class A2A

        

4.943% due 12/25/35

    94      94

4.953% due 10/25/36

    248      245

Aegis Asset Backed Securities Trust (Ê)

        

Series 2003-3 Class M2

    265      240

6.523% due 01/25/34

        

Alliance Bancorp Trust (Ê)

        

Series 2007-OA1 Class A1

        

5.113% due 07/25/37

    891      877

American Airlines, Inc.

        

6.817% due 11/23/12

    1,655      1,609

6.977% due 05/23/21

    55      51

American Express Credit Account Master Trust

        

Series 2001-5 Class B (Ê)

        

5.102% due 11/15/10

    422      422

Series 2003-1 Class B (Ê)

        

5.491% due 09/15/10

    2,105      2,107

Series 2003-2 Class B (Ê)

        

5.461% due 10/15/10

    1,100      1,101

Series 2004-1 Class B (Ê)

        

4.902% due 09/15/11

    33      33

Series 2004-4 Class B

        

5.371% due 03/15/12

    494      492

Series 2004-5 Class B

        

5.341% due 04/16/12

    346      345

Series 2004-C Class C (Ê)(Å)

        

5.591% due 02/15/12

    4,689      4,684
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-3 Class B

        

5.231% due 01/18/11

    133      133

Series 2007-3 Class A (Ê)

        

5.091% due 10/15/12

    600      597

American Express Issuance Trust (Ê)

        

Series 2007-1 Class B

        

5.266% due 09/15/11

    1,200      1,200

Ameriquest Mortgage Securities, Inc. (Ê)

        

Series 2002-D Class M1

        

7.556% due 02/25/33

    145      111

Series 2004-R8 Class A5

        

5.243% due 09/25/34

    52      52

Series 2004-R10 Class A5

        

5.263% due 11/25/34

    1      1

Series 2005-R3 Class A1A

        

5.073% due 05/25/35

    2,670      2,614

Series 2005-R5 Class A2B

        

5.103% due 07/25/35

    401      400

Series 2005-R6 Class A2

        

5.073% due 08/25/35

    3,389      3,279

Series 2005-R7 Class A2C

        

5.133% due 09/25/35

    578      572

Series 2006-R1 Class A2C

        

5.063% due 08/01/16

    260      251

Argent Securities, Inc. (Ê)

        

Series 2005-W2 Class A2B2

        

5.133% due 10/25/35

    547      541

Series 2006-M3 Class A2A

        

4.923% due 10/25/36

    349      345

Asset Backed Funding Certificates (Ê)

        

Series 2006-HE1 Class A2A

        

4.933% due 01/25/37

    569      563

Series 2006-OPT Class A3A

        

4.933% due 10/25/36

    277      274

Asset Backed Securities Corp. Home Equity (Ê)

        

Series 2004-HE6 Class A1

        

5.148% due 09/25/34

    80      78

Bank of America Credit Card Trust (Ê)

        

Series 2006-C4 Class C4

        

4.882% due 11/15/11

    5,082      5,003

Series 2006-C7 Class C7

        

5.321% due 03/15/12

    300      295

Bank One Issuance Trust

        

Series 2003-B1 Class B1 (Ê)

        

5.461% due 12/15/10

    677      678

Series 2003-C4 Class C4

        

6.121% due 02/15/11

    527      528

76   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2004-B1 Class B1 (Ê)

        

4.972% due 03/15/12

    549      548

Bayview Financial Acquisition Trust

        

Series 2006-A Class 1A3

        

5.865% due 02/28/41

    340      326

Bear Stearns Asset Backed Securities Trust (Ê)

        

Series 2004-BO1 Class 1A1

        

5.073% due 09/25/34

    46      46

Series 2005-AQ1 Class 2A1

        

5.093% due 03/25/35

    81      81

Series 2005-HE6 Class A2

        

5.113% due 06/25/35

    480      480

Series 2006-HE3 Class A1

        

4.953% due 04/25/36

    284      282

BNC Mortgage Loan Trust (Ê)

        

Series 2007-2 Class A2

        

4.973% due 05/25/37

    893      884

Capital One Multi-Asset Execution Trust

        

Series 2007-A7 Class A7

        

5.750% due 07/15/20

    750      759

Carrington Mortgage Loan Trust (Ê)

        

Series 2006-OPT Class A1

        

4.938% due 02/25/36

    9      9

Centex Home Equity (Ê)

        

Series 2005-C Class AV3

        

5.103% due 06/25/35

    1,691      1,687

Series 2006-A Class AV2

        

4.973% due 06/25/36

    3,000      2,957

Chase Credit Card Master Trust

        

Series 2002-3 Class B (Ê)

        

5.102% due 09/15/11

    412      412

Series 2003-2 Class B (Ê)

        

5.441% due 07/15/10

    2,024      2,026

Series 2003-3 Class B

        

5.441% due 10/15/10

    214      214

Series 2003-6 Class B

        

5.441% due 02/15/11

    369      369

Series 2003-6 Class C (Ê)

        

5.891% due 02/15/11

    400      399

Chase Issuance Trust

        

Series 2004-C3 Class C3 (Ê)

        

5.561% due 06/15/12

    300      297

Series 2005-A12 Class A (Ê)

        

5.101% due 02/15/11

    500      499

Series 2005-C1 Class C1 (Ê)

        

5.461% due 11/15/12

    2,000      1,967
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-C3 Class C3 (Ê)

        

4.992% due 11/15/12

    329      323

Series 2006-B1 Class B1

        

5.241% due 04/15/13

    800      790

Series 2006-B2 Class B

        

5.191% due 10/15/12

    738      730

Series 2006-C3 Class C3 (Ê)

        

5.321% due 06/15/11

    415      410

Series 2007-A17 Class A

        

5.120% due 10/15/14

    105      105

Chase Manhattan Auto Owner Trust

        

Series 2006-B Class A2

        

5.280% due 10/15/09

    397      397

CIT Mortgage Loan Trust (Ê)(Å)

        

Series 2007-1 Class 2A1

        

6.129% due 10/01/37

    1,500      1,500

Series 2007-1 Class 2A2

        

6.379% due 10/01/37

    400      400

Series 2007-1 Class 2A3

        

6.579% due 10/01/37

    750      750

Citibank Credit Card Issuance Trust

        

Series 2000-A3 Class A3

        

6.875% due 11/16/09

    200      200

Series 2001-C1 Class C1 (Ê)

        

6.323% due 01/15/10

    2,645      2,651

Series 2002-C3 Class C3

        

6.834% due 12/15/09

    125      125

Series 2003-C1 Class C1 (Ê)

        

6.354% due 04/07/10

    99      99

Series 2007-A1 Class A1 (Ê)

        

5.200% due 03/22/12

    725      721

Series 2007-A8 Class A8

        

5.650% due 09/20/19

    415      418

Citigroup Mortgage Loan Trust, Inc. (Ê)

        

Series 2006-NC1 Class A2A

        

4.943% due 08/25/36

    214      213

Series 2006-NC2 Class A2A

        

4.913% due 09/25/36

    645      640

Series 2006-WFH Class A1

        

4.913% due 08/25/36

    170      169

Series 2006-WFH Class A1A

        

4.943% due 01/25/36

    52      52

Series 2007-AMC Class A2A

        

4.933% due 05/25/37

    2,389      2,353

Series 2007-OPX Class A1A

        

4.943% due 01/25/37

    1,201      1,190

Fixed Income III Fund   77

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Countrywide Alternative Loan Trust (Þ)

        

Series 2007-OA7 Class CP

        

2.465% due 05/25/47

    345      14

Countrywide Asset-Backed Certificates

        

Series 2004-13 Class AF3

        

3.989% due 02/25/31

    29      29

Series 2004-AB2 Class M3 (Ê)

        

5.473% due 05/25/36

    230      210

Series 2004-BC1 Class M1 (Ê)

        

5.631% due 02/25/34

    159      153

Series 2004-S1 Class A2

        

3.872% due 03/25/20

    52      51

Series 2005-7 Class 3AV3 (Ê)

        

5.283% due 06/25/35

    2,000      1,892

Series 2005-16 Class 2AF1 (Ê)

        

5.023% due 05/25/36

    204      204

Series 2005-AB1 Class A2 (Ê)

        

5.083% due 10/25/34

    2,395      2,371

Series 2006-1 Class AF3

        

5.348% due 07/25/36

    100      99

Series 2006-3 Class 2A2 (Ê)

        

5.053% due 06/25/36

    1,065      1,023

Series 2006-11 Class 1AF4

        

6.300% due 09/25/46

    405      400

Series 2006-13 Class 1AF3

        

5.944% due 01/25/37

    1,035      1,019

Series 2006-15 Class A3

        

5.689% due 10/25/46

    260      252

Series 2006-17 Class 2A1 (Ê)

        

4.923% due 03/25/47

    254      252

Series 2006-BC1 Class 2A2 (Ê)

        

5.053% due 04/25/36

    295      289

Series 2006-BC2 Class 2A1 (Ê)

        

4.913% due 07/25/36

    571      568

Series 2006-S2 Class A2

        

5.627% due 07/25/27

    385      372

Series 2006-S3 Class A2

        

6.085% due 06/25/21

    835      805

Series 2006-S6 Class A2

        

5.519% due 03/25/34

    555      542

Series 2006-S7 Class A3

        

5.712% due 04/25/35

    2,575      2,440

Series 2006-S9 Class A3

        

5.728% due 08/25/36

    665      609

Series 2007-4 Class A2

        

5.530% due 03/25/37

    540      537

Series 2007-7 Class 2A1 (Ê)

        

4.953% due 10/25/28

    958      946
     Principal
Amount ($)
or Shares		      Market
Value
$

Countrywide Home Equity Loan Trust (Ê)

        

Series 2006-HW Class 2A1B

        

5.241% due 11/15/36

    1,444      1,394

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 2005-AGE Class A2

        

4.640% due 02/25/32

    310      306

Credit-Based Asset Servicing and Securitization LLC

        

Series 2006-CB5 Class A1 (Ê)

        

4.933% due 06/25/36

    211      210

Series 2007-CB1 Class AF2

        

5.721% due 01/25/37

    335      335

Dunkin Securitization (Þ)

        

Series 2006-1 Class A2

        

5.779% due 06/20/31

    1,090      1,098

Entergy Gulf States, Inc. (Ê)

        

5.980% due 12/01/09

    100      99

FBR Securitization Trust (Ê)

        

Series 2005-2 Class AV3A

        

5.163% due 09/25/35

    3,836      3,825

First Franklin Mortgage Loan Asset Backed Certificates (Ê)

        

Series 2005-FF4 Class 2A3

        

5.093% due 05/25/35

    82      82

Series 2005-FF8 Class A2C

        

5.143% due 09/25/35

    1,065      1,053

Series 2005-FF9 Class A2

        

4.993% due 10/25/35

    196      195

Series 2005-FFH Class A2B

        

5.123% due 06/25/36

    1,636      1,633

Series 2006-FF1 Class A2

        

4.923% due 07/25/36

    314      311

Series 2006-FF1 Class A3

        

4.923% due 11/25/36

    671      657

Series 2006-FF2 Class A2

        

4.943% due 02/25/36

    231      230

First USA Credit Card Master Trust (Ê)

        

Series 1998-6 Class A

        

5.195% due 04/18/11

    1,200      1,200

Fremont Home Loan Trust (Ê)

        

Series 2006-3 Class 2A1

        

4.943% due 02/25/37

    170      169

Series 2006-E Class 2A1

        

4.933% due 01/25/37

    294      291

GE Capital Credit Card Master Note Trust

        

Series 2005-3 Class B

        

78   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

5.391% due 06/15/13

    296      294

Series 2006-1 Class A

        

5.080% due 09/15/12

    832      837

GMAC Mortgage Corp. Loan Trust

        

Series 2006-HE3 Class A2

        

5.750% due 10/25/36

    225      220

Series 2007-HE2 Class A2

        

6.054% due 12/25/37

    560      552

Series 2007-HE3 Class 1A1

        

7.000% due 09/25/37

    350      351

Series 2007-HE3 Class 2A1

        

7.000% due 09/25/37

    400      401

Green Tree Financial Corp.

        

Series 1994-1 Class A5

        

7.650% due 04/15/19

    837      874

Series 1994-3 Class A5

        

8.400% due 06/15/19

    756      770

GS Mortgage Securities Corp. (Å)

        

Series 2007-NIM Class N1

        

6.250% due 01/25/37

    172      170

GSAA Trust

        

Series 2006-2 Class 2A3 (Ê)

        

5.143% due 12/25/35

    595      583

Series 2006-4 Class 1A2

        

5.951% due 03/25/36

    437      438

GSAMP Trust (Ê)

        

Series 2003-HE2 Class M1

        

5.225% due 08/25/33

    255      234

Series 2004-SEA Class A2A

        

5.163% due 03/25/34

    100      100

Series 2006-HE1 Class A2A

        

4.953% due 01/25/36

    65      65

Series 2006-HE4 Class A2A

        

4.943% due 06/25/36

    252      251

HFC Home Equity Loan Asset Backed Certificates (Ê)

        

Series 2005-1 Class A

        

5.288% due 01/20/34

    585      570

Series 2007-3 Class A1

        

5.835% due 11/20/36

    1,400      1,400

Series 2007-3 Class APT

        

6.235% due 11/20/36

    1,500      1,492

Home Equity Asset Trust

        

Series 2005-2 Class 2A2 (Ê)

        

5.073% due 07/25/35

   17      17

Series 2006-3 Class 2A1 (Ê)

        

4.943% due 07/25/36

    64      64
     Principal
Amount ($)
or Shares		      Market
Value
$

Household Affinity Credit Card Master Note Trust I

        

Series 2003-1 Class C

        

6.541% due 02/15/10

    112      112

Household Credit Card Master Note Trust I

        

Series 2006-1 Class A

        

5.100% due 06/15/12

    465      468

Series 2006-1 Class B

        

5.231% due 06/15/12

    264      261

HSI Asset Securitization Corp. Trust (Ê)

        

Series 2006-HE1 Class 2A1

        

4.923% due 10/25/36

    1,055      1,036

Series 2006-HE2 Class 2A1

        

5.181% due 12/25/36

    232      228

Series 2006-OPT Class 2A1

        

4.953% due 12/25/35

    77      76

Indymac Residential Asset Backed Trust (Ê)

        

Series 2006-H2 Class A

        

5.279% due 06/28/36

    654      638

JP Morgan Mortgage Acquisition Corp. (Ê)

        

Series 2006-CW1 Class A2

        

4.913% due 07/25/28

    64      64

Series 2006-HE1 Class A2

        

4.953% due 01/25/36

    138      137

Series 2006-WMC Class A2

        

4.923% due 07/25/30

    261      260

4.943% due 03/25/36

    102      102

4.923% due 08/25/36

    477      473

Series 2007-HE1 Class AV1

        

4.933% due 04/25/09

    534      527

Lehman XS Trust

        

Series 2005-1 Class 2A2

        

4.660% due 07/25/35

    197      195

Series 2006-16N Class A1A (Ê)

        

4.953% due 11/25/46

    433      425

Series 2007-4N Class 3A2A (Ê)

        

5.755% due 04/25/37

    914      889

Long Beach Mortgage Loan Trust (Ê)

        

Series 2002-5 Class M1

        

6.118% due 11/25/32

    843      822

Series 2003-3 Class M1

        

5.623% due 07/25/33

    1,489      1,449

Series 2004-4 Class 1A1

        

5.153% due 10/25/34

    9      9

Fixed Income III Fund   79

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2005-3 Class 2A2

        

5.153% due 09/25/35

    582      576

Series 2005-WL2 Class 3A3

        

5.143% due 07/25/35

    350      348

Series 2005-WL3 Class 2A2A

        

5.013% due 11/25/35

    4,007      3,981

Series 2006-1 Class 2A1

        

4.953% due 02/25/36

    196      196

Series 2006-4 Class 2A1

        

4.923% due 05/25/36

    369      368

Mastr Asset Backed Securities Trust (Ê)

        

Series 2003-WMC Class M2

        

7.348% due 08/25/33

    99      81

Series 2006-AM3 Class A1

        

4.933% due 10/25/36

    92      91

Series 2006-FRE Class A1

        

4.943% due 12/25/35

    82      82

Series 2006-WMC Class A1

        

4.943% due 02/25/36

    162      161

MBNA Credit Card Master Note Trust (Ê)

        

Series 2003-B1 Class B1

        

5.531% due 07/15/10

    1,280      1,281

Series 2003-B5 Class B5

        

5.461% due 02/15/11

    500      500

Series 2003-C3 Class C3

        

6.002% due 10/15/10

    85      85

Series 2005-C3 Class C

        

5.361% due 03/15/11

    3,195      3,167

MBNA Master Credit Card Trust

        

Series 2000-E Class A

        

7.800% due 10/15/12

    705      756

Meritage Mortgage Loan Trust (Ê)

        

Series 2005-2 Class 2A2

        

5.123% due 11/25/35

    930      929

Merrill Lynch Mortgage Investors, Inc.

        

Series 2006-AR1 Class A2C

        

5.033% due 03/25/37

    500      471

Series 2006-HE1 Class A2A (Ê)

        

4.953% due 12/25/36

    407      405

Series 2006-RM1 Class A2A (Ê)

        

4.943% due 02/25/37

    163      162

Mid-State Trust

        

Series 2003-11 Class A1

        

4.864% due 07/15/38

    49      46

Series 2004-1 Class A

        

6.005% due 08/15/37

    48      49
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-1 Class A

        

5.745% due 01/15/40

    138      133

Series 2006-1 Class A (Þ)

        

5.787% due 10/15/40

    240      231

Morgan Stanley ABS Capital I (Ê)

        

Series 2003-NC8 Class M1

        

5.573% due 09/25/33

    750      723

Series 2003-NC8 Class M3

        

6.973% due 09/25/33

    71      61

Series 2006-HE3 Class A2A

        

4.913% due 04/25/36

    207      206

Series 2006-HE4 Class A1

        

4.913% due 06/25/36

    176      175

Series 2006-WMC Class A2FP

        

4.923% due 07/25/36

    415      408

Morgan Stanley Home Equity Loans (Ê)

        

Series 2006-1 Class A2A

        

4.953% due 12/25/35

    91      90

Series 2006-3 Class A1

        

4.923% due 04/25/36

    129      128

Nationstar Home Equity Loan Trust (Ê)

        

Series 2006-B Class AV1

        

5.380% due 09/25/36

    483      481

Nelnet Student Loan Trust (Ê)

        

Series 2006-3 Class A1

        

5.183% due 09/25/12

    120      120

New Century Home Equity Loan Trust (Ê)

        

Series 2004-4 Class M2

        

5.403% due 02/25/35

    380      357

Newcastle Mortgage Securities Trust (Ê)

        

Series 2006-1 Class A1

        

4.943% due 03/25/36

    178      177

Option One Mortgage Loan Trust (Ê)

        

Series 2003-2 Class M2

        

6.573% due 04/25/33

    85      73

Series 2003-3 Class M3

        

6.873% due 06/25/33

    62      50

Series 2003-4 Class M2

        

6.523% due 07/25/33

    54      47

Series 2005-2 Class A5

        

5.203% due 05/25/35

    800      783

Series 2005-3 Class A4

        

5.123% due 08/25/35

    1,961      1,960

Series 2005-4 Class A3

        

5.133% due 11/25/35

    544      530

80   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Park Place Securities, Inc. (Ê)

        

Series 2004-MCW Class A1

        

5.185% due 10/25/34

    389      373

Series 2005-WCW Class M1

        

5.323% due 09/25/35

    375      365

Popular ABS Mortgage Pass-Through Trust

        

Series 2005-6 Class A3

        

5.680% due 01/25/36

    415      409

Power Contract Financing LLC (Þ)

        

6.256% due 02/01/10

    91      93

RAAC Series (Ê)

        

Series 2006-SP1 Class A1

        

4.973% due 09/25/45

    128      127

Renaissance Home Equity Loan Trust

        

Series 2005-1 Class M1

        

5.357% due 05/25/35

    190      169

Series 2005-2 Class AF4

        

4.934% due 08/25/35

    205      201

Series 2005-4 Class A2

        

5.399% due 02/25/36

    70      70

Series 2005-4 Class A3

        

5.565% due 02/25/36

    115      114

Series 2006-1 Class AF3

        

5.608% due 05/25/36

    200      198

Series 2006-1 Class AF6

        

5.746% due 05/25/36

    320      305

Series 2006-1 Class AV1 (Ê)

        

4.953% due 05/25/36

    109      108

Series 2006-2 Class AV1 (Ê)

        

4.923% due 08/25/36

    164      164

Series 2007-1 Class AF2

        

5.512% due 04/25/37

    575      574

Series 2007-2 Class AF2

        

5.675% due 06/25/37

    390      384

Residential Asset Mortgage Products, Inc.

        

Series 2003-RS1 Class AI6A

        

5.980% due 12/25/33

    363      359

Series 2006-RS2 Class A1 (Ê)

        

4.953% due 03/25/36

    160      160

Series 2006-RS3 Class A1 (Ê)

        

4.953% due 05/25/36

    14      14

Series 2006-RZ3 Class A1 (Ê)

        

4.943% due 08/25/36

    417      413

Series 2006-RZ4 Class A1A (Ê)

        

4.953% due 10/25/36

    389      384
     Principal
Amount ($)
or Shares		      Market
Value
$

Residential Asset Securities Corp.

        

Series 2001-KS3 Class AII (Ê)

        

5.333% due 09/25/31

    43      42

Series 2003-KS2 Class MI1

        

4.800% due 04/25/33

    795      741

Series 2003-KS2 Class MI3

        

6.100% due 04/25/33

    156      125

Series 2005-AHL Class A2 (Ê)

        

5.143% due 06/25/35

    221      217

Series 2005-KS8 Class A3 (Ê)

        

5.133% due 08/25/35

    1,771      1,763

Series 2006-KS1 Class A2 (Ê)

        

5.013% due 02/25/36

    1,000      990

Series 2006-KS2 Class A1 (Ê)

        

4.943% due 03/25/36

    80      80

Series 2006-KS3 Class AI2 (Ê)

        

4.993% due 04/25/36

    850      844

Residential Funding Mortgage Securities II, Inc. (Ê)

        

Series 2006-HI1 Class A1

        

4.983% due 02/25/36

    89      87

Saxon Asset Securities Trust

        

Series 2005-4 Class A2C

        

5.123% due 11/25/37

    1,101      1,077

Series 2006-3 Class A1 (Ê)

        

4.933% due 11/25/36

    398      393

SBI Heloc Trust (Ê)(Þ)

        

Series 2006-1A Class 1A2A

        

5.043% due 08/25/36

    244      232

Securitized Asset Backed Receivables LLC Trust (Ê)

        

Series 2006-OP1 Class A2B

        

5.073% due 10/25/35

    604      600

Series 2006-WM1 Class A2A

        

4.943% due 12/25/35

    100      99

Sharps SP I, LLC

        

7.000% due 01/25/34

    6      3

SLC Student Loan Trust (Ê)

        

Series 2007-1 Class A1

        

5.538% due 02/15/15

    690      686

SLM Student Loan Trust (Ê)

        

Series 2006-3 Class A2

        

5.084% due 01/25/16

    99      99

Series 2006-8 Class A2

        

5.084% due 10/25/16

    659      657

Series 2007-3 Class A1

        

5.074% due 10/27/14

    1,429      1,429

Fixed Income III Fund   81

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Small Business Administration

        

Series 2000-P10 Class 1

        

7.449% due 08/10/10

    34      34

Small Business Administration Participation Certificates

        

Series 1997-20D Class 1

        

7.500% due 04/01/17

    1,028      1,070

Series 2005-20G Class 1

        

4.750% due 07/01/25

    1,406      1,369

Soundview Home Equity Loan Trust

        

Series 2005-4 Class 2A3 (Ê)

        

5.103% due 03/25/36

    3,000      2,994

Series 2005-OPT Class 2A3

        

5.133% due 12/25/35

    1,166      1,127

Series 2006-2 Class A2 (Ê)

        

5.003% due 03/25/36

    995      991

Series 2006-EQ1 Class A1 (Ê)

        

4.923% due 10/25/36

    223      221

Series 2006-EQ2 Class A1 (Ê)

        

4.953% due 01/25/37

    1,675      1,659

Series 2006-OPT Class A2 (Ê)

        

4.993% due 05/25/36

    440      437

Series 2006-WF1 Class A2

        

5.645% due 10/25/36

    695      685

Specialty Underwriting & Residential
Finance (Ê)

        

Series 2005-BC4 Class A2B

        

5.103% due 09/25/36

    2,000      1,979

Series 2006-AB1 Class A1

        

4.953% due 12/25/36

    179      178

Series 2006-AB2 Class A2A

        

4.913% due 06/25/37

    273      270

Structured Asset Investment Loan Trust

        

Series 2003-BC1 Class 3A (Ê)

        

5.213% due 11/25/33

    12      12

Series 2003-BC1 Class A2

        

5.553% due 01/25/33

    1,270      1,227

Series 2005-3 Class M2 (Ê)

        

5.313% due 04/25/35

    210      196

Series 2005-6 Class A8 (Ê)

        

5.113% due 07/25/35

    1,563      1,562

Series 2005-7 Class A4 (Ê)

        

5.063% due 08/25/35

    1,830      1,814

Series 2006-BNC Class A2 (Ê)

        

4.913% due 09/25/36

    529      523

Structured Asset Securities Corp.

        

Series 2001-SB1 Class A2

        

3.375% due 08/25/31

    211      186
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2004-16X Class A2

        

4.910% due 08/25/34

    30      30

Series 2004-19X Class A2

        

4.370% due 10/25/34

    208      207

Series 2005-GEL Class A (Ê)

        

5.223% due 12/25/34

    116      114

Series 2006-BC3 Class A2 (Ê)

        

4.923% due 10/25/36

    1,160      1,149

Terwin Mortgage Trust (Þ)

        

Series 2006-2HG Class A1

        

4.500% due 03/25/37

    455      432

TXU Electric Delivery Transition Bond Co.

        

Series 2004-1 Class A2

        

4.810% due 11/17/14

    100      100

VTB Capital PLC (Ê)

        

6.540% due 12/07/09

    765      754

Washington Mutual Asset-Backed Certificates (Ê)

        

Series 2006-HE2 Class A1

        

4.913% due 05/25/36

    206      205

Wells Fargo Home Equity Trust (Ê)

        

Series 2005-4 Class AI1 (Þ)

        

4.993% due 12/25/35

    219      218

Series 2006-3 Class A1

        

4.923% due 01/25/37

    286      282

World Financial Properties (Å)

        

6.950% due 09/01/13

    159      164
         
        167,358
         

Certificates of Deposit - 0.2%

        

Bank of Ireland Governor & Co.

        

5.400% due 01/15/10

    2,200      2,203

Calyon NY

        

5.340% due 01/16/09

    700      700

Nordea Bank Finland PLC

        

5.297% due 04/09/09

    900      900
         
        3,803
         

Corporate Bonds and Notes - 17.3%

     

Abbott Laboratories

        

5.600% due 05/15/11

    865      884

5.875% due 05/15/16

    200      205

AbitibiBowater, Inc. (Ñ)

        

9.000% due 08/01/09

    500      490

Ace Capital Trust II (Ñ)

        

9.700% due 04/01/30

    375      479

AES Corp. (The) (Þ)

        

9.000% due 05/15/15

    375      399

82   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

AIG SunAmerica Global Financing
VI (Å)

        

6.300% due 05/10/11

    630      647

Alamosa Delaware, Inc.

        

8.500% due 01/31/12

    195      203

Alion Science and Technology Corp.

        

10.250% due 02/01/15

    595      556

Allied Waste NA, Inc. (Ñ)

        

Series B

        

7.125% due 05/15/16

    160      162

Allison Transmission (Ñ)(Å)

        

11.000% due 11/01/15

    400      407

11.250% due 11/01/15

    200      198

Altria Group, Inc.

        

7.000% due 11/04/13

    1,400      1,532

7.750% due 01/15/27 (Ñ)

    50      62

American Casino & Entertainment Properties LLC

        

7.850% due 02/01/12

    280      290

American Electric Power Co., Inc.

        

Series C

        

5.375% due 03/15/10

    40      40

American Express Bank FSB

        

Series BKNT

        

6.000% due 09/13/17

    100      101

American Express Centurion Bank

        

Series BKN1

        

6.000% due 09/13/17

    100      101

Series BKNT

        

5.130% due 06/12/09 (Ê)

    800      797

5.550% due 10/17/12

    620      626

American Express Credit Corp. (Ê)

        

5.184% due 03/02/09 (Ñ)

    600      598

5.182% due 11/09/09

    200      198

American General Finance Corp.

        

4.875% due 05/15/10

    425      422

Series MTNH

        

4.625% due 09/01/10

    20      20

Series MTNI

        

4.625% due 05/15/09

    70      69

American International Group, Inc.

        

5.110% due 06/16/09 (Ê)(Þ)

    300      300

4.700% due 10/01/10

    440      437

5.375% due 10/18/11

    560      565

5.050% due 10/01/15 (Ñ)

    765      742

6.250% due 03/15/87

    700      651

Americo Life, Inc. (Þ)

        

7.875% due 05/01/13

    100      102
     Principal
Amount ($)
or Shares		      Market
Value
$

Ameriprise Financial, Inc.

        

7.518% due 06/01/66

    1,815      1,855

AmerisourceBergen Corp.

        

5.875% due 09/15/15

    15      15

Series WI

        

5.625% due 09/15/12

    595      597

AMFM, Inc.

        

8.000% due 11/01/08

    225      229

Amgen, Inc. (Ê)(Þ)

        

5.585% due 11/28/08

    900      898

Amkor Technology, Inc. (Ñ)

        

7.750% due 05/15/13

    505      489

Anadarko Petroleum Corp.

        

5.950% due 09/15/16

    655      659

ANZ Capital Trust (ƒ)(Þ)

        

4.484% due 12/31/49

    575      561

Apache Corp.

        

5.250% due 04/15/13

    335      336

Appalachian Power Co.

        

Series O

        

5.650% due 08/15/12

    185      187

Aramark Corp.

        

8.500% due 02/01/15 (Ñ)

    460      466

8.856% due 02/01/15 (Ê)

    135      136

Arizona Public Service Co.

        

5.800% due 06/30/14

    150      150

6.250% due 08/01/16

    500      511

ArvinMeritor, Inc. (Ñ)

        

8.750% due 03/01/12

    175      174

AT&T Corp.

        

7.300% due 11/15/11

    598      645

8.000% due 11/15/31

    525      652

AT&T Mobility LLC

        

6.500% due 12/15/11

    480      503

AT&T, Inc.

        

5.785% due 11/14/08 (Ê)

    1,000      1,001

5.460% due 02/05/10 (Ê)

    200      199

5.100% due 09/15/14

    110      108

6.500% due 09/01/37

    195      206

Atmos Energy Corp.

        

6.350% due 06/15/17

    210      215

Avista Capital Trust III

        

6.500% due 04/01/34

    360      360

BAE Systems Holdings, Inc. (Þ)

        

6.400% due 12/15/11

    1,080      1,121

Bank of America Corp.

        

5.875% due 02/15/09

    70      70

5.608% due 06/19/09 (Ê)

    1,800      1,794

5.370% due 11/06/09 (Ê)

    200      199

Fixed Income III Fund   83

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

4.250% due 10/01/10

    45      44

5.625% due 10/14/16

    145      145

6.000% due 09/01/17

    955      974

Bank of America NA (Ê)

        

Series BKNT

        

5.704% due 06/12/09

    1,300      1,296

Bank of New York Mellon Corp. (The)

        

5.125% due 11/01/11

    725      725

Bausch & Lomb, Inc. (Å)

        

9.875% due 11/01/15

    370      381

Bear Stearns Cos., Inc. (The)

        

5.494% due 07/16/09 (Ê)

    2,200      2,176

5.590% due 08/21/09 (Ê)

    1,300      1,270

5.550% due 01/22/17

    440      411

6.400% due 10/02/17

    1,500      1,495

BellSouth Corp.

        

6.550% due 06/15/34

    85      89

Bellsouth Telecommunications, Inc.

        

7.000% due 12/01/95

    680      684

BNP Paribas Capital Trust (ƒ)(Þ)

        

9.003% due 12/29/49

    850      932

Boardwalk Pipelines, LP

        

5.875% due 11/15/16

    425      422

Boeing Capital Corp., Ltd.

        

6.100% due 03/01/11

    120      124

Boston Scientific Corp.

        

6.400% due 06/15/16

    1,140      1,066

BP AMI Leasing, Inc. (Ê)(Þ)

        

5.210% due 06/26/09

    1,000      1,001

Burlington Northern Santa Fe Corp.

        

6.750% due 07/15/11

    20      21

5.650% due 05/01/17

    370      366

6.875% due 12/01/27 (Ñ)

    60      63

Caesars Entertainment, Inc. (Ñ)

        

8.125% due 05/15/11

    2,100      2,131

California Steel Industries, Inc.

        

6.125% due 03/15/14

    900      821

Capmark Financial Group, Inc. (Å)

        

5.875% due 05/10/12

    590      530

6.300% due 05/10/17

    1,335      1,092

Carolina Power & Light Co.

        

6.500% due 07/15/12

    45      47

Caterpillar Financial Services Corp.

        

4.300% due 06/01/10

    585      577

5.850% due 09/01/17 (Ñ)

    260      265

Catlin Insurance Co., Ltd. (ƒ)(Å)

        

7.249% due 12/31/49

    430      406

CCH I Holdings LLC (Ñ)

        

(Step Up, 13.500%, 1/15/14)

Zero coupon due 1/22/08

    769      711
     Principal
Amount ($)
or Shares		      Market
Value
$

CenterPoint Energy Houston Electric LLC

        

Series J2

        

5.700% due 03/15/13

    135      136

CenterPoint Energy Resources Corp.

        

6.250% due 02/01/37

    55      53

Series B

        

7.875% due 04/01/13

    650      713

Chubb Corp.

        

6.375% due 03/29/37 (Ñ)

    450      443

6.000% due 05/11/37

    230      224

CIT Group Holdings, Inc. (Ê)

        

5.516% due 01/30/09

    400      389

CIT Group, Inc.

        

5.748% due 12/19/08 (Ê)

    100      98

5.834% due 06/08/09 (Ê)

    100      97

5.640% due 08/17/09 (Ê)

    700      672

6.875% due 11/01/09 (Ñ)

    55      56

4.125% due 11/03/09

    70      68

Citigroup Funding, Inc.

        

Zero coupon due 07/17/08

    125      169

5.714% due 12/08/08 (Ê)

    100      100

5.200% due 06/26/09 (Ê)

    400      398

Citigroup, Inc.

        

5.240% due 12/26/08 (Ê)

    500      500

5.024% due 01/30/09 (Ê)

    800      800

5.228% due 12/28/09 (Ê)

    700      698

6.500% due 01/18/11

    670      698

5.500% due 08/27/12

    600      607

5.300% due 10/17/12

    400      401

4.700% due 05/29/15

    170      160

5.850% due 08/02/16 (Ñ)

    150      151

6.000% due 08/15/17

    500      510

6.125% due 08/25/36

    200      195

5.875% due 05/29/37

    525      499

Citizens Communications Co.

        

9.250% due 05/15/11

    250      273

Clorox Co.

        

4.200% due 01/15/10

    155      152

CNA Financial Corp.

        

6.500% due 08/15/16

    275      282

Columbus Southern Power Co.

        

Series C

        

5.500% due 03/01/13

    75      75

Comcast Cable Communications Holdings, Inc.

        

9.455% due 11/15/22

    250      323

Comcast Cable Communications LLC

        

6.750% due 01/30/11

    140      146

84   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Comcast Cable Holdings LLC

        

9.800% due 02/01/12

    350      405

7.875% due 08/01/13

    850      935

Comcast Corp.

        

5.543% due 07/14/09 (Ê)

    500      498

6.500% due 01/15/15 (Ñ)

    105      110

5.900% due 03/15/16

    530      533

6.500% due 01/15/17

    210      220

5.875% due 02/15/18

    100      100

6.500% due 11/15/35

    425      431

6.450% due 03/15/37

    215      217

6.950% due 08/15/37

    1,220      1,306

Commonwealth Edison Co.

        

6.950% due 07/15/18

    100      105

Series 98

        

6.150% due 03/15/12

    220      227

Series 100

        

5.875% due 02/01/33

    300      287

Series 105

        

5.400% due 12/15/11

    225      226

Community Health Systems, Inc. (Þ)

        

8.875% due 07/15/15

    1,215      1,230

ConAgra Foods, Inc.

        

7.000% due 10/01/28 (Ñ)

    135      143

8.250% due 09/15/30

    75      90

Consolidated Natural Gas Co.

        

Series C

        

6.250% due 11/01/11

    80      83

Constellation Brands, Inc. (Ñ)

        

Series B

        

8.125% due 01/15/12

    475      483

Consumers Energy Co.

        

Series F

        

4.000% due 05/15/10

    100      98

Series H

        

4.800% due 02/17/09

    115      115

Continental Airlines, Inc.

        

Series 01-1

        

6.503% due 06/15/11

    215      216

Cooper Industries, Inc.

        

Series WI

        

5.250% due 11/15/12

    165      165

Costco Wholesale Corp.

        

5.500% due 03/15/17

    345      340

COX Communications, Inc.

        

4.625% due 01/15/10

    1,010      999

5.875% due 12/01/16 (Þ)

    175      174
     Principal
Amount ($)
or Shares		      Market
Value
$

Credit Suisse USA, Inc.

        

4.875% due 08/15/10

    130      130

5.250% due 03/02/11

    210      211

6.500% due 01/15/12

    70      73

5.500% due 08/15/13 (Ñ)

    55      55

4.875% due 01/15/15

    175      168

CSC Holdings, Inc.

        

Series B

        

8.125% due 07/15/09

    620      632

8.125% due 08/15/09

    515      525

Series WI

        

6.750% due 04/15/12

    160      155

CVS Caremark Corp.

        

5.750% due 08/15/11

    325      331

5.750% due 06/01/17

    930      925

CVS Lease Pass Through (Å)

        

6.036% due 12/10/28

    245      241

Daimler Finance NA LLC

        

6.053% due 03/13/09 (Ê)

    200      200

6.133% due 03/13/09 (Ê)(Ñ)

    500      500

5.810% due 08/03/09 (Ê)

    400      400

6.500% due 11/15/13

    375      394

8.500% due 01/18/31

    150      191

Series MTNE (Ñ)(Ê)

        

5.886% due 10/31/08

    1,100      1,100

Darden Restaurants, Inc.

        

6.200% due 10/15/17

    210      213

6.800% due 10/15/37

    240      248

DCP Midstream LLC (Ñ)

        

6.875% due 02/01/11

    20      21

Delhaize America, Inc.

        

9.000% due 04/15/31

    309      374

Delta Air Lines, Inc.

        

6.821% due 08/10/22 (Å)

    605      581

Series 00-1

        

7.379% due 05/18/10

    405      409

7.570% due 11/18/10

    320      330

Detroit Edison Co. (The)

        

6.125% due 10/01/10

    165      170

6.350% due 10/15/32

    130      132

Developers Diversified Realty Corp.

        

4.625% due 08/01/10

    305      300

5.250% due 04/15/11

    70      70

5.375% due 10/15/12

    385      380

Devon Financing Corp. ULC

        

6.875% due 09/30/11

    130      138

7.875% due 09/30/31

    245      297

Fixed Income III Fund   85

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Dex Media East Finance Co.

        

9.875% due 11/15/09

    375      385

12.125% due 11/15/12

    570      606

Dex Media Finance Co.

        

Series B

        

9.875% due 08/15/13

    255      272

DirecTV Financing Co.

        

8.375% due 03/15/13

    250      261

Discover Financial Services (Ê)(Þ)

        

6.234% due 06/11/10

    965      938

Dobson Cellular Systems, Inc.

        

9.875% due 11/01/12

    835      904

Dominion Resources, Inc. (Ñ)

        

Series 06-B

        

6.300% due 09/30/66

    500      498

Series A

        

5.200% due 01/15/16

    545      523

Series B

        

6.250% due 06/30/12

    263      272

DPL, Inc.

        

6.875% due 09/01/11

    561      589

Drummond Co., Inc. (Å)

        

7.375% due 02/15/16

    470      442

E*Trade Financial Corp.

        

8.000% due 06/15/11

    930      883

Echostar DBS Corp.

        

6.375% due 10/01/11

    270      273

6.625% due 10/01/14

    95      97

7.125% due 02/01/16

    250      261

El Paso Corp.

        

8.050% due 10/15/30

    300      308

Series * (Ñ)

        

9.625% due 05/15/12

    300      327

El Paso Natural Gas Co.

        

7.500% due 11/15/26

    250      266

Eli Lilly & Co. (Ñ)

        

5.200% due 03/15/17

    730      720

Energy Future Holdings (Þ)

        

10.875% due 11/01/17

    420      425

Energy Partners, Ltd.

        

9.750% due 04/15/14

    215      236

Energy Transfer Partners, LP

        

5.950% due 02/01/15

    950      940

Entergy Gulf States, Inc. (Ê)(Å)

        

6.474% due 12/08/08

    195      196

Enterprise Products Operating, LP

        

4.950% due 06/01/10

    275      274

8.375% due 08/01/66

    545      567

7.034% due 01/15/68

    75      69
     Principal
Amount ($)
or Shares		      Market
Value
$

Erac USA Finance Co. (Þ)

        

5.300% due 11/15/08

    100      99

Exelon Generation Co. LLC

        

6.200% due 10/01/17

    270      271

Farmers Exchange Capital (Å)

        

7.050% due 07/15/28

    1,520      1,545

Farmers Insurance Exchange (Þ)

        

6.000% due 08/01/14

    255      260

FedEx Corp.

        

5.500% due 08/15/09

    45      45

7.600% due 07/01/97

    180      205

First Data Corp. (Ñ) (Å)

        

9.875% due 09/24/15

    575      551

First Union Institutional Capital II

        

7.850% due 01/01/27

    540      562

FirstEnergy Corp.

        

Series B

        

6.450% due 11/15/11

    745      769

Series C

        

7.375% due 11/15/31

    275      300

Ford Motor Co. (Ñ)

        

7.450% due 07/16/31

    1,200      948

Ford Motor Credit Co. LLC

        

5.800% due 01/12/09 (Ñ)

    1,000      965

9.875% due 08/10/11

    2,870      2,866

7.250% due 10/25/11

    195      181

7.993% due 01/13/12 (Ê)

    520      481

7.800% due 06/01/12

    310      291

7.000% due 10/01/13 (Ñ)

    60      54

8.000% due 12/15/16

    330      306

Series WI

        

9.750% due 09/15/10

    655      652

Freeport-McMoRan Copper & Gold, Inc.

        

8.375% due 04/01/17

    1,510      1,653

Freescale Semiconductor, Inc.

        

8.875% due 12/15/14

    205      194

10.125% due 12/15/16 (Ñ)

    435      394

Gambles Credit
Zero coupon due 10/10/14

    995      993

General Electric Capital Corp.

        

5.250% due 01/20/10 (Ê)

    1,100      1,098

5.250% due 10/19/12

    515      518

5.443% due 01/08/16 (Ê)

    100      98

5.625% due 09/15/17

    290      293

Series GMTN (Ê)

        

5.734% due 03/12/10

    200      199

Series GMTN

        

5.500% due 04/28/11

    400      405

86   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series MTN (Ê)

        

5.283% due 01/05/09

    500      500

5.095% due 10/26/09

    1,400      1,396

Series MTNA

        

4.250% due 12/01/10 (Ñ)

    55      54

5.875% due 02/15/12

    60      62

5.450% due 01/15/13

    1,290      1,304

General Electric Co.

        

5.000% due 02/01/13

    45      45

General Mills, Inc.

        

5.650% due 09/10/12

    220      223

General Motors Corp. (Ñ)

        

8.375% due 07/15/33

    1,115      1,015

Georgia-Pacific Corp.

        

9.500% due 12/01/11

    375      396

8.875% due 05/15/31

    448      448

Glencore Nickel, Ltd. (Ø)

        

9.000% due 12/01/14

    235      —

GMAC LLC

        

5.750% due 05/21/10

    1,140      1,503

6.875% due 09/15/11

    2,655      2,447

8.000% due 11/01/31 (Ñ)

    1,530      1,414

Goldman Sachs Group, Inc. (The)

        

5.248% due 03/30/09 (Ê)

    400      399

5.300% due 06/23/09 (Ê)

    900      898

5.610% due 11/16/09 (Ê)

    200      200

6.875% due 01/15/11

    1,140      1,193

5.350% due 01/15/16

    1,095      1,066

5.625% due 01/15/17 (Ñ)

    465      450

6.250% due 09/01/17 (Ñ)

    2,395      2,436

6.750% due 10/01/37

    85      85

Series MTNB

        

5.470% due 11/10/08 (Ê)

    400      399

5.481% due 07/23/09

    700      700

Goodyear Tire & Rubber Co. (The) (Ñ)

        

9.135% due 12/01/09 (Ê)

    500      506

9.000% due 07/01/15

    125      137

GrafTech Finance, Inc.

        

10.250% due 02/15/12

    375      392

GulfSouth Pipeline Co., LP (Þ)

        

6.300% due 08/15/17

    275      282

Halliburton Co.

        

5.500% due 10/15/10

    125      127

Harrah’s Operating Co., Inc.

        

5.500% due 07/01/10

    200      193

6.500% due 06/01/16 (Ñ)

    965      765

Hawaiian Telcom Communications, Inc. (Ê)(Ñ)

        
     Principal
Amount ($)
or Shares		      Market
Value
$

Series B

        

10.860% due 05/01/13

    655      663

HCA, Inc.

        

6.500% due 02/15/16 (Ñ)

    325      277

Series WI

        

9.125% due 11/15/14

    625      647

9.250% due 11/15/16

    330      347

9.625% due 11/15/16

    125      132

HCP, Inc. (Ñ)

        

5.950% due 09/15/11

    575      582

Health Net, Inc.

        

6.375% due 06/01/17

    490      484

Healthsouth Corp. (Ñ)

        

10.750% due 06/15/16

    645      680

Hertz Corp.

        

8.875% due 01/01/14

    460      474

Historic TW, Inc.

        

8.050% due 01/15/16

    540      609

HJ Heinz Co. (Þ)

        

6.428% due 12/01/08

    100      102

HJ Heinz Finance Co.

        

6.000% due 03/15/12

    50      51

Home Depot, Inc.

        

5.400% due 03/01/16

    95      91

Hospira, Inc. (Ê)

        

5.678% due 03/30/10

    260      258

HRPT Properties Trust

        

5.750% due 02/15/14

    880      862

HSBC Bank PLC

        

Zero coupon due 02/21/12

    330      359

HSBC Finance Corp.

        

5.809% due 12/05/08 (Ê)

    100      100

5.875% due 02/01/09

    210      212

5.240% due 10/21/09 (Ê)

    300      298

4.125% due 11/16/09 (Ñ)

    105      103

8.000% due 07/15/10

    45      48

6.375% due 10/15/11

    380      393

6.375% due 11/27/12

    520      540

5.000% due 06/30/15

    455      431

HUB International Holdings, Inc. (Þ)

        

10.250% due 06/15/15

    950      879

Huntsman LLC

        

11.500% due 07/15/12

    500      544

ICI Wilmington, Inc.

        

4.375% due 12/01/08

    65      65

Idearc, Inc.

        

8.000% due 11/15/16

    250      251

Fixed Income III Fund   87

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Inmarsat Finance PLC

        

(Step Up, 10.375%, 11/15/08)

        

Zero coupon due 11/15/12

    375      362

International Business Machines Corp.

        

5.700% due 09/14/17

    455      462

7.125% due 12/01/96

    570      639

International Lease Finance Corp.

        

5.750% due 06/15/11

    185      187

5.625% due 09/20/13

    190      190

International Paper Co.

        

5.850% due 10/30/12

    1,330      1,351

International Steel Group, Inc. (Ñ)

        

6.500% due 04/15/14

    570      585

iPCS, Inc. (Ê)

        

7.481% due 05/01/13

    85      83

iStar Financial, Inc.

        

Series B

        

5.125% due 04/01/11

    350      327

JC Penney Corp., Inc.

        

6.375% due 10/15/36

    555      529

Jersey Central Power & Light Co.

        

5.625% due 05/01/16

    275      269

Johnson & Johnson

        

5.550% due 08/15/17

    95      98

5.950% due 08/15/37

    115      120

JP Morgan Chase Bank

        

Series EMTN

        

6.000% due 05/22/45

    2,103      1,970

JP Morgan Chase Capital XX (Ñ)

        

Series T

        

6.550% due 09/15/66

    100      94

JPMorgan Chase & Co.

        

6.000% due 02/15/09

    35      35

7.000% due 11/15/09

    125      130

5.400% due 05/07/10 (Ê)

    600      596

6.750% due 02/01/11

    70      73

5.600% due 06/01/11

    235      239

5.375% due 01/15/14

    495      495

JPMorgan Chase Bank NA

        

Series BKNT

        

5.875% due 06/13/16

    240      243

K Hovnanian Enterprises, Inc. (Ñ)

        

6.000% due 01/15/10

    500      382

KAR Holdings, Inc. (Þ)

        

10.000% due 05/01/15

    745      711

KBC Bank Funding Trust II(ƒ)

        

6.880% due 06/30/49

    600      888

KBC Bank Funding Trust III (ƒ)(Þ)

        

9.860% due 11/29/49

    490      536
     Principal
Amount ($)
or Shares		      Market
Value
$

Kellogg Co.

        

Series B

        

6.600% due 04/01/11

    1,180      1,232

Kerr-McGee Corp.

        

6.950% due 07/01/24

    450      479

Kraft Foods, Inc.

        

4.125% due 11/12/09

    285      281

6.000% due 08/11/10 (Ê)

    1,800      1,802

5.625% due 11/01/11

    1,425      1,445

6.500% due 08/11/17

    325      341

6.500% due 11/01/31

    180      183

Kroger Co. (The)

        

7.250% due 06/01/09

    175      181

8.000% due 09/15/29

    55      62

7.500% due 04/01/31

    55      62

L-3 Communications Corp.

        

Series B

        

6.375% due 10/15/15

    250      250

LaBranche & Co., Inc.

        

9.500% due 05/15/09 (Ñ)

    670      680

11.000% due 05/15/12

    360      356

Land O’ Lakes, Inc.

        

8.750% due 11/15/11

    125      128

Lear Corp.

        

Series B

        

8.750% due 12/01/16

    140      134

Lehman Brothers Holdings, Inc.

        

5.320% due 04/03/09 (Ê)

    800      790

5.600% due 08/21/09 (Ê)

    300      297

5.645% due 05/25/10 (Ê)

    400      394

5.429% due 07/18/11 (Ê)

    300      291

5.250% due 02/06/12

    200      197

5.375% due 10/17/12

    1,000      1,427

6.200% due 09/26/14

    1,650      1,661

5.500% due 04/04/16

    335      323

6.500% due 07/19/17

    995      1,002

7.000% due 09/27/27

    210      215

6.875% due 07/17/37

    1,065      1,055

Series MTN (Ê)

        

5.630% due 11/16/09

    300      296

Series MTNG (Ê)

        

5.630% due 11/10/09

    300      294

Lehman XS Trust (Ê)

        

Series 2007-16N Class 2A2

        

5.723% due 09/25/47

    2,986      2,973

Level 3 Communications, Inc.

        

6.000% due 09/15/09

    140      131

Level 3 Financing, Inc.

        

12.250% due 03/15/13

    890      952

88   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Liberty Mutual Group, Inc. (Þ)

        

7.000% due 03/15/37

    780      733

7.800% due 03/15/37

    2,135      2,016

Limited Brands, Inc.

        

6.900% due 07/15/17

    510      503

7.600% due 07/15/37

    475      469

Lowe’s Cos., Inc.

        

6.100% due 09/15/17

    135      138

Lubrizol Corp.

        

4.625% due 10/01/09

    320      317

Lyondell Chemical Co. (Ñ)

        

8.250% due 09/15/16

    940      1,074

M&T Bank Corp.

        

5.375% due 05/24/12

    700      710

MacDermid, Inc. (Þ)

        

9.500% due 04/15/17

    865      826

Macys Retail Holdings, Inc.

        

5.350% due 03/15/12

    310      302

Mandalay Resort Group

        

6.500% due 07/31/09

    160      160

Manufacturers & Traders Trust Co.

        

5.585% due 12/28/20

    334      323

Marsh & McLennan Cos., Inc.

        

5.150% due 09/15/10

    490      489

Max USA Holdings, Ltd. (Þ)

        

7.200% due 04/14/17

    400      392

McDonald’s Corp.

        

5.800% due 10/15/17

    1,410      1,424

McLeodUSA, Inc. (Å)

        

10.500% due 10/01/11

    655      737

Medco Health Solutions, Inc.

        

7.250% due 08/15/13

    900      952

MedQuest, Inc. Series B

        

11.875% due 08/15/12

    640      654

Merrill Lynch & Co., Inc.

        

5.284% due 07/25/11 (Ê)

    500      487

6.050% due 08/15/12

    1,555      1,578

6.050% due 05/16/16

    235      233

5.700% due 05/02/17

    180      172

6.400% due 08/28/17

    1,680      1,695

Series MTN (Ê)

        

5.406% due 05/08/09

    400      396

5.665% due 08/14/09

    400      395

Series MTNC

        

4.250% due 02/08/10

    75      73

MetLife, Inc.

        

5.000% due 06/15/15

    220      210

6.400% due 12/15/36

    100      95
     Principal
Amount ($)
or Shares		      Market
Value
$

Metropolitan Life Global
Funding I (Ê)(Þ)

        

5.560% due 05/17/10

    800      793

MGM Mirage

        

6.750% due 09/01/12

    690      680

Midamerican Energy Holdings Co. (Ñ)

        

Series WI

        

6.125% due 04/01/36

    450      445

Midamerican Funding LLC

        

6.750% due 03/01/11

    530      550

Miller Brewing Co. (Þ)

        

5.500% due 08/15/13

    285      284

Mohegan Tribal Gaming Authority

        

8.000% due 04/01/12

    125      128

Monumental Global Funding II (Þ)

        

4.625% due 03/15/10

    135      134

Morgan Stanley

        

5.038% due 11/21/08 (Ê)

    500      498

5.410% due 05/07/09 (Ê)

    200      199

5.375% due 10/15/15

    335      322

5.550% due 04/27/17

    220      214

6.250% due 08/28/17

    400      410

Series GMTN

        

5.470% due 02/09/09

    1,400      1,396

5.750% due 08/31/12 (Ñ)

    350      356

Series MTN (Ê)

        

5.333% due 01/15/10

    300      297

Natexis Ambs Co. LLC (ƒ)(Þ)

        

8.440% due 12/29/49

    185      189

National Rural Utilities Cooperative Finance Corp.

        

5.750% due 08/28/09

    85      86

5.450% due 04/10/17

    660      650

Nationwide Financial Services

        

6.250% due 11/15/11

    265      272

Nationwide Mutual Insurance Co. (Þ)

        

7.875% due 04/01/33

    625      716

Neff Corp. (Ñ)

        

Series WI

        

10.000% due 06/01/15

    305      220

Neiman - Marcus Group, Inc.

        

7.125% due 06/01/28

    1,500      1,447

Nelnet, Inc.

        

7.400% due 09/29/36

    225      221

Nevada Power Co.

        

Series L

        

5.875% due 01/15/15

    175      176

Fixed Income III Fund   89

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

New Cingular Wireless Services, Inc.

        

7.875% due 03/01/11

    275      298

8.125% due 05/01/12

    1,345      1,500

8.750% due 03/01/31

    180      233

News America Holdings, Inc.

        

9.250% due 02/01/13

    25      29

7.750% due 12/01/45

    410      465

7.900% due 12/01/95

    120      131

8.250% due 10/17/96

    45      51

Nextel Communications, Inc.

        

Series E

        

6.875% due 10/31/13

    660      662

Nisource Finance Corp.

        

6.064% due 11/23/09 (Ê)

    120      120

7.875% due 11/15/10

    345      369

6.400% due 03/15/18

    395      401

Noranda Aluminium Acquisition Corp. (Ê)(Þ)

        

9.360% due 05/15/15

    375      346

Norfolk Southern Corp.

        

7.050% due 05/01/37

    340      376

7.900% due 05/15/97

    1,325      1,521

North Front Pass-Through Trust (Þ)

        

5.810% due 12/15/24

    1,255      1,229

Nuveen Investments, Inc.

        

10.500% due 11/15/15

    685      693

Ohio Power Co.

        

Series F

        

5.500% due 02/15/13

    25      25

Series K

        

6.000% due 06/01/16

    170      173

ONEOK Partners, LP

        

6.650% due 10/01/36

    175      178

6.850% due 10/15/37

    475      496

Pacific Gas & Electric Co.

        

4.200% due 03/01/11

    275      268

6.050% due 03/01/34

    200      199

PAETEC Holding Corp. (Þ)

        

9.500% due 07/15/15

    675      692

Panama Canal Railway Co. (Å)

        

7.000% due 11/01/26

    500      501

PartnerRe Finance II

        

6.440% due 12/01/66

    75      70

Peabody Energy Corp.

        

7.875% due 11/01/26

    100      104

Pemex Project Funding Master Trust

        

5.750% due 03/01/18 (Å)

    645      650

Series 144A (Þ)

        

6.625% due 06/15/35

    10      11
     Principal
Amount ($)
or Shares		      Market
Value
$

Series REGS

        

5.750% due 03/01/18

    645      650

Pepco Holdings, Inc.

        

6.246% due 06/01/10

    405      404

Phoenix Life Insurance Co. (Þ)

        

7.150% due 12/15/34

    275      289

Pilgrim’s Pride Corp.

        

7.625% due 05/01/15

    135      136

Platinum Underwriters Finance, Inc.

        

Series B

        

7.500% due 06/01/17

    170      181

Popular North America Capital Trust I

        

6.564% due 09/15/34

    205      176

Premcor Refining Group, Inc. (The)

        

9.500% due 02/01/13

    1,500      1,582

Pride International, Inc.

        

7.375% due 07/15/14

    545      559

Progress Energy, Inc.

        

7.100% due 03/01/11

    457      482

5.625% due 01/15/16 (Ñ)

    90      89

7.000% due 10/30/31

    205      224

Qwest Corp.

        

7.875% due 09/01/11

    905      955

7.625% due 06/15/15

    200      210

Rabobank Capital Funding II (ƒ)(Å)

        

5.260% due 12/31/49

    320      306

Raytheon Co.

        

6.750% due 03/15/18

    200      217

RBS Capital Trust I (ƒ)

        

4.709% due 12/29/49

    30      27

RBS Capital Trust III (ƒ)

        

5.512% due 09/29/49

    500      468

Realogy Corp. (Ñ)(Þ)

        

12.375% due 04/15/15

    605      442

Reckson Operating Partnership, LP

        

7.750% due 03/15/09

    75      77

5.150% due 01/15/11

    135      133

Reinsurance Group of America, Inc.

        

6.750% due 12/15/65

    100      95

Residential Capital LLC

        

7.125% due 11/21/08 (Ê)

    740      623

9.044% due 04/17/09 (Ê)

    605      375

7.375% due 06/30/10 (Ê)

    917      676

6.000% due 02/22/11

    435      318

5.125% due 05/17/12

    375      375

6.500% due 06/01/12

    350      255

7.500% due 04/17/13 (Ê)

    530      387

Series WI

        

6.875% due 06/30/15

    1,120      818

90   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Rohm & Haas Co.

        

6.000% due 09/15/17

    200      203

RSC Equipment Rental, Inc.

        

9.500% due 12/01/14

    365      351

Ryerson, Inc. (Å)

        

12.000% due 11/01/15

    675      694

Safeway, Inc. (Ñ)

        

5.800% due 08/15/12

    65      66

7.250% due 02/01/31

    15      16

SB Treasury Co. LLC (ƒ)(Þ)

        

9.400% due 12/29/49

    650      663

Schering-Plough Corp.

        

5.530% due 12/01/13

    540      542

6.550% due 09/15/37

    300      311

Simon Property Group, LP

        

5.600% due 09/01/11

    300      301

SLM Corp.

        

4.000% due 01/15/10

    175      164

Series MTNA

        

5.224% due 07/27/09

    2,000      1,923

4.500% due 07/26/10

    540      506

Smurfit-Stone Container Enterprises, Inc.

        

8.375% due 07/01/12

    450      450

Southern California Edison Co.

        

7.625% due 01/15/10

    110      116

Southern Copper Corp.

        

7.500% due 07/27/35

    605      659

Southern Natural Gas Co.

        

7.350% due 02/15/31

    275      292

Spansion, Inc. (Ñ)(Þ)

        

11.250% due 01/15/16

    455      437

Sprint Capital Corp.

        

7.625% due 01/30/11

    1,220      1,289

6.875% due 11/15/28

    145      139

8.750% due 03/15/32

    550      627

Sprint Nextel Corp.

        

6.000% due 12/01/16

    1,020      981

Starbucks Corp.

        

6.250% due 08/15/17

    215      219

Stingray Pass-Through Trust (Þ)

        

5.902% due 01/12/15

    1,000      749

Suncom Wireless, Inc. (Ñ)

        

8.500% due 06/01/13

    855      897

Sungard Data Systems, Inc. (Ñ)

        

10.250% due 08/15/15

    376      392

Swiss Re Capital I, LP (ƒ)(Þ)

        

6.854% due 05/29/49

    400      403
     Principal
Amount ($)
or Shares		      Market
Value
$

Symetra Financial Corp.

       

6.125% due 04/01/16 (Þ)

    300      301

8.300% due 10/15/37 (Å)

    575      586

Temple-Inland, Inc.

        

7.875% due 05/01/12

    995      1,084

Tennessee Gas Pipeline Co.

        

7.000% due 10/15/28

    150      153

Tesoro Corp. (Å)

        

6.500% due 06/01/17

    500      494

Texas Competitive Electric Holdings Co. LLC (Þ)

        

10.250% due 11/01/15

    875      879

Time Warner Cable, Inc.

        

Series WI

        

5.400% due 07/02/12

    1,665      1,660

5.850% due 05/01/17

    735      729

6.550% due 05/01/37

    400      403

Time Warner Entertainment Co., LP

        

Series *

        

8.375% due 03/15/23

    315      372

Time Warner, Inc.

        

5.730% due 11/13/09 (Ê)

    2,200      2,187

5.500% due 11/15/11

    445      446

Transcontinental Gas Pipe Line Corp.

        

7.250% due 12/01/26

    250      266

Travelers Cos., Inc. (The)

        

5.375% due 06/15/12

    330      332

6.250% due 06/15/37

    225      222

Travelport LLC (Ñ)

        

11.875% due 09/01/16

    385      416

Twin Reefs Pass-Through
Trust (Ê)(ƒ)(Þ)

        

6.120% due 12/10/49

    500      431

Unilever Capital Corp. (Ñ)

        

5.900% due 11/15/32

    430      424

Union Electric Co. (Ñ)

        

6.400% due 06/15/17

    830      874

Union Pacific Corp.

        

3.625% due 06/01/10

    120      116

6.125% due 01/15/12

    195      200

Union Planters Corp.

        

7.750% due 03/01/11

    125      134

United Rentals NA, Inc. (Ñ)

        

6.500% due 02/15/12

    500      517

United States Steel Corp.

        

5.650% due 06/01/13

    555      537

6.050% due 06/01/17

    655      629

6.650% due 06/01/37

    105      99

Fixed Income III Fund   91

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

UnitedHealth Group, Inc.

        

5.250% due 03/15/11

    185      186

6.000% due 06/15/17 (Þ)

    155      158

6.500% due 06/15/37 (Þ)

    760      779

Universal City Development Partners

        

11.750% due 04/01/10

    375      394

Unum Group

        

5.859% due 05/15/09

    240      242

US Oncology, Inc.

        

9.000% due 08/15/12

    340      341

USB Capital IX (Ñ)

        

6.189% due 04/15/49

    100      101

USB Realty Corp. (ƒ)(Þ)

        

6.091% due 12/22/49

    700      678

Valero Logistics Operations, LP

        

6.050% due 03/15/13

    640      645

Verizon Global Funding Corp. (Ñ)

        

6.875% due 06/15/12

    3,975      4,256

Verizon New England, Inc. (Ñ)

        

6.500% due 09/15/11

    40      42

Viacom, Inc.

        

5.750% due 04/30/11

    660      666

6.875% due 04/30/36

    235      238

Visteon Corp. (Ñ)

        

8.250% due 08/01/10

    220      205

Wachovia Bank NA (Ê)

        

Series DPNT

        

5.250% due 03/23/09

    700      698

Wachovia Capital Trust III (ƒ)

        

5.800% due 03/15/42

    1,585      1,572

Wachovia Corp.

        

5.671% due 12/01/09 (Ê)

    400      398

5.625% due 10/15/16 (Ñ)

    100      99

5.750% due 06/15/17

    395      397

Walt Disney Co. (The) (Ê)

        

5.294% due 07/16/10

    1,400      1,395

Washington Mutual Preferred
Funding (ƒ)(Å)

        

9.750% due 10/29/49

    1,400      1,386

6.665% due 12/31/49

    300      228

WellPoint, Inc.

        

4.250% due 12/15/09

    50      49

5.850% due 01/15/36

    535      503

6.375% due 06/15/37 (Ñ)

    595      605

Wells Fargo & Co.

        

5.250% due 10/23/12

    395      396

4.950% due 10/16/13

    155      151

Wells Fargo Bank NA

        

5.750% due 05/16/16

    385      387
     Principal
Amount ($)
or Shares		      Market
Value
$

Weyerhaeuser Co.

        

6.750% due 03/15/12

    1,090      1,135

Willis NA, Inc.

        

5.125% due 07/15/10

    300      298

Windstream Corp.

        

Series WI

        

8.625% due 08/01/16

    125      134

Wyeth

        

6.950% due 03/15/11

    865      916

5.500% due 03/15/13

    385      388

5.500% due 02/01/14

    450      451

5.950% due 04/01/37

    970      959

Xcel Energy, Inc.

        

6.500% due 07/01/36

    160      161

Xerox Corp.

        

5.500% due 05/15/12

    485      485

Xlliac Global Funding (Å)

        

4.800% due 08/10/10

    240      237

Yum! Brands, Inc.

        

8.875% due 04/15/11

    110      122

ZFS Finance USA Trust I (Þ)

        

5.875% due 05/09/32

    520      483

6.500% due 05/09/67

    520      500
         
        271,254
         

International Debt - 7.3%

        

Abbey National PLC (ƒ)

        

(Step Up, 7.730%, 06/15/08)

        

6.700% due 06/29/49

    275      278

Abu Dhabi National Energy Co. (Þ)

        

5.875% due 10/27/16

    260      255

6.500% due 10/27/36

    530      516

Alfa MTN Markets, Ltd. for ABH Financial Ltd (Þ)

        

8.200% due 06/25/12

    525      500

Altos Hornos de Mexico SA de CV (Ø)

        

Series A

        

11.375% due 04/30/49

    835      622

America Movil SAB de CV

        

5.500% due 03/01/14

    200      200

ANZ National International, Ltd. (Ê)(Þ)

        

5.396% due 08/07/09

    1,300      1,296

Argentina Bonos

        

Series VII

        

7.000% due 09/12/13

    2,080      1,877

Arlington Street CDO, Ltd. (Þ)

        

Series 2000-1A Class A2

        

7.660% due 06/10/12

    825      814

92   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Arran Residential Mortgages Funding
PLC (Ê)(Þ)

        

Series 2006-1A Class A1B

        

5.130% due 04/12/36

    62      62

Aspen Insurance Holdings, Ltd.

        

6.000% due 08/15/14

    75      74

AstraZeneca PLC

        

5.900% due 09/15/17

    200      205

6.450% due 09/15/37

    100      105

AXA SA

        

8.600% due 12/15/30

    85      106

6.463% due 12/31/49 (ƒ)(Þ)

    125      116

Banco Mercantil del Norte SA (Þ)

        

6.862% due 10/13/21

    620      627

Bank of Scotland PLC (Ê)(Þ)

        

Series MTN

        

5.254% due 07/17/09

    600      599

Barclays Bank PLC

        

5.450% due 09/12/12

    4,500      4,550

7.375% due 06/29/49 (ƒ)(Þ)

    965      1,006

7.434% due 09/29/49 (ƒ)(Ñ)(Þ)

    340      360

BNP Paribas (ƒ)(Þ)

        

5.186% due 06/29/49

    600      556

Bolivarian Republic of Venezuela (Ñ)

        

9.375% due 01/13/34

    435      480

British Telecommunications PLC

        

8.625% due 12/15/10

    870      957

Brookfield Asset Management, Inc.

        

7.125% due 06/15/12

    225      241

5.800% due 04/25/17

    170      170

C10 Capital SPV, Ltd. (ƒ)(Þ)

        

6.722% due 12/31/49

    300      289

Canadian Natural Resources, Ltd.

        

6.000% due 08/15/16

    70      71

5.700% due 05/15/17

    275      273

5.850% due 02/01/35

    25      24

6.500% due 02/15/37

    435      445

6.250% due 03/15/38

    595      588

Canadian Oil Sands, Ltd. (Þ)

        

4.800% due 08/10/09

    170      169

Catalyst Paper Corp.

        

Series D

        

8.625% due 06/15/11

    1,440      1,141

China Development Bank

        

5.000% due 10/15/15

    100      97

CIT Group Funding Co. of Canada

        

5.600% due 11/02/11

    185      180

Citic Resources Finance, Ltd. (Ñ)(Å)

        

6.750% due 05/15/14

    1,000      960
     Principal
Amount ($)
or Shares		      Market
Value
$

Citigroup Global Markets Deutschland AG for OAO Gazprom

        

10.500% due 10/21/09

    100      109

Conoco Funding Co.

        

6.350% due 10/15/11

    1,100      1,155

Covidien International Finance SA (Å)

        

5.450% due 10/15/12

    440      440

6.000% due 10/15/17

    745      755

6.550% due 10/15/37

    510      520

Credit Agricole SA/London (Ê)(Þ)

        

5.505% due 05/28/09

    400      400

5.555% due 05/28/10

    400      400

Deutsche ALT-A Securities NIM Trust (Å)

        

Series 2007-AHM Class N1

        

6.750% due 02/25/47

    194      188

Deutsche Bank AG (Ñ)

        

6.000% due 09/01/17

    1,100      1,125

Deutsche Telekom International Finance BV

        

8.000% due 06/15/10

    240      257

5.375% due 03/23/11

    125      126

8.250% due 06/15/30

    325      405

DNB Nor Bank ASA (Ê)(Þ)

        

5.313% due 10/13/09

    2,400      2,402

DP World, Ltd. (Ñ)(Þ)

        

6.850% due 07/02/37

    765      768

EEB International, Ltd. (Å)

        

8.750% due 10/31/14

    470      466

Egypt Government AID Bonds

        

4.450% due 09/15/15

    695      677

Endurance Specialty Holdings, Ltd.

        

6.150% due 10/15/15

    175      171

7.000% due 07/15/34

    275      261

Enel Finance International SA (Þ)

        

6.250% due 09/15/17

    1,500      1,537

Export-Import Bank of China (Þ)

        

4.875% due 07/21/15

    495      477

Export-Import Bank of Korea

        

4.125% due 02/10/09 (Þ)

    160      158

5.125% due 02/14/11

    225      225

5.500% due 10/17/12

    540      544

FBG Finance, Ltd. (Å)

        

5.125% due 06/15/15

    190      185

Federative Republic of Brazil

        

6.000% due 01/17/17

    2,745      2,805

FMG Finance Pty, Ltd. (Þ)

        

10.625% due 09/01/16

    1,280      1,517

Fixed Income III Fund   93

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

France Telecom SA (Ñ)

        

8.500% due 03/01/31

    260      341

Galaxy Entertainment Finance Co., Ltd. (Þ)

        

9.875% due 12/15/12

    700      751

Gaz Capital for Gazprom (Å)

        

6.212% due 11/22/16

    300      296

GTL Trade Finance, Inc. (Å)

        

7.250% due 10/20/17

    1,120      1,134

Harborview NIM Corp.

        

Series 2006-9A Class N1 (Å)

        

6.409% due 11/19/36

    102      101

Series 2007-14 Class N1 (Å)

        

6.409% due 12/19/36

    110      110

Series 2007-1A Class N1 (Þ)

        

6.409% due 03/19/37

    119      115

HBOS PLC (ƒ)(Þ)

        

5.920% due 09/29/49

    300      273

HSBC Holdings PLC

        

6.500% due 05/02/36

    385      380

6.500% due 09/15/37

    200      198

Inco, Ltd.

        

5.700% due 10/15/15

    375      367

Independencia International, Ltd.

        

Series REGS

        

9.875% due 01/31/17

    203      208

Intelsat Bermuda, Ltd.

        

11.409% due 06/15/13 (Ê)

    250      261

8.886% due 01/15/15 (Ê)

    515      523

Series WI

        

11.250% due 06/15/16

    820      882

Intelsat Subsidiary Holding Co., Ltd.

        

8.625% due 01/15/15

    250      254

Intergen NV (Þ)

        

9.000% due 06/30/17

    550      582

Invesco PLC

        

4.500% due 12/15/09

    730      720

5.625% due 04/17/12

    810      801

5.375% due 02/27/13

    460      446

Ispat Inland ULC

        

9.750% due 04/01/14

    1,834      1,996

Korea Electric Power Corp. (Þ)

        

5.125% due 04/23/34

    85      84

Kreditanstalt fuer Wiederaufbau (Ñ)

        

Series GMTN

        

4.500% due 09/21/09

    13,200      13,252

Landsbanki Islands HF (ƒ)(Ñ)(Å)

        

7.431% due 12/31/49

    910      895
     Principal
Amount ($)
or Shares		      Market
Value
$

LG Electronics, Inc. (Å)

        

5.000% due 06/17/10

    130      129

Lukoil International Finance BV (Þ)

        

6.356% due 06/07/17

    975      938

Mantis Reef, Ltd. (Å)

        

4.692% due 11/14/08

    200      199

Millicom International Cellular SA

        

10.000% due 12/01/13

    500      538

Mizuho Financial Group Cayman, Ltd. (Þ)

        

5.790% due 04/15/14

    280      283

Montpelier Re Holdings, Ltd.

        

6.125% due 08/15/13

    860      856

MUFG Capital Finance 1, Ltd. (ƒ)

        

6.346% due 07/25/99

    525      501

National Australia Bank, Ltd. (Ê)(Þ)

        

5.765% due 09/11/09

    400      399

Nexen, Inc.

        

6.400% due 05/15/37

    310      308

Nippon Life Insurance (Þ)

        

4.875% due 08/09/10

    295      293

Norske Skogindustrier ASA (Þ)

        

7.125% due 10/15/33

    985      854

Peruvian Government International Bond (Ñ)

        

8.375% due 05/03/16

    475      559

Petrobras International Finance Co.

        

5.875% due 03/01/18

    825      809

8.375% due 12/10/18 (Ñ)

    770      905

Petroleum Export, Ltd. (Þ)

        

5.265% due 06/15/11

    80      80

Province of Quebec Canada

        

Series PJ

        

6.125% due 01/22/11

    960      1,002

Ras Laffan Liquefied Natural Gas Co., Ltd. II (Þ)

        

5.298% due 09/30/20

    615      594

Ras Laffan Liquefied Natural Gas Co., Ltd. III (Þ)

        

5.832% due 09/30/16

    380      381

5.838% due 09/30/27

    1,160      1,090

Rede Empresas de Energia Eletrica SA (ƒ)(Þ)

        

11.125% due 04/02/49

    210      212

Reliance Industries, Ltd. (Þ)

        

10.250% due 01/15/97

    250      355

Resona Bank, Ltd.

        

5.850% due 09/29/49 (ƒ)(Þ)

    1,865      1,728

94   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series REGS (ƒ)

        

5.850% due 09/29/49

    35      33

Resona Preferred Global Securities Cayman, Ltd. (ƒ)(Å)

        

7.191% due 12/29/49

    3,345      3,359

Rogers Wireless, Inc.

        

6.375% due 03/01/14

    935      955

Royal Bank of Scotland Group PLC

        

7.640% due 03/31/49 (ƒ)

    600      622

6.990% due 10/29/49 (ƒ)(Å)

    1,500      1,516

Series 1 (ƒ)

        

9.118% due 03/31/49

    1,350      1,444

RSHB Capital SA for OJSC Russian Agricultural Bank

        

6.875% due 11/29/10

    285      289

Russia Government International Bond (Þ)

        

7.500% due 03/31/30

    995      1,121

Salomon Brothers AG for OAO Siberian Oil Co.

        

Series REGS

        

10.750% due 01/15/09

    675      710

Santander Financial Issuances

        

6.375% due 02/15/11

    180      186

Santander Perpetual SA
Unipersonal (ƒ)(Å)

        

6.671% due 10/29/49

    500      498

Sanwa Finance Aruba AEC

        

8.350% due 07/15/09

    355      373

Sappi Papier Holding AG (Þ)

        

6.750% due 06/15/12

    625      614

7.500% due 06/15/32

    690      627

Shimao Property Holdings, Ltd. (Ñ)(Þ)

        

8.000% due 12/01/16

    285      279

Shinsei Finance II (ƒ)(Þ)

        

7.160% due 07/25/49

    470      426

Siemens Financieringsmaatschappij NV (Ê)(Þ)

        

5.625% due 08/14/09

    500      500

SMFG Preferred Capital USD 1, Ltd. (ƒ)(Å)

        

6.078% due 01/29/49

    200      187

Stora Enso OYJ

        

7.250% due 04/15/36

    245      248

Sumitomo Mitsui Banking Corp.

        

5.625% due 07/29/49

    160      149

Systems 2001 AT LLC

       

7.156% due 12/15/11 (Þ)

    117      123

6.664% due 09/15/13 (Å)

    112      116
     Principal
Amount ($)
or Shares		      Market
Value
$

Telecom Italia Capital SA

        

4.000% due 01/15/10

    1,040      1,016

4.875% due 10/01/10

    325      323

5.819% due 07/18/11 (Ê)

    500      500

6.200% due 07/18/11

    455      468

5.250% due 10/01/15

    250      241

7.200% due 07/18/36

    320      348

Telefonica Emisiones SAU

        

5.888% due 06/19/09 (Ê)

    500      500

5.984% due 06/20/11 (Ñ)

    250      256

6.421% due 06/20/16

    320      335

6.221% due 07/03/17 (Ñ)

    285      295

7.045% due 06/20/36

    370      406

Telefonica Europe BV

        

8.250% due 09/15/30

    260      319

Telefonos de Mexico SAB de CV

        

4.500% due 11/19/08

    125      124

TMK Capital SA for OAO TMK

        

8.500% due 09/29/09

    300      302

TNK-BP Finance SA

        

6.125% due 03/20/12 (Þ)

    100      95

7.500% due 03/13/13 (Å)

    760      760

6.625% due 03/20/17 (Å)

    205      187

7.875% due 03/13/18 (Å)

    2,775      2,738

Series 144A (Å)

        

7.500% due 07/18/16

    205      200

Tristan Oil, Ltd.

        

10.500% due 01/01/12 (Þ)

    300      291

Series REGS

        

10.500% due 01/01/12

    260      250

True Move Co., Ltd. (Þ)

        

10.375% due 08/01/14

    370      377

Tyco Electronics Group SA (Þ)

        

6.000% due 10/01/12

    1,470      1,487

6.550% due 10/01/17

    730      745

7.125% due 10/01/37

    510      533

Tyco International Group SA

        

6.750% due 02/15/11

    505      533

UBS AG (Þ)

        

10.000% due 02/17/12

    410      470

UFJ Finance Aruba AEC

        

6.750% due 07/15/13

    120      126

Vale Overseas, Ltd.

        

6.250% due 01/11/16

    110      112

6.250% due 01/23/17

    730      738

Vedanta Resources PLC (Þ)

        

6.625% due 02/22/10

    670      667

Fixed Income III Fund   95

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Venezuela Government International Bond

        

9.250% due 09/15/27

    330      362

Vodafone Group PLC

        

6.150% due 02/27/37

    1,265      1,242

VTB Capital SA

        

Series 144A

        

6.660% due 11/02/09

    560      560

6.609% due 10/31/12 (Þ)

    100      99

Western Oil Sands, Inc.

        

8.375% due 05/01/12

    295      328

Westfield Capital Corp., Ltd./WT

        

Finance Aust Pty Ltd/WEA

        

Finance LLC (Þ)

        

5.125% due 11/15/14

    225      214

Westfield Group (Þ)

        

5.400% due 10/01/12

    276      274

White Mountains Re Group, Ltd. (ƒ)(Þ)

        

7.506% due 05/29/49

    1,730      1,632

XL Capital, Ltd. (ƒ)(Ñ)

        

Series E

        

6.500% due 12/31/49

    2,435      2,261

Xstrata Canada Corp.

        

7.250% due 07/15/12

    75      82

6.000% due 10/15/15

    655      660

Xstrata Finance Canada, Ltd. (Þ)

        

5.500% due 11/16/11

    115      115

Xstrata Finance Dubai, Ltd. (Ê)(Þ)

        

5.850% due 11/13/09

    290      289
         
        115,100
         

Loan Agreements - 0.9%

        

Adam Aircraft, Term Loan

        

12.380% due 05/01/12

    225      211

ALLTEL Holding Corp., Term Loan

        

6.714% due 07/17/13

    330      327

Avis Budget Holdings, Term Loan

        

6.210% due 04/19/12

    146      142

AWAS, Second Lien Term Loan

        

11.250% due 03/21/13

    164      156

Coffeyville Resources, LLC

        

8.481% due 12/28/13

    199      197

DaimlerChrysler Financial Services Americas LLC, Second Lien Term Loan

        

11.860% due 07/01/13

    975      970

DB UFC Zuffa Bank Loan

        

7.563% due 06/28/12

    635      575
     Principal
Amount ($)
or Shares		      Market
Value
$

Douglas Dynamics, Term Loan

        

7.448% due 05/21/13

    399      379

First Data Corp., Term Loan B

        

7.960% due 09/24/14

    1,210      1,164

Flextronics International, Ltd., Term Loan A

        

7.394% due 10/12/14

    401      398

7.395% due 10/12/14

    26      26

7.455% due 10/12/14

    123      122

Ford Motor Co. , Term Loan B

        

8.700% due 12/15/13

    2,491      2,390

General Motors Corp., Term Loan B

        

7.615% due 11/01/13

    697      681

7.615% due 11/29/13

    301      294

Georgia-Pacific Corp., Term Loan B

        

6.948% due 12/20/12

    122      119

7.264% due 12/20/12

    29      28

7.474% due 12/20/12

    654      638

HCA, Inc., Term Loan B

        

7.448% due 12/30/13

    997      972

Healthsouth Corp., Term Loan B

        

7.320% due 03/10/13

    5      4

7.630% due 03/10/13

    628      616

Hexion Specialty Chemicals, Term Loan C

        

7.500% due 05/05/13

    199      197

Idearc, Inc., Term Loan B

        

7.200% due 11/17/14

    499      491

Lyondell Chemical Co., Term Loan

        

6.820% due 08/16/13

    1      1

6.250% due 08/16/13

    396      393

Realogy Corp.

        

8.240% due 04/10/13

    236      215

7.974% due 04/10/13

    64      58

Stallion Oilfield Services, Inc., Term Loan

        

9.626% due 06/12/13

    900      882

Starbound Reinsurance, Ltd., Term Loan B

        

8.550% due 08/20/09

    1,100      1,099

Talecris Biotherapeutics, Inc., Second Lien Term Loan

        

12.080% due 12/06/14

    300      301

Travelport Holdings, Ltd.

        

12.360% due 03/01/13

    605      590

96   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

United Airlines, Inc., Term Loan B

        

6.875% due 02/01/14

    149      143

7.125% due 02/01/14

    151      144

Univision Communications, Inc., Term Loan B

        

7.003% due 09/15/14

    10      9

7.210% due 09/15/14

    335      317

USI Holdings Corp.

        

7.950% due 05/04/14

    200      193

Visteon Corp., Term Loan B

        

8.380% due 06/13/13

    300      285
         
        15,727
         

Mortgage - Backed Securities - 53.0%

     

Adjustable Rate Mortgage Trust

        

Series 2004-5 Class 2A1

        

4.991% due 04/25/35

    308      306

Series 2005-1 Class 5A2 (Ê)

        

5.203% due 05/25/35

    212      206

Series 2005-3 Class 8A2 (Ê)

        

5.113% due 07/25/35

    333      326

American Home Mortgage Assets (Ê)

        

Series 2007-1 Class A1

        

5.633% due 02/25/47

    2,705      2,633

Series 2007-2 Class A1

        

4.998% due 03/25/47

    784      766

American Home Mortgage Investment Trust (Ê)

        

Series 2004-1 Class 1A

        

5.223% due 04/25/44

    78      78

Series 2004-4 Class 4A

        

4.390% due 02/25/45

    218      215

Series 2005-2 Class 1A1

        

5.173% due 09/25/45

    1,133      1,111

Series 2007-1 Class GA1C

        

5.063% due 05/25/47

    1,188      1,162

Banc of America Alternative Loan Trust

        

Series 2003-1 Class A2

        

5.500% due 02/25/33

    278      275

Series 2003-2 Class CB2 (Ê)

        

5.373% due 04/25/33

    163      162

Series 2003-10 Class 2A1

        

6.000% due 12/25/33

    181      180

Series 2003-10 Class 2A2 (Ê)

        

5.323% due 12/25/33

    393      392

Series 2004-2 Class 1A1

        

6.000% due 03/25/34

    105      104
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2004-10 Class 1CB1

        

6.000% due 11/25/34

    111      112

Series 2004-11 Class 1CB1

        

6.000% due 12/25/34

    130      129

Series 2005-1 Class 2A1

        

5.500% due 02/25/20

    654      651

Series 2005-3 Class 2A1

        

5.500% due 04/25/20

    173      172

Series 2005-5 Class 2CB1

        

6.000% due 06/25/35

    225      224

Series 2005-6 Class 7A1

        

5.500% due 07/25/20

    190      189

Series 2005-9 Class 5A1

        

5.500% due 10/25/20

    324      322

Series 2006-5 Class CB17

        

6.000% due 06/25/36

    539      539

Banc of America Commercial Mortgage, Inc.

        

Series 2004-3 Class A3

        

4.875% due 06/10/39

    415      414

Series 2004-4 Class A3

        

4.128% due 07/10/42

    1,645      1,621

Series 2005-2 Class A4

        

4.783% due 07/10/43

    730      714

Series 2005-3 Class A2

        

4.501% due 07/10/43

    360      354

Series 2005-5 Class A4

        

5.115% due 10/10/45

    1,500      1,457

Series 2006-1 Class A4

        

5.372% due 09/10/45

    500      493

Series 2006-3 Class A4

        

5.889% due 07/10/44

    65      66

Series 2006-4 Class A4 (Ê)

        

5.634% due 07/10/46

    1,820      1,821

Series 2007-2 Class A2

        

5.634% due 04/10/49

    640      645

Banc of America Funding Corp.

        

Series 2004-2 Class 3A11

        

5.250% due 09/20/34

    497      493

Series 2005-D Class A1 (Ê)

        

4.111% due 05/25/35

    287      282

Series 2005-F Class 1A2 (Ê)

        

5.348% due 09/20/35

    110      109

Series 2006-3 Class 5A8

        

5.500% due 03/25/36

    930      901

Series 2006-A Class 3A2

        

5.890% due 02/20/36

    339      341

Series 2006-A Class 4A1 (Ê)

        

5.571% due 02/20/36

    837      836

Fixed Income III Fund   97

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2006-J Class 4A1

        

6.145% due 01/20/47

    180      180

Banc of America Mortgage Securities, Inc.

        

Series 2003-9 Class 1A12 (Ê)

        

5.323% due 12/25/33

    994      989

Series 2003-D Class 1A2 (Ê)

        

7.281% due 05/25/33

    1      1

Series 2004-1 Class 5A1

        

6.500% due 09/25/33

    16      16

Series 2004-2 Class 1A9 (Ê)

        

5.323% due 03/25/34

    610      606

Series 2004-11 Class 2A1

        

5.750% due 01/25/35

    724      709

Series 2004-D Class 1A1 (Ê)

        

5.614% due 05/25/34

    90      91

Series 2005-9 Class 2A1

        

4.750% due 10/25/20

    342      335

Series 2005-H Class 2A5 (Ê)

        

4.803% due 09/25/35

    600      584

Series 2005-I Class 4A1 (Ê)

        

5.262% due 10/25/35

    406      399

Series 2005-L Class 3A1 (Ê)

        

5.459% due 01/25/36

    424      422

Series 2006-2 Class A12

        

6.000% due 07/25/36

    413      413

Series 2006-2 Class A15

        

6.000% due 07/25/36

    665      671

Series 2007-3 Class 1A1

        

6.000% due 09/25/37

    3,487      3,457

Bayview Financial Acquisition Trust (Ê)

        

Series 2006-C Class 2A1

        

4.929% due 11/28/36

    252      251

Bear Stearns Adjustable Rate Mortgage Trust

        

Series 2004-1 Class 21A1

        

4.453% due 04/25/34

    497      492

Series 2004-8 Class 2A1

        

5.076% due 11/25/34

    863      858

Series 2004-9 Class 22A1 (Ê)

        

4.776% due 11/25/34

    1,013      1,003

Series 2005-2 Class A1 (Ê)

        

4.125% due 03/25/35

    4,283      4,241

Series 2005-2 Class A2 (Ê)

        

4.125% due 03/25/35

    4,229      4,153

Series 2005-3 Class 2A1

        

5.080% due 06/25/35

    1,141      1,129
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-5 Class A2 (Ê)

        

4.550% due 08/25/35

    4,874      4,896

Series 2005-10 Class A1 (Ê)

        

4.750% due 10/25/35

    1,089      1,082

Series 2005-10 Class A3 (Ê)

        

4.650% due 10/25/35

    2,000      1,971

Series 2007-1 Class 3A2

        

5.764% due 02/25/47

    441      444

Series 2007-3 Class 1A1

        

5.481% due 05/25/47

    1,274      1,263

Bear Stearns Alt-A Trust

        

Series 2005-4 Class 23A1 (Ê)

        

5.373% due 05/25/35

    402      403

Series 2005-5 Class 21A1

        

4.680% due 06/25/35

    1,542      1,532

Series 2005-7 Class 22A1

        

5.520% due 09/25/35

    116      116

Series 2006-3 Class 33A1 (Ê)

        

6.160% due 05/25/36

    427      430

Series 2006-3 Class 34A1 (Ê)

        

6.165% due 05/25/36

    1,750      1,759

Bear Stearns Alt-A Trust II

        

Series 2007-1 Class 1A1

        

6.280% due 09/25/47

    2,929      2,912

Bear Stearns Asset Backed Securities Trust

        

Series 2005-AC8 Class A5

        

5.500% due 11/25/35

    290      290

Bear Stearns Commercial Mortgage Securities

        

Series 2005-PW1 Class A4

        

5.405% due 12/11/40

    1,500      1,478

Series 2006-PW1 Class A4

        

5.201% due 12/11/38

    2,440      2,365

Bear Stearns Mortgage Funding Trust (Ê)

        

Series 2006-AR2 Class 1A1

        

5.073% due 09/25/36

    1,453      1,428

Series 2006-AR2 Class 2A1

        

5.103% due 10/25/36

    897      876

Series 2006-AR3 Class 1A1

        

5.053% due 03/25/36

    639      617

Series 2006-AR4 Class A1

        

5.083% due 12/25/36

    789      761

Series 2006-AR5 Class 1A1

        

5.033% due 12/25/36

    1,144      1,109

Series 2007-AR2 Class A1

        

5.043% due 03/25/37

    873      840

98   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2007-AR3 Class 1A1

        

5.013% due 03/25/37

    901      882

Bear Stearns Structured Products, Inc.

        

Series 2007-R6 Class 1A1

        

5.688% due 01/26/36

    586      582

Series 2007-R6 Class 2A1

        

5.788% due 12/26/46

    293      290

Chase Mortgage Finance Corp.

        

Series 2003-S8 Class A1

        

4.500% due 09/25/18

    394      380

Series 2006-S4 Class A3

        

6.000% due 12/25/36

    685      691

Series 2006-S4 Class A4

        

6.000% due 12/25/36

    360      362

Series 2007-A1 Class 1A3 (Ê)

        

4.357% due 02/25/37

    874      867

Citicorp Mortgage Securities, Inc.

        

Series 2006-3 Class 1A6

        

6.000% due 06/25/36

    273      273

Series 2006-3 Class 1A9

        

5.750% due 06/25/36

    350      337

Citigroup Commercial Mortgage Trust

        

Series 2006-C5 Class A4

        

5.431% due 10/15/49

    445      438

Citigroup Mortgage Loan Trust, Inc.

        

Series 2005-11 Class A2A (Ê)

        

4.700% due 12/25/35

    81      80

Series 2007-AHL Class A3A (Ê)

        

4.933% due 05/25/37

    2,350      2,309

Series 2007-AR8 Class 2A1A

        

5.927% due 08/25/37

    663      664

Citigroup/Deutsche Bank Commercial Mortgage Trust

        

Series 2005-CD1 Class A4

        

5.225% due 07/15/44

    1,500      1,475

Series 2006-CD3 Class A5

        

5.617% due 10/15/48

    455      454

Citimortgage Alternative Loan Trust

        

Series 2006-A3 Class 1A5

        

6.000% due 07/25/36

    361      364

Series 2007-A1 Class 1A5

        

6.000% due 01/25/37

    655      642

Commercial Mortgage Pass Through Certificates

        

Series 2001-J1A Class A2 (Þ)

        

6.457% due 02/16/34

    213      219

Series 2006-C7 Class A2

        

5.690% due 06/10/46

    235      238
     Principal
Amount ($)
or Shares		      Market
Value
$

Countrywide Alternative Loan Trust

        

Series 2004-28C Class 6A1

        

6.000% due 01/25/35

    225      223

Series 2004-J7 Class 1A2

        

4.673% due 08/25/34

    42      42

Series 2004-J8 Class 1A1

        

7.000% due 09/25/34

    195      200

Series 2005-1CB Class 2A2

        

5.500% due 03/25/35

    421      413

Series 2005-16 Class A1 (Ê)

        

6.578% due 06/25/35

    1,071      1,067

Series 2005-32T Class A7 (Ê)

        

5.123% due 08/25/35

    417      417

Series 2005-38 Class A1 (Ê)

        

6.433% due 09/25/35

    390      388

Series 2005-51 Class 2A1 (Ê)

        

5.298% due 11/20/35

    459      447

Series 2005-51 Class 2A2A (Ê)

        

5.288% due 11/20/35

    119      118

Series 2005-51 Class 4A1 (Ê)

        

5.318% due 11/20/35

    641      627

Series 2005-56 Class 2A2 (Ê)

        

6.973% due 11/25/35

    402      405

Series 2005-58 Class A2 (Ê)

        

5.388% due 12/20/35

    418      403

Series 2005-59 Class 1A2B (Ê)

        

5.756% due 11/20/35

    156      155

Series 2005-63 Class 3A1

        

5.890% due 11/25/35

    383      381

Series 2005-63 Class 5A1 (Ê)

        

5.322% due 12/25/35

    739      734

Series 2005-81 Class X1

        

2.105% due 02/25/37

    2,094      103

Series 2005-J8 Class 1A3

        

5.500% due 07/25/35

    515      503

Series 2005-J11 Class 1A10

        

5.000% due 09/25/35

    407      401

Series 2005-J13 Class 2A3

        

5.500% due 11/25/35

    279      276

Series 2006-9T1 Class A7

        

6.000% due 05/25/36

    280      283

Series 2006-43C Class 1A7

        

6.000% due 02/25/37

    833      835

Series 2006-J2 Class A3

        

6.000% due 04/25/36

    412      415

Series 2006-OA1 Class 4A1 (Ê)

        

5.063% due 08/25/46

    918      901

Series 2006-OA1 Class A1 (Ê)

        

5.178% due 02/20/47

    1,103      1,080

Fixed Income III Fund   99

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2006-OA2 Class A1 (Ê)

        

5.033% due 02/25/47

    657      645

Series 2006-OA2 Class A2A (Ê)

        

5.148% due 05/20/46

    192      191

Series 2006-OA6 Class 1A3 (Ê)

        

5.143% due 07/25/46

    377      371

Series 2007-J2 Class 2A1

        

6.000% due 07/25/37

    765      767

Series 2007-OA1 Class A1A (Ê)

        

6.244% due 04/25/43

    3,000      2,997

Series 2007-OA6 Class A1B (Ê)

        

5.073% due 06/25/37

    2,132      2,077

Countrywide Home Loan Mortgage Pass Through Trust

        

Series 2003-8 Class A2 (Ê)

        

5.373% due 05/25/18

    556      555

Series 2003-20 Class 1A9

        

5.500% due 07/25/33

    444      443

Series 2003-42 Class M (Ê)

        

4.383% due 10/25/33

    217      215

Series 2003-52 Class A1

        

4.504% due 02/19/34

    611      607

Series 2003-J2 Class A19

        

4.750% due 04/25/33

    2,822      2,810

Series 2004-16 Class 1A1 (Ê)

        

5.273% due 09/25/34

    353      353

Series 2004-22 Class A3

        

4.797% due 11/25/34

    537      532

Series 2004-HYB Class 1A1

        

4.737% due 02/20/35

    980      972

Series 2004-HYB Class A2

        

4.560% due 11/20/34

    379      374

Series 2004-J9 Class 2A1

        

5.250% due 01/25/35

    450      446

Series 2005-1 Class 2A1 (Ê)

        

5.163% due 03/25/35

    246      241

Series 2005-3 Class 1A3 (Ê)

        

5.113% due 04/25/35

    36      36

Series 2005-8R Class A4

        

6.000% due 10/25/34

    406      407

Series 2005-11 Class 5A1 (Ê)

        

5.173% due 03/25/35

    54      54

Series 2005-23 Class A1

        

5.500% due 11/25/35

    1,006      983

Series 2005-29 Class A1

        

5.750% due 12/25/35

    647      632

Series 2005-HYB Class 2A1

        

4.898% due 08/20/35

    1,689      1,667
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-HYB Class 3A2A (Ê)

        

5.250% due 02/20/36

    150      149

Series 2005-HYB Class 4A1

        

5.619% due 12/20/35

    560      554

Series 2006-1 Class A2

        

6.000% due 03/25/36

    303      303

Series 2006-1 Class A3

        

6.000% due 03/25/36

    110      110

Series 2006-13 Class 1A23

        

6.250% due 09/25/36

    143      143

Series 2006-15 Class A3

        

6.250% due 10/25/36

    339      342

Series 2006-HYB Class 3A1A

        

6.096% due 05/20/36

    423      433

Series 2006-J4 Class A2

        

6.250% due 09/25/36

    251      252

Series 2006-J4 Class A10

        

6.250% due 09/25/36

    135      136

Series 2006-OA5 Class 2A1 (Ê)

        

5.073% due 04/25/46

    1,166      1,134

Series 2006-R2 Class AF1 (Ê)(Þ)

        

5.293% due 08/25/36

    701      698

Series 2007-18 Class 2A1

        

6.500% due 09/25/37

    822      826

Series 2007-HY1 Class 1A2

        

5.701% due 04/25/37

    239      242

Credit Suisse First Boston Mortgage Securities Corp.

        

Series 1998-C2 Class A2

        

6.300% due 11/15/30

    220      222

Series 2001-SPG Class A2 (Þ)

        

6.515% due 08/13/18

    185      193

Series 2002-30 Class DB1

        

7.369% due 11/25/32

    162      162

Series 2003-29 Class 5A1

        

7.000% due 12/25/33

    35      36

Series 2004-1 Class 3A1

        

7.000% due 02/25/34

    15      16

Series 2004-C1 Class A3

        

4.321% due 01/15/37

    675      662

Series 2005-9 Class 2A1

        

5.500% due 10/25/35

    1,284      1,239

Credit Suisse Mortgage Capital Certificates

        

Series 2006-C1 Class AAB

        

5.555% due 02/15/39

    130      130

Series 2007-C1 Class AAB

        

5.336% due 02/15/40

    500      491

100   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2007-C3 Class AAB

        

5.723% due 06/15/39

    2,300      2,311

Crown Castle Towers LLC (Þ)

        

Series 2005-1A Class AFL (Ê)

        

5.471% due 06/15/35

    1,360      1,365

Series 2005-1A Class C

        

5.074% due 06/15/35

    150      150

Deutsche ALT-A Securities, Inc. Alternate Loan Trust (Ê)

        

Series 2005-AR1 Class 2A3

        

4.998% due 08/25/35

    905      886

DLJ Commercial Mortgage Corp.

        

Series 1998-CF1 Class A1B

        

6.410% due 02/18/31

    39      39

Series 1999-CG1 Class S

        

Interest Only STRIP

        

0.830% due 03/10/32

    5,815      70

Series 1999-CG3 Class A3

        

7.730% due 10/10/32

    210      220

Downey Savings & Loan Association Mortgage Loan Trust

        

Series 2004-AR3 Class 1A1B (Ê)

        

7.260% due 07/19/44

    133      135

Series 2006-AR1 Class 2A1A (Ê)

        

5.923% due 04/19/47

    568      568

Fannie Mae

        

5.200% due 2012 (Ê)

    500      501

6.000% due 2016

    23      24

5.000% due 2017

    1,199      1,185

5.500% due 2017

    39      39

6.000% due 2017

    49      49

6.500% due 2017

    147      150

4.000% due 2018

    1,665      1,580

4.500% due 2018

    5,213      5,058

5.000% due 2018

    3,296      3,255

10.000% due 2018

    37      41

4.500% due 2019

    461      448

5.000% due 2019

    1,100      1,086

6.000% due 2019

    1,019      1,039

4.500% due 2020

    640      621

5.000% due 2020

    870      857

5.500% due 2020

    124      124

6.000% due 2020

    1,924      1,962

5.000% due 2021

    521      514

5.000% due 2022

    977      962

6.500% due 2024

    940      966

10.000% due 2024

    27      30

7.200% due 2025 (Ê)

    19      19

7.200% due 2026 (Ê)

    159      161
     Principal
Amount ($)
or Shares		      Market
Value
$

6.000% due 2027

    1,515      1,532

7.500% due 2027

    9      9

7.000% due 2028

    23      24

6.500% due 2029

    3      3

7.000% due 2029

    89      93

7.500% due 2029

    64      68

8.000% due 2029

    5      5

8.500% due 2029

    3      3

7.500% due 2030

    63      66

8.500% due 2030

    205      220

9.500% due 2030

    66      72

7.000% due 2031

    424      443

7.500% due 2031

    182      193

8.000% due 2031

    248      263

8.500% due 2031

    190      204

6.000% due 2032

    854      865

6.500% due 2032

    3      3

7.000% due 2032

    418      437

7.500% due 2032

    219      232

8.000% due 2032

    23      24

3.900% due 2033 (Ê)

    478      481

4.700% due 2033 (Ê)

    548      554

5.000% due 2033

    831      800

5.100% due 2033 (Ê)

    282      286

5.500% due 2033

    2,117      2,091

6.000% due 2033

    272      275

7.000% due 2033

    993      1,036

5.000% due 2034

    1,153      1,110

5.500% due 2034

    12,439      12,288

6.000% due 2034

    506      510

7.000% due 2034

    281      293

7.500% due 2034

    89      94

4.500% due 2035 (Ê)

    1,099      1,101

4.800% due 2035 (Ê)

    1,332      1,327

5.000% due 2035

    1,277      1,226

5.100% due 2035 (Ê)

    629      627

5.500% due 2035

    12,223      12,056

6.000% due 2035

    473      478

7.000% due 2035

    23      24

7.500% due 2035

    564      597

4.700% due 2036 (Ê)

    706      697

5.000% due 2036

    6,369      6,119

5.500% due 2036

    6,939      6,828

6.000% due 2036

    5,589      5,624

6.500% due 2036

    268      274

7.000% due 2036

    68      71

5.500% due 2037

    39,299      38,695

5.600% due 2037 (Ê)

    1,088      1,102

6.000% due 2037 (Ê)

    11,229      11,316

Fixed Income III Fund   101

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

6.500% due 2037

    3,737      3,817

7.000% due 2037

    22,415      23,248

7.500% due 2037

    3,000      3,135

6.200% due 2043 (Ê)

    295      298

Series 1997-281 Class 2

        

Interest Only STRIP

        

9.000% due 11/01/26

    31      9

Series 2000-306 Class IO

        

Interest Only STRIP

        

8.000% due 05/01/30

    32      8

Series 2001-317 Class 2

        

Interest Only STRIP

        

8.000% due 08/01/31

    35      9

Series 2002-320 Class 2

        

Interest Only STRIP

        

7.000% due 03/01/32

    17      4

Series 2003-337 Class 1

        

Princiapl Only STRIP

        

Zero coupon due 07/01/33

    668      481

Series 2003-339 Class 23

        

Interest Only STRIP

        

5.000% due 07/01/18

    1,946      285

Series 2003-343 Class 6

        

Interest Only STRIP

        

5.000% due 10/01/33

    659      166

Series 2003-345 Class 18

        

Interest Only STRIP

        

4.500% due 12/01/18

    1,773      259

Series 2003-345 Class 19

        

Interest Only STRIP

        

4.500% due 01/01/19

    1,982      290

Series 2004-353 Class 2

        

Interest Only STRIP

        

5.000% due 08/01/34

    1,563      401

Series 2004-356 Class 35

        

Interest Only STRIP

        

4.500% due 03/01/20

    363      56

Series 2004-356 Class 36

        

Interest Only STRIP

        

4.500% due 03/01/20

    617      96

Series 2005-365 Class 12

        

Interest Only STRIP

        

5.500% due 12/01/35

    3,002      727

Series 2006-369 Class 8

        

Interest Only STRIP

        

5.500% due 04/01/36

    541      135

Series 2006-372 Class 2

        

Interest Only STRIP

        

6.000% due 08/01/36

    1,640      380
     Principal
Amount ($)
or Shares		      Market
Value
$

15 Year TBA (Ï)

        

4.500%

    3,475      3,361

5.000%

    5,425      5,340

5.500%

    13,720      13,741

6.000%

    6,155      6,261

30 Year TBA (Ï)

        

4.500%

    1,325      1,235

5.000%

    18,980      18,213

5.500%

    103,100      101,586

6.000%

    68,185      68,675

6.500%

    20,155      20,618

7.000%

    15,475      16,029

Fannie Mae Grantor Trust

        

Series 2001-T8 Class A2

        

9.500% due 07/25/41

    60      64

Series 2003-T4 Class 2A5

        

4.907% due 09/26/33

    165      165

Fannie Mae REMICS

        

Series 1992-10 Class ZD

        

8.000% due 11/25/21

    135      135

Series 1996-46 Class ZA

        

7.500% due 11/25/26

    69      72

Series 1999-56 Class Z

        

7.000% due 12/18/29

    254      264

Series 2003-16 Class NI

        

Interest Only STRIP

        

5.000% due 02/25/15

    99      2

Series 2003-21 Class M

        

5.000% due 02/25/17

    115      115

Series 2003-25 Class IK

        

Interest Only STRIP

        

7.000% due 04/25/33

    79      19

Series 2003-32 Class FH (Ê)

        

5.273% due 11/25/22

    589      587

Series 2003-32 Class UI

        

Interest Only STRIP

        

6.000% due 05/25/33

    119      27

Series 2003-33 Class IA

        

Interest Only STRIP

        

6.500% due 05/25/33

    715      161

Series 2003-35 Class FY (Ê)

        

5.273% due 05/25/18

    1,119      1,126

Series 2003-35 Class IU

        

Interest Only STRIP

        

6.000% due 05/25/33

    150      35

Series 2003-35 Class UI

        

Interest Only STRIP

        

6.500% due 05/25/33

    146      32

102   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2003-64 Class JI

        

Interest Only STRIP

        

6.000% due 07/25/33

    145      33

Series 2003-78 Class FI (Ê)

        

5.273% due 01/25/33

    584      586

Series 2003-82 Class IA

        

Interest Only STRIP

        

6.000% due 08/25/32

    111      13

Series 2003-82 Class WI

        

Interest Only STRIP

        

6.000% due 08/25/32

    23      3

Series 2003-122 Class AJ

        

4.500% due 02/25/28

    116      114

Series 2004-21 Class FL (Ê)

        

5.223% due 11/25/32

    284      284

Series 2005-36 Class AI

        

Interest Only STRIP

        

5.500% due 10/25/26

    697      43

Series 2005-79 Class FC (Ê)

        

5.173% due 02/25/22

    644      641

Series 2005-110 Class MB

        

5.500% due 09/25/35

    604      610

Series 2006-5 Class 3A2 (Ê)

        

4.672% due 05/25/35

    100      100

Series 2006-48 Class LG

        

Principal Only STRIP

        

Zero coupon due 06/25/36

    141      106

Series 2006-118 Class A2 (Ê)

        

4.933% due 12/25/36

    435      432

Series 2007-42 Class LF (Ê)

        

Zero coupon due 05/25/37

    91      99

Series 2007-73 Class A1 (Ê)

        

4.933% due 07/25/37

    816      800

Fannie Mae Whole Loan

        

Series 2003-W17 Class 1A6

        

5.310% due 08/25/33

    1,700      1,703

Series 2004-W9 Class 2A1

        

6.500% due 02/25/44

    91      94

Series 2004-W11 Class 1A2

        

6.500% due 05/25/44

    165      171

Federal Home Loan Mortgage Corp. Structured Pass Through Securities

        

Series 2003-58 Class 2A

        

6.500% due 09/25/43

    86      88

Series 2005-63 Class 1A1 (Ê)

        

6.183% due 02/25/45

    38      38
     Principal
Amount ($)
or Shares		      Market
Value
$

First Horizon Alternative Mortgage Securities

        

Series 2004-AA3 Class A1

        

5.300% due 09/25/34

    129      129

Series 2006-AA5 Class A2 (Ê)

        

6.525% due 09/25/36

    363      373

Series 2006-FA3 Class A6

        

6.000% due 07/25/36

    474      475

First Horizon Asset Securities, Inc.

        

Series 2003-5 Class 1A17

        

8.000% due 07/25/33

    46      48

Series 2004-AR5 Class 4A1 (Ê)

        

5.700% due 10/25/34

    129      128

Series 2004-AR6 Class 2A1 (Ê)

        

4.750% due 12/25/34

    139      137

Series 2005-AR3 Class 2A1 (Ê)

        

5.372% due 08/25/35

    132      131

Series 2005-AR5 Class 3A1 (Ê)

        

5.535% due 10/25/35

    196      195

Series 2006-AR4 Class 1A3 (Ê)

        

5.501% due 01/25/37

    176      171

First Union-Lehman Brothers-Bank of America

        

Series 1998-C2 Class A2

        

6.560% due 11/18/35

    23      23

Freddie Mac

        

6.000% due 2016

    43      44

8.500% due 2017

    46      49

10.500% due 2017

    16      17

4.000% due 2018

    2,902      2,753

4.500% due 2018

    700      680

5.000% due 2018

    803      794

4.000% due 2019

    3,366      3,180

4.500% due 2019

    154      148

5.000% due 2019

    1,360      1,343

5.000% due 2020

    1,380      1,362

5.500% due 2020

    1,608      1,613

10.000% due 2020

    45      50

5.500% due 2022

    81      82

8.500% due 2025

    15      16

7.300% due 2027 (Ê)

    30      30

8.500% due 2027

    80      85

7.300% due 2028 (Ê)

    48      48

7.000% due 2030

    66      68

7.400% due 2030 (Ê)

    5      5

7.500% due 2030

    195      207

8.000% due 2030

    63      68

7.000% due 2031

    98      103

Fixed Income III Fund   103

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

7.500% due 2031

    13      14

8.000% due 2031

    12      13

7.500% due 2032

    95      99

5.000% due 2033

    324      312

7.000% due 2033

    33      34

4.900% due 2034 (Ê)

    822      829

6.300% due 2034 (Ê)

    54      55

6.900% due 2034 (Ê)

    205      207

6.000% due 2035

    365      364

5.900% due 2036 (Ê)

    900      911

6.000% due 2036 (Ê)

    339      344

5.500% due 2037

    9,973      9,819

5.600% due 2037 (Ê)

    1,124      1,133

5.700% due 2037 (Ê)

    1,113      1,125

5.800% due 2037 (Ê)

    2,033      2,060

5.900% due 2037 (Ê)

    435      440

6.000% due 2037

    3,000      3,020

6.100% due 2037 (Ê)

    1,195      1,217

Series 1991-103 Class Z

        

9.000% due 02/15/21

    49      49

Series 1994-173 Class Z

        

7.000% due 05/15/24

    98      103

Series 1999-212 Class SG (Ê)

        

Interest Only STRIP

        

1.938% due 06/17/27

    361      13

Series 2001-229 Class KF (Ê)

        

5.123% due 07/25/22

    276      276

Series 2001-232 Class ZQ

        

6.500% due 06/15/31

    454      475

Series 2003-259 Class IQ

        

Interest Only STRIP

        

5.000% due 06/15/17

    251      26

Series 2003-261 Class UI

        

Interest Only STRIP

        

6.500% due 05/15/33

    97      20

Series 2003-262 Class AB

        

2.900% due 11/15/14

    507      497

Series 2003-264 Class IM

        

Interest Only STRIP

        

7.000% due 07/15/33

    121      27

Series 2003-266 Class MA

        

4.500% due 10/15/31

    338      334

Series 2004-275 Class FM (Ê)

        

5.441% due 12/15/30

    316      316

Series 2004-276 Class IP

        

Interest Only STRIP

        

5.500% due 07/15/23

    323      8

Series 2004-277 Class UF (Ê)

        

5.391% due 06/15/33

    712      712
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2004-281 Class DF (Ê)

        

5.541% due 06/15/23

    219      221

Series 2004-287 Class GC

        

5.000% due 11/15/29

    480      473

Series 2004-289 Class PC

        

5.000% due 07/15/30

    640      630

Series 2005-291 Class KP

        

5.000% due 11/15/29

    215      212

Series 2005-292 Class IG

        

Interest Only STRIP

        

5.000% due 04/15/23

    291      42

Series 2005-294 Class FA (Ê)

        

5.261% due 03/15/20

    419      419

Series 2005-302 Class MB

        

5.000% due 12/15/28

    200      199

Series 2005-303 Class XA (Ê)

        

Zero coupon due 09/15/35

    74      74

Series 2005-306 Class PC

        

5.000% due 02/15/29

    1,020      1,016

Series 2006-313 Class FP (Ê)

        

Zero coupon due 04/15/36

    341      367

Series 2006-315 Class EQ

        

5.000% due 05/15/36

    355      334

Series 2007-327 Class SX (Ê)

        

Zero coupon due 07/15/36

    92      96

Series 2007-327 Class UF (Ê)

        

Zero coupon due 02/15/37

    94      106

Series 2007-327 Class WF (Ê)

        

Zero coupon due 09/15/36

    91      98

Series 2007-330 Class GL (Ê)

        

Zero coupon due 04/15/37

    90      100

Series 2007-333 Class BF (Ê)

        

5.241% due 07/15/19

    749      747

15 Year TBA (Ï)

        

5.500%

    14,500      14,518

30 Year TBA (Ï)

        

5.000%

    5,130      4,923

5.500%

    3,650      3,593

6.000%

    2,750      2,767

Freddie Mac Reference REMICS

        

Series 2006-R00 Class AK

        

5.750% due 12/15/18

    552      556

Freddie Mac REMICS

        

Series 2003-256 Class FJ (Ê)

        

5.491% due 02/15/33

    362      364

Series 2003-258 Class IG

        

Interest Only STRIP

        

4.500% due 10/15/16

    274      24

104   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2003-262 Class QH

        

5.000% due 05/15/33

    280      264

5.000% due 06/15/33

    315      297

Series 2003-269 Class FE (Ê)

        

5.691% due 12/15/28

    708      711

Series 2005-299 Class KF (Ê)

        

5.491% due 06/15/35

    195      194

Series 2005-300 Class ED

        

5.000% due 07/15/25

    890      843

Series 2005-301 Class IM

        

Interest Only STRIP

        

5.500% due 01/15/31

    425      49

Series 2006-312 Class HT

        

5.000% due 03/15/26

    555      522

Series 2006-317 Class XI (Ê)

        

Interest Only STRIP

        

12.600% due 10/15/35

    1,039      27

Series 2006-323 Class PA

        

6.000% due 03/15/26

    695      703

Series 2007-333 Class AF (Ê)

        

5.241% due 10/15/20

    4,691      4,674

Series 2007-333 Class FT (Ê)

        

5.241% due 08/15/19

    3,464      3,451

Series 2007-334 Class FA (Ê)

        

5.321% due 02/15/19

    3,159      3,147

Freddie Mac Strips

        

Series 1998-191 Class IO

        

Interest Only STRIP

        

8.000% due 01/01/28

    27      7

Series 1998-194 Class IO

        

Interest Only STRIP

        

6.500% due 04/01/28

    93      23

Series 2001-212 Class IO

        

Interest Only STRIP

        

6.000% due 05/01/31

    71      17

Series 2001-215 Class IO

        

Interest Only STRIP

        

8.000% due 06/01/31

    48      12

Series 2007-245 Class IO

        

Interest Only STRIP

        

5.000% due 05/15/37

    4      1

GE Capital Commercial Mortgage Corp.

        

Series 2002-1A Class A3

        

6.269% due 12/10/35

    305      316

Series 2002-3A Class A1

        

4.229% due 12/10/37

    1,063      1,048
     Principal
Amount ($)
or Shares		      Market
Value
$

Ginnie Mae

        

30 Year TBA (Ï)

        

5.500%

    4,140      4,114

Ginnie Mae I

        

10.500% due 2016

    21      24

11.000% due 2020

    42      47

10.000% due 2022

    41      46

7.500% due 2024

    24      25

7.500% due 2032

    24      25

6.000% due 2037

    994      1,007

Ginnie Mae II (Ê)

        

5.800% due 2023

    17      18

6.100% due 2023

    51      52

5.800% due 2024

    136      137

6.100% due 2024

    138      140

5.400% due 2025

    55      56

5.800% due 2025

    5      5

6.400% due 2025

    109      110

6.100% due 2026

    60      61

5.800% due 2027

    77      78

6.100% due 2027

    8      8

6.400% due 2027

    96      97

6.400% due 2028

    3      3

6.400% due 2030

    152      154

Global Signal Trust

        

Series 2004-2A Class A (Þ)

        

4.232% due 12/15/14

    225      221

Series 2006-1 Class B

        

5.588% due 02/15/36

    125      125

Series 2006-1 Class C

        

5.707% due 02/15/36

    335      339

GMAC Commercial Mortgage Securities, Inc.

        

Series 1999-C2 Class A2

        

6.945% due 09/15/33

    476      487

GMAC Mortgage Corp. Loan Trust

        

Series 2004-HE5 Class A3

        

3.970% due 09/25/34

    115      114

Series 2005-AR2 Class 4A (Ê)

        

5.183% due 05/25/35

    1,944      1,928

Series 2005-AR6 Class 3A1

        

5.298% due 11/19/35

    680      674

Government National Mortgage Association (Ê)

        

Series 1999-27 Class SE

        

Interest Only STRIP

        

3.540% due 08/16/29

    126      14

Series 1999-40 Class FE

        

5.610% due 11/16/29

    293      295

Fixed Income III Fund   105

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 1999-44 Class SA

        

Interest Only STRIP

        

3.490% due 12/16/29

    144      14

Series 2000-29 Class S

        

Interest Only STRIP

        

3.503% due 09/20/30

    36      3

Series 2002-27 Class SA

        

Interest Only STRIP

        

2.940% due 05/16/32

    54      4

Greenpoint Mortgage Funding Trust

        

Series 2005-AR4 Class X4

        

Interest Only STRIP

        

2.300% due 10/25/45

    50      2

Series 2006-AR6 Class A1A (Ê)

        

4.953% due 10/25/46

    774      767

Greenwich Capital Commercial Funding Corp.

        

Series 2002-C1 Class XP (Þ)

        

Interest Only STRIP

        

1.776% due 01/11/35

    1,100      77

Series 2003-C2 Class A2

        

4.022% due 01/05/36

    500      493

Series 2004-GG1 Class A7

        

5.317% due 06/10/36

    1,115      1,105

Series 2005-GG5 Class A41

        

5.243% due 04/10/37

    1,040      1,031

Series 2007-GG9 Class A4

        

5.444% due 03/10/39

    915      901

GS Mortgage Securities Corp. II

        

Series 2006-FL8 Class A1 (Ê)(Å)

        

5.222% due 06/06/20

    5      5

Series 2006-GG6 Class A4

        

5.553% due 04/10/38

    475      474

Series 2006-GG8 Class AAB

        

5.535% due 11/10/39

    485      483

Series 2006-RR2 Class A1 (Þ)

        

5.686% due 06/23/46

    305      290

Series 2006-RR3 Class A1S (Þ)

        

5.466% due 03/18/49

    1,985      1,868

Series 2007-GG1 Class A4

        

5.799% due 08/10/45

    2,210      2,239

GSMPS Mortgage Loan Trust (Þ)

        

Series 1998-3 Class A

        

7.750% due 09/19/27

    44      46

Series 1999-3 Class A

        

8.000% due 08/19/29

    72      76

Series 2005-RP1 Class 1A3

        

8.000% due 01/25/35

    751      805
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-RP1 Class 1A4

        

8.500% due 01/25/35

    120      129

Series 2006-RP1 Class 1A3

        

8.000% due 01/25/36

    152      155

GSR Mortgage Loan Trust

        

Series 2004-7 Class 1A1 (Ê)

        

5.301% due 06/25/34

    186      186

Series 2005-AR6 Class 2A1 (Ê)

        

4.540% due 09/25/35

    1,318      1,307

Series 2005-AR7 Class 6A1

        

5.250% due 11/25/35

    529      506

Series 2006-1F Class 5A2

        

6.000% due 02/25/36

    183      182

Series 2006-OA1 Class 2A1 (Ê)

        

5.063% due 08/25/46

    587      576

Harborview Mortgage Loan Trust

        

Series 2005-2 Class 2A1A (Ê)

        

5.241% due 05/19/35

    96      95

Series 2005-4 Class 3A1

        

5.147% due 07/19/35

    446      444

Series 2005-5 Class 2A1B (Ê)

        

5.311% due 07/19/45

    127      124

Series 2005-10 Class 2A1A (Ê)

        

5.331% due 11/19/35

    496      489

Series 2005-10 Class 2A1B (Ê)

        

5.401% due 11/19/35

    248      242

Series 2005-14 Class 3A1A (Ê)

        

5.301% due 12/19/35

    202      202

Series 2005-14 Class 5A1A

        

5.751% due 12/19/35

    753      736

Series 2005-16 Class 2A1A (Ê)

        

5.261% due 01/19/36

    606      598

Series 2005-16 Class 3A1A (Ê)

        

5.271% due 01/19/36

    1,400      1,374

Series 2005-16 Class 3A1B (Ê)

        

5.361% due 01/19/36

    292      285

Series 2006-1 Class 2A1A (Ê)

        

5.261% due 03/19/37

    729      716

Series 2006-9 Class 2A1A (Ê)

        

5.208% due 11/19/36

    668      653

Series 2006-10 Class 2A1A (Ê)

        

5.201% due 11/19/36

    763      748

Series 2006-12 Class 2A2A (Ê)

        

5.211% due 01/19/38

    843      827

Series 2006-14 Class 2A1A (Ê)

        

5.171% due 03/19/38

    624      611

Series 2006-14 Class 2A1B (Ê)

        

5.221% due 03/19/38

    370      360

106   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2007-1 Class 2A1A (Ê)

        

5.003% due 04/19/38

    493      484

Indymac Index Mortgage Loan Trust

        

Series 2004-AR1 Class 2A

        

5.049% due 12/25/34

    154      153

Series 2005-AR1 Class 4A1

        

5.377% due 08/25/35

    559      559

Series 2005-AR1 Class A1

        

5.443% due 09/25/35

    1,392      1,368

Series 2005-AR2 Class 1A21 (Ê)

        

5.847% due 12/25/35

    272      274

Series 2006-AR2 Class A2 (Ê)

        

4.953% due 11/25/36

    445      442

JP Morgan Chase Commercial Mortgage Securities Corp.

        

Series 2002-C1 Class A3

        

5.376% due 07/12/37

    595      596

Series 2003-C1 Class A2

        

4.985% due 01/12/37

    715      702

Series 2004-LN2 Class A1

        

4.475% due 07/15/41

    744      731

Series 2005-LDP Class A2

        

4.851% due 08/15/42

    1,000      991

Series 2005-LDP Class A3A1

        

4.871% due 10/15/42

    505      498

Series 2005-LDP Class A4

        

4.918% due 10/15/42

    250      239

5.179% due 12/15/44

    1,300      1,276

Series 2006-CB1 Class A4

        

5.817% due 05/12/45

    525      522

Series 2006-LDP Class A3

        

5.336% due 05/15/47

    1,740      1,698

Series 2006-LDP Class A3B

        

5.447% due 05/15/45

    595      591

Series 2006-LDP Class A4

        

5.875% due 04/15/45 (Ê)

    790      807

5.561% due 05/15/45

    700      688

Series 2006-LDP Class AJ (Ê)

        

5.875% due 04/15/45

    370      367

Series 2006-RR1 Class A1 (Þ)

        

5.455% due 10/18/52

    1,290      1,231

Series 2007-CB2 Class AJ

        

6.099% due 02/12/51

    245      250

Series 2007-LD1 Class A4

        

5.819% due 06/15/49

    1,694      1,735

Series 2007-LDP Class A3

        

5.393% due 01/15/49

    690      677
     Principal
Amount ($)
or Shares		      Market
Value
$

JP Morgan Mortgage Trust

        

Series 2005-A1 Class 4A1 (Ê)

        

4.779% due 02/25/35

    512      504

Series 2005-A1 Class 6T1 (Ê)

        

5.023% due 02/25/35

    139      135

Series 2005-A4 Class 1A1 (Ê)

        

5.399% due 07/25/35

    402      402

Series 2005-A6 Class 1A2 (Ê)

        

5.138% due 09/25/35

    475      460

Series 2005-A8 Class 1A1

        

5.406% due 11/25/35

    1,654      1,626

Series 2007-A1 Class 2A2 (Ê)

        

4.756% due 07/25/35

    893      883

LB-UBS Commercial Mortgage Trust

        

Series 2001-C2 Class A2

        

6.653% due 11/15/27

    2,645      2,768

Series 2002-C4 Class A5

        

4.853% due 09/15/31

    1,000      980

Series 2004-C4 Class A3 (Ê)

        

4.972% due 06/15/29

    1,055      1,058

Series 2006-C1 Class A4

        

5.156% due 02/15/31

    1,500      1,458

Series 2006-C4 Class A4 (Ê)

        

5.883% due 06/15/38

    255      261

Series 2007-C1 Class A3

        

5.398% due 02/15/40

    955      944

Series 2007-C6 Class A4

        

5.858% due 07/15/40

    740      759

Lehman Brothers Floating Rate Commercial Mortgage Trust (Ê)

        

Series 2006-LLF Class A1 (Þ)

        

5.171% due 09/15/21

    68      68

Series 2006-LLF Class A2 (Å)

        

5.211% due 09/15/21

    517      515

Lehman Mortgage Trust

        

Series 2005-2 Class 2A3

        

5.500% due 12/25/35

    279      279

Series 2005-3 Class 1A3

        

5.500% due 01/25/36

    1,131      1,134

Lehman XS Trust (Ê)

        

Series 2005-5N Class 3A1A

        

5.173% due 11/25/35

    780      765

Series 2005-9N Class 1A1

        

5.143% due 02/25/36

    974      956

Series 2006-16N Class A4A

        

5.063% due 11/25/46

    1,268      1,219

Luminent Mortgage Trust (Ê)

        

Series 2006-1 Class A1

        

5.113% due 04/25/36

    374      368

Fixed Income III Fund   107

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2006-5 Class A1A

        

5.063% due 07/25/36

    713      698

Series 2006-6 Class A1

        

5.073% due 10/25/46

    403      395

Mastr Adjustable Rate Mortgages Trust

        

Series 2004-13 Class 3A4 (Ê)

        

3.787% due 11/21/34

    500      494

Series 2005-6 Class 7A1 (Ê)

        

5.328% due 06/25/35

    179      178

Series 2006-1 Class I2A3 (Ê)

        

5.723% due 01/25/47

    915      894

Series 2006-2 Class 4A1

        

4.991% due 02/25/36

    1,024      1,017

Series 2006-OA2 Class 4A1A (Ê)

        

5.833% due 12/25/46

    1,756      1,709

Series 2006-OA2 Class 4A1B (Ê)

        

6.183% due 12/25/46

    3,513      3,472

Series 2007-3 Class 22A1 (Ê)

        

4.983% due 05/25/47

    424      421

Mastr Alternative Loans Trust

        

Series 2003-2 Class 6A1

        

6.000% due 03/25/33

    493      490

Series 2003-4 Class B1 (Ê)

        

5.674% due 06/25/33

    350      348

Series 2003-6 Class 3A1

        

8.000% due 09/25/33

    26      26

Series 2003-9 Class 1A1

        

5.500% due 12/25/18

    131      130

Series 2004-10 Class 5A6

        

5.750% due 09/25/34

    410      397

Series 2005-3 Class 7A1

        

6.000% due 04/25/35

    223      221

Mastr Asset Securitization Trust

        

Series 2003-7 Class 4A35 (Ê)

        

5.273% due 09/25/33

    565      559

Series 2003-11 Class 6A8 (Ê)

        

5.373% due 12/25/33

    748      742

Series 2004-4 Class 2A2 (Ê)

        

5.323% due 04/25/34

    216      215

Mastr Reperforming Loan Trust (Þ)

        

Series 2005-1 Class 1A5

        

8.000% due 08/25/34

    193      206

Series 2005-2 Class 1A4

        

8.000% due 05/25/35

    880      896

Mastr Specialized Loan Trust (Þ)

        

Series 2005-2 Class A2

        

5.006% due 07/25/35

    162      154
     Principal
Amount ($)
or Shares		      Market
Value
$

Mellon Residential Funding Corp. (Ê)

        

Series 2000-TBC Class A1

        

5.571% due 06/15/30

    278      274

Merrill Lynch Mortgage Investors,
Inc. (Ê)

        

Series 2005-A6 Class 2A1

        

4.993% due 08/25/35

    25      26

Merrill Lynch Mortgage Trust

        

Series 2002-MW1 Class J (Þ)

        

5.695% due 07/12/34

    185      168

Series 2004-MKB Class A2

        

4.353% due 02/12/42

    615      609

Series 2005-CKI Class A6

        

5.244% due 11/12/37

    170      167

Series 2005-GGP Class E (Þ)

        

4.330% due 11/15/10

    105      105

Series 2005-GGP Class F (Þ)

        

4.351% due 11/15/10

    105      105

Series 2006-C1 Class A1

        

5.528% due 05/12/39

    79      80

MLCC Mortgage Investors, Inc. (Ê)

        

Series 2004-HB1 Class A2

        

5.750% due 04/25/29

    83      82

Series 2005-2 Class 3A

        

5.873% due 10/25/35

    34      34

Morgan Stanley Capital I

        

Series 1999-FNV Class G

        

6.120% due 03/15/31

    130      129

Series 1999-LIF Class A2

        

7.110% due 04/15/33

    397      407

Series 2005-IQ1 Class AAB

        

5.178% due 09/15/42

    810      800

Series 2006-HQ1 Class A4

        

5.328% due 11/12/41

    360      352

Series 2006-HQ8 Class A4

        

5.388% due 03/12/44

    895      889

Series 2006-HQ9 Class A4

        

5.731% due 07/12/44

    480      483

Series 2007-IQ1 Class A2

        

5.610% due 04/15/49

    1,000      1,005

Morgan Stanley Dean Witter
Capital I (Þ)(Ê)

        

Series 2001-TOP Class E

        

7.331% due 02/15/33

    100      101

Morgan Stanley Mortgage Loan Trust

        

Series 2006-2 Class 6A

        

6.500% due 02/25/36

    589      593

108   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Nomura Asset Acceptance Corp.

        

Series 2005-WF1 Class 2A2

        

4.786% due 03/25/35

    415      405

Series 2006-AF1 Class 1A2

        

6.159% due 05/25/36

    465      462

Prime Mortgage Trust

        

Series 2004-CL1 Class 1A1

        

6.000% due 02/25/34

    62      63

Series 2004-CL1 Class 1A2 (Ê)

        

5.273% due 02/25/34

    42      41

Series 2004-CL1 Class 2A2 (Ê)

        

5.273% due 02/25/19

    18      18

Renaissance Home Equity Loan Trust

        

Series 2006-3 Class AF1

        

5.917% due 11/25/36

    1,254      1,248

Residential Accredit Loans, Inc.

        

Series 2004-QS5 Class A1

        

4.600% due 04/25/34

    285      274

Series 2004-QS5 Class A5

        

4.750% due 04/25/34

    199      193

Series 2004-QS5 Class A6 (Ê)

        

5.473% due 04/25/34

    116      115

Series 2004-QS8 Class A4 (Ê)

        

5.273% due 06/25/34

    553      549

Series 2005-QA1 Class A41 (Ê)

        

5.681% due 09/25/35

    178      178

Series 2005-QA8 Class NB3 (Ê)

        

5.479% due 07/25/35

    410      410

Series 2005-QO5 Class A1 (Ê)

        

5.983% due 01/25/46

    1,197      1,175

Series 2005-QS1 Class 2A1

        

6.000% due 09/25/35

    211      209

Series 2006-QO1 Class 1A1 (Ê)

        

5.133% due 02/25/46

    169      167

Series 2006-QO1 Class 2A1 (Ê)

        

5.143% due 02/25/46

    183      180

Series 2006-QO1 Class A1 (Ê)

        

5.033% due 01/25/37

    848      826

Series 2006-QS4 Class A11

        

6.000% due 04/25/36

    268      268

Series 2006-QS6 Class 1A13

        

6.000% due 06/25/36

    990      995

Series 2007-QH9 Class A1

        

6.550% due 11/25/37

    3,000      3,024

Series 2007-QO3 Class SB (Þ)

        

Interest Only STRIP

        

2.557% due 03/25/47

    95      4

Series 2007-QO4 Class A1 (Ê)

        

5.073% due 05/25/47

    1,747      1,712
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2007-QO4 Class SB (Þ)

        

Interest Only STRIP

        

9.100% due 05/25/47

    107      5

Residential Asset Mortgage Products, Inc.

        

Series 2004-SL1 Class A3

        

7.000% due 11/25/31

    28      29

Series 2004-SL4 Class A3

        

6.500% due 07/25/32

    120      123

Residential Asset Securities Corp. (Ê)

        

Series 2003-KS4 Class AIIB

        

5.453% due 06/25/33

    110      109

Residential Asset Securitization Trust

        

Series 2003-A15 Class 1A2 (Ê)

        

5.323% due 02/25/34

    642      640

Series 2007-A5 Class 2A3

        

6.000% due 05/25/37

    328      330

Series 2007-A9 Class A6

        

6.250% due 08/25/13

    2,550      2,574

Residential Funding Mortgage Securities I

        

Series 2003-S5 Class 1A2 (Ê)

        

5.323% due 11/25/18

    335      335

Series 2003-S14 Class A5 (Ê)

        

5.273% due 07/25/18

    666      663

Series 2003-S20 Class 1A7 (Ê)

        

5.373% due 12/25/33

    172      171

Series 2005-SA4 Class 2A1

        

5.207% due 09/25/35

    1,496      1,484

Series 2005-SA4 Class 2A2

        

5.185% due 09/25/35

    797      783

Series 2006-SA3 Class 3A1

        

6.040% due 09/25/36

    425      431

Series 2006-SA4 Class 2A1

        

6.119% due 11/25/36

    1,309      1,322

Sequoia Mortgage Trust

        

Series 2004-3 Class A

        

5.670% due 04/20/34

    540      534

Structured Adjustable Rate Mortgage Loan Trust

        

Series 2004-5 Class 3A1

        

4.380% due 05/25/34

    559      550

Series 2004-12 Class 3A2

        

5.250% due 09/25/34

    216      215

Series 2004-16 Class 3A1

        

5.450% due 11/25/34

    997      998

Series 2004-18 Class 5A

        

5.500% due 12/25/34

    152      152

Fixed Income III Fund   109

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2005-17 Class 3A1

        

5.534% due 08/25/35

    61      61

Series 2005-22 Class 4A2 (Ê)

        

5.373% due 12/25/35

    52      52

Series 2006-1 Class 5A2

        

5.250% due 02/25/36

    1,000      1,003

Series 2006-5 Class 5A4 (Ê)

        

5.544% due 06/25/36

    108      108

Structured Asset Mortgage Investments, Inc. (Ê)

        

Series 2005-AR5 Class A3

        

5.271% due 07/19/35

    435      423

Series 2006-AR1 Class 2A1

        

5.103% due 02/25/36

    1,204      1,177

Series 2006-AR2 Class A2

        

5.183% due 02/25/36

    384      375

Series 2006-AR3 Class 3A1

        

5.063% due 02/25/36

    215      210

Series 2006-AR8 Class A1A

        

5.073% due 10/25/36

    1,606      1,570

Series 2007-AR4 Class A4A

        

5.053% due 09/25/47

    1,296      1,258

Series 2007-AR6 Class A1

        

6.433% due 11/25/37

    3,000      2,993

Structured Asset Securities Corp.

        

Series 2002-22H Class 1A (Ê)

        

6.943% due 11/25/32

    28      28

Series 2003-26A Class 3A5

        

4.530% due 09/25/33

    1,000      994

Series 2004-12H Class 1A

        

6.000% due 05/25/34

    117      118

Series 2004-21X Class 1A3

        

4.440% due 12/25/34

    873      867

Series 2005-6 Class B2 (Ê)

        

5.345% due 05/25/35

    97      75

Thornburg Mortgage Securities Trust (Ê)

        

Series 2003-2 Class A1

        

5.213% due 04/25/43

    482      482

Series 2006-5 Class A1

        

4.993% due 08/25/36

    1,983      1,954

Series 2006-6 Class A1

        

4.983% due 12/25/36

    319      315

Wachovia Bank Commercial Mortgage Trust

        

Series 2005-C16 Class A2

        

4.380% due 10/15/41

    888      875

Series 2005-C20 Class A4

        

5.244% due 07/15/42

    1,000      1,001
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 2005-C21 Class A4 (Ê)

        

5.210% due 10/15/44

    1,500      1,471

Series 2006-C28 Class A2

        

5.500% due 10/15/48

    510      512

Series 2006-WL7 Class A1 (Ê)(Þ)

        

5.181% due 09/15/21

    2,111      2,104

Series 2007-C31 Class A2

        

5.421% due 04/15/47

    1,000      998

Series 2007-WHL Class A1 (Ê)(Þ)

        

5.171% due 06/15/20

    772      762

Washington Mutual Alternative Mortgage Pass-Through Certificates

        

Series 2005-4 Class CB11

        

5.500% due 06/25/35

    220      213

Series 2006-2 Class 2CB

        

6.500% due 03/25/36

    260      263

Series 2006-5 Class 2CB3

        

6.000% due 07/25/36

    431      435

Series 2006-AR2 Class A1A (Ê)

        

5.873% due 04/25/46

    492      483

Series 2006-AR5 Class 3A (Ê)

        

5.923% due 07/25/46

    295      273

Series 2006-AR6 Class 1A (Ê)

        

5.063% due 07/25/46

    216      213

Series 2006-AR7 Class A1A (Ê)

        

5.853% due 09/25/46

    189      190

Series 2006-AR8 Class 2A (Ê)

        

5.783% due 10/25/46

    809      784

Series 2006-AR9 Class 2A (Ê)

        

5.773% due 11/25/46

    886      855

Series 2007-OA1 Class 2A (Ê)

        

5.653% due 12/25/46

    6,082      5,965

Washington Mutual Mortgage Pass Through Certificates

        

Series 2003-S9 Class A2 (Ê)

        

5.423% due 10/25/33

    621      618

Series 2004-AR1 Class X (Ê)

        

Interest Only STRIP

        

0.538% due 07/25/44

    136      3

Interest Only STRIP

        

0.376% due 10/25/44

    222      4

Series 2004-AR3 Class A2

        

4.243% due 06/25/34

    688      679

Series 2004-AR8 Class X

        

Principal Only STRIP

        

Zero coupon due 06/25/44

    76      1

Series 2004-CB3 Class 1A

        

6.000% due 10/25/34

    83      83

110   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2004-CB3 Class 4A

        

6.000% due 10/25/19

    196      198

Series 2005-AR1 Class 1A1

        

4.834% due 10/25/35

    492      488

Series 2005-AR1 Class A1A1 (Ê)

        

5.163% due 10/25/45

    479      470

5.143% due 12/25/45

    488      480

Series 2005-AR1 Class A1B1 (Ê)

        

5.163% due 08/25/45

    32      32

5.133% due 10/25/45

    77      77

5.123% due 11/25/45

    127      127

5.123% due 12/25/45

    114      114

Series 2005-AR6 Class B3 (Ê)

        

5.533% due 04/25/45

    357      354

Series 2005-AR8 Class 2A1A (Ê)

        

5.163% due 07/25/45

    481      469

Series 2005-AR8 Class 2AB3 (Ê)

        

5.233% due 07/25/45

    192      189

Series 2006-AR1 Class 1A1

        

5.943% due 09/25/36

    597      600

Series 2006-AR1 Class 1A4 (Ê)

        

5.647% due 11/25/36

    735      732

Series 2006-AR1 Class 3A1A (Ê)

        

5.853% due 09/25/46

    822      798

Series 2006-AR2 Class 1A1

        

5.314% due 03/25/37

    1,638      1,626

Series 2006-AR7 Class 1A (Ê)

        

5.963% due 07/25/46

    415      417

Series 2006-AR7 Class 2A (Ê)

        

5.913% due 07/25/46

    2,993      2,958

Series 2006-AR8 Class 1A5 (Ê)

        

5.892% due 08/25/46

    80      80

Series 2006-AR8 Class 2A3 (Ê)

        

6.133% due 08/25/46

    54      55

Series 2007-HY1 Class 1A1

        

5.718% due 02/25/37

    1,953      1,955

Series 2007-HY2 Class 3A1

        

5.941% due 09/25/36

    3,000      3,036

Series 2007-HY3 Class 4A1 (Ê)

        

5.349% due 03/25/37

    3,744      3,724

Series 2007-HY3 Class 4B1 (Ê)

        

5.349% due 03/25/37

    300      288

Series 2007-HY4 Class 1A1 (Ê)

        

5.559% due 04/25/37

    440      438

Series 2007-OA2 Class 1A (Ê)

        

5.633% due 03/25/47

    882      859

Wells Fargo Alternative Loan Trust,

        

Zero coupon due 01/01/37

    3,000      3,030
     Principal
Amount ($)
or Shares		      Market
Value
$

Wells Fargo Mortgage Backed Securities Trust

        

Series 2003-8 Class A3

        

4.500% due 08/25/18

    59      59

Series 2004-CC Class A1 (Ê)

        

4.950% due 01/25/35

    669      655

Series 2004-E Class A2 (Ê)

        

4.500% due 05/25/34

    540      521

Series 2004-O Class A1 (Ê)

        

4.893% due 08/25/34

    2,224      2,192

Series 2004-T Class A1 (Ê)

        

6.081% due 09/25/34

    131      131

Series 2005-12 Class 1A7

        

5.500% due 11/25/35

    483      469

Series 2005-14 Class 2A1

        

5.500% due 12/25/35

    1,107      1,082

Series 2005-17 Class 1A1

        

5.500% due 01/25/36

    724      708

Series 2005-17 Class 1A2

        

5.500% due 01/25/36

    378      367

Series 2005-17 Class 2A1

        

5.500% due 01/25/36

    1,813      1,759

Series 2005-18 Class 1A1

        

5.500% due 01/25/36

    1,319      1,279

Series 2005-AR6 Class A1 (Ê)

        

5.040% due 04/25/35

    2,295      2,221

Series 2006-1 Class A3

        

5.000% due 03/25/21

    321      313

Series 2006-2 Class 2A3

        

5.500% due 03/25/36

    840      837

Series 2006-2 Class 3A1

        

5.750% due 03/25/36

    687      669

Series 2006-4 Class 1A8

        

5.750% due 04/25/36

    251      254

Series 2006-4 Class 2A3

        

5.750% due 04/25/36

    204      201

Series 2006-9 Class 1A14

        

6.000% due 08/25/36

    192      191

Series 2006-AR1 Class 1A2 (Ê)

        

6.025% due 09/25/36

    249      249

Series 2006-AR1 Class 2A4 (Ê)

        

6.089% due 10/25/36

    345      349

Series 2006-AR1 Class 5A1 (Ê)

        

5.597% due 07/25/36

    564      564

Series 2006-AR1 Class A1

        

5.730% due 12/25/36

    214      214

Series 2006-AR1 Class A7 (Ê)

        

5.517% due 08/25/36

    496      493

Fixed Income III Fund   111

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Series 2006-AR2 Class 2A1

        

4.950% due 03/25/36

    572      566

Series 2006-AR4 Class 1A1 (Ê)

        

5.857% due 04/25/36

    739      731

Series 2006-AR4 Class 2A1 (Ê)

        

5.774% due 04/25/36

    860      846

Series 2006-AR5 Class 2A1 (Ê)

        

5.533% due 04/25/36

    399      401

Series 2006-AR6 Class 7A1 (Ê)

        

5.114% due 03/25/36

    1,111      1,079

Series 2007-8 Class 1A16

        

6.000% due 07/25/37

    1,017      1,010

Series 2007-10 Class 2A5

        

6.250% due 07/25/37

    475      481

Series 2007-14 Class 1A1

        

6.000% due 10/25/37

    1,295      1,283

Zuni Mortgage Loan Trust (Ê)

        

Series 2006-OA1 Class A1

        

5.003% due 08/25/36

    311      309
         
        831,969
         

Municipal Bonds - 0.2%

        

Badger TOB Asset Securitization Corp. Revenue Bonds, weekly demand

        

6.375% due 06/01/32

    800      830

City of Colorado Springs Colorado Revenue Bonds, weekly demand

        

5.000% due 11/15/33

    200      205

New Jersey Economic Development Authority Revenue Bonds, weekly demand
5.750% due 06/15/34

    235      245

New York State Urban Development Corp. Revenue Bonds, weekly demand (µ)

        

5.250% due 03/15/34

    180      190

State of California General Obligation Unlimited , weekly demand

        

5.000% due 02/01/33

    75      76

5.000% due 02/01/33 (æ)

    25      27

State of Illinois General Obligation Unlimited

        

5.100% due 06/01/33

    150      142

State of Texas General Obligation Unlimited, weekly demand

        

4.750% due 04/01/35

    250      250
     Principal
Amount ($) or
Shares		      Market
Value
$

Tobacco Settlement Authority of Iowa Revenue Bonds, weekly demand

        

6.500% due 02/20/23

      95      91

Tobacco Settlement Finance Authority of West Virginia Revenue Bonds

        

7.467% due 06/01/47

      710      702

West Virginia Economic Development Authority Revenue Bonds (m )

        

5.370% due 07/01/20

      65      64
         
        2,822
         

Non-US Bonds - 1.0%

        

Argentina Bocon

        

Series PR12

        

2.000% due 01/03/16

    ARS  3,470      1,559

Argentina Bonos

        

Series $ V

        

10.500% due 06/12/12

    ARS 1,995      527

Argentina Government International Bond

        

Series dis

        

5.830% due 12/31/33

   ARS 500      199

Bombardier, Inc.

        

7.250% due 11/15/16

    EUR 125      185

Byggingarsjodur Verkamanna

        

Series 2

        

3.750% due 04/15/34

    ISK 59,766      849

Series 3

        

3.750% due 06/15/44

    ISK 114,523      1,632

Colombia Government International Bond

        

12.000% due 10/22/15

    COP 814,000      464

European Investment Bank

        

2.160% due 01/18/27

    JPY 96,500      835

Federative Republic of Brazil

        

12.500% due 01/05/22

    BRL 275      185

10.250% due 01/10/28

    BRL 4,660      2,689

Hellas Telecommunications Luxembourg V (Ê)

        

Series REGS

        

8.232% due 10/15/12

    EUR 250      362

Ineos Group Holdings PLC

        

Series REGS

        

7.875% due 02/15/16

    EUR 250      333

112   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Mexican Bonos

        

Series M 10

        

8.000% due 12/17/15

    MXN  1,598      151

Series M 20

        

10.000% due 12/05/24

    MXN 5,370      601

Series MI10

        

9.500% due 12/18/14

    MXN 1,890      193

New South Wales Treasury Corp.

        

Series 12RG

        

6.000% due 05/01/12

    AUD 1,180      1,055

Province of Quebec Canada

        

5.000% due 12/01/15

    CAD 950      1,026

Republic of Colombia

        

9.850% due 06/28/27

    COP 2,217,000      1,154

Rhodia SA (Ê)

        

Series REGS

        

7.482% due 10/15/13

    EUR 250      359

Santa Fe de Bogota DC (Þ)

        

9.750% due 07/26/28

    COP 584      574

TELUS Corp.

        

Series CD

        

4.950% due 03/15/17

    CAD 195      191
         
        15,123
         

United States Government Agencies - 1.6%

Fannie Mae

        

4.050% due 02/06/09

      4,300      4,278

3.875% due 02/15/10 (Ñ)

      1,075      1,065

4.375% due 06/21/10

      2,500      2,500

5.050% due 02/07/11 (Ñ)

      2,200      2,241

3.780% due 10/09/19 (Ñ)

      695      375

Federal Home Loan Bank System (Ñ)

        

5.375% due 08/19/11

      240      247

5.310% due 12/28/12

      1,800      1,853

Federal National Mortgage Association

        

4.150% due 09/10/09 (Ñ)

      4,000      3,986

4.125% due 05/12/10

      2,800      2,784

Financing Corp.

        

Principal Only STRIP

        

Series 1

        

Zero coupon due 05/11/16

      130      86

Series 2P

        

Zero coupon due 11/30/17

      105      64

Series 3P

        

Zero coupon due 11/30/17

      275      168

Series 5P

        

Zero coupon due 02/08/18

      115      70
     Principal
Amount ($)
or Shares		      Market
Value
$

Series 6P

        

Zero coupon due 08/03/18

    530      312

Series 8P

        

Zero coupon due 08/03/18

    1,030      607

Series 9P

        

Zero coupon due 10/06/17

    495      306

Series 10P

        

Zero coupon due 11/30/17

    840      514

Series 12P

        

Zero coupon due 12/06/18

    445      257

Series 13

        

Zero coupon due 12/27/16

    450      289

Series 13P

        

Zero coupon due 12/27/18

    2,450      1,409

Series 15P

        

Zero coupon due 03/07/19

    90      51

Series 16P

        

Zero coupon due 04/05/19

    475      269

Series 19

        

Zero coupon due 06/06/16

    380      252

Series C-P

        

Zero coupon due 11/30/17

    570      349

Series E-P

        

Zero coupon due 11/02/18

    240      139

Freddie Mac

        

5.000% due 06/11/09

    100      101
         
        24,572
         

United States Government Treasuries - 4.6%

United States Treasury Inflation Indexed Bonds

        

2.375% due 04/15/11 (Ñ)

    737      749

3.375% due 01/15/12 (Ñ)

    1,716      1,819

2.000% due 04/15/12

    1,025      1,027

3.000% due 07/15/12

    111      117

2.000% due 01/15/14 (Ñ)

    2,588      2,586

2.000% due 07/15/14 (Ñ)

    5,731      5,729

2.375% due 01/15/17

    44      45

2.625% due 07/15/17 (Ñ)

    1,971      2,060

2.375% due 01/15/25 (Ñ)

    331      338

2.000% due 01/15/26 (Ñ)

    550      531

2.375% due 01/15/27 (Ñ)

    1,959      2,009

3.625% due 04/15/28 (Ñ)

    257      317

United States Treasury Notes

        

4.750% due 12/31/08 (Ñ)

    7,555      7,617

4.875% due 01/31/09 (Ñ)

    9,400      9,498

4.000% due 09/30/09 (Ñ)

    1,120      1,121

3.875% due 10/31/09

    610      606

Fixed Income III Fund   113

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		     

Market
Value

$

       

4.500% due 05/15/10 (Ñ)

    13,000      13,184

4.375% due 12/15/10 (Ñ)

    7,310      7,396

4.250% due 09/30/12 (Ñ)

    4,300      4,318

4.125% due 10/31/12

    325      321

4.750% due 08/15/17 (Ñ)

    710      726

6.000% due 02/15/26 (Ñ)

    6,475      7,414

4.500% due 02/15/36 (Ñ)(§)

    240      230

4.750% due 02/15/37 (Ñ)

    1,140      1,139

5.000% due 05/15/37 (Ñ)

    800      832

United States Treasury Principal (Ñ) Principal Only STRIP
Zero coupon due 11/15/21

    45      23
         
        71,752
         
Total Long-Term Investments        

(cost $1,517,981)

         1,519,480
         
Common Stocks - 1.0%        

Financial Services - 1.0%

        

Emerging Market Local Currency Fund (Æ)

    515,362      6,566

Pacific Investment Management Co. Series High Yield Portfolio Institutional

    1,051,933      9,025
         
Total Common Stocks        

(cost $14,683)

         15,591
         
Preferred Stocks - 0.1%        

Financial Services - 0.1%

        

Deutsche Bank Contingent Capital Trust II (Æ)

    19,800      475

DG Funding Trust (Æ)(Å)

    118      1,242

Harborview NIM Corp. (Æ)(Þ)

    323      18
         
        1,735
         

Producer Durables - 0.0%

        

Nexen, Inc. (Æ)

    4,055      100
         
Total Preferred Stocks        

(cost $1,866)

         1,835
         
Warrants & Rights - 0.0%        

Materials and Processing - 0.0%

     

Solutia, Inc.
2009 Warrants (Æ)(Þ)

    450      —
         
Total Warrants & Rights        

(cost $38)

         —
         
     Notional
Amount		      Market
Value
$

Options Purchased - 0.1%

        

(Number of Contracts)

        

Eurdollar Futures

        

Dec 2007 91.25 Put (152)

    USD 380      1

Mar 2008 91.75 Put (240)

    USD 600      2

Mar 2008 92.25 Put (91)

    USD 228      1

Mar 2008 92.50 Put (5)

    USD 13      —

Mar 2008 92.75 Put (112)

    USD 280      1

Jun 2008 92.50 Put (112)

    USD 280      1

Jun 2008 92.75 Put (172)

    USD 430      1

Sep 2008 92.25 Put (176)

    USD 440      1

Sep 2008 92.50 Put (225)

    USD 563      1

Swaptions

        

(Fund Pays/Fund Receives)

        

USD Three Month LIBOR/USD

        

4.750%

        

Feb 2008 0.00 Call (1)

      5,000      16

USD Three Month LIBOR/USD

        

5.000%

        

Feb 2008 0.00 Call (1)

      15,900      155

USD Three Month LIBOR/USD

        

4.750%

        

Mar 2008 0.00 Call (2)

      29,100      208

USD Three Month LIBOR/USD

        

4.750%

        

Sep 2008 0.00 Call (3)

      32,200      266

USD Three Month LIBOR/USD

        

4.750%

        

Dec 2008 0.00 Call (1)

      12,400      104

USD Three Month LIBOR/USD

        

5.000%

        

Dec 2008 0.00 Call (1)

      34,800      377

USD Three Month LIBOR/USD

        

5.200%

        

Feb 2009 0.00 Call (1)

      9,000      116

United Treasury Bonds

        

Nov 2007 105.00 Put (311) 

    USD 311      5

Nov 2007 106.00 Put (447) 

    USD 447      7

United Treasury Notes
5 Year Futures

        

Nov 2007 109.00 Call (126) 

    USD 126      8
         
Total Options Purchased        

(cost $742)

         1,271
         

114   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

Short-Term Investments - 18.3%

        

Aig-Fp Matched Funding (Ê)(Þ)

        

5.694% due 06/16/08

    400      400

ALROSA Finance SA

        

8.125% due 05/06/08

    546      551

American Express Bank FSB (Ê)

        

Series BKNT

        

5.070% due 10/16/08

    600      598

American Express Centurion Bank (Ê)

        

Series BKNT

        

5.122% due 05/07/08

    400      399

Avista Corp.

        

9.750% due 06/01/08

    220      225

AXA Financial, Inc.

        

6.500% due 04/01/08

    105      106

BellSouth Corp. (Ê)

        

5.658% due 08/15/08

    600      599

Caterpillar Financial Services Corp.

        

Series MTNF

        

3.625% due 11/15/07

    60      60

CIT Group, Inc.

        

3.650% due 11/23/07

    90      90

5.708% due 08/15/08 (Ê)

    300      297

Citigroup Funding, Inc.

        

Zero coupon due 11/15/07

    1,050      1,187

Citigroup Global Markets Deutschland for Tyumen Oil Co.

        

Series REGS

        

11.000% due 11/06/07

    610      610

Citigroup Global Markets Holdings, Inc. (Ê)

        

Series MTNM

        

5.760% due 03/07/08

    700      700

Citigroup, Inc.

        

3.500% due 02/01/08

    830      827

Clear Channel Communications, Inc.

        

4.625% due 01/15/08

    250      249

Clorox Co. (Ê)

        

5.828% due 12/14/07

    225      225

Constellation Brands, Inc.

        

Series B 8.000% due 02/15/08

    185      185

Countrywide Home Loans, Inc.

        

3.250% due 05/21/08 (Ñ)

    215      204

Series MTNK (Ñ)

        

4.250% due 12/19/07

    175      173

CSC Holdings, Inc.

        

7.250% due 07/15/08

    250      251
     Principal
Amount ($)
or Shares		      Market
Value
$

Delphi Corp., Second Lien Term Loan

        

7.875% due 12/31/07

    100      100

Dexia Credit SA

        

5.078% due 09/29/08

    2,300      2,299

Dominion Resources, Inc.

        

Series A

        

5.687% due 05/15/08

    305      305

Dresdner Bank AG (Þ)

        

Zero coupon due 01/24/08

    760      752

Entergy Gulf States, Inc.

        

3.600% due 06/01/08

    80      79

Federal Home Loan Bank Discount Notes

        

Zero coupon due 11/08/07 (ç)(z)

    1,550      1,549

4.800% due 05/02/08 (Ñ)(§)

    5,800      5,805

Series 577 (Ñ)

        

4.500% due 09/26/08

    5,500      5,499

Series IY08

        

3.400% due 03/18/08

    2,000      1,990

Federal National Mortgage Association

        

4.200% due 03/24/08

    3,500      3,492

Fortis Bank (z)

        

5.265% due 06/30/08

    900      900

5.073% due 09/30/08

    600      600

Freddie Mac

        

3.450% due 03/12/08

    2,000      1,991

Galleon Capital Corp. (ç)(z)

        

5.320% due 11/01/07

    5,123      5,123

Gazinvest Luxembourg SA for Gazprombank

        

7.250% due 10/30/08

    470      472

Goldman Sachs Group, Inc. (The) (Ê)

        

Series MTNB

        

5.111% due 07/29/08

    100      100

Greater Bay Bancorp

        

Series B

        

5.250% due 03/31/08

    300      300

HSBC Finance Corp. (Ê)

        

5.824% due 09/15/08

    1,900      1,899

JC Penney Corp., Inc.

        

7.375% due 08/15/08

    280      284

JetBlue Airways Corp. (Ê)

        

Series 04-1 9.944% due 03/15/08

    487      487

John Deere Capital Corp. (Ê)

        

5.293% due 04/15/08

    400      400

Kansas City Southern Railway

        

9.500% due 10/01/08

    1,000      1,023

Knight Ridder, Inc.

        

6.625% due 11/01/07

    1,000      1,000

Fixed Income III Fund   115

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands (except share amounts)

     Principal
Amount ($)
or Shares		      Market
Value
$
       

MBNA Corp. (Ê)

        

Series MTNF

        

3.590% due 05/05/08

    255      256

Merrill Lynch & Co., Inc. (Ê)

        

Series MTNC

        

5.170% due 06/16/08

    1,100      1,096

Nordea Bank Finland PLC (z)

        

5.297% due 05/28/08

    300      300

Owens-Illinois, Inc.

        

7.350% due 05/15/08

    250      251

Platinum Underwriters Holdings, Ltd.

        

Series B

        

6.371% due 11/16/07

    135      135

Popular NA, Inc.

        

4.250% due 04/01/08

    20      20

Series MTNE

        

3.875% due 10/01/08

    500      493

Pricoa Global Funding I (Ê)(Þ)

        

5.164% due 01/25/08

    700      700

PSEG Energy Holdings LLC

        

8.625% due 02/15/08

    43      43

Rabobank USA Financial Corp. (ç)(z)

        

4.810% due 11/01/07

    8,800      8,800

Residential Capital LLC (Ê)

        

6.224% due 06/09/08

    525      470

Royal Bank of Scotland (z)

        

5.073% due 03/26/08

    100      100

Russell Investment Company
Money Market Fund

    217,728,000      217,728

Southern California Edison Co. (Ê)

        

5.778% due 12/13/07

    1,700      1,701

Transocean, Inc. (Ê)

        

5.869% due 09/05/08

    400      399

UBS Financial Del LLC (ç)(z)

        

4.670% due 11/01/07

    500      500

Unicredit Luxembourg Finance
SA (Ê)(Å)

        

5.143% due 10/24/08

    375      374

Unicredito Italiano NY

        

Series YCD (Ê)

        

5.350% due 05/06/08

    1,100      1,099

5.506% due 05/29/08

    500      500

Union Pacific Corp.

        

6.625% due 02/01/08

    90      90

Series MTNE

        

6.790% due 11/09/07

    35      35
     Principal
Amount ($)
or Shares		      Market
Value
$		  

United States Treasury Bills (z)

        

4.239% due 11/29/07 (ç)(§)

    10      10  

3.859% due 12/13/07 (ç)(§)

    1,235      1,230  

3.864% due 12/13/07 (ç)(§)

    500      498  

3.922% due 12/13/07 (ç)(§)

    220      219  

3.931% due 12/13/07 (ç)(§)

    500      498  

3.946% due 12/13/07 (ç)(§)

    50      50  

4.211% due 12/13/07 (ç)(§)

    50      50  

3.733% due 12/27/07 (ç)(§)

    700      696  

5.036% due 01/10/08

    250      244  

USAA Auto Owner Trust

        

Series 2007-1 Class A1

        

5.337% due 07/11/08

    244      244  

VTB Capital SA for Vneshtorgbank

        

5.956% due 08/01/08 (Ê)(Þ)

    565      559  

Series REGS (Ê)

        

5.956% due 08/01/08

    320      317  

Wachovia Bank NA (Ê)

        

Series BKNT (Ñ)

        

5.190% due 06/27/08

    400      400  

Series BKNT

        

5.200% due 10/03/08

    700      699  

Wal-Mart Stores, Inc. (Ê)

        

5.594% due 06/16/08

    1,000      1,000  

WellPoint, Inc.

        

3.750% due 12/14/07

    90      90  

Westpac Banking Corp. (Ê)

        

Series DPNT

        

5.082% due 06/06/08

    300      300  

Wisconsin Electric Power Co.

        

3.500% due 12/01/07

    65      65  
           
Total Short-Term Investments        

(cost $286,513)

         286,644  
           
Other Securities - 8.9%        

Russell Investment Company
Money Market Fund (×)

    31,117,274      31,117  

State Street Securities Lending Quality Trust (×)

    108,386,518      108,387  
           
Total Other Securities        

(cost $139,504)

         139,504  
           
Total Investments - 125.2%        

(identified cost $1,961,327)

         1,964,325  
Other Assets and Liabilities, Net - (25.2%)         (395,723 )
           
Net Assets - 100.0%         1,568,602  
           

 

See accompanying notes which are an integral part of the financial statements.

116   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Futures Contracts

(Number of Contracts)

  

Notional
Amount

  Unrealized
Appreciation
(Depreciation)
$
   

Long Positions

    

Euro-Bund Futures (Germany)
expiration date 12/07 (47)

   EUR 7,706   (21)

Eurodollar Futures (CME)
expiration date 12/07 (39)

   USD 9,287   20

expiration date 03/08 (8)

   USD 1,910   7

expiration date 06/08 (644)

   USD 153,948   562

expiration date 09/08 (279)

   USD 66,744   580

expiration date 12/08 (759)

   USD 181,591   816

expiration date 03/09 (398)

   USD 95,177   36

expiration date 06/09 (117)

   USD 27,951   144

expiration date 09/09 (108)

   USD 25,774   125

expiration date 12/09 (40)

   USD 9,536   90

expiration date 03/10 (40)

   USD 9,528   84

Euroyen Futures
expiration date 12/07 (27)

   JPY 669,499   10

Japanese 10 Year Bond (Japan)
expiration date 12/07 (9)

   JPY 10,616   46

LIBOR Futures
expiration date 03/08 (5)

   GBP 588   (2)

expiration date 06/08 (11)

   GBP 1,297   (2)

expiration date 09/08 (13)

   GBP 1,535   6

expiration date 12/08 (6)

   GBP 709   10

expiration date 03/09 (9)

   GBP 1,063   11

expiration date 06/09 (1)

   GBP 118   1

Three Month Short Sterling Interest Rate Futures (UK)
expiration date 12/07 (30)

   GBP 13   (3)

United States Treasury 2 Year Notes
expiration date 12/07 (245)

   USD 50,742   112

United States Treasury 5 Year Notes
expiration date 12/07 (1,350)

   USD  144,914   753

United States Treasury 10 Year Notes
expiration date 12/07 (149)

   USD 16,392   113

expiration date 03/08 (120)

   USD 13,157   110

expiration date 03/09 (8)

   USD 1,913   10

United States Treasury Bonds
expiration date 12/07 (405)

   USD 45,600   391

Futures Contracts

(Number of Contracts)

   Notional
Amount 		  Unrealized
Appreciation
(Depreciation)
$

Short Positions

    

Euro-Bobl Futures (Germany)
expiration date 12/07 (219)

   EUR 34,127   10

Japanese 10 Year Bond (Japan)
expiration date 12/07 (8)

   JPY 1,087,920   (24)

Three Month Short Sterling Interest Rate Futures (UK)
expiration date 12/07 (30)

   GBP 4   —

Long Gilt Bond (UK)
expiration date 12/07 (8)

   GBP 1,783   —

United States Treasury
2 Year Notes
expiration date 12/07 (50)

   USD 10,355   (6)

United States Treasury
5 Year Notes
expiration date 12/07 (226)

   USD 24,260   (104)

United States Treasury
10 Year Notes
expiration date 12/07 (690)

   USD 75,911   (681)

United States Treasury Bonds
expiration date 12/07 (13)

   USD 1,464   7
     

Total Unrealized Appreciation
(Depreciation) on Open Futures Contracts (å)

     3,211
     

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income III Fund   117

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Options Written
(Number of Contracts)		       Notional
Amount 		  Market
Value
$		  
     

Swaptions

      

(Fund Pays/Fund Receives)

      

USD 4.800% /USD Three Month LIBOR

      

Feb 2008 0.00 Call (1)

     1,000   (10 )

USD 5.100%/USD Three Month LIBOR

      

Feb 2008 0.00 Call (1)

     7,000   (110 )

USD 4.900%/USD Three Month LIBOR

      

Mar 2008 0.00 Call (2)

     8,400   (99 )

USD 4.950%/USD Three Month LIBOR

      

Mar 2008 0.00 Call (1)

     4,000   (52 )

USD 4.950%/USD Three Month LIBOR

      

Sep 2008 0.00 Call (3)

     13,800   (213 )

USD 5.00%/USD Three Month LIBOR

      

Dec 2008 0.00 Call (1)

     4,200   (79 )

USD 5.200%/ USD Three Month LIBOR

      

Dec 2008 0.00 Put (1)

     11,600   (282 )

USD 5.450%/USD Three Month LIBOR

      

Feb 2009 0.00 Call (1)

     4,000   (112 )

United States Treasury Bonds

      

Nov 2007 116.00 Call (678)

   USD   678   (64 )

Nov 2007 105.00 Put (311)

   USD   311   (5 )

Nov 2007 106.00 Put (1,041)

   USD   1,041   (16 )

Nov 2007 107.00 Put (440)

   USD   440   (14 )

United States Treasury Notes
2 Year Futures

      

Nov 2007 104.00 Call (198)

   USD   396   (19 )

5 Year Futures

      

Nov 2007 109.00 Call (126)

   USD   126   (8 )

10 Year Futures

      

Nov 2007 112.00 Call (560)

   USD   560   (79 )

Nov 2007 106.00 Put (818)

   USD   818   (13 )

Nov 2007 107.00 Put (16)

   USD   16   (1 )
         

Total Liability for Options Written (premiums received $1,549)

       (1,176 )
         

 


 

See accompanying notes which are an integral part of the financial statements.

118   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Credit Default Swap Contracts        

Reference
Entity

   

Counter
Party

    Notional
Amount 		   Fund (Pays)/
Receives
Fixed Rate		      Termination
Date		    Market Value
$		  
                 

American International Group

    JP Morgan    USD   

1,100

    0.050%      12/20/07    —  

Anadarko Petroleum Corp.

    Goldman Sachs    USD   

200

    0.150%      03/20/08    —  

Argentina Government International Bond

    Deutsche Bank    USD   

720

    (4.984% )    09/20/12    34  

Argentina Government International Bond

    Deutsche Bank    USD   

730

    (4.786% )    09/20/12    30  

Argentina Government International Bond

    JP Morgan    USD   

630

    (5.055% )    09/20/12    31  

Argentina Government International Bond

    Lehman Brothers    USD   

1,600

    1.700%      08/20/08    14  

Brazilian Government International Bond

    Citibank    USD   

1,500

    (1.500% )    08/20/11    41  

Brazilian Government International Bond

    Lehman Brothers    USD   

1,400

    1.980%      03/20/16    85  

Chesapeake Energy Corp.

    Lehman Brothers    USD   

2,000

    0.750%      09/20/08    8  

Countrywide Home Loans

    Lehman Brothers    USD   

1,890

    0.480%      06/20/12    (249 )

Countrywide Home Loans

    Lehman Brothers    USD   

1,123

    (0.710% )    06/20/17    (168 )

Dow Jones CDS Emerging Markets Index

    Lehman Brothers    USD   

2,000

    1.750%      12/20/12    27  

Dow Jones CDX High Volatility Index

    Citibank    USD   

500

    2.144%      06/20/12    5  

Dow Jones CDX High Volatility Index

    Merrill Lynch    USD   

1,000

    1.833%      06/20/12    (3 )

Dow Jones CDX High Volatility Index

    Morgan Stanley    USD   

1,000

    2.080%      06/20/12    8  

Ford Motor Corp. Capital Trust II

    Lehman Brothers    USD   

500

    1.100%      03/20/08    (2 )

Ford Motor Credit Co.

    Goldman Sachs    USD   

100

    3.850%      09/20/12    (3 )

Ford Motor Credit Co.

    Lehman Brothers    USD   

475

    1.200%      03/20/08    (1 )

Ford Motor Credit Co.

    Lehman Brothers    USD   

240

    2.200%      03/20/08    —  

Gaz Capital for Gazprom

    HSBC    USD   

100

    0.970%      11/20/08    —  

Gaz Capital for Gazprom

    JP Morgan    USD   

1,500

    0.415%      11/20/07    3  

General Motors Acceptance Corp.

    Lehman Brothers    USD   

400

    3.600%      09/20/08    —  

General Motors Acceptance Corp.

    Lehman Brothers    USD   

900

    1.680%      09/20/08    (19 )

General Motors Acceptance Corp.

    Merrill Lynch    USD   

1,000

    1.850%      09/20/09    (42 )

General Motors Corp.

    Lehman Brothers    USD   

1,000

    2.300%      09/20/08    (3 )

General Motors Corp.

    Chase Securities Inc.    USD   

200

    (4.550% )    12/20/12    (3 )

General Motors Corp.

    Citibank    USD   

300

    4.630%      12/20/12    (3 )

IAC/InterActiveCorp

    Lehman Brothers    USD   

555

    (1.350% )    09/20/12    5  

Indonesia Government International Bond

    Lehman Brothers    USD   

100

    0.400%      12/20/08    —  

International Paper Company

    Lehman Brothers    USD   

1,330

    (0.340% )    06/20/12    (3 )

Kazkommerts International BV

    Morgan Stanley    USD   

700

    4.250%      10/20/12    (14 )

Lehman Brothers

    Barclays Bank PLC    USD   

300

    0.190%      09/20/08    (2 )

Lehman Brothers

    JP Morgan    USD   

300

    0.300%      09/20/08    (2 )

Lyondell Chemical Co.

    Lehman Brothers    USD   

625

    0.500%      09/20/12    (93 )

Lyondell Chemical Co.

    Lehman Brothers    USD   

450

    4.900%      09/20/12    10  

Masco Corporation

    Lehman Brothers    USD   

725

    (0.820% )    09/20/12    —  

Masco Corporation

    Lehman Brothers    USD   

730

    (0.800% )    09/20/12    (1 )

MeadWestvaco Corp.

    Lehman Brothers    USD   

365

    (4.000% )    09/20/12    (2 )

MediaCom LLC

    Lehman Brothers    USD   

1,000

    1.200%      03/20/08    (4 )

Mexico Government International Bond

    JP Morgan    USD   

200

    0.920%      03/20/16    5  

Mexico Government International Bond

    Lehman Brothers    USD   

380

    (0.490% )    12/20/12    —  

Mexico Government International Bond

    Lehman Brothers    USD   

380

    (0.630% )    12/20/12    3  

Pitney Bowes Inc.

    Lehman Brothers    USD   

695

    (0.220% )    09/20/12    1  

Residential Capital LLC

    Lehman Brothers    USD   

200

    5.000%      09/20/08    (20 )

Russia Government International Bond

    Morgan Stanley    USD   

100

    0.245%      06/20/08    —  

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income III Fund   119

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Credit Default Swap Contracts       

Reference
Entity

   

Counter
Party

    Notional
Amount 		   Fund (Pays)/
Receives
Fixed Rate		      Termination
Date		   Market Value
$		  

Sunguard Data Systems

    Lehman Brothers    USD   

2,000

    3.500%      09/20/12   13  

Talisman Energy Inc.

    Lehman Brothers    USD   

590

    (0.510% )    09/20/12   4  

The Neiman Marcus Group

    Lehman Brothers    USD   

1,000

    1.100%      09/20/08   5  

Univision Communications Inc.

    Lehman Brothers    USD   

2,000

    1.750%      12/20/08   17  

Usani LLC

    Lehman Brothers    USD   

555

    (1.380% )    09/20/12   (8 )

Usani LLC

    Lehman Brothers    USD   

725

    (5.000% )    09/20/12   (17 )

Verizon Communications Inc.

    Lehman Brothers    USD   

2,235

    (0.180% )    06/20/12   (2 )

Weyerhaeuser Company

    Lehman Brothers    USD   

725

    (0.700% )    09/20/12   —  
                    

Total Market Value of Open Credit Default Contracts Premiums Paid (Received) - ($16)

   (315 )
                    

 

Interest Rate Swap Contracts              

Counter
Party

    Notional
Amount		    Fund Receives   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Bank of America

    USD    12,100    5.473%   

Three Month LIBOR

    06/14/11    464  

Bank of America

    USD    4,000    5.458%   

Three Month LIBOR

    06/14/16    193  

Bank of America

    USD    2,500    5.628%   

Three Month LIBOR

    06/16/36    136  

Bank of America

    USD    2,000    5.000%   

Three Month LIBOR

    12/19/22    (52 )

Bank of America

    CAD    3,620    Three Month LIBOR   

4.967%

    05/30/10    (24 )

Bank of America

    CAD    2,270    4.955%   

Three Month LIBOR

    05/30/13    21  

Bank of America

    CAD    310    Three Month LIBOR   

4.990%

    05/30/38    1  

Bank of America

    USD    17,100    5.000%   

Three Month LIBOR

    12/19/12    134  

Bank of America

    USD    10,300    5.000%   

Three Month LIBOR

    12/19/12    81  

Bank of America

    USD    3,000    5.000%   

Three Month LIBOR

    12/19/12    23  

Bank of America

    USD    7,600    Three Month LIBOR   

5.000%

    12/19/14    (18 )

Bank of America

    USD    2,700    5.250%   

Three Month LIBOR

    12/19/22    (1 )

Barclays Bank PLC

    EUR    11,670    Six Month LIBOR   

4.500%

    12/19/09    20  

Barclays Bank PLC

    EUR    4,000    4.500%   

Six Month LIBOR

    12/19/12    (13 )

Barclays Bank PLC

    EUR    2,020    4.500%   

Six Month LIBOR

    12/19/12    (6 )

Barclays Bank PLC

    EUR    7,150    4.250%   

Six Month LIBOR

    07/20/16    (693 )

Barclays Bank PLC

    EUR    4,000    4.500%   

Six Month LIBOR

    12/19/17    (72 )

Barclays Bank PLC

    EUR    1,350    Six Month LIBOR   

4.500%

    12/19/17    24  

Barclays Bank PLC

    EUR    270    Six Month LIBOR   

4.500%

    12/19/17    5  

Barclays Bank PLC

    EUR    670    Six Month LIBOR   

4.500%

    12/19/17    12  

Barclays Bank PLC

    EUR    720    Six Month LIBOR   

4.500%

    12/19/17    13  

Barclays Bank PLC

    EUR    2,610    Six Month LIBOR   

4.500%

    12/19/17    47  

Barclays Bank PLC

    EUR    1,240    4.500%   

Six Month LIBOR

    12/19/37    (86 )

Barclays Bank PLC

    EUR    790    Six Month LIBOR   

4.500%

    12/19/37    55  

Barclays Bank PLC

    EUR    1,590    Six Month LIBOR   

4.500%

    12/19/37    —  

Barclays Bank PLC

    GBP    400    6.000%   

Six Month LIBOR

    03/20/09    2  

Barclays Bank PLC

    GBP    2,400    Six Month LIBOR   

5.750%

    12/19/12    (39 )

Barclays Bank PLC

    GBP    2,500    5.750%   

Six Month LIBOR

    12/19/12    40  

Barclays Bank PLC

    GBP    2,950    5.750%   

Six Month LIBOR

    12/19/12    48  

Barclays Bank PLC

    GBP    2,890    Six Month LIBOR   

5.750%

    12/19/12    (47 )

 

See accompanying notes which are an integral part of the financial statements.

120   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Interest Rate Swap Contracts              

Counter
Party

    Notional
Amount		   

Fund Receives

   

Fund Pays

    Termination
Date		    Market Value
$		  
                 

Barclays Bank PLC

    GBP    1,450    Six Month LIBOR   

5.750%

    12/19/12    (23 )

Barclays Bank PLC

    GBP    360    5.500%   

Six Month LIBOR

    12/19/17    7  

Barclays Bank PLC

    GBP    2,040    Six Month LIBOR   

4.750%

    12/19/37    58  

Barclays Bank PLC

    GBP    1,100    4.750%   

Six Month LIBOR

    12/19/37    (29 )

Barclays Bank PLC

    GBP    550    4.750%   

Six Month LIBOR

    12/19/37    (16 )

Barclays Bank PLC

    JPY    1,196,000    Six Month LIBOR   

1.750%

    12/19/14    (156 )

Barclays Bank PLC

    JPY    40,000    2.000%   

Six Month LIBOR

    12/19/17    6  

Barclays Bank PLC

    SEK    115,000    Three Month LIBOR   

4.500%

    12/19/17    482  

Barclays Bank PLC

    SEK    17,000    Three Month LIBOR   

4.500%

    12/19/17    71  

Barclays Bank PLC

    SEK    13,000    4.500%   

Three Month LIBOR

    12/19/17    (51 )

Barclays Bank PLC

    SEK    3,000    4.500%   

Three Month LIBOR

    12/19/17    (12 )

Barclays Bank PLC

    SEK    6,000    4.500%   

Three Month LIBOR

    12/19/17    (24 )

Barclays Bank PLC

    SEK    7,000    4.500%   

Three Month LIBOR

    12/19/17    (28 )

Barclays Bank PLC

    SEK    25,000    4.500%   

Three Month LIBOR

    12/19/17    (99 )

Barclays Bank PLC

    USD    900    5.000%   

Three Month LIBOR

    12/19/12    7  

Bear Stearns

    USD    6,300    5.000%   

Three Month LIBOR

    12/19/12    49  

Bear Stearns

    USD    6,900    Three Month LIBOR   

5.282%

    08/20/14    (135 )

Bear Stearns

    USD    24,800    5.000%   

Three Month LIBOR

    12/19/14    58  

Bear Stearns

    USD    15,400    Three Month LIBOR   

5.000%

    12/19/14    (36 )

Bear Stearns

    USD    10,900    Three Month LIBOR   

5.000%

    12/19/14    (26 )

Bear Stearns

    USD    800    5.250%   

Three Month LIBOR

    12/19/17    14  

Bear Stearns

    USD    800    Three Month LIBOR   

5.250%

    12/19/27    1  

Bear Stearns

    USD    3,000    5.250%   

Three Month LIBOR

    12/19/37    (45 )

BNP Paribas

    EUR    900    2.090%   

Consumer Price Index (France)

    10/15/10    17  

Citibank

    EUR    11,680    Six Month LIBOR   

4.500%

    12/19/09    20  

Citibank

    EUR    11,680    Six Month LIBOR   

4.500%

    12/19/09    20  

Citibank

    EUR    1,250    4.500%   

Six Month LIBOR

    12/19/37    (86 )

Citibank

    GBP    2,410    5.750%   

Six Month LIBOR

    12/19/12    39  

Citibank

    GBP    1,030    5.750%   

Six Month LIBOR

    12/19/12    17  

Citibank

    JPY    1,487,000    Six Month LIBOR   

1.750%

    12/19/14    (194 )

Citibank

    JPY    555,000    Six Month LIBOR   

1.750%

    12/19/14    (72 )

Citibank

    JPY    557,000    1.750%   

Six Month LIBOR

    12/19/14    73  

Citibank

    JPY    153,000    Six Month LIBOR   

1.750%

    12/19/14    (20 )

Citibank

    USD    9,200    Three Month LIBOR   

5.000%

    12/19/14    (22 )

Citibank

    JPY    660,000    2.000%   

Six Month LIBOR

    12/19/17    101  

Citibank

    JPY    28,000    Six Month LIBOR   

2.000%

    12/19/17    (4 )

Citigroup Global Markets Inc.

    EUR    930    Six Month LIBOR   

4.500%

    12/19/09    2  

Citigroup Global Markets Inc.

    GBP    2,500    Six Month LIBOR   

5.750%

    12/19/12    (40 )

Citigroup Global Markets Inc.

    JPY    255,000    Six Month LIBOR   

1.750%

    12/19/14    (33 )

Citigroup Global Markets Inc.

    JPY    544,000    1.750%   

Six Month LIBOR

    12/19/14    71  

Credit Suisse First Boston

    EUR    35,960    4.500%   

Six Month LIBOR

    12/19/09    (61 )

Credit Suisse First Boston

    EUR    13,250    Six Month LIBOR   

4.500%

    12/19/12    42  

Credit Suisse First Boston

    EUR    8,050    4.500%   

Six Month LIBOR

    12/19/17    (146 )

Credit Suisse First Boston

    EUR    490    Six Month LIBOR   

4.500%

    12/19/17    9  

Credit Suisse First Boston

    EUR    1,060    Six Month LIBOR   

4.500%

    12/19/17    19  

Credit Suisse First Boston

    EUR    260    Six Month LIBOR   

4.500%

    12/19/17    5  

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income III Fund   121

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Interest Rate Swap Contracts              

Counter
Party

    Notional
Amount		   

Fund Receives

   

Fund Pays

    Termination
Date		    Market Value
$		  

Credit Suisse First Boston

    EUR    4,110    Six Month LIBOR   

4.500%

    12/19/17    74  

Credit Suisse First Boston

    EUR    4,100    Six Month LIBOR   

4.500%

    12/19/17    74  
                 

Credit Suisse First Boston

    EUR    470    Six Month LIBOR   

4.500%

    12/19/17    9  

Credit Suisse First Boston

    EUR    1,400    4.500%   

Six Month LIBOR

    12/19/17    (25 )

Credit Suisse First Boston

    EUR    3,630    4.500%   

Six Month LIBOR

    12/19/37    (251 )

Credit Suisse First Boston

    EUR    4,230    Six Month LIBOR   

4.500%

    12/19/37    293  

Credit Suisse First Boston

    EUR    2,150    4.500%   

Six Month LIBOR

    12/19/37    (149 )

Credit Suisse First Boston

    EUR    2,140    4.500%   

Six Month LIBOR

    12/19/37    (148 )

Credit Suisse First Boston

    EUR    1,240    4.500%   

Six Month LIBOR

    12/19/37    (86 )

Credit Suisse First Boston

    GBP    1,400    Six Month LIBOR   

4.750%

    12/19/37    40  

Credit Suisse First Boston

    GBP    650    Six Month LIBOR   

4.750%

    12/19/37    18  

Credit Suisse First Boston

    GBP    400    4.750%   

Six Month LIBOR

    12/19/37    (7 )

Credit Suisse First Boston

    SEK    30,000    Three Month LIBOR   

4.500%

    12/19/17    126  

Credit Suisse First Boston

    SEK    5,000    4.500%   

Three Month LIBOR

    12/19/17    (20 )

Credit Suisse First Boston

    SEK    10,000    4.500%   

Three Month LIBOR

    12/19/17    (39 )

Credit Suisse First Boston

    SEK    2,000    4.500%   

Three Month LIBOR

    12/19/17    (8 )

Credit Suisse First Boston

    SEK    4,000    4.500%   

Three Month LIBOR

    12/19/17    (16 )

Credit Suisse First Boston

    USD    1,200    5.250%   

Three Month LIBOR

    12/19/17    13  

Credit Suisse First Boston

    USD    700    5.000%   

Three Month LIBOR

    12/19/17    (6 )

Deutsche Bank

    AUD    9,660    6.500%   

Six Month LIBOR

    12/19/12    (289 )

Deutsche Bank

    AUD    10,540    Six Month LIBOR   

6.500%

    12/19/12    333  

Deutsche Bank

    EUR    1,700    5.000%   

Six Month LIBOR

    12/19/09    20  

Deutsche Bank

    EUR    1,130    Six Month LIBOR   

4.500%

    12/19/17    20  

Deutsche Bank

    EUR    4,520    4.500%   

Six Month LIBOR

    12/19/17    (82 )

Deutsche Bank

    EUR    1,050    Six Month LIBOR   

4.500%

    12/19/17    19  

Deutsche Bank

    EUR    550    Six Month LIBOR   

4.500%

    12/19/37    38  

Deutsche Bank

    EUR    1,200    4.500%   

Six Month LIBOR

    12/19/37    (83 )

Deutsche Bank

    GBP    100    6.000%   

Six Month LIBOR

    12/20/08    —  

Deutsche Bank

    JPY    50,000    1.500%   

Six Month LIBOR

    12/19/12    4  

Deutsche Bank

    JPY    805,000    1.750%   

Six Month LIBOR

    12/19/14    115  

Deutsche Bank

    JPY    806,000    Six Month LIBOR   

2.000%

    12/19/17    (142 )

Deutsche Bank

    JPY    80,000    2.000%   

Six Month LIBOR

    12/19/17    12  

Deutsche Bank

    SEK    17,000    Three Month LIBOR   

4.500%

    12/19/17    71  

Deutsche Bank

    SEK    10,000    4.500%   

Three Month LIBOR

    12/19/17    (39 )

Deutsche Bank

    USD    7,000    5.000%   

Three Month LIBOR

    12/19/09    62  

Deutsche Bank

    USD    11,500    5.000%   

Three Month LIBOR

    12/19/12    90  

Deutsche Bank

    USD    11,300    5.250%   

Three Month LIBOR

    12/19/17    126  

Deutsche Bank

    USD    1,800    5.250%   

Three Month LIBOR

    12/19/17    28  

Deutsche Bank

    USD    200    5.000%   

Three Month LIBOR

    12/19/22    (5 )

Deutsche Bank

    USD    1,800    Three Month LIBOR   

5.250%

    12/19/27    4  

Deutsche Bank

    USD    2,100    5.000%   

Three Month LIBOR

    12/19/37    (110 )

Goldman Sachs

    EUR    300    4.000%   

Six Month LIBOR

    03/20/09    (2 )

Goldman Sachs

    GBP    5,300    6.000%   

Six Month LIBOR

    06/19/09    42  

Goldman Sachs

    GBP    800    6.000%   

Six Month LIBOR

    12/19/09    9  

Goldman Sachs

    GBP    400    Six Month LIBOR   

5.500%

    12/15/36    (78 )

Goldman Sachs

    GBP    100    Six Month LIBOR   

5.000%

    12/19/37    (5 )

 

See accompanying notes which are an integral part of the financial statements.

122   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Interest Rate Swap Contracts              

Counter
Party

    Notional
Amount		   

Fund Receives

   

Fund Pays

    Termination
Date		    Market Value
$		  

Goldman Sachs

    USD    4,320    4.987%   

Three Month LIBOR

    05/02/12    —  
                 

JP Morgan

    USD    9,300    5.000%   

Three Month LIBOR

    12/19/10    98  

JP Morgan

    USD    8,500    5.000%   

Three Month LIBOR

    06/20/12    56  

JP Morgan

    USD    6,700    Three Month LIBOR   

5.000%

    12/19/12    (52 )

JP Morgan

    USD    3,300    Three Month LIBOR   

5.000%

    12/19/12    (26 )

JP Morgan

    USD    51,200    5.000%   

Three Month LIBOR

    12/19/14    120  

JP Morgan

    USD    20,400    Three Month LIBOR   

5.000%

    12/19/14    (48 )

JP Morgan

    USD    18,700    5.000%   

Three Month LIBOR

    12/19/14    44  

JP Morgan

    USD    5,800    5.250%   

Three Month LIBOR

    12/19/22    (2 )

Lehman Brothers

    GBP    4,100    4.500%   

Six Month LIBOR

    09/20/09    (192 )

Lehman Brothers

    JPY    809,000    1.188%   

Six Month LIBOR

    12/17/10    —  

Lehman Brothers

    JPY    513,000    Six Month LIBOR   

1.709%

    12/17/15    —  

Lehman Brothers

    JPY    174,000    2.000%   

Six Month LIBOR

    12/19/17    27  

Lehman Brothers

    JPY    104,000    2.648%   

Six Month LIBOR

    12/17/38    —  

Lehman Brothers

    USD    6,700    5.335%   

Three Month LIBOR

    05/22/17    214  

Lehman Brothers

    USD    5,000    5.371%   

Three Month LIBOR

    05/23/17    174  

Lehman Brothers

    USD    10,500    5.336%   

Three Month LIBOR

    05/24/17    336  

Lehman Brothers

    USD    9,450    5.403%   

Three Month LIBOR

    05/25/17    353  

Lehman Brothers

    USD    12,300    5.440%   

Three Month LIBOR

    05/29/17    493  

Merrill Lynch

    GBP    5,600    4.500%   

Six Month LIBOR

    09/20/09    (270 )

Merrill Lynch

    GBP    100    Six Month LIBOR   

4.000%

    12/15/35    8  

Merrill Lynch

    GBP    970    Six Month LIBOR   

4.750%

    12/19/37    28  

Morgan Stanley

    USD    100    5.000%   

Three Month LIBOR

    12/19/37    (5 )

Royal Bank of Scotland

    GBP    1,500    6.000%   

Six Month LIBOR

    06/19/09    12  

Royal Bank of Scotland

    USD    8,200    5.000%   

Three Month LIBOR

    12/19/09    73  

Royal Bank of Scotland

    GBP    3,720    5.750%   

Six Month LIBOR

    12/19/10    20  

Royal Bank of Scotland

    USD    3,000    Three Month LIBOR   

5.000%

    12/19/12    23  

Royal Bank of Scotland

    GBP    200    Six Month LIBOR   

4.000%

    12/15/36    58  

Royal Bank of Scotland

    GBP    100    Six Month LIBOR   

5.500%

    12/15/36    (19 )

Royal Bank of Scotland

    USD    6,700    5.000%   

Three Month LIBOR

    12/19/17    (56 )

UBS

    AUD    7,000    7.000%   

Three Month LIBOR

    09/15/09    (22 )

UBS

    BRL    1,700    10.575%   

Brazil Interbank Deposit Rate

    01/02/12    (27 )

UBS

    EUR    5,880    Six Month LIBOR   

4.500%

    12/19/12    19  

UBS

    GBP    1,900    5.750%   

Six Month LIBOR

    12/19/10    10  

UBS

    GBP    1,920    5.750%   

Six Month LIBOR

    12/19/10    10  

UBS

    GBP    800    Six Month LIBOR   

5.750%

    12/19/10    (4 )

UBS

    GBP    3,220    Six Month LIBOR   

5.750%

    12/19/10    (17 )

UBS

    GBP    1,760    Six Month LIBOR   

5.750%

    12/19/10    (10 )

UBS

    GBP    1,760    Six Month LIBOR   

5.750%

    12/19/10    (10 )

UBS

    GBP    4,210    5.750%   

Six Month LIBOR

    12/19/12    68  

UBS

    GBP    3,890    5.750%   

Six Month LIBOR

    12/19/12    63  

UBS

    JPY    544,000    1.750%   

Six Month LIBOR

    12/19/14    70  
                     

Total Market Value of Open Interest Rate Swap Contracts Premiums Paid (Received) - ($5,311)

    1,765  
                     

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income III Fund   123

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

 

Index Swap Contracts                 

Fund Receives
Underlying Security

  

Counter
Party

   Notional
Amount 		 

Fund Pays
Floating Rate

   Termination
Date		   Unrealized
Appreciation
(Depreciation)
$		  
           

CMBS AAA 10 Year Index

   Bank of America   USD   3,000  

CMBS AAA 10 Year Index minus 0.100%

   12/31/07   (34 )

CMBS AAA 10 Year Index

   Bank of America   USD   1,300  

CMBS AAA 10 Year Index minus 0.075%

   01/31/08   (14 )

CMBS AAA 10 Year Index

   Bank of America   USD   5,000  

CMBS AAA 10 Year Index minus 0.500%

   01/31/08   57  

CMBS AAA 10 Year Index

   Bank of America   USD   1,500  

CMBS AAA 10 Year Index minus 0.100%

   02/29/08   (17 )

CMBS AAA 10 Year Index

   Deutsche Bank   USD   2,000  

CMBS AAA 10 Year Index

   11/30/07   (23 )

CMBS AAA 10 Year Index

   Deutsche Bank   USD   1,200  

CMBS AAA 10 Year Index minus 0.500%

   01/31/08   16  

Turkish Overnight Index Tuibon

   Deutsche Bank   TRY   909  

Turkish Overnight Index Tuibon
plus 0.500%

   03/07/12   116  

CMBS AAA 10 Year Index

   JP Morgan   USD   3,000  

CMBS AAA 10 Year Index minus 0.300%

   01/31/08   (35 )

CMBS AAA 10 Year Index

   JP Morgan   USD   1,800  

CMBS AAA 10 Year Index
plus 0.250%

   01/31/08   24  

CMBS AAA 10 Year Index

   JP Morgan   USD   4,000  

CMBS AAA 10 Year Index
plus 0.100%

   01/31/08   (42 )
               

Total Unrealized Appreciation (Depreciation) on Open Index Swap Contracts

     48  
               

 

See accompanying notes which are an integral part of the financial statements.

124   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation
(Depreciation)

$

         
USD   463   AUD   516   11/08/07   18
USD   1,840   AUD   2,247   12/19/07   247
USD   1,864   AUD   2,268   12/19/07   243
USD   1,943   AUD   2,216   12/19/07   115
USD   2,017   AUD   2,251   12/19/07   74
USD   2,017   AUD   2,260   12/19/07   82
USD   669   AUD   750   12/20/07   28
USD   793   AUD   885   12/20/07   29
USD   334   BRL   643   11/01/07   37
USD   446   BRL   782   11/01/07   6
USD   452   BRL   794   11/01/07   6
USD   452   BRL   794   11/01/07   6
USD   599   BRL   1,074   11/01/07   22
USD   614   BRL   1,090   11/01/07   16
USD   619   BRL   1,090   11/01/07   11
USD   871   BRL   1,528   11/01/07   12
USD   372   BRL   701   11/05/07   33
USD   672   BRL   1,280   11/05/07   67
USD   3,000   BRL   5,454   11/05/07   149
USD   3,086   BRL   5,796   11/05/07   261
USD   130   BRL   230   02/06/08   1
USD   7,264   BRL   13,232   02/06/08   281
USD   102   CAD   101   11/01/07   5
USD   184   CAD   187   11/01/07   13
USD   449   CAD   437   11/01/07   14
USD   478   CAD   478   11/02/07   28
USD   2,019   CAD   2,008   12/19/07   107
USD   2,036   CAD   1,982   12/19/07   63
USD   763   CAD   725   12/20/07   4
USD   1,838   CHF   2,196   12/19/07   64
USD   1,841   CHF   2,199   12/19/07   63
USD   1,843   CHF   2,167   12/19/07   34
USD   1,850   CHF   2,177   12/19/07   36
USD   1,917   CHF   2,235   12/19/07   18
USD   1,943   CHF   2,255   12/19/07   10
USD   2,017   CHF   2,376   12/19/07   41
USD   1,309   EUR   924   11/05/07   30
USD   1,922   EUR   1,352   11/20/07   38
USD   1,841   EUR   1,344   12/19/07   107
USD   1,843   EUR   1,330   12/19/07   84
USD   1,843   EUR   1,333   12/19/07   89
USD   1,856   EUR   1,355   12/19/07   108
USD   1,917   EUR   1,380   12/19/07   83
USD   2,035   EUR   1,434   12/19/07   44
USD   2,036   EUR   1,423   12/19/07   27
USD   2,037   EUR   1,415   12/19/07   15
USD   4,121   EUR   2,893   12/19/07   73
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation
(Depreciation)

$

  
         
USD   5,961   EUR   4,187   12/19/07   108  
USD   372   EUR   260   12/20/07   5  
USD   496   EUR   346   12/20/07   7  
USD   800   EUR   560   12/20/07   11  
USD   330   GBP   164   11/01/07   11  
USD   36   GBP   18   11/15/07   2  
USD   2,019   GBP   992   12/19/07   41  
USD   338   GBP   164   12/20/07   2  
USD   156   INR   6,532   11/29/07   9  
USD   1,390   INR   54,863   11/29/07   3  
USD   750   INR   29,633   02/22/08   —  
USD   6,279   JPY   724,600   11/06/07   6  
USD   404   JPY   46,184   12/19/07   (1 )
USD   1,841   JPY   209,183   12/19/07   (17 )
USD   1,842   JPY   209,799   12/19/07   (13 )
USD   1,844   JPY   209,799   12/19/07   (14 )
USD   1,850   JPY   208,367   12/19/07   (33 )
USD   2,036   JPY   231,719   12/19/07   (16 )
USD   2,036   JPY   233,407   12/19/07   (1 )
USD   4,074   JPY   463,429   12/19/07   (34 )
USD   4,196   JPY   476,580   01/23/08   (25 )
USD   138   KRW   129,486   11/07/07   6  
USD   347   KRW   321,913   11/07/07   11  
USD   788   KRW   735,863   11/07/07   30  
USD   266   KRW   241,289   01/30/08   3  
USD   390   KRW   352,463   01/30/08   3  
USD   1,302   KRW   1,187,262   01/30/08   21  
USD   130   MXN   1,403   01/17/08   1  
USD   819   MXN   9,029   01/17/08   22  
USD   150   MYR   511   11/07/07   3  
USD   151   MYR   511   02/04/08   2  
USD   3,278   NOK   17,800   11/06/07   39  
USD   1,838   NOK   10,722   12/19/07   158  
USD   1,843   NOK   10,722   12/19/07   153  
USD   1,850   NOK   10,460   12/19/07   97  
USD   1,943   NOK   10,510   12/19/07   14  
USD   2,016   NZD   2,625   12/19/07   (2 )
USD   4,002   NZD   5,444   12/19/07   175  
USD   130   PLN   327   01/17/08   1  
USD   1,240   PLN   3,301   01/17/08   79  
USD   873   RUB   22,318   12/10/07   30  
USD   311   RUB   7,703   01/11/08   1  
USD   480   RUB   11,875   01/11/08   —  
USD   4,276   SEK   27,794   11/06/07   100  
USD   1,839   SEK   12,663   12/19/07   156  
USD   1,917   SEK   12,536   12/19/07   58  
USD   1,943   SEK   12,515   12/19/07   29  

 

See accompanying notes which are an integral part of the financial statements.

Fixed Income III Fund   125

Table of Contents

Russell Investment Company

Fixed Income III Fund

Schedule of Investments, continued — October 31, 2007

Amounts in thousands

Foreign Currency Exchange Contracts  
         
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation
(Depreciation)

$

  
         
USD   1,200   SEK   7,684   12/20/07   11  
USD   1,997   SGD   2,997   11/09/07   76  
USD   266   SGD   383   02/20/08   1  
USD   390   SGD   562   02/20/08   1  
USD   2,058   SGD   2,997   02/20/08   29  
AUD   2,234   USD   2,016   12/19/07   (59 )
AUD   2,245   USD   1,843   12/19/07   (242 )
AUD   885   USD   789   12/20/07   (33 )
BRL   643   USD   366   11/01/07   (5 )
BRL   782   USD   408   11/01/07   (44 )
BRL   794   USD   414   11/01/07   (45 )
BRL   794   USD   416   11/01/07   (43 )
BRL   1,074   USD   612   11/01/07   (9 )
BRL   1,090   USD   621   11/01/07   (9 )
BRL   1,090   USD   621   11/01/07   (9 )
BRL   1,528   USD   811   11/01/07   (72 )
BRL   13,232   USD   7,339   11/05/07   (302 )
BRL   1,074   USD   592   02/06/08   (21 )
BRL   1,090   USD   607   02/06/08   (15 )
BRL   1,090   USD   612   02/06/08   (10 )
CAD   4,400   JPY   521,013   11/06/07   (220 )
CAD   4,400   JPY   521,013   11/06/07   82  
CAD   725   USD   763   11/01/07   (4 )
CAD   1,928   USD   1,943   12/19/07   (99 )
CAD   1,991   USD   2,034   12/19/07   (75 )
CAD   3,982   USD   4,034   12/19/07   (182 )
CAD   325   USD   334   12/20/07   (10 )
CHF   2,170   USD   1,843   12/19/07   (37 )
CHF   2,215   USD   1,881   12/19/07   (38 )
CHF   2,358   USD   2,019   12/19/07   (23 )
CHF   2,367   USD   2,018   12/19/07   (32 )
CHF   2,577   USD   2,189   12/19/07   (42 )
CHF   4,733   USD   4,033   12/19/07   (66 )
EUR   116   USD   165   11/01/07   (3 )
EUR   174   USD   248   11/01/07   (4 )
EUR   4,006   USD   5,650   11/06/07   (152 )
EUR   1,799   USD   2,556   11/20/07   (50 )
EUR   1,332   USD   1,850   12/19/07   (81 )
EUR   1,363   USD   1,944   12/19/07   (31 )
EUR   1,363   USD   1,944   12/19/07   (32 )
EUR   1,372   USD   1,943   12/19/07   (46 )
EUR   2,690   USD   3,676   12/19/07   (223 )
EUR   2,856   USD   4,036   12/19/07   (103 )
EUR   2,865   USD   4,072   12/19/07   (81 )
EUR   2,867   USD   4,034   12/19/07   (122 )
GBP   164   USD   339   11/01/07   (2 )
GBP   26   USD   54   11/02/07   —  
Foreign Currency Exchange Contracts  
Amount
Sold		   Amount
Bought		   Settlement
Date		  

Unrealized
Appreciation
(Depreciation)

$

  
         
GBP   257   USD   517   11/15/07   (16 )
GBP   154   USD   311   12/19/07   (8 )
GBP   191   USD   391   12/19/07   (6 )
GBP   910   USD   1,843   12/19/07   (45 )
GBP   917   USD   1,838   12/19/07   (65 )
GBP   918   USD   1,839   12/19/07   (67 )
GBP   963   USD   1,943   12/19/07   (55 )
GBP   965   USD   1,917   12/19/07   (86 )
ISK   164,129   USD   2,652   11/06/07   (92 )
JPY   48,247   USD   423   12/13/07   2  
JPY   222,409   USD   1,943   12/19/07   4  
JPY   236,206   USD   2,035   12/19/07   (24 )
JPY   438,836   USD   3,834   12/19/07   8  
KRW   1,187,262   USD   1,297   11/07/07   (21 )
MXN   1,700   USD   158   11/01/07   (1 )
MYR   511   USD   151   11/07/07   (3 )
NOK   17,800   SEK   21,116   11/06/07   (63 )
NOK   17,800   SEK   21,116   11/06/07   72  
NOK   10,470   USD   1,843   12/19/07   (107 )
NOK   10,699   USD   1,839   12/19/07   (155 )
NZD   2,610   USD   1,787   12/19/07   (218 )
NZD   2,610   USD   1,781   12/19/07   (223 )
NZD   2,673   USD   2,019   12/19/07   (32 )
NZD   2,724   USD   2,036   12/19/07   (54 )
SEK   11,061   USD   1,720   11/06/07   (21 )
SEK   5,760   USD   849   12/11/07   (59 )
SGD   2,997   USD   2,047   11/09/07   (26 )
             
Total Unrealized Appreciation (Depreciation) on Open
Foreign Currency Exchange Contracts		   346  
             

 

See accompanying notes which are an integral part of the financial statements.

126   Fixed Income III Fund

Table of Contents

Russell Investment Company

Fixed Income III Fund

Presentation of Portfolio Holdings — October 31, 2007 (Unaudited)

 

Categories    % of
Net
Assets
  
  
  

Asset-Backed Securities

    10.7  

Certificates of Deposit

    0.2  

Corporate Bonds and Notes

    17.3  

International Debt

    7.3  

Loan Agreements

    0.9  

Mortgage-Backed Securities

    53.0  

Municipal Bonds

    0.2  

Non-US Bonds

    1.0  

United States Government Agencies

    1.6  

United States Government Treasuries

    4.6  

Common Stocks

    1.0  

Preferred Stocks

    0.1  

Warrants & Rights

    — *

Options Purchased

    0.1  

Short Term Investments

    18.3  

Other Securities

    9.6  
      

Total Investments

    125.9  

Other Assets and Liabilities, Net

    (25.9 )
      
   100.0  
      

Futures Contracts

    0.2  

Options Written

    (0.1 )

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.

Fixed Income III Fund   127

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Schedules of Investments — October 31, 2007

 

 

Footnotes:

(Æ) Nonincome-producing security.
(Ï) Forward commitment.
(Ê) Adjustable or floating rate security. Rate shown reflects rate in effect at period end. Variable Rate.
(ƒ) Perpetual floating rate security. Rate shown reflects rate in effect ar period end.
(ö) Real Estate Investment Trust (REIT).
(m) Bond is insured by a guarantor.
(ß) Illiquid security.
(Ø) In default.
(ç) At amortized cost, which approximates market.
(ž) Rate noted is yield-to-maturity from date of acquisition.
(æ) 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.
(§) 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.
(×) The security is purchased with the cash collateral from the securities loaned.
(Ñ) All or a portion of the shares of this security are on loan.
(Þ) 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.
(Å) Illiquid and restricted security.
(å) Currency balances were held in connection with futures contracts purchased (sold), options written, or swaps entered into the Fund. See Note 2.
(Ú) All or a portion of the shares of this security are held as collateral in connection with securities sold short.

Abbreviations:

ADR - American Depositary Receipt

GDR - Global Depositary Receipt

ADS - American Depositary Share

CME - Chicago Mercantile Exchange

CMO - Collateralized Mortgage Obligation

CVO - Contingent Value Obligation

144A - Represents private placement security for qualified buyers according to rule 144A of the Securities Act of 1933.

GDS - Global Depositary Share

LIBOR - London Interbank Offered Rate

PIC - Payment in Kind

FDIC - Federal Deposit Insurance Company

REMIC - Real Estate Mortgage Investment Conduit

STRIP - Separate Trading of Registered Interest and Principal of Securities

TBA - To Be Announced Security

128   Notes to Schedules of Investments

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Schedules of Investments, continued — October 31, 2007

 

 

Foreign Currency Abbreviations:

 

ARS - Argentine peso

   HKD - Hong Kong dollar   PLN - Polish zloty

AUD - Australian dollar

   HUF - Hungarian forint   RUB - Russian ruble

BRL - Brazilian real

   ID - Indonesian rupiah   SEK - Swedish krona

CAD - Canadian dollar

   ILS - Israeli shekel   SGD - Singapore dollar

CHF - Swiss franc

   INR - Indian rupee   SKK - Slovakian koruna

CLP - Chilean peso

   ITL - Italian lira   THB - Thai baht

CNY - Chinese renminbi yuan

   JPY - Japanese yen   TRL - Turkish lira

COP - Colombian peso

   KES - Kenyan schilling   TWD - Taiwanese dollar

CRC - Costa Rica colon

   KRW - South Korean won   USD - United States dollar

CZK - Czech koruna

   MXN - Mexican peso   VEB - Venezuelan bolivar

DKK - Danish krone

   MYR - Malaysian ringgit   VND - Vietnam dong

EGP - Egyptian pound

   NZD - New Zealand dollar   ZAR - South African rand

EUR - Euro

   PEN - Peruvian nouveau sol  

GBP - British pound sterling

   PHP - Philippine peso  

 

 

 

Notes to Schedules of Investments   129

Table of Contents

Russell Investment Company

Institutional Funds

Statements of Assets and Liabilities — October 31, 2007

 

Amounts in thousands       
Equity I Fund
 

Assets

  

Investments, at identified cost

   $ 1,875,179

Investments, at market***

     2,258,891

Cash

     59

Cash (restricted)

     —

Foreign currency holdings*

     —

Unrealized appreciation on foreign currency exchange contracts

     —

Receivables:

  

Dividends and interest

     1,662

Dividends from affiliated money market funds

     395

Investments sold

     28,022

Fund shares sold

     2,389

Foreign taxes recoverable

     —

Miscellaneous

    —

From Adviser

     —

Daily variation margin on futures contracts

     1,308

Prepaid expenses

     1

Unrealized appreciation on index swap contracts

     —

Interest rate swap contracts, at market value*****

     —

Credit default swaps, at market value****

     —
     

Total assets

     2,292,727
     
Liabilities  

Payables:

  

Due to Custodian

     —

Investments purchased

     34,511

Fund shares redeemed

     942

Accrued fees to affiliates

     1,054

Other accrued expenses

     168

Dividends for securities sold short

     —

Daily variation margin on futures contracts

     —

Deferred tax liability

     —

Unrealized depreciation on foreign currency exchange contracts

     —

Options written, at market value**

     —

Securities sold short, at market value******

     —

Payable upon return of securities loaned

     234,336

Unrealized depreciation on index swap contracts

     —

Interest rate swap contracts, at market value*****

     —

Credit default swaps, at market value****

     —
     

Total liabilities

     271,011
     
 

Net Assets

   $ 2,021,716
     

 

See accompanying notes which are an integral part of the financial statements.

130   Statements of Assets and Liabilities

Table of Contents

 

Equity II Fund   Equity Q Fund    International
Fund		   Fixed Income III Fund
      
      
$ 786,700   $ 1,780,351    $ 2,074,722   $ 1,961,327
  869,418     2,068,264      2,598,389     1,964,325
  —     —      1,586     572
  —     —      6,886     2,226
  —     —      6,818     —
  —     —      16,661     4,625
      
  243     1,324      3,557     11,786
  120     216      594     1,018
  7,232     67,209      12,149     109,225
  839     2,286      3,610     6,660
  —     —      218     —
  —     —      26     —
  —     —      —     19
  451     657      827     1,286
  —     1      1     1
  —     —      —     213
  —     —      —     6,524
  —     —      —     349
                      
  878,303     2,139,957      2,651,322     2,108,829
                      
      
      
  —     —      —     494
  7,054     69,678      15,921     384,382
  1,085     1,149      871     1,456
  428     956      1,415     758
  119     164      420     210
  —     81      —     —
  —     —      347     2,380
  —     —      52     —
  —     —      12,385     4,279
  —     —      —     1,176
  —     198,987      —     —
  257,131     66,264      406,075     139,504
  —     —      65     165
  —     —      —     4,759
  —     —      —     664
                      
  265,817     337,279      437,551     540,227
                      
      
$ 612,486   $ 1,802,678    $ 2,213,771   $ 1,568,602
                      

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   131

Table of Contents

Russell Investment Company

Institutional Funds

Statements of Assets and Liabilities, continued — October 31, 2007

 

Amounts in thousands       
Equity I Fund
 

Net Assets Consist of:

  

Undistributed (overdistributed) net investment income

   $ 1,202

Accumulated net realized gain (loss)

     142,823

Unrealized appreciation (depreciation) on:

  

Investments (International Fund — net of deferred tax liability for foreign capital gains taxes)

     383,712

Futures contracts

     2,842

Options written

     —

Credit default swaps

     —

Index swap contracts

     —

Interest rate swap contracts

     —

Securities sold short

     —

Foreign currency-related transactions

     —

Shares of beneficial interest

     531

Additional paid-in capital

     1,490,606
     

Net Assets

   $ 2,021,716
     

Net Asset Value, offering and redemption price per share:

  

Net asset value per share: Class E*******

   $ 38.09

Class E — Net assets

   $ 49,355,161

Class E — Shares outstanding ($.01 par value)

     1,295,643

Net asset value per share: Class I*******

   $ 38.08

Class I — Net assets

   $ 1,396,705,509

Class I — Shares outstanding ($.01 par value)

     36,679,413

Net asset value per share: Class Y*******

   $ 38.07

Class Y — Net assets

   $ 575,655,124

Class Y — Shares outstanding ($.01 par value)

     15,120,926
Amounts in thousands  

*               Foreign currency holdings - cost

   $ —

**             Premiums received on options written

   $ —

***           Securities on loan included in investments

   $ 256,723

****         Credit default swap contracts - premiums paid (received)

   $ —

*****       Interest rate swap contracts - premiums paid (received)

   $ —

******    Proceeds on securities sold short

   $ —

******* 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.

132   Statements of Assets and Liabilities

Table of Contents

 

Equity II Fund    Equity Q Fund     International
Fund		     Fixed Income III Fund  
      
      
$ 2,198    $ 550     $ 36,740     $ 7,314  
  86,045      145,597       301,177       (7,716 )
      
  82,718      287,913       523,615       2,998  
  529      1,109       5,294       3,211  
  —      —       —       373  
  —      —       —       (299 )
  —      —       (65 )     48  
  —      —       —       7,076  
  —      (5,544 )     —       —  
  —      —       4,256       350  
  192      447       388       1,493  
  440,804      1,372,606       1,342,366       1,553,754  
                            
$ 612,486    $ 1,802,678     $ 2,213,771     $ 1,568,602  
                            
      
$ 31.79    $ 40.29     $ 56.97     $ 10.53  
$ 38,519,987    $ 61,842,142     $ 61,533,058     $ 18,100,803  
  1,211,749      1,535,036       1,080,088       1,719,344  
$ 31.98    $ 40.30     $ 57.01     $ 10.51  
$ 480,645,427    $ 1,369,378,894     $ 1,792,063,201     $ 1,415,575,195  
  15,031,025      33,979,206       31,431,896       134,752,327  
$ 31.98    $ 40.30     $ 57.03     $ 10.51  
$ 93,320,978    $ 371,457,413     $ 360,175,102     $ 134,925,781  
  2,918,146      9,216,433       6,315,305       12,834,572  
      
$ —    $ —     $ 6,834     $ 8  
$ —    $ —     $ —     $ 1,549  
$ 256,229    $ 78,674     $ 401,398     $ 135,310  
$ —    $ —     $ —     $ (16 )
$ —    $ —     $ —     $ (5,311 )
$ —    $ 193,443     $ —     $ —  
      

 

See accompanying notes which are an integral part of the financial statements.

Statements of Assets and Liabilities   133

Table of Contents

Russell Investment Company

Institutional Funds

Statements of Operations — For the Fiscal Year Ended October 31, 2007

Amounts in thousands       
Equity I Fund		  
 

Investment Income

  

Dividends

   $ 26,373  

Dividends from affiliated money market funds

     4,381  

Interest

     304  

Securities lending income

     418  

Less foreign taxes withheld

     —  
       

Total investment income

     31,476  
       

Expenses

  

Advisory fees

     9,877  

Administrative fees

     898  

Custodian fees

     540  

Transfer agent fees - Class E

     23  

Transfer agent fees - Class I

     576  

Transfer agent fees - Class Y

     23  

Professional fees

     91  

Registration fees

     126  

Shareholder servicing fees - Class E

     116  

Trustees’ fees

     30  

Printing fees

     85  

Dividends from securities sold short

     —  

Interest expense from securities sold short

     —  

Miscellaneous

     77  
       

Expenses before reductions

     12,462  

Expense reductions

     (372 )
       

Net expenses

     12,090  
       

Net investment income (loss)

     19,386  
       

Net Realized and Unrealized Gain (Loss)

  

Net realized gain (loss) on:

  

Investments (International Fund - net of foreign capital gains taxes)

     152,493  

Futures contracts

     10,293  

Options written

     —  

Credit default swap contracts

     —  

Index swap contracts

     —  

Interest rate swap contracts

     —  

Securities sold short

     —  

Foreign currency-related transactions

     —  
       

Net realized gain (loss)

     162,786  
       

Net change in unrealized appreciation (depreciation) on:

  

Investments (International Fund - net of deferred tax liability for foreign capital gains taxes)

     154,045  

Futures contracts

     (1,253 )

Options written

     —  

Credit default swap contracts

     —  

Index swap contracts

     —  

Interest rate swap contracts

     —  

Securities sold short

     —  

Foreign currency-related transactions

     —  
       

Net change in unrealized appreciation (depreciation)

     152,792  
       

Net realized and unrealized gain (loss)

     315,578  
       

Net Increase (Decrease) in Net Assets from Operations

   $ 334,964  
       

 

See accompanying notes which are an integral part of the financial statements.

134   Statements of Operations

Table of Contents
Equity II Fund     Equity Q Fund     International
Fund		     Fixed Income III Fund  
     
     
$ 6,113     $ 29,949     $ 52,568     $ 304  
  1,237       2,023       6,469       10,948  
  66       126       358       54,042  
  712       86       1,973       265  
  —       —       (4,467 )     —  
                             
  8,128       32,184       56,901       65,559  
                             
     
  4,353       9,534       14,266       5,817  
  311       867       1,019       581  
  452       539       2,129       788  
  20       29       26       9  
  474       598       786       454  
  5       17       18       5  
  49       80       135       67  
  60       105       106       208  
  98       149       140       43  
  10       29       34       19  
  33       74       84       48  
  —       1,766       —       —  
  —       672       —       —  
  31       73       101       54  
                             
  5,896       14,532       18,844       8,093  
  (132 )     (352 )     (421 )     (335 )
                             
  5,764       14,180       18,423       7,758  
                             
  2,364       18,004       38,478       57,801  
                             
     
     
  89,576       167,658       302,213       1,280  
  2,466       4,986       16,146       104  
  —       —       (416 )     (517 )
  —       —       —       1,830  
  —       —       (273 )     120  
  —       —       —       (3,296 )
  —       (15,756 )     —       —  
  —       —       6,871       350  
                             
  92,042       156,888       324,541       (129 )
                             
     
  319       14,236       151,265       (3,426 )
  (633 )     (343 )     3,266       2,383  
  —       —       15       592  
  —       —       —       (499 )
  —       —       (27 )     152  
  —       —       —       6,489  
  —       (1,589 )     —       —  
  —       —       3,936       634  
                             
  (314 )     12,304       158,455       6,325  
                             
  91,728       169,192       482,996       6,196  
                             
$ 94,092     $ 187,196     $ 521,474     $ 63,997  
                             

 

See accompanying notes which are an integral part of the financial statements.

Statements of Operations   135

Table of Contents

Russell Investment Company

Institutional Funds

Statements of Changes in Net Assets — For the Fiscal Years Ended October 31,

    Equity I Fund     Equity II Fund  
     2007     2006     2007     2006  
       

Increase (Decrease) in Net Assets

        

Operations

        

Net investment income (loss)

   $ 19,386     $ 14,550     $ 2,364     $ 1,794  

Net realized gain (loss)

     162,786       66,099       92,042       128,433  

Net change in unrealized appreciation (depreciation)

     152,792       109,125       (314 )     (23,509 )
                               

Net increase (decrease) in net assets from operations

     334,964       189,774       94,092       106,718  
                               

Distributions

        

From net investment income

        

Class E

     (375 )     (307 )     —       —  

Class I

     (13,092 )     (9,461 )     (541 )     (979 )

Class Y

     (5,658 )     (4,443 )     (242 )     (358 )

From net realized gain

        

Class E

     (1,967 )     (1,542 )     (8,116 )     (8,757 )

Class I

     (49,705 )     (34,548 )     (92,903 )     (120,739 )

Class Y

     (22,622 )     (13,971 )     (22,679 )     (28,930 )
                               

Net decrease in net assets from distributions

     (93,419 )     (64,272 )     (124,481 )     (159,763 )
                               

Share Transactions

        

Net increase (decrease) in net assets from share transactions

     136,161       314,376       19,538       32,192  
                               

Total Net Increase (Decrease) in Net Assets

     377,706       439,878       (10,851 )     (20,853 )

Net Assets

        

Beginning of period

     1,644,010       1,204,132       623,337       644,190  
                               

End of period

   $ 2,021,716     $ 1,644,010     $ 612,486     $ 623,337  
                               

Undistributed (overdistributed) net investment income included in net assets

   $ 1,202     $ 941     $ 2,198     $ 581  

 

See accompanying notes which are an integral part of the financial statements.

136   Statements of Changes in Net Assets

Table of Contents
Equity Q Fund     International Fund     Fixed Income III Fund  
2007     2006     2007     2006     2007      2006  
          
          
          
$ 18,004     $ 18,255     $ 38,478     $ 38,177     $ 57,801      $ 32,577  
  156,888       119,053       324,541       323,633       (129 )      (6,743 )
  12,304       86,596       158,455       76,974       6,325        11,235  
                                              
  187,196       223,904       521,474       438,784       63,997        37,069  
                                              
          
          
  (485 )     (474 )     (1,423 )     (687 )     (765 )      (398 )
  (13,875 )     (12,725 )     (43,118 )     (21,365 )     (48,727 )      (28,003 )
  (4,295 )     (4,668 )     (11,524 )     (12,155 )     (5,610 )      (2,633 )
          
  (4,085 )     (1,148 )     (5,123 )     —       —        (27 )
  (86,826 )     (25,033 )     (142,647 )     —       —        (1,689 )
  (28,301 )     (8,385 )     (37,641 )     —       —        (129 )
                                              
  (137,867 )     (52,433 )     (241,476 )     (34,207 )     (55,102 )      (32,879 )
                                              
          
  101,510       86,706       83,580       (310,853 )     698,789        246,305  
                                              
  150,839       258,177       363,578       93,724       707,684        250,495  
          
  1,651,839       1,393,662       1,850,193       1,756,469       860,918        610,423  
                                              
$ 1,802,678     $ 1,651,839     $ 2,213,771     $ 1,850,193     $ 1,568,602      $ 860,918  
                                              
    
$		  
550		  
 		   $ 1,181     $ 36,740     $ 39,576     $ 7,314      $ 3,798  

 

See accompanying notes which are an integral part of the financial statements.

Statements of Changes in Net Assets   137

Table of Contents

Russell Investment Company

Institutional Funds

Financial Highlights — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

        $
Net Asset Value,
Beginning of
Period		      $
Net
Investment
Income (Loss)(a)		      $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Equity I Fund                     

Class E

                          

October 31, 2007

      33.51      .29      6.08      6.37      (.28 )    (1.51 )

October 31, 2006

      30.81      .25      3.96      4.21      (.24 )    (1.27 )

October 31, 2005

      27.56      .25      3.24      3.49      (.24 )    —  

October 31, 2004

      25.75      .16      1.82      1.98      (.17 )    —  

October 31, 2003

      21.46      .15      4.28      4.43      (.14 )    —  

Class I

                          

October 31, 2007

      33.49      .37      6.10      6.47      (.37 )    (1.51 )

October 31, 2006

      30.79      .32      3.96      4.28      (.31 )    (1.27 )

October 31, 2005

      27.54      .32      3.24      3.56      (.31 )    —  

October 31, 2004

      25.72      .23      1.82      2.05      (.23 )    —  

October 31, 2003

      21.44      .21      4.26      4.47      (.19 )    —  

Class Y

                          

October 31, 2007

      33.49      .39      6.09      6.48      (.39 )    (1.51 )

October 31, 2006

      30.77      .34      3.98      4.32      (.33 )    (1.27 )

October 31, 2005

      27.53      .31      3.26      3.57      (.33 )    —  

October 31, 2004

      25.72      .25      1.81      2.06      (.25 )    —  

October 31, 2003

      21.43      .23      4.27      4.50      (.21 )    —  
Equity II Fund                     

Class E

                          

October 31, 2007

      34.16      .05      4.59      4.64      —      (7.01 )

October 31, 2006

      38.43      .02      5.76      5.78      —      (10.05 )

October 31, 2005

      39.28      (.04 )    4.44      4.40      (.06 )    (5.19 )

October 31, 2004

      36.12      .04      3.12      3.16      —      —  

October 31, 2003

      25.54      .01      10.65      10.66      (.08 )    —  

Class I

                          

October 31, 2007

      34.31      .12      4.60      4.72      (.04 )    (7.01 )

October 31, 2006

      38.57      .09      5.79      5.88      (.09 )    (10.05 )

October 31, 2005

      39.39      .04      4.45      4.49      (.12 )    (5.19 )

October 31, 2004

      36.19      .10      3.15      3.25      (.05 )    —  

October 31, 2003

      25.59      .06      10.66      10.72      (.12 )    —  

Class Y

                          

October 31, 2007

      34.32      .15      4.59      4.74      (.07 )    (7.01 )

October 31, 2006

      38.58      .12      5.79      5.91      (.12 )    (10.05 )

October 31, 2005

      39.41      .07      4.45      4.52      (.16 )    (5.19 )

October 31, 2004

      36.22      .14      3.14      3.28      (.09 )    —  

October 31, 2003

      25.61      .10      10.67      10.77      (.16 )    —  

 

See accompanying notes which are an integral part of the financial statements.

138   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of Period		   %
Total
Return (%)(b)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e)		     %
Portfolio
Turnover Rate(b)
             
             
(1.79 )   38.09   19.82   49,355   .93   .95   .82     112.52
(1.51 )   33.51   14.07   43,911   .93   .96   .78     98.17
(.24 )   30.81   12.70   37,666   .92   .96   .83     109.71
(.17 )   27.56   7.69   33,143   .94   .96   .61     129.94
(.14 )   25.75   20.79   32,632   .99   .99   .68     115.73
             
(1.88 )   38.08   20.17   1,396,706   .68   .70   1.07     112.52
(1.58 )   33.49   14.34   1,095,931   .71   .73   1.01     98.17
(.31 )   30.79   12.97   825,172   .69   .73   1.06     109.71
(.23 )   27.54   7.99   697,537   .71   .72   .84     129.94
(.19 )   25.72   21.02   580,055   .75   .75   .92     115.73
             
(1.90 )   38.07   20.23   575,655   .63   .65   1.12     112.52
(1.60 )   33.49   14.48   504,168   .64   .66   1.07     98.17
(.33 )   30.77   13.00   341,294   .65   .67   1.03     109.71
(.25 )   27.53   8.07   104,440   .63   .65   .92     129.94
(.21 )   25.72   21.09   89,546   .66   .66   1.00     115.73
             
             
(7.01 )   31.79   15.98   38,520   1.13   1.15   .17     142.82
(10.05 )   34.16   17.91   39,987   1.11   1.14   .07     154.76
(5.25 )   38.43   11.53   34,849   1.08   1.11   (.09 )   156.39
—     39.28   8.72   80,542   1.09   1.09   .09     125.94
(.08 )   36.12   41.88   46,901   1.12   1.12   .04     132.27
             
(7.05 )   31.98   16.21   480,645   .93   .95   .38     142.82
(10.14 )   34.31   18.17   471,745   .91   .94   .27     154.76
(5.31 )   38.57   11.77   496,716   .87   .91   .12     156.39
(.05 )   39.39   8.98   674,280   .90   .90   .27     125.94
(.12 )   36.19   42.08   606,333   .94   .94   .22     132.27
             
(7.08 )   31.98   16.30   93,321   .83   .85   .47     142.82
(10.17 )   34.32   18.31   111,605   .82   .85   .36     154.76
(5.35 )   38.58   11.85   112,625   .81   .83   .18     156.39
(.09 )   39.41   9.05   159,820   .79   .79   .37     125.94
(.16 )   36.22   42.34   190,066   .81   .81   .36     132.27

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   139

Table of Contents

Russell Investment Company

Institutional Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

          
$
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		    $
Net Realized
and Unrealized
Gain (Loss)		    $
Total from
Investment
Operations		    $
Distributions
from Net
Investment Income		     $
Distributions
from Net
Realized Gain		  
Equity Q Fund                 

Class E

                 

October 31, 2007

    39.35    .31    3.80    4.11    (.33 )   (2.84 )

October 31, 2006

    35.20    .35    5.02    5.37    (.35 )   (.87 )

October 31, 2005

    32.32    .35    2.88    3.23    (.35 )   —  

October 31, 2004

    30.10    .23    2.24    2.47    (.25 )   —  

October 31, 2003

    24.90    .22    5.18    5.40    (.20 )   —  

Class I

                 

October 31, 2007

    39.36    .40    3.81    4.21    (.43 )   (2.84 )

October 31, 2006

    35.20    .44    5.03    5.47    (.44 )   (.87 )

October 31, 2005

    32.32    .44    2.88    3.32    (.44 )   —  

October 31, 2004

    30.10    .30    2.24    2.54    (.32 )   —  

October 31, 2003

    24.89    .27    5.19    5.46    (.25 )   —  

Class Y

                 

October 31, 2007

    39.36    .42    3.80    4.22    (.44 )   (2.84 )

October 31, 2006

    35.20    .46    5.02    5.48    (.45 )   (.87 )

October 31, 2005

    32.32    .45    2.88    3.33    (.45 )   —  

October 31, 2004

    30.09    .32    2.25    2.57    (.34 )   —  

October 31, 2003

    24.89    .30    5.17    5.47    (.27 )   —  
International Fund                 

Class E

                 

October 31, 2007

    50.51    .83    12.10    12.93    (1.41 )   (5.06 )

October 31, 2006

    40.45    .87    9.87    10.74    (.68 )   —  

October 31, 2005

    35.15    .57    5.41    5.98    (.68 )   —  

October 31, 2004

    31.22    .38    4.29    4.67    (.74 )   —  

October 31, 2003

    24.71    .30    6.59    6.89    (.38 )   —  

Class I

                 

October 31, 2007

    50.55    .95    12.10    13.05    (1.53 )   (5.06 )

October 31, 2006

    40.47    1.00    9.86    10.86    (.78 )   —  

October 31, 2005

    35.16    .68    5.39    6.07    (.76 )   —  

October 31, 2004

    31.20    .46    4.29    4.75    (.79 )   —  

October 31, 2003

    24.74    .36    6.53    6.89    (.43 )   —  

Class Y

                 

October 31, 2007

    50.56    1.01    12.07    13.08    (1.55 )   (5.06 )

October 31, 2006

    40.47    .92    9.96    10.88    (.79 )   —  

October 31, 2005

    35.17    .68    5.40    6.08    (.78 )   —  

October 31, 2004

    31.21    .45    4.33    4.78    (.82 )   —  

October 31, 2003

    24.75    .38    6.54    6.92    (.46 )   —  

 

See accompanying notes which are an integral part of the financial statements.

140   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of Period		   %
Total
Return (%)(b)		   $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		     %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e)		   %
Portfolio
Turnover Rate(b)
             
             
(3.17 )   40.29   11.11   61,842   1.07 (i)   1.09   .79   121.35
(1.22 )   39.35   15.56   56,703   .94 (f)   .96   .93   106.45
(.35 )   35.20   10.03   46,352   .91     .93   1.01   117.34
(.25 )   32.32   8.22   47,570   .92     .93   .71   102.51
(.20 )   30.10   21.76   40,924   .94     .94   .80   114.72
             
(3.27 )   40.30   11.40   1,369,379   .82 (j)   .84   1.04   121.35
(1.31 )   39.36   15.87   1,201,844   .70 (g)   .72   1.18   106.45
(.44 )   35.20   10.30   1,009,002   .66     .69   1.26   117.34
(.32 )   32.32   8.46   1,018,806   .69     .69   .94   102.51
(.25 )   30.10   22.04   822,548   .72     .72   1.02   114.72
             
(3.28 )   40.30   11.44   371,457   .77 (k)   .79   1.09   121.35
(1.32 )   39.36   15.93   393,292   .64 (h)   .67   1.23   106.45
(.45 )   35.20   10.34   338,308   .63     .65   1.30   117.34
(.34 )   32.32   8.58   336,836   .61     .61   1.05   102.51
(.27 )   30.09   22.13   674,326   .63     .63   1.10   114.72
             
             
(6.47 )   56.97   28.47   61,533   1.16     1.18   1.64   108.46
(.68 )   50.51   26.84   51,470   1.17     1.19   1.88   83.09
(.68 )   40.45   17.19   41,415   1.15     1.18   1.49   80.36
(.74 )   35.15   15.20   35,442   1.19     1.20   1.13   81.19
(.38 )   31.22   28.33   24,163   1.26     1.26   1.14   79.40
             
(6.59 )   57.01   28.75   1,792,063   .91     .93   1.87   108.46
(.78 )   50.55   27.17   1,420,218   .91     .93   2.15   83.09
(.76 )   40.47   17.48   1,127,303   .90     .93   1.76   80.36
(.79 )   35.16   15.47   915,469   .95     .96   1.36   81.19
(.43 )   31.20   28.37   597,650   1.06     1.06   1.38   79.40
             
(6.61 )   57.03   28.85   360,175   .86     .88   1.98   108.46
(.79 )   50.56   27.24   378,505   .86     .89   1.99   83.09
(.78 )   40.47   17.53   587,751   .86     .89   1.76   80.36
(.82 )   35.17   15.54   491,855   .87     .88   1.35   81.19
(.46 )   31.21   28.51   567,878   .96     .96   1.45   79.40

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   141

Table of Contents

Russell Investment Company

Institutional Funds

Financial Highlights, continued — For the Fiscal Years Ended

For a Share Outstanding Throughout Each Period.

          
$
Net Asset Value,
Beginning of
Period		    $
Net
Investment
Income (Loss)(a)		    $
Net Realized
and Unrealized
Gain (Loss)		      $
Total from
Investment
Operations		      $
Distributions
from Net
Investment Income		      $
Distributions
from Net
Realized Gain		  
Fixed Income III Fund                  

Class E

                  

October 31, 2007

    10.48    .50    .01      .51      (.46 )    —  

October 31, 2006

    10.44    .45    .04      .49      (.42 )    (.03 )

October 31, 2005

    10.70    .35    (.21 )    .14      (.32 )    (.08 )

October 31, 2004

    10.67    .28    .31      .59      (.38 )    (.18 )

October 31, 2003

    10.11    .38    .52      .90      (.34 )    —  

Class I

                  

October 31, 2007

    10.46    .52    .02      .54      (.49 )    —  

October 31, 2006

    10.43    .47    .03      .50      (.44 )    (.03 )

October 31, 2005

    10.69    .38    (.22 )    .16      (.34 )    (.08 )

October 31, 2004

    10.65    .30    .32      .62      (.40 )    (.18 )

October 31, 2003

    10.09    .40    .52      .92      (.36 )    —  

Class Y

                  

October 31, 2007

    10.46    .52    .02      .54      (.49 )    —  

October 31, 2006

    10.43    .64    (.13 )    .51      (.45 )    (.03 )

October 31, 2005 (1)

    10.74    .14    (.26 )    (.12 )    (.19 )    —  

 

See accompanying notes which are an integral part of the financial statements.

142   Financial Highlights

Table of Contents
$
Total
Distributions		     $
Net Asset Value,
End of Period		   %
Total
Return(b)		     $
Net Assets,
End of Period
(000)		   %
Ratio of Expenses
to Average
Net Assets,
Net(c)(e)		   %
Ratio of Expenses
to Average
Net Assets,
Gross(c)		   %
Ratio of Net
Investment Income
to Average
Net Assets(c)(e) 		  %
Portfolio
Turnover Rate(b)
             
             
(.46 )   10.53   4.99     18,101   .93   .96   4.69   697.71
(.45 )   10.48   4.81     15,119   .92   .96   4.27   270.24
(.40 )   10.44   1.37     9,268   .93   .95   3.32   197.66
(.56 )   10.70   5.65     7,489   .96   .96   2.64   195.68
(.34 )   10.67   9.05     6,481   1.00   1.00   3.61   266.11
             
(.49 )   10.51   5.27     1,415,575   .67   .70   4.97   697.71
(.47 )   10.46   4.95     744,559   .70   .73   4.51   270.24
(.42 )   10.43   1.65     560,896   .69   .71   3.55   197.66
(.58 )   10.69   5.99     461,966   .72   .72   2.85   195.68
(.36 )   10.65   9.27     297,726   .78   .78   3.83   266.11
             
(.49 )   10.51   5.30     134,926   .63   .66   5.01   697.71
(.48 )   10.46   5.03     101,240   .63   .67   4.60   270.24
(.19 )   10.43   (1.15 )   40,259   .64   .67   3.74   197.66

 

See accompanying notes which are an integral part of the financial statements.

Financial Highlights   143

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Financial Highlights — October 31, 2007

 

 

(1) 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 RIMCo as the investment adviser and transfer agent, and for certain funds, custody credit arrangements.
(f) The annualized net expense ratio is 0.93% not including the dividends from securities sold short as contractually agreed by the Adviser.
(g) The annualized net expense ratio is 0.69% not including the dividends from securities sold short as contractually agreed by the Adviser.
(h) The annualized net expense ratio is 0.63% not including the dividends from securities sold short as contractually agreed by the Adviser.
(i) The annualized net expense ratio is 0.93% not including the dividends from securities sold short as contractually agreed by the Adviser.
(j) The annualized net expense ratio is 0.68% not including the dividends from securities sold short as contractually agreed by the Adviser.
(k) The annualized net expense ratio is 0.64% not including the dividends from securities sold short as contractually agreed by the Adviser.

 

See accompanying notes which are an integral part of the financial statements.

144   Notes to Financial Highlights

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Financial Statements — October 31, 2007

 

 

1.   Organization

Russell Investment Company (the “Investment Company” or “RIC”) is a series investment company with 32 different investment portfolios referred to as Funds. These financial statements report on five 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, as amended. 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 Russell Investment Management Company (“RIMCo”).

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;

 

  •  

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 New York Stock Exchange, 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.

 

  •  

Equity securities traded on a national securities foreign exchange or an over the counter market are valued on the basis of the official closing price, or lacking the official closing price, at the last sale price of the primary exchange on which the security is traded.

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 normal pricing methods. 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.

Notes to Financial Statements   145

Table of Contents

Russell Investment Company

Institutional Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

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 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. RIC 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. RIC 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. RIC 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 of the US securities market (defined in the fair value procedures as the movement by any two of four major US Indexes greater than a certain percentage) or other significant event; foreign market holidays if on a daily basis, Fund exposure exceeds 20% in aggregate (all closed markets combined); a company development; a natural 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.

In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Funds financial statement disclosure.

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.

In June 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement 109 (“FIN 48”) was issued and is effective for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have of the Funds’ net assets and results of operations.

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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, October and December   Equity I,
Equity Q and
Fixed Income III Funds

Annually

   Mid-December   Equity II and International 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.

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 RIMCo (“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 E, Class I, 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.

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Capital Gains Taxes

The International Fund may be subject to capital gains taxes and repatriation taxes imposed by certain countries in which it invests. The Fund has recorded a deferred tax liability of $52,607 in respect of the unrealized appreciation on foreign securities for potential capital gains and repatriation taxes at October 31, 2007. 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 of $53,471 are included in net realized gain (loss) on investments in the Statement of Operations for the Fund.

Derivatives

To the extent permitted by the investment objectives, restrictions and policies set forth in the Funds’ Prospectus and Statement of Additional Information, the Funds may participate in various derivative-based transactions. Derivative securities are instruments or agreements whose value is derived from an underlying security or index. They include options, futures, swaps, forwards, structured notes and stripped securities. These instruments offer unique characteristics and risks that assist the Funds in meeting its investment strategies.

The Funds typically use derivatives in three ways: exposing cash reserves to markets, hedging and return enhancement. The Funds may pursue its strategy of being fully invested by exposing cash reserves to the performance of appropriate markets by purchasing securities and/or derivatives. This is intended to cause the Funds to perform as though cash reserves were actually invested in those markets. Hedging is also used by the 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, the 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 investment transactions consistent with the Fund’s investment objective and strategies, certain Funds may enter into foreign currency exchange spot contracts and forward foreign currency exchange contracts (“contracts”). From time to time the International 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, 2007 are presented on the Schedule of Investments for the applicable Funds.

Forward Commitments

Certain Funds may contract to purchase securities for a fixed price at a future date beyond customary settlement time 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.

Loan Agreements

The Fixed Income III Fund may invest in direct debt instruments which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. A Fund’s investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the “lender”) that acts as agent for all holders. The agent administers the terms of the loan, as specified

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in the loan agreement. When investing in a loan participation, a Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling the loan agreement and only upon receipt by the lender of payments from the borrower. A Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. As a result, a Fund may be subject to the credit risk of both the borrower and the lender that is selling the loan agreement. When a Fund purchases assignments from lenders it acquires direct rights against the borrower on the loan. At the period ended October 31, 2007, the Fixed Income III Fund had $11,566 in unfunded loan commitments.

Investments in Emerging Markets

Investing in emerging markets may involve special risks and considerations for the International 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.

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 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, 2007, the International Fund and Fixed Income III Fund had cash collateral balances of $6,886,279 and $2,225,735, respectively, in connection with futures contracts purchased (sold).

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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 Funds are exposed to credit risk in the event of non-performance by the swap counterparties; however, the Funds do not anticipate non-performance by the counterparties.

The Fixed Income III and International Funds may enter into swap agreements, on either an asset-based or liability-based basis, depending on whether it is hedging its assets or its liabilities, and will usually enter into 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 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 party’s 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 an 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 Funds expect to enter into these transactions primarily to preserve a return or spread on a particular investment or portion of its portfolio or to protect against any increase in the price of securities it anticipates purchasing at a later date. The net amount of the excess, if any, of the Funds’ obligations over its 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 Fund enters 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.

Short Sales

The Equity Q Fund may enter into short sale transactions. In a short sale, the seller sells a security that it does not own, typically a security borrowed from a broker or dealer. Because the seller remains liable to return the underlying security that it borrowed from the broker or dealer, the seller must purchase the security prior to the date on which delivery to the broker or dealer is required. The Fund will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed security. The Fund will realize a gain if the security declines in price between those dates. The making of short sales exposes the Fund to the risk of liability for the market value of the security that is sold (the amount of which liability increases as the market value of the underlying security increases), in addition to the costs associated with establishing, maintaining and closing out the short position.

Although the Fund’s potential for gain as a result of a short sale is limited to the price at which it sold the security short less the cost of borrowing the security, its potential for loss is theoretically unlimited because there is no limit to the cost of replacing the borrowed security. When the Fund makes a short sale, the Fund may use all or a portion of the cash proceeds of short sales to purchase additional securities or for any other permissible Fund purpose. To the extent necessary to meet collateral requirements, the Fund is required to pledge assets in a segregated account maintained by the Fund’s custodian for the benefit of the broker.

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The Fund also may use securities it owns to meet any such collateral obligations. Until a Fund replaces a borrowed security in connection with a short sale, the Fund will: (a) maintain daily a segregated account, containing cash, cash equivalents, or liquid marketable securities, at such a level that the amount deposited in the segregated account plus the amount deposited with the broker as collateral will equal the current requirement under Regulation T promulgated by the Board of Governors of the Federal Reserve System under the authority of section 7 and 8 of the Securities Exchange Act of 1934, as amended; or (b) otherwise cover its short position in accordance with positions taken by the staff of the SEC (e.g., taking an offsetting long position in the security sold short). As of October 31, 2007, $625,420,546 was held as collateral.

Mortgage-Related and Other Asset-Backed Securities

The Fixed Income III Fund may invest in mortgage or other asset-backed securities. These securities include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of some mortgage or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.

One type of SMBS has one class receiving all of the interest from the mortgage assets (the interest-only, or “IO” class), while the other class will receive all of the principal (the principal-only, or “PO” class). Payments received for the IOs are included in interest income on the Statement of Operations. Because principal will not be received at the maturity of an IO, adjustments are made to the book value of the security on a daily basis until maturity. These adjustments are included in interest income on the Statement of Operations. Payments received for POs are treated as reductions to the cost and par value of the securities.

Inflation-Indexed Bonds

The Fixed Income III Fund may invest in inflation-indexed bonds. Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted to the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value, which is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income in the Statement of Operations, even though investors do not receive their principal until maturity.

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, 2007, 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

    $ 2,002,872,132    $ 1,914,432,401

Equity II

      849,989,589      953,656,458

Equity Q

      2,187,492,241      2,217,229,173

International

      2,048,835,800      2,177,135,854

Fixed Income III

      6,636,110,251      6,147,258,542

Purchases and sales of US Government and Agency obligations (excluding short-term investments, options, futures and repurchase agreements) for the Fixed Income III Fund totaled $945,137,829 and $1,036,773,975 respectively, for the period ended October 31, 2007.

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Written Options Contracts

Transactions in written options contracts for the period ended October 31, 2007 for the following Funds were as follows:

 

     International Fund     Fixed Income III Fund  
      Number of
Contracts		     Premiums
Received		     Number of
Contracts		     Premiums
Received		  
        

Outstanding October 31, 2006

    214     $ 968,061     410     $ 654,309  

Opened

    1,334       5,813,527     40,102       14,137,696  

Closed

    (1,548 )     (6,781,588 )   (33,240 )     (12,222,264 )

Expired

    —       —     (3,073 )     (1,020,443 )
                            

Outstanding October 31, 2007

    —     $ —     4,199     $ 1,549,298  
                            

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 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, 2007, the non-cash collateral received for the securities on loan in the following funds was:

 

Funds    Non-Cash
Collateral Value		    Non-Cash Collateral Holding
     

Equity I Fund

    $ 27,688,031    Pool of US Government Securities

Equity II Fund

      3,655,409    Pool of US Government Securities

Equity Q Fund

      7,468,986    Pool of US Government Securities

International Fund

      8,096,168    Pool of US Government Securities

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, 2007, the Fund’s custodian fees were reduced by the following amounts under these arrangements which are included in expense reductions on the Statement of Operations:

 

Funds    Amount
Paid
  

Equity I

    $ 13,191

Equity II

      7,714

Equity Q

      4,906

International

      13,579

Fixed Income III

      102,382
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4.   Related Parties

Adviser and Administrator

RIMCo advises and administers all of the Funds which comprise the Investment Company. RIMCo 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 RIMCo.

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, 2007, $514,461,187 of the Money Market Fund’s net assets represents investment by the Funds.

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 $43,846,875. and $3,676,271 respectively, for the period ended October 31, 2007.

 

    Annual Rate  
Funds   Adviser        Administrator  

Equity I

   .55 %      .05 %

Equity II

   .70        .05  

Equity Q

   .55        .05  

International

   .70        .05  

Fixed Income III

   .50        .05  

For the Equity I, Equity II, Equity Q, International, and Fixed Income III Funds, RIMCo has contractually agreed to waive 0.02% of its administrative fees. The waivers for the period ended October 31, 2007 were as follows:

 

Funds    Amount Waived

Equity I

    $ 359,174

Equity II

      124,381

Equity Q

      346,678

International

      407,612

Fixed Income III

      232,647

The Adviser does not have the ability to recover amounts waived or reimbursed from previous periods.

Transfer and Dividend Disbursing Agent

RIMCo serves as Transfer and Dividend Disbursing Agent for the Investment Company. For this service, RIMCo is paid a fee for transfer agency and dividend disbursing services provided to the Fund. RIMCo 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, 2007 were $3,062,596.

Shareholder Servicing

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 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 E shares on an annual basis.

Brokerage Commissions

The Funds will effect transactions through Russell Implementation Services, Inc. (“RIS”) and its global network of unaffiliated correspondent brokers. RIS is a registered broker and investment adviser and an affiliate of RIMCo. Trades placed through RIS and its correspondents are made (i) to manage trading associated with changes in managers, rebalancing across existing managers, cash flows and other portfolio transitions, or (ii) to execute portfolio securities transactions for the portion of each

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Fund’s assets that RIMCo determines not to allocate to money managers, including assets allocated to the “select holdings” strategy, and for each Fund’s cash reserves.

The Funds effect certain transactions through BNY ConvergeFX Group — LJR Recapture Services (“LJR”) and its global network of correspondent brokers. LJR is a registered broker and is not an affiliate of the Funds or RIMCo. Trades placed through LJR and its correspondents are used (i) to obtain research services for RIMCo to assist it in its capacity as a manager of managers and (ii) to generate commission rebates to the Funds on whose behalf the trades were made. For purposes of trading to obtain research services for RIMCo or to generate commission rebates to the Funds, the Funds’ money managers are requested to and RIMCo may, with respect to transactions it places, effect transactions with or through LJR and its correspondents or other brokers only to the extent that the Funds will receive competitive execution, price and commissions. In addition, RIMCo recommends targets for the amount of trading that money managers allocate through LJR based upon asset class, investment style and other factors. Research services provided to RIMCo by LJR or other brokers include performance measurement statistics, fund analytics systems and market monitoring systems. Research services will be generally obtained from unaffiliated third parties at market rates. Research provided to RIMCo may benefit the particular Funds generating the trading activity and may also benefit other Funds within the Investment Company and other funds and clients managed or advised by RIMCo or its affiliates. Similarly, the Funds may benefit from research provided with respect to trading by those other funds and clients.

LJR may also rebate to the Funds a portion of commissions earned on certain trading by the Funds through LJR and their 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 RIMCo’s research budget has been met, as determined annually in the Soft Dollar Committee budgeting process.

Additionally, the Fund 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, 2007 were as follows:

 

     Equity I Fund    Equity II Fund    Equity Q Fund    International Fund    Fixed Income III Fund
              

Advisory Fees

    $ 929,880    $ 362,272    $ 836,148    $ 1,271,264    $ 654,886

Administration Fees

      50,721      15,526      45,608      54,483      39,293

Shareholder Servicing Fees

      10,383      8,131      12,906      13,869      3,826

Transfer Agent Fees

      62,440      42,464      61,623      74,856      60,240

Trustee Fees

      187      104      148      146      160
                                  
   $ 1,053,611    $ 428,497    $ 956,433    $ 1,414,618    $ 758,405
                                  

Board of Trustees

The Russell Fund Complex consists of Russell Investment Company, which has 32 Funds, and Russell Investment Funds (“RIF”), which has nine Funds. Each of the Trustees is a Trustee for both RIC and RIF. During the period, the Russell Fund Complex paid each of its independent Trustees a retainer of $52,000 per year, $6,500 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, Nominating and Governance Committee meeting, Investment 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. The Audit Committee Chair and Investment Committee Chair are each paid a fee of $12,000 per year and the Nominating and Governance Committee chair is paid a fee of $6,000 per year. The chair person of the Board receives additional annual compensation of $52,000.

 

5.   Federal Income Taxes

The Fixed Income III Fund 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 for October 31, 2014 totaled $2,895,957 for the period ending October 31, 2007.

154   Notes to Financial Statements

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Institutional Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

At October 31, 2007, 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 I Fund     Equity II Fund     Equity Q Fund  
      

Cost of Investments

    $ 1,886,750,065     $ 789,353,934     $ 1,789,193,579  
                        

Unrealized Appreciation

    $ 408,241,429     $ 106,011,341     $ 319,723,347  

Unrealized Depreciation

      (36,100,375 )     (25,947,937 )     (40,652,792 )
                        

Net Unrealized Appreciation (Depreciation)

    $ 372,141,054     $ 80,063,404     $ 279,070,555  
                        

Undistributed Ordinary Income

    $ 41,894,954     $ 29,014,585     $ 28,368,051  

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 116,546,007     $ 62,412,505     $ 127,730,354  

Tax Composition of Distributions:

       

Ordinary Income

    $ 33,568,488     $ 31,237,777     $ 37,766,963  

Long-Term Capital Gains

    $ 59,850,372     $ 93,243,228     $ 100,099,634  
      International Fund     Fixed Income III Fund        
      

Cost of Investments

    $ 2,095,308,703     $ 1,962,496,763    
                  

Unrealized Appreciation

    $ 526,776,381     $ 11,666,256    

Unrealized Depreciation

      (23,695,223 )     (9,838,447 )  
                  

Net Unrealized Appreciation (Depreciation)

    $ 503,081,158     $ 1,827,809    
                  

Undistributed Ordinary Income

    $ 163,916,844     $ 14,421,201    

Undistributed Long-Term Capital Gains
(Capital Loss Carryforward)

    $ 198,800,852     $ (2,895,957 )  

Tax Composition of Distributions:

       

Ordinary Income

    $ 112,563,504     $ 55,101,491    

Long-Term Capital Gains

    $ 128,912,407     $ —    

 

6.   Fund Share Transactions (amounts in thousands)

Share transactions for the periods ended October 31, 2007 and October 31, 2006 were as follows:

 

     Shares     Dollars  
Equity I Fund    2007     2006     2007     2006  
        
        

Class E

         

Proceeds from shares sold

    226     263     $ 7,867     $ 8,376  

Proceeds from reinvestment of distributions

    65     55       2,153       1,712  

Payments for shares redeemed

    (305 )   (231 )     (10,662 )     (7,368 )
                            

Net increase (decrease)

    (14 )   87       (642 )     2,720  
                            
        

Class I

         

Proceeds from shares sold

    9,610     9,825       333,059       312,190  

Proceeds from reinvestment of distributions

    1,754     1,281       58,436       39,812  

Payments for shares redeemed

    (7,409 )   (5,185 )     (258,274 )     (165,203 )
                            

Net increase (decrease)

    3,955     5,921       133,221       186,799  
                            
        

Class Y

         

Proceeds from shares sold

    4,069     5,080       143,003       161,090  

Proceeds from reinvestment of distributions

    779     587       25,923       18,254  

Payments for shares redeemed

    (4,783 )   (1,702 )     (165,344 )     (54,487 )
                            

Net increase (decrease)

    65     3,965       3,582       124,857  
                            

Total increase (decrease)

    4,006     9,973     $ 136,161     $ 314,376  
                            
Notes to Financial Statements   155

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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
Equity II Fund    2007     2006     2007     2006  
        
        

Class E

         

Proceeds from shares sold

    253     255     $ 7,632     $ 8,418  

Proceeds from reinvestment of distributions

    275     276       7,810       8,487  

Payments for shares redeemed

    (486 )   (267 )     (14,776 )     (9,140 )
                            

Net increase (decrease)

    42     264       666       7,765  
                            
        

Class I

         

Proceeds from shares sold

    3,301     3,370       99,503       111,637  

Proceeds from reinvestment of distributions

    3,156     3,732       90,141       115,212  

Payments for shares redeemed

    (5,176 )   (6,231 )     (159,018 )     (212,586 )
                            

Net increase (decrease)

    1,281     871       30,626       14,263  
                            
        

Class Y

         

Proceeds from shares sold

    718     703       20,760       23,138  

Proceeds from reinvestment of distributions

    803     949       22,921       29,288  

Payments for shares redeemed

    (1,855 )   (1,319 )     (55,435 )     (42,262 )
                            

Net increase (decrease)

    (334 )   333       (11,754 )     10,164  
                            

Total increase (decrease)

    989     1,468     $ 19,538     $ 32,192  
                            
     Shares     Dollars  
Equity Q Fund    2007     2006     2007     2006  
        
        

Class E

         

Proceeds from shares sold

    300     279     $ 11,626     $ 10,343  

Proceeds from reinvestment of distributions

    114     42       4,268       1,520  

Payments for shares redeemed

    (320 )   (197 )     (12,508 )     (7,316 )
                            

Net increase (decrease)

    94     124       3,386       4,547  
                            
        

Class I

         

Proceeds from shares sold

    8,735     7,699       338,225       285,272  

Proceeds from reinvestment of distributions

    2,494     956       93,386       34,689  

Payments for shares redeemed

    (7,787 )   (6,781 )     (302,189 )     (250,417 )
                            

Net increase (decrease)

    3,442     1,874       129,422       69,544  
                            
        

Class Y

         

Proceeds from shares sold

    1,335     2,560       51,414       94,502  

Proceeds from reinvestment of distributions

    871     359       32,596       13,053  

Payments for shares redeemed

    (2,982 )   (2,536 )     (115,308 )     (94,940 )
                            

Net increase (decrease)

    (776 )   383       (31,298 )     12,615  
                            

Total increase (decrease)

    2,760     2,381     $ 101,510     $ 86,706  
                            
156   Notes to Financial Statements

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Institutional Funds

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6.   Fund Share Transactions (amounts in thousands) (continued)

 

     Shares     Dollars  
International Fund    2007     2006     2007     2006  
        
        

Class E

         

Proceeds from shares sold

    194     222     $ 9,669     $ 10,312  

Proceeds from reinvestment of distributions

    135     15       6,282       660  

Payments for shares redeemed

    (267 )   (242 )     (13,603 )     (11,388 )
                            

Net increase (decrease)

    62     (5 )     2,348       (416 )
                            
        

Class I

         

Proceeds from shares sold

    7,653     6,444       382,992       299,460  

Proceeds from reinvestment of distributions

    3,711     448       172,747       19,185  

Payments for shares redeemed

    (8,025 )   (6,655 )     (400,986 )     (306,159 )
                            

Net increase (decrease)

    3,339     237       154,753       12,486  
                            
        

Class Y

         

Proceeds from shares sold

    3,218     2,403       160,123       104,918  

Proceeds from reinvestment of distributions

    878     241       40,861       10,306  

Payments for shares redeemed

    (5,267 )   (9,682 )     (274,505 )     (438,147 )
                            

Net increase (decrease)

    (1,171 )   (7,038 )     (73,521 )     (322,923 )
                            

Total increase (decrease)

    2,230     (6,806 )   $ 83,580     $ (310,853 )
                            
     Shares     Dollars  
Fixed Income III Fund    2007     2006     2007     2006  
        
        

Class E

         

Proceeds from shares sold

    568     762     $ 5,946     $ 7,952  

Proceeds from reinvestment of distributions

    67     35       695       357  

Payments for shares redeemed

    (358 )   (241 )     (3,738 )     (2,496 )
                            

Net increase (decrease)

    277     556       2,903       5,813  
                            
        

Class I

         

Proceeds from shares sold

    79,354     30,479       828,320       315,658  

Proceeds from reinvestment of distributions

    4,360     2,658       45,288       27,355  

Payments for shares redeemed

    (20,166 )   (15,729 )     (210,718 )     (162,997 )
                            

Net increase (decrease)

    63,548     17,408       662,890       180,016  
                            
        

Class Y

         

Proceeds from shares sold

    2,834     6,022       29,655       62,563  

Proceeds from reinvestment of distributions

    540     268       5,610       2,762  

Payments for shares redeemed

    (217 )   (471 )     (2,269 )     (4,849 )
                            

Net increase (decrease)

    3,157     5,819       32,996       60,476  
                            

Total increase (decrease)

    66,982     23,783     $ 698,789     $ 246,305  
                            

 

7.   Interfund Lending Program

The Investment Company Funds have been granted permission from the Securities and Exchange Commission to participate in a joint lending and borrowing facility (the “Credit Facility”). Portfolios of the Funds may borrow money from the RIC Money Market Fund for Temporary purposes. All such borrowing and lending will be subject to a participating fund’s fundamental investment

Notes to Financial Statements   157

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limitations. The RIC Money Market Fund will lend through the program only when the returns are higher than those available from an investment in repurchase agreements or short-term reserves. The Investment Company Funds will borrow through the program only when the costs are equal to or lower than the cost of bank loans. Interfund loans and borrowings normally extend overnight, but can have a maximum duration of seven days. Loans may be called on one business day’s notice. A participating fund may have to borrow from a bank at a higher interest rate if an interfund loan is called or not renewed. Any delay in repayment to the RIC Money Market Fund could result in a lost investment opportunity of additional borrowing costs. The International Fund borrowed $14,600,000 from the Money Market fund during the period. Miscellaneous expense on the Statement of Operations for International Fund includes $7,013 paid under the Interfund Lending Program for the period ending October 31, 2007.

 

8.   Record Ownership

As of October 31, 2007, 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      30.0

Equity II

      1      37.1

Equity Q

      1      34.5

International

      1      35.5

Fixed Income III

      1      41.6

 

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 RIMCo 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.

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal
Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              

Fixed III Fund - 2.5%

               

AIG SunAmerica Global Financing VI

    06/09/04    630,000    104.00    655    647

Allison Transmission

    10/11/07    400,000    102.18    409    408

Allison Transmission

    10/11/07    200,000    100.22    200    198

American Express Credit Account Master Trust

    08/02/07    4,688,798    100.01    4,690    4,683

Bausch & Lomb, Inc.

    10/22/07    370,000    101.50    376    381

CIT Mortgage Loan Trust

    10/05/07    1,500,000    100.00    1,500    1,500

CIT Mortgage Loan Trust

    10/05/07    400,000    100.00    400    400

CIT Mortgage Loan Trust

    10/05/07    750,000    100.00    750    750

CVS Lease Pass Through

    04/27/07    245,428    100.19    246    241

Capmark Financial Group, Inc.

    05/03/07    1,335,000    99.62    1,327    1,092

Capmark Financial Group, Inc.

    05/03/07    590,000    99.95    590    530

Catlin Insurance Co., Ltd.

    11/01/07    430,000    100.68    433    406

Citic Resources Finance, Ltd.

    08/01/07    1,000,000    95.38    954    960

Covidien International Finance SA

    10/17/07    440,000    99.86    439    440

Covidien International Finance SA

    10/17/07    745,000    99.93    744    755

Covidien International Finance SA

    10/17/07    510,000    99.56    508    520
158   Notes to Financial Statements

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Institutional Funds

Notes to Financial Statements, continued — October 31, 2007

 

 

Fund - % of Net Assets
Securities		    Acquisition
Date		    Principal
Amount ($)
or Shares		    Cost per Unit
$		    Cost
(000)
$		    Market Value
(000)
$
              

Deutsche ALT-A Securities NIM Trust

    03/12/07    194,296    99.65    194    188

DG Funding Trust

    11/04/03    118    10,587.00    1,249    1,242

Delta Air Lines, Inc.

    05/01/07    605,000    100.00    605    581

Drummond Co., Inc.

    10/22/07    470,000    94.01    442    442

EEB International, Ltd.

    10/24/07    470,000    100.00    470    466

Entergy Gulf States, Inc.

    11/30/05    195,000    100.00    195    196

FBG Finance, Ltd.

    06/02/05    190,000    99.12    188    185

Farmers Exchange Capital

    05/18/07    1,520,000    97.77    1,537    1,545

First Data Corp.

    10/16/07    575,000    94.81    545    551

GTL Trade Finance, Inc.

    10/17/07    1,120,000    99.78    1,114    1,134

GS Mortgage Securities Corp.

    03/19/07    172,059    99.71    172    170

Gaz Capital for Gazprom

    11/17/06    300,000    100.00    300    296

Harborview NIM Corp.

    03/02/07    110,413    100.00    110    110

Harborview NIM Corp.

    03/02/07    101,595    99.81    101    101

LG Electronics, Inc.

    06/10/05    130,000    99.25    129    129

Landsbanki Islands HF

    10/12/07    910,000    100.00    910    895

Lehman Brothers Floating Commercial Mortgage Trust

    02/14/07    516,629    100.00    517    515

Mantis Reef, Ltd.

    10/28/03    200,000    100.00    200    199

McLeodUSA, Inc.

    10/15/07    655,000    113.14    741    737

Panama Canal Railway Co.

    10/29/07    500,000    100.00    500    501

Pemex Project Funding Master Trust

    10/17/07    645,000    99.32    641    650

Pemex Project Funding Master Trust

    10/17/07    10,000    103.70    10    11

Rabobank Capital Funding II

    02/17/05    320,000    100.02    320    306

Resona Preferred Global Securities Cayman, Ltd.

    08/17/05    3,345,000    101.47    3,402    3,359

Royal Bank of Scotland Group PLC

    09/26/07    1,500,000    100.93    1,509    1,516

Ryerson, Inc.

    10/04/07    675,000    104.66    706    694

SMFG Preferred Capital USD 1, Ltd.

    12/13/06    200,000    100.00    200    187

Santander Perpetual SA Unipersonal

    10/18/07    500,000    100.12    501    498

Symetra Financial Corp.

    10/04/07    575,000    99.86    574    586

Systems 2001 AT LLC

    01/31/02    112,479    101.74    114    116

TNK-BP Finance SA

    10/03/07    205000    101.88    209    200

TNK-BP Finance SA

    10/03/07    760,000    99.17    754    760

TNK-BP Finance SA

    10/03/07    2,775,000    98.73    2,740    2,738

Tesoro Corp.

    10/29/07    500,000    99.38    497    494

Unicredit Luxembourg Finance SA

    10/17/07    375,000    100.00    375    374

Washington Mutual Preferred Funding

    10/18/07    300,000    100.00    300    228

Washington Mutual Preferred Funding

    10/18/07    1,400,000    99.71    1,396    1,386

World Financial Properties

    01/08/02    158,663    104.48    166    164

Xlliac Global Funding

    08/03/05    240,000    99.80    240    237
                
               38,598
                

Illiquid securities and restricted securities may be priced by the Funds using fair value procedures approved by the Board of Trustees.

Notes to Financial Statements   159

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Notes to Financial Statements, continued — October 31, 2007

 

 

10.   Dividends

On December 13, 2007, the Board of Trustees of Russell Investment Company declared the following dividends from net investment income and capital gains, respectively, payable on December 18, 2007 to shareholders on record December 14, 2007.

 

Funds   

Net Investment

Income

   

Short-Term

Capital Gains

   

Long-Term

Capital Gains

        

Equity I - Class E

    $ 0.1400    $ 0.7765    $ 2.1961

Equity I - Class I

      0.1565      0.7765      2.1961

Equity I - Class Y

      0.1609      0.7765      2.1961

Equity II - Class E

      0.0833      1.4517      3.3729

Equity II - Class I

      0.1402      1.4517      3.3729

Equity II - Class Y

      0.1714      1.4517      3.3729

Equity Q - Class E

      0.1233      0.6684      3.0514

Equity Q - Class I

      0.1425      0.6684      3.0514

Equity Q - Class Y

      0.1473      0.6684      3.0514

International - Class E

      1.4738      2.8402      5.1673

International - Class I

      1.5819      2.8402      5.1673

International - Class Y

      1.6052      2.8402      5.1673

Fixed Income III - Class E

      0.1852      —      —

Fixed Income III - Class I

      0.1891      —      —

Fixed Income III - Class Y

      0.1903      —      —
160   Notes to Financial Statements

Table of Contents

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Trustees and Shareholders

of 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, and Fixed Income III Fund (five of the portfolios constituting Russell Investment Company, hereafter collectively referred to as the “Funds”) at October 31, 2007, 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 audits 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, 2007 by correspondence with the custodian, brokers and transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Seattle, Washington

December 21, 2007

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Tax Information — October 31, 2007 (Unaudited)

 

 

For the tax year ended October 31, 2007, 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.

For the tax year ended October 31, 2007, the Funds hereby designate under Section 871(k)(2)(c) of the Code, the maximum amount allowable as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code. This applies to nonresident alien shareholders only.

The Form 1099 mailed to you in January 2008 will show the tax status of all distributions paid to your account in calendar year 2007.

The Funds designate dividends distributed during the fiscal year as qualifying for the dividends received deduction for corporate shareholders as follows:

 

Equity I Fund

    39.1%

Equity II Fund

    14.4%

Equity Q Fund

    60.4%

International Fund

    0.0%

Fixed Income III Fund

    0.0%

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, 2007:

 

  

Equity I Fund

    $ 59,850,372

Equity II Fund

      93,216,604

Equity Q Fund

      100,099,634

International Fund

      128,912,407

Please consult a tax adviser for any questions about federal or state income tax laws.

The International Fund paid foreign taxes of $4,353,937 and recognized $50,002,262 of foreign source income during the taxable year ended October 31, 2007. Pursuant to Section 853 of the Internal Revenue Code, the International Fund designates $0.1121 per share of foreign taxes paid and $1.2878 of gross income earned from foreign sources in the taxable year ended October 31, 2007.

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Institutional Funds

Basis for Approval of Investment Advisory Contracts — October 31, 2007 (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 RIMCo (the “RIMCo Agreement”) and the portfolio management contract with each Money Manager of the Funds (collectively, the “portfolio management contracts”) at a meeting held on April 24, 2007. During the course of a year, the Trustees receive 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 RIMCo. In preparation for the annual review, the Independent Trustees, with the advice and assistance of their independent counsel, also requested and the Board considered (1) information and reports prepared by RIMCo relating to the services provided by RIMCo (and its affiliates) to the Funds; (2) information (the “Third-Party Information”) received from an independent, nationally recognized provider of investment company information comparing the performance of each of the Funds and their respective operating expenses over various periods of time with other peer funds (“Comparable Funds”) not managed by RIMCo believed by the provider to be generally comparable in investment objectives and size to the Funds; and (3) RIMCo’s response to questions from the Board concerning the Third-Party Information addressing, among other things, performance and expense differentials between certain Funds and their respective Comparable Funds. The foregoing information requested by the Trustees or provided by RIMCo is collectively called the “Agreement Renewal Information.” The Independent Trustees also received a memorandum from their independent counsel discussing the legal standards for their consideration of the proposed continuances.

On April 23, 2007, the Independent Trustees met to review the Agreement Renewal Information in a private session with their independent counsel at which no representatives of RIMCo or management were present. At the April 24 meeting of the Board of Trustees, the Board, including the Independent Trustees, reviewed the proposed continuance of the RIMCo Agreement and the portfolio management contracts with management and independent counsel to the Independent Trustees. Presentations made by RIMCo to the Board as part of this review encompassed the Funds and all other RIMCo-managed funds for which the Board has supervisory responsibility. Following this review, but prior to voting, the Independent Trustees again met in a private session with their independent counsel to evaluate additional information and analyses received from RIMCo and management at the Board meeting. The discussion below reflects all of these reviews.

In evaluating the portfolio management contracts, 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. RIMCo has engaged multiple Money Managers for all Funds.

The Board considered that RIMCo (rather than any Money Manager) is responsible under the RIMCo Agreement for determining, implementing and maintaining the investment program for each Fund. Assets of each Fund generally have been allocated among the multiple Money Managers selected by RIMCo, subject to Board approval, for that Fund. RIMCo manages directly a portion of certain Funds’ assets employing a “select holdings strategy,” as described below, and directly manages the investment of each Fund’s cash reserves. RIMCo also may manage directly any portion of each Fund’s assets that RIMCo determines not to allocate to the Money Managers and portions of a Fund during transitions between Money Managers. In all cases, assets are managed directly by RIMCo in accordance with the RIMCo Agreement.

RIMCo is responsible for selecting, subject to Board approval, Money Managers for each Fund and for actively managing allocations and reallocations of assets among the Money Managers. RIMCo’s goal is to construct and manage diversified portfolios in a risk aware manner. 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 RIMCo (each, a “segment”) in accordance with the Fund’s applicable investment objective, policies and restrictions, any constraints placed by RIMCo upon their selection of portfolio securities and the Money Manager’s specified role in a Fund. RIMCo is responsible for communicating performance expectations to each Money Manager; supervising compliance by each Money Manager with each Fund’s investment objective 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, RIMCo 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 RIMCo’s research and ongoing review and analysis, such actions are appropriate. RIMCo may assign specific investment 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, RIMCo’s selection of

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Institutional Funds

Basis for Approval of Investment Advisory Contracts, continued — October 31, 2007 (Unaudited)

 

 

Money Managers is made not only on the basis of performance considerations but anticipated compatibility with other Money Manager in the same Fund. In light of the foregoing, the overall performance of each Fund over appropriate periods reflects, in great part, the performance of RIMCo in designing the Fund’s investment program, structuring the Fund, selecting an effective Money Manager with a particular investment style or sub-style for a segment 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 considered that the prospectuses for the Funds and other public disclosures emphasize to investors RIMCo’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 that information into account when deciding to purchase shares of any such Fund.

The Board also considered the special expertise of RIMCo 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 RIMCo on comparable terms given the need to continue the manager-of-managers strategy of each such Fund selected by shareholders in purchasing their shares.

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 in evaluating renewal of the RIMCo Agreement, including the following:

 

  1. The nature, scope and quality of the services provided to the Fund by RIMCo;

 

  2. The advisory fee paid by the Fund to RIMCo 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 RIMCo as to other fees and benefits received by RIMCo 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 RIMCo as to expenses incurred by the Fund; and

 

  5. Information provided by RIMCo as to the profits that RIMCo derives from its mutual fund operations generally and from the Fund.

As noted above, RIMCo pursuant to the terms of the RIMCo Agreement directly manages a portion — up to 10% — of the assets of each of the Equity I Fund, the Equity Q Fund and the International Fund (each a “Participating Fund”) utilizing a select holdings strategy, the actual allocation being determined by each Participating Fund’s RIMCo portfolio manager. The select holdings strategy utilized by RIMCo in managing such assets for a Participating Fund is designed to increase the Participating Fund’s exposure to stocks that are viewed as attractive by multiple Money Managers of that Participating Fund. The Board reviewed the results of the select holdings strategy in respect of each Participating Fund since implementation taking into account that the strategy has been utilized for a limited period of time. The Trustees considered that RIMCo 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 RIMCo generally and from the Participating Fund consequently may increase incrementally. The Board, however, also considered RIMCo’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 carrying out the select holdings strategy; the limited amount of assets that are managed directly by RIMCo pursuant to the select holdings strategy; and the fact that the aggregate investment advisory fees paid by the Participating Fund are not increased as a result of the select holdings strategy.

At the April 24 Board meeting, RIMCo and management discussed the reasonableness of the Funds’ investment advisory fees. In discussing whether the Funds’ performance supported these fees, RIMCo noted differences between the investment strategies of certain Funds and their respective Comparable Funds in pursuing their investment objectives, including Fund strategies which seek to achieve a lower tracking error (i.e., the difference, whether positive or negative, between the return of a fund and its benchmark) and resulting lower return volatility than Comparable Funds. According to RIMCo, these strategies may be expected to result, and for certain Funds during the periods covered by the Third-Party Information did result, in lower performance than that of some of their respective Comparable Funds. RIMCo stated that the strategies pursued by the Funds are intended to result in less volatile, more moderate returns relative to each Fund’s performance benchmark rather than more volatile, more extreme returns that its Comparable Funds may experience over time.

164   Basis for Approval of Investment Advisory Contracts

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Institutional Funds

Basis for Approval of Investment Advisory Contracts, continued — October 31, 2007 (Unaudited)

 

 

On the basis of the Agreement Renewal Information, and other information previously received by the Board from RIMCo during the course of the year or presented at the April 24 Board meeting by RIMCo, the Board, in respect of each Fund, found, after giving effect to any applicable waivers and/or reimbursements (1) the advisory fee charged by RIMCo to be reasonable in light of the nature, scope and quality of the services provided to the Funds; (2) the relative expense ratio of the Fund was comparable to those of its Comparable Funds; (3) RIMCo’s methodology of allocating expenses of operating funds in the complex was reasonable; and (4) RIMCo’s profitability with respect to the Fund was not excessive in light of the nature, scope and quality of the services provided by RIMCo. The Board also concluded that the performance of each of the Funds supported continuation of the RIMCo Agreement. In evaluating performance, the Board considered each Fund’s absolute performance and its performance relative to appropriate benchmarks and indices and its Comparable Funds. The Board also considered RIMCo’s investment strategy of managing the Funds in a risk aware manner.

At the April 24 Board meeting, 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. The Board determined that the investment advisory fees for each Fund appropriately reflect any economies of scale realized by that Fund, based upon such factors as the variability of Money Manager investment advisory fees and other factors associated with the manager-of-managers structure employed by the Funds. The Trustees considered that fees payable to RIMCo by institutional clients with investment objectives similar to those of the Funds and other RIC funds under the Board’s supervision are lower, and may, in some cases, be substantially lower, than the rates paid by RIC funds supervised by the Board, including the Funds. The Trustees reviewed with RIMCo the differences in the scope of services it provides to institutional clients and the Funds. In response to the Trustees’ inquiries, RIMCo noted, among other things, that institutional clients have fewer administrative needs than the Funds. It was further noted by RIMCo 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.

After considering the foregoing and other relevant factors, the Board concluded that continuation of the RIMCo Agreement on its current terms and conditions would be in the best interests of the Funds and their respective shareholders and voted to approve the continuation of the agreement.

At the April 24 Board meeting, with respect to the evaluation of the terms of portfolio management contracts with Money Managers, the Board received and considered information from RIMCo reporting for each Money Manager, among other things, the Money Manager’s performance over various periods; RIMCo’s assessment of the performance of each Money Manager; any significant business relationships between the Money Manager and RIMCo or Russell Fund Distributors, Inc., (“RFD”) the Funds’ underwriter; and RIMCo’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. RIMCo recommended that each Money Manager be retained at its current fee rate. RIMCo has advised the Board that it does not regard Money Manager profitability as relevant to its evaluation of the portfolio management contracts with Money Managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo is aware of the fees charged by Money Managers to other clients; and RIMCo believes that the fees agreed upon with Money Managers are reasonable in light of the anticipated quality of investment advisory services to be rendered. The Board accepted RIMCo’s explanation in light of the Board’s findings as to the reasonableness of the aggregate investment advisory fees paid by each Fund and the fact that each Money Manager’s fee is paid by RIMCo.

Based substantially upon RIMCo’s recommendations together with the information received from RIMCo in support of its recommendations at the April 24 meeting, the Board concluded that the fees paid to the Money Managers of each Fund are 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 would be in the best interests of the Fund and its shareholders.

In their deliberations, the Trustees did not identify any particular information as to the RIMCo Agreement or, other than RIMCo’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.

Also, the Board of Trustees received the following proposals from RIMCo: (1) at a meeting held on May 22, 2007, to effect a money manager change for the International Fund; (2) at a meeting held on July 23, 2007, to effect a money manager change for the Fixed Income III Fund and the International Fund; (3) at a meeting held on August 28, 2007, to effect a money manager change for the Equity I Fund, the Equity II Fund and the Fixed Income III Fund; at that same meeting, the Board of Trustees received a proposal

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Institutional Funds

Basis for Approval of Investment Advisory Contracts, continued — October 31, 2007 (Unaudited)

 

 

from RIMCo to effect a money manager change for the Equity I Fund and the International Fund resulting from a change of control of one of these Funds’ Money Managers; (4) at a meeting held on October 26, 2007, to effect a money manager change for the Equity I Fund resulting from a change of control of one of the Fund’s Money Managers. In the case of each such proposed change, the Trustees approved the terms of the proposed portfolio management contract based substantially upon RIMCo’s recommendation to hire the Money Manager at the proposed fee rate; any significant business relationships between the Money Manager and RIMCo or RFD, the Fund’s underwriter; RIMCo’s explanation as to the lack of relevance of profitability to the evaluation of portfolio management contracts with money managers because the willingness of Money Managers to serve in such capacity depends upon arm’s-length negotiations with RIMCo; RIMCo’s awareness of the fees charged by the Money Manager to other clients; and RIMCo’s belief that the proposed investment advisory fees would be reasonable in light of the anticipated quality of investment advisory services to be rendered. The Trustees also considered their findings at their April 24, 2007 meeting as to the 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 the money managers’ investment advisory fee is paid by RIMCo.

 

166   Basis for Approval of Investment Advisory Contracts

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Russell Investment Company

Institutional Funds

Shareholder Requests for Additional Information — October 31, 2007 (Unaudited)

 

 

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 RIMCo, as RIC’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. RIMCo 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 Funds. A description of the P&P, Guidelines, Portfolio Holdings Disclosure Policy and additional information about Fund Directors are contained in the Funds’ Statement of Additional Information (“SAI”). The SAI is available (i) free of charge, upon request, by calling the Funds at (800) 787-7354, (ii) at www.russell.com, and (iii) on the Securities and Exchange Commission’s website at www.sec.gov.

To reduce expenses, we may mail only one copy of the Funds’ prospectus and each annual and semi-annual report to those addresses shared by two or more accounts. If you wish to receive individual copies of these documents, please contact your financial institution.

Some Financial Intermediaries may offer electronic delivery of the Funds’ prospectus and annual and semiannual reports. Please contact your Financial Intermediary for further details.

Shareholder Requests for Additional Information   167

Table of Contents

Russell Investment Company

Institutional Funds

Disclosure of Information about Fund Directors — October 31, 2007 (Unaudited)

 

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INTERESTED TRUSTEES

**Greg J. Stark

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

  

•  President and Chief Executive Officer since 2004

 

•  Trustee since 2007

  

•  Appointed until successor is duly elected and qualified

 

•  Until successor is chosen and qualified by Trustees

  

•  President and CEO RIC and RIF

•  Chairman of the Board, President and CEO, RIMCo

•  Chairman of the Board, President and CEO, RFD

•  Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

•  Until 2004, Managing Director, of Individual Investor Services, FRC

•  2000 to 2004 Managing Director, Sales and Client Service, RIMCo

   41   None

 

** Mr. Stark is also an officer and/or director of one or more affiliates of RIC and RIF and is therefore an Interested Trustee.

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

Thaddas L. Alston

Born April 7, 1945

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2006   Appointed until successor is duly elected and qualified  

•  Senior Vice President, Larco Investments, Ltd. (real estate firm)

   41   None
             

Kristianne Blake,

Born January 22, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2000

 

•  Chairperson since 2005

 

•  Appointed until successor is duly elected and qualified

 

•  Annual

  

•  Director and Chairman of the Audit Committee, Avista Corp.

•  Trustee, Principal Investors Fund and Principal Variable Contracts Fund

•  Regent, University of Washington

•  President, Kristianne Gates Blake, P.S. (accounting services)

•  February 2002 to June 2005, Chairman of the Audit Committee, RIC and RIF

•  Trustee and Chairman of the Operations and Distribution Committee, WM Group of Funds, 1999–2006

   41  

•  Director, Avista Corp; (electric utilities)

•  Trustee, Principal Investors Fund (investment company);

•  Trustee, Principal Variable Contracts Fund (investment company)

 

* Each Trustee is subject to mandatory retirement at age 72.
168   Disclosure of Information about Fund Directors

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Institutional Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office*		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

INDEPENDENT TRUSTEES

Daniel P. Connealy

Born June 6, 1946

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2003

 

•  Chairman of Audit Committee since 2005

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  June 2004 to present, Senior Vice President and Chief Financial Officer, Waddell & Reed
Financial, Inc.

•  2003, Retired

•  2001–2003, Vice President and Chief Financial Officer, Janus Capital Group Inc.

•  1979–2001, Audit and Accounting Partner,
PricewaterhouseCoopers LLP

   41   None
             

Jonathan Fine

Born July 8, 1954

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee since 2004

   Appointed until successor is duly elected and qualified  

•  President and Chief Executive Officer, United Way of King County, WA

   41   None
             

Raymond P. Tennison, Jr.

Born December 21, 1955

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2000

 

•  Chairman of the Nominating and Governance Committee since 2007

  

•  Appointed until successor is duly elected and qualified.

 

•  Appointed until successor is duly elected and qualified

  

•  President, Simpson Investment Company and several additional subsidiary companies, including Simpson Timber Company, Simpson Paper Company and Simpson Tacoma Kraft Company

   41   None
             

Jack R. Thompson,

Born March 21, 1949

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee since 2005   Appointed until successor is duly elected and qualified  

•  September 2003 to present, Independent Board Chair and Chairman of the Audit Committee, Sparx Japan Fund

•  May 1999 to May 2003, President, Chief Executive Officer and Director, Berger Financial Group, LLC

•  May 1999 to May 2003, President and Trustee, Berger Funds

   41  

•  Director, Sparx Japan Fund (investment company)

             

Julie W. Weston,

Born October 2, 1943

 

909 A Street

Tacoma, Washington

98402-1616

  

•  Trustee since 2002

 

•  Chairperson of the Investment Committee since 2006

  

•  Appointed until successor is duly elected and qualified

 

•  Appointed until successor is duly elected and qualified

  

•  Retired since 2000

•  1987 to 2002, Director, Smith Barney Fundamental Value Fund

   41   None

 

* Each Trustee is subject to mandatory retirement at age 72.

 

Disclosure of Information about Fund Directors   169

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Institutional Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

 

 

Name,
Age,
Address		   Position(s) Held
with Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years		   No. of
Portfolios
in Russell
Fund
Complex
Overseen
by Trustee		   Other
Directorships Held
by Trustee

TRUSTEES EMERITUS

*George F. Russell, Jr.,

Born July 3, 1932

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus and Chairman Emeritus since 1999   Until resignation or removal  

•  Director Emeritus, Frank Russell Company (investment consultant to institutional investors (“FRC”)); and RIMCo

•  Chairman Emeritus, RIC and RIF; Russell Implementation Services Inc. (broker-dealer and investment adviser (“RIS”)); Russell 20–20 Association (non-profit corporation); and Russell Trust Company (non-depository trust company (“RTC”))

•  Chairman, Sunshine Management Services, LLC (investment adviser)

   41   None
             

Paul E. Anderson,

Born October 15, 1931

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2007   Five year term  

•  President, Anderson Management Group LLC (private investments consulting)

•  February 2002 to June 2005, Lead Trustee, RIC and RIF

•  Trustee of RIC and RIF Until 2006

•  Chairman of the Nominating and Governance Committee 2006

   41   None
             

Paul Anton, Ph.D.,

Born December 1, 1919

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2003   Five year term  

•  Retired since 1997

•  Trustee of RIC and RIF Until 2002

   41   None
             

William E. Baxter,

Born June 8, 1925

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2004   Five year term  

•  Retired since 1986

•  Trustee of RIC and RIF Until 2004

   41   None
             

Lee C. Gingrich,

Born October 6, 1930

 

909 A Street

Tacoma, Washington

98402-1616

   Trustee Emeritus since 2006   Five year term  

•  Retired since 1995

•  Trustee of RIC and RIF Until 2005

•  Chairman of the Nominating and Governance Committee 2001–2005

   41   None
             

Eleanor W. Palmer,

Born May 5, 1926

 

909 A Street

Tacoma, Washington

98402-1616

  

Trustee Emeritus

since 2004

   Five year term  

•  Retired since 1981

•  Trustee of RIC and RIF Until 2004

   41   None

 

* Mr. Russell is also a director emeritus of one or more affiliates of RIC and RIF.
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Institutional Funds

Disclosure of Information about Fund Directors, continued — October 31, 2007 (Unaudited)

 

 

 

Name,
Age,
Address		   Position(s) Held
With Fund and
Length of
Time Served		   Term
of
Office		   Principal Occupation(s)
During the
Past 5 Years

OFFICERS

Cheryl Wichers

Born December 16, 1966

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Compliance Officer since 2005   Until removed by Independent Trustees  

• Chief Compliance Officer, RIC

• Chief Compliance Officer, RIF

• Chief Compliance Officer, RIMCo

• April 2002-May 2005, Manager, Global Regulatory Policy

• 1998–2002, Compliance Supervisor, Russell Investment Group

         

Greg J. Stark,

Born May 3, 1968

 

909 A Street

Tacoma, Washington

98402-1616

   President and Chief Executive Officer since 2004   Until successor is chosen and qualified by Trustees  

• President and CEO, RIC and RIF

• Chairman of the Board, President and CEO, RIMCo

• Chairman of the Board, President and CEO, RFD

• Chairman of the Board and President, Russell Insurance Agency, Inc. (insurance agency (“RIA”))

• Until 2004, Managing Director of Individual Investor Services, FRC

• 2000 to 2004, Managing Director, Sales and Client Service, RIMCo

         

Mark E. Swanson,

Born November 26, 1963

 

909 A Street
Tacoma, Washington

98402-1616

  

Treasurer and Chief Accounting Officer since 1998

 

CFO since 2007

   Until successor is chosen and qualified by Trustees  

• Treasurer, Chief Accounting Officer and CFO, RIC and RIF

• Director, Funds Administration, RIMCo, RTC and RFD

• Treasurer and Principal Accounting Officer, SSgA Funds

         

Thomas F. Hanly,

Born November 17, 1964

 

909 A Street

Tacoma, Washington

98402-1616

   Chief Investment Officer since 2004   Until removed by Trustees  

• Chief Investment Officer, RIC, RIF, FRC, RTC

• Director and Chief Investment Officer, RIMCo and RFD

• 1999 to 2003, Chief Financial Officer, FRC, RIC and RIF

         

Gregory J. Lyons,

Born August 24, 1960

 

909 A Street

Tacoma, Washington

98402-1616

   Secretary since 2007   Until successor is chosen and qualified by Trustees  

• Associate General Counsel and Assistant Secretary FRC and RIA

• Director and Secretary, RIMCo and RFD

• Secretary and Chief Legal Counsel, RIC and RIF

Disclosure of Information about Fund Directors   171

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Russell Investment Company

Institutional Funds

Matter Submitted to a Vote of Shareholders — October 31, 2007 (Unaudited)

 

 

There was a Special Meeting in Lieu of Annual Meeting of Shareholders of the Russell Investment Company (“the Investment Company”) held at 909 A Street, Tacoma, Washington on October 3, 2007.

 

THE   FOLLOWING MATTERS WERE VOTED UPON AT THE MEETING

The result of each vote accompany the description of each matter

 

1. Election of Trustees.

        

Vote:

        
     For      Against

Greg J. Stark

            6,275,366,242.443              238,500,496.197

Thaddas L. Alston

    6,275,783,094.828      238,083,643.812

Kristianne Blake

    6,438,961,734.968      74,905,003.672

Daniel P. Connealy

    6,441,243,550.495      72,623,188.145

Jonathan Fine

    6,434,295,116.486      79,571,622.154

Raymond P. Tennison, Jr.

    6,439,922,643.918      73,944,094.722

Jack R. Thompson

    6,441,278,003.434      72,588,735.206

Julie W. Weston

    6,440,367,146.888      73,499,591.752

 

2. Approve Changes to the Liquidation Provision of the Master Trust Agreement.

Vote:

         
     For    Against    Abstain

Equity I Fund

            22,458,211.503            2,979,424.314            116,497.303

Equity II Fund

    7,817,829.106    1,374,703.397    14,713.628

Equity Q Fund

    17,909,548.513    3,127,034.904    88,276.327

International Fund

    18,105,384.565    2,474,836.985    70,378.884

Fixed Income III Fund

    60,111,956.371    4,512,464.000    297,250.000

3. Approve Changes to the Reorganization Provision of the Master Trust Agreement.

Vote:

         
     For    Against    Abstain

Equity I Fund

            22,418,409.503            3,006,677.314            129,046.303

Equity II Fund

    7,812,925.106    1,380,202.397    14,118.628

Equity Q Fund

    17,872,803.513    3,161,365.904    90,690.327

International Fund

    18,078,569.565    2,497,698.985    74,331.884

Fixed Income III Fund

    60,067,486.371    4,537,656.000    316,528.000
172   Matter Submitted to a Vote of Shareholders

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Institutional Funds

Russell Investment Company

909 A Street, Tacoma, Washington 98402

(800) 787-7354

 

 

Interested Trustees

Greg J. Stark

Independent Trustees

Thaddas L. Alston

Kristianne Blake

Daniel P. Connealy

Jonathan Fine

Raymond P. Tennison, Jr.

Jack R. Thompson

Julie W. Weston

Trustees Emeritus

George F. Russell, Jr.

Paul E. Anderson

Paul Anton, Ph.D.

William E. Baxter

Lee C. Gingrich

Eleanor W. Palmer

Officers

Greg J. Stark, President and Chief Executive Officer

Cheryl Wichers, Chief Compliance Officer

Thomas F. Hanly, Chief Investment Officer

Mark E. Swanson, Treasurer, Chief Accounting Officer and Chief Financial Officer

Gregory J. Lyons, Secretary

Advisor, Administrator, Transfer and Dividend Disbursing Agent

Russell Investment Management Company

909 A Street

Tacoma, WA 98402

Custodian

State Street Bank and Trust Company

Josiah Quincy Building

200 Newport Avenue

North Quincy, MA 02171

Office of Shareholder Inquiries

909 A Street

Tacoma, WA 98402

(800) 787-7354

Legal Counsel

Dechert LLP

200 Clarendon Street, 27th Floor

Boston, MA 02116-5021

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, 2007

Equity I Fund

AllianceBernstein L.P., New York, NY

Arnhold and S. Bleichroeder Advisers, LLC, New York, NY

Columbus Circle Investors, Stamford, CT

Institutional Capital LLC, 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

ClariVest Asset Management LLC, San Diego, CA

David J. Greene and Company, LLC, New York, NY

Delphi Management, Inc., Boston, MA

Gould Investment Partners LLC, Berwyn, PA

Jacobs Levy Equity Management, Inc., Florham Park, NJ

PanAgora Asset Management, Inc., Boston, MA

Ranger Investment Management, L.P., Dallas, TX

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

AllianceBernstein L.P., New York, NY

Altrinsic Global Advisors, LLC, Stamford, CT

AQR Capital Management, LLC, Greenwich, CT

Axiom International Investors LLC, Greenwich, CT

Marsico Capital Management, LLC, Denver, CO

MFS Institutional Advisors, Inc., Boston, MA

Mondrian Investment Partners Ltd., London, United Kingdom

UBS Global Asset Management (Americas) Inc., Chicago, IL

Wellington Management Company, LLP, Boston, MA

Fixed Income III Fund

Bear Stearns Asset Management Inc., New York, NY

Delaware Management Company, a series of Delaware Management Business Trust, Philadelphia, PA

Drake Capital Management, LLC, New York, NY

Goldman Sachs Asset Management, L.P., New York, NY

Pacific Investment Management Company LLC, Newport Beach, 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 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   173

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LOGO

 

Russell Investment Company

 

909 A Street

Tacoma, Washington 98402

 

800-787-7354

Fax: 253-591-3495

 

www.russell.com

 

    LOGO
  

36-08-020 (1 10/07)

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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 12(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:

 

2006

    $ 1,306,000
2007    $ 1,373,900

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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

2006    $ 52,934    Performance of agreed-upon procedures with respect to 04/30/06 semi-annual reports
2007    $ 53,149    Performance of agreed-upon procedures with respect to 04/30/07 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

2006    $ 290,447    Tax services
2007    $ 301,000    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

2006    $ 53,172    Review excise reconciliations; funds merger analysis, review equalization calculations, anti-money laundering
2007    $ 33,967    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:

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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 “RIC Audit Committee”) of the Board of Trustees of Russell Investment Company (“RIC”) 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 RIC and RIF, respectively, for audit, non-audit, tax or other services. In the case of RIC, the term “Audit Committee” as used in this policy shall refer to the RIC Audit Committee and the term “Fund” shall refer to RIC. 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 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 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.

* 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.

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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.

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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

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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).

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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 “RIC/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 RIMCo, and the officers of RIC 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 RIC 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 RIC, 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.

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(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:

 

2006

    $ 149,250
2007    $ 11,581

(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.

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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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Russell Investment Company
By:   /s/ Greg J. Stark
  Greg J. Stark
  Principal Executive Officer and Chief Executive Officer

Date: December 21, 2007

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 21, 2007

 

By:   /s/ Mark E. Swanson
  Mark E. Swanson
  Principal Financial Officer, Principal Accounting Officer and Treasurer

Date: December 21, 2007