Russell Investment Company II plc an umbrella fund with segregated liability between sub-funds potx

2011 ANNUAL REPORT Russell Investment Company II plc an umbrella fund with segregated liability between sub-funds 31 March 2011 (Audited) The Euro Fixed Income Fund The Global Bond (Euro Hedged) Fund The Pan European Equity Fund The U.K Equity Plus Fund The U.S Growth Fund The U.S Quant Fund The U.S Value Fund The World Equity Fund Russell Investment Company II plc Contents Administration of the Company Background to the Company Directors’ Report Custodian and Trustee’s Report Independent Auditors’ Report Combined Statements 11 The Euro Fixed Income Fund 15 The Global Bond (Euro Hedged) Fund 35 The Pan European Equity Fund 69 The U.K Equity Plus Fund 85 The U.S Growth Fund 95 The U.S Quant Fund 105 The U.S Value Fund 123 The World Equity Fund 134 Notes to the Financial Statements 160 Appendix I - Total Expense Ratio (Unaudited) 218 Contents Russell Investment Company II plc Administration of the Company Board of Directors of the Company Mr James Firn (Chairman) Mr James Beveridge Mr Peter Gunning Mr Michael Hunt Mr Paul McNaughton Mr William Roberts Mr Alan Schoenheimer Mr David Shubotham Mr Kenneth Willman Mr Neil Jenkins - Alternate Director for Mr Peter Gunning Audit Committee Members Mr David Shubotham (Chairman) Mr Paul McNaughton Mr William Roberts Registered Office 78 Sir John Rogerson’s Quay Dublin Ireland Manager Russell Investments Ireland Limited 78 Sir John Rogerson’s Quay Dublin Ireland Independent Auditors PricewaterhouseCoopers Chartered Accountants and Registered Auditors One Spencer Dock North Wall Quay Dublin Ireland Legal Advisers Arthur Cox Earlsfort Centre Earlsfort Terrace Dublin Ireland Administrator State Street Fund Services (Ireland) Limited 78 Sir John Rogerson’s Quay Dublin Ireland Custodian and Trustee State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson’s Quay Dublin Ireland Global Sub-Custodian State Street Bank and Trust Company Copley Place 100 Huntington Avenue Boston, MA 02116 United States of America Administration of the Company Promoter Frank Russell Company 1301 Second Avenue, 18th Floor Seattle, WA 98101 United States of America Company Secretary Bradwell Limited Arthur Cox Building Earlsfort Centre Earlsfort Terrace Dublin Ireland Advisor and Distributor Russell Investments Limited Rex House 10 Regent Street London SW1Y 4PE England Money Managers for The Euro Fixed Income Fund Fidelity Investments International Limited Oakhill House 130 Tonbridge Road Hildenborough Tonbridge Kent TN11 9DZ England Robeco Institutional Asset Management BV Coolsingel 120 NL 3011 AG Rotterdam The Netherlands Western Asset Management 155 Bishopsgate London EC2M 3XG England Money Managers for The Global Bond (Euro Hedged) Fund Brookfield Investment Management Inc Three World Financial Centre 200 Vesey Street New York, NY 10281-1010 United States of America Colchester Global Investors Limited Heathcoat House 20 Savile Row London W1S 3PR England Frank Russell Implementation Services Inc 1301 Second Avenue, 18th Floor Seattle, WA 98101 United States of America Russell Investment Company II plc Administration of the Company - continued Loomis, Sayles & Company, L.P One Financial Center Boston, MA 02111 United States of America Ignis Asset Management 50 Bothwell Street Glasgow G2 6HR Scotland Pacific Investment Management Company, LLC 840 Newport Centre Drive, Suite 360 Newport Beach, CA 92658-6430 United States of America Standard Life Investments George Street Edinburgh EH2 2LL Scotland Money Managers for The Pan European Equity Fund Hermes Sourcecap Limited Portsoken Street London E1 8HZ England Money Managers for The U.S Growth Fund Columbus Circle Investors One Metro Center One Station Place, 8th Floor South Stamford, CT 06902 United States of America Invesco Asset Management Limited 30 Finsbury Square London EC2A 1AG England Numeric Investors, L.P Memorial Drive Cambridge, MA 02142 United States of America Oechsle International Advisors, LLC International Place, 23rd Floor Boston, MA, 02110 United States of America Pzena Investment Management 120 West 45th Street, 20th Floor New York, NY 10036 United States of America S W Mitchell Capital LLP 52 Jermyn Street 91 Brick Lane London SW1Y 6LX England TT International Martin House Martin Lane London EC4R 0DP England Taube Hodson Stonex Partners Ltd Cassini House, 1st Floor 57-59, St James’ Street London SW1A 1LD England Money Managers for The U.K Equity Plus Fund BlackRock International Limited 40 Torphichen Street Edinburgh EH3 8JB Scotland Suffolk Capital Management, LLC 1633 Broadway, 40th Floor New York, NY 10019 United States of America Sustainable Growth Advisers, L.P 310 Tresser Boulevard, Suite 1310 Stamford, CT 06901 United States of America Waddell and Reed 6300 Lamar Avenue Post Office Box 29217 Shawnee Mission, KS 66201-9217 United States of America Money Managers for The U.S Quant Fund Aronson and Johnson and Ortiz, L.P 230 South Broad Street, 20th Floor Philadelphia, PA 19102 United States of America Enhanced Investment Technologies, LLC 2401 PGA Boulevard, Suite 100 Palm Beach Gardens, FL 33410 United States of America Frank Russell Implementation Services Inc 1301 Second Avenue, 18th Floor Seattle, WA 98101 United States of America Jacobs Levy Equity Management Inc 100 Campus Drive, P.O Box 650 Florham Park, NJ 07932-0650 United States of America Numeric Investors, L.P Memorial Drive Cambridge, MA 02142 United States of America Administration of the Company Russell Investment Company II plc Administration of the Company - continued PanAgora Asset Management 470 Atlantic Avenue 8th Floor Boston, MA 02210 United States of America Money Managers for The U.S Value Fund Armstrong Shaw Associates 45 Grove Street New Canaan, CT 06840 United States of America DePrince, Race & Zollo Inc 250 Park Avenue South, Suite 250 Winter Park, FL 32789 United States of America MFS Investment Management 500 Boylston Street Boston, MA 02116 United States of America Tradewinds NWQ Global Investors, LLC 2049 Century Park East, 18th Floor Los Angeles, CA 90067 United States of America Paying and Information Agent in Austria UniCredit Bank Austria AG Schottengasse 6-8 1010 Vienna Austria Frank Russell Implementation Services Inc 1301 Second Avenue, 18th Floor Seattle, WA 98101 United States of America Paying and Information Agent in France Société Générale 29, boulevard Haussmann 75009 Paris France Snow Capital Management 2100 Georgetowne Drive Suite 400 Sewickley, PA 15143 United States of America Paying and Information Agent in Germany* Deutsche Bank AG Junghofstrasse 5-9 60311 Frankfurt am Main Germany Systematic Financial Management, L.P 300 Frank W Burr Boulevard Glenpoint East, 7th Floor Teaneck, NJ 07666-6703 United States of America Representative in Italy BNP Paribas Securities Services, Milan Branch Via Ansperto 20121 Milan Italy Money Managers for The World Equity Fund Arrowstreet Capital, L.P 44 Brattle Street, 5th Floor Cambridge, MA 02138 United States of America Paying Agent in Italy SGSS S.p.A Via Benigno Crespi, 19/A-MAC2 20159 Milan Italy Axiom International Investors, LLC 55 Railroad Avenue, 3rd Floor Greenwich, CT 06830 United States of America Information Agent and Representative in the Netherlands Deutsche Bank AG, Amsterdam branch Herengracht 450 - 454 1017 CA Amsterdam The Netherlands Marisco Capital Management, LLC 1200 17th Street, Suite 1600 Denver, CO 80202 United States of America * The Company’s Memorandum and Articles of Association, the prospectus, the simplified prospectus, the unaudited semi-annual reports, as well as the audited annual reports can be obtained free of charge from the office of the paying and information agent The net asset value of each of the Funds and the subscription and redemption prices of the shares of the Funds are published jointly and daily in the “Börsen Zeitung” for information purposes only and not constitute an invitation to subscribe for or repurchase the Company’s shares at those prices A copy of the list of changes in the portfolio during the reference period may be obtained free of charge from the Company’s Administrator or from the paying agent or paying and information agents in each country of distribution Administration of the Company Russell Investment Company II plc Background to the Company Russell Investment Company II plc (the “Company”) was incorporated on November 2000 and operates in Ireland as a public limited company under the Companies Acts 1963 to 2009 It is authorised by the Central Bank of Ireland (the “Central Bank”) and it was first authorised on November 2000 The Company is an open-ended investment company with variable capital which is authorised by the Central Bank under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003, (as amended) (the “UCITS Regulations”) The Company is organised in the form of an umbrella fund with segregated liability between sub-funds and as at 31 March 2011 has ten constituent funds (each a “Fund”, collectively the “Funds”) and various classes of shares Net assets under management for the Funds at 31 March 2011 amounted to EUR 3,748,815,433 (31 March 2010: EUR 3,512,930,741) broken down as follows: Fund Funded during the year ended Functional Currency The Euro Fixed Income Fund The Global Bond (Euro Hedged) Fund The Pan European Equity Fund The U.K Equity Plus Fund The U.S Growth Fund The U.S Quant Fund The U.S Value Fund The World Equity Fund 31 March 2002 31 March 2002 31 March 2002 31 March 2007 31 March 2002 31 March 2002 31 March 2002 31 March 2005 EUR EUR EUR GBP USD USD USD USD Net Assets 31 March 2011 199,992,439 415,815,867 178,529,256 133,896,751 177,803,376 169,368,501 232,841,933 3,398,055,869 Net Assets 31 March 2010 193,484,341 371,576,017 135,818,171 130,885,950 191,824,259 198,425,531 237,638,262 2,978,555,202 The Emerging Markets Extended Opportunities Fund and The U.S Equity Plus Fund are currently unfunded and consequently there is no financial information pertaining to these Funds Introductory Manager’s Report Russell Investments Limited (the “Advisor”) is a pioneer in the innovative approach of multi-asset, multi-style and multi-manager diversification The objective of these Funds is to deliver consistent and superior returns to investors using a multi-manager approach to reduce performance volatility The Advisor seeks to achieve this in the Funds which permanently invest in equities, by building a portfolio where the market bets (sector, size, style and other biases) are controlled using portfolio analytics and simulation tools to check the “fit” between managers to whom the Fund’s assets are allocated, thereby minimising costly overlap The main source of value-added for the equity funds is stock selection The research of the Advisor indicates that this is the most reliable and consistent source of outperformance The Advisor seeks to achieve the investment objective in the Funds which permanently invest in debt instruments by building a fund structure where the market bets (country, currency, duration, style and other biases) are controlled, using a team of managers with distinct and complementary investment approaches The main sources of value-added for the bond Funds are currency and duration positions Background to the Company Russell Investment Company II plc Directors’ Report The Directors submit their report together with the audited financial statements for the year ended 31 March 2011 Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable Irish law and Generally Accepted Accounting Practice in Ireland including the accounting standards issued by the Accounting Standards Board and published by The Institute of Chartered Accountants in Ireland Irish company law requires the Directors to prepare financial statements for each financial year that give a true and fair view of the state of affairs of Russell Investment Company II plc (the “Company”) and of the profit or loss of the Company for that year In preparing the financial statements, the Directors are required to:    select suitable accounting policies and then apply them consistently; make estimates and judgements that are reasonable and prudent; and prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business The Directors confirm that they have complied with the above requirements in preparing the financial statements The Directors are responsible for the maintenance and integrity of the corporate and financial information relating to the Company which may be included on Russell Investments Limited’s (the “Distributor”) website Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions In carrying out the above requirements, the Directors have appointed Russell Investments Ireland Limited as manager (the “Manager”) and the Manager has appointed State Street Fund Services (Ireland) Limited to act as administrator (the “Administrator”) of the Company Books of account The Directors are responsible for keeping proper books of account which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements are prepared in accordance with accounting standards generally accepted in Ireland and comply with the Companies Acts, 1963 to 2009 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations, 2003, (as amended) They are responsible for safeguarding the assets of the Company In this regard they have entrusted the assets of the Company to State Street Custodial Services (Ireland) Limited (the “Custodian and Trustee”) who has been appointed as custodian and trustee to the Company pursuant to the terms of a custodian agreement The Directors have a general responsibility for taking such steps as are reasonably open to them to prevent and detect fraud and other irregularities The Directors believe that they have complied with the requirements of section 202 of the Companies Act, 1990, with regard to books of account by employing an experienced administrator with appropriate expertise and by providing adequate resources to the financial function The books of account of the Company are maintained by the Administrator at 78 Sir John Rogerson’s Quay, Dublin 2, Ireland Distribution policy The Company pursues a distribution policy so that it will be able to obtain certification as a “distributing fund” under the United Kingdom Income and Corporation Taxes Act, 1988 for the purposes of U.K taxation Each distribution shall be at least such minimal amount (if any) as shall be necessary for the Company to achieve “distributable status” for U.K tax purposes With the exception of Roll-Up Class Shares, the distribution policy of each Fund is to distribute out of net income Roll-Up Share Classes not declare or distribute net income and their net asset value reflects the net income position Accumulation Share Classes declare a distribution but the net income is reinvested in the capital of the relevant Fund on the distribution date Income Share Classes distribute net income from time to time at the Directors’ discretion Net income includes all interest, dividends and other amounts deemed by the Manager to be in the nature of income less the estimated expenses of that Fund applicable to that dividend year Review of performance of the business and future developments of the business A detailed performance review of the business and future developments is included in the Manager’s Report for each Fund Principal risks A detailed analysis of the risks facing each Fund is included in Note 11 to the financial statements Results and dividends The results for the year are set out in the Profit and Loss Account for each Fund Dividends were declared during the year as detailed in Note 16 to the financial statements Directors’ Report Russell Investment Company II plc Directors’ Report - continued Significant events during the year Significant events during the year are described in Note 17 to the financial statements Significant events since the year end There have been no significant events affecting the Company other than those detailed in Note 18 to the financial statements Directors The name and nationality of persons who were Directors at any time during the year ended 31 March 2011 are set out below All Directors are non-executive directors All acted as Directors for the year Mr James Firn (American) (Chairman) Mr James Beveridge (British) Mr Peter Gunning (Australian) Mr Michael Hunt (Irish and British resident) Mr Paul McNaughton (Irish) Mr William Roberts (British and Irish resident) Mr Alan Schoenheimer (Australian) Mr David Shubotham (Irish) Mr Kenneth Willman (American and British) Mr Neil Jenkins (British) - Alternate Director for Mr Peter Gunning Directors’ and Secretary’s interests None of the Directors, their families or the Secretary hold or held any beneficial interest in the shares of the Company during the year Each of the Directors is a member of the personnel of Russell Investments entities except for Mr Paul McNaughton, Mr William Roberts and Mr David Shubotham who are independent of Russell Investments No Director had, at any time during the year or at the year end, a material interest in any contract of significance in relation to the business of the Company Independent Auditors The Auditors, PricewaterhouseCoopers, will be re-appointed in accordance with section 160(2) of the Companies Act, 1963 On behalf of the Board Mr William Roberts Mr Paul McNaughton July 2011 Directors’ Report Russell Investment Company II plc Custodian and Trustee’s Report We have enquired into the conduct of Russell Investment Company II plc (the “Company”) for the year ended 31 March 2011, in our capacity as Custodian and Trustee to the Company This report including the opinion has been prepared for and solely for the shareholders in the Company, in accordance with the Central Bank’s UCITS Notice 4, and for no other purpose We not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown Responsibilities of the Custodian and Trustee Our duties and responsibilities are outlined in the Central Bank’s UCITS Notice One of those duties is to enquire into the conduct of the Company in each annual accounting period and report thereon to the shareholders Our report shall state whether, in our opinion, the Company has been managed in that period in accordance with the provisions of the Company’s Memorandum and Articles of Association and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2003, as amended (the “UCITS Regulations”) It is the overall responsibility of the Company to comply with these provisions If the Company has not so complied, we as Custodian and Trustee must state why this is the case and outline the steps which we have taken to rectify the situation Basis of Custodian and Trustee Opinion The Custodian and Trustee conducts such reviews as it, in its reasonable opinion, considers necessary in order to comply with its duties as outlined in UCITS Notice and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documentation and the appropriate regulations and (ii) otherwise in accordance with the Company’s constitutional documentation and the appropriate regulations Opinion In our opinion, the Company has been managed during the year, in all material respects: (i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the Memorandum and Articles of Association and by the UCITS Regulations and (ii) otherwise in accordance with the provisions of the Memorandum and Articles of Association and the UCITS Regulations State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson’s Quay Dublin Ireland July 2011 Custodian and Trustee’s Report Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 A variety of monitoring activities take place to ensure that, in addition to exposures resulting from direct investment in debt or equity issued by a company, exposures relating to securities trading, foreign exchange and hedging activities and derivatives are within the guidelines All assets as disclosed on each Fund‟s Balance Sheets are exposed to credit risk Certain Funds in the Company invest in debt securities which are rated by a well-known rating agency For un-rated investments a rating is assigned using an approach that is consistent with investment grade rating agencies The tables below detail the Schedule of Investments by rating category for all Funds which invest in debt securities Portfolio by rating category AAA AA A BBB BB B CCC CC C NR/Other Total The Euro Fixed Income Fund % of Investments % of Investments As at 31 March 2011 As at 31 March 2010 47.04% 50.03% 11.47% 5.67% 22.53% 26.52% 9.84% 10.72% 0.42% 3.85% 0.07% 0.98% 0.05% 0.18% 0.00% 0.00% 0.13% 0.16% 8.45% 1.89% 100.00% 100.00% The Global Bond (Euro Hedged) Fund % of Investments % of Investments As at 31 March 2011 As at 31 March 2010 37.39% 39.24% 8.89% 10.17% 19.43% 13.59% 13.39% 11.01% 3.99% 4.77% 1.41% 4.42% 2.45% 5.16% 0.22% 1.38% 0.00% 0.00% 12.83% 10.26% 100.00% 100.00% In addition, over-the-counter financial derivative contracts have an exposure to counterparty risk such that the counterparty may become insolvent or otherwise incapable of meeting its obligations under an FDI contract This includes the legal risk arising from a contract being unenforceable The names of brokers and counterparties used by each individual Fund can be found at the base of each relevant Schedule of Investments Collateral may be pledged, generally by way of cash or cash equivalents, and held by the counterparty for open futures contracts, options and swap contracts Details of non-cash collateral held at year-end by counterparties are asterisked within the Schedule of Investments of the Funds Amounts of cash collateral held at year-end by counterparties are disclosed on the Balance Sheet of the Funds Cash collateral can sometimes be included in the relevant Fund valuation if explicitly requested by the Money Manager See Note to the financial statements for full details of cash collateral pledged to or by the relevant Funds as at 31 March 2011 and 31 March 2010 Each relevant Fund‟s Money Managers conduct periodic reviews of the counterparties with whom they conduct transactions The Advisor also monitors each Fund‟s counterparty exposures It is the Company‟s policy for each relevant Fund‟s Money Manager to net exposures against its counterparties In addition, risk exposure to a counterparty may be reduced by collateral provided to the Fund by the counterparty in accordance with the UCITS Regulations All securities, cash at bank balances and bank overdrafts are held by the Custodian and Trustee through its affiliate, State Street Bank and Trust Company (“State Street”) or through a sub-custodian Bankruptcy or insolvency of the Custodian and Trustee or State Street may cause the Company‟s rights with respect to cash and securities held by State Street to be delayed or limited Periodic monitoring and an annual credit review are performed on the Custodian and Trustee by a credit research team This review may include as appropriate an assessment of the Custodian and Trustee‟s liquidity position, income streams, asset quality and credit ratings The Company also participates in a securities lending program with State Street Please refer to the end of this note for details of the specific risks affecting the Company arising from the participation in the securities lending programme The long term credit rating of the Custodian and Trustee as of 31 March 2011 was A1 Contract and/or margin or similar monies or other investments deposited by or on behalf of the Company for margin purposes with a counterparty, futures and options exchange, clearing broker or other party are not the responsibility of the Custodian and Trustee and the Custodian and Trustee shall not be liable in any way for the default of any counterparty, futures and options exchange, clearing broker or other party in respect of such margin and similar monies or other investments or for sums deducted from such margin or similar monies or other investments deposited as collateral for margin purposes Similarly, contract and/or margin or similar monies or other investments received by the Company for margin purposes with counterparty is held within the custodial network of the Custodian and Trustee 206 Notes to the Financial Statements Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 As the Company may invest in markets where custodial and/or settlement systems are not fully developed, the assets of the Company which are traded in such markets and which have been entrusted to sub-custodians, in circumstances where the use of sub-custodians is necessary, may be exposed to risk in circumstances where the Custodian and Trustee will have no liability Details of the potential risks to investors in such markets are set out in full in the Company‟s prospectus Each Fund‟s Money Managers monitor each credit position on a daily basis The Advisor monitors each Fund‟s portfolio characteristics (such as counterparty exposure, credit rating weights, and other key measures as appropriate) in detail with the Money Managers at least quarterly and in some cases monthly The Advisor also reviews each Fund‟s portfolio characteristics in its entirety Liquidity Risk Generally, the Funds‟ assets comprise actively traded and highly liquid securities The liquidity risks associated with the need to satisfy shareholders‟ requests for redemptions are mitigated by maintaining a pool of cash to satisfy usual levels of demand In addition, the Funds may restrict redemptions and borrow monies on a temporary basis as detailed in the Company‟s prospectus In highly volatile market conditions, the Funds may not easily liquidate assets needed for redemption or settlement In such conditions, the Advisor may adjust the levels of cash held by the Funds The Funds avoid entering into derivative contractual arrangements that produce an exposure not covered by sufficient liquid assets or a total investment exposure in excess of total net assets The risk management guidelines adopted by the Money Manager require that coverage be composed of cash reserves or physical securities At 31 March 2011 and 2010, substantially all of the Funds‟ liabilities including net assets attributable to redeemable participating shareholders were payable within three months The tables below analyse each Fund‟s financial derivative instruments that will be settled on a gross basis into relevant maturity groupings based on the remaining period at the Balance Sheet to the contractual maturity date Year ended 31 March 2011 Less than The Euro Fixed Income Fund month Forward foreign currency exchange contracts Outflow Inflow to months - 93,682,151 93,318,742 Less than The Global Bond (Euro Hedged) Fund month to months Forward foreign currency exchange contracts Outflow 79,427,896 435,266,494 Inflow 77,738,071 429,423,967 Less than The Pan European Equity Fund month Forward foreign currency exchange contracts Outflow Inflow Greater than months 10,099,638 9,951,150 to months - 15,469,405 15,560,684 Less than The World Equity Fund month to months Forward foreign currency exchange contracts Outflow 814,747,349 1,101,998,852 Inflow 822,536,502 1,101,797,466 Notes to the Financial Statements 207 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 Year ended 31 March 2010 The Euro Fixed Income Fund to months Forward foreign currency exchange contracts Outflow 100,856,064 Inflow 100,764,959 Less than The Global Bond (Euro Hedged) Fund month to months Forward foreign currency exchange contracts Outflow 151,390,200 210,478,432 Inflow 150,615,902 207,901,738 Greater than months 11,092,323 11,056,747 The Pan European Equity Fund to months Forward foreign currency exchange contracts Outflow 7,237,118 Inflow 7,298,656 Less than The World Equity Fund month to months Forward foreign currency exchange contracts Outflow 833,566,667 919,477,542 Inflow 832,816,138 918,242,124 The Funds‟ Money Managers monitor their liquidity positions on a daily basis The Advisor monitors the Fund‟s portfolio characteristics of each Fund (such as daily cash balances, average maturity, duration, and other key measures as appropriate) in detail with the Money Managers at least quarterly and in some cases monthly The Advisor also reviews each Fund‟s portfolio characteristics in its entirety Securities Lending During the year, the Company participated in a securities lending programme with State Street Bank and Trust Company, which has an agency approach to securities lending The Advisor makes short-term collateralised loans of the Company‟s portfolio in order to earn incremental revenues for the Funds Credit risk can arise from the potential inability of the borrowing counterparty to return the loaned securities where cash collateral is insufficient to purchase replacement securities in the market Losses can also arise when the loan collateral on hand is insufficient to purchase replacement securities This could be due to market events and/or the lending agent‟s failure to monitor and call in additional collateral and then defaults on the payment of indemnification proceeds at the time of a borrower default There are a number of controls in place at the Advisor to manage this risk Among others, loans must be collateralised at a minimum of 100 per cent of the market value of the loans and higher depending on certain loan characteristics defined in the lending agreements with the borrowers and indemnification from the lending agent on any collateral shortfalls where a borrower defaults In addition, loans are permitted to borrowers only where they meet certain defined criteria, such as minimum credit ratings and limits on percentage of the Company‟s assets that can be on loan at any one time Where collateral is in the form of cash that is invested in money market funds and/or other instruments there is additional risk to the Company that the investment will be worth less than the cash amount invested Any shortfall in the value of the collateral at the time the loan is terminated could result in a loss to the Company incurred as a consequence of selling other portfolio assets in order to make up the difference between the amount of cash pledged by the borrower and the value of that collateral at the time the loan is terminated See Note to the financial statements for full details of collateral pledged to or by the relevant Funds as at 31 March 2011 and 31 March 2010 208 Notes to the Financial Statements Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 As part of ongoing due diligence, Russell Investments has focused on reducing borrower risk by expanding the agency programme In the current market environment, the Principal Money Manger believes that the agency programme is a more appropriate model for the following reasons: i) The agency programme can remove borrower concentration ii) The auction model has become less attractive to lenders given the reduction in demand for lending which has led to more assets being available from traditional routes iii) The Funds may recoup additional value on high value stocks on loan (“specials”) in the agency programme because they are negotiated individually and re-priced as necessary in accordance with demand Russell Investments continues to review the process on a regular basis to take into account market developments 12 Launch of New Funds and Classes of Shares During the year ended 31 March 2011, no Funds were funded for the first time The Emerging Markets Extended Opportunities Fund was approved by the Central Bank on 24 March 2011 and is unfunded at year end The following classes of shares were launched during the year ended 31 March 2011: Fund The U.K Equity Plus Fund The World Equity Fund The World Equity Fund The World Equity Fund Share Class Class R Accumulation Class R Accumulation Class TYC Accumulation Class TYHC Accumulation Launch Date 19/11/2010 19/11/2010 14/03/2011 30/03/2011 Launch Price GBP 100.00 EUR 100.00 JPY 1,000.00 JPY 1,000.00 During the year ended 31 March 2010, no Funds were funded for the first time The following classes of shares were launched during the year ended 31 March 2010 Fund The World Equity Fund Share Class Class TUBS Launch Date 01/02/2010 Launch Price GBP 10.00 13 Exchange Rates Where applicable, the Administrator used the exchange rates listed below to translate foreign currency amounts, market value of investments and other assets and liabilities into Euro at the following rates for each EUR 31 March 2011 Argentine Peso ARS Australian Dollar AUD Brazilian Real BRL British Pound GBP Canadian Dollar CAD Chilean Peso CLP Chinese Yuan Renminbi CNY Colombian Peso COP Czech Republic Koruna CZK Danish Krone DKK Egyptian Pound EGP Euro EUR Hong Kong Dollar HKD Hungarian Forint HUF Iceland Krona ISK Indian Rupee INR 5.7498 1.3722 2.3085 0.8853 1.3804 679.9617 9.2930 2,655.8456 24.5575 7.4561 8.4571 1.0000 11.0380 265.6450 162.1109 63.2848 31 March 2011 Indonesian Rupiah IDR Israeli Shekel ILS Japanese Yen JPY Jordanian Dinar JOD Kenyan Schilling KES Kuwaiti Dollar KWD Malaysian Ringgit MYR Mexican Peso MXN Moroccan Dirham MAD New Zealand Dollar NZD Norwegian Krone NOK Omani Rial OMR Pakistani Rupee PKR Peruvian Nouveau Sol PEN Philippine Peso PHP Polish Zloty PLN 12,356.8128 4.9290 117.6150 1.0069 117.7853 0.3935 4.2981 16.8976 11.3020 1.8605 7.8501 0.5464 121.1911 3.9770 61.5889 4.0297 31 March 2011 Russian Rouble RUB Singapore Dollar SGD South African Rand ZAR South Korean Won KRW Sri Lankan Rupee LKR Swedish Krona SEK Swiss Franc CHF Taiwan Dollar TWD Thai Baht THB Turkish Lira TRY UAE Dirham AED Uruguayan Peso UYU U.S Dollar USD Venezuelan Bolivar VEB Zimbabwean Dollar ZWD 40.3308 1.7888 9.5923 1,556.6817 156.6615 8.9523 1.2983 41.7308 42.9207 2.1909 5.2119 27.3177 1.4191 6.0945 457.4540 Notes to the Financial Statements 209 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 31 March 2010 Argentine Peso ARS Australian Dollar AUD Brazilian Real BRL British Pound GBP Canadian Dollar CAD Czech Republic Koruna CZK Danish Krone DKK Egyptian Pound EGP Euro EUR Hong Kong Dollar HKD Hungarian Forint HUF Indian Rupee INR Indonesian Rupiah IDR Israeli Shekel ILS 31 March 2010 Japanese Yen JPY Jordanian Dinar JOD Kenyan Schilling KES Malaysian Ringgit MYR Mexican Peso MXN Moroccan Dirham MAD New Zealand Dollar NZD Norwegian Krone NOK Pakistani Rupee PKR Peruvian Nouveau Sol PEN Philippine Peso PHP Polish Zloty PLN Russian Rouble RUB Singapore Dollar SGD 5.2456 1.4742 2.4149 0.8920 1.3728 25.4100 7.4446 7.4502 1.0000 10.5064 265.7399 60.7474 12,312.5281 4.9987 126.4336 0.9587 104.6216 4.4138 16.6773 11.2095 1.9070 8.0316 113.7077 3.8462 61.1466 3.8605 39.8099 1.8917 31 March 2010 South African Rand ZAR South Korean Won KRW Sri Lankan Rupee LKR Swedish Krona SEK Swiss Franc CHF Taiwan Dollar TWD Thai Baht THB Turkish Lira TRY Uruguayan Peso UYU U.S Dollar USD Venezuelan Bolivar VEB Zimbabwean Dollar ZWD 9.9371 1,530.9643 154.3210 9.7383 1.4242 42.9717 43.7525 2.0597 26.4531 1.3531 5.8111 436.1784 The Administrator used the yearly average exchange rates listed below to translate the foreign currency amounts in the combined statements for the Profit and Loss Account and the Statement of Changes in Net Assets Attributable to Redeemable Participating Shareholders into Euro at the following rates for each EUR 31 March 2011 British Pound GBP U.S Dollar USD 31 March 2010 0.8540 British Pound GBP 1.3271 U.S Dollar USD 0.8856 1.4147 14 Comparative Dealing Net Assets As at 31 March Class A EUR The Euro Fixed Income Fund Total net asset value 31 March 2011 31 March 2010 31 March 2009 Net asset value per share 31 March 2011 31 March 2010 31 March 2009 Class B EUR Class F EUR Class I GBP Class I Income GBP 16,814 55,068 71,078,779 66,096,857 93,440,451 120,141 197,230 642,660 57,349,921 56,765,304 47,892,940 33,896,845 36,193,477 33,512,677 21,221,186 18,258,989 32,361,085 1,323.90 1,147.25 1,378.11 1,387.69 1,189.37 1,238.57 1,257.20 1,085.57 19.68 19.93 17.70 14.19 14.86 13.72 10.36 10.74 9.53 Class P Income The Euro Fixed Income Fund GBP Total net asset value 31 March 2011 2,731,692 31 March 2010 3,322,367 31 March 2009 605,048 Net asset value per share 31 March 2011 11.13 31 March 2010 11.70 31 March 2009 10.85 Class S EUR The Global Bond (Euro Hedged) Class A Fund EUR Total net asset value 31 March 2011 384,750 31 March 2010 369,618 31 March 2009 1,179,013 Net asset value per share 31 March 2011 1,502.93 31 March 2010 1,446.76 31 March 2009 1,220.51 Class B EUR 210 Notes to the Financial Statements Class MZ Income EUR 1,426,566 992,429 9,071,784 108.84 109.82 94.36 Class DH-B USD Class F EUR Class I GBP 248,056,125 203,710,951 249,764,989 38,203,729 40,757,311 35,813,766 1,388,972 56,380,337 55,608,690 47,180,809 1,597.96 1,529.07 1,282.54 13.23 12.69 10.65 1,090.24 21.64 20.81 18.09 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 The Global Bond (Euro Hedged) Class I Income Fund GBP Total net asset value 31 March 2011 33,887,758 31 March 2010 36,442,127 31 March 2009 33,450,557 Net asset value per share 31 March 2011 15.71 31 March 2010 15.56 31 March 2009 14.01 Class A EUR The Pan European Equity Fund Total net asset value 31 March 2011 782,712 31 March 2010 1,637,950 31 March 2009 9,003,413 Net asset value per share 31 March 2011 781.93 31 March 2010 719.03 31 March 2009 458.59 Class PAMEU EUR The Pan European Equity Fund Total net asset value 31 March 2011 31 March 2010 31 March 2009 Net asset value per share 31 March 2011 31 March 2010 31 March 2009 Class MZ Income EUR 38,476,055 34,158,784 28,015,125 11.64 11.41 9.86 Class B EUR Class I GBP Class MZ Income EUR 91,602,370 59,605,629 50,607,956 24,206,821 18,704,334 10,699,217 395,644 353,549 231,360 7,883,983 6,876,829 5,551,977 830.61 759.23 481.36 1,164.59 1,073.05 685.76 15.66 14.41 9.48 12.67 11.63 7.46 Class R Roll-Up EUR 7,193,810 8,741,669 7,672,610 46,412,771 39,854,966 24,440,982 11.97 11.08 7.12 86.99 79.71 50.67 Class B The U.K Equity Plus Fund GBP Total net asset value 31 March 2011 96,784,251 31 March 2010 94,881,674 31 March 2009 168,454,888 Net asset value per share 31 March 2011 113.93 31 March 2010 102.25 31 March 2009 65.81 Class C EUR Class A Income The U.S Growth Fund USD Total net asset value 31 March 2011 280,737 31 March 2010 269,006 31 March 2009 260,883 Net asset value per share 31 March 2011 10.76 31 March 2010 9.37 31 March 2009 6.42 Class B USD Class A Income USD The U.S Quant Fund Total net asset value 31 March 2011 31 March 2010 31 March 2009 Net asset value per share 31 March 2011 31 March 2010 31 March 2009 Class F EUR Class I Income GBP Class K USD Class P Income GBP Class R GBP 3,880,488 3,477,181 3,234,884 13,681,373 13,484,281 8,934,090 3,038,132 2,865,909 1,731,894 14,796,763 17,528,742 13,501,829 3,303,608 - 82.28 73.73 46.18 96.91 88.09 58.11 99.11 84.70 51.82 100.37 91.79 60.91 104.85 - Class C EUR Class I GBP Class I Income GBP 155,083,435 165,165,334 146,569,328 6,925,219 9,242,395 20,768,568 6,639,830 6,968,258 4,955,699 1,227,933 2,182,567 1,240,950 11.88 10.29 7.01 1,078.34 984.91 689.23 10.28 9.40 6.78 10.27 9.40 6.78 Class B USD Class C EUR Class I GBP Class K USD Class MZ Income EUR 119,716 71,041,986 71,689,545 112,980,264 1,322,373 1,429,718 326,762 32,682,179 57,600,138 31,143,793 37,180 5,161,309 8.70 12.83 11.18 7.63 735.87 676.95 473.57 11.04 10.14 7.31 10.03 6.79 Notes to the Financial Statements 211 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 Class P Income GBP The U.S Quant Fund Total net asset value 31 March 2011 10,293,846 31 March 2010 11,378,463 31 March 2009 10,137,254 Net asset value per share 31 March 2011 13.73 31 March 2010 12.74 31 March 2009 9.29 Class A Income The U.S Value Fund USD Total net asset value 31 March 2011 1,222,874 31 March 2010 1,509,084 31 March 2009 1,435,604 Net asset value per share 31 March 2011 12.76 31 March 2010 11.22 31 March 2009 6.83 Class B The World Equity Fund USD Total net asset value 31 March 2011 772,844,533 31 March 2010 563,324,475 31 March 2009 524,816,830 Net asset value per share 31 March 2011 16.57 31 March 2010 14.27 31 March 2009 9.16 The World Equity Fund Total net asset value 31 March 2011 31 March 2010 31 March 2009 Net asset value per share 31 March 2011 31 March 2010 31 March 2009 Class N USD Class R Roll-Up EUR Class SH-B GBP 19,421,633 14,890,451 8,885,174 8,658,180 84.85 77.66 54.10 598.23 Class B USD Class C EUR Class I GBP Class I Income GBP 219,430,240 219,914,557 176,812,708 6,971,387 9,335,482 20,543,315 198,713 176,656 90,020 1,233,475 2,185,082 1,254,547 14.27 12.45 7.50 1,147.18 1,056.05 653.66 12.33 11.37 7.25 11.83 10.93 6.99 Class C EUR Class D GBP Class EH-T EUR Class I GBP Class J USD 96,933,310 119,531,530 69,020,185 65,324,593 927,778 14,726 132,583,355 175,222,983 122,903,625 741,395,546 749,494,483 498,642,949 44,736,571 47,364,474 38,249,474 13.48 12.26 8.08 15.77 14.32 9.73 10.52 9.54 6.42 18.57 16.90 11.49 15.61 13.54 8.76 Class R USD Class SH-B GBP Class TDCNV Income USD Class TUBS GBP Class TYA JPY 3,386,816 5,042,033 2,396,619 23,797,551 - 440,249,208 435,098,494 286,277,661 96,211,305 83,200,399 53,686,050 37,251,979 - 2,487,487,148 2,420,276,740 1,645,576,894 121.39 106.01 69.04 103.61 - 112.86 101.80 68.57 9.62 8.32 5.37 11.24 - 846 820 555 Class TYC The World Equity Fund JPY Total net asset value 31 March 2011 3,827,151,334 31 March 2010 31 March 2009 Net asset value per share 31 March 2011 1,036 31 March 2010 31 March 2009 - Class TYHC JPY 3,843,760,382 1,009 - 15 Segregated Liability Each Fund will be responsible for paying its fees and expenses regardless of the level of its profitability The Company has availed of the segregated liability provisions of the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 The adoption of segregated liability ensures that liability incurred on behalf of a Fund will generally be discharged solely out of the assets of that Fund and there can generally be no recourse to other Funds to satisfy these liabilities Notwithstanding the foregoing there can be no guarantee that should an action be brought against the Company in the court of another jurisdiction that the segregated nature of the Funds would necessarily be upheld 212 Notes to the Financial Statements Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 16 Distributions (Finance Costs) Total finance costs/distributions declared for the year ended 31 March 2011 were: The Euro Fixed Income Fund EUR Class A (412) Class A Income Class B (1,877,845) Class C Class D Class DH-B Class E Class EH-B Class EH-T Class F (4,114) Class I Income (1,346,613) Class I Accumulation (2,171,080) Class J Class K Class MZ Income (669,085) Class N Class PAM EU Class P Income (112,623) Class P Accumulation Class R Accumulation Class S (37,226) Class SH-B Class TDCNV Income Class TYA Class TYC Class TYHC Class TUBS Accumulation Total (6,218,998) Distributions paid on income shares (2,128,321) Distributions deemed on accumulation shares (4,090,677) The Global Bond (Euro Hedged) Fund EUR (10,833) (6,399,756) (895,600) (1,188,230) (1,886,518) (1,125,720) (11,506,657) The Pan European Equity Fund EUR (17,829) (908,044) (211,083) (4,172) (77,968) (82,058) (1,301,154) (2,313,950) (9,192,707) The U.K Equity Plus Fund GBP The U.S Quant Fund USD (257,928) (57,757) (574,381) (1,561) (258,310) (13,713) (3,031) (343) (276,958) The World Equity Fund USD (3,429,268) (1,088,351) (45,824) (1,134,138) (7,417,286) (320,179) (26,815) (30,902) (4,516,259) (591,159) (184,707) (374,235) (19,159,123) (376,248) (57,757) (4,592) (591,159) (1,207,201) (516,624) (272,366) (18,567,964) (1,135,183) (38,804) (170,484) (20,494) (205,764) (12,720) (1,583,449) (251,526) (7,170) - (77,968) (1,223,186) The U.S Value Fund USD Notes to the Financial Statements 213 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 Total finance costs/distributions declared for the year ended 31 March 2010 were: The Euro Fixed Income Fund EUR Class A (998) Class A Income Class B (3,068,725) Class C Class D Class DH-B Class E Class EH-B Class EH-T Class F (12,284) Class I Income (1,576,925) Class I Accumulation (2,304,535) Class J Class K Class MZ (1,389,285) Class N Class PAM EU Class P Income (110,519) Class P Accumulation Class R Roll-Up Class S (199,012) Class SH-B Class TDCNV Income Class TUBS Class TYA Class TYC Class TYHC Total (8,662,283) Distributions paid on income shares (3,076,729) Distributions deemed on accumulation shares (5,585,554) 214 Notes to the Financial Statements The Global Bond (Euro Hedged) Fund EUR (30,675) (7,166,131) (953,081) (13,303) (1,442,973) (2,076,801) (1,071,014) (12,753,978) The Pan European Equity Fund EUR (52,309) (1,014,500) (260,996) (5,832) (128,315) (170,378) (1,632,330) (2,513,987) (10,239,991) The U.K Equity Plus Fund GBP The U.S Quant Fund USD The U.S Value Fund USD (3,530,997) (69,847) (281,370) (39,341) (398,519) (4,320,074) (578) (498,018) (5,548) (264,418) (67) (41,944) (83,805) (36,937) (931,315) (5,313) (667,125) (80,240) (8,069) (610) (761,357) The World Equity Fund USD (4,587,673) (928,554) (593) (2,338,670) (6,845,092) (357,205) (24,847) (4,599,042) (563,000) (11,952) (174,772) (20,431,400) (128,315) (679,889) (126,327) (13,382) (563,000) (1,504,015) (3,640,185) (804,988) (747,975) (19,868,400) Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 17 Significant Events During the Year Lehman Counterparty Exposure During the year, the Company extinguished its liability to Lehman, as a result of counterparty exposures at Lehman The table below details the movement on the payable to Lehman figure from 31 March 2009 to 31 March 2011 Receivable/(Payable) to Lehman as at 31 March 2009 Mark to market and interest adjustments Payable to Lehman as at 31 March 2010 The Pan European Equity Fund EUR (62,818) (1,582) (64,400) The Global Bond (Euro Hedged) Fund EUR 46,465 (146,827) (100,362) The World Equity Fund* USD (2,688,036) (197,284) (2,885,320) Total EUR (2,704,389) (345,693) (3,050,082) Mark to market and interest adjustments Payment to Lehman during the year Payable to Lehman as at 31 March 2011 645 63,755 - (5,614) 94,748 - (305,945) 3,191,265 - (299,686) 3,349,768 - * Values for this Fund have been converted to Euro Unfunded Share Classes The following share classes which became unfunded have been removed: The Global Bond (Euro Hedged) Fund Class F The U.S Quant Fund Class A Income Class K Class MZ Income Class SH-B The World Equity Fund Class TUBS eSec SFT Fund and SFT managed account Fund update Please refer to Note on the developments during the year Application of Swing Factor With effect from 19 January 2011, anti-dilution levies were no longer applied on subscriptions or redemptions of shares On that date a dilution adjustment mechanism was implemented for each of the Funds Prospectus Updates Revised prospectuses for the Company were filed with the Central Bank on November 2010, 24 March 2011 and April 2011 A summary of the changes to the prospectus is set out below The principal amendments to the prospectus filed on November 2010 were as follows: to provide for a dilution adjustment which may be charged on subscriptions and/or repurchases (with effect from 19 January 2011); new share classes were issued at a fixed initial offer price (Class R of The U.K Equity Plus Fund and The World Equity Fund); the list of regulated markets in which the Company may invest was extended to include the markets added to the articles of association by special resolution of shareholders on 23 September 2010 (i.e Borsa Italiana and Luxembourg Stock Exchange); to reflect the filing of a supplemental management and investment advisory agreement dated November 2010; to reflect that the Company has decided to remove the minimum initial investment, minimum subsequent investment and minimum holding requirements referred to in Schedule II of the prospectus; references to the Financial Regulator were replaced with references to the Central Bank throughout; to reflect the closure of Class F of The Global Bond (Euro Hedged) Fund and Class A Income, Class D, Class K, Class MZ Income and SH-B of The U.S Quant Fund; to reflect the termination of the Principal Money Manager Agreement between Russell Investments Ireland Limited and Russell Investments Limited; and to reflect that the investment policy for The Euro Fixed Income Fund and The Global Bond (Euro Hedged) Fund was amended to clarify that, while the Funds will not purchase equity securities, they may hold them if acquired through the restructuring of a company‟s debt that is already held by the Fund The principal amendments to the prospectus filed on 24 March 2011 were as follows:- to reflect the creation of a new subfund, namely The Emerging Markets Extended Opportunities Fund; and to provide for a new share class in The World Equity Fund of the Company, namely Class THYC, and the closure of Class TUBS in The World Equity Fund Notes to the Financial Statements 215 Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 The principal amendments to the prospectus filed on April 2011 were as follows:- the investment policy of The World Equity Fund II was changed by deleting specific references to the MSCI World Index and replacing these with a more general reference to any regulated market worldwide; and removal of references to the following unfunded share classes on the basis that they are no longer being offered: (i) Class A in The Euro Fixed Income Fund; (ii) Class I Income in The Pan European Equity Fund and The U.S Quant Fund; and (iii) Class E in The U.S Quant Fund Amendments to the Articles of Association Revised Articles of Association were adopted by Special Resolution dated 23 September 2010 In particular, the revised Articles of Association include the following changes: (i) to provide for the charging of a dilution adjustment; and (ii) expansion of the list of regulated markets 18 Significant Events Since the Year End The Company has applied to the HM Revenue & Customs (“HMRC”) to be certified as a Reporting Fund under Regulation 51 of The Offshore Funds (Tax) Regulations 2009 Effective 24 May 2011, The Pan European Equity Fund of Multi-Style, Multi-Manager Funds plc merged with The Pan European Equity Fund Total distributions paid after the year ended 31 March 2011 The Euro Fixed Income Fund EUR Class A Class A Income Class B (479,908) Class C Class D Class DH - B Class E Class EH-B Class EH-T Class F (678) Class I Income (208,748) Class I Accumulation (362,392) Class J Class K Class MZ Income (268,547) Class N Class PAM EU Class P Income (17,021) Class P Accumulation Class R Accumulation Class S (8,117) Class SH-B Class TDCNV Income Class TYA Class TYC Accumulation Class TYHC Accumulation Class TUBS Accumulation Total (1,345,411) Distributions paid on income shares (494,316) Distributions deemed on accumulation shares (851,095) 216 Notes to the Financial Statements The Global Bond (Euro Hedged) Fund EUR (42,245) (1,754,317) (215,274) (263,025) (450,730) (324,072) (3,049,663) The Pan European Equity Fund EUR (139) (13,896) (949) (15) (488) (218) (15,705) (587,097) (2,462,566) The U.K Equity Plus Fund GBP The U.S Quant Fund USD The U.S Value Fund USD (328,111) (11,606) (45,973) (5,161) (49,826) (11,256) (451,933) (28,785) (767) (21,312) (6,534) (57,398) (278) (51,154) (2,086) (471) (75) (54,064) The World Equity Fund USD (489,092) (87,509) (66,353) (144,763) (727,922) (40,608) (2,200) (21,460) (459,237) (61,000) (19,106) (102,481) (36,635) (2,258,366) (488) (95,799) (6,534) (749) (61,000) (15,217) (356,134) (50,864) (53,315) (2,197,366) Russell Investment Company II plc Notes to the Financial Statements - continued 31 March 2011 Revised Prospectuses A revised prospectus of the Company dated April 2011 was noted by the Central Bank on April 2011 A revised simplified prospectus dated April 2011 was noted by the Central Bank on the same date The principal changes to the prospectus filed on April 2011 were as follows:  minor changes to the investment policy of The World Equity Fund II by deleting specific references to the MSCI World Index and replacing it with a more general reference to any regulated market worldwide;  update to the initial offer period;  the removal of references to the following unfunded share classes which are no longer being offered: (i) Class A in The Euro Fixed Income Fund; (ii) Class I Income in The Pan European Equity Fund and The U.S Quant Fund; and (iii) Class E in The U.S Quant Fund; and  the insertion of the fixed initial offer prices for certain new classes of shares to correct an inadvertent omission of these from previous versions of the prospectus 19 Approval of the Financial Statements The financial statements were approved by the Directors on July 2011 Notes to the Financial Statements 217 Russell Investment Company II plc Appendix I - Total Expense Ratio (Unaudited) For the year ended 31 March 2011 The average Total Expense Ratio (“TER”) table shows the actual expenses incurred by each Fund over the preceding twelve month period (with the exception of the unfunded Fund detailed in the Background to the Company), expressed as a percentage of the average (avg.) net asset values (“NAV”) of that Fund for the corresponding period Expense % of avg NAV of Fund The Euro Fixed Income Fund Class A Class B Class F Class I Class I Income Class MZ Income Class P Income Class S The Global Bond (Euro Hedged) Fund Class A Class B Class DH-B Class I Class I Income Class MZ Income The Pan European Equity Fund Class A Class B Class F Class I Class MZ Income Class PAM EU Class R Roll-Up The U.K Equity Plus Fund Class B Class C Class I Income Class K Class P Income Class R The U.S Growth Fund Class A Income Class B Class C Class I Class I Income The U.S Quant Fund Class B Class C Class I Class P Income Class R Roll-Up The U.S Value Fund Class A Income Class B Class C Class I Class I Income 218 Total Expense Ratio 1.18% 0.96% 1.77% 0.76% 0.76% 0.56% 1.16% 1.16% 1.63% 1.04% 1.04% 0.79% 0.79% 0.54% 1.88% 1.28% 2.08% 1.18% 0.68% 2.58% 1.53% 1.35% 1.95% 1.35% 1.95% 1.95% 1.52% 1.73% 1.13% 1.73% 1.13% 1.14% 1.17% 1.77% 0.98% 1.67% 1.37% 1.72% 1.12% 1.72% 1.12% 1.12% Russell Investment Company II plc Appendix I - Total Expense Ratio (Unaudited) - continued For the year ended 31 March 2011 Expense % of avg NAV of Fund The World Equity Fund Class B Class C Class D Class EH-T Class I Class J Class N Class R Class SH-B Class TDCNV Income Class TUBS Class TYA Class TYC Class TYHC 1.00% 1.71% 0.86% 1.25% 1.00% 1.70% 2.41% 1.54% 1.05% 0.68% 0.87% 0.78% 0.15% 0.10% Total Expense Ratio 219 Russell Investments Rex House 10 Regent Street London, SW1Y 4PE tel +44 (0) 20 7024 6000 fax +44 (0) 20 7024 6001 www.russell.com ... Investment Schemes (3.02%) Ireland (3.02%) Russell Investment Company III plc The Euro Liquidity Fund 6,034 Class C Shares 6,034,079 Russell Investment Company III plc The U.S Dollar Cash Fund. .. 2011 Directors’ Report Russell Investment Company II plc Custodian and Trustee’s Report We have enquired into the conduct of Russell Investment Company II plc (the ? ?Company? ??) for the year ended... Background to the Company Russell Investment Company II plc (the ? ?Company? ??) was incorporated on November 2000 and operates in Ireland as a public limited company under the Companies Acts 1963 to