Russell Investment Manager Outlook March 2006

Managers Bullish on Large-cap Growth Despite Market
Russell Survey Also Finds Increasing Sentiment for Cash

TACOMA, Wash. — March 29, 2006 — Money managers seem to be on a different page than the U.S. stock market in terms of their ongoing bullishness for large-cap growth stocks, according to the results from the latest Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investment Group.

Seventy percent of U.S. investment managers responding to the survey are bullish on the prospects for U.S. large-cap growth stocks over the next year. At the same time, the Russell 1000® Growth Index and the Russell Top 200® Growth Index — the two indexes that best reflect the segment of the market for which the managers have expressed such bullish sentiment — were the two lowest performing segments in the Russell index family over the first two months of the year.

"To understand the managers' allegiance to what have been out-of-favor market segments, we have to consider some historical perspective," said Randy Lert, chief portfolio strategist, Russell Investment Group. "Over the past decade the Russell 2000® Value Index has outperformed the Russell 2000® Growth Index outside of historical norms, and investment managers believe that such a level of disparity between market segments may not be sustainable."

Managers responding to the Russell survey may be relying on historical norms — that the two styles of investing should have similar total returns over the long run — and results indicate that they believe that market sentiment will swing from value to growth. At the end of February, the 10-year annualized total returns for the value and growth indexes based on the Russell 1000® Index, Russell 2000® Index and Russell 3000® Index showed at least a four percentage point differential favoring value at each market capitalization level.

Overall, the managers surveyed remain positive on the U.S. stock market with only 8% declaring it overvalued, 67% seeing it fairly valued and 24% believing the market undervalued. Within that generally favorable perspective on U.S. equities, 70% were bullish on U.S. large-cap growth, 63% were positive on the midcap growth sector and 57% were bullish on non-U.S. equities.

Russell's Investment Manager Outlook is intended to generate a meaningful snapshot of investment manager sentiment each quarter. For the current installment of the survey, Russell collected the opinions of a representative sample of senior-level investment decision-makers at U.S. large and small cap equity investment managers, as well as U.S. fixed income investment managers. More than 100 managers participated in this survey.

Additional findings from the Investment Manager Outlook include:

Earnings Forecast: Managers More Pessimistic than Institutional Brokers
Fifty-eight percent of surveyed managers believe that the current one-year forecast of earnings growth of 12.8% for the Russell 3000 is either moderately or significantly optimistic. However, 22% of the managers think earnings will actually be higher than the estimated forecast.

"Even against this backdrop of slight wariness on current earnings forecasts, the managers are still expressing that the market is either fairly valued or undervalued, and they continue to have a strong preference for growth in all market capitalization segments," said Lert. "Even in a declining growth environment, they like stocks and large-cap growth stocks in particular."

Up-Tick: More Managers Bullish on Cash
The asset class with the biggest up-tick in manager sentiment for the quarter was cash, where 35% of the managers were bullish. Last quarter, only 20% expressed a bullish sentiment for cash and about the same percentage (19%) were bullish on cash a year ago.

"The risk-reward ratio for longer maturity fixed income is just not attractive with the current yield curve," said Lert. "Cash yields are now up to more than 4% and longer-term treasury bonds yields remain below 5%."

Top Sectors: Health Care and Technology
The health care sector has maintained the top spot since the inception of the survey in June 2004. Seventy percent of surveyed managers are bullish on health care and 67% are bullish on technology. Integrated oils only received support from 42% of the managers while other energy stocks had a higher show of sentiment with bullishness at 51%.

About Investment Manager Outlook
Prior to the end of each quarter, Russell polls a sample of investment managers to collect their top-line opinions about the direction of the markets, sectors and asset classes to watch, and trends on the horizon that could impact investment strategy. In addition to the quantitative results, the Investment Manager Outlook provides qualitative analysis and commentary from one of Russell's senior investment strategists. Detailed results and analysis from the Investment Manager Outlook are available on Russell.com/IMO. For index data, please visit www.russell.com/US/indexes/US.

Russell conducted the current Investment Manager Outlook between March 6 and March 13, 2006. The manager research that Russell conducts for investment purposes is done entirely independent of Investment Manager Outlook, and responses to the survey are on a purely voluntary basis.

About Russell
Russell Investment Group, a global leader in multi-manager investing, provides investment products and services in more than 44 countries. Russell manages more than $155 billion in assets as of December 31, 2005, and advises clients worldwide representing more than $2.4 trillion. In 2006, and for the fifth time since 1999, Russell is ranked among the Fortune Magazine 100 Best Companies to Work For in America.

Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Sydney, Singapore, Auckland and Tokyo.

Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.

Large capitalization (large cap) growth stocks are securities which fall into the Russell Top 200® Index. This index consists of the top 200 securities in the Russell 1000® Index, as ranked by total market capitalization. This "Blue Chip" large capitalization index represents approximately 75% of the Russell 1000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $45.9 billion; the median market capitalization was approximately $24.0 billion. The index had a total market capitalization range of approximately $386.9 billion to $13.8 billion. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Middle capitalization (midcap) growth stocks are securities which fall into the Russell Midcap® Index. This index measures the performance of the smallest 800 securities in the Russell 1000® Index, as ranked by total market capitalization. This index accurately captures the medium-sized universe of securities and represents approximately 25% of the Russell 1000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $4.7 billion; the median market capitalization was approximately $3.6 billion. The index had a total market capitalization range of approximately $13.7 billion to $1.8 billion. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Small capitalization (small cap) growth stocks are securities which fall into the Russell 2000® Index. This index measures the performance of the smallest 2,000 securities in the Russell 3000® Index, representing approximately 8% of the Russell 3000® total market capitalization. As of the latest reconstitution, the average market capitalization was approximately $664.9 million; the median market capitalization was approximately $539.5 million. The index had a total market capitalization range of approximately $1.8 billion to $182.6 million. Growth stocks tend to exhibit higher price-to-book and price-earnings ratio, lower dividend yields and higher forecasted growth levels.

Non-U.S. markets entail different risks than those typically associated with U.S. markets, including currency fluctuations, political and economic instability, accounting changes, and foreign taxation. Securities may be less liquid and more volatile.

Investments in emerging or developing markets involve exposure to economic structures that are generally less diverse and mature, and to political systems which can be expected to have less stability than those of more developed countries. Securities may be less liquid and more volatile than US and longer-established non-US markets.

Value investments focus on stocks of income-producing companies whose price is low relative to one or more valuation factors, such as earnings or book value. Such investments are subject to risks that their intrinsic values may never be realized by the market, or, such stock may turn out not to have been undervalued. Investors should carefully consider the additional risks involved in value investments.

Growth investments focus on stocks of companies whose earnings/profitability are accelerating in the short term or have grown consistently over the long term. Such investments may provide minimal dividends which could otherwise cushion stock prices in a market decline. Stock value may rise and fall significantly base, in part, on investors' perceptions of the company, rather than on fundamental analysis of the stocks. Investors should carefully consider the additional risks involved in growth investments.

Other energy includes all energy related business other than those included in the integrated oils sector. Two distinct groups are: (1) gas distributors and gas pipelines and (2) other energy companies which include mining, producing, servicing and drilling companies.

Materials and processing contains companies that extract or process raw materials. Some industries included in this sector are agriculture, fishing and ranching, building materials, forest products and steel.

Health care companies are involved in medical services or health care including biotechnology research and production, drugs and pharmaceuticals, and health care facilities and services.

Russell Indexes and/or benchmarks are unmanaged and are provided for general comparison purposes only. They cannot be invested in directly. Index data is historical.

Russell 1000® Growth Index: Measures the performance of those Russell 1000® Index securities with higher price-to-book ratios and higher forecasted growth values, representative of U.S. securities exhibiting growth characteristics.

Russell Top 200® Growth Index: Measures the performance of those Russell Top 200® Index companies with higher price-to-book ratios and higher forecasted growth values, representative of U.S. securities exhibiting growth characteristics.

Russell 2000® Value Index: Measures the performance of those Russell 2000® Index securities with lower price-to-book ratios and lower forecasted growth values, representative of U.S. securities exhibiting value characteristics.

Russell 2000® Growth Index: Measures the performance of those Russell 2000® Index securities with higher price-to-book ratios and higher forecasted growth values, representative of U.S. securities exhibiting growth characteristics.

Russell 1000® Index: Measures the performance of the 1,000 largest companies in the Russell 3000® Index, representative of the U.S. large capitalization securities market.

Russell 2000® Index: Measures the performance of the 2,000 smallest companies in the Russell 3000® Index, representative of the U.S. small capitalization securities market.

Russell 3000® Index: Measures the performance of the 3,000 largest U.S. securities based on total market capitalization.

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

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

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This is a publication of Russell Investments. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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