Russell Investment Manager Outlook September 2006 (Russell.com)

Russell Survey:
Investment Managers Anticipate U.S. Economy Slowing

Tacoma, WA — September 27, 2006 — Ninety percent of money managers surveyed believe the U.S. economy will see similar or slower growth over the next 12 months, according to the results from the latest Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investment Group.

"The economic slowdown appears to be strong enough to dampen inflationary forces, and the managers clearly believe that the Federal Reserve Board has engineered a soft landing for the U.S. economy," said Erik Ristuben, managing director of client investment strategies, Russell Investment Group. "Every sign is pointing to an economy in the mid-stage of an economic cycle and the markets are preparing for a sustained period of 'average' economic growth in which stocks will perform in line with long-term market expectations."

Although managers agree that the business cycle has peaked and believe the economy will either slow or remain neutral, none of the surveyed managers expects a recession. As it has for the last two years, support for U.S. large-cap growth leads all asset classes, although that bullishness has slumped from a high of 80 percent in the last quarter of 2005 to 58 percent now.

More than a third (35%) of the managers still believe the market to be undervalued. At the same time, managers have raised their outlook for U.S. Treasuries and corporate bonds to their highest levels since the survey began.

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 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 90 managers participated in this survey.

Additional findings from the Investment Manager Outlook include:

Few asset classes generate excitement
In a first for the survey, only two asset classes generated positive manager sentiment at levels above 50 percent — U.S. large-cap growth (58 percent) and non-U.S. (developed market) equities (52 percent). Notably, and in contrast with last quarter's embrace of large-cap stocks across all styles, manager bullishness for large-cap value took a 21 percentage point nose dive from last quarter, dropping from 54 percent to 33 percent. Cash lost nine percentage points of bullishness to 29 percent but is still favored over U.S. small-cap growth (25 percent), U.S. mid-cap value (22 percent) and U.S. small-cap value (17 percent).

"In the current environment, managers may be putting more value on the choice of individual stocks than in which sectors they might be," said Ristuben. "Nevertheless, most managers remain convinced that it is only a matter of time before large-cap growth stocks take off."

Real estate: A curious case
Real estate investment trusts remain at the bottom of the list in bullishness, with only 5 percent of managers bullish and a significantly large 78 percent of managers bearish. The managers have been consistently bearish on the asset class, even while REITs have grown by an annualized 28 percent from June 1, 2004, to August 31, 2006.

"Successful money management requires experience, expertise and, at times, patience," said Ristuben. "The managers surveyed here believe that a change for real estate is long overdue, the bull market has gone on for too long and a turnaround is imminent. For these managers, expectations and market performance have clashed, providing a healthy challenge to their patience."

Sector highlights: Energy enthusiasm fades along with oil concerns
Manager bullishness for the two energy-related sectors both fell more than 10 percentage points from last quarter. Integrated energy declined in sentiment from 47 percent to 36 percent, and "other energy" took a similar drop from 56 percent to 44 percent. Health care and technology remain the sectors with the highest levels of manager bullishness at 65 percent and 56 percent respectively. Financial services came in at third at 53 percent, representing a 28-percentage-point increase from a year ago.

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 their outlook for 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.

Russell conducted the current Investment Manager Outlook between August 30 and September 7, 2006. The manager research that Russell conducts for investment purposes is done entirely independent of the 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 $171 billion in assets as of June 30, 2006, and advises clients worldwide representing more than $2.4 trillion.

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

Contacts:
Matt Burkhard, 718-875-2122
Jennifer Tice, 253-439-1858

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.

Bond investors should carefully consider risks such as interest rate risk, credit risk, securities lending, repurchase and reverse repurchase transaction risk. Greater risk is inherent in portfolios that invest primarily in high yield bonds. They are subject to additional risks, such as limited liquidity and increased volatility.

Specific sector investing such as real estate can be subject to different and greater risks than more diversified investments. Declines in the value of real estate, economic conditions, property taxes and tax laws and interest rates all present potential risks to real estate investments.

Integrated oils include domestic and international integrated oil companies involved in all parts of exploration, production and refining process.

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.

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

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

RFD# 06-6212 First used: September 2006

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