Using Indexes as Benchmarks Measure Performance by Comparing Apples to Apples If the Dow Jones Industrial Average is skyrocketing while your fund's pool of stocks is making a slow climb, that doesn't necessarily mean that your fund is underperforming. You could be using the wrong benchmark to measure performance. Comparing Apples to Apples You can use indexes to track current and historical market performance by specific market segment (large/small capitalization) or investment style (growth/value). Russell's Kelly Haughton stresses the importance of using the index that most closely approximates the universe of stocks a manager actually chooses from — whether that is large cap, small cap, growth, value, or the broad market. "Comparing your results against the correct benchmark gives you a more accurate statement of how your fund is performing. And comparing different indexes is a good indication of how different market segments are performing," says Haughton. To illustrate the importance of using the right benchmark, consider this example. Suppose small company stocks, represented by the Russell 2000® Index, were rising, but large-company stocks, represented by the Russell 1000® Index, were stumbling. A large-cap portfolio that returned 1% would appear to be doing poorly if you compared it to the small-cap Russell 2000® Index, which returned 2.29% over the same period. As shown in the following graph, if you compare the hypothetical large-company portfolio's 1% return to the correct benchmark, the Russell 1000® Index, you'll get a different picture. While the large-cap portfolio increased 1%, the large-cap benchmark was down -4.72%. So the portfolio did exceedingly well against its benchmark. An Example Comparison This hypothetical example is for illustration only and is not intended to reflect the return of any actual investment. Investments do not typically grow at an even rate of return and may experience negative growth. Analyzing Performance with the Russell Indexes To help you better analyze performance, research analysts at Russell developed a coordinated family of indexes, which are briefly described as follows. Russell 3000® Index Represents the U.S. equity market — it covers about 98% of all investable stocks in the United States. To measure your fund performance against the U.S. equity markets as a whole, check it against the Russell 3000. Russell 1000® Index Composed of the 1,000 largest companies in the Russell 3000 (about 90% of its total value). The Russell 1000 is further divided into two style indexes: The Russell 1000® Growth Index measures the growth stocks within the Russell 1000, while the Russell 1000® Value Index measures the performance of value stocks within the Russell 1000. Russell 2000® Index Measures small-cap stocks. It comprises the smallest 2,000 stocks in the Russell 3000 (about 10% of the total value). The Russell 2000 is also broken into two style indexes: the Russell 2000® Growth and the Russell 2000® Value Indexes. In addition to the daily updates on Russell.com, you can find Russell index returns published daily in the Wall Street Journal and weekly in Barron's. Fund objectives, risks, charges and expenses should be carefully considered before investing. For a prospectus containing this and other important information call Russell at 1-866-676-7680 or go to the prospectus and reports page to download one. Please read the prospectus carefully before investing. Copyright © Russell Investments 2005. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an as is basis without warranty. 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. 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. 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. Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns. Diversification and strategic asset allocation do not assure profit or protect against loss in declining markets. Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market. Securities products and services offered through Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 05-5593. First used: November 2005.			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