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Investment Managers Bullish on Large Caps, Sour on Small Caps
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Russell Survey Reflects Significant Shift in Manager Sentiment; Reveals Consensus Expectation That the Economy is About to Weaken

Tacoma, WA — June 28, 2006 — Expecting the economy to weaken soon, money managers have boosted their outlook for large-cap stocks dramatically and have soured on small- and mid-cap issues, according to the results from the latest Investment Manager Outlook, a quarterly poll of investment managers conducted by Russell Investment Group.

Money managers are now nearly three times more bullish on large-cap stocks than small-cap stocks, and large-cap growth and large-cap value rank as the two most favored asset classes. Small-cap growth and large-cap value stocks virtually swapped places in managers' priorities, representing the largest one-quarter switch in sentiment in the survey's 2-year history.

"The survey's sharp swings reflect a growing view that rising oil prices, inflation, a slower housing market and two years of steady interest rate hikes may finally begin to bite," said Randy Lert, chief portfolio strategist, Russell Investment Group. "Money managers expect an environment where major corporations will be the best performing segment of the economy, and now appear to be aligning their expectations and investments accordingly. Big is in and small is out."

Bullishness for U.S. large-cap value stocks rose 18 percentage points during the quarter to 54% bullish, the largest gain for any asset class in the survey's history. Manager support for U.S. large-cap growth remained high at 69%. Bullishness for small-cap growth dropped 30 percentage points to 27% bullish, the largest quarter-on-quarter drop ever for the survey. Manager support for small-cap growth (27%) and small-cap value (19%) are both at all-time lows.

Overall, the managers surveyed remain positive on the U.S. stock market with only 8% declaring it overvalued, 62% seeing it as fairly valued and 30% believing the market to be undervalued.

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 95 managers participated in this survey.

Additional findings from the Investment Manager Outlook include:

Emerging markets dim
Manager support for international equities fell across the board, but this decline was especially dramatic for emerging markets where levels of bullishness plunged 15 percentage points to 30%. Non-U.S. (developed market) equities managed to hold on as the third most popular asset class, although manager support slipped 5 percentage points to 52%.

"The switch to large-cap stocks in favor of small-cap stocks extends around the world," said Lert. "For now, international stocks from developed countries are more appealing to managers than emerging markets because these are the markets more likely to include the larger corporations that can better withstand an economic slowdown."

Question for Fed: Soft landing?
Many of the managers appear concerned that the Federal Reserve will fail to achieve its goal of creating a soft landing for the economy and avoiding a recession. These managers appear to be looking for safe places to park their assets as their outlook for cash reached a new record high at 38% and bullishness for U.S. Treasuries took a dramatic leap of 14 percentage points to 24%. But the managers' larger view of the markets — including their belief that the markets are not overvalued and that opportunity exists with large-cap stocks — presents a scenario where slower but sustainable growth may be possible.

"The Fed's decision on interest rates remains a key factor, and managers appear unsure how much the economy will slow under the continued impact of the Fed's tightening cycle," said Lert. "Short-term rate hikes take months to work their way through the system, and the economy is only now feeling the effect of rate increases put in place some months ago."

Managers steady on staple suppliers
Forty-two percent of surveyed managers believe that lower retail sales will be the greatest impact of rising oil prices. Another 29% believe higher inflation will be the result of higher oil prices.

"Managers expect rising oil prices to force consumers to cut back on discretionary spending, but even in a slowing economy the U.S. consumer will still need staple supplies," said Lert. "Manager support for the consumer discretionary and services sectors held steady at 30%, while manager bullishness for consumer staples rose nearly 15 percentage points to 44%."

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 June 4 and June 12, 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 $167 billion in assets as of March 31, 2006, and advises clients worldwide representing more than $2.4 trillion (as of 9/30/05).

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.

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# 06-6100 First used: June 2006

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

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