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Voice of the American Shareholder Quarterly Poll – Wave 6 Prepared for: BetterInvesting Final Report June 8, 2005 Table of Contents Study Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Overview of Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Detailed Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 What Does A Typical Shareholder Look Like, and How do they Behave?. . . . . . . . . . . . . . . . . . . 15 How Do Shareholders Feel about the Economy and Stock Market? . . . . . . . . . . . . . . . . . . . . . . . 23 How Do Shareholders Feel about Second Half of 2005?.................. . . . . . . . . . . . . . . . . . . . . . . . 40 What Do Shareholders Feel about Investing in the Global Marketplace? . . . . . . . . . . . . . . . . . . . . 46 How Do Shareholders Feel about Investing in the Chinese Market? . . . . . . . . . . . . . . . . . . . 69 How Do Shareholders View the European Union and the US Market?. . . . . . . . . . . . . . . . . . . . . . .82 Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 2 Study Objectives BetterInvesting commissioned Harris Interactive to conduct a series of research studies to better understand the attitudes and behaviors of American investors. This study represents the sixth wave of research conducted for BetterInvesting. The previous waves were conducted in September 2003, January 2004, May 2004, November 2004, and February 2005. By regularly reporting on these findings, BetterInvesting expects to capture the voice of the American shareholder. The survey questions are designed to measure a few key trends in shareholders’ portfolios and investing behavior as well as to understand shareholders’ attitudes and views toward current issues. Specifically, this wave of research focused on the following topics: Investment profile, goals, strategy, and future plans; Views toward the stock market and outlook for the second half of 2005; Perceptions of international markets including reasons for and against investing in the growing Chinese market; and, Views toward the European Union and the U.S. marketplace. 3 Overview of Methodology Sample includes 1,002 shareholders defined as U.S. adults aged 18 or older who currently own individual stocks or stock mutual funds. Interviewing was conducted between April 26 - May 6, 2005. The interview averaged 10 minutes in length. All interviewing was conducted online using the Harris Poll Online (HPOL) database consisting of several million members who have agreed to participate in survey research. 4 Executive Summary 5 Current Investment Environment The typical American investor continues to be somewhat cautious in today’s marketplace. However, they are in it for the long term and recognize that stocks can yield the greatest returns. In each wave of data, the majority of investors indicate that they plan to make no changes to their portfolios in the near future (the next six months). The average risk level of investor’s portfolios is steady at about 4 on a 7 point scale where 1 is not at all risky and 7 is very risky. When asked, how they would invest either $10,000 or $100,000, half indicate that they would put that money in either individual stocks or stock mutual funds. Investors’ overall level of confidence in the economy and stock market continues to wane. The NAIC Investor Confidence Index has declined again to its lowest level at +5.0 from a high of +19.3 in January 2004. There is a great deal of fluctuation in the components that make up the Index and the data shows that investors are increasingly thinking that it’s a good time to move into safer investments. Belief that the overall direction of the US economy is going in the right direction has declined to its lowest level since measurement began. Less than half (49%) think the economy is headed in the right direction. Since February women have shown a considerable drop in confidence in the US economy. Men’s views of the economy are consistent since November 2004. The proportion of men who feel that it’s a good time to move into safer investments has steadily increased from a low of 29% in January 2004 to 46% in May 2005. Women, on the other hand, have increased in their agreement of this statement (rising from 44% to 49% today). 6 Half of men still feel that it’s a good time for new investors to get involved in the stock market. In comparison, the proportion of female shareholders who feel this way has decreased since February (40% vs. 50%). Views toward the economy and stock market Shareholders’ confidence in the direction of the U.S. economy continues to fall, reaching its lowest levels in this series of research. When asked about confidence in the United States economy, 49% of shareholders indicate that they have “a fair amount” or “a great deal” of confidence that it is moving in the right direction – down from 55% in February 2005 and a high of 71% in January 2004. Women (40%) have significantly less confidence than do men (55% a great deal/fair amount). Despite the fact that many shareholders have not made changes to their portfolios, they are lukewarm in their overall view of the market. Fewer than half of shareholders (45%) believe it’s a good time for new investors to get involved in the stock market, down from 50% in February 2005 and a high of 62% in January 2004. Agreement that most stocks are a better bargain now than they were a year ago has risen by eight percentage points (37% now versus 29% in February 2005). However, shareholders increasingly agree that it’s a good time to move money into safer, lower risk investments from higher return/higher risk investments, with 47% who now hold this view. Male and female shareholders are showing similar levels of agreement (46% of males versus 49% of females). The proportion who agree that it’s a good time to move money into less risky investments has steadily increased since January 2004. 7 Views toward the economy and stock market The BetterInvesting Shareholder Confidence Index has dropped again from +7.8 in February 2005 to +5.0 today. Currently the BetterInvesting Index is +5.0, down from +19.3 in January 2004. On a scale from -100 to +100 (where zero indicates a neutral attitude towards the stock market), an Index of +5.0 shows trace levels of optimism tempered by concern about the direction of the economy. Men(+8.6) are more confident than women (-0.4) and confidence declines with age. Among those 65 and older, the index is -4.9. The Index has also decreased by region with those in the West (-2.0) currently having the most negative view of the stock market. 8 Outlook for Second Half of 2005 Despite lower levels of confidence and concerns about the economy, the majority of shareholders think the market will stay the same or improve in the second half of 2005. Men are more optimistic than women with 42% believing the market will improve. Investors continue to think that the best industries to invest in are real estate, pharmaceutical and technology. One in five (21%) think the market will worsen. Roughly the same proportion of investors consider these among the best investments now as they did in November 2004. There has been more fluctuation among industries considered poor investments. Automotive now tops the list of the worst industries to invest in followed by travel and education, which were both viewed differently in November. More than half of shareholders feel that oil prices will continue to increase and they most commonly mention international politics as the primary reason. 9 Perceptions of the Global Market Shareholders agree that international investments will be important in the future and are part of a diversified portfolio. Female shareholders tend to attribute this trend to US companies moving operations overseas (89%), slow economic growth (87%) and high oil prices (85%) than males (81%, 75%, and 78% respectively). Overall, shareholders still have the majority of their investments within the US. However, they indicate their plan to increase their investments in international markets. Just one-third (33%) feel comfortable making international investments. Further, majorities of shareholders feel that the declining value of the US dollar, outsourcing, strong economic growth abroad, high oil prices and slow domestic economic growth have at least somewhat contributed to international funds outperforming domestic US funds. Shareholders residing in the West feel that international investments will be important in the future (65%), used to guard against a weak economy (53%) and tend to yield larger returns (45%). Those who are under the age of 35 indicate they will have a higher percentage of international investments in the next five years. Nearly half (45%) have no international investments and are fully invested in domestic markets. When it comes to investing internationally, there is a greater likelihood of shareholders investing in individual stocks in US based companies with a global presence than shares in international stock funds, individual stocks in foreign based companies, and shares in international bond funds. Shareholders who indicate they are comfortable with international investments are significantly more likely to diversify their foreign investments through shares in international stock funds (37%), US based companies with a global presence (24%), and shares in international bond funds (21%) than those who 10 are less comfortable. Perceptions of the Global Market Investors have mixed views about the impact foreign economies will have on the United States. China is viewed most negatively; 50% of shareholders think China will have a negative impact on the US economy. India, China and especially Russia are viewed as risky investments by majorities of shareholders. Fewer than half think any economy examined in the survey (Russia, China, Japan, India and the European Union) will have a positive impact on the US economy, though current international investors are more likely to perceive a positive impact. On average, Japan and the European Union are rated about as risky as investors’ current portfolio (roughly 4 on a 7 point scale where 7 is very risky). Interestingly, current international investors are more likely to think investments in each of these areas are risky as compared to those fully invested in domestic markets. Majorities of investors report that they are not likely to invest in the countries or regions explored in the survey. Between 61% (Russia) and 90% (Russia) are not likely to invest in these international markets (69% China, 65% Japan and 75% India). Women are even less likely than men to invest in these areas as are those 65 and older. 11 Feelings About the Marketplace in China Although one half of shareholders say they do not plan to invest in China, a third say they are taking the “wait and see approach” before they decide to invest. Nearly six in ten shareholders say the largest barrier to invest in China is lack of confidence in the communist government. Three in ten feel that human rights violations and corporate/government corruption are deterrents. Current international investors are more likely to cite human rights violations (36%) as an obstacle to investing in the Chinese economy, while non-international investors are deterred by corporate and government corruption (34%). In order to understand possible motivators to investing in the Chinese market, shareholders were asked to identify the biggest opportunities in that market. Half of shareholders view the supply of workers (50%) and the fast growing economy (48%) as the top opportunities in the market. The fast growing economy (56%) is key for current international investors. When looking at the various industries, manufacturing (59%) is considered by far the best investment in the Chinese market. The perceived worst industry segments in which to invest include health care (36%), real estate (29%), insurance (28%) and media (25%). While men view banking and finance as among the worst industries (28% vs. 14% females), women are more likely to mention the automotive industry (22% vs. 12%). 12 Views of the US and European Union Markets When evaluating the impact of EU’s economy on the US economy, most shareholders do not view the EU’s economy as a threat. Among younger shareholders, there is less of a likelihood of viewing the European Union’s economy as a threat to the US’. In order to understand the advantages of each market, shareholders were asked to evaluate which market has the advantage on a number of factors. Real estate, productivity, and supply of workers are viewed as US advantages. Conversely, shareholders feel the EU has an advantage when it comes to social programs and healthcare/retirement. Females see the advantages of the EU market as healthcare/retirement (63% vs 54% males), effects of government regulations (52% vs. 43%), and productivity (40% vs. 24%). On the other hand, males feel the US economy has the lead on productivity (76% vs. 60%), effects of government regulations (57% vs. 48%) and healthcare/retirement (46% vs. 37%). 13 Detailed Findings 14 What Does the Typical American Shareholder Look Like, and How Do They Behave? 15 The typical investor has more money invested in stock mutual funds than individual stocks. Total Amount Invested in Individual Stocks and Stock Mutual Funds Individual Stocks (%) Stock Mutual Funds (%) Jan ‘04 May ‘04 Nov ’04 Feb ‘05 May ‘05 Jan ‘04 May ‘04 Nov ‘04 Feb ‘05 May ‘05 Less than $5,000 41 41 36 42 29 30 32 25 30 19 $5,000 $9,999 10 9 12 9 8 8 10 6 5 7 $10,000 $49,999 20 28 20 25 24 29 31 25 32 23 $50,000 $99,999 9 7 6 7 10 9 11 13 14 16 More than $100,000 19 15 13 17 23 24 16 15 18 25 $108,900 $64,200 $63,400 $156,200 $146,200 $84,100 $56,300 $67,900 $94,400 $103,000 $7,000 $8,350 $5,700 $8,700 $14,000 $19,000 $14,640 $16,160 $17,400 $35,000 MEAN MEDIAN Q1441: You mentioned that you have the following investments. About how much do you have invested in the following…? Base: All Shareholders 16 Shareholders maintain a wide variety of investments. Types of Investments Owned Jan ‘04 May ‘04 Nov ‘04 Feb ‘05 May ‘05 % % % % % Individual stocks (not including stock options or restricted stocks from the company that I work for) 71 67 66 67 69 Stock mutual funds 67 70 69 72 69 Individual retirement account that I control (i.e., IRA, KEOGH, SEP) 56 51 52 59 56 Individual retirement accounts through my employer (i.e., 401(k) retirement savings plan or 403(b) retirement savings plan, or profit sharing plan) 52 52 50 51 51 Bonds or bond funds 33 35 35 37 36 Stock options or restricted stocks from the company that I work for 15 17 12 12 15 Other type of investment not mentioned 21 21 25 25 26 Q430: Please indicate which types of investments or investment accounts you personally have. Do you currently have . . .? Base: All shareholders 17 For the most part, shareholders plan to make no changes to their investments over the next six months. Plans for Investments Over The Next Six Months Increase (%) 2004 Make No Change (%) 2005 2004 Decrease (%) 2005 2004 2005 Jan May Nov Feb May Jan May Nov Feb May Jan May Nov Feb May Individual stocks 34 26 29 28 25 62 67 63 64 67 5 7 8 8 8 Stock mutual funds 31 24 24 28 23 64 71 69 68 69 5 5 7 4 8 Individual bonds 6 8 8 8 11 89 88 85 87 84 5 3 6 5 5 Bond mutual funds 10 11 11 11 12 84 84 83 85 83 5 5 6 3 5 Cash 39 38 38 35 40 52 54 52 55 52 9 8 10 10 8 Alternative investments 8 5 7 8 8 90 92 89 88 87 2 2 4 4 5 Other investments not mentioned 15 16 15 15 17 83 81 81 82 81 2 3 3 3 3 Q510: Again thinking about your investment portfolio, over the next six months, do you plan to increase, decrease or make no change in your investments in each of the following? Base: All shareholders 18 Three in ten men plan to increase their investment in individual stocks and one in seven plan to increase their investment in bond mutual funds compared to only 19% and 8% of women respectively. Plan to Increase Investments Over The Next Six Months By Gender Increase (%) Total Male Female Individual stocks 25 30 19 Stock mutual funds 23 25 20 Individual bonds 11 12 9 Bond mutual funds 12 15 8 Cash 40 43 36 Alternative investments (such as hedge funds, private equity and managed futures) 8 9 6 Other investments not mentioned 17 17 16 Q510: Again thinking about your investment portfolio, over the next six months, do you plan to increase, decrease or make no change in your investments in each of the following? Base: All shareholders (n=1,002; Male=547; Female=455) 19 Whether they have $10,000 or $100,000 to invest, shareholders would continue to invest half in stock mutual funds and individual stocks. Percentage Allocated to Each Investment Have $10,000 to Invest Have $100,000 to Invest Total (Mean) Total (Mean) Jan ‘04 May ‘04 Feb ‘05 May ‘05 Jan ‘04 May ‘04 Feb ‘05 May ‘05 Individual stocks 32 26 26 26 27 25 24 24 Stock mutual funds 26 27 27 21 27 27 28 24 Cash 14 16 14 16 13 15 14 14 Bond mutual funds 10 10 10 10 9 10 10 12 Individual bonds 6 5 6 7 6 6 7 8 Alternative investments 3 3 4 3 5 5 5 5 Other investments 7 11 12 14 13 13 12 12 Q515: If you had $10,000/$100,000 to invest, how much would you invest in each of the following? Base: All shareholders Note: For this question, half of all respondents were asked to allocate $10,000 across the investments listed above and the other half were asked to allocate $100,000 across the investments listed above. 20 Shareholders investments are a mix of risk levels but, on average, are moderately risky. Risk Level of Current Investments MEAN = Sept ‘03 Jan ’04 4.0 4.1 May ’04 3.9 38% 36% 35% Nov ’04 Feb ’05 3.9 3.9 Feb ‘05 4.0 37% 36% 34% 34% 32% 31% 30% 34% 34% 34% 33% 32% 30% 30% 28% Very Risky (5, 6, 7 Net) Sept '03 Moderately Risky (4) Jan '04 May '04 Nov '04 Not Risky (1, 2, 3 Net) Feb '05 May '05 Q505: Investment risk is typically defined as a greater likelihood that your portfolio may lose value but is often associated with higher returns. On a scale from 1 to 7, in which “1” represents “not risky at all” and a “7” represents “very risky”, how would you characterize most of your investments? Base: All shareholders 21 Four in ten male shareholders characterize their investments as risky while just 3 in 10 female shareholders do the same. Risk Level of Current Investments By Gender Sept ’03 Jan ’04 May ’04 Nov ‘04 Feb ‘05 May ‘05 % % % % % % 36 38 35 34 34 36 Men 42 45 41 43 40 40 Women 27 28 27 24 27 30 Moderately Risky (4) 30 32 28 31 32 30 Men 29 28 26 28 30 28 Women 31 38 32 35 35 32 33 30 37 34 34 34 Men 28 27 33 29 30 32 Women 41 33 41 41 39 33 4.0 4.1 3.9 3.9 3.9 4.0 Men 4.2 4.2 4.0 4.2 4.1 4.0 Women 3.7 3.9 3.8 3.6 3.7 3.8 Very Risky (5, 6, 7) (Net) Not Risky at All (1, 2, 3) (Net) Mean Q505: How would you characterize most of your investments on a scale from “not risky at all” to “very risky”? Base: All shareholders 22 How Do Shareholders Feel about the Economy and Stock Market? 23 Confidence in the U.S. economy has fallen in the past couple of months to it’s lowest level since the survey began. Confidence in the U.S. Economy 71% 57% 60% 54% 55% 51% 49% 46% 43% 45% 40% 29% A Great Deal/A Fair Amount (Net) Sept '03 Jan '04 Not Much/None At All (Net) May '04 Nov '04 Feb '05 May '05 Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction? Base: All shareholders 24 Female shareholders have less confidence that the U.S. economy is moving in the right direction, falling 13% since February. Confidence in U.S. Economy By Gender - A Great Deal/Fair Amount (Net) Total Men Women 75% 71% 57% 62% 60% 65% 63% 57% 57% 54% 55% 55% 50% 49% 53% 50% 53% 40% Sept '03 Jan '04 April '04 Nov '04 Feb '05 May '05 Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction? Base: All shareholders 25 For the first time since January 2004, fewer than half of shareholders think it’s a good time for new investors to get involved in the stock market and three in ten disagree. “It’s a good time for new investors to get involved in the stock market.” 62% 51% 50% 50% 45% 27% 24% 25% 30% 26% 23% 24% 15% Strongly/ Somewhat Agree Jan. '04 Neither agree nor disagree May '04 Nov '04 Feb '05 Q501: How strongly do you agree or disagree with each of the following statements? Base: All shareholders 29% 20% Strongly/ Somewhat Disagree May '05 26 Consistent with women’s views about the direction of the economy, they are also less likely than men to think it is a good time for new investors to get involved in the stock market. % Strongly/Somewhat Agree: “It’s a good time for new investors to get involved in the stock market.” 66% 62% 56% 54% 51% 50% 50% 56% 50% 49% 45% Total Men Jan. '04 April '04 Nov '04 Q502: How strongly do you agree or disagree with each of the following statements? Base: All shareholders 50% 44% 45% 40% Women Feb '05 May '05 27 Agreement has shifted in the past couple of months, with more agreeing today that stocks are a better bargain than one year ago. “Most stocks are a better bargain now than they were one year ago.” 43% 41% 38% 37% 35% 29% 41% 33% 26% 26% Strongly/ Somewhat Agree Neither agree nor disagree Jan. '04 May '04 Nov '04 Feb' 05 Q502: How strongly do you agree or disagree with each of the following statements? Base: All shareholders 31% 33% 26% 29% 30% Strongly/ Somewhat Disagree May '05 28 Male and female shareholders are equally likely to agree that stocks are a better bargain now than they are likely to a year ago. %Strongly/Somewhat Agree: “Most stocks are a better bargain now than they were one year ago.” 43% 41% 39% 38% 37% 35% 29% 26% 26% Total 31% 33% 26% Men Jan. '04 May '04 Nov '04 Q502: How strongly do you agree or disagree with each of the following statements? Base: All shareholders 33% 35% 26% Women Feb' 05 May '05 29 The proportion of shareholders who agree that it’s a good time to move money into safer investments has continued to increase, with nearly half of shareholders now holding this belief. “It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments.” 47% 34% 37% 40% 42% 32% 32% Strongly/ Somewhat Agree 36% 32% 35% Neither agree nor disagree Jan. '04 May '04 30% 29% Nov '04 Q501: How strongly do you agree or disagree with each of the following statements? Base: All shareholders 24% 26% 24% Strongly/ Somewhat Disagree Feb '05 May '05 30 Male and female shareholders again equally agree that it’s a good time to move money into lower risk investments. % Strongly/Somewhat Agree: “It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments.” 47% 46% 40% 42% 37% 34% 39% 40% 49% 44% 44% 41% 40% 33% 29% Total Men Jan. '04 April '04 Nov '04 Women Feb '05 Q502: How strongly do you agree or disagree with each of the following statements? Base: All shareholders May '05 31 The BetterInvesting Index of Shareholder Confidence continues to fall, dropping to + 5.0. 100 May 2005 Component Scores for Each Item Included in BetterInvesting Index 80 60 40 19.3 20 10.9 9.3 7.8 5.0 0 -20 -40 -60 Positive Neutral Negative Component Scores Q410 11.1 78.2 10.7 0.5 Q511a1 25.4 66.7 7.9 17.5 Q511a2 23.2 69.0 7.9 15.3 Q505 35.7 30.0 34.3 1.4 Q502a1 23.8 29.2 47.0 -23.2 Q502a2 37.1 33.2 29.7 7.4 Q502a3 45.3 25.5 29.2 16.1 Question Jan May Nov Feb May '04 '04 '04 '05 '05 May 2005 BetterInvesting INDEX +5.0 S= 35.1 BetterInvesting Index = 5.0 -80 -100 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 32 The BetterInvesting Index of Shareholder Confidence has declined significantly for women since February 2005 to -0.4 today. The Index for men has remained steady since February. Male 100 Female 100 80 80 60 60 40 24.3 40 19.8 20 13.9 8.6 8.6 0 -20 20 7.3 3.4 6.9 -0.4 0 Jan '04 May '04 Nov '04 Feb '05 May '05 -20 -40 -40 -60 -60 -80 -80 -100 13.4 Jan May Nov Feb May '04 '04 '04 '05 '05 -100 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 33 The BetterInvesting Index of Shareholder Confidence is much higher for male shareholders. May 2005 Component Scores by Gender Component Scores Question Male Female Q410 4.5 -6.8 Q511a1 21.7 11.3 Q511a2 15.7 14.7 Q505 8.0 -8.4 Q502a1 -20.0 -27.8 Q502a2 9.4 4.4 Q502a3 20.2 9.8 59.5 -2.8 8.6 -0.4 S= BetterInvesting Index = Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 34 The Index decreases with age and indicates a negative view of the market for older shareholders. Index Scores by Age Groups Index Scores Question Jan. ‘04 May ‘04 Nov. ‘04 Feb. ‘05 May ’05 35 or less 22.5 18.8 17.0 16.5 15.1 36-49 24.0 15.9 15.6 7.8 8.5 50-64 18.5 14.1 6.8 4.6 1.1 65+ 13.9 2.1 -1.7 3.7 -4.9 Less than 55 23.2 16.5 14.8 10.3 11.1 55+ 14.4 9.8 1.4 4.2 -3.8 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 35 The BetterInvesting Index of Shareholder Confidence declines with age. May 2005 Component Scores by Age Groups Component Scores 35 or less 36-49 50-64 65+ Less than 55 55+ Q410 2.8 -5.6 4.1 1.5 -1.1 2.7 Q511a1 25.2 22.1 13.6 8.4 23.6 8.7 Q511a2 26.0 26.7 7.5 -0.6 24.3 2.3 Q505 2.4 23.8 3.3 -30.5 15.1 -18.4 Q502a1 -13.1 -16.7 -32.0 -31.0 -17.0 -32.1 Q502a2 24.7 -2.7 5.8 4.8 9.8 4.0 Q502a3 37.5 11.6 5.0 13.2 22.6 6.5 105.5 59.4 7.4 -34.1 77.4 -26.4 15.1 8.5 1.1 -4.9 11.1 -3.8 Question S= BetterInvesting Index = Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 36 The Index has declined among Western region residents, but risen among those in the Midwest. Index Scores by Region Jan. ‘04 May ‘04 Feb. ‘05 May ’05 East 16.8 9.0 7.1 6.3 Midwest 21.3 14.2 4.1 8.0 South 20.3 16.8 9.8 7.2 West 21.2 18.0 9.3 -2.0 Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 37 The BetterInvesting Index of Shareholder Confidence is highest among residents of the Midwest and South. May 2005 Component Scores by Region Component Scores Question East Midwest South West Q410 1.1 2.4 2.7 -5.1 Q511a1 16.6 21.3 23.4 6.8 Q511a2 11.2 18.3 11.9 22.2 Q505 -1.8 4.8 9.3 -8.7 Q502a1 -11.2 -20.3 -24.7 -36.5 Q502a2 13.0 6.7 9.8 -0.7 Q502a3 15.3 22.6 18.1 7.9 S= 44.2 55.8 50.5 -14.2 6.3 8.0 7.2 -2.0 BetterInvesting Index = Note: The BetterInvesting Index was calculated based on 7 components that reflect shareholder confidence in the economy and stock market and is rated on a scale from -100 to +100 where 0 is the midpoint. A more detailed explanation of the Index is found in the Detailed Methodology. 38 The majority of shareholders say they do not benchmark their investments against the S & P 500 index. A quarter of shareholders say they rely a great deal or somewhat on the stock market indexes to make decisions. Benchmarking to S & P 500 Index No 70% Reliance on stock market indexes Yes 30% Not at all 29% A great deal 4% A little 41% Somewhat 26% Q715: How much do you rely on stock market indexes to make decisions about your investment strategy? Q720: Do you benchmark your investments against the S & P 500 Index? Base: All shareholders (n=1,002) 39 What do Shareholders think about the Second Half of 2005? 40 A third of shareholders are optimistic and see the market improving in the second half of 2005. Worsen 21% Stay same 43% Improve 36% Q700: Thinking of the second half of 2005, how do you think the market will perform? Base: All shareholders (n=1,002) 41 Men are more likely than women to think the market will improve in the second half of 2005. 43% 42% 36% 45% 39% 26% 21% Improve Same the same Total Males 25% 19% Worsen Females Q700: Thinking of the second half of 2005, how do you think the market will perform? Base: All shareholders (n=1,002) 42 Similar to investors’ outlook in November 2004, they think that the best investments for the second half of 2005 include real estate, pharmaceuticals, and technology. Best Investments For the Second Half of 2005 – Top 3 Best Industries Top 10 Mentions 39% 39% 42% 38% 37% 35% 32% 34% Real Estate Pharmaceutical Technology Energy Information Technology Health Care 21% 24% 27% 22% 19% 19% 20% 17% 17% 17% Utilities Telecommunications Banking & Finance Government 4% 15% Nov '04 May '05 Q705: Thinking of the current economy, please indicate which three of the following industries you think are the best for investing for the second half of 2005. Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 43 When thinking about the worst industries in which to invest in the second half of 2005, the automotive industry tops all, which is a significant increase from November 2004. Worst Investments For the Second Half of 2005 – Top 3 Worst Industries Top 10 Mentions 21% Automotive Travel 26% 19% Education 38% 25% 23% 21% Healthcare Retail 21% 21% Transportation 21% 20% Media 21% 18% Government 17% 27% 20% 17% Insurance Energy 40% 9% 13% Nov '04 May '05 Q710: Once again, thinking of the current economy, please indicate which three of the following industries you think are the worst for investing for the second half of 2005. Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 44 More than half of shareholders expect a continued increase in oil prices. The most common reason cited for high oil prices is international politics. International Politics Increase 54% Level Off 35% 32% Oil consumption is too high 19% Lack of viable alternative fuels Not enough oil produced 16% 13% Decrease 11% War in Iraq Other factors Q635: Do you expect oil prices to continue to increase, level off or decrease? Q640: Which of the following best describes why you think oil prices are at their current levels? Base: All shareholders (n=1,002) 9% 10% 45 What do Shareholders think about Investing in a Global Marketplace? 46 The majority of shareholders have most of their portfolio in domestic markets but plan to increase their investment in international markets slightly. Proportion of Domestic vs. International Investments Mean % Currently % 0 International Investments % 100% Domestic investments 87.1% 84.2% Five Years Ago Currently International 45% 81.4% 15.8% 12.9% 45% 18.6% Five Years from Now Domestic Q600: Please indicate the actual or expected percentage of your portfolio in the following types of investment markets for each time frame below. Base: All shareholders (n=1,002) 47 Women are more likely to have had a higher percentage of international investments in the past than men. That gap persists through to their projected percentage in five years. Proportion of International Investments by Gender Mean % 20.1 18.6 17.6 15.8 14.5 12.9 15.8 17.6 10.9 Total (n=1,002) Five Years Ago Male (n=547) Currently Female (n=455) Five Years from Now Q600: Please indicate the actual or expected percentage of your portfolio in the following types of investment markets for each time frame below. Base: All shareholders (n=1,002) 48 While investors of all ages expect to increase their percentage of international investments, younger shareholders anticipate that international investments will comprise nearly ¼ of their portfolio. Proportion of International Investments by Age Mean % 23.1 18.6 15.8 17.3 17.1 18.9 15.6 17.2 15.3 12.6 Total (n=1,002) 35 or less (n=202) 36 - 49 (n=249) Currently 50 - 64 (n=294) 65+ (n=257) Five Years from Now Q600: Please indicate the actual or expected percentage of your portfolio in the following types of investment markets for each time frame below. Base: All shareholders (n=1,002) 49 Shareholders agree that international investments will be important in the future and are part of a diversified portfolio. However, just one third feel comfortable making these investments. Attitudes Towards International Investments 56% 52% 46% 41% 37% 19% 22% 33% 19% 12% Important in future Diversified portfolio Strongly/Somewhat Agree Guard against weak U.S economy Larger returns I am comfortable Strongly/Somewhat Disagree Q645: Please indicate your level of agreement or disagreement with the following statements about international investments. Base: All shareholders (n=1,002) 50 Men are more likely than women to agree that international investments are part of a diversified portfolio and that they are comfortable making these investments. Attitudes Towards International Investments By Gender %Strongly/Somewhat Agree 56% 57% 55% 52% 56% 47% Important in future Diversified portfolio Total (n=1,002) 46% 50% 42% Guard against weak U.S economy Male (n=547) 37% 38% 34% Larger returns 33% 36% 29% I am comfortable Female (n=455) Q645: Please indicate your level of agreement or disagreement with the following statements about international investments. Base: All shareholders (n=1,002) 51 Those under the age of 50 are more likely to agree that international investments guard against a weak US economy, and say they are comfortable with international investments. Attitudes Toward International Investments By Age % Strongly/Somewhat Agree 61% 57% 56%57% 48% 58% 52% 53% 52% 45% 52% 50% 49% 46% 33% 43% 40% 37% 35%36% 36% 33% 33% 32% 24% Important in future Diversified portfolio Total (n=1,002) Guard against weak U.S economy 35 or less (n=202) 36 - 49 (n=249) Larger returns 50 - 64 (n=294) I am comfortable 65+ (n=257) Q645: Please indicate your level of agreement or disagreement with the following statements about international investments. Base: All shareholders (n=1,002) 52 Those in the West agree international investments will be important in the future, used to guard against a weak US economy, and yield larger returns. Attitudes Toward International Investments By Region % Strongly/Somewhat Agree 62% 65% 56%54% 47% Important in future 58% 53% 52% 52% 47% 53% 46%46%47% 41% Diversified portfolio Total (n=1,002) East (n=237) Guard against weak U.S economy Midwest (n=242) 45% 37% 36% 33% 33% Larger returns South (n=293) 33%35%32%31%35% I am comfortable West (n=229) Q645: Please indicate your level of agreement or disagreement with the following statements about international investments. Base: All shareholders (n=1,002) 53 Shareholders are most likely to invest in individual stocks in US based companies with a global presence. However, nearly two-thirds indicate they are not likely to invest in individual stocks in foreign companies or international bond funds. Likelihood of Making Various Kinds of International Investments 64% 63% 45% 38% 31% 31% 28% 27% 24% 17% Individual stocks in US based companies with a global presence Shares in international stock funds Extremely/Very Likely 19% 13% Individual stocks in foreign based companies Likely Shares in international bond funds Somewhat/Not at All Likely Q605: Thinking about the international investments that you have or expect to make in the future, how likely are you to make these investments through the following vehicles? Base: Currently have or expect to have international investments (n=580) 54 Those who are comfortable with international investments are not surprisingly more likely to make international investments through all these investment vehicles. Likelihood of Making Various Kinds of International Investments By Comfort Level with International Investments % Extremely/Very Likely 43% 38% 37% 34% 28% 24% 17% 18% 10% 21% 17% 13% 7% Individual stocks in US based companies with a global presence Total (n=1,002) 31% 6% 6% Shares in international stock funds Comfort w/ Int'l Investments (n=303) Individual stocks in foreign based companies Neither (n=269) Shares in international bond funds Uncomfortable w/ Int'l Investments (n=430) Q605: Thinking about the international investments that you have or expect to make in the future, how likely are you to make these investments through the following vehicles? Base: Currently have or expect to have international investments (n=580) 55 US companies moving operations oversees and the declining value of the US dollar are viewed as the most contributing factors for why international funds have recently begun to outperform domestic funds. Reasons Why International Funds Outperform US Funds 86% 84% 81% 81% 80% 67% 28% 10% Declining value of U.S. dollar 11% U.S. companies moving operations overseas 15% Strong economic growth abroad A lot/Some 17% 14% High oil prices Slow economic growth in U.S. Raising interest rates in U.S. A Little/Not at All Q630: Some data suggests that international funds have recently begun to outperform domestic U.S. funds. How much do you think each of the following contributes to this? Base: All shareholders (n=1,002) 56 Women are more likely than men to attribute the shift in international fund performance to slow economic growth in the US, high oil prices, and US companies moving operations overseas. Reasons Why International Funds Outperform US Funds By Gender % A lot/Some Contribution 86% 87% 85% 89% 84% 81% 81% 80% 82% 81% 87% 85% 80% 78% 75% 67% Declining value of U.S. dollar U.S. companies moving operations overseas Strong economic growth abroad Total High oil prices Male Slow economic growth in U.S. 71% 64% Raising interest rates in U.S. Female Q630: Some data suggests that international funds have recently begun to outperform domestic U.S. funds. How much do you think each of the following contributes to this? Base: All shareholders (n=1,002) 57 Majorities of investors report that they are not likely to invest in Europe, China, Japan or India, and especially in Russia. Likelihood of Investing in Specific Regions or Countries 90% 75% 69% 65% 61% 18% 22% 21% 14% 16% 12% 14% 13% 3% European Union China Extremely/Very Likely Japan Likely Q610: How likely are you to invest in the following regions or countries? Base: All shareholders (n=1,002) India 7% Russia Somewhat/Not at All Likely 58 Women are far less likely to say they will invest in India, China, Japan or the European Union. There are no gender differences in likelihood to invest in Russia. 90% 89% Likelihood of Investing in Specific Regions or Countries By Gender % Somewhat/Not at All Likely 92% 80% 75% Russia 71% India Total (n=1,002) 75% 69% 66% China Male (n=547) Q610: How likely are you to invest in the following regions or countries? Base: All shareholders (n=1,002) 71% 65% 62% Japan 68% 61% 57% European Union Female (n=455) 59 Older investors are the least likely to invest in Russia, China, Japan or the European Union. Likelihood of Investing in Specific Regions or Countries By Age % Somewhat/Not at All Likely 94% 90% 90%90% 85% 80% 76% 75%73% 71% 80% 75% 69% 68%68% 61% 65% 63%64% 60% 74% 61% 62%62% 47% Russia Total (n=1,002) India 35 or less (n=202) China Japan 35 - 49 (n=249) 50 - 64 (n=294) Q610: How likely are you to invest in the following regions or countries? Base: All shareholders (n=1,002) European Union 65+ (n=257) 60 Investors have mixed views about the impact of Japan and the European Union on the US economy. Conversely, half of investors feel China will have a negative impact on the US economy. Impact of Other Economies on the US Economy 51% 50% 41% 38% 34% 34% 28% 26% 36% 38% 32% 26% 18% Japan European Union Very/Somewhat Positive 33% China Neither Positive/Negative 16% India Russia Very/Somewhat Negative Q620: In the long run, do you think the following economies will have a positive or negative impact on the United States’ economy? Base: All shareholders (n=1,002) 61 Current international investors are more likely to feel these countries will have a positive impact on the US economy. Impact of Other Economies on the US Economy By International Investors % Very/Somewhat Positive 41% 44% 44% 36% 38% 37% 29% 32% 32% 25% 26% 19% Japan European Union Total (n=1,002) China Current Int'l Investor (n=512) 16% 16% 15% India Russia Non-International Investor (n=490) Q620: In the long run, do you think the following economies will have a positive or negative impact on the United States’ economy? Base: All shareholders (n=1,002) 62 Non-international investors are more likely to perceive a negative impact on the US economy from these foreign economies. Impact of Other Economies on the US Economy By International Investors % Very/Somewhat Negative 50% 53% 47% 38% 33% 28% China 26% 24% European Union Total (n=1,002) 41% 35% 29% 33% 31% 36% 23% Japan Current Int'l Investor (n=512) India Russia Non-International Investor (n=490) Q620: In the long run, do you think the following economies will have a positive or negative impact on the United States’ economy? Base: All shareholders (n=1,002) 63 Most do not see the European Union or Japanese markets as very risky investments, however Russia is viewed as the riskiest investment. Risk Level of International Investments Mean Scores 80% 59% Russia China India Japan EU 5.7 4.8 4.8 3.8 3.8 56% 45% 30% 19% 22% 25% 24% 45% 28% 28% 19% 14% 6% Russia China Very Risky (5,6,7 Net) India Moderately Risky (4) Japan European Union Not Risky (1,2,3 Net) Q625: Regardless of where you may invest or the risk level of your investments, please indicate your current view about the risk level of domestic and international markets. Please use a scale of 1 to 7 in which “1” represents “not risky at all” and “7” represents “very risky.” Base: All shareholders (n=1,002) 64 Men are more likely to see Russia as risky, while women view Japan as riskier than men. Risk Level of International Investments – By Gender % Very Risky (5, 6, 7 Net) 85% 80% 73% 59% 61% 55% 56% 59% 52% 35% 30% Russia China Total India Male(n=547) 32% 27% 28% Japan European Union 25% Female (n=455) Q625: Regardless of where you may invest or the risk level of your investments, please indicate your current view about the risk level of domestic and international markets. Please use a scale of 1 to 7 in which “1” represents “not risky at all” and “7” represents “very risky.” Base: All shareholders (n=1,002) 65 Investors age 65+ are more likely to categorize Japan and the European Union as risky investments than those under 65. Risk Level of International Investments – By Age % Very Risky (5, 6, 7 Net) 84% 80% 78%82% 77% 59%59%61%61% 54% 61% 56% 55%57% 52% 44% 39% 30%28% 25%27% Russia Total China 35 or less (n=202) India 36 - 49 (n=249) Japan 50 - 64 (n=294) 28% 28% 24%22% European Union 65+ (n=257) Q625: Regardless of where you may invest or the risk level of your investments, please indicate your current view about the risk level of domestic and international markets. Please use a scale of 1 to 7 in which “1” represents “not risky at all” and “7” represents “very risky.” Base: All shareholders (n=1,002) 66 While Russia is seen as a risky investment among large majorities of investors, this is particularly true among those who say they are comfortable with international investments. Risk Level of International Investments – By Comfort Level % Very Risky (5, 6, 7 Net) 80% 84% 83% 70% 69% 59% 53% 51% 67% 56% 52% 47% 36% 31% 30% 24% Russia Total China Comfort w/ Int'l Investments (n=303) India Neither (n=269) Japan 35% 28% 27% 20% European Union Uncomfortable w/ Int'l Investments (n=430) Q625: Regardless of where you may invest or the risk level of your investments, please indicate your current view about the risk level of domestic and international markets. Please use a scale of 1 to 7 in which “1” represents “not risky at all” and “7” represents “very risky.” Base: All shareholders (n=1,002) 67 Among non-international investors all countries are seen as more risky compared to current int’l investors. Risk Level of International Investments – By International Investors % Very Risky (5, 6, 7 Net) 80% 78% 82% 64% 59% 54% 63% 56% 51% 35% 30% Russia Total China India Current Int'l Investor (n=512) 26% Japan 35% 28% 22% European Union Non-Int'l Investor (n=490) Q625: Regardless of where you may invest or the risk level of your investments, please indicate your current view about the risk level of domestic and international markets. Please use a scale of 1 to 7 in which “1” represents “not risky at all” and “7” represents “very risky.” Base: All shareholders (n=1,002) 68 How do Shareholders Feel About Investing in the Chinese Market? 69 Although half of shareholders say they do not plan to invest in China, a third indicate they are taking the “wait and see” approach. Current Investment in China I am taking a “wait and see” approach 32% I do not plan to invest in China 51% 9% 8% I am already investing in China and will continue to do so I am planning to invest in China in the next 2-3 years 70 Q680: Which of the following best describes your current belief as it relates to investing in China? Base: All shareholders (n=1,002) The largest barrier to investing in China is the lack of confidence in the communist government, followed by human rights violations and corporate and government corruption. Obstacles to Investing In China No confidence in communism 58% 31% Human rights violations Corporate/Govt corruption 30% 18% Economy growing too fast 13% Lack of strong financing system 12% China's reliance on imports Banking crisis Other None 5% 4% 5% Q650: Now we have a few questions specifically about the Chinese economy. Which of the following do you see as the biggest obstacles to investing in China? Please select up to two responses. Base: All shareholders (n=1,002) 71 Females are more likely to see human rights violations as an obstacle, while men are more likely to see China’s lack of a strong financial system as a barrier. Obstacles to Investing In China By Current International Investors By Gender 58% 57% 59% No confidence in communism 25% Human rights violations 18% 20% 16% Economy growing too fast 13% 16% 10% Lack of strong financing system 12% 13% 10% China's reliance on imports Other None 40% 30% 32% 28% Corporate/Govt corruption Banking crisis 31% 5% 6% 3% 3% 3% 2% 5% 5% 6% Total (n=1,002) Male (n=547) Female (n=455) Q650: Now we have a few questions specifically about the Chinese economy. Which of the following do you see as the biggest obstacles to investing in China? Please select up to two responses. Base: All shareholders (n=1,002) 72 While there is agreement that lack of confidence in communism is the primary obstacle to investing in China, current international investors are more concerned about corporate/government corruption, while non-international investors are concerned about human rights violations. Obstacles to Investing In China By Current International Investors 58% 57% 59% No confidence in communism 26% Human rights violations 36% 30% Corporate/Govt corruption 25% 34% 18% 20% 15% Economy growing too fast 13% 13% 14% Lack of strong financing system 12% 12% 11% China's reliance on imports 5% 6% 4% Banking crisis Other 31% 3% 3% 2% None Total (n=1,002) 5% 5% 6% Current Int'l Investor (n=512) Non-Int'l Investor (n=490) Q650: Now we have a few questions specifically about the Chinese economy. Which of the following do you see as the biggest obstacles to investing in China? Please select up to two responses. Base: All shareholders (n=1,002) 73 Despite the barriers, shareholders see the biggest opportunities as the supply of workers, a fast growing economy, and outsourcing of manufacturing to China. Opportunities to Invest in China 50% Supply of workers 48% Fast growing economy Outsourcing of manufacturing to China Other None 45% 4% 12% Q660: Which of the following do you see as the biggest opportunities as it relates to investing in China? Please select up to two responses Base: All shareholders (n=1,002) 74 Men are more likely to see China’s fast growing economy as an opportunity for investing than women. Opportunities to Invest in China By Gender 50% 49% 52% Supply of workers 48% 52% Fast growing economy 43% 45% 44% 46% Outsourcing of manufacturing to China Other 4% 3% 1% 12% 12% 14% None Total (n=1,002) Male (n=547) Female (n=455) Q660: Which of the following do you see as the biggest opportunities as it relates to investing in China? Please select up to two responses Base: All shareholders (n=1,002) 75 The fast growing economy is key for current international investors. Opportunities to Invest in China By Current International Investors 50% 51% 48% Supply of workers 48% Fast growing economy 56% 39% 45% 43% 46% Outsourcing of manufacturing to China Other None 4% 3% 1% 7% 12% 19% Total (n=1,002) Current Int'l Investors (n=512) Non-Int'l Investors (n=490) Q660: Which of the following do you see as the biggest opportunities as it relates to investing in China? Please select up to two responses Base: All shareholders (n=1,002) 76 By far, manufacturing is considered the best investment in the Chinese economy. Best Investments in China – Top 3 Best Industries Top 10 Mentions Manufacturing 59% Technology 39% Telecommunications 31% 25% Information Tech 20% Retail Automotive 18% Travel Energy Pharmaceutical Banking & Finance 14% 13% 12% 11% Q670: Which segments of the Chinese economy do you see as the best investments? Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 77 Women are more likely to say technology is one the best segments of the Chinese economy to invest in, while male shareholders are more likely to see the automotive industry as among the best investments. Best Investments in China – Top 3 Best Industries By Gender Top 10 Mentions 59% 61% 56% Manufacturing 34% Technology 25% 23% 28% Information Tech Automotive Travel Energy Pharmaceutical Banking & Finance 45% 31% 30% 33% Telecommunications Retail 39% 20% 19% 22% 18% 21% 14% 14% 12% 16% 13% 15% 11% 12% 13% 9% 11% 10% 14% Total (n=1,002) Male (n=547) Female (n=455) Q670: Which segments of the Chinese economy do you see as the best investments? Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 78 Current int’l investors are more likely to see the telecommunications industry as one of the best. However, non-international investors are more likely to think technology and travel are among the best industries. Best Investments in China – Top 3 Best Industries By International Investors Top 10 Mentions 59% 56% Manufacturing 39% 40% 38% Technology Telecommunications Information Tech Retail Automotive Travel Energy Pharmaceutical Banking & Finance Total (n=1,002) 63% 31% 26% 25% 21% 35% 31% 20% 22% 19% 18% 19% 16% 14% 10% 18% 13% 15% 12% 12% 13% 10% 11% 13% 10% Current Int'l Investors (n=547) Non-Int'l Investors (n=455) Q670: Which segments of the Chinese economy do you see as the best investments? Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 79 Health care, real estate, insurance and media are viewed as the worst segments of the Chinese economy in which to invest. Worst Investments in China – Top 3 Worst Industries Top 10 Mentions Health Care 36% 29% Real Estate Insurance 28% Media 26% Banking & Finance 23% Education 23% Food & Beverage Pharmaceutical Energy Automotive 21% 18% 17% 16% Q675: Which segments of the Chinese economy do you see as the worst investments? Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 80 While there is general agreement about the worst investments, men are more likely to think that media and banking/finance are among the worst investments. For women, automotive is among the worst. Worst Investments in China – Top 3 Worst Industries By Gender Top 10 Mentions 36% 35% 36% Health Care 29% 29% 29% 28% 29% 26% 26% Real Estate Insurance Media Banking & Finance Education Food & Beverage Pharmaceutical Energy Automotive 21% 23% 30% 28% 14% 23% 24% 20% 21% 19% 24% 18% 16% 21% 17% 17% 18% 16% 12% 22% Total (n=1,002) Male (n=547) Female (n=455) Q670: Which segments of the Chinese economy do you see as the best investments? Please indicate your first choice, second choice and third choice. Base: All shareholders (n=1,002) 81 How do Shareholders View the European Union and US Markets? 82 Most shareholders do not perceive the European Union’s economy as being a threat to the US economy. EU’s Degree of Threat to US Economy A great deal 9% Not at all 26% 38% 62% Great Deal/ Somewhat A Little/ Not at All Somewhat 29% A little 36% Q685: To what degree do you see the European Union’s economy as a threat to the United States’ economy? Base: All shareholders (n=1,002) 83 As age increases so does the belief that the EU economy poses a threat to the US economy. Younger shareholders are least likely to believe this. EU’s Degree of Threat to US Economy By Age 74% 65% 62% 58% 50% 51% 43% 38% 34% 26% Total 35 or less 36 - 49 A great deal/Somewhat 50 - 64 65+ A little/Not at All Q685: To what degree do you see the European Union’s economy as a threat to the United States’ economy? Base: All shareholders (n=1,002) 84 As compared to the EU, shareholders feel the US economy has the advantages of real estate values, productivity and supply of workers. On the other hand the European Union has the advantage of social programs and healthcare. Economic Advantage – US vs. EU 84% 70% 63% 60% 58% 53% 47% 42% 37% 40% 30% 16% Value of real estate Productivity Supply of workers U.S.A. Effects of govt regulation Healthcare & retirement Social programs European Union Q690: Please indicate which economy you currently think has the advantage given each of the following factors. Base: All shareholders (n=1,002) 85 Women are more likely to feel the EU economy has an advantage over the US economy with regards to productivity, effects of gov’t regulation, and healthcare/retirement. Economic Advantage by Gender % European Union 63% 58% 52% 47% 40% 37% 35% 40% 54% 60% 58% 64% 43% 30% 24% 16% 15% 16% Value of real estate Productivity Supply of workers Total Effects of govt regulation Male Healthcare & retirement Social programs Female Q690: Please indicate which economy you currently think has the advantage given each of the following factors. Base: All shareholders (n=1,002) 86 Men, however, are more likely to feel the US economy has an advantage over the EU economy with regards to productivity, effects of gov’t regulation, and healthcare/retirement. Economic Advantage by Gender % United States 84% 85% 84% 76% 70% 60% 63% 65% 60% 53% 57% 48% 42% 46% 37% Value of real estate Productivity Supply of workers Total Effects of govt regulation Male Healthcare & retirement 40% 42% 36% Social programs Female Q690: Please indicate which economy you currently think has the advantage given each of the following factors. Base: All shareholders (n=1,002) 87 Demographics 88 Shareholder Demographics Gender Total % Male Female 60 40 35 years old or less 36-49 50-64 65+ MEAN Marital Status Single, never married Married Divorced Separated Widowed Living with partner Total % 16 64 10 1 5 4 Children in Household Under 18 0 1 2 3+ MEAN Age Total % 71 15 10 4 0.5 Total % 23 29 27 22 49.4 Race/Ethnicity White Black/African-American Asian or Pacific Islander Native American or Alaskan Native Mixed racial background Other race Hispanic Decline to answer Total % 79 8 2 * 1 * 8 2 89 Shareholder Demographics (Cont’d) Education High school graduate or less Some college College (e.g., B.A., B.S.) Graduate school (e.g., M.S., M.D., Ph.D.) Party Identification Total % 27 28 33 12 Republican Democrat Independent Total % 37 31 32 Employment Employed full-time Employed part-time Self-employed Not employed, but looking for work Not employed and not looking for work Retired Student Homemaker Total % 43 8 12 3 1 30 6 7 Political Philosophy Conservative Moderate Liberal Total % 33 48 20 90 Shareholder Demographics (Cont’d) Household’s Total Net Worth Less than $50,000 $50,000 to $99,999 $100,000 - $249,999 $250,000 or more Not sure Decline to answer Investable Assets Total % 13 12 17 36 3 19 Household Income Less than $50,000 $50,000 to $99,999 $100,000 to $149,999 $150,000 or more Decline to answer Member of Investment Club Total % 22 33 22 11 12 Heard of National Association of Investors Corporation (NAIC) Yes No Less than $50,000 $50,000 to $99,999 $100,000 - $249,999 $250,000 or more Not sure Decline to answer Total % 26 15 16 17 6 20 Total % 33 67 Current Member Former Member Never a Member Total % 3 6 91 Knowledge of Investing Not at all Knowledgeable Somewhat Knowledgeable Very Knowledgeable Extremely Knowledgeable Total % 14 68 14 3 91 Shareholder Demographics (Cont’d) Region East Midwest South West Total % 25 21 32 22 92 Detailed Methodology 93 Detailed Methodology The Voice of the American Shareholder Quarterly Poll Wave 6 was conducted by Harris Interactive on behalf of BetterInvesting. Interviewing was conducted between April 26 and May 6, 2005 among a nationally representative sample of 1,002 U.S. adults aged 18 and older who currently have investments in individual stocks or stock mutual funds. The length of the questionnaire was 10 minutes in length, not including the demographics. SAMPLE SELECTION Harris Interactive maintains the Harris Poll Online database (HPOL) comprised of several million respondents who have agreed to participate in survey research. The HPOL database was used as the sample source for this study. E-mail addresses for respondents in the database have been obtained from over 100 sources, including the HPOL registration site, Yahoo!, HPOL banner advertisements, and MSN/Hotmail. Qualified respondents for this study were U.S. adults age 18+ who identified themselves as currently having investments in individual stocks or stock mutual funds in response to the question “Please indicate which types of investments or investment accounts you personally have.” ONLINE INTERVIEWING PROCEDURES Interviews were conducted using a self-administered, online questionnaire, via proprietary, web-assisted interviewing software. The HPOL interviewing system permitted online data entry of interviews by the respondents. Questionnaires were programmed into the system with the following checks: 1. 2. 3. 4. 5. 6. 7. Question and response series Skip pattern Question rotation Range checks Mathematical checks Consistency checks Special edit procedures 94 Detailed Methodology (cont’d) ONLINE INTERVIEWING PROCEDURES (cont’d) To maintain the reliability and integrity in the sample, each invitation contained a password that is uniquely assigned to that e-mail address. A respondent was required to enter the password at the beginning of the survey to gain access into the survey. Password protection ensured that a respondent completed the survey only one time. To increase the number of respondents in the survey and to improve overall response rates, up to two additional reminder invitations are typically mailed at 2-4 day intervals to those respondents who have not yet participated in the survey. For this study, one reminder was sent to potential respondents. To increase the number of respondents in the survey and to improve overall response rates, respondents were provided with a summary of some of the survey responses. This too was done via the Internet. Respondents were sent an email that provided them access to a web site that contained the survey findings. As with the survey itself, this was a password protected site that was accessible for a limited period (1-2 weeks). All data were then tabulated, checked for internal consistency and processed by computer. A series of computergenerated tables were produced for each of the key sample groups that showed the results of each survey question, both by the total number of respondents and by the key subgroups. 95 Detailed Methodology (cont’d) WEIGHTING Completed interviews were weighted to figures obtained from the Current Population Survey (CPS). Harris used several demographic variables (e.g., sex, age, education, race and ethnicity and income) to generalize survey results to the population at large. In addition, Harris Interactive applied a proprietary technique to the data called "propensity weighting" that essentially balanced all the characteristics (e.g., demographic, attitudinal, and behavioral) of online respondents. It is no surprise that certain kinds of people have a greater or lesser likelihood to be online and therefore to reply to our surveys. To account for this, Harris gave each individual a “propensity weight” which corresponded to their likelihood to be online. This ensured that the sample represented the general shareholder population at large and was not skewed toward more active online users or survey takers. In addition, people who had a lesser likelihood to be online acted as a proxy for those who are not online at all. Typical propensity weights that were used included measures of activity (our online respondents do more things), knowledge (our online samples are better informed), and attitudes (our online samples are more skeptical or cynical). 96 Detailed Methodology (cont’d) WEIGHTING (CONT’D) It is also worth mentioning that Harris conducts parallel telephone and online research on a regular basis through The Harris Poll, our monthly omnibus survey. By conducting this research, Harris is able to track results to make comparisons between data collected online and by phone, closely examine the biases and most importantly, develop strategies for correcting these biases. In fact, Harris has an internal department that is entirely focused on conducting this “research on research.” EDITING AND CLEANING THE DATA The data-processing staff performed machine edits and additional cleaning for the entire data set. Our edit programs acted as a verification of the skip instructions and other data checks that were written into the online program. The edit programs listed any errors by case number, question number and type. These were then resolved by senior personnel, who inspected the original file and made appropriate corrections. Complete records were kept of all such procedures. 97 Detailed Methodology (cont’d) CALCULATION FOR BETTERNVESTING INDEX The BetterInvesting Index measured shareholders’ overall perspective in the stock market from three different vantage points or categories: 1) overall confidence in the stock market and economy, 2) personal investment behaviors and 3) attitudes about risk and the value of stocks. Within each of these vantage points, the Index was derived from component items from the BetterInvesting Voice of the American Shareholder January 2004, May 2004, November 2004, February 2005, and May 2005 surveys. The component items are as follows: 1) Overall confidence in the stock market and economy: Q410: How much confidence do you have the U.S. economy is generally moving in the right direction? 2) Personal investment behavior Q511 a, b: Thinking about your investment portfolio, over the next six months, do you plan to increase, decrease, or make no change in your investments in (individual stocks; stock mutual funds)? Q505: Investment risk is typically defined as a greater likelihood that your portfolio may lose value but it often associated with higher returns. How would you characterize most of your investments on a scale from “not risky at all” to “very risky” 3) Attitudes towards investment risk and the value of stocks: Q502: How strongly would you agree or disagree with the following statements: It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments. Most stocks are a better bargain now than they were a year ago. It’s a good time for new investors to get involved in the stock market. 98 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) For each component item within the three overall categories, a ‘component score’ was calculated by taking the difference of the percentage of positive responses and the percentage of negative responses. For example, in May 2005, Q410: “How much confidence do you have that the United States’ economy is generally moving in the right direction?” 14% responded that they have a great deal of confidence in the direction of the economy, 77% responded that they had a fair amount or not much confidence and 9% indicated they had no confidence at all. This yielded a component score of 14% - 9% = 5.0% To calculate the BetterInvesting Shareholder Index, we then took the mean of the 7 component scores. 99 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) The following table shows the component scores for each item used in calculating the Index for September 2003, January 2004, May 2004, November 2004, February 2005, and May 2005. Please note that since the three statements that make up Q502 were not asked in the September 2003 survey, the scores below should only be used to get a general sense of how the scores have changed on the other items that were repeated between September 2003 and November 2004. Component Scores Sept ’03 Jan ’04 May ’04 Nov ’04 Feb ’05 May ‘05 Confidence that US economy is moving in right direction 5.9 15.2 10.6 6.5 -2.5 0.5 Increase, decrease, or make no change in individual stock investments, next 6 months 24.0 27.3 18.6 20.8 19.5 17.5 Increase, decrease, or make no change in stock mutual funds, next 6 months 21.8 25.8 19.3 17.5 23.5 15.3 How would you characterize most of your investments (1=not risky, 7=very risky) -- 7.0 -1.1 0.0 0.2 1.4 Good time to move money into safer, lower risk investments -- 3.3 -6.7 -15.5 -16.0 -23.2 Most stocks are a better bargain now than they were a year ago -- 9.8 7.7 9.2 -0.2 7.4 Good time for new investors to get involved in the market -- 47.0 27.6 26.3 30.1 16.1 Index Score -- 19.3 10.9 9.3 7.8 5.0 Component Item 100 Detailed Methodology (cont’d) CALCULATION FOR BETTERINVESTING INDEX – (cont’d) Validating the Index In order to measure the validity of the BetterInvesting Index, an investment allocation exercise question was included in the January 2004, May 2004, February 2005, and May 2005 surveys. The purpose of this question was to be able to link the “attitudinal” nature of the NAIC Index to observable behavior in future waves of this research. The question (Q515) asked: “If you had ($10,000/$100,000) to invest, how much would you invest in each of the following? Individual stocks Stock mutual funds Individual bonds Bond mutual funds Cash Alternative Investments This question was structured so that half of all shareholders interviewed were shown $10,000 in the question and the other half were shown $100,000. The idea was that changes in shareholder confidence, as measured by the Index, should be reflected in changes in portfolio allocation. As confidence improves, we would expect that shareholders would become growth-oriented and conversely as confidence weakens, we would expect that shareholders would allocate money towards safer investments. 101