voice of the american shareholder quarterly poll – wave 4 prepared for: national association of...

Voice of the American Shareholder Voice of the American Shareholder Quarterly Poll – Wave 4Quarterly Poll – Wave 4

Prepared for:Prepared for:

National Association of National Association of

Investors Corporation (NAIC)Investors Corporation (NAIC)

Final ReportFinal Report

November 30, 2004November 30, 2004

2

Table of Contents

Study Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Overview of Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Detailed Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17

What Does A Typical Shareholder Look Like, and How do they behave?. . . . . . . . . . . . . . . . . . . 18

How Do Shareholders Feel about the Economy and Stock Market? . . . . . . . . . . . . . . . . . . . . . . .28

What Do Shareholders Think are The Best and Worst Investments? . . . . . . . . . . . . . . . . . . . . . 39

How Do Shareholders Feel about Corporate Governance Issues?.. . . . . . . . . . . . . . . . . . . . . . . . 44

How Are Investment Decisions Impacted by Current Events and Plans for 2005? . . . . . . . . . . . . .53

Demographics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

3

Study Objectives

The National Association of Investors Corporation (NAIC) commissioned Harris Interactive to conduct a series of research studies to better understand the attitudes and behaviors of American investors. This study represents the fourth wave of research conducted for NAIC. The previous waves were conducted in September 2003, January 2004 and May 2004.

By regularly reporting on these findings, NAIC 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 towards current issues. Specifically, this wave of research focused on the following topics:

Investment profile, goals and strategy;

Views towards the economy and identification of best and worst investments;

Views toward corporate governance issues;

Sources of information investors use; and

Investment plans for 2005.

4

Overview of Methodology

Sample includes 1,110 U.S. adults aged 18 or older who currently own individual stocks or stock mutual funds.

Interviewing was conducted between November 3 and 10, 2004, immediately following the 2004 Presidential Election.

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.

5

Executive SummaryExecutive Summary

6


The overall view shareholders have about the economy and stock market could best be characterized as cautious.

The decline in confidence over the direction of the economy has continued for the third straight quarter and is at its lowest level since September 2003, when this was first measured.

The proportion of shareholders who think it is a good time to move into safer investments continues to increase and fewer think stocks are a better bargain than they were one year ago.

There has been a drop in the NAIC Investor Confidence Index to 9.3 from 10.9 in May 2004.

Many anticipate that interest rates, inflation and the national unemployment rate will increase in 2005.

Shareholders lack faith in most of the institutions whose mission it is to be effective in protecting investors.

The economy is the most often cited factor that would prompt a shareholder to make a change to their portfolio.

This cautious attitude follows knowing the outcome of the 2004 Election.

While shareholders regularly review their portfolios and indicate a readiness to react to current events, they do so cautiously and for the most part do not make drastic changes to their investment strategy.

Two in five review their portfolios monthly and most do so at least once a year.

Three-quarters indicate that their investment strategy is affected by current events.

Majorities report that they intend to not make any changes to their portfolios, a finding consistent since September 2003.

The average risk level of shareholders’ investments remains steady as having moderate risk.

7


Shareholders lack trust in CEO’s and corporate management to govern themselves fairly. And, the impact the CEO can have on the stock value of a company is unclear.

Most have little or no confidence that corporations govern themselves fairly and think they (shareholders) would be more trustworthy as it relates to issues such as CEO pay.

Most also believe that CEO pay should be tied to company performance.

While two-thirds agree that the CEO can enhance the stock value of a company, majorities report that the personal appeal of a company leader is neither a positive nor negative influence on their investment decisions.

Men and women take a different approach to investing, including their strategy, information sources and reaction to current events. Men are more active, involved and willing to take risks.

Women continue to play it safer, reporting a lower overall risk level of their investments and fewer than half think it’s a good time for new investors to get into the market.

Women are far more likely to get financial information from a financial planner or family member while men rely more heavily on analyst reports and financial websites.

Men are more likely than women to report that they would make a change in response to a variety of events.

Men continue to have more confidence about the direction of the economy than women, though lower than in previous waves.

8


Health care costs that shareholders bear the burden of are negatively impacting their ability to save or invest.

Majorities of investors are saving or investing less as a result of health care costs that they pay, a finding especially true for women.

The vast majority of shareholders expect the amount they pay for their health care will increase in 2005.

9

Profile of the typical American ShareholderProfile of the typical American Shareholder

In general, the typical American shareholder’s behaviors and investment profile has remained virtually unchanged since September 2003.

Shareholders continue to hold a variety of investments such as IRAs and bonds in addition to individual stocks and stock mutual funds.

The average risk rating that shareholders report on their investments remains around 4 (moderately risky).

The majority of shareholders plan to maintain current levels of investment in individual stocks (63%) and stock mutual funds (69%), rather than increasing or decreasing these investments, over the next 6 months.

Virtually all shareholders regularly review their investment portfolios and many use a financial planner to help them do so.

Nine in ten (89%) shareholders review their portfolio at least once a year and fully two in five (42%) review their investments at least once a month.

Six in ten (60%) investors who review their portfolio report that they use a financial planner to assist them in doing so.

While the top source of financial information is one’s financial planner, analyst reports, general media sources such as newspapers, magazines and television and financial websites are ranked among the top three.

One in three (31%) shareholders choose their financial planner as the source of information they rely on most.

When looking at the top three sources, analyst reports (56%), newspapers, magazines or television (52%) and financial websites (50%) are relied upon by half or more of shareholders.

Women rely more heavily on people, including their financial planner(37% vs. 26% of men) and family members (33% vs. 13% of men), while men rely more heavily on analyst reports (62% vs. 49%) and financial websites (57% vs. 42% of women).

10

Views towards the economy and stock marketViews towards the economy and stock market

After rising between September 2003 and January 2004, confidence in the direction of the economy has declined to its lowest levels in this series of research and the percentage of shareholders who have no confidence at all had doubled.

When asked about confidence in the United States economy, 54% 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 60% in May 2004.

Women (50%) have less confidence than do men (57% a great deal/fair amount)

And, the proportion of investors who have no confidence at all in the direction the economy is moving has doubled since May (12% vs. 6% in May 2004).

The NAIC Shareholder Confidence Index has dropped slightly from 10.9 in May 2004 to 9.3 in November.

Currently the NAIC Index is 9.3, 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 9.3 shows trace levels of optimism tempered by concern about the direction of the economy, rising energy prices and anticipation of rising interest rates.

11

Views towards the economy and stock market, cont’dViews towards the economy and stock market, cont’d

While half of shareholders agree that it’s a good time to invest in the stock market, an increasing number also think it’s a good time to move money into less risky investments.

Half of stock holders (50%) agree that now “is a good time for new investors to get involved in the stock market”, a finding virtually unchanged since May 2004 (51%).

An increasing number of investors think now is the time to move from risky to safe investments (40% agree vs. 37% in May and 34% in January).

Fewer investors agree that “most stocks are a better bargain now than they were one year ago (35% vs. 41% in May 2004 and 43% in January 2004).

Shareholders do not perceive most of the people or institutions examined in the survey as being effective in protecting the average investor. Many believe that big business and government are not effective in protecting them.

The Federal Reserve is the institution most commonly mentioned as effective in protecting the average investor, though just 22% of shareholders feel this way.

More than half (53%) of shareholders think Corporate CEO’s are not effective in protecting the average investor. Many feel the same way about both Republicans (37%) and Democrats (36%) in Congress, giving them a 1 or 2 on a “7” point scale where 7 is extremely effective and “1” is not effective at all.

12

Best and Worst InvestmentsBest and Worst Investments

According to shareholders, pharmaceuticals, real estate and technology are the top three industries to invest in now and the most commonly mentioned reason for selecting a particular industry as best is that they are in a potential growth industry.

While real estate is considered the best investment (22% best investment and 39% first, second or third best), pharmaceuticals (42% top three) and technology (37% top three) round out the top three.

Being in a potential growth industry (64%) is the top reason why a particular industry is considered a good investment now. However, investors evaluate industries on their individual strengths or weaknesses.

More than half (54%) select real estate as among the top three best investments because their past performance indicates future promise. Nearly half (48% each) select pharmaceuticals and technology because they are developing new products or services.

The three worst investments shareholders believe they can make right now are travel, government and health care primarily because they believe costs in these industries are out of control.

Shareholders have paid attention to the recent financial troubles plaguing the airline industry, citing travel as the worst investment (16% worst investment and 38% among the top 3 worst investments).

Government and health care are also considered poor investments by roughly one-quarter of shareholders (27% and 23%, respectively).

Roughly half of investors feel that out of control costs is the primary reason why travel (51%), government (53%) and health care (48%) are among the worst investments they could make.

Many (45%) also believe that government is a poor investment because they are not prepared to deal with the terrorism threat.

13

Attitudes toward Corporate Governance IssuesAttitudes toward Corporate Governance Issues

The consumer is king. When asked to select who has the greatest influence on the performance of a company, shareholders select consumers most frequently, followed by the Board of Directors and senior management. The CEO is considered more influential than middle management, shareholders and other employees.

One-quarter of shareholders (25%) believe that consumers have the greatest influence on the performance of a company.

Women, however, are more likely than men to view the Board as influential (24% vs. 16%).

Sadly, an overwhelming majority of shareholders have little or no confidence in corporations to govern themselves when it comes to issues such as CEO pay and many indicated that they would trust themselves instead. Further, more than 8 in ten agree that CEO pay should be tied to company performance.

Eight in ten shareholders (80%) have little or no confidence in corporations to govern themselves fairly.

When asked who they would trust with issues such as CEO pay, 59% mention shareholders. An outside auditor would be trusted by one-third of shareholders (35%) and the SEC by one-quarter (24%). Just 19% would trust the Board of Directors and even fewer (8%) would trust senior corporate management.

Nearly half of investors (49%) strongly agree that CEO pay should be tied to company performance. Overall, 82% agree with this view.

14

Attitudes toward Corporate Governance Issues, cont’dAttitudes toward Corporate Governance Issues, cont’d

While many believe that a CEO can enhance the value of a company stock, in fact, the influence of a company leader on investors’ decisions to invest in their companies is not quite so clear. For the most part it’s neutral, though in select cases they can have more of a positive or negative influence.

Two-thirds (66%) agree that a CEO can enhance the stock value of a company, however the personal appeal of a company leader has a positive impact on an investment decision for just 37% of shareholders.

The majority (57%) indicate that the company leader is neither a positive nor negative influence on their decision to invest in a particular company.

Majorities of shareholders are not influenced by most of the corporate leaders examined in the survey. Only two stand out; 46% feel that Meg Whitman, CEO of Ebay has positively influenced their decision to invest in Ebay and 48% believe that Martha Stewart (48%) of Martha Stewart Omnimedia has been a negative influence on their investment decisions.

15

Impact of Current Events and Plans for 2005Impact of Current Events and Plans for 2005

The investment strategy of most shareholders is affected by events going on in the country and abroad, most notably the economy. While men and women are equally likely to say they are affected by current events, they differ in how many would be prompted to make a change.

Three-quarters of shareholders (74%) report that their investment strategy is affected by current events, a belief equally shared by men and women (75% and 73%, respectively).

The economy (44%) is the most commonly mentioned factor that would prompt a change to an investor’s portfolio. This is true for nearly half of men (49%) as compared to 37% of women.

Other commonly mentioned events are rising energy prices (33%), and rising interest rates (31%), also more commonly mentioned by men (39% and 37%, respectively) than women (26% and 23%, respectively).

Investors anticipate that various economic indicators will increase over the next year.

The vast majority of shareholders believes that health care costs they pay (87%), and interest rates (80%) will increase in 2005. Many also believe that home values where they live (67%), inflation (66%) and the stock market (56%) will increase. Two in five (42%) think the national unemployment rate will increase.

Health care costs that shareholders pay are eating into the financial resources they have available for saving or investing.

More than half (53%) of investors who pay a portion of their health care costs are saving or investing less as a result.

This situation is even more serious for female investors – six in ten (60%) save or invest less because of health care costs that they pay (as compared to less than half (48%) of men).

16

Impact of Current Events and Plans for 2005, cont’dImpact of Current Events and Plans for 2005, cont’d

Shareholders understand the impact of high energy prices. Oil at $20 a barrel is the most common “gift” shareholders would wish for this holiday season followed closely by a 20% reduction in health insurance premiums.

One in five (20%) investors would most like to have a barrel of oil that costs $20, rather than the current price of $49 a barrel. Men select this more frequently (25%) than women (14%).

Nearly one in five (20%) would most want a 20% reduction in their health care costs, a wish felt more strongly among women (19%) than men (15%).

Other areas where men and women wish for different things: women are nearly twice as likely as men (16% vs. 9%) to wish for a stable government in Iraq and are more than twice as likely (11% vs. 5%) to want a 5% interest bearing checking account.

17

Detailed FindingsDetailed Findings

18

What Does the Typical American Shareholder Look What Does the Typical American Shareholder Look Like, and How Do They Behave?Like, and How Do They Behave?

19

Since May 2004, shareholders have increased the amount they have invested in stock mutual funds.

Total Amount Invested in Individual Stocks and Stock Mutual Funds

Q1440: You mentioned that you have the following investments. About how much do you have invested in the following…?Base: Have individual stocks or stock mutual funds

Individual Stocks (%) Stock Mutual Funds (%)

Sept ‘03 Jan ‘04 May ‘04 Nov ’04 Sept ‘03 Jan ‘04 May ‘04 Nov ‘04

Less than $5,000 37 41 41 36 26 30 32 25

$5,000 - $9,999 13 10 9 12 8 8 10 6

$10,000 - $49,999 20 20 28 20 25 29 31 25

$50,000 - $99,999 8 9 7 6 11 9 11 13

More than $100,000

12 19 15 13 18 24 16 15

MEAN $62,400 $108,900 $64,200 $63,400 $95,200 $84,100 $56,300 $67,900

MEDIAN $6,000 $7,000 $8,350 $5,700 $18,000 $19,000 $14,640 $16,160

20

Q430: Please indicate which types of investments or investment accounts you personally have. Do you currently have . . .?Base: All shareholders

Sept ’03 Jan ‘04 May ‘04 Nov ‘04

% % % %

Individual stocks (not including stock options or restricted stocks from the company that I work for)

70 71 67 66

Stock mutual funds 68 67 70 69

All other investments (net) 87 85 85 85

Individual retirement account that I control (i.e., IRA, KEOGH, SEP)

54 56 51 52

Individual retirement accounts through my employer (i.e., 401(k) retirement savings plan or 403(b) retirement savings plan, or profit sharing plan)

49 52 52 50

Bonds or bond funds 34 33 35 35

Stock options or restricted stocks from the company that I work for

12 15 17 12

Other type of investment not mentioned 24 21 21 25

Shareholders have various types of investments.

Types of Investments Owned

21Q925: 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

The majority of shareholders plan to make no changes to their investments over the next six months.

Plans for Investments Over The Next Six Months

Increase (%) Make No Change (%) Decrease (%)

2003 2004 2003 2004 2003 2004

Sept Jan May Nov Sept Jan May Nov Sept Jan May Nov

Individual stocks 32 34 26 29 62 62 67 63 7 5 7 8

Stock mutual funds

27 31 24 24 69 64 71 69 4 5 5 7

Individual bonds 7 6 8 8 89 89 88 85 4 5 3 6

Bond mutual funds

11 10 11 11 84 84 84 83 5 5 5 6

Cash 29 39 38 38 61 52 54 52 11 9 8 10

Alternative investments

7 8 5 7 91 90 92 89 2 2 2 4

Other investments not mentioned

14 15 16 15 85 83 81 81 1 2 3 3

22Q925: 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=1,110; male n=633; female n=477)

Men are slightly more likely to report an intention to increase their holdings in individual stocks and stock mutual funds.

Plan to Increase Investments Over The Next Six Months

Increase (%)

Total Male Female

Individual stocks 29 34 23

Stock mutual funds 24 26 22

Individual bonds 8 10 6

Bond mutual funds 11 12 11

Cash 38 37 40

Alternative investments (such as hedge funds, private equity and managed futures)

7 8 7

Other investments not mentioned

15 18 12

23

Shareholders characterize most of their investments as moderately risky.

Q922: 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

Risk Level of Current Investments

36%

30%

33%

38%

32%30%

35%

28%

37%

34%

31%

34%

Very Risky (5, 6, 7Net)

Moderately Risky (4) Not Risky (1, 2, 3 Net)

Sept '03 Jan '04 May '04 Nov '04

Sept ‘03 Jan ’04 May ’04 Nov ‘04MEAN = 4.0 4.1 3.9 3.9

24Q922: How would you characterize most of your investments on a scale from “not risky at all” to “very risky”? Base: All shareholders

Sept ’03 Jan ’04 May ’04 Nov ‘04

% % % %

Very Risky (5, 6, 7) (Net) 36 38 35 34

Men 42 45 41 43

Women 27 28 27 24

Moderately Risky (4) 30 32 28 31

Men 29 28 26 28

Women 31 38 32 35

Not Risky at All (1, 2, 3) (Net)

33 30 37 34

Men 28 27 33 29

Women 41 33 41 41

Mean 4.0 4.1 3.9 3.9

Men 4.2 4.2 4.0 4.2

Women 3.7 3.9 3.8 3.6

Risk Level of Investments

Men continue to make riskier investments than women, with 41% of women rating their investment a 1, 2 or 3 where “1” is not risky at all.

25

Q915: How often do you review your investment portfolio?Base: All shareholders (n=1,110)Q920: Do you use a financial planner to help you review your investment portfolio?Base: Ever review investment portfolio (n=1,082)

Virtually all shareholders review their investment portfolios and 42% do so at least once a month. Among these investors, majorities use a financial planner to help them.

2%

6%

11%

9%

19%

23%

29%

Never

Less often thanonce a year

Once a year

Once every sixmonths

Once a quarter

Once a month

Once a week

No, 41%

Yes, 59%

Frequency of Reviewing Investment Portfolio Use Financial PlannerTo Help Review Investment Portfolio

At least monthly (NET): 42%

26Q805: Please indicate the top 2 or 3 sources of financial information you rely on when making investment decisions.Base: All shareholders (n=1,110)

Nearly one-third of shareholders cite their financial planners as the best source for financial information, but analyst reports rank highest when choosing the top three best sources.

Best

Source

(%)

Top 3

Best Sources

(%)

Information (NET) 52 89

Analyst reports 21 56

Financial websites 17 50

Newspapers, magazines or television

14 52

People (NET) 44 69

My financial planner 31 48

My family 9 22

My friends 3 16

Co-workers * 6

Investment clubs 1 7

Other 4 13

Sources of Financial Information

27Q805: Please indicate the top 2 or 3 sources of financial information you rely on when making investment decisions?Base: All shareholders (n=1110; Male n=633; Female n=477)

Women tend to rely more heavily on people for financial information while men are more likely to rely on analyst reports and financial websites.

Best

Source (%)

Top 3

Best Sources (%)

Total Male Female Total Male Female

Information (NET) 52 58 43 89 92 86

Analyst reports 21 22 19 56 62 49

Financial websites 17 21 11 50 57 42

Newspapers, magazines or television

14 15 13 52 53 51

People (NET) 44 38 52 69 60 79

My financial planner 31 26 37 48 42 55

My family 9 6 13 22 13 33

My friends 3 5 1 16 17 15

Co-workers * * * 6 8 5

Investment clubs 1 1 1 7 5 8

Other 4 4 4 13 14 12

Sources of Financial Information

28

How Do Shareholders Feel about the How Do Shareholders Feel about the Economy and Stock Market?Economy and Stock Market?

29

Confidence in the United States’ economy continues to decline with almost half of shareholders saying they have not much or no confidence at all.

Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction?Base: All shareholders

57%

43%

71%

29%

60%

40%

54%

46%

A Great Deal/A Fair Amount (Net) Not Much/None At All (Net)

Sept '03 Jan '04 May '04 Nov '04

Confidence in the U.S. Economy

% none at allMay ’04 6%Nov ’04 12%

30

Since January confidence that the economy is moving in the right direction has declined for both men and women. Men, however, continue to feel slightly more confident than women.

Q410: How much confidence do you have that the United States’ economy is generally moving in the right direction?Base: All shareholders

Confidence in U.S. Economy - A Great Deal/Fair Amount (Net)

Men Women

57%

62%

50%

71%75%

63%60%

65%

53%57%

50%54%

Sept '03 Jan '04 April '04 Nov '04

Total

31

Nov 2004NAIC INDEX

9.3

Consistent with findings that shareholders have less confidence in the economy and that they anticipate rising interest rates, the NAIC Index of Investor Confidence had declined slightly since May.

November 2004Component Scores for Each Item

Included in NAIC Index

Note: The NAIC 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.

19.310.9 9.3

-100

-80

-60

-40

-20

0

20

40

60

80

100

Jan'04

May'04

Nov'04

Question Positive Neutral NegativeComponent

Scores

Q410 18.2 70.1 11.7 6.5

Q926 – 01 29.0 62.7 8.3 20.8

Q926 - 02 24.5 68.5 7.0 17.5

Q445 34.5 31.0 34.5 0.0

Q486 - 01 24.3 35.8 39.8 -15.5

Q486 - 02 35.4 38.3 26.2 9.2

Q486 - 03 49.8 26.7 23.5 26.3

= 64.8

NAIC Index = 9.3

32Q601: How strongly do you agree or disagree with each of the following statements? Base: All shareholders

Shareholders’ opinions about it being a good time for new investors to get involved in the stock market remain virtually unchanged since May 2004.

62%

24%

15%

51%

25% 23%

50%

27% 24%

Strongly/ Somewhat Agree Neither agree nor disagree Strongly/ Somewhat Disagree

Jan. '04 May '04 Nov '04

“It’s a good time for new investors to get involved in the stock market.”

33

The majority of men strongly or somewhat agree that it’s a good time for new investors to get involved in the stock market while less than half of women feel the same.

Q602: How strongly do you agree or disagree with each of the following statements?Base: All shareholders

62%66%

56%51%

56%

44%

54%

45%50%

Total Men Women

Jan. '04 April '04 Nov '04

% Strongly/Somewhat Agree:“It’s a good time for new investors to get involved in the stock market.”


More shareholders are now neutral in their view about whether stocks are a better bargain than one year ago. Fully one-third of shareholders agree that most stocks are a better bargain now than they were one year ago, a slight decline from earlier waves.

43%

26%31%

41%

26%33%35% 38%

26%


Jan. '04 May '04 Nov '04

“Most stocks are a better bargain now than they were one year ago.”


The proportion of shareholders who agree that it’s a good time to move money into safer, lower risk investments has steadily increased since the beginning of the year.

34% 32%35%37%

32% 30%

40%36%

24%


Jan. '04 May '04 Nov '04

“It’s a good time to move money into safer, lower risk investments from higher return/higher risk investments.”

36

Men and women agree that it’s a good time to move money into safer, lower risk investments, though men have become increasingly cautious since January 2004.

Q601: How strongly do you agree or disagree with each of the following statements?Base: All shareholders

34%29%

40%37%

33%

44%40% 39% 41%

Total Men Women

Jan. '04 April '04 Nov '04

% Strongly/Somewhat Agree:“It’s a good time to move money into safer, lower risk investments

from higher return/higher risk investments.”

37Q506: On a scale from “not effective at all” to “extremely effective,” how effective do you think each of these institutions/ people are in protecting the average investor?Base: All shareholders (n=1,110)

The Federal Reserve is viewed as extremely effective in protecting the average investor, though just 22% of shareholders feel this way.

22% 19% 15% 15% 12% 11% 10% 7% 3%

FederalReserve

Securities andExchange

Commission(SEC)

Republicans inthe U.S.

Congress

Independentfinancialadvisors

Federal Courts New YorkStock

Exchange(NYSE)

Democrats inthe U.S.

Congress

Financialadvisors

employed by afinancial

institution orinsurancecompany

CorporateCEOs

Effectiveness of Institutions/ People in Protecting the Average Investor% Extremely effective (6,7)

38Q506: On a scale from “not effective at all” to “extremely effective,” how effective do you think each of these institutions/ people are in protecting the average investor?Base: All shareholders (n=1,110)

Corporate CEOs are not effective in protecting the average investor, according to 53% of shareholders.

53%

37% 36%25%

20% 17% 16%11% 10%

CorporateCEOs

Republicans inthe U.S.

Congress

Democrats inthe U.S.

Congress

Financialadvisors

employed by afinancial

institution orinsurancecompany

Federal Courts Independentfinancialadvisors

New YorkStock

Exchange(NYSE)

Securities andExchange

Commission(SEC)

FederalReserve

Effectiveness of Institutions/ People in Protecting the Average Investor% Not effective at all (1,2)

39

What Do Shareholders Think are the Best What Do Shareholders Think are the Best and Worst Investments?and Worst Investments?

40Q606: Thinking of the current economy, please indicate which three of the following industries you think are the best for investing now. Please indicate your first choice, second choice, and third choice.Base: All shareholders (n=1,110)

Real estate, pharmaceuticals and technology are among the best industries to invest in now, according to shareholders.

Best

Investment (%)

Top 3 Best Investments

(%)

Best

Investment (%)

Top 3 Best Investments

(%)

Real Estate 22 39 Food and Beverage 2 11

Pharmaceutical 16 42 Insurance 1 7

Technology 14 37 Retail 1 5

Energy 12 32 Education 1 3

Health Care 8 27 Media 1 5

Information Technology

6 21 Transportation 1 4

Telecommunications 5 20 Government 1 4

Banking and Finance 5 17 Travel 1 4

Utilities 4 19 Automotive 1 3

Best Investments

41Q610: What about the [answer from Q606/1] industry makes it the best industry to invest in now. Please select all that apply.Base: All Shareholders, Best/Second/Third Best Investment

While being in a potential growth industry is the top cited reason making an industry a good investment, shareholders evaluate industries on their individual merits.

Total Real Estate Pharmaceutical Technology Energy Health Care

They are a potential growth industry.

64 58 68 68 66 71

Their past performance indicates future promise.

43 54 45 48 39 36

They are developing new products or services.

39 23 48 48 37 40

They are a stable industry. 35 41 34 31 34 32

They are introducing products to new markets.

31 17 35 43 29 31

They are using the most advanced technology.

29 20 34 35 26 31

They operate effectively in volatile domestic markets.

24 28 24 25 22 18

They operate effectively in volatile international markets.

18 17 19 16 20 13

They are doing a good job on containing costs.

9 10 7 10 8 8

They are prepared to deal with the terrorism threat.

6 4 7 8 4 4

Other factors 20 21 26 14 27 24

Why Particular Industry is among Top 3 Best Investments Now

42Q616: Thinking of the current economy, please indicate which three of the following industries you think are the worst for investing now. Please indicate your first choice, second choice, and third choice.Base: All shareholders (=1,110)

Perhaps as a result of recent troubles facing major airlines, travel ranks as the worst industry to invest in now.

Worst

InvestmentTop 3 Worst Investments

Worst

InvestmentTop 3 Worst Investments

Travel 16 38 Automotive 5 21

Government 13 27 Telecommunications 4 11

Transportation 8 21 Utilities 3 11

Health Care 8 23 Real Estate 3 9

Insurance 7 20 Food and Beverage 3 11

Media 6 21 Banking and Finance 2 10

Education 6 19 Energy 2 9

Pharmaceutical 5 15 Technology 2 7

Retail5 21

Information Technology

2 8

Worst Investments

43Q620: What about the [answer from Q616/1] industry makes it the worst industry to invest in now. Please select all that apply.Base: All shareholders, Worst/Second/Third Worst Investment

Cost control is the top factor shareholders mention leading them to say an industry is a poor investment. The poor past performance of the travel industry is also mentioned as a reason why it is one of the worst industries to invest in now.

Total Travel Government Transportation Health Care Insurance

Their costs are out of control. 54 70 53 44 48 51

They are an unstable industry. 41 29 41 29 43 49

They are not a potential growth industry. 38 39 30 54 41 43

Their past performance indicates poor future performance.

34 48 29 28 35 45

They are not prepared to deal with the terrorism threat. 30 28 45 37 29 40

They perform poorly in volatile domestic markets. 28 23 18 23 34 39

They perform poorly in volatile international markets. 21 14 20 32 20 25

Their services and products are out of date. 20 19 10 19 17 22

They are using outdated technology. 19 9 23 17 17 30

Other factors 22 22 21 14 24 11

Why Particular Industry is among Top 3 Worst Investments Now

44

How Do Shareholders Feel about How Do Shareholders Feel about Corporate Governance Issues?Corporate Governance Issues?

45

Shareholders perceive that consumers have the greatest influence on the performance of a company, followed by the Board of Directors, senior management, and CEOs.

Q705: Who do you think has the greatest influence on the performance of a company?Base: All shareholders (n=1,110)

25%20% 19% 18%

9% 7%4%

Customers/Clients/

Consumers

The board ofdirectors

SeniorManagement

The CEO MiddleManagement

Shareholders Otheremployees

Greatest Influence on the Performance of a Company

46Q705: Who do you think has the greatest influence on the performance of a company?Base: All shareholders (n=1,110)

While there is agreement that consumers have the greatest influence on the performance of a company, women are more likely than men to feel that the Board of Directors can play such a key role.

25%

16%19% 19%

3%7%10% 7%

24% 24%18%

16%

7% 4%

Customers/Clients/

Consumers

The board ofdirectors

SeniorManagement

The CEO MiddleManagement

Shareholders Other employees

Male Female

Greatest Influence on the Performance of a Company

47

An overwhelming majority of shareholders have little confidence in corporations to fairly govern themselves.

Q710: How much confidence do you have in corporations to fairly govern themselves with regard to issues such as CEO pay?Base: All shareholders (n=1,110)

1%

19%

41%

A great deal of confidence Some confidence Not very much confidence No confidence at all

Confidence in Corporations to Fairly Govern Themselves

39%

80%20%

48

Shareholders indicate that they would trust themselves to govern corporations fairly. Among those currently in charge, the Board of Directors and senior management are selected least frequently.

Q715: Of the following, who would you trust to govern corporations with regards to issues such as CEO pay? Base: All shareholders (n=1,110)

59%

35%

24%19%

8%

Shareholders An outside auditor hiredby the company

The Securities andExchange Commission

(SEC)

The board of directors Senior Management

Trusted Person to Govern Corporations

49Q720: Please indicate how strongly you agree or disagree with the following statements.Base: All shareholders (n=1,110)

Half of shareholders strongly agree (82% agree) that CEO pay should be tied to company performance.

49%

33%

7% 6% 5%

Strongly Agree Somewhat Agree Neither agree nordisagree

Somewhat disagree Strongly disagree

Attitudes Toward CEO’s

“CEO pay should be tied to company performance.”

82%

11%

50Q720: Please indicate how strongly you agree or disagree with the following statements.Base: All shareholders (n=1,110)

However, two-thirds also agree that a CEO can enhance the stock value of a company.

17%

49%

20%

9%5%

Strongly Agree Somewhat Agree Neither agree nordisagree

Somewhat disagree Strongly disagree

Attitudes Toward CEO’s

“A CEO can enhance the stock value of a company.”

66%

14%

51Q725: How does the personal appeal of a company leader influence your decision to invest in a particular company?Base: All shareholders (n=1,110)

The majority of shareholders feel that the personal appeal of company leaders neither positively nor negatively influences their investment decisions.

3%

34%

57%

4% 2%

Very Positively Somewhat Positively Neither Positively norNegatively

Somewhat Negatively Very Negatively

Overall Influence of Company Leader on Investment Decision

37%

6%

52Q730: How do the following company leaders influence your decision to invest in their companies?Base: All shareholders (n=1,110)

Yet certain company leaders, for example Martha Stewart or Meg Whitman, do foster negative or positive influences.

46%

23%

54% 52%

27%

63%

15%

41%

14%

21%24%

38%

48%

64%

47%

24%30%

48%

10%5%6%

Meg Whitman,CEO of Ebay

Bob Nardelli,CEO and

President of TheHome Depot

Carly Fiorina,Chairman and

CEO of Hewlett-Packard

Martha Stewartof MarthaStewart

Omnimedia

RupertMurdoch,

Chairman andCEO of NewsCorporation

Sanford Weill,CEO ofCitigroup

MichaelArmstrong,

CEO of AT&T

Very/Somewhat Positively Neither Positively nor Negatively Very/ Somewhat Negatively

Influence of Company Leaders on Decision to Invest in Their Companies

53

How Are Investment Decisions Impacted How Are Investment Decisions Impacted by Current Events and Plans for 2005?by Current Events and Plans for 2005?

54Q930:How much would you say current events affect your investment strategy?Base: All shareholders (n=1,110)

Three-fourths of shareholders say current events affect their investment strategies somewhat or a great deal.

21%

53%

22%

4%

A Great Deal Somewhat Not Very Much Not At All

Affect of Current Events on Investment Strategy

74%

26%

55Q935: Which of the following factors are prompting you to make changes to your investment portfolio?Base: All shareholders (n=1,110); Plan to Make a Change to Investments (n=769); Plan to Increase Specific Investments (n=696); Plan to Decrease Specific Investments (n=300)

Investors most commonly mention the economy as a factor that impacts their investment strategy. Other commonly cited factors are rising energy prices and rising interest rates.

TotalPlan to Make A Change to Investments

Plan to Increase

Investments

Plan to Decrease

Investment

The economy 44 62 62 66

Rising energy prices 33 47 47 53

Rising interest rates 31 44 45 51

Rising health care costs 28 40 39 44

The recent presidential election 28 39 40 47

Outsourcing of jobs overseas 21 29 29 34

Unemployment rate 20 29 28 34

The war in Iraq 20 28 29 36

The situation in the Middle East 18 25 25 34

Terrorism 15 21 21 27

Other 9 13 12 16

None 10 14 14 7

Factors Prompting Changes to Portfolio

56Q935: Which of the following factors are prompting you to make changes to your investment portfolio?Base: All shareholders (n=1,110)

Both male and female shareholders are largely prompted by the economy to make changes to their investment portfolios, but men are much more influenced with nearly half of shareholders citing this factor.

(%) (%)

Total Male Female

The economy 44 49 37

Rising energy prices 33 39 26

Rising interest rates 31 37 23

Rising health care costs 28 29 28

The recent presidential election 28 34 20

Outsourcing of jobs overseas 21 22 19

Unemployment rate 20 21 19

The war in Iraq 20 23 16

The situation in the Middle East 18 21 14

Terrorism 15 17 12

Other 9 7 11

None 10 9 11

Factors Prompting Changes to Portfolio

57Q905: Thinking ahead to next year, do you think each of the following will increase, decrease or stay about the same?Base: All shareholders (n=1,110)

Overwhelmingly, shareholders believe health care costs and interest rates will increase next year.

87%80%

67% 66%

56%

42%

6%14%

26% 26% 25%33%

18%

8%10%3%

23%

11%

Health carecosts that I pay

Interest Rates Home values inmy area

Inflation The stockmarket

The nationalunemployment

rate

Increase Decrease Stay the same

58Q910: Thinking now of the health care costs that you pay, how have these affected your ability to save or invest? Are you…?Base: Pay Health Care Cost ( n=931)

More than half of shareholders who pay health care costs are saving or investing less as a result of that expense.

53%

41%

6%

Saving or investing less Saving or investing the sameamount

Saving or investing more

59Q910: Thinking now of the health care costs that you pay, how have these affected your ability to save or invest? Are you…?Base: Pay Health Care Costs (n=931); Male (n=527); Female (n=404)

The impact of health care cost affects women more than men – 60% of women are saving or investing less because of health care costs that they pay.

53%

41%

6%

48%44%

8%

60%

37%

4%

Saving or investing less Saving or investing the sameamount

Saving or investing more

Total Men Women

60Q940: What is your primary financial goal for 2005?Base: All shareholders (n=1,110)

Three in ten shareholders say their primary financial goal for 2005 is paying off debt; saving for retirement is a close second.

30%26%

15%10%

4%

15%

Pay off debt Saving forretirement

Saving forunexpectedexpenses

Saving to make abig purchase suchas a home, boat,

car, vacation

Saving for a child'seducation

Other

Primary Financial Goals for 2005

61Q945: As an investor, which one of the following gifts would you most like to receive this holiday season?Base: All shareholders (n=1,110)

There are a variety of holiday wishes this season; 1 in 5 shareholders would like oil at $20 a barrel while 17 percent would request a 20% reduction in health insurance premiums.

4%

5%

5%

7%

8%

10%

12%

13%

17%

20%

A 2% reduction in the umemployment rate

A chance to buy into a hot IPO

Elimination of estate taxes

Extension of President Bush's tax break

A 5% interest-bearing checking account

The Dow at 12,000

A stable government in Iraq

My portfolio's gainers outpace my losers bymore than 3 to 1.

A 20% reduction in my health insurancepremiums

Oil at $20 a barrel

Gifts Would Most Like to Receive this Holiday Season

62Q945: As an investor, which one of the following gifts would you most like to receive this holiday season?Base: All shareholders (n=1,110)

At the top of the wish list for male investors is oil at $20 a barrel while women’s top pick is a 20% reduction in their health insurance premiums.

(%) (%)

Total Male Female

Oil at $20 a barrel 20 25 14

A 20% reduction in my health insurance premiums

17 15 19

My portfolio’s gainers outpace my losers by more than 3 to 1

13 15 12

A stable government in Iraq 12 9 16

The Dow at 12,000 10 10 9

A 5% interest-bearing checking account 8 5 11

Extension of President Bush’s tax break 7 8 5

Elimination of estate taxes 5 5 5

A chance to buy into a hot IPO 5 5 4

A 2% reduction in the unemployment rate 4 4 4

Gifts Most Like to Receive this Holiday Season

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DemographicsDemographics

64

DemographicsDemographics

GenderTotal

%

Male 56

Female 44

GenderTotal

%

Male 56

Female 44

Age

Total

%

35 years old or less 1436-49 2850-64 2965+ 24

MEAN 48.5MEDIAN 48

Age

Total

%

35 years old or less 1436-49 2850-64 2965+ 24

MEAN 48.5MEDIAN 48

Marital Status

Total

%

Single, never married 22

Married 56Divorced 9Separated 2Widowed 5Living with partner 7

Marital Status

Total

%

Single, never married 22

Married 56Divorced 9Separated 2Widowed 5Living with partner 7Children in Household Under 18

Total

%

0 791 92 83+ 4MEAN 0.4

Children in Household Under 18

Total

%

0 791 92 83+ 4MEAN 0.4

Race/Ethnicity

Total

%White 80Black/African-American 8

Asian or Pacific Islander 1Native American or Alaskan Native *Mixed racial background *Other race *Hispanic 8Decline to answer 2

Race/Ethnicity

Total

%White 80Black/African-American 8

Asian or Pacific Islander 1Native American or Alaskan Native *Mixed racial background *Other race *Hispanic 8Decline to answer 2

65

Demographics (Cont’d)Demographics (Cont’d)

Education

Total%

High school graduate or less 33Some college 27College (e.g., B.A., B.S.) 39Some graduate school, but no degree 5Graduate school (e.g., M.S., M.D., Ph.D.) 11

Education

Total%

High school graduate or less 33Some college 27College (e.g., B.A., B.S.) 39Some graduate school, but no degree 5Graduate school (e.g., M.S., M.D., Ph.D.) 11

Party Identification

Total

%

Republican 38Democrat 35Independent 27

Party Identification

Total

%

Republican 38Democrat 35Independent 27

Political Philosophy

Total

%

Conservative 30Moderate 49Liberal 21

Political Philosophy

Total

%

Conservative 30Moderate 49Liberal 21

Employment

Total%

Employed (net) 64Employed full-time 42

Employed part-time 10Self-employed 12

Not employed, but looking for work 2Not employed and not looking for work 2Retired 27Student 9Homemaker 8

Employment

Total%

Employed (net) 64Employed full-time 42

Employed part-time 10Self-employed 12

Not employed, but looking for work 2Not employed and not looking for work 2Retired 27Student 9Homemaker 8

66


Household’s Total Net Worth

Total%

Less than $50,000 15$50,000 to $99,999 13$100,000 - $249,999 17$250,000 or more 32Not sure 4Decline to answer 20

Household’s Total Net Worth

Total%


Investable Assets

Total%


Investable Assets

Total%


Household Income

Total%

Less than $50,000 27$50,000 to $99,999 34$100,000 to $149,999 21$150,000 or more 6

Decline to answer 13

Household Income

Total%

Less than $50,000 27$50,000 to $99,999 34$100,000 to $149,999 21$150,000 or more 6

Decline to answer 13

Member of Investment Club

Total%

Current Member 2Former Member 6Never a Member 92

Member of Investment Club

Total%

Current Member 2Former Member 6Never a Member 92

Heard of National Association of Investors Corporation (NAIC)

Total%

Yes 29No 71

Heard of National Association of Investors Corporation (NAIC)

Total%

Yes 29No 71

67


Region

Total%

East 24Midwest 20South 32West 24

Region

Total%

East 24Midwest 20South 32West 24

Size of Place

Total

%Central counties of metro areas of 1 million or more 49Fringe counties of metro areas of 1 million or more 4Counties in metro areas of 250,000 to 1 million 25Counties in metro areas of fewer than 250,000 8Urban population of 20,000 or more, adjacent to metro area 3Urban population of 20,000 or more, not adjacent to metro area 2Urban population of 2,500-19,999, adjacent to metro area 4Urban population of 2,500-19,999, not adjacent to metro area 2Completely rural or less than 2,500 urban population, adjacent to metro area 1Completely rural or less than 2,500 urban population, not adjacent to metro area *NA 1

Size of Place

Total

%Central counties of metro areas of 1 million or more 49Fringe counties of metro areas of 1 million or more 4Counties in metro areas of 250,000 to 1 million 25Counties in metro areas of fewer than 250,000 8Urban population of 20,000 or more, adjacent to metro area 3Urban population of 20,000 or more, not adjacent to metro area 2Urban population of 2,500-19,999, adjacent to metro area 4Urban population of 2,500-19,999, not adjacent to metro area 2Completely rural or less than 2,500 urban population, adjacent to metro area 1Completely rural or less than 2,500 urban population, not adjacent to metro area *NA 1

68

Detailed MethodologyDetailed Methodology

69

Detailed Methodology

The Voice of the American Shareholder Quarterly Poll Wave 4 was conducted by Harris Interactive on behalf of the National Association of Investors Corporation (NAIC). Interviewing was conducted between November 3 and November 10, 2004 among a nationally representative sample of 1,110 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. Question and response series2. Skip pattern3. Question rotation4. Range checks5. Mathematical checks6. Consistency checks7. Special edit procedures

70

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 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 computer-generated 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.

71


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).

72


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.

73


CALCULATION FOR NAIC INDEX

The NAIC 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 NAIC Voice of the American Shareholder January 2004, May 2004 and November 2004 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 behaviorQ926 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)?

Q922: 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:Q602: 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.

74


CALCULATION FOR NAIC 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 November 2004, Q410: “How much confidence do you have that the United States’ economy is generally moving in the right direction?”

18.2% responded that they have a great deal of confidence in the direction of the economy, 70.1% responded that they had a fair amount or not much confidence and 11.7% indicated they had no confidence at all.

This yielded a component score of 18.2% - 11.7% = 6.5%

To calculate the NAIC Shareholder Index, we then took the mean of the 7 component scores.

75



The following table shows the component scores for each item used in calculating the Index for September 2003, January 2004, May 2004 and November 2004.

Please note that since the three statements that make up Q486 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. Also, one of the original Index questions was not included in November 2004 and the Index has been re-calculated for January and May 2004.

Component Item Sept '03 Jan '04 May '04 Nov '04

Confidence that US econom y is m oving in right direction 5.9 15.2 10.6 6.5Increase, decrease, or m ake no change in individual stock investm ents, next 6 m onths 24.0 27.3 18.6 20.8Increase, decrease, or m ake no change in stock m utual funds, next 6 m onths 21.8 25.8 19.3 17.5How w ould you characterize m ost of your investm ents (1=not risky, 7=very risky) -- 7.0 -1.1 0.0

Good tim e to m ove m oney into safer, low er risk investm ents -- 3.3 -6.7 -15.5

Most stocks are a better bargain now than they w ere a year ago -- 9.8 7.7 9.2

Component Scores

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Validating the Index

While the January and May 2004 surveys included an allocation exercise designed to validate the Index by measuring a change in the very behavior the Index is intended to measure. While this question was not included in the November 2004 survey, the decline in the Index can be supported through shareholders’ anticipation of rising interest rates, lower levels of confidence in the direction of the economy and the growing number who feel that safer investments are the way to go right now.

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