Subdued sentiment on European and U.S. equity markets
The positive sentiment in the equity markets that was observed in the first quarter, continued into the month of April. M&A speculation in all sectors and strong economic growth in the U.S. and China helped ensure stable price trends in all markets. In addition, the first quarter results were encouraging, especially for DAX companies. In May, however, sentiment on the stock exchanges began weakening. This situation was exacerbated in mid-May by concerns over inflation and interest rates in the U.S. based on statements by the U.S. Federal Reserve, inflation figures for the U.S. as well as the dispute with Iran over nuclear energy and the resulting increase in the price of oil, which led to significant declines in share prices. The U.S. technology index NASDAQ 100 suffered a loss of 7.7 percent and closed at 1,575 at the end of the second quarter.

Due to these events the technology companies listed in the TecDAX came under pressure. The TecDAX opened the second quarter at 727, falling below 600 in mid June though recovering somewhat to close at 652 on June 30. At the end of the second quarter, the TecDAX had stabilized thanks to positive reports from the solar industry. The German Association for the Solar Industry (Bundesverband Solarwirtschaft) recently announced the creation of more than 5,000 new jobs this year. The outlook for the IT industry also looks promising. For example, the German government is predicting that the German IT industry will increasingly drive the economy.

Software AG stock follows TecDAX
In the second quarter, our stock performed in line with the TecDAX, which fell by 10.3 percent during this period. After peaking at €46.02 at the beginning of May, Software AG‘s share price dropped by 10.1 percent by the end the second quarter to close at €40.68 in Xetra electronic trading on June 30, 2006.

The Software AG stock improved slightly in the TecDAX ranking of Deutsche Börse AG, reaching 7th place (Q1 2006: 8th place) in market capitalization and 10th place (Q1 2006: 10th place) in trading volume as of the end of June 2006.

Investor relations activities intensified in the U.S.
Now that the Software AG stock is once again receiving attention from mid-cap and large-cap investors due to our rapidly growing market capitalization, investor relations activities in 2006 are particularly focused on the U.S. However, our efforts in this region were complicated by weak European equity markets, which unsettled U.S. investors. In order to minimize risk, investors tended to hold blue chips and sell small caps, particularly technology stocks. On the whole, investors were reluctant to make new investments. We will nevertheless maintain our investor relations activities in order to build up relationships until the investment climate improves. For example, we held roadshows on the east and west coasts of the U.S. and participated in an investor conference in San Francisco. Subsequent investor conferences took place in Europe along with roadshows in Frankfurt, London, Dublin, Paris and Lugano. All in all, we held discussions with more than 100 investors, stock traders and analysts in the second quarter.

Software AG receives prestigious investor relations awards
Our investor relations activities were honored with the “Thomson Extel Survey Beste IR Deutschland” award, attaining first place among TecDAX companies. More than 500 investment professionals from 270 companies took part in the survey. The most important criteria were clarity and transparency, proactive executive board communication, quality of investor relations team’s knowledge, service and responsiveness, formal disclosure and general investor support.

At the 2006 "Capital Investor Relations Awards", Software AG’s investor relations team achieved second place within the TecDAX. Capital, a German business publication, awards its investor relations prize to German and European companies included in the Euro-Stoxx 50, DAX, MDAX, SDAX and TecDAX indices. More than 250 analysts from 250 European banks, funds and corporations participated in this survey. They assessed the quality of investor relations activities on the basis of four criteria: target group orientation, transparency, track record and extra financial reporting.

High attendance at Annual General Meeting
Our Annual General Meeting took place in Frankfurt, Germany, on May 12, 2006. A total of 62.26 percent of equity capital entitled to vote was present, the highest attendance level ever achieved. This was largely attributable to our active investor approach. All ten agenda items were approved either unanimously or by a large majority. Software AG paid out a total of €22.4 million (€0.80 per share) to its shareholders as resolved by the Annual General Meeting. The next Annual General Meeting will take place on May 11, 2007 in Frankfurt/Main, Germany.

Changed shareholder structure
In comparison to December 2005, the number of shareholders residing in Germany increased by 5 percent, and that of shareholders residing in the UK by 4 percent.