Slight recovery in the European and U.S. equity markets
Following the significant price decreases on the stock markets in May/June of this year, the third quarter brought the start of a moderate recovery, even though the indices did not post major overall gains.

In July, equity market sentiment was still subdued due to the conflict in the Middle East and continuing discussion on base interest rates in the euro zone. However, the situation improved in mid-August, thanks to the end of the interest rate hiking cycle and falling crude oil prices. The U.S. technology index Nasdaq 100 gained 4.3 percent in the third quarter, closing at 1,654 points on September 30. By contrast, the TecDAX started the third quarter at 667 points, slipped under the 600 point mark in mid July, and closed at 663 points on September 30, representing a decrease of 0.6 percent.

Software AG stock outperforms benchmark indices
Our Company’s stock experienced a remarkable upswing in the third quarter, outperforming the TecDAX and Nasdaq 100 benchmark indices by a wide margin.

Following an initial decline with the stock bottoming out at €37.43 on July 18, our share price reached a high of €48.80 on September 20. The stock gained a total of 17.2 percent in the third quarter to close at €48.28 on September 30 in Xetra electronic trading. A total of 6.2 million Software AG shares were traded in the third quarter, corresponding to an average volume of 95,000 shares per trading day (prior year: 88,000).

Software AG stock moved up again in the TecDAX ranking of Deutsche Börse AG. As of the end of September 2006, Software AG had reached 6th place (Q2 2006: 7th place) in terms of market capitalization, and 9th place (Q2 2006: 10th place) in terms of trading volume.

Analyst coverage increases again
In September, Société Générale, a major Paris bank, started covering Software AG. The Company is now covered by a total of 21 global and regional analysts’ firms in Germany, Great Britain and France. At the end of September, our stock had 18 “buy” recommendations and 3 “hold” recommendations. No financial analysts advised selling the stock. After publication of the third quarter results on October 24, the average target price set by financial analysts was €53. At present, we are holding discussion with two more renowned banks on taking up coverage with the goal of further increasing the quality and range of the recommendations.

Investor contact remains intensive
We have continued our investor relations activities at a high level. Road shows were held on the East and West Coasts of the USA, and we participated in an investor conference in San Francisco in order to intensify contact with U.S. investors. We also held investor conferences in Europe and road shows in Frankfurt, London, the British Channel Islands, and Brussels aimed at maintaining existing contacts. To tap additional capital markets, we returned to Scandinavia in September after a fairly long break and talked with investors in Copenhagen, Oslo, and Stockholm. These investors indicated strong interest in Software AG with a high level of willingness to invest in the Company. We are planning additional activities in this region in the future. To further enhance our investor relations work, we have commissioned a market study to obtain assessments from analysts and investors. The results will be available in the fourth quarter of 2006 and will be used for planning activities in 2007.