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Investor Optimism Rises for the Second Straight Month, According to UBS Index

| Media Releases Americas

Investors Split on How Potential War with Iraq Will Impact the U.S. Economy

Overall optimism increased for the second month in a row, as investors' outlook for the financial markets over the next year continued to improve, according to the Index of Investor OptimismĀ®, a joint effort of UBS and the Gallup Organization.

Currently at 52, the overall Index rose 11 points from 41 in November. Conducted monthly, the Index had a baseline of 124 when it was established in 1996.

In December, 44 percent of investors say they are optimistic about the performance of the stock market in the coming 12 months, up from 36 percent last month. More than half of those surveyed, 53 percent, say now is a good time to invest, a modest rise from November when 50 percent of investors shared this view. Overall, 69 percent of investors report they are optimistic that the year 2003 will be better for the financial markets than 2002.

Expectations for short-term return, over the next 12 months, declined slightly to 7.8 percent in December from 8.5 percent last month. The decline in short-term expectations can be attributed to a steep drop among the least experience investors, those with less than five years in the markets. Among this group, expectations fell to 6.8 percent from 15 percent in November. On average, investors report they earned a negative (3.6) percent rate of return on their portfolio over the past year.

Nearly two-thirds of those surveyed, 65 percent, expect the Federal Reserve to hold interest rates at the same level over the next three months, compared with 15 percent who believe rates will be increased, and 16 percent who anticipate a rate cut. Among those investors with an opinion on the subject, 84 percent say they approve of the Fed's current interest rate policies.

When asked about the situations currently impacting the investment climate, investors continue to cite the issue of questionable accounting practices as being of most concern, with 89 percent saying the issue is having a negative effect. This is followed by the threat of more terrorist attacks, 86 percent; the general economic conditions in the United States, 74 percent; discussion of a possible war with Iraq, 71 percent; and the current state of corporate earnings, 65 percent.

Importantly, investors are split over what effect an American invasion of Iraq will have on the nation's economy, with 43 percent of those surveyed believing it will have a somewhat or very positive impact, compared with 47 percent who say it will be somewhat or very negative.

This month, investors were also asked about the outcomes of the recent congressional elections, and which issues Congress and the President should consider top priorities for the next legislative session. Among those surveyed, 39 percent believe the results of the elections will positively affect the investment climate, 24 percent say it will have a negative effect, and 30 percent believe it will have no impact at all.

Perhaps surprisingly, providing a prescription drug benefit for seniors ranks first among the issues investors believe policymakers should address, with 35 percent saying it should be a top priority. This is followed by balancing the federal budget, 34 percent; reforming public education, 30 percent; invading Iraq to remove Saddam Hussein from power, 27 percent; reforming Social Security, 27 percent; making permanent the tax cuts enacted in 2001, 17 percent; and repealing the federal tax on inheritances, 17 percent.

These findings are part of the 56th Index of Investor Optimism, which was conducted from December 1 to December 15. To track and measure Index changes on an ongoing basis, new samplings are taken monthly. Dennis J. Jacobe, research director for Gallup, said the sampling included 1,000 investors randomly selected from across the country. For this study, the American investor is defined as any person who is head of a household or a spouse in any household with total savings and investments of $10,000 or more. Nearly 40 percent of American households have at least this amount of savings and investments. The sampling error in the results is plus or minus three percentage points.

In January 2002, UBS established the Index of Investor Optimism - EU 5, the European counterpart to the U.S. survey covering France, Germany, Great Britain, Italy and Spain. This month, 1,000 investors across these EU markets were polled from December 1 to December 15. Overall optimism registered at negative (38) in December, down from negative (28) last month.

For more than 60 years, the Gallup Organization has been a recognized leader in the measurement and analysis of people's attitudes, opinions and behavior. While best known for the Gallup Poll, founded in 1935, Gallup's current activities consist largely of providing marketing and management research, advisory services and education to the world's largest corporations and institutions.

UBS AG is a leading global financial services firm with 71,000 employees worldwide, providing a wide range of services to a client base that includes affluent individuals, corporations, institutions and governments. Headquartered in Switzerland, the bank has significant operations in all of the world's major financial centers and is comprised of four business groups; UBS Warburg, UBS PaineWebber, UBS Wealth Management and Business Banking, and UBS Global Asset Management.

UBS Index of investor optimism overall trend

OVERALL INDEX

02 December

52

02 November

41

02 October

29

02 September

60

02 August

52

02 July

46

02 June

72

02 May

90

02 April

89

02 March

121

02 February

92

02 January

115

01 December

88

01 November

84

01 October

86

01 September

50

01 August

76

01 July

74

01 June

85

01 May

90

01 April

81

01 March

82

01 February

77

01 January

96

00 December

106

00 November

130

00 October

132

00 September

147

00 August

160

00 July

143

00 June

149

00 May

155

00 April

140

00 March

150

00 February

168

00 January

178

99 December

174

99 November

148

99 October

139

99 September

160

99 August

149

99 July

166

99 June

146

99 May

163

99 April

168

99 March

151

99 February

167

98 December

141

98 September

147

98 June

160

98 March

161

97 December

151

97 September

151

97 June

152

97 February

128

96 November

125

96 October

124