NASD Members Permitted to Provide Investment Analysis Tool, October 2004

Washington, DC, October 25, 2004 - The SEC recently approved NASD Interpretive Material (IM) that will permit NASD members to make available to their customers an "investment analysis tool" that helps in the evaluation of potential risks and returns associated with various investments.

Background
Originally proposed more than two years ago, NASD's action allows its members an exemption from NASD rules that prohibit making public predictions or projections of investment results.

An "investment analysis tool" is defined as any interactive technological tool that produces simulations and statistical analyses that present the likelihood of various investment outcomes if certain investments are made or certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors in the evaluation of the potential risks and returns of investment choices.

Specifically, the IM permits the use of any "investment analysis tool" provided the member complies with certain disclosure and filing requirements, by providing:

a description of the criteria and methodology used, including the investment analysis tool's limitations and key assumptions;
an explanation that results may vary with each use and over time; and
a description of the universe of investments considered in the analysis including an explanation of how the tool determines which securities to select; disclosure of whether the tool favors certain securities; and a statement that other investments not considered may have characteristics similar or superior to those being analyzed.

Members who provide such tools must also display a warning that the information generated by the tool is hypothetical, does not reflect actual investment results, and does not guarantee future results.

ICI Position
The Institute commented in support of the original proposal in April 2003, stating that the investment analysis tool would benefit investors by giving them access to resources for analyzing the wide variety of available investment options, thereby enabling them to make more informed investment decisions. The Institute also recommended measures to ensure that conditions imposed for the use of the tool are not so burdensome as to discourage NASD members from offering it.