• Who Analysts Are and Who They Work for
• Potential Conflicts of Interest
• Disclosure and Recent Rule Changes
• What Conflicts May Mean to You
• Unlock the Mystery of “Lock-ups”
• How You Can Protect Yourself

Research analysts study publicly traded companies and make recommendations on the securities of those companies. Most specialize in a particular industry or sector of the economy. They exert considerable influence in today’s marketplace. Analysts’ recommendations or reports can influence the price of a company’s stock—especially when the recommendations are widely disseminated through television appearances or through other electronic and print media. The mere mention of a company by a popular analyst can temporarily cause its stock to rise or fall—even when nothing about the company’s prospects or fundamentals has recently changed.

Analysts often use a variety of terms—buy, strong buy, near-term or long-term accumulate, near-term or long-term over-perform or under-perform, neutral, hold—to describe their recommendations. But the meanings of these terms can differ from firm to firm. Rather than make assumptions, investors should carefully read the definitions of all ratings used in each research report. They should also consider the firm’s disclosures regarding what percentage of all ratings fall into either “buy,” “hold/neutral,” and “sell” categories.

While analysts provide an important source of information in today’s markets, investors should understand the potential conflicts of interest analysts might face. For example, some analysts work for firms that underwrite or own the securities of the companies the analysts cover. Analysts themselves sometimes own stocks in the companies they cover—either directly or indirectly, such as through employee stock-purchase pools in which they and their colleagues participate.

As a general matter, investors should not rely solely on an analyst’s recommendation when deciding whether to buy, hold, or sell a stock. Instead, they should also do their own research—such as reading the prospectus for new companies or for public companies, the quarterly and annual reports filed with the SEC—to confirm whether a particular investment is appropriate for them in light of their individual financial circumstances. This alert discusses the potential conflicts of interest analysts face, describes the the self-regulatory organization (SRO) rules concerning analyst recommendations, and provides tips for researching investments.

As of November 4, 2002, all statements of beneficial ownership on of more than five percent of a class of equity securities on Schedules 13D and 13G (including those relating to the securities of foreign private issuers) must be submitted electronically using the SEC’s EDGAR system. If you can’t find a form on EDGAR, please refer to information on “How to Request Public Documents.”