prospectus

Prospectus

1. A formal legal document describing details of a corporation. The prospectus is generally created for a proposed offering (usually an IPO), but they can still be obtained from existing businesses as well. The prospectus includes company facts that are vitally important to potential investors.

2. In this case of mutual funds, a prospectus describes the fund's objectives, history, manager background, and financial statements.

Notes:

The prospectus is a document that makes investors aware of the risks of an investment.

See also: Final Prospectus, Gun Jumping, IPO, Mutual Fund, Public Offering Price (POP), Red Herring

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Prospectus

Formal written document to sell securities that describes the plan for a proposed business enterprise, or the facts concerning an existing one, that an investor needs to make an informed decision. Prospectuses are used by mutual funds to describe fund objectives, risks, and other essential information.

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prospectus

A formal written document relating to a new securities offering that delineates the proposed business plan or the data relevant to an existing business planinformation needed by investors to make educated decisions whether to purchase the security. The prospectus includes financial data, a précis of the firm's business history, a list of its officers, a description of its operations, and mention of any pending litigation. A prospectus is an abridged version of the firm's registration statement filed with the SEC. See also offering circular, red herring.

What is the most important information to be found in a mutual fund prospectus?

The mutual fund prospectus is a legal document that contains valuable information for the investor. Now, it's easy to make fun of a prospectus. It's boring, and, yes, reading one is a cure for insomnia. But the prospectus is worth a close look, and a lot of investment mistakes could be avoided with a careful reading of the whole text. But several sections should be highlighted. First is the expense table. All mutual funds have to lay out in a standardized format all the fees associated with owning a fund. If there is a fee to buy and sell a fund, it's there, plus all the ongoing charges imposed by the fund. Thoroughly scrutinize the financial highlights. It's a lot of numbers, but these figures give a reading on how the fund has done over time and in different markets. The investment objective section is critical. Is this the kind of fund you are looking for? Is it run, say, to generate dividend income, or is the money manager striving for long-term capital appreciation in high-tech stocks? The management page tells you whether the fund is run by an individual or by a committee.

Christopher Farrell, Economics Editor, Minnesota Public Radio, heard nationally on Sound Money^®