| 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 plan  information 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.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® |
Prospectus. A prospectus is a formal written offer to sell stock to the public. It is created by an investment bank that agrees to underwrite the stock offering.
The prospectus sets forth the business strategies, financial background, products, services, and management of the issuing company, and information about how the proceeds from the sale of the securities will be used.
The prospectus must be filed with the Securities and Exchange Commission (SEC) and is designed to help investors make informed investment decisions.
Each mutual fund provides a prospectus to potential investors, explaining its objectives, management team and policies, investment strategy, and performance. The prospectus also summarizes the fees the fund charges and analyzes the risks you take in investing in the fund.
What Does Prospectus Mean?
A legal document required by and filed with the Securities and Exchange Commission; provides details about an investment offering that is for sale to the public. A prospectus should contain all the material facts of the offering so that an investor can make an informed investment decision. Also known as an offer document.
Investopedia explains Prospectus
There are two types of prospectuses for stocks and bonds: preliminary and final. The preliminary prospectus is the first offering document provided by a securities issuer and includes most of the details of the business and transaction in question. Some lettering on the front cover is printed in red, which results in the use of the nickname “red herring” for this document. The final prospectus is printed after the deal has been made effective and can be offered for sale and supersedes the preliminary prospectus. It contains finalized background information, including details such as the exact number of shares/certificates issued and the precise offering price. In the case of mutual funds, which, apart from their initial share offering, continuously offer shares for sale to the public, the prospectus used is a final prospectus. A fund prospectus contains details on the fund's objectives, investment strategies, risks, performance, distribution policy, fees and expenses, and management.
Related Terms:
• Common Stock
• Due Diligence
• Initial Public Offering—IPO
• Mutual Fund
• Securities and Exchange Commission—SEC
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