DEFINITION of 'Prospectus'

A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details about an investment offering for sale to the public. A prospectus should contain the facts that an investor needs to make an informed investment decision.

Also known as an "offer document."


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BREAKING DOWN '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 such details 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 its objectives, investment strategies, risks, performance, distribution policy, fees and expenses, and fund management.

  1. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  2. Final Prospectus

    1. The final version of a prospectus for a public offering of ...
  3. Corporation

    A legal entity that is separate and distinct from its owners. ...
  4. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs ...
  5. Gun Jumping

    1. The illegal practice of soliciting orders to buy a new issue ...
  6. Mutual Fund

    An investment vehicle that is made up of a pool of funds collected ...
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  1. What is the most important section in an investment company's prospectus?

    It is important for investors to examine all information contained within an investment company’s prospectus. However, the ... Read Full Answer >>
  2. What information should I focus on in my mutual fund's prospectus?

    The U.S. Securities and Exchange Commission (SEC) requires investment companies to provide potential and current investors ... Read Full Answer >>
  3. What information does the SEC require in an investment company's prospectus?

    A prospectus is the document provided by registered investment companies to investors that is meant to assist them in making ... Read Full Answer >>
  4. What are the regulations involved in releasing an ETF on the open market?

    New securities released for sale on the open market are subject to certain regulations enforced by the Securities and Exchange ... Read Full Answer >>
  5. Why have mutual funds become so popular?

    Mutual funds have become an incredibly popular option for a wide variety of investors. This is primarily due to the automatic ... Read Full Answer >>
  6. Do mutual funds pay dividends?

    Depending on the specific assets in its portfolio, a mutual fund may generate income for shareholders in the form of capital ... Read Full Answer >>

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