Prospectus

AAA

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."

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 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.

RELATED TERMS
  1. Red Herring

    A preliminary prospectus filed by a company with the Securities ...
  2. Primary Market

    A market that issues new securities on an exchange. Companies, ...
  3. Corporation

    A legal entity that is separate and distinct from its owners. ...
  4. Final Prospectus

    1. The final version of a prospectus for a public offering of ...
  5. Initial Public Offering - IPO

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

    1. The illegal practice of soliciting orders to buy a new issue ...
Related Articles
  1. Warning Signs Of A Company In Trouble
    Professionals

    Warning Signs Of A Company In Trouble

  2. Interpreting A Company's IPO Prospectus ...
    Fundamental Analysis

    Interpreting A Company's IPO Prospectus ...

  3. How To Maximize Returns By Choosing ...
    Savings

    How To Maximize Returns By Choosing ...

  4. Digging Deeper: The Mutual Fund Prospectus
    Mutual Funds & ETFs

    Digging Deeper: The Mutual Fund Prospectus

comments powered by Disqus
Hot Definitions
  1. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. In October 2006, Canada's minister of finance, Jim Flaherty, ...
  2. Zombies

    Companies that continue to operate even though they are insolvent or near bankruptcy. Zombies often become casualties to ...
  3. Witching Hour

    The last hour of stock trading between 3pm (when the bond market closes) and 4pm EST. Witching hour is typically controlled ...
  4. October Effect

    The theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological ...
  5. Repurchase Agreement - Repo

    A form of short-term borrowing for dealers in government securities.
  6. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
Trading Center