Prospectus

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What is a 'Prospectus'

A prospectus is 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."

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.

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RELATED FAQS
  1. How can I get a mutual fund prospectus?

    Read and understand the prospectus before investing in a mutual fund. You can obtain a copy from the fund company, your financial ... Read Answer >>
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    Learn about the various elements included in an investment company's prospectus and which ones are most important for investors ... Read Answer >>
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  5. Which statement is FALSE about a prospectus issued under the Securities Act of 1933?

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