The Security and Exchange Commission (SEC) requires that any company raising money from potential investors through the sale of securities must file a prospectus with the SEC and then provide the prospectus to potential investors. The prospectus informs investors of the company’s history, management biographies, financial statements, best and worst-case scenarios of company performance and any other information that will help investors make an informed decision about the investment. A prospectus for stocks and bonds is issued in two stages. The first stage is the preliminary prospectus that contains most of the details of the business and proposed financial transaction. It is nicknamed “red herring” due to the red lettering on the front cover. The preliminary prospectus is used to shop the deal to see if there is enough interest from investors to move forward. Assuming the deal progresses, then a second stage of prospectus is issued -- the final prospectus. It incorporates all the information from the preliminary prospectus, plus the final security amount and price. Mutual funds must also issue a prospectus, because a mutual fund continually offers shares to the public. A mutual fund’s prospectus contains details about the fund objectives, investment strategy, fund history, distribution policy and biographies of the fund managers. Established publicly traded companies that meet stringent SEC requirements are allowed to offer securities using an abbreviated prospectus that references all the company’s past public filing information. Investors can then also search the already available public information on the company.