Prospectus
A prospectus is a legal document filed with the SEC that provides details about an investment offering, including risks, fees, objectives, and management.
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Exam Tip
Prospectus must be delivered AT or BEFORE confirmation. Red herring = preliminary.
What is a Prospectus?
A prospectus is a formal disclosure document that provides essential information about an investment to help investors make informed decisions. It's required for new securities offerings and mutual funds.
What's in a Prospectus?
| Section | Contents |
|---|---|
| Investment Objectives | What the fund aims to achieve |
| Strategies | How objectives will be pursued |
| Risks | Principal risks of investing |
| Fees & Expenses | All costs to investors |
| Performance | Historical returns |
| Management | Portfolio manager information |
| Purchase/Redemption | How to buy and sell |
Types of Prospectuses
- Preliminary (Red Herring) - Filed before SEC approval, no final price
- Final Prospectus - Complete document with all details and pricing
- Summary Prospectus - Shortened version for mutual funds
Legal Requirements
- Must be delivered BEFORE or WITH confirmation of sale
- Contains required SEC disclosures
- Cannot contain misleading information
- Must be updated at least annually (mutual funds)
What a Prospectus Cannot Do
- Guarantee returns
- Make predictions about performance
- Contain untrue statements of material fact
- Omit material information
Study This Term In
Related Terms
Mutual Fund
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities.
SEC (Securities and Exchange Commission)
The SEC is the U.S. federal agency responsible for enforcing securities laws, regulating securities markets, and protecting investors from fraud and market manipulation.
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