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prospectus investment & finance definition
A
document that provides financial and other fundamental information about a
proposed public stock or bond. A prospectus provides details about the
offering, the company’s business, management, and financial performance as well
as information on how it intends to use the funds raised through the offering.
Typically prospectuses are issued for initial public offerings and bond
offerings. Mutual funds also issue prospectuses before selling shares to the
public, as do limited partnerships seeking investors for real estate, oil, or
gas investments. The information in the prospectus comes from the registration
statement, which the company has to file with the Securities and Exchange
Commission before it can sell stock or bonds to the public. The company may
issue a preliminary prospectus, or a red
herring, while the SEC is reviewing the registration statement. The
final prospectus may be called an offering
circular. The term red herring
is used because of the red letters that appeared on the cover of the offering,
warning that the SEC had not yet approved the security for sale.
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