Glossary
Prospectus
The disclosure document for a securities offering or fund, describing the business, risks, terms and fees, filed with the SEC.
On this page
A prospectus is the formal disclosure document that accompanies a public offering of securities in the US. It tells investors what they are buying: what the issuer does, how it has performed financially, what it will do with the money, what could go wrong and the terms of the securities. Under the Securities Act of 1933, most public offerings must be registered with the SEC, and the prospectus is the part of that registration delivered to investors.
How it works
For a company's Initial public offering (IPO), the prospectus is the main part of a registration statement, usually on Form S-1 for US companies or Form F-1 for many foreign ones. It moves through stages:
- Preliminary prospectus. Circulated during the marketing "roadshow" before the price is set. It is nicknamed a red herring after the red warning legend once printed on its cover saying the registration is not yet effective.
- Final prospectus. Filed once the SEC declares the registration effective and the price is set, including the final offering price and share count.
Mutual funds and ETFs also publish a prospectus, plus a shorter summary prospectus that puts fees, objectives, risks and past performance in a standard format at the front.
What it is and is not
The SEC reviews registration statements for disclosure, not for merit. It does not approve an investment or vouch for the accuracy of the document, and every prospectus says so on its cover. The issuer and underwriters carry legal liability for material misstatements, which is why risk-factor sections tend to be long and cautious. All filed prospectuses can be read for free on the SEC's EDGAR database.