prospectus

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noun pro·spec·tus \ prə-ˈspek-təs , prä- \
Updated on: 26 Jul 2017

Definition of prospectus

plural prospectuses
1 :a preliminary printed statement that describes an enterprise (such as a business or publication) and that is distributed to prospective buyers, investors, or participants
2 :something (such as a statement or situation) that forecasts the course or nature of something

Recent Examples of prospectus from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'prospectus.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

prospectus Is a Word For the Forward-Thinking

Like prospect, prospectus looks forward. Thus, a prospectus originally outlined something that didn't yet exist, describing what it would become. This might even be a book; the great dictionary of Noah Webster, like that of Samuel Johnson, was first announced in the form of a prospectus, so that well-to-do people might actually subscribe to it—that is, pay for it in advance so that Webster would have money to live on while writing it. Soon, prospectus was being used to mean a description of a private school or college, intended to attract new students. Today the word very often means a description of a stock offering or mutual fund, whether new or not.

Origin and Etymology of prospectus

Latin, prospect


Financial Definition of PROSPECTUS

prospectus

What It Is

A prospectus is a legal document issued by companies that are offering securities for sale. Mutual funds also provide a prospectus to potential clients, which includes a description of the fund's strategies, the manager's background, the fund's fee structure and a fund's financials statements.

How It Works

To get an idea of the role of the prospectus, let's assume Company XYZ is pursuing an IPO. Before launching the IPO, Company XYZ must first file a registration statement, which discloses all material information about the company, with the SEC. Part of the registration statement is the prospectus, which must be provided to all purchasers of the new issue.

After Company XYZ files the registration statement with the SEC for review, a cooling-off period begins. During this 20-day period, securities brokers can discuss the new IPO with clients, but the only information that can be distributed is the preliminary prospectus.

When the registration statement becomes effective, Company XYZ will amend the preliminary prospectus to add such important information as the offering price and the underwriting spread. This final prospectus must contain:

Description of the offering
History of the business
Description of management
Price
Date
Selling discounts
Use of proceeds
Description of the underwriting
Financial information
Risks to buyers
Legal opinion regarding the formation of the company
SEC disclaimer

When the final prospectus is released, brokers can take orders from those clients who indicated an interest during the cooling-off period. A copy of the final prospectus must precede or accompany all sales confirmations.

Why It Matters

The role of the prospectus is the make investors aware of the risks of an investment. Without this information, they would essentially have to make investments "sight unseen." This disclosure also protects the company from claims that it did not fully disclose enough information about itself or the securities in question.


PROSPECTUS Defined for English Language Learners

prospectus

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noun

Definition of prospectus for English Language Learners

  • : a printed statement that describes something (such as a new business or investment) and that is sent to people who may want to be involved in it or invest in it

  • : a book or document that provides information about a school, business, etc.


Law Dictionary

prospectus

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noun pro·spec·tus \ prə-ˈspek-təs \

legal Definition of prospectus

plural prospectuses \-tə-səz\
:a preliminary printed statement describing a business or other enterprise and distributed to prospective buyers, investors, or participants; specifically :a description of a new security issue supplied to prospective purchasers and providing a disclosure of detailed information concerning the company's business and financial standing
Note: Under the Securities Act of 1933, the prospectus is part of the registration statement that must be filed with the Securities and Exchange Commission before a security may be offered or sold to the public. The Securities Act defines prospectus broadly as “any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television, which offers any security for sale or confirms the sale of any security.”


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