Prospectus

DEFINITION

A prospectus is the part of a registration statement that gets delivered to investors as the offering document. The preliminary version (called a 'red herring' because of the red-ink disclaimer on its cover) circulates during the roadshow; the final priced version is the 424B. It contains business description, financials, risk factors, use of proceeds, management bios, and the underwriter list — everything an investor is presumed to have read.

WHY IT MATTERS FOR RETAIL INVESTORS

If you are buying in or near an IPO or a follow-on offering, the prospectus is the legal record of what you were told before purchasing. Material omissions or misstatements in a prospectus are the basis for the strongest securities-fraud claims under Section 11. Read at least the Risk Factors and MD&A in any prospectus you are acting on; skim everything else.

RELATED TERMS

• Form S-1
• 424B Prospectus
• IPO