Keeping Prospectus In Perspective

by David Jenyns on September 5, 2008

As is true of other companies that wish to offer securities publicly, an investment firm must file a registration with the Securities Exchange Commission (SEC). Unfortunately, too many investors do not read the prospectus, or cannot understand the most elementary financial language.


Since 1933, the prospectus has undergone many changes. The prospectus generally contains the following information about the fund: its objectives and features, investment policy, the securities being offered, management personnel, dividends and capital gains distributions, investment powers and restrictions, redemption or repurchase of shares, pricing of shares, portfolio, and financial statements, including a record of per share income and changes in net asset value.

Every prospectus states the names of the transfer agent and custodian, legal counsel, auditors, and underwriter or distributor.

Supplementing the prospectus, underwriters produce a tremendous quantity of sales material. Despite all these sources of information, investors must not allow themselves to be persuaded that it is essential to buy the shares of an investment firm before they have had an opportunity to read the prospectus.

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