What is a 'prospectus'?

A prospectus is a formal document that provides detailed information about an investment offering, such as stocks or mutual funds, to potential investors. This document is essential for ensuring transparency and helping investors make informed decisions. The prospectus usually includes important details about the financial instruments being offered, including the investment objectives, risks, and expenses, along with the background of the issuing company, financial statements, and management details.

This transparency is particularly important in the context of securities regulation, as it provides the necessary information to shareholders and potential investors, thereby protecting their interests. It is a crucial part of the initial public offerings (IPOs) process and other forms of public investment.

While there may be reports about stock market performance or summaries of financial history, these do not provide the comprehensive, formal structure and detailed information that a prospectus entails. Similarly, a financial report from the SEC may pertain to various regulatory aspects, but it does not serve the same purpose as a prospectus, which is specifically aimed at presenting an investment opportunity to the public.