WHAT IS A PROSPECTUS?
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The prospectus is the document that describes a
mutual fund. All mutual funds must provide prospectuses to whoever
requests them. Although it contains information investors need to
evaluate a fund, the prospectus is not an advertising piece and may
not legally advise people to invest in the fund.
Although prospectuses can make for rather dry
reading, it is important that you read the prospectus before you
invest in a fund. The fund's management team, objectives, and
performance history—and much more—are included so that
investors will have a clear understanding of the investments they
It may sound surprising, but today's prospectuses
are easier to read than those of the past. Their language gets
simpler as time goes on. However, much of the legal and financial
language used in prospectuses is there to protect the investor from
misconstruing the nature of the fund and its operations. Prospectus
language must be exact, and its words must be very clear.
Each prospectus has a philosophical side,
too. We will discuss that next.