Prospectus provides key information on stock

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A prospectus can be an important part of your investment decision. If you've ever seen one, you may wonder how to make sense of all the information it provides. Well, let's take a look at some of the key elements that make up a prospectus.|ret||ret||tab|

A prospectus is a written document that provides all material information. |ret||ret||tab|

A prospectus is only used for an initial offering of stocks or for a secondary offering. |ret||ret||tab|

This document is one of the main tools that a company uses to sell its stock. A prospectus is also a legal document that protects the company offering stocks (the issuer) because it is written proof that important facts were given to the buyers.|ret||ret||tab|

Here are some key parts of a prospectus that are important to know:|ret||ret||tab|

"Certain Considerations" is the risk-factor section. This is where the risks of the offering are disclosed and discussed.|ret||ret||tab|

The "Company" section gives you more information on the issuer, such as company history, type of operation, location and general business plan.|ret||ret||tab|

The "Use of Proceeds" section describes how the money you invest will be used.|ret||ret||tab|

The "Dividend Policy" section will discuss whether the stock is income- or growth-oriented. If income-oriented, the stocks are expected to pay dividends, and if growth-oriented, there will not usually be any dividends paid.|ret||ret||tab|

The "Management Discussion and Analysis of Financial Condition and Results of Operations" is one of the most important sections. It should outline how management believes it has performed and takes a closer look at how the business is doing. This section will also discuss earnings, revenues and expenses.|ret||ret||tab|

The "Underwriting" section discloses the form of underwriting used and the amount of compensation the underwriter will receive. There are two types of underwriting: firm and best efforts. In a firm underwriting agreement, a brokerage firm commits to buy all the shares of stock issued and assumes financial responsibility for any stocks that go unsold. |ret||ret||tab|

In a best-efforts underwriting agreement, a brokerage firm acts as an agent and promises to give its best shot at selling the stock shares. It does not assume financial responsibility for unsold shares. Usually, if a company has a best-efforts offering, it may not have attracted underwriters who are willing to commit to a firm underwriting. You may want to ask extra questions of the company before purchasing stock.|ret||ret||tab|

"Financial Statements" and "Footnotes" include the balance sheet and income statement, and will look into the business operations of the issuer. The footnotes also include issuer information such as properties owned, leases, equipment and employee benefit plans. This information is important to investors because a company's valuation is based upon future earnings and its debt, as well.|ret||ret||tab|

The "Description of Capital Stocks" details the classes of stock offered and their voting rights. You can have common stock, which has voting rights, or preferred stock, which does not. Voting rights allow shareholders to vote on important issues, such as the election of board members, via ballots that are mailed with the company's proxy statement before its annual meeting. This section also discusses the total supply of stock available for sale. |ret||ret||tab|

A prospectus is an important document designed to help you select the best stocks for your portfolio. If you have questions after carefully reading a prospectus, contact your financial consultant for further clarification.|ret||ret||tab|

|bold_on|(Timothy M. Reese is vice president of investments with A.G. Edwards & Sons. Inc., member SIPC.)|ret||ret||tab|

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