Quick Answer
Issuers must deliver specific documents to investors depending on the offering type: the prospectus for corporate offerings, the preliminary prospectus (red herring) during the cooling-off period, the official statement for municipal bonds, the summary prospectus for mutual funds, and the private placement memorandum for Regulation D offerings.
With the types of offerings and shelf registrations covered, the next logical question is: what documents must be provided to investors? The answer depends on the type of offering.
Key Offering Documents
| Document | Used For | Key Contents | Required By |
|---|---|---|---|
| Prospectus | Public offerings of corporate securities | Description of the security, issuer's business, financial statements, risks, use of proceeds, management info | Securities Act of 1933 (prospectus-delivery requirements) |
| Preliminary prospectus (red herring) | Distributed during the waiting/cooling-off period | Same as prospectus but without final price or effective date; printed with red ink disclaimer on cover | SEC rules during the cooling-off period |
| Official statement (OS) | New municipal bond offerings | Equivalent of a prospectus for munis: describes the issuer, terms, security, and risks | MSRB disclosure rule for primary offerings |
| Program disclosure document | Municipal securities programs (e.g., 529 plans) | Ongoing disclosure for continuous municipal programs | MSRB disclosure rule for primary offerings |
| Summary prospectus | Mutual funds | Condensed version of the full prospectus; investors can request the full version | SEC mutual-fund summary-prospectus authority |
| Private placement memorandum (PPM) | Private placements (Regulation D) | Disclosure document for private offerings; NOT reviewed by the SEC | Regulation D |
The Preliminary Prospectus (Red Herring)
- Called a "red herring" because of the red ink disclaimer printed on its cover
- Distributed during the cooling-off period (the waiting period between filing the registration statement and the SEC declaring it effective)
- Purpose: gauge investor interest and provide preliminary information
- Contains most of the same information as the final prospectus except the final offering price and effective date
- No sales can occur during this period; only indications of interest are allowed
Exam Tip: Gotchas
- No sales during the cooling-off period. A preliminary prospectus (red herring) can gauge investor interest, but NO sales can occur until the SEC declares the registration effective and the final prospectus is available.
The Final Prospectus
- Must be delivered to investors at or before the time of sale for public offerings
- Contains all material information about the security and the issuer
- Under the Securities Act of 1933:
- The registration statement must include the required disclosures (issuer description, financials, use of proceeds, management)
- The prospectus must include the material information investors need to evaluate the offering
- The registration statement becomes effective on the date the SEC declares it effective (typically 20 days after filing, subject to SEC review)
Exam Tip: Gotchas
- The SEC does not "approve" securities. The SEC only declares a registration statement "effective." If an exam answer says the SEC "approved" a security, that answer is wrong.
- The Securities Act of 1933 is older than the SEC. The Federal Trade Commission first enforced it. The Securities Exchange Act of 1934 created the SEC and gave it that job. Today, and on the exam, a 1933 Act registration statement goes to the SEC.
Municipal Bond Documents
- Municipal bonds use an official statement (OS) instead of a prospectus
- The OS serves the same purpose: full disclosure of material information to investors
- Governed by the MSRB disclosure rule for primary offerings, which requires delivery of the official statement to purchasers
- A separate MSRB CUSIP rule covers CUSIP number requirements for new municipal issues
- For ongoing municipal programs (like 529 college savings plans), a program disclosure document provides continuous disclosure
Summary Prospectus
- A condensed version of the full prospectus, used primarily for mutual funds
- Authorized by SEC mutual-fund summary-prospectus authority
- Investors who receive a summary prospectus can always request the full version
- Designed to make key fund information more accessible and easier to understand
What Should You Check on Exam Day?
- Can you explain why a preliminary prospectus is called a red herring?
- Do you know why no sales can occur during the cooling-off period?
- Can you state why the SEC only declares a registration "effective" instead of "approving" it?
- Do you know which document municipal bond issuers use instead of a prospectus?
- Can you explain when investors receive a summary prospectus instead of the full prospectus?