What is a Prospectus? How to Read and Understand One

March 3, 20236 min read
What is a Prospectus? How to Read and Understand One
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Key Takeaways

  • Security issuers must file a prospective when offering investment securities to the public.
  • A prospective lays out the details of a company’s offerings, including opportunities and risks.
  • Many investors use prospectus to help them make decisions.

Because they contain a host of pertinent information about their investment “prospects,” prospectus can help investors make better decisions about where to put their capital. But what is a prospectus, and how are investors to read and understand one?

What is a Prospectus?

It is a formal document filed by companies to describe a prospective investment offering. It is filed when a new security such as a stock, bond, or mutual fund is issued, and contains details about the company or fund, its history, and more.

The filing shields the issuing company or fund from claims that pertinent information was unavailable or not made clear.

How Does the SEC Review Prospectus?

The U.S. Security and Exchange Commission (SEC) requires companies seeking to offer shares to the public to first file a preliminary and final prospectus with the regulatory agency.

Prospectus for Mutual Funds and ETFs/Stocks or Bonds

Prospectus for mutual funds and exchange-traded funds look at bit different than those for stocks and bonds.

A mutual fund or ETF prospectus will include details about fund management, fees, distribution policies, performance, strategies, and investment objectives. A stock or bond prospectus will include no discussion about investment strategy. Further, each mutual fund prospective must include information about the fund’s investment risk, including its provenance.

For mutual funds, there are two types of prospectus: summary and statutory.

Summary: Sufficient for most investors, this document is usually only a few pages long and contains fundamental fund information.

Statutory: A longer and more thorough document, this prospectus contains significantly detailed fund information, although there usually is a summary in the first few pages.

How to Read a Prospectus

What is a prospectus? That has been explained. Investors must also know how to read one – once they locate it. To do so, they can visit the SEC’s website for its Electronic Data Gathering, Analysis and Retrieval (EDGAR) database. Searches may be done by company/fund name, filing date, ticker symbol, etc.

With regard to prospectus perusal, investors need not read each word. Rather, they should look through it with a focus on critical information. Specifically, investors should:

  • Understand, where applicable, the company’s business model and goals.
  • Weigh presented risk factors.
  • Consider whether what investment proceeds will go toward aligns with personal investment goals.
  • Determine whether they already have similar securities or funds in their portfolio, and if so, whether an investment would diminish portfolio diversification.

What is Included in a Prospective?

Generally, a prospective will include:

  • Company history and management team information.
  • Financial information such as audited financial statements.
  • The asset’s principal value and amount.
  • Whether the offering is private or public.
  • Number of shares offered.
  • How investment proceeds will be used.
  • Investment risk factors.
  • The underwriting bank or financial institution.

Who Needs a Prospectus?

In addition to investors, a prospectus is commonly used to promote or describe an offering such as a commercial startup, upcoming book, or school. All such documents seek to lure or inform buyers, investors, clients, or members.

What is the Difference Between a Preliminary and Final Prospectus?

Preliminary prospectus. This document typically includes all company and security information other than pricing or the number of shares to be issued. This prospectus is generally used to assess market interest.

Final prospectus. This includes complete details of the offering, including price, the number of shares or certificates to be issued, and any finalized background information.

What Does a Prospectus Tell Investors?

A prospectus aims to spark investor interest and help investors make more-informed decisions. It provides investors with specifics about a company and its history, and what it is offering.

How Do Alternatives Differ from These SEC Rules?

Investors are increasingly turning to alternative investments, generally described as those other than stocks and bonds. Such alternatives, which include art, real estate, collectibles, and venture capital, for example, can provide steady secondary income while working to diversify portfolios. Their low correlation to the stock market helps mitigate volatility.

While practices pertaining to alternatives are subject to SEC examination, alternatives are not required registration with the regulatory agency. In other words, while alternative investment vehicles are regulated, their securities have few regulations.

Historically, alternatives have only been accessible to wealthy individuals or institutions. That changed with the emergence of opportunities with lower buy-in minimums.

Invest in Alternative Assets

Get consistent returns in times of market volatility.

What is Yieldstreet’s Due Diligence Process?

When investors examine a company’s prospectus before making an investment decision, they are performing due diligence. Ideally, investment platforms do their part, too. Yieldstreet does. The alternative investment platform offers a variety of private market opportunities such as short-term notes, private credit, and private equity.

Each offering, though, must first undergo a robust, multi-pronged vetting process that includes originations and screening, diligence, assessment, and committee review. In fact, less than 10% of investment opportunities presented to Yieldstreet ultimately reach the platform.

Alternative Investments and Portfolio Diversification

Traditional portfolio asset allocation envisages a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split, incorporating alternative assets, may make a portfolio less sensitive to public market short-term swings.

Real estate, private equity, venture capital, digital assets, precious metals and collectibles are among the asset classes deemed “alternative investments.” Broadly speaking, such investments tend to be less connected to public equity, and thus offer potential for diversification. Of course, like traditional investments, it is important to remember that alternatives also entail a degree of risk.

In some cases, this risk can be greater than that of traditional investments.

This is why these asset classes were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors buying in at very high minimums — often between $500,000 and $1 million. These people were considered to be more capable of weathering losses of that magnitude, should the investments underperform. However, that meant the potentially attractive gains these investments presented were also limited to these groups.

To democratize these opportunities, Yieldstreet has opened a number of carefully curated alternative investment strategies to all investors. While the risk is still there, the company offers help in capitalizing on areas such as real estate, legal finance, art finance and structured notes — as well as a wide range of other alternative investments.

Learn more about the ways Yieldstreet can help diversify and grow portfolios.


How to read and understand a prospectus is important to investing success. However, it is also important for investors to do their own due diligence regarding companies in which they are interested. That calls for studying a company’s finances.

It also might be a wise move to diversify portfolios with alternatives, which are not as subject to constant stock market shifts. And if such alternatives are rigorously vetted before being offered, even better.

This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact [Yieldstreet] or consult with the professional advisor of their choosing.”

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We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetalternativeincomefund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

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