What you should know about a prospectus

Before you invest in shares, make sure you know what you're getting into with this legal disclosure document.

Woman at desk writing with pencil

Before you invest in shares of a mutual fund, you should understand the nature of the investment you are making. The mutual fund prospectus describes the nature of the fund offering. Before investing in a mutual fund, you should review its prospectus to determine if the investment is appropriate for you.

What is a prospectus?

Technically, a prospectus is a legal disclosure document filed with the Securities and Exchange Commission (SEC) that provides information that a person can use to make an informed investment decision.

How to read a prospectus

A prospectus may can be lengthy, but some fund companies use a more concise "mutual fund summary prospectus", which covers key information about the fund. Some information in a prospectus may include:

  • Information and background on the company and the current financial situation;
  • Number of shares being issued;
  • Investment objective (its overall investment purpose);
  • Fees and expenses (such as sales charges, if any, management fees, 12b-1 distribution fees, etc.);
  • Principal investment strategies (how the fund intends to invest to attempt to satisfy its investment objective);
  • Principal risks, including a narrative description of the fund's risks and including an illustration of the fund's historical investment performance (including one-, five- and ten-year average annual returns);
  • Portfolio managers;
  • Procedures regarding how to purchase and sell the fund's shares, including minimum investment amounts;
  • Tax information, including information about payments to persons who sell the fund's shares, if applicable; and
  • Information about dividends.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Securities distributed by State Farm VP Management Corp.

Securities are not FDIC insured, are not bank guaranteed and are subject to investment risk, including possible loss of principal.

Neither State Farm nor its agents provide tax or legal advic.


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