• Characteristics of Various Types of Securities
• The Ins and Outs of Income Trusts
• The Prospectus – Being Informed
• Understanding Mutual Fund Fees
• Stock Options
• Offshore Investments Sold Through Internet Can Wash Your Savings Away

The cornerstone to investor protection is to ensure that you have access to accurate and up-to-date information about any company or mutual fund in which they might choose to invest. Public access to information to make sound investment decisions is why companies and mutual funds are required to prepare prospectuses, financial statements and other public disclosure materials.

A prospectus is invaluable as the starting point to making an informed decision. It gives you and your financial advisers information about a company or mutual fund, including information on products, management, financial and strategic planning, and risks. Reading a prospectus is the first step to becoming an informed investor.

A prospectus is a detailed document that normally must be prepared whenever an issuer (company, limited partnership, trust or mutual fund which is selling their securities) plans to sell securities to the public. It must, by law, provide full, true and plain disclosure of all important facts relating to the securities being issued. It must also be accepted for filing by the securities regulators and delivered to every person who buys the securities. Some jurisdictions allow a summary simplified prospectus, which is an abbreviated version. This is supplied to investors, although the detailed prospectus is available on request.

When an issuer decides to sell its securities to the public, it first prepares a preliminary prospectus and files that document with Global Trade and Securities Regulator for review. A preliminary prospectus has most of the information that will end up in the final version of the prospectus, but may be missing certain information such as the price or number of securities being sold.

Once the preliminary prospectus has been properly filed, the issuer can use it to find out if investors are actually interested in buying the securities, provided that each potential investor gets a copy of the preliminary prospectus. The issuer cannot actually sell their securities using the preliminary prospectus, they can only find out if people are interested in buying.

When the review has been completed, the issuer prepares and files a final version of the prospectus and Global Trade and Securities Regulator issues a receipt for it. Once the prospectus receipt has been issued, the issuer may begin to sell their securities.

Anyone selling securities to the public will need to use a prospectus, but what you will find in a prospectus will depend on how the issuer is set up.

A typical prospectus for a corporation includes:

• The history of the issuer and a description of its operations
• Audited financial statements for the previous three years
• A description of the issuer’s business and investment plans
• A description of the intended use of the money raised from selling the securities
• A summary of the major risk factors affecting the issuer
• Information about the issuer’s management and its principal shareholders (those who own more than 10%)
• A description of the legal rights of investors to withdraw from the purchase, or to sue for rescission (the return of their investment) or damages if the prospectus contains a misrepresentation

Mutual funds also have prospectuses which cover similar information to a corporation’s prospectus such as risks in the investment and financial performance.

In addition, you should find answers about:

• What does the fund invest in?
• How are fees paid to the fund manager calculated?
• How has the fund performed?
• How is the value of the fund units calculated?
• Are those fees payable on purchase or redemption of fund units?

We all need information to make decisions. We read the newspaper to stay informed of current events. We listen to weather reports to know if we need an umbrella. Investing is no different.

Prospectuses are required by law to contain the facts. It is the facts, not promotional hype or sales pitch that should be the basis for investment decisions.

A prospectus allows you to protect yourself by giving you detailed information about the issuer and about the securities being sold. In the prospectus, you can find answers to many of the questions you would naturally ask before making an investment.

Some questions might include:

• Is the issuer well established or is it new with little or no history?
• What business is it in? Who are its competitors?
• What are the issuer’s business plans and how does it intend to spend the proceeds of this offering?
• Has the issuer been profitable in the past?
• Has its financial performance been improving or declining in recent years?
• What assets does it hold?
• Does it have substantial debt?
• What other securities have already been issued?
• Who are the directors and officers?
• Do they have established track records of success?
• Do they have qualifications relevant to the issuer’s business?
• How will they be compensated?
• Have they had any regulatory problems in the past?
• What are the major risk factors that could affect the issuer’s performance in the future?
• Is there a market where the issuer’s securities can be sold?

Armed with the facts, you are better able to make decisions which are right for you. Look at the merit of the investment, the risks and how the particular investment fits your needs and objectives. By reviewing the prospectus, you will be better able to determine whether the investment has merit and whether the levels of risk and potential return fit your particular investment needs and objectives.

Securities laws require issuers to take great care to ensure the statements made in their prospectuses are accurate, as it is illegal to file a false or misleading prospectus. If material misrepresentations are found in a prospectus, each person who bought securities under the prospectus has the right to sue for the return of their money (rescission) or damages. A misrepresentation can be false information in the prospectus, or information that was not included in the prospectus which might better explain the facts in the prospectus. A material misrepresentation is one that would affect the value of the security being sold. The law also protects you by giving you the right to withdraw from any purchase under a prospectus for two days after you or in some cases their financial adviser receives the prospectus.

The fact that Global Trade and Securities Regulator accepts a prospectus is not a ‘seal of approval’ that the securities are a safe investment or are suitable for you to invest in. You and your adviser must determine if it is the right investment for you.

Securities sold using a prospectus can be traded among investors. The price that they trade at and how quickly they can be sold are determined by what kind of market there is for the securities you bought.

Just because securities are sold using a prospectus does not mean they will be listed on a stock exchange. If they do not trade on a stock exchange, this can affect an investor’s ability to sell the securities they purchased as there may not be interested buyers.

Read the prospectus – it will tell you if the shares are going to be listed on an exchange and on which exchange.

The purpose of a prospectus is to protect the investor. By reading it, you will have the information you need to make a sound investment decision.