Plain English Handbook: Creating Clear SEC Disclosure Documents, Lecture notes of English

Download Plain English Handbook: Creating Clear SEC Disclosure Documents and more Lecture notes English in PDF only on Docsity! A Plain English Handbook How to create clear SEC disclosure documents By the Office of Investor Education and Assistance U.S. Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 August 1998 This handbook shows how you can use well-established techniques for writing in plain English to create clearer and more informative disclosure documents. We are publishing this handbook only for your general information. Of course, when drafting a document for filing with the SEC, you must make sure it meets all legal requirements. Table of Contents Preface by Warren E. Buffett 1 Introduction by Arthur Levitt, Chairman 3 U.S. Securities and Exchange Commission Chapter 1 What Is a “Plain English” Document? 5 Chapter 2 Getting Started 7 Chapter 3 Knowing Your Audience 9 Chapter 4 Knowing the Information You Need to Disclose 11 Chapter 5 Reorganizing the Document 15 Chapter 6 Writing in Plain English 17 Chapter 7 Designing the Document 37 Chapter 8 Time-Saving Tips 55 Chapter 9 Using Readability Formulas and Style Checkers 57 Chapter 10 Evaluating the Document 59 Chapter 11 Reading List 61 Chapter 12 Keeping in Touch with Us 63 Appendix A Plain English at a Glance 65 The SEC’s Plain English Rules—an Excerpt 66 Appendix B Plain English Examples 69 “Before” and “After” Filings with Notes 70 a plain english handbook a plain english handbook Preface This handbook, and Chairman Levitt’s whole drive to encourage “plain English” in disclosure documents, are good news for me. For more than forty years, I’ve studied the documents that public companies file. Too often, I’ve been unable to decipher just what is being said or, worse yet, had to conclude that nothing was being said. If corporate lawyers and their clients follow the advice in this handbook, my life is going to become much easier. There are several possible explanations as to why I and others some­ times stumble over an accounting note or indenture description. Maybe we simply don’t have the technical knowledge to grasp what the writer wishes to convey. Or perhaps the writer doesn’t understand what he or she is talking about. In some cases, moreover, I suspect that a less-than­ scrupulous issuer doesn’t want us to understand a subject it feels legally obligated to touch upon. Perhaps the most common problem, however, is that a well-intentioned and informed writer simply fails to get the message across to an intelligent, interested reader. In that case, stilted jargon and complex constructions are usually the villains. This handbook tells you how to free yourself of those impediments to effective communication. Write as this handbook instructs you and you will be amazed at how much smarter your readers will think you have become. by Warren E. Buffett a plain english handbook 1 Companies that communicate successfully with their investors form stronger relationships with them. These companies save the costs of explaining legalese and dealing with confused and sometimes angry investors. Lawyers reviewing plain English documents catch and correct mistakes more easily. Many companies have switched to plain English because it’s a good business decision. They see the value of communi­ cating with their investors rather than sending them impenetrable documents. And as we depend more and more on the Internet and electronic delivery of documents, plain English versions will be easier to read electronically than legalese. The SEC’s staff has created this handbook to help speed and smooth the transition to plain English. It includes proven tips from those in the private sector who have already created plain English disclosure documents. This handbook reflects their substantial contributions and those of highly regarded experts in the field who were our consultants on this project, Dr. William Lutz at Rutgers University and the firm of Siegel & Gale in New York City. But I hasten to add that the SEC has not cornered the market on plain English advice. Our rules and communications need as strong a dose of plain English as any disclosure document. This handbook gives you some ideas on what has worked for others, but use whatever works for you. No matter what route you take to plain English, we want you to produce documents that fulfill the promise of our securities laws. I urge you —in long and short documents, in prospectuses and shareholder reports—to speak to investors in words they can understand. Tell them plainly what they need to know to make intelligent investment decisions. • a plain english handbook 4 1 What Is a “Plain English” Document? We’ll start by dispelling a common misconception about plain English writing. It does not mean deleting complex information to make the document easier to understand. For investors to make informed decisions, disclosure documents must impart complex information. Using plain English assures the orderly and clear presentation of complex information so that investors have the best possible chance of understanding it. Plain English means analyzing and deciding what information investors need to make informed decisions, before words, sentences, or paragraphs are considered. A plain English document uses words economically and at a level the audience can understand. Its sentence structure is tight. Its tone is welcoming and direct. Its design is visually appealing. A plain English document is easy to read and looks like it’s meant to be read. a plain english handbook 5 This handbook’s purpose This handbook gives you practical tips on how to create plain English documents. All of these were born of experience. They come from experts and those who have already written or rewritten their docu­ ments in plain English. As with all the advice in this handbook, feel free to tailor these tips to your schedule, your document, and your budget. Not all of the tips will apply to everyone or to every document. Pick and choose the ones that make sense for you. Some of our tips cover very basic mechanical issues, like how to photo­ copy your working draft. We’ve included them because they were learned the hard way and have saved people time, money, and aggrava­ tion. You’ll see them listed in Chapter 8, titled “Time-Saving Tips.” This handbook is by no means the last word on plain English. We expect to change it and add more tips as we learn more about writing securities documents in plain English. So please keep notes on your experiences and copies of your original and rewritten language. We want to hear from you and include your tips and rewrites in the next edition. Finally, we encourage you to give this handbook out freely. It is not copyrighted, so you can photocopy it without fear of penalty. • a plain english handbook 6 Knowing Your Audience Knowing your audience is the most important step in assuring that your document is understandable to your current or prospective investors. To write understandable documents, you need to gauge the financial sophistication of your investors. Through polls and other market survey research tools, some companies know the demographics of their investors well. Other companies rely on their investor relations staff or their underwriters to describe who has bought, or is likely to buy, their securities. Using whatever information is available, you can create a profile of your investors or prospective investors based on the following questions: • What are their demographics—age, income, level of education, and job experience? • How familiar are they with investments and financial terminology? • What investment concepts can you safely assume they understand? • How will they read the document for the first time? Will they read it straight through or skip around to the sections that interest them? • Will they read your document and your competitors’ side by side? • How will they use the document while they own the security? What information will they be looking for later, and is it easy to find? a plain english handbook 9 3 “One must consider also the audience...the reader is the judge.” Aristotle Rhetoric Your investors or prospective investors may include individuals and institutions with varying degrees of financial sophistication. While your audience will include analysts and other industry experts, you may want to keep in mind that your least sophisticated investors have the greatest need for a disclosure document they can understand. Some companies have faced the differing needs of their investors and other audiences by making basic educational information visually distinctive from the rest of the text so that sophisticated investors can easily recognize and scan it. Once you’ve drawn a profile of your investors, keep it constantly in mind. Some writers keep a photo of a typical investor to make sure they don’t lose sight of their readers. After analyzing who your investors are, you can turn to the document you want to write or rewrite. • 10 a plain english handbook Knowing the Information You Need to Disclose The steps outlined in this section have been used successfully by others who have written disclosure documents in plain English. As we said earlier, feel free to tailor these steps to your own schedule and team. This is one approach if you are rewriting an existing document, but others may work equally well. Read and outline the current document Read the entire document once without making any notes or comments on the text. This should give you a general understanding of the information covered in the document and make your next read more productive. When you read it the second time, make notes on what information is covered and any questions you have. Your notes will also help you to assess if information flows through your document in a logical order. As you read, consider the following: • Will the investors understand the language? • Does the document highlight information that is important to investors? • Is any important information missing? • Does the document include information that is not legally required and will not help investors make informed decisions? 4 For time-saving tips on how to outline and reorganize your document, read Chapter 8 on page 55. a plain english handbook 11 14 a plain english handbook Reorganizing the Document A few principles of good organization apply universally. First, present the big picture before the details. Prospectuses routinely start with a detailed description of the securities. You may read pages before you find out what the company produces, or why it is merging or spinning off a subsidiary. It’s hard to absorb the details if you don’t know why they are being given to you. Imagine trying to put together a complicated jigsaw puzzle without first seeing the picture of the com­ pleted puzzle. An individual piece of information means more to your readers if they know how it fits into the big picture. Second, use descriptive headers and subheaders to break your document up into manageable sections. Prospectuses impart a lot of information. If you present the information in bite-sized pieces, it’s easier to digest. Make sure your headings tell the reader what the upcoming sections will cover. Headings like “general” or “background” aren’t especially helpful. Third, always group related information together. This helps you identify and eliminate repetitious information. a plain english handbook 15 5 Fourth, your audience’s degree of investment expertise will affect how you organize the document. If you are writing for financially unsophis­ ticated investors, your document’s overall organization may take an educational approach. You may need to explain industry terms or concepts where they first appear. Fifth, review your document by taking a good look at the flow of infor­ mation from beginning to end. Start making decisions on how the con­ tent should be moved around into a new and logical order based on: • the audience profile • the notes you made in the margins • the decisions you’ve made on your cover page and summary • the information you’ve learned in answering your questions Once you have finished physically reorganizing the document, you may want to write an outline of your new organization. Your outline can later become your table of contents. You’re now ready to start rewriting your document in plain English. And, speaking of writing… • 16 a plain english handbook Use the active voice with strong verbs The plodding verbosity of most disclosure documents makes readers yearn for clear words and short sentences. The quickest fix lies in using the active voice with strong verbs. Strong verbs are guaranteed to liven up and tighten any sentence, virtually causing information to spring from the page. When you start to rewrite or edit your work, highlighting all the verbs can help. You may be surprised by the number of weak verbs, especially forms of “to be” or “to have” that you’ll find. The time you spend searching for a precise and strong verb is time well spent. When a verb carries more meaning, you can dispense with many of the words used to bolster weak verbs. Weak verbs keep frequent company with two more grammatical undesirables: passive voice and hidden verbs. In tandem, they add unnecessary length and confusion to a sentence. The active and passive voices If you need it, here’s a quick refresher on the active and passive voice. active The investor buys the stock. In the active voice, the subject of the sentence, the investor, performs the action, buying the stock. passive The stock is bought by the investor. In the passive voice the subject, the stock, is acted upon. The person or the thing doing the action is introduced with “by.” But sometimes, the person or thing doing the action is deleted, leading to... passive with agent deleted The stock is bought. You don’t know who bought the stock. You’ll find many examples of the “passive with agent deleted” in disclosure documents. Readers understand sentences in the active voice more quickly and easily because it follows how we think and process information. Many times the passive voice forces readers to take extra mental steps as they convert the passive into the active. “A rambling, unwieldy sentence generally hangs from an inert…vague, actionless verb.” Claire Kehrwald Cook Line by Line a plain english handbook 19 “When you make all the verbs active, other economies suggest themselves.” Claire Kehrwald Cook Line by Line To recognize the passive voice, ask yourself: Does the sentence use a form of the verb “to be” with: • another verb in the past tense; and • a prepositional phrase beginning with “by”? Remember that it’s harder to recognize the passive voice when the object (the phrase introduced with “by”) is left out. When you rewrite the sentence in the active voice, use a strong verb. These examples show how strong verbs and the active voice transform sentences, making them shorter and easier to understand. before The foregoing Fee Table is intended to assist investors in under­ standing the costs and expenses that a shareholder in the Fund will bear directly or indirectly. The before example uses the passive with agent deleted. We don’t know who “intended” to assist investors. Note how long it took to get to the meat of the sentence—the costs and expenses. Dispensing with the filler words “...to assist investors in understanding...” moves the reader more quickly to the important points. after This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. Here’s another example: before The proxies solicited hereby for the Heartland Meeting may be revoked, subject to the procedures described herein, at any time up to and including the date of the Heartland Meeting. after You may revoke your proxy and reclaim your right to vote up to and including the day of the meeting by following the directions on page 10. The plain English version tells you who may revoke a proxy and where to find the information on how to do it. It replaces the abstract “subject to the procedures described herein” with concrete, everyday words, “by following the directions on page 10.” It’s not enough merely to translate existing texts—the key is to add useful information. 20 a plain english handbook Don’t ban the passive voice, use it sparingly As with all the advice in this handbook, we are presenting guidelines, not hard and fast rules you must always follow. The passive voice may make sense when the person or thing performing the action is of secondary importance to another subject that should play the starring role in sentence. Use the passive voice only when you have a very good reason for doing so. When in doubt, choose the active voice. Find hidden verbs Does the sentence use any form of the verbs “to be,” “to have,” or another weak verb, with a noun that could be turned into a strong verb? In these sentences, the strong verb lies hidden in a nominalization, a noun derived from a verb that usually ends in -tion. Find the noun and try to make it the main verb of the sentence. As you change nouns to verbs, your writing becomes more vigorous and less abstract. before after We made an application… We applied… We made a determination… We determined… We will make a distribution… We will distribute… before We will provide appropriate information to shareholders concerning… after We will inform shareholders about… before We will have no stock ownership of the company. after We will not own the company’s stock. before There is the possibility of prior Board approval of these investments. after The Board might approve these investments in advance. a plain english handbook 21 “Language that is more concrete and specific creates pictures in the mind of [your] listener, pictures that should come as close as possible to the pictures in your mind.” William Lutz The New Doublespeak: Why No One Knows What Anyone’s Saying Anymore Read this list of progressively less abstract terms and consider how you might make abstract concepts you write about more concrete: Asset ➡ Investment ➡ Security ➡ Equity ➡ Stock ➡ ➡ Common stock ➡ One share of IBM common stock The following examples show how you can replace abstract terms with more concrete ones and increase your reader’s comprehension: before Sandyhill Basic Value Fund, Inc. (the “Fund”) seeks capital apprecia­ tion and, secondarily, income by investing in securities, primarily equities, that management of the Fund believes are undervalued and therefore represent basic investment value. after At the Sandyhill Basic Value Fund, we will strive to increase the value of your shares (capital appreciation) and, to a lesser extent, to provide income (dividends). We will invest primarily in undervalued stocks, meaning those selling for low prices given the financial strength of the companies. before No consideration or surrender of Beco Stock will be required of shareholders of Beco in return for the shares of Unis Common Stock issued pursuant to the Distribution. after You will not have to turn in your shares of Beco stock or pay any money to receive your shares of Unis common stock from the spin-off. 24 a plain english handbook Omit superfluous words Words are superfluous when they can be replaced with fewer words that mean the same thing. Sometimes you can use a simpler word for these phrases: superfluous simpler in order to to in the event that if subsequent to after prior to before despite the fact that although because of the fact that because, since in light of because, since owing to the fact that because, since Another source of superfluous words is “shotgunning”: letting loose a blast of words hoping at least one conveys your intended meaning. The simplest solution here is to replace your laundry list of adjectives with a single word or phrase that adequately expresses your intended meaning. Omitting superfluous words is one of the easiest ways to improve your disclosure document because it doesn’t require you to revise sentence structure. before The following summary is intended only to highlight certain infor­ mation contained elsewhere in this Prospectus. after This summary highlights some information from this Prospectus. before Machine Industries and Great Tools, Inc. are each subject to the information requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith file reports, proxy statements and other information with the Securities and Exchange Commission (the “Commission”). after We file annual, quarterly, and special reports, proxy statements, and other information with the Securities and Exchange Commission (SEC). “…the most valuable of all talent, that of never using two words where one will do.” Thomas Jefferson For an expanded explanation of “shotgunning,” see Richard Wydick’s Plain English for Lawyers. a plain english handbook 25 “Vigorous writing is concise. A sentence should contain no unnecessary words...for the same reason that a drawing should have no unnecessary lines and a machine no unnecessary parts.” Strunk and White The Elements of Style before Drakecorp has filed with the Internal Revenue Service a tax ruling request concerning, among other things, the tax consequences of the Distribution to the United States holders of Drakecorp Stock. It is expected that the Distribution of Beco Common Stock to the shareholders of Drakecorp will be tax-free to such shareholders for federal income tax purposes, except to the extent that cash is received for fractional share interests. after While we expect that this transaction will be tax free for U.S. shareholders at the federal level (except for any cash paid for fractional shares), we have asked the Internal Revenue Service to rule that it is. 26 a plain english handbook or We provide information to you about our notes in three separate documents that progressively provide more detail: 1 The Prospectus General information that may or may not apply to each note. 2 The Prospectus Supplement More specific than the prospectus, and to the extent information differs from the prospectus, rely on the different information in this document. 3 The Pricing Supplement Provides final details about a specific note including its price. To the extent information differs from the prospectus or the prospectus supplement, rely on the different information in this document. Information-packed sentences leave most investors scratching their heads. So many of these sentences have become “boilerplate” that writers cut and paste them into new documents without thinking about how they can be improved. Since these sentences can be a little intimi­ dating, we thought we’d tackle another one: before The Drake Capital Corporation (the “Company”) may offer from time to time its Global Medium-Term Notes, Series A, Due from 9 months to 60 Years From Date of Issue, which are issuable in one or more series (the “Notes”), in the United States in an aggre­ gate principal amount of up to U.S. $6,428,598,500, or the equiva­ lent thereof in other currencies, including composite currencies such as the European Currency Unit (the “ECU”) (provided that, with respect to Original Issue Discount Notes (as defined under “Description of Notes—Original Issue Discount Notes”), the initial offering price of such Notes shall be used in calculating the aggre­ gate principal amount of Notes offered hereunder). after The Drake Capital Corporation may offer at various times up to U.S. $6,428,598,500 worth of Global Medium-term notes. These notes will mature from 9 months to 60 years after the date they are purchased. We will offer these notes in series, starting with Series A, and in U.S., foreign, and composite currencies, like the European Currency Unit. If we offer original issue discount notes, we will use their initial offering prices to calculate when we reach $6,428,598,500. “A subject may have so many qualifications that readers forget what it is before they find out what it does.” Claire Kehrwald Cook Line by Line a plain english handbook 29 “Clearness is secured by using the words…that are current and ordinary.” Aristotle Rhetoric As you can see, one long sentence became four shorter sentences. The paragraph moves from the general to the specific, contains short, com­ mon words, and is written in the active voice. You only need to read the paragraph once to understand it. Replace jargon and legalese with short, common words Ruthlessly eliminate jargon and legalese. Instead, use short, common words to get your points across. In those instances where there is no plain English alternative, explain what the term means when you first use it. If you have been in the financial or legal industry for awhile, it may be hard to spot jargon and legalese in your writing. Consider asking someone outside the industry to check your work for incomprehensible words. Last, don’t create new jargon that’s unique to your document in the form of acronyms or other words. It’s asking too much of your readers to memorize a new vocabulary while they are trying to understand complicated concepts. This holds true for individual and institutional investors. Note the following, which is the first sentence on the cover page of an exchange offer: NLR Insured Mortgage Association, Inc., a Delaware corporation (“NLR MAE”), which is an actively managed, infinite life, New York Stock Exchange-listed real estate investment trust (“REIT”), and PAL Liquidating REIT, Inc., a newly formed, finite life, self-liquidat­ ing Delaware corporation which intends to qualify as a REIT (“PAL Liquidating REIT”), hereby jointly offer, upon the terms and subject to the conditions set forth herein and in the related Letters of Transmittal (collectively, the “Offer”), to exchange (i) shares of NLR MAE’s Common Stock, par value $.01 per share (“NLR MAE Shares”), or, at the option of Unitholders, shares of PAL Liquidating REIT’s Common Stock, par value $.01 per share (“PAL Liquidating REIT Shares”), and (ii) the right to receive cash payable 60 days after closing on the first of any Acquisitions (as defined below) but in no event later than 270 days (nine months) following consumma­ tion of the Offer (the “Deferred Cash Payment”), for all outstanding Limited Partnership Interests and Depository Units of Limited Partnership Interest (collectively, “Units”) in each of PAL Insured Mortgage Investors, a California limited partnership (“PAL 84”), PAL Insured Mortgage Investors - Series 85, A California Limited Partnership, a California limited partnership (“PAL 85”), and PAL Insured Mortgage Investors L.P. - Series 86, a Delaware limited partnership (“PAL 86”). See “THE OFFER.” 30 a plain english handbook This sentence suffers from many shortcomings. It’s long and laden with defined terms and other data that mask the fundamental informa­ tion: the two companies are offering to exchange their stock for the investors’ limited partnership holdings. Some of the information, such as par value and places of incorporation, can be moved to another part of the document. Much of the language modifies the subjects and the objects: this language, too, can be moved to a separate sentence or another section of the prospectus. This example shows the hazards of creating unfamiliar acronyms. They provide false economies, especially when they are introduced on the cover page and in the first pages of the prospectus. They may save a few words, but they may also frustrate and force the reader to take more time and effort to understand the document. Where acronyms, such as REIT, are widely understood to the investing public, they can safely be used without creating confusion. Occasionally, it’s necessary to assign a shorter word to a long proper noun and use this word throughout the rest of the document. In these rare instances, try to choose a word that has an intuitive, logical relationship to the one it’s replacing. This reduces the number of new words or phrases the reader needs to memorize to understand the document. Choose the simpler synonym Surround complex ideas with short, common words. For example, use end instead of terminate, explain rather than elucidate, and use instead of utilize. When a shorter, simpler synonym exists, use it. “Lawyerisms are words like aforementioned, whereas, res gestae, and hereinafter. They give writing a legal smell, but they carry little or no legal substance.” Richard C. Wydick Plain English for Lawyers a plain english handbook 31 “Parallelism reinforces grammatically equal elements, contributes to ease in reading, and provides clarity and rhythm.” Horner/Webb/Miller Harbrace College Handbook Keep your sentence structure parallel A long sentence often fails without a parallel structure. Parallelism simply means ensuring a list or series of items is presented using parallel parts of speech, such as nouns or verbs. Note the quotation in the margin. In this section, we’ve shown each parallel structure we’ve used in bold. Here’s an example from a mutual fund prospectus that lacks parallel structure: before If you want to buy shares in Fund X by mail, fill out and sign the Account Application form, making your check payable to “The X Fund,” and put your social security or taxpayer identification number on your check. after If you want to buy shares in Fund X by mail, fill out and sign the Account Application form, make your check payable to “The X Fund,” and put your social security or taxpayer identification number on your check. Here is a more subtle example from another mutual fund prospectus: before We invest the Fund’s assets in short-term money market securities to provide you with liquidity, protection of your investment, and high current income. This sentence is unparallel because its series is made up of two nouns and an adjective before the third noun. It’s also awkward because the verb provide is too closely paired with the nominalization protection. One logical revision to the original sentence is to change the noun series to a verb series. after We invest in short-term money market securities to provide you with liquidity, to protect your investment, and to generate high current income. All writers, regardless of their degree of expertise, occasionally write unparallel sentences. The best way to rid your document of them is to read through it once solely to find these mistakes. Reading your docu­ ment aloud can make unparallel constructions easier to spot. 34 a plain english handbook Steer clear of “respectively” How easy is it to read the following sentence once and understand what it means? before The Senior Notes and the guarantee (the “Guarantee”) of the Senior Notes by Island Holdings will constitute unsecured senior obligations of the Issuer and Island Holdings, respectively. after The senior notes are an unsecured senior obligation of the issuer, while the guarantee of the senior notes is an unsecured senior obligation of Island Holdings. Whenever you use “respectively,” you force your reader to go back and match up what belongs to what. You may be saving words by using “respectively,” but your reader has to use more time and read your words twice to understand what you’ve written. • “Many shortcuts are self- defeating; they waste the reader’s time instead of conserving it.” Strunk and White The Elements of Style a plain english handbook 35 36 a plain english handbook Hierarchy Much like an outline, a document’s hierarchy shows how you’ve orga­ nized the information and helps the reader to understand the relation­ ship between different levels of information. A typical hierarchy in the prospectus might include: • the document title • section headings (first level) • subsection headings (second level) • paragraph headings (third level) • general text (fourth level) Designers use different typefaces in the headings to distinguish these levels for the reader. As a rule of thumb, there should be no more than six levels in the document, excluding the document’s title. You can signal a new level by varying the same typeface or by using a different typeface. Here’s a demonstration of how we’ve used different typefaces to distinguish levels in this handbook: Section headings Subsection headings General text Example headings a plain english handbook 39 “Serif type is more readable and is best for text; sans serif type is more legible and is best used for headlines.” Robin Williams The Mac Is Not a Typewriter Typography Although it may seem like a minor decision, your typeface selection will be one of the elements that most strongly defines the design and readability of your document. Kinds of typefaces Typefaces come in two varieties: serif and sans serif. serif sans serif N N All serif typefaces have small lines at the beginning or ending strokes of each letter. Virtually all newspapers and many magazines use some form of serif type for their general text because serif fonts are easier to read than sans serif. This handbook uses a serif typeface called Scala for general text. Other popular serif typefaces are: Caslon, Century Schoolbook, Garamond, and Times. Here are some examples: serif This is an example of Scala. This is an example of Caslon. This is an example of Century Schoolbook. This is an example of Garamond. This is an example of Times. Sans serif typefaces lack those small connective lines. The type used for most headings throughout this document is a sans serif typeface, Scala Sans. Franklin Gothic, Frutiger, Helvetica, and Univers are examples of sans serif typefaces. sans serif This is an example of Franklin Gothic. This is an example of Frutiger. This is an example of Helvetica. This is an example of Univers. Generally, serif typefaces are easier to read in documents like this than sans serif because the small connective lines of serif help to lead your eye more quickly and smoothly over text. It is best to use sans serif typefaces in small quantities—for emphasis or headings, but not for general text. Both serifs and sans serifs work well for headings. 40 a plain english handbook Selecting the right typeface When choosing a typeface, think carefully about where the typeface will appear in the document. For example, will it be general text, or will it apply to information that needs to be highlighted? Will it introduce a section? Some typefaces are harder to read than others and were never intended for text. Typefaces like Bodoni Poster or other bold, italic, or condensed typefaces were designed for headlines or for large display type. These examples show how difficult it is to read text in these typefaces. Bodoni Poster Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsis­ tent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally-printed work... and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. Robin Williams, The Mac Is Not a Typewriter Franklin Gothic Condensed Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsistent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally-printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. Robin Williams, The Mac Is Not a Typewriter You can mix different typefaces, but do so with discretion; not all type­ faces work well together. Mixing a serif and sans serif, as we have done in this handbook, can look good and create a clear contrast between your levels. Mixing two serif or two sans serif typefaces can look like a mistake. As a general rule, do not use more than two typefaces in any document, not including the bold or italic versions of a typeface. a plain english handbook 41 “…when everything (background, structure, content) is emphasized, nothing is emphasized; the design will often be noisy, cluttered, and informationally flat.” Edward Tufte Visual Explanations Layout Designers think carefully about white space, column width, linespacing, and paragraph length. These design elements determine whether read­ ing is easy or becomes too much of a physical or mental chore. Use white space effectively Generous use of white space on the page enhances readability, helps to emphasize important points, and lightens the overall look of the document. White space especially affects the readers of disclosure documents because these documents usually feature dense blocks of impenetrable text. You should fight the impulse to fill up the entire page with text or graphics. A wide left or right margin can make the document easier to read. The use of white space between sections or subsections helps readers recognize which information is related. Use left justified, ragged right text Research shows that the easiest text to read is left justified, ragged right text. That is, the text is aligned, or flush, on the left with a loose, or ragged, right edge. The text in this handbook is set left justified, ragged right. Fully justified text means both the right and left edges are flush, or even. When you fully justify text, the spacing between words fluctuates from line to line, causing the eye to stop and constantly readjust to the variable spacing on each line. Currently, most disclosure documents are fully justified. This, coupled with a severe shortage of white space, makes these documents visually unappealing and difficult to read. Be especially wary of centering text, or using text to form a shape or design. Uneven margins may make a visual impact, but they make reading extremely difficult. 44 a plain english handbook recommended: left justified, ragged right Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsis­ tent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally- printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. not recommended: fully justified text Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy some­ thing is to read) and it shows that those disruptive, inconsistent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally-printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. not recommended: centered text Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsistent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally-printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. a plain english handbook 45 Use linespacing to lighten the page Linespacing, or “leading” (rhymes with sledding), refers to the amount of space between lines of text. Leading controls the density and read­ ability of the text. Just as type is measured in points, so is leading. A type description of 12/16 means that 12pt type has been set with 4pts of additional leading between the lines. Generous leading can give a long paragraph a lighter, “airier” feeling and make it easier to read. Avoid setting type without any additional leading (such as 10/10 or 12/12), sometimes referred to as being “set solid.” Typically, you should allow at least 2pts of leading between lines of type. You may want to add more leading, depending on the “airiness” you would like the document to have. In this document, for ease of reading, the general text has been set at 11/16, and most examples have been set at 10/12. Review the following examples to see how leading affects readability. 11/11 Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsis­ tent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally- printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. 11/13 Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsis­ tent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally- printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. 11/15 Justified text was the style for many years—we grew up on it. But there has been a great deal of research on readability (how easy something is to read) and it shows that those disruptive, inconsis­ tent gaps between the words inhibit the flow of reading. Besides, they look dumb. Keep your eyes open as you look at professionally- printed work...and you’ll find there’s a very strong trend now to align type on the left and leave the right ragged. 46 a plain english handbook Graphics Graphics often illuminate information more clearly and quickly than text. This section introduces some basic guidelines about using graph­ ics in your document. To learn more, books and articles cover the topic in rich and rewarding detail. The best known work, The Visual Display of Quantitative Information, by Edward R. Tufte, provides practical advice on creating graphics. In the introduction of his book, he writes about the importance and value of graphics: At their best, graphics are instruments for reasoning about quantita­ tive information. Often the most effective way to describe, explore, and summarize a set of numbers—even a very large set—is to look at pictures of those numbers. Furthermore, of all methods for analyzing and communicating statistical information, well-designed data graphics are usually the simplest and at the same time the most powerful. On page 51 of his book, Tufte formulates a number of basic principles to follow in creating excellent graphics. Among them are these: Graphical excellence is that which gives to the viewer the greatest number of ideas in the shortest time with the least ink in the smallest space. And graphical excellence requires telling the truth about data. A few experts have studied the use of graphics in securities documents, isolating the areas presenting the most problems. We can boil down their advice to these guidelines. a plain english handbook 49 Keep the design simple Keep the design of any graphic as simple as possible. Pare away any non-essential design elements so the data stands out. Think of it this way: as much of the ink as possible in a graphic should deal with a data point and not decoration. Some of the worst mistakes occur when design elements interfere with the clear presentation of information, such as needless 3-D effects, drop shadows, patterns, and excessive grid lines. Don’t let a design element turn into what Tufte calls “chartjunk.” These examples show how a 3-D bar graph provides initial visual appeal, but is harder to read and understand than a straightforward presentation of the same information. The multiple lines of the 3-D bars confuse some readers because the front of the bars appear to have a lower value than the back of the bars. before $0 $10 $20 $30 $40 $50 $60 1997 Quarterly Sales Revenue in millions 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter $36 $45 $32 $49 $60 $50 $40 $30 $20 $10 $0 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 1997 Quarterly Sales Revenue in millions after 50 a plain english handbook Check proportions of visuals Generally, you should avoid graphics that start at a non-zero baseline, because they distort differences by destroying correct proportions. Compare these two bar charts to see how the non-zero baseline can mislead the reader as to the magnitude of change from quarter to quarter. before after $25 $30 $35 $40 $45 $50 $55 1997 Quarterly Sales Revenue in millions Q1 Q2 Q3 Q4 $36 $45 $32 $49 $0 $10 $20 $30 $40 $50 $60 1997 Quarterly Sales Revenue in millions Q1 Q2 Q3 Q4 $36 $45 $32 $49 “Extensive studies of annual reports of major corporations in the United States and the United Kingdom have shown that about 25 percent of the graphs they contain are distorted substantially.” Alan J. Davis Graphical Information: Where to Draw the Line Draw graphics to scale Any graphic should be proportionately correct or drawn to scale. For example, if you are showing an increase in oil production through a series of oil barrels in ever-increasing sizes, make sure a barrel isn’t represented as 50% bigger when production only went up 25% that year. Be consistent when grouping graphics If you group graphics side-by-side, avoid changing your scale from one graphic to another, as in the examples above. Also, lining up three graphics that present data in billions, millions, then dollars can mislead the reader. a plain english handbook 51 Color Black is a color The majority of your documents will be produced in black and white. When designing these documents, it’s easy to forget that you are using a color: black. Since black is such a powerful color, balancing it on the page can be a tightrope act: too little emphasis can grey-out the page, too much can blacken it. If you are using only black, your use of type is usually the way you balance the page’s color. Some typefaces are heavier or lighter than others, and most type families are available in varying weights. For example: heavy: Times Extra Bold less heavy: Times Bold lighter: Times Semi Bold lighter still: Times Regular heavy: Univers Black less heavy: Univers Bold lighter: Univers Regular lighter still: Univers Light Choosing the proper combinations of type weights will help to make your document look more inviting. Some additional ways to introduce visual appeal to a one-color docu­ ment are through: • shading • graphics • rules or lines • colored paper stocks Again, your use of these elements should not overwhelm or distract from the legibility of your text. • 54 a plain english handbook Time-Saving Tips Following are some tips that have saved time for those who routinely rewrite documents in plain English: Photocopy the document, single sided, on 11" x 17" paper (ledger paper) to 120% of its original size. This gives you room to make notes in the margins and helps to save your eyesight. Keep your original document handy. You’ll use it again later. Read through the ledger-sized copy and take notes. In the margin of each paragraph, jot down the main and supporting points. (We suggest using a pencil unless you’re one of those people who does crossword puzzles in ink.) If you can’t find these points too easily, it may mean the paragraph is a hodgepodge of unrelated topics. This stage of the process can be “space-consuming.” In your workspace or in a conference room, tape or tack the pages of your document to the wall. If it’s too long, you may want to spread out just your outline and summary. Then, thinking of your investors, physically move the pages into the order that makes the most sense. If only parts of pages need to be moved, cut them out and move just the parts. Remember to group like information together. a plain english handbook 55 8 When you start to reorder your document by moving pages or parts of pages, write on the page or section: • where it appeared in the original document (the page number and paragraph, if applicable); and • a number or letter to indicate its place in the new draft. It’s a good idea to keep the notes and questions you wrote in the mar­ gins distinct from your cross-reference marks by writing them in a dif­ ferent color. Use colored pencils, since it’s likely you’ll move sections around more than once. Once you have finished physically reorganizing the document, you may want to outline the new organization. On a separate piece of paper, write the names for the new sections you created. Under each section name, write down its major elements. This is the outline of your plain English draft and, with some revisions, will become your table of contents. Keep in mind that the most effective outlines are more like sketches— just detailed enough to set priorities and create logical relationships. Next to each entry on your outline, be sure to note where this informa­ tion appeared in the original document. This is very important. Cross- referencing accurately now may save you hours of backtracking later. Tape your reordered sections on blank pieces of ledger size paper and photocopy them. This will be the master document from which you’ll rewrite. As you rewrite, each time you complete a sentence or paragraph, draw a line through it in pencil. This way you’ll be sure to account for all the original content in your rewrite. • 56 a plain english handbook Evaluating the Document You can evaluate your document by testing it with a focus group. Experts call this “audience-centered” testing because it focuses on the interaction between a particular document and a representative sample of its readers. While the results are reliable, focus groups require time and money. Focus group testing tends to work better with shorter documents or portions of longer ones. You can also test the portions of your docu­ ment that you plan to use repeatedly. At the very least, you’ll have help­ ful feedback on the sections that investors are most likely to read and on the language that appears most frequently in your disclosure docu­ ments. Based on the test results, you can isolate the parts that cause the most confusion and fix them. If you don’t have the budget to test your document formally through focus groups, improvise. Ask individuals in your office who most closely resemble your investors to read your draft document and listen closely to their reactions. Ask others who have some distance from the project to read it. A fresh pair of eyes often picks up the “obvious” problems that those who have worked with the document miss. • a plain english handbook 59 10 60 a plain english handbook 11 Reading List If you want more information on how to write in plain English, we’ve listed just a few of the many resources available, including those from the SEC. You may want to visit your local library to review these books or a broader selection. Goldstein and Lieberman’s book, The Lawyer’s Guide to Writing Well, includes a comprehensive list of books about legal writing. We are not endorsing any of these books, but have included them as a resource for your convenience. Claire Kehrwald Cook, Line by Line (Houghton Mifflin, 1985). Alan J. Davis, Graphs and Doublespeak, Quarterly Review of Doublespeak, Volume XVIII, Number 4, July 1992. Bryan A. Garner, The Elements of Legal Style (Oxford University Press, 1991). _______, A Dictionary of Modern Legal Usage (Oxford University Press, 2nd ed., 1995). Tom Goldstein and Jethro K. Lieberman, The Lawyer’s Guide to Writing Well (University of California Press, 1989). Karen Elizabeth Gordon, The Transitive Vampire: A Handbook of Grammar for the Innocent, the Eager, and the Doomed (Times Books, 1984). _______, The New Well-Tempered Sentence, A Punctuation Handbook for the Innocent, the Eager, and the Doomed (Ticknor & Fields, 1993). a plain english handbook 61 64 a plain english handbook Appendix A Plain English at a Glance Plain English means creating a document that is • visually inviting, • logically organized, and • understandable on the first reading. You create a plain English document by • knowing your readers, and • presenting information your readers need in an order they’ll understand. Summary of the plain English rules Rule 421(b) Entire Prospectus Clear, concise, and understandable • short sentences whenever possible • bullet lists whenever possible • descriptive headers and sub- headers • avoid relying on glossaries and defined terms • avoid legal and highly technical business terms Note Avoid: • legalistic, overly complex pre­ sentations • vague boilerplate • excerpts from legal documents • repetition This is a summary, so please read the entire rule to make sure you comply with every aspect of it. Rule 421(d) Cover and Back Pages, Summary, and Risk Factors Use plain English principles in the organization, language, and design of documents Substantially use: • short sentences • definite, concrete, everyday words • active voice • tables and bullet lists • no legal jargon, highly technical business terms • no multiple negatives Entire Prospectus—Design In designing the entire prospectus: • may use pictures, logos, charts, graphs, or other design elements • encouraged to use tables, schedules, charts, and graphics for financial data • must draw graphs and charts to scale • cannot use misleading design and information a plain english handbook 65 • • • • • §230.421 Presentation of information in prospectuses (b) You must present the information in a prospectus in a clear, concise and understandable manner. You must prepare the prospectus using the following standards: ( ) Present information in clear, concise sections, paragraphs, and sentences. Whenever possible, use short, explanatory sentences and bullet lists; (2) Use descriptive headings and subheadings; (3) Avoid frequent reliance on glossaries or defined terms as the primary means of explaining information in the prospectus. Define terms in a glossary or other section of the document only if the meaning is unclear from the context. Use a glossary only if it facilitates understanding of the disclosure; and (4) Avoid legal and highly technical business terminology. Note to §230.421(b): In drafting the disclosure to comply with this section, you should avoid the following: . Legalistic or overly complex presentations that make the substance of the disclosure difficult to understand; 2. Vague “boilerplate” explanations that are imprecise and readily subject to different interpretations; 3. Complex information copied directly from legal documents without any clear and concise explanation of the provision(s); and 4. Disclosure repeated in different sections of the document that increases the size of the document but does not enhance the quality of the information. 66 a plain english handbook Appendix B Plain English Examples This appendix contains “before” and “after” examples from participants in the Division of Corporation Finance’s plain English pilot. The Division’s staff added marginal notes to show how aspects of the plain English rules apply to specific documents. These annotated examples are excerpted from the booklet, Before & After Plain English Examples and Sample Analyses, prepared by the Division of Corporation Finance. Although we revised the presentation and wording of the marginal notes in this appendix, the filings remain identical to those from the booklet. To get a complete copy of the book­ let, please call the SEC’s public reference room at (202) 942-8090. Differences between the proposed and final amendments to Item 501 When the issuers prepared these documents, they relied on staff interpretations for filings in the plain English pilot and the proposed amendments to Item 501. The following information was not required under Item 501 as proposed, but this information is required under Item 501 as adopted: • the market(s) and the trading symbol; • the underwriter’s over-allotment or similar option, if applicable; • a prominent cross-reference to the risk factors section including the page number; • the following on a total and per share basis, if applicable: – the price to the public; – the underwriter’s discounts and commissions; and – the net proceeds the issuer and selling shareholders receive. Examples for illustration purposes only We are providing these examples and marginal notes only to illustrate the principles of plain English. We have not made any determination as to whether the filings are accurate or complete. You are responsible for the substance in your plain English filings. To understand the plain English rules fully, you must read the proposing and adopting releases: • the proposing release—Release no. 33-7380; and • the adopting release—Release no. 33-7497. Both releases are available from the SEC’s Public Reference Room and our web site at www.sec.gov. We collected many filings from the Division’s plain English pilot in one book. You can get a photocopy of this 756-page book, Plain English Pilot Program: Selected Plain English Samples, from the SEC’s Public Reference Room or a printed copy from Bowne Publishing in New York City. (The SEC does not endorse Bowne, nor do we have a business relationship with them.) a plain english handbook 69 Before MBNA cover page, core prospectus Fully-justified text and lengthy paragraphs give page a dense, block-like appearance. Abstract terms and legal jargon prevalent A lot of passive voice, adding to sentence length Eliminate defined terms from the cover page. Long sentence–60+ words Why capitalize these common terms? Long sentence–50+ words Many long sentences– 40+ words Centered text and all capital letters are hard to read. Legends are in legalese. Legalistic tone–does Item 501 require all this information? All information is presented the same way: What does this page focus my attention on? Sans serif font is hard to read. Text runs in long lines across the page. Note: When MBNA filed this disclosure document, they relied on the SEC rules that were in effect at that time. 70 a plain english handbook MBNA cover page, core prospectus After Ample white space surrounds key information and makes page visually inviting. Page layout highlights cross reference to risk factors. Clear sentences are in active voice with concrete, everyday language. No lengthy, block-like paragraphs Information presented in three main categories: • the trust • the certificates • the certificateholders No defined terms Common terms, like classes, are not capitalized. Long sentences are put into bullet lists. Left justified text and shorter line lengths are easy to read. Serif typeface is easier to read than sans serif. Legends in plain English and lowercase are easier to read than all capital letters. a plain english handbook 71 Before General Motors Corporation, summary Legalese and technical terms, like pursuant to the terms and conditions set forth, and effected largely pursuant to transactions, etc. Cross reference to definition disrupts flow of information; meanings of terms in summary must be clear from context. Terms like certain and appropriate are vague, not concrete. Passive voice–who is completing these transactions? Parenthetical phrases are legalistic and disrupt flow of information. Little “i”s are legalistic; bulleted list would be easier to read. Organization of information driven by mechanics of transactions rather than by information shareholders need to make a decision. Transactions’ effect on share­ holders not discussed until column two. Is detail about GM amending its certificate of incorporation necessary for the summary? 74 a plain english handbook General Motors Corporation, summary After Information organized from shareholders’ perspectives– how transactions affect them addressed first. Active voice helps shareholders follow the steps involved in the transaction more easily. Summary is free of defined terms. Concrete, everyday language replaces legalese like pursuant to the terms and conditions set forth and effected largely pursuant to transactions, etc. Numbers are more reader- friendly than little “i”s. Easy to read two-column format with left justified margins. Personal pronouns, although not required, help engage shareholders’ attention. a plain english handbook 75 Before Baltimore Gas & Electric Company Paragraphs are lengthy and block-like. Subheadings are helpful, but more would be better. Defined below? Where is below? Cross reference not helpful. Long sentence–85+ words Many defined terms with definitions elsewhere. Can you make meanings clear from context? Long sentence–90+ words Lists embedded in text; complex presentation Section from body of prospectus 76 a plain english handbook