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. Last Updated: 07/27/2016

Handbook Hopes to Make Business English Coherent

WASHINGTON -- Anyone who has ever tried to read a stock prospectus knows that corporations can't write.


Most reports that companies and mutual funds are required to prepare for investors are so filled with gobbledygook that even financially sophisticated people wonder in some cases whether the intent is to confuse.


Yet public disclosure is essential to the workings of U.S. securities markets. Investors cannot intelligently decide which enterprises deserve their money unless they have useful information.


That is the theme of a "plain English" handbook released Monday by the Securities and Exchange Commission in an attempt to persuade corporate executives and securities lawyers who prepare tens of thousands of disclosure documents each year to "speak to investors in words they can understand."


"In some cases, I suspect that a less-than-scrupulous issuer doesn't want us to understand a subject it feels legally obligated to touch upon," writes billionaire investor Warren Buffett in a preface to the handbook.


Among the common problems in disclosure documents, the SEC says, are the use of the passive voice, weak verbs, superfluous words, legal and financial jargon, too many definitions, abstract words and unneeded details.


The guide offers the following example of how a dense sentence can be made clear:


Before: "The foregoing Fee Table is intended to assist investors in understanding the costs and expenses that a shareholder in the Fund will bear directly or indirectly."


After: "This fee table shows the costs and expenses you would pay directly or indirectly if you invested in our fund."