My Testing Problem — And Yours
The uses, limits and pitfalls of research and testing
in creating better communications
IC Clear | Clarity 2014 • Antwerp
12 November 2014
Josiah Fisk
President, More Carrot LLC
How Do We Know
What We Know?
Data correlation = 95%
Number of traffic stops per week
Revenue (in US dollars) from traffic tickets
Data correlation = 95%
Number of traffic stops per week
Revenue (in US dollars) from parking tickets
Data correlation = 95%
Per capita consumption of cheese
Number of people who died by
becoming tangled in their bedsheets
Source: TylerVigen.com
T HE NATU R E O F DATA
Data isn’t
right or wrong.
We are.
EXAMPLE 1
The Mirage of Meaning
T T
Serif
Sans serif
Quick zephyrs
blow, vexing
daft Jim.
Quick zephyrs
blow, vexing
daft Jim.
Serif
Sans serif
DRAWING INSPIRATION from the cultural, religious and humanist inheritance
of Europe, from which have developed the
universal values of the inviolable and inalienable rights of the human person, freedom,
democracy, equality and the rule of law,
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal
values of the inviolable and inalienable rights
of the human person, freedom, democracy,
equality and the rule of law,
BELIEVING that Europe, reunited after bitter experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature
of its public life, and to strive for peace, justice and solidarity throughout the world,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature of its public life, and to strive for peace,
justice and solidarity throughout the world,
CONVINCED that, while remaining proud
of their own national identities and history,
the peoples of Europe are determined to
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Serif
Sans serif
Garamond
BELIEVING that Europe, reunited after
Americana
BELIEVING that Europe, reunited after
Footlight
BELIEVING that Europe, reunited after
Times New Roman
BELIEVING that Europe, reunited after
Bernhard Modern
BELIEVING that Europe, reunited after
Rockwell
BELIEVING that Europe, reunited after
Serif
Frutiger
Lucida Sans
Franklin Gothic
Arial
Arbitrary
Orator
BELIEVING that Europe, reunited after
BELIEVING that Europe, reunited after
BELIEVING that Europe, reunited after
BELIEVING that Europe, reunited after
BELIEVING that Europe, reunited after
BELIEVING that Europe, reunited after
Sans serif
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe, from which have developed the universal values of the inviolable and inalienable
rights of the human person, freedom, democracy, equality and the rule of law,
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal
values of the inviolable and inalienable rights
of the human person, freedom, democracy,
equality and the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature of its public life, and to strive for peace,
justice and solidarity throughout the world,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature of its public life, and to strive for peace,
justice and solidarity throughout the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Serif
Sans serif
Tx xT
Americana
Cochin
X Height
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe,
from which have developed the universal
values of the inviolable and inalienable rights
of the human person, freedom, democracy,
equality and the rule of law,
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including the
weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature
of its public life, and to strive for peace, justice
and solidarity throughout the world,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path
of civilisation, progress and prosperity, for the
good of all its inhabitants, including the weakest and most deprived; that it wishes to remain
a continent open to culture, learning and social
progress; and that it wishes to deepen the democratic and transparent nature of its public life,
and to strive for peace, justice and solidarity
throughout the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
CONVINCED that, while remaining proud
of their own national identities and history, the
peoples of Europe are determined to
Americana
Cochin
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the peoples of Europe are determined to
Times New Roman
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal
values of the inviolable and inalienable rights
of the human person, freedom, democracy,
equality and the rule of law,
BELIEVING that Europe, reunited after bitter experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature
of its public life, and to strive for peace, justice
and solidarity throughout the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Weight
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe, from
which have developed the universal values of the
inviolable and inalienable rights of the human
person, freedom, democracy, equality and the
rule of law,
BELIEVING that Europe, reunited after bitter experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Style
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal
values of the inviolable and inalienable rights
of the human person, freedom, democracy,
equality and the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning
and social progress; and that it wishes to
deepen the democratic and transparent nature
of its public life, and to strive for peace, justice and solidarity throughout the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Style
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe, from which have developed the universal values of the
inviolable and inalienable rights of the human person, freedom, democracy,
equality and the rule of law,
DRAWING INSPIRATION from the cultural, religious and
humanist inheritance of Europe, from which have developed
the universal values of the inviolable and inalienable rights of
the human person, freedom, democracy, equality and the rule
of law,
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
DRAWING INSPIRATION from the
cultural, religious and humanist inheritance of Europe, from which have
developed the universal values of the
inviolable and inalienable rights of the
human person, freedom, democracy,
equality and the rule of law,
Size
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the peoples of Europe are determined to
Leading (space between lines)
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
Leading (space between lines)
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of
Europe, from which have developed the universal values of the inviolable and inalienable
rights of the human person, freedom, democracy, equality and the rule of law,
BELIEVING that Europe, reunited after bitter experiences, intends to continue along the
path of civilisation, progress and prosperity,
for the good of all its inhabitants, including
the weakest and most deprived; that it wishes
to remain a continent open to culture, learning and social progress; and that it wishes to
deepen the democratic and transparent nature
of its public life, and to strive for peace, justice and solidarity throughout the world,
CONVINCED that, while remaining proud
of their own national identities and history,
the peoples of Europe are determined to
Tracking (space between characters)
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality
and the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path
of civilisation, progress and prosperity, for the
good of all its inhabitants, including the weakest and most deprived; that it wishes to remain
a continent open to culture, learning and social
progress; and that it wishes to deepen the democratic and transparent nature of its public life,
and to strive for peace, justice and solidarity
throughout the world,
CONVINCED that, while remaining proud of
their own national identities and history, the
peoples of Europe are determined to
Tracking (space between characters)
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the peoples of Europe are determined to
Justification
DRAWING
INSPIRATION
from
the
cultural, religious and humanist inheritance of Europe, from which have developed
the universal values of the inviolable and
inalienable rights of the human person,
freedom, democracy, equality and the rule of law,
BELIEVING that Europe, reunited after
bitter experiences, intends to continue
along the path of civilisation, progress and
prosperity, for the good of all its inhabitants,
including the weakest and most deprived;
that it wishes to remain a continent open to
culture, learning and social progress; and that it
wishes to deepen the democratic and transparent
nature of its public life, and to strive for peace,
justice and solidarity throughout the world,
CONVINCED
that,
while
remaining
proud of their own national identities and
history, the peoples of Europe are determined to
Justification
DRAWING INSPIRATION from the cultural,
religious and humanist
inheritance of Europe, from
which have developed the
universal values of the
inviolable and inalienable
rights of the human person,
freedom, democracy, equality and the rule of law,
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of
Europe, from which have developed the universal values of the inviolable and inalienable rights of the human person, freedom,
democracy, equality and the rule of law,
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe, from which have developed the universal values of the inviolable and inalienable rights of the human
person, freedom, democracy, equality and the rule of law,
DRAWING INSPIRATION from the cultural, religious and humanist inheritance of Europe, from which have developed the
universal values of the inviolable and inalienable rights of the human person, freedom, democracy, equality and the rule of law,
Line length
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the peoples of Europe are determined to
Space-After vs. Indent
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud
of their own national identities and history, the
peoples of Europe are determined to
Space-After vs. Indent
DRAWING INSPIRATION from the cultural,
religious and humanist inheritance of Europe,
from which have developed the universal values
of the inviolable and inalienable rights of the
human person, freedom, democracy, equality and
the rule of law,
BELIEVING that Europe, reunited after bitter
experiences, intends to continue along the path of
civilisation, progress and prosperity, for the good
of all its inhabitants, including the weakest and
most deprived; that it wishes to remain a continent open to culture, learning and social progress; and that it wishes to deepen the democratic
and transparent nature of its public life, and to
strive for peace, justice and solidarity throughout
the world,
CONVINCED that, while remaining proud of
their own national identities and history, the peoples of Europe are determined to
Contrast
Resolution
As well as . . .
• Medium (paper, screen, projection).
• Content (familiarity with text, words, topic).
• Order effects (+ potential interactions with above).
• Vision (personal mix of strengths/weaknesses).
• Habit (what readers are used to).
Apparent issues
• Underestimated the number of individual factors
and the difficulty of isolating them.
• Failed to understand the nature and complexity of
the picture as a whole.
• Extrapolated general principles from highly
specific results.
SE R IF
VS .
SANS
We don’t know.
We’ll never know.
And it wouldn’t
matter if we did.
T HE NATU R E O F DATA
The existence of data
does not indicate the
existence of significance.
EXAMPLE 2
Data Blindness
Regulation and Financial Disclosure:
The Impact of Plain English
Forthcoming in the Journal of Regulatory Economics
Tim Loughran
Mendoza College of Business
University of Notre Dame
Notre Dame, IN 46556-5646
574.631.8432 voice
Loughran.9@nd.edu
Bill McDonald
Mendoza College of Business
University of Notre Dame
Notre Dame, IN 46556-5646
574.631.5137 voice
mcdonald.1@nd.edu
October 15, 2013
Abstract: In October 1998, the SEC implemented a rule requiring firms to use
plain English in their prospectus filings. In addition to the rule, the SEC
encouraged the use of plain English in all filings and communication with
shareholders. Did the SEC rule significantly impact managers’ disclosure style?
And, more interestingly, did the SEC’s recommendations lead managers to
change their disclosure style in filings not under the plain English mandate? Our
textual analysis of Form 424, IPO prospectus, and 10-K filings over 1994-2009
574.631.5137 voice
mcdonald.1@nd.edu
October 15, 2013
Abstract: In October 1998, the SEC implemented a rule requiring firms to use
plain English in their prospectus filings. In addition to the rule, the SEC
encouraged the use of plain English in all filings and communication with
shareholders. Did the SEC rule significantly impact managers’ disclosure style?
And, more interestingly, did the SEC’s recommendations lead managers to
change their disclosure style in filings not under the plain English mandate? Our
textual analysis of Form 424, IPO prospectus, and 10-K filings over 1994-2009
finds that the SEC’s implementation of the plain English rule substantively
impacted managerial behavior. When we focus on 10-K filings, we find that after
the 1998 rule, firms are more likely to improve the stylistic components of their
filing before an equity issuance and firms with better corporate governance
policies are more likely to comply with the rule.
Key words: Plain English; market regulation; disclosure; textual analysis.
JEL Classifications: G12; G14; G18; M41
We thank Robert Battalio, Michael Crew (Editor), Andrew Ellul, Margaret Forster, Paul Gao,
Kathleen Hanley, Steven Kachelmeier, Feng Li, Ray Pfeiffer, Jennifer Marietta-Westberg,
574.631.5137 voice
mcdonald.1@nd.edu
October 15, 2013
Abstract: In October 1998, the SEC implemented a rule requiring firms to use
plain English in their prospectus filings. In addition to the rule, the SEC
encouraged the use of plain English in all filings and communication with
shareholders. Did the SEC rule significantly impact managers’ disclosure style?
And, more interestingly, did the SEC’s recommendations lead managers to
change their disclosure style in filings not under the plain English mandate? Our
textual analysis of Form 424, IPO prospectus, and 10-K filings over 1994-2009
finds that the SEC’s implementation of the plain English rule substantively
impacted managerial behavior. When we focus on 10-K filings, we find that after
the 1998 rule, firms are more likely to improve the stylistic components of their
filing before an equity issuance and firms with better corporate governance
policies are more likely to comply with the rule.
Key words: Plain English; market regulation; disclosure; textual analysis.
JEL Classifications: G12; G14; G18; M41
We thank Robert Battalio, Michael Crew (Editor), Andrew Ellul, Margaret Forster, Paul Gao,
Kathleen Hanley, Steven Kachelmeier, Feng Li, Ray Pfeiffer, Jennifer Marietta-Westberg,
Fig. 2 Mean values of the plain English measure for the sample of 55,237 10-K filings, 188,474
424 filings, and 1,842 IPO prospectuses by year. The plain English rule took effect in October
Fig. 2 Mean values of the plain English measure for the sample of 55,237 10-K filings, 188,474
SE C I m pl em en ts Pl ain L an g u ag e Rules
424 filings, and 1,842 IPO prospectuses by year. The plain English rule took effect in October
Table 2 Variable Means for the 10-K Sample
Variable
Plain English Measure
Average Words per Sentence
Average Word Length
Plain English - Passive
Plain English - Legalese
Plain English - Personal Pronouns
Plain English - Other
SEO dummy
Governance Index
Number of Words
Size (in billions)
Age (years)
Pre-event market model alpha
Pre-event market model root-mean-square-error
Book-to-Market
Nasdaq dummy
Sample size
(1)
(2)
(3)
1994Sept. 1998
Oct. 19982009
1994-2009
-0.974
25.273
5.444
1.079%
2.038%
0.171%
0.189%
0.363
24.490
5.490
1.058%
1.638%
1.291%
0.185%
0.000
24.702
5.478
1.064%
1.747%
0.987%
0.186%
0.055
9.074
34,546.47
$1.89
15.910
4.455%
0.029
0.579
0.540
14,986
0.061
9.072
44,269.81
$3.36
16.101
6.156%
0.031
0.628
0.585
40,251
0.059
9.072
41,631.83
$2.96
16.049
5.694%
0.031
0.615
0.573
55,237
Notes The number of observations for the Governance Index variable for columns 1-3 is 2,476, 6,451,
and 8,927 respectively.
Table 2 Variable Means for the 10-K Sample
Variable
Plain English Measure
Average Words per Sentence
Average Word Length
Plain English - Passive
Plain English - Legalese
Plain English - Personal Pronouns
Plain English - Other
SEO dummy
Governance Index
Number of Words
Size (in billions)
Age (years)
Pre-event market model alpha
Pre-event market model root-mean-square-error
Book-to-Market
Nasdaq dummy
Sample size
(1)
(2)
(3)
1994Sept. 1998
Oct. 19982009
1994-2009
-0.974
25.273
5.444
1.079%
2.038%
0.171%
0.189%
0.363
24.490
5.490
1.058%
1.638%
1.291%
0.185%
0.000
24.702
5.478
1.064%
1.747%
0.987%
0.186%
0.055
9.074
34,546.47
$1.89
15.910
4.455%
0.029
0.579
0.540
14,986
0.061
9.072
44,269.81
$3.36
16.101
6.156%
0.031
0.628
0.585
40,251
0.059
9.072
41,631.83
$2.96
16.049
5.694%
0.031
0.615
0.573
55,237
Notes The number of observations for the Governance Index variable for columns 1-3 is 2,476, 6,451,
and 8,927 respectively.
Table 2 Variable Means for the 10-K Sample
Variable
Plain English Measure
Average Words per Sentence
Average Word Length
Plain English - Passive
Plain English - Legalese
Plain English - Personal Pronouns
Plain English - Other
SEO dummy
Governance Index
Number of Words
Size (in billions)
Age (years)
Pre-event market model alpha
Pre-event market model root-mean-square-error
Book-to-Market
Nasdaq dummy
Sample size
(1)
(2)
(3)
1994Sept. 1998
Oct. 19982009
1994-2009
-0.974
25.273
5.444
1.079%
2.038%
0.171%
0.189%
0.363
24.490
5.490
1.058%
1.638%
1.291%
0.185%
0.000
24.702
5.478
1.064%
1.747%
0.987%
0.186%
0.055
9.074
34,546.47
$1.89
15.910
4.455%
0.029
0.579
0.540
14,986
0.061
9.072
44,269.81
$3.36
16.101
6.156%
0.031
0.628
0.585
40,251
0.059
9.072
41,631.83
$2.96
16.049
5.694%
0.031
0.615
0.573
55,237
Notes The number of observations for the Governance Index variable for columns 1-3 is 2,476, 6,451,
and 8,927 respectively.
2 8 % in creas e in l en g th
Table 2 Variable Means for the 10-K Sample
Variable
Plain English Measure
Average Words per Sentence
Average Word Length
Plain English - Passive
Plain English - Legalese
Plain English - Personal Pronouns
Plain English - Other
SEO dummy
Governance Index
Number of Words
Size (in billions)
Age (years)
Pre-event market model alpha
Pre-event market model root-mean-square-error
Book-to-Market
Nasdaq dummy
Sample size
(1)
(2)
(3)
1994Sept. 1998
Oct. 19982009
1994-2009
-0.974
25.273
5.444
1.079%
2.038%
0.171%
0.189%
0.363
24.490
5.490
1.058%
1.638%
1.291%
0.185%
0.000
24.702
5.478
1.064%
1.747%
0.987%
0.186%
0.055
9.074
34,546.47
$1.89
15.910
4.455%
0.029
0.579
0.540
14,986
0.061
9.072
44,269.81
$3.36
16.101
6.156%
0.031
0.628
0.585
40,251
0.059
9.072
41,631.83
$2.96
16.049
5.694%
0.031
0.615
0.573
55,237
Notes The number of observations for the Governance Index variable for columns 1-3 is 2,476, 6,451,
and 8,927 respectively.
No t i n c l u d e d in Pl ain E n g l is h measure!
As filed with the Securities and Exchange Commission on February 28, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
Í
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2012
‘
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
to
Commission File No. 1-6571
Merck & Co., Inc.
One Merck Drive
Whitehouse Station, N. J. 08889-0100
(908) 423-1000
Incorporated in New Jersey
I.R.S. Employer
Identification No. 22-1918501
Securities Registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
on which Registered
Title of Each Class
Common Stock ($0.50 par value)
New York Stock Exchange
Number of shares of Common Stock ($0.50 par value) outstanding as of January 31, 2013: 3,022,367,538.
Aggregate market value of Common Stock ($0.50 par value) held by non-affiliates on June 30, 2012 based on closing price on June 30,
2012: $126,837,000,000.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One):
Large accelerated filer
Í
Accelerated filer
‘
Non-accelerated filer
‘
Smaller reporting company
‘
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í
Documents Incorporated by Reference:
Document
Part of Form 10-K
Proxy Statement for the Annual Meeting of
Shareholders to be held May 28, 2013, to be filed with the
Securities and Exchange Commission within 120 days after the
close of the fiscal year covered by this report
Part III
MK-3814, preladenant, is a selective adenosine
2a receptor antagonist in Phase III development
for treatment of Parkinson’s disease. The Company anticipates filing an NDA for MK-3814
with the FDA in 2014.
Schering-Plough and Centocor agreed to share certain development costs relating to Simponi’s auto-injector
delivery system. On October 6, 2009, the European Commission (“EC”) approved Simponi as a treatment for
rheumatoid arthritis and other immune system disorders in two presentations — a novel auto-injector and a prefilled
syringe. As a result, the Company’s marketing rights for both products extend for 15 years from the first
commercial sale of Simponi in the EU following the receipt of pricing and reimbursement approval within the EU.
In April 2011, Merck and J&J reached an agreement to amend the agreement governing the distribution
rights to Remicade and Simponi. Under the terms of the amended distribution agreement, Merck relinquished
marketing rights for Remicade and Simponi to J&J in territories including Canada, Central and South America, the
Middle East, Africa and Asia Pacific effective July 1, 2011. Merck retained exclusive marketing rights throughout
Europe, Russia and Turkey (the “Retained Territories”). In addition, beginning July 1, 2011, all profits derived from
Merck’s exclusive distribution of the two products in the Retained Territories are being equally divided between
Merck and J&J. J&J also received a one-time payment from Merck of $500 million in April 2011.
Competition and the Health Care Environment
Competition
The markets in which the Company conducts its business and the pharmaceutical industry are highly
competitive and highly regulated. The Company’s competitors include other worldwide research-based
pharmaceutical companies, smaller research companies with more limited therapeutic focus, and generic drug and
consumer health care manufacturers. The Company’s operations may be affected by technological advances of
competitors, industry consolidation, patents granted to competitors, competitive combination products, new
products of competitors, the generic availability of competitors’ branded products, new information from clinical
trials of marketed products or post-marketing surveillance and generic competition as the Company’s products
mature. In addition, patent positions are increasingly being challenged by competitors, and the outcome can be
highly uncertain. An adverse result in a patent dispute can preclude commercialization of products or negatively
affect sales of existing products and could result in the recognition of an impairment charge with respect to certain
products. Competitive pressures have intensified as pressures in the industry have grown. The effect on operations
of competitive factors and patent disputes cannot be predicted.
Pharmaceutical competition involves a rigorous search for technological innovations and the ability to
market these innovations effectively. With its long-standing emphasis on research and development, the Company
is well positioned to compete in the search for technological innovations. Additional resources required to meet
market challenges include quality control, flexibility to meet customer specifications, an efficient distribution
system and a strong technical information service. The Company is active in acquiring and marketing products
through external alliances, such as joint ventures and licenses, and has been refining its sales and marketing efforts
to further address changing industry conditions. However, the introduction of new products and processes by
competitors may result in price reductions and product displacements, even for products protected by patents. For
example, the number of compounds available to treat a particular disease typically increases over time and can
result in slowed sales growth for the Company’s products in that therapeutic category.
Against this backdrop, the United States enacted major health care reform legislation in 2010, which
began to be implemented in 2010. Various insurance market reforms have advanced and will continue through full
implementation in 2014. The law is expected to expand access to health care to about 32 million Americans by the
end of the decade who did not previously have insurance coverage. With respect to the effect of the law on the
pharmaceutical industry, the mandated Medicaid rebate increased from 15.1% to 23.1%, expanded the rebate to
Medicaid managed care utilization, and increased the types of entities eligible for the federal 340B drug discount
program. The law also requires pharmaceutical manufacturers to pay a 50% point of service discount to Medicare
Part D beneficiaries when they are in the Medicare Part D coverage gap (i.e., the so-called “donut hole”).
Approximately $210 million and $150 million was recorded by Merck as a reduction to revenue in 2012 and 2011,
respectively, related to the donut hole provision. Also, pharmaceutical manufacturers are now required to pay an
annual health care reform fee. The total annual industry fee was $2.8 billion in 2012 and will be $2.8 billion in
2013. The fee is assessed on each company in proportion to its share of sales to certain government programs, such
as Medicare and Medicaid. The Company recorded $190 million and $162 million of costs within Marketing and
administrative expenses in 2012 and 2011, respectively, for the annual health care reform fee.
The Company also faces increasing pricing pressure globally from managed care organizations,
government agencies and programs that could negatively affect the Company’s sales and profit margins. In the
United States, these include (i) practices of managed care groups and institutional and governmental purchasers, and
(ii) U.S. federal laws and regulations related to Medicare and Medicaid, including the Medicare Prescription Drug
Improvement and Modernization Act of 2003 and the Patient Protection and Affordable Care Act of 2010. Changes
to the health care system enacted as part of health care reform in the United States, as well as increased purchasing
power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, could result in
further pricing pressures.
In addition, in the effort to contain the U.S. federal deficit, the pharmaceutical industry could be
considered a potential source of savings via legislative proposals that have been debated but not enacted. These
types of revenue generating or cost saving proposals include additional direct price controls in the Medicare
prescription drug program (Part D). In addition, Congress may again consider proposals to allow, under certain
conditions, the importation of medicines from other countries. It remains very uncertain as to what proposals, if any,
may be included as part of future federal budget deficit reduction proposals that would directly or indirectly affect
the Company.
Efforts toward health care cost containment remain intense in several European countries. Many
countries have announced austerity measures, which include the implementation of pricing actions to reduce prices
of generic and patented drugs and mandatory switches to generic drugs. While the Company is taking steps to
mitigate the impact in the EU, the austerity measures continued to negatively affect the Company’s revenue
performance in 2012 and the Company anticipates the austerity measures will continue to negatively affect revenue
performance in 2013.
The highly competitive animal health business is affected by several factors including regulatory and
legislative issues, scientific and technological advances, product innovation, the quality and price of the Company’s
products, effective promotional efforts and the frequent introduction of generic products by competitors.
Additionally, the global economic downturn and the sovereign debt issues in certain European countries,
among other factors, have adversely affected foreign receivables in certain European countries. While the Company
continues to receive payment on these receivables, these conditions have resulted in an increase in the average
length of time it takes to collect accounts receivable outstanding thereby adversely affecting cash flows.
The Company’s consumer care operations face competition from other consumer health care businesses
as well as retailers who carry their own private label brands. The Company’s competitive position is affected by
several factors, including regulatory and legislative issues, scientific and technological advances, the quality and
price of the Company’s products, promotional efforts and the growth of lower cost private label brands.
Governments in many emerging markets are also focused on constraining health care costs and have
enacted price controls and related measures that aim to put pressure on the price of pharmaceuticals and constrain
market access. The Company anticipates that pricing pressures and market access challenges will continue in 2013
to varying degrees in the emerging markets.
Health Care Environment
Global efforts toward health care cost containment continue to exert pressure on product pricing and
market access. In the United States, federal and state governments for many years also have pursued methods to
reduce the cost of drugs and vaccines for which they pay. For example, federal laws require the Company to pay
specified rebates for medicines reimbursed by Medicaid and to provide discounts for outpatient medicines
purchased by certain Public Health Service entities and hospitals serving a disproportionate share of low income or
uninsured patients.
The Company’s focus on and share of revenue from emerging markets has increased. Countries in these
markets may be subject to conditions that can affect the Company’s efforts to continue to grow in emerging
markets, including potential political instability, significant currency fluctuation and controls, financial crises,
limited or changing availability of funding for health care, and other developments that may adversely impact the
business environment for the Company. Further, the Company may engage third-party agents to assist in operating
in emerging market countries, which may affect its ability to realize continued growth and may also increase the
Company’s risk exposure.
8
9
1 5 0 p ag es
8 7,0 0 0 word s
As filed with the Securities and Exchange Commission on February 28, 2013
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE)
Í
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 2012
‘
or
Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from
The Great Gatsby
The Great Gatsby
By F. Scott Fitzgerald
By F. Scott Fitzgerald
to
Commission File No. 1-6571
Merck & Co., Inc.
One Merck Drive
Whitehouse Station, N. J. 08889-0100
(908) 423-1000
Incorporated in New Jersey
I.R.S. Employer
Identification No. 22-1918501
Securities Registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
on which Registered
Title of Each Class
Common Stock ($0.50 par value)
New York Stock Exchange
Number of shares of Common Stock ($0.50 par value) outstanding as of January 31, 2013: 3,022,367,538.
Aggregate market value of Common Stock ($0.50 par value) held by non-affiliates on June 30, 2012 based on closing price on June 30,
2012: $126,837,000,000.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes Í No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ‘ No Í
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes Í No ‘
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes Í No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and
will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check One):
Large accelerated filer
Í
Accelerated filer
‘
Non-accelerated filer
‘
Smaller reporting company
‘
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ‘ No Í
=
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Documents Incorporated by Reference:
Document
Part of Form 10-K
Proxy Statement for the Annual Meeting of
Shareholders to be held May 28, 2013, to be filed with the
Securities and Exchange Commission within 120 days after the
close of the fiscal year covered by this report
Part III
1 M e r c k Fo r m 10 - K
1 .77 Great Ga t sbys
Apparent issues
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Your future. Made easierSM
Your future. Made easierSM
Your future. Made easierSM
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Summary Prospectus (US)
Prescribed content, order, length
Class:
Annual Operating Ex
A
B
C
I
O
Management Fee1
0.30
0.30
0.10
—2
—2
Distribution and Service (12b-1) Fees3
0.25
0.25
0.25
—2
—2
Deducted from your investmen
Other Expenses
1.22
1.30
0.90
0.75
0.75
How this compares to similar fu
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
KEY
1
2
3
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
5 Very high
4 Hi
Annual Operating Ex
Deducted from your investmen
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
Annual Operating Ex
Deducted from your investmen
Annual expense disclosure
Annual Operating Expenses As a % of the value of your investment
Class: A
B
C
I
O
Annual Operating Ex
Requirements based
on consumer
testing
Deducted from your investment each year
2.79
2.97
How this compares to similar funds
Very
high
Very
high
2.02
High
1.63
1.63
About About
average average
Deducted from your investmen
ee the SAI.
KEY
f your investment
1 Very high
2 High
3 About average
4 Low
5 Very low
Annual Operating Expenses As a % of the value of your investment
B
C
I
O
0.30
0.10
—2
—2
0.25
0.25
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—2
Deducted from your investment each year
1.30
0.90
0.75
0.75
How this compares to similar funds
2.97
2.02
1.63
1.63
KEY
Class:
5 Very high
4 High
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
5
5
4
3
3
3 About average
2 Low
1 Very low
ge daily net assets and paid to
r expenses of marketing the
otential to lower overall costs.
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
B
C
I
O
2.8
3.0
2.0
1.6
1.6
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Annual Operating Expenses As a % of the value of your investment
Class: A
B
C
Testing opportunities
Deducted from your investment each year
2.8%
3.0%
I
2.0% 1.6%
O
1.6%
ROUNDING TO ONE DECIMAL PLACE
he value of your investment
B
C
2.97
2.02
Very
high
High
I
O
1.63
1.63
About About
average average
Annual Operating Expenses As a % of your account value
Class:
Deducted from your investment each year
A
2.8%
B
3.0%
C
I
2.0% 1.6%
O
1.6%
0.25
0.25
—2
—2
Deducted from your investment each year
1.30
0.90
0.75
0.75
How this compares to similar funds
2.97
2.02
1.63
1.63
KEY
5 Very high
4 High
2.79
2.97
2.02
1.63
1.63
5
5
4
3
3
3 About average
2 Low
1 Very low
ge daily net assets and paid to
r expenses of marketing the
otential to lower overall costs.
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
B
C
I
O
2.8
3.0
2.0
1.6
1.6
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
2.8%
B
3.0%
C
I
2.0% 1.6%
O
1.6%
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Very
high
High
About About
average average
Annual Operating Expenses As a % of your account value
Class: A
B
C
Testing opportunities
Deducted from your investment each year
2.8%
3.0%
I
2.0% 1.6%
O
1.6%
ROUNDING TO ONE DECIMAL PLACE
PLUS % SIGNS IN TABLE
r expenses of marketing the
otential to lower overall costs.
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
B
C
I
O
2.8
3.0
2.0
1.6
1.6
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
2.8%
B
3.0%
C
I
2.0% 1.6%
O
1.6%
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Very
high
High
About About
average average
Annual Operating Expenses As a % of your account value
Class:
Deducted from your investment each year
A
2.8%
B
3.0%
C
I
2.0% 1.6%
O
1.6%
Testing opportunities
ROUNDING TO ONE DECIMAL PLACE
PLUS % SIGNS IN TABLE
PLUS LANGUAGE VARIATIONS
2
3
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
Annual Operating Ex
Deducted from your investmen
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
Annual Operating Ex
Deducted from your investmen
Annual Operating Expenses As a % of the value of your investment
Class:
A
B
C
I
O
Deducted from your investment each year
2.79
2.97
2.02
1.63
1.63
How this compares to similar funds
Very
high
Very
high
High
Testing opportunities
COMPARISON TO NORM
About About
average average
Annual Operating Ex
Deducted from your investmen
Annual Operating Expenses As a % of the value of your investment
f your investment
B
C
I
O
0.30
0.10
—2
—2
0.25
0.25
—2
—2
1.30
0.90
0.75
0.75
1.12
0.77
0.88
0.88
2.97
2.02
1.63
1.63
1.20
-0.75
-0.60
-0.60
1.77
1.27
1.03
1.03
ge daily net assets and paid to
r expenses of marketing the
otential to lower overall costs.
funds in which the Fund invests.
lying Funds borne by the Portfolio
Class:
A
B
C
I
O
Deducted from your investment each year
2.79
2.97
2.02
1.63
1.63
How this compares to similar funds
!!
!!
!
KEY
=
=
!! Very high ! High = About average 4 Low 44 Very low
Testing opportunities
Annual Operating Expenses As a % of the value of your investment
Class: ATO NORM
B
C
COMPARISON
Deducted from your
investment
each year
2.79AND
2.97 KEY
2.02
WITH
SYMBOLS
How this compares to similar funds
KEY
!!
!!
!
I
O
1.63
1.63
=
=
!! Very high ! High = About average 4 Low 44 Very low
1.12
0.77
0.88
0.88
2.97
2.02
1.63
1.63
1.20
-0.75
-0.60
-0.60
1.77
1.27
1.03
1.03
KEY
!! Very high ! High = About average 4 Low 44 Very low
Annual Operating Expenses As a % of the value of your investment
Class:
A
B
C
I
O
Deducted from your investment each year
2.79
2.97
2.02
1.63
1.63
How this compares to similar funds
!!
!!
!
ge daily net assets and paid to
r expenses of marketing the
otential to lower overall costs.
funds in which the Fund invests.
lying Funds borne by the Portfolio
and the annualized net expenses
fiscal year.
gh at least October 1, 2010;
ge commissions, extraordinary
to possible recoupment by ING
on agreement is contractual and
Investments, LLC provides written
ment within 90 days of the end of
ent management agreement. For
ee the SAI.
KEY
=
=
!! Very high ! High = About average 4 Low 44 Very low
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
How this compares to similar funds
KEY
1 Very high
2 High
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
1
1
2
3
3
3 About average
4 Low
5 Very low
Testing opportunities
f your investment
Annual Operating Expenses As a % of the value of your investment
B
C
I
O
0.30
0.10
—2
—2
0.25
0.25
—2
—2
1.30
0.90
0.75
0.75
How this compares to similar funds
2.97
2.02
1.63
1.63
KEY
ge daily net assets and paid to
Class: ATO NORM
B
C
I
COMPARISON
Deducted from your investment each year
2.79 2.97 2.02 1.63
WITH NUMERALS (HIGH
= GOOD)
5 Very high
4 High
5
3 About average
5
4
2 Low
3
1 Very low
O
1.63
3
funds in which the Fund invests.
lying Funds borne by the Portfolio
and the annualized net expenses
fiscal year.
gh at least October 1, 2010;
ge commissions, extraordinary
to possible recoupment by ING
on agreement is contractual and
Investments, LLC provides written
ment within 90 days of the end of
ent management agreement. For
ee the SAI.
f your investment
KEY
!! Very high ! High = About average 4 Low 44 Very low
Annual Operating Expenses As a % of the value of your investment
Class:
Deducted from your investment each year
How this compares to similar funds
KEY
1 Very high
2 High
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
1
1
2
3
3
3 About average
4 Low
5 Very low
Annual Operating Expenses As a % of the value of your investment
B
C
I
O
0.30
0.10
—2
—2
0.25
0.25
—2
—2
Deducted from your investment each year
1.30
0.90
0.75
0.75
How this compares to similar funds
2.97
2.02
1.63
1.63
KEY
Class:
5 Very high
4 High
A
B
C
I
O
2.79
2.97
2.02
1.63
1.63
5
5
4
3
3
3 About average
2 Low
1 Very low
ge daily net assets and paid to
r expenses of marketing the
otential to lower overall costs.
Testing opportunities
Annual Operating Expenses As a % of the value of your investment
Class:
A
B
C
I
O
COMPARISON2.8TO NORM
3.0
2.0
1.6
1.6
WITH NUMERALS (HIGH = HIGH COST)
Deducted from your investment each year
he value of your investment
B
C
I
O
2.97
2.02
1.63
1.63
Annual Operating Expenses As a % of the value of your investment
1
1.22
1.30
0.90
0.75
0.75
How this compares to similar fu
Total
Fund LLC.
Operating Expenses 2.79
ING Annual
Funds Services,
2.97
2.02
1.63
1.63
KEY
5 Very high 4 Hi
Deducted from your investment
Other Expenses
Includes an annual administration fee of 0.08% of average daily net assets and paid to
Less
thanan
0.01%;
in Otherfee
Expenses.
Includes
annualincluded
administration
of 0.08% of average daily net assets and paid to
ING Funds
Services,and
LLC.other intermediaries to cover their expenses of marketing the
Paid
to distributors
2 Fund. Additional assets brought into the Fund have the potential to lower overall costs.
Less than 0.01%; included in Other Expenses.
43
The
pro rata share
of expenses
chargedtoby
mutual
in which
the Fund the
invests.
PaidFund’s
to distributors
and other
intermediaries
cover
theirfunds
expenses
of marketing
The
estimated
amount
fees and
expenses
of have
the Underlying
Funds
borneoverall
by thecosts.
Portfolio
Fund.
Additional
assetsofbrought
into
the Fund
the potential
to lower
will vary based on the Portfolio’s allocation of assets to, and the annualized net expenses
of, the particular Underlying Funds during the Portfolio’s fiscal year.
5
Contractually guaranteed by ING Investments, LLC through at least October 1, 2010;
the guarantee does not extend to interest, taxes, brokerage commissions, extraordinary
expenses Operating
and Acquired Fund
Fees and Expenses.
to possible
recoupment
by ING
Annual
Expenses
As aSubject
% of the
value of
your investment
Investments, LLC within three years. The expense limitation agreement is contractual and
A ING Investments,
B
C LLC provides
I
O
shall renew automatically for one-yearClass:
terms unless
written
notice offrom
the termination
of the each
expense
agreement
90 days
of the 1.63
end of
Deducted
your investment
yearlimitation
2.79
2.97 within
2.02
1.63
the then-current term or upon termination of the investment management agreement. For
more information on the expense limitation agreement, see the SAI.
21
3
vs.
How this compares to similar fu
Annual
Operating
KEY
!!
Very high Ex
!
Deducted from your investmen
Annual Operating Ex
Deducted from
your investment
Annual
Operating
Ex
How this compares to similar fu
Deducted from
your
investmen
KEY
1 Very
high
2 Hi
Annual Operating Expenses
Annual you
Operating
Expenses
As avalue
% of of
theyour
value
of your investment
Expenses
pay each year
as a % of the
investment
Class: AA
O
Class:
BB
CC
II
O
1
Deducted fromFee
your
investment each year
Management
2.79
0.30
2.97
0.30
2.02
0.10
1.632
—
Annual
Annual Operating
Operating Ex
Ex
1.632
—
How this compares
to similar
funds
Distribution
and Service
(12b-1)
Fees3
Very
high
0.25
Very
high
0.25
High
Other Expenses
1.22
1.30
0.90
0.75
0.75
Deducted
Deducted from
from your
your investment
investmen
How this compares to similar fu
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
KEY
1
2
3
0.25
About About
average
— 2 average
—2
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
What was actually tested
5 Very high
4 Hi
Annual Operating Ex
Deducted from your investment
1
1.22
1.30
0.90
0.75
0.75
How this compares to similar fu
Total
Fund LLC.
Operating Expenses 2.79
ING Annual
Funds Services,
2.97
2.02
1.63
1.63
KEY
5 Very high 4 Hi
Deducted from your investment
Other Expenses
Includes an annual administration fee of 0.08% of average daily net assets and paid to
Less
thanan
0.01%;
in Otherfee
Expenses.
Includes
annualincluded
administration
of 0.08% of average daily net assets and paid to
ING Funds
Services,and
LLC.other intermediaries to cover their expenses of marketing the
Paid
to distributors
2 Fund. Additional assets brought into the Fund have the potential to lower overall costs.
Less than 0.01%; included in Other Expenses.
43
The
pro rata share
of expenses
chargedtoby
mutual
in which
the Fund the
invests.
PaidFund’s
to distributors
and other
intermediaries
cover
theirfunds
expenses
of marketing
The
estimated
amount
fees and
expenses
of have
the Underlying
Funds
borneoverall
by thecosts.
Portfolio
Fund.
Additional
assetsofbrought
into
the Fund
the potential
to lower
will vary based on the Portfolio’s allocation of assets to, and the annualized net expenses
of, the particular Underlying Funds during the Portfolio’s fiscal year.
5
Contractually guaranteed by ING Investments, LLC through at least October 1, 2010;
the guarantee does not extend to interest, taxes, brokerage commissions, extraordinary
expenses Operating
and Acquired Fund
Fees and Expenses.
to possible
recoupment
by ING
Annual
Expenses
As aSubject
% of the
value of
your investment
Investments, LLC within three years. The expense limitation agreement is contractual and
A ING Investments,
B
C LLC provides
I
O
shall renew automatically for one-yearClass:
terms unless
written
notice offrom
the termination
of the each
expense
agreement
90 days
of the 1.63
end of
Deducted
your investment
yearlimitation
2.79
2.97 within
2.02
1.63
the then-current term or upon termination of the investment management agreement. For
more information on the expense limitation agreement, see the SAI.
21
3
How this compares to similar fu
Annual
Operating
KEY
!!
Very high Ex
!
Deducted from your investmen
Annual Operating Ex
Deducted from
your investment
Annual
Operating
Ex
How this compares to similar fu
Deducted from
your
investmen
KEY
1 Very
high
2 Hi
Annual Operating Expenses
Annual you
Operating
Expenses
As avalue
% of of
theyour
value
of your investment
Expenses
pay each year
as a % of the
investment
Class: AA
O
Class:
BB
CC
II
O
1
Deducted fromFee
your
investment each year
Management
2.79
0.30
2.97
0.30
2.02
0.10
1.632
—
Annual
Annual Operating
Operating Ex
Ex
1.632
—
How this compares
to similar
funds
Distribution
and Service
(12b-1)
Fees3
Very
high
0.25
Very
high
0.25
High
Other Expenses
1.22
1.30
0.90
0.75
0.75
Deducted
Deducted from
from your
your investment
investmen
How this compares to similar fu
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
KEY
1
0.25
About About
average
— 2 average
—2
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
What consumers said they wanted
2
3
5 Very high
4 Hi
Annual Operating Ex
Deducted from your investment
5
will vary based on the Portfolio’s allocation of assets to, and the annualized net expenses
of, the particular Underlying Funds during the Portfolio’s fiscal year.
Contractually guaranteed by ING Investments, LLC through at least October 1, 2010;
the guarantee does not extend to interest, taxes, brokerage commissions, extraordinary
expenses and Acquired Fund Fees and Expenses. Subject to possible recoupment by ING
Investments, LLC within three years. The expense limitation agreement is contractual and
shall renew automatically for one-year terms unless ING Investments, LLC provides written
notice of the termination of the expense limitation agreement within 90 days of the end of
the then-current term or upon termination of the investment management agreement. For
more information on the expense limitation agreement, see the SAI.
Annual Operating Ex
Deducted from your investment
How this compares to similar fu
KEY
1 Very high
2 Hi
Annual Operating Expenses
Expenses you pay each year as a % of the value of your investment
Class:
Annual Operating Ex
A
B
C
I
O
Management Fee1
0.30
0.30
0.10
—2
—2
Distribution and Service (12b-1) Fees3
0.25
0.25
0.25
—2
—2
Deducted from your investment
Other Expenses
1.22
1.30
0.90
0.75
0.75
How this compares to similar fu
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
KEY
1
2
3
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
5 Very high
4 Hi
Annual Operating Ex
Deducted from your investment
Annual Operating Expenses As a % of the value of your investment
Class:said
A
B
C wanted
I
O
What consumers
they
Deducted from your investment each year
2.79
2.97
2.02
1.63
1.63
Annual Operating Ex
Deducted from your investment
5
will vary based on the Portfolio’s allocation of assets to, and the annualized net expenses
of, the particular Underlying Funds during the Portfolio’s fiscal year.
Contractually guaranteed by ING Investments, LLC through at least October 1, 2010;
the guarantee does not extend to interest, taxes, brokerage commissions, extraordinary
expenses and Acquired Fund Fees and Expenses. Subject to possible recoupment by ING
Investments, LLC within three years. The expense limitation agreement is contractual and
shall renew automatically for one-year terms unless ING Investments, LLC provides written
notice of the termination of the expense limitation agreement within 90 days of the end of
the then-current term or upon termination of the investment management agreement. For
more information on the expense limitation agreement, see the SAI.
Annual Operating Ex
Deducted from your investment
How this compares to similar fu
KEY
1 Very high
2 Hi
Annual Operating Expenses
Expenses you pay each year as a % of the value of your investment
Class:
Annual Operating Ex
A
B
C
I
O
Management Fee1
0.30
0.30
0.10
—2
—2
Distribution and Service (12b-1) Fees3
0.25
0.25
0.25
—2
—2
Deducted from your investment
Other Expenses
1.22
1.30
0.90
0.75
0.75
How this compares to similar fu
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
KEY
1
2
3
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
5 Very high
4 Hi
Annual Operating Ex
Deducted from your investment
Annual Operating Expenses As a % of the value of your investment
Class:said
A
B
C wanted
I
O
What consumers
they
Deducted from your investment each year
2.79
2.97
2.02
1.63
1.63
Annual Operating Ex
Deducted from your investment
Annual Operating Expenses
Annual Operating Ex
Expenses you pay each year as a % of the value of your investment
Class:
A
B
C
I
O
Management Fee1
0.30
0.30
0.10
—2
—2
Deducted from your investment
Distribution and Service (12b-1) Fees3
0.25
0.25
0.25
—2
—2
How this compares to similar fu
Other Expenses
1.22
1.30
0.90
0.75
0.75
Acquired Fund Fees and Expenses4
1.02
1.12
0.77
0.88
0.88
Total Annual Fund Operating Expenses 2.79
2.97
2.02
1.63
1.63
Waivers, Reimbursements and Recoupment5 -1.20
-1.20
-0.75
-0.60
-0.60
Net Fund Operating Expenses5
1.77
1.27
1.03
1.03
1
2
3
4
5
1.59
Includes an annual administration fee of 0.08% of average daily net assets and paid to
ING Funds Services, LLC.
Less than 0.01%; included in Other Expenses.
Paid to distributors and other intermediaries to cover their expenses of marketing the
Fund. Additional assets brought into the Fund have the potential to lower overall costs.
The Fund’s pro rata share of expenses charged by mutual funds in which the Fund invests.
The estimated amount of fees and expenses of the Underlying Funds borne by the Portfolio
will vary based on the Portfolio’s allocation of assets to, and the annualized net expenses
of, the particular Underlying Funds during the Portfolio’s fiscal year.
Contractually guaranteed by ING Investments, LLC through at least October 1, 2010;
the guarantee does not extend to interest, taxes, brokerage commissions, extraordinary
expenses and Acquired Fund Fees and Expenses. Subject to possible recoupment by ING
Investments, LLC within three years. The expense limitation agreement is contractual and
shall renew automatically for one-year terms unless ING Investments, LLC provides written
notice of the termination of the expense limitation agreement within 90 days of the end of
the then-current term or upon termination of the investment management agreement. For
more information on the expense limitation agreement, see the SAI.
KEY
!! Very high !
Annual Operating Ex
Deducted from your investment
How this compares to similar fu
KEY
!! Very high !
Annual Operating Ex
Deducted from your investment
How this compares to similar fu
KEY
1 Very high
2 Hi
time. While important during all types of markets,
low fees are especially important during times of
market volatility.
At AARP Funds, we keep fund fees low — in fact,
low fees are one of the principles that guide our
fund management and investment strategy.
In the hypothetical example below, the investor
who chose the lower cost fund ended up with
more money at retirement. The example shows
how the additional savings that resulted from
lower fees can translate into more years of retirement payouts — in this case, nearly six more years.
Lower fees could mean longer-lasting retirement income
$300,000
Lower fees could
mean $15,231 more
at retirement …
$250,000
$200,000
which in turn could
mean $115,800
more income —
enough for nearly
six extra years
$150,000
$100,000
$50,000
$0
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
Number of payout years
$19,300 withdrawn per year
Average mid-cost fund expense of 1.02%
Average low-cost fund expense of 0.50%
For purposes of calculating accumulation (not shown in graph), the example assumes an annual IRA
contribution of $5,000 per year, increased annually by 3% for inflation, for a period of 20 years. The
balance for each year is decreased by an assumed fund expense of 1.02% in one analysis and
0.50% in the other; then, a 7% earnings rate is applied to both situations. In the withdrawal phase
(graph), a withdrawal of $19,300 is applied to each analysis. The cash flows of $19,300 last for
Apparent issues
• Failed to consider what might benefit users best.
• Asked users about a subject they understand poorly.
• Users appear to have responded with answer they
believed was “correct”.
• Researchers accepted those answers at face value.
T HE NATU R E O F DATA
People who don’t
know what they want
are just as happy
to give you data.
What, And What Not,
To Expect From Testing
What testing can do well
• Alert you to certain problems.
• Show which of two or more options works better.
• Identify preferences among logically arbitrary
solutions.
But . . .
• It may not find all of the problems.
• It may not identify the real cause.
• If audience is small/skewed, it may fail to identify
large problems or may identify false problems.
• It will not tell us whether the problem is one we
should have known about.
• It will not give any idea of how many other
solutions exist or how far we are from the best.
And . . .
• It may distract our attention from the actual
writing and design work.
• It may cause us (consciously or not) to
undervalue professional skills.
• It may give us an unwarranted sense of confidence
in the quality of our work.
• It may give others an unwarranted sense of
confidence in the quality of our work.
Above all
• Known skills can provide faster, cheaper, and
more reliable ways to solve most plain language
problems.
• Testing and research offer virtually no
practical means for measuring or advancing
creative thought.
The Case For
Using Your Head
(Yes, as a matter of fact, it IS carved in stone.)
What I mean by “using your head”.
• Observation.
• Analysis.
• Judgment.
• Problem-solving.
• The same spirit of skeptical inquiry that
animates science.
What I don’t mean.
• Unexamined assumptions.
• Personal opinions or reactions.
• Failing to check against other evidence.
• Using rules, data, customs, or anything else as a
substitute for thinking.
Using your head:
• Is central to understanding communication.
• Can be highly reliable way to spot and overcome
personal biases (a learnable skill).
• Is essential to good testing and research.
• Is the only road today that leads to excellence.
less stick
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