Is the 2001 crop of reports shaping up as worst ever? Charles Dickens' expression, "It was the best of times, it was the worst of times..." could stand revamping. As far as annual reports to shareholders are concerned, it's shaping up as quite possibly the worst year in the last 15. Sans counterbalancing "best of times." Fact: With the 1986 crop of reports, I began monitoring the presence, or absence, of 36 indicators of the document's positive or negative nature...from honesty in the letter to shareholders to use of 11-year financial data to inclusion of detailed biographical data on officers and directors. That year, of a potential 100% Cato Positive Index, annuals worldwide averaged 4.1%. Eight years later, among 1994 reports, that had declined to an infinitesimally tiny 0.9%. Not even able to achieve 1%, let alone 100%. Among annuals for the year 2000, the figure stood at 10.5%, if off a bit from 14% among 1997s. Today, among early-arriving 2001 reports, produced by companies on a fiscal-year basis, the figure stands at a negative: -0.7%. Leading to our fear that this may turn out to be the worst (that is, least positive) year since we created this indicator of an annual's overall quality. What's going on? As a life-long observer of the scene (for the last four decades and then some), I believe only part of the downgrading of this key corporate communiqué is because companies whose reports have been received are on a fiscal-year basis; they're traditionally terrible, take the phrase "down and dirty" to new depths. And while it's tempting to blame all of our nation's woes on the terrorist attacks of 9-11, I suspect the denigration of the annual report is simply this: CEOs have long approached this stock exchange-mandated document as having all the appeal of a squashed cockroach, writhing in its death throes. Few if any CEOs have communications backgrounds and/or experience; most come from either the operations or financial side of the business. For most, the annual report is, at best, viewed as a necessary evil. With a downturn in the economy, a slide precipitated by last fall's terrorist attacks, CEOs saw a chance to issue a bare-bones broadside. Indeed, some explored new approaches—if, still, down and dirty. Chicago- based Oil-Dri, for instance, crammed the CEO's letter onto the inside front cover, followed with the legalistic Form 10-K and called it done. Canada's Scotiabank opted to produce a two-part document, both labeled "2001 annual report." One bears the additional line, "Corporate Review," the other, "Financial Review." Again, neither fit the mold.* I want everyone to get the full monty. Mark my word, Scotiabank will end up like McKesson, whose 1987 report broke the barrier (rather, opened the floodgates) and became the world's first summary document. Its AR producer, a vice president, chortled, "Hey, we stapled the financials in each book we mailed." "Not in my book," said a public relations man for General Motors. "Not in mine," said I. "So we missed two of 150,000"—that was the VP's retort. Final note: I hope and pray I'm wrong; that 2001 annuals—the good ones, from the likes of R.R. Donnelley and Tellabs and DTE Energy and Unisys and Ford and Colgate, and especially RLI Corp.—will make me eat my words about the year's awful annuals. But don't bet on it. * What's wrong with a two-part document? Clerical staff is left to pick and choose what to send out. It can decide not to send out both documents, or to provide both. Whatever...I don't believe secretaries and the like should have that discretion.

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