The 10 best annual reports of 1996 ... and the 10 worst.

It's getting harder and harder to find bad annual reports - an indication, perhaps, that more CEOs are actively involved in creating them. But that doesn't mean the news is all good.

Perhaps tellingly, the CEOs of firms with top-ranking reports understand the value of an effective annual report. "A million shareholders turn to our annual report every year as their No. 1 source of information, their guide to the future of our industry and company," says Richard C. Notebaert, chairman and CEO of Ameritech Corp., who describes his company's report as "a long fireside chat between a CEO and a shareowner about the future."

As Douglas Leatherdale, CEO of The St. Paul, put it: "When it comes to our shareholders, the annual report is The St. Paul's most important communications tool. My view is that an annual report requires the personal involvement and commitment of a company's chairman and CEO year after year."

Over the years, the annual has gradually evolved from a summary of a company's businesses, market position, and financial performance to become a more comprehensive corporate mouthpiece, reflecting future opportunities and growth strategies, as well. as current standing. As Notebaert says of Ameritech's report: "It looks forward to survey our growth opportunities, convey our competitive strengths, communicate our vision and strategy for future growth, and report the results we've achieved."

In the best of cases, the finished product demonstrates the efforts of a professional communications team working with an enlightened CEO. "Essentially, content of our annual report is a collaborative effort involving input from the CEO, executive, and plant managers, and our commercial and investor relations functions," says Jim Will, CEO of Armco Inc., whose annual placed third this year. "A key to our success, however, is giving full freedom and responsibility for developing a creative presentation of that content to our communications and production team."

Judging the merits of annual reports inevitably raises the question of just what constitutes a good annual. In evaluating each year's crop, we rely on a point system (see sidebar, above) to designate the 10 best reports. In our 14 years of ranking reports, this year marks the first time that a score of 135 points has been achieved - and by two reports, not just one. Overall, scores have risen each year, with more than 50 reports meeting the 100 point-plus score required to merit "world-class" status for the past four years running. In short, reports are getting better. More companies are moving beyond merely encapsulating strategic direction and financials to presenting a complete corporate profile, communicating everything from a mission statement to how the firm fits into world markets. Fewer fall prey to the sins of obtuse reporting and overblown design.

Erring on the side of tradition continues to be the safest road to achieving the annual report's ultimate purpose - conveying the company's image and corporate mission, an accurate reporting of its market position and financial picture, and a forward-looking view of its future prospects. At the same time, the world's best reports all blend form with function to some extent - as evidenced by this year's top 10.

FIRST (TIE) - 135 POINTS

Perfect scores for two firms tied an old-line insurance company with worldwide operations with a Midwestern upstart, one of the new breed of telecommunications tigers, for the top slot in 1996. Of the two, the ST. PAUL COS. takes the more comprehensive approach, with greater graphic appeal and more substantive text. St. Paul Chief Executive Douglas W. Leatherdale admitted without prelude that a "relentless parade of storms and floods produced the second-worst total catastrophe loss in our 144-year history. That ended our three-year string of record earnings." His report wins high marks for forthrightness throughout its 76 pages, and an innovative theme that paralleled "Creating value" and "Valuing creativity." AMERITECH CORP., on the other hand, merited equally high marks by taking a different tack - a 58-page effort that proved less can be more - or at least as much. A detailed table of contents brought points for readability, as did the trifold display of financial highlights and growth strategies that immediately follows. Despite a price-earnings ratio that declined 150 percent, a 6.3 percent earnings gain had CEO Richard C. Notebaert waxing upbeat. "The great news...was that 1996 was an exciting, energizing year," he wrote in his letter to shareholders. For both companies, this year's ranking marks a repeat visit to first place: Ameritech has been there the last two years running; St. Paul occupied that top spot in 1990.

THIRD - 131 POINTS

Four additional points this year bumped ARMCO INC.'s consumer magazine-style annual report up a notch from last year's fourth place. The approach is gaining popularity, this year adopted by three of every 10 corporations as compared to last year's two in 10. The steel company's annual is a standout in the genre, with intriguing queries, such as "What is your strategy to restore earnings power?" on its cover and, inside, a clearly defined mission "to become the most customer responsive, highest quality, lowest cost producer [and] provide shareholders with a competitive return on their investment." If anything, presentation is understated; the company forgoes pricey, high-gloss paper and four-color photography and makes up the difference with informative - and colorful - charts and compelling black-and-white images. At 44 pages, it weighs in as one of the two shortest - the other is Northwest Natural Gas Co. - of those finishing among the 10 best. While a shining example that producing a quality report does not demand an eye-popping budget, Armco's basic approach is not the result of a bleak year; the company reported a 9 percent year-to-year earnings gain-a hefty 27 percent on a per-share basis. In the words of Jim will, chairman and president, the "leading domestic producer of specialty fiat-rolled stainless, electrical, and galvanized steels" is "beginning to show its potential."

FOURTH - 130 POINTS

Just three years old, EASTMAN CHEMICAL CO. elbowed its way to 100 point-plus world-class status with its first-ever annual report by scoring a 102. Last year, saw a jump to 112, and this year it sails over the bar to a healthy position among the top 10. What's Eastman doing right? Inviting graphics, a decidedly external orientation - and, not least, a CEO willing to be showcased. Chairman Earnest W. Deavenport, Jr., comes across as likable and talented, with his hand firmly on the rudder and a clearly articulated view. His letter to shareholders, which follows four pages of financial highlights, leads off: "I am gratified with most of what we have accomplished over the past three years as a public company. I am impatient, however, in our quest to have the financial markets fully appreciate the value I believe is inherent in our company." Eastman's report is in the minority - 18 percent - of those with a comprehensive contents listing that offers a tip-off of what's to come and is among the 15 percent of annuals containing a helpful glossary of complicated terms. The company's "No Limits to Our Potential for Growth" theme is carried through nicely in supporting text, which notes that "raw materials for Eastman chemicals, plastics, and fibers flow through more than 4,000 miles of pipe in plants around the world... But [what] interests our shareowners most is our technology pipeline...the one that leads into the future."

FIFTH - 129 POINTS

CHEVRON continues an unblemished record of ranking in the top 10 for 10 straight years with this year's report, titled "Dimensions of Growth." As with earlier annuals, the table of contents highlights eight "strategies for the future," as well as a report on the environment, glossary of energy and financial terms, and 11-year summaries of operations and financials. Introducing the reader to the information-laden tome is a candid picture of Chairman Ken Derr, who gets straight to the point in a stockholder letter that begins, "1996 was the best year in our company's history... earnings hit an all-time high of more than $2.6 billion." As usual, the report also excels in presenting detailed biographical data on officers and directors, accompanied by photos.

SIXTH (TIE) - 128 POINTS

SOUTHERN CO. jumped two notches with a "What is Southern Company?" theme that tackled critics head on. "Others have referred to us as the 900-pound gorilla of our industry," reads the public utility's opening text. "We like that comparison. Like a 900-pound gorilla, we are a leader. We are successful. We are strong. When we want to, we move fast." A few bananas in the background of CEO A.W. (Bill) Dahlberg's photo pick up on the gorilla motif; as does his letter, which states, "As the electric marketplace becomes competitive, there will be a lot of bananas up for grabs. We intend to grab our share." Sharing the jungle with Southern is NORTHWEST NATURAL GAS CO., a frequent finisher among the world's best annual reports. Year after year, no report better reflects its surroundings. The utility uses the theme "Sweeping change" to showcase the varied terrain of the Pacific Northwest in stunning, full-page color photos. To introduce new CEO Richard G. Reiten, a forward-looking Q&A follows his inaugural letter, which offers a comprehensive summary of the company's market position and performance goals.

EIGHTH - 122 POINTS

Straightforward and information-packed best summarize the positives of PHILLIPS PETROLEUM CO.'s report. A spread that provides "A Look at Phillips' Worldwide Operations," in table format is particularly effective, pairing a photo of each division's business leader with capsule summaries of strategy, business description, market strengths, and financial performance. CEO and Chairman Wayne Allen succinctly addresses six key focuses for improving performance in "The Chairman's View," and a four-page shareholder letter from Allen and Jim Mulva, president and COO, looks at financial results and growth prospects.

NINTH - 126 POINTS

Even with a two-point boost, the AFLAC INC. annual plummeted three spots to ninth place as a result of heightened competition. Despite the fall, its report does a masterful job of explaining its business. Two decades ago, AFLAC became one of a pair of American companies licensed to sell life insurance policies abroad, and today, it's Japan's "largest foreign insurer...in terms of premium income and profits." Among the laborious issues tackled in this year's annual is an explanation of the "Impact of the Yen/Dollar Exchange Rate" that won praise from Wall Street. "Although we were very gratified with AFLAC's results in 1996...we were frustrated that the weakening of the yen throughout the year masked our performance in dollar terms," wrote Daniel P. Amos, president and CEO, who warranted all 25 points possible for CEO involvement.

TENTH - 125 POINTS

HILLENBRAND INDUSTRIES' annual starts off strong with a cover photo illustrating the "Transitions" theme by showing a family looking through a photo album and up-front depictions of financial highlights and a corporate profile. While its 13-page letter to shareholders is four times the norm, it affords a clear picture of the company, which was dubbed by one Wall Street wag, "the world's most horizontally integrated." Three divisions - health care, funeral services, and high security - make up the company.

WORST ANNUAL REPORTS

What about the evil twin, the bad annual report? The good news is that each year it has become increasingly difficult to round up a group of suspects - flagrant abusers of basic design principles and connivers who twist facts to mask poor results. Gone also are the reports glorifying the current CEO with paeans of praise from the boss's sidekicks or glamour shots taken from every conceivable angle. Ferreting out candidates for this year's line-up of world's worst actually required raising the bar on standards for design quality and financial precision and overlooking the redeeming qualities of certain reports. In the end, clear contenders for the dubious distinction of world's worst did emerge, committing any of a multitude of potential sins, from simply dreadful design to heavy-handed attempts to obscure managerial failures. In fact, 11 of every 100 CEOs were assessed as less than forthright, whether slow to address failings or downright obtuse. Sometimes the two negatives came as one: elaborate, overblown design, seemingly intended to camouflage a reluctance to address problems.

FIRST

GULF CANADA RESOURCES LTD'S "Mission 2006: Possible" approach is not only several decades behind the times; it's also sophomoric. Page 1 uses the kind of type reserved for the sides of shipboard containers to announce: "Notice. This format change is an OFFICIAL LAUNCHING of a bold new direction for Gulf. Objective: Establish GOU [the company's trading, symbol on various stock exchanges] as one of the world's pre-eminent oil and gas companies. Point Man: Special Agent James Brash." That's the creators' alias for CEO J.P. Bryan, whose "cover" is "Marathon Man." Bryan - alias Brash - is credited, secret agent-like, as having "led [an] amicable takeover of GOU forces in 1995."

Instead of a traditional shareholder letter, the report begins with a series of secret agent "briefings." A secret agent "assignment" format is then followed throughout the book's text section.

Whether the report's creators were attempting to resurrect the ancient television series Mission Impossible or the more recent film - starring Tom Cruise - it inspired, the effort falls flat. One missive, ostensibly from Bryan, begins with the word "Purification," followed by: "I used to be Snow White...but I drifted," a quote attributed to Mae West. Writes Agent Brash: "Think pure value, no drifting. This year we're going to continue upgrading our portfolio, particularly in Canada and the North Sea." Brash/Bryan has a "personality indicator" one suspects few CEOs would want ascribed to themselves: "Extremely dangerous when armed, especially when shooting from the lip." More telling, perhaps, than anything else in this nice-try-but-no-cigar caper is the quote from Shakespeare: "God hath given you one face, and you make yourself another." The Mission Impossible approach continues until Gulf Canada's president takes pity on the reader with these closing remarks: "Good day for now and until we meet again."

SECOND

Forget that the design of the WALT DISNEY CO. annual report isn't up to the standards one would expect from such a visually oriented corporate entity. Imagine, instead, how long Tolstoy's War and Peace would have run with Michael D. Eisner as its author. His shareholder letter meanders for 10 pages - three times the average worldwide. Just how long is too long? In Eisner's case, when the excesses become more compelling than the message. In all that space he neglects to mention - save in a footnote - a 5 percent decline in earnings per share, yet manages to fit in the fact that this CEO has spent the past 35 Thanksgiving holidays at his family's farmhouse in Vermont; that both his mother and mother-in-law have passed on, as has sidekick Frank Wells; that he worked as a page for ABC, his new plaything, in the '60s; and that he's a telephone junky, self-described. For the record, Eisner's letter contained 87 paragraphs of endless blathering, with 24 first-person references in the first two paragraphs alone. Page after interminable page - to call it a Mickey Mouse effort would be a cheap shot. Suffice to say: Enough, already! Uncle!

THIRD

Now headed by a GE alumnus, SPX CORP. is perhaps the first company in history not to list officers in its annual report - a clear indication that copious management changes are in the offing. Meantime, an initials-happy CEO, John B. Blystone, 43, tosses acronyms around with abandon in his seven-page shareholder letter - run over 13 pages-citing KVR, CLT, MKT, USS, FIX, and EVA, which he glowingly commends as "helping us improve both our operating performance and the use of capital....A catalyst in producing a quick financial turnaround and a remarkable cultural transformation." As a result, he writes, SPX leaders are "obsessed with winning... filled with energy, urgency, and a clear sense of direction" and have become "smart, multidimensional, global thinkers." Equally glowing is his assessment of the company vehicle service business: "By expanding our view of the market to encompass the entire $350 billion worldwide vehicle service market, we widened our view to $350 billion of opportunity." Yes, and todays children will become tomorrow's adults. This producer of specialty tools and original equipment components to the automotive industry cut capital expenditures by one-third. What Blystone chose not to focus on was the largest loss - $62.3 million - in the last 11 years, $4.45 a share, fully diluted. Equity per share weighs in 38 percent lighter than a year prior, though you'd never know it from reading the company's annual report. Plus, SPX total assets declined 26 percent year to year.

FOURTH

THE MONSANTO CO. recently divested of its chemical operations, got off to a good start with a cover presenting the observation: "In 1901, Monsanto was a start-up company. In 1996, we were again..." Unfortunately, it's all downhill from there. The report features gatefolds opposite gatefolds laden with text, facts, and photos and instructions to "open" and to "pull." Monsanto acknowledged up from a 50 percent decline in net income on a per-share basis and provides full captions for graphs, but its excesses overshadow the positives.

The financial summary is limited to six years, nowhere near the 11 years required for analysts to calculate a 10-year compound growth rate, indicating that earnings were at the lowest ebb since 1992, a loss year. Somehow, though, its "five-year market return to shareowners" is at a six-year peak, 334 percent, nearly twice the 1991 showing. Chairman Robert B. Shapiro, jacketless, is pictured perched atop a wooden crate labeled "Life Sciences," wearing a plaid shirt, open at the neck, and a half-smile. His letter ran twice the worldwide average. Redeeming features include extensive biographical data on directors and half a dozen "advisory directors," company employees, and it's among the 17 percent of companies to enliven a traditionally staid index.

FIFTH

Last year, Glen H. Hiner, chief executive of OWENS CORNING, allowed three photographs of himself to illustrate a four-page letter, and this year he's up to five photos in a three-page letter. Apparently not one to waste a photo opportunity, Hiner is shown shoveling dirt for Habitat for Humanity, holding an infant in Botswana, and chatting with potential customers. The good news is that pictures of the Pink Panther, the company's trademark, still outnumber those of Hiner; the bad is that for the first year in a decade, earnings per share were a negative (-$5.50) - a fact Owens's CEO blithely ignored.

SIXTH

"Beware of book-producing CEOs" is the admonition suggested by the bound tome produced by LINCOLN NATIONAL CORP. Its shareholder letter alone runs an interminable 24 pages, seven times the average, and practically a fourth of the book's 107 pages. Beyond the gold dollar sign emblazoned on the front cover and some stationery-like lining paper, graphics are next to nil. Granted, it's heavy on white space, with some pages containing only a few lines of text, but the overall effect is leaden and gray. Furthermore, Ian M. Rolland, chairman, chooses to dismiss all the write-offs for discontinued operations, preferring to focus on "life after divorce." And, while earnings per share did rise, the jump is a mere 6 percent - not the 41 percent he opts to focus on, which reflects income from operations only.

SEVENTH

Of the 40-page report produced by the OUTBOARD MARINE CORP., the shareholder letter encompasses fully a third. While length alone makes the letter an unwieldy read, the problem is compounded by full-page graphics opposite that incorporate passages of difficult-to-read text. All in all, it's a mishmash that fails to distract from the bottom line: a loss of $7.3 million versus a year-earlier profit of $51.4 million. That's a loss of 36 cents a share against a fully diluted $2.33-per-share profit a year prior. Who, save a long-suffering spouse, could tolerate such flagrant violations of not only good taste but good judgment?

EIGHTH

ARMSTRONG WORLD INDUSTRIES, INC. neglected to graphically represent its net earnings. While they were improved year to year, they remained below the 1994 level - bringing management's sincerity into question. The small type in footnoted data advises readers not to consider "ongoing financial data" as an alternative to reported financial data, which "should not be considered in isolation" - a caveat no doubt added at the insistence of the auditors. Yet that's precisely the data for which Armstrong chose to show percentage-change figures. Among other things, the company also failed to show that net sales declined year to year, and mysteriously referred to "record earnings" for the third year in a row when earnings were actually lower than seven years prior - in 1989. Beyond less than clear financials, the report relies extensively on a blurred-photo technique that made it difficult, if not impossible to recognize the people pictured, of whom only three were identified in captions. And finally, Armstrong's chairman and CEO, George A. Lorch, was pictured more times than one can count - half a dozen, at least.

NINTH

TENNECO INC. was one of the 11 percent of companies perceived as being less than forthright in its annual report this year. A distinctive design and packaging - it's delivered in one of the company's industrial-strength, clear plastic bags - substitutes somewhat for the lack of a cohesive theme. The real downside is the shareholder letter, which the global manufacturing firm leads off with the euphemistic observation that it was "a year of major accomplishments," a sure tip-off that things were other than outstanding. At seven pages - twice the year's average - the letter's wordy sentences run up to 37 words, making it tough slogging in terms of readability. CEO Dana G. Mead neglects to address earnings until more than halfway through the letter and never openly confronts their decline, merely noting that total return to shareholders is "below the target we set for ourselves." In fact, shareowners' equity of $2.646 million returned to dismal 1993 levels, with return at 13.7 percent - just over half of last year's figure of 23.9 percent. The company forgoes putting financial highlights up front, and back-of-the-book six-year data shows net income, $398 million barely topped 1994's $396 million and proved a hefty 45 percent falloff year to year.

TENTH

ATLANTIC RICHFIELD CO.'s Mike Bowlin, chairman, permitted himself eight photos and eight first-person references in his five-page letter to shareholders and subsequent text, both a "Social Leadership" page and a 10-page discussion of the company's "upstream and downstream" businesses. The eight were, by and large, oval-shaped photos in which the CEO's emotions ran the gamut from A to B. All the executives are of the shirt-sleeve category, as is Bowlin, whose visage is seen on eight of 17 text pages - everywhere, it seems, save the cover. The year may have been one of the best in the company's 130-year history - but hardly warrants such a gratuitous display.

WHAT IT MEANS TO BE GOOD

Developed in conjunction with Chief Executive, contributing editor Sid Cato's copyrighted criteria for judging the best and worst annuals are based on a system that awards each report points - up to a maximum score of 135 - for having the following characteristics:

1. Action. Graphic and text elements lure the recipient into opening the report and flipping through its pages. Effective readership-enhancing devices, including an intriguing cover statement, captivating call-outs and lead-ins, snappy subheads, and bulleted paragraphs. The table of contents should be as comprehensive as that of a magazine, and the layout as compelling. (20 points)

2. Readability. Contains sprightly, clear copy rather than grandiose statements overembellished with empty phrasework. (10 points)

3. Information. Fully informs the reader with substantive information presented in a special section, mission statement, and glossary of terms. (10 points)

4. Prospects. Uses a grid or matrix to identify customers and competitors, provide market position and share, and break down operations, results, and prospects, (5 points)

5. CEO Photo. Shows the company's chief executive in a andid, congenial pose, preferably leading off the letter to shareholders. (5 points)

6. Responsibility. Assumes responsibility, alongside the auditors, for the financials. (Points are currently allocated to category one.)

7. Biographies. The biographical data on officers and directors extends beyond age and the year the person joined the company. (10 points)

8. Innovation. Stands out for breaking new ground, rather than rehashing old approaches. (5 points)

9. Focus. Displays a discernible point of view and clearly articulated, tightly executed theme. (5 points)

10. Impression. Conveys a favorable image of the organization (10 points)

11. Disclosure. Offers more financial data than what's customary or required by the SEC and supplements graphs with succinct, explanatory captions. (15 points)

12. Honesty. Indicates strong commitment and integrity. (10 points)

13. Involvement. The letter to shareholders and copy evidences CEO involvement. (10 points)

14. Articulation. Clearly expresses the CEO's view of what the company's about and where he or she sees it headed. (15 points)

15. Likeability. Contains other elements that create or add to a positive overall impression. (5 points)

RELATED ARTICLE: JACK & CO.

What William Shakespeare and John Milton are to an English major, GE's Jack Welch, Berkshire Hathaway's Warren Buffett, and Intel's Andy Grove are to today's business managers. No matter where their corporate reports rank in overall score, these CEOs' shareholder letters are must-reads by virtue of their authors' reputations for dispensing corporate wisdom that can be applied across industries. After all, as Milton himself once wrote, "Opinion in good men is but knowledge in the making."

GE's shareholder letter - signed by vice chairmen Paolo Fresco and John Opie in addition to Jack Welch - tells it like it is. Without preamble, it leads off with bullet points summarizing GE's "best year ever" financials, and then takes a tutorial approach complete with a flow chart titled "GE's Financial Engine." Welch then describes GE's Work-Out and 360-degree management appraisal initiatives, adding, "You can talk - you can preach - all you want about a 'learning organization,' but, from our experience, reinforcing management appraisal and compensation systems are the critical enablers that must be in place if rhetoric is to become reality."

Intel's letter is a succinct one-pager that matter-of-factly reports a 44 percent rise in earnings per share, then tackles the company's greatest challenges. "We are responsible for our own future and work to make it as successful as possible by removing roadblocks to PC platform growth, developing preference for the Intel Inside brand among PC users, and supporting emerging PC markets around the world," write co-signers Gordon Moore, chairman; Craig Barrett, executive VP and COO; and Andy Grove, CEO.

Chatty in tone, Warren Buffet's letter weighs in at a daunting 20 pages of gray type that rambles through a detailed accounting of Berkshire Hathaway's activities and performance - all of which is copyrighted. He tells of how his attendance at a 40th birthday party led to the acquisition of Kansas Bankers Surety, and explains the reasoning behind a subsequent acquisition. He delves into "accounting arcana" to walk readers through 1995 financial restating, offers an insurance business primer to ward off panic in the event of a mega-catastrophe, and candidly addresses everything from an investment in USAir that proved somewhat of a rollercoaster ride to Berkshire's plans to post quarterly reports on the Internet.

- Jennifer Pellet

RELATED ARTICLE: THROUGH THE DECADES - A PROGRESS REPORT

The annual report was born in 1823 when Baltimore Gas & Electric Company - BGE today - introduced a new corporate concept: the annual report to shareholders of publicly held companies. Likely penned in longhand by the corporate secretary, the missive was just a page long, a far cry from the 40-plus paged glossy tomes of today.

Over the years, a myriad of forces - from CEO brainstorms to somber stock markets - influenced the look, feel, and information content of the annual report. To track its lifespan to date, CE asked Richard Lewis, president of Conceptual Communications Group, to guide us through a tour of reports of the times - and the thinking that shaped them.

1950s The Frontrunner: Litton Industries hires a graphic designer and introduces the concept report, driven by its CEO's directive: "Don't show our company as it is, show it as it will be."

The Influence: The dawn of the great individual stockholder boom brings the number of stockholders from 4 million to 20 million.

1960s The Frontrunners: IBM and GE tie. Rapidly growing IBM - the Microsoft of the decade - produces a modern industrial design with elegant, abstract photos, an approach promptly adopted by high-growth wannabes. GE, an early purveyor of the editorial approach, researches how people read annual reports and responds with a themed report dubbing themselves a systems company and devoting two pages to a chart on dividends - the most influential financial factor influencing investors at the time.

The Influence: In an environment brimming with small fast-growth companies and big conglomerates, the burgeoning market of the '60s spawned a huge array of annual reports competing for investor dollars.

1970s The Frontrunners: Entries from Japan edge in. Powerhouse companies like Toyota and Mitsubishi debut global calling cards - English-language, American-style annual reports. Containing only summary financial information, these reports were geared toward bankers and potential customers around the would, rather than shareholders.

The Influence: Thanks to oil shocks, the U.S. economy falters and a somber mood descends, taming report style for domestic firms. Meanwhile, Japanese companies begin churning out reports with a vengeance. By the late '80s, more than 800 have English-language reports.

1980s The Frontrunner: Dedicated to the tomato, H.J. Heinz's outlandish entry - 96 pages and weighing more than a pound - features tomato art and text printed in tomato-red and leaf-green ink.

The Influence: An exuberant economy - and one still free of stringent reporting requirements-spurs splashy designs. Emphasis shifts from informing readers to entertaining them - in the process broadening the definition of an annual report.

1990s The Frontrunner: Evidencing this decade's trend, GM followed up the slim, black-and-white report of a few years ago with this year's plump, sleek edition.

The Influence: Two developments make their mark. First, computerized graphic design brings greater flexibility in manipulating images and combining art, photography, and text. Second, a global recession compels CEOs to streamline operations and cut back annual report budgets. Today, the current boon is shifting emphasis - and dollars - back into report development.

2000s The Future Frontrunner? First slimmer, then electronic.

The Influence: The Internet is edging into the report process on two fronts, draining resources once allocated to annual reports, while simultaneously providing an alternate way to distribute financial and corporate information. In the future loom reports distributed on diskette and CD-ROM - or through e-mail. Looking forward, the question is not so much will annual reports go electronic, but when?

- Jennifer Pellet

RELATED ARTICLE: THE GOOD, THE BAD, AND THE OVERDONE 

Ranging from the Whitman Corp. report, containing the 3-D glasses necessary for viewing a world map of its global business, to Tenneco's offering, which comes packaged in one of the company's Hefty multi-purpose storage bags, this year's crop of annual reports has a healthy dose of the exotic. Reflective of an exuberant economy, some of the year's more extreme designs recall those of the heady '80s, when a booming economy boosted annual report budgets, leading to fat, glossy four-color publications and similarly innovative concepts.

Some design elements work better than others. Audits & Surveys Worldwide's 1996 report uses a half moon shape to call attention to its global business. With cover text that reads, "It's a large world after all," the report opens to a spread in the form of a globe and the text picks up, "For over 40 years, in more than 70 countries, Audits & Surveys Worldwide has sweated the details to provide clients with data they can trust."

The next circular spread is reminiscent of a clock face, and the text continues: "ASW insists that interviewers record a starting and ending time for each interview for quality control purposes, but many interviewers in rural India were unable to do so. The reason? They didn't have watches! ASW now supplies timepieces wherever the problem is anticipated."

Inside, statements from client companies include a quote from Roberto C. Goizueta, Coca-Cola Co.'s chief executive and last year's winner of CE's Chief Executive of the Year award: "Willie Sutton used to say he robbed banks because that is where the money is. Well, we are increasingly global because 95 percent of the world's consumers are outside this country. It's that simple."

Without a doubt, a design and graphics that complement the company's story are point-worthy in the ranking of reports. Yet when form comes at the expense of function, the result can be a befuddled communique, information-deficient and overrun with inappropriate and distracting graphics and gimmickry.

Like Whitman's ineffectual 3D glasses, sometimes such a report is the result of overkill - what looked good on the drawing board fell flat in practice. Worse yet is when splashy design turns out to be a shoddy attempt to mask poor performance - or at least overshadow it.

Complete with liner notes detailing the company's board of directors and top executives, Platinum Entertainment's 1996 annual report is packaged in an album cover, which also contains a CD of the company's top releases. "The good thing about those big LPs was how easy they were to find under the couch..." reads the opening text. "The good thing about a big record label is the big distribution that comes with it... But big isn't always better... Like the necessary change in size from the beloved LP to the CD, Platinum Entertainment recognizes the benefits to being small in a world of big shots. We give our artists the attention they need...but offer the big-time distribution of Polygram. We are the CD of the record labels."

While a lot of fun, and appropriate to the company's personality, Platinum's first edition - the company went public this year - makes no mention of financial performance until more than halfway through. Not surprisingly, the company recorded a loss.

- Jennifer Pellet

RELATED ARTICLE: THE INTERNATIONAL UPDATE

While often not required to produce an annual report - let alone one meeting U.S. standards - non-U.S. firms are steadily creeping toward a more shareholder-friendly annual report. Today, overseas firms often include more SEC-like financial disclosure, as well as elements formerly unique to the U.S., such as a letter to shareholders and an editorial-style design.

In this year's review, contributing editor Sid Cato looked at 65 annuals from companies based in Canada, Mexico, the U.K., Germany, Sweden, Denmark, Norway, Japan, Australia, New Zealand, the Philippines, Pakistan, Poland, Africa, and Switzerland. While there were far too many to cover in depth, following are some of the highlights in reports from around the worlds.

Best in Class: Operating in 35 countries, the U.K.'s Cookson Group plc gets high marks for a report that resembles a consumer magazine in appearance - and therefore readability - while also containing elements common to U.S. reports, including biographical data on officers and directors.

Most Resourceful: Hoechst AG, a diversified German company with businesses in healthcare and agriculture, wins with heightened, purposeful reader appeal. Envisioning listing its shares on the New York Stock Exchange to "achieve wider access to the world's largest capital market" the company juxtaposed color and black and white photography and used its editorial content to depict diverse worldwide activities.

The Wild One: Using innovative design, Germany's Vorwerk takes an inventive approach to showcase its wide range of businesses, from homecare appliances, fitted kitchens, and industrial services. Movable graphics inside include a lift-up banana, which raises to reveal the advice: "Seratonin has a positive effect on one's mood. A banana contains 0.3 grams of serotonin."

Most Improved: The U.K.'s Lloyds TSB Group discontinued its summary annual report, which it previously conceded "provided insufficient data." Among the improvements introduced in its current offering are graphs that feature explanatory captions.

Most Humanitarian: Switzerland-based Credit Suisse confronted painful memories, devoting a spread in its report to the "role of the Swiss financial centre in the Second World War," and reported that plans by it and "other big Swiss banks...have laid the foundations for a fund for the victims of the Holocaust."

Bottom of the Pile: Norwegian shipping company I.M. Skaugen gets this dubious distinction for its bleak 1996 report. The report notes that both the company's gross freight revenue and operating profit "before the sale of vessels and restructuring expenses" were off from the previous year, but - in keeping with Norwegians' self-deprecating character - makes little of the offsetting fact that its profitability, NK107 million, surpassed 1995's NK97 million.

- Jennifer Pellet

Sid Cato, an author and former corporate officer, is president of Cato Communications as well as editor/publisher of Sid Cato's Newsletter on Annual Reports.