Annual Report to Security Holders

An annual report to security holders is the annual account of a company's business and finances that the SEC's proxy rules require it to deliver to its shareholders. The official name is the one the rules use throughout 17 CFR 240.14a-3; in ordinary speech it is just "the annual report," and often "the glossy," which is worth separating out because the same two words name several unrelated documents. The free annual credit report consumers are entitled to under the Fair Credit Reporting Act is one. An ERISA retirement plan's annual report on Form 5500 is another. A Regulation A issuer's annual report on Form 1-K is a third. This page is about none of those. It is about the document a public company sends its own shareholders in the envelope with the proxy statement, and its defining legal feature is that it is required by the rules on soliciting votes rather than by the rules on periodic reporting.

The trigger is narrow and worth reading literally. Rule 14a-3(b) applies where the solicitation is made on behalf of the company, the company is not a registered investment company, and the solicitation relates to "an annual (or special meeting in lieu of the annual) meeting of security holders, or written consent in lieu of such meeting, at which directors are to be elected." In that case each proxy statement "shall be accompanied or preceded by an annual report to security holders." A solicitation for something else, a merger vote for instance, does not carry the obligation. The shareholder meeting is where the rest of that event lives.

What the rule actually requires inside it. Paragraph (b)(1) requires consolidated audited balance sheets "as of the end of the two most recent fiscal years" and audited income and cash-flow statements "for each of the three most recent fiscal years," prepared under Regulation S-X, with a smaller reporting company permitted to use the lighter Article 8 financial information instead. Paragraphs (b)(3) through (b)(9) then pull in specific items of Regulation S-K: supplementary financial information under Item 302; changes in and disagreements with accountants on accounting and financial disclosure under Item 304; management's discussion and analysis under Item 303; the quantitative and qualitative disclosures about market risk under Item 305; a brief description of the business done during the most recent fiscal year; segment, product-class and foreign-and-domestic-operations information; the identity of each director and executive officer with their principal occupation or employment; and the market price of and dividends on the common equity, together with the Item 201(e) performance graph where the report accompanies a directors election. Paragraph (b)(11) then leaves the presentation open, permitting the report to "be in any form deemed suitable by management" so long as the required information is there and shareholders' attention is drawn to where it sits. That last permission is why these documents look like magazines.

The free-Form-10-K undertaking is the most directly usable thing on the page. Paragraph (b)(10) requires the proxy statement or the report to contain "an undertaking in bold face or otherwise reasonably prominent type to provide without charge to each person solicited upon the written request of any such person, a copy of the registrant's annual report on Form 10-K, including the financial statements and the financial statement schedules," and to give the name and address of the person to whom the request goes. Management may decline to send every exhibit free, provided the copy is accompanied by a list briefly describing the omitted exhibits and states that any exhibit will be furnished on payment of a specified reasonable fee limited to the company's reasonable expenses. The note to (b)(10) extends the right to beneficial owners: a request must "set forth a good faith representation that, as of the record date for the solicitation ... the person making the request was a beneficial owner of securities entitled to vote." So a street-name holder can demand the filed report without owning a single share of record.

The status of the document, which is the reason it and Form 10-K are two entries and not one. Paragraph (c) requires the report to be submitted electronically to the SEC "solely for its information," no later than the date it is first sent to shareholders or the date solicitation material is filed, whichever is later. The same paragraph then says the report is not deemed soliciting material, is not deemed filed, and is not subject to Exchange Act Section 18's liability provisions "except to the extent that the registrant specifically requests that it be treated as a part of the proxy soliciting material or incorporates it in the proxy statement or other filed report by reference." Paragraph (d) reverses that where the company folds the two documents together: an integrated annual report prepared under General Instruction H to Form 10-K may be submitted in satisfaction of this section, and "[w]hen filed as the annual report on Form 10-K, responses to the Items of that form are subject to section 18 of the Act notwithstanding paragraph (c) of this section." Two documents can therefore contain the same words and carry different legal weight, and which one a reader is holding is decided by how the company filed it. What "filed" and "furnished" mean, and what Section 18 does and does not reach, sit with Form 10-K.

Householding, and the sentence that gets you your own copy back. Paragraph (e)(1) lets a company treat one delivery to a shared address as delivery to every holder of record there, on conditions: one copy to the address, addressed to the holders as a group or individually or in a consented form, the holders' consent, a separate proxy card for each holder, and "an undertaking in the proxy statement to deliver promptly upon written or oral request a separate copy" to a holder at that address. Consent can be implied rather than written where the holders share a surname or are reasonably believed to be one family, the company sent a specific notice at least 60 days beforehand, and no reply came within 60 days. Revocation is effective quickly: once a holder revokes, the company must begin sending individual copies within 30 days.

The company prepares the report for its most recent fiscal year, has the financial statements audited, and sends it to shareholders with or before the proxy statement for the annual meeting. The same document goes to the SEC electronically for information only. A shareholder who wants the filed version writes to the address printed in the undertaking and receives Form 10-K without charge. Where the company has folded the two into one filing, it need not send a separate Form 10-K to shareholders who already received the report.

A worked example, using the fiscal calendar rather than dollars, because the periods are the part people get wrong. A company's fiscal year ends December 31, 2026. Its annual report to security holders must contain audited consolidated balance sheets as of December 31, 2026 and December 31, 2025, which is the two most recent fiscal years, and audited income and cash-flow statements for 2026, 2025 and 2024, which is each of the three most recent. So the balance sheet appears twice and the income statement three times, and a reader comparing the two sections is not looking at the same span. If the company changed its fiscal closing date, the note to (b)(1) treats statements covering two years plus one period of 9 to 12 months as satisfying the three-year requirement.

One further timing rule applies only in a fight. Under paragraph (b)(13), a company soliciting before its financial statements are ready, while someone is soliciting against it, may proceed if its proxy statement includes an undertaking in bold face type to furnish the annual report to security holders to everyone solicited "at least 20 calendar days before the date of the meeting."

Pros

• It is the one company document a shareholder receives without asking, and it arrives at the moment a vote is actually due.
• It carries management's discussion and analysis, the auditors' report and the market-risk disclosures, so it is substantive rather than promotional by rule.
• The bold-face undertaking gives any solicited person, including a street-name holder, a free copy of the filed Form 10-K on written request.
• The presentation is deliberately unconstrained, which makes it more readable than the filed report for someone new to the company.

Cons

• It is not treated as filed and sits outside Exchange Act Section 18, so the private damages action that attaches to filed documents does not attach to it.
• Financial statement schedules and exhibits can be left out, which is why the free-copy undertaking exists at all.
• The balance sheet covers two years and the income statement three, so a quick read can compare mismatched periods.
• Householding means a household may receive one copy for several holders unless someone asks otherwise.
• The obligation only attaches to a solicitation at which directors are elected, so it is not a promise of an annual mailing in every situation.