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F~X~:[I BIT A "P~soLw~, that the Board of Dizeetors of The Amerisan TCh~ Company hereby declares it to he nd~i~able th~ each share of the four m~lioa (4,000,0~C)) share~ o| Lh~ pr~ent]y authorised Common St~ch B of the Com- pany of the par ~ue of $25 each, ot which three million, eight hundred and slxty.two thousand, four hundred and forty-one (3,862,441) share~ are now oulstandlug, he chansed into one share of Common Stock of the par value ef ~25 sad that, to eff~t th~ forrgoinS ch~ge, Article IV of the Agreeracnt and A~t of Merger and Con$cllde- tshn between The Ameaiean Tobacco Company, Cor~oIideted Tobacco Company and Continental To]~acco Company, a~ heretofore amended, he amended to read ~ fol~ws: 'AnTICnE IV.--The eapilal stosh o£ the~aid m~rged eorporatlun is sgg4,gl0,g00. Five Hundred ~orty Thousand On~ Hundred and Six (540,105) Ih~res shall he Preferred S~Ch o~ the psr value o~ $100 each, ~x Mi[lion (6,000,000) sh~es shall he CommoD Stock of the par value ~ $25 each. The riShte of the h~lderB o~ the Jald Pre[erred Stock and Common S~o~k, respeetLvaly, shall he as fdluws: The holders of th~ Preferred Stock shall he enthled to ~ux votes ior each share ~£ the par ~d~ of $1~9 bald by them, and ~ helde~s o~ the Common ~oe~ shull b~ entitled to one vote for each share of the par vaiu~ of $25 hdd by the~. The holders of the Pre~rred Stoch shall be e~tliled to reeelve out of the surplus or ou~ ~f the ~eL profits~ a~d the merged corporation shall be bound to pa7 thereon a~ and when declared hy the Board of Directors, It dividend at the rate o~ but never e~xeerdJng~ six par ee~tum per annmx~ eumaiative from ~nd after the first day o~ etcher, lg04, paychle yearly, half yearly, or quarterly, he£~re any dlvlde~d shall he ~et apart o~ paid on the Common S~och; provided, however, that when all accrued ¢llvl- dende on the Pre/er~ed Sock have bee~ paid, the l~ir~to~ chall, i£ ia their judgment the surplus ~r the net profits, aRer deducting the amoun~ of dividends to aaerue on the Preferred Stock during the current year, shal~ ~e su~cle~t for such pntp~se~ have power in their dis~rchun ~o de- ala~ and pay a dividend, or dlefdende, ~n the Common S~oek. In ~a~e of li~uideLlun, or di~sclutlon, o~ di~ilbution of asse~ of the said merged c~rporail~, the holders o£ P~eferred St~ch chal~ he paid the par mnou~t of their Preferred share~ and the s.mount of dividends accumulated and unpaid hefore any amount chcll be payable or l~aid to the hoiders of th~ Common St~ch; the halsace o~ the assets of said merged ¢~rporatloa shaI[ be d~v/dnd raiabb' a~ong she ~/der~ of the Com- ...... ~ f,t~ki share ~d share Mht~..-. ................ F~T~R P~SOLVED, that the foregoing matters, including such proposed amen(hnent to said Agreement a~d Act of Merger and Con~ofidmion, shall be submitted for aotion thereon by the Preferred and Common Slockholders of the Company at th~ next annuaI meetlug thereof to be hald on Wednesday, April 7~ 2940, at tw~ o'clock in the afternoon, or at any ndjournme~t thereof, end that notice of the time, place and purposes of such Ineetlng, includ- ing the taking of actl~ upon the foregoing matters, shall he given in accordance wish the pro'~isions of the Byila'.cs of the Compaay. Fu~x~ Rr~OL~D, that, in the event that two.thisd~ lu lutere~L o~ each class of ~oshhalder~ having voting -~ power shall ~ote in £avox~f~uck change ~ad ameDdmcat at. said annual meeting o~ at any ndjourmneat the~eoL the proper o~ce~s ~£ the Company he and they he~oby ~e ~uthorisnd end empowered t~ make, executo and acknowl- edgo or prove a certificate of s~ch change ~ed amen0hnent and to file the same in the of~ce o£ the Secretary of Sf~e of the ~ of New Jexsey, ~md ~o take all othee steps deemed ~eeeasary or ndalsaMe ~o effe~ s~sh clxa~go and amc~t~nL" tl

In addition to the equity capital thus obtained, notes payable to banks increased from $85,000,000 as of the end of 1946 to $122,500,000 as of the end of I947. The need for these additional funds was due principally to the following several factors: The increase in invent~ies, of which leaf tobacco is the principal item, amounted to $76,119,550 as of December 31, 1947. A substantial part of this increase was due to the acquisition of a larger proportion of our flue-cured purchases before December 31 than was acquired before the previous year end, and to the greater speed at which the 1947 hurley crop was marketed in December, which resulted in larger purchases and payments before the end of the year than was the case in I946. Continuation of the construction program for expansion and replacement which was begun in 1946, and additional expenditures for more eflficient and economical operation of plant and equipment, resulted in additions to fixed assets in 1947 at a cost of $12,384,486. During 1947, $6,409~000 principal amount of 35, Debentures due in 1962 and 1969 were retired through the operation of their respective sinking funds. Wages and casts of materials and supplies followed the regular busi- ness trend and were higher than last year. To strengthea~ the Con~pany's working capita! position and to provide for the increasing requirements o~ the business, the Company has since the first of the .... : _[ 0 year sold to The Equitable Life Assurance Society of the United States, for investment, $75,000,000 of the Company's Twenty Year 3~ Debentures, due January 1, 1968, at the price of I00% of the principal amount and accrued interest. The proceeds were used to reduce short-term bank loans and increase working capital. If you are a Preferred or Common stockholder and do not plan to attend the Annual Meeting personally, your cooperation in signing and returning your Proxy promptly will be appreciated. VIN GFNT ~IGGIO1 PresldeJz~.

,i 1947 OPERATIONS AT A GLANCE IIIII a few oF our 200 or more $819,631,000 RECEWED FROM DiViDENDS, INTEREST AND MISCELLANEOUS i THIS IS HOW IT $2~,ooo USED OR SET ASIDE: FOR REVENUE STAMPS AND TAXES FOR TOBACCO (including applicable expenses) O $448,008,000 $219,82S,000

t Tr~'--~" ~r~=,~--.~~ ...... " ~ ~'=' "*~ ~ ~i~"~'~ .... -- ~ .~ r~ ,~, ~" ~'~ ......... i ,O, BOND ANO i:~~ $7,3S6,000 BANK INTEREST FOR DIVIDENDS $20,866,000 TO STOCKHOLDERS FOR ADDITION TO SURPLUS TO MEET FUTURE NEEDS $12,979,000 WHICH ACCOUNTS . . . . . . . . .~'--'------~lS'~l,OT~S,uuu

J LYBRAND, Ross BROS. ] ioR rGOMERY CERTIFIED PUBLIC ACCOUNTANTS 90 BROAO STREET NEW YQRK 4 The President, the Board of Directors, and Stockholders of The American Tobacco Company, iII Fifth Avenue, New York 3, N. Y. We have examined the consolidated balance sheet of The American Tobacco Company as of December 31, 1947, and the related consolidated statement of income and earned surplus for the year then ended. The financial statements of Ameri- can Cigarette and Cigar Company. a consolidated subsidiary, were examined by other independent public accottntants. With the exception of that subsidiary, we reviewed the systems of 0 internal control and the accolulting procedures of the compa- nies and. without making a detailed audit of the transaations, examined or tested accounting records and other supporting evi~enc~/~F_~ods and %q the extent we ~eemed appropriate. Our examination was made in aacerd~2c~ with goneral!y a~£qpt~d .... auditing standards and-inc~lu~d all'proceduresw~ws~en~--- -- sidered necessary in the circumstances. We made a similar exsJnination for the year 1946. In our opinion, the accompanying balance sheets and related statements of income and earned surplus present fairly the consolidated position of ~he American TobaQco Oompany and the subsidiaries included therein at December 31, 1947 and 1946 and the consolidated results of their operations for the years then ended, in conformity with generally accepted account- ing principles applied on a consistent basis. O New York. February 6, 1948

CONSOLIDATED STATEMENTS OF INCOME AND EARNED SURPLUS Including American Cigarette and Cigar Company and all who]ly owned domestic subsldlzr/¢* except The American Tobacco Company of the Orient, Inc. for the years 1947 and I946 1947 1966 Sales, less trade and cash discounts, returns and allowances ............................................. $819~631,122 5764167.f90 • Cost of salts, s¢lli~g, senegal and administra- tive expends .......................... 757.376,477 709,40~,297 OPERATING PROFIT ................ 62,254~645 54,764,293 Add: Dividends knd ingere~t from subsidiaries not consolidated hereii, (Note 1) 1,32~,362 70~,651 Other dividends and intcres~ .......... 184,190 180.602 Profig on sales of stcurltics, net 241,067 -- Other" ~ncome ...................................... 276.041 ~ 64,301,31H 2~g,719 $ ~5,907,265 Dedtwt: Interest, amortizaCon of discount and, in 1947, eedemptlon premium on 3~ deben:ures ................... ~,72t~,1 o0 5,567,714 Other' intrust and discount 1,~30,29I 1,243~989 Provision dor reserve against invcs~Inent in British subsldi~ry .......................... 718,926 Othe~" expenses and ]o~*es .............. ~63,497 8,¢;38,814 731,028 7,~42.731 INCOME, before state and deder~l income tgxes ............. Deduct: State Jnco~e taxe~ .............................. 1,622.000 Federal income tagei .................... 20.823.000 33,217,491 28:$27,534 DedncG Portio~ of net income of American Cigarette and Cigltt" Company applicable r.o nlinority interest 78,949 68,017 33,138,542 28,759,517 Add, Adjustment of prior years' I*deral and state taxes includ~tag interest, |¢ss related expenses .............................................................. 70~,479 1.I27.040 NET INCOME .......................................... 33.845.021 29,886,557 Deduc~, Cash dividends on preferred stock $6.00 per share .............................. 3,161,982 3.161.982 BALANCE added to earr~ed surplus account 30~683,039 26~724,~7~ EARNED SURPLUS, beglnn[ng of year 86802,821 73,098,729 Add, Proceeds from insurance policies on life of Mr. George W. HIll, deceased, less cash surrender value thereof 1,546.057 74,644.786 I17,495,860 I01,t69,361 Dedncl, Cash dividends on comn~on stock and common stock ~-$3 50 per share in 1947 and $3.25 per share in" 19,~6 17303,979 1~.566,54~ EARNED SURPLUS, end of year (Note 2) ~ 99,781.881 ~¢ 86,$02,821 Depreciation provided and charged ro costs and expenses amounted to $1,769,156 ~n 1947 and $1~598,012 i~l 1946. The notes referred to above are an integral pa~t of thlz statement 7 I 0 55 662,49I 48,564,534 I;463,000

CONSOLIDATI;[ IncIud[ng American Cigarette and Cigar Compa.) and all wholly ow~qj,• December i ¢ ASSETS ~. 1947 I946 Demand deposits in banks and cash on hand ................. $ 19.505,I59 ~ I7.g21,115 Accounts reveivable, customers .............................. 3.t.f~g.43i 26,999,451 Miscellaneous accounts receivable ...................................................... 571.091 919.963 Leaf tobacco, manufactured stock operating supplies, etc., at cost 41~LI33,02~ 407,013,¢48 Cash on deposit with sinking fund trustees for redempdon of debentures (see contra) ............. 9~8 183.5~7 *Notes and accounts receivable from unconsolidated subsidiary companies 1.578.164 524.594 Total current assets ............................ 539,346,86I 4~L462,228 Investments: Securities of subsidiaries not conso]ida~ed herein (*Note t): Whoftv ov~ned Br~tlda g~006~000 ¢,.7!82926 - Others [ ...... 8,555,864 8.564.864 Othe/" investments, ar amounts not in excess of cost .................... • i72,420 1,317.I61 To~al investments ................................. 14.928,284 16.601.3 ~1 Mortgages, note receivable, ii~surance depo~L~, etiz ................... 2.(171,928 2~291,298 ~eaI estate, ma~hlnez'y, l~xtur~s, etc.~ at cost (~ess allowance ~or depreciation. 19¢7. $25,598.117; 1946~ $24,660.057) ................ 32,$46.536 22.~g3,276 I3repald expense~ and deferred charges ............. )¸461.203 3,491,~44 Brand~. trade marks, patents, good wilh etc ........................... ~4,099,431 14.099.431 S646,714,247 $552 52g,91R The notes referred tot above at,

BALANCE SHEETS aes!r~ub~idlarlcs except The American Tobacco C~0mpany of the Orient, Inc. V 194/ and 1946 I ! LLABILITIE$ ~= I947 1946 I Notes payab[e to banks (Note 2) ........................................................... $122,500,000 $ 85d)00,0~0 Accounts payable 9,043,404 11,~32,119 Dilidend on preferred stock for quarter ended December 31 ............................. 790,49~ 790.496 Interest accrued .................................................................................................... .... 1,112,816 1,152d¢73 Provision for taxes ....... 30,317,313 27,988,59~ Advertising and other accrued expenses ............... I,J83,796 1,392,34I Debentures to be zedeemcd through sinking frond operations, estimated (see contra ) ................ 6,/I 57,1)0 f) 6,145~000 Accounts pa~able to unconsolidated subsidiary companies ........................ 1.162,3I$ 772,~57 Total current liabilities ................... 172.577,Ig3 134,773.993 Three per cent debentures, less estimated principal amounzs to be redeemed .x, lthln one 3,ear (at prices as provided by the indentures/ through linking fund operations: Twenty year, due April 15, 1962 ........ 81.139,000 $4,507,000 T~a:enty gve yeaG d~eOctobe~ 1~, 1969 ........................................ ELS3~a0a .. 9l,asL¢~ +: ++_ :: FOUr per cent bonds marurlng August I, t95i a31.250 831,250 J43,I81,43J 311,703,233 Deferred income .................................................................... -- 10I,U4 Minnrtt~ in crest ,n Amerm~n Cigarette and Ci~ar Company Z1 J~277 798,172 CAPITAL Capita] stock (Note 4) : Preferred, six per cent cumulative, par value $100 per share 52,699,700 52,699,700 t Common, par value $2~ per share 40+242,400 40¸242,400 B, par $2~ per .................................................. 96+561,~)2~ 78,3~,42I Common value share Excess of net proceeds ~rom sale of common stc~k }5 over par value (Note ~) 2D,I75,~'~1 -- 210,07~t 716 171,297,52~ Earned ~urptus (Note 2) ............ 99.78LS~1 ~16.$~2,821 309+860,597 2fR,100,346 Le~s, Treasury stock, ar cnst (93,7]3 shares of common s~ock and in 1946 165.180 sbare~ of comrrm~ stock B) .............. 7,~07~060 1~1,177,987 Total capital ~nd surplus, less treasury stock 302,S~3,537 2~9+922,359 $646,7 I4,247 $552,~28+918 an ~ntcgral ~art of this ~ateme~

Notes Accompanying Financial Statements 1. The equity in the e~raings of~uncu~solldated subfidlarha amounted to sl,920,90~ and $1~44ffi867 for 1947 and 1946 respectively. 2. In February~ 1948, ~be Company completed arrangements ~or the sale to all insur- ance company of $75.000,000 of its Twenty Year 3~ Debentures, due January 1, 1968, the proceeds of such sale to be used to reduce short-term bank loans and increase working capital• Under the provisions of the inden,ure rdat[ng to such debentures, cash dividends o~ the Common and Common B Stocks may Bot exceed by raore than $11,000,000 the difference between (a) cc~solldated net income subsequemt to December 31, 1947, and (b) the aggregate of nil sums thereafter paid as dividends and in the reacquilition Of shares of the Company. 3. Based upon cable advice, the applicable net assets of the Brlt£sh subsldia~ (trans- lated into dollars at appropriate rates of exchange) amounted to s7.7g),877 at December 31, 1947, ~, lr The net assets appllcable to the investment in other unconsolidated subsidiaries (computed as heretofore), egciudlng the net asse~s of the French subfiffiam/, the investment in which is carried at ~1, amounted to $12,245,937. including intangible assets of $5,530,447, at December 31, 1947. :: z 2 : 4• Capital stock at December 31, 1947 comprises: Sbae~$¸ In Company's Authorized Issued Treasury Preferred ................. 540,106 526,997 None Comn)on ......... 2,000,000 1,609,696 93,713 Common B 4,000,000 3.862,441 None 5. Represents SHffi/8,657 received from the sale of 896,404 shares of Common Stock B in 1947, lesl $1g,205,600, par value of 728,224 Common B shares previons/y unissued, $11,170.927, cost of IS8.1g0 Common B shares formerly carried in the treasury and $1,70~,539, expenses in connection with such sale. 6 There has been no change during 1947 in the s~atus of an action instituted in a prior year by the Office of Price Administration ~or treble damages, claiming over charges in an amoun~ of $347~607. As previously reported, rhi~ action is being contested ~tnd rio e~¢g~ i$ glv¢ll thereto in the flna~iaI statements. i' 10

QUALITY ASSURED * e The research laboratory of The American Tobacco Company in Richmond, Virginia, is the largest and finest equipped research laboratory in the world devoted to the study of tobacco ariel its manufactured products. Here, a staff of more th~n forty scientists analyzes and controls the different products that enter the Company's plants.., and the finished products that emerge. Our outstanding research facilities enable us to maintain continuous qualitT control in all ph~es of production--from tobacco leaf to finished product. i1