the American Tobacco Company Incorporated, 1948 Annual Report

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THE AMERICAN TOBACCO COMPANY FOR THE YEAR ENDED DECEMIB~R 31~ 1948 WITH CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND E~}",NED SURPLUS Execuf;ve Office 111 FIFTH AVENUE . NEW YORK 3, N, Y.

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NOTICE OF ?vIEETING Flemln~on, N. L, March 1, 1949 I~/OTICE IS I~Ei~gB~" ~IV~ tha~ the Annual Me~fing of the Preferred and Common Stockholders of T~E A~ERIC, A~ TOBACCO Co'~}'~y w~ll be held at No. ~ Park Avenue, FI~ming~on, New Jersey, ~ two o'cIock in the ~ternoon (E~tcrn Standard Time) ~n Wednesday, April 5, 1949, for the folIowing purposes: (1) to cleat Directors~ (2) to con~ider imd vote upon a proposal (designated Proposal A and set forth in the attached P~xy Statement) to amend Arfici~ XII of the By~a~. which proposal has been recommended by the Board of Directors; (3) to consider a~d vote upo~ a Ploposal (desig-nated Proposal 15 and s~t forth in the at+mch0d Proxy Statement) t~ approve and authorize a rc~ire~aent plan t~ be kaown as The American Tohac~o Company Retirement Plan, the adoption o~ which ha~ been declared adv~chle by the Board of Directors; (4) to consider and cam upon two proposals (de~i~ma~ed Propo~a~ C and D and ~e~ forth in ~e at~achad Proxy St~me~) ~na~e by thre~ stockholders; and (5) to tr~sact ~uch other b t~mess a~ may properly come before ~ald meet~n~ Tile Preferred and Common S~o@ transfer hooks wiII not be closed, hut holders o2 Preferred Stock and Common Stock to he entitled to vote must bs halders ef record a~ the clos~ of bu~thess oa March 7, 1949. JOEIV. W. tt.~J~'I.O:~, Secretary SP EC]LAL NOTI(~E Holders of whal was formerly Common Stock E who still hold their Common Stock B ~er~cate~ ~re remlud~d ~t, By ~meudme~t of tha Chat~r o£ the C~mp~y ~a Apri~ ~, 194~, each shar~ of C~mmon Stock B out~andlng was changed into one share of Common Stock, ~th the votinZ ri~hta of Commo~ Stock, aavae[y: Oae w~ per share. I PROXY STATEMEI~T The enclosed Proxy is solicited by mid on behalf af lhe Managcmen/ mad is revocable. Proxies in tile farm enclosed, properly executed by stockhalders and du]y returned to the Management, will he voted and, ff a choice be specified with r~spect to matters to ha acted upon, vail be voted in accordance wlth such specifications. The outxtandiag nm~bor of each class of vogng secu~dties of th~ Company i$: Preferred 526,997 shsre~; Common 5~3~8~425 ~harea, Th~ Pre~er~ed. S~J~ ~, ¢¢.~tfed t~ ~ur ~£e~ per sha~e. T~e Co~am~3n St~k L~ ~t[~ to ~ne vot~ per ~thare. ELECTION OF DIKECTOB:S The Board of Directors consists of seventeen mcmhars who are ~I~:ted to hold o~e until the ne~ Am~ttal Meeting or ttat~l ~eff successors are duly elected and qua/ified. It is th~ iritention of the l~roxy Commlttee to voto at this

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Annual Meeting for the £olIowing nominees, who together constitmte the present Board~ and who bare sezvcd as dlrectors oi the Company for the periods commencing with the dates stated afLer their respective names : year First I~T a~a e Pr~noipa~ Occupation Elected Dfreoto~ Orpheus D. Bz~xalys Vice-President, The Amerifian Tobacco Company of the Orient, Inc. 1940 Richard J. Bo~lan Vlce~Prcslden~, The American Tobacco Ccqnpany 1929 Douglas W. Braabear ¥ice-Presld~nt, American Suppliers, Incorporated 1943 Thomas P. Conners Director of Truffle, The American Tobacco Company 1946 " James R. Coon Vice-Presideut, The Azaefican Tobacco Company 1936 John A. Crowe Assistant Chief o1 Manufacture, The American Tobacco Company 1931 John S. Dowd x2ice-Presldent~ American SuppliSrs, Incorporated 1943 Preston L. Fowler Vicc-Presldent, The American Tobacco Company 1941 paul M. Hahn Vice-P~esldent, The Amerlcm~ Tobacco Company 1921 Hiram R. Htmmer Director of Research, The Aamerican Tobacco Company 1938 ~mund A. Harvey Treasurer, The AnlCtican Tobacco Compa~)' 1932 Harry L. Hilyar d Assietan~ Treasurer, The American Tobacco Company 1944 A. LeRoy Jansen Auditor, 'fh~ American Tobacco, Company 1948 James E. Lipscomb, Jr. Pxasident, American SuppllotB :[ncorporatc6 1918 W~iam ~. O3~hury As*i.~ant Chi6f of Mau~ula¢l~, The Ame~icau Toba~ Company 1930 Vincent Riggi0 Pl~sldent, The Amerlosn Tobacoo Company 1927 J&raes F. Striehland ¥1oe-Preuldent, AmeHcma Suppliers, Incorporated 1946 A. LeRoy Jansen, Aadltor of the Company, was ele.ct ed a ~iro:t0r on April 27, 1949~ to ~ucceea l~red B. Router, late Auditor, deceased. During the five years p~ous ~o Ms elecuo~ Mr. Janson was Manager o£ the Gcneaul Aceountin~ D~partment, and for over two years Assistant Au~tor of the Company. Although the Managem~rtt doe~ nat contemplate the possibilRT, in IRe event art7 nominee is not a candidate or is unable to serve as a director at tim time of the eleehon, the proxies will be voted for a~y nomlnee who shall be designated by the present Board of Directors to fill such vaea~ry. Of the ootstandlng securities of the Company st the close of busine~ on Febrnary I, 1949, the Company is ln~orme3 that these nominees were ~irecfiy or indine~4ly the ~rl0~ oW~t~*$ o~ seenlities as folinws: N~m~ Common Ph'e~er~d Orpheus D. Baxulys 819 43 Rie~ta~d ], B~yla~ 1.075 150 Douglas W. Rrashear 100 Thomas P. Com~o~ 145 James I% Coon 652 59 John S. Dowd ~A0 ~rezton L Fowler 560 1OO paul M, ~Lthn 1,686 IIiram R. Eanme~ 120 Edmund A. Harvey 300 40 Harry L, Hilyard I20 A. LeRoy Jonson 163 ~ames E. Lipscomh, Jx.. I,B~B 1@3 William H, Ogsbury 120 50 Vincent Riggin 5,242 James F. StrlckLand 320 lnfomation regardin$ the remuneratioa of dlreetors is here~mdter set forth under the caption "Remttr*erafion". Propoea~ A PSROPOS~D AMENDMENT OF ARTICLI: XII OF THE BY-LAWS The Managemem recvmmends te the ~tvckhulde~ an amendment o~ Artb:le XI1 o] the By-Laws ~o effee~ a reduc~on o] the razss o] eompensat~n provided therein, The proposed amendment is set forth as proposal A on pag~m 3 and 6 of this Proxy Statement. The reduction proposed has aIr~ady been effected voluntarily with re.~pect to thl~ 1948 compensation of the President and the f~ur Vic~-pre~idents now in o~i~e by the agreement described on p~go 4. 2 c

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Article XII cf the By-Laws of the Company was adopted by the stochholSers oa Match 13, 1912, by a vote of 621,047 shares of stock in it* favor to 35 shares against it. In ¢Eect. it providus that at the end of each year of the Company's operations an amount equal to 10~ of the net profits, a~ defined in she B~Law, earned by the Company durlag such year in exceBB of $8,222,245.82 (she eofima~l amount of such net profits earned during 1910) be divided among she Pre~idsat and the five Vice-Presidsnts of the Company, one-foursh to the President and on~-fifth of the remathdsr ~o each of she five Vice.Presldents, as salary for she year in addition to the fixed ~alary of each of said ofiiners. Atticic XII in its present form is as lallaws: "Section 1. As soon as praofieahin a~er the em3 of she year 1912 and of each year of the Company's operations thereafter, the Treasurer of the Company shall ascertain the net profits, as hereinafter dufiaed, earned by she Cempany during such year, and if such net profits exceed she sum of $8,222,245.82, which is the estimated amount of such net profits earned during the year 1910 by the businesses that now bdong to the Company, the Treasurer churl pay an mnount equal in the aggregate to ten per cent. of ~ueh exee~s to the President and tlve Vice~Pt, esidsnts of the Company in the following proportions, to wit: One-fourth thereof, or 2½ per cent. of such amount, to she Prmident; one-fifsh of the remaindsr thereof, or 11.~ per cent. of such amount, to each of the five Vlao.Presidsnts as salary for the year, ia addition to the fixed salary of each of saitl o~See~. "Section 2. If any such o~ce he vacant for a time amounting ht she aggregate to one month in any year, so much of the amount provided by this resolution to be paid to she incumbent of such o~ce as is propurtiunat~ to the time of such vacancy chall he returned into the general profit account of the Company. If there shall be a change during she year in the incumbent of any omen, the amount h~relnhefore provided to he paid shall be divided among the different incumbents of such office in the proportion of their respective periods of incumbency du~ng the year, subjeet to the above provision in relation to vacancies. "Section 3. For she purpose of this By-Law the nat profits earned by she Company in any year shall consist of she net earning~ made by the Company in its busthes~ as a manufacturer and seller of tobacco and its products after deducting all expenses and lasses, such provisions as chall be dsterntined by the Boar~ of Directors of she Company for depreciation and for all outstanding trade obligations, and an additional amount equal to 6 per cent. d/vidsnds on $52,459,400 of its 6 per cent. preferred stock, to which profits shaIl be adds3, or from which prcfiis shsil he dsdacted, as the case may he, the CDmpeny's proportion (llased on its stock liohtlngs) of the net profits or losses tot she year of its snhsuliary companies engaged in she manu- facture and sale of smoking tobacco, chewing tobacco, eillsrettes, or ll~e cigars, except earnings on pre~r- enee shares of British-Amerinan Tobacco Company, Limited, and shares of Imperial Tobacco Company (of Great Britain and Ireland), Limited. "Section 4. The declaratinn of she Treasurer as to she amount o1 net profi~s for the year and the sum duo anyane bereundsr shall be binding and eoneluslve o~ all parties, and ~o one clalmfag hereunder shell have a right to questinn she said declaration, or to a~y examination o£ the books or accounts of the Company, and nothing herein contained ~itall give any thcumhent of any o~ee any right to claim to continue therein, or any o~her right except as beraln specifically expressed. "Se~dun 5. This By-Law may he modified or repealed only by she action of the stochlioftlers of she Company and not by the directors." In 1955 a suhstantfal reduction in the amount payable nnder Article XII was effected hy the dsalarofion by the Board of Directars, as its policy, that thereafter no Presitla~ er ¥1c¢-Pr~id~t should he elected to o~ee unle~ he should agree in ad~ane~ to waive any pay~ac~ts to him under Article XII, as to the year 1955 ~d each year there- after, in e~cc~s of an amount e~np~te~l in accordance wish a formula ~t forth in the declaration of policy. The fo~uIa provided in effect that the amount to be paid to such o~ee~ under Article XII should, beginning with she year 1935, he besed upon an aggregate amount equal to 10% of the exc~ of the net profits of the Company for each ~uch year above $15,500,000, which $15,ll00,000 includes an amount equal to 6% dividends on the out- standing 6 ~ eenL P~eferred Stock of she Company. The 1953 formula also provided for further reductions she ~at¢ of Article X][ compensation in yeats in which she net profits of the Company ctduulated according to Astiela XII should exceed $32,500,000. In place of the uniform 10% provided by Article XII the ~rmufa aubstltate& wish re,pent to a~y year in which the net profits ~ceeded such amoe=t of $52,500,fl00, she following scala of perocntagrs: A~ amount equal to 9% of net profits in exee~ of $52.500,0ll0 hut le~s than $55,000,000; an amount equal to 8% 3

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of act profits in excess of $35,000,000 but less titan $37,500,000; an amottnt equal to 7% of net prohts in excea* of $37,500,000 but less then $40,000,000; an amount equal to 6% of nat prafi~z in exce~s of $40~000~000 but less than 242,500,000, and an amount equal to 5% of net p~ofits exceeding 242,500,0fl0. Since July 12, 1933 ul[ Presldents and ¥ic¢-p~sidents of the Company have waived any payments ~nher Article XII in excess of amounts sonforming ~th such statem~t of pohey and aIi payments nnder Article XII, beglnnlag wlth those fo~ the year 1935. have been at the reduced amoLmts resthting foam the aI~Ii~ati~ of s~ch formula. The President and Vice.Presfdent~ and the other members of th~ Board o] Direetors of the Company nvw recommend to the stosht~efders an a~zendmez~t ~ Article XII to ~ffeet a ~rther reduction of ~e rate~ of cornpe~a- tlo~ belaw those already affected by the 1933 ]ormula above r~ferred to. AB a prellmfoary atop and m order to accelerate the rednctlon in Article XII eompensuliozl, the Presldorrt, Mr. Vincent l~iggla, and the later Vice-Presidents, Messrs. ~cherd ~ Boylan, James R. Coon, Preston L. Fc~wler and Paul M..Hain~ (being all of the Vice.Presldents then in oflice)~ on Novembor 3, 1948 entered into an agreemDnt wlth the C~pany r~duci~g the respectlve rcges o] rem~neratlon o] eaeh of them ~nc:er Ar~de XII ]or the year 1948 ]del~w the rates provided for by the above-maniC,ned forz0vla, by agreeing that thr the year 1948 fl~ Article XfI remtmertttlan of each ~f thera should re~ectlauly be ~ased on an aggregate amount ~ompoter] at the ~nlfo~m rate o2 5% instead o~ ~ush of the ~ever~l rates o2 10%. 9%, ~%. 7%, 6% and 5% a~ might l~e applle'shl~ under the d933 form~a. At the time the above-mentioned agreement wan entered into it vsgs ttnder~tood ~y the offteers nm'~ed and file ~ther members of the ~chrd of Direo~rs that there ~ould be preseI~edt to the Armuul ~ee~ing of S~.ockBthtlars to be held in ApriI 19~9. a proposed amenthaextt to Article XII to afloat the s~me reductlel~ ia the r~te~ o~ compensation under that Article for the future as v,a~ proidde~ for the yea~ 1948 by tho agreement th~ entexed inl~. AeeordlngIy, a resolution was adopted by the Board of Dir~tors of the Company recommemt~ng to the stockholders tha~ ~ the Annual Mec~ing~ Sections (1) and (3) of Artisla XII be amended as herefohclew indfoated to effect ~uch The amend~taents proposed in Seetlon (1) incinde the substitutlan of 2Ifi,500,000 of net prefit~ in place of $~222~245.~, a~d th~ ad¢1~ti~ ¢~ ~ ~[~ra rate ¢~ 5% in~e~d ~ t~ ~e~l ~zte~ r~m~ ~r~m ~[3~ t~ ~% a~ herdnahere oudlned. Several shangzs in Section (3) o2 Arilele XII are gso proposed: (a) In order to bring Article XII as proposed to be araended i~o conformBy ~th the 1933 formula herclnabove referred to, it is proposed to ~rn~t from Sect%n (~) of Article XII the words "and an ahdillonal amount equal to 6 per eent. d~vidends en $52¢~59~400 of its 6 per cent. preferred ~toch', ~le.ce, under the provlsfo~ of that formula the $15~500,000 includ~ the amo~tnt of such dfoldends, (See description of 1933 ~o~mofa on pages 3 sad 4.) (b) By the ~exmz of Sectlan (3) ~ Artlcle XII in ilz present form, the Company'~ proportlan (ba~ed on ~tz stock holdings) ~f the net p~ofits o~ los~es for the year ~f the ~erlean C~garc~e ma~ Gigar Compaay, a~ a suheidlary company ~ngaged in the m~nufoeturo and sale of Pa/1 MalI clgarette~, is added to or deductec~ from, as the case may be~ the act pr~fi~ of the Cempmay subjec~ t~ the By-Law. Because of the sub~tantlal ~r~,~th ul ~e pall ~ b~d~ ~ i~ b~]i~ved that a~es b~th t~ th~ Co~pawy a~d ~r~ the A~ne~%an Cigarette and Cigar Company will result from the manufacture of I~ull Mail clg, arettes by the Company for th~ American Cigarette ~nd Cigar Company. Such ehenge t~ the manulact~re of the elgarettes by the C~m~a~ th~te~d ¢~ by Am~aa C~ar~ a~d, Cigar Czral}~y t~k ~la~ o~ Jm~r] 1 ~ t~ ~ear. I~ ~s therefore proposed to insert in Sectio~ ~3) the words "dJrecdy or through the Company or any ether alfiIidted company" after the word "ma~ulactur~", so that such raanu~ac~re by the Company will u~ change the l~eaen~ txeatmeat under tba By-Law ~f net proKt~ o~ le~es o2 the Arner~a~ Cigarette artd Cigar Catagart3,. (~) 2he proposed amendment to Seo~len (~) also om~t~ the re~ereneo ~o earnfog~ on preference shares of Britith-~Mrerlean Tc*heceo C~mpany, Limlted and ~heres of lmpe~iaI Toheceo C~mpa~y (of Gr~a~ Britain and Irdand) Limhed, for the rea~on that ~o shar¢~ of these eompaofes haw heen h~ld by the Compare/ for more than 34 yea~ anti reference ~ such shares he~ therefore become obsolete.

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The proposed amendmenLq to Septlon (1) and Sectinn (3) of Article, XIi are an follows, new matter to he inset ~od in the mmended Sections being tmdurzcoreff and matter io he outhteff hi the amended ~effons hslng in brackets: Section 1. ~ soon as practleable after the end of the year [1912] 1949 and of eaoh ye~" of th@ Companp's operations thereafter, the Treasurer el the Company shall ascertain the net profit% as hereinafter defme~ earned by the Company during sacl'~ year, m~d if eud~ not p~ofo~ exceed the s'~a of [$8,222,2¢5.~;2: wh/eff Ja the estimated anxotm~ of such net profit~ earned during the year 1910 by tixe businezses that now belong to the Company] $15 500,000, the Treasurer chall pay an amo~mt e~uttl m the aggregate to [telt] per cent. of ~ueh exe~ to the President and five VJee-Prt~id~nts of th@ Company in the inllowing proportions, to wlt: O~e-foari~ thereof~ or [2~,] )-~:L~ per e~nt. of such amount, to the President; one-fifth of the xenxaindur ~he~e~i, ~r [II/~ ~l~r eenL ~i such mx~unt. ~o eaeff rd the ~'~ Vin~-Px~ident~ a~ .~siary for the year, in addition to the fixed salalT of each o~ ~ald o~ioers. Section3. ~or the ]purp~ of this By.Law the net profits enticed by th~ Com3pany in any year shall ¢onsie~ of th~ net earnings made hy the Company fo it~ butin~ss as a ma~lainet~lIer ~d selinr of tobacco and Its products afar dtaia0~ing nil axpense~ and lo~s¢~, and euch proai~inns ~ chall be determined By the Board of I~:eetors ~f the Compa~ ~r depreciation and for all outsta~dlng trade oBllgatinns, [and an additional ~moun~ equal to 6 peq ~ent. dhAdends on ~5~459,400 o~ its 6 per eau~ preferred ~ockJ to which prefft~ shall be addu~ or from ~hieh ~ro~ts shall be ~dnc~ed, ~ the ease may h ~ the Compa.y'~ proportion [baB~d o~ its stock hMdthgs[ of tho net gsotit~ or in~ses for th~ year of its stthsidfary eompanie~ engageff ~n the mm~a~ture (d~reclly or through the Company or an other a~lthted eom~ and saIe ~ ~moklng tobacco, ohewing tobac=~, cigarettes, or Iitde ¢iga~ [axc.p~ ear~ings on p~ef~renee shar~ of Bsillsh-Amerinan Tchaeco Company, ~mited and shares of Imperial Tobacco Cottony (of Great Britain and Ir~Iand)~ Limlt~t]. The per$ar~ who parlfoipate in Ar tinl* XII re~nmaeratinn ar~, ~ above stated, the Presidunt and the ¥ice-Pre~idcrrls. The uames of the Presldent and th~ rotor Vice-Presidents now in o~ce oxe stared herch~ahove. 'Ihe AztieI~ XII remunera- tion of th~ Pre~dunt thr the ti~eal year 1948 as reduced by tilt agreement of November 3, 1948 hereinbefore rethrted to (the ~ates u:lder which agreemcmc are, as hereinchove pointed out, ~deutleal .~4th those which .Mll Re in effect i~ the prepared amea~dment to the By-La~' is adopted) was $527,731A2. If the agc,~emaea~ had ~aet Been made~ hi~ Aeffein XII remmaarati~a ~or 1948 woefd here been $592¢12ti.911 qPae Artinle XII remuneration of each ~f th~ fo~r Viee.F~esidex~tz for the h~aI year 1948 as t~th~ced by the agreement of ~ovember 3, 1948 w~s $196,638.8~ If th~ agreem~mt had ~ot beau made, th~ Article X|I remtmeratinn of e*~ of the foox ~qce.Presidents for 19~8 wo~d Rave been $355,452,54. There was no b~aus or pr~llt-cha#mg plan~ other than Ardcle XII, in effect during the year 1948. Amount~ paid or cot aside for the benefit of (1) dineetors end o~cer~ and (2) employees during the year I948 under any pe~si~n or retlremettt plan ar~ etate~ on page 1~ of ~ ~oxy Statement. Th~ re~oIutinn authe~ng sttch am~x~chn~nt will require ~or ~ts adoption a majeeffy of the v~es cast there~rt by preferred and e~wmon ~toeldaoIder~. ~fhe propo.'ed resoIutinn eon~tut~ng Proposal A h~ a~ follows: RXSOLVSD, as reeommcmded by r~effutfon of the Bo~rd of Di~ector~ of Th~ AmerJcen Tobeceo Company, that $eetione (I) and 13) of Article XII of ft~ Bylaws b~ and they hereby ar~ amended t~ read ~s follows: Seotinn 1. A~ ~oon a~ praetioobIe after th~ end of the year ~949 ~=ti af each year of the Comp~y's operations thareofter~ the Treasure~ of the ComRauy chall a~eeztain the net profits, a* hereiaaft~r deff~ed~ earned hy the Company daring such year~ and tf such net profits exceed the ~ttra of $15,500,000 the Tlea~rer shall ]pat an amaount ~q~a~ ~ the aggregate to five ~ev cent. of such excezs to the Preaident and th'e Vice-Presidents of the Company in the thllow~ng proportions~ to Wit: Oneduurth th~xeof, or I~ p~r cent. of such am~tmh to the President; ~ne-~llh of the rema~ndur thereof, or ~4 per cent. of such ~mottuL to eael~ of the fiw Viec-President~ as eahlry for the year, in taiditinn to th~ llxed salary of each of ~ald aflieers.

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ii • S~fion 3. For the purpose of this By-Law the net pro~ts eai'nea by th~ Compmay in any year shall consist of the net earnings made by the Company in its business as a manufoct~trer ~nd seller of tobacco and it~ products after fiedu~ting all expenses and los~es, and such provisions as shall he determlped by the BoBzfi of Directors of the Company for dcprceffillon and for aIi oulstandthg trade obligndons, to which profits shall be added, or fzom wffich profits shall bu deducted, as the case may he, the Company's proper tinn (based on its stock holdinfis) of the net profits or losses far the year o£ i[s subsidiary companies engaged in the manuthelure (dbrecdy or tEcough the Company or any ether a~illated company) mid sale of eraoklng tobaetm, chewing tobacco, cigarettes, or liffio u~gar~o. The Management recommends that you vo~e IN FAVOR OF t~e adoplffiu of the proposed amendments to ArtioIe XII set jordl tts Proposa~ A. Proposal B RETIREMENT pLAN ~!~e Boart{ of Direators of Th~ Am~rloan Tobacco Bompar~ has fo~nulated a Retirement Plan for employees, to he Imewn as The fixnerlean Tchaeeo Company Rellrement Planl providing for ~efircmenh disability and ~sveranee benoths, and has passed a resolutffi~ declaring that in it~ opidior, the adoption thereof is advisaffi~ and clh~fing that ~aid Pla~ shall b~ Bubr~ted f~ acorn ~here~n by th~ ~ezxe~ anti coram~n ~o~kh~dexs of lh~ Company at ~h~ Annual Meeting of Stodtholders. I~ two-thlrd~ th thlere~t of the holdexs of preferred ~toch and two-th~r~ in tht~rest of the holders of common ~tock, p~esent at the meeting and young (halde~a of preferred stock and holdex~ of ~om- men st~ch each voting a~ a cla~s) vote in dryer of the Plar~ it will heeonm operative in acooedanee with its terms. Among th~ important p~rposes of the proposed ~lan are t~ e~able old~r employees to retire wlthoul hardship, to retain present employee8 and to ate:act new employees of rite de~irwi ealthre. The vabm of a relirement p]a~ is ~ow gener~y reeogr~ed and ~ev~ral thousand corporations haw r~fireznent pla~s in effect. The problem ~f s~etgisy for o~d or disabled empfoyeea ha~ been dlsutmsefi ~r~ra fm~e to thne with ~arthus ooBeetive harga~thg representndve~ o~ the Company½ employee& As stated hereinhalow, the Corapnny reserves the right to amend, modily or terminate the plan in whoI~ or in ~ a~ a~ fixa~ ~ di~ t~me t~ lhae. Stc~kisolderg apP~ "~ he ~e~red ~r any ~menfita~t ~]~h ~aatexi~y ine~easca the coat of the ~lan ~o the Company or alters in favor e~ odicexs and dlrector~ the a~Ioe~tion of the benefits as between (1) officers and d~reetors and (2) other employees, It should he pdinted out that the CoMpany hms had in effect for ahem ten years ~n informal voluntary noa-eon- trth~tory plan to provide for employees who have become tmBt fez ae~ffi¢ duties. It applles to employees to whom the Baaed grants retis~ment benefits upon being ed'tised in each ca~e hy the manager of the ffiotary or head of the d~par~ment in which the ~mploye¢ served, ~Sth recommendations satisfactory I~o the Board, that he is unfit for further finales and should be retired from active work~ and that he has had 12 yean~ of eonfinuou~ servlee warranting in the judgment of his fa~ory manager or department head the granting to him ,~f retirement benefits, The bencfit~ per atmum are 2% of the empffiyeds wage or salary at the date of retirement for each year of servlce~ provided that no retirement benefit shall exceed 50% of the employee's wage or salary at the date of rcfiremenh except tkat no ~firement benefit shall be less than 89 p~r week. The b~efit of a retired employee enditled to a Federal Old Age Benefit is reduced by an amount equal to one-half of the Federal Old Age Benefih hut in nz ease balow such mffilraum af $9 per week. The preaent plan is ~ot regarded by the Management as nde~[uate. It i$ no~ actually a r¢fix~aeut or severance plan, but rather a dischili~y plan. No retirement age ~ fixed and the conditions of retdiem~nt a~e not defi~to. The Mmaag~memt heli~cs that the adoption of a for~aal plan auch as J~l now proposed, provlding for retirement at a fixed age and also for severance and disability benefits, ~riil promote good employee reIaflom, stabilize empinyment by redacing turnover and generally in0rease effieiency. The number of e~aployeca of the Company and it~ subsidiarins receiving benefi~ under the present informal plan on January 1, 1949 was 495 and the amount of benefit~ which wa~ paid ~nder it for the yeax ended December 31, 1948 was approximately $426,900. 6

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~OIJp INSI~OR~qCE PLA~ In addition to the informal retirement plan herrinabov¢ mentioned, the Company ban maJntalned since October 1, 1946 a group llfe insurance plan whlcb covers all r%.ular full-time employm!s of the Company and of its consolidated American subsidiaries and certain empicye~s of other sabsldicrics, the maximum amounL of ineuran~¢ thereunder for any employee bring limited to $10,g00. The amount of group llfe insurance proriiled for each employee is determined byhisbarieamatmlpay• EachofthoofflcersandOlre~torswasinsaredfor$1g,ooOundersuabpriicy. The coat of the insurance is payable ratably by the Compaziy and such smbsidlarJcs. The total number of employees in~ured under the plan on January I, 1!149 (including gg officers and directors of the Company and its sabsldiaries) w~s appreximatriy I9,300. • The net premium under the plan for the policy year ended Scpteml~er 30, 1948 was 8358,174.67, of wlfieh $2,236•51 was applicable to the 3il officers and directors of the Company and its sabridlarirs who are insured. The Company reserved the right to terminate or change the group ll~e insuxan~ plan at any t~m~. PROpOSEI~ ]~ETIREMX~T p~ PoHnwlnglsaaummaryofthegrovlsionsofthcnewpropo~edretiremenLpicn (herrincalirdt~'pian-). Copie~ o~thePlanareavailableattheoYazeoftheCompanyandwiUgepre~entedatthomeetiag. Htookholdars are referred to the tex~ of the Pffin end the summary ~hick follows i~ qualliled ia its entirety by referemee to the Plan itseIf. Unless otherwise required by the context, the following to=as as used imrrin have the folIowlnH meanings: (1) "Company" moans The American Tobacco Company; Amc~rieau Suppliars~ Incorporated; The Hathaway-Sienna Corporation; The American Tobacco Company of the Orient, Inc.; Griden H~lt Manufacmr. hag Company; Araerican Cigaxette and Cigar Comptmy; and Henry Clay and Book & Company, Limbo4. Tim term "Company" thril also inchede any other affilLate of The American Tobacco Company, if, and to the extent that, the Hoard of Directors of The American Toimceo Compzmy and the Hoard of Direztnrs of ~uoh amliate shall so provide• (2) "Sen,lee" manna regular full-time employment by the Company~ whether on a salaried, hourly-rated or piecework basis, excluding all seasonri~ temporary and pa~t-tlme ~mpiaylment or ernploymcnt on a retainer or f~e basi~. (3) An "emaployeH' means any person in the ~ervlce of the Company exempt employees of Henry Clay and Hock & Company, Limited who are non-resigent~ of the United States ned aIl other employees who are non- reridant aliens of the United Stale~; provided that the Hoard of Director~ may specifically deslgnat~ any such non-real&ants or non-resident alic~ as employees w{thia the meaning ef the Pica. (6,) "Hoard of Dlrcotors'~ means the Hoard of Directors of 'Ihe Amencma Tobacco Company and ~uab committees or other agencies to which suab H~ard of Directors from time Io time delegates all or any part of the powers granted to the Hoard in the Plan• (5) Tile "effective date" means January I, 1949. "Past ser'~cc" and 'Tuture service" refer t~ ~e~ioe before anti after the effective date, respeetivriy. Other d~finitians contained in the Plan, tut deal/ha with details not n,~ec~sarv for tlsis sIatement, arc those of the expressions "annual rate of compensation", "aoOaal earnings", "Primary Social" Security benefit", %ormal retire- ment date" and "year". Compensation under ArBele XII of die By-Law~ ia not included in computing benefits unge¢ the Plan. It is estimated t~a~ oat af apllroximatriy 19,40g employees who will be covered by th~ Plan, 18 arc also officera or gireoto~s of The American Tobacco Company. ~une 30, 195¢ wtil he the normal retirement date for employees wh¢~ sixty.fifth birthday occurs before that date• Thereafter, the normal rofifemaent date edll be age 65. Retirement is automatic at nolna2al retlrcmaon~ date, tmir~a daferre~ with the consent of the employee and the approvaI of the Board of Directors. Rot iremon~ withia the fiveffoar period prior to n~nal retirement date is permissible if the employee then has I2 years of continuous sorvlec and tl~ Board ~f ]Directors eonsenls~ hut if the employee thus retiring prior to his normal retirement da~ elects ~u bare hi~ 7

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retireracnt benefft~ start at the date of his acttla] retirement instead of at ~ n0~Iaa] re{~rcment date there wl]l be a reductlon o~ hi~ bea~£ts on ~r~ a~mar~al basis to spread the payments over the isnger pcrlod. A sp~clal 9rov~on eff0ctive until June 30~ 1.954 permits a1~ empIeyee 65 years of age or over who has 12 years of continuous lervlee. to retire, in which case hls retirement benefits will eon~lence irm~ectlately wlthovt any aehmr~aI adjastmenL Only continuous ser~ce ,atil bc eonl~deredt in detormlnlng e~b'dlty for bei~fi~s arid the amounL thereof. Approved absences without pay do not constitute an hrterruptl~ of past or future ser~ioe. Employees havln5 12 years of coM~nuous past sorvlee will rceelve full ere[h[ fu~- ali pa~t service, fueluding all approved absences without pay~ but en~,oloyees hav~ng les~ than 12 years of con[lateens past servise will r~elve past sere/co oredlt for approved a~seaees without pay only for th~ firs~ six months of any such absence. In computlnS years of future ~ervise ~ d~ermlne el~g4~il~ uzd~r [be PI~, enrployee~ -~ill ~ecei'¢~ ~zedlt for a~p~o~ absentees "effluent pay only $~ ~he fiz~t s~-~ mollth~ of any s1~¢h absence. MAXI~U~ RENEI~$ The ma-23mmg az~caa[ b~me~t fuw dk~ab~d.ty, re~z~m~¢nt o~ s~vezmlce ur~der thr~ ~la)l wiI1 be 5~)°/o of Slat portion nat iu oxeo~s of $10,005, of file employee's average actual earnings per annum during the last 5 calendar years of employment, plus g0~ of that portion, if any, of such. average actual earnings in excess of $10,000; prosfd, ed ~gat in no event s~all azzy bereft[ exceed $25,500 per annual. X~I~EI~IE~T BENEFn'$ An empIoyee L~ eligible for retirement benefits who h~ 12 years of service immediately prior to normal retlreme~lt date or actual reffremenl date, whichever is ear/Jer. }~etisement benefil~ ~re a pension for fife payable monthly at an aa~auaI rate determined by ~ggregtttlng SIs ~ums computed as specifics in the following paragraphs (1) to (5) in&nerve: C~nIT fez F~r $5~000 Am~u~ (1) Past ServiCe. 2% of that portion of the employeff~ annual rate o[ compensatlott on the effective date of the Plan no~ in exee~s Of $5,005 tisaes all years of past s,~oo within 55 years prior ~o nprraal retire- meat date or atn~al ~tirement, whlch~ver is oarlisr; plus (5) Future Service. 2~ of that portion of the employee's ae~tml earnings not in exe~s o£ $5.000 durlng each year of future service within 25 years prior to norm~d retirement date or aetna[ rctlremenb whida- erer i~ earlie%; CI~BDIT FOR A~OU~'yS ABOVE $5,000 AZ~NL'ALL¥ (5) Past Svrvi~e. 3.3/8~0 of that poaion, if any o the ereplovee)s annua rate of compensation on tl e effeeiive date of the plea in exce~s of $5.500 tlraes the years of past service after age 30; (4) Future Service. 11/~% of the p~eff~n, i$ any, of the employee's actu~I earnings in excess of $5,005 duifng each year o~ future ~ervlce a~ter age ~O and before nor~aai re~ireraent da~e; s~t fi2~ ~c~ S~cum~e Dguuex~ol¢ (~e) 5q~o of th~ primary Social Security boldest. 'lb~ f~rcg~ia5 formals, is ~aodlf~k ".~ittx ~¢speot to past ~rvlce ~e~its (to wlt, ~h~e ave~afn5 pr~or to the effe~th,e date) a~ ~o employees ~ch an azmual rate of compensation of more tha~t $10,500 on that date; as to ~uch employees pa~t servise credits for d~o amount of compensation are e~tputed on the average rate of thelr oompetlsatlon for the 5-year period 19~ to 1948, incltx~ve, or such portion che~eof a~ they may have been employed (ozlng a mialraum rate of $I0,000 per year) in~tead of the annual rate of eompen~effen on the effective date. Iu dele~m~aln5 the p¢ri~d t)~ 9rmt or future ~ie~ cradle f~ retirement b~uefft~, the~e "nell be exethd~d nil yca~s in which the employee was rc~eivlng benefits under the Plan or any other form of disability benefits 5ranted by the Board but, to the extent of such exeiuaion~ there may be su~l~lltuted any years tha~ the employee may r~ndcr terwlee afro% /~ noxmaI re[grommet date.

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SE VIg~,~CE liff/~EF/T$ A~ employee will be ellg~ble for saveranee b~nefits who is at least 50 years of ~ga but hss not pa~ed his normal ret~emeat ~te ant] vtho h~s ba~ 9A3 y~ar~ ~rvi~ wish th~ Compa~ ~l~te[y prle~ t~ *~.~c t~m~ ,~h~ ]~m ~m~hiy- merit ~a termthated for ~ay reason exoept conduct eonsfitutlt~ h~ ~e judgl~lcl~t of the Board dishonesty or ~dlfu] m~seondnct lil the perfolrmanee nf hiJ duties, Paymcat of severance bene£ts will start ¢liher at the employee's normal retirement date, or, with the consent of the Board. at any date within 5 years prior thtucefo whleh 1]1~ empI~yee may ~elect but th sucll latter event the benellks Vdll be reduced on an actuarlal basis to $llread die payments over the fender ~c~ed, llevez'ance 5~nefits ate a pertains {or llfe payah|e monthly, at an a~n~al xate detezralned ~s th~ same mannm" as herelnshove stated with respeet to relirement bertefit~, except that the 25-year period thai[ be corn- puled to the date of zeverance instead of to normal reffrtmaent date or aet~lal refirezaent~ mad shall include ooJy years of service aB~r age 30. D~qABILITY ~;FIT$ An ~mpleyee is ell~ble for disability benefits who has had 12 years of ~crvSee immediately prior to disability and who at sud~ time iz n~t on an absence seffimut pay (other ~an sick leave) which has lasted 6ver six months. E~gthle emt~thyces xsho a~e found by ",b,e g~a~1 t~ be, b~fore n~rmal reff~,~mezt date, permsae~li'¢ th~bl~d f~¢~a continuing erapleyaaent will commence receding disabilJty bezeffts, Disability benefits are a pension for life payable monthly at an annual rate determlneA by aggregating the sums t~rnputed m; specified ia ~e following paragraphs (1) to (5): (I) Pa~ Service. 2% of that porti~ of the employce'~ mmuaI rate of c~mpensatfon on the effective date of the Pla~ not in excess of $5~00 thn~ all ~ar~ of past ~erviee wliidn 25 years of disablllty; ~s (2) Yuture Service. 2% of that portion of the e~ployee's actual earnings not in exce~s of $5,000 du~mg each year of ~tor~ service willfin 25 years of dlsah~ty; p/~s (3) P~st Servlc~. I~/~% of that portion, if aay, of tho employee's a~tmal rate of ¢omllenr, ation on the eEe~iw date ~ ~e t~an ~ ~xe~s ~ $5,(39~ tlm~ ~ y~T~ ~ past ~e~!e wlihi~ ~5 ~r~ ~f di~ab~ty; p~s (4) furore Serve. l~/z% of the portion, if any, of the emllloy~e'~ ~ual earnings i~ excess of $5,000 during eash y~ar of ~utm'~ service w~thi~ 35 years of disability; mlm~, a]t~ age 65, SOCIJ~* SECL~ITy DEDUCTION (5) 50% of the primary Social llec=rlt7 henefit. ~Im foregoing formula is modified with respect to past service creffli~ (to wit, those aecrathg prior to the effeeffve dat~) as to employees with an ~nnual rate o~ compensation of more th0,n $10,t)00 on the effective date; as to sash employees past sexvlee credits for the amount o~ compensation are cnmptlted o~ the avsrage rate of their oom- penseffoa ~or the 5-year perlocI 1944 m 1948, inclusive, or such portion thereof as they m~y have been employed (using a minimum rate o~ $10,00ll per year) instead of the annual rate of compensation o~ the effective da~, ~n determining the perled of pa~t or f~mre service eredi~ for dleability benell~, there will be excluded all years in which the employee w~s reoelvlag benefits trader the Plan or any other ~brm of disability benefits granted by die lioard,

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Disability benefits may terminate in any of the following el,enter (1) if, without the eo~sent of the Board, the employee accepts folbfime or part-time work; (2) upon the faiinre of the ~ployoe to undergo an examination at least once a year by a pbysinlan designated by file Company; 15) upon notice from fine Company that, in its opinlor, and on the afivise of the e~nmthlng phy~c~an: the en~ploye~ is ~u~cienlly reeoverefi to return to work, accompanied (a) by a request to retttrn to such work, nr (b) by a notice to the effe¢~ that no work is available. GENE1//d5 Upon approval and adoption of the Hun by the r eqdislle vote of common m~d preferred stockhalders, the Plan become operative, zubjeet, in the case of any employee represented by a recognised eofiecfive bargaining rep~entafive, to the negotiated eoxtsent of the Company ~ld such rel:Ceaentati'~e. No eontvibations under tile Plan a~e to be made by empinyees. 'fhere ~qJI be no fiea~b hemefits under tha Plan. Employees ~dll he per~ti~d, smbjecL to such rules and regulatinne as the Board may from tlm¢ to time provide, by exe~alr6ng a ~ght sf ein~he~ pl~ t~ ~tinement t~ tch~ retiu~ benefits ~.o b~ paiti 1;o the ~mpfuye~ an6 a sarvhfng named benefielary. An employee may eject to retire at any time after his 60th birthday, if he has bad 15 years continuous foreign sorvine ~omcdlately prior ~:o making such deetinn, with the same benchts as if be had xemalned in servin¢ until age 65 at his annual ra~ sf compensation in o~eet at the date sf hll rchrememt: eonameneing immediately anfi without any aemnrinl redaet~n. All henefits may be terminated with respect to any beneficiary wbo~ without the approval of the Company, accepts employment with any ~o*npetit~r of the Company or enge~ in any activity in competition with the Company. If any employee who has bee~ retired returns to service ~ith the Company, his p~nsinn shail be suspended fez the renewed period of service. Upon the termination of sueb renewed service be win receive the grea~er of (1) retlremc,t benefits a~ the rate previously payshle, or (2) retlr~iLent benefits reeomputed under the formula herein- before sol forth under the beading "Refirememt Benefits". The Company amy engage on a rein;net or foe basis or as a director (but not as an o~eer) an)- persan reeeivlng benefits trader the Plan and snob engagemettt v~ll not ~erminate or eu~penfi such behests. Beaehts under the Plan will be n~n-asslgnchle by the bened~!inry in any manner whatsoever, including transfer by oI~atinu ~f law, If ~7 ¢mpl%-¢e or henefieiaty fs in the optttinu of the Board in~spabin ~f haudl2~fl hfs affairs or mahee or suffers any attempted tran~t~r~ xch~thcr volantary or involuntary: of the benefits tmde~" the Pinn~ benefits under the Plan shall in the di~¢refian of the Board cease and payments thereof may be made or applied to or for the benefit of suzh employee or beneficiary or his spouse, ek~dren or other dependents or any af tham in such manner and proportion as the B~ard shall from time to thee deem proper. The Beard mad its eolnmlttees and agent~ shall be the exclusive authorities to admbtister, interpret, construe and apply the Plar~ and ~ts anfi their acts ch.ll b~ eonejusine and bin~g upon all p~rsons. The Company reserves the rlghL~ fi~rougb action of the Board, to amend, modify or terminate the Plan in wbola or in parr at any fime or from t~ae to time, provided that no antendment chall he made which materially inorease~ the cost of the Plan to the Comply or nit,re in favor of ~ffiecrs and ddieetors the allooatinn of the benefit~ as between (I) nfliv~rs and dlreetors and (2) ether employees, without the approval of the stoekholders of The Ameriean Tohaceo Company. All elalms |~ benefila by ~mploye~ or bene~inriss, wbet~er or not payracnt of benefits has begun, are schiect to such ~esar~ed right of ar~cndment or modification or termination. The Plau ¢¢ttfera ao right ~tpou ~x3~ oraplayee to be retained in the sardee of the Company. The Plan shall ~ot be construed ~ preventing the Company from paying additional disability, severance or retlten~ent allowances or death be~aellts or from making other provisinna in any ease where in the opinion of the Board speeiai eineurastanees exist. "fbe Compem~¢ is ranking no p~o~isinu for the funding ~r fn~,~r~g o~ the Plan or an), ben~li~ herwrade~, but it may at its npiinn under the reserved power above referred to m~;~ such arrangements in the intare. 10

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COST OF THE pLAN The Company has beea advised hy independenl aetaaales that the es~maated benefits payabIe reader tho proposed Plan over hhe period of 80 ycars bcghning January I~ 1949, divided into pealeds of 5 years eaab~ (a~saming the conl~nnance of the Plan for that pealed wilhout amendment, and that file rim.bet of employees and their over-all payroll rea~ains subalanllally tho same in the future), wl]l he appraxbaataly as shown by the following tabie: TAllLE A F~T~q~TE o~ COST (Projected Amount al Redroment and Disabilit7 Payments) Avsra~ P.ymcnt Fiv~Ye~ porlod ~er Year 1940-1953 $ 80L,000 1954-1958 888fl00 1959-1963 1~356.000 1964-1968 1,818,000 1969-1978 2,286,000 197~1978 2,560,000 L11theate: 2,618~000 On the bash of a ruling 15~ued hy the Commis~oner of Iuternal l~venue wDh re~:t to the plan, it is believed that payments made pursuant to the Han by the Company '~ilI be 8eduedble by it for Federal income tax purposes in the year in which made, and that the amountB of the benefits paid there~mder to partlalpauts wm co.sthute taxable fa~rae t~ th~ untI~ Federal t~¢me tax la',~ ~nl~ in the yeaY in ~h~ ~ue~ p~meut~ tL~ aetu~l~3~ ~ehwed. The amounts of benefits ~e~ fo~ih in Table A are exclusive of benefits ~leeady being paid and whleh edll continue to he paid ~ disabled ~mployees under ~he pteaent disaloflity plan berein~bove referred to. Such benefits under the preset pinn ~¢fiI, hi the course of ~dme and as the himeftala~e~ under that plan pass away, grathmlly deer~e anc~ ultfeaately cease entirely. It is estimated by the actusrfes that of the total amcmn~ of h~effta which they eeffma~e will be paid under the Phn in 19~ (~1,171,000), the be.edts to employees other than o~icers a.~ directors of The American Tabao¢o Com- pany ~ he approxlmateiy 89~ and to ~uab o~i~ers a~d tilre~ors 11%, ~Leff that for the y~ar 1979 and erich year thorcafte~ such percentages will he app~ohimataly 95% and d~ rerpe~tively~ This estbaam is on tile asstmapt~on that in each of the yeaz,s refer~d to, the Plan will lo¢ th effe~ and will nat in the m~ntlme have bee~ smended, and that tho compensation paid to (i) ofdcers an~ dise~tors and (ii) other cmpinyea~ edll ¢ontlnu~ t~ he in ~ubstan~eily the same relative prc~p~rtiens as in I948. The ~lle~ing Table B set~ forth the m~m~ aud pnsi~u with the C~a~uy ~f. auti the e~tlm~t~ ~uuu~ ~mou=~ of retirement henefi~ payable uuder the pr~poscd Plan t~, each par~on who ,faring the year ended Deoemher ~l, 19~8 received an aggregato remu.eratlon in exces* ~f $25,000 from the Company ~ed i~s strb~idlarle~ and who was a dinealo~ nominee foz director or one of the three h~ghe~t paid ~cers diglbie to participate in the Pleu; the table being based on the assumptions that: (a) eaoh of the persons named in the tchl~ shall continue to be an employee until his normal retirement data; (b) he shall continue to he in receipt of e~h compenseffon to his normal rellrem~nt dam a~ a rate equal ~o the rate of hls compensation a~ of Fchnm~ 1, 1949; (o) he shall retire at no~aal rallre~nent date (whiab he may be required to do uuder the provisions of the p/ca), and (d) the Plan shall oo0atlnue ~ be in effect and not amended. TABLE B Estimated A~ausl ~et~-~m~nt Be.efit at N~'~sl Orpheus D. BaxaIys Richard J. Boylan Douglas W. llrashezr Th~aa~ P. Connors dam~ g Coou John A. Crowe Pod~on Re~emo~z Date ¥ise-Rieeident, The Amerfean Tabaoco Company ot the O~auh ]ne, $16,778 Vice-Preeiaent. The Araeriean Tobacco Company 17,000 Vfee-Feecidonh Amorieaa Suppliars, Incorporated 14,000 Director of Traf~c, The Amealoan Tobacco Company 11,000 Vfe~Prealde~t. The Ameriean Tobacco Company ~7,000 Asst. Chie~ of Nlanufact~re, The American Tabavco Comlx, my 17,000 11

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Name John S. Dowd Preston L. Fvwier Padi M. Hahn Hiram R. Hammer E~lund A. Harvey Harry L. Hflyaed A. LoRry ~'ansoa James E. Lfp~omb, Jr. WilIiam H. Ogabm:y Vincent Riggio J~e~ F, Std~kland Estimated Amaual Rclir~mont B~nefiz at Nor~ai pO $ilio~ I~et ir cmeat Data Vice-President, American Suppliers, Incorporated $17,000 Visc-Presidenr~ The American Tobacco Company 15,043 Vice President, The American Tobacco Company 1%000 Director of Rc-~earab, The American Tobacco Compaay 1I~000 Trezastxrer, The American Tobacco Company 17,000 A*.~I. Treasurer, Tbe American Toin~cco Co0aapany 11,132 Auditor, The Amer~eari Tobacco Company 12,6¢7 pre~,idenb American Suppliers, Ineorporatecl 25,00~) Asst. Chief ~f Manufacture, The Amsrlean Tabaoao Company 17,000 President, The Amerisa~ Tobacco Company 25,000 Vice-president, ~rleau Suppliers, Ineozporated 15,53~ The foregoing Table B includes ths names of the officers who received respeclively in the year 1948 the five l~ghest aggregate amounts of remuneration paid by the Comparly and its subsi~0ales~ namely, Vincent I~ggla, President of The Amcr~ean Tobacco Compmay~ Richard J. li~ylan, Vice.President of The American Tobacco Company. James R. Coo=~ Vise.P~esldent of The American Tabac~o Company, Preston L. Fowler, Vice-Presldent of The Amerlama Tobacco Company, and Paul M. tinlm, Vice~Presideat o~ The American Tobacco Company, the amount of such remuneration in each ease being as s~ forth on pages I4 aad 15 rff this Proxy Statement. Five persons are named instead o~ three because the four Vice-Presldents r eceivs the same amount of remtmeratlon. The ~unts paid or set aside for the benefit of (a) employees (or former employees) and (b) officerB and d~ree~ors (or former officers and directors) of the Company and its ~ubsidimSes during the year 1948 uuder any oth~ bontt~ prolit~abaxthg, pension or retirement plan were as tolinws: (a) Employees: (other thsn directors or oi~eers). Payments to forme~ empinyee~ of approximately $412,000 under the present disab~lliy pLan hereinbefore reinrced to. (b) Directors and Offlc~rs: A. To fixes former etheer~ or diseetors (o~e of whom ~¢as formerly an of~cer and director of the Company, a~d the. other two, officers or dlre~rs ~ a subsidiary) an aggregate of $14,000 under the pr~st~at dischnity plan hereincheve relezaed to. B. The amomats of incentive e~mpeasatlon sccrued tlurlng 1948 under ~rr~cle XII ~i the By-Laws te the President and Vice-Prezi~n~, as rertae~d by the agreement ~ Novcro.~er 3, 1948, desaribed on page 4, in the amounts and to the individuals as set forth on page~ 14 ~nd I5 of this Proxy Statement. Tha proposed preamide~ and xesolufion conzthuting Proposal B are as follows: WEEa~S the Board o~ Directors of The American Tohacoo Corn]puny has ~ormulatsc[ a reth'ement plan, to be known as Th~ American Tobacco Company Retirement Plan~ providing for retlreanea~t, dlsab~llty and severance benefits, a copy of .shlch Plan has be~n presemted ~o this meetin~ by the Secretary of this me~liag~ and a copy oi which, initialled by the Sseretary~ has be~t oedered to be attached to the minutes of this meetlng~ and W]~urz.s the B~artl of Disinters has pa~secl a resolution declaring that in its opinion the adoption eI ~ald Plan .is advisable, Now~ T~zl~rO~, P~SOLVga, That said Plan is haraby approved ancl adopted. Th~ Management recommends thttt you vote IN. FAVOR OF PzopasaI B. Proposal C. The Company is informed that Le~is D. Gilbezt~ whose address is 1165 Park Avenue, New York 28, Ne~ York, ~abn J. Gilbert, who~e eddre~s is 1165 Park Avenue, N~w York 28, N~ York, and J~hn Campbell Henry, wko~e eddre~ is 5 East 93rd Street, New York 28, b~ew York, stockhal~ers, intend tc~ introduce at the forthcoming Annual Meeting the/alio~bng r~aluti~n (desigaat~d herein as Proposal C) : "Resolved that the following cla~e shah 12

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be atded to the presertt provlalol~ of Arlie|e XII--That notwiibstand~ng th~ above provisinns for incentlvo ¢ompensa- tlon, the amount to he paid to the Pr~ald~nt ef the Corporation shall in no event ~xee~d an aggregate total amount of 8200,000 and that of th~ Vice.Presklen~ shall not he in exeess of $150,000, each," The propoher~ of this resolution have fa:nizhed the followh~g statement setting forth the ree~ons advanoed by them in support of their proposal: "Aggregate payrnent~ to pre_*ident Vincent Rigg[o reae~aed the sum of $484,202,36 according to the Iast proxy statement, an amount wlfich we helleve ~ar too high, even with current taxation levels. The five Viee-PreMdents were paid $268,521.43 each. That many st~ek~olders support the sextse of this amondzaent io the compensation by-Law has been thown hy the £aet that 180,36I vote~ were cast in support o~ our poaltion on this miter last year. Contras~ the Riggio payment to the aggre.gaM of alallar c~mpe~sation to Presldent Andrews at Liggett and Myer~$108,379.02!" Mr. Lewis D. Gilbert. co-sponsor of Proposal C, has on four ~eparate (~ccaMons* at the Annual Meefng~ of 1940, 1941, 1942 end 194e. i~trodueed proposals to change Artieln XII of the Cr~mpany~s By-Laws by limiting the incentive compensation payable thereunder. The 1948 proposal, which was identical with Proposal C, was introduced by him and the saree co-sponsors, Messrs. GilLert and Henry. Each af these prop~sMs }]as hsen rejected by the stoel~ulders by overwhelmlng vote. At the 1948 A~nu~ Meetlng. 2,~2,798 votes were east opposed to this identical proposaL 'l~e Management does not believe that Proposal C ia in the interest oE the Company and its sLoe'alders. The attention of the sleck~olders is calle~ again to tI~e Mmaagement proposal (Proposul A) wMeh is described ~ad discussed on page~ 2 to 6 of this Proxy Statement. In Proposal A the Management, on its own irdtLative, ha~ proposed a suh~tantlul reduction in incentive compensation, and by the vulm~tary a~reeme~t de*e~thed on page 4, the President and Vice.Presidents now in o~ee have made ihls redaction applicable to their compensation for the year 1948. Th~ Management helieve* lbat its proposal, whne ~eduulng hxeendve eolx~pezl~ation very substanib~ly, lores~ves the stimulant of a~ ineentlve to increased effort and aeeompliahment for stockholders. The e~t.thlishment o~" an arbi- trary calling beyond which there is ~o such incentive is wholly ineonsisteztt with the theory of incentive eo~apensa. tion and would not, in the Management's opiulon~ be advantageous to the Company and its stoekl~nlders. The Managemerd re*on~nends tha~ yo~ vote OPPOSED TO Proposul C. Proposul D. The Company i~ informed that the name proposers~ ~essrs. Gilbert and Henry, also intend to introduce at the fortheomlng Annual Meeting thu fallowing resolution (dealbmated hereha as Proposal D) : "Resolved, that the stockholders hereby requ~t the Board of Directors to take appropriate steps to submit ~ stoekliuldexs an amendment to the Certificate of Incorporation provilJmg for eumulatlve vol:thg, that is to say that at all elections o~ directors, the stoelthoIders shall have the fight of ommulafive voting, that L~ to say. each ~ockholder shall be entitled to as mmay votes as alm]l equal the number of votes w~eh he wouM be entitled to east for the dectibn of directors with respect to his thares of stock muhiplled by the number ul dlreetars to he alerted, and he may oa~{ a~ of such votes lbr a sibgl~ director or may distribute them among the ntumher to he roved for, or any two or more of them as he may fle~ fit.~ The proposers of thL~ resolution have fturfished the fo]|ow~ st~teraea~ setting :[orth the reasons advmaced by them in support of their proposal: "TMs is partleularly irapor~ant at American Tobaoeo, with differences of opinion in regard to topics such as adverfslng prohIems and inventory (which reached a new high r~cord o£ $483,133,078 in 1947). That such differene¢~ exls~ is obvious from the ~any floor di~eusalons on thes~ matters a~ our annual meeibags. Yet under the present set up all the ~ireeters are employee*, with the public shareholders completely no- replicated, a zituation we feel ~hould he corrected. Cumulative voting has been made mandatory as a proteetlon to stockholders in 19 states and optional in I7 more including New Jersey." The ~anagemen~ doe~ not believe that Proposal D ser~e~ any usald purpose. The advertising ~peaditures of the Company have~ for year% been smaller than the amounts reported to have hee~ expended for advertiMng hy its prlbeipul c ompetit ors. The Compan)Zs inventories, which are requlred by it~ ibrg¢ vulpine of hmibess, hea~ ~ab~La~tially the same proportibn to sales as the inventozi~ of iM palnulpal uompetltors. The z~oekholdera have each year, from )-ear to year~ elected hy overwhelming majorities the M~aagement's norulnees ~ Dire~to~ and have thus, in e~eeh approved the puliey that the Board ~hould eonal&~ entirely o~ ot~eem and employees of the Compm~y glvthg their entire time and efforts to hs service. The long.coat'ned record o.f m~eces~ful operation of the Company's huslne~s under thls policy indleatez, in rite opirfion of the ~/lanagemenh that it would not be in the interest of the Company to initiate the amendment to the Certificate o~ Incorporation maggested hy Messrs. G'xlber t and Ilenry. Tl~e Management r~:ommends tha~ yo~ vote OPPOSED TO Proposal D, Th~ Manageraent is ~aot aware of any arguer matte~r intended to he presented :~or a~ion at the me~t~ng. 13

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i~£ MUNERATION Remgneratiott o.( Dbectors and Officers. 'lhere Js set forth ha the following tabulation the aggregate remuneration directly or indlreetly paid or set aside, on ma accrual baals, by the Corapany a~d he subsldlar}es to, or for the benefit of, the following persons for 8erffices in all capacities whl]e aclhag as directors or o~]eers of the Company during its last fiscal year: each person who w~ a director of the Company a~ any time du~mg such fiscal year and whose aggregate ~mua~'allon, e.xalnsive of pension, retiremollt and similar pa)qments, exceed0d 825,000; each person who was one of the three hlghest.pald offieer~ di" the Company doxing such fi~oa[ year and whose ~gregate temu~eralSon, ex~usiro of penshan, xetlr emeut and similar payments~ exceeded 825,000; and all pe~sozta, as a group~ who were dlrecZor~ or 0ffiee~'$ of th~ Company at ~my time dusi~g such fiscal yeax. ~er~ the total rcr~unerafion exceeds by more titan ten per cent. the total remtmerathan for the preceding fiaeal year, the excess is stated in Column (6); whe~. the total remuneration is l¢~s than tha~ for the preceding fiscal year, the d~creass is stated ~n Gel=ran (7). ID Name of individna] ,~z idmat ky Q[ gxoup Orpheu~ D. Baxalys Riohard J. B~yIan Douglas W. BraJhear Thoma~ P, Conners James R. Coon~ John A. Crowez John S. Dowd preston L. p~wl~rX Paul ~. H~hnt Dirmu R, Hammer Edmtmd A, Harvey George W. Dill, Jr.z (2} Cal~dti~m in vehleh (3) remlmer~ion w~s rcoe~ed S ~lmie~ Vice-Yrozident and Managing 8 50,00~.00 DHeetor, ~le American Tobacco Company of the Orienl, In~.~ Vioe.Presidcnt and Director of Purchaae~, The Amerloan To- hn0co Company Vice-President, Ar~eriean Sup- pliers, Ineorporoled~; Gen- era~ Manager of Stemmeries Director of Traffic, The Amer- Tobacco Company Vice-President and Comptrol- ler, The Amerlentt Tobacco Company Assistant Chief of Manufacture, Th~ Ameal~an Tobacco Com- pany Vice.Presidenb American Sup- plthr.% Incorporated~ Viec-President and Chief of Manufacture, Th~ American Tobacco Company Vice.Preslde~t~ The Kmerlcau TobaCco Company; Presi- dent, Amerioan Cigarette and Cigar Company Director of Resemrcb, Thn Amealean Tobacco Company Txea~rer, ~e Amesiean To. ba0co Company Vice-president and Director of AdvertMng, The Ameriean Tobacco Company (5) Applioablo (7) par'ion o~ (ffi Decr~e (6) Grou9 Exc~ over z~nder Partlclpatinn I~saranee prevlou~ pre~ogs in plofita ~remJl~m ye0g y~ar $73.53 $5,412.45 50,000.00 8196,638.8¢ 73.53 ~ 21,g86J30 35,000.00 73.53 27,000.00 73.53 4,995.73 50,000.00 196:638.84 73.53 50,000,00 73.53 40,000.00 73.53 50,000.00 196,638.84 73.53 50,ffi]0.ffil ' 196,Cq8J~ 73.53 30~000.00 73.53 50,000.00 73.53 11,025.68 76~820.74 18.83 ~1,g86.~0 ~L88~80 21,886.80 180.733.92 A]s~ offices of af~liated comply or e~m~an~es. R~si~ed M~creb ]8, 19&q. ]'~llalecl oomlla~y e~og~ ~n purchase an~t han(~ing oI 1eat tobacco. 14

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(5) ApI~icable (71 porIion of (6) Decre~e {I) (2) (4) Group Execs8 ov~r t~der Name ~tlnd~[d~l Capac~tles in whlch (3) Par t~c~p~tlon lnsur~m~ proviolls ~e~u~ or idcntlty of ~ro=p :~mt~era~oD Was receded Ss]srie~ in p~s plemi~m~ year year Harry L. HilyardI Assistant T~ea~rer, The Amer- $ 55,000.00 $73.53 iema Tobacco Company A. LcRQy Jansen~ Auditor (and former AssL~nt 29,~10.24 73.53 ~8,822.66 Auditor), The Amcr ftan To- b~::o o Company James E. Lipa~m~, Jr. President, American Suppliers, 120,000.00 73.55 ]ncorpora~ed8 Wfillam H. Og~bury A~stan~ CJaiof of Manufacture. 50,000.00 73.55 The Americas Tobacco Com- ply Vincent Riggldi President, The American To- 120,000.00 $527,73h42 73.53 ~ 36,475J5 baoco Company James R S~aicldmul Vioe~Prealdent, American Sup- 40,000.00 73.53 pliers, Iuoorporateila Dioeotors or Of~cers Directors or O~oezs as a 918,245.6d 1,595,107.32 1~367.48 256,990.20 as a group group 3. AI~O o~o~r ot affiliated cordpany or companies. o AP~Iiated company ellg~ged ill purchase as~d handling of kzaf tobacco. 4 EIectsd April 27, I9~. The amounts stated in Column (4) abave ware scorned as incentive eoInpensalioa (based on pm~ielpatJon in Company profits), under Argele XTI of the By-Laws, after giving effect to the agreement entered into ~th the Company by the President, Vincent Rigglo, and the ~our Vioe-Prealdent~, RiohaM J. Boyllan, James R. Coon, Preston L. Fowler and Paul M. Hahn, de~erlhed on page 4 of this Proxy Slatemenb reducing fi~e ~'apcofivv rates of remuneration of each of them under A~tiala XII inr th~ year I948. The effect o/ ~h agreenomt was to reduce the remunerat~o~ o/ tlt~se re~peetlve o~qcers by the ~ullowi~g amounts wh~h would have been payable to ther~ e,xeep~ /or such ~gr~emem ot~ theft part: Vincent Riggio, g264,689.48; Ri~dard L Boyish, fames R. Coon, Preston L. Fowler and Petal M. Hahn, ~158,813.70 eacfi; a tota~ redur~io~ o~ ~899,94~.28. ~o fees or commissions were paid to or for the benefit oi any o~ the inllivlduals IJsted above. There wer~ no penslon~ retirement or similar payments to o~ ~or the henefi~ of directors and of~cera of the Company. Pending di~poaitinu of an ncfton brought h 1943 in the ilugreme Court, New York County, entificd "Rec~t v. Baxalys etal.," the Treasurer wlthlaeld a portion of tha remuneration accrued ditring 1943 and during 1945 mad 1944, respectively, to Paul M. Hahn mad Vincent Riggio~ In 1948, pursuant to decision of Ilia Court and after dlspasltion of the action, there was paid from the innth ~vifithdd $28,353.99 to eaoh of tho~e two o~oers. Tke aggrega~ amount of remuneration for the fiscal year 1948, received f:rom the Company and its aubaldiarle~, directly or indirectly, ¢oa an accrual has~s, by all the directors and officers of th~ Company as a group, was less than J¢~ of l~b of the Compauy'~ oor~alidated net aa|e~. ~$CELLAI~OUS Any ~tockhol~er m~klug wal~t~ request ~erefor to the Socret~ry of the Company wfil b~ furai~]~ed a sdmm~ry of the Amaual Mecfing that will be prepgred after the meeting haz ho~ held. Messrs. Lybrmad, Ross Bros. & Montgomery have for many years balm the independent auditors for the Company, and are appointed by resolution o~ the Board of Direotors. 1~ accordance with the Company's customary ~3

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practice, a member of the ~m of auc~it~rs w//l attend the Ann~aI Meeting and respond to questiom which may bc ask~cl by stockhoide~. Comm~nt~ or su~g~tinns t~y stockholder~ with r~arct to the a~cI~ are ~veloomed, as thay ~re with regard to ~11 other matters a~ec~g the Company's Interests. Fl~min~on, N. J., is rc~cked by the L~dgh Vdile~ Railroad. The p~eaent ~r~fo schedul~ ~v~dch is s~bj~ct to ahang~ ancl shoukl ~e confirmed, is ~s foIlow~: L~aw Penn~ytvanla $tztinn (S3rd Sheet a~d Seventh ~kvcnue~ N~w York~ N. Y.) 10.55 A.~L Arrlve Flemlngton t~.10 P.M. Leave F]emin~ton 5.07 P.I~. A~iv~ Pe~n~yI~anis Station 6.35 P-M. The Company wi8 procure raiIroa& ~anspor~ation, ~rom Ne~v York to Flemington ~ncl rc~urn~ a~ Company expen~ f~r any stockholder of ~ecor& des~roua of altcndi~g the rattling, on hi~ noti~yln~ the Secretary in writing, prlo~ to March ~t, i949, that he ~vishcs ~uoh tra~port~tlon obtained. I/ you do no~ pla~ to attend, yo~ are urgently requeste¢l to execute the enclo~e~l l~ox7 ~nd mail ~ to th~ Company promptly.. E~p~n~e o~ S~licit~ion. Th~ expense of the solicitation of Pro~iss for rids meeti~ incIudlng th~ ~ost of m~iling, ~11 be Lorn~ by th~ Company- In addition to mailln~ copies o~ thls matcrioI to stockbrokers, th~ Co~pany will request perlons ~ho hold s~ock in their name or custody or in the name of nemin~e~ for othera, to ~orwaed eopiss ~f such ma~erioI to those persons for ~vhom they hdi& s~ol;k o~ th~ Company ~nd to r~que~ anthe~t¥ fo~ t&e e~eeutinn of the Proxies. The Company may rdmbur~e such persons ~or thdir o~-o~-pochot ~xpenses ~nd cl~r~0al charges in conn~ut~o~ ther~with~ "~dch expenses ~ ~stim~cl to b~ ab~ $1~$99. T~ ch~ e~n~ n~s~ry in o~et ~ assur~ su~ciont representation at chs mee~g, e~ce~ and som~ regular employe~ of the Company ~n& approxlmateIy 7 emplnyee~ o~ Cameron, Sitadiey & ~Telh, Ina. ~vill request the return o~ P~o~de~ by tcIephone, telegram c~r in person, a~ an estimated cost ~ about $15,000. Th~ a~a~un~ of th~ expense ~o bc borne by ~h~ Company will cIcpend upo~ the volume o~ ~harea repres~nt~ by the Proxies ~ in r~pon~e to this Notice of Me~g. If Prox/e~ arc not re~ived promptiy~ it may b~ nec~sary for the Company ~o sea& teIegr~phic sollcit~tion to thos~ s~ockhoId~rs ~cho haw not responded. The expense of s~ch t~Iegraphlc sdii~,itation ~t~uId bu s~out 82,500. $tochho]ders who do n~ ~ntend to be present at the Meetln~ are ~rged to ~en~ in their Prox~e~ wltho~t ~e]av, Prompt r~pon~e is helpful, and your ~ooperatinn ~vill b~ appreciated.

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THE AMERICAN TOBACCO COMPANY FOR THE YEAR ENDED DECEMBER 31t 1948 WITH CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENT5 OF iNCOME AND EARNED SURPLUS E~ecutive Off;ce 111 FIFTH AVENUE . NEW YORK 3, H. Y.

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.$ 4 lv~a Net income per common share ............. $7.58 Dividends paid per common share ............ 3.75 94~ $5.70 3.50 Net sales .................................................... $873,466,917 $819,631,122 ]We~ income .............................. " 43,912,204 33,845,021 Divldends paid (pre£erred and common) 23,331,074 20,865,961 Porl.ion of net income invested in assets *lsed in the business and to provide £or debenture sinking ~und requirements 2{),581,130 12,979,060 \, Current ~sets, IJecember 31 ......... 567,883,212 ~37,871,g65 Cu;renr liabilities, December 31 ...... 126,387,405 172,577,I83 Net working capital, December 31 441,495,807 365,294,682 Number of stocklmlde~'s at December 31 : Common ................................. 63,425 63,007 l~re~erred ....................................................... 8,848 8.878 2

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Mnrch 1, 1949, The accomp~nylng i]~ncla~ ~taternents subm{tted ~)' th~ Treasmer~ illcludlng: the r~pa~t o~ Lybra~d, Ross Bros. & ~ontgor~ery~ Certified l~ublic Accountan~s~ presez~t the results of ~he Company's oi~atlons ir~ 1948. i~o~ collve~ie~ referer~ce tt~i~ Annual Report a~so ~m~ains, ~Cor thc ~rst tlme~ i]ve year comp~r~ti~,c s~teme~s of income ~nd ba~,~nce sheet i~ms as we)l as a dlg~s~. o~: the year's ope~ation~ g~v~n in summ~ry ~o~m on ~he opposite page. In ~h~ ie~er ~ should like ~ c~l ~he ~ockh~d~rs' a~e~n ~a~'~ic~lsr~ ~o the ~ollowing 8ig~li.~cant d~wlopments: (1) During 1948 tJ~e Company ~nc~ea~ed i~s sales, bot~ in units ,~nd in doilies. t~¢ latter" partly due to an increase i~ ¢i~garette prices; incre,~ed its ne~ ea~ah~gs; ~dd~d sub~tand~lly to its s~rplu~; reduced i~s bank loans and imi~rove4 i~s in~nto~ pasitio~, par~/~ wi~h ~he proceeds ~ ~ong ~erm borrowlng. (2) ~J~ management has warkd out fo~ s~bm~ssion ar the Annual ~[ee~ing two p~opo~ais tha~ ~¢e b~lleve ~11 ~4re~tIy intere~ tJxe stockholder. One i~ Retiremen~ ~nd Dis,~li~y Plan ~or aII regular full-tlme employees, The under Article XII o~ ~he By~L~ws, $,~gs o~ n~rly $900,000 already res~I~i~g f~m ~he vaiu~t~ry application of this proposal ~o 1948 conlpensati~m ~hould eav~J~ the ~os~ oS j?ayments u~der the P~e~i~'emcnt a~d Disal~Jiit¥ Plan £or several yea~s ~nd~ i~ the p~oposal i~ adopted, ~u~vJ~er saving~ ~herea~te~ pro~osal~ a~e ~ully d~scr~bed ~n ~he P~oxy S~em~nt ~ccornpanyi~ thi~ report. ConsoIida~ed ~¢t ~nco~e ~or 1948 was ~43,9i2,204, a~ increase o£ $10,067,183 ove~ 1947. This w~s equlva~e~t, a~ter P~e~erred dividends, to $7.~8 a shar~ in 1948 o~ tl~e 5~378,42~ shares o~ Common ~tock presently ou~s~nding, compared w~d~ $5.70 pe~ share ~or tl~e lo~evi~m~ fiscal year. Sales ~ol~me, bo~h h~ do]lar~ ,~n~ units, ~'a~ l~i~I~e~ than ~n 1947. Consalida~ed net ~ales in ~948 were $87~,46~,917, compared wi~h $819,631,122 in 1947. I~ January o~ ~hls year your directors void the 174~h consecutive dividend on th~ Common sto~k o~ ~rour C~mpatW, consisting of the regular ~r~t c~uar~f d~v~dend of ~5 ¢ent~ per share, an~l in adclit{on an ex~r~ dividend a~ $I.00 p~r shar~.

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1 This makes a total dlvldmad for the first quarter <~f $1.75 per share, payable March 1, on the Common stock, and compares with $1,50 per share, for the same period last year. ~RbtING~ IH'¢~TED IN THE gU$INESS Total dividend payments for 1948 amou~Lted to $23,331,074. The bahmee of net earnings far the year was added m Surplus. During 1948 our Consolidated Smplus was increased by $20,581,130 from earnings, as compared with $12~979,060 added to Surplus from earnings during 1947, and $12,158,035 in I946, During the last three years, including 1948, your Board of Directors has deemed it prudent zo follow the policy of retaining in tbe business a reasonable porrlo~ of the eardings to supply part of the funds required to maintain adequate leaf tobacco inventories, to improve and expand manufacturing facilities, (both of which were necessitated by i~creased sales of our produ~t~), and to provide for reducing the Company's borrowings. Additions to Surplus in those three years total $45,718,225. We believe thaz continuing high costs as wall as indeb~eilness resulting from rising costs over a period of years, and sinking fm~il requirements which will aggregate approximately $9,750,000 in 194% point to the ~risdom of the Cmmpany's conservative dividend policy. FINANCES Notes payable to banks decreased from $I22,~00,000 at the end of I947, to $72,000,000 at the end of 1948. Working capital increased from $365~294,682 at December 31, 1947, to $441,495,807 at December 31, 1948. The increase ha working capital results principally from increase in inventories and reiluctio~ in the amount of notes payable to banks. Funded debt at December 31, 39-$8, amounted to $245,280,250, compared with $176,665,250 at December 3I, 1947. 'l~his increase resulted from the sale early ha 1948 of $75~000,000 of thc Company's Twenty year 3% debentures which I reported to you a year ago~ less $6~385,000 prlncipal amonat of the Company's Twenty anil Twenw-five year 3% debentures which were rel:ired through the operation of their respective sinking funds. Assuming the ¢ontlnuance of present business conditions durifig 1949, your dixectogs believe ~hat the ~aancial resources of your Company ~'e presently adequate for its needs. ¢tG)tRETT[ PRI¢;S The prices of LLrCKY STI~IKE Cigarettes and others of the Company's maior cigarette braads were increased oft July 29= 1948. The net increase to the Company was eqnivalent to abou~ seven-teaths of a cent per package. The price-cba~ge was made aeeessary by contlninng iztcreases in the co~t of le~ tobacco, materials arid supplies, freight and shipping expenses, and wages, It has contributed to hlghe; dollar volume and is reflected in increased earnings for 1948 as against the previous year.

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II¢YE~TOHE~ Inventories, o~ which leaf tobacco is the principal item, increased $31,824,9611 during last year. Prices paid for leaf tobacco '7¢ere ~mewb~t higher th~ix durhag tbe previous 3,ear. Tbe size of the CompanyOs tobacco inveatory is in keeping with the policy that it is sound business ~udgment re maintain ~m adequate inventory of properly aged tobacco, necessary for quality products and consistent ~ith the wlume o~ business beklg handled and anticipated. Pouads o£ tobacco required~ ~ot dol/ar ~mount of inventory, i~t~st be the criterion. Comparison with leaf invel~tories of other tobacco col~panles, on the basis of the most recent ~tatistlcs availabIe for tile industry, indicate that o~x inventories are reasonable. The pattern of purchases o~ Flue-cured and Burley tobaccos which began in 1947~ whereby i~rger quantities were acquired ea~lisr in the season and before December 31, was repeated during 1948. This p.~ttegll is r~e~ted by increase in inven~ot3r hxvestme~xt at December 31, 1947 and 1948, ,'ts comp,qred with prior years. CO~¢$T~dCTION Plant and equipment additions during the year 1948 amounted to $11,451~171h While the construction program for expansion and replacement begui~ in 1946 llas been substa~ltially completed, approximately $3,300,000 of the proge~nl still remains to be do~e. Your Conapany will continue to make capital expenditures where required by ~xpanding sales or wbere savings in costs can be achieved. 8HIRE~IEb]'¢ AND Di~A~!HTY PLaN There is being submitted to stochholder~ at this time, for approval ~t the Annual Meeting, a tketirement and Disability Pla~ which will cover approximately 19,400 regular full time employees. Details of the Phil, inchiding eligibilis}'~ estimates of costs~ benefits proposed, lhnisatinlxs on benefits, and other pertinent data, are given in the Proxy Statement. A sound plan of retiring employees a~ter long and faithful service, and of providing for those who become disabled before retirement age, has collie tl~ be regarded as an obl~getion of progressi~-e ma, nersblp and maaagement. I~ is also advantageous to stockholders as a mea~s to retai~ efficient employees i~ the Company ~nd to attract desirable ~ew employees. It makes for bette~ morale in the organization, and should inevitably be reflected in wholesome employee relations. "file value o£ such plaids is now generally recog~llzed, ~nd several tbousa~d corporations have retirement plans in effect. The America~ Tobacco Company is the o~ly large company in the tobacco industry that does not already have a formal plan o~ this kind. The proposed Plan will become operative upon approval by stockholders, subject, iu the case of any employee represented by a recognized collective bargahdz~g representative~ to the negotiated consent of the Company ai~d such representative. The Pl~x is the result ~t[ long ~d ca~efu[ study by y~ur oflace~s and competent actuarial advisors with wide experlence in this field. The Company does not inte£~d at this time to fund or insure payments under the ~l.an. It ~s presently intended thet the pal~xaxents under the [~lan vclll be treated as an annuaI charge against income. S

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-! L The I>resident and ¥ice-l~rcsi~ents &nd odler mdmbcrs o~ the ]Board recommend t~ s~cl~h~ers ~1 am~ndmea~ of A~ticIe ~II o~ the ]~y~Laws, ~o recl~ce the ra~e of incentive ¢ompe~satLon providcd by th~ Ardc[¢ £or ~[~e 1)resldear and Vic~- l~r~ide~ts. De~ai]s o~ rJ~e ~)ropo~cd amel~d~lent are ~iven in the 2rox~~ Sta~eme~l~, As a prdimina~y step ~c[ i~ ordcr to acce]e~at~ ~hls red~ct£o~ i~ Ar~c]e XII co~i)~s~tio~, the Presi4e~t ~ th~ fou~ V{c~?res[cte~ts ~ow in o~Ec~ c~e4 £~o an .~gree~len~ wi~h ~h~ Compa,ly oa i~Iovem6er 3, i948, in whlch ~ey agreed ~h~r t~c ~ed~ct{~n E~ r,~ce~ ~rogosd by t~e ame~eat ~a~' s~bml~ted co r~ stockhotders should Be appIJcabl~ ~o dle£~ compensation ~or 1948. The s~Ln~ ~o the Gomp~7 ~l~ich h.~s ~l~dy ~s~cc[ {tom this ~g~eem~ amo~u~ts to ~ sum o~ $899,944 ~or 1948. lit is esti~ate(~ tJ~t this savin~ alo~ ye~, Furt6¢r s~l~t~ntlal sa¥1n~ should re~l~ ~rot~ the cont~ued r~duc~Eo~ ~h¢~e~tcr should contrlbu~e ma~e~lly toward ~6~ cos~ of ~£remen~ ,~n¢] dls~biii~y t~aymcnts for ~I~ bene~ of the C~£~aay's m~l7 dla~ands o£ era?loy~¢s in future yc~s. STOCI(IIO~DE~' ANNUAl r,~EE~NG • ~Lhe Anginal ~leedng of stoc~i~oI&rs ~IU t,~ held on Wedlles~ay, Apn! 6, 1949. & ~ormal nodcc of t1~s ~et~ ~oge~er wi~ • 1~roz}* ~md ~roxy St~mcnt, are enclosed ~th ~is re1~ort. Th~ mana@em~'s pro#osa] to amend Arti~le XII of t~e By-L.~ws by rcduclng :he ra~s o£ comp~tloa provlded rI~eLa fo~ ~he P~side~ aad ~ce4~esldents £s de~crlbed ~n ~he 1~ro~y St~reme~ and desi@nate4 ~a r~ ~roxy as Propbsal A. The maa~en~nt's ?roposa~ for di¢ adolstion o~ a ~edre~¢n~ ~nd D~ablU~ Pla~ d~c~6ed in ~hc £roxy State~n~t and designated £a ~¢ Pr(l×y a~ £rop0~al B. The m~na~¢m~ recom~nends ~ar you vo~e ~# ~or of Propos~[ A a~d i~ op os.~1 ~. Two o~he~ #roposals llave been ~bmltt~d ~ three stocl~olders, and ~rc dcscribed the Proxy Statement a~d deW.acid in ~he ~oxy ~ £rogosals C and. D. For ~e r~asons se~ ~rt6 i~ t~e 1~roxy S~te~¢nt~ ~e ~anag~mcat recomm~ds A~ the la~c An~u~ i~¢ting of stoc~olde~ an amendlnent to ~ Charter o~ the Company ~as adopted wh~c1~ ch~n~ed ¢~ch ~L~re of Common S~ock ~ o~rstandlng m~e o1~e ~hare of Commo~ stock, wi~ the voting ~i~ts o~ Co1~1~non stock, ~amely: who sdU I~o~ thdr s~o~ will now rec~h,e a 1~rowy fo~ r~ ~t ti~le. I~ yo~, do ~or plan ta ~nd ~h~ An~u~ 7~eetlng pe~ona1~, you~ co~era~an h~ s~nln@ ~nd retur~£ng your Proxy promptly will b~ ~ppreci~cd. VINCENT ~IGGIO,

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' -- 194~ SALESI less trade ~nd cash d;scotln~s, rc~urns a~d ~LIo~dat*ces ........................................ ~$73,466,917 Cos~ o£ s e, selling, gener~ slid admin rzti ,e expenses ............................................. 794,126,817 OPERATING PROFIT .................................... 79,340,I00 Add: D~idel~d~ a~d £~¢~es~ E~oa~ s~bs[di~i~s not consolidated herein (Note l) ......... 840,49I Other dividends and Jlaterest ................. y7,078 ~of~t O11 s~leg o~ ~ectl~ltles~ rAe~ ................ -- Other incom~ ........................................... I47,g68 DedIlct: Int~ros~ ~mnrr~zatlon of discount end redempelon premlum ma 3 ~/~ debentures 7,4I~,980 Other ~ntel'esc and diseoun~ ........................ 1,296~739 Provlsion for l'e~rve against investment in B~itish s~bsldiary ......................... 200.000 O~h~t cx~ge~ attd lo~se~ ............................. ~ZO~i61 ~ll CORI~ b~or ~ SEa~ and ~edegal in~me tax~s Deghtc~: State lissome taxe~ .................. , .......... 2,213,000 Federal income ~x~s ........................ 26,099,000 -- Ded~ci, Portion of net income of American Cigarette and Cigar Company applicable to n~norlcy interest .................................... Add, Refund and adj~as~ment of prior 5:oars' federal and state ta×es includlng intec~G less related expenses .............................. NET INCOME ............................................... Ded*le6 Cask dividends on preierred stock, $6 p~ share ................................. ~a~anee add~ zo eaxned su~tplus aegount ......... Earned Surplus, beginning of year ............... Dedztc¢, Ca~E dividends on eomlnon stocks (1948, $3.75 ~er share; 1947, 83~0 per share) ...................... ~ ............. gARN~D SL~RPLUS, end oa~ yeac (Note 2) 1947 $819,631,122 757~376,477 62,254,61~ 1,32J,362 184,190 26L067 $ g0,385,~37 276.041 $ 64,301,)Ill 5,726,I00 1,6J0,291 7I~,926 9,7Sg~2RO 5~,497 -- g,g~g,gl4 70,649,257 ~ ~,662,-19 I 1,622,000 28,352.00~ 20,82~,000 22 44~, I 42,297,257 3~,217,49/ I2~332 7~,949 42,171,925 33,138,142 1,740,279 43,912,204 3,161,982 4¢G75 ~j222 99,781~$81 ~4(h~ 3Z,l(~3 20,k69,092 $120,363,011 Depreciation provided and charged to costs a~ld expenses alxloLln~ed to $2,213,374 in 1948 and $i,769,156 in I9,t7. *~h¢ ~o=~g ~¢~ze~d to at-axe a~¢ am 3nteg~] part o* ~hese near.limit. 70&479 33,84IJI21 3,161,982 3B,6B$,(139 86,802,821 17,70~,979 $ 99,78 I,dg I i' ~2 1

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| lncludJr~g America~ Cig~tet te artd Cigar C~mpar~v and air wholly ~wned dom~ti A5 OF DECE A ,} 194~ Demand deposi:s in banks and cash on haad ................................. $ 16J7L829 /~.ccounts receivable, cus~ome:$ ............................. ; ....................... Milre]]anc~u~ accounts r~cciva~le ............................................ Cash ~a deposlt wlrh ~inklng ~zmd u~stees for ~dempdon of debentures .... s 19,505,15~ 36,019,685 34,558,435 528,24~ 571,0~1 514,955,038 483,1)5,078 5g,973 93g 142,444 10),164 Mortgages. no~c receivable, inslar;ulcc deiaosi=s, e:c ........................... l~eal g~ate~ rnach[n~iT~ tlxlure~, s~¢.~ ~ cos[ (lets • llowal~ ce ~o~" d~ecia ~ion. 194g, $26.092,~78; I947, ~25,598,I17) ........................................ Prepaid expenses aad deferred ck~rws ............................... Br~ds, trade=marks, ~atent*, good will, ere .................................................... t 1.918,486 2.07~,92g 41.858,6J0 ~2~846.536 ).515.194 3,461,203 54.099.4)i ~4~09~.43I 8 $6~6=675 ,fo97 3646,754,247 Tile hotel re£erred tu ~L~v~ lie an im 2

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!D BALANCE SHEETS ted domestic su[~ liarie~ except Ihe American [ ob~cco (ompan! ol (he Orlcnl, Inc, DECEMBER 31 Nole~ p~lbl~ to bmk~ Ac¢ourzts pa) able D~,ide~d u/~ pr~(crrcd ~lock lot quarter ended l)e~ember 51 [nter¢st ac~rueLI ,a~¢~-rued taxe~ Ad~rerli~inE anal other ae,2rueJ expen~e~ 1Debentures to be redeemed through s[nklng ~und ~p~r on (Note 4) Accounts p~Dabl*¢ ~o unc0nsolida[¢d lubsidiarits Total current [iablihLcs Three pel cent debentures (Note 4) Four pei cent bonds maturlr/g August I 19It N[mority interes~ in American Cigarette and (~igtr ( ompm)" 1947 1~4~ $ 72.000,{100 $122,Ir)u,000 &516,72I 9,04~,40~ 790.476 790,49~ 1,072,910 1,[12,gi6 34,949,390 )0,t27,il t 1,834¸072 I.~R3,796 9,2] 1000 6.017,00u 12,812 1,162,35~ 12~,!g7,40I L72,I77,193 23~,2/g,0011 L69,777,000 851,210 831,2~0 362,456,~I5 343,181,433 78J,750 71~,277 ) Capieal stock (Note 5 ): Preferred, six pet cent cumulallve, par value $100 per ~h~re Common, par valtle s25 per ~hare (1947 ~ncl~z~[~s comn~n 11 which was cnfl¥cr~ecl ~n~o conm~oE1 J~l 1948) Exce~s of rle~ proceed9 ~rom sale of ¢ommnn slo,~]/ over par value Earned surptus (Note 2) Less, rre~sm )r stock, at COSt (9t,7 I ) shares of cornm m stock) Total ~ap~ta! and ~urp[u% le~s ~rea~ur) ~tock 52,~99,700 52,699,700 136.g93 45(} 1 Ig,803,425 2),I7I 591 20,!71,591 210,f)Tg,741 120,36),0 I 1 99,281 ~81 330,441.7!2 309,g60 597 7,007,06 fl 7,007~060 323,434,692 302,8~1 Ii7 $68~,67 $,{197" 5646314¸247 ¢ ~re ~n mt~geal pa~t ot thL~e ,tarement,

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• [ • • NOTES ACCOMPANYING FINANCIAL STATEMENT5 1. The ~quily in the earrings of url~on~olidared sl~bsldlarle~ (excludinG the French subsldi,~rl.) amounted to $1,388,810 and ~1.920,~0~ .for 194~ an;/ 1947 respectlveiy. 2. U~der the ~ro~ri~ions o~ tlae indea~ur~ reigning to ~iie Tvse~lcy Year 3% Debexat~u~es, d~e J~rxuary I~ 1968~ cilsll tJiv~dela(~ dec!areal oil ¢ornmo~l 8rocks ,~n~ pgyii/~i/~s ~n~(]~ in ~ul*cha$111~ ~are~ o~ art7 ¢las~ o~ t]a~ Cognpan3r~s stocii, 8u~seql~erxl. to LDec~m~er ~ 1~47~ m~y not ~xcccd t]ae ~ggre~ate of $15,000,000 and cot~solJd~ed nel i~come e~rned sub~etl~eix~ ~ December 31, ~47, earned ~rp]us x~s ~re~ o~ cl~s reatHl~tlor~. 3. Dul'~rlg 1948 ~/~e Col~lj~ttIl~r ~¢as a~sed by el~ U. S. Treaatll'~¸ D~paz~mell[ ~'o~ ~edelal ~tl~ol~e l~xe~ app]~c~[~ to ~lle recovery o:~ tlac ~es~men~ ii1 ~lC~ ac¢oull~ ~ei~'able .flol~ ta~e F~ealc}l sub~idlary deducted ~s a war Loss ill a prior 7ca*'. Th~ ~axes ~nd bateretr theieo~ p~d by the Cornp~ay ~ggregated ~878, 66, The Company lestated the inve~metxt (which was carried sid~aly red~ced tl*e :lcct0un~ ~ecei~ble ~o $592,033 at I)~celnber 31, 1948. IqelrI~er the ~ddi~ tlona~ tax~ and ~ttteresl the~eoia 11o1" t}i~ l'~atate/iael~ ¢a~ ~¢ inv~s~me/i~ ~rld aceoun~ ~cci,,.~bIe i~ rel%cg~d in ~he accolllp~ny~rl~ 8~t~em~/a~ ~f ~tlcom~ lt/ld eal~led surplus. Ba~ed ~p~t/ cable advi~e, the ai~plLoah[e net assets of the l~rltish lubsldi~rI, (translated ~at~ dollars a~ approprla~e rat~ of exchange) ~mour~ted to $8,208,467 at Deccwber 31, 1948. net a~ecs of the Frel~ell subsidiary) alnotanted to $12~992,436, its~lud~g in~og~[~ ~sse~s of $~286~I3~1 a~ Decernb~ 31~ 1948. Wll~ce ~¢r ¢ert~ ~Icbell~ri~es o~tstan~ng ~t De¢¢~lbel" 31. 194~ cort~]prise: Red,,,,~ab]e Red~e,~hl~ wit J/J~ .me ~I~er l~e~mbe~ Twerlty 7~.~r, du~ April i5, 19~2 ................ $3,294,r)00 ~ 77.671,0110 Tweedy year~ du~ January 1~ 19~8 ....... 3,000,000 72,00~),000 ~i'we~cy-fi~e year. ~iue (3ctobel¸ 1~, ~69 ......... 2,~17~0 BS,$fi7,~0i) $9,211~000 $23 ~,23~,000 pri/~ci]TaI amoull~ estimated io 1~ gedeemed through si~I~iil~g ~und opera,iotas a~ prices as provided by the hadent~res. ~. Capit;~i s~o,;/~ a~ I)~cemi~cr 31~ 1~48 co~]ptlscs: S~ros Aulh~rlz~d r~0d Treasar~ Co/{atl~o~ ....................... 6,0~0~000 5,472,1~8 93,713 T~e[e llas b~¢li no chan~e iri [lie ~ta£128 o[ a/~ a¢~iorl illsCJcutcd irt ,a ]~r~o~ year bythe Oflaee of Price AdmiMstrarion for tzeble daluages~ clainahag overchorgcs in art al~mtmt o£ $347,607, Th~ action s being coa ested aEd ~o effet is glvea I reto a the ~nanclal ltatement~, 10

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LYBI~XND, ROSS BROS.£~i~[ONTOOMERX" C~FtT~FI~D P(2~LIC A, CCCt3N~'#.t4T~ N~W YO~K 4 The Presicletz~', t]Je Board o~ Direc#ot~ end ~ockbolders o~ TH~ A2vIEKICAk~r TOBACCO CO~AE~A~y~ 111 ~£th Avea~e, Ne~ ~ork ~, Ne~v Y~rk, ~e have exanlinec[ rhc eoaso]ida~ed batanec sheet o~ THE A~RICA~ TobACCO CO~rANy as of December 3I~ 1948, and rh~ related consolidated sta~emen~ c)f i/l¢ome and earned sur~J~s for the year ~hen ended. The ~nanci~ sta~emenl:s o~ Ame~cun Q]g~ec~e an¢l Ciga~ Company. a co~asolidatedl ~b- sid~ry, were e~amirlcd by o~her ind~pendem: ce~'ti~ed public account~at~. Our exam~natlon ~¢~s madc in ac¢ordaace wi~ ~e,~crally accepted amditiag standards. a~ ~¢o~dLag[y ~nc[uded ~uck ~es~ ~f the oz~coutx~ ~ecorda o~ the c~mpa~fies (e~cep~ Amerlca~2 Cigarette and Gi~ar Company) and such other auditing procedures a~ we ¢olls~det'~d n~ces~ary ~n ~e ¢ircum~allce~. We made a similar examina~or~ ~or r~e yea~ 1947. In our opinion~ based upon our examinations ~nd upon ~h¢ repor~ of other incfependen~ certi~qed publlc acco~n~ancs, ~he accompanying balance alaect~ ~¢~ ~[~.~.ed ~ter~nts ~ income a~.¢~ e~'n~d. ~u~p~ pre~ett~ ~xi~[y the consolidaLed positJotx of TI~e American Tobacco Company ~d r.he s~xBs~d{aries iac~uded there~n as o~ December 31. ~948 arid 1~47 and the conso/ida~d resulr~ of ~l~elr opera~ons for ~he yc~s ~he~ e~ded, in confornaky with g~nerally accepted accounting principles ~pp]Jed on .~ con~s~ent bas~s. New York, February 8, 1949.

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1948 OPERATIONS AT A GLANCE ~:~:~~ ~:'t +THE+CO~P,~N~ RECEIVED, ~.~. +. ~--?~'$8~4 512 000 , RECEIVED FOR THE GOODS ~ ~ ~ .... ~ k~ iT ~OLD (Ulustrafl~d are o,l]y ~ , ~ ~ ~ FOR BOND AND

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FOR YEARS ENDED DECEMBER 31 {In Thousands] 19411 1947 1946. NET SALES ............................................................... g873,467 $81!h631 ~764,167 Cos~ o~ sales ............................................................ 794,I27 757,376 709,403 OPERATING PROFIT .................................. 79,340 ~:!,2 ~ 54,764 1945 194~ ~I7,517 $533,374 Add; Other income, Iess other expenses .... ])er~Jtcg: Illterest~ discount and premium Income ]~efore income ~axes ...................................... DPtlllcl: Income t~xes ........................................ Add: p~ol" years' t~x adjus~me~ts~ eta., ~e~ • NET INCOME for the year .............................. DTV1DEN~S pAID: 514,I94 488,305 42,9~3 45,069 25 764 412 1,168 785 79,36~ 6~,019 5~,176 44,131 41,8~4 $,716 7r,3 ~ ~,812 6,862¸ 4,146 70,649 ~5,663 4~,364 ~7,26~ 41,708 25,3~2 22,44~ 19,~37 I7,94~ 21,9~7 42,297 33,218 28,g27 19,324 19,72i 1,615 627 1,019 373 181 $ 43,912 $ 33,g45 $ 29,886 $ I9,6~7 S 19,902 Pre£erred ..................................................... $ 3,162 $ 3~162 $ 3,162 $ ),162 $ 162 Commoa ........................................................ 20,169 17,704 14,~67 14,f67 14,~67 $ 23,33I $ 20~$6~ $ 17,729 S ]7,729 S ]7,729 13or~ion of net income hlvesged {ix asseL$ u~ed in ~he hu~iae~s and to provide ~or debenture si~ki~g fund reqnlremenL~ ................. 14 $ 20,~81 $ 12.979 ~ 12,117" $ 1.96g $ 2,I73~"

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CO!~OLSDAT~D ~AL~ii'~ SHEET5 AS OF DECEMBER 31 {in Thou~a nds) ASSETS: Cash and ~ve~inenc t2x no;e~ ...................... AccotE,~ recelvaSle ........................ Inv~Or[~8 ............................................ ~¢r ~urre~ll as~s ................................. Total e~rre~t assets ...................................... 1948 I%*47 194~ 194~ 194~ $ 16,176 $ 19,505 $ 17,821 $ 26,354 $ 72,085 36,S48 3~,130 27,919 26,328 30,833 I14,958 483.133 407,014 334,453 26g,798 2t)l I[14 708 877 I,~57 I67,8~3 J37~872 453,462 387,992 365,075 O~her l'eeeivab]c~ ........................................ 4,3"01 3,547 2,291 2,258 3,869 Plant amd eq~ipment~et .................... 41,8S9 32,847 22,583 ]8=694 19,384 ~ prepa;d expen~s~ etc ..................................... 3,5]~ 3~461 3,492 2,988 3,~80 Br;md~ trade marks, ezc. 2 ........................... ~4,g99 ~4=099 14,099 ~4,099 ~4~099 To~aJ assets .......................................... ~686,675 $646,7~4 $~2,529 $48~,509 $463.~26 LIABILITIES AND CAPITAL; Notes i~ayable ................................................. A~eo~n~s p~y~ble .................................................. Accrue~ taxes ....... i ......................................... Funded debt due wi~hln o~e year ....................... Other e~n'ent li]bil~ies ............................... To;a] currea~ 5a~Hiz~es .................. $ 72,000 $122,500 $ S$,000 S 37,000 -- 6,517 9,0#3 21,~32 1,$29 6,284 34,949 301328 27,989 26,403 3].662 9,211 6,0~7 6,14~ -- ~,793 3,710 4,649 4,108 ~,936 ~,~42 126,387 172.577 I34,774 7J,1~8 48,881 Funded de5; ................. [ .................... ~ ..... De~erred ~neome ........................................... kilnorlt)'intere~l¸. ................. ~=:,* .......... Capita[ ............................................... ~ ............... E~r~0d surpIus ......................................... Tr~asmT stock (deduction) .................................... T~al Iiab~i~;es and capital .................. 236,069 170,608 176,929 183,074 189,040 -- -- 105 105 201 784 715 799 9~5 955 210,079 ~I0,079 ¸[71,297 17L29/ 171,297 120~363 99~782 g6,803 73,098 71~I~0 (7,007) (7,007) (18,178) (18,178) (18,178) $686~675 g646.754 $~12,529 $483.509 $463,326 7 .......

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THE AMERICAN TOBACCO ORPHEUS D. BAXALYS RmHARD J. ~OYLA~ DOUGLAS W. BRASHEAR THOMAS P. CO~NORS Jx~ss R. Coon JOHN A. CRow~ JO~N S. Dow, ~RESTON L, FOWLXR ('OMPANY I~aUL M. HAHN HIRAM ~.. HANMER EDMUND A. ~ARVXY HAR~Y ~. HILYARD A. I~t(o'c J.~NSON ,J*MES E. LI~SCOMS, JR. ~X[ILLIA~C H, OGSBURy ~IINCi~NT I~1¢345io JAMES ]~. SyRIcG2LLAtKD "~rINCENT ]~I~ IO ............. Plesldelzt RICHARD J. BOYL~N .......... Vke Pre~ideJ*t JAMES IL. Cook ........... Vice President PRESTON L. FOWLER .......... VICe PgCSJd¢'ll~ P~-OL M. HAI~N ........ ". . , Vice P~esldent EDMUND A. H~.RV~S'C . ........... T~'easm'el" HARt~ L. I--IILYA~D ........ Ass~sla~! Tl'easltrcr A, L~l/.o'~ J~.NSON ............ Alldito~ J, W~sL~Y D~L~ .......... Assistant A~tditm" . F~D,,VARD D. FLAHERIy ........ Assl$~at1~ A~tdJ/or JoHN W. H~NLOt~ ............ Secr~t,ny ~REDERICK ~, J~ENNY , ....... A~$1s/all~ ~cretar3, EXECUTIVE OFFICEr 111 PIFrH A'¢ENU~, NEw YoI~i~ 3, N, Y. ~ORPORATE OFFICEr I17 M~IN STREET, FLEMIN~TON, iq. J. TRANSFER AGENT: GUAX~NTY Tt.UST COM~'ANY O~ NEW Yo~, Nx',v Yox~ 15, N. y. REGISTRAR: CITr BM¢~ 17Ag:~E~S T~ST Co~ea.~x. N~W YORX 15, N. Y.

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