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0 88012534

I-, LOEWS CORPORATION 666 Fifth Avenue New York, N.Y. 10103 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held May 13, 1986 To the Shareholders: The Annual Meeting of Shareholders of Loews Corporation (the "Company") will be held at the Manufacturers Hanover Trust Company Auditorium, Third Floor, 270 Park Avenue, New York, New York, on Tuesday, May 13, 1986 at 11:00 A.M. New York City Time, for the following purposes: I To elect eleven directors; II To consider and act upon a proposal to ratify the appointment by the Board of Direc- tors of Touche Ross & Co. as independent certified public accountants for the Company; III To consider and act upon a shareholder proposal relating to a nominating committee; IV To consider and act upon a shareholder proposal relating to directors' tenure; and V To transact such other business as may properly come before the meeting or any adjournment thereof. Shareholders of record at the close of business on March 17, 1986 are entitled to notice of and to vote at the meeting and any adjournment thereof. By order of the Board of Directors, BARRY HIRSCH Secretary Dated: March 27, 1986 SHAREHOLDERS ARE URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ACCOMPANYING ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.

LOEWS CORPOMTION PROXY STATEMENT This Proxy Statement is furnished in connection with the solicitation by the Board of Directors of Loews Corporation (the "Company") of proxies to be voted at the Annual Meeting of Shareholders of the Company to be held May 13, 1986. All properly executed proxies in the accompanying form received by the Company prior to the meeting will be voted at the meeting. Any proxy may be revoked at any time before it is exercised. As of March 17, 1986, the record date for determination of shareholders entitled to notice of and to vote at the meeting, there were 81,503,169 shares of Common Stock of the Company (the "Common Stock") outstanding. Each outstanding share is entitled to one vote on all matters which may come before the meeting. The Company expects to mail proxy materials to the shareholders on or about March 27, 1986. The mailing address of the Company is 666 Fifth Avenue, New York, New York 10103. Principal Shareholders The following table contains certain information as to all persons who, to the knowledge of the Company, were the beneficial owners of 5% or more of the outstanding shares of Common Stock. This information is as of March 4, 1986 and each such person has sole voting and investment power with respect to the shares set forth. Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Percent of Class Laurence A. Tisch* .... ......... 9,684,156 11.88% 666 Fifth Avenue New York, N.Y. 10103 Preston R. Tisch* ............... 9,684,156 11.88% 666 Fifth Avenue New York, N.Y. 10103 *Laurence A. Tisch is Chairman of the Board and Chief Executive Officer of the Company and Preston R. Tisch is President and Chief Operating Officer of the Company. Laurence A. Tisch and Preston R. Tisch are brothers and may be deemed to be control persons of the Company.

Director and Officer Holdings The following table sets forth certain information as to the shares of Common Stock beneficially owned by each director and nominee and by all officers and directors of the Company as a group at March 4, 1986, based on data furnished by them. Name Amount Beneficially Owned(1) Percent of Class J. Robert Ave .......... ....... 505(2) Charles B. Benenson .............. 77,775(3) John Brademas ... . . . . . . . ......... . 200 * Robert B. McKay .... ............. 1,500(4) * Bernard Myerson ........ ..... 98,500(5) * Edward J. Noha .... . . . . . . ......... 750(6) * Lester Pollack ............. ........ 25,607 Alfred P. Slaner ...... ........... . . . 52,500(7) * Andrew H. Tisch .... ... . . .......... 0(8) * Laurence A. Tisch . .. ... ......... 9,684,156 11.88% Preston R. Tisch . . . . . ............. . 9,684,156 11.88% All officers and directors as a group (21 persons including those listed above) . 19,697,836 24.17% *Represents less than 1 % of the outstanding shares of Common Stock. (1) Except as otherwise indicated the persons listed as beneficial owners of the shares have sole voting and investment power with respect to such shares. (2) In addition, Mr. Ave's wife and child own in the aggregate 25 shares of Common Stock as to which Mr. Ave disclaims any beneficial interest. (3) These shares are owned by a partnership in which a revocable trust created by Mr. Benenson has a 75% interest and of which Mr. Benenson is general manager. In addition, the partnership owns 10,000 shares of common stock of CNA Financial Corporation ("CNA"), an 80%-owned subsidiary of the Company. Mr. Benenson has shared voting and investment power with respect to the Common Stock and CNA common stock owned by such partnership. (4) These shares are owned jointly by Mr. McKay and his wife. (5) In addition, Mr. Myerson's wife owns 63,750 shares of Common Stock as to which Mr. Myerson disclaims any beneficial interest. (6) In addition, Mr. Noha owns beneficially 450 shares of CNA common stock. 2

(7) In addition 12,561 shares of Common Stock are owned by trusts for the benefit of Mr. Slaner's children or by his wife, as to which Mr. Slaner disclaims any beneficial interest. (8) 186 shares of Common Stock are owned by Mr. Tisch's son, as to which Mr. Tisch disclaims any beneficial interest. I. ELECTION OF DIRECTORS Pursuant to the by-laws of the Company, the number of directors constituting the full Board of Direc- tors has been fixed by the Board at eleven. Accordingly, action will be taken at the meeting to elect a Board of eleven directors to serve until the next Annual Meeting of Shareholders and until their respec- tive successors shall be duly elected and shall qualify. It is the intention of the persons named in the accompanying form of proxy, unless shareholders specify otherwise by their proxies, to vote for the election of the nominees named below, each of whom is now a director. The Board of Directors has no reason to believe that any of the persons named will be unable or unwilling to serve as a director. Should any of the nominees be unable or unwilling to serve as a director it is intended that proxies will be voted for the election of a substitute nominee or nominees selected by the Board of Directors. Information concerning the nominees, based on data furnished by them, follows: Principal Occupation During Name Past Five Years and Other Directorships J. Robert Ave .... . ....... President of the Company's wholly-owned subsidiary, Lorillard, Inc. ("Lorillard"), since 1984; prior thereto Executive Vice President-Marketing of Lorillard. Charles B. Benenson ...... Officer and director, Benenson Realty Company (real estate investments). John Brademas ...... . .... President, New York University since 1981. Also a director of RCA Corpora- tion and Scholastic, Inc. Robert B. McKay* ... .... Professor of Law, New York University since 1983; prior thereto Director of the Institute of Judicial Administration and Senior Fellow of the Aspen Institute for Humanistic Studies Program (the "Aspen Institute"). Director of the Company Since Age 1985 53 1960 73 1982 59 1976 66 3

Principal Occupation During Name Past Five Years and Other Directorships Bernard Myerson* *....... Chairman and President of Loews Theatre Management Corporation, an unaffil- iated company, since July 1985; prior thereto Executive Vice President of the Company and President of the Com- pany's Theatre Division. Edward J. Noha ... ...... Chairman and Chief Executive Officer of the insurance subsidiaries of CNA. Also a director of CNA and Farm House Foods Corporation. Lester Pollack* . ....... Special limited partner since January 1986, general partner December 1981 to December 1985, Odyssey Partners (private investment firm since August 1982, prior thereto investment bankers); prior thereto Vice Chairman of the Board and Co-Chief Operating Officer of United Brands Company. Also a director of CNA, Healthco, Inc., HPSC, Inc., Kaufman & Broad, Inc., Thackeray, Inc., Parlex Corporation, and Gulf & Western Industries, Inc. Alfred P. Slaner* .... ..... Business Consultant. Also Reorganization Trustee of Duplan Corporation, Chair- man of Vishay Intertechnology, Inc. and director of Phillips-Van Heusen Corpor- ation and Scarsdale National Bank. Andrew H. Tisch .......... President and a director of Bulova Watch Company, Inc. ("Bulova"), a 95%- owned subsidiary of the Company. Also Vice President-Strategic Planning of the Company since 1985. Laurence A. Tisch* *....... Chairman of the Board and Chief Execu- tive Officer of the Company. Also Chair- man of the Board of CNA and a direc- tor of Bulova, CBS Inc.,Automatic Data Processing, Inc. and Petrie Stores Corporation. Preston R. Tisch** ........ President and Chief Operating Officer of the Company. Also a director of CNA, and Bulova. Director of the Company Since Age 1963 1975 1971 68 58 52 1977 67 1985 36 1959 63 1960 59 88012539 * Member of the Audit Review Committee. ** Member of the Executive Committee. 4

Committees The Company has an Audit Review Committee. The Company has no nominating committee or com- pensation committee. The functions of the Audit Review Committee include recommendation to the Board of Directors with respect to the engagement of the Company's independent certified public accountants, review of the scope and effectuation of the audit engagement and of the Company's internal audit pro- cedures, approval of each service performed by the independent accountants, and review of the Com- pany's internal accounting controls. Attendance at Meetings During 1985 there were ten meetings of the Board of Directors and two meetings of the Audit Review Committee. Each director of the Company attended not less than 75% of the total number of meetings of the Board of Directors and committees of the Board on which he serves. Director Compensation Each director who is not an employee of the Company is paid an annual retainer of $7,500 for serv- ing as a director, except for Mr. Slaner who is paid an annual retainer of $10,000 for serving as a director and as Chairman of the Audit Review Committee. In addition, Messrs. McKay, Pollack and Slaner are each paid $200 for each meeting of the Audit Review Committee attended. Executive Compensation The following table sets forth certain information for the fiscal year ended December 31, 1985 con- cerning cash compensation paid by the Company and its subsidiaries to each of the five highest paid executive officers of the Company whose cash compensation exceeded $60,000 and for all executive officers of the Company as a group. Name of individual or number of persons in group Capacities in which served Cash compensation J. Robert Ave ............... President of Lorillard $334,836 Robert J. Hausman .......... Vice President; President, Loews Hotels Division 300,000 Edward J. Noha ............. Chairman and Chief Executive Officer of insurance subsid- iaries of CNA 625,583 Cb Laurence A. Tisch . . . ........ Chairman of the Board and 678,904* rn Preston R. Tisch .... . ....... Chief Executive Officer President and Chief Operating 678,704* 0 F~+ N Officer C!1 All executive officers as a group (17 persons ~ O including the foregoing) ... 4,567,319 * Includes fees received by Messrs. Laurence A. Tisch and Preston R. Tisch during 1985 of $19,800 and $19,600, respectively, as directors and members of committees of the Boards of CNA and certain of its subsidiaries. 5

An apartment for the use of Preston R. Tisch is maintained at a Company-operated hotel in New York City for the convenience of the Company and its Hotel Division. The Company estimates that the incremental cost of such apartment amounted to approximately $250,000 for 1985. Laurence A. Tisch and Preston R. Tisch reimbursed to the Company approximately $600,000 for utilization by them of the services of certain employees and facilities of the Company during 1985. Information with respect to certain non-cash compensation made available to the Company's ex- ecutive officers in 1985 has not been included because the incremental cost thereof to the Company was below the Securities and Exchange Commission's required disclosure threshold. Employment Agreements An employment agreement between Mr. Ave and Lorillard expiring May 31, 1988 provides for remuneration at the annual rate of $370,000 to May 31, 1986, $410,000 to May 31, 1987, and $450,000 to May 31, 1988. An employment agreement with Mr. Hausman expiring December 31, 1988 provides for basic remuneration at the annual rate of $335,000 to December 31, 1986, $370,000 to December 31, 1987, and $400,000 to December 31, 1988. An employment agreement between Mr. Noha and CNA expiring August 31, 1987 provides for remuneration at the annual rate of $667,000 to July 31, 1986 and $747,000 to August 31, 1987. Pursuant to the agreement, Mr. Noha will receive a pension, commencing on the later of his 60th birthday or the date upon which his employment ceases, in an amount equal to the pension payable under the CNA Employee's Retirement Plan (without giving effect to benefit limitations imposed by such Plan and section 415 of the Internal Revenue Code), based upon Mr. Noha's actual compensation and giving him credit for his 19 years and 5 months of service with a prior employer. An employment agreement with Laurence A. Tisch was amended in 1985 to expire October 14, 1988. The employment agreement provides for remuneration at the rate of $750,000 per annum, subject to such increases as the Board of Directors may from time to time determine in its sole discretion. An employment agreement with Preston R. Tisch was amended in 1985 to expire October 14, 1988. The employment agreement provides for remuneration at the rate of $750,000 per annum, subject to such increases as the Board of Directors may from time to time determine in its sole discretion. The employment agreements with Laurence A. Tisch and Preston R. Tisch each provide for the pay- ment of supplemental retirement benefits in an amount equal to the excess, if any, of (i) the retirement benefits payable under the Company's Retirement Plan without giving effect to benefit limitations imposed by the Plan and section 415 of the Internal Revenue Code, over (ii) retirement benefits actually paid under the Plan as limited by such provisions. 88012541 6

Certain Transactions During 1985 the Company and its subsidiaries, including CNA and its subsidiaries, in the ordinary course of business, paid approximately $685,000 to Salomon Brothers Inc ("Salomon Brothers") as brokerage commissions and engaged in various purchase and repurchase transactions with Salomon Brothers as principal relating primarily to U.S. government securities, including financing transactions in which the Company and its subsidiaries, in the aggregate, received income of approximately $92,000 and paid interest of approximately $185,000. In addition, since January 1, 1985 Salomon Brothers has acted as co-managing underwriter in connection with the public offerings by CNA of 6,600,000 shares of its common stock and by the Company of $400,000,000 principal amount of subordinated notes and $200,00,000 principal amount of senior sinking fund debentures. In connection with each offering Salomon Brothers received customary underwriting discounts. Daniel R. Tisch, a son of Laurence A. Tisch, is a managing director of Salomon Brothers. On July 3, 1985, the Company sold its Loews Theatres Division to Chartwell Theaters, Inc., now known as Loews Theatre Management Corporation ("LTMC"), for an aggregate consideration of approximately $160,000,000. Bernard Myerson is the Chairman and President of LTMC and members of his immediate family own 17.5% of LTMC's common stock. In addition, Mr. Myerson's employment agreement with the Company was terminated and in consideration of such termination, the Company agreed to pay to Mr. Myerson (i) an amount equal to the base salary which would have been payable to him had he re- mained in the employ of the Company under his employment agreement (i.e., $485,000 per annum through June 30, 1986, $540,000 per annum through June 30, 1987, and $595,000 per annum through June 30, 1988); (ii) $1,000,000 in monthly installments commencing July 1, 1988; (iii) supplemental retirement benefits to the extent the benefits paid to him under the Company's retirement plan are less than certain specified amounts; and (iv) approximately $45,000 in lieu of future benefits under the Company's Savings Plan. The Company also agreed to maintain through June 30, 1988 supplemental disability and term life insur- ance policies for him. Pursuant to an agreement expiring in April 1988, the Company provides certain administrative, technical and ministerial services to LTMC for a fee at the annual rate of $500,000 during 1985, $600,000 during 1986, and $500,000 thereafter, subject to certain adjustments. Andrew H. Tisch serves as President and director of Bulova at a salary of $160,000 per annum, James S. Tisch serves as Vice President-Financial Analysis of the Company at a salary of $160,000 per annum, and Jonathan M. Tisch serves as Executive Vice President of Loews Hotels at a salary of $110,000 per annum. Andrew H. and James S. Tisch are sons of Laurence A. Tisch and Jonathan M. Tisch is a son of Preston R. Tisch. Pension Plan The Company provides a non-contributory Retirement Plan for salaried employees, including officers. The Plan provides for pensions upon retirement based upon average final compensation (i.e., the highest average annual salary during any period of five consecutive years out of the ten years immediately preceding retirement) and years of credited service with the Company. Compensation under the Plan in- cludes all compensation as an employee included in the table above, other than directors' fees paid by 88012542 7 ~ ,,.~

CNA. Pension benefits are not subject to reduction for Social Security benefits or other amounts. The following table shows estimated annual benefits upon retirement under the Plan for various average com- pensation and credited service, based upon normal retirement in 1986 and a straight life annuity form of pension. Other forms of pension payment are also available under the Plan. Pension benefits may be limited at retirement by section 415 of the Internal Revenue Code. Estimated Annual Pension for Representative Years of Credited Service Average Final Compensation 10 20 30 $300,000 ... $ 43,200 $ 91,200 $139,200 400,000 ... 57,600 121,600 185,600 500,000 . 72,000 152,000 232,000 600,000 .... 86,400 182,400 278,400 700,000 .... 100,800 212,800 324,800 800,000 ... 115,200 243,200 371,200 900,000 .... 129,600 273,600 417,600 The years of credited service of Messrs. Ave, Hausman, Laurence A. Tisch and Preston R. Tisch are twelve years, eighteen years, twenty-five years and twenty-five years, respectively. Employees' Savings Plan The Company also provides an Employees' Savings Plan under which the Company makes a basic contribution for each eligible employee of 1% of base pay (up to $1,000) and a supplemental contribu- tion of 2% of base pay (up to $2,000). The supplemental contribution and amounts derived from a 1982 adjustment in pension benefits, as well as amounts available to an employee who declines certain health insurance, life insurance, disability benefits and vacation benefits offered to employees generally, can be applied by the employee to obtain additional benefits in lieu of deposit into the Savings Plan. All Com- pany contributions after January 1, 1982 are fully vested, although there are certain limitations on withdrawal by employees who have not been participants in the Savings Plan for at least five years. The amount which the Company may contribute under the Savings Plan for an employee is subject to limitation under section 415 of the Internal Revenue Code. Employees may make an additional con- tribution of up to 10% of base pay for which there is no additional Company contribution, and which may be withdrawn at any time. Contributions to the Savings Plan are invested exclusively for the benefit of Plan members in marketable securities, bank certificates of deposit and commercial paper, other money market in- struments and group annuity contracts with insurance companies. During the year ended December 31, 1985, the Company contributed to the Plan $5,251,526 of which the following amounts were credited to the account of the following executive officers in 1985: Mr. Ave, $9,642; Mr. Hausman, $12,904; Mr. Laurence A. Tisch, $20,561; Mr. Preston R. Tisch, $19,723; and all executive officers as a group (including the foregoing individuals), $142,570. gE012543 8

11. RATIFICATION OF THE APPOINTMENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Upon the recommendation of the Audit Review Committee of the Board of Directors, none of whose members is an officer of the Company, the Board of Directors of the Company has selected the firm of Touche Ross & Co., independent certified public accountants, as the principal independent auditors of the Company for the year ending December 31, 1986, subject to ratification by the shareholders. Touche Ross & Co. served as the Company's independent auditors in 1985. If the appointment of the firm of Touche Ross & Co. is not approved or if that firm shall decline to act or their employment be otherwise discontinued, the Board of Directors will appoint other independent auditors. Representatives of Touche Ross & Co. are expected to be present at the Annual Meeting, at which time they will be available to respond to appropriate questions from shareholders and will be given an opportunity to make a statement if they desire to do so. III. SHAREHOLDER PROPOSAL RELATING TO A NOMINATING COMMITTEE Lewis D. Gilbert and/or John J. Gilbert, both of 1165 Park Avenue, New York, New York 10128, each of whom is the owner of 50 shares of Common Stock and who state they represent an additional family interest of 441 shares of Common Stock, and/or Wilma Soss, P.O. Box 190, Grand Central Sta- tion, New York, New York 10163, who is the owner of 100 shares of Common Stock, and/or Albert Kurtz, 1810 Ivy Lane, Winter Park, Florida 32789 who is the owner of 1,416 shares of Common Stock, and/or John C. Henry, 5 East 93rd Street, New York, New York, who is the owner of 21,000 shares of Common Stock, have notified the Company in writing that they intend to present the following resolution at the Annual Meeting for action by the shareholders: "RESOLVED: That the stockholders of Loews Corporation, assembled in annual meeting in person and by proxy, hereby request the Board of Directors to take the steps necessary to provide for the formation of a nominating committee, at least the majority of which should be composed of outside directors. "REASONS: In 1981, 653 owners of 133,138 shares voted in favor of our similar resolu- tion. The vote against included the unmarked proxies. "The whole purpose of having a nominating committee is to be assured that indepen- dent directors, not affiliated with management, assume the responsibility of selecting new nominees for the Board. "Your attention is called to the fact that more and more corporations now have a nominating committee and this has been recommended as good corporate governance by a Chairman of the SEC and the New York Stock Exchange. "Among the companies to adopt this practice are: Southern Pacific, R. Hoe, Facet Ind., Landmark Land Co., Inc., Foremost McKesson, Inc., Vista Resources, Sonesta Interna- tional Hotels Corporation, Electro Audio Dynamics, GAF, First National Boston Corp., New Mexico and Arizona Land, Warner Communications, Culbro, Bell and Howell, Carter-Wallace, Collins and Aikman, Claremont Capital, Jim Walter, United Brands, Amax Inc., Great Lakes International, General Refractories and Fairchild Industries. 9

"If you agree, please mark your proxy for this resolution; otherwise it is automatically cast against it, unless you have marked to abstain." The Board of Directors recommends a vote AGAINST this proposal. The Board of Directors continues to believe, as it did in 1981 when this proposal was rejected by over 98% of the votes cast, that a nominating committee is not necessary. The Board of Directors itself is capable of performing directly the functions of a nominating committee. The affirmative vote of shares representing a majority of the outstanding Common Stock entitled to vote is required for approval of this proposal. IV. SHAREHOLDER PROPOSAL RELATING TO DIRECTORS' TENURE Evelyn Y. Davis, 1127 Connecticut Avenue, N.W., Washington, D.C. 20036, who is the owner of 561 shares of Common Stock, has notified the Company in writing that she intends to present the following resolution at the Annual Meeting for action by the shareholders: "RESOLVED: That the stockholders of Loews recommend that the Board take the necessary steps so that future outside directors shall not serve for more than six years. states. "REASONS: The President of the U.S.A. has a term limit, so do Governors of many "Newer directors may bring in fresh outlooks and different approaches with benefits to all shareholders. "No director should be able to feel that his or her directorship is until 'retirement'. Last year the owners of 2,246,668 shares, representing about 3.5% of shares voting, voted FOR this resolution. "If you AGREE, please mark your proxy FOR this resolution." The Board of Directors recommends a vote AGAINST this proposal. This proposal was defeated by the shareholders when it was proposed last year. The Board of Directors continues to believe that its adoption is undesirable for the reasons given last year, as follows: The tenure of outside directors is not guaranteed. Each director, if he or she is to remain in office, must be elected by the shareholders at the Annual Meeting. In addition, continued service permits a director to acquire increased knowledge and perspective with respect to the Company's business and operations. The Board believes that an arbitrary limitation on the tenure of outside directors could deprive the Company of the services of knowledgeable individuals who merit reelection. The affirmative vote of shares representing a majority of the outstanding Common Stock entitled to vote is required for approval of this proposal. 10 sso1zs4s

V. OTHER MATTERS The Company does not know of any other matters to be brought before the meeting. If other matters should properly come before the meeting, proxies will be voted on such matters in accordance with the best judgment of the persons appointed by the proxies. The Company will bear all costs in connection with the solicitation of proxies for the meeting. The Company intends to request brokerage houses, custodians, nominees and others who hold stock in their names to solicit proxies from the persons who own such stock, and such brokerage houses, custodians, nominees and others will be reimbursed for their out-of-pocket expenses and reasonable clerical expenses. In addition to the use of the mails, solicitation may be made by employees of the Company and its subsidiaries, personally, by special letter, telephone or telegraph. Shareholder Proposals for the 1987 Annual Meeting Shareholder proposals for the 1987 Annual Meeting must be received by the Company at its principal executive offices set forth above not later than November 25, 1986 in order to be included in the Com- pany's proxy materials. By order of the Board of Directors, BARRY HIRSCH Secretary Dated: March 27, 1986 PLEASE COMPLETE, DATE, SIGN AND RETURN YOUR PROXY PROMPTLY 11

. . 11 tLl_.v, - _- - ._. Loews Corporation Annual Report 1985 FINANCIAL HIGHLIGHTS ` Results of Operations: Revenues ...................... Income from continuing operations Per share income from continuing operations .................... Net income .................... Per share net income ............ Financial Position: Total assets .................... Long-term debt: Continuing operations ......... Discontinued operations ....... Shareholders' equity ............. Cash dividends per share ......... Years Ended December 31, 1985 1984 1983 1982 1981 (Amounts in thousands, except per share data) $ 6,700,270 $ 5,556,343 $ 5,138,026 $ 4,534,655 $ 4,541,830 502,607 320,853 260,533 204,383 261,996 6.17 3.94 3.13 2.29 2.73 588,975 328,640 341,242 215,824 253,213 7.23 4.03 4.10 2.41 2.64 16,119,782 12,556,902 11,510,204 10,395,911 9,909,796 790,879 398,082 512,146 559,196 559,740 5,732 6,649 186,153 205,478 2,442,241 2,007,040 1,688,383 1,425,941 1,356,641 3.00 .29 .16 .16 .16 PRICE RANGE OF COMMON STOCK* Loews Corporation's common stock is listed on the New York Stock Exchange. The following table sets forth the reported consolidated tape high and low sales prices in each calendar quarter of 1985 and 1984: 1985 1984 High Low High Low First Quarter ......................................... $45.83 $33.00 $27.77 $24.13 Second Quarter ...................................... 51.75 43.25 29.50 23.50 Third Quarter ........................................ 54.13 41.75 31.42 25.75 Fourth Quarter ....................................... 56.25 43.13 35.50 28.17 DIVIDEND INFORMATION' The Company has paid quarterly cash dividends on its common stock in each year since 1967. Regular dividends of $.25 per share of common stock outstanding were paid in each calendar quarter of 1985 with au additional special dividend of $2.00 per share paid in the third quarter of 1985. Dividends of $.08'/j per share on common stock outstanding were paid in each of the last three quarters of 1984 and of $.04 per share in the first quarter of 1984. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS As of February 28, 1986 the Company had approximately 6,700 record holders of Common Stock. *All per share amounts have been adjusted to give retroactive effect to the three for one and two and one-half for one stock splits declared by the Board of Directors on January 15, 1985 and February 21, 1984 payable to shareholders of record on January 28, 1985 and March 16, 1984, respectively. CONTENTS Financial Highlights ......................................................................1 Letter to Shareholders and Employees .....................................................•.2 Business Segments .............* ...........................................................8 Management's Discussion and Analysis of Financial Condition and Results of Operations ........... 10 Financial Statements .....................................................................12 Auditors' Opinion .......................................................................31 Directory: Directors .............................................................................35 Officers ..............................................................................36 1

TO OUR SHAREHOLDERS AND EMPLOYEES I Loews Corporation reported record revenues, income from continuing operations and net income for 1985. Assets grew to $16.1 billion and shareholders' equity reached $2.4 billion. Income from continuing operations for the year ended December 31, 1985 amounted to $502.6 million, or $6.17 per share. Income from continuing operations for the prior year amounted to $320.9 million, or $3.94 per share. Income from continuing operations in 1984 included a one-time $31.2 million, or $•38 per share, benefit resulting from reduction of deferred taxes of life insurance operations under the Deficit Reduction Act of 1984. Net income for 1985 amounted to $589.0 million, or $7.23 per share, compared to net income of $328.6 million, or $4.03 per share, for 1984. Net income in 1985 includes gain on disposition of the Company's theatre division amounting to $80.8 million, or $.99 per share. Gross revenues were approximately $6.7 billion in 1985, compared to $5.6 billion in 1984. For the fourth quarter of 1985, income from continuing operations amounted to $114.1 million, or $1.40 per share, compared to $131.2 million, or $1.61 per share, including the benefit resulting from reduction of deferred taxes, in the 1984 fourth quarter. Shareholders'Equity milliont of do!lars 2,500 Rcvenues millions of do!larr '81 '82 '83 '84 '85 6.00 4.50 3.00 1.50 0 '81 '82 '83 '84 '85 7,500 6,000 4,500 '81 '82 '83 '84 '85 3,000 1,500 Earnings Per Share do!larr 2,000 1,500 1,000 500 0 0 7.50 Net income for the quarter ended December 31, 1985 amounted to $115.1 million, or $1.42 per share, compared to $131.9 million, or $1.62 per share, in the 1984 fourth quarter. Gross revenues amounted to $1.8 billion in the 1985 fourth quarter, compared to gross revenues of $1.5 billion in the comparable 1984 quarter. Lorillard In posting a revenue increase over the previous year, Lorillard achieved its tenth consecutive year of record earnings. Lorillard's strong performance is particularly impressive in an environment of intense competition and unprecedented pressures from anti-tobacco groups and legislative restrictions. Sales volume for Lorillard and the industry declined slightly in 1985, experiencing a somewhat erratic swing in inventories at year- end due to the uncertainty over the $0.16 per pack Federal Excise Tax. Originally scheduled to sunset October 1, 1985, and revert to $0.08 per pack, Congress extended the tax at the higher rate several times during the last few months of 1985, and another vote on this issue is expected in March of 1986. Sales of generic and price value cigarette brands continued to cause increased competition among manufacturers during 1985. Lorillard continues to market only full priced brands rather than enter these very low margin segments. While Lorillard's share of the total American cigarette market declined minimally in 1985 from 8.2 % to 8.1 %, its share of full priced brand sales increased slightly to 8.8%. ToW Asscts bi!lront of do!lart Net Income 18 millions of do!/ar s 600 15 500 12 400 9 300 I II 6 ' 200 I liii 100 100 0 '8l '8 '8 '8 '8 3 0 5 '81 '82 '83 '84 '85

Newport continued its impressive sales growth for the thirteenth consecutive year, reaching a new high of 3.4 % share of market. Its 12.1 % growth over the previous year once again made Newport the fastest growing major brand in the industry. Newport 25's were successfully tested and subsequently expanded to reach approximately 40% of the U.S. market in the fourth quarter in 1985. Newport 25's, available in both king size and 100mm packings, are sold at full price per unit, and have added incremental volume to the brand group. The Newport advertising theme "Alive With Pleasure'' continues to be successfully utilized in all marketing and promotional activities for the brand. The Kent family of brands, representing over one-third of Lorillard's total cigarette sales, added a Kent Golden Lights Box 100's packing in 1985. Introduced nationally in May, this new line extension represents an opportunity for the brand in the growing 100mm and box packing preferred by many adult American smokers. During the fourth quarter of 1985, True Gold was introduced nationally in three low- tar, non-menthol packings: king size, 100mm and 100mm box. These three new products were designed to broaden the appeal of the True brand by offering a conventional acetate filter tip with the promise of rich smooth taste. Each True Gold product is packaged in luxurious gold foil. Lorillard's loose leaf chewing tobacco products showed a slight increase in market share during 1985, while total loose leaf sales declined. During 1985, Lorillard restructured and streamlined its entire sales organization. This reorganization has enabled the company to increase coverage of retail accounts and improve productivity with a net reduction in manpower. The consolidation of all cigarette manufacturing in Lorillard's Greensboro, N.C. facility was completed during the year, and all attendant costs were expensed in 1985. At Greensboro, Lorillard continued its program of installing the highest speed manufacturing equipment. Little cigars and chewing tobacco continue to be manufactured in Louisville, Ky., and all tobacco storage and processing continue to be handled in Lorillard's Danville, Va. facility. The industry and Lorillard continue to face an increasing number of lawsuits asserting liability in relation to smoking and health. In the coming months, the tobacco industry will face continuing legislative and regulatory challenges, as well as continued pressures from anti-tobacco groups. Lorillard officials remain actively involved in efforts to maintain balance and reason in the debates concerning tobacco. We continue to encourage our employees, shareholders and customers to express their views on tobacco-related matters to elected and appointed officials. Such expressions are an effective means of communicating important interests concerning our company, and will help us avoid unwarranted restrictive legislation. CNA Financial CNA combined strong earnings with substantial premium growth in 1985. In 1984, CNA climbed from the 18th largest to the 15th largest insurance organization in the United States, as measured by premium 3

4 volume. When all 1985 industry results are tabulated, CNA likely will be ranked even higher. Much of CNA's growth occurred because of its ability to take advantage of the dramatic turnaround in the property and casualty marketplace. Premium rates rose significantly in many lines in 1985, after six years of cut-rate pricing that weakened a number of insurers. During that period, CNA had maintained a strong surplus and sound reserves. Consequently, unlike many of its competitors, it possessed the financial resources to write sizeable amounts of business once the market permitted adequate margins. While CNA's market share increased in 1985, this growth was not achieved at the expense of profitability. Because it had the capacity to underwrite new business when many other companies did not, CNA was able to be selective about the quality and profit potential of the risks it chose to accept. Again in 1985, CNA's property and casualty operations and its principal life insurance company received A-plus ratings from A.M. Best Company, the most widely accepted source of insurance industry information. These ratings are especially noteworthy since A.M. Best last year downgraded a large number of other insurance carriers. At present, only 24 % of property and casualty companies and 16% of life insurance companies are rated A-plus. Among the 10 largest companies that market their products primarily through independent agents, CNA is one of only two to have an A-plus rating. The extensive reductions in A.M. Best ratings reflect the fact that the property and casualty industry, sustained a net operating loss of $5.5 billion in 1985-even after factoring in investment income. This was the second consecutive year in which the industry recorded a loss. Diminished industry capacity and higher premiums raised questions about the availability and affordability of some lines of insurance last year. Commercial liability coverages, especially, became a major concern. The reason that this line has been particularly affected is the acceleration in frequency and severity of claims, prompted in large part by judicial decisions that expand liability exposure in unpredictable ways, by soaring defense costs, and by enormous legal settlements. CNA has continued to write most commercial lines, including commercial liability, in order to offer total insurance service to its agents and their clients. At the same time, CNA has joined with other segments of the business community to work toward civil justice reforms that can help to make liability coverages more accessible to those who need them. In this effort, CNA has encouraged others, both in and out of the industry, to support reforms such as more reasonable negligence standards, limits on attorneys' contingent fees, and the use of arbitration in settling disputes. The crisis in liability coverages is one of the most serious issues now confronting the insurance industry, and it impacts on CNA as on other companies that write this coverage. However, as a multi-line insurer, CNA enjoys the advantage of a well-balanced book of business in virtually all lines: personal, commercial, life, and health. Thus it is not affected as severely by fluctuations in any particular line as arc more specialized carriers.

{ CNA's positive 1985 results represent its continued emphasis on a healthy financial base, cost effectiveness at every level, and close partnership with agents of proven professionalism. In 1985, CNA demonstrated its commitment to its agents by offering most major lines of insurance despite a tightened marketplace, and by expanding agent support through both technology and human resources. The High Performance Agency Program (HPA) remains the strongest commitment that CNA makes to its independent agents. High Performance agents receive guarantees and assistance that are unique in the industry. Production from these agencies rose significantly last year, and they again contributed nearly half of CNA's field premium volume. Life insurance production also increased impressively in 1985. CNA continued to implement its strategy of building closer business relationships with highly professional life general agents, while helping property and casualty agencies develop more life insurance business. To heighten efficiency in underwriting and administration, in 1985 CNA opened a new national individual life insurance center in Nashville, Tennessee. CNA has emerged as one of the strongest and most stable companies in the insurance industry and it remains favorably positioned to make further gains during 1986. Loews Hotels 1985 was an excellent year for Loews Hotels. Positive results were achieved despite the adverse affects on the travel industry resulting from a surplus of hotel rooms, due to overbuilding, coupled with a decrease in travel caused by an increasing concern about turbulent travel-related occurrences. There are two key factors in Loews Hotels' continued success in an increasingly competitive industry. First: each of the 14 hotels in the group is well established in its market and recognized for offering distinctive features geared specifically to its clientele. Second: in a service, people oriented business, the longevity of Loews employees has proved to be an invaluable asset in encouraging repeat bookings. With its S 15 million enhancement program well underway, The Regency Hotel in New York is securing its reputation as one of the finest luxury properties in New York and the world. The hotel's new restaurant, 540 Park, The Regency Fitness Center, the refurbished function rooms, as well as many subtle refinements throughout the hotel, have been commended by the hotel's longstanding guests and have great appeal to new clientele. In its first year of operation, Loews Ventana Canyon Resort, a management property, earned six awards for excellence in architecture, design, landscaping, construction and environmental preservation. The year-round resort is exceptional in that, rather than intruding, it coexists with its Sonoran Desert site. Loews Ventana Canyon has been instrumental in establishing Tucson as a world-class resort destination. On the famed Cote d'Azur, Loews Monte Carlo celebrated its 10th anniversary as Europe's most spectacular convention resort. Loews La Napoule, built directly on the beach outside Cannes, has become increasingly popular for both corporate groups and leisure travelers. In Toronto, Loews Westbury's Creighton's restaurant celebrated another year of rave „ ;I 5

reviews and Loews L'Enfant Plaza, a management property in Washington, D.C., received more accolades for its culinary excellence. Loews Summit has completed an extensive renovation, which included every area of the hotel. It continues to be one of the most successful corporate hotels in its class and is the New York home of renowned sports figures and teams. Nearby, Loews Glenpointe, a management property, has earned a well established niche as northern New Jersey's premier hotel. Loews Harbour Cove, Paradise Island's most intimate resort, continues to welcome an exceptional number of repeat guests each year. Loews Anatole Hotel, a management property, increased its share of business in an extremely competitive market, while at the same time earning six important awards for excellence in service to meetings of every size, as well as to individual business travelers. With 1620 guest rooms, 19 restaurants and lounges, 58 function rooms, and the all inclusive Verandah spa, Loews Anatole is the most extraordinary convention hotel in the country. LRI, Inc. (Loews Representation International) experienced a very successful year in 1985, increasing the number of member hotels to approximately 350. These select properties are supported by the international LRI, Inc. network of 11 regional offices and the world headquarters in New York. Loews Hotels will continue its policy of controlled expansion, only entering unsaturated markets where Loews can operate a dominant property. 6 Bulova Bulova generated profits in 1985-the second consecutive year-in spite of intense competition and oversupply in the watch industry. The restructuring of Bulova's watch and clock operations will continue into 1986. The introduction of Ultime by Bulova, a line of 14-karat gold and full-cut diamond watches, exceeded projections and quickly sold out during the spring season. Ultime's success is expected to continue in 1986 as new introductions are added to the line. Maintaining its focus on diamonds, Bulova expanded its outstanding collection of diamond watches as retail jewelers continue to accept higher, more aggressive price points. Keeping pace with the fashion trend in the marketplace, Caravelle introduced the Fiero and Charter Club Collections and in 1986 Bulova expects to market both Club Med and Benetton watches through exclusive licensing agreements. The Clock Division completed another profitable year, maintaining a strong position with jewelers and successfully entering two new trade classifications - the gift market and the office products market where Bulova became the major clock resource. The L'Epee line of French Carriage and Paris Regulator Clocks, which Bulova represents exclusively in the United States, continued to be well received. Building on this success, Bulova will join with Hoya Crystal to introduce the Hoya Full Lead Crystal Clock Collection by Bulova in 1986. This "Sculptures in Time" series combines crystal craftsmanship, artistic design and quartz accuracy. ~ . , ., .. . •f-:: .. . . ., .

In 1985 Bulova advertising appeared in On behalf of the Board of Directors, we major national consumer publications and a thank you, our shareholders and employees, for series of radio commercials aired in key your commitment and support. markets. Bulova gave increased emphasis to its Hispanic market advertising campaign. A Bulova spokesperson continued to appear on Sincerely, major television and radio talk shows through- out the country for the Time Awareness Center. Bulova Italy has remained profitable and Bulova Canada has shown significant improvement in sales, gross profit and operating profit during 1985. Bulova Systems & Instruments Corporation continued to show sales and profit growth in Laurence A. Tisch Preston R. Tisch 1985. Earlier efforts to broaden BSIC's product Chairman of the Board President base (electrical and mechanical) continue in both the domestic and foreign markets. In February 20, 1986 addition, new marketing emphasis is being placed on selling manufacturing technology of some of BSIC's more mature products to foreign companies and governments. Backlog at BSIC in 1985 reached record levels. This will result in further sales growth during 1986. Extensive investment in new manufacturing technology has resulted in lower costs and improved operating efficiencies. As forecasted, the Bulova Park Headquarters and surrounding land in Jackson Heights, New York, were sold for $24.8 million. Management will remain in the building while its assembly, warehouse and service operations will relocate within the general area. In this annual report, on pages 32 through 34, you will find balance sheets, statements of income, and statements of changes in finincial position, accounting for CNA as an investment under the equity method of accounting, as compared to its consolidation in our financial statements in accordance with generally accepted accounting principles. We think these statements aid in assessing your company's inherent strengths. 7

BUSINESS SEGMENTS Loews Corporation, through its subsidiaries, is engaged primarily in insurance (property, casualty and life), the production and sale of cigarettes and of watches and other timing devices and the operation of hotels. The following table sets forth, for the periods indicated, the major sources of the Company's consolidated revenues, income and assets. Years Ended December 31, (Amounts in thousands) 1985 1984 (j) 1983 (j) Audited Revenues: Property and casualty insurance (a) ............ $ 3,222,015 $ 2,277,397 $ 1,895,557 Life insurance (a) ........................... 1,548,188 1,446,724 1,328,568 Cigarettes (b) .............................. 1,501,376 1,430,804 1,490,356 Hotels (c) .................................. 157,760 156,599 216,989 Watches and other timing devices (d) .......... 171,188 147,746 152,234 Investment income-net (e) .................. 94,355 84,828 43,469 Other ..................................... 5,388 12,245 10,853 $ 6,700,270 $ 5,556,343 $ 5,138,026 Income Contribution (f): Property and casualty insurance ............... $ 129,600 $ (48,768) $ (13,335) Life insurance .............................. 46,918 56,667 43,570 Cigarettes (g) ............................... 325,622 281,983 252,648 Hotels (c) .................................. 34,798 28,962 93,793 Watches and other timing devices (d) .......... 33,783 11,659 (8,382) Investment income-net (e) .................. 94,355 84,828 43,469 Other ..................................... 2,459 1,403 665 $ 667,535 $ 416,734 $ 412,428 Net Income: Property and casualty insurance ............... $ 228,491 $ 71,640 $ 55,550 Life insurance (h) ........................... 43,318 58,017 47,960 Cigarettes (g) ............................... 137,076 121,351 105,691 Hotels (c) .................................. 11,020 12,517 49,736 Watches and other timing devices (d) .......... 16,732 3,082 (9,622) Investment income-net (e) .................. 67,782 46,879 21,597 Other ..................................... (1,812) 7,367 (10,379) Discontinued operations (i) ................... 86,368 7,787 80,709 $ 588,975 $ 328,640 $ 341,242 Identifiable Assets: Property and casualty insurance ............... $ 8,334,166 Life insurance .............................. 5,373,071 Cigarettes .................................. 541,439 Hotels ..................................... 138,070 Watches and other timing devices ............. 111,054 Investment income .......................... 1,537,242 Discontinued operations (i) ................... Other ..................................... Corporate .................................. $ 6,361,054 $ 5,872,880 4,740,117 4,259,606 592,379 565,871 132,008 152,045 87,761 97,727 470,703 398,090 66,536 55,718 66,666 90,291 96,983 18,074 16,053 11,284 $16,119,782 $12,556,902 $11,510,204 8

(a) The following information relating to insurance business segment revenues and pre-tax operating income (loss), in millions of dollars by product line, is reflected on the basis of CNA's historical costs and does not include the effect of purchase value adjustments: The property and casualty insurance business segment includes revenues of $2,556.1, $1,842.9 and $1,563.5 for the respective years applicable to commercial lines, and $449.2, $414.3 and $392.5 for the respective years applicable to personal lines. Pre-tax operating (loss) income for commercial lines amounted to $(81.5), $(64.0) and 82.0, respectively, and for personal lines amounted to $(4.9), $(6.8) and $(40.2), respectively. The life insurance business segment includes revenues of $424.0, $393.2 and 5341.3 for the respective years, applicable to individual life products, and $1,214.5, $1,136.4 and $1,027.6 for the respective years, applicable to group life products. Pre-tax operating income for individual life products for the respective years amounted to $21.7, $29.5 and $18.0, and for group life products amounted to $36.0, $31.9 and $19.0, respectively. (b) Includes tobacco excise taxes of $378,136, $382,622 and $429,069 paid on sales of manufactured products for the respective periods. (c) Includes pre-tax and after-tax gain on sale of two subsidiaries, whose principal assets were long-term leases for two foreign hotel properties, of $64,835 and $45,851, respectively, for the year ended December 31, 1983. (d) Includes pre-tax and after-tax gain on sale of principal watch and clock assembly plant of $22,079 and $12,602, respectively, for the year ended December 31, 1985. (e) Consists of investment income, including realized investment gains and losses of non-insurance operations. Investment income of insurance operations is included in the Revenues and Income Contribution of the related insurance operations. (f) Consists of income before minority interest and discontinued operations, and allocation for financial reporting purposes of interest expense, corporate expense and income taxes. (g) Includes pre-tax and after-tax expense related to the closing of a manufacturing facility of $44,578 and $21,906, respectively, for the year ended December 31, 1985. (h) Includes one-time benefit of $31,226 for the year ended December 31, 1984 related to reduction of deferred taxes resulting from the Deficit Reduction Act of 1984. (i) In July 1985, the Company sold substantially all of its motion picture theatre business and the remaining portion was sold through other transactions in 1985, resulting in an after-tax gain of $80,755. In November 1983, the consumer finance industry segment was sold, resulting in an after-tax gain of $60,674. (j) Realized investment gains and losses of prior years have been included in the related business segments to conform to the presentation followed in 1985. 9

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Not Covered by Auditors' Opinion) Liquidity and Capital Resources: Insurance Property and casualty and life insurance divisions, operating as corporate entities, are wholly-owned subsidiaries of CNA Financial Corporation ("CNA"). CNA's financial position is one of the strongest in the insurance industry as a result of maintaining strong surplus and sound reserving position despite the long negative underwriting cycle. Thus in 1985, when the property/casualty market permitted adequate margins, CNA had the financial resources to increase its premium volume and market share. Statutory surplus (a primary measure of stability and capacity in the insurance industry) of CNA's property/casualty insurance subsidiaries grew to $1.3 billion at December 31, 1985 from $1.1 billion at December 31, 1984. Statutory surplus of CNA's life insurance subsidiaries was $437 million at December 31, 1985, compared to $314 million at December 31, 1984. Principal cash flow sources of CNA's property/casualty and life insurance subsidiaries are investment income and underwriting operations. Net cash flows are invested in marketable securities. Investment strategies employed by CNA's insurance subsidiaries are based upon the underwriting cash flow characteristics and the tax attributes of the various types of marketable investments. For information relating to CNA's tax allocation agreement with the Company, see Note 10 to the Consolidated Financial Statements. In addition to its normal cash flow sources, CNA sold 4.6 million and 2.0 million shares of common stock through public offerings in July 1985 and February 1986. Proceeds from these sales totalled $251 million and $135 million, respectively. In December 1985, CNA made a $100 million capital contribution to its casualty insurance subsidiary. It is expected that a portion of the remaining proceeds will, consistent with the growth plans of its insurance subsidiaries, be contributed from time to time, to the extent needed, as capital to CNA's insurance subsidiaries. At December 31, 1985, the market value of CNA's investment in bonds and redeemable preferred stocks was approximately $445 million in excess of carrying value. This is a $462 million improvement from the previous year and $1.4 billion improvement from December 31, 1981 when CNA's market value was $972 million less than its carrying value for fixed maturity securities. Cigarettes This division operates as a corporate entity-Lorillard, Inc. and subsidiaries ("Lorillard"). Funds from operations continue to exceed operating requirements. Lorillard anticipates that it will incur costs of approximately $20 million related to the closing of a cigarette manufacturing facility in 1985 which will be paid from current operations. Lorillard has available to it approximately $47 million of unused lines of credit at December 31, 1985. Hotels This division operates as a corporate entity-Loews Hotels Holding Corporation and subsidiaries ("Loews Hotels"). Funds from operations of Loews Hotels exceed normal operating requirements. During 1986, capital expenditures are anticipated to include $18 million for renovation of two operating facilities. Funds for these expenditures are expected to be provided from operations. 10

Watches and Other Timing Devices I This division operates as a corporate entity-Bulova Watch Company, Inc. and subsidiaries ("Bulova"). During 1985, Bulova experienced operating profits slightly below those of 1984. Despite product discounts and more favorable customer terms for payments, necessitated by competition and oversupply of watch products in the marketplace, Bulova was able to generate sufficient working capital from operations in 1985. Financial assistance has been provided to Bulova under a credit agreement with the Company. Bulova anticipates that working capital needs not generated from operations will be met through additional borrowings. In 1985, the Bulova Park Headquarters in Jackson Heights, New York was sold for $24.8 million, enabling Bulova to repay its borrowings from the Company in January 1986. Subsequent to December 31, 1985, Bulova entered into a contract to purchase a building for its watch assembly, warehouse and service operations at a cost of $5.4 million, contingent upon certain events. Parent Company In a December 1985 underwritten public offering, the Company issued $400 million principal amount of subordinated notes, the proceeds of which are available for general corporate purposes. For additional information see Note 7 to the Consolidated Financial Statements. The Company has available to it approximately $30 million of unused lines of credit at December 31, 1985. Results of Operations: Revenues increased 20.6% and 30.4% as compared to 1984 and 1983, respectively. Insurance revenues for 1985 increased due primarily to higher commercial property and casualty and group life and health premium volumes. Investment income increased due to higher realized investment gains (see Note 2 to the Consolidated Financial Statements) and higher levels of invested assets in 1985. Manufactured products revenues increased in 1985 due to higher cigarette unit prices, increased defense business deliveries and, as compared to 1983, higher watch unit prices, partially offset by lower cigarette unit and watch unit sales. Hotel revenues increased in 1985 due primarily to higher average room rates partially offset by reduction in available rooms. Other revenues include gains on sale of a watch and clock assembly plant in 1985 ($22.1 million) and two subsidiaries in 1983, whose principal assets were long-term leases for two foreign hotels ($64.8 million). Income from continuing operations increased 56.6% and 92.9% as compared to 1984 and 1983, respectively. Increased income from continuing operations in 1985 reflects a substantial increase in realized investment gains of insurance operations as compared to the prior years. In addition, income from continuing operations increased due to greater dividend and interest income, increased cigarette unit prices, lower cigarette advertising and sales promotion costs, sale of the watch and clock assembly plant and, as compared to 1983, lower interest expense related to settlement of prior years' income taxes in 1984; partially offset by higher property and casualty underwriting losses, costs incurred in 1985 related to a cigarette plant closing, decreased cigarette and watch unit sales, higher unit manufacturing costs related to cigarettes, increased administrative costs, higher income taxes, as compared to 1984, due to a one-time benefit resulting from the Deficit Reduction Act of 1984 of $31.2 million and increased minority interest due to sale of CNA common stock. For information relating to the impact of inflation and changing prices on revenues and income see Note 19 to the Consolidated Financial Statements. 11

Loews Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS December 31, (Amounts in thousands of dollars) 1985 1984 Assets: Investments (Notes 1, 2 and 11): Fixed maturities, quoted market value of $8,329,662 and $4,931,509 ....................................... $ 7,872,261 $ 4,910,333 Equity securities, quoted market value of $587,246 and $599,960 ........................................ 584,515 598,228 Mortgage loans and notes receivable, less allowance for discounts of $13,434 and $9,423 ........................ 537,202 442,827 Policy loans ........................................... 295,562 328,028 Real estate, less accumulated depreciation of $15,096 and $14,050 ......................................... 26,427 27,044 Other investments ..................................... 11,033 12,739 Short-term investments ................................. 1,033,234 1,100,481 Total investments ......................... . ........ 10,360,234 7,419,680 Cash ................................................... 58,491 59,424 Receivables (Note 1): Insurance premiums in course of collection, less allowance for doubtful accounts of $5,125 and $5,125 .................. 1,474,193 1,202,718 Other, less allowance for doubtful accounts and cash discounts of $17,215 and $12,719 ....................... 739,454 750,875 Inventories (Notes 1 and 3) .. . . • . . . . • . . . . . • . . . . . . . . . . . . . . . • 290,614 297,749 Property, plant and equipment-net (Notes 1 and 4)..... ..... 330,910 369,355 Other assets (Note 5) ..................................... 152,517 263,291 Deferred policy acquisition costs of insurance subsidiaries (Note 1) 508,554 373,789 Separate Account business (Note 1) ......................... 2,204,815 1,820,021 Total assets ....................................... $16,119,782 $12,556,902 See Notes to Consolidated Financial Statements. 12

December 31, 1985 1984 Liabilities and Shareholders' Equity: Insurance reserves and claims (Note 1): Claims and claims expense .............................. $ 5,161,888 $ 4,205,195 Future policy benefits ................................... 1,555,439 1,474,706 Unearned insurance premiums ........................... 1,274,534 836,160 Policyholders' funds .................................... 333,538 396,415 Total insurance reserves and claims ................. 8,325,399 6,912,476 Securities sold under agreements to repurchase (Note 2) ....... 110,891 135,003 Accounts payable and accrued liabilities ..................... 1,237,753 488,185 Accrued taxes: Federal and foreign income taxes (Note 10) ................ 50,685 59,017 Excise and ochertaxes .................................. 141,168 114,027 Long-term debt, less unamortized discount (Notes 7 and 11) ... 790,879 403,814 Deferred credits and other liabilities ........................ 23,717 46,064 Deferred income taxes (Note 10) ........................... 218,476 182,958 Separate Account business (Note 1) ......................... 2,204,815 1,820,021 Participating policyholders' equity .......................... 207,108 219,417 Total liabilities .................................. 13,310,891 10,380,982 Minority interest (Note 8) ................................. 366,650 168,880 Commitments and Contingent Liabilities (Notes 10, 11, 12, 16, and 17) Shareholders' equity (Notes 1, 2, 7 and 8): Common stock, $1 par value: Authorized-200,000,000 shares Issued and outstanding-81,503,169 shares .............. 81,503 81,503 Additional paid-in capital .................... . .......... 108,384 12,088 Earnings retained in the business ......................... 2,235,180 1,890,715 Unrealized appreciation on equity securities ................ 24,322 30,839 Cumulative translation adjustment ........................ (7,148) (8,105) Total shareholders' equity ......................... 2,442,241 2,007,040 Total liabilities and shareholders' equity ............. $16,119,782 $12,556,902 13

Loews Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME Years Ended December 31, (Amounts in thousands, except per share data) 1985 1984 1983 Revenues (Note 1): Insurance premiums and investment income: Life insurance ........................... $1,333,344 $1,220,399 $1,082,381 Property and casualty insurance ............ 2,437,399 1,786,577 1,552,105 Investment income, net of expenses, principally of insurance subsidiaries (Note 2) 1,060,293 769,167 594,957 Manufactured products (including excise taxes of $378,136, $382,622 and $429,069) .......... 1,650,364 1,572,811 1,635,383 Hotel operations ........................... 143,572 142,883 139,507 Other (Note 13) ........................... 75,298 64,506 133,693 Total ................................ 6,700,270 5,556,343 5,138,026 Expenses (Note 1): Insurance benefits and underwriting expenses .. 4,424,940 3,583,912 3,071,122 Cost of manufactured products sold (Note 3) .. 944,035 907,452 987,691 Selling, operating, advertising and administrative expenses ............... . .... 635,434 623,265 637,325 Depreciation and amortization (Notes 1, 4 and 5) 58,713 52,746 51,329 Interest .................................. 31,210 33,381 46,967 Total ................................ 6,094,332 5,200,756 4,794,434 605,938 355,587 343,592 Income taxes (Note 10) ..................... 60,182 17,651 70,484 Minority interest ........................... 43,149 17,083 12,575 Total ................................ 103,331 34,734 83,059 Income From Continuing Operations ........... 502,607 320,853 260,533 Discontinued Operations-net (Note 14) ........ 86,368 7,787 80,709 Net Income ................................. $ 588,975 $ 328,640 $ 341,242 Earnings Per Share (Note 15): Income from continuing operations ........... $6.17 $3.94 $3.13 Discontinued operations-net. . . ............. 1.06 .09 .97 Net income ............................... $7.23 $4.03 $4.10 See Notes to Consolidated Financial Statements. N tJ ~ O

Loews Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY V Amounts in thousands) Common Stock Additional Paid-In Capital Earnings Retained in the Business Unrealized Appreciation on Equity Securities Cumulative Translation Adjustment Common Stock Held in Treasury Balance, December 31, 1982... $11,235 $ 90,132 $1,307,380 $21,593 $(4,399) Net income ............... 341,242 Dividends paid, $.16 per share (13,304) Purchase of common stock ... $ 52,822 Retirement of common stock held in treasury ........... (367) (2,930) (49,525) (52,822) Two and one-half for one stock split ................ 16,302 (16,302) Net unrealized depreciation. . (4,177) Sale of subsidiaries ... . ..... 2,095 Equity in certain transactions of subsidiary companies .... (6,139) Exchange rate changes during the year (net of income tax benefit of $1,347) ......... (4,453) Balance, December 31, 1983 -.. 27,170 64,761 1,585,793 17,416 (6,757) Net income ............... 328,640 Dividends paid, $.29 per share (23,636) Three for one stock split .... 54,335 (54,335) Net unrealized appreciation . . 13,423 Equity in certain transactions of subsidiary companies .... 1,661 Exchange rate changes during the year (net of income tax benefit of $571) .......... (1,348) Other .................... (2) 1 (82) Balance, December 31, 1984... 81,503 12,088 1,890,715 30,839 (8,105) Net income ............... 588,975 Dividends paid, $3 per share. (244,510) Net unrealized depreciation.. (6,517) Equity in certain transactions of subsidiary companies .... 96,296 Exchange rate changes during the year (net of income taxes of $462) ............ 957 Balance, December 31, 1985 ... $81,503 $108,384 $2,235,180 $24,322 $(7,148) See Notes to Consolidated Financial Statements. 15

Loews Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED CHANGES IN FINANCIAL POSITION Years Ended December 31, (Amounts in thousands) 1985 1984 1983 Funds Provided: Net income ............................... $ 588,975 S 328,640 $ 341,242 Items not currently requiring (providing) funds: Minority interest .......................... 43,149 17,131 18,857 Insurance reserves and claims ............... 1,412,923 780,103 392,827 Deferred acquisition costs .................. (134,765) (59,595) (35,969) Gain on sales of assets ..................... (113,132) (135,857) Write-off of investments and other assets ..... 2,951 1,000 18,045 Depreciation and amortization of investments . (75,420) (41,676) (23,908) Other depreciation and amortization ......... 60,443 55,919 54,867 Deferred income taxes ..................... 37,236 (1,327) 38,471 Participating policyholders' interest .......... (13,413) (15,956) (2,873) Funds provided from operations ........... 1,808,947 1,064,239 665,702 Securities sold under agreements to repurchase . . 373,665 Issuance of common stock by subsidiary ........ 250,753 Increase in long-term debt ................... 400,000 Net proceeds from sale of assets ............... 206,575 192,170 Dispositions of property, plant and equipment .. 12,989 29,445 89,307 Decrease (increase) in cash and short-term investments ............................... 68,180 1,451,834 (1,521,458) Other changes in: Receivables for securities sold ............... 106,023 (218,557) (18,211) Other receivables ......................... (367,339) (154,363) (159,143) Inventories ............................... 6,649 20,114 49,427 Payables for securities purchased ............. . 698,125 39,972 90,307 Other accounts payable and accrued liabilities . 56,454 36,338 34,249 Accrued taxes ............................ 21,722 7,512 (9,888) Other items-net ......................... (1,974) (59,891) (5,998) Total .................................. $3,267,104 $2,216,643 $ (219,871) Funds Used: Increase (decrease) in investments .............. $2,917,340 $1,641,076 $ (429,128) Decrease (increase) in short-term debt.......... 55,444 (6,133) Reduction of long-term debt .................. 8,323 115,018 50,143 Dividends paid to shareholders ................ 244,510 23,636 13,304 Additions to property, plant and equipment .... 73,278 78,304 70,900 Repurchases of securities previously sold ........ 24,112 254,035 Additions to cost in excess related to tax settlement ................................ 34,595 Purchase of treasury shares ................... 52,822 Other changes in minority interest-net ........ (459) 14,535 28,221 Total .................................. $3,267,104 $2,216,643 $ (219,871) 16 See Notes to Consolidated Financial Statements. ~

Loews Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies- Principles of Consolidation-The consolidated financial statements include all significant subsidiaries and all material intercompany accounts and transactions have been eliminated. Research and Development Costs-Research and development costs are charged to expense as incurred and amounted to $10,086,000, $9,393,000 and $8,374,000 for the years ended December 31, 1985, 1984 and 1983, respectively. Foreign Currency Translation-The effect of changes in exchange rates in translating foreign currency financial statements is accumulated in a separate component of shareholders' equity. Foreign currency transactions included in determining net income resulted in pre-tax gains (losses) of $31,185,000, $(30,865,000) and $(6,833,000) for the years ended December 31, 1985, 1984 and 1983, respectively. Investments-Investments in securities, which are held principally by insurance subsidiaries of CNA Financial Corporation ("CNA"), are carried as follows: Insurance subsidiaries-Fixed maturities (bonds, notes and redeemable preferred stocks) are generally carried at amortized cost. Equity securities (common and non-redeemable preferred stocks) are carried at market value. Mortgage loans are carried at unpaid principal balances, adjusted for amortization of premium or discount. Real estate is carried at depreciated cost and policy loans are carried at unpaid balances. Short-term investments are carried at cost. Non-insurance subsidiaries-Non-insurance subsidiaries carry investments at the aggregate of the lower of cost or quoted market value. The quoted market value of investments in securities held by non-insurance subsidiaries at December 31, 1985 and 1984 exceeded cost. The cost of securities sold is determined by the identified certificate method. The unrealized gain or loss on revaluation of investments to current market values is net of applicable deferred income taxes and participating policyholders' and minority interests and is reflected as part of shareholders' equity in unrealized appreciation. Investments with permanent loss in value are written down to estimated realizable values and losses are charged to income. Inventories-Tobacco products-These inventories aggregating $252,439,000 and $255,052,000 at December 31, 1985 and 1984, respectively, are stated at the lower of cost or market using the last-in, first-out (LIFO) method. Watches and other timing devices-These inventories, amounting to $36,781,000 and $40,214,000 at December 31, 1985 and 1984, respectively, are stated at the lower of cost or market, using the first-in, first-out (FIFO) method. ; Property, Plant and Equipment-Property, plant and equipment is carried at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the various classes of properties. Capitalized leases, leaseholds and leasehold improvements are depreciated or amortized over the terms of the related leases (including optional renewal periods where appropriate) or the estimated lives of improvements, if less than the lease term. The principal service lives used in computing provisions for depreciation are as follows: a Years Buildings and building equipment ......................... 40 to 50 Machinery and equipment ................................ 5 to 20 m ~ Building fixtures ......................................... Hotel equipment ........................................ 10 to 20 4 to 12 O N C11 Reclassif:cat:on-Cettain amounts applicable to prior periods have been reclassified to conform to the classifications follawed in 1985. W 17

Separate Account business-Separate Account assets and liabilities represent segregated funds held for the benefit of participants in pension and related plans. Insurance Operations-Revenue recognition-Insurance premiums, other than life insurance premiums, are earned ratably over the lives of the policies after provision for estimated refunds on retrospectively rated policies and deductions for ceded reinsurance. Life insurance premiums are recognized as revenue when due after deductions for reinsurance. Claims and claims expense reserves-These reserves are based on (a) case basis estimates for losses reported on direct business, adjusted in the aggregate for ultimate loss expectations, (b) estimates of unreported losses based upon past experience, (c) estimates of assumed and ceded insurance, (d) estimates of future expenses to be incurred in settlement of claims and (e) estimates of claim recoveries. Claims and claims expense reserves are necessarily based on estimates and the ultimate liability may vary from such estimates; however, the reserves are considered to be adequate. Deferred policy acquisition costs-Costs of acquiring insurance business, which vary with and are directly related to the production of such business, are deferred and amortized ratably over the period the related premiums are recognized. Such costs include commissions, premium taxes and certain underwriting and policy issuance costs. Anticipated investment income is considered in the determination of recoverability of deferred acquisition costs. Future policy benefits reserves-These reserves are computed based upon net level premium methods using actuarial assumptions as to interest rates, mortality, morbidity, withdrawals and expenses and are presented net of insurance ceded. Actuarial assumptions include a margin for adverse deviations and generally vary by plan, age at issue and policy duration. Interest rates range from 11 % to 3% and mortality, morbidity and withdrawal assumptions reflect CNA and industry experience prevailing at the time of issue. Renewal expense estimates include the estimated effects of inflation and expenses beyond the premium paying period. Participating business-Revenues and costs are allocated to participating business which represents 4.0%, 6.9% and 8.8% of CNA's gross life insurance in force and 4.8%, 6.3% and 7.5% of life insurance subsidiaries' premium income for 1085, 1984 and 1983, respectively. Participating policyholders' equity is determined by allocating 90% of related net income or loss and unrealized gain or loss to such business, less dividends determined by the Board of Directors of CNA. 2. Investments- Years Ended December 31, 1985 1984 1983 (In thousands) Investment income: Fixed maturities ........................................ $ 653,179 $447,688 $429,212 Equity securities ........................................ 40,262 38,074 10,261 Mongageloans ......................................... 39,462 43,692 45,242 Policy loans ........................................... 17,795 19,618 20,961 Security repurchase transactions (insurance operations)........ 14,335 28,484 16,759 Real estate ............................................ 5,887 4,949 8,512 Short-term investments .................................. 91,080 198,379 140,658 Realized investment gains (losses)* ........................ 225,034 34,524 (50,133) Other ................................................ 6,443 7,042 14,973 Total investment income ............................ 1,093,477 822,450 636,445 Investment expenses: Expenses and fees-security repurchase transactions .......... 11,583 26,394 15,428 Other ................................................ 21,601 26,889 26,060 Total investment expenses ........................... 33,184 53,283 41,488 Investment income-net ........................... $1,060,293 $769,167 $594,957 *Net unrealized investment gains (losses) of $1,202,000, $28,910,000 and $(8,642,000) for the respective periods have not been reflected herein. ,.. ._.-r.... ,.. . . _

Securities sold under agreements to repurchase represent the amounts of securities which will be reacquired subsequently by certain insurance subsidiaries as specified in the agreements. Proceeds from these transactions have been invested in short-term investments with maturities which correspond to the repurchase dates. The gross unrealized gains and losses pertaining to investments at December 31, 1985 and 1984, before deferred taxes and policyholders' and minority interests, are as follows: Unrealized Gains Losses Net (In thousands) December 31, 1985 Difference between cost and carrying value: Equity securities ....................................... $40,962 $ 3,176 $37,786 Difference between carrying and quoted market values (non-insurance companies) .............................. 14,691 1,400 13,291 Total ............................................ $55,653 $ 4,576 $51,077 December 31, 1984 Difference between cost and carrying value: Equity securities ....................................... $64,306 $19,061 $45,245 Difference between carrying and quoted market values (non-insurance companies) ........................... . . . 6,095 1,465 4,630 Total ............................................ $70,401 $20,526 $49,875 3. Inventories- December 31, 1985 1984 (In thousands) Leaftobacco .............................. $210,363 $208,402 Manufactured stock ...................... . . 66,639 76,944 Materials, supplies, etc ..................... 13,612 12,403 Total .............................. $290,614 $297,749 If the average cost method of accounting had been used for tobacco inventories instead of the LIFO method, such inventories would have been $232,608,000 and $248,160,000 higher at December 31, 1985 and 1984, respectively. Tobacco inventory quantities decreased in 1985, 1984 and 1983 causing a liquidation of LIFO inventory quantities carried at costs lower than the cost of purchases, resulting in an increase in net income of $1,853,000, $8,549,000 and $17,425,000, or $.02, $.10 and $•21 per share, respectively. a 19

4. Property, Plant and Equipment- December 31, 1985 1984 Leased Leased Property Property Under Capital Under Capital Total Leases Total Leases (In thousands) Land ...................................... $ 12,075 $ 31,878 Buildings and building equipment ............. 214,598 $23,397 253,238 $27,970 Machinery and equipment .................... 318,270 305,620 Leaseholds and leasehold improvements ......... 9,687 12,235 Total-at cost ......................... 554,630 23,397 602,971 27,970 Less accumulated depreciation and amortization .. 223,720 9,042 233,616 11,670 Property, plant and equipment-net ..... $330,910 $14,355 $369,355 $16,300 Depreciation and amortization expense (including amounts related to intangible assets of $14,238,000, $12,750,000 and $12,447,000) and capital expenditures, by business segment, are as follows: Years Ended December 31, 1985 1984 1983 Depr. & Capital Dept. & Capital Depr. & Capital Amort. Expend. Amort. Expend. Amort. Expend. (In thousands) Property and casualty insurance ........... $ 1,806 $ 1,247 $ 1,798 $ 1,026 $ 2,475 $ 1,114 Life insurance .......................... 23,765 33,555 18,727 31,660 17,572 26,731 Cigarettes .............................. 23,160 17,394 21,494 20,628 20,903 13,550 Watches and other timing devices ......... 820 951 1,007 466 810 589 Hotels ................................. 5,702 8,493 6,629 5,366 6,745 4,489 Other ................................. 1,916 10,844 1,528 51 399 14,425 Total business segments ............ 57,169 72,484 51,183 59,197 48,904 60,898 Corporate .............................. 1,544 794 1,563 1,930 2,425 721 Total ............................ $58,713 $73,278 $52,746 $61,127 $51,329 $61,619 5. Other Assets- Other assets, net of accumulated amortization of $76,699,000 and $62,563,000 at December 31, 1985 and 1984, respectively, are as follows: December 31, 1985 1984 (In thousands) Cost in excess of net assets acquired: Lorillard .......................................... $ 30,719 $ 35,876 Other, principally CNA ............................. 16,070 17,089 Total ......................................... 46,789 52,965 Trademarks-Lorillard ................................ 65,948 73,964 Patents-Lorillard .................................... 152 367 Total intangible assets .......................... 112,889 127,296 Other .............................................. 39,628 135,995 Total other assets .............................. $152,517 $263,291 20

Lorillard-Lorillard Corporation was acquired in November 1968, and was liquidated and merged into a wholly-owned subsidiary of the Company in July 1969. The intangible assets related to this acquisition are being amortized for periods ending in 1986 through 2001. Other, principally CNA-The Company has accounted for the assets and liabilities of CNA by the purchase method since acquisition. The determination of purchase values resulted in ascribing a portion of the purchase price paid by the Company to cost in excess of net assets acquired. Such costs in excess of net assets acquired, amounting to $15,982,000 at December 31, 1985, are being amortized through 2004. 6. Short- Term Debt- As of December 31, 1985, unused lines of credit available for additional short-term borrowings at the prime interest rate (9.5% at December 31, 1985) aggregated approximately $76,500,000. Certain lines of credit are subject to compensating balances ranging up to 5%. Balances maintained by the Company with various banks that also extend credit to the Company may be withdrawn at any time and are not material in relation to the consolidated liquid assets of the Company. 7. Long-Term Debt- December 31, 1985 Senior Subordinated Unamortized Current Debt Debt Discount Net Maturities (In thousands) By company: Loews Corporation ..................... $ 28,394 $400,000 $ 3,110 $425,284 $ 2,970 Lorillard, Inc. ("Lorillard'') ............. 8,189 237,655 6,765 239,079 7,877 CNA ................................. 43,653 4,698 38,955 3,037 Bulova Watch Company, Inc. ("Bulova") . 10,344 3,826 1,216 12,954 2,300 Other ................................ 74,607 74,607 3,734 Total .......................•••. $165,187 $641,481 $15,789 $790,879 $19,918 l'! 21 „?

Long-term debt, net of debentures held by the Company (a), consists of: December 31, 1985 1984 (In thousands) Senior debt: Debentures: 47A% sinking fund debentures due 1986 (effective interest rate of 5%) (authorized, $40,000) .................................................. $ 7,874 $ 7,974 8'h% sinking fund debentures of CNA due 1995 (effective interest rate of 17.72% *)(authorized, $60,000) (b) ................................... 29,546 29,546 Notes payable (nominal and effective interest rates range from 9.25% to 10.0% at December 31, 1985) .................................................. 34,672 37,481 Other senior debt, principally mortgages (nominal and effective interest rates range from 5% to 13.0% at December 31, 1985) ............................ 71,846 76,104 Obligations under capital leases (effective interest rates range from 5% to 9'{z% at December 31, 1985) (Note 11) ......................................... 21,249 23,799 165,187 174,904 Less unamortized discount (c) ............. . ................................ 4,997 5,869 Senior debt-net ..................................................... 160,190 169,035 Subordinated debt: Notes: 10% subordinated notes due 1996 (effective interest rate of 10.1%) (authorized, $200,000) (d) ............................................. 00,000 9 %% subordinated notes due 1993 (effective interest rate of 9.93%) (authorized, $200,000) (d) ............................................. 200,000 Debentures: 6 SA% subordinated debentures due 1993 (effective interest rate of 7'/a%) (authorized, $13,720) .................................................. 4,722 5,093 6 rk% subordinated debentures due 1993 (effective interest rate of 7 rA%) (authorized, $415,000) (e) .............................................. 232,933 232,933 6% convertible subordinated debentures of Bulova due 1990 (effective interest rate of 14.3%*) (authorized, $21,179) (f) ................................. 3,826 5,761 641,481 243,787 Less unamortized discount (g) .............................................. 10,792 9,008 Subordinated debt-net ............................................... 630,689 234,779 Long-term debt, less unamortized discount .............................. 790,879 403,814 Less current maturities .................................................... 19,918 8,628 Long-term debt-net ................................................ $770,961 $395,186 *Effective interest rates for the debt of CNA and Bulova have been computed on a purchase value basis. 22

(a) Amounts of debentures, in thousands, held by the Company are: December 31, 1985 1984 4',~% , due 1986 ........................... $ 126 S 1,626 6%, due 1990 (f) ................. . ........ 4,819 2,884 6 5/a%, due 1993 ............................ 766 1,081 6 ~A%, due 1993 (e) ...... .................. 2,004 81h%, due 1995 ........................... 15,454 18,454 (b) Payments to sinking fund will provide for redemption of at least 70% of debentures prior to maturity. (c) Relates principally to adjustments arising from the application of purchase value accounting to various long-term debt issues of CNA. (d) In a December 1985 underwritten public offering, the Company issued subordinated notes consisting of $200,000,000 at 9~a% interest due February 1, 1993 and $200,000,000 at 10% interest due February 1, 1996. Interest on each of the notes is payable on February 1 and August 1 of each year, beginning August 1, 1986. (e) Redeemable in whole or in part, at December 31, 1985 at 103% and decreasing percentages thereafter, and requiring annual sinking fund payments of $18,052,000 to 1992. Debentures applied on exercise of warrants, aggregating $58,434,000 at December 31, 1985, may be used to reduce annual sinking fund requirements. (f) Annual sinking fund payments of not less than $2,100,000 or more than $4,200,000 to 1990 are required. Debentures received in conversion for common stock of Bulova, aggregating $2,032,000 at December 31, 1985 (purchased and converted by the Company), may be used to reduce sinking fund requirements. (g) Relates principally to the 6 rA% subordinated debentures and the subordinated notes. Maturities: The aggregate of long-term debt maturing during each of the five years ending December 31, 1990 is approximately as follows: $19,918,000, $9,060,000, $11,757,000, $24,323,000 and $27,488,000. Loan agreements and indentures pertaining to long-term debt of subsidiaries contain restrictive covenants relating to payment of dividends. In addition, payment of dividends by insurance subsidiaries of CNA without prior regulatory agency approval is limited to certain formula-derived amounts. At December 31, 1985, $849,335,000 of retained earnings of subsidiaries was not available for dividends to the Company. 8. Capital Stock and Additional Paid-In Capital- In 1985, the Company increased its authorized common stock from 100,000,000 shares to 200,000,000 shares. In addition to its common stock, the Company has authorized 25,000,000 shares of preferred stock, $.10 par value. At December 31, 1985, no such preferred shares had been issued. In July 1985, CNA, through a public offering, sold 4,600,000 shares of its common stock for net proceeds of approximately $251,000,000. In addition, in February 1986 CNA sold 2,000,000 shares of common stock through another public offering for net proceeds of approximately $135,000,000. The sale of these shares decreased the Company's ownership in CNA from 89% to 80% and resulted in increases in additional paid-in capital of $96,591,000 in 1985 and approximately $55,000,000 in 1986. 9. Business Segment Data- The Company is engaged primarily in insurance (property, casualty and life), the production and sale of cigarettes and of watches and other timing devices and the operation of hotels. Information relating to the major sources of the Company's consolidated revenue, income and assets is contained on pages 8 and 9, and incorporated herein by reference. See Note 4 for additional information concerning depreciation and amortization and capital expenditures. 23

10. Income taxes- Years Ended December 31, 1985 1984 1983 (In thousands) Income before income taxes and minority interest: Domestic ............................................. $721,811 $385,735 $386,914 Foreign ............................................... 12,806 (13,708) 68,616 Total . ........................................... $734,617 $372,027 $455,530 Income taxes (benefits): Continuing operations: Federal, including deferred taxes of $59,829, $(3,038) and $47,055 ....................................... 19,730 (10,784) 39,526 State and city, principally current . . ....... . .... . ...... . 39,084 20,819 26,179 Foreign............................................. 1,368 7,616 4,779 60,182 17,651 70,484 Discontinued operations ................................ 42,311 8,653 24,947 Total ............................................. $102,493 $ 26,304 $ 95,431 Investment tax credits are recorded under the flow-through method of accounting as a reduction of the current provision for Federal income taxes. Deferred Federal income taxes (benefits) have been provided for the tax effects of items reported in different periods for financial and income tax reporting purposes. The sources of these differences were as follows: Years Ended December 31, 1985 1984 1983 (In thousands) Accelerated depreciation and amortization ................... . $ 5,275 $ 2,799 $ 2,720 Deferred income ......................................... 11,630 (15,229) 40,470 Deferred acquisition costs .................................. 48,948 19,945 5,389 Provisions deductible in different years ...................... (12,782) (8,002) 5,074 Participating policyholders' share of income .................. 4,873 (2,009) (6,637) Other .................................................. 1,885 (542) 39 59,829 (3,038) 47,055 Discontinued operations ................................... 3,321 819 (491) Total ............................................. $ 63,150 $ (2,219) $46,564 Total income tax expense for the years ended December 31, 1985, 1984 and 1983 was less than the amounts of $337,924,000, $171,132,000 and $209,544,000, computed by applying the statutory U.S. Federal income tax rate of 46% to income before income taxes and minority interest for each of the years. The reasons for variances from the statutory rate are as follows: Percent of Pre-Tax Income* Years Ended December 31, 1985 1984 1983 ~ Statutory rate ............................................... 46% 46% 46 % (Decrease) increase in income tax rate resulting from: Fully and partially exempt interest and dividends ............... (28) (29) (18) Benefit under Deficit Reduction Act (See below) ............... (9) Prior years' adjustment ..................................... (1) (2) Capital gains ............................................. (3) (8) State and city income taxes ................................. 3 3 3 Life insurance adjustments (See below) ....................... (2) (1) (5) Other ................................................... (1) (1) 3 I Effective income tax rate ..................................... 14% 7% 21% *Includes the effect of purchate value accounting. 8sOIL2570 24

The Company has entered into separate tax allocation agreements with Bulova and CNA, majority- owned subsidiaries in which its ownership exceeds 80% (the "Subsidiaries"). Each agreement provides that the Company will (i) pay to the Subsidiary the amount, if any, by which the Company's consolidated Federal income tax is reduced by virtue of inclusion of the Subsidiary in the Company's return, or (ii) be paid by the Subsidiary an amount, if any, equal to the Federal income tax which would have been payable by the Subsidiary if it had filed a separate consolidated return. Under these agreements, the Federal income tax benefit (expense) to CNA amounted to $204,000,000, $123,000,000 and $125,000,000 for the years ended December 31, 1985, 1984 and 1983, respectively, and for Bulova amounted to $(8,400,000) and $6,400,000 for the years ended December 31, 1985 and 1983, respectively. Each agreement may be cancelled by either of the respective parties upon thirty days' written notice. Life insurance subsidiaries are taxed under the provisions of the Deficit Reduction Act of 1984. Under this Act, life insurance companies were required to revalue policy reserves for income tax purposes as of January 1, 1984. The reduction in policy reserves resulting from this recomputation referred to as the "fresh start adjustment", was not subject to tax and, accordingly, the Company recognized a one-time $35,000,000 tax benefit in 1984, representing reduction of prior years deferred taxes. In addition, life insurance subsidiaries maintain a Policyholders' Surplus Account totalling approximately $70,000,000 at December 31, 1985, which resulted from allowable deductions in prior years. Under the 1984 Tax Act, no further additions to this account are allowed and amounts accumulated are subject to income tax when distributed. In tax years prior to 1985, life insurance subsidiaries filed a separate tax return. For the year 1985, it is anticipated that such subsidiaries will be included in the Company's consolidated tax return. The Company's income tax returns have been examined through 1981, and the years 1982 and 1983 are currently under examination. While liabilities for subsequent years are subject to final determination, in the opinion of Management the amount accrued in the consolidated balance sheet is believed to be adequate to cover any additional assessments which may be made by the Internal Revenue Service. 11. Leases- The Company's hotels in some instances are constructed on leased land or are leased. Other leases cover central office facilities, computer equipment and operating service offices. Hotel leases vary from 20 to 30 years duration, manufacturing plant leases are for 20 years, and other leases range from month to month to 3 years (for equipment) and to 20 years (for office space). It is expected, in the normal course of business, that leases which expire will be renewed or replaced by leases on other properties; therefore, it is believed that future minimum annual rental commitments will not be less than the amount of rental expense incurred in 1985. l'1 25

The following is a schedule, by year, of future minimum lease payments under capital and operating leases for the five years ending December 31, 1990, together with the present value of net minimum lease payments of capital leases at December 31, 1985: Years Ending December 31, 1986 ..................................... 1987 ..................................... 1988 ..................................... 1989 ..................................... 1990 ..................................... Subsequent years .......................... Total minimum lease payments (a) ............. Less amount representing interest ............... Present value of net minimum lease payments .... Minimum Rentals Capital Leases Operating Leases Payable Subleases Payable Subleases (In thousands) $ 2,546 $ 175 $ 31,102 $ 2,703 2,546 175 26,134 2,691 2,546 175 20,167 2,634 2,546 175 15,989 2,624 2,546 175 10,950 2,749 26,054 1,706 85,745 51,118 38,784 $2,581 $190,087 $ 64,519 17,535 $21,249 (a) Minimum lease payments do not include contingent rentals, based upon revenues, paid under certain leases. The components of rental expense were as follows: Years Ended December 31, 1985 1984 1983 (In thousands) Capital leases: Contingent rentals ....................................... $ 2,482 $ 2,283 $ 2,181 Operating leases: Minimum rentals ........................................ 51,492 41,608 37,859 Contingent rentals ....................................... 1,571 2,019 53,063 43,627 37,859 i, Less sublease rentals ...................................... 1,859 1,246 656 51,204 42,381 37,203 Total .............................................. $53,686 $44,664 $39,384 In addition, the Company has leased to others under long-term lease agreements certain of its hotel properties for terms expiring over the next 17 years. The Company classifies these as sales-type leases. The following is a schedule of the components of the net investment in sales-type leases included in mortgage loans and notes receivable: December 31, 1985 1984 (In thousands) Total minimum lease payments to be received .............................. $103,412 $109,942 Less estimated executory costs ............................................ 19 Net minimum lease payments receivable ................................... 103,412 109,923 Estimated residual value of leased property (not guaranteed) .................. 12,000 12,000 Less unearned income .................................................. (49,680) (54,350) Net investment in sales-type leases ............ . ........................... $ 65,732 $ 67,573 The minimum lease payments set forth above do not include contingent rentals which may be received (in addition to the minimum rent) on certain leases, based upon revenues and increased expenses as defined. Such amounts were immaterial in each of the years. At December 31, 1985, the minimum lease payment for each of the next five years is approximately $6,426,000. 26

12. Retirement Plans- The Company and its subsidiaries have several non-contributory retirement plans for eligible employees. It is the Company's policy to fund the retirement cost in accordance with regulatory requirements. The total retirement cost amounted to $16,063,000, $14,467,000 and $13,789,000 for the years ended December 31, 1985, 1984 and 1983, respectively. Changes in actuarial assumptions in certain plans resulted in cost (decreases) increases of approximately $(4,423,000) and $801,000 for the years ended December 31, 1984 and 1983, respectively. Actuarial present value of accumulated plan benefits, in thousands, were as follows: January 1, 1985 1984 Vested ................................... $285,311 $252,259 Nonvested ................................ 39,339 43,371 Total .............................. $324,650 $295,630 Net assets available for benefits .............. $417,553 $383,705 The weighted average assumed rate of return in determining the actuarial present value of accumulated plan benefits ranged from approximately 8% to 11 % for the various plans. As of the most recent date for which actuarial computations are available, the pension fund assets of certain of the employee plans exceeded the actuarially computed value of the vested benefits. The actuarially computed value of the vested benefits of one employee plan was approximately $23,189,000 greater than the related pension fund assets and accrued pension costs. Assets of another employee plan, amounting to $200,155,000, at December 31, 1985, are primarily invested with an insurance subsidiary, in its Separate Account business. The Company and its subsidiaries provide certain post retirement benefits for all retired employees. These benefits include a health insurance program, subject to certain limitations, as well as life insurance benefits for certain groups of retired employees. The Company and its subsidiaries pay substantially all the costs associated with these programs, and recognize the expense as amounts are paid. For 1985 and 1984 such costs amounted to approximately $4,438,000 and $3,131,000, respectively. 13. Gain on Sales of Assets- On March 11, 1983, the Company sold two subsidiaries whose principal assets were long-term leases for two foreign hotel properties, resulting in 'an after-tax gain of $45,851,000, or $.55 per share, for the year ended December 31, 1983. The pre-tax gain on this sale, amounting to $64,835,000, is included in other revenues. 0~ rn 0 N N C11 ~ W 27

14. Discontinued Operations- In July 1985, the Company sold substantially all of its motion picture theatre business for approximately $158,000,000 and the remaining portion was sold through other transactions in 1985. In November 1983, the Company sold its consumer finance subsidiary, General Finance Corporation, for approximately $193,000,000. Discontinued operations, in thousands of dollars, consisted of the following: Years Ended December 31, 1985 1984 1983 Revenues ............................................... $218,024 $81,534 $190,712 Income from operations (net of income taxes of $4,435, $8,653 and $19,364) ......................................... $ 5,613 $ 7,787 $ 20,035 Gain on sales of businesses (net of income taxes of $37,876 and $5,583) .......................................... 80,755 60,674 Total ............................................ $ 86,368 $ 7,787 $ 80,709 15. Earnings Per Share- Earnings per share is based on the weighted average number of shares outstanding during each year (81,503,000, 81,503,000 and 83,214,000 for the years ended December 31, 1985, 1984 and 1983, respectively). Such amounts have been adjusted for common stock splits of two and one-half for one in 1984 and three for one in 1985. 16. Reinsurance- CNA assumes and cedes insurance with other insurers and reinsurers and members of various reinsurance pools and associations. Reinsurance is assumed and ceded on both a pro rata and excess basis. CNA utilizes reinsurance arrangements to limit its maximum loss, to provide greater diversification of risk and to minimize exposures on larger risks. The ceding of insurance does not discharge the primary liability of the original insurer. It is the practice of insurers to account for the portion of the risks which have been reinsured with other companies as though they were risks for which the original insurer is not liable. AdjustJnents to premium revenues for reinsurance ceded to and assumed from unaffiliated insurers are summarized as follows: Years Ended December 31, 1985 1984 1983 Ceded Assumed Ceded PsSumed Ceded Assumed (In thousands) Property and liability ........... $323,167 $350,387 $248,204 $244,992 $247,367 $189,499 Life .......................... 12,256 104,303 55,766 107,833 27,443 70,076 Accident and health ........... 9,149 48,285 23,047 70,517 12,350 70,505 Total .................. $344,572 $502,975 $327,017 $423,342 $287,160 $330,080 28

17. Legal Proceedings and Contingent Liabilities- It is not possible to predict the outcome of pending litigation; however, on the basis of the facts presently known to it, Management does not believe the actions pending will have a material adverse effect upon the financial condition of the Company. Should additional facts arise in the future indicating a probable adverse determination of any such actions, such ultimate determination might have a material adverse effect upon the Company's financial condition. Pending litigation includes claims seeking damages for cancer and other health effects claimed to have resulted from tobacco use. 18. Quarterly Financial Data (Unaudited)- 1985 Quarters Ended 1984 Quarters Ended March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 (In thousands, except per share data) Total revenues ... $1,531,070 $1,656,592 $1,693,216 $1,819,392 $1,276,337 $1,349,927 $1,445,348 $1,484,731 Income from continuing operations. . . . . 117,596 125,150 145,766 114,095 64,141 46,237 79,263 131,212* Net income ..... 120,450 135,778 217,693 115,054 65,912 48,914 81,928 131,886* Earnings per share 1.48 1.66 2.67 1.42 .81 .60 1.00 1.62 *Includes one-time benefit of $31,226,000, or $.38 per share, related to reduction of deferred taxes resulting from the Deficit Reduction Act of 1984. See Note 10. 19. Selected Financial Data Adjusted for the Effects of Inflation (Unaudited)- The following information is presented in accordance with the requirements that corporations meeting certain criteria disclose the effects of specific price changes (Current Cost) on their historical cost financial statements with specific guidelines governing items which must be included in the computations and the presentation of such data. Current Cost adjusts certain assets and their related expenses from historical cost to the current cost of replacing or producing those assets. In determining the applicable current cost information, selected price indices, vendor invoices and assessments were used. Useful lives, methods and rates of depreciation applicable to property, plant and equipment were the same as those used in the historical cost financial statements. In the opinion of Management, the information presented is limited in its considerations and applications in that it ignores possible business decisions. The requirements for current cost do not take into consideration technological changes and productivity gains which could offset specific costs and expenses. The restated information makes no allowance for the normal relationship between cost and selling price. In addition, the information presented does not give effect to possible related income tax consequences and interest rate changes related to interest-bearing monetary items payable or receivable in the future. 29

f Five Year Summary of Selected Financial Data Adjusted for the Effects of Changing Prices (In thousands of average 1985 dollars, except per share data) Years Ended December 31, 1985 1984 1983 1982 1981 Revenues ........................ $6,700,270 $5,754,592 $5,547,828 $5,053,842 $5,372,165 Current cost information: Income from continuing operations 443,188 294,093 184,403 180,649 179,433 Per share income from continuing operations .................... 5.44 3.60 2.21 2.02 1.87 Excess of (decrease) increase in specific prices over increase in the general price level ....... (223,744) (52,824) (138,441) 8,674 (1,706) Net assets at year-end ........... 3,171,776 3,108,241 2,919,741 2,828,827 2,723,033 Purchasing power loss in net monetary items held during the year .......................... 65,728 51,331 44,973 38,973 61,520 Cash dividends per common share .. 3.01 .30 .18 .18 .19 Market price per common share at year-end ...................... 53.63 35.74 26.40 21.09 13.59 Average consumer price index ...... 322.2 311.1 298.4 289.1 272.4 At December 31, 1985, current cost of inventories was $523,890,000 and current cost of property, plant and equipment, net of accumulated depreciation and amortization was $853,596,000. Statement of Consolidated Income Adjusted for Specific Prices (Current Cost) for the Year Ended December 31, 1985 (In thousands of average 1985 dollars) Income from continuing operations, as reported .. $502,607 Adjustments to restate costs: Cost of manufactured products sold .. . . .. ..... $ 1,958 Depreciation and amortization ............... 39,554 Sale of properties ..................... . .... 17,907 59,419 Income from continuing operations, as adjusted . . $443,188

AUDITORS' OPINION The Board of Directors and Shareholders of Loews Corporation: We have examined the consolidated balance sheets of Loews Corporation and subsidiaries as of December 31, 1985 and 1984, and the related statements of income, shareholders' equity and changes in financial position for each of the three years in the period ended December 31, 1985. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the consolidated financial statements referred to above present fairly the financial position of Loews Corporation and subsidiaries as of December 31, 1985 and 1984, and the results of their operations and changes in their financial position for each of the three years in the period ended December 31, 1985, in conformity with generally accepted accounting principles applied on a consistent basis. <C4 kw f~0 Touche Ross & Co. Certified Public Accountants New York, New York February 18, 1986 t 31

The following financial information is being supplied on an unaudited basis showing the Company's investment in CNA Financial Corporation using the equity method of accounting for such investment. All other information is presented on a basis consistent with the audited financial statements. 32 Loews Corporation and Subsidiaries CONSOLIDATED BALANCE SHEETS (Including CNA Financial Corporation on the Equity Method) (Unaudited) (Amounts in thousands) Assets Current assets: Cash, including invested cash of $241,705 and $328,832 ..... Receivables-net ....................................... Inventories ............................................ Total current assets ................................. Investments in securities, at cost ............................ Total current assets and investments in securities ........ Investments and advances: Investment in CNA Financial Corporation ................. Other ................................................ Total investments and advances ...................... Property, plant and equipment-net ........................ Other assets ............................................. Total assets ....................................... December 31, 1985 1984 $ 250,534 $ 346,070 169,483 150,323 290,614 297,749 710,631 794,142 963,958 108,928 1,674,589 903,070 1,681,457 1,319,835 174,153 90,387 1,855,610 1,410,222 197,404 241,650 125,039 183,767 $3,852,642 $2,738,709 Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities ................... $ 467,403 $ 178,595 Accrued taxes: Federal and foreign income taxes ....................... 59,948 36,992 Excise and other taxes ................................ 75,381 63,249 Current maturities of long-term debt ..................... 16,881 5,539 Total current liabilities .............................. 619,613 284,375 Long-term debt, less current maturities and unamortized discount 735,043 359,648 Deferred credits and other liabilities ........................ 55,745 87,646 Shareholders' equity: Common stock, $1 par value: Authorized - 200,000,000 shares Issued and outstanding - 81,503,169 shares ............... 81,503 81,503 Additional paid-in capital ............................... 108,384 12,088 Earnings retained in the business ......................... 2,235,180 1,890,715 Unrealized appreciation ................................. 24,322 30,839 Cumulative translation adjustment ........................ (7,148) (8,105) Total shareholders' equity ........................... 2,442,241 2,007,040 Total liabilities and shareholders' equity ............... $3,852,642 $2,738,709

Loews Corporation and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME (Including CNA Financial Corporation on the Equity Method) (Unaudited) Years Ended December 31, (fl mounts in thousands) 1985 1984 1983 Revenues: Manufactured products (including excise taxes of $378,136, $382,622 and $429,069) .......... $1,650,364 $1,572,811 $1,635,383 Hotels .................................... 143,572 142,883 139,507 Gain on sales of assets ...................... 28,980 64,835 Other .................................... 112,165 117,209 70,122 Total ................................. 1,935,081 1,832,903 1,909,847 Pxpenses: Cost of manufactured products sold ........... 944,035 907,452 987,691 Operating ................................. 97,705 99,249 97,179 Selling, advertising and administrative ......... 397,735 402,858 423,936 Depreciation and amortization ............... 32,304 31,481 31,282 Interest ................................... 32,538 35,154 48,702 Income taxes .............................. 198,411 164,491 164,085 Total ................................. 1,702,728 1,640,685 1,752,875 Income from continuing operations ............. 232,353 192,218 156,972 Equity in income of CNA Financial Corporation-net 270,254 128,635 103,561 Income before discontinued operations .......... 502,607 320,853 260,533 Discontinued operations-net .................. 86,368 7,787 80,709 Net income ................................. $ 588,975 $ 328,640 $ 341,242 33

Loews Corporation and Subsidiaries STATEMENTS OF CHANGES IN CONSOLIDATED FINANCIAL POSITION (Including CNA Financial Corporation on the Equity Method) (Unaudited) Years Ended December 31, (Amounts in thousands) 1985 1984 1983 Funds Provided: Net income ............................... $ 588,975 $ 328,640 $ 341,242 Items not currently requiring (providing) funds: Gain on sales of assets .................... (118,631) (64,835) Equity in undistributed net income of CNA.. (270,254) (128,635) (173,801) Depreciation and amortization ............. 34,034 34,654 34,119 Deferred income tax ...................... 2,803 42,013 4,808 Disposal of operating facility previously deferred ............................... 41,000 Other-net .............................. (3,060) (6,055) 1,028 Funds provided from operations .......... 274,867 270,617 142,561 Increase in long-term debt ................... 400,000 Net proceeds from sales of assets ............. 174,240 Dispositions of property, plant and equipment . 9,422 27,228 84,025 Disposition of investments ................... 2,525 16,966 7,322 Total ................................. 861,054 314,811 233,908 Funds Applied: Increase in investments and advances .......... 88,712 25,085 735 Investment in net assets of acquired subsidiary. . 16,427 1,320 Additions to property, plant and equipment ... 38,476 45,618 42,627 Reduction of long-term debt ................. 20,152 87,341 73,477 Purchase of treasury shares ................... 52,822 Decrease in deferred income taxes ............ 25,900 4,853 7,949 Addition to cost in excess related to tax settlement ............................... 34,595 Dividends paid to shareholders ............... 244,510 23,636 13,304 Other-net ................................ 11,314 46,664 (12,475) Total ................................. 429,064 284,219 179,759 Net Funds Provided (Applied) Represented by: Increase (decrease) in investments in securities .. 855,030 107,379 (915) (Decrease) increase in working capital ......... (423,040) (76,787) 55,064 Total ................................. $ 431,990 $ 30,592 $ 54,149 Net Funds Provided (Applied) by Component: Increase (decrease) in investments in securities .. $ 855,030 $ 107,379 $ (915) (Decrease) increase in working capital: Cash, including invested cash .............. (93,293) (31,534) 78,892 Receivables .............................. 20,422 (54,381) 28,575 Inventories .............................. (6,649) (20,114) (49,427) Accounts payable and accrued liabilities ..... (294,177) (31,919) 23,880 Accrued taxes ............................ (38,001) 33,944 210 Current maturities of long-term debt ........ (11,342) 27,217 (27,066) (Decrease) increase in working capital ....... (423,040) (76,787) 55,064 Total .................................. $ 431,990 $ 30,592 $ 54,149 34 _ . :^r..,n,.~.,,~.«- .. . . . ...

DIRECTORY: Directors . Robert Ave Charles B. Benenson J. Robert Ave President, Lorillard, Inc. Charles B. Benenson Officer and Director, Benenson Realty Company John Brademas President, New York University Robert B. McKay** Professor of Law, New York University Bernard Myerson* Chairman of the Board and President, Loews Theatre Management Corporation Edward J. Noha Chairman of the Boards of CNA Insurance Companies Lester Pollack** Special Limited Partner, Odyssey Partners Alfred P. Slaner** Business Consultant Andrew H. Tisch President, Bulova IY/atch Company, Inc. Laurence A. Tisch* Chairman of the Board and Chief Executive Officer ~ Preston R. Tisch* President and Chief Operating Officer CD O *Member of Executive Committee **Member of Audit Review Committee John F. Murphy Director Emeritus 35

DIRECTORY: Officers Laurence A. Tisch Preston R. Tisch Robert J. Hausman Roy E. Posner Barry Hirsch Kenneth Abrams Herbert C. Hofmann Stephen F. Schwartz Andrew H. Tisch James S. Tisch John G. Malino Harry Katz Charles G. Sposato, Jr. William E. Duffy Gary W. Garson Ross A. Miller Chairman of the Board and Chief Executive Officer President and Chief Operating Officer Vice President; President, Loews Hotels Vice President-Financial Services Vice President, Secretary and General Counsel Vice President-Personnel Vice President- Operations Planning Vice President-Tax Vice President-Strategic Planning Vice President-Financial Analysis Vice President-Real Estate Controller Treasurer Assistant Treasurer Assistant Secretary and Deputy General Counsel Assistant Treasurer Loews Corporation Corporate Headquarters 666 Fifth Avenue, New York, N.Y. 10103 (212) 841-1000 Transfer Agent and Registrar Manufacturers Hanover Trust Company P.O. Box 24935, Church Street Station, New York, N.Y. 10249 (212) 613-7130 Independent Auditors Touche Ross & Co. 1633 Broadway, New York, N.Y. 10019 The Annual Meeting of Shareholders will be held on May 13, 1986 at Manufacturers Hanover Trust Company Auditorium, third floor, 270 Park Avenue, New York City. A copy of Loews Corporation's Annual Report on Form 10-K for the year ended December 31, 1985, filed with the Securities and Exchange Commission will be furnished to shareholders without charge upon written request to the Company, Attn.: Corporate Secretary. 36

0 Loews Corporation 666 Fifth rlvenue New York, N.Y. 10103