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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