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On the COYMf The cover Of thlsreport is a graphic repesentation of tt1egrovnn of P6Jip Morrrs Incorporated from 1974 to 1983. tlhlmary Eaminqa PN Shan Primary earnrngs per commonshare haveirlcreased to $7.17, an average annuaf compounded growth rateof 18.2% during this ten-year period. Net EaeninSs Net earnings have increased to f903.5 millibn, an average annual compounded growth rate of 19.8% durng thoten-year penod. oyrHatln9 pMr+nua Operaong revenueshave increased to f13.0 billlon, an average annual, Cornpounded growth rate of 17.4%dving Nis ten-year period. Philip Morris Incorporated is a leading company in three large indus- tries-cigarettes, beer, and'soft drinks- that provide simple pleasures to millions ofpeople every day. In 1983, the company registered its 30th consecutive year of growth in operating revenues, net earn- ings, and earnings per share. Founded more than azentury ago and incorporated in Virginia in 1919, the com- pany has lting been a major cigarette manufacturer. Today„it is the largest U.S.- based international cigarette company. The corporation acquired full control of the Miller Brewing Company in,1970. At that time, Miller was the seventh4argest brewer in the United States. Today; Miller is the second-largest. The Seven.Up Company, acquired in 1978,,is the third-largesG soft drink manu- facturer in the world. Philip Morris has also diversifedinto the manufacture of specialty papers, tissues, and packaging materials, as well as into community development. These businesses are eonducted by six operating companies: Philip Morris U.S.A., Philip Morris Inter- national„Miller Brewing Company, The Seven-Up Company, Philip Morris Industrial, and Mission Viejo Realty Group Inc. In addition, Philip Morris Credit Corpo- ration commenced operations in 1982 to provide financing for customers of Philip Morris Incorporated's operating companies. Table of Contents: 1 Financial Highlights 2 Highlights of 1983 3 Review of the Year 4 Philip Morris U.S;A. 6 Philip Morris International 8 Miller Brewing Company 10 The Seven.Up Company 12 Philip Morris Industrial - 14 Mission Viejo Realty Group Inc. 20 Financial Review 22 Selected Financial'Data 23 Management Discussion and Analysis of Financial Condition and Results of Operations 26 Fifteen-Year Financial Review 28 Consolidated Financial Statements 44 Board of Directors 46 Officers 48 General Corporate Information

Philip Morris Incorporated Financial Highlights (in millions of dollars, except per share amounts) Operating Revenues Net Earnings Earnings Per Common Share Dividends Declared Per Common Share Funds From Operations Per Common Share Percent Increase Over Prior Year Operating Revenues Net Earnings Earnings Per Common Share Dividends Declared Per l.ommonShare Operating Revenues Philip Morris U. S, A. Philip Morris International Miller Brewing Company The Seven-Up Company Philip Morris Industrial Consolldated Operating Revenues Operating Income Philip Morris US.A. Philip Morris International Mission Viejo Realty Group Inc." Consolidated OperatingIhcome Compounded Average Annual Growth Rate Operating Revenues 1983 1982 1981 1980 1979 $12,975.9 $11,586.0 $10,722:3 $9,649;5 $8,149.1 903.5 781.8 659;710 549:1"' 507.9 7.47 6.23 5.280 ' 4.411" 4s08 2.90' 2.40 2.00 1.60 1.25 10.70 9.24 7.81, 6.29 5.65 12.0a/o 8.1115 11.1% 18.4% 22.9% 15.6% 18:5%a 20:1%d" 8,1%'"" 24.3% 15.1% 18.0'b 19.7%ml", 8,1%("' 20.7% 20.8% 20.01u 25,0%1 28,05/ 22.0% $ 5,519.9 $ 4',330.1 S 3,7611.6 53,272.1_ $2,767.0 3,646.7 3,563.7 3,400.3 3,205.4 2,581.3 2,922.1 2,928.7 2,837.2 2,542.3' 2,236.5 649.9 530.6 432.1 353.2 295:5 237.3 2319 291.1 276.5 268,8 $42,975.9 $111,586:0 $10,722.3 $9,649.5 $8,14911 $ 1,337.8 $ 1,101.6 S Net Earnings Primary Earnings Per Share During 1981 the company's real estaceoperations werereorganizedunder Mission Viejo RealtyGroup Inc., and are accounted fbr on the equity method. Real estate operations were previousVyconsolndated. Prior-yearamounts have been restated, w•hereapplicable. The company believes the equity method of accounting for the reorganized real iestate operations provides a moremeaning- ful presentation offinancaal results. Operating companies' income is incomebefore corporate exp,ense. interest 6 and other non-operateng jncomeand deductions. The amortization of previowsly capitalized interesois includedinopentingcompanies' income. 366.0 446.0 227.3 158:8 (30.8) 13.6 19.6 905,7 396,6 115.6 786,1 318:0 144.8 701.3 260.6 181.0 (1.2) (1.7) (7:1) 7.0 7.6 18:9 16.9 18.3 2.0 11.11 14.7 11.2 S 1,715.7 $ 1,446.2 $1,273.4 $1,179.4 1983-1978 1983-1973 1983-1968 1983-1958 14.4'7o 17.4%a 18,5% 14.2% 17:2%a 19:8%d 21.5% 16.8% 16.29'a 18.2% 18:7% 15.4% (A) Effectivein9980, the company adopted theiast-in. first-ouc(LIFO) methodol costing theiea6 tobacco components oCtnventonesused in its U.S. and U.S. export operations. Effective in 19811 use oftheLIFO mettiod'was extended to cover additionalinventories. The1980change to LIFO decreased 1980 net earn- inigs and earnings per share by $61.8mdlion and 5.49 per share, respectively, andin 1981 by $14.4 million and 3:12 per share. respectively. 'Represents equity in netearnings of these unconsolidated subsidiaries.

J Highlights of 1983 Among the highlights of 1983: ^ Operating revenues increased 12.0% to $13.0 billion. ^ Operating income increased 14.1% to $2.0 billion. ^ Pre-tax income increased 21.9% to $1.6 billion. ^ Net earnings increased 15.6% to $903.5 million. ^ Earnings per share increased 15.1% to $7.17. ^ Declared dividend5 increase&20.8% to $2.90 a share. at Cash flow per share increased 15.8%. ^ Our debt to equity ratio at 0.76 to L reached its lowest level' in 17 years. ^ Philip Morris U.S.A. increased its market share for the 21st consecutive year. ^ Philip Morris International achieved gains in most'of its major markets. • For the seventh consecutive year, Philip Morris was the leading exporter of cigarettes from the United States. ^ Marlboro's worldevide sales exceede&235 billion units. ^ Miller Brewing increased its operating income 43.1%. ^ Seven-Up gained market share for the second straight year. ^ Mission Viejo had its best year in history. ^ Plans for an orderly succession in top management were announced. ^ an« aee. ^ icoa«o ^ Omx e- ^ ToOSCm CMmIM 11- by -,aa-t un. 65 96 91 70 63 56 49 .2 3.5 20 I.1 1.. 63 I

Review of the Year Nineteen eighty-three was the 30th con, secutive year Philip Morris reported record operating revenues and profits. Philip Morris continued to perform well even as each of our major industries was beset by problems. These are difficult times. Increased excise taxes worldwide coupled with the strength of the U.S. dollar affected our ability to increase cigarette sales. Anti- smoking and anti-drinking campaigns and restrictions are on the rise. In 1983, consumption patterns in our major industries did not, mirror those of the 1970s-a decade of greater than ordi- nary growth for us. In the United States, unit sales of the cigarette industry were down, the brewing industry's shipments were flat, and softdrinks were up by a: lesser percentage than in the past. In spite of these conditions, we con- tinue to do well. Our earning power flows from an array of strengths that begins with our well-positioned~quality products and inclhdes a soli&share of mostkey markets, plus the creativity ofour people. For the last five years, Philip Morris earnings have increased at a compound rate of 17.2% annually. For the last ten~ years, the compound rate of increase was 19.8%; for the last 30 years, 15:79'0. We have paid dividends for 56 consecu- tive years and'increased dividends 18 times in the last 16 years. Over the past ten years, our dividends have increased at a compoundedannual rate of124.0%~. In 1983, a substantial increase in Philip Morris"strong cash flow enabled us to re- duce total outstanding debt by $671, mil- fion during the year. As a result, our debt/equity ratio reached its lowest7evel in 17 years, improving to 0.76 to l at year- end 1983; compared with 1.02 to 1 in 1982 and an average of'0:99 to 1 over the last ~ five years. In November, the Board of Directors authorized the repurchase of up to 4 million common shares. The acquired shares will be used in connection with the exercise of options and stock units and for other corporate purposes. The repurchase program was complpted in February of 1984. We have invested nearly 53.9 billion in capital expenditures during the five-year period 1979 through4983, of which $566.2 million was spent in 1983. A full report on financial activities begins on page 20. l-inw I.shn

A. In a market disrupted by the effects of sharp tax increases, Philip Morris U.S.A. increased its unit volume marginally and its share of the market significantly. Sales reached''1204.7 bilhon units, compared with 204.4 billion in 1982. Philip Morris U.S:A:s marketshare grew from 32:8% lasuyear to 34.4% in 1983. According to The Maxwell Report issued by Lehman Brothers Kuhn Loeb, Philip Morris U.S.A. became the leading cigarette company in the U.S. market in 1983. Industry volume dropped 4.5%, largely as a result of actions related to the federal excise taxbeing doubled from 8 cents to 16 cents per pack at the beginning of the year. Cigarette taxes also were raised in a number of states andlocalities. Largely as a resulrof tax increases in 1983, the nationwide average retail price of a pack of cigarettes increased by more than 28% to 93 cents. Additionally;the year-to-year unit sales comparison was distorted by competitive moves during 1982 that were related to the then~pending excise tax increase. These actions resulted in heavy loading at the wholesale and retail !levels during 1982's last quarter. Thus, some of the in- dustry's sales apparently lost in 1983 in fact had been already recorded in 1982. Marlboro, the largest-selling cigarette in the United States and the worldi led the industry with 120 billion units in the United States„while increasing its market share to20;1%. Demand for full-flavor and low-tar brands has stabilized. Into this market Philip Morris U.S.A. introducedPlayers, elegantly packaged in black andgold„ following up our successful launch in1982 of Benson & Hedges 100's Deluxe Ultra Lights. Advertising for Merit, the leading free- standing low-tar brand, was repositioned to appeal more to smokers seeking rich flavor and low tan Philip Morris U.S.A. continues to ex- pand and improve its manufacturing ca- pacity. In January 1983, initial production began in the Cabarrus County, North Carolina, plant, the world's newest and most technologically advanced cigarette manufacturing facility. In Louisville, the first phase ofYhe 214,000-square-foot primary , tobacco pro- cessingplant expansion was completed on schedule. This expansion is expected to be operational in early 1985. The supply of U.S. leaf tobacco-the cornerstone of our quality products-was adversely affected by severe drought during,the tobacco-growing season. How- ever, Philip Morris was able to obtain adequate amounts of quality U.S. leaf to- bacco from the 1983 crop andfiom farmer cooperatives' inventories of earlier crops. To ensure the future availabJity of r'w.-Us." U.~S.-grown leaf tobacco-the world's best-Philip Morris U.S.A. continued last year to fund educational and!research grants for agricultural colleges and exten- sion services in the tobacco-growing states. bul 1.1+ sWes a PN1yA1n,sUSll M ^roaes+r - pnnls udm1. uaA. alp.n.urh R.ww.. 74 7576777E1982e18763 r%ms ue,.w u:a ov...u„4 ~,.~.,.. 74 7576 7779799p e18257

- Facing difficult conditions in altnostall of its markets, Philip Morris International succeeded in increasing total unit volume to 244.8billion units. Exclhding the United States, Philip Moms International has a 6.2% share of the world marketL For the seventh consecutive year, Philip Morris was America's leading ciga- rette exporter. Although the volume of export sales dipped in 1983, we main- tained our 58% share of this markeL Although we showed market share gains in mostiof the world's largestmar- kets, Philip Morris International's re- ported operating revenues were up only 2.3% and operating income declined'by 18.0%. This decline was basically due to: intense price competition in a number of markets, import restrictions, price con- trols combined with inflation-particularly in Latin America-and the strength of the U.S. dollar. The continuing buoyancy of the dollar affects Philip Morris International in two ways. It reduces the dollar value ofsales priced in foreign~currencies and makes our dollar-priced exports less competi- tive. Even so, Philip Morris increased its share in several ikey export markets,, notably in the Middle East, Africa, and Asia. In the important West German market,, a price war erupted following a sharp in- crease in the government excise tax which had reduced consumption in 11982. Philip Morris successfully launchedits LWbrand as a high-quality international brand to supplement Marlboro, our major brand in the German market. By year- end, Philip Morris had the best market- place performance of the five major competitorswithour share up by almost two points to an all-time high. However, the general reduction in margins plus in- cremental marketing expenses sharply reduced our operating income. In Italy, with five of the country's sevendeading brands, Philip Morris ac- counts for every fourth cigarette sold. Last year, our share of the foreign brand segment increased with Merit and Multi- filter 100's showing good growth. .' Pricing was also a problem in France where manufacturers' price increases, fixed by the government, have badly lagged inflation while, as in Italy, the ex- cise tax system creates a pricing dispar- ity between local and international products. Stilll our French sales were good with unitvolume of our principal bnnds, Marlboro and Philip Morris Super Lights, increasing substantially. Our mar- ket share is now above 14%. Elsewhere in Europe, we increased our share of several markets, including Switzerland, Spain, the Benelux coun- tries, Finland, and Greece. In total, in Restern Europe we are now the largestcigarette manufacturer, and our newly expanded plants in Bergen op Zoom, the Netherlands, andW-est Berlin rank among the most efficient in the world: In the large Japanese market, we ex- panded sales of our Lark and Parliament brands, the two leaders in the import seg- ment. After inter~government negotia- tions, the state monopoly expanded distribution of foreign prodUcts. Imports, however, still account for only 2% of this market. We continue aetiveaegotia- tions to eliminate the remaining tariffand non-tariff barriers thatrestrict penetra- tion~of the Japanese market. In both Singapore and Hong liong, two important export markets, Marlboro reached a market share at year-end in excess of 18%. This was despite a tem- porary disruption in Hong Kong caused by a large duty increase and competitive price cutting. IdBrazil, the largestimarket in Latin America„we gained market share„with Galaxy, a lhw-tar, higher-priced brand, improving its position. This was against the dominant trend toward the lower. priced, lower-margin brands which all manufacturers introduced in response to the sharp decline in consumer spend- ing power. Philip Morris (Australia) Limited intro- duced its leading Peter Jackson brand . in a newB0's packing with encouraging results. The affiliate's wine company, Lindeman (Holdings) iLimited, increased volume in an environment markedby overcapacity and'price cutting. Our Aus- tralian affiliate announced a net profit growth of 43.3% at the end of its June 30, 1983, Siscal year, Benson~& Hedges (Canada) Inc. increased market share and improved profitability. Philip Morris International's continuing success is based upon improvements in market share; in this respect, 1983 was an outstanding year. We expect profitabil- ity to improve as the world's economies recover and currencies stabilize. Tdai ouna~vq ,er erwes~crosowaieey.y,.aoa,w o~ P.n Md~a vM-1- „e,. sooo mcreased ar an ~ ~.e.aae. arnwai . oa~oa,naearme. d 23 Ow wer meoas,tenyean. fi000 ^ c«~sa~oaua' 45pp ^ u~aa ed

J !$ M For the second year in a row, the domes- tic brewing industry was unable to show any appreciable gain in volume. Although hfiller Brewing's operating revenues were down 0.2%, our operating income rose substantially, up more than 43.1%, This gain reflected selling price increases, lower material costs, and improved operating efficiencies and cost controls. As a result, Miller was able to increase its marketing effort even as it improved profitability. Miller Brewing is the second-largest brewer in the Uhited States with fine products in all market segments. Lite im• proved, Lowenbraumaintained its seg- ment share„Meister Brau is performing well, and Miller High Life declined. Miller's barrel shipments were down for much of the year. During the year, it was decided to delay the planned opening date of our new brewery in Trenton{ Ohio. Price-discounting in the brewing indus, try continues tobe widespread, and competition is at its 13ercesti level since Philip Morris first entered the brewing iadustry in 1969. With the popular-price category show- ing growth, Miller introduced Meister Brau nationwide in October to capitalize on this opportunity. Sales of Lite beer from Miller continue to grow. Lite is by far the number one low-calorie beer. This category is one of the few within the total industry show- ing continuedgrowth. For the second con- secutive year, viewers voted Lite beer commercials the outstanding television campaign. Lowenbrau maintained market share in the super-premium segment, which declined overall; in an economic environ- ment that was not conducive to sales of higher-pricedbeers: Magnum Malt Liquor is being distrib- uted in a number of markets, whilp Miller's Special Reserve was reintrodUced in testi markets as a super premium. In 1983, Miller further expanded its product line by introducing into test mar- kets Calgary Beer from Canada. At the same time.Miller High Life is now being brewed and sold under license in Canada; where it has quickly gathered'a 10% market share. . MavY . In198L3 aonai~ng,rR+wes aeo+wa vq.~e~: Mlaw alny Canp.f Op.ntina p-. Isuo 1140 760 JBQ 74 75 76 T7 78 79 810 8182 67 Mde,3 operauig ,. r,'1fr.9 mC~l.lSeG a i 14 .,,1,-, bnnrcqaJ/ Nt Oe+aa M7br! aetlne I9BJ ~a.prv/y C4 Mde, N¢, Lft oma MIW, arwYy Canpi Op.nunal- 120 1 90 ao 74n76 77 7e7980e1E287 ua a«, ww .~ h MnN fhlyw~nY ~rKllq~lp y~pp,la .. p / ~~ ,..• ' ~ ~.'~.~. ' ... ~ C ~-,- •.r0. , ~' Y~ ~~~:~~ I~~ ' . ~, i~ 118283 ~1`j F.,Af YLR

The Seven-Up Company achieved an all- time record in revenues and unit volume sales in 1983. This was achieved in the face of strong product and pricing compe- titionwithinthe industry. Operating revenues were the strongest in its history, climbing 22.5% to $649.9 million, a compounded average annual in- crease of 18.8% in the last five years. As we have stated previously, we are invest- ing in Seven-Up for future growth-a strategy similar to that employed in build- ing our cigarette andbeer brands on a world basis. In 19831both 7UP and Diet 7UP con* tinued to increase volume. 7UP was the only regular major soft drink to increase its market share, while Diet 7UP was the only established diet soft drink brand to gain market share. LIKE Cola and Sugar Free LIKE are now in distribution in approximately 50% of the United Siates. LIKE has established a beachhead in the cola category despite the introduction of no-caffeine products by every , other major competitor. We moved quickly to enhance the taste of our diet drinks by introducing NutraSweet into both Diet 7UP and Sugar Free LIKE after this new artificial sweetener was approved for sofYdrinks by the Food and Drug Administration. In consumer taste tests, our new prod• ncts performed well. ~ During the year~ Seven-Up success- fully expanded its original!no-caffeine ad- vertising by introducing the "Freedom of Choice" campaign+ This campaign in, formed consumers that 7UP, unlike most other soft drinks, does not contain artifi- cial flavors or artificial colors. The company-owned bottling opera- tions completed plans for regional operation and successfully integrated acquisitions in Ottawa, Toronto, and Bos- ton. Unit volume of our company-owned plants grew faster than Seven-Up's aggregate volume growth rate. The Foods Group had a sizable in- crease in its operating revenues during 1983. Oregon Freeze Dry Foods gained a substantial new private-label order for individually packaged diet entrees, while continuing to experiment with a wide variety of new products. In the citrus business, Ventura Coastali Corporation reported higher operating revenues, but an abundant lemon crop, the third in a row, and increased competi- tion from regional frozen juice packers reduced margins and profits. Seven-Up International, which is under the direction of Philip Morris International, showed some unit sales growth in 1983. We are now selling in 85 countries around the world and continue to open new markets. The expansions made in recent years by Seven-Up in countries such as Italy and the United Kingdom indicate a strong potentiallfor our beverages outside the United States. Seven-Up is an interna- tional franchise with an internationally recognized brand name.

Philip Morris Industrial had operating revenues of $237.3million and operating income of $13.6 million. Our income grew 79.0%u over thatof 1982, which had been adversely affected by start-up costs of a new tissue machine at Wisconsin Tissue Mills, the completion of a paper machine rebuild at Plainweil Paper Company, and the impact of the recession, particularly on our paper business. . Wisconsin Tissue Mills Incorporated dedicated its new Number Three ma- chine, which produces 6,000 ~feet of paper per minute, and automated warehouse in June. Moreover, we have added state- of-the-art converting machines and ware- housing an&shipping facilities. These investments enabled Wisconsin Tissue Mills to expand beyond its traditional high-qipalityr specialty printedand non- printed napkin lines and enter the tissue and towel segments ofthe industry, mak- ing us a full-line industrial tissue supplier. The penetration of these segments proceeded according to our plans. In ad- dition, record levels were obtained in the sale of napkins to restaurants and fast food chains, and to other customers for our specialty printed and non-printed napkins. - _ Nicolet Paper Company, which pro- _ ,` duces glassine, greaseproof, and release backing papers, achieved improved results through leadership in its market aegments and by realizing more efficient production schedules. Plainwell Paper