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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

For our real estate operations, 1983 was a year of recovery. Housing starts, sales, andprofits were all up strongly. Operating revenues at$258:5 mjllionand operating income at $40.5 million were the highest in the company's history. During the year. Philip Morris made a number of strategic changes in its real estate operations designed to expandprof- @s in both the short andthe long term by fortning Mission Viejo Realty Group Inc. ("Realty Group"), a whoUy-owned sub- sidiary of Philip Morris Incorporated. Realty Group will have its own subsidi- aries:, Mission Viejo Company, which will continue to be responsible for devel- opment, residentialtonstruction, and sales at Mission Viejo and Aliso Viejo in California„and Mission Viejo and High- lands Ranch in Colorado; and Continental Equityinvestments Inc., a new corpora- tion responsible for the development and operation of investment properties. When mortgage rates declined and buyers returned to the marketplace in 1983, the Realty Group hadhomes thati were ready to be occupied. Residential closings were strong throughout the year. The Realty Group continues to meet the changing needs of the housing market with a variety of new housing plans. In re- cent years, dramatic shifts have occurred in the housing market. As interest rates climbed, demand shifted from larger to smaller houses. The Realty Group re- sponded by offering new houses designed to appeal to first-time home buyers. For example, Mission Viejo, California, opened its Evergreen program, which featured moderatelypriced, single-family, detached homes designed for young fami- lies. At nearby Aliso Viejo, there are now four lower-priced'programs„ while at our Highlands Ranch just south of Denver, Colorado, we are offering competitively priced housing in all of the major market segments. Highlands Ranch is a planned community that will 'eventually supply some 30,000 housing units on 22,000 acres for the burgeoning Denver market. In Colorado, as in Southern California, we offer a total living environment where families can take advantage of plannedi communities built around high-quality housing, schools, parks, recreational facilities, and commercial and industrial parks.The Realty Group continues to be a leader in building communities that are in balance with the environmental, social, and economic needs of our society. Photo Captions: 1 Olympic Swim Team Coach, Mark Schubert, prepares Mission Viejo swimmers for1984! The U.S. National Swim Team will tnin at Mission Viejo,, which will also be the site of thefirstOlympic event:long-distancecycling road races. 2 The new Stratton Ridge homes in Highlands Ranch; ,Colorado~ offer elegant, spacious living: 3 Residentsgather for the annual Highlands Ranch Spring Roundup and barbecue. 4 Lake Mission Viejo, California.

Management Succession In November, George Weissman, who will l step aside on August 1, 1984, as Chair- man and Chief: Executive Officer upon reaching age 65, announced that at that time the Board of Directors intends for him to be succeeded in those positions by Hamish Maxwell, age 57, formerly Presi- dent of Philip Morris Internationall As the first in several moves to imple- ment the plan of orderly succession, the Board elected~Mr. Maxwell President and' Chief Operating-0tficer of Philip Morris Incorporated effective December 1, 1981 The Board also stated its intention to elect as ofthe August 1, 1984, date John A. Murphy, age 54, President and Chief Operating Officer of the Corporation with all 'operating companies reporting to him. Until August, Mr. Murphy will continue as Group Executive Vice Presidenti with the Miller Brewing Company„The Seven- Up Company, andthe Mission Viejo Realty Group Inc. reportingto him. The Board alto plans to elect Hugh Cullman, age 61i as a Vice Chairman effective August 1,1984. Mr. Culltnan is Group Executive Vice President and Chairman and Chief Executive Officer of Philip Morris U.S,A. To facilitate the transition, the Board elected Clifford H. Goldsmith, President since 1978, Vice Chairman and Chairman of the Corporate Products Committee. Ross R. Mililriser continues as Vice Chairman andChairman of the Finance Committee. The Office of the Chief Executive now consists ofGeorge Weissman, Chairman of the Board and Chief Executive Officer; Hamish Maxwell, President and Chief Uperating Officer; and John A. Murphy„ Group Executive Vice President. It was also announcedthat the Board intends to elect Mr. Weissman, who has been Chairman andChief Executive Offl- eer since 1998, Chairman ofthe Execu- tive Committee o0the Board on April 25, 1984, succeeding Joseph.F. Cullman 3rd, who in turn will become Chairman Emeritus of the company. Another major promotion was that of R. William Murray, formerly Executive Vice President of Philip Morris Interna- tional, to President and Chief Executive Officer, Philip Morris International, replacing Mr. Maxwell. The new management team, which in- eludes other management promotions on both corporate staff and operating com- pany levels, is moving into place eNec- u tively and smoothly. Almost the entire senior management team has worked closely together for 20 years or more. Board of Directors At the annual meeting in 1983, Dr. Harold Brown, Visiting Professor at The Johns Hopkins University, was elected a mem- ber of our Board of Directors. Dr. Brown has an outstanding background in busi- ness, government, and education, includ. ing service as Secretary of Defense and' President of the California Institute of Technology. H. Robert &tarschalk, a diiector of Richardson-Vicks Inc., has retired after serving as a director for 17 years. We deep1y appreciate the value of his counsel and guidance, and~are pleased that he continues as a Director Emeritus. The Public Interest As the leading U.S. exporter of tobacco products, and with interests in~the inter- national beer and'softdrink industries, Philip Morris supports policies designed to promote free and fair trade. In 1983, Philip Morris made a netposi+ tive contribution of$1.1 billion to the U.S, balance of trade through the export of cigdrettes, tobacco, beer, soft drink ex- tract, and other products. Our products are manufactured and marketed abroad by more than 300 affili- ates; licensees, and franchised bottlers. Philip Morris contributes positively to the economies of the countries in which we operate by purchasing materials and ser- vices locally and by generating large tax revenues, and by training thousands of, employees. Together, Philip Morris and its affiliates employ nearly 28,000 people abroad. Our involvement overseas significantly helps the U.S. economy in addition to the local economies in which we operate. About 17% of all the jobs in our domestic ciga- rette operations are di'rectly linked to our foreign business. Moreover, our exports increase employmenGamong our domes- tic suppliers. At Philip Morris, good~corporate citi- zenship is not an afterthought but an active concern in everything we do. Our achievements grow out of a corporate philosophy that values quality people and quality products, individual excellence and achievement, efficient use of re- sources, and a sense of sociallresponsibil+ ity. At all times, our business activities must makeaociaLsense, and our social activities must make business sense. We make this commitment for a variety of reasons: We want others to think well

ates i. Our ielps local out ciga- to our ports smes- Our te e and ice onsibil- ties cial' variety c well -fus as a company and of all our employ- ~es. We believe a company should return ometliing to the society which gives so much. Ultimately, we believe any ,rporation-to survive-must interact in responsible manner with the society am which it draws its charter and rengths. .ie primary foeus of ourphilanthropic :ing historically has been in the area education, which in 1983 accounted for er a third of our overall contributions dget. We donate money to various indepen- nt college funds and make direct grants educational institutions located in ose communities in which we maintain ajor operations. In addition, we have an tive and extensive program of, matching nployee gifts to institutions through- at the country. In other words, our em- toyees helped shape our overall contribu- .!ons policy. We also establish and fund innovative programs that address the specialized needs of both the traditional and non- traditional student. Children of our em- ployees benefit both from our College Scholarship Program and our ten-year-old Vocational/Technical Scholarship Award Program which provides scholarship grants to post-secondary students. In major plant communities, our Career Scholarship Program for men and women returning to college and our Vocational/Technical Career Scholarship Program for adults completing high school or vocational training have been successful. In April; `Agriculture in the Twenty-First Century," the third symposium in a series funded by Philip Morris„was held at the Manufacturing Center in Rietimondi Vir- ginia. Arturo R: Tanco, Jr., Minister of Agriculture for the Republic of the Philip. pines, was the keynote speaker at the two-day event. The aational tour of "The Vatican Collec- tions: The Papacy and Art;' sponsoredby Philip Morris,.was a major event as it moved from New Yorkto Chicago and San Francisco: By the end of the tour in Feb- ruary 1984, more than 2 million people had seen the exhibition. Our involvement with the arts con- tinues to be eclectic, ranging from "The Precious Legacy: Judaic Treasures From the Czechoslovak State Collections" to 17 "Painting in the South;' a comprehensive study of Southern painting. to "Dimen- sion IV," a competition for young West German artists, to an exhibition of Guate- malan Indian textiles. We renewed a five-year grant to sup- port innovative Australian artists, and helped fund the Alvin Ailey 25th Anniver- sary NationalTour; the Joffrey Ballet Nationat Tour, and a 28-citgtour for chamber music groups from the Marlboro School of Music in Vermont. In April, we opened the Whitney Museum of American Art at Philip Morris in our New York World Headquarters. Philip Morris received The Architectural League's award for our 25-year support of the arts and architecture. To date, in ex- cess of 300,000 people have visited the Museum. Our social commitment is equally broad. As lead company for the New York City Partnership's Summer Jobs '83 Program, we helped find work in the private sector for 19,798 disadvantaged youngsters. . Alongside these activities, Philip Morris continued to deposit funds in minority-owned banks, award numerous contracts to minority-ownedbusinesses; and underwrite and publish directories and other aids for black, Hispanic, and women's organizations. Perennial Problems Government taxation and restrictions designed to limit consumer usage of our main products continue to increase. In 1983, consumers in our most impor- tant cigarette market, the iJnited'States, facedthe largest federal cigarette tax in- crease in the history of the country. In addition, some 27 states, cities, and counties also increased their cigarette taxes. Taxes have also increased in many of our major international markets. Since 1979, taxes imposed by all levels of government have risen over 50%. To- day, nearly half of the price.of a pack of cigarettes in major localities such as New York and Chicago is attributable to taxa- tion. These are regressive taxes which unfairly penalize consumers with lower in- comes. All told, federal, state, and local governments in the United States collect about $10 billion annually from smokers. The 1983 federal excise tax increase is due to be rescinded in October 1985 under 3 sunset provisiomenacted by Congress. In the p,ast„governments facing un- funded budgets have imposed taxes with rel9tive ease on the products we produce. Today;however, governments that heavily , .

tax cigarettes and beer are finding that extra taxes do not yield as much revenue as anticipatedi Governments abroadi too, are begin- ning to reconsider the efficacy ofsky-high taxation. In Uruguay, the fiscal authorities re- duced the excise tax on a trial basis in an effort both to stimulate sales and increase government revenues. Similarly in Argen- tina„the government agreedito eliminate a 5% cigarette excise tax surcharge. In two of Canada's provinces, Ontario and New Brunswick, taxes have been reduced. At the same time, anti-smoking forces are gaining in influence. Virtually everywhere we do business, we are challenged by restrictive legislation. Last year in the United States alone, nearly 400 pieces of anti-smoking legislation were proposed' at the state and local levels, however, most were defeated when logic prevailedi More are expeoted in 1984. In Australia, legislation to ban ciga- rette advertising andsports promotion failed to pass in Western Australia follow- ing an intense media campaign publicizing the detrimental repercussions the bill would cause. The rights of smokers to smoke in government offices in Canada were defended by the industry through, research which illustrated the unfeasibil- ity and costliness of such restrictions. -- Smoking aboard aircraft is yet another . area subject to government intrusion. The Civil Aeronautics Board is currently seeking a complete ban on smoking on flights lasting two hours or less. Nearly one-third of all U.S. airline passengers will be affected. Yet an independent study shows that 83% of surveyed airline pas- . sengers are satisfied with the present smoking regulations. The Scandinavian Airlines System abandoned its trial non-smoking flights between Oslo and'Stockholm after a pas- senger survey showedthat smoking on aitcraff was not a serious enough matter . of public concern to warrant such a ban. Philip Morris continues to challenge the assertion that there is conclusive proof of - a cause-and-effect relationship between cigarette smoking and chronic diseases. •. We remind our stockholders that: No one knows what causes cancer or other chronic diseases claimed to be related to smoking; Numerous factors, including occupa- tionalenvironments, industrial'pollution, toxic waste. heredity, and stress, seem to affect the frequency ofbccurrence of these compiex diseases,according to sci- entific studies; There is no scientific proof that the healthy non-smoker is harmed by his neighbor's smoking; Only further research can provide valid answers about the effects of smoking. The tobacco industry has contributed almost$111 million to fund independent research on smoking and health. We will continue to fund such research. Government issues also affect our bever- age operations. There has been an in- crease at the state level in forced-deposit legislation, and the possibility exists ofa federal forced-deposit law. Miller and Seven-Up have encouraged'recycling by choice. Miller distributors operate alumi- num reclamation centers, which last year paid the public more than $11.4 million for 46 million pounds of aluminum cans. We also support "Keep America Beautiful;' a: non.profit organization devoted to educat- ing the public about litter problems. The problems associated with alcohol abuse at all ages are gaining national at- tention. For many years, Miller has sup- porteda number of alcohol education programs and works closely with BACCHUS (Boost Alcohol Consciousness Concerning the Health of University Stu- dents). AIM (Alcohol Information from Miller) is the latest extension of the Miller Brewing Company's commitment to alcotiol'edUcationand to the promotion of responsible use of its products. We can help solve the problems of alcohol abuse by fostering responsible attitudes in our homes, businesses, andthroughout our communities about drinking. Philip Morris, working directly and' through its trade associations. will con- tinue to urge governments, wherever we do business, to lower the unfair and dis- criminatory tax burden on our products, and reduce unnecessary , and restrictive legislation. The political!action committee of the people ofiPhilip Morris is PHIL-PAC. Our nonpartisan, issue-oriented PAC con- tinues to play an important role in our Voter Involvement Program and an ~impor- tant role in our ongoing government rela- tions. PHIL-PAC's theme is "Democracy is not a spectator sport_" In 1983, more than 2,000 employees and:stockholders agreed with thaCmessage and supported corporate PHIL-PAC. A survey showed that our contributors are better citizens- they register, they vote, and they give of their personal time to civic interests.

The Outlook We operate in highly competitive indus- tries-as we have historically-at a time when many of the worldls economies are still struggling out of recession. We make products whose use gives pleasure to 90 million people every day. It is evident that our cigarettes and beverages serve a basic need acknowl+ edged by mankind for thousands ofyears. The record is clear. The people who enjoy smoking and drinking have prevailed over those who oppose these customs. The industries which serve them have grown and prospered. We are realistic about the problems our industries face, but we look forward to the continued growth ofour companies within those industries. The challenges are opportunities. From a strong domestic market where we face little foreign competitionj we reach out into 170 countries and territo- ries. Outside the United States, our share of the world"s cigarette market is still only$:2%u+ and we are only just start- ffig to tap many of the major foreign mar- kets for our beverages. Ftnancially and ptiysically; Philip Morris has never been in better shape. Our current and projected cash flow is sufficient to meet our needs and to main- tain our plants as the most efficient in the world. .. 3- 5 .~'~ ~ . "• ` -• •. :~' S . ..'._ t~ Vt•:~'•L ~ ~>/ - . .. But our greatest resource is our peo- ple. Thanks to the skill, productivity, dedication, and continued loyalty of our 68,000 employees around the world, we have produeedan unbroken record of 30 years of growth and can face the future with optimism. George Weissman Chairman of the Board and Chief Executive Officer Ross R. Millhiser Vice Chairman of the Board Clifford H. Goldsmith Vice Chairman of the Board George Weissman, chairman of the board andebiet executive officer(front)• meets with other members of be Office of he Ch'aiiman 4lefrto right): John A. Murphy, group execuuvevice president: Hugh CuWman. group executive vice president; Hamish Maxwell. president and chief openting officer; Ross R. tvtillhisepvioe chairman of the board; ,ClYftord'H1 Goldsmith,vice chairman of the board.

Nineteen eighty-three marked'the 30th consecutive year of growth for Philip Morris. Operating revenues were $13':0 billion; an increase of 12.0% from 1982. Net earnings rose 15.6% to $903.5 million. Earnings per share reached $7.17„a gain of 15.1% (Chart 1). During1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc.,and are accountedfor on the equity method. Real estate operations were previously consolidated. Prior-year amounts have been restated+ where applicable. In February, 1983, the Board of Directors declareda 20.8% increase inrthe common stock dividend to an~annual rate ofiS2.90 per share. 7Jhis represented the 16th consecutive year of increase an&our 56th consecutive year of dividend payments. Over the last decade, dividends per share increased 24.0% annually, while net earnings per share increased118.2% (Chart 2). In 1983, capital expenditures totaled $566 million. Over the past five years, we have spenLnearJy $3.9 billion on additions to our fixed assets compared to $1.5 billion spent during the previous five years. A third of theamounU spent over the past five years was for .4filler Brewing and most of the remainder for our domestie andiinternational tobacco operations. At year-end 1983, approxi- mately 90%u ofour fixed assets wereiess than ten years old. We estimate capital expenditures of $500 million in 1984: and approximately $2.1 billion in the five-year period 1984 through 1988: Over 80% of these expenditures will be for forecasted capacity needs and productivity improvements. They will be con- tinually monitored to insure high returns and a elose correlation with demand for our products. In 1983; our funds from operations increased 16;3%a toS1.3bil- lion(Chart 3). Over the last ten years, internal'funds generation increased 22.4% annually. During the same period, net earnings advanced 19.8% annually (Chart 4). Approximately 35%a of 1983 funds from operations are represented by depreciation and deferred income taxes which are primarily related to our fsxed - asset base. Total assets were $9.7 billion at year-end 1983.This was nearly five times greater thanour asset base ten years earlier. Our net return on average total assets was 10.6%, which was the highest in the company's tiistory , (Chart, 5). Stockholders' equity has increased nearly five times during the past decade, reaching $4.0 billion at the end of4983. Our net return onaverage stockholders' equity was 23;5% in 1983, up from 22.7% in 1982 and set a new high (Chart6). Total debt at year-end 1983 was $3.1 billion, a $671 million decrease from a year earlier: Our debt-to.equity ratio improved to .76 to 1„compared with 1.02 to 1 in 4982 and an average 1.05 to 1 over the last ten years (Chart 7): During the year, we prepaid three Swiss franc loans amounting to $132 million, and repurchased $56 million of 14%, 141/s%I and 151/4%d notes. We expecYa further decline in our debt over the next five years. On December 9, 1983; Philip Morris began a 4,000;000 share common stock repurchase program. By year-end, approximately Vrlmfry Errnlnpf Per S1,vm OIVIA~nCfOfG~rW Pfe Sn~n~

1.4 million shares were accumulated. The repurchase program was completed in February, 1984. The reacquiied shares are to be usediforthe exercise of employee stock options and4ar other corporate purposes. At year-end'1983, fixed-rate obligations were approximately 87%a of total debt compared with 68% in 1978. The fixed-interest portion of our debt, totaling $23 billion at year-end, carries an average annual interest rate of approximately 9.5%. Currently, Philip Morris has short-term creditfacilities with a number of financial institutions totaling approximately $1.4 billion. Of this amount, approximately $350 million is in revolving credit agreements and other arrangements with both U.S. and Euro- pean banks. These facilities, which comfortably exceed our expected needs in 1984, provide support for our commercial paper borrowings and other credit activities. Philip Morris con- tinues to maintain the highest ratings in the commercialipaper market and a solid 'X' credit rating for longer-term obligations. Interest expense in 1983 totaled 5233.9'million, compared! with 8267.2million in 1982 (Chart 8). The decrease was due prin- cipally to lower outstandingdebtL Interest capitalized in 1983 was 3128.8million compared with $162.6 million in 1982. The reduc- tion of interest capitalized in 1983 was attributable to lower inter- estrates and reduced plant construction. Earnings coverage of interest expense continued to improve during the past year reaching 7.78 times interest expense for 1983eompared with 5.87 for 1982. Our effective income tax rate was 43.0%u in 1983and 39.9% in 1982. Lower investment tax credits during 1983were the primary reason for the higher effective tax rate. In summary, 1983 was a good year for Philip Morris. Strong earnings gains and cash flow momentum providea solid basis for continued growth. We believe this growth can be accommodated through internal cash generation and prudent use of credit facili- ties. Our financial condition is stronger than ever and is expected to remain strong in 1984 and beyond. Total YN..1. (YoM.EnG) N.I Ralurn an •r.189. Total A...1. B !.ons Cl Lbn3,s .. ,PSn ea !~~ ~ ,. / 4x ':P all.-53•'a1 4 4 2t SIOe.Ab4d.n'EquNyq.qn•EnOl N O R .lurn Cl •v.r.9.94acknaw.n• Equity To1.FO.b1(Y.ar-Ena) iR.AIo. at To4al D.bl to sluckFold•n' Eqult9ry e e«,: ol 0Cl1d1s

Selected Financial Data (in millions of dollars, except per share data) for years ended December 31 1983 1982 1981 1980 1979 Operating Revenues $12,975.9 S111,586:0 510,7223 59,649.5 $8.149.1 United States Export Sales 969.5 978:0 833.5 702:4 521.2 Interest Expense 233.9 267.2 258.5 215.0 205.5 Depreciation Expense Net Earnings Earnings Per Common Share Total Assets Long-Term Debt Total Debt Deferred Income Taxes Stockholders' Equity Dividends Declared Per Common Share The atioveselected financial dAta of the company and consolidated subsidiaries for the five years ended December314 1983, should!be read in conjunction with the consolidated financial statementsandnotes thereta included in this report. During 1983 the company's real estate operations were reorganized under Mission ~Viejo Realty Group dnc.,and are accounted foron the equity method. Real estate operationswere previously consolidated. Prior•year amounts have been restated, where applicable. The company believes theequity metAodbf accounting forthe reorganized real estateoperattonsprovtdes a more meaning- fiil presentation of financial results. In addition to cigarettes. Philip Morris International iexports tobacco and 293.8 249.9 210.5 178.0 132.6 903.5 781.8 659.7 549.1 507.9 7.17 9,667.0 2,514.7 3,074.9 737.3 4,033.7 2.90 1,348.4 566.2 6.23 5.28' 4.41 4.08 9,622.1 9,1115.1 7,301.7 6,322.1 3,745.8 3,498.2 2,597.2 2,446.7 3,745.8 3,804.2 2.800.1 564.5 41iL.3 302.9 3,662.9 3,233.7 2,837.0 2.40 2.00, P.60 1,159.8 976.3 784.2 918.2 1,0114.5 750.8 2,507.1 219.6 2,471.0 1.25 702.9 629.4 tobacco-related products„softdrink ingredients and beer, and subsidiaries and affi4iacespurchase tobacco grown in the United States. In1983;the value of all exports from the United States by Philip MorrisIh~ternational amounted to, $~1.084 billion. E ffective in 1980, the company adopted the last-inj first-out (LIFO) imethod of costing the leaf tobacco components of inventories used in itsU.S. and U.S. export operations. Effective in 1981,use of the LIFO method'was extendedto cover additional inventories. The 1980 change to LIFO decreased 1980 net earn- ingsand earnings pershare by $61.8 million and $.49:pershare. respectively; and in 198Pby $14.4 million and 5.12per share, respectively.

I 979 49.1 21.2 5.5 32.6, 7.9 .O8 22^1 i6`7 )7.1 19.6 ~1.0 1.25 )2.9 >9.4 Management Discussion and Analysis of Financial Condition and Results of Operations In 1983, funds from operations of $1.3 billion exceeded total funds used by $179':5 million. This compares with a funds requirement ifter funds from operations of $156.3 miltion and 31.3 billion for 1982 and 1981, respectively, The increase in funds from opera- tions of $188.6 ,million (16.3%)in 1983over 1982 was due to)igher earnings coupled with increases in depreciation and ieferred taxes. Of the totalYundh used, capital expenditures accounted for tpproximately 48'io in 1983, compared'with 70~"o in 1982'and 44% n 1981. Capital expenditures of $566 million for 1983 were below he previous two years and are estimated at S500 million in 1984 md $2:11 billion~for the years 1984 through 1988. Total debt at December 31, 1983, was 53.1 billion, a $671 mil+ .iondecrease from a year earlier. At year-end 1983, the com- ?any's debt-to-equity ratio was .76 to 1, compared withi1.02to 1 at December 31, 1982. The decrease was mainly attributable to increased earnings for 1983 coupied with a reduction in capitalI expenditures and working capital. The company anticipates that funds from operations will exceed the needs of the business in 1984. However, credit facili- ties maintained througH revolvingcredibagreements and bank lines ofcredit will provide extensive credit should the need arise. Longer-term financing needs are expected to be met through long-term debt and other financing as required. During1983, the company prepaid three Swiss franc loans aggregating $132 million and repurchased J56 million of bank term notes bearing interest at 14"5 to 151141/B, After these and other transactions; fixed-interest debt at December 31, 1983, was 87% ofYotal debt compared with 78% and71%d,at December 31, 1982 and 1981, respectively. This d'ebt, had~an average interest rate of approximately 9!5% at December 31, 1983. InDecember, 1983, the company purchased 1.4 million sharesof its common stock under an announced program to reacquire up to 4' million shares for, treasury. The repurchase program was completed in February, 1984. The treasury shares are to be used for the exercise of employee stock options and other corporate purposes. In 1983. interest expense was 8233.9 million, a decrease of S33,3 million (12:5°'oYover 1982 due principally to a decrease in average borrowings resulting from lower capital expenditures and an increase ininternally generatedfunds. Interest capitalized in 1983 was $128.8 million, compared with $162.6 million and 5110:0 million for 1982 and1981, respectively. The reduction of interest capitalized in 1983 was attributable to lower interest rates and reduced plant construction. During 1983, the company's real estate operations were reorganizedunder Mission Viejo Realty Group Inc., and are accounted for on the equity, methodi Real estate operations were previously consolidiVted. Prior-year amounts have been restated, where applicable. . Operating revenues, net earnings and learnings per share for 1983 increased 12.0%, 15.6%, and 15.1"0, respectively, over 1982. In 1983: consolidated operating revenues of S13!0 billion were $1.4 billion or 12.0% higher than in 1982, attributable principally to increased revenues of 513 billion from tobacco, and $119 mil- lion from Seven-Up. Beer revenues decreased by S6million. The increase in tobacco revenues was attributable to increases in excise taxes and'selling prices redueed by S179 million due to cur- rency translation: cigarette unit volume of both Philip Morris U.S.A. and Philip Morris International was virtually unchanged from 1982. The decrease in beer revenues was attributable to a decrease in volume partially offsa by price increases. As a resulb of lack of growth in the beer industry, Miller has delayed produc- tion at its Trenton, 6hio, brewery. In 1983, operating income of consolidated companies was $231, million (14.0%) higher than in 1982, due mainly to domestic tobacco products. Tobacco products operating income increased $171 million (11.6%) from 1982dueto price increases offset by currency, translation ofS59million. Philip Morris U.S:A. operat- ing income was up S236 million (21.4%) while Philip Morris lnter~ national was down $65 million (17.3070). Despite a reported 4.5% domestic cigarette industry decline, Philip Morris U.S.A. increased its unit volume marginally and its market share signifi- cantly. In addition~to the adverse effect of currency translation, Philip Morris International operating income was affected by price competition in a number of markets and reduced exports due to a stronger U.S; dollOr. Beer, operating income increased $68 million (42:97b)',over 1982 due to price increases and'cost savings. Seven-Up's 1983 operating loss of $10.8 million was attributable to increased marketing expenditures. Tobacco prod- ucts contributed 88% and beer 12170 of consolidated operating income for 1983. Equity in net earnings of unconsolidated subsidiaries and affili- ates in 1983increased $11.4million over 1982: The increase was attributable principally to inereased'earnings from real estate operations. In 1982, consolidated operating revenues were 5864 million (8:1%) higher than in 1981, attributable principally to increased revenues of $740 million from~tobacco, $91 milllondrom beer, and $99 million from Seven-Up:The increase in tobacco revenues was attributable toincreases in selling prices and cigarette unit vol- ume, redueed!bv $230 million attributable to currency translation. The increase in beer revenues was attributable to price increases, partially offset by a decrease in volume. In 1982; operating income of consolidated companies was $256 million(18.5'?'0) higherthan~in 1981, due principally to tobacco products. Tobacco products operating income increasedl$221

million (17.6%) from 1981 due to volume and price increases off- set by unfavorable currency translation of $60 million. Beer operating income increased $45 million (39:2%)over 19811due to price increases and cost savings. Seven-Up's 1982 operating loss of $1.2million was principally attributable to increased marketing expenditures. Tobacco products contributed 90% and beer10% The following current cost information is presentedinaccordance with the requirements of the Financial Accounting Standardk Board (FASB). The currenCcost method reflects the effect of changes imthe specific prices of the resources used in the company's operations. This method measures the resources and their consumption based on the current cost of replacing them with like resources, rather than in terms of the historical cosCamounts actually ex- pended to acquire them. These values do not consider technolog- ical improvements and efficiencies associated'with the normal replacement of productive capacity. Adjustments for changes in specific prices of property, plant, and equipment are principally based on externallprice indexes specifically or closely related to the resources being measured, or internally developed indexes and, in the case of inventories and cost of sales, on recent purchases and production costs. The U1S. Consumer Price Index is used to measure the effects of general inflation for the (in millions of dbllars„except per share data) Deductions from operating revenues: Cost of sales, excluding depreciation expense Earnings per common share of consolidated operating income for the year. Equity in net earnings of unconsolidated'subsidiaries and affiliates in 1982 increased $13':1 million over 198ll The increase was attributable principally to increased earnings from the Rothmans investment offset byprotit declines incurred by real estate operations: translated'current cost information. The current cost method involves the use of assumptions, ap- proximations, and estimates and, therefore, the resulting mea- surements should be viewed in~that context and not as precise indicators of the effects of inflation. The results do not neeessar- jly represent amounts for which the assets could be sold!or costs which will be incurred in future periods, or the manner in which actual replacement of assets will occur. Schedule I presents earnings and other: data for 1983 as re- ported and as adjusted for current cost. Schedule ll covers the five-year period to show the trends inkey financial data restated in terms oNaverage 1983 constanudollars measured by the U.S. Consumer Price Ihdex. During 1983. the company's real estate operations were reorganized and are accounted for on the equity method. Realestate operations were previously consoiida- tedi Prior-year amounts have been restated, where applicable. As Reported in the Adjusted:for Changes Primary Statements in Specific Prices (Historical Cost) (Current Cost)', $12,975.9 S Gain from decline in purchasing power of net amounts owed Inventories and property, plant„and equipment: Increase in specific prices (current cost)i°" Increase in general price level Excess of increase in specific prices over increase in~general price level, Translation adjustment 7.17 Q_S 771.0 S 6.12 ~,173.9 }i $ 430.4 356.3' ----~~ J 74.1 -----.-~~.) Stockholders' equity $ 4,033.7 y 5,826.4 (A)In accordance with FASB requirements, im0ation-adjusted amounts do (B) AUDecember 31. 1983. the current cost of inventories was53.460.6 not7eflect any adjustments in the provision for income taxes:Conseqytentfy, miWion, and thecurrent cosFof property: plant:and equipment, net of effective tax rates are: accumulated depreaation, was$5.412:1million. _ As reported in~ the Primary Statements 43.0'yo Current Cost ~ 46'.9 ,o

1 millions ofd'ollars, except per share data) 1983 1982'"' 19811" 1980'*' 1979 A0 perating revenues 512,975.9 $11,958.7 $11,745.7 $11,667.0 $11,185.4 ,urent cost information: Earnings before income taxes $ 1,452.3 $1,219.6 51,043:6 $ 1,036.2 $ 1,037:9 Net earnings 771.0 684.5 596.1 582.4 507:1 Earnings per common share 6.12 5.45 4.77 4.67 4.07 Gain from decline in purchasing power Excess of increase in specific prices over increase in generallprice level 74.1 50.8 (25.8) (38.1) (312.8) Translation adjustment (69.4) (75.6) (44.8) (75.3) Stockholders' equity at year-end 5,826.4 5,641.9 5,111.5 4,741.3 4,288!4 : ash dividends declaredper common share $ 2.90 $ 2.477 3 2.191 8 1.935 5 1.716 11.arket price per commun share at year-end $ 7042'y 5 61t1+ $ 515+s $ 50 S 46?/4 Average Consumer Price Index 298.4 289:1 272.4 246.8 217:4 ,A) Restated in average 1933 constant dbilars. In arriving at current cost, net earnings for 1983; depreciation expense and the raw materials and supplies components ofcost of sales are the only amounts reported in the primary statements that have been adjusted into average 1983 dollars. Revenues, labor, and other costs and expenses are eonsidered!to reflect average price levels for the year, andaccordingly, have not been adjusted. The cost of sales adjustment for 1983 decreased earnings before income taxes by $34.0 million, re0ecting the fact that infla- tion has exceeded the overall rate of increase in thehistorical cost of the company's raw materials and supplies. The company uses the last-in+ first-out (LIFO) method of costing inventories used in its U.S. and U.S. exporntobacco op,erations, and beer operations. This reduces the disparity in reported earnings with in0ation- adjusted information since a more effective matching of current costs with current revenues results. The depreciation adjustment decreased earnings before income taxes by $98.5 million. This adjustment reflects the increase in the valuation of the company's property, plant, and~eqµipmenrmeasured under the current cost method'over historical doll,lr cosCamounts. The result ofboth inflation adjustments is a decrease in earnings before income taxes of 8.4 °'0. The increase in stockholders' equity of $1.8 billion as com- pared with the amount reported in the primary statements is attributable mainlgto the appreciation ofinventories and prop. erty, plant, and equipment due to in0ation- tYdditionally„stock- holders"equity is increased by, gains resulting from the decline in the purchasing power of net amounts owed.

Fifteen-Year Financial Review (in millions of dollars, except per share amounts) Cost of sales: Cost of products sold! Federal excise taxes Foreign excise taxes Operating income Interest expense Earningsbefore income taxes Pre-tax proff margins Provision for income taxes Net earnings Primary earnings per common share Fully diluted earnings per common share Dividends deelaredper common share Weighted average shares-primary Weighted average shares -fully diluted Capital expenditures Annual depreciation Property, plant, andeqpipment (gross) Property, plant,and equipment: (net) Inventories Current assets Working capital Totaliassets Total debt Stockholders' equity Net earnings reinvested Common dividends declared as % of net earnings Book value per common share Market price of common share high-low Closing priee year-endi Pri¢e/earnings ratio year-end' Number of common shares-actual year-end During 1983„thecompany's real estate operations were reorganized under Mission Vieja Realty Group Inc.. andare accounted for on the eqytity method. Reat estate opentionsw•ere previouslyconsal8dited. Prwr-year, amounts have been restated. where applicable. The company believes the equity method of accounting for the reorganized real estate operations provides a more meaningful ipresentation of financial results. $12, 975.9 1 Q, 586. 0 10,722.1 1983 1982 5,342.8 1,983.3 1,527.0 1,958.0 233.9 267:2 1,584.8 1,300.2 12.2% 11112"''0 681.3 518,4 903.5 781_8 7.17 6.23 7.17 6.23: 2.90 2.40, 126.0 125.6 1,26.0 125.6 566.2 918.2 293.8 249.9 5,698.7 5,284.2 4,381.2 2,599.2 5,315.4 5,024.2' 1,180.0 1,168.5 1,434'.5 1,410.8 1,715.7, 1981 1980 1979 1,446.2 1,273.4 1,179.4 258:5 215.0 205.5 1,068,1 924.4 894.5 10.0'no9.670 111L0% 408.4 3753 38616 659.7 549.1 507.9 5.28 4.41 4.08 5.28 4.41 4.08 2.00 11.60 1.25 124.9 124.6 124.5 124'.9 124.6 124.5. 1,018.5 750.8 629.4 210.5 178.0 132.6 4,513.6 4,178:1 3,583.2 2,806.4 2;214''.0 2,8318 2,921.8 2,499.2 2,234.8 3,452.8 3,598:8 3,733.1 3,189'.3 2,881.3 1,116.5 11,989.2 1,797.5 1,662:0 1,727:7 9,667.0 9,622.1 9,115.1 7,301.7 6,322.1 3,074.9 3,745.8 3,804.2 2,800:1 2,507.1 4,033.7 3,662.9' 3,233.7 2,837.0: 2,471.0 538.1 480.3 407.8 350.1 352.3 40.5"/0 38,676 37.970 36:3% 30.6%~ $ 32.27 29.10 25.79 22.74 19.84 7211s-54 67/4-44'/x 55tfd-42 48'12-29'/e 3851e-3111e 7111a 60 48/4 43'T4 36 1 0 9 ----- 9 9 8 126.4 125.9 125 , 4' 124.8 124.5 9,649.5 8,149:1 4,446.7 3,655.5 1,105.3 1.036.8 1,388.7 1,122.01 3,573.8 2,803.9 Operating companies' income is income before corporateexpense. interest, and other non-operating incomeand deductions. TAeamomzatton of prevtouslycapitalized interest is included in operating companies' income.

} i. _. 179 . .« L. 1978 ._ . . 1977 _ 1976 975 974 973 Philip Morris Incorporated and Consolidated Subsidiaries ~ 1972 1971 1970 1969 ?.1 6,632.5 5,202:0 4,293.8 3,642:4' 3,011.0 2,602.5 2,1311.2 1,852.5 1.509.5 1,142.4 5.5 5.8 3,072.1 960.8 2,401.7 862.1 1,966.9 778.2 1,656.8 686.3 1,29013 619!5 1,060.8 558.9 832_.9:_ 494.8 700.01 441.1 577.1 372:1 454.7 319.1 'A 702.8 490.4 381.1 392.1 349:4 334.5 228.2 201.4 147.1 54.2 1.4 968.1 782.7 634.5 492.8 403.6 329:5 287.5 241.1 203,2 153.2 i.5 149.8 1011.6 102.8 99.0 82.7 51.0 37.9 35,5 35:4 28:6 i.5 745:5 625.5 4711.9' 360.8 297.5 255.6 229!6 189_8 150:0 115.6 % 11.2% 12.0% 11.0% 9:915 9:9%a, 9.8% 10.8°'0 10.270 9.9170 10.1% 1.6 33619 290.6 206.2 149.2 122.0 107.0 105.1 88;3 72.5 57.3 .9 408:6 334.9 265.7 211.6 175.5 148.6 124.5 101.5 77.5 58.3 D8 3.38 2.80 2:24 1.81 11.58 1.35 1.14 1.00 .84 .64 38 3.38 2.80 2.24 1.81 1.53 1.30 1.09 .91i .71 .60 ?.5 1.025 .781 .575 .463 .388 .337 .316 .303 .263 .244 :5 120.7 119.6 118':8 116.9 111.3 109.6 106.0 100.3 911.2' 89.1 5 _ 120.7 119.6 118:8 116,9 114.7 114.6 114.5 1113.1 113.2 99.1 4 566.2 279.8 220.2 244.5 215,8 174.7 120.0 68.0 39.6 23.6 W 105.5 78.5 64.9 49:9 38,0 30.2 26.6 21.5 17.7 13.5 9 2,217.3 1,594.9 1,323.9 1,129.8 899.8 728:7 571.1 447.1 394.1 237.0 0 1,737.6 1,202.4 993.9 851.1 659:5 5103 373.4 274.1 236,7 147.4 ,8 _ 2,188.6 1,817.6 1,657.5 1,448.4 1,269.2 1,009!4 801.1 670.2 568A 447.3 ~ 2,756.8 2,221.0 2,005.7 1,788.1 1,557.9 1,245:9 989:7 826,5 728':8 575.0 1,585.1 1,415.9' 1,202.2 890.8 725.0 515.3 524.8 417.6 347.7 315.9 5,608,2 4,048.0 3,582.2 3,134.3 2;653.3 2;108'.4 1,701.5 1,392.0 1,239;4 976.5 2,372;2 1,563.5 1,525.6 1,443.3 1,239.3 947.4 681.0 553.9 557.7 490.4 0 2,114.7 1,690.1 1,430.0 1,227.8 974.7 815.0 695.5 579,1 452.8 355.8 $ 28318 253.7 197.2 157.1 1311.9 111.4 89.9 69.7 52.2 35.7 30.6% 27.9% 25.7%d 25.7% 24.8% 25,0% 27_2% 30.6% 31.6% 37.4% 4 17.00 14.08 12.00 10.32 8.48 7.33 6.28 5.36 4 47 3.70, 383/5-28 32112•253/4 315/e-247/a 29bfe 20!!z 303/.-1711e 341/4-2431e 2957eo-17 171Oi-11Ni 123/4-7 91/5-61/4 5 351/4 31 307!a 26;/2 24 28314 291 1a 171/e 123/e 9 10 1l1 13 14: 15 21 25~ 17 14 13' 1243 119.8 119.0 118:7 114.5 110.8' 108.9! 104.7 96.6 90.3 00000 00322 I I

Consolidated Balance Sheets (in millions of dollars) December 31,1983and 1982 1983 1982 Assets (Restated) Cash and cash equivalents S 29.8 S' 52.9 Receivables, net 781.8 677.3 Inventories: Leaf tobacco 11,775.0 2,052.0', Other raw materials 331.2 313.8' Finished goods and work in process Prepaid expenses Total current assets Property, plknt, and equipment, at cost: Land and'land improvements Buildings and building equipment Machinery and equipment Construction in progress Less, accumulated depreciation 493.0 468.01 2,599.2 2,833.8 42.0 34.8 3,452.8 3,598.8 250.1 214.8 1,590.3 1,276.6 3,036.1 2;612.5 822.2 1,180.3 5,698.7 5,284.2 1,317.5 1,106.1 4,381.2 4,178'.1 Investments in unconsolidated subsidiaries and affiliates 1,184.1 ll,197:1 Brands, trademarks, patents, and goodwill, aCcost, net 559.9 571.4 Other assets See notes to consolidated financial Istatements 89.0 76.7 $9,667.0 39,622.1

1982 stated) 52.9 677:3 833.8 134.8 7.1 71.4 Liabilities 1983 1982 Notes payable $ 293.9 Current portion of long-term debt 266.3 (Restated) Accounts payable 437.3 416,4 Accrued liabilities: Taxes, except income taxes 368.8 300:2 Employees"rettrement and proiit-sharing plans 130.7 120.5 Other Income taxes payable Dividends payable 430.7 387.7 317.0 309.3 91.6 75.5 Total current liabilities 2,336.3 1,609.6 Long-term debb 2,514.7 3,745.8 Other liabilities Total liabilities Stockholders' Equity Common stock, par value Sli per share Additional paid-in capital 737.3 564.5 45.0 39.3 5,633.3 5,959:2 126.4 125.9 446.0 435.9 Earnings reinvested in the business 3,737.8 3,199.7 Currency translation adjustments Less, cost of treasury stock 'Ibtal stockholders' equity Philip Morris Incorporated and'Consolidated Subsidiaries (176.7) (98.6) 4,13:3.5 3,662:9 4,033.7 3,662:9

Consolidated Statements of Earnings (in millions of dollars, except per share data) for the years ended~Deeember 31 1983 1982 1981 (Restated) (Restated) Operating revenues 512,975,9 $11,586.0 $10;722.3 Cost of sales: Cost of products sold 5,342.8 5,315.4 5,024.2 Excise taxes on products sold 3,510.3 2,614.5 2,579.3 Gross profit 4,122.8 3,656;1 3,118:8 Marketing, administration.and research costs 2,247.4 2.011.6 11.730.7 Operating income of consolidated companies 1,875.4 1,644.5 1,388:1 Equity in net earningsa6unconsolidated subsidlaries and affiliates 82.6 71.2 58.1 Operating income of operating companies 1,958.0 1,715.7 1,446.2 Corporate expense 128.8 1112.8 103.5 Ihterestexpense 233.9 267.2' 258.5 Other deductions, net 10.5 35.5 16.1 Earnings before income taxes 1,584.8 1,300.2 1,068.1 Provision for income taxes 681.3 518.4 408.4 Net earnings S 903.5 $ 781.8 $ 659.7 Earnings per common share S 7.17 $ 6.23 $ 5.28 See notes toconsolidated financial statements. ~ 0 0'

Consolidated Statements of Stockholders' Equity -.,-T->-. _.__ (in millions of dollars, except per share data) for the years ended December 31 Balance, January 1. 1981 Adjustment of prior-year acquisition Cash dividends declared on common stock, $2.40 per share Currency translation adjustments Balance, December31, 1982 NeYearnings Exercise of stock options and stock units Issued for acquisition Adjustment otprior-year acquisition Cash dividends declared on Currency translation adjustments Common stock purchased 0.1 0.1 0.4 Earnings Currency Total Additional Rpinvested Translation Cost of Stock- Common Paid-in in the Adjust- Treasury holders' Stock Capital Business ments Stock Equity Exercise of stock options andistock units 0.1 3.2' Issuedfaracqpisitions 0.2 5.9 (1.9) Net earnings ~ 659.7 659.7 Issuedin exchange for debentures reaequired 0.3' 17.6 Cash dividends declared on common stock. 62.U0 per share (250.0) Currency translation adjustments (38.4) Balance. December 31, 1981' 125:4 415.7 2,719.4 (26.8) Net earnings 7811.8 781.8 Exercise of stock options and stock units 0!2 4.0 $ 0.9 5.1 Issuedin exchange fordebentures reacquired 0!3 16.2 16.5 12519 435.9 3,199.7 (98.6) common stock, $2:90 per share (365.8) (0.9), (0.9) (301.5) (301.5) (711.8) (71.8) $2,837.0 17.9 (250.0) (38.4) 3,233.7 3,662.9 903.5 903.5 0.4 10.0 0.6 11.0 (0.2) (0.2) (365.8), (78.11) (78.1) (100.2). If 1981 Fated) 122.3 124.2 179:3 18.8 30.7 88.1 58.1 16.2 )3.5 i8:5 '.6.1 i8.1 8.4--- p~ Ln-•----- m See notes to consolidated financial statements. (100.2) $126.4 S446.0 $3,737.8 $(176.7) $(99.5): $4,033.7

~ Consolidated Statements of Changes in Financial Position .____ - (in millions of dollars) for the years ended December 31, 1983 1982 -- 1981 (Restated) (Restated). Funds Provided By Operations: Netearnings Depreciation and amortization S 903.5 327.0 $ 781.8 281.0i S 659.7 237.3 Deferred income taxes 173.5 146.2 125.6 Equity in undistributed netearnings of unconsolidated subsidiaries and affiliates (55.6) (49.2) (46.3) Funds from operations Increases (decreases) in accrued liabilities and other payables Decreases (increases) in inventories Other, net 1,348.4 166.5 234.6 34.6 1,159.8 (20.0) 88.0 (26.2) 976.3 305.2' (422.6)', (136.4 Totallfunds provided 1,784.1 1,201.6 722.8 Funds Used For Increases(d'ecreases)in: Cash and receivables 81.4 (47.7) 109.1 Prepaid expenses 7.2 1.4 12.1 Rothmans investment - - 346.4 Capital expenditures Dividends declared Currencytranslation adjustments affecting working capital', 566.2 365.8 48.1 918.2 301.5 48.8 1,018.5 250.0 11.3 Purchase oftreasury stock 100.2 - - Totalfund:sused 1,168.9 1.222.2 1,737.4 It Net funds provided (required) S 61;5.2 $ (20.6) S(1.014.6)', Financing Increases (decreases) in current notes payable $ 560.2 $ (306.0) S 103.1 Long•term debt issued Long-term debt retired 91.1 (1,277.5) 437.8 (132.8) 1,004.9 (114.6), Sale of shares 11.0 21.6 21.2' (Decreases) increases in funds from financing 6(615.2( $ 20.6 $ 1,014.6 (Decreases) Increases in Workiag. Capital Working Capital at Year-end S(872.7) $1,116.5 $ 191.7 $1,939.2 $~ 135.5 3 1797.5 ) Denotes dr'duction See notes to consolidated Lnanciallstatements. 32 0000000327

Notes to Consolidated Financial Statements Consolidation: The consolidated financial statements include the accounts of the com- pany and'all wholly-owned subsidiaries except for real estate operations which were deconsolidated during 1983 and a credit corporation formed ini982. lnvestments in unconsolidated subsidiaries and affiliates, includ- ing the real estate operations and the credit corporation, are stated at cost adjusted for equity in undistributed net earnings since the dates of acquisition. Inventories: Inventories are stated at the lower of cost or market. The company uses the last-in, first-out (LIFO) method'to cost inventories used in its U.S. andU.S. export tobacco operations, and beeroperations: Therostofin- ventories used in tobacco manufacturing outside the United States is de- termined by the average cosn method and, in general: the cost of other inventories is determined by the first-in; first-out (FIFO) method. It is a generallyrecognized industry practice to classify the total amount of leaf tobacco inventory as a current asset although part of such inventory, be- cause of'the duration of the aging process, ordinarily would not be uti~ Itlzedwithih one year. Income taxes: Certain items of income and expense included ih th'e financial state- ments. pnncipally deprecvauon„are reported in ditferent years in the tgx returns tn accordance with applicable income tax laws. The resulting dif- ference between the financial statement income tax provision and in. come taxes currently payab4e is reported in the financial statements as deferred income taxes. Investment tax credits are recognized currently as a reduction in the provision for income taxes. Provision is also made for federal income taxes on the portion of undistributed earnings of sub- sidiaries and affiliates expected to be remitted, Property, plant, and equipment: Sfaintenance and'repairs are charged against income, and expenditures for renewalsand'improvements are capitalized. The capitalized cost of facilities includes interest and real estate taxes incurred during the con- struction period. Industrial development incentive grants are included in ihcome as realiied: Provision for depreciation of~assets is recorded'by a charge against income at rates considered adequate to amortize the cost of such assets over theii useful lives computed on the straight-line method. Change ih Accounting Method: During 1983, the company's real estate operations were reorganized un- amountshave been restated, where applicable. The company believes der Mission Viejo RealtyGroup Inc: and are accounted for on the equity the equity method of aceountingfor the reorganized real estate opera• meth'od. Real estate operations were previously consolidated. Prior-year tions provides a more meaningful presentation of financial results. a9 l6) f--- 2 .6 ra inventories: At December 31, 1983J the cost of approximately 72170 of inventories S680 million lower than the currentcost of inventory at December 31, was determined by the LIFO method compared with 7117o at December 1983 and 1982; respectively. 31, 1982, The stated LIFO value of inventory was5803 million and

Subsidiaries and Affiliates Located Outside the United States: Principal financial data ofsubsidiaries and affiliates located outside the United States are as follows: Consolidated (Wholly-Owned) Liabilities 721.8 868.3 811.7 Company's equity 30.1 63:9 84'.0 At December 31, 1983, investments in unconsolidated subsidiaries and affiliates located'outside the United States exceeded equity in net assets by approximately $153 million, of which $148 millionis being amortized. Unconsolidated financial data include the accounts of Rothmans lh. ternational plc (Rq. In 1981, the company obtained an approximate 22% indirect equity interest in RI. Consolidated earniotgs reinvested in the business an December 31, Philip Morris CreditCorporation (PS1CC), a wholly-owned unconsolida- ted subsida'ary , of the company; was iotcorporatedin February 1982 primarily to provide financing for customers ofrthe company and its operating companies. The company's investment in P41CC is accounted for by the equity method, and PSiCC's earnings are included in equity in net earnings of unconsolidated subsidiaries and affiliates in the consoiidi,ted statements of earnings.Pursuant to a Support Agreement between the company Unconsolidated (Partially -Owned) Unconsolida ted (Partially -Owned) Greater than 50% o wnership 5 0% ownersh ip or less 1983 1982 1981 1983 1982 1981 $291.7 $ 345.3 $ 414.9 $1,829.6 S1,953:2 $1,978.5 234.5 214.6 203,2 961.3 842.8 88116 21.6 10.7 33.7 922.9 784.3 878.3 323.4 346.4 329.3 707.6 658A 624.1 244.8 260.1 245.4 278.9 276.5 268.0 869.8 1,105.6 1,492.3 6,144.6 5,963.3 2,553.3 123.7 136.5 175.8 1,198.9 1,093.3 462.5 37.8 57.2 49.2 196.1 206.6 99.5 19.9 38.2 36.8 136.4 126.8 64'.7 18.1 27.9 22.6 40.3 40.4 2414 1983 include the company's equity of,approximately $230 million in un- distributed earnings of unconsolidated subsidiaries and affiliates located1 outside the United States. Federal!income tax has not been provided onapproximatelyS905 million of accumulated earnings of subsidiaries and affiliates located out, side the United'States, which is expected!to be permanently invested abroad. and PtifCC,thetompany has agreed to retain ownership of: 100°o of the voting stock ofPtifCC and'to make periodic payments to P1CC to the extent necessary to ensure thanits quarterly earnings available for fixed! charges equal at least 1.25 times its fixed charges. No such payments were required in 1983. Condensed financial statements of PMCC at December 31, 1983, in millions of dollars;follow: Receivables Investments ~ t223.1 48.4 Deferredcharges and other assets 4,6 Total assets Liabilities and stockholder's equity 0 5276.1 Notes payable - S 84.4 Deferred taxes and other accruals 17.4 Long-term debt h~ 54.1 Capital notes due parent Stockholder's equity 33.1 Total liabilities and stockholder's equity $276.1 4-WO--

Real Estate Operations: Mission Viejo Realty Group Inc. ("MVRG"), a wholly-owned unconsoli- dated subsidiary of the company, was incorporatedin 1983whenthe company reorganized its real estate operations. M V RGcomprisestwo subsidiaries: ?Ylission ViejoCompany. engaged in community develop- ment, and the newly-formed Continental Equity thvestments Inc., engaged in commercialand'industnal development activities. The company's investmenDinN1VRGis accounted for by the equity Operating revenues $258.5 Costs and expenses 218.4 Earnings before income taxes 40.1 Provision for income taxes Net earnings 20.5 S 19.6 Brands, iFademarks, Patents, and Goodwill: - At December 31, 1983: this account included approximately $399 million which is being amortized on a straight-line basis, principally over, 40 years. Cost in excess of net assets of companies acquired prior to November 1, 1970, is not being amortized because, in the opinion of Short-Term Borrowing Arrangements: At December 31, the company's short-term borrowings and relatedaverage interest rates consist of the following: (in millions of dollars) Bank]oans Commercial paper obligations Amount reclassified to long-term debt The company has credit facilities with a number of lending institutions amounting to approximately$1.4 billion at December 31, 1983. Approxi- mately $1.2 billion of these facilities remained unused at December 31s 1983. These facilities are primarily maintained to support the company's commercial paper borrowings. The company maintains bankbalances of approximately $60 million to support $300 million of the unused facilities and compensate the banks forservi¢es.Commitment fees, ranging from 1/4 to P/i of Upercent, are paid'to the banks as compensation for $400 million of the unused'facilities: method, and at December 31, 1983: exceeded equity in net assets by approximately $44 mdhon, of which $19 million is being amortized: MVRG's earnings are included in equity in net earnings of unconsolidated subsidiaries and aftiliates in the consolidated statements of earningg. Condensed financial statements of MVRGat December31, 1983, in millions of dollars, follow: Assets Real estate heldfor sale andinvestment Land and offtract improvements Oth'erassets $225.3 170.2 Total assets $450.5 Liabilities and stockholder's equity Payable to parent • $121.7 Deferred income taxes Other liabilities 81.0 Stockholder's equity 222.5 Total liabilities and stockholder's equity $450.5 management, the related investments have not experienced'any diminu- tion in value. Accumulated amortization was $68.3 million and $56.6 mil- lion at December 31, 1983!and 1982, respectively. 1983 1982 Amount Average Amounn Average Outstanding Interest Rate Outstanding Interest Rate $199.7 8.9% $193.6 10.4% 160.1 10.0% 596.8 (65.9) (790.4) $293.9 $ - 9.3%m The company's credihfacilities include revolving credit agreements and other arrangements which mature after 12 months and enable the company to refinance short-term borrowings on a long-term basis. Accordingly, $65.9 million of short-term borrowings at December 31, 1983, and $850.2 million of short-term borrowings and current portion of long-term debt at December 31, 1982. intended to be refinanced, have been reclassified to long-term debt. 0000000330

Notes continued Long-Term Debt: AVDecember 31.the company's long-term borrowings, exclusive of amounts dite within one year, consistmfth'e following: (m millions) ~ Short-term debt, reclassified $ 6519 $ 850.2 Notes: 14%-15114%. payable through 1991 9:55°k,p,ayable 1986 8:65%d, payable 1984 83/4°Po-87/a%, payable through 1998 5,15%u, payable through 1989 Interest at 8'/z%0 until 1985 and aoa fluctuating rate thereafter, payable 1985 to 1988~ Sinking fund, interest from 65Je7o to 91/a%, payable through 2004 $250 million (original issue discount)„interest at6°'o, payable 2001, $200 million (original issue discount).interest at6so, payable 1999 1983 1982' 319.5 400.0 250.0 250.0 700 million Swiss franc loans, interest from 5'/4% to 63/4%, payable 1987 to 1994 318.2 430 million Deutsche mark loans, interest from 6'/a%u to 91/a4'0; payable 1984: to 1990 Interest principally from 6% to 7'!e%u, payable through 2014' 200.0 393.3 160.0 302.0 108.9 475.6 Original issue discounts relating to the $250 million 6% debentures and Aggregate maturities of long-term debt, excluding short-term debt $200 million 6% debentures are being amortized over the lives ofthe classified as long-term debt, in each of the following periods are: 1984, issues using the interest method, which results in effective interest $266:3 million; 19851$238.5 million;1986, $362.3 milldon: 1987„ rates of 15:2% and'14.1%tr, respectivelj^. $102:5 million: 1988, $199.6 million;1989-1993, $836.7 million; and Total interest incurred on long-term debt, excluding interest on short- 1994-1998, $261.2 milBion. term debt classified as l6ng-term debt, was $257 million~$263 million, and $210 million for the years 1983. 1982;and 198L, respectively, Certain agreements covering long-term debt contain restrictions with Other debt agreements specify minimum amounts of working capital respect to paymentaf cash dividends on common stock and purch'ase. and limit the amount of senior debt which may be issued. AODecember redemption or retirement of capital shares. At Deeember31„1983, ap,. 31, 1983, the companywas in compliance with these agreements. proximately $2:7 billion of consolidated earnings reinvested inYhe business was free of such restrictions. Interest expensed Interest capitalized 1983 1982 1981 $233.9 $267.2 $258.5 128.8 162.6 110.0 --~~ $362.7 "$429:8' $368:5

Sharea of common stock authorized, issued andoutstanding were: Balance. January ,1, 1981: Exercise of stock options and stock units Authorized Issued 1Yeasun•. Outstanding 200,000,000 124,753.051 124,753,051 Issuedin exchange for debentures reacquired~ 339:316 Balance. December 31, 1981 2001000.000 125.401.350 Adjustment of prior-year acquisition Exercise of stock options and stock units Issued in exchange for debentures reacquired Balance. December 311, 1982 Adjustment ofprior-y ear acquisition Exercise ofstock options and stock units Issued for acquisition (16,401) (16,401) 148:348 16,401 164.749' 345,552 345.552' 200,000;000 125,895,250 T-~ 125,595,250: (4,340( (4,340) 423,786 11,890 435,676 52,738 52,738 (1,396,600( (1,396,600) 200,000,000 126,371,774 (1,389,050( 124,982,724 At Deeember3l„19831 3,699,128 shares of common stock were re- served for stock options and stock units, and 10.000;000 shares of Serial Preferred Stock were authorizedi none of which have beenissued.

I F Notes continued Stock Plans: Under stockholder-approved stock option and unit plans. 1,279,295 the appreciation value (the excess of the market price at the date of shares of common stock of the company remain available to be granted exercise over the markecpriee at the date of grant) in the form of stock to employees. Uhder the optionplans, common stock of the company or stock and cash. Appreciation val ue may be receive d with respecv has been made availableior purchase by employees at market prices on to the equivalent of b0°ib of the unit s granted. At Dec ember 31. 1983, dates of grant. Under the unit plan, a holder may elect to purchase options and units for L882;911 shares were exercisa ble. shares of common stock at market prices omd8tes ofigrant or to receive Per Share Under Option. Per Share Exercised Price Range End of Year Price Range 1983: Units 324,801 530.03451.81 1,429,989 $30.03-551.81 Options 204,021 522.22451.44 989,844 $22.22.558.06 1982: Units 121,542 $30.03•351.81 16754,790 $30.03-S51.81 Options 51.450 $22.22-530_97 806.083 822.22-651.44 1981: Units 33;808 $30.03:532.56 1',902:685 $30.03-S51.81 Options 89;986 325.25.530.97 5264210 $22.22-530.97 Earnings per Share: Earnings per common share are calculated on the weighted'average 126,044,770, 125,565,555, and 124,924,608 for the years 1983. 1982, number of shares of common stock outstanding for each year, which was and 1981, respectively. Prn Tax Earnings and Provision for Income Taxes: (in millions) 1983 1982 1981 Pre-tax earnings: United States i1,471.7 $1,166.5 $ 916.9 Outside United States 113.1 133.7 151.2 Total S1584.8 $1300.2 $1,068.1 Provision for income taxes: Uttited States federal: Current i 416.0 $ 291.5 $ 214.3 Deferred 170.8 123.2 104.8 586.8 P'1 414.7 319.11 State and local 60.4 61.3 43.5 TotallUnited States Deferred Total outside Uhited States Total provision for income taxes .X__a 647.2 476:0 362.6 31.4 19:4 25.0 2.7 23.0 0.8 34.1 42.4 45.8 i 681.3 $ 51d:4 $ 408.4'

Deferred tax expense is primari)y attributable to the tax benefit derived from the excessof tax over book depreciation, The effective income tax rate on consolidated pre-tax earnings differs ftomthe U.S, federal statutory , rate for the following reasons: °", to To to % to (in millions of dollars) Amount Pre-tax Amount Pte•tax Amount Pre-tax Provision computed at U.S. federal statutory rate ofreported'pre-taxearnings $729.0 46.0a9o 5598.1i Increases (decreases) in the provision resulting from: Investment tax credit (39.5) (2.5) (70.3) Inclusion of equity in net earnings of unconsolidated' subsidiaries and affiliates in pre-tax earnings (38.0) (2.4) (32.8) Income taxed at other than U.S. federal statutory rate and not expected to be subject to U.S, tax in the foreseeab'ie future State and local income taxes, net of federalhax benefit 32.6 2.1; 33.1 Other (4.6) (0.3) 2.3 Provision as reported: $681.3 43.0% S518.4' 46.Co S491.3 46.0% (5.4) (66.3) (6.2) (2.5) (26.7) (2.5) 1 I 39

Worldwide tobacco and domestic beer represent the primary segments of the company's operations. Other products unchtde soft drinks and in- dustri.al products. The company's operations outside the United States, which are predominantly in the tobacco business, are organized into geographical regions for management responsibiHty; w tti (iurope being the most significant.lhtersegment transactions are nonreportedsepa- rately since they are not material. Operating profit calculated for purposes of segment reporting is Data by Product Line for the years ended December 31, Equity in net earnings of unconsolidated subsidiaries and4f5liaaes Amortization of'goodiwill and trademarks Operating income of operating companies Depreciation expense: Investments in unconsolidated subsidiaries and affiliates Capital additions: Tobacco Beer operating income of operating companies less equity in netearnings of unconsolidated subsidiariesand affiliates and reduced by the amounts ofamortizat on of goodwill and trademarks included in other deductions, net in the consolidated statements of earnings. Identifiable assets by segment are those assets that are used in the company's operations in each segment. Reportable segment data recon- ciled!to the consolidated financial statements are presented below. $ 9,094.9 $ 7,821.8 $ 7,082.3 2,935.5 2,941.3 2,850.2 945.5 822.9 789.8 512,975.9 $11,586 .0 $10,722:3 12.2 12.2 12:2. S 1,958.0 $ 1,715.7 $ 1,446.2 S 5,114.3 $ 5,070.7 $ 4,781.1 2,138.9 2,113.7 2,022.1 1,007.3 979.4 958.1 ~--~- -~~ 8,260.5 8,163.8 7,761.3 11,184.1 1,197.1 1,138.8 222.4 261.2 215.0 S 9,667.0 $ 9,622.1 $ 9,115.1

Data by Geographi¢aliRegionior the years ended Decemtier 31 (in millions) 1983 1982 1981 Operating revenues: United States -Domesttc S 9,303.1 $ 8,007.7' $ 7,311.9 -Export 969.5 978.0 833.5 Europe 2,170.7 2,033.6 2:056.4 Other 532.6 566.7 520.5 512,975.9 $11.586.0 $10,722.3 Operating profit: UnitedStates S 1,804.2 $ 1,513.4 $ 1,241t9 Europe 67.3 125.0 137.9 Other (8.3) (6.1) (3.9) 1,863.2 1,632>3 1,375.9 Reconciliation: EqUity in net earnings of unconsolidated subsidiariesandaffiliates 82.6 71.2 58.11 Amortization of goodwill and trademarks 12.2 12.2 12.2 Operating income of operating companies $ 1,958.0 $ 1,715.7 $ 1,446.2 Identifiable assets: United States S 6,928.5 $ 6,678.3 $ 6,3111,4 Europe 1,162.1 1,304.2 1, 2'71.5 Other 169.9 181.3 178.4 8,260.5 8,163.8 7,7611.3 I Investments in unconsolidatedsubsidiaries and affiliates 11,184.1 1,197.1 1,138.8 Corporate assets 222.4 261.2 215.0 Totalassets $ 9,667.0 $9,622.1 $ 9,115.1' ~ Q 0 Q Q Q c ~

- -- . ` ... .~ _... a MCEMI-W The company andcertain of its subsidiaries have pension plans covenng to 30',years. The company makes annuah contributions to the plans equal substantially all their employees. including certain employees in coum to the amounts accrued for pension expense. The plans are qenerally tries outside the United States. Total pension expense for 1983, 1982, funded with',mdeoendent trustees. A comparison of accumulated plan and'1981 was $94.0 millian, $88.1 million; and $75.6 million. respec- benents with net assets tor detined benetit plans follows: tively, including amortization ofpriorservice costs overpertods oi.up Actuarial present value of accumulated plan benefits: Netassets available for benefits The assumed rate of return used in determining the actuarialipresenu value ofaccumulated plan benefits wasprincipaily 7.5°b for both 1983 and 1982. (in millions) i Depreciation expense Rental expense Commitments for property, plant, and!equipment $160.0 Quarterly FtnanclalResults (Unaudited): (in millions, except per share amounts) 1982 $249i9. $ 59:4 For quarter endbd: Mar. 3t June 30 Sept. 30 Dec. 31 Year 1983 Operating revenues Gross profiti Net earnings Per share: $3,021.3 $3,399.6 $3,464.1, $3,090.9 $12,975.9 907.8 1,065.6 1,147.7 1,001.7 4,122.8 186.0 220.2 285.9 211.4 903.5 .600 .725 .725 .725 2.775 64314-54 67314-55'fh 67112-57'la 7231.-663f. 7231a54 ;MWI Operating revenues W $2,773.6: $3,023.5 $3.096.3 $2,692.6 $11 586.0 .Gross profit 895.1 3,656.1 Net earnings `& 167.7 189.4 250.0 Per share: 174.7 781.8 Earnings 11.34 1.51 1.99 1.39 6.23 Dividends paid .500: .600: .600 .600: 2.300 common stock. Market price high,low The principal stock exchange on which the company's common stock (par valite $1 per share) is listed is the New York Stock Exchange. At January 31, 1984, there were 30~783 holders of record of the company's 8388 9376 9846 503fe-441ls 5351a-47 59•441h 67314•53sPe 67314-441/e (A) The sum of quarterly amounts does not equal the yearlyamounr due to rounding.

t Report of Ind'ependent Certified Public Accountantss To the Board of Directors and Stockholders of Philip hlorris Incorporated: We have examinedthe consolidated balance sheets of PHILIP MORRIS INCORPORATED and Consolidated Subsidiaries as of December 31, 1983 and 1982, and the related consolidated'statements of earnings, stockholders' equity and changes in financial positionioreach of the three years in the period ended December, 31, 1983. Our examinations were made in accordance with generally accepted auditing standards andi accordingly, included such tests of the accounting records and such other auditing procedhres as we considered necessary in the circumstances. In our opinion, the financial statements mentioned above present fairly4he financial position of'Ptiilip Morris Incorporated and consolida- ted subsidiaries at December 31, 1983 and1982„and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31, 1983. in conformity with generally accepted aceountingprinciples applied on a consistent basis after restatement for the change, with which we concuri in the method of accounting for real estate operations as discussed in the notesto consolidated!financial statements. Coopers & Lybrand New York, New York January 24,1984 Company Report on Financial Statements: The consalidated financial statements and all related financial linforma- tion herein are the responsibulity of the company. The financial state- ments, which include amounts based onjutdgments, have beetrprepared in accordance with generally accepted accounting principles. These principles have been consistently applied except for the change in the method of accounttngfor real estate operations as described in the notes to consolidated financial statements. Other financial information inth'e annual'report is consistent with that in the financial statements. The company maintains a system of internal controls which it believes provides reasonable assurance that transactions are executed in accordance with management's authorization and properly reeorded, that assets are safettuarded, and'tiiat accountability for assets is main- taioted. The system ot internal controls is charactertzedby a control- oriented environment wtthm the company which includes written policies and procedures, careful selection andtratntng of personnel, and examinations by a professional statf of internal auditors. Coopers & Lyb'rand, tndependent certtfiedpublte accountants, have examined and reported on the companq `s consoiidated financial state- ments. Tiheir examinations were pertormed in accordance with generally accepted auditing standards and included studies and evaluations of internal accounung controls to the extent deemed necessary by them. The A'udinCommittee of the Board of Directors, composed of five non-managementdirectors, meets periodically with Coopers & Lybrand, the companys internal auditors and management representatives to review internal laccounting controli auditing and'financial reporting mat- ters. Bbth Coopers & Lybrand and the internalauditors have unre- stricted access to the 2iudioCommittee and'may meet with it without management representatives being present.

Board of Directors Thomas F. Ahrensfeld" Senior Vice Presidentiand General Counsel James C. Bowling 4 Senior Vice President. Assistant to the Chairman of the BoardJ and'Director of Corporate Affairs AlffedBrittain III Chairman of Bankers Trust Company, New York, NY Dr. Harold Brown Visiting Professor of National Security Affairs, The Johns Hopkins University School ofAdtianced International Studies, Washington, DC Dn Jose Antonio Cordidb-Freytes Member ofBetancourt, Cordido and Associates, Caracas, Venezuela, Attorneys, and President of C.A. Tabacalera Nacional Hugh Cullman t•:•s Group Executive Vice President and Chairman andCh'ief Executive Officer, Philip Morris U.S.A. Joseph F. Culltnan 3rd 1.2 Chairman of the Executive Committee William A. Donaldson t. T•3 Chairman and Chief Executive Officer of Donaldson Enterprises Incorporated, New York, NY - Paul W.Douglas l Chairman and Chief Executive Officer of The Pittston Company, Greenwich. Cr Jane Evans Executive Vice Presidenti Fashion of General Mills, Inc., New York. NY Clifford H. Goldsmith 1•2•s Vice Chairman of the Board Robert E.R.HunUey 2•3•4 Executive Vice President of Best Products Co., Inc., Richmond. VA JohnT. Landry 4 Senior Vice President and Director of Marketing Jacques G. Maisonrouge 3•4 Senior Vice President of IBM Corporation, Armonk, NY Hamish Maxwell 112•4•3:e President and'Chief Operating Officer Ross R. Millhiser1•z•5 Vice Chairman of the Board T. Justin Moore, Jr. 1,2,4 Chairman n of Dominion Resources, Inc., Richmond, VA John A. Murphy t•rs.e Group Executive Vice President and Chairman and Chief Executive Officer, Miller Brewing Company Shepard P.Pollack' Vice President and President, and Chief Operating 6fficer, Philip Morris U.S.A. John S. Reed 112•3 Vice Chairman of Citicorp,and Citibank, N:A., New York: NY Hans G. Storr 2 Vice President and Chief Financial Officer George Weissman 1-1,e Chairman of the Board and Chief Executive Officer Margaret B. Young 3•4 Chairman of the Whitney M. Young, Jr. Memorial Foundation, New, York, NY George V. Comfort Director Emeritus , H; Robert Marschalk z,;' Director Emeritus Richard W. Dammann Member, Advisory Board Edward Lasker Member, Advisory Board Member of Executive Committee Joseph F. Cullman3rd, Chairman ZMember of Finance Committee Ross R. Millhiser. Chairman 3 Member of Audit Committee Robert E. R. Huntley, Chairman Member of Committee on Public Affairs and Social Responsibility James C. Bowling;Chairman Member of Office ofthe Chairman George titieissman, Chairman Member of Office of the ChiefExecutive George Weissman John A. Murphy Ross R: Millhiser &NE Hamish.llaxviceu Hugh'Cuuman CWford H. Goldsmith

Officers ....,~..-a...~..~r.~... _.....,._._....._ ~.~.._.~.....r Officers of the Corporation George Weissman Chairman of the Board and Chief Executive Officer Clifford H. Goldsmith Vice Chairman of the Board Ross R. Millhiser Vice Chairman of the Board Hamish Maxwell President and Chief Operating Officer Hugh Cullman Group Executive Vice President John A. Murphy Group Executive Vice President Thomas F. Ahrensfeld Senior Vice President and' General Counsel James C. Bowling Senior Vice President, ,Assistant to the Chairman of the Board, and Director of Corporate Affairs John T. Landry Senior Vice President and' Director of Marketing William I. Campbell vice President Robert H. Cremin Vice President Eugene J.T. Flanagan Vice President, Secretary, andi Associate General Counsel Edward W. Frantel Vice President Wdliam K. Howell Vice Presideot Jetson E. Lincoln Vice President, Planning William D. McCoy Vice President R. William Murray Vice President Wdllam J. OICOnnor Vice Fresidenti Administration and Human Resources Shepard P. Pollack Vice President F. Harrison Poole Vice President and Treasurer Philip J. Reilly Vice President James A. Remington Vice President Frank E. Resnik Vice President Carlos E: Salguero Vice President Thomas B. Shropshire Vice President WilliamC.Smiy Vice President and!Controller Richard L. Snyder Vice President Hans G. Storr Vice President and'Chief Financial Officer Lauren S. titidliams Vice President Alexander Holtzman Associate General Counsel George P. Hibbard Deputy Treasurer Herbert Millington Deputy Treasurer Norman J. Treisman Deputy Treasurer Eric G. Dalrymple Assistant Treasurer Edward G. Silcock Assistant Treasurer John C. Lino Assistant Controller Horace W. Pierpoint Assistant Controller Robert H. Souther Assistant Controller Robert A. White Assistant Controller James T. Bteedlove Assistant Secretary Bernadette T. Fee Assistant Secretary Officers of the Corporate Staff and of the Tobacco Technology Group Bruce S. Brown Staff Mce President and Director„Taxes Michael A. DeMita StaffVice President, Washington Relations Wallace G. Lloyd Senior Vice President and Technical D'vector, Tobacco Technology Group Donal P. O'Brien Vice President, International Services. Tobacco Technology Group Arthur R. Pasquine Executive Vice Presidenti Tobacco Technology Group Frank E. Resnik President. Tobacco Technology Group Frank A. Saunders Staff~'~ice President, Corporate Relations and Communications Dr. Robert B. Seligman Vice President, Research and Development, Tobacco Technology Group William K. Transue Staff Vice President. Personnel John van Harn Vice President, Leaf, Tobacco Technology Group Philip Morris U.S.A. Hugh Cullman Chairman and Chief Executive Officer Shepard P. Pollack Presidentand Chief Operating Officer William 1. Campbell Executive Vice Presidenti Marketing James A. Remington Executive Vice President; Operations R. Nelson Beane Senior Vice President. Finance and Admunistration Fred J. Laux Senior Vice President, Personnel Albert J1 Bissmeyer III Vice President, Merchandising Vincent J. Buccelato Vice President, Sales W. John Campbell Vice President, PlantiOpetations Hawes B. Coleman Vice President, FieldSales 0. Witcher Dudley Vice President, Leaf Robert A. Fitzmaurice Vice Fresidenr, Brand and Promotion TnhnJi RiIGa~ "" ~ ... Vice President, National!Accounts Dr. Max Hausermann Vice President, Research and Development Alexander Hbluman Vice President and General Counsel J. Paul Jeb Lee Vice President, Marketing Services F. Robert Kurimsky Vice President. Mformation Services Stanley S. Scott Vice President, Public Affairs George W. B. 'Iaylor Yce President, Engineering and Planniotg mes L. Thompson, Jr Vice President. Media

I . .:._...k~• ~w.-.-~i...-•„..Y•_~.~_.~_:~.-.~....-d.-._.:.,-~~.<.~Rusx.ri~i..:.S- --`~~-~L~.~L.b~s~~,.h._--::.:..._..t~~_~:_~~.:_ Philip Morris International R. WilCiam Murray President and Chief Executive Officer Geoffrey C. Bible ,Executive Vice President Carlos E. Salguero Executive Vice President Richard L. Snyder Executive Vice President Aleardo G. Buzzi Vice President Mary W. Covington Vice President Andreas Gembler President, Seven-Up International John G. Gibson Vice President Marc Goldberg Vice President Staffan Gunnarsson Vice President Ehud Houtminer Vice President Richard A. Hutchinson, Jr. Vice President Thomas M. Kearns Vice President, Finance Lee Pollak Vice President George D. Riemer Vice President, Personnel Walter Thoma Vice President Josd de Ja Torriente Vice President William H. Webb Vice President Andrew, Whist Vice President, Corporate Affairs Paul T'dJer Controller Miller Brewing Company John A. Murphy Chairman and Chief Executive Officer William K. Howell President and Chief Operating Officer Lauren S. Williams Executive Vice President Thomas B. Shropshire Senior Vice Presidentand Treasurer Dr. Vincent S: Bavisotto Vice President• Brewing and Research William W. CatGin Vice President, Brand Management Warren H. Dunn Vice President and General Counsel Alan G. Easton Vice President, Corporate Affairs Thomas A. Fulrath Vice President, Personnel! Leonard J. Goldstein Viee President, Sales Larry K. Neuman Vice President, Material Flow William A. Saupe Vice President, Planning and Development Allen A. Schumer Vice President, PI'ant Operations Ronald R. Strain Vice Presidentand Controller GeorgyN. Tarala VicePresident, Engineering Charles A. Whipple Vice President„Director of National Retail'Sales Raymond E. Jones. Jr. Associate General Counsel and Secretary Carroll A. Bodie Assistant Secretary William G. Schmus Assistant Secretary The Seeen+Up Company Edward W, Frantel! President and Chief Executive Officer Gerard J. Martin Executive Vice President, Foods Group Charles W. Schmid Executive Vice President, Soft Drink Group Edward P. Callahan Senior Vice President, Administration J. StewartBakuia Vice President, General Counsel and Secretary Arnold F. Larson Vice President, Packaged Beverage Division George R. Lewis Vice Ptesident, Finance Guy L. Smith IV Vice President, Corporate Affairs Philip Morris Industrial William D. McCoy President and Chief Executive Officer Alan G. Wernick Senior Vice President Thomas J. Contrucci Controller Mission Viejo Realty Group Inc. Ph'ilip J. Reilly President and Chief Executive Officer James G: Gilleran - Executive Vice President Jack G. Raub Executive Vice President James G. Toepfer Executive Vice President James L. Huesman Senior Vice President and Treasurer William K. Smith Vice President and Secretary Robert P. Swank Vice President Danette S:Fenstermacher Controllpr Philip Morris Credit Corporation Hans G. Storr President - Norman J. Treisman _ Senior Vice President ]ames T Breedlov . e f ti~ Vice President and Secretary George P. Hibbardl Vice President Dennis]. Floam 1• Director of Finance = ~*?~i Eric G. Dalrymple Treasurer-Credit Edward G. Silcock Treasurer-Finance Katherine P. Wickham Conttoller

ey General Corporate Information Corporate Headquarters: Pliilip Morris Incorporated 120 Park Avenue New York, New York 10017 (212) 880-5000 Operating Company Headquarters: Philip Morris U.S.A. 120 Park Avenue New York, New York 10017 Philip Morris International 120 Park Avenue New York, New York 10017 Regionaf Headquarters: Philip Morris EEC Brillancourt 1006 Lausanne Switzerland Philip Morris EFTA, Eastern Europe, the Middle East & Africa Place Chauderon 4 1000 Lausanne 9 Switzerland Philip Morris Latin America/Iberia Centro Colon Marques de la Ensenada, 16 Madrid 4 Spain Philip Morris Asia, Inc. 25th Floor, United Centre 95 Queensway, Central Hong Kong Philip Morris (Australia)'Limited One Little Collins Street Melbourne, Victoria 3000 Australia Benson & Hedges (Canada) Inc. 600 Rue de Lagauchetiere, West Suite 2800 MontrealiQuebec H3B 4M1 Canada Seven-Up dntemational 120 Park Avenue New York, New York 10017 Miller Brewing Company 3939 West Highland Boulevard Milwaukee, Wisconsin 53201 The Seven-Up Company 121 South Meramec St. Louis, Missouri 63105 Philip Morris lndustrial 100 Park Avenue New York, New York 10017 Mission Viejo Realty Group Inc. 26137 La Paz Road Mission Viejo, California 92691 Philip Morris Credit Corporation 100 Park Avenue New York, New York 10017 Annual Meeting: The annual meeting of stock- holders of Philip Morris Incor- porated will be held on April25, 1984, at the Philip Morris Manufacturing Center, 3601 Com- merce Road; RichmondJ Virginia. Form 1O-K: The company's annual report on Form 10~K, which will be fded with the Securities and Exchange Commission, will 'be available to stockholders in April upon written request to: Eugene J.T. Flanagan, Secretary Philip Morris Ihcorporated 120 Park Avenue NewYork, New York 10017 7ransfer Agents and Registrars: Morgan Guaranty Trust Company ofNew York 30 West Broadway New York, New York 10015 United Virginia Bank Box 26665 Ri¢hmond, Virginia 23261 Dividend Reinvestment Agent: Morgan Guaranty Trust Company of New York Divide ndReinvestment Plan P.O. Box 3506 Church Street Station New York„New York 10008 Stock Exchange t]stings: New York Amsterdam Basel Frankfurt Geneva Lausanne Paris Zurich NY Stock Exchange Symboh ,M0 Auditors: Coopers & Lqbrand 1251 Avenue of the Americas New York, New York 10020 Annuat Report Papen Paper stock used in this report is made by PI'ainwdl Paper Company, a division of Philip Morris Industrial. Cover: :Kashmir Gloss 808. Text: Kashmir Gloss 100N DesiRn: CherwseRf GeismsrAY-tef Plincipt Phutof .mVM': Catole Cutner, Rter Kane. Bi7 Kelly. Pnatedtn U.S.A. by Case•Hq{.

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