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PROXY STATEMENT This proxy statement is furnished by the Board of Directors of Philip Morris Incorporated (the "Company"), 100 Park Avenue, New York, N.Y. 10017, in connection with its solicita- tion of proxies for use at the annual meeting of stockholders on Wednesday, April 29, 1981, and at any and all adjournments thereof. Mailing of the proxy statement will commence on or about March 17, 1981. Holders of record of Common Stock, $1 par value, at the close of business on March 9, 1981 will be entitled to one vote for each share held on all matters to come before the meeting. On March 9, 1981, there were outstanding 000,000,000 shares of Common Stock. A proxy on the enclosed form may be revoked at any time before it has been exercised. Unless the proxy is revoked or there is a direction to abstain on one or more proposals, it will be voted on each proposal and, if a choice is made with respect to any matter to be acted upon, in accordance with such choice. The proxy will also instruct the bank administering the Company's dividend reinvestment plan how to vote shares held by it for a stockholder participating in the plan. ELECTION OF DIRECTORS (Proposal 1) General Information The Board of Directors has the responsibility for establishing broad corporate policies and for the overall performance of the Company, although it is not involved in day-to-day operating details. Members of the Board are kept informed of the Company's business by various reports and documents sent to them each month, as well as by operating and financial reports made at Board and Committee meetings by the Chairman of the Board and other officers. Regular meetings of the Board are held each month with the exception of the month of July. The organizational meeting follows immediately after the conclusion of the annual meeting of stockholders. The Board held 11 meetings in 1980. Committees of the Board Various committees have been established by the Board of Directors to assist it in the discharge of its responsibilities. These committees are described below. The biographical information on the nominees for director, which begins on page 3 of this proxy statement, includes committee memberships currently held by each nominee. The Audit Committee meets with management, the Company's independent auditors, and its internal auditors to consider the adequacy of the internal controls of the Company and other matters relating to financial reporting. The Audit Committee recommends to the full Board the engagement of the Company's independent auditors, discusses with 1

the independent auditors their audit procedures, including the proposed scope of the audit, the audit results and the accompanying management letters and reviews the pro- fessional services provided by the independent auditors and the non-audit fees charged therefor. The Committee consists of four non-management directors and met seven times in 1980. The Committee on Public Affairs and Social Responsibility advises the Company with respect to corporate policy on major public issues. The Compensation Committee, comprised of four non-management directors, held four meetings in 1980. The Compensation Committee determines cash remuneration arrange- ments for senior management and administers the Company's Stock Unit, Stock Option and Incentive Compensation Plans, recommending to the full Board in the case of the Incentive Compensation Plan the amount to be credited to the Incentive Compensation Reserve. This committee also determines those employees who are to receive incentive compensation awards and the amount to be awarded from the Reserve to each recipient. The Diversification Committee considers and reports to the full Board with respect to sig- nificant corporate acquisitions and dispositions. The Executive Committee has authority to act for the Board on most matters during intervals between Board meetings. Eleven directors have been designated members of this committee, which met three times in 1980. The Finance Committee monitors the financial condition of the Company and advises the Board with respect to financing needs and dividend policy. The Nominating Committee has five non-management directors and held three meetings in 1980. The Nominating Committee reviews the qualifications of candidates suggested by Board members, management, stockholders and other sources, considers the performance of incumbent directors in determining whether to nominate them for reelection and recommends to the full Board a slate of nominees for election as directors. Stockholders wishing to suggest candidates for election as directors may submit names and bio- graphical data to the Secretary of the Company who will forward such information to the Nominating Committee for consideration. Compensation of Directors Directors who are full-time employees of the Company or a subsidiary receive no addi- tional compensation for services as a director. Directors not so employed receive an annual retainer of $17,500 and fees of $500 for each board meeting attended, $500 ($1,000 for the chairman) for each meeting of the Audit Committee, Compensation Com- mittee, Executive Committee and Finance Committee attended and $250 ($500 for the chairman) for each other committee meeting attended. The Chairman of the Compensation 2

Committee receives $10,000 for additional services rendered in connection with certain of the Company's compensation plans. . The Nominees Twenty-two directors are to be elected to hold office until the next annual meeting of stockholders and until their successors have been elected. The Nominating Committee has recommended to the Board the persons named below as management's nominees, and, unless a proxy is otherwise marked, it will be voted for such persons. With the excep- tion of Paul W. Douglas, all of the nominees were elected by the stockholders at the 1980 annual meeting. Mr. Douglas was elected by the Board on June 25, 1980. Although management does not anticipate that any of the persons named below will be unable or unwilling to stand for election, a proxy, in the event of such an occurrence, may be voted for a substitute designated by the Board of Directors. Thomas F. Ahrensfeld Senior Vice President and General Counsel Director since 1976 Age: 57 Jerry Apodaca President and Owner, Jerry Apodaca Associates, Inc., Santa Fe, N.M., management of diversified personal business enterprises Director since 1979 Age: 46 First employed by the Company In 1959, Mr. Ahrensfeld had prevl- ousiy been a partner in Conboy, Hewitt, O'Brien & Boardman, New York, N.Y., general counsel to the Company, with which firm he had been associated since 1948. He became a Vice President of the Company in 1970 and Senior Vice President in 1976. Mr. Ahrensfeid is a director of the Trinity-Pawling School Corporation. He Is a member of the Committee on Public Affairs and Social Responsi- bility of the Board of Directors. Jerry Apodaca served as Governor of New Mexico from 1975 through 1978 and from 1979 to 1980 as president and chairman of the Board of the National Issues Council. Governor Apodaca Is on the Board of Trustees of the Center for the Advancement of Secondary Education and serves as a director of Shur-Gro Indus- tries, Inc., the National Board of the Epilepsy Foundation of America and the Center for Constitutional Studies at Notre Dame University. From to he served as chairman of the President's Council on Physical Fitness and Sports and as White House liaison with the U.S. Olympic Committee. The Gov- ernor is a member of the Committee on Public Affairs and Social Responsibility of the Board of Directors of the Company. 3

James C. Bowling Senior Vice President and Director of Corporate Affairs Director since 1969 Age: 52 Alfred Brittain ilf Chairman of the Board of Bankers Trust Company, New York, N.Y. Director since 1966 Age: 58 ' George V. Comfort Chairman of the Board of George Comfort & Sons, Inc., New York, N.Y., real estate management Director since 1971 Age: 66 Dr. J. A. Cordido-Freytes Member of Betancourt, Cordido and Associates, Caracas, Venezuela, attorneys Director since 1968 Age: 55 First employed by the Company in 1951, Mr. Bowling became a Vice President in 1964, Director of Corporate Affairs In 1969 and has been a Senior Vice President since 1976. He is vice chairman of Clean World International, honorary chairman of Keep America Beautiful, Inc. and a trustee of Berea College. Mr. Bowling is chair- man of the Committee on Public Affairs and Social Responsibility of the Board of Directors of the Company. Mr. Brittain has served as chairman of the board of Bankers Trust New York Corporation and Bankers Trust Company since 1975, having previously been president of both corporations. He serves as a director of Collins & Aikman Corporation, Royal Group, Inc., the Economic Development Council and the New York Chamber of Commerce and Industry. Mr. Brittain is a member of the Compen- sation Committee of the Board of Directors of the Company. Mr. Comfort has served as chairman of the board of George Comfort & Sons, Inc. since 1977, having previously served as president. He Is a director of Burns International Security Services, Inc., GK Technologies Incorporated, Harlem Savings Bank, The Mutual Life Insurance Company of New York and The Sperry & Hutchinson Company and a trustee of the New York University Medical Center. He is a member of the Compensation, Executive and Nominating Committees of the Board of Directors of the Com- pany. Dr. Cordido-Freytes has practiced law In Caracas, Venezuela, for more than twenty-five years. The firm of Betancourt, Cordido and Associates has performed and can be expected to continue to per- form legal services for the Company and Its subsidiaries or affili- ates. Dr. Cordido-Freytes serves as a director and president of Banco Exterior, S.A., as a director and vice president of Financiera Exterior, S.A. and as president of C.A. Tabacalera Naclonal, an affiliate of the Company. 4

Hugh Cullman Group Executive Vice President and Chairman of Philip Morris U.S.A. Director since 1964 Age: 58 Joseph F. Cullman 3rd Chairman of the Executive Committee Director since 1954 Age: 68 William H. Donaldson Chairman and Chief Executive Officer of Donaldson Enterprises Incorporated, New York, N.Y., management corporation Director since 1979 Age: 49 Paul W. Douglas President and Chief Executive Officer of Freeport Minerals Company, New York, N.Y., multi-national mining Director since June 25, 1980 Age: 54 First employed in 1948 by Benson and Hedges, Mr. Culiman became Executive Vice President of Philip Morris Incorporated in 1966, President of Philip Morris International in 1967 and Group Executive Vice President and Chairman of Philip Morris U.S.A. In 1978. He is a director of United Virginia Bankshares Incorporated and United Virginia Bank and serves as trustee and is a member of the Execu- tive Committee of the U.S. Council of the International Chamber of Commerce. Mr. Cullman serves on the Diversification, Executive and Finance Committees of the Board of Directors of the Company. He is a first cousin to Joseph F. Cullman 3rd. First employed in 1946 by Benson and Hedges, Mr. Cullman was Chief Executive Officer of Philip Morris Incorporated from 1957 until November 1978, serving first as President from 1957 until 1966 and then as Chairman of the Board. He is a director of Bankers Trust New York Corporation, Bankers Trust Company, Ford Motor Com- pany, IBM World Trade Europe/Middle East/Africa Corporation, Levi Strauss & Co. and the World Wildlife Fund - U.S., a commis- sioner of The Port Authority of New York and New Jersey and a trustee of the American Museum of Natural History and the Colonial Williamsburg Foundation. In addition to serving as Chairman of the Executive Committee, Mr. Cullman serves on the Diversification and Finance Committees of the Board of Directors of the Company. He Is a first cousin to Hugh Culiman. Mr. Donaldson was Dean of the Graduate School of Crganization and Management of Yale University from October 1, 1975 to , 1980, and has been the William S. Beinecke Professor in Manage- ment Studies since October 1, 1975. From 1959 to 1972, he was chief executive officer of Donaldson, Lufkin & Jenrette, Inc. In 1973 and 1974, he was a U.S. Undersecretary of State and later served as a special consultant and adviser to Vice President Nelson Rockefeller. He is a director of Aetna Life and Casualty Co., Cole National Corporation, Conoco, Inc., Crane Co., GK Technologies, Inc. and Scovill, Inc. Mr. Donaldson also serves as a trustee of the Bowery Savings Bank and as a trustee and chairman of the finance committee of the Ford Foundation. Mr. Donaldson serves on the Audit and Finance Committees of the Board of Directors of the Company. Mr. Douglas has been president and chief executive officer of Freeport Minerals Company since 1975. He serves as a director of the Freeport Minerals Company, The Japan Fund, Inc. and the United States Trust Company of New York. 5 0

Clifford H. Goldsmith President Director since 1966 Age: 61 Robert E. R. Huntley President, Washington and Lee University, Lexington, Va. Director since 1976 Age: 51 John T. Landry Senior Vice President Director since 1972 Age: 56 H. Robert Marachatk Vice Chairman of the Board of Richardson- Merrell, Inc., Wilton, Conn., pharmaceuticals manufacturer Director since 1966 Age: 65 First employed in 1945 by Benson and Hedges, Mr. Goldsmith became Executive Vice President of Philip Morris Incorporated and President of Philip Morris U.S.A. in 1973 and President of Philip Morris Incorporated in 1978. He serves as a director of Central Fidelity Banks, Inc. and the National Multiple Sclerosis Society and as a member of the board of trustees of The Mount Sinai Medical Center, New York, N.Y. Mr. Goldsmith Is a member of the Office of the Chief Executive and of the Diversification, Executive and Finance Committees of the Board of Directors of the Company. Mr. Huntley has been president of Washington and Lee University since 1968. He serves as a director of Best Products Co., Inc., Central Telephone & Utilities Corporation, Shenandoah Life Insur- ance Company and the Union Theological Seminary in Virginia. He is a member of the Audit, Executive and Public Affairs and Social Responsibility Committees of the Board of Directors'of the Company. First employed by the Company In 1956, Mr. Landry became a Vice President in 1969 and Senior Vice President in 1976. He is a mem- ber of the Committee on Public Affairs and Social Responsibility of the Board of Directors of the Company. Mr. Marschalk was president of Richardson-Merrell, Inc. from 1961 to 1975 when he assumed his present position. He serves as a director of Equitable Money Market Account, Inc., Piedmont Management Corp., Richardson-Merreli, Inc. and Thyssen-Borne- misza N.V. He is chairman of the Audit and Compensation Com- mittees and a member of the Diversification, Executive, Finance and Nominating Committees of the Board of Directors of the Company. 6

Hamish Maxwell Executive Vice President and President of Philip Morris International Director since 1974 Age: 54 Ross R. Millhiser Vice Chairman of the Board Director since 1963 Age: 60 T. Justin Moore, Jr. Chairman and Chief Executive Officer of Virginia Electric and Power Company, Richmond, Va. Director since 1973 Age: 55 John A. Murphy Group Executive Vice President and Chairman of Miller Brewing Company Director since 1971 Age: 51 First employed by the Company in '1954, Mr. Maxwell became a Vice President in 1969, Senior Vice President in 1976 and Executive Vice President in 1978 when he became President of Philip Morris International. He serves as a director of the Brooklyn Academy of Music. Mr. Maxwell is *a member of the Diversification and Public Affairs and Social Responsibility Committees of the Board of Direc- tors of the Company. First employed by the Company in 1941, Mr. Milihiser became Presi- dent in 1973 and Vice Chairman of the Board in 1978. He serves as a director of Best Products Co., Inc. and First & Merchants Corporation and in 1980 was elected a trustee of Washington and Lee University. Mr. Miilhiser is a member of the Office of the Chief Executive, chairman of the Finance'Committee and a member of the Diversification and Executive Committees of the Board of Directors of the Company. Mr. Moore has been an executive officer of the Virginia Electric and Power Company since 1967 and a director since 1970. He Is a director of Central Fidelity Banks, Inc. and Central Fidelity Bank, N.A. and serves as a trustee of the Colonial Williamsburg Founda- tion and the Virginia Foundation for Independent Colleges. He is the chairman of the Nominating Committee and a member of the Diversification, Finance and Public Affairs and Social Responsibility Committees of the Board of Directors of the Company. First employed by the Company in 1962. Mr. Murphy had previously been a partner in Conboy, Hewitt, O'Brien & Boardman, New York, N.Y. He became a Vice President in 1967, Executive Vice President in 1976 and Group Executive Vice President in 1978. Since joining Miller Brewing Company in 1971, he has served as its chief execu- tive officer. Mr. Murphy serves as a director of Alverno College, Congoleum Corporation and M & I Marshall & Ilsley Bank and as a trustee of Marquette University. He Is a member of the Diversifica- tion, Executive and Finance Committees of the Board of Directors of the Company. 7 Z4 I.P.

Shepard P. Pollack Vice President and President of Philip Morris U.S.A. Director since 1979 Age: 52 John S. Reed Senior Executive Vice President of Citicorp and Citibank, N.A., New York, N.Y. Director since 1975 Age: 41 George Weissman Chairman of the Board and Chief Executive Officer Director since 1958 Age: 61 Margaret B. Young Chairman of the Whitney M. Young, Jr. Memorial Foundation, New York, N.Y.; Consultant to the Company Director since 1972 Age: 59 First employed by the Company in 1959, Mr. Pollack became a Vice President in 1975 and served as chief financial officer of the Com- pany before becoming President of Philip Morris U.S.A. in 1978. Mr. Pollack is a director of Central Fidelity Bank, N.A. and a trustee of the Carnegie Hall Corporation. He is a member of the Committee on Public Affairs and Social Responsibility of the Board of Direc- tors of the Company. Mr. Reed was named a senior executive vice president of Citicorp and Citibank, N.A. in January 1980, after having been an executive vice president of Citibank, N.A. since 1970 and of Citicorp since 1974. He serves as a director of Arlen Realty & Development Corp. and as a trustee of the Russell Sage Foundation and the Memorial Sloan-Kettering Cancer Center. Hd is chairman of the Diversifica- tion Committee and a member of the Audit, Compensation, Execu- tive, Finance and Nominating Committees of the Board of Directors of the Company. First employed by the Company In 1952, Mr. Weissman became President of the Company in 1967, Vice Chairman of the Board in 1973 and assumed his present position on November 1, 1978. He serves as a director of Avnet Incorporated, Chemical New York Corporation, Chemical Bank, the Lincoln Center for the Performing Arts and the Whitney Museum and as a member of the Swarthmore College Council and of the Board of Visitors of the City University of New York. Mr. Weissman is a member of the Office of the Chief Executive and of the Executive Committee of the Board of Directors of the Company. Mrs. Young is a director of The New York Life Insurance Company, a member of the Board of Governors of the United Nations Asso- ciation and a director of the Lincoln Center Institute, and the Lincoln Center for the Performing Arts, the Metropolitan Museum of Art and the Whitney M. Young, Jr. Memorial Foundation. She is a member of the Executive, Nominating and Public Affairs and Social Responsibility Committees of the Board of Directors of the Company. 8

Ownership of Equity Securities The following table sets forth information as of January 30, 1981 as to the beneficial ownership of Common Stock of the Company, including shares of Common Stock as to which a right to acquire ownership exists (for example, through the exercise of stock options and stock units or through various trust arrangements), of each present director, each nominee for director and of the group (consisting of 59 persons) of present directors and officers of the Company. The beneficial ownership of each director, nominee and officer is less than 1 % of outstanding shares. The aggregate percentage beneficial owner- ship of the group is %. Common Stock Name Sole voting and investment power(1) Other(2) Aggregate total T. F. Ahrensfeld 94,700 2,500 97,200 Jerry Apodaca 87 - 87 J. C. Bowling 113,450 1,350 114,800 A. Brittain III 2,176 - 2,176 G. V. Comfort 2,057 22,900 24,957 J. A. Cordido-Freytes 4,750 - 4,750 Hugh Cullman 214,234 38,768 253,002 J. F. Cullman 3rd 301,498 111,134(3) 412,632 W. H. Donaldson 1,000. - 1,000 Paul W. Douglas 100 - 100 C. H. Goldsmith 108,070 12,000(4) 120,070 R. E. R. Huntley - 200(5) 200 J. T. Landry 64,108 200 64,308 H. R. Marschalk 1,920 960 2,880 Hamish Maxwell 45,420 9,400 54,820 R. R. Millhiser 207,026 27,772 234,798 T. J. Moore, Jr. 2,200 3,600 5,800 J. A. Murphy 103,700 5,320 109,020 S. P. Pollack 34,770 4,600(5) 39,370 J. S. Reed 200 - 200 George Weissman 174,305 70 174,375 M. B. Young Group 206 - 206 (1) Includes maximum number of shares subject to purchase on or before March 31, 1981 upon the exercise of stock options and stock units as follows: T. F. Ahrensfeld, 26,250; 9

J. C. Bowling, 20,250; H. Cullman, 28,300; C. H. Goldsmith, 31,950; J. T. Landry, 17,800; H. Maxwell, 16,150; R. R. Millhiser, 41,050; J. A. Murphy, 41,000; S. P. Pollack, 21,250; G. Weissman, 34,625; group', 512,137. (2) Represents, unless otherwise indicated, shares (beneficial ownership of which is dis- claimed) held in certain fiduciary capacities (including such holdings by a spouse) and shares owned by wives, minor children and other relatives sharing the homes of the nom- inee or officer. (3) Represents shares held in trusts of which Mr. J. F. Cullman 3rd is a beneficiary and trustee. (4) Represents shares held in trusts in which Mr. Goldsmith has a vested remainder interest. (5) Includes shares held jointly with spouse. In addition, present directors, nominees and the group owned beneficially at January 30, 1981 shares of stock (in each case less than 1% of outstanding shares) of affiliates of the Company as follows: Philip Morris (Australia) Limited(1)(2) CA. Tabacalera Naclonal(2)(3) Shares Shares J. A. Cordido-Freytes - Hugh Cullman 4,718 J. F. Cullman 3rd 2,000 Hamish Maxwell 5,332 R. R. Millhiser 7,481 George Weissman Group(5) 8,332 (1) The Company owns, directly and indirectly, approximately % of the outstanding stock of Philip Morris (Australia) Limited; the balance is publicly held and traded. (2) Except where indicated, beneficial ownership is based on sole voting and investment power. (3) The Company owns a substantial minority interest in the outstanding stock of C. A. Tabacalera Nacional, a Venezuelan corporation; the balance of such stock is publicly held and traded. (4) Includes shares (beneficial ownership of which is disclaimed) owned by immediate family members as follows: Hugh Cullman, 2,220 shares; R. R. Millhiser, 413 shares. (5) In addition, one member of the group owns shares (less than %) of E. Leon Jimenes C. por A., a Dominican Republic corporation, in which the Company owns a sub- stantial minority interest. 10