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~ ~_-~~ t- --- ~ k Management and the Board of Directors At its June meeting. thw Board of' Director5 of Philip \I~,rris Int~~rnnr,it~r1 . (~ri«~! I~ Fii~h )lt)~~t~ll to treori;e Wrissiiian, effecti\(,,luf~f. 1~)ti-1• as ('hitiriuan and Cllief Exec•utive t)fl'irer uTtli~cG,iilpali~. '1'he Board also elected Johu A. Murpliv E'rt-_;ident and Chiet' Upera- tins; Officer of I'ililil) ~f rri~ Cnworhnratf'd, and lIugh Ctillman Vice Chrtirman and Chairlrian of the Finance Committee of the Board. At the same time, Frank E. Resnik was appointed President and Chief Executive Officer of Philip Morris U.S.A., and William K. Howell was named President and Chief Executive Officer of Miller Brewing Company Pre- viously, Mr• Resnik had been President of the Tobacco Technology Group and Mr. Howell had been Miller's President and Chief Operating Officer. At a subsequent meeting, Messrs. Resnik and Howell together with R. William Murray, President and Chief Executive Officer of Philip Morris International, were elected to the com- pany's Board of Director5, effec•tive October 1, 1984. I.ll'. «'I'ititiman rlntinl~tlti as Ch'dit'mian of the Exe,-k- tive Contlnittce and a menif)er of' tiie Uffic•e of the Ch;.ir- man. The former Chairman of the Executive Cummittee, Joseph F. Cullman :3rd, hus bern mtnled Chairman Emeritus. In 1954, Clifford fI. (roldsmith retired as Vice Chair- man of the Board and as a diric-ctur on reaching the age of 65. From P)78 to 1S)5.j. Mr. G(J1dsntith was President of the corporation. James C. Bowling and John T. Landry al,o retired <t~ offiror,s ~uld riirvctmr~ of the corporation. We are grateful for their long and distinguished service and for the fact that all threee remain consultants to thE' corporation. The Public Qnterest 1'hilip ?,lorris opcrtitf'-~ irn co~tuntries o.tc.;t tFr•ri- tories arwlnd l the world. '1'lle cn:iipany derives 5L.1 bil- lion in export revenues through the sale of cigarettes, tobacco, beer, soft drink extract, and other products. Philip Morris recognizes its responsibility to those locations in which we do business and seeks to improve society in the countries where we operate, and especially in the communities where we have plants and offices. In 1984, our Corporate ConU•ibutions Committee made 1,066 grants, mostly in the general categories of education; health and welfare; conservation and environ- ment; and culture and the humanities. The recipients included 213 educational organizations as well as 530 children of our employees who were aided by our College Scholarship and Vocational/Technical Scholarship Award Programs. In all categories in 1984, we began making m fir~~t~, 1~rU lir;resf.t'1Cted b<l~ic brartt`~ tf i <e loi.fr,rt w- al~i, viding funci:, over several years co hol1; recipiet?ts pI'uject their revenues and formulate long-range plans. We support federated charitable organizations such as the I?nited Way of America. In adclition, we ftutd creative programs for inner-city neit;llburllo„d," ,Ind groups %N itll special prohlent5. We cuntinue to du bw,inw~)s "onw 60 minurity-u«•ned bank5 and to encoiu•ugc Inillorit\ - owned vendors to work with us. We try to be creative in a1t ol' our Corporate Mturibu- tfons, and this is most visible in the art,. Indeed, our art supportt program has becotne an important symbol of Philip Morris' sense of corporate social respottsibiiiiy. We continue to sponsor a variety of projects. Some of these are historic, such as the travelingmexhibition that opened in 1984 at the Museum of Modern Art in New York, titled "Primitivism in 20th Century Art: Affinity of the Tribal and the Modern." It examines the debt that modern art owes to African, North American, and Oce- anic art. Several other nationally recognized shows trav- eled in the United States under our sponsorship. Many of our cultural affairs projects are less publi- cized, covering support for various institutions in our t eratltl:; com,~il:os' hotlle ti+"' _-l',)rar:es, I';tt: ".."'.15, aIiCf p~71~;?m-I~ J.'tS cFnteis anofale:'s. 1'k° Cfiit"11_LiP to match emp'ioyer gift5 to institutiun,,, thus eue,oui..ging our employees to help shape our c•untributions policy. In 1984, we supported 209 arts organizations, includ ing the Joffrey Ballet, the Alvin Ailey American Dance Theater, the '~Vestern States Art Foundation, and the American Association of Museums. In New York, we fund a branch of the Whitney Museum of American Art in our Ileadquarters building; the branch has attracted thousands of visitors since its opening in 1983. We believe that our corporate involve- ment with the arts helps to encourage our own employees' creativity and enhances the quality of their lives. Social and Legislative issues t'?IIi*'p Mo rrEa di :,' Ii rrt Pll64 it;r U..` IJasicc ple liked our products well enough to purchase more of them than ever before. But it was also more difficult to use them, because restrictions and regulations have appeared that previously did not exist. Virtually all businesses can complain about special fees or taxes or controls, and for many, such obstacles are

generated by antagonists who use legislative processes for their own ends. For Philip Morris, there are restrictions and controls on many areas that affect our businesses-including advertising and distribution; there are also onerous spe- cial taxes. In responding to such government actions, we ask only that we be treated fairly. Unfortunately, the record shows a lack of fairness, particularly as our antagonists and detractors continue to press for new regulations to restrict our marketing activities and for increased taxes on our products. We oppose increased excise taxes because they are unfair, regressive, and disruptive of natural market forces. Such taxes fall most heavily upon the economi- cally disadvantaged who must pay a disproportionate per- centage of their disposable income for products so taxed. Beyond taxation, emotional campaigns are being wage," rostrior ~rdvert!>in:,; and use of our products. Ii t~Lii'Ii `,` I"i Ci1~-=' ,ii,(~ti, sucl1 c,li<<p-~1gns are ing : moking and hvaith. Since 1954, Philip irlorris and the tobacco industry have contributed more than $120 million to fund independent research on smoking and health. We continue to believe that_the results of scientific investigations to date fail to demonstrate a cause-and-effect relationship between smoking and chronic diseases, _ We also believe that the preponderance of scientific evidence indicates that the presence of cigarette smoke causes no health impairment to a healthy non-smoker. Simultaneously, in the area of alcoholic beverages, a similar outcry is raised because alcohol has been abused 1;;: ,,,.ue. As a brF%vor of beer, the traditional drink of toward drinking are necessary, and the company is dedi- cating significant resources to campaigns promoting such responsible attitudes by all consumers of its products. It should be noted that in both_ the cigarette and the beer industries stringent advertising codes have been in place for years-codes designed to avoid promoting such products among youth, to emphasize the qualities of individual brands, and not to encourage the use of either product. Although the external pressures on our principal businesses have intensified, we are confident that we can resist them successfully artd, therefore, we remain opti- mistic about the future. The Outlook We face the usual uncertainties about the future in all our businesses, both in the United States and interna- tionally. Included among them are_tax changes, volatile conditions and economic difficulties in some overseas markets, currency fluctuations, and the future of the U.S. tobacco probram. tVe are confident that, as in the past, we will find new opportunities in change and that we will successfully manage and overcome whatever difficulties we encounter. We intend to maintain good rates of growth in sales, market shares, and income. We are gaining high produc- tivity through our capital investments, we have the best products available in our industries, and we have the resources to achieve our goals and to broaden our base of business. We have momentum. Above all, Philip Morris retains a talent for attracting unusually able emp!o;,ees and bringing out t1;e~..best. ie commitment, t::'iv', .2i.d of our 63,000 em- ployees are the strongest guarantees that we will maintain that momentum. d.1 Hamish Maxwell Chairman of the Board and Chief Executive Officer John A. Murphy President and Chief Operating Officer I

In 1984, Philip Morris U.S.A. intro- duced several new packings and devel- oped a new generation of carton and package display units that improved our product distribution. William I. Campbell (R), Executive Vice President, Marketing; Vincent J. Buccellato (C), Vice President, Sales; and Rosemarie Gallo (L), Assistant Division Man- ager, all ofPhilip Morris U.S.A., are reviewing one of the units used in the national introduction of the Marlboro 25's pack. Virtually all data pertaining to Philip Morris U.S.A.'s operations are proc- essed at our James River Center in Richnaond. Here, Harry G. Steele (C), Vice President, Finance and Adminis- tration, and R Robert Kurimsky (R), Vice President, Information Services, review with Dorothy MeDaniel (L), Manager, Data Center Operations, one of the progranws uard to naorzrc~r our producti, r pror,, asr:. Philip Morris U.S.A. In millions 1984 $6,133.3 $1,745.2 1983 $5,519.9 $1,337.8 1982 $4,330.1 $1,101.6 1981 $3,761.6 $ 905.7 1980 $3,272.1 $ 786.1 Consistent prroduct quality is partially a result of exacting manufacturing standards continually reviewed by our senior operations management. Mark A. Serrano (2ndfronzL), Executive Vice President, Operations; 63! John Camp- bell (2nd from R), Senior Viee President, Plant Operations; and Newton Fowler (R), General Manager of our Cabarrus facility, discuss with Perry C. Bostic (L), one of our technicians, the effi- ciency of our production eqnipment at Cabarrus.

i = . . _. . a..~. LL Philip Morris International In millions Operating Operating Revenues Income 1984 $3,741.0 $420.9 1983 $3,646.7 $366.0 1982 $3,563.7 $446:0 1981 $3,400.3 M6.6 1980 $3,205.4 $318.0 In the h4gh-poterrtial Japanese market the best-selling import is Philip dforris' Lark brand. Here, Lark point of sale is being examined by Dinyar Decitre(EndfromR), President, Philip Morris Asia, and, from Philip .blorris Asia's Japan branch, Hikojiro Yokota (L), Direclw} Key Accounts & Sales Plan ning; Yulaka Suzuki (2nd from L), MarketingManager; andShinsuke Katayama (R), Brand Manager. j~. 1'rRa .!,(rr,.r Ytttu'r~~r;rarivtu'icu o t„daqfLvr'a peuti4lrt fn-r owr¢o'e rr, LiD: leul rnu:+rrt a shit't lu lotrer-prirr~l cigtr reltes. blarlborn en,/r/yt•d pnrtlcutar catc'ress in lhis murket, /telpr'tl hy the lnlrurlrtrlrorr q!';}InrlBtu'u 1G0's earl,rl irr _. (trJ'lLCrtiryt" - f,ttillrllaurrqiug - ,fTirrrl"r „r'1`Lilij, )Aorris (;mb11. i.c t'(`!'!('(f(-/rlt~~ittlrfi...t'plll, tli,i'lrtfr,(' .HarIL„rn luu s,riUr Aunl Fiirlarr It'r. =~ iLufcliu,pMinmger nndltttus-.Inrherr RhkGv'(llr, 1'rr,alurl.llanul/rr: - Our long-te•nt success in Latur A/.. , ica depends on the int7oduction af,,r~,brands, one of uhicle is California in Brazil. Examining Califorraia on the production line are Lauro Peuckert (6), Vice President, Operatiorrs, and Salva- dor Rinera (C), Direclw• of ,l9araifactur- ing, both of Philip Morris Brasileira, S.A-, and Cuslavo Mario7dontes (R), Prodttction Manager of otu' Curitiba ptant.

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A network of strong, well-managed, and aggressive distributors has been essential to Miller Brewing Company's success over the years. Here, Leonard J. Goldstein (L), Vice President, Sales, of Miller Brewing, discusses with Kirby M. Lawlis (R), President of iYfiller Brands in Wauwatosa, WI, Mill- er's date coding system which ensures the f•es h ness of hli ller's prod ucts. S'tate-of-the-art production equipment and Ierluriqttes lrrzra atloued .lliiler to both rnntrol it.s costs and meet dentand f•uw our rwrcnt brr>rrcries. Herc, Allcn A. Srhrunrr (te), Senior Vice Prrsident, 0),eratinns; Billy R. Apple (('), I'ice ('rrsidrnt, Plant Operations; and Geor,r)r) A'. Tnrata (I.), Vicc Presi- dent, 6wlturyriug, m'e in.spectifir,q a filler linr• nl d/irtt,r's A9itr,ntrlrce- 6rdu•erW -. Miller Brewing Company Revenues Income 1988 In orrler to iarprorc its mrvrgins, Hiller has several premiuna-priced brands in rw~-ious sltrges of development. Her•e, Robert .9. Toledo (R), Vice President, Branrl.M1Innngenaent, discusses uit/r Brrrnd dlanagers William H. Bcirrett (L) r+rt drrame F. Srtrnruttel() conrnaeria! shrrg boards for onr o,f our brartds in t<st ma%l;et. 205764'7543

1 The Seven-Up Company In millions Operating Operating Revenues Income 1984 $734.0 $ 5.3 1983 $649.9 $(10.8) 1982 $530.6 $ (1.2) 1981 $432.1- $ (1.7) 1980 $353.2 $ (7.1) Seser-Up's continued suceess will depend on naaintainiug a sU•ong uet- uork of profitable, independent bot- tle•s. Charles u: Schmid (R), E.recuffre Vice President of The Sei'en-Up Com- pany, is responsiblefa• that network uluck includes Bart Brodkin (L), Presi- dent of [Vestinghouse Beverage Group. tr r'r'str1~ of 7itnrlbatGr'r p' c~ ;,tt). E~(rr2rd Si' Frnntel (R!. Prt'<i dvn/ "rnil ('Ai~fti.reciati2,apfficero,f7'i"' 1rp C'on-parg, re2lieus the neu• 3-liter 71'P hlltttr u'itla Rrrree Shnorts (L), 7L'P lh'nrid 7lurrirpr~t r,rd l.rrH"ed-rnnri (C'r, lkrr+=k,r`r(=h'inanr~•.~,;~( H~~rtioe.~ -- GabrielF. h. Beekaalany!ai. Presi- dent, and Marc de Petter (L,. .Flanager France, botk ofSccen-Up Gnterrra- tional, are shown reCieudrrg adcer-tis- ing rnalerzals used fn 7(P"s mid-1984 la2inck ira Frarue.

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Philip Morris Industrial , In millions Operating Operating ~ Revenues Income 1984 $277.2 $29.5 1983 $237.3 $13.6 1982 $232.9 $ 7.6 1981 $291.1 $18.9 1980 $276.5 $16.9 At Nicolet Paper, qual;ttl norrtrol is ~ey.factar in Inch~ growtlt. Norbert/.n_pah-(6), JamesR. Frazoleg (C), a re { A'o-rlsvrt Bein i ng (R) ensure thut p~per rolls mecl customer specifications. In 19N4, Wiscora.cin Tmue.l/ilis set a new 2corld output reco •d for the con- tinuous operation of a paper niachine. Thi.s rcrord is onblenantic q(the pro- ductiuity increases that hace charac- lerized oirr tissue operation. 6['illiam D. McCoy (6), President and Chief 6.recuth~e Officer of Philip Morris Industrial, and George Mueller (R), President of Wisconsin Tissue Mills, w•e disczsssiug that record in the com- puter roam from which- the H3 machine is controlled. 2057647546