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THE MoCOMAS RESEARCH CENTER: Dramatic evidence of the emphasis placed on all areas of research and development within the Company. Housing the most advanced equipment and incorporating latest design and construction, the McComas Research Center will comprise the nzost modezyz research facilities in the industry. Completion is pianned ,tor early summez•,1959. 9/

OPERATIONS I)ttring the year the Operations Department eontin- ued its program of hasic engineering and machinery development. This program has enabled your Com- pany to pay its workers as well as any other unit in the inclustry, and at the same time to control costs and to produce cigarettes and packages of the high- est quality. We are continuing our program of pro- curing the most modern equipment available either in the Vuited States or rurope so that the quality and the packabin.- of our products will continue to pace the industry. In order to handle more effectively and efficiently the constantly increasing amount of all types of wrapping materials for our Richmond factories. a new modern factory warehouse is beina constructed on a larbe tract of land owned by your Company in Richmond. This facility will be completed about Jiaue of this year. We are confident that the mate- rials-hancllina methods which can be used in this modern warehouse will result in substantial savings. The production of the dramatic new Parliament and the many improvements in the entire product line were outstaucliua achievements of the Oper- ations Department in 1957. LEAF There was not as much fine quality tobaero in the 1957-58 crop as was available in the previous year, nor was the crop as lar.ge as in 1936-57. Your Com- pany was fortunate, however, in having purchased rather heavily in the 1056-57 crop and thus having on hand somewhat in excess of its normal require- ments. As a result. we were able to be selective in our 1957-58 purehases and at the same time secure an adequate amount of fine tobacco at rather satisfac- tory prices. considering the overall price level. In spite of our favorable sitnation. however. there will be some increase in our leaf costs in 1958. 10/ Senior Vice President If'irt H. Hatcher (I.), a dean of the leaf tobacco ind2tstrg, discusses expansion of Company pro- dt~ction facilities with Robe7,t P. Roper (cente)-), Vice Pres- ident in Charge of Operations, and Manzifacturing T'ice President And7•ew C. Britton. F1

Phi[ip b2orris' successjui expansion into foreign markets is guided by a highly specialized staff in the Overseas Division. Left to right, Joseph M. Cahn, Vice President, Advertising; James E. Tao7zer, Export Sales Manager; Justus Heyncans, Senior Vice President; George C. Dawson, President; Sidney Bach, Vice President, Manufacturing; and Henri W. Emmet, Treasurer. i Our Overseas Division which was organized late in 1955 had auothcr successful year. Its sales and profits were up 8%. which we believe, from figures available to us, is well above the average for the industry as a whole. Our two subsidiaries, Philip Morris Ltd. of London and Philip Morris (Australia) Ltd., enjoyed substantial sales iuicreases. During the year the Marlboro brand, packed in the flip-top box, was introduced and has had an encouraging con- sumer acceptance in both countries. The 1'enezuelan company in which we have an investment concluded another successful year, with Philip Morris and Marlboro selling extremely well in that country. While we made no additional investments overseas in 1907, we did conclude a new manufacturing and licensing agreement in Switzerland. This arrange- ment, and our agreement in Panama concluded in 1936, have both enjoyed successful beginnings and we are hopeful that these arrangements will increase the sales of our brand5 in these two countries. We are continuing to explore actively opportunities in many other countries for local manufacture. PHILIP IIORI:IS OVERSEAS l1arlboros, now a familiar sight in maiy foreign shops, find favor with Swiss smokers. Mr. M. Grindat (r.), President of the Swiss Tobacco Retailers Union, receives first carton of Swiss-made Ma)•iboros fronn Mr. YP. E. Sebes, Manager of ORECLA (wholesalers). Agreenient to amnufacture and market Marlboros in Switzerland is signed by N O ~ Managing Director Fritz Schurch (l.) ~ , of Fabriques de Tabac Reunies, S.A.; Justus Heymans (center), Senior Vice O+ v ? President of Philip Morris Overseas; and Overseas Presideaat George Dawson. 1/ O A N

NO DIARgE TING The Philip ;Ilorris product lineup is strong. Marl- boro and Parliament, with Benson & Hedges and mentholated Spud, represent the Company in the growing filter field. The Philip Morris brand covers the unfiltered regular and long size fields. ;,~Iarlboro sales continued to gron and this product is now not only our largest seller but is firmly estab- lished as a major brand in the filter field. This is espe- cially significant in the face of the adoption of the flip-top box by all its leading competitors. Alon' with all non-filter brands in the industry, sales of our Philip llorris cigarette brand continued to decline. As 1958 opened, our new high-filtration. recessed- filter Parliament was being marketed at a popular price. The now famous blue. white and gold package remains the same, but the filter and blend have been modernized. The result is a cigarette with a remark- able filter performance that meets consumer demand for a fiill flavored cigarette that delivers a smoke with an unusually low tar and nicotine content. The neiv Parliaments were market tested extensively for three months prior to their national introdnction ; although it is too early to predict results. these tests indicate encouraging acceptance by consumers. This is yet another new product stemming from a co- ordinated program of development by the Marketing. Operations and Research Departnients. As previously reported. Philip Morris restyled the packa.ging for all its major cigarette brands in 1955 and 1956. During 1957, «•e added a self-starter tab to _llarlboros for easy access to the cigarettes. Also, Revelation and Bond Street pipe tobaccos icere put in smart new "Potuh Paks," laminated and flexible Successful coordination of brand activities is achieved through joint planning by Brand Managers. Shown above are (l. to r.): John T Landry, Parliament; John R. Latham, Philip Morris and Benson & z2/ Hedges; and Thomas S. Christensen, Marlboro. 1

Members of the Marketing Group who coordinate advertising, sales and dista•ibtttion are (1. to n): Ray Jones, Vice President, Sales; George J. Henn, Vice President, Distribution; George TTeissman, Vice President and Director of Marketing; Ross R. Millhiser, Assistant Director of Marketing; and Roger Greene, Vice President, Advertising. packages for greater moisture protection and more convenient use. the Bond Street having been created for us by lIiiprint. Inc. The result was a gratifying effect on the sale of these tobaccos. In 1957 Philip llorris received the paclcaging in- dustr5r's highest honor-the Packaging Institnte's Corporate Award. given "in recognition of an out- standing advance in applied packaging technology in which Philip Morris has commercially integrated packaging materials eqnipment and methods in the packaging of its products." During 1957 a price increase on non-filter brands became effective. As pointed out in our report to you last year we felt that an increase on all brands was long overdue, because our profits, lilce those of others in our industry, are being affected by constantly increasing costs. Conszroner-tested improvements underscore the Company's leadership in design and packaging. Top: Self-starter lifts cigarettes from Marlboro box, makes selection of first cigarette easy. Center: Redesigned to simulate the Parliament package and carton, shipping case further builds brand identity. Bottom: Revelation and Bond Street pipe tobac- cos, in new "pouch paks," offer smokers conveni- ence and long-time freshness.

Get wifh PHtLRP MORRIS ...a man's kind of mildness FF. nB.r,.. e.e.r kind uf smcke. ihe milEnc. mma f2m eeK. nch tshtto-N6.0.ro 11ut'C 5oN tu smcke nswnllr. And Ne new soasbprocf bcx keefa erm tLs Isrt ei¢usth f¢m and 4ah. GtL vIG R-. +w's kind sJ wJQ.uc Where there's a Man... there's a• Marlboro ' surprising mildness YOU GET A LOT TO lR(E... FIITER, FIAVOR, FtIP.TOP !OX .r....~.ru.. tn...- r-.v,r.-1 - The filter delivers a smoke of Left: Creation of Marlboro-The Sporting News Pro Football Award heightened interest in Marlboro sports telecasting. Marlboro Advertising Manager Perry Leary and National Football League Commissioner Bert Bell with coveted trophy. Right: MAX SHULMAN whose "On Campus" series appearing in hundreds of college newspapers receives unanimous student acclaim from coast-to-coast. ~ lT A V ILE T EN G ... the bl•ar-id image THE FIRST FILTER CIGARETTE IN THE WORLD THAT MEETS THE STANDARDS OF UNITED STATES TESTING CO. NEW HI-FI FILTER The creation of a strong, distinct and favorable brand image is an essential step in the successful selling of our products. A prime goal of our marketing function is to translate this image into sales. For each of its major cigarette brands, your Company, with its advertising agencies, has developed advertising programs utilizing carefully selected media to bring selling messages as frequently and effectively as possible to a maximum number of potential customers with impact. Each week, more than one hundred million different people are exposeft to the advertisements for Philip Morris, Marlboro, Parliament and Benson & Hedges cigarettes. Promoting our brands at point-of-purchase, establishing broad distribution and guaranteeing availability of fresh stocks assure the greatest co-ordination with our aggres- sive advertising programs. Accomplishing these objectives is the national sales force, covering markets across the nation. The Company uses spot television as well as programs to achieve advertising versatility. Frequent changes in our line-up of broadcast presentations keep them in tune with public taste and program popularity. Among our top-rated television and radio network programs during 1957 were: "Playhouse 90," the CBS-TV award-winning dramatic series; "Suspicion," new NBC-TV hour-long dramatic pro- gram; "The Jack Paar Show; ' a unique late evening variety program, also on NBC-TV; ABC-TV's "The Mike Wallace

~ Expat tofind in Benscn & Hedg~ ccrt+l. Ptruurca ~ ncotherd8arctteofhn.CosJiatobaccos,l_zw(cus in flavar. Unique Flta of n,tunt cellaon, aass.fibned for um Bttr+Hon. Custom erouthpkcc tc remu the flltor, w tlut only the fLvor touchn your llpr. BENSON & HEDGES• rt--awrts- Left and above: Some of the advertisements created and placed by our national advertising agencies. MARLBORO Leo Burnett Co. Inc., Chicago PHILIP MORRIS N. W. Ayer & Son, Inc., Philadelphia PARLIAMENT and BENSON & HEDGES Benton & Bowles. Inc.. New York Interview," fact-fil!ed, candid interviews with newsmakers by television's most searching reporter; in season, "The Baseball Game of the Week" and "National Professional Football" telecasts, both over CBS-TV; the exciting Big Ten regional footba!l telecasts on NBC-TV; and beginning early in 1958, weekly National League Ice Hockey on CBS-TV. The popular Philip Morris Country Music Show, in addition to its nightly personal appearances before packed houses across the country, is broadcast weekly over the CBS Radio Network. The Company's magazine campaign for Marlboro has been voted the best consumer print campaign by Tide Magazine's Leadership Panel. Strong newspaper campaigns have been employed for impact in special markets. Max Shulman, one of America's foremost humor writers and author of the best seller, "Rally Round the Flag, Boys!" is now in his fourth year of "On Campus With Max Shul- man," a special column series placed weekly by the Com- pany in the nation's college press. Outdoor billboards, Sunday magazine sections and point-of-purchase displays supplement the print and broad- cast media campaigns to further create strong selling identities for each of our Company's cigarette products. Distribution, sales promotion, public relations and packag- ing activity coordinate with the advertising to give Philip °Morris, Marlboro, Parliament and Benson & Hedges an intensive marketing program designed to produce sa!es. Philip Morris' noteworthy advertising formula includes entertainment ingredients combined to please every consumer taste. Exciting television personalities such as MIKE WALLACE (below), originator of the incisive TV interview... the Master of Suspense, ALFRED HITCHCOCK ... JACK PAAR f'The Jack Paar Show°)... ti_1 , plus "Playhouse 90" dramatic presentations ... ...and for radio listeners, the all-star, travelling Philip Morris Country Music Show.

Employee College Scholarship Selection Committee oneets to select recipic2its of ammal scholarship auai-ds. (I. to r.) ii'illiam A, Stua)•t of the Educational Testing Service of Princeton, N. J., adviinistrato•s of the scholarship pro- gram; Dr. Geo•ge 1y1. d?odlin, President of the Universitzl of Rich-ntond and Chairman of the Selection Committee; Dr. ti-illiam F Ekstrom, Head of the English Dehart?nent, University of Loziisville; and Dean Charles C. Cole, jr., Assista7at Dean of Columbia College, Nea,,, York City. CORPORATE CITIZE NSHIP Philip Morris has long maintained that its greatest asset is its eiiiployees. for it is their combined and individual shills. talents and interest which have led to the Company's growth. At the same tinie, Yhilip lIorris has recoallized tlle need and responsibility for industry to support npecial prol-ranis to help elu- cational institutions train students for our nation's aroR'llla needs. The first scholarships under the Philip ;ilorris Employee College Scholarship Plan «•ere granted in September to the children of six of our employees. Under this plan the recipients may choose any col- leae or iuliversity conrse leading to a liachelor's degree in a four-year term at the college or univer- sity- of his or her choice. The Conlpaily's employee seholarship program gives substallce to its belief that the ]ceystone of American clemocracy is its educa- tional Systeiii and an eclucated citizenry-. This year Philip Morris added to its program liy contributiua a scholalship to -Michigan State i-ni- vei.5ity's top-rated food distribution course for stu- dents inteliding- to make food-sellinl- their etueer. It is the first cigarette coiipany to do so. Iour Coin- pany- also nial.es regular grants to the Empire State Through the Philip Morris Employee College Scholar- ship Plaq¢, the Conipany of- fers educational assistance to qualified sons and daugh- tea•s of employees. Margaret W. Heston, oae of six schol- avship winners in 1957, ac- cepts congratulatiozs from Chandler H. Kibbee, Piee President avd Chief Finan- ddI cial Offam•, as her father, Russell G. Heston, Conpany Cashier, looks on. Foundation of Liberal Arts Colleges which gives financial aid to some tweuty-three liberal arts eol- leaes; to the Iielltucky Independent College Fonn- dation (aiding eight colleges); to the Virginia Fonndatioll for Independent Colleges (aiding twelve colleges); to North Carolina State College and to the Virginia Junior Academy of Seience. where the Company sponsors a series of anntial awards. Yhilip Morris participates actively in and coli- trihutes financially to Jnnior Achievenient, a nation- al organization mailrtained by American corpora- tions to provide the nreans by which high school-abe youngsters can learn for themselves how the Amer- ican syste:u of free enterprise works. Each of these actions goes beyond the creation of a distinet and favorable public countenance. They point up the Company's awareness and interest in these special fielcls and help it attract as employees the talents and fresh approaches of new aenerations. The personnel ot y-oiir Company are also regnlar contributors and devote considerable volunteer «•ork to uany national and conlmunity welfare, civic and patriotic organizations. f

EXECUTIVE PRRSO\\LL _ In \ovember. President 0. Parker lIcComas died. His foresight and courage, his ability to forge a strong team and above all his adherence to the very highest prineiples of Ainerican business made him a beloved and respected fignre not only among his asso- ciates in the Company. but to all who were privileged to know him in the tobacco industry. IIis active interest and participation in civic and cliaritable organizations carried this respect and atfection for him into many other areas. At the Annual 111eeting of stockholders in Rich- inond last April, Dr. Rohert N. Dnf'uis, Vice Yres- ident in Charge of Research, was elected a Director of the Company. At subsequent Board meetings. Chandler H. Kibbee, the Company's Chief Financial Officer. was elected aViee President and was also elected to the Board of Directors. In addition, Robert P. Roper. Vice President in Charge of Operations, and J. Harvie Wilkinson, jr., President of the State- Planters Bank of Connnerce and Trusts Co. in Rich- mond. were also elected to the Board. Wirt H. Hatcher. Vice I'resident in Charge of Leaf, was elected Senior Vice President of the Company. New executive promotions made during the year include the appointiiient of Vice President George Weissman to Director of Marketing with the addi- tional responsibilities of coordinating and directing the Company's sales, advertising. market research. pacicaging and public relations. Vice President John E. Coolnnau. previously in charge of Organization, Planning and Control, was placed in charge of the Diversifieation and Development program. Andrew C. Britton was elected Vice President, Manufactur- ing and Roger Greene, Vice I'resident, Advertisinnt at the -April meeting of the Board. Paul D. Smith, formerly a partner of Conboy. Hewitt, O'Brien & Boardu an, was elected a Vice I'resident and General Counsel. The passing of Clark T. Ames, jr., and Walter N. McFadden were saddening occasions this year. Mr. Anies. formerly Vice President. Chief of Operations, had giveu Philip Morris many years of hiti inspired abilities and devoted efforts prior to his retirement early last year. Mr. McFadden. who served as Vire President, Purchasing. had played a key role in the Operations Department since lie joined the Company in 1926. p

To provide coordination as coirtinuiiig espausion iiiakes Philip lIorris operations more complex, and to plan further Company growth and expansion, nianaaemeut in 1957 established "The President's Office." agiroup which comprises, in addition to the I'resident. Joseph F. Cullman, 3rd4. five major Divi- sion heads. These Vice Presidents are George Weiss- nianl, Director of 1[arketiug; Roliert N. Dul'uis_, 1)irec-tor of Research; John I:. Coolmian;,. Director of Diversification aiid llevelopiueut; Cliandler II. Iiihuee:,. Chief Finaucial Officer ; and Robert P. Roper,;, Chief of Operations. THE PRESIDENT'S OFFICE , These men, in addition to division responsibilities. advise and consult with the President on planning and fundamental policies. Thus the Company will fully utilize its executive talents to continue its progress in the cigarette industry and to develop the full potential of the dit•ersifieation program over the coming years. 18/ i