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On the ®@ver. The cover of this report is a graphic ret3resentation cf the growth of P97ilip f.torns Pncarpsarated trons 1974 tto 1983. PPrimary Earnings Psr Share Primary earnings per common share have increased to $7,17, an average annual compounded growth rate of i8.F6?o during this ten-+Fear period. Net Eam"Ss Net earnings have increased to $903.5 rnilEisn, an average annual compounded yrowth rate of t9.$% during this ten•year peti<.d. Operatfe+g Rave+tves Operating revenues have increased to $1 3 ,0 bsit6on, an average annual crampnunded growth rate of tT4% during this tean-ye&tr periczr,4. Philip Morris Incorporated is a leading company in three large indus- tries-cigarettes, beer, and soft drinks- that provide simple pleasures to millions of people 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 a century ago and incorporated in Virginia in 1919, the cam-- paFiy has long been a major cigarette manufacture.r. 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 seventh-largest brewer in the United States. Today, Miller. is the seCand-latgest.; The Seven-LTp. Company, acquired in 1978, is the third-largest soft drink martn._ Philip Morris has also diversified ii facturer in the wo.rid;;; provide financing for customers of Philip In addition, I'Isilip: Nlorris Cre€f it Corpo- ration commenced operations in 1982 to > Group Inc. The Seven-Up t:.ompany, Philip Morris In.dustrial, and; Mission Viejo Realty national, Miller Brewing Compariy, six operating companiest Philip Morris U:.S;A_; Philip Morris tissues, and packaging materia.Es; as well.l as into community development. These businesses are conducted by ` the manufacture of specialty papers.;.. Morris Incorporated's ctpe: 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 Gcampany' 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 Fi€teen Year Financial Review 28 Consolidated Financial Statements 44 Board of Directors 46 Officers 48 General Corporate Information

~ ph;(ip Morris incorporated Financial Highlights ti_n_millions of dollars _except per share amounts) _ ' 1983 _ 1982 1981 1980 1979 Operating Revenues ~_ _~_ $12,975.9 $11,586.0 $10,722.3 $9,649.5 $8,149.1 Net Earnings 903.5 781.8 659.71"' 549.11"' 507.9 Earnings Per Common Share 7.17 6.23 5.28(A) 4.41("' 4.08 Dividends Declared Per Common Share 2.90 2.40 `2.00 1.60 1.25 Funds From Operations Per Common Share 9 0.70 9.24 7.81 6.29 5.65 percent Increase Over Prior Year Operating Revenues 12.0% 8.1% 11.1% 18.4% 22.9% Net Earnings 15.6% 18.5% 20.1%I"' 8.1%I"' 24.3% Earnings Per Common Share 15.1% 18.0% 19.7%(^' • 8.1%("' 20.7% Dividends Declared Per Common Share 20.8% 20.0% 25.0% 28.0% 22.0% Operating Revenues _ Philip Morris U.S.A. $ 5,519.9 $ 4,330.1 $ 3,761.6 $3,272.1 $2,767.0 Philip Morris International 3,646.7 3,563.7 3,400.3 3,205.4 2,581.3 Miller Brewing Company 2,922.1 2,928.7 2,837.2 2,542.3 2,236.5 The Seven-Up Company 649.9 530.6 432.1 353.2 295.5 Philip Morris Industrial 237.3 232.9 291.1 276.5 268.8 Consolidated Operating Revenues $12,975.9 $11,586.0 $10,722.3 $9,649.5 $8,149.1 Operating Income Philip Morris U.S.A. $ 1,337.8 $ 1,101.6 $ 905.7 $ 786.1 $ 701.3 Philip Morris International Miller Brewing Company The Seven-Up Company Philip Morris Industrial 366.0 446.0 396.6 318.0 260.6 227.3 158.8 115.6 144.8 181.0 (10.8) (1.2) (1.7) (7.1) 7.0 13.6 . 7.6 18.9 16.9 18.3 Mission Viejo Realty Group Inc. * P.M. Credit Corporation* Consolidated Operating Income Compounded Average Annual Growth Rate . Operating Revenues Net Earnings Primary Earnings Per Share During 1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc., and are accounted for on the equity method. Rea1 estate operations were previously consolidated. Prior-year amounts have been restated, where applicable. The company believes the equity method of accounting for the reorganized real estate operations provides a more meaning- ful presentation of financial results. . Operating companies' income is income before corporate expense, interest, and other non-operating income and deductions. The amortization of previously capitalized interest is included in operating companies' income. 19.8 2.0 11.1 14.7 11.2 4.5 0.9 $ 1,958.0 $ 1,715.7 $ 1,446.2 $1,273.4 $1,179.4 1983-1978 1983-1973 1983-1968 1983-1958 14.4% 17.4% 18.5% 14.2% 17.2% 19.8% 21.5% 16.8% 16.2% 18.2% 18.7% 15.4% (A) Effective in 1980, the company adopted the last-in, first-out (LIFO) method of costing the leaf tobacco components of inventories used in its U.S. and U.S. export operations. Effective in 1981, use of the LIFO method was extended to cover additional inventories. The 1980 change to LIFO decreased 1980 net earn- ings and earnings per share by $61.8 million and $.49 per share, respectively, and in 1981 by $14.4 million and $.12 per share, respectively. *Represents equity in net earnings of these unconsolidated subsidiaries. N cn O O O #

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 dividends increased 20.8% to $2.90 a share. • Cash flow per share increased 15.8%.  Our debt to equity ratio at 0.76 to 1 reached its lowest level in 17 years. 0 Philip Morris U.S.A. increased its market share for the 21st consecutive yean ` ~ 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.  1Vlarlboro's worldwide sales exceeded 235 billion units.  Milier Brewing increased its operating income 43.1%. n 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. a oa,er Beer t ToGacco Operatlnq Ravenu.s by Product LIn.

Reviev+ of the lrear . 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 soft drinks 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 includes a solid share of most key markets, plus the creativity of our 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, 15.7%. 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 compounded annual rate of 24.0%. In 1983, a substantial increase in Philip Morris' strong cash flow enabled us to re- duce total outstanding debt by $671 mil- lion during the year. As a result, our debt/equity ratio reached its lowest level in 17 years, improving to 0.76 to 1 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 completed in February of1984: We have invested nearly $3.9 billion in capital expenditures duringg the five-year period 1979 through 1983, of which $566.2 million was spent in 1983. A full report on financial activities begins on page.20: N.t Famfngs

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. 204.7 billion units, compared with 204.4 billion in 1982. Philip Morris U.S.A.'s market share grew from 32.8% Iastyear 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 tax being 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 and localities. Largely as a result of 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-~ began in the Cabarrus County, North Carolina, plant, the world's newest and Over the fastten most technologically advanced cigarette rs Ph;,,P Morr,$ in ~s.AS °Parat'"g manufactu facilit r g y - revenues hava In Louisville, the first phase of the- increased at an t Phlltp Morrls U.S.A. OpAratlny R.vonuos 4500 average annua 214,000-square-foot primary tobacco pro- ~~~ ded rate 37~ cessing plant expansion was completed 3000 on schedule. This expansion is expected to be operational in early 1985. 2250 The supply of U.S. leaf tobacco-the ,5W . cornerstone of our quality products-was adversely affected by severe drought 750 during the tobacco-growing season. How- o ' - ever, Philip Morris was able to obta121: 74 75 7s 7778 79 80 818283 adequate amounts of quality U.S. leaf to- bacco from the 1983 crop and from farmer cooperatives" inventories of earlier crops. oPn"';, 0 To ensure tbe future availability of Pn,ip MorFis u.s.At r ~ ' operaGngincome Mdlionsof Dollars U.S.-gI'ow22 leaf tobacco-the'world s has nsen at an aver- , best--Phili p Morris U.S.A. continued last agean"ual°°`n- pounded rate of 1200 ear to €und educational and research- 'g-4°° far u,e'ast y . - tenyears; t~p i ral oll d`ext t fo g lt a gran r a r eges n en~ s. cu u c sion services in the tobacco-growing states._ dustry's sales apparently lost in 1983 irt. -= fact had been already recorded in 1982.- IVlarlboro, the largest-selling cigarette, in the United States, and the world, led the industry with 120 billion units in the United States, while increasing its market share to 20.1%a. Demand for full-flavor and low-tar brands has stabilized. Into this market Philip Morris U.S.A. introduced Players, elegantly packaged in black and gold, ` following up our successful launch in 1982 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 tar. Philip Morris U.S.A. continues to ex pand and improve its manufacturing ca- pacity. In January 1983, initial production 150 30 It I I -I a 111 =a a 74 75 7877 78 79 80 5182 ~_' - u. CTpa..tts Indusiry _ unlt SaNs - In 1983. totsi U.S - - clgaratia"rndustry Bi_l,'on UFtih3 . unitsatesd~lined = 4.5%.6ur market --~--_ : sharaincreased `~ `..=_to34.d°lain1983.._ 45Q.. ~ 1J.S: Cigarette~ Indushyunitsates-3~ a Philip Mords Share Q ' ofU.S.lnd"Ttrv(° ~ 270 lEJ 600 400 200 o_. 1111111 74753877787980-8T82E3 - PhtlipMcrrlsu.B.A. Cfparetb Unft 3ales TotaE unit sates of PhdfRMOrrisu.8.a . -61llionUdds- . grewmodestty in 5983_ 180 - _ 74 75-787?78798^~8182 Pa.. . . ,I 2

Inmilions Operating Revenues Operating Income 1983 $5,519.9 .$f,337.8 1982 $4,330.1 $1,101.6 1981 $3,781.8 $ 905.7 1980 $3,272.1 $ 786.1 1979 $2,767.0 $ 701.3 PLAYLRS ® © VIRGINIir$LIMS LOW TAR - FiLTER M Ee5~ Marlboro LIGHTS LOWEREOTARL1ICOTINE __ MERIT r-Ultra Lights--1 MENTHOL 100's ULTRA LOW TAR 'Pariiament LOW TAR LOW NICOTIYE LTER CIGARETTES 1IarlIioro MERIT Filter , ~i~. LOW TAR-ENR:CNED FLAVOR' _... - . . .i- " ~{

Facing difficult conditions in almost all of its markets, Philip Morris International succeeded in increasing total unit volume to 244.8 billion units. Excluding the United States, Philip Morris International has a 6.2% share of the world market. For the seventh consecutive year, 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 Western Europe we are now Philip Morris was America's leading ciga- the largest cigarette manufacturer, and rette exporter. Although the volume of our newly expanded plants in Bergen op . export sales dipped in 1983, we main- tained our 58% share of this market. Although we showed market share gains in most of the world's largest mar- 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 pricee competition irr a number of markets, import restrictions, price con- trols combined with inflation-particularly in Latin America-andd 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 of sales Zoom, the Netherlands, and West 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, stilt account for only 2% of this market. We continue active negotia:--s tions to eliminate the remaining tariff and non-tariff barriers that restrict penetra- , tion of the Japanese_ market. In both Singapore and Hong Kong, _ two important export markets, Marlboro reached aa market share at year-erid priced. in foreign currencies and makes in excess of 18%: This was despite atetn-- our dollar-priced exports less competi- porary disruption in Hong I£ong caused tive. Even so, Philip Morris increased by a large duty increase and competitive its share in several key export markets, price cutting. . ~,__a. ,_ . __,~ , notably in the Middle East, Africa, In Brazil, the largest market in Latin and Asia. America, we; gained market share, with In the important West German market, Galaxy, a low-tar, higher-priced brand, . a price war erupted following a sharp in- improving its position. This was agamst . crease in the government excise tax the dominant trend toward the lower which had reduced consumption in 1982. ' priced, Iower-margin brands which'all-a- ~ Philip Morris successfullyiaunched its manufacturers introdhced in response to - L&M brand as a high-quality international the sharp decline in consumer spend- brand to supplement. Marlboro, our major ing power. brand in the German market. By yeai- Philip Morris (rlustsalia`, Limited intro- end; Philip Morris had the best market- ducedits Ieading Peter Jaci~son brand place performance of the five major in a new 3Q s packmg with encouragr~tg- competitors with our share up by almost two points to an all-time high. However, _ the general reduction in margins pIus in- cremental marketing expenses sharply reduced our operating income. In Italy, with five of the country's seven leading 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. Still, our French sales were: good with unit volume of our principal brands, Marlboro and Philip Morris Super Phltip Mort{s~ Int.m.Honai . Opertttng Ravenues Total operafing rev- enues (consolidated and unconsolidated) of Phdip Mortis- International have increased at an. . averageannua6 compounded rate of 23.00so over the pastten years. 6000 a Consolidated Phfl(p Mor# Inbmatlontt Op.raUny Incom. Philip Morris Inter- national'soperating , Millionsoi©olfars income:dedined ~ . . - - _. . . . . 18.0% in 1983. 390 : results. The affiliate's wine company, Lindeman (Holduigs) Limited, increased ,, volume in an environment marked by overcapacity an€3.price cutting. Our Atis- ' trahan affiliate announced a net profit growth af 43 3°l~'at the end of its June 30, ~,_ ,__ .~. WoddCtqarattstr.dastry 1983 fiscal year_ , ~_. _ unn~rs~ ,u.sa. Beiison& Hedges (Ganada) Inc. I ;;,9M;,,orkt,t„e increased, market share and improved ~~; ~~ ear~ unir profitability: ,sazs.o f~rte< . share of 6:256 3600 . Philip Morris Internatiorial's continuing ~~~ 3000 , ssz success is based upon i~nprovements, in market share, in;_tttis respect;I983 was ',o~dc 2o an outstanding year. We expect profitabil- tn~, ~u~ es (Exctuqina us.n.) 7 saa ity to improve as'the world's economies Phai Mo~~are recover and currencies stabilize.. ~d Market t%Y

WM. 1nG LTY /Y c L 1 MarkTe Peter 0 Bpl-w-derc) EXTRA DOUCE DAN II .. ® ® SUAVE Fortuna eHuUPm,owz,S ~ ~ ';JPERLY,'HM BARONET ' MERIT Ir Galaxg ® MURATTI AMBASSADOR ~ a~Y ,.T_ ~. .~. ® ~olUr~ Marlboro- cn ~ in n,pqrs Operating Operating Revenues Income 1983 $3,646.7 $366.0 1982 $3,563.7 $446.0 1981 $3,400.3 $396.6 19g0 $3,205.4 $318.0 1979 $2,581.3 $260.6

Mtller Brarring Company OpAnrting Inoams Miller's operating -~ - - - - income increased- MiGions of Dollars 43.145fn1983 - follo,vinga37.336 - . irraease the year . 180 .- - . before. - - Fc=t~ s_zcond ;ea~ ':n a rav, the ccr.nes~6rewing r~ rdvstrywasunabfe to shav artyeappre~ : - _ U1 cableganiR Q wlume 125 - ,~-- O Q ~ U.S Beer tncfi stry 100 Harre! SFipments `~' . Mfi'sr8.hafeaf 75 . ~ --- 24, 12 U.S Brerlndustry Barr.! Shipmsnts Ind4Wg lmccas MilCwn of Barrqs 1 25 74757677787980 818283 74 7576 77 78 79 E.~ 81 8283 747576 I I i i G i i 7 79 79 80 81 6c&3 For the second year in a row, the domes- tic brewing industry was unable to show any appreciable gain in volume. Although Miller 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 United States with fine products in all market segments. Lite im- ' proved, Lowenbrau maintained its seg- ment share, Meister Srau 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 try continues to be widespread, and ' competition is at its fiercest level since - Philip Morris first entered the brewing ` industry 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- 4 ing continued growth. 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-priced beers. Magnum Malt Liquor is being distrib- uted in a number of markets, while Miller's Special Reserve was reintroduced in test 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. Mlll.r Brewing Company Operating Revenues 1140 760 Mftl.r Bnnving Gampatry Barrst Sl~ipm.nts ~ -- -- -~ - - -- :_ Miiler'sdec~nein-- 6anet shipments in Mill`ions of Harrefs 1associated 983 wasprimanly wHh . . the_Milter Higti Life 3fi _

bLl/ENB1Z-AU IOILBL4IM~ m a Inmill'rors Operating Operating Revenues Income 1983 $2,922.1 $227.3 1982 - $2,928.7 $158.8 1981 $2,837.2 $115.6 1980 $2,542.3 $144.8 1979 $2,236.5 $181.0