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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- tition within the industry. Qperating 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 and beer brands on a world basis. In 1983, both 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% ofthe~ United States. LIKE has'establisheda 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 sweetene.r. was approved for soft drinks by the Food and Drug Administration. In consumer taste tests, our new prod- ucts 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 iux- formed consumers that 7CIPt unlike most other soft drinks, does not contain artifc- : cial flavors or artifcial 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 Coastal Corporation reported higher operating ' revenues, but an abundant lemon crop, the third in a row, and increased competi- tion from regional frozen juice packers The Seven•Up Corn- pany's operating revenues have grown at an aver- ageannuatcorn-pounded rate of S7.t% over the past ten years.. .. The Sav.n-Up CompanY Operating Fiwenu.s MAlions of doltars 540 reduced ar ins and ofits io;°~"`~ " ~ m g pr c ~ ° .nn. ~ ~w Seven-Up International, which.is under com,nued-neavy the direction of Philip Morris International, fn ~ MitionsoEDo ars showed some unit sales growth in 1983. ~~'a"ng'°~ for 3s ~-se~ uw~R~sas , ~ We are now selling in 85 countries around f the world and continue to- open new 2T markets. , a The expansions made in recent years , by Seven-Up in countries such as Italy and the United Kingdom-indicate a strong ° potential for our beverages outside the United States. Seven-Up is an interna- tional franchisewith an_-internationally - , recognized brand narne, 74757677787980 &18283- .

® _ a I~r ~.._.~ ~ _. _. - - - _ - - =- r.~ar~a;~+-,,s , N cn O a 0 ~ 0 f . Seven ll/i 1 Cola ~ ~ z Operating Operating Revenues 9ncome 5649.9 $(10.8) $530.6 $ (1.2) $432.1 $ (1.7) $353.2 S (7.1) $299.5 $ 7.0

Philip Morris Industrial had operating revenues of $237.3 million and operating income of $13.6 million. Our income grew 79.0% over that of 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 Plainwell 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 and shipping facilities. These investments enabled Wisconsin Tissue Milfs to expand beyond its traditional high-.quality, specialty printed and non- printed napkirtlines and enter the tissue' and towel segments of the industry, mak- ing us a full-lineindustrial 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 segments and by realizing more efficient production schedules. Plainwell Paper Company, producer of fine printing pa- pers, release backing papers, and techni- cal specialties, also reported improved results through product improvements and a broad product mix, as did Koch La- bel Company, a producer of quality labels and beverage carriers. Photo Captions: 1 Plainwell Paper Company's Kashmir printing paper is used in the Philip Morris and other annual reports. 2 Koch Label Company makes carriers for many different beers, including Meister Brau, Miller Brewing Company's newest brand. 3 Wisconsin Tissue Mills produces a fiill line of branded tissue, towels, and napkins. 4 NicoIet Paper Company uses the latest computerized process controls in operating its supercalender. Philip Morris Indus- trial's operating revenuesincraased 1.9% over 1982. Phlllp Morrls Indaatriat Opaating Rswnuos M0lions of Dolfars 240

For our real estate operations, 1983 was a year of recovery. Housing starts, sales, and profits were all up strongly. Operating revenues at $258.5 million and 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 expand prof- its in both the short and the long term by forming Mission Viejo Realty Group Inc. ("Realty Group"), a wholly-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, residential construction, and- sales at Mission Viejo and Aliso Viejo in California, and Mission Viejo. and High- lands Ranch in Colorado; and Continental Equity Investments 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 had homes that `_; were ready to be occupied. Residentia2 -. closings were strong throughout the year. The Realty Group continues to meet 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 planned ' communities built around high-quality housing, schools, parks, recreational facilities, andcommercial 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, Mar'~i Schubert, prepares Mission Viejo swimmers for 1984. The U.S. National Swim Team will train at Mission Viejo, which will also be the site of the first Olympic event: Iong-distance cycling road races. 2 The new Stratton,Ridge homes in Highlands _ Ranch,-Cotorado; offer elegant, spacious living.. ' 3 Residents gather for the anaual HighIands Ranch Spring Roundup and barbecue. 4 Lake Mission Viejo, California. 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 interestt rates climbed, demand shifted.from larger too 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 moderately priced, single-family, detached homes-designed for young faini- lies. At nearby Aliso Viejo, there are now_ four lower-priced programs, while„_ t our Highlands Ranch just south of F3eFiver Colorado, we are offering competitively priced housing in. all of the major market segments. Highlands Ranch is a: planned 14 " . MVRG Opsratinq R.vsnuss 105 70 35 747578 7778 79 8E1-8182 S' MYRG O p. ratln¢ lncomt MVR(z7ecarded a._.. --. t00+%gair,in' 'Mr~ccso4Ddlars - operating income- 25 20 .,'6r,'s79eo3'9233

I,fr;uwS ®perat9ng Operating Revenues Income $258.5 $40.6 $i30:2, ~ 6.0

Corporate Management Succession In November, George Weissman, who will 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 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 . him to be succeeded in. those positions by Brown, Visiting Professor at The Johns> Hamish Maxwell, age 57, formerly Presi- Hopkins University, was elected a mem- dent of Philip Morris International. ber of our Board of Directors. Dr. Brown As the first in several moves to imple- has ann outstanding background in busi- ment the plan of orderly succession, the ness, government, and education, includ- Board elected Mr. Maxwell President and ing service as Secretary of Defense and Chief Operating Officer of Philip: Morris President of the California Institute of ' Incorporated effective December 1, 1983. The Board also stated its intention to elect as of the August 1, 1984, date John ` Technology. H. Robert Marschalk, a director of Richardson-Vicks Inc., has retired after A. Murphy, age 54, President and Chief serving as a director for 17 years. We Operating Officer of the Corporation with deeply appreciate the value of his counsel all operating companies reporting to him. and guidance, and are pleased that he rphy will. continue ; continues as a Director Emeritus. Until August, Mr. Mu as Group Executive Vice President with __ the Miller Brewing Company, The Seven- The Public Interest Up Company, and the Mission Viejo As the leading I7:Sr exporterof tobacco Realty Group Inc. reporting to him. _ The Board also plans to elect Hugh Cullman; age 61, as a Vice Chairman effective August 1,1984. Mr. Culhnanis Group Executive Vice President and _ChairmanC and Chief Executive Offrcer 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. Millhiser continues as Vice Chairman and Chairman of the Finance products, and with interests in the inter- national-beer and soft drink industries, Committee. Philip Morris supports policies designed to promote free`and-fair trade. In.1983; Phdip Niorris made a'net posi- tive contribution of $1 ljbillion to the U.S. balance of trade through. the export. af cigarettes; tobacco, beer, soft drink ex- tract, and other products: ,-- Our products are inanufactured and marketed abroaii bymore+than300 affili-~ ates, licensees, and franchised bottlers<- Phihp Morris cofttributes positively to the economies of the countries in which we The Offce.of the ChiefExecuti.ve now operate by purchasmg-materials and ser- consists of George Weissman, Chairman vices localIs- and by generating large tax of the Board and Chief Executive Offtcer; revenues, and by_ training thousands of Hamish Maxwell, President and Chief employees. Operating Officer; and John A. Murphy, Group Executive Vice President. - It was also announced that the.Board _-.. intends to elect Mr. Weissman, who has been Chairman and Chief Executive Offi- cer cer since 1978, Chairman of the Execu- tive Committee of the Boardon_Apri125, ' man 3rd, 1984, succeeding Joseph F. Cull who in turn will become Chairman Emeritus of the company. - Another major promotion was that of R. William Murray,, formerlyExecutive Vice President of Philip Morris Fnterna tional, to President and Chief Executive Officer, Philip Morris International; _s replacing Mr. Maxwell. . The new management team, which in- cludes other management promotions on both corporate staff and operating com- pany levels, is moving into place effec- 16 Together, Philip Morris and its affiliatess employ nearly 28,000 people abroad. Our involvement overseas significantly helps the I7 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 directly linked. to our~ foreign business. Moreover, our exports increase employment among 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 social responsibil- ity. At all times, our business activities must make social sense, and our social' activities must make business sense. ~ek teie W maehisconunitmnt for-a -var of reasons: We want others to think welF

of us as a company and of all our employ.- ees. We believe a company should return somethmg to the society which gives it so much. Uitimately, we beIieve any corporanon-to survive-must interact in a 1esponsible manner with the society from which it draws its charter and strengths. The primary focus of our philanthropic giving historically has been in the area of education, which in 1983 accounted for over a third of our overall contributions budget. We donate money to various indepen- dent coltege funds and make direct-grants to educational institutions located in those communities in which we maintain major operations. In addition, we have an active and extensive program of matching emplopee gifts to institutions through- out the country. In other words, our em- ployees helped shape our overall contriba- _- . _ tions 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/TechnicaI 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 inaseries funded by Philip Morris, was held at the Manufacturing Center in Richmond, Vir- ginia. ginia. Arturo R. Tanco, Jr., Minister of --- Agriculture for the Republic of the PhiIip- pines, was the keynote speaker at the two-day event. The national tour of "The Vatican Collec- -tions: The Papacy and'Art;" sponsored by Phdip Morris, was a major event as it moved from New York to Chicago and San- Fi'ancisco. By the end of the tour in Feb- ruary 1984; more than 2 million• people . had; seen.the exhibition. - Our involvement with the arts cort- tinues to be eclectic, ranging from "The Precious Legacy: Judaic Treasures From e Czechoslovak State Collections." to "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 National Tour, the Joffrey Ballet National Tour, and a 28-city tour 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. Too date, in ex- cess of 300,000 people have visited the" Museum. Our social commitment is equally broad. As leadd 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-owned businesses, and underwrite and publish directories and. other aids for black, Hispanic, and women's organizations. Psrenntal~ 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 marke.t;=the United States, faced the 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 alI 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 Iocal, governments in the United States collect about $10 billion annually from smokers. The 1983 federal excise tax increase is due to be rescinded in October1985 under a sunset provision enacted by : Congress. In the past, governments facing un- funded budgets have imposed taxes with relative 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 anticipated. Governments abroad, too, are begin- ning to reconsider the efficacy of sky-high taxation. In Uruguay, the fiscal authorities re- duced the excise tax on a trial basis in an effort both to stimulatee sales and. increase government revenues. Similarly in Argen- tina, the government agreed to eliminate a 5% cigarette excise tax surcharge. In two of Canada's provinces, Ontario and New Brunswick, taxes have been reduced. homes, businesses, and throughout our communities about drinking. entific studies; Philip Morris, working directly and There through its trade associations, will con- tinue to urge governments, wherever we healthy non-smoker is harmed by his neighbor' do business, to lower the unfair and dis- s smoking; criminatory tax burden on our products, Only further research can provide valid and reduce unnecessary and restrictive answers about the effects of smoking. has contributed The tobacco industry legislation. The political action committee of the almost $111 million to fund independent research people of Philip Morris is PHIL-PAC. Our on smoking and health. We will to fund such research. continue nonpartisan, issue-oriented PAC con- tinues to play an important role in our Government issues also affect our bever- Voter Involvement Program and an impor- United States alone;, nearly 400 pieces of Seven-Up have encouraged recycling is no scientific proof that the At the same time, anti-smoking forces are age operations. There has been an in- tant role in our ongoing government rela- gaining in influence. Virtually everywhere crease at the state level in forced-deposit tions. PHIL-PAC's theme is "Democracy we do is not a spectator sport:' In 1983, more_ business, we are challenged by legislation, and the possibility exists of a than 2,000 employees and stockholders restrictive legislation. Last year in the federal forced-deposit law. Miller and agreed with that message and supported by anti-smoking legislation were proposed choice. Miller distributors operate alumi- corporate PHIL-PAC. A survey showed at the state and local levels, however, num reclamation centers, which last year _ that our contributors are better citizens- most were defeated when logic prevailed. paid the public more than $11.4 million for they register, they vote, and they give of More are ex 1384. 46 million pounds of aluminum cans. We their personal time to civic interests. ' ~' In stralia, legislation to an clga- also support "Keep America Beautiful:' a' rette advertising and sports promotion non-profit organization devoted to educat- ~ failed to pass in Western Australia follow- ing the public about fitter problems: f ing an intense media campaign publicizing The problems associated with alcohol -: the detriment re ere ssions the bill abuse at all ages are gaining national at= ( Id cause. The rights of smokers to tention. For many years, Miller has sup- smoke ' vernment offices in Canada ported a number of alcohol education were defended by;the industry through programs and works closely with. research which illustrated the unfeasibil- BACCHUS (Boost Alcohol Consciousness ity and costliness of such restrictions. Concerning the Health of University Stu- Smoking aboard aircraft is yet another dents). AIM (Alcohol Information from area subject to government intrusion,. Miller) is the latest extension of the The Civil Aeronautics Board is currently Miller Brewing Company's commitment seeking a complete ban on smoking, on to alcohol education and to the promotion flights lasting two hours or less. Nearly of responsible use of its products. We can one-third of all U.S. airline passengers help solve the problems of alcohol abuse' _ will be affected. Yet an independent study by fostering; responsible attitudes in-our shows that 83%a of surveyed airhne 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 showed that smoking on aircraft 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 ouratockholders that: No one knoars what causes cancer or other chronic diseases_ claimed to be ~ related to smoking; ; '' Numerous factors, including,occupa- ional environments,-industrial pollution,- toxic waste, heredity, and stress, seem to affect the frequency of occurrence of these complex diseases, according to sci-

George Weissman, chairman of the board and chief executive officer (front), meets with other members of the Office of the Chairman Qeft to right): John A. Murphy, group executive vice president; Hugh Cullman, group executive vice president; Hamish Maxwell, president and chief operating officer; Ross R. Millhiser, vice chairman of the board; Clifford H. Goldsmith, vice chairman of the board. ~. The OutEook But our greatest resource is our peo-- ~_ We operate in highly competitive indus- ple. Thanks to the skill, productivity, ~ tries-as we have historically-at a time dedication, and continued loyalty of our :_ when_manyof the world's economies are 68,000 employees around the world, we: . G.^. . . . . .. . °= still struggling out of recession. We make have produced an unbroken record of 30. , years of growth and can face the future products whose use gives pleasure to 90 ~ million people every day. with optimism. ~' It is evident that our cigarettes and; y= beverages serve_ a basic need acknowl- edged ' r edged bymankind for thousands of years: The record is clear. The people who enjoysmoking-and drinking have prevailed George Weissman over those who oppose these customs. Chairman of the Board and The industries whichh serve them have_._ Chief-EXecutive Officer grown and prospered. ' _ We are realistic about the problems our industries face;, but we look forward to - !_ the continued growth of our companies x~ ~ ~; within those industries. The challenges F are° opportunities: ~= From a strong domestic market where Ross R.;Millhiser we face little foreign competition, we . Vice Chairman of the Board ~ reach out into I70 countries and territo- _ ries. Outside the United States, our` `share of the world's cigarette market is stil only 6.2°Id; and we are only just start- ing to tap many of the major foreign mar- bets for our beverages. Clifford-_IH. Goldsm.ii h. Rinanciallp and physically, Philip Vice Chairman of the Board - Morris has never been in better shape. -4ur current and projected cash flow; is `nfficient to meet our needs and to main- nurr plants as the most efficient the world.

Financiai Review 1983 _~M 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). During 1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc., and are accounted for 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 declared a 20.8% increase in the common stock dividend to an annual rate of $2.90 per share. This represented the 16th consecutive year of increase and our 56th consecutive year of dividend payments. Over the last decade, dividends per share increased 24.0% annually, while net earnings per share increased 18.2% (Chart 2). In 1983, capital expenditures totaled $566 million. Over the past five years, we have spent nearly $3.9 billion on additions to our fixed assets compared to $1.5 billion spent during the previous five years. A third of the amount spent over the past five years was for Miller Brewing and most of the remainder for our domestic and international tobacco operations. At year-end 1983, approxi- mately 90% of our fixed assets were less 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 close correlation with demand for our products. In 1983, our funds from operations increased 16.3% to $1.3 bil- lion (Chart 3). Over the last ten years, internal funds generation increased 22.4% annually. During the same period, net earnings advanced 19.807o annually (Chart 4). Approximately 35% of 1983 funds from operations are represented by depreciation and deferred income taxes which are primarily related to our fixed- asset base. Total assets were $9.7 billion at year-end 1983. This was nearly five times greater than our asset base ten years earlier. Our net return on average total assets was 10.6%, which was the highest in the company's history (Chart 5). Stockholders' equity has increased nearly five times during the past decade, reaching $4.0 billion at the end of 1983. Our net return on average stockholders' equrty was 23.5% in 1983, up from 22.7% in 1982 and set a new high (Chart 6). 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 1982 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%, and .151/ao7o notes. We expect a 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 Chart 1 ! Operating Revenues Net Earnings Chart 2 s Primary Earnings Per Share Dividends Declared Per Share Operating Revenues Nat Earnings Billions of Dollars 12 Primary Earnings Per Share Dividends Declared Per Share Dollars Funds from Operations Capital Expenditures Millions of Dollars Chart 3 0 1200 Funds from p Operations 1000 7Capital Expenditures 800 600 400 74 75 76 77 78 79 80 81 82 83 Funds from Operations Not Earnings Millions of Dollars Chart 4 . 1200 Funds from Operations Net Earnings 1000 800 600 74 75 76 77 78 79 80 81 82 83 20