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1 Financial Highlights 2 Review of the Year . 8 World Map-Philip Morris Incorporated 22 Philip Morris U.S.A. 26 Philip Morris International 30 Miller Brewing Company 34 Philip Morris Industrial 36 Mission Viejo, Company 38 Financiai Review 52 Directors and Officers Philip Morris Incorporated, 100 Park Avenue, New York, N.Y 10017. Transfer Agents: Morgan Guaranty Trust Company of New York, 30 West Broadway, New York, N,Y. 10015; United Virginia Bank, Box 6E, Richmond, Va. 23214. Annual Meeting: Apri124, 1974, 2:00 EM. 4001 Commerce Road, Richmond, Va. Design: Chermayeff & Geismar Associates Cover Photograph: Ezra Stoller

Philip Morris Incorporated Annua! Report 1973 Financial Highlights 1973 1972 1971 Operating Revenues ................................................... .. $2,602,498,000 $2,131,224,000 . - $1,852,495,000 Net Earnings .................................................................... . 148,632,000 124,466,000 101,498,000 Per Share of Common Stock: Net Earnings: Primary ..... ......... ............... ....................................... . $5.42 $4.67 $4.02 Fully Diluted ............................................................ 5.21 4.37 3.64 Dividends Declared ................. ................. ---- .......... . 1.348 1.262 1.21 Percent Increase Over Prior Year: Operating Revenues ....................................................... . . 22.1% 15.0% 22.7% Net Earnings .......... ........ ..... ....................... ............... ..: 19.4% 22.6% 31.0% Net Earnings Per Common Share: Primary ...............................::................................... 16.1% 16.2% 19.6% Fully Diluted ........................... .................. ......... :...... 19.2% 20.1 % 27.7% Operating Companies Revenues: Philip Morris U.S.A ........... ............ .................... ........:..: -- $1,303,629,000 $1,164,550,000 $1,035,178,000 Philip Morris International ........ ................................ .. 822,907,000 623,699,000 517,670,000 Philip Morris Industrial ................................................ 132,126,000 113,136,000 95,513,000 Miller Brewing Company ............. ................ :.............. 275,860,000 211,262,000 204,134,000 Mission Viejo Company (1) ......................................... -- - 67,976,000 18,577,000 Consolidated Operating Revenues ........................ $2,602,498,000 $2,131,224,000 $1,852,495,000 Operating Companies Income: Philip Morris U.S.A ................................... ....... ..,...,.... $ 227,282,000 $ 194,072,000 $ 166,734,000 Philip Morris International ............ ............................ 92,150,000 84,095,000 66,968,000 Philip Morris Industrial ............................. .................. 8,300,000 7,735,000 6,135,000 Miller Brewing Company .... . ......................... .. ~ ............ .- (2,371,000) 228,000 1,300,000 Mission Viejo Company (1) .........................................- -- 4,122,000 1,331,000 Consolidated Operating Income (2) ...................... - $ 329,483,000 $ 287,461,000 $ 241,137,000 (1) Operating revenues and operating income from September 30, 1972. (2) Corporate expense, interest, other items and income taxes, which are not directly attributable to the operating companies, are not allocated since any allocation thereof would be arbitrary. The notes to consolidated finaiicTal statements should be read in conjunction with the above data. 1

Review of the Year Nineteen seventy-three marked the 20th consecutive year in which your company reported new zecords for operating revenues, profits, and earnings per share. Consolidated operating revenues reached $2.6 billion, an increase of 22.1 %, and net income rose to $149 million, a gain of 19.4% above 1972. Fully diluted earnings per share were $5.21 and primary per share earnings were $5.42, representing annual increases of 19.2% and 16.1 %, respectively. We are pleased with the 1973 results, achieved in a most difficult year marked by price controls, materials shortages, major currency realignments, and the energy crisis. Philip Morris further increased its share of the world cigarette market and strengthened its position as the second largest publicly-held cigarette producer in the world. In 1973, world-wide cigarette industry sales increased 4% to over 3.6 trillion units, and Philip Morris, including both United States and international sales, had a 6.7% share of the world cigarette market. On a world-wide basis, Marlboro continued to be the largest selling cigarette brand- a position it gained in 1972. Within the United States, Marlboro, the number two brand, moved very close to the top position. For the fourth consecutive year, total U.S. cigarette industry unit sales increased. Total industry unit sales were 577 billion, up 4.1 % over the previous year. At the same time, Philip Morris unit sales increased 11.1 %. Your company's share of the U.S. market reached a new high of more than 21 % at year end. In 1973, Miller Brewing sales increased substantially-with revenues up 31 % and barrel sales up 28.8%. The dramatic jump in Miller's barrel sales represented the largest percentage gain among major U.S. brewers. The total brewing industry increased its barrel sales 4.7% in 1973. Miller moved from seventh to fifth place among U.S. brewing companies. Capital expenditures in 1973 came to $175 million, contrasted with the $120 million spent in 1972. Philip Morris is in the midst of a major capital expansion program to meet the growing demand for our cigarettes both in the United States and overseas and for our brewing and other products. During 1973, we announced an increase in planned capital expenditures from $500 million to approximately $750 million, to be spent over the next five years. The major portion of this total will provide for the expansion and modernization of United States and international tobacco operations, and Miller Brewing, and to a lesser extent for Philip Morris Industrial and Mission Viejo. Over the past five years-1968 to 1973-Philip Morris's consolidated operating revenues increased at an average annual compounded rate of 20.6%. During the same period, net income rose at a compounded rate of 24.9% and fully diluted earnings per share were up 19.5% per annum. For the 46th consecutive year, your company paid dividends on its common stock, and dividends were increased for the sixth consecutive year. The current annual dividend rate is $1.40 per common share. Philip Morris U.S.A. The outstanding momentum of your company's major U.S. cigarette brands-Marlboro, Benson & Hedges 100's, Virginia Slims, and Parliament-led to record unit sales in Philip Morris U.S.A. of 123 billion, a gain of 11 %. Operating revenues and operating income increased 12% and 17%, respectively, for the year. Philip Morris U.S.A., our largest operating company in terms of revenues and profits, retained its position as the fastest-growing cigarette company in the United States. Marlboro, our leading brand, attained a market share of 14 % by the end of 1973, with the gap between it and the most popular brand narrowing again. Only five years ago, Marlboro's share of the U.S. market was less than 8 %. The company also continued as the sales leader in the growing 100mm segment; Benson & Hedges 100's sales were up 1-2-0% and it remains the leading 100mm brand, while sales of Philip Morris's other 100mm brands-Virginia Slims, Parliament 100's, and Marlboro 100's- also increased significantly during the year. Ten years ago there was no 100mm market, and five years ago 100mm brands accounted for approximately 13% of total cigarette sales. By the end of 1973, however, 100mm brand sales represented more than 22% of total industry sales. The largest single share of the 100mm market is held by Philip Morris-with a 29% share of this category. The demographic picture also provides evidence of Philip Morris strength. Your company's brands have gained a high level of acceptance among smokers within the faster-growing segments of the U.S. population, among women smokers, and among those smokers with a higher education. One of the company's major challenges last year was to continue the production of cigarettes in increasing volume, while maintaining our traditional high quality. Because cigarette manufacturing is entering a new era of technology during a period when sales of our brands continue to increase rapidly, our new $200 million complex in Richmond, Virginia-the largest single component of our capital expansion program-is proving to be a timely and rewarding investment. Although full capacity in the new plant will not be attained until 1977, by the end of last "Philip Morris further increased its share of the world cigarette market and strengthened its position as the second largest publicly-held cigarette producer in the world. In 1973... PhilipMorris, including both United States and international sales, had a 6.7% share of the world cigarette market. On a world-wide basis, Marlboro continued to be the largest selling cigarette brand...."

23 December this facility was producing approximately 100 million cigarettes per day-20% of its ultimate capacity. Projected completion of the physical structure is on target for early 1974. During 1973, your company also began construction of a tobacco blending and handling facility near Richmond. This plant, which will cost approximately $43.8 million, is needed to support the growing requirements of the new Richmond complex. Total expenditures for marketing in 1973 remained at virtually the same level as in 1972, and advertising costs were again lower than in 1970, the last year of cigarette broadcast advertising. As a result of the higher sales volume, marketing expenditures per 1,000 cigarettes decreased. The American Safety Razor Division of Philip Morris U.S.A. also contributed to corporate profits. Its principal new products-Personna Double II, a razor with four shaving edges, two on each side, and Flicker, a women's shaving instrument-received national distribution in 1973. During the year, your company disposed of two small operations-the Clark Gum and Lightfoot Soap companies. Philip Morris International. The momentum that Philip Morris International has established in recent years continued in 1973. Last year, world-wide cigarette sales of this important Philip Morris operating company totaled 124 billion units. While the world industry's unit sales outside the United States rose 4%, Philip Morris International unit sales increased 9.5%. Operating revenues and operating income increased 31.9% and 9.6%, respectively. Our brands are marketed in more than 160 countries and territories. Last year, Philip Morris brands had market shares of at least 10%-and in a number of cases substantially more than 10%-in over 20 countries, including Australia, Canada, Italy, Lebanon, Mexico, Nigeria, the Philippines, Sweden, Switzerland, and Venezuela. The increased demand for American-type blended cigarettes has led to the international success of Marlboro; however, other established taste preferences are well recognized and approximately 60% of our international unit sales are in regional and national brands. Philip Morris International currently manufactures and markets some 145 cigarette brands around the world. In late 1973, Philip Morris formed a joint venture with Brazilian interests for the construction of a cigarette factory in Curitiba, Brazil. Entry into the market in that country is scheduled for early 1975. Also during 1973, your company entered into licensing agreements with the Japan Tobacco and Salt Public Corporation and Agros of Poland for the manufacture of Marlboro cigarettes in those countries. In Mexico, in spite of expanded unit sales and market share, sharply increased costs and increased government controls resulted in our affiliate, Cigarrera Nacional, S.A., continuing in a loss position. We are currently studying a number of alternatives with respect to our Mexican business including reducing our ownership to a minority position in line with current Mexican government policy. We anticipate at this time that this matter will be resolved during the first half of 1974 and that whatever action is deemed appropriate will have no material effect upon our 1974 results. Unit sales and revenues were up in all four regions-Europe/Middle East/Africa; Latin America/Iberia; Asia/Pacific; and Canada. Philip Morris Europe, the largest region in terms of revenues and profits, added Africa and the Middle East to its area of responsibility. In 1973, profits in Europe were adversely affected by dislocations in our business caused by the numerous currency realignments. This was offset, however, by gains in other regions. Around the world, Philip Morris International continues its on-going program of facilities expansion and improvement. In Australia, cigarette and Lindeman wine production facilities were enlarged. Construction of one of the largest tobacco warehouse complexes in Europe, close to our Swiss affiliate's factory in Neuchatel, is nearing completion. Like most American companies with international operations, Philip Morris again made a positive contribution to the U.S. balance of payments in 1973. At the same time, the presence of Philip Morris in many countries is possible only because it demonstrably contributes to the economies of those countries. Abetted by continuing company expansion, our policy of training, recognizing performance, and promoting personnel from within the organizations in host countries has been basic to Philip Morris International's success. This international growth record in 1973-in face of mounting inflation and economic nationalism-positions your company well for continued growth in the international market. Miller Brewing Company. In 1973, Miller's barrel sales increased 28.8% over sales of the previous year, compared with the brewing industry's overall gain in barrel sales of 4.7%. Miller's gain was the largest, in percentage terms, among major U.S. brewers. Miller's market share rose dramatically from 4.0% to 5.0%, and Miller moved up from seventh place to fifth place among the leading U.S. brewers. Operating revenues reached $276 million, up 31 % from 1972. "The outstanding momentum of your company's major U.S. cigarette brands-Marlboro,Benson&Hedges 100's, Virginia Slims, and Parliament-led to record unit sales in Philip Morris U.S.A. of 123 billion, a gain of 11%. ... Philip Morris U.S.A., our largest operating company in terms of revenues and profits, retained its position as the fastest-growing cigarette company in the United States."

We believe that Miller High Life was the fastest growing national brand in the U.S. in 1973. Sales of Miller High Life in both bottles and aluminum cans were up substantially, and consumer acceptance of the 7 oz. 8-bottle "pony pack" was excellent. Miller Ale was also well received in the Northeast, the major U.S. market for ale, and sales of Meister Brau in the Chicago area also contributed to Miller's record barrel sales. Increased consumer demand for Miller's quality beer products pushed 1973 production to peak capacity. In fact, at times during the year Miller lacked the capacity to meet demand. Miller reported an operating loss of $2.4 million which resulted from increased costs of packaging and raw materials, continuance of price competition in the brewing industry, and relatively high manufacturing costs resulting from the lack of modem efficient brewing facilities at Miller. In the industry, cans and bottles account for an important part of total costs, and the cost of these packages was up almost 7% during 1973. The costs of malt, corn, and barley increased dramatically. Price competition, prevalent in the brewing industry for many years, remained intensive. The resultant cost-price squeeze was reflected in lower margins throughout the industry. In order to increase production and to effect efficiencies, while maintaining superior product quality, Miller has embarked on a major expansion and modernization program. Nearly $200 million has been appropriated for this program over the next five years. The most modern brewing and packaging equipment is being installed in the Miller breweries in Milwaukee and Fort Worth. In addition, production capacity is being expanded in the Milwaukee and Fort Worth breweries. At midyear, construction began on a new warehouse and shipping facility at the Milwaukee location where Frederic Miller started brewing in 1855. Miller also has broken ground for a $16 million recyclable aluminum can manufacturing plant in Milwaukee. In January, 1974, we announced plans to build a $70 million brewery within 200 miles of metropolitan New York. This new Miller facility will begin operations in 1976 with an initial capacity of two million barrels; ultimate capacity will be six million barrels per year. A number of factors, especially the availability of the highest-quality water, will be considered in selecting the exact location of the new brewery. Your company's long-term plan is to build sales volume and market share, and to increase Miller's brewing capacity while making operations competitive and efficient. Although Miller had an operating loss in 1973, there was much substantial evidence that our long-range plan is sound. Our confidence in the lonb term profit potential of Miller Brewing is evidenced by our substantial appropriation for capital expansion. Philip Morris Industrial. Industrial's revenues reached $132 million in 1973, an increase of 17% above the results of the previous year. The gain in operating income was 7.3% despite sharp increases in materials costs that could not be passed on to customers, and actual shortages of some materials such as wax, solvents, aluminum, and pulp. As an example, pulp prices rose more than 39% during the year, and the impact of this particular cost increase was especially significant on many of Philip Morris Industrial's operations. Toward the end of the year, the Cost of Living Council allowed small price increases on Philip Morris Industrial products. However, costs continued to rise sharply in November and December, after Industrial's price increases were granted. Each of Industrial's operations-in chemicals, paper, and packaging-recorded increased sales in 1973, and higher profits were recorded in both chemicals and paper. There was a slight reduction in the earnings leve4 for packaging. Through increased sales of a number of high technology, higher margin products in all operations, Industrial was able to partially offset the cost-price squeeze. Continued development of new products and new product applications was instrumental in implementing this strategy. Nicolet Paper Company has completed construction of one of the world's largest coaters of papers and packaging films. The project, located in Nicholasville, Kentucky, cost approximately $5 million. Polymer Industries, Inc. enlarged its Greenville, South Carolina, facility with the addition of a new warehouse and a fifth polymer reactor. Wikolin-Werk, Willi E. Kohlmeyer G.m.b.H. is expanding its manufacturing facilities in Bremen, West Germany. Mission Viejo Company. In 1973, Mission Viejo Company-recognized as a leader in master-planned home and community development-completed its first full year of operation under Philip Morris ownership. Mission Viejo's 1973 revenues rose 12% over the previouss year's results to $68.0 million. Operating income came to $4.1 million. . The homebuilding industry encountered numerous problems in 1973. The first half of the year was marked by adverse weather conditions in Southern California and Colorado, and rapid escalation in the cost of materials-especially lumber and plywood-as well as critical material shortages. Although Mission Viejo is a leader in environmental planning, new environmental regulations caused delays in processing building permits. During the second half of the year, "One of the company's major challenges last year was to continue the production of cigarettes in increasing volume, while maintaining our traditional high quality. Because cigarette manufacturing is entering a new era of technology during a period when sales of our brands continue to increase rapidly, our new $200 million complex in Richmond, Virginia... is proving to be a timely and rewarding investment."

5 mortgage rates reached unprecedented highs, and the availability of mortgage money tightened "Our brands are marketed in more than 160 countries and territories. severely. Last year, Philip Morris brands had Despite such negative factors, Mission Viejo was profitable for the year and sold a total of market shares of at least 10%-and 1,650 houses in its three major locations-Orange County, California; Denver, and Phoenix. in a number of cases substantially In addition, a small project was opened in Fresno, California, late in the year. more thanl0%-in over 20 countries, including Australia, Canada, The housing industry is cyclical, but we believe that Mission Viejo has suffered less severe Italy, Lebanon, Mexico, disruptions in its operations than did many homebuilders around the country. It appears that Nigeria, the Philippines, Sweden, many of the adverse factors which affected the homebuilding industry in 1973 will continue Switzerland, and Venezuela." to impact on the industry in 1974. However, the outlook for housing over the next decade is good, and we expect that Mission Viejo will participate in the projected growth. Smoking and Health. In the area of smoking and health, we together with other companies in the tobacco industry continued our support of medical research through the Council for Tobacco Research-U.S.A. and by sponsorship of major research programs at the Washington University School of Medicine in St. Louis and the Harvard Medical School. Over the past 20 years, the industry has committed more than $48 million to scientific research related to tobacco and health. The annual report of the Council for Tobacco Research, with details of studies underwritten by the industry in 1973, may be obtained without charge from your company. In August, the chairman of a newly-established federal agency, the Consumer Product Safety Commission, announced that his agency was considering imposing a ban on cigarettes which exceed a level of "tar" and nicotine that the Commission would determine to be "safe." No action has been taken by the Commission as of this writing. We are advised that neither the legislation establishing the agency, nor any of the statutes it administers, gives it authority to regulate cigarettes, and we intend to oppose any attempt it may make to do so. In the United States, several states enacted legislation prohibiting cigarette smoking in certain public places. Several foreign countries in which we do business adopted laws and regulations limiting cigarette advertising and requiring warning notices on packages. A recent medical article reporting on a study conducted by the Karolinska Institute in Sweden ineticates that among pairs of identical twins there is no significant difference either in length of life or tendency to develop heart disease as between the smokers and nonsmokers. The authors say their results suggest that genetic and personality differences are more important than smoking in determining lifespan and the likelihood of heart disease. Since this is the only population study which has compared smokers and nonsmokers who are genetically identical, we believe the results deserve careful attention. Ten years have now passed since the Surgeon General's Advisory Committee on Smoking and Health issued its first report-in January, 1964. In the ensuing decade, scientific research on the conditions said to be related to cigarette smokinb as claimed in the original report- has brought to light no valid experimental evidence connecting cigarette smoking with disease. Rather, research has uncovered a broad spectrum of other suspected risk factors. Additional intensive research on the chemistry of tobacco smoke during this period has failed to identify any component of smoke which, in the amount present, can be considered a causal factor in any human disease. There has not been one successful effort to produce in animals-through the inhalation of tobacco smoke-those conditions that some have attributed to smoking in humans. In short, it is our opinion that the claim that cigarette smoking bears a causal relationship to disease is more open to question today than it was ten years ago. Impact of the Energy Crisis. Numerous uncertainties have evolved from the "energy crisis," making it extremely difficult to assess the exact impact on Philip Morris's operations. It is recognized, of course, that severe fuel shortages could cause some disruptions, but production processes involved in our businesses require less energy than most industries, and, therefore, we believe that the "energy crisis" will have less effect on Philip Morris than on most industries. Actually, the cost of fuel represents a minor portion of the total costs of our cigarette and beer manufacturing and the physical distribution of our products. It is possible that temporary ~~ dislocations in methods of product distribution in the United States could evolve, but we believe ° 0 that the flexibility of our distribution network would allow us to overcome such problems. a ~ Early in 1973, extensive analysis was given to our energy needs, and throughout the year we ~ have taken such steps as seemed practical to assure an uninterrupted supply of our ~ energy requirements. An extensive internal program for energy conservation is in effect at all ~ locations as well as in the field. This program has already yielded tangible results as evidenced by substantial reductions in our energy usage. Price Controls. On-going U.S. government price control regulations under Phase IV restricted our ability to fully offset increased costs through higher prices. Early in 1973, under Phase III, small increases were allowed for cigarettes. Later in the year, beer and industrial

products obtained some price relief under Phase IV. However, even where price increases have been, or will be, authorized, the net effect of the Phase IV price controls is a reduction of margins since price increases are limited to a dollar for dollar pass-through of cost increases. Cost increases in tobacco and sharp increases in the cost of the grains used in brewing were experienced due to the exempt status of these agricultural commodities. Sizable increases in pulp and paper prices were also allowed by the Cost of Living Council. On January 11, 1974, the Cost of Living Council approved a price increase of 1.6% for Philip Morris U.S.A. which offsets cost increases somewhat. This increase has been applied to all cigarette brands, and your company's wholesale prices are now at the level of most other U.S. cigarette companies. Philip Morris International also experienced price control problems in 1973. In many countries in which your company sells cigarettes, general inflation, without the ability to institute cigarette price increases, restrained earnings growth. Leaf. World-wide demand for tobacco increased in 1973. Tobacco harvests in certain exporting markets were lower than anticipated, thus reducing the supply of quality tobacco and resulting in higher world-wide tobacco prices. The international demand for quality cigarettes, coupled with monetary realignments, led to a high level of U.S. leaf exports. It is expected that on a world-wide basis tobacco will continue to be in tight supply, and, concurrently, leaf prices will continue to rise. Your company has been able to maintain inventories of aged tobacco in the quantity and quality needed. Cigarette Taxes. In the U.S. during 1973, legislation for a cigarette excise tax increase was passed in only one state, Colorado, and this bill actually eliminated municipal taxes and increased the state tax. However, 41 cigarette excise tax increase bills were introduced in 20 states during the year. Responsible legislators, realizing that not only are excise taxes a regressive form of taxation-disproportionately affecting consumers with lower incomes-but also the fact that they encourage bootlegging, either defeated or failed to enact tax increases in 19 states. In fact, bills for the reduction of cigarette taxes are pending in four states. On January 10, 1974, Governor Wilson of New York recommended that New York City's taxes on cigarettes be repealed. He stated that "One major incentive to organized crime is the high New York City cigarette taxes, piled on top of the state tax, which have made the city the promised land for bootleggers." Directly related to this situation is the harmful effect which different levels of state excise taxes have on the traditional, legal distribution of cigarettes through established and reputable wholesalers and retailers. Total U.S. cigarette excise tax revenues in 1973 amounted to $5.5 billion, of which $2.2 billion was federal, $3.2 billion state, and $0.1 billion in municipal excise.taxes. This amounts to $26.00 for every man, woman, and child in the U.S. This is clearly inequitable. The Public Interest. Philip Morris Incorporated is one of a number of major corporations which have established a committee of Board members concerned specifically with the company's involvements with social needs and problems. Called the Public Affairs Committee, this group not only is authorized to review our current social performance as a corporate citizen but is also responsible for anticipating and assessing changes in value standards, needs, and priorities. A second committee of the Board, the Environmental Committee, has related responsibilities in the environmental area. 'In the interest of conservation and the environment, Miller Brewing Company has virtually completed its conversion to recyclable all-aluminum cans and refillable-recyclable bottles. Under a Miller-designed program, many of our distributors have been setting up reclamation centers around the country. In addition to the distributors, customers and retailers are able to participate in this national effort to conserve our resources. Other Philip Morris packages are being studied from the point of view of resource conservation. It is also our policy to be innovative in our public-interest activities, and if possible to lead others into areas of need. As one notable example, last year our scholarship program for employees' children was expanded to include vocational training as well as college education. Believed to be the first of its kind, the vocational plan has -drawn the favorable attention of government, education, and business leaders, and several other companies are initiating similar programs. Similarly, last year Philip Morris pioneered an adult-scholarship program for part-time studies by women occupied with jobs or household responsibilities. It is anticipated that this program will also become a prototype for other companies to follow. Philip Morris's annual Study of Social Responsibility keeps your Board updated on our corporate progress in terms of public interest. The latest study, for example, shows increases in the proportions of minorities, women, and Vietnam war veterans among our employees as well as progress in promoting them to more responsible positions. Philip Morris International and its affiliates carried out numerous projects in the area of corporate social responsibility, including aid to flood victims in Pakistan and the Philippines, "... Miller's barrel sales increased 28.8% over sales of the previous year, compared with the brewing industry's overall gain in barrel sales of 4.7%. Miller's gain was the largest, in percentage terms, among major U.S. brewers. Miller's market share rose dramatically... and Miller moved up from seventh place to fifth place among the leading U.S. brewers. Operating revenues reached $276 million, up 31%from 1972.11 7

uDiversity scholarships in Mexico, a broad program of assistance to medical, social, and educational institutions in Venezuela, and sponsorship of community cultural projects in Australia and Canada. philip Morris employees around the world are encouraged to participate in civic affairs, and the list of their personal involvements is impressive. In the area of public disclosure, the New York Stock Exchange recently suggested that annual reports include common-stock price ranges, price-earnings ratios, dividends, and book value, which has been Philip Morris practice for several years. Last year's annual report was selected as the "best of all industry" in the annual Financial World awards. +.. 7 Your Board was saddened last year by the death of Wirt H. Hatcher, retired Senior Vice President and Director Emeritus of Philip Morris Incorporated. Mr. Hatcher, who began working with Philip Morris in 1918, was a well-known figure throughout the tobacco industry. He was especially recognized for his knowledge and many writings on the growth of the industry and the development of its scientific processes. Mr. Hatcher played an important role in the growth of your company. The astute counsel of T. Justin Moore, Jr., President and Chief Operating and Financial Officer of the Virginia Electric and Power Company, was gained with his election to our Board in April. Since our last executive realignment in 1967, sales have more than tripled and profits more than quadrupled. In addition, two major operating companies-Miller Brewing and Mission Viejo-have been acquired. In a move dictated by our expansion, the senior-management structure of the corporation was broadened and strengthened last October when the Board of Directors promoted several key executives. In three of the major changes, George Weissman, President of Philip Morris Incorporated, became Vice Chairman of the Board; Ross R. Millhiser, President of Philip Morris U.S.A., was elected President of Philip Morris Incorporated; and Clifford H. Goldsmith moved from Executive Vice President to President of Philip Morris U.S.A. and Executive Vice President of Philip Morris Incorporated. Again we pay tribute to all our 37,000 employees around the world for their excellent performance throughout the year. Their work has been fundamental to the success of your company, and we thank them for their dedication. Respectfully submitted on behalf of the Board of Directors, ,1L A~,..,.e WA.A..&,... Joseph E Cullman 3rd George Weissman Chairman of the Board Vice Chairman of the Board President and Chief Executive Officer Ross R. Millhiser

-~ Major Locations PhilipMorrisIncorporated,OperatingCompanies,Afiliates,andLicensees ~ Phllip Morris U.S,A. ® Phillp Morris Internatlonal Affiliates and Licensees ~ Miller Brewing Company ® Philip Morris Industrial Mission Viejo Company San Francisco, California Azusa, California Mission Vieio, California Phoenix, Ariz i hilio Morris (New Zealand) Ltd. ~ Stamford, Connecticut Philip Morris Incorporated, New York, N.Y. Downingtown, Pennsylvania chmond, Virginia / Staunton, Virginia r- E. Le6n Jimenes, C. porA. / Dominican Repvl ' Cigarrera Nacional, S.A. / M`1' = Licensee / aiti AM , Philio Morrls de Puerto Rico Tahacalera Cantroamaricana. SA. / Guatemala Wicensee / Netherlands Antilles Licensee / Trinidad T.--i- --- c A / ce~~~,~~~e~setiacalera Nacional / Venezuela Philip Morris Brasileira Licensee Massalin y Celasco, SA

® Philip Moin I{o Philip Morris & Co. Ltd. Y€'nglauQ; Godfrey Phillips Ltd. / Engl Philip Morris Fran j ~ Philip Morris Europ¢ S.A. / Swi we- F ' abriques de Tabac RAunies S.A. / SwitE® Philip Morris Asia-'acific Inc. / Aus Philip Morris (Australia) Ltd Philip Morris Ltd. Godfrey Phillips Ltd.