PHILIP MORRIS COMPANIES INC, DEF 14A, 1994-03-07

PHILIP MORRIS COMPANIES INC
DEF 14A, 1994-03-07
CIGARETTES

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<PAGE>

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

PHILIP MORRIS COMPANIES INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)

PHILIP MORRIS COMPANIES INC.
------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*

(4) Proposed maximum aggregate value of transaction:
- --------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.

[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

(2) Form, Schedule or Registration Statement No.:

(3) Filing Party:

(4) Date Filed:

Notes:

<PAGE>

LOGO

PHILIP MORRIS
COMPANIES INC.

MICHAEL A. MILES 120 PARK AVENUE
CHAIRMAN AND CHIEF EXECUTIVE OFFICER NEW YORK, NY 10017

March 7, 1994

DEAR STOCKHOLDER:

You are cordially invited to attend the 1994 Annual Meeting of Stockholders of
Philip Morris Companies Inc. The meeting will be held at 9:30 a.m. on Thursday,
April 21, 1994, at the Philip Morris Manufacturing Center, 3601 Commerce Road,
Richmond, Virginia.

At the meeting, we will elect eighteen directors and act upon the selection of
auditors. If presented, we will also vote on four stockholder proposals. There
will also be a report on the Company's business, and stockholders will have an
opportunity to ask questions.

We anticipate that a large number of stockholders will attend the meeting. As
seating is limited, we suggest you arrive by 8:45 a.m., when the auditorium
will be opened. If the auditorium is filled, there will be additional seating
outside the auditorium from which the proceedings may be viewed. Those needing
special assistance at the meeting are requested to write the Corporate Secre-
tary at 120 Park Avenue, New York, NY 10017. If you plan to attend the meeting
and your shares are held in the name of a broker or other nominee, please bring
a proxy or letter from the broker or nominee confirming your ownership of
shares.

The vote of each stockholder is important. I urge you to sign, date and return
the enclosed proxy card as promptly as possible. In this way, you can be sure
your shares will be voted, and you will spare your Company the expense of a
follow-up mailing.

Sincerely,

/s/ Michael A. Miles

FOR FURTHER INFORMATION ABOUT THE ANNUAL MEETING,
PLEASE CALL 1-800-367-5415

<PAGE>

PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017

----------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD THURSDAY, APRIL 21, 1994

To the Stockholders of
PHILIP MORRIS COMPANIES INC.

The annual meeting of stockholders of Philip Morris Companies Inc. will be held
on Thursday, April 21, 1994, at the Philip Morris Manufacturing Center, 3601
Commerce Road, Richmond, Virginia, at 9:30 a.m. to:

(1) Elect eighteen directors;

(2) Act upon the selection of auditors for the fiscal year ending December
31, 1994;

(3) Act upon four stockholder proposals if presented by their proponents;
and

(4) Transact such other business as may properly come before the meeting.

Only holders of record of Common Stock, $1 par value, at the close of business
on March 3, 1994, will be entitled to vote at the meeting.

Dede Thompson Bartlett
Vice President and Secretary

March 7, 1994
<PAGE>

PROXY STATEMENT

SOLICITATION OF PROXIES

This proxy statement is furnished by the Board of Directors (the "Board") of
Philip Morris Companies Inc., 120 Park Avenue, New York, New York 10017, in
connection with its solicitation of proxies for use at the annual meeting of
stockholders to be held on Thursday, April 21, 1994, at 9:30 a.m., at the
Philip Morris Manufacturing Center, 3601 Commerce Road, Richmond, Virginia,
and at any and all adjournments thereof. Mailing of the proxy statement will
commence on or about March 7, 1994. Holders of record of Common Stock, $1 par
value (the "Common Stock"), at the close of business on March 3, 1994 will be
entitled to one vote for each share held on all matters to come before the
meeting. On February 22, 1994, there were outstanding 877,325,235 shares of
Common Stock.

A proxy on the enclosed form may be revoked at any time before it has been ex-
ercised. Unless the proxy is revoked or there is a direction to abstain on one
or more proposals, it will be voted on each proposal and, if a choice is made
with respect to any matter to be acted upon, in accordance with such choice.
If no choice is specified, the proxy will be voted as recommended by the
Board. The proxy will also serve to instruct the administrator of the
Company's dividend reinvestment and voluntary cash payment plan and the
trustee of any defined contribution plan sponsored by the Company how to vote
the plan shares of a participating stockholder or employee.

VOTING AT THE MEETING

A majority of the votes entitled to be cast on matters to be considered at the
meeting constitutes a quorum. If a share is represented for any purpose at the
meeting, it is deemed to be present for all other matters. Abstentions and
shares held of record by a broker or its nominee ("Broker Shares") that are
voted on any matter are included in determining the number of votes present.
Broker Shares that are not voted on any matter at the meeting will not be in-
cluded in determining whether a quorum is present.

The election of each nominee for director requires a plurality of the votes
cast. In order to be approved, the votes cast for the selection of auditors
and for each stockholder proposal must exceed the votes cast against such mat-
ters. Abstentions and Broker Shares that are not voted on the matter will not
be included in determining the number of votes cast.

Stockholders' proxies are received by the Company's independent proxy process-
ing agent, and the vote is certified by independent inspectors of election.
Proxies and ballots that identify the vote of individual stockholders will be
kept confidential, except as necessary to meet legal requirements, in cases
where stockholders write comments on their proxy cards or in a contested proxy
solicitation. During the proxy solicitation period, the Company will receive
vote tallies from time to time from the inspectors, but such tallies will pro-
vide aggregate figures rather than names of stockholders. The independent in-
spectors will notify the Company if a stockholder has failed to vote so that
he or she may be reminded and requested to do so.

----------------

As used herein, the term "Company" or "Philip Morris" includes Philip Morris
Companies Inc. from July 1, 1985 and Philip Morris Incorporated prior to July
1, 1985 and, where appropriate, their subsidiaries.

ELECTION OF DIRECTORS

GENERAL INFORMATION

The Board has the responsibility for establishing broad corporate policies and
for the overall performance of the Company although it is not involved in day-
to-day operations. Members of the Board are kept informed of the Company's
businesses by various reports and documents sent to them each

1
<PAGE>

month as well as by operating and financial reports made at Board and committee
meetings by the Chairman of the Board and other officers. In addition, the
Board has an annual two or three-day meeting to review the Company's Five-Year
Plan.

Regular meetings of the Board are held each month, except July. The organiza-
tional meeting follows immediately after the annual meeting of stockholders.
The Board held eleven regular monthly meetings in 1993.

----------------

COMMITTEES OF THE BOARD

Various committees have been established by the Board to assist it in the dis-
charge of its responsibilities. Certain of these committees are described be-
low. The biographical information on the nominees for director, which begins on
page 3 of this proxy statement, includes committee memberships currently held
by each nominee.

The AUDIT COMMITTEE meets with management, the Company's independent accoun-
tants and its internal auditors to consider the adequacy of the Company's in-
ternal controls and other financial reporting matters. The Audit Committee rec-
ommends to the Board the engagement of the Company's independent accountants,
discusses with the independent accountants their audit procedures, including
the proposed scope of the audit, the audit results and the accompanying manage-
ment letters and, in connection with determining their independence, reviews
the services performed by the independent accountants. This committee, which
also monitors compliance with the Company's Business Conduct Policy, consists
of six non-employee directors and met four times in 1993.

The COMMITTEE ON PUBLIC AFFAIRS AND SOCIAL RESPONSIBILITY reviews and monitors
the Company's policies, practices and programs with respect to public issues of
importance to stockholders, the Company and the general public to the extent
those matters are not the responsibility of other committees of the Board. This
committee met four times in 1993. Thirteen directors have been designated mem-
bers of this committee.

The COMPENSATION COMMITTEE, consisting of five non-employee directors, held
five meetings in 1993. This committee determines cash remuneration arrangements
for the highest paid executives and administers the Company's stock option and
incentive compensation plans. The report of the Compensation Committee on Exec-
utive Compensation appears on pages 9 to 11 of this proxy statement.

The CORPORATE EMPLOYEE PLANS INVESTMENT COMMITTEE, consisting of six directors,
held seven meetings in 1993. This committee oversees the investment of certain
employee benefit plan assets.

The EXECUTIVE COMMITTEE has authority to act for the Board on most matters dur-
ing intervals between Board meetings. Eight directors have been designated mem-
bers of this committee, which met once in 1993.

The FINANCE COMMITTEE consists of nine directors and met four times in 1993. It
monitors the financial condition of the Company and advises the Board with re-
spect to financing needs and dividend policy.

The NOMINATING COMMITTEE consists of eight non-employee directors and met three
times in 1993. This committee reviews the qualifications of candidates sug-
gested by Board members, management, stockholders and other sources, considers
the performance of incumbent directors in determining whether to nominate them
for reelection and recommends to the Board a slate of nominees for election as
directors.

----------------

2
<PAGE>

THE NOMINEES

It is proposed that eighteen directors be elected to hold office until the
next annual meeting of stockholders and until their successors have been
elected. The Nominating Committee has recommended to the Board the persons
named below as management's nominees and, unless otherwise marked, a proxy
will be voted for such persons. J.A. Cordido-Freytes and T. Justin Moore, Jr.
are not eligible for reelection. Each of the nominees currently serves as a
director and was elected by the stockholders at the 1993 annual meeting, ex-
cept for Stephen M. Wolf, who was elected by the Board on November 24, 1993.
All nominees attended at least 75% of the aggregate number of meetings of the
Board and all committees of the Board on which they served during 1993, except
Rupert Murdoch.

Although management does not anticipate that any of the persons named below
will be unable or unwilling to stand for election, a proxy, in the event of
such an occurrence, may be voted for a substitute designated by the Board.
However, in lieu of designating a substitute, the Board may amend the By-Laws
to reduce the number of directors.

ELIZABETH E. Dr. Bailey assumed her present position on
BAILEY July 1, 1991, having served from July 1990
John C. Hower to June 1991 as a professor of industrial
Professor of administration at Carnegie-Mellon University
[PHOTO] Public Policy & and as a visiting scholar at the Yale School
Management, The of Organization and Management. From 1983 to
Wharton School of 1990, she was dean of the Graduate School of
the University of Industrial Administration of Carnegie-Mellon
Pennsylvania, University. Dr. Bailey serves as a director
Philadelphia, PA of the College Retirement Equities Fund, CSX
Corporation, Honeywell Inc. and National
Westminster Bancorp Inc. and as a trustee of
the Brookings Institution and the National
Bureau of Economic Research. She is a member
of the Audit and Public Affairs and Social
Responsibility Committees.

Director since
1989

Age: 55

- -------------------------------------------------------------------------------

MURRAY H. BRING First employed by the Company in 1988, Mr.
Senior Vice Bring had been a partner in Arnold & Porter,
President and Washington, DC, from 1967 to 1988. He became
General Counsel Associate General Counsel of the Company on
January 1, 1988 and assumed his present po-
sition on July 1, 1988. He is a director of
the Whitney Museum of American Art, the New
[PHOTO] York University Law Center Foundation, The
New York City Opera and The Legal Aid Socie-
ty. Mr. Bring is an ex-officio member of the
Committee on Public Affairs and Social Re-
sponsibility.

Director since
1988

Age: 59

- -------------------------------------------------------------------------------

HAROLD BROWN Dr. Brown assumed his present position at
Counselor, Center the Center for Strategic and International
for Strategic and Studies on July 1, 1992. Prior thereto and
International from 1984, he was chairman of the Foreign
[PHOTO] Studies, Policy Institute of the School of Advanced
Washington, DC; International Studies, The Johns Hopkins
Partner, Warburg University. Dr. Brown has been a partner of
Pincus & Co., New Warburg Pincus & Co. since 1990. Dr. Brown
York, NY, venture is a director of Alumax Inc., CBS Inc.,
capital Cummins Engine Co. Inc., International Busi-
ness Machines Corporation and Mattel, Inc.
Dr. Brown is a member of the Compensation,
Corporate Employee Plans Investment, Fi-
nance, Nominating and Public Affairs and So-
cial Responsibility Committees.

Director since
1983

Age: 66

- -------------------------------------------------------------------------------

3
<PAGE>

WILLIAM H. Mr. Donaldson assumed his present position
DONALDSON on January 2, 1991. Prior thereto and from
Chairman and 1980, he was chairman and chief executive
Chief Executive officer of Donaldson Enterprises Incorporat-
[PHOTO] Officer of the ed. He serves as a director of Aetna Life
New York Stock and Casualty Co., Honeywell Inc., the Car-
Exchange, Inc., negie Endowment for World Peace, the Commit-
New York, NY tee for Economic Development, the Lincoln
Center for the Performing Arts, Inc. (of
which he is Treasurer), the New York City
Partnership and the Business Council of New
York State and as a trustee of the Marine
Corps Command & Staff College Foundation.
Mr. Donaldson is chairman of the Corporate
Employee Plans Investment Committee and a
member of the Audit, Executive, Finance and
Nominating Committees.

Director since
1979

Age: 62

- -------------------------------------------------------------------------------

PAUL W. DOUGLAS Mr. Douglas served as chairman and chief ex-
Retired; formerly ecutive officer of the Pittston Company from
Chairman and 1984 to October 1, 1991. He serves as a di-
Chief Executive rector of Holmes Protection Group, Inc., The
[PHOTO] Officer of The New York Life Insurance Company, MacMillan
Pittston Company, Bloedel Limited, Phelps Dodge Corporation
Greenwich, CT, and U.S. Trust Corporation. Mr. Douglas is a
coal and member of the Audit, Compensation and Execu-
transportation tive Committees.
services

Director since
1980

Age: 67

- -------------------------------------------------------------------------------

JANE EVANS Ms. Evans assumed her present position in
Vice President April 1991. From 1987 to 1989, she was a
and General general partner of Montgomery Securities and
Manager, Home & from 1989 until 1991 president and chief ex-
[PHOTO] Personal Services ecutive officer of the InterPacific Retail
Division, U.S. Group. Ms. Evans serves as a director of
West BancOne-Arizona Corp., Edison Brothers
Communications, Stores, Inc., Kaufman and Broad Home Corpo-
Inc., Phoenix, AZ ration, The Heard Museum, the Ladies Profes-
sional Golf Association and the Phoenix
United Way. She is a member of the Nominat-
ing and Public Affairs and Social Responsi-
bility Committees.

Director since
1981

Age: 49

- -------------------------------------------------------------------------------

ROBERT E. R. Mr. Huntley became counsel to the firm of
HUNTLEY Hunton & Williams in 1988, having served as
Counsel, Hunton & chairman, president and chief executive of-
Williams, ficer of Best Products Co., Inc. from 1987
[PHOTO] Richmond, VA, to November 1988. Mr. Huntley serves as a
attorneys director of Sprint Corp. He is chairman of
the Audit Committee and a member of the Com-
pensation, Finance and Public Affairs and
Social Responsibility Committees.

Director since
1976

Age: 64
- -------------------------------------------------------------------------------

HAMISH MAXWELL First employed by the Company in 1954, Mr.
Chairman of the Maxwell was Chairman of the Board and Chief
Executive Executive Officer from 1984 until his re-
Committee tirement in 1991. He serves as a director of
[PHOTO] Bankers Trust New York Corporation, Bankers
Trust Company and The News Corporation Lim-
ited. Mr. Maxwell is chairman of the Execu-
tive Committee and a member of the Corporate
Employee Plans Investment Committee.

Director since
1974

Age: 67

- -------------------------------------------------------------------------------

4
<PAGE>

MICHAEL A. MILES First employed by Kraft, Inc. ("Kraft") in
Chairman of the 1982 as President and Chief Operating Offi-
Board and Chief cer, Mr. Miles became President and Chief
Executive Officer Operating Officer of the Kraft General Foods
Group, now Kraft General Foods, Inc. ("Kraft
[PHOTO] General Foods") in March 1989, President and
Chief Executive Officer in September 1989
and Chairman and Chief Executive Officer of
Kraft General Foods in December 1989 when he
became Vice Chairman of the Company. He be-
came Deputy Chairman of the Company in April
1991, and Chairman of the Board and Chief
Executive Officer of the Company on Septem-
ber 1, 1991. Mr. Miles is a director of
Sears, Roebuck & Co., Dean Witter, Discover
& Co., the Grocery Manufacturers of America,
Inc. and the National Multiple Sclerosis So-
ciety and a trustee of The Conference Board
and Northwestern University. Mr. Miles is a
member of the Executive, Finance and Public
Affairs and Social Responsibility Commit-
tees.

Director since
1989

Age: 54

- -------------------------------------------------------------------------------

RUPERT MURDOCH Mr. Murdoch became publisher of News Limited
Chairman and of Australia in 1954 and in 1959 assumed the
Chief Executive position of chief executive of the subse-
of The News quently formed parent company, The News Cor-
Corporation poration Limited, the interests of which in-
[PHOTO] Limited, New clude TV Guide and Twentieth Century Fox in
York, NY, the United States and The Times and Sunday
publishing, Times in the United Kingdom. Mr. Murdoch is
motion pictures a member of the Compensation and Public Af-
and television fairs and Social Responsibility Committees.

Director since
1989

Age: 63
- -------------------------------------------------------------------------------

WILLIAM MURRAY First employed by the Company in 1970, Mr.
President and Murray became Vice Chairman in 1987. He as-
Chief Operating sumed his present position in 1991. Mr. Mur-
Officer ray is a member of the board of trustees of
The Alvin Ailey American Dance Theater, the
[PHOTO] American Museum of Natural History, the
Polytechnic University and the United Negro
College Fund. He is a member of the Execu-
tive and Finance Committees and an ex-
officio member of the Committee on Public
Affairs and Social Responsibility.

Director since
1984

Age: 58

- -------------------------------------------------------------------------------

JOHN D. NICHOLS Mr. Nichols assumed his present position
Chairman and with Illinois Tool Works in 1986. He serves
Chief Executive as a director of Household International
Officer, Illinois Corporation, Rockwell International Corpora-
[PHOTO] Tool Works, tion, Stone Container Corporation, the Art
Glenview, IL Institute of Chicago, Junior Achievement of
Chicago, the Lyric Opera of Chicago and the
Museum of Science and Industry and as a
trustee of the Chicago Symphony Orchestra
and the University of Chicago. He is a mem-
ber of the Nominating and Public Affairs and
Social Responsibility Committees.

Director since
1992

Age: 63

- -------------------------------------------------------------------------------

RICHARD D. Mr. Parsons became chief executive officer
PARSONS of The Dime Savings Bank of New York, FSB in
Chairman and July 1990, having served as president and
Chief Executive chief operating officer from July 1988. He
[PHOTO] Officer, The Dime became chairman in 1991. From 1979 to July
Savings Bank of 1988, he had been a partner in the law firm
New York, FSB, of Patterson, Belknap, Webb & Tyler. Mr.
New York, NY Parsons also serves as a director of the
Federal National Mortgage Association, Time-
Warner, Inc., the Metropolitan Museum of Art
and the Rockefeller Brothers Fund and as a
trustee of Howard University. He is a member
of the Audit, Executive and Public Affairs
and Social Responsibility Committees.

Director since
1990

Age: 45

- -------------------------------------------------------------------------------

5
<PAGE>

ROGER S. PENSKE Mr. Penske has been president of Penske Cor-
President, Penske poration since 1969. He is also chief execu-
Corporation, tive officer of Detroit Diesel Corporation
transportation and Penske Truck Leasing Corporation. Mr.
service, and Penske serves as a director of American Ex-
[PHOTO] Chief Executive press Company, Conner Peripherals, Inc.,
Officer, Penske Gulfstream Aerospace Corporation and Lehman
Truck Leasing Brothers Holdings Inc. and as a trustee of
Corporation and the Henry Ford Museum and Greenfield Vil-
Detroit Diesel lage. He is a member of the Finance Commit-
Corporation, tee.
Detroit, MI

Director since
1991

Age: 56

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JOHN S. REED Mr. Reed assumed his present positions with
Chairman of Citicorp and Citibank, N.A. in 1984. He also
Citicorp and serves as a director of Monsanto Company, as
Citibank, N.A., a member of the Corporation, Massachusetts
[PHOTO] New York, NY Institute of Technology, and as a trustee of
the Rand Corporation, the Spencer Foundation
Director since and Memorial Sloan-Kettering Cancer Center.
1975 He is chairman of the Compensation Committee
and a member of the Audit, Corporate Em-
Age: 55 ployee Plans Investment, Executive, Finance
and Nominating Committees.

- -------------------------------------------------------------------------------

JOHN M. RICHMAN First employed by Kraft in 1954, Mr. Richman
Counsel, served Kraft, Kraft General Foods and the
Wachtell, Lipton, Company in various executive capacities.
Rosen & Katz, Upon his retirement in 1989, he became coun-
[PHOTO] Chicago, IL, sel to Wachtell, Lipton, Rosen & Katz, a law
attorneys firm which has performed and can be expected
to continue to perform legal services for
Director since the Company. Mr. Richman is also a director
1988 of Continental Bank Corporation and Conti-
nental Bank, N.A., R.R. Donnelley & Sons
Age: 66 Company, USX Corporation and the Evanston
Hospital Corporation. He is chairman of the
Chicago Symphony Orchestra and a trustee of
Northwestern University. Mr. Richman is
chairman of the Committee on Public Affairs
and Social Responsibility and a member of
the Corporate Employee Plans Investment, Ex-
ecutive and Nominating Committees.

- -------------------------------------------------------------------------------

HANS G. STORR First employed by the Company in 1955, Mr.
Executive Vice Storr was named its Chief Financial Officer
President and in 1979. He was named a Senior Vice Presi-
Chief Financial dent in 1987 and an Executive Vice President
[PHOTO] Officer and in 1991. Since the formation of Philip Mor-
Chairman and ris Capital Corporation in 1982, he has
Chief Executive served as its Chief Executive Officer. Mr.
Officer of Philip Storr is a member of the American Institute
Morris Capital of Certified Public Accountants and a direc-
Corporation tor and treasurer of the International Ten-
nis Hall of Fame. He is chairman of the Fi-
nance Committee and is a member of the Cor-
porate Employee Plans Investment Committee.

Director since
1983

Age: 62
- -------------------------------------------------------------------------------

STEPHEN M. WOLF Mr. Wolf assumed his present position with
Chairman and UAL Corporation and United Air Lines, Inc.
Chief Executive in 1987. He serves as a director of Chicago-
Officer, UAL Cities in School and the Rush-Presbyterian-
[PHOTO] Corporation and St. Luke's Medical Center and as a trustee
United Air Lines, of the Art Institute of Chicago, the Chicago
Inc., Chicago, IL Symphony Orchestra, The Conference Board and
Northwestern University.

Director since
November 24, 1993

Age: 52
- -------------------------------------------------------------------------------

6
<PAGE>

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Mr. Huntley (who is a member of the Compensation Committee) is counsel to Hun-
ton & Williams, which firm acts as counsel to the Company. In 1993, the Company
paid Hunton & Williams fees of $7,129,487. Messrs. Brown, Douglas, Murdoch and
Reed are the other members of the Compensation Committee.

COMPENSATION OF DIRECTORS

Directors who are full-time employees of the Company receive no additional com-
pensation for services as a director. In 1993, non-employee directors received
an annual retainer of $26,000 and fees of $1,000 for each Board meeting attend-
ed, $1,000 ($2,000 for the chairman) for each meeting attended of the Audit,
Compensation, Corporate Employee Plans Investment, Executive, Finance, Nominat-
ing and Public Affairs and Social Responsibility Committees and $500 ($1,000
for the chairman) for each other committee meeting attended. The chairman of
the Compensation Committee receives $10,000 for additional services rendered in
connection with certain of the Company's compensation plans.

Each director who is not employed by the Company and was not so employed on
January 1, 1990 receives annually on May 1 a share distribution equal to the
lesser of (i) 400 shares or (ii) that number of shares of Common Stock having
an aggregate fair market value equal to 100% of the cash retainer fee paid dur-
ing the preceding twelve months. On May 1, 1993, each such director received
400 shares of Common Stock.

The 1992 Compensation Plan for Non-Employee Directors permits a director to de-
fer meeting fees and all or a part of the retainer fee. Deferred amounts are
"credited" to an unfunded account and may be "invested" in four "investment
choices" which are the same as those offered under the Philip Morris Deferred
Profit-Sharing Plan and which are used to determine the "earnings" that are
credited for bookkeeping purposes. Subject to certain restrictions, the direc-
tor is permitted to take cash distributions, in whole or in part, from his or
her account either prior to or following termination of service.

Under the Pension Plan for Directors, any director who was not an employee of
the Company, who ceases to be a director at his or her normal retirement date
and who has completed five years of accredited service is entitled until death
to an annual pension (payable monthly) equal to the annual cash retainer in ef-
fect on his or her retirement date plus 25% of attendance fees for up to twen-
ty-four Board meetings earned during the two years before retirement. A quali-
fying director retiring before his or her normal retirement date but after age
60 and after completing five years of accredited service is entitled for a pe-
riod equal to his or her accredited service to monthly pension payments. In the
event of a change in control, a retiring director, not otherwise eligible for a
pension benefit, will receive monthly payments for a period equal to his or her
accredited service.

The Company has entered into employment agreements with each of its officer-di-
rectors as described below under "Executive Compensation--Certain Agreements."

7
<PAGE>

OWNERSHIP OF EQUITY SECURITIES

The following table sets forth information, as of February 1, 1994, as to the
beneficial ownership of Common Stock of the Company, including shares of Common
Stock as to which a right to acquire ownership within sixty days exists (for
example, through the exercise of stock options or through various trust ar-
rangements), of each director, each nominee for director, each executive offi-
cer named in the Summary Compensation Table and of the directors and executive
officers of the Company as a group. The beneficial ownership of each director,
nominee and officer and of the group is less than 1% of outstanding shares.

<TABLE>
<CAPTION>
SOLE VOTING
AND INVESTMENT AGGREGATE
NAME POWER (1) OTHER (2) TOTAL
---- -------------- --------- ---------
<S> <C> <C> <C>
Elizabeth E. Bailey....................... 4,335 4,335
Geoffrey C. Bible......................... 252,167 11,200 263,367
Murray H. Bring........................... 120,973 9,800 130,773
Harold Brown.............................. 2,335 1,200 3,535
J.A. Cordido-Freytes...................... 6,735 6,735
William H. Donaldson...................... 10,735 932 11,667
Paul W. Douglas........................... 9,535 9,535
Jane Evans................................ 3,713 3,713
Robert E.R. Huntley....................... 7,435 1,200 8,635
John M. Keenan............................ 168,983 9,800 178,783
Hamish Maxwell............................ 474,582 219,500 694,082
Richard P. Mayer.......................... 183,383 183,383
Michael A. Miles.......................... 858,467 33,600 892,067
T. Justin Moore, Jr....................... 11,145 17,300 28,445
Rupert Murdoch............................ 1,635 350 1,985
William Murray............................ 385,056 28,000 413,056
John D. Nichols........................... 1,900 1,900
Richard D. Parsons........................ 1,835 1,835
Roger S. Penske........................... 2,035 2,035
John S. Reed.............................. 12,477 12,477
John M. Richman........................... 28,185 28,185
Hans G. Storr............................. 364,289 27,600 391,889
Stephen M. Wolf........................... 1,000 1,000
Group..................................... 3,424,457 382,482 3,806,939
</TABLE>
- --------
(1) Includes maximum number of shares subject to purchase before April 1, 1994
upon the exercise of stock options as follows: G.C. Bible, 219,000; M.H. Bring,
98,610; J.M. Keenan, 148,666; H. Maxwell, 100,000; R.P. Mayer, 182,480; M.A.
Miles, 772,200; W. Murray, 54,870; H.G. Storr, 87,320; and group, 2,181,066.

(2) Includes shares held in certain fiduciary capacities (including such hold-
ings by a spouse) and shares owned by spouses, minor children and other rela-
tives sharing the home of the nominee, director or officer. With the exception
of Mr. Moore, beneficial ownership of these shares is disclaimed by all named
individuals. Mr. Moore disclaims any beneficial interest in 1,300 shares held
by his spouse. Also includes shares held jointly with spouse and shares of re-
stricted stock.

8
<PAGE>

EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

TO OUR STOCKHOLDERS:

The Company's mission is to be the most successful consumer packaged goods com-
pany in the world. The Committee, whose members consist entirely of non-em-
ployee directors, fully supports the Company's mission. In furtherance of that
mission, the Committee is responsible for administering total compensation pro-
grams which will enable the Company to:

. Hire, develop, reward and retain the highest quality of managers possi-
ble;

. Emphasize the relationship between pay and performance by placing a sig-
nificant portion of compensation at risk and subject to the achievement
of financial goals and objectives;

. Maximize real growth-driven financial performance, balancing appropri-
ately the short and long-term goals of the Company; and

. Align the interests of managers with those of stockholders through the
use of stock options to link a significant portion of compensation to in-
creases in stockholder value.

COMPONENTS OF COMPENSATION. The Committee relates total compensation levels for
the Company's senior executives to the compensation paid to executives of the
peer group of companies set forth on page 12. All elements of compensation are
valued when making comparisons to this peer group. The Committee takes into ac-
count both the performance and size of the Company relative to the performance
and size of the companies in the peer group.

The Committee believes that compensation for executive officers should be
linked to performance. Accordingly, the compensation of the Company's senior
executives should be at or near the top quartile of compensation paid to execu-
tives of the peer group when Company performance exceeds that of the peer
group. When Company performance is at or near the median of the peer group, to-
tal compensation should be at or near the median of the peer group. Should the
Company's performance fall below the performance of the peer group, the compen-
sation paid to the senior executives should be below the median compensation
paid to the peer group. To achieve a further correlation between executive com-
pensation and performance, approximately two-thirds of the compensation paid to
the executive officer group is variable incentive compensation. Variable incen-
tive compensation comprises stock-based and cash incentives and is paid through
annual cash bonuses, stock option grants and long-term performance awards.

By design, approximately 50% of a senior executive's variable at-risk compensa-
tion consists of stock based compensation in the form of stock options with an
exercise price at, or in some cases above, fair market value on date of grant.
Historically, as the Company's stock price has appreciated from year to year,
stockholder value has increased and the executives' stock related compensation
has also increased. In 1993, actions were taken to reposition the Company for
long term growth and profitability. As the result of these actions, there was a
decline in the Company's stock price and the value of shares held by many
stockholders. Correspondingly, there was also a decline in the value of the
stock owned outright and options held by the executives of the Company.

The Company's policy is to qualify compensation paid to its executive officers
for deductibility for Federal income tax purposes to the extent feasible. How-
ever, under certain circumstances, elements of annual compensation, such as
perquisites and income resulting from payments made pursuant to plans that do
not discriminate in favor of executive officers, may cause an executive offi-
cer's income to exceed deductible limits. In addition, to maintain a competi-
tive position within the peer group, the Committee retains the authority to au-
thorize other payments, including salary and bonuses, that would not be deduct-
ible.

9
<PAGE>

BASE SALARY. By design, one-third of executive compensation, base salary, is
based on an evaluation of a variety of factors including level of responsibili-
ty, time in position, prior experience, individual performance and a comparison
of salaries paid within the peer group.

In 1993, Mr. Miles and Mr. Murray, at their own recommendation and with the
agreement of the Compensation Committee, did not receive base salary increases.
As a result, Mr. Miles's base compensation was 4% below the median and 17% be-
low the top quartile of base compensation paid to the chief executive officers
of the peer group. The salaries reported in the Summary Compensation Table for
Messrs. Miles and Murray for 1993 show an increase over 1992 only because of
1992 salary increases which were implemented on July 1, 1992.

ANNUAL INCENTIVES. Annual cash bonuses are provided to senior executives and
middle management employees based, at the corporate level, upon revenues, oper-
ating income, return on equity, net earnings and earnings per share as measured
against the financial results of the previous year as well as against the stra-
tegic business plan. At the operating company level, revenues, operating in-
come, return on management investment and volume are measured against the prior
year and the strategic business plan.

For 1993, the Committee awarded bonuses based on a qualitative evaluation of
overall corporate financial performance and operating company performance. Each
named executive officer's bonus was based on either a corporate or an operating
company rating, which was then adjusted by individual performance as measured
against stated goals. For example, Mr. Bible's award was determined based on an
evaluation of the financial performance and the achievement of strategic
initiatives of Philip Morris' worldwide tobacco operations. Mr. Mayer's award
was based on an evaluation of Kraft General Foods North America's financial
performance and achievement of strategic initiatives and Mr. Keenan's on that
of Kraft General Foods International. The awards for Messrs. Miles, Murray and
Storr were based on overall company performance. All individual bonuses also
reflect individual performance against each executive's individual goals for
the year.

Mr. Miles's 1993 annual incentive award of $345,000 was 50% less than the tar-
get award established by the Committee and was 62% less than the award he re-
ceived in 1992. Mr. Miles's 1993 award primarily reflects 1993 operating income
which was less than that of 1992. This reduction in operating income was pri-
marily the result of the strategic decision taken to reduce the price of Marl-
boro and other cigarette brands. Upon review, the Committee believes the result
of the actions taken to reposition the domestic cigarette business for long
term growth and profitability is likely to be positive over time.

Mr. Miles's base salary plus annual bonus resulted in a cash compensation pack-
age that placed him 25% below the median of cash compensation paid to the chief
executive officers of the peer group.

The Committee has established objective performance goals for annual incentive
bonuses for the year 1994 for the officers named in the Summary Compensation
Table but has reserved the discretion to reduce or eliminate the amount payable
even if the performance goals are in fact attained. Accordingly, it is believed
that any bonuses paid upon attainment of these performance goals will be de-
ductible for Federal income tax purposes.

LONG-TERM INCENTIVES. The Company's 1992 Incentive Compensation and Stock Op-
tion Plan (the "Plan") provides that stock options and long-term performance
awards may be granted to individuals who contribute to the management, growth
and profitability of the Company.

. STOCK OPTIONS. Stock options are used as the primary long-term incentive
vehicle. The Committee believes that its stock option program is very im-
portant in enabling the Company to attract and retain the highest quality
managers.

10
<PAGE>

The size of stock option grants is based primarily on competitive prac-
tice and is generally targeted to be at the 55th percentile of the peer
group. However, the size of stock option awards can be adjusted upward or
downward based on a subjective evaluation of individual contribution and
potential. The Committee's objective is to deliver a competitive award
opportunity, based on the aggregate exercise price of the shares subject
to the option. As a result, the number of shares underlying stock option
awards varies and is dependent on the stock price on the date of grant.

In granting a stock option for 125,000 shares to Mr. Miles in 1993, the
Committee considered Mr. Miles's individual performance and the compensa-
tion practices of the peer group.

The Committee has been advised that compensation arising from the exer-
cise of outstanding stock options as well as options to be granted under
the Plan will be deductible for Federal income tax purposes.

. LONG-TERM PERFORMANCE AWARDS. Long-Term Performance Awards focus on both
corporate and operating unit performance during a three-year performance
cycle. The amount of the award earned by each participant at the corpo-
rate level is based entirely upon corporate performance. For participants
in operating units, corporate and operating unit performance are weighted
equally in determining the amount of the award.

Awards have been granted for the three-year cycle ending December 31,
1995. The Committee will determine in 1996 the actual amount of the
awards earned based upon a subjective evaluation of quantitative and
qualitative performance objectives linked to the following seven key
strategic initiatives:

.Generating volume increases;

.Optimizing product/price value to meet consumer expectations;

.Revitalizing marketing skills and advertising;

.Maximizing productivity and synergy;

.Building management depth (succession planning);

.Addressing legal, legislative and regulatory challenges; and

.Simplifying the organizational structure.

The Committee will focus on the success in achieving strategic
initiatives and related financial objectives and will also consider per-
formance of the Company compared to the peer group. Adjustments can also
be made to reflect individual performance.

Target awards are expressed as a percentage of total cash compensation,
base salary and annual bonuses, earned during the three-year performance
cycle. Target award levels are established based upon evaluation of com-
petitive practice. The awards actually earned can range from 0% to 180%
of the target award.

The Committee has been advised that as a result of the deferral of pay-
ment, awards, when paid, will be deductible by the Company for Federal
income tax purposes.

COMPENSATION COMMITTEE

John S. Reed, Chairman
Harold Brown
Paul W. Douglas
Robert E. R. Huntley
Rupert Murdoch

11
<PAGE>

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN (1):

[A PERFORMANCE GRAPH APPEARS HERE. THE FOLLOWING
CHART DESCRIBES THE INFORMATION INCLUDED IN THE GRAPH.]

<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG PHILIP MORRIS, PEER GROUP, S&P 500 INDEX AND S&P FOODS/BEV/TOBACCO INDICES

S&P 500 Foods/
Measurement Period Philip Peer S&P 500 Beverages/Tobacco
(Fiscal Year Covered) Morris Group Index Indices
- --------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C>
Measurement PT -
12/31/88 $ 100.00 $ 100.00 $ 100.00 $ 100.00

FYE 12/89 $ 169.08 $ 131.45 $ 131.59 $ 137.32
FYE 12/90 $ 217.42 $ 146.97 $ 127.49 $ 150.35
FYE 12/91 $ 346.32 $ 189.95 $ 166.17 $ 213.24
FYE 12/92 $ 342.99 $ 184.18 $ 178.81 $ 211.63
FYE 12/93 $ 259.83 $ 192.52 $ 196.75 $ 194.60
</TABLE>

Assumes $100 invested on December 31, 1988 in Philip Morris Common Stock, S&P
500 Index, S&P 500 Beverages (Alcoholic), S&P 500 Foods and S&P 500 Tobacco In-
dices (2) and Peer Group (3).
- --------
(1) Total return assumes reinvestment of dividends on a quarterly basis.

(2) No standardized industry index is considered a comparable peer group. The
following companies constitute the S&P 500 Beverages (Alcoholic), S&P 500 Foods
and S&P 500 Tobacco Indices: Adolph Coors Company, American Brands, Inc.,
Anheuser-Busch Companies, Inc., Archer-Daniels-Midland Company, Borden, Inc.,
Brown-Forman Corporation, Campbell Soup Company, ConAgra, Inc., CPC Interna-
tional Inc., General Mills, Inc., Gerber Products Company, H.J. Heinz Company,
Hershey Foods Corporation, Kellogg Company, Pet Incorporated, The Quaker Oats
Company, Ralston Purina Company, Sara Lee Corporation, The Seagram Company
Ltd., UST Inc. and Wm. Wrigley Jr. Company. Although the Company is a component
of the S&P 500 Tobacco Index, it has been excluded for the purpose of this pre-
sentation.

(3) The Peer Group consists of the following companies, selected on the basis
of size, complexity and return to stockholders: American Brands, Inc., American
Home Products Corporation, Amoco Corporation, Anheuser-Busch Companies, Inc.,
ARCO, The Boeing Company, Bristol-Myers Squibb Company, Chevron Corporation,
The Coca-Cola Company, ConAgra, Inc., CPC International, Inc., E.I. du Pont de
Nemours and Company, Exxon Corporation, General Electric Company, General
Mills, Inc., H.J. Heinz Company, International Business Machines Corporation,
Johnson & Johnson, Merck & Co., Inc., Mobil Corporation, PepsiCo, Inc., Pfizer,
Inc., The Procter & Gamble Company, RJR Nabisco, Inc., Sara Lee Corporation and
Texaco Inc. Because of a change in the nature of its business which occurred in
1993, Ralston Purina Company is no longer included in the Peer Group.

12
<PAGE>

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- --------------------
AWARDS (2) PAYOUTS
---------- --------- ALL
OTHER SECURITIES OTHER
NAME AND PRINCIPAL ANNUAL UNDERLYING COMPENSATION
POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS LTIP (3) (1)(4)
- ------------------ ---- --------- ------- ---------------- ---------- --------- ------------
$ $ $ SHS. $ $
<S> <C> <C> <C> <C> <C> <C> <C>
Michael A. Miles.............. 1993 1,000,000(5) 345,000 9,558 125,000 -0- 150,000
Chairman of the Board & 1992 950,000 900,000 12,117 575,000 2,191,104 142,500
Chief Executive Officer 1991 807,501 850,000 68,200 -0-
William Murray................ 1993 900,000(5) 284,000 -0- 92,350 -0- 135,000
President & Chief Operating 1992 857,500 750,000 -0- 54,870 2,264,541 128,625
Officer; Vice Chairman 1991 765,000 700,000 59,400 -0-
Geoffrey C. Bible............. 1993 725,000 580,000 18,402 91,720 -0- 108,750
Executive Vice President, 1992 637,500 550,000 24,817 36,400 1,672,539 95,625
Worldwide Tobacco
Executive Vice President, 1991 575,000 475,000 39,600 -0-
International
Richard P. Mayer.............. 1993 657,692 450,000 -0- 62,210 -0- 35,432
Chairman & Chief Executive 1992 629,143 416,000 355 72,880 1,140,701 34,423
Officer, Kraft General 1991 510,256 327,352 39,600 -0-
Foods North America
John M. Keenan................ 1993 540,996 360,000 -0- 49,120 -0- 25,354
President & Chief Executive 1992 485,162 300,535 -0- 24,390 1,116,805 29,001
Officer, Kraft General 1991 443,333 320,411 23,100 -0-
Foods International
Hans G. Storr................. 1993 565,000 168,000 -0- 44,620 -0- 84,750
Executive Vice President & 1992 525,000 495,000 -0- 28,520 1,082,555 78,750
Chief Financial Officer 1991 470,000 450,000 30,800 -0-
</TABLE>
- --------
(1) Pursuant to the rules of the Securities and Exchange Commission, informa-
tion with respect to 1991 has been omitted.

(2) At December 31, 1993, each of the named executive officers held shares of
restricted stock, with a value at such date, as follows: M.A. Miles, 33,600
shares, $1,869,000; W. Murray, 28,000 shares, $1,557,500; G.C. Bible, 11,200
shares, $623,000; J.M. Keenan, 9,800 shares, $545,125; and H.G. Storr, 19,600
shares, $1,090,250.

(3) In 1990, long-term performance awards were made to a limited number of se-
nior executives. The awards were tied to the achievement over a three-year pe-
riod of corporate or business unit performance criteria as adjusted to recog-
nize individual accomplishments. The information in this column reflects the
amount earned for the three-year period ended December 31, 1992.

(4) Amounts in this column consist of allocations to defined contribution
plans.

(5) In 1993, Messrs. Miles and Murray, at their own recommendation and with the
agreement of the Compensation Committee, did not receive salary increases. Sal-
aries reported for 1993 exceed those reported for 1992 because of salary in-
creases that became effective July 1, 1992.

1993 OPTION GRANTS

<TABLE>
<CAPTION>
% OF TOTAL
NO. OF SHARES FOR
SHARES WHICH GRANT
UNDERLYING OPTIONS DATE
OPTIONS GRANTED TO EXERCISE EXPIRATION PRESENT
NAME GRANTED EMPLOYEES PRICE DATE VALUE(1)(2)
- ---- ---------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Michael A. Miles.......... 125,000 1.49% $49.0625 6/27/03 $1,153,750
William Murray............ 92,350 1.10 49.0625 6/27/03 852,391
Geoffrey C. Bible......... 91,720 1.09 49.0625 6/27/03 846,576
Richard P. Mayer.......... 62,210 0.74 49.0625 6/27/03 574,198
John M. Keenan............ 49,120 0.58 49.0625 6/27/03 453,378
Hans G. Storr............. 44,620 0.53 49.0625 6/27/03 411,843
</TABLE>
- --------
(1) Options are not exercisable until one year after the date of grant.
However, in the case of death, permanent disability or retirement, the
Compensation Committee has the discretion to accelerate vesting.

13
<PAGE>

(2) Grant date present value is determined using the Black-Scholes Model. The
Black-Scholes Model is a complicated mathematical formula widely used to value
exchange traded options. However, stock options granted by the Company to its
executives differ from exchange traded options in three key respects: options
granted by the Company to its executives are long-term, non-transferable and
subject to vesting restrictions while exchange traded options are short-term
and can be exercised or sold immediately in a liquid market. The Black-Scholes
Model relies on several key assumptions to estimate the present value of op-
tions, including the volatility of and dividend yield on the security under-
lying the option, the risk-free rate of return on the date of grant and the
term of the option. In calculating the grant date present values set forth in
the table, a factor of 25.13% has been assigned to the volatility of the Common
Stock, based on daily stock market quotations for the five years preceding the
date of grant, the yield on the Common Stock has been set at 5.299%, based upon
its annual dividend rate of $2.60 per share at date of grant, the risk-free
rate of return has been fixed at 5.96%, the rate for a ten-year U.S. Treasury
Note in June 1993, the month of grant, as reported in the Federal Reserve Sta-
tistical Release, H.15(519), and the actual option term of ten years has been
used. Consequently, the grant date present values set forth in the table are
only theoretical values and may not accurately determine present value. The ac-
tual value, if any, an optionee will realize will depend on the excess of the
market value of the Common Stock over the exercise price on the date the option
is exercised.

1993 OPTION EXERCISES AND YEAR-END VALUE

<TABLE>
<CAPTION>
TOTAL NUMBER OF
NUMBER OF SHARES UNDERLYING TOTAL VALUE OF
SHARES UNEXERCISED OPTIONS UNEXERCISED, IN-THE-MONEY
ACQUIRED ON VALUE HELD AT DECEMBER OPTIONS HELD AT DECEMBER
NAME EXERCISE REALIZED 31, 1993 31, 1993(1)
- ---- ----------- -------- ------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Miles........ -0- $ -0- 772,200 125,000 $1,949,812 $820,313
William Murray.......... -0- -0- 54,870 92,350 -0- 606,047
Geoffrey C. Bible....... -0- -0- 219,000 91,720 3,223,187 601,912
Richard P. Mayer........ -0- -0- 182,480 62,210 890,625 408,253
John M. Keenan.......... -0- -0- 148,666 49,120 2,397,982 322,350
Hans G. Storr........... -0- -0- 87,320 44,620 243,250 292,819
</TABLE>
- --------
(1) Based on the closing price of the Common Stock on December 31, 1993,
$55 5/8.

LONG-TERM INCENTIVE PLAN--AWARDS IN 1993

<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF PERIOD UNTIL
NAME UNITS (1) MATURATION ESTIMATED FUTURE PAYOUTS (2)(3)
- ---- --------- ------------ -------------------------------
THRESHOLD TARGET MAXIMUM
--------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Michael A. Miles......... -0- 3 yrs. $-0- $2,017,500 $3,631,500
William Murray........... -0- 3 -0- 1,776,000 3,196,800
Geoffrey C. Bible........ -0- 3 -0- 1,957,500 3,523,500
Richard P. Mayer......... -0- 3 -0- 1,661,538 2,990,768
John M. Keenan........... -0- 3 -0- 1,351,494 2,432,689
Hans G. Storr............ -0- 3 -0- 879,600 1,583,280
</TABLE>
- --------
(1) Participants are not awarded a number of units. Rather, awards are ex-
pressed as a percentage of aggregate salary and annual bonus earned by the par-
ticipant during the three-year performance cycle commencing January 1, 1993 and
ending December 31, 1995.

(2) Estimated future payouts ("earned awards") are predicated upon the achieve-
ment of overall corporate and operating unit performance goals, including fi-
nancial and non-financial goals, and may be adjusted for individual perfor-
mance. Because future payouts are based on three-year total cash compensation,
the amount of the target award opportunity is not presently determinable. How-
ever, an estimate is provided based upon the assumption that the amount of sal-
ary and annual bonus earned in 1993 is earned in each year of the three-year
performance cycle. The target award opportunities expressed as a percentage of
total cash compensation range from 40% to 50% based on the executive's position
in the Company.

(3) A participant's earned award can range from 0% to 180% of the target award
opportunity.

14
<PAGE>

PENSION PLAN TABLE--PHILIP MORRIS RETIREMENT PLAN

<TABLE>
<CAPTION>
FIVE-YEAR
AVERAGE
COMPENSATION YEARS OF SERVICE (1)
- ------------ --------------------------------------------------------------------
15 20 25 30 35
-------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 500,000 $130,156 $173,541 $ 216,927 $ 260,312 $ 303,697
750,000 195,781 261,041 326,302 391,562 456,822
1,000,000 261,406 348,541 435,677 522,812 609,947
1,250,000 327,031 436,041 545,052 654,062 763,072
1,500,000 392,656 523,541 654,427 785,312 916,197
1,750,000 458,281 611,041 763,802 916,562 1,069,322
2,000,000 523,906 698,541 873,177 1,047,812 1,222,447
2,500,000 655,156 873,541 1,091,927 1,310,312 1,528,697
</TABLE>
- --------
(1) At February 1, 1994, Messrs. Miles, Murray, Bible and Storr had accredited
service of 3, 24, 10 and 39 years, respectively. Reference is made to the mate-
rial appearing under the caption "Kraft General Foods Retirement Plan" for ad-
ditional information. Mr. Bible is also eligible to receive a retirement bene-
fit under the retirement plan of a Swiss subsidiary of the Company. At his cur-
rent annual salary, upon retirement at age 65, he would receive, in addition to
the retirement allowances payable to him under the Philip Morris Retirement
Plan and the Kraft General Foods Retirement Plan (see below), an annual benefit
of SFr.310,325 (approximately $214,150 on February 1, 1994.)

Messrs. Miles, Murray, Bible and Storr participate in the Philip Morris Retire-
ment Plan (the "Retirement Plan") which is a non-contributory plan maintained
for the benefit of certain employees of the Company. The Retirement Plan pro-
vides for fixed retirement benefits in relation to the participant's years of
accredited service, five-year average compensation (the highest average annual
compensation during any period of five consecutive years out of the ten years
preceding retirement) and applicable social security covered compensation
amount. Allowances are payable upon retirement at the normal retirement age and
at earlier ages. Compensation includes the amounts shown as annual salary and
bonus in the Summary Compensation Table. At December 31, 1993, five-year aver-
age compensation for Mr. Murray was $1,354,500; Mr. Bible, $963,139; and Mr.
Storr, $860,600. However, a participant with more than 35 years of accredited
service is limited to the greater of a full retirement allowance based upon 35
years of service and five-year average compensation, including annual bonus
awards, or a full retirement allowance based on all service and five-year aver-
age compensation, excluding such awards.

Examples of annual retirement allowances payable under the Retirement Plan are
set forth in the above table. The examples, which assume retirement at the nor-
mal retirement age of 65, are based upon the social security covered compensa-
tion amount in effect for an employee attaining age 65 in calendar year 1994.

PENSION PLAN TABLE--KRAFT GENERAL FOODS RETIREMENT PLAN

15
<PAGE>

Messrs. Miles, Bible, Mayer and Keenan will be eligible for benefits under or
participate in the Kraft General Foods Retirement Plan (the "KGF Retirement
Plan") which provides for fixed retirement benefits in relation to the
participant's years of service, five-year average compensation (the highest
average annual compensation during any period of five consecutive years out of
the ten years preceding retirement) and applicable social security covered
compensation amount. Compensation includes the amount shown as annual salary
and bonus in the Summary Compensation Table. At December 31, 1993, five-year
average compensation for Mr. Bible was $963,139; Mr. Mayer, $735,381; and Mr.
Keenan, $745,025. The fixed retirement benefit is also dependent upon the
periods of service prior to January 1, 1989 in which the participant elected to
make contributions.

Examples of annual pension benefits payable under the KGF Retirement Plan are
set forth in the above table. The examples, which assume retirement at age 62
or later, are based on the social security covered compensation amount in
effect for an employee attaining age 65 in calendar year 1994. Since
participant contributions could be substantial in individual cases, the benefit
amounts shown in the table may be attributable in certain instances to
participant contributions to a significant degree, depending upon retirement
date and years of service.

CERTAIN AGREEMENTS. The Company has entered into change of control employment
agreements with each of its officer-directors and each of its other executive
officers, including those named in the Summary Compensation Table. The
agreements provide that, if the executive is terminated other than for cause
within three years after a change of control of the Company or if the executive
terminates his or her employment for good reason within such three-year period
or voluntarily during the thirty-day period following the first anniversary of
the change of control, the executive is entitled to receive a lump sum
severance payment equal to two and one-half times the sum of his base salary
and highest annual bonus, together with certain other payments and benefits,
including continuation of employee welfare benefits. An additional payment is
required to compensate the executive for excise taxes imposed upon payments
under the agreements. Mr. Miles has entered into an employment agreement with
the Company which provides that in the event of involuntary termination of
employment without cause, he will be entitled to a lump sum cash payment based
upon his then current base salary and most recent applicable annual incentive
compensation award or a payment pursuant to the severance plan or policy
applicable to him, whichever is greater.

SELECTION OF AUDITORS

The Audit Committee has recommended to the Board that Coopers & Lybrand, which
firm has been the independent accountants of the Company since 1933, be contin-
ued as auditors for the Company. The stockholders are being asked to approve
the Board's decision to retain Coopers & Lybrand for the fiscal year ending De-
cember 31, 1994. A representative of Coopers & Lybrand will be present at the
meeting. The representative will be given an opportunity to make a statement if
he or she desires to do so and will be available to answer questions.

THE BOARD RECOMMENDS A VOTE FOR.

STOCKHOLDER PROPOSALS

Various stockholders have submitted the four proposals set forth below. The
name, address and shareholdings of each proponent and co-proponent will be fur-
nished upon request to the Secretary of the Company.

Management and the Board take all stockholder proposals very seriously. The
following proposals have been duly considered by the Board which has concluded
that their adoption would not be in the Company's best interests. For the rea-
sons set forth after each proposal, the Board recommends a vote AGAINST each
proposal.

16
<PAGE>

PROPOSAL 1

WHEREAS, the Kraft General Foods Division of Philip Morris Companies, Inc. is
by far the largest processor, purchaser and marketer of cheese in the United
States

WHEREAS, the wholesale prices of all milk and cheese produced in the U.S.
closely correlate with trading on the National Cheese Exchange located at Green
Bay, Wisconsin

WHEREAS, the Kraft General Foods Division of Philip Morris Companies is the
dominant seller of cheese on the National Cheese Exchange (72% of all sales for
the period 1988-1992)

WHEREAS, heavy selling at the National Cheese Exchange often lowers the price
of all milk at the farmgate and cheese at the plant loading dock, adversely af-
fecting the profitability of dairy farms, producer cooperatives and the propri-
etary cheese plants which supply us throughout the United States

WHEREAS, the National Cheese Exchange is under investigation by the State of
Wisconsin, anti-trust experts and the media

WHEREAS, the numbers of U.S. family-owned dairy farms and independent cheese
plants are declining rapidly due in large measure to low wholesale commodity
prices and/or periodic price volatility

WHEREAS, we as a company profess to care about farmers, our cheese plant sup-
pliers and the maintenance of a competitive, free market system

WHEREAS, the Kraft General Foods Division of Philip Morris has several options
for selling excess cheese inventory other than the National Cheese Exchange

WHEREAS, less than 1% of all cheese bought and sold in the United States is
traded on the National Cheese Exchange

RESOLVED, shareholders request that the Board of Directors direct management to
cease trading on the National Cheese Exchange; and to undertake additional ex-
traordinary measures to reform federal dairy pricing policies, to raise and
stabilize wholesale milk and cheese prices and to insure competition among our
own processing suppliers and the survival of the 145,000 remaining family-oper-
ated dairy farms in the United States.

THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.

Kraft USA, the division of your Company that markets cheese and dairy products,
manages its inventories of these products and ingredients for the purpose of
supporting its sales to retail food stores and, ultimately, consumers. Conse-
quently, it seeks to produce and procure the needed quantities of cheese at the
best mix of quality, price and reliability of supply it can obtain. When
Kraft's cheese inventories exceed its needs for sales to food wholesalers and
retailers, it attempts to dispose of such unneeded cheese at the best price it
can obtain. When the best price is through a sale on the National Cheese Ex-
change, Kraft sells its cheese there.

The proposal would require Kraft to manage its cheese inventories not for the
economic benefit of the Company but for other purposes, principally raising the
price dairy farmers receive for milk. Your Company believes that acting for
purposes other than ordinary business purposes would be detrimental to Kraft's
business. In addition, the proposal would require your Company to impose on
Kraft USA the competitive disadvantage of being the only cheese company in the
nation which could not trade on the Exchange.

Equally important, Kraft and the Company are incapable of achieving the pur-
poses of the proposal. The prices of cheese and milk are functions of market-
place forces and governmental regulation. Kraft, which uses less than 20% of
the cheese and less than 11% of the milk produced in the U.S., lacks market-
place power to set dairy prices alone, and, were it to attempt to do so in con-
cert with one or more competitors, would be subject to charges of collusion in
violation of Federal and state antitrust laws. Further, requests that Federal
and state dairy pricing policies be changed should be addressed to the appro-
priate legislative and regulatory bodies, not to Kraft, which lacks the capac-
ity to reform them.

THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.

17
<PAGE>

PROPOSAL 2

WHEREAS

--After "two years of wrangling between the EPA and tobacco companies," the
"Environmental Protection Agency . . . concluded that "passive' tobacco
smoke is a human lung carcinogen" causing 3,000 lung cancer deaths yearly
(The Wall Street Journal, 1/6/1993);

--Since the Report's release, 20 states tightened or considered tightening
public smoking laws; 150 local governments enacted smoking bans, the larg-
est being Los Angeles despite a massive effort by the tobacco industry to
overturn its ban;

--Our Company joined the tobacco industry seeking a permanent injunction
overturning the EPA's findings, alleging EPA officials misused scientific
data and EPA regulations promoting anti-smoking objectives. The print me-
dia's reaction indicated this strategy to be faulty, if not filled with
contradictions:

--The New York Times headlined an article on the subject: "E.P.A. Finding:
Tobacco's Loss? Evidence for industry Lawsuit Appears Somewhat Shaky"
(6/29/1993); In an editorial entitled, "Let Judge Choke off Tobacco Suit,"
The Milwaukee Journal editorialized: "In a transparent attempt to stave
off further regulation of smoking, the tobacco industry has sued the US
Environmental Protection Agency for deeming secondhand cigarette smoke a
cancer risk to non-smokers. Now here is a business in deep denial. May the
judge assigned to hear the industry's case see this frivolous lawsuit for
what it is and throw it out" (6/24/1993).

--USA Today in its own editorial entitled "Expand No-Smoking Zones to Curb
Passive Smoke Risk" noted the tobacco industry's lawsuit in light of the
current rise in restrictions for smokers and declared: "Small wonder that
the tobacco industry is resorting to ever more desperate measures." It
continued: "The industry has a lonely battle to fight. It may be the sole
entity harmed by smoking restrictions . . . With so much going for them,
smoking bans are a valuable tool for those yearning to breathe free"
(6/24/1993).

--The Los Angeles Times, in an editorial 6/25/1993, titled: "Fighting Fire
with Smoke," concluded: "The tobacco industry increasingly recognizes the
EPA's findings could do what decades of public service announcements about
smoking failed to do--dramatically change laws governing smoking. As such,
nervous cigarette makers feel themselves backed into a corner. Not sur-
prisingly, then, they are lashing out. In a federal suit filed Tuesday, a
coalition of tobacco groups wants the EPA report declared null and void.
The EPA was biased in its use of scientific findings, the industry con-
tends. "The science' of cigarette smoking in humans "is complex,' say the
cigarette makers. Perhaps. But the personal and financial cost of smoking-
related diseases is quite clear."

--No labels warn about Environmental Tobacco Smoke (ETS). Since our Company
has successfully defended lawsuits brought by actual smokers by arguing
that warnings free it from responsibility, we believe that efforts to un-
dermine notification of ETS hazards might result in huge awards for lost
ETS lawsuits;

RESOLVED that shareholders request Philip Morris to refrain from efforts to op-
pose legislation geared to restrict smoking in public places and to cease ex-
penditures of funds challenging legitimate studies consistently showing ETS
health hazards.

THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.

The Company believes that the lawsuit challenging the EPA's risk assessment and
classification of ETS as a Class A (known human) carcinogen, has substantial
merit. By using language from certain editorials which express a point of view
rather than discuss the facts or merits of the lawsuit, the proponents create
the erroneous impression that the EPA's findings are universally supported by
all groups other than the tobacco industry. This is not the case.

18
<PAGE>

The Company is participating in the lawsuit because it believes the EPA misused
scientific data, exceeded its authority, and failed to follow its own guide-
lines, in order to promote an anti-smoking policy.

The Company has never paid money damages to plaintiffs in smoking and health
cases, in part because smokers have been found to be well aware of the health
risks claimed to be associated with smoking. This was true, even before the
warning labels were found to prohibit such failure to warn claims, and remains
true today. The proponents offer no proof that ETS lawsuits will be lost, or
result in huge awards.

The Company has an absolute right to oppose legislation prohibiting smoking in
public places. It is the Company's position that the interests of both smokers
and non-smokers can be protected through a policy of accommodation in which
public areas are provided for both smoking and non-smoking. The Company also
has the right to challenge scientific studies with which it disagrees. It is
the Company's position that the scientific evidence does not support claims
that ETS is harmful to non-smokers.

THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.

PROPOSAL 3

WHEREAS

--Except for last year, domestic tobacco consumption rates declined 1 to 2
percent a year since the mid-1960s, falling from 42% of adult Americans in
1965 to 25.7% of adults in 1991. This decline in tobacco consumption ad-
versely impacted domestic tobacco growers;

--As tobacco prices rose in the 1980s, U.S. companies started looking to
foreign markets and, according to farm leaders, subsidized growers in
places like Malawi, Argentina, and Brazil to grow tobacco of comparable
quality to the American leaf for the domestic market. In 1969 less than 1
percent of the tobacco used in U.S. cigarettes was imported. By 1992, 28
percent of burley and 23 percent of the flue cured was foreign. Burley im-
ports alone increased 40 percent between 1990 and 1992 (Washington Post,
5/10/93);

--The New York Times noted: "Farmers' profit margins have declined while
the major manufacturers' profits have risen with Philip Morris' operating
income for domestic tobacco doubling since 1986, to nearly $5.2 billion
last year. Farmers have been squeezed by a combination of rising costs for
labor, fertilizers and chemicals, and the relatively stagnant prices of
tobacco leaves, depressed by an influx of cheap foreign imports."
(06/06/93);

--After being challenged about unilateral price increases for domestic cig-
arettes even as domestic tobacco purchases and income decreased because of
the foreign tobacco purchases, the major U.S. cigarette companies have
agreed to support floors for content percentages of domestic tobacco for
cigarettes;

--Given past actions which indicate the tobacco companies have created
practices which have enhanced their own profits from tobacco as the income
to tobacco farmers has decreased;

--It has been recognized that the agricultural economy in tobacco-growing
states must be diversified and that funds to achieve this must come, in
part, from a portion of federal cigarette excise tax revenues, as well as
other funding sources;

--Various recommendations have been developed from within the tobacco-grow-
ing community to ease the transition of tobacco farmers from dependency on
production for cigarette sales to alternative uses of their land, includ-
ing:

1) reducing or eliminating tobacco acreage by diversification into
other crops or land usage;

2) dedicating a portion of any cigarette excise tax increase for the
government to purchase tobacco growing allotments and retire them. In-
clusion of tax benefits forfeiting the allotments would also be effec-
tive, particularly to farmers re-investing into the growth of alterna-
tive crops.

3) providing grants and low-interest loans to tobacco farmers who
change to new crops, to be used for equipment, seeds, nursery stock,
new farm equipment, and irrigation systems.

19
<PAGE>

RESOLVED that Philip Morris establish a Committee of the Board to review the
Company's connection to its farm-suppliers and to determine how they can be
helped in efforts at economic conversion from dependency on tobacco-for-ciga-
rettes to use of farmland for other purposes. Furthermore that the Company sup-
port legislation to help ease this economic conversion for tobacco-growers at
federal and state levels.

THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.

Tobacco farming is the cornerstone of the Company's most profitable business.
Your Company remains committed to tobacco farming and to the growers who work
to produce the U.S. tobacco crop, recognized as the best in the world.

The Company does not own or lease any tobacco producing farmland and is en-
tirely dependent upon the production of independent farmers, who generally sell
their crops in independent warehouses to dealers who purchase tobacco on the
Company's behalf. While the Company has no control over the decision of inde-
pendent farmers to raise tobacco or other crops, it is unlikely that tobacco
farmers, many of whom already grow tobacco in rotation with other crops, wish
to halt their production of tobacco, a highly lucrative crop.

It is the view of your Company that the proposal would not be beneficial either
to tobacco growers or to the Company.

THEREFORE, THE BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.

PROPOSAL 4

Resolved: That the shareholders of Philip Morris Companies, Inc. hereby request
that the Board of Directors redeem the shareholder rights issued in 1989 unless
the issue is approved by the affirmative vote of a majority of the outstanding
shares at a meeting of the shareholders held as soon as possible.

SUPPORTING STATEMENT

In 1989, the Board of Directors adopted what is sometimes called a Shareholders
Rights Plan.

This is more commonly known as a poison pill. We believe such plans tend to en-
trench management and depress companies' stock price. The Board created this
plan unilaterally, without consulting shareholders. This proposal attempts to
give shareholders an opportunity to express their views on the rights issue and
the method by which it was adopted.

Poison pills have become increasingly unpopular in recent years. Since the be-
ginning of 1990, Time Warner, United Technologies, LaQuinta Inns, and Lockheed
have voluntarily redeemed their poison pills. Since 1990, a majority of voting
shareholders at more than 19 companies asked management to either repeal, re-
deem or allow a shareholder vote on poison pills, including Kmart, Browning-
Ferris, Avon Products and USX.

The effects of poison pill rights plans on the trading value of companies'
stock have been the subject of extensive research. A 1986 study by the Office
of the Chief Economist of the U.S. Securities and Exchange Commission on the
economics of poison pill rights plans found that the adoption of poison pills
caused companies' stock prices to drop. A 1988 study by Professor Michael
Ryngaert, one of the authors of the 1986 SEC study, singled out rights plans
like Philip Morris' with discriminatory flip-in provisions for their negative
effect on shareholder value. That study found "restrictive pills can have a
negative price impact even when active takeover speculation is not present." A
1992 study by Professor John Pound of Harvard's Corporate Voting Research Proj-
ect and Lilli A. Gordon of the Gordon Group, found a correlation between high
corporate performance and the absence of poison pills.

20
<PAGE>

Given the precipitous decline in Philip Morris stock since April, 1992, the
Board should consider redeeming the pill as part of an effort to improve share-
holder value.

For these reasons, we believe the unilateral adoption of this poison pill plan
by the Board is out of keeping with our company's broader relationship with its
shareholders and harms shareholder value. Therefore, we urge a vote in favor of
the resolution.

THE BOARD RECOMMENDS A VOTE AGAINST THIS PROPOSAL.

The Company's Common Share Purchase Rights (the "Rights") encourage potential
acquirors to negotiate directly with the Board, which the Company believes is
in the best position to negotiate on behalf of all stockholders, evaluate the
adequacy of any potential offer and protect stockholders against potential
abuses during the takeover process, including certain practices which do not
treat all stockholders fairly and equally. The Rights will allow the Board ade-
quate time and flexibility to negotiate on behalf of the stockholders and will
enhance the Board's ability to negotiate the highest possible bid from a poten-
tial acquiror and to develop alternatives which may better maximize stockholder
interests, preserve the long-term value of the Company for the stockholders and
ensure that all stockholders are treated fairly and equally.

The Rights are not intended to prevent a takeover pursuant to an offer which is
in the best interests of all stockholders. The Board may redeem the Rights to
permit an acquisition that it determines adequately reflects the value of the
Company and to be in the best interests of all stockholders.

The resolution refers to two studies regarding the effect of rights plans on
the trading value of the adopting companies' stock. HOWEVER, THE PERFORMANCE
GRAPH ON PAGE 12 OF THIS PROXY STATEMENT CLEARLY CONTRADICTS THOSE STUDIES. In
addition, March and October 1988 studies by Georgeson & Company Inc., a nation-
ally recognized proxy solicitation and investor relations firm, found that com-
panies adopting rights plans do not lessen the value of their stock and, more
importantly, that companies with rights plans received higher takeover premiums
than those companies without rights plans. The March 1988 Georgeson study con-
cluded that companies with rights plans received takeover premiums averaging
69% higher than those received by companies not protected by such plans.

The Board specifically examined its duties under Virginia law when it issued
the Rights in 1989. The Board recognizes that such duties would be violated if,
as the resolution suggests, the Board used the Rights as a device to entrench
existing management without regard to the merits of an unsolicited offer to ac-
quire the Company.

The Board does not believe that the Rights will deter an acquisition offer that
adequately reflects the underlying value of the Company and that is fair to all
stockholders. The Board believes that the redemption of the Rights at the pres-
ent time would deprive the Board of a key negotiation tool that is invaluable
in preserving the long-term value of the Company and protecting all stockhold-
ers from coercive and unfair takeover attempts.

THEREFORE, YOUR BOARD URGES STOCKHOLDERS TO VOTE AGAINST THIS PROPOSAL.

OTHER MATTERS

Management knows of no other business which will be presented to the meeting
for a vote, except that it has been advised that stockholder proposals not in-
cluded in this proxy statement may be presented. If other matters properly come
before the meeting, including proposals omitted from this proxy statement and
accompanying proxy pursuant to the rules of the Securities and Exchange Commis-
sion, the persons named as proxies will vote on them in accordance with their
best judgment.

21
<PAGE>

The cost of this solicitation of proxies will be borne by the Company. In addi-
tion to the use of the mails, some of the officers and regular employees of the
Company may solicit proxies by telephone and will request brokerage houses,
banks and other custodians, nominees and fiduciaries to forward soliciting ma-
terial to the beneficial owners of Common Stock held of record by such persons.
The Company will reimburse such persons for expenses incurred in forwarding
such soliciting material. It is contemplated that additional solicitation of
proxies will be made in the same manner under the engagement and direction of
D.F. King & Co., Inc., 77 Water Street, New York, NY 10005, at an anticipated
cost to the Company of $20,000, plus reimbursement of out-of-pocket expenses.

1995 ANNUAL MEETING

Stockholders wishing to suggest candidates to the Nominating Committee for con-
sideration as directors may submit names and biographical data to the Secretary
of the Company.

The Company's By-Laws prescribe the procedures a stockholder must follow to
nominate directors or to bring other business before stockholder meetings. For
a stockholder to nominate a candidate for director at the 1995 Annual Meeting,
presently anticipated to be held April 27, 1995, notice of the nomination must
be received by the Company between October 8 and November 7, 1994. The notice
must describe various matters regarding the nominee, including the name, ad-
dress, occupation and shares held. For a stockholder to bring other matters be-
fore the 1995 Annual Meeting, notice must be received by the Company within the
time limits described above. The notice must include a description of the pro-
posed business, the reasons therefor and other specified matters. For a matter
to be included in the Company's proxy statement and proxy for the 1995 Annual
Meeting, notice must be received by the Company on or before November 7, 1994.
In each case the notice must be given to the Secretary of the Company, whose
address is 120 Park Avenue, New York, NY 10017. Any stockholder desiring a copy
of the Company's By-Laws will be furnished one without charge upon written re-
quest to the Secretary.

Dede Thompson Bartlett
Vice President and Secretary

March 7, 1994

22
<PAGE>

GRAPHICS APPENDIX

<TABLE>
<CAPTION>
Cross Reference to Page
of
Omitted Material Description
- ---------------- -----------------------
<S> <C>
1. Photographs of Nominees Pages 3-6
2. Performance Graph Page 12
</TABLE>
<PAGE>

PHILIP MORRIS COMPANIES INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
P
ANNUAL MEETING APRIL 21, 1994
R

O Michael A. Miles, William Murray and Murray H. Bring, and each of them, are
appointed attorneys, with power of substitution, to vote, as indicated on
X the matters set forth on the reverse hereof, and in their discretion upon
such other business as may properly come before the meeting, all shares of
Y the undersigned in Philip Morris Companies Inc. (the "Company") at the
annual meeting of stockholders to be held at the Philip Morris
Manufacturing Center, Richmond, Virginia, April 21, 1994, at 9:30 A.M., and
at all adjournments thereof.

Election of Directors, Nominees:

Elizabeth E. Bailey, Murray H. Bring, Harold Brown, William H.
Donaldson, Paul W. Douglas, Jane Evans, Robert E.R. Huntley, Hamish
Maxwell, Michael A. Miles, Rupert Murdoch, William Murray, John D.
Nichols, Richard D. Parsons, Roger S. Penske, John S. Reed, John M.
Richman, Hans G. Storr and Stephen M. Wolf.

This card also serves to instruct the administrator of the Company's
dividend reinvestment and voluntary cash payment plan and the trustee of
any defined contribution plan sponsored by the Company or any of its
subsidiaries how to vote shares held for a stockholder or employee
participating in any such plan.

SEE REVERSE. IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' SEE REVERSE SIDE
RECOMMENDATIONS, JUST SIGN ON THE
REVERSE. YOU NEED NOT MARK ANY BOXES.

<PAGE>

[X] PLEASE MARK YOUR 0142
VOTES AS IN THIS
EXAMPLE.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF DIRECTORS,
FOR THE SELECTION OF AUDITORS AND AGAINST EACH OF THE STOCKHOLDER PROPOSALS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR:
- --------------------------------------------------------------------------------
1. Election of Directors (see reverse)
FOR WITHHELD
[_] [_]
For, except vote withheld from the following nominee(s):

- ----------------------

- --------------------------------------------------------------------------------
2. Selection of Auditors
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------

NOTE: Please sign exactly as name appears hereon. Joint owners should each sign.
When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such.

- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
- --------------------------------------------------------------------------------
Stockholder Proposal No.1
FOR AGAINST ABSTAIN
[_] [_] [_]

Stockholder Proposal No.2
FOR AGAINST ABSTAIN
[_] [_] [_]

Stockholder Proposal No.3
FOR AGAINST ABSTAIN
[_] [_] [_]

Stockholder Proposal No.4
FOR AGAINST ABSTAIN
[_] [_] [_]
- --------------------------------------------------------------------------------
The signer hereby revokes all proxies heretofore given by the signer to vote at
said meeting or any adjournments thereof.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
SIGNATURE(S) DATE