TO:Board of Directors, Probity Investments

MEMORANDUM

TO:Board of Directors, Probity Investments

FROM:Student YY

SUBJECT:Shareholder Proposal to Anheuser-Busch

DATE:July 26, YYYY

Probity Investments has retained our counsel to prepare aShareholder ProposalandSupporting Statementto be included in the YYYY proxy materials ofAnheuser-Busch Companies.This memorandum addresses reasons for the proposal, procedural requirements, and anticipated substantive challenges to the proposal under the SECsRule 14a-8.

I.Reasons for the Proposal

ThisProposalasks the Board to adopt an independent review procedure for its advertising.Underage drinking is major public health concern; the statistics on underage drinking are discouraging and the social and economic costs of underage drinking are significant.SeeSupporting Statement.

As a result, the alcohol industry has come under attack by those who believe that the ads disproportionately target youth.Concerned citizens demand that brewers be committed to responsible advertising.Anheuser-Busch has expressed its commitment before by adopting theBeer Institute Advertising and Marketing Codeand its ownInternational Advertising and Marketing Code.

Anheuser-Busch would likely prefer to self-regulate rather than submit to federal regulation.Complying with federal regulations would be arguably more restrictive and expensive.Further, adopting an outside review procedure would affirm Anheuser-Buschs commitment to responsible advertising in the public eye.

II.Procedural Requirements

ThisProposalwill meet the procedural requirements ofRule 14a-8.First, underRule 14a-8(b), Probity has held over $2,000 in market value of Anheuser-Busch stock for over a year and will continue to hold the stock through the meeting date.Secondly, thisProposal, which is under the 500-word limit, is the only one submitted by Probity, pursuant toRule 14a-8(c-d).Rule 14a-8(e)requires thisProposalto be received at the executive offices by the deadline given in the2003 proxy statement,November 12, YYYY, which will easily be met.Finally, a qualified representative of Probity will present the proposal at the meeting to satisfyRule 14a-8(h).

III.Anticipated Substantive Challenges to the Proposal

In addition to the procedural requirements,Rule 14a-8(i)contains substantive requirements for proposals.Management may exclude proposals that fit any of the thirteen reasons provided by theRule.Anheuser-Busch may challenge thisProposalon three grounds, but the SEC will likely disagree with Anheuser-Busch on all of these challenges.

A.False and Misleading Statements

Rule 14a-8(i)(3) permits management to exclude proposals that violate SECRule 14a-9, whichprohibits false and misleading proxy statements.Anheuser-Busch may argue that the facts used in the proposal are unreliable, false, and/or misleading.However, this challenge will likely fail because the facts presented are accurate, documented, and citable.Also, verification of the information is simple since each fact in the supporting statement is linked to its source.

Other challenges by alcohol and tobacco companies, including Anheuser-Busch, have been unsuccessful when the proposals contain similar public health statistics.See1994 SEC No-Act. LEXIS 261 (SEC No-Act. , 1994);1999 SEC No-Act. LEXIS 247 (SEC No-Act. , 1999).In these cases, the SEC did not allow the exclusion even though the facts were not absolutely verifiable on the face of the proposal.Thus, the SEC will likely disagree with Anheuser-Busch on this issue because the information is linked to its source in ourProposal.

B.Ordinary Business Operations

Companies often challenge proposals underRule 14a-8(i)(7), which allows proposals to be omitted that relate to the companys ordinary business operations.While the SEC has at times found advertising to be a matter of ordinary course, the SEC has not permitted tobacco and alcohol companies to exclude proposals relating to their advertising.See1999 SEC No-Act. LEXIS 247 (SEC No-Act. , 1999),1999 SEC No-Act. LEXIS 239 (SEC No-Act. , 1999).Such special treatment for this type of advertising is likely due to the important policy concerns regarding underage alcohol and tobacco use.Thus, the Staff should find that a proposal concerning alcohol advertising to minors raises significant policy issues which preclude the application of the ordinary business rubric ofRule 14a-8(i)(7).

C.Substantial Implementation

Finally,Rule 14a-8(i)(10)permits exclusion when the company has already substantially implemented the proposal.Here, Anheuser-Busch may argue that its compliance with industry and internal advertising regulations is substantial implementation of the proposal.However, when considering a proposal to increase tobacco warnings, the SEC did not agree that compliance with related federal regulations was substantial implementation of the specific proposal.See2002 SEC No-Act. LEXIS 256 (SEC No-Act. , 2002).Further, while Anheuser-Busch may already submit its advertising tointernal review, thisProposalseeks to implement an independent outside review system.Because internal and external review of advertising are not substantially the same, the SEC will likely not agree that the proposal may be excluded for this reason.

IV.Conclusion

ThisProposalseeks to reaffirm Anheuser-Buschs commitment to responsible advertising in the public eye and to avoid potential federal regulation.Because Anheuser-Buschs challenges will likely fail, theProposalshould be included in the 2004 proxy materials.

SHAREHOLDER PROPOSAL
WHEREAS, our company, Anheuser-Busch, Inc., is the world’s largest brewer, and
WHEREAS, underage drinking is a major public health concern, and
WHEREAS, the federal government relies on the alcohol industry to self-regulate its advertising, and
WHEREAS, our company has pledged that its alcohol advertising is not targeted to underage youth, and
WHEREAS, evidence presented by theAmerican Medical Associationand theInstitute of Medicineshows that a large proportion of alcohol advertising still reaches underage audiences, therefore
BE IT RESOLVED that the shareholders request the Board to implement the following as policy for our company:That all advertising campaign must first be submitted to independent and certifiable outside testing to ensure that it is neither more appealing nor more accessible to underage minors than to groups over 21 years of age.
SUPPORTING STATEMENT
Beer is the preferred alcoholic drink of underage minors, andstudiesshow that alcohol-related motor vehicle accidents are a leading cause of death and serious injury among this age group.Teenage beer drinking is linked to many social problems including suicide, sexual assaults, alcoholism, and illegal drug use.According topublic health studies, the number of youth under 18 trying alcohol nearly doubled in the last decade to 4.1 million.A federally-fundedstudyfound that exposure to alcohol advertising affects whether young people will drink alcohol.TheCenter on Alcohol Marketing and Youthmaintains additional facts and statistics on underage drinking.
In the past, Anheuser-Busch has taken a responsible approach to these challenges by complying with industry guidelines.Nevertheless, a2003 surveyfound that two-thirds of parents still say that alcohol advertising makes teenagers more likely to drink and three-quarters of parents see alcohol companies as falling far short in dealing with the impact of their advertising.Furthermore, in 2002, our Company’s competitor,Coors Brewing Companyimplemented a third-party advertising review and complaint resolution program with theBetter Business Bureau, which garnerednational attentionfor Coors.Thus, our Company needs to affirm itsown stanceagainst marketing to underage drinkers by taking similar action.
If you believe our Company’s beer marketing and advertising should be neither more accessible nor more appealing to underage minors than to legal customers, vote YES for this resolution.