To our shareholders:
In 2005, Abbott continued to achieve strong results. Both of our business groups, Pharmaceutical Products and Medical Products, grew at a double-digit pace, leading the company to total sales growth of 13.5 percent. And we invested $1.8 billion in research and development to advance new technologies across our broad base of businesses. Consequently, we remain confident about our prospects in the years ahead.

Our pharmaceutical business continued its outstanding performance, delivering sales growth of 15 percent for the year. At the same time, the medical products businesses we’ve created or acquired in recent years have begun to mature and deliver the level of results we anticipated. For instance, Abbott Diabetes Care, our producer of advanced glucose monitoring systems, grew nearly 35 percent over 2004, surpassing $1 billion in sales. Abbott Point of Care, our maker of hand-held diagnostic devices, grew almost 25 percent over the prior year, and Abbott Vascular grew nearly 15 percent.

2005 financial results and business highlights

In 2005, we once again reported strong performance on both sides of our business, reflecting the actions we’ve taken, and continue to take, to shape our company for higher growth, greater balance and consistent earnings performance. We exceeded our expectations for full-year sales, with growth of 13.5 percent, and we met our expectations for ongoing diluted earnings per share. In addition, cash flow generation in 2005 was very strong, with operating cash flow of $5 billion. We increased our dividend for the 33rd consecutive year and bought back 30 million shares, or $1.3 billion, of our own stock.

Our performance was built on balanced growth from both sides of our company, including important new product launches across our range of businesses.

In our Medical Products Group:

• We introduced the Xact Carotid Stent with the Emboshield Embolic Protection System, which together provide a minimally invasive alternative to surgery for people at risk of stroke. We also received regulatory approval to launch the StarClose vessel closure device.
• We launched the Abbott Prism blood screening system in the United States, building on its established performance around the world. We also launched the Cell-Dyn Sapphire hematology system, following its successful launch in Europe.
• We received regulatory approval for, and launched, several new assays across our range of diagnostic technologies, including tests for bladder cancer, hepatitis C and the cardiac marker BNP.

In our Pharmaceutical Products Group:

• We introduced two newly approved uses for our anti-TNF biologic agent, Humira: psoriatic arthritis and early rheumatoid arthritis, which should help Humira further increase its market share. We also filed for approval of Humira to treat ankylosing spondylitis, and we continue to develop this remarkable medication for still more uses to help more patients.
• We launched Depakote ER for mania in bipolar disorder, a more convenient form of our versatile medication for epilepsy and migraine headache prevention.
• We introduced Zemplar Capsules, an oral form of our intravenous activated vitamin D therapy for dialysis patients in the United States. The new form allows patients who have earlier stages of kidney disease — who are not yet on dialysis — to benefit from the medicine as well.
• And we launched two important improvements to Kaletra, the world’s number-one HIV protease inhibitor: once-daily dosing and a new tablet formulation that requires no refrigeration and fewer pills per dose. These convenience factors for HIV patients help to simplify the complicated treatment regimens that can pose a barrier to successful therapy.

Other highlights include:

• Pipeline progress

In addition to new product launches, we have a number of important new technologies moving through our development pipeline. In our promising drug-eluting stent program, our ZoMaxx clinical trials continue to progress. We initiated U.S. clinical trials for the Wallis System, a novel device for stabilization of the spine. And FreeStyle Navigator, our highly innovative system designed for continuous glucose monitoring, is awaiting U.S. Food and Drug Administration (FDA) approval.

In pharmaceuticals, we advanced development of Humira for Crohn’s disease, ulcerative colitis, psoriasis and juvenile rheumatoid arthritis. We continue to evaluate Xinlay for the treatment of non-metastatic hormone refractory prostate cancer. And our controlled-release form of the pain medication Vicodin has begun Phase III clinical trials.

• Agreement to acquire Guidant vascular business

In January 2006, we announced our plans to acquire Guidant’s entire vascular business, contingent upon the closing of Boston Scientific’s acquisition of Guidant. The agreement complements our current vascular portfolio by providing us with Guidant’s vascular intervention and endovascular solutions businesses, including commercial, research and development (R&D) and manufacturing operations. In addition, we will gain a broad portfolio of intellectual property, as well as Guidant’s Xience drug-eluting stent, which is approved in Europe and continues in development in the United States.

• The launch of Abbott Nutrition International (ANI)

ANI is Abbott’s newest division. Its business was formerly managed by our Abbott International division (AI). We wanted to ensure that our pharmaceutical and nutritional products would receive the attention and resources they deserved to capture the outstanding opportunities available to them around the world, so we separated the businesses. Beginning in 2006, AI now focuses exclusively on our pharmaceutical business outside the United States, while ANI focuses on the same markets with our nutritional line.

Winning in a changing environment

As you know, the demands of our business environment are neither small nor simple. Abbott is ready for them and is as well-positioned for success as any company in our industry.

We’ve thought very thoroughly and deliberately about what it will take to compete and succeed in the future of health care, and we’ve shaped the company in recent years to meet those needs. Abbott has a clear vision for success in this business.

Health care is most importantly about the patient. This is the fundamental belief at the heart of our business, and we’ve worked hard to ensure that the patient is at the forefront of how Abbott people think about our work, at every level of the company.

Our ability to develop technologies that answer patients’ needs is the source of our success. Abbott has intensified its commitment to R&D in recent years. Our R&D investment is at an all-time high and growing. We understand very well that the essence of our business and the greatest driver of our growth is the successful creation of new products, and this remains our top priority.

Creating new products for patients is our industry’s primary charge. No less important is getting those products into the hands of the people who need them. In recent years, the public has turned to the pharmaceutical industry to help address this problem on its behalf.

The industry has responded to this call vigorously and productively, and Abbott has been among the leaders in this effort. In April 2005, America’s pharmaceutical companies and many partner organizations launched the Partnership for Prescription Assistance, which, in its first 10 months, matched more than 1.6 million people with programs that may be able to help them afford their medications.

This trend in the pharmaceutical sector underscores the value of our broad-based business strategy. We do not want to be overly reliant on any single business due to changing dynamics that can dominate any market at any given time. Our range of health care businesses multiplies our opportunities and helps balance the risks we face.

Since 2000, broad-based health care manufacturers such as Abbott have significantly outperformed pure pharmaceutical companies in terms of total return to investors. We believe the diversity of our businesses makes Abbott a better investment and a better health care company. We see more facets of health care, we’re connected to health care professionals in more ways, and we gain scientific insights and efficiencies from approaching medical conditions in multiple dimensions.

In addition to patient focus and maintaining a broad business and technological base, another key to future success in health care is efficiency of operations. In 2005, we initiated a focused effort to increase gross margin by reducing costs and improving operating efficiency. We’re also committed to increasing our investment in future growth — in R&D and commercial infrastructure — to continue to build our competitiveness.

Of course, all of these strategies depend upon the outstanding execution of the 60,000 Abbott people around the world. We continue to shape our management team to meet the changing needs of our business.

Joe Nemmers, a 25-year Abbott veteran, was named to the position of executive vice president, Diagnostic and Animal Health Divisions, providing additional management support to a large segment of our fast-growing Medical Products Group. Joe was formerly senior vice president, Diagnostic Operations, a role in which he is succeeded by Jeff Binder, formerly vice president, Abbott Spine. Jim Tyree, an industry veteran who has spent nine years with Abbott, was named to the new position of senior vice president, heading our new Abbott Nutrition International division. Ed Fiorentino, a 20-year Abbott veteran, was named senior vice president, Diabetes Care Operations, reflecting the great growth and success of what has now become a major Abbott division. And Steve Fussell, who has been with Abbott for nine years, was named senior vice president, Human Resources. Steve succeeds Tom Wascoe, who retired from the company after 21 years of distinguished service.

Addison Barry Rand, a member of our board of directors since 1992, also retired. We are very pleased to welcome W. James Farrell to our board of directors. Jim has recently served as CEO of ITW, a Fortune 200 diversified manufacturing company, since 1995 and has been chairman since 1996. He is a proven leader with a wealth of global business and management experience, and we look forward to his valuable perspective. We wish continued success to these new senior leaders and thank our departing colleagues for all they have done for our company.

These contributions, and those of so many others, have built Abbott’s culture of strong values and enduring success. They keep us focused on the things that matter the most. We never lose sight of the central place of the patient in all that we do, and we manage our company for the long term. Through generations of experience, Abbott has learned how to succeed in this business, despite the variety of challenges that it presents. We will continue to do so in the years ahead.

We like the strength of our business mix and the breadth of our pipeline opportunities. Our financial strength is evident, as we have paid down debt, bought back our own shares and increased our dividend. We anticipate strong cash flow again in 2006, and we continue to target double-digit earnings per share growth longer term.

For all of these reasons and more, we’re confident that Abbott is ready for the future — ready to compete and ready to succeed. Our uniquely well-balanced business gives us what we think is the best outlook in our industry today. Our industry faces some challenges, of course, but I think it’s still the best business there is. No other is more important to the people it serves. And, because it matters so profoundly, it will always present opportunities to those who serve it best. There will always be rewards for real innovation that advances medical technology and care. Our commitment is simple: to ensure that Abbott remains one of the companies that delivers that future. We’ve built our company to do just that.

Miles D. White

Chairman of the Board and Chief Executive Officer
March 1, 2006