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**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C.  20549**

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**FORM 10-K**

**[ X ] Annual Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of 1934****For the fiscal year ended June 30, 2003**

**Or**

**[    ] Transition      Report Pursuant to Section 13 Or 15(d) of the Securities Exchange Act of      1934For the transition period from                 to                 **

**Commission File Number 1-4389**

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**Applera Corporation****(Exact name of registrant as specified in its charter)**
| **DELAWARE**                                                      | **06-1534213**                                |
|-------------------------------------------------------------------|-----------------------------------------------|
| **(State or      other jurisdiction of**                          | **(I.R.S.      Employer Identification No.)** |
| **incorporation      or organization)**                           |                                               |
| ** **                                                        | ** **                                    |
| **301 Merritt      7, Norwalk, Connecticut**                      | **06851-1070**                                |
| **Address of principal      executive offices)**                  | **(Zip Code)**                                |
| ** **                                                        | ** **                                    |
| **Registrant’s      telephone number, including area code:** | **203-840-2000**                              |

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****Securities  registered pursuant to Section 12(b) of the Act:****

| **Title of Class**                                                                                        | ** ** | **Name of Each Exchangeon Which Registered** |
|-----------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|
|                                                                                                           |       |                                              |
| **Applera Corporation-Applied        Biosystems GroupCommon Stock (par value $0.01 per share)**           |       | **New York Stock Exchange Pacific Exchange** |
|                                                                                                      |       |                                         |
| **Rights to Purchase          Series A Participating Junior Preferred Stock (par value $0.01 per share)** |       | **New York Stock Exchange Pacific Exchange** |
|                                                                                                           |       |                                         |
| **Applera Corporation-Celera Genomics GroupCommon Stock (par value $0.01 per share)**      |       | **New York Stock Exchange Pacific Exchange** |
|                                                                                                      |       |                                         |
| **Rights to Purchase          Series B Participating JuniorPreferred Stock (par value $0.01 per share)**  |       | **New York Stock Exchange Pacific Exchange** |

**Securities registered pursuantto Section 12(g) of the Act:**

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**Indicate by check mark whether      the registrant (1) has filed all reports required to be filed by Section      13 or    15(d) of the Securities Exchange Act of 1934 during the preceding 12 months    (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]  No  [    ]**

**Indicate by check mark if disclosure    of delinquent filers pursuant to Item 405 of Regulation S-K is not contained    herein, and will not be contained,to the best of registrant's knowledge, in definitive proxy or information statements    incorporated by reference in Part III of this Form 10-K or any amendment    to thisForm 10-K. [X]**

**Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of    the Act). Yes [X]  No  [    ]**

**As of December 31, 2002, the last      business day of theregistrant’s most recently completed second fiscal quarter, the aggregatemarket value of Applera Corporation-Applied Biosystems Group Common Stock (basedupon the average of thehigh and low price) held by non-affiliates was $3,655,061,200, and the aggregatemarket value of Applera Corporation-Celera Genomics Group Common Stock (basedupon the average of the highand low price) held by non-affiliates was $674,821,371.  As of September 22,2003, 207,968,709 shares of Applera Corporation-Applied Biosystems Group CommonStock and 72,443,406 shares of Applera Corporation-Celera Genomics Group Common Stock were outstanding.**

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**DOCUMENTS INCORPORATED BY REFERENCEAnnual Report to Stockholders for Fiscal Year ended June 30, 2003 – Parts I, II, and IV.Proxy Statement for Annual Meeting of Stockholders dated September 5, 2003 – Part III.**

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**TABLE OF CONTENTS**

|           |                                                                                                 | **Page** |
|----------------|------------------------------------------------------------------------------------------------------|----------|
| **PART I**     |                                                                                                 | 1        |
| Item 1.        | Business                                                                                             | 1        |
|                | Company    Overview                                                                                  | 1        |
|                | Scientific    Background                                                                             | 3        |
|                | Applied    Biosystems Group Business                                                                 | 5        |
|                | Celera    Genomics Group Business                                                                    | 22       |
|                | Celera          Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera    Genomics | 32       |
|                | Applera    Genomics Initiative                                                                       | 42       |
|                | Employees                                                                                            | 43       |
|                | Financial    Information About Industry Segments                                                     | 43       |
|                | Financial    Information About Geographic Areas                                                      | 43       |
|                | Executive    Officers of the Registrant                                                              | 44       |
| Item 2.        | Properties                                                                                           | 44       |
| Item 3.        | Legal Proceedings                                                                                    | 46       |
| Item 4.        | Submission of Matters to a Vote of Security Holders                                                  | 49       |
|           |                                                                                                 |     |
| **PART II**    |                                                                                                 | 49       |
| Item 5.        | Market      for Registrant’s Common Equity and Related Stockholder Matters                      | 49       |
|                | Information    about our Common Stock and its Holders                                                | 49       |
|                | Forward    Looking Statements and Risk Factors                                                       | 50       |
| Item 6.        | Selected Financial Data                                                                              | 81       |
| Item 7.        | Management’s      Discussion and Analysis of Financial Condition and Results of Operations      | 81       |
| Item 7A.       | Quantitative and Qualitative Disclosures about Market Risk                                           | 81       |
| Item 8.        | Financial Statements and Supplementary    Data                                                       | 81       |
| Item 9.        | Changes in and Disagreements with    Accountants on Accounting and Financial Disclosure              | 81       |
| Item 9A.       | Controls and Procedures                                                                              | 82       |
|           |                                                                                                 |     |
| **PART III**   |                                                                                                 | 82       |
| Item 10.       | Directors and Executive Officers    of the Registrant                                                | 82       |
| Item 11.       | Executive Compensation                                                                               | 85       |
| Item 12.       | Security Ownership of Certain    Beneficial Owners and Management and Related Stockholder Matters    | 85       |
| Item 13.       | Certain Relationships and Related    Transactions                                                    | 88       |
| Item 14.       | Principal Accountant Fees and    Services                                                            | 88       |
|           |                                                                                                 |     |
| **PART IV**    |                                                                                                      | 89       |
| Item 15.       | Exhibits, Financial Statement    Schedules, and Reports on Form 8-K                                  | 89       |
|           |                                                                                                 |     |
| **SIGNATURES** | 94                                                                                                   |

 

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**PART I**

**Item 1.   Business**

**Company Overview**

***Business Segments***

Applera Corporation conducts business through three business segments, which are described below.  Throughout this report, terms such as “Applera,” “we,” “us,” or “our” may be used to refer to Applera Corporation.

*Applied Biosystems Group.* Our Applied Biosystems Group, which we refer to as “Applied Biosystems” throughout this report, is engaged principally in the development, manufacture, sale, and service of instrument-based systems, reagents, and software, and the provision of contract services, for life science and related applications.  A description of this business segment and developments during our 2003 fiscal year is set forth below in this Item 1 under the heading “Applied Biosystems Group Business.”

*Celera Genomics Group.* Our Celera Genomics Group, which we refer to as “Celera Genomics” throughout this report, is engaged principally in integrating advanced technologies to discover and develop new therapeutics.  Celera Genomics intends to leverage its capabilities in proteomics, bioinformatics, and genomics to identify and validate drug targets and to discover and develop novel therapeutic candidates.  A description of this business segment and developments during our 2003 fiscal year is set forth below in this Item 1 under the heading “Celera Genomics Group Business.”

*Celera Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera Genomics*.  Celera Diagnostics, a joint venture formed by Applied Biosystems and Celera Genomics in April 2001, is focused on the discovery, development, and commercialization of novel diagnostic products.  A description of this business segment and developments during our 2003 fiscal year is set forth below in this Item 1 under the heading “Celera Diagnostics, a Joint Venture between Applied Biosystems and Celera Genomics.”

Information about the risk factors associated with our business segments is set forth below in Item 5 of Part II of this report under the headings “Market for Registrant’s Common Equity and Related Stockholder Matters – Forward Looking Statements and Risk Factors.”

We maintain a corporate staff to provide accounting, tax, treasury, legal, information technology, human resources, and other internal services for Applied Biosystems, Celera Genomics, and Celera Diagnostics.

***Corporate History and Structure; Two Classes of Stock***

Applera was incorporated in 1998    under the laws of the State of Delaware. Applera is the successor to PE Corporation    (NY), formerly “The Perkin-Elmer Corporation,” which became a    wholly-owned subsidiary of Applera as a result of a recapitalization of PE    Corporation (NY) completed in May 1999. As part of the 1999 recapitalization,    Applera established the following two classes of common stock that were intended    to reflect separately the performance of the

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businesses of Applied Biosystems          and Celera Genomics, which are business units of Applera and are not separate          legal entities:

|        |        |                                                                                                                                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Applera Corporation-Applied Biosystems Group        Common Stock, which we refer to in this report as “Applera-Applied    Biosystems stock”; and |
|   |   |                                                                                                                                                       |
|   | • | Applera Corporation-Celera Genomics Group        Common Stock, which we refer to in this report as “Applera-Celera    stock.”                    |

More information about Applera-Applied Biosystems    stock and Applera-Celera stock is set forth below in Item 5 of Part II of    this report under the headings “Market for Registrant’s Common Equity and Related Stockholder Matters – Information about our Common Stock and its Holders.”  Also, information about the risk factors associated with our capital structure and our two classes of stock is set forth below in Item 5 of Part II of this report under the headings “Market for Registrant’s Common Equity and Related Stockholder Matters – ForwardLooking Statements and Risk Factors.”

On November 30, 2000, Applera changed its name   from “PE Corporation,” its name at the time of the 1999 recapitalization,   to its current name “Applera Corporation.” At the same time, Applied Biosystems,    which was named the “PE Biosystems Group” at the time of the recapitalization, was renamed the “Applied Biosystems Group.” 

*Websites.*******We maintain a corporate Internet websiteas well as separate Internet websites for each of Applied Biosystems, Celera Genomics, and CeleraDiagnostics.  Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reportson Form 8-K, and amendments to those reports filed with or furnished to the Securities and Exchange Commission are available free of charge on our corporate website aswell as the websites for Applied Biosystems and Celera Genomics.  Section 16 “insidertransaction” reports, which include Forms 3, 4, and 5, filed by our officersand directors are also available free of charge on these websites. We make these documents available on these websites as soon as reasonably practicable after they are electronically filed with,or furnished to, the SEC. Also, we intend toprovide information relating  to our corporate governance on our corporate website as well as the AppliedBiosystems and Celera Genomics websites, including as may be required by theSEC or   the New York Stock Exchange.

The following table indicates how toaccess our SEC filings andSection 16 “insider transaction” reports on our websites:

|                                    | **Website Address**                   | **SEC Filings**                                                                                                                                                                                                                                                                             | **“Insider **Transaction**”  reports**                                                                                                                                                                                           |
|-----------------------------------------|---------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **  Applera**                 |   www.applera.com           |   Click    on the link to “SEC  Filings” in the investor  relations/media section of the  website, and then click again  on the link to “SEC Filings”     |   Click    on the link to “SEC  Filings” in the investor  relations/media section of the  website, and then click again  on the link to “SEC Filings” |
| **  Applied Biosystems** |   www.appliedbiosystems.com |
| **  Celera Genomics**         |   www.celera.com            |
| **  Celera Diagnostics**      |   www.celeradiagnostics.com |   Not applicable                                                                                                                                                                                                                                                                  |   Not applicable                                                                                                                                                                                                                 |

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Except for the documents on our websites that are expressly incorporated by reference into this report, the information contained on our websites is not incorporated by reference into this document and should not be considered to be a part of this document.  Our website addresses are included in this document as inactive textual references only.

*Information Incorporated byReference.*******The SEC allows us to “incorporate by reference”some information from parts of other documents filed with the SEC, including:

|   | • | our Annual Report to Stockholders for our 2003 fiscal year, which we refer to in this report as our “2003 Annual Report”; and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                                                                                                                                                         |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | our Proxy Statement dated September 5, 2003, in connection with our Annual Meeting of Stockholders to be held on October 16, 2003, which we refer to in this report as our “2003 Proxy Statement.” |

When we “incorporate by reference,” thatmeans thatwe are referring you to important information in other documents that have been filed with the SEC rather than repeating that information in this report.  We recommend that you refer to the  information that we indicate is contained in the other documents and which is incorporated   by reference into this report.  The portions of our 2003 Annual Report that are incorporated    by reference into this report are included as Exhibit 13 to this report.

**Scientific Background**

All living organisms contain biological molecules.  The most numerous are in the categories of: nucleic acids, which include DNA and RNA; proteins; carbohydrates; and lipids.  Biological molecules are typically much larger and more complex than common molecules, and there is a wide diversity in the types of biological molecules present in living organisms.  These characteristics make the analysis of biological molecules significantly more complex than the analysis of smaller compounds.  Although all of these biological molecules are critical for a cell to function normally, key advances in therapeutics have historically come from an understanding of either proteins or DNA.  

DNA molecules provide instructions that ultimately control the synthesis of proteins within a cell, a process referred to as “gene expression.”  DNA molecules consist of chemical subunits, called “nucleotides,” bound in two long strands formed by a chemical “backbone” made up of sugar and phosphate molecules.  There are four nucleotides – adenine, cytosine, guanine, and thymine – often abbreviated with their first letters A, C, G, and T and often referred to as “bases.”  In a DNA molecule, the nucleotides in the two strands are bound together in pairs to form a structure that resembles a twisted ladder, which is often referred to as a “double helix.”  The bound pairs of nucleotides, which form the rungs of the “ladder,” are often referred to as “base pairs.” 

Genes are individual segments of these DNA molecules that carry the specific information necessary to construct particular proteins.  Genes may contain from several dozen to tens of thousands of nucleotides.  The entire collection of DNA in an organism, called the “genome,” may contain a wide range of nucleotides, including as few as 4 million nucleotides in the case of simple bacteria and 3.1 billion base pairs of nucleotides in the case of human beings.  

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RNA molecules are similar to DNA    in structure and are essential for biological function through a number of    biochemical activities within the human body. There are different types of    RNA molecules, each of which has a different function. For example, messenger    RNA, the most common form of RNA, acts as an intermediary between DNA and    protein, transcribing the genetic code from DNA into protein.

Principally driven by the “biotechnology    revolution,” and the increasing focus on DNA, researchers are developing    a better understanding of DNA's role in human disease. An increased appreciation    of how DNA ultimately determines the functions of living organisms has generated    a worldwide effort to identify and sequence genes of many organisms, including    the genes that make up the human genome. We believe the best scientific evidence    to date indicates that the number of genes in the human genome that code    for proteins is between 25,000 and 35,000, which is significantly less than    had been previously thought. The study of genes and other genetic material    of organisms is now commonly referred to as “genomics.”

The field of genomics research generally includesthree broad categories of analysis, consisting of sequencing, genotyping, and gene expressionstudies:

|   | • | Sequencing is performed to determine the exact order of the individual nucleotides in a DNA strand.  Sequencing was used to identify the nucleotides in the entire human genome and other species.  It has also been used to identify naturally occurring genetic variations in the human genome, which are referred to as “single nucleotide polymorphisms” or “SNPs.”  Scientists believe that SNPs can be correlated with, for example, susceptibility to disease, disease prognosis, therapeutic efficacy, and therapeutic toxicity, and therefore may have diagnostic or therapeutic utility. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 |
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|   | • | Genotyping is performed to determine a particular sequence variant of a gene and its particular association with an individual’s DNA.  Genotyping is not performed to determine the complete structure of the gene, but rather is performed to determine if the particular DNA sequence variant, typically a SNP, can be associated with, for example, susceptibility to a particular disease or response to a particular drug. |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | Gene expression is performed to determine whether a particular gene is expressed, or present, in a relevant biological material.  This analysis can be used, for example, to measure and compare gene activity in various biological samples, such as samples from populations of healthy and diseased individuals, or from populations at different stages of disease development.  These types of studies may be useful in the development of diagnostic tests and therapeutic treatments. |

As researchers learn more about DNA and genes, they are also developing a better understanding of the role of proteins in human disease through efforts in the field of “proteomics,” the study of proteins expressed, or coded, by genes.  Proteins are the products of genes and, along with gene expression and modification, are believed to be the key drivers and mediators of cellular function and biological system activity.  The understanding and treatment of disease today involves the study of genes and the proteins they code for, and frequently involves the measurement of a drug’s ability to bind to specific proteins in the body.

We    believe that gene and protein research will increase as companies in the    pharmaceutical and biotechnology industries seek to accelerate their drug    discovery and

 

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development efforts. We also believe          that ongoing drug discovery and development efforts will increase research          of cells as researchers seekto further understand how drugs work in the body.

The growth in DNA, protein, and other research hascreated the need for systems that facilitate the collection, organization, and analysis of the largeamounts of data generated by this research.  This demand has led to the development of the science of “bioinformatics.”  The science of bioinformatics seeks to blend biology and computing to transform massive amounts of data into useful information.

 

**Applied Biosystems Group Business**

***Overview***

Applied Biosystems is engaged principally in the development, manufacture, sale, and service of instrument-based systems, reagents, and software, and the provision of contract services, for life science and related applications.  Its products are used in various applications including the synthesis, amplification, purification, isolation, analysis, and sequencing of nucleic acids, proteins, and other biological molecules.  Applied Biosystems’ products are designed to address the demand for increased automation and efficiency in pharmaceutical and biotechnology laboratories by combining the detection capabilities of analytical instruments with advances in automation and laboratory work-flow design.

The markets for Applied Biosystems’ products    span the spectrum of the life sciences industry and research community, including:    basic human disease research and genetic analysis performed by universities,    government agencies, and other non-profit organizations; pharmaceutical    drug discovery, development, and manufacturing; human identification; agriculture;    and food    and environmental testing.

The Applied Biosystems business operations are divided among several principal operating units organized primarily according to their business function.  These units are responsible for various aspects of product and service discovery, development, marketing, manufacturing, sales, and service.  The operating activities of these units are supported by a shared service organization responsible for functions such as human resources, finance, communications, legal, and intellectual property.

For information on revenues from instruments and consumablesfor our 2001, 2002, and 2003 fiscal years, refer to pages 27 through 29 of Management’s Discussionand Analysis in our 2003 Annual Report, which pages are incorporated herein by reference.

|   | ***Knowledge Business; Online Marketing and Distribution Agreement with Celera Genomics*** |
|--------|--------------------------------------------------------------------------------------------|

*General      Description of Knowledge Business.*The Applied Biosystems Knowledge      Business develops and markets products and services designed to meet the      needs of life science researchers in performing specific biological analysis      applications. Products and services under development or expected to be      developed by the Knowledge Business include: genomic assays

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and related            information, such as DNA sequence information and annotations linking        researchers to relevant databases; products for human identification; products        for            agriculture, food, and environmental testing; products for functional        proteomics, the study of protein function; products for cellular analysis;        as wellas other information-rich products, services, and analytical tools.

The Knowledge Business is focused on generating value to life science customers through products and services with high information content that support improved experimental work-flows.  The Knowledge Business is working in collaboration with the other product development units within Applied Biosystems to develop systems that provide “whole systems solutions” that link instruments and the analytical results generated by the instruments with information and analysis tools that researchers can use to interpret the results of their studies, design additional experiments, and ultimately generate useful information.  As a result, the products developed by the Knowledge Business are in many cases offered for use with, or as a complement to, other Applied Biosystems products and services.

*Online Marketing and Distribution Agreement.*Concurrently with Applied Biosystems’ formation of the Knowledge Business in April 2002, Celera Genomics and Applied Biosystems entered into a ten-year marketing and distribution agreement pursuant to which Applied Biosystems has become the exclusive marketer of Celera Genomics’ Celera Discovery SystemTM and related human genetic and other biological and medical information.  As a result of this arrangement, the Applied Biosystems Knowledge Business has begun integrating the Celera Discovery System and other genomic and biological information into its product offerings.

In exchange for the rights it acquired under themarketing and distribution agreement, Applied Biosystems will provide Celera Genomics with royalty payments on revenues generated by sales of some Knowledge Business products from July 1, 2002, through the end of our 2012 fiscal year.  The royalty rate is progressive, up to a maximum of 5%,  with the level of sales through our 2008 fiscal year.  The royalty rate becomes a fixed percentage  of sales starting in our 2009 fiscal year, and the rate declines each succeeding fiscal year  through our 2012 fiscal year.  The products subject to the royalties include:

|   | • | Assays-on-DemandTM products; |
|--------|--------|------------------------------|

|   |   |                         |
|--------|--------|------------------------------|
|   | • | Assays-by-DesignSM services; |

|   |   |                          |
|--------|--------|-------------------------------|
|   | • | Some reagents for arrays; and |

|   |   |                                                       |
|--------|--------|------------------------------------------------------------|
|   | • | New database subscriptions sold by the Knowledge Business. |

Under the terms of the marketing and distribution agreement, Celera Genomics will receive all revenues under, and be responsible for all costs and expenses associated with, Celera Discovery System and related information contracts that were entered into on or prior to June 30, 2002.  However, the Applied Biosystems Knowledge Business took full responsibility for marketing and contracting for the Celera Discovery System and related products after that date.  Accordingly, Celera Genomics does not expect any revenues from the Celera Discovery System and related products and services other than under contracts existing on that date, so long as they remain in effect, and from potential royalty payments from Applied Biosystems under the marketing and distribution agreement.  Applied Biosystems  has agreed to reimburse Celera Genomics for any shortfall in earnings before interest, taxes,  depreciation, and amortization from 

 

 

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these contracts below $62.5 million          during the four fiscal years ending with the 2006 fiscal year, if the shortfall          is due to the actions        of the        Knowledge Business including changes in marketing strategy for the Celera Discovery          System. However, this commitment is also subject to Celera Genomics otherwise          continuing to          perform under these contracts, and does not protect Celera Genomics from          lost revenue due to other circumstances such as customer bankruptcy.

***Products for the Genomics Market***

Customers in the genomics market use systems for the analysis of nucleic acids for:  basic research; pharmaceutical and diagnostic discovery and development; food and environmental testing; analysis of infectious diseases; and human identification and forensic analysis.  Applied Biosystems has developed technologies and products to support key applications in genomics research such as sequencing, genotyping, and gene expression studies.  Applied Biosystems’ products for the genomics market are described in the following paragraphs. 

*PCR Instruments, including Thermal Cyclers and Sequence Detection Systems, and Related Consumables.*  Polymerase chain reaction, commonly referred to as “PCR,” is a process in which a short strand of DNA is copied multiple times, or “amplified,” so that it can be more readily detected and analyzed.  Applied Biosystems’ PCR product line includes amplification instruments, known as “thermal cyclers,” several combination thermal cyclers and PCR detection systems, and reagents and software necessary for the PCR amplification and detection process.

The Dual 384-Well GeneAmp® PCR System 9700 thermal cycler is the highest capacity thermal cycler offered by Applied Biosystems.  This instrument supports all key applications in genetic analysis and fills a significant market need for laboratories conducting high-volume genomics research.  This instrument is referred to as a “dual 384-well” instrument because it can simultaneously amplify samples in two plastic trays, referred to by researchers as “microtiter plates,” each having wells to hold 384 samples.  Applied Biosystems also offers 60- and 96- sample thermal cyclers.  Applied Biosystems’ PCR product line also includes reagents for high-fidelity, or high-accuracy, amplification of long DNA segments.  These are useful in the determination of “haplotypes,” which are correlated patterns of inherited DNA mutations.  Haplotypes are just beginning to be understood by scientists and be used in complex disease-geneassociation studies.

Applied Biosystems’ Sequence Detection Systems productline includes products both for sample preparation and for analysis.  Applied Biosystems’ sample preparation products extract DNA and/or RNA from whole cells, blood, and other samples.  This DNA or RNA, largely separated from the other molecules found in cells, can then be analyzed in instruments largely without interference from those other molecules, such as proteins.  The Applied Biosystems ABI PRISMTM 6700 Automated Nucleic Acid Workstation automates this phase of sample preparation as well as the two other key phases, depositing the DNA and/or RNA samples on assay plates and sealing those plates to avoid contamination prior to analysis.  The model 6700 workstation is  designed to substantially decrease the labor and cost involved in preparing DNA and RNA for   analysis.  Applied Biosystems also offers the ABI PRISMTM 6100 Nucleic Acid PrepStation.    This instrument shares some features of the model 6700 workstation, but is less automated andis designed for researchers seeking an economical alternative to higher-performance,higher-priced instruments.

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Applied    Biosystems offers two Sequence Detection System instruments for analysis    of nucleic acids: The ABI PRISM® 7900HT      and the ABI PRISM 7000 systems. The model 7900HT system provides high-throughput      analysis of DNA for gene expression and genotyping studies. This is an automated,      384-well analyzer that can process more than 250,000 samples in 24 hours      for genotyping. The model 7000 system offers many of the same specifications      as the model 7900HT system, but in a less automated and lower-throughput      system designed for researchers seeking an economical alternative to higher-priced,higher-performance instruments. 

Both the model 7900HT and model 7000    systems are modified versions of Applied Biosystems’ thermal cyclers,    which are described above, and use TaqMan® chemistry, a unique    PCR technology designed by the Roche Group and developed by Applied Biosystems.    TaqMan chemistry can be used both for measurement of gene expression and    for genotyping. TaqMan chemistry detects the product of PCR amplification    and quantifies the initial sample during the amplification process. This    technique    is referred to as “quantitative real-time PCR.”  The Sequence Detection    Systems instruments analyze a sample by measuring fluorescence resulting    from the reaction of the TaqMan chemistry and the sample. This product line    has been widely accepted in the pharmaceutical discovery research market.    Applied Biosystems’ Assays-on-Demand products and Assays-by-Design services    are TaqMan chemistry-based assays designed for use on Applied Biosystems’ Sequence Detection Systems instruments.  These products are described below in Item 1    of this report under the headings “Applied Biosystems Group Business – Products for the Genomics Market – Genomic    Assays.”

During our 2003 fiscal year, Applied Biosystems commenced sales of a new proprietary Micro Fluidic Card system, which was jointly developed with 3M Company, and a modified version of its model 7900HT system to support the new cards for gene expression analysis.  The Micro Fluidic Cards are consumable laminated plastic sheets containing 384 microscopic fluid channels and wells.  They are designed for use instead of microtiter plates, which are used in many types of laboratory analyses, including gene expression or genotyping studies on Applied Biosystems’ instruments.  The microscopic fluid channel design of the new cards enables researchers to automatically route a sample to the reaction wells rather than doing this by hand or using expensive and complex robotics as is required when using microtiter plates.  The Applied Biosystems Knowledge Business is currently offering the Micro Fluidic Cards pre-loaded with Assays-on-Demand human, mouse, and rat geneexpression reagents.  Using an on-line ordering system, customers can customize the cards by selecting the assays that are pre-loaded on to the card.  Applied Biosystems and 3M Company had previously considered developing a Micro Fluidic Card system for SNP genotyping, but that program has been suspended pending further evaluation of the market for that system.

*Genetic Analysis Instruments.*  Applied Biosystems genetic analysis instruments, referred to as DNA or genetic analyzers, can be used to perform both DNA sequencing and fragment analysis.  DNA sequencing is used to determine the exact order of nucleotides in a strand of DNA.  DNA fragment analysis is used to determine the size, quantity, or pattern of DNA in a strand of DNA.  DNA sequencing instruments have been used extensively to obtain the DNA sequence of the human genome and the genomes of other species and to identify SNPs and other genetic mutations.

Applied Biosystems’ genetic    analysis instruments use “electrophoresis” to analyze molecules.    During electrophoresis, the molecules being analyzed are placed in a separation    medium, usually a gel, and then subjected to an electric charge. The molecules    will pass through the gel at different speeds because        the molecules have different lengths and electrical charges.

 

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Typically,      the molecules being analyzed are          labeled, or chemically linked, with fluorescent “tags” before          being subjected to the electrophoresis, with each of the four different nucleotides – A,          C, G, and T – being labeled with a different color tag.  During electrophoresis,          the genetic analysis instrument can analyze the molecules by using an optical          device that can “read” the fluorescent tags.  Applied Biosystems          offers several sequencing chemistries optimized for various customer          requirements. Samples prepared using these chemistries are then analyzed          on Applied Biosystemsgenetic analysis instruments.

All of Applied Biosystems’ genetic analysisinstruments now use capillaries, which are tubes through which a DNA sample moves during electrophoresis.  Capillary systems have higher throughput and greater automation than those based on slab-gels,  an older and less efficient technology.  Applied Biosystems offers the following genetic analysis  instruments:

| **  Instrument**                                                           |   **Description**                   |
|--------------------------------------------------------------------------------------|-----------------------------------------------|
|   Applied Biosystems 3730*xl* DNA Analyzer   |   96 capillary sequencer  |
|   Applied Biosystems 3730 DNA Analyzer                                     |   48 capillary sequencer            |
|   ABI PRISM® 3100 Genetic Analyzer                                     |   16 capillary sequencer            |
|   ABI PRISM®3100-*Avant* Genetic Analyzer                              |     4 capillary sequencer |
|   ABI PRISM® 310 Genetic Analyzer                                      |     1 capillary sequencer |

Applied Biosystems provides servicing and customer support for these instruments.

The model 3730*xl* DNA      Analyzer has superseded the 96 capillary model 3700 DNA Analyzer, which      is no longer offered for sale by Applied Biosystems although Applied Biosystems      continues to provide servicing and support for this instrument. At the      time of its introduction in 1999, the model 3700 instrument represented      a significant advance in DNA sequencing technology because it could perform      high-throughput analysis of samples in unattended operation. The model      3700 instrument was the principal instrument used by Celera Genomics for      sequencing human and other genomes, and we believe the model 3700 instrument      is also the principal instrument used by the Human Genome Project for its      sequencing projects. The model 3730*xl* instrument offers significant advances in data quality, throughput, and cost effectiveness over the model 3700 instrument.  Because of these advances, the model 3730*xl* instrument is able to readlonger DNA fragments than its predecessor.  For a given sequencing project, this means that customers using the model 3730*xl* instrument will need to process fewer samples, lowering their preparation costs.  Also, by incorporating a more sensitive optical design, the model 3730*xl* instrument is able to complete the same analysis with lower reagent consumption per sample.  The 48-capillary model 3730 instrument, which incorporates the same technological advances as the model 3730*xl*instrument, can be upgraded to become a 96-capillary model 3730*xl*instrument.

The 16-capillary model 3100 Genetic    Analyzer was designed  for use by academic programs and commercial laboratories.    It was the technological precursor ofthe model 3730 DNA Analyzer and incorporates many of the same features, though    it has lower throughput  and is less expensive. The 4-capillary model 3100-*Avant* Genetic    Analyzer is a reduced capacity  instrument derived from the model 3100 Genetic    Analyzer and has a lower cost than the model 3100instrument.  A model 3100-*Avant* Genetic Analyzer can be upgraded to a model 3100    Genetic Analyzer.  Applied Biosystems has discontinued sales of its ABI PRISM    377 DNA Sequencer, the last of its instruments to use slab-gel technology, although Applied Biosystems continues    to provide servicing  and support for this instrument.

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In January 2003,Applied Biosystems announced the introduction of the SNPlexTM Ultra HighThroughput  Genotyping System, and Applied Biosystems expects commercial salesto commence by the end ofthe 2003 calendar year.  The SNPlex system uses “multiplexing,” a scientificterm that  refers to multiple reactions in a single tube or well, to rapidlyidentify large numbers of targetSNPs in a single biological sample.  Using this system, customers will be ableto perform studiesbased on Applied Biosystems’ proprietary SNP reference library or theirown customized set of  reference SNPs. The system consists of reagents and softwarefor use on an Applied Biosystems DNAsequencing instrument, initially expected to be the 3730 and 3730*xl* models. The high-throughput genotyping capabilities of this new system will complementthe PCR-basedgenotyping that can be performed by the Applied Biosystems Sequence DetectionSystem instruments. Applied Biosystems expects that researchers seeking to performgenotyping will choose between these alternative technologies based on a varietyof factors, including the type of studies they are performing, the scientificrequirements of these studies, their access to the needed instrumentation, andtheir budgets.

*Genomic Assays*.  Through its Knowledge Business, Applied Biosystems offers its Assays-on-Demand product line and its Assays-by-Design service.  The Assays-on-Demand product line, launched in July 2002, is a collection of TaqMan chemistry-based assays for gene expression and genotyping that incorporate genome data into a tool that is ready-to-use for experimentation.  Assays-by-Design is a service for the manufacture of custom-made TaqMan chemistry-based assays.  Researchers using the Assays-by-Design service supply the desired target, and Applied Biosystems designs and manufactures an assay for that target using Applied Biosystems’ proprietary software algorithms.

Our assays are chemical tests used to  measure a DNA or RNA target. A genomic assay combines a set of pre-selected “oligonucleotides” or “oligos,” which  are synthetic single-stranded pieces of DNA, with other analytical reagents  that allow a researcher to measure differences between samples of genetic material.  For example, a gene expression assay is a chemical test to measure how much  RNA is being produced from a specific gene in the cells of a tissue sample.  A genotyping assay is a chemical test to measure the presence or absence of  a specific genetic sequence variation or mutation among DNA samples from different  populations that can be used to correlate genetic traits with physical traits  such as disease susceptibility or drug response.  

The Assays-on-Demand product line is the first commercialproduct line resulting from the Applera Genomics Initiative, which is described below in Item 1 ofthis report under the heading “Applera Genomics Initiative.” Applied Biosystems believes thatAssays-on-Demand is also the first commercial product line to incorporate genomic data from both the public and private sector human genome sequencing projects.  Since the initial launch of Assays-on-Demand  products, Applied Biosystems has continued to increase the number of assays available and currently  offers over 146,000 human SNP genotyping assays, and over 19,000 gene-specific human gene expression  assays.  Also, in May 2003, Applied Biosystems launched mouse gene expression Assays-on-Demand, and   currently offers over 10,000 of these assays.  In July 2003, Applied Biosystems launched rat gene    expression Assays-on-Demand, and currently offers over 3,000 of these assays.  The ability tostudy mouse and rat genomes is important to researchers involved in therapeutic research anddevelopment because mice and rats have genes that are believed to correspond to human genes andthe results of disease research or safety, toxicology, or other studies on mice or rats maytherefore be correlated to humans with corresponding genetic characteristics.                                                     

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Researchers traditionally have used “home brew” assays, which are assays that researchers both design and prepare themselves in their  laboratories, a process that is relatively time consuming and expensive.  Applied Biosystems  believes that its Assays-on-Demand product line offers significant advantages to researchers  compared with home brew assay design.  These advantages include:

|   | • | facilitation of experiments with many genes in parallel; |
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|   | • | substantial reduction in experiment setup time; |

|   |   |                      |
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|   | • | decreased assay cost; and |

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|   | • | creation of a set of standard and validated assays that enable comparisons of data between laboratories. |

Applied Biosystems’ current Assays-on-Demand products and Assays-by-Design services are designed to be used with Applied Biosystems’ Sequence Detection Systems PCR instruments.  

*Microarrays*.  In July 2003,    Applied Biosystems announced the introduction of the Applied Biosystems Expression    Array System for high-throughput gene expression analysis. This system combines “microarray” technology    and a proprietary “chemiluminescence” technology and was designed    to detect a greater number of genes, with higher sensitivity and specificity,    while using less biological sample than existing commercially-available microarray    technologies. This system is highly sensitive because it can detect the expression    of very small quantities of expressed genes, and highly specific because    of its accuracy in identifying the presence of expressed genes without falsely “reading” the    presence of other genes. Applied Biosystems expects sales of this new system    to commence by the end of the 2003 calendar year.

Microarray technology involves the    miniaturization of reactions on a single consumable product to enable a large    number of simultaneous reactions or analyses. Applied Biosystems’ microarrays    are small, porous nylon plates that can be used to analyze in parallel the    presence of over 30,000 human genes in a sample. The microarrays are used    in combination with the 1700 Chemiluminescent Microarray Analyzer, an instrument    that measures gene expression by detecting chemiluminescence, which is the    conversion    of chemical energy stored within a molecule into light. DNA “probes,” which    are single-stranded pieces of DNA, are chemically attached to the microarray    and designed to cause a chemiluminescent reaction in the presence of expression    targets. The DNA probes used for this application are approximately 60 bases    long.  Applied    Biosystems believes the use of chemiluminescence rather than fluorescence,    and the use of longer probes, will result in higher sensitivity and specificity    compared to existing commercially-available microarray systems.

Applied Biosystems expects that this system will complement the gene expression capabilities of its TaqMan chemistry-based Sequence Detection System products.  Although this new system enables a larger number of parallel reactions, Applied Biosystems expects that researchers may seek to validate their results and perform further analysis on Sequence Detection System instruments based on the results of Expression Array System studies.  Applied Biosystems plans to introduce whole genome expression arrays for the mouse and rat genomes in the future.

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*DNA Synthesis.* DNA synthesizers    produce synthetic single-stranded pieces of DNA for genetic analysis. These    molecules, referred to as “oligonucleotides” or “oligos,” are    an essential reagent for PCR and DNA sequencing and are also used in drug    discovery applications. DNA synthesis is used both by companies performing    high-throughput synthesis as a service as well as individual laboratories    that synthesize DNA for their own use. Applied Biosystems offers several    models of synthesizers and supporting reagents for the needs of its different    customers. Applied Biosystems also provides custom synthesis, in which oligonucleotides  are made to order and shipped to customers.

*PNA.*  Applied Biosystems has    a license, which is exclusive for some applications, to manufacture and sell    peptide nucleic acid within various markets including the molecular biology    research market. Peptide nucleic acid, which is often referred to as “PNA,” resembles    DNA in its chemical structure except that it has a neutral peptide-like “backbone,” whereas    DNA has a negatively charged sugar phosphate backbone. The unique chemical    structure of PNA enhances its affinity and specificity as a DNA or RNA “probe.”  Probes    are used in various types of analysis, and are used to “search” for    DNA and RNA sequences in a sample by binding to those sequences if they are    present. PNA may be used in many areas, including basic research, pharmaceutical    discovery, diagnostic development, and food and environmental testing. During    our 2002 fiscal year, Applied Biosystems acquired additional rights to PNA    technology, particularly exclusive rights in the field of diagnostics, through    its acquisition of Boston Probes, Inc. and a party related to Boston Probes.

***Products for the Proteomics Market***

Genes code for proteins in biological organisms,and proteins are the key biological molecules that function in all aspects of living things such as growth, development, and reproduction.  Differences in the types or amounts of specific  proteins in biological systems are thought to be the primary differences between healthy  and diseased systems or organs.  A majority of drugs to treat human disease bind to and  affect proteins.  Proteins are large biological molecules made up of peptides,  and peptides are made up of amino acids chemically linked together in long chains.   Customers in the proteomics research market need systems for the analysis of proteins   and peptides for the purpose of discovery of drug targets, protein therapeutics, and    diagnostics.  Applied Biosystems has developed products for the identification,characterization, and measurement of expression of proteins and peptides. Applied Biosystems’ products forthe proteomics market are described in the following paragraphs.

*Mass Spectrometry*.  Mass spectrometry has becomevery useful for the analysis of large molecules of biological importance such as proteins.Analysis of proteins and other molecules by mass spectrometry involves the very accuratemeasurement of the mass, or size, of components in a sample, such as the measurement of themultiple different peptides that make up a defective protein.  The technique involves the measurement of these molecules in instruments using very high vacuum and sensitive electronics capable of measuring extremely fine differences in very small quantities of complex samples with multiple components.  The technique of mass spectrometry requires that  the following key elements be incorporated into the instrument:

|   | • | A unique sample preparation process called “ionization” to charge the molecules for analysis.  Applied Biosystems sells instruments with ionization by either a laser based system called “MALDI,” which refers to “matrix assisted laser desorption |
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|        |        | ionization,” or a high voltage electric system called “ESI,” which      refers to “electrospray ionization.”                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
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|   | • | Mass analysis and detection, which involves the separation and electronic measurement of the mass of molecules and the measurement of the relative amounts present.  Applied Biosystems has a variety of mass analysis technologies which separate and measure the mass of molecules in a sample.  These include “TOF,” which refers to “time of flight,” which measures mass based on flight time in an electric field under vacuum; and “quadrupole” or “quad,” and “linear ion trap,” both of which measure mass using radio frequencies and electric charges though using related but different technologies. |

Mass spectrometry products are often referred to or named based on their sample preparation and mass analysis technologies.  For example, a “MALDI TOF” instrument is an instrument that uses MALDI to charge molecules for analysis and TOF for mass analysis.  Also, mass spectrometry instruments are often referred to or named based on whether they are connected to liquid chromatography separation devices, which are used for sample preparation prior to analysis using mass spectrometry.  For example, an “LC/MS” system is a liquid chromatography device connected directly to a mass spectrometry instrument, and an “LC/MS/MS” system is a liquid chromatography device coupled with tandem mass spectrometry instruments.  Tandem mass spectrometry enables a more detailed and accurate analysis of the components of the molecules being studied. 

The market for mass spectrometry is served by a wide range of instrument types based on a variety of technologies for both ionization and mass analysis and combined together in different combinations in different instruments.  The different instrument types, technologies, and combinations result in differing performance characteristics and price levels, and the suitability of any particular system for any researcher or research laboratory will depend on the nature of the work being performed and the capital budget of the researcher or research laboratory.  

Applied Biosystems and Applied Biosystems/MDS SCIEX Instruments, a joint venture between Applied Biosystems and MDS Inc. of Canada, supply a broad family of mass spectrometry products for the proteomics market that involve different combinations of these technologies.  Customers select from this range of product types based on their budgets, workflows, sample types, preferences, and experience.  Under the terms of the joint venture agreement with MDS Inc., Applied Biosystems has the exclusive worldwide distribution rights to the LC/MS systems manufactured for the joint venture by the MDS SCIEX Division of MDS Inc. for the analytical instruments market.  

The following table summarizes the mass spectrometryinstruments offered by Applied Biosystems, including those manufactured through its MDS/SCIEXInstruments joint venture, for the proteomics market:

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| **Instrument    Name**                                                      | **Ionization**         | **Mass Analyzer**                                                                  |
|-----------------------------------------------------------------------------|------------------------|------------------------------------------------------------------------------------|
| VoyagerTM-DE PRO Biospectrometry Workstation   | MALDI                  | TOF                                                                                |
| VoyagerTM-DE    STR Biospectrometry Workstation                         | MALDI                  | TOF                                                                                |
| 4700    Proteomics Discovery System                                         | MALDI                  | TOF/TOFTM Optics                                                               |
| QSTAR® XL    Hybrid LC/MS/MS System                                     | ESI or MALDI | Hybrid quad/TOF (often referred to as a Qq-TOF) |
| Q    TRAP® LC/MS/MS System                                              | ESI                    | Hybrid    quad/linear ion trap                                                     |
| 4000    Q TRAP® LC/MS/MS System                                         | ESI                    | Hybrid    quad/linear ion trap                                                     |

Applied Biosystems introduced the    4700 Proteomics Discovery System during our 2003 fiscal year as an upgraded    and enhanced version of the 4700 Proteomics Analyzer with TOF/TOFTM optics,    which was introduced during our 2002 fiscal year. This system was designed    to address the needs of proteomic researchers for increased speed and throughput    as well as enhanced data quality and molecular information. The 4700 Proteomics    Discovery System, which has superseded the original 4700 analyzer, incorporates    a high speed MALDI system with a tandem TOF mass analyzer. In addition, the    new 4700 system incorporates mass spectrometry instrumentation with an online    link to the Celera Discovery System, which is available by subscription from    the Applied Biosystems Knowledge Business. This link enables users to integrate    their mass spectrometry results with relevant biological information, including    annotated protein and genome information, and bioinformatics analysis tools.    Applied Biosystems believes that these system enhancements will facilitate    researchers’ efforts to characterize proteins and their functions in    biological systems, including the human body, and may add the enhancements    to other systems in the future.

Applied Biosystems/MDS SCIEX Instruments    introduced the 4000 Q TRAP LC/MS/MS system during our 2003 fiscal year    to complement the Q TRAP system, which was introduced during our 2002 fiscal    year. The 4000 Q TRAP system is based on the same linear ion trap technology    introduced with the Q TRAP system but the 4000 Q TRAP system, a higher-priced    instrument, has    enhanced    qualitative and quantitative analysis capabilities. Applied Biosystems believes    these enhancements will enable researchers to combine experiments in a single,    automated system that previously required multiple mass spectrometry instruments    or were not practical to perform at all. The new system is now commercially    available but Applied Biosystems does not expect full production capacity    until later in our 2004 fiscal year. 

In addition to the range of mass    spectrometry instruments and software used to operate those instruments,    Applied Biosystems has developed and commercialized the ICAT® reagent    technology created by Dr. Ruedi Aebersold and others while at the University    of Washington. This chemistry technology, when used with various mass    spectrometry    systems,    enables the quantitation and identification of proteins in experiments that    compare normal and diseased cells or samples. The ICAT reagent approach now    offers laboratories a way of running protein experiments using mass spectrometry    and is the foundation of an expanding family of Applied Biosystems consumables,  software, and systems for proteomics.

*Biochromatography.*  Researchers studying complex protein samples through mass spectrometry must first prepare these samples and separate them into the components to be analyzed.  A common and important technique for the separation, and in some cases purification, of biological molecules is generally referred to as “biochromatography,” aprocess by which molecules are separated according        to one or more of their physical properties such as their size, shape, charge,or affinity to other molecules. 

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Applied Biosystems’ biochromatography products use “liquid chromatography.”  Liquid chromatography is a process that separates molecules by passing them, in a liquid, across a stationary or solid medium such as chemically modified plastic beads specially designed for this process.  Separation occurs because different molecules, which have different affinities to the beads, will migrate, or pass, across the beads at different rates.  Instruments that perform liquid chromatography under high pressure are referred to as “high pressure liquid chromatography,” or “HPLC,” instruments. 

Applied Biosystems believes that its biochromatography products can be incorporated readily into the proteomics discovery process and the development and manufacturing process of protein based pharmaceutical products.  Applied Biosystems also believes its biochromatography products offer productivity advantages, enabled by high speed separation combined with high capacity and resolution, over competitive product offerings.

Applied Biosystems’ patented    Perfusion Chromatography® system technology uses proprietary    flow-through POROS® beads and BioCad® Chromatography    workstations to reduce the time necessary for the purification and analysis    of biological molecules. Applied Biosystems’ VisionTM Workstation    is a robotic-equipped chromatography instrument marketed to life science    researchers that allows for the separation of proteins followed by analysis    of the fractions collected in an unattended operation. Together, the automated    platform and flow-through beads ****are designed to increase throughput    and efficiency for the separation and purification of biological molecules.

*Protein Sequencing and Synthesis.*Proteins    are large biological molecules and are made of peptides, and peptides are    made of amino acids chemically linked together in long chains. Protein sequencers    provide information about the sequence of amino acids that make up a given    protein by chemically disassembling the protein and analyzing the amino acids.    The Procise® Protein Sequencing system** uses a protein    sequencing chemistry known as Edman chemistry to sequence a peptide, one    amino acid at a time, and in turn to identify or characterize the protein    that contains the peptide.

Synthetically produced peptides are used in understanding antibody reactions and as potential drugs or drug analogs.  The Applied Biosystems 433A Peptide Synthesis system is designed for the quality synthesis of peptides, peptide analogs, and small proteins.  Applied Biosystems also manufactures and sells proprietary synthesis reagents and chemicals for use with this and other products.

***Products for the Drug**********Metabolism        and Pharmacokinetics Market***

Applied Biosystems has a number of mass spectrometry products that life science researchers use to analyze small molecules.  Small molecules studied in life science research are typically smaller than peptides and include, for example: 

|   | • | some drugs; |
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|   |   |                                                                                                                                   |
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|   | • | metabolites, the compounds resulting from the body’s acting upon a drug, and present in bodily fluids such as blood or urine; and |

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|   | • | other small biological molecules found naturally in the human body such as hormones, which affect physiological activity by sending signals to cells and organs, and cholesterol, which the body uses, for example, to build cells and produce hormones. |
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Mass spectrometry instruments are especially important for pharmaceutical researchers studying “pharmacokinetics,” the measurement of the bodily absorption, distribution, metabolism, and excretion, or elimination, of drugs.  The U.S. Food and Drug Administration and other regulatory agencies require pharmacokinetic information for the approval of drugs.  This application requires instruments which have a high resolution, or the ability to distinguish among different molecules with similar masses, and high sensitivity, or the ability to identify very small quantities of molecules, because the amounts of the drugs and their metabolites are very low and the mixtures are very complex.  Researchers can perform the required pharmacokinetic analysis with LC/MS/MS systems that have been developed and refined by Applied Biosystems/MDS SCIEX Instruments.

Applied Biosystems/MDS SCIEX Instruments offers a broad productline of mass spectrometry instruments for small molecule and pharmacokinetics researchers:

| **  Instrument Name**                                      | **  Ionization** | **  Mass Analyzer**                              |
|----------------------------------------------------------------------|----------------------------|------------------------------------------------------------|
|   API 2000TM LC/MS/MSSystem                            |   ESI or MALDI   |   Triple quad                                    |
|   API 3000TM LC/MS/MS System                           |   ESI            |   Triple quad                                    |
|   API 4000TM LC/MS/MS System                           |   ESI            |   Triple quad                                    |
|   QSTAR® XL Hybrid LC/MS/MS System |   ESI            |   Hybrid quad/TOF (often referred toas a Qq-TOF) |
|   Q TRAP® LC/MS/MS System                              |   ESI            |   Hybrid quad/linear ion trap                    |
|   4000 Q TRAP® LC/MS/MS System                         |   ESI            |   Hybrid quad/linear ion trap                    |

The API product line instruments offer a range of sensitivity at varying costs, the API 4000 system being the most sensitive.  This product line has been widely accepted by pharmaceutical researchers, and we believe the API 4000 system is the most sensitive triple quad mass spectrometry instrument available to this research market.  The QSTAR XL Hybrid LC/MS/MS System, which is described above in Item 1 of this report under the headings “Applied Biosystems Group Business – Products for the Proteomics Market – Mass Spectrometry,” offers higher resolution and mass accuracy, or the ability to accurately determine the mass of a molecule, than the API 2000, API 3000, and API 4000 systems, which is particularly useful to researchers seeking to identify unknown molecules such as metabolites. 

General information about mass spectrometry instruments and the technologies they incorporate, and also additional information about the QSTAR XL Hybrid LC/MS/MS, Q TRAP LC/MS/MS and 4000 Q TRAP LC/MS/MS systems, is set forth above in Item 1 of this report under the headings “Applied Biosystems Group Business – Products for the Proteomics Market – Mass Spectrometry.”

***Cell Biology and Functional Proteomics Products***

Applied Biosystems has developed,    and expects to continue developing, products used for the study of cell and    biological molecule function. Applied Biosystems intends to market existing    products and develop new products within this field through its Knowledge    Business. These products are intended for use by researchers studying the    complex biological reactions that take place in cells, which researchers    refer to as “biological pathways,” and how these pathways 

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relate to          human disease. These studies are needed in a variety of fields, includingin particular drug discovery and development.

Applied Biosystems currently offers the 8200 Cellular Detection System, which is used by researchers to study cellular function.  The system uses proprietary scanning technology to rapidly detect and measure fluorescence associated with objects as small as a single cell.  Applied Biosystems also offers a range of chemiluminescent reagent products used by researchers studying cell function.  Chemiluminescence is the conversion of chemical energy stored within a molecule into light, and the detection of chemiluminescence is another technology used to study cellular function.

During our 2002 fiscal year, Applied    Biosystems entered into licensing, supply, and collaboration agreements with    HTS Biosystems, Inc. to jointly develop and commercialize a functional proteomics    system based on HTS Biosystems’ high-throughput affinity screening technology.    This technology enables functional proteomics research, or the study of protein    function, by analyzing proteins based on the way they bind to each other.    Under these agreements, Applied Biosystems and HTS Biosystems are also jointly    developing HTS Biosystems’ existing surface plasmon resonance technology,    referred to as “SPR” technology.  SPR technology, used in functional    genomics research, or the study of gene function, enables the high-throughput    study of protein interactions in a more cost-effective and efficient**** manner    than other existing technologies. The study of protein interactions is an    important part of functional genomics research because genes  contain the    code for proteins.

***Applied Genetic Analysis Products***

Applied Biosystems has developed,    and expects to continue developing, products and services specially designed    for specific markets, with a focus in the areas of human identification,and environmental and food testing.

For example, Applied Biosystems develops systems that are used by crime laboratories and other agencies to identify individuals based on their DNA.  Applied Biosystems believes these systems are most often used in cases of violent crime where DNA found at the crime scene is matched with DNA from suspects.  The use of DNA in some criminal investigations may help solve the crimes and may reduce the cost of the investigation, and we believe there is a growing recognition of the validity of the use of DNA testing and DNA databases for this purpose.  This is evidenced in particular by a growing number of governmental initiatives in the U.S. and abroad to finance the analysis of DNA from crime scenes, including the existing backlog of samples from past crimes.  These systems are also used to identify human remains, and for paternity testing.

Also, Applied Biosystems is developing technologies for bacterial and fungal detection, characterization, and identification.  It offers the MicroSeq® Microbial Identification System to accurately identify microorganisms.  It also offers TaqMan Pathogen Detection Systems, which operate on Sequence Detection Systems instruments, to rapidly detect bacterial contamination and detect and analyze genetically modified organisms in foods.

During our 2003 fiscal year, Applied    Biosystems entered into several contracts to manufacture products needed    in response to the threat of biological terrorism, often referred to as the “biothreat” or “biosecurity” market.    For example, Applied Biosystems entered into a contract to manufacture an  Anthrax bacteria detection product that another company has

 

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contracted to          install and maintain in select U.S.      Postal Service mail sorting centers. Applied Biosystems is evaluating            the market for biosecurity products and may develop or manufacture other        products for this market if and when it identifies other opportunities.

***Information Products***

The Applied Biosystems Knowledge Business currently offers, and intends to further develop, products that offer information content designed to assist research and development efforts.****The information products currently offered by the Knowledge Business include the Celera Discovery System database, as well as software, for use in combination with the Knowledge Business assay products, designed to facilitate and make more efficient experiment design and biological data analysis.

In January 2003, the Knowledge Business launched a new release of the Celera Discovery System that includes enhanced visualization and analysis tools for comparing the human and mouse genomes and additional data integration, and a new subscription model for academic researchers that lowers the cost and shortens the term of subscriptions to achieve better consistency with academic budgets and funding cycles.  Also, as part of its overall mission of providing “whole systems solutions” to Applied Biosystems customers, during the 2003 fiscal year Applied Biosystems began marketing an instrument system, its 4700 Proteomics Discovery System, linked directly to the Celera Discovery System.  

***Informatics Products and Services***

The Knowledge Business develops, markets,and distributes informaticssoftware and services used to integrate and automate life sciences research, development, and manufacturing laboratories.  Users of Knowledge Business informatics products and services  are typically involved in gene mapping, drug discovery, drug development, and drug  manufacturing.  The Knowledge Business offers various software products for   laboratory information management systems, often referred to as “LIMS.”    These products are designed to facilitate sample tracking, data collection, data        analysis, and data mining, and are generally designed to assist researchers in transforming        data into useful information.  The Knowledge Business also offers informatics consulting        services through its Software Professional Services Group.  These consulting services are         designed for laboratories seeking greater automation and integration of lab processes.          Knowledge Business consultants principally provide installation and customization of Applied Biosystems’ LIMS software offerings, and also can assist customers in selecting and integrating technologies to streamline and accelerate their genomics, proteomics, and high throughput screening activities.

***Marketing and Distribution***

The markets for Applied Biosystems’ products    and services span the spectrum of the life sciences industry and research    community, including: basic human disease research and genetic analysis performed    by    universities,    government agencies, and other non-profit organizations; pharmaceutical    drug discovery, development, and manufacturing; human identification; agriculture;    and food    and environmental testing. Each of these markets has unique requirements    and expectations that Applied Biosystems seeks to address in its product    offerings. Applied Biosystems’ customers    are continually searching for processes and systems that can perform tests    faster, more efficiently, and at a lower cost. Applied Biosystems believes    that its focus on automated and high-throughput systems enables it to respond    to these needs. 

 

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The size and growth of Applied Biosystems’ markets    are influenced by a number of factors, including: 

|   | • | technological innovation in methods for analyzing biological data; |
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|   | • | government funding for basic and disease-related research, such as in heart disease, AIDS, and cancer; |

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|   | • | application of biotechnology to basic agricultural**** processes; |

|   |   |                                                                             |
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|   | • | increased awareness of biological contamination in food and the environment; and |

|   |   |                                                                             |
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|   | • | research and development spending by biotechnology and pharmaceutical companies. |

In the U.S., Applied Biosystems markets the largest portion of its products directly through its own sales and distribution organizations, although some products are marketed through independent distributors and sales representatives.  Sales to major markets outside of the U.S. are generally made by Applied Biosystems’ foreign-based sales and service staff, but are also made directly from the U.S. to foreign customers in some cases.  In some foreign countries, sales are made through various representative and distributorship arrangements.  Applied Biosystems owns or leases sales and service offices in the U.S. and in foreign countries through its foreign sales subsidiaries and distribution operations.  None of Applied Biosystems’ products are distributed through retail outlets.

In addition, Applied Biosystems is    seeking to expand the role of the Internet in the marketing and distribution    of its products and services. In August 2003, Applied Biosystems launched    an updated version of its Internet website for electronic commerce, or “e-commerce.”  The    updated e-commerce website includes access to the new myScienceSM Internet    virtual research community. Applied Biosystems expects that its updated e-commerce    and myScience Internet  websites, by offering research resources    linked to an online ordering system for Applied Biosystems products, will    develop    into a source of direct sales, particularly of its consumable products. The    myScience Internet website is a free online resource that offers access to    search tools and graphical viewers intended to help scientists plan their    experiments, including selection of genomic reagents such as the Applied    Biosystems Assays-on-Demand products. The myScience Internet website also    offers fee-based access to the entire Celera Discovery System for an in-depth    interpretation and analysis of experimental results.

***Raw Materials***

There are no specialized raw materials that are particularly essential to the operation of Applied Biosystems’ business.  Applied Biosystems’ manufacturing operations require a wide variety of raw materials, electronic and mechanical components, chemical and biochemical materials, and other supplies, some of which are occasionally found to be in short supply.  Applied Biosystems has multiple commercial sources for most components and supplies, but it is dependent on single sources for a limited number of such items, in which case Applied Biosystems normally secures long-term supply contracts.  In some cases, if a supplier discontinues a product, it could temporarily interrupt the businessof Applied Biosystems.

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***Patents, Licenses, and Franchises***

Applied Biosystems’ products are based on complex, rapidly developing technologies.  Some of these technologies are covered by patents owned by Applied Biosystems, and others are owned by third parties and are used by Applied Biosystems under license.  Applied Biosystems has pursued a policy of seeking patent protection in the U.S. and other countries for developments, improvements, and inventions originating within its organization that are incorporated into Applied Biosystems’ products or that fall within its fields of interest.  Applied Biosystems’ business depends on its ability to continue developing new technologies which can be patented, or licensing new technologies from third parties that own patents in desired technologies.  The rights that Applied Biosystems considers important to its current business include the following:

|   | • | Applied Biosystems has rights to PCR technology under a series of agreements with the Roche Group, which owns some of the patents covering the PCR process.  The first of these patents expires in 2005 in the U.S., and in 2006 in Europe and some other jurisdictions.  In July 2000, Applied Biosystems and the Roche Group agreed to expand the markets each company serves with products incorporating PCR.  Additionally, Applied Biosystems continues to distribute products the Roche Group manufactures for research and non-diagnostic applications. |
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|   | • | Applied Biosystems also licenses rights under some patents assigned to the California Institute of Technology relating to DNA sequencing.  These patents expire between 2009 and 2018 in the U.S., and in 2005 in Europe and some other jurisdictions. |

From time to time, Applied Biosystems has asserted that various competitors and others are infringing its patents; and similarly, from time to time, others have asserted that Applied Biosystems was or is infringing patents owned by them.  These claims are sometimes settled by mutual agreement on a satisfactory basis and result in the granting of licenses by or to Applied Biosystems.  However, we cannot make any assurances as to the outcome of any pending or future claims.

Applied Biosystems has established a licensing program that provides industry access to some of its intellectual property. 

***Backlog***

Applied Biosystems’ total recorded backlog at June 30, 2002, was $235.8 million, which included $4.6 million of orders from Celera Genomics and $3.0 million of orders from Celera Diagnostics.  Applied Biosystems’ total recorded backlog at June 30, 2003, was $252.5 million, which included $1.2 million of orders from Celera Genomics and $3.1 million of orders from Celera Diagnostics.  Recorded backlog may not result in sales because of cancellation or other factors. It is anticipated that most of the orders included in backlog at June 30, 2003, will be delivered before the close of our 2004 fiscal year.  

***Competition***

The markets in which Applied Biosystems    operates are highly competitive and are characterized by the application    of advanced technology. A number of Applied Biosystems’

 

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competitors        are well known manufacturers with a high degree of technical proficiency.        In addition, competition is intensified by the ever-changing nature of      the technologies in the industries in which Applied Biosystems is engaged.

Applied Biosystems’ principal competition comes from specialized manufacturers that have strengths in narrow segments of the life science markets.  Applied Biosystems competes principally in terms of the breadth and quality of its product offerings, and its service and distribution capabilities.  While the absence of reliable statistics makes it difficult to determine Applied Biosystems’ relative market position in its industry segment, Applied Biosystems believes it is one of the principal suppliers in its fields, marketing a broad line of instruments and life science systems.

***Research, Development, and Engineering***

Applied Biosystems is actively engaged in basic and applied research, development, and engineering programs designed to develop new products and to improve existing products.  Research, development, and engineering expenses for Applied Biosystems totaled $184.5 million in our 2001 fiscal year, $219.6 million in our 2002 fiscal year, and $238.4 million in our 2003 fiscal year.  We expensed $323.4 million in our 2001 fiscal year, $381.9 million in our 2002 fiscal year, and $401.5 million in our 2003 fiscal year for Applera research, development, and engineering activities.

Applied Biosystems’ new products generally originate from four sources:  internal research and development programs; external collaborative efforts with technology companies and individuals in academic institutions; devices or techniques that are generated in customers' laboratories; and business and technology acquisitions. 

Research and development projects at Applied Biosystems include:  the development of improved electrophoresis techniques for DNA analysis; real-time PCR for nucleic acid quantification; innovative approaches to cellular analysis; sample preparation; information technologies; and mass spectrometry. 

***Environmental Matters***

Applied Biosystems is subject to federal, state, and local laws and regulations regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, in those jurisdictions where Applied Biosystems operates or maintains facilities.  Applied Biosystems does not believe that any liability arising under, or compliance with, environmental laws or regulations will have a material effect on its business, and no material capital expenditures are expected for environmental control.

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**Celera Genomics Group Business**

***Overview***

Celera Genomics is engaged principally      in integrating advanced technologies to discover and develop new therapeutics.      Celera Genomics intends to leverage its capabilities in proteomics, bioinformatics,      and genomics to identify and validate drug targets, and to discover and      develop new therapeutics either on its own or in collaboration with other      companies. Celera Genomics expects to use these capabilities with its molecular      and cell biology, medicinal and computational chemistry, pharmacology,      and other drug development technologies to optimize the potency, selectivity,      and physical properties of new drug candidates. Currently, Celera Genomics      has agreements with large pharmaceutical companies and internal programs      for discovering therapeutics for inflammatory diseases, including asthma,      osteoporosis, and rheumatoid arthritis.****Celera Genomics also has      internal programs for discovering therapeutics for the treatment of thrombosis      and various types of cancer, including pancreatic, lung, and colon cancer.

Celera Genomics and Celera Diagnostics      are pursuing, in cooperation with each other, an overall strategy that      we refer to as “targeted medicine.” This strategy is based      on the belief that a better understanding of the genetic basis of disease      is key to improved diagnosis and treatment of many complex chronic diseases.      Celera Genomics and Celera Diagnostics are applying research and development      tools and methods to analyze biological information, including genetic      variations discovered through the Applera Genomics Initiative, in an attempt      to discover associations between genes and diseases. Celera Diagnostics      intends to develop new molecular diagnostic tests based on newly-identified      genetic markers to help physicians predict an individual’s predisposition      to, better characterize, monitor progression of, and select appropriate      therapy for, common complex diseases. Celera Genomics may use this information      to select and validate therapeutic targets for new drugs, and to stratify      patient populations in clinical trials to increase drug efficacy and minimize      adverse reactions. The ultimate goal of this targeted medicine approach      is to:

|   | • | develop diagnostic tests that address unmet        medical needs in predicting, characterizing, and monitoring diseases;                    |
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|   | • | facilitate faster, less expensive clinical        trials of new therapeutics; and                                                           |
|   |   |                                                                                                                                        |
|   | • | use diagnostics to select a form of therapy        that is likely to be safer and more effective in a particular patient        population. |

Celera Genomics may pursue both “small      molecule” and “antibody” therapeutics. Small molecule      therapeutics are low molecular weight synthetic chemical compounds. Small      molecule therapeutics can be administered to patients in a variety of ways.      They may be taken orally, for example, in the form of a pill, because of      the relatively small size of their molecules. In contrast, antibody therapeutics      are generally large molecular weight protein-based biological compounds.      Antibodies are a type of protein produced by the human immune system that      bind to potentially harmful substances, such as viruses and bacteria, in      order to disable and eliminate them.

 

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Antibody therapeutics are antibodies    that are designed to bind to and interfere with the activities of a particular    drug target.

***Development of Therapeutics          Business; Revised Business and Scientific Plan***

Celera Genomics was originally      formed for the purpose of generating and commercializing information to      accelerate the understanding of biological processes and to assist the      research endeavors of pharmaceutical, biotechnology, and life science research      entities. A key component of Celera Genomics’ original business strategy      was the development and sale of its Celera Discovery SystemTM, an online      information and discovery system through which users can access Celera      Genomics’ genomic and related biological and medical information.

During our 2001 fiscal year, Celera      Genomics expanded its operations to include therapeutics discovery and      development in addition to its online database business. Since that time,      Celera Genomics has completed a number of steps to further develop its      therapeutics business and establish that business as its primary focus.      Key developments during our 2002 fiscal year included: the acquisition      of Axys Pharmaceuticals, Inc.; implementation of important management changes,      including the appointment of Kathy Ordoñez as President of Celera      Genomics in addition to her role as President of Celera Diagnostics; the      restructuring of the organization to focus its resources on therapeutic      discovery and development, including the reduction of personnel and positions      that previously supported the group’s sequencing activities and online/information      business; and the adoption of the online marketing and distribution agreement      described above in Item 1 of this report under the headings “Applied      Biosystems Group Business – Knowledge Business; Online Marketing and      Distribution Agreement with Celera Genomics.”

In December 2002, Celera Genomics      announced a refined therapeutics business and scientific plan intended      to establish clearer focus, priorities, and goals for its therapeutics      business. The plan generally provides for increased investment in clinical      development capabilities, and greater efficiency and economy in target      discovery, while continuing to place emphasis on management of Celera Genomics’ cash      as a strategic asset. Key elements of this refined business and scientific      plan include the following:

|   | • | generally shifting resources from drug target        discovery and validation to preclinical and clinical therapeutic development; |
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|   |   |                                                                                                                               |

|   | • | focusing Celera Genomics’ proteomics        research on cell surface proteins, with the goal of identifying differentially-expressed        cell surface proteins which can be associated with diseases and serve        as targets for antibody therapeutics; |
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|   | • | focusing Celera Genomics’ small molecule        development program on compounds representing the highest potential for        clinical, regulatory, and commercial success, and applying greater resources        to those programs; and                      |
|   |   |                                                                                                                                                                                                                                                                |
|   | • | capitalizing on Celera Genomics’ relationship        with Celera Diagnostics, particularly by evaluating the therapeutic utility        of targets that Celera Diagnostics may discover in its disease association        studies.                             |

In support of the plan, Celera      Genomics made three key senior management appointments during our 2003      fiscal year. Each of these individuals, identified below, has 

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extensive experience, including leadership    positions, in different aspects of pharmaceutical research and development.

|   | • | Robert F.G. Booth, Ph.D., Celera Genomics’ Chief        Scientific Officer, was hired to lead all of Celera Genomics’ therapeutics        discovery and development efforts;                                            |
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|   |   |                                                                                                                                                                                                                              |
|   | • | Steven M. Ruben, Ph.D., was appointed Vice        President, Protein Therapeutics, responsible for programs to discover        and validate novel targets for therapeutic antibody intervention; and                              |
|   |   |                                                                                                                                                                                                                              |
|   | • | James P. Yee, M.D., Ph.D., was appointed        Head of Development, responsible for building and leading the group’s        therapeutic development organization and activities, including clinical        trial processes. |

During the 2003 fiscal year, Celera      Genomics also continued to hire additional experienced managers and other      staff as part of the planned expansion of its preclinical and clinical      development organization. This includes experienced, senior level managers      and other staff with expertise in disciplines such as toxicology and pharmaceutical      sciences.

***Target Discovery Programs***

*Overview.* Although Celera      Genomics is generally shifting resources to its development capabilities,      therapeutic target discovery, including identification and validation research, continues to      be an important part of its business. Therapeutic “targets” are      biological points of intervention for a particular disease or medical condition. “Validation” refers      to the process whereby the biological relevance of a particular target,      and, therefore, its potential therapeutic relevance, is confirmed by conducting      additional, complementary testing or analysis. Pursuant to Celera Genomics’ revised      business and scientific plan, Celera Genomics is focusing its target discovery      efforts in two areas:

|   | • | Celera Genomics is conducting proteomics        studies to identify cell surface proteins that may be targets for drug        candidates. Celera Genomics intends to use these targets to develop antibody        therapeutics. Celera Genomics’ proteomics studies are described        further below.                                                                                                                                                                                                                                                                                                                                               |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | • | Celera Genomics is analyzing the results        of Celera Diagnostics’ gene-disease association studies to evaluate        the therapeutic utility of potential targets discovered through those        studies. Celera Genomics intends to use these targets to develop small        molecule therapeutics. Celera Genomics also believes that the findings        from these disease association studies may be valuable in designing clinical        trials of drug candidates based on these studies. For example, the information        may be used to stratify patient populations to increase efficacy and        minimize adverse reactions. |

If Celera Genomics selects a validated      target for therapeutic development, it intends to evaluate at that time      whether to develop the target on its own or through collaboration with      another company. In accordance with Celera Genomics’ revised business      and scientific plan, Celera Genomics has committed an increased portion      of its resources to its internal drug development capabilities, particularly      for the development      of small molecule therapeutics. Celera Genomics is seeking to defer the      need to partner with other companies on these programs, if at all, until      later stages of clinical development. Celera Genomics’ existing development      

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capabilities and expansion plans    are described below in Item 1 of this report under the headings “Celera    Genomics Group Business – Small Molecule Drug Programs.” However,    Celera Genomics believes it will likely collaborate with other companies    on antibody therapeutic    programs, if any, during preclinical or early stages of clinical development.

Since its formation, Celera Genomics      developed genomics and bioinformatics resources to support its prior activities      in sequencing the human and other genomes and creating and maintaining      the Celera Discovery System online database. Although sequencing and Celera      Discovery System development are no longer a significant part of Celera      Genomics operations, Celera Genomics has maintained substantial capabilities      in bioinformatics and genomics, and believes that they will support various      aspects of its target development and validation programs and possibly      accelerate the identification of therapeutic targets.

*Proteomics Studies*. Celera      Genomics uses high-throughput proteomics to identify proteins that are      associated with the onset or progression of disease. These proteins may      be potential targets for therapeutic intervention. Pursuant to the revised      business and scientific plan, these proteomics efforts are focused on analyzing      proteins on the surface of cells from both healthy and diseased individuals,      seeking to identify proteins that can be associated with particular diseases.      These cell surface proteins, which are referred to as “differentially-expressed      cell surface proteins,” are the class of proteins believed to represent      the most promising targets for near-term drug candidates in the form of      therapeutic antibodies. The diseases that Celera Genomics has initially      selected for proteomics study are pancreatic, lung, and colon cancer. Celera      Genomics conducts its proteomics research at its own proteomics facility,      which became fully operational during our 2003 fiscal year.

During our 2003 fiscal year, Celera      Genomics made significant progress in its proteomic studies of pancreatic      cancer and began processing lung and colon cancer tissue samples. As a      result of the pancreatic studies, Celera Genomics successfully identified      differentially-expressed proteins on the surface of pancreatic cancer cells      and selected 38 of these proteins for further validation to confirm their      viability as targets. These validation studies are ongoing.

In order to identify differentially      expressed cell surface proteins, Celera Genomics has designed advanced      methods to separate cellular and subcellular components of biological samples      and to capture from these components proteins belonging to “druggable      target classes.” Druggable target classes are related proteins which      in the past have been successfully used in the pharmaceutical industry      as points of therapeutic intervention. Celera Genomics uses advanced chromatography      and mass spectrometer systems that are amenable to high-throughput quantitation      and identification of proteins. Celera Genomics      expects to use its assembled human and mouse genomes and proprietary software      and algorithms to identify proteins associated with diseases.

For target validation, Celera Genomics      uses a variety of methodologies. In collaboration with other companies,      Celera Genomics uses “immunohistochemistry,” or the identification      of proteins in tissues and cells using antibodies, to refine its understanding      of therapeutic targets of interest and, for example, to identify protein      expression profiles that would support or preclude meaningful progression      of the drug targets. For targets of interest, Celera Genomics intends to      perform tests to determine their relevance across a broad range of tissues      and diseases. Celera Genomics expects to continue accessing      further validation capabilities through collaborations.

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*Bioinformatics.*Celera Genomics      expects to develop the capability to perform simulated, computer-based      experimentation, which Celera Genomics believes would minimize or eliminate      the need to perform more labor-intensive experiments in the laboratory.      Also, Celera Genomics believes that it can develop proprietary algorithms      for use in its large scale computing infrastructure for the extraction      of data from proteomics experiments and the integration of this data with      genome, gene expression, and protein characterization information, scientific      literature, and the patent status of possible targets. Celera Genomics      believes the application of these algorithms to this data could be used      to facilitate the identification of targets. However, Celera Genomics’ ability      to develop these capabilities is unproven, and, if developed, their utility      in the therapeutics discovery and development process is uncertain.

*Genomics Studies.* As a complementary      approach to the proteomics methods and the disease association studies      described above, Celera Genomics uses genomics in its efforts to identify      and validate therapeutic targets. Celera Genomics intends to further characterize      novel genes, including those for which we have been issued patents or      for which we have filed patent applications, by conducting *in vitro* cell      studies and *in vivo*animal studies. *In vitro* refers to testing      or other activities performed outside the living body, and *in vivo* refers      to testing or other activities performed in the living body. Celera Genomics      expects to incorporate its bioinformatics capabilities into this process.      After the functions of genes are determined, Celera Genomics intends to      establish the priorities of these genes or their gene products as targets      based on the families of proteins they encode, the association of the expression      of these genes with specific diseases, and the functional importance of      the gene products to cells.

***Small Molecule Drug Programs***

In November 2001, Celera Genomics      completed the acquisition of Axys, a small molecule drug discovery and      development company. Celera Genomics acquired Axys to advance the development      of its therapeutic business. The acquisition of Axys brought to Celera      Genomics medicinal and structural chemistry and biology capabilities that      Celera Genomics intends to use to validate potential therapeutic targets      and to develop therapeutic compounds. Since the acquisition of Axys, Celera      Genomics has continued to build on these capabilities, particularly by      expanding its development capabilities. Celera Genomics’ small molecule      drug research and development expertise and programs are described below.

*Scientific Expertise For Lead        Compound Identification*. Celera Genomics has a range of chemistry        and biology capabilities which have been used primarily for therapeutic        compound        discovery and development. To date, a primary focus of Celera Genomics’ chemists        and biologists has been lead compound discovery and development using        a variety of methods. “Lead” compounds are those within a        series of related compounds that we believe are the most promising and        which we would seek to move into preclinical and clinical development.        Currently, Celera Genomics’ lead compound discovery and development        efforts are focused on “structure-based drug design,” although        to a lesser extent Celera Genomics is using “combinatorial chemistry.” These        methods are generally described as follows:

|   | • | *“Structure-based Drug Design.”* Structure        based drug design is a process whereby medicinal chemists attempt to        develop compounds that will bind to a therapeutic target based on the        physical 3-dimensional structure of the target molecule. Our medicinal        chemists obtain this information by analyzing pictures of the molecule        taken through X-ray crystallography and also by performing molecular        modeling        based        on the known properties of the components of the target molecule. |
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|   | • | *“Combinatorial Chemistry*.” Combinatorial        chemistry is useful in therapeutic development when there is little known        structural information regarding the target. This process involves the        screening of thousands of compounds against a disease target, usually        a protein, to determine whether and how any of them bind to the target.        Axys has developed compound libraries for these studies. |
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*Compound Development Programs*.      Using the technologies described above, Celera Genomics, including the      activities of Axys before the acquisition, has developed a general expertise      in discovering and developing potential therapeutic compounds that target “proteases,” a      known druggable class of proteins. Proteases are enzymes that break down      chemical bonds in proteins and are essential to the body’s physiological      processes such as inflammation. Proteases are generally classified by how      they break down a protein’s chemical bonds. “Cysteine” and “serine” proteases      are two classes of these enzymes.

Celera Genomics has discovered “inhibitors” of      some of the proteases that it has studied. Inhibitors are natural or synthetic      compounds that can bind to the protein molecule and change the way it will      perform in the body, and in particular, can prevent the function of the      target protease that is causing or contributing to a particular disease      or condition. Celera Genomics is developing several inhibitors on its own,      and has two collaborations with major pharmaceutical companies for the      development of therapeutics for inflammatory diseases. These programs include      the following:

|   | • | Celera Genomics has a collaboration with        Merck & Co. to develop small molecule inhibitors of cathepsin K,        a cysteine protease, for the treatment of osteoporosis. Celera Genomics’ portion        of the collaboration was completed in February 2003, and further development        of this therapeutic is now the responsibility of Merck & Co.                                                                                                           |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | Celera Genomics has a collaboration with        Aventis Pharmaceuticals to develop inhibitors of cathepsin S, another        type of cysteine protease, for the treatment of rheumatoid arthritis,        chronic obstructive pulmonary disease, atherosclerosis, allergic rhinitis,        and asthma. Celera Genomics’ portion or the collaboration was completed        in April 2002, and further development of this therapeutic is now the        responsibility of Aventis. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | • | Celera Genomics has an internal program to        develop inhibitors of Factor VIIa, a serine protease, for the treatment        of anticoagulation indications such as deep vein thrombosis.                                                                                                                                                                                                                                                                                           |

Also, Celera Genomics previously      had a collaboration with Bayer AG to develop inhibitors of tryptase, a      serine protease, for the treatment of asthma, but during the 2003 fiscal      year purchased all rights to the compounds subject to the collaboration.      Since then, Celera Genomics discontinued its development of the lead compound      series that had been acquired from Bayer and has shifted its efforts in      this program to new proprietary compounds developed using, in part, technology      and expertise obtained from the Bayer collaboration and the purchase of      rights from Bayer.

In addition, Celera Genomics has      an internal program to develop inhibitors of histone deacetylase for the      treatment of cancer. Histone deacetylase is an enzyme that is involved      in the regulation of histone acetylation, a biological process that influences      gene expression. This

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program was commenced by Axys prior    to the acquisition as part of Axys’ focus on oncology and has been    continued by Celera Genomics.

*Development of Preclinical and        Clinical Resources and Expertise.* A key element of Celera Genomics’ new        business and scientific plan is to increase its therapeutic development        capabilities for both preclinical and clinical activities so that its        most promising therapeutic programs can be advanced into later stages        of clinical trials without having to partner with other companies. At        Celera Genomics, a compound is considered to be in preclinical development        when        it has        been        identified        as a lead        compound        within a series of compounds and Celera Genomics begins its efforts to        assess and enable the effectiveness of the compound within the human        body; and is considered to be in clinical development when clinical trials        begin. Celera Genomics’ preclinical programs are described above        in Item 1 of this report under the headings “Celera Genomics Group        Business – Small Molecule Drug Programs – Compound Development Programs.” It does not currently        have any compounds in clinical development.

When acquired by Celera Genomics,      Axys had some preclinical development capabilities, particularly in the      scientific areas of drug metabolism and pharmacokinetics and toxicology,      and no significant clinical development capabilities. Since the Axys acquisition,      Celera Genomics has substantially increased its scientific personnel to      support preclinical and clinical activities, particularly in the following      areas:

|   | • | drug metabolism, pharmacokinetics, and other        personnel to evaluate how a compound is absorbed into the body; distributed        within the body; metabolized, or broken down, once introduced into the        body; and excreted, or eliminated, by the body; |
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|   |   |                                                                                                                                                                                                                                                                 |
|   | • | toxicology personnel to perform studies to        determine the safety of compounds; and                                                                                                                                                                             |
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|   | • | pharmaceutical sciences personnel to focus        on the conversion of a compound into an acceptable physical form for        administration to animals or humans, for example an injection in the        skin or a pill or liquid taken orally.                     |

In addition to these areas of scientific      expertise, Celera Genomics intends to expand its personnel in other areas      that are important for drug development, including: Clinical sciences personnel,      who are involved in the overall direction and management of clinical development      and the execution of clinical trials; regulatory affairs personnel, who      have expertise in U.S. Food and Drug Administration and other pertinent      regulations; and project management personnel, who help integrate the different      drug development project teams and facilitate communications among these      different teams. Currently, Celera Genomics does not have significant personnel      in these areas.

***Online Marketing and Distribution          Agreement with Applied Biosystems; Celera Discovery System***

In April 2002, Celera Genomics      and Applied Biosystems entered into a marketing and distribution agreement      pursuant to which Applied Biosystems became the exclusive marketer of Celera      Genomics’ Celera Discovery System. Applied Biosystems is continuing      to integrate the Celera Discovery System and other genomic and biological      information into its ****Knowledge Business. The agreement is expected      to enable Celera Genomics’ executive team to focus on therapeutics      discovery and development. The agreement is described above in Item 1 of      this

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report under the headings “Applied    Biosystems Group Business – Knowledge Business; Online Marketing and    Distribution Agreement with Celera Genomics.” Important information    about this agreement also appears later in Item 5 of Part II of this report    under the headings “Market for Registrant’s Common Equity and    Related Stockholder Matters – Forward Looking Statements and Risk Factors.” Under    the marketing and distribution agreement, Celera Genomics continues to have    access to all data, which may include formats not available to third parties,    and other intellectual property associated with the Celera Discovery System    for its therapeutic programs. Celera Genomics expects that such data and    intellectual property will have a significant role in its product research    and development.

***Raw Materials***

Celera Genomics’ operations      require a variety of raw materials, such as chemical and biochemical materials      and other supplies, some of which are occasionally found to be in short      supply. Any interruption in the availability of these materials could adversely      affect Celera Genomics’ operations. In particular, Celera Genomics      needs access to human and other tissue samples from diseased and healthy      individuals, other biological materials, and related clinical and other      information, which may be in limited supply. Celera Genomics may not be      able to obtain or maintain access to these materials and information on      acceptable terms, or may not be able to obtain needed consents from individuals      providing tissue or other samples. In addition, government regulation in      the U.S. and foreign countries could result in restricted access to, or      use of, human and other tissue samples. If Celera Genomics loses access      to sufficient numbers or sources of tissue samples or other required biological      materials, or if tighter restrictions are imposed on its use of related      clinical or other information or the information generated from tissue      samples or other biological materials,      its business may be harmed.

***Patents, Licenses, Franchises          and other Intellectual Property***

Through its internal research programs      and collaborative programs, Celera Genomics anticipates that it will develop      an increasing portfolio of intellectual property. Celera Genomics may use      this intellectual property in its internal development programs or may      license such intellectual property to third party collaborators or customers      for some combination of license fees, milestone payments, and royalty payments.

Celera Genomics’ business      and competitive position are dependent, in part, on its ability to protect      its database information, its software technology, its novel DNA sequence      discoveries, its SNP discoveries, its protein discoveries, and its therapeutic      discoveries using a variety of intellectual      property mechanisms. In addition to seeking patent protection, Celera Genomics      may rely on copyright and trade secret laws to protect its discoveries.      Celera Genomics recognizes that many of the intellectual property laws      are directly suitable for application to such discoveries while other protections      may not be available or extend to cover genomic and/or proteomic-based      discoveries. 

Celera Genomics has sought and      expects to continue seeking patent protection for inventions relating to      its DNA sequence, SNP, protein, and therapeutic discoveries, as well as      diagnostic discoveries it makes incidental to its therapeutics discovery      efforts. Celera Genomics’ current      plan is to apply for patent protection for novel DNA sequences, SNPs, proteins,      and      novel      uses      for      these DNA sequences,      SNPs and proteins, as well as therapeutic and diagnostic agents it discovers      or develops. Although obtaining patent protection based on DNA sequences,      

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SNPs, and proteins might enhance Celera Genomics’ business, Celera      Genomics does not believe that its commercial success    will be materially dependent on its ability to do so. However, Celera Genomics’ failure    to receive patents for its therapeutic and diagnostic discoveries could adversely    affect the commercial value of these discoveries. Currently, Celera Genomics    has patent applications claiming its DNA sequence, SNP, protein, therapeutic,    and diagnostic discoveries that are pending in the U.S. and in foreign jurisdictions    and currently owns 116 U.S. patents.

The issuance of patents is uncertain      worldwide. Furthermore, laws relating to the patenting of novel DNA sequences      and proteins are currently under review and revision in many countries.      Moreover, publication of information concerning partial DNA sequences prior      to the time that Celera Genomics applies for patent protection may affect      Celera Genomics’ ability to obtain patent protection. In addition,      patent claims to a partial sequence may not cover a full-length sequence      inclusive of that partial sequence. Currently, the U.S. Patent and Trademark      Office requires disclosure in the patent application of a specific and      substantial and credible utility in order to support the patentability      of a DNA sequence or protein.

In January 1997, The Institute for Genomic Research, or TIGR, in collaboration      with the National Center for Biological Information, disclosed full-length      DNA sequences assembled from expressed sequence tags available in publicly      accessible databases or sequenced at TIGR. The National Human Genome Research      Institute also plans to release sequence information to the public. These      disclosures might limit the scope of Celera Genomics’ claims or make      subsequent discoveries related to some DNA sequences and proteins unpatentable.      While Celera Genomics believes that the publication of sequence data will      not preclude it or others in all instances from obtaining patent protection      on some DNA sequences and proteins, there can be no assurances that these      publications will not affect the ability to obtain patent protection.

In February 2001, Celera Genomics      disclosed an assembly of the human genome and gene/protein annotations      in a publicly accessible database. The federally funded Human Genome Project      also released a human genome sequence assembly to the public on this date,      and has announced that a finished version of its human genome sequence      will be completed in 2003. These disclosures might limit the scope of Celera      Genomics’ claims or make subsequent discoveries related to some DNA      sequences and proteins unpatentable. While Celera Genomics believes that      the publication of sequence data will not preclude it or others in all      instances from obtaining patent protection on some DNA sequences and proteins,      there can be no assurances that these publications will not affect the      ability to obtain patent protection.

Celera Genomics also cannot ensure      that any changes to, or interpretations of, the patent laws will not adversely      affect its patent position. Celera Genomics anticipates that there may      be significant litigation regarding genomic patent and other intellectual      property rights. If Celera Genomics becomes involved in such litigation,      it could consume a substantial portion of Celera Genomics’ resources,      and Celera Genomics may not ultimately prevail. If Celera Genomics does      not prevail in a patent litigation dispute, it may be required to pay damages      or royalties or to take measures to avoid any future infringement, or Celera      Genomics may not be able to stop a competitor from making, using, or selling      similar products or technology.

Celera Genomics also intends to      rely on trade secret protection for its confidential and proprietary information.      Celera Genomics believes it has developed proprietary procedures for sequencing      and analyzing genes and for assembling the genes in their naturally occurring      order. In addition, Celera Genomics believes it has developed novel methods      for searching and

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identifying particularly important regions of genetic      information or whole genes of interest. Celera Genomics currently protects    these methods and procedures as trade secrets and has sought patent protection    for some of the proprietary methods although no such patents have yet been    issued.

Celera Genomics has sought and      plans to continue seeking intellectual property protection, including copyright      protection, for the Celera Discovery System, including its content, and      the software and methods it creates to manage, store, analyze, and search      novel information. Celera Genomics has taken security measures to protect      its databases, including entering into confidentiality agreements with      employees and academic collaborators who are provided or have access to      confidential or proprietary information. Celera Genomics continues to explore      ways to further enhance the security for its data.

***Backlog***

Celera Genomics’ total recorded      backlog at June 30, 2002, was $160.4 million. Celera Genomics’ total      recorded backlog at June 30, 2003, was $80.1 million. Recorded backlog      may not result in sales because of cancellation or other factors. It is      anticipated that approximately half of the orders included in backlog at      June 30, 2003, will be delivered before the close of our 2004 fiscal year.

***Competition***

The pharmaceutical industry is      competitive and evolving*.* There is intense competition among pharmaceutical      and biotechnology companies attempting to discover candidates for potential      new therapeutic products. These companies may:

|   | • | develop new therapeutic products in advance        of Celera Genomics;                                                                                                         |
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|   |   |                                                                                                                                                                           |
|   | • | develop therapeutic products which are more        effective or more cost-effective than those developed by Celera Genomics;                                                   |
|   |   |                                                                                                                                                                           |
|   | • | obtain regulatory approvals of their therapeutic        products more rapidly than Celera Genomics; or                                                                         |
|   |   |                                                                                                                                                                           |
|   | • | obtain patent protection or other intellectual        property rights that would limit Celera Genomics’ ability to develop        and commercialize therapeutic products. |

***Research and Development***

Celera Genomics is actively engaged      in basic and applied research and development programs designed to develop      new therapeutic products and support the commitments of existing online/information      contracts. Research and development expenses for Celera Genomics totaled      $164.7 million in our 2001 fiscal year, $132.7 million in our 2002 fiscal      year, and $120.8 million in our 2003 fiscal year. We expensed $323.4 million      in our 2001 fiscal year, $381.9 million in our 2002 fiscal year, and $401.5      million in our 2003 fiscal year for Applera research, development, and      engineering activities. Celera Genomics’ new products      are expected to originate from three sources: internal research and development      programs, external collaborative efforts or alliances, and business and      technology acquisitions.

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***Environmental Matters***

Celera Genomics is subject to federal,      state, and local laws and regulations regulating the discharge of materials      into the environment, or otherwise relating to the protection of the environment,      in those jurisdictions where Celera Genomics operates or maintains facilities.      Celera Genomics does not believe that any liability arising under, or compliance      with, environmental laws or regulations will have a material effect on        its business, and no material capital expenditures are expected for environmental        control.

**Celera Diagnostics, a 50/50 Joint      Venture between Applied Biosystems and Celera Genomics**

***Overview***

Celera Diagnostics is engaged principally      in the discovery, development, and commercialization of novel human diagnostic      products. In particular, Celera Diagnostics is studying SNPs and gene expression      patterns in human biological tissues and blood samples and their association      with specific common, complex diseases. These SNPs and gene expression      patterns are often referred to as “genetic markers.” Celera      Diagnostics’ gene-disease association studies are currently focused      on heart disease, breast cancer, Alzheimer’s disease, rheumatoid      arthritis, and a metabolic disease. In addition, Celera Diagnostics is      conducting a “host response study” to identify genetic associations      with patient response to a specific treatment. Specifically, Celera Diagnostics      is studying SNPs and gene expression patterns in cells from patients infected      with the Hepatitis C virus to identify patients who respond positively      to interferon treatment, and plans to conduct similar studies of this      type in the future for other treatments and diseases. Celera Diagnostics      expects that the discoveries resulting from its research will provide genetic      information which may lead to earlier and more effective diagnosis and      treatment of disease. Celera Diagnostics expects that the primary end-users      of its products will be reference laboratories, hospitals, and medical      clinics worldwide that perform diagnostic testing for human healthcare.

Celera Diagnostics and Celera Genomics      are pursuing, in cooperation with each other, an overall strategy that      we refer to as “targeted medicine.” This strategy is based      on the belief that a better understanding of the genetic basis of disease      is key to improved diagnosis and treatment of many complex chronic diseases.      Celera Diagnostics and Celera Genomics are applying research and development      tools and methods to analyze biological information, including genetic      variations discovered through the Applera Genomics Initiative, in an attempt      to discover associations between genes and diseases. Celera Diagnostics      intends to develop new molecular diagnostic tests based on newly-identified      genetic markers to help physicians predict an individual’s predisposition      to, better characterize, monitor progression of, and select appropriate      therapy for, common complex diseases. Celera Genomics may use this information      to select and validate therapeutic targets for new drugs, and to stratify      patient populations in clinical trials to increase drug efficacy and minimize      adverse reactions. The ultimate goal of this targeted medicine approach      is to:

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|   | • | develop diagnostic tests that address unmet        medical needs in predicting, characterizing, and monitoring diseases;                    |
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|   |   |                                                                                                                                        |
|   | • | facilitate faster, less expensive clinical        trials of new therapeutics; and                                                           |
|   |   |                                                                                                                                        |
|   | • | use diagnostics to select a form of therapy        that is likely to be safer and more effective in a particular patient        population. |

***Development of Molecular          Diagnostics Business***

Celera Diagnostics was formed during      our 2001 fiscal year pursuant to a joint venture agreement between Applied      Biosystems and Celera Genomics. A description of that agreement is set      forth below in Item 1 of this report under the headings “Celera Diagnostics,      a 50/50 Joint Venture between Applied Biosystems and Celera Genomics – Summary      of Joint Venture Agreement.” Since its formation, Celera Diagnostics      has achieved a number of important milestones in the development of its      business. These developments are summarized below: 

*2001 Fiscal Year*

|   | • | Celera Diagnostics established operations        at its headquarters in Alameda, California. |
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*2002 Fiscal Year*

|   | • | Celera Diagnostics assembled an experienced        management team, and substantially increased its staff in the areas of        discovery research, product development, manufacturing, quality assurance,        regulatory affairs, and marketing.                                                                                                                                                                                                                                                                                                                           |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Celera Diagnostics integrated the pre-existing        molecular diagnostics business contributed by Applied Biosystems in connection        with the formation of Celera Diagnostics.                                                                                                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Celera Diagnostics completed construction        of its high-volume discovery laboratories for conducting genotyping and        gene expression research.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Celera Diagnostics initiated its Alzheimer’s        gene-disease association study, its first large-scale research program.                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Celera Diagnostics entered into a key strategic        alliance with Abbott Laboratories. This alliance is described below in        Item 1 of this report under the headings “Celera Diagnostics, a        50/50 Joint Venture between Applied Biosystems and Celera Genomics – Abbott        Laboratories Strategic Alliance.”                                                                                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | Celera Diagnostics submitted a filing to        the U.S. Food and Drug Administration seeking marketing clearance for        its ViroSeqTM HIV-1 Genotyping System, representing Celera Diagnostics’ first        regulatory filing to the FDA for a diagnostic product. The ViroSeq system        is described below in Item 1 of this report under the headings “Celera        Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera        Genomics – Celera Diagnostics Products – ViroSeq HIV-1 Genotyping        System.” |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

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*2003 Fiscal Year*

|   | • | Celera Diagnostics completed the build-out        of its manufacturing facility in Alameda, California, and received approval        from State of California Department of Health Services Food and Drug        Branch to manufacture and distribute *in vitro* diagnostic products.                                                                                                                                                                                                                               |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | Celera Diagnostics received marketing clearances        from the FDA for the ViroSeq system for use on the Applied Biosystems        ABI PRISM® 377 DNA Sequencer, 3100 Genetic Analyzer, and        3700 DNA Analyzer.                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | • | Celera Diagnostics commenced several new        large-scale gene-disease association studies, and entered into collaborations        and other agreements with commercial organizations and academic institutions        to support these research efforts. These studies and agreements are described        below in Item 1 of this report under the headings “Celera Diagnostics,        a 50/50 Joint Venture between Applied Biosystems and Celera Genomics – Research        and Development.” |

***Summary        of Joint Venture Agreement***

Celera    Diagnostics was formed during our 2001 fiscal year as a joint venture between    Applied Biosystems and Celera Genomics. In connection with the formation    of Celera Diagnostics, Applied Biosystems contributed, among other things,    its then-existing molecular diagnostics business to Celera Diagnostics, and    Celera Genomics contributed, among other things, access to its genome databases.    Also, Celera Genomics agreed to fund all of the cash operating losses of    Celera Diagnostics up to a maximum of $300 million (“initial losses”),    after which, operating losses, if any, will be shared equally by Applied    Biosystems and Celera Genomics. Celera Diagnostics’ profits, if any,    will be shared in the ratio of 65 percent to Celera Genomics and 35 percent    to Applied Biosystems until the cumulative profits of Celera Diagnostics    equal the initial losses. Subsequently, profits and losses and cash flows    would be shared equally between Applied Biosystems and Celera Genomics.    Applied Biosystems and Celera Genomics will fund Celera Diagnostics’ capital    expenditures and working capital requirements equally. Applied Biosystems    will reimburse Celera Genomics for all tax benefits generated by Celera Diagnostics    to the extent such tax benefits are utilized by Applied Biosystems. In the    event of liquidation of the assets attributable to Celera Diagnostics, including    sale of these assets, the proceeds upon liquidation would be distributed    to Applied Biosystems and Celera Genomics based on a proportion similar to    their relative investment accounts. If the proceeds upon liquidation are    in excess of the groups’ combined investment accounts, the excess liquidation    proceeds would be shared in the ratio of 65 percent to Celera Genomics and    35 percent to Applied Biosystems until the cumulative amount of the distributed    excess proceeds equals the initial losses funded by Celera Genomics. Any    additional liquidation proceeds would be allocated equally to Celera Genomics    and Applied Biosystems.

***Abbott        Laboratories Strategic Alliance***

In    June 2002, Celera Diagnostics announced a long-term strategic alliance with    Abbott Laboratories, one of the world’s largest diagnostics companies,    to discover, develop and commercialize a broad range of *in vitro* diagnostic    

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products for disease detection, prediction of disease predisposition, disease progression    monitoring, and therapy selection. *In vitro* diagnostic products are    diagnostic products that are used for testing outside of the living body.    The agreement with Abbott Laboratories is limited to diagnostic products    that detect nucleic acids, for example DNA or RNA. Diagnostics based on the    detection of proteins, rather than nucleic acids, is another potential business    area for Celera Diagnostics but is not a part of the agreement with Abbott    Laboratories and is not a current focus of Celera Diagnostics.

Under    the Abbott Laboratories agreement, Celera Diagnostics and Abbott Laboratories    will jointly fund their separate but coordinated research and development    activities that are within the scope of the alliance. Generally, Abbott Laboratories    will market products developed and manufactured by the parties that are covered    by the alliance. Celera Diagnostics believes that Abbott Laboratories’ expertise    in the diagnostics industry and its global distribution system will enhance    Celera Diagnostics’ ability to bring products to market.

Celera    Diagnostics expects to rely substantially on its alliance with Abbott Laboratories    for the success of its business strategy for the foreseeable future. Although    this is a long-term alliance, the alliance agreement contains provisions    that could result in early termination for reasons that include the following:    breach by either company; a change in control of either company; or either    company’s dissatisfaction with the performance of the alliance according    to specific timelines for such judgments set forth in the alliance agreement.    Also, Celera Diagnostics cannot ensure that Abbott Laboratories will perform    its obligations as expected. If Abbott Laboratories terminates the alliance    or otherwise fails to conduct its collaborative activities in a timely manner,    Celera Diagnostics’ development or commercialization of diagnostics    products may be delayed or otherwise adversely affected. 

Information    about the marketing and distribution aspects of this strategic alliance is    described below in Item 1 of this report under the headings “Celera    Diagnostics, a 50/50 Joint Venture between Applied Biosystems and Celera    Genomics – Marketing and Distribution.”

***Research        and Development***

During    our 2002 fiscal year, Celera Diagnostics’ first full fiscal year of    operations, Celera Diagnostics focused its activities on staffing and completing    its high-volume discovery laboratories, and then began research and development    for products that detect infectious diseases and human genetic disorders.    During our 2003 fiscal year, Celera Diagnostics substantially expanded these    research and development efforts, and is currently performing nine large-scale    studies, including eight gene-disease association studies and one host response    study. In performing these studies, Celera Diagnostics is seeking to leverage    its genotyping and gene expression capabilities with the SNP data from the    Applera Genomics Initiative. 

Celera    Diagnostics’ first gene-disease association study, involving Alzheimer’s    disease, was commenced in our 2002 fiscal year. During our 2003 fiscal year,    Celera Diagnostics commenced additional studies for rheumatoid arthritis,    breast cancer, four heart diseases, and a metabolic disease. These studies    involve the analysis of large numbers of samples from healthy and diseased    individuals. The goal of most of these studies is to identify SNPs that serve    as genetic markers for a specific disease. In the breast cancer study, the    goal is to identify gene expression patterns for a specific form of the cancer.    In addition, Celera Diagnostics is conducting a host response study of SNPs    and gene expression patterns in cells from patients infected with the Hepatitis    C virus. The goal of this study is to identify responders and non-responders    to interferon treatment. All of these large-scale studies are ongoing and    are at different stages of progression.    Celera Diagnostics, working in cooperation with Celera

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Genomics, is evaluating    the diagnostic and therapeutic value of the novel markers and potential therapeutic    targets found, and is discussing the findings with collaborators, preparing    product plans, and making patent filings to seek legal protection for its    rights in the new information it has discovered.

The    alliance agreement with Abbott Laboratories permits Celera Diagnostics to    form collaborations and relationships with other companies to support its    research activities. Celera Diagnostics has entered into collaboration, research,    and material transfer agreements with more than 20 other companies and academic    institutions to support its large-scale gene-disease association and host    response studies, including ongoing studies as well as studies Celera Diagnostics    plans to conduct in the future. Through these relationships, Celera Diagnostics    has gained access to over 30,000 patient samples. Following is a description    of the relationships that Celera Diagnostics publicly announced during our    2003 fiscal year:

|   | • | an agreement with Bristol-Myers Squibb Company        to study genes that may be useful in the diagnosis and treatment of heart        disease and diabetes; |
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|   | • | a research initiative with the University        of California, San Francisco, Comprehensive Cancer Center to develop        new diagnostic tools for breast cancer; and |

|   |   |                                                                                                                                                                        |
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|   | • | an agreement with Genomics Collaborative,        Inc. to support Celera Diagnostics’ efforts to identify genetic        patterns associated with rheumatoid arthritis. |

If    Celera Diagnostics’ gene-disease association studies are successful,    Celera Diagnostics expects to develop and market reagents that detect the    newly discovered genetic markers. During our 2003 fiscal year, Celera Diagnostics    also entered into the following research collaborations to support its efforts    to develop these products:

|   | • | a collaboration with Quest Diagnostics Incorporated        to establish the clinical utility of laboratory tests based on novel        diagnostic markers for heart disease and diabetes; and |
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|   |   |                                                                                                                                                                                                                                           |
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|   | • | a collaboration with Laboratory Corporation        of America Holdings to establish the clinical utility of laboratory tests        based on novel diagnostic markers for Alzheimer’s disease, breast        cancer, and prostate cancer. |

Celera    Diagnostics and Abbott Laboratories maintain separate research and development    organizations and each is pursuing the development of molecular diagnostic    products to be manufactured and marketed by their alliance. However, they    coordinate their ongoing research and development activities, which include    the sharing of scientific results and collaboration regarding the technology    and instrumentation that their alliance products will use.

Research    and development expenses for Celera Diagnostics totaled $4.5 million in our    2001 fiscal year, $39.0 million in our 2002 fiscal year, and $49.0 million    in our 2003 fiscal year. We expensed $323.4 million in our 2001 fiscal year,    $381.9 million in our 2002 fiscal year, and $401.5 million in our 2003 fiscal    year for Applera research, development, and engineering activities.

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***Celera        Diagnostics Products***

Celera    Diagnostics plans to develop products that provide useful genetic information    to facilitate disease detection, prediction of disease predisposition, monitoring    of disease progression, and disease severity, and determination of patient    responsiveness to treatments. These products are expected to include primarily *in    vitro* diagnostic test kits, which may be labeled for use in diagnosing    specific diseases or other conditions, as well as products referred to as “analyte    specific reagents,” which may be used by appropriately-licensed clinical    laboratories for clinical laboratory testing after they independently establish    the performance characteristics of the reagents but which may not be labeled    by Celera Diagnostics for use in diagnosing any specific disease or condition. 

While    the sale of *in vitro* diagnostic test kits requires clearance or approval    by the FDA, analyte specific reagents are a class of products defined by    the agency’s regulations which may be sold without any regulatory submission.    However, analyte specific reagents must be manufactured and marketed in compliance    with the requirements of the agency’s Quality System Regulation, such    as Good Manufacturing Practices, and must be sold in compliance with FDA    regulations regarding their sale, distribution, and use. These FDA regulations    are intended to ensure, among other things, that purchasers are aware that    the utilities and performance characteristics of these products have not    been established. Because analyte specific reagents are not subject to FDA    clearance or approval, Celera Diagnostics believes they can generally be    commercialized sooner than diagnostic test kits. However, the regulatory    restrictions on the marketing, distribution, and sale of analyte specific    reagents, and on its customers’ use of these products, would likely    affect their marketing and distribution and market acceptance.

Celera    Diagnostics is currently offering five products through its alliance with    Abbott Laboratories, which is described above in Item 1 of this report under    the headings “Celera Diagnostics, a 50/50 Joint Venture between Applied    Biosystems and Celera Genomics – Abbott Laboratories Strategic Alliance” and    below in Item 1 of this report under the headings “Celera Diagnostics,    a 50/50 Joint Venture between Applied Biosystems and Celera Genomics – Marketing    and Distribution.” Celera Diagnostics is manufacturing all of these    products, and with one exception noted below they are marketed and distributed    by Abbott Laboratories.

|   | • | *ViroSeq HIV-1 Genotyping System.* The        genome of human immunodeficiency virus, commonly known as HIV, undergoes        mutations in an infected patient, especially in response to anti-viral        drug treatment. Some of the mutations have been shown to render the virus        resistant to the action of these drugs, thereby diminishing the effectiveness        of the treatment. Therefore, the detection of mutations in HIV that correlate        with drug resistance provides useful information to physicians in monitoring        the course of treatment and selecting the most effective regimen for        each individual HIV-infected patient. |
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|        |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |
|        |        | Celera Diagnostics’ ViroSeq HIV-1 Genotyping        System was developed as an aid to physicians in monitoring and treating        HIV-1 infection. HIV-1 is one of the most prevalent strains of HIV. This        system is for use in testing human blood samples and was designed to        detect specific mutations in the HIV-1 genome that correlate with drug        resistance. The product includes reagents for identifying key mutations        of the HIV-1 genome designed for use on an Applied Biosystems automated        DNA sequencing instrument in conjunction with Celera Diagnostics’ ViroSeq® HIV-1        Genotyping System Software. |   |

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|   |   | During our 2002 and 2003 fiscal        years, Celera Diagnostics submitted three 510(k) filings to the FDA for        the ViroSeq HIV-1 Genotyping System. A 510(k) filing is a pre-market        notification to the FDA that Celera Diagnostics intends to market this        product as an *in vitro*diagnostic test kit. The product could        not be marketed in the U.S. until the FDA provided clearance. During        our 2003 fiscal year, the FDA granted marketing clearances for the system        on the Applied Biosystems ABI PRISM® 377 DNA Sequencer,        3100 Genetic Analyzer, and 3700 DNA Analyzer. The 3700 DNA Analyzer is        a fully automated instrument commonly used in the largest, high-throughput        clinical testing laboratories in the U.S. All of these instruments are        discussed above in Item 1 of this report under the headings “Applied        Biosystems Group Business – Products for the Genomics Market – Genetic Analysis Instruments.” Prior to and during our 2003        fiscal year, Celera Diagnostics marketed the ViroSeq HIV-1 Genotyping        System in France pursuant to a regulatory approval previously obtained        for sales in that country. In addition, prior to and during our 2003        fiscal year, Celera Diagnostics marketed the ViroSeq HIV-1 Genotyping        System in countries outside of the U.S. and France for research use purposes        only, which does not require regulatory clearance or approval. |
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|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|   | • | *Cystic Fibrosis Analyte Specific Reagents.* Cystic        fibrosis is an inherited genetic disorder that affects children and young        adults. It is caused by a number of mutations in the cystic fibrosis        gene. The American College of Obstetricians and Gynecologists currently        recommends that couples planning a pregnancy or seeking prenatal care        be screened for cystic fibrosis gene mutations to help them make informed        reproductive decisions. Celera Diagnostics sells analyte specific reagents        that can be used to identify mutations in the cystic fibrosis gene. |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
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|   | • | *HLA Sequencing-Based Typing Kits.* Transplantation        of tissues and organs between genetically-unrelated individuals usually        results in rejection of the donor “graft,” or tissue, by the recipient.        Such rejection is due to differences in some genes between a donor and        a recipient. These genes have been mapped to a region of the human genome        known as HLA. Analysis of HLA genes to match donor-recipient pairs with        minimal differences in these genes has greatly improved the success of        transplantation. |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
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|   |   | Celera Diagnostics’ HLA-typing        products detect specific DNA sequences in several HLA genes that are        known to be involved in transplantation rejection, and thus provide useful        information regarding the likelihood of transplant rejection by a recipient.        Celera Diagnostics has not sought or received marketing clearance or        regulatory approval from the FDA for these products, and does not manufacture        these products in accordance with FDA requirements. Accordingly, these        products can be sold only for research use and cannot be sold for diagnostic        purposes either as diagnostic kits or as analyte specific reagents. Celera        Diagnostics is evaluating its strategy for these products, which may        result in discontinuance or which may result in further development to        enable sale as diagnostic products. Although these products are covered        by the Abbott Laboratories alliance, currently Celera Diagnostics is        responsible for sales and marketing in the U.S. because Abbott Laboratories        does not specialize in the sale of products to the research market. |

|   |   |                                                                                                                                                                                                             |
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|   | • | *Hepatitis C Virus Analyte Specific            Reagents*. Hepatitis C virus causes a chronic liver disease.            Hepatitis C virus infection is currently the leading reason that            patients need |

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|   |   | liver transplants. There are several distinct        strains of Hepatitis C virus having different genotypes, and some of        these genotypes are more susceptible to currently-available treatments        than others. During our 2003 fiscal year, Celera Diagnostics began to        manufacture for Abbott Laboratories new analyte specific reagents that        can be used to: measure “viral load,” which refers to the        quantity of the virus found in a tissue sample; and identify the genotypes        of the different strains of the Hepatitis C virus. Only appropriately-licensed        clinical laboratories can use these analyte specific reagents for these        purposes after they independently establish the performance characteristics        of the reagents. Abbott Laboratories commenced sales of these products        in June 2003. |
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***Regulation        of Diagnostic Products***

In    the U.S. and in other countries, diagnostic products are heavily regulated    by governmental agencies. These requirements vary from country to country.    Currently, Celera Diagnostics’ principal markets are the U.S. and the    European Union, and the regulatory requirements in those jurisdictions are    described below.

In    the U.S. the FDA classifies Celera Diagnostics’ *in vitro* diagnostic    products as “devices” and the FDA’s Center for Devices    and Radiological Health regulates these products. Although some of the products    that Celera Diagnostics expects to market may not require regulatory clearance    or approval, its current business strategy is to develop and market a number    of products that will be “devices” and require this clearance    or approval. For Celera Diagnostics to market its *in vitro* diagnostic    products with clinical claims in the U.S., Celera Diagnostics or its collaborators    generally must first obtain clearance from the FDA pursuant to a process    known as 510(k) premarket notification, or must obtain FDA approval through    a more demanding premarket approval, or PMA, process. 

In    order to obtain a 510(k) premarketing clearance, which refers to Section    510(k) of the Federal Food, Drug and Cosmetic Act, or FFDCA, Celera Diagnostics    or its collaborators generally must file a notice with the FDA with clinical    data demonstrating that the device subject to the notification and its intended    purpose is “substantially equivalent” to a diagnostic device    that is already cleared or approved for marketing by the FDA. The 510(k)    clearance process usually takes from three to twelve months, but can take    longer. For example, FDA may require further information, including additional    clinical data, to make a determination regarding “substantial equivalence” to    a legally marketed device. Celera Diagnostics has successfully applied for    and received 510(k) clearances for its ViroSeq HIV-1 Genotyping System.

If    the “substantially equivalent” standard is not met for a 510(k)    premarketing clearance, a PMA application must be filed pursuant to the FFDCA.    The PMA process is much more demanding than the 510(k) premarket notification    process. A PMA application, which is intended to demonstrate that a device    is safe and effective, must be supported by more extensive information than    required for a 510(k) notification. The PMA application process is more costly,    lengthy, and uncertain and usually takes one to three years, but can take    longer.

Following    FDA clearance or approval of a device allowing its commercial distribution,    numerous regulatory requirements apply, including: the Quality System Regulation,    which requires manufacturers to follow elaborate design, testing, control,    documentation, and other quality assurance procedures during the manufacturing    process; labeling regulations; and the Medical Device Reporting regulation,    which requires that the manufacturers report to the FDA if

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their device may have caused or contributed    to a death or serious injury or malfunctioned in a way that would likely    cause or contribute to a death or serious injury if it were to reoccur. 

Failure    to comply with the applicable U.S. regulatory requirements for *in vitro* diagnostic    products could result in, among other things, warning letters, fines, injunctions,    civil penalties, recalls, or seizure of products, total or partial suspension    of production, the FDA’s refusal to grant future premarket clearances    or approvals, withdrawals of current product applications, and criminal prosecution.

In    addition, distribution and sale of Celera Diagnostics’ products in    the European Union will be subject to new regulatory requirements. Effective    December 7, 2003, Celera Diagnostics’ *in vitro* diagnostic products    sold in the EU must be in compliance with the “In Vitro Diagnostics    Directive” and bear the “CE mark.” The Directive describes    criteria that must be met and steps that must be taken for *in vitro* diagnostic    products to be qualified for sale in EU countries. The CE mark is a symbol    indicating that products conform to the essential requirements of the Directive,    and can be commercially distributed throughout the EU. In order to demonstrate    compliance, Celera Diagnostics is required to either self-certify or provide    documented evidence to a certification organization referred to as a “Notified    Body” that the products to be marketed meet all of the applicable essential    requirements. Once Celera Diagnostics has satisfied the compliance requirements,    the CE mark may be affixed on the products concerned. However, in order to    maintain use of the CE mark for some products Celera Diagnostics will be    subject to continuing review by the Notified Body, if applicable. Celera    Diagnostics is in the process of completing its required documentation but    cannot assure that the CE mark will be granted for Celera Diagnostics’ products    or that it will maintain its compliance with these requirements. Celera Diagnostics’ failure    to meet these requirements may prevent it from generating revenue from the    sale of diagnostic products in the EU.

***Marketing        and Distribution***

Celera    Diagnostics expects that reference laboratories, hospitals, and medical clinics    that perform diagnostic testing will be the primary users of its products.    Celera Diagnostics does not expect to develop its own marketing and distribution    organization for the foreseeable future. Under the terms of its strategic    alliance with Abbott Laboratories, Abbott Laboratories will serve as Celera    Diagnostics’ exclusive worldwide  distributor of nucleic acid-based    diagnostic products developed under the agreement. The Abbott Laboratories    alliance agreement is discussed above in Item 1 of this report under the    headings “Celera Diagnostics, a 50/50 Joint Venture between Applied    Biosystems and Celera Genomics – Abbott Laboratories Strategic Alliance.”

Pursuant    to the Abbott Laboratories strategic alliance, on October 1, 2002, Abbott    Laboratories commenced the marketing, distribution, and end-user sale of    most existing Celera Diagnostic products. Celera Diagnostics expects that    most of its nucleic acid testing products for the foreseeable future will    be covered by the Abbott Laboratories agreement and will be marketed, distributed,    and sold through Abbott Laboratories. However, in the future Celera Diagnostics    may develop products not covered by the agreement, in which case Celera Diagnostics    would have to develop its own marketing and distribution capability or find    other distributors for these products.

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***Raw        Materials***

Celera    Diagnostics’ operations require a variety of raw materials, such as    chemical and biochemical materials, and other supplies, some of which are    occasionally found to be in short supply. Any interruption in the availability    of these materials could adversely affect Celera Diagnostics’ operations.

In    particular, Celera Diagnostics needs access to human tissue and blood samples    from diseased and healthy individuals, other biological materials, and related    clinical and other information, which may be in limited supply. Celera Diagnostics    may not be able to obtain or maintain access to these materials and information    on acceptable terms, or may not be able to obtain needed consents from individuals    providing tissue or blood samples. In addition, government regulation in    the U.S. and foreign countries could result in restricted access to, or use    of, human tissue or blood samples. If Celera Diagnostics loses access to    sufficient numbers or sources of tissue or blood samples, or if tighter restrictions    are imposed on its use of the information generated from tissue or blood samples,    its business may be harmed. 

***Patents,        Licenses, and Franchises***

Through    its internal research programs and collaborative programs, including the    Applera Genomics Initiative, Celera Diagnostics anticipates that it will    develop an increasing portfolio of intellectual property. Celera Diagnostics    may use such intellectual property in its internal development programs or    may license it to third parties or customers for some combination of license    fees, milestone payments, and royalty payments.

Celera    Diagnostics’ products are based on complex, rapidly developing technologies.    Some of these technologies are covered by patents owned by Applied Biosystems    and Celera Genomics, and other patents are owned by third parties and used    by Celera Diagnostics under license.

***Competition***

The    diagnostics industry in which Celera Diagnostics operates is competitive    and evolving. There is intense competition among healthcare, biotechnology,    and diagnostic companies attempting to discover candidates for potential    new diagnostic products. These companies may:

|   | • | develop new diagnostic products in advance        of Celera Diagnostics; |
|--------|--------|--------------------------------------------------------------------------|

|   |   |                                                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|
|   | • | develop diagnostic products which are more        effective or more cost-effective than those developed by Celera Diagnostics; |

|   |   |                                                                                                                 |
|--------|--------|----------------------------------------------------------------------------------------------------------------------|
|   | • | obtain regulatory clearance or approval        of their diagnostic products more rapidly than Celera Diagnostics; or |

|   |   |                                                                                                                                                                                                                                                     |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | obtain patent protection or other intellectual        property rights that would limit Celera Diagnostics’ ability to        develop and commercialize, or its customers’ ability to use, Celera        Diagnostics’ diagnostic products. |

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Celera    Diagnostics competes with companies in the U.S. and abroad that are engaged    in the development and commercialization of products and services that provide    genetic information. These companies may develop products that are competitive    with the products offered by Celera Diagnostics, such as analyte specific    reagents or diagnostic test kits that perform the same or similar purposes    as Celera Diagnostics’ products. Also, clinical laboratories may offer    testing services that are competitive with the products sold by Celera Diagnostics.    For example, a clinical laboratory can use either reagents purchased from    manufacturers other than Celera Diagnostics, or use its own internally developed    reagents, to make diagnostic tests. If clinical laboratories make tests in    this manner for a particular disease, they could offer testing services for    that disease as an alternative to products sold by Celera Diagnostics used    to test for the same disease. The testing services offered by clinical laboratories    may be easier to develop and market than test kits developed by Celera Diagnostics    because the testing services are not subject to the same clinical validation    requirements that are applicable to FDA-cleared or approved diagnostic test    kits. The genetic testing services market is dominated by a small number    of large clinical testing laboratories, including Laboratory Corporation    of America Holdings, Quest Diagnostics Inc., and Specialty Laboratories,    Inc.

Also,    a substantial portion of all sales of diagnostic products are made to a small    number of clinical reference laboratories, including those identified above,    and therefore Celera Diagnostics expects to rely on these laboratories for    a substantial portion of its sales.

***Environmental        Matters***

Celera    Diagnostics is subject to federal, state, and local laws and regulations    regulating the discharge of materials into the environment, or otherwise    relating to the protection of the environment, in those jurisdictions where    Celera Diagnostics operates or maintains facilities. Celera Diagnostics does    not believe that any liability arising under, or compliance with, environmental    laws or regulations will have a material effect on its business, and no material    capital expenditures are expected for environmental control.

**Applera Genomics Initiative**

In    July 2001, we announced a collaboration among Celera Genomics, Applied Biosystems,    and Celera Diagnostics for commercializing products derived from information    obtained through analysis of variations in the human genome. This collaboration,    which we refer to as the “Applera Genomics Initiative,” was commenced    primarily to develop a portfolio of validated SNPs to be used as the basis    for these products. The Applera Genomics Initiative was completed during    our 2003 fiscal year and was jointly funded by all three business segments.

Pursuant    to the Applera Genomics Initiative, Celera Genomics prioritized and resequenced    approximately 25,000 genes from 39 individuals and a chimpanzee. From this    resequencing, Celera Genomics identified over 294,000 SNPs in genes, of which    we believe approximately 75% are novel SNPs not previously identified by    other researchers. Based on our analysis of the location of these SNPs on    the human genome, we believe that over 45,000 of the novel SNPs could affect    the amount, stability, or function of proteins. SNPs that have these properties    are referred to as “functional” SNPs and may have the greatest    biological and medical value. The Applera Genomics Initiative also included    Applied Biosystems’ SNP validation studies. SNP validation was performed    to confirm that publicly available SNPs are true genetic variations rather    than sequencing errors, and to determine the frequency of SNPs across multiple    racial and ethnic populations to confirm their utility in life science research.

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We    believe the SNP information that we have generated through    the Applera Genomics Initiative will be an important asset for all three    of our business segments. Applied Biosystems is incorporating the SNP data    into new SNP assay products for the research market. Celera Diagnostics is     using this information in disease association studies    aimed at identifying new diagnostic markers. Celera Genomics is using    the SNP information in its proteomics discovery efforts and may also benefit    from therapeutic implications of findings from the disease association studies.

**Employees**

As    of June 30, 2003, we had approximately 5,470 employees allocated as follows:

| **  Business/Function**         | **  Number ** |
|-------------------------------------------|------------------------------|
|   Applied Biosystems  |   4,540            |
|   Celera Genomics               |   540              |
|   Celera Diagnostics            |   210              |
|   Corporate Staff               |   180              |

Our        corporate staff provides accounting, tax, treasury, legal, information      technology, human resources, and other internal services for Applied Biosystems,      Celera        Genomics, and Celera Diagnostics. None of Applied Biosystems’ U.S.        employees, and none of Celera Genomics’ or Celera Diagnostics’ employees        or our corporate staff employees, are subject to collective bargaining        agreements. We generally consider our relations with our employees to        be good.

**Financial Information About Industry      Segments**

A    summary of net revenues from external customers and operating income (loss)    attributable to each of our industry segments for our fiscal years ended    June 30, 2001, 2002, and 2003, is incorporated herein by reference to Note    15 on pages 77 through 89 of our 2003 Annual Report. Total assets as of June    30, 2001, were $1,677.9 million for Applied Biosystems, $1,220.1 million    for Celera Genomics, $14.2 million for Celera Diagnostics, and $2,887.9 million    for Applera after the effects of ($24.3) million related to intercompany    eliminations. Total assets as of June 30, 2003, were $2,126.7 million for    Applied Biosystems, $1,122.1 million for Celera Genomics, $35.9 million for    Celera Diagnostics, and $3,257.5 million for Applera after the effects of    ($27.2) million related to intercompany eliminations. Total assets as of    June 30, 2002, were $1,818.6 million for Applied Biosystems, $1,250.0 million    for Celera Genomics, $21.8 million for Celera Diagnostics, and $3,075.4    million for Applera after the effects of ($15.0) million related to intercompany    eliminations. Celera Diagnostics was first presented as a segment during    our 2002 fiscal year, and our 2001 fiscal year amounts have been restated    accordingly.

**Financial Information About Geographic      Areas****

A    summary of net revenues from external customers and long-lived assets attributed    to each of our geographic areas for our 2001, 2002, and 2003 fiscal years    is incorporated herein by reference to Note 15 on pages 77 through 89 of    our 2003 Annual Report.

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Our    consolidated net revenues from external customers in countries other than    the U.S. for our 2001, 2002, and 2003 fiscal years were as follows:

|   | • | $833.9 million, or 50.7% of our consolidated        net revenues, for our 2001 fiscal year; |
|--------|--------|---------------------------------------------------------------------------------------------|

|   |   |                                                                                            |
|--------|--------|-------------------------------------------------------------------------------------------------|
|   | • | $878.6 million, or 51.6% of our consolidated        net revenues, for our 2002 fiscal year; and |

|   |   |                                                                                        |
|--------|--------|---------------------------------------------------------------------------------------------|
|   | • | $891.3 million, or 50.2% of our consolidated        net revenues, for our 2003 fiscal year. |

Our    manufacturing facilities outside the continental U.S. are located in the    United Kingdom, Japan, and Singapore.

**Executive Officers of the Registrant**

Information    concerning our executive officers is incorporated by reference to the description    in Part III, Item 10 of this report under the heading “Identification    and Business Experience of Executive Officers” on pages 83 and 84 of this report.

| **Item 2**. | **Properties** |
|-------------|----------------|

***Applied        Biosystems Group Facilities***

Applied    Biosystems’ headquarters are located in leased facilities in Foster    City, California. Applied Biosystems owns or leases various other facilities    worldwide for manufacturing, distribution, warehousing, research and development,    sales and demonstration, service, and administration. The following is a    list of Applied Biosystems’ principal and other material operating facilities.    Except as otherwise noted below, substantially all of the space in these    facilities is used by Applied Biosystems, and these facilities are    maintained in good working order.

| **Location          (Approximate Floor Area      in Sq. Ft.)**                                      | **Owned or Leased          (Expiration Date of Leases)**                                            |
|-----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| Foster City, CA  (696,000,    but seeking to subleaseapproximately 16,000) – several buildings | Leased (several leases expiring        2004-2015)                                                   |
| Hayward, CA (66,000)                                                                                | Leased (2004)                                                                                       |
| Pleasanton, CA (149,000) – three        buildings                                              | Owned                                                                                               |
| San Jose, CA (81,000)                                                                               | Owned                                                                                               |
| Bedford, MA (104,000) – four buildings                                                         | Leased (several leases expiring 2004, 2007, 2011, and 2023) |
| Framingham, MA (140,000)                                                                            | Leased (2009)                                                                                       |
| Houston, TX (50,000)                                                                                | Leased (2004)                                                                                       |
| Warrington, United Kingdom (88,000) – two        buildings                                     | Owned                                                                                               |
| Rotterdam, Netherlands (64,000)                                                                     | Leased (2010)                                                                                       |
| Singapore (36,000)                                                                                  | Leased (several leases expiring        2005-2006)                                                   |
| Narita, Japan (24,000)                                                                              | Owned                                                                                               |

Applied    Biosystems purchased an 80-acre property in Pleasanton, California, in September    2000 on which it could construct facilities of up to 960,000 square feet.    Applied Biosystems currently intends to construct new facilities on this    property with up to approximately 600,000 square feet for research and development,    manufacturing, and administrative purposes as may be required by the future    growth of our business. The Pleasanton

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facilities reflected in the table    above include a manufacturing facility that was completed and occupied during    our 2003 fiscal year, as well as two additional buildings that had been erected    to support construction but which Applied    Biosystems is currently using for maintenance and warehousing. During our    2003 fiscal year, Applied Biosystems also completed construction of the shell    of a building at the same site comprised of approximately 164,000 square    feet. Applied Biosystems intends to construct improvements needed for occupancy    in this building as additional space is needed for its operations or possibly    the operations of our other businesses.

Applied    Biosystems also owns approximately 15 acres of undeveloped land in Vacaville,    California, and is evaluating whether to develop or sell this property. In    addition, Applied Biosystems leases other facilities not reflected in the    table above which it is seeking to sublease.

***Celera        Genomics Group Facilities***

Celera    Genomics’ business is primarily located in owned facilities in Rockville,    Maryland, and leased and owned facilities in South San Francisco, California.    The Rockville facilities are used for administrative purposes and to house    Celera Genomics’ bioinformatics data center and proteomics laboratory.    The South San Francisco facilities contain Celera Genomics’ therapeutic    discovery and development operations and administrative offices. The following    is a list of Celera Genomics’ principal and other material operating    facilities. Except as otherwise noted below, substantially all of the space    in these    facilities is used by Celera Genomics, and these facilities are maintained    in good working order.

| **Location (Approximate Floor Area in Sq. ft.)** | **Owned          or Leased****(Expiration Date of Leases)** |
|--------------------------------------------------------------------------------|-------------------------------------------------------------|
| Rockville, MD (220,000) – two        buildings                            | Owned                                                       |
| South San Francisco, CA (69,300)                                               | Leased (2006)                                               |
| South San Francisco, CA (44,000)                                               | Owned                                                       |
| South San Francisco, CA (13,600)                                               | Leased (2006)                                               |

Celera    Genomics is using approximately 75% of the space in Rockville, Maryland,    and is evaluating its alternatives for the unused space. The Rockville facilities    are located on a parcel of land we own that includes approximately 5 undeveloped    acres that are suitable for development. We believe this land could be used    for the construction of additional facilities, if necessary.

Celera    Genomics  also leases an 85,000 square foot facility in Pasadena, California.    Celera Genomics has vacated most of the space in this facility and a portion    of the vacated space has been subleased.    Celera Genomics is evaluating its alternatives for the remaining vacated    space until the expiration of the lease in 2011.

The    owned facility in South San Francisco, California, is located on land we    lease under a long-term ground lease.

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***Celera        Diagnostics Facilities***

We    have leased the following three facilities to serve as the principal facilities    for Celera Diagnostics, which Celera Diagnostics is using as its headquarters    as well as for research and development, manufacturing, and administrative    purposes. These facilities are maintained in good working order.

| **Location          (Approximate Floor Area in Sq. Ft.)** | **Owned          or Leased****(Expiration Date of Leases)** |
|-----------------------------------------------------------|----------------------------------------------------------------------------|
| Alameda, CA (48,000)                                      | Leased (2006)                                                              |
| Alameda, CA (19,000)                                      | Leased (2006)                                                              |
| Alameda, CA (8,000)                                       | Leased (2006)                                                              |

Celera    Diagnostics is using all of the space in the two larger facilities. During    our 2003 fiscal year, we completed renovations of approximately 18,000 square    feet in these two facilities for use in manufacturing and for research and    development. The space in the third facility is a portion of a 32,000 square    foot facility that was vacated by a defaulting subtenant and recently occupied    by Celera Diagnostics. Celera Diagnostics is seeking to sublease the balance    of the space in this facility to a new subtenant. Celera Diagnostics is also    using approximately 5,100 square feet of Applied Biosystems’ space    in Foster City, California, for manufacturing.

***Corporate        Facilities***

Our    corporate headquarters is located in a facility in Norwalk, Connecticut,    under a lease that expires in 2011. We lease approximately 51,000 square    feet at this facility, substantially all of which we use for corporate staff    and related support functions. This facility is maintained in good working    order.

We    also own another facility in Norwalk and Wilton, Connecticut, with an area    of approximately 402,000 square feet. This facility was previously used for    our corporate headquarters and manufacturing, but is currently vacant. We    are holding this facility for sale or long term lease. This facility is expected    to remain vacant pending completion of such a sale or lease. 

| **Item 3.** | **Legal Proceedings** |
|-------------|-----------------------|

We    are involved in various legal proceedings from time to time, including actions    with respect to commercial, intellectual property, antitrust, environmental,    securities, and employment matters. The following is a description of some    claims we are currently defending. We believe that we have meritorious defenses    against the claims currently asserted against us, including those described    below, and intend to defend them vigorously. However, the outcome of litigation    is inherently uncertain, and we cannot be sure that we will prevail in any    of the cases described below or in our other current litigation. An adverse    determination in some of our current litigation, particularly the cases described    below under the headings “Securities Litigation,” “MJ Research    and Henry Huang,” “Promega,” “Beckman Coulter,” “Genetic    Technologies,” and “On-Line Technologies,” could have    a material adverse effect on us.

***U.S.        v. Davis*****

We    are a party to the action U.S. v. Davis, pending in the U.S. District    Court for the 

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District of Rhode Island. We were    brought into the case along with numerous other companies as a result of    a third party complaint filed by United Technologies Corporation (“UTC”)    seeking contribution for environmental cleanup costs imposed by the U.S.    government. In December 1998, the District Court found us liable to UTC along    with certain, but not all, of the defendants in the case. We believe the    amount of such liability to be less than $200,000, which will be determined    when all appeals have been concluded. Both UTC and we appealed the District    Court’s decision. In August 2001, the U.S. Court of Appeals for the    First Circuit affirmed the District Court’s decision and remanded the    case to the District Court for further proceedings. We and the other defendants    are considering the decision of the Court of Appeals and our legal alternatives.

***Securities        Litigation***

Our    company and some of our officers were served in five lawsuits between April    and May, 2000, purportedly on behalf of purchasers of Applera-Celera stock    in our follow-on public offering of Applera-Celera stock completed on March    6, 2000. In the offering, we sold an aggregate of approximately 4.4 million    shares of Applera-Celera stock at a public offering price of $225 per share.    All of these lawsuits have been consolidated into a single case and are pending    in the U.S. District Court for the District of Connecticut, and an amended    consolidated complaint was filed on August 21, 2001. The consolidated complaint    generally alleges that the prospectus used in connection with the offering    was inaccurate or misleading because it failed to adequately disclose the    alleged opposition of the Human Genome Project and two of its supporters,    the governments of the U.S. and the U.K., to providing patent protection    to our genomic-based products. Although Celera Genomics has never sought,    or intended to seek, a patent on the basic human genome sequence data, the    complaint also alleges that we did not adequately disclose the risk that    Celera Genomics would not be able to patent this data. The consolidated complaint    seeks monetary damages, rescission, costs and expenses, and other relief    as the court deems proper.

***MJ        Research and Henry Huang***

We    are involved in several litigation matters with MJ Research, Inc., commencing    with our filing claims against MJ Research based on its alleged infringement    of some polymerase chain reaction, or “PCR,” patents. In response    to our claims, MJ Research filed counterclaims including, among others, allegations    that we have licensed and enforced these patents through anticompetitive    conduct in violation of federal and state antitrust laws, and MJ Research    is seeking injunctive relief, monetary damages, costs and expenses, and other    relief. Subsequently, on September 21, 2000, MJ Research filed an action    against us in the U.S. District Court for the District of Columbia. This    complaint is based on the allegation that the patents underlying our DNA    sequencing instruments were improperly obtained because one of the alleged    inventors, whose work was funded in part by the U.S. government, was knowingly    omitted from the patent applications. Our patents at issue are U.S. Patent    Nos. 5,171,534, entitled “Automated DNA Sequencing Technique,” 5,821,058,    entitled “Automated DNA Sequencing Technique,” 6,200,748, entitled “Tagged    Extendable Primers and Extension Products,” and 4,811,218, entitled “Real    Time Scanning Electrophoresis Apparatus for DNA Sequencing.” The complaint    asserts violations of the federal False Claims Act and the federal Bayh Dole    Act, invalidity and unenforceability of the patents at issue, patent infringement,    and various other civil claims against us. MJ Research is seeking monetary    damages, costs and expenses, injunctive relief, transfer of ownership of    the patents in dispute, and other relief as the court deems proper. MJ Research    claims to be suing in the name of the U.S. government although the government    has to 

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date declined to participate in the    suit.

Henry    Huang (an individual) filed an action against us and the Applied Biosystems    group and the other parties described below in the U.S. District Court for    the Central District of California on February 19, 2003. Mr. Huang’s    complaint seeks to change inventorship of the patents described below, and    claims breach of contract, fraud, conversion, and unjust enrichment. The    complaint relates to U.S. Patent Nos. 5,171,534, entitled “Automated    DNA Sequencing Technique,” 5,821,058, entitled “Automated DNA    Sequencing Technique,” 6,200,748, entitled “Tagged Extendable    Primers and Extension Products,” and 4,811,218, entitled “Real    Time Scanning Electrophoresis Apparatus for DNA Sequencing.” U.S. Patent    Nos. 5,171,534, 5,821,058, and 6,200,748 are assigned to the California Institute    of Technology and licensed by the Applied Biosystems group. U.S. Patent No.    4,811,218 is assigned to the Applied Biosystems group. Also named in the    complaint are the California Institute of Technology, Lloyd Smith, Leroy    Hood, Michael Hunkapiller, Timothy Hunkapiller, Charles Connell, John Lytle,    William Mordan, and John Bridgham. Lloyd Smith, Leroy Hood, Michael Hunkapiller,    Timothy Hunkapiller, and Charles Connell are the inventors named on U.S.    Patent Nos. 5,171,534, 5,821,058, and 6,200,748. Michael Hunkapiller, Charles    Connell, John Lytle, William Mordan, and John Bridgham are the inventors    named on U.S. Patent No. 4,811,218. The issues involved in this litigation    are related to the issues in the MJ Research, Inc. litigation that was filed    September 21, 2000, which is described in the preceding paragraph. Mr. Huang    is alleging that he is the sole inventor on U.S. Patent Nos. 5,171,534, 5,821,058,    6,200,748, and 4,811,218. He is seeking to substitute himself for the named    inventors on the relevant patents, and to have himself named as the sole    assignee of the patents, and is also seeking monetary damages, costs, expenses,    and other relief as the court deems proper.

***Promega***

Promega    Corporation filed a patent infringement action against Lifecodes Corporation,    Cellmark Diagnostics, Genomics International Corporation, and us in the U.S.    District Court for the Western District of Wisconsin on April 24, 2001. The    complaint alleges that the defendants are infringing Promega’s U.S.    Patent Nos. 6,221,598 and 5,843,660, both entitled “Multiplex Amplification    of Short Tandem Repeat Loci,” due to the defendants’ sale of    forensic identification and paternity testing kits. Promega is seeking monetary    damages, costs and expenses, injunctive relief, and other relief as the court    deems proper. The defendants answered the complaint on July 9, 2001, and    we asserted counterclaims alleging that Promega is infringing our U.S. Patent    No. 6,200,748, entitled “Tagged Extendable Primers and Extension Products,” due    to Promega’s sale of forensic identification and paternity testing    kits.

***Beckman        Coulter***

Beckman    Coulter, Inc. filed a patent infringement action against us in the U.S. District    Court for the Central District of California on July 3, 2002. The complaint    alleges that we are infringing Beckman Coulter’s U.S. Patent Nos. RE    37,606 and 5,421,980, both entitled “Capillary Electrophoresis Using    Replaceable Gels,” and U.S. Patent No. 5,552,580, entitled “Heated    Cover Device,” although it does not identify the specific facts on    which this allegation is based. Since Beckman Coulter filed this claim, U.S.    Patent No. 5,421,980 has been reissued as U.S. Patent No. RE 37,941, entitled “Capillary    Electrophoresis Using Replaceable Gels.” On January 13, 2003, the court    permitted Beckman Coulter to make a corresponding amendment to its complaint.    Beckman Coulter is seeking monetary damages, costs and expenses, injunctive    relief, and other relief as the court deems proper. On February 10, 2003,    we filed our answer to 

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Beckman Coulter's allegations, and    counterclaimed for declaratory relief that the Beckman Coulter patents underlying    Beckman Coulter’s claim are invalid, unenforceable, and not infringed.    We are seeking dismissal of Beckman Coulter’s complaint, costs and    expenses, declaratory and injunctive relief, and other relief as the court    deems proper. 

***Genetic        Technologies***

Genetic    Technologies Limited filed a patent infringement action against us in the    U.S. District Court for the Northern District of California on March 26,    2003. They filed an amended complaint against us on August 12, 2003. The    amended complaint alleges that we are infringing U.S. Patent No. 5,612,179,    entitled “Intron Sequence Analysis Method for Detection of Adjacent    and Remote Locus Alleles as Haplotypes,” and U.S. Patent No. 5,851,762,    entitled “Genomic Mapping Method by Direct Haplotyping Using Intron    Sequence Analysis.” The allegedly infringing products are cystic fibrosis    reagent kits, Assays-on-DemandTM products for non-coding regions, Assays-by-DesignSM services    for non-coding regions, and the Celera Discovery System. The complaint also    alleges that haplotyping analysis performed by our businesses infringes the    patents identified above. Genetic Technologies Limited is seeking monetary    damages, costs, expenses, injunctive relief, and other relief as the court    deems proper.

***On-Line        Technologies***

On-Line    Technologies, Inc. (since acquired by MKS Instruments, Inc.) filed claims    for patent infringement, trade secret misappropriation, fraud, breach of    contract and unfair trade practices against PerkinElmer, Inc., Sick UPA,    GmbH, and us in the U.S. District Court for the District of Connecticut on    or about November 3, 1999. The complaint alleged that products called the    Spectrum One and the MCS100E manufactured by former divisions of the Applied    Biosystems group, which divisions were sold to the co-defendants in this    case, were based on allegedly proprietary information belonging to On-Line    Technologies and that the MCS100E infringed U.S. Patent No. 5,440,143. On-Line    Technologies sought monetary damages, costs, expenses, injunctive relief,    and other relief. On April 2, 2003, the U.S. District Court for the District    of Connecticut granted our summary judgment motion and dismissed all claims    brought by On-Line Technologies, Inc. On-Line Technologies has since filed    a notice of appeal.

| **Item 4**. | **Submission of Matters to          a Vote of Security Holders** |
|-------------|------------------------------------------------------------------|

Not    applicable.

**PART II**

| **Item 5.** | **Market for Registrant’s          Common Equity and Related Stockholder Matters** |
|-------------|-----------------------------------------------------------------------------------------|

**Information      about our Common Stock and its Holders**

***Market        Information***

The    principal U.S. market where our Applera-Applied Biosystems stock and Applera-Celera    stock are traded is the New York Stock Exchange, although our stock is also    traded on the Pacific Exchange.

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Applera-Applied Biosystems stock        is listed on the New York Stock Exchange under the trading symbol “ABI” and        is intended to reflect the relative performance of Applied Biosystems.        Applera-Celera stock is listed on the New York Stock Exchange under the        trading symbol “CRA” and is intended to reflect the relative        performance of Celera Genomics. There is no single security that represents        our performance as a whole, nor is there a separate security traded for        Celera Diagnostics.

Holders of Applera-Applied Biosystems        stock and Applera-Celera stock are stockholders of Applera. Applied Biosystems        and Celera Genomics are not separate legal entities, and holders of these        stocks are stockholders of a single company, Applera. As a result, holders        of these stocks are subject to all of the risks associated with an investment        in Applera and all of its businesses, assets, and liabilities.

The high and low sales prices        of Applera-Applied Biosystems stock and Applera-Celera stock for each        quarterly period during our 2002 and 2003 fiscal years is incorporated        herein by reference to Note 11, page 74, of our 2003 Annual Report.

***Holders***

On September 22, 2003, the        approximate number of holders of Applera-Applied Biosystems stock        was 6,282, and the approximate number of holders of Applera-Celera stock        was 6,582. The approximate number of holders is based upon the actual        number of holders registered in our records at such date and does not        include holders of shares in “street name” or persons, partnerships,        associations, corporations, or other entities identified in security        position listings maintained by depository trust companies. The calculation        of the market value of shares held by non-affiliates shown on the cover        of this report was made on the assumption that there were no affiliates        other than executive officers and directors as of the date of calculation.

***Dividends***

Information regarding the amount        of quarterly dividends during our 2002 and 2003 fiscal years is incorporated        herein by reference to Note 11, page 74, of our 2003 Annual Report.

***Sale of Unregistered Securities***

We have not sold any securities        during our 2003 fiscal year that were not registered under the Securities        Act of 1933.

**Forward Looking Statements and        Risk Factors**

Some statements contained in,        or incorporated by reference in, this report are forward-looking. Similarly,        the press releases we issue and other public statements we make from        time to time may contain language that is forward-looking. These forward-looking        statements may be identified by the use of forward-looking words or phrases        such as “forecast,” “believe,” “expect,” “intend,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among        others. The forward-looking statements contained in this report are based        on our current expectations, and those made at other times will be based        on our expectations when the statements are made. We cannot guarantee        that any forward-looking statements will be realized. 

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The Private Securities Litigation        Reform Act of 1995 provides a “safe harbor” for forward-looking        statements. In order to comply with the terms of the safe harbor, we        note that a variety of factors could cause actual results and experience        to differ materially from anticipated results or other expectations expressed        in forward-looking statements. We also note that achievement of anticipated        results or expectations in forward-looking statements is subject to the        possibility that assumptions underlying forward-looking statements will        prove to be inaccurate. Investors should bear this in mind as they consider        forward-looking statements. The risks and uncertainties that may affect        the operations, performance, development, and results of our business        include, but are not limited to, those described below under the headings “Factors        Relating to Applied Biosystems,” “Factors Relating to Celera        Genomics, ” and “Factors Relating to Celera Diagnostics,        a 50/50 Joint Venture between Applied Biosystems and Celera Genomics.”

Also, we note that owners of        Applera-Applied Biosystems stock and Applera-Celera stock are subject        to risks arising from their ownership of common stock of a corporation        with two separate classes of common stock. The risks and uncertainties        that arise from our capital structure, particularly our two separate        classes of common stock, include, but are not limited to, those described        below under the heading “Risks Relating to a Capital Structure        with Two Separate Classes of Common Stock.”

***Factors Relating to Applied            Biosystems***

|   | **Rapidly changing technology            in life sciences could make Applied Biosystems’ product line            obsolete unless it continues to improve existing products, develop            new products, and pursue new market opportunities.** |
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A significant portion of the        net revenues for Applied Biosystems each year is derived from products        that did not exist in the prior year. Applied Biosystems’ future        success depends on its ability to continually improve its current products,        develop and introduce, on a timely and cost-effective basis, new products        that address the evolving needs of its customers, and pursue new market        opportunities that develop as a result of technological and scientific        advances in life sciences. Applied Biosystems’ products are based        on complex technology which is subject to rapid change as new technologies        are developed and introduced in the marketplace. Unanticipated difficulties        or delays in replacing existing products with new products, or the inability        to gain market acceptance of new products on a timely basis, could adversely        affect Applied Biosystems’ future operating results. The pursuit        of new market opportunities will add further complexity and require additional        management attention and resources as these markets are addressed.

|   | **Applied Biosystems relies            on third parties for the manufacture of some of its products and            also for the supply of some components of the products it manufactures            on its own.** |
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Although Applied Biosystems has        contracts with most of these manufacturers and suppliers, there can be        no assurance that their operations will not be disrupted. Applied Biosystems        does not currently have alternative third party manufacturing or supply        arrangements for some of the key products and key components manufactured        or supplied by third parties. Although Applied Biosystems has its own        manufacturing facilities, and believes it might be able to manufacture        some of the products and components currently sourced from third parties,        it also believes that it would take considerable time and resources to        establish the capability to do so.

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Accordingly, if third party manufacturers      or suppliers are unable or fail to fulfill their obligations to Applied      Biosystems, Applied Biosystems might not be able to satisfy customer demand      in a timely manner, and its business could be adversely affected.

|   | **Applied Biosystems’ Knowledge            Business may not be successful.** |
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In April 2002, Applied Biosystems        became the exclusive distributor of Celera Genomics’ Celera Discovery        SystemTM and related human genomic and other biological and medical        information under the terms of a 10-year marketing and distribution agreement.        Applied Biosystems is integrating the Celera Discovery System and Celera        Genomics’ related information into its Knowledge Business by combining        current Applied Biosystems assay, human identification and forensics,        and cell biology products with new biological information content and        analytical tools. The Knowledge Business is an emerging business, and        Applied Biosystems believes that in order for it to be successful Applied        Biosystems will have to continue devoting a significant amount of resources        to researching, developing, marketing, and distributing Knowledge Business        products and services. The market for these products and services is        intensely competitive, and there can be no assurance that there will        be market acceptance of the utility and value of the product and service        offerings of the Knowledge Business.

|   | **A significant portion of            sales depends on customers' capital spending policies that may be            subject to significant and unexpected decreases.** |
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A significant portion of Applied        Biosystems’ instrument product sales are capital purchases by its        customers. Applied Biosystems’ customers include pharmaceutical,        environmental, research, biotechnology, and chemical companies, and the        capital spending policies of these companies can have a significant effect        on the demand for Applied Biosystems’ products. These policies        are based on a wide variety of factors, including the resources available        to make purchases, the spending priorities among various types of research        equipment, and policies regarding capital expenditures during recessionary        periods. Any decrease in capital spending or change in spending policies        of these companies could significantly reduce the demand for Applied        Biosystems’ products.

|   | **A substantial portion of            Applied Biosystems’ sales is to customers at universities or            research laboratories whose funding is dependent on both the amount            and timing of funding from government sources.** |
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As a result, the timing and amount        of revenues from these sources may vary significantly due to factors        that can be difficult to forecast. Although research funding has increased        during the past several years, grants have, in the past, been frozen        for extended periods or otherwise become unavailable to various institutions,        sometimes without advance notice. Budgetary pressures may result in reduced        allocations to government agencies that fund research and development        activities. If government funding necessary to purchase Applied Biosystems’ products        were to become unavailable to researchers for any extended period of        time, or if overall research funding were to decrease, the business of        Applied Biosystems could be adversely affected.

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|   | **Applied Biosystems is currently            and could in the future be subject to claims for infringement of            patents and other intellectual property rights.  ** |
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Applied Biosystems’ products        are based on complex, rapidly developing technologies. These products        could be developed without knowledge of previously filed patent applications        that mature into patents that cover some aspect of these technologies.        In addition, there are relatively few decided court cases interpreting        the scope of patent claims in these technologies, and Applied Biosystems’ belief        that its products do not infringe the technology covered by valid and        enforceable patents could be successfully challenged by third parties.        Also, in the course of its business, Applied Biosystems may from time        to time have access to confidential or proprietary information of third        parties, and these parties could bring a claim against Applied Biosystems        asserting that Applied Biosystems had misappropriated their technologies,        which though not patented are protected as trade secrets, and had improperly        incorporated such technologies into Applied Biosystems’ products.        Applied Biosystems has been made a party to litigation regarding intellectual        property matters, includingthe litigation described in the following paragraph and elsewhere in this report,some of which, if determined adversely, could have a material adverse effecton Applied Biosystems. Due to the fact that Applied Biosystems’ businessdepends in large part on rapidly developing and dynamic technologies, there remainsa constant risk of intellectual property litigation affecting the group. AppliedBiosystems has from time to time been notified that it may be infringing patentsand other intellectual property rights of others. It may be necessary or desirablein the future to obtain licenses relating to one or more products or relatingto current or future technologies, and Applied Biosystems cannot be assured thatit will be able to obtain these licenses or other rights on commercially reasonableterms.

Several lawsuits have been filed        against us that could affect the continuing operations of Applied Biosystems,        including the following:

|   | • | In response to claims by us against MJ          Research, Inc. MJ Research filed counterclaims against us including,          among others, allegations that we have licensed and enforced some polymerase          chain reaction, or “PCR,” patents through anticompetitive          conduct in violation of federal and state antitrust laws. Subsequently,          MJ Research filed a lawsuit against us based on the allegation that          four patents underlying Applied Biosystems’ DNA sequencing instruments          were invalidly obtained because an alleged inventor, whose work was          funded in part by the U.S. government, was knowingly omitted from the          patent applications. MJ Research claims to be suing in the name of          the U.S. government although the government has to date declined to          participate in the lawsuit. Henry Huang has filed a lawsuit against          us alleging that he is the sole inventor of the four patents referred          to above, and the issues involved in his claim are related to the issues          in the MJ Research claim.    •Promega Corporation has filed a lawsuit          against us alleging that Applied Biosystems, along with some other          named defendants, is infringing two Promega patents due to the sale          of forensic identification and paternity testing kits.     •Beckman Coulter, Inc. has filed a lawsuit          against us alleging that Applied Biosystems is infringing three Beckman          Coulter patents, although it has not identified the specific facts          on which the allegation is based.
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 •Genetic Technologies Limited has filed          a lawsuit against us alleging that we are infringing two of its patents          due to the sale of cystic fibrosis reagent kits, some of our Assays-on-DemandTM products          and Assays-by-DesignSM services, and the Celera Discovery          System. Genetic Technologies Limited has also alleged that haplotyping          analysis performed by our businesses infringes these patents.
The cost of litigation and the        amount of management time associated with these cases may be significant.        There can be no assurance that these matters will be resolved favorably;        that we will not be enjoined from selling the products in question or        other products as a result; or that any monetary or other damages assessed        against us will not have a material adverse effect on the financial condition        of our company, Applied Biosystems, or Celera Genomics. 
 **Since Applied Biosystems’ business            is dependent on foreign sales, fluctuating currencies will make revenues            and operating results more volatile.**
Approximately 50% of Applied        Biosystems’ net revenues for our 2003 fiscal year were derived        from sales to customers outside of the U.S. The majority of these sales        were based on the relevant customer's local currency. A significant portion        of the related costs for Applied Biosystems are based on the U.S. dollar.        As a result, Applied Biosystems’ reported and anticipated operating        results and cash flows are subject to fluctuations due to material changes        in foreign currency exchange rates that are beyond Applied Biosystems’ control.
 **Integrating acquired technologies            may be costly and may not result in technological advances.  **
The future growth of Applied        Biosystems depends in part on its ability to acquire complementary technologies        through acquisitions and investments. The consolidation of employees,        operations, and marketing and distribution methods could present significant        managerial challenges. For example, Applied Biosystems may encounter        operational difficulties in the integration of manufacturing or other        facilities. In addition, technological advances resulting from the integration        of technologies may not be achieved as successfully or rapidly as anticipated,        if at all.****
 **Applied Biosystems’ Knowledge            Business depends on the continuous, effective, reliable, and secure            operation of its computer hardware, software, and Internet applications            and related tools and functions.**
Because Applied Biosystems’ Knowledge        Business requires manipulating and analyzing large amounts of data, and        communicating the results of the analysis to its internal research personnel        and to its customers via the Internet, Applied Biosystems depends on        the continuous, effective, reliable, and secure operation of its computer        hardware, software, networks, Internet servers, and related infrastructure.        To the extent that Applied Biosystems’ hardware or software malfunctions        or access to Applied Biosystems’ data by internal Knowledge Business        research personnel or Knowledge Business customers through the Internet        is interrupted, the Knowledge Business could suffer.

Applied Biosystems’ computer        and communications hardware is protected through physical and software        safeguards. However, it is still vulnerable to fire, storm, flood, power        loss, earthquakes, telecommunications failures, physical or software        break-ins, and similar events. In addition, the Knowledge Business online        products are complex and sophisticated, and as such,

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could contain data, design, or      software errors that could be difficult to detect and correct. Software      defects could be found in current or future products. If Applied Biosystems      fails to maintain and further develop the necessary computer capacity and      data to support its computational needs and its customers' access to the      Knowledge Business product offerings, it could experience a loss of or      delay in revenues or market acceptance. In addition, any sustained disruption      in Internet access provided by third parties could adversely affect the      Knowledge Business. 

**Earthquakes could disrupt          operations in California***.*

The headquarters and principal        operations of Applied Biosystems are located in Foster City and Pleasanton,        California. Both cities are located near major California earthquake        faults. The ultimate impact of earthquakes on Applied Biosystems, its        significant suppliers, and the general infrastructure is unknown, but        operating results could be materially affected in the event of a major        earthquake.

**Applera-Applied Biosystems          stock price is volatile***.*

The market price of Applera-Applied        Biosystems stock has been and may continue to be volatile due to the        risks and uncertainties described in this section of this report, as        well as other factors that may have affected or may in the future affect        the market price, such as:
 •conditions and publicity regarding the          genomics, biotechnology, pharmaceutical, or life sciences industries          generally;    •price and volume fluctuations in the stock          market at large which do not relate to Applied Biosystems’ operating          performance; and    •comments by securities analysts or government          officials, including with regard to the viability or profitability          of the biotechnology sector generally or with regard to intellectual          property rights of life science companies, or Applied Biosystems’ ability          to meet market expectations.
The stock market has from time        to time experienced extreme price and volume fluctuations that are unrelated        to the operating performance of particular companies. In the past, companies        that have experienced volatility have sometimes been the subjects of        securities class action litigation. If litigation was instituted on this        basis, it could result in substantial costs and a diversion of management's        attention and resources.

***Factors Relating to Celera            Genomics***
 **Celera Genomics has incurred            net losses to date and may not achieve profitability.**
Celera Genomics has accumulated        net losses of approximately $659 million as of June 30, 2003, and expects        that it will continue to incur additional net losses for the foreseeable        future. These cumulative losses are expected to increase as Celera Genomics        continues to make investments in new technology and product development,        including its investments in its therapeutics business, as well as investments        in diagnostics through Celera Diagnostics, its joint venture with Applied        Biosystems. Celera Genomics will record all initial cash operating losses

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of Celera Diagnostics up to a maximum      of $300 million, after which any additional operating losses would be shared      equally by Celera Genomics and Applied Biosystems. However, Applied Biosystems      reimburses Celera Genomics for all tax benefits generated by Celera Diagnostics      to the extent such tax benefits are used by Applied Biosystems, and the      effect of recording Celera Diagnostics’ operating losses on Celera      Genomics’ net losses will be partially offset by this reimbursement.      Celera Diagnostics has accumulated cash operating losses of approximately      $91 million as of June 30, 2003. As an early stage business, Celera Genomics      faces significant challenges in expanding its operations into the therapeutics      research and development business. As a result, there is a high degree      of uncertainty that Celera Genomics will be able to achieve profitable      operations.
 **The marketing and distribution            agreement with Applied Biosystems may not generate significant royalty            payments.**
Effective April 2002, Applied        Biosystems became the exclusive distributor of the Celera Discovery System        and Celera Genomics’ related human genomic and other biological        and medical information under the terms of a ten-year marketing and distribution        agreement. Under the terms of that agreement, Applied Biosystems is obligated        to pay a royalty to Celera Genomics based on sales of some products sold        by Applied Biosystems’ Knowledge Business after July 1, 2002. This        royalty rate and the corresponding payments to be made to Celera Genomics        during the term were established when the agreement was entered into        based on the anticipated performance of the Knowledge Business. Applied        Biosystems has not guaranteed any minimum royalty payments to Celera        Genomics, and the actual amount of royalty payments to be paid to Celera        Genomics depends on Applied Biosystems’ ability to successfully        commercialize Knowledge Business products subject to the royalty. The        Knowledge Business is an emerging business, and Applied Biosystems has        not proven its ability to successfully commercialize these products.        Celera Genomics believes that in order for the Knowledge Business to        be successful, and in particular for it to meet original expectations,        Applied Biosystems will have to continue devoting a significant amount        of its resources to researching, developing, marketing, and distributing        Knowledge Business products and services. However, Celera Genomics has        no control over the amount and timing of Applied Biosystems’ use        of its resources, including for products subject to the royalty. In addition,        the market for these products is intensely competitive, and there can        be no assurance that there will be market acceptance of the utility and        value of the product offerings of the Knowledge Business.
 **Celera Genomics has not            sought any new customers for its Celera Discovery System and related            information products and services since June 30, 2002, and therefore            its future revenues from its sale of these products and services            will be limited.**
Under the terms of the marketing        and distribution agreement between Celera Genomics and Applied Biosystems,        Celera Genomics will receive all revenues under, and be responsible for        all costs and expenses associated with, Celera Discovery System and related        information contracts that were entered into on or prior to June 30,        2002. However, the Applied Biosystems Knowledge Business took full responsibility        for marketing and contracting for the Celera Discovery System and related        products after that date. Accordingly, Celera Genomics does not expect        any revenues from the Celera Discovery System and related products and        services other than under contracts existing on that date, so long as        they remain in effect, and from potential royalty payments from Applied        Biosystems under the marketing and distribution agreement. Applied Biosystems        has agreed to reimburse Celera Genomics for any shortfall in earnings        before interest, taxes, depreciation, and amortization from these contracts        below $62.5 million

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during the four fiscal years ending      with the 2006 fiscal year, if the shortfall is due to the actions of the      Knowledge Business including changes in marketing strategy for the Celera      Discovery System. However, this commitment is also subject to Celera Genomics      otherwise continuing to perform under these contracts, and does not protect      Celera Genomics from lost revenue due to other circumstances such as a      customer bankruptcy. Although under some contracts with existing Celera      Discovery System customers Celera Genomics is entitled to milestone payments      or future royalties based on products developed by its customers, Celera      Genomics believes these arrangements are unlikely to produce any significant      revenue for the group.
 **Because of the close working            relationship between Celera Genomics and Applied Biosystems under            the marketing and distribution agreement, it may be difficult to            ascertain responsibility for claims, liabilities, or other issues            that may arise under Celera Discovery System contracts or the marketing            and distribution agreement.**
Under the marketing and distribution        agreement, the two groups have agreed to cooperation guidelines to enable        Celera Genomics to perform its obligations under existing Celera Discovery        System agreements and to facilitate the development of the Knowledge        Business. These guidelines provide for the application of relevant resources        and expertise of the groups to the relationship, and have led to a close        working relationship among personnel within the two groups. Because of        this working relationship, if any customers assert any claims under Celera        Discovery System contracts, it may be difficult to determine which group        was responsible for the actions that gave rise to the claim. In addition,        the Knowledge Business may from time to time take good faith actions        in pursuit of its marketing strategy that affect Celera Discovery System        contracts that were in existence on June 30, 2002. Because of the working        relationship between the two groups, it may be difficult to determine        whether the actions of Applied Biosystems are within the scope of the        reimbursement obligation described above.
 **Celera Genomics’ ability            to develop and commercialize proprietary therapeutics is unproven.**
As Celera Genomics expands its        therapeutics discovery and development business, it faces the difficulties        inherent in developing and commercializing therapeutic products. It is        possible that Celera Genomics’ discovery and development efforts        will not result in any commercial products. In particular, Celera Genomics        and its collaborators are seeking to develop new therapeutic products        based on information derived from the study of the genetic material of        organisms, or genomics, and the study of proteins, or proteomics, including        genetic markers identified by the large-scale disease association studies        being performed by Celera Diagnostics. These methods are unproven, as        few therapeutic products based on genomic or proteomic discoveries have        been developed and commercialized and, to date, no one has developed        or commercialized any therapeutic products based on Celera Genomics’ technologies.        In addition, pursuant toCelera Genomics’ current business and scientific plan, it is seeking tocapitalize on its relationship with Celera Diagnostics through the evaluationof the therapeutic utility of targets that Celera Diagnostics may identify inits disease association studies. However, Celera Diagnostics is not obligatedto continue those studies, and if Celera Diagnostics discontinues in whole orin part its disease study program Celera Genomics’ business and scientificplan could be adversely affected.

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 **Therapeutic product candidates            may never result in a commercialized product.**
All of Celera Genomics’ therapeutic        product candidates are in various stages of research and development        and will require significant additional research and development efforts        by Celera Genomics or its collaborators before they can be marketed.        These efforts include extensive preclinical and clinical testing and        lengthy regulatory review and clearance or approval by the FDA and comparable        agencies in other countries. Celera Genomics’ development of therapeutic        products is highly uncertain and subject to a number of significant risks.        To date, Celera Genomics has not commercialized a therapeutic product        and Celera Genomics does not expect any of its therapeutic product candidates        to be commercially available for a number of years, if ever. Therapeutic        product candidates that appear to be promising at early stages of development        may not be developed into commercial products, or may not be successfully        marketed, for a number of reasons, including:
 •Celera Genomics or its collaborators may          not successfully complete any research and development efforts;    •Celera Genomics or its collaborators may          not successfully build the necessary preclinical and clinical development          organizations;    •any therapeutic product candidates that          Celera Genomics or its collaborators develop may be found during preclinical          testing or clinical trials to be ineffective or to cause harmful side          effects;    •Celera Genomics or its collaborators may          fail to obtain required regulatory approvals for products they develop;    •Celera Genomics or its collaborators may          be unable to manufacture enough of any potential products at an acceptable          cost and with appropriate quality;    •Celera Genomics or its collaborators may          fail to build necessary distribution channels;    •Celera Genomics’ or its collaborator’s          products may not be competitive with other existing or future products;     •adequate reimbursement for Celera Genomics’ or          its collaborators products may not be available to physicians and patients          from the government or insurance companies; and    •Celera Genomics or its collaborators may          be unable to obtain necessary intellectual property protection, or          third parties may own proprietary rights that prevent Celera Genomics          or its collaborators from commercializing their products.
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 **If Celera Genomics fails            to maintain its existing collaborative relationships and enter into            new collaborative relationships, or if collaborators do not perform            under collaboration agreements, development of its therapeutic product            candidates could be delayed.**
Celera Genomics’ strategy        for the discovery, development, clinical testing, manufacturing and commercialization        of most of its therapeutic product candidates includes entering into        collaborations with partners. Although Celera Genomics has expended,        and continues to expend, time and money on internal research and development        programs, it may be unsuccessful in creating therapeutic product candidates        that would enable it to form additional collaborations and receive milestone        and/or royalty payments from collaborators.

Each of Celera Genomics’ existing        collaboration agreements may be canceled under some circumstances. In        addition, the amount and timing of resources to be devoted to research,        development, eventual clinical trials and commercialization activities        by Celera Genomics’ collaborators are not within Celera Genomics’ control.        Celera Genomics cannot ensure that its collaborators will perform their        obligations as expected. If any of Celera Genomics’ collaborators        terminate their agreements or otherwise fail to conduct their collaborative        activities in a timely manner, the development or commercialization of        therapeutic products may be delayed or otherwise adversely affected.        If in some cases Celera Genomics assumes responsibilities for continuing        programs on its own after termination of a collaboration, Celera Genomics        may be required to devote additional resources to product development        and commercialization or Celera Genomics may need to cancel some development        programs.
 **If Celera Genomics fails            to satisfy regulatory requirements for any therapeutic product candidate,            Celera Genomics will be unable to complete the development and commercialization            of that product.**
Celera Genomics is currently        developing its internal capability to move potential products through        clinical testing, manufacturing and the approval processes of the FDA        and comparable agencies in other countries. In the U.S., either Celera        Genomics or its collaborators must show through pre-clinical studies        and clinical trials that each of Celera Genomics’ therapeutic product        candidates is safe and effective in humans for each indication before        obtaining regulatory clearance from the FDA for the commercial sale of        that product. Outside of the U.S., the regulatory requirements vary from        country to country. If Celera Genomics or its collaborator fails to adequately        show the safety and effectiveness of a therapeutic product, regulatory        clearance or approval could be delayed or denied. The results from pre-clinical        studies may be different from the results that are obtained in clinical        trials. Celera Genomics cannot be certain that it will show sufficient        safety and effectiveness in its clinical trials to allow it to obtain        the needed regulatory clearance or approval. The regulatory review and        approval process can take many years and require substantial expense        and may not be successful. Many companies in the therapeutic industry,        including biotechnology companies, have suffered significant setbacks        in advanced clinical trials, even after promising results in earlier        studies.

Even if Celera Genomics obtains        regulatory clearance or approval, it will be subject to risks and uncertainties        relating to regulatory compliance, including: post-approval clinical        studies and inability to meet the compliance requirements of the FDA’s        Good Manufacturing Practices regulations. In addition, identification        of some adverse side effects after a therapeutic product is on the market        or the occurrence of manufacturing problems could cause subsequent suspension        of product manufacture or withdrawal of approval, or could require reformulation        of a

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therapeutic product, additional      testing, or changes in labeling of the product. This could delay or prevent      Celera Genomics from generating revenues from the sale of that therapeutic      product.
 **For some of Celera Genomics’ research            and product development programs, particularly its proteomics efforts,            Celera Genomics needs access to human and other tissue samples from            diseased and healthy individuals, other biological materials, and            related clinical and other information, which may be in limited supply.**
Celera Genomics may not be able        to obtain or maintain access to these materials and information on acceptable        terms, or may not be able to obtain needed consents from individuals        providing tissue or other samples. In addition, government regulation        in the U.S. and foreign countries could result in restricted access to,        or use of, human and other tissue samples. If Celera Genomics loses access        to sufficient numbers or sources of tissue samples or other required        biological materials, or if tighter restrictions are imposed on the use        of related clinical or other information or information generated from        tissue samples or other biological materials, these research and development        programs and Celera Genomics’ business could be adversely affected. 
 **The pharmaceutical industry            is intensely competitive and evolving.**
There is intense competition        among pharmaceutical and biotechnology companies attempting to discover        candidates for potential new therapeutic products. These companies may:
 •develop new therapeutic products in advance          of Celera Genomics;    •develop therapeutic products which are          more effective or more cost-effective than those developed by Celera          Genomics;    •obtain regulatory approvals of their therapeutic          products more rapidly than Celera Genomics; or     •obtain patent protection or other intellectual          property rights that would limit Celera Genomics’ ability to          develop and commercialize therapeutic products.   **Introduction of new products            may expose Celera Genomics to product liability claims.**
New products developed by Celera        Genomics or its collaborators could expose Celera Genomics to potential        product liability risks that are inherent in the testing, manufacturing,        marketing and sale of human therapeutic products. Product liability claims        or product recalls, regardless of the ultimate outcome, could require        Celera Genomics to spend significant time and money in litigation and        to pay significant damages. Although Celera Genomics expects to seek        and maintain product liability insurance to cover claims relating to        the testing and use of therapeutic products, there can be no assurance        that such insurance will be available on commercially reasonable terms,        if at all, or that the amount of coverage obtained will be adequate to        cover losses from any particular claim.

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 **The therapeutics discovery            and development business is highly technical, and there is a competitive            market for personnel with the necessary expertise to develop and            expand Celera Genomics’ therapeutics business.**
Celera Genomics believes that        in order to develop and commercialize therapeutic products, it will need        to recruit and retain scientific and management personnel having specialized        training or advanced degrees, or otherwise having the technical background,        necessary for an understanding of therapeutic products. There is a shortage        of qualified scientific and management personnel who possess this technical        background. Celera Genomics competes for these personnel with other pharmaceutical        and biotechnology companies, academic institutions and government entities.        If Celera Genomics is unable to retain and attract qualified scientific        and management personnel, the growth of the group’s therapeutics        discovery and development business could be delayed or curtailed.
 **Celera Genomics could incur            liabilities relating to hazardous materials that it uses in its research            and development activities.**
Celera Genomics’ research        and development activities involve the controlled use of hazardous materials,        chemicals and various radioactive materials. In the event of an accidental        contamination or injury from these materials, Celera Genomics could be        held liable for damages in excess of its resources.
 **Celera Genomics’ business            depends on the continuous, effective, reliable, and secure operation            of its computer hardware, software, and Internet applications and            related tools and functions.**
Because Celera Genomics’ business        requires manipulating and analyzing large amounts of data, and communicating        the results of the analysis to its internal research personnel and to        its customers via the Internet, Celera Genomics depends on the continuous,        effective, reliable, and secure operation of its computer hardware, software,        networks, Internet servers, and related infrastructure. To the extent        that Celera Genomics’ hardware or software malfunctions or access        to Celera Genomics’ data by Celera Genomics’ internal research        personnel or customers through the Internet is interrupted, its business        could suffer.

Celera Genomics’ computer        and communications hardware is protected through physical and software        safeguards. However, it is still vulnerable to fire, storm, flood, power        loss, earthquakes, telecommunications failures, physical or software        break-ins, and similar events. In addition, Celera Genomics’ online        products are complex and sophisticated, and as such, could contain data,        design, or software errors that could be difficult to detect and correct.        Software defects could be found in current or future products. If Celera        Genomics fails to maintain and further develop the necessary computer        capacity and data to support its computational needs and its customers'        therapeutics discovery and research efforts, it could experience a loss        of or delay in revenues. In addition, any sustained disruption in Internet        access provided by third parties could adversely affect Celera Genomics’ business.

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 **Celera Genomics’ competitive            position depends on maintaining its intellectual property protection            and obtaining licenses to intellectual property it may need from            others.**
Celera Genomics’ ability        to compete and to achieve and maintain profitability depends on its ability        to protect its proprietary discoveries and technologies, in large part,        through obtaining and enforcing patent rights, obtaining copyright protection,        maintaining its trade secrets, and operating without infringing the intellectual        property rights of others. Celera Genomics’ ability to obtain patent        protection for the inventions it makes is uncertain. The patentability        of biotechnology and pharmaceutical inventions involves complex factual        and legal questions. As a result, it is difficult to predict whether        patents will issue or the breadth of claims that will be allowed in biotechnology        and pharmaceutical patents. This may be particularly true with regard        to the patenting of gene sequences, gene functions, and genetic variations.        In this regard, the U.S. Patent and Trademark Office has adopted guidelines        for use in the review of the utility of inventions, particularly biotechnology        inventions. These guidelines increased the amount of evidence required        to demonstrate utility in order to obtain a patent in the biotechnology        field, making patent protection more difficult to obtain. Although others        have been successful in obtaining patents to biotechnology inventions,        since the adoption of these guidelines, these patents have been issued        with increasingly less frequency. As a result, patents may not issue        from patent applications that Celera Genomics may own or license if the        applicant is unable to satisfy the new guidelines.

The U.S. Patent and Trademark        Office has issued several patents to third parties covering inventions        involving single nucleotide polymorphisms or “SNPs,” naturally        occurring genetic variations that scientists believe can be correlated        with susceptibility to disease, disease prognosis, therapeutic efficiency,        and therapeutic toxicity. These inventions are subject to the same new        guidelines as other biotechnology inventions. In addition, Celera Genomics        may need to obtain rights to patented SNPs in order to develop, use and        sell analyses of the overall human genome or particular full-length genes.        These licenses may not be available to Celera Genomics on commercially        acceptable terms, or at all.

In some instances, patent applications        in the U.S. are maintained in secrecy until a patent issues. In most        instances, the content of U.S. and international patent applications        is made available to the public approximately 18 months after the initial        filing from which priority is claimed. As a result, Celera Genomics cannot        be certain that others have not filed patent applications for inventions        covered by Celera Genomics’ patent applications or that Celera        Genomics inventors were the first to make the invention. Accordingly,        Celera Genomics’ patent applications may be preempted or Celera        Genomics may have to participate in interference proceedings before the        U.S. Patent and Trademark Office. These proceedings determine the priority        of invention and the right to a patent for the claimed invention in the        U.S. 

Furthermore, lawsuits may be        necessary to enforce any patents issued to Celera Genomics or to determine        the scope and validity of the rights of third parties. Lawsuits and interference        proceedings, even if they are successful, are expensive to pursue, and        Celera Genomics could use a substantial amount of its financial resources        in either case. An adverse outcome could subject Celera Genomics to significant        liabilities to third parties and require Celera Genomics to license disputed        rights from third parties or to cease using the technology.

Celera Genomics may be dependent        on protecting its proprietary databases through copyright law to prevent        other organizations from taking information from those databases and

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copying and reselling it. Copyright      law currently provides uncertain protection regarding the copying and resale      of factual data. Changes in copyright law could either expand or reduce      the extent to which Celera Genomics and its customers are able to protect      their intellectual property. Accordingly, Celera Genomics is uncertain      as to whether it can prevent such copying or resale through copyright law. 

Celera Genomics also relies on        trade secret protection for its confidential and proprietary information        and procedures, including procedures related to sequencing genes and        to searching and identifying important regions of genetic information.        Celera Genomics protects its trade secrets through recognized practices,        including access control, confidentiality and nonuse agreements with        employees, consultants, collaborators and customers, and other security        measures. These confidentiality and nonuse agreements may be breached,        however, and Celera Genomics may not have adequate remedies for a breach.        In addition, Celera Genomics’ trade secrets may otherwise become        known or be independently developed by competitors. Accordingly, it is        uncertain whether Celera Genomics’ reliance on trade secret protection        will be adequate to safeguard its confidential and proprietary information        and procedures. 

Disputes may arise in the future        with regard to the ownership of rights to any invention developed with        collaborators. These and other possible disagreements with collaborators        could lead to delays in the achievement of milestones or receipt of royalty        payments or in research, development and commercialization of Celera        Genomics’ products. In addition, these disputes could require or        result in lawsuits or arbitration. Lawsuits and arbitration are time-consuming        and expensive. Even if Celera Genomics wins, the cost of these proceedings        could adversely affect its business, financial condition and operating        results.
 **Celera Genomics may infringe            the intellectual property rights of third parties and may become            involved in expensive intellectual property litigation.**
The intellectual property rights        of biotechnology companies, including Celera Genomics, are generally        uncertain and involve complex legal, scientific and factual questions.        Celera Genomics’ success in therapeutics discovery and development        may depend, in part, on its ability to operate without infringing the        intellectual property rights of others and to prevent others from infringing        its intellectual property rights. 

There has been substantial litigation        regarding patents and other intellectual property rights in the biotechnology        and pharmaceutical industries. Celera Genomics may become a party to        patent litigation or proceedings at the U.S. Patent and Trademark Office        to determine its patent rights with respect to third parties. Interference        proceedings may be necessary to establish which party was the first to        make the invention sought to be patented. Celera Genomics may become        involved in patent litigation against third parties to enforce its patent        rights, to invalidate patents held by the third parties, or to defend        against these claims. The cost to Celera Genomics of any patent litigation        or similar proceeding could be substantial, and it may absorb significant        management time. If infringement litigation against Celera Genomics is        resolved unfavorably to Celera Genomics, Celera Genomics may be enjoined        from manufacturing or selling its products or services without a license        from a third party. Celera Genomics may not be able to obtain a license        on commercially acceptable terms, or at all. 

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 **Ethical, legal, and social            issues related to the use of genetic information and genetic testing            may cause less demand for Celera Genomics’ products.**
Genetic testing has raised issues        regarding confidentiality and the appropriate uses of the resulting information.        For example, concerns have been expressed regarding the use of genetic        test results by insurance carriers or employers to discriminate on the        basis of this information, resulting in barriers to the acceptance of        genetic tests by consumers. This could lead to governmental authorities        calling for limits on or regulation of the use of genetic testing or        prohibiting testing for genetic predisposition to some diseases, particularly        those that have no known cure. Any of these scenarios could reduce the        potential markets for products of Celera Genomics.
 **Future acquisitions and            other transactions may absorb significant resources, may be unsuccessful            and could dilute the holders of Applera-Celera stock.**
Celera Genomics’ expects        to pursue acquisitions, investments and other strategic relationships        and alliances. Acquisitions, investments and other strategic relationships        and alliances may involve significant cash expenditures, debt incurrence,        additional operating losses, and expenses that could have a material        effect on Celera Genomics’ financial condition and operating results.        Acquisitions involve numerous other risks, including: 
 •difficulties integrating acquired technologies          and personnel into the business of Celera Genomics;    •diversion of management from daily operations;    •inability to obtain required financing          on favorable terms;    •entry into new markets in which Celera          Genomics has little previous experience;    •potential loss of key employees, key contractual          relationships, or key customers of acquired companies or of Celera          Genomics; and    •assumption of the liabilities and exposure          to unforeseen liabilities of acquired companies.
It may be difficult for Celera        Genomics to complete these transactions quickly and to integrate these        businesses efficiently into its current business. Any acquisitions, investments        or other strategic relationships and alliances by Celera Genomics may        ultimately have a negative impact on its business and financial condition.        For example, future acquisitions may not be as successful as originally        anticipated and may result in special charges. We have incurred special        charges in recent years as a result of acquisitions. As a result of Celera        Genomics’ acquisition of Paracel, Inc., we incurred charges for        impairment of goodwill, intangibles and other assets and other charges        in the amounts of $69.1 million during our 2001 fiscal year and $25.9        million during our 2002 fiscal year. Similarly, as a result of Applied        Biosystems’ acquisition of Molecular Informatics, Inc., we incurred        charges related to the impairment of assets in the amount of $14.5 million        during our 1999 fiscal year.

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In addition, acquisitions and        other transactions may involve the issuance of a substantial amount of        Applera-Celera stock without the approval of the holders of Applera-Celera        stock. Any issuances of this nature will be dilutive to holders of Applera-Celera        stock.

**Earthquakes could disrupt          operations in California***.*

Celera Genomics has research        and development facilities in South San Francisco, California. South        San Francisco is located near major California earthquake faults. The        ultimate impact of earthquakes on Celera Genomics, its significant suppliers,        and the general infrastructure is unknown, but operating results could        be materially affected in the event of a major earthquake.
 **Applera-Celera stock price            is volatile.**
The market price of Applera-Celera        stock has been and may continue to be volatile due to the risks and uncertainties        described in this section of this report, as well as other factors that        may have affected or may in the future affect the market price, such        as:
 •conditions and publicity regarding the          genomics, biotechnology, pharmaceutical, or life sciences industries          generally;    •price and volume fluctuations in the stock          market at large which do not relate to Celera Genomics’ operating          performance; and     •comments by securities analysts or government          officials, including with regard to the viability or profitability          of the biotechnology sector generally or with regard to intellectual          property rights of life science companies, or Celera Genomics’ ability          to meet market expectations.
The stock market has from time        to time experienced extreme price and volume fluctuations that are unrelated        to the operating performance of particular companies. In the past, companies        that have experienced volatility have sometimes been the subjects of        securities class action litigation. If litigation was instituted on this        basis, it could result in substantial costs and a diversion of management's        attention and resources.
 **Our company is subject            to a purported class action lawsuit relating to its 2000 offering            of shares of Applera-Celera stock that may be expensive and time            consuming.**
Our company and some of our officers        were served in five lawsuits purportedly on behalf of purchasers of Applera-Celera        stock in our follow-on public offering of Applera-Celera stock completed        on March 6, 2000. In the offering, we sold an aggregate of approximately        4.4 million shares of Applera-Celera stock at a public offering price        of $225 per share. All of these lawsuits have been consolidated into        a single case and an amended consolidated complaint was filed on August        21, 2001. The consolidated complaint generally alleges that the prospectus        used in connection with the offering was inaccurate or misleading because        it failed to adequately disclose the alleged opposition of the Human        Genome Project and two of its supporters, the governments of the U.S.        and the U.K., to providing patent protection to our genomic-based products.        Although Celera Genomics has never sought, or intended to seek, a patent        on the basic

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human genome sequence data, the      complaint also alleges that we did not adequately disclose the risk that      Celera Genomics would not be able to patent this data. The consolidated      complaint seeks unspecified monetary damages, rescission, costs and expenses,      and other relief as the court deems proper. Although we believe the asserted      claims are without merit and intend to defend the case vigorously, the      outcome of this or any other litigation is inherently uncertain. The defense      of this case will require management attention and resources.
  ***Factors Relating to              Celera Diagnostics, a 50/50 Joint Venture between Applied Biosystems      and Celera Genomics***     **Celera Diagnostics’ ability      to develop and commercialize proprietary diagnostic products is unproven.**
Celera Diagnostics faces the        difficulties inherent in developing and commercializing diagnostic products.        It is possible that Celera Diagnostics' discovery and development efforts        will not result in any commercial products or services. In particular,        Celera Diagnostics and its collaborators are seeking to develop new diagnostic        products based on information derived from the study of the genetic material        of organisms, or genomics. This method carries inherent risks, as only        a limited number of diagnostic products based on genomic discoveries        have been developed and commercialized to date. 

**Diagnostic product candidates          may never result in a commercialized product.**

Most of Celera Diagnostics’ potential        diagnostic products are in various stages of research and development        and will require significant additional research and development efforts        by Celera Diagnostics or its collaborators before they can be marketed.        These efforts include extensive clinical testing and may require lengthy        regulatory review and clearance or approval by the FDA and comparable        agencies in other countries. Celera Diagnostics’ development of        new diagnostic products is highly uncertain and subject to a number of        significant risks. Diagnostic product candidates that appear to be promising        at early stages of development may not be developed into commercial products,        or may not be successfully marketed, for a number of reasons, including:
 •Celera Diagnostics or its collaborators          may not successfully complete any research and development efforts;    •any diagnostic products that Celera Diagnostics          or its collaborators develop may be found during clinical trials to          have limited medical value;    •Celera Diagnostics or its collaborators          may fail to obtain required regulatory clearances or approvals for          products they develop;    •Celera Diagnostics or its collaborators          may be unable to manufacture enough of any potential products at an          acceptable cost and with appropriate quality;    •any diagnostic products Celera Diagnostics          or its collaborators develop may not be competitive with other existing          or future products; 
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    •adequate reimbursement for Celera Diagnostics’ and          its collaborators’ products may not be available to physicians          or patients from the government or insurance companies; and    •Celera Diagnostics may be unable to obtain          necessary intellectual property protection, or third parties may own          proprietary rights that prevent Celera Diagnostics or its collaborators          from commercializing their products.   **If Celera Diagnostics fails            to satisfy regulatory requirements for any diagnostic product candidate,            it may be unable to complete the development and commercialization            of that product.**
Celera Diagnostics is currently        developing its capability to move potential products through clinical        testing, manufacturing, and the approval processes of the FDA and comparable        agencies in other countries. In the U.S., either Celera Diagnostics or        its collaborators must show through pre-clinical studies and clinical        trials that each of Celera Diagnostics’ diagnostic product candidates        is safe and effective for each indication before obtaining regulatory        clearance or approval from the FDA for the commercial sale of that product        as an *in-vitro* diagnostic product with clinical claims. Outside        of the U.S., the regulatory requirements vary from country to country.        If Celera Diagnostics or its collaborator fails to adequately show the        safety and effectiveness of a diagnostic product, regulatory clearance        or approval could be delayed or denied. The results from pre-clinical        studies may be different from the results that are obtained in clinical        trials. Celera Diagnostics cannot be certain that it will show sufficient        safety and effectiveness in its clinical trials to allow it to obtain        the needed regulatory clearance or approval. The regulatory review and        approval process can take many years and require substantial expense        and may not be successful. A number of companies in the diagnostics industry,        including biotechnology companies, have suffered significant setbacks        in advanced clinical trials, even after promising results in earlier        studies. 

Even if Celera Diagnostics obtains        regulatory clearance or approval, it will be subject to risks and uncertainties        relating to regulatory compliance, including: post-clearance or approval        clinical studies and inability to meet the compliance requirements of        the FDA’s Quality System Regulations. In addition, the occurrence        of manufacturing problems could cause subsequent suspension of product        manufacture or withdrawal of clearance or approval, or could require        reformulation of a diagnostic product, additional testing, or changes        in labeling of the product. This could delay or prevent Celera Diagnostics        from generating revenues from the sale of that diagnostic product.
 **Celera Diagnostics’ products            may not be fully accepted by physicians and laboratories.**
Celera Diagnostics’ growth        and success will depend on market acceptance by physicians and laboratories        of its products as clinically useful and cost-effective. Celera Diagnostics        expects that most of its products will use genotyping and gene expression        information to predict predisposition to diseases, disease progression        or severity, or responsiveness to treatment. Market acceptance will depend        on the widespread acceptance and use by doctors and clinicians of genetic        testing for these purposes. The use of genotyping and gene expression        information by doctors and clinicians for these purposes is relatively        new. Celera Diagnostics cannot be certain that doctors and clinicians        will want to use its products designed for these purposes.

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Even if genetic testing is accepted        as a method to manage health care, Celera Diagnostics cannot be certain        that its products will be accepted in the clinical diagnostic market.        If genetic testing becomes widely accepted in the clinical diagnostic        market, Celera Diagnostics cannot predict the extent to which doctors        and clinicians may be willing to utilize Celera Diagnostics’ products        in providing patient care. Doctors and clinicians may prefer competing        technologies and products that can be used for the same purposes as Celera        Diagnostics’ products.
 **Ethical, legal, and social            issues related to the use of genetic information and genetic testing            may cause less demand for Celera Diagnostics' products.**
Genetic testing has raised issues        regarding confidentiality and the appropriate uses of the resulting information.        For example, concerns have been expressed regarding the use of genetic        test results by insurance carriers or employers to discriminate on the        basis of this information, resulting in barriers to the acceptance of        genetic tests by consumers. This could lead to governmental authorities        calling for limits on or regulation of the use of genetic testing or        prohibiting testing for genetic predisposition to some diseases, particularly        those that have no known cure. Any of these scenarios could reduce the        potential markets for products of Celera Diagnostics.
 **If insurance companies            and other third-party payors do not reimburse doctors and patients            for Celera Diagnostics’ tests, its ability to sell its products            to the clinical diagnostics market will be impaired.**
Sales of Celera Diagnostics’ products        will depend, in large part, on the availability of adequate reimbursement        to users of those products from government insurance plans, including        Medicare and Medicaid in the U.S., managed care organizations, and private        insurance plans. Physicians’ recommendations to use diagnostic        tests, as well as decisions by patients to pursue those tests, are likely        to be influenced by the availability of reimbursement by insurance companies        and other third party payors. Third-party payors are increasingly attempting        to contain health care costs by limiting both the extent of coverage        and the reimbursement rate for testing and treatment products and services.        In particular, products and services that are determined to be investigational        in nature or that are not considered “reasonably necessary” for        diagnosis or treatment may be denied reimbursement coverage. In addition,        third -party payors are increasingly limiting reimbursement coverage        for medical diagnostic products and, in many instances, are exerting        pressure on medical suppliers to reduce their prices. Thus, third-party        reimbursement may not be consistently available or financially adequate        to cover the cost of Celera Diagnostics’ products. This could limit        the ability of Celera Diagnostics to sell its products, cause Celera        Diagnostics to reduce the prices of its products, or otherwise adversely        affect Celera Diagnostics’ operating results. 

Because each third-party payor        individually approves reimbursement, obtaining these approvals is a time-consuming        and costly process that requires Celera Diagnostics to provide scientific        and clinical support for the use of each of its products to each payor        separately with no assurance that such approval will be obtained. This        process can delay the broad market introduction of new products and could        have a negative effect on Celera Diagnostics’ revenues and operating        results. 

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 **If Celera Diagnostics fails            to maintain its existing collaborative relationships and enter into            new collaborative relationships, or if collaborators do not perform            under collaboration agreements, development of its diagnostic products            could be delayed.**
Celera Diagnostics’ strategy        for the discovery, development, clinical testing, manufacturing and commercialization        of most of its diagnostic product candidates includes entering into collaborations        with partners. Although Celera Diagnostics has expended, and continues        to expend, time and money on internal research and development programs,        it may be unsuccessful in creating diagnostic product candidates that        would enable it to form additional collaborations.

Celera Diagnostics has entered        into a strategic alliance agreement with Abbott Laboratories for the        joint discovery, development, manufacturing, and commercialization of        nucleic acid-based diagnostic products. The Abbott Laboratories agreement        may be terminated by the non-breaching party in the event of a material        breach and, under some circumstances, by either party in the event of        a change in control of the other party. In addition, the amount and timing        of resources to be devoted to research, development, eventual clinical        trials and commercialization activities by Abbott are not within Celera        Diagnostics’ control. Future collaborations with other third parties        are likely to be subject to similar terms and conditions. Celera Diagnostics        cannot ensure that its collaborators will perform their obligations as        expected. If any of Celera Diagnostics’ collaborators terminate        or elect to cancel their agreements or otherwise fail to conduct their        collaborative activities in a timely manner, the development or commercialization        of diagnostics products may be delayed or otherwise adversely affected.        If in some cases Celera Diagnostics assumes responsibilities for continuing        programs on its own after termination of a collaboration, Celera Diagnostics        may be required to devote additional resources to product development        and commercialization or Celera Diagnostics may need to cancel some development        programs.
 **Celera Diagnostics does            not have a sales and service capability in the clinical diagnostic            market.**
Celera Diagnostics currently        does not have a sales and service organization. Accordingly, its ability        to successfully sell its products will depend on its ability to either        develop a sales and service organization or work with Abbott Laboratories        under their current agreement, or a combination of both. In jurisdictions        where Celera Diagnostics uses third party distributors, its success will        depend to a great extent on the efforts of the distributors. 
 **Celera Diagnostics has            limited manufacturing capability and may encounter difficulties expanding            Celera Diagnostics’ operations.**      
Celera Diagnostics has limited        commercial manufacturing experience and capabilities. If product sales        increase, Celera Diagnostics will have to increase the capacity of its        manufacturing processes and facilities or rely on its collaborators,        if any. Celera Diagnostics may encounter difficulties in scaling-up manufacturing        processes and may be unsuccessful in overcoming such difficulties. In        such circumstances, Celera Diagnostics’ ability to meet product        demand may be impaired or delayed. 

Celera Diagnostics’ facilities        are subject, on an ongoing basis, to the FDA’s Quality System Regulations,        international quality standards and other regulatory requirements, including        requirements for good manufacturing practices and the State of California        Department of Health

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Services Food and Drug Branch requirements.      Celera Diagnostics may encounter difficulties expanding Celera Diagnostics’ manufacturing      operations in accordance with these regulations and standards, which could      result in a delay or termination of manufacturing or an inability to meet      product demand.

Celera Diagnostics has relocated        most of its manufacturing operations to a new facility in Alameda, California,        though it has maintained a limited but key component of its manufacturing        operations at an Applied Biosystems group facility. Celera Diagnostics        expects to operate its manufacturing out of these facilities for the        foreseeable future, and it does not have alternative production plans        in place or alternative facilities available should its existing manufacturing        facilities cease to function. Accordingly, Celera Diagnostics’ business        could be adversely affected by unexpected interruptions in manufacturing        caused by events such as labor problems, equipment failures, or other        factors, and the resulting inability to meet customer orders on a timely        basis. 
 **Celera Diagnostics’ research            and product development depends on access to tissue and blood samples            from diseased and healthy individuals, other biological materials,            and related clinical and other information, which may be in limited            supply.**
Celera Diagnostics may not be        able to obtain or maintain access to these materials and information        on acceptable terms, or may not be able to obtain needed consents from        individuals providing tissue or blood samples. In addition, government        regulation in the U.S. and foreign countries could result in restricted        access to, or use of, human tissue or blood samples. If Celera Diagnostics        loses access to sufficient numbers or sources of tissue or blood samples,        or if tighter restrictions are imposed on its use of the information        generated from tissue or blood samples, its business may be harmed. 
 **Single suppliers or a limited            number of suppliers provide key components of Celera Diagnostics’ products.            If these suppliers fail to supply these components, Celera Diagnostics            may be unable to satisfy product demand.**
Several key components of Celera        Diagnostics’ products come from, or are manufactured for Celera        Diagnostics by, a single supplier or a limited number of suppliers. This        applies in particular to components such as enzymes and fluorescent dyes.        Celera Diagnostics acquires some of these and other key components on        a purchase-order basis, meaning that the supplier is not required to        supply Celera Diagnostics with specified quantities over longer periods        of time or set-aside part of its inventory for Celera Diagnostics’ forecasted        requirements. Celera Diagnostics has not arranged for alternative supply        sources for some of these components and it may be difficult to find        alternative suppliers, especially to replace enzymes and fluorescent        dyes. Furthermore, in order to maintain compliance with Quality System        regulations, Celera Diagnostics must verify that its suppliers of key        components are in compliance with all applicable FDA regulations. Celera        Diagnostics believes that compliance with these regulatory requirements        would increase the difficulty in arranging for needed alternative supply        sources, particularly for components that are from “single source” suppliers,        which means that they are currently the only supplier of custom-ordered        components. If Celera Diagnostics’ product sales increase beyond        the forecast levels, or if its suppliers are unable or unwilling to supply        it on commercially acceptable terms or comply with regulations applicable        to manufacturing of Celera Diagnostics’ products, it may not have        access to sufficient quantities of key components on a timely basis and        may        be unable to satisfy product demand. 

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In addition, if any of the components        of Celera Diagnostics’ products are no longer available in the        marketplace, it may be forced to further develop its products or technology        to incorporate alternate components. The incorporation of new components        into its products may require Celera Diagnostics to seek clearances or        approvals from the FDA or foreign regulatory agencies prior to commercialization. 
 **Celera Diagnostics' competitive            position depends on maintaining its intellectual property protection            and obtaining licenses to intellectual property it may need from            others.**
Celera Diagnostics' ability to        compete and to achieve and maintain profitability depends on its ability        to protect its proprietary discoveries and technologies, in large part,        through obtaining and enforcing patent rights, maintaining its trade        secrets, and operating without infringing the intellectual property rights        of others. Celera Diagnostics’ ability to obtain patent protection        for the inventions it makes is uncertain. The patentability of biotechnology        inventions involves complex factual and legal questions. As a result,        it is difficult to predict whether patents will issue or the breadth        of claims that will be allowed in biotechnology and pharmaceutical patents.        This may be particularly true with regard to the patenting of gene sequences,        gene functions, and genetic variations. In this regard, the U.S. Patent        and Trademark Office has adopted guidelines for use in the review of        the utility of inventions, particularly biotechnology inventions. These        guidelines increased the amount of evidence required to demonstrate utility        in order to obtain a patent in the biotechnology field, making patent        protection more difficult to obtain. Although others have been successful        in obtaining patents to biotechnology inventions, since the adoption        of these guidelines, these patents have been issued with increasingly        less frequency. As a result, patents may not issue from patent applications        that Celera Diagnostics may own or license if the applicant is unable        to satisfy the new guidelines.

In some instances, patent applications        in the U.S. are maintained in secrecy until a patent issues. In most        instances, the content of U.S. and international patent applications        is made available to the public approximately 18 months after the initial        filing from which priority is claimed. As a result, Celera Diagnostics        cannot be certain that others have not filed patent applications for        inventions covered by Celera Diagnostics’ patent applications or        that Celera Diagnostics inventors were the first to make the invention.        Accordingly, Celera Diagnostics’ patent applications may be preempted        or Celera Diagnostics may have to participate in interference proceedings        before the U.S. Patent and Trademark Office. These proceedings determine        the priority of invention and the right to a patent for the claimed invention        in the U.S. 

Furthermore, lawsuits may be        necessary to enforce any patents issued to Celera Diagnostics or to determine        the scope and validity of the patent rights of third parties. Lawsuits        and interference proceedings, even if they are successful, are expensive        to pursue, and Celera Diagnostics could use a substantial amount of its        financial resources in either case. An adverse outcome could subject        Celera Diagnostics to significant liabilities to third parties and require        Celera Diagnostics to license disputed rights from third parties or to        cease development or sales of a product.

Celera Diagnostics also relies        on trade secret protection for its confidential and proprietary information        and procedures. Celera Diagnostics protects its trade secrets through        recognized practices, including access control, confidentiality and nonuse        agreements with employees, consultants, collaborators and customers,        and other security measures. These

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confidentiality and nonuse agreements      may be breached, however, and Celera Diagnostics may not have adequate      remedies for a breach. In addition, Celera Diagnostics' trade secrets may      otherwise become known or be independently developed by competitors. Accordingly,      it is uncertain whether Celera Diagnostics’ reliance on trade secret      protection will be adequate to safeguard its confidential and proprietary      information and procedures. 

Disputes may arise in the future        with regard to the ownership of rights to any invention developed with        collaborators. These and other possible disagreements with collaborators        could lead to delays in the achievement of milestones or receipt of royalty        payments or in research, development, and commercialization of Celera        Diagnostics’ products. In addition, these disputes could require        or result in lawsuits or arbitration. Lawsuits and arbitration are time-consuming        and expensive. Even if Celera Diagnostics wins, the cost of these proceedings        could adversely affect its business, financial condition and operating        results.
 **Celera Diagnostics may            infringe the intellectual property rights of third parties and may            become involved in expensive intellectual property litigation***.*
The intellectual property rights        of biotechnology companies, including Celera Diagnostics, are generally        uncertain and involve complex legal, scientific and factual questions.        Celera Diagnostics’ success in diagnostic discovery and development        may depend, in part, on its ability to operate without infringing the        intellectual property rights of others and to prevent others from infringing        its intellectual property rights. 

There has been substantial litigation        regarding patents and other intellectual property rights in the biotechnology        and pharmaceutical industries. Celera Diagnostics may become a party        to patent litigation or proceedings at the U.S. Patent and Trademark        Office to determine its patent rights with respect to third parties.        For example, Genetic Technologies Limited has filed a lawsuit against        us alleging that we are infringing two of its patents due to the sale        of cystic fibrosis reagent kits. In addition, interference proceedings        may be necessary to establish which party was the first to make the invention        sought to be patented. Celera Diagnostics may become involved in patent        litigation against third parties to enforce its patent rights, to invalidate        patents held by the third parties, or to defend against these claims.        The cost to Celera Diagnostics of any patent litigation or similar proceeding        could be substantial, and it may absorb significant management time.        If infringement litigation against Celera Diagnostics is resolved unfavorably        to Celera Diagnostics, Celera Diagnostics may be enjoined from manufacturing        or selling its products or services without a license from a third party.        Celera Diagnostics may not be able to obtain a license on commercially        acceptable terms, or at all. 
 **Introduction of new products            may expose Celera Diagnostics to product liability claims.**
New products developed by Celera        Diagnostics or its collaborators could expose Celera Diagnostics to potential        product liability risks that are inherent in the testing, manufacturing,        marketing, and sale of human diagnostic products. In addition, clinicians,        patients, third-party payors, and others may at times seek damages based        on testing or analysis errors based on a technician's misreading of results,        mishandling of the patient samples, or similar claims. Product liability        claims or product recalls, regardless of the ultimate outcome, could        require Celera Diagnostics to spend significant time and money in litigation        and to pay significant damages. Although Celera Diagnostics expects to        seek and maintain product liability insurance to cover

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claims relating to the testing      and use of diagnostic products, there can be no assurance that such insurance      will be available on commercially reasonable terms, if at all, or that      the amount of coverage obtained will be adequate to cover losses from any      particular claim.
 **The diagnostics industry            is intensely competitive and evolving.**
There is intense competition        among health care, biotechnology, and diagnostic companies attempting        to discover candidates for potential new diagnostic products. These companies        may:
 •develop new diagnostic products in advance          of Celera Diagnostics;    •develop diagnostic products which are          more effective or more cost-effective than those developed by Celera          Diagnostics;    •obtain regulatory clearances or approvals          of their diagnostic products more rapidly than Celera Diagnostics;          or     •obtain patent protection or other intellectual          property rights that would limit Celera Diagnostics’ ability          to develop and commercialize, or its customers' ability to use, Celera          Diagnostics’ diagnostic products.
Celera Diagnostics competes with        companies in the U.S. and abroad that are engaged in the development        and commercialization of products and services that provide genetic information.        These companies may develop products that are competitive with the products        offered by Celera Diagnostics, such as analyte specific reagents or diagnostic        test kits that perform the same or similar purposes as Celera Diagnostics’ products.        Also, clinical laboratories may offer testing services that are competitive        with the products sold by Celera Diagnostics. For example, a clinical        laboratory can use either reagents purchased from Celera Diagnostics        or another manufacturer, or use their own internally developed reagents,        to make diagnostic tests. If clinical laboratories make tests in this        manner for a particular disease, they could offer testing services for        that disease as an alternative to products sold by Celera Diagnostics        used to test for the same disease. The testing services offered by clinical        laboratories may be easier to develop and market than test kits developed        by Celera Diagnostics because the testing services are not subject to        the same clinical validation requirements that are applicable to FDA-cleared        or approved diagnostic test kits. The genetic testing services market        is dominated by a small number of large clinical testing laboratories,        including Laboratory Corporation of America Holdings, Quest Diagnostics        Inc., and Specialty Laboratories, Inc.

Also, a substantial portion of        all sales of diagnostic products are made to a small number of clinical        reference laboratories, including those identified above, and therefore        Celera Diagnostics expects to rely on these laboratories for a substantial        portion of its sales. Celera Diagnostics’ inability to establish        or maintain one or more of these laboratories as a customer could adversely        affect its business, financial condition, and operating results.
 **Earthquakes could disrupt            operations in California.  **
The headquarters and principal        operations of Celera Diagnostics are located in Alameda, California,        and Celera Diagnostics has manufacturing facilities in Foster City, California.        Alameda and Foster City are located near major California earthquake        faults. The ultimate

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impact of earthquakes on Celera      Diagnostics, its significant suppliers, and the general infrastructure      is unknown, but operating results could be materially affected in the event      of a major earthquake.

***Risks Relating to a Capital            Structure with Two Separate Classes of Common Stock***
 **Stockholders of Applera            Corporation are stockholders of one company and, therefore, financial            effects on one group could adversely affect the other.**
Applied Biosystems and Celera        Genomics are not separate legal entities. As a result, stockholders will        continue to be subject to all of the risks of an investment in Applera        Corporation, including Applied Biosystems and Celera Genomics. The risks        and uncertainties that may affect the operations, performance, development,        and results of the businesses of Applied Biosystems and Celera Genomics        are described above. The assets attributed to one group could be subject        to the liabilities of the other group, even if these liabilities arise        from lawsuits, contracts, or indebtedness that we attribute to the other        group. If we are unable to satisfy one group’s liabilities out        of the assets attributed to it, we may be required to satisfy those liabilities        with assets attributed to the other group.

Financial effects from one group        that affect our consolidated results of operations or financial condition        could, if significant, affect the results of operations or financial        condition of the other group and the market price of the common stock        relating to the other group. In addition, net losses of either group        and dividends or distributions on, or repurchases of, either class of        common stock or repurchases of preferred stock will reduce the funds        we can pay as dividends on each class of common stock under Delaware        law. For these reasons, stockholders should read the consolidated financial        information with the financial information we provide for each group. 
 **The market price of either            class of our common stock may not reflect the separate performance            of the group related to that common stock.**
The market price of Applera-Applied        Biosystems stock and Applera-Celera stock may not reflect the separate        performance of the business of the group relating to that class of common        stock. The market price of either class of common stock could simply        reflect our performance as a whole, or the market price of either class        of common stock could move independently of the performance of the business        of either group. Investors may discount the value of either class of        common stock because it is part of a common enterprise rather than a        stand-alone company.
 **The market price of either            class of our common stock may be affected by factors that do not            affect traditional common stock.**    •*The complex nature of the terms of            Applera-Applied Biosystems stock and Applera-Celera stock may adversely            affect the market price of either class of common stock.* The            complex nature of the terms of the two classes of common stock, such            as the convertibility of Applera-Applied Biosystems stock into Applera-Celera            stock, or vice versa, and the potential difficulties investors may            have understanding these terms, may adversely affect the market price            of either class of common stock.    •*The market price of Applera-Applied            Biosystems stock or Applera-Celera stock may be adversely affected            by the fact that holders have limited legal interests in the*
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  *group relating to the class of common            stock held as a separate legal entity.* For example, as described            in greater detail in the subsequent risk factors, holders of either            class of common stock generally do not have separate class voting            rights with respect to significant matters affecting either group.            In addition, upon our liquidation or dissolution, holders of either            class of common stock will not have specific rights to the assets            of the group relating to the class of common stock held and will            not be entitled to receive proceeds that are proportional to the            relative performance of that group.    •*The market price of Applera-Applied            Biosystems stock or Applera-Celera stock may be adversely affected            by events involving the group relating to the other class of common            stock or the performance of the class of common stock relating to            that group.* Events, such as earnings announcements or other developments            concerning one group that the market does not view favorably and            which thus adversely affect the market price of the class of common            stock relating to that group, may adversely affect the market price            of the class of common stock relating to the other group. Because            both classes of common stock are common stock of Applera Corporation,            an adverse market reaction to one class of common stock may, by association,            cause an adverse reaction to the other class of common stock. This            reaction may occur even if the triggering event was not material            to us as a whole.
**Limits exist on the voting          power of group common stock.**
 •*Applera-Celera stock May Not Have Any            Influence on the Outcome of Stockholder Voting.*Applera-Applied            Biosystems stock currently has a substantial majority of the voting            power of our common stock and had approximately 85.8% of the voting            power as of August 27, 2003, the record date for our 2003 annual            meeting of stockholders. Except in limited circumstances where there            is separate class voting, the relative voting power of the two classes            of common stock fluctuates based on their relative market values.            Therefore, except in cases of separate class voting, either class            of common stock that is entitled to more than the number of votes            required to approve any stockholder action could control the outcome            of the vote even if the matter involves a divergence or conflict            of the interests of the holders of Applera-Applied Biosystems stock            and Applera-Celera stock. These matters may include mergers and other            extraordinary transactions.    •*A class of group common stock with            less than majority voting power can block action if a class vote            is required*. If Delaware law, stock exchange rules, or our Board            of Directors requires a separate vote on a matter by the holders            of either Applera-Applied Biosystems stock or Applera-Celera stock,            those holders could prevent approval of the matter even if the holders            of a majority of the total number of votes cast or entitled to be            cast, voting together as a class, were to vote in favor of it. As            a result, in cases where holders of Applera-Applied Biosystems stock            or Applera-Celera stock vote as separate classes on a proposal, the            affirmative vote of shares representing a majority of one class of            common stock will not prevent the holders of the other class of common            stock from defeating the proposal.    •*Holders of only one class of common            stock cannot ensure that their voting power will be sufficient to            protect their interests.* Since the relative voting power per            share of Applera-Applied Biosystems stock and Applera-Celera stock            will fluctuate based
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  on the market values of the two classes          of common stock, the relative voting power of a class of common stock          could decrease. As a result, holders of shares of only one of the two          classes of common stock cannot ensure that their voting power will          be sufficient to protect their interests.    •*Stockholders of either class of common            stock will not have some of the stockholder rights traditionally            associated with common stock.*Neither Applied Biosystems nor            Celera Genomics will have a separate board of directors to represent            solely the interests of either class of common stock as holders of            that class. Consequently, there will be no board of directors that            owes any separate duties to holders of one class of common stock            as holders of that class. Our Board of Directors will act in accordance            with its good faith business judgment of our best interests, taking            into consideration the interests of all common stockholders regardless            of class or series, which may be detrimental to holders of one class            of common stock has holders of that class. **Stockholders may not have            any remedies for breach of fiduciary duties if any action by directors            or officers has a disadvantageous effect on either class of common            stock.**
Stockholders may not have any        remedies if any action or decision of our Board of Directors or officers        has a disadvantageous effect on Applera-Applied Biosystems stock or Applera-Celera        stock compared to the other class of common stock. Cases in Delaware        involving tracking stocks have established that decisions by directors        or officers involving differing treatment of tracking stocks are judged        under the principle known as the “business judgment rule” unless        self-interest is shown. 

In addition, principles of Delaware        law established in cases involving differing treatment of two classes        of common stock or two groups of holders of the same class of common        stock provide that a board of directors owes an equal duty to all stockholders        regardless of class or series. Absent abuse of discretion, a good faith        business decision made by a disinterested and adequately informed Applera        Corporation Board of Directors, Board of Directors’ committee,        or officer with respect to any matter having different effects on holders        of Applera-Applied Biosystems stock and holders of Applera-Celera stock        would be a defense to any challenge to the determination made by or on        behalf of the holders of either class of common stock.
 **Stock ownership could cause            directors and officers to favor one group over the other.**
As a policy, our Board of Directors        periodically monitors the ownership of shares of Applera-Applied Biosystems        stock and Applera-Celera stock by our directors and senior officers as        well as their option holdings and other benefits so that their interests        are not misaligned with the two classes of common stock and with their        duty to act in the best interests of us and our stockholders as a whole.        However, because the actual stock market value of their interests in        Applera-Applied Biosystems stock and Applera-Celera stock could vary        significantly, it is possible that they could favor one group over the        other as a result of their common stock holdings, options and other benefits.        As of August 27, 2003, our directors and executive officers held shares        of Applera-Applied Biosystems stock and Applera-Celera stock representing        approximately equal percentages of the total shares outstanding of Applera-Applied        Biosystems stock and Applera-Celera stock. The stock market value of        these shares will vary with

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 fluctuations in the market price      of Applera-Applied Biosystems stock and Applera-Celera stock. However,      the market capitalization of Applied Biosystems is substantially greater      than that of Celera Genomics and, therefore, the market value of Applera-Applied      Biosystems stock held by our directors and senior officers was significantly      higher than the market value of Applera-Celera stock held by them on that      date.
 **Numerous potential conflicts            of interest exist between the classes of common stock that may be            difficult to resolve by our Board of Directors or that may be resolved            adversely to one of the classes.**    •*Allocation of corporate opportunities            could favor one group over the other.*******Our Board            of Directors may be required to allocate corporate opportunities            between Applied Biosystems and Celera Genomics. In some cases, our            directors could determine that a corporate opportunity, such as a            business that we are acquiring or a new business, should be shared            by the groups or be allocated to one group over the other. Any decisions            could favor one group to the detriment of the other.    •*Applied Biosystems and Celera Genomics            may compete with each other to the detriment of their businesses.*The            existence of two separate classes of common stock will not prevent            Applied Biosystems and Celera Genomics from competing with each other.            Any competition between Applied Biosystems and Celera Genomics could            be detrimental to the businesses of either or both of the groups.            Under a Board of Directors’ policy, the groups will generally            not engage in the principal businesses of the other, except for joint            transactions with each other. However, our Chief Executive Officer            or Board of Directors will permit indirect competition between the            groups, such as one group doing business with a competitor of the            other group, based on his or its good faith business judgment that            the competition is in our best interests and the best interests of            all of our stockholders as a whole. In addition, the groups may compete            in a business that is not a principal business of the other group.    •*Our Board of Directors may pay more            or less dividends on group common stock than if that group were a            separate company.* Subject to the limitations referred to below,            our Board of Directors has the authority to declare and pay dividends            on Applera-Applied Biosystems stock and Applera-Celera stock in any            amount and could, in its sole discretion, declare and pay dividends            exclusively on Applera-Applied Biosystems stock, exclusively on Applera-Celera            stock, or on both, in equal or unequal amounts. Our Board of Directors            is not required to consider the amount of dividends previously declared            on each class, the respective voting or liquidation rights of each            class, or any other factor. The performance of one group may cause            our Board of Directors to pay more or less dividends on the common            stock relating to the other group than if that other group were a            stand-alone company. In addition, Delaware law and our certificate            of incorporation impose limitations on the amount of dividends that            may be paid on each class of common stock.    •*Proceeds of mergers or consolidations            may be allocated unfavorably*. Our****** Board of Directors            will determine how consideration to be received by holders of common            stock in connection with a merger or consolidation involving us is            to be allocated among holders of each class of common stock. This            percentage may be materially
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  more or less than that which might have          been allocated to the holders had our Board of Directors chosen a different          method of allocation.    •*Holders of either class of common stock            may be adversely affected by a conversion of group common stock.*Our            Board of Directors could, in its sole discretion and without stockholder            approval, determine to convert shares of Applera-Applied Biosystems            stock into shares of Applera-Celera stock, or vice versa, at any            time, including when either or both classes of common stock may be            considered to be overvalued or undervalued. If our Board of Directors            chose to issue Applera-Celera stock in exchange for Applera-Applied            Biosystems stock, or vice versa, the conversion would dilute the            interests in us of the holders of the class of common stock being            issued in the conversion. If our Board of Directors were to choose            to issue Applera-Celera stock in exchange for Applera-Applied Biosystems            stock, or vice versa, the conversion could give holders of shares            of the class of common stock being converted a greater or lesser            premium than any premium that was paid or might be paid by a third-party            buyer of all or substantially all of the assets of the group whose            stock is converted.    •*Cash proceeds of newly issued Applera-Celera            stock in the future could be allocated to Applied Biosystems.* If            and to the extent Applied Biosystems holds “Celera Genomics            Designated Shares” at the time of any future sale of Applera-Celera            stock, our Board of Directors could allocate some or all of the proceeds            of that sale to Applied Biosystems in consideration of a reduction            in the number of these shares. Celera Genomics Designated Shares            are a type of authorized shares of Applera-Celera stock. Any decision            could favor one group over the other group. For example, the decision            to allocate the proceeds of that sale to Applied Biosystems could            adversely affect Celera Genomics’ ability to obtain funds to            finance its growth strategies. Applied Biosystems does not hold any            Celera Genomics Designated Shares as of the date of this report.            Celera Genomics Designated Shares could be issued in the future if            our Board of Directors determines that Celera Genomics requires additional            capital to finance its business and that Applied Biosystems should            supply that capital.   **Our Board of Directors            may change its management and allocation policies without stockholder            approval to the detriment of either group*****.*******
Our Board of Directors may modify        or rescind our policies with respect to the allocation of corporate overhead,        taxes, debt, interest, and other matters, or may adopt additional policies,        in its sole discretion without stockholder approval. A decision to modify        or rescind these policies, or adopt additional policies, could have different        effects on holders of Applera-Applied Biosystems stock and holders of        Applera-Celera stock or could result in a benefit or detriment to one        class of stockholders compared to the other class. Our Board of Directors        will make any decision in accordance with its good faith business judgment        that the decision is in our best interests and the best interests of        all of our stockholders as a whole. 
 **Either Applied Biosystems            or Celera Genomics may finance the other group on terms unfavorable            to either group.**
From time to time, we anticipate        that we will transfer cash and other property between groups to finance        their business activities. When this occurs, the group providing the        financing

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will be subject to the risks relating      to the group receiving the financing. We will account for those transfers      in one of the following ways:
 •as a reallocation of pooled debt or preferred          stock;    •as a short-term or long-term loan between          groups or as a repayment of a previous borrowing;    •as an increase or decrease in Celera Genomics          Designated Shares; or    •as a sale of assets between groups.
Our Board of Directors has not        adopted specific criteria for determining when it will account for the        transfer of cash or other property as a reallocation of pooled debt or        preferred stock, a loan or repayment, an increase or decrease in Celera        Genomics Designated Shares, or a sale of assets. These determinations,        including the terms of any transactions accounted for as debt, may be        unfavorable to either the group transferring or receiving the cash or        other property. Our Board of Directors expects to make these determinations,        either in specific instances or by setting generally applicable policies,        after considering the financing requirements and objectives of the receiving        group, the investment objectives of the transferring group, and the availability,        cost, and time associated with alternative financing sources, prevailing        interest rates, and general economic conditions. 

We cannot assure stockholders        that any terms that we fix for debt will approximate those that could        have been obtained by the borrowing group if it were a stand-alone company.
 **Celera Genomics could incur            a higher tax liability than if it were a stand-alone taxpayer.**
Our tax allocation policy provides        that some tax benefits that cannot be used by the group generating those        benefits but can be used on a consolidated basis are to be transferred,        without reimbursement, to the group that can use the benefits. Any tax        benefits that are transferred from Celera Genomics to Applied Biosystems        will not be carried forward to reduce Celera Genomics’ future tax        liability. As a result of this policy, Celera Genomics generated tax        benefits of $32.2 million in our 2001 fiscal year, $19.0 million in our        2002 fiscal year, and $28.1 million in our 2003 fiscal year that were        utilized by Applied Biosystems with no reimbursement to Celera Genomics.        This and future use by Applied Biosystems, without reimbursement, of        tax benefits generated by Celera Genomics will result in Celera Genomics        paying a greater portion of the total corporate tax liability than would        have been the case if Celera Genomics were astand-alone taxpayer. 
 **Holders of group common            stock may receive less consideration upon a sale of assets than if            the group were a separate company.**
Our certificate of incorporation        provides that if a disposition of all or substantially all of the assets        of either group occurs, we must, subject to some exceptions:
 •distribute to holders of the class of          common stock relating to that group an amount equal to the net proceeds          of such disposition; or 
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 •convert at a 10% premium the common stock          relating to that group into shares of the class of common stock relating          to the other group.
If the group subject to the disposition        were a separate, independent company and its shares were acquired by        another person, some of the costs of that disposition, including corporate        level taxes, might not be payable in connection with that acquisition.        As a result, if the group subject to the disposition were a stand-alone        company, stockholders of that group might receive a greater amount than        the net proceeds that would be received by those stockholders if the        assets of that group were sold and the proceeds distributed to those        stockholders. In addition, we cannot assure stockholders that the net        proceeds per share of the common stock relating to that group will be        equal to or more than the market value per share of that common stock        prior to or after announcement of a disposition.
 **Our capital structure and            variable vote per share may discourage acquisitions of a group or            a class of common stock.**
A potential acquirer could acquire        control of us by acquiring shares of common stock having a majority of        the voting power of all shares of common stock outstanding. This majority        could be obtained by acquiring a sufficient number of shares of both        classes of common stock or, if one class of common stock has a majority        of the voting power, only shares of that class since the relative aggregate        voting power of the two classes of common stock fluctuates based on their        relative aggregate market values. Currently, Applera-Applied Biosystems        stock has a substantial majority of the voting power. As a result, it        might be possible for an acquirer to obtain control by purchasing only        shares of Applera-Applied Biosystems stock.
 **Decisions by our Board            of Directors and officers that affect market values could adversely            affect voting and conversion rights.**
The relative voting power per        share of each class of common stock and the number of shares of one class        of common stock issuable upon the conversion of the other class of common        stock will vary depending upon the relative market values of Applera-Applied        Biosystems stock and Applera-Celera stock. The market value of either        or both classes of common stock could be adversely affected by market        reaction to decisions by our Board of Directors or management that investors        perceive as affecting differently one class of common stock compared        to the other. These decisions could involve changes to our management        and allocation policies, transfers of assets between groups, allocations        of corporate opportunities and financing resources between groups, and        changes in dividend policies.
 **Provisions governing common            stock could discourage a change of control and the payment of a premium            for stockholders’ shares.**
Our stockholder rights plan could        prevent stockholders from profiting from an increase in the market value        of their shares as a result of a change in control of us by delaying        or preventing a change in control. The existence of two classes of common        stock could also present complexities and may pose obstacles, financial        and otherwise, to an acquiring person. In addition, provisions of Delaware        law and our certificate of incorporation and bylaws may also deter hostile        takeover attempts.

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 **Legislative proposals could            have adverse tax consequences for us and holders of Applera-Applied            Biosystems stock and Applera-Celera stock.**
The Clinton Administration Budget        Proposals in 1999 and 2000 proposed legislation that would have adversely        affected holders of tracking stock such as Applera-Applied Biosystems        stock and Applera-Celera stock. The 1999 proposal would have required        corporate-level gain recognition on the issuance of tracking stock, while        the 2000 proposal would have required that the stockholders of the issuing        corporation be taxed upon the receipt of tracking stock in specified        circumstances. Although Congress did not act on either proposal and the        2001, 2002 and 2003 Bush Administration Budget Proposals do not contain        a similar provision, it is impossible to predict whether any proposals        relating to tracking stock will be made in the future, and to what extent        Congress would act upon any proposals.

We may convert Applera-Applied        Biosystems stock or Applera-Celera stock into shares of the other class        without any premium if, based on the legal opinion of our tax counsel,        it is more likely than not as a result of the enactment of legislative        changes or administrative proposals or changes that we or our stockholders        will be subject to tax upon issuance of Applera-Applied Biosystems stock        or Applera-Celera stock or that the stock will not be treated as stock        of Applera.
**Item 6.****Selected Financial Data**
We incorporate herein by reference        pages 13 and 14 of our 2003 Annual Report.
**Item 7.****Management’s Discussion            and Analysis of Financial Condition and Results of Operations**
We incorporate herein by reference        pages 15 through 50 of our 2003 Annual Report. However, we note that the statements contained under the heading                “Outlook” on pages 35 through 37 of our 2003 Annual Report were made as of the date of our 2003 Annual                Report. Our incorporation of those statements into this report does not constitute, and should not be read                as, an affirmation or republication of those statements.
**Item 7A.****Quantitative and Qualitative            Disclosures about Market Risk**
We incorporate herein by reference        pages 34 and 35 of our 2003 Annual Report.
**Item 8.****Financial Statements and            Supplementary Data**
The following financial statements        and the supplementary financial information included in our 2003 Annual        Report are incorporated herein by reference: the Consolidated Financial        Statements and the report thereon of PricewaterhouseCoopers LLP dated        July 23, 2003, on pages 51 through 90 of our 2003 Annual Report, including        Note 11, page 74, which contains unaudited quarterly financial information.
**Item 9.****Changes in and Disagreements            with Accountants on Accounting and Financial Disclosure**
Not applicable.

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**Item 9A.****Controls and Procedures**
      We      maintain disclosure controls and procedures designed to ensure that the      information required to be disclosed in the reports that we file or submit      under the Securities Exchange Act is recorded, processed, summarized, and      reported within the time periods specified in the Securities and Exchange      Commission’s rules and forms. Our management, with the participation      of our Chief Executive Officer and Chief Financial Officer, evaluated the      effectiveness of these disclosure controls and procedures as of the end      of our 2003 fiscal year, the period covered by this report. Based on that      evaluation, our Chief Executive Officer and Chief Financial Officer have      concluded that our disclosure controls and procedures are effective to      achieve their stated purpose. However, there is no assurance that our disclosure      controls and procedures will operate effectively under all circumstances.      No changes were made to our internal control over financial reporting during      the fourth fiscal quarter of our 2003 fiscal year that has materially affected,      or is reasonably likely to materially affect, our internal control over      financial reporting.

**PART III**
**Item 10.****Directors and Executive            Officers of the Registrant**
      ***Identification          and Business Experience of Directors***

      With      respect to the identification and business experience of our directors      and persons nominated to become directors, we incorporate herein by reference      pages 22 through 24 of our 2003 Proxy Statement.

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      ***Identification          and Business Experience of Executive Officers***

      The      following is a list of our executive officers, identifying as of September      25, 2003, their: ages; corporate offices presently held and year first      elected to those offices; and other positions currently held.
**Name****Age****Present              Corporate Offices (Year                  First Elected)****Other Positions              Currently Held**Robert          F.G. Booth49Vice          President (2002)Chief Scientific          Officer, Celera Genomics GroupCatherine M. Burzik52Vice President          (2003) Executive Vice President,          Applied Biosystems GroupPatrick T. Carroll51Vice President          (2002)Senior Vice President, Worldwide          Sales, Service and Support, Applied Biosystems GroupUgo D. DeBlasi41Vice President          and Controller (2003)Not applicableMichael W. Hunkapiller54Senior Vice President,          and President, Applied Biosystems Group (1997)Not applicableVikram Jog47Vice President          (2003)Vice President, Finance, Celera          Genomics and Celera DiagnosticsRobert C. Jones48Vice President          (2001)Senior Vice President, R&D,          Applied Biosystems GroupBarbara J. Kerr57Vice President,          Human Resources (2000)Not applicableSandeep Nayyar44Assistant Controller          (2002)Vice President, Finance, Applied          Biosystems GroupKathy P. Ordoñez52Senior Vice President,          and President, Celera Genomics Group and Celera Diagnostics (2002)Not applicableRobert P. Ragusa43Vice President          (2001)Senior Vice President, Global          Operations, Applied Biosystems GroupWilliam B. Sawch49Senior Vice President          (1997) and General Counsel (1993)Not applicableDeborah            A. Smeltzer49Vice            President (2002)Vice            President, Knowledge Business, Applied Biosystems GroupTony            L. White57Chairman,            President, and Chief Executive Officer (1995)Not            applicableDennis            L. Winger55Senior            Vice President and Chief Financial Officer (1997)Not            applicable
Each      of the executive officers identified above was either elected at the last      organizational meeting of our Board of Directors, or elected by the Board      since that date. The term of each officer will expire on October 16, 2003,      the date of the next scheduled organizational meeting of the Board of Directors,      unless renewed for another year. Each of the executive officers has been      employed by us or a subsidiary in one or more executive or managerial capacities      for at least the past five years, with the exception of Dr. Booth, Ms.      Burzik, Mr. Jog, Ms. Kerr, Mr. Nayyar, Ms. Ordoñez, and Ms. Smeltzer.

Dr.      Booth was elected Vice President on August 15, 2002. Prior to our employment      of him in August 2002, Dr. Booth was employed by Hoffmann-La Roche, a leading      international healthcare company, where he held a series of executive positions      over 13 years, including most recently as Senior Vice President responsible      for all research and early development of inflammatory, viral, respiratory,      and bone disease products from January 1996 to August 2002.

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Ms.      Burzik was elected Vice President on September 2, 2003. Prior to our employment      of her on that date, she was employed by Johnson & Johnson, a leading      international provider of health care products, where she was President      of its Ortho-Clinical Diagnostics, Inc. subsidiary from 1998 to 2003, and      General Manager of its Critikon, Inc. business from 1997 to 1998. Prior      to that, Ms. Burzik was employed by Eastman Kodak Company, a leading international      provider of imaging products and services, where she held various operations      and marketing positions over 20 years. These positions included most recently      Vice President, Corporate Marketing from 1996 to 1997, and Chief Executive      Officer and President of its former subsidiary Kodak Health Imaging Systems,      Inc.

Mr.      Jog was first elected to serve as a corporate officer on August 19, 1999,      and was elected to his current position of Vice President on March 1, 2003.      Prior to our employment of him in August 1999, Mr. Jog served as Vice President      and Controller of Hercules Incorporated, a manufacturer of chemicals, for      seven years.

Ms.      Kerr was elected Vice President, Human Resources on September 5, 2000.      Prior to our employment of her in September 2000, Ms. Kerr served as a      principal of Quantic, Inc., a human resources and compensation consulting      firm. Prior to that, Ms. Kerr was employed by Chiron Corporation, which      conducts research and development in the fields of biological proteins,      gene therapy, and combinatorial chemistry, where she was Vice President,      Human Resources from 1990 to 1997.

Mr.      Nayyar was elected Assistant Controller on April 5, 2002. Prior to our      employment of him in October 2001, Mr. Nayyar was employed by Quantum Corporation,      a data storage company, where he was Vice President of Finance for the      Hard Disk Drive Group from 2000 to 2001, Vice President, Finance for the      High-end Storage Division from 1998 to 2000, Director of Finance for the      Corporate Finance Group from 1997 to 1998, and Controller for the High      Capacity Storage Group from 1994 to 1997.

Ms.      Ordoñez was first elected to serve as a corporate officer on December      1, 2000, and was elected to her current position of Senior Vice President,      and President Celera Genomics Group and Celera Diagnostics on August 15,      2002. Prior to our employment of her in December 2000, Ms. Ordoñez      was employed by Hoffmann-La Roche, a leading international healthcare company,      where she was President and Chief Executive Officer of Roche Molecular      Systems from 1991 to 2000. 

Ms.      Smeltzer was first elected to serve as a corporate officer on November      18, 1999, and was elected to her current position of Vice President on      April 5, 2002. Prior to our employment of her in November 1999, Ms. Smeltzer      served as Chief Financial Officer and Vice President of Genset, SA, a global      genomics company from May 1996 to November 1999, and she was a general      partner of Grotech Capital Group, Inc. from 1988 to 1996.

***Identification          of Certain Significant Employees***

Not      applicable.

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***Family          Relationships***

To      the best of our knowledge and belief, there is no family relationship between      any of our directors, executive officers, or persons nominated or chosen      by us to become a director or an executive officer.

***Involvement          in Certain Legal Proceedings***

To      the best of our knowledge and belief, none of our directors, persons nominated      to become directors, or executive officers has been involved in any proceedings      during the past five years that are material to an evaluation of the ability      or integrity of such persons to be our directors or executive officers.

***Section          16(a) Beneficial Ownership Reporting Compliance***

Information      concerning compliance with Section 16(a) of the Securities Exchange Act      of 1934 is incorporated herein by reference to page 9 of our 2003 Proxy      Statement.
**Item 11.****Executive Compensation**
We      incorporate herein by reference pages 10 through 21 of our 2003 Proxy Statement.
**Item 12.****Security Ownership of            Certain Beneficial Owners and Management and Related Stockholder            Matters**
***Securities          Authorized for Issuance Under Equity Compensation Plans***

The      following table provides information about shares of Applera common stock      that may be issued under our equity compensation plans, including compensation      plans that were approved by the our stockholders as well as compensation      plans that were not approved by our stockholders. Information in the table      is as of June 30, 2003. 

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**Plan                Category** **Number            of shares to be      issued upon exercise of      outstanding options,      warrants, and rights(a)** **Weighted-average            exercise      price of outstanding      options, warrants, and       rights(b)** **Number            of shares remaining      available for future issuance      under equity compensation      plans (excluding securities      reflected in column (a))(c)**          ***Applera-Applied Biosystems              stock***         Equity            compensation plans approved by stockholders 38,825,5971 $32.81  8,900,8312Equity            compensation plans not approved by stockholders 03      Total 38,825,597  $32.81  8,900,831 ***Applera-Celera stock***         Equity            compensation plans approved by stockholders 10,160,2524 $21.82  6,357,9655Equity            compensation plans not approved by stockholders 142,8566,7 $27.65  477,9837Total 10,303,108  $21.90  6,835,948   1Represents shares of Applera-Applied          Biosystems stock issuable upon the exercise of options outstanding          under the following equity compensation plans: The Perkin-Elmer Corporation          1993 Stock Incentive Plan for Key Employees; The Perkin-Elmer Corporation          1996 Stock Incentive Plan; The Perkin-Elmer Corporation 1997 Stock          Incentive Plan; and The Perkin-Elmer Corporation 1998 Stock Incentive          Plan (collectively, the “Frozen Applera Equity Plans”); and the Applera          Corporation/Applied Biosystems Group 1999 Stock Incentive Plan.     2Represents shares of Applera-Applied          Biosystems stock issuable pursuant to options and other rights authorized          for future issuance under the Applera Corporation/Applied Biosystems          Group 1999 Stock Incentive Plan and the Applera Corporation 1999 Employee          Stock Purchase Plan.     3As of June 30, 2003,          options to purchase 216,942 shares of Applera-Applied Biosystems stock          were outstanding under the following equity compensation plans: the          Molecular Informatics, Inc. 1997 Equity Ownership Plan; the PerSeptive          Biosystems 1992 Stock Plan; and the PerSeptive Biosystems 1997 Non-Qualified          Stock Option Plan. These options were assumed in connection with merger          and acquisition transactions. The weighted-average exercise price of          these options as of June 30, 2003, was $12.61. No new options          or other rights to equity compensation will be issued under these equity          compensation plans, and the options outstanding under these equity          compensation plans are not reflected in the table above.     4Represents shares of Applera-Celera          stock issuable upon the exercise of options outstanding under the Frozen          Applera Equity Plans and the Applera Corporation/Celera Genomics Group          1999 Stock Incentive Plan.     5Represents shares of Applera-Celera          stock issuable pursuant to options and other rights authorized for          future issuance under the Applera Corporation/Celera Genomics Group          1999 Stock Incentive Plan and the Applera Corporation 1999 Employee          Stock Purchase Plan.     6As of June 30, 2003,          options to purchase 371,284 shares of Applera-Celera stock were outstanding          under the following equity compensation plans: the Molecular Informatics, Inc.          1997 Equity Ownership Plan; the Axys Pharmaceuticals, Inc. 1989          Stock Option Plan; the Axys Pharmaceuticals, Inc. 1997 Equity          Incentive Plan; the Axys Pharmaceuticals, Inc. 1997 Non-Officer          Equity Incentive Plan; the PerSeptive Biosystems 1992 Stock Plan; the          PerSeptive Biosystems 1997 Non-Qualified Stock Option Plan; and the          Paracel, Inc. Stock Option Plan. These options were assumed in          connection with merger and acquisition transactions. The weighted average          exercise price of these options as of June 30, 2003, was $23.43.          No new options or other rights to equity compensation will be issued 
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  under these equity compensation          plans, and the options outstanding under these equity compensation          plans are not reflected in the table above, except for the Axys Pharmaceuticals, Inc.          1997 Equity Incentive Plan.     7Represents shares of Applera-Celera          stock issuable pursuant to options outstanding under the Axys Pharmaceuticals, Inc.          1997 Equity Incentive Plan, and shares of Applera-Celera stock issuable          pursuant to options and other rights authorized for future issuance          under that plan. 
The      following is a description of the material features of our equity compensation      plans that were not approved by our stockholders: 

*Molecular        Informatics, Inc. 1997 Equity Ownership Plan.* We assumed this plan        in connection with the acquisition of Molecular Informatics, Inc.        No new options or other rights to equity compensation will be issued        under this plan. As of June 30, 2003, there were options to purchase        15,840 shares of Applera-Applied Biosystems stock and 3,252 shares of        Applera-Celera stock outstanding under this plan. The last of these options        that were issued are scheduled to terminate in July 2007. 

*PerSeptive        Biosystems 1992 Stock Plan.* We assumed this plan in connection with        the acquisition of PerSeptive Biosystems, Inc. No new options or other        rights to equity compensation will be issued under this plan. As of June 30,        2003, there were options to purchase 185,186 shares of Applera-Applied        Biosystems stock and 49,286 shares of Applera-Celera stock outstanding        under this plan. The last of these options that were issued are scheduled        to terminate in July 2007. 

*PerSeptive        Biosystems 1997 Non-Qualified Stock Option Plan.* We assumed this        plan in connection with the acquisition of PerSeptive Biosystems, Inc.        No new options or other rights to equity compensation will be issued        under this plan. As of June 30, 2003, there were options to purchase        15,916 shares of Applera-Applied Biosystems stock and 578 shares of Applera-Celera        stock outstanding under this plan. The last of these options that were        issued are scheduled to terminate in August 2007. 

*Paracel,        Inc. Stock Option Plan.* We assumed this plan in connection with the        acquisition of Paracel, Inc. No new options or other rights to equity        compensation will be issued under this plan. As of June 30, 2003,        there were options to purchase 48,648 shares of Applera-Celera stock        outstanding under this plan. The last of these options that were issued        are scheduled to terminate in February 2007. 

*Axys        Pharmaceuticals, Inc. 1989 Stock Plan.* We assumed this plan in connection        with the acquisition of Axys Pharmaceuticals, Inc. No new options        or other rights to equity compensation will be issued under this plan.        As of June 30, 2003, there were options to purchase 40,873 shares        of Applera-Celera stock outstanding under this plan. The last of these        options that were issued are scheduled to terminate in May 2009. 

*Axys        Pharmaceuticals, Inc. 1997 Equity Incentive Plan.* We assumed this        plan in connection with the acquisition of Axys Pharmaceuticals, Inc.        As of June 30, 2003, there were options to purchase 142,856 shares        of Applera-Celera stock outstanding under this plan. The last of these        options that were issued are scheduled to terminate in November 2011.        477,983 shares of Applera-Celera stock are authorized for future issuance        as equity compensation under this plan pursuant to stock options, stock        awards, and stock purchase awards. Employees and directors of and consultants        to Axys Pharmaceuticals, a wholly owned subsidiary of the Company, and        its affiliates

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are generally eligible for the      grant of equity compensation under this plan. The exercise price, vesting      period, and all other terms and conditions of each option granted under      this plan will be determined by our Management Resources Committee, except      that the exercise price may not be less than the fair market value on the      date of grant, and the term of each option may not be more than 10 years.      Stock awards and stock purchase awards under this plan may be subject to      such restrictions as may be determined by the Committee and may be subject      to repurchase rights in favor of the Company. Stock purchase awards under      this plan may not have a purchase price less than the fair market value      on the date of the award. This plan expires in November 2007, after      which no equity compensation may be issued under this plan. 

*Axys        Pharmaceuticals, Inc. 1997 Non-Officer Equity Incentive Plan.* We        assumed this plan in connection with the acquisition of Axys Pharmaceuticals,        Inc. No new options or other rights to equity compensation will be issued        under this plan. As of June 30, 2003, there were options to purchase        85,791 shares of Applera-Celera stock outstanding under this plan. The        last of these options that were issued are scheduled to terminate in        October 2011. 

***Security          Ownership of Certain Beneficial Owners***

Information      concerning the security ownership of certain beneficial owners is incorporated      herein by reference to pages 7 through 9 of our 2003 Proxy Statement.

***Security          Ownership of Management***

Information      concerning the security ownership of management is incorporated herein      by reference to pages 8 and 9 of our 2003 Proxy Statement.

***Changes          in Control***

We      know of no arrangements, including any pledge by any person of our securities,      the operation of which may at a subsequent date result in a change in control      of Applera.
**Item 13.****Certain Relationships            and Related Transactions**
Information      concerning certain relationships and related transactions is incorporated      herein by reference to pages 20 and 21 of our 2003 Proxy Statement.
**Item 14.****Principal Accountant Fees            and Services**
Information      concerning fees billed by PricewaterhouseCoopers LLP, our independent accountants,      during our 2002 and 2003 fiscal years is incorporated herein by reference      to page 24 of our 2003 Proxy Statement.

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**PART IV**
**Item 15.****Exhibits, Financial Statement            Schedules, and Reports on Form 8-K**
***(a)          1. Financial Statements***

The      following financial statements, together with the report thereon of PricewaterhouseCoopers      LLP dated July 23, 2003, appearing in our 2003 Annual Report, are incorporated      by reference in this report. With the exception of the aforementioned information      and that which is specifically incorporated in Parts I and II, our 2003      Annual Report is not to be deemed filed as part of this report.
 Annual ReportPage No. Consolidated Statements of          Operations     Fiscal years 2001, 2002, and 200351    Consolidated Statements of          Financial Position     At June 30,          2002 and 200352    Consolidated Statements of          Cash Flows     Fiscal years          2001, 2002, and 200353    Consolidated Statements of          Stockholders’ Equity     Fiscal years          2001, 2002, and 200354    Notes to Consolidated Financial          Statements55 – 89    Report of Management90    Report of Independent Auditors90 
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***(a)          2. Financial Statement Schedule***

The      following additional financial data should be read in conjunction with      the consolidated financial statements in our 2003 Annual Report. Schedules      not included with this additional financial data have been omitted because      they are not applicable or the required information is shown in the consolidated      financial statements or notes thereto.
   10-K            Page No.    Report of Independent Auditors          on Financial Statement Schedule96    Schedule II – Valuation          and Qualifying Accounts and Reserves97 
***(a) 3. Exhibits***
 Exhibit No.         2.1  Agreement and          Plan of Merger dated March 10, 1999, among The Perkin-Elmer Corporation,          a New York corporation, The Perkin-Elmer Corporation, a Delaware corporation,          and PE Merger Corp., a New York corporation (incorporated by reference          to Exhibit 2.1 to our Registration Statement on Form S-4 (No. 333-67797)).      2.2  Agreement and Plan of Merger          dated as of June 12, 2001, among Applera Corporation, a Delaware corporation,          Angel Acquisition Sub, Inc., a Delaware corporation, and Axys Pharmaceuticals,          Inc., a Delaware corporation (incorporated by reference to Exhibit          2.1 to our Current Report on Form 8-K dated June 12, 2001 (Commission          file number 1-4389)).      3.1.1  Restated Certificate of Incorporation          of Applera (incorporated by reference to Exhibit 3(i) to our Quarterly          Report on Form 10-Q for the fiscal quarter ended December 31, 2000          (Commission file number 1-4389)).      3.1.2  Certificate of Designations          of Series A Participating Junior Preferred Stock and Series B Participating          Junior Preferred Stock (incorporated by reference to Exhibit A to Exhibit          4.1 to our Registration Statement on Form S-4 (No. 333-67797)).      3.2  By-laws of Applera (incorporated          by reference to Exhibit 3.2 to our Registration Statement on Form S-4          (No. 333-67797)).      4.1  Stockholder Protection Rights          Agreement dated as of April 28, 1999, between Applera and BankBoston,          N.A. (incorporated by reference to Exhibit 4.1 to our Registration          Statement on Form S-4 (No. 333-67797)).      4.2  Amendment to Rights Agreement          dated as of April 17, 2002, among BankBoston, N.A., EquiServe Trust          Company, N.A., and Applera (incorporated by reference to Exhibit 4.2          to our Annual Report on Form 10-K for the fiscal year ended June 30,          2002 (Commission file number 1-4389)).      4.3  Credit Agreement dated as          of April 20, 2000, among The Perkin-Elmer Corporation, Applera, the          lenders party thereto, Salomon Smith Barney Inc., Wachovia Bank, N.A.,          The Chase Manhattan Bank, and Citibank, N.A. (incorporated by reference          to Exhibit 4(2) to our Annual Report on Form 10-K for the fiscal year          ended June 30, 2000 (Commission file number 1-4389)).      4.4  Letter dated February 5, 2003,          from Applera to Citibank, N.A. regarding the Credit Agreement dated          as of April 20, 2000.      4.5  Indenture dated as of September          22, 2000, between U.S. Bank Trust National Association and Axys Pharmaceuticals,          Inc. (incorporated by reference to Exhibit 4.1 to Current Report on          Form 8-K of Axys Pharmaceuticals, Inc. filed September 28, 2000 (Commission          file number 0-22788)).      4.6  First Supplemental Indenture          dated as of September 22, 2000, between U.S. Bank Trust National Association          and Axys Pharmaceuticals, Inc. (incorporated by reference to Exhibit          4.2 to Current Report on Form 8-K of Axys Pharmaceuticals, Inc. filed          September 28, 2000 (Commission file number 0-22788)). 
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10.1  The Perkin-Elmer Corporation          1993 Stock Incentive Plan for Key Employees (incorporated by reference          to Exhibit 99 to our Registration Statement on Form S-8 (No. 33-50847)).*      10.2  The Perkin-Elmer Corporation          1996 Stock Incentive Plan (incorporated by reference to Exhibit 99          to our Registration Statement on Form S-8 (No. 333-15189)).*      10.3  The Perkin-Elmer Corporation          1996 Employee Stock Purchase Plan, as amended October 15, 1998 (incorporated          by reference to Exhibit A to our Proxy Statement for our 1998 Annual          Meeting of Stockholders (Commission file number 1-4389)).*      10.4  The Perkin-Elmer Corporation          1997 Stock Incentive Plan (incorporated by reference to Exhibit 99          to our Registration Statement on Form S-8 (No. 333-38713)).*      10.5  The Perkin-Elmer Corporation          1998 Stock Incentive Plan (incorporated by reference to Exhibit B to          our Proxy Statement for our 1998 Annual Meeting of Stockholders (Commission          file number 1-4389)).*      10.6  Applera Corporation 1999 Employee          Stock Purchase Plan, as amended October 17, 2002 (incorporated by reference          to Appendix A to Schedule 14A, filed September 6, 2002, containing          our Proxy Statement for our 2002 Annual Meeting of Stockholders (Commission          file number 1-4389)).*      10.7  Applera Corporation/Applied          Biosystems Group 1999 Stock Incentive Plan, as amended through August          21, 2003.*      10.8  Applera Corporation/Celera          Genomics Group 1999 Stock Incentive Plan, as amended through August          21, 2003.*      10.9  The Perkin-Elmer Corporation          Supplemental Retirement Plan effective as of August 1, 1979, as amended          through October 1, 1996 (incorporated by reference to Exhibit 10(22)          to our Annual Report on Form 10-K for the fiscal year ended June 30,          2000 (Commission file number 1-4389)).*      10.10  The Excess Benefit Plan of          The Perkin-Elmer Corporation dated August 1, 1984, as amended through          August 17, 2000 (incorporated by reference to Exhibit 10(23) to our          Annual Report on Form 10-K for the fiscal year ended June 30, 2000          (Commission file number 1-4389)).*       10.11  Third Amendment to The Excess          Benefit Plan of The Perkin-Elmer Corporation effective January 1, 2001          (incorporated by reference to Exhibit 10.25 to our Annual Report on          Form 10-K for the fiscal year ended June 30, 2001 (Commission file          number 1-4389)). *      10.12  Fourth Amendment to The Excess          Benefit Plan of The Perkin-Elmer Corporation effective October 1, 2001          (incorporated by reference to Exhibit 10.13 to our Annual Report on          Form 10-K for the fiscal year ended June 30, 2002 (Commission file          number 1-4389)). *       10.13  1993 Director Stock Purchase          and Deferred Compensation Plan, as amended through March 17, 2000 (incorporated          by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for          the quarter ended March 31, 2000 (Commission file number 1-4389)).*      10.14  Applera Corporation Performance          Unit Bonus Plan, as amended through August 21, 2003.*      10.15  The Estate Enhancement Plan          of The Perkin-Elmer Corporation (incorporated by reference to Exhibit          10(22) to our Annual Report on Form 10-K for the fiscal year ended          June 30, 1997 (Commission file number 1-4389)).*      10.16  Applera Corporation Deferred          Compensation Plan, as amended and restated effective as of January          1, 2002 (incorporated by reference to Exhibit 10.2 to our Quarterly          Report on Form 10-Q for the quarter ended December 31, 2001 (Commission          file number 1-4389)).*      10.17  PerSeptive Biosystems, Inc.          1992 Stock Plan, as amended January 20, 1997 (incorporated by reference          to Exhibit 4.1 to the Quarterly Report on Form 10-Q of PerSeptive Biosystems,          Inc. for the fiscal quarter ended March 29, 1997 (Commission file No.          0-20032)).*       10.18  PerSeptive Biosystems, Inc.          1997 Non-Qualified Stock Option Plan, as amended August 21, 1997 (incorporated          by reference to Exhibit 4.1 to the Registration Statement on Form S-8          of PerSeptive Biosystems, Inc. (No. 333-38989)).*      10.19  Molecular Informatics, Inc.          1997 Equity Ownership Plan (incorporated by reference to Exhibit 99          to our Registration Statement on Form S-8 (No. 333-42683)).*      10.20  Paracel, Inc. Stock Option          Plan (incorporated by reference to Exhibit 10.22 to our Annual Report          on Form 10-K for the fiscal year ended June 30, 2002 (Commission file          number 1-4389)).* 
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10.21  Axys Pharmaceuticals, Inc.          1989 Stock Plan, as amended through May 21, 1997 (incorporated by reference to Exhibit 10.2 to Annual          Report on Form 10-K of Axys Pharmaceuticals, Inc. for the fiscal year          ended December 31, 1996 (Commission file number 0-22788)). *      10.22  Axys Pharmaceuticals, Inc.          1997 Equity Incentive Plan, as amended through May 14, 2001 (incorporated          by reference to Exhibit 10.30 to our Registration Statement on Form          S-8 (No. 333-73980)).*      10.23  Axys Pharmaceuticals, Inc.          1997 Non-Officer Equity Incentive Plan, as amended through October 16, 1998 (incorporated by reference to          Exhibit 10.31 to our Registration Statement on Form S-8 (No. 33-73980)).*      10.24  Employment Agreement dated          as of September 12, 1995, between Applera and Tony L. White (incorporated          by reference to Exhibit 10(21) to our Annual Report on Form 10-K for          the fiscal year ended June 30, 1995 (Commission file number 1-4389)).*      10.25  Amendment dated August 17,          2001, to Employment Agreement dated as of September 12, 1995, between          Applera and Tony L. White (incorporated by reference to Exhibit 10.l4          to our Annual Report on Form 10-K for the fiscal year ended June 30,          2001 (Commission file number 1-4389)).*      10.26  Change of Control Agreement          dated as of September 12, 1995, between Applera and Tony L. White (incorporated          by reference to Exhibit 10(16) to our Annual Report on Form 10-K for          the fiscal year ended June 30, 1995 (Commission file number 1-4389)).*      10.27  Employment Agreement dated          as of November 16, 1995, between Applera and Michael W. Hunkapiller          (incorporated by reference to Exhibit 10(11) to our Annual Report on          Form 10-K for the fiscal year ended June 30, 1996 (Commission          file number 1-4389)).*      10.28  Deferred Compensation Contract          dated as of September 15, 1994, between Applera and Michael W. Hunkapiller          (incorporated by reference to Exhibit 10(7) to our Annual Report on          Form 10-K for the fiscal year ended June 30, 1995 (Commission file          number 1-4389)).*      10.29  Employment Agreement dated          as of November 16, 1995, between Applera and William B. Sawch (incorporated          by reference to Exhibit 10(16) to our Annual Report on Form 10-K for          fiscal year ended June 30, 1998 (Commission file number 1-4389)).*      10.30  Deferred Compensation Contract          dated as of July 15, 1993, between Applera and William B. Sawch (incorporated          by reference to Exhibit 10(19) to our Annual Report on Form 10-K for          the fiscal year ended June 30, 1998 (Commission file number 1-4389)).*      10.31  Letter Agreement dated June          24, 1997, between Applera and Dennis L. Winger (incorporated by reference          to Exhibit 10(18) to our Annual Report on Form 10-K for the fiscal          year ended June 30, 1998 (Commission file number 1-4389)) *      10.32  Employment Agreement dated          as of September 25, 1997, between Applera and Dennis L. Winger (incorporated          by reference to Exhibit 10(17) to our Annual Report on Form 10-K for          the fiscal year ended June 30, 1998 (Commission file number 1-4389)).*      10.33  Letter  dated August 21,          2003, from Applera to Dennis L. Winger regarding the Letter Agreement          dated June 24, 1997, between Applera and Dennis L. Winger.*      10.34  Employment Agreement dated          as of December 1, 2000, between Applera and Kathy P. Ordoñez (incorporated          by reference to Exhibit 10.35 to our Annual Report on Form 10-K for          the fiscal year ended June 30, 2002 (Commission file number 1-4389)).*       10.35  Celera Diagnostics Joint Venture          Agreement dated as of April 1, 2001, among Applera, its Applied Biosystems          Group, its Celera Genomics Group, Foster City Holdings, LLC, and Rockville          Holdings, LLC (incorporated by reference to Exhibit 10.36 to Our Annual          Report on Form 10-K for the fiscal year ended June 30, 2002 (Commission          file number 1-4389)).      10.36  Celera Genomics/Applied Biosystems          Marketing and Distribution Agreement dated as of February 27, 2003,          and effective as of April 1, 2002 (incorporated by reference to Exhibit          10.1 to our Quarterly Report on Form 10-Q for the quarter ended March          31, 2003 (Commission file no. 1-4389)).      11  Computation of Net Income          (Loss) per Share for the three years ended June 30, 2003 (incorporated          by reference to Note 1 to Consolidated Financial Statements of Annual          Report to Stockholders for the fiscal year ended June 30, 2003).      13  Annual Report to Stockholders          for the fiscal year ended June 30, 2003 (to the extent incorporated          herein by reference).      21  List of Subsidiaries. 
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23  Consent of PricewaterhouseCoopers          LLP.      31.1  Certification of Principal          Executive Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a),          as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002      31.2  Certification of Principal          Financial Officer pursuant to Exchange Act Rule 13a-14(a)/15d-14(a),          as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002      32.1  Certification of Chief Executive          Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to          Section 906 of the Sarbanes-Oxley Act of 2002.      32.2  Certification of Chief Financial          Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to          Section 906 of the Sarbanes-Oxley Act of 2002.      
*   Management plan      or compensatory plan or arrangement

***(b)          Reports on Form 8-K***

During      the quarter ended June 30, 2003, we filed a Current Report on Form 8-K      dated April 23, 2003. We filed that report to furnish under Items 9 and      12 thereof information regarding the financial results for the third quarter      of our 2003 fiscal year, of Applera and the Applied Biosystems group and      Celera Genomics group.

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**SIGNATURES**

Pursuant      to the requirements of Section 13 or 15(d) of the Securities Exchange Act      of 1934, the registrant has duly caused this report to be signed on its      behalf by the undersigned, thereunto duly authorized.
 APPLERA CORPORATION     By   /s/ William B. Sawch    William B. Sawch      Senior Vice President and General Counsel 
Date: September 25, 2003

      Pursuant      to the requirements of the Securities Exchange Act of 1934, this report      has been signed below by the following persons on behalf of the registrant      and in the capacities and on the dates indicated.
/s/            Tony L. WhiteTony L. White      Chairman of the Board of Directors, President      and Chief Executive Officer      (Principal Executive Officer) September          25, 2003   /s/ Dennis            L. WingerDennis L. Winger      Senior Vice President and Chief Financial Officer      (Principal Financial Officer) September 25,          2003  September 25,          2003/s/ Ugo D. DeBlasiUgo D. DeBlasi      Vice President and Controller      (Principal Accounting Officer)     
   

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/s/            Richard H. AyersRichard H. Ayers      Director September          25, 2003   /s/ Jean-Luc            BélingardJean-Luc Bélingard      Director September 25,          2003   /s/ Robert            H. HayesRobert H. Hayes      Director September 25,          2003   /s/ Arnold            J. LevineArnold J. Levine      Director September 25,          2003   /s/ Theodore            E. MartinTheodore E. Martin      Director September 25,          2003   /s/ Carolyn            W. SlaymanCarolyn W. Slayman      Director September 25,          2003   /s/ Orin R.            SmithOrin R. Smith      Director  September          25, 2003   /s/ James            R. TobinJames R. Tobin      Director September 25,          2003
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**REPORT OF INDEPENDENT AUDITORS    ON FINANCIAL STATEMENT SCHEDULE**

To the Stockholders and Board of      Directors  of Applera Corporation

      Our      audits of the consolidated financial statements referred to in our report      dated July 23, 2003, appearing in the 2003 Annual Report to Stockholders      of Applera Corporation (which report and consolidated financial statements      are incorporated by reference in this Annual Report on Form 10-K) also      included an audit of the financial statement schedule listed in Item 15(a)(2)      of this Form 10-K. In our opinion, this financial statement schedule presents      fairly, in all material respects, the information set forth therein when      read in conjunction with the related consolidated financial statements.

/s/ PricewaterhouseCoopers LLP  PricewaterhouseCoopers LLP

Stamford, Connecticut  July 23, 2003

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**APPLERA CORPORATION  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES  FOR THE FISCAL YEARS ENDED JUNE 30, 2001, 2002, and 2003**

 
 (Amounts in thousands)      **ALLOWANCE            FOR      DOUBTFUL ACCOUNTS**            Balance at June 30, 2000$3,965  Charged to income in fiscal          year 2001 3,326  Deductions from reserve in          fiscal year 2001 (2,221) Balance at June 30, 2001 5,070  Charged to income in fiscal          year 2002 8,858  Deductions from reserve in          fiscal year 2002 (2,978) Balance at June 30, 2002 (1) 10,950  Charged to income in fiscal          year 2003 4,288  Deductions from reserve in          fiscal year 2003 (4,731) Balance at June 30, 2003 (1)$ 10,507    (1) Deducted in the Consolidated          Statements of Financial Position from accounts receivable.
 

SCHEDULE II

97

EXHIBIT INDEX

 
ExhibitNumber  4.4 Letter dated February 5, 2003, from          Applera to Citibank, N.A. regarding the Credit Agreement dated as of          April 20, 2000  10.7Applera Corporation/Applied Biosystems          Group 1999 Stock Incentive Plan, as amended through August 21, 2003  10.8Applera Corporation/Celera Genomics Group          1999 Stock Incentive Plan, as amended through August 21, 2003  10.14Applera Corporation Performance Unit Bonus          Plan, as amended through August 21, 2003  10.33Letter dated August 21, 2003,          from Applera to Dennis L. Winger regarding the Letter Agreement dated          June 24, 1997, between Applera and Dennis L. Winger  13Annual Report to Stockholders for the          fiscal year ended June 30, 2003 (to the extent incorporated herein          by reference)  21List of Subsidiaries  23Consent of PricewaterhouseCoopers LLP  31.1Certification of Principal Executive Officer          pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant          to Section 302 of the Sarbanes-Oxley Act of 2002  31.2Certification of Principal Financial Officer          pursuant to Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant          to Section 302 of the Sarbanes-Oxley Act of 2002  32.1Certification of Chief Executive Officer          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section          906 of the Sarbanes-Oxley Act of 2002  32.2Certification of Chief Financial Officer          pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section          906 of the Sarbanes-Oxley Act of 2002
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