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Previous: PHILIP MORRIS COMPANIES INC, 11-K, 1998-05-22 |
Next: PHILIP MORRIS COMPANIES INC, 11-K, 1998-05-22 |
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-8940
________________
Philip Morris Incorporated Deferred Profit-Sharing Plan
(Full title of the plan)
PHILIP MORRIS COMPANIES INC.
120 Park Avenue
New York, New York 10017
(Name of issuer of the securities held pursuant to the plan
and address of its principal executive office.)
================================================================================
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
ANNUAL REPORT ON FORM 11-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Accountants.................................... 3
Financial Statements:
Statements of Financial Condition as of December 31,
1997 and 1996.................................................... 4-5
Statements of Income and Changes in Plan Equity for
the years ended December 31, 1997, 1996 and 1995................. 6-8
Notes to Financial Statements...................................... 9-21
Signatures........................................................... 22
Schedules:
Schedule I - Investments as of December 31, 1997................... S-1-7
Other schedules are omitted because the information required
is contained in the financial statements.
Exhibits:
23. Consent of Independent Accountants.
</TABLE>
-2-
<PAGE>
REPORT of INDEPENDENT ACCOUNTANTS
To: The Corporate Employee Plans Investment Committee of Philip Morris
Companies Inc., the Corporate Employee Benefit Committee of Philip
Morris Companies Inc., the Administrator, and all Participants as a group
(but not individually) of the Philip Morris Incorporated Deferred Profit-
Sharing Plan:
We have audited the accompanying statements of financial condition of the
Philip Morris Incorporated Deferred Profit-Sharing Plan (the "Plan") as of
December 31, 1997 and 1996, and the related statements of income and changes in
plan equity for each of the three years in the period ended December 31, 1997
and the schedule of investments as of December 31, 1997. These financial
statements and the financial statement schedule are the responsibility of the
fiduciaries of the Plan appointed by Philip Morris Companies Inc. Our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
fiduciaries, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Plan as of December 31,
1997 and 1996, and the income and changes in plan equity for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statements
of financial condition and statements of income and changes in plan equity is
presented for purposes of additional information rather than to present the
financial condition and changes in income and plan equity of each fund. The
fund information has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
April 10, 1998
-3-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
STATEMENT OF FINANCIAL CONDITION
as of December 31, 1997
(in thousands of dollars)
_______________
<TABLE>
<CAPTION>
U.S.
Equity Interest Government International
Index Income Obligations Philip Morris Equity
Fund Fund Fund Stock Fund Fund
---------- --------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Allocated share of
Trust net assets $ 324,200 $ 293,123 $ 71,060 $ 271,578 $ 3,291
Employer contributions
receivable 8,303 18,598 10,176 9,653 120
Employee contributions
receivable 126 182 32 160 6
--------- --------- -------- --------- -------
Total assets 332,629 311,903 81,268 281,391 3,417
--------- --------- -------- --------- -------
Plan equity $ 332,629 $ 311,903 $ 81,268 $ 281,391 $ 3,417
========= ========= ======== ========= =======
<CAPTION>
Growth Participants'
Balanced Equity Loan
Fund Fund Account Total
-------- ------ ------------- -----
<S> <C> <C> <C> <C>
ASSETS:
Allocated share of
Trust net assets $ 6,721 $ 7,744 $ 58,442 $ 1,036,159
Employer contributions
receivable 212 269 47,331
Employee contributions
receivable 8 9 523
------- ------- -------- -----------
Total assets 6,941 8,022 58,442 1,084,013
------- ------- -------- -----------
Plan equity $ 6,941 $ 8,022 $ 58,442 $ 1,084,013
======= ======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
STATEMENT OF FINANCIAL CONDITION
as of December 31, 1996
(in thousands of dollars)
_______________
<TABLE>
<CAPTION>
U.S.
Equity Interest Government International
Index Income Obligations Philip Morris Equity
Fund Fund Fund Stock Fund Fund
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Allocated share of
Trust net assets $ 249,404 $ 278,098 $ 59,054 $ 200,509 $ 2,690
Employer contributions
receivable 9,245 21,521 10,747 10,808 110
--------- --------- -------- --------- -------
Total assets 258,649 299,619 69,801 211,317 2,800
--------- --------- -------- --------- -------
Plan equity $ 258,649 $ 299,619 $ 69,801 $ 211,317 $ 2,800
========= ========= ======== ========= =======
<CAPTION>
Growth Participants'
Balanced Equity Loan
Fund Fund Account Total
-------- ------ ------------- -----
<S> <C> <C> <C> <C>
ASSETS:
Allocated share of
Trust net assets $ 2,904 $ 3,359 $ 55,584 $ 851,602
Employer contributions
receivable 168 184 52,783
------- ------- -------- ---------
Total assets 3,072 3,543 55,584 904,385
------- ------- -------- ---------
Plan equity $ 3,072 $ 3,543 $ 55,584 $ 904,385
======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
for the year ended December 31, 1997
(in thousands of dollars)
_______________
<TABLE>
<CAPTION>
U.S.
Equity Interest Government International
Index Income Obligations Philip Morris Equity
Fund Fund Fund Stock Fund Fund
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 8,302 $ 18,608 $ 10,176 $ 9,667 $ 120
Employee contributions 1,499 2,245 362 1,898 68
Allocated share of Trust
investment activities:
Interest income 18,292 4,213 441
Dividend income 9,740
Net appreciation
(depreciation) in
fair value of investments 80,935 1,070 37,521 44
--------- --------- -------- --------- -------
80,935 18,292 5,283 47,702 44
--------- --------- -------- --------- -------
Total additions 90,736 39,145 15,821 59,267 232
--------- --------- -------- --------- -------
DEDUCTIONS:
Distributions and
withdrawals (7,324) (12,371) (2,271) (5,822) (49)
General and administrative
expenses (83) (196) (99) (72) (10)
--------- --------- -------- --------- -------
Total deductions (7,407) (12,567) (2,370) (5,894) (59)
--------- --------- -------- --------- -------
Net transfers among funds (6,976) (14,503) (3,386) 17,992 464
Net transfers between plans (68) (156) (30) (51)
Participants' loans (5,519) (6,787) (2,074) (5,187) (63)
Participants' loan repayments 3,214 7,152 3,506 3,947 43
--------- --------- -------- --------- -------
Net additions 73,980 12,284 11,467 70,074 617
PLAN EQUITY:
Beginning of year 258,649 299,619 69,801 211,317 2,800
--------- --------- -------- --------- -------
End of year $ 332,629 $ 311,903 $ 81,268 $ 281,391 $ 3,417
========= ========= ======== ========= =======
<CAPTION>
Growth Participants'
Balanced Equity Loan
Fund Fund Account Total
--------- ------- -------------- -----------
<S> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 211 $ 269 $ 47,353
Employee contributions 96 123 6,291
Allocated share of Trust
investment activities:
Interest income $ 4,241 27,187
Dividend income 599 1,469 11,808
Net appreciation
(depreciation) in
fair value of investments 174 (844) 118,900
------- ------- -------- -----------
773 625 4,241 157,895
------- ------- -------- -----------
Total additions 1,080 1,017 4,241 211,539
------- ------- -------- -----------
DEDUCTIONS:
Distributions and
withdrawals (24) (65) (3,206) (31,132)
General and administrative
expenses (2) (4) (466)
------- ------- -------- -----------
Total deductions (26) (69) (3,206) (31,598)
------- ------- -------- -----------
Net transfers among funds 2,826 3,583 -
Net transfers between plans (3) (5) (313)
Participants' loans (73) (117) 19,820 -
Participants' loan repayments 62 68 (17,992) -
------- ------- -------- -----------
Net additions 3,869 4,479 2,858 179,628
PLAN EQUITY:
Beginning of year 3,072 3,543 55,584 904,385
------- ------- -------- -----------
End of year $ 6,941 $ 8,022 $ 58,442 $ 1,084,013
======= ======= ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
for the year ended December 31, 1996
(in thousands of dollars)
_______________
<TABLE>
<CAPTION>
U.S.
Equity Interest Government International
Index Income Obligations Philip Morris Equity
Fund Fund Fund Stock Fund Fund
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 9,242 $ 21,520 $ 10,744 $ 10,806 $ 110
Employee contributions 1,468 2,711 358 1,601 39
Allocated share of Trust
investment activities:
Interest income 1 17,517 3,568 222
Dividend income 8,039
Net appreciation
(depreciation) in
fair value of investments 46,628 (1,453) 35,813 160
--------- --------- -------- --------- -------
46,629 17,517 2,115 44,074 160
--------- --------- -------- --------- -------
Total additions 57,339 41,748 13,217 56,481 309
--------- --------- -------- --------- -------
DEDUCTIONS:
Distributions and
withdrawals (5,606) (8,965) (1,523) (3,908) (11)
General and administrative
expenses (133) (148) (108) (64) (9)
--------- --------- -------- --------- -------
Total deductions (5,739) (9,113) (1,631) (3,972) (20)
--------- --------- -------- --------- -------
Net transfers among funds 3,034 4,162 (527) (11,758) 1,805
Net transfers between plans (164) (284) (56) (139) 2
Participants' loans (5,926) (8,558) (2,338) (3,845) (69)
Participants' loan repayments 2,805 6,805 3,189 2,871 27
--------- --------- -------- --------- -------
Net additions 51,349 34,760 11,854 39,638 2,054
PLAN EQUITY:
Beginning of year 207,300 264,859 57,947 171,679 746
--------- --------- -------- --------- -------
End of year $ 258,649 $ 299,619 $ 69,801 $ 211,317 $ 2,800
========= ========= ======== ========= =======
<CAPTION>
Growth Participants'
Balanced Equity Loan
Fund Fund Account Total
-------- ------- ------------- ---------
<S> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 168 $ 184 $ 52,774
Employee contributions 25 67 6,269
Allocated share of Trust
investment activities:
Interest income $ 3,634 24,942
Dividend income 154 206 8,399
Net appreciation
(depreciation) in
fair value of investments 148 124 81,420
------- ------- -------- ---------
302 330 3,634 114,761
------- ------- -------- ---------
Total additions 495 581 3,634 173,804
------- ------- -------- ---------
DEDUCTIONS:
Distributions and
withdrawals (25) (9) (3,177) (23,224)
General and administrative
expenses (2) (464)
------- ------- -------- ---------
Total deductions (25) (11) (3,177) (23,688)
------- ------- -------- ---------
Net transfers among funds 1,299 1,985 -
Net transfers between plans 1 (21) (661)
Participants' loans (73) (50) 20,859 -
Participants' loan repayments 30 43 (15,770) -
------- ------- -------- ---------
Net additions 1,726 2,549 5,525 149,455
PLAN EQUITY:
Beginning of year 1,346 994 50,059 754,930
------- ------- -------- ---------
End of year $ 3,072 $ 3,543 $ 55,584 $ 904,385
======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-7-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY
for the year ended December 31, 1995
(in thousands of dollars)
_______________
<TABLE>
<CAPTION>
U.S.
Equity Interest Government International
Index Income Obligations Philip Morris Equity
Fund Fund Fund Stock Fund Fund
--------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 8,827 $ 21,397 $ 10,575 $ 9,457 $ 59
Employee contributions 1,230 2,607 239 1,314 4
Allocated share of Trust
investment activities:
Interest income 1 16,716 2,582 115
Dividend income 6,306
Net appreciation
(depreciation) in
fair value of investments 55,379 1,774 56,412 23
--------- --------- -------- --------- -----
55,380 16,716 4,356 62,833 23
--------- --------- -------- --------- -----
Total additions 65,437 40,720 15,170 73,604 86
--------- --------- -------- --------- -----
DEDUCTIONS:
Distributions and
withdrawals (4,769) (9,534) (1,662) (2,860) (1)
General and administrative
expenses (89) (156) (86) (54) (1)
--------- --------- -------- --------- -----
Total deductions (4,858) (9,690) (1,748) (2,914) (2)
--------- --------- -------- --------- -----
Net transfers among funds (1,161) (4,112) (593) 3,136 666
Net transfers between plans (242) (1,107) (26) (959)
Participants' loans (6,270) (8,764) (2,144) (3,720) (9)
Participants' loan repayments 2,088 5,538 2,536 2,229 5
--------- --------- -------- --------- -----
Net additions 54,994 22,585 13,195 71,376 746
PLAN EQUITY:
Beginning of year 152,306 242,274 44,752 100,303 -
--------- --------- -------- --------- -----
End of year $ 207,300 $ 264,859 $ 57,947 $ 171,679 $ 746
========= ========= ======== ========= =====
<CAPTION>
Growth Participants'
Balanced Equity Loan
Fund Fund Account Total
-------- ------- ------------- ---------
<S> <C> <C> <C> <C>
ADDITIONS:
Employer contributions $ 113 $ 105 $ 50,533
Employee contributions 5 10 5,409
Allocated share of Trust
investment activities:
Interest income $ 2,606 22,020
Dividend income 48 50 6,404
Net appreciation
(depreciation) in
fair value of investments 25 (37) 113,576
------- ----- -------- ---------
73 13 2,606 142,000
------- ----- -------- ---------
Total additions 191 128 2,606 197,942
------- ----- -------- ---------
DEDUCTIONS:
Distributions and
withdrawals (4) (2) (1,718) (20,550)
General and administrative
expenses (386)
------- ----- -------- ---------
Total deductions (4) (2) (1,718) (20,936)
------- ----- -------- ---------
Net transfers among funds 1,200 864 -
Net transfers between plans (26) (2,360)
Participants' loans (51) (12) 20,970 -
Participants' loan repayments 10 16 (12,422) -
------- ----- -------- ---------
Net additions 1,346 994 9,410 174,646
PLAN EQUITY:
Beginning of year - - 40,649 580,284
------- ----- -------- ---------
End of year $ 1,346 $ 994 $ 50,059 $ 754,930
======= ===== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
1. General Description of the Plan:
The Philip Morris Incorporated Deferred Profit-Sharing Plan (the "Plan") is a
defined contribution plan maintained for the benefit of eligible employees of
Philip Morris Incorporated ("Philip Morris"), represented by the Bakery,
Confectionery and Tobacco Workers Union ("BCT Union"). Philip Morris is a
subsidiary of Philip Morris Companies Inc. (the "Company"). The Plan is
designed to provide eligible employees with an opportunity to share in the
profits of Philip Morris and to invest certain of their funds in a tax-
advantaged manner (see Note 3).
Eligible employees generally may make before-tax and after-tax contributions
beginning on or after the January 1 following their respective dates of hire
and become eligible for the Philip Morris contribution (the "Contribution")
upon completion of twenty-four months of accredited service. Each year,
Philip Morris makes the Contribution to the Plan in accordance with the
formula described in Note 3. The provisions of the Plan are detailed in the
official Plan document which legally governs the operation of the Plan.
The administration of the Plan has generally been delegated to the Corporate
Employee Benefit Committee of the Company (the "Committee") and the Senior
Vice President, Human Resources and Administration of the Company (the
"Administrator"). The Corporate Employee Plans Investment Committee of the
Company (the "Investment Committee") is responsible for the selection of the
investment options set forth below in which participants elect to invest
their assets in the Plan and monitors the performance of these investment
options. The Committee, the Administrator, and the Investment Committee are
hereinafter collectively referred to as the "Fiduciaries".
Assets of the Plan are co-invested with the assets of the Philip Morris
Deferred Profit-Sharing Plan (the "DPS Plan") and the assets of the Philip
Morris Incorporated Deferred Profit-Sharing Plan for Craft Employees (the
"PMI Craft Plan") in a commingled investment fund known as the Philip Morris
Deferred Profit-Sharing Trust Fund (the "Trust") for which Bankers Trust
Company (the "Trustee") serves as the trustee (see Note 7).
Prior to June 20, 1995, participants had the option of investing their Plan
Accounts (see Note 4) in ten percent increments in four funds. Effective July
10, 1995, participants have the option of investing their Plan Accounts in
one percent increments in the following seven funds:
EQUITY INDEX FUND - This fund is invested primarily in an index fund of
stocks on a weighted average basis in approximately the same proportion as
the Standard & Poor's Composite Index of 500 Stocks ("S&P 500").
INTEREST INCOME FUND - This fund consists primarily of investment
contracts entered into by the Trustee with financial institutions, each of
which agrees to repay in full the amounts invested with the
institution, plus interest.
-9-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
The assets of the Interest Income Fund are also invested in pools of
mortgage-backed and asset-backed securities, corporate bonds, and
obligations of the United States Government and its agencies. As an
integral part of the purchase of each pool of these investments for the
Interest Income Fund, a financial institution agrees to protect the pool
to the extent its market value fluctuates from original cost, but not in
the event of a default of any security in the pool.
U.S. GOVERNMENT OBLIGATIONS FUND - This fund includes primarily direct
obligations of the U.S. Government or its agencies, obligations guaranteed
by the U.S. Government or its agencies, and fully insured bank deposits.
The average maturity of the U.S. Government securities in the U.S.
Government Obligations Fund is approximately five years. Prior to July
15, 1995, the average maturity of the securities in this fund was two
years.
PHILIP MORRIS STOCK FUND - This fund is invested in the common stock of
the Company (the "Common Stock") and short-term temporary investments.
INTERNATIONAL EQUITY FUND - This fund is invested primarily in common
stocks of the foreign companies that make up the Europe, Australia, and
Far East (EAFE) index.
BALANCED FUND - This fund is invested primarily in a diversified mix of
domestic and foreign stocks, investment grade bonds, international bonds,
and investment grade money market funds. In general, the assets of the
Balanced Fund may be invested according to the following mix: 40 percent
to 70 percent in stocks, 20 percent to 55 percent in bonds, and zero
percent to 25 percent in money market instruments.
GROWTH EQUITY FUND - This fund is invested primarily in stocks of domestic
and foreign companies considered to have better-than-average prospects for
long term growth and with a history of, or commitment to, regular dividend
payments.
None of the foregoing funds guarantees a return to the participant. Prior to
June 20, 1995, participants could change their investment elections once each
month. Effective July 10, 1995, participants normally can change their
investment elections on any business day.
Participant contributions made to a Plan Account established on and after
January 1, 1992 and any Contribution made on and after February 1, 1992 for
which no investment direction has been given are invested in the U.S.
Government Obligations Fund. In all other cases, participant contributions
made to a Plan Account for which no investment direction was given by the
participant are invested in the Equity Index Fund.
-10-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
Each participant may vote all the shares of Common Stock held in his or her
Plan Accounts and invested in the Philip Morris Stock Fund. The Trustee will
vote full and fractional shares of Common Stock in accordance with each
individual participant's instruction. The Trustee votes those shares of
Common Stock for which no or inadequate voting instructions have been
received in the same proportions as the shares for which instructions have
been received.
At December 31, 1997 and 1996, there were 6,764 and 6,716 participants,
respectively, some of whom elected to invest in more than one fund. Set
forth below is the number of participants investing in each fund.
<TABLE>
<CAPTION>
December 31,
-------------
1997 1996
----- -----
<S> <C> <C>
Equity Index Fund 3,853 3,816
Interest Income Fund 3,992 4,214
U.S. Government Obligations Fund 1,736 1,793
Philip Morris Stock Fund 5,860 5,789
International Equity Fund 200 149
Balanced Fund 222 123
Growth Equity Fund 289 153
</TABLE>
Each participant is at all times fully vested in the balance of all of his or
her Accounts, which includes a Company Account and may include Personal
Before-Tax, Personal After-Tax, Rollover and PAYSOP Accounts.
2. Summary of Significant Accounting Policies:
Valuation of Trust Investments:
Investments in common trust funds of the General Employee Benefit Common
Trust of Bankers Trust Company ("GEBT") are valued on the basis of the
relative interest of each participating investor (including each
participant) in the fair value of the underlying assets of each of the
respective GEBT common trust funds.
Investment contracts and the pools of mortgaged-backed and asset-backed
securities and other investments held in the Interest Income Fund are
recorded at their contract values, which represent contributions and
reinvested income, less any withdrawals plus accrued interest, because
these investments have fully benefit-responsive features. For example,
participants may ordinarily direct the withdrawal or transfer of all or a
portion of their investment at contract value. However, withdrawals
influenced by employer-initiated events, such as in connection with the
sale of a business, may result in a distribution at other than contract
value. There are no reserves against contract values for credit risk of
contract issuers or otherwise. The fair value of the investment contracts
and the pools of mortgaged-backed and asset-backed securities and other
investments at December 31, 1997 and 1996 was $1,008,934,751 and
$1,027,591,523,
-11-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
respectively. The average yield and crediting interest rate of the
Interest Income Fund was approximately seven percent for 1997 and 1996.
The crediting interest rate for the pools of mortgaged-backed and asset-
backed securities and other investments is reset periodically by the
issuer based on the relationship between the contract value and the fair
value of the underlying securities, but cannot be less than zero. The
crediting interest rate for the investment contracts is either agreed-to
in advance with the issuer or varies based on an agreed-to formula, but
cannot be less than zero.
Securities listed on an exchange are valued at the closing price on the
last business day of the year; listed securities for which no sale was
reported on that date are recorded at the last reported bid price.
However, if trading in Common Stock has been suspended on the New York
Stock Exchange on a trading day and not resumed before the end of the
trading day, the Trustee will use the composite price listed in The Wall
Street Journal on the next business day. Effective July 14, 1997, the
Trustee will use a weighted average sales price method for valuing the
portion of Participants' Accounts transferred from the Philip Morris Stock
Fund if using the closing price or composite price of Common Stock results
in a value of the Philip Morris Stock Fund which is at least one-tenth of
one percent (.1%) less than the value using the weighted average sales
price method. The weighted average sales price method uses the average of
all of the prices for which Common Stock is sold over one or more business
days as determined by the Trustee. Securities that are not listed on an
exchange are generally traded in active markets and valued by the Trustee
from quoted market prices.
Short-term temporary investments are generally carried at cost, which
approximates fair value.
Investment Transactions and Investment Income of the Trust:
Investment transactions are accounted for on the dates purchases or sales
are executed. Realized gains and losses are computed on the basis of
average cost of investments sold. Dividend income is recorded on the ex-
dividend date; interest income is recorded as earned on an accrual basis.
In accordance with the policy of stating investments at fair value, the
net appreciation (depreciation) in the fair value of investments reflects
both realized gains or losses and the change in the unrealized
appreciation (depreciation) of investments held at year-end (see Note 8).
3. Contributions:
The Contribution for the year is accrued by the Plan based upon the amount to
be funded each year in accordance with the defined contribution formula noted
below. Participants' contributions are recorded in the period in which they
are withheld by Philip Morris.
-12-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
The Contribution on behalf of eligible employees of Philip Morris who have
met the twenty-four month service requirement is an amount equal to the
lesser of (1) three percent of Operating Profit (defined below), less the
amounts allocated for participants in the DPS Plan and the PMI Craft Plan or
(2) 15 percent of the aggregate participant compensation for such year of the
participants employed by Philip Morris among whom the Contribution is to be
allocated. The aggregate of the Contribution to the Plan and the
contributions to the DPS Plan and the PMI Craft Plan may not be more than
three percent of consolidated earnings of the Company and its subsidiaries
before income taxes and cumulative effect of any accounting change and
provisions for deferred profit-sharing and incentive compensation plans.
Operating Profit is defined as the earnings of Philip Morris, before
cumulative effect of accounting changes, discontinued operations,
extraordinary items, interest and other debt expense, income taxes,
amortization of goodwill, any minority interest, general corporate expenses,
the amount of any deduction used in computing such earnings for the
Contribution to the Plan and the contributions to the DPS Plan and the PMI
Craft Plan, contributions to any incentive compensation plan and effective in
1997, before such other charges as the Compensation Committee of the Board of
Directors of the Company, in its sole discretion, shall determine to exclude
from Operating Profit. As permitted by the Plan, for 1997, initial
settlement charges relating to the resolution of certain litigation were
excluded in calculating Operating Profit.
No contribution is required from any participant under the Plan.
Participants may make contributions on a before-tax and after-tax basis to
the Plan. If a participant has not made the maximum after-tax contribution,
he or she may make an additional lump sum contribution, subject to certain
statutory limits. The percentage of compensation available for these
contributions may vary from year-to-year. The aggregate contributions
actually made by participants may not cause the Plan to violate limitations
on such contributions set forth in the Internal Revenue Code of 1986, as
amended (the "Code"). The Code also imposes a dollar limitation on the
amount of before-tax contributions for a calendar year. For 1997, each
participant's before-tax contribution was limited to $9,500, with a
limitation of eight percent of compensation on the total amount of before-tax
and after-tax contributions. For 1998, each participant's before-tax
contribution will be limited to $10,000, with a limitation of ten percent of
compensation on the total amount of before-tax and after-tax contributions.
The Contribution and participant contributions are subject to specified
limitations as described in the Code and the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
4. Valuation of Participant Accounts:
The Committee maintains Accounts for each participant to reflect the source
and the participant's share of the funds invested in the Trust:
-13-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
<TABLE>
<CAPTION>
Account Source
------- ------
<S> <C>
Company Account Contributions
Personal Before-Tax Account Before-tax contributions
Personal After-Tax Account After-tax contributions
Rollover Account Amounts transferred, directly or
indirectly, from another plan qualified
under Section 401 (a) of the Code
PAYSOP Account The account balance transferred from
the Philip Morris Union Employees'
Stock Ownership Plan
Loan Account Outstanding loans obtained from the Plan
</TABLE>
At the end of each month, (effective July 10, 1995, each business day), the
Trustee determines the current fair value of each of the investment funds in
the Trust described in Note 1. The fair value of each participant's share in
the Trust is determined with respect to their Company, Personal Before-Tax,
Personal After-Tax, Rollover and PAYSOP Accounts on the basis of their
proportionate share in each investment fund.
5. Withdrawals and Distributions:
Participants may make withdrawals against their Company, Personal Before-
Tax, Personal After-Tax, Rollover and PAYSOP Accounts in accordance with the
provisions outlined in the Plan.
Withdrawals by participants will not be permitted if they would have the
effect of disqualifying the Plan and the related Trust from exemption from
taxation.
Only 50 percent of a participant's Company Account as of December 31, 1988
is available for hardship withdrawals as defined by the Plan. Any
withdrawals will reduce the amount available for future withdrawals. The
portion of a Company Account eligible for withdrawal will be unavailable if
it serves as collateral for an outstanding loan.
Distributions are made only in the event that a person ceases to be a
participant. Upon termination of employment, including retirement, a
participant has numerous options available, as described in the Plan, with
respect to his or her Company, Personal Before-Tax, Personal After-Tax,
Rollover and PAYSOP Accounts. Normally, distributions are made within one
month after such termination.
In the event the Plan is terminated, distributions will be made in accordance
with the current value of participants' Accounts under the direction of the
Committee and in accordance with the Code.
-14-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(continued)
6. Participants' Loans:
The loan program permits participants to borrow from their Company,
Personal Before-Tax, Personal After-Tax, Rollover and PAYSOP Accounts under
the Plan in accordance with the provisions outlined in the Plan.
A participant's Loan Account equals the principal amount of his or her
loans outstanding. The principal amount of loan repayments reduce the Loan
Account and are added back to the participant's Accounts originally used as
the source of the loan. The repaid amount (including interest) is reinvested
in the funds according to the participant's current investment authorization.
Participants' loans are carried at the original principal amount less
principal repayments. Participants' loan repayments receivable represent
amounts withheld by Philip Morris from participants' compensation and not yet
remitted to the Plan. Amounts to be disbursed under employee loan agreements
are recorded as undistributed participants' loans as of the loan agreement
date.
7. Investments Held by the Trust:
In 1997 and 1996, ($313,000) and ($661,000) were transferred out of the Plan,
net of transfers into the Plan, respectively, to the DPS Plan and the PMI
Craft Plan as a result of employees being transferred between hourly and
salaried status or between the BCT Union and the International Association of
Machinists and Aerospace Workers and other unions.
The Plan's allocated share of the Trust's net assets and investment
activities is based upon the total of each individual participant's share of
the Trust. The Plan's approximate allocated share of the Trust and its
approximate allocated share of the net assets of each fund in the Trust at
December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Trust 24% 24%
Equity Index Fund 24% 24%
Interest Income Fund 27% 26%
U.S. Government Obligations Fund 50% 51%
Philip Morris Stock Fund 21% 19%
International Equity Fund 9% 9%
Balanced Fund 6% 5%
Growth Equity Fund 9% 8%
Participants' Loan Account 45% 44%
</TABLE>
-15-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars)
(continued)
The Plan's approximate allocated share of the Trust's investment activities
for the years ended December 31, 1997, 1996 and 1995, was 23 percent,
22 percent and 21 percent, respectively.
Taxes and fees incurred by the Trust and most of the costs of administering
the Plan and Trust paid to third parties are paid by the Trust. The following
expenses are paid from the Plan's assets: investment management fees,
brokerage commissions, trustee's fees, audit fees, recordkeeping fees and
legal fees. For 1997 and 1996, the approximate amount of such expenses,
expressed as a percentage of the average net assets of each fund under the
Plan, are as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Equity Index Fund 0.03% 0.06%
Interest Income Fund 0.06% 0.05%
U.S. Government Obligations Fund 0.13% 0.17%
Philip Morris Stock Fund 0.03% 0.03%
International Equity Fund 0.32% 0.51%
Balanced Fund 0.04% 0.00%
Growth Equity Fund 0.07% 0.09%
</TABLE>
Investments that represented five percent or more of total Trust assets as of
December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Equity Index Fund
GEBT Equity Index Fund $1,377,252 $1,035,144
Interest Income Fund
BT GNMA Pooled Fund $ 323,525
Philip Morris Stock Fund
Common Stock $1,249,425 $1,017,594
</TABLE>
The GEBT Equity Index Fund currently includes Common Stock.
-16-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars)
(continued)
At December 31, 1997 and 1996, the financial position of the Trust was:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Assets:
Investments at fair value:
Equity Index Fund:
GEBT Equity Index Fund
(cost $751,660 and $663,661) $1,377,252 $1,035,144
Interest Income Fund:
Investment contracts (at contract value)
(cost approximates contract value) 988,404 998,637
Short-term temporary investments
(cost approximates fair value) 96,954 58,829
U.S. Government Obligations Fund:
Government securities
(cost $119,577 and $100,977) 121,223 100,773
Federal agency obligations
(cost $16,774 and $12,392) 16,904 12,212
Short-term temporary investments
(cost approximates fair value) 2,594 1,040
Philip Morris Stock Fund:
Common stock
(cost $756,882 and $517,740) 1,249,425 1,017,594
Short-term temporary investments
(cost approximates fair value) 32,486 24,282
International Equity Fund:
International Equity Fund
(cost $37,823 and $29,618) 38,619 31,548
Balanced Fund:
Balanced Fund
(cost $95,674 and $53,125) 101,002 55,832
Growth Equity Fund:
Growth Equity Fund
(cost $92,678 and $41,359) 83,517 42,018
Other investments:
Participants' Loan Account:
Loans to participants 131,375 126,525
---------- ----------
Total investments 4,239,755 3,504,434
Receivables:
Investments sold 946 8,388
Interest income 9,205 9,211
Dividend income 11,112 10,826
---------- ----------
Total assets 4,261,018 3,532,859
Liabilities:
Investments purchased 3,179 6,116
Other payables - 1,527
---------- ----------
Net assets $4,257,839 $3,525,216
========== ==========
</TABLE>
-17-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars)
(continued)
The changes in the Trust net assets for the years ended December 31, 1997,
1996 and 1995, were:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Additions:
Employer contributions $ 155,951 $ 144,224 $ 127,873
Employee contributions 41,969 38,823 33,393
Investment activities:
Interest 77,778 72,270 69,274
Dividends 72,286 48,968 39,053
Interest on participant loans 9,655 8,642 7,005
---------- ---------- ----------
159,719 129,880 115,332
Net appreciation
in fair value of investments 524,019 394,208 563,777
---------- ---------- ----------
Net investment activities 683,738 524,088 679,109
Deductions:
Distributions and withdrawals (146,913) (114,236) (149,624)
General and administrative
expenses (2,122) (1,748) (1,466)
---------- ---------- ----------
Increase in Trust net assets 732,623 591,151 689,285
Net assets:
Beginning of year 3,525,216 2,934,065 2,244,780
---------- ---------- ----------
End of year $4,257,839 $3,525,216 $2,934,065
========== ========== ==========
</TABLE>
-18-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars, except per unit data)
(continued)
The number of employee participation units and the net asset value per unit for
the funds at December 31, 1997 and 1996, were:
<TABLE>
<CAPTION>
U.S. Inter-
Equity Interest Government national Growth
Index Income Obligations Philip Morris Equity Balanced Equity
Fund Fund Fund Stock Fund Fund Fund Fund
---------- ---------- ----------- ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997:
Net Assets $1,379,028 $1,091,193 $ 142,054 $1,292,070 $ 38,831 $ 99,422 $ 83,033
Number of
participation units 146,142 300,910 50,193 135,499 33,678 65,534 58,232
Net asset value
per unit $ 9.4362 $ 3.6263 $ 2.8302 $ 9.5356 $ 1.1530 $ 1.5171 $ 1.4259
1996:
Net Assets $1,035,144 $1,057,368 $ 116,520 $1,059,496 $ 31,548 $ 55,832 $ 42,018
Number of
participation units 146,462 309,144 44,421 138,398 28,324 44,725 34,944
Net asset value
per unit $ 7.0677 $ 3.4203 $ 2.6231 $ 7.6554 $ 1.1138 $ 1.2483 $ 1.2024
<CAPTION>
Participants'
Loan
Account Total
------------ ----------
<S> <C> <C>
1997:
Net Assets $ 132,208 $4,257,839
Number of
participation units
Net asset value
per unit
1996:
Net Assets $ 127,290 $3,525,216
Number of
participation units
Net asset value
per unit
</TABLE>
-19-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(in thousands of dollars)
(continued)
8. Net Appreciation (Depreciation) in Fair Value of Trust Investments:
The realized gains and losses on disposals and changes in unrealized
appreciation or depreciation of investments in the Trust for the years ended
December 31, 1997, 1996, and 1995 were:
<TABLE>
<CAPTION>
U.S.
Equity Government International
Index Obligations Philip Morris Equity
Fund Fund Stock Fund Fund
--------- ----------- -------------- -------------
<S> <C> <C> <C> <C>
1997
----
Realized gains (losses):
Proceeds $ 211,278 $ 114,509 $ 1,169,804 $ 25,783
Cost 126,652 114,730 976,746 24,285
--------- --------- ----------- --------
Net realized gains
(losses) 84,626 (221) 193,058 1,498
--------- --------- ----------- --------
Unrealized appreciation
(depreciation):
Beginning of year 371,483 (384) 499,853 1,930
End of year 625,591 1,776 492,544 796
--------- --------- ----------- --------
Increase (Decrease) 254,108 2,160 (7,309) (1,134)
--------- --------- ----------- --------
Net appreciation
(depreciation) in fair
value of investments $ 338,734 $ 1,939 $ 185,749 $ 364
========= ========= =========== ========
1996
----
Realized gains:
Proceeds $ 154,267 $ 90,198 $ 912,475 $ 13,482
Cost 107,599 90,187 732,182 13,036
--------- --------- ----------- --------
Net realized gains 46,668 11 180,293 446
--------- --------- ----------- --------
Unrealized appreciation
(depreciation):
Beginning of year 224,832 2,652 482,740 364
End of year 371,483 (384) 499,853 1,930
--------- --------- ----------- --------
Increase (Decrease) 146,651 (3,036) 17,113 1,566
--------- --------- ----------- --------
Net appreciation
(depreciation) in fair
value of investments $ 193,319 $ (3,025) $ 197,406 $ 2,012
========= ========= =========== ========
1995
----
Realized gains (losses):
Proceeds $ 86,846 $ 170,836 $ 237,900 $ 1,592
Cost 73,684 170,697 200,477 1,616
--------- --------- ----------- --------
Net realized gains
(losses) 13,162 139 37,423 (24)
--------- --------- ----------- --------
Unrealized appreciation
(depreciation):
Beginning of year 9,957 (753) 187,838 -
End of year 224,832 2,652 482,740 364
--------- --------- ----------- --------
Increase (Decrease) 214,875 3,405 294,902 364
--------- --------- ----------- --------
Net appreciation
(depreciation) in fair
value of investments $ 228,037 $ 3,544 $ 332,325 $ 340
========= ========= =========== ========
<PAGE>
<CAPTION>
Growth
Balanced Equity
Fund Fund Total
--------- -------- -----------
<S> <C> <C> <C>
1997
----
Realized gains (losses):
Proceeds $ 26,837 $ 24,555 $ 1,572,766
Cost 24,190 22,770 1,289,373
-------- -------- -----------
Net realized gains
(losses) 2,647 1,785 283,393
-------- -------- -----------
Unrealized appreciation
(depreciation):
Beginning of year 2,708 660 876,250
End of year 5,329 (9,160) 1,116,876
-------- -------- -----------
Increase (Decrease) 2,621 (9,820) 240,626
-------- -------- -----------
Net appreciation
(depreciation) in fair
value of investments $ 5,268 $ (8,035) $ 524,019
======== ======== ===========
1996
----
Realized gains:
Proceeds $ 17,103 $ 19,723 $ 1,207,248
Cost 16,517 19,686 979,207
-------- -------- -----------
Net realized gains 586 37 228,041
-------- -------- -----------
Unrealized appreciation
(depreciation):
Beginning of year 413 (919) 710,082
End of year 2,708 659 876,249
-------- -------- -----------
Increase (Decrease) 2,295 1,578 166,167
-------- -------- -----------
Net appreciation
(depreciation) in fair
value of investments $ 2,881 $ 1,615 $ 394,208
======== ======== ===========
1995
----
Realized gains (losses):
Proceeds $ 1,848 $ 2,211 $ 501,233
Cost 1,817 2,205 450,496
-------- -------- -----------
Net realized gains
(losses) 31 6 50,737
-------- -------- -----------
Unrealized appreciation
(depreciation):
Beginning of year - - 197,042
End of year 413 (919) 710,082
-------- -------- -----------
Increase (Decrease) 413 (919) 513,040
-------- -------- -----------
Net appreciation
(depreciation) in fair
value of investments $ 444 $ (913) $ 563,777
======== ======== ===========
</TABLE>
-20-
<PAGE>
PHILIP MORRIS INCORPORATED DEFERRED PROFIT-SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
(concluded)
9. Transactions with Parties in Interest:
The Fiduciaries are not aware of any transaction between the Plan and a
party in interest (as defined in ERISA) or disqualified person (as defined
in the Code) to the Plan (1) which is prohibited under the fiduciary
responsibility provisions of ERISA or the prohibited transaction provisions
of the Code, or (2) which has not been exempted from such prohibitions
pursuant to a class exemption issued by the Department of Labor.
10. Tax Status:
By letter dated June 28, 1995, the Internal Revenue Service has determined
that the Plan, as amended and in effect as of June 1, 1994, constitutes a
qualified plan under Section 401(a) of the Code and the related Trust is,
therefore, exempt from Federal income taxes under the provisions of Section
501(a) of the Code. The Plan has been subsequently amended and no
determination as to the continued qualification of the Plan under Section
401(a) of the Code and of the exemption of the related Trust from Federal
income taxes under Section 501(a) of the Code has been sought from the
Internal Revenue Service. The Fiduciaries believe that the Plan continues to
be designed and operated in accordance with the applicable provisions of the
Code. Therefore, no provision for income taxes has been included in the
Plan's financial statements. Accordingly, participants will not be subject
to income tax on the Contribution and before-tax contributions made on their
behalf by Philip Morris, on the making of a timely rollover contribution to
the Trust, nor on earnings credited to their Accounts until withdrawn or
distributed.
11. Plan Termination:
The Board of Directors of the Company has the right, subject to the
applicable provisions of ERISA and the Code, to amend (retroactively or
otherwise) the Plan, suspend making the Contribution to the Plan or to
terminate the Plan.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporate Employee Benefit Committee of Philip Morris Companies Inc., having
administrative responsibility of the Plan, has duly caused this annual report to
be signed by the undersigned thereunto duly authorized.
PHILIP MORRIS INCORPORATED
DEFERRED PROFIT-SHARING PLAN
(Name of Plan)
By /s/ TIMOTHY A. SOMPOLSKI
----------------------------------------
Timothy A. Sompolski, Chairman,
Corporate Employee Benefit Committee
of Philip Morris Companies Inc.
Date: May 21, 1998
-22-
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- --------------- ------------- ---------------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
- ---------------------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
EQUITY INDEX FUND -- 32.48%
GEBT Equity Index Fund -- 32.48% 607,050 $ 751,660,394 $ 1,377,251,721
------------- ---------------
Total Equity Index Fund 751,660,394 1,377,251,721
------------- ---------------
INTEREST INCOME FUND -- 25.60%
Investment Contracts -- 23.31%
(The amounts included in Column D for the investment
contracts represent contract value, see Note 2.)
Participation Contracts with Institutions -- 5.71%
Commonwealth Life Insurance Company
No. 00343 FR 8.68%
matures 2/28/1998 13,429,215 13,429,215 13,429,215
New York Life Insurance Company
No. 06121 8.50%
matures 3/1/1998 22,251,355 22,251,355 22,251,355
Principal Mutual Life Insurance Company
No. 74811-2 8.87%
matures 5/1/1998 45,527,674 45,527,674 45,527,674
Allstate Life Insurance Company
No. 5421 6.47%
matures 4/7/1999 26,308,421 26,308,421 26,308,421
New York Life Insurance Company
No. 06989 7.33%
matures 7/31/1999 23,723,252 23,723,252 23,723,252
Principal Mutual Life Insurance Company
No. 3-74811-4 5.82%
matures 9/6/1999 37,538,601 37,538,601 37,538,601
Jackson National Life Insurance Company
No. G-1036 6.91%
matures 2/29/2000 20,568,084 20,568,084 20,568,084
Security Life of Denver
No. FA 0147 9.10%
matures 8/1/2000 1,217,540 1,217,540 1,217,540
Continental Assurance Company
No. GP 24024 6.63%
matures 8/31/2001 26,535,879 26,535,879 26,535,879
Sun America Life Insurance Company
No. 4697 6.67%
matures 12/31/2001 24,858,748 24,858,748 24,858,748
------------- ---------------
Total Participation Contracts 241,958,769 241,958,769
------------- ---------------
</TABLE>
S-1
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- --------------- ------------ -----------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
- ---------------------------------- --------------- ------------ -----------
<S> <C> <C> <C>
Financial Institution Pools -- 17.60%
National Westminster Bank
No. SAM 0104A 5.90%
GEBT Short-Term Investment Fund $ 483,692 $ 483,692
Federal Home Loan Mortgage Corporation
matures 8/15/2005 6.25% 893,810 893,810
Federal Home Loan Mortgage Corporation
matures 4/1/2008 7.00% 79,353 79,353
Federal Home Loan Mortgage Corporation
matures 8/15/2008 6.50% 854,990 854,990
Federal Home Loan Mortgage Corporation
matures 9/1/2008 6.50% 30,035 30,035
Federal Home Loan Mortgage Corporation
matures 12/1/2008 6.50% 32,512 32,512
Federal Home Loan Mortgage Corporation
matures 2/1/2009 6.50% 1,404,982 1,404,982
Federal Home Loan Mortgage Corporation
matures 6/1/2009 6.50% 59,933 59,933
Federal Home Loan Mortgage Corporation
matures 10/1/2010 7.00% 171,087 171,087
Federal Home Loan Mortgage Corporation
matures 2/1/2011 6.50% 93,670 93,670
Federal Home Loan Mortgage Corporation
matures 2/1/2011 7.00% 525,639 525,639
Federal Home Loan Mortgage Corporation
matures 3/1/2011 7.00% 923,254 923,254
Federal Home Loan Mortgage Corporation
matures 12/15/2015 6.50% 2,173,326 2,173,326
Federal Home Loan Mortgage Corporation
matures 1/15/2018 6.00% 3,342,763 3,342,763
Federal Home Loan Mortgage Corporation
matures 6/15/2018 7.00% 241,055 241,055
Federal National Mortgage Association
matures 6/25/2005 6.25% 1,788,171 1,788,171
Federal National Mortgage Association
matures 8/25/2005 6.00% 389,262 389,262
Federal National Mortgage Association
matures 7/1/2008 7.00% 664,114 664,114
Federal National Mortgage Association
matures 8/1/2008 7.00% 607,449 607,449
Federal National Mortgage Association
matures 1/1/2009 6.50% 122,472 122,472
Federal National Mortgage Association
matures 2/1/2009 6.50% 402,432 402,432
Federal National Mortgage Association
matures 3/1/2009 6.50% 136,288 136,288
Federal National Mortgage Association
matures 5/1/2009 6.50% 848,743 848,743
</TABLE>
S-2
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- --------------- ------------ ------------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
- ---------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
Financial Institution Pools (continued)
National Westminster Bank (continued)
Federal National Mortgage Association
matures 8/25/2012 5.60% $ 929,239 $ 929,239
Federal National Mortgage Association
matures 8/25/2013 6.70% 1,568,013 1,568,013
Federal National Mortgage Association
matures 9/25/2015 6.00% 1,779,483 1,779,483
Federal National Mortgage Association
matures 6/25/2016 5.70% 1,771,617 1,771,617
Federal National Mortgage Association
matures 7/25/2016 5.65% 1,077,996 1,077,996
Government National Mortgage Association
matures 12/15/2023 6.50% 204,584 204,584
Government National Mortgage Association
matures 3/15/2024 6.50% 62,894 62,894
Government National Mortgage Association
matures 4/15/2024 6.50% 1,033,547 1,033,547
Government National Mortgage Association
matures 5/15/2024 6.50% 1,184,617 1,184,617
------------ ------------
Total National Westminster Bank Contract 25,881,022 25,881,022
------------ ------------
Commonwealth Life Insurance Company No. ADA00043TR, 6.23%,
Peoples Life Insurance Company No. BDA00058TR, 6.39%,
Trans America Life Insurance Company No. 76587, 5.92%,
Trans America Life Insurance Company No. 76595, 6.80%,
Trans America Life Insurance Company No. 76691, 6.33%,
National Westminster Bank No. 188M, 6.34% & J P Morgan No. APHILMO1, 6.35%
GEBT Short-Term Investment Fund 76,492 76,492
BT GNMA Pooled Fund 7.27% 323,524,625 323,524,625
United States Treasury Note
matures 3/31/2002 6.63% 10,620,222 10,620,222
United States Treasury Note
matures 4/30/2002 6.63% 14,546,992 14,546,992
United States Treasury Note
matures 9/30/2002 5.88% 23,436,510 23,436,510
United States Treasury Note
matures 11/30/2002 5.75% 2,948,058 2,948,058
United States Treasury Note
matures 7/15/2006 7.00% 91,375,386 91,375,386
United States Treasury Note
matures 5/15/2007 6.63% 80,787,286 80,787,286
United States Treasury Note
matures 8/15/2007 6.13% 52,640,540 52,640,540
</TABLE>
S-3
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- --------------- ----------- ----------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
- ---------------------------------- --------------- ----------- ----------
<S> <C> <C> <C>
Financial Institution Pools (continued)
Commonwealth Life Insurance Company, Peoples Life Insurance
Company, Trans America Life Insurance Company, National
Westminster Bank & J P Morgan (continued)
Federal National Mortgage Association
matures 11/23/2001 6.35% $ 433,627 $ 433,627
Federal National Mortgage Association
matures 9/9/2003 5.97% 267,573 267,573
Federal National Mortgage Association
matures 10/25/2004 8.40% 1,077,673 1,077,673
Federal National Mortgage Association
matures 11/10/2004 8.63% 977,952 977,952
Federal Home Loan Mortgage Corporation
matures 11/15/2003 5.50% 1,575,419 1,575,419
Premier Auto TR
matures 2/4/1999 7.15% 370,048 370,048
Bayerische Landesbank Girozentrale
matures 7/19/1999 6.55% 2,857,315 2,857,315
Standard Credit Card Master Trust
matures 6/7/2000 6.75% 989,048 989,048
Standard Credit Card Master Trust
matures 4/7/2001 6.80% 495,812 495,812
Asian Development Bank NTS
matures 5/2/2001 8.50% 1,846,154 1,846,154
American Express Master Trust
matures 7/15/2001 5.38% 5,868,730 5,868,730
General Electric Cap Corp
matures 11/1/2001 5.50% 2,894,250 2,894,250
MBNA Master Credit Card Trust
matures 1/15/2003 6.60% 2,016,982 2,016,982
Ford Credit Auto Loan Master Trust
matures 2/15/2003 5.50% 5,296,284 5,296,284
First Bank Corporate Card Master Trust
matures 2/15/2003 6.40% 3,741,683 3,741,683
Outlet Broadcasting
matures 7/15/2003 10.88% 1,553,527 1,553,527
Avis
matures 10/20/2003 6.40% 5,938,436 5,938,436
Citibank Credit Card Master Trust
matures 2/15/2004 6.55% 8,941,837 8,941,837
MBNA Master Credit Card Trust
matures 11/15/2004 6.60% 12,003,593 12,003,593
</TABLE>
S-4
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------------- ----------- -------------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
--------------------------------- --------------- ------------ -------------
<S> <C> <C> <C>
Financial Institution Pools (continued)
Commonwealth Life Insurance Company, Peoples Life Insurance
Company, Trans America Life Insurance Company, National
Westminster Bank & J P Morgan (continued)
First USA Credit Card Master Trust
matures 3/17/2005 6.42% $ 5,949,951 $ 5,949,951
Japan Fin Corp
matures 4/27/2005 7.38% 1,875,654 1,875,654
International Bank for Recon & Dev
matures 7/21/2005 6.38% 2,109,865 2,109,865
NationsBank Credit Card Master Trust
matures 12/15/2005 6.00% 4,853,646 4,853,646
Bayerische Landesbank Girozentrale
matures 2/1/2006 6.17% 2,192,441 2,192,441
Bayerische Landesbank Girozentrale
matures 2/9/2006 6.20% 11,058,411 11,058,411
KFW Int'l Fin Inc
matures 6/1/2006 8.20% 2,911,785 2,911,785
General Electric Cap Corp
matures 3/1/2007 8.85% 10,243,755 10,243,755
General Electric Cap Corp
matures 7/24/2008 8.50% 1,061,934 1,061,934
First Plus Home Loan Trust
matures 3/12/2012 6.80% 5,927,858 5,927,858
International Bank for Recon & Dev
matures 3/1/2026 8.88% 1,429,091 1,429,091
Inter-American Development Bank
matures 7/15/2027 6.75% 9,517,532 9,517,532
Merck
matures 5/3/2037 5.76% 2,329,736 2,329,736
-------------- --------------
Total Commonwealth, Peoples, Trans America, Nat West & J P Morgan Contracts 720,563,713 720,563,713
-------------- --------------
Total Financial Institution Pools 746,444,735 746,444,735
-------------- --------------
Total Investment Contracts 988,403,504 988,403,504
-------------- --------------
Short-Term Investments -- 2.29%
GEBT Short-Term Investment Fund 96,953,625 96,953,625 96,953,625
-------------- --------------
Total Interest Income Fund 1,085,357,129 1,085,357,129
-------------- --------------
</TABLE>
S-5
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- -------------- ------------ ------------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
--------------------------------- --------------- ------------ ------------
<S> <C> <C> <C>
U.S. GOVERNMENT OBLIGATIONS FUND -- 3.32%
Government Securities -- 2.86%
United States Treasury Notes
7.125% due 9/30/1999 11,000,000 $ 11,347,126 $ 11,261,250
United States Treasury Notes
7.125% due 2/29/2000 28,300,000 29,250,642 29,118,153
United States Treasury Notes
5.875% due 6/30/2000 15,200,000 15,075,578 15,268,856
United States Treasury Notes
5.625% due 2/28/2001 5,300,000 5,237,766 5,285,902
United States Treasury Notes
6.375% due 8/15/2002 23,300,000 23,333,352 23,900,674
United States Treasury Notes
6.50% due 5/15/2005 14,375,000 14,459,684 14,985,938
United States Treasury Notes
6.50% due 8/15/2005 12,000,000 12,250,609 12,521,280
United States Treasury Notes
6.875% due 5/15/2006 8,300,000 8,621,814 8,881,000
------------ ------------
Total Government Securities 119,576,571 121,223,053
------------ ------------
Federal Agency Obligations -- .40%
Federal National Mortgage Association
6.41% due 5/22/2000 4,000,000 3,989,375 4,055,000
Federal National Mortgage Association
5.50% due 2/2/2001 13,020,000 12,784,924 12,849,047
------------ ------------
Total Federal Agency Obligations 16,774,299 16,904,047
------------ ------------
Short-Term Investments -- .06%
GEBT Short-Term Investment Fund 2,594,285 2,594,285 2,594,285
------------ ------------
Total U.S. Government Obligations Fund 138,945,155 140,721,385
------------ ------------
</TABLE>
S-6
<PAGE>
PHILIP MORRIS DEFERRED PROFIT-SHARING TRUST FUND
SCHEDULE I - INVESTMENTS as of December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D
-------- --------------- ------------ ---------------
Face Amount Cost
or Number Basis of
Name of Issuer and Title of Issue of Shares/Units Investments Fair Value
--------------------------------- --------------- ------------ ---------------
<S> <C> <C> <C>
PHILIP MORRIS STOCK FUND -- 30.24%
Common Stock -- 29.47%
Tobacco -- 29.47%
Philip Morris Companies Inc. 27,611,611 $ 756,881,577 $ 1,249,425,398
Short-Term Investments -- .77%
GEBT Short-Term Investment Fund 32,486,026 32,486,026 32,486,026
--------------- ---------------
Total Philip Morris Stock Fund 789,367,603 1,281,911,424
--------------- ---------------
INTERNATIONAL EQUITY FUND -- .91%
Japanese Equity Index Fund -- .21% 135,567 12,169,697 8,850,053
Non Japanese Equity Index Fund -- .70% 176,330 25,653,032 29,768,806
--------------- ---------------
Total International Equity Fund 37,822,729 38,618,859
--------------- ---------------
BALANCED FUND -- 2.38%
Balanced Fund -- 2.38% 7,599,884 95,673,695 101,002,457
--------------- ---------------
Total Balanced Fund 95,673,695 101,002,457
--------------- ---------------
GROWTH EQUITY FUND -- 1.97%
Growth Equity Fund -- 1.97% 7,262,375 92,677,510 83,517,314
--------------- ---------------
Total Growth Equity Fund 92,677,510 83,517,314
--------------- ---------------
PARTICIPANTS' LOAN ACCOUNT -- 3.10%
Loans to Participants -- 3.10% 131,375,081 131,375,081 131,375,081
--------------- ---------------
Total Participants' Loan Account 131,375,081 131,375,081
--------------- ---------------
TOTAL INVESTMENTS $ 3,122,879,296 $ 4,239,755,370
=============== ===============
</TABLE>
S-7
<PAGE>
Exhibit 23
CONSENT of INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Philip Morris Companies
Inc. registration statement on Form S-8 (File No. 33-13210) of the Philip Morris
Incorporated Deferred Profit-Sharing Plan of our report dated April 10, 1998, on
our audits of the financial statements of the Philip Morris Incorporated
Deferred Profit-Sharing Plan as of December 31, 1997 and 1996 and for the years
ended December 31, 1997, 1996 and 1995, and the financial statement schedule as
of December 31, 1997, which report is included in this annual report on Form
11-K.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
May 21, 1998
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