SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported) November 23, 1998
                                                        -----------------

                          PHILIP MORRIS COMPANIES INC.
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             (Exact name of registrant as specified in its charter)

      Virginia                     1-8940                    13-3260245
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   (State or other              (Commission                (IRS Employer
    jurisdiction                File Number)             Identification No.)
  of incorporation)

120 Park Avenue, New York, New York                       10017-5592
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     (Address of principal                                (Zip Code)
      executive offices)

Registrant's telephone number, including area code (917) 663-5000
                                                   --------------


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          (Former name or former address, if changed since last report)

<PAGE>

Item 5. Other Events.

Settlement of State Health Care Cost Recovery Actions

      On November 23, 1998, Philip Morris Incorporated ("PM Inc."), Brown &
Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J. Reynolds
Tobacco Company (the "original participating manufacturers" and, together with
Liggett Group, Inc. and any other tobacco product manufacturer that becomes a
signatory, the "participating manufacturers") entered into a Master Settlement
Agreement (the "agreement") with 46 states, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and
the Northern Marianas (collectively, the "states") to settle the asserted and
unasserted health care cost recovery and certain other claims of those states.
The original participating manufacturers had previously settled similar claims
brought by Mississippi, Florida, Texas, and Minnesota.

      Although PM Inc. and its parent company, Philip Morris Companies Inc. (the
"Company"), believe they had a number of valid defenses to these claims, they
nevertheless believe the agreement is in their best interest and the best
interest of the Company's stockholders because it resolves a significant
litigation threat currently affecting the U.S. tobacco industry and, thereby,
reduces uncertainties facing the industry and can provide a more stable business
environment. The agreement provides that it is not an admission or concession or
evidence of any liability or wrongdoing on the part of any party, and was
entered into by the original participating manufacturers to avoid the further
expense, inconvenience, burden and uncertainty of litigation.

      The agreement is filed as an Exhibit to this Form 8-K and the following
summary of the agreement is qualified by reference thereto.

Advertising and Marketing Restrictions

      The agreement restricts tobacco product advertising and marketing within
the settling states and otherwise restricts the activities of participating
manufacturers. Among other things, it:

      (i)       prohibits the targeting of youth in the advertising, promotion
                or marketing of tobacco products;

<PAGE>

      (ii)      bans the use of cartoon characters in all tobacco advertising
                and promotion;

      (iii)     limits each participating manufacturer to one tobacco brand name
                sponsorship during any twelve-month period (except for wind-down
                of existing contracts). The single permitted sponsorship may not
                include major team sports or events in which the intended
                audience includes a significant percentage of youth. The
                agreement limits the advertising and promotion in connection
                with such permitted sponsorship, and bans agreements to name any
                stadium or arena in the name of a tobacco brand name;

      (iv)      bans all outdoor advertising of tobacco products (including, but
                not limited to, billboards and tobacco advertising in
                transportation facilities, vehicles, enclosed stadia and
                shopping malls), with the exception of signs 14 square feet or
                less in dimension at retail establishments that sell tobacco
                products (other than solely through vending machines). The
                settling states may use removed billboards for anti-tobacco
                advertising for the duration of the existing lease period at the
                expense of the applicable participating manufacturer;

      (v)       bars participating manufacturers from entering into agreements
                that prohibit a third party from selling, purchasing or
                displaying anti-tobacco advertising;

      (vi)      prohibits payments for tobacco product placement in various
                media;

      (vii)     bans participating manufacturers from offering or selling
                non-tobacco apparel and other merchandise that bears a tobacco
                brand name, subject to specified exceptions;

      (viii)    prohibits the distribution of free samples of tobacco products
                except within an adult-only facility;

      (ix)      bans gift offers based on the purchase of tobacco products
                without sufficient proof that the intended gift recipient is an
                adult;

      (x)       prohibits each participating manufacturer from licensing or
                expressly authorizing third parties to advertise such
                manufacturer's tobacco brand names in any manner prohibited
                under the agreement to that manufacturer itself;

      (xi)      prohibits participating manufacturers from using as a tobacco
                product brand name any nationally recognized non-tobacco brand
                or trade name or the names of sports teams, entertainment groups
                or individual celebrities, subject to specified exceptions;

      (xii)     prohibits participating manufacturers from selling or
                manufacturing packs containing fewer than twenty cigarettes
                through December 31, 2001, and bars participating manufacturers
                from opposing proposed legislation to prohibit the sale of packs
                containing fewer than twenty cigarettes;


                                       -2-
<PAGE>

      (xiii)    requires participating manufacturers to affirm corporate
                principles to comply with the agreement and to reduce underage
                usage of tobacco products;

      (xiv)     imposes requirements applicable to lobbying activities conducted
                on behalf of participating manufacturers;

      (xv)      prohibits participating manufacturers from agreeing to limit or
                suppress smoking and health information or research or product
                development research;

      (xvi)     prohibits participating manufacturers from making any material
                misrepresentation of fact regarding the health consequences of
                using tobacco products; and

      (xvii)    provides for the dissolution of the Council for Tobacco Research
                - U.S.A., Inc., The Tobacco Institute, Inc. and the Center for
                Indoor Air Research, Inc. and establishes rules for the
                regulation and oversight of any new tobacco-related trade
                association.

Public Disclosure

      Until June 30, 2010, the original participating manufacturers will
maintain their current Internet websites, which include documents produced in
the Minnesota health care cost recovery action and pursuant to Congressional
subpoena. They will add to the websites documents that were produced in the
actions brought by the settling states and that are not subject to specified
protection against disclosure, as well as other specified documents.

Tobacco Control and Underage Use Laws

      Once the agreement is approved with finality in a settling state, the
participating manufacturers will not initiate new facial challenges to statutes,
ordinances and administrative rules relating to tobacco control that were
enacted by that state or its political subdivisions before June 1, 1998.


                                       -3-
<PAGE>

Industry Payments

      Initial Payments. The original participating manufacturers will pay
$2,400,000,000 two business days after court approval of the escrow agreement.
This payment will be allocated among the original participating manufacturers
based on their relative market capitalization (as stated in Exhibit K of the
agreement) and will be reduced by a percentage allocated to any states that do
not receive final judicial approval of the agreement. PM Inc.'s share of this
payment is $1,632,000,000. The original participating manufacturers will also
pay $2,472,000,000 on January 10, 2000; $2,546,160,000 on January 10, 2001;
$2,622,544,800 on January 10, 2002 and $2,701,221,144 on January 10, 2003. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments, will be reduced
by a percentage allocated to any states that do not receive final judicial
approval of the agreement, and will be subject to adjustment for changes in the
volume of domestic cigarette shipments.

      Payments to Foundation. The original participating manufacturers will also
make payments to fund a national foundation to be established by the National
Association of Attorneys General to conduct educational programs to counter
underage tobacco use, to educate consumers about the cause and prevention of
diseases associated with the use of tobacco products and to engage in specified
related activities other than political or lobbying activities. On March 31,
1999 and on each March 31 for the subsequent nine years, the original
participating manufacturers will pay $25 million to fund the foundation. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and will be
held in escrow until the occurrence of final judicial approval of the agreement
in at least one settling state. In addition, the original participating
manufacturers will make further payments for the benefit of a national public
education fund established by the foundation in the amounts of $250 million on
March 31, 1999, and $300 million on March 31 of 2000, 2001, 2002 and 2003. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and (other
than the payment due on March 31, 1999) will be subject to adjustment for
inflation and changes in the unit volume of domestic cigarette shipments. The
$250 million payment is to be held in escrow until final judicial approval of
the agreement has occurred in at least one settling state. The $300 million
payments are to be held in escrow until final judicial approval of the agreement
has occurred in a sufficient number of settling states, as described in the
agreement.

      The original participating manufacturers will also make the following
additional payments for the benefit of the national public education fund. If,
for any calendar year beginning with 2003, the participating manufacturers who
were participating manufacturers for the entire calendar year in question had an
aggregate share of all domestic cigarette shipments for such year equal to or
greater than 99.05%, the original participating manufacturers will pay $300
million for the benefit of the national public education fund on April 15 of the
subsequent year. These payments will be allocated among the original
participating manufacturers on the basis of their relative unit volume of
domestic cigarette shipments, will be reduced by a percentage allocated to any
states that do not receive final judicial approval of the agreement, and will be
subject to adjustment for inflation and changes in the unit volume of domestic
cigarette shipments.


                                       -4-
<PAGE>

      Payment to Enforcement Fund. On March 31, 1999, the original participating
manufacturers will pay $50 million for the benefit of a fund to be established
by the National Association of Attorneys General to provide for the enforcement
and implementation of the agreement and the investigation and litigation of
potential violations of laws with respect to tobacco products. The payment will
be allocated among the original participating manufacturers based on their
relative unit volume of domestic cigarette shipments. This payment will be held
in escrow until final judicial approval of the agreement has occurred in at
least one settling state.

      Annual and Strategic Contribution Payments. On April 15, 2000 and on each
April 15 thereafter, the original participating manufacturers will pay the
following amounts (subject to adjustment as described below):

                         2000                  $4.5 billion   
                         2001                  $5 billion
                      2002-2003                $6.5 billion
                      2004-2007                $8 billion
                      2008-2017                $8.139 billion
            2018 and each year thereafter      $9 billion

      These annual payments will be allocated among the original participating
manufacturers based on their relative unit volume of domestic cigarette
shipments, will be reduced by a percentage allocated to any states that do not
receive final judicial approval of the agreement and by a percentage allocated
to those states (Mississippi, Florida, Texas and Minnesota) that have already
settled similar claims with the leading tobacco companies, and will be adjusted
for inflation and changes in the unit volume of domestic cigarette shipments.
These payments will also be subject to adjustment and offset as described below.

      In addition to the foregoing payments, the original participating
manufacturers will pay $861 million on April 15, 2008 and on each April 15
thereafter through 2017. These strategic contribution payments will be allocated
among the original participating manufacturers based on their relative unit
volume of domestic cigarette shipments, will be reduced by a percentage
allocated to any states that do not receive final judicial approval of the
agreement, and will be adjusted for inflation and changes in the unit volume of
domestic cigarette shipments. These payments will also be subject to adjustment
and offset as described below.

      The cumulative annual and strategic contribution payments due in a year
will also be subject to further adjustment and offset as follows:

            (i) Those payments will be subject to an "NPM adjustment" in the
      event that the participating manufacturers' aggregate market share of
      domestic cigarette shipments in the calendar year preceding the year in
      which the payment in question is due falls below their 1997 aggregate
      market share less two percentage points (a "market share loss"). This
      adjustment shall only apply if (A) the disadvantages experienced as a
      result of the provisions of this agreement are determined to be a
      significant factor contributing to the market share loss; and (B) during
      the calendar year immediately


                                       -5-
<PAGE>

      preceding the year in which the payment in question is due the aggregate
      number of cigarettes shipped domestically by specified participating
      manufacturers does not exceed the aggregate number of cigarettes shipped
      domestically by such participating manufacturers in 1997. If the foregoing
      conditions are met, the annual and strategic contribution payments for the
      year in question will be reduced by 3% for each 1% of market share loss,
      up to a market share loss of 16 2/3% (and by a different specified
      percentage for each additional percentage point (or portion thereof) of
      market share loss). The reduction in payments pursuant to the NPM
      adjustment will be allocated among all settling states that did not have a
      qualifying statute in full force and effect during a specified period of
      the prior calendar year, defined as a statute that neutralizes the cost
      disadvantages in the state in question that is imposed on participating
      manufacturers by virtue of the agreement. A state that had a qualifying
      statute in full force and effect during a specified period of the prior
      calendar year will not have any reduction pursuant to the NPM adjustment
      allocated to it, and what would have been its allocated share of such
      reduction will instead be reallocated to (and further reduce the payments
      to) those settling states without qualifying statutes. If a state passes a
      qualifying statute that is in the form of the model statute attached to
      the agreement as Exhibit T, but such statute is invalidated, the reduction
      in payments pursuant to the NPM adjustment may be allocated to that state,
      but may not reduce the annual and strategic contribution payments to that
      state in any year by more than 65%, and any additional reduction that
      would have applied to such state will instead be reallocated to (and
      further reduce the payments to) those settling states without qualifying
      statutes.

      A reduction in payments by the original participating manufacturers
      pursuant to the NPM adjustment will be allocated among the original
      participating manufacturers as follows. First, each original participating
      manufacturer that lost market share during the year in question on a
      disproportionate basis relative to other original participating
      manufacturers shall be allocated up to $300 million of the reduction. Any
      remaining reduction will be allocated among all original participating
      manufacturers on the basis of relative unit volume of domestic cigarette
      shipments (except that, as described in the agreement, there may be
      further reallocation between PM Inc. and Lorillard Tobacco Company in a
      manner potentially adverse to PM Inc.).

            (ii) These payments will also be subject to a dollar-for-dollar
      offset for amounts paid (by settlement, tax or otherwise) by participating
      manufacturers (and made available to any settling state) pursuant to
      certain federal tobacco-related legislation enacted after November 23,
      1998 but on or before November 30, 2002, to the extent that the amounts
      made available to the settling state in question are either (a)
      unrestricted as to their use or (b) restricted to any form of health care
      or to any use related to tobacco (except for amounts specifically
      applicable to tobacco growers or communities dependent on the production
      of tobacco or tobacco products). This offset, however, will not apply to
      the extent that the federal legislation either conditions the state's
      receipt of the federal money upon relinquishment of rights or benefits
      under the agreement or imposes other specified conditions on the state's
      receipt of the money that the state chooses not to fulfill.

            (iii) These payments will also be subject to a further offset as
      follows. The


                                       -6-
<PAGE>

      settling states (as detailed below) will release participating
      manufacturers, their parents and affiliates and the other released parties
      (as defined in the agreement) from all released claims (as defined in the
      agreement) brought by the settling states (and any of their agencies and
      similar entities), by political subdivisions (such as cities and counties)
      within those states, and by any other person or entity seeking specified
      types of relief. In the event that this release is deemed unenforceable as
      against any of these releasing parties, the participating manufacturers
      will receive a dollar-for-dollar offset for amounts paid by any released
      party (whether by judgment or settlement) on any released claims brought
      by any such releasing parties.

            (iv) These payments will also be subject to a further
      dollar-for-dollar offset for amounts paid on certain contribution (or
      similar) claims by specified non-settling parties.

      Escrow. All payments described above will be made into escrow. The
foundation and enforcement fund payments will be disbursed from escrow as
provided above, and will revert back to the participating manufacturers if the
conditions for their disbursement are not fulfilled by December 31, 2001. Each
settling state's share of the remaining payments will not be disbursed to that
state until after the agreement is given final judicial approval in that state.
If such approval does not occur by December 31, 2001 (or if the agreement is
terminated in that state), that state's share of the payments held in escrow
will revert back to the participating manufacturers.

      Costs and Attorneys Fees. The original participating manufacturers will
reimburse the settling states and other specified governmental entities for
reasonable costs and expenses incurred in connection with the settled claims and
for time reasonably expended by their attorneys and paralegals in connection
with the settled actions, subject to an aggregate cap of $150 million. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments.

      The original participating manufacturers will also pay the reasonable fees
of outside counsel representing the settling states and other specified
governmental entities. The original participating manufacturers will offer to
liquidate such fees and, to the extent such offers are accepted, will pay such
fees over five years, beginning in 1999, subject to an annual aggregate cap of
$250 million. The fees of attorneys who do not accept such offers will be set by
a panel of arbitrators and, together with the fees of attorneys representing
certain other state and class actions, will be subject to a separate and
additional nationwide annual cap of $500 million. Amounts owed in a particular
year that could not be paid because of the cap will be rolled over to the next
year. In addition, the original participating manufacturers will also pay the
reasonable costs and expenses of such outside counsel, subject to an annual cap
of $75 million. All such payments to outside counsel will be allocated among the
original participating manufacturers on the basis of relative unit volume of
domestic cigarette shipments.

      Payment Responsibility. The payment obligations under the agreement are
the several and not joint obligations of each participating manufacturer and are
not the responsibility of any affiliate of a participating manufacturer.


                                       -7-
<PAGE>

      Payments By Other Participating Manufacturers. Tobacco companies (other
than the four original participating manufacturers) that are party to the
agreement have the following payment obligations. Such a company that becomes a
party on or prior to January 22, 1999 will have no payment obligations unless
its market share exceeds the greater of 125% of its 1997 market share or 100% of
its 1998 market share. In the year following any year in which its market share
does so exceed the greater of these base market shares, such company will pay on
each excess unit an amount equal (on a per-unit basis) to that paid during such
following year by the original participating manufacturers pursuant to the
foundation payments (except for the $250 million payment due on March 31, 1999)
and the annual and strategic contribution payments, subject to all applicable
adjustments, offsets and reductions (other than the adjustment for changes in
the unit volume of domestic cigarette shipments). Such a company that does not
become a party until after January 22, 1999 will pay on each unit sold an amount
equal (on a per-unit basis) to that paid during the year in question by the
original participating manufacturers pursuant to the foundation payments (except
for the $250 million payment due on March 31, 1999) and the annual and strategic
contribution payments, subject to all applicable adjustments, offsets and
reductions (other than the adjustment for changes in the unit volume of domestic
cigarette shipments).

Finality

      The agreement is subject to final judicial approval in each of the
settling states. Pending final judicial approval of the agreement by the courts
of the settling state in question, a stay of the health care cost recovery
action of such settling state will be sought jointly by such state and the
participating manufacturers who are parties in such action. If a settling state
does not obtain final judicial approval by December 31, 2001, the agreement will
be terminated with respect to such state and its stay will be lifted; the
agreement, however, will remain in effect as to each settling state in which
final judicial approval is obtained.

Most Favored Nation Provisions

      If before October 1, 2000, a participating manufacturer enters into any
settlement agreement of similar litigation with a non-federal, non-foreign
governmental plaintiff on terms more favorable than the overall terms of the
agreement, then the settling states will obtain treatment with respect to such
participating manufacturer at least as relatively favorable as such governmental
plaintiff obtained. The agreement does not require adjustment to reflect more
favorable economic terms pursuant to settlements reached after a jury is
empaneled or in other specified circumstances.

      If on or after October 1, 2000, a participating manufacturer enters into
any future settlement agreement of similar litigation with a non-federal,
non-foreign governmental plaintiff on non-economic terms more favorable than the
non-economic terms of the agreement, and such future settlement agreement
contains terms related to marketing or distributing tobacco products or other
such non-economic terms not contained in the agreement, then the agreement will
be revised with respect to that participating manufacturer to include such terms
if the settling states so desire.


                                       -8-
<PAGE>

      In the event that any settling state resolves by settlement similar claims
against any non-participating manufacturer on overall terms more favorable to
such non-participating manufacturer than those of the agreement, including terms
related to marketing or distributing tobacco products or providing a lower
settlement cost per pack of cigarettes sold, the participating manufacturers
will obtain, with respect to such settling state, overall terms at least as
relatively favorable.

Scope of Release

      Each settling state (including, but not limited to, such settling state's
agencies, subdivisions and officials), as well as other releasing parties as
specified in the agreement, will release all participating manufacturers and
their past, present and future affiliates, the respective officers, directors,
employees, retailers, and distributors of the foregoing, and other released
parties as specified in the agreement: (i) with respect to past conduct, acts or
omissions, from any and all civil claims in any way related to the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, to the exposure to, or to research, statements or warnings regarding,
tobacco products (with the exception of certain specified tax or license-fee
related claims as specified in the agreement); and (ii) with respect to future
conduct, acts or omissions, from monetary civil claims in any way related to the
use of or exposure to tobacco products manufactured in the ordinary course of
business, including without limitation any future claims for reimbursement of
health-care costs allegedly associated with the use of or exposure to tobacco
products.

Brand Transfers

      No original participating manufacturer may sell or transfer any of its
cigarette brands, businesses or product formulas (except for use exclusively
outside the United States) to an entity that is not an original participating
manufacturer unless such entity agrees to assume the obligations of an original
participating manufacturer with respect to such sold or transferred cigarette
brand, business or product formula. In the event of any such sale or transfer to
an entity that within 180 days of the sale or transfer was a non-participating
manufacturer, the participating manufacturer making the sale or transfer must
certify that the acquiror or transferee has the capability of performing the
obligations of a participating manufacturer. If a participating manufacturer
ceases selling in the United States a cigarette brand owned in the United States
prior to July 1, 1998 and an affiliate of such participating manufacturer
thereafter sells such brand in the United States, then such affiliate shall be
considered the successor of such participating manufacturer with respect to such
brand.

Domestic Application

      The obligations under the agreement are not applicable to actions taken
outside of the United States.


                                       -9-
<PAGE>

Effect On Other Settlements

      The states that have previously entered into settlements of health care
cost recovery actions with PM Inc. (Mississippi, Florida, Texas and Minnesota)
may contend that, under the terms of the "most favored nations" clauses of their
settlement agreements, they are entitled to have non-economic terms from the
agreement added to their settlement agreements.

Financial Effects

      PM Inc.'s share of the initial payment, due two business days after court
approval of the escrow agreement, is $1.632 billion and will be funded from
available cash and charged to pretax expense in the fourth quarter of 1998. The
Company will incur additional pretax charges to expense in the fourth quarter of
1998, anticipated to be approximately $335 million, to cover fixed and
determinable costs associated with the agreement, such as payments due in 1999
to the foundation's national public education fund, as well as costs to comply
with marketing and other restrictions contained in the agreement. PM Inc.'s
share of all other payments under the agreement will be charged to expense as
the related sales occur and the Company anticipates that such payments will be
funded through price increases. The Company believes the agreement will
materially adversely affect the operating income, cash flows and financial
position of PM Inc. and the Company in the fourth quarter and year 1998 and will
likely materially adversely affect the business, volume, cash flows and/or
operating income and financial position of PM Inc. and the Company in future
years. The degree of the adverse impact will depend, among other things, on the
rates of decline in United States cigarette sales in the premium and discount
segments, PM Inc.'s share of the domestic premium and discount cigarette
segments, and the effect of any resulting cost advantage of manufacturers not
subject to the agreement.

Tobacco Growers

      The participating manufacturers have also, as part of the agreement,
committed to work cooperatively with the tobacco grower community to address
concerns about the potential adverse economic impact on that community and have
committed to meet with the political leadership of states with grower
communities to address those economic concerns. Such discussions may lead to
substantial additional payments by PM Inc. and other tobacco product
manufacturers to address those concerns.

Item 7. Financial Statements and Exhibits.

      10.   Master Settlement Agreement relating to state health care cost
            recovery claims.

      99.   Press Release dated November 25, 1998, relating to the Company's
            dividend and share repurchase programs.


                                      -10-
<PAGE>

                                    SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                 PHILIP MORRIS COMPANIES INC.


                                 BY /s/ G. PENN HOLSENBECK
                                    Vice President, Associate General Counsel
                                    and Secretary

DATE November 25, 1998
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SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

                     Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

       Date of Report (Date of earliest event reported) November 23, 1998
                                                        -----------------

                          PHILIP MORRIS COMPANIES INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

      Virginia                     1-8940                    13-3260245
--------------------------------------------------------------------------------
   (State or other              (Commission                (IRS Employer
    jurisdiction                File Number)             Identification No.)
  of incorporation)

120 Park Avenue, New York, New York                       10017-5592
--------------------------------------------------------------------------------
     (Address of principal                                (Zip Code)
      executive offices)

Registrant's telephone number, including area code (917) 663-5000
                                                   --------------

--------------------------------------------------------------------------------
          (Former name or former address, if changed since last report)
Item 5. Other Events.

Settlement of State Health Care Cost Recovery Actions

      On November 23, 1998, Philip Morris Incorporated ("PM Inc."), Brown &
Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J. Reynolds
Tobacco Company (the "original participating manufacturers" and, together with
Liggett Group, Inc. and any other tobacco product manufacturer that becomes a
signatory, the "participating manufacturers") entered into a Master Settlement
Agreement (the "agreement") with 46 states, the District of Columbia, the
Commonwealth of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa and
the Northern Marianas (collectively, the "states") to settle the asserted and
unasserted health care cost recovery and certain other claims of those states.
The original participating manufacturers had previously settled similar claims
brought by Mississippi, Florida, Texas, and Minnesota.

      Although PM Inc. and its parent company, Philip Morris Companies Inc. (the
"Company"), believe they had a number of valid defenses to these claims, they
nevertheless believe the agreement is in their best interest and the best
interest of the Company's stockholders because it resolves a significant
litigation threat currently affecting the U.S. tobacco industry and, thereby,
reduces uncertainties facing the industry and can provide a more stable business
environment. The agreement provides that it is not an admission or concession or
evidence of any liability or wrongdoing on the part of any party, and was
entered into by the original participating manufacturers to avoid the further
expense, inconvenience, burden and uncertainty of litigation.

      The agreement is filed as an Exhibit to this Form 8-K and the following
summary of the agreement is qualified by reference thereto.

Advertising and Marketing Restrictions

      The agreement restricts tobacco product advertising and marketing within
the settling states and otherwise restricts the activities of participating
manufacturers. Among other things, it:

      (i)       prohibits the targeting of youth in the advertising, promotion
                or marketing of tobacco products;
(ii)      bans the use of cartoon characters in all tobacco advertising
                and promotion;

      (iii)     limits each participating manufacturer to one tobacco brand name
                sponsorship during any twelve-month period (except for wind-down
                of existing contracts). The single permitted sponsorship may not
                include major team sports or events in which the intended
                audience includes a significant percentage of youth. The
                agreement limits the advertising and promotion in connection
                with such permitted sponsorship, and bans agreements to name any
                stadium or arena in the name of a tobacco brand name;

      (iv)      bans all outdoor advertising of tobacco products (including, but
                not limited to, billboards and tobacco advertising in
                transportation facilities, vehicles, enclosed stadia and
                shopping malls), with the exception of signs 14 square feet or
                less in dimension at retail establishments that sell tobacco
                products (other than solely through vending machines). The
                settling states may use removed billboards for anti-tobacco
                advertising for the duration of the existing lease period at the
                expense of the applicable participating manufacturer;

      (v)       bars participating manufacturers from entering into agreements
                that prohibit a third party from selling, purchasing or
                displaying anti-tobacco advertising;

      (vi)      prohibits payments for tobacco product placement in various
                media;

      (vii)     bans participating manufacturers from offering or selling
                non-tobacco apparel and other merchandise that bears a tobacco
                brand name, subject to specified exceptions;

      (viii)    prohibits the distribution of free samples of tobacco products
                except within an adult-only facility;

      (ix)      bans gift offers based on the purchase of tobacco products
                without sufficient proof that the intended gift recipient is an
                adult;

      (x)       prohibits each participating manufacturer from licensing or
                expressly authorizing third parties to advertise such
                manufacturer's tobacco brand names in any manner prohibited
                under the agreement to that manufacturer itself;

      (xi)      prohibits participating manufacturers from using as a tobacco
                product brand name any nationally recognized non-tobacco brand
                or trade name or the names of sports teams, entertainment groups
                or individual celebrities, subject to specified exceptions;

      (xii)     prohibits participating manufacturers from selling or
                manufacturing packs containing fewer than twenty cigarettes
                through December 31, 2001, and bars participating manufacturers
                from opposing proposed legislation to prohibit the sale of packs
                containing fewer than twenty cigarettes;

                                       -2-
(xiii)    requires participating manufacturers to affirm corporate
                principles to comply with the agreement and to reduce underage
                usage of tobacco products;

      (xiv)     imposes requirements applicable to lobbying activities conducted
                on behalf of participating manufacturers;

      (xv)      prohibits participating manufacturers from agreeing to limit or
                suppress smoking and health information or research or product
                development research;

      (xvi)     prohibits participating manufacturers from making any material
                misrepresentation of fact regarding the health consequences of
                using tobacco products; and

      (xvii)    provides for the dissolution of the Council for Tobacco Research
                - U.S.A., Inc., The Tobacco Institute, Inc. and the Center for
                Indoor Air Research, Inc. and establishes rules for the
                regulation and oversight of any new tobacco-related trade
                association.

Public Disclosure

      Until June 30, 2010, the original participating manufacturers will
maintain their current Internet websites, which include documents produced in
the Minnesota health care cost recovery action and pursuant to Congressional
subpoena. They will add to the websites documents that were produced in the
actions brought by the settling states and that are not subject to specified
protection against disclosure, as well as other specified documents.

Tobacco Control and Underage Use Laws

      Once the agreement is approved with finality in a settling state, the
participating manufacturers will not initiate new facial challenges to statutes,
ordinances and administrative rules relating to tobacco control that were
enacted by that state or its political subdivisions before June 1, 1998.

                                       -3-
Industry Payments

      Initial Payments. The original participating manufacturers will pay
$2,400,000,000 two business days after court approval of the escrow agreement.
This payment will be allocated among the original participating manufacturers
based on their relative market capitalization (as stated in Exhibit K of the
agreement) and will be reduced by a percentage allocated to any states that do
not receive final judicial approval of the agreement. PM Inc.'s share of this
payment is $1,632,000,000. The original participating manufacturers will also
pay $2,472,000,000 on January 10, 2000; $2,546,160,000 on January 10, 2001;
$2,622,544,800 on January 10, 2002 and $2,701,221,144 on January 10, 2003. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments, will be reduced
by a percentage allocated to any states that do not receive final judicial
approval of the agreement, and will be subject to adjustment for changes in the
volume of domestic cigarette shipments.

      Payments to Foundation. The original participating manufacturers will also
make payments to fund a national foundation to be established by the National
Association of Attorneys General to conduct educational programs to counter
underage tobacco use, to educate consumers about the cause and prevention of
diseases associated with the use of tobacco products and to engage in specified
related activities other than political or lobbying activities. On March 31,
1999 and on each March 31 for the subsequent nine years, the original
participating manufacturers will pay $25 million to fund the foundation. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and will be
held in escrow until the occurrence of final judicial approval of the agreement
in at least one settling state. In addition, the original participating
manufacturers will make further payments for the benefit of a national public
education fund established by the foundation in the amounts of $250 million on
March 31, 1999, and $300 million on March 31 of 2000, 2001, 2002 and 2003. These
payments will be allocated among the original participating manufacturers on the
basis of their relative unit volume of domestic cigarette shipments, and (other
than the payment due on March 31, 1999) will be subject to adjustment for
inflation and changes in the unit volume of domestic cigarette shipments. The
$250 million payment is to be held in escrow until final judicial approval of
the agreement has occurred in at least one settling state. The $300 million
payments are to be held in escrow until final judicial approval of the agreement
has occurred in a sufficient number of settling states, as described in the
agreement.

      The original participating manufacturers will also make the following
additional payments for the benefit of the national public education fund. If,
for any calendar year beginning with 2003, the participating manufacturers who
were participating manufacturers for the entire calendar year in question had an
aggregate share of all domestic cigarette shipments for such year equal to or
greater than 99.05%, the original participating manufacturers will pay $300
million for the benefit of the national public education fund on April 15 of the
subsequent year. These payments will be allocated among the original
participating manufacturers on the basis of their relative unit volume of
domestic cigarette shipments, will be reduced by a percentage allocated to any
states that do not receive final judicial approval of the agreement, and will be
subject to adjustment for inflation and changes in the unit volume of domestic
cigarette shipments.

                                       -4-
Payment to Enforcement Fund. On March 31, 1999, the original participating
manufacturers will pay $50 million for the benefit of a fund to be established
by the National Association of Attorneys General to provide for the enforcement
and implementation of the agreement and the investigation and litigation of
potential violations of laws with respect to tobacco products. The payment will
be allocated among the original participating manufacturers based on their
relative unit volume of domestic cigarette shipments. This payment will be held
in escrow until final judicial approval of the agreement has occurred in at
least one settling state.

      Annual and Strategic Contribution Payments. On April 15, 2000 and on each
April 15 thereafter, the original participating manufacturers will pay the
following amounts (subject to adjustment as described below):

                         2000                  $4.5 billion   
                         2001                  $5 billion
                      2002-2003                $6.5 billion
                      2004-2007                $8 billion
                      2008-2017                $8.139 billion
            2018 and each year thereafter      $9 billion

      These annual payments will be allocated among the original participating
manufacturers based on their relative unit volume of domestic cigarette
shipments, will be reduced by a percentage allocated to any states that do not
receive final judicial approval of the agreement and by a percentage allocated
to those states (Mississippi, Florida, Texas and Minnesota) that have already
settled similar claims with the leading tobacco companies, and will be adjusted
for inflation and changes in the unit volume of domestic cigarette shipments.
These payments will also be subject to adjustment and offset as described below.

      In addition to the foregoing payments, the original participating
manufacturers will pay $861 million on April 15, 2008 and on each April 15
thereafter through 2017. These strategic contribution payments will be allocated
among the original participating manufacturers based on their relative unit
volume of domestic cigarette shipments, will be reduced by a percentage
allocated to any states that do not receive final judicial approval of the
agreement, and will be adjusted for inflation and changes in the unit volume of
domestic cigarette shipments. These payments will also be subject to adjustment
and offset as described below.

      The cumulative annual and strategic contribution payments due in a year
will also be subject to further adjustment and offset as follows:

            (i) Those payments will be subject to an "NPM adjustment" in the
      event that the participating manufacturers' aggregate market share of
      domestic cigarette shipments in the calendar year preceding the year in
      which the payment in question is due falls below their 1997 aggregate
      market share less two percentage points (a "market share loss"). This
      adjustment shall only apply if (A) the disadvantages experienced as a
      result of the provisions of this agreement are determined to be a
      significant factor contributing to the market share loss; and (B) during
      the calendar year immediately

                                       -5-
preceding the year in which the payment in question is due the aggregate
      number of cigarettes shipped domestically by specified participating
      manufacturers does not exceed the aggregate number of cigarettes shipped
      domestically by such participating manufacturers in 1997. If the foregoing
      conditions are met, the annual and strategic contribution payments for the
      year in question will be reduced by 3% for each 1% of market share loss,
      up to a market share loss of 16 2/3% (and by a different specified
      percentage for each additional percentage point (or portion thereof) of
      market share loss). The reduction in payments pursuant to the NPM
      adjustment will be allocated among all settling states that did not have a
      qualifying statute in full force and effect during a specified period of
      the prior calendar year, defined as a statute that neutralizes the cost
      disadvantages in the state in question that is imposed on participating
      manufacturers by virtue of the agreement. A state that had a qualifying
      statute in full force and effect during a specified period of the prior
      calendar year will not have any reduction pursuant to the NPM adjustment
      allocated to it, and what would have been its allocated share of such
      reduction will instead be reallocated to (and further reduce the payments
      to) those settling states without qualifying statutes. If a state passes a
      qualifying statute that is in the form of the model statute attached to
      the agreement as Exhibit T, but such statute is invalidated, the reduction
      in payments pursuant to the NPM adjustment may be allocated to that state,
      but may not reduce the annual and strategic contribution payments to that
      state in any year by more than 65%, and any additional reduction that
      would have applied to such state will instead be reallocated to (and
      further reduce the payments to) those settling states without qualifying
      statutes.

      A reduction in payments by the original participating manufacturers
      pursuant to the NPM adjustment will be allocated among the original
      participating manufacturers as follows. First, each original participating
      manufacturer that lost market share during the year in question on a
      disproportionate basis relative to other original participating
      manufacturers shall be allocated up to $300 million of the reduction. Any
      remaining reduction will be allocated among all original participating
      manufacturers on the basis of relative unit volume of domestic cigarette
      shipments (except that, as described in the agreement, there may be
      further reallocation between PM Inc. and Lorillard Tobacco Company in a
      manner potentially adverse to PM Inc.).

            (ii) These payments will also be subject to a dollar-for-dollar
      offset for amounts paid (by settlement, tax or otherwise) by participating
      manufacturers (and made available to any settling state) pursuant to
      certain federal tobacco-related legislation enacted after November 23,
      1998 but on or before November 30, 2002, to the extent that the amounts
      made available to the settling state in question are either (a)
      unrestricted as to their use or (b) restricted to any form of health care
      or to any use related to tobacco (except for amounts specifically
      applicable to tobacco growers or communities dependent on the production
      of tobacco or tobacco products). This offset, however, will not apply to
      the extent that the federal legislation either conditions the state's
      receipt of the federal money upon relinquishment of rights or benefits
      under the agreement or imposes other specified conditions on the state's
      receipt of the money that the state chooses not to fulfill.

            (iii) These payments will also be subject to a further offset as
      follows. The

                                       -6-
settling states (as detailed below) will release participating
      manufacturers, their parents and affiliates and the other released parties
      (as defined in the agreement) from all released claims (as defined in the
      agreement) brought by the settling states (and any of their agencies and
      similar entities), by political subdivisions (such as cities and counties)
      within those states, and by any other person or entity seeking specified
      types of relief. In the event that this release is deemed unenforceable as
      against any of these releasing parties, the participating manufacturers
      will receive a dollar-for-dollar offset for amounts paid by any released
      party (whether by judgment or settlement) on any released claims brought
      by any such releasing parties.

            (iv) These payments will also be subject to a further
      dollar-for-dollar offset for amounts paid on certain contribution (or
      similar) claims by specified non-settling parties.

      Escrow. All payments described above will be made into escrow. The
foundation and enforcement fund payments will be disbursed from escrow as
provided above, and will revert back to the participating manufacturers if the
conditions for their disbursement are not fulfilled by December 31, 2001. Each
settling state's share of the remaining payments will not be disbursed to that
state until after the agreement is given final judicial approval in that state.
If such approval does not occur by December 31, 2001 (or if the agreement is
terminated in that state), that state's share of the payments held in escrow
will revert back to the participating manufacturers.

      Costs and Attorneys Fees. The original participating manufacturers will
reimburse the settling states and other specified governmental entities for
reasonable costs and expenses incurred in connection with the settled claims and
for time reasonably expended by their attorneys and paralegals in connection
with the settled actions, subject to an aggregate cap of $150 million. These
payments will be allocated among the original participating manufacturers on the
basis of relative unit volume of domestic cigarette shipments.

      The original participating manufacturers will also pay the reasonable fees
of outside counsel representing the settling states and other specified
governmental entities. The original participating manufacturers will offer to
liquidate such fees and, to the extent such offers are accepted, will pay such
fees over five years, beginning in 1999, subject to an annual aggregate cap of
$250 million. The fees of attorneys who do not accept such offers will be set by
a panel of arbitrators and, together with the fees of attorneys representing
certain other state and class actions, will be subject to a separate and
additional nationwide annual cap of $500 million. Amounts owed in a particular
year that could not be paid because of the cap will be rolled over to the next
year. In addition, the original participating manufacturers will also pay the
reasonable costs and expenses of such outside counsel, subject to an annual cap
of $75 million. All such payments to outside counsel will be allocated among the
original participating manufacturers on the basis of relative unit volume of
domestic cigarette shipments.

      Payment Responsibility. The payment obligations under the agreement are
the several and not joint obligations of each participating manufacturer and are
not the responsibility of any affiliate of a participating manufacturer.

                                       -7-
Payments By Other Participating Manufacturers. Tobacco companies (other
than the four original participating manufacturers) that are party to the
agreement have the following payment obligations. Such a company that becomes a
party on or prior to January 22, 1999 will have no payment obligations unless
its market share exceeds the greater of 125% of its 1997 market share or 100% of
its 1998 market share. In the year following any year in which its market share
does so exceed the greater of these base market shares, such company will pay on
each excess unit an amount equal (on a per-unit basis) to that paid during such
following year by the original participating manufacturers pursuant to the
foundation payments (except for the $250 million payment due on March 31, 1999)
and the annual and strategic contribution payments, subject to all applicable
adjustments, offsets and reductions (other than the adjustment for changes in
the unit volume of domestic cigarette shipments). Such a company that does not
become a party until after January 22, 1999 will pay on each unit sold an amount
equal (on a per-unit basis) to that paid during the year in question by the
original participating manufacturers pursuant to the foundation payments (except
for the $250 million payment due on March 31, 1999) and the annual and strategic
contribution payments, subject to all applicable adjustments, offsets and
reductions (other than the adjustment for changes in the unit volume of domestic
cigarette shipments).

Finality

      The agreement is subject to final judicial approval in each of the
settling states. Pending final judicial approval of the agreement by the courts
of the settling state in question, a stay of the health care cost recovery
action of such settling state will be sought jointly by such state and the
participating manufacturers who are parties in such action. If a settling state
does not obtain final judicial approval by December 31, 2001, the agreement will
be terminated with respect to such state and its stay will be lifted; the
agreement, however, will remain in effect as to each settling state in which
final judicial approval is obtained.

Most Favored Nation Provisions

      If before October 1, 2000, a participating manufacturer enters into any
settlement agreement of similar litigation with a non-federal, non-foreign
governmental plaintiff on terms more favorable than the overall terms of the
agreement, then the settling states will obtain treatment with respect to such
participating manufacturer at least as relatively favorable as such governmental
plaintiff obtained. The agreement does not require adjustment to reflect more
favorable economic terms pursuant to settlements reached after a jury is
empaneled or in other specified circumstances.

      If on or after October 1, 2000, a participating manufacturer enters into
any future settlement agreement of similar litigation with a non-federal,
non-foreign governmental plaintiff on non-economic terms more favorable than the
non-economic terms of the agreement, and such future settlement agreement
contains terms related to marketing or distributing tobacco products or other
such non-economic terms not contained in the agreement, then the agreement will
be revised with respect to that participating manufacturer to include such terms
if the settling states so desire.

                                       -8-
In the event that any settling state resolves by settlement similar claims
against any non-participating manufacturer on overall terms more favorable to
such non-participating manufacturer than those of the agreement, including terms
related to marketing or distributing tobacco products or providing a lower
settlement cost per pack of cigarettes sold, the participating manufacturers
will obtain, with respect to such settling state, overall terms at least as
relatively favorable.

Scope of Release

      Each settling state (including, but not limited to, such settling state's
agencies, subdivisions and officials), as well as other releasing parties as
specified in the agreement, will release all participating manufacturers and
their past, present and future affiliates, the respective officers, directors,
employees, retailers, and distributors of the foregoing, and other released
parties as specified in the agreement: (i) with respect to past conduct, acts or
omissions, from any and all civil claims in any way related to the use, sale,
distribution, manufacture, development, advertising, marketing or health effects
of, to the exposure to, or to research, statements or warnings regarding,
tobacco products (with the exception of certain specified tax or license-fee
related claims as specified in the agreement); and (ii) with respect to future
conduct, acts or omissions, from monetary civil claims in any way related to the
use of or exposure to tobacco products manufactured in the ordinary course of
business, including without limitation any future claims for reimbursement of
health-care costs allegedly associated with the use of or exposure to tobacco
products.

Brand Transfers

      No original participating manufacturer may sell or transfer any of its
cigarette brands, businesses or product formulas (except for use exclusively
outside the United States) to an entity that is not an original participating
manufacturer unless such entity agrees to assume the obligations of an original
participating manufacturer with respect to such sold or transferred cigarette
brand, business or product formula. In the event of any such sale or transfer to
an entity that within 180 days of the sale or transfer was a non-participating
manufacturer, the participating manufacturer making the sale or transfer must
certify that the acquiror or transferee has the capability of performing the
obligations of a participating manufacturer. If a participating manufacturer
ceases selling in the United States a cigarette brand owned in the United States
prior to July 1, 1998 and an affiliate of such participating manufacturer
thereafter sells such brand in the United States, then such affiliate shall be
considered the successor of such participating manufacturer with respect to such
brand.

Domestic Application

      The obligations under the agreement are not applicable to actions taken
outside of the United States.

                                       -9-
Effect On Other Settlements

      The states that have previously entered into settlements of health care
cost recovery actions with PM Inc. (Mississippi, Florida, Texas and Minnesota)
may contend that, under the terms of the "most favored nations" clauses of their
settlement agreements, they are entitled to have non-economic terms from the
agreement added to their settlement agreements.

Financial Effects

      PM Inc.'s share of the initial payment, due two business days after court
approval of the escrow agreement, is $1.632 billion and will be funded from
available cash and charged to pretax expense in the fourth quarter of 1998. The
Company will incur additional pretax charges to expense in the fourth quarter of
1998, anticipated to be approximately $335 million, to cover fixed and
determinable costs associated with the agreement, such as payments due in 1999
to the foundation's national public education fund, as well as costs to comply
with marketing and other restrictions contained in the agreement. PM Inc.'s
share of all other payments under the agreement will be charged to expense as
the related sales occur and the Company anticipates that such payments will be
funded through price increases. The Company believes the agreement will
materially adversely affect the operating income, cash flows and financial
position of PM Inc. and the Company in the fourth quarter and year 1998 and will
likely materially adversely affect the business, volume, cash flows and/or
operating income and financial position of PM Inc. and the Company in future
years. The degree of the adverse impact will depend, among other things, on the
rates of decline in United States cigarette sales in the premium and discount
segments, PM Inc.'s share of the domestic premium and discount cigarette
segments, and the effect of any resulting cost advantage of manufacturers not
subject to the agreement.

Tobacco Growers

      The participating manufacturers have also, as part of the agreement,
committed to work cooperatively with the tobacco grower community to address
concerns about the potential adverse economic impact on that community and have
committed to meet with the political leadership of states with grower
communities to address those economic concerns. Such discussions may lead to
substantial additional payments by PM Inc. and other tobacco product
manufacturers to address those concerns.

Item 7. Financial Statements and Exhibits.

      10.   Master Settlement Agreement relating to state health care cost
            recovery claims.

      99.   Press Release dated November 25, 1998, relating to the Company's
            dividend and share repurchase programs.

                                      -10-
SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                                 PHILIP MORRIS COMPANIES INC.

                                 BY /s/ G. PENN HOLSENBECK
                                    Vice President, Associate General Counsel
                                    and Secretary

DATE November 25, 1998