UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.   20549

FORM 11-K

(Mark One)

For the fiscal year ended December 31, 2007

OR

For the transition period from                   to                  

Commission file number 1-2360

A.                                   Full title of the plan and address of the plan, if different from that of the issuer named below:

IBM Savings Plan

Director of Compensation and Benefits

Capital Accumulation Programs

IBM Corporation

North Castle Drive

Armonk, New York 10504

B.                                     Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

INTERNATIONAL BUSINESS MACHINES
CORPORATION

New Orchard Road

Armonk, New York 10504

IBM SAVINGS PLAN

Table of Contents

*   Other schedules required by Section 2520.103-10 of the Department of Labor Rules and Regulations for Reporting and Disclosures under the Employee Retirement Income Security Act of 1974 are omitted because they are not applicable.

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SIGNATURE

The Plan.  Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.

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Report of Independent Registered Public Accounting Firm

To the Members of the International Business Machines Corporation (“IBM”) Retirement Plans Committee and the Participants of the IBM Savings Plan:

In our opinion, the accompanying statements of net assets available for benefits and the related statement of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the IBM Savings Plan (the “Plan”) at December 31, 2007 and 2006, and the changes in net assets available for benefits for the year ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.  These financial statements are the responsibility of the Plan’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).  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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The supplemental schedule of assets (held at end of year) is presented for the purpose of additional analysis and is not a required part of the basic financial statements but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974.  This supplemental schedule is the responsibility of the Plan’s management.  The supplemental schedule 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.

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IBM SAVINGS PLAN

STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS

AT DECEMBER 31,

The accompanying notes are an integral part of these financial statements.

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IBM SAVINGS PLAN

STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS

FOR THE YEAR ENDED DECEMBER 31,

The accompanying notes are an integral part of these financial statements.

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IBM SAVINGS PLAN

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - DESCRIPTION OF THE PLAN

The following description of the International Business Machines Corporation (“IBM”) Savings Plan (herein the “Plan”) provides only general information.  Participants should refer to the Plan prospectus (Summary Plan Description) for a complete description of the Plan’s provisions.

General

The Plan was established by resolution of IBM’s Retirement Plans Committee (the “Committee”) effective July 1, 1983 and Plan assets are held in trust for the benefit of its participants.  The Plan offers all eligible active, full-time and part-time regular and long-term supplemental United States (U.S.) employees of IBM and certain of its domestic related companies and partnerships an opportunity to defer from one to eighty percent of their eligible compensation for before-tax 401(k) contributions to any of twenty-three primary investment funds.  The investment objectives of the primary funds are described in Note 3, Description of Investment Funds.  In addition, participants are able to contribute up to ten percent of their eligible compensation on an after-tax basis.   (After-tax contributions are not available for employees working in Puerto Rico.)  Annual contributions are subject to the legal limits permitted by Internal Revenue Service (“IRS”) regulations.

Effective January 1, 2005, the Plan allowed participants to invest their account balances in more than 175 mutual fund investment options through a “mutual fund window”.  Participants may direct investments into this mutual fund window in addition to the various primary investment funds offered by the Plan.

Effective January 1, 2005, participants also were provided the choice to enroll in a “disability protection program” under which a portion of the participant’s account is used to pay premiums to purchase term insurance (underwritten by Metropolitan Life Insurance Company), which will pay the amount of their 401(k) deferral contributions and/or matching contributions into their accounts in the event the participant becomes disabled while insured.  Effective January 1, 2008, participants are able to insure IBM automatic contributions and Special Savings Awards as defined in the Plan prospectus.

Effective January 1, 2008, the IBM Savings Plan name was changed to the IBM 401(k) Plus Plan.  In addition, participants have the opportunity to defer from one to eighty percent of their eligible compensation for before-tax 401(k) and/or Roth 401(k) contributions.  Contributions can be invested in any of the primary investment funds and the Mutual Fund Window funds directly.  New investment funds were added and two investment funds were removed from the investment fund selections.

At December 31, 2007 and 2006, the number of participants with an account balance in the Plan was 218,701 and 223,348, respectively.

The Plan qualifies under Section 401(a) of the Internal Revenue Code of 1986, as amended, and is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended.

Administration

The Plan is administered by the Committee, which appointed certain officials of IBM to assist in administering the Plan.  The Committee appointed State Street Bank and Trust Company (“SSBT”), as Trustee, to safeguard the assets of the funds and State Street Global Advisors (“SSGA”), the institutional investment management affiliate of SSBT. The Vanguard Group and

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other investment managers to direct investments in the various funds.  Hewitt Associates (“Hewitt”) was the provider of record keeping, participant services, and operator of the IBM Savings Plan Service Center in Lincolnshire, Illinois through December 31, 2007.  Communications services were provided by Hewitt as well as The Vanguard Group.

Fidelity Investments Institutional Operations Company, Inc. (“Fidelity”) is the provider of administrative services related to the mutual fund window that became effective January 1, 2005.

Starting January 1, 2008, Fidelity became the provider of record keeping and participant services, and the operator of the IBM Employee Services Center for the IBM 401(k) Plus Plan. In anticipation of the record keeping responsibilities, Fidelity had access to participant records starting December 29, 2007 with data as of December 28, 2007.

Contributions

For the year ended December 31, 2007 for eligible employees hired prior to January 1, 2005 (and certain employees hired thereafter in connection with a particular transaction, as noted in the IBM Savings Plan document), IBM contributed to the Plan a “matching contribution” equal to fifty percent of the first six percent of annual eligible compensation the employee defers (such that the maximum match is three percent of eligible compensation).

Other eligible employees (i.e., generally those hired on and after January 1, 2005) participated in the Plan under certain Plan provisions referred to as the “IBM Pension Program offered through the IBM Savings Plan.”  These employees were automatically enrolled to make 401(k) contributions at three percent of eligible compensation after approximately thirty days of employment with IBM unless they elected otherwise.  After completing one year of service, IBM contributed to the Plan a “matching contribution” equal to one hundred percent of the first six percent of annual eligible compensation the employee defers (such that the maximum match was six percent of eligible compensation).

IBM matching contributions for all employees who made 401(k) contributions (except executives who participate in a non-qualified deferred compensation plan) were automatically adjusted after year-end to provide the full IBM matching contribution for their aggregate 401(k) deferral contributions for the year.

Plan Change Subsequent to December 31, 2007

On January 1, 2008, IBM introduced an enhanced plan design called the IBM 401(k) Plus Plan, which provides employer contributions for eligible participants as follows, based upon which, if any, IBM pension formula the employee was eligible for on December 31, 2007:

Under the IBM 401(k) Plus Plan design, some participants who were eligible to participate in the Personal Pension Account may also receive transition credits contributed to the IBM 401(k) Plus Plan, if they had been eligible for transition credits under the IBM Personal Pension Account formula.  In addition, a contribution equal to five percent of eligible compensation (referred to as a “Special Savings Award”) will be added to the accounts of participants who are non-exempt employees at year-end and who participated in the Pension Credit Formula as of December 31, 2007.

Effective January 1, 2008, newly hired employees will be automatically enrolled at 5% of eligible salary after approximately thirty days of employment with IBM, unless they elect otherwise.  The match

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maximizer feature, which automatically adjusts IBM matching contributions for a participant’s aggregate 401(k) deferrals for the year, will be calculated on a semi-monthly basis and all participants will be eligible for the feature.

Eligible compensation under the Plan includes regular salary, commissions, overtime, shift premium and similar additional compensation payments for nonscheduled workdays, recurring payments under an employee variable compensation plan, regular IBM Short-Term Disability Income Plan payments, holiday pay and vacation pay, but excludes payments made under any executive incentive compensation plan.  Effective April 1, 2008, executive incentive compensation was included in eligible compensation.  Non-recurring compensation, such as awards, deal team payments and significant signings bonuses are not eligible pay and cannot be deferred under the IBM 401(k) Plus Plan.

In 2007, participants could choose to have their contributions invested entirely in one of, or in any combination of, the following funds in multiples of one percent.  These funds and their investment objectives are more fully described in Note 3, Description of Investment Funds.

Life Strategy Funds (4)

Income Plus Life Strategy Fund

Conservative Life Strategy Fund

Moderate Life Strategy Fund

Aggressive Life Strategy Fund

Core Funds (6)

Stable Value Fund

Inflation Protected Bond Fund

Total Bond Market Fund

Total International Stock Market Index Fund

Total Stock Market Index Fund

Real Estate Investment Trust (REIT) Index Fund

Extended Choice Funds (13)

Money Market Fund (no longer offered January 1, 2008)

Long-Term Corporate Bond Fund

High Yield and Emerging Markets Bond Fund

Equity Income Fund (no longer offered January 1, 2008)

European Stock Index Fund

Pacific Stock Index Fund

Large Company Index Fund

Large-Cap Value Index Fund

Large-Cap Growth Index Fund

Small/Mid-Cap Stock Index Fund

Small-Cap Value Index Fund

Small-Cap Growth Index Fund

IBM Stock Fund

IBM Savings Plan participants also have access to the “mutual fund window” investments effective January 1, 2005, as described above.

Participants may change their deferral percentage and investment selection for future contributions at any time.  The changes will take effect for the next eligible pay cycle so long as the request is completed before the applicable cutoff date.  Also, the participant may transfer part or all of existing account balances among funds in the Plan once daily, subject to the Plan restrictions on trading.  The restrictions include:

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·                 Direct transfers from the Stable Value Fund to the Money Market Fund are prohibited.  Any funds that are transferred out of the Stable Value Fund cannot be transferred into the Money Market Fund for a period of 90 days.

·                 30-Day Trading Block.  When funds are transferred out of an investment fund other than the Stable Value Fund, the Money Market Fund or the Mutual Fund Window, the participant must wait 30 calendar days before being able to transfer funds back into that fund.

A service fee was assessed for each transfer in excess of eight in a calendar year.  This fee is no longer charged effective January 1, 2008.

IBM is committed to preserving the integrity of the Plan as a long-term savings vehicle for its employees.  Frequent, short-term trading that is intended to take advantage of pricing lags in funds can harm long-term investors, or increase trading expense in general.  Therefore, the Plan reserves the right to take appropriate action to curb short-term round trip transactions (buying/selling) into the same fund within five (5) business days.

The Plan restrictions on trading were changed effective January 1, 2008.

Effective January 1, 2008, the Life Strategy Funds group name was changed to Life Cycle Funds and the following funds were added:

Target Date 2005 Fund

Target Date 2010 Fund

Target Date 2015 Fund

Target Date 2020 Fund

Target Date 2025 Fund

Target Date 2030 Fund

Target Date 2035 Fund

Target Date 2040 Fund

Target Date 2045 Fund

Target Date 2050 Fund

In addition, the International Real Estate Index Fund was added to the Core Funds on January 1.  The Extended Choice Funds group name was changed to the Expanded Choice Funds and the Money Market and Equity Income Funds are no longer offered in the Plan.

Participant Accounts

The Plan record keeper maintains an account in the name of each participant to which each participant’s contributions and share of the net earnings, losses and expenses, if any, of the various investment funds are recorded.  The earnings on the assets held in each of the funds and all proceeds from the sale of such assets are held and reinvested in the respective funds.

Participants may transfer rollover contributions of before-tax dollars from other qualified savings plans or Individual Retirement Accounts into their Plan accounts.  Rollovers must be made in cash within the time limits specified by the IRS; stock or in-kind rollovers are not accepted.  These rollovers are limited to active employees on the payroll of IBM (or affiliated companies) who have existing accounts in the Plan.  Retirees are not eligible for such rollovers, except that a retiree or separated employee who has an existing account in the Plan may rollover a lump-sum distribution from an IBM-sponsored qualified retirement plan, including the IBM Personal Pension Plan.  After-tax amounts may also be directly rolled over into the Plan from another qualified savings plan.

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On each valuation date, the unit/share value of each fund is determined by dividing the current investment value of the assets in that fund on that date by the number of units/shares in the fund.  The participant’s investment value of assets equals the market value of assets for all funds except the Stable Value Fund for which the participant’s investment value of assets equals the contract value of assets.  In determining the unit/share value, new contributions that are to be allocated as of the valuation date are excluded from the calculation.  The number of additional units to be credited to a participant’s account for each fund, due to new contributions, is equal to the amount of the participant’s new contributions to the fund divided by the prior night’s unit value.  The current night’s price is not impacted by the contribution.

Contributions (with the exception of after-tax contributions which were introduced in 2004 and Roth 401(k) contributions which are allowed only after January 1, 2008) made to the Plan as well as interest, dividends or other earnings of the Plan are generally not included in the taxable income of the participant until withdrawal, at which time all earnings and contributions withdrawn generally are taxed as ordinary income to the participant.  Additionally, withdrawals by the participant before attaining age 59 1/2 generally are subject to a penalty tax of 10 percent interest.  After-tax contributions made to the Plan are not deferred, but are taxable income when the participant makes the contribution.  Any interest, dividends or other earnings on the after-tax contributions are generally not included in taxable income of the participant until withdrawal, at which time all earnings withdrawn are generally taxed as ordinary income to the participant.  Any distribution of earnings on after-tax contributions that are withdrawn by the participant before attaining age 59 1/2 generally are subject to a penalty tax of 10 percent.  Roth 401(k) contributions are not deferred, but are taxable income when the participant makes the contribution. Interest, dividends or other earnings on Roth 401(k) contributions may not be taxable at withdrawal provided the participant has met the applicable rules.

Consistent with provisions established by the IRS, the Plan’s 2007 limit on employee salary deferrals was $15,500.  (The limit stays the same for 2008.)  Participants who were age 50 or older during 2007 could take advantage of a higher pre-tax contribution limit of $20,500 (which stays the same in 2008).  The 2007 maximum annual deferral amount for employees residing in Puerto Rico was limited by local government regulations to the lesser of $8,000 or ten percent of eligible compensation.

Vesting

Participants in the Plan are at all times fully vested in their account balance, including employee contributions, employer contributions  and earnings thereon, if any.

Distributions

Participants who have attained age 59 1/2 may request a distribution of all or part of the value in their account.  Up to four distributions are allowed each year and the minimum amount of any such distribution shall be the lesser of the participant’s account balance or $500.

In addition, participants who (1) retire under the prior IBM Retirement Plan provisions of the IBM Personal Pension Plan, or (2) become eligible for benefits under the IBM Long-Term Disability Plan or the IBM Medical Disability Income Plan, or (3) separate and have attained age 55, may also elect to receive the balance of their account either in annual installments over a period not to exceed ten years or over the participant’s life expectancy, recalculated annually, or defer distribution until age 70 1/2.  Beginning in 2008, annual installments may be made over a period not to exceed 20 years and new life expectancy installments may not be elected.

Withdrawals for financial hardship are permitted provided they are for a severe and immediate financial need, and the distribution is necessary to satisfy that need.  Employees are required to fully use the Plan loan program, described below, before requesting a hardship withdrawal.  Only an employee’s deferral contributions are eligible for hardship withdrawal; earnings and IBM matching contributions are not eligible for withdrawal.  (Starting in 2008, with the addition of starting IBM automatic contributions, transition credits and Special Savings Award, these contributions also are not eligible for hardship withdrawal.)  Employees must submit evidence of hardship to the record keeper, who will determine whether the situation qualifies for a hardship withdrawal based on direction from IBM.  A hardship withdrawal is taxed as ordinary income to the employee and may be subject to the 10 percent additional tax on early distributions.

If the participant dies and is married at the time of death, the beneficiary of the participant’s Plan account must be the participant’s spouse, unless the participant’s spouse has previously given written, notarized

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consent to designate another person as beneficiary.  If the participant marries or remarries, any prior beneficiary designation is canceled and the spouse automatically becomes the beneficiary.  If the participant is single, the beneficiary may be anyone previously designated by the participant under the Plan.  In the absence of an effective designation under the Plan at the time of death, the proceeds normally will be paid in the following order:  the participant’s spouse, the participant’s children in equal shares, or to surviving parents equally.  If no spouse, child, or parent is living, payments will be made to the executors or administrators of the participant’s estate.

Upon the death of a participant, an account will be established for the participant’s beneficiary and the account will be paid out as soon as practical, in a lump sum.  Beneficiaries may rollover distributions from the Plan.

Starting January 1, 2008, if the beneficiary is a spouse or domestic partner, the beneficiary’s account may be maintained in the Plan, subject to the Minimum Required Distribution rules.  If the beneficiary is neither a spouse nor a domestic partner, the account will be paid to the beneficiary in a lump sum.  Beneficiaries may rollover distributions from the Plan.

Participant Loans

Participants may borrow up to one-half of the value of their account balance, not to exceed $50,000, within a twelve month period.  Loans will be granted in $1 increments subject to a minimum loan amount of $500.  Participants are limited to two simultaneous outstanding Plan loans.  Repayment of a loan shall be made through semi-monthly payroll deductions over a term of one to four years.  The loan shall bear a fixed rate of interest, set quarterly, for the term of the loan, determined by the plan administrator to be 1.25 points above the prime rate.  The interest shall be credited to the participant’s account as the semi-monthly repayments of principal and interest are made.  Interest rates on outstanding loans at December 31, 2007 and 2006 ranged from 4.25 percent to 10.75 percent and 4.25 percent to 11.00 percent, respectively.

Participants may prepay the entire remaining loan principal after payments have been made for three full months.  Employees on an approved leave of absence may elect to make scheduled loan payments directly to the Plan.  Participants may continue to contribute to the Plan while having an outstanding loan, provided that the loan is not in default.

Participants who retire or separate from IBM and have outstanding Plan loans may make coupon payments to continue monthly loan repayments according to their original amortization schedule.

Termination of Service

If the value of a participant’s account is $1,000 or less, it will be distributed to the participant in a lump-sum payment as soon as practical following the termination of the participant’s employment with IBM.  If the account balance is greater than $1,000 at the time of separation, the participant may defer distribution of the account until age 70 ½.

Termination of the Plan

IBM reserves the right to terminate this Plan at any time by action of the Committee.  In that event, each participant or beneficiary receiving or entitled to receive payments under the Plan would receive the balance of the account at such time and in accordance with applicable law and regulations.  In the event of a full or partial termination of the Plan, or upon complete discontinuance of contributions under the Plan, the rights of all affected participants in the value of their accounts would be nonforfeitable.

Risks and Uncertainties

The Plan provides for various investment options that include in any combination of mutual funds, commingled funds, life-cycle funds, equities, fixed income securities, synthetic guaranteed investment

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contracts (“GICs”) and derivative contracts.  Investment securities are exposed to various risks, such as interest rates, credit and overall market volatility.  Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is reasonably possible that changes in risks in the near term could materially affect participants’ account balances and the amounts reported in the statement of net assets available for benefits.

The Plan is exposed to credit loss in the event of non-performance by the companies with whom the investment contracts are placed.  However, the Committee does not anticipate non-performance by these companies at this time.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting

The accompanying financial statements are prepared under the accrual basis of accounting, except distributions, which are recorded when paid.

Effective January 1, 2006, the Plan adopted the requirements of Financial Accounting Standards Board  (FASB) Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (FSP AAG INV-1 and SOP 94-4-1).  FSP AAG INV-1 and SOP 94-4-1 require investment contracts held by a defined-contribution plan to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined contribution plan attributable to fully benefit responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the Plan.  Contract value represents the cost plus contributions made under the contracts plus interest at the contract rates less withdrawals and administrative expenses.  In particular, FSP AAG INV-1 and SOP 94-4-1 affected the presentation of the amounts related to the Plan’s participation in the Stable Value Fund.  The statements of net assets available for benefits present the fair value of the investment in the Stable Value Fund as well as the adjustment from fair value to contract value for the fully benefit responsive investment contracts within the Stable Value Fund.  The statement of changes in net assets available for benefits is prepared on a contract value basis.

Valuation of Investments

The Plan’s investments are stated at fair value, which is generally the quoted market price on the last business day of the Plan year.  Investments in mutual funds and commingled funds are valued at the net asset values per share as quoted by such companies or funds as of the valuation date.  IBM common stock is valued daily at the New York Stock Exchange closing price.  Other equity securities are valued at the last reported sales price or closing price.  Fixed income securities traded in the over-the-counter market are valued at the bid prices.  Securities in cash portfolios are valued at amortized cost, which includes cost and accrued interest, which approximates fair value.  Participant loans are valued at cost plus accrued interest, which approximates fair value.

Investment Contracts

The Plan entered into benefit-responsive investment contracts, such as synthetic investment contracts (“GICs”), (through the Stable Value Fund — “the Fund”) with various third parties, i.e., insurance companies and banks.  Fair value generally equals the market price on the last business day of the Plan year.  Contract value represents contributions made to investment contracts, plus earnings, less participant withdrawals and administrative expenses.  The fair value of the wrap contract for the synthetic GIC is determined using a discounted cash flow model which considers recent rebids as determined by recognized dealers, discount rate and the duration of the underlying portfolio.

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A synthetic GIC provides for a fixed return on principal over a specified period of time, e.g., monthly crediting rate, through fully benefit-responsive wrapper contracts issued by a third party, which are backed by underlying assets owned by the Plan.  The contract value of the synthetic GIC held by the Stable Value Fund was $7,372 million and $5,965 million at December 31, 2007 and 2006, respectively.  The fair value of the synthetic GIC wrapper contract was $17 million and $14 million at December 31, 2007 and 2006, respectively.  The adjustment from the sum of the fair value of the underlying assets and the fair value of the synthetic GIC to the contract value of the synthetic GIC was $135 million and $107 million at December 31, 2007 and 2006, respectively.

Wrap contracts accrue interest using a formula called the “crediting rate.”  Wrap contracts use the crediting rate formula to convert market value changes in the covered assets into income distributions in order to minimize the difference between the market and contract value of the covered assets over time.  Using the crediting rate formula, an estimated future market value is benchmark calculated by compounding the Fund’s benchmark market value at the Fund’s current yield to maturity for a period equal to the Fund’s benchmark duration.  The crediting rate is the discount rate that equates estimated future market value with the Fund’s current contract value.  The crediting rate is most impacted by the change in the annual effective yield to maturity of the underlying securities, but is also affected by differential between the contract value and the market value of the covered investments.  The difference is amortized over the duration of the investments. Depending on the change in duration from reset period to reset period, the magnitude of the impact to the crediting rate of the contract “contract to market” difference is heightened or lessened.  Crediting rates are reset monthly.  The wrap contracts provide a guarantee that the crediting rate will not fall below 0%.

If the Fund experiences significant redemptions when the market value is below the contract value, the Fund’s yield may be reduced significantly, to a level that is not competitive with other investment options. This may result in additional redemptions, which would tend to lower the crediting rate further. If redemptions continued, the Fund’s yield could be reduced to zero.  If redemptions continued thereafter, the Fund might have insufficient assets to meet redemption requests, at which point the Fund would require payments from the wrap issuer to pay further participant redemptions.

 The crediting rate, and hence the Fund’s return, may be affected by many factors, including purchases and redemptions by participants.  The precise impact on the Fund depends on whether the market value of the covered assets is higher or lower than the contract value of those assets. If the market value of the covered assets is higher than their contract value, the crediting rate will ordinarily be higher than the yield of the covered assets.  Under these circumstances, cash from new investors will tend to lower the crediting rate and the Fund’s return, and redemptions by existing participants will tend to increase the crediting rate and the Fund’s return.

The Fund and the wrap contracts purchased by the Fund are designed to pay all participant-initiated transactions at contract value.  Participant-initiated transactions are those transactions allowed by the provisions of the Plan (typically this would include withdrawals for benefits, loans, or transfers to non-competing funds within the Plan).  However, the wrap contracts limit the ability of the Fund to transact at contract value upon the occurrence of certain events.  At this time, the occurrence of any of these events is not probable.  These events include:

·                 The Plan’s failure to qualify under Section 401(a) or Section 401(k) of the Internal Revenue Code.

·                 The establishment of a defined contribution plan that competes with the Plan for employee contributions.

·                 Any substantive modification of the Plan or the administration of the Plan that is not consented to by the wrap issuer.

·                 Complete or partial termination of the Plan.

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·                 Any change in law, regulation or administrative ruling applicable to the Plan that could have a material adverse effect on the Fund’s cash flow.

·                 Merger or consolidation of the Plan with another plan, the transfer of plan assets to another plan, or the sale, spin-off or merger of a subsidiary or division of the plan sponsor.

·                 Any communication given to participants by the Plan sponsor or any other plan fiduciary that is designed to induce or influence participants not to invest in the Fund or to transfer assets out of the Fund.

·                 Exclusion of a group of previously eligible employees from eligibility in the Plan.

·                 Any early retirement program, group termination, group layoff, facility closing or similar program.

·                 Any transfer of assets from the Fund directly to a competing option.

·                 Bankruptcy of the plan sponsor or other plan sponsor events which cause a significant withdrawal from the Plan.

A wrap issuer may terminate a wrap contract at any time.  In the event that the market value of the Fund’s covered assets is below their contract value at the time of such termination, the trustee may elect to keep the wrap contract in place until such time as the market value of the Fund’s covered assets is equal to their contract value.  A wrap issuer may also terminate a wrap contract if the trustee’s investment management authority over the Fund is limited or terminated as well as if all of the terms of the wrap contract fail to be met. 

Synthetic investment contracts generally impose conditions on both the Plan and the issuer. If an event of default occurs and is not cured, the non-defaulting party may terminate the contract.  The following may cause the Plan to be in default: a breach of material obligation under the contract; a material misrepresentation; or a material amendment to the Plan agreement.  The issuer may be in default if it breaches a material obligation under the investment contract; makes a material misrepresentation; is acquired or reorganized. If, in the event of default of an issuer, the Plan were unable to obtain a replacement investment contract, the Plan may experience losses if the value of the Plan’s assets no longer covered by the contract is below contract value.  The Plan may seek to add additional issuers over time to diversify the Plan’s exposure to such risk, but there is no assurance the Plan may be able to do so.  The combination of the default of an issuer and an inability to obtain a replacement agreement could render the Plan unable to achieve its objective of maintaining a stable contract value.  The terms of an investment contract generally provide for settlement of payments only upon termination of the contract or total liquidation of the covered investments.  Generally, payments will be made pro-rata, based on the percentage of investments covered by each issuer.  Contract termination occurs whenever the contract value or market value of the covered investments reaches zero or upon certain events of default.  If the contract terminates due to issuer default (other than a default occurring because of a decline in its rating), the issuer will generally be required to pay to the Plan the excess, if any, of contract value over market value on the date of termination.  If a synthetic GIC terminates due to a decline in the ratings of the issuer, the issuer may be required to pay to the Plan the cost of acquiring a replacement contract (i.e. replacement cost) within the

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meaning of the contract.  If the contract terminates when the market value equals zero, the issuer will pay the excess of contract value over market value to the Plan to the extent necessary for the Plan to satisfy outstanding contract value withdrawal requests.  Contract termination also may occur by either party upon election and notice.

The investment contracts owned by the Stable Value Fund earned the following average yields:

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosures of contingent assets and liabilities at the date of the financial statements.  Actual results could differ from those estimates.

Security Transactions and Related Investment Income

Security transactions are recorded on a trade-date basis.  Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis.

The Plan presents in the Statement of Changes in Net Assets Available for Benefits the net appreciation in the fair value of its investments, which consists of realized gains and losses and the unrealized appreciation and depreciation on those investments.

Administrative Expenses and Investment Management Fees

All administrative costs of the Plan are deducted from participants’ account balances.  These costs include (a) brokerage fees and commissions, which are included in the cost of investments and in determining net proceeds on sales of investments, and (b) operational expenses required for administration of the Plan including trustee, recordkeeping, participant reports and communications, and service center expenses, which are charged against the fund’s assets on a pro rata basis throughout the year and are included as part of administrative expenses.  Investment management fees, which are paid from the assets of the respective funds, are fees that comprise fixed annual charges and charges based on a percentage of net asset value and are included as part of administrative expenses.

New Standard to be Implemented

In September 2006, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 157, Fair Value Measurements (the “Standard”).  The Standard defines fair value, sets out a framework for measuring fair value under U.S. GAAP, and expands fair value measurement disclosures.  The Standard does not require new fair value measurements and is effective for financial statements issued for fiscal years beginning after November 15, 2007.  The adoption of this Statement is not expected to have a material effect on the Plan’s Statement of Net Assets Available for Benefits and Statement of Changes in Net Assets Available for Benefits.

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NOTE 3 - DESCRIPTION OF INVESTMENT FUNDS

The objectives of the twenty-three investment funds to which employees could contribute funds in 2007 are described below:

Life Strategy Funds - four blended funds that reflect a portfolio of diversified investments — U.S. stocks, international stocks, real estate equity stocks and fixed-income investments — from the existing core funds noted below.  The funds are structured by the IBM Retirement Fund organization and managed by the underlying funds’ managers.

Core Funds - six funds that provide an opportunity to build a portfolio from a selection of broadly diversified U.S. and international stock funds and from funds that track the fixed-income markets.

Extended Choice Funds - thirteen funds that provide an opportunity to build an investment portfolio with funds that are less broadly diversified, focusing instead on discrete sectors of the stock and bond markets.

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IBM Savings Plan participants also have access to the “mutual fund window” investments — which expands the Plan’s investment options to include nearly 200 mutual funds, most of which are actively managed.  This feature gives more choice to participants who are interested in investing in brand-name funds, or in simply having a broader range of investment options from which to choose.

Securities Lending

Security loan transactions are permitted with the objective to add investment return to the portfolio.  Certain funds may lend securities held in that fund to unaffiliated broker-dealers registered under the Securities Exchange Act of 1934, or banks organized in the United States of America.  At all times, the borrower must maintain cash or equivalent collateral equal in value to at least 102 percent of the value of the domestic securities loaned and 105 percent of the value of international securities loaned. The cash collateral is reinvested to generate income that is credited to the portfolio return. One risk in lending securities is associated with the reinvestment of this cash.  When securities are posted as collateral, the funds seek to minimize risk by requiring a daily valuation of the loaned securities, with additional collateral posted each day, if necessary.  An additional risk in lending securities is that a borrower may default during a sharp rise in the price of the security that was borrowed, resulting in a deficiency in the collateral posted by the borrower.  To mitigate this risk, the loaned securities in the State Street Bank agency program are indemnified against broker default.  

The addition of the securities lending provision does not change the investment objectives for the funds.  The value of  loaned securities in the State Street Bank agency program amounted to $3,502 million and  $3,615 million at December 31, 2007 and 2006, respectively.   The value of cash collateral obtained and reinvested in short-term investments of $3,592 million and $3,725 million for December 31, 2007 and 2006, respectively, is reflected as a liability in the Plan’s financial statements.  Securities lending is also permitted in the commingled funds and in funds within the IBM Mutual Fund Window.  The prospectus for each fund will disclose if lending is permitted.

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NOTE 4 - PLAN TRANSFERS

The transfers listed below represent participant investment account balances attributable to employees transferred to IBM in 2007 primarily as a result of IBM acquisitions:

Significant transfers were:

In 2007, there were also transfers into the Plan totaling $6,616,580 related to participant account balances from other companies.  Total plan transfers were $194,252,690, which includes participant loan balances in addition to the transfers noted above.

NOTE 5 - TAX STATUS

The Trust established under the Plan is qualified under Section 401(a) of the Internal Revenue Code and the Trustee intends to continue it as a qualified trust.  The Plan received a favorable determination letter from the IRS on September 10, 2004.  Subsequent to this determination letter by the IRS, the Plan was amended.  The Plan administrator and Counsel continue to believe the Plan is designed and is being operated in compliance with the applicable requirements of the Internal Revenue Code.  Accordingly, a provision for federal income taxes has not been made.

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NOTE 6 - RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500

The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of:

The following is a reconciliation of investment income per the financial statements to the Form 5500:

The following is a reconciliation of benefits paid to participants per the financial statements to the Form 5500:

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NOTE 7 - INVESTMENT VALUATIONS

The following schedules summarize the value of investments, and the related net appreciation in the fair value of investments by type of investment:

Net Appreciation in Fair Value of Investments (including gains and losses on investments bought and sold, as well as held during the year):

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Investments

The investments that represent 5% or more of the Plan’s net assets available for benefits at December 31, 2007 and 2006 are as follows:

NOTE 8 - RELATED-PARTY TRANSACTIONS

At December 31, 2007, a significant portion of the Plan’s assets were invested in State Street Global Advisors funds.  State Street Global Advisors’ parent company, State Street Bank and Trust Corporation, also acts as the trustee for the Plan and, therefore, these investments qualify as party-in-interest transactions.  The Plan also pays a fee to the trustee and the trustee also is a security lending agent.  These transactions qualify as party-in-interest transactions as well.

In addition, Fidelity Investments Institutional Operations Company, Inc is the provider of administrative services related to the mutual fund window as well the investment manager of Fidelity funds within the mutual fund window.  Starting January 1, 2008, as disclosed in note 1, Fidelity also became the provider of record keeping and participant services, and the operator of the IBM Employee Services Center for the IBM 401(k) Plus Plan.

At December 31, 2007 the Plan held 14,627,366 shares of IBM common stock valued at $1,581,218,265.  At December 31, 2006, the Plan held 16,931,921 shares of IBM common stock valued at $1,645,492,419.

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IBM SAVINGS PLAN
Schedule H, line 4i - Schedule of Assets (Held at End of Year)

AT DECEMBER 31, 2007

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EXHIBIT A - Total International Stock Market Index

(Managed by State Street Global Advisors)

IBM SAVINGS PLAN AT DECEMBER 31, 2007

Schedule H, line 4i-Schedule of Assets  (Held At End of Year)