-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, n85hJ1SapYbreDuDR+I96vHzrCMAUsUhEe+6GkpN6TYOaoGbIkYTALpULwSXTA4u ouU8zZwCJPsk4F3qcahY5A== 0000950130-95-000766.txt : 19950425 0000950130-95-000766.hdr.sgml : 19950425 ACCESSION NUMBER: 0000950130-95-000766 CONFORMED SUBMISSION TYPE: 424B3 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950424 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHILIP MORRIS COMPANIES INC CENTRAL INDEX KEY: 0000764180 STANDARD INDUSTRIAL CLASSIFICATION: CIGARETTES [2111] IRS NUMBER: 133260245 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-39162 FILM NUMBER: 95530755 BUSINESS ADDRESS: STREET 1: 120 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 212-880-3870 MAIL ADDRESS: STREET 1: 120 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10017 424B3 1 KRAFT FOODS THRIFT PLAN Rule 424(b)(3) File Nos. 33-1480 33-37115 33-17870 33-39162 Summary Plan Description/ Prospectus - ------------ Kraft Foods Thrift Plan - ------------ Kraft Choice Protection for Today, Providing for Tomorrow - -------------------------------------------- TABLE OF CONTENTS - -------------------------------------------------------------------------------- 1 General Plan Information 1 General Nature and Purpose 2 Eligibility 3 Enrollment 3 Earning Vesting Service 4 Break in Service 4 Effects of a Break in Service 5 Rejoining the Plan After a Break in Service 5 Rights from a Prior Plan 6 Contributions Under the Plan 6 Your Contributions to the Plan 6 Basic and Supplemental Contributions 6 Tax-Deferred vs. After-Tax 6 Tax-Deferred Contributions 7 After-Tax Contributions 8 Rollover Contributions 8 Kraft Foods Matching Contributions 9 Accounts and Accounts' Status 10 Vesting--Ownership of Your Accounts 10 Forfeitures 11 Investment of Funds 11 Investment Choices 12 Diversification 12 Risk and Reward 12 Description of Investment Choices 13 The Philip Morris Stock Fund 13 The International Equity Fund 13 The Growth Equity Fund 14 The Equity Index Fund 14 The Balanced Fund 14 The Government Securities Fund 14 The Interest Income Fund 15 Distribution of Prospectuses 16 Investment Performance 17 Making Changes 17 Unlimited Changes to Contributions Throughout the Year 17 Unlimited Changes to Investment Choices Throughout the Year 17 Changes in Beneficiary Designation 18 Loans 18 Applying for a Loan 19 Borrowing from Your Accounts 19 Repaying the Loan 20 Other Information 21 Withdrawals and Distributions 21 Withdrawals 21 Hardship Withdrawals 22 Withdrawals On and After Age 59 1/2 22 Withdrawals Attributable to Prior Plan Balances 23 Other Withdrawal Information 23 Distribution of Your Accounts 23 Forms of Payments 24 Single Payment 24 Annuity 24 Installment Payments 25 Combination of Methods 25 Deferring Payment 25 Applying for a Withdrawal or Distribution 25 Withdrawals 25 Distribution of Your Accounts 26 Your Beneficiary 27 Claims Procedure 28 Other Important Information 28 Tax Considerations 29 Lump Sum Payments 30 Non-Lump Sum Payments 30 Withholding of Income Taxes 31 Rollover of All or a Portion of Your Accounts 31 Ten Percent Excise Tax 31 Other Taxes - -------------------------------------------------------------------------------- i 32 Effect on Other Benefits 32 Loans 33 Administration 33 General Information 34 ERISA 34 Plan Sponsor 34 Plan Administrator 35 Employer Identification Number 35 Plan Number 35 Funding of the Plan 36 Plan Trustee 36 Information Concerning the Investment Funds 37 Plan Year 36 No Guarantee of Benefit Amount 37 Right to Terminate the Plan 38 Limits on Contributions 38 Non-Discrimination Test 38 Contributions Limitation Test 39 Tax-Deferred Contributions Limitation 39 Non-Assignability of Benefits 40 If You Become Incompetent 40 Your ERISA Rights 41 Compliance with Section 404(c) of ERISA 42 Additional Information About the Company and the Plan 43 Special Tax Notice Regarding Plan Payments 43 Summary 44 Payments that Can and Cannot be Rolled Over 44 Non-Taxable Payments 44 Payments Spread over Long Periods 44 Required Minimum Payments 45 Direct Rollover 45 Direct Rollover to an IRA 45 Direct Rollover to a Plan 45 Direct Rollover of a Series of Payments 45 Payment Paid to You 46 Income Tax Withholding 46 Mandatory Withholding 46 Voluntary Withholding 46 Sixty-Day Rollover Option 47 Additional 10 Percent Tax if You Are Under Age 59 1/2 47 Special Tax Treatment 47 Five-Year Averaging 47 Ten-Year Averaging if You Were Born Before January 1, 1936 47 Capital Gain Treatment if You Were Born Before January 1, 1936 48 Employer Stock or Securities 48 Surviving Spouses, Alternate Payees, and Other Beneficiaries 49 How to Obtain Additional Information - -------------------------------------------------------------------------------- ii GENERAL PLAN INFORMATION - ------------------------------------------------------------------------------- General Nature and Purpose Your retirement program at Kraft Foods (Kraft Foods) is built on the Kraft Foods Thrift Plan (also referred to in this booklet as the Plan or the Thrift Plan), together with the Kraft Foods Retirement Plan, and Social Security. All three benefits work together to provide you with an income for your retirement. This Plan enables you and all other eligible employees to share in the profits of Kraft Foods and to invest your and Kraft Foods' matching contributions (as described on page 8) while deferring income taxation until retirement. The Thrift Plan provides you with an easy and effective way to build savings for your retirement. As described on page 6, you may elect to contribute from 1% to 16% of your pay to the Plan, and you are eligible for a Kraft Foods matching contribution on the first 6% of pay you contribute. Other features of the Plan include an option to save with tax-deferred contributions and a choice of investment funds, including a fund invested primarily in shares of the common stock, $1 par value, of Philip Morris Companies Inc. (the Common Stock). This booklet explains the Plan's provisions as of May 15, 1995. It describes who is eligible to participate in the Plan, how contributions are made, how you can invest the balance in your Accounts (as described on page 9) and future contributions to the Plan, when you can receive payment, opportunities to invest in Common Stock, and more. We urge you and your family to read this booklet carefully, keep the booklet for future reference and contact your Thrift Plan representative if you have any questions concerning the Plan. - -------------------------------------------------------------------------------- This document is a prospectus covering securities that have been registered under the Securities Act of 1933. The date of this prospectus is April 17, 1995. - -------------------------------------------------------------------------------- 1 Eligibility You are eligible to join the Thrift Plan if you are a full-time, part-time, or seasonal non-collective bargaining employee of Kraft Foods. You are not eligible if contributions are being made on your behalf to another defined contribution plan qualified under Section 401(a) of the Internal Revenue Code sponsored by any company which is part of the group of companies of which Philip Morris Companies Inc. (the Company) is the common parent company (a Philip Morris affiliated company). If you were a participant in the Plan on May 14, 1995, you continue to be eligible to participate in the Plan on May 15, 1995 if you are an eligible employee employed by Kraft Foods on that date. All other full-time employees--You become eligible to join the Plan on your one-year anniversary of employment (or on the date your employee group becomes eligible, if later). All other part-time or seasonal employees--You become eligible to join the Plan on the anniversary of your hire date if you complete 1,000 hours of service during your first 12 months of employment. You earn hours of service for paid time at work and paid time off, such as vacations and holidays. If you do not complete 1,000 hours of service during your first 12 months, you can join the Plan on the day after you have completed 1,000 hours of service within a calendar year (or on the date your employee group becomes eligible, if later). Your employment with any Philip Morris affiliated company is included in computing your one year of employment and counting your hours of service. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 Enrollment Your participation in the Thrift Plan is completely voluntary. To join the Thrift Plan, you need to sign and return a signature authorization card (call your Thrift Plan representative). Once your signature card is on file, you may call the interactive telephone system designated by Kraft Foods for Thrift Plan transactions, and using your personal identification number over the phone will constitute your signature for Thrift Plan purposes. You may call the interactive telephone system to . authorize Kraft Foods to deduct the percentage of pay you choose to invest in the Plan; . indicate whether you will make your contributions on a tax-deferred or after-tax basis, or in a combination of the two (see pages 6-7); and . indicate in which investment fund or funds you want your and Kraft Foods' contributions to be invested. Your contributions will start with the first possible payroll after you enroll. When you join the Plan, you should also complete a beneficiary designation form. Your beneficiary is the person you want to receive the balance in your Accounts in the event of your death. If you are married, your beneficiary is automatically your spouse, unless your spouse consents in writing to your naming someone else. Your spouse's signature on the beneficiary designation form must be witnessed by a notary public. If you decide not to join the Thrift Plan when you first become eligible, you may join later, on any day. - -------------------------------------------------------------------------------- Earning Vesting Service The service you earn during your employment with Kraft Foods or any other Philip Morris affiliated company determines your ownership of your Company Match Account holding Kraft Foods matching contributions. See pages 8 and 9 for additional information about your Company Match Account. All employees--You earn months and years of vesting service for your periods of employment beginning on your date of hire and ending on the day on which you start a break in service. See the following section, "Break in Service". - -------------------------------------------------------------------------------- 3 Break in Service A break in service starts on the following dates: . if you retire, quit, or are discharged, a break in service begins on your last day at work; . if you are absent from active employment for any other reason (other than an approved leave of absence or paid short-term disability), a break in service begins on the first anniversary of the date the absence began; . if you take an approved leave of absence of less than one year and fail to return to work before the first anniversary of the date the leave began, a break in service begins on the date you fail to return to work; . if you take an approved leave of absence of more than one year and do not return to work at the end of the leave, a break in service begins on the first anniversary of the beginning of your leave of absence; or . if you take maternity or paternity leave and do not return to work at the end of the leave, a break in service begins on the second anniversary of your last day at work. Note that special rules apply if you leave to join the U.S. Armed Forces and you return to work within the period specified by law. - -------------------------------------------------------------------------------- Effects of a Break in Service If you have a break in service as described above, your prior service will be restored for eligibility purposes when you return to work with Kraft Foods or any other Philip Morris affiliated company. However, for vesting purposes, your prior service will not be restored if your break in service is at least five years and you were not vested in any part of your Company Match Account when you left. In addition, if you were not 100% vested in your Company Match Account, any service earned after a break in service of five years or more does not count toward computing the vested portion of your Company Match Account earned before the break. See "Vesting--Ownership of Your Accounts" on page 10. Remember that periods of employment with any other Philip Morris affiliated company also count for earning eligibility and vesting service. A transfer to a Philip Morris affiliated company which is not participating in the Plan is not a break in service and you will not lose the non-vested portion of your Company Match Account, but you will no longer be eligible to make contributions to the Plan and you will not be eligible for the Kraft Foods matching contributions described on page 8 after the date of transfer. You will not be eligible to receive the vested balance in your Accounts until you leave the employment of the Philip Morris affiliated companies. - -------------------------------------------------------------------------------- 4 Rejoining the Plan After a Break in Service You can rejoin the Thrift Plan on any day following your date of re- employment in an eligible group of Kraft Foods employees. Contributions will start with the first possible payroll after you re-enroll. See "Break in Service" on page 4 for the rules on restoring your vesting service on your return to work with Kraft Foods and the other Philip Morris affiliated companies. - -------------------------------------------------------------------------------- Rights from a Prior Plan You may have rights in addition to those described in this booklet if your accounts under another plan (a prior plan) maintained by a company which became a Philip Morris affiliated company are transferred at the request of Kraft Foods to the Plan. These additional rights do not apply to any rollover contributions which you elect to make to the Plan. See "Rollover Contributions" on page 8. You should call your Thrift Plan representative for any additional rights that may apply to the portion of your Accounts which has been transferred from a prior plan to the Thrift Plan. For example, you may have the following additional rights: . to withdraw funds from the Plan while you are working (see "Withdrawals" on pages 21-23); . additional forms of payment to choose from when you leave the Philip Morris affiliated companies (see "Distribution of Your Accounts" on pages 23-25); or . full ownership of the portion of your Accounts transferred from the prior plan to the Plan, even if you have not completed five years of service (see "Vesting--Ownership of Your Accounts" on page 10). - -------------------------------------------------------------------------------- 5 CONTRIBUTIONS UNDER THE PLAN - -------------------------------------------------------------------------------- You may contribute from 1% to 16% of your pay, in whole percentages, to the Plan through automatic payroll deduction. The Administrative Committee may reduce the amount you are permitted to contribute in order to comply with certain limitations imposed by law. See pages 38-39. Your pay is your base pay plus any overtime, premium pay, commissions, cash bonuses, and cash incentives, but not deferred bonuses (including APA bonuses). You may contribute on a tax- deferred basis, on an after-tax basis, or in a combination of the two. Whichever method of contributions you choose, up to 6% of your pay is eligible for a Kraft Foods matching contribution. - -------------------------------------------------------------------------------- Your Contributions to the Plan Basic and Supplemental Contributions Your contributions up to the first 6% of pay are called basic contributions. Your basic contributions are eligible to receive a Kraft Foods matching contribution as described on page 8. Any contributions you make in excess of 6% and up to 16% of your pay are called supplemental contributions and are not eligible for a Kraft Foods matching contribution. Tax-Deferred vs. After-Tax You decide whether to make your total contribution on a tax-deferred basis, an after-tax basis, or in a combination of the two. All of your basic contributions to the Thrift Plan, up to 6% of pay, are eligible to receive a Kraft Foods matching contribution. Tax-Deferred Contributions Tax-deferred contributions are taken from your pay before income tax (but after Social Security tax) is deducted, and then deposited into your Tax- Deferred Contributions Account (see page 9). These contributions are called tax- deferred because the contributions are made before income taxes are withheld. Thus, the income tax you owe on the tax-deferred contributions is postponed until the contributions are withdrawn or distributed from the Plan. This kind of saving offers an advantage over after-tax saving because your taxable income in the current year is reduced by the amount of your tax-deferred contributions. Keep in mind that the advantage of tax-deferred saving works best if you use the Thrift Plan as it is intended: to provide long-term savings for retirement. This is because the Internal Revenue Code imposes a 10% additional tax on most withdrawals of taxable money made before age 59 1/2. See "Ten Percent Excise Tax" on page 31. - -------------------------------------------------------------------------------- 6 After-Tax Contributions After-tax contributions are taken from your pay after income tax is deducted and are then deposited in your After-Tax Contributions Account. With after-tax contributions, you do not have all of the tax benefits of saving with tax-deferred contributions. However, your after-tax contributions benefit from the deferral or postponement of taxes on the accumulation of any earnings. Your after-tax contributions are not subject to the 10% additional tax if withdrawn before age 59 1/2; only the earnings could be subject to the additional tax. For further details about in-service withdrawals, see pages 21-23. Below are some examples that show the increase in your take home pay if you save on a tax-deferred rather than an after-tax basis. We will assume that you earn either $20,000 or $40,000 a year and contribute 6% of your pay to the Plan. Taxes are based on 1994 federal income tax rates for a single taxpayer who claims one exemption ($2,450 for 1994) and the standard deduction ($3,800 for 1994). Social Security tax is deducted from your pay in both cases, so it is not included in the example. - -------------------------------------------------------------------------------- TAX-DEFERRED VS. AFTER-TAX SAVING -----------------------------------------------------------
$20,000 ANNUAL PAY After- Tax- Tax Deferred ------- -------- Annual Pay $20,000 $20,000 Tax-Deferred Contributions N/A -1,200 ------- ------- Income Subject to Tax 20,000 18,800 Federal Taxes 2,066 1,886 ------- ------- Net Income 17,934 16,914 After-Tax Contributions -1,200 N/A ------- ------- Spendable Income 16,734 16,914
----------------------------------------------------------- -----------------------------------------------------------
$40,000 ANNUAL PAY After- Tax- Tax Deferred ------- -------- Annual Pay $40,000 $40,000 Tax-Deferred Contributions N/A -2,400 ------- ------- Income Subject to Tax 40,000 37,600 Federal Taxes 6,500 5,828 ------- ------- Net Income 33,500 31,772 After-Tax Contributions -2,400 N/A ------- ------- Spendable Income 31,100 31,772
----------------------------------------------------------- As the examples show, you can save the same amount on a tax- deferred basis and still take home more pay. That's money that you can spend or use to increase your contributions to the Thrift Plan. - -------------------------------------------------------------------------------- 7 Rollover Contributions One more way that you can contribute to the Thrift Plan is called a rollover contribution. A rollover contribution is all or a part of the taxable portion of a distribution from another employer's qualified retirement plan (qualified plan), excluding any qualified voluntary employee contributions or deductible employee contributions, that is deposited into your Rollover Account under the Thrift Plan. A rollover is subject to certain conditions, including approval by the Administrative Committee (see page 34), and must be made . from a conduit IRA, or within 60 days after payment has been made to you from your former employer's qualified plan; or . it may be paid directly from your former employer's qualified plan to the Trustee of the Plan (see page 43). A conduit IRA is an individual retirement account or annuity (IRA) which holds only assets from a qualified plan. Any rollover contribution accepted by the Administrative Committee is not considered in determining the maximum amount that you can contribute. Rollover contributions are not eligible for Kraft Foods matching contributions. Call your Thrift Plan representative for information and the forms to make a rollover contribution. You will be required to submit supporting documents (showing that you have received an eligible rollover distribution) before your rollover will be approved. - -------------------------------------------------------------------------------- Kraft Foods Matching Contributions Your basic contributions to the Plan--the first 6% of pay you contribute-- are eligible for a Kraft Foods matching contribution. The amount of Kraft Foods matching contributions varies from year to year, and currently ranges from 50% to 100% of your basic contributions. Currently, the Kraft Foods matching contribution rate is announced at the end of each year for the following year. The Kraft Foods matching contribution is deposited in your Company Match Account on a current basis. - -------------------------------------------------------------------------------- 8 ACCOUNTS AND ACCOUNTS' STATUS - -------------------------------------------------------------------------------- The Administrative Committee maintains the following Accounts for you: . a Company Match Account which reflects your share of the Trust Fund (as described on page 11) from Kraft Foods matching contributions; . a Tax-Deferred Contributions Account which reflects your share of the Trust Fund from your tax-deferred contributions; . an After-Tax Contributions Account which reflects your share of the Trust Fund from your after-tax contributions; . a Rollover Account if you have made a rollover contribution, or if amounts from employer contributions have been transferred from a prior plan (see "Rights from a Prior Plan" on page 5); and . an IRA Account if you made qualified voluntary employee contributions prior to January 1, 1987. To help you keep track of your Accounts, Kraft Foods provides an account statement at least once each year. The account statement shows the total balance of each of your Accounts as of the statement date as well as the details of recent activity in your Accounts. If you have any questions about your account statement or if you believe there may be an error, you should contact your Thrift Plan representative. You may request more current information regarding your Accounts telephonically. - -------------------------------------------------------------------------------- 9 VESTING--OWNERSHIP OF YOUR ACCOUNTS - -------------------------------------------------------------------------------- Vesting means ownership of the balance in your Accounts. You are always 100% vested in your Tax-Deferred Contributions, After-Tax Contributions, Rollover and IRA Accounts. You become vested in the balance in your Company Match Account based on your years of vesting service (see page 3), as follows: ------------------------
Completed Years Percent of Service Vested --------------- ------- Less than 2 None 2 25% 3 50% 4 75% 5 100%
------------------------ In addition, regardless of your years of service, you automatically become 100% vested in the balance of your Company Match Account at . normal retirement age; . permanent and total disability; or . death while employed by a Philip Morris affiliated company. If you were a participant in a prior plan special rules may determine your vested interest in your transferred account balance. Call your Thrift Plan representative for details. Your normal retirement age is your 65th birthday. You may be considered permanently and totally disabled if medical evidence indicates that you are permanently unable to perform any job and have been so for at least six months. - -------------------------------------------------------------------------------- Forfeitures If you leave Kraft Foods before you are 100% vested in your Company Match Account, you lose, or forfeit, the non-vested portion when you have a break in service of five years or more, or when you receive a distribution, if earlier. The amount forfeited on receiving a distribution is restored to your Company Match Account if you are rehired before the fifth anniversary of the beginning of your break in service (see "Break in Service" on page 4). Otherwise, forfeitures are used to offset future Kraft Foods matching contributions. - -------------------------------------------------------------------------------- 10 INVESTMENT OF FUNDS - -------------------------------------------------------------------------------- Investment Choices Your Accounts under the Plan--your contributions and Kraft Foods' matching contributions to the Plan, and earnings and losses from all contributions, less payments made by the Trustee, are held in a Trust Fund. The Trust Fund may only be used for the exclusive benefit of participants, former participants and their beneficiaries and for the payment of reasonable expenses of administering the Plan and the Trust Fund. The Trustee keeps the Trust Fund invested in the following investment funds according to your instructions: the Philip Morris Stock Fund, the International Equity Fund, the Growth Equity Fund, the Equity Index Fund, the Balanced Fund, the Government Securities Fund and the Interest Income Fund. You have the choice of separately investing your own contributions and the Kraft Foods matching contributions in any combination of the funds in 5% increments. For example, your investment election may look as follows: -------------------------------------------------------
A SAMPLE INVESTMENT ELECTION (Yours may be different) Kraft Foods Your Matching Contributions Contributions ------------- ------------- Philip Morris Stock Fund 10% 15% International Equity Fund 20% 20% Growth Equity Fund 10% 15% Equity Index Fund 10% 15% Balanced Fund 15% 10% Government Securities Fund 15% 10% Interest Income Fund 20% 15% ---- ---- 100% 100%
------------------------------------------------------- The Trustee only changes your interests in the investment funds according to your instructions, which you may give daily (except Sundays). See page 17 on how you change your investment election. - -------------------------------------------------------------------------------- 11 Diversification You should consider diversifying the investments in your Accounts by selecting a combination of the investment funds offered in the Plan. Diversification is the practice of spreading savings among different types of investments to help reduce the risk of loss to your total savings program. Diversification lets you take advantage of the different investment objectives of each investment fund in the Plan. A successful diversification program balances a mix of investments in accordance with your long-term financial goals and personal tolerance for risk. It is generally unwise to overly concentrate the balance in your Accounts in an investment fund which holds a single security or in any single investment fund. When making your decision relative to the Philip Morris Stock Fund, you should consider your entire financial relationship with the Philip Morris affiliated companies; that is, your pension benefits and all forms of your compensation that are provided by Kraft Foods and any other Philip Morris affiliated company. While we want to share with you the opportunity to own Common Stock, you should feel under no obligation to invest in Common Stock. Risk and Reward Each of the seven investment funds has a different degree of risk. The Interest Income Fund contains the smallest amount of risk, while the funds which invest primarily in stock contain the greatest amount of risk. The Philip Morris Stock Fund has an added degree of risk in that it is invested in a single security. Over the long term, assuming more risk has historically resulted in higher investment returns. However, over the short term, assuming more risk has resulted in more fluctuations, including declines, in the value of an Account. You should base your investment choices on the degree of short-term and long- term risk that you are willing to accept and are comfortable with. Description of Investment Choices The following descriptions of the investment funds are provided to help you make your investment decisions. Each of these investment funds is managed by Bankers Trust Company except for the Growth Equity Fund, which is managed by Twentieth Century Investors, Inc. The funds are listed in order of their risk with the Philip Morris Stock Fund having the greatest degree of risk and the Interest Income Fund having the least amount of risk. - -------------------------------------------------------------------------------- 12 The Philip Morris Stock Fund INVESTMENT OBJECTIVE: Capital growth and dividend income through an investment in Common Stock. The Company offers you the opportunity to invest in shares of Common Stock with Kraft Foods matching contributions and also to invest your contributions to the Plan in shares of Common Stock. The Trustee purchases Common Stock for the Philip Morris Stock Fund at fair market value on the open market or directly from the Company. The Philip Morris Stock Fund's value depends on the market value of the Common Stock, and on the value of temporary investments in a short-term cash reserve account. Dividends on shares of Common Stock are automatically reinvested to purchase additional shares of Common Stock. You are responsible for directing the Trustee to vote all of the shares of Common Stock held for your benefit in the Philip Morris Stock Fund and allocated to your Accounts. The Trustee will vote full and fractional shares of Common Stock in accordance with your instructions. The Trustee votes those shares of Common Stock for which inadequate or no voting instructions have been received in the same proportions as the shares for which instructions have been received. Before each shareholders' meeting, you will receive information on the procedure for voting your shares as well as a Proxy Statement of the Company in connection with matters to be voted on at such meeting. Your vote on any matter in the Proxy Statement is returned directly to the Trustee. The International Equity Fund INVESTMENT OBJECTIVE: Capital growth through investment in common stocks of foreign companies. The International Equity Fund is primarily invested in stocks of companies based outside the U.S. The Fund is primarily invested in the stocks of the companies that make up the Europe, Australia, and Far East (EAFE) index. The approximate allocation of the stocks in the Fund are 50% in Europe, 3% in Australia, and 47% in the Far East (including 37% in Japan). International investing presents a number of opportunities as well as risks. Investing in other countries offers greater diversity and often increased returns. However, investments outside the U.S. are subject to additional risks, including currency fluctuations, political and social instability, differing securities regulations and accounting standards, and limited public information. The International Equity Fund's value depends on the market value in U.S. dollars of the stocks held by the Fund. Dividends are reinvested in the International Equity Fund. The Growth Equity Fund INVESTMENT OBJECTIVE: Capital growth through investment in stocks of U.S. and foreign companies with a history or commitment to, regular dividend payments. The Growth Equity Fund is primarily invested in common stocks considered to have better-than-average prospects for long term growth. The companies chosen for investment typically have faster growing sales and earnings, and generally are smaller in size than the companies in The Equity Index Fund. The Growth Equity Fund's value depends on the market value of stocks it holds, and on dividends paid and reinvested in the Growth Equity Fund. - -------------------------------------------------------------------------------- 13 The Equity Index Fund INVESTMENT OBJECTIVE: Capital growth and dividend income through investment in the companies in the Standard & Poor's 500 Stock Index (the S&P 500). The Equity Index Fund is invested primarily in the stocks of the corporations that make up the S&P 500. The Equity Index Fund's value depends on the market value of stocks held in the Equity Index Fund, and on the value of temporary investments held in a short-term cash reserve account. Dividends are reinvested in the stock held in the Equity Index Fund. The Balanced Fund INVESTMENT OBJECTIVE: Combination of current income and capital growth. The Balanced Fund offers a diversified mix of U.S. and foreign stocks, investment grade bonds and investment grade money market instruments. In general, the assets of the Fund may be invested according to the following mix: 40% to 70% in stocks, 20% to 55% in bonds, and 0% to 25% in money market instruments. Adjustments are made gradually over time to favor asset classes that the manager believes will provide the most favorable total return given market conditions and the economic outlook. The Balanced Fund's value depends on the market value of the stocks, bonds, and money market instruments it holds. Dividends and interest income are reinvested in the Balanced Fund. The Government Securities Fund INVESTMENT OBJECTIVE: Competitive rate of return through interest income and capital gains. The Government Securities Fund is invested primarily in obligations, with an average maturity of approximately five years, issued by the United States government, such as treasury notes, bonds and bills; or issued by a federal government agency and fully guaranteed as to payment of principal upon maturity and interest by the United States government; or thrift institution and commercial bank deposits to the extent they are fully insured by the Federal Deposit Insurance Corporation or a similar agency. Treasury and federal agency securities represent direct or indirect obligations of the United States government. While the securities of some federal agencies are backed by the full faith and credit of the United States government, others are guaranteed by the Treasury or supported by the issuing federal agency's right to borrow from the Treasury. Prior to May 15, 1995, the average maturity of the securities in the Government Securities Fund was less than two years. The Interest Income Fund INVESTMENT OBJECTIVE: Capital preservation, a stable rate of return consistent with the preservation of principal, and liquidity. The Interest Income Fund is invested primarily in a diversified portfolio of fixed income investments and agreements representing an issuer's promise to repay principal, plus a rate of interest which may be fixed or variable. The Interest Income Fund is invested primarily in group annuity contracts with life insurance companies, contracts or other arrangements between the Trustee and one or more institutions designated by the Trustee; deposit agreements with banks and a short-term cash reserve account. The Interest Income Fund may also be invested in mortgage-backed and asset- backed securities, some of which are guaranteed as to the payment of principal and interest by the - -------------------------------------------------------------------------------- 14 United States government or its agencies, corporate bonds and obligations of the United States government and its agencies. Any security that is not a direct obligation of the United States government will have at the time of purchase the highest credit rating assigned by a nationally recognized rating agency. A financial institution with one of the highest credit ratings assigned by a nationally recognized rating agency will agree to protect a designated pool of these investments in the Interest Income Fund to the extent the value fluctuates due to a change in interest rates, a change in the credit rating of the securities or general economic conditions. However, the value of your investment may not be protected in the event of a default of any security or any investment contract. Since each investment and agreement will probably have a different interest rate, the total rate of return of the fund will be a blend of the various individual rates. * * * The Trustee may keep cash balances in any of the investment funds in cash or short-term income securities, including a commingled fund of the Trustee, pending the selection and purchase of permanent investments or for liquidity purposes. Such short-term fixed income securities are money market instruments with less than one year maturities. - -------------------------------------------------------------------------------- Distribution of Prospectuses The Balanced Fund and the Growth Equity Fund each have a prospectus which fully describe that fund's investment objective and other information concerning the operation of the fund. You will be given a copy of the prospectus for each of these two funds before May 15, 1995 (the date an initial investment in the two funds can be made). In addition, you will be given a copy of any supplement or updated prospectus and any other informational material when issued by the fund. Copies of the prospectus for the Balanced Fund and Growth Equity Fund are also available from your Thrift Plan representative. The Philip Morris affiliated companies and the Plan do not guarantee the return of principal or the rate of return of any of the investment funds in which you may invest under the Plan. - -------------------------------------------------------------------------------- 15 Investment Performance The value of your Accounts in the Plan depends on how much you have invested in each investment fund, the amount of your contributions and Kraft Foods matching contributions, and the market value of all contributions at the time. The following table shows the investment results of each investment fund under the Thrift Plan: PERCENT CHANGES IN UNIT VALUE FROM PRIOR YEARS - --------------------------------------------------------------------------
Name of Fund 1994 1993 1992 1991 1990/1/ - ------------ ---- ---- ---- ---- ---- PM Stock Fund 9.1% -24.3% -0.9% 57.5% 32.2% International Fund/2/ 4.9% 36.6% -6.2% 13.6% -14.9% Growth Equity Fund/2/ -6.3% 20.4% 10.1% 35.9% -9.1% Equity Index Fund 1.5% 10.3% 7.8% 31.3% -1.8% Balanced Fund/2/ -3.2% 9.8% 7.6% 28.0% 2.8% Government Securities Fund 3.3% 4.1% 5.2% 9.3% 9.0% Interest Income Fund 6.9% 7.9% 8.8% 9.5% 10.1%
- -------------------------------------------------------------------------- The actual results for the Government Securities Fund are based on investments with maturities of less than two years. On May 15, 1995 the maturity of this fund will change to approximately five years. Below are the results of a government securities fund invested over the same period with a five year maturity:
1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- -4.3% 9.4% 5.8% 14.6% 8.7%
- ---------- /1/ Investment results of the Government Securities Fund for 1990 are the results from a prior plan. The investment results of the Equity Index, Interest Income and PM Stock Funds are the results of the Plan. /2/ These are the investment results as reported to Kraft Foods by the particular fund. - -------------------------------------------------------------------------------- 16 MAKING CHANGES - -------------------------------------------------------------------------------- Unlimited Changes to Contributions Throughout the Year The Thrift Plan gives you the flexibility to make changes in your contributions to the Plan. You can change your tax-deferred and after-tax contribution rates at any time, effective with the first possible payroll after your request is received. You may also suspend or resume your contributions to the Plan at any time, effective with the first possible payroll after your request is received. All changes in your contributions, and all suspension and resumptions, must be made telephonically. - -------------------------------------------------------------------------------- Unlimited Changes to Investment Choices Throughout the Year You can make one or both of the following changes at any time: . change your investment direction for future contributions in multiples of 5%; and . redistribute your existing Account balances in multiples of 5%. Changes to your investment choices for existing Account balances must be made telephonically by 4:00 P.M. EST of any business day to be effective that same day. Investment changes will be effective on the next business day if your call is received after 4:00 P.M. EST. - -------------------------------------------------------------------------------- Changes in Beneficiary Designation You may change your beneficiary at any time by completing the appropriate form, which you can obtain from your Thrift Plan representative. Remember, a designation of someone other than your spouse requires that your spouse complete the spousal consent section of the form. - -------------------------------------------------------------------------------- 17 LOANS - -------------------------------------------------------------------------------- As an active employee (not terminated or on leave of absence or layoff), you have access to your savings through the Thrift Plan's loan provision. The minimum amount you can borrow is $1,000. You can borrow up to one-half of the current value of the vested balance of your Accounts (except contributions in your IRA Account), but you cannot borrow more than the lesser of $50,000 minus your highest loan balance in the last 12 months OR the combined values of your After-Tax Contributions, Tax-Deferred Contributions and Rollover Accounts. You may only have one outstanding loan at any time. One advantage of accessing your money by borrowing it (versus withdrawing it) is that you have no tax liability on the borrowed funds as long as the loan is repaid. Another advantage is that, over time, you pay yourself back with interest and restore the balance in your Accounts for your retirement. - -------------------------------------------------------------------------------- Applying for a Loan To determine how much is available for you to borrow from your Accounts, you can refer to your most recent Account statement or use the telephonic system to get updated information. You apply for a loan telephonically. You must have a signature authorization card on file before you can apply for a loan. - -------------------------------------------------------------------------------- 18 Borrowing from Your Accounts The money for your loan is taken from your Accounts in the following order: 1. After-Tax Contributions Account; 2. Rollover Account; and 3. Tax-Deferred Contributions Account. Each investment fund is charged proportionately for the borrowed amounts. The interest rate you pay is fixed for the life of the loan and is equal to the Plan's announced interest rate on the date of the promissory note. - -------------------------------------------------------------------------------- Repaying the Loan You repay the loan through automatic payroll deductions that begin in the second month following your receipt of the loan check. Your loan repayment is deducted from your paycheck after federal and state taxes have been taken out. Your payments are credited to your Accounts in the reverse order in which the money was taken from your Accounts. In other words, the monies are first credited to your Tax-Deferred Contributions Account, and so on. Your payments are invested according to your current investment direction with respect to the applicable Account. The amount of the deduction depends on the amount of your loan, the interest rate and the length of the repayment schedule you choose. You can pay back your loan in not less than 12 months nor more than 60 months, but the loan must be repaid on or before the date you attain age 70. You may repay the entire outstanding principal any time after your loan has been outstanding for 12 months. Prior to doing so, you should contact your Thrift Plan representative for the necessary details. If you have an outstanding loan and payroll deductions are discontinued or are insufficient, such as when you go on a leave of absence or transfer from the Kraft Foods payroll to another Philip Morris affiliated company, you must make your monthly repayments directly to Kraft Foods. These monthly repayments are due by the 15th calendar day of each month. Contact your Thrift Plan representative for complete details on how to make your repayments in a timely manner. Your unpaid loan balance will be immediately due and payable at the earlier of the date: . your loan matures; . you retire or terminate your employment with the Philip Morris affiliated companies; . you become eligible for a distribution because of permanent and total disability; - -------------------------------------------------------------------------------- 19 . you die. If you do not repay the loan in full when the default occurs, the balance in your Accounts will be reduced by the amount of the unpaid loan to the extent permitted by law. The amount of your unpaid loan is considered a distribution from the Plan for income tax purposes. Call your Thrift Plan representative for further information. - -------------------------------------------------------------------------------- Other Information If you are eligible for an in-service withdrawal for money contributed to a prior plan and apply for a loan at the same time, your in-service withdrawal will be processed before your loan. Loan checks will usually be sent the week following the week your loan request is received. - -------------------------------------------------------------------------------- 20 WITHDRAWALS AND DISTRIBUTIONS - -------------------------------------------------------------------------------- The Thrift Plan is designed to help meet your financial needs in retirement through long-term savings. As a result, your ability to withdraw funds from the Plan while you are actively working is limited. You may withdraw all or any portion of your vested Accounts when you reach age 59 1/2. You may also be eligible to take a hardship withdrawal under certain circumstances. See the Hardship Withdrawal section below for details. You can also take a loan from your Accounts. See pages 18-20 for the loan provision details. When you leave Kraft Foods, you can take a distribution of your Accounts in a number of different payment options explained below. Withdrawals, loans and distributions will be taken proportionately from each of your Accounts and from each of the investment funds in which your Accounts are invested. The balance of your Accounts remain invested in the funds you selected. It is important to remember that most taxable Plan payments, including hardship withdrawals, are subject to 20% federal withholding unless the payment is made directly to another employer's qualified plan or an IRA. This is not an additional tax but simply accelerates the collection of taxes that may be due. This withholding rule is explained in greater detail on pages 30-31. - -------------------------------------------------------------------------------- Withdrawals Hardship Withdrawals Although the Thrift Plan is designed to help you save money for retirement, Kraft Foods realizes that emergencies can happen. For this reason, the Plan allows you to make a cash withdrawal from your Tax-Deferred Contributions, After-Tax Contributions and Rollover Accounts in case of a financial hardship that satisfies criteria set by the Plan; the Administrative Committee determines whether such criteria have been met. The minimum amount you are eligible to withdraw is $500. No portion of your Company Match Account is eligible for hardship withdrawal. A hardship withdrawal will be permitted if you are less than 59 1/2 and have an immediate and serious financial need and the money is not reasonably available from other sources. The hardship withdrawal may not exceed the amount necessary to meet the immediate and serious - -------------------------------------------------------------------------------- 21 financial need (including any taxes imposed on monies received from the withdrawal). Circumstances in which the Plan will allow a hardship withdrawal are: . the purchase (excluding mortgage payments) of your primary residence; . the prevention of eviction from or foreclosure of the mortgage on your primary residence; . tuition and related educational fees for the next 12 months of post- secondary education for you, your spouse, your children, or your dependents that are not reimbursed by a scholarship or grant; . major uninsured medical bills for you, your spouse or your dependents (in other words, expenses above the medical plan's out-of-pocket limit); . funeral expenses of a family member; . past due taxes; . past due child support; . other past due obligations if you provide documentation that your current income is less than your expenses; . cash settlement required by a divorce; . repairs to your home or major appliances required to meet local laws or as a result of major damage; or . repairs to a car needed to get to and from work. The maximum amount available for withdrawal is based on the value of your Tax-Deferred Contributions, After-Tax Contributions and Rollover Accounts at the time your application is received. The money will be taken from these Accounts in the following order: 1. After-Tax Contributions Account;* 2. Rollover Account; 3. Tax-Deferred Contributions Account;** and 4. IRA Account. - ---------- * Note to employees who were participants in a prior plan: You must withdraw all monies available to you under any in-service withdrawal provision applicable to transferred balances before you may request a hardship withdrawal. ** You cannot withdraw any earnings credited after December 31, 1988 to your Tax-Deferred Contributions Account. You must apply for a loan from the Thrift Plan before you apply for a hardship withdrawal and show that a loan will not fully satisfy your immediate and serious financial need, unless you demonstrate to the Administrative Committee that borrowing from your Accounts would itself create a financial hardship. Withdrawals On or After Age 59 1/2 Once you reach age 59 1/2 you may withdraw any portion of your vested Accounts for any reason. Withdrawals Attributable to Prior Plan Balances If a prior plan balance was transferred to your Thrift Plan Accounts, you may have additional withdrawal rights with respect to the transferred balance. Consult your Thrift Plan representative for more details. - -------------------------------------------------------------------------------- 22 Other Withdrawal Information A withdrawal does not terminate your participation in the Plan. You will continue to be eligible to make Tax-Deferred or After-Tax contributions, or a combination of the two, and to share in Kraft Foods Matching Contributions. Remember that the Internal Revenue Code imposes a 10% additional tax on most withdrawals of taxable money made before age 59 1/2. See "Ten Percent Excise Tax" on page 31. - -------------------------------------------------------------------------------- Distribution of Your Accounts You are entitled to receive the vested balance in your Accounts after your retire, become permanently and totally disabled, or otherwise leave the employment of Kraft Foods and the Philip Morris affiliated companies. You can also defer payment of your Accounts for as long as you want, but not later than when you reach age 70 1/2. See "Deferring Payment", on page 25. Payment of the balance in your Accounts must begin when you reach age 70 1/2, even if you are still employed. In the event of your death, your beneficiary must elect the form of payment of the balance in your Accounts. - -------------------------------------------------------------------------------- Forms of Payment As described in more detail below, the balance in your Accounts may be paid in a single payment, in installments, or in monthly payments, called an annuity. You may also elect to receive part of the balance in your Accounts in a single payment with the remainder to be paid at a different time in a single payment, in installments, or in an annuity. Remember, as more fully described below, you may elect that all or some of the taxable portion of some payments, such as a single payment and installments of less than 10 years, be paid directly by the Trustee to an eligible retirement plan designated by you. If the vested balance in your Accounts is $3,500 or less, payment will automatically be made in a single payment. In addition, if you have not elected the form of payment on or before the date you reach age 70 1/2, the balance in your Accounts will automatically be paid in installment payments that satisfy minimum distribution requirements under the Internal Revenue Code. If you are eligible to choose the form of payment and would like estimates of the various annuity options, contact your Thrift Plan representative. The balance in your Accounts will be distributed in cash. However, if any of your Accounts are invested in the Philip Morris Stock Fund and you have elected a single payment or installments, you have the option of taking your entire investment in this fund in shares of - -------------------------------------------------------------------------------- 23 Common Stock. Fractional shares are paid in cash. So, for example, if the value of your investment in the Philip Morris Stock Fund is equivalent to 100 1/2 shares and payment is made in Common Stock in a single payment, the Trustee will distribute 100 full shares and cash for the remaining one-half share. In choosing the form of payment, you should consider that a single payment and installment payments of less than 10 years each give you one more way to continue to defer paying income tax. You can defer paying tax on the payments by requesting that all or some of the taxable part of a payment be paid directly to an eligible retirement plan. You will not pay tax until the money is eventually taken out of the eligible retirement plan. An eligible retirement plan is an individual retirement account or annuity (IRA) or the trust under another employer's qualified plan that is a defined contribution plan. The Trustee must withhold federal income taxes from any cash paid to you equal to 20% of the taxable part of the payment that is paid to you, including the value of any shares of Common Stock or any outstanding loan treated as a distribution. However, there is no withholding from Common Stock that is distributed to you in the form of shares. For a complete description of your options, see "Special Tax Notice Regarding Plan Payments" on pages 43-49. See "Tax Considerations" on pages 28-32 for the tax consequences of receiving a payment from the Plan. Single Payment If you elect distribution in a single payment, the entire balance in your Accounts will be paid in one payment. Annuity If you elect distribution in the form of an annuity, the Trustee will purchase an annuity from an insurance company which will pay you a monthly benefit for your life. If you are married, your annuity will be paid in the form of a 50% joint and survivor annuity unless you and your spouse reject this option in the manner prescribed by law. Contact your Thrift Plan representative for the procedure. The 50% joint and survivor annuity provides you with monthly payments for as long as you live and, after your death, continues 50% of your monthly payments to your spouse for your spouse's lifetime. Installment Payments You may elect monthly, quarterly, semi-annual, or annual installments. You may choose the dollar amount to be paid with each installment, or the number of installments you wish to receive, subject to certain legal limits on the duration of your expected payments. If you elect to receive annual installments, the balance in your Accounts will be paid over the number of years you specify, for a period that does not exceed your life expectancy. You can elect at any time to be paid the remaining balance in your Accounts in a single payment. Installments will be distributed proportionately from each of your Accounts and from the investment funds in which each of your Accounts is invested. The balance in your Accounts remain invested in the funds you have selected; however, you may change your investment direction as described on page 17. You will also continue to receive an account statement four times a year showing your investment gains and losses. - -------------------------------------------------------------------------------- 24 Combination of Methods You have a one-time election to choose a partial distribution in a single payment. This partial distribution may be paid at the time you leave the employment of Kraft Foods or any other Philip Morris affiliated company, or at any time before you attain age 70 1/2. The minimum amount you may request for a partial distribution is $1,000 and the remaining balance in your Accounts must be at least $3,500. The balance in your Accounts may be paid in single sum at a different time, in installment payments (that do not exceed your life expectancy), or in an annuity. - -------------------------------------------------------------------------------- Deferring Payment If you leave Kraft Foods and the Philip Morris affiliated companies, retire, or become permanently and totally disabled, and the balance in your Accounts exceeds $3,500, you have the right to defer payment of your Accounts for as long as you want, but not later than when you reach age 70 1/2. In the event of your death, your surviving spouse may also defer payment until the date you would have reached age 70 1/2 (assuming your surviving spouse is your beneficiary). If you choose to defer payment, the balance in your Accounts will remain invested in the funds you have selected, but you may change your investment direction telephonically. You will also continue to receive quarterly account statements showing investment gains and losses. You must contact your Thrift Plan representative before you want payment to begin. Payment may be made in a single payment, in installments, or in an annuity. - -------------------------------------------------------------------------------- Applying for a Withdrawal or Distribution Use the telephone to request a withdrawal from, or distribution of, your Accounts. Withdrawals If you have not reached age 59 1/2 you will be required to submit documents and forms clearly indicating the nature and amount of your financial hardship. The Administrative Committee makes the determination based on guidelines issued by the IRS. To make its determination, the Administrative Committee may conduct investigations and require the making of representations or warranties (promises) as it deemed desirable or necessary. The Administrative Committee will review your request and inform you within 45 days of its decision to approve or deny your request. Your Thrift Plan representative has the forms you need for a withdrawal. Distribution of Your Accounts If the form of payment may be rolled over to an eligible retirement plan, you should specify whether payment will be made to an eligible retirement plan, to you or to both. If you elect that some or all of the payments be made directly to an eligible retirement plan, you must furnish the name of the IRA or qualified plan and represent that the eligible retirement plan will accept the payment on your behalf. If you - -------------------------------------------------------------------------------- 25 fail to make this election, payment will be made directly to you and 20% of the taxable portion of the distribution will be withheld for federal income taxes. You may not make your request for a distribution more than 90 days before the valuation date as of which your distribution is to be made. Generally, payment will be made or begin to be made within 90 days after this valuation date. Payment to the eligible retirement plan is made by issuing shares of Common Stock and/or a check payable to the trustee of the eligible retirement plan. You are responsible for the timely delivery of this check (and shares of stock) to the trustee. If you have elected distribution of your Accounts in a single payment or annuity, you may not change to a different form of payment after payment has been made or begun to be made. If you elect installment payments of less than 10 years or fixed dollar amount installments, your election as to whether payments should be made to you or directly to an eligible retirement plan applies to all later payments until you make a new election. - -------------------------------------------------------------------------------- Your Beneficiary Except for distributions that are being paid in the form of an annuity, in the event that you die before you are paid the full value of your Accounts, the balance will be paid in the form your beneficiary elects. If your beneficiary is your surviving spouse, he or she can also elect that a single payment or installments of less than 10 years be paid directly to an eligible retirement plan which is an IRA. Remember, if you are married, your beneficiary is automatically your spouse, unless your spouse consents to your naming someone else as beneficiary. Your spouse's consent must be obtained in the manner prescribed by law. Call your Thrift Plan representative for the procedure. If you die before your Accounts are paid in full and you do not have a properly-designated beneficiary (who survives you), your benefits will be paid to your surviving spouse or, if there is none, to your children, or if you have no children, to your estate. If payment begins to be made to your beneficiary after your death but your beneficiary does not live long enough to receive the entire balance remaining at your death, anything left in your Accounts at your beneficiary's death will be paid to his or her estate. - -------------------------------------------------------------------------------- 26 Claims Procedure The Administrative Committee has full discretionary authority to determine eligibility for Plan benefits and to make factual findings and interpret the Plan when reviewing all claims for benefits. When you or your beneficiary are eligible for benefits under the Thrift Plan, you or your beneficiary should call to request payment. If you request a loan, or if you or your beneficiary applies for a withdrawal or for payment of Plan benefits and the application is denied, either completely or partly, you or your beneficiary will receive a written notice within 90 days after the application has been filed. The notice will explain the reason for the denial; refer to the specific Plan provision or provisions upon which the denial is based; tell what additional information, if any, is necessary to correct the application; and describe the review procedure under the Plan. You or your beneficiary will also receive written notice within 90 days if there is a delay in processing your application for a claim. The notice must include the reasons for the delay and the date a final decision may be expected. If the Administrative Committee needs more than 90 days to process the claim, the Administrative Committee may take an additional 90 days up to a total of 180 days. If you or your beneficiary disagrees with the denial, you or your beneficiary may request, in writing, a review of the claim by the Administrative Committee. The request must be made within 60 days from the time you or your beneficiary receives notice the application is denied. You or your beneficiary will be entitled to receive pertinent documents and submit issues and comments in writing. Within 60 days after a request for a review is received, you or your beneficiary will receive a written notice of the final decision, or the reasons for a delay in reaching a final decision if special circumstances require an extension of time, in which case, the Administrative Committee will reach a final decision and you or your beneficiary will be notified within 120 days after the request for a review is received. - -------------------------------------------------------------------------------- 27 OTHER IMPORTANT INFORMATION - -------------------------------------------------------------------------------- Tax Considerations Kraft Foods expects to receive a determination from the IRS that the Plan (as restated effective as of July 1, 1994) and the related Trust Fund continue to meet the requirements of Section 401(a) of the Internal Revenue Code and that the related Trust Fund continues to be exempt from income taxes under Section 501(a) of the Internal Revenue Code. Kraft Foods matching contributions are deductible by Kraft Foods in the year for which they are made. You are not taxed on Kraft Foods matching contributions, tax-deferred contributions and rollover contributions when made to the Trust Fund. You also are not taxed on any earnings on your Accounts as long as they remain in the Trust Fund. Kraft Foods matching contributions, your tax-deferred contributions and any rollover contributions, and all of the earnings in your Accounts become taxable in the year withdrawn or distributed (including a distribution as a result of a default on a loan) unless timely rolled over to an eligible retirement plan as more fully described below. Your after-tax contributions are not taxed when withdrawn or distributed because they were subject to tax before they were deposited into the Trust Fund. You cannot roll over your after-tax contributions into an eligible retirement plan. The following is a summary of the federal income tax consequences of a distribution or withdrawal of your Accounts from the Plan. This summary is not intended to be a complete description of those federal income tax consequences. The state (as well as other local taxing authorities) where you reside and are employed may also impose an income tax on your withdrawal or distribution. You and your beneficiary should consult your personal tax advisors to determine your individual tax consequences of receiving a withdrawal or distribution from the Plan. - -------------------------------------------------------------------------------- 28 Lump Sum Payments This description of the tax consequences of receiving a single payment in one taxable year assumes that no portion of the payment was rolled over to an eligible retirement plan, either by the Trustee or by you. See "Rollover of All or a Portion of Your Accounts" on page 31. Upon a single payment in one taxable year of the full value of your Accounts (whether in Common Stock, Common Stock and cash, or wholly in cash) from the Plan as a result of retirement, death, or other termination of employment, or as a withdrawal after attaining age 59 1/2, you report the lump sum payment for that year as income which is the sum of the following: (a) the amount of any cash received, plus (b) the cost to the Trust Fund of any Common Stock received not allocated to your IRA Account , plus (c) the fair market value of any Common Stock received allocated to your IRA Account, minus (d) the amount of any after-tax contributions received. Instead of including the cost of any Common Stock received which is not allocated to your IRA Account, you may elect to include in your income the fair market value of all Common Stock received. Unless you are eligible for the special tax treatment described below, the lump sum payment is added to your other income and taxed at ordinary income rates in the year it is received. If you have been a participant for at least five years prior to the year in which the lump sum payment is made (including years of participation in a prior plan) and you are at least age 59 1/2 at the time you receive payment (even if you have not terminated employment), the lump sum payment--other than the portion allocable to your IRA Account--may be taxed using a five-year forward averaging method using the tax rates in effect in the year you receive your distribution as if received over a five-year period. If you were age 50 before January 1, 1986, the following two additional special methods of taxation are available even if you have not attained age 59 1/2 at the time you receive your lump sum payment: . that portion of the lump sum payment allocable to participation after 1973 is taxed using a ten-year forward averaging method or the five-year forward averaging method. If the ten-year forward averaging method is used, the post-1973 portion is taxed using the tax rates in effect in 1986 as if the distribution were received over a ten-year period. That portion of the lump sum payment allocable to participation prior to 1974 is taxed at a 20% rate; or . the lump sum payment is taxed using the ten-year forward averaging method described above, using the tax rates in effect in 1986. In determining whether you have received a lump sum payment eligible for five- or ten-year forward averaging, you must include the value of any accounts in any other profit-sharing plan maintained by Kraft Foods. You may choose the method which produces the least amount of tax. - -------------------------------------------------------------------------------- 29 A minimum distribution allowance reduces the amount of tax owed on a lump sum payment of less than $70,000. You may elect five- or ten-year forward averaging only once in your lifetime, and the election applies to all lump sum payments that you receive in the same tax year. You may not use five- or ten-year forward averaging if you rolled over any part of a prior distribution, such as an in-service withdrawal. See pages 21-22. If you receive another distribution from the Plan after you have received a lump sum payment, it will be added to your other income and taxed as ordinary income if received in a different tax year. If a lump sum payment is made after your death to you beneficiary, five- or ten-year forward averaging may be used if you were at least age 59 1/2 at the time of your death, even if you were not a participant for at least five years. You will be issued a tax statement showing the amount of your lump sum payment and the portion, if any, available for five- or ten-year forward averaging. Non-Lump Sum Payments If payment is made in installments, as an annuity, in a combination of methods (see "Forms of Payment" on pages 23-25), or the payment otherwise does not qualify as a lump sum payment (for example, if you withdraw less than the entire balance in your Accounts), you report as ordinary income for each year in which a payment is made the sum of the following: (a) the amount of cash received, plus (b) the fair market value of any Common Stock received, minus (c) the portion of the cash payments considered a return of your after-tax contributions, minus (d) the difference between the fair market value and the cost of any Common Stock received that is considered as purchased with your after-tax contributions. A withdrawal of your after-tax contributions contributed prior to January 1, 1987 has no tax consequences if the withdrawal is made before distribution of your Accounts is otherwise scheduled to begin. You will be issued a tax statement showing the amount of the payment received in the calendar year that is reportable as income. Withholding of Income Taxes The Trustee will withhold federal income tax equal to 20% of the taxable portion of a withdrawal or distribution paid to you which may be rolled over to an eligible retirement plan. However, there is no withholding if you request your Thrift Plan representative that payment be made directly to an eligible retirement plan. The portion of any payment made in Common Stock is also not subject to withholding. The same rules apply to payments made to your surviving spouse after your death and to any payments made to your spouse or former spouse under a qualified domestic relations order. The Trustee will withhold federal income tax from the taxable portion of any distribution that may not be rolled over to an eligible retirement plan, unless you elect to have no taxes withheld. Withholding is at a 10% rate on that portion of a lump sum payment which may not be rolled over and on any other non- periodic - -------------------------------------------------------------------------------- 30 payments, and at graduated rates similar to the withholding on wages on installments, annuity payments and other periodic payments. Failure to complete and return a tax withholding form will automatically result in the withholding of federal income tax from the taxable portion of a distribution which may not be rolled over to an eligible retirement plan. Rollover of All or a Portion of Your Accounts You may exclude from your gross income that portion of an eligible withdrawal or distribution that is rolled over (deposited) to an eligible retirement plan (see page 24). If payment is made to you, you must complete a rollover to the eligible retirement plan within 60 days after you receive the payment. You may not roll over your after-tax contributions. The amount rolled over is taxed at the time it is distributed from the eligible retirement plan. Any amount that is not rolled over as well as subsequent payments from the Plan are subject to federal income tax at ordinary income rates, are not eligible for the special five- or ten-year forward averaging provisions described on pages 29-30 and you are not eligible to exclude the difference between the fair market value and the cost of any Common Stock received that is considered as purchased with other than your after-tax contributions. However, if you roll over the entire amount in a conduit IRA (as defined on page 8) to another qualified plan, a lump sum payment from that qualified plan (including the monies and shares of Common Stock rolled over from the Plan) may be eligible to be taxed under the five- or ten-year forward averaging method. Ten Percent Excise Tax A 10% additional tax is imposed on the taxable portion of most withdrawals and distributions made before retirement or age 59 1/2. However, this additional tax is not imposed in certain circumstances--for example, if you are disabled or die, to the extent that you have tax-deductible medical expenses, if paid in equal installments for your life or the joint lives of you and your beneficiary, or if you separate from service with Kraft Foods and the Philip Morris affiliated companies after age 55. You should consult a professional tax advisor for more detailed information about the 10% additional tax and when it applies. You can avoid the 10% additional tax and postpone payment of federal income tax on a lump sum payment or any other eligible withdrawal or distribution. To do this, you must roll over the payment from the Plan into an eligible retirement plan within 60 days after receiving it. Payments that you receive after age 59 1/2 will be taxed as ordinary income without being subject to the 10% additional tax. Any payment made to your surviving spouse or other beneficiary, or to an alternate payee pursuant to a qualified domestic relations order is not subject to the 10% additional tax. Other Taxes Subject to certain exceptions, a tax equal to 15% of retirement distributions, which include amounts distributed from the Plan, from other qualified plans and an IRA, is imposed on: - -------------------------------------------------------------------------------- 31 . lump sum payments taxed using five-or ten-year forward averaging that exceed five times the annual limit (for most individuals in 1995 the annual limit is $150,000; 5 X $150,000 = $750,000); and . non-lump sum payments in excess of $150,000 (as adjusted for the cost of living after 1995) received during any calendar year. At the time you receive your distribution, you will receive a statement briefly describing the special tax treatments available. Not all tax considerations are covered here. Because the tax laws are complicated and the amount of tax you pay depends on your personal financial situation, you should always consult a qualified tax advisor before electing to receive all or a portion of the balance of your Accounts from the Plan. - -------------------------------------------------------------------------------- Effect on Other Benefits When you make tax-deferred contributions to the Thrift Plan you reduce your taxable income, which enables you to pay fewer taxes and take home more pay. Reducing your taxable income, however, does not reduce the amount of your pay subject to Social Security taxes, or Social Security benefits, or other Kraft Foods benefits based on pay. You receive the same benefits whether you contribute to the Thrift Plan on a tax-deferred or an after-tax basis. - -------------------------------------------------------------------------------- Loans Under current tax law, loans made from the Plan, regardless of their purpose, are not considered taxable income to the participant unless a default occurs. The Administrative Committee will provide a participant who has defaulted on the repayment of his or her loan with a tax statement showing the amount of income to report for the year of the default. - -------------------------------------------------------------------------------- 32 ADMINISTRATION - -------------------------------------------------------------------------------- This section provides you with information about how the Thrift Plan is administered. - -------------------------------------------------------------------------------- General Information This book contains information about the Plan as in effect as of May 15, 1995 in the form of a summary plan description in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA), and in the form of a prospectus (Prospectus) constituting part of a registration statement on Form S-8 (Registration Statement) filed with the Securities and Exchange Commission (SEC) under the Securities Act of 1933 to register Plan interests (your personal contributions invested in Common Stock through the Plan). Although this booklet provides accurate and essential information about the Plan, it is not intended to include all the information required to be filed with the SEC or to be a complete statement of such provisions or of the Plan. This booklet is qualified in its entirety by reference to the Plan in effect as of May 15, 1995. The actual provisions of the Plan will govern in settling any questions of interpretation that may arise. You can obtain a copy of the Registration Statement or the Plan from your Kraft Foods Benefits Department. Certain documents are incorporated by reference in the Registration Statement, including the Company's Annual Report on Form 10-K, certain other quarterly and periodic reports filed with the SEC by the Company, the Plan's Annual Report on Form 11-K, and a registration statement describing the Common Stock. These documents are available to you, upon written or oral request to the Kraft Foods Benefits Department and are incorporated by reference in this Prospectus as described on page 42. - -------------------------------------------------------------------------------- 33 ERISA This Plan is subject to Titles I, II and III of ERISA, which regulate employee benefit plans. Title I imposes reporting and disclosure requirements with respect to employee benefit plans, sets forth fiduciary responsibilities for persons who administer plans and invest plan assets, and requires a claims procedure for participants or beneficiaries whose benefits are denied in whole or in part. In addition, the regulatory scheme of ERISA duplicates in many respects the requirements of the provisions of the Internal Revenue Code applicable to qualified plans. The Plan has been drafted to comply with the provisions of ERISA and the Internal Revenue Code as of May 15, 1995. The Plan will be amended to comply with any applicable provisions of the Internal Revenue Code or ERISA that become effective after May 15, 1995 and will continue to be administered in a manner consistent with the Internal Revenue Code and ERISA. - -------------------------------------------------------------------------------- Plan Sponsor Kraft Foods, Inc. Three Lakes Drive Northfield, Illinois 60093-2753 (708) 646-2000 - -------------------------------------------------------------------------------- Plan Administrator The Plan is administered by the Management Committee for Employee Benefits of Kraft Foods (the Committee), composed of Kraft Foods officers appointed by the Board of Directors of Kraft Foods. The Committee has full power and authority to interpret the provisions of the Plan. The members of the Committee serve without fee or compensation, and expenses of the Committee, if any, are paid by Kraft Foods. The Committee has appointed the Administrative Committee to handle certain plan administrative matters. More information about the Plan and its administrators can be obtained by calling or writing to the Management Committee for Employee Benefits of Kraft Foods, Kraft Foods, Inc., Three Lakes Drive, Northfield, Illinois 60093-2753, (708) 646-2000. The Committee also determines the groups that are eligible to participate and the amount of the Kraft Foods matching contributions to be allocated to each participant's Company Matching Account. - -------------------------------------------------------------------------------- 34 Employer Identification Number 36-3083135 - -------------------------------------------------------------------------------- Plan Number 125 - -------------------------------------------------------------------------------- Funding of the Plan Kraft Foods makes matching contributions for a Plan Year at a level announced before the beginning of that Plan Year. Nearly all of the expenses of administering the Plan and investing the Plan's assets, such as investment management fees, trustees fees, brokerage commissions, participant recordkeeping and legal fees, are paid from the Plan's assets. Any remaining Plan expenses are paid by Kraft Foods. - -------------------------------------------------------------------------------- 35 Plan Trustee The Corporate Employee Plans Investment Committee of the Company (the Investment Committee) has been authorized to enter into an agreement or agreements with one or more trustees selected by the Investment Committee. Under these agreements the trustee receives all employee or employer contributions under the Plan. The trustee is authorized to hold, manage, invest the same, reinvest any income therefrom, and distribute these funds in accordance with instructions and directions of the Committee. Bankers Trust Company, 280 Park Avenue, New York, New York 10015 has been selected as Trustee. Under the Trust Agreement between the Investment Committee and the Trustee, the Trustee maintains the Government Securities Fund, the Equity Index Fund, the Interest Income Fund, the Philip Morris Stock Fund, the Balanced Fund, the International Equity Fund and the Growth Equity Fund. The Trustee may be removed by the Investment Committee, or may resign, at any time upon 60 days' notice in writing. The Investment Committee, as a fiduciary, monitors the investment performance of each of the investment funds. Each present member of the Investment Committee is a Director of the Company. The members of the Investment Committee are: Messrs. William H. Donaldson, Chairman of the Committee; Harold Brown; Hamish Maxwell; John S. Reed; and Hans G. Storr, Executive Vice President and Chief Financial Officer of the Company. - -------------------------------------------------------------------------------- Information Concerning the Investment Funds You may request your Thrift Plan representative to provide you with the following: . A description of the annual operating expenses of each of the seven investment funds (see "Description of Investment Choices" on pages 13-15), including investment management and administrative fees and transaction costs) which reduce the rate of return and the aggregate amount of such expenses expressed as a percentage of the average net asset of each fund. . Copies of any prospectuses, financial statements and reports and any other materials relating to the funds, to the extent such information is provided to Kraft Foods. . A list of the assets comprising each of the funds, except the Balanced Fund and Growth Equity Fund, the value of each such asset (or the proportion of the fund which it comprises) and with respect to the Interest Income Fund or any other fund which holds a fixed income contract, the name of the issuer of each fixed rate investment contract issued by a bank, savings and loan association or insurance company, and the term and rate of return on the fixed income contract. . Information concerning the value of the units in each of the funds. Please contract your Thrift Plan representative with any request. - -------------------------------------------------------------------------------- 36 Plan Year January 1 through December 31 - -------------------------------------------------------------------------------- No Guarantee of Benefit Amount The Thrift Plan is a defined contribution plan, which means that the Plan's legal document specified how much you and Kraft Foods can contribute. Your contribution is based on the amount you decide to contribute and your pay; any Kraft Foods matching contributions are determined by Kraft Foods' profits. The Plan does not guarantee a specific benefit amount to any participant; the amount of your benefit depends on the contributions to your Accounts and on investment gains or losses. The Plan is not insured by the federal Pension Benefit Guaranty Corporation (PBGC), since by federal law the PBGC insures only defined benefit (pension) plans. - -------------------------------------------------------------------------------- Right To Terminate the Plan The Committee has the authority, and reserves the right, to amend, suspend or terminate the Thrift Plan, in whole or in part, or discontinue making Kraft Foods matching contributions at any time, subject to the Plan's provisions and applicable laws. In the event of any changes, you will be properly notified. In addition, if the Plan is terminated, you will automatically become 100% vested in your Thrift Plan Accounts. No part of the Trust Fund may be diverted for any purpose other than for the exclusive benefit of participants and their beneficiaries. - -------------------------------------------------------------------------------- 37 Limits on Contributions Non-Discrimination Test The tax regulations that allow tax-deferred contributions to the Thrift Plan also have guidelines to ensure that the tax advantages of this program are shared proportionately by employees at all levels of income. For example, the Plan must pass a test proving that the tax-deferred contributions made by employees whose pay exceeds a certain level are not at a substantially greater percentage of pay than those made by all other eligible employees. A second, similar test applies to the sum of after-tax and Kraft Foods matching contributions made each year. For these reasons, the Administrative Committee may impose a limit on the tax-deferred and/or after-tax contributions that may be made to the Plan by employees whose pay exceeds certain levels. If for some reason the Plan does not comply with the guidelines mentioned in the paragraphs above, certain affected employees may have some of their contributions refunded or reclassified as after-tax contributions. You will be notified if you are affected. The Internal Revenue Code sets various limits on the amount of contributions to a plan such as the Thrift Plan. Your contributions to the Plan are limited to a percentage of your pay not in excess of a dollar level ($150,000 for 1995) determined by the Internal Revenue Code. You will be contacted by Kraft Foods if it becomes necessary to reduce or suspend your rate of contribution because it is in excess of these limitations. Contributions Limitation Test The tax law sets limits on the amount of contributions that can be made to your Accounts during any calendar year. Plan contributions that apply toward this limit include tax-deferred contributions, after-tax contributions and Kraft Foods matching contributions. Rollover contributions are not applied toward this limit. The Internal Revenue Code limits annual allocations of Kraft Foods matching contributions to any participant, as well as tax-deferred contributions and after-tax contributions made by a participant, based upon all benefits paid or credited pursuant to the Plan and other defined contribution plans maintained by a Philip Morris affiliated company. The aggregate of these annual additions may not exceed the lesser of $30,000, as increased to reflect cost of living adjustments, or 25% of the participant's taxable compensation (excluding tax- deferred contributions to the Plan and pre-tax contributions to the Kraft Foods flexible benefit plan). The Internal Revenue Code also establishes a combined limit for allocations to participants who also participate in defined benefit pension plans maintained by a Philip Morris affiliated company. The combined limit is computed by adding fractions attributable to defined contribution plan benefits (such as this Plan) and defined benefit plan benefits, all determined in accordance with Section 415 of the Internal Revenue Code. - -------------------------------------------------------------------------------- 38 If these statutory limitations are exceeded with respect to annual additions to the Plan, such contributions are reduced or eliminated to comply with the contribution limitation provisions in the Internal Revenue Code. The Administrative Committee will monitor compliance with these limitations to ensure that no one exceeds the maximum allowable contribution. If the Administrative Committee determines that you have exceeded or are likely to exceed the limitations, the Administrative Committee may act to reduce your future contributions, return some of your contributions to you, or take any other appropriate action. Tax-Deferred Contributions Limitation The tax law also limits the amount of tax-deferred contributions that you can make in any calendar year to the Plan or any other similar plan permitting tax-deferred contributions. This limit is $9,240 for 1995, and it will be adjusted for inflation in later years. If you exceed the applicable limit in any year because you contribute to more than one plan, you must notify Kraft Foods by March 1 of the following year of the amount of excess contributions allocated to the Thrift Plan. - -------------------------------------------------------------------------------- Non-Assignability of Benefits Generally, no one can take away the balance in your Accounts, and you cannot give, sell, assign, pledge, hypothecate, encumber or otherwise transfer them to someone else, or use them as collateral for a loan. Also, your creditors cannot claim the balance in your Accounts to satisfy debts. If you are indebted to the Plan, the amount of any distribution or withdrawal may be reduced by the amount of such indebtedness. However, a court may issue a qualified domestic relations order instructing the Plan to pay all or part of the value of your Accounts to an alternate payee, who could be your spouse, former spouse, child, or dependent. The court may order payments to be made to the alternate payee even if you are still working. Generally, the amount of any such payment is based on the portion of the balance in your Accounts awarded to your alternate payee. Although the Administrative Committee must obey a qualified domestic relations order of the court, the Administrative Committee will inform you of the Plan's procedures if an attempt is made to claim benefits from your Accounts. Before any action is taken, the Administrative Committee will determine if the court order is a qualified domestic relations order. - -------------------------------------------------------------------------------- 39 If You Become Incompetent If the Administrative Committee determines that you or your beneficiary is not capable of receiving benefit payments, the Administrative Committee can direct payments to be made for your benefit to a person who is taking care of either you or your beneficiary. - -------------------------------------------------------------------------------- Your ERISA Rights As a participant in the Kraft Foods Thrift Plan, you are entitled to certain rights and protection under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA provides that as a plan participant you are entitled to: . examine, without charge, at the plan administrator's office and at other specified locations, all plan documents, including insurance contracts, collective bargaining agreements and copies of all documents filed by the plan with the U.S. Department of Labor, such as detailed annual reports and plan descriptions; . obtain copies of all plan documents and other plan information upon written request to the plan administrator. The administrator may make a reasonable charge for the copies; . receive a summary of the plan's annual financial report. The plan administrator is required by law to furnish each participant with a copy of this summary annual report; . obtain a statement telling you whether you have a right to receive a benefit at the normal retirement age (age 65), and, if so, what your benefits would be at normal retirement age if you leave Kraft Foods now. If you do not have a right to a benefit, the statement will tell you how many more years you have to continue working to have a right to a benefit. This statement must be requested in writing and is not required to be distributed more than once a year. The plan must provide the statement free of charge. In addition to creating rights for plan participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your plan, called fiduciaries of the plan, have a duty to do so prudently and in the interests of you and other plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to - -------------------------------------------------------------------------------- 40 prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the plan administrator review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance: . if you request materials from the plan and do not receive them within 30 days, you may file suit in a federal court. In such case, the court may require the plan administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the plan administrator; . if you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court; . if it should happen that plan fiduciaries misuse the plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees if, for example, it finds your claim frivolous. If you have any questions about your plan, you should contact your Thrift Plan representative. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest Area Office of the U.S. Pension and Welfare Benefit Administration, Department of Labor. When writing, please include the employer and plan numbers listed on page 35. The agent for service of legal process in a suit is: Secretary of the Corporation Kraft Foods, Inc. Three Lakes Drive Northfield, Illinois 60093-2753 (708) 646-2000 Legal process also may be served on the Plan Trustee named on page 36 and on the Administrative Committee. - -------------------------------------------------------------------------------- Compliance with Section 404(c) of ERISA The Thrift Plan is intended to be a plan described in Section 404(c) of ERISA and the regulation of the Department of Labor. This means that the fiduciaries of the Plan (see "Plan Trustee" on page 36) may be relieved of liability for any losses which are the direct and necessary result of investment directions (see "Investment of Funds" on pages 11-17) which you give to the recordkeeper. - -------------------------------------------------------------------------------- 41 ADDITIONAL INFORMATION ABOUT THE COMPANY AND THE PLAN - -------------------------------------------------------------------------------- The following documents on file at the SEC are incorporated herein by reference and made a part of this Prospectus: the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (including the Thrift Plan's Annual Report on Form 11-K for the year ended December 31, 1994); the Company's Current Report on Form 8-K dated January 26, 1995; the Company's Registration Statement on Form 8-B, dated July 1, 1985, as amended by Amendment No. 1 on Form 8, dated April 27, 1989 (for a description of the Common Stock). - -------------------------------------------------------------------------------- All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 subsequent to the date of this Prospectus and prior to the termination of the offering of the Common Stock and the Plan interests shall be deemed to be incorporated by reference in the Registration Statement and as such are deemed to be incorporated by reference into this Prospectus and to be a part hereof from the date of filing such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference in this Prospectus shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is incorporated or deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request, a copy of any or all of the foregoing documents incorporated by reference in the Registration Statement (not including exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). In addition, all documents required to be delivered to employees pursuant to SEC Rule 428(b) are available without charge to each person to whom a copy of this Prospectus is delivered, upon written or oral request. Participants have previously been distributed a copy of the Company's annual report to stockholders for the latest fiscal year. Any participant will be provided an additional copy without charge upon written or oral request to the Employee Benefits Department, Kraft Foods, Inc., Three Lakes Drive, Northfield, Illinois 60093-2753, telephone (708) 646-2000 - -------------------------------------------------------------------------------- 42 SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS - -------------------------------------------------------------------------------- This notice contains important information you will need before you decide how to receive your benefits from the Thrift Plan. - -------------------------------------------------------------------------------- Summary A payment from the Plan that is eligible for "rollover" can be taken in two ways. You can have all or any portion of your payment either (1) paid in a "direct rollover" or (2) paid to you. A rollover is a payment of your Plan benefits to your individual retirement arrangement (IRA) or to another employer plan. This choice will affect the tax you owe. If you choose a direct rollover . your payment will not be taxed in the current year and no income tax will be withheld; . your payment will be made directly to your IRA or, if you choose, to another employer plan that accepts your rollover; and . your payment will be taxed later when you take it out of the IRA or the employer plan. If you choose to have your Plan benefits paid to you . you will receive only 80% of the payment, because the plan administrator is required to withhold 20% of the payment and send it to the IRS as income tax withholding to be credited against your taxes; . your payment will be taxed in the current year unless you roll it over. You may be able to use special tax rules that could reduce the tax you owe. However, if you receive the payment before age 59 1/2, you also may have to pay an additional 10% tax; . you can roll over the payment by paying it to your IRA or to another employer plan that accepts your rollover within 60 days of receiving the payment. The amount rolled over will not be taxed until you take it out of the IRA or employer plan; and . if you want to roll over 100% of the payment to an IRA or an employer plan, you must find other money to replace the 20% that was withheld. If you roll over only the 80% that you received, you will be taxed on the 20% that was withheld and that was not rolled over. - -------------------------------------------------------------------------------- 43 Payments that Can and Cannot be Rolled Over Payments from the Plan may be "eligible rollover distributions". This means that they can be rolled over to an IRA or to another employer plan that accepts rollovers. Your Plan administrator should be able to tell you what portion of your payment is an eligible rollover distribution. The following types of payments cannot be rolled over. Non-Taxable Payments In general, only the "taxable portion" of your payment is an eligible rollover distribution. If you have made "after-tax" employee contributions to the Plan, these contributions will be non-taxable when they are paid to you, and they cannot be rolled over. (After-tax employee contributions generally are contributions you made from your own pay that were already taxed.) Payments Spread over Long Periods You cannot roll over a payment if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for . your lifetime (or your life expectancy); or . your lifetime and your beneficiary's lifetime (or life expectancies); or . a period of ten years or more. Required Minimum Payments Beginning in the year you reach age 70 1/2, a certain portion of your payment cannot be rolled over because it is a "required minimum payment" that must be paid to you. - -------------------------------------------------------------------------------- 44 Direct Rollover You can choose a direct rollover of all or any portion of your payment that is an "eligible rollover distribution", as described above. However, the Plan will not permit direct rollovers if your total payment is less than $200, and if you wish to roll over only a portion of a payment, the direct rollover amount must be at least $500. In a direct rollover, the eligible rollover distribution is paid directly from the Plan to an IRA or another employer plan that accepts rollovers. If you choose a direct rollover, you are not taxed on a payment until you later take it out of the IRA or the employer plan. Direct Rollover to an IRA You can open an IRA to receive the direct rollover. (The term "IRA", as used in this notice, includes individual retirement accounts and individual retirement annuities.) If you choose to have your payment made directly to an IRA, contact an IRA sponsor (usually a financial institution) to find out how to have your payment made in a direct rollover to an IRA at that institution. If you are unsure of how to invest your money, you can temporarily establish an IRA to receive the payment. However, in choosing an IRA, you may wish to consider whether the IRA you choose will allow you to move all or a part of your payment to another IRA at a later date, without penalties or other limitations. See IRS Publication 590, Individual Retirement Arrangements, for more information on IRAs (including limits on how often you can roll over between IRAs). Direct Rollover to a Plan If you are employed by a new employer that has a plan, and you want a direct rollover to that plan, ask the administrator of that plan whether it will accept your rollover. An employer plan is not legally required to accept a rollover. If your new employer's plan does not accept a rollover, you can choose a direct rollover to an IRA. Direct Rollover of a Series of Payments If you receive eligible rollover distributions that are paid in a series for less than 10 years, your choice to make or not make a direct rollover for a payment will apply to all later payments in the series until you change your election. You are free to change your election for any later payment in the series. - -------------------------------------------------------------------------------- Payment Paid to You If you have the payment made to you, it is subject to 20% income tax withholding. The payment is taxed in the year you receive it unless, within 60 days, you roll it over to an IRA or another plan that accepts rollovers. If you do not roll it over, special tax rules may apply. - -------------------------------------------------------------------------------- 45 Income Tax Withholding Mandatory Withholding If any portion of the payment to you is an eligible rollover distribution, the Plan is required by law to withhold 20% of that amount. This amount is sent to the IRS as income tax withholding. For example, if your eligible rollover distribution is $10,000, only $8,000 will be paid to you because the Plan must withhold $2,000 as income tax. However, when you prepare your income tax return for the year, you will report the full $10,000 as a payment from the Plan. You will report the $2,000 as tax withheld, and it will be credited against any income tax you owe for the year. Voluntary Withholding If any portion of your payment is not an eligible rollover distribution but is taxable, the mandatory withholding rules described above do not apply. In this case, you may elect not to have withholding apply to that portion. To elect out of withholding, ask the Plan administrator for the election form and related information. Sixty-Day Rollover Option If you have an eligible rollover distribution paid to you, you can still decide to roll over all or part of it to an IRA or another employer plan that accepts rollovers. If you decide to roll over, you must make the rollover within 60 days after you receive the payment. The portion of your payment that is rolled over will not be taxed until you take it out of the IRA or the employer plan. You can roll over up to 100% of the eligible rollover distribution, including an amount equal to the 20% that was withheld. If you choose to roll over 100%, you must find other money within the 60-day period to contribute to the IRA or the employer plan to replace the 20% that was withheld. On the other hand, if you roll over only the 80% that you received, you will be taxed on the 20% that was withheld. --------------------------------------------------------------------- EXAMPLE: Your eligible rollover distribution is $10,000, and you choose to have it paid to you. You will receive $8,000, and $2,000 will be sent to the IRS as income tax withholding. Within 60 days after receiving the $8,000, you may roll over the entire $10,000 to an IRA or employer plan. To do this, you roll over the $8,000 you received from the Plan, and you will have to find $2,000 from other sources (your savings, a loan, etc.). In this case, the entire $10,000 is not taxed until you take it out of the IRA or employer plan. If you roll over the entire $10,000, when you file your income tax return you may get a refund of the $2,000 withheld. If, on the other hand, you roll over only $8,000, the $2,000 you did not roll over is taxed in the year it was withheld. When you file your income tax return you may get a refund of part of the $2,000 withheld. (However, any refund is likely to be larger if you roll over the entire $10,000.) --------------------------------------------------------------------- - -------------------------------------------------------------------------------- 46 Additional 10 Percent Tax if You Are Under Age 59 1/2 If you receive a payment before you reach age 59 1/2 and you do not roll it over, then, in addition to the regular income tax, you may have to pay an extra tax equal to 10% of the taxable portion of the payment. The additional 10% tax does not apply to your payment if it is (1) paid to you because you separate from service with your employer during or after the year you reach age 55, (2) paid because you retire due to disability, (3) paid to you in equal (or almost equal) payments over your life or life expectancy (or your and your beneficiary's lives or life expectancies), or (4) used to pay certain medical expenses. See IRS Form 5329 for more information on the additional 10% tax. Special Tax Treatment If your eligible rollover distribution is not rolled over, it will be taxed in the year you receive it. However, if it qualifies as a "lump sum distribution", it may be eligible for special tax treatment. A lump sum distribution is a payment, within one year, of your entire balance under the Plan (and certain other similar plans of the employer) that is payable to you because you have reached age 59 1/2 or have separated from service with your employer (or, in the case of a self-employed individual, because you have reached age 59 1/2 or have become disabled). For a payment to qualify as a lump sum distribution, you must have been a participant in the Plan for at least five years. The special tax treatment for lump sum distributions is described below. Five-Year Averaging If you receive a lump sum distribution after you are age 59 1/2, you may be able to make a one-time election to figure the tax on the payment by using "five-year averaging". Five-year averaging often reduces the tax you owe because it treats the payment much as if it were paid over five years. Ten-Year Averaging if You Were Born Before January 1, 1936 If you receive a lump sum distribution and you were born before January 1, 1936, you can make a one-time election to figure the tax on the payment by using "ten-year averaging" (using 1986 tax rates) instead of five-year averaging (using current tax rates). Like the five-year averaging rules, ten-year averaging often reduces the tax you owe. Capital Gain Treatment if You Were Born Before January 1, 1936 In addition, if you receive a lump sum distribution and you were born before January 1, 1936, you may elect to have the part of your payment that is attributable to your pre-1974 participation in the Plan (if any) taxed as long- term capital gain at a rate of 20%. There are other limits on the special tax treatment for lump sum distributions. For example, you can generally elect this special tax treatment only once in your lifetime, and the election applies to all lump sum distributions that you receive in that same year. If you have previously rolled over a payment from the Plan (or certain other similar plans of the employer), you cannot use this special tax treatment for later payments from the Plan. If you roll over your payment to an IRA, you will not be able to use this special tax treatment for later payments from the IRA. Also, if you roll over only a portion of your payment to an IRA, this special tax treatment is not available for the rest of the payment. Additional restrictions are described in IRS Form 4972, which has more information on lump sum distributions and how you elect the special tax treatment. - -------------------------------------------------------------------------------- 47 Employer Stock or Securities There is a special rule for a payment from the Plan that includes employer stock (or other employer securities). To use this special rule, (1) the payment must qualify as a lump sum distribution, as described above (or would qualify except that you do not yet have five years of participation in the Plan), or (2) the employer stock included in the payment must be attributable to "after-tax" employee contributions, if any. Under this special rule, you may have the option of not paying tax on the "net unrealized appreciation" of the stock until you sell the stock. Net unrealized appreciation generally is the increase in the value of the employer stock while it was held by the Plan. For example, if employer stock was contributed to your Plan Account when the stock was worth $1,000 but the stock was worth $1,200 when you received it, you would not have to pay tax on the $200 increase in value until you later sold the stock. You may instead elect not to have the special rule apply to the net unrealized appreciation. In this case, your net unrealized appreciation will be taxed in the year you receive the stock, unless you roll over the stock. The stock (including any net unrealized appreciation) can be rolled over to an IRA or another employer plan either in a direct rollover or a rollover that you make yourself. If you receive employer stock in a payment that qualifies as a lump sum distribution, the special tax treatment for lump sum distributions described above (such as five-year averaging) also may apply. See IRS Form 4972 for additional information on these rules. - -------------------------------------------------------------------------------- Surviving Spouses, Alternate Payees, and Other Beneficiaries In general, the rules summarized above that apply to payments to employees also apply to payments to surviving spouses of employees and to spouses or former spouses who are "alternate payees". You are an alternate payee if your interest in the Plan results from a "qualified domestic relations order", which is an order issued by a court, usually in connection with a divorce or legal separation. Some of the rules summarized above also apply to a deceased employee's beneficiary who is not a spouse. However, there are some exceptions for payments to surviving spouses, alternate payees, and other beneficiaries that should be mentioned. If you are a surviving spouse, you may choose to have an eligible rollover distribution paid in a direct rollover to an IRA or paid to you. If you have the payment paid to you, you can keep it or roll it over yourself to an IRA but you cannot roll it over to an employer plan. If you are an alternate payee, you have the same choices as the employee. Thus, you can have the payment paid as a direct rollover or paid to you. If you have it paid to you, you can keep it or roll it over yourself to an IRA or to another employer plan that accepts rollovers. If you are a beneficiary other than the surviving spouse, you cannot choose a direct rollover, and you cannot roll over the payment yourself. If you are a surviving spouse, an alternate payee, or another beneficiary, your payment is not subject to the additional 10% tax (as described on page 47, even if you are younger than age 59 1/2). - -------------------------------------------------------------------------------- 48 If you are a surviving spouse, an alternate payee, or another beneficiary, you may be able to use the special tax treatment for lump sum distributions and the special rule for payments that include employer stock, as described on page 48. If you receive a payment because of the employee's death, you may be able to treat the payment as a lump sum distribution if the employee met the appropriate age requirements, whether or not the employee had five years of participation in the Plan. - -------------------------------------------------------------------------------- How to Obtain Additional Information This notice summarizes only the federal (not state or local) tax rules that might apply to your payment. The rules described above are complex and contain many conditions and exceptions that are not included in this notice. Therefore, you may want to consult with a professional tax advisor before you take a payment of your benefits from the Plan. Also, you can find more specific information on the tax treatment of payments from qualified retirement plans in IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements. These publications are available from your local IRS office or by calling 1-800-TAX-FORMS. 49 Kraft Foods, Inc. Benefits Department Three Lakes Drive Northfield, IL 60093 April 17, 1995 - -------------------------------------------------------------------------------- KGFSPD2000 50 -----END PRIVACY-ENHANCED MESSAGE-----