<PAGE>
Rule 424(b)(3)
File Nos. 33-1480
33-37115
33-17870
33-39162
Summary Plan
Description/
Prospectus
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Kraft Foods
Thrift
Plan
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Kraft Choice
Protection for Today, Providing for Tomorrow
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<PAGE>
TABLE OF CONTENTS
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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
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i
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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
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ii
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GENERAL PLAN INFORMATION
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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.
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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.
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1
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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.
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2
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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.
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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".
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3
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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.
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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.
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4
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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.
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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).
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5
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CONTRIBUTIONS UNDER THE PLAN
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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.
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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.
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6
<PAGE>
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.
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TAX-DEFERRED VS. AFTER-TAX SAVING
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<TABLE>
<CAPTION>
$20,000 ANNUAL PAY
After- Tax-
Tax Deferred
------- --------
<S> <C> <C>
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
</TABLE>
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-----------------------------------------------------------
<TABLE>
<CAPTION>
$40,000 ANNUAL PAY
After- Tax-
Tax Deferred
------- --------
<S> <C> <C>
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
</TABLE>
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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.
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7
<PAGE>
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.
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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.
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8
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ACCOUNTS AND ACCOUNTS' STATUS
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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.
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9
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VESTING--OWNERSHIP OF YOUR ACCOUNTS
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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:
------------------------
<TABLE>
<CAPTION>
Completed Years Percent
of Service Vested
--------------- -------
<S> <C>
Less than 2 None
2 25%
3 50%
4 75%
5 100%
</TABLE>
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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.
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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.
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10
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INVESTMENT OF FUNDS
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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:
-------------------------------------------------------
<TABLE>
<CAPTION>
A SAMPLE INVESTMENT ELECTION
(Yours may be different)
Kraft Foods
Your Matching
Contributions Contributions
------------- -------------
<S> <C> <C>
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%
</TABLE>
-------------------------------------------------------
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.
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11
<PAGE>
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.
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12
<PAGE>
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.
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13
<PAGE>
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
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14
<PAGE>
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.
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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.
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15
<PAGE>
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
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Name of Fund 1994 1993 1992 1991 1990/1/
- ------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
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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:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
-4.3% 9.4% 5.8% 14.6% 8.7%
</TABLE>
- ----------
/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.
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16
<PAGE>
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.
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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.
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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.
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17
<PAGE>
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.
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18
<PAGE>
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.
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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;
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19
<PAGE>
. 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.
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20
<PAGE>
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.
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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
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21
<PAGE>
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.
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22
<PAGE>
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.
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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
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23
<PAGE>
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.
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24
<PAGE>
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
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25
<PAGE>
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.
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26
<PAGE>
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.
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27
<PAGE>
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.
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28
<PAGE>
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.
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29
<PAGE>
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
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30
<PAGE>
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:
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31
<PAGE>
. 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.
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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.
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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.
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32
<PAGE>
ADMINISTRATION
- --------------------------------------------------------------------------------
This section provides you with information about how the Thrift Plan is
administered.
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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.
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33
<PAGE>
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.
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Plan Sponsor
Kraft Foods, Inc.
Three Lakes Drive
Northfield, Illinois 60093-2753
(708) 646-2000
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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.
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34
<PAGE>
Employer Identification Number
36-3083135
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Plan Number
125
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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.
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35
<PAGE>
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.
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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.
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36
<PAGE>
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.
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37
<PAGE>
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.
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38
<PAGE>
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.
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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.
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39
<PAGE>
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.
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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
<PAGE>
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.
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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.
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41
<PAGE>
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
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42
<PAGE>
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.
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43
<PAGE>
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.
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44
<PAGE>
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.
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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.
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45
<PAGE>
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.
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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.)
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46
<PAGE>
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.
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47
<PAGE>
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.
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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).
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48
<PAGE>
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.
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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
<PAGE>
Kraft Foods, Inc.
Benefits Department
Three Lakes Drive
Northfield, IL 60093
April 17, 1995
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KGFSPD2000
50
